Completion Report

Project Number: 40037 Loan Numbers: 2398, 2399, and 8237 Grant Number: 0102 Additional Financing Loan Numbers: 2803 and 2804 April 2017

Papua New Guinea: Port Development Project

This document is being disclosed to the public in accordance with ADB's Public Communications Policy 2011.

CURRENCY EQUIVALENTS

Currency unit – kina (K)

At Appraisal At Additional At Project Completion Appraisal 31 July 2007 11 October 2011 16 December 2015 K1.00 = $0.3487 $0.4500 $0.3855 $1.00 = K2.810 K2.221 K2.600

ABBREVIATIONS

ADB – Asian Development Bank EIRR – economic internal rate of return FIRR – financial internal rate of return IPBC – Independent Public Business Corporation JFPR – Japan Fund for Poverty Reduction KECC – Korean Engineering Consultants Corporation LIBOR – London interbank offered rate m – meter MPG – Morobe Provincial Government OFID – OPEC Fund for International Development OPEC – Organization of the Petroleum Exporting Countries PMU – project management unit PNG – PNGPCL – PNG Ports Corporation Limited PPP – public–private partnership PSC – project steering committee RHK – Royal Haskoning RRP – report and recommendation of the President Sida – Swedish Development Cooperation Agency SDR – special drawing right WACC – weighted average cost of capital

NOTES

(i) The fiscal year (FY) of the Government of Papua New Guinea and its agencies ends on 31 December.

(ii) In this report, "$" refers to US dollars.

Vice-President S. Groff, Operations 2 Director General X. Yao, Pacific Department (PARD) Country Director M. Minc, Papua New Guinea Resident Mission, PARD

Team leader F. Ramos, Project Officer (Energy), PARD

Team members J. Bego, Project Analyst, PARD D. Hill, Unit Head, Portfolio Management, PARD M. P. Pena-Ojera, Executive Assistant, PARD

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS Page

BASIC DATA i MAP viii I. PROJECT DESCRIPTION 1 A. Historical Background 1

II. THE PROJECT 1 A. Objective and Rationale 1 B. Project Scope 2

III. EVALUATION OF DESIGN AND IMPLEMENTATION 2 A. Relevance of Design and Formulation 2 B. Project Outputs 4 C. Project Costs 7 D. Disbursements 8 E. Project Schedule 8 F. Implementation Arrangements 9 G. Conditions and Covenants 9 H. Consultant Recruitment and Procurement 10 I. Performance of the Borrower and the Executing Agency 11 J. Performance of the Asian Development Bank 11

IV. EVALUATION OF PERFORMANCE 11 A. Relevance 11 B. Effectiveness in Achieving Outcome 12 C. Efficiency in Achieving Outcome and Outputs 12 D. Preliminary Assessment of Sustainability 13 E. Impact 13

V. OVERALL ASSESSMENT AND RECOMMENDATIONS 14 A. Overall Assessment 14 B. Lessons 14 C. Recommendations 14

APPENDIXES 1. Project Framework 16 2. Chronology of Main Events 17 3. Resettlement Progress 20 4. Project Cost 22 5. Implementation Schedule 23 6. Organization Structure for Project Implementation 24 7. Status of Compliance with Loan Covenants 25 8. Traffic at Lae Port 31 9. Evaluation Methodology 33 10. Economic Internal Rate of Return Calculation 43 11. Financial Internal Rate of Return Calculation 44 12. Weighted Average Cost of Capital Calculation 45 13. Project Evaluation Matrix 46

SUPPLEMENTARY APPENDIXES A. Traffic Forecast and Economic Analysis 47 B. Financial Evaluation 53

BASIC DATA

A. Project Identification

1. Country Papua New Guinea 2. Loan and Grant Numbers 2398, 2399, 2803, 2804, 8237, 0102, and 9113 3. Project Title Lae Port Development Project 4. Borrower Government of Papua New Guinea 5. Executing Agency Independent Public Business Corporation 6. Amount of Loan $195,000,000 7. Project Completion Report Number 1612

Loan or Grant Currency Amount Loan 2399 SDR 25,242,000 Loan 8237 USD 6,000,000 Loan 2803 USD 85,000,000 Loan 2804 SDR 2,650,000 Grant 0102 USD 750,000 Grant 9113 USD 1,500,000

B. Project Data

Original Loan (2398/2399/8237) 1. Appraisal – Date started 18 August 2007 – Date completed 14 September 2007

2. Loan Negotiations – Date started 22 November 2007 – Date completed 23 November 2007

3. Date of Board Approval 18 December 2007

4. Date of Loan Agreement 12 June 2008

5. Date of Loan Effectiveness – In loan agreement 10 September 2008 – Actual 30 October 2008, 27 January 2009 (OFID) – Number of extensions 0

6. Closing Date – In loan agreement 30 June 2012 – Actual 30 June 2016, 30 June 2014 (OFID) – Number of extensions 3

ii

Additional Financing (2803/2804)

1. Fact Finding/Appraisal – Date started 18 July 2011 – Date completed 12 August 2011

2. Loan Negotiations – Date started 6 November 2011 – Date completed 7 November 2011

3. Date of Board Approval 10 November 2011

4. Date of Loan Agreement 30 April 2012

5. Date of Loan Effectiveness – In loan agreement 29 July 2012 – Actual 21 June 2012 – Number of extensions 0

6. Closing Date – In loan agreement 31 December 2014 – Actual 30 June 2016 – Number of extensions 2

Grants

Grant 0102 (Sida) 1. Date of Effectiveness 18 December 2007 2. Actual Grant Closing Date 25 February 2016

Grant 9113 (JFPR) 1. Date of Effectiveness 12 June 2008 2. Actual Grant Closing Date 4 December 2015

7. Terms of Loans

Loan 2398-OCR – Loan amount $60 million – Interest rate LIBOR-based interest rate + 0.60% less credit of 0.40%, 0.15% commitment charge – Maturity 24 years including grace period – Grace period 4 years

Loan 2399-ADF – Loan amount SDR25.242 million ($40 million) – Interest rate 1.0% during the grace period and 1.5% thereafter – Maturity 32 years including grace period – Grace period 8 years

Loan 8237-OFID – Loan amount $6 million – Interest rate 1.5%, plus a 1.0% service fee – Maturity 20 years including grace period – Grace period 5 years

Loan 2803-OCR – Loan amount $85.0 million – Interest rate LIBOR-based interest rate +0.60% less credit of 0.40%, 0.15% commitment charge – Maturity 24 years including grace period – Grace period 4 years

iii

Loan 2804-ADF – Loan amount SDR2.65 million ($4.12 million) – Interest rate 2.02% – Maturity 32 years including grace period – Grace period 8 years

8. Terms of Relending

Loan 2398-OCR – Loan amount $60 million – Interest rate 4.5% – Maturity 24 years – Grace period none – Second-step borrower Independent Public Business Corporation

Loan 2399-ADF – Loan amount SDR2.65 million ($38.42 million) – Interest rate 1.0% during the grace period and 1.5% thereafter – Maturity 24 years – Grace period none – Second-step borrower Independent Public Business Corporation

Loan OFID – Loan amount $6 million – Interest rate 4.5% – Maturity 24 years – Grace period none – Second-step borrower Independent Public Business Corporation

Loan 2803-OCR – Loan amount $85 million – Interest rate LIBOR-based interest rate + 0.6024% – Maturity 24 years – Grace period none – Second-step borrower Independent Public Business Corporation

Loan 2804-ADF – Loan amount SDR2.65 million ($4.12 million) – Interest rate 2.02% – Maturity 24 years – Grace period none – Second-step borrower Independent Public Business Corporation

ADF = Asian Development Fund, LIBOR = London interbank offered rate, OCR = ordinary capital resources.

iv

9. Disbursements

a. Dates Initial Disbursement Final Disbursement Time Interval 27 Jan 2009 18 December 2015 84 months Effective Date Actual Closing Date Time Interval 30 October 2008 30 June 2016 92 months

Disbursement Loan First Final Time Interval 2398 23 Jun 2010 18 Dec 2015 67 months 2399 25 Jun 2012 22 Jul 2013 13 months 2803 30 Aug 2013 18 Nov 2014 15 months 2804 30 Aug 2013 19 May 2015 21 months 8237 30 Oct 2012 10 Oct 2013 12 months

Disbursement Grant First Final Time Interval 102 27 Jan 2009 25 Feb 2015 74 months 9113 4 Jul 2013 27 Oct 2013 4 months

b. Amount ($ million)

Last Loan or Grant Original Revised Amount Net Amount Amount Undisbursed Amount Allocation Allocation Canceled Available Disbursed Balance L2398-OCR 60.00 60.00 60.00 60.00 0.00 L2399-ADF 40.00 38.42a 38.42a 38.42 0.00 L8237-OFID 6.00 6.00 6.00 6.00 0.00 G9113-JFPR 1.50 1.21 1.21 1.16 0.06 G0102-HIV/AIDS 0.75 0.75 0.75 0.65 0.10 LCoop2803eration-OCR Fund 85.00 85.00 85.00 84.98 0.02 L2804-ADF 4.12 4.06a 4.06 4.06 0.00 Total 197.37 195.44 195.44 195.27 0.17

ADF = Asian Development Fund, JFPR = Japan Fund for Poverty Reduction, OCR = ordinary capital resources, OFID = Organization of the Petroleum Exporting Countries Fund for International Development. a Due to foreign currency exchange rate variation between special drawing rights and US dollars, the ADF availability was reduced by $1.64 million.

10. Local Costs (financed) - Amount ($ million) 115.1 - Percent of local costs (appraisal) 29.7% - Percent of total cost (actual) 37.1%

v

C. Project Data

11. Financing Share

1. Project Cost ($ million) Planned Actual Foreign Local Total Foreign Local Total ($)

Cost Cost Cost Cost Cost % % % % % Cost % ($) ($) ($) ($) (K) Borrower - - 94.03 100 94.03 29.70 0.00 0.00 144.20 27.17 115.10 37.08

OCR 145.00 73.47 0.00 0 145.00 38.96 144.98 74.25 215.50 40.60 144.98 46.71 ADF 44.12 22.35 0.00 0 40.00 25.98 42.48 21.75 167.85 31.62 42.48 13.69 OFID 6.00 3.04 0.00 0 40.00 3.90 6.00 3.07 0.00 0.00 6.00 1.93 JFPR 1.50 0.76 0.00 0 40.00 0.97 1.16 0.59 2.62 0.49 1.16 0.37 Sida 0.75 0.38 0.00 0 0.75 0.49 0.65 0.33 0.65 0.12 0.65 0.21 Total 197.37 94.03 265.75 195.27 530.82 310.37

ADF = Asian Development Fund, JFPR = Japan Fund for Poverty Reduction, OCR = ordinary capital resources, OFID = Organization of the Petroleum Exporting Countries Fund for International Development, Sida = Swedish International Development Cooperation Agency.

2. Financing Plan ($ million) Cost Appraisal Estimate Additional Financing Actual Implementation Costs

Borrower financed 45.80 48.30 115.10

ADB financed 94.90 89.12 187.46

Other external financing 8.30 7.81

Subtotal 149.00 137.42 310.37

IDC Costs

Borrower financed - -

ADB financed 5.10

Other external financing -

Subtotal 5.10

Total 154.1 137.42 310.37 ADB = Asian Development Bank, IDC = interest during construction.

3. Cost Breakdown by Project Component ($ million)

Actual Increasec Appraisal Additional Component Estimate Finance Total (%) (1) (2) (3) (4) (4)/(1) A. Civil Works 1. Port facilities 106.93 124.44 231.37 286.22 116% 2. Resettlement housinga 1.53 1.53 - 3. Canoe landing 0.96 0.96 - Subtotal (A) 109.42 124.44 233.86 286.22 B. Land Acquisition 1.49 1.49 - C. Compensation & Relocation 0.31 0.31 11.13 376% D. Livelihood and Social Support 1.50 1.50 1.16 (23%) E. HIV/AIDS 0.75 0.75 0.65 (13%) F. Consulting Services 1. Support to PMU 2.94 2.94 5.16 76% 2. Construction supervision 6.00 6.00 6.05 1%

vi

3. Housing construction supervisiona 0.50 0.50 - 4. Audit fees 0.13 0.13 - Subtotal (F) 9.57 - 9.57 11.21 17% G. Training 0.03 - 0.03 - H. Contingencies - 1. Physical (A1) 16.47 7.82 24.29 2. Price (A2, C, and F3) 0.38 0.38 3. Price (A1) 8.90 1.51 10.41 Subtotal (H) 25.75 9.33 35.08 - I. Financing Charges 5.18 3.63 8.81 - Total 154.00 137.40 291.40 310.37 102% a In calculating, the cost increases in percentages for items A2, B, and F3 are allocated to item C. b In calculating, the cost increases in percentages for item A1, items H1 and H3 are allocated to item A1. c Training is included under Consultancy.

4. Project Schedule Item Appraisal Estimate Actual Date of contract with consultants January 2010 29 December 2011

Civil works contract Date of award 19 January 2011 26 March 2012 Completion of work 1 December 2011 1 November 2014 Equipment and supplies Dates First procurement January 2010 29 December 2011 Last procurement 19 January 2011 26 March 2012 Start of operations Completion of tests and commissioning -- 17 December 2014 Handover of facilities to the PNGPCL from Kumul -- 2 April 2015 Beginning of start-up -- 17 August 2015

PNGPCL = Papua New Guinea Ports Corporation Limited.

5. Project Performance Report Ratings Ratings

Implementation Period Development Objectives Implementation Progress From 30 Oct 2008 to 31 Dec 2008 Satisfactory Satisfactory From 1 Jan 2009 to 31 Dec 2009 Satisfactory Satisfactory From 1 Jan 2010 to 31 Dec 2010 Satisfactory Satisfactory From 1 Jan 2011 to 31 Dec 2011 Satisfactory Satisfactory From 1 Jan 2012 to 31 Dec 2012 Satisfactory Satisfactory From 1 Jan 2013 to 31 Dec 2013 Satisfactory Satisfactory From 1 Jan 2014 to 31 Dec 2014 Satisfactory Satisfactory From 1 Jan 2015 to 31 Dec 2015 Satisfactory Satisfactory Source: Asian Development Bank, project performance rating system. Note: Other rating details are partly satisfactory and unsatisfactory.

vii

D. Data on Asian Development Bank Missions

Specialization of Name of Mission Date No. of No. of Persons Person-Days Membersa Pre-appraisal 28 Aug–14 Sep 2007 4 17 a,b,d,f Project review 7–20 Nov 2007 2 13 a,e Inception 8–18 Sep 2008 2 10 a,f Project review 27–29 Jul 2009 2 6 a,b Special review 3–5 Nov 2009 2 6 a,f Project-specific consultation 9–10 Nov 2009 3 6 b,d,e Project-specific consultation 14–16 Dec 2009 5 10 a,b,c,d,f Project review 27 Jul–4 Aug 2010 4 7 a,d,e,f Special review 3–5 Nov 2010 2 6 d,e Project review 16–19 Jun 2011 2 4 b,e Project review 26–27 Jun 2011 4 2 a,b,e,f Fact-finding additional Financing 18 Jul–12 Aug 2011 4 15 a,b,d,f Project review 18–22 Jul 2011 3 15 a,b,g Project review 26–30 Jul 2011 2 10 a,b Project-specific consultation 27–29 Nov 2011 2 4 a,b Project-specific consultation 17–19 Apr 2012 2 6 a,b Project-specific consultation 18 Jun 2012 1 1 A Project-specific consultation 13–15 Aug 2012 2 2 a,b Project review 23–25 Oct 2012 2 6 a,b Project review 7–9 Nov 2012 3 2 a,b,g Project review (midterm) 27–29 Nov 2012 2 6 a,b Project review 15–19 Apr 2013 5 4 2a,2b,g Project review 30 Apr–2 May 2014 5 2 a,b,g,2f Project completion review 3–24 Jun 2016 4 10 a,b,g,h a a = engineer, b = financial analyst, c = counsel, d = economist, e = procurement consultant or specialist, f = control officer, g = programs officer, h = consultant.

Lorengau

Kavieng Vanimo

B IB S i Ms mA aR rC c Kk S e S a E A Wewak Project Area Kokopo Built-up Area Affected Settlement Area Wabag Madang Mt. Hagen Small Craft Landing Site Kundiawa Kimbe Tari Minj Arawa National Capital Mendi Goroka Lae Provincial Capital Project Location S o l o m o n S e a S O L O M O N S E A National Highway Kerema Main Road Popondetta Secondary Road GGuulfl f o of f P Paappuuaa Daru River PORT MORESBY City/Town Boundary Alotau International Boundary

Boundaries are not necessarily authoritative. C O CR oA rL a l S ES Ae a

PAPUA NEW GUINEA Resettlement Site LAE PORT DEVELOPMENT PROJECT (as completed)

MALAHANG OMILI

ERIKU

BUSU HANTA YANGA RAUNWARU

BUTIBAM

Papuan Compound

PROJECT AREA China Town BUMBU Market Stadium WAGAN Markhan River

Small Craft Landing Site

N

H u o n G u l f 0 0.5 1 1.5

Kilometers

This map was produced by the cartography unit of the Asian Development Bank. The boundaries, colors, denominations, and any other information shown on this map do not imply, on the part of the Asian Development Bank, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries, colors, denominations, or information.

17-1226 16PNG ABV

I. PROJECT DESCRIPTION

A. Historical Background

1. In 1978, the Government of Papua New Guinea (PNG) requested technical assistance from the Asian Development Bank (ADB) for a detailed feasibility study for Lae Port, including the development of the tidal basin.1 In September 1980, ADB approved a loan of $20 million from its ordinary capital resources and a loan equivalent to $8 million from the Asian Development Fund to finance the Lae Port Project with an estimated cost of $30.1 million.2 Physical work began in mid-March 1982 but land ownership issues in the tidal basin area led to hostilities and to the suspension of construction in May 1982.

2. Unresolved land ownership issues, combined with traffic levels that were lower than expected at appraisal, contributed to a reduction in the project scope, including confinement of works to be within the port boundaries. The revised project was approved in 1984 and was successfully completed in mid-1989. The project resulted in the construction of a new tanker berth, the reconstruction of berth No. 2 as a fully land-backed berth for overseas and container vessels, the extension of berth No. 3 by 35 meters (m), and the improvement of back-up areas behind the marginal wharf.

3. The need for a tidal basin re-emerged when the government requested project preparatory technical assistance in 2006 to prepare the Phase 1 tidal basin works under the Lae Port Development Project.3 The resulting final feasibility study by Royal Haskoning (RHK) was submitted in October 2007. 4 In view of increasing congestion and ship waiting times, the feasibility study recommended the urgent expansion of Lae Port through the construction of one wharf in a tidal basin adjacent to the existing port. The Lae Port Development Project was therefore designed to increase port capacity by constructing a tidal basin, one berth, and a container facility. 5 On 18 December 2007, ADB approved a package of loans 6 and grants totaling $154 million for the Lae Port Development Project.

II. THE PROJECT

A. Objective and Rationale

4. The main objective of the project was to increase Lae Port’s capacity to meet expected growth in traffic. Lae Port is PNG’s largest, busiest, and most important port. It is also the major gateway to international and local trade for the country, and is connected to the hinterland

1 ADB. 1979. Report and Recommendation of the President to the Board of Directors: Proposed Technical Assistance Grant to Papua New Guinea, Lae Port Development. Manila (TA 284-PNG). 2 ADB. 1980. Report and Recommendation of the President to the Board of Directors: Proposed Loans to Papua New Guinea for the Lae Port Project. Manila (Loans 0468/0469SF]-PNG). 3 ADB. 2006. Technical Assistance to Papua New Guinea for Preparing the Lae Port Development Project – Tidal Basin Phase I. Manila (TA 4793-PNG). 4 The feasibility study was carried out by Royal Haskoning (RHK) in association with Ports & Maritime Consultancy Ltd., Papua New Guinea. 5 Further improvements to extend the berth and accommodate heavier cargo-handling equipment were envisioned under a separate and subsequent project. 6 ADB. 2007. Lae Port Development Project – Report and Recommendation of the President to the Board of Directors: Proposed Loans, Administration of a Loan from the OPEC Fund for International Development, and Administration of a Grant from the Cooperation Fund for Fighting HIV/AIDS in Asia and the Pacific. Manila.

2

(where half of its population lives) through a dedicated road system. Effective functioning of Lae Port is essential to support overall economic growth in PNG.

B. Project Scope

5. The project included (i) a port facilities component, consisting of a tidal basin, one berth, and a container terminal with all ancillary facilities; (ii) a resettlement and livelihood improvement component; (iii) consulting services; and (iv) gender-responsive programs for HIV/AIDS prevention. The construction of the tidal basin and berth was to provide flexibility to extend the berth by another 150 m without incurring dredging costs. These improvements also allow for rail-mounted gantry cranes, heavy mobile cranes, and equipment to handle heavier cargo.

III. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

6. The project was consistent with ADB’s and the government’s sector strategies and priorities at the time of project formulation, and remains relevant today since the national development strategy continues to highlight the need for improvement and expansion of maritime transport capacities.7 Developing a new tidal basin and supporting facilities, rather than expanding the marginal wharf, also factored in the long-term development potential of the project area, including the eventual creation of an industrial estate for port-related industries. The livelihood and HIV/AIDS components were directly relevant given the project’s resettlement impacts and the high incidence of HIV/AIDS in the project area.

7. Fact finding for the project in February 2006 was followed by the preparation of a feasibility study by RHK (para. 3). The final study was submitted in October 2007; it summarized the findings and recommendations of 10 stand-alone, comprehensive reports and provided the basis for project appraisal in September and October 2007.8

8. Port facilities. The updated design for the port facilities was based on the design prepared in 1982, but modified to reflect the updated needs and expectations for Lae Port to become a regional transshipment hub, and cater to port-related industries. The updated design called for a further deepening of the tidal basin from 11 m below chart datum to 14 m below chart datum, an increase in the length of the first berth from 180 m to 240 m, and modifications for the wharf, deck, and container yard to accommodate heavier handling equipment and to enable higher stacking of containers.

9. These design modifications required larger and longer piles to be driven to 30 m below chart datum, or 10 m deeper than the 1982 design. Prior to this project, a borehole at 30 m below chart datum had not been drilled, and this was beyond the scope of the feasibility study. Additional geotechnical site investigations were undertaken and funded by PNG Ports

7 ADB. PNG: Country Strategy and Program Update, 2006–2010 and ADB. 2010. PNG: Country Partnership Strategy, 2011–2015. 8 Reports include (i) Macroeconomic and Sector Analysis; (ii) Lae Port Analysis and Assessment; (iii) Poverty Reduction and Social Strategy; (iv) Tidal Basin I Project, covering site investigations, technical feasibility, contract packages, procurement arrangements, and implementation schedule; (v) Socioeconomic Assessment; (vi) Financial Assessment; (vii) Environmental Impact Assessment; (viii) Resettlement Plan; (ix) Public Consultation; and (x) Detailed Design and Bidding Documents. 3

Corporation Limited (PNGPCL). The results of the additional geotechnical investigation were not available at the time of appraisal and completion of the bidding documents. Hence, the design was, to some extent, conceptual and based on available data but recognized that some design changes would emerge during implementation. These changes had implications for the project, as discussed in paras. 17, 18, and 26. Bidding documents for the civil works therefore incorporated a design review by the contractor.

