Xiamen Port Project in the People s Republic of China (Loan 1584-PRC)

Transcription

1 ADB Project Completion Report PCR: PRC Xiamen Port Project in the People s Republic of China (Loan 1584-PRC) March 2005 Asian Development Bank

2 CURRENCY EQUIVALENTS Currency Unit yuan (CNY) At Appraisal At Project Completion (27 November 1997) (5 August 2004) CNY1.00 = $0.12 $0.12 $1.00 = CNY8.31 CNY8.27 ABBREVIATIONS ADB Asian Develoment Bank CTOP container terminal operations plan EIRR economic internal rate of return EPZ Export Processing Zone FIRR financial internal rate of return MIS management information system PMO project management office PMRAP Port Management Reforms Action Plan PRC People s Republic of China RRP report and recommendation of the President WACC weighted average cost of capital XHB Xiamen Harbor Bureau XICT Xiamen International Container Terminal XMB Xiamen Marine Bureau XPA Xiamen Port Administration XPG Xiamen Port Group XPHCSC Xiamen Ports and Harbors Construction Supervision XPHCTC Xiamen Port Haitian Container Terminal Company WEIGHTS AND MEASURES dwt (deadweight ton) total carrying capacity of a ship, including cargo, fuel, water, and stores. teu (twenty-foot equivalent unit) standard unit of measurement for container traffic. NOTES In this report, "$" refers to US dollars.

3 CONTENTS Page BASIC DATA MAPS ii vii I. PROJECT DESCRIPTION 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 2 A. Relevance of Design and Formulation 2 B. Project Outputs 2 C. Project Costs 3 D. Disbursements 3 E. Project Schedule 4 F. Implementation Arrangements 4 G. Conditions and Covenants 5 H. Related Technical Assistance 5 I. Consultant Recruitment and Procurement 6 J. Performance of Consultants, Contractors, and Suppliers 6 K. Perfornance of the Borrower and the Executing Agency 6 L. Performance of the Asian Development Bank 7 III. EVALUATION OF PERFORMANCE 7 A. Relevance 7 B. Efficacy in Achievement of Purpose 7 C. Efficiency in Achievement of Outputs and Purpose 8 D. Preliminary Assessment of Sustainability 11 E. Environmental, Sociocultural, and Other Impacts 12 F. Project Operations 14 IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 14 A. Overall Assessment 14 B. Lessons Learned 15 C. Recommendations 15 APPENDIXES 1. Port Subsector Development Chronology of Major Events Comparison of Works Planned at Appraisal and Actual Accomplishment Procurement Details: List of Contract Packages Detailed Cost Estimate and Financing Plan Implementation Schedule Institutional Framework Compliance with Loan Covenants Technical Assistance Completion Report Xiamen Port Development Traffic Analysis and Forecast Economic Reevaluation Project Financial Performance Financial Reevaluation 48

4 ii BASIC DATA A. Loan Identification 1. Country People s Republic of China 2. Loan Number 1584-PRC 3. Project Title Xiamen Port Project 4. Borrower People s Republic of China 5. Executing Agency Xiamen Harbor Bureau 6. Amount of Loan $50 million 7. Project Completion Report Number PCR:PRC 884 B. Loan Data 1. Appraisal - Date Started July Date Completed 24 May Loan Negotiations - Date Started November Date Completed 27 October Date of Board Approval 27 November Date of Loan Agreement 12 February Date of Loan Effectiveness - In Loan Agreement 12 May Actual 12 May Closing Date - In Loan Agreement 30 September Actual 30 June Number of Extensions 1 7. Terms of Loan - Interest Rate Pool-based variable lending for US dollars - Maturity (number of years) 24 - Grace Period (number of years) 4 8. Terms of Relending - Interest Rate Pool-based variable lending for US dollars - Maturity (number of years) 24 - Grace Period (number of years) 4

5 iii 9. Disbursements a. Dates Initial Disbursement Final Disbursement Time Interval 2 February June years, 4.8 months Effective Date Original Closing Date Time Interval 12 May September years, 4.7 months b. Amount ($) Category No. Description Original Allocation Last Revised Allocation Amount Canceled a Net Amount Available Amount Disbursed Undisbursed Balance I Civil Works 21,800,000 16,718, ,717,678 16,717,678 0 II Equipment 15,200,000 19,772, ,460 19,012,540 19,012,540 0 III Consulting Services and Training 300, ,000 30, , ,724 0 IV IDC 5,400,000 4,517,000 98,590 4,418,410 4,418,410 0 V Unallocated 7,300,000 43,000 43, Total 50,000,000 41,350,000 b IDC = interest during construction. a Canceled on 30 June b $8.65 million was cancelled on 4 March ,648 40,418,352 40,418,352 0 C. Project Data 1. Project Cost ($ million) Cost Appraisal Estimate Actual Foreign Exchange Cost Local Currency Cost Total Cost

