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Colombo port expansion project (2) Document Transcript

  • 1. Report and Recommendation of the Presidentto the Board of DirectorsProject Number: 39431February 2007Proposed LoanDemocratic Socialist Republic of Sri Lanka: ColomboPort Expansion Project
  • 2. CURRENCY EQUIVALENTS (as of 01 February 2007) Currency Unit – Sri Lanka rupee/s (SLRe/SLRs) SLRe1.00 = $0.0092 $1.00 = SLRs108.58 ABBREVIATIONS ADB – Asian Development Bank BOT – build-operate-transfer CCD – Coast Conservation Department CMR – Colombo Metropolitan Region EIA – environmental impact assessment EMP – environmental management plan FIRR – financial internal rate of return GDP – gross domestic product ISC – Indian subcontinent JBIC – Japan Bank for International Cooperation JCT – Jaya Container Terminal LIBOR – London interbank offered rate MPA – Ministry of Ports and Aviation PIU – project implementation unit PPP – public-private partnership RTG – rubber-tired gantry crane SAGT – South Asia Gateway Terminal SEIA – summary environmental impact assessment SLPA – Sri Lanka Ports Authority SRE – superintending resident engineer TEU – twenty-foot equivalent unit UCT – Unity Container Terminal WACC – weighted average cost of capital NOTES(i) The fiscal year (FY) of the Government and its agencies ends on 31 December.(ii) In this report, "$" refers to US dollars
  • 3. Vice President L. Jin, Operations 1Director General K. Senga, South Asia Department, SARDDirector K. Higuchi, Transport and Communications, SARDTeam leader P. Dutt, Senior Transport Specialist, SARDTeam members 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
  • 4. CONTENTS PageLOAN AND PROJECT SUMMARY iMAPS vI. THE PROPOSAL 1II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1 A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 3III. 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 10IV. 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 17V. ASSURANCES 17 A. Specific Assurances 17 B. Conditions for Loan Effectiveness 20 C. Conditions for Harbor Infrastructure Works Implementation 20VI. RECOMMENDATION 20APPENDIXES1. Design and Monitoring Framework 212. Organization Chart of Sri Lanka Ports Authority 223. Sector Analysis of Colombo Port 234. 2005 Summary Financial Statement for Sri Lanka Ports Authority 275. External Assistance to Sri Lanka Ports Authority 286 Proposed Terms of Reference of the Advisory Committee on Port Competition 297. Detailed Description of Harbor Infrastructure Works Component and Cost Estimates 308. Implementation Arrangements 329. Implementation Schedule 3310. Indicative Contract Packages and Procurement Plan 3411. Outline Terms of Reference for Consulting Services 3612. Economic and Financial Analysis 4113. Summary Poverty Reduction and Social Strategy 54SUPPLEMENTARY APPENDIX (available upon request)Financial Management Assessment for Sri Lanka Ports Authority
  • 5. LOAN AND PROJECT SUMMARYBorrower Democratic Socialist Republic of Sri LankaClassification 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, public- private partnershipsEnvironment Category A. The summary environmental impact assessmentAssessment report was circulated to the Asian Development Bank (ADB) Board of Directors on 12 July 2006.Project Description 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.Rationale 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.
  • 6. iiImpact 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 $49.7 million.Financing Plan Total Source ($ million) Percent Public Sector Component Asian Development Bank 300.0 38.5 Government 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 LIBOR- based 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 toTerms Sri Lanka Ports Authority (SLPA) under the same terms and conditions as the ADB loan.Period of Utilization 30 April 2011Estimated Project 31 October 2010 for both the public and private sectorCompletion Date components.Executing Agency Ministry of Ports and Aviation
  • 7. iiiImplementation SLPA will be the Implementing Agency. A project implementationArrangements 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.Procurement 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.Consulting Services 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 ADBs Guidelines on the Use of Consultants (2006, as amended from time to time).Project Benefits and The Project will benefit Sri Lankan exporters by enhancing theirBeneficiaries 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.
  • 8. ivRisks 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.
  • 9. v
  • 10. 2060a RM vi
  • 11. I. THE PROPOSAL1. I submit for your approval the following report and recommendation on a proposed loanto the Democratic Socialist Republic of Sri Lanka for the Colombo Port Expansion Project. Thedesign and monitoring framework is in Appendix 1. II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIESA. Performance Indicators and Analysis2. Sri Lanka’s real gross domestic product (GDP) growth in the 1980s and 1990s averagedabout 5%, and increased to 6.1% in 2005. However poverty continues to be a major concern ofthe Government as 22% of the population is living below the poverty line. The Government’sobjective is to increase the rate of economic growth to around 8% per annum to generate theresources needed for sustained poverty reduction, achieve its social and economic goals, andreduce regional disparities. Medium-term prospects hinge on Government plans to fostereconomic growth by significantly raising foreign direct investment as well as domestic public andprivate investment. No large infrastructure improvements have been made in the last 20 years,resulting in bottlenecks that are a heavy drag on the economy.1 An efficient port system is a keyfactor in improving the country’s competitiveness and attracting investment. It can also be afactor in encouraging the establishment of other value-added industries since Colombo Port isideally situated to be the transshipment center for South Asia. The ports sector in Sri Lanka isdominated by Colombo Port. It is the only port equipped to handle container traffic and handles95% of Sri Lanka’s total international trade. It also serves as a transshipment hub port for SouthAsia; 70% of Colombo’s container volume consists of transshipment traffic to and from theIndian subcontinent (ISC). The volume of containers handled increased from 200,000 twenty-foot equivalent units (TEU) in 1985 to 1 million TEU in 1995, but the growth rate then tapered offand stagnated between 1997 and 2000 with an annual average of 1.7 million TEU. Growth thenincreased, and in 2006 Colombo Port handled 3.08 million TEU. One of the main reasons forthe stagnation and slow increase in growth is Colombo Port’s lack of competitiveness with othermajor transshipment ports established to cater for ISC traffic.3. Colombo Port is owned by the Sri Lanka Ports Authority (SLPA), a statutory body underthe Ministry of Ports and Aviation (MPA). The current SLPA organization structure is inAppendix 2. SLPA operates the three container facilities at the port. Jaya Container Terminal(JCT), the main container terminal, has a capacity of 2 million TEU. The two other containerfacilities are Unity Container Terminal with a capacity of 300,000 TEU and Bandaranaike Quaywith a potential capacity of 200,000 TEU. In addition, a private sector company, South AsiaGateway Terminal (SAGT) Private Limited upgraded and now operates Queen Elizabeth Quay,which has a capacity of 1 million TEU. A sector analysis of Colombo Port is in Appendix 3. 1. Container Traffic Volume4. In 2005, container traffic volume at JCT accounted for 64% of the total Colombo Portcontainer volume, and SAGT for 36%. JCT accounted for more than 90% of the SLPA revenuesand profits, making container traffic the major revenue earner for SLPA. About 70% ofcontainers handled in Colombo Port are transshipment containers of which 75% are for the ISCmarket and 25% for the West African market. Between 1998 and 2002, the transshipment shareof Colombo Port for total ISC cargoes declined from 52% to 45% even as the ISC transshipment1 ADB. 2006. Asian Development Outlook 2006. Manila.
  • 12. 2market grew at 8% annually. The loss in market share accounted for the stagnation of overallcontainer traffic volume at Colombo Port during this period. This loss resulted from acombination of factors, some beyond the control of Colombo Port, while others are internalfactors including lack of sufficient capacity. Enhancement of operational efficiency at all itscontainer terminals and investment in port infrastructure is urgently needed to increaseColombo Port’s container-handling capacity and alleviate its depth infrastructure constraints toreverse this trend. Remaining a transshipment hub port will not only bring more foreignexchange to the country, but will also develop supporting industries such as ship chandlery, shiprepair, and bunkering activities.5. Direct calls at Indian ports started around 1997, when traffic volume reached thethreshold at which it became economic at Nhava Sheva port in India (until then India had beenserved by feeders). The trend of increased direct calls has since accelerated as a result ofimprovements in port efficiency, which followed the construction of a private terminal at NhavaSheva in 1999. New ports started to compete for Colombo’s transshipment traffic. Before 2000the competition came from two major ports: Dubai and Singapore; subsequently three additionalcompetitors emerged i.e. Salalah in Oman, and Port Klang and Tanjung Pelepas both inMalaysia. Internal factors affecting container traffic volume include the delay of construction ofnew capacity until 2001, resulting in congestion during 1996–2000. JCT operation had nointraport competition until 2001 and productivity remained below that of the main competitors.Colombo Port provided no flexibility in pricing and had limited ability to negotiate prices withshipping lines. This was a major disadvantage, as the competing ports such as Singapore andPort Klang were cutting prices to unusually low levels. In 2002, the period of stagnation ended,after the introduction of new capacity in 2001 by the private operator—SAGT. The introductionof competition between the terminals promoted an overall increase in efficiency.at ColomboPort. 2. Operational Performance6. The overall container growth in Colombo Port increased by 13.3% in 2004 and 10.5% in2005. In the first 6 months of 2006, it increased by 18% compared with the same period in 2005.Crane productivity for mainline container vessels at JCT increased from 15.1 moves per craneper hour in 2001 to 23.4 in 2005. JCT and SAGT now have similar levels of crane productivity.Average service time for container ships at JCT decreased from 17.8 hours in 2001 to 13.8hours in 2005; and average turnaround time for container ships decreased from 23.1 hours in2001 to 16.0 hours in 2005. JCT has about 1,500 employees handling a total of 1.7 million TEU.SAGT has about 500 employees handling 930,000 TEU. As a comparison to world bestpractice, Singapore Port handles 17 million TEU with only 5,700 employees. 3. Financial Performance7. SLPA consistently made operating profits during 2001–2005: SLRs5.26 billion in 2001and SLRs7.4 billion in 2005. Earnings after tax in 2005 were SLRs10.1 billion. Colombo Portaccounts for approximately 97% of SLPA’s income. SLPA accounting is done using accrual-based accounting in accordance with Sri Lankan accounting standards, which are identical tointernational accounting standards. SLPA accounts are audited by the Auditor General of SriLanka and then presented in Parliament. The 2005 summary financial statement for SLPA isshown in Appendix 4.
  • 13. 3B. Analysis of Key Problems and Opportunities 1. Challenges8. Colombo Port lost market share of the ISC transshipment market because thefundamentals of the market changed and Colombo Port did not adapt to the change. ColomboPort faces increased competition from other transshipment ports. The dynamics of the size ofcontainer ships means that the trend is toward larger container ships. Use of larger ships in turnmeans that established transshipment ports now have a wider hinterland that they caneffectively serve. Hence the use of larger containerships means that Colombo Port now has tocompete with established ports such as Singapore and new ports such as, Dubai, Port Klang,Salalah and Tanjung Pelepas, (para. 5) for the ISC transshipment market. These ports areowned in whole or in part by established port operators and shipping lines, and are able toprovide higher productivity and faster ship turnaround times. Thus they have a built-inadvantage when competing for the ISC market.2 Colombo Port’s efficiency and locational edgein the ISC transshipment market has therefore eroded as new players in South-East Asia andthe Gulf region have used more modern institutional structures and equipment to reduce shipwaiting and turnaround times.9. Colombo Port is not able to offer the additional operating capacity required to competefor the ISC transshipment market. The total current transshipment market is 6 million TEU andis forecast to grow at 8% annually. The combined potential container capacity of all the facilitiesat Colombo Port is 4 million TEU. As 3.08 million TEU were handled in 2006, and as Sri Lanka’sown exports and imports grow, Colombo Port is expected to reach its full current capacity by2010. It will thus reach its limit in the volume of transshipment traffic it can handle. This willmake the port unattractive to shipping lines that require guaranteed capacity before they decideto make a port a transshipment hub.10. Colombo Port has a depth of 15 meters (m). This means that it cannot berth the latestgeneration containerships, i.e., 9,000 TEU vessels; its competitors in Dubai, Singapore, Salalah,and Tanjung Pelepas can all berth 9,000 TEU vessels. Shipping economics mean that the trendis toward larger container vessels. Major shipping lines have already launched 11,000 TEUvessels for the Asia–Europe route, and in the next 10 years major container lines could possiblydeploy vessels with 13,000 TEU carrying capacity. All hub ports therefore need to upgrade theirinfrastructure to handle these larger vessels or see their competitive position eroded.11. The future performance of Colombo Port depends on how it addresses the institutionaland infrastructure constraints that it faces to complement its excellent geographic location andto ensure that it remains a major transshipment hub port for the ISC region. This means that ithas to put into place measures to enhance its operational efficiency at all its container terminals,set up an operating environment that ensures fair competition for all terminal operators, andaddress its capacity and depth infrastructure constraints. International experience in the portssector shows that the most appropriate institutional structure for port efficiency is the landlordport model, whereby the port authority is responsible for the common facilities while terminaloperations are carried out by a terminal operating company. By increasing its capacity andefficiency, Colombo Port will remain a hub port, bring more foreign exchange to the country, anddevelop supporting industries such as ship chandlery, ship repair, and bunkering. It will also2 PSA Corp, the Singapore container terminal operator operates Singapore Port.. Dubai is operated by Dubai Ports World, one of the largest port operators in the world. Hutchinson Port Holdings of Hong Kong, China, has an equity share in Port Klang. Maersk, a large container shipping line has equity shares in Salalah and Tanjung Pelepas.
  • 14. 4have the potential to make Sri Lanka a distribution center for the South Asian region, a rolenormally centered on transshipment hubs. Being a transshipment hub will reduce shipping costsfor Sri Lanka’s own exports and imports, and thus make the country a more competitive locationfor foreign and domestic investment. 2. External Assistance to the Sector12. Modern development of Colombo Port started in 1980 with the construction of the firstphase of JCT using funding from the Overseas Economic Cooperation Fund, now the JapanBank for International Cooperation (JBIC). A series of JBIC loans through the 1980s and 1990sfunded enlargement of JCT to its present four berths. In 2000, JBIC provided a loan to upgradeJCT’s computer systems. JBIC is currently providing a $124 million loan to finance theexpansion of Galle Port. The World Bank provided assistance to the ports sector under its PortEfficiency Project, which commenced in 1997. This funded studies into the legal, regulatory, andmanagement aspects of both the ports sector as a whole and Colombo Port in particular. Thisproject failed in 1999 due to lack of agreement between the World Bank and the Government onsector restructuring. ADB’s assistance to the Sri Lanka ports sector includes loan and equityinvestment in SAGT for private sector development and operation of the Queen Elizabeth Quayin Colombo Port.3 ADB also provided technical assistance in 1999 to assist the Government inexamining the feasibility of expanding Colombo Port.413. Subsequently, ADB provided a loan in 2001 to (i) address sector policy, and institutionaland regulatory issues; and implement measures to improve the efficiency of the existing port, inparticular JCT; and (ii) carry out the preparatory work for the Colombo Port Expansion Project.5The main services consultant engaged for this project produced an action plan to increase JCTefficiency, a business plan analyzing the demand forecasts and economic and financial viabilityof expanding Colombo Port, and a detailed engineering report on the technical optionsavailable. These were reviewed and accepted by a panel of experts recruited separately asindividual consultants under this same loan to assess the commercial, operational, andtechnical viability of the main services consultants’ proposals. The terms of reference for themain services consultants require them to prepare detailed construction tender documents andbid concession documents, and provide technical and bid advisory services to the Governmentfor the Project. A summary of past and ongoing external assistance to the ports sector in SriLanka is given in Appendix 5. 3. Lessons Learned14. The 2001 ADB loan included two significant policy covenants. The first covenant was forJCT to be transformed into a corporate entity wholly owned by the Government. The objective ofthis covenant was to increase overall port efficiency through increasing JCT efficiency bymaking the landlord port model the dominant model in Colombo Port. However the Governmenthas not been able to corporatize JCT and thus has been unable to implement the landlord portmodel in Colombo Port. The Government instead decided to increase JCT efficiency through3 ADB. 1999. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Democratic Socialist Republic of Sri Lanka for the Colombo Port Project. Manila (Loan 1689/7153-SRI, for $35.0 million [loan] and $7.4 million [equity investment], approved on 11 May).4 ADB. 1999. Technical Assistance to the Democratic Socialist Republic of Sri Lanka for the Port of Colombo South Harbor Development. Manila (TA 3276-SRI, approved on 13 October for $1.46 million).5 ADB. 2001. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Democratic Socialist Republic of Sri Lanka for the Colombo Port Efficiency and Expansion Project. Manila (Loan 1841-SRI, for $10 million).
