RETURNJ TOREPORTS DESK RESTRICTED

WITHIN FILE COPY Report No. PTR-79aONE WEEK

This report was prepared for use within the Bank and its affiliated organizations.They do not accept responsibility for its accuracy or completeness. The report maynot be published nor may it be quoted as representing their views.

INTERNATIONAL BANK POR RECONSTRUCTION AND DEVELOPMMNT

INTERNATIONAL DEVELOPMENT ASSOCIATION

APPRAISAL OF SANTOS PORT PROJECT

BRAZIL

May 6, 1971

Transportation Projects Department

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Currency 1dmivalents

Except where otherwise stateds al figuresare quoted in new cruzeiros (NCr$) ofDecember 1970.

US$1 - NCr$ 4.85NCr$ 1 - US$0.206NGr$ 1 million - US$206,186

Weights and Measures

Metric System

Metric US Units

1 ton - 1.102 short tons1 km * 0.621 miles1 ueter 3.281 feet1 kg - 2.205 pounds

Fiscal Year

January 1 to December 31

Abbreviations

BCCL - Boucinhas and Campos and Coopers and LybrandCDS - Coupanhria Docas de SantosCIsRAZEM - Brazilian Storage CompanyCOSEPS - Comittee for the Coordination of Port

Services in SantosCVRD - Cia Vale do Rio DoceDNPVN - Departamento Nacicnal de Portos e Vias

NavegaveisGEIPOT - Grupo de Estudes para Integracao da

Politica de TransportesPA-i - First Transport Plan of ActionPA-2 - Second Transport Plan of ActionRFFSA - Rede Ferroviaria Federal SA

BRAZIL

APPRAISA, OF SANTOS PORT PROJECT

TABLE OF CONTENTS

Page No.

SUMWARY i-i

1. INTRODUCTICN 1

2. BACKGROUND 2

A. General 2B. The Transport Sector 2

3. PORT ORGANIZATION AND AIMNISTRATION 4

A. General 4B. Port of Santos 5

4. THE PORT OF SANTOS 6

A. Port Facilities 6B. Dredging 7C. Operations 7D. Transport Connections to the Port 7E. Problems 8

5. THE PROJECT 9

A. Development Program of Santos Port, 1971-75 9B. The Project 10C. Proj-ect Execution and Financing 13D. Procurement and Disbursement 14E. Land Acquisition 14

6. ECONOMIC EVALUATION 14

A. Traffic Forecast l4B. Cost-Benefit Evaluation 16

7. FINANCIAL ASPECTS 19

A. The CDS Concession 19B. Tariffs and Investment Financing 19C. Present Accounting Systems and Past Earnings 20D. Financial Forecasts 20E. Financial Objectives and Tariff Covenant 25F. External Audit and Insurance 26

8. RECOIMENDATIONS 27

This report was prepared by Messrs. A. H. Clark (financial analyst), T. M.Malkani (engineer) and M. S. Parthasarathi (economist).

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ANNEXES

1. Details of Railway, Highway and Air Transport Sectors2. Details of CDS Concession3. Description of Santos Port Facilities, Ancillary Services, Floating

Craft, Plant and Cargo-Handling Equipment4. Important Items of Works Being Carried out and Equipment Ordered or

Recently Delivered5. Basis of Foreign Cost Estimates6. Evaluation of the Corn Silo7. Rail Access to Left Bank8. Traffic Forecasts9. Financial Forecasts, Bases and Assumptions

TABLES

1. Brazil's Principal Ports, Type of Administration, and Import andExport Traffic in 1969

2. Santos Port Five-Year Development Program: 1971-753. Details of the Estimated Cost of the Project4. Estimated Schedule of Disbursements5. Santos Port Traffic for 1968-70 and Forecast for 1971-806. Rate of Return Analysis7. Port of Santos - Santos Dock Co. & INPVN Balance Sheet - December 31, 19698. Consolidated Forecast Revenue Accounts9. Sensitivity Analysis - Key Financial Ratios

10. Forecast Funds Flow Statement - 1970-8011. DNPVN - Port of Santos Forecast Funds Flow Statement12. Consolidated Forecast Balance Sheets13. Forecast Balance Sheets - CDS14. DUPVN - Port of Santos - Forecast Balance Sheet (Santos)15. Balance Sheet Position of DNPWN - Santos at December 31, 1980

After Expiry of Concession

MAPS

1. Brazil - Principal Ports2. Santos Service Area - Rail and Road Connections3. Santos Port Project

BR2ZIL

APPRAISAL OF SANTOS PORT PROJECT

SUMMARY

i. The port of Santos serves central south Brazil which includes heavilypopulated Sao Paulo state and city, which are spoearheading Brazil's industrialand economic development. The continuing rapid economic growth of the regionrequires the expansion of the port, together with the improvement of its exist-ing facilities and their better utilization. To achieve these ends the Covern-ment, through the Departamento Nacional de Portos e Vias Navegaveis (UVPVN),has formulated a Five-Year Development Program, 1971-75, for the port of Santosinvolving an estimated expenditure of US$143 million equivalent.

ii. There has been a continuing exchange of views between the Governmentand the Bank on the improvement and expansion of the country's transport faci-lities. A transport survey in two phases was begun in 1965 and Phase 1 (forwhich the Bank made a grant of US$1.5 million) covered highways in four states,rail transport, coastal shipping and the country's three main ports of Santos,Rio de Janeiro and Recife. Phase 2 was initiated in 1967 and covers highwaysin 14 more states.

iii. In 1968, the Government submitted a Plan of Action (PA-1) summarizingits objectives in the transport sector and outlining schedules for action onhighways, railways and ports and a Second Plan of Action (PA-2) in 1970 out-lined measures to effect further improvements in transport. Progress in imple-menting the Plans of Action has been satisfactory for highways and railways,but slo,w in ports.

iv. The Phase 1 report recommended certain works for the improvement andexpansion of the three main ports, and in 1969, the Government commissioned amore detailed study of the type, extent and cost of improvement works neededat Santos. It had already become evident that increasing congestion of theright bank of the estuary, on which the port and city are crowded together,poses a major problem and a separate study was ordered to assess the technicaland economic feasibility of developing the largely unused left bank of theestuary including provision of rail access. The results of this study werefavorable and the Government has now decided that all major new facilities forbulk and containerized cargo should be located on the left bank. The Five-YearDevelopment Program for Santos takes this decision into account and is based on1these various studies.

v. The port of Santos is operated under concession by Companhia Docasde Santos (CDS), a private company, under the overall direction of DNPVN whichis an autonomous entity under the Ministry of Transport responsible for portsin Brazil. The concession expires in November 1980 when the assets will passto the Government and a mixed economy company, in which the Government, throughD1NPVN, will have a controlling interest, may be set up to take over the port.In recent years most of the funds for investment at Santos have been providedby DNPVN,, which will also be responsible for financing the Five-Year Program.Already, the present value of DNTPNl s investments in the port exceeds th,.t ofODS.

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vi. The proposed loan for US$45 million equivalent would finance theforeign exchange cost of the project consisting of selected items in thedevelopment program which were suitable for international competitive biddingand the construction or procurement of which is still to get under way. Theproject conprises the construction on the left bank of a container terminal, acorn silo and berth and all related works and equipment; some 40 km of railconstruction outside the new port area; the purchase of a dredger for mainten-ance dredging; hydraulic studies of the estuaryj consulting services fordetailed engineering and supervision of construction; and management consultantstservices to improve the organization, administration and operations of Santosport and of DWMVN. Additionally, the project would finance the services offoreign experts to help the Government to prepare an overall plan for thedevelopment of ports in Brazil on the basis of detailed studies either alreadycompleted, underway or expected to be undertaken shortly.

vii. A most important and integral part of the project is its institution-building aspects for the port sub-sector in Brazil, as an essential part of theBank's efforts to promote improvements in institutional and policy-making areasof the transport sector as a whole.

viii. The loan will be to the Government. Project execution will be therespolnsibility of DNPVN except for certain railway works and the national portstudy. A committee will be set up to coordinate port and rail constructionand other port related matters. Procurement of equipment and materials andthe award of civil works contracts will be on the basis of internationalcompetitive bidding. For procurement itemas Brazilian manufacturers will havea preference of 15% or the relevant rate of customs duty, whichever is lower.

ix. The Santos port development program as a whole will earn an economicreturn of over 20% (which includes the rail access to the left bank) and theport as a whole will earn a financial rate of return of more than l0,,. Theprogram provides a suitable basis for a Bank loan of US$45 million equivalentfor a term of 25 years, including a five-year grace period.

BRAZTL

APPRAISAL CF SANTOS PORT PROJECT

1. INTRODUCTION

1.01 The Government of Brazil has requested a Bank loan of US$45 millionequivalent to help finance: (a) selected items of works and equipment (suit-able for international competitive bidding and the construction or procurementof which is still to get under way) in a five-year program for the improvementand expansion of Santos port; (b) rail access to a new area of the port onthe left bank; and (c) an overall review of the port needs of Brazil. Thefive-year program for Santos port is estimated to cost NCr$ 694 million andthe program for rail access external to the port and the ports study NCr$ 82million, making a total of NCr$ 776 million or US$160 million equivalent. Outof this total the loan would finance the foreign exchange cost of items whosetotal estimated cost is NiCr$ 381 million (US$78.5 million). The loan would bemade to the Government with the Departamento Nacional de Portos e ViasNavegaveis (DNPVN), the Government agency responsible for the overall develop-ment of ports in Brazil, as the principal executing agency.