10. All civil works were tendered for international competitive bidding in a single design-and- build contract for the reclamation, berth, and terminal works. Given the complexity of the project, which required close coordination between several smaller contractors in a difficult working environment, it was deemed prudent to opt for a single-contractor solution.

11. The feasibility study also indicated the possibility of siltation in the tidal basin, but no hydrographic research or model tests were undertaken prior to construction to assess the potential magnitude of siltation and the preventive measures required. The implications of siltation for the project’s implementation are discussed in para. 19.

12. Resettlement component.9 The government prepared a resettlement plan to relocate 482 households totaling 2,912 persons and occupying the area to be dredged for the tidal basin. This original resettlement plan was not implemented because of disputes with the host community over land ownership, cultural differences, and the inability of the Morobe Provincial Government (MPG) to find affordable alternative land. The executing agency for the project, Independent Public Business Corporation (IPBC), in consultation with the affected persons, subsequently prepared a supplementary resettlement plan to implement a cash assistance package (CAP) and in-kind transitional support. The CAP was deemed to be the most feasible alternative that would allow physically displaced persons to self-relocate to areas of their choice. The CAP was also intended to assist affected persons wanting to return to their provinces, reintegrate into their clans, and start their own income-generating activities.

13. The supplementary resettlement plan also defined the livelihood impacts on the Labu people, who reside about 2 kilometers from the project area. Access to their small-craft landing site would be restricted by increased shipping traffic in the fishing grounds near Lae Port and stricter enforcement of the International Shipping and Port Security Code. The original plan was to develop another beach area in Lae into an alternative small-craft landing site, but acquiring the land proved unsuccessful. Subsequent consultations with the affected people resulted in improvements to the existing landing site as well as an action plan to develop an alternative landing site (paras. 20 and 21).

14. Livelihood component. The livelihood program10 for the physically displaced persons focused on providing health and sanitation services, teaching income-generating skills, and offering personal development activities. Livelihood support for the Labu villages considered a more diversified approach of assisting their existing fishing activities and other potential non- fishing income sources through various training programs.

9 The resettlement and livelihood components were funded by the project loan and a grant from the Japan Fund for Poverty Reduction (JFPR 9113). 10 The Lae Port Livelihood and Social Improvement Project (JFPR 9113) funded the livelihood restoration component of the overall project. The Cooperation Fund for Fighting HIV/AIDS in Asia and the Pacific provided additional support under the HIV/AIDS component.

4

15. HIV/AIDS component. PNG, and the Lae area in particular, had a high incidence of HIV/AIDS infections. The project therefore included a program to prevent the spread of HIV/AIDS. The program activities involved (i) developing a HIV/AIDS code of conduct, (ii) renovating the seafarers’ support center at Lae Port, (iii) providing institutional strengthening of clinical structures, (iv) building the capacity of nongovernment organizations, (v) enhancing the outreach and impact of the HIV/AIDS site committee at Lae Port, (vi) establishing HIV/AIDS site committees and women’s help desks at police stations around Lae Port, (vii) caring for people living with HIV/AIDS, and (viii) establishing an integrated response center for HIV/AIDS. This program was supported through the Cooperation Fund for Fighting HIV/AIDS in Asia and the Pacific.11

B. Project Outputs

16. The project scope at appraisal had three main components: (i) port facility improvements, consisting of (a) construction of a tidal basin (700 x 400 m) northwest of the present port facilities with a dredged depth of 14 m below chart data to accommodate vessels with an overall length of 200 m, a beam of 32.2 m, and a fully laden draft of 12 m; (b) construction of a multipurpose berth, 240 m long and 45 m–50 m wide; (c) terminal works, including all buildings, storage areas, roads, drainage, water, electricity, and sewerage services; and (d) development of an alternative small-craft landing site. (ii) resettlement and livelihood improvement; and (iii) gender-responsive programs for HIV/AIDS awareness and prevention.

17. Port facilities. Design changes to accommodate the vision of Lae Port eventually becoming a regional transshipment hub were expected, as the tender documents only provided a conceptual design. The design changes were included in the quantity and cost estimates of the feasibility study, but their magnitude was underestimated. In October 2009, IPBC requested that RHK be retained to carry out further geotechnical field investigations so as to obtain more realistic data and to update the cost estimates, which ADB approved and which required additional financing. Field investigations found that suitable and sufficient quantities of rock material for slope protection could not be identified within an economic radius around the project site. As a result, ADB had no objection to the design change of using a combination of concrete “Chinese” pods, blocks, and hollow blocks.

18. The main port facility component was substantially completed on 31 December 2014 as per the scope of the project at the time of appraisal. The completion of the slope protection works and the diversion of Mai Creek at the north end of the basin were postponed in view of PNGPCL’s intention to start further expansion of the tidal basin (locally known as Phase 2), by extending the new wharf by another 180 m, deepening the basin by 1 more meter, and extending the basin to the north. The main purpose of extending the tidal basin to the north under Phase 2 was to expand the reclaimed area for the proposed industrial estate. The installation of navigational aids was also postponed to be included in Phase 2 works when siltation at the basin entrance was observed.12

11 The donor agency for this program is the Government of Sweden through the Swedish International Development Cooperation Agency (Sida). 12 As of the writing of this report, no progress has been made toward the implementation of Phase 2. 5

19. Upon completion of the project, IPBC commissioned an external audit to identify defects prior to closure of the defect-liability period on 31 December 2016. This audit detected defects in the stability of the slope-protection works, and higher levels of siltation than expected:

(i) The design change specifications for slope protection required random placement of the “Chinese” pods. However, these pods were placed in a symmetrical fashion above sea level for aesthetic reasons, affecting the stability of the slope protection along the meeting line between the regular and the random placements. This deviation was undertaken without IPBC’s approval but was corrected by the contractor at its own expense. (ii) The feasibility study indicated the potential danger of siltation. IPBC engaged a firm to study the siltation issue and concluded that siltation to the level of 11 m below chart datum from the dredged 14 m below chart datum occurred at the western entrance to the basin. However, this siltation had not increased for over 1 year and seemed to have stabilized.

20. Labu small-craft landing site. The original plan to acquire and develop land in front of the South Pacific Brewery for the Labu small-craft landing site was not implemented because of unresolved land issues. 13 Alternative options identified during project implementation were either unavailable or unacceptable to the Labu people. As an interim measure, the existing small-craft landing area was upgraded and improved with a new basin at the current site to make it more convenient and safer for the Labu people to land and to access the market, schools, and shopping facilities in Lae. It is currently being used to serve the Labu people and other surrounding coastal communities.

21. Because the current landing site is located within the existing Lae Port premises, an action plan for a new Labu small-craft landing project was prepared by PNGPCL in consultation with the MPG and the Labu people. The action plan was endorsed by IPBC on 23 November 2016 for a 12-month implementation from January to December 2017. It includes detailed consultations with the Labu people, review of the current memorandum of understanding by the MPG and relevant stakeholders, and the construction of a new jetty at a suitable site with breakwaters, as well as fish market, transit terminal, and fuel voucher outlet.

22. Resettlement. The supplementary resettlement plan, which superseded the original resettlement plan, included a CAP as well as training for livelihood awareness and financial planning. An audit revision during the preparation of the supplementary resettlement plan indicated that resettlement impacts had increased, from 482 households or 2,912 persons to 544 households or more than 3,200 persons. Each of the 544 households received K31,116 in two installments, after signing a deed of release and indemnity and vacating the premises. In total, K16.9 million was paid between 18 December 2009 and 18 March 2010. Households wanting to stay in were assisted with a fixed amount of K1,000 per household toward transport costs. Households relocating to their home provinces outside Lae were provided with transport assistance for their belongings. Of those relocating, 61% (1,785 persons) settled within and the remainder relocated to their preferred provinces, usually

13 This was the main provision of the memorandum of understanding initially agreed between the Labu people and the MPG, which outlined specific entitlements of the Labu people from the need to relocate their small-craft landing site and fish market.

6

their place of birth. Of those settling in Morobe Province, 96% stayed within the Lae district.14 The established grievance redress procedures were applied successfully, and all 315 recorded cases were resolved.

23. Livelihood. This component aimed to improve the living standards of both the physically displaced households and the Labu people residing near the project area. It was implemented by IPBC and the MPG through various nongovernment organizations and training institutes. Affected persons were offered personal viability training, “start your own business” training, and sessions on vocational skills, basic literacy, health, nutrition for women, and good governance. Affected persons also benefited from the improvement of selected schools and health centers in the areas where they relocated. In total, 23 schools and health facilities were improved to assist the host communities in coping with the new residents.

24. The Labu people also received livelihood assistance for cocoa production, inland fish farming, mud crab production, and an offshore fish-aggregating device, all of which were intended to provide alternative sources of income.15 The microfinance component was not fully implemented because of insufficient funds to cover administration costs and the seed money required to reach all affected persons. However, a similar microfinance program was implemented under a separate ADB-funded microfinance program, which helped individuals find loans.16

25. HIV/AIDS component. The Lae Chamber of Commerce implemented this component by familiarizing local businesses with precautionary measures against HIV/AIDS and disseminating information through seminars, flyers, and brochures. Initially, only port-related industries were involved but outreach was later expanded to other business and public areas. Only 2 out of 5 target clinics were built because the Lae Chamber of Commerce lacked the capacity to manage procurement and civil works.

26. Port operations. A port operations plan for the project was proposed by PNGPCL and submitted to ADB on 19 February 2015.17 The plan highlighted that coastal shipping services would initially use and operate the facilities. A long-term arrangement was envisioned for PNGPCL to engage in a public–private partnership (PPP) to operate the terminal for container ships under a concessional agreement. The process of engaging a PPP partner is ongoing. In the meantime, the port has been operated by a coastal shipping company on a 3-year lease. PNGPCL has highlighted shortcomings in the port’s layout which, in their view, could have been avoided if they had been more involved in the project’s design and implementation as the prospective end-user. As noted in para. 37, IPBC was selected to be the project executing

14 Social Monitoring Report, January 2010–December 2013. 15 This information was drawn from the JFPR 9113 completion report (June 2015). The support for cocoa production was provided to the Labu Pile and Labu Puseka villages, where 73 households or 300 people participated. The two villages were also selected for inland fish farming, and training was provided. Puseka farmers built ponds ranging from 200 to 600 square meters, with the capacity to hold 1,000–3,000 fish, depending on their size. About 70,000 tilapia fingerlings were distributed, including to the resettled communities in a 14-mile radius from the project area. The Labu Butu village was the main beneficiary of the mud crab production program. The target was to train village farmers and establish 40 mud crab pens, but only 20 pens were built for lack of interest on the part of farmers and because of difficulties in adopting the crab farming methods. Fish-aggregating devices were deployed in all three coastal villages. Most of the catch is shared by the village members, the rest is sold in the market 16 ADB. 2010. Report and Recommendation of the President to the Board of Directors: Proposed Loan to Papua New Guinea for the Microfinance Expansion Project. Manila. (Loan 2686 PNG).The Project has operations in Lae. 17 Lae Tidal Basin International Container Terminal – Operation Plan, by Pacific Marine Management Ltd on behalf of PNG Ports Corporation Ltd. 7

agency rather than PNGPCL, which compromised PNGPCL’s involvement and cooperation in design and implementation activities.

27. Assessment. The outputs related to the port facilities were delivered as planned at appraisal. The site was made available for port operations, despite cost increases and substantial delays in project implementation. The supplementary resettlement plan, as an alternative resettlement option, was executed in a timely manner despite the challenges associated with mobilizing funds and the intensive community consultations required. The improved small-craft landing site is currently being used by the Labu people, and an action plan for an alternative landing site is under implementation (para. 21). The livelihood component was successfully implemented for the affected persons who relocated within Morobe. The microcredit component was not fully implemented but replaced by training on financial literacy under the ADB-funded microfinance program (para. 24).

28. Environmental safeguards were monitored systematically, and the project management unit (PMU), the supervision consulting firm, and the civil works contractor's team produced regular reports. The contractor performed regular data collection, sampling, and laboratory analysis as part of its environmental management plan, and included the analysis in its monthly progress reports. The supervision consulting firm's international safeguard specialist reviewed these environmental reports regularly, especially the quarterly safeguard reports submitted to ADB and posted on the ADB website. The delay in the implementation of the original resettlement plan contributed to the lack of regular social safeguard monitoring reports in the beginning of project implementation. Consultations with affected households after their relocation should have been more frequent.

C. Project Costs

29. The cost estimates of the project components at appraisal and the actual project costs are presented in Table 1. At appraisal, the total project cost was estimated at $154 million. The newly envisaged role for Lae Port as a regional transshipment hub required design changes that were not reflected in the feasibility study estimates at appraisal. Additional geotechnical investigations by the feasibility study consultant were carried out, resulting in an estimated additional cost of $137.4 million. A cost audit carried out by Deloitte,18 commissioned by IPBC, and reappraised in connection with the loans for additional financing confirmed the project’s sustained financial and economic viability. To meet these cost increases, ADB approved two loans for additional financing on 10 November 2011: loan 2803 from its ordinary capital resources and loan 2804 from the Asian Development Fund, totaling $89.12 million.19

30. The report and recommendation of the President (RRP) for the additional financing stated that 20% of the additional cost was attributable to the design changes; the remainder was attributed to cost increases as a result of the 2-year resettlement delay (footnote 19). From 2007 to 2011, PNG’s economy experienced a real average annual growth rate of more than 7%. This growth caused supply constraints, resulting in cumulative inflation of consumer prices of more than 25% and substantially higher construction costs. The US dollar depreciated 22% against the kina during the same period, correspondingly increasing the local cost component in dollars.

18 Deloitte, Touche Tohmatsu, PNG. 2010. Preliminary Update to the Cost Benefit Analysis of Lae Port Tidal Basin Project. Port Moresby. 19 ADB. 2011. Report and Recommendation of the President to the Board of Directors: Proposed Loans to Papua New Guinea for Additional Financing: Lae Port Development. Manila (paras. 7–12).

8

31. At project completion, the total project cost had increased by 102% over the original cost estimates, but by only 7% over the estimated cost at reappraisal for the additional financing. This was largely attributed to the civil works component, which increased by an additional 6%. The CAP related to compensation and relocation (Table 1, item C) resulted in a more than fivefold increase from the appraisal estimates, including the original resettlement housing allocation of $1.5 million that was reallocated to item C. The government has fully financed this resettlement exercise.20

Table 1: Project Cost – Planned vs. Actual ($ million) Components Appraisal Additional Total Actual Increase (%) (1) Financing(2) (3) (4) (4)/(1) (4)/(3) A. Civil works 109.42 124.44 233.86 286.22 162% 22% B. Land acquisition 1.49 1.49 C. Compensation and relocation 0.31 0.31 11.13 3490% 3490% D. Livelihood and social support 1.50 1.50 1.16 (23%) (23%) E. HIV/AIDS 0.75 0.75 0.65 (13%) (13%) F. Consulting services 9.57 9.57 11.21 17% 17% G Training 0.03 0.03 H.. Contingencies 25.75 9.33 35.08 I. Financing charges 5.18 3.63 8.81 Total 154.00 137.40 291.40 310.37 102% 7% Note: In calculating the percentage increases, (i) item H was attributed to item A, (ii) item C was allocated to item C, and (iii) item D was reduced to $1.2 million.

D. Disbursements

32. After the loan became effective on 30 October 2008, the first disbursements were made on 27 January 2009 for the HIV/AIDS component and, more than 3 years later, on 25 June 2012, for the civil works contract. This delay in the civil works disbursement arose primarily from the redesign and prolonged implementation of the resettlement program, since civil works could only begin after the CAP was completed in January 2010. Actual disbursements closely followed the estimates made at the reappraisal for additional financing.

33. For the grants dealing with safeguards, consulting services, and livelihood improvement, the imprest account procedures were in accordance with the respective guidelines, although the implementing agencies—Lae Chamber of Commerce and MPG found it difficult to obtain timely replenishment because of their inexperience with ADB procedures. Civil works and consultant supervision were procured using national competitive bidding.

E. Project Schedule

34. The chronology of the main implementation events is in Appendix 2. At appraisal, it was estimated that the project would be implemented over 4 years and completed on 31 December

20 After the Fukushima nuclear disaster in March 2011, the Japan Fund for Poverty Reduction (JFPR) reduced its allocation for the livelihood and social support component from $1.5 million to $1.2 million. Small residual balances of $40,000 for the livelihood and social support component and $100,000 for the HIV/AIDS component remained unused at loan closing and were canceled. 9

2011. Preconstruction activities such as the detailed engineering design, and prequalification, tendering, and awarding of contracts began in January 2007 but had to be suspended due to resettlement implementation delays. Civil works, planned to begin in early 2009, were not started until April 2012 and not substantially completed until December 2014. The defect-liability period ended on 31 December 2016, during which identified defects (para. 19) were corrected. The delays in resettlement also affected the HIV/AIDS and the livelihood and social support programs.

F. Implementation Arrangements

35. The implementation arrangements at appraisal designated IPBC 21 as the executing agency. A PMU was established to implement the project, including its resettlement and environmental aspects, in association with the MPG which was the implementing agency for the livelihood program. The Lae Chamber of Commerce was tasked with implementing the HIV/AIDS awareness program given its outreach and earlier involvement with the Morobe Provincial AIDS Council. The PMU supported the financial management of the livelihood improvement and HIV/AIDS awareness programs. The PMU’s organizational structure was set up as envisaged at appraisal, except for the finance section, which was directly supervised by the project director and adequately monitored by IPBC (only two major contracts to administer). The project’s organizational structure is outlined in Appendix 6.

36. Three months after loan approval, a project steering committee (PSC), chaired by the IPBC managing director and comprising high-level representatives of PNGPCL as well as national and provincial government ministries and departments, was established to oversee the project’s implementation and provide policy guidance in quarterly meetings.

37. As the entity responsible for the development, management, and maintenance of all of PNG’s declared ports, PNGPCL expected that it would be the project’s executing agency. However, the government decided that IPBC was better equipped to serve as a PMU. Furthermore, the facilities were envisioned to be operated under a PPP arrangement with a private operator. Unfortunately, PNGPCL’s commitment during project implementation was limited. PNGPCL did not significantly contribute to, or participate in, PSC meetings to highlight any of the concerns that they subsequently raised when the new facilities were handed over to them.

38. ADB was aware of these institutional issues and advocated for PNGPCL’s more direct involvement during implementation. Although this was consistently brought to the attention of IPBC—and to the government’s central agencies, including the Department of Treasury (the borrower) and the Department of National Planning and Monitoring—close cooperation between IPBC and PNGPCL did not materialize.

G. Conditions and Covenants

39. Appendix 7 provides an overview of the status of the most relevant covenants of the loan and project agreements. Among the instances of noncompliance were:

21 IPBC (established in 2002) is the trustee of state assets and state-owned enterprises, including PNGPCL. Its strategic objectives include mobilizing resources to implement government policies and achieve its objectives, and catalyzing economic and social development. It reports to the Minister for Information and State Enterprises and the National Executive Council.

10

(i) Within 3 months of loan effectivity, the borrower should have set up the PSC, which was to meet at least quarterly (project agreement schedule 5, para. 2). The PSC first met on 25 May 2010 and officially convened only four times during project implementation. (ii) On 2 April 2015, with the government’s approval but without ADB’s consent, IPBC handed the operation of the new project facilities over to PNGPCL. Although ADB formally raised this matter with IPBC and the government in a letter to IPBC dated 20 April 2015 and a letter to the Department of Treasury dated 16 February 2016, in addition to numerous e-mails and verbal follow-ups, no response came forward. (iii) While the borrower submitted a port operational plan (para. 26), it did not submit an action plan to develop a strategic PPP model for the operation of the new facilities. Currently, a coastal shipping company operates the facilities on a 3- year lease. (iv) IPBC did not establish the project performance monitoring system, which was captured as a noncompliance issue in aide-mémoires and a memorandum of understanding as part of ADB’s review missions. This noncompliance was mainly a result of capacity constraints.

40. The arrangements for a new small-craft landing site for the Labu people are presented in the recent action plan (para. 21). The Labu people are currently occupying and using the improved landing site within the port area, and the action plan seeks to identify an alternative landing site.

41. Noncompliance issues were mainly observed when the audited project financial statements and safeguard reports were submitted, and led ADB to suspend disbursement. This affected the project in as far as payments were delayed, but did not materially affect the progress of the civil works.

42. Although the facilities were handed over to PNGPCL without ADB’s consent, it is not clear whether PNGPCL will be responsible for servicing the debt. The subsidiary loans are still in the name of IPBC.

H. Consultant Recruitment and Procurement

43. Consultant recruitment and procurement was in compliance with ADB guidelines. The only major consultant contract under the project was for construction supervision; recruitment under the quality- and cost-based selection procedure began on 8 January 2010, and ADB confirmed that it had no objection on 18 October 2010. Since the tender process for the civil works contract had to be delayed until the resettlement issue was resolved, the construction supervision contract with Korean Engineering Consultants Corporation (KECC) was not signed until 29 December 2011. The civil works for construction of the terminal were appropriately grouped into one contract package to attract international bidders and reduce the administrative pressure on the executing agency. Although one-stage, one-envelope international competitive bidding with prequalification was envisaged, this was changed to postqualification during the appraisal for additional financing because of the resettlement delay. Invitations to bid were issued on 19 January 2011, and ADB approved IPBC’s recommendation to award the civil works contract to China Harbor Engineering Company, the lowest evaluated responsive bidder, on 15 September 2011. The signing of the contract was delayed by more than 6 months because the National Executive Council had not initially agreed with IPBC’s evaluation. This issue was resolved with ADB’s facilitation, and the contract was awarded to the lowest 11

evaluated responsive bidder on 26 March 2012. Consultancies and procurement under the component funded by the Japan Fund for Poverty Reduction (JFPR 9113) and the HIV/AIDS component were carried out using local competitive bidding, shopping, and single-source selection.

44. The performance of KECC, the consultant for construction supervision, is rated partly satisfactory because KECC did not intervene against, and did not follow the required approval process for the change in scope regarding slope protection (para. 19). The slope protection defects were rectified during the defect-liability period.

45. The performance of the contractor, China Harbor Engineering Company, is rated satisfactory. It delivered the outputs fully in line with the planned implementation schedule, in a difficult environment, at good quality, and largely within the cost estimates. The contractor also offered adequate design changes where necessary. The personnel were motivated, dedicated, results-oriented, and understood the requirements of the task. The major repair work on the slope protection was carried out under the defect-liability provision at the cost of the contractor.

