ASIAN DEVELOPMENT BANK PPA: VIE 25094

Transcription

1 ASIAN DEVELOPMENT BANK PPA: VIE PROJECT PERFORMANCE AUDIT REPORT ON THE SAIGON PORT PROJECT (Loan 1354-VIE[SF]) IN THE SOCIALIST REPUBLIC OF VIET NAM March 2003

2 CURRENCY EQUIVALENTS Currency Unit dong (D) At Appraisal At Project Completion At Operations Evaluation (January 1995) (June 2000) (December 2002) D1.00 = $ $ $ $1.00 = D11,003 D14,000 D15,395 ABBREVIATIONS ADB Asian Development Bank DAF Development Assistance Fund EIRR economic internal rate of return FIRR financial internal rate of return HCMC Ho Chi Minh City km kilometer MIS management information system MOF Ministry of Finance NTSR National Transport Sector Review OCR ordinary capital resources OEM Operations Evaluation Mission PCR project completion report PMU project management unit PPAR project performance audit report SDR special drawing rights SP Saigon Port SPA Saigon Port Authority t metric ton TA technical assistance TCR technical assistance completion report VRM Viet Nam Resident Mission NOTES (i) (ii) The fiscal year (FY) of Saigon Port ends on 31 December. In this report, $ refers to US dollars. Operations Evaluation Department, PE-620

3 CONTENTS Page BASIC DATA EXECUTIVE SUMMARY MAPS iii iv vii I. BACKGROUND 1 A. Rationale 1 B. Formulation 1 C. Purpose and Outputs 2 D. Cost, Financing, and Executing Arrangements 2 E. Completion and Self Evaluation 3 F. Operations Evaluation 3 II. PLANNING AND IMPLEMENTATION PERFORMANCE 4 A. Formulation and Design 4 B. Achievement of Outputs 5 C. Cost and Scheduling 5 D. Consultant Performance, Procurement, and Construction 5 E. Organization and Management 6 III. ACHIEVEMENT OF PROJECT PURPOSE 7 A. Operational Performance 7 B. Performance of the Operating Entity 8 C. Economic and Financial Reevaluation 10 D. Sustainability 10 IV. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS 11 A. Socioeconomic Impact 11 B. Environmental Impact 11 C. Impact on Institutions and Policy 12 V. OVERALL ASSESSMENT 12 A. Relevance 12 B. Efficacy 13 C. Efficiency 13 D. Sustainability 13 E. Institutional Development and Other Impacts 13 F. Overall Project Rating 13 G. Assessment of ADB and Borrower Performance 13

4 ii VI. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS 14 A. Key Issues for the Future 14 B. Lessons Identified 15 C. Follow-Up Actions 15 APPENDIXES 1. Project Costs Project Outputs Operations Data on Saigon Port Financial Statements of Saigon Port Financial and Economic Reevaluation 25

5 BASIC DATA Loan 1354-VIE(SF): Saigon Port Project PROJECT PREPARATION/INSTITUTION BUILDING TA No. TA Name Type Person- Months Amount ($ 000) Approval Date TA 2305-VIE Computerized Management Information ADTA Mar 1995 System for Saigon Port 1 As per ADB KEY PROJECT DATA ($ million) Loan Documents Actual Total Project Cost Foreign Exchange Cost Local Currency Cost ADB Loan Amount/Utilization (SDR million) ADB Loan Amount/Cancellation 0.69 (SDR million) 0.54 KEY DATES Expected Actual Fact-Finding 25 Sep 2 Oct 1990 Preappraisal/Appraisal 13 Nov 1 Dec 1990 Reappraisal 23 Aug 9 Sep 1993 Loan Negotiations 1 2 Dec 1994 Board Approval 2 Mar 1995 Loan Agreement 24 Mar 1995 Loan Effectiveness 24 Jun Jul 1995 First Disbursement 23 Oct 1995 Project Completion 30 Jun Apr 2000 Loan Closing 31 Dec Nov 2000 Months (effectiveness to completion) ECONOMIC AND FINANCIAL Appraisal PCR PPAR INTERNAL RATES OF RETURN (%) Economic Internal Rate of Return Financial Internal Rate of Return BORROWER EXECUTING AGENCY Socialist Republic of Viet Nam Saigon Port MISSION DATA Type of Mission Missions (no.) Person-Days (no.) Fact-Finding 1 8 Reappraisal 1 90 Project Administration 9 87 Inception 1 12 Review 7 42 Project Completion 1 33 Operations Evaluation ADB = Asian Development Bank, ADTA = advisory technical assistance, PCR = project completion report, PPAR = project performance audit report, SDR = special drawing rights, TA = technical assistance. 1 Attached to Loan 1354-VIE. 2 Financed by ADB from the Japan Special Fund. 3 Because the loan was denominated in SDR, depreciation reduced the loan amount available in dollar terms. 4 The mission comprised A. Ibrahim, evaluation specialist and mission leader; R.G. Rinker, evaluation specialist and port engineer; and R. Lumain, senior evaluation analyst.

