R E S T R I C T E D R ep o r t N 0o TO-250b Public Disclosure Authorized This reportwas preparodfor u5e within tho Bank. It mcynot be publis'iod normay it be quotedas representino the Baonk'sviews. TFheBank accepts no rosponsibilityfor tho accuracyor completeness of tho contents of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPNIENT Public Disclosure Authorized APPRAISAL OF THE ISRAEL PORT DEVELOPMENT PROJECT Public Disclosure Authorized August 25, 1960 Public Disclosure Authorized Department of Technical Operations CURRENCY EQUIVALENTS $U.S. 1 = IL1. 80 IL 1. 00 - $U.S. 0. 55 APPRAISAL OF T1h,EIS1-lJI:L PO'iT DBVELMOPI43NTPROJECT Table of Content-s S UA. i - ii I. INTRODUCTION 1 II. EXISTINGPORT SYSTEM 1 A. GeneralRurpose, Function, and ServiceAreas 1 B. Organization,V.anage-rent and labor 2 C. ExistingPort Facilities 2 D. Port Operations 5 E. Amountof Traffic 6 F. Rate Structurear.d Tariffs 6 G. PresentPort Finances 6 H. Earnings III. PORT DEVELOPMENTPROGRAM 10 A. The TrafficOutlook 10 B. The Ten-YearProgram 1960/70 11 IV. THE PROJECT 12 A. General 12 B. PlannedNew Facilities 14 C. Constructionand ContractProcedures 15 D. EconomicJustification 16 E. ExpectedFinancial Results of Project 18 V. FUTUREPOAiT AUTHORITY 19 A. Establishmentof Authority 19 B. Facilitiesand Properties 19 C. FinancialAspects 20 VI. CONCLUSIONSAMD RZCOMk2KDATIONS 22 Table No. 1 ManpowerEmployed in Israel'sPrts - 1959 Table No. 2 Port of Haifa- Dry CargoTraff-:z - 1955-1959 Table No. 3 Dry Cargo Traffic,Ports of Jaffa and Tel Aviv, 1956-1959 Table No. 4 Dry Cargo Traffic, Port of Eilat - 1957-1959 Table NTo.5 Growthand Compositionof Dry CargoTraffic of Israel's Ports 1955-1959 Table No. 6 IncomeAccount of Israel'sPorts, 1954/55-1959/60 Table No. 7 Comparisonof 1959 with 1965 and 1970 Port Trafficby Commoditiesand Routing Table No. 8 Fixed Assets and W4orkingCapitai of Future Port Authorfity as of March 31, 1965 and 1970 Table No. 9 Punded Debt of Future Port Authority as of March 31,1965 & 1970 Table No. 10 Estimated Income Account of Port Authority for 1969/70 Appendix A The NTewPort of Ashdod Map No. 1 Ports of Israel Map No, 2 Port of Ashdod APPRAISAL OF THE ISRAEL PORT DEV]LO?T1,CNTPROJECT i. The Government of Israel has prepared a ten-year program of port development (a) to enlarge the countryts main port of Haifa, (b) to build a new port at Ashdod, and (c) to develop the port of Eilat. The first part of this program is to be executed in five years, by 1965, The proposed loan of US"27.5 million eauivalent (Ir 49.5 million) from the Bank would help to finance constructionof the port of Ashdod. ii. The estimated total cost of the Ashdod port project is IT 98.4 mil- lion (us$54.7 million), includingworking capital and interest during construc- tion. Assuming that a loan is made by the Bank, the Government would assure the availability of the balance of the funds reql red, IT-L8.9 million eQuiv- alent to 1US%27.2million, to carry out the projec.,. Since thneforeign e:- change costs (including interest during consttr-uc:.on on the loan amount) w'ould total US$i8 million (I= 32.4 million), the remair:ler of US.Q)9.5million wculd be applied to local costs of construction, equipr.^nt and engineering. iv. Foreign ex.-erts have advised the 11iinistry of Transport on -he KeSigA1 and layout of Ashdod port, and qualified consulting engineers are preparing de- tailed plans. The cost estimates are realistic. All major construction con- tracts will be awarded through international coinetitive bidding. Consulting engineers will supervise construction. The project is technically sound and well conceived, and the arrangements contemplated for its execution are satis- factory. The port should be ready to handle citrus in 1963 and be fuflly opera- tive (first phase) in 1965. v, On the basis of the 1965/66 traffic volume and a reasonable allowance for growth, present tariffs (with mninor adjustments), wages and prices the earnings of the new7 port of Ashdod wo-uld be sufficient to meet the debt service on a US.$27.5million Bank loan repayable at 5-3/L,<in 20 years from 1965. Little would remain for working capital and other needs. However, the Govern- ment is to revise port tariffs, following recoyxaendations m.ade by its consult- arnt,the effect of which would im.rprove the financial position of the new port. vi. Also on the advice of consultants, the Government has decided to es- tablish a Port Authority as an autonomous public enterprise empowered to formu- late port development policy, to plan, finance and e -ecute port works, and to manage and operate the ports. The Authority should be financially self-support- ing and would be authorized to charge adequate rates for thiS purpose. The - ii - Bank agrees that there should be a Port At.'