ADB

Project Completion Report

PCR: PRC 28382

Xiamen Port Project in the People’s Republic of China (Loan 1584-PRC)

March 2005

Asian Development Bank

CURRENCY EQUIVALENTS

Currency Unit – yuan (CNY)

At Appraisal At Project Completion (27 November 1997) (5 August 2004) CNY1.00 = $0.12 $0.12 $1.00 = CNY8.31 CNY8.27

ABBREVIATIONS

ADB – Asian Develoment Bank CTOP – container terminal operations plan EIRR – economic internal rate of return EPZ – Export Processing Zone FIRR – financial internal rate of return MIS – management information system PMO – project management office PMRAP – Port Management Reforms Action Plan PRC – People’s Republic of China RRP – report and recommendation of the President WACC – weighted average cost of capital XHB – Xiamen Harbor Bureau XICT – Xiamen International Container Terminal XMB – Xiamen Marine Bureau XPA – Xiamen Port Administration XPG – Xiamen Port Group XPHCSC – Xiamen Ports and Harbors Construction Supervision XPHCTC – Xiamen Port Haitian Container Terminal Company

WEIGHTS AND MEASURES dwt (deadweight ton) – total carrying capacity of a ship, including cargo, fuel, water, and stores. teu (twenty-foot – standard unit of measurement for container traffic. equivalent unit)

NOTES

In this report, "$" refers to US dollars.

CONTENTS

Page

BASIC DATA ii

MAPS vii

I. PROJECT DESCRIPTION 1

II. EVALUATION OF DESIGN AND IMPLEMENTATION 2 A. Relevance of Design and Formulation 2 B. Project Outputs 2 C. Project Costs 3 D. Disbursements 3 E. Project Schedule 4 F. Implementation Arrangements 4 G. Conditions and Covenants 5 H. Related Technical Assistance 5 I. Consultant Recruitment and Procurement 6 J. Performance of Consultants, Contractors, and Suppliers 6 K. Perfornance of the Borrower and the Executing Agency 6 L. Performance of the Asian Development Bank 7

III. EVALUATION OF PERFORMANCE 7 A. Relevance 7 B. Efficacy in Achievement of Purpose 7 C. Efficiency in Achievement of Outputs and Purpose 8 D. Preliminary Assessment of Sustainability 11 E. Environmental, Sociocultural, and Other Impacts 12 F. Project Operations 14

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 14 A. Overall Assessment 14 B. Lessons Learned 15 C. Recommendations 15

APPENDIXES 1. Port Subsector Development 16 2. Chronology of Major Events 18 3. Comparison of Works Planned at Appraisal and Actual Accomplishment 20 4. Procurement Details: List of Contract Packages 22 5. Detailed Cost Estimate and Financing Plan 24 6. Implementation Schedule 25 7. Institutional Framework 26 8. Compliance with Loan Covenants 28 9. Technical Assistance Completion Report 32 10. Xiamen Port Development 34 11. Traffic Analysis and Forecast 36 12. Economic Reevaluation 37 13. Project Financial Performance 40 14. Financial Reevaluation 48 ii

BASIC DATA

A. Loan Identification

1. Country People’s Republic of China 2. Loan Number 1584-PRC 3. Project Title Xiamen Port Project 4. Borrower People’s Republic of China 5. Executing Agency Xiamen Harbor Bureau 6. Amount of Loan $50 million 7. Project Completion Report Number PCR:PRC 884

B. Loan Data

1. Appraisal - Date Started 21–30 July 1997 - Date Completed 24 May 1995

2. Loan Negotiations - Date Started 15–17 November 1997 - Date Completed 27 October 1995

3. Date of Board Approval 27 November 1997

4. Date of Loan Agreement 12 February 1998

5. Date of Loan Effectiveness - In Loan Agreement 12 May 1998 - Actual 12 May 1998

6. Closing Date - In Loan Agreement 30 September 2002 - Actual 30 June 2003 - Number of Extensions 1

7. Terms of Loan - Interest Rate Pool-based variable lending for US dollars - Maturity (number of years) 24 - Grace Period (number of years) 4

8. Terms of Relending - Interest Rate Pool-based variable lending for US dollars - Maturity (number of years) 24 - Grace Period (number of years) 4

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9. Disbursements

a. Dates

Initial Disbursement Final Disbursement Time Interval 2 February 1999 26 June 2003 4 years, 4.8 months

Effective Date Original Closing Date Time Interval 12 May 1998 30 September 2002 4 years, 4.7 months

b. Amount ($)

Last Category Original Revised Amount Net Amount Undisbursed No. Description Allocation Allocation Canceleda Amount Disbursed Balance Available

I Civil Works 21,800,000 16,718,000 322 16,717,678 16,717,678 0

II Equipment 15,200,000 19,772,000 759,460 19,012,540 19,012,540 0

III Consulting Services 300,000 300,000 30,276 269,724 269,724 0 and Training

IV IDC 5,400,000 4,517,000 98,590 4,418,410 4,418,410 0

V Unallocated 7,300,000 43,000 43,000 0 0 0

Total 50,000,000 41,350,000b 931,648 40,418,352 40,418,352 0 IDC = interest during construction. a Canceled on 30 June 2003. b $8.65 million was cancelled on 4 March 2002.

C. Project Data

1. Project Cost ($ million)

Cost Appraisal Estimate Actual Foreign Exchange Cost 53.8 40.4 Local Currency Cost 46.2 45.1 Total Cost 100.0 85.5

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2. Financing Plan ($ million)

Appraisal Estimate Actual Foreign Local Foreign Local Cost Exchange Currency Total Exchange Currency Total Implementation Costs Borrower-financed 3.8 43.5 47.3 0.0 43.3 43.3 ADB-financed 44.4 0.0 44.4 36.0 0.0 36.0 Total 48.2 43.5 91.7 36.0 43.3 79.3

IDC Costs Borrower-financed 0.0 2.7 2.7 0.0 1.8 1.8 ADB-financed 5.6 0.0 5.6 4.4 0.0 4.4 Total 5.6 2.7 8.3 4.4 1.8 6.2

ADB = Asian Development Bank, IDC = interest during construction.

3. Cost Breakdown by Project Components ($ million)

Appraisal Estimate Actual Foreign Local Total Foreign Local Total Item Exchange Currency Exchange Currency 1. Project Preparation - 2.4 2.4 0.0 0.5 0.5 2. Civil Works 24.9 20.1 45.0 16.7 21.5 38.2 3. Equipment 15.2 0.5 15.7 19.0 18.6 37.6 4. Consulting Services 0.3 4.0 4.3 0.3 2.6 2.9 5. Contingencies 7.8 5.1 12.9 0.0 0.0 0.0 6. IDC 5.6 2.7 8.3 4.4 1.8 6.2 7. Taxes and Duties 0.0 11.4 11.4 0.0 0.0 0.0 Total 53.8 46.2 100.0 40.4 45.1 85.5 IDC = interest during construction.

4. Project Schedule

Item Appraisal Estimate Actual

Date of Contract with Consultants March 1998 21 August 1998 Completion of Engineering Design December 1997 December 1997 Civil Works Contract Date of Award August 1998 October 1998 Completion of Work December 1998 December 2001

Equipment and Supplies Dates First Procurement February 1999 March 1999 Last Procurement April 2000 November 2002 Completion of Installation March 2002 March 2003 Start of Operations March 2002 December 2002

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5. Project Performance Report Ratings:

Ratings Implementation Period Development Implementation Objectives Progress From December 1998 to December 1999 S S From January 2000 to December 2000 S PS From January 2001 to May 2001 S PS From June 2001 to June 2002 S S From July 2002 to December 2003 S S PS = partly satisfactory, S = satisfactory.

D. Data on Asian Development Bank Missions

No. of

No. of Person- Specialization Name of Mission Date Persons Days of Membersa Fact-Finding 19–30 May 1997 7 84 a, a, b, c, d, e, f Appraisal 21–30 July 1997 6 60 a, a, b, c, d, g Inception 16–20 February 1998 2 10 a, a Review 1 7–10 September 1998 2 8 a, a Review 2 30 August–3 September 2 10 a, g 1999 Review 3 26–31 July 2000 2 12 a, b Review 4 5–10 August 2001 2 12 a, b Review 5 13–20 October 2002 1 8 a Project Completion Reviewb 27–30 September 2004 3 30 a, h, i a a - engineer, b - financial analyst, c - economist, d - programs officer, e - environment specialist, f - manager, g - counsel, h - analyst, I - consultant. b The mission comprised K. Jraiw, transport specialist and mission leader; E. Infante, assistant project analyst; and a domestic consultant (transport specialist). The timing of the project completion report is also appropriate, due to (i) completion of the management information system in March 2003 and the need for the system to be in operation for at least before a realistic assessment of the system can be made and (ii) cancellation of 2003 mission, due to a severe acute respiratory syndrome outbreak.

I. PROJECT DESCRIPTION

1. The fast socioeconomic development of the Asia and Pacific region makes this region the world’s most dynamic. The People’s Republic of China (PRC) represents one of the largest economies in the region. The reforms undertaken in the PRC since 1978 resulted in the rapid development of the areas surrounding coastal ports and generated increased volumes of international trade and necessitated the expansion of port capacities. To cope with the increased demand for port services and remove port congestion, a port expansion policy was launched to address the various issues affecting the subsector and improve its services (Appendix 1). The Government’s port expansion policy comprised (i) increasing port capacities, (ii) modernizing port facilities, (iii) improving management and operations, and (vi) overcoming congestion in port approaches by deepening channels and improving interface connections with land transportation networks. To support this policy, the Asian Development Bank (ADB) provided four loans, amounting to $253.80 million, and five technical assistance undertakings, amounting to $2.60 million, for various port projects during the 1990s.1

2. Located on the southeast coast of the PRC (between Hong Kong, China and Shanghai), Xiamen City was established as one of five special economic zones in the PRC and a window for opening up to the outside world. This has resulted in the rapid commercial growth of Xiamen’s port, which was transformed from a small local port to a major international port in less than 10 years. New challenges have also arisen that require improvements to the port’s infrastructure and management information system (MIS), to make it more market oriented.

3. The feasibility study for the Xiamen Port Project was completed in 1995 and reviewed under ADB project preparatory technical assistance.2 ADB approved a $50 million loan from its ordinary capital resources on 27 November 1997, to finance 50% of the Project’s total $100 million cost. The Loan Agreement was signed on 12 February 1998 and declared effective on 12 May 1998. The loan closing date was set for 30 September 2002 but extended once, and the loan was finally closed on 30 June 2003, due to some adjustment to strengthen project implementation. Appendix 2 contains a chronology of major events related to the Project.

4. The Project’s objective is to promote economic growth in the region and improve market access for the underdeveloped hinterlands by (i) supporting enterprise reform in the ports subsector by separating regulatory and operational activities in Xiamen’s port; (ii) expanding the cargo handling capacity at the multipurpose berths of Dongdu terminal of Xiamen’s port; (iii) rationalizing the cargo handling operations at Dongdu terminal to enhance operational efficiency; and (iv) improving the MIS in the port to better support commercial operations. The Project achieved its objective within the cost estimated at appraisal.

1 ADB. 1991. Report and Recommendation of the President to the Board of Directors on a Proposed Loan and Technical Assistance Grant to the People’s Republic of China for the Ports Development Project. Manila; ADB. 1995. Report and Recommendation of the President to the Board of Directors on a Proposed Loan and Technical Assistance Grant to the People’s Republic of China for the Second Yantai Port Project. Manila; ADB. 1995. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Fangcheng Port Project. Manila; and ADB. 1997. Report and Recommendation of the President to the Board of Directors on a Proposed Loan and Technical Assistance Grant to the People’s Republic of China for the Xiamen Port Project. Manila. 2 ADB. 1996. Technical Assistance to the People’s Republic of China for the Xiamen Port Project. Manila. 2

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

5. Rapid socioeconomic development in the PRC is straining all of the country’s transport modes and is being addressed by the development of key port areas, road corridors, and railway networks. The Xiamen port’s hinterland includes Fujian Province and the provinces of Guangdong and Jiangxi. The primary hinterland of Xiamen port consists of Xiamen Municipality, with a population of 1.42 million in 2003 and several municipalities near Xiamen, including Longyan, Quanzhou, Sanming, and Zhangzhou. The three strategic objectives of ADB’s operations in the PRC at the time of project formulation were (i) economic efficiency, (ii) poverty reduction, and (iii) environmental protection and resource conservation. In the ports subsector, the priority was to mobilize capital resources to finance the construction of additional berths, install modern cargo handling facilities and equipment, and make transport and distribution in the hinterland more efficient. The Project was in line with the strategic objectives of ADB’s operations for the PRC in general and for the ports subsector in particular.

6. ADB supported the Government’s policy on integrated transport sector development and the Government’s program on the implementation of port projects since 1991. The principles of ADB’s strategy for port restructuring in the PRC remain basically the same, namely to remove infrastructure constraints and support policy and institutional reform. The policy dialogue undertaken with the Government at appraisal concentrated on the following: (i) developing integrated trade arrangements to facilitate efficient distribution in inland areas, mainly by addressing logistics, such as different modes and electronic data systems at ports; (ii) linking ports more efficiently to their hinterlands and national transportation corridors by selective investment in complementary infrastructure (e.g., national highways); and (iii) supporting the emergence of competition between ports at the overlapping margins of port hinterlands.3

7. The Project’s design was generally sound, and the formulation process was adequate. Stakeholders were consulted by means acceptable to ADB before and during the Project’s planning, designing, and implementing phases. The project scope was determined in consultation with the central Government and various provincial government departments, interested groups, and local leaders. The implementation arrangements devised under the technical assistance (footnote 3) were satisfactory. The Project’s technical and quantifiable benefits consist of reduced ship time in port, minimized cargo handling costs, and strengthened port management capability.

8. The Project was developed in the context of a wider government strategy to reduce poverty, which is also supported by ADB through its country strategy. The Project increased income-generating opportunities for the poor in the port vicinity by improving access to market-oriented activities and increasing employment through economic expansion.

