ASIAN DEVELOPMENT BANK TAR: MLD 30026

Transcription

1 ASIAN DEVELOPMENT BANK TAR: MLD TECHNICAL ASSISTANCE (Financed from the Japan Special Fund) TO THE REPUBLIC OF MALDIVES FOR PRIVATE SECTOR PARTICIPATION IN THE MALDIVES' PORTS November 1998

2 CURRENCY EQUIVALENTS (as of 30 October 1998) Currency Unit - Rufiyaa (Rf) Rf 10 - $0.85 $ Rf The exchange rate is determined under a system of managed float. ABBREVIATIONS MOFT - Ministry of Finance and Treasury MPA - Maldives Port Authority PEMU - Public Enterprise Monitoring Unit PSP - Private Sector Participation TA - Technical Assistance NOTES (i) (ii) The fiscal year of the Government and MPA ends on 31 December. In this Report, "$" refers to US dollars.

3 I. INTRODUCTION 1. The Government of the Republic of Maldives in 1997 requested the Bank to provide an advisory technical assistance (TA) for private sector participation in the Maldives' ports. A TA Fact-finding Mission visited the Maldives in March 1998 and reached an understanding with the Government on the objectives, scope, cost estimates, financing plan, implementation arrangements, and the terms of reference of the consulting services for the TA.1 The TA Framework is given in Appendix 1. II. BACKGROUND AND RATIONALE 2. The Maldives is an archipelago of about 1,200 small coral islands, of which only 200 are inhabited, and comprises 24 atolls spread over an area 800 kilometers (km) long and 130 km wide in the Indian Ocean. lnterisland shipping services are conducted entirely by the private sector. The Government's role is to provide essential infrastructure such as ports and deepened harbors, and regulatory functions like maritime safety. The Government places high priority on the improvement of international and interisland transport services and is expanding infrastructure including the port facilities. Shipping is an important sector and source of foreign exchange. 3. The improvement of facilities under the first Male Port Development Project 2 and the relocation of the interisland vessels to the southwest harbor eased the traffic congestion at the commercial harbor, but capacity constraints remained. The main operational constraint was inefficient port operations inherent in the lighterage system used for foreign trade. 3 With the provision of the wharf within Male Bay, 4 the port can now operate without restriction for about 340 days of the year. Ship turnaround time was consequently reduced from 10 days in 1991 to 3.8 days in Male Port is the country's main shipping gateway and the focus of economic activity in the country. It handles virtually all imports, while garments and fish for export are loaded at local ports or at sea. 4. Between 1991 and 1997, external trade grew at very high rates. 5 Imports increased mainly because of the growth in per capita income and the high rate of population increase (2.8 percent per annum). The Maldives has been pursuing, with commendable success, the development of an open economy linked to international trade and based on the comparative advantage of its small resource endowment. Although the new wharf enables direct cargo handling from ship to shore, productivity has not increased significantly. The cargohandling productivity per vessel has improved by only 75 percent for unloading containers (to 30 boxes/day) and breakbulk (to 667 tons/day). This weak performance arises mainly from low quality in service due to inadequate incentives and inefficient management by the Maldives Port Authority (MPA), which was established on 1 September To assist MPA's institutional development and to help draft its charter, a smallscale advisory TA was provided. 6 MPA's charter was approved by the President on 1 November 1991, but not all the duties and responsibilities as identified and recommended in the charter The TA first appeared in the ADB Business Opportunities in April Loan No MLD: Male Port Development Project, for $6.4 million, approved on 20 October Lighterage means the transfer of cargo from ships at anchor to the shore due to nonexistence of a ship alongside berthing facility. Loan No MLD:Second Male Port Project, for $8.8 million, approved on 1 April The Port commenced operation in June1997. The containerized general cargo traffic grew steadily from 12 percent in 1991 to 27 percent in 1997, with actual container traffic in terms of twenty-foot equivalent units (TEUs) growing from 2,690 TEUs in 1992 to 10,032 TEUs in tn 1997, the total exports amounted to 173,000 freight tons. TA No MLD:Maldives Port Authority Project, for $100,000, approved in September 1990.