.uotlty, The cond tions under which it ,Tould be establi-'v!ed,as well as the terms on vThichthe ezisting por'ufacil- ities would be transferred to it by the Gover,:ur.ent w,ill recuire the Bank'1 s agreement. It is expected that the Authority will be established early in 1961, when the Government would transfer to it (a) all eaxisting port facilities, (b) all port works in progress, and (c) responsibi-ity for existing contracts for the port developmentprogram. vii. T'e Government'spresen-t intention is to supply all construction funds and that the Authority should incur no debt (apart f'ron that of the pro- posed Bank loan, wlhich woul-d be mranAuthori ty obibation to the Government) for the development program. up to 1965. rT-eAuthority w,ould be expected to co,pen- sate the Government for the value of all capital assets acqui ed from it, the rate of payrm'ent to be related to the useful life of the asset, but the Goovern- ment has assured the Bank that it will draw no cash for interest or amortiza- tion on its investment until the port of Ashdod shall have been built, and thnat withdraials thereafter would be limited to afount.,3 consistent wTith the Author- ityts o-in needs. viii. Estimates of the earnings of the combined port system in 1965/66 (Haifa, Ashdod and Eilat) indicate that the Port Authority would have ample funds to service the Bank loan for Ashdod, that wjithin only a short time it could begin to amortize the Goverm¶entts investment at 6% interest over La yrears, the average useful life of the assets, and to retain adequate worldng capital. ix. The Ashdod project is suitable for a Bank loan of US$275 million equivalent. The Government would be the Borrower. A term of 25 years, in- cluding a five year period of grace, would be appropriate. I. Iti1T RODJCTION Israel Governmient'sReques-t to Bank 1. The Government of Israel is undertakLng a port developmnnt pro- grams Israel has seaports on the Mediterranean and the Red Sea (see 1Mlaa 1). A ten-year program has been prepared to enlarge the m.ain port of Haifa, build a new port at Aslidod, and develop the Red Sea port of Eilat. Planned expendituresfor th'eworks to be comnpletedand the operational equip- ment to be installed by Karch 31, 1965 would tot-albout US$81 million equiv- alent at the official rate of exchange. 20 The Bank is considering a loan of US!$27.5 million equivalent to help finance the construction of Ashdod to its planned capacity as of early 1965. The proposed loan is equal to about half the estimated project costs totalling some Us5%5 million equivalernt including interest during construction and initial working capital. Approximately a third of the costs, or an es- timated $j18Q0million, would be foreign exchange expenditure for goods, serv- ices, and financial charges. 3. The Governmenitwill establish a Port Authority to develop and operate the port system of Israel as a whole. Responsibilityfor the Ashdod works and for the management of the future port will be transferred to this Authority as soon. as it is established, probably no later than April 1, 1961l 4. 1 The project appraisal set forth in this report is based on the find- ings of a Bank Mission which visited Israel in March/April 19603 on subsequent discussionswith a Govermmentdelegation which came to the Bank, and on inform,- ation supplied by the GovernmentIsconsultants. II. EXISTING PORT SYSTEiM A. General Purpose, Function, and Service Areas 5. Haifa, Tel Aviv and Jaffa on the JMediterranean serve primarily for trade with Western countries, while Eilat on the Red Sea is a port for trace with Africa, Asia and the Far East. Haifa is a deep-water port of direct loading and discharge; it is protectedby a breakwater, completedin 1933, behind which ships can berth safely throughoutthe year. Tel Aviv and Jaffa are open-roadsteadlighterage ports, situated less than six km apart, about 100 km south of Haifa. There has been a port at Jaffa since Biblical times9 but Tel Aviv is a new port dating back to 19380 Eilat, at the head of the Gulf of Aqaba, is a deep-water port in service since November 1956. 6. Haifa is Israel's largest and best equipped port; it serves the whole country for imports of grains, industrial materials and heav,yequipment,a and is also the local port of the northern region (see Map 1). Tel Aviv and Jaffa are well situated to serve the central region, Israel's most densely po<--Uted and rapidly growing area, but have limited capacity.