ASIAN DEVELOPMENT BANK PCR: PHI 19178

Transcription

1 ASIAN DEVELOPMENT BANK PCR: PHI PROJECT COMPLETION REPORT ON THE SECOND MANILA PORT PROJECT (Loan No. 875-PHI) IN THE PHILIPPINES September 1997

2 CURRENCY EQUIVALENTS Currency Unit - Philippine Peso (P) P1.00 $1.00 I At Appraisal At Project Completion $ $0.038 P20.73 P26.21 ABBREVIATIONS CAGR CPA CSC EIRR FIRR IACSRR ICB IDC MICT MIS NH OGCC O&M PPA PPAR RORO SH TA Compound Annual Growth Rate Cebu Port Authority Consultants Selection Committee Economic Internal Rate of Return Financial Internal Rate of Return Interagency Committee on Squatter Removal and Relocation International Competitive Bidding Interest and Other Charges During Construction Manila International Container Terminal Management Information System North Harbor Office of the Government Corporate Counsel Operation & Maintenance Philippine Ports Authority Project/Program Performance Audit Report Roll-on-roll-off South Harbor Technical Assistance DWT GRT TEU I WEIGHTS AND MEASURES Dead Weight Ton Gross Registered Ton Twenty-foot Equivalent Unit NOTES (I) The fiscal year (FY) of the Government ends on 31 December. (ii) In this Report, "$" refers to US dollars. (iii) In this Report, "ton" refers to "metric ton" unless otherwise noted.

3 CONTENTS Page BASIC DATA il-v MAPS Map 1 Project Area vi Map 2 Manila North Harbor Rehabilitation vii Map 3 Manila South Harbor Rehabilitation viii I. PROJECT DESCRIPTION 1 EVALUATION OF IMPLEMENTATION A. Project Components 2 B. Implementation Arrangements 3 C. Project Costs 3 D. Project Schedule 4 E. Engagement of Consultants and Procurement of Goods and Services 5 F. Performance of Consultants, Contractors, and Suppliers 5 G. Conditions and Covenants 6 H. Disbursements 6 I. Environmental Impact 7 J. Performance of the Borrower and the Executing Agency 7 K. Performance of the Bank 9 Ill. EVALUATION OF INITIAL PERFORMANCE AND BENEFITS A. Traffic Reevaluation 9 B. Financial Performance of PPA 11 C. Financial Reevaluation of the Project Economic Reevaluation of the Project 13 E. Attainment of Benefits 14 IV. CONCLUSIONS AND RECOMMENDATIONS A. Conclusions 14 B. Recommendations 15 APPENDIXES 17

4 11 A. Loan Identification 1. Country 2. Loan Number 3. Project Title 4. Borrower BASIC DATA Philippines 875-PHI Second Manila Port Philippine Ports Authority (guaranteed by the Republic of the Philippines) 5. Executing Agency : Philippine Ports Authority 6. Amount of Loan : $43.5 million 7. PCR Number : 430 B. Loan Data 1. Appraisal - Date Started 13 August Date Completed : 28 August Loan Negotiations - Date Started : 16 November Date Completed : 19 November Date of Board Approval : 15 December Date of Loan Agreement : 1 February Date of Loan Effectiveness - In Loan Agreement : 30 April Actual : 29 July Number of Extensions : 2 6. Closing Date - In Loan Agreement : 31 December Actual : 8May Number of Extensions : 2 7. Terms of Loan - Interest Rate Exchange Rate Pooling System - Maturity 25 years - Grace Period : 5 years 8. Terms of Relending (if any) : Not Applicable 9. Disbursements a) Dates Initial Disbursement Final Disbursement Time Interval 23 August May years, 8 months Ori ginal Effective Date Ori ginal Closing Date Time Interval 30 April December years, 8 months

5 111 b) Amounts ($) Last Net Category Original Revised Amount Amount Amount Undisbursed Allocation Allocation Cancelled Available Disbursed Balance O1A 13,430,000 11,605,365-11,605,365 11,605,365 - OIB 1,590,000 1,339,614-1,339,614 1,339,614 - O1C 1,500,000 3,232,076-3,232,076 3,232,076-02A 6,790,000 18,107,635-18,107,635 18,107,635-02B 1,000, , , ,493-02C 1,000,000 1,577,144-1,577,144 1,577,144-03A 2,000, A 860, B 940, A 900, ,370,000 6,370,000-6,370,000 6,370, ,120, , , Total 43,500,000 43,500, ,673 43,083,327 43,083, Local Currency Costs (Financed by Bank Loan) Local Currency Costs (Financed by Borrower) 0 $38.37 million C. Project Data Appraisal Estimate Actual 1. Project Cost ($ million) (a) Foreign Exchange (b) Local Currency (C) Total Cost Financing Plan AøDraisal Estimate Actual Foreign Local Total Foreign Local (i) Implementation Costs (a) Borrower Financed (b) Bank Financed (c) Private Sector (d) Total , Total (ii) IDC Costs (a) Borrower Financed - - (b) Bank Financed (C) Other External Financing - - (d) Total 6.37 ADpraisal Estimate Actual Foreign Local Total Foreign Local - 3, Total

6 iv Cost Breakdown by Project Components North Harbor (a) Civil Works (b) Dredging (C) Consulting Services South Harbor (d) Civil Works (e) Dredging (f) Consulting Services Appraisal Estimate Actual Foreign Local Total Foreign Local Total (g) (h) (i) (j) (k) Equipment MIS Development Bulk Terminal Detailed Design Contingencies IDC Total Project Schedule Appraisal Estimate Actual (a) Date of Contracts with Consultants - North Harbor Jan South Harbor Jan 1988 May 1988 May 1988 (b) Completion of Engineering Design Sep 1988 (C) Civil Works Contracts - Date of Award - North Harbor Jun South Harbor Jun Completion of Work - North Harbor Jun South Harbor Jun 1992 Dec 1988 Mar 1991 Jul 1991 Dec 1995 May 1994 (d) (e) Equipment and Supplies a - First procurement Jul Last procurement Dec 1992 Start of Operations - North Harbor Jan 1993 I Jan 1996 a Component was canceled.

7 V (f) Other Milestones - Change in Bank Financing Percentage - Reallocation of Loan Proceeds (1) - Reallocation of Loan Proceeds (2) - Reallocation of Loan Proceeds (3) - Reallocation of Loan Proceeds (4) - Extension of Loan Closing Date (I) - Extension of Loan Closing Date (2) 28 Jan Feb Oct Dec Jan Oct Dec 1994 D. Data on Bank Missions Type of Mission Date No. of Persons Person-days Specialization of Members a Preliminary Fact-finding Fact-finding Appraisal Review I Review 2 Review 3 Review 4 Review 5 Review 6 Review 7 Review 8 Review 9 Review 10 PCRb 19 Nov Dec Jun Jul Aug Feb Dec Dec Jun Dec Sep Aug Sep , Jut May Dec Sep Oct I 6 I I a, d, g a, b, e, h a, b, c, d, h, i. a, I a a a, k a a a, b, d, I a - Engineer; b - Financial Analyst; c - Counsel; d - Economist; e - Procurement/Consultant Specialist; f - Control Officer; g - Port Operations Specialist; h - Programs Officer; - Cofinancing Officer, j - Computer Systems Specialist; k - Sr. Project Specialist; - Sr. Assistant/Assistant. I. Fujita, Project Engineer/Mission Leader; T. Sen. Budget and Management Services Officer; P. Giraud, Project Economist; T.S. Capati, Assistant.

8 LUZON 123 C PROJECT AREA 17 N -I Marine Slipway NORTH HARBOR PHILIPPINES Pier 16 SECOND MANILA PORT PROJECT PROJECT AREA (as completed) Pier 14 1 \ pier 12 pier 10 [11 MANILA Pier 8-14 N pier6 er2 MANILA BAY nati0 afl1atntetlnal Conta I-I. 1g Enginee Island o I Meters / / Area Occupied by Squatters Road SOUTH HARBOR 1 1 C, a

9 1 \\ I Manila International \ \ Depth / Container Terminal \ \ -6Om J PHILIPPINES SECOND MANILA PORT PROJECT MANILA NORTH HARBOR REHABILITATION (as completed) PIER 2 PIER 4 PIER 6 PIER 8 PIER 10 PIER 12 PIER 14 ] Depth -BOrn I I I / / I / I I / I-' I-' LI E 1 1 SLIP 3 ri SLIP 5 SLIP 7 SLIP 9 SLIP 11 SLIP 13 Ii 11 II 1b II ii GATE1 ROAD 10 GATE L -- 2 [ie Ad.5r (31-4 C, -i r Meters New Facilities (Berth,Breaater) Lull Container Slacking Yard L New Road [ Repavement E " Area Occupied by Squatters Bottom Contour

10 PHILIPPINES SECOND MANILA PORT PROJECT MANILA SOUTH HARBOR REHABILITATION (as completed) PIER I_I Meters PIER15 I PIER 9 PIER 5 PIER 3 Rehabilitated Shed UI I Rehabilitation Pavement Trench Leveling Demolished Shade _Em 1[1 I L CONTAINER STACKINGYARD (CY2) I CONTAINER STACKING YARD (CV - 1) Ii -J. urn ii N) 0) (-))

11 I. PROJECT DESCRIPTION 1. The principal objective of the Project was to facilitate improvements in cargo handling productivity, and thereby to reduce cargo handling costs for port users, by rehabilitating North and South Harbors. An additional objective was to develop the institutional capacity of the Philippine Ports Authority (PPA) by assisting it to develop effective financial and managerial systems. 2. The Project was in line with the Mid-Term Development Plan of the Government for , the main objective of which for the port sector was to rehabilitate port facilities. As Manila is by far the largest market and focal point for distribution in the Philippines, the Government placed top priority on rehabilitating Manila Port. The Project focused on the rehabilitation of dilapidated port facilities at North and South Harbors with a small expansion of port facilities at North Harbor by reclaiming slip 17 and constructing three deepwater berths with sufficient back-up area for a roll-on-roll-off (RORO) ship terminal; passenger terminal; and container stacking yard. The modest scope of the Project reflected the economic uncertainties of the country at the time of Project formulation and processing, which necessitated the adoption of conservative demand forecasts for port traffic. Taking into account the uncertain economic environment, the Project as formulated 1 is considered to have been appropriate. During Project implementation, however, the Philippine economy started rebounding and port traffic increased much faster than expected at appraisal. 3. A loan of $43.5 million was approved on 15 December 1987 to finance part of the foreign exchange cost of the Project. The loan became effective on 29 July 1988 after two extensions. The Project was completed at the end of 1995, with almost all the facilities at North Harbor, and major parts of the facilities at South Harbor rehabilitated; it helped to support the high economic growth of the country starting in The Project was formulated with flexibility, and several changes occurring in its scope during implementation were handled promptly. Some of the components were deleted from the scope; savings from these deletions were utilized to finance the cost increase of civil works. The loan was closed on 8 May 1996 after two extensions, with all disbursements having been completed. Key events associated with the Project are given in chronological order in Appendix 1. The North Harbor component was regarded as the first phase of the development of the Harbor, and the second phase was to build a domestic container terminal, which so far has not materialized. Instead, there is a new port development project currently ongoing north of the Harbor as a part of an industrial park development using private financing, known as the Smoky Mountain Development Project.

