Ff ASIAN DEVELOPMENT BANK RRP: RMI 32208
REPORT AND RECOMMENDATION
OF THE
PRESIDENT
TO THE
BOARD OF DIRECTORS
ON A
PROPOSED LOAN
AND TECHNICAL ASSISTANCE GRANT
TO THE
REPUBLIC OF THE MARSHALL ISLANDS
FOR THE
OUTER ISLAND
TRANSPORT INFRASTRUCTURE PROJECT
October 2002
CURRENCY EQUIVALENTS
The unit of currency in the Republic of the Marshall Islands is the US dollar.
ABBREVIATIONS
ADB – Asian Development Bank AMI – Air Marshall Islands EPA – Environmental Protection Authority JICA – Japan International Cooperation Agency km – kilometer km2 – square kilometer m – meter MIAA – Marshall Islands Airport Authority MIPA – Marshall Islands Ports Authority MOTC – Ministry of Transportation and Communications MPW – Ministry of Public Works navaid – navigation aid NGO – nongovernment organization O&M – operation and maintenance RMI – Republic of the Marshall Islands UNDP – United Nations Development Programme
GLOSSARY
Atoll Coral atolls are formed from volcanic cones that have subsided and a coral barrier reef has formed at their perimeter; some atolls are completely encircled by reef with no sea outlet, while others are breached by reef passages enabling vessels to enter the lagoon. There are 29 atolls in the Republic of the Marshall Islands of which 22 are permanently inhabited.
Beach channel Usually artificial local widening and deepening between the deeper water of the lagoon or ocean side reef and the beach to enable small boat access.
Docks Berthing facilities for interisland shipping.
Island True isolated islands, with no central lagoon.
Islets The areas of dry land around an atoll’s perimeter are termed islets. They are characterized by being low lying, typically no more than 2 meters above sea level, and narrow; in some cases chains of nearby islets have been connected by artificial causeways.
Jetties Berthing facilities for lagoon boats and interisland ships’ boats.
Pass Deepwater breaks in the atoll ring permitting ships to enter the lagoon; otherwise known as passages.
Rearcart Handcart with tubular steel frame, wooden deck and sides, and pneumatic bicycle tires.
YFU A type of landing craft.
NOTES
(i) The fiscal year (FY) of the Government ends on 30 September. FY before a calendar year denotes the year in which the fiscal year ends.
(ii) In this report, “$” refers to US dollars.
This report was prepared by a team consisting of Luigi Bodda (Mission Leader) and Christophe Gautrot.
CONTENTS
Page LOAN AND PROJECT SUMMARY i MAP v I. THE PROPOSAL 1 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1 A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 3 III. THE PROPOSED PROJECT 6 A. Objective 6 B. Components and Outputs 6 C. Technical Justification 7 D. Cost Estimates 8 E. Financing Plan 9 F. Implementation Arrangements 9 IV. TECHNICAL ASSISTANCE 12 V. PROJECT BENEFITS, IMPACTS, AND RISKS 12 A. Technical Aspects 12 B. Policy and Institutional Aspects 12 C. Poverty Intervention and Social Impact 13 D. Overall Assessment 18 VI. ASSURANCES 19 VII. RECOMMENDATION 20 APPENDIXES 1. Project Framework 21 2. Chronology 25 3. Problems/Constraints Analysis 26 4. Sector/Subsector Analysis 27 5. External Assistance 32 6. Cost Estimates and Financing Plan 34 7. Implementation Schedule 37 8. Nonlending Assistance for Improving the Delivery of Sea and Air Transport Services 39 9. Summary Poverty Reduction and Social Strategy 42 10. Economic Analysis 51 11. Summary Initial Environmental Examination 56 12. Project Implementation Consulting Services 60 SUPPLEMENTARY APPENDIXES (available on request) A. Summary Poverty Reduction and Social Strategy B. Economic Analysis
LOAN AND PROJECT SUMMARY
Borrower The Republic of the Marshall Islands
Classification Poverty classification: Poverty intervention. Thematic: Economic growth.
Environment Category B. An initial environmental examination was undertaken. Assessment Its summary is a core appendix.
Project Description The Project will reduce poverty by improving the safety, reliability, and efficiency of transport services to the outer atolls and islands through construction of navigation aids, small wharves and jetties, airstrip extensions, warehouses, and track improvements. Complementary nonlending assistance will strengthen institutional capacity to manage shipping and air services to the outer islands.
Rationale Thirty percent of the population live in the 18 outer islands in the project area. Communities in the outer islands suffer from physical isolation leading to low incomes, lack of basic services, and poverty of opportunity. The people who live in these outer islands have significantly lower incomes than the national average, and it is estimated that almost two thirds of the population in the project area have an income level below the United Nations Development Programme poverty line threshold of $1 a day.
Transport services provide the lifeline to these outer islands. Shipping brings in essential goods and services, and takes out island produce from which the people earn a substantial portion of their incomes. Shipping also brings in government services and supplies, particularly to schools and health clinics. Shipping provides an essential service to families in transporting children to and from secondary schools and colleges elsewhere in the Republic of the Marshall Islands, and in providing links for everyone to the urban centers and the outside world. Air services provide passenger and freight transport, as well as emergency evacuation services for sick and vulnerable people.
Transport operations are at present complicated by poor infrastructure and facilities in the outer islands. In particular, the sea approaches and landings on coral atolls are often constrained by narrow reef passages, navigation obstructions, and shallow reef flats, making landing difficult. Weather, sea, and light conditions restrict the time available for anchoring and lightering goods and passengers ashore; passengers are subject to greater risk and discomfort; and there is frequent damage to cargo. Navigation aids are almost entirely absent and there are few ship docks or small boat jetties. Where beach landings are required, ii
channels need to be cleared to allow small boats to reach the shore. On land, warehousing for storing goods and local produce for export is required at a central location to improve the efficiency of shipping operations. Most atolls have airstrips, but they are unsealed and often poorly maintained. In some cases, restricted runway length reduces aircraft capacity and range.
Together, these constraints lead to infrequent and unreliable schedules, increased safety risks to passengers and cargo, and added costs to outer island transport. These, in turn, limit the opportunity for social interaction; access to education, health, and business development services; and the ability of public agencies to deliver programs and develop social infrastructure in the outer islands. It also increases the prices of essential goods and discourages production and marketing of local produce, such as copra, fruits and vegetables, fish, and handicrafts.
Objective and Scope The objective of the Project is to reduce poverty through safer, more frequent, and reliable shipping and transport services in the outer islands that will (i) improve access to basic goods and services, and (ii) assist in increasing incomes from the sale of produce and handicrafts from the outer islands in the main centers of Majuro and Ebeye.
The scope of the Project includes the construction, installation, and/or improvement/renovation of:
(i) outer island port infrastructure, comprising docks, jetties, and beach channels; (ii) navigation aids, comprising lit beacons, buoys, and land lights; (iii) improvements to tracks for goods movement; (iv) storage warehouses for concentration of cargo; and (v) airstrip extensions and remedial maintenance.
Cost Estimates The Project is estimated to cost $10.0 million equivalent, of which $6.84 million equivalent (68.4%) is the foreign exchange cost and $3.16 million equivalent (31.6%) is the local currency cost.
Financing Plan Foreign Local Currency Currency Total Cost Financing Source ($ million) ($ million) ($ million) (%) ADB 6.84 0.16 7.00 70.0 Government 0.00 3.00 3.00 30.0 Total 6.84 3.16 10.00 100.0
ADB = Asian Development Bank.
iii
Loan Amount and Terms The Asian Development Bank (ADB) will provide a loan of Special Drawing Rights 5.304 million (equivalent to $7.0 million) from ADB’s Special Funds resources. The loan will be repayable in 32 years with a grace period of 8 years and interest charges of 1% per annum during the grace period and 1.5% per annum thereafter.
Period of Utilization Until 30 June 2007
Estimated Project 31 December 2006 Completion Date
Implementation A project coordination committee will be established to monitor Arrangements project implementation. Consulting services will support preconstruction and implementation activities.
Executing Agency Ministry of Transportation and Communications (MOTC)
Procurement Due to limited competition within the local construction industry, marine civil works and other procurement will be tendered using international competitive bidding in accordance with ADB’s Guidelines for Procurement. Qualified local construction companies will be permitted to tender for the work in their own right or in association with an international partner, either for the main contract or as nominated subcontractors.
Consulting Services International consulting services will be required for:
(i) management of preconstruction site investigation, (ii) environmental investigation and reporting to the Republic of the Marshall Islands and ADB, (iii) engineering design and construction supervision, and (iv) strengthening of MOTC capacity for management of the shipping service franchise scheme and the government shipping service.
Project Benefits and The benefits accrue to three main parties: (i) outer island Beneficiaries residents, who will be able to: (a) access basic services (e.g., basic health and education) and commodities (e.g., staple food, fuels, and other household goods) on a more regular and reliable basis and with more choice and greater competition; (b) more easily and regularly ship handicrafts, fish, and agricultural produce to main centers; (c) increase family incomes, enabling easier payment of school fees and increasing levels of consumption of goods from island stores; (d) have additional income to invest in better housing, household assets, water tanks, and domestic sanitation facilities; (e) reduce their travel times, making the shipping service more attractive and thereby increasing patronage; (ii) the whole population of the Republic of the Marshall Islands, who will benefit from the reduced budgetary costs of providing public services to the outer islands and in iv
running the shipping service as a result of reduced voyage times, increased safety, and less damage to ships and cargo during loading/unloading; these savings will enable more resources to be allocated to priority sectors, including health and education, and to other poverty reduction activities; and (iii) private sector shipping and island traders, who will benefit from a safer, more regular, and more reliable shipping service; competitive pressures between government shipping and private operators will help lower or at least maintain freight costs; and increased reliability and shorter trip times will allow lower stock levels to be maintained and will increase overall profitability of enterprises.
Technical Assistance Nonlending technical assistance (TA) in the amount of $250,000 will be attached to the loan. The quality and cost-based selection method and simplified technical proposals will be used in the consultant selection. The TA will provide assistance to MOTC and Air Marshall Islands for (i) performance monitoring of the private sector shipping services vis-à-vis their contracts and of the government shipping service, (ii) improvement of business and information systems for the government shipping and air services, and (iii) long-term fleet planning.
I. THE PROPOSAL
1. I submit for your approval the following report and recommendation on a proposed loan to the Republic of the Marshall Islands (RMI) for the Outer Island Transport Infrastructure Project. The Project provides for the construction of island docks, jetties, beach channels, navigation aids, runway extensions and onshore supporting infrastructure on 18 outer islands, nationwide. The project framework is in Appendix 1. The report also describes complementary nonlending technical assistance (TA) for improving the delivery of sea and air transport services to help ensure that the full economic benefits of the Project are realized; and if the proposed loan is approved by the Board, I, acting under the authority delegated to me by the Board, will approve the TA.
II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES
A. Performance Indicators and Analysis
1. Overview
2. The RMI comprises 29 coral atolls and five true islands scattered over 1.9 million square kilometers (km2) of the central Pacific Ocean. The atolls are distributed over 900 km from north to south and 1,200 km from east to west in two roughly parallel chains running northwest to southeast—the eastern Ralik Chain and the western Ratak Chain. The total land area of about 180 km2 constitutes only 0.01% of the total geographic area within the RMI’s exclusive economic zone. The population of the RMI from the 1999 population census was 50,840 concentrated in the two main atolls of Majuro (23,676) and Kwajalein (Ebeye) (10,902). The outer islands support populations of between 95 and 2,000 spread over numerous islets, typically with population concentrations of up to 200 per km2. In some cases, individual islets are connected by dry reef at low tide and in a few cases have been connected by engineered causeways.
3. The outer island population subsists on a diet of fish, coconut, breadfruit, pandanus, and other produce, supplemented with imported rice, flour, and sugar. The main cash crop is copra. Other outer island production includes handicrafts, small quantities of fruits and vegetables, and fish for sale in Majuro and Ebeye. Vessels also carry passengers and general cargo to and from the outer islands.
4. The Ministry of Resources and Development is presently investigating opportunities for: diversification of crops and other economic activities, including fruit and vegetable production to enhance atoll diets and to sell in the urban centers of Majuro and Ebeye; increasing fish catches for sale in the urban markets; aquaculture, especially seaweed and pearls; noni fruit production; and ecotourism. It is also investigating the possibility of improving local value added from copra through the production of additional by-products (charcoal, brooms, and coir) for the local market, and through trialing of cold-pressed virgin oil for cooking and cosmetic use. Other research includes intercropping coconuts with corn for animal feed.
2. Poverty
5. The islands of the project area have household incomes well below the national average and reflect the largely subsistence nature of livelihood in the outer islands. Forty percent of households in the project area has incomes of less than $1,000 per annum, and 70% had 2 incomes of less than $3,000. These figures compare with the national averages of 13.6% and 27.5%, respectively. In six of the 18 project islands, the proportion of households with incomes less than $3,000 exceeds 75%. In one island, Lib, it reaches 100%. Only in Jaluit, Utirik, and Wotje do more than 50% of the households have incomes greater than $3,000.
6. The median per capita annual income shows that half of the outer island population was actually earning only $0.62/day. Both measures of per capita income indicate that almost two thirds of the population of the project area had incomes well below the United Nations Development Programme (UNDP) standard threshold of $1 per day, the level that is considered necessary to purchase an individual’s minimum daily nutritional requirements. Within the project area, the islands with the lowest per capita incomes were Lib and Ailuk, at $0.22 and $0.59 per capita per day, respectively. Those with the highest incomes were Jaluit ($1.96 per capita per day), Likiep ($1.81), Maloelap ($1.54), and Utirik ($1.53). On average, there was no significant difference in the per capita incomes between the closer and the more distant islands.
7. In health indicators, fewer than 1% of the households in the project area have piped water, compared to a quarter of those in the other parts of the country. In the project area, wells or rain catchments are the principal sources of water; these are both susceptible to contamination. In respect of sanitation facilities, 58% of households in the project area either have no toilet facilities or use pit latrines. This compares to only 18% in the rest of the country. The poor sanitation and lack of safe water is a primary cause of the high level of diarrheal diseases reported in the outer islands. Diabetes, measles, hypertension, and most recently tuberculosis, are among the other more prevalent diseases reported in the project area.
3. Interisland Transport
8. The islands of the project area are also isolated by distance and by infrequent and unreliable sea transport. While air transport is available, it is at high cost and of limited capacity, particularly for air cargo. This isolation discourages cash production and engagement in the wider national economy. It is difficult to maintain social contacts with other islands, and the delivery of government social and economic development services is costly and constrained.
9. Historically, shipping services have been provided directly by the Government through the Ministry of Transportation and Communications (MOTC) at heavily subsidized freight rates and passenger fares, in recognition of the fact that for many of the outer islands a shipping service is not commercially viable. The Government accepts some subsidy as unavoidable if it is to meet its social and economic objectives of reducing poverty, countering population drift to the main centers, and expanding development opportunities for the outer island population.
10. In 1999, with ADB assistance, in an effort to reduce the public subsidy requirement and to provide opportunities for the private sector to compete in the market, MOTC invited tenders from the private sector to operate shipping services (Appendix 2). A contract was awarded to a private operator and currently MOTC and the private franchisee both operate on the same route on a rotational basis. This competition provides both a check on the private operator and a basis for comparison of the efficiencies of government and private operations.
11. However, the service could be substantially improved at a number of locations that are difficult to service because of tidal restrictions. Often, up to six hours—or half of the tidal cycle— are lost because the water depths are too shallow for small boats to carry cargo or passengers between ship and shore. Another factor is weather, and locations facing the easterly quarter and that are unprotected by land can be difficult to access because of wave action. In many 3 instances, creation or deepening of beach channels, navigation aids1 and marks, new or extended boat jetties, and ship docks would significantly improve ship turnaround times.
B. Analysis of Key Problems and Opportunities
1. Key Problems and Constraints
12. An analysis of problems and constraints is given in Appendix 3. There are physical constraints of sea approaches and berthing at outer island points of call, coupled with the difficulties of sustaining a reliable shipping service where distances are long and transport volumes are low. The institutional capacity for administering shipping service franchises and for operating government-owned vessels is limited, and the need to subsidize the shipping service has been a long-term drain on the government budget.
13. The physical constraints of navigation and landing in the outer islands can be eased by selective provision of marine transport infrastructure, which is the main focus of the Project. Of prime importance is the provision of navigation aids, which will allow ships to safely enter lagoons and approach the landing places under poor daylight conditions and at night. Improvements to landings through ship docks, boat jetties, and beach channels will allow working over a wider range of the tide cycle, ease the manual work involved, allow safer transfer of passengers between ship and shore, and reduce cargo spoilage. Outer island airstrips are generally poorly maintained and, in some cases, short runway length limits take-off weight and aircraft carrying capacity. Runway extensions and surface improvements will both increase transport capacity and reduce aircraft damage, lowering costs. In case of emergency, air transport is the only practical option and for this reason, adequate, well-maintained airstrips are a strategic and lifeline necessity.
14. In several locations, transferring passengers and goods between ship and shore can be inconvenient, time consuming, and even hazardous. While sheltered anchorages exist in some locations so that small boat lighterage is straightforward, in other places onshore prevailing winds and long fetches either across the ocean or wide lagoons, combined with wide and shallow reef shelves, make discharge and embarkation difficult. It is in these locations that the benefits of an improved landing will be the greatest.
15. Experience in the past has been that government-provided shipping has imposed a high cost on the MOTC budget, for several reasons: (i) higher wage rates for public sector employees and little incentive for improved labor productivity; (ii) ships of a size and configuration that are not well suited to the service and that are expensive to run; (iii) diversion of ships from their service schedule by government direction; and (iv) difficulty in mobilizing cash for payment of operating expenses and for periodic maintenance.
16. Experience with the shipping franchise scheme demonstrates that a competitive tendering system to minimize subsidy payments and to remove shipping operations from direct government operation is feasible, but requires some modification. It is important that other government agencies do not operate subsidized shipping services in the franchise area, if the scheme is to succeed. However, there should be freedom for unsubsidized private or local government operators to provide services, as is currently done for atolls close to Majuro.
1 Apart from some existing navigation marks for the main reef passages into Majuro and Kwajalein atolls, there are very few navigation aids for inter- and intra-atoll shipping. A lack of navigation aids limits navigation in many places to daylight hours and favorable tide and weather conditions. 4
17. Air Marshall Islands (AMI) is a small airline, operating only two Dornier 228 aircraft, which are used primarily on outer island services, and one flight a week from Majuro to Tarawa in Kiribati. Historically, AMI has operated international services to Fiji and to Honolulu and has had longer-range passenger and freight capacity. Freight and longer-range passenger capacity to the furthest islands of Bikini and Enewetak is limited, and the airline has been endeavoring to lease a Dash-8 to supplement its service. The airline is short of capital, and the two Dornier aircraft are aging and experience considerable downtime, and will eventually require replacement. The sector analysis is in Appendix 4.
