Document of The World Bank Report No: ICR00002277 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-30050 TF-22024 TF-56833) ON A CREDIT IDA 30050 IN THE AMOUNT OF SDR 22.2 MILLION (US$ 30.3 MILLION EQUIVALENT) AN ITALIAN GRANT TF 22024 IN THE AMOUNT OF US$ 21.0 MILLION AND AN EU GRANT TF 56833 IN THE AMOUNT OF EUR 13.2 MILLION (US$ 20 MILLION EQUIVALENT) TO THE STATE OF ERITREA FOR A PORTS REHABILITATION PROJECT December 27, 2012 Transport Sector Country Department AFCE2 Africa Region CURRENCY EQUIVALENTS (Exchange Rate Effective December 31, 2011) Currency Unit = Eritrean Nakfa (ERN) SDR 1.00 = US$ 1.54 US$ 1.00 = ERN 15 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy DCA Development Credit Agreement DMT Department of Maritime Transport EC European Commission EIA Environmental Impact Assessment EIRR Economic Internal Rate of Return EMPs Environmental Management Plans ESIA Environmental and Social Impact Assessment EU European Union FM Financial Management FY Fiscal Year GDP Gross Domestic Product GOE Government of Eritrea ICB International Competitive Bidding ICR Implementation Completion Report IDA International Development Agency ILO International Labours Organization IMO International Maritime Organization ISN Interim Strategy Note LCB Local Competitive Bidding M&E Monitoring and Evaluation MPA Massawa Port Administration MTC Ministry of Transport and Communication MTR Mid-Term Review NCB National Competitive Bidding NPV Net Present Value PCU Project Coordination Unit PDO Project Development Objectives PDP Portworker Development Program PIP Project Implementation Plan PPF Project Preparation Facility QAG Quality Assurance Group QEA Quality at Entry Assessment QPR Quarterly Progress Reports QSA Quality of Supervision i SAR Staff Appraisal Report SDR Special Drawings Rights SIL Specific Investment Loan TA Technical Assistance TEU Twenty Foot Equivalent Unit (containers) TF Trust Fund Vice President: Makhtar Diop Country Director: Johannes Zutt Sector Director: Jamal Saghir Sector Manager: Supee Teravaninthorn Project Team Leader: Josphat O. Sasia ICR Team Leader: Josphat O. Sasia ii COUNTRY Project Name CONTENTS Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph 1. Project Context, Development Objectives and Design ................................................. 2. Key Factors Affecting Implementation and Outcomes ................................................ 3. Assessment of Outcomes .............................................................................................. 4. Assessment of Risk to Development Outcome............................................................. 5. Assessment of Bank and Borrower Performance ......................................................... 6. Lessons Learned ........................................................................................................... 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .............. Annex 1. Project Costs and Financing .............................................................................. Annex 2. Outputs by Component ..................................................................................... Annex 3: Detailed Completion Status by Components Annex 4. Economic and Financial Analysis ..................................................................... Annex 5. Bank Lending and Implementation Support/Supervision Processes ................ Annex 6. Beneficiary Survey Results ............................................................................... Annex 7. Stakeholder Workshop Report and Results....................................................... Annex 8. Summary of Borrower's ICR and/or Comments on Draft ICR ......................... Annex 9. Comments of Cofinanciers and Other Partners/Stakeholders ........................... Annex 10. List of Supporting Documents ........................................................................ MAP iii A. Basic Information ER-Ports Rehab SIL Country: Eritrea Project Name: (FY98) IDA-30050,TF- Project ID: P034154 L/C/TF Number(s): 22024,TF-56833 ICR Date: 12/20/2012 ICR Type: Core ICR Lending Instrument: SIL Borrower: GOE Original Total USD 30.30M Disbursed Amount: USD 24.68M Commitment: Revised Amount: USD 23.18M Environmental Category: A Implementing Agencies: MTC (Department of Maritime Transport) Cofinanciers and Other External Partners: ITALY European Union B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 08/29/1995 Effectiveness: 03/02/1998 03/02/1998 04/20/2000 Appraisal: 03/27/1996 Restructuring(s): 06/30/2008 09/30/2008 Approval: 11/18/1997 Mid-term Review: Closing: 06/30/2002 12/31/2011 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: High Bank Performance: Moderately Satisfactory Borrower Performance: Moderately Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Moderately Satisfactory Government: Moderately Satisfactory Implementing Quality of Supervision: Moderately Satisfactory Moderately Satisfactory Agency/Agencies: Overall Bank Overall Borrower Moderately Satisfactory Moderately Satisfactory Performance: Performance: iv C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments (if Indicators Rating Performance any) Potential Problem Project Quality at Entry Yes None at any time (Yes/No): (QEA): Problem Project at any time Quality of Supervision Yes Satisfactory (Yes/No): (QSA): DO rating before Satisfactory Closing/Inactive status: D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration 1 1 Ports, waterways and shipping 97 97 Solid waste management 2 2 Theme Code (as % of total Bank financing) Infrastructure services for private sector development 67 67 Pollution management and environmental health 33 33 E. Bank Staff Positions At ICR At Approval Vice President: Makhtar Diop Callisto E. Madavo Country Director: Johannes C.M. Zutt Oey Astra Meesook Sector Manager: Supee Teravaninthorn Yusupha B. Crookes Project Team Leader: Josphat O. Sasia Sture B. Karlsson ICR Team Leader: Josphat O. Sasia ICR Primary Author: Sevara Melibaeva Yoshimichi Kawasumi F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The objectives of the Project are to: (a) address the urgent port capacity requirement of the Borrower up to the year 2005; (b) optimize the use of existing facilities by rehabilitating and upgrading the two ports of Massawa and Assab; and (c) increase substantially the productivity and capacity of the two ports to international standards. Following the conflict with Ethiopia and the loss of Ethiopian transit traffic through Assab (which accounted for 97% of the port's traffic), the project was restructured to cease further v project activities at Assab and to utilize the savings for a second phase of Massawa Port rehabilitation and capacity enhancement in conjunction with ongoing productivity initiatives. Revised Project Development Objectives (as approved by original approving authority) The revised Project Development Objective is to increase the productivity and capacity of Port Massawa. (a) PDO Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1 : Bulk Cargo increased Value quantitative or 850 1,100 1,100 1,325 Qualitative) Date achieved 03/27/1996 11/19/1997 09/30/2008 12/31/2009 Comments (incl. % 100 % achieved. achievement) Indicator 2 : Bagged Cargo increased Value quantitative or 900 1,200 1,200 1,154 Qualitative) Date achieved 03/27/1996 11/19/1997 09/30/2008 12/31/2009 Comments (incl. % 96% achieved. achievement) Indicator 3 : Break Bulk increased Value quantitative or 170 260 260 257 Qualitative) Date achieved 03/27/1996 11/19/1997 09/30/2008 12/31/2010 Comments (incl. % 99% achieved. achievement) Indicator 4 : Containers TEU/hr increased Value quantitative or 3 6 12 8 Qualitative) Date achieved 03/27/1996 11/19/1997 09/30/2008 12/31/2009 Comments (incl. % 67% achieved. achievement) Indicator 5 : Berth Occupancy (%) improved Value quantitative or 70 67 67 52 Qualitative) Date achieved 03/27/1996 11/19/1997 09/30/2008 12/31/2010 vi Comments (incl. % 120% achieved. achievement) (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised Target approval Completion or Values documents) Target Years Indicator 1 : Expand Container terminal Value Container Container terminal (quantitative 0 Not revised terminal expanded or Qualitative) expanded Date achieved 03/27/1996 11/19/1997 09/30/2008 12/31/2011 Comments 100% achieved. Indicator was not included in the original SAR, but was added at the (incl. % restructuring during Midterm Review in December 1999. achievement) Indicator 2 : Extend berths 3 and 4 Value Berths 3 and 4 Berths 3 and 4 (quantitative 0 Not revised extended extended or Qualitative) Date achieved 03/27/1996 11/19/1997 09/30/2008 12/31/2011 Comments 100% achieved. Indicator was not included in the original SAR, but was added at the (incl. % restructuring during Midterm Review in December 1999. achievement) Indicator 3 : Improve Massawa causeways Value Causeways (quantitative 0 N/A causeways improved improved or Qualitative) Date achieved 03/27/1996 11/19/1997 09/30/2008 12/31/2011 Comments 100% achieved. Indicator was not included in the original SAR, but was added at the (incl. % restructuring during Midterm Review in December 1999. achievement) Indicator 4 : Construct a new oil jetty Value New oil jetty (quantitative 0 N/A Contract Terminated constructed or Qualitative) Date achieved 03/27/1996 11/19/1997 09/30/2008 12/31/2011 Comments Not achieved. Indicator was not included in the original SAR, but was added at the (incl. % restructuring in 2008. achievement) Indicator 5 : Repair existing oil jetty Value Existing oil Existing oil jetty (quantitative 0 N/A jetty repaired repaired or Qualitative) Date achieved 03/27/1996 11/19/1997 09/30/2008 12/31/2011 Comments 100% achieved. Indicator was not included in the original SAR, but was added at the (incl. % restructuring in 2008. achievement) vii Indicator 6 : Procure new cargo handling & environment equipment (%) Value (quantitative 0 100 Not revised 100 or Qualitative) Date achieved 03/27/1996 11/19/1997 09/30/2008 12/31/2011 Comments (incl. % 100% achieved. achievement) Indicator 7 : Improve staff skills in environmental operating practices and cargo handling Staff skill Value Staff skill improved improved (quantitative No training N/A through training by through training or Qualitative) TA by TA Date achieved 03/27/1996 11/19/1997 09/30/2008 12/31/2011 Comments 100% achieved. Indicator was not included in the original SAR, but was added at the (incl. % restructuring in 2008. achievement) Indicator 8 : Port Massawa meets international environmental management standards International International Value standards standards achieved (quantitative None N/A achieved and and contingency plan or Qualitative) contingency in place plan in place Date achieved 03/27/1996 11/19/1997 09/30/2008 12/31/2011 Comments 100% achieved. Indicator was not included in the original SAR, but was added at the (incl. % restructuring in 2008. achievement) G. Ratings of Project Performance in ISRs Date ISR Actual Disbursements No. DO IP Archived (USD millions) 1 06/22/1998 Satisfactory Satisfactory 0.50 2 12/11/1998 Unsatisfactory Satisfactory 1.83 3 06/29/1999 Unsatisfactory Satisfactory 10.95 4 12/16/1999 Satisfactory Satisfactory 13.52 5 06/06/2000 Satisfactory Unsatisfactory 14.36 6 06/09/2000 Satisfactory Unsatisfactory 14.36 7 10/25/2000 Satisfactory Satisfactory 14.42 8 04/18/2001 Satisfactory Unsatisfactory 14.43 9 10/04/2001 Satisfactory Unsatisfactory 14.45 10 03/25/2002 Satisfactory Satisfactory 14.47 11 09/30/2002 Satisfactory Satisfactory 14.54 12 04/10/2003 Satisfactory Unsatisfactory 14.60 13 05/30/2003 Satisfactory Unsatisfactory 14.60 14 12/02/2003 Satisfactory Unsatisfactory 14.66 15 12/03/2003 Satisfactory Satisfactory 14.66 16 05/20/2004 Satisfactory Satisfactory 15.26 17 06/01/2004 Satisfactory Satisfactory 15.27 viii 18 09/20/2004 Satisfactory Unsatisfactory 16.07 19 03/19/2005 Satisfactory Unsatisfactory 18.31 20 10/05/2005 Satisfactory Unsatisfactory 20.00 21 12/31/2005 Satisfactory Unsatisfactory 20.57 22 06/20/2006 Satisfactory Moderately Satisfactory 22.06 23 12/26/2006 Satisfactory Satisfactory 22.53 24 05/11/2007 Satisfactory Satisfactory 22.83 25 12/07/2007 Satisfactory Satisfactory 22.95 26 06/26/2008 Satisfactory Moderately Satisfactory 23.73 27 08/20/2008 Satisfactory Moderately Satisfactory 23.73 28 12/19/2008 Satisfactory Satisfactory 23.85 29 06/27/2009 Satisfactory Moderately Satisfactory 23.95 30 12/18/2009 Satisfactory Moderately Satisfactory 23.95 31 06/28/2010 Satisfactory Moderately Satisfactory 23.96 32 01/04/2011 Satisfactory Moderately Satisfactory 24.01 33 09/24/2011 Satisfactory Moderately Satisfactory 25.05 H. Restructuring (if any) ISR Ratings at Amount Board Restructuring Restructuring Disbursed at Reason for Restructuring & Key Approved PDO Date(s) Restructuring Changes Made Change DO IP in USD millions The border was closed during 1999-2001 and the tightened security constraints that followed subsequently made it difficult to carry out any of the project activities. As a result, during the Mid-Term Review (December 1999), the scope of the project components was revised by shifting the focus to only the Massawa Port, given the absence of traffic in the Assab Port. The Development Credit Agreement 04/20/2000 N S S 14.35 (DCA) and the Italian Grant Agreement were consequently amended to accommodate these developments, and the closing date for the Italian Grant was extended three times: to June 30, 2004, then to September 30, 2006, and later to January 31, 2007. For the DCA, closing date was extended twice: to June 30, 2005 and then to June 30, 2007. The project restructuring was not however processed formally until September 2008 ix ISR Ratings at Amount Board Restructuring Restructuring Disbursed at Reason for Restructuring & Key Approved PDO Date(s) Restructuring Changes Made Change DO IP in USD millions The Credit closing date was extended again to September 30, 2008 for the same reasons described above, i.e. the adverse 06/30/2008 N S MS 23.73 impact of the country's high security and fragile conditions during the post-conflict period on the project implementation. Responding to the post-border conflict situation, the project was restructured formally, including revision of development objectives to reflect the shift in the project focus on Massawa Port solely. The components related to the Assab Port were officially dropped and replaced with a component for improvement of Causeways, emergency repairs, and 09/30/2008 N S MS 23.85 construction of a new Hirgigo Bay Oil Jetty in the Massawa Port along with strengthening of environmental aspects of the project. The co-financing from the EU was brought on board in 2006 to support the newly added activities. Consequently, to allow sufficient time to complete the newly introduced activities, the Credit closing date was extended to December 31, 2011. x US S Millions ... "' "' .,. = = = = = 1999 Ql 1, I I "'"'R ', -..;, I 2000 Ql "'"' \ \ 2001 Ql- \ I. Disbursement Profile I I 2002 Ql- I ~ 0 I .Q' 2003 Ql- I ;;· I ~ I 2004 Ql- I I I 2005 Ql- I ~ \ 3 xi \ ~ 2006 Ql- \ \ < ~'...., ~ 2007 Ql- , "' < \ ', ;:;;· ~ I ',, .. 2008 Ql- I ', \ \ '• • 2009 Ql - I • )> • I • • • 2010 Ql- I \ • • a ~ \ • . \ •• 2011 Ql - \ • ' • .\ \ ' 2012 Ql - \ \ I : I : 2012 Q3- I : I : I : 2012 Q4 • 1. Project Context, Development Objectives and Design 1. The Ports Rehabilitation Project was a pioneer project in Eritrea financed by the World Bank after Eritrea had gained its independence in 1993. The project was initially designed to address the country’s infrastructure, severely damaged by the war, and substantially increase the productivity and capacity of two ports – Massawa and Assab. A Bank-managed Trust Fund (TF) financed by the Government of Italy was applied to close a project financing gap in the amount of US$ 21 million. The Government of Netherlands provided parallel funding through a Grant under the ORIET-Millieve Program. The project originally intended to provide financial and technical assistance required to rehabilitate and upgrade the two ports, optimizing the use of existing facilities, and to raise the quality and level of port operational services to the international standards. 