12 2 A. Project Components II. EVALUATION OF IMPLEMENTATION 4. The Project comprised five components: (i) Part A, rehabilitation of North Harbor, (ii) Part B, rehabilitation of South Harbor, (iii) Part C, provision of Cargo Handling Equipment and Miscellaneous Port Equipment, (iv) Part D, Management and Information Systems (MIS) Development and Institutional Strengthening, and (v) Part E, Detailed Design for a Bulk Terminal. Among these five components, Parts A and B were the core of the Project with the largest share of the cost (more than 80 percent of the base cost). For the other three components, investment or technical assistance (TA) from sources other than PPA was envisaged concurrently with, or prior to, the Bank loan. This included investment from private terminal operators for Part C; a grant from the Government of Singapore for Part D 1 ; and a feasibility study from bilateral financial institutions for Part E. The Loan Agreement included relevant clauses to flexibly respond to possible changes during Project implementation. 5. Details of changes in the Bank-financed Project scope are provided in Appendix 2. Only the first two components (rehabilitation of North and South Harbors) were retained as: (i) PPA made other arrangements for miscellaneous port equipment expected to be financed by the Bank under Part C; (ii) PPA decided to use the loan proceeds from the World Bank for the MIS under Part D, rather than grant money from the Singapore Government; and (iii) based on a study financed by the United States Agency for International Development, PPA decided to adopt the build-operate-transfer modality for the bulk terminal under Part E. The surplus loan proceeds derived from these deletions2 were used to increase financing for Parts A and B. During Project implementation some modifications were made to Parts A and B to reflect site conditions, port user's views, and changes in traffic demand after Project formulation. These modifications included converting pier 5 in South Harbor into a container terminal, and deleting the RORO facilities from the North Harbor component. As container penetration has been higher than expected at both the harbors and there are no RORO ships that require special facilities for loading/unloading RORO cargoes, these changes are considered to be appropriate. 6. During Project processing, there were disagreements among the shipping companies as to whether common passenger facilities were desirable. Thus, it was agreed that the passenger facilities at North Harbor would be constructed only if further discussions within shipping companies resulted in a clear consensus about the desirability of such facilities. Eventually, PPA deleted the passenger facilities from the North Harbor component 2 as it did not succeed in obtaining the concurrence of the shipping lines to use them. At the time of appraisal, the World Bank was processing its Provincial Ports Project (Loan No PHI) under which an MIS component was also considered. During Project implementation, PPA changed the basic planning concept of the passenger facilities from two separate one-storey buildings to a large-scale passenger terminal with elevated passenger corridors, that would segregate passenger flow from cargo flow and other associated traffic. The proposal was turned down by the Bank, as no feasibility study was made available, and it was doubtful whether the shipping lines would agree to the common use of such terminal.

13 3 B. Implementation Arrangements 7. PPA was the Borrower and the Executing Agency for the loan, which was guaranteed by the Government of the Philippines. During Project implementation, there were no delays in the provision of counterpart funds, which had been a major problem during implementation of the first Manila Port Project (Loan No. 412-PHI). PPA established a Project Office to supervise the day-to-day implementation and coordination of the Project. The Project Office was headed by an experienced full-time Project Director under whom two Project Managers, one each for the South and North Harbors, were assigned. The Project Director changed twice during implementation, but this had little effect, as one of the two Project Managers succeeded to the position to maintain continuity. The Bank approved, in September 1987, advance action and retroactive financing up to $1.6 million for dredging and for consulting services which helped timely implementation of the Project. 8. Civil works, except dredging, were contracted through International Competitive Bidding (ICB) under two separate contracts, one each for the North and South Harbors components. Dredging was undertaken by PPA through force account, as the dredging quantity was not large enough to attract an international contractor, and PPA's dredging equipment had proved to be sufficient to carry out dredging in a cost-effective manner (see para. 17). Rehabilitation of pier 3 in South Harbor was deleted from the scope, as it was financed by the private operator who had been awarded the operational franchise for 15 years in While the procurement of rubber fenders was originally included in the civil works contracts, this was carried out separately to ensure the timely availability of the goods to the contractors; this arrangement is considered to be appropriate. C. Project Costs 9. At appraisal, the total cost of the Project was estimated at $86.69 million equivalent (inclusive of taxes and duties amounting to $2.8 million), of which $50.40 million, or about 58 percent, was the foreign exchange cost, including $6.37 million of interest and other charges during construction (IDC). Local currency costs were estimated at $36.29 million equivalent, or about 42 percent. The cost estimates for North Harbor were based on the Appraisal Mission's review of the study financed by Bank TA, 1 while the costs for South Harbor were based on the Appraisal Mission's review of the findings of a feasibility study funded by Japan International Cooperation Agency. The cost estimates included a physical contingency allowance of 20 percent for the civil works, 10 percent for equipment, and 5 percent for consulting services and price escalation. Because of uncertainty associated with the nature of the works, particularly the lack of "as-built" drawings of the existing facilities, the physical contingency allowance of 20 percent for civil works was considered to be appropriate, but even that proved to be inadequate (see para. 11). 10. Although the actual Project cost was $84.79 million ($46.42 million in foreign exchange and $38.37 million equivalent in local currency costs), about $2 million less than the appraisal estimate, the cost of rehabilitating the North and South Harbors increased considerably except for dredging. The final civil works cost of the North Harbor component was $35.40 million against the appraisal estimate of $28.51 million; consulting services costs were $4.38 miflion against $2.40 million; and dredging was $1.75 million against $1.99 million. The civil works cost of the South Harbor rehabilitation component was $29.61 million against the TA No. 842-PHI: Second Manila Port, for $75000, approved on 12 January 1987.

14 4 appraisal estimate of $15.57 million; consulting services costs were $2.88 million against $1.60 million; and dredging was $1.06 million against $1.25 million (see Appendix 3). 11. The significant increase in the civil works cost of South Harbor (90 percent) was attributable mainly to (i) conversion of pier 5 into a container wharf, which required major structural strengthening; (ii) more advanced detenoration of the facilities than expected at appraisal, which required more material and labor inputs (the most deteriorated pier 13 was deleted from the Project scope); and (iii) additional works (e.g., leveling the quay floor by filling the lower basin) identified during detailed design. Though lower than that in South Harbor, the overrun in civil works costs for North Harbor of 24 percent over the appraisal estimate exceeded the physical contingencies of 20 percent. The significant increase in consulting services cost reflects the longer than expected length of assignment (7.5 years against 5 years for the North Harbor component, and 7 years against 5 years for the South Harbor component), and a major increase in the foreign exchange cost for the North Harbor consultants (the contract was awarded to a Japanese company payable in yen, which appreciated significantly from $1=Y160 in 1989 to $1=Y from 1997 onward). 12. The final Project cost was, however, accommodated within the appraisal estimate by utilizing surplus loan proceeds from the deleted components and contingencies. The foreign exchange cost borne by PPA was the excess of IDC over the amount provided under the loan. Actual Bank financing was $0.42 million less than the appraisal estimate. These loan savings were cancelled (see Appendix 4). D. Project Schedule 13. The Project was expected to be implemented over a five-and-half year period, including the warranty period, beginning in September 1987 when the dredging works commenced. Civil works for the two harbors were expected to commence in July Project facilities were expected to become fully operational in late 1992, and the warranty period was to end in mid The Project schedules at appraisal and as actually implemented are shown in Appendix 5. The Project was delayed more than two years, mainly because of protracted procedures within the Government to award civil works contracts. Prequalification procedures progressed smoothly starting in May 1989 and ending in November Bidding followed right after prequalification. While bids for the civil works contract for South Harbor were opened in May 1990, the contract was awarded and signed only in July This delay occurred because of a claim by one of the losing bidders 1 and a dispute between the Government and the winning bidder on the contract terms, which took one year to settle. A change in the chairman of the Prequalification, Biddings and Awards Committee also contributed to the delay. For North Harbor, bid invitation was withheld for seven months due to the Government's intention to introduce private financing for the Project. This was subsequently abandoned, and the bids were called in September The contract for North Harbor was awarded in March The Project encountered several engineering problems that delayed construction. At South Harbor, the state of deterioration of the port structures was worse than The fourth lowest bidder offered a 15 percent discount (after discount, the bidder would have been the lowest bidder), but with a bond of only one day validity.

15 5 expected at appraisal. At North Harbor, extremely weak soil conditions at slip 17 and the collapse of slip 13 (see para. 18) led to delays. The actual construction period for South Harbor was 2 years and 7 months (two piers were deleted from the Project scope, and one pier required extensive work to convert it into container berths). The North Harbor component was implemented in 4 years and 9 months. The appraisal schedule envisaged completion of both in three years. The loan was closed on 8 May 1996 after two extensions, about 2 years and 4 months later than the appraisal estimate. E. Engagement of Consultants and Procurement of Goods and Services 16. Details of the contract packages are provided in Appendix 6. There were three additional contracts, two for the procurement of rubber fenders through ICB (Contracts 1-A and 4-A) and one for consulting services for structural investigation through direct appointment (Contract 3-A). Six contracts were deleted from the Project scope, because of the reasons mentioned in para. 5, for the procurement of (i) miscellaneous equipment (Contract 7); (ii) computer equipment and software (Contract 9); and (iii) consulting services for design and implementation of part of the computerized MIS (Contract 8); strengthening PPA's institutional capability to improve its MIS (Contract 10); providing advice on port management and operations (Contract 11); and detailed design of the bulk terminal (Contract 12). The remaining contracts were implemented as envisaged at appraisal. 17. Separating the procurement of rubber fenders from the civil works contracts ($1.31 million for North Harbor and $2.92 million for South Harbor, both through ICB) was appropriate to ensure timely provision of the goods to the contractors. The dredging of the basins, slips, and approach channels at North and South Harbors was conducted under force account because (i) the estimated cost of contracts of $1.99 million and $1.25 million was too small to attract international contractors due to mobilization costs; (ii) local contractors did not have appropriate dredging equipment; and (iii) PPA had the appropriate equipment to undertake the dredging in a cost-effective manner, and such dredging was urgently required to facilitate timely implementation of the Project. The actual dredging cost was around $1 per cubic meter, which was comparable with the international price at the time. This arrangement was appropriate. F. Performance of Consultants, Contractors and Suppliers 18. The performance of the consultants, contractors and suppliers is evaluated as generally satisfactory. The consultants and the contractor engaged for North Harbor were not responsible for the collapse of slip 13,1 as the results of the investigation conducted after the incident showed that (i) the method and quality of predesign investigation and design of rehabilitation were satisfactory; (ii) the quality of civil works was satisfactory; (iii) slip 13 was the only structure where tie-wires had been installed originally instead of tie-rods to hold back sheet piles, and the tie-wires had insufficient strength for the purpose; and (iv) it was not possible to detect the deficiency beforehand. The failure of the pier was caused by fragility resulting from the extensive deterioration of the original structure, triggered by the stacking of heavy cargo. 19. As the Project was implemented while port operations were taking place, close coordination of the construction with port operations was required. Because six operators were There has recently been a second incidence of collapse, at pier 15 in South Harbor. ( see para. 30).

