Performance Evaluation Report

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

Peoples Republic of China: Fangcheng Port Project

Operations Evaluation Department

CURRENCY EQUIVALENTS Currency Unit At Appraisal (31 August 1995) $0.12 CNY8.35 yuan (CNY) At Operations Evaluation (9 November 2005) $0.12 CNY8.08

CNY1.00 $1.00

= =

At Project Completion (24 May 2002) $0.12 CNY8.28 ABBREVIATIONS

AADT ADB dwt EIRR FCPA FIRR GCD IRI MOC OEM PCR PCU PRC RRP TA WTP

average annual daily traffic Asian Development Bank deadweight ton economic internal rate of return Fangcheng Port Authority financial internal rate of return Guangxi Communications Department international roughness index Ministry of Communications Operations Evaluation Mission project completion report passenger car unit Peoples Republic of China report and recommendation of the President technical assistance wastewater treatment plant WEIGHTS AND MEASURES

kph TEU VOC vpd

kilometer per hour 20-foot equivalent unit vehicle operating costs vehicles per day NOTES

(i) (ii)

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

Director

D. Edwards, Operations Evaluation Division 2, Operations Evaluation Department (OED) L. Neumann, Senior Evaluation Specialist, Operations Evaluation Division 2, OED V. Buhat-Ramos, Evaluation Officer, Operations Evaluation Division 2, OED C. Roldan, Senior Operations Evaluation Assistant, Operations Evaluation Division 2, OED Operations Evaluation Department, PE-679

Team leader Team members

CONTENTS Page BASIC DATA EXECUTIVE SUMMARY MAPS I. INTRODUCTION A. Evaluation Purpose and Process B. Expected Results DESIGN AND IMPLEMENTATION A. Formulation B. Rationale C. Cost, Financing, and Executing Arrangements D. Procurement, Construction, and Scheduling E. Design Changes F. Outputs G. Consultants H. Loan Covenants I. Policy Framework PERFORMANCE ASSESSMENT A. Overall Assessment B. Relevance C. Effectiveness D. Efficiency E. Sustainability OTHER ASSESSMENTS A. Impact B. Asian Development Bank Performance C. Borrower Performance ISSUES, LESSONS, AND FOLLOW-UP ACTIONS A. Issues B. Lessons C. Follow-Up Actions iii iv vii 1 1 2 2 2 3 3 4 5 5 7 7 7 7 7 8 10 13 14 15 15 17 17 17 17 18 18

II.

III.

IV.

V.

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

Page APPENDIXES 1. 2. 3. 4. 5. 6. 7. 8. Cost Breakdown by Project Component Financing Plan Berth Capacities Overall Assessment Fangcheng Port Details Average Annual Daily Traffic Economic and Financial Analyses Financial Statements 19 20 21 23 24 36 37 48

Attachment:

Management Response

BASIC DATA Loan 1427-PRC: Fangcheng Port Project

Project Preparation/Institution Building TA TA Name No. 1982 Second Ports Development 2466 Management and Operational Strategies for Port Authorities Type PPTA ADTA PersonMonths 18.5 27.0 Amount1 ($) 400,000 490,000 Approval Date 16 Nov 1993 12 Dec 1995

Key Project Data ($ million) Total Project Cost Foreign Exchange Cost ADB Loan Amount/Utilization ADB Loan Amount/Cancellation Key Dates Fact-Finding Mission Appraisal Mission Loan Negotiations Board Approval Loan Agreement Loan Effectiveness First Disbursement Project Completion Loan Closing Months (effectiveness to completion) Key Performance Indicators (%) Financial Internal Rate of Return

Per ADB Loan Documents 135.0 62.0 52.0

Actual 97.5 43.3 40.3 11.7 Actual 1327 Jan 1995 2130 Aug 1995 30 Oct3 Nov 1995 18 Jan 1996 15 Jan 1997 20 Jun 1997 23 Sep 1997 Oct 2001 15 Oct 2001 52 PCR Port: 7.8 Highway: 6.6 FPP: 6.8 Port: 33.5 Highway: 14.7 PPER Port: Highway: 2.0 FPP: 20.0 Port: 20.0 Highway: 19.0

Expected

Apr 1997 30 Jun 1999 31 Dec 1999 26 Appraisal Port: 8.6 Highway: 5.7 FPP: 6.9 Port: 21.1 Highway: 21.4

Economic Internal Rate of Return

Borrower Executing Agencies

Peoples Republic of China Fangcheng Port Authority port component Guangxi Communications Department highway component

Mission Data Type of Mission Fact-Finding Appraisal Project Administration Inception Review Project Completion Operations Evaluation

No. of Missions 1 1 1 6 1 1

No. of Person-Days 90 50 5 64 33 45

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

EXECUTIVE SUMMARY This report details the findings of the operations evaluation of the Fangcheng Port Project in the Peoples Republic of China (PRC). The evaluation and performance ratings are based on the Asian Development Banks (ADBs) Guidelines for the Preparation of Performance Evaluation Reports of Public Sector Operations. The Project aimed to improve the capacity and efficiency of Fangcheng Port. To this end, it included investment components for the development of port and expressway facilities and for institutional development through training and supporting policy dialogue. The latter was part of a general sector program involving other ADB projects and other international development agencies. The Project was selected for support because of the need for additional berths and improved cargo handling efficiency to cater to the rapid growth in trade at that time that was projected to continue for the foreseeable future. Southern PRC has other ports, but the Governments development plan identified Fangcheng Port for major expansion of bulk and containerized cargo operations. In addition, Fangcheng Port was the closest port to the less developed but growing parts of Guangxi, Guizhou, and Yunnan and to parts of Chongqin, Hunan, and Sichuan, all but one of which are landlocked. ADBs operational strategy at the time emphasized removing transport constraints as a way to improve economic efficiency and growth and favored projects benefiting less developed and landlocked areas. The executing agencies were the Fangcheng Port Authoritynow known as the Fangcheng Port Group Company, Limitedfor the port component and the Guangxi Communications Department for the expressway component. Although delayed, project implementation proceeded largely as planned. Berth 9 with backup cargo facilities was constructed to handle bulk cargo, primarily coal and iron ore, and berth 10 with backup facilities was established as a dedicated container terminal. Under the expressway component, 20 kilometers (km) of the 45 km, four-lane, divided expressway linking the port with the Nanning-Beihai Expressway were built according to plan, with the Government financing the other 25 km. Actual capacities exceed nominal planned capacities and operational results to date indicate that the physical outputs are functioning satisfactorily. Significant changes in policy were implemented at the same time as the Project, including greater autonomy for port operators and enhanced commercialism and competition in the sector. As a result, the Fangcheng Port operator, for example, is structured as a stateowned company under the Fangcheng municipal government and competes with other ports in Guangxi and in southern Guangdong. The Project cost $97.5 million, about 28% less than the appraisal estimate of $135.0 million, mainly because of lower construction and equipment costs and the lease rather than purchase of a tugboat. Only $40.3 million of ADBs approved loan of $52.0 million was utilized. The loan was repaid in 2005. The expressway, which was started in August 1995 under advance procurement action approved by ADB, was opened to traffic in November 1998. The main port civil works were completed by October 1999, but equipment installation took until October 2001. Berth 9 was in use in 1999 and berth 10 in 2000 using preexisting cranes and equipment. The loan was closed in June 2001 rather than as expected in December 1999. The sources of delay included the

v executing agencies lack of familiarity with ADB procedures and the consequent slowness of some procurement activities; the changes in the list of equipment to be procured and the time required for these changes to be discussed with ADB; and the slow performance of some suppliers, particularly for the container cranes. As a result of the Project, the capacity of Fangcheng Port was increased by 6.4 million tons per year. Cargo handling rates at both berths 9 and 10 are higher than alternative preexisting berths because of the specialized equipment and backup cargo areas. Port throughput increased dramatically from around 4.5 million tons in 1995 (the time of project preparation) to around 16.0 million tons in 2004. Without the Project, Fangcheng Port could not have handled this amount of cargo or handled cargo as efficiently. Some cargo would have had to be shipped through more distant ports and some could have been handled, but in a more congested port environment or as breakbulk1 instead of in containers. The result would have been increased costs and the consequent depression of trade and economic growth. For ship owners, waiting times and service times have been satisfactory despite the substantial increase in port activity reflected in the increased throughput and the number of ship calls. For bulk cargo owners, the ability to charter larger ships because of the increased water depth alongside berth 9 potentially enables them to obtain lower freight rates. In short, by expanding port capacity and improving efficiency, the Project removed a transport bottleneck, fulfilling the expectations of the stated development strategy. Moreover, as less developed, landlocked provinces account for around two thirds of both the ports customers and the cargo it handles, the Project also helped support the development of such areas. Construction of a new road link to the port was appropriate, as the old road links were narrow with some winding sections and passed through urban areas, making them unsuitable for cargo transport. For those vehicles using the expressway, travel times and vehicle operating costs are less than if they used alternative routes. Travel on the old road links also improved because of avoided congestion. However, the contribution of the expressway to the expansion of the ports capacity and improvement of the ports efficiency is less than expected. While at 9,000 vehicles per day in 2004 traffic volumes are similar to those expected, traffic is relatively light, about one fifth to one sixth of capacity, and the vehicle mix differs substantially from expectations. In particular, the number of medium and large trucks is substantially less than expected because of an overestimation of the amount of port cargo that would switch from rail to road. This shortfall was, however, compensated for by an unexpected increase in passenger car and light truck traffic resulting from rapid urbanization of areas adjacent to the port. Nevertheless, the shortfall in medium to large trucks moving cargo to and from the port means that the need for such high capacity in the short term for port-related businessthe rationale for the chosen expressway designhas not yet materialized. Better traffic estimations may have resulted in an alternative development approach, such as a phased development of the expressway, which may have been more cost-effective. While most landward movement of port cargo is by rail and rail capacity was generally known to be inadequate, the Project did not have a railway component.

Breakbulk refers to cargo that is neither in bulk form, such as applies to large consignments of minerals, grains, and cement, nor containerized, that is, packed into shipping containers of 2045 feet length. Breakbulk cargo typically is in drums, boxes, bundles, and similar small units.

vi Overall, the Project is rated as successful. The relevance of the Project to the PRCs development needs and to Government and ADB strategies is good, although achievement under this criterion was weakened by the inaccurate estimation of traffic demand and the subsequent choice of investments to enhance landward cargo movements. The outputs were generated and the Project did achieve its intended outcomes, tempered in part by high accident rates on the expressway. The investment was economically efficient and sustainability is likely. Several issues arise from experience with this Project. The first is an apparent need for a stronger commercial orientation and improved planning in the port. Tariffs are not based on actual costs and not all costs appear to be taken into account in assessing performance and in planning. This results, for example, in strategies that favor new berth construction to reduce congestion over those that seek higher productivity by improving existing facilities. Better strategic planning within the provincial port sector overall is also needed to avoid overcapitalization within the group of ports competing for the same business in southern PRC. Another issue concerns an apparent need for stronger intermodal transport planning, particularly in relation to road, port, and rail, but that might also include waterways and air travel. The Project probably would have benefited from simultaneous investment in added rail capacity along with the expressway. The separation of modes under different administrative structures and the different organizational cultures that result constrain coordinated investment. ADBs funding arrangements can also act as a disincentive to the bundling of components for different agencies under one project, thereby contributing to reduced coordination. A key lesson concerns the need to improve traffic demand forecasts for expressways. The Project is not unique in having incorrect estimates as demonstrated by a number of recent project completion reports for other ADB-financed expressway projects. As a follow-up activity, the Guangxi Communications Department could investigate whether more port cargo is better suited for transport by road rather than by rail and whether the relatively high toll rates for large trucks are preventing this from occurring.

David Edwards Director Operations Evaluation Department Operations Evaluation Division 2

I. A. Evaluation Purpose and Process

INTRODUCTION

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

ADB. 2002. Project Completion Report on the Fangcheng Port Development Project in the Peoples Republic of China. Manila. These were the guidelines in effect at the time that were subsequently replaced by the Guidelines for the Preparation of Performance Evaluation Reports of Public Sector Operations. An important difference is the omission in the new guidelines of institutional and other impacts from the core rating criteria.

2 B. Expected Results

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

8. Local agencies completed feasibility studies for both the port and expressway components in 1993.4 These were reviewed in 19931994 under an ADB-funded technical assistance (TA)5 prior to appraisal by ADB in 1995. The port development was based on the long-term plan prepared by the Fangcheng Port Authority (FCPA) and the 1992 Guangxi Coastal Area Development Plan. Detailed design for the port and expressway was done by the same consulting agencies that had prepared the feasibility studies. Local consulting agencies also prepared a resettlement plan for the expressway and an environmental impact assessment. 9. The feasibility studies and TA outputs were not in ADBs records and their adequacy could not be reviewed.6 One particular aspect of the expressway feasibility study that warranted review concerns the traffic between the port and the hinterland, which at the time was mainly by rail. The project design assumed that 40% of the rail traffic would shift to road upon the opening of a better road link. As noted later (para. 52), the actual shift was much less, and given the
3

ADB. 1995. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Peoples Republic of China for the Fangcheng Port Project. Manila. The Planning and Design Institute for Water Transportation of Beijing and the Guangxi Development Institute prepared the port development feasibility study. The design institutes of the provinces of Guangxi and Hunan prepared the highway feasibility study. ADB. 1993. Technical Assistance to the Peoples Republic of China for Second Ports Development Project. Manila (TA 1982-PRC, for $400,000, approved on 16 November 1993). The TA also reviewed the feasibility study for the Second Yantai Port Project. ADBs East and Central Asia Transport and Communications Division suggests that the records were probably mislaid during the 2002 reorganization of ADBs operational departments.

3 nature of the port traffic, the assumption of such a large shift does not seem logical. However, in the absence of relevant reports and records, the feasibility studys rationale cannot be reviewed. 10. The Project and a second project for building additional berths at Yantai Port were processed during the same period and used the same TA for review. The Yantai Port Project was approved ahead of the Project. The World Bank and Japan7 were also actively involved in lending to the port sector at the time. The projects of all three external financiers had similar objectives of increasing port capacity and efficiency, including by facilitating greater containerization of cargo. The advisory assistance provided by ADB and the World Bank and the policy dialogue they engaged in with the Government also had similar, complementary aims of increasing port autonomy, business orientation, and competition and installing appropriate management systems, and as such, appear to be part of an adequately coordinated program of assistance. B. Rationale

11. The Project was selected for support because of the need for additional berths and improved cargo handling efficiency to cater to the rapid growth in the countrys trade at the time that was projected to continue for the foreseeable future. Between 1995 and 2000, the Government planned to construct 20 new deepwater berths each year to handle the expected growth in trade, and the Project would contribute two of these new berths. ADBs operational strategy at the time emphasized removing transport constraints as a way to improve economic efficiency and growth. These development strategies on the part of both the Government and ADB remain applicable at the time of evaluation. The soundness of these general strategies is borne out by the continuation of trade growth, the further expansion of port capacity that has subsequently taken place, and the high port utilization rates at Fangcheng Port and other ports. 12. Fangcheng Ports hinterland is also served by ports at Beihai and Quinzhou in Guangxi province and by Zhanjiang in southern Guangdong province (Map 1). At the time of project preparation, Beihai was designated mainly for passenger ships and Quinzhou serviced industries in its immediate surrounding area. Zhanjiang, a major port, was seen to be in direct competition with Fangcheng, but with the completion of planned major railways and expressways in Guangxi, Fangcheng would be closer to much of Guangxi and some of the landlocked western provinces than Zhanjiang, enabling transport savings in moving goods to and from those areas. In any case, the PRCs rapid growth was deemed to require the development of many ports, and competition among ports in overlapping areas was seen as positive for the sector and was part of the planned changes in sector policy. C. Cost, Financing, and Executing Arrangements

13. The Project cost $97.5 million, about 28% less than the appraisal estimate of $135.0 million (Appendix 1). Most of the cost savings occurred in the port component and the interest during construction. The port component savings were due to the decision to lease rather than to buy a tugboat, which saved about $2.7 million, some changes in the list of equipment procured for the port, and lower than expected construction and equipment costs and the resultant nonuse of most of the provision for contingencies. Some of the lower than expected construction costs were due to the decision to use dredged material from the approach channel and alongside the berths for land reclamation in place of some of the quarried material. The highway component, including an increase in the quantity of construction
7

Through the Overseas Economic Cooperation Fund.