6 iv 2. Financing Plan ($ million) Cost Implementation Costs Borrower-financed ADB-financed Total Appraisal Estimate Foreign Local Exchange Currency Total Foreign Exchange Actual Local Currency Total IDC Costs Borrower-financed ADB-financed Total ADB = Asian Development Bank, IDC = interest during construction. 3. Cost Breakdown by Project Components ($ million) Appraisal Estimate Actual Foreign Local Total Foreign Local Total Item Exchange Currency Exchange Currency 1. Project Preparation Civil Works Equipment Consulting Services Contingencies IDC Taxes and Duties Total IDC = interest during construction. 4. Project Schedule Item Appraisal Estimate Actual Date of Contract with Consultants Completion of Engineering Design Civil Works Contract Date of Award Completion of Work Equipment and Supplies Dates First Procurement Last Procurement Completion of Installation Start of Operations March 1998 December 1997 August 1998 December 1998 February 1999 April 2000 March 2002 March August 1998 December 1997 October 1998 December 2001 March 1999 November 2002 March 2003 December 2002

7 v 5. Project Performance Report Ratings: Ratings Implementation Period Development Objectives Implementation Progress From December 1998 to December 1999 S S From January 2000 to December 2000 S PS From January 2001 to May 2001 S PS From June 2001 to June 2002 S S From July 2002 to December 2003 S S PS = partly satisfactory, S = satisfactory. D. Data on Asian Development Bank Missions Name of Mission Date No. of Persons No. of Person- Days Specialization of Members a Fact-Finding May a, a, b, c, d, e, f Appraisal July a, a, b, c, d, g Inception February a, a Review September a, a Review 2 30 August 3 September 2 10 a, g 1999 Review July a, b Review August a, b Review October a Project Completion Review b September a, h, i a a - engineer, b - financial analyst, c - economist, d - programs officer, e - environment specialist, f - manager, g - counsel, h - analyst, I - consultant. b The mission comprised K. Jraiw, transport specialist and mission leader; E. Infante, assistant project analyst; and a domestic consultant (transport specialist). The timing of the project completion report is also appropriate, due to (i) completion of the management information system in March 2003 and the need for the system to be in operation for at least before a realistic assessment of the system can be made and (ii) cancellation of 2003 mission, due to a severe acute respiratory syndrome outbreak.

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10 I. PROJECT DESCRIPTION 1. The fast socioeconomic development of the Asia and Pacific region makes this region the world s most dynamic. The People s Republic of China (PRC) represents one of the largest economies in the region. The reforms undertaken in the PRC since 1978 resulted in the rapid development of the areas surrounding coastal ports and generated increased volumes of international trade and necessitated the expansion of port capacities. To cope with the increased demand for port services and remove port congestion, a port expansion policy was launched to address the various issues affecting the subsector and improve its services (Appendix 1). The Government s port expansion policy comprised (i) increasing port capacities, (ii) modernizing port facilities, (iii) improving management and operations, and (vi) overcoming congestion in port approaches by deepening channels and improving interface connections with land transportation networks. To support this policy, the Asian Development Bank (ADB) provided four loans, amounting to $ million, and five technical assistance undertakings, amounting to $2.60 million, for various port projects during the 1990s Located on the southeast coast of the PRC (between Hong Kong, China and Shanghai), Xiamen City was established as one of five special economic zones in the PRC and a window for opening up to the outside world. This has resulted in the rapid commercial growth of Xiamen s port, which was transformed from a small local port to a major international port in less than 10 years. New challenges have also arisen that require improvements to the port s infrastructure and management information system (MIS), to make it more market oriented. 3. The feasibility study for the Xiamen Port Project was completed in 1995 and reviewed under ADB project preparatory technical assistance. 2 ADB approved a $50 million loan from its ordinary capital resources on 27 November 1997, to finance 50% of the Project s total $100 million cost. The Loan Agreement was signed on 12 February 1998 and declared effective on 12 May The loan closing date was set for 30 September 2002 but extended once, and the loan was finally closed on 30 June 2003, due to some adjustment to strengthen project implementation. Appendix 2 contains a chronology of major events related to the Project. 4. The Project s objective is to promote economic growth in the region and improve market access for the underdeveloped hinterlands by (i) supporting enterprise reform in the ports subsector by separating regulatory and operational activities in Xiamen s port; (ii) expanding the cargo handling capacity at the multipurpose berths of Dongdu terminal of Xiamen s port; (iii) rationalizing the cargo handling operations at Dongdu terminal to enhance operational efficiency; and (iv) improving the MIS in the port to better support commercial operations. The Project achieved its objective within the cost estimated at appraisal. 1 ADB Report and Recommendation of the President to the Board of Directors on a Proposed Loan and Technical Assistance Grant to the People s Republic of China for the Ports Development Project. Manila; ADB Report and Recommendation of the President to the Board of Directors on a Proposed Loan and Technical Assistance Grant to the People s Republic of China for the Second Yantai Port Project. Manila; ADB Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People s Republic of China for the Fangcheng Port Project. Manila; and ADB Report and Recommendation of the President to the Board of Directors on a Proposed Loan and Technical Assistance Grant to the People s Republic of China for the Xiamen Port Project. Manila. 2 ADB Technical Assistance to the People s Republic of China for the Xiamen Port Project. Manila.