16 6 handling cargo in North Harbor, coordination with these operators was extremely complicated and time consuming. The consultants and the contractor cooperated with PPA in coordinating with the cargo handlers, and well-planned construction methods were followed to minimize disruptions to port operations. G. Conditions and Covenants 20. As shown in Appendix 7, compliance by the Executing Agency with the loan covenants was generally satisfactory except for (i) timely acquisition of land for the Project, and (ii) the formation of the Cebu Port Authority (CPA) without prior consultation with the Bank. The major problem encountered during implementation of the first Manila Port Project had been PPA's lack of access to counterpart funds. To avoid this problem, relevant clauses were stipulated in the Loan Agreement, and there were no delays in the provision of counterpart funds. PPA maintained a good financial position: its operating ratio and self-financing ratio were satisfactory during Project implementation (see para. 49). In line with the loan covenants, PPA also revalued its fixed assets and revised tariffs, both of which were essential to maintain the financial viability of the Project (see paras. 46 and 50). 21. Relocation of 1,400 squatter families from slip 17 of North Harbor was successfully carried out through joint efforts of Government agencies concerned (Interagency Committee on Squatter Removal and Relocation; IACSRR). The second step was phased relocation of 7,000 squatter families from the southern end of North Harbor. After completion of the relocation of about 100 families, a temporary restraining order was issued. Despite IACSRR's efforts to resolve the issue, the relocation was suspended for a long period, and the relocation site was occupied by other squatters, which further complicated the issue. Consequently, two minor components -- the construction of a part of the container yard at Slip 0 and the associated link road to the Manila International Container Terminal access road -- were deleted from the Project scope (Appendix 2). 22. CPA was created by the Government in September 1992, and its operations started in 1996 despite opposition by PPA. Although CPA's assets constituted about 18 percent of PPA's total assets in 1995, its operations mainly concern domestic cargo and passengers, which generate only modest revenues. The separation will not seriously affect PPA's financial performance (see paras. 51 and 52). H. Disbursements 23. Disbursements amounted to $43.08 million out of the loan of $43.50 million, or 99 percent. The remaining $0.42 million was canceled. There were three cancellations of Project components: (i) Part C, $2 million to procure various items of equipment; (ii) Part D, $1.80 million to provide consulting services for MIS and institutional development; and (iii) Part E, $0.90 million to provide consulting services for detailed design of a bulk terminal. The total savings of $4.7 million, together with the unallocated amount of $6.37 million, were utilized to finance the increased cost of civil works and consulting services under Parts A and B (rehabilitation of North and South Harbors). Disbursements were made over 7 years and 8 months, starting in August 1988 and ending in May This compares with the 5 years and 8 months estimated at appraisal. Submission of withdrawal applications was generally timely (see Appendix 8).

17 7 24. Terms of reference of the consultants engaged for the detailed design and construction supervision included a clause to review and update the Project cost estimate, including its breakdown into foreign exchange and local currency costs. As a result, it was found that the foreign exchange cost for South Harbor was higher than for North Harbor, and ratios were adjusted for disbursement purposes for South Harbor from 40 percent 60 percent, and for North Harbor from 52 percent to 35 percent, without changing the total amount of foreign exchange costs. I. Environmental Impact 25. There was no significant environmental impact due to the Project. Because of construction of a container yard at North Harbor, containers are now stacked inside the port area rather than on the roads, as was done in the past. Through the clean-up and realignment of facilities as well as introduction of proper garbage collecting systems, the Project has contributed to an improved working environment within the port. Drainage constructed as part of the Project has reduced flooding, thus contributing to the improvement. 26. Although the procurement of garbage collection equipment envisaged under Part C was dropped from the Project scope, in 1992 PPA entered into a new arrangement with the municipality through which garbage was collected from inside the port area under contract. PPA is also an active member of a new joint program for the environmental protection of Manila Bay wherein the various agencies cooperate to clean and maintain the bay. 1 This is an important step forward to improve the port's environment. J. Performance of the Borrower and the Executing Agency 27. PPA was both the Borrower and the Executing Agency for t e Project. The performance of PPA was generally satisfactory: (i) there was no delay in 1 ie provision of counterpart funds; (ii) communications with the Bank were timely; (iii) implementation arrangements were well established and maintained; and (iv) the conditions and covenants stipulated in the Loan Agreement were generally complied with. 28. During Project implementation, the Government introduced institutional and organizational changes in the port sector, including (i) promoting private sector participation in port operations and investment (PPA extended the contract for terminal operations with the private operator from 3 years to 15 years, to make it more commensurate with the investment by the private operator); (ii) coordinating development plans and works between the port and the city; and (iii) streamlining PPA port systems. Item (i) is in line with the Loan Agreement, and items (ii) and (iii) are in conformity with the key issues noted in the Bank's Project Performance Audit Report (PPAR) for Loan No. 412-PHI: Manila Port Project There were, however, some issues that needed careful monitoring and analysis by the Government and the Bank. One of these issues was the creation of CPA, despite opposition by PPA. While this move was a part of the Government's decentralization policy, Known as Manila Bay Clean-up Campaign." Agencies concerned include the Department of Environment and Natural Resources as the lead agency, Philippine Coast Guard, PPA, City of Manila, and various private organizations and individual volunteers. Circulated to the Board in September 1994.

18 8 no proper analysis of the implications was carried out, nor was the Bank consulted, although the Loan Agreement required this. 30. Another issue was the failure of two of the rehabilitated facilities: slip 13 of North Harbor and a part of pier 15 of South Harbor. A part of slip 13 collapsed in September 1994, one year after rehabilitation. Although the failure was due to a deficiency in the original wharf structure, the continuous stacking of unusually heavy container cargoes triggered the failure. While PPA engineers were aware of the likely risks and requested the operational unit to take counter measures, there was a lack of proper communications between the engineering and operational units of PPA. After the incident, both units had intensive discussions, and PPA introduced loading limitations on cargo handling operations, taking into account the design strength of the structures. However, the collapse of a part of pier 15 occurred in June 1997, three years after rehabilitation, casts some doubt on the effectiveness of enforcement of these limitations. The cause of the collapse is still under investigation at the time of writing this Report. While it is most probable that stacking of heavy cargo (almost three times heavier than the design load of the pier) buckled the supporting steel monotube piles, some of the piles were found to be unrehabilitated and may not have been able to provide their design capacity. 31. The MIS component was deleted from the Project because PPA decided to use part of a World Bank loan for the purpose rather than the Singapore Government grant. Under the World Bank financing, a master plan of the PPA computer systems was developed and, following the master plan, PPA and the private operators in Manila Port have gradually developed a computerized MIS system through their own resources. The system has on-line connections to port traffic data collected by the South Harbor operator and the Manila International Container Terminal (MICT) operator, which allows PPA to monitor and supervise the operations and management of South Harbor and MICT. However, the system has no access to North Harbor and to ports other than Manila Port. To improve the efficient and effective management of its operations, the MIS needs to be enhanced by PPA. 32. PPA maintained close consultation with private port operators and port users, which facilitated smooth implementation of the Project. The deletion of the common user passenger terminal at North Harbor is considered appropriate; it was agreed during processing that the passenger terminal would be built only if the operators wanted it. As no consensus was reached during implementation, it was not built. 33. PPA, in cooperation with other Government agencies concerned, has introduced new traffic regulations in and around North Harbor. Jeepneys, taxis, and tricycles are not allowed to enter the port area. Shanties along each side of R-10 1 have been demolished, and there are now three lanes in each direction. This, coupled with the construction of the collector roads within the port, has improved port traffic flows dramatically, thus enhancing the efficiency of port operations. The radial road running along the coastline of Manila Bay.

19 9 K. Performance of the Bank 34. During Project implementation, changes in Project scope and associated matters became necessary because of various reasons: (i) traffic demand surged after Project formulation; (ii) conditions justifying some of the Project components did not materialize; and (iii) the Government decided to promote more private sector involvement in the port sector. Whenever the need for change arose, the Bank examined the matter and took appropriate action. The Bank gave timely and relevant technical advice to PPA for the resolution of problems encountered during Project implementation. A. Traffic Reevaluation III. EVALUATION OF INITIAL PERFORMANCE AND BENEFITS 35. The Project has been reevaluated based on actual port traffic and revised traffic forecasts over the anticipated Project life. At appraisal, very conservative traffic forecasts were made because (i) the economy of the country had experienced deep recession between 1982 and 1985, which resulted in a decline of port traffic at Manila; and (ii) the Project was processed immediately after the political events in 1986, a period of economic uncertainty. Actually, the economy of the country rebounded, showing strong growth particularly from 1994 onward. 36. A comparison of the appraisal forecast with actual traffic from 1987 to 1995 indicates a clear divergence. Manila Port 1 traffic has increased much faster than expected during the past nine years in terms of cargo, passengers, ship calls, and average cargo volume handled per ship. Data have been compared on the same basis as at appraisal: (i) traffic handled over all of the piers at South Harbor, but excluding traffic at anchorage; and (ii) total traffic at North Harbor, at pier and anchorage. Comparison tables are provided in Appendix International Traffic 37. At appraisal, the international cargo traffic at Manila Port was expected to increase from 5.7 million tons in 1987 to 7.8 million tons in 1995, equivalent to a 4.0 percent average annual growth rate. The traffic actually grew at an average rate of 9.8 percent per annum to reach 14.6 million tons in 1995, 87 percent higher than forecast at appraisal. 38. The international cargo traffic is handled at South Harbor and MId. In 1986, 78.4 percent of total international cargo traffic was handled at South Harbor. At appraisal, it was expected that this share would decrease to less than half in the 1990s (particularly, the share of container traffic was anticipated to decrease sharply from about 60 percent to 15 percent) due to the completion of Phase II of MICT. The actual share of international cargo at South Harbor did not decrease as expected and has stabilized at around 60 percent since While there was no forecast provided at appraisal for international container traffic, this has increased at an average annual growth rate of 13 percent to reach 1,080,000 twenty-foot equivalent units (TEUs) in 1995, of which South Harbor handled around 30 percent. For this analysis, Manila Port includes North Harbor, South Harbor, and MICT but excludes subports (Pasig Bank, private and municipal ports of Limay, Marivelles, Romblon, and Subic). During the last 10 years, about 40 percent of the total cargo traffic and 5 percent of the total passenger traffic of Manila Port District Office area have been handled through these subports.