2. However, two months after the project’s effectiveness the border conflict broke out between Eritrea and Ethiopia (in May 1998), culminating into a full-fledged war during 1999- 2000, which had major implications on the project implementation and the performance of both ports. The closure of the border during 1999-2001 and the tightened security measures that followed subsequently made it difficult to carry out any project activities. With the border conflict, the operations at the Port Assab ceased completely, and the Port of Massawa remained as the major port for import and export of Eritrean cargo, though its total cargo throughputs continued to decline. The project implementation did not resume until two years after effectiveness. 3. The delay in implementation and the cessation of Assab’s operations resulted in a modification of the original project design of the project. Consequently, as part of the Mid-Term Review (MTR) in December 1999, all Assab-related activities were removed and the funds reallocated to support more improvements to the Massawa Port, given the absence of operations in the Assab Port1. 4. All Port Massawa activities including those added at the time of the MTR, had been already completed successfully by the end of 2008, and the project could have been closed. However, in 2008, responding to a critical condition of the oil jetty in Massawa and the urgent need of the Government of Eritrea (GoE) to prevent its collapse, the team, in cooperation with the European Union (EU), decided to support the financing of the emergency repairs of the oil jetty and the construction of a new oil jetty under the project. As a result, the project was restructured2 and the closing date was extended to December 31, 2011. The restructuring also included formal revision of the Project Development Objective (PDO) by shifting its focus entirely to the Massawa Port. The Bank team saw adding the new activity and extending the existing project as a way of utilizing the project savings (in the amount of US$ 8.1 million equivalent of International Development Association [IDA] Credit) and as the only possible immediate solution to addressing the emergency situation in regards to the oil jetty. The TF Grant from the EU provided the co-financing to help close the financing gap for the new activity 1 At that time, under the World Bank procedures, the MTR was considered sufficient to restructure a project. 2 Under the changed Bank Procedures, this restructuring followed approval of a Restructuring Paper. 1 (in the amount of EUR 13.23 million3). The EU-funding was provided with the agreement that the Bank would supervise the implementation of the agreed activities. 5. The emergency repairs of the existing oil jetty were completed in November 2008. The contract for the new oil jetty construction was awarded in May 2010, but the works were terminated unilaterally by the Government of Eritrea (GOE) on September 8, 2011 without prior notice to or consultation with the Bank due to unsatisfactory performance of the Contractor. Despite the advice and guidance of the Bank and the EU to extend the closing date to complete the new oil jetty, the GoE made a decision to close the project due to uncertainty on the duration of the dispute with the contractor. The IDA Credit and the EU Grant were closed on December 31, 2011. The IDA Credit reached a disbursement ratio of 79 percent of original credit (SDR 4.7 million, US$ 7.3 million equivalent, was cancelled), and the EU Grant was disbursed 45 percent (EUR7.24 million, US$ 9.38 million equivalent, was cancelled). The Italian Grant was closed on January 31, 2007, after achieving a disbursement ratio of 99 percent of original allocated amount (only US$ 208,877 was cancelled). The GOE reimbursed the undisbursed amounts, and the respective special accounts were closed. 1.1 Context at Appraisal 6. Eritrea is located in the northeast of Africa, with a 1000 kilometer (km) coastline on the Red Sea. Eritrea's population is estimated to be in the range of 6 million as of end 2011. A large share of the population - nearly 80 percent - is engaged in subsistence agriculture, producing only a small share of total output. The border conflict and continued tension with Ethiopia had a negative impact on the availability of foreign currency in the country and limited private enterprise activities. Gross Domestic Product (GDP) for Eritrea at official exchange rate is estimated at US$ 2.6 billion (2011) with 8.2 percent real growth rate (2011 estimate). GDP per capita is estimated at US$ 700 (source: 2012 CIA World Fact Book). 7. The transport sector is essential for the Eritrean economy and is one of the most important sources of foreign exchange earnings. The transport infrastructure in the country was severely damaged during the long war for independence, posing a major obstacle for the country’s growth, especially by limiting access of producers to the markets. Ports and roads are seen as the main constraints and priorities for improvement. 8. The port of Massawa suffered from the damages incurred during the 30 years (until 1991) of Independence War with Ethiopia. The damages were exacerbated by the collapse of about 40 meters of the block work quay wall at the junction of berths 5 and 6 in 1978. The performance of the ports further declined due to the lack of maintenance and spare parts. The level of traffic volume handled through Massawa and Assab was increasing during the years after independence until early 2000s. Most of this traffic volume was transit traffic to and from Ethiopia. At the time of appraisal, the poor condition and resulting low capacity of, especially the facilities at both ports, were not appropriate for handling the known traffic volume increases, especially the growing container volumes. 3 This amount excludes the administrative expenses of the multi-donor TF by the Bank (the total EU pledge amounted to EUR 13.5 million). 2 1.2 Original Project Development Objectives (PDOs) and Key Indicators 9. The original PDOs as stated in the Development Credit Agreement (DCA) were the following: (i) address the urgent port capacity requirements of the Borrower up to the year 2005; (ii) optimize the use of existing facilities by rehabilitating and upgrading the two ports of Massawa and Assab; and (iii) increase substantially the productivity and capacity of the two ports to international standards. The PDOs stated in the DCA, Staff Appraisal Report’s (SAR) main text, and SAR’s Annex 6 differ slightly in its formulation across the three documents. The PDOs and key indicators at the time of approval as per Annex 6 of SAR were as follows: Table 1: PDOs and Key Project Indicators OBJECTIVES OUTPUT OUTCOME AND IMPACTS Optimize the use of existing • clearance and rationalization of • reduction of ships waiting. and facilities and to rehabilitate and cargo working areas; and service time; develop the port infrastructure in • repair and extension of berths 5 • reduction of cargo dwell time Massawa port and 6 To increase the productivity of and • rehabilitation of equipment; • improvements in cargo handling capacity of the two ports • provision of new cargo handling rates as per tables below equipment for handling containerized traffic Improve operating practices at the • provision of consultancy • new procedures for handling and two ports regarding control of and services, equipment and facilities, storage of hazardous cargo to be discharge of bilge water and solid and training introduced; and waste from ships • a national oil spill contingency plan for Eritrea established 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 10. Revised PDO: As a result of the border conflict with Ethiopia, which broke out two months after the project effectiveness, delayed the implementation closed the border with Ethiopia that led to the loss of traffic in Assab port, it became necessary to redesign the project in line with the outcomes of the December 1999 MTR. The revised PDO was subsequently confirmed during the September 2008 restructuring to the following: “To increase productivity and capacity of Port Massawa.� 11. Revised key indicators: At the time of restructuring in September 2008, some of the Outcome Indicators for Massawa Port activities included in the original SAR, as shown below, were retained, while other indicators related to “waiting, services and dwell time� and “hazardous cargo and oil spill� were dropped. In regards to the Intermediate Results Indicators, the Indicators-1 (c)-(e) below were introduced as new, whereas the Intermediate Results Indicators-2 remained original as set in the SAR. The indicator targets were broadly attained, except for the construction of a new oil jetty, which was terminated by the GoE. 3 Table 2: Key Project Indicators Outcome Indicators Intermediate Results Indicators-1 Intermediate Results Indicators-2 Improved cargo handling rates (measured Completing Civil Works of: Equipment and Environments in tons of cargo loaded or unloaded/ship Training day) through: (a) Bulk Cargo increased from 850 to (a) Expand Container terminal; (a) Procure new cargo handling and 1,100; (b) Extend berths 3 and 4; environment equipment; (b) Bagged Cargo increased from 900 to (c) Improve Massawa causeways; (b) Improve staff skills in 1,200; (d) Construct a new oil jetty; and environmental operating practices (c) Break Bulk increased from 170 to 260; (e) Repair existing oil jetty and cargo handling; and (d) Containers TEU/hr increased from 3 to (c) Port Massawa meets international 12; and environmental management (e) Berth Occupancy (%) improved from standards 70% to 67%. 1.4 Main Beneficiaries 12. Original in SAR: The original SAR briefly refers to “Ports of Massawa and Assab� as the “Beneficiaries� of this project in its first page, titled “Credit and Project Summary�. No other place in SAR mentions directly about the “Beneficiaries�. However, the Letter of Sector Policy attached to the SAR addresses that the “Eritrea's Macro-Economic policy states that this country aims to become a trading nation, the future prosperity of the people will depend on Eritrea's international trade. As a matter of pre-condition to achieving this aim, there is need, alongside other indispensable measure, to rehabilitate the facilities of the ports of Massawa and Assab, to improve their performance, and make them competitive as well as addressing environmental issues.� (Quoted from SAR Annex 4 Letter of Sector Policy dated Oct. 17, 1997). 13. The revised Beneficiaries: In the Project Paper dated September 16, 2008, the Beneficiaries were revised mainly to “Port Massawa�. Furthermore, as a result of restructuring the project was expected to support Eritrea’s efforts to secure supply of oil to the country’s economy at relatively lower costs, as well as to mitigate the risk of a potential environmental disaster in the event of the existing jetty collapse leading to oil spillage. The capacity of the proposed new oil jetty was expected to be significantly greater to permit bigger tankers to call at the port reducing the shipping costs per ton. Considering the above, this project’s direct beneficiaries continue being “the national economy as a whole� through improved port facilities, efficiency, and security. 1.5 Original Components 14. The project was funded by an IDA Credit of SDR22.20 million (equivalent to US$ 30.3 million at the time of appraisal), with co-financing from an Italian Grant of US$ 21 million, administered by the World Bank as a TF. Both funding sources had identical development objectives and disbursement categories, except that the Italian TF was limited to expenditures related to the Massawa Port only. The IDA Credit covered both Massawa and Assab Ports. 15. The project’s original design and scope comprised five components, namely: (i) civil works (US$18.65 million) in Massawa Port only; (ii) cargo handling equipment (US$22.65 million) for both Assab and Massawa Ports; (iii) environment (US$1.6 million) for both ports; (iv) training (US$0.6 million); and (v) consultancy services (US$4.5 million). 4 16. Civil Works (US$ 18.65 million - basic costs). This consisted of the following, all in Massawa Port: (i) rehabilitation and extension of berths 5 and 6; (ii) dredging in front of the new berth 6; (iii) reclamation of land behind berth 6; (iv) heavy duty pavement for the new container stacking yard; (v) clearing of the apron and storage areas adjacent to berths 5 & 6; (vi) rehabilitation of the electrical and storm drainage systems; (vii) building for the port administration and customs authorities; and (viii) a workshop, an equipment shed and improvements to warehouses in the port. 17. Cargo Handling Equipment (US$ 22.65 million). Most of the equipment included in this component was for handling of containers for two ports to improve operational efficiency and services provision. 18. Environment (US$ 1.6 million). Operating practices regarding facilities and equipment estimated at US$ 800,000 for each of the two ports were included to improve handling of hazardous cargo, as well as control of discharge of bilge water, solid waste from ships and oil spill combat equipment including support for formulation of a National Oil Spill Contingency Plan with assistance from the International Maritime Organization (IMO). 19. Training (US$ 0.6 million). Training programs in the fields of port operations and equipment maintenance, including overseas training at recognized international institutes and/or at overseas ports, and project management costs for the Project Coordination Unit (PCU). 20. Consultancy Services (US$ 4.5 million). This included (i) works supervision at Massawa Port; (ii) short term experts for equipment and spare parts procurement; (iii) specific studies on maritime & port legislation, Management Information Systems (MIS), cost accounting, tariff analysis and commercialization of port activities; (iv) a study on long term development plan of the port sector; and (v) short-term technical advisory services in port management & operations and equipment maintenance. 1.6 Revised Components 21. During the MTR, an agreement was reached on the modifications to the original project components as a response to the two year delay in project implementation, the cessation of Assab’s operations and the continued border tensions between Eritrea and Ethiopia. During the restructuring of September 2008, the previous revisions were confirmed and new activities were introduced as a response to the risk of collapse of the oil jetty in Massawa. 22. Components as revised during the December 1999 MTR: Due to the border conflict, the team revised the project scope by dropping the Assab-related sub-components and focusing entirely on the improvements in the Massawa Port. The other original activities pertaining to Massawa Port remained unchanged, except the construction of a new building for the port administration and customs authorities, which were dropped in line with the recommendations of the Technical Assistance (TA) on port management to secure free space in the port. Also, the following two new activities were added: (i) improvement of Massawa causeways at Sigalet and Dahlak, expansion of the container terminal, and purchase of additional port equipment; and (ii) Phase II rehabilitation works in Massawa Port, which included the rehabilitation of pavement 5 with concrete blocks behind berths 3-5, rehabilitation of port road network inclusive of new internal access roads, railing construction for 15-ton shore cranes, fencing around the container terminal area, raising of the sea walls to protect container stacking yard, construction of lighting towers, and rehabilitation of the water tower. 