Document of The World Bank FILE p0py
FOR OFFICIAL USE ONLY Public Disclosure Authorized
Report No. 1967-SO
STAFF APPRAISALREPORT
Public Disclosure Authorized SOMALIDEMOCRATIC REPUBLIC
FOURTHPORT PROJECT
Public Disclosure Authorized June 20, 1978 Public Disclosure Authorized Regional Projects Department Eastern Africa Regional Office
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS
Currency Unit - Somali Shillings (So.Sh.) US$1.00 = So.Sh. 6.295 So.Sh. 1.00 US$0.1589
WEIGHTSAND MEASURES
1 meter (m) 3.28 feet (ft) 1 kilometer (km) 2 = 0.62 miles (mi) 1 square kilometer (km ) 0.386 square miles (sq. mi.)
I hectare (ha) D 2.47 acres 1 kilogram (kg) - 2.2 pounds (lbs) 1 meter ton (ton) = 2,205 pounds (lbs)
GLOSSARY OF ABBREVIATIONS
SPA Somali Ports Authority dwt = deadweight tons PW Price WaterhouseAssociates (Consultants) PPF = Project Preparation Facility NBB National Banana Board
FISCAL YEAR
January 1 - December 31 FOR OFFICIAL USE ONLY
STAFF APPRAISAL REPORT
SOMALI DEMOCRATIC REPUBLIC
FOURTH PORT PROJECT
Table of Contents
Page No.
I. THE TRANSPORT SECTOR ...... 1
A. General ...... 1 B. The Transport System ...... 1 C. Transport Policy, Planning and Coordination ... 3 D. Past Bank Group Involvement ...... 5
II. THE SOMALI PORTS AUTHORITY ...... 5
A. Port Facilities ...... 5 B. Organization, Management and Staff ...... 6 C. Training ...... 7 I). Operations ...... 9 E. Traffic ...... 9 F. Port Planning and Development Strategy ...... 13 C. Budgets, Accounts, Audit and Insurance ...... 14
III ThE PROJECT...... 15
A. Background ...... 15 B. Scope of Proposed Project ...... 15 C. Choice of Terminal Type ...... 16 D. Details of the Project ...... 16 E. Cost Estimates ...... 17 F. Procurement and Disbursement ...... 19 G. Project Execution ...... 19 H. Operational Targets ...... 20 I. Environmental Impact ...... 20
IV. ECONOMIC EVALUATION .. 20
A. Methodology ...... 20 B. Project Benefits ...... 21 C. Project Costs ...... 21 D. Economic Return, Sensitivity and Risk 22
V. FINANCIAL EVALUATION . .22
A. Present Situation ...... 22 B. Future Prospects...... 25
VI. RECOMMENDATIONS .... 29
This document hasa restricteddistribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Table of Contents (Continued) Page No.
ANNEXES
ANNEX 1 - Past Bank Group Financed Transport Projects ...... 30
ANNEX 2 - Selected Documents and Data Available in Project File ...... 31
This report has been prepared by Messrs. H. Agerschou (engineer), P.O. Cheryan (financial analyst), and L. Nordin (economist). I. THE TRANSPORT SECTOR
A. General
1.01 Somalia, with its 630,000 km in the northeastern corner of Africa, consists largely of sparse grazing land and desert. Only about 13% of the land is suitable for cultivation, and this lies for the most part between the Juba and Shebeli rivers in the southern part of the country where irri- gation is possible. Natural resources are scarce and the economy is dependent on the export of livestock (and livestock products) and bananas which accounted for 60% and 20%, respectively, of export earnings in 1976. Budget deficits have been a continuing feature, financed largely by foreign development aid. Per capita income is one of the lowest in the world (US$110 in 1976).
1.02 Somalia's 3,000 km, coastline is one of the longest on the continent but it has very few natural harbors. The population, estimated at just above 3 million, is largely nomadic. The highest concentrations are around Mogadishu (300,000), the capital, commercial center and major port, and in the northern Hargeisa/Berbera area. The arid nature of the country, the low level of economic activity, and the sparseness of the population between distant popu- lation centers combine to make the provision of a transport system adequate to development needs a formidable problem. As a consequence of the settle- ment pattern, transport development has proceeded mainly in the southern and northern areas where economic growth has been most evident.
B. The Transport System
General
1.03 The exploitation of Somalia's limited resources has been inhibited by the lack of adequate transportation facilities. Somalia's transport infra- structure comprises about 17,700 km of roads, four principal ports and ten airports, but no railways, pipelines, or internal waterways. The density of cargo and passenger traffic is light in all modes. Although some 10,400 motor vehicles operate in the country, camels and donkeys are also an important means of transport. Many of the estimated 2.5 million camels in Somalia are used for this purpose, but no data are available on the type and quantity of goods transported. Camels are capable of carrying 100 kg loads over average distances of 30 km per day. The ability of camels to function effec- tively in areas of limited water and forage makes them well-suited to the vast dry areas of Somalia. Thousands of donkeys haul small loads within cities as well as to and from communities.
Highways
1.04 The road network is still limited and comprises about 17,700 km of which some 1,400 km are bituminous surfaced roads and about 1,000 km are gravel roads. Long distances and light traffic densities make road projects diffi- cult to justify economically although they are necessary to ensure national -2- unity and administrative accessibility. IDA has financed the Afgoi-Baidoa highway, providing a road link from Mogadishu through the center of its hinterland and the Hargeisa-Berbera road, and is currently financing the construction of a paved road from Hargeisa to Borama (113 km) with a link to Tug Wajale (19 km) under the Third Highway Project. A 1,045 km road, financed by the People's Republic of China, is under construction from Belet Uen in the central region, to Burao in the north, and the remaining 275 km of the coastal road between Kismayo and Mogadishu are now being paved under an EDF-financed project.
Ports
1.05 The four major ports, Berbera in the north on the Gulf of Aden and Mogadishu, Merca and Kismayo in the south, handle practically all of Somalia's ocean transport. Ports with sheltered deep-water facilities are Berbera, which exports mostly livestock, Mogadishu, which imports most of the country's general cargo and Kismayo, which exports bananas and meat. Merca, which exports bananas is a lighterage port. The new sheltered deep-water port at Mogadishu financed jointly by IDA (Credits 359-SO and 586-SO) and the Euro- pean Development Fund, was inaugurated on October 22, 1977. The relative importance of the four ports is shown in following table:
Mogadishu Berbera Merca Kismayo Total Mogadishu …------…('000tons)------('000 tons) Percentage of Total
Exports 12 53 38 54 157 8% Imports 298 106 5 27 436 68% Bulk Oil 131 15 - 9 155 85% Total 1976 441 174 43 90 748 59%
Total 1973 287 166 65 126 644 45% Total 1970 145 140 52 92 429 34% Total 1966 123 122 61 72 378 33%
Source: 1966 Customs Department 1970, 1973, 1976 Somali Ports Authority.
1.06 Most of Somalia's international trade is handled by foreign vessels, supplemented by the National Shipping Line, which was established in 1974 as a joint venture of the Governments of Somalia (51% ownership) and Libya. This line operates two refrigerator ships, of 4,000 dwt and 4,700 dwt capacity, a livestock-carrying ship of 2,500 dwt capacity and two small general cargo vessels of 1,500 and 2,000 dwt capacity.