2. Opportunities
18. These infrastructure deficiencies add considerable time to voyages of the field trip vessels as well as exposing vessels and cargo to damage and passengers to risk and discomfort. Poverty reduction will be fostered by improvements to the regularity and reliability of ship visits to each island. This will have the following poverty reduction benefits and opportunities for the communities:
(i) improved availability of services from government agencies, including health and education, will help reduce problems of access to basic services, information, supplies of schoolbooks, and materials and supplies for island clinics, and will assist in the implementation of other outer island projects through better transport of labor, materials, and equipment;
(ii) improved supply and availability of goods from the on-board merchants at more competitive prices with fewer opportunities for island stores to overcharge for goods between irregular ship calls will assist poor families to get better value for their low incomes;
(iii) improved shipping for export of produce from the islands to the markets in Majuro and Ebeye will enable outer island families to increase their incomes and will help create more employment opportunities;
(iv) improved commercial systems for shipping—including recording of cargoes and goods liability regimes and less loss or damage to perishable and other cargoes from poor handling facilities at island wharves—will help address problems with security of cargoes and late payment and will thus assist the poor to maximize the returns from their production; they will also assist in creating a better environment in which private enterprises can be established;
(v) improved safety on board ships from better navigation aids and passenger facilities at the embarkation/disembarkation points at the island wharves, especially for children and the elderly (fatal accidents have occurred at some difficult locations in the past); and
(vi) runway extensions and improved runway maintenance will provide disadvantaged outer island families with (a) safer, more regular, and reliable flights to the main centers; (b) allow higher payloads and increased space for high-value and perishable goods; and (c) provide improved emergency evacuation services as required. 5
19. Specifically, in relation to increasing outer island incomes, the following key benefits will accrue:
(i) more frequent and regular shipping will enable farmers to (i) achieve a more stable income flow from more regular sales; and (ii) stockpile their own product and to sell direct to the agent on the ship rather than to the island buyer, thereby receiving a better “farmgate” price. In the past, irregular shipping has given the island buyer and the island store operators opportunities for paying lower prices to the farmers when cash has been short and credit has been needed; this has penalized the poorest parts of the community who have had no access to other income sources;
(ii) a better farmgate price will increase producer income which, together with better cash flows, will reduce the pressure for higher prices;
(iii) a regular supply of fresh, better quality copra to the oil mill will enable the copra processing and marketing company, Tobolar, to: (a) obtain a higher oil yield per ton of copra; (b) produce a higher quality oil, thereby achieving a price bonus for better color and lower free-fatty-acids in the product; and (c) achieve a lower unit processing cost per ton of throughput (the mill is presently operating at less than 50% of design capacity); and
(iv) a higher tonnage of product will generate higher freight for the ship operators both directly and indirectly as the outer island people will have higher incomes and will therefore purchase more goods from the on-board merchants who, in turn, will pay more freight.
20. The accompanying TA will assist MOTC and AMI in the development and streamlining of operational and management information systems and processes. This will include strategic planning of shipping and aircraft fleet maintenance, retirements, redeployment, and acquisitions.
3. Strategy
21. The ADB country strategy is focused on its overarching goal of poverty reduction. This is being pursued through the following three-pronged strategy of ADB assistance to the RMI. The first prong is to support poverty reduction and the creation of new economic opportunities and improve access to basic social services in the outer islands. The second is to enhance the environment for private sector investment, job creation, and growth.2 The third is to continue to strengthen public sector governance and to enhance public sector productivity aimed at improved delivery of public services.
22. The Outer Islands Transport Infrastructure Project is consistent with the three prongs, focusing on improved public service delivery, poverty reduction in the outer islands, and enhancing the environment for private sector activities. Furthermore, by targeting the marine transport sector and related infrastructure needs, the Project is complementary to other externally financed activities supporting the improvement of education and health infrastructure and the development of solar power facilities in the outer islands. It is also directly linked to ADB’s previous TA to the coconut and fisheries sectors.
2 ADB. 2002 Country Strategy and Program Update for RMI. Manila. 6
23. The Government emphasizes the creation of economic opportunities for the outer island communities as part of the overall National Economic and Social Strategy (NESS I), thereby reducing the pressures for migration to the already overpopulated centers of Majuro and Ebeye. The Government also emphasizes the need to improve transport to and from the outer islands while at the same time reducing the costs of transport subsidies. However, given the remoteness of some of the islands, the Government recognizes that some subsidy element may need to be retained for social purposes. To this end, the Government wishes to increase opportunities for private sector involvement in transport services, while at the same time ensuring long-term sustainability and continuity of the shipping services. It is also a specific government objective that the benefits of infrastructure investment in the outer islands should accrue directly to the outer island communities.
24. Specifically, the Government’s transport sector strategy aims at (i) developing regular and reliable domestic air and sea transport services with minimum government subsidy and using a private/public sector partnership; (ii) strengthening government maintenance of transport infrastructure and regulation of transport safety, and promoting reliability of sea transport schedules; and (iii) encouraging centralization of cargo at outer island points of call where this improves transport efficiency and service reliability. The external assistance to the sector is reported in Appendix 5.
III. THE PROPOSED PROJECT
A. Objective
25. The objective of the Project is to contribute to poverty reduction in the outer islands. This will be achieved by (i) improving transport services to and from the outer islands for the people and their produce, (ii) increasing accessibility to goods and basic services, and (iii) creating opportunities for more diversified economic activities and employment. The Project will help reduce the cost of imported goods to outer island communities, increase the opportunity to earn income, create new employment opportunities, and improve access to basic services, such as health and education. The Project will also reduce the amount of subsidy required to provide outer island transport services, freeing budget resources for further poverty reduction activities and priority sector development, including health and education services.
26. Specifically, the Project will fund selected transport infrastructure, primarily of a marine civil engineering nature, but also including complementary engineering and building works on land, that will yield savings in transport costs and provide safer and more reliable services. In turn, these will encourage increased economic production in the outer islands, will help limit migration to Majuro and Ebeye, and will assist in the delivery of social programs.
B. Components and Outputs
27. The Project will comprise the following components:
(i) landing facilities (ship docks, small jetties, and boat channels) to expedite loading and unloading, and to reduce cargo spoilage and passenger discomfort and injury;
(ii) warehousing, mainly for copra, but also for general inward cargo and with ancillary areas for radio communications, office, and community workroom; and 7
improvement to tracks to facilitate concentration of copra collections and distribution of inward cargo at selected loading points;
(iii) navigation aids to enable access to landing points under low light conditions and at night, improving safety and eliminating overnight delays; and
(iv) extensions and general improvements to selected airstrips where there are runway length constraints.
C. Technical Justification
1. Landings
28. In a few places it would be possible to bring inter-atoll ships alongside for direct cargo and passenger transfer between ship and shore if a dock was constructed or an existing dock extended or repaired. This saves the time required to lighter goods between the ship and shore on small boats, and runs less risk of cargo damage through rough handling, or contact with seawater or rain. It also provides easier embarkation and disembarkation for passengers. However, there are only a few places where there is deep water sufficiently close inshore in a protected situation where docks can be economically built.
29. In a larger number of situations, transfer of cargo has to be by small boat, with the ship at anchor or drifting offshore, either in the lagoon or on the ocean side of the land, depending on access to the lagoon, the width of the reef shelf, and weather exposure. Often, cargo transfer is restricted at low tide, with 4 to 6 hours of potential working time being lost in each tide cycle because of insufficient water depth for the lighters to reach the beach or to navigate shallows between the beach and reef edge. In some circumstances this situation can be improved through clearing of a beach channel, in some cases combined with construction of a protective breakwater with the excavated material, and/or with a causeway extending from the beach and a jetty for small boat use.
2. Warehouses and Tracks
30. Centralization of produce collection to a single location at each island stopping place can be more efficient than the ship’s boats working along the beach, collecting small amounts of produce from individual growers. Successful centralization relies on a number of conditions, including (i) a good landing point that is central to the produce sources on each side, (ii) a central storage facility such as a warehouse, and (iii) a supportive commercial arrangement that makes the centralization effort worthwhile to the grower. In most cases, the natural coral surface is suitable for small pickups and handcarts with only clearing of vegetation required. Occasionally, there will be a need to remove unsuitable material and locally import fill where there is an organic soil cover or where the surface is soft sand. Otherwise, formation and compaction of the surface is all that is required.
3. Navigation Aids
31. Lit beacons are needed to enable nighttime navigation through main reef passages and along inner lagoon routes. Beacons, indicating the position of the main reef passage into the lagoon, are needed for daytime navigation at locations where there are insufficient physical points of reference from the surrounding land above the high water mark and where the passage is either narrow, branching, or bending. The unmarked reef passages can only be 8 navigated safely in daylight and, even then, shoals may not be clearly visible if the weather is overcast or the surface is rough. The primary purpose of lit beacons is, however to provide for safe passage and to save ship’s time by enabling nighttime navigation. These lit beacons would be solar powered to minimize operation and maintenance (O&M) costs.
4. Airstrip Extensions
32. Most atolls and islands have airstrips with weekly services, the traffic confined mainly to official or government passengers and higher-income residents or visitors. Cargo space is limited and, economically, only mail and small high-value and light goods can be transported. While complementing rather than competing with the main seaborne services, the airstrips nevertheless play an important part in the transport system. The work involves clearing or trimming vegetation along the runway and approaches, leveling and compaction of the runway strip, supply of coral material from land-based sources for the runway running surface, edge delineation, installation of wind sock, and construction of small ancillary buildings.
D. Cost Estimates
33. The total cost of the Project is estimated at $10.0 million equivalent. The foreign exchange cost, totaling $6.84 million equivalent, constitutes 68.4% of the total cost, and the local currency cost for expenditures on locally procured items accounts for the remaining 31.6%. The cost estimates include provision for price escalation and physical contingencies and interest on the ADB loan during construction. The cost estimates are summarized in Table 1. The description and cost estimates for individual projects are in Appendix 6.
Table 1: Cost Estimates ($ million)
Item Foreign Local Total Exchange Currency A. Base Costs 1. Docks and Navigation Aids 2.51 1.08 3.59 2. Warehouses, Channels, and Airstrips 0.80 0.74 1.54 3. Mobilization (Establishment) Costa 1.36 0.69 2.05 4. Site Investigation 0.18 0.02 0.20 5. Consulting Services 0.85 0.15 1.00 Subtotal (A) 5.70 2.68 8.38 B. Contingencies 1. Physicalb 0.54 0.23 0.77 2. Pricec 0.51 0.25 0.76 Subtotal (B) 1.04 0.48 1.52 C. Interest During Construction 0.10 0.00 0.10
Total (A + B + C) 6.84 3.16 10.00
a 40% of the base cost. b 15% of the base cost. c Based on a rate of 3% per annum for 3 years. Totals may not add up due to rounding. Source: Asian Development Bank estimates.
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E. Financing Plan
34. It is proposed that ADB provide a loan of $7.0 million equivalent from its Special Funds resources to finance 100% of foreign exchange cost and 5.06% of the local currency cost; the Government will fund 94.94% of the local currency cost.3 The proposed loan is envisaged to have a maturity period of 32 years, including a grace period of 8 years, and will carry interest at the rate of 1% per annum during the grace period and 1.5% thereafter. The Borrower will be the RMI.
Table 2: Financing Plan ($ million)
Source Foreign Local Total ADB 6.84 0.16 7.00 Government 0.00 3.00 3.00 Total 6.84 3.16 10.00 ADB = Asian Development Bank. Source: Asian Development Bank estimates.
F. Implementation Arrangements
1. Project Execution
35. MOTC will be the Executing Agency (EA) for the Project. The secretary, MOTC, will assume overall responsibility for the implementation of the Project and for liaising with ADB. To manage day-to-day implementation, MOTC will establish a project office to be headed by a full- time project manager with qualifications and experience satisfactory to ADB. The office will be adequately staffed at all times with a competent project manager, project accountant, and supporting personnel to undertake day-to-day activities such as recruitment and supervision of consulting services, procurement of goods and services, contract management, accounting and disbursement, records, and reports. The project office will be in operation before loan negotiation and until December 2006, which is a few months after the Project’s expected physical completion date. MOTC will be assisted by consultants in preparing engineering designs, supervising construction, and technical review. The consultants will be selected and appointed by February 2003. A contract under a single contract arrangement for the civil works is expected to be awarded by October 2003.
36. International consultants, who will be engaged by MOTC, will manage the site investigation contract, undertake conceptual design and tender preparation for the main contract, evaluate bids and make recommendations to MOTC and ADB on contractor selection, and supervise construction.
37. It is proposed that a project coordination committee be formed to facilitate exchange of information on the progress of the Project. The committee would include representatives of MOTC, as well as the ministries of Finance, Public Works, Internal Affairs/ Historic Preservation Office, Research and Development, the Marshall Islands Airport Authority (MIAA), the Environmental Protection Authority (EPA), the mayors and local government councils of the
3 The RMI uses the US dollar as its currency. “Local currency costs” in this context mean costs of goods and services that are procured locally. Because of the structure of the RMI economy, such costs have a substantial import component, and therefore a high indirect foreign exchange cost. 10 islands concerned, and other government and nongovernment organization (NGO) personnel as desirable. The committee would meet quarterly and on an ad hoc basis.
2. Implementation Schedule
38. The Project is expected to start in January 2003 and to be completed by 31 December 2006. The implementation schedule, showing the various stages of the Project, is provided in Appendix 7. The length of the construction period is partly determined by weather conditions as well as by the widely dispersed sites. The planned commencement of construction is during the fourth quarter of 2003 with completion by the end of 2006.
3. Procurement
39. All procurement under the Project will be in accordance with ADB’s Guidelines for Procurement. In view of the small number of domestic civil engineering contractors, it is anticipated that the Project will be let as a single major construction contract of about $7.2 million using international competitive bidding (ICB), a two-stage bidding procedure, to provide a contract of sufficient size to encourage competitive tendering from overseas contractors, preferably in association with local contractors. This single contract would cover docks, navigation aids, warehouses, channels, and airstrips.
40. There will be an opportunity for suitably qualified local construction firms to either propose a joint venture with international firms, act as subcontractors, or bid for the main contract. Subpackages of the main contract will include the design and construction of some of the navigation markers, clearing and maintenance of airstrips, and supply of some of the hardware to be fitted to the upgraded and new structures.
4. Consulting Services
41. An international engineering firm will be engaged to act as engineer to the contract and to carry out design, preparation of tender documents and advertising of tenders, bid evaluation and monitoring of the site investigation works, and the main construction contract. A site investigation contract will be let in advance of the main contract and prior to the engineering design. Submarine archaeological surveys will be conducted during this period in areas where there is expectation of submarine artifacts of historic value.
42. A full technical proposal will be used. The consultants will be selected through the quality and cost-based selection method. It is estimated that about 75 person-months of consulting services (43 for international and 32 for domestic consultants) will be required over the project period. The consulting firm is expected to provide secretarial and project accounting services on an intermittent basis over the construction period, in accordance with ADB’s Guidelines on the Use of Consultants.
43. ADB has approved advance action to expedite the recruitment of the international consultants. Contracts with the consultants will be entered into as soon as the loan becomes effective. ADB has informed the Government that advance action does not commit ADB to finance the Project or any part of it.
11
5. Disbursement
44. The loan will be disbursed in accordance with ADB’s Loan Disbursement Handbook dated January 2001, as amended from time to time. For the international consulting services, direct payment procedures will be used.
6. Land Acquisition
45. The Project involves modification to areas below the high water mark within the outer reef of each island or atoll. These areas are seaward extensions of the land ownership boundaries or weto. Land is also required for construction of warehouses and, in a few cases, for development of tracks. Warehouses would be located on land that is currently clear of buildings and none of the proposed works would involve resettlement. Furthermore, the Project has a dozen reserve subprojects (Appendix 6) to replace subprojects if land issues emerge.
7. Reports, Accounts, and Audit
46. The Government has undertaken to make arrangements satisfactory to ADB for monitoring the progress of project implementation. MOTC will provide ADB with quarterly reports covering physical progress, project accounts, and performance indicators. To facilitate postevaluation of the Project, MOTC will provide ADB with a completion report, within 3 months of the physical completion of the Project, on the execution and initial operation of the project facilities, including the costs and compliance with the loan covenants.
47. MOTC will maintain separate project accounts and records, and will provide ADB annually with audited accounts and financial statements related to the Project. The statements will be audited by independent auditors, presented in a format acceptable to ADB, and submitted to ADB within 9 months of the end of each fiscal year. The terms of reference for the independent auditor will be subject to review and approval by ADB. A midterm review is envisaged after 2 years to verify the status of the Project, its achievements against the program, and its costs against the budget.
8. Benefit Monitoring and Evaluation
48. The Government has agreed to undertake, with assistance from the consultants, benefit monitoring and evaluation activities to ensure that the facilities to be improved under the Project are managed efficiently and that their benefits are maximized. The Government and ADB have agreed on the nature of the data to be collected, the methodology for analysis, and the reporting requirements; these are in accordance with ADB’s Project Performance Management System (Operations Manual 22, August 2002).
9. Operation and Maintenance
49. The responsibility for management and O&M of the project components will be assigned under the pertinent line agencies immediately after completion of the Project. These agencies are MIAA (airstrips), MOTC, the Ministry of Public Works, and the Marshall Islands Ports Authority (MIPA) (wharves). It is envisaged that an outer island infrastructure levy applied to inter-atoll shipping on ships docking at Majuro and Ebeye, collected on behalf of the Government by MIPA, will be used to fund maintenance of marine infrastructure and product centralization facilities such as warehouses and tracks, while a surcharge on domestic 12 passenger fares would be levied for airstrip maintenance. The Government has adopted a policy of engaging the private sector for maintenance of government assets.
IV. TECHNICAL ASSISTANCE
50. A TA grant of $250,000 is attached to the loan. The TA will assist MOTC and AMI in improving the delivery of sea and air transport services by developing their business, operational, and management information systems and practice, and in the long-term planning of their fleet maintenance, disposals, and acquisitions. The TA will also assist MOTC in its administration of private sector contracts for shipping services, and in the operation of government shipping. Consultants for the nonlending assistance will be selected through the quality and cost-based selection method. The total cost of the TA is estimated to be $315,000 equivalent, with a foreign exchange component of $235,000. ADB will provide the TA as a grant financed by the ADB-funded TA program to cover the foreign exchange costs and $15,000 of the local cost component. The Government will provide the remaining $65,000. The details of the TA are in Appendix 8.