23. These revisions to the project were introduced as part of the MTR in December 1999, as at that time, under the World Bank procedures the MTR was considered sufficient to restructure a project. Accordingly, the IDA and the Italian Grant were amended to accommodate these new developments, and the closing dates for both instruments were extended to September 30,2006 and later to January 31, 2007 and for the DCA thereafter to September 30, 2008 through three temporary extensions pending a restructuring. 24. Components revised at 2008 restructuring: Since the Assab oil refinery and oil jetties have since long stopped operations, the fuel supply has been handled at Massawa. The existing oil jetty, built during the later periods of the Italian occupation of Eritrea, was in poor condition facing imminent collapse – which could lead to disruption of fuel supply as well as deleterious environmental damage. The new activities were added to the project, such as (i) the construction of a new oil jetty (under a Design & Build contract method) to replace the existing one and (ii) the emergency repairs of the existing oil jetty to extend its service life until replacement. In addition, the project closing date was extended to December 31, 2011 and the informal revisions made to the project during MTR were formalized in 2008. 1.7 Other significant changes 25. Financing arrangement: The original Project cost was estimated at US$57.6 million in the initial project design. IDA's contribution was US$ 30.3 million (53 percent of the total project cost). Italy co-financed US$21 million of the cost of the Massawa components under an untied grant. The State of Eritrea financed the local component of the project, equivalent to US$ 6.3 million. To allow the completion of the activities, the Italian TF was extended three times: to June 30, 2004, then to September 30, 2006, and later to January 31, 2007. 26. At the time of restructuring in September 2008, most of the project activities (including those added at the time of the MTR) were completed. The EU Grant Agreement for EUR 8.5 million was signed by IDA on July 7, 2006 and countersigned by the Government on August 7, 2006, which was later amended in December 30, 2008, increasing the Grant amount to EUR 13.23 million 4 towards co-financing of the construction of the new oil jetty and extending the closing date to December 31, 2011, with an end disbursement date of April 30, 2012 (project financing details are provided in Annex 1). 27. Termination of Construction of New Oil Jetty: The emergency repair of the existing oil jetty was completed in November 2008; the new oil jetty construction works were awarded in May 2010; and the Contractor commenced works in December 2010. But, the construction works on the new oil jetty were terminated by the GOE due to unsatisfactory performance of the Contractor. The GoE decided not to request an extension of the closing date of neither the IDA 4 This amount excludes the administrative expenses of the multi-donor TF by the Bank. 6 credit nor the EU Grant, as the government was uncertain how long the respective contractual issues would take to resolve, considering the project was already over-age (over 14 years) and several extensions had already been granted. Both the IDA Credit and the EU Grant were closed on December 31, 2011. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry 28. Project Preparation: In May 1995, a study was funded by the Danish Trust Fund to: (i) prepare an overall port development program for Massawa (Phase I for the year 1995 to 2005) including traffic forecasting and engineering works for the rehabilitation of Berths 5 and 6; (ii) prepare a program for improvements in port operations; and (iii) recommend appropriate improvements in administrative and management systems. In line with this development program, the project was designed and was appraised in April 1996. 29. IDA involvement: The rationale for IDA involvement was that Eritrea being a new state and no longer part of Ethiopia, needed assistance; IDA was previously involved in the port sector in Ethiopia (Assab) and was experienced in taking the lead role in formulating port modernization programs in neighboring countries along the east coast of Africa. 30. Risks and Mitigations: SAR addressed the importance “to minimize risks and uncertainty as to the local capacity and lack of experience of the Department of Maritime Transport (DMT) and the two ports to implement and manage the project�. This was addressed through the establishment of a PCU at an early stage of project implementation. A coordination manager, an accountant and a procurement specialist were recruited before the project effectiveness (by March 1998) and trained on contract management, procurement, and financial management policies and requirements. 31. The risks to the implementation of civil works as stated in SAR (a period of about two years for berths 5 and 6 in Massawa) were concerning the port area becoming heavily congested during the contractor's works. To mitigate the risk of delays during construction, the SAR provisioned that the contract documents included specific and detailed clauses on phasing of the works and modalities for coordination with the operations department. The PCU/Massawa Port Administration (MPA) confirmed that the phasing of the works was included in all the contracts, and the works sites were handed over to the contractors upon completion of the preceding phase/s, whereby minimizing congestion. 32. The political risks such as the outbreak of the war were highly understated during project preparation and appraisal, and “pull-out� options or alternative arrangements were not considered. However, the team should have reassessed the situation at the time when the conflict began and introduced appropriate mitigation measures. While the SAR addressed the “risks and uncertainty as to the local capacity and lack of experience of DMT and the two ports to implement and manage the project�, it was not anticipated that the potential border conflict could adversely affect the capacity of the PCU/DMT staff after it was put in place with sufficient capacity. The GOE was committed to recruiting additional staff in the MPA and PCU/DMT to make up for the manpower shortage caused by the deployment; however, the loss of experienced 7 staff, especially in procurement and project management, posed a major risk to achieving the PDO. Some of these risks were minimized later during implementation through the launch of the International Labours Organization (ILO) Port-worker Development Program (PDP) in 2003. The Program was funded under the project and aimed to enhance local port sector performance. 2.2 Implementation 33. As mentioned earlier, the unexpected break out of the war between Eritrea and Ethiopia two months after project effectiveness delayed the project implementation by two years and affected adversely the ports’ performance. This led to the loss of all operations in Assab Port, and the subsequent post-conflict environment necessitated revisions in the project design and scope, which were carried out through the MTR in December 1999. The activities related to Assab Port were cancelled, new project activities in the Massawa Port were introduced, and the closing date was extended to June 30, 2005. The implementation of the project experienced serious challenges and slow progress immediately following the war during 2000-2002. This was mainly due to the staff shortage and inadequate capacity of the PCU, emanating from the continued border tensions with Ethiopia, the resulting deployment of the Port staff to the national service, and restrictions and constraints imposed by the GOE that was preoccupied more by the political conflict rather than the project. The Aide Memoire dated June 7-17, 1999 already reported the delays of the audit reports and the project account whereby identifying the reason of the departure of the key staff. 34. The original task team composition was also not fully suitable for the efficient and successful project supervision and for adequate risk management. The Quality Assurance Group’s (QAG) assessment of Quality of Supervision (QSA5) in 2002 also highlighted (i) insufficient efforts of the project team to make alternative arrangements by hiring consultants when it was found not practical to get at least key persons for after the end of the war to resume the work at Massawa port; and (ii) inadequate Bank management inputs in the context of the severity of problems facing the project. 35. In 2003, the Bank task team was strengthened by including an experienced procurement specialist and accredited civil engineer with highways and ports background. This enabled to steadily address the procurement delay and process the necessary extensions of IDA Credit and Italian TF closing dates. As a result, procurement process was improved and implementation progress picked up as acknowledged by the QSA6 (2004) in the following way: (i) the Bank and the supervision team had put a major effort into redressing the project implementation constraints, (ii) procurement of civil works and equipment supply was following a tight schedule; (iii) the Bank had repeatedly encouraged the implementing agency to employ the services of additional consultants to replace staff on national service duty; (iv) job training to the staff of PCU, MPA and DMT was provided; and (v) both country and sector management had increased their attention to this project and provided not only good advice but also the necessary budget to supervise the project closely in order to bring it to a successful completion. To enhance local port sector performance and build capacity of the port workers, the project team launched the International Labours Organization (ILO) Port-worker Development Program (PDP) implemented and funded under the project. As a result, PCU and the MPA capacity were strengthened and the project management and implementation advanced steadily, though with some delays time to time. 8 36. To account for the slow implementation progress after the MTR restructuring, the team extended the project closing date to June 30, 2007. With the strengthened Bank team’s implementation support, a significant progress in implementation was made during 2004 – 2007, leading to a successful completion of the major components by the beginning of 2007. 37. By 2008, all project activities were completed successfully, as revised, including (i) Massawa causeways at Sigalet and Dhalak; (ii) rehabilitation of Berths 5 and 6; (iii) extension of the container terminal; (iv) purchase of port equipment and spare-parts; (v) environmental management equipment; and (vi) various studies and technical advisory services. These activities had significant impacts on increasing the capacity and improving performance of Massawa Port. The Key Performance Indicator values provided in Annex 2 demonstrate the trend pertaining to these improvements from the appraisal to closing date. The detailed completion status of individual components is provided in Annex 3. 38. In September 2008, the Bank team made a decision to restructure the project again in order to add new activities on emergency repairs of the oil jetty and the construction of a new oil jetty in Massawa. The decision was a reaction by the Bank team to the urgent need of the GoE to take immediate measures to prevent the collapse of the oil jetty in Massawa and to replace it with a new one. The rationale behind the decision of the Bank team and management to add these new activities and extend the project’s life rather than closing it, lies within the following logic: (i) risk of a potential environmental disaster in the event of the existing jetty collapse leading to oil spillage required urgent and immediate action; (ii) provision of financing under a new IDA project was not available to Eritrea at the time. The GoE decided at the time not to sign the supplementary letters on non-concessional borrowing, a requirement to be eligible for IDA- support; (iii) savings were available under the existing project in the amount of the uncommitted IDA funds (SDR 5.3 million or US$ 8.1 million equivalent at the time of restructuring) that could be utilized and relocated towards the construction of a new oil jetty. 39. The Bank saw adding these new activities and extending the existing project not only as a way to utilize the project savings, but as the only possible immediate solution to addressing the emergency situation in regards to the oil jetty. The TF Grant from the European Union provided the co-financing to help closing the financing gap for the new activities in the amount of EUR 13.2 million.5 40. Consequently, the construction of a new oil jetty and emergency repairs of the existing one were added to the project in 2008 as new activities with the new project closing date of December 31, 2011. The emergency repair of the existing oil jetty was completed in November 2008 extending its service life temporarily until the completion of the new jetty. The contract for the new oil jetty construction works was awarded to a Contractor on May 11, 2010 for a 22 month contract period. 5 This amount excludes the administrative expenses of the multi-donor TF by the Bank (the total EU pledge amounted to EUR 13.5 million). 9 41. However, the construction works were substantially delayed (only five percent of the progress was achieved – soil investigation and ground survey in nearly nine months out of the 22 month project period) due to the contractor’s unsatisfactory performance, possibly resulting from lack of information of the soil conditions during the bidding stage. The delay in releasing the Advance Payment, which was the main prerequisite for commencement date under the contract, also partially contributed to the delay of commencement of the works. By the time of the project closing date, no main works had started, though the initial preparatory activity associated with ground survey and soil investigation for the sub-structure had been carried out by the contractor. Consequently, the contract was terminated by the GoE in September 2011. 42. At the time, the Bank suggested to the GOE to extend the closing date to allow the completion of works, but the GOE decided to close the project on time and terminate the contract. As a result, the GOE took over the project sites, against which the contractor submitted claims for financial settlement of about US$ 14.06 million. During the preparation of this ICR, both the Contractor and the Client were still in the process of seeking an amicable settlement to resolve the claim. Meanwhile, the emergency repair carried out on the existing jetty continued to weaken posing major potential environmental, human, and economic risks to the country. The GOE intends to complete the construction of the new oil jetty once the outstanding issues with the previous contractor are resolved. The Bank supports any efforts by the GOE that would avoid environmental disaster arising from non-completion of the new oil jetty. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 43. Some of the original indicators were dropped in the process of restructuring. The key performance indicators as restructured were used effectively to track project implementation and to assess progress towards meeting the PDO. To facilitate the data collection and monitoring, the PCU was established timely (prior to the project effectiveness date), and its capacity was strengthened through training and computerized network software enabling the PCU to monitor and track project progress in procurement, disbursements, and implementation. 