20 The number of international ship calls increased from 2,232 in 1987 to 3,864 in The average international ship size increased from about 8,400 gross registered tons (GRT) in 1987 to about 10,300 GRT in 1995, an increase of 23 percent over the period. The average international cargo volume handled per ship also increased by 22 percent, from around 3,100 tons per ship call in 1987 to about 3,800 tons per ship call in Domestic Traffic 40. Domestic cargo traffic through Manila Port is handled mainly at North Harbor.1 At appraisal, domestic cargo was forecast to increase from 7.7 million tons in 1987 to 10.4 million tons in 1995, equivalent to a 3.9 percent average annual growth rate. The domestic cargo traffic actually increased at an average of 6.8 percent per annum to reach 14.2 million tons in 1995, 37 percent higher than forecast at appraisal. 41. At appraisal, domestic container traffic was projected to increase from 265,000 TEUs in 1987 to 427,000 TEUs in 1995, equivalent to a 6.1 percent average annual growth rate. The domestic container traffic actually increased at an average growth rate of 9.7 percent per annum to reach 611,000 TEUs in 1995, 43 percent more than expected at appraisal. 42. The number of domestic ship calls increased from 5,099 in 1987 to 6,538 in The average ship size nearly doubled from 1,900 gross registered tons (GRT) in 1987 to 3,600 GRT in However, the average domestic cargo volume handled per ship increased by only 32 percent, from around 1,600 tons per ship call in 1987 to about 2,200 tons per ship call in This shows a trend towards using bigger ships calling at several domestic ports rather than small ships making return trips between two ports. 3. Revised Traffic Forecast ( ) 43. In 1996, traffic grew at about 16 percent over 1995 traffic at South Harbor (9 percent for container traffic and 23 percent for noncontainerized cargo traffic). At North Harbor, traffic grew by about 8 percent (7 percent for containerized and 11 percent for noncontainerized cargo). Revised traffic forecasts are based on the following assumptions: (i) International Traffic. A 9 percent annual growth has been assumed for both container and non containerized cargo traffic until 2000, after which the growth rate should progressively decrease to 5 percent, which is close to the average long-term international maritime traffic growth expected in the ASEAN region. Taking into account productivity improvements due to the Project and to additional equipment investment made by the private sector, the capacity of piers 5, 9, and 15, which were the only ones rehabilitated under the Project, has been estimated at about 5.3 million tons; this is expected to be reached in The traffic increase attributable to the Project has been limited to this level in the economic and financial analyses. Over the past decade, about 1 percent of the total domestic cargo traffic of Manila Port has been handled at South Harbor and MICT.

21 11 (ii) Domestic Traffic. An 8 percent growth rate has been assumed for domestic traffic (7 percent for container traffic and 11 percent for noncontainerized cargo traffic). The capacity of piers 2-18, which were rehabilitated under the Project, has been estimated at about 24.8 million tons; this is expected to be reached in Traffic handled at North Harbor has been limited to this level for the economic and financial analyses. 44. At appraisal, the average economic asset life of the Project was estimated at 20 years from the start-up year, planned to be The project period considered for evaluation was therefore The same average economic asset life has been retained for the Project reevaluation. The Project was fully operational in January 1996, so the Project period considered for reevaluation, including the implementation period, is The Project reevaluation is based on the total traffic at North Harbor, but only on the traffic handled at piers 5, 9, and 15 of South Harbor, because piers 3 and 13 were deleted from the Project scope. It is assumed that no traffic has been directly generated by the Project improvements or put off by the increase in charges. The Project has allowed traffic growth to take place only in Manila, within the limits of its incremental capacity. The revised traffic forecasts are provided in Appendix 9, along with the traffic forecast at appraisal. B. Financial Performance of PPA 46. PPA, in general, and both North and South Harbors at Manila Port, in particular, have experienced significant increases in revenues over the last several years that are well above the appraisal estimates. This is attributable to higher than expected traffic growth and tariff increases. The overall operating expenses of PPA have increased almost in proportion to the revenue increases, primarily due to substantial increases in personnel costs and other administrative expenses. The increase in operating expenses at South Harbor has been lower than the overall rate of PPA, and the operating expenses at North Harbor have even decreased (for details, see Appendix 10). 47. The overall financial performance has been better than that anticipated at appraisal. While PPA's operating ratios have not improved significantly, the profits and cash generation have been quite substantial. The operations of North and South Harbors and MICT have been very profitable and continue to subsidize the operations of several smaller ports. Analysis of the financial statements indicates that the increased liquidity and sound financial position of PPA should enable it to meet all its financial obligations including debtservice requirements. Starting in 1994, PPA has been required to pay half of its net income of the previous year as a dividend to the Government. This will restrict PPA's cash build-up, which could severely affect its expansion plans and ability to finance such investments from internally generated funds. PPA is requesting a reconsideration of the payment of dividends to the Government. Comparative financial performance indicators are presented in Appendix While the financial reporting of PPA seems adequate at the aggregate level, costing by pier or Project component, or by cost center, is not available. This is a consequence of the delay in implementing the computerized MIS system and the different operations not being linked to the main office by local area networks.

22 Based on the financial performance indicators, PPA has complied with the financial covenants agreed upon at appraisal. Operating ratios were maintained below the covenanted maximum of 65 percent, while self-financing ratios (computed in accordance with the appraisal method) were substantially higher than the minimum 30 percent required. 50. Asset revaluation was last carried out in June 1991 and led to a substantial upward valuation in land and other assets of PPA from As a result of asset revaluation, PPA was required to pay real estate taxes of P80 million in 1993, increasing to P155 million in 1994 and No revaluation was undertaken in 1996 pending the outcome of PPA's appeal against payment of real estate taxes and in anticipation that further upward adjustment in asset values may lead to an additional real estate tax burden. 51. In 1992, the Government established CPA, which includes Cebu Port and some other minor ports in Cebu Island. Existing assets and related liabilities of the Port Management Office at Cebu were transferred to CPA and separated from PPA in January The transfer of assets worth P4.5 billion was equivalent to about 18 percent of PPA's total assets in The creation of CPA may be viewed as a positive step in promoting regional development in the province of Cebu and is expected to improve integration and coordination of planning, development, and operation of ports within its territorial jurisdiction. Cebu Port's share of the country's cargo volume is about 10 percent against its asset share of 18 percent. The port has a distinct nature of being a domestic distribution center, domestic cargo representing about 90 percent of the total cargo volume (compared with less than 60 percent for PPA). This indicates that the revenue contribution of the port to PPA would be much less than its asset share. Since this trend is likely to continue in the future, the financial implication of the separation is not serious for PPA. The present deficit of CPA will continue until CPA increases its tariffs for domestic cargo and attracts more international cargo. C. Financial Reevaluation of the Project 53. The methodology of "with" and "without" the Project comparison used at appraisal has also been followed in recalculating the financial internal rate of return (FIRR). The underlying assumptions at appraisal have been verified and updated using the actual performance of Manila Port (for details see Appendix 11). (i) Without the Project. The vessel and cargo handling capacity of both North and South Harbors at the piers would gradually decline because of frequent repair and maintenance work. This would lead to a decline in revenue, while operation and maintenance (O&M) costs would continue to escalate. With a reduced capacity, port users would incur higher costs arising from double handling of cargo associated with servicing vessels at anchorage. ii) With the Project. The construction of three deepwater berths at North Harbor and the capacity of the facilities would be maintained or expanded because of conversion of pier 5, South Harbor, into a container terminal. While

23 13 there would be additional O&M costs estimated at 1.5 percent of the capital cost, these would be significantly lower than the O&M costs in the "without" the Project case. 54. Incremental benefits and costs for South Harbor have been adjusted to reflect only revenues and costs attributable to the Project piers (5, 9, and 15). Based on these assumptions, the FIRRs recalculated separately for North and South Harbors and for the Project as whole are 5.7 percent, 15.2 percent, and 10.3 percent, respectively compared with the appraisal estimates of 9.2 percent, 11.9 percent, and 10.4 percent, respectively. D. Economic Reevaluation of the Project 55. The Project has been reevaluated on the basis of a "with" and "without" the Project comparison, using slightly different assumptions from those used at appraisal (i) Without the Project. The uneven working surface of the piers and the very poor condition of existing equipment would lead to worsening cargo handling operations and increasing ship turnaround times. Facilities at North and South Harbors would continue to deteriorate, resulting in higher O&M costs. The limited container stacking capacity at North Harbor would require offpier handling (at anchorage) at higher cost after the pier capacity is reached. (ii) With the Project. The rehabilitated piers will allow better operating conditions and will attract investment in new and replacement equipment by private operators, thus improving cargo handling productivity and reducing ship turnaround times. O&M costs at the rehabilitated structure will be reduced. Additional container yard area and better container handling efficiency will reduce the requirement for off-pier handling. Capacity will be reached in 1998 at South Harbor and in 2003 at North Harbor, avoiding additional costs for excess cargo, which would have been handled at anchorage from 1995 without the Project. Although a reduction in the share of South Harbor cargo handled at anchorage could be expected with the Project before the piers reach capacity, it has not been quantified as a benefit. The reduction in equipment O&M costs and the extension of the economic life of the equipment, which could be expected from the improvement of pier working surfaces, has also not been quantified as a benefit. 56. The economic costs and benefits in the "with" and "without" the Project cases have been reevaluated for the Project as a whole, and for the North and South Harbor components separately. The economic internal rates of return (EIRRs) are estimated at 26.7 percent for the whole Project, 29.2 percent for North Harbor, and 23.3 percent for South Harbor (see Appendix 12). These rates are higher than those estimated at appraisal (15.7 percent, 15.4 percent, and 16.2 percent, respectively), due mainly to higher traffic growth than expected at appraisal.

