ASIAN DEVELOPMENT BANK

PPA: IND 22211

PROJECT PERFORMANCE AUDIT REPORT ON THE SECOND PORTS PROJECT (Loan 1016-IND) IN INDIA

December 2001

CURRENCY EQUIVALENTS Currency Unit Indian Rupee/s (Re/Rs) At Appraisal (February 1990) Rs1.00 = $1.00 = $0.0587 Rs17.03 At Project Completion (September 1997) $0.0275 Rs36.41 At Operations Evaluation (September 2001) $0.0208 Rs48.01

ABBREVIATIONS ADB DOT-AP EIRR FIRR JNPT MbPT MIS MOST OEM PCR PIC PPAR TA VTMS Asian Development Bank Department of Transport, Roads and Buildings, Andhra Pradesh economic internal rate of return financial internal rate of return Jawaharlal Nehru Port Trust Mumbai Port Trust management information system Ministry of Surface Transport Operations Evaluation Mission project completion report project implementation cell project performance audit report technical assistance Vessel Traffic Management System

NOTES (i) (ii) The fiscal year (FY) of the Government and the executing agencies ends on 31 March. FY before a calendar year denotes the year in which the fiscal year ends. In this report, "$" refers to US dollars.

Operations Evaluation Department, PE-584

CONTENTS Page BASIC DATA EXECUTIVE SUMMARY MAPS I. BACKGROUND A. B. C. D. E. F. II. Rationale Formulation Purpose and Outputs Cost, Financing, and Executing Arrangements Completion and Self Evaluation Operations Evaluation 4 6 9 9 9 9 11 11 11 12 12 13 14 14 15 17 17 19 20 22 23 23 23 24 25 25 25 25 25 26 26 26 27 27 28 29 30

PLANNING AND IMPLEMENTATION PERFORMANCE A. Formulation and Design B. Achievement of Outputs C. Cost and Scheduling D. Procurement and Construction E. Organization and Management ACHIEVEMENT OF PROJECT PURPOSE A. Operational Performance B. Performance of the Operating Entity C. Financial and Economic Reevaluation D. Sustainability ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS A. Socioeconomic Impact B. Environmental Impacts C. Impacts on Institutions and Policy OVERALL ASSESSMENT A. Relevance B. Efficacy C. Efficiency D. Sustainability E. Institutional Development and Other Impacts F. Overall Rating G. Assessment of ADB's and Executing Agencies' Performance ISSUES, LESSONS, AND FOLLOW-UP ACTIONS A. Key Issues for the Future B. Lessons Identified C. Follow-Up Actions

III.

IV.

V.

VI.

APPENDIXES

BASIC DATA Second Ports Project (Loan 1016-IND)

PROJECT PREPARATION/INSTITUTION BUILDING TA No. 1283 1284 Name Operational and Financial Assistance for Bombay Ports Development of Ship Repair Facilities Type ADTA ADTA PersonMonths 38 32 Amount ($) 600,000 400,000 Approval Date 29 March 1990 29 March 1990

KEY PROJECT DATA ($ million) As per ADB Loan Documents Total Project Cost Foreign Exchange Cost ADB Loan Amount/Utilization ADB Loan Amount/Cancellation KEY DATES Fact-Finding Appraisal Loan Negotiations Board Approval Loan Agreement Loan Effectiveness First Disbursement Project Completion Loan Closing Months (effectiveness to completion) Expected July 1988 24 April - 12 May 1989 24-28 July 1989 5 September 1989 8 November 1990 31 March 1995 30 September 1995 53 181.0 115.5 129.0 Actual 5-23 October 1988 2-12 May 1989 15-17 November 1989 29 March 1990 10 August 1990 5 April 1991 1 June 1992 30 September 1997 6 October 1997 78 PCR 15.9 14.0 15.7 15.3 6.7 4.2 7.6 20.0 PPAR 110.9 11.2 18.3 9.7 62.7 4.4 9.5 0.8 Actual 153.8 97.9 109.3 19.7

ECONOMIC AND FINANCIAL INTERNAL RATES OF RETURN (%) Economic Internal Rate of Return Replacement of MbPTs Outer Lock Gate at Indira Dock Modernization of MbPTs Ship Repair Facilities Replacement of MbPTs Pir Pau Oil Pier Development of Kakinada Deepwater Port Financial Internal Rate of Return Replacement of MbPTs Outer Lock Gate at Indira Dock Modernization of MbPTs Ship Repair Facilities Replacement of MbPTs Pir Pau Oil Pier Development of Kakinada Deepwater Port BORROWER EXECUTING AGENCIES

Appraisal 47.0 22.8 27.1 25.8 7.3 7.2 15.2 10.0

India, acting by its President Mumbai Port Trust Ministry of Surface Transport Department of Transport, Roads and Buildings of the State of Andhra Pradesh

ADTA = advisory technical assistance, MbPT = Mumbai Port Trust, TA = technical assistance.

MISSION DATA Fact-Finding Appraisal Project Administration Inception Review Disbursement Follow-up Special Project Administration Project Completion Operations Evaluation1

No. of Missions 1 1 1 11 1 1 1 1

Person-Days 54 52 18 197 4 5 51 54

The Operations Evaluation Mission comprised C.C. Yu (Evaluation Specialist/Mission Leader), A. Ibrahim (Evaluation Specialist), and E. Laing (Consultant). The Mission visited India from 4 to 21 September 2001.

EXECUTIVE SUMMARY The Asian Development Bank's (ADB) operational strategy in India in the late 1980s focused on rapid industrialization and improvement of infrastructure to support industrial development and make more efficient use of productive capacity. The main objective of the Project was to improve the efficiency and productivity of the ports and shipping sector and to provide additional cargo handling and ship-repairing capacity in order to reduce constraints on industrial and energy development. The scope of the Project was broad and its physical components were to be located in Mumbai on the west coast and Kakinada, a regional economic center on the east coast. The Project was to help modernize the port and ship-repair facilities of Mumbai Port Trust (MbPT), develop Kakinada Port, and strengthen project implementation and monitoring activities of the then Ministry of Surface Transport (MOST). Two advisory technical assistance (TA) grants were provided in conjunction with the Project: one for formulating an action plan for MbPT to develop a computer-based management information system in order to improve its operational efficiency, and the other to prepare for MOST an investment program and a study of the ship-repair subsectors organization, institutional framework, and management and operations. The Project was consistent with ADBs operational strategy for India at the time of appraisal. On 29 March 1990, the Board approved a loan of $129.0 million for the Project. The total project cost was estimated at $181.0 million equivalent, including $115.5 million foreign exchange cost and $65.5 million equivalent of local currency cost. ADB was to finance the entire foreign exchange cost plus $13.5 million equivalent of the local currency cost. The Operations Evaluation Mission visited India in September 2001, and confirmed that most project components were implemented as originally envisaged with the following exceptions. A major component, improvement of MbPTs container-handling facilities (under the modernization of MbPTs port facilities), was cancelled. The design of Kakinada Port underwent a major change that involved relocating the proposed breakwater and berths. Part C of the Projectstrengthening the project implementation and monitoring activities of MOSTwas not implemented. The total project cost amounted to $153.8 million equivalent (15 percent below the appraisal estimate). ADB financing amounted to $109.3 million, or 71 percent of the actual cost. The balance of $19.7 million of the ADB loan was cancelled. The loan saving was due to the cancellation of two project components and efficient construction. The Project was completed in September 1997, or 2.5 years behind schedule. The delay was mainly attributable to front-end delays in loan effectiveness and procurement, difficult geological conditions and strikes at Mumbai Port, and the major design change for Kakinada Port. Despite the cancellation of the component for upgrading container-handling facilities, the Mumbai portion has achieved most of its objectives by helping improve the efficiency and productivity of the port through building, rehabilitating, and improving infrastructure, although much remains to be done in terms of management and staffing. First, the replacement of the outer lock gate at Indira Dock proved to be highly beneficial. It has contributed to a significant increase of the total tonnage of cargoes handled at Indira Dock and the declining vessel waiting and turnaround times at the port. Without the replacement, Indira Dock would have become permanently tidal, preventing larger ships from entering it during low tide and, thus, incurring economic loss. Second, the construction of the new Pir Pau Oil Pier allows MbPT to meet the increasing demand for handling liquid cargo, i.e., petroleum products and special chemicals. Its occupancy had reached 67 percent by FY2001, and the pier has benefited people by helping to stabilize the costs of oil and chemical imports and make the products more widely available. As a result of the new Pir Pau Oil Pier, MbPTs handling of specialized chemicals has increased

dramatically. Third, the Vessel Traffic Management System, developed under one of the attached TAs and installed using ADB loan proceeds, serves both MbPT and the nearby Jawaharlal Nehru Port Trust by locating and directing all the vessels that enter the ports area. The system helps improve the operational efficiency and safety of the two ports. Finally, with respect to modernization of ship-repair facilities, the equipment rehabilitated and installed is in good working condition. However, the total number of vessels repaired at MbPT has not increased as envisaged at appraisal. There is a general dissatisfaction among ship owners with MbPTs ship-repair services. Most of the ship owners interviewed continue to send their ships to foreign shipyards for repairing, citing reasons such as lower costs and more on-time delivery. For Kakinada, the construction of a deepwater port and provision of necessary equipment was completed in a satisfactory manner. The major design change related to the locations of the breakwater and berths was appropriate as it would allow future expansion. However, most of the original rationale for building the deepwater port, i.e., the provision of port services required for the development of gas-based industries and power generation, has not been fulfilled. The objective of stimulating regional economic growth in Kakinada through the availability of the port has not yet been fully achieved. However, the port has achieved a substantial level of traffic, which has been growing at 50 percent per annum. The current occupancy is 51 percent. The Project has been environmentally neutral. In terms of socioeconomic impacts, the Project aimed to improve the operational efficiency of the respective ports, which has resulted in redundant labor. In Kakinada, in order to mitigate the adverse social impacts from unemployment, the Government of Andhra Pradesh has adopted a policy to reserve the handling of some bulk cargoes, e.g., fertilizer, for the old harbor, where they are barged to/from anchorages by 7,000 to 10,000 barge owners. The Project has generated positive socioeconomic impacts in terms of contributing to local economic development and welfare. The Mumbai port, for example, has helped ensure uninterrupted power supply in the Mumbai area through reliable supply of imported fuel oil for power generation. Despite the attempts, through the other attached TA, to encourage reforms to improve operational efficiency, labor policies, and organizational and institutional arrangements in the ship-repair subsector, there has been little progress in these areas. The Project was relevant in terms of conforming to the Governments goals and policy, as well as to ADBs operational strategy at the time of appraisal. Although its relevance has been reduced somewhat as ADBs current operational strategy places greater emphasis on commercialization and privatization of existing port facilities, in general, the Project has been relevant. The Mumbai portion has been efficacious as it has achieved most of its objectives. In comparison, the Kakinada portion has been less efficacious since most of the original objectives for building the deepwater port have not been met yet. Overall, the Project has been less efficacious. With a combined economic internal rate of return of 45.4 percent, the Project has generated significant economic returns to the country. The combined financial internal rate of return (FIRR) is 13.7 percent. The Mumbai portion is generating significant financial returns with an FIRR of 28.8 percent. However, with a low FIRR of 0.8 percent, the financial viability of Kakinada Port is uncertain, although its traffic is increasing rapidly. The Mumbai portion was executed in an efficient manner despite some delays. Because of the major design change, the Kakinada portion was delayed by three years. In general, however, the Project has been efficient. Both MbPT and the private operator of the Kakinada Port are experienced in managing and maintaining the port facilities and equipment and, thus, the Project is likely to be sustainable. The Projects impacts on society, environment, institutions and policies have been minor. Overall, the Project is rated successful.

Several key issues affect the performance of the Project and the sector in general. The first is sector-wide and relates to operational efficiency, labor unions, and privatization. Despite some recent improvements, MbPTs overall operational efficiency is still much behind equivalent ports elsewhere in the world. A major commitment is required on the part of the Government to carry out necessary sector reforms to improve the efficiency of ports in India. Second, the port tariffs are heavily regulated. The main pricing mechanism, i.e., a cost plus formula, does not encourage efficiency or competition. It not only deters foreign investments in the sector, but also adversely affects the profitability and financial sustainability of port projects. The third issue is the need for ADB to continue being involved in port infrastructure. Worldwide experience indicates that certain components, such as breakwaters and dredging, are capital intensive, and few private companies would invest in such projects even for some of the world's top ports including Hong Kong, China; Singapore; and Rotterdam. ADBs investments in such infrastructure will help attract additional private sector investments. The key lessons derived from the Project include the need for realistic traffic forecasts, homogenous project scope and coherent project theme, and adequate quality control during project design in case there is no project preparatory TA.