4 materials procured and used for a 6-kilometer (km) section between the end of the highway and the port entrance, cost only slightly less than budgeted. 14. The Project was to be financed by loans from ADB and the State Development Bank and grants from the Guangxi Development Corporation, the Fangcheng Port area municipal government, MOC, and internal funds of the FCPA (Appendix 2). Because of the reduced project cost, most of the financing amounts were reduced. About $11.7 million of the $52.0 million ADB loan was canceled, resulting in a total ADB loan amount of $40.3 million. The ADB loan was refinanced through a domestic loan and repaid in January 2005.8 15. The executing agencies were the FCPAnow known as the Fangcheng Port Group Company, Limitedfor the port component and the Guangxi Communications Department (GCD) for the expressway component. The GCD was to assume overall responsibility and be the main point of contact with ADB. Each executing agency set up a project management office to oversee implementation. At the national level, MOC was also involved in broad project supervision. International procurement was to be undertaken by the International Tendering Company, selected to do this task by the Government using competitive bidding. In addition, 4 personmonths of international consultant time were provided to assist the executing agencies with documentation for procurement, as this was their first ADB-financed project. The executing and implementing arrangements appear to have been satisfactory. D. Procurement, Construction, and Scheduling

16. Project implementation was delayed by 22 months. Other than the delay, no major issues arose in relation to procurement and construction. The executing agencies rated the quality of the outputs as satisfactory, and the operating performance to date supports such a conclusion. The OEM assessed the capacity of all the facilities to be higher than that indicated by the executing agencies and in the PCR (paras. 2123). 17. The expressway, which was started in August 1995 under advance procurement action approved by ADB, was opened to traffic in November 1998. The main port civil works were completed by October 1999, but equipment installation took until October 2001. Berth 9 was in use in 1999 and berth 10 in 2000 using preexisting cranes and equipment. The loan was closed in June 2001 rather than in December 1999 as expected. 18. The sources of delay included the executing agencies lack of familiarity with ADB procedures and the consequent slowness in some procurement activities; the changes in the list of equipment to be procured and the time required for these changes to be discussed with ADB; and the slow performance of some suppliers, particularly for the container cranes. Frequent changes of the ADB task manager probably also contributed to some of the delay.9 Some of the delay could probably have been avoided by better management. Nevertheless, the equipment to be procured was substantial, and costly mistakes might have been made if decisions on what equipment to buy had been rushed. The international consultant that was to assist the executing agencies with procurement-related documentation was not engaged, as the International Tendering Company was deemed by Government to have sufficient procurement experience. As it turned out, the executing agencies cited a lack of example documents from ADB as a cause of delay, a weakness that might have been partly overcome by the engagement of the

8 9

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

5 international consultant. ADBs procedures now include the supply of example formats to new executing agencies as well as training in procurement. E. Design Changes

19. No major design changes took place subsequent to appraisal. Minor variations included the replacement of the planned purchase of a tugboat for the port by a lease arrangement. The procured port equipment also differed in detail, but not in overall scope or function from that originally proposed. An important variation was the reduction in the planned number of rubbertired gantry cranes for handling containers in the container yard. As the volume of containers increases, the lack of rubber-tired gantry cranes is likely to become a constraint to efficient container operations. The international procurement consultant was also not deemed necessary and not hired. Cost savings allowed materials for the last 6 km of road linking the port entrance and the end of the expressway to be financed under the Project. F. Outputs

20. The Projects port component was generally completed as planned (Map 2). Two berths with cargo areas and ancillary facilities were built: berth 9, 271 meters (m) long, for bulk cargo, mostly iron ore and coal; and berth 10, 227 m long, for containers. The Project funded the materials and construction works for the berths, cargo areas, support buildings, and ancillary facilities and for the expansion of the port rail marshalling area and rail sidings; the dredging of the port approach channel; the equipment for container and bulk cargo handling; a power substation; the environmental protection equipment for cleaning up oil spills; and the design and supervision consultants. A tugboat was to be procured, but was leased instead. The municipal government was to provide a solid waste disposal facility and a wastewater treatment plant (WTP) for port and municipal needs under separate financing. The solid waste facility was established, but the WTP has yet to be built (para. 30). 21. Berth 9 added capacity for servicing bulk cargo ships, and because its backup cargo area has mechanized stacking and unstacking facilities, it has a nominal handling rate about double that of the other berths. The 13.5 m water depth alongside the berth enables it to handle ships of up to 70,000 deadweight10 tons capacityand even larger using special arrangementsmore than the ports eight preexisting main general purpose berths, which can handle ships of up to 35,000 deadweight tons. Even though the berth and cargo area has a nominal capacity of 2.5 million tons per year (t/yr), its actual capacity is closer to 4.6 million t/yr (Appendix 3).11 The berth has handled close to 4.0 million t/yr since 2001. 22. Berth 10, largely because of its two container cranes, storage yard, and yard equipment, provides specialized capacity for handling dedicated container ships and for handling and storing containers and their cargo. The berth and cargo area are only for container operations and function as a separate container terminal within the port, handling all of the ports containerized cargo. A subsidiary company set up solely for this purpose manages these facilities. With a nominal capacity of 90,000 20-foot equivalent units (TEU),12 equivalent to

10 11

Deadweight is a measure of a ships cargo-carrying capacity; effectively, the weight of cargo that can be carried. Berth 9 is operationally part of a group of nine berths. Being part of such a large group enables high berth occupancies, and consequent high throughputs, to be achieved, possibly higher than those used to calculate the nominal capacity. 12 Internationally, the 20-foot long shipping container is recognized as the basic unit. Containers of other sizes are expressed in the equivalents of the 20-foot container, thus a 40-foot container is 2 TEU.

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

13

This was based on a 65% berth occupancy ratio. This relatively high rate is possible even though it is for a nominal single berth facility. Most of the container vessels calling at the port are small and can be accommodated despite the high occupancy rates as discussed in Appendixes 3 and 5. 14 MOCs technical design standards indicate a capacity of 25,000 to 50,000 vpd for a four-lane expressway, with such capacity to be reached within 20 years. The OEMs slightly higher estimate compared with the upper bound of this specification could be explained by different assumptions about traffic composition. 15 ADB. 1995. Technical Assistance to the Peoples Republic of China for Management and Operational Strategies for Port Authorities. Manila (TA 2466-PRC, for $490,000, approved on 12 December 1995). 16 ADB. 1995. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Peoples Republic of China for the Second Yantai Port Project. Manila (Loan 1411-PRC, for $63 million, approved on 12 December 1995).

7 28. The expressway is operated by the Coastal Section of the Guangxi Expressway Administration Bureau, which falls under the GCD, part of the Guangxi provincial government. Despite its separate accounts and corporate structure, the expressways receipts are remitted to the provincial government and estimated operational expenses are budgeted annually. The setting of toll rates is a provincial government concern. G. Consultants

29. The local consultants that prepared the feasibility studies were engaged for detailed design and construction supervision. While the generally good quality of construction and the appropriateness of the facilities indicate that the consultants performed adequately in most aspects, the landward transport of goods to and from the port does not appear to have been adequately studied in the feasibility study or in the TA review, leading to overestimation of the amount of cargo that would switch from rail to road (paras. 3839). This is a noticeable weakness of the Project. The contribution, if any, to such weakness by either the structure of the consultants inputs or the performance of any of the consultants cannot be determined because of the lack of relevant reports and records relating to both the feasibility study and the ADBfinanced TA used to review the feasibility study. H. Loan Covenants

30. With one exception, the loan covenants related to implementation were complied with. The exception was the construction of a WTP by the Fangcheng municipal government. ADBs PCR reported that this facility and one for solid waste were expected to be completed in 2003. A solid waste facility was constructed, but the WTP was not. The municipal government now expects to build the WTP during 20062007. The land use plan has been completed and detailed designs are reportedly being prepared. While the delay has been considerable, the facility will serve much more than just the port and required appropriate planning and timing. The facility is expected to cost around CNY160 million, equivalent to about half the ADB loan for the Project. Loan covenants related to ongoing operations appear to be complied with, except in the area of financial targets (paras. 60 and 64). I. Policy Framework

31. Policy change within the port sector was supported by ADB and the World Bank, and some key planned changes did occur, particularly in relation to giving port operators more autonomy. No major unplanned policy changes occurred during and after project implementation that affected the Project. The 19971998 Asian financial crisis occurred during the middle of the implementation period and might have affected cargo volumes and transport demand. III. A. Overall Assessment PERFORMANCE ASSESSMENT

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

8 expressway. The investment was economically efficient and the probability of sustainability is high. B. Relevance

33. The Project is rated as relevant. The Project was prepared during a period of strong economic growth and resultant trade expansion in the PRC and such growth was forecast to continue for the foreseeable future. In recognizing the need to avoid constraints to growth due to transport bottlenecks, both the Government and ADB included expanded and efficient transport infrastructure as part of the development strategy. Within the port sector, the Government had identified Fangcheng Port for expansion and improvement to serve the growing needs of the southern and southwestern areas of PRC, particularly Guangxi province, in which it is located, and the neighboring landlocked provinces of Chongqin, Guizhou, Hunan, Sichuan, and Yunnan. Fangcheng Port was suitable for ADB support, as the area it served was generally less developed than other areas in the PRC. This situation is just as prevalent now as at the time of operations evaluation in 1995, that is, trade continues to grow rapidly and the provinces the port serves still remain, in relative terms, behind other parts of the PRC. The Project did, however, have some design weaknesses that prevented a higher rating for this criterion (para. 35). 34. Fangcheng Ports throughput increased dramatically from around 4.5 million t in 1995 (the time of project preparation) to around 16.0 million t in 2004. Fangcheng Port could not have accommodated all this cargo or handled it as efficiently without the Project or another similar undertaking. Some cargo would have had to be shipped through more distant ports and some could have been handled, but in a more congested port environment (para. 43). The result would have been added costs and the consequent depression of economic growth. In short, by expanding the ports capacity and improving its efficiency, the Project removed a transport bottleneck, thereby fulfilling the expectations of the stated development strategy. Moreover, as the less developed, adjacent, landlocked provinces account for around two thirds of both the ports customers and its cargo, the Project also helped support the development of less developed areas of the PRC. 35. In addition to the overall project concept, the detailed design of the port component; the grouping together of port, road, and institutional development components; and the packaging of these as a standard ADB-financed loan project were appropriate (paras. 3637). However, in retrospect, the chosen design for the road and the absence of any action to improve the railway link between the port and the hinterland appear to be design weaknesses (paras. 3739). While these design weaknesses can be identified in retrospect, in the absence of the feasibility study report and other key planning documents, it cannot be known how more detailed study of landward cargo movements and traffic demand would have affected the design. 36. Most of the cargo handled in the port from the mid-1990s to today is bulk coal and ores, and this is projected to continue in the future. The construction of additional bulk cargo capacity was therefore appropriate. The port also handled a significant amount of breakbulk cargo and little was containerized in the early and mid-1990s. The expectation that, given appropriate facilities, containerization would increase, thereby improving handling efficiency, formed the basis for selecting the container terminal as one of the project outputs. The strong growth in containerized cargo after the opening of the Projects container berth underscores the appropriateness of that choice. 37. Construction of a new road link to the port was appropriate, as the old road links were narrow with some winding sections and passed through urban areas, making them unsuitable

9 for cargo transport.17 However, the timetable for building the expressway to its design capacity does not appear to have been the most economical solution. In 2004, about 6 years after its opening, the expressway carried an average of around 14,000 passenger car units per day (about 9,000 vpd), which is close to expectations for 2004, but still only about one fifth to one sixth the rated capacity (para. 23). An alternative, for example, could have been to build a twolane highway on a better alignment than the preexisting road. This could have been done by initially constructing only two lanes of an eventual four-lane divided expressway and building the other two lanes when traffic volumes increased. 38. Slightly less than half the vehicles currently using the expressway are trucks, mostly medium and small trucks, which differs significantly from the expectation of a large proportion of heavy trucks. The total traffic volume is on target, however, because the number of passenger cars and other light vehicles far exceeds expectations. Transport bottlenecks along other parts of the provincial and interprovincial expressway network may contribute to the lowered truck traffic, and the rapid growth of the urban population adjacent to Fangcheng Port can explain the unexpected rise in light vehicle traffic. In relation to the relevance of the project design, an important implication of the markedly different truck traffic is that the expressways contribution to port operations is substantially below expectations. 39. One important reason for the lower than expected truck traffic relates to the assumption in the Projects detailed design that 40% of the cargo that arrived or left the port by rail would transfer to road once a better road link was established. This has not happened to the extent expected, and rail continues to serve about 6080% of all cargo. In the first 5 years after the project expressway opened, truck transport of cargo to and from the port did rise quite significantly, while rail transport rose only modestly. Nevertheless, the increase was from a low baseline, and the switch from rail to road was much less than predicted. An examination of port cargo shows that about 60% is bulk product that is more suited to rail than road. Moreover, the majority of trade through Fangcheng Port has its origin or destination in neighboring provinces, which is also a factor favoring rail transport over road transport because rail is cheaper than road over long distances. Insufficient rail capacity was cited as a constraint in various documents, including the RRP and the PCR for the Project. Despite the obvious demand for rail transport and a need for some improvement, the capacity of the Fangcheng line was upgraded only in 2005, when the nominal one-way line capacity was increased from 7.0 million t/yr to 12.0 million t/yr. Moreover, the constraint seems to be related more to the availability of rolling stock than to line capacity. In retrospect, the need for expressway capacity appears to have been overestimated, while at the same time, the need to address railway constraints was not given the urgency or attention required. In this respect, the project design was not entirely consistent with development needs. 40. In the absence of the feasibility study report, the reasons why rail was not included and road demand was overestimated cannot be determined. However, differences in development approaches within the road and railway sectors resulting partly from each being under different administrative structures and ADBs reluctance to bundle components for different ministries under a single project may have caused rail to be excluded from the Project.18
17

ADBs East and Central Asia Transport and Communications Division point out that, for similar reasons, the 6 km link between the expressway and the port entrance, the materials for which were funded out of loan savings, is a logical component and, in retrospect, should have been included in the original project design. OEM concurs. 18 The railway link to Fangcheng Port is a district railway and is nominally under the Guangxi provincial government. However, the Railway Ministry exerts influence through technical links and would have been involved if rail had been included as a project component. In addition, the Railway Ministry controls the allocation of railway wagons, an important factor in determining actual rail capacity.

10

C.

Effectiveness

41. The Project is rated as highly effective, as port capacity and port efficiency were improved as expected. These improvements are expressed in increased port throughput and improved efficiency statistics (paras. 4346). Port-related traffic on the expressway is much less than expected (paras. 51-52); however, the expressway does contribute to the effective movement of goods to and from the port and the overcapacity relative to needs is reflected in the Projects relevance and efficiency ratings. Even though project documents cited the lack of railway capacity as a constraint to the movement of cargo between the port and the hinterland and the lack of attention to rail probably increased transport and port inefficiency, the overall effect is not sufficient to downgrade the rating of the effectiveness criterion. This is primarily because port throughput continued to grow from 1995 to 2004 suggesting the absence of any major bottleneck in the ports transport links with the hinterland. 42. The Project did expand port capacity as intended through the construction of 500 m of additional berths in addition to the provision of cargo areas, cargo handling equipment, and other facilities. Berth 9 could handle up to 4.6 million t/yr and berth 10 could handle around 1.8 million t/yr (Appendix 3). Overall, capacity has been increased by about 6.4 million t/yr. 43. Berth 9 came into operation in 1999 and is operated along with berths 18 for dry bulk and general breakbulk cargo, although because of its specialized bulk cargo backup area and deep water alongside, it is used primarily for dry bulk cargo (Appendix 5).19 Throughput at berth 9 quickly grew to 3.4 million t/yr by 2001 and subsequently fluctuated between 3.4 and 3.9 million t/yr of bulk coal and ores (Appendix 5, Table A5.4). Berth 10 became operational in 2000 and throughput increased steadily, reaching 80,000 TEU, equivalent to a little over 1.0 million t, in 2004 (Appendix 5, Table A5.4). Based on the operations evaluation model for the port, without the Project, the productivity of the main port berths 18 would probably have increased, but even with such an improvement, they would have reached their limit early in 2003, and by 2004, about 4.1 million t, equivalent to around 25% of the total actual port throughput that year, would have had to be diverted to other ports. 44. Port efficiency has improved since 19992000, coinciding with the completion of the project port facilities. However, current statistics must be viewed in context. Overall port statistics showed a substantial general improvement in efficiency in 19961997 (Appendix 5, Table A5.5). An example statistic that is indicative of port capacity and efficiency is the time ships spend in port per unit of cargo handled,20 expressed in days per 1,000 t of cargo, which fell dramatically from more than 1 day in 1995 to 0.45 days in 1997. Other port statistics consistent with this picture include tons of cargo per hatch-hour and per ship-hour, both of which improved from around 3040 t/hr in 19941955 to around 70 t/hr in 1996. Berth occupancy rates were relatively low in 19961997 given the large number of available berths, suggesting little congestion and a low likelihood of queues and delays. The average time ships had to wait for a berth to become available, a common cause of delay in a congested port and referred to as ship waiting time, was small or zero, while the average total time that ships spent in port had
19

Of the ships docking at berth 9 during 20002004, 80% were classified as dry bulk carriers, that is, carriers of nonliquid bulk cargo. The others were primarily breakbulk vessels (that is, carriers of general cargo typically packed in small, individual parcels, such as crates, bags and drums, on pallets, or in bundles) requiring the deeper water of berth 9 or container ships discharging to or loading from the container yard of the adjacent berth 10. 20 That is, ship service time plus nonoperational time accounted for by the port, including time spent waiting for a berth, equipment breakdowns, and other times when cargo operations cannot be carried out because of port constraints.