11 2 II. EVALUATION OF DESIGN AND IMPLEMENTATION A. Relevance of Design and Formulation 5. Rapid socioeconomic development in the PRC is straining all of the country s transport modes and is being addressed by the development of key port areas, road corridors, and railway networks. The Xiamen port s hinterland includes Fujian Province and the provinces of Guangdong and Jiangxi. The primary hinterland of Xiamen port consists of Xiamen Municipality, with a population of 1.42 million in 2003 and several municipalities near Xiamen, including Longyan, Quanzhou, Sanming, and Zhangzhou. The three strategic objectives of ADB s operations in the PRC at the time of project formulation were (i) economic efficiency, (ii) poverty reduction, and (iii) environmental protection and resource conservation. In the ports subsector, the priority was to mobilize capital resources to finance the construction of additional berths, install modern cargo handling facilities and equipment, and make transport and distribution in the hinterland more efficient. The Project was in line with the strategic objectives of ADB s operations for the PRC in general and for the ports subsector in particular. 6. ADB supported the Government s policy on integrated transport sector development and the Government s program on the implementation of port projects since The principles of ADB s strategy for port restructuring in the PRC remain basically the same, namely to remove infrastructure constraints and support policy and institutional reform. The policy dialogue undertaken with the Government at appraisal concentrated on the following: (i) developing integrated trade arrangements to facilitate efficient distribution in inland areas, mainly by addressing logistics, such as different modes and electronic data systems at ports; (ii) linking ports more efficiently to their hinterlands and national transportation corridors by selective investment in complementary infrastructure (e.g., national highways); and (iii) supporting the emergence of competition between ports at the overlapping margins of port hinterlands The Project s design was generally sound, and the formulation process was adequate. Stakeholders were consulted by means acceptable to ADB before and during the Project s planning, designing, and implementing phases. The project scope was determined in consultation with the central Government and various provincial government departments, interested groups, and local leaders. The implementation arrangements devised under the technical assistance (footnote 3) were satisfactory. The Project s technical and quantifiable benefits consist of reduced ship time in port, minimized cargo handling costs, and strengthened port management capability. 8. The Project was developed in the context of a wider government strategy to reduce poverty, which is also supported by ADB through its country strategy. The Project increased income-generating opportunities for the poor in the port vicinity by improving access to market-oriented activities and increasing employment through economic expansion. B. Project Outputs 9. The Project s scope at appraisal comprised the following: (i) Civil works. These works included dredging, as well as soil stabilization; land reclamation; and construction of one 410-meter-long quay with two berths for 3 The criteria were based on the outcome of a 1993 international seminar on port investment and competition that was financed by ADB as a component of an earlier technical assistance undertaking (ADB Port Management and Operations. Manila).

12 3 (ii) (iii) 20,000-deadweight ton (dwt) general cargo vessels, one 260-meter-long berth for 20,000 dwt vessels, one 160-meter-long berth for 5,000 dwt vessels, and one 271-meter-long quay with three berths for 1,000 dwt vessels. Necessary equipment. Cargo handling equipment was procured, and this included rail-mounted portal cranes, mobile cranes, and MIS hardware and software. A tugboat with fire fighting equipment, a port service vessel, and other harbor crafts and vehicles were also procured. Other items. Cargo storage buildings, pavement, and roads were provided. 10. Project components were fully completed as appraised, with some adjustment and additional works during implementation to strengthen the port s operation. The main reasons for the adjustments were to (i) enhance port capacity, (ii) cope with increasing demand for container traffic, and (iii) use fully the loan amount. The adjustments included (i) redesigning berth #10 and #11 to make these specialized container handling berths with a capacity of 450,000 twenty-foot equivalent units (teu); (ii) upgrading berth #5 and four smaller berths to meet a combined handling capacity of 1 million tons of break-bulk cargo; and (iii) replacing some break-bulk cargo handling equipment with additional container handling equipment, including two quayside container cranes, four mobile gantry cranes, two empty container handling machines, and one 80-ton truck scale. Appendix 3 compares the scope of project components planned at appraisal with the actual works executed, while Appendix 4 shows procurement details. C. Project Costs 11. The final cost of the Project s ADB-financed component at completion was $40.4 million, compared with $50.0 million at appraisal. The Project was estimated at appraisal to cost $100.0 million, including contingency fees and interest and other charges. The foreign exchange cost was $53.8 million (54%), and the local currency cost was $46.2 million (46%). The actual project cost is now $85.5 million. Analysis of project cost is shown in Appendix The Project realized savings of $14.5 million (foreign exchange $13.4 million and local currency $1.1 million) in actual costs over the appraisal estimates. The main reasons for the cost savings were (i) lower civil works construction cost, due to competitive bidding process and lower project preparation cost ($8.7 million lower than appraisal); (ii) lower consulting services cost due to competitive bidding process ($1.4 million lower than appraisal); (iii) nonuse of contingency ($12.9 million), and (iv) lower interest during construction ($2.1 million lower than appraisal). 13. Among the actual fund sources, ADB s loan was $40.42 million (47%), Ministry of Communications grant was $6.35 million (7%), domestic bank loan was $12.92 million (15%), Xiamen government s grant was $1.03 million (1%), and Xiamen Port Group Co. Ltd s (XPG s) equity contribution was $24.77 million (29%). Compared with appraisal, ADB s loan was reduced by $9.58 million, the Ministry of Communications grant was increased by $0.95 million, domestic bank loan was decreased by $3.48 million, Xiamen government s grant was decreased by $14.67 million, and XPG s equity contribution was increased by $12.27 million. D. Disbursements 14. ADB s loan proceeds were disbursed in accordance with ADB s guidelines on loan disbursement (Loan Disbursement Handbook) and pertinent regulations relating to contracts. The accounting staff members of the Executing Agency were trained in ADB disbursement procedures and able to submit all withdrawal applications in a timely manner. Most of the contracts for goods and services inclusive of international training were disbursed under direct