1.02 In 1965, the Government undertook, with Bank assistance, a generaltransport survey of Brazil, with the Netherlands Engineering Consultants (NEDECC.being retained to carry out a study of the ports of Santos, Rio de Janeiro andRecife. In 1969, DNPVN appointed a consortium of two firms of engineeringconsultants, King and Gavaris (US) and the Organizacao e Engenharia S/A (Brazil)(OESA), to review the works proposed by NEDECO for Santos port and their costestimates and to undertake detailed engineering of the recommended works. Theproject is based on studies by this consortium, the earlier NEDECO reportand a technical-economic feasibility study of the rail access to the leftbank cormissioned by Companhia Docas de Santos (CDS), the port concessionaire,at DiNPVN's request and carried out by Engevix-Planave, S.A., a Brazilianengineering consulting consortium. Additionally, the financial evaluation ofthe project was carried out by a consortium of professional accounting andmanagement consultant firms, Boucinhas & Campos (Brazil) and Coopers & Lybrand(International) (BCCL).

1.03 This is the first Bank port project in Brazil. Other Bank projectsin the transport sector include: (i) two railway projects financed by loans65-BR and 92-BR (US$12.5 million each) in 1952 and 1953 for the rehabilitationof the Central do Brazil facilities and purchase of rolling stock; (ii) ahighway maintenance project financed by loan 75-BR (US$3 million) in 1953 forthe purchase of maintenance equipment for the State of Rio de Janeiro; and(iii) tvwo highway construction projects, 567-BR (US$26 million) in 1968 and

676-BR (US$100 million) in 1970, for the construction, paving and improvementof highways and for detailed engineering and supervision of the works. Thetwo railway loans and highwxay maintenance loan 75-BR have been fully repaid,and progress on the two highway construction loans is satisfactory.

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1.04 This report has been prepared by Messrs. Clark (Financial Analyst),Malkani (Engineer) and Parthasarathi (Economist) who appraised the project inAugust-September and December 1970. They were assisted by Messrs. Zarandin(of the Agriculture Projects Department), Pelon and Macgregor (Consultaits)on matters pertaining to a corn silo which forms part of the project, and bystaff members of the Railways and Highways III Divisions.

2. BACKGROUND

A. General

22.01 With an area of 8.5 million km , Brazil is the fifth largest countryin the world (Map 1). Estimated end-1970 population was 92 million and popula-tion growth averages 2.7% p.a. Average overall population density of thecountry is only about 11 per km2, but in the coastal region of Rio de Janeiro,Santos and Sao Paulo, the density exceeds 3,000 per km2. Brazilts broad rangeof ecological conditions permits the cultivation of all tropical, subtropicaland temperate climate crops. Potential for expansion, particularly of agricul-tural production, is large, and there are extensive undeveloped land and waterresources. In the last two decades the growth and diversification of industryhas been remarlkable, and the country now produces a large range of manufactures.

2.02 GDP at market prices was estimated at about NCr$ 128 billion in 1969(Us$31.6 billion equivalent); per capita GDP in the same year was about US$348equivalent. The early sixties were characterized by sluggish growth and infla-tion of up to 90Q p.a., but sustained growth has been registered in recentyears and the rate of inflation reduced. GDP grew 8% in real terms in 1968,by 9% in 1969 and by an estimated 9.5% in 1970. Maintaining a high economicgrowth rate is one of the Government's main social and political objectives.For the 1971-76 period, an annual growth rate of 6-7% appears feasible. Tosustain this, a major effort will be required in the transport sector, includ-ing investments in the improvement and expansion of port facilities.

B. The Transport Sector

2.03 Because of the size of Brazil, transport has played an important partin its economic development, since the economy is heavily dependent on bothexport crops and the development of new areas for productive use. Continuedimprovement and addition to transport facilities and their better utilizationare necessary to support the rapidly growing economy and to link the variousregions. The transport survey (para. 1.02) was in two phases: the firstcovered highway and railway transport, coastal shipping and the ports ofSantos, Rio de Janeiro and Recife and was completed in 1967. The second,dealing with more highways, was then started with financial assistance fromUNDP and USAID and the Bank acting as executing agency; completion is expectedby the middle of 1971.

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Transprt Coordination

2.04 To coordinate and supervise the transport s rvey, as well as toprovide counterpart personnel and facilities required by foreign personnel,a Government body - Grupo Executivo de Integracao da Politica de Transportes(CEIPOT) - was set up in 1965. GEIPOT has now been changed into a permanentorganization called Grupo de Eatudes para Integracao da Politica de Transporteswith responsibility for investment planning and improving coordination betweenvarious modes of transport.

2.05 In connection with the highway loans, two transport plans of action(PA-1 and PA-2) were formulated by the Government, one in 1968 and the secondin February 1970, giving a summary of Government's objectives in the transportsector and outlining measures required to achieve them. In ports, these visual-ized: (a) measures for the decentralization of port administration by reorgan-izing DNPVN into a planning and policy-making body and gradually transferringports to mixed economy companies (in which the Government will own at least51% of the shares and voting rights); (b) reorganization of Santos port manage-ment, operations, accounting, etc., aid (c) following from (b), adoption ofcost-based tariffs, initially at Santos port, followed by other ports. Paras.

3.04 and 3.05 give the details. There have been delays in implementing themeasures because of: (a) personnel changes in the management of DPTVTT includirgthe Director-General; and (b) the detailed studies required by many of the

measures have yet to be organized and carried out. Th, financing of consultantsaservices to carry out such studies as -,ell as to help implement the resultingrecommendations is includo0 in the project.

Ports and Coastal Shipping

2.06 There are 33 ports of some importance along the coast of Brazil, oneinland port on the Amazon River and one on the Paraguay River (Map 1). In 1969,

total port traffic was about 73.0 million tons of dry and liquid cargo, includ-ing bulk (Table 1). Santos handled about 13 million tons and is the biggestport for general cargo. Rio de Janeiro handled about 21 million tons of which,however, less than 10% was general cargo. Some 16.0 million tons of iron orepass through the specialized port of Vitoria.

2.07 Coastal shipping carries about 13% of the country's total port cargotraffic (excluding traffic of specialized terminals). The present fleet istoo large for the cargo offering but consists of old and obsolete vessels op-erated by a large number of companies with no fixed sailing schedules. Thetransport survey recommended the establishment of fixed sailing schedules,replacement of old, outmoded ships and the merger of shipping companies, sothat they could become financially vi able and more efficient. Little progresshas been made in implementing these suggestions because of organizational andlegal problems. However, a proposed port planning study (para. 5.07 (xiii))should provide data which will assist the Government to plan improvermnts inthis mode.

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Rail, Road ald Air Tra

2.08 Rail and road connections are very important for the port of Santosand are discussed in Sections h and 5 of the report. Details of these sectorsand of air transport in Brazil as a whole are given in Annex 1.

3. PORT ORGANIZATION AND ADIENISTRATION

A. General

3.01 The 35 principal Brazilian ports (para. 2.06) operate under variouskinds of administration (Table 1):

(a) under concession to private companies. including Santos (3);

(b) under concession to State Governments (13);

(c) by mixed economy companies (2)1/;

(d) by an autonomous Pederal Government body (1);

(e) directly administered by IIFVN (6); and

(f) small ports with varying local administrations (10).

3.02 INPVN1, under the Ministry of Transport, exercises overall control ofall ports in Brazil, including those under private eompany concessions. TheDirector-General of INPVN is a political appointee of the Minister of Transport.The Director-General appoints, usually from among the staff of IIIPVN, his prin-cipal assistants - a Special Assistant (who acts as his deputy) and four direc-tors in charge respectively of Ports, Inland Waterways, Planning and Adminis-tration. The present Director-General appears to be a man of drive and ini-tiative, and his principal assistants are competent.

3.03 INPVN exercises centralized ccntrol over all port administrations notonly as regards investment programs and tariffs, but also over all disbursemerntsagainst approved budgets and in respect of operations, salary and wage scales,and other local administrative matters. DNPVN's functions and powers are sowide that they seriously interfere with the efficiency of the day-to-day manage-ment of port administration.

3.04 The C-overnment is awyare of the need to improve ENPVN and port adminis-tration generally. It has embarked on a program to decentralize and reorganizethe administration of the major ports in accordance with PA-2 (para. 2.05).

l/ A mixed economy ccmpany is a limited liability company, subject to Braziliancompany law, but with its own bylaws and regulations defined by decree. Inthe case of mixed economy port companies, the Government, through ]NPVN,owns at least 51% of the share capital and controls at least 51% of thevoting rights.

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The program involves: (a) the creation of mixed economy companies to takeover the major ports, with reasonable representation of port users and regionalinterests; and (b) a review and restatement of DiNPVN's functions and powers,and reorganization of its administration to transform it into a Governmentagency, responsible mainly for policy formulation, planning, approval of rates,and the holding of Governmentts share in port mixed economy companies.

3.05 The program requires a study for which proposals have already beenreceived from BCCL. The proposals expect that the phased reorganization ofDNPVN can be completed in 18-30 months from the appointment of consultants.Management consultants have been selected to carry out the above study, underterms of reference satisfactory to the Bank; the signing of a contract, accept-able to the Bank, with the consultants is a condition of loan effectiveness.During loan negotiations DNPVN undertook to implement such recommendations asmay be agreed with the Bank according to a timetable to be agreed with theBank. The cost of the consultants' services forms part of the proposedproject; some retroactive financing is involved (para. 5.12 ).