  • 15. 5competition, i.e., using the existence of SAGT to spur greater JCT efficiency. This approach hassucceeded and the relevant efficiency indicators for JCT have improved since 2001. Averageturnaround time for container ships improved by 30% from 23.1 hours in 2001 to 16 hours in2005; average waiting time per ship improved by 77% from 3.6 hours in 2001 to 0.8 hours in2005. The introduction of a private sector competitor—SAGT—has therefore helped to increaseoperational efficiency of the SLPA-run JCT until both JCT and SAGT now have similar levels ofoperational crane productivity at 23 moves per crane per hour. Although efficiency increase is anecessary condition it is not a sufficient condition to result in an increase in ISC transshipmentmarket share. Instead increases in efficiency need to be supplemented by an increase in theavailable capacity to cater for changing market needs. This is shown by the fact that althoughJCT efficiency increased and the absolute volumes handled by Colombo Port increased since2003, it did not help to increase the overall market share of Colombo Port in the transshipmentmarket. Colombo Port faces depth and capacity constraints that place it at a disadvantage in themarket. Hence both efficiency levels and infrastructure capacity at the required depths atColombo Port need to be further increased. As the capacity of JCT and SAGT cannot beincreased, a greenfield site needs to be developed as part of the Project so that Colombo Portcan continue to offer major shipping lines guaranteed capacity and be able to take the largecontainer ships that will be introduced by major shipping lines in the near future. Constructingadditional terminals will also help to increase overall port efficiency through additionalcompetition only if the landlord port model becomes the dominant model in Colombo Port.15. As the original approach to make the landlord port model the dominant model throughcorporatization of JCT did not succeed, ADB carried out intensive policy dialogue with theGovernment to use the public-private partnership (PPP) approach as an alternative methodallowing the landlord port model to become the dominant model in Colombo Port. TheGovernment agreed to use the PPP approach for future container terminals in Colombo Port.Common facilities such as capital dredging and breakwater construction will remain a publicsector responsibility, while terminal operations will be carried out by terminal concessionaires.The Project will allow for three new container terminals to be developed, i.e., south, west, andeast terminals. In the first phase only the south terminal will be developed. The prospectiveterminal operator will be a corporate entity selected through open competitive bidding to ensurethat intraport competition between the different terminals is enhanced and thus improve theoverall efficiency of Colombo Port. Open competitive bidding will also be used for the secondterminal to be built as part of the Project, tentatively in 2015. The third terminal to be developedin 2024 will also follow the PPP modality. This Project will therefore make the landlord portmodel the dominant model in Colombo Port through using a PPP approach.16. The second significant policy covenant of the 2001 ADB loan (footnote 5) was to reformthe regulatory structure for the ports sector through legislation, especially to curb anyanticompetitive behavior on the part of established operators. The Government’s long-termobjective in this regard is to enact a Port Competition Act. Prior experience with both the WorldBank and the ADB assistance indicate that changing the regulatory structure by legislationneeds to be done in incremental steps with the agreement of all parties. Hence, in the interim,using a regulation by contract approach, the Government through a Cabinet decision on 11October 2006 approved the establishment of an advisory committee to consider any grievancesor complaints that current and future container terminal operators may have regarding faircompetition issues. The committee will be chaired by the Secretary, MPA and membership willinclude the person holding the post of Director General of the Public Utilities Commission. TheGovernment has agreed that the committee will be operational within 3 months of loaneffectiveness. The proposed terms of reference, composition, and draft procedures for thecommittee are given in Appendix 6. Rules and procedures of the committee will be finalized
  • 16. 6within 3 months of loan effectiveness. Once the committee is operational, all existing terminaloperators will be informed of its role and reference to the advisory committee will be included inconcession agreements to be signed with future terminal operators. 4. Opportunities17. Even though the market share of Colombo Port for the ISC transshipment market hasdeclined, in absolute terms the volume has increased and Colombo Port has the potential tofurther increase both its volume and its market share of transshipment traffic. Colombo Port hasseveral natural advantages: It has a well-protected deepwater harbor and is located near theeast–west trunk routes between the Asia-Pacific, Europe, and the United States East Coastregions. It is thus the closest transshipment port to the huge, rapidly expanding markets of theISC. For Europe-bound cargo for the east and south segments of the ISC, using Colombo Portas a hub port is more advantageous than using Southeast Asian ports because of the shorterdistance to Colombo Port. Extensive market studies were conducted as part of the businessplan for the Project taking into account port development plans in competing ports. Thesestudies, which were validated by the independent panel of experts advising the Government onthe Project, show that if terminal operators at Colombo Port are able to offer high productivity,sufficiently large additional capacity, ability to take larger vessels, and ability to negotiate tariffswithout external control, a revival of Colombo Port’s share of regional transshipment traffic isexpected—from a 23% share of the ISC transshipment market in 2002 to 30% by 2011.18. The growth of the Sri Lankan domestic economy presents another business opportunityfor Colombo Port. Domestic container volume handled by Colombo Port has been a fewpercentage points higher than the GDP growth rate. Domestic container traffic is projected torise by 9.5% annually to 2010 and account for approximately 30% of the total container trafficwith transshipment providing the balance. 5. ADB Strategy19. ADB’s strategy for the ports sector is based on the fact that an efficient port system is akey factor in improving a country’s competitiveness and attracting investment. As Sri Lanka willnot be able to generate sufficient domestic cargo to attract mainline vessels, becoming atransshipment hub port would allow Colombo Port to attract such vessels. As they are moreeconomical they allow Sri Lanka’s own imports and exports to obtain lower freight charges thanwould otherwise be possible by avoiding the need to use feeder vessels. Enabling ColomboPort to maintain its transshipment port status will also bring additional foreign exchange to thecountry. The larger volume of ships calling at Colombo Port because of its transshipment hubstatus will encourage the growth of ancillary industries, e.g., ship chandlery and bunkering,which will increase economic activities and generate employment opportunities that otherwisewould not exist. Maintaining Colombo Port’s transshipment hub port status will allow Sri Lankato act as a distribution and logistics hub for the South Asian region, which if realized will againgenerate economic activities and employment opportunities. ADB’s strategy is also toencourage PPP in the ports sector as part of efforts to implement the landlord port model toincrease efficiency.
  • 17. 7 6. Government Port Sector Policy20. The Government policy for the ports sector in line with the Government’s MahindaChintana national policy6, sets out the country’s vision for the ports sector as follows: (i) developthe main ports of the country to facilitate increasing export and import trade associated withrapid economic development of the country as well as the region by taking advantage of theliberalization and globalization process, (ii) decongest Colombo Port by constructing South Portin Colombo, Galle and Hambantota Ports, (iii) develop medium-scale ports in identifiedprovinces such as South, East, and North to divert increasing volumes of domestic bulk freighttransport from road to sea transport; (iv) encourage alternative source of funding for newinvestment in port related infrastructure development, (vi) operate ports as commercial entitywithout Exchequer support, and (vii) encourage public-private partnership investment for newinvestment in the port sector. While continuing the state ownership of existing ports, theGovernment’s strategy is to increase efficiency of existing ports, operate ports as commercialentity and establish container terminals as public private partnership projects. This Project willbe the first transport PPP in Sri Lanka. ADB’s proposed loan is in line with Government policy. III. THE PROPOSED PROJECTA. Impact and Outcome21. The Project will promote economic growth by improving Sri Lanka’s competitiveness inthe ports sector by expanding Colombo Port’s capacity using PPP to maintain its status as aregional transshipment hub port. Container-handling capacity will be increased from 3.3 millionTEU in 2006 to 5.7 million TEU by 2010, 8.1 million TEU by 2015 and 10.5 million TEU by 2024.The Project will facilitate economic growth by enhancing national competitiveness ininternational trade via lower costs and faster delivery times. Export container traffic handled byColombo Port is expected to increase by 9.5% per annum starting in 2011. The additionalcapacity will enable Colombo Port to increase its ISC transshipment market share from 23% in2002 to 30% by 2011. Transshipment volumes handled by Colombo Port are expected toincrease by 8% per annum starting in 2011. Sri Lanka will thus be able to generate additionalincome from transshipment. The direct payments generated by transshipment traffic alone areexpected to increase the contribution of the ports sector to GDP by an additional 0.1% by 2015,and attract foreign direct investment of approximately $800 million to the ports sector by 2024.B. Outputs22. The Project will expand the container-handling capacity of Colombo Port by 7.2 millionTEU in three increments of 2.4 million TEU each. The major project elements are dredging anapproach channel and inner harbor basin west of the existing harbor, and constructing abreakwater to the west of the existing harbor sufficient to accommodate three new terminals,which will be constructed sequentially. In addition the Project includes the establishment of anew marine operations center, relocation of an existing submarine oil pipeline near the entranceto the new terminal, provision of navigational aids, and construction of shore utilities includingan electrical power plant, water mains and storage tanks and a sewage treatment plant. TheProject will be developed on a PPP basis. The terminals will be constructed by operatorschosen through open competitive bidding under a build-operate-transfer (BOT) concessionagreement; SLPA will carry out the harbor infrastructure works, i.e., dredging, breakwater6 Ministry of Finance and Planning. 2006. Mahinda Chintana: Vision for a New Sri Lanka. Colombo.
  • 18. 8construction, and other ancillary works. The concession bid for the first terminal will be carriedout in the first half of 2007. 1. Harbor Infrastructure Works Component23. The harbor infrastructure works component is designed to accommodate vessels with anoverall length of 400 m, beam of 55 m, and draft of 16 m. It will be created by constructing amajor new breakwater to the west of the existing harbor and a smaller secondary breakwater.The harbor will be served by a new two-way channel with a depth of 20 m and width of 570 m.The new breakwaters in the initial phase will enclose a basin area of 285 hectares (ha), whichwill support three new terminals each with a quay length of 1,200 m and land area of 62 ha. Thebasin will be dredged to 18 m with provision to deepen it to 23 m should a new generation ofdeep-drafted vessels come online. The depth of 18m is sufficient to cater for 11,000 TEUvessels. The existing submarine pipeline to the main crude oil single-point mooring will belowered where it crosses the new dredged areas.24. Preliminary studies in accordance with the recommendations of the InternationalNavigation Association (PIANC) were carried out to size the channels. The outer approachchannel has been sized for two-way traffic as it is common to both the existing harbor and theProject. The short approach to the existing harbor is and will remain for one-way traffic only.Modern aids to navigation will be installed along the new channels. To ensure that all vesseloperations in the Project and the existing port are safely and efficiently carried out, a newmarine operations center is proposed near the entrance to the new terminals. This will includefacilities for berthing tugs and other harbor craft, a lookout station, and a control room for a newvessel traffic management system serving the whole port. In addition this component will includeconstruction of utilities such as an electrical power plant, water main and storage tanks, andsewage treatment plant. ADB’s loan will finance the construction of this component. A detaileddescription of the harbor infrastructure works component and cost estimates is given inAppendix 7. 2. Container Terminal Component25. The first container terminal will have a planned capacity of 2.4 million TEU per annum.The ship–shore transfers are assumed to be handled by 12 rail-mounted gantry cranes and theyard operated by 40 rubber-tired gantry cranes. The area behind the berths will have a width of476 m comprising a quay apron of 71 m, a yard-stacking area of 325 m, a rear yard of 45 m,and common access road and utility corridor of 35 m. Although planned around the rubber-tiredgantry cranes, the land area is sufficient to accommodate any yard handling method preferredby the concessionaire. The container terminal will be developed by the private sector underBOT concession agreement. The winning concessionaire will be selected using opencompetitive bidding. Open competitive bidding will also be used to select the operator for thenext terminal. SLPA itself will not be allowed to bid but a corporate entity registered by the SLPAand/or the Government under the Companies Act No. 72 of 1982 of Sri Lanka, as amended,may bid. SLPA equity in non-Sri Lankan Government or SLPA-owned winning concessioncompanies will not exceed 15%.C. Special Features26. The Project is developed as a PPP with the public sector implementing the harborinfrastructure works component, while the private sector implements the container terminalcomponent in line with the provisions of the SLPA Act. The harbor infrastructure works
  • 19. 9component is a prerequisite for development of the Project. It has high economic returns. Thecontainer terminal component however will generate high financial returns and thus is being leftto the private sector to develop and operate under a BOT concession. Operational andmanagerial control will rest with the operator. The Project will generate opportunities for ADB’sPrivate Sector Operations Department as an equity partner and/or as a lender for the terminalconcession company.D. Project Investment Plan27. Phase I of the Project involves the construction of the harbor infrastructure works andone container terminal. The project investment cost for Phase I is $781 million, with the publicinvestment component estimated at $480 million, including taxes and duties of $49.7 million anda base cost of $331.2 million. The private investment component is estimated at $301 million.Table 1 provides a summary of the cost estimates and Appendix 7 detailed cost estimates. Table 1: Project Investment Plan ($ million) Item Amounta A. Public Sector Component 1. Base Costb a. Harbor Infrastructure Works 366.2 b. Consulting Services 14.7 2. Contingenciesc 43.9 3. Financing Charges during Implementationd 55.2 Subtotal (A) 480.0 B. Private Sector Component 1. Terminal Construction Works 154.0 2. Equipment 147.0 Subtotal (B) 301.0 Total (A+B) 781.0 a Includes taxes and duties of $49.7 million. b In mid 2006 prices. c Physical contingencies computed at 5% for harbor infrastructure works and consulting services, and price contingencies at 1.2%–2.8% per annum for foreign exchange cost, and 7%–8% per annum for local currency cost. d Includes interest and commitment charges. Interest during construction was computed at the 5-year forward London interbank offered rate plus a spread of 0.6%. Sources: Feasibility study and Asian Development Bank estimates.E. Financing Plan28. The Government has requested a loan of $300,000,000 from ADB’s ordinary capitalresources to help finance the public sector component of the Project. The loan will have a 25-year term, including a grace period of 5 years, an interest rate determined in accordance withADB’s London interbank offered rate (LIBOR)-based lending facility, a commitment charge of0.35% per annum, and such other terms and conditions set forth in the draft loan agreement.The Government has provided ADB with (i) the reasons for its decision to borrow under ADB’sLIBOR-based lending facility on the basis of these terms and conditions, and (ii) an undertakingthat these choices were its own independent decision and not made in reliance on any
  • 20. 10communication or advice from ADB. The private sector component will be financed by thesuccessful terminal concession bidder. Table 2 shows the financing plan.29. The Government will onlend the proceeds of the ADB loan to SLPA on the same termsand conditions as the ADB loan. For this purpose the Government will enter into a subsidiaryloan agreement with SLPA. The Government has also given assurance that the necessarycounterpart financing for the Project will be available. Table 2: Financing Plan ($ million) Source Total Percent A. Public Sector Component Asian Development Bank 300.0 38.5 Government 180.0 23.0 Subtotal (A) 480.0 61.5 B. Private Sector Component 301.0 38.5 Total (A+B) 781.0 100.0 Sources: Feasibility study and Asian Development Bank estimates.F. Implementation Arrangements 1. Project Management30. MPA will be the Executing Agency for the Project, and SLPA the Implementing Agency.A project implementation unit (PIU) will be established headed by a full-time project director withqualified staff having expertise in contract management, environmental monitoring, planning,and accounting. The PIU’s responsibilities will include (i) planning and scheduling of projectactivities; (ii) supervision and monitoring of the project work program and project performance;(iii) administration of procurement activities; (iv) bookkeeping and maintenance of projectaccounts, and preparation of liquidation/claim reports; (v) preparation and submission of variousreports to ADB including quarterly and annual project monitoring and progress report; and (vi)coordination of field activities. The project director and key PIU officers will be appointed inaccordance with the relevant Government procedures within 1 month of loan effectiveness. Theproject director will report to the Chairman, SLPA. An interministerial project steering committee,chaired by the MPA secretary and consisting of representatives from concerned governmentagencies, including Ministry of Finance and Planning, External Resources Department andNational Planning Department will be established to oversee, monitor, coordinate, and providethe necessary policy guidance related to project implementation. This committee will meetwhenever necessary but not less than once every six months. The Chairman, SLPA will reportto the interministerial steering committee on a regular basis. The implementation arrangementsare shown in Appendix 8. SLPA as an institution has the necessary systems, personnel,accounting policies and procedures, reporting and monitoring mechanisms, and auditingprocedures to efficiently carry out financial management for the Project. A financialmanagement assessment of SLPA is provided in the Supplementary Appendix. SLPA hasimplemented major foreign-aided capital projects and is observed to have the capacity toefficiently administer loans and implement projects. It has also implemented one ADB loan andtherefore is familiar with ADB procedures.
