Performance Evaluation Report

Operations Evaluation Department

Project Number: PPE: PRC 29200 Loan Number: 1427-PRC March 2006

People’s Republic of China: Fangcheng Port Project

CURRENCY EQUIVALENTS

Currency Unit – yuan (CNY)

At Appraisal

(31 August 1995) At Project Completion (24 May 2002)

At Operations Evaluation (9 November 2005)

CNY1.00 = $0.12 $0.12 $0.12 $1.00 = CNY8.35 CNY8.28 CNY8.08

ABBREVIATIONS

AADT – average annual daily traffic ADB – Asian Development Bank dwt – deadweight ton EIRR – economic internal rate of return FCPA – Fangcheng Port Authority FIRR – financial internal rate of return GCD – Guangxi Communications Department IRI – international roughness index MOC – Ministry of Communications OEM – Operations Evaluation Mission PCR – project completion report PCU – passenger car unit PRC – People’s Republic of China RRP – report and recommendation of the President TA – technical assistance WTP – wastewater treatment plant

WEIGHTS AND MEASURES

kph – kilometer per hour TEU – 20-foot equivalent unit VOC – vehicle operating costs vpd – vehicles per day

NOTES

(i) The fiscal year (FY) of the Government coincides with the calendar year. (ii) In this report, "$" refers to US dollars.

Director D. Edwards, Operations Evaluation Division 2,

Operations Evaluation Department (OED) Team leader L. Neumann, Senior Evaluation Specialist,

Operations Evaluation Division 2, OED Team members V. Buhat-Ramos, Evaluation Officer, Operations Evaluation Division 2, OED C. Roldan, Senior Operations Evaluation Assistant, Operations Evaluation

Division 2, OED

Operations Evaluation Department, PE-679

CONTENTS Page

BASIC DATA iii EXECUTIVE SUMMARY iv MAPS vii I. INTRODUCTION 1

A. Evaluation Purpose and Process 1 B. Expected Results 2

II. DESIGN AND IMPLEMENTATION 2

A. Formulation 2 B. Rationale 3 C. Cost, Financing, and Executing Arrangements 3 D. Procurement, Construction, and Scheduling 4 E. Design Changes 5 F. Outputs 5 G. Consultants 7 H. Loan Covenants 7 I. Policy Framework 7

III. PERFORMANCE ASSESSMENT 7

A. Overall Assessment 7 B. Relevance 8 C. Effectiveness 10 D. Efficiency 13 E. Sustainability 14

IV. OTHER ASSESSMENTS 15

A. Impact 15 B. Asian Development Bank Performance 17 C. Borrower Performance 17

V. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS 17

A. Issues 17 B. Lessons 18 C. Follow-Up Actions 18

In accordance with the guidelines formally adopted by the Operations Evaluation Department (OED) on avoiding conflict of interest in its independent evaluations, the Director General of OED did not review this report and delegated approval of this evaluation to the Director of Operations Evaluation Division 2. C. Chandrasekhar was the consultant. To the knowledge of the management of OED, there were no conflicts of interest of the persons preparing, reviewing, or approving this report.

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APPENDIXES 1. Cost Breakdown by Project Component 19 2. Financing Plan 20 3. Berth Capacities 21 4. Overall Assessment 23 5. Fangcheng Port Details 24 6. Average Annual Daily Traffic 36 7. Economic and Financial Analyses 37 7. Financial Statements 48

BASIC DATA Loan 1427-PRC: Fangcheng Port Project

Project Preparation/Institution Building TA No.

TA Name Type Person- Months

Amount1 ($)

Approval Date

1982 Second Ports Development PPTA 18.5 400,000 16 Nov 1993 2466 Management and Operational Strategies for

Port Authorities ADTA 27.0 490,000 12 Dec 1995

Per ADB Key Project Data ($ million) Loan Documents Actual Total Project Cost 135.0 97.5 Foreign Exchange Cost 62.0 43.3 ADB Loan Amount/Utilization 52.0 40.3 ADB Loan Amount/Cancellation 11.7 Key Dates Expected Actual Fact-Finding Mission 13–27 Jan 1995Appraisal Mission 21–30 Aug 1995Loan Negotiations 30 Oct–3 Nov 1995Board Approval 18 Jan 1996Loan Agreement 15 Jan 1997Loan Effectiveness Apr 1997 20 Jun 1997First Disbursement 23 Sep 1997Project Completion 30 Jun 1999 Oct 2001Loan Closing 31 Dec 1999 15 Oct 2001Months (effectiveness to completion) 26 52 Key Performance Indicators (%) Appraisal PCR PPER Financial Internal Rate of Return Port: 8.6

Highway: 5.7 FPP: 6.9

Port: 7.8 Highway: 6.6 FPP: 6.8

Port: — Highway: 2.0FPP: 20.0

Economic Internal Rate of Return Port: 21.1 Highway: 21.4

Port: 33.5 Highway: 14.7

Port: 20.0Highway: 19.0

Borrower People’s Republic of China Executing Agencies Fangcheng Port Authority – port component Guangxi Communications Department – highway component Mission Data Type of Mission No. of Missions No. of Person-Days Fact-Finding 1 90 Appraisal 1 50 Project Administration

Inception 1 5 Review 6 64 Project Completion 1 33 Operations Evaluation 1 45

— = not calculated, ADB = Asian Development Bank, ADTA = advisory technical assistance, FPP = Fangcheng Port Project, PCR = project completion report, PPER = project performance evaluation report, PPTA = project preparatory technical assistance, TA = technical assistance. 1 Represents approved amount of technical assistance.

EXECUTIVE SUMMARY

This report details the findings of the operations evaluation of the Fangcheng Port Project in the People’s Republic of China (PRC). The evaluation and performance ratings are based on the Asian Development Bank’s (ADB’s) Guidelines for the Preparation of Performance Evaluation Reports of Public Sector Operations.

The Project aimed to improve the capacity and efficiency of Fangcheng Port. To this end, it included investment components for the development of port and expressway facilities and for institutional development through training and supporting policy dialogue. The latter was part of a general sector program involving other ADB projects and other international development agencies.

The Project was selected for support because of the need for additional berths and improved cargo handling efficiency to cater to the rapid growth in trade at that time that was projected to continue for the foreseeable future. Southern PRC has other ports, but the Government’s development plan identified Fangcheng Port for major expansion of bulk and containerized cargo operations. In addition, Fangcheng Port was the closest port to the less developed but growing parts of Guangxi, Guizhou, and Yunnan and to parts of Chongqin, Hunan, and Sichuan, all but one of which are landlocked. ADB’s operational strategy at the time emphasized removing transport constraints as a way to improve economic efficiency and growth and favored projects benefiting less developed and landlocked areas.

The executing agencies were the Fangcheng Port Authority—now known as the Fangcheng Port Group Company, Limited—for the port component and the Guangxi Communications Department for the expressway component.

Although delayed, project implementation proceeded largely as planned. Berth 9 with backup cargo facilities was constructed to handle bulk cargo, primarily coal and iron ore, and berth 10 with backup facilities was established as a dedicated container terminal. Under the expressway component, 20 kilometers (km) of the 45 km, four-lane, divided expressway linking the port with the Nanning-Beihai Expressway were built according to plan, with the Government financing the other 25 km. Actual capacities exceed nominal planned capacities and operational results to date indicate that the physical outputs are functioning satisfactorily.

Significant changes in policy were implemented at the same time as the Project, including greater autonomy for port operators and enhanced commercialism and competition in the sector. As a result, the Fangcheng Port operator, for example, is structured as a state-owned company under the Fangcheng municipal government and competes with other ports in Guangxi and in southern Guangdong.

The Project cost $97.5 million, about 28% less than the appraisal estimate of $135.0 million, mainly because of lower construction and equipment costs and the lease rather than purchase of a tugboat. Only $40.3 million of ADB’s approved loan of $52.0 million was utilized. The loan was repaid in 2005.

The expressway, which was started in August 1995 under advance procurement action approved by ADB, was opened to traffic in November 1998. The main port civil works were completed by October 1999, but equipment installation took until October 2001. Berth 9 was in use in 1999 and berth 10 in 2000 using preexisting cranes and equipment. The loan was closed in June 2001 rather than as expected in December 1999. The sources of delay included the

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executing agencies’ lack of familiarity with ADB procedures and the consequent slowness of some procurement activities; the changes in the list of equipment to be procured and the time required for these changes to be discussed with ADB; and the slow performance of some suppliers, particularly for the container cranes.

As a result of the Project, the capacity of Fangcheng Port was increased by 6.4 million tons per year. Cargo handling rates at both berths 9 and 10 are higher than alternative preexisting berths because of the specialized equipment and backup cargo areas.

Port throughput increased dramatically from around 4.5 million tons in 1995 (the time of project preparation) to around 16.0 million tons in 2004. Without the Project, Fangcheng Port could not have handled this amount of cargo or handled cargo as efficiently. Some cargo would have had to be shipped through more distant ports and some could have been handled, but in a more congested port environment or as breakbulk1 instead of in containers. The result would have been increased costs and the consequent depression of trade and economic growth. For ship owners, waiting times and service times have been satisfactory despite the substantial increase in port activity reflected in the increased throughput and the number of ship calls. For bulk cargo owners, the ability to charter larger ships because of the increased water depth alongside berth 9 potentially enables them to obtain lower freight rates. In short, by expanding port capacity and improving efficiency, the Project removed a transport bottleneck, fulfilling the expectations of the stated development strategy. Moreover, as less developed, landlocked provinces account for around two thirds of both the port’s customers and the cargo it handles, the Project also helped support the development of such areas.

Construction of a new road link to the port was appropriate, as the old road links were narrow with some winding sections and passed through urban areas, making them unsuitable for cargo transport. For those vehicles using the expressway, travel times and vehicle operating costs are less than if they used alternative routes. Travel on the old road links also improved because of avoided congestion.

However, the contribution of the expressway to the expansion of the port’s capacity and improvement of the port’s efficiency is less than expected. While at 9,000 vehicles per day in 2004 traffic volumes are similar to those expected, traffic is relatively light, about one fifth to one sixth of capacity, and the vehicle mix differs substantially from expectations. In particular, the number of medium and large trucks is substantially less than expected because of an overestimation of the amount of port cargo that would switch from rail to road. This shortfall was, however, compensated for by an unexpected increase in passenger car and light truck traffic resulting from rapid urbanization of areas adjacent to the port. Nevertheless, the shortfall in medium to large trucks moving cargo to and from the port means that the need for such high capacity in the short term for port-related business—the rationale for the chosen expressway design—has not yet materialized. Better traffic estimations may have resulted in an alternative development approach, such as a phased development of the expressway, which may have been more cost-effective.

While most landward movement of port cargo is by rail and rail capacity was generally known to be inadequate, the Project did not have a railway component.

1 Breakbulk refers to cargo that is neither in bulk form, such as applies to large consignments of minerals, grains,

and cement, nor containerized, that is, packed into shipping containers of 20–45 feet length. Breakbulk cargo typically is in drums, boxes, bundles, and similar small units.

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Overall, the Project is rated as successful. The relevance of the Project to the PRC’s development needs and to Government and ADB strategies is good, although achievement under this criterion was weakened by the inaccurate estimation of traffic demand and the subsequent choice of investments to enhance landward cargo movements. The outputs were generated and the Project did achieve its intended outcomes, tempered in part by high accident rates on the expressway. The investment was economically efficient and sustainability is likely.

Several issues arise from experience with this Project. The first is an apparent need for a stronger commercial orientation and improved planning in the port. Tariffs are not based on actual costs and not all costs appear to be taken into account in assessing performance and in planning. This results, for example, in strategies that favor new berth construction to reduce congestion over those that seek higher productivity by improving existing facilities. Better strategic planning within the provincial port sector overall is also needed to avoid overcapitalization within the group of ports competing for the same business in southern PRC. Another issue concerns an apparent need for stronger intermodal transport planning, particularly in relation to road, port, and rail, but that might also include waterways and air travel. The Project probably would have benefited from simultaneous investment in added rail capacity along with the expressway. The separation of modes under different administrative structures and the different organizational cultures that result constrain coordinated investment. ADB’s funding arrangements can also act as a disincentive to the bundling of components for different agencies under one project, thereby contributing to reduced coordination.

A key lesson concerns the need to improve traffic demand forecasts for expressways. The Project is not unique in having incorrect estimates as demonstrated by a number of recent project completion reports for other ADB-financed expressway projects. As a follow-up activity, the Guangxi Communications Department could investigate whether more port cargo is better suited for transport by road rather than by rail and whether the relatively high toll rates for large trucks are preventing this from occurring. David Edwards Director Operations Evaluation Department

Operations Evaluation Division 2

I. INTRODUCTION A. Evaluation Purpose and Process 1. The Fangcheng Port Project was randomly selected for operations evaluation in 2005. The main project components were completed by the end of 2001. The evaluation had 4 years, and for some components as much as 7 years, of operational experience to draw upon. 2. This evaluation is based on the Guidelines for the Preparation of Performance Evaluation Reports of Public Sector Operations. These guidelines had only recently been adopted at the time of the evaluation. The core criteria for evaluation and performance rating are relevance, effectiveness in achieving outcomes, efficiency, and sustainability. 3. The process of evaluation entailed a desk review of project files and related material followed by field studies by an Operations Evaluation Mission (OEM) in the People’s Republic of China (PRC) from 9 to 24 November 2005. The field studies included inspection of the Project’s port and expressway outputs in Fangcheng; discussions with port users and staff of the Ministry of Communications (MOC), the executing agencies and other relevant government agencies, the Asian Development Bank (ADB), and the World Bank; and collection of operational and other data. Following internal review, a draft report was circulated to the Borrower, the executing agencies, and the concerned departments and offices of ADB. Comments received have been incorporated into this final report. 4. The Project had previously been evaluated through an ADB project completion report (PCR) circulated in 2002 and based on field studies undertaken in May of the same year.1 At that stage, the Project was rated as highly successful. The PCR rating followed ADB’s Guidelines for the Preparation of Project Performance Reports.2 The Project was assessed as highly relevant, highly efficacious, highly efficient, and likely to be sustained. The rating for the institutional development and other impacts criterion was not explicitly quantified. 5. The PCR describes the main outputs and adequately reviews related implementation aspects, including project costs, disbursements, implementation arrangements, and schedules. However, it could have presented more information to support its evaluation conclusions. For example, it does not present traffic estimates and projections for the expressway and the alternative roads to demonstrate use of the expressway and the relevance and effectiveness of that investment in achieving project outcomes. The information on port operations is also largely limited to the project berths and lacks projections, and overall port statistics are not examined for causal relationships with the Project’s interventions. The appended financial and economic analyses cannot be confirmed because of the lack of such information and analysis as well as the absence of clear descriptions of the evaluation model and of information about key assumptions. The reductions in the time that ships had to spend in port that occurred just prior to the start of project implementation and were much larger than those resulting from the Project and weak achievement of the predicted shift of cargo from the congested rail service to road, which resulted in significant changes in expressway traffic also could have been usefully reviewed in the PCR, but were not. 1 ADB. 2002. Project Completion Report on the Fangcheng Port Development Project in the People’s Republic of

China. Manila. 2 These were the guidelines in effect at the time that were subsequently replaced by the Guidelines for the

Preparation of Performance Evaluation Reports of Public Sector Operations. An important difference is the omission in the new guidelines of institutional and other impacts from the core rating criteria.

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B. Expected Results 6. The expected project outcomes were improved capacity and efficiency of Fangcheng Port, including its transport links with the hinterland. To achieve this, the Project had two investment components, one for the development of port facilities and one for the development of an expressway, linking the port to the main Nanning to Beihai expressway plus an institutional development component that consisted of training inputs and supporting policy dialogue. Achievement of the outcomes was expected to promote economic growth in Guangxi and the nearby landlocked provinces of western PRC, namely, Chongqin, Guizhou, Hunan, Sichuan, and Yunnan. Although not specifically assigned a poverty reduction secondary classification, the economic growth and general improvement in road access were expected to contribute to poverty reduction. 7. The report and recommendation of the President (RRP) for the Project3 did not include a design and monitoring framework. Key indicators of success were completed outputs, continued increase in the port’s cargo throughput coupled with greater containerization of nonbulk cargo, improved cargo handling rates, decreased ship waiting times, maintenance of cargo dwell times to less than 10 days, rebalance in landward cargo movements for cargo other than coal and iron ore from rail to road, reduced travel times and vehicle operating costs (VOC) for road transport, particularly of cargo, improved port planning, maintenance of good financial condition of the two operating entities, achievement of acceptable economic and financial rates of return, and absence of environmental and social problems.

II. DESIGN AND IMPLEMENTATION A. Formulation 8. Local agencies completed feasibility studies for both the port and expressway components in 1993.4 These were reviewed in 1993–1994 under an ADB-funded technical assistance (TA)5 prior to appraisal by ADB in 1995. The port development was based on the long-term plan prepared by the Fangcheng Port Authority (FCPA) and the 1992 Guangxi Coastal Area Development Plan. Detailed design for the port and expressway was done by the same consulting agencies that had prepared the feasibility studies. Local consulting agencies also prepared a resettlement plan for the expressway and an environmental impact assessment. 9. The feasibility studies and TA outputs were not in ADB’s records and their adequacy could not be reviewed.6 One particular aspect of the expressway feasibility study that warranted review concerns the traffic between the port and the hinterland, which at the time was mainly by rail. The project design assumed that 40% of the rail traffic would shift to road upon the opening of a better road link. As noted later (para. 52), the actual shift was much less, and given the

3 ADB. 1995. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the

People’s Republic of China for the Fangcheng Port Project. Manila. 4 The Planning and Design Institute for Water Transportation of Beijing and the Guangxi Development Institute

prepared the port development feasibility study. The design institutes of the provinces of Guangxi and Hunan prepared the highway feasibility study.