6 EXECUTIVE SUMMARY Damage associated with 3 decades of war, from 1945 to 1975, and a lack of investment in the following decades, left all of Viet Nam s major ports in a state of disrepair. This handicapped Viet Nam s entire transport system, thus hindering economic growth. In 1989, the Government requested assistance from the Asian Development Bank (ADB) to undertake civil works on Saigon Port (SP), the principal shipping gateway to Viet Nam, and to replace and purchase new cargo-handling equipment to improve its operational performance. The Project s goal was to facilitate the expansion of international trade by enhancing port capacity and operational efficiency. The purpose of the Project and the attached technical assistance (TA) was to (i) improve SP s cargo-handling capacity through the rehabilitation and modernization of existing facilities at the Nha Rong and Khanh Hoi project terminals; (ii) enhance the efficiency of port operations through rationalization and streamlining of procedures and activities; and (iii) upgrade the overall performance of SP, the Executing Agency, by introducing a computerized management information system that would enable SP to process key operational and financial information and would assist in commercially oriented decision making. The Project was in line with the Government s priorities, as reflected in the National Transport Sector Review. The Project was also consistent with ADB s country operational strategy, which focused on reducing key development constraints through financial assistance for rehabilitation, upgrading, and development of the physical infrastructure to support economic growth. During processing, ADB conferred with other external funding agencies, including the World Bank, to coordinate development efforts in the port sector. The total project cost at appraisal was estimated at $40 million, with a foreign exchange component of $25 million and $15 million in local currency. In March 1995, ADB approved a loan of $30 million, 75% of the total project cost, covering the entire foreign exchange and $5 million of the local currency cost. At completion in April 2000, actual project cost was $34.2 million, with a foreign exchange cost of $23.6 million and a local currency cost of $10.6 million. The 14.5% cost underrun was attributable to revisions in project scope and lowerthan-expected contract prices. A project management unit was established within SP to manage and implement the Project. A team of international consultants was engaged according to ADB Guidelines on the Use of Consultants to help review the engineering designs and assist in supervision of the civil works construction. The consultants overall performance was satisfactory. Lengthy bid evaluations caused considerable upfront delays. The cumbersome evaluation and approval process is a systemic problem in project implementation in Viet Nam. Delays caused implementation to take 22 months longer than envisaged at appraisal. Two covenants were not complied with at the time of the project completion report (PCR): the interest charged through onlending according to the subsidiary loan agreement, and the collection of port traffic data. Both covenants were being complied with at the time of the Operations Evaluation Mission (OEM). The civil works carried out through the Project are satisfactory. The efficiency of breakbulk operations improved considerably from 1996 to 2002, and the corresponding turnaround times for ships calling at SP have been shortened significantly. The major objective of the Project to rehabilitate the existing break-bulk port facilities has been fully met. The attached TA helped reduce billing time. SP can now efficiently process operational and financial information, and make commercially-oriented decisions based on users actual needs.

7 v SP remains the principal waterborne gateway to Viet Nam. It also handles domestic trade. SP handled 10 million metric tons in Throughput has increased by an average annual rate of 6% since The number of vessels calling at SP increased from 1,156 in 1995 to 1,724 in Terminal improvements have generated employment not only at SP, but also within Ho Chi Minh City and the surrounding areas. SP remains profitable although marginal financial returns highlight the increased pressures on operating profits. Those pressures result from high operating costs, constraints on revenue generation in core port activities, and the relatively weak performance of noncore business activities in recent years. SP s operating ratio deteriorated from 76% in 1995 to 92% in Operating expenses increased about 10% annually during this period because of higher salary expenses, fuel costs, management and administration expenses, and cost of products and services sold through SP s noncore business operations. At the same time, gross operating revenues, comprising port services (72% of revenues) and other businesses increased by about 6% per annum. As a result, the operating income decreased from D78 billion in 1995 to D36 billion in 2001 and return on equity declined from 25% to 4%. On the other hand, despite an increased debt burden as a consequence of the Project, SP was able to maintain acceptable liquidity and debt-to-equity ratios. SP benefited from additional government equity contributions that helped raise capitalization by about 15% per annum from 1995 to The reestimated economic internal rate of return of 12.6% is below the appraisal estimate of 18.1% and the PCR estimate of 33.3%. Similarly, the reestimated financial internal rate of return of 3.7% is lower than the appraisal estimate of 10.7% and the PCR estimate of 12.4%, and slightly below the 4% weighted average cost of capital. The decreases are mainly because of an overestimation of incremental benefits as well as an underestimation of operating costs in the previous calculations. There is concern that traffic congestion around the port area, and competition from 28 other ports with dedicated container facilities and larger storage yards, may threaten SP s long-term sustainability. Also, future demand for berths that will accommodate larger vessels may require relocation of some port activities to a location with deeper water. SP remains the busiest port in the area, however, and significant break-bulk shipping operations will continue, even with the trend toward containerization. Furthermore, several berths may be modified to better accommodate cruise ships. Although some operations may have to be relocated to a location with deeper water, the sustainability of SP is likely. The key issues that the OEM identified are the need to (i) investigate the construction of a deepwater port terminal at an alternate site, (ii) streamline the bid evaluation and approval process through delegation of authority to the relevant government agencies, (iii) give individual ports greater autonomy in the setting of charges that generate their revenue, and (iv) ensure that future budget allocations are adequate for maintenance. The two key lessons learned are (i) the approach of separating business planning from strategic development functions in the port sector adopted by the Government may also be appropriate for ADB s other developing member countries; and (ii) developing member countries still in the nascent stages of administering ADB projects would benefit from more proactive project monitoring by ADB, particularly at the resident mission level.