  • 21. 11 2. Implementation Period31. The Project will be implemented over 48 months, including preconstruction activities.The scheduled completion date for the Project is October 2010. The harbor infrastructure workscomponent will be completed by 31 October 2010. This takes into account advanceprocurement action for harbor infrastructure works construction. The proposed implementationschedule is in Appendix 9. 3. Procurement32. The project director will be responsible for all procurement activities. All contracts will beprocured in accordance with ADBs Procurement Guidelines (2006, as amended from time totime). One works contract will cover all harbor infrastructure works, i.e., dredging andreclamation works, breakwater construction, construction of all other ancillary civil works, andsupply and installation of navigational aids, which will be procured through internationalcompetitive bidding procedures with postqualification. Bidders will be given 90 days to prepareand submit bids. Indicative contract packages for the Project including consulting services areshown in the procurement plan (Appendix 10). On 30 October 2006, ADB approved advancecontracting for the harbor infrastructure works. The Government was informed that ADB’sapproval of advance contracting does not commit ADB to subsequently approve the Project orto finance the procurement costs. 4. Consulting Services33. International and national consulting services will assist SLPA in implementing theProject. The detailed design of the works is being prepared by the consultants with the ColomboPort Efficiency and Expansion Project (footnote 5). Under the proposed Project, consultants willbe required for construction supervision including monitoring of the environmental impacts of theworks. The consultants financed under the loan will be recruited in accordance with ADB’sGuidelines on the Use of Consultants (2006, as amended from time to time). The single contractpackage will include about 150 person-months of international and 1,250 person-months ofnational consulting inputs. Outline terms of reference for the consulting services are in Appendix11. The consultants will be recruited using single-source selection procedures in accordancewith ADB’s Guidelines on the Use of Consultants (2006, as amended from time to time).34. Consultant selection is especially critical for the Project’s engineering andimplementation requirements as breakwater design is a highly specialized technical aspect. Theappointment of the detailed design consultants to undertake construction supervision wasreviewed by the Maritime Structures and Port Engineering member of the panel of experts, andfound to be the most preferred option to minimize liability risks and disclaimers of responsibility,and to ensure that the construction is executed in accordance with the design factorsestablished during the detailed design phase. The detailed design is the result of extensiveengineering work, underwater geotechnical investigations and studies, numerical wavemodeling, physical wave modeling, current modeling, three-dimensional physical modeling, andtwo-dimensional flume testing with model testing of the breakwater design. Given the PPPnature of the Project, the issue of liability is particularly critical. Sufficient progress in the partialconstruction of the breakwater is necessary before the selected private sector concessionairecan start constructing the terminal. Hence if delays or defects in the breakwater constructioncause delays in the private sector’s terminal construction schedule, the private sector party willhold SLPA liable and claim damages for the delay. Moreover, since the construction season forthe breakwater construction is limited to the months of October–May, timely progress of the
  • 22. 12breakwater construction is critical to enable the private concessionaire to carry out terminalconstruction on schedule. 5. Anticorruption Policy35. ADB’s policy on Anticorruption (1998, as amended to date), was explained to anddiscussed with the Government, MPA, and SLPA. Consistent with its commitment to goodgovernance, accountability, and transparency, ADB reserves the right to investigate, directly orthrough its agents, any alleged corrupt, fraudulent, collusive, or coercive practices relating to theProject. To support these efforts, relevant provisions of ADB’s policy on Anticorruption areincluded in the loan agreements and the bidding documents for the Project. In particular, allcontracts financed by ADB in connection with the Project will include provisions specifying theright of ADB to audit and examine the records and accounts of MPA; SLPA; and all contractors,suppliers, consultants, and other service providers as they relate to the Project. As a project-specific anticorruption measure, all bid awards will be disclosed on SLPA’s website.Anticorruption assurances will be incorporated in the loan agreements. 6. Disbursement Arrangements36. Loan disbursements will be in accordance with ADB’s Loan Disbursement Handbook(2001, as amended from time to time), and detailed arrangements agreed to by the Governmentand ADB. For works and consulting services, loan funds will be disbursed using ADB’s directpayment procedures from ADB to the consultants and contractors against withdrawalapplications submitted by SLPA to ADB. 7. Accounting, Auditing, and Reporting37. SLPA will submit detailed progress reports on a quarterly basis. SLPA will maintainseparate records and accounts adequate to identify the goods and services financed from loanproceeds, financing resources received, expenditures incurred for the Project, and local funds.The accounts will be set up in accordance with sound accounting principles. Consolidatedproject accounts and related financial statements will be audited annually by recognizedauditors acceptable to ADB. The audited reports and related financial statements will besubmitted to ADB not later than 6 months after the end of the fiscal year to which they relate.The project director will coordinate all accounts and ensure compliance with ADB’s audit andaccounting requirements, which will be followed up in regular reviews by ADB. 8. Project Performance Monitoring and Evaluation38. Within 6 months of loan effectiveness, the Government, through SLPA, will develop aproject performance management system, including baseline performance monitoring andsystematic project performance monitoring. SLPA will carry out surveys (i) at the start of projectimplementation to establish baseline data, (ii) at midterm review, (iii) at the time of projectcompletion, and (iv) not later than 6 months after project completion to evaluate the projectbenefits. Data to be compiled for project performance monitoring and evaluation will be in aformat developed in consultation with ADB. Key indicators will be proposed by SLPA anddeveloped in consultation with ADB. A project completion report will be submitted within 3months of physical completion of the Project, providing detailed evaluation of the progress ofimplementation, costs, consultant performance, social and economic impact, and other detailsas requested by ADB.
  • 23. 13 9. Project Review39. A project inception mission will be fielded soon after loan effectiveness. Thereafter, ADBand the Government will conduct regular reviews annually or more frequently as required foreffective project implementation. In 2009, a midterm review by the Government and ADB willconsider the Project’s progress and agree on any changes in scope or implementation requiredto achieve the Project’s objectives. SLPA will monitor project implementation and keep ADBinformed of any significant deviations that may result in the schedule not being met. The projectcompletion report should be prepared within 3 months after the physical completion of theProject civil works component. IV. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKSA. Benefits40. The Project will help consolidate the position of Colombo Port as a transshipment hubport for the South Asian region by providing sufficient container-handling capacity and sufficientdepth for the latest generation of mainline vessels to call at Colombo Port. The container-handling capacity of each terminal to be developed is 2.4 million TEU/year. When threeterminals are fully developed they will provide an additional capacity of 7.2 million TEU/year.Maintaining its status as a transshipment hub port will help enhance national competitiveness ininternational trade via lower costs and faster delivery, in addition to generating additionalincome from transshipment. Taking into account SLPA’s strategy to provide infrastructure(breakwaters, channels, etc.) that can accommodate three terminals, the economic and financialanalyses are based on the scenario that three terminals will be sequentially developed asnecessary to meet forecasted demand.B. Economic and Financial Analyses 1. Economic Internal Rate of Return41. The economic evaluation compares the economic benefits and costs of the Project fromthe viewpoint of the national economy. The main consequence for the economy if the Project isnot implemented would be the loss of the frequent, fast, direct shipping services used byexporters and importers. Without investment in the Project, Colombo Port would lose itstransshipment traffic; and if the port no longer operates as a transshipment hub port, it wouldsoon lose its direct calls on trunk-line routes. Local traffic is not high enough to attract directcalls by trunk-line ships. Colombo Port would eventually become a feeder port, served by acombination of feeder ships and mainline services with relatively long transit times for the portswith lower traffic volumes. The consequences for Sri Lanka’s current and future exports wouldbe serious. The Project will benefit Sri Lankan exporters by enhancing their competitiveness ininternational markets through lower freight costs and faster delivery times for time-sensitiveexports e.g., textiles, which account for 52% of Sri Lanka’s exports.42. The main costs to the Sri Lankan economy of the reversion to a feeder port would be (i)additional costs of feeder services to regional hub ports such as Singapore, to connect withtrunk route services (at least 20% are estimated to switch to feeders); (ii) longer transit timesand delays, which are injurious to export markets, especially for textiles, but also for newexports that will emerge; (iii) loss of revenues to Sri Lankan terminals from transshipment; and(iv) loss of dues paid to SLPA by container vessels. Lower freight costs are expected to result inannual savings of $82 million by 2015, and faster delivery times will create annual savings of
  • 24. 14$49 million by 2015. In addition transshipment traffic will generate direct net annual income toterminal operators amounting to $77 million by 2015. The benefits of the Project are theavoidance of these costs to the economy. The values assigned to the benefits are comparedwith the total investment cost of $1.3 billion for the Project to 2034. The economic internal rateof return is estimated at 17.8%. These assumptions do not include the value to be placed onfast, direct shipping services by investors considering alternative countries as locations forsetting up new manufacturing or distribution centers. It also does not include loss ofinternational investors, who will include frequent, direct shipping services on their checklist ofpreconditions for locating in a country. Thus the economic analysis is conservative. Sensitivityand risk analyses indicate that the economic internal rate of return is robust under mostconditions. The full economic and financial analyses are given in Appendix 12. 2. Financial Internal Rate of Return43. The financial analysis assesses the financial sustainability of the harbor infrastructureworks component. SLPA incurs the capital investment, and maintenance and repair costs of thiscomponent. SLPA’s income stream arising from royalties, lease cost, port entry dues, harbortonnage dues, etc. was calculated using the forecasted demand for the Project at rates currentlybeing paid by SAGT, the existing privately operated terminal in Colombo Port. The financialinternal rate of return is approximately 11.5%, which exceeds the weighted average cost ofcapital of 4.4%. The details are given in Appendix 12.44. Financial analysis for the first terminal operator was also conducted to assess theviability of private sector development under a BOT concession (Appendix 12). A terminaloperator incurs the capital investment cost of terminal construction and equipment and terminaloperation cost, and pays concession fees to SLPA, while earning revenue from containerhandling. The financial internal rate of return is approximately 16.3%, which is in line withcomparable new terminal developments internationally.C. Social Impact 1. Poverty and Social Dimensions45. The primary area of influence of the Project includes Colombo City and the ColomboMetropolitan Region (CMR), comprising Colombo, Gampaha and Kalutara districts. CMR has anestimated population of 5.4 million; unemployment rates are lower than the rest of the country,even though it has a relatively large unskilled youth labor force. In Sri Lanka, poverty isobserved to be greatest in the rural sector (20.8%), followed by the urban sector (6.2%), and theestate sector at 4.3%. Across the industry subsectors, the highest poverty is reported in miningand quarrying industries; employment in quarrying is characterized by low pay as well as itstemporary and irregular nature, making this one of the most impoverished industry groups in SriLanka. As per 1996 data, the incidence of poverty among those engaged in mining andquarrying was 41.5%. The next highest incidence of poverty was in agriculture at 28.4%. As perDepartment of Census and Statistics (2004), the percentage of poor households living below theofficial poverty line7 was 5% for Colombo District, 9.2% for Gampaha, and 17.7% for Kalutara,compared with 19.2% for Sri Lanka as a whole. Although the Western Province in which CMR islocated records the lowest incidence of poverty in absolute numbers, it accounts for the largestproportion of the total poor. A closer look at the poverty profile of the city of Colombo reveals7 People living in households with real per capita monthly total consumption expenditure below SLRs1,423 are considered poor (the official poverty line).
  • 25. 15about 1,614 poor urban settlements with about 77,612 families. The urban poor of Colomboinclude those engaged in informal sector activities and blue collar workers of the ports,industries, railways, etc. They are mostly concentrated in the slums, shanties, and low-costhousing in the northern and central parts of the city. Lack of land ownership, poor access todrinking water, poor sanitation facilities, and lack of a regular source of income are a few of themain factors causing poverty.46. Major positive social impacts of the Project are anticipated through the creation of directand indirect employment opportunities during project construction and operation. Jobs duringconstruction are projected to total 1,950, including 300 for construction of the breakwater and550 for staged construction of each of the three terminals. During the operation phase, a total of3,870 permanent jobs are estimated to be created after the breakwater is complete and thethree terminals are commissioned. Thus the additional jobs created are expected to besignificant. Those who have the advantage of living in proximity to the Project will benefit most,as they will access the majority of the temporary employment related to construction of thebreakwater and three terminals. People who live close to the quarry sites, land-based transportroutes, and barge load-out points will also experience some of the direct impacts of the Project.The income impact of quarrying will be largely attributed to contractors, providers of relatedservices (such as transport), and workers. Workers engaged in quarrying-related activities havetraditionally come from unskilled and poor sectors of the community. According to the projectedestimates for quarrying activities, the predicted opportunities of employment will vary from 4,000to 12,000 per year depending on the contractor’s method of production, i.e., mechanized ortraditional. Benefits will also result from increased vessel traffic and other related initiativesoutside the immediate scope of the Project, such as the development of a free trade zone.Benefits to import and export industries are likely to accrue in areas outside the project-affectedarea, due to overall improvements in the national economy from the growth in shippingoperations facilitated by the Project. Therefore the Project will provide a source of income andnew employment opportunities in a wide range of job categories including unskilled labor,particularly in terminal operations, construction work at the project and quarrying sites for theunemployed, low-income earners, and the impoverished. This will lead to poverty reduction. Asummary poverty reduction and social strategy is presented in Appendix 13. 2. Resettlement47. The Project comprises construction of a new outer basin enclosed by a breakwater andserved by a new navigation channel. Material dredged from the channel will be used inreclamation to provide new container berths with associated infrastructure, buildings, andoperation facilities. No land acquisition or negative resettlement impacts are associated with theProject. Construction and operation activities will extend seaward from the south end of theexisting Colombo Port. Therefore, no additional land will be required by either the Governmentor the private sector. To link the existing port access road to the new harbor, three buildings willbe demolished: two government warehouses and one SLPA office. The warehouses arepresently not used and will not be rebuilt. The SLPA office building will be partially affected andthus will be partially demolished. The work space of employees will be accommodated in otheroffice buildings within the port area, and thus not involve construction of a new building. Theexisting port access road will be used for transportation of containers and other imported goods.None of the port access roads will be widened or improved and thus no resettlement will berequired. Furthermore, even after the development and operation of the Project, the transport ofcontainers and other imported goods within the port-related activity zone will not displace anybusiness establishments close to the port. With regard to specific effects associated withquarries, the quarry location will be identified by the contractor only during project
  • 26. 16implementation prior to the construction of the breakwater. Thus the Government will have toensure that any land acquisition and resettlement impact associated with quarrying of rocks willrequire the formulation and implementation of appropriate mitigation measures in compliancewith ADB’s policy on Involuntary Resettlement (1995) and Policy on Indigenous Peoples (1998).D. Environmental Impact48. The Project involves the dredging, reclamation, and construction of breakwaters,terminals, and channels. All of these facilities are located within the SLPA area. The Project iscategorized as category A according to ADB’s Environmental Assessment Guidelines (2003),and the Project is listed as a “prescribed project” according to the National Environmental ActNo. 47 (1980) as amended. Therefore an environmental impact assessment (EIA) wasprepared. Since the Project is located within the jurisdiction of the Coast ConservationDepartment (CCD) and according to the Sri Lanka’s Coast Conservation Act 57 (1981),environmental approval and the permit for development activity were obtained from CCD. TheEIA was approved by CCD on 12 December 2005. The EIA and environmental managementplan (EMP), in principle, cover all the requirements set out in ADB’s Environmental AssessmentGuidelines. The EIA was carried out from January 2003 to April 2005. After receiving CCDapproval of the EIA, the EMP and environmental monitoring plan were prepared in March 2006.The summary EIA (SEIA) was circulated to ADB’s Board of Directors and disclosed to the publicthrough ADB’s website on 12 July 2006.49. The EIA examined potential environmental impacts associated with the construction andoperation of the Project. The EIA shows that environmental impacts will mostly relate todredging and reclamation works. The impacts include (i) increased turbidity; (ii) geotechnicalstability; (iii) siltation; (iv) change in current pattern; (v) sediment transport; (vi) change inadjacent beach; (vii) wave disturbance; (viii) impacts to water, noise, and air quality; and (x)impacts to marine ecology and fisheries. The mitigation measures have been set by following“mitigation through design” and therefore the degree of impact could be minimized. Although theimpacts are predicted to be insignificant, continuous monitoring especially during constructionwill be carried out to avoid unexpected impacts and provide remedial measures if necessary.Public consultation was carried out with fisher communities living near the Modera fishingharbor, adjoining SLPA port limits. The EIA does not predict any impacts to the livelihood offisherfolk; the modeling studies for physical impacts indicate that the construction works will notaffect the livelihood of the fisherfolk living near the Modera fish harbor. However, monitoring isneeded to ensure that any unexpected impacts are redressed in a timely manner. The EMP andenvironmental monitoring plan will provide guidance to minimize potential adverseenvironmental impacts related to the Project and to enhance the positive impacts of the Project.The EMP and monitoring plan must be submitted to and approved by CCD prior tocommencement of the construction work. Adequate funding has been allocated to implementthese plans. The EMP and monitoring plan emphasize the need to establish a sustainableinstitutional mechanism to ensure that these plans are properly implemented. The PIU’senvironmental engineering and coastal engineering sections, as well as the environmentalmonitoring committee will be responsible for implementing these plans.50. On the basis of the analysis, no major insurmountable environmental impacts areassociated with the construction and operation of the Project with the assumption that therecommendations for the mitigation measures are implemented. Therefore, environmentalmonitoring should be carried out to ensure that the EMP is implemented and any unforeseenimpacts are managed and mitigated appropriately.
  • 27. 17E. Risks51. As implementation of this Project will be on a PPP basis with the public sectorimplementing the harbor infrastructure works component and the private sector implementingthe terminal component, the full benefits of the Project are dependent on both componentsbeing implemented on a coordinated basis. The major risk is the lack of a private sector partywilling to take up the terminal component concession. This risk has been mitigated by linkingimplementation of the harbor infrastructure works component to the progress of selecting asuccessful bidder for the terminal concession. The loan will only be effective upon completion ofthe evaluation of the terminal concession bid and the Government issuing an invitation fornegotiations to the successful bidder(s).52. Another risk arises from possible delays to the harbor infrastructure works constructionprogram. Since completion of part of the breakwater will be necessary before the terminalconcession company can start terminal construction, any delay in the construction of thebreakwater may give rise to a situation where the terminal concession holder could claimcompensation from SLPA. This risk is mitigated by the fact that the construction schedule for thebreakwater will be agreed with the prospective contractor before the terminal concessionagreement is signed. Hence a realistic time frame for the breakwater construction can beincluded in the concession agreement. Delays during construction will be mitigated given thatthe Government has agreed that the International Federation of Consulting Engineers (FIDIC)conditions will be used and that the construction supervision consultant will be designated asthe “Engineer” in the contract to ensure that the consultant has sufficient authority to direct thecontractors. Selection of the detailed design consultant as the construction supervisionconsultant through single-source selection is an additional measure to mitigate these risksbecause the consultant will be familiar with the design and also avoid the issue of split liabilitybetween the detailed design and construction supervision consultants.53. Aside from project risks, delay in the consolidation of the ceasefire in the country mayalso have a significant impact. This situation is beyond the scope of the Project to takemitigation measures. However the private sector has been interested in Colombo Port as shownby implementation of the SAGT project even before the ceasefire. The Government hasdeclared Colombo Port a high-security zone and appointed the Sri Lankan Navy as thedesignated authority for port security. The navy has drawn up comprehensive security plans inaccordance with the requirements of the International Ship and Port Security Convention of theInternational Maritime Organization for port security and the special security considerationsnecessary for Sri Lanka. An assessment of the Colombo Port security system found that portaccess control is well-planned, coordinated and implemented. Colombo Port is the first port inthe South Asian region to implement both the container security initiative and mega portinitiative. There is also excellent military protection against air, land and sea intrusions intoColombo Port. The security cover will be extended to cover the new facilities as well. V. ASSURANCESA. Specific Assurances54. The Government will ensure that the advisory committee chaired by the Secretary, MPA,and including the person holding the post of Director General of the Public Utilities Commissionas a member, is established and operational within 3 months of loan effectiveness.