5 ADB. 1993. Technical Assistance to the People’s Republic of China for Second Ports Development Project. Manila (TA 1982-PRC, for $400,000, approved on 16 November 1993). The TA also reviewed the feasibility study for the Second Yantai Port Project.

6 ADB’s East and Central Asia Transport and Communications Division suggests that the records were probably mislaid during the 2002 reorganization of ADB’s operational departments.

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nature of the port traffic, the assumption of such a large shift does not seem logical. However, in the absence of relevant reports and records, the feasibility study’s rationale cannot be reviewed. 10. The Project and a second project for building additional berths at Yantai Port were processed during the same period and used the same TA for review. The Yantai Port Project was approved ahead of the Project. The World Bank and Japan7 were also actively involved in lending to the port sector at the time. The projects of all three external financiers had similar objectives of increasing port capacity and efficiency, including by facilitating greater containerization of cargo. The advisory assistance provided by ADB and the World Bank and the policy dialogue they engaged in with the Government also had similar, complementary aims of increasing port autonomy, business orientation, and competition and installing appropriate management systems, and as such, appear to be part of an adequately coordinated program of assistance. B. Rationale 11. The Project was selected for support because of the need for additional berths and improved cargo handling efficiency to cater to the rapid growth in the country’s trade at the time that was projected to continue for the foreseeable future. Between 1995 and 2000, the Government planned to construct 20 new deepwater berths each year to handle the expected growth in trade, and the Project would contribute two of these new berths. ADB’s operational strategy at the time emphasized removing transport constraints as a way to improve economic efficiency and growth. These development strategies on the part of both the Government and ADB remain applicable at the time of evaluation. The soundness of these general strategies is borne out by the continuation of trade growth, the further expansion of port capacity that has subsequently taken place, and the high port utilization rates at Fangcheng Port and other ports. 12. Fangcheng Port’s hinterland is also served by ports at Beihai and Quinzhou in Guangxi province and by Zhanjiang in southern Guangdong province (Map 1). At the time of project preparation, Beihai was designated mainly for passenger ships and Quinzhou serviced industries in its immediate surrounding area. Zhanjiang, a major port, was seen to be in direct competition with Fangcheng, but with the completion of planned major railways and expressways in Guangxi, Fangcheng would be closer to much of Guangxi and some of the landlocked western provinces than Zhanjiang, enabling transport savings in moving goods to and from those areas. In any case, the PRC’s rapid growth was deemed to require the development of many ports, and competition among ports in overlapping areas was seen as positive for the sector and was part of the planned changes in sector policy. C. Cost, Financing, and Executing Arrangements 13. The Project cost $97.5 million, about 28% less than the appraisal estimate of $135.0 million (Appendix 1). Most of the cost savings occurred in the port component and the interest during construction. The port component savings were due to the decision to lease rather than to buy a tugboat, which saved about $2.7 million, some changes in the list of equipment procured for the port, and lower than expected construction and equipment costs and the resultant nonuse of most of the provision for contingencies. Some of the lower than expected construction costs were due to the decision to use dredged material from the approach channel and alongside the berths for land reclamation in place of some of the quarried material. The highway component, including an increase in the quantity of construction 7 Through the Overseas Economic Cooperation Fund.

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materials procured and used for a 6-kilometer (km) section between the end of the highway and the port entrance, cost only slightly less than budgeted. 14. The Project was to be financed by loans from ADB and the State Development Bank and grants from the Guangxi Development Corporation, the Fangcheng Port area municipal government, MOC, and internal funds of the FCPA (Appendix 2). Because of the reduced project cost, most of the financing amounts were reduced. About $11.7 million of the $52.0 million ADB loan was canceled, resulting in a total ADB loan amount of $40.3 million. The ADB loan was refinanced through a domestic loan and repaid in January 2005.8 15. The executing agencies were the FCPA—now known as the Fangcheng Port Group Company, Limited—for the port component and the Guangxi Communications Department (GCD) for the expressway component. The GCD was to assume overall responsibility and be the main point of contact with ADB. Each executing agency set up a project management office to oversee implementation. At the national level, MOC was also involved in broad project supervision. International procurement was to be undertaken by the International Tendering Company, selected to do this task by the Government using competitive bidding. In addition, 4 person-months of international consultant time were provided to assist the executing agencies with documentation for procurement, as this was their first ADB-financed project. The executing and implementing arrangements appear to have been satisfactory. D. Procurement, Construction, and Scheduling 16. Project implementation was delayed by 22 months. Other than the delay, no major issues arose in relation to procurement and construction. The executing agencies rated the quality of the outputs as satisfactory, and the operating performance to date supports such a conclusion. The OEM assessed the capacity of all the facilities to be higher than that indicated by the executing agencies and in the PCR (paras. 21–23). 17. The expressway, which was started in August 1995 under advance procurement action approved by ADB, was opened to traffic in November 1998. The main port civil works were completed by October 1999, but equipment installation took until October 2001. Berth 9 was in use in 1999 and berth 10 in 2000 using preexisting cranes and equipment. The loan was closed in June 2001 rather than in December 1999 as expected. 18. The sources of delay included the executing agencies’ lack of familiarity with ADB procedures and the consequent slowness in some procurement activities; the changes in the list of equipment to be procured and the time required for these changes to be discussed with ADB; and the slow performance of some suppliers, particularly for the container cranes. Frequent changes of the ADB task manager probably also contributed to some of the delay.9 Some of the delay could probably have been avoided by better management. Nevertheless, the equipment to be procured was substantial, and costly mistakes might have been made if decisions on what equipment to buy had been rushed. The international consultant that was to assist the executing agencies with procurement-related documentation was not engaged, as the International Tendering Company was deemed by Government to have sufficient procurement experience. As it turned out, the executing agencies cited a lack of example documents from ADB as a cause of delay, a weakness that might have been partly overcome by the engagement of the

8 The interest rate for the domestic loan was marginally lower than ADB’s. 9 From appraisal in 1995 to the project completion review in 2002, ADB had five task managers for the Project.

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international consultant. ADB’s procedures now include the supply of example formats to new executing agencies as well as training in procurement. E. Design Changes 19. No major design changes took place subsequent to appraisal. Minor variations included the replacement of the planned purchase of a tugboat for the port by a lease arrangement. The procured port equipment also differed in detail, but not in overall scope or function from that originally proposed. An important variation was the reduction in the planned number of rubber-tired gantry cranes for handling containers in the container yard. As the volume of containers increases, the lack of rubber-tired gantry cranes is likely to become a constraint to efficient container operations. The international procurement consultant was also not deemed necessary and not hired. Cost savings allowed materials for the last 6 km of road linking the port entrance and the end of the expressway to be financed under the Project. F. Outputs 20. The Project’s port component was generally completed as planned (Map 2). Two berths with cargo areas and ancillary facilities were built: berth 9, 271 meters (m) long, for bulk cargo, mostly iron ore and coal; and berth 10, 227 m long, for containers. The Project funded the materials and construction works for the berths, cargo areas, support buildings, and ancillary facilities and for the expansion of the port rail marshalling area and rail sidings; the dredging of the port approach channel; the equipment for container and bulk cargo handling; a power substation; the environmental protection equipment for cleaning up oil spills; and the design and supervision consultants. A tugboat was to be procured, but was leased instead. The municipal government was to provide a solid waste disposal facility and a wastewater treatment plant (WTP) for port and municipal needs under separate financing. The solid waste facility was established, but the WTP has yet to be built (para. 30). 21. Berth 9 added capacity for servicing bulk cargo ships, and because its backup cargo area has mechanized stacking and unstacking facilities, it has a nominal handling rate about double that of the other berths. The 13.5 m water depth alongside the berth enables it to handle ships of up to 70,000 deadweight10 tons capacity—and even larger using special arrangements—more than the port’s eight preexisting main general purpose berths, which can handle ships of up to 35,000 deadweight tons. Even though the berth and cargo area has a nominal capacity of 2.5 million tons per year (t/yr), its actual capacity is closer to 4.6 million t/yr (Appendix 3).11 The berth has handled close to 4.0 million t/yr since 2001. 22. Berth 10, largely because of its two container cranes, storage yard, and yard equipment, provides specialized capacity for handling dedicated container ships and for handling and storing containers and their cargo. The berth and cargo area are only for container operations and function as a separate container terminal within the port, handling all of the port’s containerized cargo. A subsidiary company set up solely for this purpose manages these facilities. With a nominal capacity of 90,000 20-foot equivalent units (TEU),12 equivalent to

10 Deadweight is a measure of a ship’s cargo-carrying capacity; effectively, the weight of cargo that can be carried. 11 Berth 9 is operationally part of a group of nine berths. Being part of such a large group enables high berth

occupancies, and consequent high throughputs, to be achieved, possibly higher than those used to calculate the nominal capacity.

12 Internationally, the 20-foot long shipping container is recognized as the basic unit. Containers of other sizes are expressed in the equivalents of the 20-foot container, thus a 40-foot container is 2 TEU.

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700,000 tons (t), the terminal should be capable of handling 140,000 TEU/yr,13 which at the current average weight of 13.1 t/TEU equates to about 1.8 million t/yr (Appendix 3). 23. Under the second investment component, 20 km of the 45 km, four-lane, divided expressway linking the Fangcheng Port area with the Nanning to Beihai Expressway was built as planned (Map 3). The expressway’s capacity is 80,000 equivalent passenger car units, which with the current mix of vehicle types would equate to an average annual daily traffic (AADT) volume of around 55,000 vehicles per day (vpd).14 24. The expressway, built through flat to rolling terrain, is of concrete block construction. It has three interchanges: at Fangcheng and Natan at either end and at Chonglun in between. The Project financed design and supervision consultants; construction materials; construction equipment and civil works for the Fangcheng-Chonglun section; and expressway operational equipment, including for toll operations and maintenance. The remaining 25 km were financed separately by the Government. Loan savings because of lower than expected costs were used to finance additional construction materials, which were used to build a 6 km section of highway linking the end of the expressway to the port entrance. The latter gives port traffic direct access to the port, effectively bypassing urban areas. 25. Institutional development was effected through policy dialogue, training, and an advisory TA15 attached to the Second Yantai Port Project approved in 1995.16 The focus was on policy reforms in relation to port pricing; management efficiency and autonomy; and human resources development within the institutions responsible for port and highway planning, construction, management, and operations. 26. Of the project-funded training, 46 person-months were used by Fangcheng Port staff and 53 person-months by GCD staff involved with the highway. The topics were relevant to operations and the executing agencies indicated that the trained staff members were still employed within relevant operational areas. Under the TA associated with the Second Yantai Port Project, a container terminal operations plan was prepared for Fangcheng Port. 27. Compared with the preproject situation, Fangcheng Port, along with most other ports, operates autonomously from MOC and other ports. Currently, it is structured as a state-owned company under the local municipal government. MOC still issues suggested tariffs for the sector, but Fangcheng Port and other ports have the freedom to fix their own rates. MOC’s guidelines appear to be broadly followed, but competitive pressure has established a regime of discounts to the MOC rates to lure business from competing ports. Nevertheless, complete commercialism and the adoption of cost-based tariff setting have not been fully established (para. 63).

13 This was based on a 65% berth occupancy ratio. This relatively high rate is possible even though it is for a nominal

single berth facility. Most of the container vessels calling at the port are small and can be accommodated despite the high occupancy rates as discussed in Appendixes 3 and 5.

14 MOC’s technical design standards indicate a capacity of 25,000 to 50,000 vpd for a four-lane expressway, with such capacity to be reached within 20 years. The OEM’s slightly higher estimate compared with the upper bound of this specification could be explained by different assumptions about traffic composition.

15 ADB. 1995. Technical Assistance to the People’s Republic of China for Management and Operational Strategies for Port Authorities. Manila (TA 2466-PRC, for $490,000, approved on 12 December 1995).

16 ADB. 1995. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Second Yantai Port Project. Manila (Loan 1411-PRC, for $63 million, approved on 12 December 1995).

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28. The expressway is operated by the Coastal Section of the Guangxi Expressway Administration Bureau, which falls under the GCD, part of the Guangxi provincial government. Despite its separate accounts and corporate structure, the expressway’s receipts are remitted to the provincial government and estimated operational expenses are budgeted annually. The setting of toll rates is a provincial government concern. G. Consultants 29. The local consultants that prepared the feasibility studies were engaged for detailed design and construction supervision. While the generally good quality of construction and the appropriateness of the facilities indicate that the consultants performed adequately in most aspects, the landward transport of goods to and from the port does not appear to have been adequately studied in the feasibility study or in the TA review, leading to overestimation of the amount of cargo that would switch from rail to road (paras. 38–39). This is a noticeable weakness of the Project. The contribution, if any, to such weakness by either the structure of the consultants’ inputs or the performance of any of the consultants cannot be determined because of the lack of relevant reports and records relating to both the feasibility study and the ADB-financed TA used to review the feasibility study. H. Loan Covenants 30. With one exception, the loan covenants related to implementation were complied with. The exception was the construction of a WTP by the Fangcheng municipal government. ADB’s PCR reported that this facility and one for solid waste were expected to be completed in 2003. A solid waste facility was constructed, but the WTP was not. The municipal government now expects to build the WTP during 2006–2007. The land use plan has been completed and detailed designs are reportedly being prepared. While the delay has been considerable, the facility will serve much more than just the port and required appropriate planning and timing. The facility is expected to cost around CNY160 million, equivalent to about half the ADB loan for the Project. Loan covenants related to ongoing operations appear to be complied with, except in the area of financial targets (paras. 60 and 64). I. Policy Framework 31. Policy change within the port sector was supported by ADB and the World Bank, and some key planned changes did occur, particularly in relation to giving port operators more autonomy. No major unplanned policy changes occurred during and after project implementation that affected the Project. The 1997–1998 Asian financial crisis occurred during the middle of the implementation period and might have affected cargo volumes and transport demand.

III. PERFORMANCE ASSESSMENT A. Overall Assessment 32. Overall, the Project is rated successful (Appendix 4). The relevance of the Project to development needs and to Government and ADB strategies is good, although the achievement was weakened by an inaccurate estimation of traffic demand and the subsequent choice of investments to enhance landward cargo movements. The outputs were generated and the Project did achieve its intended outcomes, tempered in part by the high accident rates on the

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expressway. The investment was economically efficient and the probability of sustainability is high. B. Relevance 33. The Project is rated as relevant. The Project was prepared during a period of strong economic growth and resultant trade expansion in the PRC and such growth was forecast to continue for the foreseeable future. In recognizing the need to avoid constraints to growth due to transport bottlenecks, both the Government and ADB included expanded and efficient transport infrastructure as part of the development strategy. Within the port sector, the Government had identified Fangcheng Port for expansion and improvement to serve the growing needs of the southern and southwestern areas of PRC, particularly Guangxi province, in which it is located, and the neighboring landlocked provinces of Chongqin, Guizhou, Hunan, Sichuan, and Yunnan. Fangcheng Port was suitable for ADB support, as the area it served was generally less developed than other areas in the PRC. This situation is just as prevalent now as at the time of operations evaluation in 1995, that is, trade continues to grow rapidly and the provinces the port serves still remain, in relative terms, behind other parts of the PRC. The Project did, however, have some design weaknesses that prevented a higher rating for this criterion (para. 35). 34. Fangcheng Port’s throughput increased dramatically from around 4.5 million t in 1995 (the time of project preparation) to around 16.0 million t in 2004. Fangcheng Port could not have accommodated all this cargo or handled it as efficiently without the Project or another similar undertaking. Some cargo would have had to be shipped through more distant ports and some could have been handled, but in a more congested port environment (para. 43). The result would have been added costs and the consequent depression of economic growth. In short, by expanding the port’s capacity and improving its efficiency, the Project removed a transport bottleneck, thereby fulfilling the expectations of the stated development strategy. Moreover, as the less developed, adjacent, landlocked provinces account for around two thirds of both the port’s customers and its cargo, the Project also helped support the development of less developed areas of the PRC. 35. In addition to the overall project concept, the detailed design of the port component; the grouping together of port, road, and institutional development components; and the packaging of these as a standard ADB-financed loan project were appropriate (paras. 36–37). However, in retrospect, the chosen design for the road and the absence of any action to improve the railway link between the port and the hinterland appear to be design weaknesses (paras. 37–39). While these design weaknesses can be identified in retrospect, in the absence of the feasibility study report and other key planning documents, it cannot be known how more detailed study of landward cargo movements and traffic demand would have affected the design. 36. Most of the cargo handled in the port from the mid-1990s to today is bulk coal and ores, and this is projected to continue in the future. The construction of additional bulk cargo capacity was therefore appropriate. The port also handled a significant amount of breakbulk cargo and little was containerized in the early and mid-1990s. The expectation that, given appropriate facilities, containerization would increase, thereby improving handling efficiency, formed the basis for selecting the container terminal as one of the project outputs. The strong growth in containerized cargo after the opening of the Project’s container berth underscores the appropriateness of that choice. 37. Construction of a new road link to the port was appropriate, as the old road links were narrow with some winding sections and passed through urban areas, making them unsuitable