13 4 payment procedures. The imprest account, which proved helpful for disbursement of minor items, was properly maintained, and replenishment of imprest funds was regularly carried out. The imprest fund was properly liquidated in a timely manner. E. Project Schedule 15. The total implementation period was scheduled to be 4 years, from 1998 to The loan closing date was originally set on 30 September 2002 but extended once by 9 months, to 30 June Project construction commenced on 30 November The Project s marine works (marine structures and dredging) were completed on 31 December 2000, and land works (roads and storage) were completed on 31 December The procurement and installation of equipment (marine craft, cargo handling equipment, communications system, and MIS) started in September 1999, and the Project started its trial operation in October 2002 and commenced full operation in January 2003 (Appendix 6). 16. The Project s scope was adjusted after the Midterm Review Mission in September 1999, after securing the approval of ADB, Ministry of Communications, and Ministry of Finance. The loan closing date was extended by 9 months, to accommodate the adjustments (para. 10). F. Implementation Arrangements 17. Xiamen port, a municipal port under the direct administration of Xiamen Municipality, enjoys considerable autonomy in its day-to-day operations. To facilitate smooth implementation of the Project, the Xiamen Harbor Bureau (XHB) was officially designated on 1 February 1998 as the Project s Executing Agency, and the Dongdu Phase III project management office (PMO) was established within XHB to undertake responsibilities related to project implementation, monitoring, and administration. The PMO was staffed with competent technical, administrative, and support staff. The key personnel were trained in ADB s project implementation procedures related to project administration, procurement, and disbursement. PMO staff members maintained effective contact with ADB and consultants and relevant organizations at national, provincial, and local levels, to ensure the Project s smooth implementation. In compliance with ADB loan covenants, XHB was restructured into two separate entities on 18 June 1998: (i) Xiamen Port Administration (XPA) and (ii) XPG, and all functions of XHB and loan responsibilities were transferred to XPG (Appendix 7). XPG is a large-scale and state-owned port enterprise carrying about 70 80% of the throughput of Xiamen port. Currently, XPG has 12 administration divisions and 19 enterprises, with a total staff of about 6, The Project s international procurement was undertaken by a tendering company, following the modes and procedures approved by ADB. The Executing Agency is experienced and previously acquired sufficient amounts of international project implementation experience in international competitive bidding and port engineering and management. 19. The People s Bank of China provided overall guidance and coordination during the early stages of project implementation. However, under the government restructuring that took place in 1998, the coordination of the Project was transferred to the Ministry of Finance, while the Ministry of Communications was responsible for sector planning and policy development. The implementation arrangements proved to be adequate and played a significant role in achieving project targets.

14 5 G. Conditions and Covenants 20. Most loan covenants were fully complied with, while the remaining covenants are still ongoing. As covenanted, XHB was expected to earn and maintain, for each financial year, commencing from financial year 1998, an annual return on net fixed assets in operation of not less than 10.0%. The rate of return on net fixed assets of XPG was 12.1% in 2002 and 10.0% in 2003 (including disposal of bad assets). XPG established a benefit monitoring and evaluation system, based on the format proposed by ADB. XPG is currently collecting data to monitor and evaluate project benefits. All required reports were submitted on time. Details of compliance status are shown in Appendix 8. H. Related Technical Assistance 21. The Project was formulated under project preparatory technical assistance (footnote 2). The scope of this assistance included (i) reviewing the ports subsector in the PRC, (ii) reviewing the Project s scope and feasibility, and (iii) reviewing the environmental impacts of the proposed investments. ADB approved the technical assistance on 29 October On 9 January 1997, ADB awarded the contract to a United Kingdom consulting firm. The project preparatory technical assistance inception report was submitted in February 1997, the midterm report in March 1997, and the final report in June This technical assistance confirmed that the Project s scope and implementation agreement were appropriate, effective, and suitable for ADB financing. However, the technical assistance was unable to accurately forecast the increasing demand for container traffic, which resulted in the redesign after the midterm review of berths #10 and #11, to make them specialized high-capacity container handling berths. This shortcoming was probably due to the unclear addressing of this issue in the terms of reference of the technical assistance, which should have been included as an integral part of the technical specifications. However, no associated increase in project cost occurred because of the adjustments. The preparatory technical assistance was assessed as successful. 22. Advisory technical assistance for institutional restructuring and MIS improvement for the port authorities also complemented the Project. 4 For this technical assistance, the contract was signed with a United States consulting firm on 4 May The inception report was submitted in June 1998, the midterm report in August 1998, and the draft final report in March On 25 November 1998, ADB approved the extension of consultancy services of the technical assistance, and the final report was submitted in September The advisory technical assistance significantly assisted the port authority in establishing a framework for management and operational strategy and formulating the container terminal operations plan. The Executing Agency found the consultant s recommendations and operations plan to be useful and practical and subsequently adopted almost all the recommendations, including (i) a strategy for restructuring XHB and separating the regulatory and operational aspects of port activities into separate bodies with clearly defined responsibilities; (ii) the development of an effective computer-based MIS to meet the needs of the new port management structure and integrate with port users and external agencies, where appropriate; and (iii) a staff member-training program that improved technical and management skills significantly. The advisory technical assistance was assessed as highly successful, and the technical assistance completion report is in Appendix 9. 4 ADB Technical Assistance to the People s Republic of China for the Institutional Restructuring and Management Information System Improvement. Manila.