3.06 A serious hindrance to the development of efficient port organizationand administration in Brazil is the very low salary scales and restrictions onpromotions imposed by Government regulations, practices and procedures. Thisaffects DNPVN, concessionaire companies, mixed economy companies.. and in fact,the whole of the public sector. An adequate salary structure, terms ofservice and promotional opportunities, competitive with those offered byprivate industry, must be introduced in any program to reorganize the ports onefficient lines. The Goverrment has recently revised, on this basis, thesalary structure of technical personnel employed in the Fisheries Departmmet,the Forestry Research Program and the Wheat Research Program as a condition ofUNDP financing and has expressed its intention to take similar action in theport sector. The management consultants (para. 3.05) will study present salarylevels in DNPVN and the port of Santos and recommend a suitable salarystructure, and an undertaking was obtained from the Government that theirrecommendations, as may be agreed with the Bank, will be implemented beforeDecember 31, 1972.

B. Port of Santos

3.07 CDS, a private limited company, manages Santos port under a concessionagreement which wxill expire in November 1980. (Details of CDS's concession aregiven in Annex 2). Under the terms of the agreement, the Government may ter-minate the concession at any time before the expiry date by buying up CDS'sinterest in the port. The Government has started preliminary talks with CDSabout this and the possibility of setting up a mixed economy colpany to takeover the port with CDS continuing as a minority shareholder. To ensure theorderly transfer of responsibility, DNPVN has agreed to have ready the organi-zation and personnel for a new entity at least three months before the termina-tion of the concession, with a constitution and with powers satisfactory tothe Bank, to take over the assets and operations at Santos port.

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3.08 Neither Brazilian company law nor legislation relating to the con-cession provides CDS with authority over other public and private agencieswhose cooperation is essential to efficient functioning of the port. Theresulting lack of coordination gave rise to inefficient port operations in thepast and the problem became serious in 1968. In April 1969, the Governmentcreated by decree a special committee for the coordination of port services inSantos (COSEPS) under DNPVN. The Committee members were drawn from DNPVN,various ministries and Federal Government agencies dealing with the port, CDSand the Sao Paulo State Government. The Committee was given wide authorityover CDS, all port users, cargo, ships, and Customs, and has been effectivein improving operations. It is expected the mixed economy company which willeventually take over the port will have powers similar to those of COSEPS.CDS's management of operations is generally efficient and its maintenance offacilities, cargo-handling equipment and floating craft is good.

3.09 In July 1969, DNPVN contracted with BCCL, with Bank approval, toundertake a study of the administrative organization and systems at Santos.BCCL's February 1970 report indicated areas which were unsatisfactory and madegeneral recommendations for improvements. More work is now required to formu-late detailed programs and plans for all unsatisfactory areas, including train-ing programs, and to assist in implementation. The areas concerned includeoperations, financial and cost accounting systems, budgetary control andmanagement information systems, maintenance, inventory control and dataprocessing.

3.10 BCCL has prepared proposals to this end with which the Bank and DNPVNagree. The work will be important not only for the efficient future managementand operations of the port of Santos, but also to serve as a model for otherBrazilian ports. Nanagement consultants satisfactory to the Bank have beenselected to provide professional assistance at Santos substantially as proposedby BCCL. The signing of a contract with them, satisfactory to the Bank., is acondition of loan effectiveness. The Government has agreed to implement byJune 1974 the new systems and training programs, according to a timetable tobe agreed wfith the Bank. The cost of the consultants' services forms part ofthe proposed project. Some retroactive financing will be involved (para. 5.12).

4. THE PORT OF SANTOS

A. Port Facilities

4.01 The port of Santos is on an estuary leading from a bay. The entrancechannel is 11.5 m deep at low water and 120 m wide. There are no restrictionson the length of ships using the port. Depths at the berths vary from 5.0 nito 11.0 m at low water. The mean tidal range is 1.6 m.

4.o2 Most of the port facilities are located along some 12 km on the rightbank of the estuary in close proximity to the growing city; in many places oneside of the public streets along the port's length belongs to the port and the

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other to the town. The left bank of the estuary is virtually undevelopedexcept for two existing oil berths on Barnabe Island and two berths for loadingfertilizers now being ccmpleted; this side of the estuary has no rail accessbut a road is nearing completion.

4.03 The general cargo berths are provided with transit sheds, electricportal cranes and other cargo-handling equipment. The dry bulk cargo, grainand special-cargo berths are provided with suitable handling and pumpingplants. Further details of the port facilities, ancillary services, floatingcraft and plant are given in Annex 3.

4.0 CDS provides ship berthage, shore-handling services, storage facili-ties, maintenance dredging, and special services for ships and cargo. Steve-doring services are provided by independent private operators. The independ-ent Santos Pilots Association, under the ccntrol of a Port Captain appointedby the Brazilian Navy, provides pilotage, which is compulsory.

B. Dredging

4.o0 I1PVN carries out capital dredging through the Government-ownedBrazilian Dredging Company. CDS usually carries out maintenance dredgingof the navigation channel and alongside wharves with its own three dredgers;the quantities have gradually increased over the past few years and in 1969over 1.9 million m3 was dredged.

C. Operations

h.o6 Since COSEPS started functioning in 1969 it has been effective inimproving port operations, and reducing ship time in port and cargo conges-tion: gang productivity for general cargo increased from 12 tons to 15 tonsper hour; average ship time at berth fell from 72 hours to 60 hours; andcargo storage in transit sheds declined from an average of seven days to sixdays. The port is now functioning at close to optimum capacity and furtheroperational improvements would be difficult. To avoid congestion and delays incargo movements, aidto handle growing traffic, improvements and extensions ofthe port facilities- are essential.

D. Transport Connections to the Port (Map 2)

4.07 Santos is the main port for Sao Paulo State. Because of rapidindustrial expansion in and around Sao Paulo city and vast increases inagricultural products in the Santos service area, transport connections tothe town and the port are continually being extended and improved. Never-theless, the approach road and rail systems to the port through the town areextremely congested and cause considerable delays to port and urban trafficmovements. In addition, both the town and the port are expanding and encroach-ing on each other, with resulting conflicts between urban traffic and portoperations. DNPVN, COSEPS and CDS have proposals for acquiring certain por-tions of city land and for abandoning certain lengths of old quays with limitedalongside depth (after new berths forming part of the development program areprovided) so as to provide better rail and road services in the existing portarea. These proposals are compatible with the development plans for urbanstreets and roads in Santos.

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4.08 Sao Paulo lies about 60 km from Santos at the top of an escarpmentof 850 m elevation. Two two-lane highwy-s, which are already inadequate forthe rapidly increasing traffic, connect the two cities and two additional two-lane highways are under construction. Highway connections between Sao Pauloand Rio de Janeiro, Brasilia, and other parts of the Santos hin.terland aresatisfactory.

4.09 The right bank of the port is linked to Sao Paulo and the rest ofthe hinterland by the 1.0 m gauge Sorocabana railway (owned by the Sao PauloState) and the 1.6 m gauge Santos-Jundiai railway (owned by RFFSA, the FederalGovernment agency). Sorocabana serves southern Sao Paulo State and northem:Parana State, and, through its link with the Parana-Santa Catarina railwaynetwork, the States of Rio Grande do Sul and Santa Catarina. The Santos-Jundiai railway serves extensive agricultural and industrial areas in southernBrazil.

E. Problems

4.10 The main causes of the frequent congestion at Santos port are:

(a) insufficient berths, inadequate alongside depths and thenarrow width of the port landward area. Some of the olderberths are inadequate to serve modern ships and cargo;

(b) lack of adequate berths for special dry-bulk cargoes, re-sulting in slower loading and unloading of these cargoes atgeneral cargo berths;

(c) lack of sufficient silo capacity for wheat and corn storage;

(d) narrow and congested port area surrounded by the growingtown of Santos. The rail tracks and highway connections to theport cut through the center of town, interrupting urban trafficflow, and delaying cargo movements in and out of the port; and

(e) equipment which, although well maintained, has low capacityand requires excessive upkeep.

4.11 In addition to the operational improvements effected by COSEPS, theGovernment, through IRPVN, has already undertaken a number of works to improveand extend the existing facilities. Annex 4 gives a list of important worksundertaken and equipment purchased between 1968 and 1970, together with opera-tional justification. DNPVN has also formulated a five-year investment pro-gram for 1971-75; this is discussed in Section 5. A tentative program ofworks for 1976-80 has also been prepared.

5. THE PROJECT

A. Developnent Program of Santos Port, 1971-75

5.01 On the basis of studies done by its consultants) and in cooperationwith COSEPS and CDS0, DNPVN has formulated a five-year development program for1971-75 for Santos port costing about NCr$ 694 million. The works includedin this program are shown on Map 3, detailed in Table 2 and summarized below:

Estimated CostNCr$_Milli-on U S $ 'M. lo_n

1. Completion of left bank fertilizer terminal 28.00 5.77

2. Inprovement and extensions to quays(right bank) 63.18 13.02

3. Transit sheds, salt shed, wheat siloand related works (right bank) 71.99 14.84

4. Improvement of rail and road facilitiesand other services (right bank) 58.57 12.08

5. Cargo-handling equipment (including cranes) 64.49 13.30

6. Dredging 88.oo 18.15

7. Land acquisition, etc. 20.82 4.29

8. Corn and container terminals (left bank) 86.24 17.78

9. Rail and road access and services (left bank) 36.81 7.58

10. Container and corn-handling equipment(left bank) 47.o5 9.70

11. Dredging equipment 30.00 6.19

12. Consultants' services (including hydraulicstudies) 38.11 7.86

13. Contingencies 60.82 12.55

Total 694.08 143.11

5.02 Because of the problems discussed in para. 4l0, the Government hasnow decided to locate all major new facilities for bullk and containerizedcargo on the largely unused left bank and to construct the necessary railaccess* A study by a Brazilian consulting consortium, Engevix/Planave, hasestablished the technical-economic feasibility of providing such access.A highway to Guaruja on the left bank is now almost complete and a 2 kmconnecting road to the new port site will be constructed. The highway willbe adequ.ate for port traffic requiring road transport for 10-15 years.