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for cargo transport.17 However, the timetable for building the expressway to its design capacity does not appear to have been the most economical solution. In 2004, about 6 years after its opening, the expressway carried an average of around 14,000 passenger car units per day (about 9,000 vpd), which is close to expectations for 2004, but still only about one fifth to one sixth the rated capacity (para. 23). An alternative, for example, could have been to build a two-lane highway on a better alignment than the preexisting road. This could have been done by initially constructing only two lanes of an eventual four-lane divided expressway and building the other two lanes when traffic volumes increased. 38. Slightly less than half the vehicles currently using the expressway are trucks, mostly medium and small trucks, which differs significantly from the expectation of a large proportion of heavy trucks. The total traffic volume is on target, however, because the number of passenger cars and other light vehicles far exceeds expectations. Transport bottlenecks along other parts of the provincial and interprovincial expressway network may contribute to the lowered truck traffic, and the rapid growth of the urban population adjacent to Fangcheng Port can explain the unexpected rise in light vehicle traffic. In relation to the relevance of the project design, an important implication of the markedly different truck traffic is that the expressway’s contribution to port operations is substantially below expectations. 39. One important reason for the lower than expected truck traffic relates to the assumption in the Project’s detailed design that 40% of the cargo that arrived or left the port by rail would transfer to road once a better road link was established. This has not happened to the extent expected, and rail continues to serve about 60–80% of all cargo. In the first 5 years after the project expressway opened, truck transport of cargo to and from the port did rise quite significantly, while rail transport rose only modestly. Nevertheless, the increase was from a low baseline, and the switch from rail to road was much less than predicted. An examination of port cargo shows that about 60% is bulk product that is more suited to rail than road. Moreover, the majority of trade through Fangcheng Port has its origin or destination in neighboring provinces, which is also a factor favoring rail transport over road transport because rail is cheaper than road over long distances. Insufficient rail capacity was cited as a constraint in various documents, including the RRP and the PCR for the Project. Despite the obvious demand for rail transport and a need for some improvement, the capacity of the Fangcheng line was upgraded only in 2005, when the nominal one-way line capacity was increased from 7.0 million t/yr to 12.0 million t/yr. Moreover, the constraint seems to be related more to the availability of rolling stock than to line capacity. In retrospect, the need for expressway capacity appears to have been overestimated, while at the same time, the need to address railway constraints was not given the urgency or attention required. In this respect, the project design was not entirely consistent with development needs. 40. In the absence of the feasibility study report, the reasons why rail was not included and road demand was overestimated cannot be determined. However, differences in development approaches within the road and railway sectors resulting partly from each being under different administrative structures and ADB’s reluctance to bundle components for different ministries under a single project may have caused rail to be excluded from the Project.18

17 ADB’s East and Central Asia Transport and Communications Division point out that, for similar reasons, the 6 km

link between the expressway and the port entrance, the materials for which were funded out of loan savings, is a logical component and, in retrospect, should have been included in the original project design. OEM concurs.

18 The railway link to Fangcheng Port is a district railway and is nominally under the Guangxi provincial government. However, the Railway Ministry exerts influence through technical links and would have been involved if rail had been included as a project component. In addition, the Railway Ministry controls the allocation of railway wagons, an important factor in determining actual rail capacity.

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C. Effectiveness 41. The Project is rated as highly effective, as port capacity and port efficiency were improved as expected. These improvements are expressed in increased port throughput and improved efficiency statistics (paras. 43–46). Port-related traffic on the expressway is much less than expected (paras. 51-52); however, the expressway does contribute to the effective movement of goods to and from the port and the overcapacity relative to needs is reflected in the Project’s relevance and efficiency ratings. Even though project documents cited the lack of railway capacity as a constraint to the movement of cargo between the port and the hinterland and the lack of attention to rail probably increased transport and port inefficiency, the overall effect is not sufficient to downgrade the rating of the effectiveness criterion. This is primarily because port throughput continued to grow from 1995 to 2004 suggesting the absence of any major bottleneck in the port’s transport links with the hinterland. 42. The Project did expand port capacity as intended through the construction of 500 m of additional berths in addition to the provision of cargo areas, cargo handling equipment, and other facilities. Berth 9 could handle up to 4.6 million t/yr and berth 10 could handle around 1.8 million t/yr (Appendix 3). Overall, capacity has been increased by about 6.4 million t/yr. 43. Berth 9 came into operation in 1999 and is operated along with berths 1–8 for dry bulk and general breakbulk cargo, although because of its specialized bulk cargo backup area and deep water alongside, it is used primarily for dry bulk cargo (Appendix 5).19 Throughput at berth 9 quickly grew to 3.4 million t/yr by 2001 and subsequently fluctuated between 3.4 and 3.9 million t/yr of bulk coal and ores (Appendix 5, Table A5.4). Berth 10 became operational in 2000 and throughput increased steadily, reaching 80,000 TEU, equivalent to a little over 1.0 million t, in 2004 (Appendix 5, Table A5.4). Based on the operations evaluation model for the port, without the Project, the productivity of the main port berths 1–8 would probably have increased, but even with such an improvement, they would have reached their limit early in 2003, and by 2004, about 4.1 million t, equivalent to around 25% of the total actual port throughput that year, would have had to be diverted to other ports. 44. Port efficiency has improved since 1999–2000, coinciding with the completion of the project port facilities. However, current statistics must be viewed in context. Overall port statistics showed a substantial general improvement in efficiency in 1996–1997 (Appendix 5, Table A5.5). An example statistic that is indicative of port capacity and efficiency is the time ships spend in port per unit of cargo handled,20 expressed in days per 1,000 t of cargo, which fell dramatically from more than 1 day in 1995 to 0.45 days in 1997. Other port statistics consistent with this picture include tons of cargo per hatch-hour and per ship-hour, both of which improved from around 30–40 t/hr in 1994–1955 to around 70 t/hr in 1996. Berth occupancy rates were relatively low in 1996–1997 given the large number of available berths, suggesting little congestion and a low likelihood of queues and delays. The average time ships had to wait for a berth to become available, a common cause of delay in a congested port and referred to as ship waiting time, was small or zero, while the average total time that ships spent in port had

19 Of the ships docking at berth 9 during 2000–2004, 80% were classified as dry bulk carriers, that is, carriers of

nonliquid bulk cargo. The others were primarily breakbulk vessels (that is, carriers of general cargo typically packed in small, individual parcels, such as crates, bags and drums, on pallets, or in bundles) requiring the deeper water of berth 9 or container ships discharging to or loading from the container yard of the adjacent berth 10.

20 That is, ship service time plus nonoperational time accounted for by the port, including time spent waiting for a berth, equipment breakdowns, and other times when cargo operations cannot be carried out because of port constraints.

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about halved from previous levels. While this is not intended to detract from the project-related gains, the poor preexisting capacity and efficiency described in the RRP had improved dramatically before the project facilities became operational and such gains cannot be attributed to the Project. 45. The port efficiency statistics continued to improve after the project berths became operational. Average productivity per hatch-hour reached 120 t/hr in 2000 and peaked in 2002 at 127 t/hr, while average productivity per ship-hour reached 171 t/hr in 2000. In tracing the sources of such productivity gains, the OEM noted that berth 9 enables the port to service larger ships with more hatches, and berth 9’s handling capacity has averaged 875 t/hr over the past 5 years, a rate significantly higher than at other berths. Berth 10 contributed to the improved efficiency by enabling increased containerization of otherwise breakbulk cargo, which makes handing this type of cargo faster and more efficient. In addition, berth 10 handles containers at the rate of about 30 TEU per hour compared with around half this rate for the previous arrangement at berth 2. By 2004, about 6% of the port’s throughput was containerized and passed through berth 10. Suitably detailed information on cargo dwell times was not available to the OEM, but port staff indicated that cargo dwell times were within the design parameter of 10 days. 46. As a result of the project-financed increases in capacity and cargo handling efficiency, as well as subsequent nonproject improvements resulting from the commissioning of berths 11 and 12 in 2001–2002, overall ship-related efficiency statistics remained satisfactory in 1999–2004 despite a substantial increase in throughput and ship calls (Appendix 5). Port throughput doubled, while ship calls increased even more, reaching 1,817 in 2004. For most of 1999–2004, ship waiting time was zero or negligible and average time in port was less than 2.5 days. These statistics had increased in 2004, however, and ship waiting time stood at an average of 0.13 days per ship. Within these generally satisfactory statistics, one contradictory statistic indicating where further efficiency gains could and should be achieved is the large proportion of berth time that is nonoperational.21 47. The vast majority of ships calling at Fangcheng Port are small, with 77% of all ship calls during 2000–2004 being by ships of less than 10,000 deadweight tons and a further 10% being by ships of 10,000 to 30,000 deadweight tons. All the port’s main berths can handle ships of this size. The deep water alongside berth 9 is important for only a small number of vessels; however, for those vessels the ability to dock fully loaded is a major advantage. For owners of bulk cargo, such as importers and exporters of coal and iron ore, which are typically traded in large quantities, the ability to charter larger ships generally allows them to reduce their freight costs. 48. The port reported 24–32 accidents per year during 2000–2004 and two fatalities during the period. The OEM does not have similar data for other periods for comparison. 49. As noted earlier, the expressway’s contribution to expanding the port’s capacity and improving its efficiency is less than expected. Traffic volumes are less than anticipated, but not substantially so (para. 51); however, the vehicle mix differs substantially from expectations (para. 52).

21 During 1995–2004, unloading and loading operations accounted for only 54–67% of the time that ships were at a

berth. This statistic was 64–67% for 2002–2004.

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50. The preexisting road access to the port was by class 3 and 4 rural roads, which were clearly inadequate for a major port because they were narrow and had relatively steep grades and tight turns. These roads connected to the class 2 Nanning-Beihai Highway, which was supplemented by a class I expressway in 1997. Given the low capacity of the road system, historically, cargo transport to the port relied largely on railway links from Nanning and Litang. 51. Data for the expressway indicate that an average of 2,411 vpd passed through the port’s exit toll gate in 1998, the year the expressway opened. The OEM assumed that equal numbers of vehicles travel in and out of the port, so the 1998 AADT would have been 4,822 vehicles (Appendix 6). By 2000, the AADT was 6,514 vehicles and by 2004 it was 8,830 vehicles. The RRP’s expectation was 7,000 vpd by 2000 and 30,000 by 2020. 52. Even thought the RRP presents few traffic figures, its discussion and economic analyses indicate that the majority of traffic on the road was expected to consist of trucks, particularly heavy to medium trucks, on port-related business. This was expected to occur because of a shift of around 3 million t of cargo from rail to road by 2000.22 If the average cargo per truck was 10 t and with no backloading,23 a shift of this magnitude would require about 1,600 large truck trips per day.24 In 2000, the number of large trucks entering and exiting Fangcheng Port was only 124 per day. The OEM estimates that a little less than 1.0 million t of cargo, about one third of the amount expected, had switched from rail to road by 2000 and was carried primarily in small and medium trucks. Toll rates for trucks are high (para. 64), but the lack of large trucks on the alternative, nontoll roads (para. 55) indicates that the tolls are not forcing this class of truck away from the expressway. While the high toll rate might be discouraging the expansion of trucking operations, the main reason for the low numbers of large trucks appears to be that most port cargo is bulk cargo and/or has to be transported over long distances, both of which favor the use of the rail. 53. Small and medium trucks account for about half the traffic on the expressway, and a large proportion of the traffic, about 40% in 2000, consisted of cars and similar light vehicles, a much larger proportion than expected at appraisal. Urban development adjacent to Fangcheng Port has been substantial and rapid, and this has been the source of many of the cars and light trucks. 54. Travel time between Fangcheng Port and the Nanning-Beihai road is about half an hour for cars traveling at 100–120 kilometers per hour (kph) and 35–40 minutes for trucks traveling at an average of 80 kph. Previous journey times were half an hour longer or more because of relatively slow travel times of 30–50 kph resulting from congestion. 55. The OEM estimates that traffic on the preexisting roads in 2004 was around 500 vpd or less. Most vehicles are light to medium, heavy trucks being uncommon. The OEM’s best estimate of traffic on the preexisting roads prior to the opening of the expressway was about 2,800 vpd in 1997, compared with a nominal capacity of 2,000 vpd. Current travel speeds on these roads are low, around 50 kph, but congestion on the preexisting roads would have eased following the opening of the expressway and the diversion of a substantial amount of traffic to it.

22 Port cargo was expected to increase by 15% per year to reach about 9.3 million t in 2000. Of this, around 80%

would have been transported by rail, but 40% of cargo transported by rail was expected to switch to road with the opening of the expressway.

23 Backloading refers to the practice whereby a truck that brings cargo to the port also takes cargo away and vice versa, that is, two cargo movements. No backloading means the number of trucks needed increases. If all trucks carried equal amounts in and out of the port, the number of trucks needed would be halved.

24 Each truck makes two trips, one full, one empty.

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56. Information about traffic accidents suggests that the frequency of accidents on the preexisting roads decreased from around 19–20 accidents per year prior to the opening of the expressway to around 15 per year after the expressway opened. The number of injuries and fatalities follows a similar slightly decreasing trend. The improvement is slight despite the substantial decrease in traffic volumes on these roads, perhaps because by allowing higher vehicle speeds, the decreased congestion has increased the rate of accidents per unit number of vehicles. The number of accidents and injuries on the expressway exceeds the decrease on the preexisting roads, and was increasing until 2005: the number of accidents was 24–30 per year during 1998–2001, 46–61 per year during 2002–2004, and 27 with 3 fatalities during the first 10 months of 2005. The accident rate has increased along the entire project corridor. Government and the expressway operator are aware of the losses these accidents represent and have programs in hand to improve driver education and law enforcement. ADB has recently provided TA to support the Government’s efforts in this area. D. Efficiency 57. The Project is rated as efficient. The economic internal rates of return (EIRRs) were 20% overall and for the port component and 19% for the expressway component (Appendix 7). Such rates of return could justify a rating of highly efficient; however, in view of the large capacity of the highway relative to actual traffic, the cost-effectiveness of the expressway’s design is questionable. Although the OEM could not address this issue conclusively,25 it considers efficient to be the appropriate rating.26 While separate EIRRs are given for the port and expressway components, they were nevertheless deemed to be dependent on each other. The results are not very sensitive to changes in key variables because of the significant operational time already elapsed, and in the case of the port, the achievement of almost full capacity. The results calculated in the PCR were EIRRs of 17.9% overall, 33.5% for the port component, and 14.7% for the expressway component. At the time of appraisal, the overall Project and individual component EIRRs were each expected to be 21%. The PCR and RRP methodologies were similar to those used for operations evaluation. 58. The benefits resulting from the port component include the time ships save waiting for a berth and the time they save while at berth as a result of the extra berths, the faster cargo handling, and the containerization of general cargo. Another benefit is the avoided costs of land transport for cargo that would have had to be diverted to other ports in the absence of the Project. In the national context, failure to implement the Project and the need to divert cargo to other ports would have contributed to congestion at the other ports. At the margin, such congestion and the added transport costs would cause a reduction in trade; however, the analysis has not captured any such reduction. 59. The expressway component enabled five important transport changes captured as project benefits. First, traffic from the old road diverted to the expressway has resulted in resource savings because of lower VOC per kilometer traveled and the shorter travel distance of 45 km compared with 72 km. Second, cargo with origins and destinations closer to the port where road transport is favored over rail was able to transfer from rail to road. Third, traffic remaining on the old road benefited from reduced congestion and the consequent reduction in VOC. Fourth, new traffic was generated by the improved road conditions. Fifth, road

25 This was because of the absence of the feasibility study reports and because of the OEM’s budget constraints. 26 An increase in the rating to highly efficient would not alter the overall rating given in para. 32.