15 6 I. Consultant Recruitment and Procurement 24. The PMO carried out the selection of an individual consultant according to ADB s Guidelines on the Use of Consultants by Asian Development Bank and Its Borrowers. On 7 September 1998, ADB approved the engagement of an individual international consultant for the Project to provide 9 person-months of services. The consultant assisted the Executing Agency in reviewing and revising the bidding documents and visited the project site regularly to inspect the progress of the related works and suggest measures to enhance quality control and project monitoring. 25. In addition, the PMO engaged a domestic consulting firm, through local competitive bidding procedures, for construction supervision, the cost of which was financed by domestic funds. The consultants started in October 1998 and completed their assignment in March The procurement of civil works (marine, dredging, and landside works) was implemented through international competitive bidding. Equipment was awarded through international competitive bidding, international shopping, and local competitive bidding procedures. In total, 19 international competitive bidding contracts, 7 international shopping contracts, and 1 local competitive bidding contract were awarded. J. Performance of Consultants, Contractors, and Suppliers 27. The performance of consultants, contractors, and suppliers under the Project was considered satisfactory, with no noticeable problem during project implementation. 28. Project supervision was conducted in a professional and efficient manner. During construction, the supervision consultants strictly followed the contract provisions. The focus was on three areas: (i) control (progress, quality, and cost control); (ii) management (contract and information management); and (iii) coordination (internal and external coordination). Monthly construction coordination meetings were held, and progress reports were provided regularly to ADB. The reports examined actions taken to tackle problems and address issues. 29. During project implementation, contract terms and conditions were strictly complied with by all contractors, resulting in smooth implementation progress and good quality construction works within cost. No quality problems or contractual disputes occurred. The completion of project equipment contracts was generally smooth. Most suppliers performed satisfactorily and delivered the needed equipment as per contract requirements. The installation of equipment was completed promptly. 30. All work items under the Project were inspected and accepted by the Fujian Provincial Quality Supervising Bureau for Communications Projects. Thirty-five out of 37 items (94.6%) under marine works were assessed as excellent. The construction quality of the warehouse was also assessed as excellent. The installation of the handling equipment conforms to the design criteria and other relevant technical requirements. The performance of port facilities fully met design requirements, and all facilities were in normal operation after commissioning. K. Performance of the Borrower and the Executing Agency 31. The Borrower met all project requirements and performed satisfactorily. The Project was implemented smoothly, following the arrangements envisaged at appraisal. Domestic funds were mobilized on time and no fund shortage was noted. The Executing Agency s staff members

16 7 worked diligently and were dedicated to the successful completion of the Project. In accordance with the Project Agreement, the Executing Agency submitted on a timely basis the quarterly progress reports, annual reports, and audited project account and financial statements for the Project. The Project completion report prepared by the Executing Agency was submitted on time and was satisfactory. L. Performance of the Asian Development Bank 32. ADB s performance during project implementation was highly satisfactory. From project preparation to completion and operation, ADB provided significant help and paid close attention to the Project. In addition to the provision of loan funds for implementation and a staff member development program, ADB conducted training and seminars on project implementation and management that provided good opportunities to advance the Executing Agency s awareness and understanding of ADB procedures and policies and removed potential obstacles to implementation. The number of ADB s review missions was adequate. The missions had a positive impact on the Project s efficient implementation and greatly contributed to the Project s successful completion. The Project s smooth and timely execution benefited greatly from ADB s close supervision and support. During the Project s early stages, ADB sent a consultant team, comprising experts in the fields of port technology and finance, to Xiamen port to carry out an overall assessment. The team s recommendations on technology and institution were widely adopted and proved to be helpful in project implementation and port operations. The timing of the project completion review in 2004 was also appropriate, due to (i) completion of the MIS in March 2003 and the need for the system to be in operation for at least 1 year before a reliable assessment can be made and (ii) cancellation of the 2003 mission, due to severe acute respiratory syndrome. III. EVALUATION OF PERFORMANCE A. Relevance 33. The Project was consistent with ADB s and the Government s priorities at appraisal and remains consistent with current priorities. The Project benefits the community by improving the capacity and efficiency of Xiamen port and facilitating the hinterland s continuous rapid economic development, particularly that of Fujian Province. As anticipated at appraisal, the completed project met the following objectives: (i) supporting enterprise reform in the ports subsector by separating regulatory and operational activities, (ii) expanding the cargo handling capacity at the multipurpose berths of the Dongdu port area of Xiamen port, (iii) rationalizing the cargo handling operations at Dongdu port area to enhance operational efficiency, and (iv) improving MIS in the port to better support commercial operations. The Project is rated highly relevant. B. Efficacy in Achievement of Purpose 34. The Project generally achieved the physical targets set at appraisal and is expected to realize the wider development goal envisaged at that time. Constructing the new berths, installing modern equipment and MIS, improving staff member skills, and improving management practices had a significant impact on the subsequent hinterland s economic development through faster, safer, and more efficient clearance and shipment of goods. 35. In 2003, the total throughput at Xiamen port was million tons, of which outbound traffic was million tons and inbound traffic was million tons. Foreign trade was 23 million tons, about 67.6% of total throughput. Among all cargoes, container cargo was 19.73