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5.03 In addition to works on the left bank, the program includes improve-ments to the right bank facilities by extending and widening some quays, con#verting otbsrs into roadways for port traffic, constructing transit sheds, im-proving rail and road access and other facilities inside the port area,replacing old equipment and acquiring additional equipment, and improving andextending wheat handling facilities. (A Canadian Government grant of C$ 10mill-ion to Brazil will finance the improved whe-at facilities.)

5.04 The program will not adversely affect the ecological and environ-mental surroundings of the Santos area. Oil sludge processing units will beincorporated in the final design for berths included in the Bank project.

B. The Project

5.05 Civil works and procurement items in the above program consideredsuitable for international competitive bidding, and on which construction orprocurement is still to get under way or for which no other suitable sourceof foreign financing is available, are included in the project proposed forBank financing. The project consists of:

(a) construction of and equipment for a two-berth, 400 mcontainer quay, with 13 m depth alongside;

(b) construction of and equipment for a 62,000-ton silo forstorage of corn and a 200 m quay, with 13 m depth alongside;

(c) construction of about 21 km of 1 m rail track for theSorocabana and about 24 km of three rail track for thejoint use of the Sorocabana and Santos-Jundiai Railways;

(d) dredging equipment;

(e) engineering and management studies and training programs;

(f) hydraulic studies of the estuary; and

(g) services of experts to assist in overall port planning.

5.o6 Items (a), (b), (d), (e) and (f) are wholly within the Santos portdevelopment program, which also includes a part of item (c) pertaining to 8km of rail line inside the new port area. The part of item (c) referring torail lines outside the port area represents investments by RFFSA and Soroca-bana. Item (g) is an investment by DIJPVN. Details of the cost estimates aregiven in Table 3 and sumnarized below:

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MCr$ Mllion US$ MillionLocal Foreign Total Local Foreign Total

A. Civil liorks and Equipment For Port

i. Container Quay 23.75 15.83 39.58 4.90 3.26 8.15ii. Corn Silo and Berth 28.00 18.66 46.66 5.77 3.85 9.62iii. Rail and Road Works and

Utilities 22.09 14,72 36.81 4.54 3.04 7.58,v. Equipment for Corn Silo and

Container Quay 4h71 42.34 47.05 0.98 8,72 9.70v. Dredging Equipment 1.50 28.50 30.00 0.31 5.88 6.19vi.. Engineering Consultants 6.oo 9.01 15.01 1.24 1.86 3.10;ii. Management Consultants 4.40 17.62 22.02 0.91 3.63 4.54

viii. Contingenciesa) Physical / 15.50 16.97 32.47 3.20 3.50 6.70b) Price (about 12% of i

to vi) 10*32 18.03 28.35 2.13 3.72 5.85ix. Hydraulic Studies 0.11 0.97 1.08 002 0.20 0.22

Sub-total of A 116.38 182.65 299.03 24.00 37.66 61.6

B. Items Outside Port

x. Rail Works Outside Port 31.94 21.30 53.24 6.58 4.39 10.97xi. Engineering Consultants 1.60 2.40 4.00 0.33 0.49 0.82xii. Contingencies

a) Physical - 8.39 5.92 14.31 1.73 1.22 2495b) Price (about 12% of x

& xi) 4.02 3.53 7.55 0.83 0.74 1.7xiii. Overall Port Studies 0.27 2.43 2.70 0.05 0.50 0.55

Sub-total of B 76*22 3g58 8rbl- 9.52 7.34 VB;FE

C. Total Project (A + B) 163.60 218.23 380.83 33.52 45.00 75*5J?

The total costs of engineering works and cargo-handling and dredging equipmentare based on known costs of labor, materials, plant and equipment and on theBrazilian price index for Nowember 1970. The costs of corn silo and loadingequipment are based on manufacturer's current prices. The foreign exchangecosts of civil works and equipment have been calculated from the estimatedforeign exchange costs for different categories of work and items to beprocured; details are given in Annex 5. The foreign exchange requirementsof management and engineering consult:. s- fees have been taken at 80% and60% respectively of the total fees oI. .,se basis of foreign personnel to beemployed by them and the extent of woi,. to be done abroad. For overall portplanning and hydraulic studies, US$500,000 and US$200,000 respectively inforeign exchange have been provided to cover salaries, foreign travel, etc.,representing 95% of total costs* The cost estimates are realistic.

U 25% on cost of corn silo (ii) and rail works (iii and x) and relatedconsultants, services (vi and xi), none on vii, ix and xiii, and 10%on remaining items.

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5.07 (i) Container Qui. The contai ner quay will include container storageareas, a stuffing sled, rail sidings, roads, water and power supply and wouldbe adequate to handle the forecast traffic through 1980.

(ii) Corn Silo and Berth (see Annex 6). The silo will have 32 bins forstoring corn and will include rail sidings, roads and services. In order usoperate the silo efficiently, (i) an assurance has been obtained that theSantos silo management would be given sufficient autonomy to determine day-to-dayoperating policies and to manage its own financial affairs, and (ii) the silomanager and three of his staff members should undergo practical observationand training abroad at similar facilities; the cost of such training (US,15,000)is included in the project.

(iii and x) Rail and Road Access (see Annex 7). The provision of railaccess is an integral part of the port development on the left bank, involvingthe construction of about 21 km of 1 m gauge track of the Sorocabana Railfayvabout 16 km of three-rail track for both the Santos-Jundiai (1.6 m gauge) andthe Sorocabana (1.0 m gauge) Railways outside the port limits; and about 8 kmof three-rail track inside the port area. The project also includes additionof a third rail to about 6 km of existing track and a two km road connectionto Barnabe Island.

(iv) Eguipment for Container and Corn Berths. Equipment for the containerquay will include three 30-ton container cranes and six straddle carriers, and,for the corn silo, receiving equipment (two boxcar dumpers, one power shovel,one truck dumper), headhouse and tower equipment (belt conveyor, grain dryerand cleaners, scales) and ship loaders with self-trimming and conveyor equip-ment.

(v) Dredging Equipment. The proposed dredging equipment will have aminimum capacity of 2 million m3 per year to handle the maintenance dredgingneeds of the expanded port. The exact capacity and type of equipment neededwill be determined on the basis of the hydraulics expert's recommendation arid,if necessary, the hydraulic studies that may be undertaken pursuant to theexpert's report (see item (ix) below).

(vi, vii and xi) Consultants' Services. DNPVN has selected consultantsfor detailed engineering and supervision. The signing of a contract betweenDNPVN and the consultants, on terms and conditions agreed to by the Bank, is acondition of loan effectiveness. The consultants will provide specialistsin corn storage and handling facilities. The Government's program to improvethe operational, administrative and financial efficiency of DNPVN and the majorports (paras. 3.04 and 3.09) requires the services of a firm of managementconsultants, and the proposed loan will finance the foreign exchange cost ofsuch services for DNPVU and Santos.

(ix) Hydraulic Studies. The hydraulic conditions of the estuary have notbeen systematically studied in the past. The Bank sent an experiencedhydraulic engineer to Santos to make a preliminary study and recommend thescope of the hydraulic studies to be made. The proposed loan will help financethe recommended studies (see also item (v) above).

(xiii) Overall Port Planning Study. There has been no systematic studyfor the continuous development of ports serving different regions of Brazil.

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NEDECO, in its report of 1$67, recommended rehabilitation, improvement andextension of the three mkain ports it studied - Santos, Rio de Janeiro andRecife. A UK firm of consulting engineers recently completed feasibilitystudies for Rio de Janeiro and Recife. A number of other studies are eitherunder way or about to get under way. It is essential to ensure coordinationof the various studies and to determine the order of priority of future portinvestments. The Government has requested Bank financing of the services ofsome five/six foreign experts for a total 10/12 man-years to assist GEIPOT(as agent of DNPVN) to undertake this work and help prepare an overall portplan.

(viii and xii) . A quantity contingency of 10% has beenprovided for all items except (ii), (iii) and (x) (corn silo and rail works),for which 25% has been provided. A 1 Ian tunnel is involved in the rail access,and, for both the rail works and the silo, soil conditions are known to bedifficult and further soil investigations and engineering have to be carriedout in conjunction with detailed design work. A price contingency of 12% hasbeen provided on the basis of an expected 5% average annual increase in worldprices for the equipment and materials involved; the price contingency forlocal costs is also based on anticipated dollar price increases, sinceinflationary conditions in Brazil make it difficult to assess an effectivecontingency for cruzeiro costs. However, and more important, port charges areannually adjusted for inflation, the overall financial position of the portand DIPVN is strong (see Section 7), and no difficulty is anticipated in meetinglocal costs.

5.o8 Beyond the physical works, a most important and integral part of theproject is its contribution to institution building in the port sub-sector,as an essential part of the Bank's efforts to promote improvements in institati,na2and policy-making areas of the transport sector as a whole. Items (vii)(management consultants) and (xiii) (overall port studies) are intended to helprealize these objectives in the port sub-sector.

C. Project Execution and Financing

5.09 DNPVN will be directly responsible for the execution of all projectitems except that: (i) railway works both inside and outside the port area onthe left bank will be carried out by RFFSA and Sorocabana; and (ii) the overallport planning study will be carried out by GEIPOT. RFFSA and GEIPOT are FederalGovernment organizations under the Miinistry of Transport, which has alreadyissued instructions to RFFSA to undertake the railwiay work and to GEIPOT tocarry out the port planning study. A committee will be set up consisting ofrepresentatives of DI\PVN, RFFSA and Sorocabana, to ensure: (i) coordination ofport and railway track works; (ii) conversion of existing boxcars for dumperhandling prior to the completion of the corn silo (this work is not includedin the project); and (iii)that RFFSA and Sorocabana will conclude a satisfactoryagreement for Sorocabana's running rights over the new common rail access wTh1ichwill be owmed by RFFSA.