B. Project Outputs

9. The Project’s scope at appraisal comprised the following:

(i) Civil works. These works included dredging, as well as soil stabilization; land reclamation; and construction of one 410-meter-long quay with two berths for

3 The criteria were based on the outcome of a 1993 international seminar on port investment and competition that was financed by ADB as a component of an earlier technical assistance undertaking (ADB. 1991. Port Management and Operations. Manila). 3

20,000-deadweight ton (dwt) general cargo vessels, one 260-meter-long berth for 20,000 dwt vessels, one 160-meter-long berth for 5,000 dwt vessels, and one 271-meter-long quay with three berths for 1,000 dwt vessels. (ii) Necessary equipment. Cargo handling equipment was procured, and this included rail-mounted portal cranes, mobile cranes, and MIS hardware and software. A tugboat with fire fighting equipment, a port service vessel, and other harbor crafts and vehicles were also procured. (iii) Other items. Cargo storage buildings, pavement, and roads were provided.

10. Project components were fully completed as appraised, with some adjustment and additional works during implementation to strengthen the port’s operation. The main reasons for the adjustments were to (i) enhance port capacity, (ii) cope with increasing demand for container traffic, and (iii) use fully the loan amount. The adjustments included (i) redesigning berth #10 and #11 to make these specialized container handling berths with a capacity of 450,000 twenty-foot equivalent units (teu); (ii) upgrading berth #5 and four smaller berths to meet a combined handling capacity of 1 million tons of break-bulk cargo; and (iii) replacing some break-bulk cargo handling equipment with additional container handling equipment, including two quayside container cranes, four mobile gantry cranes, two empty container handling machines, and one 80-ton truck scale. Appendix 3 compares the scope of project components planned at appraisal with the actual works executed, while Appendix 4 shows procurement details.

C. Project Costs

11. The final cost of the Project’s ADB-financed component at completion was $40.4 million, compared with $50.0 million at appraisal. The Project was estimated at appraisal to cost $100.0 million, including contingency fees and interest and other charges. The foreign exchange cost was $53.8 million (54%), and the local currency cost was $46.2 million (46%). The actual project cost is now $85.5 million. Analysis of project cost is shown in Appendix 5.

12. The Project realized savings of $14.5 million (foreign exchange $13.4 million and local currency $1.1 million) in actual costs over the appraisal estimates. The main reasons for the cost savings were (i) lower civil works construction cost, due to competitive bidding process and lower project preparation cost ($8.7 million lower than appraisal); (ii) lower consulting services cost due to competitive bidding process ($1.4 million lower than appraisal); (iii) nonuse of contingency ($12.9 million), and (iv) lower interest during construction ($2.1 million lower than appraisal).

13. Among the actual fund sources, ADB’s loan was $40.42 million (47%), Ministry of Communications’ grant was $6.35 million (7%), domestic bank loan was $12.92 million (15%), Xiamen government’s grant was $1.03 million (1%), and Xiamen Port Group Co. Ltd’s (XPG’s) equity contribution was $24.77 million (29%). Compared with appraisal, ADB’s loan was reduced by $9.58 million, the Ministry of Communications’ grant was increased by $0.95 million, domestic bank loan was decreased by $3.48 million, Xiamen government’s grant was decreased by $14.67 million, and XPG’s equity contribution was increased by $12.27 million.

D. Disbursements

14. ADB’s loan proceeds were disbursed in accordance with ADB’s guidelines on loan disbursement (Loan Disbursement Handbook) and pertinent regulations relating to contracts. The accounting staff members of the Executing Agency were trained in ADB disbursement procedures and able to submit all withdrawal applications in a timely manner. Most of the contracts for goods and services inclusive of international training were disbursed under direct 4 payment procedures. The imprest account, which proved helpful for disbursement of minor items, was properly maintained, and replenishment of imprest funds was regularly carried out. The imprest fund was properly liquidated in a timely manner.

E. Project Schedule

15. The total implementation period was scheduled to be 4 years, from 1998 to 2002. The loan closing date was originally set on 30 September 2002 but extended once by 9 months, to 30 June 2003. Project construction commenced on 30 November 1998. The Project’s marine works (marine structures and dredging) were completed on 31 December 2000, and land works (roads and storage) were completed on 31 December 2001. The procurement and installation of equipment (marine craft, cargo handling equipment, communications system, and MIS) started in September 1999, and the Project started its trial operation in October 2002 and commenced full operation in January 2003 (Appendix 6).

16. The Project’s scope was adjusted after the Midterm Review Mission in September 1999, after securing the approval of ADB, Ministry of Communications, and Ministry of Finance. The loan closing date was extended by 9 months, to accommodate the adjustments (para. 10).

F. Implementation Arrangements

17. Xiamen port, a municipal port under the direct administration of Xiamen Municipality, enjoys considerable autonomy in its day-to-day operations. To facilitate smooth implementation of the Project, the Xiamen Harbor Bureau (XHB) was officially designated on 1 February 1998 as the Project’s Executing Agency, and the Dongdu Phase III project management office (PMO) was established within XHB to undertake responsibilities related to project implementation, monitoring, and administration. The PMO was staffed with competent technical, administrative, and support staff. The key personnel were trained in ADB’s project implementation procedures related to project administration, procurement, and disbursement. PMO staff members maintained effective contact with ADB and consultants and relevant organizations at national, provincial, and local levels, to ensure the Project’s smooth implementation. In compliance with ADB loan covenants, XHB was restructured into two separate entities on 18 June 1998: (i) Xiamen Port Administration (XPA) and (ii) XPG, and all functions of XHB and loan responsibilities were transferred to XPG (Appendix 7). XPG is a large-scale and state-owned port enterprise carrying about 70–80% of the throughput of Xiamen port. Currently, XPG has 12 administration divisions and 19 enterprises, with a total staff of about 6,000.

18. The Project’s international procurement was undertaken by a tendering company, following the modes and procedures approved by ADB. The Executing Agency is experienced and previously acquired sufficient amounts of international project implementation experience in international competitive bidding and port engineering and management.

19. The People’s Bank of China provided overall guidance and coordination during the early stages of project implementation. However, under the government restructuring that took place in 1998, the coordination of the Project was transferred to the Ministry of Finance, while the Ministry of Communications was responsible for sector planning and policy development. The implementation arrangements proved to be adequate and played a significant role in achieving project targets.

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G. Conditions and Covenants

20. Most loan covenants were fully complied with, while the remaining covenants are still ongoing. As covenanted, XHB was expected to earn and maintain, for each financial year, commencing from financial year 1998, an annual return on net fixed assets in operation of not less than 10.0%. The rate of return on net fixed assets of XPG was 12.1% in 2002 and 10.0% in 2003 (including disposal of bad assets). XPG established a benefit monitoring and evaluation system, based on the format proposed by ADB. XPG is currently collecting data to monitor and evaluate project benefits. All required reports were submitted on time. Details of compliance status are shown in Appendix 8.

H. Related Technical Assistance

21. The Project was formulated under project preparatory technical assistance (footnote 2). The scope of this assistance included (i) reviewing the ports subsector in the PRC, (ii) reviewing the Project’s scope and feasibility, and (iii) reviewing the environmental impacts of the proposed investments. ADB approved the technical assistance on 29 October 1996. On 9 January 1997, ADB awarded the contract to a United Kingdom consulting firm. The project preparatory technical assistance inception report was submitted in February 1997, the midterm report in March 1997, and the final report in June 1997. This technical assistance confirmed that the Project’s scope and implementation agreement were appropriate, effective, and suitable for ADB financing. However, the technical assistance was unable to accurately forecast the increasing demand for container traffic, which resulted in the redesign after the midterm review of berths #10 and #11, to make them specialized high-capacity container handling berths. This shortcoming was probably due to the unclear addressing of this issue in the terms of reference of the technical assistance, which should have been included as an integral part of the technical specifications. However, no associated increase in project cost occurred because of the adjustments. The preparatory technical assistance was assessed as successful.

22. Advisory technical assistance for institutional restructuring and MIS improvement for the port authorities also complemented the Project.4 For this technical assistance, the contract was signed with a United States consulting firm on 4 May 1998. The inception report was submitted in June 1998, the midterm report in August 1998, and the draft final report in March 1999. On 25 November 1998, ADB approved the extension of consultancy services of the technical assistance, and the final report was submitted in September 1999.

23. The advisory technical assistance significantly assisted the port authority in establishing a framework for management and operational strategy and formulating the container terminal operations plan. The Executing Agency found the consultant’s recommendations and operations plan to be useful and practical and subsequently adopted almost all the recommendations, including (i) a strategy for restructuring XHB and separating the regulatory and operational aspects of port activities into separate bodies with clearly defined responsibilities; (ii) the development of an effective computer-based MIS to meet the needs of the new port management structure and integrate with port users and external agencies, where appropriate; and (iii) a staff member-training program that improved technical and management skills significantly. The advisory technical assistance was assessed as highly successful, and the technical assistance completion report is in Appendix 9.

4 ADB. 1998. Technical Assistance to the People’s Republic of China for the Institutional Restructuring and Management Information System Improvement. Manila. 6

I. Consultant Recruitment and Procurement

24. The PMO carried out the selection of an individual consultant according to ADB’s Guidelines on the Use of Consultants by Asian Development Bank and Its Borrowers. On 7 September 1998, ADB approved the engagement of an individual international consultant for the Project to provide 9 person-months of services. The consultant assisted the Executing Agency in reviewing and revising the bidding documents and visited the project site regularly to inspect the progress of the related works and suggest measures to enhance quality control and project monitoring.

25. In addition, the PMO engaged a domestic consulting firm, through local competitive bidding procedures, for construction supervision, the cost of which was financed by domestic funds. The consultants started in October 1998 and completed their assignment in March 2003.

26. The procurement of civil works (marine, dredging, and landside works) was implemented through international competitive bidding. Equipment was awarded through international competitive bidding, international shopping, and local competitive bidding procedures. In total, 19 international competitive bidding contracts, 7 international shopping contracts, and 1 local competitive bidding contract were awarded.

J. Performance of Consultants, Contractors, and Suppliers

27. The performance of consultants, contractors, and suppliers under the Project was considered satisfactory, with no noticeable problem during project implementation.

28. Project supervision was conducted in a professional and efficient manner. During construction, the supervision consultants strictly followed the contract provisions. The focus was on three areas: (i) control (progress, quality, and cost control); (ii) management (contract and information management); and (iii) coordination (internal and external coordination). Monthly construction coordination meetings were held, and progress reports were provided regularly to ADB. The reports examined actions taken to tackle problems and address issues.

29. During project implementation, contract terms and conditions were strictly complied with by all contractors, resulting in smooth implementation progress and good quality construction works within cost. No quality problems or contractual disputes occurred. The completion of project equipment contracts was generally smooth. Most suppliers performed satisfactorily and delivered the needed equipment as per contract requirements. The installation of equipment was completed promptly.

30. All work items under the Project were inspected and accepted by the Fujian Provincial Quality Supervising Bureau for Communications Projects. Thirty-five out of 37 items (94.6%) under marine works were assessed as excellent. The construction quality of the warehouse was also assessed as excellent. The installation of the handling equipment conforms to the design criteria and other relevant technical requirements. The performance of port facilities fully met design requirements, and all facilities were in normal operation after commissioning.

K. Performance of the Borrower and the Executing Agency

31. The Borrower met all project requirements and performed satisfactorily. The Project was implemented smoothly, following the arrangements envisaged at appraisal. Domestic funds were mobilized on time and no fund shortage was noted. The Executing Agency’s staff members 7 worked diligently and were dedicated to the successful completion of the Project. In accordance with the Project Agreement, the Executing Agency submitted on a timely basis the quarterly progress reports, annual reports, and audited project account and financial statements for the Project. The Project completion report prepared by the Executing Agency was submitted on time and was satisfactory.

L. Performance of the Asian Development Bank

32. ADB’s performance during project implementation was highly satisfactory. From project preparation to completion and operation, ADB provided significant help and paid close attention to the Project. In addition to the provision of loan funds for implementation and a staff member development program, ADB conducted training and seminars on project implementation and management that provided good opportunities to advance the Executing Agency’s awareness and understanding of ADB procedures and policies and removed potential obstacles to implementation. The number of ADB’s review missions was adequate. The missions had a positive impact on the Project’s efficient implementation and greatly contributed to the Project’s successful completion. The Project’s smooth and timely execution benefited greatly from ADB’s close supervision and support. During the Project’s early stages, ADB sent a consultant team, comprising experts in the fields of port technology and finance, to Xiamen port to carry out an overall assessment. The team’s recommendations on technology and institution were widely adopted and proved to be helpful in project implementation and port operations. The timing of the project completion review in 2004 was also appropriate, due to (i) completion of the MIS in March 2003 and the need for the system to be in operation for at least 1 year before a reliable assessment can be made and (ii) cancellation of the 2003 mission, due to severe acute respiratory syndrome.

III. EVALUATION OF PERFORMANCE

A. Relevance

33. The Project was consistent with ADB’s and the Government’s priorities at appraisal and remains consistent with current priorities. The Project benefits the community by improving the capacity and efficiency of Xiamen port and facilitating the hinterland’s continuous rapid economic development, particularly that of Fujian Province. As anticipated at appraisal, the completed project met the following objectives: (i) supporting enterprise reform in the ports subsector by separating regulatory and operational activities, (ii) expanding the cargo handling capacity at the multipurpose berths of the Dongdu port area of Xiamen port, (iii) rationalizing the cargo handling operations at Dongdu port area to enhance operational efficiency, and (iv) improving MIS in the port to better support commercial operations. The Project is rated highly relevant.

B. Efficacy in Achievement of Purpose

34. The Project generally achieved the physical targets set at appraisal and is expected to realize the wider development goal envisaged at that time. Constructing the new berths, installing modern equipment and MIS, improving staff member skills, and improving management practices had a significant impact on the subsequent hinterland’s economic development through faster, safer, and more efficient clearance and shipment of goods.

35. In 2003, the total throughput at Xiamen port was 34.04 million tons, of which outbound traffic was 14.83 million tons and inbound traffic was 19.21 million tons. Foreign trade was 23 million tons, about 67.6% of total throughput. Among all cargoes, container cargo was 19.73 8 million tons, about 58.0% of total cargo. Container traffic maintained a high growth trend, especially with the fast development of cross-ocean transport routes. In 2003, Xiamen port served 47 international transport routes, comprising 24 cross-ocean trunk routes (to other continents), 23 near-ocean routes (within Asia). XPG itself serves 35 of these 47 international routes, mainly the cross-ocean routes. XPG also serves domestic routes, such as Fuzhou, Shantou, and other river and sea ports. Cargoes handled by the Project’s berths were mostly international container cargoes. In line with expanding foreign trade development, the cross-ocean transport routes have developed rapidly. Currently, container cargoes handled through Xiamen port have a higher growth rate than break-bulk cargoes.