V. PROJECT BENEFITS, IMPACTS, AND RISKS
A. Technical Aspects
51. Technical risks relate to (i) constructability, (ii) maintenance requirements, and (iii) extraordinary damage from cyclone or tsunami events. The technology for onshore works (warehouses, track improvements, airstrip extensions) is straightforward and within the capability of small contractors or the Ministry of Public Works, assuming appropriate engineering specifications and levels of supervision. Marine works carry more risk with regard to founding conditions for docks and jetties (investigation has been restricted to visual observation and simple soundings in the project preparatory TA), and littoral transport of sediment (although this is mitigated by specifying open structure).4
52. Where isolated cargo transfer platforms on the ocean-side reef edge have been proposed, there is a greater risk in construction, maintenance, and operation of the facility. There may be a need to substitute another project should the design stage site investigation reveal problems that render the proposal technically or economically infeasible. Provision has been made for a number of fully appraised back-up subprojects should this eventuality occur.
53. All ocean-side structures and all navigation aids will be susceptible to damage or loss in the event of a major cyclone event or, for shore structures, a large tsunami. The RMI has a relatively low, but not negligible, risk of cyclone events.
B. Policy and Institutional Aspects
54. The financial and economic benefits of the project rely partly upon the savings that are generated by improved scheduling and fewer delays due to tide, weather, and daylight conditions, being translated into improved ship utilization, lower shipping costs, and more regular and reliable ship calls. To the extent that these occur, the benefits of the Project will be
4 Littoral drift is the movement of sediments caused by wave action along the coastline. On an open coast, a jetty’s structure extends into a body of water, and is designed to prevent such build-up of littoral materials in a channel. 13 captured by the outer island population. This flow of benefits to the outer island people will also rely upon the responsiveness of freight rates and fares to these lower costs, and the Government passing on part of its cost savings to the users of the service.
55. The competitive franchise system for shipping operators and the performance reporting regime proposed for the government shipping service together should reduce the risks of project benefits not being achieved; the proposed nonlending assistance is designed to reinforce the institutional capacity to perform these tasks.
56. There have been past experiences of warehouses remaining unused due to uncertain ownership status and management responsibility. The Project will address this problem by establishing clear ownership of the warehouses (MOTC is the proposed owner), with the ability to contract management to local government or the private sector as circumstances permit.
C. Poverty Intervention and Social Impact
1. Poverty Intervention
57. The outer island communities are the people whose incomes, livelihood, quality of life, and access to services and to greater economic opportunities stand to be most affected by the Project. Where docks, jetties, and beach channels are contemplated, the sites of these facilities are either already in customary use for a similar purpose or are in new locations that are expected to find agreement with the customary owners of land and the coastal zone.
58. At the national level, while the RMI has a relatively high per capita income owing mainly to the historically high levels of financial assistance from the US, outer island populations have significantly lower incomes than either the urban centers or the islands in receipt of compensation payments. Outer islands also have relatively few cash income opportunities, are vulnerable to natural disasters, and are disadvantaged through their isolation. One of the main criteria for project selection has been the destination islands’ relative lower income. The islands selected by the Project have a weighted average share of households with an annual cash income lower than $1,000 ($0.38 per capita per day) of 37.8%, and a weighted average share of households with an annual income lower than $3,000 of 44.3%, against 13.6% and 27.5%, respectively, for the whole of the RMI.5 For the nonproject islands, the respective figures are only 3% below $1,000 and 10% below $3,000. This clearly demonstrates the relative poverty experienced in the islands of the project area.
59. The Project will assist in reducing isolation and lowering transport costs, which are among the necessary conditions for increased economic participation of relatively poor households. The cash income activities of the poor that will benefit from the Project include copra production, fresh fish marketing, surplus island produce marketing (e.g., pumpkins, breadfruit, melons, bananas), and sale of handicrafts. Through reductions in ship operating costs, the Project will help lower passenger fares and freight rates, which will increase disposable incomes for poor outer island residents as well as induce additional economic production. The summary poverty reduction and social strategy is in Appendix 9, and more details are available in Supplementary Appendix A.
60. It has been clearly established that regular and reliable transport services for all forms of produce, general import cargo, and passengers is a key need to support the social and
5 1999 Population and Housing Census. 14 economic welfare of remote and poverty-stricken island populations. On the more productive atolls supporting larger populations, a four to six-week frequency of service is desirable whereas the service over the recent past has been 4 months or longer and erratic. From analysis of past copra production, cargo volumes, and passenger records, it is clear that there is a latent demand for an improved level of service.
61. More frequent and reliable transport services will assist in: (i) improving access for the remote households to all potential pro-poor basic services through (a) easier travel and transport to and from the islands by Ministry of Internal Affairs mobile teams, health and education personnel, and other officials for training, performance monitoring, and public awareness; (b) easier access for supplies of materials and drugs to schools and clinics; and (c) reliable transport for schoolchildren traveling back and forth for the holidays;
(ii) enhancing the opportunity for new ventures to be developed by poor households in the knowledge that transport will be available to ship produce, goods, and/or people in and out on a more regular basis;
(iii) reducing the middleperson’s rent and allow higher assigns for the farm producers and lower prices for the poor consumers in the outer islands;
(iv) implementing other pro-poor development projects, e.g., outer island education, health, and energy sector projects, through improved shipping services for transporting materials and skilled staff;
(v) providing a greater selection of store goods at more competitive prices for people;
(vi) providing a lifeline service to outer islands, since the poor households cannot afford airfares, and any delay or interruption to shipping services places lives and livelihoods at risk;
(vii) slowing the decline in atoll populations, many of them marginally viable even now, and with increasing levels of dependency; and
(viii) increasing opportunities, especially for the poor, vulnerable youth for which the lack of opportunities would otherwise drive poor younger people away from the outer islands in search of jobs.
2. Social Impact
62. Social Services. The proposed Project addresses some important concerns of those ministries responsible for essential, pro-poor social services and outer island development, particularly the Ministry of Internal Affairs, the Ministry of Education, and the Ministry of Health. These ministries require regular contact with, and travel of staff to, the outer islands for the delivery and monitoring of social services. The implementation of these projects will be facilitated by better transport services for the shipment of materials and personnel.
63. Gender Issues. Men of working age tend to look for job opportunities in Majuro and overseas. Women tend to remain in the outer islands to look after the elderly and the younger population, thus increasing the women’s workload in the household as well as in cash- 15 generating activities. There is a division of labor between men and women in island subsistence and income-generating activities of the poor. Women and men both participate in copra production and the cultivation of produce for sale in Majuro and Ebeye.6 Women produce handicrafts, and men are responsible for fishing. The Project will facilitate supply of goods (mostly food) and provision of better basic services for women and the vulnerable groups in the outer islands. There are no sociocultural groups in a vulnerable position in the context of the Project, and ADB’s Policy on Indigenous Peoples will not be triggered by the Project.
64. Cash-Earning Activities. Construction and maintenance of project infrastructure will create some cash-earning activities for the poor in the outer islands. The transport improvements will provide increased opportunities for participation in cash income production that will benefit the poor in the outer islands.
65. Education Issues. The subdistrict centers of Jaluit and Wotje support high schools and draw their students from within the subdistricts, including neighboring atolls, setting up a demand for passenger transport at the start and end of each semester. Schools require inputs of educational materials on a regular basis and, occasionally, building materials. Improved transport will allow greater contact with the isolated schools, thereby helping raise standards through more frequent teacher training and performance monitoring.
66. Health Issues. There are 54 health centers spread through the islands of the project area, each staffed with a health assistant. At present, none of these centers has cold chain facilities. The health assistant provides only basic health care services and none of the centers is equipped to handle surgery or inpatient treatment. The lack of refrigeration and problems with shipping and transport generally often mean that clinics run out of pharmacy medicines and even primary health care is not available or is unsatisfactory. At present, the difficulties in transport mean that only the most serious cases are taken to Majuro or Ebeye for emergency treatment. This means that the treatment is often too late, causing additional suffering and, sometimes, unnecessary deaths to outer island patients. Transport requirements of dispensaries include airfreight of pharmaceuticals and fragile medical equipment, and sea freight of bulky, lower-value and more robust supplies and building materials. More regular and reliable transport will improve lifeline services for the outer islands and will reduce the risk of unnecessary deaths in cases where urgent treatment is required. Infections with human immunodeficiency virus (HIV) and acquired immune deficiency syndrome (AIDS) are increasing rapidly in the Pacific. The construction workers associated with the Project are a potential source of transmission for HIV/AIDS to the RMI. To reduce the risk of spreading HIV/AIDS, the contractor will be required to provide HIV/AIDS education and condoms to the construction workers.
67. Resettlement Issues. The Project will have no direct resettlement effects. In the longer term, successful implementation of the Project will assist in reducing the drift of population to Majuro and Ebeye through improvement of the opportunities in the outer islands for cash- income employment and reduction in the sense of isolation and unreliability of transport links. Before the final list of subprojects is prepared for tendering, on-site investigations will be carried out for each subproject to ascertain that no involuntary resettlement will be involved. In the event that a proposed subproject is found, during site investigation, to involve involuntary resettlement, it may be replaced with a subproject that will be subject likewise to the same on-
6 The men collect coconuts, while both men and women are involved in husking, shelling, and drying. Men dig the land while women are involved in planting and harvesting the produce. 16 site screening process that will not involve involuntary resettlement. MOTC will be responsible for screening the subproject and for obtaining clearance from appropriate agencies and parties.
3. Financial Assessment
68. Full recovery of the capital costs of the Project from user fees is probably unrealistic in view of the limited financial resources of outer island communities. The Government has offered to budget $50,000 per year for the Project’s O&M and to finance any shortfall of funds. Furthermore, the new financial provision of the Compact Agreement with the United States will provide for a trust fund specifically earmarked for infrastructure O&M. However, there should be provision to at least provide a revenue stream that covers the ongoing O&M costs of the Project. It is envisaged that the project infrastructure will be owned by MOTC on behalf of the Government, and that MOTC will be responsible for allocating funds to maintain the facilities in operational condition.
69. It seems impractical to collect revenue from cargo interests or passengers at the outer island ports but, as most inter-atoll shipping originates at Majuro or Ebeye, a levy at these ports of origin is proposed as a means of funding maintenance requirements. It is further proposed that MIPA act as a collection agent for MOTC in return for an administration fee. The levy would probably be on a ship call and/or cargo and passenger throughput basis with the aim of being revenue neutral (i.e., the levy adjusted annually to reflect the medium-term maintenance funding needs).
4. Economic Assessment
70. The economic evaluation of the proposed Project is based on a comparison of the “with” and “without” project scenarios. The components of the Project are integrated and mutually complementary. Providing better navigation aids and marks is insufficient on its own since the benefits of easier access to lagoons provided by the navigation aids can only be realized in full if the vessels can approach closer to shore through cleared passages or come alongside to the island wharves.
71. Without the Project, the inter-atoll shipping services will continue to be subject to nighttime navigation and tidal restrictions that delay or interrupt vessel passage between ports of call, and which cause delay or damage to cargo transfer at ports of call. Incomes for outer island families, being largely dependent on selling produce when the ship calls, will continue to be irregular and uncertain making household budgeting difficult, especially in respect of payments of large items such as school fees. Opportunities for increasing production will be severely constrained. Store good prices will continue to be high as there will be no competition, and choice and availability of goods will be limited. Access to basic services will continue to be restricted, families will not be able to improve their living standards, poverty will get worse, and the poorest families in the country will be further disadvantaged.
72. With the Project, most of these constraints will be overcome. Delays and interruptions to services will be reduced, such that savings can be made in ship operating costs and services provided with fewer vessels. In this case, it has been assumed that redundant vessels would be sold or deployed elsewhere. A case may also be made for savings from the reduced risk of vessels going aground and suffering damage or loss. Where the Project allows ships to lie alongside, there are savings in cargo damage from rough handling and water damage. Finally, the reliability will induce increased economic activity and incremental transport demand. It will enable families to increase their production and generate regular and increased incomes with 17 which they will be able to improve their conditions and standards of living and to meet vital periodic payments such as school fees.
73. The evaluation has been carried out over a 20-year investment period which generally corresponds to the design life of the navigation marks (25 years for civil works and five to 10 years for lights), the jetties (25 years for good maintenance, 15 years for poor maintenance). The Project achieves a 14.5% economic internal rate of return. The sensitivity analysis, given in Table 3, demonstrates that the Project is robust and remains financially viable even with adverse movements in some parameters such as lower project benefits, increase in capital cost, and delay in project implementation.
Table 3: Sensitivity Test Sensitivity Test EIRR Sensitivity NPV Sensitivity (%) Indicator ($ million) Indicator Base Case 14.5 1.33 10% increase in costs 13.0 -1.02 0.58 -5.61 10% decrease in benefits 13.0 -1.02 0.53 -6.01 1 year delay in construction 14.2 1.12 All tests combined 11.3 (0.40) EIRR = economic internal rate of return, NPV = net present value. Source: Asian Development Bank estimates.
74. The Project will contribute both directly and indirectly to poverty reduction in the project areas. The discounted cash-flow analysis indicates that a total of around one third of the average annual benefits will accrue directly to the people of the outer islands through (i) better market access and increased incomes from local produce sales (10% of total benefits); (ii) passenger time savings, increased safety, and less cargo damage (25% of total benefits); and (iii) income earned from employment during project implementation. Less cargo damage will also benefit merchants, the public, and ship operators. Reduced operating costs, accounting for around half of the total benefits, will accrue directly to ship operators and to government through reduced operating subsidies. Outer island communities will benefit indirectly through (i) lower real fares and cargo charges; (ii) lower prices for store goods from on-board merchants resulting from increased competition; and (iii) less risk of stock loss and damage through poor handling.
75. Many unquantifiable benefits accruing to the outer island communities have not been incorporated into the cash-flow analysis. In particular, these are the social and welfare benefits to be derived from (i) improved access to medical, education, public awareness, and other government service teams; (ii) easier and more frequent interaction with other parts of the country; and (iii) better outer island project implementation, as supplies and technical support can more easily be sent to project sites. The economic analysis is given in Appendix 10. More details are available in Supplementary Appendix B.
5. Environmental Assessment
76. The EPA is the agency charged with environmental reporting and clearance of engineering works. The Project is classified Category B, and an initial environmental impact examination was completed in accordance with ADB’s Environmental Impact Assessment Guidelines for Infrastructure Projects and the requirements of government legislation and regulations, specifically the National Environmental Protection Act 1984; the Coastal 18
Conservation Act 188 (Section 27); and the Environmental Impact Assessment Regulations, 1994, issued by the EPA.
77. The nature and scale of the works proposed are generally judged to be of relatively low environmental impact, for the following reasons:
(i) works that have the potential to set up high water velocities through constriction of flow, or connection of water bodies with significant hydraulic gradients, have been avoided;
(ii) projects are mainly sited at locations already used as landings for passenger/cargo vessels, and therefore are already subject to minor levels of pollution (pristine locations have been avoided in most cases); and
(iii) the extent of coastline modification is very small in comparison with the coastline length, and works are situated either where there are high rates of water exchange and flushing within lagoons or on the ocean-side where the reef shelves quickly to deep water.
78. Effects on coral reef systems will be minimized by designing minimal footprint structures where possible (e.g., cantilever piles instead of mass gravity structures for reef pass navigation aids), utilizing existing channel locations where possible, limiting excavation and deposition work on the seabed to a minimum (breakwaters have not been pursued for this reason), and requiring contractors to implement a construction and environmental management plan. The summary initial environmental examination is given in Appendix 11.
D. Overall Assessment
79. Transport services serve as the lifeline to the outer islands. Shipping brings in essential goods and services and takes out island produce from which the people earn a substantial portion of their incomes. Shipping also brings in government services and supplies, particularly to the schools and health clinics. Shipping provides an essential service to families by transporting children to and from secondary schools and colleges elsewhere in the RMI, and in providing links for everyone to the urban centers and the outside world. Air services provide passenger and freight transport as well emergency evacuation services for sick and vulnerable people.
80. The major risks associated with project implementation and subsequent realization of project objectives include failure of the Government to implement an efficient system of contracted shipping services or to optimize the size and number of vessels in service. Other risks include failure to implement a satisfactory system for funding maintenance of the Project and prudent and timely allocation of the revenue for maintenance operations when required. There are some risks that elements of the infrastructure, in particular the proposed warehouses, will be unused due to lack of satisfactory local management and commercial arrangements. There are also risks of vandalism, neglect, or diversion for other purposes of detachable and mobile equipment provided for the project (e.g., navigation lights). The project design incorporates safeguards to minimize these risks. Furthermore, lending (of which the project implementation consulting services terms of reference are found in Appendix 12) and nonlending technical assistance will assist the implementation of the Project. 19
81. The civil works under the Project for the most part involve improvement to outer island landings that are already utilized by inter-atoll shipping and in most cases have already introduced some physical modification to the natural environment. Where beach channels are provided, in several cases, this involves the widening and deepening of an existing channel. Similarly, most of the jetty facilities comprise repair or extension to existing structures. For those cases where physical modification is proposed at new sites, the initial environmental examination has concluded that none of the project components will involve major adverse environmental effects.
82. Notwithstanding ADB’s internal requirements for environmental assessment, many of the subprojects will require environmental permits from the EPA under the RMI’s environmental legislation. By law, this environmental analysis must be undertaken by specialists independent of the project designers and constructors. Provision has been made in the project costs for the engagement of a specialist consultant to undertake this work.
VI. ASSURANCES
A. Specific Assurances
83. The Government has given the following assurances, in addition to the standard assurances, which have been incorporated into the legal documents:
(i) The Government will finance any shortfall of funds, after the collection of user levies, to ensure effective and efficient O&M of the Project over its economic life of 25 years.
(ii) The Project will be implemented in accordance with existing environmental laws, regulations, and standards of the RMI, and ADB's guidelines, in particular, ADB's Environmental Guidelines for Selected Infrastructure Projects.
(iii) The Government will ensure that the subprojects do not result in any losses that would trigger ADB’s Policy on Involuntary Resettlement. Before tendering of the civil work contract, on-site investigations will be carried out for each subproject in order to ascertain that no involuntary resettlement will be involved. In the event that a proposed subproject is found, during site investigation, to involve involuntary resettlement, it will be replaced with a subproject that will be subject likewise to the same on-site screening process and that will not involve any involuntary resettlement. MOTC will be responsible for the subproject screening and for obtaining clearance from appropriate agencies and/or parties.
(iv) The Government will maintain a dialogue with ADB on the status of relevant transport issues, including maritime safety, tariffs, and user charges, sector funding, institutional organization, and external assistance.
(v) The Government will budget adequate counterpart funding for project implementation in accordance with the financing plan, as well as an annual appropriation of $50,000 for the O&M of the Project’s infrastructure.
(vi) The Government will ensure that construction workers associated with the Project are provided with HIV/AIDS education and protection. 20
(vii) The Government will ensure that at least one private operator will participate in the shipping franchise service.
(viii) The Government will maintain, during project implementation, an adequately staffed project office headed by an appropriate project manager with qualifications and experience acceptable to ADB.