5.10 The Bank loan will be made to the Government of Brazil which willrelend on the same terms US$6.84 million equivalent to RFFSA and Sorocabanatowards the foreign costs of rail works outside the port. The signing of theserelending agreements is a condition of loan effectiveness. DNPVN will be ableto meet the expenditures on its five-year investment program from its resources,including local currency costs on Bank-financed items. However, RFFSA andSorocabana may need Government assistance in carrying out the rail works

outside the port. The Government has undertaken to make available the requiredfinancial resources to RFFSA, Sorocabana and, if necessary, DNPVN to completethe project.

D. Procurement and Disbursement

5.11 All civil works and purchase of equipment to be financed under theproposed loan wiill be subject to international competitive bidding in accord-ance with the Bank's Guidelines. Bids will be invited from prequalifiedcontractors for all major items of construction. There will be separatecontracts for corn and container terminals, railway connections, services andas water and power supply, corn and container equipment, dredging equipment andother smaller items of construction and procurement. In the case of materialsand equipment, Brazilian manufacturers may participate in internationalcompetitive bidding with a margin of preference of 15% or the relevant rate ofcustoms duty, whichever is lower.

5.12 Construction is expected to start early in 1972 and the project shouldbe completed towards the end of 1975. The estimated schedule of disbursementsis given in Table 4. Disbursements will be made: (i) on thebasis of agreed percentages for all civil works and for services of consultantsand foreign specialists (Annex 5 and para. 5.o6); and (ii) on the basis ofdelivered costs at Santos for equipment and materials excluding local assemblyand erection costs. Retroactive financing is recommended to reimburse up toUS$0.5 million of payments to management and engineering consultants madeafter September 1970. Savings, if any, on any items would be used to meetoverruns on other items. Any amount unspent on completion of the project wouldbe cancelled.

E. Land Acquisition

5.13 Land acquisition will be necessary for the container and cornterminal and for rail and road access. According to Brazilian law, the Govern-ment can take immediate possession of land declared to be for public use,before compensation is established. Therefore, there is no likelihood of delayon this account as the Government has agreed to use its powers for the timelyacquisition of all land needed for the project.

6. ECOc:OUffC EVALUATION

A. Traffic Forecast

6.01 Santos is the most important general cargo port in Brazil, servinga hinterland that encompasses Sao Paulo State and city, which are spearheadingthe country's industrial and economic development. Sao Paulo city, with some10 million people, is one of the fastest growxing cities in the world. In 1969,the port handled 3.7 million tons of general cargo, that, is about 30% of

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general cargo traffic handled in all of Brazil's ports, and 3.7 nillion tons ofsolid bulk and 5.8 million tons of liquid bulkc; in all, 13.1 nnillion tons ofcargo. A total of 3,268 ships visited the port during the same year, of which2,572 were in international trade and 696 in coastal trade.

6.02 Past traffic trends in Santos have generally been a reflection of thetrade policies of the Government and of the movement of the economy of Brazilas a whole, with some ups and downs, but with a generally upward trend.Between 1960 and 1969, total traffic excluding bulk liquid grew from 5.0 milliontons to 7.4 million tons. Dry bulk traffic more than doubled from 1.7 milliontons to 3.7 million tons, and general cargo rose from 3.3 million tons to 3.7million tons.

6.03 Traffic forecasts for Santos had been made separately by the Govern-ment's consultants, King & Gavaris - OESA, as well as by BCCL. These forecastswere reviewed by the Bank. The agreed forecast is given in Table 5 and adetailed explanation is given in Annex 8. This forecast is in line with themacro-economic and trade forecasts of the 1970 Bank economic mission and, inthe case of farm products, with those of the 1969 agricultural mission. (Seealso para. 2.02).

6.04 Details of the traffic data for 1969, estimates for 1970 and fore-casts for 1975 and 1980 given in Table 5 are summarized below (t000 tons):

1969 1970 1975 1980

EXPORTS

General Cargo 1,952 2,080 2,770 3,585Corn in Bulk 283 600 900 1,400Other Dry Bulk 129 40 50 65Liquid Bulk 124 110 145 180

Subtotal - Exports 2,830 3,65 5,23

IIIPORTS

General Cargo 1,612 1,770 2,600 3,530Wheat in Bulk 936 1,200 1,420 1,630Fertilizers in Bulk 1,008 940 1,300 1,970Other Dry Bulk 696 470 360 480Liquid Bulk 2,808 2 950 1,715 2 855

Subtotal - Inpcrts 7,060 7,395

COASTAL TRADE

General Cargo 101 150 210 250Salt in Bulk 360 400 610 820Other Dry Bulk 252 120 120 120Liquid Bulk 2 873 1 210 1 700 450

Subtotal - Coastal Trade 21,64

Total Traffic 13,134 12,040 13,900 17,335

- 6 -

1969 1970 1975 1980

General Cargo 3,665 4,000 5,580 7,365Dry Bulk 3,664 3,770 4,760 6,485Liquid Bulk 5,8 4,2 3,56o 3,485

Total 13,134 12,040 13,900 17,335

All traffic is expected to grow by substantial amounts except bulk liquid,which will become less important because a major part of the traffic

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unloading (US$3.84 mill'on in 1975 rising to US$5.85 million in 1980), shiptime spent waiting for berth (US$0.75 million to US$3.25 million) and laborcosts (US$0.65 million to US$0.99 million). These savings yield a return ofalmost 35%.

(b) Corn Silo and Berth. The benefits of these investments will besavings in ship time at berth arising from faster loading (US$1.06 million in1975 rising to US$1.76 million in 1980), ship time waiting for berth (US$0.15million to US$0.70 million), labor costs (US$0.90 million to US$1.40 million)and wastage reduction (US$0.90 million to US$1.40 million). These savings yieldan economic return of 17%.

(c) Container Berths. The construction of two container berths willeliminate the need to construct additional conventional cargo berths (aboutone every year from 1974), save ship time at berth due to faster cargo-handling (US$0.20 million in 1975 rising to US$2.00 million in 1982), andsave labor costs (US$1.08 million rising to US$5.00 million). These benefitswork out to an economic return of over 32%.

(d) 14Theat Facilities. Improved wheat storage and handling facilitieswill save ship time at berth due to faster unloading (US$0.89 million in 1975rising to US$1.02 million in 1980), ship time waiting for berth (us$0.64million to US$0.72 million) and labor costs (US$0.71 million to US$0.82 million).These yield an economic return of 14%.

(e) General Cargo Berths. The extensions to general cargo facilitieson the right bank, proposed and under way, will help to handle general cargotraffic of 5.0 million tons in 1974, rising to 5.4 million tons in 1980(excluding general cargo that may be handled in containers). Savings areexpected to arise from ship time at berth (US$1.10 million in 1974 to US$1.32million in 1980), ship time waiting for berth (US$1.32 million to US$2.70million) and labor costs (US$2.94 million to US$3.24 million). These benefitswork out to a return of 45%.

(f) Dredging Equipment. Annual maintenance dredging is estimated atmore than a year after the completion of the proposed project.Since it is essential to have this work done regularly, the purchase ofdredging equipment was compared with the recurring cost of having this doneby contractors, wdhich is estimated at the very competitive figure of US$1.2million a year. The proposed purchase will help avoid this cost. Afterallowing for operating and maintenance cost, the incremental economic returnwould be 11/%.

(iii) Evaluation of Program as a Whole

6.o8 The cost-benefit evaluation of the investment program as a whole,including the cost of the rail access to the left bank, the capital costsof dredging the channel and miscellaneous improvements, yields an economicreturn of almost 23%O over an assumed 30-year useful economic life for thefacilities.

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(iv) Sensitivity Analysis

6.09 A sensitivity analysis of the investment program as a whole andof each separate package discussed under B (i) and (ii) above was under-taken. The economic returns were tested for a 10% adverse change in costs(over and above the provision for contingencies) as well as benefits. Theresults are shoun in Table 6 and indicate that the proposed investmentprogram as well as all but two of the items listed under (ii) above wouldstill produce adequate economic returns. The two items which appear likelyto yield rather low returns in te event of either a rise in costs or a fallin benefits are the investments in developing the left bank and the purchaseof dredging equipment. In both cases, however, the cost estimates areconservative, and benefits are likely to be higher, not less. Returns onsome items also tend to be relatively low (e.g. dredging equipment, wheatfacilities) because of the "lumpiness" of the investment which provides fora certain amount of excess capacity. Consequently, the program as a wholeand each of its main components has adequate economic justification.

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7. FINANCIAL ASPECTS

A. The CDS Concession

7.01 Details of the financial aspects of the CDS concession are given inAnnex 2. Essentially, repayment to the concessionaire for his investedcapital (as agreed with the Goverment) on expiry of the concession is pro-vided by a series of sinking funds, the oimnership of the assets then passingto the Government. The concessionaire is entitled to a fixed return (now10%) on his capital which, since 1958, has been adjusted for inflation byapplying annually the Government monetary correction index. All profits inexcess of the fixed return are paid into a special account, to be used tomaintain the concessionaire's fixed return. Upon termination of the concessionthe balance reverts to DNPVN. Payment out of this account can only be madeunder DNFVN's authorization. The sinking fund system of capital repaymentoverlooked the necessity of providing funds for asset replacement, butdepreciation was not recognized as an operating cost to be recovered in portcharges, and no replacement reserves wrere built up.