36. Infrastructure for container cargoes was greatly improved after project completion. The newly dredged channel and turning basin and the new project terminals increased port handling capacity and reduced ship turn-around time, which in turn strengthened Xiamen port as an attractive destination for an increasing number of large vessels. An effective marketing strategy was adopted by XPG, and this strategy will hopefully contribute to steady port traffic growth in the future. XPG is confident that the current traffic growth trend will be maintained and that more cargo will be diverted to the port. Xiamen port also is in a better and stronger position to compete with other seaports in the PRC and to take advantage of its favorable geographic location and facilities to attract more traffic, especially following the PRC’s accession to the World Trade Organization. The Project was rated highly efficacious (Appendix 10).

C. Efficiency in Achievement of Outputs and Purpose

1. Traffic Demand and Forecast

37. In its first fully operational year (2003), the Project’s container berths handled 3.73 million tons (392,000 teu). This increased the throughput of Xiamen port to 19.73 million tons. According to latest estimate, the throughput at project berths will reach 544,500 teu in 2004, with an annual growth rate of 39%, and the berths will handle 720,000 teu by 2009.

38. The forecast from 2004 to 2021, which was based on current economic development and actual throughput, shows that the cargo throughput of Xiamen port as a whole would reach 71.71 million tons in 2010 and 102.78 million tons in 2020. For the Dongdu port area, alone, the throughput would reach 31.99 million tons in 2010 and 32.30 million tons (its designed capacity) in 2011. For project berths (#5, #10, and #11), alone, the throughput would reach its designed capacity of 6.84 million tons in 2009. The container cargo throughput is projected to retain a high growth trend. The total container throughput for Xiamen port as a whole was expected to be 54.10 million tons in 2010 and 91.48 million tons in 2020 (Appendix 11).

39. A comparison of the latest forecast with that at appraisal was undertaken. The appraisal forecast was focused on berths #1–11 of Dongdu port area. The actual container traffic at these berths was about 2–3 times higher than that at appraisal.

2. Trend of Tariff and Pricing Authority

40. Tariff is subject to the price regulation of the relevant government authorities. At present, the authority for tariff setting lies with the Fujian Provincial Communications Department, Ministry of Communications, and Xiamen municipal government. Xiamen port has emerged as a winner in the port subsector in the PRC due to its geographical advantage, well-developed infrastructure, and efficient management. The higher revenue is mainly attributed to high cargo traffic growth, rather than a higher tariff. To enhance the competitiveness of the port and attract more ship calls, 9 the tariff was reduced by about 9% since 2001. Appropriate adjustment of tariff will be carried out according to the market situation. The current tariff is likely to increase in the next few years.

3. Economic Performance

41. Following the same methodology used at appraisal, the economic costs and benefits of the with and without project cases were reevaluated. The economic benefits were recalculated using actual 2002 and 2003 cargo throughput and newly forecasted cargo traffic for future years. Incremental operating and maintenance costs were also adjusted to reflect economic costs using the same approach. Actual capital cost was about 15% lower than that at appraisal, due to cost savings in civil works and nonuse of contingency fees. A higher equipment replacement cost was applied for container handling equipment. The Project’s principal economic benefits are (i) vessel waiting time savings, (ii) land transportation cost avoidance for diverted cargo, and (iii) lighterage cost avoidance. According to assumptions, 20–35% of project traffic would be diverted to road and railway transport in the without project case. Vessel time savings were calculated based on actual vessel time spent in berths and waiting time at anchor while waiting to berth.

42. The Project’s economic internal rate of return (EIRR) was reevaluated on the basis of 20 years of operation after project completion, or an evaluation of period of 24 years (1998–2021). The Project’s EIRR was recalculated at 22.3% (Appendix 12), compared with 26.0% at appraisal. The lower EIRR was mainly caused by higher operation and maintenance costs applied to meet high traffic demand. A sensitivity analysis indicated that the Project continues to be economically viable under various scenarios. In the worst case scenario, in which a 20.0% reduction in benefits and a 20.0% increase in operation and maintenance cost occur, the EIRR would be reduced to 15.7%, which is still above the cutoff rate of 12.0%. Overall, in economic terms, the Project was well justified.

4. Financial Performance

43. The port’s financial performance was assessed in comparison with the appraisal projection. The actual (1998–2003) and projected (2004–2021) financial statements of the project berths (#5, #10, and #11) were prepared, based on the latest traffic projections and financial parameters. Currently, the project berths are operated by XPG, an enterprise with the sole financial responsibility for its own profit and loss. The financial statements consisted of income statement, cash flow statement, and balance sheet (Appendix 13). All financial indicators were in satisfactory ranges. Growth of international container cargo accelerated after the completion of project facilities, which resulted in a better rate of return of port assets and provided new opportunities to expand more port-related businesses.

44. While traffic shows a positive outlook, competition with other domestic ports increased. However, XPG can capitalize on its strength (quality and efficiency of services) through continued implementation of the port management reforms action plan and further investing in the state-of-the-art machinery and facilities that will enable XPG to enhance its competitiveness. The full implementation of the action plan (which includes separation of social infrastructure and a reduction of personnel) together with the results of new capital investment for capacity expansion is likely to translate into better financial performance for XPG in the near future. XPG is now in the process of publicly listing relevant assets, including the Project, on the Hong Kong Stock Exchange to raise new capital for restructuring its capital and further improving its operation efficiency.

10

45. The financial internal rate of return (FIRR) for project berths was reevaluated using the same methodology used at appraisal but based on actual costs and updated assumptions (Appendix 14). The reevaluated FIRR is 16.60%, after corporate income tax, which compares favorably with the weighted average cost of capital of 4.32% and higher than the appraisal FIRR of 7.27%. The higher FIRR is mainly due to the lowered capital cost (by 15.00%) and higher revenue generated from higher-than-expected container traffic. A sensitivity analysis indicated that the FIRR remained robust under adverse conditions. Even in the worst case scenario, with a 20.00% reduction in revenue and a 20.00% increase in operation and maintenance cost, the FIRR would be at 8.90% after corporate tax, which was still much higher than the weighted average cost of capital. The Project is therefore considered financially viable.

5. Socioeconomic Impacts

46. Xiamen port is strategically situated to take advantage of the growth in direct trade and transport between the mainland and Taipei,China. The port’s hinterland includes several poverty-stricken counties (Fujian, Guangdong , and Jiangxi provinces), whose economic growth is dependent on the availability of cost-effective market access for their products. Fujian Province is witnessing fast socioeconomic development and foreign trade. The services of Xiamen port also extend to inner and other coastal areas of Guangdong and Jiangxi provinces. In 2003, the total container traffic of Xiamen port amounted to 19.73 million tons. Thirty percent of the foreign trade container cargo came from Xiamen, 45% from Quanzhou, 15% from Zhangzhou, and 10% from other places.

47. The Project created a considerable impact on the development of Fujian Province and surrounding provinces. In 2003, the gross domestic product of Fujian Province reached CNY524.17 billion, with an 11.5% annual increasing rate, while the total foreign trade reached $35.34 billion, about 24.4% higher than that of 2002. The fast socioeconomic development, especially foreign trade, in the Project’s influence area brought significant foreign investment in transport operations, especially container transport. The gross domestic product per capita of Fujian Province was CNY15,100 in 2003, compared with the national average of about CNY9,000.

48. The construction of project facilities also helped provide employment opportunities to the local population, particularly from the poor rural areas around Xiamen port. With the operation of the modern container and bulk terminal, more employment opportunities in port-related services emerged, particularly for migrant laborers from the surrounding rural communities and less developed neighboring provinces. XPG is now one of the largest tax contributors in the province, and this helped in the improvement of various welfare and service systems in the area.

6. Performance Indicators

49. As covenanted at appraisal, XPG established a monitoring and evaluation system to ensure that the Project’s facilities are managed efficiently and the anticipated benefits are realized. Cargo handling productivity, origin-destination of traffic, cargo throughput, berth occupancy ratio, and land transport links data, as well as operational, commercial, and financial data, were collected at the commencement of the Project and at regular intervals thereafter and were included in the progress and performance monitoring reports. The baseline data for the hinterland penetration indicators were also recorded, and the comparative figures after 1 year (2004 data) and 3 years of operation will be assessed to determine the impact of the Project. Taking into consideration the reasonable internal rate of return, effectiveness of management, and efficient processing and implementation of the Project, the Project is rated highly efficient. 11

D. Preliminary Assessment of Sustainability

1. Policy Reform

50. New Port Law. A law to reform the PRC’s ports subsector was identified by ADB as an essential requirement, and this law was incorporated as a covenant in three ADB-financed port projects (Fangcheng, Xiamen, and Yantai) that were approved in the 1990s. As a result, the PRC's top legislature, the Standing Committee of the National People's Congress, passed a law on port operation in June 2003 governing construction, management, and competitiveness of the country's sea and river ports. The law, which became effective on 1 January 2004, has transferred the legal responsibility of the Ministry of Communication and the central Government over the ports to the local governments. The Ministry of Communications and the central Government will merely play the role of coordinators. Port authorities and companies will have the flexibility of running their ports in accordance with market principles, in a transparent and unbiased manner, and in line with local conditions.

51. The law will help tighten government supervision and improve port administration and operations. The Government opened its ports to overseas investment in 2002, and the new law is expected to open the door even wider. Given the rapid growth of port services, XPG will benefit significantly from the new law.

52. Institutional Restructuring. In compliance with ADB loan covenants, XHB (the former Executing Agency) was separated into two entities on 18 June 1998: XPA and XPG. Since then, all functions of the Executing Agency and loan responsibilities were transferred to XPG, including the PMO, without any change in staffing. As a result of the restructuring and increase in capacity, the port witnessed significant development. The throughput was 5.30 million tons in 1990, 17.54 million tons in 1997 (prior to project implementation), and 34.04 million tons in 2003. A large passenger terminal is at the planning stage and will be constructed soon.

53. At present, project berths are operated by Xiamen Port Haitian Container Terminal Company (XPHCTC), which was established in 2001. The former body of XPHCTC, Xiamen Port Haitian Subsidiary Company, was awarded the quality assurance system certification of ISO9000 in 2000, after it implemented efficient management and operating systems.

54. The newly established business department within XPHCTC established a marketing center that is responsible for market expansion with the following actions: (i) strengthening collection of and analyzing market information to provide a basis for better decisions; (ii) establishing a client management system; designating specific client management staff members for each major client; and (iii) providing good associated services.

55. Management Information System. To increase operational efficiency, XPG developed a modern MIS. A large-scale database was developed using the ORACLE system in 2002 and put into operation at the beginning of 2003. The MIS equipment procured under the Project included a server, database software, and computer terminals. The development of the system has (i) increased port efficiency and improved resources use, (ii) reduced operating costs and increased profits, and (iii) assisted all levels of port management by providing accurate and timely monitoring data.

56. Joint Venture. XPG established a business relationship and joint venture with Xiamen International Container Terminal, in which XPG’s share is about 35.7%. Xiamen National Trade Company has a share of about 15.3%, and Hongkong Hutchison Port Holdings Group accounts 12 for 49.0%. Xiamen International Container Terminal carries out its operations in Berth #2 and Berth #3 of Haicang port area.

57. Private Sector Participation. XPG carried out a resources rationalization exercise to streamline its operations, create a competitive environment, and concentrate on core activities, such as storage and stevedoring, transportation, logistics, and agencies that are closely related to stevedoring. Sixteen subsidiary freight companies are merged into one competitive company, Xiamen Port Group Logistics Company.

58. Separation of nonoperational activities is currently underway, including spamming off the canteen, hostel, and school, while business areas that have no or few links with XPG’s main business will be closed (e.g., Xinggang Real Estate Company).

59. The establishment of the free trade zone in the port area also attracted several private enterprises and contributed to stronger growth and sea traffic demand and strengthened port activities. The zone is acting as a focal platform to facilitate importation and exportation, while its warehouses are used as temporary cargo storage areas. An inspection and customs center established near Dongdu terminal provided another convenient one-stop clearance facility and attracted more clients. Many well-known international and domestic shipping companies (including Evergreen, Grand Alliance, Maersk Sealand, and PRC Shipping) have opened offices or established agencies in Xiamen.

60. Merit System. XPG introduced an open competition and merit system in the appointment of new staff members and management cadre and the promotion of staff members. Several of the younger generation professionals have now been promoted to various important positions. Competition with external applicants is now in place for all promotions, taking into account the candidate’s qualifications, experience, and performance. All positions are provided with a job description and selection criteria. XPG also established links with some universities and employment agencies to assist in the recruitment of suitable candidates.

61. Asset Management and Listing of the Project on a Stock Exchange. XPG is a wholly state-owned company and operates as a commercial entity. For better restructuring of its assets, increasing its operation efficiency, and enhancing its market competitiveness, XPG is now pursuing its initial public offering on the Hong Kong Stock Exchange.

2. Risks

62. As formulated at appraisal, the Project does not face any significant technical or environmental risks. XPG gained adequate technical expertise and project implementation experience, as well as institutional capacity and robust revenue growth and profit, and no significant debt service obligation exists. The main risks were traffic demand and competition from other domestic ports. Rapid growth in the port and project area and the development of an efficient link with the road and railway networks in the port hinterland will ensure a constant demand for the facilities provided under the Project. Good potential exists for port-associated services expansion and operations improvement. Hence, the sustainability of the Project is rated most likely.

E. Environmental, Sociocultural, and Other Impacts

1. Environmental Impacts

63. Environmental mitigation measures and protection under the Project were carried out in accordance with the requirements of the project environmental impact assessment report, which 13 was approved by the National Environmental Protection Agency. Two domestic sewage treatment units and one ballast water treatment plant were built under the Project. Disposal of solid wastes from the project area is carried out regularly within the entire port by cleaning trucks, fixed garbage collection boxes, and garbage trucks. Xiamen Marine Bureau is responsible for environmental protection related to vessel operations, and the Xiamen municipal government is responsible for overall environmental protection monitoring, including monitoring the port channel. The environmental monitoring station of the Executing Agency is responsible for environmental protection and relevant monitoring during construction and operation. In July 2003, all environmental facilities associated with project construction and operation were inspected and accepted by the State Environmental Protection Administration.