I. Performance of the Borrower and the Executing Agency

46. Overall, the performance of the borrower, IPBC, and its PMU is rated partly satisfactory. Despite inexperience with ADB procedures, IPBC was able to implement the project, while the PMU’s performance during preparation and construction was supportive. A functional project management system was established to ensure the effective use of funds. Local funds were mobilized on time, withdrawal applications were submitted largely in a timely manner, and the contractor was paid on time after initial problems in determining the percentages financed by loan funds, which incurred late payment charges of K4.9 million payable to the contractor. Despite the initial resettlement delay, the PMU successfully identified and implemented an alternative and acceptable resettlement plan. The PMU also used the delay period effectively to update the design data. The transfer of assets without ADB’s consent, contrary to requirements under the loan and project agreements, and the late submission of audited reports for the project accounts contributed to the partly satisfactory rating.

J. Performance of the Asian Development Bank

47. ADB’s overall performance is rated partly satisfactory. It was known at appraisal that the project’s needs and expectations would require the 1982 design to be updated. More detailed investigations before loan approval might have yielded better estimates and avoided additional financing. ADB was responsive in resolving implementation and financing issues and avoiding further project delays by processing the additional financing loans in a timely fashion. Delegation of the project to the PNG Resident Mission helped expedite response time and provided for direct advice on procurement, disbursement, and other loan administration issues. Missions from headquarters assisted with the implementation of the resettlement program, environmental safeguards, and the livelihood and HIV/AIDS components.

IV. EVALUATION OF PERFORMANCE

A. Relevance

48. At both appraisal and completion, the project was relevant to the development policies and strategies of the Government of PNG and ADB. The government’s National Transport Development Plan, 2008–2010 lists the Lae Port Project as a core national project. Together

12

with the Highlands Highway, Lae Port is a key driver of growth, development, and poverty reduction. The project is consistent with the government’s and ADB’s development strategies. ADB’s development strategy for PNG focuses on transport sector improvement, private sector development, and HIV/AIDS reduction, with poverty reduction and inclusive growth as overarching goals.

B. Effectiveness in Achieving Outcome

49. The project is rated less than effective in achieving its outcomes. It did relieve port capacity constraints, and it will eventually catalyze industrial and commercial development in the port area and hinterland. At appraisal, it was envisioned that the new facilities would be operated under a PPP approach, but this has not yet materialized. The government remains committed to PPPs in its national transport planning strategy. The effectiveness of the resettlement plan and livelihood component cannot be assessed given the lack of any recent surveys. However, earlier assessments revealed that the outcome of the supplementary resettlment plan was very much dependent on how the affected persons utilized the funds.22 The most significant gain to the affected persons resulted from land they acquired with the CAP. Other gains noted in the monitoring reports include better access to water and electricity, particularly for those who relocated within Lae. The supplementary resettlement plan was completed without serious grievances from the affected persons.

50. The provision of livelihood training and other health awareness programs delivered most of the intended benefits, except for those who relocated outside Morobe and who were unable to avail of livelihood support. Indirect assistance through improvement of the existing school and health facilities in several host communities within Morobe was provided through Grant 9113 (JFPR).

C. Efficiency in Achieving Outcome and Outputs

51. Overall, the project is rated less than efficient in achieving its main outcome—trade- constraining port bottleneck is relieved—and the three outputs: (i) new port facilities are operational; (ii) the livelihoods of directly and indirectly affected people are improved; and (iii) HIV/AIDS incidence in Lae is reduced. At reappraisal, traffic at Lae Port had increased significantly because of the impacts of the PNG liquefied natural gas project led by ExxonMobil, but port traffic has since decreased again. PNG’s economic prospects now appear less buoyant than at the time of reappraisal, with growth rates estimated at 4.3% for 2016 and 2.4% for 2017.

52. The project’s economic internal rate of return (EIRR) was reevaluated by applying the same basic approach used in the appraisals for the 2007 and 2012 RRPs.23 The base EIRR was reevaluated to be 13% (12% if all dredging costs are included and 11% if traffic growth is reduced to 4%). This represents a decline from the base EIRRs of 15.8% in the 2007 RRP and from 18.7% in the 2012 RRP, mainly as a result of lower traffic levels. The 2012 RRP assumed that traffic would grow at an annual rate of 6% from 2011, or 18% in total by 2015. But by 2015, actual traffic had grown by only 3%. The details of the evaluation methodology are in Appendix 9 and the EIRR results are in Appendix 10.

22 Social Monitoring Report, January 2010–December 2012 and Social Monitoring Report, January–June 2014. 23 EIRRs were calculated by (i) comparing with-project and without-project scenarios by identifying savings from faster ship turnarounds, and (ii) assessing the economic value of traffic resulting from the port’s increased capacity. 13

53. The resettlement, livelihood, and HIV/AIDS components are rated less than efficient given the significant delays of almost 2 years in completing the project’s resettlement activities and the shortcomings in delivering and monitoring support for livelihood and HIV/AIDS. The progress of the HIV/AIDS component, which targeted a 20% decrease in the prevalence of HIV/AIDS in the Lae and Huon districts, could not be measured for lack of data and monitoring.

D. Preliminary Assessment of Sustainability

54. The sustainability of the project is rated as less than likely sustainable given the delays in full operationalization of the port. The financial internal rate of return (FIRR) was reassessed based on the actual financial investment cost adjusted to 2016 prices and a reduction of dredging costs by 50%, but reflecting incremental operations, maintenance, and insurance costs. The revenue (wharfage, pilotage, storage, and lease of the newly reclaimed land) was based only on incremental traffic made possible by the expansion, and was adjusted by a 30% corporate tax for years with positive revenues. Based on these assumptions, the FIRR was estimated at 1.39% before taxes and at 0.25% after taxes (Appendix 10). The FIRR is lower than the weighted average cost of capital (WACC) of 3.19% (Appendix 11). The WACC assessment assumed that PNGPCL would be required to service the project loan debts. A tariff increase of about 20% for overseas cargo24 at Lae, an annual concession fee of K28 million, or a combination thereof, would bring the FIRR to the level of the WACC.

55. ADB was unable to obtain any financial data (e.g., balance sheets and profit, loss, and cash-flow statements) from PNGPCL other than those published online until 2013. Despite interventions by the PNG Resident Mission, PNGPCL in Port Moresby was only available for one short meeting, at which the mission’s purpose and data requirements were explained but no data was obtained. To assess PNGPCL’s financial position, the mission reviewed assumptions made during appraisals and in Deloitte’s 2010 cost audit, and assess whether these findings had materially changed. Deloitte’s analysis stated that PNGPCL should be able to repay the interest and capital portion of the loan to the government. The current port tariffs are considered regionally competitive but can be increased.

E. Impact

56. Overall, at this point in its cycle, the project’s potential impact is rated satisfactory. The project relieved port congestion and the port is being operated by a coastal shipping company, and is expected to reach full operation when it caters to overseas container traffic, eventually becoming an international hub. The one-berth facility is expected to function at full capacity, since the amount of overseas container cargo at Lae Port currently exceeds what can optimally be accommodated (berth occupancy ratio: 30%).25 The final monitoring report on environment, health, and safety compliance stated no major lasting negative environmental impact. All environmental, health, and safety requirements were fulfilled during implementation. The self- relocation approach adopted by the project revealed variable outcomes because some affected persons relocated outside Morobe Province. Initial interviews revealed that follow-up support from existing MPG programs will help sustain the gains from the livelihood support.

24 A tariff increase for total overseas cargo (including the cargo handled at the old port facilities) is justified, since such cargo benefits equally from reduced waiting time. 25 The berth occupancy ratio relates to an optimal waiting-time/service-time ratio of 0.30 for the one-berth tidal basin wharf.

14

V. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

57. Overall, the project is rated less than successful based on a review of its relevance, effectiveness, efficiency, and sustainability (Appendix 13). The outputs were implemented as intended at appraisal, despite substantial cost increases requiring additional financing because the original appraisal had been based on a preliminary design. Implementation was delayed by 2.5 years, mainly because the original resettlement plan was difficult to implement and had to be revised which, in turn, delayed award of the civil works contract. While the physical infrastructure has been completed and the new facilities have relieved port congestion, the full potential of Lae Port becoming a regional hub remains to be achieved.

B. Lessons

58. Three important lessons can be drawn from this project: (i) Approval of financing for a project of this size and importance should not be based on preliminary designs, particularly since the feasibility study explicitly indicated the lack of geotechnical data and possible siltation issues. (ii) A resettlement plan, especially in the context of PNG, should include a comprehensive assessment of the resettlement impacts on both the affected persons and host communities to anticipate potential issues during implementation. Self-relocation schemes should ensure that those affected will use the cash assistance for its intended purpose. (iii) The selection of the executing agency should be carefully assessed during project processing. PNGPCL should have been more involved in the implementation, since they are responsible for port operations.

C. Recommendations

1. Project Related

59. Future monitoring. ADB needs to obtain clarifications on the terms and conditions for the handover of the facilities from IPBC to PNGPCL to ensure the financial viability of PNGPCL in operating port facilities and servicing the debt. From the financial evaluation, further tariff increases will be needed and their magnitude will depend on the concession fees charged to the operator of the new facilities. For a meaningful post-evaluation assessment, ADB should ensure that the monitoring and evaluation system is designed appropriately and implemented effectively.

60. The government’s major stakeholders, IPBC and PNGPCL, in consultation with the MPG and the Labu people, are implementing the action plan for the small-craft landing site. The plan began in January 2017 and ends in December 2017 (para. 21). ADB, through the resident mission’s safeguard officer, is monitoring implementation of the action plan according to the memorandum of understanding.

61. Covenants. Actions to comply with covenants for the facilities handover, financial sustainability, and tariff increases usually extend beyond the implementation period of the project. It is recommended that such covenants be extended for 5 years, and include specific port-operational data from the post-evaluation assessment. The disbursement covenant related to civil works payments needs to account for the time required for internal government and ADB 15

processing. Other covenants, such as legislative changes and private sector participation also have timeframes that extend beyond the implementation period of the project.

62. Additional assistance. Additional assistance to set up and implement the monitoring and evaluation system may be necessary for the post-evaluation assessment. It is also recommended that ADB remain involved in the proposed Phase 2 expansion of the port.

63. Public private partnership. In September 2013, IPBC requested ADB to identify public- private partnership (PPP) options for port operations, with the vision to develop Lae Port into a regional transshipment hub. ADB’s options study, based on demand forecasts and feedback from leading global operators, indicated that the Lae Port is well suited to be developed under a PPP. Global operators also expressed interest in investing and managing the port. ADB also supported development of PPP Act which was approved by Parliament in September 2014.

64. In March 2015, IPBC reaffirmed its interest to develop the port as a PPP and ADB prepared a proposal to provide transaction advisory services to structure, tender, and reach concession signing for Lae Port under a PPP modality. With the transfer of the facilities from IPBC to PNGPCL at that time, IPBC decided not to accept the proposed transaction advisory services. However, in March 2017 with a new Minister and new Managing Director for IPBC (now Kumul Consolidated Holdings), the government is committed to pursue ADB’s proposal for the provision of transaction advisory services.

65. Timing of the project performance evaluation report. It is recommended that the project performance evaluation report be undertaken at the end of 2019.

2. General

66. It is important to conduct detailed institutional assessments during project preparation to identify institutional capacities, constraints, risks, and mitigation measures. Of particular importance is a thorough assessment of the financial and project management capacities of the proposed executing agency.

67. More direct involvement of central government agencies, such as Treasury and Planning in PNG, is recommended in the design, processing, and implementation stages of projects that have impacts beyond the construction of physical infrastructure.

68. An effective performance monitoring and evaluation system, including the collection of detailed information on project performance indicators, should be established and implemented for future projects of this nature, since this allows for more effective project monitoring and reporting.

69. ADB review missions should update the project performance monitoring system to monitor and facilitate the executing agency’s compliance in measuring project performance, and identify actions and measures to ensure that targets and results are achieved effectively and efficiently. Regular monitoring and reporting will also ensure that necessary information is available for the project completion report and the project performance evaluation report.

16 Appendix 1

PROJECT FRAMEWORK

Design Summary Original Performance Actual Achievement Indicators/Targets

Impact 15–20 new industrial and 500 No monitoring system is in place for commercial enterprises established Morobe Province or Lae City, but An enabling environment for by 2020 four industries have made inquiries industrial and commercial to rent part of the newly reclaimed development created land.

1,000 jobs generated by 2020 No monitoring system is in place to monitor job creation. Outcome Lae Port’s cargo-handling capacity The new wharf increased the port’s increased by about 1.4 million rt per capacity by about 2 million rt per Port bottleneck constraining trade is year after completion year. relieved

Lae Port’s cargo handling rate increased from 140 rt/hr to 210 rt/hr Based on PNGPCL statistics, the by 2015 handling rate since 2011 has been fluctuating between 88 rt/hr and 110 rt/hr for container and break- bulk cargo. Ship calls increased from 600 to 900 by 2017 The new facilities provide capacity for an additional 160 ship calls. Outputs 1. New port facilities A basin, multipurpose berth, and The basin and multipurpose berth terminal constructed by 2011, and were constructed, but the houses 2. Improved livelihood of directly 482 new houses for 2,912 people were not because the resettlement and indirectly affected people built by 2008 plan was changed to include cash compensation for affected persons 3. Reduced HIV/AIDS incidence in that self-relocate. Lae 3 schools in expanded by 2008 23 existing school facilities were upgraded.

473 children enrolled in the Not achieved as a result of the expanded schools in Malahang by changed resettlement plan. 2008

1 health clinic improved by 2008 Not implemented.

$40,000 in microcredit provided to Microcredit program not 200 households by 2011 implemented.

HIV/AIDS prevalence in Lae and No statistics available. Huon districts decreased by 20%

Income levels of resettled persons 60% of settlers are spread and the Labu people increased by throughout Morobe Province; the 3%–5% by 2011 rest are in the hinterland provinces. Preliminary surveys indicate that the incomes of resettled persons have increased. hr = hour, PNGPCL = Papua New Guinea Ports Corporation Limited, rt = revenue ton.

Appendix 2 17

Chronology of Main Events

Year Date Event/activity 2007 12 March–3 April ADB fact-finding mission EIA and EMP updated and submitted to the Department of July/August Environment and Conservation 20 August SEIA posted on the ADB website 28 August–14 Appraisal mission September 22–23 November Loan negotiations December EIA finalized 4 December OFID approved a $6 million loan for the Lae Port Development Project. 18 December The ADB Board approved the Lae Port Development Project 2008 Lae Port Development Project Agreement (Loans 2398/2399) signed 12 June Lae Port Livelihood and Social Improvement Project (JFPR 9113 [PNG]) signed and effective General meeting of affected persons, IPBC, and ADB held to implement an alternative resettlement plan, as the original plan to resettle the affected persons at the agreed-upon site at Malahang 14 August was not implemented because of landowner and tribal problems. An alternative supplementary plan to relocate the affected persons to areas of their choice, with cash and physical relocation assistance, was agreed upon. 8–18 September Loan inception mission 30 October Loan effectiveness declared by ADB 4 November Loan agreement between PNG and OFID signed 15 December Lae Port: Mobilizing the Private Sector to Respond to Gender and HIV/AIDS Issues (Grant 0102) contract signed with the LCC 18 December The Board approved the Lae Port Development Project Lae Port: Mobilizing the Private Sector to Respond to Gender and HIV/AIDS Issues (Grant 0102) approval, agreement, and effectiveness Lae Port: Livelihood and Social Improvement Project (JFPR 9113 [PNG]) grant approval 2009 7 January OFID loan declared effective May The DEC approved the EIA and EMP, in principle ADB review mission for the JFPR component and procurement 9–10 November issues related to the construction supervision consultant contract 14–17 December ADB safeguard review mission Implementation of the summary relocation plan The IPBC project management unit, together with the central December 2009– government's stakeholders (MPG, RPNGC), successfully repatriated March 2010 and relocated approximately 3,200 affected persons back to their home provinces and within Lae City. 2010 8 January–8 Recruitment of Supervision consultant. Request for expressions of March interest February–July The executing agency commissioned Royal Haskoning to finalize detailed engineering designs. Preliminary results indicated that the estimated costs for the port facilities project component would increase substantially (up to 100%), and the project would require supplementary financing.

18 Appendix 2

24 March Supervision Consultant: EOI evaluation submitted to ADB 28 April SC: No objection by ADB 10 May CWC: Submission of tender evaluation to ADB 15–30 May SC: Request for proposals 18 July–12 ADB fact-finding mission for the additional financing loan August 29 July Final evaluation report with ADB comments finalized 30 July Report circulated to ADB's procurement committee 3 August SC: The executing agency’s technical evaluation report submitted to ADB 16 August SC: No objection by ADB 3–5 November Review mission: Project-specific consultation to review updated costs 2011 19 January CWC: Invitation to bid using the post-qualification bidding procedure 29 March Lae Port: Livelihood and Social Improvement Project (JFPR 9113 [PNG]) contract signed with Bris Kanda 21 April CWC: Bid closing date 18 July–12 ADB fact-finding mission for the additional financing loan August 26–27 July Review mission: Project-specific consultation to review the HIV/AIDS and gender components of the project 28 July Lae Port: Livelihood and Social Improvement Project (JFPR 9113 [PNG]) 4 civil works contracts to refurbish schools and health facilities signed 17 August ADB approved the extension of the loan closing dates for loans 2398/2399 from 30 June 2012 to 30 June 2014 (24 months). 12 September ADB staff review committee meeting for the ADB financing loan 15 September CWC: ADB approved the executing agency’s recommendation to award the major civil works contract. State team and ADB loan negotiations for the additional financing 6–7 October loans Reports and recommendations of the President circulated to the 20 October Board 10 November Additional financing loans approved by ADB 29 December The supervising consultancy contract was awarded to KECC 2012 Lae Port: Livelihood and Social Improvement Project (JFPR 9113 10 January [PNG]) closing date extended to 11 June 2013 26 March Major civil works contract awarded to CHEC 17–19 April Review mission: preconstruction conference Preconstruction meeting with the executing agency, contractors, and 18 April supervision consultants Lae Port groundbreaking ceremony Loan and project agreements signed for the additional financing 30 April loans 2803/2804 (Special Funds) 18 June Lae Port groundbreaking ceremony 21 June Loan effectiveness—additional financing loans 2803/2804 30 June The contractor (CHEC) commenced tidal basin works Review mission: project-specific consultation to review the 13–15 August contractor’s EMP 19 September Dredging activities begun in tidal basin area Review mission: project-specific consultation for the monthly project 27–29 November meeting

Appendix 2 19

2013 15–19 April Midterm project review mission Review mission: project-specific consultation for the project financing 20–21 June plan 4 October The contractor (CHEC) completed dredging works at the tidal basin 2014 5 January Variation No. 17: slope protection, change in material 30 April–2 May Review mission: project implementation review mission February No objection by ADB to the change in material for slope protection 30 June Loan closing date for loans 2398/2399 extended to 31 March 2015 The Treasury Department asked to extend the loan closing date of 14 August loans 2398/2399 from 30 June 2014 to 31 December 2014. The Treasury Department asked to extend the loan closing date of 24 September loans 2803/2804 from 31 December 2014 to 31 March 2015. ADB approved the loan closing date extensions from 30 June 2014 16 October to 31 December 2014 for loans 2398/2399, and from 31 December 2014 to 31 March 2015 for loans 2803/2804. The Prime Minister of PNG, the Honorable Peter O’Neill, officiated at 17 December the commissioning ceremony and launched Phase 2 of the project. 31 December Loan closing date for loans 2803/2804 2015 ADB and IPBC extended KECC’s contract from 31 January 2015 to 31 March 2015, including for the defects liability period, giving time to 10 March implement additional works and help prepare the executing agency’s project completion report. 31 March Loan closing dates for loans 2389/2399 and 2803/2804 IPBC formally handed over the operation of the newly built tidal basin 2 April facility to PNGPCL. IPBC was renamed Kumul Consolidated Holdings through IPBC Act September No. 4, 2015. ADB approved second loan closing date extensions for loans 16 November 2398/2399 (to 31 March 2015) and loans 2803/2804 (to 31 December 2015). The Treasury Department requested a loan closing date extension 24 September for loans 2803/2804 to 31 December 2015. ADB approved loan closing date extensions for loans 2398/2399 and 9 November 2803/2804 to 31 December 2015. 17 December End of the project’s defect-liability period 31 December Final loan closing date for loans 2398/2399 and 2803/2804 ADB = Asian Development Bank, CHEC = China Harbor Engineering Company, CWC = Civil works contractor, DEC = Department of Environment and Conservation, EIA = environmental impact assessment, EMP = environmental management plan, EOI =expression of interest, IPBC = Independent Public Business Corporation, KECC = Korean Engineering Consultants Corporation, LCC = Lae Chamber of Commerce, OFID = Organization of the Petroleum Exporting Countries Fund for International Development, PNG = Papua New Guinea, PNGPCL = Papua New Guinea Ports Corporation Limited, RPNGC=Royal Papua New Guinea Constabulary, SEIA = summary environmental impact assessment, SC =Supervision consultant.

20 Appendix 3

RESETTLEMENT PROGRESS

Table A3.1: Repatriation under the Resettlement Component

No. of Repatriation Date of Affected In-Kind Support for Repatriation Destination Repatriation People 185 Goroka & Mendi 27 Dec 2009 7 buses and 3 trucks 110 Simbu 30 Dec 2009 5 buses and 2 trucks 62 Madang 28 Dec 2009 4 buses and 1 truck 50 Bogia/Madang Jan 2010 4 buses and 1 truck 311 Wewak 27–31 Dec 2009 Hire of the MV Solomon Queen, and buses 250 Wewak 3–5 Jan 2010 and trucks for onward assistance 78 Morobe Province Dinghies and buses 262 Oro & Milne Bay 10–12 Jan 2010 Compensation of regular fares 17 Rabaul & Bougainville 31 Port Moresby & Gulf Hire of the MV Kimbe Queen 150 Vicinity of Lae Dec 2009–Jan Casual labor to load and unload 2010 belongings during relocation 300 Own arrangements MV = motor vessel.

Appendix 3 21

Table A3.2: Grievance Cases

Item Case No. of Cases Remarks Resolved 1. Missing bank 2 The BSP Lae branch manager Yes accounts resolved the issue. 2. Legal cases handled 13 All cases were heard by a Lae Yes by Lae Court district magistrate at court. 3. Statutory declaration 65 The PMU received statutory Yes received declarations from affected persons as evidence of agreement in resolving the issue. 4. Head of the 3 The issues were settled out of Yes household deceased court among household after receipt of the members. CAP 5. Head of the 19 Wives’ names replaced those Yes household name of husbands as heads of change households. 6. Household payment 21 Outsiders claimed ownership Yes disputes by outsiders over houses and/or land and disputed the payment of the CAP to registered affected persons. 7. Spouses divorced or 6 The issues occurred after Yes deserted after receipt resettlement was completed. of the CAP 8. Declared legal 14 During the audit, names were Yes household head changed to those of the rightful homeowners. 9. Household settled on 51 Payments were withheld until Yes state land within Lae the area was vacated. 10. Disputed cases 86 Police were involved in a Yes referred to the police number of disputes after payment of the CAPs. 11. Disputes among 35 The issues were internally Yes family members resolved. Total no. of cases 315

BSP = Bank South Pacific, CAP = cash assistance package, PMU = project management unit.

