world bank document...weak management at guayaquil port during the early 1970s, led eventually to...

Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 4828

PROJECT COMPLETION REPORT

ECUADOR - LOAN 1255-EC

SECOND GUAYAQUIL PORT PROJECT

December 13, 1983

Latin America and the CaribbeanRegional Office

This doment has a resticted disdrbutlon and may be used by recipients only In the performance oftheir official duties. Its contents may not otherwie be disclosed without World Bank authorIzation.

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FOR OFFICIAL USE ONLY



Second Guayaquil Port Project

Table of Contents

Page No.

Preface ..... ......... ............ . * * * * * * * * *................... iBasic Data Sheet ............... ,. . iiHighlights ........ . , . .... ........................................ lv

I. INTRODUCTION .1............. .... -.II. PROJECT PREPARATIO NAND AP PRA IS.AL 1III. PROJECT IMPLEMNTATION AND COST . . 3IV. TRAFFIC AND OPERATIONSE................... .. .... *. 9V. FINANCIAL PERFORMANCE OF THE BORROWEl...... 13VI. ECONOMIC REEVALUATIONE V A L U A T I ON..... .*. ......... ... 19VII. ROLE OF THE BANK AMD THE BORROWER 22VIII. COCLUSIONS.. 23

Tables

1. Actual and Appraisal Estimates of Project Cost .252. Schedule of Disbursemets . ........ 263. Actual and Projected Traffic Statistics, 1975-1981 274. Actual and Projected GPA Traffic, 1975-1981 .285. Actual and Projected Allocation of Traffic, 1981 296. Actual and Projected Income Statements of the

Guayaquil Port Authority...... .30

7. Actual and Projected Balance Sheets of theGuayaquil Port Authoity............. 31

8. Actual and Appriasal Expectations of Project Financing 32

IBRD 11709 (PCR)

This document has a restricted distribution and may be used by recipients only in the performance

ECUADOR

SECOND PORT PROJECT

LOAN 1255-EC

Preface

1. The following is the Project Completion Report (PCR) oni theSecond Port Project in Ecuador for which Loan 1255-EC (US$33.5 million)was made in May 1976. Board presentation had been delayed about 4 monthsin order to have a new port legislation approved by the Government. Theloan account was closed in December 1981 but disbursements under the loancontinued until March 1982 when the last disbursement was processed andfunds were exhausted. This PCR was prepared 1982 by the Latin America andCaribbean Regional Office with the assistance of the Borrower and is basedon information furnished by the Borrower, as well as that collected duringnormal supervision of the project.

2. The Operations Evaluation Department (OED) has reviewed the PCR,but the project was not audited. Salient aspects of the project's experienceare summarized in the Highlights.

3. The draft PCR was sent to the Borrower for comments and none wasreceived.

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PROJECT COMPLETION REPORT BASIC DATA SHEET



KEY PROJECT DATA

AppraisalItem Expectation Actual

Total Project Cost (US$ million) 83.6 93.5Overr.ii () - 11.8

Loan Amount 33.5 33.5Disbursed - 33.5

Date Physical Components Comnleted 12/79 1/81Economic Rate of Return (X) 14 9

OTHER PROJECT DATA

OriginalItem Plan (12/74) Actual

First Mention In Files 2/72Government Application - 5/74Negotiations 11/75 2/76Board Approval 1/76 5/11/76Loan Agreemetit Date - 5/24/76Effectiveness Date 8/24/76 3/11/77Closing Date 12/31/81 12/31/81Borrower Autoridad Portuaria de GuayaquilExecuting Agency SameFiscal Year of Borrower Calendar YearFollow-on ProJect Name None

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MISSION DATA

Sent Month No. of No. of Man- Date ofItem by Year Weeks Persons Weeks Report

Identification/Preparation IBRD 8/73 0.5 1 0.5 10/05/73

Pre-Appraisal IBRD 1 12/04/74Preparation IBRD 2/75 1.0 1 1.0 03/13/75Preparation IBRD 4/75 1.0 1 1.0 05/02/75Appraisal IBRD 5/75 2.0 3 6.0 06/01/75Follow-up Appraisal IBRD 9/75 1.0 1 1.0 10/14/75Appraisal Updating IBRD 11/75 1.0 4 4.0 12/04175Co-financingArrangements IBRD 4/76 0.5 2 1.0 04/19/76

Supervision IBRD 7/76 1.0 1 1.0 08/18/76Supervision IBRD 5/77 1.0 3 3.0 07/12/77Supervision IBRD 10/77 1.0 2 2.0 01/13/78Supervision IBRD 2/78 1.0 2 2.0 03/08/78Supervision IBRD 8/78 1.0 2 2.0 10/10/78Supervision IBRD 4/79 1.0 2 2.0 05/09/79Supervision IBRD 10/79 1.0 2 2.0 11/16/79Supervision IBRD 4/80 0.5 2 1.0 05/20/80xupervision IBRD 11/80 0.5 1 0.5 12/19/80Supervision IBRD 9/81 1.0 1 1.0 10/08/81Supervision IBRD 2/82 1.0 1 1.0 03/15/82

COUNTRY EXCHANGE RATES

Name of Currency Sucre (S/)

Year Exchange Rate

Appraisal Year US$1 = SI 25Intervening Years US$1 = S/ 25Completion Year US$l = S/ 25

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ECUADOR

SECOND PORT PROJECT

CLoan 1255-EC)

HiLlIlghts

1. The project was intended to eliminate existing port congestionand permit coping with forecast traffic. This was to be achieved bystrengthening GPA's manageriaL capabilities, increasing operational efficiencyand expanding port facilities. To this effect GPA was to: (a) retain consultantsto assist in the implementation of cost accounting and management informationsystems; (b) develop training programs for port workers; and (c) carry out theconstruction of three new general cargo berths, two of which would eventuallybecome part of the first container terminal in Ecuador; construct a specialized

liquid and dry bulk cargo berth; and dredge a new port basin. By means ofthis port expansion project, port capacity was considerably increased, portzoning was clearly defined with the establishment of three terminals: onefor bulk cargo, one for container traffic and another one for general cargoand bananas; and port operations were reorganized increasing the operational

efficiency of the port.

2. The project, prior to Board presentation prompted institutionalchanges that were satisfactoriyimplemented; they consisted of a new portlegislation that was approved by the Government and later enacted and thesimplification of custom procedures to alleviate existing port congestion(para 2.08).

3. The project was completed before the date estimated during appraisal;actual project cost was about 12% greater than appraisal estimates due mainlyto design changes (para 3.08 and 3.09).

4. Physical project components were satisfactorily concluded except forsome technical problems of the sugar-handling facilities that have not yetbeen solved (para 3.01(d)). Some of the technical assistance components ofthe project were not executed as stipulated in the loan agreement; forexample, the cost accounting system was considered by GPA synonimous withcomputerization, and in the absence of computers, it was not introduced(para 5.22); some limited training of port workers sponsored by others andnot financed by the Bank took place in 1977; during project implementation,a National Training Center for port worlFers was built and courses are expectedto start shortly (para 2.07); training for the operation of the bulk andcontainer terminals is being financed diractly by GPA (para 3.06).

5. By 1981, general cargo traffic handled at GPA's facilities was about95% of appraisal forecast; total Guayaquil bulk traffic, also by 1981, wasabout 83% of forecast, however, practically all of it was handled at privatefacilities leaving GPA's bulk terminal unused (para 4.06 and 4.09). Containertraffic has developed in line with appraisal forecast (para 4.07).

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6. GPA's financial results were considerably better than anticipated.1981 net income was about 42X higher than in 1980; operating and wvrrkingratios, rates of return and debt service coverage in general exceededforecasts (para 5,01). Assets were revalued in 1978 (para 5.24); GPA'saccounts and financial statements were audited but audit repors have beendelayed (para 5.21).

7. The revaluated EER for the three general cargo berths is estimatedat 12% compared with the appraisal estimate of 16%; a lower traffic growthrate was used thar. that estimated at appraisal. Even for the most optimisticscenario, the grain terminal has an unsatisfactory ERR of 3%, the sugarmolasses and edible oil fac&lities have marginally acceptable ERRs. Theproject as a whole has an estimated ERR of 9% as compared with the appraisalestimate of 14% (pares 6.03, 6.07 and 6.08). In retrospect, it appearsthat the bulk handling facility should not have been included in the project.(Para 8.01). Otherwise, the project generally achieved its objectives.

I. INTRODUCTION

1.01 Ecuador tias four deepwater commercial ports, two oilterminals and two fishing ports. Other minor ports and a large numberof private wharves and river moorings complete the country's portsystem. Guayaquil Is Ecuador's main commercial port as it handlesover 80% of all seabound traffic excluding oil and bananas. Existingfacilities at Guayaquil prior to the second port project referred toin this report, consisted of five deepwater berths built between 1958and 1963 with Bank participation (para 2.01).

* 1.02 Traffic growth at the port of Guayaquil increased after 1972as a consequence of the accelerated economic growth of the country.Traffic increased from 1.2 million ton in 1972 to about 2.2 million in1977 and about 2.8 million in 1981 (Table 3).