2. Resettlement

64. All of the project berths are located in the Dongdu port area, within Xiamen port. The total land area of the Project is about 271,498.6 square meters, all of which was beach land, and no people or facilities were resettled. The associated onshore facilities and services including cargo storage, buildings, and roads were also constructed on reclaimed beaches and no new land was acquired.

3. Occupational Health and Safety

65. For the sake of employees’ health and safety, all necessary safety facilities were installed, and appropriate technical measures were undertaken under the Project, in compliance with the relevant Government regulations. The measures include traffic signs, separation of vehicle entrances and exits, noise reduction actions, wind velocity devices, and rail clamps for portal cranes.

66. Project occupational health and safety facilities were checked independently and accepted jointly in 2003 by the Xiamen Sanitation and Anti-Epidemic Station, Safe Operation Supervision Bureau, and General Trade Union.

4. Marine Traffic Safety and Emergency Response

67. Xiamen Marine Bureau is responsible for traffic control and emergency response in the entire port area. An emergency response plan, which clearly addressed the different types of emergencies and detailed procedures, was developed by the Xiamen Marine Bureau. Xiamen Municipality also established a marine traffic control center that monitors the approaching traffic and implemented a series of measures for avoiding sea accidents. This center is well staffed and fully equipped with essential facilities. It has the power for overall control and use of all related facilities during an emergency.

5. Integrated Transport

68. Xiamen port is now connected to different transport modes, including railways, highways, and waterways, as well as civil aviation. One railway line and two cross-strait bridges connect Xiamen Island to the mainland.

69. With the completion of the Project, the railway track inside the port was extended to over 7 kilometers. This enables the port to be linked to neighboring provinces, through the railway line from Xiamen to Yingtan in Jiangxi Province, and Beijing and Guangzhou, through the Jingjiu Railway and Meikan Railway lines. Construction of local roads in the project vicinity also 14 strengthened Xiamen port’s links with provincial road and national highway networks. The highway network in Fujian Province improved and expanded significantly in recent years. By the end of 2003, the total highway mileage amounted to 54,876 kilometers, with a 727-kilometer expressway linking Xiamen to all major cities in the PRC. The road and NTHS networks supported the fast socioeconomic development in Fujian Province and facilitated cargo transport from Xiamen port to other cities and river ports in the PRC. The integrated transport approach improved port operations significantly.

F. Project Operations

1. Capacity Building

70. The Project included, at appraisal, the funding of $0.25 million for staff members of the Executing Agency to receive international training. The Executing Agency implemented two training programs (15 person-months in each) in advance port engineering and management with a total cost of $0.23 million. The trainees visited the United States from 10 July to 10 August 1999 and Belgium from 27 September to 27 October 2002. The returned trainees occupied positions where their training in port management, construction, and operations could be used effectively. The training contributed to the capacity building and development of the Executing Agency’s staff members, and this was reflected in the efficient implementation of the Project and successful operation of the port’s facilities, despite strong competition from other domestic ports.

2. Project Facilities

71. The Project’s facilities commenced full operation at the end of 2002, and the Executing Agency derived immediate benefits from the Project. With modern container and multipurpose berths constructed and the approach channel and turning basin deepened under the Project, more business opportunities in port-related services emerged. By the end of 2003, Xiamen port had a total of 78 berths, with a combined handling capacity of 40.7 million tons. The Project helped relieve deepwater berth congestion and increased cargo handling efficiency, and this in turn attracted an increasing number of large vessels and container carriers to the port. The MIS and modern equipment provided also created a more professional and better environment to enhance port operations. The overall impact of the Project is considered substantial.

IV. OVERALL ASSESMENT AND RECOMMENDATIONS

A. Overall Assessment

72. Overall, the Project is rated highly successful.5 The Project achieved its immediate objective of improving the provincial and regional socioeconomic development of its hinterland through more efficient and better port facilities. From project formulation to project completion, the Project obtained extensive guidance and assistance from higher authorities and concerned departments and ADB. Xiamen port was the first port in the PRC to rationalize its port management structure by separating its regulatory and commercial functions, as covenanted. The restructuring was undertaken in parallel with project implementation. In addition, the development of a modern MIS and better trained staff members significantly supported the commercial operations of the expanded port. All of these efforts enabled the corporatization of XPG, improved port operating efficiency, and increased private sector participation in port-related

5 This PCR is part of a sample of PCRs independently reviewed by the Operations Evaluation Department. The review has validated the methodology used and the rating given. 15 activities. Xiamen port emerged from a small local port to an important international port in the PRC in less than 10 years. In terms of container throughput, Xiamen port was ranked as 7th among all coastal ports in the PRC and 29th in the world in 2003. XPG has annually generated profits in excess of $13.3 million, and the port is one of the largest tax paying agencies in the province.

B. Lessons Learned

73. The following lessons were learned from the Project:

(i) Active involvement of ADB in problem solving and design enhancement was essential in ensuring the successful completion and operation of the Project’s facilities. (ii) Well-formulated advisory technical assistance contributed significantly to the implementation of the policy reform action program and successful operation of the Project’s facilities.

C. Recommendations

1. Project-Related

74. The following recommendations were discussed during the course of the project completion review with the Executing Agency and the Government:

(i) XPG should always assess traffic forecasts during the monitoring of project operations. XPG should assess all remaining noncore and loss-making businesses with a view to contracting out or selling them to private investors, to realize further cost savings. (ii) XPG should work continuously with the local government regarding the market value of its allocated land, and the land should be revalued at regular intervals, to ensure a correct reflection of the value of XPG’s assets. (iii) XPG should constantly monitor the effectiveness of its port marketing strategy to improve its market share and competitiveness. Relevant frontline managers and staff members should be regularly trained on advanced port management and modern business procedures, to meet increasing customer service demands.

2. Executing Agency and the Government

75. Project Completion Review Mission observations and lessons learned throughout project implementation yielded the following recommendations for the Executing Agency and the Government:

(i) Xiamen port, like most of the main ports in the PRC, is located close to the central business district of the city. With the growing road transport services in the vicinity of the port, regular monitoring of the efficiency of the port’s current integrated transport plan is essential, to alleviate any potential traffic congestion. (ii) Continuous monitoring and upgrading of power supply, water supply, fire fighting, and drainage, and sewerage systems of various port facilities and other emergency systems are essential to cope with any emergency situation as cargo throughput increases. 16 Appendix 1

PORT SUBSECTOR DEVELOPMENT

1. The People’s Republic of China (PRC) has two main types of ports: seaports and river ports. About 300 seaports are located along the 18,000-kilometer coastline. Twenty-six of these are major ports, handling most of the PRC’s foreign trade cargo. Most of the roughly 2,000 river ports are located along the four major rivers, with navigable lengths totaling about 110,000 kilometers. The PRC’s ports handle 9% of domestic cargo transport and 85% of foreign trade cargo. As the economy grew rapidly during the past decade—averaging around 10% per annum—and the total value of foreign trade continuously increased (e.g., $38.14 billion in 1980, $289.88 billion in 1996, and $851.20 billion in 2003), the need for modern ports became evident. Although the major PRC ports operate on 24-hour basis, due to the heavy demand for their facilities, the efficiency of their operations is hampered by the high level of congestion in port approach areas, inefficient transport facilities from the ports to their hinterlands, aging equipment and systems, limited numbers of skilled personnel, and poor port management. In addition, most of the ports have depth limitations of about 10 meters and limited berths.

2. Along with robust socioeconomic development, coastal ports in the PRC witnessed increasing development in terms of capacity, throughput, and services. The cargo throughput at major costal ports reached 2 billion tons, with an annual increase rate of 24% in 2003. The average annual growth rate was 12% from 1990 to 2003 and 17% in the last 3 years. The cargo throughput at major coastal ports is shown in Table A1.1.

Table A1.1: Cargo Throughput at Major Coastal Ports of the People’s Republic of China (million tons)

Port 1990 1995 2000 2001 2002 2003 Dalian 49.5 64.2 90.8 100.5 108.5 126.0 Yingkou 2.4 11.6 22.7 25.2 31.3 40.1 Qinghuangdao 69.6 83.8 97.4 113.0 111.7 125.6 Tianjin 20.6 57.9 95.7 113.7 129.1 161.8 Yantai 6.7 13.6 17.7 21.9 26.9 29.4 Qingdao 30.3 51.0 86.4 104.0 122.1 140.9 Rizhao 9.3 14.5 26.7 29.3 31.4 45.1 Lianyungang 11.4 17.2 27.1 30.6 33.2 37.5 Shanghai 139.6 165.7 204.4 221.0 263.8 316.2 Ningbo 25.5 68.5 115.5 128.5 154.0 185.4 Fuzhou 5.6 10.3 24.3 29.6 39.1 47.5 Xiamen 5.3 13.1 19.7 21.0 27.4 34.0 Shenzhen 0.0 30.8 57.0 66.4 87.7 112.2 Guangzhou 41.6 73.0 111.3 128.2 153.2 171.9 Zhanjiang 15.6 18.9 20.4 22.1 26.3 28.7 Haikou 2.9 4.7 8.1 8.9 10.7 13.3 Basuo 4.3 2.8 3.8 3.4 3.4 4.3 Sanya 0.4 0.4 0.5 0.7 0.5 0.6 Others 42.8 99.8 226.8 258.3 306.2 390.8 Total 483.2 801.7 1,256.0 1,426.3 1,666.3 2,011.3 Source: China Statistical Bureau. 2004. China Statistical Yearbook. Beijing: China Statistics Press.

Appendix 1 17

3. Container transport, in particular, experienced tremendous growth in the last few years. In 2002 alone, the container throughput reached 33.76 million twenty-foot equivalent units, with an annual growth rate of 37%. Along with increasing foreign trade, especially after the PRC joined the World Trade Organization and after its inland transport network was expanded and improved, container transport demand grew at a rapid rate. This growing trend is expected to continue in future years.

4. Handling capacities, especially container handling capacities, of coastal ports expanded and improved significantly, and this allowed them to meet fast-growing demand. By the end of 2002, the total berth length of all coastal ports in the PRC was 353,000 meters, covering 3,822 berths (Table A1.2). Most coastal ports are trying to expand container handling capacities by constructing more container berths or converting existing berths from break-bulk cargo berth to container handling berths.

Table A1.2: Coastal Port Capacity of the People’s Republic of China (2002)

Name of Length of Berths Number of 10,000- Number of Berths Port (m ‘000) ton Berths Tianjin 17.0 96.0 54.0 Hebei 12.0 55.0 41.0 Liaoning 36.0 253.0 88.0 Shanghai 41.0 330.0 11.3 Jiangsu 0.9 100 .0 26.0 Zhejiang 54.0 867.0 59.0 Fujian 30.0 359.0 46.0 Shandong 36.0 261 .0 90.0 Guangdong 98.0 1,244 .0 147.0 Guangxi 12.0 153.0 19.0 Hainan 8.0 104.0 17.0 Total 353.0 3,822 700.0 Source: China Statistical Bureau. 2003. China Port Statistical Yearbook. Beijing: China Statistics Press.

18 Appendix 2

CHRONOLOGY OF MAJOR EVENTS

19–30 May 1997 Fact-Finding Mission fielded

4 Jul 1997 Management review meeting held

29 Jul 1997 Circulation of summary environmental impact assessment to the Board of Directors

21–30 Jul 1997 Appraisal Mission fielded

19 Sep 1997 Staff review committee meeting held

15–17 Nov 1997 Loan negotiations held

27 Nov 1997 Asian Development Bank (ADB) approved a loan and technical assistance in the amount of $50.000 million and $0.575 million, respectively

6 Feb 1998 ADB approved issuance of prequalification documents for civil works packages (marine structures and dredging and land reclamation)

12 Feb 1998 Loan and Project Agreement signed

16–20 Feb 1998 Inception Mission fielded

12 May 1998 Loan declared effective

5 Jun 1998 ADB approved the list of prequalified bidders for civil works contractors

9–10 Sep 1998 Review Mission 1 fielded

26 Oct 1998 Award of contract for civil works for marine structures and dredging and land reclamation

9 Jul 1999 Award of contract for landside works

14 Jul 1999 Award of contract for the procurement of 2940kw fire-fighting tugboat

30 Aug–3 Sep 1999 Review Mission 2 fielded

26–31 Jul 2000 Review Mission 3 fielded

28 Aug 2000 ADB approved the change in project scope and use of surplus loan proceeds

7 Nov 2000 Award of contract for the procurement of cable telecommunications equipment (IS3070 exchange configuration, IS3050 subsystem configuration, and optical fiber backbone network)

9 Jan 2001 Award of contract for the procurement of buoys Appendix 2 19

8 Feb 2001 Award of contract for the procurement of port equipment (portal cranes)

3 Aug 2001 Award of contract for the procurement of two for 45–53-seat commuter buses and two 28–30-seat commuter buses.

5–10 Aug 2001 Review Mission 4 fielded

16 Nov 2001 Award of contract for the procurement of an 80-ton electronic digital truck scale

24 Dec 2001 Award of contract for the procurement of port equipment (quayside container cranes and mobile gantry cranes)

8 Mar 2002 ADB approved the extension of the loan closing date by 6 months, from 30 September 2002 to 30 March 2003

5 Apr 2002 Award of contract for the procurement of empty handling container and radar beacon

18 Apr 2002 ADB approved the cancellation of loan surplus by $8.65 million, effective 4 March 2002

15 Jul 2002 Award of contract for the procurement of transportable bulk fertilizer bagging machines

9 Aug 2002 Award of contract for the procurement of a wireless communication system

13–20 Oct 2002 Review Mission 5 fielded

27 Nov 2002 Award of contract for the procurement of a management information system

4 Jun 2003 Receipt of refund of the unused imprest fund, in the amount of $13,518.99

30 Jun 2003 Cancellation of the undisbursed loan balance of $931,648.17, and the loan account was closed

27–30 Sep 2004 Project Completion Review Mission fielded 20 Appendix 3

COMPARISON OF WORKS PLANNED AT APPRAISAL AND ACTUAL ACCOMPLISHMENT ($ million) Appraisal Actual Completion Item Brief Description Cost Brief Description Cost Date A. Construction Works Marine # 5 berth: 260 m 30.50 Same 24.82 (local Dec 2000 Works # 10 and #11 berths: 410 m fund is pier : 160 m and 271 m 11.42, and ADB’s loan Dredging: Dredging: is 13.40) 721,282 m3 1, 529, 711 m3 and blasting and blasting 86,464 m3 96,707m3