  • 28. 1855. The Government will ensure that adequate counterpart funds are made available to theProject when and in the amounts required to enable project agencies to discharge theirresponsibilities under the Project; and that counterpart funds will be increased if needed tocover any shortfall of funds for the completion of the Project.56. The Government will ensure that concessionaires for at least the first two new terminalsunder the Project will be chosen by open competitive bidding processes.57. The Government will ensure that SLPA’s equity share in the terminal concessioncompanies will not exceed 15% of the entire issued capital of such concession company. Thislimit will not apply in the case of a corporate entity registered by the SLPA and/or theGovernment under the Companies Act No. 17 of 1982 of Sri Lanka, as amended, for thepurposes of carrying out container terminal operations.58. The Government will ensure that the concession agreements with all terminalconcession companies operating under the Project include the provision that each concessioncompany will follow the National Environmental Act No. 47 of 1980 as amended, ADB’sEnvironment Policy (2002), ADB’s policy on Involuntary Resettlement (1995), and ADB’s Policyon Indigenous People (1998) in constructing the terminal.59. Within 1 month of loan effectiveness, the Government will ensure that the (i) projectdirector is appointed in accordance with the Government’s relevant procedures; (ii) PIU is fullystaffed and operational; and (iii) staff necessary for the environmental monitoring in the PIU asspecified in the SEIA, are recruited.60. Land and Resettlement. To the extent possible, the Government will ensure that theProject does not require any land acquisition or involuntary resettlement. The Government willcause SLPA to ensure that in case of change in project scope or any unanticipated resettlementimpacts (due to quarrying of rocks, widening of access roads, or any other activity) duringproject implementation, land acquisition and resettlement activities will be implemented inaccordance with all applicable laws and regulations of the Government to the extent notinconsistent with ADB’s policies and procedures and in accordance with ADB’s policy onInvoluntary Resettlement (1995) and Policy on Indigenous Peoples (1998). In case ofunanticipated resettlement impacts during project implementation, the Government will causeSLPA to submit a satisfactory Resettlement Plan to ADB for review prior to the award of harborinfrastructure works contracts. Before any affected person is dispossessed or displaced from itsassets, the Government will cause SLPA to ensure that they are consulted and compensated atreplacement values such that their living standards are not adversely affected, in accordancewith the Resettlement Plan.61. Environment. The Government will cause SLPA to ensure that the Project and allproject facilities are developed, conducted, implemented, and maintained in accordance with theGovernment’s National Environmental Act No. 47 of 1980, as amended, and ADB’sEnvironment Policy (2002). In case of any discrepancies between the Government’s laws,regulations, and/or procedures, and ADB’s requirements, ADB’s Environment Policy (2002) willprevail.62. The Government will cause SLPA to apply the environmental mitigation measuresincluded in the EIA and SEIA report for the implementation of the Project, as necessary. TheGovernment will cause SLPA to monitor, review, and if necessary update the EMP prior to anyworks to ensure that all negative environmental impacts related to the works are mitigated
  • 29. 19properly. In case of unanticipated negative environmental impacts, the Government will causeSLPA (i) to report such impacts to CCD and ADB, and (ii) to provide remedial mitigationmeasures to affected people in consultation with CCD and EMC.63. The Government will cause SLPA to conduct regular environmental monitoring. Themonitoring report should be submitted to ADB, environmental monitoring committee, and otherrelevant agencies such as CCD and Central Environmental Authority every 6 months.64. The Government will cause SLPA to provide the contractors and concessionaires withthe EIA report and the SEIA including the EMP, and ensure that contractors andconcessionaires implement the required mitigation measures as described in the EMP in asatisfactory manner. In addition, the Government will cause SLPA to ensure that the contractorsand concessionaires report implementation of the EMP on a regular basis, along with anydeviation from the EIA report.65. Social Development and Gender Issues. The Government will cause SLPA to ensurethat all works comply with all applicable labor laws; do not employ child labor for constructionand maintenance activities; encourage employment of the poor, particularly women; provideappropriate facilities for women in construction sites; and do not differentiate wages betweenmen and women particularly for work of equal value. The Government will cause SLPA toensure that works contracts include a requirement on the part of the contractors to conduct aninformation and education campaign on communicable diseases, including but not limited tosexually transmitted diseases and HIV/AIDS, for construction workers as a part of the healthand safety program at campsites during the construction period. The works contracts willinclude specific clauses on these undertakings, and compliance will be strictly monitored bySLPA during project implementation.66. Within 6 months of loan effectiveness, the Government, through SLPA, will develop aproject performance management system, including baseline performance monitoring andsystematic project performance monitoring. The Government will cause SLPA to carry outsurveys (i) at the start of project implementation to establish baseline data, (ii) at projectmidterm review, (iii) at the time of project completion, and (iv) not later than 6 months afterproject completion, to evaluate the project benefits. Data to be compiled for the purpose ofproject performance and evaluation will be in a format developed in consultation with ADB. Keyindicators will be proposed by SLPA and developed in consultation with ADB.67. Consistent with the Government’s and ADB’s commitment to good governance,accountability, and transparency, the Government will ensure and will cause SLPA to ensurethat the project funds are utilized effectively and efficiently to implement the Project and toachieve the Project’s objectives. The Government will cause SLPA to (i) disclose the bid awardson SLPA’s website; (ii) undertake necessary measures to create and sustain a corruption-freeenvironment; (iii) ensure that the Government’s Anticorruption Law and ADB’s policy onAnticorruption (1998, as amended to date), are strictly enforced and are complied with duringproject implementation, and that relevant provisions of ADB’s policy on Anticorruption areincluded in all bidding documents for the Project; (iv) facilitate ADB’s exercise of its right toinvestigate, directly or through its agents, any alleged corrupt, fraudulent, collusive, or coercivepractices relating to the Project; (v) conduct periodic inspections on the project contractor’sactivities related to fund withdrawals and settlements; and (vi) ensure that contracts financed byADB in connection with the Project include provisions specifying the right of ADB to audit andexamine the records and accounts of SLPA and all contractors, suppliers, consultants, andother service providers as they relate to the Project. The Government will cooperate with any
  • 30. 20audit and investigation, and extend necessary assistance, including access to all relevant booksand records, as well as engagement of independent auditors and experts that may be neededfor satisfactory completion of such audits and investigations.B. Conditions for Loan Effectiveness68. The Government will ensure that (i) following an open competitive bidding process, SLPA has issued an invitation to the selected terminal operator(s) prior to commencing the negotiations for the terminal BOT concession agreement; and (ii) a subsidiary loan agreement is signed between the Government and SLPA, and submission of legal opinion on the subsidiary loan agreement, the Loan Agreement, and the Project Agreement in a form and substance satisfactory to ADB is submitted by the Government and SLPA, respectively, to ADB.C. Conditions for Harbor Infrastructure Works Implementation69. Prior to the commencement of harbor infrastructure works, the Government will causeSLPA to ensure that an updated environmental approval from CCD is obtained. VI. RECOMMENDATION70. I am satisfied that the proposed loan would comply with the Articles of Agreement of theAsian Development Bank (ADB) and recommend that the Board approve the loan of$300,000,000 to the Democratic Socialist Republic of Sri Lanka for the Colombo Port ExpansionProject from ADB’s ordinary capital resources, with interest to be determined in accordance withADB’s London interbank offered rate (LIBOR)-based lending facility; a commitment charge of0.35% per annum; a term of 25 years, including a grace period of 5 years; and such other termsand conditions as are substantially in accordance with those set forth in the draft Loan andProject Agreements presented to the Board. Haruhiko Kuroda President02 February 2007
  • 31. Appendix 1 21 DESIGN AND MONITORING FRAMEWORK Design Performance Data Sources/Reporting Assumptions Summary Targets/Indicators Mechanisms and Risks Impact Assumptions Improve Sri Lanka’s Direct contribution by National economic data Economic growth in India competitiveness in the ports sector to GDP and statistics remains strong to generate ports sector using increases by 0.1% by the cargo base for public-private 2015 transshipment. partnership Foreign direct investment in ports Risks sector increases by Investors and shipping lines approximately $800 are deterred by security million by 2024 factors. Outcome Assumptions (i) Reduce transport Export container traffic SLPA reports and Other factors affecting costs for exports handled by Colombo international shipping investment and economic Port increases by 9.5% statistics reports development are in place. per annum starting in Terminal development is 2011 implemented on schedule. (ii) Increase Transshipment volumes Present terminals increase transshipment handled by Colombo their capacity by improving container volume Port increases by 8% efficiency. handled by Colombo per annum starting Port 2011 Risk Container-handling Security situation causes risk (iii) Increase container- capacity increased from insurance premiums to handling capacity of 3.3 million TEU in 2006 increase and thus reduces Colombo Port to 5.7 million by 2010 transshipment volumes and 8.1 million TEU by Colombo Port. 2015 Outputs Assumptions (i) Dredging, Breakwater SLPA reports and Contract award for dredging reclamation, and construction completed consultant reports and breakwater development breakwater construction by June 2010 is done on schedule. completed Navigational aids Terminal development is installed by June 2010 implemented on schedule. (ii) South terminal South terminal construction completed Risk construction completed by October 2010 Delays in construction due to weather conditions affects construction schedule. Activities with Milestones Inputs 1. Contract award for civil works component is awarded by July 2007. • ADB: $300 million 2. Letter of invitation for negotiations to successful bidder for terminal • Government: $180 million concession is awarded by July 2007. • Private sector: $301 million 3. First terminal is operational by October 2010.ADB = Asian Development Bank, GDP = gross domestic product, SLPA = Sri Lanka Ports Authority, TEU = twenty-footequivalent units.
  • 32. 22 Appendix 2 Chief Internal Finance and IT Exec. Dir. Port Operations and Ch. Manager Auditor Information System Director Business Development Ch. Finance Manager Department Business Director Ch. Manager Market- ing and Research Ch. Manager Cont- ainer Oper. Director Port Operations Ch. Manager Conven. Cargo Oper. Ch. Manager ORGANIZATION CHART OF SRI LANKA PORTS AUTHORITY Logistics Manager Project Director Southern Reg. Additional Harbour Master Port Dept. Chairman and Board of Directors Res. Manager Harbour Master Galle Managing Director Vice Chairman Ch. Law Officer Res. Manager Director Establishment Ch. Manager Comm. Trinco and Pub. Rel. Ch. Security Manager Ch. Admin. Manager Ch. Medical Addl. Managing Director Officer Director Technical Ch. Human Res. Director HR Manager Ch. Manager Welfare and Indl. Rel Ch. Training Manager Ch/Eng. Supplies Ch/Eng. Cont. and Disn. Ch/Eng. Planning and Development Exec. Dir. Establishment, Technical and Director Technical Ch/Eng. Electrical Human Resources Ch/Eng. Marine Ch/Eng. Mech. Plan Ch/Eng. Mech. Work Advisors and Ch/Eng. Civil Consultants
  • 33. Appendix 3 23 SECTOR ANALYSIS OF COLOMBO PORTA. The Current Port and its Terminals1. Colombo Port is located in an artificial harbor formed by three breakwaters constructedmore than a century ago. The port basin covers 200 hectares and is dredged to depths of up to15 meters (m). Access to the harbor is provided on the western and northern sides. The entireperimeter of the harbor is occupied with berths, terminals, and vessel-related activities. The portis connected to the national rail network; however, virtually all cargo movements in and out ofthe port are by road transport. Because of the physical constraints, any growth in the capacity ofthe existing port is severely limited.2. The majority of container traffic is handled at three container terminals: (i) Jaya Container Terminal (JCT) on the eastern side comprises four berths totaling 1,292 m, the latest completed in 1996. Depths alongside range from 12 m to 15 m. The terminal area covers 45.5 hectares, has 6 super-post panamax and 8 panamax gantry cranes, with capacities of 35.5 tons (t) to 41 t service weight limit to serve the berths. The backup area varies in width from 330 m to 380 m forming the container yard with capacity of 9,800 ground slots, served by 39 rubber-tired gantry cranes (RTGs) and 4 rail-mounted gantry cranes (RMGs). In addition, two feeder berths total 352 m with depths of 8 and 9 m. The terminal, which is owned and operated by the Sri Lanka Ports Authority (SLPA), is fully self-contained with its own reefer stacks, offices, workshops, amenities, and substations. (ii) Unity Container Terminal (UCT) is located at the northern end of the harbor. Opened in 2004, it comprises two berths for feeder vessels of 340 m with depths alongside of 9 and 11 m, and is served by three panamax gantry cranes of 41 t service weight limit. Eight RTGs serve two stacking areas with 1,020 ground slots. SLPA owns and operates the terminal as a satellite terminal for JCT. (iii) South Asia Gateway Terminal (SAGT) located inside the western breakwater became fully operational in 2003. The terminal comprises three berths totaling 940 m, all dredged to a depth of 15 m and served by 9 gantry cranes of 40 t service weight limit. The backup area is 200 m wide and the terminal area covers 22.2 hectares. The container yard is served by 28 RTGs and comprises 5,430 ground slots. The terminal, which is owned by a private consortium of local and foreign parties, is fully self-contained. SLPA has 15% equity in SAGT.3. Currently the majority of container operations are organized through the three terminals.Present container throughput for the port as a whole exceeds 2.5 million twenty-foot equivalentunits (TEU) per annum and the maximum capacity that could be developed within the confinesof the existing harbor after taking account of improvement in all forms of productivity isassessed at 3.7 million TEU per annum. Other cargo-handling facilities operated by SLPA withinthe harbor include a tanker berth, cement and bulk grain-handling facilities, quays used forvehicle imports, general cargo and military goods, and a passenger/cruise berth at the southernend of SAGT.
  • 34. 24 Appendix 3B. Institutional Environment and Regulatory Framework4. The Ministry of Ports and Aviation is responsible for the ports sector. SLPA is a statutorycorporation established under the Sri Lanka Ports Authority Act (1979) as the owner, operator,and sole supplier of marine and cargo-handling services at the country’s ports. The SLPA Actendows the Minister of Ports and Aviation and SLPA with wide powers over the sector. The Actallows SLPA to concession out terminal operations. SLPA is managed by a board comprisingeight appointees; the minister appoints the chairperson and five of the members.C. Container Traffic Trends5. Colombo Port established its position as the dominant transshipment port for the Indiansubcontinent by the mid 1990s; its success was attributable to several natural advantages: (i)located near the east–west trunk routes between Asia-Pacific, Europe, and the United StatesEast Coast; (ii) the closest transshipment port to the huge, rapidly expanding markets of theIndian subcontinent; and (iii) a well-protected deepwater harbor. With these advantages,Colombo’s container traffic rose from 0.6 million TEU in 1990 to 1.7 million TEU in 1997. After1997, traffic stagnated, remaining at 1.7 million TEU per annum until 2002.6. The reasons for this, were: (i) Direct calls at Indian ports started around 1997, whentraffic volume reached the threshold at which they became economic at Nhava Sheva (previousto this India was served by feeders.) The trend to direct calls has since accelerated as a resultof improvements in port efficiency that followed the construction of a private terminal at NhavaSheva in 1999. (ii) New ports started to compete for Colombo’s transshipment traffic. Before2000, Dubai and Singapore were the primary competitors; now Port Klang Salalah, TanjungPelepas compete for this business. (iii) Delay of the construction of new capacity until 2001resulted in congestion during 1996–2000. (iv) The operation at JCT had no intraport competitionuntil 2001 and productivity remained below that of its main competitors. (v) No flexibility inpricing was provided. The port’s limited ability to negotiate prices with shipping lines was amajor disadvantage as competing ports such as Singapore and Port Klang cut prices tounusually low levels. (vi) The 2001 terrorist attack on the airport affected insurance rates.7. The period of stagnation came to an end in 2002. In 2001 new capacity was introducedat the privately operated SAGT. The introduction of competition between the terminals promotedan increase in port efficiency; and the peace process was revived and the surcharge oninsurance rates lifted. Table A3.1: Traffic Figures for Colombo Port Year 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Total (TEU 1.36 1.69 1.71 1.70 1.73 1.72 1.76 1.96 2.24 2.46 3.08 million ) Average 29.2 24.5 1.5 (0.5) 1.6 (0.6) 2.3 11.1 14.3 9.8 25.2 Growth (%)TEU = twenty-foot equivalent units.Source: Sri Lanka Ports Authority (Note restows account for the balance of the traffic).