44. The measured data were reported on a regular basis in an agreed format in Quarterly Progress Reports (QPRs) with updated details of the quarterly progress of project implementation, including a set of key performance indicators on improvements in cargo handling capacities and operational productivity. This enabled a continued and consistent M&E of the project inputs, outputs and outcomes. This ICR also relies substantially on the M&E data and information provided in the QPRs. 2.4 Safeguard and Fiduciary Compliance 45. Environmental Safeguards. This project was assigned an environmental category A, due to the scale of potential environmental impacts of the port rehabilitation activities, including dredging activities, improvement to navigation aid and repairs of the existing oil jetty and construction of the new jetty. According to project safeguards documentation, the Environmental Datasheet (EDS) in 1997 and subsequent Integrated Safeguards Datasheets (ISDSs) prepared in 2008 for project restructuring, only OP 4.01 was triggered by the project, whereas the ISRs included compliance ratings for OP 4.11 – Physical Cultural Resources. As improvement to environmental management of the Port was central for one of the components, environmental 10 safeguards were, for the most part, mainstreamed into the project design. Based on the project documentation, compliance with environmental safeguards was mostly rated as satisfactory throughout the life of the project. That is, with one exception when the Port component was rated unsatisfactory, due to consultants’ failure to produce an adequate Environmental Management Plan (EMP) on time, which was later corrected. 46. Throughout the project Aide Memoires, it is however recognized that there were no critical contaminations caused by the reclamation and coastal environmental damage by the dredging reported and/or claimed. On one occasion there was a minor oil spill caused by leakage from a ship scrapyard. The project team took the opportunity to use this in the development of a Contingency plan and training at quarterly intervals. During civil works, there were no repeats of oil spills reported - and with procured equipment and enhanced staff skills in environmental management, ship wastes were collected and disposed in line with international practice – and a National Oil Spill Contingency Plan was established with assistance of the Port Management TA consultant, and required equipment was procured. With regards to the physical cultural resources in the project area, a mosque, located next to berth 6 and registered as historically significant national cultural heritage, was subsequently not structurally affected as part of the port civil works. The Project rather improved the preservation of the site by stabilizing the foundation of the mosque and constructing a surrounding retaining wall. 47. Based on the project categorization, to satisfy requirements for environmental assessment an Environmental Impact Assessment (EIA) was developed as part of the Port Master Plan in January 1996. In accordance with the Bank policy, the EIA was carried out by an independent EA expert, not affiliated with the project. This EIA covered the original project activities, including recommendations on carrying out the dredging. The EIA identified a number of environmental issues related to construction were, especially related to the dredging, land reclamation and waste and hazardous material treatment. 48. For the purposes of project restructuring in 2008, a separate Environmental and Social Impact Assessment (ESIA) was prepared by an independent expert to cover the emergency repairs on the existing oil jetty and construction of a new oil jetty both at Hirgigo Bay and Massawa. The ESIA has identified impacts of the seven jetty design/siting alternatives and provided pragmatic management guidance on oil spill control and fire risk. The final Assessment report, disclosed in March 2008, included the ESIA with EMP, “Oil Spill Risk Assessment and Contingency Plan� and “Fire Risk Assessment and Fire Training Plan�. 49. Social Safeguards. The project triggered no social safeguards policies. Consultations with the stakeholders confirmed that the project activities required no physical displacement of people or economic displacement or limitation of access to the project-affected communities. However, the EIA consultants recommended that the proponents could improve project social responsibility by providing funds for the Manzanar Mangrove Project, which would improve the situation of villages to the east of the project site as well as enhance biodiversity and fisheries stocks in and along the Hirgigo Bay. The United Nations Development Program (UNDP) were engaged in a Coastal Zone Management that included attention to fisheries and mangrove protection. As for the physical cultural resources safeguard policy, these studies also predicted no likelihood of chance finds. 11 2.5 Post-completion Operation/Next Phase 50. In accordance with the data presented on the Performance Indicators (PIs) (see Annex 2), the project objective “to increase productivity and capacity of Port Massawa�, as revised in the Project Paper, has been broadly met, except for the construction of the new oil jetty, which was terminated by the GOE, and the container traffic target, which still far exceeds the baseline. The existing oil jetty being old poses a potential risk of collapse, which may not only lead to a major environmental disaster, but also have seriously adverse economic impacts and jeopardize the sustainability of the achieved PDO. It is encouraging that completing the .construction of a new oil jetty remains a top priority of the GOE in the post-project follow-up phase, and any support toward this effort should be embraced. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation 51. At the time of project preparation, the project objectives were in line with the Country Assistance Strategy (CAS) goals for Eritrea, dated February 5, 1996. The long-term goal stated in the CAS was to build a modern, technologically advanced, export-oriented economy, which would capitalize on Eritrea’s strategic position and natural resources and private investment. The CAS sought to accomplish this objective by (i) creating an environment in which the private sector would develop and flourish, in partnership with foreign investors; (ii) reducing infrastructure constraints; and (iii) investing in human resources. 52. Port infrastructure damaged by the conflict with Ethiopia, also due to lack of maintenance and spare parts, had been the major constraint on growth, especially limiting the importer’s and exporters’ access to the global market. As such, the project provided not only the improvement of the port facility/infrastructure, but also various types of cargo and container handling equipment, spare parts, tools and improvement to warehouses, equipment sheds and workshop – along with various port studies, TAs and trainings. The presented performance indicators demonstrate a proof of the project achievements. 53. Interim Strategy Note (ISN dated May 15, 2008) which was for the period of Fiscal Year (FY) 2008 – FY2010 only (Eritrea does not currently have a full CAS) addresses two pillars (a) support human development, and (b) support basic infrastructure development – whereby concentrating on implementation of the existing portfolio – including this Port Rehabilitation Project. In which sense, there is no substantial change since the 1996 CAS. Accordingly, the ISN further addresses how the economic growth is hampered by the state of the existing infrastructure network (transport, energy and telecommunication) restrictions – and it acknowledges the contribution of the Massawa Port Rehabilitation which is largely rehabilitated and in use. 54. Bank Group Assistance Strategy: 2008 ISN for Eritrea analyzes that the GOE’s commitment to economic reforms and improving transparency dissipated during the previous ISN period (FY2005-FY2007) as the transition and reforms did not prove to be GOE’s priorities under the unresolved security situation. Nevertheless, ISN acknowledges progress at sector level – taking port sector as one of examples, stating that “Productivity indicators at the port show bulk cargo is now shifted at a rate of 2,152 tons per hour, compared to 850 tons per hour in the 12 base year despite a decline in traffic at the port�. And as an assistance strategy, ISN further addresses that the Bank should be ready to further support economic reforms to spur growth benefiting from the sector investment. 3.2 Achievement of Project Development Objectives 55. The PDO has been achieved in regards to improving the productivity and reducing congestion of the Massawa Port. Through the investment in works and equipment carried out in Phase I and II the physical capacity has been substantially enhanced and the Massawa Port productivity has generally increased over the life of the project. Considering that all project activities as per the revised PDO have been completed, except the new oil jetty construction cancelled by a unilateral decision of the government, the PDO can be considered achieved. 56. The project indicators do not provide an accurate account of the attainment of PDO, as they are not fully consistent with the activities implemented under the components, which is an issue of project design at entry (discussion later). Nevertheless, the performance indicator targets were achieved during some years, with some substantially exceeding the targets as shown in the figures/graphs in Annex 2. The only exception is the container traffic, which exceeds its baseline at appraisal and follows a consistently positive trend but falls below the target levels, mainly due to the Ethiopian border closure and, to a lesser extent, the lack of appropriate ship to shore handling equipment (Gantry Cranes, etc.). 57. As for the port traffic, the Massawa port traffic remained relatively static relative to the regional traffic growth, reflecting the level of economic activity in Eritrea in the post-border conflict situation, with the import/export levels continuing to affect shipping costs and traffic volumes. For example, the container cargo rate to Massawa is reported to be twice that of the rates for other ports in the region. 3.3 Efficiency 58. Given that the funds were reallocated from the Port Assab associated sub-components to additional activities in Port Massawa, this ICR reviews the economic returns pertaining to the Massawa Port investment only. The total Massawa investments for the original components were evaluated at appraisal to generate an estimated economic internal rate of return (EIRR) of 45 percent and net present value (NPV) of US$28 million (at 12 percent). The economic analysis was revised at the restructuring stage in light of newly introduced improvements in Massawa (construction of new oil jetty and emergency repairs on the existing oil jetty). The benefits from the new oil jetty were expected to be high yielding EIRR of 17.9 percent and NPV of US$6 million (at 12 percent). The ex-post EIRR for the Massawa Port (excluding the new oil jetty) is estimated at about 42 percent with NPV of US$ 29 million, which is only slightly lower than the appraisal estimate of 45 percent without the new oil jetty. The difference is barely significant and the result is far in excess of the cost of capital and very robust. Even if the annual benefits from 2006 until the end of the period were to be third of what was expected and the operating costs were doubled, the final EIRR would decrease to as low as 35 percent only, which still is significantly justified. Moreover, even if the original forecast traffic were half of low forecast values from 2005 onwards, impact on EIRR would not be significant and the project investment 13 would show economic viability at even very low traffic volumes. (Annex 4 provides details on the analysis). 3.4 Justification of Overall Outcome Rating Rating: Moderately Satisfactory 59. Relevance of Project. Though the post border conflict situation heavily affects the volume of port transportation declining in total throughputs, the Massawa Port remains as the major port for import/export of Eritrean cargo still carrying 98 percent of the entire cargo for Eritrea. ISN acknowledges the contribution of the Massawa Port Rehabilitation, and the GOE’s priority remains addressing the importance of the Massawa Port – including the construction of the new oil jetty – as the key for development and national security. 60. Achievement of PDO. The PDO has been achieved as far as improving the productivity and reducing congestion of the Massawa Port and the project outcome indicators have been largely achieved, except the container traffic, explained by the lack of appropriate ship to shore handling equipment (Gantry Crane), though it registers a substantial increase from the baseline. However, the termination of construction of new oil jetty raises a concern regarding the sustainability of the achieved targets given the importance of environmental risks, thus bringing down the overall outcome rating. 61. Project Efficiency. The project efficiency was hampered by a lengthened age of the project (14 years and 1 month), and slow implementation progress at initial stages emanating mainly from (i) the effects of the war and continued border tensions with Ethiopia and (ii) inadequate capacity of qualified and experienced staff at the time of entry and various periods of implementation. Furthermore, the project failed to implement its last activity – construction of the oil jetty. This notwithstanding, the project was one of the pioneer projects for Eritrea soon after attaining independence, with no prior experience of the Borrower in managing Bank or other donor financed projects, and despite the war and challenging post-war conditions, all other project activities (as restructured) were completed with no cost overruns. 62. Thus, the overall project outcome is rated Moderately Satisfactory, given the overall weight of satisfactory outcomes for the (informally revised) project activities at the MTR stage. The failure to complete one activity, the construction of the new oil jetty, to take advantage of project savings confirms the lower than Satisfactory rating. 3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development N/A (b) Institutional Change/Strengthening 63. Implementation of the Letter of Sector Policy (dated October 17, 1997): The Government indicated in its Letter of Sector Policy that it proposed to introduce a number of financial and legal changes in the port sector. The Letter gave an implementation timeframe of 14 five years for these changes, and specifically indicated that the terms for on-lending IDA funds, and the financial obligations for the port sector would be defined by the end of 1999. 64. However, the border conflict made it difficult for the GOE to move forward with the reform, and some of the basic data for determining financial restructuring were not immediately available. Consequently, in March 2004, the GOE accepted the recommendations provided through the port management technical assistance in respect to new Draft Maritime and Port Legislation, along with the technical assistance in revaluating the Massawa Port assets and developing new proposed tariffs. By enacting the Maritime Port Legislation, the Massawa Port would have been established as an independent authority. Nevertheless, according to the PCU, only a few actions were undertaken in 2005 including establishing Massawa Port Authority. (c) Other Unintended Outcomes and Impacts (positive or negative) N/A 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops N/A 4. Assessment of Risk to Development Outcome Rating: High 65. The risk to development outcome for the project is rated High due to the presence of too many unknown factors in regards to sustainability of the project results, availability of resources to maintain the port infrastructure and equipment provided by the project, and the unknown capacity of the MPA staff to secure funding for construction of the new oil jetty. Moreover, lack of information on the financial performance of the Massawa Port and its costs and revenue structure leave doubts as to availability and adequacy of funds and presence of a government strategy to maintain the new infrastructure and equipment. 