11 about halved from previous levels. While this is not intended to detract from the project-related gains, the poor preexisting capacity and efficiency described in the RRP had improved dramatically before the project facilities became operational and such gains cannot be attributed to the Project. 45. The port efficiency statistics continued to improve after the project berths became operational. Average productivity per hatch-hour reached 120 t/hr in 2000 and peaked in 2002 at 127 t/hr, while average productivity per ship-hour reached 171 t/hr in 2000. In tracing the sources of such productivity gains, the OEM noted that berth 9 enables the port to service larger ships with more hatches, and berth 9s handling capacity has averaged 875 t/hr over the past 5 years, a rate significantly higher than at other berths. Berth 10 contributed to the improved efficiency by enabling increased containerization of otherwise breakbulk cargo, which makes handing this type of cargo faster and more efficient. In addition, berth 10 handles containers at the rate of about 30 TEU per hour compared with around half this rate for the previous arrangement at berth 2. By 2004, about 6% of the ports throughput was containerized and passed through berth 10. Suitably detailed information on cargo dwell times was not available to the OEM, but port staff indicated that cargo dwell times were within the design parameter of 10 days. 46. As a result of the project-financed increases in capacity and cargo handling efficiency, as well as subsequent nonproject improvements resulting from the commissioning of berths 11 and 12 in 20012002, overall ship-related efficiency statistics remained satisfactory in 1999 2004 despite a substantial increase in throughput and ship calls (Appendix 5). Port throughput doubled, while ship calls increased even more, reaching 1,817 in 2004. For most of 19992004, ship waiting time was zero or negligible and average time in port was less than 2.5 days. These statistics had increased in 2004, however, and ship waiting time stood at an average of 0.13 days per ship. Within these generally satisfactory statistics, one contradictory statistic indicating where further efficiency gains could and should be achieved is the large proportion of berth time that is nonoperational.21 47. The vast majority of ships calling at Fangcheng Port are small, with 77% of all ship calls during 20002004 being by ships of less than 10,000 deadweight tons and a further 10% being by ships of 10,000 to 30,000 deadweight tons. All the ports main berths can handle ships of this size. The deep water alongside berth 9 is important for only a small number of vessels; however, for those vessels the ability to dock fully loaded is a major advantage. For owners of bulk cargo, such as importers and exporters of coal and iron ore, which are typically traded in large quantities, the ability to charter larger ships generally allows them to reduce their freight costs. 48. The port reported 2432 accidents per year during 20002004 and two fatalities during the period. The OEM does not have similar data for other periods for comparison. 49. As noted earlier, the expressways contribution to expanding the ports capacity and improving its efficiency is less than expected. Traffic volumes are less than anticipated, but not substantially so (para. 51); however, the vehicle mix differs substantially from expectations (para. 52).

21

During 19952004, unloading and loading operations accounted for only 5467% of the time that ships were at a berth. This statistic was 6467% for 20022004.

12 50. The preexisting road access to the port was by class 3 and 4 rural roads, which were clearly inadequate for a major port because they were narrow and had relatively steep grades and tight turns. These roads connected to the class 2 Nanning-Beihai Highway, which was supplemented by a class I expressway in 1997. Given the low capacity of the road system, historically, cargo transport to the port relied largely on railway links from Nanning and Litang. 51. Data for the expressway indicate that an average of 2,411 vpd passed through the ports exit toll gate in 1998, the year the expressway opened. The OEM assumed that equal numbers of vehicles travel in and out of the port, so the 1998 AADT would have been 4,822 vehicles (Appendix 6). By 2000, the AADT was 6,514 vehicles and by 2004 it was 8,830 vehicles. The RRPs expectation was 7,000 vpd by 2000 and 30,000 by 2020. 52. Even thought the RRP presents few traffic figures, its discussion and economic analyses indicate that the majority of traffic on the road was expected to consist of trucks, particularly heavy to medium trucks, on port-related business. This was expected to occur because of a shift of around 3 million t of cargo from rail to road by 2000.22 If the average cargo per truck was 10 t and with no backloading,23 a shift of this magnitude would require about 1,600 large truck trips per day.24 In 2000, the number of large trucks entering and exiting Fangcheng Port was only 124 per day. The OEM estimates that a little less than 1.0 million t of cargo, about one third of the amount expected, had switched from rail to road by 2000 and was carried primarily in small and medium trucks. Toll rates for trucks are high (para. 64), but the lack of large trucks on the alternative, nontoll roads (para. 55) indicates that the tolls are not forcing this class of truck away from the expressway. While the high toll rate might be discouraging the expansion of trucking operations, the main reason for the low numbers of large trucks appears to be that most port cargo is bulk cargo and/or has to be transported over long distances, both of which favor the use of the rail. 53. Small and medium trucks account for about half the traffic on the expressway, and a large proportion of the traffic, about 40% in 2000, consisted of cars and similar light vehicles, a much larger proportion than expected at appraisal. Urban development adjacent to Fangcheng Port has been substantial and rapid, and this has been the source of many of the cars and light trucks. 54. Travel time between Fangcheng Port and the Nanning-Beihai road is about half an hour for cars traveling at 100120 kilometers per hour (kph) and 3540 minutes for trucks traveling at an average of 80 kph. Previous journey times were half an hour longer or more because of relatively slow travel times of 3050 kph resulting from congestion. 55. The OEM estimates that traffic on the preexisting roads in 2004 was around 500 vpd or less. Most vehicles are light to medium, heavy trucks being uncommon. The OEMs best estimate of traffic on the preexisting roads prior to the opening of the expressway was about 2,800 vpd in 1997, compared with a nominal capacity of 2,000 vpd. Current travel speeds on these roads are low, around 50 kph, but congestion on the preexisting roads would have eased following the opening of the expressway and the diversion of a substantial amount of traffic to it.
22

Port cargo was expected to increase by 15% per year to reach about 9.3 million t in 2000. Of this, around 80% would have been transported by rail, but 40% of cargo transported by rail was expected to switch to road with the opening of the expressway. 23 Backloading refers to the practice whereby a truck that brings cargo to the port also takes cargo away and vice versa, that is, two cargo movements. No backloading means the number of trucks needed increases. If all trucks carried equal amounts in and out of the port, the number of trucks needed would be halved. 24 Each truck makes two trips, one full, one empty.

13

56. Information about traffic accidents suggests that the frequency of accidents on the preexisting roads decreased from around 1920 accidents per year prior to the opening of the expressway to around 15 per year after the expressway opened. The number of injuries and fatalities follows a similar slightly decreasing trend. The improvement is slight despite the substantial decrease in traffic volumes on these roads, perhaps because by allowing higher vehicle speeds, the decreased congestion has increased the rate of accidents per unit number of vehicles. The number of accidents and injuries on the expressway exceeds the decrease on the preexisting roads, and was increasing until 2005: the number of accidents was 2430 per year during 19982001, 4661 per year during 20022004, and 27 with 3 fatalities during the first 10 months of 2005. The accident rate has increased along the entire project corridor. Government and the expressway operator are aware of the losses these accidents represent and have programs in hand to improve driver education and law enforcement. ADB has recently provided TA to support the Governments efforts in this area. D. Efficiency

57. The Project is rated as efficient. The economic internal rates of return (EIRRs) were 20% overall and for the port component and 19% for the expressway component (Appendix 7). Such rates of return could justify a rating of highly efficient; however, in view of the large capacity of the highway relative to actual traffic, the cost-effectiveness of the expressways design is questionable. Although the OEM could not address this issue conclusively,25 it considers efficient to be the appropriate rating.26 While separate EIRRs are given for the port and expressway components, they were nevertheless deemed to be dependent on each other. The results are not very sensitive to changes in key variables because of the significant operational time already elapsed, and in the case of the port, the achievement of almost full capacity. The results calculated in the PCR were EIRRs of 17.9% overall, 33.5% for the port component, and 14.7% for the expressway component. At the time of appraisal, the overall Project and individual component EIRRs were each expected to be 21%. The PCR and RRP methodologies were similar to those used for operations evaluation. 58. The benefits resulting from the port component include the time ships save waiting for a berth and the time they save while at berth as a result of the extra berths, the faster cargo handling, and the containerization of general cargo. Another benefit is the avoided costs of land transport for cargo that would have had to be diverted to other ports in the absence of the Project. In the national context, failure to implement the Project and the need to divert cargo to other ports would have contributed to congestion at the other ports. At the margin, such congestion and the added transport costs would cause a reduction in trade; however, the analysis has not captured any such reduction. 59. The expressway component enabled five important transport changes captured as project benefits. First, traffic from the old road diverted to the expressway has resulted in resource savings because of lower VOC per kilometer traveled and the shorter travel distance of 45 km compared with 72 km. Second, cargo with origins and destinations closer to the port where road transport is favored over rail was able to transfer from rail to road. Third, traffic remaining on the old road benefited from reduced congestion and the consequent reduction in VOC. Fourth, new traffic was generated by the improved road conditions. Fifth, road

25 26

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

14 deterioration and the need for periodic maintenance on the old road would have been reduced because of the lower volume of traffic. 60. The executing agency did not make sufficient data available for completion of financial analyses for the port. For the expressway, the OEM estimated the financial internal rate of return to be 2% (Appendix 7). This compares with estimates of 6.6% in the PCR and 5.7% in the RRP and a weighted average cost of capital of 6.5%. The lower result is primarily due to the much lower than expected heavy truck traffic, which attracts higher toll rates than lighter vehicles, and is despite the lower than expected capital costs. E. Sustainability

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

15 assets.27 The possible gains from noninvestment-related efficiency improvements were demonstrated by the changes that took place in 19961997 (para. 44). Second, the container companys objective is to limit the height to which containers are stacked to reduce cash operating expenses, and as with berth occupancy, the solution to apparent congestion within the container yard is to acquire more land. With the cost of land not being considered, this is rational, but ultimately is not commercial, and along with excessive berth expansion can lead to overcapitalization. Third, tariffs are not based on actual costs, but on MOCs standard recommendations. However, a complete evaluation of the ports business capability and financial capacity to withstand competitive pressures is not possible in the absence of updated financial information. 64. The financial statements for the expressways operating entity indicate that it has a positive cash flow, was expected to achieve a positive operating profit in 2005, but overall makes a loss. The latter is due to high depreciation expenses (Appendix 8). Toll rates on the expressway remained unchanged during 19982005, but are to be increased in 2006. Compared with expressways in other provinces, the project expressways toll rates for light vehicles are lower, those for medium trucks and buses are similar, and those for large trucks are significantly higher. These rates may be commercially appropriate as long as the relatively high rate for large trucks is not preventing a greater shift from rail to road. Small vehicles can use the alternative preexisting road, albeit with a longer travel time, and have to be attracted to the expressway, but large trucks have difficulty using the alternative route. As previously noted, few large trucks travel along the alternative roads. Despite the weak financial condition of the tollway operator and the difficulty in achieving full payback of the investment except over an extended period, adequate funds for maintenance are likely. This is because the expressway operator is a government bureau that remits its toll revenues to the treasury, and funds for operations, including maintenance, are budgeted for release each year. The expressway is important at a provincial level and to date has received adequate maintenance funds. 65. Traffic on the expressway is light and the road surface is concrete, so major maintenance will not be required for many years. A recent major slope slippage in an area previously found to have unstable soils was quickly repaired. Differential settlement of adjacent concrete blocks has been relatively minor and has been corrected by grinding of the joints. IV. A. Impact 1. Impact on Institutions OTHER ASSESSMENTS

66. By means of training and policy dialogue, the Project introduced institutional changes and enhanced capacity as described earlier. On a broader level, the commercialism and competition introduced in the port sector as a result of policy dialogue with ADB and other entities and supported by the business capability afforded by the physical facilities and training is expected to have a long-term impact on the sectors efficiency. However, commercialism has yet to be completed, as the port operator does not appear to be acting in a fully commercial manner. Another example of the incompleteness of the change to commercialism in the sector is that while each port operator has the autonomy to set its own tariffs, tariffs have yet to be based on operational costs rather than reflecting MOCs guideline rates.
27

Berths 11 and 12 were built soon after completion of the Projects berths, and berths 1317, plus a large bulk coal and ore terminal, were under construction in late 2005.

16

67. The Project also improved the development capabilities of both executing agencies: the port operator in building additional berths and facilities to further expand operations and the GCD in undertaking two subsequent expressway projects financed by ADB and projects financed by the World Bank. 2. Socioeconomic Impact

68. During the project processing period, ADB management had considered that the Project could potentially have strong poverty reduction effects. However, these effects were determined to be indirect, as is the case with many infrastructure developments, and in the absence of appropriate arrangements to measure such indirect effects, a poverty classification was not applied. The growth in trade and throughput handled by the port, part of which could not have been possible without the Project or an alternative project, indicates an increase in economic activity and the possibility of indirect effects. Most of the cargo supports or derives from businesses in the relatively poorer, landlocked provinces of Guizhou, Sichuan, and Yunnan. The port itself provides increased local business activity and employment, although this is limited by virtue of the majority of the cargo being transported to other provinces. Perhaps equally important, development of the port and expressway has provided an economic base and, by means of the expressway, basic infrastructure for other development in the area. Such development, which will eventually encompass tourism, steel and paper mills, and power generation, has already supported the growth of a sizable township adjacent to the port. Residents and businesses in the township are benefiting from the improved road access provided by the expressway. 69. The Project does not appear to have generated any negative socioeconomic impacts, other than the already noted high expressway accident rates. The expressway required the resettlement of 252 households, of which 47 households were in the ADB-financed section. No resettlement resulted from the port expansion. For the expressway, a resettlement plan was prepared and implemented and the results were monitored by one of the design institutes under MOC. Monitoring surveys were carried out at three different stages. The monitoring studies report that the resettlement was done appropriately with adequate compensation for losses, redistribution of agricultural land, and provision of employment opportunities. In general, households were reported as better off than before the Project as a result of better quality housing and other facilities and improved access after the construction roads were converted to local roads. The OEM visited one resettlement site and spoke with a few of those affected. The results conformed with those of the monitoring studies. 3. Environmental Impact

70. The OEM did not include specific environmental expertise, and the review of the Projects environmental impact is based on available information. This approach reflects the lack of major environmental concerns raised by the impact assessment study for the Project and a satisfactory report on environmental matters in ADBs PCR. The Project has received clearances from government agencies concerned with the environment and occupational health and safety. 71. Berths 9 and 10 were constructed by reclaiming areas from the sea and the shore. Material dredged during the deepening of the area alongside the berths and the approach channels was used for part of the reclamation. Subsequently, berths 1117, a much larger development, have been reclaimed. No significant environmental impact has been reported. A

17 small bay was enclosed by the 6 km extension between the end of the expressway and the port entrance. Mangroves appear to have reestablished themselves along the new foreshore. 72. The ports operations create substantial amounts of dust because of the coal and other bulk cargo. The port environs have few trees and appear to be dusty, but sprinklers are reportedly used for dust control during windy periods. No oil spills or other problems were recorded during 20002004. A WTP was not built (para. 30) and port wastes are discharged to the sea, but runoff from berths 9 and 10 and their cargo areas are first collected and treated in four small stations prior to discharge. Water in and around the port is reportedly monitored by the Environmental Protection Bureau and found to be within environmental standards. B. Asian Development Bank Performance

73. ADBs support for the design and implementation of the Project was appropriate. The Projects design was subject to review under TA and appraisal by a multidisciplinary team. Questions relating to sector policies, tariffs, institutional capacity, resettlement, and environment were appropriate and were addressed during processing. An international consultant was included (although not engaged) to assist with procurement, as this was the first ADB-financed project for the executing agencies, and advance procurement was approved to enable the expressway to commence early. During implementation, ADB fielded an inception mission and six annual review missions and addressed such key concerns as the procurement of port equipment. 74. Inexplicitly, and despite the appropriateness of the support provided for review of the feasibility and appraisal studies, ADBs performance was inadequate to uncover what appear to be obvious weaknesses in the traffic demand analysis. The executing agencies also suggest that ADBs performance could have been better if it had provided example formats for procurement and other submissions required by ADB instead of just descriptive guidelines (this is now routinely done.) Such examples may have avoided the need to repeat some of the early submissions. ADB has also not been very careful in storing records concerning the Project (footnote 6). For example, the feasibility study cannot be found and neither can any reports or materials outlining details such as traffic projections on which RRP and PCR calculations of economic and financial rates of return were based. C. Borrower Performance

75. The Borrower and the executing agencies generally responded well to the Projects needs and ADBs requirements. Important policy changes were made; environmental and resettlement concerns were addressed, including the monitoring of the resettlement plan; and apart from the equipment procurement, project implementation proceeded smoothly. The one major exception was the Fangcheng municipal governments failure to build the WTP. V. A. Issues ISSUES, LESSONS, AND FOLLOW-UP ACTIONS

76. Three issues arise from the project experience. The first is an apparent need for a stronger commercial orientation in Fangcheng Port that favors efficiency improvements over capital expansion and that bases tariffs and discounts on operational costs.