I. A. Rationale

BACKGROUND

1. With a vast land mass of 3.3 million square kilometers and a population of 797 million in 1988, India experienced a period of relatively rapid industrialization with annual growth rates in the industrial sector between 7 and 9 percent during the Seventh Five-Year Plan (FY1986FY1990); the growth rates were anticipated to be even higher in the Eighth Five-Year Plan period. The rapid industrialization strained Indias energy supply and transportation infrastructure. In the transport sector, inadequate capacity and substandard infrastructure led to excessive transit delays, fuel wastage, and high operating costs. Total traffic handled by the major ports, which accounted for 98 percent of foreign trade, grew at an average of 8 percent during the 1980s, reaching 146 million tons in 1989, and was forecast to more than double in the next two decades. Seaborne transport was facing several constraints, as modernization of port and shipping facilities, including ship-repair facilities, lagged behind changes in shipping technology and cargo-handling methods. The Governments objective in the ports and shipping sector was to modernize and expand existing facilities in line with new technological developments such as containerization and mechanized handling of bulk cargo. The Asian Development Bank's (ADB) operational strategy in India in the late 1980s focused on rapid industrialization and improvement of infrastructure to support industrial development and to make more efficient use of productive capacity. B. Formulation

2. The Project2 was formulated as the second ports project in India to be financed by ADB, following the first one approved less than three years earlier.3 During the visit of the Country Programming Mission to India in February 1988, the Government requested ADB assistance for the modernization and expansion of selected ports in the context of the Governments sector investment program under the Seventh Five-Year Plan. In March 1988, a Reconnaissance Mission fielded by ADB recommended ADB financing for the modernization of the port and shiprepair facilities at Mumbai and the development of deepwater facilities at Kakinada. To help prepare the Project, the Mumbai Port Trust (MbPT) and the State Government of Andhra Pradesh were requested to update the feasibility studies already available. A Fact-Finding Mission visited India in October 1988 and the Appraisal Mission was fielded in May 1989. The Board approved a loan of $129.0 million for the Project on 29 March 1990. The loan became effective on 5 April 1991. C. Purpose and Outputs

3. The Project aimed to improve the efficiency and productivity of the ports and shipping sector and provide additional port handling and ship-repairing capacity in order to reduce constraints on industrial and energy development. The scope of the Project was broad and the physical components of the Project were to be located in two different cities, Mumbai on the

2 3

Loan 1016-IND: Second Ports Project, for $129 million, approved on 29 March 1990. Loan 842-IND: Ports Development Project, for $130 million, approved on 24 September 1987.

west coast, and Kakinada, a regional economic center on the east coast (Map 1). The main components of the Project as proposed were as follows: (i) Part A: Modernization of MbPTs Port Facilities, which included (a) (b) (c) (d) (e) (ii) improvement of container-handling facilities; replacement of Pir Pau Oil Pier; replacement of the outer lock gate for Indira Dock and ancillary works; replacement of a fire-fighting vessel; and provision of a computer-based management information system (MIS).

Part B: Modernization of MbPTs Ship-Repair Facilities, which included (a) (b) (c) replacement of one caisson gate each of Hughes and Mereweather dry docks; supply, installation, and testing of needed equipment; and provision of equipment, facilities, and civil works at various docks and berths, and repair of existing facilities at these locations.

(iii)

Part C: Strengthening of the Project Implementation and Monitoring Activities of the Ministry of Surface Transport, for which a project implementation cell (PIC) within the Ministry of Surface Transport (MOST) was to be set up under the direct control of the development advisor. Part D: Development of the Port of Kakinada, which included (a) (b) construction of three deepwater berths, extension of the breakwater, and dredging works; and provision of ancillary facilities and services including an access road and approach bridges, transit shed and administration building, fire fighting equipment, water and electrical supply, navigational aids, two tugboats, pilot launch, mobile cranes, and other cargo-handling and communications equipment.

(iv)

4. In addition to the physical components, two advisory technical assistance (TA) grants were provided. The first TA4 aimed to formulate an action plan to develop a Vessel Traffic Management System (VTMS) and a computer-based MIS to enable MbPT to effectively monitor the financial and operational performance of its assets. The second TA5 involved preparation of an investment program for the Eighth Five-Year Plan (FY1993-FY1997)6 and a study of Indias ship-repair subsectors organization, institutional framework, and management and operations, with a view to achieving more effective and efficient utilization of available resources and encouraging greater participation by the private sector.

4 5 6

TA 1283-IND: Operational and Financial Assistance for Mumbai Ports, for $600,000, approved on 29 March 1990. TA 1284-IND: Development of Ship Repair Facilities, for $400,000, approved on 29 March 1990. There was a two-year lapse between the Seventh and Eighth Five-Year Plan periods due to change of the Government, during which an interim plan was followed while a new approach to planning was being deliberated.

D.

Cost, Financing, and Executing Arrangements

5. Appendix 1 breaks down costs by project component. At appraisal, the project cost was estimated at $181.0 million equivalent, including $115.5 million foreign exchange cost and $65.5 million local cost. There was no cofinancing for the Project; ADB was to finance the entire foreign exchange cost plus $13.5 million equivalent local cost. 6. Three executing agencies were engaged to implement the Project. MOST was to serve as the overall coordinating and monitoring agency of the Projects implementation, whereas MbPT and the Department of Transport, Roads and Buildings, Andhra Pradesh (DOT-AP), were to be responsible for implementing the respective components of the Project. A PIC within MOST was to be set up in order to effectively manage the Project (Part C). E. Completion and Self Evaluation

7. The project completion report (PCR), which was circulated on 11 December 1997, reported that there were substantial delays (2.5 years) in implementation. One main project component, i.e., improvement of MbPTs container-handling facilities under Part A, was cancelled. Part C of the Project (strengthening MOSTs project implementation monitoring activities, through the PIC establishment) did not materialize. For none of the project components did the traffic reach the level forecast as fast as projected by the appraisal report. For the Kakinada portion (Part D), there was a major change in scope due to the modification in the layout and design of the new deepwater port. Despite these shortcomings, the PCR rated the Project as generally successful on the basis that (i) the recalculated economic internal rate of return (EIRR) was above 10 percent for all quantifiable components, (ii) the Project as implemented represented the least-cost alternative, and (iii) no major part of the Project had failed. On the whole, the PCR was thorough in terms of evaluating the physical components of the Project, and identified several key lessons to be learned in future port projects. However, the PCR made no mention of the adequacy and efficacy of the two advisory TAs. F. Operations Evaluation

8. This project performance audit report (PPAR) focuses on the Projects effectiveness and efficiency in meeting its objectives. To accomplish this, the PPAR assesses various aspects of project formulation, design, implementation, and sustainability, as well as its socioeconomic, environmental, and institutional impacts. The assessment is based on a review of ADB documents, discussion with ADB staff, and findings of the Operations Evaluation Mission (OEM), which visited India in September 2001. During the visit, the OEM held discussions with the Ministry of Shipping (formerly part of MOST), MbPT, DOT-AP, industry representatives, and shipping companies as the ports customers. Copies of the draft PPAR were sent to the Government, MbPT, DOT-AP, and the concerned ADB departments for review; all comments received have been considered in finalizing the report.

II. A.

PLANNING AND IMPLEMENTATION PERFORMANCE

Formulation and Design

9. The relatively fast pace of Indias industrial expansion and foreign trade during the late 1980s, averaging about 8 percent per annum, strained the outdated port-handling and shiprepairing facilities. Improving the countrys small, inefficient, and labor-driven ports was considered consistent with ADBs operational strategy in the late 1980s, which had a clear focus on improvement of infrastructure in support of industrial development. The subsequent economic liberalization commencing in 1991 further reinforced the need to upgrade the countrys port facilities in order to meet increasing demand from foreign trade. 10. ADBs country operational strategy also stressed greater private sector participation in the sector. At the time of project formulation, the issues of efficiency, productivity, and the role of the private sector were key concerns for ADBs management and Board. It was argued that the need for the Project itself indicated the inefficiency of the ports, which were relying on outdated equipment. Additionally, questions arose as to why India was operating such poor equipment even if the financial situation of the port was as good as in Mumbai, which was regarded as relatively cash rich. The private sector was proposed as an alternative either to operate the ports as a whole or to undertake specific activities within a port, in the belief that the private sector could do so in a much more efficient manner. Underinvestment and outdated equipment was not the ports only problem. Inefficiency in Indian ports resulted as much from overstaffing and management problems as from the outdated equipment. There had been several studies conducted on the issue, including an ADB TA, which was ongoing at the time of loan approval.7 Most of the recommendations from these studies had not been implemented by the Government at the time of appraisal. The main argument in favor of government investment in ports was that the private sector was reluctant to invest a large amount at the front end in expensive port infrastructure. Government investment in the infrastructure would act as a catalyst in attracting private sector participation in port services. 11. To address the issues raised regarding efficiency and private sector participation, preparation of an action plan was included as a loan covenant. MbPT would submit to ADB a plan that would take into account the findings of past and ongoing TAs (e.g., footnote 6), and take up the TA recommendations to address the inefficiencies identified. The plan would specify a prioritized list of problem areas and appropriate time-bound actions for addressing them. The areas included (i) the elaboration of measures that MbPT should adopt to improve the operational efficiency of its assets, (ii) the description of parameters or productivity standards that would be used to monitor improvements in financial and operational performance, and (iii) the specification of the timeframe within which such improvements would be achieved. The two attached advisory TAs were also designed to address the efficiency at MbPT and Indias shiprepairing industry (para. 4). On the other hand, the design of the physical components was done by domestic consultants and was based on the Governments feasibility studies. As discussed in paras. 13, 14, and 22, several design changes were made during implementation. Although Indias technical knowhow in the ports sector is among the best of all the developing member countries, the participation of international consultants at the design stage could have helped preclude the need for later design changes and costly delays. Additional design problems identified included overly optimistic traffic forecasts and incoherent project themes (paras. 52 and 53).

TA 1004-IND: Ports and Shipping Sector Study, for $500,000, approved on 8 July 1988.

B.

Achievement of Outputs

12. Interviews and surveys conducted with the Ministry of Shipping and MbPT, along with observations obtained during site visits, confirmed that the following five major components from the original scope (para. 3) had been completed under the Mumbai portion: (i) Part A(b): construction of the new Pir Pau Oil Pier, (ii) Part A(c): replacement of the outer lock gate in Indira Dock and ancillary works, (iii) Part A(d): replacement of one fire-fighting vessel, (iv) Part A(e): installation of VTMS, and (v) Part B: modernization of ship-repair facilities (Maps 2 and 3 show project locations and Appendix 2 contains project photos). Generally, the project facilities are well maintained and adequately serve their intended purpose. An exception is the firefighting vessel, which is in a poor, rusty condition and appeared to be no longer functional. According to the MbPT officials interviewed, the reasons included lack of skilled labor to operate the vessel and the fact that two larger fire-fighting vessels with tugging capability had been procured and are more fully utilized. The OEM believes that availability of two larger and more capable vessels was the dominant reason. 13. The design of the physical components of the Project in Mumbai underwent several changes during implementation. First, according to the PCR, the lock gate of Mereweather Dry Dock constructed in Mumbai under the Project was not watertight because of a measurement error. The measurements from the original gate, which were used in the design of the new gate (without actual on-site measurements), were wrong. The problem could only be partly remedied during construction. The OEM tried unsuccessfully to verify this with site officials interviewed, but observed that the lock gate was in good working condition. Second, one major component modernization of MbPTs container-handling facilitieswas cancelled. The OEM determined that the cancellation was largely due to the Governments plan to limit MbPTs handling of container traffic within 100,000 twenty-foot equivalent units. The rest of the container traffic was assumed to have been diverted to the nearby newly built modern container terminal, Jawaharlal Nehru Port Trust (JNPT), funded by the World Bank at a cost of $660 million (Map 2).8 With hindsight, the OEM believes that the cancellation of the container component was appropriate. Given its low operational efficiency, MbPT was unlikely to be able to compete with JNPT for container traffic even if the container handling facilities had been upgraded as proposed. 14. For Kakinada, construction of a deepwater port and provision of necessary equipment under Part D was completed in a satisfactory manner, despite a major design change. The OEMs site visit confirmed that the equipment procured under the Project was well maintained and in excellent working condition. The original design had to be changed significantly, which involved relocating the breakwater to an offshore site instead of extending an existing fishing jetty, and building the berths closer to the shoreline (Map 4). According to the consulting engineering firm appointed by the Government of Andra Pradesh for project design and supervision, the design change was proposed by the consultants after the completion of a questionnaire by customers of the port in 1990, which indicated a substantial increase in expected throughput compared with that forecast in the original design in 1988. The main advantage of the revised design is that it allows for future expansion if the need arises by virtue of building the berths close to the shore, which ensures access to reclaimed areas for docking and storage. The revised design also avoids potential congestion of land traffic on the approach road. This is because, under the original design, the only link between the berths and land transport would have been a 3.5-kilometer approach road built on top of the breakwater. The revised design, however, involved more dredging work. Additional design changes included
8