Land Formation: reclamation Land Formation: 983,377 m3 reclamation 1,875,656 m3

Landside Pavement and Storage Yard: 14.50 Pavement and Storage 8.98 (local Dec 2001 Works 233,301 m2 Yard: 255,439 m2 fund is 5.67, and ADB’s Civil Works: 33,750 m2 Civil Works: 18, 340 m2 loan is 3.32)

Railroad: 1.42 km of track Railroad: 1.42 km of track laying laying

Electricity Supply, Water Electricity Supply, Water Supply and Drainage, Supply and Drainage, Communication Pipeline, Communication Pipeline, Environment Protection Environment Protection B. Equipment Portal Cranes (7 X 10 t at 33 4.20 Portal Cranes (40 t X 1 and 2.39 Mar 2002 m, 1 X 10 t at 30 m) 10 t X 4)

Mobile Cranes (3 X 25 t, 12 X 1.30 Mobile Cranes (25 t X 6) 0.74 Mar 2002 16 t)

Forklift Trucks 0.50 Forklift Trucks 0.40 Aug 2001 (3 x 10 t, 10 x 6 t) (3 x 10 t, 7 x 6 t)

Prime Movers (6 X 3,500 kg, 0.50 Prime Movers (5 X 35 KN, 7 0.38 Jul 2001 10 X 2,000 kg) and Yard X 25 KN) and Yard Trailer Trailer (9 X 20 t, 18 X 10 t) (12 X 20 t, 24 X 10 t)

Reach Stacker (1) 0.50 Reach Stacker (1) 0.34 Aug 2001

Bagging Machines (2) 0.40 Bagging Machines (2) 0.17 Nov 2002

Container Crane (2 X 50 t) 6.56 Nov 2002

Mobile Gantry Crane 3.02 Sep 2002 (4 X 41 t)

Empty Container 0.34 Nov 2002 Handler (2)

Weighbridges 0.20 Weighbridges 0.09 (local Jan 2002 (2 x 60 t per 18 m) (3 x 80 t per 18 m) fund is 0.02, and ADB’s loan is 0.07)

Appendix 3 21

Appraisal Actual Completion Item Brief Description Cost Brief Description Cost Date Repairing Equipment 0.10 Cancellation (approved by ADB)

Various Vehicles 0.40 Commuter Buses and 0.25 (local Sep 2001 Cancellation of Repair fund is 0.06, Vehicle , 4 t Truck, Rubbish ADB’s loan Collection Truck, Water is 0.19) Bowser, and Fire Engine (approved by ADB)

Auxiliaries (stevedoring nets, 0.10 Cancellation (approved by pallets, and others) ADB)

Tugboat (3,200 hp) 2.90 Tugboat (3,200 hp) 2.88 Aug 2000

Management Information 1.40 Network System 0.19 Mar 2003 System Container Storage Yard 0.20 Mar 2003 Management System

Database System 0.26 Mar 2003

Navigation Aids Equipment 0.20 Beacon Radar 0.13 Apr 2002 Buoys 0.04 Sep 2001

Telecommunications 0.80 Port Radio 0.50 Dec 2002 Equipment

Various Cargo Inspection Exchanger 0.22 Jun 2001 Equipment 2.20 Cancellation (approved by ADB)

C. Overseas Training 0.25 The First Overseas Training 0.12 Carried out (15 person-months) Was from Jul to Carried Out from July to Aug 1999 August 1999

The Second Overseas 0.11 Carried out training(15 person-months) from Sep to Was Carried Out from Oct 2002 September to October 2002

D. Consulting Services 0.05 Individual Consultant: 6 0.04 Mar 2003 Months Site Work and 3 Months Office Work # = number. ADB = Asian Development Bank, t = ton, m = meter, hp = horsepower. Source: Asian Development Bank estimates.

PROCUREMENT DETAILS: LIST OF CONTRACT PACKAGES 22

Country of Original Contract 4 Appendix Mode of Origin of the Contract Amount Final Contract Procure- Contract Contractor/ Amount in $ Payment No. Name of Contractor Item ment Date Supplier (CNY) Equivalent ($ equivalent) Civil Works 1 3rd Navigational Bu. Marine Works/Dredging ICB 03/11/1998 PRC 5,346,372.00 5,346,372.00 Under MOC 66,702,920.00 8,053,620.00 8,053,620.00 2 3rd Navigational Bu. Landside Works ICB 04/08/1999 PRC 19,503,408.00 2,356,131.00 2,356,131.00 Under MOC PRC 961,555.00 961,555.00 Subtotal 86,206,328.00 16,717,678.00 16,717,678.00

Equipment 1 China Harbour Eng. Co. 2940 KW Firefighting Tugboat ICB 20/08/1999 PRC 2,882,758.00 2,882,758.00 2 Beijing Yunda Trans. Tech Cable Telecom Equipment ICB 24/11/2000 PRC 903,225.00 109,123.00 109,123.00 3 Beijing Yunda Trans. Tech Cable Telecom Equipment ICB 24/11/2000 PRC 163,744.00 19,783.00 19,783.00 4 Beijing Yunda Trans. Tech Cable Telecom Equipment ICB 24/11/2000 PRC 188,401.98 22,762.00 22,762.00 5 Beijing Yunda Trans. Tech Cable Telecom Equipment ICB 24/11/2000 PRC 366,826.00 44,318.00 44,318.00 6 Beijing Yunda Trans. Tech Cable Telecom Equipment ICB 24/11/2000 PRC 3,273.00 395.00 395.00 7 Beijing Yunda Trans. Tech Cable Telecom Equipment ICB 24/11/2000 PRC 164,270.00 19,846.00 19,846.00 8 China Harbour Eng. Co. Portal Crane ICB 23/02/2001 PRC 1,684,300.00 1,684,300.00 9 China Harbour Eng. Co. Portal Crane ICB 23/02/2001 PRC 705,700.00 705,700.00 10 China Wuhan Machinery Eq. Tyre Mounted Crane ICB 23/02/2001 PRC 734,706.00 734,706.00 11 China Bussan Co. Ltd Forklift Trucks ICB 23/02/2001 PRC 402,229.00 402,229.00 12 China Harbour Eng. Co. Prime Mover/Yard Trailer ICB 23/02/2001 PRC 383,800.00 383,800.00 13 Hoi Tung Marine Machinery Container Reach Stacker ICB 23/02/2001 PRC 339,800.00 339,800.00 14 Xiamen Hairong Nav. Aids Buoys ICB 12/03/2001 PRC 292,784.00 35,337.00 35,337.00 15 Amoy Motor Im. and Ex. Co. Commuter Busses LCB 10/08/2001 PRC 1,551,750.00 187,475.00 187,475.00 16 Mettler-Toledo Changzhuo Ltd Electronic Digital Truck Scale IS 17/11/2001 PRC 575,550.00 69,535.00 69,535.00 17 Shang Hai Port Machinery Quayside Container Cranes ICB 30/12/2001 PRC 6,560,000.00 6,560,000.00 18 Hoi Tung Marine Machinery Mobile Gantry Crane ICB 30/12/2001 PRC 3,019,500.00 3,019,500.00

LIST OF CONTRACT PACKAGES — continued

Country of Original Contract Mode of Origin of the Contract Amount Final Contract Procure- Contract Contractor/ Amount in $ Payment No. Name of Contractor Item ment Date Supplier (CNY) Equivalent ($ equivalent) Equipment 19 Ab Pharos Marine PTE Ltd Radar Beacon IS 23/04/2002 PRC 126,120.00 126,120.00 20 Chuwa Bussan Co. Ltd Emply Handler Container ICB 20/04/2002 ITA 336,134.00 336,134.00 21 Shanghai Ship and Transportable Bulk-Fertilizer Shipping Res. Institute Bagging Units IS 30/07/2002 PRC 1,440,000.00 173,968.00 173,968.00 22 Beijing Yunda Trans. Tech Wireless Communication IS 15/08/2002 USA/DEN/PRC 499,951.63 499,951.63 System 23 Xiamen Wins Info Industrial Co. Network System IS 04/12/2002 USA 1,602,176.00 193,567.00 193,567.00 24 Mei Ah Entertainment Group Ltd Container Storage Yard Management System IS 04/12/2002 USA 198,371.00 198,371.00 25 Mei Ah Entertainment Group Ltd Database System IS 04/12/2002 USA 263,062.00 263,062.00 Subtotal 19,012,540.63 19,012,540.63 Total 35,730,218.63 35,730,218.63 Bu. = bureau, Co. = company, DEN = Denmark, DP = direct purchase, Eng. = engineering, Eq. = equipment, Ex = export, Im. = import, ICB = international competitive bidding, IS = international shopping, ITA = Italy, LCD = local competitive bidding, Ltd = limited, Nav. = navigational, PRC = People's Republic of China, PTE = Private, Res. = research, Tech = Technology, Trans = transportation, USA = United States of America. Source: Asian Development Bank records.

Appendix 4 Appendix 23

24 Appendix 5

DETAILED COST ESTIMATE AND FINANCING PLAN

Table A5.1: Appraisal Versus Actual Financing Sources ($ million)

At Appraisal Actual Foreign Local Foreign Local Source Exchange Currency Total Exchange Currency Total

Ministry of Communications 0.00 5.40 5.40 0.00 6.35 6.35

State Development Bank 0.00 3.50 3.50 0.00 0.00 0.00 (soft loan)

State Development Bank 0.00 12.90 12.90 0.00 12.92 12.92 (hard loan)

Xiamen Municipal Government 3.80 11.90 15.70 0.00 1.03 1.03

Xiamen Port Group 0.00 12.50 12.50 0.00 24.77 24.77

Asian Development Bank 50.00 0.00 50.00 40.42 0.00 40.42

Total 53.80 46.20 100.00 40.42 45.07 85.49 $ = US dollars.

Table A5.2: Cost Estimates ($ million)

Appraisal Estimate Actual Foreign Local Foreign Local Item Exchange Currency Total Exchange Currency Total A. Base Cost 1. Project Preparation 0.00 2.40 2.40 0.00 0.52 0.52 2. Marine and Landside Works 24.90 20.10 45.00 16.72 21.51 38.23 3. Equipment 15.20 0.50 15.70 19.01 18.63 37.65 4. Consulting Services and Training 0.30 4.00 4.30 0.27 2.58 2.85 Subtotal (A) 40.40 27.00 67.40 36.00 43.24 79.24 B. Contingencies 7.80 5.10 12.90 0.00 0.00 0.00 C. IDC and Other Charges 5.60 2.70 8.30 4.42 1.83 6.24 D. Taxes 0.00 11.40 11.40 0.00 0.00 0.00 Total 53.80 46.20 100.00 40.42 45.07 85.49 IDC = interest during construction. Source: Asian Development Bank estimates.

IMPLEMENTATION SCHEDULE 1997 1998 1999 2000 2001 2002 2003 Item AMJJ ASONDJ FMAMJJ ASONDJ FMAMJJ ASONDJ FMAMJJ ASONDJ FMAMJJ ASONDJ FMAMJJ ASONDJ FM Loan Processing Contract Signing Effectivenes

Consulting Services Design

Tendering

Supervision

Civil Works

Dredging

Marine Works

Landside Worksa

Facilitiesb

Equipmentc Cargo Handling Ad. Cargo Han. Others Ad Weighbridge Marine Craft Navigation MIS ad = added, han = handling, MIS = management information system. 6 Appendix a Including utilities (e.g roads, storage yard, and warehouses). At appraisal Actual b Auxiliary/residential buildings. Bid preparation/Bidding/Contract c Schedule changed due to procurement of new equipment after the midterm review.

Processing/Civil Works/Supply/Deliver/Installation 25

Maintenance Period

26 Appendix 7

INSTITUTIONAL FRAMEWORK

1. The Executing Agency of the Xiamen Port Project was Xiamen Harbor Bureau (Figure A7.1). A project management office was established on 1 February 1998. In compliance with Asian Development Bank loan covenants, Xiamen Harbor Bureau was separated into two entities on 18 June 1998: Xiamen Port Administration and Xiamen Port Group Co. Ltd (XPG). Since then, all functions of the Executing Agency and loan responsibilities were transferred to XPG, including the project management office unit, without any change in staffing (Figure A7.2).

Figure A7.1: Project Executing and Implementing Organizations Diagram (Prior to 18 June 1998)

Executing Agency Xiamen Harbor Bureau

Project Management Office

Dongdu Phase Project of Xiamen Port

Administration Financial Planning Machine and Construction Division Division Division Electrical Division Division

2. XPG is a large-scale and state-owned port enterprise handling about 70–80% of the cargo throughput of the entire Xiamen port. Currently, XPG has 12 administration departments and /or offices and 19 subsidiary enterprises, with total staff of 6,000. XPG is also the operator of Asian Development Bank-financed project berths (#5, #10, and #11). Appendix 7 27

Figure A7.2: Project Operation Organization Diagram

Haitian Container Company

Dongdu Terminal Company

Shihushan Terminal Company

Administration Office (21) Heping Tourism Passenger Transport Co.

Accounting Department (9) Xiamen Port Logistic Company

Planning Department (6) Xiamen Foreign Vessel Agent Company

Enterprise Management Dept. (6) Xiamen Port Vessel Company

Operation Department (18) Foreign Vessel Co., Xiamen Branch

Human Resource Dept. (6) Xiamen Port Engineering Company Xiamen Port Xiamen Port Development Company Group Co. Ltd. Technical Department (6) Xiamen Gaoqi Port Company

Engineering Department (5) Xiamen Liuwudian Terminal Company

Information Department (19) Logistic Management Company

Political Department (8) Xiamen Gaoqi Inspection Zone Company

Audit Department (5) Labor Service Company

Labor Union (5) Xiamen Haichang Port Company

Port Power Company

Aquatic Product Group Company

Haide Vessel Dissembling Company

Note: Number in bracket denotes the number of staff members in that department. 28 Appendix 8

COMPLIANCE WITH LOAN COVENANTS

Reference to Loan Status of Covenants Documents Compliance

Implementation Arrangements

1. Xiamen Harbor Bureau (XHB) Loan Agreement (LA), Complied with. shall formally establish a project Section 6, para. 1 Unit established management unit (PMU) and appoint in 1988. as the head of the PMU a senior official of XHB, who shall be a qualified civil engineer. XHB shall ensure that the PMU shall be adequately staffed with suitably qualified engineering, financial, administrative, and secretarial staff and provided with adequate office space, equipment and facilities.