18 77. The second issue is that coordinated planning within the overall provincial port sector is warranted. This is to avoid overcapitalization, a possible scenario given the eagerness of the newly independent port operators to grow. 78. The third issue concerns an apparent need for stronger intermodal transport planning at the national and provincial levels, particularly in relation to road, port, and rail. As already noted, the Project probably would have benefited from simultaneous investment in added rail capacity along with the expressway and port developments. The separation of modes under different administrative structures and the different organizational cultures that result constrain coordinated planning. ADBs funding arrangements can also act as a disincentive to the bundling of components for different agencies under a single project, thereby contributing to reduced coordination. Future transport planning could benefit from greater consideration of all modes, including waterways and air, both as alternatives and for coordinated development. B. Lessons

79. The project experience points to a need to improve traffic demand forecasts for expressways. While the total number of vehicles on the expressway is not far from that expected, the mix of vehicle types is. In particular, the growth in truck traffic and the expressways ability to attract cargo from the railway, was overestimated. Perhaps fortuitously, urban development and growing affluence near the port has stimulated a compensatory, but unexpected, growth in light vehicle traffic. The Projects preparation is not unique in incorrectly estimating traffic growth as shown by a number of recent PCRs for other ADB-financed expressway projects. 80. In addition, ADB should take greater care to store baseline information and records so that these can be used for project reviews at a later date. C. Follow-Up Actions

81. In 1997, based on work done by the Japan International Cooperation Agency in Indonesia, ADB concluded that the high toll rates then proposed, and subsequently adopted, for large trucks might reduce the volume of traffic on the project expressway 1020%. The GCD should carry out further investigations in this area, combined with a detailed review of port cargo, to determine the proportions of cargo suitable for truck and rail transport more accurately and the most appropriate toll rates. While not urgent, this would seem to be a useful exercise, not only for the project expressway, but for other highways and expressways within Guangxi and connecting to other provinces that might receive or expect truck traffic from Fangcheng.

Appendix 1

19

COST BREAKDOWN BY PROJECT COMPONENT

($ million) Appraisal Estimate Local Curency Actual Local Curency

Item A. Port Component 1. Civil Works 2. Equipment 3. Land Acquisition 4. Supervision and Training 5. Contingencies 6. Interest during Construction 7. Taxes and Duties Subtotal Highway Component 1. Civil Works 2. Equipment 3. Land Acquisition 4. Supervision and Training 5. Contingencies 6. Interest during Construction 7. Taxes and Duties Subtotal Total

Foreign Exchange

Total

Foreign Exchange

Total

7.30 23.00 0.00 0.50 4.80 3.40 0.00 39.00

21.30 8.10 0.00 2.00 11.20 4.50 2.90 50.00

28.60 31.10 0.00 2.50 16.00 7.90 2.90 89.00

1.79 16.75 0.00 0.28 0.00 1.13 0.00 19.95

24.00 0.50 0.00 2.40 0.30 3.85 0.00 31.05

25.79 17.25 0.00 2.68 0.30 4.98 0.00 51.00

B.

5.70 12.70 0.00 0.40 2.90 1.30 0.00 23.00 62.00

10.10 4.30 0.90 0.20 5.90 0.00 1.60 23.00 73.00

15.80 17.00 0.90 0.60 8.80 1.30 1.60 46.00 135.00

8.68 11.13 0.00 0.44 0.00 3.07 0.00 23.32 43.27

13.30 6.40 1.10 0.20 0.00 0.00 2.20 23.20 54.25

21.98 17.53 1.10 0.64 0.00 3.07 2.20 46.52 97.52

Source: Asian Development Bank. 2002. Project Completion Report on the Fangcheng Port Development Project in the People's Republic of China . Manila.

20

Appendix 2

FINANCING PLAN ($ million)

Appraisal Estimate Foreign Local Exchange Curency Total Foreign Exchange Actual Local Curency

Cost A. Port Component Guangxi Communications Department 1. Fangcheng Municipal Government 2. 3. State Development Bank 4. Fangcheng Port Authority 5. Asian Development Bank Subtotal B. Highway Component 1. Ministry of Communications Guangxi Communications Department 2. 3. Asian Development Bank Subtotal Total

Total

0.00 0.00 7.00 0.00 32.00 39.00

9.50 9.00 23.00 8.50 0.00 50.00

9.50 9.00 30.00 8.50 32.00 89.00

0.00 0.00 0.00 0.00 19.95 19.95

6.76 2.33 16.04 5.92 0.00 31.05

6.76 2.33 16.04 5.92 19.95 51.00

0.00 3.00 20.00 23.00 62.00

8.00 15.00 0.00 23.00 73.00

8.00 18.00 20.00 46.00 135.00

0.00 3.00 20.32 23.32 43.27

8.00 15.20 0.00 23.20 54.25

8.00 18.20 20.32 46.52 97.52

Source: Asian Development Bank. 2002. Project Completion Report on the Fangcheng Port Development Project in the People's Republic of China . Manila.

Appendix 3

21

BERTH CAPACITIES A. Berth 9

1. In general, berth 9 handles coal and ores using grabs attached to portal cranes. Berth 9 has six portal cranes, but usually only five cranes are used simultaneously. The rated capacity of these cranes is 16 tons (t) under the hook (at 33 meters [m]). For coal, grabs of 11 cubic meters capable of discharging 6 t average are used, and for iron ore, grabs of 4 to 7 t (average 6 t) are deployed. The simultaneous operation of five cranes will generally not yield five times an individual cranes productivity. The average discharge per grab will also not be 6 t throughout the discharge period. The crane cycle time is about 80 seconds. Conservatively, it is assumed that over the entire discharge period the cranes will average 40 cycles per hour. The combined productivity of the five portal cranes for unloading is assumed to be about 80%, or 960 t per ship-hour working all five hatches. Over a full working period of 20 net hours in a three-shift day, the average ship productivity is about 20,000 t per day. With a highly organized operation, increasing the number of crane cycles is possible, in which case productivity could be increased to around 25,000 t per day. 2. The handling rate at berth 9 has averaged 875 t per hour over the past 5 years, varying from a low of 525 t per hour to a high of 1,272 t per hour. The lower values are possibly due to some breakbulk vessels also being handled at berth 9. It is assumed that with increasing volumes of dry bulk, breakbulk vessels will not be serviced at berth 9. The berth productivity per meter length of quay has varied from 8,856 t to a high of 14,418 t when the corresponding berth occupancy at this berth was recorded as 50% and 76%, respectively. The ports berth occupancy figures are not good indicators of the pressure on the berths, because in these same years, total ship time at berth included almost as much nonoperational time as operational time. 3. During 20002004, berth 9 handled 17.01 million t and 567 ship calls for an average of 30,000 t per ship. On the basis of a ship discharge rate of 20,000 t per day, work time would be 36 hours and total time at berth would be 40 hours on average, including 4 hours for berthing and deberthing. For a 70% berth occupancy, the capacity of the berth is 4.6 million t. B. Berth 10

4. The ports container cargo is carried mostly in small vessels of less than 10,000 deadweight tons. Such vessels are mostly motorized barges from Hong Kong, China, and similar destinations, are about 110 m long and 17 m wide, and carry 5080 20-foot equivalent units (TEU). Making two berths of the 227 m quay available at berth 10 is generally not possible, but if some space is available in the adjacent berths, two such vessels can be berthed alongside at berth 10 with one crane deployed per vessel. At other times, vessels bank two deep, with the outer vessel completing its document and other clearances while the inner vessel is being worked. A small number of vessels are of the 300350 TEU size, and a few larger container vessels in the 18,00020,000 deadweight ton category carrying up to 1,000 TEU are engaged in domestic trade. The latter class of container vessels represents no more than 5% of all container ships calling at Fangcheng Port, but with growth in the container trade, this percentage is likely to increase. Bigger container ships are not expected to call at Fangcheng Port in the foreseeable future. 5. The capacity of berth 10 is estimated as 140,000 TEU per year. This assumes the quay is equivalent to 1.2 single-crane berths because of the small vessel size and how the berth is operated. The cranes make around 25 moves per hour. The mix of container sizes is about

22

Appendix 3

80 20-foot and 20 40-foot boxes per 100 boxes and 25 moves per hour is equivalent to around 30 TEU per hour. With an average exchange per ship, that is, counting both loaded and unloaded containers, of 120 TEU, average operational time would be 4 hours and total time is estimated at about 6 hours, including 2 hours for berthing and deberthing. The shorter berthing and deberthing time relative to bulk cargo vessels reflects the double banking possibilities at berth 10 and the small vessel size. With a berth occupancy ratio of 65%, the 1.2 equivalent berths can handle about 1,400 ships or 136,800 TEU per year. The average recorded container weight for 20002004 was 13.1 tons per TEU, making the container terminals capacity equivalent to 1.8 million t. 6. This capacity calculation does not take account of any improvements in the productivity of crane working to, say, 30 moves per hour, or of the possibility that the proportion of larger container vessels could increase in the future, allowing more efficient deployment of the two gantry cranes. With such changes, increasing the handling capacity at berth 10 to about 200,000 TEU per year should be possible. 7. Storage in the container yard is not currently a constraint. The yard, which is 12 hectares in area, is adequate for 12,000 TEU at a time with only three high stacking, although more yard equipment would be an advantage. With an average dwell time of 10 days and even cargo flow throughout the year, the theoretical capacity is more than 400,000 TEU per year, and with a maximum dwell time of 10 days, the capacity would be higher. However, cargo flow is not even, and a better estimate of yard capacity is 250,000300,000 TEU per year. C. Berths 18

8. The maximum potential throughput at berths 18 is 14.8 million t per year. This is based on an average work rate of 450 t per ship-hour and a maximum berth occupancy ratio of 60% with minimal nonoperational time while ships are alongside. At this occupancy ratio for a group of eight berths, ship waiting time should not occur or should be minimal. Each of the eight berths would handle around 200 ships per year with 9,250 t of cargo on average for 24 hours per ship, including 34 hours for berthing and deberthing. Berth length is taken as 1,511 m and four cranes are assumed to be available per berth. 9. Such a high level of productivity is not sustainable at all berths throughout the year, as these berths will continue to receive some breakbulk cargo in small ships, which will reduce overall productivity. Assuming that only 75% of this potential throughput can be reached with efficient operations and planning, the capacity of berths 18 is limited to 11.0 million t. This would correspond to annual productivity of 7,200 t/m of quay, compared with the currently attained value of 5,182 t/m and 7,300 t/m for berths 612 (Appendix 5).

Appendix 4

23

OVERALL ASSESSMENT Criterion Weight (%) 20 30 30 20 100 Rating Description Relevant Highly Effective Efficient Likely Successful Criterion Score 0.4 0.9 0.6 0.4 2.3

Value 2 3 2 2

Relevance Effectiveness Efficiency Sustainability Overall Score

Source: Mission estimates.

24

Appendix 5

FANGCHENG PORT DETAILS A. Berth Development

1. At the time of project planning, Fangcheng Port had eight multipurpose berths suitable for ships up to 30,000 deadweight tons (dwt) plus some other specialized berths. Additional nonproject works prior to 1999 added more specialized berths and berths for small ships, referred to as transitional berths. In 1998, the port had 20 operational berths with a total of 2,673 meters (m) of quay, of which the original 8 multipurpose berths, berths 18 with a total quay length of 1,511 m, are the most relevant to the operation of the project berths. 2. Before the project berths became operational, bulk cargo was handled at any of the eight multipurpose berths 18 using portal cranes with grabs together with hoppers, trucks, and other facilities. Breakbulk was also handled at the eight multipurpose berths, as well as at the transitional berths. Containers were handled at the 181 m long berth 2 using the ports two 35 ton (t) lift capacity portal cranes. Most container traffic was via small, specialized container vessels of less than 5,000 dwt carrying 50 to 350 20-foot equivalent units (TEU). 3. In October 1999, the 271 m long, project-funded berth 9 became operational for bulk ore and coal. Iron ore, coal, and other bulk cargo continued to be handled at other berths, particularly berths 13 for coal and 57 for iron ore. The project berth, as well as adding quay length, had deeper water alongside and could accommodate larger vessels of up to 70,000 dwt; was complemented by the project-funded cranes, conveyor belts, and related equipment; and had a larger and closer area for stacking bulk ore. Berth 9 also handled some breakbulk, particularly that arriving in large vessels, but most breakbulk continued to be handled at berths 18. 4. The 227 m long, project-funded berth 10 came into operation in 2000 mainly for container ships using large portal cranes transferred from berth 2, and with the completion of the installation of the specialized container cranes, from late 2001, it became a dedicated container terminal. The main advantage of berth 10 is its specialized nature for container handling resulting from both the cranes and the adjacent container yard. The additional berth and yard increased the ports capacity, while the specialized nature of the berth conferred greater efficiency and speed, factors important to owners of container vessels. 5. Berth 11 came into operation in 2001 and berth 12 in late 2002. These nonproject berths mostly handle grain and other agricultural products and support a private foreign joint venture business that produces vegetable oil. They also can handle breakbulk. 6. A the time of the Operations Evaluation Mission, multipurpose berths 1317 were under construction, as was a major bulk ore and coal terminal capable of handling ships up to 200,000 dwt and a chemical terminal for ships up to 50,000 dwt. Berths 1822, for containers and multipurpose, were also planned to enable the port to cater to a projected annual throughput of 50 million t by 2010. 7. As of 2005, Fangcheng Port had 28 berths, of which at least 12 can accommodate vessels of up to 30,000 dwt, although 88% of ships calling at the port are smaller than this. Berths 912 can accommodate larger ships, and even the other berths can accommodate larger ships with tidal assistance. During operations, berth 10 is reserved for container ships and the occasional ship for which the large capacity container crane is needed to lift heavy objects. The

Appendix 5

25

other berths, particularly 19, 11, and 12, are used for dry bulk and breakbulk cargo and are assigned ships according to ship size and berth availability. B. Cargo Throughput