VII. RECOMMENDATION
86. I am satisfied that the proposed loan would comply with the Articles of Agreement of ADB, and acting in the absence of the President, under the provisions of Article 35.1 of the Articles of Agreement of ADB, I recommend that the Board approve the loan in various currencies equivalent to Special Drawing Rights 5,304,000 to the Republic of the Marshall Islands for the Outer Island Transport Infrastructure Project from ADB’s Special Funds resources, with a term of 32 years, including a grace period of 8 years, and with an interest charge at the rate of 1% per annum during the grace period and 1.5% per annum thereafter, and such other terms and conditions as are substantially in accordance with those set forth in the draft Loan Agreement presented to the Board.
MYOUNG-HO SHIN Vice-President
31 October 2002
Appendix 1 21
PROJECT FRAMEWORK
Design Performance Monitoring Assumptions Summary Indicators/Targets Mechanisms and Risks
Goal Poverty reduction in the Raise personal and Asian Development Bank Long-term failure of copra to outer islands through household income (ADB) poverty assessment provide an economic base improvements to levels in the project reports and reviews for the outer islands transport infrastructure area above the United Nations Development Census surveys of Unavailability of income- Programme (UNDP) income, vital statistics, and earning substitutes international poverty social development line of $1/day by 2010 indicators Other sectors fail to implement complementary Raise human Household income and programs to raise outer development indicators expenditure surveys island human development to levels of the main indicators centers Consumer price surveys
Reduce disparity in prices of store goods from on-board merchants between outer islands and Majuro
Increase employment and reduce levels of unemployment in the islands of the project area
No increase in price subsidy to copra from budget
Purpose/Objectives Provide transport Shipping Service: Voyage logs and reports to Failure to reduce/reconfigure infrastructure to • achieve frequency of Ministry of Transportation the shipping fleet to take improve effectiveness 6–8 weeks and Communications advantage of savings of outer islands cargo • reliability +/- 1 week (MOTC) and passenger • hold fares and freight Government policy bars transport rates in real terms MOTC voyage reports private sector entry and • reduce average competition Improve safety, voyage times by 30% MOTC reports and annual regularity, and reliability • reduce nonworking accounting Shipping service fails to take of sea and air transport days in port to 30 per opportunities for voyage time services year for each vessel savings and fails to meet • reduce Majuro load performance targets/contract Reduce net costs to the and discharge times Government of outer by 30% Institutional/political barriers island sea and air • reduce net annual to staffing and management services shipping cost to changes, or downsizing government by 25% 22 Appendix 1
Design Performance Monitoring Assumptions Summary Indicators/Targets Mechanisms and Risks Air Transport: • achieve a net surplus Air Marshall Islands (AMI) Office of Planning and on operations flight logs and annual Statistics inadequately • achieve a full-cost reporting resourced or not competent recovery position to undertake surveys • maintain one service Office of Planning and per week minimum to Statistics surveys of copra outer islands volumes and goods prices • reduce administrative and volumes in total and and overhead costs per head by 25% Outer Islands: • prices of goods no more than 10% above mainland prices
Outputs Technical Assistance: • Advice and Successfully tender at Consultants’ technical Lack of interested bidders assistance to MOTC least one private sector assistance (TA) reports for shipping service on shipping shipping contract for 2002–2005 period MOTC annual statement MOTC and/or AMI of intent and statement of unreceptive to advice and Monitoring systems for service performance assistance due to lack of private sector and political commitment, government shipping shortage of staff time, services operations protectiveness, or lack of confidence in the TA staff Staffing structure and business systems for government shipping operation established— commercial, financial, and information technology systems
Complete a plan for ship maintenance and disposal/replacement of unsuitable, surplus, or economically obsolete tonnage
• Advice and Strategic development AMI annual report on assistance to AMI on plan for AMI covering operations and financial air transport management and position staffing structure, commercial systems, operations, and aircraft fleet
Progressive implementation of plan Appendix 1 23
Design Performance Monitoring Assumptions Summary Indicators/Targets Mechanisms and Risks Infrastructure: • 4 new, repaired, or Appoint project extended docks engineers by 1st quarter Monthly project High establishment costs • 7 beach channels 2003 implementation progress and associated risks— • 153 navigation aids reports tracking tenders too high or with • Commission site achievement of project unacceptable tags 16 warehouses or st warehouse repairs investigation by 1 performance • 4 improved tracks quarter 2003 Archeological surveys do not • 2 runway/airstrip compromise sites Complete design and extensions and nd remedial works prequalification by 2 Satisfactory weather during • 1 copra conveyor quarter 2003 construction
Obtain consents by 3rd No disputes over land or quarter 2003 location
Obtain international Government agreement with competitive bidding Tobolar; access maintained (ICB) tenders and to Delap wharf for other award construction users contract by 4th quarter 2003
Complete physical works by 3rd quarter 2006 Inputs TA consultants and Appointment of ADB consultant selection Advice/assistance counterpart staff competent consultants process inappropriate for the with the correct mix of conditions or not taken up by skills with an Required reporting stages MOTC and/or AMI appreciation of the and ADB management of history, problems, and consultants under the TA operating environment of transport services in ADB project processing the country and subregion Project implementation progress reports
Implementation Timely selection and Project accounting and Counterpart staff available consultants and appointment of management and competent counterpart staff consultants by Government; Contractor quality Process not delayed availability of suitable assurance systems unnecessarily by regulatory counterpart staff authorities
Consultants work on Ministry of Public Works Contractors are technically consent applications quality assurance systems and financially competent and designs, documents produced Government provides timely on time and within budget allocation and budget Ministry of Public Works
24 Appendix 1
Design Performance Monitoring Assumptions Summary Indicators/Targets Mechanisms and Risks
satisfactorily constructs that part of the work Civil and building Main construction contractors contract completed on time and under budget
Ministry of Public Salaries, equipment, Works construction materials under own forces or contract Works contract completed on time and under budget
Appendix 2 25
CHRONOLOGY
March 1994 TA 2068-RMI, Transport Infrastructure Development Project, for $600,000, was approved on 11 March 1994.
August 1995 The project report submitted in August 1995 gave recommendations for investment in marine, road and air transport infrastructure, mainly for main port and airport works. Included were outline recommendations for outer island transport infrastructure improvements. A project loan was not proceeded with at that time as the Republic of the Marshall Islands (RMI) was undergoing a period of economic transition as a result of the imminent cessation of United States government Compact Agreement financial assistance and Asian Development Bank (ADB) efforts at that time were directed toward improving fiscal management capacity.
September 1995 TA 2756-RMI, Institutional Strengthening of the Transport Sector, for $575,000 approved on 8 September 1995, oversaw the formation in 1997 of two self-funding government authorities, the Marshall Islands Port Authority (MIPA) and the Marshall Islands Airport Authority (MIAA), and a road trust fund for road maintenance cost recovery.
January 1997 Loan 1513-RMI, Public Sector Reform Program, for $12.0 million, was approved on 30 January 1997.
March 1998 TA 2994-RMI, Coconut Sector Development Strategy, for $70,000, was approved on 10 March 1998, copra being the main export product from the outer islands. The report endorses the private sector shipping franchise scheme.
June 1999 An extension to TA 2756-RMI provided assistance on the design and implementation of a competitive shipping franchise scheme, resulting in the award of a contract to a private sector operator commencing in October 1999.
September 2000 TA 3506-RMI, Preparing the Outer Island Transport Infrastructure Project, for $340,000, was approved on 29 September 2000.
November 2001 The TA commenced in May 2001 and a draft final report was submitted in November 2001. Tripartite meetings were held in July and December 2001. A list of outer island transport infrastructure works was agreed, from which a project of value $10 million would be drawn.
December 2001 A fact-finding mission for the proposed loan project was fielded in December 2001. A memorandum of understanding signed by the Minister of Transport and Communications agreed on the scope of the Project and a series of policy actions to be taken prior to management review and loan negotiation.
April 2002 The 2002 country programming mission reviewed the progress on policy actions since the fact-finding mission. While progress had been made on institutional development, on limiting prices charged for merchant goods, and on providing a rotation of shipping services between the government and the private sector operators, there had been no action on inviting interest or developing contract conditions for a new round of private sector shipping service franchises. Agreement was reached on a revised program for these and other actions.
Expressions of Interest called from private operators for tendering to supply shipping services at the end of the existing contract period
June 2002 Management review meeting for the Project.
August 2002 Appraisal mission.
26 Appendix 3
PROBLEMS/CONSTRAINTS ANALYSIS
Less public sector Poverty of opportunity PROBLEMS Income poverty on budget support and lack of access to
outer islands available for other services on the outer government programs islands
High costs and few or Limited opportunity IMMEDIATE single suppliers of and high cost of CAUSES imported goods; extending social and limited market access economic development for sale of island services; limited social production; limited contact with diversification Majuro/Ebeye opportunity
Government subsidies to shipping, aviation, and copra price support while world SEA TRANSPORT prices low AIR TRANSPORT SECONDARY Shipping services CAUSES inefficient and not cost Low capacity and high effective; irregular and GEOGRAPHIC cost of air services; unreliable services; Widely dispersed atolls some service infrequent and long and islands with long disruptions passages for ocean crossings and passengers small populations
CONTRIBUTING INFRASTRUCTURE INFRASTRUCTURE CONSTRAINTS Many ports of call; no Large number of navigation aids; limited airstrips poorly and sometimes unsafe maintained; occasional landings; inadequate closures; runway storage and length restrictions on distribution services in some cases
NATURAL SYSTEMS Tidal, weather, and LANDFORM daylight constraints on Limited land area on access by sea islets and length for airstrip construction Appendix 4 27
SECTOR/SUBSECTOR ANALYSIS
A. Sector Description
1. Transport Planning and Coordination
1. Several government agencies and special purpose authorities share responsibility for the transport sector. The Ministry of Transportation and Communications (MOTC) is formally at the apex of transport administration but does not have any responsibilities with regard to roads and road traffic. Its planning role is limited to ports and shipping and, to a lesser extent, civil aviation. Its policy formulation role is relatively small. Essentially, MOTC is responsible for the regulation of domestic and overseas shipping, organization of the operation of the government shipping fleet, and regulation of air safety through the Department of Civil Aviation. Road traffic regulation and fire services are the responsibility of the Commissioner for Public Safety. Kwajalein Atoll, although subject to the Republic of the Marshall Islands (RMI) government administration, in practice maintains a high degree of autonomy, with Kwajalein Atoll Development Authority and the Ebeye Port Commission having significant roles in the transport sector.
2. Transport infrastructure is provided and maintained by the Marshall Islands Port Authority (MIPA) and the Marshall Islands Airport Authority (MIAA) in respect of main ports (Majuro, Ebeye, and Jaluit) and Amata Kabua International Airport (Majuro). Outer island airstrips and roads are built and maintained by the Ministry of Public Works (MPW) while outer island marine infrastructure construction is undertaken by the private sector, under written or unwritten contracts, directly to government agencies such as the Marshall Islands Marine Resources Authority (MIMRA) or the local government.
2. Transport Infrastructure
a. Ports
3. Operation of the main ports is now the responsibility of MIPA, the result of restructuring initiatives recommended and assisted by the Asian Development Bank (ADB). MIPA controls the operation of Delap and Uliga ports on Majuro, Jabwor port on Jaluit Atoll and, nominally, of the port of Ebeye. Apart from the MIMRA fishing jetties, outer island jetties and landings are not under any formal control with regard to their operation or maintenance, although local government councils have a natural interest in the adequacy of the facilities provided.
4. MIMRA operates fish bases, some with jetties or pontoons, funded by the Japan International Cooperation Agency over a 10-year period at Arno Atoll (Ine and Arno), Likiep, Ailinglaplap Atoll (Buoj), Namu Atoll, and Aur Atoll (Tabal). A new facility is soon to be constructed at Maloelap Atoll (Taroa). The facilities provided vary but can include a building with chiller room, office, and equipment store. At Arno, Ine, Buoj, and Likiep there is a jetty for small boats to carry local fish catch to Majuro or Ebeye and, in some cases, a smaller jetty for use by local fishermen has been provided but apparently never used. Namu has a pontoon, while Tabal has no jetty and the facility planned for Tabal is similar.
5. Apart from the MIMRA jetties and the dock at Jabwor, the outer atolls generally have no other jetties or beach ramps to support passenger and cargo movements. Exceptions are Bikini, Enewetak, and Rongelap where there has been substantial new construction as part of the rehabilitation of these atolls and preparation for rehabilitation by the displaced former residents 28 Appendix 4 and their descendants. There are a few locations where wartime jetties and seaplane ramps are usable or could be made usable.
b. Shipping
6. Shipping is the dominant mode of transport between the main centers and the outer atolls. Historically, MOTC operated three Micro class passenger cargo vessels of 56 meters length that were part of a larger fleet distributed among the United States former trust territories at the time of independence. These vessels were phased out of operation between 1995 and 1998. The service was supplemented by a new vessel in 1996, the Juk Ae, which operated until it was lost in 1998, and by a larger sister ship the Ribuuk Ae in 1996 which is still in service, but which was under repair between 1998 and January 2001.
7. Following recommendations of an ADB-funded TA project,1 MOTC contracted Pacific International Inc. to operate a cargo/passenger service to a group of atolls for a three-year term, using the Mercy K, a 42 meter dredger converted to carry cargo and passengers, which commenced service in October 1999. This was supplemented by the Ministry of Resources and Development’s landing craft Jeljelet Ae chartered by MOTC from June 2000 to January 2001.
8. In early 2001, under Taipei,China funding, MOTC acquired three vessels to provide a government shipping service. These are the Landrik and Litakbouki, both general passenger/cargo vessels and the Jobake, a small tanker vessel. The first two vessels, together with the Ribuuk Ae, since returned to service, are intended for deployment on contracted services to private operators, which together with the service provided by the Mercy K, will provide a comprehensive service to most atolls and islands. The operators have all been selected and are Marshall Islands trading companies. A smaller passenger cargo vessel, the Bokenieb, is intended to be run as a government-operated service to the more outlying and smaller population atolls in the Western region. This vessel was transferred to MOTC by the Marshall Islands Development Bank. Some minor modifications have been made under Taipei,China funding.
c. Civil Aviation
9. AMI is the only domestic carrier and has a fleet of two Dornier 228 twin engine turboprop aircraft (approximately 10 years old), together with a BN Islander which it acquired in 2000 but which has yet to be brought into service. The Dorniers are at a stage where they require heavy maintenance so that they can continue in service, and the company expects that this will give an expected further economic life of 10 years. The Dorniers fly domestic sectors mainly at a weekly frequency, apart from Kwajalein (5 days a week) and Jaluit (twice a week), together with a weekly service to Tarawa (Kiribati). The Director of Civil Aviation reports to the secretary of MOTC and is responsible for aviation regulation and safety.
B. Government Policies and Plans
10. There is no current formal statement of government policy in the transport sector. However, the following general policy principles for national development, for the transport sector and in relation to the outer islands appear to be accepted.
1 ADB. 1995. Technical Assistance to the Republic of the Marshall Islands for Institutional Strengthening of the Transport Sector. Manila. Appendix 4 29
11. General policies—improved self-reliance, stabilization of government finances and improved financial management; efficiency within the Government and freedom of the public service from undue political interference; encouragement of the private sector; and establishment of an intergenerational trust fund.
12. Outer islands—capacity building for outer island local governments to be better able to manage their affairs and to be accountable for expenditure; devolution of responsibility to local governments for public asset maintenance once capacity and accountability are assured; and establishment of outer island trust funds to provide a more secure financial base for social programs.
13. Transport sector—development of reliable domestic air and sea transport services with minimum government subsidy and using private/public sector partnerships; strengthening of government maintenance of transport infrastructure and regulation of transport safety; promotion of reliability of sea transport service schedules; and encouragement for centralization of cargo at outer island points of call where this improves transport efficiency and service reliability.
C. Lessons Learned
14. Experience with the shipping franchise scheme demonstrates that a competitive tendering system to minimize subsidy payments and to remove shipping operations from direct government operation is feasible but that financial capacity may be a barrier to entry. In such a situation the Government’s move to acquire new vessels and lease these to the private sector is a rational one, in that it allows smaller companies to enter the market without having to face the large capital outlay of vessel purchase. However, it is important to ensure that such arrangements do not advantage operators who lease back a government vessel over those who supply their own. It is likewise important that other agencies of government do not operate subsidized shipping services in the franchise area, if the scheme is to succeed.
15. Another aspect of the shipping franchise service that requires review is the creation of local monopolies where a single operator is contracted to service an island group over a full three-year contract period and the monopoly position this can create in the supply of imported merchandise. This is particularly so when the shipping operator is also a local merchant company. Rotation of service areas is a way of avoiding this tendency, and the tendering should be broadened to include overseas operators.
D. Asian Development Bank Sector Strategy and Policy Dialogue
16. With Japanese assistance in the road sector and proposed assistance from Taipei,China for improving airport and aviation related infrastructure, ADB is focusing its attention on the port sector in the outer islands and related infrastructure needs of the outer islands. Such a strategy avoids duplication and is directly linked to ADB’s support to the coconut and fisheries sectors. This is consistent with ADB’s poverty reduction strategy by improving infrastructure in the more vulnerable outer islands.
17. ADB’s policy dialogue with the Government has covered (i) investment priorities and poverty focus, (ii) creation of opportunities for the private sector to participate in the domestic shipping service, (iii) institutional strengthening within MOTC for shipping service operational and financial management, and (iv) cost-recovery principles and mechanisms. An action plan was agreed for implementation prior to loan approval. 30 Appendix 4
1. Investment Priorities and Poverty Focus
18. The priorities of the Government are to return the benefits of the infrastructure investment to the outer islands. Project benefits will accrue directly to the users of the transport services in the form of time savings, improved regularity and reliability, safety in embarkation/ disembarkation, and reduced cargo damage. However, the larger portion of benefits arise as savings in ship delay that must be allowed to flow through into a smaller shipping fleet and/or increased services if these benefits are to be captured. There is a risk that the operating efficiencies will be wasted on additional slack time in port, particularly if there is limited commercial discipline in the operation of the service.
19. Policy dialogue with the Government has focused on ensuring, first, that project benefits are captured and, second, that the benefits are passed on to the inhabitants of the outer islands. Ensuring the efficiency of the shipping operation and flexibility to adapt to changing market conditions is recognized as being essential to the former objective, and a system of performance monitoring and target setting is to be introduced for the government shipping operation. This will include a start-of-year “statement of intent” prepared by the shipping unit within MOTC in which the performance indicators and targets for the year will be agreed with the Minister, and an end-of-year “statement of service performance” that reports on the degree of achievement of the targets and corrective actions where problems have been encountered.
20. Navigation Aids. Apart from some existing navigation marks for the main reef passages into Majuro and Kwajalein Atolls, there are very few navigation aids for inter- and intra-atoll shipping. A lack of navigation aids limits ship passage in many places to favorable tide, weather, and daylight conditions. Construction of solar-powered lit beacons at the main reef passes, within the lagoons, and at landing points will enable substantial savings in ship operating time and either a reduction in the fleet size required to service the islands or an increase in the service frequency, or both.