4 2 are yet entrusted to MPA due mainly to its institutional inadequacies. A second TA followed to draft detailed rules for regulating the safe and efficient movement of shipping and cargo within Male Port and for establishing in-house administrative procedures.7 MPA was also required to implement an action plan, with the assistance of consultants provided under an earlier TA. 8 The action plan was implemented and led to improvements in MPA's operations adequate to the port's initial traffic increases, and in its financial position. However, many of the operations and finance staff trained following the TA sought more attractive employment in the private sector. MPA also requires institutional and organizational improvements to manage and operate the new wharf and the port facilities competently and effectively. 6. With the establishment in 1995 of a Public Enterprise Monitoring Unit (PEMU) within the Ministry of Finance and Treasury (MOFT), the Government started to systematically review its public and parastatal sector with a view to making institutional improvements, including possible private sector participation. An economic review is currently under way to identify areas in the economy with potential for expanded private sector participation. The parastatal sector in the Maldives currently contributes about 15 percent of Government revenue. Todate, six of the 19 public enterprises are open to minority private participation, ranging from 49 percent of equity for Air Maldives down to 25 percent for the Bank of Maldives. The Government has so far preferred minority privatization, but does not have a policy against majority privatization and is willing to consider it if it proves advantageous. Within PEMU a mechanism is needed for systematic setting of objectives and performance indicators for the parastatal sector including procedures to monitor the performance and to evaluate the results. 7. The focus of Bank assistance will be on achieving the Government's objectives of private sector participation in Government agencies in general, and in Male Port in particular, with the aim of boosting foreign exchange earnings and improving efficiency and operational performance. The approach would be to maximize private investments through private sector participation schemes. Private sector participation would not only reduce the burden of financing new investments for rehabilitation, upgrading and development or expansion of facilities, but would also bring the managerial skills and expertise of the private sector into financing, constructing, and operating the facilities. 8. The Government recognizes that improvements in port productivity and efficiency could be attained through private sector participation in the management and operation of port facilities. The TA will assist the Government in the formulation of policies, criteria, guidelines, regulations, and procedures as a framework for opening MPA to private sector participation. One option would be for MPA to perform a pure landlord function, being responsible only for providing the basic infrastructure, while all other operations are carried out independently by private enterprises on a long-term lease. Another option would be to run the port as a Government-owned corporation on a commercial basis. Other options to be examined are the application of management consulting contract, concession, joint venture, and public limited company. Either way, the TA would need to redefine the distribution of regulatory responsibilities, and recommend which of these should be handled by MPA. A. Objectives Ill. THE TECHNICAL ASSISTANCE 9. The overall goal of the TA is to enhance economic development by private sector TA No MLD:Second Ma/dives Port Authority Project, for $90,000, approved in January TA No MLD:Institutional Strengthening of Ma/dives Port Authority, for $480,000, approved in October 1988.

5 3 involvement. The TA will identify the options for private sector participation in Government agencies. Based on its recommendations and the Government's choice of form, the TA will then help in the formulation of policies, criteria, guidelines, procedures, and regulatory framework to assist the Government in introducing private sector participation in the operation, management, and ownership of Male Port. As a result, the cargo handling productivity should at least double within five years as from participation of the private sector. B. Scope 10. The TA will be performed in two phases. In the first phase, the consultants will (i) help PEMU to develop an overall framework for managing public sector corporations, (ii) formulate the broad framework and its program steps for all options of private sector participation, and (iii) convene a stakeholder seminar on private sector participation to assist Government's decision making. In the second phase, the consultants will (i) assess possibilities of commercializing MPA's activities and the role for private sector participation in the activities currently undertaken by MPA; (ii) examine the feasibility of MPA functioning as a port regulatory authority; (iii) develop policies, criteria, guidelines, and procedures for selected options, as a framework for managing the private sector participation process; and (iv) assess implications of private sector participation on industrial relations and employment in the Maldives' ports. The terms of reference for the consulting services are given in Appendix 2. C. Cost Estimates and Financing Plan 11. The total cost of the TA is estimated at $480,000 equivalent, of which $400,000 is the foreign exchange cost and $80,000 equivalent is the local currency cost. The Government requested that the Bank finance $400,000 equivalent comprising the entire foreign exchange cost. The Government will finance the local currency cost of $80,000 equivalent by providing support facilities and staff on an ad hoc basis. The detailed cost estimates and financing plan are shown in Appendix 3. The TA will be financed on a grant basis from the Japan Special Fund, funded by the Government of Japan. 0. Implementation Arrangements 12. About 10 person-months of international consultant services will be required to carry out the tasks under the TA. 9 The areas of required expertise are institutional restructuring; port operation and management; transport economics and finance; and port regulations and corporate governance. The TA consultants will be recruited by the Bank in accordance with its Guidelines on the Use of Consultants. Office equipment shall be procured by the consultants in accordance with the Bank's Guidelines for Procurement. The Executing Agency of the TA will be MOFT. The consultants will work in close coordination with the PEMU. The consultants are expected to commence their services in January IV. THE PRESIDENT'S DECISION 13. The President, acting under the authority delegated by the Board, has approved the provision of technical assistance, on a grant basis, to the Government of the Republic of Maldives in an amount not exceeding the equivalent of $400,000 for the purpose of undertaking Private Sector Participation in the Maldives' Ports, and hereby reports such action to the Board. The engagement of domestic consultants is not anticipated due to their unavailability in the small local economy.