1B. Tariffs and Investment Financing

7.02 Until 1956 all funds for new investments came from CDS, either fromshare issues or by capitalization of undistributed profits. Since then,except for NCr$ 2.5 million of new capital subscribed in 1969, most of thefunds have had to be provided by DNPVN, because CDS had no depreciationreserves and no substantial undistributed earnings available for investment.To provide D\TPVN with funds the Government instituted various special charges,In 1958 a depreciation surcharge on general port rates was authorized (now 10%),which is recognized as an operating cost but which is paid over to DIHPVN andnot credited to a depreciation reserve in CDSts books; thus DNPVN providesthe funds for replacement of fixed assets originally provided by CDS.

7.03 To provide capital funds for port development, the Government alsoinstituted in 1958 a Port Improvement Charge of (now) 2% on value of allimported merchandise and 0.2% on value of all outgoing coastal traffic, col-lected by ports and paid over to DNPVN. Of the proceeds, 40% goes to a PortImprovement Fund for investments solely in the port concerned and 60%5 to aNational Port Fund available for investment in any port in Brazil. The useof these funds is entirely in the hands of DNPVN. This charge provides byfar the largest part of capital funds available for port investments. Inaddition, DNPVN's funds include proceeds from a Dredging Charge imposed atcertain ports (from 1968), payments from port earnings for use of DNPVNTsinvestment funds, excess earnings of the concessionaire, and Federal Govern-ment appropriations. N1one of these charges is related to the cost ofproviding port services. BCCL's forecast of DNPVNts cash flow positionindicates that ample funds -will be available to undertake the Santos program.

7.04 The accounting consultants report that, although in theory the ratesfor port services charged by CDS are supposed to reflect the relative differencesin operating costs of the various services, in practice the present costand accounting systems do not permit a system of tariffs based on costs.Furthermore, the present form of tariffs is complex and impractical. IMany

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rates have been set to serve special interests. CDS can propose rates; only

DNPVN can sanction them. Adjustments are made annually for inflation, butthere is a delay of several months between authorization of wage increasesand authorization of tariff increases. The tariff system that has developed(and this is true for all ports) is unrelated to costs. During loan nego-tiations the Covernmnent agreed: (a) that the tariff structure atSantos will be reviewed with a view to simplification and coordination of thevarious tariffs and special charges into a single schedule of services,(b) that rates wilU be fixed for services reasonably related to thecosts of providing them, derived from the costing systems to be set up (paras.3.09, 3.10), (c) that the new tariffs will be in force no later than December31, 1973 and (d) that the new tariffs will apply to all port users.

C. Present Accounting Systems and Past Earnings

7.05 The peculiarities of the concession contract and the subsequent

legislation have resulted in an unusual form of published financial accounts.CDSb balance sheet does not show the financial position of the port as a whole.It is rather the balance sheet of the company with a mixture of its investmentsand rights as concessionaire, sources and application of Government funds and

various other items, some of which are not found in normal commercial-typeaccounts. Fixed assets are not shown as such; investments from CDS funds areshown after monetary correction, while those from DNPVN resources are given

separately at historical cost without monetary correction since under

Government fiscal procedures investments are not distinguished from current

expenditures. In no case is depreciation deducted or shown as a reserve.The revenue account is also unusual, following the lines dict-ated by the

application of the legislation and concession contract. Although accruedexpenditure is taken into account, accrued revenue is not. The remuneration

on the concession capital is charged as an expense, the balance on profit

and loss account representing excess or deficit earnings. Although CDS

manages the port as a whole and charges are levied on all facilities ir-respective of the source of financing, the company is only entitled to

remuneration on its own capital with no fee for managing facilities financed

from DNPVNIs investments.

7.06 Table 7 gives a summarized version of the published balance sheetas at Decdmber 31, 1969, adjusted to bring it into line with commercialaccounting on an accrual basis; monetary correction has been applied to DIWPVNIsinvestment, but no allowrance has been made for depreciation. In brief, allthat can be said of past earnings is that tariffs charged by CDS hare been at

rates sufficient to cover all expenses and items chargeable to revenue, in

accordancea, ith the legislation and concession agreement, to earn the companythe 10% remuneration to which it is entitled and to leave surplus earningseither to offset future deficits or for investment by DNPVN4

D. Financial Forecasts

7.07 For the financial forecasts, BCCL set up a computer model wihich

enabled them to prepare forecasts based on different traffic forecasts andinvestment cost estimates. The assumptions used are detailed in Annex 9;

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the main ones are summarized as follows:

(a) valuies of all fixed assets will be adjusted for monetarycorrection;

(b) all fixed assets will be depreciated on normal financialbases; and

(c) the Port Improvement charge will continue and Santos port's40% portion has been treated as DNPVN's revenue from theport. Port charges will continue at present rates.

The incomo that mzay properly be considered revenues of thle port of Santosis derived from various tariffs and charges received by tlfo agencies: CDSreceives general port tariff charges as authorized by DIPVN: DIPVN receives the40% Port Improvement Fund (Santos), Dredging Charge and Depreciation Charge.To evaluate the future financial situation of the port as a whole, BCCL hasprepared consolidated statements of forecast revenues and costs and fundsflow statements for each agency and consolidated balance sheets of the twoagencies in respect of their operations at the port of Santos.

7.08 Substantial operating surpluses are generated by CDS from portoperations in excess of the fixed remuneration CDS is entitled to (para. 7.01).These surpluses could be said to represent the return on DNPVI's investmentsin the port. In preparing the financial forecasts sho-m in Table 8, the wholeof these surpluses have been treated as revenues of DUPVN available forfinancing port investment at Santos. On this basis sufficient funds will begenerated (except for a small deficit in 1973) to finance the developmentprogram up to 1975, with the help of the proposed Bank loan and a grant fromthe Government of Canada for investments in wheat handling and storagefacilities, without recourse to the 60% National Port Fund or other governmentresources. Ample funds will also be generated to finance further developmentthat may be needed beyond 1975. The Government has agreed to make availablefrom DNPVLIts resources, or otheruise, whatever funds are needed to financethe development program at the port of Santos; it has also confirmed that theexcess profits earned by CDS can be made available to help finance capitalinvestment at the port of Santos.

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7.09 The consolidated revenue account forecast for Santos for 1970-1980given in Table 8 is sumarized below for representative years:

(Million NCr$)

1971 1973 1975 1976 1978 1980

Operating Revenues 278.6 275.9 317.0 32 1 367.0 h09.6Operating Costs 156.1 166.3 165.1 17 176. 195.1Depreciation 9.8 16.8 30.5 32.8 36.9 h402Operating Surplus 112.7 92.8 121.4 12X4. 153.3 174.3Other Income 7.6 8.3 9.2 9.6 10.6 U1.7Total Net Income 120.3 101.1 130.6 134.0 163.9 186.0Attributable to:CDS - Sinking Fund 5.0 5.6 6,3 6.7 7.5 8.4

- Stockholders 16.6 15.9 15.7 15.7 15.8 1 .621fl 21.5 22.0 22.i 23.3 2 .0

DNPVN 98.0 73.0 95.6 98c5 128.1 150.3Loan Interest 0.7 6.6 13.0 13,l 12.5 11.7

120.3 101.1 1306 13.0 1639 .AverageRatios

1971 1973 1975 1976 1978 1980 1976-1980

Financial Rates ofReturn:Average Net Fixed

Assets 67.8% 20.0% 16.3% 15.7%o 16.3%O 18.8% 16.7%Average CapitalEmployed 28.6% 14 .5% 13.5% 12.4% 12.6 11.8%O 12.1%

DNPVN - Average Equity 31.3% 14.5% 14.4% 12.9% 13.1% 12.0% 12.4%Operating Ratio 59.5c 66.h4% 61.7% 62.5% 58.2%o 57 .41 60.0%Interest Coverage 171.8x 15.3x l0,Ox 10.2x 13.Lx 15.9x 12.8xDebt Servic6 Coverage U8.8x 15.9x 11.7x 9*2x lllx 12.5x 11.5x

The financial rates of return are more than satisfactory (taking into accountthe relatively high return on investment expected from industrial undertakingsin Brazil) whether related to net fixed assets, total capital employed orDNPVN's equity. Operating ratios are relatively low considering that the portprovides shorehandling services. Interest and debt service coverages arehigh because of low debt/equity ratios (para. 7.L4).

7.10 A sensitivity analysis was undertaken for a 10% adverse change intraffic, in investment costs and in operating costs. Even for a combinationof all three unfavorable changes, net income on average net fixed assetsaverages 11% and on total capital employed close to 9.5% for 1976 to 1980.Details are given in Table 9.

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7.11 CDS funds flow statement is given in Table 10 and that for DNPVNfor Santos in Table 11. All investment after 1970 is expected to be financedby DI1WPVN. DNPVITs fund flow statement is sunmarized below:

(Yiillion NCr$)

Total1970/75 1976/80 1970/80

Sources of Funds

Net Income - DNPVN 319.8 252.4 572.2Depreciation - D1PVN Assets 81.0 177.1 258.1CDS - Excess Earnings 159.2 65. 8 525.0

56o.o M79.3 3IBRD Loan 181.5 - 181.5Government of Canada C$ 10IIillion Grant 48.5 _ 48.5

Balances brought forward:Cash 31.5 132.2 31.5Accumulated CDS Excess Earnings _35.5 - 35.5

-57.0 927.5 1.M.3

Application of Funds

Contribution from CDS excess-earnings to maintain stock-holders' compensation - - -

Investments - Fixed Assets 723.5 298.5 1,022.0Debt Repayment 1.3 23.3 24.6

724.8 321.8 1,506. 6Balance Carried Forward 132.2 605.7 605.7

857.0 927.5 1,652.360%O National Port Fund 403.3 420.74 823.7

7,12 Taking into account only those resources of DNPVN treated in thisreport as port revenues, there will be sufficient funds available over theconstruction period of the Bank-financed project items although there may besome stringency in 1972 and perhaps a small deficit in 1973. Howrrever, thereare ample additional funds available from the 60% ilational Port Fund derivedfrom Santos.

