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The World Bank

FOR OFFICIAL USE ONLY

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Report No: 12037 Report No. 12037Type: PCR

PROJECT COMPLETION REPORT

MALAYSIA

PORT KELANG PROJECT(LOAS 2686/87- MN)

JUE 30, 1993

Infrastructure Operations DivisionCountry Department IEast Asia and Pacific Region

Thi doument has a resideted distrbWon and may be ued by redplens only In the perfornuce oftheir officid dufies Its conents may not oherwie be d_losed wthout Wodd Bank autha

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CURRENCY EQUIVALENTS

Currency Unit 1985 198 1987 1988 1989 1990 1991

US$1 = M$ 2.48 2.58 2.52 2.62 2.71 2.70 2.75M$1 = USS 0.403 0.388 0.397 0.382 0.369 0.370 0.364

WEIGHTS AND MEASUIRES

1 foot = .305 metersI mile = 1.609 meters1 ton 1000 kilograms

ABBREVIATIONS

ADB - Asian Development BankcCMS - Cargo Management SystemEDP - Electronic Data ProcessingEPU - Economic Planning UnitICB - International Competitive BiddingICD - Inland Container DepotIRR - Intcrnal Rate of ReturnKC1T - Kelang Container TerminalKPN - A Joint venture of KTK and other investorsKTK - Konas Terminal KelangKTM - Keretapi Tanah Melayu (Malavan Railways)LCB - Local Competitive BiddingLPK - Lembaga Pelabuhan Kelang (Kclang Port Authority)MDU - Management Development UnitMIS - Management Information SystemMOT - Ministry of TransportPCR - Project Completion ReportPDA - Pile Driver AnalysisPOL - Petroleum, Oils and LubricantsSAR - Staff Appraisal ReportTEU - Twenty Foot Equivalcnt UnitsTOR - Terms of Reference

FOR OFFICIAL USE ONLY

THE WOF.D BANKWashlngn, D.C. 2033

U.SA

Office of Dirc;ort-OeseralOperatiou Evaton

June 30, 1993

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PEESEIDWN

SUBJECT: Project Completion Report on MalaysiaPort Relang Project

gLoans 2686 _and 2687-&)

Attached is the "Project Completion Report on Malaysia - Port RelangProject (Loans 2686 and 2687-MA)" prepared by the Infrastructure OperationsDivision, Country Department I, of the East Asia and Pacific Regional Office,with the Borrower providing Part II.

The project, during implementation, was scaled down; both theBorrower and the Bank showed appropriate flexibility in adapting to changedcircumstances. Also, during implementation, a substantial part of portoperations were privatizedt however, neither the port nor the Bank participatedin the formulation of the privatization plan.

The project outcome is rated as satisfactory. The economic rate ofreturn appears acceptable although sustainability is uncertain as it depends,inter alia, on future decisions regarding privatization. Similarly, theincreasing competitiveness of road haulers introduces an element of uncertaintyas to the railway's role as a provider of intermodal services which forms mostof the justification of the project. The institutional impact of the project ispartial. Both the port and the railway failed to capitalize on the trainingprovided under the project. In a number of areas (establishing a managementinformation system, a market research capacity, and a strong training unit), theobjectives were not realized.

The PCR is satisfactory. No Audit is planned.

Attachment eI

Thfs doauent has a retricted distribution wW may be used by recipients ornty in the parform ofltheir official duties. Its contents mynot otherwise be d;welosed wfthout world 8arkk muhorization

FOR OFFICIAL USE ONLY

PRO.lECT COMPLELII-ON LtEPOR'

MALAYSIA

PORT KELANG PROCECT

(LOANS 2686-MAe Z67-MAL

TABLE OF CONTENTS

PREFACE . -

EVALUATION SUMMARY ..- ii-

PART I - PROJECT REVIEW FROM BANK'S PERSPECTIVE.- 1.-Project Identity.. -lBackground.. 1.-Project Description and Objectives .2-Project Implementation. -4-

Project Schedule.. .4.Changes in Project Design. -5-Project Costs. -7-Changes in Transport Sector and Regulatory Environment .- 7 -