17 8 million tons, about 58.0% of total cargo. Container traffic maintained a high growth trend, especially with the fast development of cross-ocean transport routes. In 2003, Xiamen port served 47 international transport routes, comprising 24 cross-ocean trunk routes (to other continents), 23 near-ocean routes (within Asia). XPG itself serves 35 of these 47 international routes, mainly the cross-ocean routes. XPG also serves domestic routes, such as Fuzhou, Shantou, and other river and sea ports. Cargoes handled by the Project s berths were mostly international container cargoes. In line with expanding foreign trade development, the cross-ocean transport routes have developed rapidly. Currently, container cargoes handled through Xiamen port have a higher growth rate than break-bulk cargoes. 36. Infrastructure for container cargoes was greatly improved after project completion. The newly dredged channel and turning basin and the new project terminals increased port handling capacity and reduced ship turn-around time, which in turn strengthened Xiamen port as an attractive destination for an increasing number of large vessels. An effective marketing strategy was adopted by XPG, and this strategy will hopefully contribute to steady port traffic growth in the future. XPG is confident that the current traffic growth trend will be maintained and that more cargo will be diverted to the port. Xiamen port also is in a better and stronger position to compete with other seaports in the PRC and to take advantage of its favorable geographic location and facilities to attract more traffic, especially following the PRC s accession to the World Trade Organization. The Project was rated highly efficacious (Appendix 10). C. Efficiency in Achievement of Outputs and Purpose 1. Traffic Demand and Forecast 37. In its first fully operational year (2003), the Project s container berths handled 3.73 million tons (392,000 teu). This increased the throughput of Xiamen port to million tons. According to latest estimate, the throughput at project berths will reach 544,500 teu in 2004, with an annual growth rate of 39%, and the berths will handle 720,000 teu by The forecast from 2004 to 2021, which was based on current economic development and actual throughput, shows that the cargo throughput of Xiamen port as a whole would reach million tons in 2010 and million tons in For the Dongdu port area, alone, the throughput would reach million tons in 2010 and million tons (its designed capacity) in For project berths (#5, #10, and #11), alone, the throughput would reach its designed capacity of 6.84 million tons in The container cargo throughput is projected to retain a high growth trend. The total container throughput for Xiamen port as a whole was expected to be million tons in 2010 and million tons in 2020 (Appendix 11). 39. A comparison of the latest forecast with that at appraisal was undertaken. The appraisal forecast was focused on berths #1 11 of Dongdu port area. The actual container traffic at these berths was about 2 3 times higher than that at appraisal. 2. Trend of Tariff and Pricing Authority 40. Tariff is subject to the price regulation of the relevant government authorities. At present, the authority for tariff setting lies with the Fujian Provincial Communications Department, Ministry of Communications, and Xiamen municipal government. Xiamen port has emerged as a winner in the port subsector in the PRC due to its geographical advantage, well-developed infrastructure, and efficient management. The higher revenue is mainly attributed to high cargo traffic growth, rather than a higher tariff. To enhance the competitiveness of the port and attract more ship calls,