21. Docks, Jetties, and Boat Channels. These facilities will be improved at a number of locations where large volumes of produce and passengers are loaded, or where there are substantial concentrations of population that are difficult to service because of tidal restrictions. Often up to six hours, or half of the tidal cycle, is lost because the water depths are too shallow for small boats to carry cargo or passengers between ship and shore. Another factor is weather, and locations facing the easterly quarter and unprotected by land can be difficult to access because of wave action. The solutions to these problems are to excavate small boat channels across reef flats, to build ship docks or boat jetties, or combinations of these according to the nature of the site.
22. The largest time savings can be achieved by building a ship dock at which the larger inter-atoll vessels can berth and transfer passengers and cargo directly to land, thereby avoiding the need to use small boats. There are a few locations where existing jetties that have been damaged, become silted, or were constructed originally for shallow draught boats, could be repaired and/or extended to enable the jetty to be returned to use, or to allow larger vessels to lie alongside.
23. Warehousing. Concentration of cargo to a single point, where a dock, jetty and/or boat channel is provided, allows copra and other produce to be accumulated prior to ship arrival, rather than putting ashore for small quantities at many locations which is costly on ship time. This requires warehouse storage, which can also be used for essential goods, and can house Appendix 4 31 other community facilities, such as communications equipment and workrooms. A supportive system for ownership, management, and upkeep of each warehouse is also required.
24. Tracks. Unpaved roadways are useful in some locations to enable small pickup movement of passengers, produce, and other goods to the centralization point. In most cases, some form of track already exists and all that is needed is some clearing and building up of the running surface with naturally occurring coral from sources on land.
25. Airstrip Extensions. The Project includes a small number of airstrip extensions where aircraft currently have to operate at reduced payload, where there is traffic and development potential, and where the extensions can be made at modest cost and without adverse social or environmental effects.
2. Private Sector Participation in Domestic Shipping
26. Experience in the past has been that government-provided shipping has imposed a high cost on the MOTC budget, for several reasons: (i) higher wage rates for public sector employees and little incentive for improved labor productivity, (ii) ships of a size and configuration that are not well suited to the service and that are expensive to run, (iii) diversion of ships from their service schedule by government direction, and (iv) difficulty in mobilizing cash for payment of operating expenses or for periodic maintenance.
27. The thrust of advice from ADB technical assistance over a 6-year period has been that the Government should exit from shipping operations altogether and, where necessary, provide for noncommercial services to the outer islands through a competitively bid private sector franchise scheme. Practical experience with such a system has shown that it does work in practice but that the tender conditions may be in need of refinement and there may be a shortage of interested private sector bidders, although this may be more due to the private sector’s distrust that government will not unfairly compete than a true absence of interest.
3. Institutional Strengthening within MOTC
28. MOTC is in the process of reorganizing its internal structure and capacity for shipping service operational management. It has established the shipping operation as an individual unit within the Ministry with all functions carried out internally. It has been agreed with MOTC that the possibilities for efficiently outsourcing shipping operational functions such as the booking system and financial accounting should be reviewed, prior to loan approval.
29. Systems for recording ship movements, cargo and passenger volumes, and associated payments are still under development. The project preparatory technical assistance has recommended the form of operational data collection and monitoring that is required, both for management information and for benefit monitoring and evaluation, and the required systems will be progressively developed to a tested operational condition before loan approval.
4. Cost-Recovery Principles and Mechanisms
30. ADB has discussed, with the Government, the establishment of a trust account from which, as a minimum objective, the operation and maintenance (O&M) costs of the maritime and associated onshore infrastructure would be met. A more desirable objective would be full recovery of capital and O&M costs over the economic lifetime of the assets. The trust account 32 Appendix 4 would receive revenue from transport user levies, supplemented if necessary from government funds. 31. It is anticipated that the account would be held by the Ministry of Finance, and the revenue collected by an agent, such as the Bank of Marshall Islands or MIPA, with funds disbursement authorized against a program of maintenance needs and tendered rates submitted by the responsible government agency. Ownership of the maritime assets would be vested in a government agency, such as MIPA, which would be responsible for drawing up an annual maintenance program. Ownership of the copra warehouses could be vested in MOTC, which would assume similar responsibilities. Appendix 5 33
EXTERNAL ASSISTANCE
A. Asian Development Bank Country Lending and Technical Assistance
1. The Asian Development Bank (ADB) has provided 11 loans totaling $71.125 million to the Republic of the Marshall Islands (RMI) since it joined ADB in April 1990. Of these, seven are complete, and the remaining loans are under implementation; Ebeye Health and Infrastructure is due for completion in 2002. Technical assistance (TA) grants totaling $19.585 million for 40 TAs have been provided as of December 2001. ADB has provided two sectorwide advisory technical assistance projects to the transport sector, the Transport Infrastructure Development Project (TIDP) and Institutional Strengthening of the Transport Sector (ISTS).
Table A5: List of Asian Development Bank Loans to the Republic of the Marshall Islands
Loan Date of Board Loan Amount Number Project Name Approval ($ million)
1102 Fisheries Development 26 Sep 1991 6.950 1218 Emergency Typhoon Rehabilitation Assistance Program 28 Jan 1993 0.500 1249 Basic Education Development 9 Sep 1993 8.000 1250 Majuro Water Supply 9 Sep 1993 0.700 1316 Health and Population 22 Sep 1994 5.700 1389 Majuro Water Supply and Sanitation 29 Sep 1995 9.200 1513 Public Sector Reform Program 30 Jan 1997 12.000 1694 Ebeye Health and Infrastructure 12 Aug 1999 9.250 1791 Skills Training and Vocational Education Project 29 Nov 2000 6.825 1828 Fiscal and Financial Management Program 7 Jun 2001 4.000 1829 Fiscal and Financial Management Program 7 Jun 2001 8.000 Total 71.125 Source: Loan, TA, and Equity Approvals Database, ADB.
B. Asian Development Bank Transport Sector Lending and Technical Assistance
1. Transport Infrastructure Development Project
2. The TIDP1 TA proposed a 10-year infrastructure development program for road, sea, and air transport, together with proposals for policy and institutional change in the sector. The infrastructure investment projects were focused on the main ports of Majuro and Ebeye and the international airport at Majuro, and were aimed at rehabilitation, repairs, and limited upgrading. A small program of investment in outer islands infrastructure was also recommended. The proposed loan project did not proceed due to the fiscal crisis experienced by the RMI in 1996/97, to which the ADB responded by forming a policy advisory team and a public sector reform program loan.2
3. The policy and institutional review under the TIDP recommended the establishment in practice of the Marshall Islands Port Authority (MIPA), a new Marshall Islands Airport Authority (MIAA), each of which was to be a self-financing, government-owned, commercial enterprise. A dedicated road maintenance fund was also recommended.
1 ADB. 1994. Technical Assistance to the Republic of the Marshall Islands for the Transport Infrastructure Development Project. Manila. 2 ADB. 1997. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Republic of the Marshall Islands for the Public Sector Reform Program. Manila. 34 Appendix 5
4. The TA recommended that the Government introduce a shipping franchise system, whereby private sector operators would tender for fixed-term service contracts in return for payment from Government, with the bidder requiring the lowest payment being awarded the contract. This was proposed as a method of reducing the cost burden of the domestic shipping service on the public sector budget, while at the same time opening up new opportunities for the private sector to engage in the domestic shipping market.
2. Institutional Strengthening of the Transport Sector
5. The ISTS provided TA for the establishment of MIPA, the legal basis for which was already in existence but had not been implemented. Assistance was given in establishing a constitution and board of directors, drafting a corporate plan, transferring assets and liabilities from MOTC, and developing port management systems and a staff training program. Formation of MIPA removed the commercial functions of port ownership and operation from the policy and planning role of MOTC. MIPA was expected to finance its operations from user charges, removing this cost from the public sector.
6. Establishment of MIAA was on similar principles but required new legislation, which was duly enacted. MIAA was encouraged to be self-funding, although this was likely to be more difficult than for MIPA, in view of the heavy asset reinvestment program required in future years. The third element of the TA was a road trust fund to collect road user revenues and apply these to road maintenance and traffic enforcement, again with the objective of removing costs from the public budget. All three of these project components were successfully completed.
7. An extension to the ISTS provided assistance to MOTC in setting up the shipping franchise scheme in 1998, with tenders invited within the RMI. Two bids were received, one bidder providing its own vessel and the second bidder offering to use one of the government vessels. The second offer was not taken up as the government vessel became unserviceable at the time. A mixed system of the private sector franchise operator on one service route and the government shipping service on other routes has operated since 1999.
C. Other External Assistance to the Transport Sector
8. The RMI has received recent external assistance from Japan and Taipei,China for road and airport development. Repaving of Majuro main road was funded under Japan grant assistance, while Taipei,China funded the paving of Majuro secondary urban roads, completed in 2001. Taipei,China has also provided grant assistance to the Marshall Islands Development Bank used in part to purchase three new interisland ships, two passenger/cargo vessels, and a small fuel tanker. Taipei,China has also provided grants of $100,000 to each island local government council which, in some cases, has also been used for vessel purchase. Taipei,China is also expected to be a source of grant funding for airport extensions and paving at the subdistrict centers of Jaluit and Wotje. Finally, a United States Department of Agriculture community facilities grant has funded the purchase of small pickup trucks for the outer islands and two school buses for Majuro and Ebeye, at $140,000 in FY2001.
Appendix 6 35
COST ESTIMATES AND FINANCING PLAN
1. The total cost of the Project is estimated at $10.0 million equivalent. The foreign exchange cost, totaling $6.84 million equivalent, constitutes 68.4% of the total cost, and the local currency cost for expenditures on locally procured items accounts for the remaining 3.16%. The cost estimates include provision for price escalation and physical contingencies and interest on the Asian Development Bank (ADB) loan during construction.
Table A6.1: Summary of Cost Estimates for Selected Projects
Region Atoll/ Location Cost Description Island ($’000) C Ailinglaplap Buoj 500 Extend MIMRA jetty 65 m, build medium warehouse Woja 200 Enlarge ocean side channel, 120 m long, small warehouse Offshore 75 Navaids at entrance and in lagoon C Jabat Is Jabat 30 Repair warehouse roof, land light C Namu Namu 60 Small warehouse Offshore 200 Navaids at entrance and in lagoon Loen 60 Small warehouse E Arno West Pass 45 Deepen 200 m reef channel, place excavated material beside Malel 450 Dock, causeway, and large warehouse, 5 km track improvements Bikarej 80 Ocean side channel 40 m long to island off beach Offshore 175 Navaids at entrance and in lagoon Ine 120 Airstrip upgrade to 3,000 ft E Mili Offshore 85 Navaids at entrance and in lagoon Mili 380 Warehouse repairs (new roof) and airstrip upgrade to 3,500 ft N Ailuk Offshore 120 Navaids at entrance and in lagoon N Aur Aur 0 Medium warehouse Tabal 50 Repair warehouse Offshore 50 Navaids at entrance and in lagoon N Likiep Offshore 50 Navaids at entrance and in lagoon N Maloelap Airok 60 Small warehouse Taroa 550 Extend WWII dock 90 m, small warehouse, 1 km new track Kaben 0 120 m beach channel, small warehouse Offshore 95 Navaids at entrance and in lagoon N Mejit Is Mejit 490 Reef platform for ship dock N Utirik Offshore 80 Navaids at entrance and in lagoon N Wotje Wotje 95 Medium warehouse Wormej 75 Small warehouse, 1 km new track Offshore 25 Navaids at entrance and in lagoon S Jaluit Jaluit 90 Deepen/lengthen existing channel Imiej 100 Jetty addition, medium warehouse Imroj 30 Small warehouse Offshore 200 Navaids at entrance and in lagoon S Namdrik Narmej 0 Deepen existing beach channel Namdrik 150 Deepen existing beach channel W Lae 65 200 m beach channel, navaids W Ujae 150 400 m beach channel, navaids W Wotho Offshore 40 Navaids at entrance and in lagoon Majuro Delap 100 Copra conveyor and new access road to wharf face Total Base Cost 5,125 Mobilization Cost 2,050 (40% of base cost) Subtotal 7,175 Engineering, 17% 1,220 (investigation, design, and supervision) Subtotal 8,395 Contingencies 1,605 Total, Selected Projects 10,000 MIMRA = Marshall Islands Marine Resources Authority, navaid = navigation aid, WWII = World War II. Source: Preparing the Outer Island Transport Infrastructure TA final report. 36 Appendix 6
2. In the event that the site investigation phase discloses unforeseen technical or environmental problems with any of the identified projects, the following reserve projects have been identified, one or more of which could be substituted or added:
Table A6.2: Summary of Cost Estimates for Reserve Projects
Region Atoll/ Location Cost Description Island ($’000) C Ailinglaplap Jeh 500 Ship dock and medium warehouse C Jabat Is Jabat 150 Enlarge beach channel 120 m, 1 km track improvements C Lib Lib 130 Enlarge ocean side channel, 120 m long, land lights C Namu Namu 30 2 km new track Loen 200 4 km track improvements, airstrip upgrade to 3,500 ft E Mili Enajet 130 Medium warehouse, 2 km track improvements N Ailuk Eneje Pass 40 Clearance of obstacles at pass Ailuk 40 Widen existing beach channel N Aur Aur 40 2.5 km of track improvements Tabal 25 New track for 1.5 km N Likiep Likiep 220 Extend MIMRA jetty 12 m, small track warehouse to dock N Maloelap Taroa 100 Airstrip extension, upgrade to 3,500 ft Kaben 140 Airstrip upgrade to 3,800 ft N Utirik Utirik 150 Widen/deepen beach channel, clear coral heads, airstrip extension and upgrade to 3,300 ft N Wotje Wotje 430 Extend seaplane ramp and build new dock S Ebon Jittoen 440 Ship dock, small warehouses S Jaluit Jabwor 95 Medium warehouse Jaluit 30 2 km track improvements Imiej 80 5 km new track Imroj 15 1 km new track Mejrirok 60 Small warehouse Narmej 60 Small warehouse W Kwajalein Mejatto 270 250 m ocean side reef channel, land lights W Lae 60 200 m beach channel W Ujae 110 400 m beach channel Total Base Cost 3,545 Mobilization Cost 1,415 (40% of base cost) Subtotal 4,960 Engineering, 15% 745 (investigation, design, and supervision) Subtotal 5,705 Physical Contingency, 15% 535 (15% of base cost) Total, Reserve Projects 6,240 MIMRA = Marshall Islands Marine Resources Authority, navaid = navigation aid. Source: Preparing the Outer Island Transport Infrastructure TA final report.
3. The cost estimates allow for establishment of 40% of the base cost of construction. This high establishment figure is due to the remote and widely dispersed nature of the construction work and, in the case of marine works, periods when construction will not be possible due to sea conditions.
4. It is proposed that ADB provide a loan of $7.0 million equivalent to finance 100% of the total foreign exchange cost and 5.06% of the local currency cost; and the Government will fund 94.94% of the local currency cost.1 The proposed ADB loan, from the Special Funds resources, is proposed to have a maturity period of 32 years, including a grace period of 8 years, and will
1 The Republic of the Marshall Islands uses the US dollar as its currency. “Local currency costs” in this context means costs of goods and services that are procured locally. Because of the structure of the RMI economy, such costs have a substantial import component, and therefore, a high indirect foreign exchange cost. Appendix 6 37 carry interest at the rate of 1% per annum during the grace period and 1.5% thereafter. The Borrower will be the Republic of the Marshall Islands.
Table A6.3: Estimated Financing Plan ($ million)
Source 2003 2004 2005 2006 Total Government 0.25 1.00 1.00 0.75 3.00 Asian Development Bank 0.50 3.00 3.00 0.50 7.00 Total 0.75 4.00 4.00 1.25 10.00 Source: Asian Development Bank estimates.
38 Appendix 8
IMPLEMENTATION SCHEDULE
Year 2002 2003 2004 2005 2006
Quarter III IV I II III IV I II III IV I II III IV I II
Appraisal
Loan approval
Site investigation
Engineering
Loan effectiveness
Prequalification
Tendering
Supervision
Construction
Note: Schedule assumes advance action.
Appendix 8 39
NONLENDING ASSISTANCE FOR IMPROVING THE DELIVERY OF SEA AND AIR TRANSPORT SERVICES
A. Introduction
1. During the 2002 Asian Development Bank (ADB) country programming mission to the Republic of the Marshall Islands (RMI), the Government, through the Minister of Transportation and Communications (MOTC), requested technical assistance (TA) to improve the operational and commercial systems of MOTC and Air Marshall Islands (AMI) to enable improved effectiveness and efficiency of outer island for sea and air transport services delivery.
2. In a memorandum of understanding (MOU) between the Government and ADB signed in Majuro on 23 April 2002, the Minister concurred with the content, financing, and timing of the TA. A concept paper for the TA was attached to the MOU.
3. The TA is included in the project framework in Appendix 1. The proposed assistance is included in the 2003–2004 pipeline and would be implemented in parallel with the Outer Island Transport Infrastructure Project.
B. Issues
4. The RMI's many small and widely dispersed outer island communities are served by subsidized shipping services operated partly by the Government and partly under private sector contracts. AMI, which is government owned, operates small aircraft to outer island airstrips. These remote communities have limited resources and experience poverty of opportunity and relative income poverty from their isolation. The transport services are critically important lifelines but impose a large burden on public finances, which the Government is willing to support, but which needs to be contained.
5. In 1999, following advice and assistance from ADB, the Government issued tenders for private sector operation of shipping services under a subsidized competitive franchise arrangement. One contract was entered into with a private operator who supplied his own vessel, while a second contract was not taken up due to unavailability of the government vessel that was to have been made available under lease. Subsequently, the RMI was gifted three vessels by Taipei,China, which it has operated in parallel with the private sector contracts.
6. While greatly improved from before 1999, there are problems with the current arrangement, both with aspects of the private operator’s contract conditions and performance, and with the Government's own shipping operations. On the private sector side these include overly high prices for goods sold from the ship at outer islands, the standard of passenger facilities, and the maximum freight rates charged, which are viewed as too high. On the Government's side there are concerns about the cost of the service stemming partly from a fleet that is probably too large, slow turnaround and slack time in port, insecure provision for ship maintenance, and no long-term fleet planning. The Government also needs to develop its shipping, commercial, operating, and management information systems to efficiently perform its own functions and to monitor the private sector contracts.
7. AMI is a small, undercapitalized, government-owned airline, and provides the only air services to the outer islands using two aging Dornier 228 turboprop aircraft, which have experienced considerable downtime and which are due for major overhaul. The air links to the outer islands are important lifelines for government administration, and for social and economic 40 Appendix 8 development. The airline faces strategic decisions on its future fleet and operational planning, and its business systems and management need to be streamlined.
C. The Proposed Technical Assistance
1. Purpose and Output
a. Purpose
8. The Project will complement the accompanying loan, the purpose of which is to improve the efficiency and reliability of outer island transport through selected physical infrastructure improvements—navigation aids, wharves and jetties, warehouses, track improvements, and airstrip extensions.
