ASIAN DEVELOPMENT BANK
PROJECT PERFORMANCE AUDIT REPORT
ON THE
SECOND MALÉ PORT PROJECT (Loan 1226-MLD[SF])
IN
THE MALDIVES
October 2000
PPA: MLD 24342
CURRENCY EQUIVALENTS Currency Unit –
Rf1.00 $1.00
= =
At Appraisal (February 1993) $0.096 Rf10.445
Rufiyaa (Rf)
At Project Completion (July 1998) $0.085 Rf11.77
At Operations Evaluation (March 2000) $0.086 Rf11.55
ABBREVIATIONS ADB EIRR FIRR GDP m MCPW MFA MPA OEM PCR SDR TA teu
− − − − − − − − − − − − −
Asian Development Bank economic internal rate of return financial internal rate of return gross domestic product meter Ministry of Construction and Public Works Ministry of Foreign Affairs Maldives Ports Authority Operations Evaluation Mission project completion report special drawing rights technical assistance twenty-foot equivalent unit
NOTES (i)
The fiscal year (FY) of the Government and the Maldives Ports Authority ends on 31 December.
iv (ii)
(ii) In this report, “$” refers to US dollars. Operations Evaluation Office, PE-554
v
CONTENTS Page BASIC DATA
ii
EXECUTIVE SUMMARY
iii
MAP
v
I.
II.
III.
IV.
BACKGROUND
1
A. B. C. D. E. F.
1 1 1 2 2 2
PLANNING AND IMPLEMENTATION PERFORMANCE
3
A. B. C. D.
3 4 4 5
VI.
Formulation and Design Cost and Scheduling Consultant Performance, Procurement, and Construction Organization and Management
ACHIEVEMENT OF PROJECT PURPOSE
5
A. B. C.
5 6 8
Operational Performance Performance of the Operating Entity Sustainability
ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS A. B. C.
V.
Rationale Formulation Purpose and Outputs Cost, Financing, and Executing Arrangements Completion and Self-Evaluation Operations Evaluation
Socioeconomic Impacts Environmental Impacts Impacts on Institutions and Policy
9 9 10 10
OVERALL ASSESSMENT
11
A. B. C. D. E. F. G.
11 12 12 12 13 13 13
Relevance Efficacy Efficiency Sustainability Institutional Development and Other Impacts Overall Project Rating Assessment of ADB and Borrower Performance
ISSUES, LESSONS, AND FOLLOW-UP ACTIONS
14
vi A. B. C. APPENDIXES
Key Issues for the Future Lessons Identified Follow-Up Actions
14 14 15 16
vii BASIC DATA Second Malé Port Project (Loan 1226-MLD[SF]) PROJECT PREPARATION/INSTITUTION BUILDING Type
Amount
Approval Date
PPTA A&O
$250,000 $200,000
13 Jan 1992 1 Apr 1993
TA No.
TA Name 1656 1865
Second Malé Port Institutional Strengthening of Ministry of Public Works and Labor
KEY PROJECT DATA ($ million equivalent) Total Project Cost Foreign Exchange Cost Local Currency Cost ADB Financed Borrower Financed ADB Loan Amount/Utilization ADB Loan Amount/Cancellation
the
As per ADB Loan Documents 10.41 8.80 1.61 8.80 1.61
1
KEY DATES Appraisal Loan Negotiations Board Approval Loan Agreement Loan Effectiveness Project Completion Loan Closing Months (effectiveness to completion)
Actual 10.20 7.85 2.35 7.85 2.35 7.85 1.26
Expected Dec 1992 End Feb 1993 End Mar 1993
Actual 2-9 Dec 1992 1-4 Mar 1993 1 Apr 1993 6 May 1993 12 Aug 1993 30 Apr 1997 12 Mar 1998 45
4 Aug 1993 30 Apr 1996 31 Oct 1996 33
KEY PERFORMANCE INDICATORS (%)
PCR
PPAR
Appraisal Financial Internal Rate of Return Economic Internal Rate of Return
12 25
18 22
BORROWER
Republic of the Maldives
EXECUTING AGENCY
Ministry of Foreign Affairs
IMPLEMENTING AGENCY
Ministry of Construction and Public Works
23 27
MISSION DATA Type of Mission Fact-Finding Appraisal Project Administration Review
Missions (no.) 1 1
Person-Days (no.) 30 28
3
17
A&O = advisory and operational, ADB = Asian Development Bank, PCR = project completion report, PPAR = project performance audit report, PPTA = project preparatory technical assistance, TA = technical assistance. 1
ADB’s loan amount was approved in special drawing right (SDR) equivalents for SDR6.395 million.