Project Results .- 9 -General Objectives .- 9 -

Specific Design Goals ................................... .- 10 -Financial Performance. . 12.Economic Benetits and Evaluation .. 14 -Studies ..- 16.Covenants ............................. , ., 17.Privatization. . 17 -

Institutional Performance ..- 20. Borrower and Executing Agencies Performance .- 20 -Consultants .- 20 -

Bank's Performance .- 21 -

Project Documentation and Data .- 22 -Conclusions and Sustainability .- 22-

ANNEES .- 25 A. Fmancial Statements.. 26 -B. Perfomance Statistics .- 31-C Eonomic Evaluation of Port Kelang Project .- 40-D. Impact of Privitization of KC . -44-E.KTM Statistics .- 49-F. MIS Systems Developed Since 1986 .- 53-G. Courses/Seminar/Workshop Conducted at MDU .. 55 -

This document has a resticted distribution and may be used by recipients only in the performanceof their ofcil duties. Its contents may not otherise be diclosed without Woirld Bank authorization.

TABLES

PART I - PROJECr REVIEW FROM BANK'S PERSPECTIVE1. Relative Capital Costs for Different Investments ............. . 13 -2. Financial Performance Measures . ........................ 13-

ANNEXESA. Fnancial Statements

1. LPK - Income and Expense Statement ...... ..............-. 26 -2. LPK - Balance Sheet .............. -27-3. LPK -Sources and Applications of Funds .- 28-4. KTM - Income and Expense Statement .29 -S. KTM - Balance Sheet .30-

B. Performance Statistics1. Type of Commodities Handled at Port Kelang . 31.2. Port Kelang Container Statistics - Actual and Projected .- 32 -3. Port Kelang Vessel Statistics . 33.4. Port Kelang Container Statstics .. 34-5. North Port Vessel and Tonnage Statistics.. 35 -6. Berth Occupancy- Port Kelang .36-7. Berth Occupanc - North Port .37-8. Turnaround and Waiting Times in Port Kelang . 38-9. Gang Productivity at Conventional Cargo Berths . 39

C. Economic Evaluation of Port Kelang Project1. iPort Traffic - Projected in SAR and Actual .40-2. Berths, Berth Occupancy. and Cost of Delays with Various

Investment Alternatives .41 -3. Comparison of Current Investment With and Without Berth 15 . - 4-4. Comparison of Split Phases with Current Investment Schedule 4. . -43

D. Impact of Privatization of KCT1. KCr- Productivity Improvements . 46 -2. LPKs Incremental Cash Flow from Privatization of KCT . . 47 -

E. KTM Statistics1. Container Movements to and From Port Kelang (TEU) . . 49 -2. Ipoh Container Yard Traffic Statistics .. 50 -3. KTM Fleet Inventory ........... 52.

PART m - STATISCAL INFORMATION1. Related Bank Loans and/or Credits .. 70-2. Projectrimetable .. 71.3. Project Implementation .- 72-4. Loan Disbursemeits . .... 73-S.a ProjectCosts (Ringgit) .- 75-5.b Project Cost(US) ...- 76-5.c Project Funcing .. 77-6 Economic Impact-Summary .. 78-7.a FinaicialPerformance Ii"cators LPK.... -79-7.b FmancWi Performance Indkatos, KTM . 79-& Studies ... .79-9. Status of Covenant .- 80-10. Missions ... - 81

PART II - PROJECT REVIEW FROMN BORROWER'S PERSPECTIVE .. 56 -Implementation of Bank Finance Civil Works ... 56 -Accomplishments of the Manpower Development Unit. - 60 -Implementation of Railroad Pilot Project ........ .................. . 61-Evaluation of Performance for Port Kelang Project .................. . - 63 -Performance of the Borrower ...................................-. 63-

Financial Performance .................................. -. 64-Technical Assistance Components ............ ..............-. 65 -

Evaluation of Performance for the Railroad Pilot Project . ............. - 67 -

PART m - STATISTICAL INFORMATION ............................ .69 -

FIGURESANNEXES

E KIM Statistics1. Growth in Container Movements by Railroad in Malaysia ...... . 51 -2. Railroad Traffic in Malaysia ............................ .S1 -3. Comparison of All Traffic and C',ntainer Traffic Moved by

