YANGSHAN PORT

Project Management Sec -Z Group 1 Chiranjeeb Mohanty U113197Rakesh A . U113163Yatin Sawhney U113180Soveet Gupta U113174Ashish Roshan Jena U113192 Tanvi Randhar U113178

Agenda

Need for a new portProject PlanConstructionRisk Management & MitigationConclusion

Introduction

• Worlds busiest container port. Current capacity 33.62 million TEUS. Yangshan Port is a deepwater port for container ships in Hangzhou Bay south of Shanghai.

Connected to the mainland via the 32.5 km (20.2 mi) Donghai Bridge, opened on 1 December 2005 as the world's longest sea bridge

• In mid-2011, port officials said the port was on track to move 12.3 million TEUs during the year, up from 10.1 million TEUs in 2010

• Six Phase Project| Estimated Cost on completion 12 billion$. The fourth phase, expected to open in 2015, will add 4 million TEUS to the port's annual capacity

• It allows berths with depths of up to 15 metres (49 feet) to be built, and can handle today's largest container ships

• Interesting trivia: Shanghai Government submitted the Yangshan Deep Water Port Phase I Project Proposal to the State Economic Planning Commission, the Shanghai government had to use a container to store the proposal, which weighed two tons, and was shipped in a Boeing plane.

Need for a new port

• 1998 Shanghai Port Authority facing challenges sufficient container handling • Extending and enlarging the terminals along the Yangtze delta was not possible due to

water depth of 7-8 m only. • Focus Shanghai’s government turn the port into a major Asian container hub.• Decided to build an entirely new deep water port in the Shanghai region with commencement in 2001.

3 Constraints• Water depth at the Yangtze River estuary and Huangpu River is only 7-8 meters. Because of

this, third and fourth generation container ships can only enter and leave the port at high tide. Fifth and sixth generation ships need 15 meters to move freely

• Huangpu River is not wide enough for large ships. Container ships cannot turn freely within the port. Large ships need to unload cargo to smaller ships prior to entering the port, resulting in increased shipping costs.

• Shanghai port lacked modern logistics to provide comprehensive services

Agenda

Need for a new PortProject PlanConstructionRisk Management & Mitigation

Timeline of events-Plan

Mid 90’s-faced with cargo problems, shanghai port looks

for options

Dec 2008 - Added 7 more deep-water berths as a part of

third phase

December 2005- phase1 gets completed and port starts

operationPhase II construction begins

March 2002- Yangshan Project Proposal approved by the State Council after huge

feasibility exercises

December 2006-Phase II gets completed and phase 3

started

June 26, 2002-phase 1 construction begins

December 2010-Phase IV completion

Feasibility and approval

•Shanghai port had no suitable place in its own area to meet the demands of such a harbour

•Massive feasibility research was conducted by Shanghai Municipal Government since the mid 1990’s

•After six years of feasibility studies, the islands of Xiao Yangshan and Da Yangshan in the Hangzhou Bay, 27.5 kilometres from Shanghai's southern coast, and under the jurisdiction of the neighbouring Province Zhejiang, was chosen as the site of the deepwater port of Shanghai

Feasibility and approval

•In August 1999, the Shanghai Government submitted the Yangshan Deep Water Port Phase I Project Proposal to the State Economic Planning Commission

•About 200 related institute and research center and 6000 researchers and scientists joined research, preparation, and design the new site

•In March 2002, the Yangshan Project Proposal was approved by the State Council and the State Economic Planning Commission, and the project began construction on June 26, 2002

•The NPV of the phase 1 was found out to be USD 29 million with IRR of 17.7%

Project planningPhase-I plan

• In 2002, the Shanghai Government founded Shanghai Tongsheng Investment Group (SHTS) to take full control of the Yangshan Port Phase I construction.

• Yangshan Deep Water Port project was divided into four separate components

Yangshan Deep Water Port Zone:- Xiao yangshan and da Yanshang

Donghai Bridge:- A bridge connecting Big Yangshan & Little Yangshan to Luchaogang, the closest on-shore point in Shanghai

Luchao District:- port city in Luchaogang with a land area of 1.5 sq. km, with storage area of 720,000 sq. m. and 15 container cranes

Lu-Hu Freeway:- freeway connecting Luchao and Shanghai, designed to be 43 kilometers in length.

• The project was divided into 2 stages and 6 phases.