viii Project Completion Operations Evaluation
1 1
36 7
ix
EXECUTIVE SUMMARY The Project aimed to increase port capacity at Malé for foreign shipping, and was included under the Government’s Eighth Five-Year Plan (1991-1995) for sustaining economic growth. The project scope included (i) construction of an alongside berth to service vessels up to 6,000 deadweight tons; (ii) ancillary works covering pavement, pier reclamation, utility extension, seawall rehabilitation, and construction of a marine workshop; (iii) provision of cargohandling equipment, port service craft, workshop tools, and navigation aids; and (iv) consulting services for detailed design, preparation of tender documents, implementation administration, institutional strengthening of the Maldives Ports Authority (MPA), construction supervision, and a planning study. In conjunction with the Asian Development Bank’s (ADB) loan, additional consulting services were included under technical assistance (TA) to strengthen project management capabilities of the Ministry of Construction and Public Works (MCPW). ADB’s Appraisal Mission was completed in December 1992, and ADB’s loan of SDR6.395 million ($8.8 million equivalent) and TA for the Project were approved on 1 April 1993.2 The Borrower was the Republic of Maldives. The Ministry of Foreign Affairs was the appointed Executing Agency, and MCPW, with responsibility and experience in public works construction covering harbors, seawalls, and roadworks, was designated the Implementing Agency. MPA was the operating authority with responsibility and control over Malé Port operations. The Project was implemented with an expansion in the project scope to extend construction of the alongside berth from 70 meters to 101 meters, and to purchase a 45-ton stacker and additional 25-ton forklift. The overall Project was completed in May 1997, nearly 12 months later than envisaged at appraisal. The final project cost of $10.2 million was slightly less than the appraisal estimate of $10.4 million. ADB’s loan disbursements were $0.95 million less than the amount approved. The attached TA financing amounted to $183,992 or 92 percent of the total amount approved. Overall financing by ADB represented 77 percent of the total project cost. The Project’s evaluation results provide strong support for the Project’s overall success. The project rationale to increase port capacity and help sustain economic growth proved relevant with cargo throughput double the appraisal forecasts. The efficacy of project outputs and operational targets measured against appraisal expectations was achieved except for delays in completion. The economic internal rate of return for the Project of 26.8 percent attests to the operational efficiency achievements and economic viability of the Project. The financial internal rate of return for the Project is a high 23.3 percent and compares favorably with the weighted average real cost of capital of about 11 percent. The overall financial performance of MPA also proved stronger than projected, and development impacts for institutional strengthening of MPA and MCPW were largely achieved. The socioeconomic benefits were largely in the form of avoided congestion costs that would deter investment in the Maldives and lessen the growth of employment opportunities. Improved working conditions for port labor and opportunities for higher paid employment in accounting, computer, and management services were also beneficial outcomes. 2
Loan 1226-MLD(SF): Second Malé Port Project, for SDR6.395 million; and TA 1865-MLD: Institutional Strengthening of the Ministry of Public Works and Labor, for $200,000, approved on 1 April 1993.
x
The less than satisfactory efficacy aspects of the Project include implementation delays in appointing consultants and awarding civil contracts, and the continuing weaknesses in MPA’s capacity to (i) meet reporting covenants, (ii) provide timely annual reports, (iii) operate effective information and accounting systems, and (iv) take responsibility for planning future port operations. ADB’s covenanted time-bound action plan for MPA to carry out a review of privatizing operations was also ineffective. These weaknesses detract from the overall effectiveness and achievements of the Project—which is rated successful. The single key issue to arise from this operations evaluation concerns the need to overcome political constraints against the deeper privatization of MPA’s operations. The key lesson from the Project is the shortage of qualified and experienced staff in MPA to operate the computer-based accounting and information systems, and take responsibility for planning and identifying expansion requirements as intended under MPA’s Charter. Staff requirements for institutional strengthening of MPA should have been more comprehensively addressed under the Project. Apart from loan administration, no follow-up action is recommended for ADB. Follow-up actions aimed at addressing observed weakness in organization and planning for port development requirements are recommended. The Government should, as soon as possible, (i) clarify and strengthen the organization responsible for planning and identifying expansion requirements at Malé Port, (ii) develop a master transport plan that identifies port expansion requirements consistent with meeting least-cost development considerations for Malé Port and the outer islands, (iii) initiate an immediate feasibility study to extend the wharf area at Malé Port to two berths, and (iv) initiate a study for privatizing the management and cargo-handling operations of MPA by way of a lease.
I.
A.
BACKGROUND
Rationale
1. The Project was included as a priority under the Government’s Eighth Five-Year Plan (1991-1995) for sustaining economic growth. The Government’s strategy was to continue to encourage expansion of the tourist and fishing industries, and remove congestion constraints for the transfer of freight. The Asian Development Bank’s (ADB) strategy for development assistance to the Maldives at the time of appraisal was to continue assistance with infrastructure over the medium term. ADB’s support for the Project was of particular relevance given the high economic growth of the 1980s, the lack of wharf facilities for foreign shipping, the increasing cost of freight as reflected in an average turnaround time of 18.5 days for the loading and unloading of vessels by lighter system, and the absence of foreign investment funding. B.
Formulation
2. The Project was formulated as a follow-on from Loan 911,1 which addressed congestion constraints through rehabilitation improvements and construction of a separate harbor for interisland vessels.2 Consideration for construction of an alongside berth under Loan 911 was deferred pending findings of a site selection study. Technical assistance (TA) for a feasibility study of the Project, including site selection, was approved in January 1992.3 Fact-finding for the Project was carried out in May 1992, and the Appraisal Mission was completed in December 1992. ADB’s loan of SDR6.395 million ($8.8 million equivalent) and TA for the Project were approved on 1 April 1993.4 The Borrower was the Republic of Maldives. C.
Purpose and Outputs
3. The stated project objective5 was to improve foreign cargo handling and enhance port productivity. The project scope included (i) construction of an alongside berth of 70 meters (m) in length to service vessels up to 6,000 deadweight tons; (ii) ancillary works covering pavement, pier reclamation, utility extension, seawall rehabilitation, and construction of a marine workshop; (iii) provision of cargo-handling equipment, port service craft, workshop tools, and navigation 1
2
3 4
5
Loan 911-MLD: Malé Port Development Project, for SDR4.968 million, approved on 20 October 1988. The project scope included reclaiming land for the future construction of an alongside berth, increasing the port storage area, and constructing cargo sheds. PCR: MLD 20069: Malé Port Development Project, March 1993, rated the Project generally successful. The need to tailor technical assistance for institutional strengthening to the absorptive capacity of the institution (Maldives Ports Authority) and available human resources was identified as the only lesson learned. Postevaluation in August 1994 reconfirmed the project completion report’s assessment rating, and identified the advantages of allowing flexibility in the design of a project to respond to changing circumstances. TA 1656-MLD: Second Malé Port Project, for $250,000, approved on 13 January 1992. Loan 1226-MLD(SF): Second Malé Port Project, for SDR6.395 million; and the attached TA 1865-MLD: Institutional Strengthening of the Ministry of Public Works and Labor, for $200,000, approved on 1 April 1993. Hereafter, the meaning of objective also encompasses the achievement of project and sector goals and intended developments from the Project.