1.07 Transport by coastal shipping within Somalia is limited despite the long coastline, because there has been little inter-regional trade suitable for such shipping. However, a cement plant under construction in Berbera will send most of its annual output (100,000 tons) by ship to Mogadishu. Similarly, petroleum products from the new refinery outside Mogadishu will be transported - 3 - by small tankers to Berbera and Kismayo. Current development of commercial fishing is also expected to stimulate some growth of coastal shipping because the fish is to be transported from a number of small ports to a few processing and distribution centers, particularly Mogadishu and Berbera.
Civil Aviation
1.08 The air transport system in Somalia serves ten scattered regional centers, with Mogadishu as the focal point. Only three airports have paved runways. Somali Airlines operates three DC-3's, two turbo-prop aircraft (F-27 and Viscount) and two Boeing 720 jet aircraft on its international routes which connect Mogadishu with Rome, Cairo, Nairobi, Djibouti and various points on the Arabian Peninsula. A few foreign airlines link Somalia with other African countries and Europe.
C. Transport Policy, Planning and Coordination
Policy
1.09 The Government's overall economic objectives are set out in the 1974-78 Development Program prepared by the former Ministry of Planning and Coordination, now the State Planning Commission. The largest investments are planned for irrigated agriculture. Industry is to be expanded, mainly to build import substitution plants using domestic raw materials. Development strategy for the livestock sector, which accounts for two-thirds of the country's exports and provides a livelihood for much of the population, emphasizes increasing production. Transport accounts for a substantial part of total investment, as in the previous Three-Year Program.
1.10 The Government's transport objectives, as indicated in the 1974-78 Program, are to: (i) open new areas for development and thus increase the economy's productive capacity; (ii) foster regional economic integration of the country's many isolated areas; and (iii) lower the cost of, and facilitate domestic transport, thereby reducing the disparity between rural and urban areas in price and availability of goods. The Government intends to achieve these goals primarily through construction of main and feeder roads; two of these main roads are included in the Third Highway Project. Other key plans are the completion of the Mogadishu harbor and relocation of its airport, improvement of the Hargeisa airport, and strengthening of the national airline and the national shipping line.
Planning
1.11 Transport and communications account for 25% of total planned public investment over the 1974-78 period, compared with 35% in the previous Three-Year Program. Only 60% of the 1971-73 investment plan for this sector was implemented, largely because of delays in starting projects, particularly the Mogadishu port project. Nevertheless, actual investments comprised 29% of overall investments during the period. -4
1.12 Within the transport and communications sector of the 1974-78 Program, the investment resources are allocated as follows:
Percent of Investment Total Sectoral Investments (So.Sh. millions)
Highways 687 73 Ports and Shipping 184 19 Civil Aviation 29 3 Communications 45 5
Total 945 100
1.13 The Government is presently engaged in: (i) evaluating progress made in implementing the program; (ii) finalizing the investment program for 1978; and (iii) preparing a development program for 1979-81.
Coordination
1.14 Four ministries are concerned with the transport sector; the Ministrv of Public Works (MPW) which, through its Civil Engineering Department (CED), is responsible for highway maintenance and for planning and construction of highways, ports and airports; the Ministry of Transport which is responsible for vehicle registration and control, and for civil aviation through its Civil Aviation Department; the Ministry of Marine Transport and Ports which, through the Somali Ports Authority (SPA), is responsible for port operations and, through the National Shipping Line, is responsible for marine transport; and the Ministry of Interior which is responsible for highway traffic control. No Government agency exists to oversee the functioning of the whole sector, but some limited coordination is provided by the State Planning Commission.
1.15 Intermodal coordination is not an issue; there is no railway nor are there any plans for one, and the limited coastal shipping is not likely to increase significantly in the foreseeable future with the exception of cement and petroleum products. Overall staff limitations have resulted in heavy reliance on consultants for transport planning. Thus the Transport and Communications Sector Plan of the 1971-73 Development Program generally followed the investment recommendations made by consultants (Grimle, Canada) in its 1966 Transport Survey, under the First Highway Project. In preparing the 1974-78 Development Program, the 1966 Transport Survey again served as a general guide. Under the Second Highway Project, an updated Transport Survey by consultants (Renardet-Sauti, Italy) was completed in 1977. This survey focussed primarily on the road network and secondarily on the aviation sector. Only minor treatment was given to the ports sector, mainly for small fishing ports. - 5 -
D. Past Bank Group Involvement in Ports
1.16 The proposed project is a continuation of the Bank Group's involve- ment in the development of the Mogadishu Port from lighterage to alongside operations. The proposed project will be the Bank Group's fourth port lending operation, all of which pertain to the Mogadishu Port. Starting in November 1964 the Bank made a technical assistance grant of US$311,000 followed in March 1969 by a Credit S5-SO in the amount of US$550,000 which provided en- gineering and accounting consultancy services. In March 1973, these prepara- tions resulted in a US$12.95 million IDA Credit 359-SO which together with an EDF grant of US$12.50 million financed the construction of a sheltered deep- water harbor at Mogadishu consisting of a breakwater, three berths, a dolphin berth, sheds, buildings, livestock facilities, port operating equipment, and engineering and management consultancy services. During execution of this project a third IDA Credit 586-SO, in the amount of US$5.2 million was approved in September 1975, for an additional 180 m berth and a corresponding extension of the breakwater. Completion of the original Mogadishu Port project and its extension was six months behind schedule. The Government had accepted this in a July 1977 settlement with the contractor (IMPREGILO, Italy) which also covered various claims under dispute. The total cost overrun is likely to be approximately 10%. The numerous contractual disputes which arose during construction, and any lessons that might be learned from this experience, will be reviewed in the forthcoming Project Completion Report.
1.17 In spite of the difficulties arising between the Government and the contractor, construction of the new port has been a successful venture, soundly conceived and efficiently executed. To ensure that its future opera- tions benefit the country's developing economy to the full, there remains a need for continued assistance in strengthening its management function and training its staff. This is inevitably a long-term undertaking, and is one in which the Bank Group is prepared to continue its involvement.
II. THE SOMALI PORTS AUTHORITY
A. Port Facilities
2.01 A Bank Port Survey and Project Identification Mission visited Somalia in December 1976. Its findings and recommendations have been updated by the December 1977 Appraisal Mission.
2.02 Somalia has three deep-water ports. They are, in order of traffic levels, Mogadishu, Berbera and Kismayo. Lighterage of bananas for export takes place from a pier on the open coast at Merca. The Bank Group has financed the deep-water port of Mogadishu, which was completed in late 1977, and replaced an existing lighterage port. The new port consists of four general cargo berths, of which two are equipped with transit sheds, and one livestock berth. The maximum water depth is 12 meters. The port is protected from wave action -6-
by a one-kilometer long breakwater. The port facilities in Berbera, which are located in a natural sheltered location, were completed in 1969. They consist of two deep-water berths of which one is equipped with a transit shed, and the other with a pen for livestock. The breakwater-protected port of Kismayo, which was also completed in 1969, consists of four deep-water berths, of which two are equipped with transit sheds, and one with a banana storage shed. Portal cranes on rails are only available in Berbera, but the two cranes which were installed there in 1969 have never been used, as suitable electric power supply is not available. The use of ships's gear for loading and unloading general cargo is considered adequate.