Railroad ....................... . 52-PART III - STATISTICAL INFORMATION

L.a Disbursements - 2686-MA and 2687-MA ......... ......... -74.L.b Disbursement Profile Port Kelang and Malaysian Railways -74-

MALAY IA

MORT KELANG PRO.lECr (LOANS 2686-MA 2687-MA)

=PRO_EC`r COMPLETION REPORT

PREFACE

This is the Project Completion Report (PCR) for the Port Kelang Project. for whichthe Loins 2687-MA and 2686-MA were approved on June 20. 1986 in the amount of $16.7million and $2.1 miDlion, respectively. Due to lower than estimated costs of construction anda scaling down of the scope of the project only $5.5 million was disbursed for the first loanand the balance was canceled at the request of Port Kelang. The final disbursement for thLloan was made on May 7, 1992. AU of second loan was disbursed with the final disbursementon April 30, 1990.

The PCR was prepared by the Infrastructure Department. of Country Department I,East Asia and Pacific Regional Office, with the assistance of a consultant. Part II wasprepared by the Executing Agencies of the Borrower. The report tindings are based on amission to Malaysia in May 1992 as well as a revicw of the documents contained in theproject tiles at the World Bank and Port Kelang.

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MALYSIA

PORT KELANG PROJECT (LOANS 2686-MA, 2687-MA)

PRO,JEC:T COMPLETION REPORT

EVALUATION SUMMARY

Backaound and Obifectives

i. The project was undertaken at the request of the government which was considering amajor expansion (West Port) to Port Kelang in order to meet the growing demand of bothcontainer and breakbulk traffic. The Bank mission working with the port managementidentified a smaller investment which would meet the short-term demands and defer theproposed investment in West Port until a more appropriate time. Since the larger investmentdid not prove to be economically or financially justified at that time, it was decided to proceedwith the smaller investment but to monitor the situation to determine when the largerinvestment should begin (para. 2-7).

ii. The Bank staff also identified a number of areas in which improvements could beintroduced in the national intermodal transportation network. In particular. it wasrecommended that the national railroad's role in the carriage of containers be increased. Theproject was then expanded to include a separate loan. This was to be used by the MalayanRailway (KTM - Keretapi Tanah Mclavu ) for a demonstration project to increase theamount of containers moving between the port and the capital. Kuala Lumpur. and tostrengthen the nm.nagement's abilitv in the area of intermodal freight (para. 7.1 1).

Implementation Experience

iii. The construction of the civil works in Port Kelang went relatively smoothly. Delavs wereexperienced because of problems with the availability of land and the ccordination ofsequential activitiec, but engineering, design and construction were done efficiently. A similarefficiency was noted in the railroad's upgrading of the rail line between Port Kelang andKuala Lumpur and the construction of the container yard at Brickfields. Delays wereincurred because the government did not provide the budget to the railroad until well afterthe loan became effective (para. 14-16, 22-23).

iv. The technical assistance provided under this project was more problematic. Themanagement of Port Kelang lacked a strong commitment to the program presented in theStaff Appraisal Report (SAR), although it had been agreed to with the Bank. Much of theproject period was spent agonizing over the scope and budget of the components of thisprogram. Furthermore, the performance of the consultants was mixed. KIM had much lessdifficulty with implementing its technical assistance program and received good performancefrom its consultants. As a result, a unit for multi-modal operations was established in theFreight Department (para. 17-21, 24-27).

s iii

v. Some difficulty was experienced in enforcing the covenants related to financial reportingbecause of the government auditors' delays in releasing the annual financial reports. ThePort also had difficulty meeting its financial performance criteria because of the impacts ofprivatization on its finances. (para 71)

Result

v. At the end of the project, all the planned structures had been successfully completed. InPort Kelang, the additional capacity provided at the general cargo wharves and the petroleum,oils and lubricants (POL) berths allowed the port to accommodate the growing traffic whilecontinuing to convert some of the conventional cargo berths to container berths. During thesame period, a complementary increase in container capacity was achieved throughprivatization of the container terminai. These combined activities allowed the port to meetoverall demand without major problems in congestion.