• The initial stage of development would be in Xiao Yangshan and the subsequent stage on neighbouring Da yangshan island

Project SPV

•Shanghai Tongsheng Investment Group (SHTS) owned by 3 state-owned entities: Shanghai International Investment Group, Shanghai Port Authority(SIPG) and Shanghai State-owned Asset Management Company was announced to be the entity that was in charge of the construction and operation of the Yangshan Phase I project.

•After the completion of the Phase I Yangshan Deep-water port, the port will be managed and operated by the Shanghai Port Container Co. Ltd

Project SPV

•Shanghai shendong international container co.(SHSG) took charge of the construction and operation in phase II and the ownership structure changed

• Following was the ownership structure:-

Hutchison Whampoa 32%AP Moller Maersk 32%SIPG 16% COSCO 10%China Shipping 10%

Financing• Phase I required a investment of RMB 14.31 billion including RMB 7.2

billion for the port area(sea route and auxiliary facilities) and RMB 7.11 billion for the Donghai Bridge.

• Five domestic banks, comprising China Construction Bank, State Development Bank, Bank of China, Industrial and Commercial Bank, Shanghai Pudong Development Bank, offered a RMB 7.5 billion loan to SHTS

• Rest of the investment came in form of equity from govt. asset supervision and administration commission, china merchants holding group(CMG), Shanghai State-owned Asset management company and Shanghai Dasheng holding group.

• A consortium of 10 banks including above mentioned 5 banks signed a deal to provide a RMB 17 billion credit line for the port construction up to the year 2020.

Financing• Phase II saw investment of USD 830 million with equity contribution from

Hutchison Whampoa, AP Moller Maersk ,Shanghai international port group(SIPG) ,COSCO, China Shipping and debt from consortium of 5 banks.

• SIPG(currently owns 16%) went public in 2006 to ensure funds for future expansions

Phase I Phase II Phase III Phase IV Phase V Phase VI Phase VII Total

Completion Time 2005 2006 2008 2010 2020 2020

Total Investment(billion)

1.25 0.8 11.75 12.2

AccumulatedAnnual Capacity

(TEU, million)2.2 15 20 20

Number ofBerths

5 4 4 3 14 30

Expected Financials from port operation

Number in thousand RMB2004 A 2005 E 2006 E 2007 E

Revenue ( 000' yuan) 4,043,460 4,763,550 6,271,400 6,730,110 Less Cost of sales 1,792,960 2,301,950 3,077,610 3,489,520 Less revenue adjustment 121,440 142,910 188,140 201,900Gross profit 2,129,060 2,318,690 3,005,650 3,038,690

Other business profit 125,570 213,870 213,870 213,870SG&A 335,950 404,900 627,140 572,060Other Overhead 96,200 235,160 215,280 151,020Operating Profit 1,822,480 1,892,500 2,377,100 2,529,480

Operating margin 45.07% 39.73% 37.90% 37.58%

Other investment income 47,540 50,000 80,000 80,000Non operating income 390 30000 50000 50000Taxable income 1,870,410 1,972,500 2,507,100 2,659,480 Tax -281,720 -295,880 -376,070 -398,920 Minority interest -433,210 -400,000 -583,230 -557,190Net income 1,155,480 1,276,620 1,547,800 1,703,370

Capital Ex 1,863,680 3,287,130 6,500,000 200,000Capital Ex % of Revenue 46.09% 69.01% 103.65% 2.97%

Source: HuaTai Securities Co., LTD

Shanghai Port Container Co. Ltd. Income Statement and Projection

Agenda

Need for a new PortProject PlanConstructionRisk Management & Mitigation

Construction

Construction-Phase I• Total Investment: RMB 14.3 BN Four

major components:– Port Zone– Donghai Bridge– Lu-Hu Freeway– Luchaogang city

• Construction began in 26th Jun 2002 and completed in Dec 2005

• EPC Contractor – China Harbour Engineering Company Ltd.

Construction-Phase I• The Phase I of port zone

construction includes 5/30 port berths planned

• Total handling capacity of 2-2.5 million TEU’s a year out of the planned capacity of 25 million TEU

• Channel depth-15.5 meters (enough for 5th and 6th generation container ships with 8000 TEU capacity)

• It covers an area of 1.44 sq.km with 1600 m quay waterfront

• Upon completion of phase-I, Yangshan wasthe 2nd largest container port in the world in terms of capacity

Land Reclamation• Need: Yangshan is a tiny group of island with very little plain area near the coast• To accommodate the massive port fresh flat lands were needed adjacent to the islands• This could only be done through land reclammation• To reclaim land over depths of 15m requires 3000 million of cu.m of ocean mud for

phase 1• For the 6 phases they will pump 13 bn cu.m of mud• This required massive dredging machines