8. From 4.6 million t in 1995, cargo throughput increased steadily to 8.1 million t in 1999 as the project berths were in the last stages of completion, and eventually to 16.1 million t in 2004 (Table A5.1). Throughput for 2005 was projected at 18.5 million t, and the port expects to handle around 50 million t by 2020. Cargo growth from 1995 to 2004 averaged 15% per year, accelerating to around 20% per year in 20032004. 9. Historically, foreign trade has dominated port throughput, but domestic trade has grown more rapidly, albeit from a low base, and in 20032004 accounted for around 1214% of port throughput. During 20002004, slightly more than half of port trade was inward, and inward trade appears to have been increasing slightly faster than outward trade (Table A5.2). 10. Fangcheng is primarily a bulk cargo port. Coal and bulk ores accounted for 5563% of throughput during 20012004 (Table A5.2). A further 12% of throughput consists of oil and chemical liquid bulk cargo and cement, most of which is in bulk form. Additional bulk cargo consists of fertilizer, woodchips, and foodgrains for the vegetable oil processing mill located within the port area. In aggregate, bulk commodities account for an estimated 80% of total throughput. The remainder of the port throughput is breakbulk and containerized general cargo. 11. Until 2000, the number of containers passing through the port was less than 5,000 TEU per year. In 2000, berth 10 started operations and the port operator encouraged container lines to start services through the port. Container throughput subsequently grew rapidly to reach 80,000 TEU by 2004, representing about 6% of the port cargo throughput. When measured in terms of TEU, inward and outward movements are about equal; however, by weight, outward containerized cargo greatly exceeds inward containerized cargo (Table A5.1). 12. A slight seasonality factor has developed in the port trade that is reportedly more noticeable in container operations. This is due to the recent rapid growth in domestic sugar shipments from Guangxi to northern areas of the Peoples Republic of China. Reportedly, the increase in such trade occurs during MarchJune. C. Ship Calls

13. The number of ships calling at Fangcheng Port has increased at an average of 10% per year from 1995 to 2004 (Table A5.1). The increase has not been even, with a decline in numbers during 19971999 followed by a more rapid increase. In addition, the growth in domestic trade ship calls has been much more rapid than that of foreign trade ship calls, with the former increasing, on average, by more than 30% per year during 19952004, while foreign trade ship calls grew by an average of only 5% per year during the same period. Thus by 2004, the strong dominance of foreign trade ships, which includes both those registered in the Peoples Republic of China and elsewhere, had fallen to 60% of all ship calls at Fangcheng Port.

26

Table A5.1: Port Cargo and Ship Calls (19952004)

Item A. Port Cargo ('000 t) 1. Foreign Trade 2. Domestic Trade Total Share to Total (%) Foreign as % of total Inward as % of total B. Containers, by TEU a Containers, by weight ('000 t ) Share to Total (%) 1. Container Cargo as % of Total, by weight 2. Proportion of Container Trade as Inward, by weight 3. Proportion of Container Trade as Inward, by TEU C. Ship Calls 1. Foreign Trade 2. DomesticTrade Total 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Appendix 5

4,500 50 4,550

4,880 192 5,072

6,259 152 6,411

6,593 383 6,976

7,063 1,017 8,080

8,315 912 9,227

9,244 788 10,032

10,051 1,111 11,162

11,298 1,899 13,196

14,146 1,939 16,085

99 0 4,986 65 1 0 0

96 0 4,240 56 1 0 0

98 0 2,900 38 1 0 0

95 0 3,400 45 1 0 0

87 0 4,859 64 1 0 0

90 46 15,921 174 2 22 47

92 58 20,123 245 2 23 50

90 59 46,079 627 6 25 52

86 60 52,378 745 6 20 49

88 63 80,168 1,020 6 23 51

724 63 787

767 106 873

759 108 867

666 123 789

611 182 793

748 222 970

718 341 1,059

865 452 1,317

953 673 1,626

1,083 734 1,817

TEU = 20-foot equivalent unit. For 1995 to 1999, based on assumed weight of 13.1 t/TEU which is the average for 20002004. Source: Fangcheng Port Group Company, Limited.

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

Item A. Coals and Ores 1. Coal 2. Metal ore 3. Non-metal ore Subtotal B. General Items 1. Steel 2. Non-ferrous metal 3. Construction materials 4. Machinery 5. Wood 6. Fertilizer 7. Light industrial 8. Agricultural 9. Salt 10. Foodstuff 11. Other Subtotal C. Special Berth Items 1. Chemical items 2. Cement 3. Oil Subtotal Total Proportion in Year (%) Outward 2001 Inward Total % Outward 2002 Inward Total % Outward 2003 Inward Total % Outward 2004 Inward Total %

607 8 2,198 2,812

2 3,554 0 3,556

609 3,562 2,198 6,369

6 36 22 63

698 11 2,071 2,781

0 3,565 1 3,565

698 3,576 2,071 6,346

6 32 19 57

513 293 2,164 2,971

113 4,077 0 4,190

626 4,370 2,164 7,160

5 33 16 54

553 231 2,348 3,132

517 5,124 17 5,658

1,070 5,355 2,365 8,790

7 33 15 55

354 4 4 22 108 258 77 27 0 20 222 1,095

71 468 1 24 0 111 57 153 194 342 71 1,492

424 472 5 46 108 369 135 180 194 362 293 2,587

4 5 0 0 1 4 1 2 2 4 3 26

225 10 2 44 122 265 147 187 0 48 485 1,536

25 322 1 52 0 172 4 167 218 879 149 1,987

251 332 3 96 122 436 151 354 218 928 633 3,523

2 3 0 1 1 4 1 3 2 8 6 32

345 3 0 53 71 368 217 195 0 207 633 2,092

93 348 0 56 0 18 0 241 256 1,057 123 2,191

438 351 0 109 72 386 217 436 256 1,263 756 4,283

3 3 0 1 1 3 2 3 2 10 6 32

306 50 6 96 99 877 425 229 1 160 270 2,517

43 485 1 122 8 290 28 252 210 1,402 33 2,874

349 535 7 218 107 1,166 453 481 211 1,562 303 5,391

2 3 0 1 1 7 3 3 1 10 2 34

68 195 0 263 4,170 42

605 0 209 814 5,862 58

673 195 209 1,077 10,032 100

7 2 2 11 100

80 124 8 213 4,529 41

695 0 386 1,081 6,634 59

776 124 394 1,294 11,162 100

7 1 4 12 100

118 118 8 245 5,308 40

1,123 4 381 1,508 7,888 60

1,241 122 389 1,753 13,196 100

9 1 3 13 100

258 10 76 343 5,992 37

1,375 185 1,561 10,093 63

1,633 10 261 1,904 16,085 100

10 0 2 12 Appendix 5 100

Source: Fangcheng Port Group Company, Limited.

27

28

Appendix 5

14. In terms of vessel type, a little over one third are bulk coal or ore ships, one third are breakbulk ships, a quarter are container ships, and the balance consists of ships of other types. 15. Small ships dominate shipping at Fangcheng Port. During 20002004, around 77% of ship calls were by ships smaller than 10,000 dwt (Table A5.3). A further 10% were between 10,000 dwt and 30,0000 dwt. This means that in terms of size and water depth requirements, 88% of the ships calling at Fangcheng can be accommodated at any of Fangcheng Ports main berths, namely, the eight general purpose berths that were in place before the Project, project berths 9 and 10, and the new nonproject berths 11 and 12. Ships in the 30,00060,000 dwt class can also be accommodated at any of the main berths with tidal assistance or if they are only partially loaded. The deep water alongside berths 912 is vital for a relatively small number of ship calls.
Table A5.3: Port Ship Calls Item A. Whole Port 1. No of Ships by Size Total a. 0999 dwt b. 1,0009,999 dwt c. 10,00029,999 dwt d. 30,00059,999 dwt e. 60,000 dwt and greater 2. Proportion of Ships (%) a. Bulk Coal/Ore Ships b. Container Ships c. Breakbulk Ships d. Other Type Ships 3. Proportion of Ships Engaged in Foreign Trade (%) B. Berth 9 1. No of Ships by Size Total a. 0999 dwt b. 1,000 9,999 dwt c. 10,00029,999 dwt d. 30,00059,999 dwt e. 60,00069,999 dwt f. 70,000 dwt and greater 2. Proportion of Ships (%) a. Bulk Coal/Ore Ships b. Engaged in Foreign Trade C. Berth 10 1. No of Ships by Size Total a. 0999 dwt b. 1,0009,999 dwt c. 10,00029,999 dwt d. 30,000 dwt and greater 2. Proportion of Ships (%) a. Container Ships b. Engaged in Foreign Trade
dwt = deadweight ton. Source: Fangcheng Port Group, Limited.

2000

2001

2002

2003

2004

969 238 480 134 41 76 33 25 33 9 77

1,054 209 590 116 57 82 33 25 34 8 68

1,317 239 786 149 52 91 32 29 33 5 66

1,626 215 1,083 139 98 91 35 31 29 5 59

1,817 150 1,265 158 147 97 37 26 32 6 60

72 1 20 11 6 21 13 82 79

99 1 42 5 9 15 27 95 63

96 14 28 5 10 8 31 73 74

158 23 75 6 18 13 23 73 50

142 2 74 14 23 11 18 81 55

18 2 14 1 1 0 72

124 36 82 6 0 73 65

429 111 291 26 1 90 67

570 115 440 15 0 89 59

565 89 449 23 4 94 67

Appendix 5

29

16. Berth 9 has the deepest alongside water depth and receives the largest vessels. During 20032004, it serviced 810% of all port ship calls, which is in rough balance with the proportion of quay length the berth represents. Of ships using berth 9, about 13% were larger than the berths nominal capacity of 70,000 dwt. The majority of ship calls at berth 9, 63%, were by ships of less than 10,000 dwt. 17. Since 2000, all container ships call at berth 10. A total of 96% of all ship calls by container ships are by vessels of less than 10,000 dwt (Table A5.3). The predominant container vessel is a motorized barge out of Hong Kong, China, carrying 50100 TEU. Several regional feeder services use ships of up to 350 TEU capacity. Some of the domestic trade container vessels are larger, up to 1000 TEU capacity, but these are few in number. 18. In 20032004, berth 10 handled 3035% of all port ship calls. More than 90% of these were container vessels. The balance consisted predominantly of breakbulk vessels requiring use of the heavy lift capacity of the container cranes or vessels using available space at the berth, but discharging into or loading from the adjacent berth 9 and berth 11 cargo areas. D. Port Operations

19. Four types of port operations appear to be important. First, the bulk mineral trade dominates, with coal being shipped in and out, iron ore being shipped in, and a variety of other ores being shipped out. Ships are a mixture of sizes, many of them small, but a significant number are medium and large ships. Almost all berths can handle bulk cargo, and ships are assigned according to space availability and ship size. The largest vessels go to berth 9 because of the relatively deep water alongside. Second is a variety of other bulk commodity trades, such as cement, wood chips, oil and fuel, and chemicals. These trades are done at a few berths that have become specialized for these types of cargo. Third is the breakbulk or general cargo trade, which uses ships of all sizes and is handled at the same berths as those used for bulk cargo. With the commissioning of berths 11 and 12, more of the breakbulk trade passes through these berths, leaving berths 19 mainly for bulk cargo operations. Fourth is the container traffic. This is dealt with only at berth 10 and is dominated by many small vessels carrying 50100 TEU. Ships double bank along the quay or two ships can berth at the same time if they extend into the neighboring berths. 20. Each berth has between four and six portal cranes with which to load and unload cargo. Berth 9 is supported by a bulk cargo stacking area and equipment such as a conveyor belt, stacker and unstacker, and bulldozers. It is used primarily for coal operations. A variety of portable hoppers, baggers, and other ancillary loading and unloading equipment for use along with the portal cranes is available for deployment on the general purpose berths. Berth 10 is fitted with two specialized container cranes and also has the two 35-t lift portal cranes that were transferred from berth 2. Crane and equipment operating rates and subsequent berth capacity calculations are described in Appendix 3. 21. Cargo operations or stevedoring are conducted by four companies organized under the Fangcheng Port Group Company, Limited and assigned to specific berths. The North Stevedoring Company handles berths 16; the South Stevedoring Company handles berths 7 9, 11, and 12 plus some of the transitional or small ship berths; and the Container Company operates the container terminal at berth 10. Another company, the Breakbulk Stevedoring Company, handles operations at berth 0 and some of the other small berths.

30

Appendix 5

22. The Operations Evaluation Mission noted that the port appeared to be reasonably well maintained, although dusty because of the bulk mineral cargo operations. Although not a major problem, the coal dust at berth 9 does cause some problems with container operations at adjacent berth 10, particularly during times when containers are being filled or unloaded. Other notable aspects were that containers in the berth 10 container yard were kept at relatively low stacking heights of two or three containers, reportedly to keep operating costs low. While not an issue at present, claims that the yard was congested with a throughput of 80,000 TEU per year must be discounted, as the equipment is capable of stacking in blocks four containers high. The 12-hectare yard is adequate for 12,000 TEU at a time with an average stacking of three high, although more yard equipment than is currently deployed might be needed for this volume. With a maximum dwell time of 10 days, this yard area is adequate to handle a throughput of 300,000 TEU. Some lost efficiency due to the container crane waiting for containers to arrive for loading onto vessels was noted. This suggests that the yard equipment may not be sufficient, particularly the number of rubber tired gantry cranes. Two of the four planned rubber tired gantry cranes under the Project were not procured, but may now be needed. 23. Berth 9 came into operation in 1999 and is operated as one of nine berths, along with berths 18, for dry bulk and general breakbulk cargo, although because of its specialized bulk cargo backup area and deep water alongside, it is used primarily for dry bulk cargo. Throughput at berth 9 quickly grew to 3.4 million t per year by 2001 and subsequently fluctuated between 3.4 and 3.9 million t per year of bulk coal and ores (Table A5.4). Berth 10 became operational in 2000, and throughput has increased steadily since then, reaching 80,000 TEU, equivalent to a little over 1.0 million t, in 2004. Based on the operations evaluation model for the port, without the Project the main port berths 18 would probably have reached their limits early in 2003, and in 2004, about 4.8 million t, equivalent to around 30% of the total actual port throughput for that year, would have had to be diverted to other ports. In actuality, the port also has berths 11 and 12, which started operations in 2001 and 2002, respectively, and these berths handle some of the cargo, particularly breakbulk cargo, that otherwise would be handled at berths 18. E. Port Efficiency

24. The available efficiency statistics for Fangcheng Port show a dramatic improvement in 1996, correlating with a change in management at the port (Table A5.5). Compared with average ship waiting times of several days per ship in 19941995, ship waiting times were almost eliminated in 1996. The 1996 improvements are also reflected in other statistics that indicate shortened average berth occupancy times; reduced average nonoperation times; and improved cargo handling rates, such as hourly hatch productivity and tons of cargo handled per ship-hour. The latter more than doubled compared with rates for the previous 2 years to reach 71.7 t per ship-hour. In 1996, the port appears to have been operating quite efficiently, with a berth occupancy ratio of 36%, which can be considered low in view of the large number of available berths. Most shipping was in small ships, so water depth and other physical arrangements were not a major concern. The port still had capacity in view of the low berth occupancy ratio and as reflected in the relatively low throughput per meter length of berth of just under 2,000 t. Significantly, the operational time of the berths was low at around 21%, meaning that as well as the time that berths were not in use, a substantial part of the time that ships were occupying berths was not being used productively. Both these aspects of nonproductive use of the berths provided scope for further efficiency and capacity gains.