66. At the time of project restructuring, when most of the activities were completed despite the continued border tension with Ethiopia, the main potential risk flagged was the “threat to peace in the region which could limit the interest by international contractors for the construction of the new oil jetty, reduce availability of adequate manpower from the Recipient, and therefore delay the construction of the new oil jetty�. Also identified was “the risk of potential collapse of the existing jetty while the completion of the new oil jetty is delayed�. At completion, the risk of potential collapse of the existing oil jetty still remains due to the termination of construction of new oil jetty, posing serious concerns about both adverse economic and environmental impacts, which jeopardize the achieved PDO. In addition, the ongoing dispute between the GOE and the contractor may result in more follow up complaints coming to the Bank from the contractor. Thus, the risk rating is High. 15 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Satisfactory 67. By the time of Board presentation, the physical components of the project were ready for implementation as the design and implementation of project components were well identified, design documents were ready and available, and the preparation of bidding documents was well advanced. 68. However, the overall quality of the performance of the project team and the Bank as an institution at entry is considered Moderately Satisfactory due to the inconsistently designed outcome indicators and the inadequate capacity of the Bank team responsible for the project preparation. The original task team composition at entry lacked the appropriate skillset (e.g., port engineer, procurement specialist) and capacity for efficiently designing the port specific project and adequately addressing the associated implementation risks. The indicators designed by the Bank team at entry are not fully aligned with the components and the PDO. (b) Quality of Supervision Rating: Moderately Satisfactory 69. The quality of Bank team’s supervision is rated moderately satisfactory as the team’s performance during supervision was mixed during different periods. The need to strengthen the Bank team by bringing on board an experienced ports expert during the early stage of implementation was not addressed until 2003. Up to that time there was a resulting lack of technical support for addressing implementation issues. Further, when the redeployment of key port staff to serve at the border tremendously constrained project implementation, the Bank could have responded timely through a more forceful high-level dialogue to address the problem and potentially strengthen the role of external consultants to assist the Client. 70. In early 2003, the Bank team was added procurement and financial management staff, safeguards specialists and accredited civil engineer with highways and ports background, who joined the supervision missions that took place more regularly from then on. This helped the Bank supervision to address the project implementation constraints and follow all the QAG (QSA5) recommendations. As a result, the implementation progress was significantly improved and delays minimized, as acknowledged by the 2004 QAG (QSA6). To account for the slow implementation progress after the MTR restructuring, the team extended the project closing date to June 30, 2007. With the stronger support from the Bank supervision team, significant progress was achieved during 2004 – 2007, leading to a successful completion of the major components by the beginning of 2007. 71. The Bank team overall has been responsive to reflect on the changes following the war in 1998-2000, and quickly agreed with the GOE on the modifications to the project components carried at the MTR in December 1999. The Bank was also quick and flexible in restructuring the project to respond to the emergency situation with respect to the collapsing oil jetty in Massawa and took a more challenging road by adding new activities to the already over-age and 16 problematic project, so as to respond to the GoE’s immediate need in the atmosphere of a strained relationship between the GoE and the Bank. 72. The flexibility of the Bank helped to take advantage of the project savings and leverage the donor-provided TFs to close the financing gap at different stages of the project. Once the Bank implementation support was strengthened, the team was persistent in raising the capacity issues of the PCU and streamlining training opportunities within the project to help improve the PCU’s project management and implementation progress. 73. The poor performance of the contractor, appointed to design and construct the new oil jetty, and the uncertainty on the time required to settle the contractual claims after contract termination, led the GoE to decide not to seek an extension of the Closing Dates for the EU grant and IDA credit. This was compounded by an overall adverse relationship between the GOE and the Bank. Therefore, a large portion of the EU Grant (EUR7.24 million equivalent to US$9.38 million) and IDA credit (SDR 4.75 million equivalent to US$7.33 million) was undisbursed. The documents availed do not record that the Bank team pursued a higher level dialogue to resolve this situation. 74. Procurement: The project team during the first five years of project life lacked a procurement expert, resulting in a number of procurement delays. After strengthening the team with procurement expertise in 2003, the procurement was improved and delays addressed. Despite the long life of the project, the specialized nature of many contracts, and excluding the cancellation of the new oil jetty construction contract before closing date, procurement was overall adequately carried out and completed. Procurement issues that emerged were addressed as appropriate and no problems of fraud and corruption were encountered by the project closing. 75. Financial management: The project was assessed to be in full compliance with the financial management (FM) arrangements. Adequate accounting capacity was put in place and maintained throughout project implementation. The FM supervision on the Bank side was effective, and the Borrower was diligent in timely submissions of all quarterly and annual financial reports, which reported on project funds of all donors, namely IDA, Italian Grant, EU, and GOE, and were satisfactory to the Bank. The project received unqualified/clean audit reports and no material internal control weaknesses were flagged by the auditors in the management letters, with the final report submitted in FY11. There are no outstanding financial reports and audit issues on the project. 76. Legal and environmental implications and reputational risks: The Project closed in December 2011, before the civil works on the new oil jetty were concluded and after the Government had unilaterally terminated the civil works contract for non-performance. The World Bank sent a formal correspondence to the GOE conveying the need for the project extension to allow for completion of the works and warning of the potential environmental and economic risks from the collapse of the existing jetty. The Government declined the extension of the project. The Bank team’s last visit of the site concluded that the existing oil jetty had weakened over time and faced a real danger of collapse. The collapse of the oil jetty would seriously impact Eritrea’s economy as it is the main inlet for fuel imports. There is also a serious environmental risk. The GOE assured the Bank team that it was committed to completing the construction of the new jetty, once the outstanding issues with the previous contractor were 17 resolved. Unless the outstanding issues are resolved and works on the new oil jetty are completed in the near future, the environmental risk remains, and so does the reputational risk of the GOE and the Bank. 77. Safeguards: There was a high level of input from the senior environmental safeguards staff after a specialist was assigned to the project, four years after project became effective, ensuring the environmental safeguards requirements were met. Any deficiencies appeared to be quickly diagnosed and corrective support applied without major delay, including preparation of additional safeguards instruments when necessary (see Section 2.4 for a detailed discussion). (c) Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory 78. The overall Bank performance at the time of entry was characterized by inadequate skillset in the team and inadequate risk management, which was not addressed until 2003, when the team was strengthened with fiduciary and port engineering expertise. The Bank team, however, responded quickly to the changed situation post the border conflict, and by the time of the MTR the project restructuring had already been agreed with the GOE. The Bank also responded quickly to the emergency situation with respect to the collapsing oil jetty in Massawa and took a more challenging path by adding new activities to the already over-age and challenging project, so as to respond to the GoE’s immediate need in the atmosphere of a strained relationship between the GoE and the Bank. 79. The flexibility of the Bank helped to leverage the donor-provided TF co-financing and redirect the uncommitted funds under the Credit and the donor-provided TFs Grants to close the financing gap at every stage of restructuring. Once the Bank implementation support was strengthened, the team was persistent in raising the capacity issues of the PCU and streamlining training opportunities within the project to help improve the PCU’s project management and implementation progress. 5.2 Borrower Performance (a) Government Performance Rating: Moderately Satisfactory 80. The Borrower performance is mixed reflecting the changed GOE priorities as a result of the border conflict and the post- conflict economic situation, and considering that this was one of the pioneer projects for Eritrea soon after attaining independence, with no prior experience in managing Bank or other donor financed projects. At the stage of the project preparation, GOE well recognized the challenges and established the PCU in advance of the project effectiveness. The GOE remained supportive of and committed to achieving the project objectives notwithstanding the effects of the war and continuing border tensions with Ethiopia and made efforts by recognizing the urgent need to strengthen the MPA and the PCU, which had lost its skilled/experienced staff to the national services. However, it took some time before some of the key staff were actually mobilized. 81. The construction of a new oil jetty under the project was a top priority for the GOE. The government was strongly committed to implementing this activity and even made a decision to 18 fill in the financing gap from its own sources, when the contract price for the construction works far exceeded the amount initially allocated through the EU grant and IDA credit. The civil works contract was, however, terminated by the GOE unilaterally due to the contractor’s poor performance without prior notice to or consultation with the Bank, which was not consistent with the Bank’s procurement policies. Though the GOE still expresses its intension to complete the new oil jetty, it is difficult to support the GOE’s decision not to extend the EU Grant and IDA Credit closing date despite the Bank’s strong recommendation to do so. (b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory 82. The rating of the implementing agency performance is Moderately Satisfactory. The project implementation was the responsibility of the Ministry of Transport and Communication (MTC) through the Department of Maritime Transport (DMT). The Ports of Assab and Massawa were established as autonomous commercial entities under the supervision of the Ministry. The DMT is responsible for policy and regulation, including planning and programming of the development of maritime transport capacity, safety, environment and other supporting services. The Project Coordination Unit (PCU) was established under the DMT and located at the Port Liaison Office in Asmara. 83. The implementing agency was well organized and engaged in open discussions with the Bank team in resolving critical issues. The PCU submitted financial reports to the Bank that were timely (well in advance of stipulated 45 day deadlines). The reports were reviewed and found in the form and content satisfactory to the Bank. Audit reports and management letters were similarly submitted in advance of stipulated six month deadlines, including final audit report and management letter for FY11. The audit reports were unqualified/clean, and no material internal control weaknesses were flagged in the management letters. 84. During the time of mobilization of many of the public service staff into national service, including many of best qualified PCU/DMT staff, the PCU/DMT capacity to implement the project and efficiently run its operations was put under tremendous strain. The Bank team insisted in resolving this problem, as mentioned earlier, to demobilize some of the mechanical staff as well as to further strengthen the PCU. As a result, the GOE increased capacity by hiring some local consultants, demobilized some of the staff, and implemented training programs. Some capacity was built through the ILO PDP funded under the project. Today, the PCU/DMT continues operating after the project closing date to ensure that any outstanding issues are sufficiently followed up. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory 85. The implementation (and thus disbursement) of the project was slow at the earlier stage due to various constraints imposed by the unexpected border conflict, the continuing post- conflict situation, and limited human resources in the PCU. However, despite the shift in national priorities from economic development to national defense, the project activities were fully completed as restructured, except for the new oil jetty, the PDO has been broadly achieved and the PI targets met, except for container traffic, which still shows a positive trend and exceeds 19 the baseline. As such, given that the contract issuance process for the construction of new oil jetty was delayed and subsequently terminated unilaterally by the Borrower without any prior notice to the Bank team, posing a serious environmental and sustainability risk for the achieved PDO, the overall Borrower performance is rated Moderately Satisfactory. 6. Lessons Learned 86. Restructuring a project in a timely manner to respond to changed circumstances is likely to increase the chances of achieving intended project results. However, the timing and relevance of injecting additional resources and introducing new activities towards the tail end of implementing a project should be assessed critically. It may work if the new and additional activities involve increasing the scope of works or introducing new activities that entail similar works or activities without any significant changes or introducing new players. Other types of activities could (i) complicate the institutional and implementation arrangements, (ii) imply injecting new skills in the project implementation team, which may not be readily available; (iii) lead to expanding coordination structure to include the new players and thereby disturbing an arrangement that otherwise would have been tested over the years. For instance, the introduction of construction of new oil jetty brought into play new institutions, such as Petroleum Corporation, Eritrean Power Corporation and Ministry responsible for Energy, leading to complications in implementation. 