• Yangshan is a tiny group of island with very little plain area near the coast• To accommodate the massive port fresh flat lands were needed • The shorelines of the islands had to be expanded• Land relamation through rocks and ocean mud was the only viable solution• To reclaim land over depths of 15.5m required 3000 million cu.m of ocean mud for

phase 1• For all the phases put together they will pump 13 bn cu.m of mud to expand the

shores of Yangshan• Massive sea dredging machines were employed round the year for this purpose

Cranes• Phase-I uses 13 in nos. (Ship to

shore) STS-40 cranes• These cranes for Yangshan

needed to be 50m high• They had to lift 4 TEU’s at one

go• These cranes should

dock/undock at a rate of 50 containers an hour

• No such crane existed in the world at that time.

• The cranes were custom designed and made by zhenhua heavy industries. “The biggest crane factory in the world”

Control room

• The port control room acts as a nerve centre

• Control system was developed by the Port of Shanghai Ltd.

• Advanced CCTV systems, communication systems, wireless network systems which connects STS-40 cranes, gantry cranes, trucks with information from the ship and shipping companies.

• This creates a seamless information flow between port staff on what to move, when to move and where to move

• The control room also monitors logistics park in Luchaogang city, Donghai bridge

Donghai bridgeDesign

• Second longest sea bridge in the world - 6 lanes wide and 32 km long

• Connects Luchaogang city and Yangshan port

• Strong enough to withstand 6m waves, typhoons every summer

• The donghai is a combination of box girder bridge made of 600 concrete spans and 2 cable –stayed suspension bridges

• The suspension bridges had to be high enough to accommodate the worlds biggest ships underneath them

• The overall bridge design should cater to the needs of ships travelling with the sea current

• Design of the bridge to these requirements took 2 years to complete

Construction• 6000 foundation piles dug into

20 m of water and 40 m of mud to reach bed rock within 5mm accuracy through GPS

• The sections above foundation was pre-fabricated and transported through barges with 1600 tonne lift capacity

• Constructed in 42 months

Luchaogang city

• Planned suburb of 311.6 sq.km

• Logistics park having a storage area of 720,000 sq.m for supporting the port

• The suburb also houses several industries which are dependent on the port

• Lu-Hu Freeway 43 km long was built to connect Luchaogang with Shanghai industrial district

Construction-Phase II

• Phase II added another 4 berth on the north-west side of the island next to the 5 constructed during phase I

• Added 1,400 meters to the length of the quay and increase annual operation capacity by 2.1 million TEU

• With average waterway depth of 15m, it enabled the port to accommodate up to 8,000 TEU container ships

• To make accommodations, the north-west section of the island’s coastline was expanded into the sea via a “sea-fill” method, by dumping rocks and sand into the sea

Phase II

Phase I

Phase III and beyond• In December 2008 7 more berths were

added to take the berth count to 16• 2600 quay length added and annual

operation capacity increased to 5.5 million TEUs

• The west Yangshan port area will have 10 to 12 berths of from 50,000 to 100,000 tonnes with a quay length of over four kilometres.

• The project is expected to be completed by 2020 with 30 berths with capacity of 70,000 to 100,000 tonnes and the handling capacity to reach 20 million TEU.

Year Container handling volume CAGR2005 2.2 million TEU2010 5.5 million TEU 20.1% (2005 to 2010)2020 13.4 million TEU 9.3% (2010 to 2020)

MM TEU2004 A 2005 E 2006 E 2007 E

Huangpu River Port 3.83 3.75 3.3 3Waigaoqiao Port 4.31 5.17 5.44 5.71Yangshan Deep-water Port Phase I 2.7 3.24Yangshan Deep-water Port Phase II 2Shanghai Ports Total 8.14 8.92 11.44 13.95

Source: HuaTai Securities Co., LTD

Schedule Actual

Phase-3 2008 2010

Phase-4 2010 2015

Delay because of slowdown in container shipments during recession and overcapacity of chinese ports

Time & Cost Overrun

• Only documented cost overrun was in Donghai Bridge

• On completion of the project, it was reported that the cost shot up by $350million on account of design changes