2.03 Two harbor tugs, one financed under Credit 359-SO, and one provided free of charge by Netherlands bilateral assistance, were acquired by SPA during 1976-77. A portable dredger, mainly for maintenance dredging of the port of Kismayo and its access channel was acquired by SPA in 1976. Available cargo handling equipment consists mainly of mobile cranes, forklifts and tractors with trailers.
B. Organization, Management and Staff
2.04 The Somali Ports Authority (SPA), an autonomous Government agency was created in 1962, and reconstituted under Law No. 70 of December 1970 and Law No. 1 of January 7, 1973. SPA has as its responsibilities the adminis- tration, operation and maintenance of the country's main ports. Planning for the expansion and development of the ports as well as the execution of the ports' development projects is the responsibility of the Ministry of Public Works, while provisions for the financing of these projects are incorporated in the Centralized Capital Investment Budgets of the State as a whole. Com- pleted projects are handed over to SPA ownership for the conduct of port operations. Presently, SPA functions under the supervision of the Ministry of Marine Transport and Ports, and possesses the necessary powers to carry out its responsibilities within the overall restrictions imposed by the Government. The restrictions include the arbitrary transfer of personnel, compulsory assignment of personnel to participate in non-port related activi- ties, etc., due to the general shortage of skilled and semi-skilled individ- uals in the country as a whole (para. 2.09).
2.05 SPA is managed by a President and a General Manager. Their respon- sibilities are to some extent duplicated and although this has not caused any overt conflict, the lines of demarcation are vague and inhibit the orderly functioning of SPA. Such a situation has led to the General Manager being unable to exercise fully his leadership role as the chief operating officer of SPA. The management is weak in areas such as planning, information sys- tems and accounting. There is a clear need for injecting sound management practices in controlling and directing SPA's activities.
2.06 Under the previous Credit 359-SO for the construction of the new Mogadishu deep-water harbor, provision was made for the appointment of management consultants for effecting improvements in SPA. Price Waterhouse Associates (UK) were appointed as the consultants, and they commenced work in April 1976. The areas to be covered by them included: - 7 -
- Port operations and operational planning procedures; - Tariffs; - Financial and management accounting; - Cost accounting; and - Revaluation of fixed assets.
Their recommendations were sound, but because of the unavailability of suit- able staff in sufficient numbers (as a result of the exodus to the neighbor- ing oil producing countries), the successful implementation of these recom- mendations is now in jeopardy. SPA should be required to appoint to its general management team a recognized port management expert to advise and assist in the satisfactory implementation of the consultants' recommendations and an appropriate training program. Agreement was reached during negotia- tions that SPA will retain such an expert for a period of two years beginning no later than January 1, 1979. The European Development Fund has agreed in principle with SPA to provide the necessary financing for this purpose.
2.07 SPA's functional activities are adequately organized under four departments, namely, Technical, Planning and Coordination, Administration and Finance, and Personnel. The planning activity is limited to annual investment programs for equipment purchases and minor construction and maintenance works. SPA's organization chart is attached.
2.08 SPA employs about 3,250 people of which about 970 are regular staff and 2,280 are dock labor who are engaged on a contract basis through workers' cooperatives. Relations with employees appear to be satisfactory.
C. Training
2.09 Somalia is facing a shortage of skilled and semi-skilled manpower, which is felt on a national level because of the exodus in large numbers of educated and semi-educated Somalis to the neighboring oil producing countries. The outline of a survey plan to identify the needs for manpower in specialized areas such as public administration, accounting and commercial practice, is now being prepared by an inter-ministerial committee in Somalia. Actual im- plementation of the survey will be the responsibility of the Somali Institute of Development Administration and Management. The Association is financing the costs of providing experts for this project under Credit 738-SO for the Third Education Project. The question of providing vocational training for draftsmen, mechanics, electricians, etc. still remains to be addressed, and should receive top priority. At present there are 19 technical and specialized institutes and vocational training centers with a capacity of about 3,200 places, and in addition 6 new institutions with a capacity of 2,000 places are to be established during the next five years (4 are under construction). Although the institutional capacity is adequately planned, the shortage of technical teachers and instructors is a constraint for its full utilization. SOMALIA SOMALIPORTS AUTHORITY ORGANIZATIONCHART
li ° Ny TmmyI * Pwt,
I~~~~~~~
IUudpt.~ Account"s IFumu, sIm'iSfich Ori
|~~~~~~~~~~~~o| I
OprnuzIoa Pwm hai& TiffnOpuahe qma bm P.m M&
I "I-T-raiff6ic III __ I.
NOTE: Figue In breckes udmnsotetal number of regAir enpAoyeesIneach depatmnt or poan. Undaerlindfigures ishm the rAster of cemI Whato Insecdh pont. WrdU.-8 - 9 -
2.10 SPA does not prepare any training plans or conduct any training programs,even though it has difficultyin finding the staff with at least the basic minimum skills as do most other organizationsin Somalia. Account- ing and operationalconsultancy services provided under the previous Credit 359-SO included some training elements;however, because of shortage of suitable staff the training could not be satisfactorilycarried out. SPA's personnel department should actively cooperatewith appropriatetraining institutionsin the country for securing good graduates for employmentand take the initiativeto arrange selective training for its staff, utilizing existing overcapacityof these intitutions. It was agreed during negotiations that SPA will prepare a training program in consultationwith the Association, for implementationnot later than June 1, 1979, or such other date as shall be agreed with the Association.
D. Operations
2.11 SPA is solely responsiblefor port operations in Somalia. Cargo handling operationsare and should remain labor intensive. Three shifts are presently worked, when necessary. High labor and equipmentproductivity has been observed in the new Mogadishu deep-waterharbor by the appraisal mission and by previous supervisionmissions. However equipment availability should be improved by scheduled preventivemaintenance and by improved avail- ability of spare parts. A cargo handling expert from the management consul- tants (Price Waterhouse,UK) financed under Credit 359-SO, spent a month in Mogadishu in early 1978 to assist in planning and executionof cargo handling operationsin the new deep-waterport.
2.12 SPA has recently enacted comprehensiveport regulations,which are applicable to all ports under its jurisdiction. This was a requirementunder Credit Agreement 359-SO.