24 14 E. Attainment of Benefits 57. Although the whole Project was completed only at the end of 1995, parts of it were completed and put into operation before this date. South Harbor rehabilitation was completed by mid-1994, and rehabilitation of piers 2-16 at North Harbor was gradually completed from mid-1992 to the end of Private operators signed operation concession contracts in 1991 and immediately started to provide new cargo handling equipment. Based on discussions with the Manila Port District Office and Port Management Offices at South and North Harbors, and on analysis of port data and operational indicators, it is clear that some of the expected benefits were attained before the Project was fully completed: (i) Before Project implementation, the average ship turnaround time was about 124 hours at South Harbor and 78 hours at North Harbor. In 1995, the average turnaround time had been reduced to about 102 hours at South Harbor and 60 hours at North Harbor, an improvement of 22 and 18 hours, respectively, per ship call. The average waiting time stayed reasonably low at 4 hours per call at South Harbor and less than 1 hour per call at North Harbor. (ii) The consolidated profit and loss statements of Manila Port District Office in 1991 and 1995, that is, immediately before and after Project implementation, show a reduction of P23 million in repair and maintenance expenses for South and North Harbors combined. (iii) The cargo volume handled at South Harbor (Piers 5, 9, and 15) was about 1.1 million tons in 1988, which increased to 3.8 million tons in Similarly, the cargo volume handled at North Harbor increased from 9.6 million tons to 14.1 million tons over the same period. Sharp increases in cargo volumes were recorded in 1994, when the major Project facilities were put in operation. This reflects the resumed economic growth of the country, which, without the restored and expanded port capacity under the Project, would have been diverted elsewhere. A. Conclusions IV. CONCLUSIONS AND RECOMMENDATIONS 58. After various changes in scope, the Project was completed successfully. Both North and South Harbors have been rehabilitated, which helped accommodate the rapid increase of cargo volume starting in Without the Project, there would have been a continuing series of wharf collapses, which would have hindered port operations, causing a bottleneck of cargo movement. 59. Despite the rapid increase of cargo volume, traffic flows in and around the port have been improved, particularly at North Harbor, because of construction of collector roads

25 15 within the port area, together with the proper introduction of traffic regulations. This has also contributed to improved port operations. 60. The changes in Project scope are considered appropriate. During Project processing, there were stilt unknown factors and uncertainties, and, accordingly, possibilities for changes in scope were envisaged, and allowed for in the loan documents. Because of this flexibility, there were no significant delays resulting from such changes. While Parts C, D, and E were deleted from the Project scope, they were implemented, or are being implemented, under other schemes including investment by the private sector. The loan savings from the deletions were utilized to finance the cost increase in the rehabilitation works under Part A and B. 61. Private sector participation in the port substantially increased during the implementation period. The extension of the operational contract from 3 years to 15 years enabled the South Harbor operator to invest more in facilities and equipment, particularly for containers, thereby reducing PPA's financial burden. Moreover, this created competition within the port for international containers, thus promoting higher efficiency of the port. 62. PPA has proved itself to be a sound and sustainable organization. The arrangement that made PPA both the Executing Agency and the Borrower worked well. There were no problems in the provision of local counterpart funds, which is often observed in other projects in the country, and delays in implementation were significantly reduced in comparison with the Manila Port Project. The initial operation of the facilities indicates that the benefits expected at appraisal have either been attained already or will be attained. The FIRR for the Project is estimated at 10.3 percent and the EIRR at 26.7 percent. The Project is, therefore, considered to be generally successful. B. Recommendations 1. General 63. Experience with the Project confirms the difficulties associated with rehabilitating existing facilities as opposed to constructing new ones. Rehabilitation of old structures is usually associated with the non-availability of as-built drawings; difficulties in accurately determining the structural condition; and accordingly, difficulties in determining the appropriate methods and scope of rehabilitation. Because of these factors, higher contingency allowances should be provided for both costs and completion times for such projects as compared with those for new ones. 2. Project- Related 64. PPA needs to remind the port operators continuously that the facilities have been rehabilitated to their original design strength only and cannot accommodate excess cargo weight. PPA also needs to improve enforcement of the load limitation determined by structural investigation and analysis, with proper supervision and monitoring, so as to avoid any further collapse of the structures.

26 The squatter issue at Manila Port continues to be an obstacle for future port development and its management and operations, as well as an aesthetic concern to the main gateway of the country's capital city. This is a highly political issue and may need a long time to resolve. While the scope of possible actions by PPA is limited, PPA, as the owner of the port, should prevent further sprawl of the squatter area. 66. The PPAR may be prepared in 1999 when the Project facilities at South Harbor reach their capacity, and the newly constructed container terminal at North Harbor will be in full operation.

27 17 APPENDIXES Number Title Page Cited On (page, para.) Major Events in Project Implementation Changes in Project Components Appraised and Actual Project Cost Financing Arrangements Project Implementation Schedule Contract Packages CompJiance with Loan Covenants Appraised and Actual Disbursements Comparison of Cargo Traffic ( ) Financial Performance of PPA Financial Reevaluation of the Project Economic Reevaluation of the Project 18 1,3 22 2, , , , , , , , , , ,56

28 18 Appendix 1, page 1 MAJOR EVENTS IN PROJECT IMPLEMENTATION 19 Nov-3 Dec86 12 Jan 87 25Apr87 l5jun-3july87 29 Jul 87 4 Aug Aug87 30 Sep Oct87 15Oct Nov87 15 Dec87 1 Feb Feb Feb Mar88 - Preliminary Fact-finding. - Approval of small-scale TA 842-PHI: Second Manila Port to firm up the scope of the North Harbor (NH) component. - Consultants under the small-scale TA submitted their final report on the rehabilitation of NH. - Fact-finding Mission. - Management Review Meeting. - Management approval on advance action for the recruitment of detailed engineering design and construction supervision consultants for NH and South Harbor (SH). - Appraisal Mission. - Management approval on advance procurement action for the dredging of entrance channels, basins, and slips; and retroactive financing for dredging expenses and engineering consulting services. - Consultants Selection Committee (CSC) Meeting to review shortlist of consultants to undertake detailed design and construction supervision. - Staff Review Committee Meeting. - Loan negotiations. Issue of squatter problem raised. - Loan approved in the amount of $43.5 million. - Loan signed. - CSC Meeting to discuss ranking of consultant proposals for NH. - Review Mission. - CSC Meeting to discuss ranking of consultant proposals forsh.

29 19 Appendix 1, page 2 1 Jul Jul Dec88 13 Feb 89 8Apr89 25Apr89 17 May89 22 May 89 8 Jun Oct89 23 Oct Dec89 4Jan90 23 Jan May Jun 90 - Commencement of field services of construction supervision consultants for NH and SH. - Loan declared effective. - Review Mission. - Bank's approval on the segregation of procurement of rubber dock fenders from civil works contracts. - Invitations issued to prequalify contractors for NH and SH rehabilitation works. - Approval of the tender documents for the procurement of rubber dock fenders for NH and SH. - Issuance of tender invitation for the procurement of rubber dock fenders for NH. - Issuance of tender invitation for the procurement of rubber dock fenders for SH. - Deadline for submission of bids for prequalification for NH and SH rehabilitation works contracts. - Approval of list of prequalified contractors for NH and SH. - Issuance of tender invitation for rehabilitation of SH. - Review Mission. - Closing date of bid submission was postponed from 23 Jan to 20 Feb 90 for NH, and from 24 Jan to 22 Feb 90 for SH, associated with the addenda issued after prebid meeting. - The tender submission for NH was withheld by Philippine Ports Authority (PPA) indefinitely, mainly due to the elaboration of the private sector financing scheme. - The Prequalification, Bid and Award Committee of PPA issued a Resolution recommending the award of the contract for the rehabilitation of SH to the lowest evaluated responsive bidder. - Review Mission.

30 20 Appendix 1, page 3 12 Jul Aug 90 27Aug90 30 Aug 90 10Oct90 28 Nov Dec Feb 91 8Mar91 19Mar91 27Mar91 30 Jul Dec91 28 Nov Dec91 28 Jan Sep 92 - Bank approval on the Award of contract for SH. - PPA informed the winning bidder for SH of award of contract. - Private financing scheme dropped and bid invitation for rehabilitation of NH issued. - Award of two packages of rubber dock fenders and accessories for NH and SH. - PPA requested the Office of the Government Corporate Counsel (OGCC) for legal opinion on various matters involving the rejected bidder for SH. - Contract for rubber dock fenders for SH signed. - Opening of bids for rehabilitation of NH. - OGCC rendered its legal opinion on the award of contract for SH rehabilitation. PPA's decision supported. - Contract for SH finalized. Signing deferred due to revisions (price escalation) proposed by the contractor. - Contract for rubber dock fenders for NH signed. - Contract for rehabilitation of NH signed. - Contract for rehabilitation of SH signed. - Relocation of squatters at slip 17 (958 families) completed. - Marina Port Services Incorporated (MPSI) awarded an extended franchise for 15 years to operate all facilities at SH. - Review Mission. - Bank approved revised withdrawal percentages for two civil works contracts since the foreign currency requirements for NH was less than envisaged, while SH foreign currency requirements had increased. - Review Mission.

31 21 Appendix 1, page 4 2 Feb Aug - 3 Sep 93 21,26-27July94 27 Sep 94 Nov Dec May 95 5 May May95 1Oct Dec95 31Dec95 8May96 20 Sep - 4 Oct 96 Bank approved changes in the Project scope and implementation arrangements and reallocation of loan proceeds: (i) deletion of passenger terminal at NH; (ii) modification of pier 5 to accommodate container vessels; (iii) exclusion of pier 13 rehabilitation works from the Project; (iv) deletion of miscellaneous port equipment; deletion of the MIS and institutional development; and (v) deletion of consultant services for the detailed design of Manila Bulk Terminal. Review Mission. Extremely soft clay was noted at the foundation of new wharf construction site at NH. Review Mission. PPA informed the Bank of the damage to the wharf at slip Executive Order No. 212 issued by the Government providing the overall framework for the commercialization/pnvatization of the port sector. - Bank approved PPA's request to finance the design and civil works for the rehabilitation of the damaged slip 13 in the amount of $600, Review Mission. - Bank approved the detailed design for the rehabilitation of collapsed slip Bank approved PPA's request to finance the consulting services for structural investigation at NH. - Structural investigation expert was fielded. - Review Mission. - Substantial completion of the Project works. - With the cancellation of $ , the loan account was closed. - Project Completion Report Mission was fielded.

32 22 Appendix 2 CHANGES IN PROJECT COMPONENTS Project Components Changes Part A: Rehabilitation of North Harbor a. deepening of entrance channel, basin, and slips a. no change b. navigational aids b. no change c. breakwater extension c. no change d. new deeper berths and RORO facilities d. RORO facilities deleted e. rehabilitation of deteriorated wharves and buildings e. no change f. new passenger facilities f. deleted g. more backup space and facilities g. slip 0 portion deleted h. improvement of roads and parking areas h. slip 0 portion deleted i. utilities improvement i. no change j. engineering consulting services for detailed design j. consultant for structural and construction supervision investigation added Part B: Rehabilitation of South Harbor a. deepening of entrance channel, basin, and slips a. no change b. navigational aids b. no change c. rehabilitation of breakwater, seawalls, wharves, and c. piers 3 (implemented buildings under other schemes) and d. new passenger facilities 13 deleted e. improvement of roads and backup space d. deleted f. utilities improvement e. no change g. engineering consulting services for detailed design f. no change and construction supervision g. no change Part C. Cargo Handling and Miscellaneous Port Equipment a. provision of cargo handling equipment by private a. deleted (provided under sector other schemes) b. procurement of communication systems; a patrol b. deleted (provided under vessel; and equipment for training, fire-fighting, and other schemes) garbage_disposal Part D: Management Information Systems Development and Institutional Strengthening a. development of software a. deleted (provided under b provision of hardware other schemes) c. provision of experts services on MIS and port b. deleted (provided under management/operations to provide policy advice to other schemes) PPA management and DOTC c. deleted Part E: Detailed Design for a Bulk Terminal a. consulting services for the design of a bulk terminal a. deleted (being at Manila Port (should the proposed feasibility study implemented under other to be funded by a bilateral source identify a project schemes) suitablefor Bank financing) -

33 23 Appendix 3 APPRAISED AND ACTUAL PROJECT COST ($ million) APPRAISED ACTUAL Component Foreign Local Total Foreign Local Total NORTH HARBOR Civil Works Rubber Dock Fenders Dredging Consultants Subtotal SOUTH HARBOR Civil Works Rubber Dock Fenders Dredging Consultants Subtotal EQUIPMENT Cargo Handling Equip Miscellaneous Port Equip Subtotal Management Information Systems, Institutional Development, Computer Equipment, and Software Detailed Design of Bulklerminal Contingency a) Physical Contingency b) Price Escalation Interest and Other Charges DuringConstruction TOTAL