9. The Project will assist the Government in the financial and operational management of interisland shipping and air transport, including private sector participation, to achieve more financially sustainable and cost-effective services at lower levels of subsidy, releasing funds for other social and economic programs. It will assist the loan project achieve its economic rate of return objectives by encouraging better fleet configuration and utilization and in taking maximum advantage of the efficiency gains provided by the infrastructure improvements.
b. Expected Results
10. Government shipping service and private sector shipping contracts:
(i) further development of the management information systems needed to enable the MOTC shipping operation to function as an efficient government-owned enterprise; (ii) implementation of systems for operational monitoring of shipping contracts and MOTC's shipping operation; and (iii) improved long-term fleet management.
11. AMI:
(i) an assessment of the market position and strategic outlook for the airline; and (ii) review and improvement of the airline's operational management, and financial accounting and commercial systems.
c. Deliverables
12. These include:
(i) reports on project performance and baseline report on benefit monitoring for the Outer Island Transport Infrastructure Project; (ii) annual statements of intent and statements of service performance for the MOTC shipping operation, and improved annual reports for AMI; (iii) new and improved business and information systems for the MOTC shipping operation and AMI; (iv) long-term plan for utilization, maintenance, disposal, and replacement of the government shipping fleet; and (v) a strategic plan for the future direction of AMI. Appendix 8 41
2. Cost and Financing
13. A budget of $250,000 is proposed from ADB resources. The financing plan for the TA is shown in Table A8.
3. Implementation Arrangements
14. MOTC will be the executing agency for the shipping component of the TA and AMI for the aviation component. The secretary, MOTC and the board of AMI will each appoint a project manager for their respective components of the technical assistance.
15. It is estimated that around 15 person-months consulting (7 person-months international and 8 person-months domestic) will be required. The consultants will be selected through the quality and cost-based selection method and the simplified TA submission in accordance with ADB's Guidelines on the Use of Consultants and by other arrangements satisfactory to ADB.
16. International consultant inputs will be required intermittently over an 18-month period in the areas of (i) shipping commercial operations, ship maintenance/survey, and management information systems; and (ii) aviation commercial operations, aircraft engineering, and management information systems. Domestic consultants will be recruited to support the Project in the areas of accounting, management information systems and information technology. Terms of reference for consultant inputs are in Appendix 12. The consultants are expected to begin work on the Project within 30 working days of the signing of the contract.
17. TA outputs will be directly applied in business activities of MOTC and AMI. Reports will be available as examples for similar conditions elsewhere in the region.
Table A8: Cost Estimates and Financing Plan ($'000)
Foreign Local Total Item Exchange Currency Cost A. Asian Development Bank Financinga 1. Consultants a. Remuneration and Per Diem i. Shipping Specialist-Team Leader ($4,000 x 10 person-months) 80.0 0.0 80.0 Aviation Specialist ($3,000 x 20 person-months) 60.0 0.0 60.0 b. International and Local Travel 55.0 10.0 65.0 c. Reports and Communications 10.0 2.0 12.0 2. Equipmentb 5.0 0.0 5.0 3. Contingencies 25.0 3.0 28.0 Subtotal (A) 235.0 15.0 250.0
B. Government Financing 1. Office Accommodation and Transport 0.0 20.0 20.0 2. Remuneration and Per Diem of Domestic Consultants (MIS/IT Specialist and Accountant) 0.0 35.0 35.0 3. Others 0.0 10.0 10.0 Subtotal (B) 0.0 65.0 65.0 Total 235.0 80.0 315.0
IT = information technology, MIS = management information system. a Financed by the Technical Assistance Special Fund. b Equipment includes one personal computer, one printer, and software. Source: Asian Development Bank estimates. 42 Appendix 9
SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY
A. Target Groups and Beneficiaries
1. The project area consists of 19 islands, 16 of which are atolls with lagoons and three (Jabat, Mejit, and Lib) are single reef islands. There are six other inhabited islands not included in the project area as these are either in receipt of special compensation funds (Kili, Bikini, Rongelap, and Enewetok) or are the major urban centers (Majuro and Kwajalein). The islands in the project area itself have also been analyzed in relation to their proximity to Majuro since this provides a focal point for transport and markets. The six closest islands are Arno, Mili, Jaluit, Aur, Jabat, and Ailinglaplap; these are referred to as the “closer islands.” The remaining 13 islands in the project area are the “distant islands.”
2. The primary target group is the population of the 19 outer islands of the project area. These account for 30% of the total population. The people of the outer islands have the lowest incomes in the country (two thirds of the population in the project area, the beneficiaries, have an income level below $1 per day) and least access to basic services and economic opportunities. Nearly all households on these islands are semi-subsistence and low income, and are considered poor. The few households not considered poor are those with a wage-earning member, almost all of whom are government employees. Improvements to the transport infrastructure, and thus to transport services, will benefit the poor outer island people directly. The improvements will also bring indirect benefits to all the people in the country, as transport services cover all islands and general efficiency gains will be enjoyed by all transport users. Furthermore, improved transport will bring benefits to all the people of the country by increasing budget resources, through lower transport costs and subsidies as well as allowing improvements to service delivery, which could be used to further poverty reduction and development programs.
3. The target group comprises all relatively poor households, all of whom are current and potential users of transport services, and are reliant on essential, pro-poor social and development services provided by others who are the direct users of transport services, and households and businesses that could benefit or be adversely impacted by changes in access to, from, and around the outer islands. Subgroups among the target population are:
(i) social and community services and private households in respect of building materials, fuel, and other supplies; (ii) the population of the outer islands as consumers of imported staple foods such as rice, flour, and sugar; (iii) passengers to, from, and between the outer islands, including school children; and (iv) consignees of fish, island produce, and handicrafts for sale in Majuro and Ebeye; and copra growers and traders.
B. Poverty Status of the Outer Islands
4. Health. All outer islands have a dispensary (health clinic); on the atolls, this is usually located at the main center of the atoll group. Although it was noted during the consultation visits that some dispensaries have not been completed (Jabat, Buoj on Ailinglaplap, and Bikirij on Arno). There are 54 health centers spread through the islands of the project area, each staffed with a health assistant. At present, none of these centers has cold chain facilities, although a United Nations project is about to provide solar power for lighting, refrigeration, water pump, and Appendix 9 43 radio to 11 of the centers. The health assistant provides only basic health care services and none of the centers is equipped to handle surgery or inpatient treatment. The lack of refrigeration and problems with shipping and transport generally often mean that clinics run out of pharmacy medicine and even basic treatment is unavailable or unsatisfactory. At present, with the difficulties in transport, only the most serious cases are taken to Majuro or Ebeye for emergency treatment; consequently treatment is often too late causing additional suffering and, sometimes, unnecessary deaths to outer island patients.
5. Relative poverty is indicated by the fact that less than 1% of the households in the project area have piped water compared to a quarter of those in other parts of the country. In the project area, wells or rain catchments are the principal sources of water, and these are both susceptible to contamination. In respect of sanitation facilities, 58% of households in the project area either have no toilet facilities or use pit latrines. This compares to only 18% in the rest of the country. The poor sanitation and lack of guaranteed safe water are a primary cause of the high level of diarrheal diseases reported in the outer islands. Diabetes, measles, hypertension and, most recently, tuberculosis are among the other most prevalent diseases reported in the project area.
6. Infrequent and unreliable transport means that even when medical teams go to the outer islands they are often unable to undertake all the treatment required in the time available between island stops and individual voyages. The Ministry of Health is hoping to overcome some of these problems by supporting a proposal for a medical mission-sponsored mobile “hospital ship” which will tour the outer islands providing regular medical and surgical services and specialist dental and eye care. The operation and safety of this vessel, which is expected to be staffed by volunteers and funded by US charities, will be greatly facilitated by the improvements to island transport infrastructure under the Project.
7. Education. All outer islands have primary/elementary schools. Only three of the outer islands have secondary schools—Ailinglaplap (private), Jaluit (public), and Wotje (public). Secondary education is organized on a regional basis, with students traveling to and from the high schools where they board for the school year. This sets up a peak in the demand for sea transport between the home island and the islands with high schools. Irregular and unreliable shipping therefore causes inconvenience and family disruption when children are stranded at holiday times.
8. The literacy rate for the outer islands as a group was reported as 95% in the 1999 census compared with 97% in the RMI. Ailuk and Lib have much lower literacy rates with 85% and 89%, respectively. Aur, Lae, Likiep, and Mejit on the other hand recorded the highest literacy rates at 99%, a higher rate than that for the RMI as a whole.
9. Three percent of the outer island population have not received any education. Mejit and Utirik have twice this rate with 6% of their populations not completing education at any level. About a quarter of the population had attained a Grade 8 education, the equivalent of completion of primary or elementary school. This figure is higher in Lib and Moloelap, with a third of the population of each island attaining education to Grade 8 level.
10. Fifteen percent of the population completed Grades 9 through 11 (secondary or high school) with a range across the outer islands from 9% (Jabat and Lae) to 17–19% (Ailinglaplap, Ebon, Jaluit, and Wotje). The higher figures recorded in Jaluit and Wotje are unsurprising considering the location of public high schools at these two subregional centers. Mejit is the only island in the project area that records more than 10% graduating from high school (Grade 12). 44 Appendix 9
For all other of the outer islands between 3% (Ailuk and Namdrik) and 8% (Ebon, Jabat, and Jaluit) had graduated from Grade 12. Ujae was the only island that did not record anyone graduating from high school. Less than 1% of the population had attained a tertiary degree or qualification.
11. Household Facilities. There is a general pattern of relative poverty or disadvantage for households in the islands of the project area in relation both to those in the nonproject islands and the overall national averages. Within the project area itself there is also a pattern of relative disadvantage between the six islands closest to Majuro (Arno, Ailinglaplap, Aur, Mili, Jabat, and Jaluit) and the 13 more distant islands. This is primarily a reflection of their proximity to Majuro and the more frequent transport services provided by small private vessels.
12. Less than 1% of households in the project area own any form of motorized vehicle although handcarts are more common. Not surprisingly, ownership of canoes is more widespread with 28.7% of households reporting ownership. This compares with a national average of 16.3% ownership. Within the project area, 30% of the households in the “close six” owned canoes compared to 27.5% of those in the “distant 13.” While none of the households on Lib and only 10.2% of those on Wotje reported canoe ownership, some 59% of households on Lae had canoes.
13. With 41% of households in the project area not owning a radio, compared to 28% nationally, considerable importance is attached to the visits of the Ministry of Internal Affairs mobile teams and their awareness and public education programs. In the distant islands, almost 45% of households are without radios compared to 37% of those closer to Majuro. Lib, followed by Ailuk, are the most disadvantaged islands with 86.7% and 70.5% of households respectively not having a radio. In contrast on Namdrik only 20.3% are without radios.
14. Water and Sanitation. Water and sanitation facilities are also areas of poverty and disadvantage for the outer islands and this is reflected in the high incidence of diarrheal diseases. In the project area, 58% of households are without proper toilet facilities. In Lib, no household has a proper toilet, however only 13% are without such facilities on Jabat. Only a few households on Jaluit, representing less than 0.5% of all households in the project area, have piped water compared to a national average of 14.3%. Well water is used by 9% of households in the project area. In the distant islands the proportion is 14.2% compared to only 4.1% in the close islands and to a national average of 3.4%. Household rainwater catchment is the primary source of drinking water for households in the project area. On Wotho, Lib, and Jabat all households rely on rainwater as do more than 90% of the households on eight other project area islands. Well water supplies are fragile sources and are easily contaminated, while reliance on rainfall becomes a problem in many of the outer islands during periods of drought.
15. The household characteristics described indicate the relative disadvantages and poverty experienced by households in the project area. Ownership of household assets, access to safe water and proper toilet facilities, and the availability and use of electricity for cooking and lighting are all much worse in the project area than in the country as a whole. This suggests that living conditions are generally poor and that the lack of incomes constrains families from acquiring household assets and improving their living conditions. The data also suggest that households in the islands most distant from Majuro experience the greatest level of poverty in the country. The most distant islands will be the islands to benefit most from the Project since they are the ones that have the least regular and least reliable transport services at present.
Appendix 9 45
C. Project's Impact on Poverty
16. The impact of the project on outer island communities will be primarily through improvements to the regularity and reliability of ship visits to each island which will have the following poverty reduction benefits to the outer island communities:
(i) improved supply and availability of goods from the on-board merchants at more competitive prices with less opportunities for island stores to over-charge for goods between irregular ships calls—this will assist the majority of households in the targeted islands who are poor to get better value for their low incomes; (ii) improved availability of services from government agencies, including health and education, Ministry of Internal Affairs and other departments and agencies that travel on field trips—this will help reduce problems of access to basic services, information, supplies of school books and materials and supplies for island clinics and will assist in the implementation of other outer island projects through better transport of labor, materials and equipment; (iii) improved shipping for export of produce from the islands to the markets in Majuro and Ebeye—this will enable poor outer island families to increase their incomes; it is estimated that incomes could increase by 20% from increased copra production alone (again, the majority of poor households depend on minimal cash incomes from the production of copra); (iv) improved commercial systems for shipping, including recording of cargoes and goods liability regimes and less loss or damage to perishable and other cargoes from poor handling facilities at island wharves—this will help address problems with security of cargoes and late payment and will thus assist the poor to maximize the returns from their production; it will also assist in creating a better environment in which private enterprises can be established; (v) improved safety on board ships from the better navigation aids (navaids) and passenger facilities at the embarkation/disembarkation points at the island wharves, especially for children and the elderly (fatal accidents have occurred at some difficult locations in the past); (vi) runway extensions and improved runway maintenance will, for the poor, disadvantaged outer island families, (a) provide safer, more regular and reliable flights to the main centers; (b) allow higher payloads and increase space for high value and perishable goods; (c) provide improved emergency evacuation services as required; and for Air Marshall Islands (AMI), they will enable operation and maintenance costs to be contained.
16. For the whole population of the RMI the benefits of the project will include:
(i) reduced costs and greater efficiency in providing services to the outer islands, especially in relation to the field trips and the supply of staff, materials and equipment to health clinics, schools, and island projects; (ii) reduced budget costs for outer island shipping and air services and in subsidies to copra producers; these savings will make available more resources for priority sectors, including health and education, which will help further reduce the poverty of opportunity of the people in the project area; (iii) less, or at least a slowing in the rate of migration from the outer islands to the urban areas and a consequent minimizing of the likely costs of additional urban infrastructure and services. 46 Appendix 9
17. The impact on government and NGO services will be to relieve the costs, staff time, and uncertainty associated with trying to deliver essential, pro-poor, public services to the outer islands. This will allow saved time and money to be put to productive use and raise the reliability and productivity of social programs. Problems currently experienced are:
(i) The Ministry of Internal Affairs—staff cannot visit regularly due to the irregular shipping service; lengths of stay are indeterminate and staff time is wasted; hence trips are made less frequently than they should. The Ministry of Internal Affair's mobile community development team tries to visit 7 islands a year in response to requests from local governments but cannot achieve its targets; expensive special charters or air travel can be required. (ii) The Women's Development Office (WDO) works closely with two NGO groups, Women United Together in Marshall Islands (WUTMI) and the Marshall Islands Handicraft Association (MIHA) in the support of women's development, particularly in the development of the handicraft industry. Lack of transport is a major impediment to marketing. (iii) The Ministry of Education (MoE) requires regular contact with the outer islands in order to complete annual monitoring and training programs; the cost of flights precludes regular monitoring and the field trip schedule is not frequent enough to be used for this purpose. Irregularity of the field trip vessel and security of supplies on board are significant problems. The schedule, even when adhered to, is not synchronized with the school terms and often teachers, students, and materials arrive after the school year has commenced. MoE avoids the theft of educational materials by sending staff members along with the materials to ensure their safe arrival at the outer island schools. This takes staff away from their regular duties for several weeks. Transport of secondary school students is a difficult exercise and often MoE needs to recruit other vessels such as PWD's YFUs to assist. MoE also needs to transport food to the secondary boarding schools on a regular basis. Often schools run out and MoE has to charter a vessel to transport additional or top-up food supplies. A more regular field trip schedule would be beneficial as MoE could send food supplies on a regular basis and secondly would not have the large up-front costs of providing food for 3 or 4 months at a time. (iv) Proposed Women's & Youth Training Center—ADB has funded the development of a Women's & Youth Skills Training Center based in Majuro. The project focuses on upgrading existing skills training into a comprehensive and integrated training system. The target beneficiaries of the project are the women and youth of the outer islands and will seek to provide skills training that will improve income-generating capabilities. Initially the project will train 800 women, 600 youths, and 150 people who have dropped out of high school. For women to be able to fully utilize the opportunities provided by the Center, affordable, regular, and reliable transport services between the outer islands and Majuro will be essential. First, women cannot be away from their homes and families for too long and this requires a service that can bring women from the outer islands to Majuro and return within about a week. Second, women will require regular support visits from Center, WUTMI, and WDO staff when first establishing small businesses. (v) Health Services Delivery—the Department of Health (DoH) is an office within the Ministry of Health & Environment (MoH&E), which operates two hospitals, one in Majuro and the other in Ebeye, as well as 60 health clinics/dispensaries in the outer islands. The dispensaries are only capable of handling basic health care as Appendix 9 47
they often do not have electricity and are only equipped with rudimentary plant. DoH also provides a traveling clinic, which services the more remote islands. In emergencies the outer island dispensary will arrange a medi-vac—by either an AMI flight or chartered boat depending on the seriousness of the condition—and this is charged to the MoH&E budget. For regular transport of medical supplies DoH will reserve space on scheduled flights and use shipping services for the transport of larger items. It should be noted that the shipment of larger items is only required for the construction (or refit) of dispensaries and thus DoH is not a regular user of the field trip service. (vi) WUTMI is an NGO, first established in 1987, but has only been able to meet and organize on an irregular basis due to lack of funding and difficulties with communication between Majuro and the outer islands. Under the umbrella of WDO, WUTMI and its local chapters look after family, church, community groups, health awareness, sports activities, microcredit schemes and women's development projects in the outer islands. The constitution of WUTMI requires meetings every 2 years to undertake general business and to elect new executive board members. The meetings have not occurred every 2 years due to difficulties with getting all women involved to one place on time; some women have to fly to reduce the amount of time involved and this becomes very expensive and ultimately impractical for WUTMI under its current funding arrangements. WUTMI organizes the transport of handicraft and other goods (salted clams, preserved breadfruit, and banana bread) from the outer islands to either Majuro or Ebeye. AMI often does not have enough room for the goods; some goods get left behind and other goods have to in effect purchase a seat on the aircraft in order to get them to the main centers. WUTMI has also had its freight bumped off the scheduled flights if the flights are too full and has experienced goods going missing. The field trip schedule is neither regular nor reliable enough for WUTMI to use this method of handicraft transportation.