E. Traffic
General
2.13 Past and forecast traffic data are presented in the two tables that follow: SOMALIA
SPA Ports Traffic
('000 tons) Actual Traffic Estimated Traffic 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984
Inbound
Bagged cement 79.5 95.5 107.0 104.7 101.0 95 98 109 119 130 140 150 Other bagged cargo 34.4 35.4 183.4 164.0 199.0 195 215 235 255 270 280 295 General cargo 204.2 237.4 241.3 167.6 176.0 175 200 240 275 305 335 360
Subtotal 318.1 368.3 531.7 436.3 476.0 465 513 584 649 705 755 805
Petroleum products 88.5 88.1 118.1 154.0 180.1 140 65 65 70 70 80 80 Crude oil 1/ - - - - - 250 500 500 500 500 500 500
Total Inbound 406.6 456.4 649.8 590.3 656.1 855 1,078 1,149 1,219 1,275 1,335 1,385
Outbound
General cargo 49.7 37.0 30.6 27.5 21.0 25 31 37 43 54 60 66 Bagged cement 2/ - - - - - 30 85 84 82 79 75 70 Bananas 124.0 108.0 90.0 77.6 61.0 75 90 110 135 170 205 240 Livestock 62.7 54.7 63.6 50.8 48.5 51 62 73 78 84 89 95
Subtotal 236.4 199.7 184.2 155.9 130.5 181 268 304 338 387 429 471
Petroleum products 1/ - - - - - 170 310 280 260 240 220 200
Total Outbound 236.4 199.7 184.2 155.9 130.5 351 578 584 598 627 649 671
Grand Total 643.0 656.1 834.0 746.2 786.6 1,206 1,656 1,728 1,817 1,902 1,984 2,056
1/ Mogadishu only. 2/ Berbera only. SOMALIA
Mogadishu Port Traffic
('000 tons) Actual Traffic Estimated Traffic 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984
INBOUND
Bagged Cement 57.5 82.5 88.0 79.7 81.0 80 90 100 110 120 130 140 Other Bagged Cargo 31.4 34.4 149.4 112.0 120.0 120 135 150 165 180 195 210 General Cargo 99.2 116.1 115.9 106.1 115.0 115 120 125 130 140 150 160
Sub-total 188.1 233.0 353.3 297.8 316.0 315 345 375 405 440 475 510
Petroleum Products 67.5 66.3 98.4 130.5 135.1 80 - - - - - Crude Oil - - - - - 250 500 500 500 500 500 500
Total Inbound 255.6 299.3 451.7 428.3 451.1 645 845 875 905 940 975 1,010
OUTBOUND
General Cargo 30.9 26.0 16.2 9.6 10.0 10 15 20 25 30 35 40 Bananas ------10 30 50 70 Livestock 0.7 0.7 4.6 2.8 2.5 3 3 3 3 3 3 3
Sub-total 31.6 26.7 20.8 12.4 12.5 13 18 23 38 63 88 113
Petroleum Products - - - - - 170 310 280 260 240 220 200
Total Outbound 31.6 26.7 20.8 12.4 12.5 183 328 303 298 303 308 313
GRAND TOTAL 287.2 326.0 472.5 440.7 463.6 828 1,173 1.178 1,203 1,243 1,283 1.323
Number of Ships!' 245 209 227 268 263 160 175 180 190 200 210 220
1/ The alongside port, which went into operation in late 1977, is forecast to result in fewer ships because of increased tonnage handled per ship. - 12 -
Export Traffic
2.14 Somalia exports bananas, livestock, hides and skins, canned meat, and fish. The tonnages of hides and skins, meat and fish are insignificant as far as demand on port capacity is concerned. Banana and livestock traffic on the other hand has a much greater demand on port capacity. Banana traffic reached its peak in 1972 but has since fallen as a result of both low prices and the drought period between 1973 and 1975. In order to increase future traffic a series of positive events have to take place simultaneously. These are:
(a) increasing the yield per hectare; (b) increasing the producing areas; and (c) increasing the export market share for Somali bananas.
2.15 The Government is aware of the complexity of the problem to increase and market the banana production. However, implementation of these goals is underway. The National Banana Board (NBB) has started its own plantations and is trying to consolidate smaller and less efficient plantations into optimum size plantations. More efficient use of irrigation and equipment is envisaged and it is assumed that a larger market share can be secured in the two principal markets, Italy and the Middle East. NBB has formed marketing and production companies together with an Italian parastatal company.
2.16 Livestock traffic is concentrated in Berbera. Practically all sheep and goats and about 90% of the camels are exported through this port. Although Berbera is still the biggest export port for cattle, its share is expected to drop from 80% to 70% by 1980 in favor of Kismayo, where cattle production and exports are expected to grow faster than in the north.
2.17 Livestock exports reached a peak during the drought period between 1973 and 1975 when animals had to be sold off. Exports will be less during the next few years and will increase slowly to enable the herds to grow.
Import Traffic
2.18 Dry cargo imports have grown at an average annual rate of some 20% between 1970 and 1975, if one disregards the exceptional imports of cargo through Mogadishu for drought relief in 1975. Since then the growth rate has been a more modest 10%. Some of the commodities (chemicals, fertilizer, sawn timber, and iron and steel) have such low volumes that they have no sig- nificant impact on port capacity. Cement is the largest single category of dry cargo imports. However, a cement factory is under construction at Berbera. Cement from Berbera can be transported to Mogadishu and Kismayo by coastal shipping at a lower cost than by road.
2.19 Other bagged cargo includes cereals, flour and sugar. Because of the drought, sugar production went down and Somalia has recently had to import some 25% of its sugar consumption. New development projects will increase domestic sugar production by 1979 as well as other agricultural production, and thereby reduce the reliance on imports. - 13 -
2.20 The general cargo category includes equipment and materials for numerous agriculturaland industrialdevelopment projects, particularly in the lower Juba region. The average annual growth is forecast to be about two-thirdsof what it has been in the past.
2.21 Somalia presently imports all its petroleum products, but a refinery is being constructedjust south of Mogadishu. Once completed Somalia will import crude oil to Mogadishu and ship refined products to Berbera and Kismayo, where separateport facilitiesof sufficientcapacity for refined products are already available.
F. Port Planning and Development Strategy
2.22 In view of the lack of shelteredlocations for ports along the coast of Somalia, and the high costs of providing breakwater protection for ports, great care should be taken in coordinatingports development with land transportation. Fewer and larger ports will in general be better investmentsthan more and smaller ports, because of the few locationswhere relativelyhigh population concentrationsexist.
2.23 The Government'splans for ports developmenthave so far been limited to the following:
(a) about ten small ports for fishing boats and/or coastal shipping in addition to the existing ports of Mogadishu, Berbera, Kismayo and Merca; and
(b) a new breakwater-protectedharbor at Merca to replace the existing unprotectedpier.
2.24 It is the Government'sintention that a feasibilitystudy for the small ports should be undertakenprobably with bilateral financing. The study would probably result in a considerablereduction in the number of small ports, unless they are limited to inexpensivepiers without breakwater protection.
2.25 Expensive port facilitiesfor Merca would not be warranted until the new Mogadishu Port has been fully developed,which would mean at least an additional four or five berths. The reason for this recommendationis the relatively short distance of some 100 km between the two locationsand the good paved road connectingthem.
2.26 The urgent need for an extension of Berbera Port has previouslybeen establishedby the Bank Port Survey Mission in 1976. The same mission also establishedthe overcapacityof existing fixed facilities in Kismayo. It is expected that the proposed Technical Assistance Project for Somalia will include financing of engineeringpreparations for the Berbera Port extension. - 14 -
G. Budgets, Accounts, Audit and Insurance
Budgets
2.27 SPA's capital and operating budgets are prepared annually and approved according to a Government requirement of initial approval by the supervising minister, i.e. the Minister of Marine Transport and Ports and final approval by the Minister of Finance. Capital budgets normally include equipment additions and replacements, civil works for renewal and repairs of port facilities, etc. Investment for major additions or new construction of port facilities, including those financed by external assistance are incorporated in the Centralized Capital Investment Budgets and administered by the Ministry of Public Works. SPA does not make a practice of preparing long-term or program budgets, its main concern being only one year at a time.
Accounts
2.28 SPA maintains a double entry bookkeeping system. Price Waterhouse, the consultants, studied the requirements of SPA in the financial, management and cost accounting fields and devised new and improved systems. However, their implementation has only been partly successful due to the shortage of suitable staff. The newly introduced accounting and management information systems are not kept on a current basis and are several months behind. This is unsatisfactory. SPA should be required to have in operation a functioning documentation and accounting system that would permit the keeping of profit and loss and balance sheet accounts, and traffic statistics on a current basis. Agreement was reached during negotiations that SPA will maintain records that will reflect its operations and financial condition satisfac- torily.
