ASIAN DEVELOPMENT BANK

PPA: VIE 25094

PROJECT PERFORMANCE AUDIT REPORT

ON THE

SAIGON PORT PROJECT (Loan 1354-VIE[SF])

IN THE

SOCIALIST REPUBLIC OF VIET NAM

March 2003

CURRENCY EQUIVALENTS Currency Unit At Appraisal (January 1995) $0.0001 D11,003 dong (D) At Operations Evaluation (December 2002) $0.0001 D15,395

D1.00 $1.00

= =

At Project Completion (June 2000) $0.0001 D14,000

ABBREVIATIONS ADB DAF EIRR FIRR HCMC km MIS MOF NTSR OCR OEM PCR PMU PPAR SDR SP SPA t TA TCR VRM Asian Development Bank Development Assistance Fund economic internal rate of return financial internal rate of return Ho Chi Minh City kilometer management information system Ministry of Finance National Transport Sector Review ordinary capital resources Operations Evaluation Mission project completion report project management unit project performance audit report special drawing rights Saigon Port Saigon Port Authority metric ton technical assistance technical assistance completion report Viet Nam Resident Mission

NOTES (i) (ii) The fiscal year (FY) of Saigon Port ends on 31 December. In this report, $ refers to US dollars. Operations Evaluation Department, PE-620

CONTENTS Page BASIC DATA EXECUTIVE SUMMARY MAPS I. BACKGROUND A. B. C. D. E. F. II. Rationale Formulation Purpose and Outputs Cost, Financing, and Executing Arrangements Completion and Self Evaluation Operations Evaluation iii iv vii 1 1 1 2 2 3 3 4 4 5 5 5 6 7 7 8 10 10 11 11 11 12 12 12 13 13 13 13 13 13

PLANNING AND IMPLEMENTATION PERFORMANCE A. B. C. D. E. Formulation and Design Achievement of Outputs Cost and Scheduling Consultant Performance, Procurement, and Construction Organization and Management

III.

ACHIEVEMENT OF PROJECT PURPOSE A. B. C. D. Operational Performance Performance of the Operating Entity Economic and Financial Reevaluation Sustainability

IV.

ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS A. B. C. Socioeconomic Impact Environmental Impact Impact on Institutions and Policy

V.

OVERALL ASSESSMENT A. B. C. D. E. F. G. Relevance Efficacy Efficiency Sustainability Institutional Development and Other Impacts Overall Project Rating Assessment of ADB and Borrower Performance

ii

VI.

ISSUES, LESSONS, AND FOLLOW -UP ACTIONS A. B. C. Key Issues for the Future Lessons Identified Follow-Up Actions

14 14 15 15

APPENDIXES 1. 2. 3. 4. 5. Project Costs Project Outputs Operations Data on Saigon Port Financial Statements of Saigon Port Financial and Economic Reevaluation 16 17 19 21 25

BASIC DATA Loan 1354-VIE(SF): Saigon Port Project

PROJECT PREPARATION/INSTITUTION BUILDING TA No. TA Name TA 2305-VIE Computerized Management Information 1 System for Saigon Port Type ADTA PersonMonths 14.5 Amount ($000) 2 500 Approval Date 2 Mar 1995

KEY PROJECT DATA ($ million) Total Project Cost Foreign Exchange Cost Local Currency Cost ADB Loan Amount/Utilization (SDR million) ADB Loan Amount/Cancellation (SDR million) KEY DATES Fact-Finding Preappraisal/Appraisal Reappraisal Loan Negotiations Board Approval Loan Agreement Loan Effectiveness First Disbursement Project Completion Loan Closing Months (effectiveness to completion) ECONOMIC AND FINANCIAL INTERNAL RATES OF RETURN (%) Economic Internal Rate of Return Financial Internal Rate of Return BORROWER EXECUTING AGENCY MISSION DATA Type of Mission Fact-Finding Reappraisal Project Administration Inception Review Project Completion 4 Operations Evaluation

As per ADB Loan Documents 40.00 25.00 15.00 30.00 20.59 Expected

Actual 34.19 23.61 10.58 3 27.48 20.05 0.69 0.54 Actual 25 Sep2 Oct 1990 13 Nov1 Dec 1990 23 Aug9 Sep 1993 12 Dec 1994 2 Mar 1995 24 Mar 1995 21 Jul 1995 23 Oct 1995 30 Apr 2000 1 Nov 2000 57 PCR 33.3 12.4 PPAR 12.6 3.7

24 Jun 1995 30 Jun 1998 31 Dec 1998 36 Appraisal 18.1 10.7

Socialist Republic of Viet Nam Saigon Port

Missions (no.) 1 1 9 1 7 1 1

Person-Days (no.) 8 90 87 12 42 33 37

ADB = Asian Development Bank, ADTA = advisory technical assistance, PCR = project completion report, PPAR = project performance audit report, SDR = special drawing rights, TA = technical assistance. 1 Attached to Loan 1354-VIE. 2 Financed by ADB from the Japan Special Fund. 3 Because the loan was denominated in SDR, depreciation reduced the loan amount available in dollar terms. 4 The mission comprised A. Ibrahim, evaluation specialist and mission leader; R.G. Rinker, evaluation specialist and port engineer; and R. Lumain, senior evaluation analyst.

EXECUTIVE SUMMARY Damage associated with 3 decades of war, from 1945 to 1975, and a lack of investment in the following decades, left all of Viet Nams major ports in a state of disrepair. This handicapped Viet Nams entire transport system, thus hindering economic growth. In 1989, the Government requested assistance from the Asian Development Bank (ADB) to undertake civil works on Saigon Port (SP), the principal shipping gateway to Viet Nam, and to replace and purchase new cargo-handling equipment to improve its operational performance. The Projects goal was to facilitate the expansion of international trade by enhancing port capacity and operational efficiency. The purpose of the Project and the attached technical assistance (TA) was to (i) improve SPs cargo-handling capacity through the rehabilitation and modernization of existing facilities at the Nha Rong and Khanh Hoi project terminals; (ii) enhance the efficiency of port operations through rationalization and streamlining of procedures and activities; and (iii) upgrade the overall performance of SP, the Executing Agency, by introducing a computerized management information system that would enable SP to process key operational and financial information and would assist in commercially oriented decision making. The Project was in line with the Governments priorities, as reflected in the National Transport Sector Review. The Project was also consistent with ADBs country operational strategy, which focused on reducing key development constraints through financial assistance for rehabilitation, upgrading, and development of the physical infrastructure to support economic growth. During processing, ADB conferred with other external funding agencies, including the World Bank, to coordinate development efforts in the port sector. The total project cost at appraisal was estimated at $40 million, with a foreign exchange component of $25 million and $15 million in local currency. In March 1995, ADB approved a loan of $30 million, 75% of the total project cost, covering the entire foreign exchange and $5 million of the local currency cost. At completion in April 2000, actual project cost was $34.2 million, with a foreign exchange cost of $23.6 million and a local currency cost of $10.6 million. The 14.5% cost underrun was attributable to revisions in project scope and lowerthan-expected contract prices. A project management unit was established within SP to manage and implement the Project. A team of international consultants was engaged according to ADB Guidelines on the Use of Consultants to help review the engineering designs and assist in supervision of the civil works construction. The consultants overall performance was satisfactory. Lengthy bid evaluations caused considerable upfront delays. The cumbersome evaluation and approval process is a systemic problem in project implementation in Viet Nam. Delays caused implementation to take 22 months longer than envisaged at appraisal. Two covenants were not complied with at the time of the project completion report (PCR): the interest charged through onlending according to the subsidiary loan agreement, and the collection of port traffic data. Both covenants were being complied with at the time of the Operations Evaluation Mission (OEM). The civil works carried out through the Project are satisfactory. The efficiency of breakbulk operations improved considerably from 1996 to 2002, and the corresponding turnaround times for ships calling at SP have been shortened significantly. The major objective of the Projectto rehabilitate the existing break-bulk port facilitieshas been fully met. The attached TA helped reduce billing time. SP can now efficiently process operational and financial information, and make commercially-oriented decisions based on users actual needs.

SP remains the principal waterborne gateway to Viet Nam. It also handles domestic trade. SP handled 10 million metric tons in 2001. Throughput has increased by an average annual rate of 6% since 1995. The number of vessels calling at SP increased from 1,156 in 1995 to 1,724 in 2001. Terminal improvements have generated employment not only at SP, but also within Ho Chi Minh City and the surrounding areas. SP remains profitable although marginal financial returns highlight the increased pressures on operating profits. Those pressures result from high operating costs, constraints on revenue generation in core port activities, and the relatively weak performance of noncore business activities in recent years. SPs operating ratio deteriorated from 76% in 1995 to 92% in 2001. Operating expenses increased about 10% annually during this period because of higher salary expenses, fuel costs, management and administration expenses, and cost of products and services sold through SPs noncore business operations. At the same time, gross operating revenues, comprising port services (72% of revenues) and other businesses increased by about 6% per annum. As a result, the operating income decreased from D78 billion in 1995 to D36 billion in 2001 and return on equity declined from 25% to 4%. On the other hand, despite an increased debt burden as a consequence of the Project, SP was able to maintain acceptable liquidity and debt-to-equity ratios. SP benefited from additional government equity contributions that helped raise capitalization by about 15% per annum from 1995 to 2001. The reestimated economic internal rate of return of 12.6% is below the appraisal estimate of 18.1% and the PCR estimate of 33.3%. Similarly, the reestimated financial internal rate of return of 3.7% is lower than the appraisal estimate of 10.7% and the PCR estimate of 12.4%, and slightly below the 4% weighted average cost of capital. The decreases are mainly because of an overestimation of incremental benefits as well as an underestimation of operating costs in the previous calculations. There is concern that traffic congestion around the port area, and competition from 28 other ports with dedicated container facilities and larger storage yards, may threaten SPs long-term sustainability. Also, future demand for berths that will accommodate larger vessels may require relocation of some port activities to a location with deeper water. SP remains the busiest port in the area, however, and significant break-bulk shipping operations will continue, even with the trend toward containerization. Furthermore, several berths may be modified to better accommodate cruise ships. Although some operations may have to be relocated to a location with deeper water, the sustainability of SP is likely. The key issues that the OEM identified are the need to (i) investigate the construction of a deepwater port terminal at an alternate site, (ii) streamline the bid evaluation and approval process through delegation of authority to the relevant government agencies, (iii) give individual ports greater autonomy in the setting of charges that generate their revenue, and (iv) ensure that future budget allocations are adequate for maintenance. The two key lessons learned are (i) the approach of separating business planning from strategic development functions in the port sector adopted by the Government may also be appropriate for ADBs other developing member countries; and (ii) developing member countries still in the nascent stages of administering ADB projects w ould benefit from more proactive project monitoring by ADB, particularly at the resident mission level.

vi

The OEM recommends four follow-up actions: (i) ADB should continue to encourage the Government to extend autonomy to lower levels of government, including the port sector; (ii) ADB should assist in a review of national shipping tariffs to help ensure the sustainability of ports, including SP; (iii) SPs management information system should be updated periodically to incorporate technology improvements, and should be integrated with systems used by customs and shippers; and (iv) SP should collect samples of the deck-drainage effluent for environmental confirmation testing and, if an unacceptable level of contamination is found, priority should be given to improving the drainage system. The OEM rates the Project and the TA as successful.

I. A. Rationale

BACKGROUND

1. Viet Nam is geographically elongated, approximately 1,650 kilometers (km) from north to south; and narrow, at only 50 km across its narrowest section. Its 3,444 km coastline borders the Gulf of Thailand in the south, and the Gulf of Tonkin and the South China Sea to the east (Map 1). A mountain range along much of western Viet Nams borders defines a coastal plain, the principal land-based transport corridor. The Mekong River in the south and the Red River in the north, along with their tributaries and canals, form an extensive and intricate inland network for waterway transport, roughly 7,000 km in length. Coastal shipping and the inland waterway network are key components in Viet Nams overall transportation system. 2. Damage associated with 3 decades of war from 1945 to 1975, and a lack of investment in the following decades, left all of Viet Nams major ports in a state of disrepair. This handicapped Viet Nams entire transport system, thus hindering economic growth. Viet Nams primary port facilities include five major ports for general cargo, which account for 60% of all international and 20% of all domestic trade; and five ports dedicated to the handling of petroleum and oil. Saigon Port (SP)1 is the principal shipping gateway to Viet Nam. At the time of appraisal, the pier, quay, and other SP structures had deteriorated so severely that safe and efficient cargo handling was no longer possible. Concrete foundation piles had cracked, and sections were lost. Steel piling and marine hardware had corroded. The concrete deck had eroded, leaving occasional holes through the deck. Transit sheds and warehouses were dilapidated. 3. The Government requested assistance from the Asian Development Bank (ADB) to undertake civil works on SP and to replace and purchase new equipment to improve its operational performance. SP recognized the need to streamline and rationalize its operational and financial systems. To this end, the Government also requested that ADB provide technical assistance (TA) to strengthen SPs institutional capability. B. Formulation

4. The Project was formulated during a fact-finding mission in September 1990 and an appraisal mission in November 1990; there was no project preparatory TA. The plan to improve the operational capacity of SP was endorsed by the National Transport Sector Review (NTSR).2 Project components were developed to address the rehabilitation and upgrades necessary to enhance SPs capacity and efficiency, as well as improve safety of its operations. During processing, ADB also conferred with representatives of the World Bank, the United Nations Development Programme, and other external funding agencies to coordinate subsector development efforts. 5. ADB operations in Viet Nam were suspended thereafter until 1993, thus deferring further processing of the loan. The Project was reappraised in September 1993.3 Loan approval was delayed almost a year and a half because of a disagreement between ADB and the Government over the onlending interest rate to be charged under a subsidiary loan agreement
1 2

Previously called Saigon Port Authority (para. 10). The review was undertaken with funding from the United Nations Development Programme during 19901992. It proposed a restructuring plan that would make all ports autonomous by allowing them to set tariffs. During the 3-year delay between fact-finding and reappraisal, SP carried out repair work, considered essential for continued operation. The repair work was originally in the project scope, which was reduced accordingly.