  • 35. Appendix 3 258. The overall container growth in Colombo Port increased by 13.3% in 2004 and 10.5% in2005. In the first 6 months of 2006, it increased by 18% compared with the same period in 2005.D. Capacity Analysis9. Additional capacity could be obtained by converting the Bandaranaike Quay (BQ) fromgeneral cargo to a container feeder berth. Examination of operations at the existing terminalsindicates that capacity could be enhanced by measures such as the introduction of newequipment, expansion of yard areas, denser stacking, and reduced dwell time. The existing andmaximum enhanced capacity of these terminals is shown in Table A3.2. Table A3.2 Existing and Potential Enhanced Capacity of Existing Terminals (in twenty-foot equivalent units [TEU]) Terminal Present Capacity Potential Enhanced Capacity Jaya Container Terminal 2,000,000 2,400,000 South Asia Gateway Terminal 1,000,000 1,200,000 Unity Container Terminal 300,000 300,000 Bandaranaike Quay 0 200,000 Total 3,300,000 4,100,000Source: Sri Lanka Ports Authority.10. While operational enhancements can be made to the existing terminals, they offerdiminishing returns. The area of water in the existing harbor is limited and maneuvering morethan one ship at a time in the basin is difficult and dangerous. The capacity of the existingharbor is governed by marine operations that limit movements by cargo vessels to 1 per hour,rather than the quay cranes or yard capacity. As a result, the practical capacity of the existingharbor is estimated to be 3.3 million TEU/year. This capacity is expected to be reached by 2010and additional facilities in a new outer harbor will be required before this figure is reached ifcongestion and delays are to be avoided.E. Operational Efficiency11. Crane productivity for mainline container vessels at JCT increased from 15.1 moves percrane per hour in 2001 to 23.4 in 2005. JCT and SAGT now have similar crane productivity.Average service time for containerships at JCT decreased from 17.8 hours in 2001 to 13.8hours in 2005, and average turnaround time for containerships decreased from 23.1 hours in2001 to 16.0 hours in 2005. JCT has about 1,500 employees handling a total of 1.7 million TEU.SAGT has about 500 employees handling 930,000 TEU. JCT has taken several measures toimprove its efficiency and labor productivity. In 2002, an incentive scheme was introduced tomotivate workers. This was followed by the introduction of a target bonus to ensure higherefficiency. The measures were successful in improving efficiency (Table A3.3).
  • 36. 26 Appendix 3 Table A3.3: Efficiency Indicators for Jaya Container TerminalIndicators 2001 2002 2003 2004 20051. Average turnaround time of containerships (hours/ship) 23.1 17.7 15.4 16.5 16.02. Average service time of containerships (hours/ship) 17.8 12.9 11.9 13.1 13.83. Average waiting time of containerships (hours/ship) 3.6 2.5 2.0 1.5 0.84. Container productivity per crane (moves/hour) 15.1 19.8 23.1 21.8 23.45. Container productivity per ship (moves/hour) 34.8 45.2 49.9 46.6 49.36. Container productivity per berth (moves/hour) 31.4 39.1 43.5 41.1 41.2Source: Sri Lanka Ports Authority.F. Challenges12. Effective market research and business development is fundamental to the success ofColombo Port. Initiatives to improve and develop capability within the port for focusedaggressive marketing are important and require action as soon as possible. All levels ofmanagement and operations have a role in developing traffic and enabling the port to competeinternationally. SLPA should increasingly accept the role as landlord and focus on promoting theport as a whole. Detailed analysis of transshipment potential is required. A significant amount ofdata has been obtained and databases developed during the preparation of long-term trafficforecasts. This data provides information for analysis, which is essential for preparing marketingplans. Development in competing ports must be closely monitored and market niches identified.13. The development of strategy is critical to business planning. It requires a continuous anditerative analysis of relevant issues. These include clear identification of services that can becompetitively offered, tariff and pricing strategies to win trade, promotion of selected strategiesthrough strong marketing activity, direct engagement of target clients, and finally themeasurement and response to marketing initiatives. Significant volumes of Bay of Bengalcontainer cargo are transshipped through Singapore or Port Klang for Europe and the EastCoast of North America. .This is probably more expensive than transshipment at Colombo, andwill take longer. Colombo should investigate ways of supporting and encouraging more frequentand more regular feeder services, notably to Chittagong. To do this it should consider offeringother special deals for this specific cargo. Such actions could initiate a swing back to Colombo.Trade lanes and Indian subcontinent coasts offer opportunities, however they are not salestargets. Target customers are shipping lines, who need not restrict themselves to particularlocations. Colombo must therefore offer price and service packages designed to meet the needsof particular shipping lines in the context of the full range of container shipping services theywish to offer their customers. Colombo offers a real alternative for European and Far Easterncargoes. The port is a national asset, which should promote contacts with local exporters,importers, and development agencies by demonstrating to them how the port is able to assistthem. The growth of a national cargo base is an important objective and direct foreigninvestment in local industrial export-oriented business is to be encouraged.
  • 37. Appendix 4 27 2005 SUMMARY FINANCIAL STATEMENT FOR SRI LANKA PORTS AUTHORITY SRI LANKA PORTS AUTHORITY COMBINED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2005 SLPA Description Note 2005 2004 SLRs SLRs Operations Revenue from Port Activities 1.1.2 18,246,333,789 15,805,541,899 Other Revenue from Port Activities 1.3 2,303,093,940 2,055,349,142 Total Revenue 20,549,427,729 17,860,891,041 Operations Expenses 2.1 (6,670,347,616) (5,054,347,809) Repair and Maintenance Expenses 2.2 (2,109,995,895) (1,384,200,444) Administration Expenses 2.3 (4,403,022,377) (4,672,414,643) (13,183,365,888) (11,110,962,896) Operating Profit 7,366,061,841 6,749,928,145 Interest on Government Loans 2.4 (1,186,010,675) (1,356,211,293) Voluntary Retirement Scheme Expenses 2.5 (848,873) Profit before Foreign Exchange Gain/(Loss) 6,180,051,166 5,392,867,979 Foreign Exchange Gain/(Loss) 7,059,437,549 (5,665,517,002) Profit before Tax and after Foreign Exchange Gain/(Loss) 13,239,488,715 (272,649,022) Special Levy (115,000,000) (95,000,000) Less: Income Tax, Deemed Dividend Tax, and Social Responsibility Levy 2.6 (3,050,742,665) (2,700,517,736) Net Profit (Loss) before Extraordinary Items and after Tax 10,073,746,050 (3,068,166,758) Less: Extraordinary Items: Tsunami Provision 2.7 (1,820,521) (162,146,782) Net Profit (Loss) after Extraordinary Items and after Tax 10,071,925,530 (3,230,313,541) Cumulative Profit (Loss) B/F 2.8 (6,646,423,206) (3,416,109,665) Retained Profit and Loss 3,425,502,323 (6,646,423,206) Amount Transferred to Loan Redemption Reserve (3,425,502,323) Balance Profit/Loss C/F (0) (6,646,423,206)( ) = negative.SLPA = Sri Lanka Ports Authority.Source: Sri Lanka Ports Authority
  • 38. 28 Appendix 5 EXTERNAL ASSISTANCE TO SRI LANKA PORTS AUTHORITY 1974–2006 Amount ($ million Year ofSource Project equivalent) ApprovalADB Colombo Port Efficiency and Expansion Project 10.00 2001Japan SL-P4: Port of Colombo Expansion 35.90 1980(JBIC) SL-P7: Port of Colombo Expansion (II) 28.30 1984 SL-P8: Port of Colombo Expansion (III) 10.24 1985 SL-P12: Port of Colombo Expansion (IV) 14.11 1987 SL-P23: Port of Colombo Extension (I) 40.15 1990 SL-P27: Port of Colombo Extension (II) 78.41 1991 SL-P30: Port of Colombo Extension (III) 158.25 1992 SL-P33: Port of Colombo Extension (IV) 74.18 1993 SL-P41: Port of Colombo North Pier Development 56.72 1994 SL-P46: Port of Colombo North Pier Development 58.92 1995 (II) SL-P67: Urgent Upgrading of Colombo Port 18.59 1999 SL-P85: Galle Port Development 130.00 2006Denmark Oluvil Port Development 35.00 2003Norway Automation of Port of Galle 0.10 2004Netherlands Refloating of Dredger at Port of Galle 1.00 2005ADB = Asian Development Bank, JBIC = Japan Bank for International Cooperation, SL = Sri Lanka.Note: Applied exchange rate: $1 = SLRs = 100, monthly rates published by Bank of Japan.Source: Sri Lanka Ports Authority
  • 39. Appendix 6 29 PROPOSED TERMS OF REFERENCE FOR THE ADVISORY COMMITTEE ON PORT COMPETITION1. As a prelude to the enactment of a full-fledged Port Competition Act, the Governmenthas agreed to establish an advisory committee1 to enhance the operating environment for theports sector and to ensure a competitive environment for terminal operators. The committee willhave an advisory role to redress grievances of port operators related to unfair competition toensure a healthy competitive environment for terminal operators and promote intra-portcompetition when two or more different terminal operators within the same port compete for thesame markets. The committee will advise the Minister of Ports and Aviation on actions to betaken in case of anticompetitive behavior in port-related activities.2. Composition. The committee will be established under the Ministry of Ports andAviation (MPA), and be chaired by the Secretary, MPA. It will comprise (i) the Secretary,Ministry of Trade and Commerce; (ii) a representative from the shipping and maritime transportcommunity that does not have any equity interest in any terminal operator; and (iii) the personholding the post of Director General of the Public Utilities Commission of Sri Lanka. Thecommittee will be assisted by at least one administrative staff to provide logistical assistance.3. Functions. The committee will function with fairness, impartiality, and independence in atimely and transparent manner. Its functions will include the following: (i) Investigate complaints made by any port operator on alleged or suspected offenses related to port business. (ii) Prevent anticompetitive practices in all aspects of port business including abuse of dominant position to prevent or lessen competition, cross-subsidization of monopoly services to competitive services in a manner that threatens competitors, price-fixing among competitors, and setting of prices in a noncompetitive area of port business in a manner that threatens the relevant port’s ability to compete against other transshipment ports within the region. (iii) Investigate any planned merger between (a) a marine service provider and a port service provider; (b) a marine service provider with another marine service provider; and (c) a port service provider with another port service provider. (iv) Investigate any complaint by any port operator prior to or upon a merger to decide whether the merger is compatible with the promotion of fair competition.4. Procedure for Investigating Complaints. Any affected port operator may lodge acomplaint in writing to the committee, which will acknowledge receipt of the complaint within 3working days. Depending on the nature of the complaint, the committee will have from 2 to 8weeks to receive details, investigate facts, and reach a decision. It may conduct a hearing orconsult with technical experts to determine the nature of the offence and appropriate redressmechanism.5. Once investigated, the committee will advise the minister responsible for ports on thecourse of action to be taken to address the issue. The MPA will advise the complainant of theoutcome of the complaint. The presence of this committee will not preclude the right of anyaggrieved party to seek legal remedy that may be available under the existing laws of Sri Lanka.6. Details of committee composition and procedures will be strengthened by the advisorycommittee itself within 3 months of loan effectiveness. Once established, the committee willprovide port operators with its detailed rules and procedures by letter.1 Approved by Cabinet decision PF/05/v/1/250 on 11 October 2006.
  • 40. 30 Appendix 7 DETAILED DESCRIPTION OF HARBOR INFRASTRUCTURE WORKS COMPONENT AND COST ESTIMATES1. Harbor. The Colombo Port Expansion Project involves the development of a greenfieldsite south of the existing port facilities. The Project is designed to accommodate vessels with anoverall length of 400 meters (m), beam of 55 m and draft of 16 m. The Project will be created byconstructing a major new breakwater to the west of the existing harbor and a smaller secondarybreakwater. The harbor will be laid out with three lengths of quay forming a U-shaped basinopen to the north, each providing a 1,200 m long container terminal giving a nominal threeberths of 400 m length and a depth alongside of 18 m. A main breakwater from Galbokka Pointat the southwestern corner of the existing harbor runs westward to a water depth of about 18 mand then turns northward following the 18 m contour. A secondary breakwater combined with asmall boat harbor extends from near the entrance to the existing harbor. Together they protectthe basin and quays from waves.2. Channel and Navigation. The Project has been planned so that it can be safelyaccessed by all sizes of container vessels. In addition, improvements in the navigation approachchannel to the existing harbor are proposed. The phase 1 harbor basin will be dredged to adepth of 18 m, and will include sufficient space for vessels to come to a halt and to turn. Vesselswill approach via a new two-way channel with a depth of 20 m and a minimum width of 570 m.The approach to the existing main harbor entrance will be realigned to suit the new layout andto provide a better approach for an improved one-way transit of vessels. Preliminary studies inaccordance with the recommendations of the International Navigation Association (PIANC) wereconducted to size the channels. The outer approach channel has been sized for two-way trafficto accommodate the existing harbor and proposed changes. The short approach to the existingharbor is and will remain for one-way traffic only. The existing submarine pipeline to the maincrude oil single point mooring will be lowered where it crosses the new dredged areas.3. The principal dimensions of the channels, basins and turning areas are (i) Main channel: width: 570 m with additional width on the inside of bends; depth: 20 m below local datum; (ii) Secondary channel: width: 340 m (reducing to 250 m near the harbor entrance); depth: 16 m below local datum; and (iii) South Harbor Basin; depth: 18 m below local datum with provision to deepen to 23 m; turning circle: 600 m (1.5 times the length of the design ship).4. Modern navigation aids will be installed along the new channels. To ensure that allvessel operations in the project area and the existing port are safely and efficiently carried out, anew marine operations center is proposed near the entrance to the Project. This includesfacilities for berthing tugs and other harbor craft, a look-out station, and a control room for a newvessel traffic management system serving the whole port.5. Ancillary Facilities. The harbor will include common user areas for each terminal,located outside the container yard for increased safety and security. These may include lorrygates and waiting areas; X-ray and scanning facilities; parking for equipment and cars; andbuildings for terminal offices, equipment maintenance and staff amenities, empty containerstorage, container repairs, and bonded areas. In addition, a number of facilities are required toprovide basic infrastructure to all terminals. Operated by or on behalf of Sri Lanka PortsAuthority (SLPA), these may include (i) an electrical power plant, water main and storage tanks,
  • 41. Appendix 7 31 and sewage treatment plant, all located at the southern end of the new development; (ii) a container lorry access road to the Project, approached via an upgraded port perimeter road that will serve all the terminals; and (iii) an access road for personnel and other noncontainer traffic to the south of existing port gate No 1. SLPA is expected to benefit from a new office building near the entrance to the project facilities and a new marine operations center at the northern end of the eastern quay that will include sheltered berthing facilities for the flotilla serving South Harbor. Port users and Customs will also be accommodated in new facilities near the SLPA office. 6. Cost Estimates. The total cost at 2006 prices (including value-added taxes and duties) for the civil works component is estimated to be $480 million (Table A7). Table A7: Cost Estimate and Financing Plan ($ million) Foreign Local ADB Item Total Exchange Currency ADB Borrower Share Base Costs 1. Works a. General Items 42.0 33.6 8.4 34.5 7.5 82.2% b. Dredging and Reclamation 76.6 76.6 0.0 63.0 13.6 82.2% c. Main Breakwater 137.0 95.9 41.1 112.7 24.3 82.2% d. Secondary Breakwater and Small 19.7 13.8 5.9 16.2 Boat Harbor 3.5 82.2% e. Submarine Pipeline 18.7 18.7 0.0 15.4 3.3 82.2% f. Navigation Aids 2.0 2.0 0.0 2.0 0.0 100.0% g. Roads and Paving 10.5 6.3 4.2 8.6 1.9 82.2% h. Utility Services 9.5 6.6 2.9 7.8 1.7 82.2% i. Buildings and Miscellaneous 2.5 1.5 1.0 2.1 0.4 82.2% Subtotal (1) 318.5 255.0 63.5 262.3 56.2 82.4% 2. Construction Supervision Consultant 12.7 6.4 6.3 12.7 0.0 100.0% Base Cost Subtotala 331.2 261.4 69.8 275.0 56.2 83.0% Taxes and Duties 49.7 0.0 49.7 0.0 49.7 0.0% Contingenciesb 43.9 25.5 18.4 25.0 18.9 56.9% a. Physical Contingencies 16.6 13.1 3.5 13.1 3.5 78.9% b. Price 27.3 12.4 14.9 12.4 14.9 45.4% Interest and Commitment Chargesc,d 55.2 55.2 0.0 0.0 55.2 0.0% a Interest during Construction 53.0 53.0 0.0 0.0 53.0 0.0% b Commitment Charges 2.2 2.2 0.0 0.0 2.2 0.0% Total 480.0 342.1 137.9 300.0 180.0 62.5% ADB = Asian Development Bank. a In 2006 prices, exclusive of local tax and duties estimated at $49.7 million. b Five percent of the base cost for physical contingency and 1.2%-2.8% p.a. for foreign exchange cost and 7%-8% p.a. for local currency cost for price contingency c Interest at 5.43 % for $LIBOR plus a 0.6% spread d Commitment charges at 0.35%Source: Consultant and ADB estimates.