34 FINANCING ARRANGEMENTS ($ million) APPRAISED ACTUAL Component BANK PPA PRIVATE SECTOR TOTAL BANK PPA TOTAL Foreign Local Total Foreign Local Total Local Total Local Total Foreign Local Total Foreign Local Total Foreign Local Total NORTH HARBOR CMI Works Rubber Dock Fenders ' Dredging Design & Construction Supervision Structural Investigation Subtotal SOUTH HARBOR Civil Works Rubber Dock Fenders ' Dredging Design & Construction Supervision Subtotal EQUIPMENT b Cargo Handling Equipment Misc. Port Equipment Subtotal MIS and lnstl. Development b Bulk Terminal b UNALLOCATED bc Total Originally envisaged to be included in the scope of civil works contracts. Deleted from Project scope -N

35

36 26 Appendix 6 CONTRACT PACKAGES Contract APPRAISED ACTUAL Number Description Contract Amount Method of Contract Amount Method of ($ million) Procurement a million) Procurement a Contract 1 North Harbor Civil Works ICB ICB Contract 1-A Norh Harbor Rubber Dock Fenders ICB Contract 2 Dredging North Harbor 1.99 FA 1.75 FA Contract 3 Consulting Services (North Harbor) GB 4.34 ICB Contract 3-A Structural Investigation Expert DP Contract 4 South Harbor CMI Works ICB ICB Contract 4-A South Harbor Rubber Dock Fenders ICB Contract 5 Dredging South Harbor 1.25 FA 1.06 FA Contract 6 Consulting Services (South Harbor) 1.60 ICB 2.88 ICB Contract 7 Equipment 2.20 ICB or IS deleted - Contract 8 Management Information Systems Development 0.30 ICB deleted - Contract 9 Computer Equipment and Software 1.08 IS deleted - Contract 10 Management Information Systems Advisor 0.30 ICB deleted - Contract 11 Port Management/Operations Advisor 0.30 ICB deleted - Contract 12 Detailed Design for Bulk Terminal GB deleted - Total a ICB - International Competitive Bidding IS - International Shopping FA - Force Account DP - Direct Purchase

37 27 Appendix 7, Page 1 COMPLIANCE WITH LOAN COVENANTS Covenant PROJECT IMPLEMENTATION A. Executin g Agency 1. The Borrower shall be the Executing Agency for the Project and as such shall be responsible for the overall implementation of the Project. B. Establishment of Prolect Office 2. The Borrower shall establish a Project Office. The Project Office shall function under the overall responsibility of the Assistant General Manager of Engineering Services of the Borrower and shall be headed by an experienced full-time engineer, as Project Manager, who shall be supported by such other technical and administrative staff as may be necessary for the successful implementation of the Project. C. Port Operations and Management 3. (a) The Borrower shall seek greater formal consultation between the private sector port users at the port of Manila and the Borrower for such matters as establishing and enforcing standards for traffic flow, environmental safeguards, safety, vendor licenses, and building and civil works maintenance with a view to identifying and implementing ways of improving port operations. Such consultations shall seek the views of port users on how the private sector could be more fully involved in aspects of port operations with a view to improving port operations and efficiency. Reference to Loan Agreement Sch. 6, para. 1 Sch. 6, para. 2 Sch. 6, para. 3(a) Status of Compliance Complied with Complied with Complied with (b) The Borrower shall, by Sch. 6, para. 3(b) Complied with 31 December 1989, allow the period

38 28 Appendix 7, Page 2 Reference to Status of Covenant Loan Agreement Compliance covered by the permits for cargo handling companies operating at North Harbor to be more commensurate with the investment that the private sector is expected to make with respect to cargo handling operations, and in any event, not less than three years. (c) The Borrower shall take all Sch. 6, para. 3(c) necessary actions to ensure that the cargo handling equipment procured by the private sector is appropriate and adequate for the Project facilities. Complied with (d) The Borrower shall periodically inform the Bank of progress made in the implementation of improvements to its management information systems financed by the Government of Singapore and by the International Bank for Reconstruction and Development under its Provincial Ports Project (Loan No PHI). II. FINANCIAL MATTERS A. General Sch. 6, para. 3(d) Complied with 4. Except as the Bank and the Section 4.10 Borrower shall otherwise agree, the Borrower shall not sell or otherwise dispose of any of its assets, except in the ordinary course of its business. Substantially complied with except the separation of CPA (see text paras. 20 and 22). B. Revaluation of Fixed Assets 5. The Borrower shall, by 31 December 1991, complete the revaluation of its fixed assets in accordance with a system satisfactory to the Bank and shall continue to revalue its assets on such basis at least once every five years thereafter. Sch. 6, para. 4 Complied with1 No fixed asset revaluation was undertaken in 1996 pending the outcome of the PPA appeal on payment of real estate taxes and in the anticipation that further upward adjustment in asset values may lead to additional real estate tax burden.

39 29 Appendix 7, Page 3 Reference to Status of Covenant Loan Agreement Compliance C. Operating Ratio 6. The Borrower shall maintain, for Sch. 6, para. 5(a) each of its fiscal years commencing from 1 January 1988, a ratio of total operating expenses to total operating revenues not higher than 65 per cent. Complied with 0. Self-financin g Ratio 7. The Borrower shall produce, for each of its fiscal years commencing from 1 January 1988, funds from internal sources equivalent to not less than 30 per cent of the annual average of the Borrower's capital expenditures incurred, or expected to be incurred, for that year, the previous fiscal year and the next fiscal year. Sch. 6, para. 6(a) Complied with E. Revenue Structure of Port Dues and Charges 8. The Borrower periodically, during Project implementation, shall review, or cause to be reviewed, its revenue structure in particular the revenue at the Port of Manila to ensure that its revenue structure is cost-related and consistent with sound business, financial and port operation practices. Sch. 6, para. 8(a) Complied with 9. The Borrower shall commence, or Sch. 6, para. 8(b) cause to be commenced, within 12 months of the Effective Date, a study to carry out an in-depth review of the Borrower's revenue structure. Complied with F. Financial Statements 10. The Borrower shall: (i) maintain separate accounts for the Project and for its overall operations; (ii) have such accounts and related financial statements (balance sheet, statement of revenue and expenses, and related statements) audited Section 4.07(a) Partly complied with; some of the audited Project accounts were not provided to the Bank in the course of implementation.

40 30 Appendix 7, Page 4 Reference to Status of Covenant Loan Agreement Compliance annually, in accordance with sound auditing standards, by auditors acceptable to the Bank, and (iii) furnish to the Bank, as soon as available but in any event not later than nine months after the end of the fiscal year to which they relate, certified copies of such audited accounts and financial statements and the report of the auditors relating thereto, all in the English language. 11. The Borrower shall furnish to the Section 4.07(b) Bank within six months after the end of each fiscal year, unaudited annual financial statements on its operations for such fiscal year. Partly complied with; not all unaudited accounts, both for PPA and for the Project,were provided to the Bank. Ill. OTHER MATTERS A. Land 12. (a) The Borrower shall ensure that Sch. 6, para. 9(a) all land or rights to land required for the Project are promptly made available so as to ensure timely implementation of the Project. Partly complied with; squatter relocation from slip 0 was delayed and container yard hasbeen deleted from the Project scope. (b) The Borrower, in conjunction with Government agencies concerned, shall ensure that all land required at North Harbor for the expansion of the container yard and the truck parking area in the vicinity of Slip 0 and all land in the vicinity of Slip 17 shall be made available by 1 June B. Squatters 13. (a) The Borrower shall take all necessary steps to ensure that no further squatters settle in the Project area. Sch. 6, para. 9(b) Sch. 6, para. 10(a) and Guarantee Agreement, Section 2.05(c) Partly complied with; squatter relocation from slip 0 was delayed and container yard has been deleted from the Project scope. Complied with (b) With respect to those squatters Sch. 6, para. 10(b) Partly complied with; who are already located in the Project Area and Guarantee squatter relocation at

41 31 Covenant Reference to Loan Agreement Appendix 7, Page 5 Status of Compliance and whose relocation is necessary for the successful implementation of the Project and for the successful operation of the Project Facilities, the Borrower, working in conjunction with Government departments and agencies concerned pursuant to the plan of action agreed between the Borrower and the said Government departments and agencies, must ensure that all such squatters are relocated from the Project Area on or before 1 April C. Feasibility Stud y for Bulk Terminal 14. The Borrower shall identify, within twelve (12) months of the Effective Date, the source of funding for the consultants who are to be engaged to prepare the feasibility study for the development of bulk handling facilities at the Port of Manila. Once the consultants are engaged, the Borrower shall consult with the Bank in respect to the findings of the consultants and, in particular, shall give the Bank an opportunity to review and comment on any draft final report submitted by the consultants. Agreement, Section 2.05(c) Sch. 6, para. 11 slip 0 was delayed and container yard has been deleted from the Project scope. Complied with D. Project Benefit Monitorinçj and Evaluation 15. The Borrower shall arrange for appropriate Project benefit monitoring activities to be undertaken, and shall forward to the Bank reports containing the information necessary to monitor the Project benefits. The first such report shall be forwarded after the computerized management information system to be provided as part of the Project and has been fully developed, with further reports being forwarded to the Bank on an annual basis thereafter until five years after Project completion. Sch. 6, para. 12 Complied with

42 32 Appendix 8 APPRAISED AND ACTUAL DISBURSEMENTS Appraised a Actual Year ($ million) Amount Cumulative % to Loan Amount Cumulative % to Loan % % % % % % % % % % % % % % % Total a Did not include contingencies and IDC C I Year