2 between the Government and SP. ADB proposed a rate similar to that applicable to loans from the ordinary capital resources (OCR), while the Government preferred a 1% concessional rate.4 Ultimately, the Government accepted the ADB position; the loan was approved on 2 March 1995 and became effective on 21 July 1995. C. Purpose and Outputs

6. The goal of the Project was to facilitate expansion of international trade through enhancing port capacity and operational efficiency. The purpose of the Project and attached TA5 included (i) improving SPs cargo-handling capacity through the rehabilitation and modernization of existing port facilities, (ii) enhancing the efficiency of port operations through rationalization and streamlining of procedures and activities, and (iii) upgrading SPs overall performance by introducing a computerized management information system (MIS). 7. Project outputs included (i) an improved port facility through rehabilitation of deteriorated wharf sections; installation of new fenders, marine hardware, and offshore mooring buoys; and construction of adequate maintenance workshops; (ii) improved cargo handling through the procurement of new equipment, new tugboats, and better lighting; and (iii) improved operational and financial management through the MIS and provision of communications equipment. D. Cost, Financing, and Executing Arrangements

8. The project cost at appraisal was estimated at $40 million. In March 1995, ADB approved a loan of $30 million equivalent (75% of total project cost) from its Special Funds resources to cover the entire foreign exchange requirement of $25 million and local currency cost of $5 million equivalent. The Government was to finance the remaining local currency cost of $10 million (Appendix 1). 9. The attached advisory TA was provided to install a computerized MIS that would enable SP to process key operational and financial information and make commercially oriented decisions. The TA financed the entire foreign exchange cost and $10,000 in local currency costs for translating and interpreting services. The TA provided 14.5 person months (81% of the appraisal estimate) of international consulting services in port operations, port finances, and computer MIS. 10. At the time of appraisal, the Saigon Port Authority, the Projects Executing Agency, was under the jurisdiction of the Ministry of Transport, and the operational responsibility of the Viet Nam Maritime Bureau (Vinamarine). In 1996, the Viet Nam National Shipping Lines (Vinalines) took over the operational responsibility of five major ports,6 and the Saigon Port Authority was renamed the Saigon Port. 11. A project management unit (PMU) was established within SP to manage and implement the Project. The SP director of engineering served as project director in the PMU. The PMU was staffed with 12 professionals, including a deputy director and a chief accountant. To enhance technology transfer during implementation, seven PMU engineers were assigned to work

4 5

The ADB loan to the Government was from Special Funds resources, with an amortization period of 40 years, including a grace period of 10 years and a service charge of 1% per annum. TA 2305-VIE: Computerized Management Information System for Saigon Port, for $500,000, approved on 2 March 1995. The five ports are Can Tho, Da Nang, Hai Phong, Quang Ninh, and Saigon (Map 1).

3 directly with the international consultants who were helping the PMU with project design and construction supervision. E. Completion and Self Evaluation

12. The project completion report (PCR), circulated to the Board in October 2001, rated the Project successful.7 The Project was generally implemented as appraised, with satisfactory quality of construction. There were implementation delays, but no cost overruns. 13. The reevaluation conducted for the PCR determined a financial internal rate of return (FIRR) of 12.4%, compared with 10.7% estimated at appraisal. The economic internal rate of return (EIRR) was also higher at 33.3%, compared with 18.1% estimated at appraisal. Substantial project benefits include savings in time required to load and unload vessels; improved user services; less damage to goods; and improved working conditions at the port, resulting in fewer accidents. 14. Two covenants were not complied with at the time of the PCR. First was the covenant dealing with the onlending rate under the subsidiary loan agreement between the Government and SP. Second, port traffic data were not being collected or analyzed. With the exception of some significant errors in the economic and financial analysis, the PCR generally presented an accurate and objective evaluation of the Project. 15. The technical assistance completion report (TCR)8 and the PCR rated the attached TA differently. The TCR assessed the TA as successful and the PCR, as highly successful. This difference was because the TCR emphasized the need for periodic updating to keep pace with innovations in computer software and hardware, and integration with systems that customs and shipping lines use. On the other hand, the PCR focused on the systems operational performance. F. Operations Evaluation

16. This project performance audit report (PPAR) assesses the Project for relevance, efficacy, efficiency, sustainability, and institutional and other development impacts. The PPAR is based on the findings of the Operations Evaluation Mission (OEM) that visited Viet Nam from 2 to 17 December 2002; review of relevant project documents; discussions with ADB staff; and information gathered during meetings with officials from relevant ministries, port and marine agencies, and other development assistance organizations. The OEM conducted a condition survey of the project site and ancillary facilities along with the surrounding infrastructure. Preliminary OEM findings were discussed at two wrap-up meetings: first in Ho Chi Minh City (HCMC) with SP on 14 December 2002, then in Hanoi on 16 December 2002. Copies of the draft PPAR were circulated, for review and comments, to SP, various government ministries, and concerned ADB staff. The comments were considered when finalizing the PPAR.

The PCR used the current four-category rating system: highly successful, successful, partly successful, and unsuccessful. The TCR was completed about 1 month before the PCR was circulated.

II. A.

PLANNING AND IMPLEMENTATION PERFORMANCE

Formulation and Design

17. ADBs country operational strategy for Viet Nam at the time of appraisal and reappraisal focused, among other things, on reducing key development constraints through financial assistance for rehabilitation, upgrading, and development of the physical infrastructure to support economic growth. Viet Nams Third Five-Year Plan (19911995) reiterated giving high priority to the rehabilitation of SP, Viet Nams main shipping gateway. Thus, within the maritime sector, the continued operation of SP was a priority for the Government and ADB. SP remains Viet Nams principal break-bulk handling facility and, to a lesser extent, an important containerhandling facility. Its importance to the Government is undiminished although the current country strategy and program update (20032005) focuses more on broader-based projects for poverty intervention. But ADB remains engaged in policy reforms aimed at liberalizing the system of economic management of key state-owned sectors. 18. The master plan that SP prepared for development of the port facilities originally included rehabilitation and upgrade of the existing Nha Rong and Khanh Hoi project terminals;9 installation of an MIS at SP; and the construction of a new deepwater terminal, dedicated to the handling of cargo containers, near Thi Vai, at the mouth of the Saigon River. The project scope focused on improving the break-bulk operations at the project site, which comprised most of cargo operations at that time in HCMC, and did not include development of a new container terminal. 19. Demand for accommodating containerized marine traffic grew during project implementation. Competition to SP also grew stiffer, as various ministries and the HCMC municipality had constructed new port facilities near SP, some dedicated to handling container traffic using modern container cranes.10 Traffic in District 4 of HCMC, the site of both project terminals, was also becoming congested; District 4 is a small island served by only two main bridges (Map 2). SP requested, in the first year of project implementation, that further development of the Nha Rong and Khanh Hoi project terminals be stopped, and that ADB funds be diverted to the development of a container facility. The Government did not agree with this request. 20. Instead, SP, using funds from the State Bank of Viet Nam, developed container-handling capacity at the Tan Thuan terminal, adjacent to the project site. Located in District 7, Tan Thuan has a much larger area available for processing containerized traffic than either the Nha Rong or Khanh Hoi project terminals, and is readily accessible by a new highway. Tan Thuan does not suffer from the same traffic congestion as the two project terminals. SP was unable to obtain a used container crane for installation at Tan Thuan. Instead, the 80-ton mobile cranes supplied by the Project have been fitted to handle, though in a less-efficient way, container traffic. Thus, it is difficult for SP to compete against dedicated container-handling terminals such as the nearby Vietnamese International Container Terminal. 21. The project scope was modified during implementation to better address port capacity, particularly for container operations. The provision of mooring buoys and hardware was dropped
9

SP comprises four terminals in HCMC (Map 2): Nha Rong (7 berths), Khanh Hoi (8 berths), Tan Thuan 1 (4 berths), and Tan Thuan 2 (1 berth); 1 terminal in Can Tho City (1 berth); and 34 buoy berths in the Saigon River. 10 HCMC has 28 ports, including SP; 14 are on the Saigon River. Warehouse space in these ports totals 147 hectares, and their annual handling capacity is about 20 million metric tons.

5 to allow dredging to increase the berthing depths in front of the project terminals, so the terminals could accommodate larger vessels. Larger cranes that can handle containerized cargo were also bought. Loan savings identified near project completion were used to procure additional equipment for handling cargo containers in the yard storage area. The OEM concurs that these changes were appropriate, and improved the Project. B. Achievement of Outputs

22. The Project improved the port facilities through extensive rehabilitation. Dredging works were added to the project scope,11 and yard area was expanded beyond appraisal estimates to provide additional handling and storage area. The transit shed, built to process cargo, was also expanded to increase its capacity. Mooring buoys, planned at appraisal to provide additional inriver berths, increased the water depth at the terminals, allowing larger vessels to call at SP. The modern cargo-handling equipment increased SPs capacity. Installation of the MIS streamlined and rationalized SPs operational and financial procedures. A list of project outputs is presented in Appendix 2. C. Cost and Scheduling

23. The actual project cost was $34.2 million, with a foreign exchange cost of $23.6 million (69%), and a local currency cost of $10.6 million equivalent (31%) (Appendix 1). The ADB loan covered the foreign exchange cost and $3.9 million of the local currency cost. The decrease in the total project cost from original estimates was partly because of a reduction in scope of repair work (footnote 3). There was an overestimation at appraisal of the costs of tugboats and MIS computerization. Loan savings, at the Governments request, were used to procure two forklifts and two two-way dozers.12 Overall, the Project had a cost underrun of $5.8 million, or 14.5% of the appraisal estimate. Loan cancellations were $0.7 million. 24. ADB disbursements were $27.5 million (92% of the appraisal estimates), while Government counterpart financing totaled $6.7 million (67% of the appraisal estimates). The SDR-denominated ADB loan was reduced to $28.2 million as a result of a 12.3% depreciation in the SDR rate against the dollar during implementation. 25. The Project further started sluggishly because consultants were recruited late, despite approval for advanced action for their recruitment. Other implementation delays resulted from (i) SPs lack of familiarity with ADB procedures for local competitive bidding, (ii) lengthy bid evaluations caused by cumbersome internal procedures, (iii) SPs lack of experience in working with international consultants, and (iv) difficulties in implementing civil works while the port was in operation. The Project was completed in April 2000, 22 months behind schedule. The loan closing date was extended once, to 1 November 2000. D. Consultant Performance, Procurement, and Construction

26. A team of international consultants, engaged according to ADB Guidelines on the Use of Consultants, was originally intended to review the engineering designs. The Government initially resisted significant changes that the consultants proposed, which led to tension in working arrangements. Also, supervision of the early civil works construction, without benefit of the international consultants, was weak. These problems, which emerged early in the Project,
11 12

The present berthing depth was reported to the OEM as 8.210.0 meters (Map 3). ADB initially rejected the Governments request, as the cost of the equipment exceeded the loan savings. But the request was later approved after the Government assured that it would bear any cost overrun.

6 contributed to delays in the initial implementation (para. 25). The contract for international consultants was amended to improve construction supervision. In time, the Government acknowledged that the design changes were beneficial to the Project. The OEM confirmed that the consultants overall performance during design and supervision of construction was satisfactory. 27. The Project comprised seven contracts for civil, marine, and electrical works. Five contracts were tendered using local competitive bidding procedures; the other two contracts were directly negotiated with local contractors, with ADB approval. SP initially insisted that only Vietnamese contractors be allowed to participate in local competitive bidding; that led to delays in implementation. The Project also included six supply contracts for procurement of two tugboats and miscellaneous marine equipment. Five contracts were tendered using international competitive bidding procedures, and the sixth, through international shopping. Award of one supply contract was delayed considerably because of a lengthy review due to inaccuracies in the bid. 13 Ultimately, all supply and civil works contracts were procured in accordance with ADBs Guidelines for Procurement. 28. The bid evaluation process in Viet Nam is lengthy and cumbersome (para. 67). Almost 1 year passed from the issue of bidding documents to the award of the first civil works contract. Contracts were submitted by SP to the Ministry of Transport for evaluation, and then forwarded to the Ministry of Planning and Investment for review before submission to the Prime Minister for final approval. 29. All civil works, with one exception, were satisfactory and of acceptable quality. Problems were originally identified in construction of the buildings, but all deficiencies were rectified. Some problems during implementation were caused by ongoing port operations and delays in payment. Despite the delays, the PCR considered the performance of the contractors satisfactory. The OEM agrees with this assessment. E. Organization and Management

30. Project implementation arrangements were generally as envisaged at appraisal. However, there were modifications in the organizational structure above SP shortly after implementation began (para. 10). At appraisal, Vinamarine had administrative authority over SP. In January 1996, that authority was transferred to the newly established Vinalines, but Vinamarine, as a member of the State Pricing Committee,14 retained responsibility for setting tariffs and charges for all ports in Viet Nam. Vinamarine is now responsible for establishing marine rules and regulations, as well as for planning the overall strategy for port development. It also retains administrative control over all but five of Viet Nams major ports (footnote 6), which are now under Vinalines. Vinalines also prepares the long-term business plan for these five ports. Day-to-day operation of the five ports, however, is undertaken by their respective port authorities. 31. The State Pricing Committee uses a two-tier system to set port tariffs and charges. Port tariffs, which are usually adjusted every 2 to 3 years, include fees assessed for ship tonnage, channel use, freight processing, and formality fees. These fees are uniform for all ports in Viet Nam. The customs departments at each port collect and forward these tariffs to the Ministry of Finance (MOF). The concerned port authorities collect the port charges, which include charges
13 14

The exchange rate was incorrect in one suppliers bid. The State Pricing Committee comprises representatives of Ministry of Finance, Ministry of Transport, and Vinamarine.