87. Difficult operating business and/or political environment in a country does not preclude having a successful project. Understanding the political economy and allowing for flexibility in Bank procedures, notably in procurement, helps in designing and subsequently executing appropriate interventions to emerging issues, such as failure on the part of contractors, suppliers, or consultants to respond to advertised contract tender requests. This said, determining the life of a project should take into account the country specific circumstances. For countries emerging from a conflict or a new state, with inadequate capacity, consideration should be made to having relatively much longer implementation periods accompanied by intensive capacity building and if necessary financing the project operational costs, and also investing in building local “ownership� and commitment to the project. On the part of the Bank adequate budgets should be provided for supporting intensive and targeted implementation missions to overcome emerging issues early enough. 88. Pooling resources for a project from multiple donors reduces the transaction costs for the Recipient through streamlined procurement processing and implementation arrangements, but also increases the coordination and administration costs for the Bank project team. This is compounded by a situation where the Recipient is a new state, as it involves intensive supervision on the part of the Bank. However, the project presents a success story in leveraging and managing the donor-funded TFs to help closing the financing gap, especially in situations requiring responsiveness and flexibility to changes. 89. Risk assessment and risk management/mitigation measures for projects in fragile states should not underestimate the political risks and include “pull-out� options or alternative arrangements. Having an appropriately defined risk assessment with mitigation measures would assist project teams to recognize any events potentially impacting project implementation and respond quickly with appropriate mitigation measures to still achieve successful implementation. 20 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies See Annex 8 for the ICR prepared by the Borrower. (b) Cofinanciers N/A (c) Other partners and stakeholders N/A 21 Annex 1. Project Costs and Financing Table 1: Credit 30050-ER, TF22024 (Italy) and TF56833 (EU) as of respective closing dates Key Project Data Last Ratings and Flags (December 31, 2011) Board Date November 18, 1997 Development Objectives Satisfactory Effectiveness Date March 2, 1998 Implementation Perform. Moderately Satisfactory Closing Date December 31, 2011 Proc. Managements Moderately Satisfactory original : SDR 22.2 Financial Management Satisfactory mln (US$ 30.30 mln Environment safeguards Satisfactory IDA Credit (Cr.-30050-ER) equiv.) (Closing Date: December 31, 2011) Not rated at closing: SDR 17.5 Social safeguards mln (US$ 27 mln equiv.) original: US$ 21.4 Government of Italy Grant (TF- mln 22024) at closing: US$21.2 (Closing Date: January 31, 2007) mln Project Age 14 years 1 month original: EUR 13.2 mln (US$20 mln EU Grant (TF-56833) equiv.)6 (Closing Date: June 30, 2011) at closing: EUR 6 mln (US$ 7.8 mln equiv.) Percent disbursed (total) percent Final Disb. IDA Cr. 30050-ER US$27 million IDA Cr. 30050-ER 79 percent Final Disb. TF-22024 (Italy) US$21.2 million TF-22024 (Italy) 99 percent Final Disb. TF-56833 (EU) US$ 7.8 million TF-56833 (EU) 45 percent Source: Implementation Status Report (ISR) 1. The original Project cost was estimated at US$57.6 million in the initial project design. IDA's contribution was US$ 30.3 million (53 percent of the total project cost). Italy co-financed US$ 21.0 million of the cost of the Massawa component under an untied grant. The State of Eritrea financed the local component of the project, equivalent to US$ 6.3 million. Table 2: Initial Financing Plan in SAR as of October 1997 (US$ million) 2. At the time of restructuring (September 2008), most of the project activities (including those added at the time of the MTR) had been completed. The EU Grant Agreement for EUR 8.5 million was signed by IDA on July 7, 2006 and countersigned by the Government on 6 This amount excludes the administrative expenses of the multi-donor TF by the Bank (the total EU pledge amounted to EUR 13.5 million). 22 August 7, 2006 – which was later amended (December 30, 2008) increasing the Grant amount to EUR 13.23 million 7 and extending the closing date to December 31, 2011 with an end disbursement date of April 30, 2012. Table 3: Revised Financing Plan in PP as of September 2008 (US$ million) 3. The breakdown of details follows in Tables (a) through (e) for both Credit and Grants. 7 This amount excludes the administrative expenses of the multi-donor TF by the Bank. 23 Table (a): Project Cost by Categories – IDA Credit (US$ million equivalent) Appraisal Revised Estimate Actual/Latest Percentage of Categories Estimate at Restructuring Estimate Revised (USD millions)* (USD millions)** (USD millions)** 1. Civil Works 3.00 14.47 7.56 52% 2. Equipment 22.00 16.31 16.31 100% 3. Services & Studies 1.20 2.89 2.82 98% 4. Training 0.20 0.08 0.05 63% 5. Operating Costs 0.10 0.19 0.16 84% 6. Refund of PPA 0.40 0.00 0.00 7. Unallocated 3.40 0.31 Total Baseline Cost 30.30 34.25 26.90 79% Physical Contingencies Price Contingencies Total Project Costs Front-end fee PPF Front-end fee IBRD Total Financing Required * Exchange Rate used for appraisal estimates: 1 XDR = US$ 1.35486 (as at appraisal, October 1997) **Exchange Rate used for revised estimates and disbursements: 1 XDR = US$ 1.542280 (as of September 20, 2012) Table (b): Project Cost by Categories – Italian Grant/ TF (US$ million equivalent) Appraisal Revised Estimate Actual/Latest Percentage of Categories Estimate at Restructuring Estimate Revised (USD millions) (USD millions) (USD millions) 1. Civil Works 12.70 12.78 13.49 106% 2. Equipment 4.30 4.60 4.30 93% 3. Services & Studies 3.70 3.33 3.34 100% 4. Training 0.30 0.09 0.05 55% 5. Operating Costs 6. Unallocated 0.39 7. Cancelled 0.21 Total Baseline Cost 21.00 21.40 21.18 99% Physical Contingencies Price Contingencies Total Financing Required 24 Table (c): Project Cost by Categories – EU Grant/ TFs (US$ million equivalent) Appraisal Revised Estimate Actual/Latest Percentage of Categories Estimate* at Restructuring Estimate Revised (USD millions) (USD millions)** (USD millions) 1. Civil Works 15.79 6.95 44% 2. Equipment 0.01 0.00 0% 3. Services & Studies 1.33 0.88 66% 4. Training 5. Operating Costs 6. Designated Account*** (0.07) Total Baseline Cost 17.13 7.76 45% Physical Contingencies Price Contingencies Total Financing Required * The EU grant was approved and became effective in August 2006, not at appraisal; therefore, the allocation is shown in the revised estimate column only. ** Exchange Rate used for revised estimates and disbursements: 1 EUR = US$ 1.29515 (as of September 20, 2012) *** The foreign exchange fluctuation was caused due to the difference in currency of the designated account: US$ and the loan commitment currency EUR. 25 Table (d): Project Cost by Categories – IDA Credit & TFs Total (US$ million equivalent) Appraisal Revised Estimate Actual/Latest Percentage of Categories Estimate at Restructuring Estimate Revised (USD millions) (USD millions) (USD millions) 1. Civil Works 15.70 43.04 28.00 65% 2. Equipment 26.30 20.92 20.61 99% 3. Services & Studies 4.90 7.55 7.04 93% 4. Training 0.50 0.17 0.10 59% 5. Operating Costs 0.10 0.19 0.16 84% 6. Refund of PPA 0.40 0.00 7. Unallocated 3.40 0.70 8. Cancelled 0.21 9. Designated Account* (0.07) Total Baseline Cost 51.30 72.78 55.84 77% Physical Contingencies 2.90 Price Contingencies 5.66 Total Project Costs 51.30 Front-end fee PPF Front-end fee IBRD Total Financing Required 57.60 * The foreign exchange fluctuation was caused due to the difference in currency of the designated account: US$ and the loan commitment currency EUR. Table (e): Project Cost by Financing Appraisal Revised Estimate Actual/Latest Type of Percentage Source of Funds Estimate at Restructuring Estimate Cofinancing of Revised (USD millions) (USD millions) (USD millions) Borrower Own source 6.30 7.53 1.57 21% Italy: Ministry of Foreign Affairs Grant 21.00 21.40 21.18 99% EU Grant 17.14 7.76 45% International Development Credit 30.30 34.25 26.9 79% Association (IDA) Total Financing 57.6 80.32 57.41 72% 26 Annex 2. Outputs by Component 1. Completion status of project activities and pending activity: Due to GOE’s decision to close the project, one of the major components, namely the construction of a new oil jetty at the Hirgigo Bay, had to be excluded. Below is a completion status summary of the main activities. (Reference is made to Annex 3 prepared by the PCU for detailed status of the components and activities). 2. Original project components: The project has throughout been funded by an IDA Credit of SDR 22.20 million (equivalent to US$ 30.3 million at the time of appraisal) together with an Italian Grant of US$ 21 million, which IDA administered as a Trust Fund (TF). Both funding sources had identical development objectives and disbursement categories, although, the Italian TF was limited to expenditures related to Massawa Port only, whereas the IDA Credit had allocated funding for both Massawa and Assab Ports. 3. The original project design and scope had five components, namely: (i) civil works (US$ 18.65 million); (ii) cargo handling equipment (US$ 22.65 million); (iii) environment (US$ 1.6 million); (iv) training (US$ 0.6 million); and (v) consultancy services (US$4.5 million). 4. Civil Works (US$ 18.65 million - basic costs). These included, all in Massawa Port, (i) rehabilitation and extension of berths 5 and 6, (ii) dredging in front of the new berth 6, (iii) reclamation of land behind berth 6, (iv) heavy duty pavement for the new container stacking yard, (v) clearing of the apron and storage areas, (vi) rehabilitation of the electrical and storm drainage systems, and (vii) construction of a building for the Port Administration and Customs Authorities, a workshop, an equipment shed and improvements to warehouses in the port. 5. Cargo handling equipment (US$ 22.65 million). Most of the equipment included in this component was for the handling of containers in the two ports to improve operational efficiency and services provision. 6. Environment (US$ 1.6 million). Facilities and equipment estimated at US$ 800,000 for each of the two ports were to improve the handling of hazardous cargo, bilge water, solid waste and oil spill – formulation of a National Oil Spill Contingency Plan with assistance from the International Maritime Organization (IMO). 7. Training (US$ 0.6 million). Training programs in the fields of port operations and equipment maintenance, including overseas training at recognized international institutes and/or at overseas ports, and project management costs for the Project Coordination Unit (PCU). 8. Consultancy Services (US$ 4.5 million). This included (i) works supervision at Massawa Port; (ii) short term experts for equipment and spare parts procurement; (iii) specific studies on maritime & port legislation, MIS, cost accounting, tariff analysis and commercialization of port activities; (iv) a study on long term development plan of the port sector; and (v) short-term technical advisory services in port management & operations and equipment maintenance. 9. Revised project components: During the MTR, an agreement was reached on the modifications to the original project components as a response to the two year delay in project implementation, the cessation of Assab’s operations and the continued border tensions between 27 Eritrea and Ethiopia. During the restructuring of September 2008, the previous revisions were confirmed and new activities were introduced as a response to the risk of collapse of the oil jetty in Massawa. 10. Activities as revised during the December 1999 MTR: Due to the border conflict, the team revised the project scope by dropping the Assab-related sub-components and focusing entirely on the improvements in the Massawa Port. The other original activities pertaining to Massawa Port remained unchanged, except the construction of a new building for the port administration and customs authorities, which were dropped in line with the recommendations of the Technical Assistance (TA) on port management to secure free space in the port. Also, the following two new activities were added: (i) improvement of Massawa causeways at Sigalet and Dahlak, expansion of the container terminal, and purchase of additional port equipment; and (ii) Phase II rehabilitation works in Massawa Port, which included the rehabilitation of pavement with concrete blocks behind berths 3-5, rehabilitation of port road network inclusive of new internal access roads, railing construction for 15-ton shore cranes, fencing around the container terminal area, raising of the sea walls to protect container stacking yard, construction of lighting towers, and rehabilitation of the water tower. 11. These revisions to the project were introduced as part of the MTR in December 1999, as at that time, under the World Bank procedures the MTR was considered sufficient to restructure a project. Accordingly, the IDA and the Italian Grant were amended to accommodate these new developments, and the closing dates for both instruments were extended to September 30,2006 and later to January 31, 2007 and for the DCA thereafter to September 30, 2008 through three temporary extensions pending a restructuring. 12. Activities revised at 2008 restructuring: Since the Assab oil refinery and oil jetties have since long stopped operations, the fuel supply has been handled at Massawa. The existing oil jetty, built during the later periods of the Italian occupation of Eritrea, was in poor condition facing imminent collapse – which could lead to disruption of fuel supply as well as deleterious environmental damage. The new activities were added to the project, such as (i) the construction of a new oil jetty (under a Design & Build contract method) to replace the existing one and (ii) the emergency repairs of the existing oil jetty to extend its service life until replacement. In addition, the project closing date was extended to December 31, 2011 and the informal revisions made to the project during MTR were formalized in 2008. 13. The Italian Grant was closed on January 31, 2007 after having achieved a 99 percent disbursement rate and having completed 100% of the activities satisfactorily. Responding to the project restructuring, the EU provided a Grant of EUR 8.2 million – later increased to EUR 13.2 million8 (US$20 million equivalent as at restructuring; US$ 17.14 million equivalent at exchange rate as of September, 2012) – to finance the new project activities – which meant that the total project cost increased from equivalent US$ 57.6 million to US$ 76.6 million (US$ 80.32 equivalent as of September 2012, accounting for exchange rate fluctuations) – leveraging close to US$50 million against the IDA’s US$ 30.3 million. 14. Activities remaining incomplete – Termination of construction of new oil jetty: The completion of the new oil jetty has been the top priority of the GOE. The emergency repair of the 8 This amount excludes the administrative expenses of the multi-donor TF by the Bank. 28 existing oil jetty was successfully completed in November 2008 extending its service life by some years until its function would be taken over by a new oil jetty. 