8 vi The OEM recommends four follow-up actions: (i) ADB should continue to encourage the Government to extend autonomy to lower levels of government, including the port sector; (ii) ADB should assist in a review of national shipping tariffs to help ensure the sustainability of ports, including SP; (iii) SP s management information system should be updated periodically to incorporate technology improvements, and should be integrated with systems used by customs and shippers; and (iv) SP should collect samples of the deck-drainage effluent for environmental confirmation testing and, if an unacceptable level of contamination is found, priority should be given to improving the drainage system. The OEM rates the Project and the TA as successful.

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12 I. BACKGROUND A. Rationale 1. Viet Nam is geographically elongated, approximately 1,650 kilometers (km) from north to south; and narrow, at only 50 km across its narrowest section. Its 3,444 km coastline borders the Gulf of Thailand in the south, and the Gulf of Tonkin and the South China Sea to the east (Map 1). A mountain range along much of western Viet Nam s borders defines a coastal plain, the principal land-based transport corridor. The Mekong River in the south and the Red River in the north, along with their tributaries and canals, form an extensive and intricate inland network for waterway transport, roughly 7,000 km in length. Coastal shipping and the inland waterway network are key components in Viet Nam s overall transportation system. 2. Damage associated with 3 decades of war from 1945 to 1975, and a lack of investment in the following decades, left all of Viet Nam s major ports in a state of disrepair. This handicapped Viet Nam s entire transport system, thus hindering economic growth. Viet Nam s primary port facilities include five major ports for general cargo, which account for 60% of all international and 20% of all domestic trade; and five ports dedicated to the handling of petroleum and oil. Saigon Port (SP) 1 is the principal shipping gateway to Viet Nam. At the time of appraisal, the pier, quay, and other SP structures had deteriorated so severely that safe and efficient cargo handling was no longer possible. Concrete foundation piles had cracked, and sections were lost. Steel piling and marine hardware had corroded. The concrete deck had eroded, leaving occasional holes through the deck. Transit sheds and warehouses were dilapidated. 3. The Government requested assistance from the Asian Development Bank (ADB) to undertake civil works on SP and to replace and purchase new equipment to improve its operational performance. SP recognized the need to streamline and rationalize its operational and financial systems. To this end, the Government also requested that ADB provide technical assistance (TA) to strengthen SP s institutional capability. B. Formulation 4. The Project was formulated during a fact-finding mission in September 1990 and an appraisal mission in November 1990; there was no project preparatory TA. The plan to improve the operational capacity of SP was endorsed by the National Transport Sector Review (NTSR). 2 Project components were developed to address the rehabilitation and upgrades necessary to enhance SP s capacity and efficiency, as well as improve safety of its operations. During processing, ADB also conferred with representatives of the World Bank, the United Nations Development Programme, and other external funding agencies to coordinate subsector development efforts. 5. ADB operations in Viet Nam were suspended thereafter until 1993, thus deferring further processing of the loan. The Project was reappraised in September Loan approval was delayed almost a year and a half because of a disagreement between ADB and the Government over the onlending interest rate to be charged under a subsidiary loan agreement 1 Previously called Saigon Port Authority (para. 10). 2 The review was undertaken with funding from the United Nations Development Programme during It proposed a restructuring plan that would make all ports autonomous by allowing them to set tariffs. 3 During the 3-year delay between fact-finding and reappraisal, SP carried out repair work, considered essential for continued operation. The repair work was originally in the project scope, which was reduced accordingly.

13 2 between the Government and SP. ADB proposed a rate similar to that applicable to loans from the ordinary capital resources (OCR), while the Government preferred a 1% concessional rate. 4 Ultimately, the Government accepted the ADB position; the loan was approved on 2 March 1995 and became effective on 21 July C. Purpose and Outputs 6. The goal of the Project was to facilitate expansion of international trade through enhancing port capacity and operational efficiency. The purpose of the Project and attached TA 5 included (i) improving SP s cargo-handling capacity through the rehabilitation and modernization of existing port facilities, (ii) enhancing the efficiency of port operations through rationalization and streamlining of procedures and activities, and (iii) upgrading SP s overall performance by introducing a computerized management information system (MIS). 7. Project outputs included (i) an improved port facility through rehabilitation of deteriorated wharf sections; installation of new fenders, marine hardware, and offshore mooring buoys; and construction of adequate maintenance workshops; (ii) improved cargo handling through the procurement of new equipment, new tugboats, and better lighting; and (iii) improved operational and financial management through the MIS and provision of communications equipment. D. Cost, Financing, and Executing Arrangements 8. The project cost at appraisal was estimated at $40 million. In March 1995, ADB approved a loan of $30 million equivalent (75% of total project cost) from its Special Funds resources to cover the entire foreign exchange requirement of $25 million and local currency cost of $5 million equivalent. The Government was to finance the remaining local currency cost of $10 million (Appendix 1). 9. The attached advisory TA was provided to install a computerized MIS that would enable SP to process key operational and financial information and make commercially oriented decisions. The TA financed the entire foreign exchange cost and $10,000 in local currency costs for translating and interpreting services. The TA provided 14.5 person months (81% of the appraisal estimate) of international consulting services in port operations, port finances, and computer MIS. 10. At the time of appraisal, the Saigon Port Authority, the Project s Executing Agency, was under the jurisdiction of the Ministry of Transport, and the operational responsibility of the Viet Nam Maritime Bureau (Vinamarine). In 1996, the Viet Nam National Shipping Lines (Vinalines) took over the operational responsibility of five major ports, 6 and the Saigon Port Authority was renamed the Saigon Port. 11. A project management unit (PMU) was established within SP to manage and implement the Project. The SP director of engineering served as project director in the PMU. The PMU was staffed with 12 professionals, including a deputy director and a chief accountant. To enhance technology transfer during implementation, seven PMU engineers were assigned to work 4 The ADB loan to the Government was from Special Funds resources, with an amortization period of 40 years, including a grace period of 10 years and a service charge of 1% per annum. 5 TA 2305-VIE: Computerized Management Information System for Saigon Port, for $500,000, approved on 2 March The five ports are Can Tho, Da Nang, Hai Phong, Quang Ninh, and Saigon (Map 1).