2 aids; and (iv) consulting services for detailed design, preparation of tender documents, implementation administration, institutional strengthening of the Maldives Ports Authority (MPA), construction supervision, and a container storage and transportation planning study. In conjunction with ADB’s loan, TA (para. 2) was provided to strengthen the operation and management capabilities of the Ministry of Public Works and Labor.6 This was to be achieved by providing advice on organization, management of maintenance, and procurement including preparation of tender documents and bid evaluation, and overseas training for the Ministry of Construction and Public Works (MCPW) staff.7 4. The alongside berth was expected to reduce dependency on the existing lighter system for cargo loading and unloading, reduce ship turnaround time, and facilitate cargo transfers by container. The cargo-handling equipment, port service craft, and other facilities were expected to supplement MPA’s working capital and improve the efficiency of cargo transfer from the wharf and basin apron to storage areas. The institutional measures from consulting services specified under the project scope and advisory TA were expected to strengthen project management capabilities of MPA and MCPW. Appendix 1 provides details of the project scope and targets. D.
Cost, Financing, and Executing Arrangements
5. Details of expected project costs, TA costs, and sources of financing at appraisal are presented under basic data (page ii). ADB’s loan of $8.8 million equivalent to the Government was drawn from ADB’s Special Funds resources to cover the entire foreign exchange cost of the Project, including service charges on ADB’s loan during construction. The Ministry of Foreign Affairs (MFA) was the Executing Agency; and MCPW, with responsibility and experience in public works construction covering harbors, seawalls, and roadworks, was designated the Implementing Agency. E.
Completion and Self-Evaluation
6. ADB’s project completion report (PCR) circulated in July 1998 rated the Project generally successful as the Project (i) was completed below the appraised cost estimate, (ii) met its basic objectives, and (iii) was financially and economically viable.8 The TA for institutional strengthening of MCPW was not given a rating assessment, but from the stated favorable points of completion and outcomes, a generally successful rating is inferred. Based on the information covering implementation and operations of Malé Port to year-end 1996, the Operations Evaluation Office is of the opinion that the PCR assessment of the Project was realistic. Recommendations from the PCR for follow-up included (i) reducing the free-parking period for containers from 10 days to 7 days, (ii) converting the existing transit shed into a container freight station, and (iii) making pilotage compulsory to ensure the safe passage of vessels in the port.
6
8
Along with initiatives for strengthening the Ministry of Public Works and Labor in 1996, the Government renamed the Ministry of Public Works and Labor the Ministry of Construction and Public Works. 7 As a result of savings on the cost of construction and depreciation of the dollar against the Borrower’s loan in special drawing rights, ADB approved an expansion in the project scope to extend construction of the alongside berth to 101 m, and to purchase a 45-ton reach stacker and an additional 25-ton forklift. The PCR estimated a financial rate of return of 18 percent and economic rate of return of 22 percent. The corresponding estimates at appraisal were 12.3 percent and 24.6 percent.
3 Other recommendations included making investments to augment service facilities for electric power supply, telephone connection, and fresh water outlets; and publishing an annual report. F.
Operations Evaluation
7. This project performance audit report reviews the findings of the PCR and presents the findings of the Operations Evaluation Mission (OEM) that visited the Project from 26-30 March 2000. Special attention is given to assessing the Project’s relevance, efficacy, efficiency, and sustainability.9 The report is based on the findings of the OEM after three years of operational data; a review of the PCR, the appraisal report, and material in ADB files; discussions with ADB staff, senior officials of MFA, other government agencies, and representatives of the shipping agencies; and interviews with beneficiaries. Copies of the draft project performance audit report were provided to the Government, MCPW, MFA, MPA, and ADB staff concerned for review. Their comments were considered in the preparation of this report.
II.
A.
PLANNING AND IMPLEMENTATION PERFORMANCE
Formulation and Design
8. At appraisal, MPA was in the process of taking responsibility for operational management of Malé Commercial Port.10 MCPW 11 was responsible for all public works including harbors, jetties, and seawalls. With the enactment of its Charter, MPA had the operational, administrative, and financial autonomy to operate on a commercial basis. However, as an institution, MPA was lacking operational experience and had no guidelines. For this purpose, in January 1993 ADB approved an advisory TA, Second Maldives Ports Authority,12 to draft rules to regulate the movement of cargo and shipping and establish administrative procedures consistent with the provisions of MPA’s Charter. Further institutional strengthening was agreed under the Project as a series of time-bound actions beginning with issuing rules and regulations under MPA’s Charter, and appointing a harbor master and manager of the stevedoring division; monitoring and meeting performance achievement targets; and reviewing operations for tariff setting, container storage and cargo handling, and options for privatizing cargo-handling activities. This approach appears to have worked satisfactorily in ensuring the effective management of the port’s operations. However, little progress was made under the agreed action plan to develop plans for privatizing MPA’s stevedoring and cargo-handling operations.
9
As relates to the Project’s rationale, formulation, achievement of purpose, operating performance, and institutional strengthening of MPA, effectiveness of TA for institutional strengthening of MCPW, and follow-up progress on the PCR’s recommendations. 10 In 1988, MPA was entrusted with responsibility for all stevedoring and cargo handling, and ordered to function as a statutory commercial unit. MPA’s Charter was drafted under ADB TA 1371-MLD: Maldives Ports Authority, for $100,000, approved on 11 September 1990, and approved by the Government in March 1994. 11 Then the Ministry of Public Works and Labor. 12 TA 1841-MLD: Second Maldives Ports Authority Project, for $90,000, approved on 8 January 1993.
