Report and Recommendation of the President to the Board of ...

[Pages:67]Report and Recommendation of the President to the Board of Directors

Project Number: 39431 February 2007

Proposed Loan Democratic Socialist Republic of Sri Lanka: Colombo Port Expansion Project

CURRENCY EQUIVALENTS (as of 01 February 2007)

Currency Unit ? Sri Lanka rupee/s (SLRe/SLRs)

SLRe1.00 = $0.0092 $1.00 = SLRs108.58

ABBREVIATIONS

ADB BOT CCD CMR EIA EMP FIRR GDP ISC JBIC JCT LIBOR MPA PIU PPP RTG SAGT SEIA SLPA SRE TEU UCT WACC

? Asian Development Bank ? build-operate-transfer ? Coast Conservation Department ? Colombo Metropolitan Region ? environmental impact assessment ? environmental management plan ? financial internal rate of return ? gross domestic product ? Indian subcontinent ? Japan Bank for International Cooperation ? Jaya Container Terminal ? London interbank offered rate ? Ministry of Ports and Aviation ? project implementation unit ? public-private partnership ? rubber-tired gantry crane ? South Asia Gateway Terminal ? summary environmental impact assessment ? Sri Lanka Ports Authority ? superintending resident engineer ? twenty-foot equivalent unit ? Unity Container Terminal ? weighted average cost of capital

NOTES

(i) The fiscal year (FY) of the Government and its agencies ends on 31 December. (ii) In this report, "$" refers to US dollars

Vice President Director General Director

Team leader Team members

L. Jin, Operations 1 K. Senga, South Asia Department, SARD K. Higuchi, Transport and Communications, SARD

P. Dutt, Senior Transport Specialist, SARD D. Utami, Senior Environmental Specialist, SARD H. Iwasaki, Project Specialist, SARD T. Nishimura, Transport Specialist, SARD M. Gupta, Social Development Specialist, SARD S. Miah, Counsel, Office of the General Counsel J. Boestel, Economist, SARD M. Raz, Structured Finance Officer, Private Sector Department J. Peththawadu, Project Implementation Officer, SARD

CONTENTS

Page

LOAN AND PROJECT SUMMARY

i

MAPS

v

I.

THE PROPOSAL

1

II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES

1

A. Performance Indicators and Analysis

1

B. Analysis of Key Problems and Opportunities

3

III. THE PROPOSED PROJECT

7

A. Impact and Outcome

7

B. Outputs

7

C. Special Features

8

D. Project Investment Plan

9

E. Financing Plan

9

F. Implementation Arrangements

10

IV. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS

13

A. Benefits

13

B. Economic and Financial Analysis

13

C. Social Impact

14

D. Environmental Impact

16

E. Risks

17

V. ASSURANCES

17

A. Specific Assurances

17

B. Conditions for Loan Effectiveness

20

C. Conditions for Harbor Infrastructure Works Implementation

20

VI. RECOMMENDATION

20

APPENDIXES

1. Design and Monitoring Framework

21

2. Organization Chart of Sri Lanka Ports Authority

22

3. Sector Analysis of Colombo Port

23

4. 2005 Summary Financial Statement for Sri Lanka Ports Authority

27

5. External Assistance to Sri Lanka Ports Authority

28

6

Proposed Terms of Reference of the Advisory Committee on Port Competition

29

7. Detailed Description of Harbor Infrastructure Works Component and Cost Estimates 30

8. Implementation Arrangements

32

9. Implementation Schedule

33

10. Indicative Contract Packages and Procurement Plan

34

11. Outline Terms of Reference for Consulting Services

36

12. Economic and Financial Analysis

41

13. Summary Poverty Reduction and Social Strategy

54

SUPPLEMENTARY APPENDIX (available upon request)

Financial Management Assessment for Sri Lanka Ports Authority

Borrower Classification

Environment Assessment Project Description

Rationale

LOAN AND PROJECT SUMMARY

Democratic Socialist Republic of Sri Lanka

Targeting classification: General intervention Sector: Transport and communications Subsector: Ports, waterways, and shipping Themes: Sustainable economic growth, private sector development Subthemes: Fostering physical infrastructure development, publicprivate partnerships

Category A. The summary environmental impact assessment report was circulated to the Asian Development Bank (ADB) Board of Directors on 12 July 2006.

The Colombo Port Expansion Project provides for dredging and breakwater construction sufficient to accommodate three terminals, which will be constructed sequentially. The Project includes the establishment of a new marine operations center, relocation of a submarine oil pipeline, provision of navigational aids, and construction of shore utilities. The Project will be developed on a public-private partnership basis. The harbor infrastructure works, i.e., dredging, breakwater construction, and other works, will be implemented by the Sri Lanka Ports Authority (SLPA). The first two terminals will be operational in 2010 and 2015 respectively and constructed by operators chosen through open competitive bidding under a build-operate-transfer concession agreement. The first concession bid will be for one terminal.