2.29 Training of staff was an essential element of the consultancy ser- vices, but this was only partly achieved because of the shortage of counter- parts and/or other trainable staff. The proposed training program (para. 2.10) will also cover accounting staff.
Audit
2.30 SPA's accounts are audited annually by the Magistrate of Accounts who is an independent entity reporting to the Presidency, and who is the equivalent of the Auditor General in other countries. The audit is routine and not thorough, and is carried out long after the close of the year because of pressure of work and lack of competent staff. Under Law No. 16 of April 1, 1970 governing the Autonomous Agencies and their Audit, the above audit is compulsory for all parastatal bodies. There are no other audit agencies or public accounting firms in Somalia.
2.31 While SPA's audit as conducted by the Magistrate of Accounts has generally been satisfactory in the past, the audited statements for 1975 and 1976 contain some arithmetical errors. The audit practices employed by the - 15 -
Magistrateneed to be reviewed (particularlyat the verificationphase of the work), and the Internal AuditingDepartment of the Bank Group intends to send a representativeto review the existing situationand assist in improvingthe practicesfollowed.
Insurance
2.32 The Project Agreementsfor Credits 359-SO and 586-SO required that SPA take out insuranceagainst risks such as fire, damage and loss of its property. SPA has recently obtained the necessaryinsurance coverage.
III. THE PROJECT
A. Background
3.01 Somalia and Iraq have constructedand will operate a refinery some 15 km south of Mogadishu on a fifty-fiftybasis. The refinery is financedby Iraq and will be operated by experiencedIraqi technicianswhile the Somali personnelare trained in Iraq. It is expected that the refinerywill operate at full capacity,500,000 tons per year, from the start (mid-1978)and that the surpluswhich is not consumed within Somaliawill be marketed abroad with the assistanceof Iraq. Present consumptionin Somalia amounts to some 200,000 tons of petroleumproducts per annum. Imports of crude oil and exports of refined petroleumproducts will temporarilybe handled at a tanker facility in the new deep-waterport of Mogadishu. This facility is provided at the third general cargo berth and limits the use of this berth for general cargo to only half of its capacity.
B. Scope of ProposedProject
3.02 The project consists of a conventionaltanker pier, located in the Mogadishu deep-waterharbor as shown on the port plan. It will be used for inbound crude oil for the Mogadishurefinery and for outbound petroleumpro- ducts. However, its layout and design will make provisionfor its possible future use also for handling bulk grain, sugar and molasses. The existing facilitiesfor unloadingof petroleumproducts from small tankers is located in the open sea close to the rocky shore. It is very dangerousand ineffi- cient, and its replacementhas been requiredfor some time. At the Govern- ment's request, engineeringpreparations for the next extensionof Mogadishu harbor have been included as there are considerablesavings in combining this with engineeringof the tanker terminal. It is also the intentionto continue the Bank's involvementwith SPA's efforts to strengthenits managementteam and to train its staff. - 16 -
C. Choice of Terminal Type
3.03 The basic purpose of the project is to provide economicaland safe facilitiesfor accommodatingtankers carrying crude oil to the Mogadishu refinery and smaller tankers transportingpetroleum products from the refinery.
3.04 The technicaland economic feasibilityof the following alternatives has been investigatedby consultants (DanishHydraulic Instituteand Hostrup- Schultz & Sorensen,Denmark, in joint venture with Van Houten Associates,USA) and Bank staff. Comparisonshave been made between:
(a) a conventionaloffshore multi-buoy mooring;
(b) a tanker pier in Mogadishu harbor (the chosen alternative); and
(c) a single buoy mooring in deep water off Mogadishu Port.
3.05 A conventionalmulti-buoy mooring is not technicallyfeasible because of the existing wave climate. Tankers would frequentlyhave to wait a week or more for calmer seas. An analysis has been carried out, of the total cost streams for the two other alternativesover a 25 year period, including operating and maintenancecosts, as well as freight rates for crude oil from Iraq in 35,000 dwt tankers of the Iraqi national tanker fleet for the conventionaltanker pier, and in twice as large tankers for the single buoy mooring. The conventionaltanker terminal is the least cost solution. Further it will be designed for future multi-purposeusage for bulk grain, sugar and molasses handling.
D. Details of the Project
3.06 The project includes the following elements:
(a) a tanker pier for crude oil tankers of maximum 50,000 dwt and for small products tankers. It consists of a loading! unloading platform, berthing platforms and mooring platforms connected to shore by a causeway and/or trestles which carry a crude oil pipeline and petroleumproducts pipelines and a roadway for light trucks. The platforms will either consist of concrete caissons or be supported on steel piles.
(b) pipelineswithin the port limits;
(c) hydraulic model tests, site investigations,detailed en- gineering,preparation of tender documents,assistance during tenderingand supervisionof constructionof the tanker terminal by consultingengineers; and - 17 -
(d) site investigations,detailed engineering,preparation of tender documentsand assistanceduring tenderingby con- sulting engineersfor a 210 meter extensionof the existing banana quay in Mogadishuharbor for general cargo traffic, the constructionof which will be optionalunder the tanker terminal contract,and will depend on the rate of traffic growth. The option will be consideredwhen completionof constructionof the tanker terminal is approaching.
3.07 The equivalentof US$0.5 million advancedunder the Project Prep- aration Facility for engineeringservices (see (c) and (d) above),will be refinancedunder the proposed Credit.
E. Cost Estimates
3.08 Cost estimatesas of late 1977 for civil works have been developed by the consultantswho studied the technicalfeasibility and did the prelim- inary engineering. Preliminaryengineering is consideredsufficient for reliable cost estimatesas these are also based on the experiencefrom the recently completedMogadishu Port Project, financed under Credits 359-SO and 586-SO. Cost estimatesfor consultants'services are based on a lump sum proposal without price escalationwhich has been submittedto the Ministry of Public Works. The averageman-month cost for consultantstaff is US$6,000.
3.09 The total project cost, assuming that the required pipelinesbetween the refinery and the port have been installed,is So.Sh. 41.7 million (US$6.6 million equivalent). Of this amount, So.Sh. 3.3 million (US$0.52million equivalent)is for engineeringof the banana berth extension. This consists of consultants'services for site investigations,detailed engineering, preparationof tender documentsand assistanceduring tenderingfor a 210 meter extensionof the existing 130 meter long banana berth sufficientfor two 170 meter long general cargo berths along this stretch of quay. The cost estimatesinclude a 10% physical contingency,which is consideredadequate, and price contingencieson civil works of 8% during 1978, 7.5% during 1979 and 7% from 1980. These worldwideprice contingenciesare consideredvalid for the total cost, as 15% of the total cost or 75% of the local cost is for local labor, the cost of which is estimated to increaseby 7% per year.
3.10 The foreign exchange cost is estimatedat So.Sh. 34.9 million (US$5.53million equivalent)including contingencies. Similarlythe local currency cost is So.Sh. 6.8 million (US$1.07million equivalent). SPA, the future owner and operator of the terminal,is exempt from local duties and taxes on imports. Project costs are shown in more detail below. SOMALIA
Summary of Project Costs
So.Shs. Million US$ Million % Foreign Local Total Foreign Local Total Foreign US$ Million Exchange IDA Financing
Civil Works 22.2 5.5 27.7 3.52 0.87 4.39 80 3.5
Consulting 1/ Engineering Services 7.0 - 7.0 1.11 - 1.11 100 1.1.