Agenda

Need for a new PortProject PlanConstructionRisk Management & Mitigation

Challenges

•Land reclamation problem and engineering challenges to build the port in deep water•Environmental concerns regarding the flora and fauna of the 2 islands•Communication facility to the shanghai port as it is about 27.5 kilometres from the coast•Sufficient storage facility was not there •support facilities, power plant, water plant, and living area was a concern •Shipping line could have been blocked by Donghai bridge

•Sea mud was used to build the port from scratch•They limited the land reclamation to as minimal as possible and used sea mud instead of land fill from reclamation•Donghai bridge was built to take care of communications•Luchagoang city, the nearest shore point was developed to take care of storage•Land area was grown to have the facilities on site•Navigation hole were made to allow ships to pass smoothly

Risks Mitigation

Risk Management• Shanghai will establish a comprehensive appraisal system to track, supervise

and collect industrial information in the Free Trade Zone.• Pilot RMB capital account convertibility.• The Customs administration process will be optimized while the

administration of "frontier" (i.e. goods flow between overseas and the zone) and "second-tier" (i.e. goods flow between the zone and other domestic areas) will be coordinated by improvement on e-information network, entry and exit record lists cross check, accounting books management, physical verification, and risk analysis. An inspection and quarantine model of "easily import and export, with strict quality and safety risk control" will be promoted.

• The China (Shanghai) Pilot Free Trade Zone will set up a port supervision institution with integrated functions, and explore the feasibility of applying an electronic monitoring system and setting up of effective risk management system.

Risk Management and Mitigation• A three-level port contingency reaction system has been established.• Port safety and security management system improved by coordination

and collaboration with municipal comprehensive safety surveillance department, waterway traffic safety authority, port-related entities and public security organs.

• Administration enhancement of port handling of dangerous goods and shipment of dangerous goods on inland waterways, port facility security, traffic conditions harnessing, passenger transport management and monitoring of danger in water engineering projects all put a curb on occurrence of accidents ensuring safety and minimizing risks.

• Shanghai Municipal Port administration Bureau regularly conducts security training, annual audit, entrusted assessment, expert review and drilling exercise

Risk Management and Mitigation• Since December 2003: 498 persons from the relevant authorities and

foreign-related port enterprises attended the ministerial training of port facility security and accordingly obtained qualification certificates.

• Since January 2004: Qualified security entity conducted assessment of 76 foreign-related terminal enterprises and 85 port facilities as well as security risk evaluation of the Donghai Grand Bridge located in Yangshan Port District.

• Totally 23 expert meetings were organized to invite more than 350 person/time scholars and experts to check 170 assessment reports of plans of port facility security.

• All foreign-related port facilities underwent annual audit since June 2005 and 64 port facilities got valid certification in 2007.

• June 2004:, SMPAB successfully performed the first land/sea/air combined port facility security drill in China at Shanghai Pudong International Container Terminal Co., Ltd. (the first-phase project).

Risk Management and Mitigation• November 2005: SMPAB conducted the first ship/port/bridge security

interplay drilling at Shanghai Shengdong International Container Terminal Co., Ltd. (the first-phase project in Yangshan) .

• Furthermore, the Implementing Procedures of Shanghai Port Facility Security Plan were formulated by taking reference of advanced security experience both at home and abroad to establish the regional contingency reaction procedures according to different security levels and events.

• The port administration also initiated the bulletin system for port facility security and security guards.

• October 2007: Ministry of Communications and Shanghai Municipal Government jointly held the Port Facility Security Drill Showing Chinese Government Performance of SOLAS Convention 2007 and achieved great success.

Conclusion

• Yangshan Port handles staggering 32million containers a year carrying 736 million tonnes of goods to far-flung places around the globe.

• In the last eight years alone, capacity at the Port of Shanghai has ballooned from 14million TEUs (a unit which is roughly the volume of a 20ft-long container) in 2004 to more than 32million last year owing to the construction of the Yangshan Deepwater Port.

• Opening of Yangshan has helped China sustain high growth rates over the past decade

• Shanghai has become the important trade center along with Hong Kong and Singapore in the region

References• Megastructures – Yangshan port by NGC• Case document on Hutchison Whampoa Limited and

the Phase II Shanghai Deep-water Port Project• Yangshan Port revenues Hu-Tai Securities Ltd.• Shanghai’s Yangshan Deep Water Port: An International

Mega Port in the Making, report by Yang Mu and Lionel Ho

• Shanghai Flash Issue No.3 June 2003• “Yangshan Island Deep Water Port Project, Shanghai,

China”, Jing Xu, Journal of Undergraduate Engineering Research and Scholarship

• Grand power logistics Development Ltd. Information memorandum