ViL The financial performance of the port was dominated by the privatization efforts. (para.51-57) The impact of the project was minimal since the port had adequate financialresources. The project's economic benefits included the avoidance of congestion which wouldhave occurred without an investment in new facilities or. alternativelv. the savings fromdelaying a more costly investment. The economic internal rate of return (IRR) at the: endof the project was 18%. (para. 58-67)

viii. The amount spent on the project was considerably less than originally estimated. Theloan amount for the port project was $16.7 million. All but $5.5 million of this was canceledas a result of lower than expected bids and a rcduced scope of investment. In contrast, the$2.1 million loan for the KTM was fully disbursed.

ix. A review of the requirements for investment in West Port, undertaken two years alter thestart of the project, recommended that this investment be undertaken starting in 1989 withthe construction of the bridges and access roads. The current plan is for some ten berths tobecome available in 1993194. At that time. congestion at the existing facilities should havejust begun to appear. (para. 52. 70). OveralL the project was successful in delaying thisinvestment until it was financially and economically justified. It was also fortuitous that thedelay extended the period of construction beyond the second phase of privatization so thatcompeting services can be introduced when these facilities are completed.

x. The investments in KTM's trackage and yards as part of the project were complementedby KTM's investments in container wagons. This allowed the railroad to greatly expand itscontainer haulage operations. The movements between Port Kelang and Kuala Lumpurincreased until recenttly when strong competition from the road hauliers took away much ofthe traffic. Now the railroad has begun to reasess its intermodal services and to focus on thelonger routes where they have a competitive advantage over road transport. (para. 42-46, 102)

xi The technical assistance to Port Kelang produced improved performance in the targetedareas of management but did not achieve the specific objectives of establishing a ManagementInformation System (MIS), a market research capability and a strong training unit. Even nowthere is uncertainty as to whether the bcnceits of this technical assistance will be realized bythe Port or by the private sector operator scheduled to take over the remainder of the port,excluding West Port. (para. 41, 47.49)

- iv-

xii The technical assistance to KTM produced a staff capable of operating an intermodalservice, but most of these personnel have since been promoted. Follow-on training has notbeen provided for their replacements. (para. 50)

xiii. The recommended changes in port finances, in particular, the modification of tariffs toreflect costs and the revaluation of assets to retlect replacement costs, were undertaken butnever completed. Expectations with regards to the upcoming privatization and its alterationof management responsibility discouraged the LPCs management from undertaking thedifficult task of implementing these changes. (para 72-73)

Sustalnabllltv

xiv. The sustainability of the port project is visible in the ongoing construction of West Portand the active program of converting berths from conventional cargo to containers. (para. 39)The sustainability of the railroad's intermodal service is less clear, despite a considerableinvestment in rolling stock The increasing competitiveness of the road hauliers is expectedto cut heavily into the railroad's market share on all but the longest routes. (para. 45-46)

xv. The sustainabilitv of the technical assistance is less dependent on maintaining thecapabilities acquired than on continuing to improve these capabilities. Both the port and therailroad have failed to capitalize on the training through a process of continuing education.Only the Management Development Unit of Port Kelang continues to evolve, but its futureis uncertain given the increased role of the private sector. (para. 49-50, 97-98)

Findints and experience

xvi. Thc port project demonstrates the importance of smaller investments and improvementsin the productivity of existing facilities in thc expansion of port capacitv. The need foradditional facilities had been recognized, but these short-term investments provided theneeded capacity with considerable savings. More importantly. the smaller investments allowedthe port to delay West Port until after the issue of privatization of port facilities had beenresolved. Even though the plans for West Pcrt have not changed. the allocation of thesefacilities will be different now that the second round of privatization has been completed.

xvi. The railroad project demonstrated the capabilities of the railroad for handlinginuermodal cargo without committing large funds to the development of a national service.This proved to be a wise strategy as the market for intermodal movements continues toevolve and the competition among and within modes continues to, increase.

xvuii The ongoing privatization of the port's facilities and the planned privatization of therailroad provided the most interesting lesson from this project. In many ways, the outcomeof the project was obscured by these activities They affected not only where improvementsin efficiency were taking place but also where management directed its energies. Neither theBank nor the Port's management participated in thc formulation of the privatization plan.Their activities had to accommodate the uncertinties about who would eventualHy control thedifferent parts of the port. Because the project's investments were relatively small. it waspossible to achieve improvements which would continue regardless of who controls the assets.(para. 75, 81, 100-102)