7 for stevedoring services and anchorage. Each port authority has the opportunity to adjust these charges by as much as 15% of those established by the State Pricing Committee. 32. The PMU established during the Project is still in existence, but is awaiting Government approval to disband. Because this was one of the first ADB projects in Viet Nam after ADB resumed operations, the Government was not familiar with various ADB guidelines and procedures. Disagreements with the consultants regarding design issues also delayed project implementation and administration. Rigid government procedures concerning procurement and contract awards often impeded efficient implementation. III. A. ACHIEVEMENT OF PROJECT PURPOSE

Operational Performance

33. Various indicators of SPs operational performance are shown in Appendix 3, Table A3.1. Construction of the terminal improvements appears satisfactory. The new fendering units show little wear or corrosion, and function properly. Asphalt paving and transit sheds in the yard area are in good condition (Map 3). The two tugboats appear well maintained. Various sizes of bollards for ship mooring lines were installed along the pier; larger bollards were brought from a neighboring port. Rainwater drainage systems installed through the Project are free from obstructions and functional. River debris, however, tends to collect in the fender systems and should be removed more regularly to ensure that the fenders continue to operate properly. 34. The yard area behind the face of the terminals is restricted. Operations are congested because of a lack of available space at the port site, which is confined by the area road network. Further expansion of the yard would require the relocation of a major artery in the road network, at considerable cost and inconvenience. The Vietnamese International Container Terminal, a competing port in HCMC, has a larger port site located further from the dense traffic arterial, and is already equipped with modern equipment dedicated to handling cargo containers. SP is well suited to handle break-bulk cargo operations, and competing in the cargo container shipping market does not seem practical in the long run. 35. The Port Operations Action Plan was adopted, but not within the covenanted date of 31 December 1995. The outputs of the first phase of the plan were reflective of SP being at a nascent stage in its goal of market reform.15 Phase 2 of the plan consisted of designating one or more berths exclusively for container operations, introducing a shorter three 8-hour shift system, and preparing a plan for handling pollutant discharges. The OEM found that one berth is reserved to give priority to container operations, but not exclusively for container throughput. Port operations now use the three 8-hour shift system as specified in the plan. Some improvements may still be necessary in the handling of contaminated rainwater, pollutant discharges, and hazardous material spillages. 36. SP handled 10.0 million metric tons (t) of cargo in 2001. Since 1995, total throughput has increased by an average annual rate of 6%, slightly exceeding the appraisal targets. In 2000, the throughput reached 9.7 million t, as against the appraisal target of 9.3 million t. Cargo throughput at the Nha Rong and Khanh Hoi project terminals increased from 4.9 million t in 1995 to 5.8 million t in 2001. The total number of vessels calling at the project terminals
15

Included as the plans output were (i) eliminating all unnecessary and prolonged waiting of trucks on the quay before or after completion of cargo pickup and delivery; (ii) introducing a rational cargo circulation system; and (iii) conducting daily meetings of management, stevedoring, and other entities to prepare and plan for the next 24 hours.

8 increased from 827 in 1995 to 1,048 in 2001. Average vessel turnaround times decreased from more than 5 days in 1996 to less than 4 days in 2001. Cargo handling time per vessel also decreased from an average of 4.3 days in 1995 to 3.6 days in 2001. 37. Port accidents have remained constant, at around 10 per yearbut considering the higher throughput, the accident rate has declined significantly, in terms of total cargo handled. 38. Industry in HCMC accounts for about 40% of Viet Nams gross domestic product. SP remains the principal waterborne gateway to the HCMC industrial area, and to the country. Population has grown rapidly in the HCMC area in recent years; it now exceeds 7 million people. That puts excessive strain on the existing road network. The increase in cargo transport compounds the traffic problems around the Nha Rong and Khanh Hoi project terminalswhich were already congested. Although SP still has potential for increasing its handling capacity, landside traffic congestion will inhibit future growth. Containerized traffic is expected to increase, a reflection of the change in worldwide shipping trends. 39. To provide a better international gateway for cargo containers, SP has requisitioned land at Thi Vai, at the mouth of the Saigon River, to build a deepwater container terminal and is waiting for approval from the Prime Minister16 (Map 1). The transfer of some cargo-handling responsibilities to Thi Vai will allow use of some of the berths at SP for cruise liners visiting HCMC for tourism. In 2001, tourist-related revenue accounted for almost 6% of SPs gross operating revenue. 40. Rice is the major export at SP; throughput reached about 2.15 million t in 2002. Fertilizer is the largest import commodity, reaching 1.2 million t in 2002, followed by steel and iron at 0.9 million t. Other imports include wheat, 0.3 million t; and chemicals, 0.1 million t. Domestic cargo includes cement, coal, and rice, with 2002 throughputs of 0.5, 0.4, and 0.1 million t, respectively (Appendix 3, Table A3.2). Containerized traffic at SP has risen from 0.6 million t in 1995 to about 3.4 million t in 2002. For the two project terminals, containerized traffic grew from under 0.6 million t in 1995 to around 1.6 million t in 2002. Although containerization of cargo is the global trend in shipping because of speed and efficiency in handling, some cargo, such as fertilizer, will probably continue to be shipped as break-bulk in the foreseeable future. B. Performance of the Operating Entity

41. Port tariffs for tonnage, channel use, and freight processing in Viet Nam are about 20% higher than those at other international ports in the region. 17 The revenues are credited to MOF, rather than to the port. As a new member of the Association of Southeast Asian Nations, Viet Nam has committed to rationalizing these tariffs to bring them in line with those of the region by the end of 2005. Port charges for stevedoring and anchorage, however, are considerably lower than those at other regional ports. The main beneficiaries of the low rates are the shipping lines, so there is also potential for rationalizing these charges. 42. Two covenants in the Loan Agreement were not complied with at the time of the PCR (para. 14). According to Schedule 6, para. 2, SP is required to monitor and evaluate benefits of
16

Opinions differ about when to start construction at Thi Vai. SP indicated to the OEM that 2015 may be the most appropriate year to begin, because all outstanding loans will have been repaid by that time. Others within the Government propose 2010. 17 A comparative study by the United Nations Economic and Social Commission for Asia and the Pacific found that SP charges higher tariffs than those of other regional ports such as Manila; Hong Kong, China; Singapore; Yangon; Jakarta; and Port Klang in Malaysia.

9 the Project by collecting and analyzing port traffic data, particularly data related to ship waiting time and ship service times and cargo-handling performance. The OEM found that data are now being collected and analyzed in these areas. 43. An onlending rate to SP similar to that applicable to ADBs OCR was covenanted in the Project Agreement (Section 3.01). The PCR noted that in a letter dated 20 November 1995, MOF allowed SP to defer payment of interest until 1 November 2001 by adding the interest to the principal. The objective of the covenant was to facilitate the restructuring of SP and promote its commercial orientation, thereby enhancing its capability to attain full cost recovery, as envisaged in the NTSR (footnote 2). The OEM was informed that the authority to enforce SPs repayment of interest and principal to the Government no longer rests with MOF, but with the autonomous Development Assistance Fund (DAF).18 The OEM was also informed that SP suggested a reconsideration of the rate of interest for two reasons: (i) the devaluation of the dong makes it difficult for SP to meet the original terms of the agreement, and (ii) 28 ports now compete to serve HCMC. MOF denied this request, however, and the interest rate payable by SP in 2001 was 6.17%, the OCR rate, as envisaged in the subsidiary loan agreement. 44. SP is profitable, even though marginal financial returns highlight the increased pressure on operating profits because of high operating costs and constraints on revenue generation in core port activities, as well as the relatively weak performance of noncore business activities in recent years.19 The operating ratio for the entire SP deteriorated from 76% in 1995 to 92% in 2001 (Appendix 4, Table A4.1). Operating expenses increased by about 10% annually, from D243 billion in 1995 to D427 billion in 2001. The higher operating expenses were largely caused by higher salary expenses; fuel costs; management and administration expenses, including depreciation; and cost of products and services sold through SPs noncore business operations (Appendix 4, Table A4.2). 45. Operating revenues (net of turnover taxes) have increased by about 6% annually, from D321 billion in 1995 to D463 billion in 2001. Operating revenues from core businesses providing port servicesstevedoring, warehousing, wharfage, and tugboat feesaccounted for an average of about 73% of gross revenue. Noncore business activities, such as tourism and associated businesses, accounted for the balance (Appendix 4, Table A4.3). 46. Operating income fell by 54%, from D78 billion in 1995 to D36 billion in 2001. Return on equity declined from 25% to 4% during that period. The operating profit margin from port services declined from 25% in 1995 to 6% in 2001. Preliminary financial data for 2002 indicate a recovery, to 12%. The operating profit margin from noncore businesses also declined, from 33% in 1995 to 11% in 2001, and a further decline to 2% is expected in 2002. 47. Total asset growth averaged 23% annually, from D294 billion in 1995 to D1,003 billion in 2001. Long-term debt burden increased by 54% annually in the same period, from D32 billion to D435 billion in 2001. 20 SPs ability to manage an increased debt burden as a consequence of the Project is evident from the acceptable levels of liquidity and debt-to-equity ratios. This was helped by a steady growth in capitalization of about 15% annually as a result of annual increases in cumulative government equity contributions from D173 million in 1995 to
18

This occurred in 1998 when MOF was split into the Treasury, which was renamed MOF, and DAF. DAF is authorized to ensure that agencies repay outstanding loans and interest to the Government. 19 The financial performance of SPs Nha Rong and Khanh Hoi project terminals could not be assessed individually because disaggregated financial data were lacking. 20 Includes an ADB loan for the Nha Rong and Khanh Hoi project terminals and a long-term loan from a Viet Nam bank to help finance the construction of Tan Thuan 2, estimated at D100 billion.

10 D507 million in 2001 (Appendix 4, Table A4.4). Nevertheless, SPs financial performance is still at risk, and will likely deteriorate if the Government continues to make decisions relating to stevedoring and anchorage charges, now among the lowest in the region (para. 41). Acquiring a boom crane dedicated to handling containers would further improve SPs performance and competitiveness. C. Economic and Financial Reevaluation

48. Appendix 5 gives the reestimated EIRR and FIRR. Based on a landside berth utilization rate of 85.0%, the reestimated EIRR is 12.6%, well below the PCR estimate of 33.3%. The PCR used the same methodology as at appraisal, with economic benefits including cargo handled at Tan Thuan 1, which was not part of the Project. Thereby, incremental benefits were overestimated; incremental operating costs were also underestimated by the PCR. At evaluation, the EIRR was recalculated for the two project terminals, Nha Rong and Khanh Hoi. Three assumptions were made: (i) that the two project terminals had the ability to meet targets for cargo and container traffic, (ii) SPs cost management would be effective and prudent, and (iii) HCMC would be able to address traffic congestion in the port area to facilitate increased cargo volume. The reestimated FIRR is 3.7%close to the weighted average cost of capital of 4.0%21but significantly lower than the PCR estimate of 12.4%. This difference is mainly because operating costs were underestimated. The PCR assumed the incremental operating cost to be 30.0% of incremental revenue, close to appraisal estimates. The OEM considered that assumption optimistic, based on the decline in operating profit margin from core port services (para. 46). Further confirming this observation was the deterioration of the operating ratio for the entire SP. 49. The sensitivity analysis shows that the FIRR will decline to 2.5% if operating and maintenance expenses are 10% higher than assumed. Similarly, the FIRR drops to 1.6% with operating revenues 10% lower than the base case. With an average berth utilization of 75% and 7 million t of cargo handled, the FIRR would be only 0.4%. The sensitivity analysis also shows that net financial revenues from existing cargo traffic cannot generate adequate returns on investment costs. 50. The sensitivity analysis further shows that the EIRR falls to 9.3% if the project terminals achieve an average ratio of only 30% for container cargo, instead of the assumed 34% and 52% in 2005 and 2010, respectively. The EIRR is estimated at 10.3% if there is a 10% decrease in average daily shipping costs, and 11.0% with a 10% reduction in incremental project benefits. Unlike the FIRR case, an average berth utilization rate of 75% raises the recalculated EIRRto 13.9%because of shorter waiting times for ships. D. Sustainability

51. Ensuring a prompt repair and replenishment of equipment when necessary was covenanted in the Project Agreement (Section 2.12 c). The amount spent by SP on repair and maintenance averaged D25 billion during the pre-project years 1992 to 1994. Spending declined to D17 billion in 1995, and was estimated at D12 billion in 1999 (Appendix 4, Table A4.1). As of October 2002, the budget of D15 billion for repair and maintenance was adequate. But, as the equipment ages, appropriate and, likely, higher allocations for maintenance must be made to ensure that the investment is protected.
21

The real cost of capital for ADB and government-financed components was estimated at 3.1% and 2.0%. However, according to ADBs Guidelines for Financial Governance and Management of Investment Projects, page 26, a minimum rate of 4.0% should be applied if the derived weighted average cost of capital is below this threshold.