4 9. TA for a feasibility study of the Project (para. 2) identified the need for an alongside berth as an alternative to expanding and improving the then existing lighter system for loading and unloading foreign vessels. The study also verified the limitations on existing cargo equipment and addressed detailed engineering requirements that ensured design parameters, equipment, and contract requirements were reasonably certain. Construction of the alongside berth was completed for the feasibility evaluation with no unaccounted for difficulties. No environmental risk was expected, and MPA’s financial viability was expected to remain satisfactory with projected traffic growth and tariff increases. Concern for possible delays in implementation was allayed by extending the responsibilities of consulting services to cover both project management and supervision, and approving advance recruitment of the consultants. 10. Except for delays in project completion (paras. 12-14) and an extension in project scope (footnote 7), project design as envisaged at appraisal was closely followed. Efficacy for expanding cargo throughput proved appropriate even if not part of an overall master plan for development.13 However, the project design elements for institutional strengthening of MPA and MCPW were implemented with significant delays in appointing consultants, and without serious support for following through on commitments to transfer autonomy responsibilities under MPA’s Charter. There was also less than full compliance with the Project’s covenanted time-bound action plan to improve container handling efficiencies. The Project’s financial covenants to ensure MPA’s financial viability was maintained proved inappropriate for ensuring an adjustment of port charges and tariffs sufficient to meet long-term expansion requirements from selfgeneration sources. These weaknesses call into question the appropriateness of using covenants to achieve institutional strengthening objectives. Notwithstanding the ineffectiveness of some covenants, the overall formulation and design for the Project is considered to have worked satisfactorily. B.
Cost and Scheduling
11. The actual project cost of $10.2 million equivalent was below the appraisal estimate of $10.4 million. The foreign exchange cost of $7.85 million equivalent, less $0.11 million for borrower service charges, was met from the proceeds of ADB’s loan. The local currency cost of $2.345 million was met from MPA’s internal cash generation, and an undisbursed loan amount of SDR936,897 ($0.95 million equivalent) was canceled. The disaggregated project costs for foreign expenditure on civil works, equipment, and consulting services were less than the appraisal estimates, but higher for local expenditure. The attached TAs to cover consultants’ fees and expenses amounted to $183,992. ADB’s loan represented 77 percent of the total project cost, and financing by MPA from self-generated sources represented 23 percent. 12. The Project was deemed complete in May 1997, nearly 12 months later than envisaged at appraisal. The completion delay resulted in three extensions to the closing date for ADB’s loan from 31 October 1996 to 12 March 1998. A PCR prepared by the Transport and Communications Division (West) was completed and circulated to the Board in July 1998 (para.
13
Port development has largely been an urgent response to growing congestion. ADB loan and TA support, while responsive to the need for implementing port improvements, provided a short-term solution without being part of an overall plan that necessarily meets least-cost development considerations. There are, for example, no plans for earmarking future land requirements that identify when it will be necessary to switch port operations to a different location or that ensure the timely upgrading of cargo-handling systems. These factors point to the need for a critical path management approach to planning and supporting proposals for port development.
5 6). A comparison of the actual implementation schedule with the appraisal schedule is shown in Appendix 2. C.
Consultant Performance, Procurement, and Construction
13. Project implementation with respect to selection and performance of consultants, awarding of contracts, and management by MFA was satisfactory. The three-month delay in appointing consultants resulting from protracted contract negotiations contributed to the overall project completion delay (para. 12). 14. The consultant's input to detailed design and services to the project management office provided a sound basis for satisfactory implementation and subsequent operation of the project facilities. Consulting services to the project management office included preparing bid documents for the procurement and award of civil works contracts. Bid documents were prepared according to ADB’s Guidelines for Procurement, with procurement of the service craft (including tugboat) and cargo-handling equipment carried out on the basis of international competitive bidding and international shipping. No significant difficulties were encountered with ADB’s procurement procedures, and the quality of materials supplied and equipment performance were satisfactory. Because of clarifications required from the two lowest bidders regarding their construction methods, the contract awards were delayed by nearly five months. The quality of civil works, as finally completed, was satisfactory. Summary details of contract awards are provided in the PCR (Appendix 3).
6
D.
Organization and Management
15. Organization and management of the Project was consistent with arrangements envisaged at appraisal and proved satisfactory notwithstanding the delay in appointment of consultants (para. 13). The project management office established under Loan 911 (footnote 1) was retained, and the MFA director of external resources was the appointed project coordinator to act as the liaison between the Government and ADB. 16. ADB provided adequate monitoring during project implementation with three review missions and one project completion review mission. Coordination meetings were held during review missions with MCPW, MFA, MPA, and consultants to solve problems and minimize delays. The decision to appoint consultants with responsibility for full implementation services including preparing tender documents, overseeing bid evaluations, and awarding contracts, in addition to attending to technical aspects of implementation and supervision, was considered appropriate and helpful by MCPW. 17. The Government, MCPW, and MPA’s compliance with loan covenants was satisfactory except for the transfer of powers and duties to MPA arising from provisions of the MPA Charter approved by the Government in March 1994. These include specific responsibilities relating to defining the limits of port and port load areas.14 Noncompliance with this covenant prevented MPA from proceeding with the consultant’s recommended plan under TA 1656 (footnote 3) for relieving congestion of container movements and storage. Important operational covenants for MPA relating to the appointment of key staff, management systems, tariff structure, and achievement of financial targets were complied with.
III.
A.