  • 42. IMPLEMENTATION ARRANGEMENTS 32Organization Chart for the Project Implementation Unit (Colombo Port Expansion Project) Appendix 8
  • 43. IMPLEMENTATION SCHEDULE Appendix 9 33
  • 44. 34 Appendix 10 INDICATIVE CONTRACT PACKAGES AND PROCUREMENT PLAN Procurement Plan1. Program InformationCountry Sri LankaName of Borrower Democratic Socialist Republic of Sri LankaProject Name Colombo Port Expansion ProjectLoan Reference -----Date of Effectiveness Targeted for June 2007ADB Financing Amount $ 300,000,000Executing Agency Ministry of Ports and AviationImplementing Agency Sri Lanka Ports AuthorityApproval Date of Original Procurement 17 January 2007PlanApproval of Most Recent ProcurementPlanPublication for Local Advertisement 31 December 2006Period Covered by this Plan January 2007 to June 20082. Procurement Thresholds for Goods and Related Services, Works and Supply, andInstallationProcurement Method ThresholdInternational Competitive Bidding (ICT) Works Equal or above $3 millionICB GoodsNational Competitive Bidding (NCB) WorksNCB GoodsShopping WorksShopping GoodsExceptional Methods.3. Procurement Thresholds for Consultant ServicesProcurement Method ThresholdsSingle-Source Selection Above $200,000Alternative Methods Quality-Based Selection Quality- and Cost-Based Selection
  • 45. Appendix 10 354. Contract Packages in Excess of $100,000 Goods, Work, and Consulting Services Expected Date Estimated Procurement of Prior ReviewContract Description Cost Method AdvertisementConsulting services $12,700,000 Single-source Not applicable Yesfor construction selectionsupervision andenvironmentalmonitoringCivil works covering $318,500,000 International 31 December Yesall publicly financed competitive 2006infrastructure biddingdevelopment, i.e.,dredging andreclamation works,breakwaterconstruction,construction of allother ancillary civilworks, and supply andinstallation ofnavigational aids
  • 46. 36 Appendix 11 OUTLINE TERMS OF REFERENCE FOR CONSTRUCTION SUPERVISION CONSULTING SERVICES1. The Colombo Port Expansion Project will construct a new deepwater outer harborseaward of the existing Colombo Port, and up to three container terminals within the harbor on abuild-operate-transfer basis with public-private partnership. The principal elements of the publicsector infrastructure works are (i) two breakwaters—5 and 1 kilometer (km) in length—in a water depth of up to 18 meters (m), enclosing a basin of 275 hectares; the core of the breakwaters is to be formed using the sand dredged from the navigation channels and this is to be protected by rock and concrete armour units; (ii) a two-way navigation channel of approximately 7 km length with a width of 570 m and depth of 20 m plus ancillary dredging works together with navigation aids; (iii) a new 0.915 meter (i.e. 36-inch) subsea oil pipeline of approximately 5.9 km length laid in a trench with underwater and onshore connections to the existing pipeline as a diversion to the existing line; and (iv) onshore roads, paving, services, buildings, and miscellaneous works.2. The tender for these works is to be called in January 2007 and the contract is to beawarded by July 2007. The contract period is 39 months followed by a 12 month defectsnotification period.A. Objectives3. The engineer will undertake the following: (i) Review and become fully conversant with the completed studies, reports, detail design, and tender documents prepared by the design consultants. (ii) Prepare and conduct initial implementation of a project performance monitoring and evaluation system. (iii) Prepare any additional construction details necessary for successful execution and completion of the Project. (iv) Supervise and administer the construction contract including monitoring of the cost, quality, and progress of the works; measurement of the works; certification of payments to the contractor; assistance with variations and claims; commissioning; certification on handover; and completion and reporting.4. The engineer will provide the specified site staff and such other staff as necessary toundertake the services under the direction of a chief resident engineer to whom the engineer willdelegate all authority. Head office participation is expected to be limited to overall direction,specialist technical advice, and overall monitoring through regular periodic visits by seniorpersonnel as needed. The majority of personnel to be provided will be sourced from within SriLanka and foreign personnel will be limited to the Chief Resident Engineer, deputy ChiefResident Engineer and such specialist posts for which local expertise is not available.
  • 47. Appendix 11 37B. Scope of Services5. Review Design and Tender Documents. Take over responsibility for the design fromthe design consultant, and review and become fully conversant with the studies, reports,designs, and tender documents prepared by the design consultant.6. Prepare Project Monitoring and Evaluation System. Within 3 months ofcommencement of services (i) develop a systematic project performance monitoring system,indicators, and analysis for use throughout the life of the Project; and (ii) develop and conduct aquick and easy rapid sample survey to establish a baseline for subsequent performancemonitoring. The monitoring should be gender-disaggregated, where appropriate. Thereafter,evaluation surveys will be conducted annually. The scope of the survey, quantity and quality ofdata, and frequency for collection will be guided primarily by the project management’s need forprogressive rapid feedback on implementation status, as well as early warning of impendingsituations that might jeopardize attainment of the development objectives. The Government andSLPA will agree upon the key indicators and assumptions that determine the required data forrapid assessment.7. Prepare Construction Details and Provide Technical Advice. Prepare additionalconstruction details as requested by the contractor and necessary for the execution andcompletion of the works, excluding working and shop drawings and bar bending schedules(which the contractor is required to prepare). Provide specialist experts to provide advice ondesign, in particular issues relating to dredging, reclamation, and construction of breakwaters.8. Supervise and Administer Contracts The principal duties of the engineer from awardof the construction contract will include the following: (i) Manage supervision of construction works on behalf of the Employer. (ii) Review contractor’s method statements and materials orders. (iii) Review contractor’s document submissions and provide specialist technical advice. (iv) Review contractor’s quality assurance procedures. (v) Monitor construction quality, progress, safety, and cost. (vi) Monitor setting out, testing arrangements, and test results of all construction materials. (vii) Witness all surveys and agree to measurements based on surveys. (viii) Advise the employer on the need for additional investigations or tests, and arrange for these to be carried out on the employer’s behalf. (ix) Issue variations and day work orders (subject to agreed cost limits and employer’s agreement). (x) Review interim payment applications and issue interim certificates. (xi) If applicable, manage the interfaces between different contractors, and monitor subcontract interfaces. (xii) Hold regular progress meetings with the contractor and employer. (xiii) Prepare regular progress reports for the employer; to include financial with estimated outturn cost, and schedule reporting, with estimated completion and handover dates. (xiv) Prepare any reports as required by the Asian Development Bank. (xv) Liaise with Sri Lanka Ports Authority on operational matters. (xvi) Undertake periodic site visits by specialists as considered necessary by the engineer, with prior approval of the employer.
  • 48. 38 Appendix 11 (xvii) Prepare and regularly update the overall project schedule showing all relevant activities and interfaces including contract design and construction, handover and takeover dates, and built-in plant and operational requirements. (xviii) Review and monitor the contractor’s Environmental Management Plan (xix) Maintain a daily site diary with a detailed record of all significant events and discussions including summaries of progress, disruptions, weather, sea state, accidents, breakdowns, labor movements, etc. (xx) Verify as-built drawings and manuals. (xxi) Offer advice in settling disputes or differences that may arise between the employer and contractor, with the exception of time in preparing for dispute resolution or litigation. (xxii) Issue handover certificate. (xxiii) Prepare a defects list and instruct remedial work. (xxiv) Prepare final account. (xxv) Prepare project report.C. Staff9. An estimate of the staff required, their qualifications, experience, and inputs is given inTable A11. The consultant will assess staff requirements together with a detailed resourceschart showing the duties and responsibilities of each member of the team and the time requiredfor each member to match the expected sequence of works. Posts 1 to 6 and 11 to 14 areexpected to be filled by international staff and all other posts will be taken by national staff. Table A11: Staffing Requirements Experience TimeDesignation Qualifications (years) (months)A. Overall Direction 1.a Project Director (home country-based with Specialist ports periodic visits) experience: senior >20.0 10.0 manager on permanent staff Subtotal (A) 10.0B. Technical Support 2.a Breakwater Design Expert >15.0 1.0 3.a Dredging and Reclamation Expert >15.0 1.0 4.a Submarine Pipeline Expert >15.0 1.0 a 5. Geotechnical Expert >15.0 1.0 a 6. Coastal Engineering Expert >15.0 1.0 7. Environmental Expert >15.0 1.0 8. Design Engineer (2) >10.0 54.0 9. Junior Engineer >7.0 30.0 10. Computer-Assisted Design Technician (2) 50.0 Subtotal (B) 140.0C. Supervision 11.a Chief Resident Engineer Experience in port >15.0 40.0
  • 49. Appendix 11 39 Experience TimeDesignation Qualifications (years) (months) and coastal engineering construction12.a Deputy Chief Resident Engineer: Breakwaters Experience in >10.0 30.0 concrete armour breakwater construction13.a Superintending Resident Engineer (SRE): Experience in >7.0 30.0Dredging, Reclamation, Pipeline dredging / reclamation14.a SRE: Secondary Breakwater (Small Boat Experience in port >7.0 18.0Harbor) construction15. SRE: Onshore Works Experience in civil >7.0 24.0 engineering construction16. Senior Environmentalist: Environmental >10.0 39.0Management17. Cost Engineer: Measurement and Cost Control >10.0 40.018. Material and Geotechnical Engineer Experience in marine >7.0 39.0 geology19. Assistant Resident Engineer: Roads and >5.0 18.0Paving20. Assistant Resident Engineer : Buildings >5.0 18.021. Assistant Resident Engineer : Utilities >5.0 18.022. Hydrographic Surveyor Experience in >5.0 32.0 dredging surveys23. Assistant Resident Engineer : Breakwaters (3) >5.0 50.024. Assistant Environmentalist >5.0 18.025. Quantity Surveyors (2) 57.026. Surveyors (3) 86.027. Inspectors (18) 420.028. Laboratory Technician 39.029. Diver 33.0 Subtotal 1,049.0D. Administration30. Office Manager 52.031. Secretary 52.032. Accountant 52.033. Filing Clerk 52.034. Office Aide 52.0 Subtotal 260.0 Total 1,459.0a International consultant.Source: Sri Lanka Ports Authority estimates.
  • 50. 40 Appendix 11D. Project Reports10. The following reports will be submitted in an agreed format to the employer for their ownuse and onward transmission to the Asian Development Bank: monthly progress reports, projectperformance monitoring and evaluation report, and final completion report. The monthlyprogress reports will provide a review and commentary on the work completed during theprevious month and any issues encountered; and a cumulative summary of the progress andexpenditure to date highlighting variances with the contract program, contract price, andplanned cash flow. Other issues to be covered in the monthly progress reports include designmatters and value engineering reviews, unforeseen circumstances, variations and claims,quality control, health and safety, and environmental management.11. Additional reports will be produced, as necessary, covering aspects relevant to theProject. These may include specific claims and problems encountered. The additional reportswill be annexed to the final completion report.E. Data, Local Services, Personnel, and Facilities to be provided by the Employer12. The employer will be represented by a project implementation unit (PIU) set up within SriLanka Ports Authority. Through the PIU the employer will provide liaison and coordination withother Government authorities and port users, and assistance with application for residencevisas, port permits, etc. In addition the harbour master’s office will work closely with theengineer to coordinate the works and port operations so that minimum interference is caused tothe ongoing operations. The employer will make available to the consultant the followingfacilities free of charge throughout the period of the services: (i) copies of all reports prepared by the design consultant and all other relevant project data; (ii) all other relevant data and information required, legislation, regulations, notifications and orders for the completion of the assignment; (iii) fully equipped, furnished, and serviced site offices provided through the construction contract; and (iv) four site vehicles, two saloon cars, and two minibuses for the exclusive use of the site staff provided through the construction contract.The employer will reimburse all reasonable costs associated with the provision of services onthe Project including (i) personal taxes: all approved travel and accommodation costs including a per diem for visiting foreign staff and a housing allowance for resident foreign staff; and (ii) all office running costs.
  • 51. Appendix 12 41 ECONOMIC AND FINANCIAL ANALYSISA. Traffic Forecasts1. The forecast presented is based on analysis of the domestic and transshipment market,which is subdivided into Indian subcontinent (ISC) transshipment and others. The forecastmodel calculates a transshipment share of the ISC market and assesses Colombo’s share.Because Jawaharlal Nehru Port, Nhava Sheva, accounts for half of the ISC market and hasmoved from 40% to 70% direct calls in 5 years, the transshipment share available has fallenrapidly to 45% of the total container traffic. The forecast anticipates the share of the ISCtransshipment market to continue to decrease. To date, no carrier has been limited in its choiceof vessel size at an Indian port. However, quite soon as volumes increase and justify direct callswith bigger ships, size will become a factor. Despite dredging programs and port building,carriers will be constrained by size at Indian ports and Colombo’s advantage is that it will beable to handle the largest vessels. The demand estimates for the Project take account of theport expansion plans of neighboring countries such as India, as well as the opinion of theinternational shipping industry regarding the potential of Colombo Port to be a transshipmenthub port in light of these plans. Shipping industry representatives state that while western Indiancargo most likely would be lost to Colombo, nevertheless Colombo is in a good position tocapture eastern and southern Indian transshipment cargo provided that it expands its capacity.The demand forecast in the project viability analysis therefore assumes that Colombo Port willhave a 30% market share of ISC cargo. Direct, not diverted, services are most important; in thefuture larger vessels will have greater difficulty diverting because of the traffic volume involved.The container traffic forecast for national imports and exports is shown in Table A12.1. Table A12.1: Forecast of Domestic Container Traffic at Colombo Port (‘000 twenty-foot equivalent units) 2002 2003 2004 2005 2010 2015 2020 2030 2040 Actual Forecast 546a 601 661 727 1,118 1,643 2,414 4,975 9,786 Note: 2002–2040: unconstrained by port capacity limitations. a Used as base for projection. Source: Consultant estimates2. Tables A12.2 through A12.4 provide a forecast of container traffic volume for the ISC.Table A12.2 provides a forecast of the total container traffic to be generated in the ISC. TableA12.3 provides an assessment of the transshipment share of the ISC container market. Thepotential transshipment share of the ISC market is expected to decline in the short term as aresult of increased direct calls. The decline rate is expected to fall in the medium term as largerships are introduced and then it will increase again.