11

52. As to the long-term financial sustainability of the Project, the operating ratio of 89% in 1994before the Project begandecreased to 76% in 1995, then rose to 92% by 2001. This was above the appraisal estimate of 87%, raising concerns over the move toward full cost recovery. The high operating ratio resulted from low port charges and high operating costs (paras. 4446). 53. There is concern that the Governments continued control over port tariffs and fees through the State Pricing Committee threatens SPs long-term sustainability. That control hampers SPs ability to improve its financial performance. Traffic congestion in the port area may also affect the long-term sustainability (para. 38). Competition from other ports with dedicated container facilities and larger storage yards is another factor. Also, future demand for larger-vessel berths may require a relocation of some port activities to a location with deeper water. SP remains the busiest port in the area, however, and significant break-bulk shipping operations will continue, even with the trend toward containerization. Furthermore, several of the berths may be modified to better accommodate cruise ships. The sustainability of SP is likely, even though some port operations may need to relocate to a location with deeper water. IV. A. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS

Socioeconomic Impact

54. The Project, by improving commodity-handling capacity, reduced shipping costs for both domestic and international trade. It was reported to the OEM that prices for imports and domestic commodities shipped through SP have decreased, and increased exports have generated higher revenues from export taxes. Also, imports of raw materials for manufacturing, such as steel and iron, have generated more employment in the region, and provided more product choices. Family-operated businesses that produce handicrafts for export have also benefited from improved handling at SP. Domestic cargo transport has increased from 0.6 million t in 1995 to 2.7 million t in 2001, which has helped expand the domestic market. Thus, the Project has helped promote economic growth in HCMC and surrounding areas. 55. Terminal improvements have also generated employment at SP itself. Higher throughput has contributed to the creation of about 1,800 jobs since the Project began. Working conditions at SP have improved considerably through the Port Operations Action Plan, which replaced two 12-hour work shifts for dock and stevedoring labor with three 8-hour shifts. Handling accidents at SP have also decreased since the Project. B. Environmental Impact

56. Environmental impacts of the Project have been minimal. Paving the storage yard has reduced dust. SP employs sanitary teams to clean the break-bulk terminals after each shift. The drainage pits at the shed veranda and in the paved areas are cleaned periodically. Replacing the old equipment has reduced harmful exhaust emissions. Dredging in front of the terminal, although necessary to increase berthing depth, may have affected the existing marine environment in a limited area. The Project was confined to rehabilitation and replenishment of an existing facility, so no relocation was necessary. 57. The port apron and storage yard has a system for collection and drainage of rainwater, but the water is discharged back into the river without treatment or oil separation. Although great care is taken to minimize spills, and spills are later manually swept from the deck, some

12 contaminants that are hazardous to the environment, such as fertilizer or coal, remain on the deck. Rain ultimately washes these contaminants, along with oil spills and leaks from vehicles operating on the terminal, into the river. C. Impact on Institutions and Policy

58. The main objective of the attached TA (footnote 5) was to provide a computerized MIS to help upgrade SPs overall performance. The TA was expected to be completed in 18 months, but actual completion took 51 months. The OEM confirmed that the main reason for the delay was the PMU proposal to enhance technical specifications to include accounts payable and receivable, and a cargo and ship billing system. The consultants, supported by ADB, initially opposed these enhancements on the grounds that the additional modules may be difficult to implement.22 The views of the PMU prevailed, however, and the bidding documents for providing the MIS were issued in May 1999. The bidding process was completed in September 1999. The delay was also attributable to exceptionally long review periods for the awarding of contracts, and to a minor contract extension.23 The consultants provided extensive training, a necessary adjunct to the TA. The PCR assessed the TA consultants performance as satisfactory; the OEM agrees with the assessment. The OEM confirmed that the MIS is operating satisfactorily. 59. The TCR assessed the TA as successful, and the OEM concurs.24 Billing time has been reduced by about 10 days, and SP is able to process operational and financial information and make commercially oriented decisions based on the users actual needs. However, the OEM found that staffing levels are not appropriate, with 12 trained staff manning 200 terminals. Retention of competent staff is another issue, because salaries in the private sector are considerably higher than at SP.25 Also, the MIS is not operating 24 hours a day, as the consultants envisaged, but a maximum of 10 hours a day. But once SP completes a web page concerning its operations, a component of the TA, the MIS will operate 24 hours, 7 days a week. V. A. Relevance OVERALL ASSESSMENT

60. At appraisal and the time of evaluation, SP served as the principal waterborne gateway to Viet Nam. The Project was relevant at appraisal, as its primary purpose was to improve SPs cargo-handling operations, and enhance its efficiency by rehabilitating and modernizing the existing port facilities. Improvements focused on break-bulk operations and did not address the growing need to accommodate containerized cargo, which was becoming the worldwide standard for cargo transport. Break-bulk operations continue at SP, however, as at other ports worldwide. Such operations are likely to continue for the foreseeable future for commodities like riceViet Nams major exportand fertilizer, its major import. Overall, the Project is assessed as relevant.

22 23

The consultants proposed a simpler system to which future modules could be added. The extension allowed connection of the new MIS to each warehouse in the Khanh Hoi complex, and to the new wharves in Tan Thuan 2. 24 The PCR rated the TA highly successful. 25 Two trained information technology staff left SP for higher paid jobs in the private sector in 2001.

13 B. Efficacy

61. The Project fully achieved its objective of rehabilitating t e landside facilities of Nha h Rong and Khanh Hoi project terminals, thereby increasing SPs efficiency. It greatly improved the cargo-handling operations, minimizing cargo losses. Between 1995 and 2001, ships calls increased by 27%, average turnaround times were reduced from more than 5 days to less than 4 days, and port congestion decreased. Cargo throughput tonnage for the project terminals increased from 4.9 million t in 1995 to 5.8 million t in 2001, and an estimated 7.3 million t in 2002. Substituting dredging works for the planned mooring buoys and hardware enhanced the berthing capability at the port terminals, allowing larger vessels to call. Revisions of and additions to the procured equipment also improved SPs ability to address cargo-handling needs. The TA strengthened SPs institutional capabilities. Overall, the Project is assessed as highly efficacious. C. Efficiency

62. The Project suffered from initial implementation delays caused by lengthy bid evaluations and contract award procedures. However, the total project cost was 14.5% lower than estimated. The Project has an EIRR of 12.6%. The Project is assessed as efficient. D. Sustainability

63. The civil works and equipment provided are of good quality and generally appear well maintained. SP is the busiest port in Viet Nam and remains profitable. Unfortunately, landside traffic congestion limits growth potential of the port area. The river location also limits the size of vessels that can call. Despite the trend to containerize cargo whenever possible, the demand for break-bulk handling operations will remain strong. While larger ocean-going ships continue to enter the shipping market, the small- to medium-tonnage vessels now calling at SP will likely continue to ply the Saigon River. The setting of tariffs and other fees should be decentralized to ensure SPs long-term sustainability. The FIRR is 3.7%, slightly below the weighted average cost of capital of 4.0%. Overall, the Projects sustainability is assessed as likely. E. Institutional Development and Other Impacts

64. Human resource management has improved, and employment opportunities have increased. But the Government retains control over the setting of port tariffs and fees through the State Pricing Committee; that has hampered SPs ability to expand. The operating ratio remains high due to low port charges and increasing operating expenses. The addition of the MIS has reduced billing times by about 10 days and has enabled SP to process and retrieve operational and financial information more rapidly. Overall, the Projects institutional development and other impacts are assessed as moderate. F. 65. G. Overall Project Rating Based on the above criteria, the OEM rates the Project successful. Assessment of ADB and Borrower Performance

66. The Project was formulated during one relatively short fact-finding mission; there was no project preparatory TA. As such, inordinate reliance was placed on the Government to provide the rationale for the project components. This may explain SPs subsequent decision to seek

14 approval for relocating the port at Thi Vai. ADB fielded eight project administration missions; because SP was inexperienced in using ADB procedures, more frequent and thorough supervision would have helped improve implementation. More assistance from the Viet Nam Resident Mission (VRM), established in 1996, would also have helped the Government understand ADB procedures.26 The implementation schedule envisaged at appraisal was optimistic because of ADBs inadequate assessment of the capacities of the Ministry of Transport and SP. ADB missions did not fully monitor implementation of the action plan. Overall, ADB performance is assessed as satisfactory. 67. The Borrowers inexperience w ADB procedures caused delays in implementation ith (para. 28). The Borrowers lengthy bid evaluations delayed contract awardsa systemic problem in Viet Nam. That also caused initial delays in project implementation. The subsidiary loan agreement was not complied with until 2001, a year after the PCR was completed. ADB did not initially support the recommendation for an additional two modules of the MIS that the PMU proposed through the TA. The OEM, however, found these useful additions. Apart from delays attributable to the Borrowers inexperience with ADB procedures, overall Borrower performance is assessed as satisfactory. VI. A. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS

Key Issues for the Future

68. SP is reaching maximum capacity because of landside traffic congestion. If the infrastructure in and around the port cannot be improved, SP may become unattractive to shipping lines. Improvement in the handling of containerized cargo, using contemporary methods and equipment, is also necessary to remain competitive. The building of a deepwater facility at an alternate site should be investigated. 69. The cumbersome process of evaluating bids and awarding contracts caused serious implementation delays. Such problems remain an issue in Viet Nam. The process should be streamlined by (i) delegating authority to the relevant government agencies to prevent excessive implementation delays in future projects; and (ii) enhancing VRMs role, a process that has already begun. 70. Policy dialogue at the time of appraisal stressed the need to give greater autonomy to the port sector. Although the individual ports are responsible for administering their day-to-day operations, the State Pricing Committee establishes their port charges. While the ports are given some leewayup to 15%to vary these charges, they need greater flexibility to sustain financial viability. Thus, there is a need to give greater autonomy to the port sector. 71. Port rehabilitation became necessary because of the lack of proper maintenance for a long period. Although present maintenance demands are minimal, future maintenance planning must not be ignored. The MIS includes a preventive maintenance system that provides recommended scheduling of maintenance operations; its proper use will assist in maintenance planning.

26

VRM staffing has since been increased to strengthen project monitoring during implementation.

15

B.

Lessons Identified

72. To better address future needs of the port sector, the Government separated the business planning function from the strategic development function. Vinalines was assigned to develop the long-term business plan, based on needs of shippers, the port users. Vinamarine was assigned to develop the long-term strategic plan for providing the port improvements necessary to accommodate the business plan. This strategy may also be appropriate for other developing member countries. 73. Viet Nams lack of familiarity with ADBs guidelines and procedures, despite training seminars through ADBs Central Operations Services Office, slowed initial project implementation. Portfolio performance reviews also indicated that this and other implementation problems, such as sluggish disbursements, were systemic to Viet Nam. ADB responded by strengthening the capacity of VRM to monitor project implementation. C. Follow-Up Actions

74. The National Assembly of Viet Nam amended the State Budget Law, which gives greater authority at the district and provincial level and makes village-level budgeting more autonomous, on 10 December 2002. The revised law will go into full effect in 2004. Within this context, ADB should encourage the Government to extend autonomy to other activities, including the port sector, and review progress in the country strategy and program updates. 75. Viet Nam is committed to rationalizing its national shipping tariffs by 2005. ADB should help review the tariffs to ensure SPs sustainability. 76. SPs present drainage system discharges directly into the Saigon River. Although contamination of the discharged water may be minimal, SP should start collecting samples of the effluent for confirmation testing by 30 June 2003. If contamination is at an unacceptable level, priority should go to improving the drainage system. 77. The MIS requires periodic updating as computer software and hardware technology change. Integration of the MIS with customs authorities and shipping lines will strengthen its usefulness.

16

PROJECT COSTS ($ million)

Project Component Foreign A. Base Cost 1. Civil Works 2. Cargo-Handling Equipment 3. Tugboats 4. MIS Implementation 5. Consulting Services Subtotal (A) B. Contingencies 1. Physicalb 2. Price Escalationc Subtotal (B) C. Service Charge During Construction Total Appraisal Local Actual Locala % Overrun (Underrun) Foreign Locala Total

Appendix 1

Total

Foreign

Total

4.3 10.5 4.1 0.7 0.8 20.4

12.0 0.0 0.0 0.2 0.3 12.5

16.3 10.5 4.1 0.9 1.1 32.9

3.9 13.7 3.4 0.5 1.6 23.1

10.5 0.1 0.0 0.1 0.0 10.6

14.4 13.8 3.4 0.6 1.6 33.7

(9.3) 30.5 (17.1) (28.6) 100.0 13.2

(12.5) 100.0 0.0 (50.0) (100.0) (15.2)

(11.7) 31.4 (17.1) (33.3) 45.5 2.4

2.0 2.0 4.0 0.6 25.0

1.3 1.2 2.5 0.0 15.0

3.3 3.2 6.5 0.6 40.0

0.0 0.0 0.0 0.5 23.6

0.0 0.0 0.0 0.0 10.6

d

0.0 0.0 0.0 0.5 34.2

(100.0) (100.0) (100.0) (16.7) (5.6)

(100.0) (100.0) (100.0) 0.0 (29.3)

(100.0) (100.0) (100.0) (16.7) (14.5)

MIS = management information system. a Based on the average exchange rates (dong per US dollar) for the years 1995 to 2000 as provided in the country economic review report of the Asian Development Bank. b At 10% of base cost. c At 3.1% per annum. d Although the report and recommendation of the President stated that the Government had exempted all project-related goods and services from duties and taxes, the Saigon Port paid taxes in the amount of $158,000 equivalent, and these were included in the actual amount of local currency. Source: Asian Development Bank. 2001. Project Completion Report on the Saigon Port Project in Viet Nam. Manila.