14 3 directly with the international consultants who were helping the PMU with project design and construction supervision. E. Completion and Self Evaluation 12. The project completion report (PCR), circulated to the Board in October 2001, rated the Project successful. 7 The Project was generally implemented as appraised, with satisfactory quality of construction. There were implementation delays, but no cost overruns. 13. The reevaluation conducted for the PCR determined a financial internal rate of return (FIRR) of 12.4%, compared with 10.7% estimated at appraisal. The economic internal rate of return (EIRR) was also higher at 33.3%, compared with 18.1% estimated at appraisal. Substantial project benefits include savings in time required to load and unload vessels; improved user services; less damage to goods; and improved working conditions at the port, resulting in fewer accidents. 14. Two covenants were not complied with at the time of the PCR. First was the covenant dealing with the onlending rate under the subsidiary loan agreement between the Government and SP. Second, port traffic data were not being collected or analyzed. With the exception of some significant errors in the economic and financial analysis, the PCR generally presented an accurate and objective evaluation of the Project. 15. The technical assistance completion report (TCR) 8 and the PCR rated the attached TA differently. The TCR assessed the TA as successful and the PCR, as highly successful. This difference was because the TCR emphasized the need for periodic updating to keep pace with innovations in computer software and hardware, and integration with systems that customs and shipping lines use. On the other hand, the PCR focused on the system s operational performance. F. Operations Evaluation 16. This project performance audit report (PPAR) assesses the Project for relevance, efficacy, efficiency, sustainability, and institutional and other development impacts. The PPAR is based on the findings of the Operations Evaluation Mission (OEM) that visited Viet Nam from 2 to 17 December 2002; review of relevant project documents; discussions with ADB staff; and information gathered during meetings with officials from relevant ministries, port and marine agencies, and other development assistance organizations. The OEM conducted a condition survey of the project site and ancillary facilities along with the surrounding infrastructure. Preliminary OEM findings were discussed at two wrap-up meetings: first in Ho Chi Minh City (HCMC) with SP on 14 December 2002, then in Hanoi on 16 December Copies of the draft PPAR were circulated, for review and comments, to SP, various government ministries, and concerned ADB staff. The comments were considered when finalizing the PPAR. 7 The PCR used the current four-category rating system: highly successful, successful, partly successful, and unsuccessful. 8 The TCR was completed about 1 month before the PCR was circulated.

15 4 II. PLANNING AND IMPLEMENTATION PERFORMANCE A. Formulation and Design 17. ADB s country operational strategy for Viet Nam at the time of appraisal and reappraisal focused, among other things, on reducing key development constraints through financial assistance for rehabilitation, upgrading, and development of the physical infrastructure to support economic growth. Viet Nam s Third Five-Year Plan ( ) reiterated giving high priority to the rehabilitation of SP, Viet Nam s main shipping gateway. Thus, within the maritime sector, the continued operation of SP was a priority for the Government and ADB. SP remains Viet Nam s principal break-bulk handling facility and, to a lesser extent, an important containerhandling facility. Its importance to the Government is undiminished although the current country strategy and program update ( ) focuses more on broader-based projects for poverty intervention. But ADB remains engaged in policy reforms aimed at liberalizing the system of economic management of key state-owned sectors. 18. The master plan that SP prepared for development of the port facilities originally included rehabilitation and upgrade of the existing Nha Rong and Khanh Hoi project terminals; 9 installation of an MIS at SP; and the construction of a new deepwater terminal, dedicated to the handling of cargo containers, near Thi Vai, at the mouth of the Saigon River. The project scope focused on improving the break-bulk operations at the project site, which comprised most of cargo operations at that time in HCMC, and did not include development of a new container terminal. 19. Demand for accommodating containerized marine traffic grew during project implementation. Competition to SP also grew stiffer, as various ministries and the HCMC municipality had constructed new port facilities near SP, some dedicated to handling container traffic using modern container cranes. 10 Traffic in District 4 of HCMC, the site of both project terminals, was also becoming congested; District 4 is a small island served by only two main bridges (Map 2). SP requested, in the first year of project implementation, that further development of the Nha Rong and Khanh Hoi project terminals be stopped, and that ADB funds be diverted to the development of a container facility. The Government did not agree with this request. 20. Instead, SP, using funds from the State Bank of Viet Nam, developed container-handling capacity at the Tan Thuan terminal, adjacent to the project site. Located in District 7, Tan Thuan has a much larger area available for processing containerized traffic than either the Nha Rong or Khanh Hoi project terminals, and is readily accessible by a new highway. Tan Thuan does not suffer from the same traffic congestion as the two project terminals. SP was unable to obtain a used container crane for installation at Tan Thuan. Instead, the 80-ton mobile cranes supplied by the Project have been fitted to handle, though in a less-efficient way, container traffic. Thus, it is difficult for SP to compete against dedicated container-handling terminals such as the nearby Vietnamese International Container Terminal. 21. The project scope was modified during implementation to better address port capacity, particularly for container operations. The provision of mooring buoys and hardware was dropped 9 SP comprises four terminals in HCMC (Map 2): Nha Rong (7 berths), Khanh Hoi (8 berths), Tan Thuan 1 (4 berths), and Tan Thuan 2 (1 berth); 1 terminal in Can Tho City (1 berth); and 34 buoy berths in the Saigon River. 10 HCMC has 28 ports, including SP; 14 are on the Saigon River. Warehouse space in these ports totals 147 hectares, and their annual handling capacity is about 20 million metric tons.