  • 52. 42 Appendix 12 Table A12.2: Forecast of Indian Subcontinent Container Traffic (‘000 twenty-foot equivalent units) 2002 2003 2004 2005 2010 2015 2020 2030 2040 Actual Forecast 4,739 5,274 5,871 6,536 10,643 15,790 21,652 40,902 77,707 Note: Total including direct and transshipped containers. Source: Consultant estimates Table A12.3: Share Adjustment Indian Subcontinent Transshipment Period % Share Adjustment Indian Subcontinent Transshipment Share (%) 2003–2008 2 annual reduction 33 by 2008 2009–2011 1 annual rise (by advent of Suez max ships) 36 by 2011 2012–2040 1 annual reduction 17 by 2040 Source: Consultant estimates Table A12.4: Forecast of Transshipment Indian Subcontinent Container Traffic (‘000 twenty-foot equivalent units) 2002 Year 2003 2004 2005 2006 2007 2008 2009 2010 Actual India, Bangladesh, Pakistan container traffic 4,739 5,274 5,871 6,536 7,203 7,940 8,754 9,652 10,643 Percentage transhipped via Colombo, Singapore, Salalah, etc (%) 45 43 41 39 37 35 33 34 35 Total 2,133 2,268 2,407 2,549 2,665 2,779 2,889 3,282 3,725 Year 2011 2012 2013 2014 2015 2020 2030 2040 India, Bangladesh, Pakistan container traffic 11,513 12,457 13,479 14,588 15,790 21,652 40,902 77,707 Percentage transhipped via Colombo, Singapore, Salalah, etc (%) 36 35 34 33 32 27 22 17 Total 4,145 4,360 4,583 4,814 5,053 5,846 8,988 13,210Source: Consultant estimates
  • 53. Appendix 12 433. Colombo’s transshipment forecast is built on the following basis: (i) the forecasttransshipment volumes from the ISC set out in Table A12.4; and (ii) Colombo’s share of the ISCtransshipment market, taking into account the market dynamics that Colombo is able toincrease its share from 23% in 2002 to about 29% by 2010, providing it is able to achieve highproductivity. Table A12.5 indicates Colombo’s forecast transshipment traffic up to 2040. TableA12.6 summarizes the assumed growth rate of the total container traffic and its constituents.The main conclusions for 2002–2010 are (i) the annual average growth rate for Sri Lankanimports and exports is 9.5%; (ii) the annual average growth rate for transshipment is 10.1%.;and (iii) the annual average growth rate for total traffic is 9.7%. Table A12.5: Forecast of Transshipment Container Traffic at Colombo Port (‘000 twenty-foot equivalent units) 2002 2003 2004 2005 2010 2015 2020 2030 2040 Actual Forecast 1,147a 1,287 1,398 1,535 2,469 3,385 4,065 6,689 10,860 2002–2040: unconstrained by port capacity limitations. a Used as base for projection. Source: Consultant estimates Table A12.6: Colombo’s Container Traffic Growth Rates (% per annum) Item 2002–2010 2010–2020 2020–2030 2030–2040 Sri Lankan Imports and Exports 9.5 8.0 7.5 7.0 Transshipment at Colombo (TEU 10.1 6.6 5.9 3.2 moves) Restows 5.0 5.0 5.0 5.0 Total Colombo Container Traffic 9.7 6.9 6.4 4.7 TEU = twenty-foot equivalent units Source: Consultant estimatesB. Costs4. On the basis of the economic and financial assessments, the basic infrastructure worksand one terminal are assumed to be initially constructed, and two terminals will be subsequentlyconstructed to meet the forecasted demand of the Colombo Port Expansion Project.5. Capital Investment Costs. Infrastructure costs are based on detailed design currentlyunder preparation. Alternative designs were considered for each project component, and least-cost technical solutions were identified by comparing benefits and costs of mutually exclusivedesign options. The breakwater costs are based on a rubble mound structure, which minimizesthe use of rock by using concrete amour units and maximizes the use of dredged sand in thecore of the structure. This structure is less costly than an alternative caisson structure by 27%per meter for this Project. Sand for reclamation will be taken from the access channels andharbor basin. The actual equipment to be used in the terminal will depend on the preference ofthe terminal operator. However, for costing purposes, each terminal is assumed to have a quay
  • 54. 44 Appendix 12length of 1,200 m and to be operated by 12 quayside cranes and 40 rubber-tired gantry cranes.The quay walls are costed as low reflective structures consisting of a reinforced concrete decksupported on tubular steel piles. The total cost of the Project is estimated to be $1.3 billion. Thedetails of the cost estimates are given in Table A12.7.6. Operating Costs. Operating costs are divided into variable costs, costs that would varywith the utilization of the terminal, and fixed costs that are independent of terminal throughput.Tables A12.8 and A12.9 set out the variable and fixed costs. Table A12.7: Estimated Project Capital Costs Cost Category Cost ($ million) A. Infrastructure 1. Breakwater, dredging and reclamation 214 Small boat harbor, submarine pipeline, navigation aids, roads and 76 paving, utility services, building and miscellaneous, and construction supervision consultant 2. General items 42 3. Taxes and duties 50 Subtotal (A) 381a B. Terminals 1. South Terminal: Civil Works Construction 154 Equipment 147 Subtotal (1) 301 2. East Terminal: Civil Works Construction 154 Equipment 147 Subtotal (2)l 301 3. West Terminal: Civil Works Construction 177 Equipment 147 Subtotal (3) 324 Subtotal (B) 926 Total 1,307 a Contingencies and interest are not included. Source: Consultant estimates
  • 55. Appendix 12 45 Table A12.8: Variable Costs and Projected Increases 2003 2004–2034 Variable Costs ($/TEU) (Projected increases in real terms %) Energy 2.5 2 Personnel (858 staff) 1.9 2 Repairs and Maintenance (40% of 0.8 2 total) Others 3.0 1 TEU = twenty-foot equivalent units Source: Sri Lanka Ports Authority, consultant estimates. Table A12.9: Fixed Costs and Projected Increases Item 2003 2004–2006 2007–2034 (%) (%) Administration (182 staff) 1,782.0 3 2 Repairs and Maintenance (60% of 2,816.4 2 total) Insurance 3,266.4 1 Source: Sri Lanka Ports Authority, consultant estimates.C. Economic Evaluation 1. Justification for Public Sector Role7. Colombo Port is ideally situated to be the transshipment center for South Asia, andmaintaining its status as a hub port is vital for the Sri Lankan economy. This would requirebuilding additional container terminals since the existing container terminals are quicklyreaching capacity. Container terminals are a revenue-generating infrastructure project and canattract private sector investment. However the new container terminals can only be built outsidethe area protected by the existing breakwater. A new breakwater is therefore a prerequisite forbuilding the new terminals. Breakwaters are a “lumpy” investment and the site conditions aresuch that the minimum size of the breakwater that can be built would be sufficient to protectthree container terminals. However demand considerations mean that the container terminalswould be needed only in phases. Thus no single prospective bidder for a terminal would bewilling to shoulder the cost of building a breakwater sufficient to protect three terminals. Theproject breakwater is therefore a public good that will not by itself attract private sectorinvestment and thus has to be provided by the public sector. 2. Economic Benefits and Costs8. The economic evaluation compares the economic costs and economic benefits of theProject from the viewpoint of the national economy. Economic analysis is based on the scenariothat three terminals will be sequentially developed to meet forecasted demands by taking intoaccount the strategy of the Sri Lanka Ports Authority (SLPA) to provide basic infrastructure to
  • 56. 46 Appendix 12accommodate three terminals. The main consequence for the economy if the Project is not builtwould be the loss of the frequent, fast, direct shipping services used by exporters and importers.Without investment in the South Harbor, Colombo would lose its transshipment traffic; and if theport no longer operates as a transshipment hub port, it would soon lose its direct calls on trunkline routes. Local traffic is not high enough to attract direct calls by trunk line ships. Colombowould eventually become a feeder port, served by a combination of feeder ships and multiportservices with relatively long transit times for the ports with lower traffic volumes.9. The Sri Lankan economy will experiences several costs if Colombo Port were to lose itstransshipment hub status. The benefits to the Sri Lankan economy are thus the avoidance ofthese costs. The first economic benefit of the Project would be the avoidance of the cost ofhaving to use feeders. The average cost of feeding to/from Singapore and other regionaltransshipment hubs would be around $250 in balanced international shipping markets. Withsurplus capacity this price will decline; in period of shortages it will increase. Furthermore, thefeeder cost will be absorbed by the shipping lines where they have to compete with fast, directservices. But when the fast, direct services are phased out, the feeder cost will normally bepassed on in full. The feeder cost would be incurred by most but not all containers on longdistance routes. Freight costs are an important factor in key Sri Lankan exports, e.g., textiles,which make up more than 50% of Sri Lankan exports. SLPA records show that about one thirdof Colombo’s imports and exports are on long distance routes, excluding some of the longerintra-Asian routes. A study by the Organisation for Economic Co-operation and Development1finds that freight costs from Asian countries already account for a higher percentage ofAmerican market textile import costs at about 6% compared with about 3% for textile importsfrom Latin America and the Caribbean. Some of these long distance routes are assumed to beserved by ships on multiport itineraries calling at Indian subcontinent ports; but that the majority,20% of exports and imports conservatively estimated, would use feeders to a regional hub if theProject is not implemented. If the Project is implemented and Colombo Port retains its directservices, conservative estimates are that an average feeder cost of $250 per TEU on 20% ofexports and imports would be saved. This benefit is estimated at $82 million in 2015, whichwould otherwise have to be absorbed by exporters to maintain their market competitiveness.10. The value to shippers of direct, fast, frequent services can be measured by willingnessto pay. A good example is the express service currently provided by one of the major shippinglines, giving fast transit on the route from the People’s Republic of China via Singapore toEurope. This service is particularly effective in getting garments to retail outlets faster thancompeting services in minimal time. The shipping lines are in practice able to obtain a largepremium of approximately $500/TEU for the fast transit time. Longer transit times and delaysare injurious to export markets, especially for textiles. Textiles accounted for 52% of Sri Lankanexports in 2002, and exporters confirm that a substantial proportion of these products have toget to retail outlets fast. The importance of the time factor in future textile trade has also beenconfirmed. The study (footnote 1) found that lead time will play a crucial role in determininginternational competitiveness because of trade-offs between low wage costs and time factors.The study found that closeness to a large consumer market, e.g., United States or WesternEurope provides a competitive edge in the highly competitive, time-sensitive, and fashion-oriented clothing market, and also for new exports that will emerge. The cost to the economy isestimated conservatively on the basis that 10% of the total traffic would be willing to pay $300per TEU for fast, direct, reliable service (in practice, premiums of $500 per TEU are being paidat present). On this basis the benefit of retaining direct services is estimated at $49 million in1 Organisation for Economic Co-operation and Development. 2004. A New World Map in Textile and Clothing: Adjusting to Change. Paris.
  • 57. Appendix 12 472015. Textile manufacturers confirm that this is a good illustration of willingness to pay for themore time-sensitive national containers.11. Container terminals obtain additional revenue from transshipment. Without the Project,transshipment traffic would almost certainly decline rapidly before 2010, rather than beingsqueezed out gradually by imports and exports. However, for the purpose of economic analysis,the most conservative scenario in which existing facilities still handle the considerabletransshipment traffic is applied. The tariff for transshipment is assumed as $29 per TEU bytaking into account the international hub port competition to attract transshipment. With theProject, this transshipment revenue, $35 million in 2015, would be retained. In addition to theterminal operator, SLPA itself earns revenue from handling transshipment cargo. The revenuesto SLPA come from harbor entering dues and harbor tonnage dues. They average $3 per TEU.Additional revenue to SLPA would result from providing marine services, but this would be offsetby costs and are not included here. These two revenues items are gains to the country as theycome from providing transshipment services to cargo originating outside Sri Lanka and destinedfor places outside Sri Lanka as well.12. The costs of other items, e.g., freight costs, feeder shipping costs, and terminal and portcharges, are determined in the international competitive market. Thus, they are assumed to befree of distortions and so shadow pricing is not necessary for measuring their economic costs.Accordingly, the avoidance of these costs reflects true economic benefits. (The development ofGalle Port mainly aims to accommodate bulk cargoes and does not decrease the projectbenefits discussed here.) The values assigned to the benefits are compared with economiccosts of the project investment up to 2034. The economic internal rate of return is estimated at17.5% (Table A12.10). Table A12.10: Annual Benefit and Cost Streams for the Project ($ ’000) Cost Benefit Benefit- Additional Cost Capital O&M Total Avoidance of Revenue from Total Stream Year Cost Cost Cost Feeder Cost Transship Benefit 2007 79,000 0 79,000 0 0 0 (79,000) 2008 210,667 0 210,667 0 0 0 (210,667) 2009 210,667 0 210,667 0 0 0 (210,667) 2010 131,667 12,446 144,112 89,453 9,425 98,878 -45,235 2011 0 16,031 16,031 96,609 17,988 114,596 98,565 2012 0 18,703 18,703 104,338 22,843 127,181 108,478 2013 0 21,602 21,602 112,685 27,920 140,604 119,002 2014 37,625 24,746 62,371 121,699 33,220 154,920 92,548 2015 100,333 28,153 128,486 131,435 38,747 170,182 41,696 2016 100,333 31,340 131,673 141,950 42,920 184,870 53,197 2017 62,708 44,659 107,368 153,306 47,188 200,494 93,126 2018 0 48,505 48,505 165,571 51,544 217,115 168,610 2019 0 52,630 52,630 178,816 55,983 234,800 182,169 2020 0 57,054 57,054 193,122 60,497 253,619 196,565
  • 58. 48 Appendix 12 Cost Benefit Benefit- Additional Cost Capital O&M Total Avoidance of Revenue from Total Stream Year Cost Cost Cost Feeder Cost Transship Benefit 2021 40,500 62,528 103,028 208,571 67,202 275,774 172,746 2022 108,000 68,465 176,465 225,257 74,240 299,497 123,032 2023 108,000 74,904 182,904 243,278 81,626 324,904 142,000 2024 67,500 92,963 160,463 262,740 89,376 352,116 191,653 2025 0 100,717 100,717 283,759 97,506 381,265 280,548 2026 0 108,690 108,690 303,622 106,034 409,656 300,966 2027 0 117,281 117,281 324,876 114,975 439,851 322,570 2028 0 124,584 124,584 347,617 119,298 466,915 342,331 2029 0 126,673 126,673 371,950 109,161 481,111 354,438 2030 0 128,800 128,800 397,987 98,322 496,309 367,509 2031 0 130,965 130,965 425,846 86,733 512,579 381,614 2032 0 133,170 133,170 455,655 74,342 529,997 396,827 2033 0 135,414 135,414 487,551 61,093 548,644 413,229 2034 0 137,699 137,699 521,679 46,926 568,605 430,906 Economic Internal Rate Of Return 17.76% O&M = operations and maintenance Sources: Consultant estimates, ADB staff estimates.13. Sensitivity analysis is conducted for the changes in traffic forecasts, capital investmentcosts, and ratio of switch to feeders. Table A12.11 summarizes the results of the sensitivityanalysis and indicates the economic viability of Project is robust. Table A12.11: Results of Sensitivity Analysis Change In Case EIRR (%) Traffic Forecasts 10% increase 19.8 10% decrease 16.0 Capital Costs 10% increase 16.3 10% decrease 19.4 Ratio of Switch to Feeders 10% of domestic containers are switched to (Base Case: 20% of Domestic feeders of foreign ports without the Project 12.5 containers are switched to feeders of 30% of domestic containers are switched to foreign ports without the Project feeders of foreign ports without the Project 22.2EIRR = economic internal rate of returnSources: Consultant estimates , ADB staff estimates.D. Income Structure of SLPA and Terminal Operator14. SLPA’s income stream arises from royalties, lease cost, port entry dues, harbor tonnagedues, light dues, and handling charges. This income is calculated using the forecasted demandsof the Project and the rates applicable to South Asia Gate Terminal (SAGT), a privatelyoperated terminal in Colombo Port. Although the income structure of the Project for SLPAdepends on concession conditions, they are not yet clear because SLPA is preparing a
  • 59. Appendix 12 49competitive bid for the first terminal concession. Therefore, the income structure of SLPA fromSAGT is applied for the purpose of the financial analysis of the Project for SLPA. The details ofthe assumptions applied to SLPA’s income stream are given in Table A12.12. Table A12.12: Income Structure of Sri Lanka Ports Authority Based on 2005 Revenues from South Asia Gate Terminal Price Escalation Item Rate Unit per annum (%) Royalties 3.00 $ per TEU 0 Lease/Rental Cost 5.313a $ million 0 per terminal Port Entry Dues 1.32 $ per TEU (3) Harbor Tonnage Dues 2.19 $ per TEU 1 Light Dues 0.98 $ per TEU (3) Landing and Delivery Charges 4.81 $ per TEU 1 Shipping Charges 2.43 $ per TEU 1 Others 0.62 $ per TEU 1 a Calculated assuming lease cost will be proportional to the area of terminal. TEU = twenty-foot equivalent units Source: Consultant estimates15. A terminal operator earns revenues from container handlings. Up to 2009, the tariffs arebased on the existing tariffs of $140/TEU for imports and exports and $37/TEU fortransshipment with rebates of 15% and 25% respectively. From 2010 to 2014 the rebate fortransshipment is assumed to increase to 35%. Longer term tariff projections are based on themarket and economic analysis undertaken. The tariffs used for the analysis are presented inTable A12.13. The tariff structure presented is in real terms. Table A12.13: Projected Tariffs for Imports, Exports, and Transshipment Traffic ($/TEU) Item 2004–2009 2010–2014 2015–2019 2020–2042 Imports and Exports 119.0 119.0 120.0 100.0 Transshipment 27.8 24.1 35.0 40.0 Source: Sri Lanka Ports Authority, consultant estimates.E. Financial Evaluation16. The financial analysis of the Project for SLPA was conducted in accordance with AsianDevelopment Bank (ADB) guidelines. 2 The financial evaluation compares the incomes andexpenditures of SLPA through project implementation. This analysis is based on the scenariothat three terminals will be sequentially developed by the private sector to meet forecasteddemand. Incremental benefits and costs were computed on the basis of with- and without-project scenarios for each of the components. All financial benefits and costs are expressed in2 ADB. 2005. Financial Management and Analysis of Projects. Manila.
  • 60. 50 Appendix 12real terms. Taxes and duties are included, and contingencies and interest during constructionare excluded. Royalties, lease cost, port entry dues, harbor tonnage dues, light dues, andhandling charges are used for the incomes of SLPA, and capital investment cost andmaintenance and repair cost of the basic infrastructures are used for the expenditures of SLPA.Maintenance cost of the breakwater could be considered to be negligible; however, for thisanalysis 0.5% of the investment cost incurring from 2011 and 1% per annum escalation areassumed. The values assigned to the incomes are compared with the basic infrastructureexpenditures for the Project up to 2034. The financial internal rate of return (FIRR) isapproximately 11.5% (Table A12.14). Table A12.14 Annual Income and Expenditure Streams for Sri Lanka Ports Authority ($ ’000) Expenditure Income-Expenditure O&M Income Capital Cost Total Expenditure Stream Year Cost 2007 47,625 0 47,625 0 (47,625) 2008 127,000 0 127,000 0 (127,000) 2009 127,000 0 127,000 0 (127,000) 2010 79,375 0 79,375 11,400 (67,975) 2011 0 1,905 1,905 17,063 15,158 2012 0 1,924 1,924 21,068 19,144 2013 0 1,943 1,943 25,335 23,391 2014 0 1,963 1,963 29,879 27,917 2015 0 1,982 1,982 34,719 32,737 2016 0 2,002 2,002 39,088 37,086 2017 0 2,022 2,022 49,028 47,006 2018 0 2,042 2,042 53,929 51,886 2019 0 2,063 2,063 59,120 57,057 2020 0 2,083 2,083 64,619 62,536 2021 0 2,104 2,104 71,521 69,417 2022 0 2,125 2,125 78,921 76,795 2023 0 2,147 2,147 86,855 84,709 2024 0 2,168 2,168 100,678 98,510 2025 0 2,190 2,190 109,806 107,616 2026 0 2,212 2,212 119,011 116,799 2027 0 2,234 2,234 128,836 126,602 2028 0 2,256 2,256 136,676 134,420 2029 0 2,279 2,279 137,338 135,059 2030 0 2,301 2,301 138,016 135,715 2031 0 2,324 2,324 138,711 136,386 2032 0 2,348 2,348 139,422 137,074 2033 0 2,371 2,371 140,148 137,777 2034 0 2,395 2,395 140,891 138,497 FIRR 11.49%O&M = operations and maintenance; FIRR = financial internal rate of returnSources: Consultant estimates, ADB staff estimates.