After a slow start, JNPT, together with its private concession holder P&O (Ports), has achieved a high growth rate in container traffic. At the same time, MbPT has seen its container traffic decreasing steadily. The reasons appeared to be multifold: in addition to MbPTs poor handling facilities, which were supposed to be upgraded under the Project, its low efficiency and service quality also contributed to the deteriorating traffic.

increasing the dredging depth of the turning basin and berthing areas from 10.2 to 10.5 meters, and the dredged draft to 11.7 meters at the channel entrance.9 Finally, the planned two tugboats became three, and all were equipped with fire-fighting facilities. 15. The OEM regards the Governments decision to adopt the design change for Kakinada Port as appropriate notwithstanding the fact that it resulted in delays in completion (para. 17). The potential for adding more berths, which is possible with the current design, may be the key to the Port being able to retrieve its investment, even though the need for additional berths may not materialize in the short term. C. Cost and Scheduling

16. As shown in Appendix 1, the actual cost as of 6 October 1997 (actual loan closing date) was $153.8 million equivalent (or 85 percent of the estimated cost), consisting of $97.9 million in foreign exchange and $55.9 million equivalent in local currency ($11.4 million equivalent financed by ADB). The actual total ADB financing (including all the actual foreign exchange cost and the portion of local cost actually financed by ADB) amounted to $109.3 million, or 71 percent of the total actual cost. The balance of $19.7 million of the ADB loan was cancelled. The loan saving was due to two factors: (i) the cancellation of the container-handling component for MbPT, which accounted for about $9 million; and (ii) efficient construction, which accounted for more than $10 million. For the development of Kakinada Port, the actual cost, including the $12 million paid for interest during construction, was $94.9 million, or 3 percent below the appraisal estimate of $97.4 million. Although the revised design and the associated delays resulted in higher dredging costs and interest during construction, savings realized by construction of a much shorter breakwater under the new design were enough to offset this. 17. Appendix 3 provides information on the project schedule as appraised and as implemented.10 The completion of the Project as a whole was delayed by approximately 2.5 years, although the delay for some components reached more than three years. After two extensions, the loan was closed on 6 October 1997, two years after the scheduled closing date. Project implementation was adversely affected by the long period between loan approval in March 1990 and loan effectiveness in April 1991. The delay was caused by the long time taken to resolve certain outstanding issues. Construction for both Mumbai and Kakinada portions of the Project also experienced delays, for a variety of reasons. For example, the construction of MbPTs Pir Pau Oil Pier was delayed due to excessively hard rock encountered and labor strikes. For the replacement of MbPTs fire-fighting vessel, ADBs bidding procedures were quoted as the primary reason for the delay. For Kakinada, the main reason was the change in the original design. D. Procurement and Construction

18. The civil works, goods, and equipment financed by ADB were procured in accordance with ADBs Guidelines for Procurement. Most major equipment and civil works were procured on the basis of international competitive bidding. These items included replacement of Pir Pau Oil Pier, Indira Docks outer gate, the fire-fighting vessel, computer equipment for the computerized MIS, equipment and supplies for MbPTs ship-repair facilities, construction and dredging, and some major equipment (three tugboats and two mobile cranes) for Kakinada Port.
9 10

According to the site officials interviewed, this draft is still inadequate for some larger ships. For some components, work started before approval of the Project due to retroactive financing sanctioned by ADB.

Procurement of minor equipment and civil works was on the basis of local competitive bidding, and included civil works relating to the construction of MbPTs ship-repair facilities as well as the internal roads, port building, and a pilot launch for Kakinada Port. Limited quantities of equipment, including 12 forklift trucks and other cargo-handling equipment for Kakinada Port, were procured in accordance with international shopping procedures. 19. Interviews and questionnaire results indicate that the executing agencies are generally satisfied with the performance of the suppliers and the contractors, with a few exceptions. For example, MbPT reported that the performance of the contractor for the fire-fighting system for Pir Pau Oil Pier was unsatisfactory in terms of both delayed completion (by 15 months) and reluctance to meet the bid specifications once the order had been secured. For Kakinada, the executing agencies was mostly satisfied with the performance of the contractor and supplier.11 On the whole, despite the delays and minor disagreements between the executing agencies and the contractors/suppliers, the OEM regards the quality of procurement and construction as satisfactory. E. Organization and Management

20. MOST, which was recently divided into the Ministry of Road Transport and the Ministry of Shipping, was the overall Executing Agency for the Project. Under Part C, a PIC was supposed to be established within three months after the loan became effective, but it did not materialize.12 Interviews with officials at the Ministry of Shipping indicated that the Government was still learning at that time. It has since recognized the importance of a project implementation body for effective project management and subsequently established one for other projects. Surveys conducted with MbPT and DOT-AP indicated that the two executing agencies were satisfied with MOSTs monitoring and supervision. MbPT and DOT-AP complied with the respective loan covenants applicable up to project completion. In particular, MbPT submitted to ADB the requisite action plan for improvement of port efficiency (para. 11). The compliance of ADBs financial covenants by the executing agencies will be assessed in later sections (paras. 31 and 32). Both MbPT and DOT-AP were technically experienced and competent in implementing port projects. 21. The consulting services required for the implementation of various project components were engaged and financed directly by the executing agencies concerned. In the case of Mumbai Port, the required services included preparation of detailed designs and bidding documents, assistance in prequalification of contractors, as well as bidding and the evaluation of bids for some major components. Supervision of construction was mostly done by MbPT staff, except in the case of replacement of the outer lock gate for Indira Dock and the replacement of one caisson gate each of the Hughes and Mereweather dry docks, for which domestic consultants were engaged by MbPT to provide detailed design, assistance in the bidding process, and construction supervision. ADB reviewed and approved the terms of reference for all consulting services and was consulted on the shortlists of consultants. For Kakinada Port, DOT-AP recruited domestic consultants for engineering design, bidding, and construction supervision.

11

However, both the contracted local and international dredging companies indicated that they have yet to receive the full payment from the Government of Andhra Pradesh for the work they have completed. The case is currently going through arbitration. 12 The loan proceeds of $250,000 allocated for the PIC for procuring additional official equipment and supplies were not utilized.

22. For all the engineering design and supervision consulting services required, it was felt that sufficiently experienced domestic consultants were available; therefore, no international consultants participated in the engineering design and supervision work. In hindsight, a project preparatory TA would have been beneficial. At the very least, ADB should have hired an independent international consultant to review all project designs, which may have avoided the design flaws described in paras. 13-14. For the two advisory TAs, ADB recruited consultants according to its Guidelines on the Use of Consultants. MbPT indicated that it was highly satisfied with the consultants for TA 1283-IND (footnote 3), who worked with MbPT throughout the process of installing the MIS; moreover, there was significant knowledge transfer between the consultants and MbPT.

III.

ACHIEVEMENT OF PROJECT PURPOSE

A.

Operational Performance

1.

Mumbai Port

23. The primary objective of the Project with respect to MbPT was to improve its operational efficiency. Appendix 4 provides two important indicators for port efficiency: Figures A4.1 and A4.2 indicate that both average vessel waiting and turnaround times have fluctuated but have been generally decreasing since FY1997 for all cargo types. However, the improvements cannot be attributed solely to the Project; other factors, particularly changing traffic, also affect the waiting and turnaround times.13 The following paragraphs provide an assessment of each individual components contribution to MbPTs improvement in efficiency. 24. The replacement of the outer lock gate at Indira Dock proved to be justified and successful. Indira Dock is the largest dock in the port of Mumbai. It contains about 21 berths within the locked area and 2 berths outside. The whole dock currently handles about 12 million tons of cargo per year. The lock gates (inner and outer) are used to maintain a water depth of 9.5 meters inside the lock. Without the locks, the water depth would be 6.5 meters at low water. This is far below the depth necessary to accommodate most international cargo ships. The old outer lock gate, which was built in 1922, was unreliable and required constant repairs. According to the chief engineer at MbPT, it was no longer reparable. Without the replacement, Indira Dock would have become permanently tidal, preventing larger ships from entering the dock during low tide.14 The new lock gate is more reliable and has certainly contributed to the improved vessel waiting and turnaround times. Since the lock gates completion at the end of 1993, the total tonnage of general cargoes handled at Indira Dock increased by 44 percent from 8.8 million tons in FY1993 to 12.7 million tons in FY1997, and has remained fairly constant at 11 to 12 million tons since then. Although not all the increase is attributable to the replaced lock gate, it has undoubtedly contributed to the improvement. 25. The construction of the new Pir Pau Oil Pier was also one of the most needed components. Its occupancy reached 67 percent by FY2001. The old Pir Pau Oil Pier, which was built in 1922, could no longer meet the surging demand from specialized chemical plants, two oil refineries, and a power plant near the oil pier for handling liquid cargo, including petroleum products and lubricants. The new oil pier has attracted various industrial users, both private and public, to build their own pipelines on the pier to transport petroleum products and lubricants and specialized chemicals.15 MbPT obtains its revenue from users annual dues plus a
13

Decreasing traffic since FY1997 may be the most important factor for the declining vessel waiting and turnaround times. Total traffic at MbPT increased from 26.8 million tons in FY1992 to 33.7 million tons in FY1997, and then decreased to 27.1 million tons in FY2001. This roughly corresponds to the pattern of average waiting and turnaround times exhibited by Appendix 4. In particular, the improvement for containers cannot be attributed to the Project because the container component was cancelled. The declining waiting and turnaround times were most likely due to the loss of traffic to JNPT. 14 Such adverse impact is best illustrated by a recent incident that left the lock gates out of service for six weeks. As a result, the draft of 9.5 meters at the dock could not be maintained. Many ships had to carry less cargo (in order to reduce the draft to that required to enter the dock), or offload part of the cargo at outer docks. This, however, would not be possible for larger volumes of cargo since there are only two berths outside the lock. 15 Pir Pau Oil Pier provides 20 pipelines slots of 300 millimeter diameter equivalent. According to MbPT, there have been many requests for permission for laying pipelines from users, but not all of them could be accommodated.

surcharge based on the actual tonnage of liquid cargo transported. According to a shipping company executive interviewed, the new Pir Pau Oil Pier benefits average people on the street by stabilizing the costs of oil and chemical imports and making the products more widely available. After the construction of the Pir Pau Oil Pier in early 1996, the total tonnage of specialized chemicals handled by MbPT increased from 0.5 million tons in FY1996 to approximately 2.5 million tons in FY2000, even though the total liquid cargoes remained constant at 49 million tons during the same period. Most, but not all, of the chemicals were handled by the new Pir Pau Oil Pier. 26. Under the Project, an action plan was formulated for MbPT to develop a computer-based MIS to enable it to effectively monitor the financial and operational performance of its assets (para. 4). Five subsystems were recommended, including (i) Executive Information System, (ii) VTMS, (iii) Cargo Management and Information System, (iv) Container Traffic Control System, and (v) Accounting System. ADB financed the installation of VTMS under Part A. The OEM confirmed that the VTMS, which consists of three radar detectors, telecommunication equipment, and computers, is well maintained and serves both MbPT and the nearby JNPT by locating and directing all the vessels that enter the ports area. According to site officials interviewed, compared to the previous manual-driven procedures for directing ships, VTMS improves both the efficiency and safety of port operations. Installation of the other subsystems of the MIS was to be financed by MbPT. According to MbPT officials interviewed, they were installed but not integrated.16 27. With respect to the modernization of ship-repair facilities, the old caisson gates at the Mereweather Dry Dock and Hughes Dry Dock were replaced. In addition, a 5-ton electric crane and other ancillary equipment, including electrical substations, illumination equipment, and air compressors, were installed. The OEM confirmed that the equipment is in good working condition. At appraisal, it was envisaged that this project component would reduce service times by over 50 percent and would attract over 70 additional vessels per annum. However, the target has not been achieved as the actual total number of vessels serviced currently is about 70. Interviews with various ship owners using the ship-repairing facilities showed a general dissatisfaction with MbPTs ship-repair services.17 Most of the ship owners interviewed continue to send their ships to foreign shipyards for repairing, citing reasons such as foreign shipyards lower costs, on-time delivery, and the fact that the two dry docks at MbPT are always full.18 28. MbPT is well versed with operation and maintenance; as a result, most equipment and facilities procured under the Project are in good working condition. An exception was noted with the fire-fighting vessel procured by MbPT under the Project, which was in a rusty condition and appeared to be no longer functional (para. 12). 2. Kakinada Port

29. In an effort by DOT-AP to improve operational efficiency and raise additional investment, the operation of the Kakinada Port was privatized through a concession in March of 1999.19 Information gathered from DOT-AP and the private operator of the port facilities revealed that the berths constructed were needed and are being used. The current occupancy is 51 percent and is increasing at the rate of 50 percent per annum.20 The port is already handling 1.8 million
16 17

The OEM could not confirm this independently. Such services are often provided by private contractors using MbPTs facilities. 18 This reflects the fact that the dry docks receive a large number of government contracts for repairing navy ships and that a relatively long time is required to service a ship due to low efficiency. 19 The privatization was the Governments own initiative, not a loan covenant. 20 The OEM estimates that the port will reach its full capacity by FY2004.

tons of cargo, mostly bulk liquid. One new product, edible oil, is handled in large volumes. However, the original aims of the Project as stated in the appraisal report have not been achieved. Gas-based industries have not been attracted to Kakinada as envisaged. In fact, the gas reserves have remained largely unexploited after 10 years. It was also envisaged at appraisal that fertilizer plants, iron and steel plants, and petroleum depots would be developed in the area. However, many of the industries have moved to neighboring Visakhapatnam instead, where the water is much deeper. The petroleum tanks have been built, but are not being used, as the power plants for which they were designed have not materialized yet and are likely to use gas instead of petroleum products once they are constructed. Despite the discrepancy between the original aims of building the deepwater port and the ports current achievement, the long-term goal of making Kakinada a regional growth center through the availability of the port is very much achievable as the general macroeconomic and policy environment improves. 30. The OEM observed that all equipment at Kakinada Port was well maintained. In contrast to MbPTs fire-fighting vessel, the fire-fighting facility is in an excellent condition and, according to site officials, the staff conduct drills on a regular basis. B. Performance of the Operating Entity

1.