1.03 The combination of traffic growth, inefficient portoperations and inadequate cargo-clearance procedures, coupled withweak management at Guayaquil port during the early 1970s, ledeventually to port congestion which, by 1975, prompted the three mainshipping conferences to impose port surcharges. The general objectiveof the second port project was to provide additional port capacity tocope with forecast traffic up to 1985 (para 2.07), through improvementof operating procedures and additional specialized facilities.

1.04 This project Completion Report (PCR), has been prepared withthe assistance of the Borrower, who prepared a preliminary completionreport for Bank review and provided necessary operational, financialand technical data, and is based also on information obtained from LACInformatiou Center, and project appraisal and supervision reports.This PCR corresponds to the Second Guayaluil Port project financed byLoan 1255-EC for US$33.5 million to the Guayaquil Port Authority(GPA).

1I. PROJECT PREPARATION AND APPRAISAL

Background

2.01 The Bank'3 participation in the port subsector began in 1958with the Loan 212-EC for the first port project which helped tofinance the construction of existing facilities at Guayaquil prior tothe expansion project referred to in this report. CPA was establishedin 1958 in connection with the construction of that project.

Origin and Project Preparation

2.02 GPA first approached the Bank in 1972 to seek financing fornew port equiipment and additional port facilities. The Bankimmediately expressed interest in the proposed project. Afterconsultations with the Government and GPA, the Bank expressed its viewthat, in order to assess overall existing and future port

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requirements, the Government and GPA should (a) undertake theimprovement of cargo-clearance procedures and introduce institutionalchanges for the operational efficiency of the existing port facilitiesat Guayaquil, and (b) await the completion of an ongoing general studyof Ecuadoran ports being prepared by foreign consultants retained bythe Government.

2.03 While the general port study was being completed, GPAretained consultants for the preparation of a feasibility study forthe proposed Guayaquil port expansion project, incorporating the mostrelevant findings of the general study.

Appraisal of the Project

2.04 In October 1974, the Bank reviewed the completed feasibilitystudy and found it unsatisfactory, particularly with regard to trafficforecasts, transport economics and engineering work. After extensiveBank consultations with the GPA and the Government, an agreement wasreached on the scope of the project. The project was appraised by theBank in May 1975.

2.05 Two important issues remained outstanding after appraisalwhich the Bank decided had to be resolved prior to Board presentation:(a) GPA should adopt institutional framework adequate to improve theoperational efficiency of the port and (b) in view of the steadilyincreasing local and foreign cost estimates, the estimates needed tobe reviewed to establish the proposed loan amount.

2.06 These issues were satisfactorily dealt with as follows: (a)new port legislation was approved by the Government and later enactedin April 1976 (para 2.08); (b) increased cargo storage charges andsome simplification of customs procedures were Introduced to alleviateexisting port congestion; and (c) the review of project cost estimatesresulted in a total project cost of US$83.6 million with a foreignexchange component of US$56.7 million (Table 1).

Project Objectives and Description

2.07 The objectives of the project were to increase the capacityand operational efficiency of the port of Guayaquil to enable it toeliminate congestion and cope with forecast traffic. To achieve theseobjectives, the project included the construction of: (a) onespecialized berth equipped to handle dry- and liquid-bulk cargo, (b)three deepwater berths, one of which was designed to support containercranes; (c) a shallow water berth for small floating craft; (d) openand covered storage areas; (e) port workshops and ancillary buildings;and (f) dredging to widen an access channel and a new turning basinand for removing upper layers of soil unsuitable for the constructionof these facilities. An option to build a fourth deepwater berthoriginally contemplated by GPA, but not included in the project, waseventually abandoned. To improve port efficiency, the project alsoincluded technical assistance for training of port workers and GPApersonnel.

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Institutional Changes

2.08 The establishment of a new port legislation, promoted by andsatisfactory to the Bank (para 2.06) was enacted one month after theloan became effective. The Government also undertook the review ofsalaries of GPA's qualified staff, the simplification of customsprocedures and auctioning of abandoned cargoes.

III. PROJECT IMPLEMENTATION

3.01 Project implementation was delayed by a series ofdifficulties. These included:

(a) design of the dredging slope that apparently was notsuitable to the adverse soil conditions prompted disputesbetween the consultants, GPA and the lowest evaluatedbidder, and ultimately led to arbitration and designchanges. This resulted in increased construction costs ofabout US$13.4 million and delays of about eight months;

(b) a legal dispute between the dredging subcontractors andEcudoran custom authorities concerning minor irregularitiesin compliance with import regulations resulted in furtherdelays;

(c) other technical problems, also related to adverse soilconditions, arose during the construction period:' sheddesign had to be modified; some utility ducts had to bereplaced, shed walls and floors suffered settlement andcracks. Most of these problems were solved during theconstruction period; others are still being solved;

(d) unsatisfactory performance of sugar-handling facilitiesincluded in the project which has not yet been solved. Thisproblem, and some of those mentioned in paragraph 3.01(c),prompted GPA to withhold the retention guarantee establishedin the construction contract. This led to long andacrimonious disputes between the GPA, the contractor and theconsultants, and settlement is still pending. The Bank hasbeen closely following the events, trying, with somesuccess, to convince all parties to enter into an amicableand satisfactory settlement; and

(e) the lack of continuity in port management hindered theproject's orderly implementation. Between 1975-1981, GPAhad ten presidents, ten general managers, two administrativedirectors, four finance directors, two operation directorsand three chief engineers. The large turnover of executivesmeant often conflicting policies, instructions and, fromtime to time, different understanding of intricate detailsof the project.

Procurement

3.02 Procurement was satisfactorily carried out on the basis ofinternational competitive bidding (ICB) for one single packagecomprising all works and equipment. In hindsight, it appears that theprocurement of mechanized bulk-cargo equipment should (i) have beenmade on the basis of performance specifications instead of on thebasis of detailed design, and (ii) been procured separately from thecivil works contract. In this way, the equipment contract would havebeen addressed at specialized manufacturers/suppliers instead of at acivil works contractor. The supplier would then have proposed alreadytested equipment to meet the performance specifications rather thanmodify the equipment to meet detailed designs. This might haveavoided the technical problems that have prevented the use of thesugar-handling facility. In addition, GPA and the Bank could haveencouraged the development of the local industry through a bidpackaging waich separated works for which local firms could havesuccessfully bid; this would have probably allowed a more directparticipation of local contractors.

Project Supervision

3.03 Taking into consideration the difficulties with theconsultants' proposed design, and the fact that the same consultantshad been involved in a similar problem during the first port project,the Bank advised GPA against retaining them again for the supervisionwork. However, GPA considered that the replacement of theseconsultants at such a critical time would cause further delays andawarded the supervision contract to them. GPA, on the other hand,accepted the Bank's recommendations to retain the consulting firm thatprepared the revised dredging slope design to act as GPA's technicaladvisor through periodic visits and technical consultations during theexecution of the project.

Administration Unit

3.04 At the Bank's request, GPA established a ProjectAdministration Unit (PAU) to monitor and coordinate allproject-related activities. The responsibilities of this Unit weregradually increased until it became practically the only communicationchannel between consultants and contractors with GPA's management.Although this imposed a heavy workload on the PAU, its performance wasvery good. The PAU's heavy involvement in all technical matters,however, prevented a more active participation of GPA's TechnicalDepartment that would probably have been helpful in threshing outnumerous technical problems.

Project Changes

3.05 Certain changes were made to the project during theexecution period. Based on the significant increase of containertraffic, GPA decided, with Bank agreement, to eliminate two of thethree transit sheds included in the project and replace them with anadditional container shed. For same reasons, the dimension of the

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container yard was also extended. These changes did not appear tohave occasLoned significant additional cosLs. In the light of thecontinuing rapid trend towards greater containerization, GPA decidedto purchase from its resources specialized container-handlingequipment which became operational in August 1982.

Technical Assistance

3.06 GPA reorganized its Operations Department by creating andstaffing three divisions to be responsible for the bulk cargoterminal, the container terminal and the general cargo zone.Technical assistance included in the project for training of GPA'sstaff in the operation and maintenance of the bulk terminal was notused because such training was provided by the equipment suppliersmanufacturers through the main contractor. GPA also decided that theadditional technical assistance required to manage and operate thespecialized terminals should be carried out under a port managementstudy financed directly by GPA which contract was awarded in April1982 to a foreign consulting firm.

3.07 During project implementation, a National Training Centerfor port workers was built in Guayaquil with funds provided by theexisting four port authorities of the country. This training centeris now completed and courses are expected to start shortly.

Project Costs

3.08 The actual final project cost in current prices was S/2,339million (about US$93.5 million) against the appraisal estimate ofS/ 2,091 million or US$83.6 million (including contingencies). Thecost overrun, about 12% above appraisal cost estimate in US dollar andin sucres terms, was caused mainly by design changes (para 3.01).Additional costs arising out of current disputes (para 3.01(d)) mayyet alter total project cost, although it is expected that these willnot be significant. A comparison of detailed cost estimates andactual project cost is given in Table 1.

Construction Schedule

3.09 Despite delays in loan effectiveness (project data sheet)and design and legal problems (para 3.01), the project was completedin March 1981 before the estimated appraisal completion date. Thecompletion date stipulated in the construction contract, however, wasAugust 31, 1980; responsibility for this contract delay is still beingdefined by CPA.