Subtotal 29.2 5.5 34.7 4.63 0.87 5.50 84 4.6
Contingencies x
Physical 2/ 2.9 0.6 3.5 0.46 0.09 0.55 83 0.5
Price 3/ 2.8 0.7 3.5 0.44 0.11 0.55 80 0.4
Total 34.9 6.8 41.7 5.53 1.07 6.60 84 5.5
1/ Includes site investigations detailed engineering and preparation of tender documents for general cargo berth extension.
2/ 10%
3/ On civil works only. 8% during 1978, 7.5% during 1979 and 7% from 1980.
Source: Engineering Consultants and Bank Staff - 19 -
F. Procurementand Disbursement
3.11 There will be only one contract for civil works. It will be awarded after internationalcompetitive bidding in accordancewith Bank Group Guide- lines including pre-qualificationof contractors. No local contractorwill be able to qualify as general contractor. However, one or more are likely to become subcontractorsor joint venture partners.
3.12 Disbursementsfrom the proposed credit will be fully documented and will be on the basis of 80% of the cost of civil works and 100% of expendi- tures for engineeringconsultants' services. The estimatedschedule of disbursementsis shown below:
(US$ '000) Fiscal Year Disbursements Cumulative and Quarter during Quarter Disbursements
1979 3 500 500 4 1,000 1,500
1980 1 1,000 2,500 2 1,000 3,500 3 1,000 4,500 4 600 5,100
1981 1 200 5,300 2 200 5,500
Any surplus credit amounts should be cancelled.
G. Project Execution
3.13 Supervisionof constructionwill be carried out by engineering consultantsreporting to competent staff of the Ministry of Public Works, which will be responsiblefor project execution.
3.14 Implementationof the project will require 2-1/2 years and is planned to take place as follows:
(a) hydraulic model tests, site investigations,detailed engineeringand preparation of tender documents, the latter overlappingwith pre-qualificationof contractors from March through November 1978;
(b) tendering, evaluation of tenders and award of contract from December 1978 through March 1979; and
(c) constructionfrom June 1979 through October 1980. - 20 -
H. Operational Targets
3.15 In order to improve the performance of SPA in regard to its opera- tion of the new alongside general cargo facilities financed under Credits 359-SO and 586-SO, the following operational targets have been established based on consultants' (Price Waterhouse, UK) studies:
Obiective
(a) Port operations equipment availability 75% from 1979
(b) Port operations equipment utilization 85% from 1979
(c) Gang shift productivity in tons per eight hours: 1978 1979 1980 1981
Bagged cargo 105 120 135 150 General cargo 56 64 72 80 Bananas 112 128 144 160
(d) Average number of ships' hatches worked simultaneously 3 from 1978
These targets have been agreed to during negotiations.
I. Environmental Impact
3.16 The existing primitive facility for unloading petroleum products presents considerable pollution risks. The new facility for unloading crude oil from tankers and loading petroleum products into tankers will be designed to avoid spills.
IV. ECONOMIC EVALUATION
A. Methodology
4.01 When the refinery starts operating, in mid-1978, crude oil imports and petroleum products exports will be handled over the third general cargo berth. This is both a wasteful use of an expensive general cargo berth and a hazardous operation. The project is therefore needed to provide efficient and safe tanker terminal facilities.
4.02 The possible technical solutions, as suggested in the feasibility study conducted by consultants, were evaluated by discounting their cost streams over a 25-year period at various interest rates. In addition an - 21 - analysis was made of non-quantifiableadvantages and disadvantagessuch as fire hazards, difficulty in operationand maintenance,possible utilization of the tanker facility for other bulk commodities,change in availability of certain tanker sizes, the risk of the project being underutilized,and pollution. The different factorswere assigned a weight and for each factor the technical solutionswere given a score from zero to ten.
4.03 The solution receivingthe highest weighted score was also the least cost solution for interest rates above 3%. At a 10% discount rate the least cost solution is some 7% cheaper than the next best alternative.
4.04 The project, as defined by the least cost analysis and described above (Para. 3.06) was then compared with the "without-the-project" situation, in which the third general cargo berth is also used for crude oil and petroleum products. The benefits, costs and economic return of the project are given below.
B. Project Benefits
4.05 The quantifiablebenefits of the project consist of cost savings due to reduced ship waiting time as a result of released general cargo berth capacity. Analytical relationshipsbetween berth occupancy factors and waiting time for ships have been used. These cost savings are estimated at US$5,000 per day, being the average cost per day for the typical 8,000- 12,000 dwt general cargo ship calling at Mogadishu. The even higher cost per day for tankers is disregardedas a benefit since tankers are assumed to get preferentialberthing.
4.06 In calculatingthe economic return, only half of the benefits from reduced ship waiting time have been considered. This is due mainly to uncer- tainty about the extent to which these benefits will be passed on to the economy of the country.
4.07 The total cost savings from reduced ship waiting time are expected to increase with traffic from US$180,000 in 1981 to US$1.3 million in 1984, after which they are kept constant since an additional berth will be economic- ally justified by the mid-1980's according to present traffic forecasts.
4.08 The tanker terminal facility has no significantemployment impact, except during its construction.
C. Project Costs
4.09 For the purposes of calculatingthe economic return total project costs have been adjusted by excluding price contingencies. Furthermore,a shadow rate of 43% above the official rate has been applied to the project's foreign exchange element, to reflect its estimated economic value. - 22 -
D. Economic Return, Sensitivityand Risk
4.10 Based on the above benefits and costs, and assuming a 25-year life, the project yields a quantifiableeconomic return of 15% in addition to the importantbenefits of providing a safe and efficient tanker terminal. Without shadow pricing foreign exchange the economic return is 14%. The return from the project is sensitive to traffic developments,the extent to which the benefits will accrue to Somalia, and to the cost of the project. If ship waiting time benefits are assumed to be 20% less, the return from the project will drop to 13%. A 20% increase in cost will also lower the return to 13%. These returns are consideredacceptable especially in view of the even greater risks involved in not implementingthe project (para. 4.01).
4.11 The weaknessesin SPA's management structure,coupled with the transfer of operationsfrom a lighterageport to the new deep-waterfacility, clearly entail some risk in respect to the future effectiveworking of the port. The position is by no means so serious as to cast doubts on the wis- dom of financingfurther investmentsin SPA, but it is neverthelessimportant to continue to focus upon the institution-buildingaspects of the Bank Group's involvement. As one specific measure, it is intended that a recognizedport management expert be appointed to assist in implementingsound management practices (para. 2.06).
V. FINANCIAL EVALUATION
A. Present Situation
5.01 SPA's operating results have been satisfactoryand have provided a dependable source of revenue for the Government. Under Credit 359-SO, SPA was required to produce a 5% annual return on net fixed assets; however, because of the extensionunder Credit 586-SO of the new Mogadishu deep-water harbor and the resultinghigher investmentcosts, the above rate was reduced to 4.5% for 1977, though retained for subsequent years.