Mumbai Port Trust

31. Appendix 5 provides some key financial performance indicators for MbPT. Despite some information gaps,21 it is possible to assess MbPTs overall financial performance using available information. Table A5.1 indicates deteriorating operating returns. The operating ratio (operating expenses as a percentage of operating revenue) increased from 57.6 percent in FY1994 to 79.4 percent in FY2000, although it is still below the ADB-covenanted level of 80 percent.22 The returns on net fixed asset also declined, from 76.4 percent in FY1994 to 16.6 percent in FY2000. The decrease is attributable to two factors. First, the net income decreased steadily over the period, due to declining operating revenue caused mostly by falling cargo revenue (e.g., container traffic lost to JNPT), but also rapidly increasing operating expenses, e.g., staff remuneration. Second, as shown in Table A5.3, MbPTs net fixed assets in operation increased almost threefold over the six-year period through accelerated investments. Table A5.2 indicates that MbPT is highly liquid, with a cash balance of Rs3.85 billion at the end of FY2000. The self-financing ratio in FY1994 and FY1995 was above 150 percent.23 Finally, Table A5.3 indicates that the current ratio (current assets as a percentage of current liabilities) was close to 300 percent. Overall, MbPT is in a healthy position in terms of cash flow. However, its operating returns have been deteriorating due to unchecked operating expenses and slow traffic (revenue) increases. Furthermore, MbPT appears to increasingly rely on nonoperating revenue, which was nearly the same as operating revenue in FY2000 (Table A5.1). Although the nonoperating revenueincluding railway earnings, estate rental, and finance incomecontributes to the seemingly healthy cash flow, it casts some doubt on MbPTs long-term sustainability in port services.

21 22

The OEM tried unsuccessfully to obtain additional information from MbPT. Compliance with ADBs other financial loan covenant, internal cash generation of not less than 1.2 times the debtservice requirements, cannot be assessed due to lack of information. 23 It was argued during project formulation that self-financing ratio was not an appropriate indicator for a relatively cash-rich enterprise like MbPT, and the return on fixed assets would be more appropriate. It is the OEMs view that the two indicators capture different aspects of the financial performance and should be used as such.

2.

Kakinada Port

32. Under the concession agreement between the Government of Andhra Pradesh and the concessionaire, the Government receives from the private operator a minimum guaranteed amount each year plus an additional share of profit based on a pre-agreed formula while DOT-AP continues to be responsible for paying back ADB loans and other debts.24 The private operating company is in its third year of operation. In FY2000, it made an operating profit of Rs42.8 million. However, after a payment of the minimum guaranteed amount of Rs110 million to the Government, it incurred a net loss of Rs67.2 million. The main reason for the poor financial performance is the ports low occupancy, currently at 51 percent, and the fact that most cargoes handled at the port are liquid, for which handling fees are low. The financial performance of the private operator is expected to improve in coming years, as the traffic has been growing at 50 percent per annum (para. 29) and there is likely to be more dry cargoes coming due to the operators targeted marketing efforts. Detailed financial statements for the private operator were unavailable. C. Financial and Economic Reevaluation

33. Appendix 6 provides the recalculated financial internal rates of return (FIRRs) and EIRRs for four quantifiable components of the Project using updated information, i.e., the outer lock of Indira Dock, Pir Pau Oil Pier, ship-repair facilities, and Kakinada Port. For both the financial and economic reevaluation, all costs and benefits are denominated in US dollars at 2001 constant prices.25 As summarized in the following table, the recalculated FIRRs are 0.8 percent for Kakinada, 4.4 percent for ship repair, 9.5 percent for Pir Pau Oil Pier, and 62.7 percent for Indira Dock. Despite the low return for ship repair, the FIRR for the three Mumbai components combined is 28.8 percent, much higher than the weighted average cost of capital for the Mumbai portion, i.e., 4.6 percent in real terms. In comparison, the FIRR of 0.8 percent for Kakinada is lower than the weighted average cost of capital at 4.4 percent in real terms, indicating a potentially low financial sustainability and efficiency of Kakinada Port (paras. 35 and 45). As discussed in Appendix 6, many project benefits identified in the appraisal and project completion reports either did not materialize or were incorrectly estimated. As a result, the types of financial benefit or revenue used in the PPAR in many cases are considerably different from those used in the appraisal and project completion reports. For example, for replacement of the outer lock gate of Indira Dock, the PCR assumed that the old lock gate could be maintained indefinitely. Therefore, the main financial benefit of replacing the old lock gate with a new one was the avoidance of operation and maintenance cost associated with the old gate. However, MbPT confirmed that the old gate was in too dilapidated a condition to be continuously repaired, and would not have been reliable enough even after a major overhaul. Furthermore, the cost avoidance was greatly overestimated by both the appraisal and project completion reports since the operational cost with the new lock gate is approximately the same as the old one, and the maintenance cost saved with the new lock gate is only a fraction of the total cost. In the PPAR,
24

The financial loan covenants for Kakinada Port Trust were the same as those for MbPT, i.e., operating ratio lower than 80 percent after FY1995, and internal cash generation not less than 1.2 times the debt-service requirements. Compliance is not assessed as Kakinada Port Trust no longer exists as a commercial entity after the privatization of its operations. 25 The US dollar is used because 71 percent of the Project was financed in foreign exchange through the ADB loan, and there is often a considerable amount of foreign exchange transactions and price quoting in the port sector.

the financial benefit of replacing the lock gate was estimated as the portion of the port revenues retained (net of expenditure), which would have been lost if the port became tidal. Summary of Financial and Economic Reevaluation (%) Item FIRR EIRR Indira Dock 62.7 110.9 Pir Pau Oil Pier 9.5 18.3 Ship Repair 4.4 11.2 Mumbai Combined 28.8 65.2 Kakinada 0.8 9.7 All Combined 13.7 45.4

EIRR = economic internal rate of return, FIRR = financial internal rate of return.

34. While the FIRRs indicate costs and returns to the executing agencies, the EIRRs measure the costs and benefits from the countrys point of view. The types of benefits brought to the society by Indira Dock, Pir Pau Oil Pier, and Kakinada are mostly from cost savings compared to using other more expensive transport modes (Appendix 6). In other words, if the project components were not built, barge or road transport would have to be used to transport the same types and amounts of cargoes. An exception is Mumbai ship-repair facilities, for which the alternative is to send ships to foreign shipyards for repair. In this case, any amount of money spent in foreign shipyards is a net loss to the Indian economy. Therefore, the economic benefit of modernization of the ship-repair facilities is the total avoidance of the costs of using foreign ship yards,26 which was estimated at 10 percent less than the relatively expensive MbPT dry docks based on interviews with ship owners. In estimating the economic costs, duties and taxes are deducted and nontradable local currency costs are converted to border prices using a 0.9 standard conversion factor. In addition, for Mumbai ship repair, a conversion factor of 0.6 is used to derive the shadow price of labor. Shadow pricing the labor cost for ship repair is deemed appropriate because, compared to the other three components (activities), ship repairing is relatively labor intensive. The recalculated EIRRs range from 9.7 percent for Kakinada to 110.9 percent for Indira Dock, indicating varying but generally high economic returns to the country. Despite the errors identified in both appraisal and PCR estimates of FIRRs and EIRRs27 (Appendix 6), the recalculated FIRRs and EIRRs, except those for Indira Dock for which different estimation methodologies were used, are all lower than the appraisal estimates, partly reflecting the less-than-expected traffic and other project benefits. Finally, the above table shows the combined FIRR and EIRR estimates for all four components, i.e., 13.7 percent and 45.4 percent, respectively. In particular, the high aggregated EIRR indicates major economic returns of the Project to the country.

26

The main economic benefit, as stated in the appraisal report, was to be the avoided steaming cost associated with extra fuels and time consumption when sending ships to foreign shipyards, typically in the Peoples Republic of China, Singapore, and the Middle East. However, the OEM learned that most ship owners arrange their ships for repairing when the ships are in those regions, thus incurring little additional cost. The savings from lower prices and timely delivery of foreign shipyards are often more than enough to offset any additional steaming costs. 27 For example, in estimating the EIRR, the capital cost for Indira Dock was included three times in the appraisal report for unknown reasons. In PCR, the Indira Dock was assumed to have a residual value of 10 times the original cost after 20 years operation. There are other similar unexplainable anomalies in the appraisal and project completion calculations, which in combination have cast great doubt on the overall validity of the estimates.

D.

Sustainability

35. The Projects financial sustainability depends on continued demand for cargo-handling services in Mumbai and Kakinada. In Mumbai, MbPT is facing increasing competition from JNPT. However, since the container-handling component of the Project was cancelled, the competition does not affect the sustainability of the Project as implemented. Moreover, MbPT has a large hinterland and is well positioned and equipped to handle general cargo. For Kakinada, with the low FIRR at 0.8 percent, questions arise as to whether there will be enough funds available for continued operation, maintenance, and growth requirements. The OEM observed that the private operator invested in operation and maintenance, and the ports traffic was growing rapidly. The Government of Andhra Pradesh is determined to make Kakinada a regional economic center and a deepwater port is essential in its long-term plan, known as Vision 2020. 36. The Projects sustainability also depends on the capability of MbPT and the private operator of Kakinada Port to operate and maintain the facilities. Site visits to both ports confirmed that the facilities are generally well maintained. An exception was noted with the rusty fire-fighting vessel (para. 12). In sum, the Project is likely to be sustainable.

IV. A.

ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS

Socioeconomic Impact

37. Socioeconomic impacts, or lack thereof, of the Project may be assessed in light of local unemployment vis--vis redundant work force. Both the Mumbai and Kakinada portions of the Project aimed to improve the operational efficiency of the respective ports. Improvements in efficiency, however, often result in redundant labor. For Kakinada Port, in order to mitigate the adverse social impacts from potentially increasing unemployment, DOT-AP has adopted an explicit policy to reserve the handling of some bulk cargoes, e.g., fertilizer, for the old harbor, where they are barged to/from anchorages. Although these outdated operations impede improvement of Kakinada Ports overall operational efficiency and reduce the financial viability of the new deepwater port built under the Project, they employ about 7,000 to 10,000 people. Excess labor is also clearly evident at MbPT. Under the Project, MbPT has been covenanted to take measures to gradually improve port efficiency (para. 11). It reduced its total number of employees from 31,000 in 1989 to 24,000 in 2000 (still much higher than equivalent ports elsewhere in the world), mostly through early retirement schemes. In both cases, the Project helped reduce the need for labor, but social considerations prompted the Government to adopt a protective policy, which may be suboptimal from a long-term point of view but is deemed necessary in the short term. 38. The Project has generated some positive socioeconomic impacts, as well. The Kakinada Port was built to stimulate economic development that would benefit the entire region, even though this objective has not been fully realized based on interviews with local industrial representatives and on the OEMs own observations (para. 29). The Government of Andhra Pradesh is renewing efforts through its long-term plan (para. 35). The Mumbai Port has also benefited average people on the street by stabilizing the costs of imports, and making the imported products more widely available, and by ensuring uninterrupted power in the Mumbai area through the reliable supply of imported fuel oil for power generation.28 B. Environmental Impacts

39. The Project has been environmentally neutral in that the operations of the facilities built under it did not involve significant environmental impacts. During implementation, minor impacts on the local marine environment may have been caused, such as those associated with dredging. Compared to the old Pir Pau Oil Pier, the liquid handling facilities at the new Pir Pau Oil Pier are much safer to operate which minimize the chances for potential oil and chemical spillsso far no such incidents have been reported. The MbPT officials interviewed, however, reported that the Pir Pau area is heavily polluted, mostly caused by the power plant, refineries, and chemical plants in the surrounding area, not directly by Pir Pau Oil Pier itself.