Table A5.4: Berth Throughput Summary ('000 t) Item Total Cargo less Special Berths Cargo Subtotal of which: Containerized Cargo Berth 9 Berths 18 and 1112 1995 4,550 706 3,844 65 0 3,779 1996 5,072 525 4,547 56 0 4,491 1997 6,411 775 5,636 38 0 5,598 1998 6,976 916 6,060 45 0 6,015 1999 8,080 549 7,532 64 563 6,906 2000 9,227 495 8,731 174 2,400 6,158 2001 10,032 397 9,635 245 3,439 5,950 2002 11,162 401 10,761 627 3,763 6,372 2003 13,196 371 12,825 745 3,922 8,159 2004 16,085 310 15,774 1,020 3,488 11,266

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

Appendix 5 31

32

Table A5.5: Port Efficiency Data (19942004) Item Cargo handled ('000 t) Number of ship calls Average ship size (dwt) Average cargo handled per ship (t) Average productivity (t/ship-hour) Average productivity (t/hatch-hour) Total ship time in port per 1,000 tons of cargo (days) Ship time in port per 1,000 tons of cargo for operational time and time lost due to port related problems (days) of which: - operational time - ship waiting time - other Other ship time in port per 1,000 tons of cargo (days) Berth Occupancy Ratio (%) Handling Ratio (%) a Berth throughput ratio (t/m of berth) Average total ship time in port (day) Average ship waiting time (days) Average ship berth occupancy (days) Average ship operational time (days) Average ship non-operational time due to the port (days) Average ship non-operatonal time not due to the port (days) 1995 4,550 787 8,408 5,758 30.60 42.10 1.36 0.83 0.42 0.37 0.05 0.53 52 30 1,926 7.84 2.12 3.85 2.41 0.27 3.05 1996 5,072 873 7,973 5,659 71.70 70.00 0.58 0.26 0.25 0.00 0.02 0.32 36 21 1,978 3.29 0.01 2.40 1.39 0.09 1.79 1997 6,411 867 10,855 7,441 92.90 92.50 0.45 0.22 0.20 0.00 0.02 0.23 32 18 2,398 3.34 0.03 2.56 1.46 0.13 1.71 1998 6,976 789 13,503 8,875 115.70 90.60 0.36 0.18 0.17 0.00 0.01 0.18 28 16 2,610 3.20 0.01 2.60 1.52 0.11 1.55 1999 8,080 793 14,632 10,130 141.80 85.70 0.29 0.16 0.15 0.00 0.01 0.13 27 16 2,745 2.98 0.01 2.51 1.48 0.09 1.39 2000 9,227 969 12,762 9,484 171.00 120.00 0.24 0.12 0.12 0.00 0.01 0.12 25 13 2,910 2.31 0.00 2.04 1.09 0.06 1.15 2001 10,032 1,054 12,710 9,480 158.70 124.90 0.26 0.13 0.12 0.00 0.01 0.13 27 15 2,894 2.49 0.02 2.05 1.12 0.05 1.30 2002 11,162 1,317 11,801 8,476 146.39 126.63 0.28 0.13 0.13 0.00 0.00 0.15 29 19 3,790 2.41 0.00 1.91 1.12 0.02 1.27 2003 13,196 1,626 11,047 8,116 137.91 124.94 0.30 0.14 0.14 0.00 0.00 0.16 34 22 3,510 2.45 0.03 1.81 1.12 0.02 1.28 2004 16,085 1,817 11,741 8,852 131.50 119.25 0.32 0.15 0.13 0.01 0.01 0.17 31 27 4,233 2.81 0.13 1.98 1.18 0.05 1.45

Appendix 5

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

Appendix 5

33

25. By 1998, the year before berth 9 became operational, port throughput had increased by 40% relative to 1996, but the number of ship calls had fallen, implying an increase in average cargo per ship. The efficiency statistics remained good, except that the productive part of the time that ships occupied a berth decreased further. In 1998, around 80% of the cargo passed through only six berths that accounted for 1,112 m of quay length. These were berths 3, 4, 6, 7, 8, and the transitional berth adjacent to berth 3 used for discharging cargos of cement. Although berth occupancy for the overall port was around 28%, for these berths the occupancy ratio was about 51%. About 40% of the time that ships were alongside was nonoperational, however, representing lost time or inefficiency. 26. By 2004, cargo throughput had increased by a further 130% to 16.0 million t. The number of ship calls had increased by a similar 130% compared with 1998. Cargo handling productivity had increased significantly to 132 t per ship-hour and around 119 t per hatch-hour, and overall berth productivity was at 4,200 t per meter length of berth. Average berth occupancy was at 41% and ship waiting time averaged 0.13 days per ship call. 27. However, the broad port statistics mask important aspects of port operation (Table A5.6). In 2004, not all berths were in full operation. The transitional berths, for example, had been taken out of cargo service, as the adjacent land was used for fabricating caissons for port construction works. As with the situation in 1998, 80% of cargo was passing through a small number of the ports berths, that is, berths 612, which have a combined quay length of 1,696 m, resulting in productivity of more than 7,500 t per meter of berth. Berth 9 was the busiest, handling 22% of all port cargo, and berth 10 handled a further 7%. Berth occupancy ratios for each berth show that all the main berths were occupied for 6075% of available time, with berths 1, 2, 9, 10, and 11 having the highest occupancy ratios. Although berth throughputs increased slightly to moderately in many berths other than the seven most heavily used berths, as new berths became available, they seem to have become the favored places for port operations, and ships with slower operations or problems were assigned to older berths. Productivity improvements at the older berths could possibly substitute for the need to build some of the additional berths planned. F. Landward Cargo Movements

28. Prior to the Project, the port was connected to the hinterland by a single track railway line and a class 3 road. The railway, under district operation, runs from Fangcheng Port to Qinzhou, about 5060 kilometers away, where it is joined by branches from two other destinations, and thence goes on to Nanning. Connections to the national rail network occur at Qinzhou and Nanning. The class 3 road runs for 22 kilometers from Fangcheng Port to Fangcheng, from where two class 4 roads connect to the national highway going to Nanning or east toward Beihai. Little information about traffic on both the railway and the road is contained in the Asian Development Bank report and recommendation of the President1 and files nor is the feasibility study or other information for the pre- and early project periods available. The report and recommendation of the President states that the single track railway was heavily utilized. It is known that this track had a one-way capacity of 7.0 million t, which was upgraded to 12.0 million t in 2005. Concerning the road, the appraisal document states that it was congested and had a nominal capacity of 2,000 vehicles per day.

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

34

Appendix 5

Table A5.6: Selected Group of Berth Statistics Item 1995 A. Productivity t/m length 1. Berths 18 2,492 2. Berth 9 3. Berth 10 4. Berths 19 5. Berths 112 6. Berths 612 B. Average Handling Rates (t/hr) 1. Berths 18 123 2. Berth 9 3. Berth 10 4. Berths 19 5. Berths 112 6. Berths 612 C. Berth Occupancy Ratios (%) 1. Berths 18 72 2. Berth 9 3. Berth 10 4. Berths 19 5. Berths 112 6. Berths 612 7. Whole Port 52 1996 2,978 1997 3,689 1998 3,985 1999 4,602 2,076 4,218 2000 2001 2002 2003 2004

4,117 3,863 3,603 4,177 5,182 8,856 12,689 13,885 14,471 12,870 390 733 2,479 2,988 3,925 4,838 5,205 5,167 5,743 6,351 4,059 4,845 5,959 4,713 5,801 7,263

201

250

278

311 526 321

332 870 173 401

305 1272 137 424

254 878 262 358 307 408

230 756 242 313 302 431

226 669 267 284 292 399

55

53

51

51 21 0 48

50 49 12 50

47 43 45 47

36

32

28

27

25

27

50 63 66 51 50 43 29

60 76 73 61 61 58 34

74 80 81 74 76 76 41

D. Proportion of Berth Time that is Operational (%) 1. Berths 18 60 58 60 61 2. Berth 9 3. Berth 10 4. Berths 19 5. Berths 112 6. Berths 612 7. Whole Port 58 57 60 58
hr = hour, m = meter, t = ton.

62 58 62

54 64 61 55

58 71 38 59

59

54

55

61 77 45 63 67 76 64

66 78 54 68 66 67 65

67 75 57 68 68 68 67

Source: Mission estimates based on data from the Fangcheng Port Group Company, Limited.

29. Historically, most cargo has moved between the port and the hinterland by rail. The limited information available suggests that around 90% of cargo moved by rail in 1995. The project expressway opened in 1998, and a significant amount of truck traffic started to use the road from the start of operations. Some of this was diverted traffic from the old roads, but some was traffic with cargo diverted from rail. During 20012004, the railways share of cargo decreased, but was still accounted for more than 70% of the cargo moved out of the port by either road or rail (Table A5.7).

Appendix 5

35

Table A5.7: Landward Cargo Transport ('000 t) Item Total Port Cargo Total Cargo Transported to/from Port by Rail and Roada Cargo Transported to/from Port by Rail - inward - outward Cargo Transported to/from Port by Road - inward - outward Proportion of Cargo Transported by Rail (%)
a

2001 10,032 9,455 7,974 3,350 4,624 1,482 670 811 84

2002 11,162 11,026 8,532 3,229 5,303 2,494 1,253 1,241 77

2003 13,196 12,480 8,777 3,130 5,646 3,703 1,935 1,768 70

2004 16,085 13,868 10,097 3,779 6,318 3,771 1,637 2,134 73

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

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

36

Appendix 6

AVERAGE ANNUAL DAILY TRAFFIC

Item A. 1998 1999 2000 2001 2002 2003 2004

Average Daily Traffic, in number of vehicles 1. Truck A 686 B 392 C 1,068 D 60 E 30 Subtotal 2,236 2. Bus B C D Subtotal Car A Total

852 484 1,328 76 38 2,778

926 526 1,444 82 42 3,020

882 502 1,372 78 40 2,874

958 544 1,490 86 44 3,122

1,190 676 1,852 106 54 3,878

1,238 706 1,934 110 58 4,046

126 538 6 670

156 668 10 834

170 726 10 906

160 690 10 860

174 750 10 934

218 932 12 1,162

228 994 14 1,236

3.

1,916 4,822

2,380 5,992

2,588 6,514

2,460 6,194

2,674 6,730

3,322 8,362

3,548 8,830

B.

Average Daily Traffic, in equivalent passenger car unit (PCU) 1. Trucks 3,770 4,690 5,101 2. Buses 1,283 1,600 1,737 3. Cars 1,916 2,380 2,588 Total 6,969 8,670 9,426

4,853 1,650 2,460 8,963

5,276 1,791 2,674 9,741

6,550 2,227 3,322 12,099

6,843 2,372 3,548 12,763

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

and 6.0 for category E.

Source: Traffic data from Guangxi Expressway Administration Bureau. This was one-way data, which

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

Appendix 7

37

ECONOMIC AND FINANCIAL ANALYSES A. General Model

1. In analyzing the Project, the with and without project scenarios were defined as with both the port and expressway components or without either. The majority of traffic on the expressway was expected to derive from port-related activity, and considering the expressway component without the port component was inappropriate. Similarly, given the small capacity and unsuitability of the existing road connections for large volumes of cargo movements, port development without road improvements was also not logical. 2. With the Project, the port is defined as berths 18 plus the project-financed berths 9 and 10. Berths 19 can be operated as a group for dry bulk and breakbulk cargo. All container ships and containers are handled at berth 10. The ports other berths, namely, the oil berth, berth 0, and the transitional berths, and the cargo handled at those berths are not included, as their operations or cargo can be reasonably identified and are different from the cargo operations of berths 110. Berths 11 and 12 came into use in 2001 and 2002, respectively, and have similar operations as berths 19. However, inasmuch as berths 11 and 12 constitute an alternative to berths 9 and 10, for a proper with and without project comparison, the analysis assumes that berths 11 and 12 were not built. This required some adjustment of actual average handling rates and berth times to a theoretical situation as discussed later. 3. Without the Project, the port is defined as berths 18. Containers are assumed to be handled at berth 2 using portal cranes, which was the situation prevailing prior to the completion of berth 10. 4. The annual capacities of the berths have been defined as 11.0 million tons (t) for berths 18, 4.6 million t for berth 9, and 1.8 million t for berth 10 (Appendix 3).1 In 2004, berths 18 handled about 7.8 million t, berth 9 handled some 3.5 million t, and berth 10 handled about 1.1 million t in 80,000 20-foot equivalent units. 5. Under the general model, cargo at the port is assumed to grow at 15% per year until 2010, the approximate growth rate achieved during 19992004, and 10% per year thereafter and to maintain the same proportionate mix of commodities as during 20002004 (Table A7.1). Assuming that cargo is reasonably equally distributed over berths 19, these berths will have reached their capacity limits in 2005. Container operations will continue to grow until berth 10s capacity is reached in 2007. Cargo beyond this level has been designated as excess cargo and has been excluded from the analyses, as the added cost or investment involved in handling this cargo is the same in both the with and without project scenarios. In actual practice, it would be handled at berths 11 and 12.

The capacity of berths 18 would be slightly higher in the with project scenario than the without project scenario, as they constitute a group of nine rather than a group of eight. A larger group could operate with a higher berth occupancy ratio and still keep the ratio of waiting time to service time at acceptable levels, defined to be 0.2. However, for the sake of simplicity the analysis ignores this small increase in capacity.

38

Table A7.1: Port Throughputs ('000 t) Item A. With Project 1. Total Cargo Less Cargo for Special Berths 2. Balance of Cargo Containerized Cargo Berth 9 Berths 18 Excess Cargo Beyond With-Project Port Capacity B. Without Project 1. Total Cargo Less Cargo for Special Berths 2. Balance of Cargo Berths 18 Diverted Cargo Excess Cargo Beyond With-Project Port Capacity 1998 6,976 916 6,060 0 0 6,060 0 1999 8,080 549 7,532 0 563 6,969 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2020 96,499 1,863 94,637 1,800 4,600 11,000 77,237

Appendix 7

9,227 10,032 11,162 13,196 16,085 18,497 21,272 24,463 28,132 32,352 37,205 40,925 45,018 49,520 54,471 59,919 495 397 401 371 310 357 411 472 543 625 718 790 869 956 1,051 1,157 8,731 9,635 10,761 12,825 15,774 18,140 20,861 23,991 27,589 31,727 36,487 40,135 44,149 48,564 53,420 58,762 0 245 627 745 1,020 1,276 1,595 1,800 1,800 1,800 1,800 1,800 1,800 1,800 1,800 1,800 2,400 3,439 3,763 3,922 4,000 4,600 4,600 4,600 4,600 4,600 4,600 4,600 4,600 4,600 4,600 4,600 6,331 5,950 6,372 8,159 10,754 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 0 0 0 0 0 1,265 3,667 6,591 10,189 14,327 19,087 22,735 26,749 31,164 36,020 41,362

6,976 916 6,060 6,060 0 0

8,080 549 7,532 7,532 0 0

9,227 10,032 11,162 13,196 16,085 18,497 21,272 24,463 28,132 32,352 37,205 40,925 45,018 49,520 54,471 59,919 495 397 401 371 310 357 411 472 543 625 718 790 869 956 1,051 1,157 8,731 9,635 10,761 12,825 15,774 18,140 20,861 23,991 27,589 31,727 36,487 40,135 44,149 48,564 53,420 58,762 8,731 9,635 10,761 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 0 0 0 1,825 4,774 5,876 6,195 6,400 6,400 6,400 6,400 6,400 6,400 6,400 6,400 6,400 0 0 0 0 0 1,265 3,667 6,591 10,189 14,327 19,087 22,735 26,749 31,164 36,020 41,362

96,499 1,863 94,637 11,000 6,400 77,237

Sources: Appendix 5 of this report and mission estimates.