Appendix 2

17

PROJECT OUTPUTS Table A2.1: Civil Works Appraisal

Type of Work Unit Nha Rong Division Khanh Hoi Division Central Workshop and Others 1. Wharf Strengthening a. MM1MM3 b. K1K4 c. K5K9 d. K10 2. 3. 4. 5. 6. 7. 8. 9. Yard Paving Transit Shed (Rehabilitation) Demolishing Shed New Shed for CFS New Shed Shed Veranda Central Workshop Lighting m m m m m
2

Actual
Nha Rong Division Khanh Hoi Division Central Workshop and Others

351 0 0 0 7,240 4,900 0 0 0 0 0 204 0 0 0 0 0 0

0 480 550 140 61,850 22,348 6,366 4,133 0 0 0 1,224 0 (854 m) 0 0 0 0

0 0 0 0 0 0 0 0 0 0 3,024 0 0 0 0 90 10 0

577 0 0 0 17,691 0 3,935 0 6,480 0 0 130 1 60 20 0 0 12,491

0 460 573 139 69,536 33,020 6,216 0 0 10,206 0 677 3 104 44 0 0 20,417

0 0 0 0 0 0 0 0 0 0 2,592 0 0 0 0 0 0 0

m2 m2 m2 m2 m
2

m2 set each each each m each m3

3

10. Electrical Substation 11. Fender 12. Mooring Bollard 13. Jetty 14. Mooring Buoy 15. Dredging Work
2

m = meter, m = square meter, m = cubic meter, CFS = container freight station. Source: Asian Development Bank.

18

Appendix 2

Table A2.2: Equipment (no.) Appraisal

Type of Equipment Nha Rong Division Khanh Hoi Division

Actual
Nha Rong Division Khanh Hoi Division

A. Cargo-Handling Equipment 1. Forklifts a. 2.5 ton b. 3.0 ton c. 5.0 ton d. 7.0 ton e. 10.0 ton f. 12.0 ton g. 25.0 ton 2. Miscellaneous Gear a. Mobile Mulitpurpose Crane (30 ton) b. Mobile Mulitpurpose Crane (80 ton) c. Rubber-Tired Gantry Crane d. Container Yard Super Stacker e. Light Truck/Work Vehicle f. Light Tractor and Hustler g. Manual Spreader 40 Frame h. Semiautomatic Spreader i. Container Yard Chassis j. Paper Clamps for Forklift k. Bulldozer/Trimmers 2 ton l. Two-Way Dozers m. Hoppers with Automatic Scale n. Grab 3.5 m3: 4 string o. Grab 2.4 m3: 2 string B. Communications Equipment 1. Radio Handset 2. Base Station 3. Charger/Antenna/Duplex (set) 4. One Additional Station for Main Office C. Tugboats 1. Tugboats (2 x 1,000 HP) with Firefighting and Environmental Protection Equipment a D. Computer Hardware and Software for MIS b 1. Net Server 2. Terminal 3. Printer
3

0 0 4 0 1 0 1 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0

0 10 3 3 0 1 0 0 2 0 4 4 11 1 0 20 12 2 0 2 2 2

2 5 1 2 1 0 0 2 0 0 0 0 1 0 0 0 0 0 1 0 0 0

4 5 2 1 2 0 0 0 2 2 6 0 4 0 2 0 0 0 3 0 2 0

22 1 2 1 Appraisal

0 0 0 0

0 0 0 0 Actual

0 0 0 0

tbd tbd tbd

6 52 38

HP = horsepower, m = cubic meter, MIS = management information system, TA = technical assistance, tbd = to be determined.
a b

Upgraded to 1,500 HP. No number was identified at appraisal because that would be decided during implementation of attached TA 2305-VIE:

Computerized Management Information System for Saigon Port , for $500,000, approved on 2 March 1995. Source: Asian Development Bank.

Appendix 3

19

OPERATIONS DATA ON SAIGON PORTa Table A3.1: Summary of Port Operations, 19952002 Item Unit 1995 A. Ship Calls 1. Total Cargo Ship Calls vessels (no.) 1,156 a. Container vessels (no.) 241 b. Cargo vessels (no.) 915 2. Total Ship Calls at Nha Rong/Khanh Hoi vessels (no.) 827 3. GRT GRT (000) 8,018 4. GRT at Nha Rong/Khanh Hoi Terminals GRT (000) 4,811 5. Average Cargo Ship Size GRT (000) 6.9 6. Average Cargo Ship Size at Nha Rong/Khanh Hoi GRT (000) 5.8 7. Cruise Ship Arrivals (Nha Rong/Khanh Hoi) vessels (no.) 36 8. GRT GRT (000) 483 9. Passengers In/Out thousand 12.1/12.1 B. Cargo Throughput 1. Total Cargo Handled tons (000) 7,212 a. At Berth tons (000) 6,089 b. At Buoy tons (000) 1,123 2. Cargo Handled at Nha Rong and Khanh Hoi tons (000) 4,936 3. Cargo Handled at Tan Thuan 1 and 2 tons (000) 2,275 4. Container TEUs Handled TEU thousand 77 5. Container Tons Handled tons (000) 636 6. Total Cargo Handling/Service Time days 5,021 a. Container days 765 b. Cargo days 4,256 7. Total Cargo Handling/Service Time per Ship days/ship 4.3 a. Container days/ship 3.2 b. Cargo days/ship 4.7 8. Cargo Handling Rate tons (000/day) 1.3 9. Average Load (tons) per Vessel tons/vessel per yr 10. Tonnage Handled per Meter per Annum tons/m per yr 11. Container Unit TEUs per Meter per Annum TEU/m per yr 12. Tons per Net Gang Hour (agricultural products) tons/gang per hr 13. Tons per Net Gang Hour (timber) tons/gang per hr 14. Tons per Net Gang Hour (general cargo) tons/gang per hr 15. TEUs per Net Gang Hour TEU/gang per hr C. Berth and Buoy Occupancy 1. Cargo Ship Time at Berth and Buoy days 5,363 a. At Berth days 4,186 b. At Buoy days 1,177 2. Number of Berths each 19 3. Number of Buoys each 14 4. Cargo Ship Turnaround Time days/ship 4.6 5. Time Available for Berth and Buoy days 12,045 a. At Berth days 6,935 b. At Buoy days 5,110 6. Berth Utilization Rate % 44.5 a. At Berth % 60.4 b. At Buoy % 23.0 7. Total Berth Time for Container days 892 8. Total Berth Time for General Bulk Cargo days 4,471 9. Total Berth Idle Time days 342 a. Container Vessels days 127 b. Cargo Vessels days 215 10. Ratio of Berth Idle Time to Service Time % 6.8 D. Cargo Handling Facilities: All Terminals/(Nha Rong and Khanh Hoi only) 1. Cranes (gantry/mobile/crawler/rail mounted) unit 2. Reach Stacker unit 3. Forklift/Toplift/Sidelift/CFS Forklift unit 4. Reefer Point unit 5. Tractor/Cargo Truck unit 6. Dozer/Trimmer unit E. Port Safety 1. Cargo Damage ton
2. Port Accidents each 9 1996 1,072 333 739 766 8,062 4,837 7.5 6.3 29 427 8.4/7.6 7,340 5,639 1,701 5,790 1,550 108 963 5,198 720 4,478 4.8 2.2 6.1 1.3 5,474 3,375 2,099 19 14 5.1 12,045 6,935 5,110 45.4 48.7 41.1 831 4,643 276 111 165 5.3 9 1997 1,207 398 809 725 7,023 4,214 5.8 5.8 24 377 11.7/11.7 6,821 4,960 1,860 5,056 1,765 123 1,154 4,647 624 4,023 3.9 1.6 5.0 1.4 4,878 3,042 1,836 19 14 4.0 12,045 6,935 5,110 40.5 43.9 35.9 747 4,131 231 123 108 5.0 10 1998 1,421 399 1,022 855 8,100 4,860 5.7 5.7 9 126 2.1/2.1 7,601 7,042 559 5,780 1,822 140 1,470 5,576 756 4,820 3.9 1.9 4.7 1.3 5,893 3,746 2,147 19 14 4.1 12,045 6,935 5,110 48.9 54.0 42.0 835 5,058 317 79 238 5.7 10 1999 1,447 496 951 869 8,898 5,339 6.1 6.1 28 357 6.1/6.1 8,337 5,538 2,799 5,204 3,133 172 1,965 5,486 1,200 4,286 3.8 2.4 4.5 1.4 5,762 2,077 505 17.0 23.8 12.9 15 5,890 3,076 2,814 19 14 4.1 12,045 6,935 5,110 48.9 44.4 55.1 1,378 4,512 404 178 226 7.4 9 2000 1,811 745 1,066 1,099 12,445 7,467 6.9 6.8 16 280 4.7/4.6 9,701 7,069 2,632 5,747 3,954 237 2,642 6,066 1,376 4,690 3.3 1.8 4.4 1.5 5,330 2,651 698 16.6 27.0 13.3 18 6,439 4,487 1,952 20 31 3.6 18,615 7,300 11,315 34.6 61.5 17.3 1,490 4,949 373 114 259 6.1 7 2001 1,724 1,048 676 1,048 14,870 8,922 8.6 8.5 29 460 8.0/8.0 10,022 7,568 2,454 5,826 4,196 269 3,159 6,183 1,167 5,016 3.6 1.1 7.4 1.5 5,813 2,677 791 21 6,649 4,770 1,879 21 34 3.9 20,075 7,665 12,410 33.1 62.2 15.1 1,298 5,351 466 131 335 7.5 10 2002 1,882 1,126 15,950 9,570 8.5 8.5 29 11,800 7,324 4,476 280 4,235 40(25) 7(3) 111(80) 167(117) 57(48) 23(14) 30 10
b b

b b b

c c

= not available, CFS = container freight station, GRT = gross revenue tonnage, TEU = twenty-foot equivalent unit. a Includes the Saigon Port terminals of Nha Rong, Khanh Hoi, Tan Thuan, Tan Thuan 2, and Can Tho. b Annualized using data from January to October 2002. C Estimates. Source: Saigon Port and Operations Evaluation Mission estimates.

20

Table A3.2: Cargo Tonnage Handled ('000 t)

Item 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Estimate Forecast 11,800 4,692 1,224 0 916 33 345 121 2,053 3,008 2,146 130 0 0 0 0 732 4,100 366 94 462 44 3,134 12,500 4,970 3,188 4,342

Appendix 3

Throughput HCMC Throughput Saigon Port A. Imports 1. Fertilizer 2. Cement 3. Steel and Iron 4. Machinery and Equipment 5. Wheat 6. Chemicals a 7. Others B. Exports 1. Rice 2. Agriculture Products 3. Rubber 4. Timber Products 5. Fruits and Vegetables 6. Reefer Cargo b 7. Others C. Domestic 1. Coal 2. Rice 3. Cement 4. Clinker c 5. Others D. Container Traffic 1. Container (t'000) a. Import b. Export 2. Total TEU (1,000) a. Import b. Export

4,579 4,077 1,882 1,081 88 82 75 0 24 532 1,543 984 11 262 13 31 242 652 48 322 66 125 91

6,174 5,199 1,914 758 111 154 17 235 48 591 2,690 1,874 163 3 144 3 10 493 595 79 171 203 34 108

7,410 5,371 2,528 461 142 300 94 176 77 1,278 2,420 1,575 88 2 17 0 16 722 423 69 86 128 0 140

8,607 6,435 3,349 704 328 360 107 223 127 1,500 2,560 1,680 98 26 10 18 28 700 526 39 158 75 55 199

12,365 7,209 4,258 724 464 548 65 304 165 1,988 2,308 1,440 82 0 2 0 0 784 643 14 400 14 0 215

13,813 7,339 3,798 665 789 537 50 218 121 1,418 2,692 2,173 108 0 0 0 0 411 849 82 237 76 216 238

13,746 6,821 3,274 528 396 359 42 266 124 1,559 2,766 2,119 0 0 0 0 0 647 780 65 20 358 58 279

14,336 7,601 3,594 1,200 9 439 33 196 102 1,615 2,866 2,392 0 0 0 0 0 474 1,141 54 88 525 118 356

17,285 8,337 3,716 1,365 4 343 17 187 117 1,683 3,271 2,299 0 0 0 0 0 972 1,350 40 158 427 299 426

19,136 9,701 4,527 1,414 11 552 23 305 82 2,140 3,088 1,858 51 0 0 0 0 1,179 2,086 87 119 473 423 984

10,022 4,377 1,108 1 733 28 330 104 2,073 2,974 1,558 137 0 0 0 0 1,279 2,671 158 184 303 353 1,673

321 37

864 79

1,426 138

1,628 158

636 77

963 108

1,154 725 429 123 56 67

1,469 1,012 457 140 55 85

1,965 1,080 885 172 78 94

2,642 1,345 1,297 237 117 120

3,159 1,512 1,647 269 132 137

3,400 1,636 1,764 280

3,800 1,824 1,976 300

= not available, HCMC = Ho Chi Minh City, t = metric ton, TEU = twenty-foot equivalent unit. Includes paper, stationery, garments, concrete pipes, glass, animal foods, and other imports. b Includes handicrafts, ceramics, and other exports. c Includes stone powder, steel, container, bran, and other domestic cargo. d Includes transhipment. Source: Saigon Port.
a

FINANCIAL STATEMENTS OF SAIGON PORT Table A4.1: Income Statement (D million)