28

Several interviewees pointed out that Mumbai served by the power plant near Pir Pau Oil Pier, which depends on the new pier for its supply of low sulfur high stock fuel oil, enjoys reliable power supply in contrast to the frequent outages in the rest of the country.

C.

Impacts on Institutions and Policy

40. The Project aimed to achieve positive impacts on institutional development and policy through advisory TAs, loan covenants, and a project component targeting the implementation capacity of MOST. Under TA 1284-IND (footnote 4), the consultants developed an investment program and a strategy for institutional and organizational reforms in the ship-repair subsector with a particular view to achieving more effective and efficient use of available resources and encouraging greater private sector participation. The Ministry of Shipping officials interviewed claimed no knowledge of the TA. However, according to the consultants who carried out the TA, the final report was well received by the then MOST, which actively participated in formulating the investment program and strategy. Two tripartite meetings were held. The Government required the rewriting of part of the final report to reflect new legislation and investment proposals made by the Government. Nevertheless, implementation of the TA recommendations and the investment program was slow and unsuccessful.29 In general, the ship-repair sector in India remains uncompetitive compared with that of other countries in the region. In 1991, the total ship-repair turnover was about $25 million equivalent, and another $50 million was spent on repairing Indian-flagged ships in foreign shipyards. According to the officials interviewed, the current amount spent in foreign shipyards is likely much higher as even more Indian ships choose to go abroad for lower costs and quicker delivery. 41. The Project aimed to improve MOSTs project implementation and monitoring capacities by allocating loan proceeds for establishing a PIC, which had not materialized by the time of project completion but was established subsequently for other projects (para. 20). For MbPT, TA 1283-IND (footnote 3) provided assistance in formulating an action plan for implementing a computerized MIS to improve its operational and financial efficiency. The MIS, particularly VTMS, has been installed and has achieved its design purpose (para. 26). Finally, in compliance with a loan covenant, MbPT submitted a draft action plan to ADB outlining key actions to be taken to improve port efficiency (para. 11). The draft plan could not be located at either ADB or MbPT. As discussed in para. 37, the operational efficiency of MbPT, measured by productivity per employee, has improved, but still remains low compared with that of similar ports elsewhere in the world. Policymaking regarding staff levels remains with the Government rather than with any individual port trusts.

29

For example, the TA recommended privatization of several major shipyards and the addition of more ship-repair capacity. Most recommendations were not followed. For two shipyards, the privatization took place but later on proved unsuccessful for reasons such as the slow increase of the Indian fleet and financial disputes between the concessionaire and the Government.

V. A. Relevance

OVERALL ASSESSMENT

42. The Project was relevant in terms of its conformity to the Governments goals and policy, as well as to ADBs country operational strategy at the time of appraisal, which focused on rapid industrialization and improvement of infrastructure in support of industrial development and a more efficient use of productive capacity. The current ADB operational strategy for Indias port sector places greater emphasis on commercialization and privatization of existing port facilities and on supporting reforms to enhance private sector involvement in rehabilitating, modernizing, and upgrading such facilities to improve their productivity and utilization, as well as in developing new ports. This has somewhat reduced the relevance of the Project in todays policy context. However, overall the Project has been relevant. B. Efficacy

43. The Mumbai portion has achieved most of its objectives by improving the efficiency and productivity of the port through building, rehabilitating, and improving infrastructure, although much remains to be done in terms of management and staffing. In general, the Mumbai portion has been efficacious. The Kakinada Port has been less efficacious as most of the original objectives for building the deepwater port were not met and the goal of stimulating regional economic growth in Kakinada through the availability of the port has not yet been fully achieved. Although the ports occupancy has reached 51 percent and is growing rapidly, overall, the Project is judged to have been less efficacious. C. Efficiency

44. With a combined EIRR for all four components of 45.4 percent, the Project has generated significant economic returns to the country. The combined FIRR is 13.7 percent. The Mumbai portion is generating significant financial returns with an FIRR of 28.8 percent. However, with an FIRR of 0.8 percent below its weighted average cost of capital of 4.4 percent, the financial viability of Kakinada Port is uncertain, although the ports traffic is increasing rapidly. The Mumbai portion was executed in an efficient manner with no major cost overrun, despite some delays and cancellation of a major component. The Kakinada portion underwent a major design change and was delayed by three years. In general, however, the Project has been efficient. D. Sustainability

45. There is likely to be continued demand for cargo-handling services by MbPT by virtue of its superb location. MbPT is financially strong and has adequate operation and maintenance capability. Although the current cash flow situation for Kakinada Port is not as strong as for MbPT, the private operator is committed to and has a proven record in operation and maintenance. The long-term financial performance of the port is expected to improve as traffic increases. The Government of Andhra Pradeshs long-term plan to turn Kakinada into a regional economic center should also improve the prospect for Kakinada Port. Overall, the Project is likely to be sustainable.

E.

Institutional Development and Other Impacts

46. The PIC to be established within MOST to supervise the implementation of the Project did not materialize, but such a cell was subsequently established for other projects. As covenanted, MbPT submitted a draft action plan to ADB outlining key actions to be taken to improve port efficiency, but the plan could not be located at ADB or MbPT. However, it is evident that although some progress has been made in operational efficiency improvement, much remains to be done. The advisory TA provided for developing a computerized MIS achieved its purpose of improving MbPTs operational and financial efficiency. In contrast, the advisory TA for the development of Indias ship-repair capacities was less successful as the implementation of its recommendations proved to be slow and inconsequential. The countrys ship-repair subsector remains uncompetitive. The Project is environmentally neutral and its socioeconomic impacts have been moderate. In sum, the Project has had little impact on institutions, the environment, or the society. F. Overall Rating

47. In view of the varied but generally positive achievements of different components of the Project as assessed against the five rating criteria, the Project is judged overall to be successful. G. Assessment of ADB and Executing Agencies Performance

48. A total of 11 loan review and 3 other missions were fielded by ADB during project implementation; the executing agencies are generally satisfied with the support provided by ADB. In particular, MbPT is highly appreciative of ADBs assistance in resolving various issues pertaining to ADB guidelines and procedures, and reviewing and approving design changes. In hindsight, however, ADBs performance could have been better. Formulation of the Project was based on forecasts of traffic that proved to be overoptimistic (para. 52). The Project appeared to have been formulated by putting together a series of unrelated subprojects without a central theme (para. 53). ADB could have avoided some of the problems by hiring an independent instructional consultant to review the design before proceeding with implementation (para. 22). Most policy reforms and institutional development components of the Project were not implemented, for which ADB and the Government jointly bear responsibility. The performance of the executing agencies was generally satisfactory in terms of implementing the Projects physical components.

VI. A.

ISSUES, LESSONS, AND FOLLOW-UP ACTIONS

Key Issues for the Future

1.

Operational Efficiency, Staff Level, and Private Sector Participation

49. The issue of operational efficiency and staff levels is sector-wide, beyond any single port trust or company, and is more political than economic. For MbPT, despite the significant reduction in the work force, the total number of employees is still too high relative to its total throughput, resulting in high operating expenses. To a certain extent, this was to be expected as India is a labor-surplus economy, and labor-intensive production techniques should be encouraged. Progress in privatization has been limited. Tenders have been issued to privatize MbPTs container-handling facilities, but so far there has been very little interest generated. Ship-repairing facilities, though leased out to private contractors, have had low profitability and service quality. One of the main reasons for MbPTs relatively slow pace in privatization and efficiency improvement is its large cash balance (para. 31), which obviates a potential key incentive to privatize, i.e., the need to raise capital for investment. In contrast, the operation of the Kakinada Port was successfully privatized in March 1998 by DOT-AP in order to improve efficiency and attract additional investment from the private operator. Although the additional investment has not yet materialized, the port is well maintained and managed. There is a strong need for political commitment on the part of the Government to carry out necessary sector reforms to improve its efficiency.

2.

Port Tariff Structure and Financial Sustainability of Ports

50. The tariffs for 13 major ports in India, including Mumbai Port, are regulated by the Tariff Authority for Major Ports, which was set up in 1997 through an amendment of the Major Port Trusts Act of 1963. Tariffs for other ports, including Kakinada Port, although not regulated, often need to be aligned with those of the major ports in order to be competitive. The tariff authority determines the prices using a cost plus formula, which allows the ports to recover their investment plus a reasonable return. The disadvantage of such a pricing mechanism is that it does not encourage competition and efficiency since it guarantees a return on capital investment regardless of its efficiency.30 The tariff authority official interviewed indicated that they will gradually move from the current cost-based pricing model to a performance-based model. However, it is imperative for the Government to deregulate tariffs if India intends to move to increasingly market-based and commercialized port operation. Overly regulated prices not only deter foreign investment in the sector, but also adversely affect the financial sustainability of port trusts and companies. Kakinada Ports financial sustainability is affected partly by its low tariffs. For MbPT, although the overall financial performance is sound, the share of port operations in its total revenue has been steadily declining (para. 31). Deregulated port tariffs are essential to encourage competition and improve ports profitability. 3. ADB Involvement in the Ports Sector

51. The need for ADB to be involved in port infrastructure has been questioned, in India and elsewhere. It is argued that the private sector can take over responsibility for construction. In practice, the private sector has not invested much in India so far. Costs of port construction in India are high by international standards, while tariffs are low. There is therefore a problem with the financial sustainability of new ports. The main deterrents are the high costs of dredging, breakwaters, and other basic infrastructure. In fact, few of the world's top ports get private investment in these areas. Most of the world's top ports (e.g., Hong Kong, China; Singapore; Rotterdam; Hamburg; and Antwerp) still use public rather than private funds for dredging. Many also build berths with public funds, although a rising proportion is being built by shipping lines or international terminal operators. In light of these considerations, ADBs continued investments in ports infrastructure, in addition to continued involvement in sector reforms (para. 55), are warranted, and would help attract private investment. B. Lessons Identified

1.

Overoptimistic Traffic Forecasting

52. The traffic forecasts at appraisal proved overly optimistic. For Mumbai, large increases in petroleum traffic were predicted, while in practice such traffic has fallen; and the Kakinada forecasts were also too high, mainly because the assumed development of natural gas-based industries never materialized. Economic forecasting is admittedly very difficult, and it is hard to
30

In fact, a case recently reported in the local press shows that the current tariff structure may even encourage inefficiency. According to the press article, published on 13 September 2001, Kolkata Port Trust refused to adopt a tariff authority ruling that required the port not to cut a vessel-related charge set in 1996.

pinpoint specific lessons. One central point, however, is that Indian project plans are often unreliable. Typically, several locations compete for one potential investment. Many projects are cancelled; most of those that eventually go ahead are delayed by bureaucracy; and in the end they go to only one of the competing locations. The tendency of overoptimism in traffic forecasting should be factored in when formulating future projects in India. 2. Need for Coherent Project Themes

53. The Project consisted of a mix of unrelated subprojects and did not have a homogenous scope or a coherent theme. The Project was put together at a time when ADB was just about to complete a detailed port sector study (footnote 6). The study correctly forecast that traffic generally was rising very fast and identified the need for new capacity in detail at all major and minor ports. There was also a general acceptance of the need for radical reform in the Indian ports sector at that time. Efficiency in India's ports, measured in total throughput handled per employee, was well below international standards for reasons that were familiar elsewhere in the world: the ports were overstaffed, controlled by State monopolies, and in need of competition and private operators. This knowledge should have provided a useful guide for devising a comprehensive project based on, first, the facilities that would need to be built during the 1990s and, second, reforms to significantly increase productivity of the existing facilities. The nature of the required reforms was very clear from experience in other countries. 3. Project Design and Quality Control

54. No project preparatory TA was provided. The project formulation and design relied on the executing agencies own feasibility studies. While Indias technical knowhow in the design and implementation of port projects is undoubtedly among the strongest of ADBs developing member countries, foreign expertise would have been beneficial for a sector that was, and still is, experiencing fast technological changes. At the very least, ADB should have better ensured the quality of project design by hiring an independent international consultant to review all project designs (paras. 22 and 48); this might have helped avoid the long delays for Kakinada Port. C. Follow-Up Actions

55. No particular follow-up actions are needed for the Project. However, in view of the widely perceived urgency for fundamental reforms in the ports sector, it is imperative for ADB to continue to engage the Government in policy dialogue regarding private sector participation, operational efficiency, and labor and tariff issues.