6 TA FRAMEWORK Appendix 1 Project Monitoring Design Summary Project Targets Mechanism Risks/Assumptions Goal Enhance economic development Efficiency and perfomance improvements Review and assessment of Political Instability. by private sector involvement, in public sector undertakings progress at midterm and Unsustainable economic Technical Assistance development. Response to market and technolocat Completion Report. Limited availability of land developments in port sector for expansion. Purpose Provide Public Enterprise Monitoring Strenghen institutions. Consultants' interim report Nonexistence of legally Unit with extensive knowledge for attractive commercial decision making on private sector Reduce public funding and create an Bank review mission during conditions for private capital. participation in public sector environment for private investment. stakeholder seminar undertakings. Structural reform (legal, social, financial, environmental, and institutional). Pursue suitable port privatization Improve port efficiency and performance. Double cargo-handling Restricted tariff policy. options such as: productwity within five years Guarantee of sufficient funds 1. Commercialization Operate as a private enterprise or loint Tripartite meeting involving for technical and managerial 2. Corporatization venture with commercial entity. Government, Bank, and assistance after privatization. 3. Management Contracts consultants. 4. Concessions 5. Long-term Lease Reorganize management and operate TA final report Deficiency of public funds. 6. Joint Venture competently and efficiently. Inefficient labor conditions. 7. Transfer of Ownership Attraction of foreign capital Establish public-private partnership. by international joint ventures. Formulate the legal framework and policies related to operation, management, and Successful privatization development of port facilities, requires a stable political and economic climate. Components/Outputs Consulting services in the main area Establish possible policy, institutional, Consultants' interim report Government agencies do of pnvatization of public enterprises, and legal framework to improve commercial and stakeholder seminar not work effectively together. functioning or private sector participation in public sector undertakings. Formulation of framework for policies Amend the Charter as required to address Tripartite meeting involvement Government reluctance to and regulations as to deregulation in policy constraints in the formulation of Government, Bank, and incorporate 'radical" the context of port operation and broad framework for commercialization consultants recommendations in the management of Male' Port Authority's or pnvatization of port operation and Charter. role' as a regulatory body. management. Devise bidding procedures and Establish bidding procedures and Review of draft final report Government policy changes. documentation, including the technical, documentation for development of port and clarification commercial, financial, and legal prqect on build-operate-transfer / buildaspects. own-operate basis. ActivIties Appoint consultants to make an 2 person-months (p-rn) of consultant Consultants' interim Success highly depending overview of all options available services in institutional restructuring. report, feedback from on political situation. for private sector participation in stakeholder seminar Maldives' public sector undertakings. Identify obstacles in Maldives' I p-rn of consultant services in corporate legislation as to various forms governance, of private sector participation. Success highly depending on Government support. Collect Information about policy 2 p-m of consultant aervices in market Tripartite meeting Uncertain cargo forecast. objectives related to commercialization demand analysis and in financial situation and pflvatization of Male' Port of Male' Port and its viability to adopt Operation/Management and the operational and commercial changes. feasibility of port development by private sector or in joint venture with commercial sources. Review of institutional and financial 2 p-m of consultant services in institutional Consultants' draft final Resistance from existing framework within which Male' Port changes, required adaptations in port report port organization. operates. tariffs, and investments. Collect information from port users for 1 p-m of consultant services in operational port performance and practices, pricing, changes, required training measures. constraints, and other issues. Identify possible policy, institutional 1 p-m of consultant services in legal, and market obstacles for formulating bidding procedures and commercialization / privatization. documentation requirements. Private sector has lifts interest. Review of Male' Port Authority Charter 1 p-rn of consultant services in legal Clarifications and feedback Resistance from existing related to policy / issues arid aspects: company and contract law, from Maldivea' Government port organization. recommend the required rules and on draft final report rules and regulations for commercialization I privatizatlon. (Reference in text: page 1, para. 1)