. v -

xix While it would have been useful for the Bank to participate in the privatization activity,this would have been difficult given the mix of rolitical and economic objectives which thegovernment pursued in devising its privatization plan. The growing experience of developingcountries in the formulation of these plans will mean that these governments will be more. ling to set their own agenda and to rely on expertise from commercial banks or financialconsultants in structuring their deals. (para. 82, 104)

xx. The experience in technical assistance was not dissimilar to that in other projects exceptthat most of the difficulties were overcome and the technical assistance components werecompleted. The two most important lessons from this experience are the need for a strongand long-term commitment on the part of the senior management and the requirement formore of the Bank's staff time in resolving problems which occurs while implementing thisassistance. (para. 96-98)

MALAYSIA

PORT KELANG PROJECT (LOANS 2686-MA 2687-MA)

PROJECT COMPLETION REPORT

PART I - PROJECT REVIEW FROM BANK'S PERSPECTIVE

Prolect IdentitvProject Name: Port Kelang ProjectLoan No.: 2616-MA, 2687-MARVP Unit: East Asia and PacificCountry: MalavsiaSector: TransportSubsector: Maritime Ports

Backround

1. The Bank had been involved in the transport sector in a variety ot road and portinvestments. Most recently, the lending to the port sector has been focused in Sabah. Aninformal review of the maritime subsector was conducted by the Bank in 1985'. Ithighlighted the lack of coordination and weak management in the transport sector which hadconstrained the development of an effective national intermodal transport system. Within themaritime subsector, the review noted the potential for over-investment by the differentnational ports in their competition for international cargoes, both direct and feeder traffic.

2. During a review of possible projects for Bank support in 1985, the Government ofMalaysia proposed that the Bank and thc Asian Development Bank (ADB) provide assistancein expanding Port Kelang to the island of Pulau Lumut (the West Port Project). A feasibilitystudy for the project had been prepared by the Port Kelang Authority (LPK - LembagaPelabuhan Kelang) in 1981 and the detailed design and land reclamation had begun in 1984following the completion of the expansion of the North Port facilities. From thegovernment's perspective, the project would provide the capacity to meet the growth in trafficas forecast in the Maritime Sector Review. From the Bank's perspective, this project wouldprovide an opportunity to once again become involved in project lending to the maritimesector in Peninsular Malaysia and to initiate a policy dialogue with the government onimproving the integration of the port into the country's transport system.

3. The project as originally proposed included the construction of roads and bridges to accessthe island, an island wharf with 600 meters of multi-purpose berths and two piers, one eachfor petrochemicals and lighterage of dangerous cargoes, and the reclamation of shoreline forthe backup area. The total cost of the project was estimated to be M$0.50 billion ($197.2million) including the cost of land acquisition. Of this, the foreign exchange component wasestimated to be slightly more than half, most of which would be covered jointly by the Bankand the ADB.

Maritime Sector Report - June 1985

4. A preparation mission from the Bank and the ADB visited Malaysia in May/June of 1985in response to a request from the Government of Malaysia to discuss the West Portdevelopment. These discussions involved the Economic Planning Unit (EPU), the FederalTreasury, the Ministry of Transport (MOI) and the LPK The mission agreed that additionalcapacity was required and indicated it would consider funding the project provided that itproved financiallv and economically viable. The Bank and ADB indicated that, if the projectwere feasible, the former would provide funds, estimated to be on the order of US$50 million,for construction of the West Port expansion and the latter would provide funds, estimated tobe US$46.5 million, for construction of the access roads and bridges.

5. Since the mission was uncertain whether such a large investment was justified at that time,an alternative project was identified. The project involved the construction of a single berthto meet short term capacity requirements. The project would not only delay the constructionof West Port but also provide additional time for the LPK to improve the design of WestPort. This delay could also be used to complete settlement of the reclaimed area and toconstruct the roads and bridges to Pulau Lumut so that they would be ready fortransportation of construction materials to the island.