Training

2. Within 1 year from the effective LA, Schedule 6, Complied with. date, XHB shall furnish the Asian para. 1 Development Bank (ADB), for approval, a plan for training XHB’s staff members in the areas of port regulation, port management, port engineering, management information system (MIS) and electronic data interchange, implementation port planning, and marketing. Such plan shall include the proposed disciplines and periods of training, the institutions and locations proposed for the training, the number of staff members in different disciplines to be trained, and other related information requested by ADB. XHB shall ensure that the staff members who have received training are placed and retained in the positions relevant to the training for a sufficient period of time.

Reports and Accounts

3. XHB shall furnish ADB all such Project Agreement Complied with. reports and information as ADB shall (PA), Schedule 2.08 reasonably request concerning (i) the loan and the expenditure of the proceeds thereof; (ii) the goods and Appendix 8 29

Reference to Loan Status of Covenants Documents Compliance services and other items of expenditure financed out of such proceeds; (iii) the Project; (iv) the administration, operations, and financial condition of XHB; and (v) any other matters relating to the purposes of the loan.

4. XHB shall furnish to ADB PA, Schedule 2.08 Complied with. quarterly reports on the execution of the Project and on the operation and maintenance of project facilities.

5. XHB shall (i) maintain separate PA, Section 2.09 Complied with. accounts for the Project and for overall operations; (ii) have financial statements audited annually, in accordance with appropriate auditing standards; and (iii) furnish to ADB, promptly after their preparation but not later than 6 months after the close of the related fiscal year, the certified copies of such audited accounts and financial statements and the report of the auditors, all in the English language.

Financial

6. The Borrower shall cause XHB to LA, Schedule 6, Complied with. conduct revaluation of its fixed assets para. 10 in operation at least once every 5 years, commencing from financial year 1999.

7. XHB shall earn and maintain for LA, Schedule 6, Complied with. each financial year, commencing from para. 11 Target met. financial year 1998, an annual return on next fixed assets in operation of not less than 10%.

8. In case XHB is unable to comply LA, Schedule 6, Not yet with the financial covenant solely by para. 12 applicable. The operational efficiency improvements, target in para. 7 the Borrower shall take necessary was met. measures, including allowing XHB to further adjust its domestic and foreign cargo tariffs to the extent necessary to comply with the financial performance ratio provided in para. 7. 30 Appendix 8

Reference to Loan Status of Covenants Documents Compliance 9. Port performance indicators shall PA, Schedule, para 5 Complied with. be used as the basis for improving management efficiency, cost control, and tariff setting.

10. Operation and Management: LA, Schedule 6, Complied with. Port Law. The Borrower shall keep para. 5 The new law ADB informed of the development in was approved in the preparation and major content of June 2003 and the proposed port law. became effective in January 2004.

11. Institutional Restructuring. XHB LA, Schedule 6, Complied with. shall take measures to complete the para. 6 XHB was separation of its port regulatory restructured into function and operational function and two entities: submit plans to the Borrower for Xiamen Port institutional strengthening not later Administration than 31 December 1998. In the for regulatory implementation of the management and Xiamen Port restructuring, XHB shall take into Group for account the recommendations made commercial port by the consultants engaged under the operation. technical assistance.

12. Operation and Maintenance. LA, Schedule 6, Complied with. ADB and XHB shall review from time para. 7 to time the operational action plan recommended under the ADB-assisted technical assistance for Xiamen Port Project (TA 2674-PRC)1 and incorporate suitable recommendations therein into XHB’s operational plan for Xiamen port.

13. XHB shall take into account the LA Schedule and, Complied with. recommendations made by the para. 8 consultants engaged under the ADB- assisted technical assistance. XHB shall ensure that the management information system upgrading under the Project shall include appropriate integration of the existing information system and incorporate activity-based 1 ADB. 1996. Technical Assistance to the People’s Republic of China for the Xiamen Port Project. Manila.

Appendix 8 31

Reference to Loan Status of Covenants Documents Compliance costing, data collection and analyses, as well as monitoring of financial and operational performance of various cost centers in Xiamen port.

Operation of Project Facilities. The LA, Schedule 6, Complied with. Borrower and XHB shall ensure that 6 para. 9 months prior to the commencement of operation of the project facilities, the operational concession for the project facilities shall be awarded to a company selected on the basis of competition among all interested parties, including existing port operators.

Sources: Asian Development Bank and Xiamen Port Group estimates.

32 Appendix 9

TECHNICAL ASSISTANCE COMPLETION REPORT

TA No. and Name Amount Approved: $575,000.00 TA: 2922-PRC: Restructuring of Xiamen Harbor Management Revised Amount: $474,126.36 and Improving Port Management Information System Executing Agency Source of Funding: TA Amount Undisbursed TA Amount Used Ministry of Communications Japan Special Fund $100,873.64 $474,126.36 Date Completion Date Approval Signing Fielding of Original Actual 27 November 1997 13 March 1998 Consultants April 1998 September 1999 24 May 1998 Closing Date Original Actual December 1999 March 2000 Description Xiamen port’s rapid commercial growth and its transformation from a local port to a major national port within a period of less than two decades has brought about new challenges that require improvements to the port’s management structure and information systems, which will make the port more market oriented and help it meet the new demand for port- related services. Xiamen port, a municipal port under the direct administration of Xiamen Municipality, enjoys considerable autonomy in its day-to-day administration. While the Ministry of Communications is only involved in overall port planning and policy matters, the Xiamen Harbor Bureau (XHB) was responsible for the administration of Xiamen port. Institutional restructuring and an efficient management information system (MIS) were required to meet current rapid development and future needs. The technical assistance (TA) was to (i) assess the government plan to restructure the port’s management; (ii) carry out an analysis of the requirements of separating regulatory and commercial functions; and (iii) establish and implement a modern port management system.

Objectives and Scope The TA objective was to (i) develop a strategy for the restructuring of XHB and (ii) provide an effective computer-based MIS appropriate to the new structure. The intention of the restructuring is to divide the regulatory and operational aspects of port activities into separate bodies with clearly defined responsibilities. An integrated, computer-based MIS is to provide a system that will be responsive to the new port management structure, and the MIS will be integrated with port users and external agencies, where appropriate.

Evaluation of Inputs An international consultant (from the United States) was engaged to implement the TA. The TA was implemented smoothly. During the implementation period, the Asian Development Bank (ADB) provided significant help and attention to the Project. The implementation arrangements were appropriate to project needs. The number of ADB’s review missions was adequate. These missions had a good impact on the efficient implementation of the TA and greatly helped in the successful development of the Project.

Evaluation of Outputs In compliance with ADB loan covenants and the recommendations of the TA, Xiamen port was selected by the central Government as the first model for institutional reform. As a result, XHB was restructured in June 1998 into two separate entities : the Xiamen Harbor Administration (XHA), to handle regulatory functions, and the Xiamen Port Group Co. Ltd (XPG), to handle the commercial activities formerly conducted by XHB. The organization of XHA, made effective in August 1998, was basically sound, and the Government has adopted this practice. Along with this institutional restructuring, the new MIS of the TA improved significantly the commercial orientation of the restructured port’s management. These institutional developments resulted in improved corporate governance through corporatization, improved operational efficiency, and increased private sector participation. The MIS not only facilitated the efficient operation of the port but also provided performance assessment of these organizations through analysis of pertinent information and generation of reports in a format that may be readily used for evaluation of the . effectiveness of various strategies. The MIS provided under the TA is able to appraise and forecast market changes and opportunities and potential growth. The MIS has also ensured the safe and efficient operations of the port and made it easier for vessels and cargoes that pass through it. The technical skills of XHA personnel were significantly upgraded through technology transfer and international training. All the terms of reference were fully implemented.

A new law to reform the People’s Republic of China’s (PRC’s) port subsector was also identified by the TA as an essential requirement for the modernization of port operations. As a result, the PRC's top legislature, the Standing Committee of the National People's Congress, passed a law on port administration in June 2003 to upgrade the construction, management, and competitiveness of the country's seaports and river ports. The law, which became effective on 1 January 2004, transferred the responsibility of the ports from the Ministry of Communications and Ministry of Finance to local governments. The central Government will merely play the role of coordinator, while port authorities and companies will run ports in accordance with market principles and local conditions, in a transparent and unbiased Appendix 9 33 manner. The law will have a significant positive impact on Xiamen port, and the ports subsector in the PRC.

Overall Assessment and Rating The TA was successfully carried out with the full cooperation of all concerned. The overall performance of the consultants was satisfactory, and they maintained close coordination with the Executing Agency and efficiently met all requirements of the TA. The TA has resulted in a significant reform in the ports subsector The XHB was the first PRC port authority to rationalize its port management structure by separating its regulatory and commercial functions. The restructuring was undertaken in parallel with project Implementation. The TA was rated as highly successful.

Major Lessons Learned The following lessons were learned: (i) ADB’s active involvement to speed up the reform agenda and improve capacity building is an integral part of ensuring successful operations and strategy in the transport sector in the PRC and (ii) a well-formulated advisory TA has contributed significantly to the implementation of the policy reform action program and successful operation of the Project’s facilities.

Recommendations and Follow-Up Actions The following recommendations emerged during the course of the TA: (i) XPG should assess all noncore and loss- making businesses with a view of selling or contracting them to private investors, to realize further cost savings; (ii) XPG should constantly monitor the effectiveness of its marketing strategy, to improve competitiveness, particularly in line with the increasing competition between local ports; and (iii) maintenance of the MIS and use of future technology development are essential to the success of port operations.

Prepared by: Kim Jraiw Designation: Transport Specialist

ADB = Asian Development Bank, MIS = management information system, PRC = People’s Republic of China, TA = technical assistance, XHA = Xiamen Harbor Administration, XHB = Xiamen Harbor Bureau, XPG = Xiamen Port Group Co., Ltd.

34 Appendix 10

XIAMEN PORT DEVELOPMENT

1. Xiamen port witnessed fast development in the last 10 years, emerging from a small local port to an important international port. The throughput of the port was 5.30 million tons in 1990. Throughput tripled to 17.54 million tons in 1997, and double again to 34.04 million tons in 2003. The annual growth rate was between 20% and 30% in the last few years. Among all activities, the foreign trade and container traffic have increased significantly. To meet the increasing demand in Xiamen Municipality and its hinterland, the port capacities and facilities were improved significantly in the past few years. A large passenger terminal will be constructed soon. The port capacity and throughput are in Table A10.1.

Table A10.1: Xiamen Port Development and Throughput

Average Growth Rate (%) Description Unit 1997 2001 2002 2003 1997–2001 2002 2003 A. No. of Berths 1. Total 68 68 69 78 0 1 13 2. Operational 63 63 64 74 0 2 16 Berths 3. 10,000 Tons 16 16 17 23 0 6 35 4. 100,000 Tons 1 1 1 1 0 0 0 5. Container Only 5 5 5 11 0 0 120 B. Capacity 1. Cargo million tons 23.3 23.3 24.3 40.7 0 4 68 2. Container '000 teu 1,030 1,030 1,030 2,624 0 0 155 3. Passenger '000 1,520 1,520 1,520 1,520 0 0 0 C. Throughput 1. Freight million tons 17.54 20.99 27.35 34.04 5 30 24 2. Foreign Trade million tons 10.72 14.05 17.82 23.00 7 27 29 3. Container '000 teu 546 1,290 1,754 2,331 24 36 33 4. Passenger '000 302 319 477 488 1 49 2 No. = number, teu = twenty-foot equivalent unit. Sources: Asian Development Bank and Xiamen Port Group estimates.

2. Xiamen port is spread over a large area. Port operations are concentrated in several locations along the channel. Currently, Dongdu area is the core of Xiamen port and handled about 70% of all port throughput and 75% of container throughput in 2003 (Table A10.2). The Dongdu area has 14 berths. Ten berths are container berths, including the Asian Development Bank-financed berths (#5, #10, and #11). These berths were originally designed as general break-bulk cargo handling facilities. Realizing the fast growth of container cargo traffic, two berths (#10 and #11) were redesigned as container berths during project implementation. At present, all three berths are used for container cargo handling. To meet future demand, Xiamen Port Group started a major port extension in the so-called Haichang berths area, which should be operational in 2005.

Appendix 10 35

Table A10.2: Dongdu Terminal Cargo Handling Capacity (as of 30 June 2004)

Berth Length Vessel Size Item No. (m) (dwt) Purpose 1 166 10,000 Container 2 255 50,000 Cereal Phase I 3 190 15,000 General cargo 4 166 10,000 General cargo 6 170.4 20,000 Container 7 176.6 20,000 Container Phase II 8 303 35,000 Container 9 190 10,000 Container 5 260 50,000 General cargo 10 50,000 Container 410 11 50,000 Container Phase III pier 160 5,000 General cargo (ADB-financed) pier 1,000 General cargo pier 271 1,000 General cargo pier 1,000 General cargo Xiangyu 12 220 20,000 Container Container 13 250 25,000 Container Terminal 14 210 10,000 Container ADB = Asian Development Bank, dwt = deadweight ton, m = meter. Sources: Asian Development Bank and Xiamen Port Group estimates. 36 Appendix 11

TRAFFIC ANALYSIS AND FORECAST

1. In 2003, the total traffic at Xiamen Port was 34.04 million tons, of which, outbound traffic was 14.83 million tons and inbound traffic was 19.21 million tons. Foreign trade was 23.00 million tons. Container cargo was 19.73 million tons, or about 58% of the total. In 2003, Xiamen port served 63 sea routes, including 25 cross-ocean trunk routes (other continents), 21 near- ocean routes (in Asia), and 37 domestic routes. Xiamen Port Group served 59 of these 63 routes.

2. A traffic forecast was made by the Executing Agency, and the forecast considered socioeconomic development and demand of the port-influenced areas and planned port capacity enhancement, as well as hinterland transport routes and cargo freight development. A modification was made by the Project Completion Review Mission. The forecast was on Xiamen port as a whole, including Dongdu area. The forecast years were 2004–2021, to coincide with the requirements for economic and financial evaluations. A comparison of the latest forecast and that in the report and recommendation of the President was made. In the report and recommendation of the President, the forecast focused on berths #1–11 of the Dongdu area only. The actual container traffic was much higher, about two to three times that in the report and recommendation of the President, as shown in Table A11.