16 5 to allow dredging to increase the berthing depths in front of the project terminals, so the terminals could accommodate larger vessels. Larger cranes that can handle containerized cargo were also bought. Loan savings identified near project completion were used to procure additional equipment for handling cargo containers in the yard storage area. The OEM concurs that these changes were appropriate, and improved the Project. B. Achievement of Outputs 22. The Project improved the port facilities through extensive rehabilitation. Dredging works were added to the project scope, 11 and yard area was expanded beyond appraisal estimates to provide additional handling and storage area. The transit shed, built to process cargo, was also expanded to increase its capacity. Mooring buoys, planned at appraisal to provide additional inriver berths, increased the water depth at the terminals, allowing larger vessels to call at SP. The modern cargo-handling equipment increased SP s capacity. Installation of the MIS streamlined and rationalized SP s operational and financial procedures. A list of project outputs is presented in Appendix 2. C. Cost and Scheduling 23. The actual project cost was $34.2 million, with a foreign exchange cost of $23.6 million (69%), and a local currency cost of $10.6 million equivalent (31%) (Appendix 1). The ADB loan covered the foreign exchange cost and $3.9 million of the local currency cost. The decrease in the total project cost from original estimates was partly because of a reduction in scope of repair work (footnote 3). There was an overestimation at appraisal of the costs of tugboats and MIS computerization. Loan savings, at the Government s request, were used to procure two forklifts and two two-way dozers. 12 Overall, the Project had a cost underrun of $5.8 million, or 14.5% of the appraisal estimate. Loan cancellations were $0.7 million. 24. ADB disbursements were $27.5 million (92% of the appraisal estimates), while Government counterpart financing totaled $6.7 million (67% of the appraisal estimates). The SDR-denominated ADB loan was reduced to $28.2 million as a result of a 12.3% depreciation in the SDR rate against the dollar during implementation. 25. The Project further started sluggishly because consultants were recruited late, despite approval for advanced action for their recruitment. Other implementation delays resulted from (i) SP s lack of familiarity with ADB procedures for local competitive bidding, (ii) lengthy bid evaluations caused by cumbersome internal procedures, (iii) SP s lack of experience in working with international consultants, and (iv) difficulties in implementing civil works while the port was in operation. The Project was completed in April 2000, 22 months behind schedule. The loan closing date was extended once, to 1 November D. Consultant Performance, Procurement, and Construction 26. A team of international consultants, engaged according to ADB Guidelines on the Use of Consultants, was originally intended to review the engineering designs. The Government initially resisted significant changes that the consultants proposed, which led to tension in working arrangements. Also, supervision of the early civil works construction, without benefit of the international consultants, was weak. These problems, which emerged early in the Project, 11 The present berthing depth was reported to the OEM as meters (Map 3). 12 ADB initially rejected the Government s request, as the cost of the equipment exceeded the loan savings. But the request was later approved after the Government assured that it would bear any cost overrun.

17 6 contributed to delays in the initial implementation (para. 25). The contract for international consultants was amended to improve construction supervision. In time, the Government acknowledged that the design changes were beneficial to the Project. The OEM confirmed that the consultants overall performance during design and supervision of construction was satisfactory. 27. The Project comprised seven contracts for civil, marine, and electrical works. Five contracts were tendered using local competitive bidding procedures; the other two contracts were directly negotiated with local contractors, with ADB approval. SP initially insisted that only Vietnamese contractors be allowed to participate in local competitive bidding; that led to delays in implementation. The Project also included six supply contracts for procurement of two tugboats and miscellaneous marine equipment. Five contracts were tendered using international competitive bidding procedures, and the sixth, through international shopping. Award of one supply contract was delayed considerably because of a lengthy review due to inaccuracies in the bid. 13 Ultimately, all supply and civil works contracts were procured in accordance with ADB s Guidelines for Procurement. 28. The bid evaluation process in Viet Nam is lengthy and cumbersome (para. 67). Almost 1 year passed from the issue of bidding documents to the award of the first civil works contract. Contracts were submitted by SP to the Ministry of Transport for evaluation, and then forwarded to the Ministry of Planning and Investment for review before submission to the Prime Minister for final approval. 29. All civil works, with one exception, were satisfactory and of acceptable quality. Problems were originally identified in construction of the buildings, but all deficiencies were rectified. Some problems during implementation were caused by ongoing port operations and delays in payment. Despite the delays, the PCR considered the performance of the contractors satisfactory. The OEM agrees with this assessment. E. Organization and Management 30. Project implementation arrangements were generally as envisaged at appraisal. However, there were modifications in the organizational structure above SP shortly after implementation began (para. 10). At appraisal, Vinamarine had administrative authority over SP. In January 1996, that authority was transferred to the newly established Vinalines, but Vinamarine, as a member of the State Pricing Committee, 14 retained responsibility for setting tariffs and charges for all ports in Viet Nam. Vinamarine is now responsible for establishing marine rules and regulations, as well as for planning the overall strategy for port development. It also retains administrative control over all but five of Viet Nam s major ports (footnote 6), which are now under Vinalines. Vinalines also prepares the long-term business plan for these five ports. Day-to-day operation of the five ports, however, is undertaken by their respective port authorities. 31. The State Pricing Committee uses a two-tier system to set port tariffs and charges. Port tariffs, which are usually adjusted every 2 to 3 years, include fees assessed for ship tonnage, channel use, freight processing, and formality fees. These fees are uniform for all ports in Viet Nam. The customs departments at each port collect and forward these tariffs to the Ministry of Finance (MOF). The concerned port authorities collect the port charges, which include charges 13 The exchange rate was incorrect in one supplier s bid. 14 The State Pricing Committee comprises representatives of Ministry of Finance, Ministry of Transport, and Vinamarine.