D. Social Impacts of Construction
18. All outer island construction projects will employ local labor, which will be derived from poor households.
19. Many of the subprojects involve improvements, extensions, or rehabilitation to existing infrastructure and do not require the clearance or occupation of new land or water area. There are projects that involve new dock/jetty sites, new warehouses, and clearance of tracks and runway extensions. In no case is resettlement of population expected to be required. Clearance of vegetation will in some cases involve removal or trimming of trees although only on a very small scale.
20. During consultations between and among the Government, local communities, and ADB consultants, the social effects of the projects were discussed with the local communities on site. In many cases the subprojects being proposed had been identified and discussed in the past. It was clear that the communities placed a much higher value on securing the new infrastructure and more reliable transport services than the possible short-term inconveniences and use of land and coastal zone for the new infrastructure. None of the sites for new buildings was considered to be a problem, although this does not preclude the later possibility of compensation.
48 Appendix 9
21. Impacts from increased transport activity are very low, as ship calls are only at 6- to 8- week intervals and aircraft normally only once per week. Arrivals are more a cause of interest than an imposition. In all cases, the locations of boat landing points and airstrip runways are unchanged. On none of the atolls and islands visited was the increase in noise and traffic (mostly pedestrian, push carts, and a few vehicles) considered to be a significant effect. Instead an increase in social and economic activity at a centralized point (dock and warehouse) was welcomed by the Government and local communities.
E. Poverty Reduction Strategy
1. Government Strategy for the Outer Islands
22. Meto 2000 and the subsequent Second National Economic and Social Summit (NESS II) held in 2001 set direction and strategy for the next 15 years. Elements of the strategy that impact on poverty reduction in the outer islands and provide the setting for this Project are:
(i) Goal 2: Renewed Economic Growth, Strategy 2, Improve Infrastructure: ensure regular and reliable outer island shipping and air services, solar or diesel power, potable water and telecommunications all at regionally competitive costs to users (including where necessary transparent and monitored subsidy to noncommercial services); and (ii) Goal 3: Equitable Distribution, Eliminate Deprivation and Poverty in RMI, Strategy 3, Outer Island Development Program: maintain reliable shipping services through monitored contracts with private operators, bring under review the per-head distribution of, and access to, land, marine resources, economic and social services and infrastructure in the atolls other than Majuro and Kwajalein, identify areas of significantly below-average access and inventory, and develop a practical program for progressively reducing the deficiencies as revenue and aid resources permit.
23. Other general goals that have a bearing are promotion of private enterprise, facilitating land leasing, provision of development credit, and strengthening privatization and outsourcing.
2. Outer Island Development Priorities
24. During project feasibility consultation, the local government and community members were asked to discuss issues related to island development generally and to the development priorities of their islands in particular. Improved access and transport ranked as a high priority for all of the 22 islands visited. In the most general terms development of infrastructure (transport and energy supply/electricity) and assistance and support for agriculture and farming were seen as critical to the socioeconomic development of the outer islands.
25. Local government members, acting mayors, and the communities interviewed also considered that improving transport links and access is a spearhead for economic growth and development. This is demonstrated in the following comments that consider transport improvements could create a range of benefits including:
(i) improved access to the urban markets and key social services as well as cultural and economic exchange will be more convenient; (ii) travel able can be planned according to a regular and reliable trip schedule, and travel time reduced; and Appendix 9 49
(iii) fish and agricultural products can be sold more regularly to Majuro and Ebeye.
3. Bilateral and Multilateral Aid Programs
26. Assistance from bilateral and multilateral agencies is targeted at the outer islands in other development sectors, as described in Appendix 5.
4. Project Positioning
27. The Project has a high degree of support within the Government and from the outer island communities, and is fully consistent with the national development goals and strategies established by Meto 2000 and NESS II 2001.
28. For the effects of the project on poverty reduction to be fully realized, both the infrastructure improvements and the complementary efficiencies in transport services will need to be mobilized together. This is the rationale for the actions to be taken during loan processing and in parallel with implementation.
29. The transport infrastructure project is related closely to other development strategies and projects in the outer islands and, in particular, to the future of the production of local produce and to the development of other economic activities, including tourism.
5. Complementary and Supporting Activities
30. It is clear that more than physical infrastructure alone will be required to assist the outer islands in their socioeconomic development. Overall, an integrated approach to development is required. Such an approach needs to be rooted in progressing investments in human and social development (including human resource development and outer island services enhancement) and physical infrastructure in tandem. The Project is in a good position to encourage investment in areas that also support outer island development and poverty reduction; in some cases, project components could be advanced as part of a multisector island development project.
31. The types of integrated programs and complementary activities that could be targeted for investment include:
(i) resource management projects, particularly aimed at diversifying and increasing agricultural productivity in the outer islands, community-based fisheries projects, and active participation in environmental protection; (ii) paid participation in transport infrastructure, maintenance, and development projects, such as regular airstrip clearing, community or cooperative management of warehouses, self-policing island based groups aimed at reducing vandalism to navigation aids, maintenance of tracks and roads, development of potable water sources, irrigation systems, and small island energy systems; (iii) institutional capacity building within agencies that have the mandate for resources development, outer islands development and poverty reduction; and (iv) development of sustainable microcredit and microfinancing schemes, outer island enterprise development and community-based participatory planning.
50 Appendix 9
Table A9: Summary Poverty Reduction and Social Strategy
A. Linkages to the Country Poverty Analysis Sector identified as a national Yes Sector identified as a national Yes priority in country poverty analysis? priority in country poverty partnership agreement? Contribution of the sector/subsector to reduce poverty in the RMI:
Transport services provide the lifeline to the outer islands. Shipping brings in essential goods and services and takes out island produce from which the poor earn a substantial portion of their incomes. Shipping also brings in government services and supplies, particularly to the schools and health clinics. Shipping provides an essential service to families in transporting children to and from secondary schools and colleges elsewhere in the Republic of the Marshall Islands (RMI), and in providing links for everyone to the urban centers and the outside world. Air services provide passenger and freight transport, as well as emergency evacuation services for sick and vulnerable people.
B. Poverty Analysis Proposed Classification: Poverty Intervention Analysis:
Thirty percent of the population lives in the 19 outer islands which makes up the project area. Communities in the outer islands suffer from physical isolation leading to low incomes, lack of basic services, and poverty of opportunity. The people who live in these outer islands have significantly lower incomes than the national average, and it is estimated that around two thirds of the population in the project area has an income level below the United Nations Development Programme (UNDP) poverty line threshold of $1 a day.
C. Participation Process Stakeholder analysis prepared Yes Consultants visited all project sites and conducted consultations with local governments and communities during project preparatory stage.
Participation strategy : Yes Local governments and communities will be consulted during design phase to ensure full participation of local stakeholders in prioritizing subprojects.
D. Social Issues Significant, Not Significant, Subject None Strategy to Address Issues Output Prepareda Resettlementb Resettlement Framework Gender None Affordability None Labor None Indigenous None People Other Risks/ None Vulnerabilities a A plan will be required if any of the potential issues are found to be significant. b Significant involuntary resettlement requires a full resettlement plan; nonsignificant resettlement requires a short resettlement plan.
Appendix 10 51
ECONOMIC ANALYSIS
A. Approach
1. Project Costs
1. The costs included in the economic analysis are those for civil works, equipment, consulting services, and physical contingencies. The financial costs were converted into economic costs by eliminating price escalation and interest during construction as well as taxes and duties from the financial costs. All costs are mid-2001 prices.
2. Project Benefits
2. Project benefits for marine components are derived primarily from savings in ship and boat operating costs, comprising fuel, crew costs, other direct operating expenses, and savings in fleet size. Other contributions to project benefits are (i) savings in ship and boat operating costs, (ii) reduced cargo-handling and weather damage, (iii) reduced loss in cargo value from increased service reliability, (iv) reductions in passenger travel time, and (v) reduced risk of vessel grounding and damage or loss.
3. Benefits for airstrip extensions and remedial maintenance arise from (i) user benefits of reopening closed airstrips (two of the projects); (ii) reduced damage to aircraft from loose material on the runway; (iii) reduced risk to aircraft by improved obstruction clearances, longer and better surfaced runway with markings, and wind indicator; and (iv) increased payload capacity arising from runway improvement.1
3. Induced Travel Demand
4. Improved service frequency and reliability consequent on the reduced voyage times, and corresponding freight and passenger cost reductions translating into lower tariffs, will have demand-side effects. The response of copra growers to changes in the copra buying price indicates that higher prices do not necessarily lead to increased production, so lower freight costs may similarly not always have that effect. However, responses from the consultations indicate that increased service frequency, to a maximum of between 8 and 12 ship calls per year, would result in some increased copra production. In turn, the increased cash income can be expected to lead to increased consumption of imported goods and, possibly, to a higher propensity for personal travel.
5. There are two methods that are generally used for calculating the benefits of induced travel demand. The easiest to apply, provided the elasticity of demand with respect to transport costs is known, is a transport user surplus approach, the benefits being assessed as the implied value of the additional travel, measured as the product of the increase in transport demand and the reduction in travel cost multiplied by a half (the demand curve being assumed straight over the marginal change).
6. A more complete approach and one that can be applied where there are a limited number of commodities being transported and where producer responses can be anticipated, is to measure the difference in producer surplus. In either case, an adjustment is required to the
1 The expected financial return of this last benefit is relatively limited and difficult to quantify, thus, it is not considered in the analysis’ conservative assumption. 52 Appendix 10 analysis of induced demand to take account of differences between resource costs and market prices. This is particularly important in this case where passenger fares, freight rates, and copra prices are all heavily subsidized.
7. The net benefits attributable to induced transport demand can be either positive or negative depending on various factors such as comparative supply and demand elasticities and the amount of difference between market prices and resource costs. It is quite feasible, and may be the case here, that the economic value of induced demand is negative.
8. In this case, a lagged model of copra volumes against the subsidized grower price showed a weak but significant relationship, calibrated to a price elasticity of demand of 0.26. There is also some evidence of a demand relationship against regularity of shipping services, but insufficient data for calibration.
9. Overall, induced demand effects are estimated to yield an increase of 30% in both copra volumes and import cargo demand, which have been treated as generated traffic in the economic appraisal.
4. Interrelationship between Subprojects
10. The subprojects cannot each be evaluated in isolation as their effects are interactive. The components of the Project are integrated and mutually complementary. Providing better navigation aids and marks is not sufficient on its own since the benefits of easier access to lagoons provided by the navaids can only be realized in full if the vessels can then approach closer to shore through cleared passages or come alongside to the island wharves. Consultations with ship operators and government indicate that night working is acceptable on the islands and that the expected time savings will be realized.
B. Project Costs
11. Total economic cost of the selected project components is $9.54 million. Maintenance costs have been estimated as a percentage of capital value per annum according to the following assumptions:
(i) Docks and jetties—1% for deck furniture, fendering, etc. plus an allowance of 1% per year for periodic concrete repairs every 10 years. (ii) Channels are assumed to fill in over a period of between 10 and 20 years. An annual maintenance allowance of 5% per annum is estimated from year 5. (iii) Breakwaters are designed on a 5% damage criterion for the design storm. For a 100-year design return period storm, and a 20-year design life, this gives a 20% encounter probability over the design life, giving 1% in any year from year 1; also allow 1% of capital value for topping up rocks from year 5, giving 2% per annum overall. (iv) Warehouses—allow 1% year 3, 2% year 4, and 4% per annum from year 5. (v) Navaids—no maintenance for the steel pile structure for 20 years, excluding major typhoon damage. Light fittings will cost about $1,000 to replace, including the light itself. Allow replacement of 5% of light fittings in year 3, 10% in year 4, and 20% from year 5. (vi) Transport equipment—5% of capital value in year 3, 10% in year 4, and 20% from year 5.
Appendix 10 53
C. Project Benefits
12. The Project will contribute both directly and indirectly to poverty reduction in the project area. The revised discounted cash-flow analysis indicates that a total of around one third of the average annual benefits will accrue directly to the people of the outer islands through (i) better market access and increased incomes from local produce sales (10% of total benefits); (ii) passenger time savings, increased safety, and less cargo damage (25% of total benefits); and (iii) income earned from employment during project implementation. Less cargo damage will also benefit merchants, the public, and ship operators. Reduced operating costs, comprising around half of the total benefits, will accrue directly to ship operators and to the Government through reduced operating subsidies. Outer island communities will benefit indirectly through (i) lower real fares and cargo charges; (ii) lower prices for store goods from on-board merchants resulting from increased competition; and (iii) less risk of stock loss and damage through poor handling.
13. The largest source of benefits is ship time savings. The analysis shows that almost 20% of ship days could be saved, with a value of $0.4 million annually, provided that the opportunity is taken to do this (rather than the ships spending longer in port) and that the shipping fleet is downsized, either by sale or lease of one or more vessels.
14. Other sources of benefits are:
(i) reduced risk of rain or seawater water spoilage and handling damage where cargo transfer is from a vessel alongside rather than via lightering; valued at 1% of the free on board value of the cargo assuming values of $100 per ton for copra and $1,000 per ton for imported merchandise; (ii) savings in passenger travel time—valued at $3.50 per day weighted mean based upon 10% of passengers traveling during paid employment, and nonworking time valued at 40% of work time; the work time value has been estimated from gross domestic product and working population; (iii) reduced risk of passenger injury, scaled according to the type of landing facility and difficulty of embarkation/disembarkation and passage through the surf zone for small craft; (iv) savings in risk of grounding and damage to ships and ship's boats through improved navaids and beach channels; valued at 1.25% of the replacement value of the interisland fleet per year estimated at $4 million; (v) shore labor cost savings—valued at the implied value of time for copra harvesting of 20 cents per hour; and (vi) trade-offs between reduced costs of ships boats, increased costs of lagoon boat transport and road transport are almost self-canceling so have been omitted.
15. Many unquantifiable benefits accruing to the outer island communities have not been taken into the cash-flow analysis. In particular there will be social and welfare benefits to be derived from (i) improved access to outer island communities for the field trip medical, education, public awareness, and other government service teams; (ii) easier and more frequent interaction with other parts of the country; and (iii) better outer island project implementation as supplies and technical support can more easily be sent to project sites.
54 Appendix 10
D. Internal Rate of Return
16. The evaluation has been carried out over a 20-year investment period which generally corresponds to the design life of the navigation marks (25 years for civil works and 5 to 10 years for lights), and the jetties (25 years for good maintenance, 15 years for poor maintenance). The Project achieves a 14.5% economic internal rate of return. The sensitivity analysis demonstrates that the Project is robust and remains financially viable even with adverse movements in some parameters such as lower project benefits, increase in capital cost, and delay in project implementation. The results of sensitivity analyses, given in the table below, testing project viability for primary parameters also demonstrates robust economic viability of the Project.
Table A10.1: Sensitivity Test
EIRR Sensitivity NPV Sensitivity (%) Indicator ($ million) Indicator Base Case 14.5 1.33 1. Increase in investment costs by 10% 13.0 -1.02 0.58 -5.61 2. Decrease in benefits by 10% 13.0 -1.02 0.53 -6.01 3. 1 year delay in construction schedule 14.2 1.12 4. All tests combined 11.3 -0.40 EIRR = economic internal rate of return, NPV = net present value. Source: Asian Development Bank estimates.
Table A10.2: Discounted Cash Flow Analysis for Selected Projects
NPV June June June June June June June June June June June June June June June June June June June June June 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Net Facility Costs Capital 4.95 4.95 ------Maintenance Navaids - - - - 0.01 0.02 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 Channels ------0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 Airstrips ------0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 Jetties-annual - - 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 Jetties- periodic ------0.02 ------0.02 Buildings - - - 0.01 0.03 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 Tracks - 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Equipment ------Total Costs 4.95 4.95 0.02 0.03 0.05 0.09 0.16 0.16 0.16 0.18 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.18
User Savings Ship Operation - Ship Damage - Cargo Damage - Injury Risk - Air Operating Costs - Shore Labor Costs - 0.05 0.05 0.05 0.06 0.06 0.06 0.06 0.06 0.06 0.07 0.07 0.07 0.07 0.08 0.08 0.08 0.08 0.08 0.09 Passenger Time - 0.24 0.25 0.25 0.26 0.27 0.28 0.29 0.30 0.30 0.31 0.32 0.33 0.34 0.35 0.36 0.37 0.39 0.40 0.41 Total Savings 9.20 - 1.17 1.20 1.24 1.27 1.31 1.35 1.39 1.43 1.47 1.52 1.56 1.61 1.66 1.70 1.75 1.81 1.86 1.92 1.97
Extra Copra Production 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 Net Cash Flow 1.33 4.95 3.78 1.39 1.41 1.42 1.42 1.39 1.43 1.47 1.49 1.55 1.60 1.64 1.69 1.74 1.79 1.84 1.90 1.95 1.99 EIRR 14.55% EIRR = economic internal rate of return, NPV = net present value.
56 Appendix 11
SUMMARY INITIAL ENVIRONMENTAL EXAMINATION
A. Introduction
1. The initial environmental examination (IEE) was completed as part of the project preparatory technical assistance in accordance with ADB's Guidelines for Infrastructure Projects and the consulting firm’s report is included in the feasibility study report. This summary IEE is provided for evaluation purposes on the environmental impacts and mitigating measures of a typical subproject. The Environmental Protection Authority (EPA) was also consulted in the environmental assessment.
B. Description of the Project
2. A detailed description of the Project is given in paragraphs 25 to 49 of the main report and recommendation of the President.
C. Description of the Environment
3. Physical Environment. The Republic of the Marshall Islands (RMI) has a total land area of only 110 square kilometers (km2) spread over 1,225 individual islets, the largest no more than 0.8 km2. The atolls and islands of the RMI are made up of coral reef material and sediments that have formed over submarine volcanoes. The islands and atolls vary in shape and size from small isolated islands with no central lagoon (Mejit, Jabat, Kili, and Lib), to small atolls with totally enclosed lagoons (Namorik), and to larger atolls with one or many breaks in the reef, the largest being Kwajalein Atoll with a lagoon area of 839 km2. The width of the land area on the atolls is frequently only 100 meters (m) to 300 m, and exceptionally up to 2 km. The islets are low and flat, generally higher on the ocean side, but usually no more than 3 m. Most lagoons have one or more deep passes through the surrounding reef with high tidal flows and often strong currents. Approaches to beaches on the lagoon side are frequently obstructed by wide reef flats, in some places up to 2 kms width. These reef flats are generally up to 2 m depth below mean sea level with large areas exposed at low tide.
4. Terrestrial Flora and Fauna. According to the National Environmental Management Strategy, there is no record of the original vegetation and fauna of the Marshall Islands, and no endemic terrestrial species are known today. Disturbance by human habitation of over 3,000 years has probably altered the vegetation through the introduction of plants as sources of food and craft material, and also exotic mammals—pigs, chickens, cats, dogs, and rats. There are 70 recognized avian species, mostly migratory seabirds. One, the Ratak Micronesian Pigeon, is listed as an endangered species. Reptiles consist of seven lizard species and one blind snake, all introduced. Insects and spiders are abundant. Coconut crabs (birgos latro and coenobita rugosa) are found on coconut plantations and are highly valued for their flesh but are endangered.