15. The contract for the construction of the new oil jetty was awarded in May 2010 for a 22 month period. However, due to delays in providing advance payment to the contractor and commitment from financiers, the contract startup was delayed by five months and was declared effective on December 6, 2010. The contractor after having received advance payment was anticipated to mobilize with all its power, but contrary to expectations was very slow and lacked the drive to meet his obligations. Until the GOE unilaterally terminated the contract on September 8, 2011, the only work done by the contractor was site survey and soil investigation, the results of which have not been submitted to the PCU. This in itself encountered many problems. The mission was informed that the final report is yet to be submitted. 16. IDA came to know of the GOE’s action only after the contractor directly wrote to the Regional Procurement Manager (RPM) for its intervention. IDA informed the GOE that unilateral termination of contract was not procedural and advised that it should have had notified the Bank prior to the action. The Bank’s letter also stated that this unilateral action would entail adverse impacts and that the GOE should be aware that it would bear all responsibilities associated with its actions. Despite the Bank’s advice to extend the EU Grant and IDA’s closing date, the GOE expressed its decision not to do so. The GOE has informed the Bank team of (i) its commitment to complete the construction of new oil jetty by all means using its own and other resources; and (ii) its ongoing discussions with the Contractor on settling the matter amicably, upon which a contractor will be hired to complete the construction under a new contract. 17. The delay in the construction of the new oil jetty may lead not only to a serious adverse economic impact, but also to an environmental disaster, if the existing oil jetty collapses. The mission considers that a high-level dialogue between the GOE, the European Commission and the Bank is therefore imperative to resolve this critical/fatal issue and formulate a new project to complete the new oil jetty – without which the achievement of the PDO will never be sustained and the entire country would face a very serious economic crisis. 18. Achievement of Project Development Objectives: Agreed improvements in cargo handling rates during the implementation were set as presented in Tables 1 and 2 below: Table 1: Cargo Handling Rates in Massawa Port Main types of Cargo 1997 1998 1999 2000 2001 Bulk cargo* 850 900 1,000 1,100 1,100 Bagged cargo* 900 960 1,100 1,200 1,200 General Break Bulk Cargo* 170 215 240 260 260 Containers* * 3 6 6 10 12 Berth Occupancy% 70 77 83 75 67 *ton per ship day at berth ** Containers (TEU's) per ship hour at berth 29 Table 2: Cargo Handling Rates in Assab Port Main types of Cargo 1997 1998 1999 2000 2001 Bulk cargo* 1,625 1,625 1,700 1,700 1,700 Bagged cargo* 1,400 1,450 1,475 1,500 1,500 General Break Bulk Cargo* 400 425 450 450 450 Containers** 4 5 10 12 15 Berth Occupancy % 76 80 80 75 78 *ton per ship day at berth ** Containers (TEU's) per ship hour at berth 19. The actual Massawa Port Productivity and Traffic figures are presented in Table 3 and Figures 1-7 below: Table 3: Regional (Red Sea) Container Throughputs Country Port/Terminal Type of Terminal Quay Depth Yard Number T'put 2008 T'put T'put 2010 Capacity Observations Length (m) Space (ha) of Gantry (TEU) 2009 (TEU) (TEU) 2011 (TEU) (m) Cranes Djibouti Djibouti Full Container Terminal 400 12.0 22.0 4 356,000 na na 500,000 Djibouti Doraleh Full Container Terminal 1,050 18.0 na 6 na na 400,000 1,200,000 Eritrea Assab Multipurpose 865 na 20.9 0 na na 1,000 150,000 Eritrea Massawa Multipurpose 945 na 15.8 0 na na 35,000 50,000 Somaliland Berbera Multipurpose 50,000 Capacity in 2012? Sudan Port Sudan Multipurpose 420 12.7 7.2 8 na na 400,000 400,000 Egypt Adabiya/Suez Full Container Terminal 1,840 12.0 85.4 0 na na 35,600 90,000 Egypt Ain Shokhna (NCT) Full Container Terminal 1,300 Not yet operational in 2010 Egypt Ain Shokhna (CT) Full Container Terminal 1,900 17.0 20.0 4 na na 609,300 900,000 Jordan Aqaba Full Container Terminal 540 20.0 31.1 7 na na 605,660 850,000 Saudi Arabia NCT Full Container Terminal 1,000 15.0 96.0 14 1,655,750 na na 2,500,000 Saudi Arabia RSGT Full Container Terminal 1,045 18.0 na 10 na na 80,580 500,000 Operational in 2010 Saudi Arabia SCT Full Container Terminal 1,899 16.0 148.7 22 na na 1,500,000 1,800,000 Saudi Arabia Yanbu Multipurpose 500 12.0 21.5 3 na na 25,400 300,000 Yemen Aden (ACT) Full Container Terminal 700 16.0 35.0 5 na na 296,200 600,000 Yemen Aden (MCT) Multipurpose 375 11.0 7.5 2 na na 74,200 150,000 Yemen Hodeidah Multipurpose 500 9.8 10.0 5 na na 200,000 300,000 Source: Drewry and other sources - rough data/not all verified (figures in red are estimates). Figure 1: Massawa Port Traffic: Cargo Massawa Cargo Throughput 1997-2010 1400 Cargo Throughput (in 1,000 tons) 1200 1000 800 Import 600 Transit 400 Export 200 0 Intra Eritrea 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year 30 Figure 2: Massawa Port Traffic: TEUs Figure 3: Massawa Port Productivity Indicators: Bulk Cargo Massawa Port Productivity Indicators - Bulk Cargo 3000 Throughput (tons) per ship per 2500 Bulk Cargo 2000 Actual 1500 Bulk Cargo day 1000 Agreed 500 0 1997 2000 2002 2004 2005 2007 2009 1998 1999 2001 2003 2006 2008 2010 2011 Figure 4: Massawa Port Productivity Indicators: Bagged Cargo Massawa Port Productivity Indicators - Bagged Cargo 1400 per 1200 Throughput (tons) per ship 1000 Bagged Cargo Actual 800 Bagged Cargo day 600 Agreed 400 200 0 1997 1998 1999 2003 2004 2005 2009 2010 2011 2000 2001 2002 2006 2007 2008 31 Figure 5: Massawa Port Productivity Indicators: Break Bulk Cargo Massawa Port Productivity Indicators - Break Bulk Cargo 600 Throughput (tons) per ship per 500 400 Break Bulk Actual day 300 200 Break Bulk Agreed 100 0 2008 2009 2010 2011 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Figure 6: Massawa Port Productivity Indicators: Containers Massawa Port Productivity Indicators - Containers 14 Number of TEU handled per ship 12 10 Containers TEU/hr Actual 8 hour Containers 6 TEU/hr Agreed 4 2 0 1997 1998 2001 2002 2006 2007 2011 1999 2000 2003 2004 2005 2008 2009 2010 Figure 7: Massawa Port Berth Occupancy Massawa Port Berth Occupancy 90 80 Berth Occupancy (%) 70 Berth 60 Occupancy* 50 Actual Berth 40 Occupancy* 30 Agreed 20 10 0 1997 1998 1999 2000 2007 2008 2009 2010 2001 2002 2003 2004 2005 2006 2011 32 Annex 3. Detailed Completion Status by Components Project Component Status 1. PROJECT ACTIVITIES/COMPONENT: 1.1 Civil Works: 1.1.1 Rehabilitation of Massawa Port (Phase 1): The works  Completed. mainly consist of Rehabilitation part of Berth No. 5, Rehabilitation and Extension (up to the Break water) of Berth No. 6, provision or rail foundation for Gantry Cranes, Laying of heavy duty concrete pavement blocks at the adjacent quay apron and a container stacking area of approximately 48,000 m2. 1.1.2 Rehabilitation of Massawa Port (Phase 2): The works  Completed under this subcomponent include Rehabilitation of part of Berth 5, Berth No. 3 and No. 4, Laying of heavy duty concrete pavement blocks at the adjacent quay apron, Crane rail foundation, Rehabilitating the road network inside the port with heavy duty pavement blocks, refurbishment of the water towers, and new gates for the Port. 1.1.3 Rehabilitation and Widening of Massawa Causeways: this  Completed included widening of Sigalet causeway, widening and rehabilitation of the Dahlak causeway, as well as provision of pavement for pedestrians on both causeways. 1.1.4. Rehabilitation of Existing Workshop and Construction of  The works were completed though the scope was reduced and the source Equipment Maintenance Shed at Massawa Port of funding was MPA budget. 1.1.5. Intervention Works on Existing Hirgigo Bay Oil Jetty: the  Completed 33 main purpose was to keep the structure in tack until the jetty is in place and made operational. 1.1.6. Construction of New Petroleum Jetty at Hirgigo Bay  The works contract was terminated on September 9, 2011 due to poor Massawa performance by the Contractor. Over the nine months the progress is estimated to be not more than five percent, while the Employer made payments to the Contractor as per the contract equal to 25 percent (including 20 percent of advance payment) of the total contract price. Since the termination of the contract, both parties put forward their claims, implying that the case is still in negotiation/dispute. In parallel, with a lot of effort is being made to retrieve the Advance Payment and to cash the Performance Security by liaising with the Banker, and the Commercial Bank of Eritrea. 1.2 Goods/Equipment 1.2.1 Procurement of Equipment.  Procurement of Waste Collection Vehicles and Oil Spill Response equipment was completed 100 percent by 2008. Procurement of Cargo Handling equipment, Spare parts and tools was substantially revised at the MTR stage, which was further reflected at the time of the formal restructuring of the project, and as a result, 100 percent of the equipment, spare part and tolls were procured as revised. The equipment procurement was performed in two phases: Phase 1 was completed in 2002, whereas the second phase started in 2004 and completed in 2008. 1.3 Consultancy Services 1.3.1 Consultancy Services for Feasibility Study, Preliminary  Under the Ports project, the Consultancy services comprised: Design, Detail Design, Preparation of Bidding Documents and o Design and Supervision of above listed works Assistance in Procurement of Contractors o Master Plan Study for Massawa Port, Commercialization Study for Assab, Provision of Technical Assistance for Massawa Port (in New Management, Operations, Financial Management and Tariff) o Small Consultancy services to the Project Coordination Office in production of tender documents, specification for procurement of 34 equipment etc.  The Contracts for Design and Supervision of the finished works are simultaneously completed. The Master plan and Commercial studies are dully complete. Concerning the Provision of Technical Assistance Contract, the design phase of it was completed, but the Second phase, which mainly consisted of training and implementation of the accepted design proposals, never materialized mainly due to the inability of the Consulting firm to produce acceptable/satisfactory reports, particularly to the Financier.  All the small Consultancy services under the project were satisfactorily completed.  The only incomplete Consultancy Service contracts under the project are: o Supervision Contract for Hirgigo Petroleum Jetty, the reason being that the Works contract associated with this consultancy service is terminated as mentioned above. o Consultancy Services for Feasibility Study, Preliminary Design, Detail Design, Preparation of Bidding Documents and Assistance in Procurement of Contractor: The design for piling foundation (approximately five percent of design) is still outstanding. MPA went into bidding with the captioned design incomplete pertaining to unavailability of site survey and soil investigation. The unavailability of site survey and soil investigation results, in turn, was attributed to failure to find a suitable local and foreign Contract that is capable/interested to carryout out site survey and soil investigation. Consequently, the responsibility was transferred to the main contractor. At this point in time, despite the fact that the results of site survey and soil investigation have been provided to the Consultant, they kept delaying the delivery of the remaining final design, for reasons which are not acceptable to MPA. In view of the above, we are not just unable to have 100% design, but also unable to utilize the Credit funds allocated to it. 35 Annex 4. Economic and Financial Analysis 1. The economic and financial assessment at appraisal was considered separately for Massawa and Assab Ports, with the economic return for the overall project expected at 45.5 percent and net present value (NPV) of US$ 43 million at 12 percent discount rate. These estimates were based on an assumption of the Assab being the main transit port for Ethiopian trade, as at the time it handled 85 percent of Ethiopia's external trade, and being seen as a major revenue and employment generating enterprise for the Eritrean economy. The actual economic return for the overall project is different from that of appraisal calculated in 1997 due to restructuring and removal of the Port Assab related investments from the project. Given that the funds were reallocated from the Port Assab associated components towards additional improvements in Port Massawa, this ICR reviews the economic returns pertaining to the Massawa Port investment only. 2. The total Massawa Port investments for the original components were evaluated at appraisal to generate an ERR of 45.2 percent and a NPV of US$28 million (at 12 percent). The economic analysis of the Massawa Port investment was revised at the restructuring stage in light of newly introduced investments with funds reallocated from Assab sub-components, such as construction of a new oil jetty and emergency repairs of the existing jetty. The benefits from the new oil jetty alone were estimated to be high generating an ERR of 17.9 percent and NPV of US$6 million (at 12 percent), as the new oil jetty was assumed to reduce unit shipping costs as a result of economies of scale from allowing bigger tankers to call at the port. Additionally, the ERR for the whole investment in Port Massawa was expected to be greater than the appraisal estimate due to the high benefits to be accrued from the new oil jetty. These benefits were to be generated as a result of mitigation of risks of potential environmental disaster and of consequent disruptions in oil imports. However, given that the new oil jetty was not constructed under the project, this ICR does not include an assessment of the economic returns pertaining to the new oil jetty. Productivity and Capacity of Port Massawa: Appraisal Estimates and Actuals 3. Achievement of the project outcomes was measured at appraisal and restructuring by the four key indicators, grouped in two categories – productivity and capacity – almost all of which have achieved the set targets by 2005 or even exceeded them during the subsequent years. The only exception is the container handling productivity, which is lower than the target set at the appraisal (12 TEUs/hour) but still exhibits a positive trend from 3 to 8 TEUs/hour from 1997 to 2010. 4. The trade traffic and productivity values in the Massawa Port exhibited a sudden drastic decrease starting 2008 and onwards, which can be explained by the overall decline in trade volumes worldwide due to the world economic and financial downturn observed during that period. Productivity indicators:  Bulk Cargo: target for 2005 was 1,100 tons/ship/day; the actual achieved was 1,525 tons/ship/day, exceeding the target by almost 40%. Since then, the break cargo has 36 reached 2,688 tons/ship/day (2008); but by end of 2010 fell short to 436 tons/ship/day, which can be explained by the worldwide decline in trade.  Bagged Cargo: target for 2005 was 1,200 tons/ship day; the actual was 877 tons/ship/day for the year, falling short by about a quarter. Since then, bagged cargo reached 1,154 tons/ship/day (2009); but fell to 666 tons/ship/day by end of 2010, which can be explained by the worldwide decline in trade.  Break Bulk: target for 2005 was 260 tons/ship/day; actual for the year was 467 tons/ship/day, far exceeding the target by 80%. Since then the break bulk varied in the range of 112 to 500, with latest reported 257 tons/ship/day by end of 2010.  Containers (TEU/hr): target for 2005 was 12 TEUs/hour; actual for the year was 8 TEUs/hour, falling slightly short by a third. Since then number of TEUs/hour remained steady at 8, but decreased to 6 by the end of 2010, which can be explained by the worldwide decline in trade. Capacity indicator:  Berth Occupancy: target for 2005 was 67% down from 70% baseline; the actual in 2005 was 55%, exceeding the target. Since then the capacity increased with berth occupancy varying from 28% (2007) to 52% (2010). Table 1: Targetted and Actual Productivity and Capacity Indicators for Massawa Port Source: Data provided by the PCU (September, 2012) 5. As of end December 2008, the performance results reflect an overall increase in productivity for every category of Port Massawa activity compared to the base year. The two out of the five indicators, bulk cargo and break cargo tons per ship day at berth, surpass the end of project targets while the rest exceed the base values. 