Disbursements

3.10 Actual disbursement of loan funds differed considerably fromthat envisaged in the Loan Agreement. The comparison of appraisalschedule and actual disbursements is given in Table 2; it reflectsdelays in work commencement and the fact that GPA withdrew funds fromthe cofinancier, BNS International (Panama), before drawing on Bankloan funds. At appraisal, it bad been expected that the loan would be

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disbursed pari passu with that of the cofinancier; Schedule 1 of theloan agreement stipulating the withdrawal of loan proceeds would haveallowed GPA to simultaneously use the Bank and the co-lender funds,but GPA decided to fully disburse the co-lender's funds before usingthe Bank loan.

3.11 The loan amount of US$33.5 million was fully disbursed. AtGPA's request, the Bank increased the disbursement percentage from 60%to 90% of foreign expenditures in mid-1979 to adjust for the fact thatGPA had not utilized the loan proceeds during the initial phases ofconstruction. In 1981, the undisbursed balance of the loan wassufficient to cover only about 27% of foreign expenditures. Thedisbursement percentage for the total loan averaged 57% of foreignexpenditures.

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Allocation of Loan Funds

3.12 A comparison of the loan allocation by category in Schedule 1 of the LoanAgreement, with actual use of fu'ads, is given below. This final allocation of theloan proceeds reflects the reallocation of funds under Category III (b), which were tohave been used for technical assistance but not taken up by GPA (para 3.08), toCatL^eory I.

Allocation of Loan FundsActual X of

Original 5/76 Actual Disbursement foreign expendi-Category (US$ equivalent) (US$ equivalent) tures disbursed

I. Civil works 18,000,000 27,973,848 60XII. Equipment 6,800,000 4,184,612 50%1II. Consultants and

Technical Assistance for:

(a) Supervision ofconstruction andprocurement ofequipment 1,350,000 1,341,540 49%

(b) Management, operationand maintenance ofbulk cargo terminal 350,000 - -

IV. Unallocated 7,000,000 -

TOTAL 33,500,000 33,500,000

Performance of Consultants and Contractors

3.13 Problems described in paragraph 3.01, explain theconsultants' performance, particularly with respect to the designfeatures of the project. Although the Bank recommended to CPA againstretaining the same consultants for the supervision of the project(',ara 3.04), these were hired by GPA and their performance wasacceptable during most of the construction period, despite the factthat for sometime the firm was on the verge of bankruptcy. Theirperformance however was poor during the last stages of constructiondue to the firm's internal problems that caused continuous changes inproject managers.

3.14 The contractors' performance from the point of view ofquantity, quality and compliance with design specifications was verygood. This is supported by the fact that despite the serious problemsencountered (design changes, etc.), the works were practicallycompleted only three or four months after the contract's completiondate. The responsibility for delays is still to be determined.

Reporting

3.15 Progress reports were regularly sent to the Bank by GPA;their contents were acceptable at the onset, and their qualityimproved through project implementation.

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IV. TRAFFIC AND OPERATIONS

A. General

4.01 Traffic through Guayaquil is handled at a number of private installationsalong the river Guayas and the Estero, as vell as at the GPA wharves. General cargo,sugar, molasses, and bananas are handled at CPA wharves; petroleum products at aspecialized terminal, and grain and edible oil are handled at both private and GPAfacilities. At appraisal, global trafiic projections for all public and privateinstallations were made by commodity, and traffic allocations between private and GPAfacilities estimated, taking into account the new facilities to be provided at the GPAwharves under the project.

B. Total Traffic: GPA and Private 'acilities

4.02 Table 3 gives details of appraisal forecasts for total traffic and relatesthese figures to actual data. A summary is given below:

Port Traffic at Guayaquil(000 metric tons)

Average AnnualGrowth (%)

1974 1981 1974-1981(Actual) Forecast Actual Forecast Actual

Exports 802 947 854 2.4 0.9

Imports 994 1,805 2,241 8.9 12.3Imports (Excluding Petroleum) 923 1,708 1,574 9.2 7.9Petroleum Products 71 97 667 4.6 37.7

Total 1,796 2,752 3,095 6.3 8.1

Total (Exclusive of Petroleum Products) 1'725 2,655 2,428 6.4 5.0

4.03 Export traffic grew at an average rate of 0.9% p.a. between 1974-1981, ascompared to projected growth of 2.4% p.a. The shortfall is mainly explained byconsistently lower than expected volumes of sugar and molasses exports. By 1981, ithad been expected that sugar exports would increase to 90,000 tons as compared withaverage annual exports of 72,000 tons between 1970-1975. This forecast was based onassumption of relatively slow increases in world consumption but expanded domesticproduction. The export of the molasses was expected to grow even faster, from 45,000tons in 1974 to 120,000 tons by 1981. In the years following the appraisal, however,world sugar prices 1/ fell dramatically from the highs of 1974-1975, and as aconsequence domestic production and exports have suffered. Overall, in 1981, sugarand molasses exports were only 40% of forecast levels. In 1982, the combination ofdrought and poor world sugar prices have resulted in virtually no exports of thesecommodities. In contrast to sugar and molasses traffic, fish and fish meal productsIncreased faster than expected at appraisal; actual traffic in 1981 was about three

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times greater than anticipated. Banana traffic was lower than expected until 1981,when it exceeded appraisal estimates by 11%.

4.04 Import traffic (exclusive of petroleum products) was about 9% below forecastlevels, mainly due to shortfalls in the import of metals, fertilizers, vehicles andmachinery. The shortfall is mainly explained by somewhat lower than expected economicgrowth since 1975, mainly due to the sluggish agricultural and industrial sectors.Real GDP was expected to grow by 7% p.a. over the period, as compared with actualgrowth of 6% p.a.

4.05 Petroleum products were imported at a much higher rate than anticipated.This is due to the fact that the refinery at Esmeraldas was not constructed asanticipated, and because domestic fuel consumption grew at unprecedentedly high ratesin the 1970s due in part to large domestic energy price subsidies during that period.

C. Traffic Allocations

4.06 Table 4 gives actual and forecasts traffic through GPA facilitiesbetween 1975 and 1981, and Table 5 gives the expected and actual allocation of trafficby commodity between the completed GPA facilities and private installations for 1981,the first year the project financed facilities became operational. This table issummarized below, and a comparison between the appraisal assumptions, and actualtraffic allocations for the main commodity groups (general cargo, containers, sugar,molasses, cereals, edible oils and fats) is given in paragraphs 4.07-4.10.

Allocation of Traffic, 1981('000 tons)

Forecast ActualGPA GPA GPA GPA

General Bulk Private General Bulk PrivateCargo Facility Facility Cargo Facility Facility

Exports 702 210 35 803 - 51General 702 - 35 765 - _Sugar and Molasses - 210 - 38 - 51

Imports a/ 1,178 206 324 980 10 586General Cargo/Other 1,156 - 184 966 - 265Wheat, oats, grains - 185 124 11 10 268Oils and fats 22 21 - 3 - 53

Total 1,880 416 359 1,783 10 637

a/ Exclusive of petroleum products.

1/ World sugar prices in constant 1981 dollars (US$/metric ton)1974 1,164 1978 2041975 697 1979 2261976 389 1980 6101977 252 1981 374

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4.07 By 1981, traffic at the GPA general cargo wharves was about 5% belowappraisal estimates. Containerization of cargo has developed in line with thatprojected at appraisal. In 1981, 160,000 tons were handled in containers. It iBexpected that over the next five years, containerized traffic will develop somewhatmore rapidly than anticipated at appraisal (largely due to the installation ofcontainer crane and availability of handling equipment not envisaged at appraisal),with about 25% of all general cargo containerized by 1985 as compared with 18%previously forecast.

4.08 Although somewhat below appraisal estintates, traffic at GPA's general cargowharves was relatively strong between 1975-1981, with an average annual growth rate of5%. In contrast, traffic at GPA's bulk facilities constructed under the project tohandle sugar, molasses, grains, oils and fats, has not materialized. At appraisal, ithad been expected that part of this traffic would shift from private facilities to GPAbulk wharf when the new facilities came on stream. The lack of bulk sugar andmolasses traffic is explained by the fact that the new installations are not yetoperational (pare 3.01(d)). When problems with the sugar and molasses handlingfacilities are corrected, this traffic should be diverted to the bulk facilities asexpected at appraisal, though volumes will be lower than forecast due to the state ofthe world sugar industry (para 4.03).

4.09 At appraisal, it was expected that most grain and cereal imports woulddivert from private facilities along the river, which have draft limitations of 7 m,to the GPA bulk terminal, as importers took advantage of lower transport costsobtained through the use of larger ships that can be handled at the GPA bulkterminal. It was expected that one large importer would continue to use its ownfacilities which had a capacity of 124,000 tons/year. This diversion of grain importshas not occurred for a number of reasons. There are now two major importers withprivate grain handling and storage facilities which have the capacity to handlebetween 250,000 - 300,000 tons/year. Together, these importers make up 85% of totalimports through the Guayaquil river. It has been suggested that given the fact thatthe capital costs for the private terminal have already been made, the grain importershave had little incentive to minimize variable transport costs because of thestructure of Government subsidies on grain products which in effect subsidizedinefficiencies along the distribution chain. In October 1982, subsidies on wheat wereeliminated, however, and this could result in these importers becoming more sensitiveto costs. If this is the case, the GPA's bulk facilities could attract some of thistraffic. An additional 50,000 tons of grains and cereals are imported by smallcompanies who use both private and GPA facilities. In October 1982, a Governmentdecree was passed specifying that all of this additional traffic pass through the GPAbulk wharves.