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deterioration and the need for periodic maintenance on the old road would have been reduced because of the lower volume of traffic. 60. The executing agency did not make sufficient data available for completion of financial analyses for the port. For the expressway, the OEM estimated the financial internal rate of return to be 2% (Appendix 7). This compares with estimates of 6.6% in the PCR and 5.7% in the RRP and a weighted average cost of capital of 6.5%. The lower result is primarily due to the much lower than expected heavy truck traffic, which attracts higher toll rates than lighter vehicles, and is despite the lower than expected capital costs. E. Sustainability 61. Sustainability of the project facilities appears likely. Not all the financial and operational information normally used to review sustainability is available. Nevertheless, a positive sustainability assessment is deemed appropriate given the OEM’s observations that the project outputs appeared to be in good working order with maintenance being done, that the port facilities are important for the port’s operations, that funds for expressway maintenance appear to be adequate, and that both the port and the expressway are important in relation to regional activities. In addition, the port is in a sheltered location and maintenance dredging is not a major requirement. 62. The port’s sustainability does, however, have some elements of risk related to sector and business operations. Fangcheng Port is planning for 50.0 million t of throughput by 2010. The ports of Beihai and Qinzhou, both in Guangxi, and of nearby Zhangjiang, all of which serve the same hinterland and have cargo operations, also have expansion plans all of which are based on capital expenditure on new berths, backup cargo areas, and equipment. If most of these plans proceed, built port capacity in the region may exceed demand. If the expansion in Fangcheng Port is financed with borrowed funds, unless it wins sufficient business, the debt burden could weaken the port’s capacity to finance maintenance of its facilities, including those established under the Project, with detrimental consequences for long-term efficiency and competitiveness. At the same time, with expanding throughput, port capacity to handle such increases is needed, otherwise the berths and cargo areas would become overly congested and the project-induced efficiency gains would be lost. This means seeking productivity improvements, and after such gains have been reasonably exhausted, building more facilities. Ultimately, sustainability will rest on the operator’s commercial performance and the probability of sustainability will be enhanced the more the Fangcheng Port operator carefully and fully evaluates alternatives and its business prospects to support any investment decision. 63. The Fangcheng Port Group, Limited appears to operate in the manner of a commercial operator. In line with similar strategies by its competitors, the Fangcheng Port operator has not increased its tariffs since the opening of the project berths. It has sought to entice container shipping lines to set up regular services and offers discounts to attract business. The operator has also divested itself of nonincome-earning activities, such as the schools and clinics it was previously maintaining. The operator has, however, established a number of other businesses, many of which are not related to port operations or are noncore activities, but are reportedly profitable. While these are good achievements, some warning signs of possible noncommercial practices do exist. First, the nonoperational time of ships at berth is almost half as long as the operational time, meaning that the berths are not being operated as efficiently as they could be (Appendix 5, Table A5.6). The port’s preferred solution to high berth occupancy rates seems to be to build more berths rather than to seek ways to improve the operational efficiency of existing

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assets.27 The possible gains from noninvestment-related efficiency improvements were demonstrated by the changes that took place in 1996–1997 (para. 44). Second, the container company’s objective is to limit the height to which containers are stacked to reduce cash operating expenses, and as with berth occupancy, the solution to apparent congestion within the container yard is to acquire more land. With the cost of land not being considered, this is rational, but ultimately is not commercial, and along with excessive berth expansion can lead to overcapitalization. Third, tariffs are not based on actual costs, but on MOC’s standard recommendations. However, a complete evaluation of the port’s business capability and financial capacity to withstand competitive pressures is not possible in the absence of updated financial information. 64. The financial statements for the expressway’s operating entity indicate that it has a positive cash flow, was expected to achieve a positive operating profit in 2005, but overall makes a loss. The latter is due to high depreciation expenses (Appendix 8). Toll rates on the expressway remained unchanged during 1998–2005, but are to be increased in 2006. Compared with expressways in other provinces, the project expressway’s toll rates for light vehicles are lower, those for medium trucks and buses are similar, and those for large trucks are significantly higher. These rates may be commercially appropriate as long as the relatively high rate for large trucks is not preventing a greater shift from rail to road. Small vehicles can use the alternative preexisting road, albeit with a longer travel time, and have to be attracted to the expressway, but large trucks have difficulty using the alternative route. As previously noted, few large trucks travel along the alternative roads. Despite the weak financial condition of the tollway operator and the difficulty in achieving full payback of the investment except over an extended period, adequate funds for maintenance are likely. This is because the expressway operator is a government bureau that remits its toll revenues to the treasury, and funds for operations, including maintenance, are budgeted for release each year. The expressway is important at a provincial level and to date has received adequate maintenance funds. 65. Traffic on the expressway is light and the road surface is concrete, so major maintenance will not be required for many years. A recent major slope slippage in an area previously found to have unstable soils was quickly repaired. Differential settlement of adjacent concrete blocks has been relatively minor and has been corrected by grinding of the joints.

IV. OTHER ASSESSMENTS A. Impact

1. Impact on Institutions

66. By means of training and policy dialogue, the Project introduced institutional changes and enhanced capacity as described earlier. On a broader level, the commercialism and competition introduced in the port sector as a result of policy dialogue with ADB and other entities and supported by the business capability afforded by the physical facilities and training is expected to have a long-term impact on the sector’s efficiency. However, commercialism has yet to be completed, as the port operator does not appear to be acting in a fully commercial manner. Another example of the incompleteness of the change to commercialism in the sector is that while each port operator has the autonomy to set its own tariffs, tariffs have yet to be based on operational costs rather than reflecting MOC’s guideline rates.

27 Berths 11 and 12 were built soon after completion of the Project’s berths, and berths 13–17, plus a large bulk coal

and ore terminal, were under construction in late 2005.

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67. The Project also improved the development capabilities of both executing agencies: the port operator in building additional berths and facilities to further expand operations and the GCD in undertaking two subsequent expressway projects financed by ADB and projects financed by the World Bank.

2. Socioeconomic Impact 68. During the project processing period, ADB management had considered that the Project could potentially have strong poverty reduction effects. However, these effects were determined to be indirect, as is the case with many infrastructure developments, and in the absence of appropriate arrangements to measure such indirect effects, a poverty classification was not applied. The growth in trade and throughput handled by the port, part of which could not have been possible without the Project or an alternative project, indicates an increase in economic activity and the possibility of indirect effects. Most of the cargo supports or derives from businesses in the relatively poorer, landlocked provinces of Guizhou, Sichuan, and Yunnan. The port itself provides increased local business activity and employment, although this is limited by virtue of the majority of the cargo being transported to other provinces. Perhaps equally important, development of the port and expressway has provided an economic base and, by means of the expressway, basic infrastructure for other development in the area. Such development, which will eventually encompass tourism, steel and paper mills, and power generation, has already supported the growth of a sizable township adjacent to the port. Residents and businesses in the township are benefiting from the improved road access provided by the expressway. 69. The Project does not appear to have generated any negative socioeconomic impacts, other than the already noted high expressway accident rates. The expressway required the resettlement of 252 households, of which 47 households were in the ADB-financed section. No resettlement resulted from the port expansion. For the expressway, a resettlement plan was prepared and implemented and the results were monitored by one of the design institutes under MOC. Monitoring surveys were carried out at three different stages. The monitoring studies report that the resettlement was done appropriately with adequate compensation for losses, redistribution of agricultural land, and provision of employment opportunities. In general, households were reported as better off than before the Project as a result of better quality housing and other facilities and improved access after the construction roads were converted to local roads. The OEM visited one resettlement site and spoke with a few of those affected. The results conformed with those of the monitoring studies.

3. Environmental Impact 70. The OEM did not include specific environmental expertise, and the review of the Project’s environmental impact is based on available information. This approach reflects the lack of major environmental concerns raised by the impact assessment study for the Project and a satisfactory report on environmental matters in ADB’s PCR. The Project has received clearances from government agencies concerned with the environment and occupational health and safety. 71. Berths 9 and 10 were constructed by reclaiming areas from the sea and the shore. Material dredged during the deepening of the area alongside the berths and the approach channels was used for part of the reclamation. Subsequently, berths 11–17, a much larger development, have been reclaimed. No significant environmental impact has been reported. A

17

small bay was enclosed by the 6 km extension between the end of the expressway and the port entrance. Mangroves appear to have reestablished themselves along the new foreshore. 72. The port’s operations create substantial amounts of dust because of the coal and other bulk cargo. The port environs have few trees and appear to be dusty, but sprinklers are reportedly used for dust control during windy periods. No oil spills or other problems were recorded during 2000–2004. A WTP was not built (para. 30) and port wastes are discharged to the sea, but runoff from berths 9 and 10 and their cargo areas are first collected and treated in four small stations prior to discharge. Water in and around the port is reportedly monitored by the Environmental Protection Bureau and found to be within environmental standards. B. Asian Development Bank Performance 73. ADB’s support for the design and implementation of the Project was appropriate. The Project’s design was subject to review under TA and appraisal by a multidisciplinary team. Questions relating to sector policies, tariffs, institutional capacity, resettlement, and environment were appropriate and were addressed during processing. An international consultant was included (although not engaged) to assist with procurement, as this was the first ADB-financed project for the executing agencies, and advance procurement was approved to enable the expressway to commence early. During implementation, ADB fielded an inception mission and six annual review missions and addressed such key concerns as the procurement of port equipment. 74. Inexplicitly, and despite the appropriateness of the support provided for review of the feasibility and appraisal studies, ADB’s performance was inadequate to uncover what appear to be obvious weaknesses in the traffic demand analysis. The executing agencies also suggest that ADB’s performance could have been better if it had provided example formats for procurement and other submissions required by ADB instead of just descriptive guidelines (this is now routinely done.) Such examples may have avoided the need to repeat some of the early submissions. ADB has also not been very careful in storing records concerning the Project (footnote 6). For example, the feasibility study cannot be found and neither can any reports or materials outlining details such as traffic projections on which RRP and PCR calculations of economic and financial rates of return were based. C. Borrower Performance 75. The Borrower and the executing agencies generally responded well to the Project’s needs and ADB’s requirements. Important policy changes were made; environmental and resettlement concerns were addressed, including the monitoring of the resettlement plan; and apart from the equipment procurement, project implementation proceeded smoothly. The one major exception was the Fangcheng municipal government’s failure to build the WTP.

V. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS A. Issues 76. Three issues arise from the project experience. The first is an apparent need for a stronger commercial orientation in Fangcheng Port that favors efficiency improvements over capital expansion and that bases tariffs and discounts on operational costs.

18

77. The second issue is that coordinated planning within the overall provincial port sector is warranted. This is to avoid overcapitalization, a possible scenario given the eagerness of the newly independent port operators to grow. 78. The third issue concerns an apparent need for stronger intermodal transport planning at the national and provincial levels, particularly in relation to road, port, and rail. As already noted, the Project probably would have benefited from simultaneous investment in added rail capacity along with the expressway and port developments. The separation of modes under different administrative structures and the different organizational cultures that result constrain coordinated planning. ADB’s funding arrangements can also act as a disincentive to the bundling of components for different agencies under a single project, thereby contributing to reduced coordination. Future transport planning could benefit from greater consideration of all modes, including waterways and air, both as alternatives and for coordinated development. B. Lessons 79. The project experience points to a need to improve traffic demand forecasts for expressways. While the total number of vehicles on the expressway is not far from that expected, the mix of vehicle types is. In particular, the growth in truck traffic and the expressway’s ability to attract cargo from the railway, was overestimated. Perhaps fortuitously, urban development and growing affluence near the port has stimulated a compensatory, but unexpected, growth in light vehicle traffic. The Project’s preparation is not unique in incorrectly estimating traffic growth as shown by a number of recent PCRs for other ADB-financed expressway projects. 80. In addition, ADB should take greater care to store baseline information and records so that these can be used for project reviews at a later date. C. Follow-Up Actions 81. In 1997, based on work done by the Japan International Cooperation Agency in Indonesia, ADB concluded that the high toll rates then proposed, and subsequently adopted, for large trucks might reduce the volume of traffic on the project expressway 10–20%. The GCD should carry out further investigations in this area, combined with a detailed review of port cargo, to determine the proportions of cargo suitable for truck and rail transport more accurately and the most appropriate toll rates. While not urgent, this would seem to be a useful exercise, not only for the project expressway, but for other highways and expressways within Guangxi and connecting to other provinces that might receive or expect truck traffic from Fangcheng.

Item

A. Port Component1. Civil Works 7.30 21.30 28.60 1.79 24.00 25.792. Equipment 23.00 8.10 31.10 16.75 0.50 17.253. Land Acquisition 0.00 0.00 0.00 0.00 0.00 0.004. Supervision and Training 0.50 2.00 2.50 0.28 2.40 2.685. Contingencies 4.80 11.20 16.00 0.00 0.30 0.306. Interest during Construction 3.40 4.50 7.90 1.13 3.85 4.987. Taxes and Duties 0.00 2.90 2.90 0.00 0.00 0.00

Subtotal 39.00 50.00 89.00 19.95 31.05 51.00

B. Highway Component1. Civil Works 5.70 10.10 15.80 8.68 13.30 21.982. Equipment 12.70 4.30 17.00 11.13 6.40 17.533. Land Acquisition 0.00 0.90 0.90 0.00 1.10 1.104. Supervision and Training 0.40 0.20 0.60 0.44 0.20 0.645. Contingencies 2.90 5.90 8.80 0.00 0.00 0.006. Interest during Construction 1.30 0.00 1.30 3.07 0.00 3.077. Taxes and Duties 0.00 1.60 1.60 0.00 2.20 2.20

Subtotal 23.00 23.00 46.00 23.32 23.20 46.52

Total 62.00 73.00 135.00 43.27 54.25 97.52Source: Asian Development Bank. 2002. Project Completion Report on the Fangcheng Port Development Project in the People's

Republic of China . Manila.

COST BREAKDOWN BY PROJECT COMPONENT($ million)

Appendix 1 19

Foreign Exchange

LocalCurency

Appraisal Estimate

TotalForeign

ExchangeLocal

Curency

Actual

Total

Cost

A. Port Component1. Guangxi Communications Department 0.00 9.50 9.50 0.00 6.76 6.762. Fangcheng Municipal Government 0.00 9.00 9.00 0.00 2.33 2.333. State Development Bank 7.00 23.00 30.00 0.00 16.04 16.044. Fangcheng Port Authority 0.00 8.50 8.50 0.00 5.92 5.925. Asian Development Bank 32.00 0.00 32.00 19.95 0.00 19.95

Subtotal 39.00 50.00 89.00 19.95 31.05 51.00

B. Highway Component1. Ministry of Communications 0.00 8.00 8.00 0.00 8.00 8.002. Guangxi Communications Department 3.00 15.00 18.00 3.00 15.20 18.203. Asian Development Bank 20.00 0.00 20.00 20.32 0.00 20.32

Subtotal 23.00 23.00 46.00 23.32 23.20 46.52

Total 62.00 73.00 135.00 43.27 54.25 97.52Source: Asian Development Bank. 2002. Project Completion Report on the Fangcheng Port Development Project in the

People's Republic of China . Manila.

20 Appendix 2

($ million)FINANCING PLAN

ActualAppraisal EstimateLocal

CurencyForeign

Exchange TotalLocal

CurencyForeign

ExchangeTotal

Appendix 3 21

BERTH CAPACITIES A. Berth 9 1. In general, berth 9 handles coal and ores using grabs attached to portal cranes. Berth 9 has six portal cranes, but usually only five cranes are used simultaneously. The rated capacity of these cranes is 16 tons (t) under the hook (at 33 meters [m]). For coal, grabs of 11 cubic meters capable of discharging 6 t average are used, and for iron ore, grabs of 4 to 7 t (average 6 t) are deployed. The simultaneous operation of five cranes will generally not yield five times an individual crane’s productivity. The average discharge per grab will also not be 6 t throughout the discharge period. The crane cycle time is about 80 seconds. Conservatively, it is assumed that over the entire discharge period the cranes will average 40 cycles per hour. The combined productivity of the five portal cranes for unloading is assumed to be about 80%, or 960 t per ship-hour working all five hatches. Over a full working period of 20 net hours in a three-shift day, the average ship productivity is about 20,000 t per day. With a highly organized operation, increasing the number of crane cycles is possible, in which case productivity could be increased to around 25,000 t per day. 2. The handling rate at berth 9 has averaged 875 t per hour over the past 5 years, varying from a low of 525 t per hour to a high of 1,272 t per hour. The lower values are possibly due to some breakbulk vessels also being handled at berth 9. It is assumed that with increasing volumes of dry bulk, breakbulk vessels will not be serviced at berth 9. The berth productivity per meter length of quay has varied from 8,856 t to a high of 14,418 t when the corresponding berth occupancy at this berth was recorded as 50% and 76%, respectively. The port’s berth occupancy figures are not good indicators of the pressure on the berths, because in these same years, total ship time at berth included almost as much nonoperational time as operational time. 3. During 2000–2004, berth 9 handled 17.01 million t and 567 ship calls for an average of 30,000 t per ship. On the basis of a ship discharge rate of 20,000 t per day, work time would be 36 hours and total time at berth would be 40 hours on average, including 4 hours for berthing and deberthing. For a 70% berth occupancy, the capacity of the berth is 4.6 million t. B. Berth 10 4. The port’s container cargo is carried mostly in small vessels of less than 10,000 deadweight tons. Such vessels are mostly motorized barges from Hong Kong, China, and similar destinations, are about 110 m long and 17 m wide, and carry 50–80 20-foot equivalent units (TEU). Making two berths of the 227 m quay available at berth 10 is generally not possible, but if some space is available in the adjacent berths, two such vessels can be berthed alongside at berth 10 with one crane deployed per vessel. At other times, vessels bank two deep, with the outer vessel completing its document and other clearances while the inner vessel is being worked. A small number of vessels are of the 300–350 TEU size, and a few larger container vessels in the 18,000–20,000 deadweight ton category carrying up to 1,000 TEU are engaged in domestic trade. The latter class of container vessels represents no more than 5% of all container ships calling at Fangcheng Port, but with growth in the container trade, this percentage is likely to increase. Bigger container ships are not expected to call at Fangcheng Port in the foreseeable future. 5. The capacity of berth 10 is estimated as 140,000 TEU per year. This assumes the quay is equivalent to 1.2 single-crane berths because of the small vessel size and how the berth is operated. The cranes make around 25 moves per hour. The mix of container sizes is about

22 Appendix 3

80 20-foot and 20 40-foot boxes per 100 boxes and 25 moves per hour is equivalent to around 30 TEU per hour. With an average exchange per ship, that is, counting both loaded and unloaded containers, of 120 TEU, average operational time would be 4 hours and total time is estimated at about 6 hours, including 2 hours for berthing and deberthing. The shorter berthing and deberthing time relative to bulk cargo vessels reflects the double banking possibilities at berth 10 and the small vessel size. With a berth occupancy ratio of 65%, the 1.2 equivalent berths can handle about 1,400 ships or 136,800 TEU per year. The average recorded container weight for 2000–2004 was 13.1 tons per TEU, making the container terminal’s capacity equivalent to 1.8 million t. 6. This capacity calculation does not take account of any improvements in the productivity of crane working to, say, 30 moves per hour, or of the possibility that the proportion of larger container vessels could increase in the future, allowing more efficient deployment of the two gantry cranes. With such changes, increasing the handling capacity at berth 10 to about 200,000 TEU per year should be possible. 7. Storage in the container yard is not currently a constraint. The yard, which is 12 hectares in area, is adequate for 12,000 TEU at a time with only three high stacking, although more yard equipment would be an advantage. With an average dwell time of 10 days and even cargo flow throughout the year, the theoretical capacity is more than 400,000 TEU per year, and with a maximum dwell time of 10 days, the capacity would be higher. However, cargo flow is not even, and a better estimate of yard capacity is 250,000–300,000 TEU per year. C. Berths 1–8 8. The maximum potential throughput at berths 1–8 is 14.8 million t per year. This is based on an average work rate of 450 t per ship-hour and a maximum berth occupancy ratio of 60% with minimal nonoperational time while ships are alongside. At this occupancy ratio for a group of eight berths, ship waiting time should not occur or should be minimal. Each of the eight berths would handle around 200 ships per year with 9,250 t of cargo on average for 24 hours per ship, including 3–4 hours for berthing and deberthing. Berth length is taken as 1,511 m and four cranes are assumed to be available per berth. 9. Such a high level of productivity is not sustainable at all berths throughout the year, as these berths will continue to receive some breakbulk cargo in small ships, which will reduce overall productivity. Assuming that only 75% of this potential throughput can be reached with efficient operations and planning, the capacity of berths 1–8 is limited to 11.0 million t. This would correspond to annual productivity of 7,200 t/m of quay, compared with the currently attained value of 5,182 t/m and 7,300 t/m for berths 6–12 (Appendix 5).