Appendix 7

39

6. Without the Project, in the absence of berth 10, the port can handle few containers and cargo that is containerized, now that the Project has gone ahead, would be in breakbulk form instead. Under this without the Project scenario, berths 18 would reach their 11 million tons per year capacity in 2003. Because of the lower port capacity without the Project, some of the with project cargo cannot be handled. This cargo, designated as diverted cargo, is assumed to be handled at other ports. For purpose of analysis, it is assumed to go to Zhangjiang Port in southern Guangdong. 7. The 20-kilometer (km) Asian Development Bank (ADB)-financed section of the expressway is analyzed as part of the complete expressway. The 45 km expressway opened in 1998. Prior to this, most cargo to and from the port, an estimated 90% of port throughput, was transported by rail. Road transport related to both the port and nearby urban areas was through a combination of class 3 and class 4 roads with a total length t of 72 km. 8. Data for expressway traffic was obtained from records of the Guangxi Expressway Bureau for the exit toll plaza near Fangcheng Port. In 1998, an average of 2,411 vehicles per day (vpd) passed that exit toll gate. It is assumed that the traffic is normal, that is, equal numbers of vehicles travel in both directions, so average annual daily traffic in 1998 would have been 4,822 vehicles. By 2004, it was 8,830 vpd, equivalent to 12,763 passenger car units (PCU)2 (Appendix 6). This traffic level was assumed to be the same for the entire length of the expressway. A comparison of actual toll receipts with those calculated on the basis of this traffic over the entire length of the expressway suggests that the latter overestimates toll receipts. There is an entry and exit point midway along the expressway, and the implication of the foregoing comparison is that the traffic passing between the Fangcheng Port entry and exit point and this midway entry and exit point is larger than that traveling on the rest of the expressway. That is, the average traffic over the entire length of the expressway is less than that estimated using the Fangcheng Port entry and exit data. 9. Traffic on the expressway is assumed to come from traffic that diverts from the old roads; traffic carrying port-related cargo that diverts from rail to road transport; and generated traffic, such as might come from the urban areas adjacent to the port because of the improved travel conditions (Table A7.2). Traffic after 2004 is assumed to grow at 7% per year until 2015 and 5% per year thereafter. 10. Few traffic figures exist for the preproject roads. Traffic is estimated to be about 500 vpd during 20032004. The appraisal report states that the old roads, with a nominal capacity of 2,000 vpd, were congested. The most plausible scenario appears to be an average annual daily traffic volume of about 2,400 vehicles in 1995, building up to 3,000 vpd in 1998 when the expressway opens (Table A7.3). During 1998 and 1999, it is assumed that 85% of traffic using the old roads diverts to the expressway, leaving some 400 vpd, which would build up with normal growth to a level of 500 vpd by 2004.

Based on each car and class A truck being equivalent to 1.0 PCU, each class B truck or bus to 1.5 PCU, each class C truck or bus to 2.0 PCU, each class D truck to 3.0 PCU, and each class E truck (mainly articulated trucks and trailers) to 8 PCU.

40

Appendix 7

Table A7.2: Expressway Traffic Year Truck A Truck B Truck C Truck D Truck E Bus B Bus C Bus D 21 34 37 35 38 47 49 52 74 103 132 10 17 19 18 20 25 26 28 39 55 70 45 191 72 308 78 336 74 319 81 348 100 432 105 454 112 486 158 681 221 956 282 1,220 2 2 2 2 2 2 2 2 3 4 5 Car Tractor 680 1,098 1,197 1,137 1,239 1,536 1,613 1,726 2,421 3,395 4,333 Total Vehicles 1,711 2,761 3,009 2,859 3,117 3,865 4,059 4,343 6,091 8,544 10,904 Total PCU 2,469 3,986 4,346 4,129 4,503 5,584 5,863 6,273 8,798 12,340 15,749

A. Traffic Diverted from Old Roads 1998 244 139 379 1999 394 224 612 2000 429 244 667 2001 408 232 634 2002 445 253 691 2003 552 314 857 2004 580 330 900 2005 621 353 963 2010 870 495 1,351 2015 1,221 695 1,894 2020 1,558 887 2,418

B. Traffic with Cargo Diverted from Rail 1998 332 190 517 29 1999 344 195 537 32 2000 373 212 583 34 2001 356 203 554 32 2002 385 218 599 36 2003 479 272 746 44 2004 494 282 776 46 2005 528 302 830 49 2010 741 423 1,164 69 2015 1,039 594 1,632 96 2020 1,326 758 2,083 123 C. Generated Traffic 1998 111 1999 115 2000 124 2001 119 2002 128 2003 160 2004 165 2005 176 2010 247 2015 346 2020 442

20 21 23 22 24 29 32 34 48 67 86

1,087 1,128 1,224 1,166 1,262 1,570 1,629 1,743 2,444 3,428 4,375

1,857 1,931 2,095 1,995 2,163 2,685 2,797 2,993 4,197 5,887 7,513

63 65 71 68 73 91 94 101 141 198 253

172 179 194 185 200 249 259 277 388 544 694

10 11 11 11 12 15 15 16 23 32 41

81 347 84 360 92 390 86 371 93 402 118 500 123 540 132 578 185 810 259 1,137 330 1,451

4 8 8 8 8 10 12 13 18 25 32

1,236 1,282 1,391 1,323 1,435 1,786 1,935 2,070 2,904 4,073 5,198

2,024 2,103 2,281 2,169 2,351 2,928 3,142 3,362 4,716 6,614 8,441

2,643 2,754 2,985 2,839 3,075 3,830 4,104 4,391 6,159 8,638 11,024

D. Total Expressway Traffic 1998 686 392 1999 852 484 2000 926 526 2001 882 502 2002 958 544 2003 1,190 676 2004 1,238 706 2005 1,325 755 2010 1,858 1,060 2015 2,606 1,486 2020 3,326 1,897

1,068 1,328 1,444 1,372 1,490 1,852 1,934 2,069 2,902 4,071 5,195

60 76 82 78 86 106 110 118 165 232 296

30 38 42 40 44 54 58 62 87 122 156

126 156 170 160 174 218 228 244 342 480 612

538 668 726 690 750 932 994 1,064 1,492 2,092 2,670

6 10 10 10 10 12 14 15 21 29 38

1,916 2,380 2,588 2,460 2,674 3,322 3,548 3,796 5,325 7,468 9,531

4,822 5,992 6,514 6,194 6,730 8,362 8,830 9,448 13,251 18,586 23,721

6,969 8,670 9,426 8,963 9,741 12,099 12,763 13,656 19,154 26,864 34,286

PCU = passenger car unit. Note: PCU values: 1.0 for cars and class A trucks, 1.5 for class B trucks and buses, 2.0 for class C trucks and buses, 3.0 for class D trucks and buses, 6.0 for class E trucks. Source: Mission estimates with expressway total traffic 19982004 from Appendix 6 of this report

Appendix 7

41

Table A7.3: Old Road Traffic Year Truck A Truck B Truck C Truck D Truck E Bus B Bus C Bus D Car Tractor Total Vehicles Total PCU

A. Without Project 1995 322 1996 348 1997 376 1998 406 1999 426 2000 447 2001 469 2002 492 2003 517 2004 543 2005 581 2010 815 2015 1,143 2020 1,459 B. With Project 1998 162 1999 32 2000 34 2001 36 2002 38 2003 40 2004 42 2005 45 2010 63 2015 88 2020 113

184 199 215 232 244 256 269 282 296 311 333 467 655 835

501 541 584 631 663 696 731 768 806 846 905 1270 1,781 2,273

28 30 32 35 37 39 41 43 45 47 50 71 99 126

14 15 16 17 18 19 20 21 22 23 25 35 48 62

59 252 64 272 69 294 75 318 79 334 83 351 87 369 91 387 96 406 101 426 108 456 152 639 213 897 271 1,144

3 3 3 3 3 3 3 3 3 3 3 5 6 8

899 971 1,049 1,133 1,190 1,250 1,313 1,379 1,448 1,520 1,626 2,281 3,199 4,083

119 129 139 150 158 166 174 183 192 202 216 303 425 543

2,381 3,388 2,572 3,658 2,777 3,947 3,000 4,264 3,152 4,481 3,310 4,706 3,476 4,942 3,649 5,188 3,831 5,445 4,022 5,715 4,304 6,115 6,036 8,577 8,466 12,029 10,805 15,353

93 20 21 22 23 24 25 27 38 53 67

252 51 54 57 60 63 66 71 99 139 177

14 3 3 3 3 3 3 3 5 6 8

7 1 1 1 1 1 1 1 2 2 3

30 7 7 7 7 7 7 7 11 15 19

127 26 27 28 29 30 32 34 48 67 86

1 1 1 1 1 1 1 1 2 2 3

453 92 97 102 107 112 118 126 177 248 317

150 158 166 174 183 192 202 216 303 425 543

1,289 391 411 431 452 473 497 532 746 1,046 1,335

1,795 495 519 544 569 595 624 668 936 1,313 1,676

PCU = passenger car unit. Note: PCU values: 1.0 for cars and class A trucks, 1.5 for class B trucks and buses, 2.0 for class C trucks and buses, 3.0 for class D trucks and buses, and 6.0 for class E trucks. Source: Mission estimates with expressway total traffic 19982004 from Appendix 6 of this report.

42

Appendix 7

B.

Economic Analysis 1. General Assumptions

11. The port and expressway components are evaluated by computing the economic internal rate of return (EIRR) over the 25-year period 19952020. The analysis adopts the border price numeraire and uses a standard conversion factor of 0.926 to convert prices of nontraded goods to border price equivalents. All prices are adjusted to mid-2002 levels and expressed in yuan. 2. Port Component

12. The quantifiable economic benefits of the Projects port component are saved ship service time, saved ship waiting time, and avoided land transport costs for diverted cargo. The first two derive from faster cargo handling and a larger number of berths with the Project compared to the without project scenario. The avoided land transport costs derive from the difference in port capacity with and without the Project, that is, a difference of 6.4 million tons per year. The costs at the port are the capital costs, including equipment replacement, and incremental operating costs. The analyses of the port done for the project completion report (PCR) and the report and recommendation of the President (RRP)3 adopt the same basic model and approach. In view of the detailed work done for the PCR on project costs and financial analysis of the port operations, the incremental capital, maintenance, and operational costs were adapted from those used in the PCR, and the operations evaluation focused on reassessing the benefits. 13. Actual handling rates as given in Appendix 5, Table A5.6, are used in both the with and without project cases up to 2001. From 2002 onward, the ports actual handling rates are influenced by berths 11 and 12 and the handling rates have been adjusted. The long-term rates used were 325 tons per hour (t/hr) for berths 18 without the Project and 350 t/hr with the Project, 900 t/hr for berth 9, and 300 t/hr for berth 10. The lower handling rate for berths 18 without the Project relative to the rate with the Project reflects lower efficiency resulting from greater berth congestion. In calculating ship waiting times, ship service times were converted to berth occupancy times by using the actual proportions of berth times that are operational (Appendix 5, Table A5.6). These proportions were adjusted in the without project case for berths 18 from 2000 onward to reflect longer nonoperational times resulting from generally smaller ships and other inefficiencies. Waiting times were taken from the M/E2/n table4 published by the United Nations Conference on Trade and Development, and berth 10 was assumed to be equivalent to between 1 and 2 berths because of the small size of most vessels and how the berth is operated (Appendixes 3 and 5). Ship time was estimated at $500 per ship-hour for general cargo and bulk cargo vessels and $400 per ship-hour for smaller container vessels. 14. It is assumed that the diverted cargo is handled at similar rates as at Fangcheng Port and does not cause any extra congestion or cost at the port to which it is diverted. The savings are quantified on the basis of extra land transportation over 200 km at a cost of CNY10/t.
3

ADB. 2002. Project Completion Report on the Fangcheng Port Development Project in the Peoples Republic of China. Manila; and ADB. 1995. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Peoples Republic of China for the Fangcheng Port Project. Manila. These tables are normally used for randomized arrivals. It is appropriate for the breakbulk and bulk berths and was considered appropriate for the container terminal in view of the large number of nonscheduled small vessels bringing containers to and from Hong Kong, China.

Appendix 7

43

3.

Expressway

15. The main benefits for the expressway component come from savings in vehicle operating costs (VOC) for traffic that diverts from the old roads to the expressway, VOC savings for generated traffic, and savings in transport costs for cargo that diverts from rail to road and uses the expressway. Additional sources of benefits are savings in VOC for traffic that remains on the old road arising from reduced congestion and faster travel times and reduced maintenance costs for the old road. The costs are the investment costs, the costs to replace maintenance and toll equipment, and the expressway operating and maintenance costs. 16. The traffic diverted from the old road to the expressway travels a shorter distance, that is, 45 km compared with 72 km, and travels at a lower cost per kilometer. Savings in VOC per vehicle-km at the start of operations in 1998 were, in 2005 prices, CNY0.32 for cars and other small vehicles, CNY0.39 for class B trucks, CNY0.54 for class C trucks, CNY0.72 for class D trucks, CNY0.90 for class E trucks, CNY0.16 for class B buses, CNY0.46 for class C buses, and CNY0.73 for class D buses. These differences are similar to those used in recent ADB studies. Half the VOC savings were applied to the generated traffic. 17. For 20012004, the reported international roughness index (IRI) of the expressway shows a slow deterioration from 2.2 to 2.7, which fits with expectations for this type of road. At the time of operations evaluation, the expressways IRI was about 1.7 as a result of recent grinding of joints between concrete blocks where some differential settlement had occurred. It is assumed that the starting roughness was an IRI of 1.5 in 1998, and that from 2006 onward, roughness increases by 0.25 IRI per year. Major work involving an asphalt overlay is assumed to be done when the IRI is around 4.5, after which the road roughness is brought back to an IRI of 1.5. This would occur in about 20172018. The cost for resurfacing the entire expressway is assumed to be CNY40 million at 2002 prices. 18. Roughness measurements are not made for the old roads. At the time of operations evaluation, the IRI of the old road was estimated as 4.0. Parts of this road had recently been resurfaced. It is assumed that the roughness of the old road is kept at about this level, on average, by an annual program of resurfacing parts of the road each year. As traffic builds up, the period between resurfacing for each piece of road will shorten, resulting in an increase in the amount of road resurfaced each year and in annual resurfacing expenditures. The underlying assumption is that resurfacing occurs when the IRI reaches 6.0 and brings the roughness back to an IRI of 3.0. It is also assumed that routine maintenance practices remain the same with and without the Project. 19. For cargo owners to move from rail to road, they must have either a cost or a convenience advantage. Most diverted cargo is likely to be breakbulk for destinations within a relatively short distance from the port, such as the Nanning area. Calculations based on the mix of vehicles presented in Table A7.2 for moving the diverted cargo indicate that any aggregate cost saving is unlikely. For this exercise, it was assumed that the alternatives are road to a point 130 km away from the port or rail to Nanning, about 90 km, then 40 km of road transport to the final destination, or the same in reverse. It is presumed that the advantage for cargo that switched from rail to road is one of convenience. The convenience value has to be at least equal to the difference in cost. As a conservative approach, no benefit has been entered for this aspect of the traffic calculations.