4.10 At appraisal it was expected that all edible oils and fats would passthrough CPA's wharves when the bulk facilities were completed; about half of thesewere expected to be handled at the bulk facilities with the remainder handled asgeneral cargo. In fact, virtually all of this traffic is now handled at privatefacilities which apparently did not exist when the project was appraised. It is notknown the extent to which private facilities were built in response to delays inproject execution.

D. Operations

4.11 Following operational changes undertaken by GPA at the Bank's request in1976, congestion of the port areas was gradually reduced, enabling the port to handle

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about 1.5 million tons in 1979 or 15% more traffic than in 1975 through the existingfacilities. By 1980, three of the new berths built under the project becameoperational and port congestion disappeared completely, prompting shipping lines toeliminate surcharges.

4.12 Container traffic grew from about 3,500 in 1974 to about 17,000 TEU in 1979,before the new facilities were completed; productivity at the time was very low(7 TEU/hour). Containerization started to grow at a faster pace in 1980 when amplecontainer stacking areas provided by the project became available and productivityincreased to about 10 TEU/hour. In 1982, this traffic is expected to be over 32,000TEU, almost identical to appraisal estimates. Containerization will most likelycontinue to grow at an even faster rate now that the container terminal is fullyoperational and productivity is expected to be 17 TEUthour.

4.13 Operational changes mentioned in paragraph 4.11, together with availabilityof new berths, have allowed GPA to eliminate lighterage of banana exports.

4.14 Actual operational data for dry bulk cargo is not available because therehave been no sugar exports, and grain imports continue to be handled through privatefacilities (paras 4.08-4.10). However, it is expected that future sugar exports andgrain imports should be han4led at the 200 ton/hour rated capacity of thebulk-handling system.

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V. FINANCIAL PERFORMANCE OF THE BORROWER

A. Financial Position of the CPA

5.01 During the project's implementation GPA's actual financialresults were considerably better than anticipated. Each year between1976 to 1980, the actual net income exceeded considerably theforecasted income and in 1981, for which year no forecast was madeduring appraisal, the net income was about 42% higher than in 1980(Table 6). Operating ratios, working ratios, rates of return and debtservice coverage also consistently exceeded forecasts with theexception of 1980 when both the working and the operating ratios wereworse than expected (see para 5.05). Rates of return on net assetsemployed were not representative prior to 1979 due to theunrealistically low values of the fixed assets. In 1978, the fixedassets were revalued and, after that, the rate of return fell to aplausible level.

GPA's Revenues

5.02 The better than expected financial results stem from thehigher than forecast operating (and non-operating) revenues. Between1976 and 1980, the actual operating revenues exceeded the forecasteach year. In addition, GPA has had considerable non-operating (net)income in each of the years observed; at appraisal only smallnon-operating income was forecast until 1977 and losses thereafter.

5.03 GPA revised its tariff schedules in 1976, 1978 and 1980.During project appraisal, tariff increases were envisaged to provide20% to 25% revenue increase in 1976 and about 25% in 1980. The actualtariff increases, while achieving the desired higher revenues, wereobtained from sources other than expected. Storage and shipping duesfar exceeded their expected importance, while cargo related revenuesin fact were almost the same as forecast.

5.04 The aggregate operating revenues between 1976-1980 exceededthe forecast by some 33%. The higher than anticipated revenuesresulted from ship dues and storage fees which were about 58% morethan forecast. Storage revenues exceeded expectations by some 98%,basically due to (three) tariff increases which were not forecastduring project appraisal and the revenues from shipping fees exceededthe forecast by about 36%, mainly due to different composition ofshipping traffic than expected. Cargo related revenues were onlyabout 1% higher than the forecast. The importance of the storage feeas a source of operating revenue has also grown; it represented 29%share of the total operating revenue during the last five yearscompared to the expected 19%.

5.05 While operating revenues considerably exceeded expectations,total working costs remained close to projected levels until 1979,with the maximum difference from the projections being 11% in thatyear. However, from 1979 to 1980, due to higher personnel expenses,costs increased by 43% and were about 40% above the forecast. As aresult of this, for the first time during the project's life, the

- 14 -

working and operating ratios deteriorated beyond the forecastvalues.

5.06 Until 1979, actual personnel costs increased somewhat fasterthan envisaged. In 1980 the increase became particularly pronounced;actual personnel costs grew by 48% compared to the previous year andexceeded the forecast by 42%. Both the higher than expectedcompensations and the higher manning levels were responsible for theincrease. Between 1976-1981, compensation per person rose at anaverage rate of 22% per annum compared to the 15% forecast; employmentincreased at an annual average rate of 7% in contrast to the less than1% forecast. In fact during appraisal, no increase in employment wasenvisaged until 1980 for which year a nominal increase was forecastfor operating the bulk cargo facilities. The GPA's port traffic,which grew by about 11% p.a. over this period, probably would notjustify a manpower increase (about 30% over the last four years) orthe increase in compensation (estimated at 7% p.a. in real terms).

5.07 In spite of the better than expected financial results,earnings did not improve in relation to the cargo handled. While irL1977 the revenue per ton of cargo handled was about 2.5 times higherthan the cost per ton of cargo handled, in 1981 it was only 1.5 timeshigher. Should this declining trend continue, the port could expectincreasingly serious financial difficulties in future years. With thetimely implementation of a cost accounting system, tariffs could bedesigned to maintain an explicit link between revenues and costs andto improve the port's earning potential (see paras 5.23 and 5.24).

5.08 GPA's total assets increased until 1977 as forecast, butwith a different composition; the value of the current assets exceededthe forecasts, while the values of net fixed assets fell below. In1978, 1979 and 1980 values of both the fixed and current assetsexceeded their forecast by about 71% for the following reasons:

(a) During 1978 GPA revalued its fixed assets increasing thevalues by about 75%. During project appraisal allowance of20%-30% increase in asset values was made for a revaluationto be completed in 1976 and an additional 20% for a secondrevaluation in 1979. The magnitude of the revaluation wasunderestimated during appraisal; and

(b) During 1979 and 1980, the actual values of "construction inprogress" were higher than forecast. These reflected somedelays in civil works implementation, higher thananticipated project costs due to cost overruns andadditional project items.

5.09 GPA's liabilities also reflect the better than expectedfinancial results (Table 7). The lower than projected level ofborrowing for project financing, as well as the delay in finalizingthe BNS International Loan (see paras 5.11 and 5.12), resulted inlower than expected total debt between 1976 to 1979. Debts began togrow rapidly only from 1980. The lower than anticipated levels oftotal debt and the stronger equity position are also reflected by the

- 15 -

better than forecast debt-equity ratios. CPA has had no difficulty incomplying with Covenant 5.07 of the Loan Agreement pertaining to debtservice as a proportion of the preceeding year's net revenue.

B. Project Financing

5.10 Table 8 compares the forecast and actual project financingaccording to various sources. It is noted that the actual localcurrency expenditure was about 30% and the foreign currencyexpenditure was about 5% above the respective appraisal estimates.GPA financed both these cost overruns, and, in addition, contributedto the project $10 million more than originally was expected; thisamount was to have been a Government contribution. GPA's overallinvolvement in the project was about SI 871 million, or US$16.1million. The port was able to provide these finances due to itsstronger than anticipated financing position.

5.- The Bank financed 57% or US$33.5 million of the foreignexch. ige costs. US$10 million was provided through a loan to the GPAby BN., International (Panama) S.A. under co-financing arrangementswith the Bank.

5.12 The finalizing of the US$10 million loan from the Governmentof Ecuador or from other sources was a condition of the Bank loaneffectiveness. At the time the Loan and Guarantee Agreements weresigned, the deadline for effectiveness was August 24, 1976. However,the Government was reluctant to finalize the financing arrangementsuntil an accord was reached between the GPA and the contractors on thecivil works construction. Consequently, the deadline foreffectiveness was twice postponed at the request of the Ministry ofFinance, and as the financing arrangements were signed on December 21,1976, the loan finally came into effect on March 11, 1977.

C. Review of Covetants

5.13 The covenants included in the Loan and Guarantee Agreementscovered financing, institutional, management areas, and also reflectedinstitution-building components of the project. The principalcovenants are discussed below and the related performance records ofboth the Borrower and the Guarantor are reviewed. Standard covenantswhich were complied with in a satisfactory manner are not discussed.

- 16 -

Guarantee agreement

Section 3.02: Repayment of Government Debts to GPA

5.14 At the time of appraisal, the Government's debt to GPAamounted to S/ 35.5 million, and repayment was required by December31, 1976. The Government has repaid this debt, but during the lastfive years new obligations were incurred. The GPA now reports thatthe outstanding debt is S/ 51.2 million.