5. Marine Flora and Fauna. There is a diverse array of coral and invertebrate species inhabiting the reefs and the inter-tidal zone, including sponges, whelks, clams, oysters, mussels, gastropods, tunicates, worms, crabs, shrimps, sea cucumbers, and starfish. All five of the world's species of marine turtle inhabit the islands. At least two of these species, the green turtle (chelonia mydas) and hawksbill turtle, are endangered. A number of other marine mammals, mainly dolphin and whale species, are also endangered.
Appendix 11 57
D. Screening of Potential Environmental Impacts and Mitigation Measures
1. Navigation Aids
6. The construction technique for placing navigation marks involves percussion drilling into coral, often below high water mark and sometimes below low water mark. Depending on the construction method adopted, it may be necessary to place a working platform mounted on jacks temporarily on the reef. In either case there will be some disturbance to the reef at the points chosen, although the area of effect will be very small and permanent modification will be negligible. The magnitude of effects from placement of navigation aids (navaids) will be minor.
2. Beach Channels
7. Creation of beach channels is likely to be the most environmentally sensitive aspect of the Project. However, the scale of the effect in relation to the length of shoreline is minor, and in almost all cases the sites chosen have previously been modified by past efforts at channel creation. The construction activity will involve excavation of coralline rock and soft sediments to create beach channels. This work will generally be carried out at low tide by mechanical equipment that works out slowly from the shore, using the excavated material to provide a working platform that may be removed at the completion of the work or left in place to form a breakwater where this is desirable (in which case rock armor would be applied on completion). Mitigation measures that can be considered include maximizing the amount of excavation carried out in the dry at low tide, and the creation of a silt fence around the works. A silt fence would require temporary steel piles into the lagoon bed to which filter cloth would be attached and consideration is required, for each site, of whether the disturbance and cost of this mitigation work is warranted. Fill areas will be selected to minimize effects on living coral colonies.
3. Docks and Reef Platforms
8. There are three locations (Malel on Arno, Jittoen on Ebon, and Jeh on Ailinglaplap) where new dock construction at the beach is proposed and one location where the proposal is for a transfer dock at the reef edge (reef platform) (Mejit). Repairs to, or extensions of, existing structures are planned at Buoj on Ailinglaplap, Likiep, Taroa on Maloelap, and Wotje on Wotje. In all cases the docks are at locations where ships already anchor, so the environmental effects of ship calls are not significantly altered (pollution effects such as leakages, discharges, and refuse). Land-based impacts will include some temporary disruption from the location of construction plant and materials close to the site, which will involve some temporary occupation of land, construction noise, dust, and hazards from the use of heavy machinery. Mitigation measures will include fencing off the working area for safety purposes and a requirement on the contractor to restore the working area as closely as possible to its initial condition.
9. In three cases (Imiej, Taroa, and Wotje) the docks to be extended are World War II (WWII) docks. There are three existing docks at Wotje, any of which could be selected as the dock to be extended. There is a need for a pragmatic approach to the conservation of WWII structures that are still in use, as conservation requirements must be balanced with the social and economic development of current and future generations.
58 Appendix 11
4. Warehouses
10. Construction of warehouses will involve land acquisition and temporary disruption of a minor nature during construction. Materials will generally be prefabricated, imported and assembled on site, with the exception of the building platform and foundation slab. No significant environmental effects are anticipated.
5. Track Improvements
11. In most cases, for existing vehicle tracks and walking paths, the scale of this work is very minor and will involve localized clearance of vegetation, widening and placement of small amounts of coral surfacing won from the adjacent ocean side beach ridge. For a few locations, construction of new track is envisaged. In this case the physical effects will be more significant and will involve location of a 3 m wide route (4 m clearance strip), removal of vegetation and organic soils, import, placement and rolling of small volumes of coral material won from selected quarry locations on ocean or lagoon side beaches above the high tide mark. Construction equipment will comprise a small bulldozer, truck, excavator, and roller imported by landing craft. Mitigation measures to be considered will include route selection that minimizes removal of bearing coconut palms and other food trees, as well as avoidance of houses, funeral plots, and food gardens. Extraction of coral material for road base will be from preselected locations to a maximum volume and with quarry site restoration plan to avoid the creation of foreshore erosion problems or ponding of rainwater that could constitute a health hazard.
6. Airstrip Rehabilitation
12. The work will include clearing of all vegetation (some up to 3 m in height) back to the lines of coconut trees that are parallel to the existing airstrips. The surface of the runway section of the airstrips will be regraded and all obstacles (such as rocks and tree stumps) removed. The runway areas will then be rolled and compacted and topped up with coral gravel and sand if required. It is considered that only small amounts of fill will be required and its excavation will be a minor activity if material is won from several different areas around the atoll rather than from one location.
7. Extraction of Quarry Material
13. A small quantity of armor rock for breakwaters will be obtained through drilling, blasting, and extraction by rock grab and bucket excavator from selected locations on the ocean side reef flat. Where this excavation is necessary, the EPA has developed criteria for minimizing the adverse environmental effects by requiring the rock cuts to be more than 30 m in from the reef edge and more than 30 m out from the shoreline. Cuts are square sided to promote later regrowth of coral on the vertical faces. Other excavation will generally be of beach sand and coral rubble from lagoon or ocean sides at preselected locations. In some cases, where material is not available on land, dragline recovery from the lagoon may be required.
E. Institutional Requirements and Environmental Monitoring Program
14. The responsibility for future environmental management of the proposed wharf and facilities at these subproject areas will lie with the project proponent, which would be the Ministry of Transportation and Communications (MOTC). This entity represents the government interest in the facilities. All the measures that have been specified in this document will be incorporated in the construction documents, plans and specifications to ensure its Appendix 11 59 implementation. The EPA and MOTC will monitor the implementation of the mitigating measures.
F. Findings and Recommendations
15. The adverse environmental effects of the Project will be generally confined to the inter- tidal zone within atoll lagoons and land areas in the vicinity of tracks and warehouses. These impacts will be highly localized in terms of significance range from minor impact, particularly when the zone of effect on marine ecology is compared with the overall length of shoreline in the area with similar environmental values.
G. Conclusion
16. The Project does not warrant a detailed environmental impact assessment study, and will not have any significant impacts on the environment.
60 Appendix 12
PROJECT IMPLEMENTATION CONSULTING SERVICES
A. Terms of Reference
1. Introduction
1. These terms of reference (TOR) are for the provision of engineering services by an international consulting firm (the Consultant) for the procurement of the Outer Islands Transport Infrastructure Project. The TOR set out the scope of the Project, the scope of work of the Consultant, general design specifications, and deliverable schedules.
2. The Consultant will be responsible for (i) obtaining all necessary site data; (ii) overseeing all investigations; (iii) undertaking detailed design; (iv) preparation of tender documents; (v) calling and evaluating tenders; and (vi) construction monitoring and management.
3. The Consultant will be appointed under the Asian Development Bank (ADB) Guidelines on the Use of Consultants. Procurement of the main construction contract will be undertaken by international competitive bidding (ICB) under ADB's Guidelines for Procurement under Asian Development Bank Loans.
4. The site investigation, detailed design, contractor prequalification, and tendering stages are expected to occupy 6 months, commencing in January 2003, and the construction a period of 2.5 years.
2. Site Investigation
5. The Consultant will:
(i) visit the site of each subproject and confirm the locations for all proposed works using a reliable means of global positioning, such as the Global Positioning System, plus means of identification relative to local fixed features. This will involve discussions with local communities on the precise location of proposed buildings and track improvements; (ii) identify any issues regarding the use of land, resettlement requirements (if any), leasing, and compensation. These issues are to be conveyed to the executing agency for resolution. The consultant will assist the Government in obtaining resolution prior to the award of contracts for construction; and (iii) prepare TOR and bid documents for comprehensive site investigation.
6. The scope of the site investigation will be assessed based on the investigations carried out during the project preparatory technical assistance (PPTA).1 The Consultant will review the scope of the proposed investigation and list of project locations and confirm the suitability of the locations or adjust them as required, before commissioning the site investigation. The consultant will then prepare TOR for the site investigation to enable this to be determined in as much detail as possible and competitively bid.
1 ADB. 2000. Technical Assistance to the Republic of the Marshall Islands for Preparing the Outer Islands Transport Infrastructure Project. Manila. Appendix 12 61
7. The site investigation will include, as a minimum:
(i) Hydrographic surveys to appropriate accuracy of all marine sites, including the determination of tidal parameters for each site including: (a) highest astronomical tide, (b) mean high water springs, (c) mean high water neaps, (d) mean sea level, (e) mean low water neaps, (f) mean low water springs, and (g) lowest astronomical tide. (ii) Topographical surveys of all land sites. Topographic surveys must be related to the tidal datum. A permanent survey mark or marks must be built at each site, surveyed and position and heights recorded in terms of the datum. A local coordinate datum may be established, however this datum must be coordinated in terms of longitude and latitude. Location plans for each mark are to be prepared. (iii) Geotechnical investigations of proposed dock and channel sites and at least one representative reef pass site. (iv) Collection, collation, and analysis of wind and wave data for the Republic of the Marshall Islands (RMI), using available data. This is to include data from tropical storms, sufficient to allow suitable design criteria to be established. (v) Environmental investigations required to complete an environmental impact assessment in accordance with the RMI Environmental Regulations for all subprojects in discussion with and in accordance with the requirements of the RMI’s Environmental Protection Authority. (vi) Investigations required to complete a cultural assessment in accordance with the Historic Preservation Office Regulations for all subprojects in discussion with and in accordance with the requirements of the RMI Historic Preservation Office, with particular reference to any site that is noted by the Historic Preservation Office as potentially sensitive. (vii) Such other information that the Consultant deems necessary to complete the Project.
8. The Consultant will specify the outputs and standards required of those carrying out the investigations.
3. Detailed Design Parameters
9. Indicative design criteria, established during the PPTA, are given below. The Consultant should satisfy himself that these design criteria are an optimum economic design and appropriate to the conditions, in addition to any other criteria established as part of the Consultant's work.
(i) Design life for marine navigation aids (navaids) and warehouses of 20 years, and for marine structures and airstrip extensions 50 years. (ii) All structures designed to withstand a 100-year return period storm event. For reef pass navaids, damage to (including loss of) the top mark and light during such an event is acceptable. The support system should withstand the design event. (iii) All structures designed to an accepted design standard, such as those of the Standards Australia/New Zealand, Japanese Standards Association, American Concrete Institute, and International Association of Lighthouses Authorities (IALA). 62 Appendix 12
(iv) All materials used and structures designed to minimize the amount of maintenance that will be required; this applies in particular to the reef pass lights. (v) Superimposed live loads, to cater for loading of copra and unloading of general cargo such as food and building materials. Some of the incoming goods may be palletized but most cargo is break-bulk. None of the present vessels handle containers. There are generally only light vehicles in the outer islands, such as 1.5-ton pickup trucks, which would be used to unload and transport cargo. Design superimposed spread load capacity of 15 kiloPascal, and design axle load of 5 tons have been assumed. (vi) Berthing loads—in most cases, berthing will take place with an offshore wind (docks on east side of atoll, inside lagoon, prevailing wind east-northeast). The current vessels do not have bow thrusters. A design allowance for berthing speed of 0.5 meters (m) per second and approach angle of 15 degrees is recommended. (vii) Mooring loads should allow for the possibility of ships being moored beam onto prevailing winds. A minimum bollard capacity of 10 tons is recommended. Bollards should be located to facilitate mooring of the vessels in the most practicable manner, given the constraints of the narrow access structures and relatively small dock tee heads. (viii) Ship data—the vessels being used at present are all small coastal freighters, typically using deck gear to transfer cargo into and from one or a pair of forward holds. The ships have some passenger capability. The following ship design parameters have been chosen as an envelope of the present ship sizes as it is likely these vessels will be in service well after the new structures are complete: (a) draft less than 3.7 m, (b) molded depth less than 5.1 m, (c) length overall less than 53.0 m, (d) beam less than 9.0 m, (e) displaced tonnage less than 1,500 tons, and (f) under-keel clearance a minimum of 1 m, at the lowest predicted astronomical tide is required. This value should be increased where larger waves can be expected.
4. Outline Specification of the Works
10. The minimum requirements for each type of engineering works proposed are:
(i) Beach and reef channels—the widened channels will (a) have a base width of 6 m; (b) have a minimum depth of 1.0 m below the local tidal datum (LAT); (c) extend from the deep water into the shoreline, on the alignment of the existing channel, and (d) be designed to avoid erosion of the beach and foreshore as a result of increased wave action. (ii) Ship docks will (a) have a standard tee head arrangement as shown in the PPTA, (b) extend to a water depth of at least 4.7 m below low tide, (c) be suitable for berthing and mooring the design ship, (d) be suitable for the use of light pickup trucks, (e) have access to the deck for users of traditional Marshallese craft and runabouts, and (f) be durable and robust. (iii) Warehouses will have as a minimum the dimensions shown on the drawings and will have the following attributes: (a) roof-mounted photovoltaic cells and supporting electrical systems suitable for lighting the handicrafts areas; (b) durable roofing materials and detailing to minimize leaks and corrosion; (c) roof water capture systems (catchments) and water tanks; (d) electrical lighting systems in the warehouse suitable for power supply from an external portable generator, such that a generator can be used to light the warehouse Appendix 12 63
space while loading or unloading at night; (f) a natural draught ventilation system; (g) a mast for navigation light and radio antenna; (h) robust and durable wall systems; (i) a slab-on-grade, concrete floor; and (j) aluminum joinery to office and handicrafts areas. (iv) Reef pass lights will have the following attributes: (a) sealed and self-powered navigation light, in accordance with IALA standards and guidelines, mounted at least 6 m above mean high water springs; (b) top mark in accordance with IALA standards and guidelines; (c) individual identification marks, reflective; (d) radar reflector; (e) visual reflector; (f) access to allow light to be replaced; and (g) no other maintenance to structure over 25-year design life. (v) Buoys will have the following attributes: (a) sealed and self-powered navigation light, in accordance with IALA standards and guidelines; (b) top mark or shape in accordance with IALA standards and guidelines; (c) individual identification marks, reflective; (d) a radar reflector; (e) a visual reflector; and (f) access to allow light to be replaced (g) mooring tackle and anchorage. (vi) Land lights will have the following attributes: (a) sealed and self-powered navigation light, in accordance with IALA standards and guidelines; (b) a radar reflector; and (c) a visual reflector. (vii) Airfields will have: (a) a cleared width of 60 m (200 feet); (b) a runway width of 30 m (100 feet); (c) lengths as shown on drawings (PPTA); (d) runway ends cleared of obstructions above a 1V to 7H plane extending from end of runway; (e) compacted even surface to runway; (f) concrete edge markers at 152 m centers, either side of the runway; and (g) windsocks at both ends of the airfield. (viii) Tracks will be (a) 3 m cleared width, (b) compacted coral surface, and (c) sited over existing tracks wherever possible and practical.
B. Deliverables and Reporting
11. The Consultant will provide nine copies of all reports, five to the Government and four to ADB. The following reports will be provided:
(i) an inception report within four weeks of Project commencement, outlining the Consultant's detailed work program, arrangements made with the Government for project liaison and management, issues arising, and proposed resolution; (ii) a site investigation report, at the conclusion of the site investigation stage, detailing the investigations undertaken, results, and implications for the technical feasibility, environmental effects and cost of each subproject. The Consultant will, at this stage, confirm the projects taken forward to detailed design; (iii) design report at the conclusion of the detailed design stage, describing the design parameters and specifications adopted, the anticipated modes of construction, and detailed cost estimates; (iv) monthly progress reports through the construction period, detailing progress, issues arising and their resolution, monitoring costs against budget; (v) annual review reports, summarizing the status of the Project, achievements against program, costs against budget, and other relevant information; and (vi) a completion report at the end of the Project.
12. A breakdown of engineering costs is set out in Table A12.
64 Appendix 12
Table A12: Engineering Cost Estimates and Financing Plan
Consultant Remuneration Months Rate Amount Foreign Local Currency Currency International Structural Engineer (Team Leader) 11 17,500 192,500 Structural Engineer 3 12,500 37,500 Civil Engineer 3 12,500 37,500 Surveyor 1 12,500 12,500 Navigation Expert 1 12,500 12,500 Construction Manager 24 15,000 360,000 Subtotal 43 652,500 652,500
Domestic Secretary 12 1,000 12,000 12,000 Clerk of Works 12 5,000 60,000 60,000 Clerk of Works 6 5,000 30,000 30,000 Accountant 2 5,000 10,000 10,000 Subtotal 32 112,000 112,000
Total, Remuneration 764,500 652,500 112,000
Out-of-Pocket Expenses No. Rate Amount Foreign Local Currency Currency Per Diems 100 days 115 11,500 11,500 Accommodation/Food (Construction Phase) 24 months 2,500 60,000 60,000 International Air Travel 20 round trips 3,000 60,000 60,000 Miscellaneous Travel Expenses 20 round trips 250 5,000 5,000 Communications 36 months 500 18,000 18,000 Report Production 10,000 10,000 Equipment 5,000 5,000 Local Air and Sea Travel 10,000 10,000 Local Travel 24 months 500 12,000 12,000 Subtotal, Expenses 191,500 169,500 22,000
Total 956,000 822,000 134,000
Contingency 40,000 30,000 10,000 Maximum Contract Payment 996,000 852,000 144,000
Site Investigation 200,000 180,000 20,000
Project Total 1,196,000 1,032,000 164,000 Source: Preparing the Outer Island Transport Infrastructure TA final report.
4. Terms of Reference for Consultants
18. The shipping specialist will:
(i) review and make improvements to shipping commercial systems, ship operating systems, accounting and financial systems; (ii) undertake ship surveys and prepare condition reports, undertake valuations and determine an insurance policy; and (iii) from this information prepare plans for redeployment or retirement of surplus or unsuitable vessels, replacement and acquisition plan for new vessels.
Appendix 12 65
19. The Aviation Specialist will:
(i) review the financial position and capital structure; (ii) carry out a structural and mechanical assessment of the aircraft, and assess the remaining economic life, need for overhaul, and replacement policy; (iii) review compliance with Federal Aviation Administration and International Civil Aviation Organization regulations and guidelines and where corrective actions are necessary or desirable and how these can be achieved; (iv) analyze route structure, schedules and profitability, consider future market opportunities and options for restructuring, expanding or reducing operations, alliances, and competition in the subregion; (v) review management and staffing structure, adequacy of information systems, and processes for financial and operational management; (vi) consider opportunities for outsourcing services; and (vii) assess the feasibility, risks, and likely buyer interest in possible future privatization.