  • 61. Appendix 12 5117. The weighted average cost of capital (WACC) was calculated and compared with theFIRR to ascertain the financial viability of the Project for SLPA. To estimate the WACC, ADB isassumed to finance 68% of the Project and the Government of Sri Lanka 32%. Nominal costs offinancing are assumed at 6.0% for ADB and 11.4% for the Government. Incorporating the otherassumptions, i.e., a domestic inflation rate of 7.0%, and SLPA’s effective tax rate of 24%, theestimated WACC is 4.4%. The FIRR of 11.5% exceeds this WACC, demonstrating the financialvalidity of the Project for SLPA.18. A sensitivity analysis was conducted for the changes in traffic forecasts, capitalinvestment costs, and rates of revenue (Table A12.15). The analysis indicates that the financialsustainability of the Project for SLPA is robust. Table A12.14: Results of the Sensitivity Analysis Change In Case FIRR (%) Traffic Forecasts 10% increase 13.1 10% decrease 10.0 Capital Costs 10% increase 10.7 10% decrease 12.4 Rates of Revenue 10% increase 12.3 10% decrease 10.6 FIRR = financial internal rate of return Source: ADB staff estimates.19. A financial analysis for the first terminal operator was also conducted to assess theviability of private sector development under a build-operate-transfer concession. A terminaloperator incurs the capital investment cost of south terminal development, terminal operationcost, and concession fees (royalties and lease/rental fees to SLPA presented in Table A12.12)while earning revenues from tariffs presented in Table A12.13. The values assigned to theincomes are compared with the values assigned to expenditures for the operator up to 2034.The FIRR is approximately 16.3%, which is in line with comparable new terminal developmentsinternationally. The detailed spreadsheet calculations for FIRR are shown in Table A12.16. Table A12.16: Annual Income and Expenditure Streams for South Terminal Operator ($ ’000) Expenditure Income- Capital O&M Income Expenditure Royalties/Lease Total Stream Year Cost Cost 2007 37,625 0 0 37,625 0 (37,625) 2008 100,333 0 0 100,333 0 (100,333) 2009 100,333 0 0 100,333 0 (100,333) 2010 62,708 12,446 6,489 81,643 18,085 (63,558) 2011 0 16,031 7,575 23,607 35,178 11,572 2012 0 18,703 8,337 27,040 50,332 23,292
  • 62. 52 Appendix 12 Expenditure Income- Capital O&M Income Expenditure Royalties/Lease Total Stream Year Cost Cost 2013 0 21,602 9,143 30,745 66,571 35,826 2014 0 24,746 9,996 34,743 83,973 49,230 2015 0 28,153 10,899 39,052 116,433 77,381 2016 0 31,340 11,704 43,044 136,769 93,725 2017 0 22,330 8,932 31,262 105,647 74,385 2018 0 24,253 9,377 33,630 121,088 87,458 2019 0 26,315 9,846 36,161 137,571 101,410 2020 0 28,527 10,338 38,864 142,960 104,096 2021 0 31,264 10,954 42,218 154,517 112,299 2022 0 34,233 11,611 45,843 155,368 109,525 2023 0 37,452 12,309 49,761 156,204 106,443 2024 0 30,988 10,472 41,460 112,521 71,061 2025 0 33,572 10,999 44,572 124,666 80,094 2026 0 36,230 11,525 47,755 136,495 88,740 2027 0 39,094 12,082 51,175 149,077 97,901 2028 0 41,528 12,513 54,041 160,354 106,312 2029 0 42,224 12,513 54,737 166,269 111,531 2030 0 42,933 12,513 55,446 172,601 117,155 2031 0 43,655 12,513 56,168 179,380 123,212 2032 0 44,390 12,513 56,903 186,638 129,735 2033 0 45,138 12,513 57,651 194,407 136,756 2034 0 45,900 12,513 58,413 202,724 144,312 FIRR 16.31%O&M = operations and maintenance, FIRR = financial internal rate of return.Source: ADB staff estimates.20. A sensitivity analysis conducted for changes in traffic forecasts, capital investment costs,and tariffs (Table A12.17) indicates the financial sustainability of the south terminal operator isrobust. Table A12.17: Results of Sensitivity Analysis Change In Case FIRR (%) Traffic Forecasts 10% increase 17.8 10% decrease 13.8 Capital Costs 10% increase 15.3 10% decrease 17.5 Tariffs 10% increase 18.0 10% decrease 14.5 FIRR = financial internal rate of return Source: ADB Staff estimates
  • 63. Appendix 12 53F. Basis of Economic and Financial Analysis21. The economic and financial analyses are based on demand forecasts made in thebusiness plan prepared by the ADB consultants for the Colombo Port Efficiency and ExpansionProject. 3 The business plan was completed in April 2004 based on data up to 2002.Comparative analysis of the demand forecasts in the business plan for 2003–2005 and the firsthalf of 2006 show that the actual traffic volumes achieved exceeded the forecasts for theseyears in the business plan. Nevertheless the business plan forecasts are used to ensure thatthe demand forecasts are conservative. Cost figures used in the analysis are based onestimates prepared by the same consultants as part of the detailed design and tenderdocumentation preparation.3 ADB. 2001. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Democratic Socialist Republic of Sri Lanka for the Colombo Port Efficiency and Expansion Project. Manila (Loan 1841-SRI, for $10 million).
  • 64. 54 Appendix 13 SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGYA. Linkages to the Country Poverty AnalysisIs the sector identified as a national Yes Is the sector identified as a national Yespriority in country poverty analysis? priority in country poverty partnership No agreement? NoContribution of the sector or subsector to reduce poverty in Sri Lanka:The Colombo Port Expansion Project is to promote economic growth by improving Sri Lanka’s competitiveness in theports sector through expanding Colombo Port using public-private partnership. The Project will facilitate economicgrowth by enhancing national competitiveness in international trade via lower costs and faster delivery, generateadditional income from transshipment, and provide incomes from construction. In addition it will enhance export andimport intensity of the national economy and provide economywide efficiency benefits. The Project will contributesignificantly to poverty reduction, primarily by creating income and employment opportunities for low income earnerslinked with the export-import trade sector of the economy and lead to poverty reduction in the quarrying industry.B. Poverty Analysis Targeting Classification: General interventionWhat type of poverty analysis is needed?The Project comprises construction of a new outer basin enclosed by a breakwater and served by a new navigationchannel. Material dredged from the channel will be used in reclamation to provide new container berths withassociated infrastructure, buildings, and operation facilities. The project-affected area includes (i) Colombo City,considered to be the main activity zone of the Project; (ii) Colombo Metropolitan Region (CMR) comprising Colombo,Gampaha and Kalutara districts; and (iii) quarry sites, including immediate neighborhoods, road corridors, and loadingpoints. CMR has an estimated population of 5.4 million and accounts for over 70% of the countrys industrial activities,53% of industrial employment, and 31% of total employment. The three CMR districts have relatively high populationdensities.1 Between districts, the highest urban population density of 54.7% is concentrated in Colombo district due tothe increased opportunities of employment in the garment industry, banking, services, and informal sectors. The CMReconomy has undergone substantial change over the past three decades. In terms of job formation, it has grown muchfaster than the nation as a whole. Unemployment rates in CMR are lower than the rest of the country, although thearea has a relatively large unskilled youth labor force. Of those employed, the average monthly income in Sri Lankawas estimated at SLRs3,056 for 2002, while the corresponding figure for CMR was SLRs4,993. Each of the districts inCMR also had average incomes above the national average: Colombo SLRs4,923, Gampaha SLRs4,013, andKalutara SLRs3,046.Modera and Mattakkuliya, major fishing areas in Colombo District, are located next to the Project. The coastal stretchsouth of the Project (Agulana, Dehiwala, Egoda Uyana,Lunawa, Mount Levinia, Moratuwa, Rathmalana, etc.) alsoincludes traditional fishing areas. Of these, Moratuwa, Dehiwala Modera, and Mattakkuliya were affected to varyingextents by the Asian tsunami, but generally these areas were less affected than communities further south and east.Fishery communities largely live in dwelling units constructed on beaches. The number of households engaged infishing in these areas appears to be declining not only because of the preference for alternative employment, but alsodeclining fish resources. Just over 2,000 households are now engaged in fishing. The majority of fishing crafts haveoutboard motors that are used mainly in inshore areas. The existing port and its approaches have a security zonewithin which fishing is not allowed. While the nation as a whole will experience the economic impacts of the Project,the existing concentration of economic activity in CMR is likely to function as an important factor in mediating thesocial impacts of the Project in the surrounding areas. Thus, CMR residents will experience most of its social impactsemanating from economic, employment, trade, and transportation growth.In Sri Lanka, poverty is greatest in the rural sector (20.8%), followed by the urban sector (6.2%), and the estate sector(4.3%). Across the industry subsectors, the highest poverty is reported in mining and quarrying industries asemployment in quarrying is characterized by its low pay as well as its temporary and irregular nature,. As per 1996data, the incidence of poverty among those engaged in mining and quarrying was 41.5%. The next highest incidence1 Data from 2001 shows a density of 299 people per square kilometer for the country as a whole and 3,303 for Colombo, 1,539 for Gampaha, and 1,539 for Kaluthara districts.
  • 65. Appendix 13 55of poverty was in agriculture at 28.4%. As per Department of Census and Statistics 2004, the percentage of poor 2households living below the official poverty line is 5% for Colombo District, 9.2% for Gampaha, and 17.7% forKalutara compared with 19.2% for Sri Lanka. Although the Western province in which the CMR is located, records thelowest incidence of poverty, it accounts for the largest proportion of the total poor. The poverty profile of the city ofColombo reveals about 1,614 poor urban settlements with about 77,612 families. The urban poor of Colombo includethose engaged in informal sector activities and blue collar workers of the ports, industries, railways, etc. They aremostly concentrated in the slums, shanties, and low cost housing in the northern and central parts of the city. Lack ofland ownership, poor access to drinking water, poor sanitation facilities, and lack of a regular source of income are afew of the main factors causing poverty.Impacts of the Project will be distributed differently in different geographic areas and over time. Communities livingadjacent to the Project will experience the most impacts. The major positive social impacts are anticipated to arisethrough the creation of direct and indirect employment opportunities during project construction and operation.Employment opportunities are likely to occur due to (i) construction and operation related work; (ii) quarrying, and (iii)potential additional employment from benefits arising from increased vessel traffic and other development initiatives.Thus the additional jobs are expected to be significant. The majority of the temporary employment related toconstruction of the breakwater and three terminals will be accrued by those living in CMR. About half of the populationin Colombo live in slums and the poor who are underemployed or unemployed will have access to temporaryemployment opportunities created by the Project. Similarly, those residing in the surrounding areas will compete formore regular employment opportunities arising out of the Project. During project operation only a fraction of the newjobs are expected to be executive positions, the largest proportion of workers employed will be in administration(clerks, supervisors, storekeeper, typist, etc), followed by technical (crane operator, vehicle drivers etc) andnontechnical positions (dockers, cleaners, etc.). Areas where rock will be sourced for the construction of thebreakwater will be determined by the appointed contractor. However, people who live close to the quarry sites, land-based transport routes, and barge load-out points will experience some of the direct impacts of the Project. Theincome impact of quarrying will be largely attributed to contractors, providers of related services (such as transport),and workers. Those working in the quarrying industry are recognized as belonging to one of the most impoverishedemployment sectors in the country, due to low wages and discontinuous work. As such, this group will benefitsubstantially from any employment opportunities. As per the projected estimates for quarrying activities, the predictedopportunities of employment would vary from 4,000 to 12,000 per year depending on the contractor’s method ofproduction either mechanized or traditional. Increased vessel traffic and other related initiatives outside the immediatescope of the Project, such as the development of a free trade zone will also create benefits. Benefits to import andexport industries are likely to accrue in areas outside the project-affected area, due to overall improvements in thenational economy from the growth in shipping operations facilitated by the Project. The potential efficiency gains of theProject will have an impact on export/import trade sectors and thereby will also offer significant benefits to low incomeearners of the economy. The Project will also increase export-oriented growth activities, which will in turn result ingreater capital investment, greater employment, and increased employment of those living below the poverty line.C. Participation ProcessIs there a stakeholder analysis? Yes NoIs there a participation strategy? Yes NoAs part of the project preparation, consultations were held with primary and secondary stakeholders including peoplein the project-affected area (men and women), fisherfolk cooperatives, Ministry of Ports and Aviation, and other localadministration departments. Issues related to the proposed port development and various activities involved in theconstruction and operation of the Project were discussed. The main objective was to ascertain community response tothe Project and any negative impacts that the Project needs to mitigate. All those consulted had positive reactions tothe Project and welcomed the benefits that development of the port would lead to, such as increased employmentopportunities for the people living in the project area.D. Gender DevelopmentStrategy to maximize impacts on women:2 People living in households with real per capita monthly total consumption expenditure below SLRs1,423 are considered poor (the official poverty line).
  • 66. 56 Appendix 13In Sri Lanka, according to the demographic survey of 1994, by the Department of Census and Statistics, about 97% ofmales and 87% of females are literate. The female labor force participation rate has been increasing, althoughunemployment among women is still higher than for men. In 2002, the labor force participation rate was 50.3%; about50% of the labor force belonged to the 20–39 years age group. Among the employed, males in the 30–39 years agegroup and females in the 20–24 years age group reported the highest participation in the labor force. The Project willprovide educated youth (men and women) equal opportunities to seek short- and long-term employment opportunitiescreated under the Project. Those men and women supplying labor for quarrying-related activities would typically bethose with low literacy rates and low incomes, with a higher proportion being women. Assuming the degree ofmechanization does not affect the proportion of employees by gender, the Project is expected to provide additionalemployment opportunities for women. In general, the Project will provide employment opportunities for both men andwomen during project construction and operation, and in the quarrying sites. The Project will ensure that employmentopportunities and rates of remuneration are determined without gender-based discrimination, according to theprinciples of equal remuneration for work of equal value.Has an output been prepared? Yes NoE. Social Safeguards and other Social RisksItem Significant/ Plan Required Not Significant/ Strategy to Address Issues None Significant The Project will not involve any land acquisition or Full resettlement. Project construction and operation activitiesResettlement Not significant will extend seaward from the south end of the existing Short Colombo Port and not require any additional land—either None government or private. To link the existing port access None road to the new harbor, three government/SLPA buildings will have to be demolished: two warehouses and an SLPA office. The warehouses are presently not used and will not be rebuilt. The SLPA office building will be partially affected and will be partially demolished. The work space of employees will be accommodated in other office buildings within the port area, and thus will not involve construction of a new building. The existing port access road will be used for transport of containers and other imported goods. None of the port access roads will be widened or improved, and thus will not lead to any resettlement impacts. Even after project construction and operation, the transport of containers and other imported goods will take place within the port-related activity zone and hence, will not displace any business establishments close to the port. With regard to specific effects associated with quarries, the quarry location will be identified by the contractor only during project implementation prior to the construction of the breakwater. Thus the Government will have to ensure that if any land acquisition and resettlement impacts are associated with quarrying of rocks appropriate mitigation measures will be formulated and implemented in compliance with ADB’s policy on Involuntary Resettlement (1995) and Policy on Indigenous Peoples (1998). No affordability issues are foreseen Significant YesAffordability Not significant No None No job losses will occur. The Project is expected to Significant generate employment opportunities for people in the Yes
  • 67. Appendix 13 57Labor project-affected area during construction and operation. Not significant Men and women will be paid equally for equal work. No None The population of Sri Lanka comprises different Significant population/ethnic groups. Based on Statistical Abstract YesIndigenous 2003, Department of Census and Statistics, in the threePeoples Not significant CMR districts 77%–92% of the population are Singhalese, No 1–10% Sri Lankan Tamils, 1–4% Indian Tamils, 2–8% None Muslims, and the rest are either Burghers or Malays. The Project will not have any differential impact on the different population/ethnic groups. The communities of indigenous people known as Veddha are found mainly in the districts of Badulla, Anuradhapura, and Polonnaruwa, with smaller numbers in other provinces mainly in the east and north. No indigenous people are present in the project-affected area. Based on the detailed engineering study and theOther Risks Significant environmental impact assessment report, the Project will Yesand/or be constructed entirely within the “no fishing” securityVulnerabilities Not significant zone so fish catch or extent of the fishing area available to No fisherfolk will not be affected and thus livelihoods of the None fishing community in the surrounding area will not be affected. If the existing security zone is increased to accommodate the Project and dredging activities affect the livelihood of the community during project implementation, the Ministry of Ports and Aviation will ensure that prior to construction the environmental monitoring plan addresses these concerns and develops appropriate measures to mitigate the risks.