22 Appendix 4

PROJECT COST

Table A4: Project Cost – Planned vs. Actual ($ million)

Estimate Additiona Increase s l Total Actual Components Appraisal Financing % % (1) (2) (3) (4) (4)/(1) (4)/(3) A. Civil Works 1. Port facilities 106.93 124.44 231.37 286.22 168% 24% 2. Resettlement housinga 1.53 - 1.53 - 3. Canoe landing 0.96 - 0.96 - Subtotal A 109.42 124.44 233.86 286.22 162% 22% B. Land Acquisition 1.49 - 1.49 - 3490 3490 C. Compensation and Relocation 0.31 - 0.31 11.13 % % D. Livelihood and Social Support 1.50 - 1.50 1.16 (23%) (23%) E. HIV/AIDS 0.75 - 0.75 0.65 (13%) (13%) F. Consulting Services 1. Support to the PMU 2.94 - 2.94 5.16 76% 76% 2. Construction supervision 6.00 - 6.00 6.05 1% 1% 3. Housing construction supervision 0.50 - 0.50 - 4. Audit fees 0.13 - 0.13 - Subtotal F 9.57 - 9.57 11.21 17% 17% G. Training 0.03 - 0.03 - H. Contingencies - 1. Physical contingencies for A1 16.47 7.82 24.29 - 2. Price contingencies for A2, C, and F3 0.38 - 0.38 - 3. Price contingencies for A1 8.90 1.51 10.41 - Subtotal H 25.75 9.33 35.08 - I. Financing Charges 5.18 3.63 8.81 - Grand Total 154.00 137.40 291.40 310.37 102% 7% PMU = project management unit. a In calculation, the cost increase in percent for items A2, B, and F3 is allocated to item C. b In calculation, the cost increase in percent for items A2, B, and F3 is allocated to item C. b In calculation, the cost increase in percent for item A1, H1, H3, and I is allocated to Item A1. c Training is included under consultancy. Actual relocation costs of $11.13 were known at the time of the additional loans and should have been listed in d column 2.

Appendix 5 23 D

N

O

S

A

J

J

2016

M

A

M

F

J

D

N

O

S

A

J

J

2015

for defects liabilityfor defects and Phase II

M

A

M

F

J

D

N

O

S

A

J

J

2014

M

A

M

F

J

D

N

O

excl.works for Phase II

S

A

J

excl. for Phaseworks II

J

2013

M

Dredging

A

official monitoring with reporting

M

F

J

D

N

O

Clearing

S

A

J

J

2012

M

A

M

F

J

D

N

O

S

Monitoring

A

J

J

2011

M

A

ActualImplementation

M

F

J

D

N

O

S

A

J

J

2010

M

internal monitoring

A

M

F

J

planned at Additional financing Additional at planned

D

N

O

S

Implementation Schedule (planned Actual) vs.

Implementation

A

J

J

2009

M

A

M

F

J

D

N

O

S

Planned at time of Apprisal First time at Planned

A

J

J

2008

M

A

M

F

J

D

Time savings Time

N

O

2007

S

A

- actual -

- actual -

- actual -

- actual -

- actual -

- actual -

- actual -

- actual -

- actual -

- actual -

- actual -

- actual -

- planned at Appraisal at planned -

- planned at Appraisal at planned -

- planned at Appraisal at planned -

- planned at Appraisal at planned -

- planned at Appraisal at planned -

- planned at Appraisal at planned -

- planned at Appraisal at planned -

- planned at Appraisal at planned -

- planned at Appraisal at planned -

- planned at Additional Financing Additional at planned -

- planned at Additional Financing Additional at planned -

- planned at Additional Financing Additional at planned -

- planned at Additional Financing Additional at planned -

- planned at Additional Financing Additional at planned -

- planned at Additional Financing Additional at planned -

- planned at Additional Financing Additional at planned -

- planned at Additional Financing Additional at planned -

- planned at Additional Financing Additional at planned - - planned at Additional Financing Additional at planned -

11.2 Wharf -actual Wharf 11.2

Items

4. Lae Port Management Support Management Port Lae 4.

3. PMU (implem. training & eval.)& training PMU (implem. 3.

2. Construction supervision Construction 2.

1. Detailed Engineering 1.

B. Consulting Services Consulting B.

3.2 Monitoring Resettlement & Environment & Resettlement Monitoring 3.2

3. Environmental Management Plan Management Environmental 3.

2.3 Socio-economic monitoring programme monitoring Socio-economic 2.3

2.2 Training programme Training 2.2

HIV/AIDS

JFPR

2. Social Issues Social 2.

1.5 Construction Defects & Liability Period Liability & Defects Construction 1.5

1.4 Terminal works/Container Yard -actual Yard works/Container Terminal 1.4

1.3 Slope protection works -actual works protection Slope 1.3

1.1 Bush clearing, dredging and reclamation and dredging clearing, Bush 1.1

Overall

1. CivilWorks 1.

0.1b Construction Supervision Construction 0.1b

0.1a Civil Works contract Civil 0.1a

0.2 Tender Procedure Tender 0.2

0.1 Resettlement 0.1 0. Preparation 0. 24 Appendix 6

Appendix 7 25

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Reference in Loan Covenant Status of Compliance Agreement

The Borrower shall take all action which shall be LA2399 Section The Government of PNG approved the necessary on its part to enable IPBC to perform its 4.03; LA2398 handover of new facilities by IPBC to obligations under the Project agreement and shall Section 4.04; PNGPCL on 2 April 2015 without ADB’s not take or permit any action which would interfere LA2803 Section concurrence, in violation of loan with the performance of such obligation. 4.06; LA2804 provision sections 4.03 and 4.04 (b). Section 4.03 No rights or obligations under the Subsidiary Loan LA2399 Section Not fully complied with. Agreement shall be assigned, amended, or waived 4.04 (b); LA2398 without the prior concurrence of ADB. Section 4.05 (b); LA2803 Section 4.07 (b); LA2804 Section 4.04 (b) Except as ADB may otherwise agree, IPBC shall PA Section 2.12 The handover of new facilities on 2 not sell, lease or otherwise dispose of any of its April 2015 by IPBC to PNGPCL without assets which shall be required for the efficient ADB’s concurrence violates PA carrying on of its operations or the disposal of provision section 2.12. which may prejudice its ability to perform satisfactorily of its obligation under this Project Agreement. Within three month of the Effective Date, the LA2399 Schedule 5, Not fully complied with, and delays Borrower shall establish the Project Steering paras. 2 and 14; PA were experienced. Committee (PSC) (to oversee Project Schedule, para. 8 implementation and provide policy guidance). The Borrower shall ensure that PSC meets at least on a quarterly basis and provides ADB with the minutes of such meetings. Six months prior to the operation of the port LA2399 Schedule Complied with. Tariff steadily increased facilities, the Borrower, through IPBC, shall 5, para. 4; PA in 2015, 2016, and 2017. undertake the requisite actions to achieve tariff Schedule, para. 1 levels that shall allow for full cost recovery of the facilities. The Borrower shall ensure that the Project is LA2399 Schedule 5, Complied with. carried out in accordance with, and all Project para. 6; LA2804, facilities are designed, constructed, operated, Schedule 3; paras. maintained, and monitored, in compliance with all 3-4 applicable environmental laws and regulations of the Borrower, and ADB's Environment Policy (2002). In case of any discrepancies between the environmental laws, regulations, and/or procedures of the Borrower and ADB's Environment Policy, ADB's Environment Policy shall prevail. The Borrower and IPBC shall implement and comply with the Environmental Management Plan (EMP). The Borrower and IPBC shall submit semi-annual reports to ADB on the implementation of and compliance with EMP. IPBC shall implement and comply with the EMP. PA Schedule, paras. Complied with. The IPBC shall submit semi-annual reports to ADB 3 and 4; LA2399 on the implementation and compliance with the Schedule 5, paras. 6 EMP. IPBC shall ensure that the dumping of and 7 dredged sediments offshore shall only be permitted if appropriate mitigation measures are in place and conducted in compliance with ADB's Environmental Policy and the Borrower's applicable laws and regulations.

26 Appendix 7

Reference in Loan Covenant Status of Compliance Agreement

The Borrower and IPBC shall ensure that the LA 2399 Schedule The modified resettlement plan resettlement activities under the Project are 5, para. 9; PA following the supplementary implemented in accordance with ADB's Involuntary Schedule, para. 5 resettlement plan approved by ADB Resettlement Policy (1995), and the resettlement was complied with. plan agreed upon between ADB and the Borrower. The Borrower and IPBC shall further ensure that: The new boat landing facility and fish market in SP LA2399 Schedule 5, Not fully complied with. An action plan Beach shall have been fully developed and para. 9 for a new Labu small-craft landing site operational, prior to the acquisition of the existing was prepared by PNGPCL in boat landing site and associated fish market in consultation with the MPG and the Sandaun Market for the purpose of the Project. Labu people. The action plan was endorsed by IPBC on 23 November 2016 for a 12-month implementation from January to December 2017. The action plan includes detailed consultations with the Labu people, review of the current MOU by MPG and relevant stakeholders, and the construction of a new jetty at a suitable site with breakwaters, as well as fish market, transit terminal, and fuel voucher outlet. The Borrower shall cause IPBC to prepare, in LA2399 Schedule 5, The public–private partnership policy accordance with its public-private partnership policy paras. 17–18; PA approved by the National Executive a time-bound action plan to develop a strategic Schedule, para. 11; Council in December 2008 was not public-private partnership model to ensure effective LA2804 Schedule 3, complied with in relation to the port and efficient service delivery in the operation of the para.2 facilities. new port facilities constructed under the Project. IPBC shall establish a Project Performance and LA2399 Schedule 5 Not complied with. monitoring system to monitor and evaluate Project para. 19; PA Impacts to ensure that the Project is managed Schedule, para. 9 effectively and the benefits are maximized. ADB and IPBC shall agree upon a system for LA2399 Schedule 5, The reporting requirements were not monitoring and evaluating Project Performance in paras. 14-16; PA fully complied with during relation to its goals and purposes, with an Schedule, para. 10 implementation and after project emphasis to trade, economic activities, job creation, and 12. completion. and livelihood improvement. A consultant shall be recruited under the Project to establish the system and assess the socio-economic impact of the Project. IPBC shall submit to ADB (a) within 3 months at the end of each year, the annual monitoring report, and (b) within 3 months after Project completion, the final monitoring report. The monitoring indicators shall include (a) industrial and commercial activities, (b) job creation, (c) exports and imports, (d) traffic volume (e) port charges, (f) income generation, and (g) social services. Employment impact indicators shall include information about unskilled laborers, poor laborers, and women laborers. The Borrower shall make available to IPBC, LA2398/2803, Complied with promptly as needed and on terms and conditions Section 4.02; PA acceptable to ADB, the funds, facilities, services, Section 2.02 land and other resources which are required, in addition to the proceeds of the Loan, for the carrying out of the Project. Appendix 7 27

Reference in Loan Covenant Status of Compliance Agreement

The Borrower shall enable ADB’s representatives LA2399, Section Complied with. to inspect the Project, the Goods and Works 4.02; LA2803, financed out of the proceeds of the Loan, all other Section 4.05; LA plants, sites, properties and equipment of the 2804, Section 4.02 Borrower, and any relevant records and documents. In the carrying out of the Project, the Borrower shall LA2803, Section Complied with. cause competent and qualified consultants and 4.03; PA Sections contractors, acceptable to ADB, to be employed to 2.03 and 2.04 an extent and upon terms and conditions satisfactory to the Borrower and ADB. The Borrower shall repay the principal amount of LA2803/2804 PA Complied with. the Loan withdrawn from the Loan Account in Section 2.05 accordance with the provisions of Schedule 1 to this Loan Agreement LA2398/2399 PA IPBC shall take out and maintain with responsible Section 2.05 insurers, or make other arrangements satisfactory to ADB for, insurance of Project facilities to such extent and against such risks and in such amounts as shall be consistent with sound practice. ADB and IPBC shall cooperate fully to ensure that LA2398/2399 PA Complied with. the purposes of the Loans will be accomplished. Section 2.07 IPBC shall furnish to ADB all such reports and PA Section 2.08 (a), Complied with. information as ADB shall reasonably request Schedule para 13; concerning (i) the Loans and the expenditure of the LA2399, Schedule proceeds thereof; (ii)the Goods, Works and 5, para 21 consulting services and other items of expenditure financed out of such proceeds; (iii) the Project; (iv) the administration, operations and financial condition of IPBC; and (v) any other matters relating to the purposes of the Loans. IPBC shall (i) maintain separate accounts for the PA Section 2.09 (a); Complied with. Project; (ii) have such accounts and related LA2399, Schedule financial statements (balance sheet, statement of 5, para 20 income and expenses, and related statements) audited annually, in accordance with appropriate auditing standards consistently applied, by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB; and (iii) furnish to ADB, promptly after their preparation but in any event not later than 6 months after the close of the fiscal year to which they relate, certified copies of such audited accounts and financial statements and the report of the auditors relating thereto (including the auditors’ opinion on the use of the proceeds of the Loans and compliance with the financial covenants of the Loan Agreements as well as on the use of the procedures for imprest account), all in the English language. IPBC shall furnish to ADB such further information concerning such accounts and financial statements and the audit thereof as ADB shall from time to time reasonably request.

28 Appendix 7

Reference in Loan Covenant Status of Compliance Agreement

Except as ADB may otherwise agree, IPBC shall PA Section 2.13 Complied with. apply the proceeds of the Loans to the financing of expenditures on the Project in accordance with the provisions of the Loan Agreements and this Project Agreement, and shall ensure that all Goods, Works and consulting services financed out of such proceeds are used exclusively in the carrying out of the Project. The Borrower shall cause IPBC to ensure that the LA2399 Schedule 5, Complied with. Project facilities are built in accordance with the para 5; PA design technical specifications and that 2398/2399, construction supervision, quality control, and Schedule para 2 contract management are implemented in accordance with the internationally accepted standards The Borrower shall cause IPBC to ensure that LA2399 Schedule Complied with. Works contractors engaged under the Project shall 5, para 10; PA (a) comply with all applicable labor laws and related 2398/2399, international treaty obligations, and do not employ Schedule para 6 child labor under the Project, (b) provide information to all construction workers during the construction period on the prevention of sexually transmitted infections, including HIV/AIDS, in health and safety programs, (c) provide prompt and equal pay to men and women for work of equivalent value in accordance with the Borrower’s laws and international treaty obligations, (d) provide safe working conditions for both male and female workers, and (e) provide separate and culturally appropriate facilities for men and women workers. The Borrower shall cause IPBC to ensure that specific provisions to this effect shall be included in the bidding documents and contracts for Works. The Borrower shall cause IPBC to monitor compliance and to include the status of the implementation of these activities in the Project progress reports. The Borrower shall comply and cause IPBC to LA2399 Schedule Complied with. comply with ADB’s Anticorruption Policy (1998, as 5, para 12-13; PA amended to date) and the Borrower’s laws and 2398/2399 regulations on anti-corruption. The Borrower Schedule para 7 agrees (a) that ADB reserves the righ to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive or coercive practices relating to the Project, and (b) to cooperate fully with any such investigation and to extend all necessary assistance, including providing access to all relevant books and records, as may be necessary for the satisfactory completion of any such investigation. In particular, the Borrower shall (a) conduct periodic inspections on the contractors’ activities related to fund withdrawals and settlements, and (b) ensure that all contracts financed by ADB in connection with the Project include provisions specifying the right of ADB to audit and examine the records and accounts of the Project Executing Agency, all Appendix 7 29

Reference in Loan Covenant Status of Compliance Agreement contractors, suppliers, consultants and other service providers as they relate to the Project. The Borrower shall cause IPBC to ensure that (a) the entire PMU staff actively participate in the training on ADB’s Anticorruption Policy, and the Borrower’s laws and regulations on anti-corruption, and (b) within three months of the Effective Date, the Project website shall have been developed and maintained to disclose, among other things, the audited Project financial accounts, the Project progress report and the procurement results. As the Project Executing Agency, IPBC shall be LA2399 Schedule Complied with. responsible for overall Project implementation, and 5, para 1 Morobe Provincial Administration of the Borrower shall be responsible for the day to day implementation of Part 4 of the Project. The Borrower shall cause IPBC to establish the PMU to comprise (a) engineering and contract management division, (b) resettlement and environment division, and (c) finance and administration division. The Borrower shall ensure that IPBC appoint a Project director who has integrity, leadership skills, and familiarity with the administrative system of the Borrower and the local culture. The Project director shall report to the director of IPBC. The Borrower through the IPBC shall cause the PMU to be responsible for the (a) implementation of the resettlement efforts in coordination with the Morobe Provincial Administration, (b) bidding process, (c) management of contracts, (d) monitoring the progress of the Project, (e) preparation of withdrawal applications, (f) preparation of Project progress reports and project completion report, (g) management of Project accounts and financial records for auditing, and (h) monitoring of the socioeconomic impact of the Project. The Borrower shall cause IPBC to ensure that the Project director shall be given adequate financial authority to approve contract variations and Works contract under the Project to an amount to be agreed upon between ADB and the Borrower. The Borrower shall cause IPBC to also ensure that the PMU remain fully staffed and adequately funded throughout Project implementation period. The Borrower shall ensure that throughout the LA2399 Schedule Complied with. implementation of the Project, adequate budgetary 5, para 3 allocations of the required counterpart funds are made, approved, and released in a timely manner in order to ensure proper implementation of the Project

30 Appendix 7

Reference in Loan Covenant Status of Compliance Agreement

The Borrower shall undertake the required LA2399 Schedule Complied with. measures to provide adequate security for the 5, para 11 smooth and uninterrupted implementation of the Project. The Borrower shall also ensure that (a) all Works contracts contain requirements to prepare an action plan for adequate security for the smooth and uninterrupted implementation of the Project, (b) the cost to implement such plan to be included in the budget for such Works, and (c) such plan shall be fully implemented. ADB = Asian Development Bank, IPBC = Independent Public Business Corporation, LA = loan agreement, MGP = Morobe Provincial Government, MOU = memorandum of understanding, PA = project agreement, PNG = Papua New Guinea, PNGPCL = Papua New Guinea Ports Corporation Limited. Appendix 8 31

9

64,605

60,025

41,753

28,389 26,952 rt.

Palmoil

90

79

86 79

107

Series5

no

8

No.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a. ships

ships 20

75

348

332

273

109

5,783

3,872

24,454

rt.

11,293

rt. Out

Out

9,284 9,284

49,265 49,265

50,305 50,305

16,861 16,861

16,123 16,123

32,785 32,785

12,091 12,091

14,522 14,522

7

2015

- Bulk Bulk Fuel

Bulk Fuel

In

In

rt.

81,872

51,506

rt.

184,899

250,465

208,050

172,932

207,860

183,262

162,894 142,526

Break-Bulk Coastal

125,772 125,772

167,559 167,559

238,064 238,064

231,586 231,586

202,432 202,432

167,365 167,365

137,364 137,364

144,974 144,974

6

rt.

85,744 51,615

rt.

250,485

208,398

173,007

208,192

183,535

168,677

153,819

Total

Total

175,037 175,037

217,864 217,864

254,925 254,925

240,870 240,870

218,555 218,555

209,353 209,353

200,150 200,150

149,455 149,455

159,496 159,496

92

99

72 150

116

5

no

no

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a. ships ships

ContainerCoastal

4%

4%

26%

41%

6.8%

2.7%

-11%

-19%

-23% -21%

-1.0%

46.7%

-14.9%

-18.2%

-15.4%

-38.4%

4

Annual

Annual

Growth Growth 2007 Composition Traffic

-

rt.

75,662

68,892

62,121

80,433

85,158

rt.

Out

Out

108,910

119,605

121,096 139,831

108,667

60,883 60,883

80,377 80,377

89,964 89,964

77,806 77,806

83,810 83,810

134,010 134,010

136,805 136,805

135,838 135,838

3 Break Bulk Break Bulk

Break BulkOverseas

In

In

rt.

rt.

271,799

317,820

403,202

592,976

480,578

465,097

449,615

569,425

375,070

8,427 8,427

75,298 75,298

79,728 79,728

71,823 71,823

73,690 73,690

63,699 63,699

71,362 71,362

79,025 79,025

100,054 100,054

Lae Port Lae Fig. Lae :Fig. Port

2 rt.

rt.

136,181

160,105

161,787

151,496

147,509

180,272

213,035

145,232

235,892

391,404

438,916

543,033

701,643

556,240

533,988

511,736

649,858

460,228

Total Total

160

191

206 168

206

Overseas ContainerOverseas

1

12

12

13

13

13

no

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

0 ships

rt/TEU

CargoOverseas

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000 4,000,000

Cargo Coastal

no

15

15

15

16

16

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a. ships rt/TEU

Table A8.1: Traffic at at Traffic A8.1: Table

57,569

59,266

54,219

55,727

55,626

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

Nos

Nos

TEU

136,087

129,482

127,887

128,764 106,044

TEU

Bulk oil

490,127 490,127

486,287 486,287

469,685 469,685

477,451 477,451

429,042 429,042

Palmoil &

84%

82%

81%

82%

83%

79%

75%

79%

73%

84%

82%

78%

74%

76%

74%

71% 67%

73%

n.a.

n.a.

n.a.

n.a.

TEUs

Share

Share Share

193,656 193,656

188,748 188,748

182,106 182,106

184,491 184,491

161,670 161,670 Container

Container

212

625

291

1,803

3,542

2,183

1,714

1,244

1,262

Container

Container

rt.

41,383

21,820

41,753

18,415

24,714

34,144

43,574

44,352 50,280

rt.

84%

82%

79%

76%

78%

75%

72%

70%

73%

off/on

off/on Share Share Container

rt

rt.

rt.

Out

Out

583,088

595,533

571,390

579,489

582,441

540,614

498,787

550,323

500,351

246,344

219,229

204,916

238,753

274,253

260,991

247,728 303,282

244,922

527,585 527,585

599,021 599,021

704,820 704,820

853,139 853,139

703,749 703,749

714,260 714,260

724,771 724,771

795,090 795,090

696,120 696,120

Breakbulk

167

rt

In

In

rt.

rt.

109,592

123,925

113,217

131,658

157,086

149,071

141,056

142,856

972,896

945,041

926,725

1,700,735

1,699,677

1,656,334

1,783,762

1,441,797 1,207,347

Container

2,682,945 2,682,945

2,663,726 2,663,726

2,587,822 2,587,822

2,752,702 2,752,702

2,482,474 2,482,474

2,193,880 2,193,880

1,905,285 1,905,285

1,844,427 1,844,427

1,865,425 1,865,425

9.6%

3.0%

-1.6%

-0.9%

-8.7%

-0.4%

13.2%

10.6% rt.

rt.