Criterion CriterionDescription Value Score

Relevance 20 Relevant 2 0.4Effectiveness 30 Highly Effective 3 0.9Efficiency 30 Efficient 2 0.6Sustainability 20 Likely 2 0.4

Overall Score 100 Successful 2.3

Source: Mission estimates.

Appendix 4 23

Rating

OVERALL ASSESSMENT

Weight(%)

24 Appendix 5

FANGCHENG PORT DETAILS A. Berth Development 1. At the time of project planning, Fangcheng Port had eight multipurpose berths suitable for ships up to 30,000 deadweight tons (dwt) plus some other specialized berths. Additional nonproject works prior to 1999 added more specialized berths and berths for small ships, referred to as transitional berths. In 1998, the port had 20 operational berths with a total of 2,673 meters (m) of quay, of which the original 8 multipurpose berths, berths 1–8 with a total quay length of 1,511 m, are the most relevant to the operation of the project berths. 2. Before the project berths became operational, bulk cargo was handled at any of the eight multipurpose berths 1–8 using portal cranes with grabs together with hoppers, trucks, and other facilities. Breakbulk was also handled at the eight multipurpose berths, as well as at the transitional berths. Containers were handled at the 181 m long berth 2 using the port’s two 35 ton (t) lift capacity portal cranes. Most container traffic was via small, specialized container vessels of less than 5,000 dwt carrying 50 to 350 20-foot equivalent units (TEU). 3. In October 1999, the 271 m long, project-funded berth 9 became operational for bulk ore and coal. Iron ore, coal, and other bulk cargo continued to be handled at other berths, particularly berths 1–3 for coal and 5–7 for iron ore. The project berth, as well as adding quay length, had deeper water alongside and could accommodate larger vessels of up to 70,000 dwt; was complemented by the project-funded cranes, conveyor belts, and related equipment; and had a larger and closer area for stacking bulk ore. Berth 9 also handled some breakbulk, particularly that arriving in large vessels, but most breakbulk continued to be handled at berths 1–8. 4. The 227 m long, project-funded berth 10 came into operation in 2000 mainly for container ships using large portal cranes transferred from berth 2, and with the completion of the installation of the specialized container cranes, from late 2001, it became a dedicated container terminal. The main advantage of berth 10 is its specialized nature for container handling resulting from both the cranes and the adjacent container yard. The additional berth and yard increased the port’s capacity, while the specialized nature of the berth conferred greater efficiency and speed, factors important to owners of container vessels. 5. Berth 11 came into operation in 2001 and berth 12 in late 2002. These nonproject berths mostly handle grain and other agricultural products and support a private foreign joint venture business that produces vegetable oil. They also can handle breakbulk. 6. A the time of the Operations Evaluation Mission, multipurpose berths 13–17 were under construction, as was a major bulk ore and coal terminal capable of handling ships up to 200,000 dwt and a chemical terminal for ships up to 50,000 dwt. Berths 18–22, for containers and multipurpose, were also planned to enable the port to cater to a projected annual throughput of 50 million t by 2010. 7. As of 2005, Fangcheng Port had 28 berths, of which at least 12 can accommodate vessels of up to 30,000 dwt, although 88% of ships calling at the port are smaller than this. Berths 9–12 can accommodate larger ships, and even the other berths can accommodate larger ships with tidal assistance. During operations, berth 10 is reserved for container ships and the occasional ship for which the large capacity container crane is needed to lift heavy objects. The

Appendix 5 25

other berths, particularly 1–9, 11, and 12, are used for dry bulk and breakbulk cargo and are assigned ships according to ship size and berth availability. B. Cargo Throughput 8. From 4.6 million t in 1995, cargo throughput increased steadily to 8.1 million t in 1999 as the project berths were in the last stages of completion, and eventually to 16.1 million t in 2004 (Table A5.1). Throughput for 2005 was projected at 18.5 million t, and the port expects to handle around 50 million t by 2020. Cargo growth from 1995 to 2004 averaged 15% per year, accelerating to around 20% per year in 2003–2004. 9. Historically, foreign trade has dominated port throughput, but domestic trade has grown more rapidly, albeit from a low base, and in 2003–2004 accounted for around 12–14% of port throughput. During 2000–2004, slightly more than half of port trade was inward, and inward trade appears to have been increasing slightly faster than outward trade (Table A5.2). 10. Fangcheng is primarily a bulk cargo port. Coal and bulk ores accounted for 55–63% of throughput during 2001–2004 (Table A5.2). A further 12% of throughput consists of oil and chemical liquid bulk cargo and cement, most of which is in bulk form. Additional bulk cargo consists of fertilizer, woodchips, and foodgrains for the vegetable oil processing mill located within the port area. In aggregate, bulk commodities account for an estimated 80% of total throughput. The remainder of the port throughput is breakbulk and containerized general cargo. 11. Until 2000, the number of containers passing through the port was less than 5,000 TEU per year. In 2000, berth 10 started operations and the port operator encouraged container lines to start services through the port. Container throughput subsequently grew rapidly to reach 80,000 TEU by 2004, representing about 6% of the port cargo throughput. When measured in terms of TEU, inward and outward movements are about equal; however, by weight, outward containerized cargo greatly exceeds inward containerized cargo (Table A5.1). 12. A slight seasonality factor has developed in the port trade that is reportedly more noticeable in container operations. This is due to the recent rapid growth in domestic sugar shipments from Guangxi to northern areas of the People’s Republic of China. Reportedly, the increase in such trade occurs during March–June. C. Ship Calls 13. The number of ships calling at Fangcheng Port has increased at an average of 10% per year from 1995 to 2004 (Table A5.1). The increase has not been even, with a decline in numbers during 1997–1999 followed by a more rapid increase. In addition, the growth in domestic trade ship calls has been much more rapid than that of foreign trade ship calls, with the former increasing, on average, by more than 30% per year during 1995–2004, while foreign trade ship calls grew by an average of only 5% per year during the same period. Thus by 2004, the strong dominance of foreign trade ships, which includes both those registered in the People’s Republic of China and elsewhere, had fallen to 60% of all ship calls at Fangcheng Port.

Item 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

A. Port Cargo ('000 t)1. Foreign Trade 4,500 4,880 6,259 6,593 7,063 8,315 9,244 10,051 11,298 14,146 2. Domestic Trade 50 192 152 383 1,017 912 788 1,111 1,899 1,939

Total 4,550 5,072 6,411 6,976 8,080 9,227 10,032 11,162 13,196 16,085

Share to Total (%)Foreign as % of total 99 96 98 95 87 90 92 90 86 88Inward as % of total 0 0 0 0 0 46 58 59 60 63

B. Containers, by TEU 4,986 4,240 2,900 3,400 4,859 15,921 20,123 46,079 52,378 80,168 Containers, by weight ('000 t )a 65 56 38 45 64 174 245 627 745 1,020 Share to Total (%)1. Container Cargo as % of Total, by weight 1 1 1 1 1 2 2 6 6 62. Proportion of Container Trade as Inward, by weight 0 0 0 0 0 22 23 25 20 233. Proportion of Container Trade as Inward, by TEU 0 0 0 0 0 47 50 52 49 51

C. Ship Calls1. Foreign Trade 724 767 759 666 611 748 718 865 953 1,083 2. DomesticTrade 63 106 108 123 182 222 341 452 673 734

Total 787 873 867 789 793 970 1,059 1,317 1,626 1,817

TEU = 20-foot equivalent unit.a For 1995 to 1999, based on assumed weight of 13.1 t/TEU which is the average for 2000–2004.Source: Fangcheng Port Group Company, Limited.

Table A5.1: Port Cargo and Ship Calls (1995–2004)26 A

ppendix 5

Outward Inward Total % Outward Inward Total % Outward Inward Total % Outward Inward Total %

A. Coals and Ores1. Coal 607 2 609 6 698 0 698 6 513 113 626 5 553 517 1,070 72. Metal ore 8 3,554 3,562 36 11 3,565 3,576 32 293 4,077 4,370 33 231 5,124 5,355 333. Non-metal ore 2,198 0 2,198 22 2,071 1 2,071 19 2,164 0 2,164 16 2,348 17 2,365 15

Subtotal 2,812 3,556 6,369 63 2,781 3,565 6,346 57 2,971 4,190 7,160 54 3,132 5,658 8,790 55

B. General Items1. Steel 354 71 424 4 225 25 251 2 345 93 438 3 306 43 349 22. Non-ferrous metal 4 468 472 5 10 322 332 3 3 348 351 3 50 485 535 33. Construction materials 4 1 5 0 2 1 3 0 0 0 0 0 6 1 7 04. Machinery 22 24 46 0 44 52 96 1 53 56 109 1 96 122 218 15. Wood 108 0 108 1 122 0 122 1 71 0 72 1 99 8 107 16. Fertilizer 258 111 369 4 265 172 436 4 368 18 386 3 877 290 1,166 77. Light industrial 77 57 135 1 147 4 151 1 217 0 217 2 425 28 453 38. Agricultural 27 153 180 2 187 167 354 3 195 241 436 3 229 252 481 39. Salt 0 194 194 2 0 218 218 2 0 256 256 2 1 210 211 110. Foodstuff 20 342 362 4 48 879 928 8 207 1,057 1,263 10 160 1,402 1,562 1011. Other 222 71 293 3 485 149 633 6 633 123 756 6 270 33 303 2

Subtotal 1,095 1,492 2,587 26 1,536 1,987 3,523 32 2,092 2,191 4,283 32 2,517 2,874 5,391 34

C. Special Berth Items1. Chemical items 68 605 673 7 80 695 776 7 118 1,123 1,241 9 258 1,375 1,633 102. Cement 195 0 195 2 124 0 124 1 118 4 122 1 10 - 10 03. Oil 0 209 209 2 8 386 394 4 8 381 389 3 76 185 261 2

Subtotal 263 814 1,077 11 213 1,081 1,294 12 245 1,508 1,753 13 343 1,561 1,904 12

Total 4,170 5,862 10,032 100 4,529 6,634 11,162 100 5,308 7,888 13,196 100 5,992 10,093 16,085 100

Proportion in Year (%) 42 58 100 41 59 100 40 60 100 37 63 100

Source: Fangcheng Port Group Company, Limited.

Appendix 5 27

Item

Table A5.2: Port Throughput by Commodity Type ('000 t)

2001 200420032002

28 Appendix 5

14. In terms of vessel type, a little over one third are bulk coal or ore ships, one third are breakbulk ships, a quarter are container ships, and the balance consists of ships of other types. 15. Small ships dominate shipping at Fangcheng Port. During 2000–2004, around 77% of ship calls were by ships smaller than 10,000 dwt (Table A5.3). A further 10% were between 10,000 dwt and 30,0000 dwt. This means that in terms of size and water depth requirements, 88% of the ships calling at Fangcheng can be accommodated at any of Fangcheng Port’s main berths, namely, the eight general purpose berths that were in place before the Project, project berths 9 and 10, and the new nonproject berths 11 and 12. Ships in the 30,000–60,000 dwt class can also be accommodated at any of the main berths with tidal assistance or if they are only partially loaded. The deep water alongside berths 9–12 is vital for a relatively small number of ship calls.

Item 2000 2001 2002 2003 2004A. Whole Port

1. No of Ships by SizeTotal 969 1,054 1,317 1,626 1,817

a. 0–999 dwt 238 209 239 215 150b. 1,000–9,999 dwt 480 590 786 1,083 1,265c. 10,000–29,999 dwt 134 116 149 139 158d. 30,000–59,999 dwt 41 57 52 98 147e. 60,000 dwt and greater 76 82 91 91 97

2. Proportion of Ships (%)a. Bulk Coal/Ore Ships 33 33 32 35 37b. Container Ships 25 25 29 31 26c. Breakbulk Ships 33 34 33 29 32d. Other Type Ships 9 8 5 5 6

3. Proportion of Ships Engaged inForeign Trade (%) 77 68 66 59 60

B. Berth 91. No of Ships by Size

Total 72 99 96 158 142a. 0–999 dwt 1 1 14 23 2b. 1,000– 9,999 dwt 20 42 28 75 74c. 10,000–29,999 dwt 11 5 5 6 14d. 30,000–59,999 dwt 6 9 10 18 23e. 60,000–69,999 dwt 21 15 8 13 11f. 70,000 dwt and greater 13 27 31 23 18

2. Proportion of Ships (%)a. Bulk Coal/Ore Ships 82 95 73 73 81b. Engaged in Foreign Trade 79 63 74 50 55

C. Berth 101. No of Ships by Size

Total 18 124 429 570 565a. 0–999 dwt 2 36 111 115 89b. 1,000–9,999 dwt 14 82 291 440 449c. 10,000–29,999 dwt 1 6 26 15 23d. 30,000 dwt and greater 1 0 1 0 4

2. Proportion of Ships (%)a. Container Ships 0 73 90 89 94b. Engaged in Foreign Trade 72 65 67 59 67

dwt = deadweight ton.Source: Fangcheng Port Group, Limited.

Table A5.3: Port Ship Calls

Appendix 5 29

16. Berth 9 has the deepest alongside water depth and receives the largest vessels. During 2003–2004, it serviced 8–10% of all port ship calls, which is in rough balance with the proportion of quay length the berth represents. Of ships using berth 9, about 13% were larger than the berth’s nominal capacity of 70,000 dwt. The majority of ship calls at berth 9, 63%, were by ships of less than 10,000 dwt. 17. Since 2000, all container ships call at berth 10. A total of 96% of all ship calls by container ships are by vessels of less than 10,000 dwt (Table A5.3). The predominant container vessel is a motorized barge out of Hong Kong, China, carrying 50–100 TEU. Several regional feeder services use ships of up to 350 TEU capacity. Some of the domestic trade container vessels are larger, up to 1000 TEU capacity, but these are few in number. 18. In 2003–2004, berth 10 handled 30–35% of all port ship calls. More than 90% of these were container vessels. The balance consisted predominantly of breakbulk vessels requiring use of the heavy lift capacity of the container cranes or vessels using available space at the berth, but discharging into or loading from the adjacent berth 9 and berth 11 cargo areas. D. Port Operations 19. Four types of port operations appear to be important. First, the bulk mineral trade dominates, with coal being shipped in and out, iron ore being shipped in, and a variety of other ores being shipped out. Ships are a mixture of sizes, many of them small, but a significant number are medium and large ships. Almost all berths can handle bulk cargo, and ships are assigned according to space availability and ship size. The largest vessels go to berth 9 because of the relatively deep water alongside. Second is a variety of other bulk commodity trades, such as cement, wood chips, oil and fuel, and chemicals. These trades are done at a few berths that have become specialized for these types of cargo. Third is the breakbulk or general cargo trade, which uses ships of all sizes and is handled at the same berths as those used for bulk cargo. With the commissioning of berths 11 and 12, more of the breakbulk trade passes through these berths, leaving berths 1–9 mainly for bulk cargo operations. Fourth is the container traffic. This is dealt with only at berth 10 and is dominated by many small vessels carrying 50–100 TEU. Ships double bank along the quay or two ships can berth at the same time if they extend into the neighboring berths. 20. Each berth has between four and six portal cranes with which to load and unload cargo. Berth 9 is supported by a bulk cargo stacking area and equipment such as a conveyor belt, stacker and unstacker, and bulldozers. It is used primarily for coal operations. A variety of portable hoppers, baggers, and other ancillary loading and unloading equipment for use along with the portal cranes is available for deployment on the general purpose berths. Berth 10 is fitted with two specialized container cranes and also has the two 35-t lift portal cranes that were transferred from berth 2. Crane and equipment operating rates and subsequent berth capacity calculations are described in Appendix 3. 21. Cargo operations or stevedoring are conducted by four companies organized under the Fangcheng Port Group Company, Limited and assigned to specific berths. The North Stevedoring Company handles berths 1–6; the South Stevedoring Company handles berths 7–9, 11, and 12 plus some of the transitional or small ship berths; and the Container Company operates the container terminal at berth 10. Another company, the Breakbulk Stevedoring Company, handles operations at berth 0 and some of the other small berths.