5.02 According to Law No. 58 of July 31, 1972, relating to the finances of Public Enterprisesand Agencies, SPA is obligated to make the following remittancesto the Government:
(a) Turnover Tax: The percentageto be assessed on turnover is fixed by the Finance Minister each year. For SPA this has resulted in an annual impositionof 5% on gross income. - 23 -
(b) Share of Profit: Net income is first computed after allowing for provision for depreciation, bad debts and turnover tax. Then appropriations are made for staff bonus and welfare funds (15%) and for SPA's own capital investments (excluding those financed under centralized capital investments). The remainder is transferred to the State Budget.
(c) Depreciation Fund: The Minister of Finance determines annually, the percentage of SPA's annual depreciation provision which SPA is to transfer to the State Budget as its share of the national depreciation fund for development. In 1973 and 1974 it used to vary between 50% and 60% of SPA's annual depreciation provision, but from 1975 onwards the Ministry of Finance has been allowing SPA to keep the full depreciation provision for purposes of funding SPA's own annual capital investments.
SPA - Income Statement
So.Sh. '000 Year Ending December 31, 1974 1975 1976 1977 /1
Operating Revenues
Ships dues 3,318 1,934 1,156 1,800 Stevedoring 6,503 7,948 6,636 8,000 Shore handling 24,207 31,588 26,117 28,000 Storage 5,615 7,545 7,846 6,200 Miscellaneous 467 772 647 700
Total 40,110 49,787 42,402 44,700
Operating Expenses
Wages 11,356 11,522 10,146 10,500 Maintenance and administration 11,636 14,368 17,449 18,700 Depreciation 4,668 4.714 6,769 6.800
Total 27,660 30,604 34,364 36,000
Net operating income 12,450 19,183 8,038 8,700
Operating ratio (%) 69.0 61.4 81.0 80.5
Return on net fixed assets (X) 9.0 13.4 5.3 5.7
/1 Projected. - 24 -
5.03 The item ships' dues shows a considerablylower level of revenue starting 1975 because the Governmenthas been taking over the receipts from charges such as anchorage and accostagefees into the State Treasury. This is no longer an issue because the structureof ships' dues has since been changed and all ships' dues now revert to SPA. The unusuallyhigh revenues from cargo handling in 1975 were due to the high volume of traffic resultingfrom the drought relief measures.
SPA - Balance Sheet Summaries
So.Sh. '000 As at December 31, 1974 1975 1976 1977
Current Assets 27,461 28,620 15,607 16,000 Net Fixed Assets 138,589 146,746 157,794 149,284
Total Assets 166,051 175,366 173,401 165.284
Current Liabilities 464 1,146 6,491 4,000
Non-current Liabilities 1,052 5,861 9,695 5,000
Equity 144,547 144,547 144,547 144,547
Retained Earnings 19,988 23,812 12,668 11.737
Total Liabilities and Assets 166.051 175,366 173,401 165,284
Debt/Equity Ratio 1/99 3/97 6/94 3/97 Current Ratio 59.2 25.0 2.4 4.0
/1 Projected.
5.04 SPA's financial condition is good. As the Debt/Equity ratio shows, SPA has virtually had no debt, financingits net fixed assets entirely with equity capital. In addition,as the current ratio shows, SPA's liquidity continuesto be high.
5.05 SPA introducednew tariffseffective December 1, 1977, as a result of the tariff revision studies undertakenby Price WaterhouseAssociates, the consultantsunder the previous Credit 359-SO. SPA followed the recommendations of the consultantsin general, although in some instanceswhere the rates pro- posed by the consultantswere relativelyhigh, SPA lowered the range within acceptablelevels. SPA's concern is that any immediatehigher rates without better quality of servicewould be unreasonable. SPA has given assurancesthat as the expected operationalimprovements take place particularlyin the new MogadishuPort, they will restudy the tariff situationand introducesuch changesas are necessaryto maintain as well as improve its financialper- formance. - 25 -
B. Future Prospects
5.06 SPA's fixed assets were revalued recently and these together with the new Mogadishu Port project costs are incorporated in SPA's fixed assets effective January 1, 1978. The total cost of the new Mogadishu harbor amounts to So.Sh. 221.3 million. An additional So.Sh. 3.7 million is in- cluded in 1979 for storage facilities.
5.07 Projections of SPA's financial performance have been made through 1982. Projected operating revenues and operating expenses are given in the Income Statement summarized below. Tariffs according to the recently revised rates have been applied to the forecast traffic. Projected expenses for wages include a 24% increase from 1977 to 1978 to provide for the coming into opera- tion of the new Mogadishu Port, and a 10% increase for 1978 and annual increases thereafter of 8% to cover inflation. Possible manpower requirements to handle traffic growth after 1978 are assumed to be covered by increased productivity. Maintenance and administration expenses include all other working expenses and the projections include an annual increase of 10% in 1978 and 8% thereafter to meet cost increases caused by inflation. The net results are satisfactory inasmuch as the operating ratio improves from 76.3% in 1978 to 67.4% in 1982, and the annual rate of return on net fixed assets in use shows an increase from 5.0% in 1978 to 7.0% in 1982. The calculations for 1982 do not include any provision for the completion of two additional berths in Berbera. If these additional berths (costing about So.Sh. 120.0 million) were to be com- pleted and were to be in use for the full year of 1982 the rate of return in 1982 will be reduced from 7.0% to about 6.0%.
5.08 The tanker terminal is expected to produce net operating income of So.Sh. 1.2 million in 1981, the first full year of its operation. This should result in an annual rate of return on the net value of the tanker terminal alone of 5.5%. The forecast revenue is from handling of crude oil and petroleum products only, and as the utilization of the tanker terminal increases with its additional use for other bulk commodities, the financial results should also improve. This could eventually produce an annual rate of return of some 8% or more. - 26 -
SPA - Income Statement
(So.Sh.'000) Year Ending December 31, 1978 1979 1980 1981 1982
OperatingRevenues
Ships' dues 15,000 16,100 15,000 16,000 17,200 Stevedoring 8,100 10,000 11,300 12,600 13,800 Shore handling 29,400 35,800 38,800 41,000 44,200 Storage 6,700 7,300 8,200 9,000 10,500 Miscellaneous 800 900 1,000 1,000 1,000
Subtotal without tanker terminal 74,300 79,600 86,700
Tanker terminal income 2,500 5,000 5,000
Total 60,000 70.100 76,800 84,600 91,700
Operating Expenses
Wages 13,000 14,300 15,440 16,700 18,000 Maintenance and administration 19,700 21,400 23,300 25,200 27,200 Depreciation 13,050 13,450 13,750 14,050 14,350
Subtotal without tanker terminal 52,490 55,950 59,550
Tanker terminal:
Operating and maintenance 600 1,296 1,400 Depreciation 768 1,536 16536
Total 45,750 49,350 53,858 58,782 62,486
Net operating income 14,250 20,750 22,942 25,818 29,214
Operating ratio (%) 76.3 70.4 70.1 69.5 68.1
Rate of return on net fixed assets in use (%) 5.0 5.0 5.4 6.0 7.0
5.09 SPA's financialobjectives should be that its operating revenues are sufficient to (i) cover its cash operating requirementsincluding maintenance and administrativeexpenses, (ii) service its debt, (iii) meet its capital additionsand/or replacementexpenditures including the local currency compo- nent under the proposed project, and (iv) make remittancesto the Government in the form of turnover tax, share of profit, and reasonablecontributions to the depreciationfund. The following projected cash flow statement shows that SPA should be able to achieve these objectives. - 27 -
SPA - Cash Flow Statement
(So.Sh. '000) Year ending December 31, 1978 1979 1980 1981 1982
Source of Funds
Net operating income 14,250 20,750 22,942 25,818 29,214 Add: Depreciation 13,050 13,450 14.518 15,586 15,886
Internal generation 27,300 34,200 37,460 41,404 45,100
Loan from Government - Mogadishu harbor 221,300 - Tanker terminal 34,900
Total 248,600 34,200 72,360 41,404 45,100
Applicationof Funds
Capital investmentsby SPA 3,000 6,700 3,000 3,000 3,000
Completed projects - Mogadishu harbor 221,300 - Tanker terminal 38,400
Engineering - Banana berth extension 3,300 Debt service - Mogadishu harbor - Service charge 1,660 1,660 1,660 1,660 1,660
Debt service - Tanker terminal - Principal 873 1,745 1,745 - Interest 436 2,487 2,356
Payments to Government - Turnover tax 3,000 3,500 4,000 4,230 4,590 - Share of profit 6,500 7,500 13,000 15,000 17,000 - Depreciationfund 6,500 6,700 7,300 7,800 8,000
Retained by SPA 6,640 8,140 391 5,482 6,749
Total 248,600 34,200 72.360 41,404 45,100
Opening Cash Position 100/1 6,740 14,880 15,271 20,753 CumulativeCash Position 6,740 14,880 15,271 20,753 27,502
/1 Excluding other Liquid Assets. - 28 -
5.10 Upon completionthe new tanker terminal will be owned and operated by SPA. During negotiations,agreement was reached that the proceeds of the Credit will be onlent by the Government to SPA at 7-1/2% interest per annum for a term of twenty years. It was also agreed that if for any reason SPA should be unable to cover the local currency expendituresunder the proposed project, the Governmentwould make availableall necessaryfunds to complete the project.