694,483

723,000

684,819

711,772

741,710

691,399

641,087

551,752

643,498

Total

Total

Annual

Growth

1,988,462

1,940,726

1,903,003

2,040,930

1,740,764

1,502,481

1,264,198 1,292,675 1,221,927

4.3%

2.0%

2.1%

0.0%

-5.9%

-1.9%

-2.9%

-2.7%

-8.6%

22.5%

19.4%

12.8%

14.7%

15.5%

Total Lae Port Overseas and Coastal Cargoes (rt) Cargoes Overseas Port TotalLae Coastal and -20.7%

-10.8%

relev.rt

Growth

Annual

Growth

Annual

Project

3,210,530 3,210,530

3,262,747 3,262,747

3,292,642 3,292,642

3,605,841 3,605,841

3,186,223 3,186,223

2,908,140 2,908,140

2,630,056 2,630,056

2,639,517 2,639,517

2,561,545 2,561,545

Total Coastal

830,664

883,105

846,606

863,268

889,219

871,671

854,122

696,984

879,390

Total Overseas

rt.

rt.

rt.

Total

3,700,657 3,700,657

3,749,034 3,749,034

3,762,327 3,762,327

4,083,292 4,083,292

3,615,265 3,615,265

3,286,169 3,286,169

2,984,025 2,984,025

2,874,716 2,874,716

2,772,656 2,772,656

2,379,866 2,379,866

2,379,642 2,379,642

2,446,036 2,446,036

2,742,573 2,742,573

2,297,004 2,297,004

2,036,469 2,036,469

1,775,934 1,775,934

1,942,533 1,942,533

1,682,155 1,682,155

Total Overseas Total

2015

2014

2013

2012

2011

2010

2009

2008

2007

2015

2014

2013

2012

2011

2010

2009

2008

2007

2015

2014

2013

2012

2011

2010

2009 2008 2007

32 Appendix 8

2015

2014

2013 2012

2011

2010

2009 2008

2007 2006 2005

2004

2003 2002

2001

2015 -

2000

1999

1998 1997

1996

1995

1994 1993

1992

1991

Total Traffic Growth in Lae in Growth TotalTraffic

1990 1989

1988

1987

1986

Traffic and GDP 1698 GDP andGrowth Traffic 1985

- 1984

Growth GDP

1983

1982 1981

1980 1979

1978 Fig : Lae Port Fig Lae :

1977

1976 1975 1974

1973

1972

1971 1970

1969 1968

Traffic and GDP- Lae Growth Port

0

0.1

0.2

0.3

0.4 -0.2

-0.1

0.97 0.97

1.52 1.52

rt.

899,561 899,561

908,799 908,799

848,543 848,543

862,646 862,646

873,998 873,998

841,110 841,110

795,000 795,000

746,000 746,000

733,000 733,000

651,000 651,000

597,000 597,000

546,000 546,000

521,000 521,000

526,000 526,000

577,000 577,000

550,000 550,000

521,000 521,000

491,000 491,000

467,200 467,200

355,300 355,300

430,800 430,800

411,400 411,400

350,000 350,000

337,700 337,700

344,300 344,300

355,600 355,600

251,100 251,100

233,000 233,000

162,000 162,000

3,749,034 3,749,034

3,762,327 3,762,327

4,083,292 4,083,292

3,615,265 3,615,265

3,286,169 3,286,169

2,984,025 2,984,025

2,874,716 2,874,716

2,772,656 2,772,656

1,631,000 1,631,000

1,531,814 1,531,814

1,396,997 1,396,997

1,240,706 1,240,706

1,219,114 1,219,114

1,170,913 1,170,913

1,122,448 1,122,448

1,067,588 1,067,588

1,173,831 1,173,831

1,120,648 1,120,648

1,035,919 1,035,919

Lae

6.4%

3.8%

3.7%

6.5%

9.7%

1.8%

4.1%

4.3%

5.1%

4.7%

8.2%

7.1%

3.9%

5.8%

6.6%

1.8%

9.0%

9.3%

4.8%

4.9%

5.6%

6.1%

5.1%

4.7%

3.6%

7.8%

-0.4%

-7.9%

-9.1%

-1.0%

-1.6%

-1.3%

-1.0%

-8.8%

-1.9%

-3.2%

12.9%

10.0%

10.1%

12.6%

15.2%

12.6%

31.5%

17.5%

41.6%

43.8%

-17.5%

Growth

Total Traffic Growth in in Growth TotalTraffic

2007-2015

1969-2015

4.2%

9.9%

5.0%

8.1%

7.6%

6.1%

8.9%

7.2%

2.6%

3.6%

2.7%

2.9%

7.6%

7.7%

5.9%

9.5%

2.9%

2.8%

4.7%

4.0%

3.2%

0.4%

1.8%

8.5%

0.8%

2.6%

6.5%

5.6%

6.3%

8.3%

4.4%

-1.0%

-0.1%

-0.1%

-2.8%

-4.9%

-3.3%

-3.0%

-1.4%

-0.4%

-0.3%

-2.3%

-3.4%

-0.9%

13.3%

10.7%

18.2%

13.8%

10.8%

GDP

Growth

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

1986

1985

1984

1983

1982

1981

1980

1979

1978

1977

1976

1975

1974

1973

1972

1971

1970

1969

1968 Traffic/GDP Elasticity Traffic/GDP Appendix 9 33

EVALUATION METHODOLOGY

A. Methodology for Economic Evaluation

1. The evaluation assessed ship lengths and the sizes of the various consignment categories— overseas and coastal containers, and overseas and coastal break-bulk—from Papua New Guinea Ports Corporation Limited (PNGPCL) statistics, but these only provide overall averages. 2. The evaluation considered the existing Lae Port facilities, as shown in Figure A9.1. 3. The evaluation assessed handling rates based on discussions with PNGPCL operational staff during the mission. Total traffic divided by consignment sizes provides the number of ship calls. Consignment sizes and handling rates provide the average berth time for loading and unloading. Berth time multiplied by average ship length provides the berth-meter requirements over the year compared with the berth meters available, which must be adjusted by the maximum optimal berth occupancy ratio (BOR) allowed before the waiting time becomes prohibitive. The following optimal BORs have been assumed: (i) 60% for the two-berth coastal facilities, (ii) 50% for the old three-berth overseas facilities, and (iii) 30% for the one-berth tidal basin wharf. 4. The evaluation assumed that the new facilities would mainly be used for overseas container traffic; however, the new facilities will not be large enough to handle all of this traffic, most of which the old facilities will continue to handle. 5. No improvement in handling rates was assumed because information about the new operator is lacking. Although the new facility provides 240 meters (m) of berthing space and can accommodate ships up to around 180 m long, the one-berth tidal basin wharf can only accommodate one vessel. Therefore, the maximum ship size at that wharf was set at 240 m. 6. Faster turnaround has yielded benefits with regard to ship-time savings and cargo inventories, thanks to shorter waiting times when comparing the with-project and without-project scenarios. 7. The evaluation examined the benefit of potential additional traffic by assessing the value added by additional exports. Imports were not included in this assessment to avoid double counting, since the cost of the value added by additional exports reflects this. 8. The new facilities provide no additional space for coastal cargo. 9. The evaluation assessed the economic cost by clearing the financial investment cost from taxes, and the local components have been shadow-priced (based on figures assessed in the Royal Haskoning feasibility study and brought up to 2016 price levels. The evaluation attributed 50% of dredging costs to the Phase 2 development. 10. This evaluation did not consider the situation at the coastal berths, since these reach capacity only after the overseas berths do so.

B. Methodology for Calculating Financial Internal Rates of Return

1. The financial investment cost reflects all costs, except for the safeguard components and 50% of the dredging costs. 2. Additional traffic made possible by the port expansion is the only source of the financial benefits in the calculation of the financial internal rats of return (FIRRs). The evaluation of the berth facilities reported additional capacity in terms of additional revenue tons. 3. The additional traffic generates incremental income in the form of wharfage, pilotage, and storage fees. Wharfage revenues were derived from the recent regular contract between the

34 Appendix 9

PNGPCL and the Independent Consumer and Competition Commission of 2016, while pilotage and storage revenues were taken as percentages based on the 2010 Deloitte study. 4. Income from leasing the reclaimed area for port-related industries is derived from information provided on existing land leases in the old port (K200 per square meter). Prospective license fees from concessionaires did not provide any information. 5. The blank columns in the FIRR table for tariff increases and licenses are used for sensitivity calculations. It is assumed that tariff increases will apply to all overseas cargo, as this category benefits from reduced waiting time even if handled at the old port. 6. The evaluation considered the existing Lae Port facilities, as shown in Figure A9.1. Table A9.1: Evaluation Parameters Item Amount Unit Handling rate per day Daily handling rates—overseas container at old port 6,144 rt/day Daily handling rates—overseas break-bulk cargo 3,840 rt/day Daily handling rates—coastal container cargo 4,608 rt/day Daily handling rates—coastal break-bulk cargo 2,400 rt/day Daily handling rates—container tidal wharf 7,680 rt/day Consignment size Consignment size—overseas container 7,000 rt/ship Consignment size—overseas break-bulk 3,000 rt/ship Consignment size—coastal container 5,000 rt/ship Consignment size—coastal break-bulk 1,500 rt/ship Consignment size—container tidal wharf 9,000 rt/ship Vessel length Vessel length—overseas container 180 m Vessel length—overseas break-bulk 160 m Vessel length—coastal container 140 m Vessel length—coastal break-bulk 120 m Vessel length—tidal container wharf 240 m Ship cost per day Ship cost per day—overseas container 7,000 $ Ship cost per day—overseas break-bulk 5,000 $ Ship cost per day—coastal container 4,000 $ Ship cost per day—coastal break-bulk 4,000 $ Ship cost per day—tidal container wharf 7,000 $ Port facilities Coastal berths 2 & 3 210 m Overseas berths 4, 5, & 6 451 m Tidal wharf 240 m Total port 901 m m = meter, rt = revenue ton.

Appendix 9 35

Table A9.2: Value Added for Export Cargo through Lae Port Item Unit Percent Amount Year (1) PNG exportsa $ million 8,620 2014 (2) Of which minerals and oila $ million 77% 6,637 2014 (3) PNG importsa $ million 4,900 2014 (4) Import component of PNG exports (excluding minerals and oils) (3)/(2) 74% (5) Value of exports at Lae Port (excluding bulk oil and minerals) 50%*{(1)-(2)} $ million 50% 991 (6) Import component for Lae exports ($ million) (5)*(4) $ million 732 (7) Value added of Lae Port exports (5)–(6) $ million 259 (8) Total overseas trade in Lae Port (excluding bulk oil) rt million 2.40 2014 (9) Share of exportsb 15%*(8) rt million 15% 0.36 2014 (10) Local value added by exports (unit value) (7)/((9) $/rt 721 (11) Value of cargo at Lae Port (excluding minerals and oils) (2)+(3)*50% $ million 50% 5,769 (12) Total cargo at Lae Port (excluding minerals and oils) (11)/(12) rt million 3.3 (13) Unit value $/rt 1,748 PNG = Papua New Guinea, rt = revenue ton. Observatory of Economic Complexity. Country Profile: Papua New Guinea. a http://atlas.media.mit.edu/en/profile/country/png/ b See tables on traffic.

36 Appendix 9

Existing Lae Port Layout Port Lae Existing

Figure A9.1: Figure A9.1:

Appendix 9 37

3

2

3.3 3.3

2.6 2.6

0.7 0.7

8.9 8.9

1.2 1.2

394

420

271

271

451

690

177

482

174

309

150

126

126

210

276

137

648

13.4 13.4

10.1 10.1

2.63 2.63

8.88 8.88

1.10 1.10

1.93 1.93

0.69 0.69

1.24 1.24

1.04 1.04

2,206 2,206

11.51 11.51

6,680 6,680

1,724 1,724

1,330 1,330

0.296 0.296

5,775 5,775

1,208 1,208

6,359 6,359

4,000 4,000

0.562 0.562

4,263 4,263

4,453 4,453

2041

2041

60.0%

60.0%

153.0%

5,019,426

131.4%

2,194,131

6,737,373 6,737,373

5,170,797 5,170,797

2,509,713 2,509,713

5,170,797 5,170,797

2,509,713 2,509,713

7,680,510 7,680,510

1,566,576 1,566,576

1,316,479 1,316,479

1,566,576 1,566,576

1,316,479 1,316,479

2,883,055 2,883,055

3

2

7

61

7.5 7.5

2.0 2.0

1.3 1.3

0.7 0.7

5.5 5.5

4.3 4.3

1.2 1.2

829

189

640

271

271

451

332

177

581

482

174

309

126

126

210

133

137

311

5.54 5.54

1.26 1.26

4.27 4.27

1.10 1.10

1.93 1.93

0.69 0.69

1.24 1.24

1.04 1.04

1,312 1,312

6,680 6,680

0.296 0.296

5,775 5,775

6,359 6,359

4,000 4,000

0.562 0.562

4,263 4,263

4,453 4,453

2026

2026

70,320 70,320

70,320 70,320

60.0%

73.6%

60.0%

63.2%

5,019,426

2,194,131

1,255,063 1,255,063

1,184,744 1,184,744

2,509,713 2,509,713

1,184,744 1,184,744

2,509,713 2,509,713

3,694,457 3,694,457

1,316,479 1,316,479

1,316,479 1,316,479

1,386,799 1,386,799

3

2

0

46

7.2 7.2

1.9 1.9

1.2 1.2

0.7 0.7

5.3 5.3

4.1 4.1

1.2

790

180

609

271

271

451

316

177

553

482

174

309

126

126

210

126

137

297

5.27 5.27

1.20 1.20

4.07 4.07

1.10 1.10

1.93 1.93

0.69 0.69

1.24 1.24

1.04 1.04

1,272 1,272

6,680 6,680

0.296 0.296

5,775 5,775

6,359 6,359

4,282 4,282

4,000 4,000

0.562 0.562

4,282 4,282

4,263 4,263

4,453 4,453

2025

2025

60.0%

70.1%

60.0%

60.2%

5,019,426

2,194,131

1,013,099 1,013,099

1,008,817 1,008,817

2,509,713 2,509,713

1,008,817 1,008,817

2,509,713 2,509,713

3,518,530 3,518,530

1,316,479 1,316,479

1,316,479 1,316,479

1,320,761 1,320,761

3

2

30

6.8 6.8

1.8 1.8

1.1 1.1

0.6 0.6

5.1 5.1

3.9 3.9

1.2 1.2

-

-

-

752

172

580

271

271

451

301

177

527

447

152

295

120

126

210

120

137

283

5.02 5.02

1.15 1.15

3.88 3.88

1.10 1.10

1.79 1.79

0.61 0.61

1.18 1.18

1.04 1.04

1,199 1,199

6,680 6,680

0.296 0.296

5,775 5,775

6,359 6,359

4,000 4,000

0.516 0.516

4,263 4,263

4,453 4,453

2024

2024

60.0%

66.8%

57.3%

57.3%

841,268 841,268

841,268 841,268

841,268 841,268

5,019,426

2,194,131

2,509,713 2,509,713

2,509,713 2,509,713

3,350,981 3,350,981

1,257,867 1,257,867

1,316,479 1,316,479

1,257,867 1,257,867

3

2

16

6.4 6.4

1.6 1.6

1.1 1.1

0.5 0.5

4.8 4.8

3.7 3.7

1.1 1.1

-

-

-

716

164

553

271

271

451

287

177

502

400

119

281

115

126

210

115

137

269

4.78 4.78

1.09 1.09

3.69 3.69

1.10 1.10

1.60 1.60

0.48 0.48

1.12 1.12

1.04 1.04

1,116 1,116

6,680 6,680

0.296 0.296

5,775 5,775

6,359 6,359

4,000 4,000

0.423 0.423

4,263 4,263

4,453 4,453

2023

2023

60.0%

63.6%

54.6%

54.6%

681,698 681,698

681,698 681,698

681,698 681,698

5,019,426

2,194,131

2,509,713 2,509,713

2,509,713 2,509,713

3,191,411 3,191,411

1,197,969 1,197,969

1,316,479 1,316,479

1,197,969 1,197,969

3

2

2

97

6.0 6.0

1.4 1.4

1.0 1.0

0.4 0.4

4.6 4.6

3.5 3.5

1.1 1.1

-

-

-

682

156

526

271

271

451

273

177

478

364

268

109

126

210

109

137

256

4.56 4.56

1.04 1.04

3.52 3.52

1.10 1.10

1.46 1.46

0.39 0.39

1.07 1.07

1.04 1.04

1,046 1,046

6,680 6,680

0.296 0.296

5,775 5,775

6,359 6,359

4,000 4,000

0.361 0.361

4,263 4,263

4,453 4,453

2022

2022

60.0%

60.6%

52.0%

52.0%

529,726 529,726

529,726 529,726

529,726 529,726

5,019,426

2,194,131

2,509,713 2,509,713

2,509,713 2,509,713

3,039,439 3,039,439

1,140,923 1,140,923

1,316,479 1,316,479

1,140,923 1,140,923

3

2

70

5.6 5.6

1.2 1.2

0.9 0.9

0.3 0.3

4.4 4.4

3.3 3.3

1.0 1.0

-

-

-

-

962

638

136

501

260

271

451

260

177

455

324

255

104

126

210

104

137

244

4.26 4.26

0.91 0.91

3.35 3.35

1.10 1.10

1.30 1.30

0.28 0.28

1.02 1.02

1.04 1.04

6,680 6,680

0.272 0.272

5,775 5,775

6,359 6,359

4,000 4,000

0.273 0.273

4,263 4,263

4,453 4,453

2021

2021

57.7%

57.7%

49.5%

49.5%

384,990 384,990

384,990 384,990

384,990 384,990

5,019,426

2,194,131

2,509,713 2,509,713

2,509,713 2,509,713

2,894,704 2,894,704

1,086,593 1,086,593

1,316,479 1,316,479

1,086,593 1,086,593

3

2

Project Case Project

63

99

99

5.1 5.1

0.9 0.9

0.7 0.7

0.3 0.3

4.2 4.2

3.2 3.2

1.0 1.0

-

-

-

-

883

578

100

477

248

271

451

248

177

434

305

243

126

210

137

232

-

3.86 3.86

0.67 0.67

3.19 3.19

1.10 1.10

1.22 1.22

0.25 0.25

0.97 0.97

1.04 1.04

6,680 6,680

0.210 0.210

5,775 5,775

6,359 6,359

4,000 4,000

0.258 0.258

4,263 4,263

4,453 4,453

2020

2020

54.9%

54.9%

47.2%

47.2%

247,147 247,147

247,147 247,147

247,147 247,147

5,019,426

2,194,131

2,509,713 2,509,713

2,509,713 2,509,713

2,756,861 2,756,861

1,034,850 1,034,850

1,316,479 1,316,479

1,034,850 1,034,850

3

2

82

56

94

94

4.7 4.7

0.8 0.8

0.5 0.5

0.2 0.2

4.0 4.0

3.0 3.0

0.9 0.9

-

-

-

-

824

536

455

236

271

451

236

177

413

287

231

126

210

137

221

3.58 3.58

0.54 0.54

3.04 3.04

1.10 1.10

1.15 1.15

0.22 0.22

0.92 0.92

1.04 1.04

6,680 6,680

0.179 0.179

5,775 5,775

6,359 6,359

4,000 4,000

0.243 0.243

4,263 4,263

4,453 4,453

2019

2019

52.3%

52.3%

44.9%

44.9%

115,868 115,868

115,868 115,868

115,868 115,868

5,019,426

985,572 985,572

2,194,131

985,572

Without

2,509,713 2,509,713

2,509,713 2,509,713

2,625,581 2,625,581

1,316,479 1,316,479

3

2

53

48

90

90

-

4.3 4.3

0.6 0.6

0.4 0.4

0.2 0.2

3.8 3.8

2.9 2.9

0.9 0.9

-

-

-

-

-

-

755

487

433

225

271

451

225

177

393

269

220

126

210

137

211

3.25 3.25

0.36 0.36

2.89 2.89

1.10 1.10

1.07 1.07

0.19 0.19

0.88 0.88

1.04 1.04

6,680 6,680

0.124 0.124

5,775 5,775

6,359 6,359

4,000 4,000

0.220 0.220

4,263 4,263

4,453 4,453

2018

2018

49.8%

49.8%

42.8%

42.8%

5,019,426

938,640 938,640

2,194,131

938,640 938,640

2,500,554 2,500,554

2,509,713 2,509,713

2,500,554 2,500,554

1,316,479 1,316,479

3

2

47

41

86

86

-

4.1 4.1

0.5 0.5

0.3 0.3

0.2 0.2

3.6 3.6

2.8 2.8

0.8 0.8

-

-

-

-

-

-

711

460

412

214

271

451

214

177

374

251

210

126

210

137

201

3.07 3.07

0.32 0.32

2.75 2.75

1.10 1.10

1.00 1.00

0.16 0.16

0.84 0.84

1.04 1.04

6,680 6,680

0.115 0.115

5,775 5,775

6,359 6,359

4,000 4,000

0.196 0.196

4,263 4,263

4,453 4,453

2017

2017

47.4%

47.4%

40.7%

40.7%

5,019,426

893,943 893,943

2,194,131

893,943 893,943

projected

projected

2,381,480 2,381,480

2,509,713 2,509,713

2,381,480 2,381,480

1,316,479 1,316,479

3

2

43

35

81

81

-

3.8 3.8

0.4 0.4

0.3 0.3

0.1 0.1

3.4 3.4

2.6 2.6

0.8 0.8

-

-

-

-

-

-

670

435

393

204

271

451

204

177

357

234

200

126

210

137

191

2.91 2.91

0.28 0.28

2.62 2.62

1.10 1.10

0.94 0.94

0.14 0.14

0.80 0.80

1.04 1.04

6,680 6,680

0.109 0.109

5,775 5,775

6,359 6,359

4,000 4,000

0.173 0.173

4,263 4,263

4,453 4,453

2016

2016

45.2%

45.2%

38.8%

38.8%

5,019,426

851,374 851,374

2,194,131

851,374

2,268,076 2,268,076

2,509,713 2,509,713

2,268,076 2,268,076

1,316,479 1,316,479

3

2

52

32

80

80

-

4.1 4.1

0.5 0.5

0.3 0.3

0.1 0.1

3.6 3.6

2.8 2.8

0.8 0.8

-

-

-

-

-

-

707

480

428

221

271

451

221

176

391

228

196

126

210

137

188

3.18 3.18

0.35 0.35

2.83 2.83

1.09 1.09

0.91 0.91

0.13 0.13

0.78 0.78

1.04 1.04

6,627 6,627

0.122 0.122

5,714 5,714

6,254 6,254

4,000 4,000

0.163 0.163

4,246 4,246

4,426 4,426

2015

2015

49.1%

49.1%

38.0%

38.0%

4,980,735

830,664 830,664

2,187,815

830,664 830,664

2,444,471 2,444,471

2,490,367 2,490,367

2,444,471 2,444,471

1,312,689 1,312,689

3

2

52

41

85

85

-

4.2 4.2

0.5 0.5

0.3 0.3

0.2 0.2

3.7 3.7

2.8 2.8

0.8 0.8

-

-

-

-

-

-

733

482

430

222

271

451

222

176

395

251

210

126

210

136

202

3.18 3.18

0.35 0.35

2.83 2.83

1.09 1.09

1.00 1.00

0.16 0.16

0.84 0.84

1.04 1.04

6,591 6,591

0.122 0.122

5,673 5,673

6,182 6,182

4,000 4,000

0.196 0.196

4,208 4,208

4,365 4,365

2014

2014

49.2%

49.2%

40.6%

40.6%

4,954,213

883,105 883,105

2,173,211

883,105 883,105

2,439,667 2,439,667

2,477,106 2,477,106

2,439,667 2,439,667

1,303,927 1,303,927

3

2

72

36

82

82

Lae Port: Benefits Evaluation Benefits Port: Lae

4.3 4.3

0.6 0.6

0.5 0.5

0.1 0.1

3.7 3.7

2.9 2.9

0.8 0.8

-

-

-

-

755

516

444

229

271

451

229

175

411

238

202

126

210

136

195

3.37 3.37

0.47 0.47

2.90 2.90

1.08 1.08

0.95 0.95

0.14 0.14

0.81 0.81

1.03 1.03

6,530 6,530

0.163 0.163

5,602 5,602

6,060 6,060

4,000 4,000

0.179 0.179

4,186 4,186

4,331 4,331

2013

2013

33,352 33,352

33,352 33,352

33,352 33,352

50.7%

50.7%

39.1%

39.1%

Actual

Actual

4,908,874

846,374 846,374

2,164,887

846,374

2,454,437 2,454,437

2,454,437 2,454,437

2,487,789 2,487,789

1,298,932 1,298,932

-

rt

rt

rt

rt

$

rt

rt

rt

rt

rt

rt

m

m

m

m

m

m

m

m

Nos

Nos

nos.