6. In July/August 1985, an appraisal mission was carried out which determined that the WestPort project was only marginally justified. Since, the country was experiencing an economicslowdown and the Government was beginning to experience budgetary cutbacks. a decisionwas made to construct the single berth. This not only allowed the investment in West Portto be delayed by fwe to six years but also provided an extra berth to meet the growth indemand while the issue of privatization was being sorted out. Since the external fundingrequired was only about $18.0 million, the ADB decided not to participate in the project.

7. Additional issues were identilied during these two missions. A proposal from LPK'smanagement to reduce the port's tariff so as to compete more etfectivelv with Singapore leadthe Bank to propose establishing a cost-based tariff and a tariff unit within the management.The negotiations between the government and private sector parties interested in taking overthe container operations of the port were in progress and the Bank recommended a closerexamination of the possible arrangements for privatization. Difficulties in removingcontainers from the port due to problems with road transport lead the Bank to propose arailroad pilot project for intermodal movement of containers and a study of the problem ofthe regulated and inefficient container haulage industry.

Profect Description and Oblectives

8. The final project focused on the construction of a general cargo berth at the site of Berth15 which at the time was being used to moor LPKCs tugboats and pilot boats. This generalcargo berth would connect Berths 14 and 16 and would be designed for eventual convetsionto a container berth. The backup area behind berths 15 through 18 would be paved for theirfuture conversion to container handlin& The vessels moored at the site of Berth 15 were toredeployed at a new marine pier and berthing facility to be constructed at the south end ofNorth Port. A manne administraton building and operations tower were to be built at thebase of the pier. Finally, a pair of breasting dolphins were to be built at the POL facilities,Berths 22-23, to allow the liquid bulk terminal to handle three smaller tankers simultaneously.

*3 -

9. As pat of the project, a program of technical assistance was developed to strengthen theport management in three areas, training, MIS and marketing. A total of 122 man-monthsof technical assistance was to be provided over a three year period. In the area of training,foreign technical assistants were to be used to assess current training needs, assist in coursedevelopment, train local trainers and organize courses for two months a year over a threeyear period. The general subjects to be covered by the courses were port operations,engineering and management as well as equipment operations and maintenance. In addition,US$365 thousand was to spent on training materials and equipment.

10. In the area of marketing. 16 man-months of consulting services were to be provided toassist in trade and market relations, advertising, acquisition of marketing data andidentification of transportation bottlenecks. Also, 10 man-months of visits and internshipswere to be provided for LPK's marketing staff so that thev might work with marketingorganizations in other ports. In the area of MIS, 34 man-months of consulting services wereto be provided to design the software and hardware needed to automate the port'sManagement Information System. Funds were also provided to procure and install thehardware. to test the system and to train the staff in its use.

i 1. In addition to the port project. a complementary pilot project was prepared to assist theMalayan Railways (KTM) in operating a dedicated unit train service for intermodal movementof containers between Port Kelang and Kuala Lumpur. 1This project involved upgrading thetrack between Port Kelang and Brickfields. adding a track to the yard in Port Kelang.providing switching to bypass the Kelang Railway Station, and constructing and equipping acontainer yard adjacent to the existing Brickfields railyard on the outskirts of Kuala Lumpur.Te pilot project also included technical assistance to train members of KTM's freightdepartment in the operation of an intermodal containcr service.

12. The executing agencies for the port project and the railroad pilot project were LPK andKIM, respectively. LPK was to be responsible for preparing the engineering documents andtendering for the construction of civil works including Berth 15, the new marine base andadministration building, and the breasting dolphins. LPK was also to be responsible forestablishing and staffing a Management Development Unit (MDU) and for preparing thctender documents for the hardware required for the MIS. KTM was to be responsible forcontracting for replacement of the rail on the line between Port Kelang and the BrickfieldsYard, for developing the tender documents for the construction of the container yard atBrickfields and for procuring container handling equipment.