APPENDIXES

Number 1 2 3 4 5 6

Title Appraisal Cost Estimates and Actual Project Costs Project Photos Implementation Schedule Mumbai Vessel Waiting and Turnaround Times Financial Statements Reevaluation of Financial and Economic Internal Rates of Return

Page 20 21 24 25 26 29

Cited on (page, para.) 2,5 4,12 6,17 8,23 10,31 11,33

APPRAISAL COST ESTIMATES AND ACTUAL PROJECT COSTS ($ million)

Appraisal Estimate FX LC Total 33.850 5.250 17.600 3.200 2.300 5.500 9.750 2.348 5.641 22.850 3.700 9.400 4.550 0.000 5.200 4.650 1.511 1.395 56.700 8.950 27.000 7.750 2.300 10.700 14.400 3.859 7.036 Actual Cost LC 19.398 0.000 11.803 4.418 0.575 2.602 4.686 2.343 0.000 Deviation (%) (27.0) (100.0) (1.1) (18.4) (23.1) (38.5) (36.0) (7.6) (70.1)

Component Part A: Modernization of MbPT's Port Facilities (i) Improving container-handling facilities (ii) Replacement of Pir Pau oil pier (iii) Replacement of outer lock gate for Indira Dock and ancillary works (iv) Replacement of fire-fighting vessel (v) Installation of computerized management information system Part B: Modernization of MbPT's Ship Repair Facilities (i) Replacement of caisson gates: Hughes and Mereweather dry docks (ii) Supply, installation, and testing of equipment for Hughes and Mereweather dry docks etc. (iii) Civil works relating to the construction, reconstuction, and repair of ship repair facilities at Hughes and Mereweather dry docks, etc. Subtotal - MbPT (Part A + Part B) Part C: Strengthening of MOST's Project Implementation Monitoring Activities - Office Equipment and Stationery Part D: Development of Kakinada Port (i) Construction of three deepwater berths, etc. (ii) Construction of the breakwater and associated dredging and filling works (iii) Dredging of the access channel, the turning basin, and berthing areas (iv) Construction of the internal roads and port buildings and the provision of fire-fighting, water supply, communication, and electrical facilities (v) Procurement of two tugboats (actual costs include 1 pilot launch) (vi) Procurement of a pilot launch (vii) Procurement of two mobile cranes, 15 and 35 tons capacity (viii) Procurement of two forklift trucks and other cargo-handling equipment Interest During Construction-MbPT Interest During Construction-MOST Interest During Construction-Kakinada Port Total

FX 21.974 0.000 14.898 1.904 1.193 3.979 4.524 1.221 2.106

Total 41.372 0.000 26.701 6.322 1.768 6.581 9.210 3.564 2.106

1.761 43.600 0.030 57.300 17.686 25.570 4.392 3.992 4.999 0.005 0.606 0.050 7.100 0.070 7.400 115.500

1.744 27.500 0.300 30.800 10.115 14.125 2.070 3.705 0.000 0.000 0.785 0.000 5.020 0.000 1.900 65.520

3.505 71.100 0.330 88.100 27.801 39.695 6.462 7.697 4.999 0.005 1.391 0.050 12.120 0.070 9.300 181.020

1.197 26.498 0.000 56.847 17.239 25.318 5.473 1.378 6.791 0.000 0.433 0.215 6.558 0.009 8.003 97.915

2.343 24.084 0.000 25.683 10.313 9.371 2.880 2.494 0.443 0.000 0.082 0.100 1.711 0.000 4.401 55.879

3.540 50.582 0.000 82.530 27.552 34.689 8.353 3.872 7.234 0.000 0.515 0.315 8.269 0.009 12.404 153.794

1.0 (28.9) (100.0) (6.3) (0.9) (12.6) 29.3 (49.7) 44.7 (100.0) (63.0) 530.0 (31.8) (87.1) 33.4 (15.0)

Appendix 1

FX = foreign exchange, LC = local currency, MbPT = Mumbai Port Trust, MOST = Ministry of Surface Transport.

PROJECT PHOTOS

Photo 1: Outer Lock Gate of Indira Dock (Mumbai)

Photo 2 : Caisson Gate at Hughes Dry Dock (Mumbai)

Photo 3: Caisson Gate at Mereweather Dry Dock (Mumbai)

Photo 4: Crane at Hughes Dry Dock (Mumbai)

Photo 5: Fire-fighting vessel procured - in rusty condition (Mumbai)

Photo 6: Pir Pau Oil Pier (Mumbai)

Photo 7: Pipelines on Pir Pau built by industrial users (Mumbai)

Photo 8: VTMS control room (Mumbai)

Photo 9: Tugging boats and pilot launcher procured (Kakinada)

Photo 10: Cranes and forklifter procured (Kakinada)

Photo 11: General cargo berths (Kakinada)

Photo 12: Well-maintained fire-fighting facilities (Kakinada)

Appendix 3
IMPLEMENTATION SCHEDULE
Task Name A. Mumbai Port Trust 1. Construction of Pir Pau Jetty
1989 1990 1991 1992 1993 1994 1995 1996 1997

2. Dredging Works

3. Ancillary Works

a. Replacement of Lock Gate and Ancillary Facilities

b. Replacement of Fire-Fighting Vessel

c. Installation of Management Information System/Vessel Traffic Management System 4. Replacement of Caisson Gates

5. Procurement of Equipment and Civil Works B. Kakinada Port 1. Construction of Berths

2. Construction of Breakwater

3. Dredging Works

4. Internal Road, Buildings, and Ancillary Facilities

5. Procurement of Tugs and Launch

6. Procurement of Cargo-Handling Equipment

C. Management Information System Study and Ship Repair Sector Study

Appraisal Schedule Actual Accomplishment

Appendix 4 MUMBAI VESSEL WAITING AND TURNAROUND TIMES Figure A4.1: Average Waiting Time

10.00 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00

General Cargo Containers Dry Bulk Liquid Bulk

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

Fiscal Year

Figure A4.2: Average Turnaround Time

45.00 40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00
General Cargo
Containers
Dry Bulk
Liquid Bulk

Fiscal Year

2000

Appendix 5, page 1 FINANCIAL STATEMENTS

Table A5.1: Income Statement: Mumbai Port Trust (Rs million)
Fiscal Year Ending

Item A. Operating Revenue Vessels Cargo Other Total B. Operating Expenses Staff Remuneration Administration Operation and Maintenance Depreciation Total C. Operating Income Nonoperating Revenue Nonoperating Expense Interest Expense D. Net Income before Tax Provision for Tax Net Income after Tax Operating Ratio (%) Return on Net Fixed Assets (%)

1994

1995

1996

1997

1998

1999

2000

1,011.5 2,961.0 194.3 4,166.8

1,057.4 3,496.8 197.2 4,751.4

1,362.0 4,231.8 225.0 5,818.8

1,336.2 4,357.0 232.6 5,925.8

1,631.1 4,023.7 409.0 6,063.8

1,668.0 3,924.5 480.6 6,073.1

1,627.6 3,268.3 430.8 5,326.7

1,067.7 467.2 734.3 130.2 2,399.4 1,767.4 681.4 668.3 42.8 1,780.5 (713.0) 1,067.5 57.6 76.4

1,428.4 568.7 869.9 139.2 3,006.2 1,745.2 833.7 1,145.2 42.8 1,391.0 (573.0) 818.0 63.3 84.7

1,501.9 654.3 839.2 140.5 3,135.9 2,682.9 1,005.5 1,145.0 39.4 2,543.4 0.0 2,543.4 53.9 88.0

1,707.2 681.7 1,164.9 190.5 3,744.3 2,181.5 959.4 1,221.7 45.3 1,919.2 0.0 1,919.2 63.2 58.4

1,801.4 766.3 1,117.2 267.5 3,952.4 2,111.4 788.2 1,163.7 48.7 1,735.9 0.0 1,735.9 65.2 49.9

1,986.9 869.1 1,212.1 275.9 4,343.9 1,729.2 790.1 1,442.8 51.5 1,076.5 0.0 1,076.5 71.5 37.7

1,860.3 861.4 1,205.3 300.8 4,227.8 1,098.9 1,011.2 1,276.0 65.4 834.1 0.0 834.1 79.4 16.6

Operating Ratio = operating expenses (including depreciation) as a percentage of operating revenue. Return on Net Fixed Assets = operating income as a percentage of average net fixed assets in operations. Source: Mumbai Port Trust.

Appendix 5, page 2
Table A5.2: Sources and Uses of Funds: Mumbai Port Trust (Rs million)
Fiscal Year Ending

Item A. Sources Net Income before tax Interest Long-Term Debt Depreciation Total Internal Long-Term Borrowings Government Contrbution Net Pension Funds and Other Total B. Applications Capital Expenditure Change Working Capital Investments and Other Pension Funds and Other Total C. Surplus (Deficit) for Year D. Cash Balance Year Start E. Cash Balance End of Year (before tax) Self-Financing Ratio (%) Debt Service Coverage Ratio

1994

1995

1996

1997

1998

1999

2000

1,780.5 468.8 132.0 2,381.3 1,705.5 15.3 1,057.5 5,159.6

1,391.0 639.2 139.2 2,169.4 2,087.1 23.1 1,632.4 5,912.0

2,543.4 658.1 140.9 3,342.4 2,501.4 24.4 1,551.8 7,420.0

1,919.2 846.3 204.9 2,970.4 3,421.8 0.0 1,928.3 8,320.5

1,735.9 1,165.7 273.1 3,174.7 3,594.7 3.1 1,780.5 8,553.0

1,076.5 1,166.6 300.0 2,543.1 4,035.5 64.9 1,864.5 8,508.0

834.1 1,214.6 337.9 2,386.6 4,191.0 0.0 2,416.4 8,994.0

501.4 20.9 3,769.4 675.7 4,967.4 192.2 28.0 220.2 217

523.7 3.8 4,349.1 600.0 5,476.6 435.4 220.2 655.6 151

491.1 0.0 5,463.8 667.3 6,622.2 797.8 655.6 1,453.4

894.1 6.2 6,105.4 737.4 7,743.1 577.4 1,453.4 2,030.8

775.3 0.0 6,607.7 874.1 8,257.1 295.9 2,030.8 2,326.7

658.7 10.6 6,477.3 842.4 7,989.0 519.0 2,326.7 2,845.7

2,255.4 0.0 4,685.0 1,048.6 7,989.0 1,005.0 2,845.7 3,850.7

= not available. Self-Financing Ratio = internal cash generation (less debt service and net change in working capital) as a ratio of capital expenditure. Debt Service Coverage Ratio = internal cash generation expressed as a ratio of total debt service requirements. Source: Mumbai Port Trust.

Appendix 5, page 3
Table A5.3: Balance Sheet: Mumbai Port Trust (Rs million)
Fiscal Year Ending

Item
A. Current Assets Cash and Deposits Accounts Receivable Inventories Other Subtotal (A) B. Fixed Assets (F.A.) Gross F.A. in Operation Accumulated Depreciation Net F.A. in Operation Work-In-Progress Subtotal (B) C. Other Assets Retirement Fund Investments and Other Assets Total (A+B+C) D. Current Liabilities Accounts Payable Other Current Liabilities Total E. Long-Term Liabilities Long-Term Debt Retirement Fund Total F. Equity Government Contribution and Capital Reserve Revenue Reserves Total Total Liabilities and Equity Current Ratio (%)

1994

1995

1996

1997

1998

1999

2000

110.9 3,249.9 145.5 1,348.7 4,855.0

601.5 3,830.3 149.3 1,825.5 6,406.6

651.4 4,363.9 124.5 2,618.0 7,757.8

726.7 5,104.5 130.8 3,196.2

920.1 5,542.9 99.6 3,491.7

979.6 5,975.7 110.2 3,998.9

1,016.1 6,359.6 106.2 4,971.1

9,158.2 10,054.3 11,064.4 12,453.0

3,895.1 1,581.3 2,313.8 7,089.8

4,415.7 4,891.6 5,768.7 6,536.3 7,147.4 9,370.0 1,717.4 1,843.2 2,031.1 2,301.2 2,554.8 2,765.3 2,698.3 3,048.4 3,737.6 4,235.1 4,592.6 6,604.7 8,914.1 11,052.2 13,548.6 16,470.8 18,973.9 20,068.8

9,403.6 11,612.4 14,100.6 17,286.2 20,705.9 23,566.5 26,673.5

2,797.1 7,289.6

3,528.8 8,013.0

4,480.8 5,680.9 7,130.4 8,878.3 10,217.9 9,808.7 11,400.9 13,005.6 14,704.3 16,584.3

24,345.3 29,560.8 36,147.9 43,526.2 50,896.2 58,213.5 65,928.7

889.3 752.0 1,641.3

1,234.7 1,068.8 2,303.5

1,507.0 1,261.0 2,768.0

2,012.5 1,360.6 3,373.1

2,327.1 1,351.6 3,678.7

2,317.0 1,741.1 4,058.1

2,405.9 2,040.8 4,446.7

2,662.1 2,866.6 5,528.7

3,215.4 3,733.0 6,948.4

3,711.8 4,739.6

4,346.1 5,994.8

4,706.0 7,492.6

5,058.7 5,437.3 9,249.2 10,790.2

8,451.4 10,340.9 12,198.6 14,307.9 16,227.5

2,313.8 2,698.3 3,048.4 3,737.6 4,235.1 4,545.6 6,604.7 14,861.5 17,610.6 21,880.1 26,074.6 30,783.8 35,301.9 38,649.8 17,175.3 20,308.9 24,928.5 29,812.2 35,018.9 39,847.5 45,254.5 24,345.3 29,560.8 36,147.9 43,526.2 50,896.2 58,213.5 65,928.7 295.8 278.1 280.3 271.5 273.3 272.7 280.1

Current Ratio = ratio of current assets to current liabilities. Source: Mumbai Port Trust.