44

Appendix 7

20. Maintenance savings on the old road are estimated by the difference in the period when it has to be resurfaced to maintain an average roughness of 4.0. The cost of resurfacing the entire length is assumed to be CNY13 million. The maintenance cycle is estimated to be around 5 years without the Project, about twice as often as with the Project. 4. Results

21. The EIRR for the port component was recalculated to be 20% (Table A7.4) and for the expressway 19% (Table A7.5). The EIRR for the entire Project was 20%.
Table A7.4: Economic Analysis of Port Component (CNY million at mid-2002 prices)
Incremental Costs Additional Operating Cost Incremental Benefits Avoided Land Saved Saved Transportation Ship Service Ship Waiting Cost from Time Time Diverted Cargo 0 0 0 0 3 16 31 29 34 33 33 33 33 33 33 33 33 33 33 33 33 33 33 33 33 33 0 0 0 0 1 10 36 57 83 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 0 0 0 0 0 0 0 0 17 42 52 54 56 56 56 56 56 56 56 56 56 56 56 56 56 56

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 2020

Capital Asset Incremental Cost Replacement Maintenance

Total Cost

Total Benefits 0 0 0 0 4 26 67 86 134 155 164 167 169 169 169 169 169 169 169 169 169 169 169 169 169 169 EIRR

Net Benefits 0 0 (50) (61) (51) (80) (42) 45 90 109 117 117 118 78 44 101 118 118 118 118 116 118 118 118 118 118 20%

50 61 55 82 78

0 40 74 17 0 0 0 0 3 0 0 0 0 0

3 6 6 6 6 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7

21 26 35 37 40 41 44 44 44 44 44 44 44 44 44 44 44 44 44 44 44

50 61 55 106 109 41 44 46 48 50 51 91 125 68 51 51 51 51 53 51 51 51 51 51

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

Table A7.5: Recalculation of Economic Internal Rate of Return for Expressway Component (CNY '000, constant 2002 prices) Costs Expressway Expressway Maintenance Operating Benefits Cargo Traffic Old Road Traffic Generated Diversion Remaining Maintenance Diverted from Traffic on Old Road Savings Old Road 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 2020

Capital, including Replacement

1,510 240,530 421,950 183,061 28,300 9,660

Total

Total

5,400 5,400

5,400 5,400

1,483 1,504 1,885 1,984 2,000 2,569 2,755 3,040 3,040 3,040 3,040 3,040 3,040 3,040 3,040 3,040 3,040 3,040 3,040 22,040 22,040 3,040 3,040

1,780 2,005 2,777 2,877 3,000 3,359 3,705 4,275 4,275 4,275 4,275 4,275 4,275 4,275 4,275 4,275 4,275 4,275 4,275 4,275 4,275 4,275 4,275

1,510 240,530 421,950 186,324 31,810 14,322 4,860 5,000 5,928 6,460 7,315 7,315 12,715 12,715 7,315 7,315 7,315 7,315 7,315 7,315 7,315 7,315 31,715 31,715 7,315 7,315

41,110 69,649 79,674 79,407 90,782 117,993 129,809 145,492 163,018 182,601 204,477 228,909 256,191 286,651 320,651 358,597 400,940 448,181 491,515 640,663 699,748 764,208 834,526

21,084 23,065 26,219 26,153 29,689 38,723 43,447 48,674 54,513 61,036 68,321 76,454 85,534 95,669 106,979 119,598 133,676 149,379 163,772 212,274 231,819 253,138 276,394

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

4,746 1,359 1,854 2,405 3,014 3,686 4,449 5,405 6,498 7,745 9,163 10,775 12,605 14,677 17,023 19,675 22,669 26,047 29,295 32,875 36,817 41,155 45,927

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

0 0 0 66,942 94,074 107,748 107,965 123,487 160,403 177,706 199,573 224,031 251,383 281,962 316,140 354,332 396,998 444,654 497,872 557,286 623,607 684,583 885,813 968,384 1,058,503 1,156,849

(1,510) (240,530) (421,950) (119,382) 62,264 93,426 103,105 118,487 154,475 171,246 192,258 216,716 238,668 269,247 308,825 347,017 389,683 437,339 490,557 549,971 616,292 677,268 854,098 936,669 1,051,188 1,149,534

Appendix 7

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

19%

45

46

Appendix 7

22. The EIRRs for the port component calculated in the RRP and PCR were 21.2% and 33.5%, respectively. For the expressway component, the respective RRP and PCR EIRRs were 21.4% and 14.7%. For the whole Project, the RRP estimated the EIRR as 21% and the PCR estimated it as 17.9%. Lack of data other than in relation to capital and operational costs in both the PCR and RRP prevent a comparison with the underlying assumptions and detailed methodology of those analyses. The general methodologies and the model for the port are the same as used for operations evaluation, however. 23. The strong growth of cargo throughput at the port means that the analyzed changes occur over a short period, namely, 19982007. While uncertainty exists for many of the variables chosen to quantify benefits, the major variable, cargo volume, is known or predicted with reasonable certainty, and sensitivity testing of the EIRR was not conducted. For the expressway, traffic growth and the difference between VOC on the old road without the Project and on the expressway are major sources of uncertainty. A reduction in traffic growth from 1996 onward from 7% per year to 5% per year would reduce the EIRR for the expressway to 17% and an increase in traffic growth from 2006 onward to 9% per year would increase the EIRR to 20%. A 10% reduction in the difference between the without and with Project VOC for the entire analysis period would reduce the EIRR to 17%. C. Financial Analysis

24. Data to compute the financial internal rate of return (FIRR) were only available for the expressway component. 25. Financial benefits are derived from tolls. For 19982005, the appropriate annual amount in current prices is obtained from the income statement (Appendix 8). For subsequent years, toll income is calculated from traffic (Table A7.2). Toll rates were the same during 19982005 and were CNY0.25/km for cars and class A trucks, CNY0.50/km for class B trucks and class B and C buses, CNY0.85/km for class C trucks, CNY1.60/km for class D trucks and class D buses, and CNY2.40/km for class E trucks. 26. The FIRR is 2.0% (Table A7.6), much less than the weighted average cost of capital of 6.5%.The FIRR for the expressway calculated in the RRP was 5.7% and in the PCR it was 6.6%. Neither the RRP nor the PCR present traffic projections, thus a comparison of the differences between the RRP and PCR results with those obtained here cannot be done. 27. As indicated in para. 8, a comparison between actual toll income and that based on a multiplication of toll rate, distance, and numbers of each type of vehicle from Table A7.2 suggests that the traffic in Table A7.2 overestimates the actual situation for the entire expressway. The difference for 19992004 was 1015%. Should the financial benefit stream be calculated on a 10% lower basis from 2006 onward, the FIRR would fall to 1%. However, should the traffic growth rate increase to 10% per year from 2006 onward, compared with the 57% projected, the FIRR would increase to 4%. A real increase in toll rates by 25% from 2006 onward would increase the FIRR to 6%.

Appendix 7

47

Table A7.6: Recalculation of Financial Internal Rate of Return for Expressway Component (2002 prices CNY'million) Year Capital Expenditure Expressway Operation and Maintenance Business Tax Toll Revenue Net Benefit Flow

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 2020

1.9 274.7 524.0 273.6 94.5 103.9 87.3

6.4 6.4

6.4 6.4

3.3 3.5 4.7 4.9 5.0 5.9 6.5 7.3 7.7 8.1 8.5 8.9 9.3 9.8 10.3 10.8 11.3 11.9 12.5 35.9 36.6 14.5 15.2 EIRR

1.9 2.1 2.3 2.4 2.5 2.7 2.8 2.9 3.2 3.4 3.6 3.9 4.1 4.4 4.7 5.1 5.4 5.8 6.4 7.0 7.7 8.5 9.3

38 42 45 47 50 53 55 59 74 79 85 91 97 104 111 119 127 136 143 150 157 165 174 =

(2) (275) (524) (240) (58) (65) (48) 42 44 46 49 63 61 66 78 84 90 96 103 110 118 124 101 107 142 149 2%

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

48

FINANCIAL STATEMENTS Table A8.1: Income Statement for Expressway

(CNY million) Item Toll Revenue Freight Passenger Less: Business tax Working Expenses Personnel Materials Power and Maintenance Administration Others Depreciation Expenses Total Operating Expenses Operating Proft (Loss) Interest Expense Net Profit (Loss) before Income tax Income Tax Payable 1995 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1996 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1997 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1998 36.9 21.4 17.4 1.9 3.3 1.2 0.5 1.0 0.3 0.3 36.0 39.3 (2.4) 0.0 (2.4) 0.0 (2.4) 1999 40.2 22.7 19.6 2.1 3.5 1.3 0.5 1.0 0.4 0.3 38.5 42.0 (1.8) 0.0 (1.8) 0.0 (1.8) 2000 43.5 24.7 21.1 2.3 4.7 1.7 0.7 1.2 0.6 0.5 43.3 48.0 (4.5) 0.0 (4.5) 0.0 (4.5) 2001 44.7 25.4 21.7 2.4 4.9 1.7 0.8 1.2 0.7 0.5 48.1 53.0 (8.3) 8.4 (16.7) 0.0 (16.7) 2002 47.4 27.3 22.6 2.5 5.0 1.8 0.8 1.2 0.7 0.5 48.1 53.1 (5.7) 10.2 (15.9) 0.0 (15.9) 2003 50.7 28.9 24.5 2.7 6.0 2.0 0.9 1.7 0.8 0.6 48.1 54.1 (3.4) 9.9 (13.3) 0.0 (13.3) 2004 54.8 31.2 26.5 2.9 6.8 2.2 1.1 1.8 1.0 0.7 48.1 54.9 (0.1) 11.7 (11.8) 0.0 (11.8) 2005a 59.2 33.7 28.6 3.1 7.7 2.4 1.2 2.0 1.2 0.9 48.1 55.8 3.4 6.3 (2.9) 0.0 (2.9)

Appendix 8

Net Profit after Income Tax 0.0 0.0 As of 31 October 2005. Source: Guangxi Communications Department.

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

Item Current Assets Cash Accounts Receivable Inventories and Others Fixed Assets Gross Assets in Operation Less: Accumulated Depreciation Net Assets in Operation Construction in Progress Total Assets Current Liabilities Asian Development Bank Loan Capital Paid-In Capital Retained Earnings Total Liabilities and Capital
a

1995 0.9 0.9 0.0 0.0 2.1 0.0 0.0 0.0 2.1 3.0 0.0 0.0 3.0 3.0 0.0 3.0

1996 0.0 0.0 0.0 0.0 303.3 0.0 0.0 0.0 303.3 303.3 0.3 0.0 303.0 303.0 0.0 303.3

1997 0.0 0.0 0.0 0.0 778.2 0.0 0.0 0.0 778.2 778.2 2.2 43.0 733.0 733.0 0.0 778.2

1998

1999

2000

2001

2002

2003

2004

2005a

17.0 27.5 51.2 65.0 92.6 123.6 155.8 54.2 13.2 23.6 47.6 53.9 89.2 120.2 152.4 50.8 0.5 1.1 0.5 1.4 2.0 2.0 2.0 2.0 3.3 2.8 3.1 9.7 1.4 1.4 1.4 1.4 949.5 952.9 930.9 896.1 848.0 799.8 751.7 703.6 985.5 1,027.4 1,048.7 1,061.9 1,061.9 1,061.9 1,061.9 1,061.9 36.0 74.5 117.8 165.8 213.9 262.1 310.2 358.3 949.5 952.9 930.9 896.1 848.0 799.8 751.7 703.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 966.5 980.4 982.1 961.1 940.6 923.4 907.5 757.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 142.0 157.6 163.8 159.3 154.7 150.9 146.8 0.0 824.5 822.8 818.3 801.8 785.9 772.5 760.7 757.8 827.0 827.0 827.0 827.0 827.0 827.0 827.0 827.0 (2.5) (4.2) (8.7) (25.2) (41.1) (54.5) (66.3) (69.2) 966.5 980.4 982.1 961.1 940.6 923.4 907.5 757.8 Appendix 8

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

49

50

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

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

Appendix 8

Sources of Funds Funds from Operations Operating Profit (Loss) Add-Back Depreciation Capital from GCD and MOC ADB Loan Application of Funds Capital Expenditure Change in Working Capital Debt Service ADB Loan Interest ADB Loan Repayment Income Tax Paid

3.0 300.0 473.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

226.5 33.6 (2.4) 36.0 94.0 98.9 213.3 207.3 6 0.0 0.0 0.0 0.0

52.3 36.7 (1.8) 38.5 0.0 15.6 41.9 41.8 0.1 0.0 0.0 0.0 0.0

49.1 38.8 (4.5) 43.3 0.0 10.3 25.1 21.3 (0.3) 4.1 0.0 4.1 0.0

39.8 39.8 (8.3) 48.1 0.0 0.0 33.6 13.2 7.5 12.9 8.4 4.5 0.0

42.4 42.4 (5.7) 48.1 0.0 0.0 7.1 0.0 (7.8) 14.9 10.2 4.7 0.0

44.7 44.7 (3.4) 48.1 0.0 0.0 13.7 0.0 0.0 13.7 9.9 3.8 0.0

48.0 48.0 (0.1) 48.1 0.0 0.0 15.8 0.0 0.0 15.8 11.7 4.1 0.0

51.5 51.5 3.4 48.1 0.0 0.0 153.1 0.0 0.0 153.1 6.3 146.8 0.0

3.0 300.0 430.0 0.0 0.0 43.0 2.1 300.9 473

2.1 301.2 474.9 0.0 (0.3) (1.9) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net Cash Flow Cash at Beginning Cash at End

0.9 0.0 0.9

(0.9) 0.9 0.0

0.0 0.0 0.0

13.2 0.0 13.2

10.4 13.2 23.6

24.0 23.6 47.6

6.2 47.6 53.8

35.3 53.8 89.1

31.0 89.1 120.1

32.2 (101.6) 120.1 152.3 152.3 50.7

Debt Service Ratio (not covenanted)

9.5

3.1

2.8

3.3

3.0

0.3

ADB = Asian Development Bank, GCD = Guangxi Communications Department, MOC = Ministry of Communications. As of 31 October 2005. Source: Guangxi Communications Department.

MANAGEMENT RESPONSE TO THE PROJECT PERFORMANCE EVALUATION REPORT FOR THE FANGCHENG PORT PROJECT IN THE PEOPLES REPUBLIC OF CHINA (Loan 1427-PRC)

On 8 June 2006, the Director General, Operations Evaluation Department, received the following response from the Managing Director General on behalf of Management:

1. Management finds OEDs Project Performance Evaluation Report (PPER) well prepared, with comprehensive analysis of the project and its implementation. The lessons learned provide valuable guidance for designing future loan projects in the PRC and elsewhere. Management response focuses on the overall assessment and the lessons learned. A. Overall Assessment and Key Issues

2. We note that the PPER has addressed key achievements of the Project including (i) significant policy reform, with greater autonomy for port operators and enhanced commercialization and competition in the sector; (ii) advance commencement of the highway operations; (iii) significant increase of the port capacity; and (iv) an economic internal rate of return (EIRR) of 20% for overall project, compared with the Project Completion Report (PCR) figure of 17.9%. The PPER has mentioned that the contribution of the expressway to the expansion of the ports capacity and improvement of the ports efficiency is lesser than expected due to the large capacity of the highway relative to actual traffic and inappropriate traffic forecasts. Accordingly, the PPER has considered the overall project rating successful compared with the highly successful rating of the PCR due to the Project highway design issues. 3. The PPER has stressed that the Project is not unique in having incorrect traffic forecasts, as demonstrated by a number of recent PCRs for other projects in the PRC. The PPER also highlighted the problem of road safety. 4. Traffic forecast is a common issue for all ADB-financed projects, which commenced in the 1990s in the PRC. Regarding the Project highway, the main reason is that the highway is part of the National Trunk Highway System (NTHS), and the Government started its NTHS implementation in the 1990s, subject to the availability of funds. The implementation of the Project highway was advanced due to the availability of funds for the port, while all key provincial expressways of the NTHS were either under preparation or construction. And this, like other projects in the PRC, had significant impact on the full operation of the highway in 2002 and 2003. With the current completion of several expressways, which have linked the whole project area with the western region provinces and internationally, together with future completion of the existing projects, it is anticipated that the traffic volume of the highway will witness a significant increase. The PPERs 2004 figure of over 9,000 vehicles per day, which are using the Project highway of the small poor town of Fangcheng, is evidence of the traffic growth and validates the need for the appropriate highway capacity.

5. We believe the expressway design was appropriate. Designing of lower class Project highway would have great disadvantages at efficiency and safety levels. This is why the highway was designed with two-lane access to accommodate future demand, maintain consistency with NTHS standards of the NTHS, and ensure efficiency. This is also the most cost-effective approach as it is cheaper than building a new highway, or widening the Project highway, in future, to accommodate travel demand. Building a high-standard highway has significant impact on road safety improvement, and the number of accidents has gone down with the opening of the new expressway. Further, road safety is not as much a project-related issue as an issue that needs to be addressed with a holistic approach at the national level. ADB is providing TA support for the Governments efforts in this area, and is working closely with different executing agencies to adopt safetyconscious approach for road planning, design, and operation. 6. While we agree with the PPER observations, we believe that many of the issues raised in the PPER are not project-specific, but are larger issues that ADB is engaging through policy dialogue and TA interventions at the national level. B. Lessons Learned and Follow-up Action

7. We agree with the lessons identified in the PPER. The mix of vehicle type is an important issue in forecasting traffic, and we have taken note of this issue in processing current projects. We also agree with the observation on the importance of baseline information and records that can be used for project reviews at a later date, and have taken action for ensuring this in our ongoing and future projects. 8. We also note the suggested follow up action on the toll rates. We wish to inform that a Toll Diversion Model-Applications Manual was developed through a technical assistance grant jointly with the Ministry of Communication in September 2000, and is currently being used for our operations. The issue of appropriate levels for tolls, and their effect on traffic diversion, will be discussed with Guangxi Communications Department in policy dialogue during the development of the proposed Guangxi Longlin-Baise expressway project, for which the PPTA was recently approved. C. Conclusions

9. Management agrees with the reports conclusion that the relevance of the Project to development needs and to the Government and ADB strategies is good, and the outputs were generated and the Project achieved its intended outcomes. We also agree that the investment was economically efficient and the probability of sustainability is high. We also take note of the issue of inaccurate traffic demand estimation and the road safety, and wish to advise that actions have been and are still being taken to address these two issues in our current and future operations.