Item Operating Revenueb Operating Expense Personnel Repair and Maintenance Operating and Administration Depreciation Operating Income (loss) Nonoperating Income Interest Expense Net Income Before Income Tax Income Tax Net Income After Income Tax Memorandum Item Operating Ratio (%) Return on Total Assets Return on Equity (%) Net Profit to Revenues (%) Revenues to Total Assets (%) Fixed Assets Turnover Ratio (x) 85.5 12.6 13.7 64.0 1.2 88.6 8.9 10.8 8.3 94.3 1.6 88.3 9.3 13.2 8.5 90.1 1.4 89.2 8.7 11.6 7.3 96.3 1.3 75.7 20.5 24.7 17.5 109.4 1.6 80.2 17.4 17.1 15.4 97.7 1.3 84.7 10.4 11.4 12.6 75.6 1.1 88.7 8.6 9.5 10.0 64.4 0.8 90.0 4.6 3.9 4.8 43.5 0.5 92.3 3.1 3.6 4.2 43.4 0.5 92.3 3.3 4.3 4.8 46.2 0.5 91.3 4.4 6.0 6.1 52.6 0.6 Appendix 4 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002a

98,856 84,518 35,195 9,395 31,316 8,612 14,338 5,286 237 19,387 5,815 13,572

162,653 144,136 50,225 21,399 64,796 7,716 18,517 2,211 939 19,789 6,256 13,533

223,066 197,044 67,579 24,574 95,269 9,622 26,022 1,802 671 27,153 8,200 18,953

269,291 240,137 71,883 28,737 112,453 27,064 29,154 915 3,278 26,791 7,059 19,732

321,105 242,991 117,234 17,207 83,653 24,897 78,114 595 2,476 76,233 20,020 56,213

391,530 314,147 136,613 15,313 123,234 38,987 77,383 3,297 201 80,479 20,281 60,198

357,665 303,072 124,359 10,275 110,772 57,666 54,593 6,197 386 60,404 15,180 45,224

402,921 357,300 126,368 13,807 155,955 61,170 45,621 15,132 6,895 53,858 13,648 40,210

376,292 338,823 127,776 12,335 140,648 58,064 37,469 2,367 15,666 24,170 5,931 18,239

414,587 382,807 137,806 17,458 162,667 64,876 31,780 2,604 10,669 23,715 6,111 17,604

463,077 427,219 152,596 19,117 202,489 53,017 35,858 2,079 10,372 27,565 5,247 22,318

542,645 495,394 163,328 17,773 249,643 64,649 47,251 2,966 11,834 38,383 5,527 32,856

= not available. a Annualized data from January to October. b Net of taxes. Source: Saigon Port.

21

22

Table A4.2: Operating Expenses, 19952002 (D million)

Item Personnel Salary Labor Union, Health, and Social Insurance Expenses Repair and Maintenance Operating and Administration Fuel Material Power and Water Means Rental Cost of Goods Soldb Others Depreciation Total Memorandum Item Personnel (no. of staff)c Direct Service Indirect Core Business-Related Expenses d % of Total Operating Expenses Other Business-Related Expenses % of Total Operating Expenses 1995 117,234 113,430 3,804 17,207 83,653 10,419 14,585 2,592 7,341 36,655 12,061 24,897 242,991 1996 136,613 132,407 4,206 15,313 123,234 10,396 25,139 2,688 13,528 53,548 17,935 38,987 314,147 1997 124,359 119,500 4,859 10,275 110,772 11,768 18,336 4,811 13,108 47,469 15,280 57,666 303,072 1998 126,368 121,378 4,990 13,807 155,955 12,897 40,082 4,460 20,020 54,426 24,070 61,170 357,300 1999 127,776 122,709 5,067 12,335 140,648 14,799 36,376 5,480 18,675 44,139 21,179 58,064 338,823 2000 137,806 131,650 6,156 17,458 162,667 19,099 35,414 6,230 18,519 62,523 20,882 64,876 382,807 2001 152,596 145,495 7,101 19,117 202,489 20,634 35,517 6,054 27,559 78,648 34,077 53,017 427,219 2002a 163,328 155,472 7,856 17,773 249,643 25,500 34,082 6,107 35,875 108,684 39,395 64,649 495,394

Appendix 4

4,702 3,110 1,174 418 192,965 79.4 50,027 20.6

4,762 3,124 1,194 444 238,104 75.8 76,044 24.2

4,750 3,078 1,212 460 234,855 77.5 68,217 22.5

4,986 3,293 1,225 468 270,819 75.8 86,481 24.2

5,528 3,768 1,256 504 265,420 78.3 73,404 21.7

5,579 3,786 1,269 524 291,324 76.1 91,483 23.9

6,486 4,691 1,355 440 303,974 71.2 123,246 28.8

331,137 66.8 164,257 33.2

= not available. Annualized from January to October 2002. b Cost of goods sold includes provision of material and equipment, provision of foods, duty free shops, and hotel business. c Annual average. d Includes personnel costs, fuel, material, power and water, depreciation, and repair and maintenance. Source: Saigon Port.
a

Table A4.3: Operating Revenues, 19952002 (D million)

Item Revenues from Core Business Stevedoring Warehousing Delivering Wharfage Tugboat Services Buoy Mooring/Unmooring Revenues from Other Business Means and Land Rental Parking Fees 5% of Fuel Freight Passenger Fees Remaining Goods Power and Water Provision of Material Equipment Provision of Foods Duty Free Shop Tailoring Repair and Construct Civil Works Mechanical Repair Transportation Tallying Hotel Business Rental for Equipment and Offices Maritime Services Buoy Dredging Training Shipping Agent Other Collection Gross Operating Revenues Less: Taxes Net Operating Revenues Memorandum Item Core Business Revenues (% of gross revenues) Other Business Revenues (% of gross revenues) Tourist-Related Business Revenues b % of Gross Revenues Operating Income Margin-Core (% of gross revenues) Operating Income Margin-Other (% of gross revenues)
a b

1995 257,962 154,128 33,217 0 27,869 34,627 6,674 1,447 74,987 3,601 1,112 0 778 0 0 30,985 4,802 490 9,070 7,975 2,477 613 463 1,215 8,862 0 0 2,134 410 332,949 (11,844) 321,105

1996 309,173 184,825 37,556 0 35,072 41,280 8,844 1,596 105,326 4,605 1,644 0 643 0 0 48,856 5,050 86 461 20,398 8,676 3,583 230 482 831 7,618 0 0 1,905 258 414,499 (22,969) 391,530

1997 273,459 168,701 23,689 6,561 27,723 36,728 8,471 1,586 96,000 4,612 1,336 181 1,023 0 0 42,659 6,391 4,832 729 7,229 11,643 4,246 513 480 0 9,134 0 0 0 992 369,459 (11,794) 357,665

1998 288,353 178,368 26,080 7,228 27,834 37,799 8,998 2,046 127,212 5,532 1,270 184 562 0 0 47,127 5,562 5,977 704 31,011 13,042 4,976 0 629 5,597 4,718 0 0 0 321 415,565 (12,644) 402,921

1999 272,555 169,995 21,305 5,904 28,741 32,964 12,013 1,633 103,737 4,669 1,031 169 337 627 520 33,737 4,956 6,941 971 23,402 11,737 7,425 0 536 2,959 3,720 0 0 0 0 376,292 0 376,292

2000 294,739 193,863 22,484 6,387 31,093 29,834 9,339 1,739 119,848 3,956 1,090 213 426 584 924 50,192 5,870 13,138 816 13,233 13,287 2,199 102 454 4,485 4,385 4,071 64 359 0 414,587 0 414,587

2001 324,893 223,938 22,998 5,583 33,957 27,378 9,501 1,538 138,184 2,868 1,183 222 830 222 1,083 59,680 7,014 21,625 658 15,823 13,114 2,452 217 767 2,105 2,105 4,668 1,167 381 0 463,077 0 463,077

2002a 374,743 265,370 23,557 6,865 36,630 30,634 10,097 1,590 167,902 3,781 2,723 232 661 6 644 73,628 4,511 29,190 584 20,227 8,822 3,736 410 595 4,201 6,713 0 0 0 7,236 542,645 0 542,645

77.5 22.5 5,755 1.7 25.2 33.3

74.6 25.4 6,079 1.5 23.0 27.8

74.0 26.0 12,432 3.4 14.1 28.9

69.4 30.6 12,872 3.1 6.1 32.0

72.4 27.6 13,404 3.6 2.6 29.2

71.1 28.9 20,278 4.9 1.2 23.7

70.2 29.8 30,064 6.5 6.4 10.8

69.1 30.9 34,880 6.4 11.6 2.2

Appendix 4

Annualized from January to October 2002. Includes provision of foods, duty free shop, tailoring, and hotel business.

23

Source: Saigon Port.

24

Table A4.4: Balance Sheet (D million)

Item Assets Current Assets Cash Accounts Receivable Inventory and Other Current Assets Total Current Assets Fixed Assets Revalued Cost Less: Accumulated Depreciation Net Revalued Cost Capital Work in Progress Total Fixed Assets Total Assets Liabilities and Equity Liabilities Current Liabilities Long-Term Debt Total Liabilities Equity Government Contribution Capital Reserve Retained Earnings Total Equity Total Liabilities and Equity Memorandum Item Current Ratio (x) Quick Ratio (x) Months in Receivables (mos.) Debt to Equity Ratio (%) LTD to Equity (%) LTD to Total Capitalization (%)
LTD = long-term debt. a As of the end of September 2002. Source: Saigon Port.

Appendix 4

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002a

14,309 21,897 34,864 71,070

15,529 23,646 33,007 72,182

16,239 26,159 47,041 89,439

10,200 48,713 13,752 72,665

20,773 48,299 18,374 87,446

28,788 61,390 20,302 110,480

46,391 59,985 36,223 142,599

39,042 53,325 26,085 118,452

25,455 52,083 32,268 109,806

51,617 42,770 36,560 130,947

47,508 54,581 53,699 155,788

40,856 67,811 60,833 169,500

175,394 95,474 79,920 3,569 83,489 154,559

182,840 102,013 80,827 19,409 100,236 172,418

269,847 111,634 158,213 0 158,213 247,652

342,699 137,531 205,168 1,863 207,031 279,696

358,989 160,941 198,048 8,150 206,198 293,644

466,847 231,766 235,081 55,280 290,361 400,841

527,128 284,436 242,692 87,851 330,543 473,142

611,580 337,922 273,658 233,421 507,079 625,531

930,136 392,777 537,359 217,434 754,793 864,599

1,153,145 456,776 696,369 128,074 824,443 955,390

1,335,446 509,223 826,223 20,892 847,115 1,002,903

1,397,666 566,075 831,591 31,336 862,927 1,032,427

43,282 3,158 46,440

46,302 0 46,302

64,834 38,796 103,630

64,931 44,512 109,443

34,295 31,501 65,796

38,703 11,052 49,755

37,377 40,181 77,558

33,440 169,267 202,707

61,742 341,107 402,849

58,159 404,540 462,699

72,571 415,290 487,861

45,692 435,019 480,711

53,536 34,374 20,209 108,119 154,559

62,738 45,181 17,927 125,846 172,148

62,738 45,181 36,102 144,021 247,651

156,566 0 13,686 170,252 279,695

172,632 529 54,687 227,848 293,644

328,573 1,811 20,702 351,086 400,841

361,325 3,951 30,308 395,584 473,142

389,928 2,308 30,588 422,824 625,531

444,439 5,460 11,852 461,751 864,600

481,339 7,563 3,789 492,691 955,390

507,405 6,284 1,353 515,042 1,002,903

532,719 6,277 12,720 551,716 1,032,427

1.6 0.3 0.0 43.0 2.9 2.0

1.6 0.3 1.7 36.8 0.0 0.0

1.4 0.3 1.3 72.0 26.9 15.7

1.1 0.2 1.7 64.3 26.1 15.9

2.5 0.6 1.8 28.9 13.8 10.7

2.9 0.7 1.7 14.2 3.1 2.8

3.8 1.2 2.0 19.6 10.2 8.5

3.5 1.2 1.7 47.9 40.0 27.1

1.8 0.4 1.7 87.2 73.9 39.5

2.3 0.9 1.4 93.9 82.1 42.3

2.1 0.7 1.3 94.7 80.6 41.4

3.7 0.9 1.4 87.1 78.8 42.1

Appendix 5

25

FINANCIAL AND ECONOMIC REEVALUATION A. General

1. The reestimated financial internal rate of return (FIRR) and economic internal rate of return (EIRR) are based on with- and without-project scenarios. The general assumptions made for the financial and economic analyses follow: (i) Financial revenues and costs are estimated for the berth and buoy operations of Nha Rong and Khanh Hoi, the two project terminals of Saigon Port (SP). For the economic analysis, net benefits and costs are for landside operations only. Project benefits are assumed to begin in 2000. The rehabilitated facilities are expected to have a life of 40 years. No replacement of project equipment was assumed, with useful life seen to surpass the evaluation period. 1 A 20-year benefit period starting in 2000 is assumed. The residual value of the rehabilitated facilities in 2019 is included as a negative capital cost. Project capital costs comprise actual financial costs for civil works, equipment (e.g., cargo-handling equipment, tugboats), and consulting services. All costs and benefits are expressed in constant prices in Vietnamese dong (D) and converted into 2003 prices by applying the World Banks manufacturing unit value index2 for the foreign components, and the consumer price index for all local costs. Foreign costs are converted to constant dong prices at D15,900 to $1. Nontraded components of the financial costs and benefits are converted to economic costs and benefits using a standard conversion factor of 0.90. Nha Rong and Khanh Hoi project terminals are used mainly for international and domestic shipping of cargo. Passenger traffic in Nha Rong terminal is minimal, and is not considered in the benefits analysis (Appendix 3, Table A3.1). Cargo throughput is divided into two general categories for the analysis: general bulk cargo and containerized cargo.3 SP or part of its operations will not be relocated to Thi Vai until after 2019, and Ho Chi Minh City will make plans to regulate city traffic near the port to ease congestion and allow increased cargo volume.