18 9 the tariff was reduced by about 9% since Appropriate adjustment of tariff will be carried out according to the market situation. The current tariff is likely to increase in the next few years. 3. Economic Performance 41. Following the same methodology used at appraisal, the economic costs and benefits of the with and without project cases were reevaluated. The economic benefits were recalculated using actual 2002 and 2003 cargo throughput and newly forecasted cargo traffic for future years. Incremental operating and maintenance costs were also adjusted to reflect economic costs using the same approach. Actual capital cost was about 15% lower than that at appraisal, due to cost savings in civil works and nonuse of contingency fees. A higher equipment replacement cost was applied for container handling equipment. The Project s principal economic benefits are (i) vessel waiting time savings, (ii) land transportation cost avoidance for diverted cargo, and (iii) lighterage cost avoidance. According to assumptions, 20 35% of project traffic would be diverted to road and railway transport in the without project case. Vessel time savings were calculated based on actual vessel time spent in berths and waiting time at anchor while waiting to berth. 42. The Project s economic internal rate of return (EIRR) was reevaluated on the basis of 20 years of operation after project completion, or an evaluation of period of 24 years ( ). The Project s EIRR was recalculated at 22.3% (Appendix 12), compared with 26.0% at appraisal. The lower EIRR was mainly caused by higher operation and maintenance costs applied to meet high traffic demand. A sensitivity analysis indicated that the Project continues to be economically viable under various scenarios. In the worst case scenario, in which a 20.0% reduction in benefits and a 20.0% increase in operation and maintenance cost occur, the EIRR would be reduced to 15.7%, which is still above the cutoff rate of 12.0%. Overall, in economic terms, the Project was well justified. 4. Financial Performance 43. The port s financial performance was assessed in comparison with the appraisal projection. The actual ( ) and projected ( ) financial statements of the project berths (#5, #10, and #11) were prepared, based on the latest traffic projections and financial parameters. Currently, the project berths are operated by XPG, an enterprise with the sole financial responsibility for its own profit and loss. The financial statements consisted of income statement, cash flow statement, and balance sheet (Appendix 13). All financial indicators were in satisfactory ranges. Growth of international container cargo accelerated after the completion of project facilities, which resulted in a better rate of return of port assets and provided new opportunities to expand more port-related businesses. 44. While traffic shows a positive outlook, competition with other domestic ports increased. However, XPG can capitalize on its strength (quality and efficiency of services) through continued implementation of the port management reforms action plan and further investing in the state-of-the-art machinery and facilities that will enable XPG to enhance its competitiveness. The full implementation of the action plan (which includes separation of social infrastructure and a reduction of personnel) together with the results of new capital investment for capacity expansion is likely to translate into better financial performance for XPG in the near future. XPG is now in the process of publicly listing relevant assets, including the Project, on the Hong Kong Stock Exchange to raise new capital for restructuring its capital and further improving its operation efficiency.

19 The financial internal rate of return (FIRR) for project berths was reevaluated using the same methodology used at appraisal but based on actual costs and updated assumptions (Appendix 14). The reevaluated FIRR is 16.60%, after corporate income tax, which compares favorably with the weighted average cost of capital of 4.32% and higher than the appraisal FIRR of 7.27%. The higher FIRR is mainly due to the lowered capital cost (by 15.00%) and higher revenue generated from higher-than-expected container traffic. A sensitivity analysis indicated that the FIRR remained robust under adverse conditions. Even in the worst case scenario, with a 20.00% reduction in revenue and a 20.00% increase in operation and maintenance cost, the FIRR would be at 8.90% after corporate tax, which was still much higher than the weighted average cost of capital. The Project is therefore considered financially viable. 5. Socioeconomic Impacts 46. Xiamen port is strategically situated to take advantage of the growth in direct trade and transport between the mainland and Taipei,China. The port s hinterland includes several poverty-stricken counties (Fujian, Guangdong, and Jiangxi provinces), whose economic growth is dependent on the availability of cost-effective market access for their products. Fujian Province is witnessing fast socioeconomic development and foreign trade. The services of Xiamen port also extend to inner and other coastal areas of Guangdong and Jiangxi provinces. In 2003, the total container traffic of Xiamen port amounted to million tons. Thirty percent of the foreign trade container cargo came from Xiamen, 45% from Quanzhou, 15% from Zhangzhou, and 10% from other places. 47. The Project created a considerable impact on the development of Fujian Province and surrounding provinces. In 2003, the gross domestic product of Fujian Province reached CNY billion, with an 11.5% annual increasing rate, while the total foreign trade reached $35.34 billion, about 24.4% higher than that of The fast socioeconomic development, especially foreign trade, in the Project s influence area brought significant foreign investment in transport operations, especially container transport. The gross domestic product per capita of Fujian Province was CNY15,100 in 2003, compared with the national average of about CNY9, The construction of project facilities also helped provide employment opportunities to the local population, particularly from the poor rural areas around Xiamen port. With the operation of the modern container and bulk terminal, more employment opportunities in port-related services emerged, particularly for migrant laborers from the surrounding rural communities and less developed neighboring provinces. XPG is now one of the largest tax contributors in the province, and this helped in the improvement of various welfare and service systems in the area. 6. Performance Indicators 49. As covenanted at appraisal, XPG established a monitoring and evaluation system to ensure that the Project s facilities are managed efficiently and the anticipated benefits are realized. Cargo handling productivity, origin-destination of traffic, cargo throughput, berth occupancy ratio, and land transport links data, as well as operational, commercial, and financial data, were collected at the commencement of the Project and at regular intervals thereafter and were included in the progress and performance monitoring reports. The baseline data for the hinterland penetration indicators were also recorded, and the comparative figures after 1 year (2004 data) and 3 years of operation will be assessed to determine the impact of the Project. Taking into consideration the reasonable internal rate of return, effectiveness of management, and efficient processing and implementation of the Project, the Project is rated highly efficient.