30 Appendix 5

22. The Operations Evaluation Mission noted that the port appeared to be reasonably well maintained, although dusty because of the bulk mineral cargo operations. Although not a major problem, the coal dust at berth 9 does cause some problems with container operations at adjacent berth 10, particularly during times when containers are being filled or unloaded. Other notable aspects were that containers in the berth 10 container yard were kept at relatively low stacking heights of two or three containers, reportedly to keep operating costs low. While not an issue at present, claims that the yard was congested with a throughput of 80,000 TEU per year must be discounted, as the equipment is capable of stacking in blocks four containers high. The 12-hectare yard is adequate for 12,000 TEU at a time with an average stacking of three high, although more yard equipment than is currently deployed might be needed for this volume. With a maximum dwell time of 10 days, this yard area is adequate to handle a throughput of 300,000 TEU. Some lost efficiency due to the container crane waiting for containers to arrive for loading onto vessels was noted. This suggests that the yard equipment may not be sufficient, particularly the number of rubber tired gantry cranes. Two of the four planned rubber tired gantry cranes under the Project were not procured, but may now be needed. 23. Berth 9 came into operation in 1999 and is operated as one of nine berths, along with berths 1–8, for dry bulk and general breakbulk cargo, although because of its specialized bulk cargo backup area and deep water alongside, it is used primarily for dry bulk cargo. Throughput at berth 9 quickly grew to 3.4 million t per year by 2001 and subsequently fluctuated between 3.4 and 3.9 million t per year of bulk coal and ores (Table A5.4). Berth 10 became operational in 2000, and throughput has increased steadily since then, reaching 80,000 TEU, equivalent to a little over 1.0 million t, in 2004. Based on the operations evaluation model for the port, without the Project the main port berths 1–8 would probably have reached their limits early in 2003, and in 2004, about 4.8 million t, equivalent to around 30% of the total actual port throughput for that year, would have had to be diverted to other ports. In actuality, the port also has berths 11 and 12, which started operations in 2001 and 2002, respectively, and these berths handle some of the cargo, particularly breakbulk cargo, that otherwise would be handled at berths 1–8. E. Port Efficiency 24. The available efficiency statistics for Fangcheng Port show a dramatic improvement in 1996, correlating with a change in management at the port (Table A5.5). Compared with average ship waiting times of several days per ship in 1994–1995, ship waiting times were almost eliminated in 1996. The 1996 improvements are also reflected in other statistics that indicate shortened average berth occupancy times; reduced average nonoperation times; and improved cargo handling rates, such as hourly hatch productivity and tons of cargo handled per ship-hour. The latter more than doubled compared with rates for the previous 2 years to reach 71.7 t per ship-hour. In 1996, the port appears to have been operating quite efficiently, with a berth occupancy ratio of 36%, which can be considered low in view of the large number of available berths. Most shipping was in small ships, so water depth and other physical arrangements were not a major concern. The port still had capacity in view of the low berth occupancy ratio and as reflected in the relatively low throughput per meter length of berth of just under 2,000 t. Significantly, the operational time of the berths was low at around 21%, meaning that as well as the time that berths were not in use, a substantial part of the time that ships were occupying berths was not being used productively. Both these aspects of nonproductive use of the berths provided scope for further efficiency and capacity gains.

Item 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Total Cargo 4,550 5,072 6,411 6,976 8,080 9,227 10,032 11,162 13,196 16,085 less Special Berths Cargo 706 525 775 916 549 495 397 401 371 310 Subtotal 3,844 4,547 5,636 6,060 7,532 8,731 9,635 10,761 12,825 15,774 of which: Containerized Cargo 65 56 38 45 64 174 245 627 745 1,020 Berth 9 0 0 0 0 563 2,400 3,439 3,763 3,922 3,488 Berths 1–8 and 11–12 3,779 4,491 5,598 6,015 6,906 6,158 5,950 6,372 8,159 11,266

t = ton.Note: Berth 10 started operations in 2000, and all container operations switched to berth 10 from that time onward.Source: Mission estimates based on data from Fangcheng Port Group Company, Limited.

Table A5.4: Berth Throughput Summary ('000 t)Appendix 5 31

Item 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004Cargo handled ('000 t) 4,550 5,072 6,411 6,976 8,080 9,227 10,032 11,162 13,196 16,085Number of ship calls 787 873 867 789 793 969 1,054 1,317 1,626 1,817

Average ship size (dwt) 8,408 7,973 10,855 13,503 14,632 12,762 12,710 11,801 11,047 11,741Average cargo handled per ship (t) 5,758 5,659 7,441 8,875 10,130 9,484 9,480 8,476 8,116 8,852Average productivity (t/ship-hour) 30.60 71.70 92.90 115.70 141.80 171.00 158.70 146.39 137.91 131.50Average productivity (t/hatch-hour) 42.10 70.00 92.50 90.60 85.70 120.00 124.90 126.63 124.94 119.25

Total ship time in port per 1,000 tons of cargo (days) 1.36 0.58 0.45 0.36 0.29 0.24 0.26 0.28 0.30 0.32Ship time in port per 1,000 tons of cargo for operational time and time lost due to port related problems (days) 0.83 0.26 0.22 0.18 0.16 0.12 0.13 0.13 0.14 0.15 of which: - operational time 0.42 0.25 0.20 0.17 0.15 0.12 0.12 0.13 0.14 0.13 - ship waiting time 0.37 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.01 - other 0.05 0.02 0.02 0.01 0.01 0.01 0.01 0.00 0.00 0.01Other ship time in port per 1,000 tons of cargo (days) 0.53 0.32 0.23 0.18 0.13 0.12 0.13 0.15 0.16 0.17

Berth Occupancy Ratio (%) 52 36 32 28 27 25 27 29 34 31Handling Ratio (%) a 30 21 18 16 16 13 15 19 22 27Berth throughput ratio (t/m of berth) 1,926 1,978 2,398 2,610 2,745 2,910 2,894 3,790 3,510 4,233

Average total ship time in port (day) 7.84 3.29 3.34 3.20 2.98 2.31 2.49 2.41 2.45 2.81Average ship waiting time (days) 2.12 0.01 0.03 0.01 0.01 0.00 0.02 0.00 0.03 0.13Average ship berth occupancy (days) 3.85 2.40 2.56 2.60 2.51 2.04 2.05 1.91 1.81 1.98Average ship operational time (days) 2.41 1.39 1.46 1.52 1.48 1.09 1.12 1.12 1.12 1.18Average ship non-operational time due to the port (days) 0.27 0.09 0.13 0.11 0.09 0.06 0.05 0.02 0.02 0.05Average ship non-operatonal time not due to the port (days) 3.05 1.79 1.71 1.55 1.39 1.15 1.30 1.27 1.28 1.45

m = meter, t = ton.a Operational time divided by the total available time. Total available time is calculated on the basis of 24 hours per day and 365 days per year.Source: Fangcheng Port Group Company, Limited.

Table A5.5: Port Efficiency Data (1994–2004)32 Appendix 5

Appendix 5 33

25. By 1998, the year before berth 9 became operational, port throughput had increased by 40% relative to 1996, but the number of ship calls had fallen, implying an increase in average cargo per ship. The efficiency statistics remained good, except that the productive part of the time that ships occupied a berth decreased further. In 1998, around 80% of the cargo passed through only six berths that accounted for 1,112 m of quay length. These were berths 3, 4, 6, 7, 8, and the transitional berth adjacent to berth 3 used for discharging cargos of cement. Although berth occupancy for the overall port was around 28%, for these berths the occupancy ratio was about 51%. About 40% of the time that ships were alongside was nonoperational, however, representing lost time or inefficiency. 26. By 2004, cargo throughput had increased by a further 130% to 16.0 million t. The number of ship calls had increased by a similar 130% compared with 1998. Cargo handling productivity had increased significantly to 132 t per ship-hour and around 119 t per hatch-hour, and overall berth productivity was at 4,200 t per meter length of berth. Average berth occupancy was at 41% and ship waiting time averaged 0.13 days per ship call. 27. However, the broad port statistics mask important aspects of port operation (Table A5.6). In 2004, not all berths were in full operation. The transitional berths, for example, had been taken out of cargo service, as the adjacent land was used for fabricating caissons for port construction works. As with the situation in 1998, 80% of cargo was passing through a small number of the port’s berths, that is, berths 6–12, which have a combined quay length of 1,696 m, resulting in productivity of more than 7,500 t per meter of berth. Berth 9 was the busiest, handling 22% of all port cargo, and berth 10 handled a further 7%. Berth occupancy ratios for each berth show that all the main berths were occupied for 60–75% of available time, with berths 1, 2, 9, 10, and 11 having the highest occupancy ratios. Although berth throughputs increased slightly to moderately in many berths other than the seven most heavily used berths, as new berths became available, they seem to have become the favored places for port operations, and ships with slower operations or problems were assigned to older berths. Productivity improvements at the older berths could possibly substitute for the need to build some of the additional berths planned. F. Landward Cargo Movements 28. Prior to the Project, the port was connected to the hinterland by a single track railway line and a class 3 road. The railway, under district operation, runs from Fangcheng Port to Qinzhou, about 50–60 kilometers away, where it is joined by branches from two other destinations, and thence goes on to Nanning. Connections to the national rail network occur at Qinzhou and Nanning. The class 3 road runs for 22 kilometers from Fangcheng Port to Fangcheng, from where two class 4 roads connect to the national highway going to Nanning or east toward Beihai. Little information about traffic on both the railway and the road is contained in the Asian Development Bank report and recommendation of the President1 and files nor is the feasibility study or other information for the pre- and early project periods available. The report and recommendation of the President states that the single track railway was heavily utilized. It is known that this track had a one-way capacity of 7.0 million t, which was upgraded to 12.0 million t in 2005. Concerning the road, the appraisal document states that it was congested and had a nominal capacity of 2,000 vehicles per day.

1 ADB. 1995. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the

People’s Republic of China for the Fangcheng Port Project. Manila.

34 Appendix 5

29. Historically, most cargo has moved between the port and the hinterland by rail. The limited information available suggests that around 90% of cargo moved by rail in 1995. The project expressway opened in 1998, and a significant amount of truck traffic started to use the road from the start of operations. Some of this was diverted traffic from the old roads, but some was traffic with cargo diverted from rail. During 2001–2004, the railway’s share of cargo decreased, but was still accounted for more than 70% of the cargo moved out of the port by either road or rail (Table A5.7).

Item 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004A. Productivity t/m length

1. Berths 1–8 2,492 2,978 3,689 3,985 4,602 4,117 3,863 3,603 4,177 5,1822. Berth 9 2,076 8,856 12,689 13,885 14,471 12,8703. Berth 10 390 733 2,479 2,988 3,9254. Berths 1–9 4,218 4,838 5,205 5,167 5,743 6,3515. Berths 1–12 4,059 4,845 5,9596. Berths 6–12 4,713 5,801 7,263

B. Average Handling Rates (t/hr)1. Berths 1–8 123 201 250 278 311 332 305 254 230 2262. Berth 9 526 870 1272 878 756 6693. Berth 10 173 137 262 242 2674. Berths 1–9 321 401 424 358 313 2845. Berths 1–12 307 302 2926. Berths 6–12 408 431 399

C. Berth Occupancy Ratios (%)1. Berths 1–8 72 55 53 51 51 50 47 50 60 742. Berth 9 21 49 43 63 76 803. Berth 10 0 12 45 66 73 814. Berths 1–9 48 50 47 51 61 745. Berths 1–12 50 61 766. Berths 6–12 43 58 767. Whole Port 52 36 32 28 27 25 27 29 34 41

D. Proportion of Berth Time that is Operational (%)1. Berths 1–8 60 58 60 61 62 54 58 61 66 672. Berth 9 58 64 71 77 78 753. Berth 10 61 38 45 54 574. Berths 1–9 62 55 59 63 68 685. Berths 1–12 67 66 686. Berths 6–12 76 67 687. Whole Port 58 57 60 58 59 54 55 64 65 67

hr = hour, m = meter, t = ton.Source: Mission estimates based on data from the Fangcheng Port Group Company, Limited.

Table A5.6: Selected Group of Berth Statistics

Appendix 5 35

30. Information from the port operator indicates that most of its customers are from other provinces, such as Guizhou, Sichuan, and Yunnan. About two thirds of the port cargo reportedly originates from or goes to these provinces.

Item 2001 2002 2003 2004

Total Port Cargo 10,032 11,162 13,196 16,085

Total Cargo Transported to/from Port by Rail and Roada 9,455 11,026 12,480 13,868

Cargo Transported to/from Port by Rail 7,974 8,532 8,777 10,097 - inward 3,350 3,229 3,130 3,779 - outward 4,624 5,303 5,646 6,318

Cargo Transported to/from Port by Road 1,482 2,494 3,703 3,771 - inward 670 1,253 1,935 1,637 - outward 811 1,241 1,768 2,134

Proportion of Cargo Transported by Rail (%) 84 77 70 73

a The port cargo not transported by rail or road could include transit cargo arriving and leaving by ship, including grain that is processed in the port area and reshipped as vegetable oil.Note: data for earlier years is not available.Source: Fangcheng Port Group Company, Limited.

Table A5.7: Landward Cargo Transport ('000 t)

Item 1998 1999 2000 2001 2002 2003 2004

A. Average Daily Traffic, in number of vehicles1. Truck

A 686 852 926 882 958 1,190 1,238 B 392 484 526 502 544 676 706 C 1,068 1,328 1,444 1,372 1,490 1,852 1,934 D 60 76 82 78 86 106 110 E 30 38 42 40 44 54 58 Subtotal 2,236 2,778 3,020 2,874 3,122 3,878 4,046

2. BusB 126 156 170 160 174 218 228 C 538 668 726 690 750 932 994 D 6 10 10 10 10 12 14 Subtotal 670 834 906 860 934 1,162 1,236

3. CarA 1,916 2,380 2,588 2,460 2,674 3,322 3,548

Total 4,822 5,992 6,514 6,194 6,730 8,362 8,830

B. Average Daily Traffic, in equivalent passenger car unit (PCU)1. Trucks 3,770 4,690 5,101 4,853 5,276 6,550 6,843 2. Buses 1,283 1,600 1,737 1,650 1,791 2,227 2,372 3. Cars 1,916 2,380 2,588 2,460 2,674 3,322 3,548

Total 6,969 8,670 9,426 8,963 9,741 12,099 12,763

PCU = passenger car unit.Note: PCU factors are 1.0 for category A vehicles, 1.5 for category B, 2.0 for category C, 3.0 for category D,

and 6.0 for category E.Source: Traffic data from Guangxi Expressway Administration Bureau. This was one-way data, which

was multiplied by 2 to give Annual Average Daily Traffic. PCU calculations are mission estimates.

AVERAGE ANNUAL DAILY TRAFFIC

36 Appendix 6

Appendix 7 37

ECONOMIC AND FINANCIAL ANALYSES A. General Model 1. In analyzing the Project, the with and without project scenarios were defined as with both the port and expressway components or without either. The majority of traffic on the expressway was expected to derive from port-related activity, and considering the expressway component without the port component was inappropriate. Similarly, given the small capacity and unsuitability of the existing road connections for large volumes of cargo movements, port development without road improvements was also not logical. 2. With the Project, the port is defined as berths 1–8 plus the project-financed berths 9 and 10. Berths 1–9 can be operated as a group for dry bulk and breakbulk cargo. All container ships and containers are handled at berth 10. The port’s other berths, namely, the oil berth, berth 0, and the transitional berths, and the cargo handled at those berths are not included, as their operations or cargo can be reasonably identified and are different from the cargo operations of berths 1–10. Berths 11 and 12 came into use in 2001 and 2002, respectively, and have similar operations as berths 1–9. However, inasmuch as berths 11 and 12 constitute an alternative to berths 9 and 10, for a proper with and without project comparison, the analysis assumes that berths 11 and 12 were not built. This required some adjustment of actual average handling rates and berth times to a theoretical situation as discussed later. 3. Without the Project, the port is defined as berths 1–8. Containers are assumed to be handled at berth 2 using portal cranes, which was the situation prevailing prior to the completion of berth 10. 4. The annual capacities of the berths have been defined as 11.0 million tons (t) for berths 1–8, 4.6 million t for berth 9, and 1.8 million t for berth 10 (Appendix 3).1 In 2004, berths 1–8 handled about 7.8 million t, berth 9 handled some 3.5 million t, and berth 10 handled about 1.1 million t in 80,000 20-foot equivalent units. 5. Under the general model, cargo at the port is assumed to grow at 15% per year until 2010, the approximate growth rate achieved during 1999–2004, and 10% per year thereafter and to maintain the same proportionate mix of commodities as during 2000–2004 (Table A7.1). Assuming that cargo is reasonably equally distributed over berths 1–9, these berths will have reached their capacity limits in 2005. Container operations will continue to grow until berth 10’s capacity is reached in 2007. Cargo beyond this level has been designated as excess cargo and has been excluded from the analyses, as the added cost or investment involved in handling this cargo is the same in both the with and without project scenarios. In actual practice, it would be handled at berths 11 and 12.