ACHIEVEMENT OF PROJECT PURPOSE
Operational Performance
18. Operational performance of the Project is assessed in terms of the improvement in ship turnaround times, meeting demand forecasts, capacity utilization, and effectiveness of the Project in relieving congestion constraints. Before the Project, all cargo transferred through the port docks was by barges to and from ships at anchor.15 The introduction of an alongside shipping berth avoided the necessity for double handling between ship and the dock area. Reflecting the least-cost development option, the transfer of cargo was to be handled as a combination of the ship berth and lighter systems. The Project achieved all handling targets envisaged at appraisal (Appendix 1).16
14
Loan Agreement, Schedule 6, Article 6e. Known as the lighter system. 16 Statistical information relating to operational performance are variously available from port statistics collated under MPA’s management information system and MPA accounts. Accounts information after 1999 was generally not available, and some port statistics were discontinued. The approach taken is, therefore, to report the statistics as 15
7
19. Before the Project in 1991, the average turnaround time for foreign cargo vessels was 18.5 days. With completion of the Project in 1997, the average turnaround time was 11.5 days against an expected 13.5 days. 20. Total cargo throughput was 273,000 freight tons in 1991 and was projected, at appraisal, to increase by 7.5 percent per annum to 420,000 freight tons in year 2000, and thereafter at a slower rate of increase to 765,000 tons in 2010.17 Actual cargo throughput reached 855,000 freight tons in 1999, which was more than double the forecast. The increase on projected cargo volumes was significant for both imports and exports. Exports, which were not expected to be more than 5,000 freight tons, reached 173,000 freight tons in 1997. The increase was due to the enhanced competitiveness of fish exports and the advantages of the project berth facility, which ensured temperatures in reefer containers for chilled and frozen fish were kept within allowable limits.18 21. On completion of the Project, the number of berths available for lighterage were reduced from 8 to 5. With cargo growth, maximum handling capacity of the lighter system of around 320,000 freight tons was expected to be reached by the end of 1997. Actual cargo handled by lighter was consistent with the appraised forecasts and equivalent to 312,000 freight tons. The increase in cargo throughput over the projected capacity limit was made possible by increasing the number of stevedore gangs and utilizing the advantages of additional lifting equipment provided under the Project. 22. Containerized cargo as a proportion of total cargo throughput increased from 12 percent in 1991 to 27 percent in 1997. Actual container traffic in terms of twenty-foot equivalent units (teu) grew from 2,690 teu in 1991 to 16,230 teu in 1999, and represented an increase of 29 percent per annum. The increase was due to the inherent advantages of freighting cargousing containers, and improved handling operations attributable to the Project. Associated with the increased trend to containerization, there was an increase in the number of ship calls and slight trend to larger vessels. There were 202 ship calls before the Project in 1991 and 438 ship calls in 1999. 23. While project operating performance exceeded forecasts, congestion over the wharf area is again increasing because of the (i) limited storage areas for containers, (ii) narrowness of entry and exit roads, and (iii) lengthy dwell time between emptying and refilling containers. All shipping agents interviewed by the OEM pointed to the need for additional alongside berthing and expansion of the storage aprons.19 A historical summary of cargo-handling performance and alongside berth occupancy are provided in Appendix 3. B.
Performance of the Operating Entity
they relate to operational performance after project completion, that is for 1997, and where extensions of the same statistics are available to 1999 to report the results to give some idea of the continuing performance trend. 17 Historically, the growth in cargo throughput at Malé Commercial Port paralleled the growth in gross domestic product of around 11 percent per annum. 18 Fish exports fell significantly in 1998; overall exports were 140,000 freight tons, and an estimated 126,000 freight tons in 1999. 19 Berthing occupancy in 1999 was a high 87 percent (Appendix 3).
8 24. Table 1 summarizes the financial statements of MPA from 1991 to 1997.20 Appendix 4 provides additional details. At appraisal, MPA’s financial performance as reflected in the audited accounts for 1989 to 1991 were considered satisfactory. Financial revenues were observed to be increasing at around 20 percent per annum. Profit performance was strong, and the projected financial statements for 1993-2001 indicated the financial viability of MPA would likely continue. 25. The actual financial performance of MPA to the end of 1997 is better than forecast. Operating revenues increased by an average of 26 percent per annum, total assets by 16 percent per annum, and net surplus (profit) after depreciation and loan service charges by 18 percent per annum. Profit performance relative to operating revenue and return on equity was strong, and ADB’s financial loan requirement to maintain an operating ratio of not less than 70 percent was comfortably exceeded. MPA’s audited financial accounts do not enable a strict comparative measure of performance in relation to (i) maintaining a rate of return on average revalued net fixed assets of 6 percent; and (ii) a debt service ratio of not less than 1.3. Proxy indicators for these performance covenants imply they were nevertheless comfortably complied with. Accounts receivable, which represented approximately 4 months of revenues in 1991, were reduced to 1.7 months in 1997. Since year-end 1997, cargo throughput increased to the end of 1999 by 29 percent, while operating expenditures increased by an estimated 15 percent. This widening operating margin together with increased loan servicing requirements suggest the profit performance of MPA was sustained. Table 1: Summary of Financial Performance of Maldives Ports Authority (Rf million) Fiscal Year Ending
1991
1992
1993
1994
1995
1996
1997
Operating Revenue Operating Expenditure a Operating Surplus/(Loss)
24.4 11.5 12.9
27.0 13.7 13.3
31.2 14.7 16.5
48.3 16.7 31.6
59.9 25.0 34.9
74.5 24.3 50.2
87.8 30.6 57.2
9.7 6.3 3.4
2.3 7.2 (4.9)
3.6 0.0 3.6
19.4 0.0 19.4
23.2 2.0 21.2
30.5 15.0 15.5
30.0 20.0 10.0
Net Surplus/(Loss) Before Tax b Dividend Provision Year-End Surplus/(Loss)
20
Net Fixed Assets Long-Term Loans Total Assets
24.7 6.3 40.8
67.9 77.4 118.4
69.6 68.9 118.9
70.0 62.2 120.2
66.1 56.2 131.4
89.9 57.4 154.3
167.4 140.9 251.9
Performance Indicators c Current Ratio d Debt Service Ratio Receivables/Revenue (months) e Return on Operating Revenue (%) Return on Equity (%) Equity to Total Assets (%) Return on Net Fixed Assets (%) Average Tariff per Freight Ton
10.5 9.0 3.9 39.8 31.4 75.8 39.3 89.3
2.4 0.3 5.1 8.6 9.1 23.5 3.4 83.7
1.4 0.5 4.7 11.5 13.5 22.3 5.1 90.2
1.5 2.8 3.1 40.0 44.3 36.3 27.7 115.2
1.3 3.5 2.1 38.3 36.7 48.1 35.1 123.3
3.0 2.5 1.8 40.5 38.8 50.9 33.9 127.1
2.1 1.8 1.7 33.7 34.3 34.7 17.9 134.3
Last year for completed audited accounts. Data information after 1997 is independently available from MPA’s management information system and generally relates to the port’s cargo-handling operations.