7.13 Consolidated balance sheets as at December 31, 1969 to 1980 aregiven for Santos as a whole in Table 12, for CDS in Table 13 and for DNPVN(Santos) in Table 14. For convenience and purposes of comparison, thebalance sheets including that of December 31, 1980 give the position as itwould be if the concession were not terminated. The consolidated balance

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sheets for selected years are summarized below:

(hrillion NCr$)

Actual Estimated1969 1975 1980

Assets

Fixed Assets at Cost afterMonetary Correction to 1969 208.6 1,012.4 1,304.1Less Depreciation 132.8 210.6 386.9

5 801.8 917.2Work in Progress 92.3 - -

168.1 -01.8 917,2Net Current Assets 76.3 176.9 672.0Securities - SupplementaryAmortization Fund 6.o 20.9 38.0

Net Non-Port Investment 29.9 29.9 29.9280.3 1,2' 1,657.1

Liabilities and Capital

Debt 2.0 182.5 159.6Equity CapitalCDS 92.9 134.1 166.4DNPVN 185.4 664.4 1,282.6Grant from Government of Canada - 48.5 48.5

278.3 84770 1,497.5280.3 -102-9. 1,657.1

Capital Redemption Sinking Fund 13.8 46.5 84.1Debt/Equity Ratio -/100 18/82 10/90Average iNet Fixed Assets in Use 743.2 926.1Average Capital Employed 965.7 1,581.5DOPVW - Average Equity Capital 665.1 1,256.0DIVPVN - Share of Eauity Capital 66.650 84.2% 88.9%

7.14 The balance sheets illustrate the extent of investments plannedat the Santos port in the 1970's, increasing the investment in fixed assetsby NCr$ 1,095 million (US$226 million) to more than six times the value in1969 from NCr$ 208.6 million to WCr$ 1,304 million. This investment willbe financed entirely by funds accruing to or raised by DPWTN. On December31, 1969, DINPVTls share of the total equity had reached 66.6% (on commercialaccounting bases) and will increase to 88.9% in 1980. DNPVN is already,in fact, the senior partner in a joint venture to own and operate the portof Santos, and by the time of expiry of the concession, CDS 's share in capitalemployed in the undertaldng will be little more than 10,%. The balance sheetposition remains strong throughout, apart from the stringency in the cashposition in 1973. The debt/equity ratio is low, falling from a high of only24/76 to 10/90 in 1980.

- 25 -

7.15 In October 1969, Law No. 74 was passed relating to ports, layingdown that; (a) no further monetary correction (for inflation) could beapplied to the fixed assets of port concessionaires; and (b) that bothdepreciation and the value of retired assets should be deducted from thevalue of fixed assets, even though these values ha-e not been repaid to theconcessionaire. The law appears to be somewhat arbitrary but CDS has noforeign shareholders and it is proposed to leave the settlement of differencesto local negotiations, since the Government appears to be anxious to reacha reasonable settlement. It is not known yet whether the Government willinsist that the capital to be repaid to the concessionaire will be reducedby the accumulated unrecorded and unrecovered depreciation to 1969, inaccordance with Law No. 74, or whether it will be agreed that the capitalwill be maintained in the amount of CDSts actual investment, although it isclear that ample funds will be available for the latter. Alternativeestimated balance sheets have therefore been drawn up showing the state ofaffairs of DNPVNts port undertaking at Santos at December 31, 1980, on thebasis (i) that CDS's capital will be reduced by unrecovered depreciation or(ii) on the basis that CDSts stockholders will be repaid their investedcapital in full (Table 15).

7.16 The Government has agreed that, at the termination of the concessionand transfer of port operations to a new entity, the assets would be valuedon bases acceptable to the Bank and that the port would continue with theaccounting, management information and other systems to be installed as pdrtof the present project.

E. Financial Objectives and Tariffs

7.17 The present level of port charges at Santos, together with the 40%of the Port Improvement Charge paid into the Santos Port Improvement Fund andthe proposed Bank loan, will enable the port of Santos to finance the verysubstantial 1971/75 development program with relatively moderate assistancefrom other resources of DNPVN, e.g. the 60% of the Port Improvement Chargepaid into the National Port Fund. However, after completion of that program,with rising profits from growing traffic, with dividends restricted to CDStscapital, and in the absence of any return on Government capital by way ofdividends or income tax, substantial and increasing cash surpluses would begenerated, year after year, even after financing a relatively substantialvolume of additional investment. Cash surpluses would increase by aboutNCr$ 470 million (nearly US$100 million) between 1975 and 1980, considerablymore than would be necessary for future requirements as far as can be foreseennow. The financial rate of return on average net fixed assets would risefrom 16.3% to 18.8%, averaging 16.7% over the five years; the return oncapital employed would average about 12%.

7.18 In view of the financial position indicated, it is not proposed tospecify a minimum financial return for the port. It is, however, clear that,even without taking into account the 60% of the Port Improvement Fund earmaAkedfor the National Port Fund (which is more in the nature of a tax than a chargefor port services), the general level of port charges at Santos will be higher

- 26 -

than necessary from 1976 orward. Wihat would be a reasonable level of tariffsat Santos cannot be determined until the various studies on DNPVN, Santos portand overall port planning are completed, the new costing systems at Santos arein operation, and the financial situation and requirements of Santos port inparticular and of DNPVN in general have been reviewed, and the portrs financialobjectives agreed with the Bank. The tariffs should then be set at levelsappropriate to the agreed objectives.

7.19 The new tariffs should be set and amended from time to time as maybe necessary, at levels sufficient to yield a reasonable return on totalinvestment, as may be agreed from time to time between the Borrower and theBank. A reasonable return would be such as would enable the port as a wholeto generate sufficient cash funds, after meeting all operating costs, toservice debt, meet commitments to CDS, replace plant, pay dividends on DNPVNequity capital and income tax (if any), maintain adequate working capital,maintain reasonable emergency reserves, and help finance the 1971-75 SantosDevelopment Program and a portion of future investments without excessiveaccumulation of cash. During loan negotiations, agreement was reached withthe Borrower that, prior to the introduction of the new tariff at Santos, thefinancial situation of DNPVN and of Santos port would be reviewed with theBank and financial objectives agreed upon. Further, in order to maintain anadequate cash position, an undertaking was obtained that the Bank would beconsulted before any further investments or development programrs are undertakenat Santos at a cost of US$2 million equivalent or more in any one year.

F. External Audit and Insurance

7.20 CDS's financial accounts are not audited by independent auditors.Brazilian company law does not make the audit of company accounts obligatory,and, while Stock Exchange regulations require audit of the accounts ofcompanies whose shares are quoted, CDS is exempt from this requirement. CDSfsaccounts are subject to audit by DIPVVI, but in fact no audit has been completedand no report issued since 1956. The position is unsatisfactory, and allfinancial accounts submitted to the Bank in respect of Santos would in futurebe audited. During negotiations the Government agreed that from the year 1971on all financial accounts of DNPVN, CDS and the port of Santos, would beaudited by the Ministry of Finance or by independent auditors satisfactory tothe Bank.

7.21 CDS, as the port concessionaire, has adequate third-party insurance.But there is no fire insurance for any of the port installations. In viewof the layout of the port which is conducive to localizing any outbreaks offire, and the financial strength of both CDS and DNPVN to handle any unforeseenlosses, such insurance is not considered necessary.

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8. RECOEIINDATIONS

8.01 During loan negotiations, agreement was reached on the following:

(a) implementation of management consultants' recommendations(paras. 3.05 and 3.10);

(b) revision of salary levels in DIJPVN and Santos (para. 3.06);

(c) setting up of a new entity for Santos port (para. 3.07);

(d) autonomy for the Santos silo management (para. 5.07 (ii)):

(e) modification of boxcars by RFFSA and Sorocabana andrunning rights over access lines (para. 5.09);

(f) availability of finance for RFFSA, Sorocabana and DNPVN(paras. 5.10 and 7.08);

(g) acquisition of land (para. 5.13);

(h) revision of tariff structure (paras. 7.04 and 7.19);

(i) valuation of assets and continuing new systems (para. 7.16);

(j) consultation with Bank on further investments (para. 7.19); and

(k) appointment of auditors (para. 7.20).

8.02 The following will be conditions of effectiveness:

(i) the signing of contracts, approved by the Bank, betweenDNPVN and the management and engineering consultants(paras. 3.05, 3.10 and 5.07 (vi and xi)): and

(ii) the signing of subsidiary loan agreements, approved by theBank, by the Government with RFFSA and Sorocabana for re-lending up to US$6.84 million equivalent to the latterfrom the loan proceeds (para. 5.10).

8.03 The proposed Santos port project provides a suitable basis for aBank loan of US$450. million to the Government of Brazil. The appropriateterm would be 25 years, including a five-year period of grace.

IMay 6, 1971

ANNEX 1Page 1

BRAZIn

APPRAISAL OF SANTOS PORT PROJECT

Details of Railway, Highway and Air Transport Sectors

A. Railways

1. The railway network comprises about 30,000 route km of whichroughly 24,800 km are operated by the Federal Railway Company (RedeFerroviaria Federal - RFFSA) and 5,000 kn by a State company (Sao PauloState Railway). In addition, some 600 km are owned and operated by aGovernment-owned mining company (Cia Vale do Rio Doce - CVRD) and carrymostly iron ore traffic. About 90% of the network is meter gauge track.Between 1961 and 1969 railway freight traffic (excluding CVRD) increasedfrom 10.5 billion ton/km to 14.5 billion tcn/km, but passenger trafficdeclined from 18.0 billion passenger/km to 13.0 billion passenger/km.In relative terms, the railways have been losing traffic to other modesof transport. The rail share of total freight traffic movements declinedfrom 18% to 14%, and of passenger traffic from 22% to about 8% betwieen1961 and 1969.