Loan Agreement

Section 3.03: Technical Assistance for Manpower Training to ImproveSkills of Shore Labor, Stevedores and EquipmentOperators

5.15 A series of courses for port workers, the costs of whichwere not financed by the Bank, was begun in 1977 under the sponsorshipof the American Association of Port Authorities. Other trainingprograms undertaken or to be undertaken by GPA are discussed inparagraphs 3.06-3.07.

Section 3.04: Hiring of Management and Engineering Experts to Assistin Operation of Bulk Cargo Terminal.

5.16 Provision was made in the contract with the main contractorfor the necessary training to be carried out during the erection andtrial of the equipment as well as during the guarantee period.

Section 3.05: Hiring of Port Operations Expert by December 31, 1976for Training and Operational Assistance

5.17 Experts were hired in 1977 to prepare a study of portoperations. However, the GPA and the Bank found the work to beunsatisfactory and consequently new consultants were retained. Thework of the latter was later suspended due to ruling by a governmentregulatory body which alleged irregularities in the hiring procedure.By December 1981, the difficulties had still not been resolved. Astevedoring operations program was implemented in 1977 with the aid ofa Swedish expert. However, training for the operation of the bulk andcontainer terminals has been included in a separate contract recentlyawarded to a foreign consulting firm (para 3.06); this contract isbeing financed directly by GPA.

Section 4.01: Appropriate Insurance Coverage

5.18 During 1978, the CPA arranged a self-insurance policy whichthe Bank deemed to be inadequate. In early 1980, an acceptableinsurance scheme was introduced.

Section 4.03: Establishment of System of Salaries and Benefits forManagement Consistent with Need to Employ Qualified andExperienced Personnel

5.19 The rules governing the port authority's discretionarypowers regarding personnel compensation were altered in 1976. By

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virtue of this change, compensation levels for GPA management wereraised and in 1977 it appeared to be competitive with those offered byother public and private employers in the Guayaquil area. Themanagement every three years renegotiates employment contracts bothwith laborers and administrative staff, trying to maintain thecompetitiveness of the employment conditions offered. The latestnegotiations have been completed recently. Subsequent to thesenegotiations, the compensation of management personnel iB adjusted.

Section 4.04: Study on Impact of Conditions of Employment of GPAEmployees Upon Efficiency of Operations of Port

5.20 The study, to be completed by June 30, 1977, had not yetbeen undertaken as of December 1982.

Section 5.02: Annual Audit of Accounts and Financial Statements byExtprnal Auditors

5.21 Compliance with this covenant was consistently achieved upto the end of fiscal year 1977. But, it was not until late 1981 orearly 1982 that the audited accounts for 1978, 1979 and 1980 werecompleted. The considerable delays stemmed from the requirement thateach year the Government approve the contract between the appointedauditors and the GPA. This approval was usually delayed.

Section 5.03: Establishment and Maintenance of Statistical andCost Accounting Systems

5.22 The original compliance date was December 31, 1976, however,basically due to the delayed loan effectiveness. This date waschanged to September 8, 1979. Part of the requirement, the design andapplication of a statistical system was largely in place by mid-1977.In 1978, the GPA hired Price Waterhouse to design a cost accountingand inventory control system amenable to computerization. By April1980 the design was completed and submitted to the GPA Board ofDirectors together with a recommendation to upgrade the port's dataprocessing facilities. Although the Port sought the Government'sapproval for procuring the appropriate facilities almost immediately,as of now approval has not been received. Since the new system wasconsidered synonymous with computerization, in the absence of thecomputers, it was not introduced. Current indications are that GPAwill be able to obtain the computer in early 1983.

5.23 The Bank has closely monitored GPA's performance under thiscovenant as it is considered that the introduction of a costaccounting system is an essential prerequisite for efficientmanagement of a port. The non-compliance to date has seriouslyimpeded the GPA's ability to ensure the rational costing of itsservices and appropriate framing of tariffs. The long delay insetting up a cost accounting system must be viewed with gravitybecause of the negative implications for efficient port management.

- 18 -

Section 5.06: Revaluation of Assets and Preparation of DepreciationSchedule

5.24 This was originally to be carried out by December 31, 1976but an extension was later granted until September 1979. Therevaluation was completed in June 1978.

- 19 -

VI. ECONOMIC REEVALUATION

A. General

6.01 At appraisal, the economic analysis of the Second Guayaquil Port Projectwas divided into three parts: (a) three additional general cargo wharves; (b) bulkterminal pier; and (c) total project. The general cargo wharves had an estimatedeconomic rate of return (ERR) of 16%, the bulk terminal 12% and the overall project14%. The ex-post economic reevaluation follows the methodology used at appraisalexcept where noted in the following paragraphs.

B. General Cargo

6.02 For the general cargo wharves, benefits quantified at appraisal consistedprincipally of savings in ship turnaround time, savings from avoiding lighterage ofbananas and from avoidance of diversion of traffic to other ports. Some savingsfrom the cost of handling containers was also included. In this economicreevaluation, these savings were requantified using actual investment costs andupdated productivity figures and traffic forecasts. In addition, the cost of thecontainer crane acquired by GPA in 1982 but not included in the original projecthas been included as an investment cost. Benefits from reduced container handlingcosts with the crane and faster ship turnaround have also been included.

6.03 The reevaluated economic rate of return for the three additional generalcargo wharves is estimated at 12% as compared with the appraisal estimate of 16%.The lower reevaluated economic rate of return is explained by a 14% real increasein project costs (exclusive of the container crane), longer than expectedimplementation period which delayed project benefits, and reductions in forecasttraffic. While 1981 traffic at the general cargo wharves is only 5% below theappraisal estimate, the reevaluation assumes a somewhat lower growth rate over thelife of the project. At appraisal, traffic at the GPA general cargo wharves wasexpected to increase by 5% p.a. through the 1980s. The reevaluated economicanalysis assumes a 3% p.a. traffic growth rate at the GPA general cargo wharves,which is in line with the most recent Bank macroeconomic projections of imports andexports.

Bulk Facilities

6.04 The bulk facilities, were reevaluated as a whole, as done at appraisal,using three traffic scenarios. A separate excercise was made to allocateinvestment costs between the various bulk facilities. This analisis was not madeat the time of appraisal. Paragraph 6.05 gives details of the reestimated trafficforecasts and paragraph 6.06 discusses the benefits considered and 6.07-6.08 thereevaluated economic rates of return.

6.05 In the first scenario, it was assumed that the sugar and molassesfacilities would be operational by 1983. Traffic in that year is assumed at 1980levels; thereafter sugar traffic is expected to grow at 5% p.a. and molasses at 6%p.a. This is in line with the most recent Bank economic projections for theseexports. By 1985 it is therefore expected that sugar traffic will reach 52,000tons and molasses to 65,000 tons as compared to appraisal estimates of 101,000 tonsand 175,000 tons, respectively. For grains it was assumed that the GPA wouldcapture 100,000 tons of traffic currently handled by the two larger importers andall traffic handled by smaller importers; this represents about 50X of all grain

- 20 -

traffic. Imports are projected to grow by 1.5% p.a. thereafter. By 1985, 160,000tons would be handled by the GPA facility as compared with the appraisal estimateof 290,000 tons. Finally, it was assumed that the GPA facility would capture 50%of the edible oil and fat traffic from private facilities and that this would growby 6% p.a. Under Scenario II, sugar and molasses traffic remains the same as inScenario I. It is assumed that the GPA will only be able to attract that graintraffic being imported by small companies without their own facilities, or about56,C)0 tons in 1985. For edible oils and fats, it is assumed that privatefacilities will continue to handle the present levels of traffic (about 53,000tons) and that any additional traffic would be handled through the GPA bulkfacility (6,000 tons in 1985). Under Scenario III, the extreme case of all graintraffic being diverted from private facilities to the GPA facility was assumed.Sugar, molasses and edible oils and fats remain as in Scenario I.

6.06 Benefits accruing to the bulk facilities include (a) savings in freightcosts from the utilization of larger ships and faster port turnaround, and (b)savings in port cargo handling costs. Because the facilities have not yet beenused we have no actual productivity figures or information on changes in ship sizesdue to the project. For the purposes of the reevaluation, the ship sizes assumed,with and without the project, at appraisal were accepted, and ship costs at portand at sea updated. Savings in cargo handling costs were reestimated to the 1980base year by correcting for inflation.

6.07 As shown in the table below, under Scenario I, the bulk handling facilityas a whole has a reestimated ERR of 4% as compared with the appraisal estimate of12%. The sugar, molasses and edible oils have marginally acceptable ERR's whilethe grain facility has a negative ERR. Under Scenario II, the facility as a wholehas a reestimated ERR of 3%. Under the extreme Scenario III, where all graintraffic diverts from private facilities, to the GPA terminal, the grain terminalinvestment still has an unacceptable ERR of 3%.

6.08 The project as a whole (based on Scenario I and II) has a reestimated ERRof 9% as compared with the appraisal estimate of 14%.