6. In accordance with the berth occupancy indicator, the capacity of the port has improved significantly due to the investment. The decline in the berth occupancy rate from 70% to 40% in 2008 and 52% in 2010, which exceed targeted 67%. 37 Project costs: Appraisal Estimates and Actuals 7. Overall, the actual total project costs were slightly lower: actual cost being US$ 57.4 million compared to US$ 57.6 million originally allocated. If broken down, the cost of the civil works in Massawa Port, which accounted for about 40% of total financing originally (in the amount of US$ 22.4 million), was actually higher, resulting in the net over-run of about US$ 5.6 million or about 25 percent. This over-run can be explained by additional investments redirected to the Port of Massawa after cancellation of Assab Port sub-components, which originally did not include any civil works. Less than the allocated costs was spent on the consulting services and studies under the project, leading to an under-run of about US$ 8 million or 30 percent. The equipment and training costs were greater than the appraisal cost estimates, with the actual costs being higher by about US$ 1 million (less than 20 percent). These differences are mainly because of reallocation of costs at restructuring. 8. The costs accrued during the preparatory activities associated with the new oil jetty construction are considered as overheads within the overall project costs for the purposes of this analysis. The costs of emergency repair of the existing oil jetty are treated as capital costs and are embedded in the overall project costs for Massawa investment. Traffic: Appraisal Estimates and Actuals Traffic Forecast at Appraisal 9. The traffic forecast at appraisal was carried out for the years 2000-2005 and was based on the following assumptions: (i) annual GNP growth of 7.5 percent to 2000 and 5.0 percent thereafter; (ii) annual population growth rate of 2.7 percent; and (iii) annual agricultural growth of 6 percent. The demand assumptions for individual commodities were based on forecasts made by the relevant Ministries and the GNP elasticities. 10. The estimation of traffic forecast at the appraisal was challenged by extremely limited data, rudimentary state of statistical databases in Eritrea, the small size of the economy recovering at the time from many years of civil war. A large proportion of port traffic was traditionally food imports, volumes of which depended heavily on the harvests in Eritrea, Northern Ethiopia and Ethiopia generally. Given these uncertainties, the forecast of future traffic was treated with caution and additional weights were given to the sensitivity analysis for variations in traffic levels. The economic returns from high and low traffic scenarios were also tested, and the investment was found to be economically justified under any level of traffic. The project was justified as a short-term capacity enhancing investment, irrespective of the traffic scenario, and even under the low traffic scenario, a satisfactory rate of return was expected. Assuming political stability, marked increases in both GNP and agricultural production were expected to stimulate the rise in total port traffic, under the central forecast, from 633,000 tons in 1994, to 870,000 tons in 2000, and 1,005,000 tons in 2005. Actual Traffic Levels 11. The traffic forecasts, made at appraisal, would require major re-assessment to take into account the factors unexpected at the time, such as, impact of the war in 1999-2000, the post-war 38 continuing tension at the border, associated overall decline in the economic performance of Eritrea, loss of Ethiopian transit traffic in the aftermath of the war, and overall decline in world trade volumes due to economic and financial downturn worldwide in 2008 and onwards. Also, given that most of the project’s activities in the Port of Massawa were completed by the end of 2008, with the exception of new oil jetty, our comparison of actual and forecast traffic is complicated by the fact that the appraisal traffic targets were only until 2005, four years after the expected completion of all activities under the project. 12. In general, the actual traffic level handled at Port Massawa has increased only marginally from 610,000 tons in 1996 to 680,000 tons in 2007. However, it is important to note that the traffic levels followed a positive trend during the 1997-2005 and even peaked to 1.25 million tons in 2003. In 2005 the actual traffic levels exceeded the appraisal forecast, which registered substantial benefits to the project during this intermediate period, though the global financial crisis of 2008-2009 has set the traffic back, bringing it down to 536,000 tons in 2010. 13. The following table compares the traffic forecasts for 2005 with actuals for that year and the years since then. As mentioned earlier, the period after 2008 is characterized by financial and economic crisis and the associated decline in trade volumes worldwide, affecting the port traffic. Table 2: Forecast versus Actual Traffic in Port Massawa (in '000 tons) 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total 710 755 809 870 893 918 945 974 1005 1005 1005 1005 1005 1005 forecast Total 610 794 1097 732 1050 1172 989 1352 1171 1073 637 680 N/A N/A 536 actual Source: Data provided by the PCU (September, 2012) N/A – data is not available for the year 2008 and 2009, which can be explained by the effects of the economic downturn and associated decline in trade worldwide, including Eritrea. Estimate of Ex-Post Economic Returns 14. Overall, the project financed activities have resulted in increased capacity and expansion of Port Massawa through the extension of the container terminal and berths, improvement of Massawa causeways, and acquisition of new port equipment and spare parts. 15. At appraisal, the investment was evaluated based on standard port appraisal methodology and techniques, such as assessment of the implications of port traffic, cargo handling rates and berth capacity on berth occupancy, shipping delays and user costs. The economic benefits were derived from reduction in berthing time delay, reduction in wait time for ship to berth, and increase in flow of containers. Benefits were estimated for years 1999 to 2005. 16. Due to lack of detailed updated data to re-estimate the benefits and no availability of port’s actual financial data on operating and maintenance costs and revenues, we rely on the estimations made at appraisal to estimate the benefits per ton and adjust them to the actual traffic 39 volumes and productivity levels. The operating and maintenance costs are also assumed as at appraisal. Benefits for the years after 2005 are assumed at the same benefit/ton level as 2005. Traffic data unavailable for years 2008 and 2009 is assumed at the same level as in 2010 (the lowest traffic in the trend) to be more conservative. 17. On this basis, the ex post economic return for Massawa Port investment (excluding the new oil jetty) is now at about 42 percent with NPV of US$ 29 million (at 12 percent), which is only slightly lower than the appraisal estimate of 45% without the new oil jetty. The difference is barely significant, given continuing uncertainties, but the result is far in excess of the cost of capital and very robust. Even if the annual benefits from 2006 until the end of the period were to be third of what was expected and the operating costs were double of the forecast, the final EIRR would decrease to as low as 35%, which still is significantly justified. 40 Annex 5. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Supervision/ICR David Stephen Rudge Consultant AFTTR TTL Josphat O. Sasia Lead Transport Specialist AFTTR TTL Henry Amena Amuguni Sr. Financial Management Specialist AFTFM FM Efrem Fitwi Procurement Specialist AFTPC Procurement Samuel Iyasu Zerom Operations Analyst AFTCE2 Operations Colin P. Rees Consultant OPCQC Safeguards Svetlana Khvostova Oeprations Analyst AFTSG Safeguards Farida Khan Operations Analyst AFTTR Operations Felly Akiiki Kaboyo Operations Analyst AFTTR Operations Tekie Sium Cofinancing Assistant AFTTR Operations Sevara Melibaeva Transport Economist AFTTR ICR Author Yoshimichi Kawasumi Consultant AFTTR ICR Author Bert Kruk Consultant AFTTR Port Expert – ICR James N. Karuiru Consultant AFTUW Nina M. Jones Program Assistant AFTTR Anne Khatimba Program Assistant AFCE2 Anne Njuguna Program Assistant AFTTR Lucy Musira Program Assistant AFCE2 Sofia Woldu Program Assistant AFMER Charlene D’Almeida Program Assistant AFTTR Christine Akinyi Onyango E T Consultant LEGAF Saba Solomon Tekle Temporary AFMER (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No. of staff weeks travel and consultant costs) Lending FY94 0.29 FY95 31.14 FY96 149.27 FY97 82.55 FY98 45.98 FY99 0.00 FY00 0.00 FY01 0.00 41 FY02 0.00 FY03 0.00 FY04 0.00 FY05 0.00 FY06 0.00 FY07 0.00 FY08 0.00 Total: 309.23 Supervision/ICR FY94 0.00 FY95 0.00 FY96 0.00 FY97 0.00 FY98 52.22 FY99 55.71 FY00 11 66.77 FY01 11 54.38 FY02 12 66.13 FY03 16 92.48 FY04 25 156.75 FY05 20 131.86 FY06 33 201.10 FY07 31 103.46 FY08 24 80.06 FY09 4 0.00 Total: 187 1060.92 42 Annex 6. Beneficiary Survey Results N/A 43 Annex 7. Stakeholder Workshop Report and Results N/A 44 45 Annex 8. Summary of Borrower's ICR and/or Comments on Draft ICR 46 47 48 49 50 51 52 53 54 55 56 Annex 10. Comments of Cofinanciers and Other Partners/Stakeholders N/A 57 Annex 11. List of Supporting Documents (i) Staff Appraisal Report, October 1997 (ii) Mid-Term Review, December 1999 (iii) Restructuring Project Paper, September 2008 (iv) Italian Grant and EU Grant Agreements (v) Aide Memoires and ISRs (vi) Quarterly Progress Reports by PCU (vii) CAS / ISN (viii) QAG Reports (QSA5 and 6) (ix) Massawa Port Master Plan (x) Port Management TA Report 58 Annex 12. Site Visit Note ERITREA Implementation Completion and Results Mission for Port Rehabilitation Project (IDA Credit 30050-ER, TF-22024; TF-56833) June 11 – June 16, 2012 Note on a Site Visit to Port of Massawa (June 14, 2012) Report on the visit to the Port of Massawa On June 14, 2012, the mission, accompanied by the Project Coordinator in Eritrea, visited the Port of Massawa. Unfortunately on the day of the visit there were no ships at berth being loaded or unloaded, so the mission could not observe the cargo handling operations. The overall impression of the port is quite positive on the basis of the following aspects: • The port area is quite spacious, certainly when considering that the 2010 throughput was in the order of 1 million tons, including approximately 20,000 TEU containerized cargo. • The Port has 6 berths all equipped with a sufficient number of bollards and fenders made out of used tyres. • The apron area as well as the container stacking area are paved with interlocking concrete blocks and make a very good impression; broken blocks could not be spotted and the subsidence that was spotted in a few places was minimal. In particular at berth 6 the apron width is very good; in the order of some 40 meters. • The container stacking area provides a good and organized impression; container location identifications are painted in the terminal, the terminal area has a good run-off slope and drainage system, sufficient lighting towers for night work, and the rows of containers are nicely lined, whereas the average stacking height was in the order if about 2.5. • There was enough space available for the stacking of many more containers. i.e. the Occupation Rate is quite low. • The operational area where containers are loaded and unloaded to and from trucks, by means of reachstackers, is spacious. At the time of the visit three reachstackers were in the location. • The terminal also includes a so-called consolidation shed, where stripping and stuffing of containers takes place. • A somewhat negative point could be made with respect to security. As a consequence to increase safety and security, all ports should apply the principles of ISPS (International Ship and Port Security) Code of the IMO which implies that all persons and goods that enter a port or terminal should be checked and/or identified. When the mission entered the port the security inspection was the very minimum and the security post at the container terminal was not even manned. If Eritrea expands its international sea-going trade this is an issue that needs to be addressed. • The port is equipped with a considerable fleet of equipment, certainly when compared to its present throughput. • Berths 5 and part of berth 6 can be served by in total three rail mounted quay cranes. 59 • The port also has 3 heavy duty mobile cranes. However, according to information received from the PCU, the use of these cranes is not very frequent; there are said to be mechanical problems, high fuel consumption and the large container spreader is in need of repair. For this reason, as most of the containers that have to be loaded and unloaded are carried by ‘geared’ vessels, container handling is mostly executed by the ship’s gear, or sometimes by one or more of the rail mounted quay cranes. • The mission also observed a number of bagging machines. • The equipment storage and repair yard included more cargo handling equipment such as mobile cranes, forklift trucks, a reach stacker and a number of tugmasters. It could not be established if this equipment was in working order or waiting for servicing and / or repair. It was unfortunate that the mission could not see the port ‘in action’, i.e. could observe loading and unloading operations, or towing operations. Notwithstanding the extensive port knowledge and know-how of PCU Coordinator, it is regretted that the mission could not meet with senior port management staff to discuss issues related to the port layout, -operations, throughput and a number of operational productivity data. But in conclusion, the overall impression is that Massawa has sufficient space to handle its present throughput and certainly also considerable increases in the future. In terms of civil engineering and layout (both on the apron and in the container stacking area) the impression is very positive. Berth 6 – Bollards, fenders and rail-mounted Terminal paving and container stack quay cranes identification marking Container Terminal stacking and lighting tower Reachstacker 60 Container loading and unloading operations Bagging machines and mobile cranes Tugmaster Equipment Storage and Repair Yard 61 36° E 38° E 40° E To ERITREA 18° N Port Sudan 18° N PORTS REHABILITATION PROJECT PORTS Karora MAIN CITIES AND TOWNS REGION CAPITALS NATIONAL CAPITAL MAIN ROADS Sala RAILROADS SUDAN REGION BOUNDARIES Barka Nakfa INTERNATIONAL BOUNDARIES NORTHERN R Gulbub RED SEA E 42°E This map was produced by ANSEBA Ans (SEMIEN-KEIH- the Map Design Unit of The D eba World Bank. The boundaries, BAHRI) GSDPM Map Design Unit colors, denominations and any other information shown 16° N on this map do not imply, on the part of The World Bank Keren Group, any judgment on the legal status of any territory, S or any endorsement or Akurdet Massawa E acceptance of such To CENTRAL Ingal Jemahit boundaries. A Kassala Sebderat (MAEKEL) GASH - BARKA ASMARA Alig hede Teseney Barentu Dekemhare Gash Areza SOUTHER N Buia Mendeferas Adi Keyh Fatuma (DEBUB) Adi Quala Tio R E P. O F Um-Hajer YEMEN Tekeze To SOU TH E RN Adirgat 14° N To RE D S SEE A Idi 14° N Adi Abun (DEBUB-KEIH- BAHRI) ERITREA E T H I O P I A Beylul Assab 0 20 40 60 80 100 Kilometers Andale DECEMBER 2012 0 20 40 60 80 100 Miles To To IBRD 39669 Logiya Djibouti 36° E 38° E 40° E 42° E DJIBOUTI