9
Fiscal Year Ending a b c d e
1991
1992
1993
1994
1995
1996
1997
Before depreciation and loan service costs. To Ministry of Finance. Ratio of current assets to current liabilities. Net surplus before tax/interest expenditure. Net surplus before tax/operating revenue.
26. Estimates at appraisal for the project financial internal rate of return (FIRR) and economic internal rate of return (EIRR) were calculated based on the expected incremental increases in cargo throughput and maintenance of an average tariff rate of Rf104.5 per ton. The base case benefits were conservative in terms of pricing and incremental output, and implementation arrangements were considered sufficient to enable completion of the Project as scheduled. Sensitivity tests showed the results were robust against increases in capital costs, operational expenses, and reduced cargo traffic. The FIRR and EIRR appraisal estimates are compared with the reestimates at project completion and for this PPAR in Table 2. 27. The PCR repeated the approach adopted at appraisal, taking into account the actual investment costs, completion date, incremental revenues, and operation and maintenance costs to FY1996. The PCR’s higher FIRR of 18 percent mainly reflects the higher volume of cargo throughput. The slightly lower EIRR of 22 percent reflects the higher volume of cargo throughput, and a decision to apportion 50 percent (as against the appraisal approach of 100 percent) of the assessed value of service and waiting time savings due to the Project.21 28. Differences between the OEM and appraisal reestimates are explained by the same factors as for the PCR. The FIRR of 23 percent is higher than the weighted average cost of capital and confirms the Project’s financial viability.22 The EIRR is a highly satisfactory 26.8 percent and confirms the Project’s economic viability. Both results are robust and relatively insensitive to changes in projection assumptions (after 1999) concerning cargo throughput, port tariffs, and congestion impacts. Forecast cargo throughput would have to fall below the 1998 level of 823,000 freight tons for the EIRR to fall below 10 percent or 84 percent of the current throughput. Appendix 5 provides details of the methodology, assumptions, sensitivity, and workings underlying the FIRR and EIRR reestimates. Table 2: Overall Project FIRR and EIRR Estimates (percent) Item
Appraisal
PCR
PPAR
FIRR
12.3
18.0
23.3
EIRR
24.6
22.0
26.8
EIRR = economic internal rate of return, FIRR = financial internal rate of return, PCR = project completion report, PPAR = project performance audit report.
21
This decision of the PCR is consistent with changes in evaluation practice in the World Bank, which recognizes the beneficiaries of port improvements are foreign shipowners as well as cargo exporters and importers. 22 The weighted average real cost of capital is estimated at about 11 percent.
10 C.
Sustainability
29. Having been well maintained, the port’s project facilities are in good condition and with normal maintenance should be usable for many years to come. Although actual cargo throughput has been much higher than forecast, the engineering design was made bearing in mind technical expansion requirements and the need for future heavier loads. The higher cargo throughput has served to bring forward the need for further expansion of the port, and there are no serious engineering or underdesign issues. The continued sustainability of project benefits is linked to (i) handling capacity of the port in the face of increasing congestion, and (ii) autonomy of MPA management. 30. Capacity-handling limits of the lighter berth system have been reached, and berth occupancy at the alongside berth is a high average 87 percent (Appendix 3). Maximum handling capacity at the alongside berth will be reached by 2002. The FIRR and EIRR reestimates take into account the port’s capacity-handling limits and likely deterioration of handling efficiency as storage and transfer areas on the wharf area become fully utilized. Port handling capacity can be increased by constructing a second alongside berth, and expanding the wharf and storage areas over the commercial harbor basin.23 31. There are presently no plans to provide for further capacity expansion. Although vested under its charter with the autonomy and responsibility for planning, MPA is without the organization and qualified staff to carry out this function (paras. 37-38), and is mainly concerned with managing day-to-day port operations. Notwithstanding the limited autonomy and capacity of MPA to meet planning considerations, and taking into account the (i) acceptable management and maintenance history of the port’s facilities, (ii) likely positive response of the Government to increase the port’s handling capacity with appropriate study and justification, and (iii) demonstrated financial viability of the port’s operations (para. 24) with ample capacity to increase tariffs given there has been no adjustment since 1992, future benefits from the Project are unlikely to be seriously eroded.
IV.
A.
ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS
Socioeconomic Impacts
32. The Commercial Port of Malé is the focal port of call for foreign shipping before distribution by interisland shipping. Twenty-five percent of the total population of 280,000 is located on the Malé Atoll. The balance of the population resides on more than 70 islands with the next largest population group comprising less than 3,000 persons. Because of the low populace on each island outside of the Malé Atoll Group—trade volumes are insufficient to justify direct discharging and loading—and Malé Commercial Port has developed as a transshipment center.
23
With an additional alongside berth, the maximum handling capacity could conceivably increase from 1 million freight tons to 1.6 million freight tons per annum. Cargo throughput in 1999 was 855,000 freight tons.