20 11 D. Preliminary Assessment of Sustainability 1. Policy Reform 50. New Port Law. A law to reform the PRC s ports subsector was identified by ADB as an essential requirement, and this law was incorporated as a covenant in three ADB-financed port projects (Fangcheng, Xiamen, and Yantai) that were approved in the 1990s. As a result, the PRC's top legislature, the Standing Committee of the National People's Congress, passed a law on port operation in June 2003 governing construction, management, and competitiveness of the country's sea and river ports. The law, which became effective on 1 January 2004, has transferred the legal responsibility of the Ministry of Communication and the central Government over the ports to the local governments. The Ministry of Communications and the central Government will merely play the role of coordinators. Port authorities and companies will have the flexibility of running their ports in accordance with market principles, in a transparent and unbiased manner, and in line with local conditions. 51. The law will help tighten government supervision and improve port administration and operations. The Government opened its ports to overseas investment in 2002, and the new law is expected to open the door even wider. Given the rapid growth of port services, XPG will benefit significantly from the new law. 52. Institutional Restructuring. In compliance with ADB loan covenants, XHB (the former Executing Agency) was separated into two entities on 18 June 1998: XPA and XPG. Since then, all functions of the Executing Agency and loan responsibilities were transferred to XPG, including the PMO, without any change in staffing. As a result of the restructuring and increase in capacity, the port witnessed significant development. The throughput was 5.30 million tons in 1990, million tons in 1997 (prior to project implementation), and million tons in A large passenger terminal is at the planning stage and will be constructed soon. 53. At present, project berths are operated by Xiamen Port Haitian Container Terminal Company (XPHCTC), which was established in The former body of XPHCTC, Xiamen Port Haitian Subsidiary Company, was awarded the quality assurance system certification of ISO9000 in 2000, after it implemented efficient management and operating systems. 54. The newly established business department within XPHCTC established a marketing center that is responsible for market expansion with the following actions: (i) strengthening collection of and analyzing market information to provide a basis for better decisions; (ii) establishing a client management system; designating specific client management staff members for each major client; and (iii) providing good associated services. 55. Management Information System. To increase operational efficiency, XPG developed a modern MIS. A large-scale database was developed using the ORACLE system in 2002 and put into operation at the beginning of The MIS equipment procured under the Project included a server, database software, and computer terminals. The development of the system has (i) increased port efficiency and improved resources use, (ii) reduced operating costs and increased profits, and (iii) assisted all levels of port management by providing accurate and timely monitoring data. 56. Joint Venture. XPG established a business relationship and joint venture with Xiamen International Container Terminal, in which XPG s share is about 35.7%. Xiamen National Trade Company has a share of about 15.3%, and Hongkong Hutchison Port Holdings Group accounts

21 12 for 49.0%. Xiamen International Container Terminal carries out its operations in Berth #2 and Berth #3 of Haicang port area. 57. Private Sector Participation. XPG carried out a resources rationalization exercise to streamline its operations, create a competitive environment, and concentrate on core activities, such as storage and stevedoring, transportation, logistics, and agencies that are closely related to stevedoring. Sixteen subsidiary freight companies are merged into one competitive company, Xiamen Port Group Logistics Company. 58. Separation of nonoperational activities is currently underway, including spamming off the canteen, hostel, and school, while business areas that have no or few links with XPG s main business will be closed (e.g., Xinggang Real Estate Company). 59. The establishment of the free trade zone in the port area also attracted several private enterprises and contributed to stronger growth and sea traffic demand and strengthened port activities. The zone is acting as a focal platform to facilitate importation and exportation, while its warehouses are used as temporary cargo storage areas. An inspection and customs center established near Dongdu terminal provided another convenient one-stop clearance facility and attracted more clients. Many well-known international and domestic shipping companies (including Evergreen, Grand Alliance, Maersk Sealand, and PRC Shipping) have opened offices or established agencies in Xiamen. 60. Merit System. XPG introduced an open competition and merit system in the appointment of new staff members and management cadre and the promotion of staff members. Several of the younger generation professionals have now been promoted to various important positions. Competition with external applicants is now in place for all promotions, taking into account the candidate s qualifications, experience, and performance. All positions are provided with a job description and selection criteria. XPG also established links with some universities and employment agencies to assist in the recruitment of suitable candidates. 61. Asset Management and Listing of the Project on a Stock Exchange. XPG is a wholly state-owned company and operates as a commercial entity. For better restructuring of its assets, increasing its operation efficiency, and enhancing its market competitiveness, XPG is now pursuing its initial public offering on the Hong Kong Stock Exchange. 2. Risks 62. As formulated at appraisal, the Project does not face any significant technical or environmental risks. XPG gained adequate technical expertise and project implementation experience, as well as institutional capacity and robust revenue growth and profit, and no significant debt service obligation exists. The main risks were traffic demand and competition from other domestic ports. Rapid growth in the port and project area and the development of an efficient link with the road and railway networks in the port hinterland will ensure a constant demand for the facilities provided under the Project. Good potential exists for port-associated services expansion and operations improvement. Hence, the sustainability of the Project is rated most likely. E. Environmental, Sociocultural, and Other Impacts 1. Environmental Impacts 63. Environmental mitigation measures and protection under the Project were carried out in accordance with the requirements of the project environmental impact assessment report, which