7 5 Appendix 2, page 1 OUTLINE TERMS OF REFERENCE FOR THE TECHNICAL ASSISTANCE A. Phase I In the first phase of the technical assistance (TA), the consultants will: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) identify the various options for greater private sector participation (PSP) in public operations, and summarize current Government policy on PSP and any constraints it may impose on future strategies; identify public sector undertakings in the Maldives where PSP would have a beneficial effect for the enterprise as well as for the economy; review a number of varying commercial situations where management consulting contract firms may take equity positions, or where the contract may be combined with a licensing, joint venture; or franchising agreement; propose benefit-sharing options under PSP that provide adequate income to Ministry of Finance and Treasury (MOFT), and examine their financial and economic implications; formulate policy, regulations, and financial framework, whereby private sector management, operations, technology, and/or skills are provided for an agreed period and compensation; establish a framework for systematically setting objectives, performance measures, monitoring mechanisms, and postevaluation criteria for parastatal companies to increase efficiency; assess implications of PSP to industrial relations and employment, and define means and procedures of consultation with stakeholders; and conduct a stakeholder seminar if requested, arranged, and financed by MOFT, to enable the Government to decide on one or more PSP options for the Maldives Port Authority (MPA). B. Phase II 2. In the second phase, the consultants will expand on the selected PSP options. 1. Commercialization (i) Review MPA existing organizational structure, staffing, facilities, tariff structure and levels, operational and financial results to calculate present port capacity and productivity and compare it with productivity figures of overseas public and private ports in a similar situation. (ii) Identity current commercial practice (such as extent of cost center accounting, formulation of tariff pricing, utilization of information systems, etc.) and administrative governance (relationship between Governments and port authorities) in overseas port authorities of a similar situation. (iii) Homogenize MPA's cost calculations with the present tariff structure to facilitate profit center calculations as a basis for setting cost-based tariff levels, investigate possible margins for lowering tariffs on selected services and strategic commodities, e.g. basic foodstuffs, and prepare the port tariffs for publishing in the Government Gazette. (iv) Identify trends in cargo handling, modalities and costs, provide a broad assessment of the required efficiency improvements, and set realistic and stimulating productivity and efficiency targets to gradually achieve better performance over the next 10 years. (Reference in text: page 3, para. 10)

8 6 Appendix 2, page 2 (v) (vi) (vii) (viii) Project future volumes of traffic through Maté and other ports in the Maldives, review the capacity of the existing port facilities and staffing to handle projected traffic, and calculate future infrastructure and equipment requirements. Consider the adequacy of current MPA actions to prevent congestion and its plans to meet projected needs for port services over the next 10 years, and identify necessary actions to ensure that MPA can implement best practice port operation techniques. Review and amend the MPA Charter, toward having the Charter adopted by and have Male Port declared an official port. Identify any training needs that should be met to improve MPA's commercial performance and administrative effectiveness, e.g. by scholarship awards. 2. Corporatization (i) Examine relevant legislation and other prerequisites for shifting a port from authority to corporate status. (ii) Identify ongoing financial commitments of MPA to the Government, summarize financial trends and projections for port activities, and consider any financial restructuring necessary. (iii) Identify required administrative changes and their implications. (iv) Assess requirements to separate regulatory from operational functions, and identify any institutional and staffing. (v) Recommend various measures to develop MPA into a port regulatory authority and a step-by-step action program for implementing them. (vi) Identify additional requirements to establish MPA's supervisory role to meet its regulatory obligations throughout the Maldives. (vii) Conduct a strengths-weaknesses-opportunities-threats analysis of a port corporatization as a means to promote operational efficiency. 3. Management Consulting Contract (i) Identity skills needed for MPA management to perform optimally in a commercial environment and to promote operational efficiency. (ii) Determine the medium and long-term business objectives to be achieved by the proposed contract. (iii) Design strategies for building the skills necessary to develop, run, or rehabilitate MPA's port operations. (iv) Study an option to divest management control of MPA. (v) Provide policy initiatives designed to raise the levels of operational efficiency and management competency, and a detailed analysis of the problems facing MPA and priority ranking of those problems. (vi) Calculate the possible scope of management fees, evaluate the total cost of the contract and its impact upon MPA's financial position, and propose potential structures and levels of incentives and penalties. 4. Concession (i) Propose policy initiatives designed for granting concession to a private company to construct and operate commercial services and to improve the financial performance. (ii) Define suitable performance measures and propose monitoring mechanisms for any concessionaire working within the port. (iii) Develop a regulatory framework that provides a minimum measure of safeguards, e.g. through competition, against potential abuse from any concessionaire's monopoly position.