13. The port project was funded through a Bank loan of US$16.7 million to the LPK withthe government of Malaysia acting as the Guarantor. This loan was to cover all of the costsfor the consultants and material provided as part of the technical assistance and 47% of thecost for the civHil works. The remaining project costs were to be provided from LPK'sreserves. The railroad pilot project was funded through a Bank loan of US$2.1 million to theGovernment of Malaysia. The loan was to fund all of the costs for the container-handlingequipment, material and technical assistance and 34% of the costs for the civil works. Thisloan was converted by the government into a grant and disbursed as part of the government'sannual operating budget for the railroad. The remaining costs for the project were providedfor by a government loan to KIM. The Bank loans were signed in June of 1986 and becameeffective in August of that year.

.4-

ProMmct ImDlementatton

14. Proiect Schedule The project experienced a number of delays during implementation (asummary is shown in Part III, Table 3). At the time that the Bank loan became effective, theproject design was already well advanced as had been anticipated in the SAR. The design ofthe Marine Base and berthing facility had been completed in April of 1986. The loanprovided for some retroactive financing so that the project might proweed as rapidly aspossible, however, the actual construction was delayed because the planned site was withinthe boundaries of the recently privatized Kelang Container Terminal (KCT).' This requirednegotiations with the Selangor State Development Corporation for the purchase of a pieceof land adjoining the original site.

15. An agreement in principle for purchase of the land was signed with the State of Selangorin September of 1986 and the contract for the Marine Office was issued in the same month.but the final boundary and property transfer was not completed until January of 1987.Furthermore, the LPK had been advised by its consultants in December of 1986 that theberthing facility should be realigned so at to be parallel with the main North Port wharf inorder to minimize siltation. Despite these changes. LPK produced and issued the reviseddrawings to the contractors in January/February 1987 so that construction could begin as soonas the land was obtained. The facilities were completed in December of 1987.

16. Although the original scheduled called for work on Berth 15 to begin midway throughcompletion of the Marine Base, this was not possible because the vessels moored at the sitecould not be removed until the Marine Base was completed. The contract for Berth 15 wasfinally awarded in December of 1987 and construction began in the following monthapproximately one year behind schedule. Construction was completed in March of 1990. Thelonger than expected construction period was due to an alternativc piling technology whichhad to be used in order not to damage the adjoining structures. Thc contract tbr theBreasting Dolphins was awarded in January of 1988 and the work was completed in Februaryof 1989. The delay in the construction of Berth 15 required that the period of loan 2687-MAbe extended from December 1989 to December 1990.

17. The implementation of the technical assistance (T.A.) component of the port project wasmore problematic due to the continual revision of the program by LP}'s management andprolonged negotiations with the consultants. The period of implementation was extended bydividing each of the three TA. components into two phases, an identification phase and animplementation phase. As a result, a total of six contracts had to be negotiated. Thisdecision was taken because LPK's management had difficulty in deciding what their futuretraining needs would be. The Bank agreed to this decision in order to move ahead after along delay.

2 Although the decision to privatize had been made prior to the Bank's preparationmission, the exact nature of the privatization and the configuration of the KCT terminal wasnot described until after the loan became effective. When the original plan for the MarineBase was prepared, the boundaries of the KCI had not been specified nor had the need toestablish a closed-in area for exclusive use of the private sector operator been suggested.

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18. The first phase of each T. A. component was scheduled to begin in June of 1986. Thefirst component to actually be contracted was Phase I of the MIS study. It began inDecember of 1986 and was completed in April of 1987. This was followed by a long periodof review at the end of which the management, at the urging of Data Processing (EDP)Department, decided to change both the scope of the technical assistance and the consultantsto be employed. The second phase began in April 1989 and the consultants' report wassubnitted later that year.

19. The first phase of the marketing study started in January of 1987. The initialreconnaissance report was submitted the following month, but the approval for the secondphase was not given until January of 1988. The draft report for the second phase wassubmitted in June of that year and the final report was received in November.

20. The training component was the most difficult. Internal dissension from competing portsand within LPK:s management delayed the decision on the exact form of the MDU. ThePhase I contract was not signed until June 1988 about two years behind schedule. Althoughthe consultants' report with recommendations for Phase II was received in November 1988.the LPK's management did not approve the second phase until six months later, and thenonly after it had reduced the period of the contract from three years to two. The contract didnot take effect until the middle of October 1989 and subsequently. LPK requested a furtherextension of the closing date for loan 2687-MA to December 1991.