Table A11: Traffic Forecast (million tons)

Xiamen Port Dongdu Berth #1–11 Forecast in RRPa Container Container Container Year Traffic Only Total Only Total Project Only Total 2000 Actual 8.97 19.65 10.30 13.13 4.63 18.83 2001 10.93 20.99 12.29 15.00 5.33 21.45 2002 15.20 27.35 16.67 19.48 0.37 6.13 24.18 2003 19.73 34.04 18.83 23.29 3.73 7.05 27.28 2004 Estimated 26.10 40.71 20.50 25.15 5.17 8.10 30.79 2005 Forecast 30.02 44.96 22.42 27.16 5.88 9.32 34.79 2010 54.10 71.71 28.55 31.99 6.84 15.01 54.10 2020 91.48 102.78 32.30 53.07 6.84 RRP = report and recommendation of the President. a The traffic forecast in the RRP was for Dongdu berth #1–11 only. Source: Asian Development Bank estimates.

Appendix 12 37

ECONOMIC REEVALUATION

A. General

1. Economic reevaluation was conducted for the with and without project cases, using the updated data collected during the Project Completion Review Mission. The costs were adjusted to actual project capital costs and updated project operation and maintenance costs. The benefits were recalculated using actual project throughput in 2002 and 2003 and newly forecast throughput for future years. All parameters for benefit recalculation were checked and updated. The economic internal rate of return (EIRR) was recalculated using the updated project cost and benefits. The recalculated EIRR was 22.3%, which was lower than that at appraisal. The lower EIRR was mainly caused by increased operation and maintenance costs that resulted from the high container traffic demand and the resulting increase in the amount of equipment required to handle this.

B. Costs

2. The project cost was composed of three parts: (i) project capital costs, (ii) maintenance costs (routine and major replacement costs), and (iii) operation costs. Actual financial capital cost was about 14.5% lower than that at appraisal. The changes were mainly from savings of contingency cost and civil works cost. However, the equipment cost was increased by more than double for purchasing more container handling equipment. The routine and periodic maintenance costs were adjusted according to actual port expenditure in the last few years and the latest estimations for future years. Operation cost for project berths was included in the recalculation, which was estimated by the Executing Agency. The costs were adjusted to 2004 prices. All of these costs were converted into economic costs using a standard conversion factor of 0.99.

C. Benefits

3. Three types of economic benefits for project berths were recalculated by comparing the with and without project cases. The benefits include (i) significant vessel waiting time savings, (ii) avoided lighterage costs, and (iii) avoided land transport costs for diverted cargo. The induced traffic, estimated as 10%, was excluded in the benefit recalculation.

4. Vessel Waiting Time Savings. In the without case, vessels need to wait for available berths at the anchor and/or deep-sea area, due to limited handling capacity in the existing berths. Also, container handling speed is much slower when using inefficient cargo equipment. In the with project case, vessels would have much shorter waiting times and faster container handling speeds, using modern equipment. The with project case was examined under various scenarios, such as waiting time, service time, and handling speed at the dedicated container berths. Estimates indicated that the time savings were about 10 hours for 50,000-ton vessels and 4 hours for 6,000-ton vessels. Currently, the large vessel at the project berths takes about 70% of all type vessels and will be about 85% in future. According to the latest observation and estimation, the average vessel operation cost is CNY248,000 per day for large vessels and CNY83,000 for small vessels. The average load is about 1,200 twenty-foot equivalent units for large vessels and 350 twenty-foot equivalent units for small vessels.

5. Avoided lighterage costs. In the without project case, part of the cargoes would be transported by lighter barges from vessels to the anchor and/or deep-sea area, due to inefficiency and congestion of existing berths. This kind of transport cost would be avoided in the with project case. Estimates indicated that about 20–25% of future cargoes might be transferred by lighter transport in the without case. Lighter operation cost is quite high, especially for containers. Estimates indicated that the cost was about CNY160 per container, according to 38 Appendix 12 records.

6. Avoided land transport costs for diverted cargo. In the without project case, part of the cargoes would be diverted to other coastal ports, due to limited existing port capacity, then these cargoes would be transported by land to project-influenced areas. Estimates indicated that about 25–40% of the projected future traffic might be diverted to other ports and would be transported by land to the project areas. The average extra distance for transporting such cargoes to destinations was about 200 kilometers. The average vehicle operating cost was estimated to be about CNY6 per twenty-foot equivalent unit-kilometer, according to the average land transport cost in project areas and studies of the Provincial Prices Bureau.

7. The benefit recalculation results showed that the Project’s benefits would increase rapidly in the first few years of project operation. The avoided land transport costs for diverted cargo savings over the calculation period took about 74–80% of the total benefits. The vessel waiting time savings were about 13–18%, and the avoided lighterage cost savings were 7–8%. The high saving due to avoided land transport costs reflects the benefit of the Project to the surrounding underdeveloped areas and hinterland communities, which results from better accessibility and services.

D. Reevaluation of Economic Internal Rate of Return

8. The recalculated EIRR was 22.3%, which was lower than that at appraisal (26.0%). The changes were mainly caused by using higher economic costs, adding in operation costs, and applying revised benefit parameters in the recalculation. The benefit recalculation was conservative in that only normal and diverted traffic was considered and the benefits to the traffic at existing berths were not included. Nevertheless, the recalculated EIRR was much higher than the social discount rate of 12.0%. This demonstrated that the Project had strong economic viability.

9. A sensitivity analysis was carried out on the operation and maintenance cost and benefits (Table A12.1 and Table A12.2). The EIRR would be 21.7% and 21.0%, if operation and maintenance increased by 10.0% and 20.0%. The EIRR would be 19.9% and 17.3%, if benefits decreased by 10.0% and 20.0%. In the worst case (operation and maintenance increasing 20.0% and benefit decreasing 20.0%), the EIRR would be 15.7%, which would be still higher than the cutoff rate. The switching point was when operation and maintenance cost exceeded 127.0% or when the decreasing benefits dropped by more than 38.0%. That is, the EIRR was more sensitive to the benefits.

Table A12.1: Economic Sensitivity Test

Test Operation and Item Maintenance Cost Benefits EIRR (%) (%) (%) Base Case 22.3 Test Case 20 21.0 (20) 17.3 20 (20) 15.7 Switching Point 127 (38) 12.0

EIRR = economic internal rate of return.

Source: Asian Development Bank estimates.

Appendix 12 39

Table A12.2: Recalculation of Economic Internal Rate of Return for Xiamen Port Project

Cost Benefit

Operation Net Year Capital Total Time Lighter Avoid Land Total and Benefit Maintenance 1998 34 34 (34) 1999 106 106 (106) 2000 88 88 (88) 2001 74 74 (74) 2002 166 8 175 3 1 11 14 (160) 2003 168 44 213 25 11 106 143 (70) 2004 57 57 35 16 147 198 141 2006 69 69 44 20 211 274 205 2007 74 74 45 21 220 286 212 2008 94 94 47 21 228 297 203 2009 83 83 48 22 233 303 221 2010 86 86 48 23 233 304 219 2011 89 89 50 23 272 345 256 2012 126 126 50 23 272 345 218 2013 96 96 50 23 272 345 249 2014 114 114 50 24 272 346 232 2015 103 103 50 24 272 346 243 2016 107 107 51 24 272 347 241 2017 111 111 51 24 311 386 276 2018 115 115 51 26 311 388 274 2019 119 119 51 26 311 388 269 2020 138 138 51 26 311 388 250 2021 (255) 128 (127) 51 26 311 388 515 Net Present Value: 421 Economic Internal Rate of Return: 22.3% Source: Asian Development Bank estimates. 40 Appendix 13

PROJECT FINANCIAL PERFORMANCE

1. In consultation with the Executing Agency of the Asian Development Bank-financed Xiamen Port Project, the Project Completion Review Mission prepared the actual (1998–2003) and projected (2004–2021) financial statements of project berths (#5, #10, and #11), based on the latest traffic projection and financial parameters. Currently, these project berths are operated by Xiamen Port Group Co. Ltd (XPG), which is an enterprise solely responsibility for its own profits and losses. Three types of financial statements were used, based on income statement, cash flow statement, and balance sheet. The following assumptions were applied in preparing the financial statements:

(i) Domestic currency has slightly appreciated against the US dollar, from CNY8.31 per $1.00 at appraisal to CNY8.28 per $1.00 in 2004. Domestic inflation is forecast to be 1.0% in 2004, 2.0% in 2005, 3.0% in 2006, 3.5% in 2008, and 3.0% from 2009 onward.

(ii) Future operating revenues are projected based on the latest throughput forecast and port tariffs (favorable tariffs). The project berths will be solely used for container cargoes. Four types of revenues are considered, namely, container handling fee, storage fee, vessel towing fee, and cargo processing fee. The tariffs are adjusted for future years based on projected inflation.

(iii) Actual business tax levy at Xiamen port was applied, which is 3.8% of operating revenue. Xiamen is a national designated coastal economic development zone. A favorable corporate tax rate of 18.5% is applied for all enterprises, which is much lower than normal corporate tax in the People’s Republic of China (33.0%).

(iv) Annual operation and maintenance costs are provided by XPG. The operation cost is composed of the costs for staff, materials, insurance, power, labor, and others. The operation costs for future years are adjusted by price escalation. Routine maintenance costs are estimated also in considering the price escalation for future years. Large-scale equipment replacements are scheduled for 2008, 2012, 2014, and 2020.

(v) Fixed asset depreciation is estimated assuming 40 years of economic life for civil works and 15 years for large equipment, with 5% of residual value. Annual even- distribution method is used to calculate the depreciation expenses for future years.

(vi) Scheduled loan repayments are listed in loan agreements. The maturity period is 24 years, including a 4-year grace period for the Asian Development Bank loan and 13 years, with a 4-year grace period, for the domestic loan.

(vii) Future years’ accounts receivables are estimated to be 8% of annual net operation revenue. The accounts payable are estimated by XPG in considering the annual throughput and port construction fee.

(viii) Five sources exist for project financing, comprising the Asian Development Bank loan (47.3%), domestic loan (15.1%), Ministry of Communications grant (7.4%), Xiamen municipal government grant (1.2%), and XPG fund (29.0%). The Asian Development Bank loan commenced in 1998 and closed in 2003. For financial Appendix 13 41

projection, the average annual interest rates used in the calculation was 6.7% for the Asian Development Bank loan and 5.8% for the domestic bank loan.

2. Based on these assumptions, three financial statements were recalculated, with four key financial indicators, to illustrate the financial performance of the Project berths in the project calculation period (1998–2021).

(i) Working ratio. This ratio (operating expenses, excluding depreciation to operating revenues) is in the range of 41–57%, excluding the years of major equipment replacements.

(ii) Debt service coverage ratio. This ratio (operating income to bank principle and interest payment) is in the range of 2.25–5.68 times, with the average of 4.14 in 20 years from 2002 to 2021.

(iii) Debt-equity ratio. This ratio (debt to debt plus equity) increased from 16:84 in 1998 to 82:18 in 2002, then declined rapidly with continuing debt repayment and sound operating results.

(iv) Return on equity. This indicator (net income to equity) declined from 22% in 2004 to 4% in 2021, along with the steady operating income and accumulation of equity. The average is 15% in the early years of project operation, from 2003 to 2010.

3. All of these financial indicators are in satisfactory ranges. The recalculated financial projections indicate that the forecast revenues based on latest throughput and tariff will be sufficient to cover the operating costs and debt repayment on the Asian Development Bank loan and the domestic loan. However, these financial indicators can’t be compared with those at appraisal, as financial statements and indicators in the report and recommendation of the President were for the entire Xiamen Harbor Bureau, not only for the Project.

4. The recalculated financial statements and indicators for the project berths are set out in the following tables.

Table A13.1: Projected Financial Statement 42 (CNY million) Appendix13

1234 5 6 7 8 9101112 Actual Forecast Project Year 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Projected Income Statement Operating Revenues Loading and Unloading 13 131 181 206 217 226 235 240 Storage Fee 0.4 4 5 6 7 7 7 7 Tow Fee 0.2 2 3 3 3 3 4 4 Cargo Procession Fee 2 23 32 36 38 40 41 42 Total Operating Revenues 16 160 221 252 264 276 287 293 Less: Business Tax (3.8%) 1 6 8 10 10 10 11 11 Net Operating Revenue 15 154 213 242 254 266 276 282 Operating Expenses Staff Cost 4 20 25 28 30 33 35 37 Material 1 4 5 6 6 7 7 8 Insurance 0 1 1 1 1 1 1 1 Fuel and Power Utilization 1 6 9 10 11 12 13 13 Labor Cost 3 13 18 20 22 23 25 26 Other Management Cost 1 3 3 3 3 3 3 4 Maintenance Cost 0 3 3 3 4 4 24 4 Depreciation 0 27 27 27 27 27 27 27 Total Operating Expenses 9 77 90 99 104 110 135 120 Net Operating Income 6 77 123 143 150 156 141 162 Interest Expenses-ADB 22 22 21 21 20 19 18 18 Interest Expenses 6 6 5 4 4 3 2 2 - Domestic Bank Total Interest Expenses 29 27 26 25 24 22 21 19 Income before provision for (22) 55 101 123 130 137 123 145 corporative tax Corporate Tax (18.5%) 0 10 19 23 24 25 23 27 Net income after (22) 45 83 100 106 111 100 118 corporative tax Working Ratioa 60% 32% 30% 30% 30% 31% 39% 33% 0 = magnitude zero. a Total operation expenses excluding interest and depreciation divided by total operation revenue. Source: Asian Development Bank estimates Table A13.1—continued