18 7 for stevedoring services and anchorage. Each port authority has the opportunity to adjust these charges by as much as 15% of those established by the State Pricing Committee. 32. The PMU established during the Project is still in existence, but is awaiting Government approval to disband. Because this was one of the first ADB projects in Viet Nam after ADB resumed operations, the Government was not familiar with various ADB guidelines and procedures. Disagreements with the consultants regarding design issues also delayed project implementation and administration. Rigid government procedures concerning procurement and contract awards often impeded efficient implementation. III. ACHIEVEMENT OF PROJECT PURPOSE A. Operational Performance 33. Various indicators of SP s operational performance are shown in Appendix 3, Table A3.1. Construction of the terminal improvements appears satisfactory. The new fendering units show little wear or corrosion, and function properly. Asphalt paving and transit sheds in the yard area are in good condition (Map 3). The two tugboats appear well maintained. Various sizes of bollards for ship mooring lines were installed along the pier; larger bollards were brought from a neighboring port. Rainwater drainage systems installed through the Project are free from obstructions and functional. River debris, however, tends to collect in the fender systems and should be removed more regularly to ensure that the fenders continue to operate properly. 34. The yard area behind the face of the terminals is restricted. Operations are congested because of a lack of available space at the port site, which is confined by the area road network. Further expansion of the yard would require the relocation of a major artery in the road network, at considerable cost and inconvenience. The Vietnamese International Container Terminal, a competing port in HCMC, has a larger port site located further from the dense traffic arterial, and is already equipped with modern equipment dedicated to handling cargo containers. SP is well suited to handle break-bulk cargo operations, and competing in the cargo container shipping market does not seem practical in the long run. 35. The Port Operations Action Plan was adopted, but not within the covenanted date of 31 December The outputs of the first phase of the plan were reflective of SP being at a nascent stage in its goal of market reform. 15 Phase 2 of the plan consisted of designating one or more berths exclusively for container operations, introducing a shorter three 8-hour shift system, and preparing a plan for handling pollutant discharges. The OEM found that one berth is reserved to give priority to container operations, but not exclusively for container throughput. Port operations now use the three 8-hour shift system as specified in the plan. Some improvements may still be necessary in the handling of contaminated rainwater, pollutant discharges, and hazardous material spillages. 36. SP handled 10.0 million metric tons (t) of cargo in Since 1995, total throughput has increased by an average annual rate of 6%, slightly exceeding the appraisal targets. In 2000, the throughput reached 9.7 million t, as against the appraisal target of 9.3 million t. Cargo throughput at the Nha Rong and Khanh Hoi project terminals increased from 4.9 million t in 1995 to 5.8 million t in The total number of vessels calling at the project terminals 15 Included as the plan s output were (i) eliminating all unnecessary and prolonged waiting of trucks on the quay before or after completion of cargo pickup and delivery; (ii) introducing a rational cargo circulation system; and (iii) conducting daily meetings of management, stevedoring, and other entities to prepare and plan for the next 24 hours.

19 8 increased from 827 in 1995 to 1,048 in Average vessel turnaround times decreased from more than 5 days in 1996 to less than 4 days in Cargo handling time per vessel also decreased from an average of 4.3 days in 1995 to 3.6 days in Port accidents have remained constant, at around 10 per year but considering the higher throughput, the accident rate has declined significantly, in terms of total cargo handled. 38. Industry in HCMC accounts for about 40% of Viet Nam s gross domestic product. SP remains the principal waterborne gateway to the HCMC industrial area, and to the country. Population has grown rapidly in the HCMC area in recent years; it now exceeds 7 million people. That puts excessive strain on the existing road network. The increase in cargo transport compounds the traffic problems around the Nha Rong and Khanh Hoi project terminals which were already congested. Although SP still has potential for increasing its handling capacity, landside traffic congestion will inhibit future growth. Containerized traffic is expected to increase, a reflection of the change in worldwide shipping trends. 39. To provide a better international gateway for cargo containers, SP has requisitioned land at Thi Vai, at the mouth of the Saigon River, to build a deepwater container terminal and is waiting for approval from the Prime Minister 16 (Map 1). The transfer of some cargo-handling responsibilities to Thi Vai will allow use of some of the berths at SP for cruise liners visiting HCMC for tourism. In 2001, tourist-related revenue accounted for almost 6% of SP s gross operating revenue. 40. Rice is the major export at SP; throughput reached about 2.15 million t in Fertilizer is the largest import commodity, reaching 1.2 million t in 2002, followed by steel and iron at 0.9 million t. Other imports include wheat, 0.3 million t; and chemicals, 0.1 million t. Domestic cargo includes cement, coal, and rice, with 2002 throughputs of 0.5, 0.4, and 0.1 million t, respectively (Appendix 3, Table A3.2). Containerized traffic at SP has risen from 0.6 million t in 1995 to about 3.4 million t in For the two project terminals, containerized traffic grew from under 0.6 million t in 1995 to around 1.6 million t in Although containerization of cargo is the global trend in shipping because of speed and efficiency in handling, some cargo, such as fertilizer, will probably continue to be shipped as break-bulk in the foreseeable future. B. Performance of the Operating Entity 41. Port tariffs for tonnage, channel use, and freight processing in Viet Nam are about 20% higher than those at other international ports in the region. 17 The revenues are credited to MOF, rather than to the port. As a new member of the Association of Southeast Asian Nations, Viet Nam has committed to rationalizing these tariffs to bring them in line with those of the region by the end of Port charges for stevedoring and anchorage, however, are considerably lower than those at other regional ports. The main beneficiaries of the low rates are the shipping lines, so there is also potential for rationalizing these charges. 42. Two covenants in the Loan Agreement were not complied with at the time of the PCR (para. 14). According to Schedule 6, para. 2, SP is required to monitor and evaluate benefits of 16 Opinions differ about when to start construction at Thi Vai. SP indicated to the OEM that 2015 may be the most appropriate year to begin, because all outstanding loans will have been repaid by that time. Others within the Government propose A comparative study by the United Nations Economic and Social Commission for Asia and the Pacific found that SP charges higher tariffs than those of other regional ports such as Manila; Hong Kong, China; Singapore; Yangon; Jakarta; and Port Klang in Malaysia.