5.11 In making the financialprojections, SPA's likely capital additions and/or replacementrequirements including the local currency expenditures under the proposed projecthave been taken into account. No major port devel- opment programsare envisagedduring the implementationperiod of the proposed project. It was agreed during negotiationsthat the Associationwill be con- sulted whenever capital investmentsin the port sector,beyond those included in the proposed project during its implementationperiod, are estimatedto exceed So.Shs. 6.0 million per annum in total.
5.12 Projectionsof SPA's balance sheet are summarizedbelow. They show that SPA will be well capitalizedfrom 1978 to 1982, while the current ratio shows a steady improvementin SPA's liquidity. The Debt-Equityratio will range from 52/48 to 56/44, reflectingGovernment loans of So.Sh. 221.3 million in 1978, and So.Sh. 34.9 million in 1980.
SPA - Balance Sheet Summaries
(So.Sh '000)
As at December 31, 1978 1979 1980 1981 1982
Current assets 22,640 31,080 31,771 37,553 44,602 Net fixed assets 418,534 411,784 438,666 426,080 413,194 Deferred charges _ 3,300 3,300 3.300
Total 441,174 442,864 473,737 466,933 461,096
Current liabilities 4,000 4,300 4,600 4,900 5,200 Long-term debt 226,300 226,300 260,327 258,582 256,837 Equity, resourcesand retained earnings 210,874 212,264 208,810 203,451 199,059
Total 441.174 442,864 473,737 466.933 461,096
Debt/EquityRatio 52/48 52/48 55/45 56/44 56/44 Current Ratio 5.7 7.2 6.9 7.7 8.0
5.13 The ongoing agreementsspecify an annual rate on net fixed assets of 5.0%. Comments on SPA's financialprojections summarized in paragraph 5.07 indicate that SPA should be able to achieve even higher rates of return. However, the existing requirementof 5.0% is sufficientto meet the financial needs of SPA such as debt service requirements,routine capital investment - 29 -
needs and turnover tax payments. During negotiationsagreement was reached that the Governmentand SPA will take all necessarymeasures includingadjust- ments in rates to maintain a return of at least 5.0% per annum.
5.14 SPA's financialviability could be endangeredif it were to incur substantialadditional debt. During negotiations,agreement was reached that SPA will not incur any additional long-termdebt without the Association's prior agreementunless its net cash revenues for the fiscal year or the twelve consecutivemonths immediatelybefore the date of incurrence,whichever is greater, would be at least 2.0 times its maximum debt service requirementsof any succeedingyear on all SPA's debts.
VI. RECOMMENDATIONS
6.01 During negotiationsagreement was reached with the Governmentand SPA on the followingmatters:
(a) appointmentof port management expert (para. 2.06);
(b) training of SPA personnel (para. 2.10);
(c) maintenanceof documentationsystems on currentbasis (para. 2.28);
(d) operationaltargets (para. 3.15);
(e) onlendingterms (para. 5.10);
(f) investmentlimitation (para. 5.11);
(g) financialrate of return (para. 5.13); and
(h) debt limitation (para. 5.14).
6.02 Project progress and completionreporting requirements have been agreed with the Government and SPA.
6.03 On the basis of the above, the proposed project provides a suitable basis for an IDA Credit of US$5.5 million to the Governmentof Somalia. - 30 - ANNEX I
SOMALIA
FOURTH PORT PROJECT
Past Bank Group Financed Transport Projects
Credit Amount Year Number (US$ Million) Purpose Status
1965 74-SO 6.2 Highway (Afgoi-Baidoa Road) Construction com- pleted in 1971. Arbitration for claims submitted by contractor.
1968 123-S0 2.3 Highway (Afgoi-baidoa Road, Resulted in award Supplementary) going against the Government. The Government has expressed unwil- lingness to accept the award. Efforts are un- derway to resolve the matter.
1969 S5-S0 0.5 Ports (Mogadishu Port, Fully disbursed. Engineering)
1972 295-S0 9.6 Highway (Hargeisa- Project completed Berbera Road) in 1975 within appraised cost estimates.
1973 359-SO 12.9 Ports (Mogadishu Port) Construction com- pleted in 1977.
1975 586-S0 5.2 Ports (Mogadishu Port Agreement reached Extension) on claims under dispute with contractor.
1977 699-S0 7.0 Highway (Hargeisa-Borama) Under construction. Road) - 31 - ANNEX 2
SOMALIA
FOURTH PORT PROJECT
Selected Documents and Data Available in the Project File
A. General reports and studies on the sector and sub-sector
A 1. Port survey-Identification mission
Full Report February 9, 1977.
A 2. Memorandum on traffic forecasts by Price Waterhouse
October 29, 1976.
B. General reports and studies relating to the project
B 1. SPA's Annual Financial Statements 1973, 1974, 1975, 1976.
B 2. Somal Refinery, Report by State Consulting Company for Oil Projects, Republic of Iraq July 1976.
C. Selected Working Papers
C 1. Project costs, table showing cost distribution over 1978-1980, with physical and price contingenices.
C 2. SPA's Financial Tables.
C 3. Least cost analysis for project selection.
C 4. Cost/Benefit Analysis of project.
C 5. Law No. 70 of November 22, 1970 and Law No. 1 of January 7, 1973 relating to the functioning of SPA.
C 6. Law No. 58 of July 1972 relating to Financing Public Enterprises.
C 7. SPA's Tariff Rates - effective December 1, 1977.
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