ASIAN DEVELOPMENT BANK RRP: BAN 36105 REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE BOARD OF DIRECTORS ON A PROPOSED LOAN AND TECHNICAL ASSISTANCE GRANT TO THE PEOPLE’S REPUBLIC OF BANGLADESH FOR THE CHITTAGONG PORT TRADE FACILITATION PROJECT November 2004 CURRENCY EQUIVALENTS (as of 1 November 2004) Currency Unit – taka (Tk) Tk1.00 = $0.0169 $1.00 = Tk59.30 The exchange rate of the taka is determined under a floating exchange rate system. In this report, a rate of $1.00 = Tk58.0 was used, the rate prevailing at the time of completion of the project preparatory technical assistance. ABBREVIATIONS ADB – Asian Development Bank CHC – Customs House of Chittagong CCT – Chittagong container terminal CFS – container freight station CPA – Chittagong Port Authority CTMS – container terminal management system EA – executing agency EIRR – economic internal rate of return FCL – full container load ICB – international competitive bidding ICD – inland container depot IEE – initial environmental examination IT – information technology LCL – less than container load LIBOR – London interbank offered rate MARPOL – Marine Pollution and Prevention Convention MIS – management information system MOC – Ministry of Communications NMCT – New Mooring container terminal PEIP – port efficiency improvement plan PSIC – port service improvement committee RHD – Roads and Highways Department TA – technical assistance TOR – terms of reference US – United States VAT – value-added tax WEIGHTS AND MEASURES km – kilometer m – meter ppm – parts per million TEU – twenty-foot equivalent unit NOTES (i) The fiscal year (FY) of the Government ends on 30 June. (ii) In this report, "$" refers to US dollars. This report was prepared by a team comprising P. N. Seneviratne (team leader), K. Ahmad, A. Faruque, F. Garcia, T. Nakazaki, D. S. Pyo, and D. Utami. CONTENTS Page LOAN AND PROJECT SUMMARY iii MAP vii I. THE PROPOSAL 1 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1 A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 3 III. THE PROPOSED PROJECT 5 A. Objective 5 B. Components and Outputs 5 C. Special Features 7 D. Cost Estimates 8 E. Financing Plan 10 F. Implementation Arrangements 10 IV. TECHNICAL ASSISTANCE 13 V. PROJECT BENEFITS, IMPACTS, AND RISKS 14 A. Economic Benefits 14 B. Social Benefits 14 C. Financial Benefits 15 D. Risks 15 VI. ASSURANCES 16 VII. RECOMMENDATION 18 APPENDIXES 1. Project Framework 19 2. Transport Sector And Port Subsector Analysis 22 3. External Assistance to the Port Sector 33 4. Port Efficiency Improvement Plan 35 5. Summary Initial Environmental Examination 37 6. Summary Cost Estimates and Financing Plan by Project Components 41 7. Implementation Schedule 46 8. Indicative Contract Packages 47 9. Project Performance Management System 48 10. Economic and Financial Analysis 50 11. Summary Poverty Reduction and Social Strategy 56 ii . SUPPLEMENTARY APPENDIXES (available on request) A. Short Resettlement Plan B. Outline Terms of Reference for Consulting Services for Detailed Design and Supervision of Construction of Port Service Road, Oil Waste Receptor, and Oil Waste Separation Plant and Reconstruction/Upgrading of Internal Roads C. Outline Terms of Reference for Consulting Services for Supervision of Computerization of Port of Chittagong D. Outline Terms of Reference for Consulting Services for Upgrading Computer Systems of Customs House of Chittagong E. Outline Terms of Reference for Consulting Services for Supervising Supply and Installation Contract of Scanners in Customs House of Chittagong F. Outline Terms of Reference for Consulting Services for Detailed Design and Construction Supervision of Connector Road G. Outline Terms of Reference for Consulting Services for Improving the Efficiency of Transport Logistics in the Dhaka-Chittagong Corridor H. Outline Terms of Reference for Consulting Services for Improving the Operational Efficiency of the Port of Chittagong I. Economic and Financial Data iii LOAN AND PROJECT SUMMARY Borrower Bangladesh Classification Targeting classification: General Intervention Sector: Transport and communication Subsectors: Ports, waterways, and shipping; and roads and highways Theme: Sustainable economic growth Subthemes: Fostering physical infrastructure development; and addressing information and communication technology issues Environment Category B Assessment An initial environmental examination was undertaken and a summary is provided in Appendix 5. Project Description The proposed Project comprises three main components; Chittagong Port Authority (CPA) component, Customs House of Chittagong (CHC) component and Roads and Highways Department (RHD) component. The CPA component comprises installation of a computerized container terminal management