BOR

BOR

rt/ship

$million

$million BOR BOR %

BOR %

$ $ million

$ $ million

$ $ million

$ $ million

$ $ million

$ $ million

$ $ milllion

$ $ milllion

$ $ milllion

$ $ milllion

$ $ milllion

shipdays

Shipdays

Shipdays

Shipdays

Shipdays

Shipdays

Shipdays

rt/shipday

$

-

136

4,000 4,000

4,331 4,331

4,331 4,331

Table A9.3: A9.3: Table

50%

60%

rt/day

rt/ship BOR BOR 100%

BOR 100%

'+10m per vessel per '+10m vessel per '+10m

(13)

(6)/(7)

(0)/(1)

(0)-(13)

(6)-(14) (1)/(3)

~(7)/(4)

(20)*(22)

(19)*(22)

(19)*(17)

(14)/(11)

(23)+(24)

(19)+(20)

(18)/(1)*(5) (8)*opt.capacity

(0)>(12) if (0)-(12)

(2)*((4)+10)*(5))/360

((7)*360*(3))/((4)+10))

(6) if (6)<(11) else (11) (6)<(11) if (6)

(23)+(24)

based on E2E2(9)-table on based

(13)

(20)*(22)

(19)*(22)

(19)+(20)

(19)*(17)

(18)/(1)*(5)

(0)-(13)

based on E2E2(9)-table on based

(14)/(11)

(6)-(14)

(6) if (6)<(11) else (11) (6)<(11) if (6)

(0)-(12) if (0)>(12) if (0)-(12)

(8)*opt.capacity

(6)/(7)

~(7)/(4)

((7)*360*(3))/((4)+10))

(2)*((4)+10)*(5))/360 (1)/(3) (0)/(1) Total

Totals Ship turnround times

Cost - Without Project Turnround Total

Total Service Time Cost Time - Without Service Project Total

Without Project Scenario/ Base Case Scenario

Without Project Scenario/ Base Case Scenario

Ship Turnround Cost at Port Ship Turnround

Average Vessel Lenght Average

Overseas CargoOverseas (breakbulk containers& at Berth #4,#5,#6)

Ship Turnround Cost at Port Ship Turnround

Average Vessel Lenght Average

Coastal Coastal Cargo (Breakbulk containers& at3) & Berth Nos.2

Excess Overseas CargoOverseas (cannot beExcess accomodated)

Waiting Time Cost - Overseas BerthsWaiting CostWithout Time - Overseas Project

Waiting Cost Time - Coastal Berths Without Project

Service Time Cost - Overseas Berths Cost- Without Time - Overseas the Service Project

Service Time Cost Time - Coastal Berths Service Without Project

Cost at WharfCost

Total Ship-tunrround Without Project

Excess Cargo (cannot beExcess accomodated)

Ship Ship Waiting Cost Time

Ship Service Time Cost Time Ship Service

Average daily Ship Cost Average

Ship-turnround time in Port Ship-turnround

Waiting for WaitingBerth for

Actual Shipdays Time at Berth/Service

Cargo handled at Berth handled Cargo

WT/ST - Ratio WT/ST

Actual Berth Utilisation (BOR)

Under-capacity of Facility of Under-capacity

Berthmeter Berthmeter used (excl. Excess Cargo)

Excess accomodated) be (cannot Cargo

Optimal Cargo Capacity of Overseas Berths #4, Capacity#5, Overseas #6 Optimal of Cargo

Berthmeter available Project at BOR of Berthmeter available

Berth Ocuppancy (BOR)- Berth without Project Ocuppancy (BOR)-

Berth Berth equivalents

Theoretical Cargo Capacit at 100% Cargo Theoretical

Available Berthlength Available

Berthmeter Berthmeter Requirements

Average time ship at per berth Average

Average Cargo Handling rate Handling Cargo Average

Number of Shipcalls of Number

Average Consignment SizeConsignment Average

Excess Coastal Cargo (cannot Excess be accomodated)

Ship Ship Waiting Cost Time

Ship Service Time Cost Time Ship Service

Average daily Ship Cost Average

Ship-turnround time in Port Ship-turnround

Waiting for WaitingBerth for

Service Time (in days) for Cargo handled at Berth handled Cargo days)(in for Time Service

Cargo accomodated at Berth Cargo

WT/ST - Ratio WT/ST

Actual Berth Utilisation (BOR)

Under-capacity of Facility of Under-capacity

Berthmeter Berthmeter used (excl. Excess Cargo)

Excess accomodated) be (cannot Cargo

Optimal Cargo Capacity Coastal OptimalBerths of Cargo

Berthmeter available at BOR of Berthmeter available

Berth Berth Ocuppancy (BOR)

Berth Berth equivalents

Theoretical Cargo Capacit at 100% Cargo Theoretical

Available Berthlength Available

Berthmeter Berthmeter Requirements

Average time ship at per berth Average

Average Cargo Handling rate Handling Cargo Average Number of Shipcalls of Number

SizeConsignment Average

(9)

(8)

(7)

(6)

(5)

(4)

(3)

(2)

(1)

(0)

(9)

(8)

(7)

(6)

(5)

(4)

(3)

(2)

(1)

(0)

(26)

(25)

(24)

(23)

(22)

(21)

(20)

(19)

(18)

(17)

(15)

(15)

(14)

(13)

(12)

(11)

(10)

(26)

(25)

(24)

(23)

(22)

(21)

(20)

(19)

(18)

(17)

(15)

(15)

(14)

(13)

(12)

(11) (10) 38 Appendix 9

3

438

438

100

338

150

126

126

210

276

137

648

1.75 1.75

0.40 0.40

1.35 1.35

1.75 1.75

0.40 0.40

1.35 1.35

1.04 1.04

4,000 4,000

0.296 0.296

4,263 4,263

4,453 4,453

2041

2,403,096

60.0%

131.4%

1,441,197 1,441,197

1,441,858 1,441,858

1,441,197 1,441,197

1,441,858 1,441,858

2,883,055 2,883,055

1,441,196.9 1,441,196.9

3

7

96

-

-

-

422

422

325

126

126

210

133

137

311

1.69 1.69

0.39 0.39

1.30 1.30

1.69 1.69

0.39 0.39

1.30 1.30

1.04 1.04

4,000 4,000

0.296 0.296

4,263 4,263

4,453 4,453

2026

2,403,096

60.0%

63.2%

1,386,799 1,386,799

1,441,858 1,441,858

1,386,799 1,386,799

… Continued

3

0

92

-

-

-

402

402

310

126

126

210

126

137

297

1.61 1.61

0.37 0.37

1.24 1.24

1.61 1.61

0.37 0.37

1.24 1.24

1.04 1.04

4,000 4,000

0.296 0.296

4,263 4,263

4,453 4,453

2025

2,403,096

60.0%

60.2%

1,320,761 1,320,761

1,441,858 1,441,858

1,320,761 1,320,761

3

79

-

-

-

-

374

374

295

120

126

210

120

137

283

1.50 1.50

0.32 0.32

1.18 1.18

1.50 1.50

0.32 0.32

1.18 1.18

1.04 1.04

4,000 4,000

0.267 0.267

4,263 4,263

4,453

2024

2,403,096

57.3%

57.3%

1,257,867 1,257,867

1,441,858 1,441,858

1,257,867 1,257,867

3

59

-

-

-

-

340

340

281

115

126

210

115

137

269

1.36 1.36

0.24 0.24

1.12 1.12

1.36 1.36

0.24 0.24

1.12 1.12

1.04 1.04

4,000 4,000

0.210 0.210

4,263 4,263

4,453

2023

2,403,096

54.6%

54.6%

1,197,969 1,197,969

1,441,858 1,441,858

1,197,969 1,197,969

3

47

-

-

-

-

314

314

268

109

126

210

109

137

256

1.26 1.26

0.19 0.19

1.07 1.07

1.26 1.26

0.19 0.19

1.07 1.07

1.04 1.04

4,000 4,000

0.174 0.174

4,263 4,263

4,453 4,453

projected

2022

2,403,096

52.0%

52.0%

1,140,923 1,140,923

1,441,858 1,441,858

1,140,923 1,140,923

Project Case Project

3

-

31

-

-

-

-

286

286

255

104

126

210

104

137

244

1.15 1.15

0.13 0.13

1.02 1.02

1.15 1.15

0.13 0.13

1.02 1.02

1.04 1.04

4,000 4,000

0.124 0.124

4,263 4,263

4,453 4,453

2021

2,403,096

49.5%

49.5%

1,086,593 1,086,593

1,441,858 1,441,858

1,086,593 1,086,593

3

Without

28

99

99

-

-

-

-

271

271

243

126

210

137

232

1.08 1.08

0.11 0.11

0.97 0.97

1.08 1.08

0.11 0.11

0.97 0.97

1.04 1.04

4,000 4,000

0.115 0.115

4,263 4,263

4,453 4,453

2020 2,403,096

47.2%

47.2%

1,034,850 1,034,850

1,441,858 1,441,858

1,034,850 1,034,850

3

25

94

94

-

-

-

-

256

256

231

126

210

137

221

1.02 1.02

0.10 0.10

0.92 0.92

1.02 1.02

0.10 0.10

0.92 0.92

1.04 1.04

4,000 4,000

0.107 0.107

4,263 4,263

4,453 4,453

2019

985,572 985,572

2,403,096

985,572 985,572

44.9%

44.9%

1,441,858 1,441,858

3

21

90

90

-

-

-

-

241

241

220

126

210

137

211

0.96 0.96

0.08 0.08

0.88 0.88

0.96 0.96

0.08 0.08

0.88 0.88

1.04 1.04

4,000 4,000

0.094 0.094

4,263 4,263

4,453 4,453

2018

938,640 938,640

2,403,096

938,640 938,640

42.8%

42.8%

1,441,858 1,441,858

3

17

86

86

-

-

-

-

227

227

210

126

210

137

201

0.91 0.91

0.07 0.07

0.84 0.84

0.91 0.91

0.07 0.07

0.84 0.84

1.04 1.04

4,000 4,000

0.081 0.081

4,263 4,263

4,453 4,453

2017

893,943 893,943

2,403,096

893,943 893,943

40.7%

40.7% 1,441,858 1,441,858

rt

rt

rt

rt

rt

rt

m

m

m

m

Nos

nos.

BOR

rt/ship

BOR BOR %

$ $ million

$ $ million

$ $ million

Lae Port: Benefits Evaluation Benefits Port: Lae

$ $ milllion

$ $ milllion

$ $ milllion

shipdays

Shipdays

Shipdays

Shipdays Shipdays rt/shipday $

60% rt/day

rt/ship BOR BOR 100%

vessel per '+10m

A9.4: Table

(13)

(6)/(7)

(0)/(1)

(1)/(3)

(0)-(13)

(6)-(14)

~(7)/(4)

(14)/(11)

(20)*(22)

(19)*(22)

(19)*(17) (23)+(24)

(19)+(20)

(18)/(1)*(5)

(8)*opt.capacity (0)-(12) if (0)>(12) if (0)-(12)

(2)*((4)+10)*(5))/360

((7)*360*(3))/((4)+10)) (6) if (6)<(11) else (11) (6)<(11) if (6) E2E2(9)-table on based

Total

Totals ShipTotals turnround times

With Project Scenario

Ship Turnround Cost at Port - Coastal Cargo Ship Turnround

Average Vessel Length Average

Coastal Coastal Cargo (Breakbulk containers & 3) & at Berth Nos.2

Excess Coastal Cargo (cannot beExcess accomodated)

Cost of CostWaiting at of Wharf Time

Cost of Service Time at Wharf Time CostService of

Cost at WharfCost

Total Ship-tunrround With Project

Excess Cargo (cannot beExcess accomodated)

Waiting Time WaitingCost - Coastal Time Cargo

Service Time Cost - coastalTime Cargo Service

Average daily Ship Cost Average

Ship-turnround time in Port Ship-turnround

Waiting for WaitingBerth for

Service Time (in days) for Cargo at Berth Cargo days) (in for Time Service

Cargo accomodated at Berth Cargo

WT/ST - Ratio WT/ST

Actual Berth Utilisation (BOR)

Under-capacity of Facility of Under-capacity

Berthmeter used (excl.Berthmeter Excess Cargo)

Excess accomodated) be (cannot Cargo

Optimal Cargo CapacityCoastal Berths of Optimal Cargo

Berthmeter available at optimal BOR available Berthmeter

Berth Berth Ocuppancy (BOR)

Berth Berth equivalents

Theoretical Cargo Capacit at 100% Cargo Theoretical

Available Berthlength Available

Berthmeter Requirements Berthmeter

Average time ship at per berth Average

Average Cargo Handling rate Handling Cargo Average

Number of Shipcalls of Number

Average Consignment Size Consignment Average

(9)

(8)

(7)

(6)

(5)

(4)

(3)

(2)

(1)

(0)

(26)

(25)

(24)

(23)

(22)

(21)

(20)

(19)

(18)

(17)

(15)

(15)

(14)

(13)

(12)

(11) (10)

Appendix 9 39

39 39

92 92

72 72

92 92

72 72

147 147

147 147

108 108

240 240

560 560

240 240

717 717

1.03 1.03

0.27 0.27

0.76 0.76

0.33 0.33

1.24 1.24

1.03 1.03

0.27 0.27

0.76 0.76

1.00 1.00

1.17 1.17

7,000 7,000

0.360 0.360

7,680 7,680

9,000 9,000

829,440 829,440

829,440 829,440

2041

30.0%

233.3%

5,620,543 5,620,543

2,764,800 2,764,800

6,449,983 6,449,983

39 39

92 92

72 72

92 92

72 72

147 147

147 147

108 108

240 240

269 269

240 240

345 345

1.03 1.03

0.27 0.27

0.76 0.76

0.33 0.33

1.24 1.24

1.03 1.03

0.27 0.27

0.76 0.76

1.00 1.00

1.17 1.17

7,000 7,000

0.360 0.360

7,680 7,680

9,000 9,000

829,440 829,440

829,440 829,440

2026

30.0%

112.2%

ontinued … ontinued

2,273,112 2,273,112

2,764,800 2,764,800

3,102,552 3,102,552

C

39 39

92 92

72 72

92 92

72 72

147 147

147 147

108 108

240 240

256 256

240 240

328 328

1.03 1.03

0.27 0.27

0.76 0.76

0.33 0.33

1.24 1.24

1.03 1.03

0.27 0.27

0.76 0.76

1.00 1.00

1.17 1.17

7,000 7,000

0.360 0.360

7,680 7,680

9,000

829,440 829,440

829,440 829,440

2025

30.0%

106.9%

2,125,372 2,125,372

2,764,800 2,764,800

2,954,812 2,954,812

39 39

92 92

72 72

92 92

72 72

147 147

147 147

108 108

240 240

244 244

240 240

313 313

1.03 1.03

0.27 0.27

0.76 0.76

0.33 0.33

1.24 1.24

1.03 1.03

0.27 0.27

0.76 0.76

1.00 1.00

1.17 1.17

7,000 7,000

0.360 0.360

7,680 7,680

9,000

829,440 829,440

829,440 829,440

2024

30.0%

101.8%

1,984,666 1,984,666

2,764,800 2,764,800

2,814,106 2,814,106

39 39

92 92

72 72

92 92

72 72

147 147

147 147

108 108

240 240

233 233

240 240

298 298

1.03 1.03

0.27 0.27

0.76 0.76

0.33 0.33

1.24 1.24

1.03 1.03

0.27 0.27

0.76 0.76

1.00 1.00

1.17 1.17

7,000 7,000

0.360 0.360

7,680 7,680

9,000

829,440 829,440

829,440 829,440

2023

30.0%

96.9%

1,850,661 1,850,661

2,764,800 2,764,800

2,680,101 2,680,101

39 39

92 92

72 72

92 92

72 72

147 147

147 147

108 108

240 240

222 222

240 240

284 284

1.03 1.03

0.27 0.27

0.76 0.76

0.33 0.33

1.24 1.24

1.03 1.03

0.27 0.27

0.76 0.76

1.00 1.00

1.17 1.17

7,000 7,000

0.360 0.360

7,680 7,680

9,000 9,000

829,440 829,440

829,440 829,440

2022

30.0%

92.3%

1,723,037 1,723,037

2,764,800 2,764,800

2,552,477 2,552,477

39 39

92 92

72 72

92 92

72 72

147 147

147 147

108 108

240 240

211 211 240 240

270

1.03 1.03

0.27 0.27

0.76 0.76

0.33 0.33

1.24 1.24

1.03 1.03

0.27 0.27

0.76 0.76

1.00 1.00

1.17 1.17

7,000 7,000

0.360 0.360

7,680 7,680

9,000 9,000

829,440 829,440

829,440 829,440

2021

30.0%

87.9%

1,601,491 1,601,491

2,764,800 2,764,800

2,430,931 2,430,931

39 39

92 92

72 72

92 92

72 72

147 147

147 147

108 108

240 240

201 201

240 240

257 257

1.03 1.03

0.27 0.27

0.76 0.76

0.33 0.33

1.24 1.24

1.03 1.03

0.27 0.27

0.76 0.76 1.00 1.00

1.17

7,000 7,000

0.360 0.360

7,680 7,680

9,000 9,000

829,440 829,440

829,440 829,440

2020

30.0%

83.7%

1,485,732 1,485,732

2,764,800 2,764,800

2,315,172 2,315,172

39 39

92 92

72 72

92 92

72 72

147 147

147 147

108 108

240 240

191 191

240 240

245 245

1.03 1.03

0.27 0.27

0.76 0.76

0.33 0.33

1.24 1.24

1.03 1.03

0.27 0.27

0.76 0.76

1.00 1.00

1.17 1.17

7,000 7,000

0.360 0.360

7,680 7,680

9,000 9,000

829,440 829,440

829,440 829,440

2019

30.0%

79.7%

1,375,486 1,375,486

2,764,800 2,764,800

2,204,926 2,204,926

39 39

92 92

72 72

92 92

72 72

147 147

147 147

108 108

240 240

182 182

240 240

233 233

1.03 1.03

0.27 0.27

0.76 0.76

0.33 0.33

1.24 1.24

1.03 1.03

0.27 0.27

0.76 0.76

1.00 1.00

1.17 1.17

7,000 7,000

0.360 0.360

7,680 7,680

9,000

829,440 829,440

829,440 829,440

2018

30.0%

76.0%

1,270,490 1,270,490

2,764,800 2,764,800

2,099,930 2,099,930

39 39

92 92

72 72

92 92

72 72

147 147

147 147

108 108

240 240

174 174

240 240

222 222

1.03 1.03

0.27 0.27

0.76 0.76

0.33 0.33

1.24 1.24

1.03 1.03

0.27 0.27

0.76 0.76

1.00 1.00

1.17 1.17

7,000 7,000

0.360 0.360

7,680 7,680

9,000

829,440 829,440

829,440 829,440

2017

30.0%

72.3%

1,170,493 1,170,493

2,764,800 2,764,800

1,999,933 1,999,933

projected

$

$

$

rt

rt

rt

rt

rt

m

m

m

m

m

nos. nos.