1 The capacity of berths 1–8 would be slightly higher in the with project scenario than the without project scenario, as

they constitute a group of nine rather than a group of eight. A larger group could operate with a higher berth occupancy ratio and still keep the ratio of waiting time to service time at acceptable levels, defined to be 0.2. However, for the sake of simplicity the analysis ignores this small increase in capacity.

Item 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2020

A. With Project1. Total Cargo 6,976 8,080 9,227 10,032 11,162 13,196 16,085 18,497 21,272 24,463 28,132 32,352 37,205 40,925 45,018 49,520 54,471 59,919 96,499

Less Cargo for Special Berths 916 549 495 397 401 371 310 357 411 472 543 625 718 790 869 956 1,051 1,157 1,8632. Balance of Cargo 6,060 7,532 8,731 9,635 10,761 12,825 15,774 18,140 20,861 23,991 27,589 31,727 36,487 40,135 44,149 48,564 53,420 58,762 94,637

Containerized Cargo 0 0 0 245 627 745 1,020 1,276 1,595 1,800 1,800 1,800 1,800 1,800 1,800 1,800 1,800 1,800 1,800Berth 9 0 563 2,400 3,439 3,763 3,922 4,000 4,600 4,600 4,600 4,600 4,600 4,600 4,600 4,600 4,600 4,600 4,600 4,600Berths 1–8 6,060 6,969 6,331 5,950 6,372 8,159 10,754 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000Excess Cargo BeyondWith-Project Port Capacity 0 0 0 0 0 0 0 1,265 3,667 6,591 10,189 14,327 19,087 22,735 26,749 31,164 36,020 41,362 77,237

B. Without Project1. Total Cargo 6,976 8,080 9,227 10,032 11,162 13,196 16,085 18,497 21,272 24,463 28,132 32,352 37,205 40,925 45,018 49,520 54,471 59,919 96,499

Less Cargo for Special Berths 916 549 495 397 401 371 310 357 411 472 543 625 718 790 869 956 1,051 1,157 1,8632. Balance of Cargo 6,060 7,532 8,731 9,635 10,761 12,825 15,774 18,140 20,861 23,991 27,589 31,727 36,487 40,135 44,149 48,564 53,420 58,762 94,637

Berths 1–8 6,060 7,532 8,731 9,635 10,761 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000Diverted Cargo 0 0 0 0 0 1,825 4,774 5,876 6,195 6,400 6,400 6,400 6,400 6,400 6,400 6,400 6,400 6,400 6,400Excess Cargo BeyondWith-Project Port Capacity 0 0 0 0 0 0 0 1,265 3,667 6,591 10,189 14,327 19,087 22,735 26,749 31,164 36,020 41,362 77,237

Sources: Appendix 5 of this report and mission estimates.

Table A7.1: Port Throughputs ('000 t)

38 Appendix 7

Appendix 7 39

6. Without the Project, in the absence of berth 10, the port can handle few containers and cargo that is containerized, now that the Project has gone ahead, would be in breakbulk form instead. Under this without the Project scenario, berths 1–8 would reach their 11 million tons per year capacity in 2003. Because of the lower port capacity without the Project, some of the with project cargo cannot be handled. This cargo, designated as diverted cargo, is assumed to be handled at other ports. For purpose of analysis, it is assumed to go to Zhangjiang Port in southern Guangdong. 7. The 20-kilometer (km) Asian Development Bank (ADB)-financed section of the expressway is analyzed as part of the complete expressway. The 45 km expressway opened in 1998. Prior to this, most cargo to and from the port, an estimated 90% of port throughput, was transported by rail. Road transport related to both the port and nearby urban areas was through a combination of class 3 and class 4 roads with a total length t of 72 km. 8. Data for expressway traffic was obtained from records of the Guangxi Expressway Bureau for the exit toll plaza near Fangcheng Port. In 1998, an average of 2,411 vehicles per day (vpd) passed that exit toll gate. It is assumed that the traffic is normal, that is, equal numbers of vehicles travel in both directions, so average annual daily traffic in 1998 would have been 4,822 vehicles. By 2004, it was 8,830 vpd, equivalent to 12,763 passenger car units (PCU)2 (Appendix 6). This traffic level was assumed to be the same for the entire length of the expressway. A comparison of actual toll receipts with those calculated on the basis of this traffic over the entire length of the expressway suggests that the latter overestimates toll receipts. There is an entry and exit point midway along the expressway, and the implication of the foregoing comparison is that the traffic passing between the Fangcheng Port entry and exit point and this midway entry and exit point is larger than that traveling on the rest of the expressway. That is, the average traffic over the entire length of the expressway is less than that estimated using the Fangcheng Port entry and exit data. 9. Traffic on the expressway is assumed to come from traffic that diverts from the old roads; traffic carrying port-related cargo that diverts from rail to road transport; and generated traffic, such as might come from the urban areas adjacent to the port because of the improved travel conditions (Table A7.2). Traffic after 2004 is assumed to grow at 7% per year until 2015 and 5% per year thereafter. 10. Few traffic figures exist for the preproject roads. Traffic is estimated to be about 500 vpd during 2003–2004. The appraisal report states that the old roads, with a nominal capacity of 2,000 vpd, were congested. The most plausible scenario appears to be an average annual daily traffic volume of about 2,400 vehicles in 1995, building up to 3,000 vpd in 1998 when the expressway opens (Table A7.3). During 1998 and 1999, it is assumed that 85% of traffic using the old roads diverts to the expressway, leaving some 400 vpd, which would build up with normal growth to a level of 500 vpd by 2004.

2 Based on each car and class A truck being equivalent to 1.0 PCU, each class B truck or bus to 1.5 PCU, each

class C truck or bus to 2.0 PCU, each class D truck to 3.0 PCU, and each class E truck (mainly articulated trucks and trailers) to 8 PCU.

Year Truck A Truck B Truck C Truck D Truck E Bus B Bus C Bus D Car Tractor Total Vehicles

Total PCU

A. Traffic Diverted from Old Roads1998 244 139 379 21 10 45 191 2 680 1,711 2,4691999 394 224 612 34 17 72 308 2 1,098 2,761 3,9862000 429 244 667 37 19 78 336 2 1,197 3,009 4,3462001 408 232 634 35 18 74 319 2 1,137 2,859 4,1292002 445 253 691 38 20 81 348 2 1,239 3,117 4,5032003 552 314 857 47 25 100 432 2 1,536 3,865 5,5842004 580 330 900 49 26 105 454 2 1,613 4,059 5,8632005 621 353 963 52 28 112 486 2 1,726 4,343 6,2732010 870 495 1,351 74 39 158 681 3 2,421 6,091 8,7982015 1,221 695 1,894 103 55 221 956 4 3,395 8,544 12,3402020 1,558 887 2,418 132 70 282 1,220 5 4,333 10,904 15,749

B. Traffic with Cargo Diverted from Rail1998 332 190 517 29 20 1,087 1,8571999 344 195 537 32 21 1,128 1,9312000 373 212 583 34 23 1,224 2,0952001 356 203 554 32 22 1,166 1,9952002 385 218 599 36 24 1,262 2,1632003 479 272 746 44 29 1,570 2,6852004 494 282 776 46 32 1,629 2,7972005 528 302 830 49 34 1,743 2,9932010 741 423 1,164 69 48 2,444 4,1972015 1,039 594 1,632 96 67 3,428 5,8872020 1,326 758 2,083 123 86 4,375 7,513

C. Generated Traffic1998 111 63 172 10 81 347 4 1,236 2,024 2,6431999 115 65 179 11 84 360 8 1,282 2,103 2,7542000 124 71 194 11 92 390 8 1,391 2,281 2,9852001 119 68 185 11 86 371 8 1,323 2,169 2,8392002 128 73 200 12 93 402 8 1,435 2,351 3,0752003 160 91 249 15 118 500 10 1,786 2,928 3,8302004 165 94 259 15 123 540 12 1,935 3,142 4,1042005 176 101 277 16 132 578 13 2,070 3,362 4,3912010 247 141 388 23 185 810 18 2,904 4,716 6,1592015 346 198 544 32 259 1,137 25 4,073 6,614 8,6382020 442 253 694 41 330 1,451 32 5,198 8,441 11,024

D. Total Expressway Traffic1998 686 392 1,068 60 30 126 538 6 1,916 4,822 6,9691999 852 484 1,328 76 38 156 668 10 2,380 5,992 8,6702000 926 526 1,444 82 42 170 726 10 2,588 6,514 9,4262001 882 502 1,372 78 40 160 690 10 2,460 6,194 8,9632002 958 544 1,490 86 44 174 750 10 2,674 6,730 9,7412003 1,190 676 1,852 106 54 218 932 12 3,322 8,362 12,0992004 1,238 706 1,934 110 58 228 994 14 3,548 8,830 12,7632005 1,325 755 2,069 118 62 244 1,064 15 3,796 9,448 13,6562010 1,858 1,060 2,902 165 87 342 1,492 21 5,325 13,251 19,1542015 2,606 1,486 4,071 232 122 480 2,092 29 7,468 18,586 26,8642020 3,326 1,897 5,195 296 156 612 2,670 38 9,531 23,721 34,286PCU = passenger car unit.Note: PCU values: 1.0 for cars and class A trucks, 1.5 for class B trucks and buses, 2.0 for class C trucks and buses, 3.0 for

class D trucks and buses, 6.0 for class E trucks.Source: Mission estimates with expressway total traffic 1998–2004 from Appendix 6 of this report

Table A7.2: Expressway Traffic

40 Appendix 7

Year Truck A Truck B Truck C Truck D Truck E Bus B Bus C Bus D Car Tractor Total Vehicles

Total PCU

A. Without Project322 184 501 28 14 59 252 3 899 119 2,381 3,388348 199 541 30 15 64 272 3 971 129 2,572 3,658376 215 584 32 16 69 294 3 1,049 139 2,777 3,947406 232 631 35 17 75 318 3 1,133 150 3,000 4,264426 244 663 37 18 79 334 3 1,190 158 3,152 4,481447 256 696 39 19 83 351 3 1,250 166 3,310 4,706469 269 731 41 20 87 369 3 1,313 174 3,476 4,942492 282 768 43 21 91 387 3 1,379 183 3,649 5,188517 296 806 45 22 96 406 3 1,448 192 3,831 5,445543 311 846 47 23 101 426 3 1,520 202 4,022 5,715581 333 905 50 25 108 456 3 1,626 216 4,304 6,115815 467 1270 71 35 152 639 5 2,281 303 6,036 8,577

1,143 655 1,781 99 48 213 897 6 3,199 425 8,466 12,0291,459 835 2,273 126 62 271 1,144 8 4,083 543 10,805 15,353

B. With Project162 93 252 14 7 30 127 1 453 150 1,289 1,79532 20 51 3 1 7 26 1 92 158 391 49534 21 54 3 1 7 27 1 97 166 411 51936 22 57 3 1 7 28 1 102 174 431 54438 23 60 3 1 7 29 1 107 183 452 56940 24 63 3 1 7 30 1 112 192 473 59542 25 66 3 1 7 32 1 118 202 497 62445 27 71 3 1 7 34 1 126 216 532 66863 38 99 5 2 11 48 2 177 303 746 93688 53 139 6 2 15 67 2 248 425 1,046 1,313

113 67 177 8 3 19 86 3 317 543 1,335 1,676

PCU = passenger car unit.Note: PCU values: 1.0 for cars and class A trucks, 1.5 for class B trucks and buses, 2.0 for class C trucks and buses, 3.0 for class D

trucks and buses, and 6.0 for class E trucks.Source: Mission estimates with expressway total traffic 1998–2004 from Appendix 6 of this report.

Appendix 7 41

Table A7.3: Old Road Traffic

19951996199719981999200020012002200320042005201020152020

1998199920002001

201020152020

2002200320042005

42 Appendix 7

B. Economic Analysis 1. General Assumptions 11. The port and expressway components are evaluated by computing the economic internal rate of return (EIRR) over the 25-year period 1995–2020. The analysis adopts the border price numeraire and uses a standard conversion factor of 0.926 to convert prices of nontraded goods to border price equivalents. All prices are adjusted to mid-2002 levels and expressed in yuan.

2. Port Component 12. The quantifiable economic benefits of the Project’s port component are saved ship service time, saved ship waiting time, and avoided land transport costs for diverted cargo. The first two derive from faster cargo handling and a larger number of berths with the Project compared to the without project scenario. The avoided land transport costs derive from the difference in port capacity with and without the Project, that is, a difference of 6.4 million tons per year. The costs at the port are the capital costs, including equipment replacement, and incremental operating costs. The analyses of the port done for the project completion report (PCR) and the report and recommendation of the President (RRP)3 adopt the same basic model and approach. In view of the detailed work done for the PCR on project costs and financial analysis of the port operations, the incremental capital, maintenance, and operational costs were adapted from those used in the PCR, and the operations evaluation focused on reassessing the benefits. 13. Actual handling rates as given in Appendix 5, Table A5.6, are used in both the with and without project cases up to 2001. From 2002 onward, the port’s actual handling rates are influenced by berths 11 and 12 and the handling rates have been adjusted. The long-term rates used were 325 tons per hour (t/hr) for berths 1–8 without the Project and 350 t/hr with the Project, 900 t/hr for berth 9, and 300 t/hr for berth 10. The lower handling rate for berths 1–8 without the Project relative to the rate with the Project reflects lower efficiency resulting from greater berth congestion. In calculating ship waiting times, ship service times were converted to berth occupancy times by using the actual proportions of berth times that are operational (Appendix 5, Table A5.6). These proportions were adjusted in the without project case for berths 1–8 from 2000 onward to reflect longer nonoperational times resulting from generally smaller ships and other inefficiencies. Waiting times were taken from the M/E2/n table4 published by the United Nations Conference on Trade and Development, and berth 10 was assumed to be equivalent to between 1 and 2 berths because of the small size of most vessels and how the berth is operated (Appendixes 3 and 5). Ship time was estimated at $500 per ship-hour for general cargo and bulk cargo vessels and $400 per ship-hour for smaller container vessels. 14. It is assumed that the diverted cargo is handled at similar rates as at Fangcheng Port and does not cause any extra congestion or cost at the port to which it is diverted. The savings are quantified on the basis of extra land transportation over 200 km at a cost of CNY10/t. 3 ADB. 2002. Project Completion Report on the Fangcheng Port Development Project in the People’s Republic of

China. Manila; and ADB. 1995. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Fangcheng Port Project. Manila.

4 These tables are normally used for randomized arrivals. It is appropriate for the breakbulk and bulk berths and was considered appropriate for the container terminal in view of the large number of nonscheduled small vessels bringing containers to and from Hong Kong, China.