20 9 the Project by collecting and analyzing port traffic data, particularly data related to ship waiting time and ship service times and cargo-handling performance. The OEM found that data are now being collected and analyzed in these areas. 43. An onlending rate to SP similar to that applicable to ADB s OCR was covenanted in the Project Agreement (Section 3.01). The PCR noted that in a letter dated 20 November 1995, MOF allowed SP to defer payment of interest until 1 November 2001 by adding the interest to the principal. The objective of the covenant was to facilitate the restructuring of SP and promote its commercial orientation, thereby enhancing its capability to attain full cost recovery, as envisaged in the NTSR (footnote 2). The OEM was informed that the authority to enforce SP s repayment of interest and principal to the Government no longer rests with MOF, but with the autonomous Development Assistance Fund (DAF). 18 The OEM was also informed that SP suggested a reconsideration of the rate of interest for two reasons: (i) the devaluation of the dong makes it difficult for SP to meet the original terms of the agreement, and (ii) 28 ports now compete to serve HCMC. MOF denied this request, however, and the interest rate payable by SP in 2001 was 6.17%, the OCR rate, as envisaged in the subsidiary loan agreement. 44. SP is profitable, even though marginal financial returns highlight the increased pressure on operating profits because of high operating costs and constraints on revenue generation in core port activities, as well as the relatively weak performance of noncore business activities in recent years. 19 The operating ratio for the entire SP deteriorated from 76% in 1995 to 92% in 2001 (Appendix 4, Table A4.1). Operating expenses increased by about 10% annually, from D243 billion in 1995 to D427 billion in The higher operating expenses were largely caused by higher salary expenses; fuel costs; management and administration expenses, including depreciation; and cost of products and services sold through SP s noncore business operations (Appendix 4, Table A4.2). 45. Operating revenues (net of turnover taxes) have increased by about 6% annually, from D321 billion in 1995 to D463 billion in Operating revenues from core businesses providing port services stevedoring, warehousing, wharfage, and tugboat fees accounted for an average of about 73% of gross revenue. Noncore business activities, such as tourism and associated businesses, accounted for the balance (Appendix 4, Table A4.3). 46. Operating income fell by 54%, from D78 billion in 1995 to D36 billion in Return on equity declined from 25% to 4% during that period. The operating profit margin from port services declined from 25% in 1995 to 6% in Preliminary financial data for 2002 indicate a recovery, to 12%. The operating profit margin from noncore businesses also declined, from 33% in 1995 to 11% in 2001, and a further decline to 2% is expected in Total asset growth averaged 23% annually, from D294 billion in 1995 to D1,003 billion in Long-term debt burden increased by 54% annually in the same period, from D32 billion to D435 billion in SP s ability to manage an increased debt burden as a consequence of the Project is evident from the acceptable levels of liquidity and debt-to-equity ratios. This was helped by a steady growth in capitalization of about 15% annually as a result of annual increases in cumulative government equity contributions from D173 million in 1995 to 18 This occurred in 1998 when MOF was split into the Treasury, which was renamed MOF, and DAF. DAF is authorized to ensure that agencies repay outstanding loans and interest to the Government. 19 The financial performance of SP s Nha Rong and Khanh Hoi project terminals could not be assessed individually because disaggregated financial data were lacking. 20 Includes an ADB loan for the Nha Rong and Khanh Hoi project terminals and a long-term loan from a Viet Nam bank to help finance the construction of Tan Thuan 2, estimated at D100 billion.