Nos.

rt/ship

rt/ship

BOR BOR %

$ $ milllion

$ $ milllion

shipdays

$ $ milllion

$ $ milllion

$ $ milllion

Shipdays

Shipdays

Shipdays

Shipdays rt/shipday $ milllion

- $/rt

$/rt 30%

BOR 100%

(6)/(7)

(0)/(1)

(1)/(3)

(0)-(13)

(6)-(14)

~(7)/(4)

(14)/(11)

(20)*(22)

(19)*(22)

(19)*(17)

(23)+(24) (19)+(20)

(18)/(1)*(5)

(8)*opt.capacity

(7)*opt.capacity

(0)-(12) if (0)>(12) if (0)-(12)

(2)*((4)+10)*(5))/360

((7)*360*(3))/((4)+10)) (6) if (6)<(11) else (11) (6)<(11) if (6) E2E2(9)-table on based

Total

ShipTotals turnround times

Wharf Basin Tidal

Average Vessel Lenght Average

Cost of CostWaiting at of Wharf Time

Cost of Service Time at Wharf Time CostService of

at Wharf

Total Ship-tunrround cost Total- at TidalShip-tunrround cost Wharf

Waiting Costrt per

Avge.WT&ST Cost at Berth Avge.WT&ST

Ship-Turnround CostWharf at Tidal Ship-Turnround

Waiting Time WaitingCostWharf atTime Tidal

Service Time CostWharf atTime Tidal Service

Overseas Vessels Overseas Costday per

Total Ship-turnround Time Overseas Container Vessel Container Overseas Time Ship-turnround Total

Waiting for BerthWaiting for

Ship Service Time Ship Service

Shipcalls at Tidal Wharf (exl. Diversion to Port)old Shipcalls(exl. Wharf Diversion at Tidal

WT/ST - Ratio WT/ST

Berth Ocuppancy (BOR) excl.cargo diverted to Old Port) Berth excl.cargoOcuppancy (BOR) diverted

Berthmeters Berthmeters used

Cargo at Wharf (excl. Diversion to Port) old at(excl. Wharf Cargo Diversion

Cargo to be diverted to Overseas Berths #5, '4, #6 to Overseas to diverted be Cargo

Shipcall capacityWharf Tidal of

Optimal Cargo Capacity of Tidal Wharf CapacityTidal of Optimal Cargo

Berthmeter available at optimal BOR available Berthmeter

Berth Berth Ocuppancy (BOR)

Berth Berth equivalents

Theoretical Cargo Capacit at 100% Cargo Theoretical

Available Berthlength Available

Berthmeter Requirements Berthmeter

Average Service time ship at per Service berth Average

Average Cargo Handling rate Handling Cargo Average

Number of Shipcalls of Number

Average Consignment Size Consignment Average

Overseas ContainerOverseas Cargo

Continued … Continued

(9)

(8)

(7)

(6)

(5)

(4)

(3)

(2)

(1)

(0)

(28)

(27)

(26)

(25)

(24)

(23)

(22)

(21)

(20)

(19)

(18)

(17)

(15)

(15)

(14)

(13)

(12) (11) (10) 40 Appendix 9

3

29

442

464

435

315

226

315

226

451

619

176

865

5.86 5.86

0.86 0.86

0.27 0.27

0.19 0.19

0.40 0.40

5.00 5.00

0.76 0.76

2.89 2.89

1.35 1.35

3.08 3.08

0.19 0.19

2.89 2.89

3.08 3.08

0.19 0.19

2.89 2.89

1.38 1.38

1,028 1,028

6,641 6,641

0.066 0.066

5,730 5,730

7,922 7,922

4,990,948

2041

50.0%

137.3%

5,796,793 5,796,793

4,355,597 4,355,597

4,355,597 4,355,597

2,495,474 2,495,474

4,355,597 4,355,597

2,495,474 2,495,474

6,851,070 6,851,070

5,620,543 5,620,543

1,230,527 1,230,527

3

28

994

426

465

437

319

226

319

226

451

261

176

369

5.78 5.78

0.84 0.84

0.27 0.27

0.19 0.19

0.39 0.39

4.93 4.93

0.76 0.76

2.88 2.88

1.30 1.30

3.06 3.06

0.19 0.19

2.88 2.88

3.06 3.06

0.19 0.19

2.88 2.88

1.37 1.37

6,587 6,587

0.065 0.065

5,668 5,668

7,760

389,453 389,453

389,453 389,453

389,453 389,453

389,453 389,453

4,951,128

591,904 591,904

2026

50.0%

57.9%

2,475,564 2,475,564

2,475,564 2,475,564

2,865,017 2,865,017

2,273,112 2,273,112

ontinued

C

3

29

954

406

466

437

319

226

319

226

451

245

176

347

5.70 5.70

0.83 0.83

0.27 0.27

0.19 0.19

0.37 0.37

4.87 4.87

0.76 0.76

2.88 2.88

1.24 1.24

3.06 3.06

0.19 0.19

2.88 2.88

3.06 3.06

0.19 0.19

2.88 2.88

1.37 1.37

6,581 6,581

0.066 0.066

5,661 5,661

7,742

215,772 215,772

215,772 215,772

215,772 215,772

215,772 215,772

4,946,636

563,719 563,719

2025

50.0%

54.4%

2,473,318 2,473,318

2,473,318 2,473,318

2,689,090 2,689,090

2,125,372 2,125,372

3 28

899

378

465

437

320

226

320

226

451

230

176

327

5.58 5.58

0.77 0.77

0.27 0.27

0.19 0.19

0.32 0.32

4.81 4.81

0.76 0.76

2.87 2.87

1.18 1.18

3.06 3.06

0.19 0.19

2.87 2.87

3.06 3.06

0.19 0.19

2.87 2.87

1.37 1.37

6,574 6,574

0.065 0.065

5,653 5,653

7,723 7,723

50,655 50,655

50,655 50,655

50,655 50,655

50,655 50,655

4,941,772

536,875 536,875

2024

50.0%

51.0%

2,470,886 2,470,886

2,470,886 2,470,886

2,521,541 2,521,541

1,984,666 1,984,666

3

25

-

-

-

-

831

344

444

418

307

216

321

226

451

216

176

307

5.30 5.30

0.67 0.67

0.27 0.27

0.17 0.17

0.24 0.24

4.63 4.63

0.76 0.76

2.75 2.75

1.12 1.12

2.91 2.91

0.17 0.17

2.75 2.75

2.91 2.91

0.17 0.17

2.75 2.75

1.36 1.36

6,567 6,567

0.060 0.060

5,645 5,645

7,701 7,701

4,936,494

511,309 511,309

2023

47.8%

47.8%

2,361,971 2,361,971

2,468,247 2,468,247

2,361,971 2,361,971

1,850,661 1,850,661

3

21

-

-

-

-

779

318

413

392

288

202

321

226

451

202

176

288

5.00 5.00

0.60 0.60

0.27 0.27

0.14 0.14

0.19 0.19

4.40 4.40

0.76 0.76

2.57 2.57

1.07 1.07

2.71 2.71

0.14 0.14

2.57 2.57

2.71 2.71

0.14 0.14

2.57 2.57

1.36 1.36

6,559 6,559

0.054 0.054

5,636 5,636

7,678

4,930,754

486,961 486,961

2022

44.8%

44.8%

2,209,999 2,209,999

2,465,377 2,465,377

2,209,999 2,209,999

1,723,037 1,723,037

3

16

-

-

-

-

723

290

383

367

270

189

322

226

451

189

176

270

4.68 4.68

0.50 0.50

0.27 0.27

0.10 0.10

0.13 0.13

4.18 4.18

0.76 0.76

2.40 2.40

1.02 1.02

2.51 2.51

0.10 0.10

2.40 2.40

2.51 2.51

0.10 0.10

2.40 2.40

1.36 1.36

6,551 6,551

0.043 0.043

5,627 5,627

7,653

4,924,496

463,773 463,773

2021

41.9%

41.9%

2,065,264 2,065,264

2,462,248 2,462,248

2,065,264 2,065,264

1,601,491 1,601,491

3

12

-

- -

-

692

274

355

343

253

177

322

226

451

177

175

253

4.43 4.43

0.46 0.46

0.27 0.27

0.08 0.08

0.11 0.11

3.97 3.97

0.76 0.76

2.25 2.25

0.97 0.97

2.32 2.32

0.08 0.08

2.25 2.25

2.32 2.32

0.08 0.08

2.25 2.25

1.36 1.36

6,542 6,542

0.034 0.034

5,616 5,616

7,625 7,625

4,917,657

441,688 441,688

2020

39.2%

39.2%

1,927,421 1,927,421

2,458,828 2,458,828

1,927,421 1,927,421

1,485,732 1,485,732

9

3

-

-

-

-

662

259

329

320

236

165

323

226

451

165

175

236

4.20 4.20

0.43 0.43

0.27 0.27

0.06 0.06

0.10 0.10

3.77 3.77

0.76 0.76

2.09 2.09

0.92 0.92

2.15 2.15

0.06 0.06

2.09 2.09

2.15 2.15

0.06 0.06

2.09 2.09

1.36 1.36

6,532 6,532

0.027 0.027

5,604 5,604

7,595 7,595

4,910,159

420,655 420,655

2019

36.6%

36.6%

1,796,141 1,796,141

2,455,080 2,455,080

1,796,141 1,796,141

1,375,486 1,375,486

4

3

-

-

-

-

632

244

303

299

221

154

324

226

451

154

175

221

3.97 3.97

0.38 0.38

0.27 0.27

0.03 0.03

0.08 0.08

3.59 3.59

0.76 0.76

1.95 1.95

0.88 0.88

1.97 1.97

0.03 0.03

1.95 1.95

1.97 1.97

0.03 0.03

1.95 1.95

1.35 1.35

6,521 6,521

0.013 0.013

5,592 5,592

7,562

4,901,914

400,624 400,624

2018

34.1%

34.1%

1,671,114 1,671,114

2,450,957 2,450,957

1,671,114 1,671,114

1,270,490 1,270,490

4

3

-

-

-

-

603

230

282

278

206

143

325

226

451

143

175

206

3.77 3.77

0.36 0.36

0.27 0.27

0.02 0.02

0.07 0.07

3.41 3.41

0.76 0.76

1.81 1.81

0.84 0.84

1.83 1.83

0.02 0.02

1.81 1.81

1.83 1.83

0.02 0.02

1.81 1.81

1.35 1.35

6,508 6,508

0.013 0.013

5,578 5,578

7,525 7,525

4,892,815 381,547 381,547

2017

31.7%

31.7%

1,552,040 1,552,040

2,446,407 2,446,407

1,552,040 1,552,040

1,170,493 1,170,493

projected

rt

rt

rt

rt

m m

BOR

$ $ milllion

$ $ milllion

$ $ milllion

$ $ milllion

$ $ milllion

$ $ milllion

$ $ milllion

$ $ milllion

shipdays

$ $ milllion

$ $ milllion

$ $ milllion shipdays rt

rt.

rt.

50%

50% rt/day

rt/ship BOR BOR 100%

vessel per '+10m

(14)

(6)/(7)

(0)/(1)

(1)/(3)

(19)*(5)

(15)/(1)

~(7)/(4)

(15)/(12)

(24)*(18)

(20)*(23)

(20)*(18) (24)+(25)

(20)+(21)

(8)*opt.capacity

(7)*opt.capacity

(2)*((4)+10)*(5))/360

((7)*360*(3))/((4)+10))

(6) if (6<(11) else (11) (6<(11) if (6) (6) if (6)<(12) else (12) (6)<(12) if (6)

else (13) (2)<(13) if (2)

based on E2E2(9)-table on based if(0)>(12):(0)-(12) else 0 if(0)>(12):(0)-(12)

Total

Totals Totals Ship turnround times Totals Ship turnround times

Waiting CostTotal Time - With Project

Total Ship Turnround Time - WithTime Project Ship Turnround Total Cost Time - Without Service Project Total

OverseasBerth Port Old

Excess Cargo (cannot beExcess accomodated)

Average Vessel Lenght Average

Total Cargo Demand #4, #5, on#6 Berths Overseas

Container Overflow from Tidal WharfBasin

Overseas CargoOverseas (Breakbulk #4, #5, #6)

Excess Cargo (cannot beExcess accomodated)

Waiting Cost Wharf Time at Tidal

Waiting Time Cost at Wharf - Overseas WaitingBerths Cost #4, Time at#5, - Overseas #6 Wharf

Waiting Cost Time at - Coastal Berths Wharf

Waiting Cost Time -Without Project

Service Time Cost Wharf Time at Tidal Service

Service Time Cost at Wharf - Overseas Berths Cost #4, Time at#5, - Overseas #6 Wharf Service

Service Time Cost Time at - Coastal Berths Wharf Service

Service Time Cost Time - WithService Project

Total - With Ship-tunrround Projectcost

Cost of CostWaiting atof Wharf Time

Cost of Service Time at Wharf Time CostService of

Cost at WharfCost

Total Ship-tunrround Berth Overseas - With Project

Excess Cargo (cannot beExcess accomodated)

Ship-Turnround Cost for Overseas Cargo at old Port Cargo Overseas Cost for Ship-Turnround

Waitng Berths Cost Tim Old atPort Overseas

Service Time Cost at Overseas BerthsCost Time Old atPort Overseas Service

Overseas VesselsOverseas Costday per

Total Ship-turnround Time Overseas Container Vessel Container Overseas Time Ship-turnround Total

Waiting for WaitingBerth for

Ship Service Time Ship Service

Actual Shipcalls Wharf at Tidal

WT/ST - Ratio WT/ST

Actual Berth Utilisation (BOR)

Berthmeters used

Cargo accomodated at Berth Cargo

Excess accomodated) be (cannot Cargo

Shipcall capacity at optimal BOR

Optimal Cargo Capacity of Overseas Berths Port) # (old CapacityOverseas Optimal of Cargo

Berthmeter available at optimal BOR Berthmeter available

Berth Berth Ocuppancy (BOR)

Berth Berth equivalents

Theoretical Cargo Capacit at 100% Cargo Theoretical

Available Berthlength Available

Berthmeter Berthmeter Requirements

Average time ship at per berth Average

Average Cargo Handling rate Handling Cargo Average Number of Shipcalls of Number

SizeConsignment Average

Continued … Continued

(9)

(8)

(7)

(6)

(5)

(4)

(3)

(2)

(1)

(0)

(28)

(26)

(25)

(24)

(23)

(22)

(21)

(20)

(19)

(18)

(17)

(15)

(15)

(14)

(13)

(12)

(11) (10)

Appendix 9 41

0.65 0.65

7.58 7.58

2.46 2.46

5.12 5.12

1,178 1,178

1,178 1,178

2041

940,580 940,580

829,440 829,440

829,440 829,440

940,580 940,580

2041

2,495,474 2,495,474

2,509,713 2,509,713

1,316,479 1,316,479

2,495,474 2,495,474

2,509,713 2,509,713

1,316,479 1,316,479

3,826,192 3,826,192

4,766,771 4,766,771

11,695.88 11,695.88

6,879,930 6,879,930

20,337,215 20,337,215

10,563,565 10,563,565

317

317

0.17 0.17

1.69 1.69

1.12 1.12

0.57 0.57

2026

865,611 865,611

829,440 829,440

829,440 829,440

865,611 865,611

2026

3,149.11 3,149.11

8,486,009 8,486,009

2,475,564 2,475,564

2,509,713 2,509,713

1,316,479 1,316,479

5,081,255 5,081,255

2,475,564 2,475,564

2,509,713 2,509,713

1,316,479 1,316,479

3,826,192 3,826,192

4,746,862 4,746,862

1,852,417 1,852,417

318

318

0.18 0.18

1.51 1.51

1.07 1.07

0.43 0.43

2025

797,326 797,326

829,440 829,440

829,440 829,440

797,326 797,326

2025

3,155.79 3,155.79

8,005,669 8,005,669

2,473,318 2,473,318

2,509,713 2,509,713

1,316,479 1,316,479

4,839,291 4,839,291

2,473,318 2,473,318

2,509,713 2,509,713

1,316,479 1,316,479

3,826,192 3,826,192

4,744,616 4,744,616

1,856,346 1,856,346

300

300

0.17 0.17

1.23 1.23

0.98 0.98

0.25 0.25

2024

790,613 790,613

829,440 829,440

829,440 829,440

790,613 790,613

2024

2,981.59 2,981.59

7,552,518 7,552,518

2,470,886 2,470,886

2,509,713 2,509,713

1,257,867 1,257,867

4,608,848 4,608,848

2,470,886 2,470,886

2,509,713 2,509,713

1,316,479 1,316,479

3,826,192 3,826,192

4,742,183 4,742,183

1,753,875 1,753,875

285

285

0.16 0.16

1.08 1.08

0.89 0.89

0.19 0.19

2023

681,698 681,698

829,440 829,440

829,440 829,440

681,698 681,698

2023

2,828.53 2,828.53

7,125,017 7,125,017

2,361,971 2,361,971

2,509,713 2,509,713

1,197,969 1,197,969

4,389,379 4,389,379

2,468,247 2,468,247

2,509,713 2,509,713

1,316,479 1,316,479

3,826,192 3,826,192

4,739,544 4,739,544

1,663,841 1,663,841

267

267

0.15 0.15

1.02 1.02

0.83 0.83

0.19 0.19

2022

529,726 529,726

829,440 829,440

829,440 829,440

529,726 529,726

2022

2,653.17

6,721,714 6,721,714

2,209,999 2,209,999

2,509,713 2,509,713

1,140,923 1,140,923

4,180,361 4,180,361

2,465,377 2,465,377

2,509,713 2,509,713

1,316,479 1,316,479

3,826,192 3,826,192

4,736,675 4,736,675

1,560,690 1,560,690

239

239

0.13 0.13

0.87 0.87

0.69 0.69

0.19 0.19

2021

384,990 384,990

829,440 829,440

829,440 829,440

384,990 384,990

2021

2,370.22 2,370.22

6,341,240 6,341,240

2,065,264 2,065,264

2,509,713 2,509,713

1,086,593 1,086,593

3,981,297 3,981,297

2,462,248 2,462,248

2,509,713 2,509,713

1,316,479 1,316,479

3,826,192 3,826,192

4,733,546 4,733,546

1,394,249 1,394,249

191

191

0.11 0.11

0.65 0.65

0.46 0.46

0.19 0.19

2020

247,147 247,147

829,440 829,440

829,440 829,440

247,147 247,147

2020

1,900.23 1,900.23

5,982,302 5,982,302

1,927,421 1,927,421

2,509,713 2,509,713

1,034,850 1,034,850

3,791,711 3,791,711

2,458,828 2,458,828

2,509,713 2,509,713

1,316,479 1,316,479

3,826,192 3,826,192

4,730,126 4,730,126

1,117,785 1,117,785

162

162

0.09 0.09

0.53 0.53

0.34 0.34

0.19 0.19

2019

115,868 115,868

829,440 829,440

985,572 985,572

829,440 829,440

115,868 115,868

943,885 943,885

2019

1,604.60 1,604.60

5,643,681 5,643,681

1,796,141 1,796,141

2,509,713 2,509,713

3,611,153 3,611,153

2,455,080 2,455,080

2,509,713 2,509,713

1,316,479 1,316,479

3,826,192 3,826,192

4,726,377 4,726,377

-

-

123

123

0.07 0.07

0.36 0.36

0.17 0.17

0.19 0.19

2018

829,440 829,440

938,640 938,640

829,440 829,440

720,704 720,704

2018

1,225.20 1,225.20

5,324,227 5,324,227

1,671,114 1,671,114

2,500,554 2,500,554

3,439,194 3,439,194

2,450,957 2,450,957

2,509,713 2,509,713

1,316,479 1,316,479

3,826,192 3,826,192

4,722,255 4,722,255

-

-

107

107

0.06 0.06

0.30 0.30

0.12 0.12

0.19 0.19

2017

829,440 829,440

893,943 893,943

829,440 829,440

627,159 627,159

2017

1,066.17 1,066.17

5,022,856 5,022,856

1,552,040 1,552,040

2,381,480 2,381,480

3,275,423 3,275,423

2,446,407 2,446,407

2,509,713 2,509,713

1,316,479 1,316,479

3,826,192 3,826,192

4,717,705 4,717,705

projected

projected

rt

$ $ million

$ $ milllion

shipdays

$ $ milllion $ $ milllion shipdays

1,700 1,700

Total Port Traffic Demand Port Traffic Total Total Traffic at Tidal Wharf at Tidal Traffic Total 2%

Add'l Cargo possible through Project possible through Cargo Add'l Total Traffic assumed at 2012 Aprraisal Traffic Total

Optimal Capacity Total Berths -Coastal

Total Optimal Port Total Capacity - With Project Total MaximumBasin Total CapacityWharf -Tidal

Optimal Port Total Capacity - Without Project

Berths - Withoutat Overseas Project Traffic Total

Total Optimal Capacity -Overseas Berths/With Optimal CapacityTotal -Overseas Project

Total Traffic at Coastal Berths - With Traffic Total & Without Project Total Traffic at Overseas Berths #4, #5, at- With #6 Overseas Project Traffic Total Berths/Without Optimal CapacityTotal -Overseas Project

equivalent Cargo

all cargo Value of Average Totals ShipTotals turnround times -Time in Shipturnround Savings

Addidional Cargothrough Project possible

Inventory Savings

Inventory Cost SavingsInventory Cost

Waiting Time Savings WaitingSavings Time

Service Time Savings Time Service

Savings Shiptime Savings Shiptime

42 Appendix 9

End

Appendix 10 43

Table A10: Economic Internal Rate of Return Calculation—Lae Port Project ($ million, 2016 prices) Cost Benefits Investment Incremental Ship Net Additional Development Net Benefits Total Maintenance Waiting & Benefits Exports Benefits From Including Year Total Phase 2 Inventory Benefits & Operations Total Cost from Port through Additional Development Dredging Service Savings from Port Time Operations Project Exports Benefits Cost Operations Savings 1 1.00% rt million $720.00 2008 - - - - 2009 4.15 4 .15 (4 .15 ) (4 .15 )

2010 10.23 10 .2 3 (10 .2 3 ) (10 .2 3 )

2011 2.27 2 .2 7 (2 .2 7 ) (2 .2 7 ) 2012 55.17 (19.92) 3 5 .2 5 (3 5 .2 5 ) (3 5 .2 5 )

2013 148.26 (16.60) 13 1.6 6 (13 1.6 6 ) (13 1.6 6 )

2014 62.90 6 2 .9 0 (6 2 .9 0 ) (6 2 .9 0 ) 2015 13.83 13 .8 3 (13 .8 3 ) (13 .8 3 )

2016 - 2.97 2 .9 7 0.06 0.01 0.07 (2 .9 0 ) - - (2 .9 0 ) 2017 - 2.97 2 .9 7 0.30 0.06 0.36 (2 .6 0 ) - - (2 .6 0 )

2018 - 2.97 2 .9 7 0.36 0.07 0.43 (2 .5 4 ) - - (2 .5 4 )

2019 - 2.97 2 .9 7 0.53 0.09 0.62 (2 .3 5 ) 0.02 10.85 8 .5 0 2020 - 2.97 2 .9 7 0.65 0.11 0.75 (2 .2 2 ) 0.04 26.69 2 4 .4 8

2021 - 2.97 2 .9 7 0.87 0.13 1.01 (1.9 6 ) 0.06 41.58 3 9 .6 2 2022 - 2.97 2 .9 7 1.02 0.15 1.16 (1.8 0 ) 0.08 57.21 5 5 .4 1

2023 - 2.97 2 .9 7 1.08 0.16 1.24 (1.7 3 ) 0.10 73.62 7 1.8 9

2024 - 2.97 2 .9 7 1.23 0.17 1.39 (1.5 7 ) 0.12 85.39 8 3 .8 1 2025 - 2.97 2 .9 7 1.51 0.18 1.68 (1.2 9 ) 0.12 86.11 8 4 .8 2

2026 - 2.97 2 .9 7 1.69 0.17 1.87 (1.10 ) 0.13 93.49 9 2 .3 8

2027 - 2.97 2 .9 7 1.90 0.18 2.07 (0 .8 9 ) 0.14 99.66 9 8 .7 6 2028 - 2.97 2 .9 7 2.19 0.20 2.39 (0 .5 8 ) 0.14 99.86 9 9 .2 9

2029 - 2.97 2 .9 7 2.49 0.23 2.72 (0 .2 5 ) 0.14 100.06 9 9 .8 1 2030 - 2.97 2 .9 7 2.81 0.26 3.06 0 .0 9 0.14 100.24 10 0 .3 3

2031 - 2.97 2 .9 7 3.14 0.28 3.43 0 .4 6 0.14 100.40 10 0 .8 6

2032 - 2.97 2 .9 7 3.50 0.31 3.81 0 .8 4 0.14 100.56 10 1.4 0 2033 - 2.97 2 .9 7 3.87 0.34 4.21 1.2 4 0.14 100.71 10 1.9 5

2034 - 2.97 2 .9 7 4.25 0.37 4.63 1.6 6 0.14 100.84 10 2 .5 0

2035 - 2.97 2 .9 7 4.66 0.41 5.07 2 .10 0.14 100.97 10 3 .0 7 2036 - 2.97 2 .9 7 5.09 0.44 5.53 2 .5 7 0.14 101.09 10 3 .6 5

2037 - 2.97 2 .9 7 5.54 0.48 6.02 3 .0 5 0.14 101.20 10 4 .2 5 2038 - 2.97 2 .9 7 6.01 0.52 6.53 3 .5 7 0.14 101.30 10 4 .8 7

2039 - 2.97 2 .9 7 6.51 0.56 7.07 4 .10 0.14 101.40 10 5 .5 1

2040 - 2.97 2 .9 7 7.03 0.60 7.64 4 .6 7 0.14 101.50 10 6 .16 2041 - 2.97 2 .9 7 7.58 0.60 8.18 5 .2 2 0.14 101.58 10 6 .8 0

(140.00) 36.52 - (10 3 .4 8 ) - - - 10 3 .4 8 - - 10 3 .4 8

NPV (12%) 149.84 (5.02) 23.43 14 0 .2 8 11.13 1.22 12.35 (13 5 .2 9 ) 18 .5 2

Ba se EIRR: - 5 .4 7 % 12 .9 6 %

EIRR Including Phase 2 Dredging Cost 11.9 8 %

EIRR Traffic Growth 4%: 10 .8 5 % EIRR = economic internal rate of return, NPV = net present value, rt = revenue ton.