43 33 Appendix 9, page 1 COMPARISON OF CARGO TRAFFIC ( ) APPRAISAL VERSUS ACTUAL MANILA poi t a - International Traffic Estimated_at appraisal [a Actual [b] Difference Year Total Increase Containers Increase Total Increase Containers Increase [(b-a)ia] ('000 tons) (%) ('000 TEUs (%) ('000 tons) (%) ('000 TEU's (%) Total Containers ,697 NA 6, % NA % NA NA 7,390 7% % 26% NA ,043 3% NA NA 8,912 21% % 47% NA ,259 4% NA NA 9,620 8% 645 7% 54% NA ,503 4% NA NA 8,810-8% 631-2% 35% NA ,777 4% NA NA 11,142 26% % 64% NA ,080 4% NA NA 11,858 6% % 67% NA ,413 5% NA NA 13,232 12% % 78% NA ,778 5% NA NA 14,555 10% 1,080 13% 87% NA AverageIncrease 4.0% NA 9.8% 13.0% MANILA Port a - Domestic Traffic Estimated_at appraisal [a Actual [b] Difference Year Total Increase Containers Increase Total Increase Containers Increase [(b-a)/a] ('000 tons) (%) ('000 TEU's (%) ('000 tons) (%) ('000 TEU's (%) Total Containers , , % 10% ,957 4% % % 315 8% 22% 7% % 315 7% % % 29% 12% ,568 4% % 10,685 1% % 25% 14% ,901 4% 360 4% 10,555-1% 419 6% 19% 16% ,258 4% 376 4% 11,051 5% 437 4% 19% 16% ,629 4% 392 4% 11,257 2% 453 4% 17% 16% ,015 4% 409 4% 13,298 18% % 33% 33% ,418 4% 427 4% 14,243 7% % 37% 43% AverageIncrease 3.9% 6.1% 6.8% 9.7% MANILA Port a - Total Traffic (International and Domestic) Estimated_at appraisal [a Actual [b] Difference Year Total Increase Containers Increase Total Increase Containers Increase [(b-a)ia] ('000 tons) (%) ('000 TEU's (%) ('000 tons) (%) ('000 TEU's (%) Total Containers ,356 NA 15, % NA ,813 3% NA NA 17,099 12% % 24% NA ,297 4% NA NA 19,519 14% % 37% NA ,827 4% NA NA 20,305 4% 1,039 8% 37% NA ,404 4% NA NA 19,365-5% 1,050 1% 26% NA ,035 4% NA NA 22,193 15% 1,160 10% 38% NA ,709 4% NA NA 23,115 4% 1,252 8% 38% NA ,428 4% NA NA 26,530 15% 1,502 20% 52% NA ,196 4% NA NA 28,798 9% 1,691 13% 58% NA Average Increase 3.9% NA 8.2% 11.7% a Including North Hamor, South Harbor and MICT but excluding subports (Pasig Bank, ports of Limay, Mariveles, Romblon and Subic) TEU Twenty-foot Equivalent Unit NA Not Available

44 34 Appendix 9, page 2 TRAFFIC PROJECTION: NORTH HARBOR (DOMESTIC TRAFFIC) AtAppraisal Revised Year Noncontainerized Containerized Total Total % lncr. '000 tons % Incr. '000 tons '000 TEUs % lncr. '000 tons % Incr ,957 4,853 4, , ,254 4% 4,849 0% 5, % 10,549 9% ,568 4% 3,995-18% 6, % 10,621 1% ,901 4% 3,508-12% 6, % 10,459-2% ,258 4% 3,751 7% 6, % 10,722 3% ,629 4% 3,542-6% 7, % 10,640-1% ,015 4% 3,728 5% 9, % 12,964 22% ,418 4% 3,505-6% 10, % 14,147 9% ,838 4% 3,905 11% 11, % 15,280 8% ,275 4% 4,335 11% 12, % 16,506 8% ,730 4% 4,811 11% 13, % 17,835 8% ,203 4% 5,341 11% 13, % 19,275 8% ,695 4% 5,928 11% 14, % 20,838 8% ,207 4% 6,580 11% 15, % 22,534 8% ,740 4% 7,304 11% 17, % 24,375 8% ,294 4% 7,478 2% 17, % 24,807 2% ,870 4% 7,478 0% 17, % 24,807 0% ,470 4% 7,478 0% 17, % 24,807 0% ,470 0% 7,478 0% 17, % 24,807 0% ,470 0% 7,478 0% 17, % 24,807 0% ,470 0% 7,478 0% 17, % 24,807 0% ,470 0% 7,478 0% 17, % 24,807 0% ,470 0% 7,478 0% 17, % 24,807 0% ,470 0% 7,478 0% 17, % 24,807 0% ,470 0% 7,478 0% 17, % 24,807 0% ,478 0% 17, % 24,807 0% ,478 0% 17, % 24,807 0% ,478 0% 17, % 24,807 0% Note 1: Traffic forecast at appraisal was given only for the period and Traffic for was extrapolated. Traffic from 2001 was deduced from other report data. Note 2: Actual data until 1996 for revised traffic. Note 3: The revised traffic forecast is limited by the estimated harbor capacity with the Project (24.8 million tons).

45 35 Appendix 9, page 3 TRAFFIC PROJECTION: SOUTH HARBOR - AT PIER ONLY (INTERNATIONAL TRAFFIC) At Appraisal Revised (Piers 5, 9,15) Year (all piers) Noncontainerjzed Containerized Total Total % lncr..000 tons % Incr. '000 tons '000 TEUs % lncr. '000 tons % Incr , , ,118-8% 1,735 84% % 1,857 67% ,889-11% 1,833 6% % 1,946 5% ,637-13% 1,460-20% % 1,554-20% ,739 6% 1,405-4% % 1,754 13% ,923 11% % % 1,737-1% ,104 9% 1,103 18% 1, % 2,943 69% ,313 10% 1,852 68% 1, % 3,822 30% ,426 5% 2,276 23% 2, % 4,433 16% ,544 5% 2,481 9% 2, % 4,832 9% ,668 5% 2,698 9% 2, % 5,254 9% ,798 5% 2,698 0% 2, % 5,254 0% ,934 5% 2,698 0% 2, % 5,254 0% ,077 5% 2,698 0% 2, % 5,254 0% ,227 5% 2,698 0% 2, % 5,254 0% ,384 5% 2,698 0% 2, % 5,254 0% ,549 5% 2,698 0% 2, % 5,254 0% ,722 5% 2,698 0% 2, % 5,254 0% ,722 0% 2,698 0% 2, % 5,254 0% ,722 0% 2,698 0% 2, % 5,254 0% ,722 0% 2,698 0% 2, % 5,254 0% ,722 0% 2,698 0% 2, % 5,254 0% ,722 0% 2,698 0% 2, % 5,254 0% ,722 0% 2,698 0% 2, % 5,254 0% ,722 0% 2,698 0% 2, % 5,254 0% ,698 0% 2, % 5,254 0% ,698 0% 2, % 5,254 0% ,698 0% 2, % 5,254 0% Note 1: Traffic forecast at appraisal was given only for the period and Traffic for was extrapolated. Traffic from 2001 was deduced from other report data. Note 2: Traffic forecast at appraisal includes all South Harbor Piers but revised traffic data do not include traffic at Piers 3 and 13. Note 3: Actual data until 1996 for revised traffic. Note 4: The revised traffic forecast is limited by the estimated piers' capacity with the Project (5.25 million tons).

46 36 Appendix 10, page 1 FINANCIAL PERFORMANCE OF PPA 1. The Income Statement of the Philippine Port Authority (PPA) for the period is attached together with the compound annual growth rates (CAGR) of each revenue and cost stream (income statements projected at appraisal could not be provided due to data error in the 1986 actuals used for the Appraisal Report). Comparator balance sheet of PPA, showing projecting at appraisal and actuals, and the separate income statements for North and South Harbors, together with the respective CAGRs for , are also provided. A. Revenues 2. As a result of growth in traffic and increases in tariffs, ports under PPA in general, and both North and South Harbors at the Manila Port in particular, have experienced significant increases in revenues over the last several years. Compared with the PPA revenues projected at appraisal, the actual results are substantially higher. During , revenues from vessel and cargo charges (excluding revenues generated by the Manila International Container Terminal [MICT)) experienced average compound growth rates of 10.3 percent and 11.8 percent, respectively. The increases were even more dramatic during , when vessel charges increased at an average compound rate of 14.4 percent while revenues from cargo charges increased by 20.1 percent. While part of the increase in revenues can be attributed to the implementation of the new two-step increase in tariff structure starting in 1994 (see para 7), a significant portion came from the increases in ship calls and cargo throughput at both harbors, which suddenly increased in 1994 and continued to show strong growth thereafter (see Appendix 9). The incremental vessels/cargo handled at North and South Harbors reflected the good economic performance of the country starting in This could not have been accommodated without the Project. 3. All revenues are collected directly by PPA except storage, arrastre 1, and stevedoring charges, for which the private operators of the ports impose the PPA-approved tariff rates and remit to PPA its share/fee in accordance with terms that have been negotiated in their contracts. In recent years, the share of revenue from cargo-related charges has increased to over 80 percent of total revenues of PPA. The improvement in wharfage dues can be attributed partly to increased tariffs but mainly to increased use of the piers as compared with handling at anchorage. The increase in revenue from arrastre is a result of improved and efficient performance by private operators and better contract terms negotiated by PPA. 4. The decline in or low growth rate of revenue from handling at anchorage with correspondingly high CAGR for wharfage dues highlights the impact of the Project on the operations of both harbors. Significant increases and high growth rates have been experienced in several revenue items related to improvements of the piers. 1 Cargo handling operation between storage and ship-side is called arrastre, and cargo handling operation within ship is called stevedoring.

47 37 Appendix 10, page 2 B. Costs 5. The overall operating expense of PPA has increased almost in proportion to the revenue increases, primarily due to substantial increases in personnel costs and other administrative expenses. The increase in personnel costs is due mainly to the reorganization undertaken in , which led to an increase in PPA staffing from 1,700 to 2,400 and to the effect of the implementation of the second phase of the salary standardization program for all Government employees initiated in The second phase, starting in 1994 with full compliance in 1996, covered employees of PPA. The increase in other administrative costs is attributable to the imposition of real estate taxes (estimated at P155 million for 1995) on its land and property holdings that PPA was required to pay to the Government. Actual payment of taxes is pending PPA's appeal to the Government. However, appropriate accruals have been provided in the income statement. Apart from taxes, the accounting requirements for accruals for retirement benefits also affected the operating costs of PPA. These two items explain the large increase in administrative expenses in ). 6. An analysis of the costs at North and South Harbors and the negative CAGR clearly demonstrates the reduction in repair and maintenance costs from 1993, which coincides with the start of the implementation of the Project. The corresponding increase in depreciation is due to the additional investments in both harbors. it is significant to note that the total operating expenses at both harbors are relatively lower than the rate of increase in revenue and actually show a negative growth rate at North Harbor. This further substantiates the conclusion that the high increase in the overall costs at the PPA level are attributable to factors (taxes, accruals) not directly related to the operation of Manila Port. C. Tariff 7. All tariff rates for both port dues and cargo handling fees are set by PPA. The latest revision in port tariffs was initiated in 1991 and implemented in 1994, almost 10 years since the last tariff revision in The 1994 tariff increase was implemented in two steps in 1994 and The new expanded tariff structure increases port charges by 30 percent for international vessels and by 60 percent for domestic vessels. It also simplified the computation of wharfage charges by changing the charging base from revenue ton to metric ton for most types of cargoes. The primary objective of the tariff revision was to reduce the disparity between charges for international vessels and their cargoes, and those for domestic vessels and their cargoes. Other reasons for the revision of the tariff schedule were to accommodate increasing size of vessels from 30,000 gross registered tons (GRT) to 50,000 GRT (maximum) and to rationalize the basis for some of the tariffs in order to simplify and facilitate computation of charges. The new tariffs for international traffic are in line with international standards, but those for domestic vessels remain low. While the gap has been reduced considerably, the revenues from international operations continue to subsidize the operations of ports handling domestic cargo.