11 33. The socioeconomic benefits attributable to the Project include improved working conditions for port labor, improved cargo-handling productivity, and institutional strengthening of MPA’s operations. These factors required increased skill levels and resulted in increased opportunities for higher paid employment.24 Indirectly, productivity improvements have helped attract investment to the Maldives, which in turn has generated spin-off benefits for gainful employment. 34. Coinciding with the achievement of objectives, the Maldives gross domestic product (GDP) increased from Rf1.69 billion in 1991 to Rf4.3 billion in 1998, and reflected an average growth of 14.4 percent per annum or 6.3 percent in real terms. GDP per capita doubled from Rf7,553 to Rf16,203. There was strong growth in the tourism and construction sectors, which together account for around 45 percent of the domestic labor force. The number of tourist arrivals in 1999 was 380,000 persons or nearly 40 percent more than the resident population. Significant in the growth and number of tourists is the dependence of the tourist sector on importing food requirements, which account for approximately 22 percent of the value of total imports, and require port facilities that offer minimum transfer times and reefer facilities to keep perishables fresh.
24
Significant in this regard, the procurement of a tugboat, service boats, computers, and program systems has required additional boat crew, servicing engineers, computer operators, and accounting clerks. Improved facilities for refueling, refuse collection, and associated expansion of office and shop outlets at the South Harbor under ADB’s first project also generated permanent business and additional employment opportunities.
12
35. The Project was gender-neutral, yielding no particular social or economic benefit to women through its implementation.25 B.
Environmental Impacts
36. No environmental concerns were visualized at appraisal, and there were no project improvements that changed the natural environment of marine life. The Project, together with other initiatives of the Government to improve the northern harbor area, resulted in the elimination of at least all visible pollution, diesel, and other fuel discharges.26 Although procedures exist for emergencies to attend oil spillages and fire, there have been no events of this nature, and training in awareness and procedures have become lax. Follow-up actions for MPA are recommended in this regard (para. 48). C.
Impacts on Institutions and Policy
37. Section 39 of MPA’s Charter (para. 8 and footnote 10) transferred, from MCPW and the Ministry of Customs to MPA, responsibility, duties, and powers in relation to (i) planning and civil works, covering ports and port land area; (ii) collections on cargo freight; and (iii) licensing and the issue of permits for use of the harbor area and facilities. Although MPA has full autonomy over the management of freight transfers at the port, responsibilities covering port planning, utilization of the port land area, and award of civil contracts have remained with MCPW. The requirement for Government approval of all senior management positions also undermines the hoped-for benefits from shifting autonomy powers to MPA. MCPW retains responsibility for planning, civil works, and rights to land areas for port development. The most disquieting feature of the situation is that concerns for meeting future growth requirements are lacking in urgency despite increasingly evident ship queuing and congestion problems. 38. The organizational structure and management capability of MPA appears adequate for the operation and maintenance of Malé Commercial Port. Management is systemized, operations are orderly, and the port area adequately controlled and maintained. Accounting systems and management information systems have been computerized. However, weaknesses prevail in their operation and timely availability of output (largely due to staff deficiencies), and the quality of data entry arising from preparatory manual collations is not always reliable. As a consequence, the port’s management information and accounting systems are not being used to best effect. These deficiencies are recognized by MPA, and steps are being taken to overcome them with proposals to upgrade existing systems, enhance in-house software, and improve incentives for employment with MPA. 39. The TA attached to the Project (footnote 3) was intended to strengthen MCPW’s organization, procurement and contract management, supervision capabilities, and 25
Government institutions in the Maldives, including those directly concerned with the Project, employ a relatively high proportion of women, including women in senior positions, who were involved in administration of the Project. 26 Up until 1997, pollution from the discharge of boat engines and rubbish discharged along the waterfront area was visibly problematic. The city waterfront area of Malé has been redesigned, and areas for boat craft delineated for the commercial harbor, interisland passenger vessels, tourist boat operators, and security patrol services. Licensing has been introduced and strictly enforced including meeting regulations covering pollution discharges.
13 maintenance workshop methods and skills. ADB’s terms of reference adequately reflected these objectives and provided for 6 person-months27 of consulting services from a port’s operation and maintenance specialist. Advice provided for project management (preparation of tender documents, procurement, and contracts) was considered by MCPW to be of direct benefit, as was advice on how to monitor project implementation. The consultant’s recommendations included (i) establishing a mechanical workshop equipped with spare parts and responsible for plant, equipment, and vehicles; (ii) engaging a specialist trainer in maintenance operations for two years; and (iii) developing a staff training program on management, accounting, and engineering including on-the-job training. Manuals prepared on project management and maintenance were usefully applied, and the recommendations of the consultant were taken up beginning mid-1996. On the basis of the satisfactory reports of MCPW and discussions with two persons who benefited from the training programs developed, and the resulting in-house training programs for staff development, OEO rates this TA successful.28 40. The recommendations of the study’s implementation consultants for improving container storage and cargo-handling operations include (i) reduce the free-parking period for containers from 10 days to 7 days, (ii) convert the existing transit shed into a container freight station, and (iii) make pilotage compulsory to ensure the safe passage of vessels in the port. Other recommendations included making investments to augment service facilities for electric power supply, telephone connection, and fresh water outlets; and publishing an annual report. MPA reported that the consultant’s recommendations were accepted by the Government and were gradually being put into effect. As part of a time-bound action plan, the Project included support for MPA to carry out an 41. operational review to consider privatizing its operations. Although a more commercial approach to the contracting of stevedores was introduced, the fuller concept of privatizing all stevedoring, cargo-handling operations, and supply of port services is without strong Government support. ADB’s TA 3099,29 completed in February 2000, was mandated to identify opportunities in MPA for private sector participation. This study verified the lack of commercialization that exists in MPA’s operations,30 but offered no new insights or enthusiasm for fuller privatization of MPA’s operations.
V.