Appraisal ReevaluatedEconomic Economic Economic Rate of ReturnInvestment Rate of Scenario Scenario Scenario

Cost Return I II III(millions 1980 US$) (%) (%) (%)

General Cargo 75.3 16 12 12 12

Bulk Facilities 35.2 12 4 3 6Sugar and Molasses 13.7 N/A 9 9 9Grain 20.1 N/A -3 -9 3Edible Oils and Fats 1.4 N/A 11 6 11

Total Project 110.5 14 9 9 10

6.09 The poor performance of sugar and molasses exports is mainly caused bythe steep drop and subsequent stagnation of world sugar prices. If sugar andmolasses exports recover at a faster rate than anticipated here, this investmentcould have a higher return than that calculated in this excercise.

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6.10 In retrospect, however, the grain handling facility should not have beenincluded in the project. At appraisal, more careful analysis of the prospects forthe development of private bulk handling facilities should have been carried out.Further, the components of the bulk handling facility should have been analyzedseparately to determine the extent to which each was viable on its own. Thisanalisis suggests that relatively high returns for the sugar and molasses terminalsanticipated at appraisal masked marginal returns for other facilities. If thegrain facility analyzed separately had emerged as a viable sub-project, then theCPA should have entered into agreements with the grain importers for the use of thebulk terminal before loan negotiations.

6.11 An interesting issue which arises out of the analyses made here relatesto the allocation of joint investment costs for the bulk terminal to determine theextent to which each facility at the terminal would be viable on its own. Forexample, if the grain terminal had not been included in the project, it is notclear that there would have been a meaningful decrease in infrastructure costs.Because the data on infrastructure requirements which could be developed in theframework of this PCR was limited, Joint costs were allocated in a fairlysimplistic manner in this analysis. Costs were allocated proportional to the shareof total bulk tonnage expected at each bulk facility at appraisal. An alternativemethodology, which might be investigated for future appraisals of projects withjoint costs, would be to determine, for the facility with the largest expectedpresent value of benefits, the minimum infrastructure costs required and theassociated economic rate of return. A marginal benefit/cost analysis could then bemade for each additional component to be considered for inclusion in the project.

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VII. THE ROLE 01' THE BANK AND THE BORROWER

7.01 During 1972-1975, the port of Guayaquil started to sufferfrom considerable port congesti",n. The GPA considered at that timethat additional facilities we,e required to relieve such congestion.When the Bank started its participation, the attention was focussed onthe operational efficiency of the port and on the institutionalaspects of the GPA. After reviewing GPA's proposals, and while thescope of a satisfactory project was being defined, the Bankrecommended to GPA some operational changes aimed at improving portproductivity.

7.02 With regard to the scope of the project and its contents,the Bank was a key factor is scaling the project down to a reasonablesize. However, it appears that GPA and the Bank should have morecarefully analyzed the bulk facility, with GPA clearly defining theuse of the grain terminal after its completion by entering intoagreements with grain importers.

7.03 The fact that GPA had had some previous experience with theBank may have contributed to facilitate project implementation.However, the lack of continuity on the managerial level played anegative role in dealing with problems during construction (para3.01(e)).

7.04 Based on design and construction problems that occuredduring the execution of the first port project, the GPA and the bankshould have paid special attention to the adverse soil conditions; thefinal design prepared by consultants should have been very closelymonitored during its preparation stage and more carefully reviewedafter its completion (para 3.01).

7.05 Serioub disagreements between the GPA, the consultants andthe lowest bidder came to light on the adequacy of dredgingslopes-design. Bank participation was relatively important duringthis process, and disputes were finally settled through arbitration,design changes and additional construction costs.

7.06 Bank supervision was somewhat less than adequate,particularly in connection with some of the technical assistanceproject components, and compliance with some loan covenants (paras5.17 to 5.25). Work relationships with the GPA were excellent despitecontinuous changes within the GPA's top level staff.

7.07 The Bank participation in disputes that arose from defectivecompletion of the works, has been restricted to the observation ofevents and to attempting to convince the parties involved to solvefirst the technical problems, and deal later with the correspondingaspects (paras 3.01(c) and (d)).

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VIII. Conclusions

Achievement of Project Objectives

8.01 The project has generally achieved the objectives set up atappraisal: the increased port capacity eliminated port congestion andis expected to be adequate to cope with traffic forecasts until atleast 1987. Operational efficiency was also improved (paras 4.11 to4.14) and with the additional investment of GPA to fully equip thecontainer terminal, port capacity has been further increased andoperational efficiency improved. The investment in the bulk terminal,however, has not contributed to achievement of those main objectives.Furthermore, it appears that, in retrospect, the grain handlingfacilities should not have been included in the project (para 6.10).

Economic Results

8.02 Economic benefits of the project have not yet fully comeinto stream. This is due to: (a) the decline of international sugarprices that have caused the reduction in sugar and molasses exports;and (b) vested interests and Government subsidies to grain importsthat have counteracted the incentives to importers to use the GPA'sgrain-handling facilities. The project's overall EER is 9% ascompared to 14% at appraisal. At appraisal, more careful analysis ofthe prospects for the development of the grain handling facilityshould have been carried out. Further, the components of the bulkhandling facility should have been analyzed separately to determinethe extent to which each was viable on its own. GPA should competefor grain traffic as strongly as it can; to do so it should explorethe possibility of reducing tariffs, covering as little as short-termmarginal costs. If traffic does not materialize after a reasonabletime, the facility might be converted to an alternative use, such as ageneral cargo berth.

Financial Results

8.03 GPA's financial situation is good; net income, operating andworking ratios exceed appraisal forecasts. Tariffs were Increasedmore than anticipated but the ratio of average revenue to cost per tonseriously declined due to higher operating cost increases (mainlysalaries). A cost accounting system has not yet been implemented, anduntil it is, tariffs cannot be linked to costs. GPA's fixed assetswere revaluated in 1978, bringing rates of return to adequate levels.

Project Preparation and Implementation

8.04 Based on technical problems that occurred during the firstport project, the Bank should have followed more closely preparationof final design taking into consideration the adverse soilconditions. With regard to specialized grain bulk-hane'.ing facilitiesincluded in the project, the Bank should have requested 3PA to takethe necessary measures to ensure that, upon completion of the project,grain importers would start using GPA's bulk terminal, and that in themeantime, the private facilities would not be expanded.

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8.05 Project implementation schedule proved to be very realisticbecause despite delays in loan effectiveness and in work commencement(para 3.01), coupled with design changes and arbitration, the projectwas completed before the appraisal estimated completion date. Therewere no ma4or procurement problems (para 3.11). Disagreements onadequacy of dredging slopes' design led to disputes and arbitrationthat, with Bank participation, resulted in decision changes,additional construction costs and delays (paras 3.01 and 7.04). Otherdisputes arose after the project had been practically completed,concerning construction defects; some of these disputes have not yetbeen settled. The Bank has been closely following the events,advising the concerned parties, from time to time, to solve first thetechnical problems and sort out the legal aspects that may be involvedlater (paras 3.01 and 7.07).

Procurement

8.06 Procurement under ICB procedures was satisfactorily carriedout. In retrospect, it appears that a better bid packaging could haveproduced better results technically and have promoted the developmentof the local construction industry (para 3.02).

Borrower 's Participation

8.07 The Bank should have encouraged a wider participation ofGPA's technical and operational departments with a double objective:first, to facilitate transfer of technology and experience, and,second, to make a better use of the knowledge of local conditions andallow the designers to take into consideration the existing andplanned operational procedures.

Project Supervision

8.08 The Bank should have been more deeply involved in monitoringGPA's training program. Compliance with the auditing covenant and theimplementation of cost accounting systems could also have been moreconsistently pursued.


EQIADOR - LOAN 1255-EC

SECOND GUAYAQUIL PORT PROJECr

Actual and Appraisal Estimates of Project Costs 1/

Actual Cost Contract Appraisal Estimate of Cost- Actual Cost as a Proportion of

Project Local Foreign Total Amount Local Foreign Total Appraisal ContractComponent (Sucres/lmillions) (US$mlmllions) (US$1milllons) (US$/millions (Sucreslmillions) (US$fmillions) (US$Imillions) Estimate (-) Amount (2)

(1) (2) (3) (1) (3)xlOO (1) (2)xlOO

Dredging 86.47 15.56 19.49 14.12 81.26 14.37 17.60 110.7 138.0

Wharf Construction 310.23 15.96 28.11 20.42 145.17 19.44 25.23 111.4 137.7

Landworks 332.56 15.49 28.46 18.12 317.00 10.26 23.06 123.4 157.1

Bulk Terminal andOther Equipment 5&.56 6.31 10.60 8.39 50.80 1O.Z3 12.24 86.6 126.3

Consultant ServIces 88.85 2.76 6.18 3.92 73.42 1.97 4.92 125.6 157.7

Technical Assistance 1.71 0.62 0.70 - 5.97 0.36 0.6 116.7

Total 871.00 56.70 93.54 64.97 673.62 56.63 83.6S 111.8 144.0

!( Exclundns interests during construction.

/ Including contlzzgenclaa.