Appendix 7 43

3. Expressway 15. The main benefits for the expressway component come from savings in vehicle operating costs (VOC) for traffic that diverts from the old roads to the expressway, VOC savings for generated traffic, and savings in transport costs for cargo that diverts from rail to road and uses the expressway. Additional sources of benefits are savings in VOC for traffic that remains on the old road arising from reduced congestion and faster travel times and reduced maintenance costs for the old road. The costs are the investment costs, the costs to replace maintenance and toll equipment, and the expressway operating and maintenance costs. 16. The traffic diverted from the old road to the expressway travels a shorter distance, that is, 45 km compared with 72 km, and travels at a lower cost per kilometer. Savings in VOC per vehicle-km at the start of operations in 1998 were, in 2005 prices, CNY0.32 for cars and other small vehicles, CNY0.39 for class B trucks, CNY0.54 for class C trucks, CNY0.72 for class D trucks, CNY0.90 for class E trucks, CNY0.16 for class B buses, CNY0.46 for class C buses, and CNY0.73 for class D buses. These differences are similar to those used in recent ADB studies. Half the VOC savings were applied to the generated traffic. 17. For 2001–2004, the reported international roughness index (IRI) of the expressway shows a slow deterioration from 2.2 to 2.7, which fits with expectations for this type of road. At the time of operations evaluation, the expressway’s IRI was about 1.7 as a result of recent grinding of joints between concrete blocks where some differential settlement had occurred. It is assumed that the starting roughness was an IRI of 1.5 in 1998, and that from 2006 onward, roughness increases by 0.25 IRI per year. Major work involving an asphalt overlay is assumed to be done when the IRI is around 4.5, after which the road roughness is brought back to an IRI of 1.5. This would occur in about 2017–2018. The cost for resurfacing the entire expressway is assumed to be CNY40 million at 2002 prices. 18. Roughness measurements are not made for the old roads. At the time of operations evaluation, the IRI of the old road was estimated as 4.0. Parts of this road had recently been resurfaced. It is assumed that the roughness of the old road is kept at about this level, on average, by an annual program of resurfacing parts of the road each year. As traffic builds up, the period between resurfacing for each piece of road will shorten, resulting in an increase in the amount of road resurfaced each year and in annual resurfacing expenditures. The underlying assumption is that resurfacing occurs when the IRI reaches 6.0 and brings the roughness back to an IRI of 3.0. It is also assumed that routine maintenance practices remain the same with and without the Project. 19. For cargo owners to move from rail to road, they must have either a cost or a convenience advantage. Most diverted cargo is likely to be breakbulk for destinations within a relatively short distance from the port, such as the Nanning area. Calculations based on the mix of vehicles presented in Table A7.2 for moving the diverted cargo indicate that any aggregate cost saving is unlikely. For this exercise, it was assumed that the alternatives are road to a point 130 km away from the port or rail to Nanning, about 90 km, then 40 km of road transport to the final destination, or the same in reverse. It is presumed that the advantage for cargo that switched from rail to road is one of convenience. The convenience value has to be at least equal to the difference in cost. As a conservative approach, no benefit has been entered for this aspect of the traffic calculations.

44 Appendix 7

20. Maintenance savings on the old road are estimated by the difference in the period when it has to be resurfaced to maintain an average roughness of 4.0. The cost of resurfacing the entire length is assumed to be CNY13 million. The maintenance cycle is estimated to be around 5 years without the Project, about twice as often as with the Project.

4. Results 21. The EIRR for the port component was recalculated to be 20% (Table A7.4) and for the expressway 19% (Table A7.5). The EIRR for the entire Project was 20%.

Year

1995 0 0 0 0 01996 0 0 0 0 01997 50 50 0 0 0 0 (50)1998 61 61 0 0 0 0 (61)1999 55 55 3 1 0 4 (51)2000 82 3 21 106 16 10 0 26 (80)2001 78 6 26 109 31 36 0 67 (42)2002 6 35 41 29 57 0 86 452003 6 37 44 34 83 17 134 902004 6 40 46 33 80 42 155 1092005 7 41 48 33 80 52 164 1172006 7 44 50 33 80 54 167 1172007 0 7 44 51 33 80 56 169 1182008 40 7 44 91 33 80 56 169 782009 74 7 44 125 33 80 56 169 442010 17 7 44 68 33 80 56 169 1012011 0 7 44 51 33 80 56 169 1182012 0 7 44 51 33 80 56 169 1182013 0 7 44 51 33 80 56 169 1182014 0 7 44 51 33 80 56 169 1182015 3 7 44 53 33 80 56 169 1162016 0 7 44 51 33 80 56 169 1182017 0 7 44 51 33 80 56 169 1182018 0 7 44 51 33 80 56 169 1182019 0 7 44 51 33 80 56 169 1182020 0 7 44 51 33 80 56 169 118

EIRR 20%

EIRR = economic internal rate of return.Source: Operations Evaluation Mission.

Additional Operating

Cost

Incremental Costs Incremental Benefits

Total Benefits

Net Benefits

Table A7.4: Economic Analysis of Port Component(CNY million at mid-2002 prices)

TotalCost

Saved Ship Service

Time

SavedShip Waiting

Time

Avoided LandTransportation

Cost fromDiverted Cargo

Capital Cost

AssetReplacement

IncrementalMaintenance

Year

1995 1,510 1,510 0 (1,510)1996 240,530 240,530 0 (240,530)1997 421,950 421,950 0 (421,950)1998 183,061 1,483 1,780 186,324 41,110 21,084 0 4,746 1 66,942 (119,382)1999 28,300 1,504 2,005 31,810 69,649 23,065 0 1,359 1 94,074 62,2642000 9,660 1,885 2,777 14,322 79,674 26,219 0 1,854 1 107,748 93,4262001 1,984 2,877 4,860 79,407 26,153 0 2,405 1 107,965 103,1052002 2,000 3,000 5,000 90,782 29,689 0 3,014 1 123,487 118,4872003 2,569 3,359 5,928 117,993 38,723 0 3,686 1 160,403 154,4752004 2,755 3,705 6,460 129,809 43,447 0 4,449 1 177,706 171,2462005 3,040 4,275 7,315 145,492 48,674 0 5,405 1 199,573 192,2582006 3,040 4,275 7,315 163,018 54,513 0 6,498 1 224,031 216,7162007 5,400 3,040 4,275 12,715 182,601 61,036 0 7,745 1 251,383 238,6682008 5,400 3,040 4,275 12,715 204,477 68,321 0 9,163 1 281,962 269,2472009 3,040 4,275 7,315 228,909 76,454 0 10,775 1 316,140 308,8252010 3,040 4,275 7,315 256,191 85,534 0 12,605 1 354,332 347,0172011 3,040 4,275 7,315 286,651 95,669 0 14,677 1 396,998 389,6832012 3,040 4,275 7,315 320,651 106,979 0 17,023 1 444,654 437,3392013 3,040 4,275 7,315 358,597 119,598 0 19,675 1 497,872 490,5572014 3,040 4,275 7,315 400,940 133,676 0 22,669 1 557,286 549,9712015 3,040 4,275 7,315 448,181 149,379 0 26,047 1 623,607 616,2922016 3,040 4,275 7,315 491,515 163,772 0 29,295 1 684,583 677,2682017 5,400 22,040 4,275 31,715 640,663 212,274 0 32,875 1 885,813 854,0982018 5,400 22,040 4,275 31,715 699,748 231,819 0 36,817 1 968,384 936,6692019 3,040 4,275 7,315 764,208 253,138 0 41,155 1 1,058,503 1,051,1882020 3,040 4,275 7,315 834,526 276,394 0 45,927 1 1,156,849 1,149,534

EIRR = 19%EIRR = economic internal rate of return.Source: Mission estimates.

Appendix 7 45

Cargo Diversion

Traffic Remaining

on Old Road

Old Road Maintenance

Savings

BenefitsTotal

Net Benefits

Table A7.5: Recalculation of Economic Internal Rate of Return for Expressway Component(CNY '000, constant 2002 prices)

Capital, including

Replacement

Expressway Maintenance

Expressway Operating

CostsTotal Traffic

Diverted from Old Road

Generated Traffic

46 Appendix 7

22. The EIRRs for the port component calculated in the RRP and PCR were 21.2% and 33.5%, respectively. For the expressway component, the respective RRP and PCR EIRRs were 21.4% and 14.7%. For the whole Project, the RRP estimated the EIRR as 21% and the PCR estimated it as 17.9%. Lack of data other than in relation to capital and operational costs in both the PCR and RRP prevent a comparison with the underlying assumptions and detailed methodology of those analyses. The general methodologies and the model for the port are the same as used for operations evaluation, however. 23. The strong growth of cargo throughput at the port means that the analyzed changes occur over a short period, namely, 1998–2007. While uncertainty exists for many of the variables chosen to quantify benefits, the major variable, cargo volume, is known or predicted with reasonable certainty, and sensitivity testing of the EIRR was not conducted. For the expressway, traffic growth and the difference between VOC on the old road without the Project and on the expressway are major sources of uncertainty. A reduction in traffic growth from 1996 onward from 7% per year to 5% per year would reduce the EIRR for the expressway to 17% and an increase in traffic growth from 2006 onward to 9% per year would increase the EIRR to 20%. A 10% reduction in the difference between the without and with Project VOC for the entire analysis period would reduce the EIRR to 17%. C. Financial Analysis 24. Data to compute the financial internal rate of return (FIRR) were only available for the expressway component. 25. Financial benefits are derived from tolls. For 1998–2005, the appropriate annual amount in current prices is obtained from the income statement (Appendix 8). For subsequent years, toll income is calculated from traffic (Table A7.2). Toll rates were the same during 1998–2005 and were CNY0.25/km for cars and class A trucks, CNY0.50/km for class B trucks and class B and C buses, CNY0.85/km for class C trucks, CNY1.60/km for class D trucks and class D buses, and CNY2.40/km for class E trucks. 26. The FIRR is 2.0% (Table A7.6), much less than the weighted average cost of capital of 6.5%.The FIRR for the expressway calculated in the RRP was 5.7% and in the PCR it was 6.6%. Neither the RRP nor the PCR present traffic projections, thus a comparison of the differences between the RRP and PCR results with those obtained here cannot be done. 27. As indicated in para. 8, a comparison between actual toll income and that based on a multiplication of toll rate, distance, and numbers of each type of vehicle from Table A7.2 suggests that the traffic in Table A7.2 overestimates the actual situation for the entire expressway. The difference for 1999–2004 was 10–15%. Should the financial benefit stream be calculated on a 10% lower basis from 2006 onward, the FIRR would fall to 1%. However, should the traffic growth rate increase to 10% per year from 2006 onward, compared with the 5–7% projected, the FIRR would increase to 4%. A real increase in toll rates by 25% from 2006 onward would increase the FIRR to 6%.

Year

1995 1.9 (2)1996 274.7 (275)1997 524.0 (524)1998 273.6 3.3 1.9 38 (240)1999 94.5 3.5 2.1 42 (58)2000 103.9 4.7 2.3 45 (65)2001 87.3 4.9 2.4 47 (48)2002 5.0 2.5 50 422003 5.9 2.7 53 442004 6.5 2.8 55 462005 7.3 2.9 59 492006 7.7 3.2 74 632007 6.4 8.1 3.4 79 612008 6.4 8.5 3.6 85 662009 8.9 3.9 91 782010 9.3 4.1 97 842011 9.8 4.4 104 902012 10.3 4.7 111 962013 10.8 5.1 119 1032014 11.3 5.4 127 1102015 11.9 5.8 136 1182016 12.5 6.4 143 1242017 6.4 35.9 7.0 150 1012018 6.4 36.6 7.7 157 1072019 14.5 8.5 165 1422020 15.2 9.3 174 149

EIRR = 2%EIRR = economic internal rate of return.Source: Mission estimates.

Appendix 7 47

Table A7.6: Recalculation of Financial Internal Rate of Returnfor Expressway Component(2002 prices CNY'million)

Capital Expenditure

Expressway Operation and Maintenance

Business Tax

Toll Revenue

Net Benefit Flow

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005a

Toll Revenue 0.0 0.0 0.0 36.9 40.2 43.5 44.7 47.4 50.7 54.8 59.2Freight 0.0 0.0 0.0 21.4 22.7 24.7 25.4 27.3 28.9 31.2 33.7Passenger 0.0 0.0 0.0 17.4 19.6 21.1 21.7 22.6 24.5 26.5 28.6Less: Business tax 0.0 0.0 0.0 1.9 2.1 2.3 2.4 2.5 2.7 2.9 3.1

Working Expenses 0.0 0.0 0.0 3.3 3.5 4.7 4.9 5.0 6.0 6.8 7.7Personnel 0.0 0.0 0.0 1.2 1.3 1.7 1.7 1.8 2.0 2.2 2.4Materials 0.0 0.0 0.0 0.5 0.5 0.7 0.8 0.8 0.9 1.1 1.2Power and Maintenance 0.0 0.0 0.0 1.0 1.0 1.2 1.2 1.2 1.7 1.8 2.0Administration 0.0 0.0 0.0 0.3 0.4 0.6 0.7 0.7 0.8 1.0 1.2Others 0.0 0.0 0.0 0.3 0.3 0.5 0.5 0.5 0.6 0.7 0.9

Depreciation Expenses 0.0 0.0 0.0 36.0 38.5 43.3 48.1 48.1 48.1 48.1 48.1

Total Operating Expenses 0.0 0.0 0.0 39.3 42.0 48.0 53.0 53.1 54.1 54.9 55.8

Operating Proft (Loss) 0.0 0.0 0.0 (2.4) (1.8) (4.5) (8.3) (5.7) (3.4) (0.1) 3.4

Interest Expense 0.0 0.0 0.0 0.0 0.0 0.0 8.4 10.2 9.9 11.7 6.3Net Profit (Loss) before Income tax 0.0 0.0 0.0 (2.4) (1.8) (4.5) (16.7) (15.9) (13.3) (11.8) (2.9)Income Tax Payable 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net Profit after Income Tax 0.0 0.0 0.0 (2.4) (1.8) (4.5) (16.7) (15.9) (13.3) (11.8) (2.9)a As of 31 October 2005.Source: Guangxi Communications Department.

48 Appendix 8

FINANCIAL STATEMENTS

Table A8.1: Income Statement for Expressway(CNY million)

Item

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005a

Current Assets 0.9 0.0 0.0 17.0 27.5 51.2 65.0 92.6 123.6 155.8 54.2Cash 0.9 0.0 0.0 13.2 23.6 47.6 53.9 89.2 120.2 152.4 50.8Accounts Receivable 0.0 0.0 0.0 0.5 1.1 0.5 1.4 2.0 2.0 2.0 2.0Inventories and Others 0.0 0.0 0.0 3.3 2.8 3.1 9.7 1.4 1.4 1.4 1.4

Fixed Assets 2.1 303.3 778.2 949.5 952.9 930.9 896.1 848.0 799.8 751.7 703.6Gross Assets in Operation 0.0 0.0 0.0 985.5 1,027.4 1,048.7 1,061.9 1,061.9 1,061.9 1,061.9 1,061.9Less: Accumulated Depreciation 0.0 0.0 0.0 36.0 74.5 117.8 165.8 213.9 262.1 310.2 358.3Net Assets in Operation 0.0 0.0 0.0 949.5 952.9 930.9 896.1 848.0 799.8 751.7 703.6Construction in Progress 2.1 303.3 778.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total Assets 3.0 303.3 778.2 966.5 980.4 982.1 961.1 940.6 923.4 907.5 757.8Current Liabilities 0.0 0.3 2.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Asian Development Bank Loan 0.0 0.0 43.0 142.0 157.6 163.8 159.3 154.7 150.9 146.8 0.0Capital 3.0 303.0 733.0 824.5 822.8 818.3 801.8 785.9 772.5 760.7 757.8

Paid-In Capital 3.0 303.0 733.0 827.0 827.0 827.0 827.0 827.0 827.0 827.0 827.0Retained Earnings 0.0 0.0 0.0 (2.5) (4.2) (8.7) (25.2) (41.1) (54.5) (66.3) (69.2)

Total Liabilities and Capital 3.0 303.3 778.2 966.5 980.4 982.1 961.1 940.6 923.4 907.5 757.8 Appendix 8 49

Source: Guangxi Communications Department.

Item

a As of 31 October 2005.

(CNY million)Table A8.2: Balance Sheet for Expressway

Item 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005a

Sources of Funds 3.0 300.0 473.0 226.5 52.3 49.1 39.8 42.4 44.7 48.0 51.5

Funds from Operations 0.0 0.0 0.0 33.6 36.7 38.8 39.8 42.4 44.7 48.0 51.5Operating Profit (Loss) 0.0 0.0 0.0 (2.4) (1.8) (4.5) (8.3) (5.7) (3.4) (0.1) 3.4Add-Back Depreciation 0.0 0.0 0.0 36.0 38.5 43.3 48.1 48.1 48.1 48.1 48.1

Capital from GCD and MOC 3.0 300.0 430.0 94.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0ADB Loan 0.0 0.0 43.0 98.9 15.6 10.3 0.0 0.0 0.0 0.0 0.0

Application of Funds 2.1 300.9 473 213.3 41.9 25.1 33.6 7.1 13.7 15.8 153.1

Capital Expenditure 2.1 301.2 474.9 207.3 41.8 21.3 13.2 0.0 0.0 0.0 0.0Change in Working Capital 0.0 (0.3) (1.9) 6 0.1 (0.3) 7.5 (7.8) 0.0 0.0 0.0Debt Service 0.0 0.0 0.0 0.0 0.0 4.1 12.9 14.9 13.7 15.8 153.1

ADB Loan Interest 0.0 0.0 0.0 0.0 0.0 0.0 8.4 10.2 9.9 11.7 6.3ADB Loan Repayment 0.0 0.0 0.0 0.0 0.0 4.1 4.5 4.7 3.8 4.1 146.8

Income Tax Paid 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net Cash Flow 0.9 (0.9) 0.0 13.2 10.4 24.0 6.2 35.3 31.0 32.2 (101.6)Cash at Beginning 0.0 0.9 0.0 0.0 13.2 23.6 47.6 53.8 89.1 120.1 152.3Cash at End 0.9 0.0 0.0 13.2 23.6 47.6 53.8 89.1 120.1 152.3 50.7

Debt Service Ratio (not covenanted) 9.5 3.1 2.8 3.3 3.0 0.3

ADB = Asian Development Bank, GCD = Guangxi Communications Department, MOC = Ministry of Communications.

50 Appendix 8

a As of 31 October 2005.Source: Guangxi Communications Department.

Table A8.3: Cash Flow Statement for Expressway(CNY million)