9 7 Appendix 2, page 3 (iv) (v) Examine current practices and recommend procedures in awarding concessions for port construction and operation in similar overseas projects. Specify any reporting requirements to Government from MPA and private concessionaire. 5. Long-term Lease (i) Review current practices of lease arrangements in the port sector; recommend staffing arrangements and contractual features. (ii) Investigate the economic environment and financial incentives for private investment in Maldives' port infrastructure and equipment to reduce public funding requirements. (iii) Identify potential private investment schemes, to meet the Maldives' import and export requirements over the next 10 years, and examine possible award criteria. (iv) Propose terms, conditions, and arrangements for lease of the facilities attractive to the private operator, the compensation that must be paid to the State, and the degree of freedom of choice and selection in integrating MPA's employees and laborers into the operator's own work force. (v) Formulate terms, conditions, and arrangements where the lessee assumes the full commercial risk for operating the assets. (vi) Devise standard procedures for the level of financial contribution by the lessee. (vii) Propose a procedure where the lease of equipment could be substituted by outright sales as an asset-based financing device. 6. Joint Venture (i) Formulate a general policy and procedure to transform the state-owned Male Port into a State-private service enterprise. (ii) Define areas of responsibility of individual joint venture parties and identify the optimum distribution of seats on the board of directors. (iii) Assist MPA to identify and revalue all assets, define the profit-sharing proportion, and calculate the equipment and capital inputs to be provided by any private partner. (iv) Process the assets of MPA (with or without accompanying liabilities) as a contribution in kind to the capital of a new corporation. (v) Develop a policy to gain management and other expertise, in addition to capital, by forming a skills transfer agreement within MPA's joint venture with the private enterprise. 7. Public Limited Company (i) Define the advantages of creating a public limited port company. (ii) Identify the optimum percentage and modality for offering shares to the public. (iii) Formulate a policy and procedure for private investment. (iv) Identify present aspirations and future requirements of all major present and potential stakeholders in port and shipping services. C. Implementation Arrangements 3. MOFT will be the Executing Agency for the TA and will appoint as project coordinator the director of its Public Enterprise Monitoring Unit, who will work closely with the consultants. During the total field period of five months, the consultants will schedule regular

10 8 Appendix 2, page 4 sessions with MOFT's project coordinator and full management team tc recommendations to date. The consultants will conduct a stakeholder arranged, and financed by MOFT. The consultants will schedule regulal general manager and full management team to present briefings c management techniques. D. Reporting Requirement and Schedule present findings and seminar, if requested, - sessions with MPA's n the recommended 4. An interim report will be submitted toward the end of Phase I. An interim phase for Government consideration of the report's recommendations is expected to last three months. 5. A draft final report will be submitted at the end of Phase II. Written comments to the draft final report will be provided by the Bank, MOFT, and MPA within one month. The final report will incorporate the suggested changes and will be submitted within one month after receipt of comments. E. Required Expertise and Estimated Inputs 6. It is envisaged that 10 person-months of international consultant services will be required in the fields of port privatization, organization and management; public and private port project finances; company and contract law; and port operations and training. Consultants should be experienced, as appropriate, in port performance and productivity measures; current commercial practice and administrative governance; corporatization procedures; and procedures for awarding of management consulting contracts, concessions, joint venture, and lease contracts in other similar port authorities.

11 9 Appendix 3 COST ESTIMATES AND FINANCING PLAN ($) Foreign Local Total Item Exchange Currency Cost A. Bank Financing (Japan Special Fund) 1. International Consultants a. Remuneration and Per Diem 300, ,000 b. International and Local Travel 25,000-25,000 c. Office Equipment 10,000-10,000 d. Reports and Communications 10,000-10, Miscellaneous a 5,000-5, Contingencies (15%) 50,000-50,000 B. Government Financing Subtotal (A) 400, ,000 Counterpart staff, office - 80,000 80,000 accommodation, utilities, secretarial support, maps, surveys, and documents. Subtotal (B) - 80,000 80,000 Total 400,000 80, ,000 - = magnitude zero. a Includes travel and per diem of one Government official who will participate in the contract negotiations with consultants at the Bank's Headquarters. Source: Mission estimates. (Reference in text: page 3, para. 11)