21 10 D507 million in 2001 (Appendix 4, Table A4.4). Nevertheless, SP s financial performance is still at risk, and will likely deteriorate if the Government continues to make decisions relating to stevedoring and anchorage charges, now among the lowest in the region (para. 41). Acquiring a boom crane dedicated to handling containers would further improve SP s performance and competitiveness. C. Economic and Financial Reevaluation 48. Appendix 5 gives the reestimated EIRR and FIRR. Based on a landside berth utilization rate of 85.0%, the reestimated EIRR is 12.6%, well below the PCR estimate of 33.3%. The PCR used the same methodology as at appraisal, with economic benefits including cargo handled at Tan Thuan 1, which was not part of the Project. Thereby, incremental benefits were overestimated; incremental operating costs were also underestimated by the PCR. At evaluation, the EIRR was recalculated for the two project terminals, Nha Rong and Khanh Hoi. Three assumptions were made: (i) that the two project terminals had the ability to meet targets for cargo and container traffic, (ii) SP s cost management would be effective and prudent, and (iii) HCMC would be able to address traffic congestion in the port area to facilitate increased cargo volume. The reestimated FIRR is 3.7% close to the weighted average cost of capital of 4.0% 21 but significantly lower than the PCR estimate of 12.4%. This difference is mainly because operating costs were underestimated. The PCR assumed the incremental operating cost to be 30.0% of incremental revenue, close to appraisal estimates. The OEM considered that assumption optimistic, based on the decline in operating profit margin from core port services (para. 46). Further confirming this observation was the deterioration of the operating ratio for the entire SP. 49. The sensitivity analysis shows that the FIRR will decline to 2.5% if operating and maintenance expenses are 10% higher than assumed. Similarly, the FIRR drops to 1.6% with operating revenues 10% lower than the base case. With an average berth utilization of 75% and 7 million t of cargo handled, the FIRR would be only 0.4%. The sensitivity analysis also shows that net financial revenues from existing cargo traffic cannot generate adequate returns on investment costs. 50. The sensitivity analysis further shows that the EIRR falls to 9.3% if the project terminals achieve an average ratio of only 30% for container cargo, instead of the assumed 34% and 52% in 2005 and 2010, respectively. The EIRR is estimated at 10.3% if there is a 10% decrease in average daily shipping costs, and 11.0% with a 10% reduction in incremental project benefits. Unlike the FIRR case, an average berth utilization rate of 75% raises the recalculated EIRR to 13.9% because of shorter waiting times for ships. D. Sustainability 51. Ensuring a prompt repair and replenishment of equipment when necessary was covenanted in the Project Agreement (Section 2.12 c). The amount spent by SP on repair and maintenance averaged D25 billion during the pre-project years 1992 to Spending declined to D17 billion in 1995, and was estimated at D12 billion in 1999 (Appendix 4, Table A4.1). As of October 2002, the budget of D15 billion for repair and maintenance was adequate. But, as the equipment ages, appropriate and, likely, higher allocations for maintenance must be made to ensure that the investment is protected. 21 The real cost of capital for ADB and government-financed components was estimated at 3.1% and 2.0%. However, according to ADB s Guidelines for Financial Governance and Management of Investment Projects, page 26, a minimum rate of 4.0% should be applied if the derived weighted average cost of capital is below this threshold.

22 As to the long-term financial sustainability of the Project, the operating ratio of 89% in 1994 before the Project began decreased to 76% in 1995, then rose to 92% by This was above the appraisal estimate of 87%, raising concerns over the move toward full cost recovery. The high operating ratio resulted from low port charges and high operating costs (paras ). 53. There is concern that the Government s continued control over port tariffs and fees through the State Pricing Committee threatens SP s long-term sustainability. That control hampers SP s ability to improve its financial performance. Traffic congestion in the port area may also affect the long-term sustainability (para. 38). Competition from other ports with dedicated container facilities and larger storage yards is another factor. Also, future demand for larger-vessel berths may require a relocation of some port activities to a location with deeper water. SP remains the busiest port in the area, however, and significant break-bulk shipping operations will continue, even with the trend toward containerization. Furthermore, several of the berths may be modified to better accommodate cruise ships. The sustainability of SP is likely, even though some port operations may need to relocate to a location with deeper water. IV. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS A. Socioeconomic Impact 54. The Project, by improving commodity-handling capacity, reduced shipping costs for both domestic and international trade. It was reported to the OEM that prices for imports and domestic commodities shipped through SP have decreased, and increased exports have generated higher revenues from export taxes. Also, imports of raw materials for manufacturing, such as steel and iron, have generated more employment in the region, and provided more product choices. Family-operated businesses that produce handicrafts for export have also benefited from improved handling at SP. Domestic cargo transport has increased from 0.6 million t in 1995 to 2.7 million t in 2001, which has helped expand the domestic market. Thus, the Project has helped promote economic growth in HCMC and surrounding areas. 55. Terminal improvements have also generated employment at SP itself. Higher throughput has contributed to the creation of about 1,800 jobs since the Project began. Working conditions at SP have improved considerably through the Port Operations Action Plan, which replaced two 12-hour work shifts for dock and stevedoring labor with three 8-hour shifts. Handling accidents at SP have also decreased since the Project. B. Environmental Impact 56. Environmental impacts of the Project have been minimal. Paving the storage yard has reduced dust. SP employs sanitary teams to clean the break-bulk terminals after each shift. The drainage pits at the shed veranda and in the paved areas are cleaned periodically. Replacing the old equipment has reduced harmful exhaust emissions. Dredging in front of the terminal, although necessary to increase berthing depth, may have affected the existing marine environment in a limited area. The Project was confined to rehabilitation and replenishment of an existing facility, so no relocation was necessary. 57. The port apron and storage yard has a system for collection and drainage of rainwater, but the water is discharged back into the river without treatment or oil separation. Although great care is taken to minimize spills, and spills are later manually swept from the deck, some