BESI COPY AVAILBLE

- 26 TABLE 2



Second Guayaquil Port Project

Schedule of Disbursements

Actual Total Appraised Estimate

Fiscal Year (US$ million) (US$ billion)

1977 1.00 8.70

1978 1.00 18.90

1979 8.10 28.50

1980 20.20 33.30

1981 31.45 33.44

1982 33.50 33.50

gcuaDvO - WAS 1253-tC

stcmo GSUATAQDI.L PORT t9t0Ct

(aartc tt7 1 ea. )1I" tollAtwlal . t easat Actual Foreeeat Actua ree Awl rivecsaa -AtAcl ter*0 at Actual Frrecast

Bar.gan an* flastaes a476s49 563,000 4 00

,a0 6

s,on'o 413,402 542,000 460Q,10 S$1,000 341,80O I m3,000 511,140 s1m341 51J.44 516.000C.tt.. 13.202 31,000 33,3I3 33,000 33,113 34,000 58',Sq 36,000 - 38,000 36,291 40,000 33,109 4310(0Cacao a4d lto&atto 41,316 50.000 36.320 52,004 19,44 53,00 64.361 SS31,0 33,603 1,000 s.m 68,1 40,000 *s,14 1.z.0ef! t$6 Flhu golat 31,41 4 1l,000 31,445 12,000 43,s51 13,000 S0.11 l,C000 31,211 13.000 S112616 I6,00 13*'.. I ,'V0oSqar 39,333 15,000 28,394 17,000 14,451 50,000 21,536 63,000 53,113 64000. 43,521 61,000 33,219 92,0103!t.180000 4S.375 52,000 32,0s 0o,oo00 6,2127 10,000 31,342 81,000 53,630 94,000 66,616 106,000 34,416 220.000Otbat Coe16,U1 .4 U,.oO 103.610 32.000 644,5146 ,ooo 4*,641 66,000 11a,199 16.000 32,ual 81.000 19,3l 00.00 I

Total 611,146 69,ttO0 641,911 641,000 101,11 611,%000 131,141 flI.000 145,444 11100 141.111 216.0 $Sf4.2$1 941.0% t.1- - _ - - - - -_- - - %4

,I9Ft'Ts

resnctem &$#bast 6 bfd,. uea 60,235 15,000 133,032 06.000 446,124 62,000. 23,1961 16,000 336.,21 61,n00 5363,61 11.000 "66.403 l.000Uhect and Oats 23,031 116,004 206,625 u86,000 246,696 20,41,03 310,311 223,000 251,615 340,000 334,215 362,000 lU.Iol S,')P.Nt &ad u iats ott 31.436 4.000 39.909 1,ooo 62.433 36,000 . - 40,000 43,342 43,0o0 12,164 4S,000 IF,)1 41,o00hotetls ag ptoductg 19,S026 251.000 201,111 255.000 336,163 330.000 M. 110 4W,.Ofl) 32s56,4 401,0t,2 3Jl5S13 352,00o 2ya.453 430,03)Cheatcal troduets 101,041 116;000 S6,11 126,000 145,606 139,000 110,160 148e000 2124,82 160.000 209.U14 1O2.00 24 6. MA3N0t^all$ da irate 34.636 32,000 29,487 33.000 3,13 34.000 31,133 36,000 31,llt 36,000 3,661 40,000 o 1.710 &),.(0tagliter 50,524 136,O00 21,626 124,000 74,155 132,000 54,531 143,000 30,344 274,000 86,012 300n000 1,.2: 317O,005Tehicles and Ht&Chlsry 116.264 96.000 64,616 109.000 013,496 123,000 103,710 141000 303,102 160.0'1i 14,1SO 1 141,00 OZ4,61 212,n6Cemuat 14lS91 64.000 36,066 60,000 93,0 0 100,000 26,093 20.000 47,366 20.0D00 1.113 20.000 U34.0f' 20,4:ot0%eg Goods 16,106 100,000 110,0st 101.000 124,014 MAN 10 6.126 122,000 117,6)6 133.000 161,113 11, noo S11.9Žr j Nub,

Total 966,331 1.012.000 981.912 1,176,000 1,207,737 1,297,004 1,627.740 1,331.000 1,626,334 1,645,000' 2,041,244 14264,000* 2,242,11 I101SO,0"- -_ -_ ___- -- -- --0~ 0-

Total Trc.9le t,663,647 1,901,000 1;621.,36 2,023,000 3,421,480 3,168,000 2,360,663 2,241,000 3,411,602 ,2,342,000 2,664,4263,352,000 3,091.036 I,1S12.0 ,- - ,. ,___;

* :.1. Thee. Uspee 4dltbr tra shoe appear*ta is Table SIAaMe S of Appraisal eltort due t. gaaotle stor Lg ge. Ban.

BEST COPY AVAILABLE

- 28- TABLE 4




Actual and Prolected CPA Traffic('000 tons)

Forecast ActualImport Export Total Import Export Total

1976 753 622 1,375 548 526 1,074

1977 854 631 1,485 832 575 1,407

1978 890 638 1,528 788 597 1,385

1979 n/a n/a n/a 803 677 1,480

1980 1,106 698 1,804 760 807 1,567

1981 1,178 702 1,880 803 980 1,783

'Source: ECUADOR - Appraisal of a Second Gttaya4uil Port ProjectReport No. 947a-EC, April 20, 1976; GPA




Forecast and Actual Allocation of Traffic 1981

Actual Traffic 1981 Appraisal Forecast 1981('000 tons) ('000 tons)

Private PrivateGFA Facilities Facilities GPA Facilities Facilities

General Cargo Bulk Total General Cargo Bulk TotalWharves Terminal Total Total Traffic Wharves Terminal Total Total Traffic

EXPORTS

Bananas 572 - 572 N/A 572 460 - 460 35 495Coffee 34 - 34 - 34 43 - 43 - 43Cacao and Products 66 - 66 - 66 62 - 62 - 62.Fish and Fish Meal 54 - 54 54 18 - 18 - 18 ,Sugar 16 - 16 19 35 - 90 90 - 90 3Molasses 22 - 22 32 54 - 120 120 - 120Other 39 - 39 - 39 119 - 119 - 119

Sub-Total 803 - 803 51 854 702 210 912 35 947

ID?ORTS

Wheat, Oats, Other Grains 11 10 21 268 289 - 185 185 124 309

Paper Products 94 - 94 - 94 47 - 47 - 47Metals and Products 272 - 272 - 272 450 - 450 - 450Chemicals 174 1 174 71 245 138 - 138 40 178Oils and Fats 3 - 3 53 56 22 21 43 - 43Fertilizer 10 - 10 77 87 190 - 190 140 330Vehicles and Machinery 125 - 125 - 125 212 - 212 - 212Others 291 _ 291 117 408 119 - 119 20 139

Sub-Total 980 11 1,034 586 1,576 1,178 206 1,384 324 1.708 ITOTAL TRAFFIC 1.783 11 1.794 637 2,430 1,880 416 2,296 359 2,655 r

Source: GPA; ECUADOR: Appraisal of a Second Guayaquil Port Project, April 20, 1978, Annexes 8 and 9.

BEST CPwY AVAIUBLE




Actual and Projected Income Statements of the Guayaquil Port Authority(in current sucres/thousands)

1975 1976 1977 1978 1979 1980 1981Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual

Operating Revenues

Import Charges 126,738 142,000 141,315 155,900 208,316 174,L0O 216,739 191,100 212,923 216,100 267,548 303,700 280,977Export Charges 12,114 13,000 16,023 18,900 17,569 19,800 19,738 20,700 24,175 21,900 34,057 28,700 36,016Storage 159,183 137,000 156,747 83,000 212,499 92,000 274,069 104,500 194,234 98,000 185,244 138,300 266,379Ships Dues and Others 114,432 110,000 172,874 161,100 256,922 172,200 264,074 177,400 286,819 197,200 352,762 265,000 405,032

Total Revenues 412,467 402,000 486,959 418,900 695,306 458,100 774,620 493,700 718,151 533,200 839,611 735,700 988,404

Operating Expenses

Personnel ) 180,898 146,000 ) 226,999 186,000 ) 252,653 219,500 262,498 254,600 318,517 295,300 468,267 330.800 525,822General and Administration ) 29,200 ) 37,200 ) 43,900 61,682 50,900 68,022 59,100 89,678 66,200 102,201Others 1! 25,630 14,000 16,419 10,500 20,436 11,500 21,254 12,400 19,848 13,400 21,654 18,400 21,125

Total Working Costs 206,528 189,200 243,4L8 233,700 273,089 274,900 345,434 317,900 406,387 367,800 579.599 415.400 649,148

Depreciation

2! Existing Assets 15,551 14,300 19,380 23,100 24,124 22,200 30,705 21,700 ) 33,682 21,200 ) 33,783 20,600 ) 38,209Project Assets - - - - - - - - 25,000 ) 50,000 )

Total ne'preciation 15,551 14,300 19,380 23,100 24,124 22,200 30,705 21,700 33,682 46,200 33,783 70,600 38,209

Less 8ad Debt - - - - 8,660 - 14,371 - 19,150 - 20,585 - 16,912

Total Operating Expenses 222,079 203,500 262,798 256,800 305,878 297,100 390,510 339,600 659,219 414,000 633,967 486,000 704,269Net Operating Revenues 190,388 198,500 224,161 162,100 389,433 161,000 384,110 154,100 258,932 119,200 205,644 249,700 284.135Less Interest Expenses (Income) (11,138) (7,500) (25,069) (5,700) (55,538) 15,800 (68,058) 53,600 (39,725) 106,200 (14,560) 75,400 (18,860)

Net Income 201,526 206,000 249,230 167,800 444,971 145,200 452,168 100,500 298,657 13,000 213,303 3/ 174,300 302,995 4

Operating Ratio (2) 53 51 54 61 44 65 50 69 64 78 75 66 71

Working Ratio (x) 50 4-7 50 56 39 60 45 64 58 69 71 69 67

Rate of R5turl on AverageNet Fixed Assets (2) 31.3 34.5 17.3 25.1 59.1 - 22.6 28.7 22.3 12.2 7.0 9.5 9.3 12.9

Deht Service Coverage (times) 9.7 7.9 11.0 5.1 18.7 3.1 11.3 2.1 9.1 1.3 2.6 2.0 3.0

Interest Service Coverage 46.8 18.9 61.3 8.4 40.8 4.0 21.8 2.4 20.9 1.1 6.3 3.0 6.7

V1 Includes payments made to DIMERC and the Contraloria General based on a percentage of gross revenue. In,

2/ Net of sale of assets.