(ii) (iii)

(iv)

(v)

B.

Comparison with the Project Completion Report Methodology

2. The Operations Evaluation Mission (OEM) concurred with the project completion report (PCR) and the report and recommendation of the President that the key project objective was to sustain international trade and reduce its cost. Quantifiable economic benefits from the Project are mainly from saved ship service time as a result of the rehabilitated facilities, and improved cargo-handling equipment. 4

2 3

The Operations Evaluation Mission found the project equipment, handed over from 1997 to 1999, well maintained and in satisfactory working condition. World Bank. 2002. Global Commodity Prices Prospects, Projections as of November 2002. Washington, DC. Cargo throughput comprises imports, exports, and domestic cargo, which comprises (i) rice, fertilizer, and cement; (ii) coal and clinker; (iii) metal, machinery, rubber, and timber; and (iv) agricultural products , chemicals, and other products. Project benefits on port safety were not quantified. SP data show no change in the number of port accidents from pre-project levels in 1995, despite an increase in total cargo handled and ship service time from 7 million metric tons (t) and 5,021 days in 1995 to 10 million t and 6,183 days in 2001. Detailed data were not available on the level of cargo damage at SP and the project terminals.

26

Appendix 5

3. The OEM revised the financial and economic analyses of the PCR with respect to (i) underestimation of incremental operating costs, (ii) underestimation of SP capacity in the without-project scenario due to improvements in cargo-handling rate and berth capacity in 1994 and 1995, 5 and (iii) overestimation of benefits through inclusion of financial revenues from noncore businesses6 but not their costs, and economic benefits from the existing Tan Thuan 1 terminal without associated capital costs. C. Saigon Port Capacity and Traffic 1. Business Environment

4. Viet Nams sustained economic growth has facilitated an increase in maritime trade for both imports and exports. Growth in the gross domestic product has strengthened after a slowdown caused by the Asian financial crisis. Viet Nams long-term growth potential is positive, and will benefit from increased world trade, favorable commodity prices, and higher levels of foreign investment. Increased imports reflect a rise in the demand for industrial and other inputs and investment goods. Demand for imports will continue to outpace demand for exports. 5. The Government recently rated eight farm products ready for competition in the world market: rice, coffee, cashew, nuts, pepper, wooden furniture, wood products, and some fruits and specialized farm produce, including sesame seeds and bamboo shoots. Vietnamese rice has gained a competitive edge in the world market; 70% of the crop is high-quality rice meant for export. 6. The outlook for the industrial sector is favorable; double-digit growth is likely in 2002. The industrial sector includes coal, mechanical products, textiles, garments, footwear, steel, electricity, rubber, and paper. The coal sector has witnessed growth due to an increase in demand attributed to both domestic and international markets. Thirty-three percent of the textile and garment exports are to the United States; 70% of the footwear exports are to the European Union. The mechanical sector produces manufacturing equipment for agroforestry processing, vehicle engines, and industrial devices. Engines for farm equipment are exported to countries in the region. New investments have been made in electricity, steel production, and tires. 2. Cargo Traffic

7. Based on SP cargo data and OEM estimates of achievable future levels of berth occupancy, cargo traffic is expected to reach 14 million metric tons (t) in 2010, with containerized cargo increasing from 2.6 million t in 2000 to about 8.9 million t in 20107 (Table A5.1). Cargo throughput at the Nha Rong and Khanh Hoi project terminals is projected to increase from 5.7 million t in 2000 to about 8.2 million t in 2010. An increase in containerized cargo traffic is forecast from 0.9 million t in 2000 to 4.3 million t in 2010. Accordingly, the proportion of containerized cargo is assumed to grow from 15.7% in 2000 to about 34.4% by 2005, and 52.4% by 2010. The share of general cargo traffic will decrease from 84.3% in 2000 to about 65.6% by 2005 and 47.6% by 2010. Overall, cargo throughput at the two project

6 7

Actual cargo throughput increased from 5.4 million t in 1993 to 7.2 million t in 1995, prior to project implementation. The cargo-handling rate and time available at the landside berths increased from 1,023 t per day and 6,570 days in 1993 to 1,455 t per day and 6,935 days in 1995. Noncore business revenues averaged 28.0% of gross revenues from 1995 to 2002. SP provided historic data on general bulk and containerized cargo loaded and unloaded in SP and its Nha Rong and Khanh Hoi project terminals from 1995 to 2001, and projections of cargo tonnage for 2003, 2005, and 2010.

Appendix 5

27

terminals will average 59.0% of total cargo handled in SP from 2003 to 2010, compared with 68.4% in 1995. Table A5.1: Cargo Traffic (million metric tons and %)
Item Saigon Port (SP) General Bulk Cargo Containerized Cargo Cargo Handled at Berth Berth Utilization Rate (%) Cargo Handled at Buoy Buoy Utilization Rate (%) NR and KH Terminals (% of cargo handled at SP) General Bulk Cargo (% of cargo handled at NR and KH) Containerized Cargo (% of cargo handled at NR and KH) Cargo Handled at Berth Cargo Handled at Buoy 1995 Actual 7.2 6.6 0.6 6.2 60.4 1.0 23.0 5.0 68.4 4.4 88.6 0.6 11.1 2000 Actual 9.7 7.1 2.6 7.1 61.5 2.6 17.3 5.7 59.2 4.8 84.3 0.9 15.7 2003 Projected 12.5 8.7 3.8 8.7 70.5 3.8 7.5 59.5 5.5 73.6 2.0 26.4 5.3 2.2 2005 Projected 13.0 7.4 5.6 9.3 75.2 3.7 7.6 58.9 5.0 65.6 2.6 34.4 5.4 2.2 2010 Projected 14.0 5.1 8.9 10.5 85.1 3.5 8.2 58.6 3.9 47.6 4.3 52.4 5.9 2.3

= not available, KH = Khanh Hoi, NR = Nha Rong. Sources: Saigon Port and Operations Evaluation Mission estimates.

3.

Without-Project Case

8. The OEM updated the without-project scenario to account for improvements in landside cargo-handling rate and berth capacity starting in 1994 8 (para. 3). In the without-project case, OEM assumed that SP is able to gradually achieve a maximum berth and buoy utilization rate of about 75% by using internally generated funds to carry out some essential repairs and rehabilitation of landside berth facilities.9 Correspondingly, the base case projection estimates SP cargo capacity at 7.6 million t10 by 2002. Average landside cargo capacity for 1995 to 2002 is estimated at 6.3 million t; berth occupancy rate for 1995 to 2002 is estimated at 62%. This compares with a cargo capacity of 6 million t at appraisal and completion. For the Nha Rong and Khanh Hoi project terminals, the OEM estimates berth and buoy capacity at 4.7 million t, of which 1.0 million t is containerized cargo (Table A5.2). 11

Total cargo handled at berth increased from 4.8 million t in 1993 (reappraisal) to 6.1 million t in 1995 (Board approval). 9 Based on an estimated berth cargo-handling capacity of 10.1 million t in 1995 for the without-project case, and 12.3 million t in 2002 for the with-project case. 10 The PCR dated 14 July 2000 and prepared by the SP project management unit concluded that SP facilities could not have met expected future traffic growth (expected at 8 million t for 2000) without the Project. 11 Sensitivity analys is shows that if the base case assumes a without-project cargo capacity of 5.7 million t for the two project terminals, the EIRR will be 15.8% due to higher economic benefits from saved ship time from the estimated normal traffic. At the same time, the FIRR is lower, at 0.5%.

28

Appendix 5

Table A5.2: Saigon Port Capacity (million metric tons)

Item Appraisal (1993) w/o Project w/Project 6.0 4.8 1.2 3.4 a 2.9 0.5 8.0 6.5 1.5 Project Completion (2000) w/o Project w/Project 6.0 4.8 1.2 5.7 a 4.8 0.9 9.2 6.7 2.5 Operations Evaluation (2002) w/o Project w/Project 7.6 6.1 1.5 14.0 10.5 3.5 5.1 8.9

Saigon Port Total Cargo Handled At Berth At Buoy General Cargo Containerized Cargo NR and KH Terminals Total Cargo Handled At Berth At Buoy General Cargo Containerized Cargo

4.7 3.7 1.0

8.2 5.9 2.3 3.9 4.3

= not available, KH = Khanh Hoi, NR = Nha Rong, w/o Project = without Project, w/Project = with project. a Actual cargo traffic data. Source: Operations Evaluation Mission.

4.

With-Project Case

9. The total cargo handled in 2002 was 11.8 million t; the berth utilization rate was 69.5%. During the same time period, the landside cargo traffic rate was 8.2 million and the berth occupancy rate, 66.4%. The OEM assumed a maximum landside berth utilization rate of 85%, based on the size and nature of SP. Based on SP projections of cargo traffic and level of containerization, the with-project case projects a gradual increase in total cargo handled to 14 million t by 2010 12 (Table A5.2). Landside cargo traffic is estimated at 9.3 million t in 2005 and 10.5 million t in 2010 (para. 7 and footnote 9). The berth occupancy rate is projected at 75% for 2005 and 85% for 2010. For the two project terminals, total cargo handled is estimated at 8.2 million t with an increased level of containerized cargo throughput of 4.3 million t. This compares with total cargo handled of 5.7 million t at project completion. Landside cargo traffic at the project terminals is assumed at 5.9 million t. 5. Generated Cargo Traffic

10. Generated traffic in SP (berth and buoy) is assumed to gradually build up from 2.2 million t in 2000 to 5.4 million t in 2005 and 6.4 million t in 2010. The incremental capacity of the Nha Rong and Khanh Hoi project terminals is projected to slowly build up from 1.3 million t in 2000 to 2.9 million t in 2005, and to 3.5 million t in 2010 and beyond. The incremental capacity for containerized cargo is projected to increase from 0.2 million t in 2000 to 1.6 million t in 2005, and to 3.2 million t in 2010 and beyond. World shipping trends are toward containerization; thus, generated traffic from general bulk cargo is assumed to gradually decrease from a peak of 2.0 million t in 2002 to 0.2 million t in 2010 and beyond.

12

In the with-project scenario, long-term berth utilization is seen to benefit from increased ship calls and cargo traffic because of Viet Nams continued economic development and improvements in port productivity, performance, and facilities.

Appendix 5

29

D.

Financial Analysis

11. Financial revenues for SP consist of operating revenues from port services such as stevedoring, warehousing, delivery, wharfage, tugboat services, buoy use, mooring, and unmooring. In the absence of disaggregated revenue and cost data at the terminal level, operating revenues for the Nha Rong and Khanh Hoi terminals were estimated by applying the ratio of cargo throughput at the project terminals to t tal cargo handled through SP, to total o operating revenues. Incremental operating revenue, net of taxes,13 was then calculated based on an average revenue per ton and incremental traffic growth (berth and buoy) at the Nha Rong and Khanh Hoi project terminals (para. 10). The average revenue per ton (in 2003 prices) was estimated at D34,800 in 2000, D35,500 in 2001, and D34,000 in 2002 and beyond. The corporate income tax rate was estimated based on an average return on income before tax of 13% and corporate income tax rate of 25%. 12. Project capital costs are based on actual disbursements from 1995 to 2000 for the Asian Development Bank (ADB) loan and counterpart government financing. Operating costs include variable costs for personnel, fuel, material, power and utilities, and other expenses.14 Repair and maintenance costs were assumed to increase with equipment usage in order to extend its life. As in the case of operating revenues, operation and maintenance costs were estimated by applying the percentage share of cargo throughput at the project terminals to total cargo handled through SP. Incremental operation and maintenance costs were then calculated based on the average cost per ton and incremental traffic growth (berth and buoy) at the Nha Rong and Khanh Hoi project terminals (para. 10). Average operating cost per ton (in 2003 prices) was D18,300 in 2000, D19,300 in 2001, and D16,900 in 2002 and beyond. Average maintenance cost per ton (in 2003 prices) was D2,000 in 2000, D2,100 in 2001, D1,600 in 2002, and D2,100 from 2003. 13. The recalculated FIRR of 3.7% is marginal. Table A5.3 gives details of the FIRR calculation. The FIRR is slightly below the recalculated weighted average cost of capital of 4% for the Project. 15 The substantially lower result relative to the PCR is largely due to a reestimation of the level of incremental operating costs. The PCR assumed that the incremental operating cost was 30% of incremental revenue, similar to estimates at appraisal. The operating profit margin for core port services declined from 25.2% in 1995 to 6.4% in 2001. Preliminary financial data for 2002 indicated a recovery to 11.6%. Overall, this observation is confirmed by the deterioration of the ratio of operating expenses to operating revenues for the whole of SP from 75.7% in 1995 to 92.3% in 2000, and 91.3% in 2002. While SP remains profitable, marginal financial returns show increased pressure on operating income margins because of increased operating costs, constrained revenue generation, and the relatively weak performance of its noncore businesses in recent years.16

13 14

This comprises turnover tax and corporate income tax. The OEM assumed that 70% of personnel, particularly directly hired staff, and 50% of other core business-related expenses are variable. 15 The real cost of capital for ADB and government-financed components was estimated at 3.1% and 2%. However, according to ADBs Guidelines for Financial Governance and Management of Investment Projects, page 26, a minimum rate of 4% is to be applied if the derived weighted average cost of capital is below this threshold. 16 The operating profit margin from the noncore business activities has declined from 33.1% in 1995 to 23.7% in 2000 and 10.8% in 2001.