Appendix 6, page 1

REEVALUATION OF FINANCIAL AND ECONOMIC INTERNAL RATES OF RETURN A. General

1. This appendix presents both financial and economic reevaluation of the Project. The reevaluation was carried out on an incremental basis in terms of with- and without-Project scenarios. Wherever appropriate, comparisons will be made with the appraisal report and projection completion report (PCR) in terms of methods used, and in most cases such methods are different. All prices and costs are expressed in the third quarter 2001 constant United States dollar values. The costs and benefits incurred before 2001 were adjusted using the average exchange rates of the year when the costs occurred and international inflation rates over the period (1.5 percent average). In estimating financial costs, interest paid during construction was deducted. In estimating the economic costs, duties and taxes were deducted and nontradable local currency costs were converted to border prices using a 0.90 standard conversion factor. In addition, as labor costs form a significant portion of the overall operation and maintenance costs, a conversion factor of 0.6 was used to derive the shadow price of the labor costs from wages. 2. Table A6.1 provides the traffic (revenue) estimates for the four quantifiable components, which have been used in the subsequent recalculation of financial internal rates of return (FIRRs) and economic internal rates of return (EIRRs). The estimates include the actual and forecast traffic and revenue based on information provided by the executing agencies. B. Replacement of the Outer Lock Gate at Indira Dock 1. Appraisal and PCR Approach

3. The appraisal report correctly identified the main benefit: avoiding the reversion of Indira Dock to a tidal dock without the project. However, the specific nature of the benefit proved in retrospect to be different from that assumed at appraisal. The report assumed that most of the ships would wait for an average of five hours for high tides on which to enter and leave the dock, sitting on the bottom when the tide was out. However, shipping companies confirmed that they would rarely allow their ships to do this in Indira Dock, which has a hard floor; and in practice it virtually did not occur during a six-week period in which the lock gates were not used in May-July 2001. 4. The main benefit identified by the PCR was different from that in the appraisal report. It also proved to be incorrect. The report assumed that the old lock gates could be maintained indefinitely. The main costs of this option would have been regular overhauls every 10 years and the cost of vessel delays during these overhauls. The benefit was the avoidance of these costs. The engineering department of the Mumbai Port Trust (MbPT), however, considers that continued maintenance of the old dock would not have been an option. The old lock was built in 1922 and its last major repair was in 1977. It was in too dilapidated and unreliable a condition, leaking continually into the dock. In other words, even with another major overhaul, it would not have functioned properly and would still adversely affect the docks operation, for which high reliability is necessary. A replacement in this case was not only the least-cost option but also the only viable option without affecting traffic. Furthermore, the cost avoidance was greatly overestimated by both the appraisal and project completion reports since the operational cost

Appendix 6, page 2 with the new lock gate is approximately the same as that for the old one. With the new lock, operation costs would not have been saved as assumed in the PCR calculation. 2. Project Performance Audit Report Assumptions

5. A guide to the actual consequences of losing the lock gate were observable when bad weather damaged the protective storm gates in May 2001, leaving the port tidal for six weeks. The main response was for the owners to lighten the ships before they came into the dockby discharging cargo at the two berths outside, which have depths of 9.1-9.7 meters, or by reorganizing schedules so that the ships reached Mumbai with a lighter load. These solutions would not be sustainable on a long-term basis, as there are only two berths outside the lock. In practice, based on actual port statistics and interviews, the consequences of the dock becoming tidal were estimated as follows:1 (i) (ii) (iii) 30 percent of the ships calling at Indira would be unaffected as they are small enough to enter with 6.5 meters of water; 30 percent would discharge to barges, at an additional cost of about US$5 per ton; 20 percent would come in smaller ships, incurring diseconomies of size (It is not possible to calculate these diseconomies but they are unlikely to be less than $5 per ton); and 20 percent of the traffic would no longer call at Mumbai, because a water depth of 6.5 meters is too low for international shipping.2 Recalculated FIRR

(iv)

3.

6. The main financial benefit of replacing the lock gate would be the retention of port revenues (net of expenditure), which would have been lost if the port became tidal. They are estimated from the ports accounts at about $5 per ton. On the assumption that about 20 percent of the traffic (Table A6.1) would be lost, the FIRR is estimated at 62.7 percent (Table A6.2). 4. Recalculated EIRR

7. The economic benefits are calculated in Table A6.3 on the assumption that the costs associated with the last three consequences mentioned (lighterage/double handling, diseconomies of size and diversion of ships to other ports) would all amount to at least $5 per ton. Even on this relatively conservative assumption, the EIRR is recalculated at 110.9 percent. C. Pir Pau Oil Pier 1. 8. Appraisal and PCR Approach

The appraisal report gave the following reasons for building a new Pir Pau terminal: (i) the old Pir Pau terminal was in a dilapidated condition, having been built in 1922;

These estimates represent the best guess, which were partly based on the actual traffic increase as shown in Table A6.1. After the completion of the lock gate in 1993, the total cargo handled at Indira Dock increased by 44 percent from FY1993 to FY1997, although other factors have undoubtedly contributed to the increase. Twenty percent of the traffic was estimated to no longer call at MbPT and would have had to find an alternative port. One option would have been to build general cargo berths at the nearby Jawaharlal Nehru Port Trust, the cost of which would likely be much higher than the current option.

Appendix 6, page 3 (ii) (iii) (iv) it could only take small tankers, up to 5,000 dead weight tons; it had a high rate of siltation; and it had a capacity of only 500,000 tons per year. (In fact it handled 1 million tons in FY1996, although at a very high occupancy rate of 83 percent, entailing long queues).

9. The benefits identified by the appraisal report were (i) savings in ship service time with a new, more efficient terminal; (ii) savings in waiting time with reduced berth occupancy (less busy); and (iii) economies of size with larger ships. These benefits are fairly standard in economic evaluation in ports, and would have been reasonable if they had been applied to the right set of berths. However, the appraisal report calculated them on the assumption that Pir Pau Oil Pier handled the same petroleum oils and lubricants products as are handled at MbPT's four other petroleum berths at Jawaharlal Deep. The appraisal report forecast steady growth in traffic, and concluded that the five berths combined (J1, J2, J3, and J4 and the Pir Pau old terminal) would reach full capacity by the mid-1990sand therefore that a new Pir Pau Oil Pier was justified. In the event, petroleum traffic fell, and there is now surplus capacity at the existing petroleum oils and lubricants berths. On the approach adopted by the appraisal report, it is clear that in retrospect the justification would have proved weak. 2. Project Performance Audit Report Assumptions

10. Despite being called petroleum oils and lubricants berth, new Pir Pau Oil Pier has become a specialized berth for chemicals and specific types of petroleum products that cannot be handled elsewhere. The pipelines from the berth go to nine chemical and other relatively specialized plants. Without the project, 2 million tons would have had to find other ways of reaching the chemical and other plants. The most likely solution would have been lighterage, which is still very common in India. The costs of the double handling, additional ship time for handling at anchorage and barging to shore are lower for bulk liquids than for general cargo, and are estimated at around $2.5 per ton.3 3. Recalculated FIRR

11. The FIRR calculation assumes that the capacity of the new Pir Pau berth is about 2 million tons4 (it is already handling 1.8 million tons at 67 percent occupancy), and the revenue to MbPT is about $1.5 per ton. On this basis the FIRR is calculated at 9.5 percent (Table A6.4). 4. Recalculated EIRR

12. On basis of cost savings from lighterage required without the Project, the EIRR is recalculated at 18.3 percent (Table A6.5). D. Modernization of MbPT's Ship Repair Facilities

13. The MbPT ship-repair facilities would have been unable to continue functioning without the civil worksespecially the replacement of the caisson gates, which were leaking. The repairs allowed the dry docks to continue to provide services, giving MbPT an income of $1.4
3

This includes foreign ships as well, because it is the Indian customers/importers who are paying the full cost of shipping. Most Pir Pau chemical/petroleum tankers are hired on charters. The Indian importer would have to pay for the double handling and lighterage, and would also have to pay for chartering the ships for extra days spent at anchorage. Calculation of maximum capacity is generally based on less than 100 percent occupancy to avoid long queues.

Appendix 6, page 4 million in FY2001. Ship repairing services provided by private contractors using MbPTs facilities bring the total value of the MbPT dry dock services up to about $2 million per annum. The occupancy of the facilities over the last three years has averaged over 85 percent. 1. Appraisal and PCR Approach

14. The main financial benefit of the rehabilitation identified by the appraisal and project completion reports was a large reduction in operation and maintenance costs. This is questionable for three reasons. First, they estimated the saving at around $1.1 million per annum, which appears too high (Total expenditure in FY2001 was only $0.7 million). Second, the approach effectively assumed that the benefit of reduced operation and maintenance costs would still be valid even if the dry docks had no business. Third, the port engineers confirmed that the investments in replacement of the dock gates and additional civil work were a precondition for continued operation. Furthermore, the appraisal report made the assumptions that the repairs to the dry docks could reduce service times by over 50 percent, and could attract over 70 more vessels per annum. These assumptions were not supported by any background data and proved to be overoptimistic. In practice the total number of vessels serviced has fluctuated around an average of about 70. 15. The main economic benefit identified by the appraisal and project completion reports was the avoidance of the cost of steaming to a foreign port for repairs. Shipping lines interviewed, however, confirmed that they would not generally incur costs of this type. In practice, they select repair sites in areas they already visit to pick up or unload cargo. No significant additional costs are incurred travelling to the repair site. 2. Project Performance Audit Report Assumptions

16. The project performance audit report assumes that the main financial benefit is the net revenues to MbPT from the dry dock services that were able to continue because of the related project component. The main economic benefit of the project component to the Indian economy, confirmed by shipping lines, is in fact the avoidance of the cost of using foreign repair yards. 3. Recalculated FIRR

17. The net revenues to MbPT from the dry dock services was calculated as $0.77 million (revenues of $1.44 million minus expenditure of $0.77 million) in FY2001. On this basis the FIRR is recalculated at 4.4 percent (Table A6.6) 4. Recalculated EIRR

18. The avoidance of the cost of using foreign repair yards is estimated at about $1.9 million in FY2001i.e., about 10 percent less than the relatively expensive MbPT dry docks (based on interviews with ship owners), whose main customers are the navy and port craft rather than commercial ships. The net benefit is calculated by subtracting expenditure from revenues, using an opportunity cost for labor of 0.6. The EIRR recalculated on this basis is 11.2 percent (Table A6.7).

Appendix 6, page 5 E. Kakinada Port 1. Appraisal and PCR Approach

19. The main reasons as stated in the appraisal report for building a deepwater port at Kakinada were as follows: (i) (ii) (iii) (iv) to realize the potential for gas based industries; to serve fertilizer plants, iron and steel plants, and petroleum depots that were planned for the area; to reduce pressures on Visakhapatnam Port; and to create a regional growth center at Kakinada.

20. Traffic was forecast on this basis at 2.5 million tons in 1995 and 2.8 million tons in 2000. Over half of the forecast consisted of dry cargo, especially iron products and fertilizers. The dry cargo, however, has not materialized. Gas-based industries have not been attracted to Kakinada. In fact the gas reserves have remained largely unexploited, as the companies that have been exploring offshore are currently more interested in oil than gas. Consequently the fertilizer and iron/steel plants that were planned for the area have not come to the port. An iron plant, which was built during the 1990s, eventually went to Visakhapatnam, where the water depth at the port is much greater. Nor has Kakinada Port "relieved" Visakhapatnam Port; on the contrary, Visakhapatnam Port regards Kakinada Port more as a minor competitor. In fact, a new relief port is now being planned at Gangavaram, only 15 kilometers from Visakhapatnam. Furthermore, it has not been possible to attract cargo away from the old shallow draft harbor, as envisaged at appraisal, where agricultural and other dry cargoes are barged to and from anchorages. The Government of Andhra Pradesh has an explicit policy of reserving the cargo for the old port as these outdated operations employ 7,000 to 10,000 people. The main economic benefits presented in the appraisal report were avoidance of high handling costs and extended ship time at anchorage for iron pellets, sponge iron, and fertilizers. These benefits, however, are no longer applicable in the absence of such traffic. 21. Despite the underachievement of the original forecast, the new port's traffic reached 1.8 million tons in FY2001. The vast majority consists of liquids. They include the phosphoric acid, ammonia, and petroleum products that were forecast in the appraisal report, but also a new product: edible oil. The edible oil, imported in processed form from Malaysia, was previously handled by Visakhapatnam Port. With the completion of the Kakinada Port, the private importer built a storage tank about three kilometers from the port and a pipeline linking it with the port; the oil is for subsequent distribution in the hinterland of Kakinada. The overall traffic of Kakinada Port has grown by over 50 percent per annum in the first four years of its operation. It is assumed to reach the capacity of the port, estimated at 3 million tons, in FY2004. 2. Project Performance Audit Report Assumptions

22. The main financial benefit of the project component is the revenues from the liquid cargoes. The main economic benefit is savings in road transport costs from Visakhapatnam to the final consumers in the Kakinada region.