2. In recent years, railway operations - both Federal and State -have been characterized by heavy financial deficits. In 1963 theoperating ratio for RFFSA reached 358 with an operating deficit ofUS$237 million equivalent. Excess labor, obsolete equipment, maintenanceof uneconomic lines and lags in tariff adjustments were largely responsiblefor these deficits.

3. Under PA-1 a series of measures were envisaged to improve EFFSAoperations. The principal measures were: administrative reorganization,closing of uneconomic lines and stations, improvements in operatingefficiency (dieselization), reorganization of accounting, restructuringof tariffs, and reduction in personnel. Implementation of this programhas progressed satisfactorily, with encouraging results. The 1968 operatingdeficit vias reduced to US$142 million equivalent (US$102 million equivalentif concessionary services to Government are "normalized", i.e. priced atcommercial rates) and the operating ratio - before normalization - reducedto 200. Further progress can be expected, provided strict redimensioningand rehabilitation policies are followed. PA-2 gives the objectives andaims of such policies and lists the required measures.

LNNEX 1Page 2

B. Highways

4. Brazil has a total road network of about 933,000 km of which40,000 km are national and 114,000 km are state. The balance includesmainly earth roads and tracks - feeder roads and links between minortowns - under the jurisdiction of municipalities. About 16,500 km, or40% cf the national network, are paved, but only 19,300 km and 3,800 km ofthe state and municipal networks have concrete or bituminous surfacing.In all states except Sao Paulo and Guanabara, only a small percentage ofthe national and state highway network is paved. In general, there isneed to extend the road system and to improve existing roads, includingupgrading of the surfacing.

5. The total vehicle fleet in 1967 was estimated to be about 1.9million cars and pick-ups, 53,000 buses, and 429,000 trucks. In recentyears, the growth of the fleet has averaged 8% a year, and in 1967 thevehicle density was one for every 28 persons, the third highest in LatinAmerica. Practically all vehicle needs are met by domestic production(300,000 p.a.) and future growth of the fleet is not expected to be limitedby production capacity. About half of the truck fleet is 5-9 tons capacity,gasoline powered; heavy diesel trucks of over 15 tons capacity account foronly 7% of the truck fleet.

6. Between 1961 and 1968 total freight traffic in Brazil increasedfrom 75 billion ton/km to 148 billion ton/km, at an average rate close to10.5% p.a. Road traffic over the same period rose by approximately 12.5%p.a. while rail transport and coastal shipping grew only at 7.2% and4.5% p.a. respectively. This was reflected in an increase of the roadshare of total freight traffic from 63% in 1961 to over 72% in 1968. Totalintercity passenger traffic expanded from 49 billion passenger/km in 1961to 108 billion passenger/km in 1968. Over the same period the road shareof passenger traffic rose from 78% to 92%.

C. Air Transport

7. Because of its large size, Brazil is relying increasingly on airtransport. In recent years the annual passenger traffic growth rate hasbeen 12.5%. The major commercial airline company (VAPIG) has extensivedomestic and international networks linking Brazil with other cities inSouth and North Armerica, Western Europe and Africa. The airports generallyneed improvements and extensions, particularly the Galeao InternationalAirport at Rio de Janeiro.

May 6, 1971

ANNX 2Page 1

BRAZtL

APPRAISAL OF SATTOS PORT PROJECT

Details of CDS Concession

1. The CDS concession was originally granted in 1888 for a tenn of39 years, which was later extended; it will now expire on November 7, 1980.The original contract authorized the concessionaire to construct and operatespecified port facilities at Santos, and to find the whole of the necessarycapital. The profit to which the concessionaire was entitled was restrictedto 12% of capital employed. This profit was not subject to income tax.An amortization fund (sinking fund) was to be set up, the annual paymentsbeing made out of the profits, to provide sufficient noney at 6% interestto repay the concess4onaire's capital at expiry when the port assets wouldpass to the Govermment without payment. No provision was made to chargedepreciation on fixed assets so that no funds were expected to be accumulatedfor fixed asset replacements or to recoup the investment, and no provisionwas made for funds for expansion. The capital employed was to be agreedand "recognized" by the Government, having regard to the authorized worksand their cost.

2. During the concession the investment management of the AmortizationFund has been in the hands of the concessionaire who, in practice, retainsthe revenue from it as extra port income and contributes 6% yearly to thefund. CDS cannot appropriate the capital until the concession expires.

3- Over the years, various laws and decrees were enacted bearing uponthe concession, includ4ing authorization of additional works and recognitionof additional capital and, in 1958, making the annual contributions to theAmortization Fund a chbrge against revenue, reducing the remuneration to10% on the investment, and relating the concessionaire's capital to fixedassets.

4. Also, in 190., the principle of depreciation was recognized as anoperating cost to be included in port charges. Hovwever, depreciation wasnot related to the econamic life of the assets and the charge was fixed at1% of port charges. Further, the amount was to be paid to DNPVN which hadexclusive authority over its use. The depreciation fund, therefore, becamea source of capital to the Government, either for replacement of fixedassets at Santos or for any other investment, but not a source of funds torepay the concession capltal. From 1970 the depreciation charge wasincreased to 10% of general poat tariff charges. In 1958 the Government

ANNSEX 2Page 2

recognized the impact of inflation on fixed asset values in commercial firmsand authorized periodic monetary adjustment according to official indices(later made obligatory). For port concessionaire firms this had the effectof revaluing the recognized capital.

5. The concessionaire's recognized capital is separated into initialcapital (investments to 1937) and additional capital invested in thefoll owing periods: (a) 1938-46, (b) 1946-55, (c) 1955-64, (d) 1965 onward.Separate amortization funds were to be created, maturing in 1980 for theinitial capital, 1990 for additional capital A, 2000 for addiltional capitalB and 2010 for capital C. In fact, although no investments can be madewithout DMPVU's approval, the Government has not "recognized" any invest-ments made from 1957 onwards either for purposes of remuneration or forcapital repayment; it has not approved contributions to the AmortizationFund for such investments and has, therefore, not approved the concession-aire's published accounts.

6. Finally, in October 1969, a Supplementary Act, No. 74 was passedsupported by a Decree Law, No. 973 regulating monetary adjustment for portenterprises. Honetary correction applies only to investments made out ofthe concessionaire's own funds and not to those financed from Governmentresources, whichl are considered "dead capital". This latest legislation iscomplicated, but the result appears to be:

a) the value of fixed assets (and therefore the concessioncapital) is to be reduced by the value of retired assets,even though the capital representing them has not beenrepaid;

b) depreciation is to be deducted, again although thedepreciation values in the concession capital have notbeen repaid; and

c) there is to be no further monetary correction appliedto the values of fixed assets of port concessionairesafter the date of the law (October 1969).

7. The Government set up a comittee to advise on the application ofthe law. The committee appointed consultants to advise it. It is under-stood that the consultants have submitted a report but the committee hasnot yet done so.

i*ay (6, 1°r(l

ANNiEX 3Page 1

BRAZIZ

APPRAISAL OF SANTOS PORT PROJECT

Description of Santos Port Facilities, kncillary ServicesFloating Craft, Plant and Cargo-Haridling EquiLment

A. Facilities

1. The port of Santos (Map 3) situated on the Santos estuaryextends over 12 Im and has quays over 5,500 m in length with alongsidedepths varying from 5 m to 11 m at low water. The port has all itsfacilities on the right bank of Santos estuary with the exception oftwo oil berths located on Barnabe Island and two almost-completedfertilizer berths further downstream on the left bank. The port facilitiesare divided into seven sections and are described below from theupstream end of the port.

Alamoa Area

2. An oil tank farm is located in Alamoa. BuLk liquids arepumped from tanksers at Saboo quay to the oil tanks. Behind Alamoathere is a small storehouse for explosives unloaded fron ships at aspecial jetty downstream.

Saboo Quay

3. This section has 970 m of quay with 10 m alongside depth;of this length 580 m quay is used for handling bulk liquids and390 m for bulk solids. Bulk solids ere loaded or unloaded by meansof grabs. Approximately 200 m knoTwn as the Saboo cut is used forunloading coal and 190 m at the downstream end for other bulk solids.There are no sheds. Downstream of the Saboo cut a small strip ofapproximately 49 m length is used for tugboats and other small craft;upstream of Saboo there is a terminal for ferry boats to BarnabeIsland. The quay and its apron are well maintained.

Valongo - Pagueta Quay

4. The Valongo-Paqueta section, which has 1,961 m length ofquay with alongside depth of 7 m, is generally used for overseas andcoastal general cargo. 209 m in front of Transit Shed 9 is used for

ANNEX 3Page 2

unloading wheat and corn and 200 m length in front of Transit Shed 12is used for bulk-handling directly to and from trucks and freight cars.There are 12 transit sheds on the quay.

5. This quay is very old, having been constructed between 1892and 1902, and includes only a very narrow strip of land within the portlimits. iMany of these berths are gradually being given up for improve-ment of road and rail services in the port.

Paqueta - Outerinhos Quay

6. This section has 2,025 m length of quay with alongside depthof 11 m. Special wheat, corn and salt handling facilities occupy about1,625 m and overseas general cargo is handled at the remaining 400 mof quay., There are 11 transit sheds. The quay, its apron and the shedsare well maintained.

Outerinhos - Macuco Quay

7. The Outerinhos - Macuco section has 1,220 m of quay. Thedepth along 920 m of this section from the upstream end is 8 m andalong the remaining 320 m i