44 Appendix 11

-

20%

9.92

5.18

0.66

(6.22)

(9.98)

(3.70)

(7.21)

1.93%

2.00%

0.25%

23.40

23.37

23.35

23.32

23.29

23.25

23.22

23.18

23.14

23.04

22.99

22.99

22.94

22.88

22.82

20.94

18.70

18.48

14.91

(12.65)

(41.23)

(17.22)

(35.46)

(14.75)

-258.39

256.21

Net

Tax

(171.57)

(334.90)

after

K 28 mn28 K

Benfits Benfits

Corporate

Deduction

9.99

9.98

9.96

9.95

9.93

9.92

9.88

9.85

9.85

9.83

9.81

9.78

8.98

8.02

7.92

6.39

4.25

2.22

0.28

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

30%

89.29

10.03

10.02

10.01

Net

Tax on

Benefits

-

7.40

0.94

(6.22)

(9.98)

(3.70)

(7.21)

1.39%

33.43

33.39

33.35

33.31

33.26

33.22

33.16

33.11

33.05

32.92

32.85

32.85

32.77

32.69

32.59

29.92

26.72

26.40

21.30

14.18

(12.65)

(41.23)

(17.22)

(35.46)

(14.75)

-169.10

256.21

Net

Tax

(171.57)

(334.90)

before

Benefits Benefits

-

-

-

-

-

-

-

-

-

-

467.94

8.43 8.43

2.00 2.00

1.00 1.00

48.08 48.08

48.04 48.04

48.00 48.00

47.96 47.96

47.91 47.91

47.86 47.86

47.81 47.81

47.75 47.75

47.70 47.70

47.56 47.56

47.49 47.49

47.49 47.49

47.41 47.41

47.33 47.33

47.24 47.24

44.56 44.56

41.36 41.36

41.05 41.05

35.94 35.94

28.82 28.82

22.04 22.04

15.58 15.58

Total

Base Base Case:

62.51

4.00 4.00

4.00 4.00

4.00 4.00

4.00 4.00

4.00 4.00

4.00 4.00

4.00 4.00

4.00 4.00

4.00 4.00

4.00 4.00

4.00 4.00

4.00 4.00

4.00 4.00

4.00 4.00

4.00 4.00

4.00 4.00

4.00 4.00

4.00 4.00

4.00 4.00

4.00 4.00

4.00 4.00

4.00 4.00

3.00 3.00

2.00 2.00

1.00 1.00

K200

per m2

Income

Land lease

0.00

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Kina Kina

from

FIRR FIRR incl. Phase II Dredging Cost

Operator

million/year

License Fee Fee License

Lae Port Project Port Lae

Tariff increase required for FIRR=WACC

0.00

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

from

Cargo Cargo

Revenue Revenue

increase

Overseas

Wharfage

-

-

2.17

2.17

2.17

2.17

2.16

2.16

2.16

2.16

2.15

2.15

2.14

2.14

2.14

2.14

2.13

2.00

1.84

1.83

1.57

1.22

0.89

0.57

0.27

26.57

al

7%

Revenues

Pilotage

Increment

b/

-

-

9.21

9.13

7.87

6.12

4.45

2.85

1.34

10.86

10.85

10.84

10.83

10.82

10.81

10.80

10.78

10.77

10.74

10.72

10.72

10.70

10.68

10.66

10.00

132.87

35%

Increment

al Storage

b/

(percentage of wharfage) of (percentage

Annual Lincence Fee from Terminal Operator req. For of WACC 3,19%

-

-

8.16

3.82

31.04

31.01

30.98

30.95

30.92

30.89

30.85

30.81

30.77

30.68

30.63

30.63

30.57

30.51

30.45

28.57

26.31

26.09

22.50

17.48

12.70

379.63

Kina/rtb/

Wharfage

33.00 33.00

Incremental

FIRR FIRR after Increase of Tariifs (Wharfage, Pilotage Storage)& Cargofor Overseas 10%:

-

-

rt.

(K million, 2016 prices) 2016 (K million,

940,580 940,580

939,775 939,775

938,919 938,919

938,008 938,008

937,038 937,038

936,004 936,004

934,901 934,901

933,723 933,723

932,464 932,464

929,673 929,673

928,125 928,125

928,125 928,125

926,462 926,462

924,674 924,674

922,748 922,748

865,611 865,611

797,326 797,326

790,613 790,613

681,698 681,698

529,726 529,726

384,990 384,990

247,147 247,147

115,868 115,868

Add'l Add'l Cargo

rt.

3,324,914 3,324,914

3,324,109 3,324,109

3,323,253 3,323,253

3,322,342 3,322,342

3,321,372 3,321,372

3,320,338 3,320,338

3,319,235 3,319,235

3,318,057 3,318,057

3,316,798 3,316,798

3,315,451 3,315,451

3,314,007 3,314,007

3,312,459 3,312,459

3,310,796 3,310,796

3,309,008 3,309,008

3,307,082 3,307,082

3,305,004 3,305,004

3,302,758 3,302,758

3,300,326 3,300,326

3,191,411 3,191,411

3,039,439 3,039,439

2,894,704 2,894,704

2,756,861 2,756,861

2,625,581 2,625,581

2,500,554 2,500,554

2,381,480 2,381,480

at Berths

Total Overseas

Cargo Handeld

Financial Internal Rate of Return Calculation Return of Rate Internal Financial

-

617.35

3.70 3.70

7.21 7.21

14.65 14.65

14.65 14.65

14.65 14.65

14.65 14.65

14.65 14.65

14.65 14.65

14.65 14.65

14.65 14.65

14.65 14.65

14.65 14.65

14.65 14.65

14.65 14.65

14.65 14.65

14.65 14.65

14.65 14.65

14.65 14.65

14.65 14.65

14.65 14.65

14.65 14.65

14.65 14.65

14.65 14.65

14.65 14.65

14.65 14.65

14.65 14.65

10.98 10.98

41.23 41.23

17.22 17.22

35.46 35.46

14.75 14.75

Total

256.21 256.21

171.57 171.57

334.90 334.90

- -

62.29

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

1.85 1.85

0.5%

Assets

on new

Insurance

Table A11: A11: Table

62.27

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

3.66 3.66

1.83 1.83

0.5%

Staff &

Utilities

117.57

7.32 7.32

7.32 7.32

7.32 7.32

7.32 7.32

7.32 7.32

7.32 7.32

7.32 7.32

7.32 7.32

7.32 7.32

7.32 7.32

7.32 7.32

7.32 7.32

7.32 7.32

7.32 7.32

7.32 7.32

7.32 7.32

7.32 7.32

7.32 7.32

7.32 7.32

7.32 7.32

7.32 7.32

7.32 7.32

7.32 7.32

7.32 7.32

3.66 3.66

0.02 0.02

Incremental

1.0%

Cost

Increm.

Maint. &

Operations

-4.92

1

(52.24)

(57.68)

50%

Cost

109.92 109.92

Dredging

-

3.19%

350.31

7.21 7.21

41.23 41.23

74.91 74.91

35.46 35.46

14.75 14.75

Investment Cost

366.13 366.13

171.57 171.57

387.14 387.14

prices

in 2016 in 2016

- -

Cost

2041

2040

2039

2038

2037

2036

2035

2034

2033

2032

2031

2030

2029

2028

2027

2026

2025

2024

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009 2008

Year

row (1)a

b/Deloitte AuditReport

a/ Values in row (1) are values for sensitivityvalues are a/calculations (1) Values in row

WACC NPV(WACC=0%) Appendix 12 45

Table A12: Lae Port Project: Weighted Average Cost of Capital Calculation ADB Loans OCRa ADF OFID GoPNGc/ Totalb/ 2398 2803 2399 2804 A. Investment ($ million) 60 85 38.42 4.12 6 115.1 308.64 Original Terms LIBOR + 0.6% LIBOR a + 0.6% 1.0% during GP 1.0% during GP 1.50% Interest Rate 1.5% after 1.5% after Service/Commitment Fee 0.15% 0.15% Maturity 24 24 32 32 20 Grace Period (years) 4 4 8 8 5 Kina/US dollar exchange rate at 2.81 2.21 2.81 2.21 2.81 2.57 drawdown Investment (K million 168.6 187.85 107.96 9.11 16.86 295.69 786.07 B. Weighting (US dollar) 19.44% 27.54% 12.45% 1.33% 1.94% 37.29% 100.00% C. Nominal (onlending) rate 2.14% 2.14% 2.02% 2.02% 4.50% 15.00% D. Tax rate 30.00% 30.00% 30.00% 30.00% 30.00% 0.00% E. Tax-adjusted nominal rate (B*(1-C)) 1.50% 1.50% 1.41% 1.41% 3.15% 15.00% F. Inflation rate 1.50% 1.50% 1.50% 1.50% 1.50% 6.00% G. Real rate ((1+D)/ (1+E)-1) 0.00% 0.00% -0.08% -0.08% 1.63% 8.49% H. Weighted component of WACC 0.00% 0.00% -0.01% 0.00% 0.03% 3.17% 3.19% WACC applied for the NPV in the FIRR assessment: 3.19% ADB = Asian Development Bank, ADF = Asian Development Fund, FIRR = financial internal rate of return, GoPNG= Government of Papua New Guinea, GP = Grace Period, LIBOR = London interbank offered rate, NPV = net present value, OCR = ordinary capital resources, OFID = Organization of the Petroleum Exporting Countries Fund for International Development, WACC = weighted average cost of capital. a Onlending of Loans 2398 and 280 at the same rate as ADB loans; LIBOR (i.e., 10-year swaps: 1,541%; 7 January–13 July 2016). b Excluding the Japan Fund for Poverty Reduction & HIV/AIDS components. c Interest rate on government equity: national outstanding debts/interest payments on national debts (K17.7 billion/ K1.13 billion) = 6.38%; 2016.

46 Appendix 13

Table A13: Project Evaluation Matrix

Rating Weighted Criterion Weight Assessment Value Rating Relevance 25% Relevant 2.2 0.55 Effectiveness 25% Less than effective 1.0 0.25 Efficiency 25% Less than efficient 1.2 0.30 Less than likely Sustainability 25% 1.8 0.45 sustainable Overall rating Partly successful 1.55

Port Facilities

Weight in Terms of Project Cost: 95.8% Rating Weighted Criterion Weight Assessment Value Rating Relevance 25% Relevant 2 0.50 Effectiveness 25% Less effective 1 0.25 Efficiency 25% Efficient 2 0.50 Sustainability 25% Likely sustainable 2 0.50 Overall rating Successful 1.75

Resettlement and Livelihood Components

Weight in Terms of Project Cost: 4.0% Rating Weighted Criterion Weight Assessment Value Rating Relevance 25% Highly relevant 3 0.75 Effectiveness 25% Less than effective 1 0.25 Efficiency 25% Less than efficient 1 0.25 Sustainability 25% Unlikely sustainable 0 0.00 Overall rating Partly successful 1.25

HIV/AIDS Component

Weight in Terms of Project Cost: 0.2% Rating Weighted Criterion Weight Assessment Value Rating Relevance 25% Highly relevant 3 0.75 Effectiveness 25% Less than effective 1 0.25 Efficiency 25% Less than efficient 1 0.25 Less than likely Sustainability 25% 1 0.25 sustainable Overall rating Partly successful 1.50

Notes: Highly successful: Overall weighted average is greater than or equal to 2.7. Successful: Overall weighted average is greater than or equal to 1.6 and less than 2.7. Partly successful: Overall weighted average is greater than or equal to 0.8 and less than 1.6.

Supplementary Appendix A 47

Traffic Forecast and Economic Analysis

A. Traffic Forecast 1. The 2012 report and recommendation of the President (RRP) revised the 2007 RRP’s traffic projection upward because actual traffic in 2011 was 10% higher than projected in the 2007. The economy of Papua New Guinea (PNG) also grew faster than expected, mainly due to the ongoing LNG development. On that basis the 2012 RRP assumed steady average annual traffic growth of 6% over the evaluation period compared to the 2007 RRP’s assumptions of 4% until 2011 and 3% thereafter. The economy slowed in 2011 when the LNG project was completed but the benefits of its revenues had not yet entered the economy. Actual traffic has declined since 2012, and in 2015 (the starting point for the project completion report [PCR] projection) was about 23% less than projected in the 2012 RRP. In the past, periods of very volatile traffic movements occurred independent from gross domestic product growth. The long- term (1969–2015) elasticity of traffic growth vs. gross domestic product growth is around 1.5, whereas the short-term (2009–2015) elasticity is around 0.6. PNG’s economic prospects are now judged to be less buoyant than at re-appraisal, with growth rates now estimated at 4.3% for 2016 and 2.4% for 2017.26 It was therefore considered prudent to reduce the traffic growth projection from 6% in the reappraisal to 5%. This widens the gap in the traffic projections (Figure SA.A.1). Lower traffic also implies that expanding the port was less urgent than originally thought.

Figure SA.A.1: Traffic Projections—Report and Recommendation of the President Versus the Project Completion Report

PCR = project completion report, RRP = report and recommendation of the President, rt = revenue ton.

B. Economic Analysis 2. The economic internal rate of return (EIRR) was reevaluated using the same basic approach applied in the appraisals for the 2007 and 2012 RRPs—namely the with- and without- project comparison—by (I identifying savings from faster ship turnarounds and (ii) assessing the

26 ADB. 2016. Asian Development Outlook. Manila.

48 Supplementary Appendix A economic value of the otherwise suppressed traffic made possible by increasing the port’s capacity through the project. As the steps leading to the figures in both appraisals could not be traced due to a lack of documentation, the evaluation model had to be recreated, making it difficult to compare the input parameters one on one. 3. Lighterage has not been considered a realistic option, since no place along the wharf or coastline near the port can accommodate such operations, even as a short stop-gap measure. To date, no lighterage operation has taken place at Lae. 4. The actual investment cost had been brought to 2016 price levels in US dollars, cleared of taxes and economic adjustments of local cost have been based on parameters provided in the Haskoning feasibility study (SERF = 1.0; SWR for unskilled labor = 0.8). Like in the RRPs, 50% of the dredging cost was deducted, as subsequent phases will benefit equally from this component. 27 However, this requires that these costs be included in the evaluation of subsequent phases.28 5. Providing additional berthing space decreases ship turnaround time due to lower waiting times. Based on projected traffic volumes and observed ship and consignment sizes, the berth- meter requirements are compared with the berth-meters available for the with- and without- project cases. 6. Without the project, the port would reach its full (optimal) capacity by around 2020 (Figure SA.2). 29 Figure SA.A.2: Port Capacity Without Project

Source: Mission estimates.

27 The PNGPCL has started planning for Phase 2 of the project by extending the new wharf by another 180 m, deepening the basin by 1 m, and by extending the basin to the north. 28 A sensitivity calculation including the total dredging cost has also been carried out. 29 The optimal capacity berth occupancy ratio (BOR) is defined as the capacity at which the waiting-time/service-time ratio reaches 30%; this is a standard guiding rule for port planning. The optimal BOR is 60% for the coastal facilities (two berths), 50% for the old overseas facilities (three berths), and 30% for the TBW (one berth). These figures are taken from a standard waiting-time/service-time table published by the United Nations Conference on Trade and Development. Supplementary Appendix A 49

7. It is assumed that the new tidal basin wharf (TBW) will be preferred for overseas container traffic, relieving the old facilities from congestion. From the start, the TBW will operate at its optimal capacity as its modern layout will facilitate better cargo handling, further improving ship turnaround times. With most of the handling-efficient container traffic diverted to the TBW, the old overseas facilities will initially experience a slight reduction in optimal capacity as break- bulk requires longer times at berth, which is again increasing in line with the increasing portion of the containers. After expansion, the entire port (both the old port and TBW) will reach optimal capacity in 2020, about the same time as the coastal facilities (Figure SA.A.3 below).

Figure SA.A.3: Port Capacity with Project

Source: Mission estimates.

8. Shorter turnaround translates into ship-time and inventory savings, which have been established by multiplying the saved ship-days by the daily ship-cost and the average overseas cargo unit value handled at the port. The evaluation parameters for port operational savings used in the evaluation are based on data contained in the feasibility study and own findings of the mission, and are listed in Table SA.A.1.

50 Supplementary Appendix A

Table SA.A.4: Evaluation Parameters

m = meter, rt = revenue ton.

9. The expansion also enables the port to accommodate additional traffic (Figure SA.A.1). As no alternative landing facilities are available to and from where this cargo could be transshipped, this impacts PNG’s economic performance. The RRPs captured the benefits from the additional traffic by listing “productivity gains on exports from coastal areas and on items shipped to coastal areas” and “additional shipping value-added”. The PCR mission was unable to locate any source or documentation as to how these benefits have been determined. As an alternative, the mission replaced those benefits with an assessment of the value added from additional exports made possible by the port expansion, excluding the export revenues from minerals and oils, as these commodities are not handled at Lae Port. The value added per revenue ton of exports through Lae Port has been assessed at $720 (Table SA.A.2).

Supplementary Appendix A 51

Table SA.A.5: Value Added for Export Cargo through Lae Port

PNG = Papua New Guinea, rt = revenue ton.

10. Based on these assumptions, the project’s EIRR is assessed at 13%, which decreases to 12% if all dredging costs are attributed to Phase 1.30 This result is primarily derived from the benefits from the value added from the additional exports made possible by the expansion. This is not unusual, as the main purpose of a port is to facilitate exports and imports. The net present values and EIRRs in the 2007 RRP and PCR are negative if one considers only the port operational benefits yielded by the high initial cost of the new tidal basin with its dredging and reclamation costs. The low proportion of the operational benefits in the PCR resulted from the lower traffic and the fact that the old port was not operating at the congestion levels assumed in the RRPs. The higher EIRR estimated in the 2012 RRP as compared to the 2007 RRP is explained by the lower kina/US dollar exchange rate in 2007. This resulted in a higher investment cost (in kina) for the project in 2007, despite the subsequent cost increase and need for additional financing, as well as higher traffic projections.31

30 The EIRR table is included in the PRC as a separate appendix. 31 The PCR mission was not able to locate the spreadsheets of the EIRR evaluation in the 2012 RRP.

52 Supplementary Appendix A

Table SA.A.6: Net Present Value and Economic Internal Rate of Return Comparison— Reports and Recommendations of the President versus Project Completion Reports

EIRR = economic internal rate of return, NPV = net present value, PCR = project completion report, RRP = report and recommendation of the President. Supplementary Appendix B 53

Financial Evaluation

1. A with- and without-project comparison has been carried out to assess the project’s financial viability. 2. The project cost excludes 50% of the dredging costs, as these cover advance dredging for future expansions and expenditures for the safeguard components, and have been adjusted to 2016 price levels based on the actual disbursement. Additional costs are incremental maintenance and operations and staff, utilities, and insurance costs, which are estimated to account for 2% of the investment costs. A residual value of 50% has been assumed at the end of the 25-year evaluation period. 3. The project facilitates additional traffic at Lae Port in Papua New Guinea, represented by the optimal berth occupancy of the tidal basin wharf (TBW),32 which is the base for additional revenue. This increased from 155,000 revenue tons (rt) to around 920,000 rt, which is the TBW’s optimum cargo capacity (Figure SA.B). The revenue items from this traffic are wharfage (K33/rt, 2016 tariff schedule), storage (35% of wharfage on average), and pilotage (7% of wharfage on average).33 Another expected source of income is the port-related industries that will establish businesses on the area reclaimed under the project and set up for that purpose. About 20 hectares are available from Phase 1I of the project. The evaluation applied a conservative rate of K200/m2, which is currently being charged in other areas of the port.

Figure SA.B.1: Port Capacity Without Project Versus Traffic

32 The optimal berth occupancy ratio has been determined as 30% when the service-time/waiting-time ratio reaches 0.30. This is a generally accepted guiding rule. 33 These percentages are net values and are taken from the available income statements.

54 Supplementary Appendix B

4. From an operational viewpoint, foreign container cargo will be immediately directed to the new, more efficient TBW, which will soon operate at optimal capacity while relieving the old overseas berths from most of the break-bulk cargo. 5. Stevedoring and other cargo-related income will accrue to the concessionaire selected to operate the terminal, for which the Papua New Guinea Ports Corporation will collect a cost- covering concession fee. The selection of the concessionaire is ongoing and the expected concession fee has not been disclosed. 6. To ensure that the financial internal rate of return (FIRR) equals the weighted average cost of capital of 3.2%, the evaluation includes a real wharfage tariff increase of K6.6 (20%) to be charged on all overseas cargo (not only incremental traffic). This is justified, as the overseas cargo handled at the old overseas berth also benefits from lower congestion. This increase will be mitigated when the income from the concession fee is known. Overall, this increase is moderate given the moderate rates for wharfage at Lae Port compared with that of other comparable ports in the region.

Table SA.B.2: Financial Internal Rate of Return Calculation (K, 2016 prices)

FIRR = financial internal rate of return, NPV = net present value, rt = revenue ton, WAC = weighted average cost of capital.

7. For each year, a 30% corporate tax will be charged on positive cash flow. 8. Table SA.B summarizes the assessment based on the assumptions listed above. The after-tax FIRR equals the weighted average cost of capital (the tariff increase has been set to achieve that). The sensitivity analysis showed that, without the tariff increase, the FIRR decreases to 0.2%. As indicated, the tariff increase will be much lower when the concession fees are included.