48 38 Appendix 10, page 3 D. Contracts for Cargo Handling Services 8. Long-term contracts for cargo handling services with private operators at North and South Harbors were negotiated in Cargo handling services included arrastre, stevedonng, storage, and other related services, and the private operators had full operational control over the piers for which they were responsible. Working capital and performance guarantees were required of the operators to ensure proper levels of service. Operators were required to provide all necessary cargo handling equipment in accordance with an agreed upon equipment list, and to commit to additional investments as deemed appropriate to maintain the efficiency of cargo handling operations. The contract for South Harbor had a fixed fee and a variable component of 5 percent of revenues for cargo handling charges. The contracts with private operators in North Harbor required payment of 10 percent of gross revenues with no fixed fees. All payments are to be remitted monthly to PPA. The resulting improvement in collections due to enforcement of the contract payment terms is reflected in the ageing of accounts receivable, which has dropped below one month. While MICT was primarily responsible for international container cargo, South Harbor is also handling a fairly large volume of containerized cargo. Subsequently, as an outcome of the legal action taken by both parties (PPA and the South Harbor operator), the contract was renegotiated in 1995 on terms more favorable to PPA. The arrangement gave the operator full control of all aspects of cargo handling at South Harbor until 2007, including stevedoring, but in return PPA increased the fixed fee, and the variable fee was raised from 5 percent to 8 percent of gross revenues.

49 39 Appendix 10, page 4 Philippine Ports Authority income statem.nr (P million) Item CA CA Revenue Charge Against Vessels PortDues Dockage (Berthing) Dockage (Anchoring) PoriUsageFees ev-up Fe Total Vessel Charges Charge Against Cargoes Wharfageflues , StorageDuee Arrastreincome Total Cargo Charges , , , Otherincome Revenue , , , , , , , MICT Revenue (ICTSi) Total Revenue , , , , , , , , Operating Expenses Personnel Services Repair/Maintenance Dredging OtherAdmirrjstratjon Total Working Expenses Depreciation Total Operating Expenses Net Operating Income , Add Fund Mgmt., Income Total Income , , Less Charges: - interest on loans Amort.of Deferred Exp Others Net Profit Dividend Retained Earnings So,.c.: PtIiç,çAn. Po,t A5ty S'PAl Finnc.I St.t.nw.

50 Philippine Ports Authority Comparative Balance Sheet (P million) 1995 Curr.nt Anita: Cuss & Sl,ortt.n,sIrws.tm.nts , , , , , AcoonttR.c..vab1s (nit of doubtful accounts) Oth.r Curr.nt Ansi l'otalcurrsnlassets 1, , , , , , , , , , , , ,334.8 Snkn9 Fond: Land 1, , , , , , , , , , , , , , Coovtruction in PtoQrua , , , , , , , , , , , , ,957.1 Building.. Furnitur.. & Equ.pnssnt 8, , , , , , , , , , , , , ,4 13, ,3 Sobtot 10, , ,7 10, , , , ,879,5 14, , , , , , , , ,749.0 L.a.: Accun,ul.t.d Dspc.ciation 2, (2, ( ' (2, ( , (3,639,51 13, (3, (5, (4, , ( ) 5,945.2) ( ) ( ) (6, 'ot Fi..d Ansi, 7, , ,7 7, , , , , , , , , , , , ,384.4 Oths. As,.ts: ' Au.: 8, , , , , ,284,8 10, , , , , , , , , , ,7 Currant Liabili?i..: Long.ts.m Li.bi8ti.. total lisbibtisi , , , , , , ,746,1 3, , ,4 4, , ,4 3, , , , ,7 4, , , , , , , , , ,1 4, ,2 4, , , ,9 4, ,3 6,556.9 Nit Worth: Contnbut.d C.pital Ass.t R.va&ustion Oth.r Surplus R.t.sn.d Earnings Total Nit Worth 2, , , , , , , , ,7 3, , , , , , , , ,798,4 1, , , , ,1 1, , ,4 6, , , , , , , , Taid U.liItls. & N.6 Worth (5 (5.. H- )1< I- 5) SQ (S Li'

51 41 Appendix 10, page 6 Project Management Office - North Harbor Profit & Loss Statement ( ) (P million) Item CAGR Port Revenue Port Duos Dockage - Berthing Dockage - Anchorage Port Usage Fee Wharfage Dues Storage Charges Arrastre/Stevedoring Other Income Total Port Revenue Operating Expenses Personnel Services Repairs & Maintenance Depreciation-Oprtg Assets Dredging Expenses Other Admin. Costs Total Oprtg. Expen Net Operating Income Less: Other Charges Interest on Loans Depreciation non-oprtg Net Income

52 42 Appendix 10, page 7 Project Management Office - South Harbor Profit & Loss Statement ( ) (P million) Item CAGR Port Revenue Port Dues Dockage - Berthing Dockage - Anchorage Port Usage Fee Wharfage Dues Storage Charges Arrastre/Stevedoring Other Income Total Port Revenue Operating Expenses Personal Services Repairs & Maintenance Depreciation-Oprtg Asset Dredging Expenses Other Admin. Costs Total Oprtg. Expen Net Operating Income Less: Other Charges Interest on Loans Net Income

53 Financial Performance Indicators Appraisal vs. Actual (P million) Operating Ratio Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual Actual Operating Revenue Working Expenses Depreciation Operating Expenses Operating Income Operating Ratio b.lq.lq.lj. Self-sufficiency Ratio I Funds Generated from Internal Sources Average Capex Self-sufficiencyRatio J Aging of Accounts Receivable Revenue (excl MICT) , , , , , , ,307.5 AccountsReceivable Aging of AR (months) Q.La.Z LQ Ct, to

54 44 Appendix 11, page 1 FINANCIAL REEVALUATION OF THE PROJECT 1. The methodology of "with" and "without" Project comparison used at appraisal has also been followed in recalculating the financial internal rate of return (FIRR). The underlying assumptions at appraisal were verified and updated using the actual performance of the Manila Port. 2. The outlays during the construction period are based on the disbursement schedule of the actual capital cost of the Project. The cost of each component was adjusted to 1995 prices using the corresponding gross domestic product deflators provided in the following pages. 3. At the time of appraisal, utilization of the piers at North and South Harbors was found to be approaching capacity. Major civil works were required to maintain the port facilities at proper operational levels; otherwise, the vessel and cargo handling capacity of both harbors would gradually decline. Apart from declining revenues resulting from lower capacity, both North and South Harbors would experience escalating operation and maintenance costs, apart from the higher cost to port users arising from double handling of cargo due to the handling of vessels at anchorage. 4. Consequently, in reevaluating the financial performance of North and South Harbors, the incremental benefit was limited to additional revenues from (i) increase in revenues from vessel charges excluding handling at anchorage; and (ii) 50 percent of revenue increase from wharfage dues. The exclusion of revenues from dockage at anchorage is justified, as the Project has no impact on such revenues. Further, the benefit from incremental wharfage dues is considered at 50 percent, as in the "without Project" case the excess traffic would continue to be handled at anchorage at 50 percent of the tariff rate for wharfage dues charged at pier. 5. Actual maintenance costs at each harbor, adjusted to 1995 prices, were used to determine avoided maintenance and repair costs, white incremental repair and maintenance costs were estimated at 1.5 percent of the capital cost. Incremental benefits and costs for South Harbor were adjusted to reflect only revenues and costs attributable to Project piers (5, 9, 15). Based on these assumptions, the FIRR was calculated separately for North and South Harbors. A combined FIRR for the Manila Port for the total Project was also calculated. As shown in the following pages, the FIRR for North Harbor is 5.7 percent and that of the South Harbor is 15.2 percent. The combined FIRR for the Project is 10.3 percent.

55 45 Appendix 11, page 2 DEFLATORS USED Exchange Rate Year Pesos1 Dollars2 (Pesos to $1.00) ) Source: ADB Key Indicators Implicit GDP Deflator 2) Source: IMF International Financial Statistics - Industrial Goods Price Index

56 46 Appendix 11, page 3 FIRR FOR NORTH HARBOR COMPONENT (P million) Costs Benefits Year Capital Cost Incremental Avoided Incremental Revenue Net Benefit Rep &Maint Rep&Maint Pierside Traffic FIRR = 5.7%

57 47 Appendix 11, page 4 FIRR FOR SOUTH HARBOR COMPONENT (Piers 5, 9, 15) (P million) Costs Benefits Year Capital Cost Incremental Avoided Incremental Revenue Net Benefit Rep &Maint Rep&Maint Pierside Traffic FIRR = 15.23%

58 48 Appendix 11, page 5 FIRR FOR NORTH AND SOUTH HARBOR COMPONENTS (P million) Costs Benefits Year Capital Cost Incremental Avoided Incremental Revenue Net Benefit Rep &Maint Rep&Maint Pierside Traffic FIRR = 10.3%

59 49 Appendix 12, page 1 ECONOMIC REEVALUATION OF THE PROJECT A. General 1. The economic return of the Project was reevaluated on the basis of a "with and without the Project" comparison, using a slightly different methodology from the one followed at appraisal. Without the Project, the deteriorated state of the facilities at both North and South Harbors would have resulted in inefficient cargo handling operations and long ship service time. High maintenance costs would have been needed to keep the piers in operation. At North Harbor, containers would have had to be moved to out-of-port facilities, because of the lack of container back-up space in the port area. The piers of South and North Harbors would have reached capacity in 1995, resulting in excess cargo having to be handled at anchorage at a higher cost. With the Project, the rehabilitated piers will allow better operating conditions and will attract new equipment investment and replacement by private operators, thus improving cargo handling productivity and reducing ship turnaround time. Maintenance costs of the rehabilitated structure will be reduced. Additional container yard area and better container handling efficiency will reduce the requirement for out-of-port handling. Capacity will be reached only in 1998 at South Harbor and in 2003 at North Harbor, avoiding additional costs for excess cargo, which would have been handled at anchorage from 1995 without the Project. 2. The economic analysis has been conducted using world market prices (border prices). The economic price of traded goods is equal to their financial price (without tax), and a standard conversion factor of 0.82 has been applied to calculate the economic price of nontraded goods. No shadow wage rate factor has been considered. Based on these assumptions, the main costs have been broken down into traded and nontraded goods, and specific conversion factors have been calculated to value all costs and benefits in economic terms. B. Costs 3. The main Project costs were civil works and incremental maintenance costs. Although equipment costs were deleted from the Project, private operators had to purchase new and replace old equipment to be able to improve handling rates at rehabilitated piers. These costs have been added to the Project capital costs, because without new equipment the expected benefits could not be attained. Incremental maintenance costs were computed as Project costs from the first year of operation. The annual incremental maintenance costs were estimated at 1.5 percent of the civil works capital costs. Operating costs of cargo below the port capacity "without the Project" have been assumed to be the same "with" and "without" Project, and operating costs of incremental cargo, over "without the Project" case capacity, have been taken into account in the net benefit calculation. No incremental operating costs have therefore been considered. Financial costs have been converted into economic costs using specific conversion factors for civil works (0.95); maintenance (0.91); and equipment (0.96).