Colombo Port is the natural transshipment hub port for the South Asian region. However, in recent years Colombo Port lost market share of the regional transshipment market because the fundamentals of the market changed and Colombo Port did not adapt. Colombo Port cannot offer the additional operating capacity required to compete for the Indian subcontinent transshipment market or the depth required to berth the latest generation container ships. Colombo Port will have to develop additional container berths with the required depth to address these capacity and depth infrastructure constraints if it is to remain a transshipment hub port.

ii

Impact and Outcome

The Project will promote economic growth by improving Sri Lanka's competitiveness in the ports sector by expanding Colombo Port using public-private partnerships; and facilitate economic growth by enhancing national competitiveness in international trade via lower transport costs and faster delivery times. Container-handling capacity will be increased from 3.3 million twenty-foot equivalent units (TEU) in 2006, to 5.7 million TEU by 2010, 8.1 million TEU by 2015 and 10.5 million TEU by 2024. The additional capacity will enable Colombo Port to increase its Indian subcontinent transshipment market share from 23% in 2002 to 30% by 2011. Sri Lanka will thus be able to generate additional income from transshipment. Foreign direct investment in the ports sector will increase by approximately $800 million by 2024.

Project Investment Plan

The investment cost of the Project is estimated at $781 million. The public sector component is estimated at $480 million, including taxes and duties of $49.7 million.

Financing Plan

Source

Total ($ million)

Percent

Public Sector Component Asian Development Bank Government

300.0

38.5

180.0

23.0

Subtotal

480.0

61.5

Private Sector Component

301.0

38.5

Total

781.0

100.0

Sources: Feasibility study and Asian Development Bank estimates.

A loan of $300,000,000 from the ordinary capital resources of the Asian Development Bank (ADB) will be provided under ADB's London interbank offered rate (LIBOR)-based lending facility. The loan will have a 25-year term including a grace period of 5 years, an interest rate determined in accordance with ADB's LIBORbased lending facility, a commitment charge of 0.35% per annum, and such other terms and conditions set forth in the draft loan and project agreements.

Allocation and Relending The Government will make all proceeds from this loan available to

Terms

Sri Lanka Ports Authority (SLPA) under the same terms and

conditions as the ADB loan.

Period of Utilization

30 April 2011

Estimated Project Completion Date

31 October 2010 for both the public and private sector components.

Executing Agency

Ministry of Ports and Aviation

Implementation Arrangements

Procurement Consulting Services Project Benefits and Beneficiaries

iii

SLPA will be the Implementing Agency. A project implementation unit will be established with a full-time project director, and staffed with qualified staff with expertise in contract management, environmental monitoring, planning, and accounting. The project director will report to the Chairman, SLPA. The project director will have overall responsibility for project management and be responsible for the preparation of quarterly and annual project monitoring and progress reports. An interministerial project steering committee chaired by the Secretary, Ministry of Ports and Aviation and comprising representatives from concerned government agencies, will be established to oversee the Project and coordinate issues related to project implementation. The Chairman, SLPA will report to the project steering committee on a regular basis.

Goods, works, and related services to be financed by the loan will be procured according to ADB's Procurement Guidelines (2006, as amended from time to time). All contracts will be procured through international competitive bidding.

International and national consultants will be required for construction supervision. The consultants financed under the loan will be engaged using ADB's single-source selection procedures in accordance with ADB's Guidelines on the Use of Consultants (2006, as amended from time to time).

The Project will benefit Sri Lankan exporters by enhancing their competitiveness in international markets through lower freight costs and faster delivery times for time-sensitive exports e.g., textiles, which account for 52% of Sri Lanka's exports. Lower freight costs are expected to result in annual savings of $82 million by 2015, and faster delivery times will create annual savings of $49 million by 2015. In addition transshipment traffic will generate direct net annual income to terminal operators amounting to $77 million by 2015.

iv

Risks and Assumptions

As the implementation of this Project will be on a public-private partnership basis with the public sector implementing the harbor infrastructure works component and the private sector implementing the terminal component, the full benefits of the Project are dependent on both components being implemented on a coordinated basis. Therefore, the major risk is if no private sector party is willing to take up the terminal component concession. This risk has been mitigated by linking implementation of the harbor infrastructure works component to the progress of selecting a successful bidder for the terminal concession. A delay in the consolidation of the ceasefire in the country may also have some impact on private sector interest. However, the private sector has been interested in Colombo Port as indicated by the implementation of the South Asia Gateway Terminal project even before the ceasefire. The Government has declared Colombo Port a high-security zone and appointed the Sri Lankan Navy as the designated authority for port security. The navy has drawn up comprehensive security plans in accordance with the requirements of the International Ship and Port Security Convention of the International Maritime Organization for port security and the special security considerations necessary for Sri Lanka. Colombo Port is the first port in the South Asian region to have implemented both the container security initiative and the mega port initiative.

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