27
OVERALL ASSESSMENT
During implementation and under a revision in scope, this was increased to 7 person-months. Timing for TA implementation coincided with restructuring measures of the Government for MCPW and redeployment of responsibilities to MPA so that some of the tasks required of the consultant for recommending improvements to the organization were made redundant. While there was general satisfaction with consultant performance, much of the content of the manuals was considered inappropriate or impractical, and required considerable editing. The OEM found the consultant’s final report superficial and lacking in comprehensiveness so that the TA objective of the study to provide guidance on improving the operation and management capabilities of MCPW was not totally fulfilled. These factors detract from assessing the TA highly successful. Advice provided for project management (preparation of tender documents and other) was considered of direct benefit as was advice on how to monitor. 29 TA 3099-MLD: Private Sector Participation in the Maldives Ports, for $400,000, approved on 20 November 1998. 30 Significant in this regard, tariffs were found to significantly favor general cargo transfers by lighter. Excessive operating costs associated with too many staff were also identified. 28
14 A.
Relevance
42. The project rationale to relieve freight congestion constraints, premised on the basis of sustaining economic growth, proved particularly relevant given that the overall growth in cargo throughput was twice the appraisal target. Without the Project, port-handling capacity would have been insufficient and resulted in unacceptable ship turnaround times, increased freight and cargo-handling costs, and foreign investment would have been likely deterred. Without the benefit of consulting services for the preparation of tender documents and administration of contract awards, the inexperience of local project staff would have led to unacceptable completion delays. Without the benefit of TA for MCPW, the general operation and maintenance capabilities of MCPW would have remained undeveloped and limited the effectiveness of MCPW services. B.
Efficacy
43. The Project benefited from competent consultants, an effective project management team, and the experience gained from ADB’s first Malé Port Development Project under Loan 911 (footnote 1). The decision to include a feasibility study for the Project brought into perspective the need for an alongside berth as an alternative to expanding and improving the lighter system, and ensured that important technical considerations were addressed and the least-cost expansion option was applied. Procurement and construction was satisfactorily executed and the overall project cost of $10.4 million was within the appraised estimate of $10.8 million. The overall financial performance of MPA, as measured against the appraised project forecasts and ADB’s loan covenants, proved significantly stronger than projected. The overall project completion delay of 12 months is largely explained by the approved change in scope to extend construction of the alongside wharf from 70 m to 101 m. Institutional strengthening of MPA and MCPW associated with the time-bound action plan and attached TA were largely achieved. The less than satisfactory efficacy aspects include implementation delays in appointing consultants and continued weaknesses in MPA’s capacity to (i) meet reporting covenants, (ii) provide timely annual reports, (iii) operate effective information and accounting systems, and (iv) take responsibility for planning future port operations. ADB’s covenanted timebound action plan for MPA to carry out a review of its operations in respect of privatizing operations proved ineffective. C.
Efficiency
44. Apart from completion delays, actual achievements under the Project were better than envisaged. Cargo throughput was twice the approved forecasts. The average ship turnaround time was reduced from 18.5 days in 1991 to 11.5 days, against an expected 13.5 days. Improvements to the wharf area for storage and administration together with the benefits resulting from the Project’s lifting equipment and introduction of better administration systems— increased storage capacity and reduced the average holding time on container cargo from 22 days to 10 days. Maintenance operations are in order, the navigational lighting system is working, the workshop is utilized, the tugboat enables faster and more distant lighter services, and the additional service craft have enabled customs formalities to be more quickly attended
15 to. The project FIRR and EIRR reestimates of 23 percent (financial) and 27 percent (economic) confirm the financial and economic viability of the Project. D.
Sustainability
45. The quality of civil works appears to be sound after four years of operation and is expected to long outlast the projected economic life of 2017. The cargo-lifting equipment and tugboats are well maintained, and navigation aids are kept in serviced order. The FIRR and EIRR reestimates take into account the port’s capacity handling limits and likely deterioration in handling efficiency as storage and transfer areas on the wharf area become fully utilized.31 Institutional strengthening benefits require continuing focus to ensure management information systems are utilized in an effective manner.
31
Capacity handling limits of the lighter berth facilities have been reached, and maximum handling capacity of the port will be reached by 2002.
16
E.
Institutional Development and Other Impacts
46. Hoped-for development impacts for institutional strengthening of MPA and MCPW enhanced management operations, but continue to reveal weaknesses associated with the incomplete transfer of responsibilities under MPA’s Charter, and insufficient accounting and computer-trained personnel. The socioeconomic benefits from the Project were largely in the form of avoided congestion costs that would deter investment into the Maldives and lessen employment opportunities. The Project also set standards for improved working conditions for port labor, and opened opportunities for increased accounting, computer, and managerial skill levels, and as a result opportunities for higher paid employment. To the extent that the Project facilitated economic growth and investment, spin-off benefits for gainful employment in the tourism, fisheries, and service industries were generated. ADB’s project loan, while not designed with a specific environmental objective included covenants to ensure design requirements, and met international environmental safeguards. Since project approval, visible improvements associated with eliminating fuel discharges and garbage into the north harbor area have occurred. F.
Overall Project Rating
47. Overall, the Project is rated successful as concluded after taking into account ADB’s evaluation criteria for project relevance, efficacy, efficiency, sustainability, and development impact.32 Table 3 summarizes the project assessment rating. Table 3: Assessment of Overall Project Performance Criteria
Assessment
Rating (0-3)
Weight (%)
Weighted Rating
HS
3
20
0.60
S
2
25
0.50
HS
3
20
0.60
4. Sustainability
S
2
20
0.40
5. Development Impact
PS
1
15
0.15
100
2.25
1. Relevance 2. Efficacy 3. Efficiency
Overall Rating
Rating: 3 = highly successful, 2 = successful, 1 = less than successful, 0 = unsuccessful. Overall Rating: HS = highly successful >2.5, S = successful 1.6