system (CTMS), measures to improve port area water quality, and improvements to the intra-port roads and bridges. The CHC component comprises activation of ASYCUDA++ (an automated system for customs data management) with connections to the CTMS, and installation of container scanners needed to meet new security initiatives. The RHD component is construction of an access-controlled link (connector road) from Chittagong port access road to the two container terminals at the port of Chittagong. Rationale Unless immediate measures are taken to lower the country’s shipping and port costs, which are twice as high as those in some neighboring country ports, the trade competitiveness of Bangladesh will rapidly diminish. A fundamental source of high costs at the port of Chittagong is container yard congestion, due partly to paper-based terminal management and document processing, and limited road access. Additionally, the customs clearance process requires documents to be manually moved through several stages requiring 48 endorsements, thereby lowering port capacity and encouraging corruption. Accidental spillages of oil and wastewater containing oil from ships occur frequently in the port area. Management of such incidents according to the International Convention for the Prevention of Pollution from Ships (MARPOL 73/78) requires an immediate investment in spill cleanup equipment and an oil-waste treatment facility. Likewise, the port needs to meet national and iv international security standards, which require the installation of container scanners. Objective The Project will increase the capacity of the container terminal at the port of Chittagong and enable international port security and environmental standards to be met. In the medium term, the Project will lead to lower shipping and port charges, which will foster more international trade. Cost Estimates The total cost of the Project is estimated at $41.3 million equivalent. This figure includes value-added tax, cost of consulting services, physical and price contingencies on all base costs, capitalized interest, and commitment fees charged by Asian Development Bank (ADB) during implementation. Financing Plan Foreign Local Source/ Total Percent of Exchange Currency Component Cost Project Cost ($ million) ($ million) ADB 30.6 0.0 30.6 74.1 Government CPA Component 0.0 2.7 2.7 6.5 CHC Component 0.0 0.6 0.6 1.5 RHD Component 0.0 7.4 7.4 17.9 Total 30.6 10.7 41.3 100.0 ADB - Asian Development Bank; CHC - Customs House of Chittagong; CPA - Chittagong Port Authority; RHD – Roads and Highways Department Note: CHC and RHD components will be financed through government budgetary allocations. CPA component will be financed out of its own funds. Source: ADB estimates. Loan Amount and A loan of 30,600,000 from ADB’s ordinary capital resources will Terms be provided under ADB’s LIBOR-based lending facility. The loan will have a 25-year term, including a grace period of 5 years, an interest rate determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility, a commitment charge of 0.75% per annum, and such other terms and conditions set forth in the draft Loan Agreement. Accordingly, ADB will finance all foreign exchange costs, amounting to 74.1% of the total project cost. The Government will finance all local currency costs, which amount to 25.9% of the total project cost. ADB loan proceeds will be made available by the Government to RHD and CHC through budgetary allocations. Amounts allocated to CPA will be subject to repayment to the Government under a subsidiary loan agreement with terms and conditions acceptable to ADB. Period of Utilization 1 July 2005 to 1 January 2009 Estimated Project 1 July 2008 Completion Date v Executing Agency CPA, CHC, and RHD will serve as the executing agencies (EAs) for the respective components of the Project. Implementation Each EA will establish a project implementation unit to administer Arrangements the component under its jurisdiction. A project coordination committee chaired by the chairperson, CPA, comprising commissioner, CHC and additional chief engineer, RHD, will serve as a channel of communication among the three EAs. The committee will meet every 3 months, or more often if necessary, to review progress and resolve outstanding issues pertaining to the Project. Procurement All procurement to be financed under the ADB loan will be carried out in accordance with ADB’s Guidelines for Procurement. Contracts valued in excess of $500,000 for goods and $2.0 million for civil works will be procured through international competitive bidding (ICB). Procurement of civil works in the RHD component, and the supply of goods for computerization, environmental protection, and security will follow ICB procedures