13 14 15 16 17 18 19 20 21 22 23 24 Forecast Project Year 2010 2011 2012 20132014 2015 2016 2017 2018 2019 2020 2021 Projected Income Statement Operating Revenues Loading and Unloading 240 240 240 240 240 240 240 240 240 240 240 240 Storage Fee 7 7 7 7 7 7 7 7 7 7 7 7 Tow Fee 4 4 4 5 5 5 5 5 5 5 5 5 Cargo Procession Fee 42 42 42 42 42 42 42 42 42 42 42 42 Total Operating Revenues 293 293 293 294 294 294 294 294 295 295 295 295 Less: Business Tax (3.8%) 11 11 11 11 11 11 11 11 11 11 11 11 Net Operating Revenue 282 282 282 283 283 283 283 283 284 284 284 284 Operating Expenses Staff Cost 38 40 41 43 44 46 48 49 51 53 55 57 Material 8 8 9 9 9 10 10 10 11 11 12 12 Insurance 1 1 1 1 1 1 1 1 1 1 1 1 Fuel and Power Utilization 14 14 15 16 16 17 17 18 19 20 20 21 Labor Cost 27 29 30 31 32 33 34 36 37 38 40 41 Other Management Cost 4 4 4 4 4 4 5 5 5 5 5 5 Maintenance Cost 4 4 58 5 30 5 5 5 6 6 38 6 Depreciation 27 27 27 36 36 36 36 36 16 16 16 16 Total Operating Expenses 124 127 184 143 173 152 156 161 146 150 187 161 Net Operating Income 159 155 98 140 110 131 127 122 138 133 96 123 Interest Expenses-ADB 17 16 15 14 12 11 10 9 7 5 4 2 Interest Expenses-Domestic Bank 1 0 0 0 0 0 0 0 0 0 0 0 Total Interest Expenses 18 16 15 14 12 11 10 9 7 5 4 2 Income before Provision for Corporative Tax 142 139 83 126 98 120 117 114 131 128 93 121 Corporate Tax (18.5%) 26 26 15 23 18 22 22 21 24 24 17 22 Net Income after Corporative Tax 116 114 68 103 80 98 95 93 107 104 75 98 a

Working Ratio (%) 34 35 56 38 48 41 43 44 46 48 60 51 Appendix 13 0 = magnitude zero. a Total operation expenses excluding interest and depreciation divided by total operation revenue. Source: Asian Development Bank estimates. 43 Table A13.2: Projected Cash Flows Statement 44 (CNY million)

12345 6 7 8 9 10 11 12 Appendix 13 Actual Forecast Project Year 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Net Cash Inflows from Operating Activities Net income after income tax (22) 45 83 100 106 111 100 118 Depreciation 27 27 27 27 27 27 27 Net changes in working capital 1 (3) 3 1 17 (27) (2) (1) 0 0 (0) 1 Cash Inflows from Financing ADB Loan 0.2 89 48 46 118 33 Domestic Loan 10 25 40 32 0 0 Grant and XPG Fund 56 30 21 3 0 157 Cash Inflow Total 67 141 112 82 113 236 108 126 133 139 127 146

Cash Outflows Construction Cost 37 118 98 82 185 187 20 Debt Service (principle repayment) ADB Loan 8 9 10 10 11 12 12 13 Domestic Loan 9 10 11 11 12 12 13 14 Cash Outflow Total 37 118 98 82 203 206 20 21 23 24 46 27

Net Cash Flows 29 23 13 0 (90) 30 88 105 111 115 81 119 Opening Balance 0 29 52 66 66 (24) 6 94 199 310 424 506 Closing Balance 29 52 66 66 (24) 6 94 199 310 424 506 624 Debt Service Coverage Ratioa 0.13 2.25 3.23 3.68 3.82 3.95 3.62 4.08 0 = magnitude zero, ADB = Asian Development Bank, XPG = Xiamen Port Group. a Operating income divided by interest and principal payments. Source: Asian Development Bank estimates. Table A13.2—continued

13 14 15 16 17 18 19 20 21 22 23 24 Forecast Project Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Net Cash Inflows from Operating Activities Net income after 116 114 68 103 80 98 95 93 107 104 75 98 income tax Depreciation 27 27 27 36 36 36 36 36 16 16 16 16 Net changes in 1 1 (0) 2 0 1 1 1 1 1 1 1 working capital Cash Inflows from Financing ADB Loan Domestic Loan Grant and XPG Fund Cash Inflow Total 144 141 95 140 116 135 132 129 124 121 92 116

Cash Outflows Construction Cost 53 25 32 Debt Service (principle repayment) ADB Loan 14 15 16 17 18 20 21 22 24 25 27 29 Domestic Loan 15 Cash Outflow Total 29 15 69 17 44 20 21 22 24 25 59 29

Net Cash Flows 115 126 26 123 72 115 111 107 100 95 33 87 Opening Balance 624 739 865 891 1,014 1,086 1,201 1,311 1,418 1,518 1,613 1,647 Closing Balance 739 865 891 1,014 1,086 1,201 1,311 1,418 1,518 1,613 1,647 1,733 Appendix 13 Debt Service Coverage Ratioa(%) 4.01 5.91 4.06 5.68 4.73 5.41 5.26 5.12 4.98 4.82 3.63 4.49 0 =magnitude zero. ADB = Asian Development Bank, XPG = Xiamen Port Group. a Operating income divided by interest and principal payments. Source: Asian Development Bank estimates. 45 Table A13.3: Projected Balance Sheet 46 (CNY million)

1 2 3 4 5 6 7 8 9 10 11 12 Appendix 13 Actual Forecast Project Year 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Current Asset Cash 29 52 66 66 (24) 16 123 251 385 525 629 775 Accounts Receivable 12 3 0 0 0 12 17 19 20 21 22 23 Others 2 3 3 3 4 4 4 Fixed Asset Accumulated Fixed Asset 37 156 254 336 521 708 708 708 708 708 728 728 Less Accumulated Depreciation 27 55 82 109 136 164 191 Net Fixed Asset 37 156 254 336 521 681 653 626 599 572 564 537 Total Asset 79 211 320 402 497 711 796 899 1,008 1,122 1,220 1,339

Current Liability Accounts Payable 13 1 2 3 20 6 8 9 9 10 10 10 Others 2 3 4 5 5 6 7 Bank Loans ADB Loan 0 89 137 184 293 317 308 297 286 275 262 249 Domestic Loan 10 35 75 107 98 88 77 66 54 42 29 15 Equity Paid-in Capital 56 86 106 109 109 266 266 266 266 266 266 266 Retained Earnings (22) 33 134 257 387 524 646 791 Total Liabilites and Equity 79 211 320 402 497 711 796 899 1,008 1,122 1,220 1,339 Debt-Equity Ratioa 16 59 67 73 82 58 49 41 34 29 24 20 Returns on Equityb (%) (26) 18 25 23 20 17 13 14 c Returns on Net Fixed Asset (%) (4) 8 16 20 22 24 22 27 ADB = Asian Development Bank. a Total debt to total equity. b Net Income after tax divided by total equity. c Estimated future average domestic inflation rate: 3% for 2004; 2.7% for 2005; 3% for 2006; 3% for 2007; 3% for 2008; and 3% after 2008. Source: Asian Development Bank estimates. Table A13.3—continued

13 14 15 16 17 18 19 20 21 22 23 24 Forecast Project Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Current Asset Cash 916 1,068 1,109 1,255 1,345 1,482 1,615 1,743 1,867 1,985 2,036 2,145 Accounts Receivable 23 23 23 23 23 23 23 23 23 23 23 23 Others 4 4 4 4 4 4 5 5 5 5 5 5 Fixed Asset Accumulated Fixed Asset 728 728 781 781 806 806 806 806 806 806 838 838 Less Accumulated Depreciation 218 245 273 308 344 379 415 450 466 482 497 513 Net Fixed Asset 510 483 509 473 463 427 392 356 341 325 341 325 Total Asset 1,452 1,577 1,645 1,755 1,835 1,937 2,034 2,126 2,235 2,338 2,404 2,497

Current Liability Accounts Payable 10 10 10 10 10 10 10 10 10 10 10 10 Others 8 9 8 10 11 12 13 14 15 16 17 18 Bank Loans ADB Loan 235 220 204 186 168 148 128 105 81 56 29 (0) Domestic Loan 0 0 0 0 0 0 0 0 0 0 0 0 Equity Paid-in Capital 266 266 266 266 266 266 266 266 266 266 266 266 Retained Earnings 933 1,072 1,156 1,282 1,380 1,500 1,617 1,731 1,862 1,989 2,082 2,203 Total Liabilites and Equity 1,452 1,577 1,645 1,755 1,835 1,937 2,034 2,126 2,235 2,338 2,404 2,497 Debt-Equity Ratioa 16 14 13 11 9 8 6 5 4 2 1 (0) Returns on Equityb (%) 12 10 6 8 6 7 6 6 6 6 4 5 Returns on Net Fixed Assetc (%) 28 29 16 27 21 28 30 32 38 39 27 37 0 = magnitude zero. ADB = Asian Development Bank. Appendix 13 a Total debt to total equity. b Net Income after tax divided by total equity. c Estimated future average domestic inflation rate: 3% for 2004; 2.7% for 2005; 3% for 2006; 3% for 2007; 3% for 2008; and 3% after 2008. 47 48 Appendix 14

FINANCIAL REEVALUATION

1. The financial internal rate of return (FIRR) of the Project was recalculated using actual project capital cost, updated operation and maintenance costs, and actual and forecast revenues. This financial recalculation was based on the discussion between the Project Completion Review Mission and the Executing Agency. The major assumptions used in calculating the FIRR are as follows:

(i) All costs and revenues were in constant 2004 prices for the period of 24 years, from 1998 to 2021. (ii) The capital cost includes all incremental capital expenditures related to project construction and equipment procurement. Routine maintenance costs were estimated in considering the price escalation for future years. Large-scale equipment replacements were considered for 2008, 2012, 2014, and 2020. Operating costs were forecast comprising the costs of staff, materials, insurance, power, labor, and others. (iii) The project revenue was forecast by the Executing Agency using the latest throughput forecast data. The revenue was composed of container handling revenue, storage, vessel towing fee, and cargo processing fee. (iv) The 3.8% business tax and 18.5% corporate income tax were used in the recalculation. Xiamen is a national designated coastal economic zone. A favorable corporate tax rate was applied, which is much lower than normal corporate tax in the People’s Republic of China (33.0%).

2. The recalculated FIRR of the Project was 16.6% (after income tax), which was much higher than that at appraisal (7.8%). The difference was mainly caused by higher revenue generated from container traffic, about double that at appraisal. The project berths were designed to be break-bulk cargo berths at appraisal. But, to meet the increasing demand for container handling, the project berths were converted to dedicated container berths during project construction. The revenue for container cargo is much higher than that for break-bulk cargo.

3. A sensitivity test was carried out by increasing operation and maintenance costs and decreasing revenue (Table A14.1). In the worst case, increasing operation and maintenance by 20.0% and decreasing revenue by 20.0%, the FIRR (Table A14.2) was still 8.9% (after tax), which was much higher than the real weighted average cost of capital (4.32%).1

Table A14.1: Financial Sensitivity Test Test FIRR (%) Item (%) Before Tax After Tax Base Case 19.5 16.6 Revenue 20 24.2 21.1 (20) 13.8 11.3 O&M Cost 20 17.7 14.8 (20) 21.3 18.3 Revenue (-20%) and O&M Cost (+20%) 11.3 8.9 FIRR = financial internal rate of return, O&M = operation and maintenance. Source: Asian Development Bank estimates.

1 The weighted average cost of capital was calculated following the methodology in the Asian Development Bank’s Guidelines for the Financial Governance and Management of Investment Projects Financed by Asian Development Bank, with the assumed costs of capital of 6.70% for the Asian Development Bank loan, 5.80% for the domestic loan, 8.00% for equity capital from the Government, 3.00% domestic inflation rate, and 18.50% corporate tax. The calculated weighted average cost of capital for the project was 4.32%. FINANCIAL REEVALUATION (million CNY)

Cash Cash Cost Revenue Business Flow Corporate Flow Before Year Capital Maintainance Operation Total Handling Storage Tow Cargo Total Tax Tax After Tax Tax 1998 37.44 37.44 (37.44) (37.44) 1999 104.55 104.55 (104.55) (104.55) 2000 90.85 90.85 (90.85) (90.85) 2001 74.96 74.96 (74.96) (74.96) 2002 166.47 0.00 9.22 175.69 13.08 0.39 0.20 2.30 15.97 0.61 (160.33) (160.33) 2003 181.86 3.19 46.10 231.15 130.84 3.93 1.97 22.95 159.68 6.07 (77.53) (77.53) 2004 3.19 59.86 63.05 181.49 5.45 2.73 31.84 221.50 8.42 150.03 27.76 122.28 2005 3.19 68.21 71.39 206.34 6.19 3.10 36.19 251.83 9.57 170.87 31.61 139.26 2006 3.19 73.44 76.62 216.66 6.50 3.26 38.00 264.42 10.05 177.75 32.88 144.86 2007 3.19 78.79 81.98 226.33 6.79 3.40 39.70 276.22 10.50 183.75 33.99 149.76 2008 23.37 84.17 107.54 235.03 7.05 3.53 41.23 286.85 10.90 168.41 31.16 137.25 2009 3.19 88.80 91.98 239.98 7.20 3.61 42.10 292.89 11.13 189.78 35.11 154.67 2010 3.19 92.17 95.35 239.98 7.20 3.61 42.10 292.89 11.13 186.40 34.48 151.92 2011 3.19 95.67 98.86 239.98 7.20 3.61 42.10 292.89 11.13 182.90 33.84 149.06 2012 56.34 99.31 155.65 239.98 7.20 3.61 42.10 292.89 11.13 126.11 23.33 102.78 2013 3.19 103.08 106.27 239.98 7.20 3.61 42.10 292.89 11.13 175.49 32.47 143.03 2014 28.43 107.00 135.43 239.98 7.20 3.61 42.10 292.89 11.13 146.33 27.07 119.26 2015 3.19 111.06 114.25 239.98 7.20 3.61 42.10 292.89 11.13 167.51 30.99 136.52 2016 3.19 115.28 118.47 239.98 7.20 3.61 42.10 292.89 11.13 163.29 30.21 133.08 2017 3.19 119.67 122.85 239.98 7.20 3.61 42.10 292.89 11.13 158.91 29.40 129.51 2018 3.19 124.21 127.40 239.98 7.20 3.61 42.10 292.89 11.13 154.36 28.56 125.80 A

2019 3.19 128.93 132.12 239.98 7.20 3.61 42.10 292.89 11.13 149.64 27.68 121.96 pp

2020 34.76 133.83 168.59 239.98 7.20 3.61 42.10 292.89 11.13 113.16 20.94 92.23 endix 14 2021 (262.45) 3.19 138.92 (120.35) 239.98 7.20 3.61 42.10 292.89 11.13 402.11 74.39 327.72 FIRR (%) (before tax) 19.50 (after tax) 16.60 FIRR = financial internal rate of return. Note: All numbers are in real term (without interest during construction and inflation factors). Source: Asian Development Bank estimates. 49