30

Appendix 5

Table A5.3: Recalculation of Financial Internal Rate of Return for Berth and Buoy Operations at the Nha Rong and Khanh Hoi Project Terminals (D million, 2003 prices)
Project Capital Cost 12,487 14,494 100,878 129,311 210,772 109,939 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (30,121) Incremental Maintenance Cost 0 0 0 0 0 2,576 2,812 4,123 5,709 5,939 6,169 6,399 6,630 6,860 7,090 7,320 7,320 7,320 7,320 7,320 7,320 7,320 7,320 7,320 7,320 Incremental Operating Cost 0 0 0 0 0 23,963 26,116 44,043 45,893 47,743 49,593 51,443 53,293 55,143 56,993 58,843 58,843 58,843 58,843 58,843 58,843 58,843 58,843 58,843 58,843 Incremental Operating Revenue a 0 0 0 0 0 44,121 46,533 85,724 89,325 92,926 96,526 100,127 103,728 107,329 110,930 114,530 114,530 114,530 114,530 114,530 114,530 114,530 114,530 114,530 114,530 Net Benefits

Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

(12,487) (14,494) (100,878) (129,311) (210,772) (92,357) 17,605 37,559 37,723 39,244 40,764 42,285 43,806 45,327 46,847 48,368 48,368 48,368 48,368 48,368 48,368 48,368 48,368 48,368 78,488 3.7%

Financial Internal Rate of Return =

a

Revenues, net of turnover, and income tax from port services such as stevedoring, warehousing, delivering, wharfage, tugboat services, buoy, and mooring and unmooring. Source: Operations Evaluation Mission.

Appendix 5

31

E.

Economic Analysis

14. The Project aimed to reduce international and local shipping costs by rehabilitating the wharf and cargo-handling areas at Nha Rong and Khanh Hoi project terminals, and by providing tugboats and modern equipment for multipurpose cargo-handling operations. 1. Estimation of Economic Benefits

15. The basic quantifiable economic benefit of the Project is saved time for ship service and handling at berth. Field interviews confirmed that ship waiting time was negligible before the Project. Saved costs for ship service comprised incremental benefits from generated traffic from the Project, and non-incremental benefits from without-project port traffic. The net benefit and cost streams are limited to landside berth operations of the Nha Rong and Khanh Hoi project terminals. 16. Savings in ship service time were calculated on the basis of growth forecast for general bulk cargo and containerized cargo (paras. 79). The analysis assumed a progressive growth in the level of containerization, particularly at the Khanh Hoi terminal. The ratio of container cargo, with an average unit weight of 12 t per 20-foot equivalent unit, to total cargo handled, is expected to increase from 15.7% and 22.3% in 2000 and 2002 to about 34.4% and 52.4% by 2005 and 2010, respectively. 17. The annual ship service times for normal and generated cargo traffic (berth and buoy) in Nha Rong and Khanh Hoi project terminals were quantified using the difference between the ratios of cargo tonnage handled and cargo-handling rate in the without- and with-project scenarios. Assumptions of cargo-handling rates are based on estimated average cargohandling rates for SP in the without- and with-project cases (Table A5.4). Total ship turnover time includes incremental ship waiting time due to increasing landside berth occupancy in the with-project case.17 Conventional port planning techniques, based on queuing theory, suggest that, for a port of the size and nature of SP, ship waiting will start to rise sharply at levels of berth occupancy above 70%. Based on the 15-berth capacity of Nha Rong and Khanh Hoi project terminals, ship waiting time is assumed at 3%, 5%, 8%, and 16% of calculated ship service time based on increasing berth occupancy rates of 70%, 75%, 80%, and 85%, respectively. Table A5.4: Cargo-Handling Rates at the Nha Rong and Khanh Hoi Project Terminals (000 metric ton per berth day)
Item
General Cargoa Without-Project Case With-Project Case Containerized Cargo a Without-Project Case With-Project Case
a

1995
1.47 1.47 0.71 0.71

1998
1.21 1.21 1.76 1.76

2000
1.09 1.43 1.15 1.77

2002
0.99 1.49 1.15 2.35

2005
0.99 1.12 1.15 2.92

2010
0.99 1.12 1.15 3.88

In the absence of disaggregated data, cargo-handling rate is based on port average. Source: Operations Evaluation Mission.
17

A reason to increase landside berth occupancy is the ships preference for landside berth facilities over in-river buoy berths; container cargo should be handled at landside berths. Subsequently, ship waiting time is seen to increase with higher landside berth utilization, because both project terminals continue to operate as break-bulk terminals. Some Khanh Hoi berths can accommodate containers, even though they are not dedicated container terminals.

32

Appendix 5

18. At OEM, the reestimated daily operating cost of vessels unloading and loading along Nha Rong and Khanh Hoi project terminals was $7,000. This compares with $5,000 at appraisal and $6,700 at project completion. Annual saved cost for ship service (berth and buoy) for generated traffic was calculated in accordance with conventional practice, as half of daily operating costs. 19. Economic benefits for the landside berth operations were then derived by multiplying the quantified saved ship service cost (berth and buoy) by the ratio of cargo handled at berth to total cargo handled, i.e., 72.9% in 2000, 75.5% in 2001, 69.5% in 2002, and about 72% in 2003 and beyond. A standard conversion factor of 0.90 was used to convert the nontraded component of project benefits (i.e., domestic shipping) into economic benefits. The ratio of domestic cargo to total cargo handled was 22% in 2000, 35% in 2002, and 30% in 2004 and beyond. 2. Estimation of Economic Costs

20. The economic costs comprised project investment costs, and operation and maintenance costs. The capital costs were derived from actual construction and nontraded components of the financial costs (i.e., 31% of capital costs, 81% of operating costs, and repair and maintenance costs) converted to economic costs and benefits using a standard conversion factor of 0.90. Economic costs from the landside or berth operations of the two project terminals were calculated by multiplying incremental operating cost by the ratio of cargo handled at berth to total cargo handled. 3. Economic Internal Rate of Return

21. The recalculated EIRR for the landside berth operations of the Nha Rong and Khanh Hoi project terminals is 12.6%. Annual savings in ship service time for containerized cargo is projected to increase from D46 billion in 2002 to D119 billion in 2010 and beyond. On the other hand, annual ship service time saved for general cargo will progressively decline from D122.3 billion in 2002 to zero in 2010 with the shift toward more containerized cargo. In 2010 and beyond, berth occupancy and, hence, ship waiting time for general cargo vessels will have reached the same level as in the without-project scenario. 22. The detailed calculation is presented in Table A5.5. The reestimated EIRR is not comparable with the PCR estimates because economic benefits at the PCR included cargo handled by Tan Thuan 1, and underestimated incremental operating costs. In summary, the EIRR depends on Nha Rong and Khanh Hoi project terminals meeting targets for cargo traffic and level of containerization, and undertaking prudent measures for cost management, and the ability of Ho Chi Minh City to address traffic congestion in the port area, which will help increase cargo volume.

Table A5.5: Recalculation of Economic Internal Rate of Return for Berth Operations at the Nha Rong and Khanh Hoi Project Terminals (D million, 2003 prices)
Project Capital Cost 12,100 14,044 97,751 125,302 204,238 106,531 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (29,187) Incremental Maintenance Costs 0 0 0 0 0 2,318 2,531 3,710 5,138 5,345 5,552 5,759 5,967 6,174 6,381 6,588 6,588 6,588 6,588 6,588 6,588 6,588 6,588 6,588 6,588 Incremental Operating Costs 0 0 0 0 0 16,054 18,120 28,130 30,366 31,590 32,814 34,039 35,263 36,487 37,711 38,935 38,935 38,935 38,935 38,935 38,935 38,935 38,935 38,935 38,935 Savings in Ship Service Time General Cargoa Containerized Cargo Normal Generated Generated Normal 0 0 0 0 0 66,280 55,524 95,836 71,215 47,652 21,552 19,008 16,464 13,920 3,745 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 9,788 8,426 26,481 17,502 10,255 3,980 2,929 2,034 1,295 234 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 17,334 35,612 36,045 37,988 40,093 41,843 43,378 44,736 45,946 46,366 46,745 46,745 46,745 46,745 46,745 46,745 46,745 46,745 46,745 46,745 0 0 0 0 0 2,560 5,404 9,960 16,523 23,799 31,476 39,512 47,846 56,429 64,301 72,242 72,242 72,242 72,242 72,242 72,242 72,242 72,242 72,242 72,242 Net Benefits

Total

Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

0 0 0 0 0 95,962 104,967 168,321 143,227 121,799 98,850 104,827 111,081 117,591 114,646 118,987 118,987 118,987 118,987 118,987 118,987 118,987 118,987 118,987 118,987

(12,100) (14,044) (97,751) (125,302) (204,238) (28,941) 84,316 136,481 107,723 84,863 60,483 65,029 69,852 74,930 70,554 73,464 73,464 73,464 73,464 73,464 73,464 73,464 73,464 73,464 102,650 12.6%

Appendix 5

Economic Internal Rate of Return =

a

From 2010 and beyond, berth occupancy and thus, shipping time for general cargo vessels reach the same level as they would in the without-Project capacity.

33

Source: Operations Evaluation Mission.

34

Appendix 5

F.

Sensitivity Analysis

23. Sensitivity analysis was carried out on the FIRR and EIRR with respect to changes in the assumptions on berth utilization rate and cargo tonnage, average daily shipping costs, and level of containerization (Table A5.6). Table A5.6: Results of Sensitivity Analysis
Item Base Case O&M Costs, 10% Increase Operating Revenues, 10% Decrease Cargo Traffic: Average Berth Utilization Rate of 75% Base Case Incremental O&M Costs, 10% Increase Incremental Benefits, 10% Decrease Average Daily Shipping Cost, 10% Decrease Level of Containerization: Average 30% of Cargo Handled from 20032019 Cargo Traffic: Average Berth Utilization Rate of 75% FIRR (%) 3.7 2.5 1.6 0.4 12.6 12.1 11.0 10.3 9.3 13.9 EIRR (%) NPVb (D/mo.) (191,557) (191,557) (191,557) (191,557) 13,532 13,532 13,532 13,532 13,532 13,532 NPV1 (D/mo.) (208,876) (221,537) (229,489) Vb (D/mo.) 219,178 377,831 377,831 V1 (D/mo.) 236,497 347,851 288,011 SV (%) 87.4 (50.7) (120.1)

1,615 (20,416) (36,824) (48,393) 45,907

150,675 503,560 503,560 503,560 503,560

162,591 469,612 453,204 441,804 500,234

(8.9) 2.7 2.7 2.7 (0.3)

EIRR = economic internal rate of return, FIRR = financial internal rate of return, NPV1 = net present value in the sensitivity test, NPVb = net present value in the base case, O&M = operation and maintenance, SV = switching value, V1 = value of the variable in the sensitivity test, Vb = value of the variable in the base case. Source: Operations Evaluation Mission.

24. The analysis shows that FIRR will decrease to 2.5% if operation and maintenance expenses are 10% higher than base case estimates. Similarly, the recalculated FIRR drops to 1.6% with operating revenues10% lower than the base case. FIRR breaks even at 0.4% with an average berth utilization rate of 75% and 7 million t of cargo handled. The sensitivity analysis shows that net financial revenues from existing cargo traffic cannot generate adequate returns on investment costs. 25. A 10% reduction in incremental project benefits will reduce the base case EIRR from 12.6% to 11%. Similarly, if average daily shipping costs were 10% lower than the base case estimate of $7,000 per day, recalculated EIRR is about 2% lower, at 10.3%. On the other hand, a 10% increase in operation and maintenance expense has minimal impact, with EIRR close to the base case estimate of about 12.6%. The analyses also point out additional economic benefits from increased containerization in the Nha Rong and Khanh Hoi project terminals. The EIRR is only 9.3% if the project terminals achieve only an average ratio of 30% for container cargo to total cargo handled. The sensitivity analyses also point out the impact of rising ship waiting time associated with increasing berth occupancy rates. At an average berth occupancy rate of 75%, the recalculated EIRR is higher, at 13.9%. G. Distribution of Economic Benefits

26. Direct benefits to the domestic economy consist of increased port productivity through the elimination of capacity bottlenecks. Primary beneficiaries are the Government and SP,

Appendix 5

35

through additional port fees collected; and shipping companies, through saved time for ship service and cargo-handling, in both existing and generated traffic. Indirect project beneficiaries are residents and industries in Ho Chi Minh City, which is expected to meet its goal of 10% growth in gross domestic product in 2002. Of the citys 26 industrial subsectors, 25 reported production increases. Growth was strongest for the foreign-invested industrial production sector, followed by the private and state sectors. 27. The economic analysis, as is conventional in port studies, reflects benefits from assumed savings in ship service time for normal and generated traffic. Based on a 1 -month sample of cargo ship traffic, half of the cargo loaded and unloaded is from Viet Nam flag or locally-owned ships. Because about half of the ships and shipping are foreign owned, there is a chance that many of the benefits will accrue to them, rather than to Vietnamese shippers. On the other hand, benefits accruing to foreign ship owners may be partly passed on to the Vietnamese economy if the freight rates at SP fall in response to increased port efficiency. Because of data constraints, the OEM did not attempt to quantify the extent to which benefits accrue to the Vietnamese economy. Similarly, ADB did not attempt to determine the extent to which benefits accrue to Viet Nam by quantifying ownership of vessels using SP at the appraisal or PCR stages. 28. The financial and economic analysis shows that the Project is economically viable, but marginal. The adequate economic returns relative to the fragile FIRR indicate some leeway for upward adjustments in port fees to capture more benefits, especially foreign benefits, if competition allows it. Also, sensitivity analysis shows that the FIRR is not very robust; the EIRR would range from 9% to 14%.