Appendix 6, page 6 3. Recalculated FIRR

23. The FIRR for Kakinada port was recalculated at 0.8 percent (Table A6.8). The revenues are low because almost all the cargo is liquid, for which handling is fast and labor free. The total revenues from cargo handling and ship services averaged just under $2 per ton in FY2001. The long-term FIRR for the port is likely to be higher for two reasons. First, the next berths to be built will not have to bear the costs of the channel (dredging) and breakwater. Second, it is likely that the port will attract some dry cargo in the future, and revenues for dry cargoes are greater than for liquids. 4. Recalculated EIRR

24. It was confirmed in interviews with the fertilizer importers and others that the inland transport cost savings, compared to using Visakhapatnam Port and then road transport to the final consumers in the Kakinada region, was on average approximately $6 per ton for the main cargoes. The exception was petroleum products, which appeared to be more expensive to transport from Visakhapatnam by sea than by road. Consequently the $6 per ton transport saving was applied to only 80 percent of the cargo. On this basis the EIRR was recalculated at 9.7 percent (Table A6.9).

Appendix 6, page 7 Table A6.1: Traffic and Revenue Forecast

Fiscal Year 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Actual Actual Actual Actual Actual Actual Actual Actual Actual Indira Dock a Cargo Handled (million tons) 7.4 8.8 10.7 11.7 12.1 12.7 12.0 11.5 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 Pir Pau Oil Pier b Cargo Handled (000 tons) 0.40 1.16 1.61 1.87 1.81 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 Ship Repair c Revenues ($ million) 1.03 1.18 0.80 1.07 1.16 1.44 1.70 1.70 1.70 1.70 1.70 1.70 1.70 1.70 1.70 1.70 1.70 1.70 1.70 1.70 1.70 1.70 1.70 1.70 1.70 Kakinada d Cargo Handled (million tons) 0.5 1.1 1.5 1.8 2.2 2.6 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0

= not applicable. a Forecast assumes dock remains locked. Without locks, a 20 percent decline is assumed. b Capacity of New Pir Pau based on actual productivity of 6,900 tons/day in fiscal year 2001, and occupancy of 80 percent. c Revenues from ship repairing for Mumbai Port Trust, rather than tonnage or number of vessels repaired, are used because the revenues are not proportional to the tonnage or number of vessels repaired. d The capacity of the port is estimated at 3 million tons at the current three berths.

Appendix 6, page 8
Table A6.2: Financial Internal Rate of Return Mumbai Port Trust Indira Lock Gates ($ million) Fiscal Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Capital Cost 1.253 1.121 1.227 0.848 1.053 0.400 0.400 0.410 0.407 0.385 0.385 0.385 0.385 0.385 0.385 0.385 0.385 0.385 0.385 0.385 0.385 0.385 0.385 0.385 0.385 0.385 0.385 0.385 0.385 0.385 12.571 13.176 12.808 12.128 11.000 11.000 11.000 11.000 11.000 11.000 11.000 11.000 11.000 11.000 11.000 11.000 11.000 11.000 11.000 11.000 11.000 11.000 11.000 11.000 11.000 Operations a M&R Revenues
b

Net Benefit (1.253) (1.121) (1.227) (0.848) (1.053) 12.171 12.776 12.398 11.721 10.615 10.615 10.615 10.615 10.615 10.615 10.615 10.615 10.615 10.615 10.615 10.615 10.615 10.615 10.615 10.615 10.615 10.615 10.615 10.615 12.187 62.7%

(1.572)

Financial Internal Rate of Return

M&R = maintenance and rehabilitation. a Ten percent of capital costs. b Avoidance of loss of port revenue estimated at $5 per ton for 20 percent of traffic.

Appendix 6, page 9
Table A6.3: Economic Internal Rate of Return Mumbai Port Trust Indira Lock Gates ($ million) Fiscal Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Capital Cost 1.139 1.019 1.116 0.771 0.957 0.328 0.328 0.336 0.333 0.315 0.315 0.315 0.315 0.315 0.315 0.315 0.315 0.315 0.315 0.315 0.315 0.315 0.315 0.315 0.315 0.315 0.315 0.315 0.315 0.315 44.000 46.116 44.828 42.450 38.500 38.500 38.500 38.500 38.500 38.500 38.500 38.500 38.500 38.500 38.500 38.500 38.500 38.500 38.500 38.500 38.500 38.500 38.500 38.500 38.500 Operations M&R
a

Revenues

Net Benefit (1.139) (1.019) (1.116) (0.771) (0.957) 43.672 45.788 44.492 42.117 38.185 38.185 38.185 38.185 38.185 38.185 38.185 38.185 38.185 38.185 38.185 38.185 38.185 38.185 38.185 38.185 38.185 38.185 38.185 38.185 39.614 110.9%

(1.429)

Economic Internal Rate of Return

M&R = maintenance and rehabilitation. a Avoidance of Indira Dock becoming a tidal dock. The consequences of it becoming tidal are assumed to be as follows: (i) 30 percent of the ships would be unaffected as they are small enough to enter at 6.5 meters; (ii) 30 percent of the ships would lighten their loads at anchorage in order to reduce draft; (iii) 20 percent of the cargo would come in smaller ships, giving diseconomies of size; and (iv) 20 percent of the ships would no longer call, going elsewhere.

Appendix 6, page 10
Table A6.4: Financial Internal Rate of Return Mumbai Port Trust Pi Pau Oil Terminal ($ million) Fiscal Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Capital Cost 1.253 2.616 5.032 4.727 3.392 3.203 0.114 Operations M&R Net Benefit (1.253) (2.616) (5.032) (4.727) (3.392) (2.641) 1.515 2.318 2.669 2.443 2.700 2.700 2.700 2.700 2.700 2.700 2.700 2.700 2.700 2.700 2.700 2.700 2.700 2.700 2.700 2.700 2.700 2.700 2.700 8.511 9.5%

Revenues

(5.811)

0.062 0.181 0.258 0.297 0.272 0.300 0.300 0.300 0.300 0.300 0.300 0.300 0.300 0.300 0.300 0.300 0.300 0.300 0.300 0.300 0.300 0.300 0.300 0.300 0.300

0.624 1.810 2.576 2.966 2.715 3.000 3.000 3.000 3.000 3.000 3.000 3.000 3.000 3.000 3.000 3.000 3.000 3.000 3.000 3.000 3.000 3.000 3.000 3.000 3.000

Financial Internal Rate of Return

M&R = maintenance and rehabilitation.

Appendix 6, page 11
Table A6.5: Economic Internal Rate of Return Mumbai Port Trust Pir Pau Oil Terminal ($ million) Fiscal Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Capital Cost 1.139 2.378 4.575 4.297 3.084 2.911 0.104 Operations M&R
a

Revenues

Net Benefit (1.139) (2.378) (4.575) (4.297) (3.084) (1.768) 0.770 1.855 2.847 2.290 3.297 4.532 5.246 6.030 6.893 7.843 8.887 10.036 11.299 12.689 13.454 14.256 15.099 15.984 16.913 17.889 18.914 19.989 21.119 27.586 18.3%

(5.282)

0.034 0.098 0.139 0.160 0.147 0.162 0.162 0.162 0.162 0.162 0.162 0.162 0.162 0.162 0.162 0.162 0.162 0.162 0.162 0.162 0.162 0.162 0.162 0.162 0.162

1.177 0.972 1.994 3.007 2.437 3.459 4.694 5.408 6.192 7.055 8.005 9.049 10.198 11.461 12.851 13.616 14.418 15.261 16.146 17.075 18.051 19.076 20.151 21.281 22.466

Economic Internal Rate of Return

M&R = maintenance and rehabilitation. a Represents avoidance of cost of handling at anchorage. Effective economic capacity of the new Pir Pau terminal is 2 million tons.

Appendix 6, page 12
Table A6.6: Financial Internal Rate of Return Mumbai Port Trust Modernization of Mumbai Ship Repair Facilities ($ million) Fiscal Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 2900 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Capital Cost 0.125 0.249 0.246 0.364 0.234 6.863 2.288 Operations M&R Net Benefit (0.125) (0.249) (0.246) (0.364) (0.234) (6.863) (2.302) (0.111) 0.126 0.349 0.671 0.851 0.851 0.851 0.851 0.851 0.851 0.851 0.851 0.851 0.851 0.851 0.851 0.851 0.851 0.851 0.851 0.851 0.851 3.160 4.4%

Revenues

(2.309)

1.242 0.962 1.008 0.813 0.772 0.851 0.851 0.851 0.851 0.851 0.851 0.851 0.851 0.851 0.851 0.851 0.851 0.851 0.851 0.851 0.851 0.851 0.851 0.851

1.228 0.851 1.134 1.162 1.443 1.702 1.702 1.702 1.702 1.702 1.702 1.702 1.702 1.702 1.702 1.702 1.702 1.702 1.702 1.702 1.702 1.702 1.702 1.702

Financial Internal Rate of Return

M&R = maintenance and rehabilitation.

Appendix 6, page 13
Table A6.7: Economic Internal Rate of Return Mumbai Port Trust Modernization of Mumbai Ship Repair Facilities ($ million) Fiscal Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Capital Cost 0.114 0.226 0.223 0.330 0.213 6.239 2.080 Operations M&R
a

Revenues

Net Benefit (0.114) (0.226) (0.223) (0.330) (0.213) (6.239) (1.541) 0.282 0.623 0.837 1.252 1.532 1.532 1.532 1.532 1.532 1.532 1.532 1.532 1.532 1.532 1.532 1.532 1.532 1.532 1.532 1.532 1.532 1.532 4.225 11.2%

(2.693)

1.118 0.866 0.907 0.732 0.695 0.766 0.766 0.766 0.766 0.766 0.766 0.766 0.766 0.766 0.766 0.766 0.766 0.766 0.766 0.766 0.766 0.766 0.766 0.766

1.657 1.148 1.530 1.569 1.947 2.298 2.298 2.298 2.298 2.298 2.298 2.298 2.298 2.298 2.298 2.298 2.298 2.298 2.298 2.298 2.298 2.298 2.298 2.298

Economic Internal Rate of Return

M&R = maintenance and rehabilitation. a Avoidance of the cost of using foreign repair yards.

Appendix 6, page 14
Table A6.8: Financial Internal Rate of Return Kakinada Port Trust Kakinada Port ($ million) Fiscal Year 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Capital Cost 0.223 9.696 16.590 51.471 8.689 1.280 1.375 1.426 1.500 1.600 1.700 1.800 1.800 1.800 1.800 1.800 1.800 1.800 1.800 1.800 1.800 1.800 1.800 1.800 1.800 1.800 1.800 1.800 1.007 2.197 2.833 3.400 4.080 4.896 5.667 5.667 5.667 5.667 5.667 5.667 5.667 5.667 5.667 5.667 5.667 5.667 5.667 5.667 5.667 5.667 5.667 Operations M&R Net Benefit (0.223) (9.696) (16.590) (51.471) (8.689) (0.273) 0.822 1.407 1.900 2.480 3.196 3.867 3.867 3.867 3.867 3.867 3.867 3.867 3.867 3.867 3.867 3.867 3.867 3.867 3.867 3.867 3.867 27.425 0.8%

Revenues

(23.558)

Financial Internal Rate of Return

M&R = maintenance and rehabilitation.

Appendix 6, page 15
Table A6.9: Economic Internal Rate of Return Kakinada Port Trust Kakinada Port ($ million) Fiscal Year 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Capital Cost 0.201 8.726 14.931 46.324 7.817 1.152 1.237 1.283 1.350 1.440 1.530 1.620 1.620 1.620 1.620 1.620 1.620 1.620 1.620 1.620 1.620 1.620 1.620 1.620 1.620 1.620 1.620 1.620 2.560 5.583 7.200 8.640 10.368 12.442 14.400 14.400 14.400 14.400 14.400 14.400 14.400 14.400 14.400 14.400 14.400 14.400 14.400 14.400 14.400 14.400 14.400 Operations M&R
a

Revenues

Net Benefit (0.201) (8.726) (14.931) (46.324) (7.817) 1.408 4.346 5.917 7.290 8.928 10.912 12.780 12.780 12.780 12.780 12.780 12.780 12.780 12.780 12.780 12.780 12.780 12.780 12.780 12.780 12.780 12.780 35.066 9.7%

(22.286)

Economic Internal Rate of Return

M&R = maintenance and rehabilitation. a Avoidance of inland transport costs from Visakhapatnam.