3/ Net of the sum of S/ 6,901,000 for payment to employees due in 1970 but delayed until 1980.

4/ Including unverified accruals of $426,000.

BEST COPY AVALBLE



SECOND GUAYAOIIIL POPr PROJECT

Actual and Projected Balance Sheets of the Gusyaquil Port Authority. 1975-1981(in current sucres thousands)

1975 1976 1977 1978 1979 1980 1981.a Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual

- AssetsAcul Frcs Acul Frcs tm

A. Current AssetsCash 52,837 20,000 53,330 21,600 51,012 22,300 17,512 28,400 104,639 43,600 17,297 35,500 64,453Inventories and Others 30,323 20,100 52,349 20,900 59,437 22,900 94,661 24,700 96,035 26,700 144,164 36,800 168.401Accounts Receivable 72,067 40,200 98,498 41,900 162,922 45,800 143,809 49,400 122,907 53,400 101,169 73,700 86.033Marketable Securities 265,275 305,900 443,470 395,900 725,194 275,900 586,082 25,900 223,072 25,900 249,061 165,900 127.160

Total Current Assets 420,502 386,200 647,647 480,300 998,565 366,900 842,064 128,400 546,653 149,600 511,691 311,900 446,047

B. Covernment DebtReceivable 36,549 23,800 27,584 6,300 28,606 3,300 33,572 - 39,610 - 46,185 - 51,223

C. Ftxed Assets 779,288 N/A 825,236 N/A 841,113 N/A 2,357,026 N/A 2,392,078 N/A 2,513,268 N/A z,534,644Less Deprecilaion 146,080 N/A 165,231 t/A 183,178 N/A 238,708 N/A 269,198 N/A 300,776 N/A 338.980

get Fixed 'sets 633,208 567,600 660,005 724,500 657,935 702,300 2,118,318 680,600 2,122,880 2,700,000 2.212,492 2,636.300 2.195.664Constrt.ction in PTogress 61,285 ISO,OOO 52,513 232,500 410,624 832,500 997,061 1,517,50b 1,967,351 6,900 2,627,420 17.500 3,144,652

Total Net Fixed Assets 694,493 747,600 712,518 957,000 1,068,559 1.534,800 3,115,379 2,198,i 4,090,231 2,706,900 4,839,912 2,653,800 5,340,316

D. Other Assets 1,401 1,400 1,401 2,000 1,401 2,000 1,401 2,000 1,601 2,000 1,808 2,000 1,964 ,,,

Total Assets 1,152,945 1,159,000 1,389,150 1,445,600 2,097,131 1,907,000 3,992,416 2,328,500 4,678,101 2,858,500 5,399,596 2,967,700 5,839,550 '

r-ILiabilities and Equity

E. Current LiabilitiesAccounts Payable 5,232 4,400 5,831 5,600 10,005 6,600 14,697 7,600 146,083 8,900 112,779 9,900 19.455

Accrued Expenses, Interestand Anortization and Others 35,071 36,600 39,225 41,000 41,942 44,700 62,018 48,500 63,088 53,000 165,416 56,900 191,681

Total Current Liabilities 40,303 41,000 45,056 46,600 51,947 51,300 76,715 56,100 209,171 61,900 278,195 66,800 Z11,136

F. Long Term DebtIBRD 155,002 155,800 136,678 239,000 142,320 474,700 121,796 713,900 375,711 910,400 636,865 887.9w 817,556Other Foreign - - - 30,000 250,000 105,800 250,000 182,800 250,000 247,500 153,500 200,000 103,500Other - - - - - - - - - 250,000 274,303 250,000 347,907

Total 155,002 155,800 136,678 269,000 392,320 580,500 371,796 896,700 625,711 1,407,900 1,064,668 1,337.900 1,268,963

C. Equity Capital 179,047 178,400 179,807 178,400 180,537 178,400 1,619,470 178,400 1,620,187 17P,400 1,620,414 178,400 1,620,563Retained Earnings 774,804 779,300 1,024,034 947,100 1,469,005 1,092,300 1,921,173 1,192,800 2,219,830 1,205,800 2,433,133 1,380w100 2,735,702 __

Total 953,851 957,700 1,203,841 1,125,500 1,649,542 1,270,700 3,540,644 1,371,200 3,840,017 1,384,200 4,053.547 1,558,500 4,356,265

R. Reserver. 3,789 4,500 3,575 4,500 3,322 4,500 *3,262 4,500 3,202 4,500 3,186 4,500 3,186

Total Capitalization 1,152,945 1,159,000 1,389,150 1.445,600 2,097,131 1,907,000 3,992,416 2,328,500 4,678,101 2,858,500 5,399.596 2,967.700 5,839,550

Debt/Equity Ratio 14/86 14/86 10/90 19(81 19(81 31f69 9(91 40/60 14/86 50/50 21/79 46/54 23/77

Current Ratio 10.4 9.4 14.4 10.3 19.2 7.2 11.0 2.3 2.6 2.4 1.8 4.7 2.1

-32- TABLE 8




Actual and Appraisal Expectation of Project Financing

LOCAL CURRENCY FOREIGN CURRENCY(Sucres/millions) (U.S.$/millions)

Sources of Funds Actual % Estimated % Actual % Estimated X

Self Financing by GPA 871.35 100 673.61 100 16.06 27 3.20 6

Government of Ecuador 10.00 18

IBRI) 33.50 56 33.50 59

Private Inter Banks _ ____10.00 17 10.00 18

871.35 100 673.61 100 59.56 100 56.70 100S-- m _ __

___ ^ mus SkiZ n

I l ECUADORI i GUAYAQUIL SECOND PORT PROJECT/I / . \ | GENERAL LAYOUT

JI, I0 I

005 I 10 : ='1 .,, "':~~~nnn

I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ I

1~~~~~~. tBERTH 6 BtRTH S BERTH 4 EERTH 3 BtRTH 2

ESTERO DEL MI4ER, O

[Z EXISTINsG PORT FACILITIES EX15TING FACILITIES

PROPOSED PROJECT AREA 0 3 Transit shed t8) Storage of refrigerate\ (R~~~~) Stiff leg derrick t9) Small boat dock[=J Li PROPOSED PORT FACILITIES \ Transitshed ¢'9 Consolidction shed

EZ3 FUTURE EXTENSION (Not port of project) ®i Equipment rncintenance "'i 30,000M.T. row sugar(2 Storage area for vehicles 112) 20,000M.T. storage,v

TC OE sa®o10@ Port cauthority administration building ('ig 3(24,000 bbls. each)mMEER (C) Customs house '14' 1,500 I,bls. storage, vr

100 0 10.0 200 300 400 500 f'Ib Future storage, oilfEET

IBRD-11709(PCROCTOBER 192

ROJECT

(1\

,-.---- .. . NJl)

,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~N ' i !tzT-- 4

,f'~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~Ti map ha the4x

/ _ NJ I~~oddBak'sfo

~~ 11 IL~~~~do,-9dtirr it ofi/fre,n

^si / I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~o wheeptncence of suh boutddess eNotE N I t; rhn tenominst As _@1 LO

PROJECTED FACiLITIES tCt<

-roge of refrigercated containers 0(/ 15,000 M.T. future row sugcr storage - 3tbig8t r

all boat clocke" 20,000 M.T. future wheat storcige E C U A D) O R

nsolidation shed e 3 (24 000 b61s. each) future molasses storage tanks iMantcl "W'gs</ Tem3t38U3- n

D3ODM.T. rolw sugor storage warehouse "9Tronsitshed 0t%oto °

000M.T. storage, wheat 0)Opcen storage areas Gu3r3Oa g0r

'4,000 b'ols. each) molasses storage taznks g >Containers and bananas berths i33i0o oRi0133mb

X bbDls. storaxge, vegetczble oil ('Bullt berth Soi3 %§ttC3s

ure sioroge oil ~~~~~Future refrigerated container storage area Azoues1re stoag e, oil

world bank document...weak management at guayaquil port during the early 1970s, led eventually to...

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