21. The implementation of the railroad pilot project experienced an initial delay of 17months because the government did not include the project tunds in the railroad's operatingbudget. The Bank's loan was to the Government and was to be passed on to KTM in theform of a grant. but the government chose not to draw on the loan funds and only made thegrant to the KTM in 1988. KTMvl's lack of familiarity with the Bank's procurementprocedures required re-bidding certain contracts which caused additional delavs. however.these delays were relatively minor. The replacement of the track between Kelang and KualaLumpur started in July of 1988 and was completed in February of 1989. The civil works forthe Brickfields Depot started in July 1988 and were completed in April 1989. The container-handling equipment was delivered in March 1989. The technical assistance began in early1988 with the overseas training taking place in April/June 1988. The consultants submittedtheir final report in June 1989 about 21 months after the originally scheduled date for projectcompletion.

22. Changes in Project Design Both the port project and the railroad pilot projectunderwent a number of significant changes in design during the period of implementation.however, these changes do not appear to have compromised the objectives of the project.The design of the civil works for Port Kelang were modified to meet the changing needs atNorth Port. The Marine Base was moved southward to avoid interfering with the operationsat KCT and the pier was extended 60 meters to line up with the wharf face in North Port.The alignment of Berth 15 was revised from a straight continuation of Berth 16 (leaving aslight notch at the intersection with Berth 14) to a point-to-point alignment connecting Berths14 and 16. The Bank preferred the former because it allowed for continuation of the gantrycrane rails from Berth 16. The LPK preferred the latter because it simplified vessel berthingprocedures.

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23. LPK also decided not to pave the backup area behind berths 15 to 18 after it had decidedto begin the conversion to container terminals starting at Berth 21 and proceeding southwardrather than preceding north from Berth 15. This decision was based on the lower cost ofconversion for Berths 19-21. As a result of these changes, Berth 15, which was designed asa multi-purpose berth for eventual conversion to containers, is unlikely to be used for thispurpose. It is now being equipped with conveyors to handle bulk shipments of palm kernelexpeiler. Since LPK's Engineering Department was capable of implementing the designchanges, they only required the Bank's concurrence which was given.

24. Changes were also made in the Port Kelang technical assistance program. The intent ofthese decisions was to scale down and redirect the projecte3 In the marketing study, theconsultants proposed to use several subject-matter specialists in the second phase, but this wasscaled down to two experts with a resulting contraction in the scope of their report andmarketing plan. Although the study suggested modifications in the Marketing Department,technical assistance was never provided to develop the capability of the staff of the MarketingDepartment in basic market research Furthermore, the LPK management never arrangedfor the marketing internships for their staff. A follow-on effort aimed at strengthening theMarketing Department would have been useful. but the LPK management did not fullyappreciate the role of marketing and has done little to develop this capability since. the endof the technical assistance.

25. The MIS component was meant to redress earlier failures of management to implementan MIS system. The first phase study provided an excellent set of recommendations forcompleting the development of the existing MIS system. However, the implementation ofthese recommendations was stymied by management's inability to agree on a consistent setof information requirements. As a rcsult. the second phase was redirected towardsdevelopment of a Conventional Cargo Management System (CCMS). which had beenproposed bv the EDP Department prior to the start of the project. Price Waterhouse washired to conduct an audit of the proposed CCMS system and other EDP activities andrecommended undertaking the development of this system. LPK management supported thisdecision because it would provide accurate performance data on the operations at theconventional cargo berths. This system has yet to be completed and will be of limited use toLPK following privatization.

26. There was little that the Bank could do to maintain the focus on the MIS system onceLPKs management decided not to implement the MIS as outlined in the Phase I study.Subsequent development of the software was done with the LPK funds. The computer forthe MIS was then procured with LPK funds in order to expedite procurement followingannouncement that the vendor would no longer support LPK's existing mainframe.

27. The training component began with a training needs assessment followed by a lengthypreparation for the second phase. The definition of a function for the proposed MDU hadto contend with the competing interests of LPK's existing training department, theTRAINMAR center in Johore with its "training-of-trainers" orientation, and the on-going

I At one point, the management of LPK suggested canceling most of the second phaseof the program, but the Bank was able to argue for continuing the program.

training activities of the other ports in Malaysia. The management reduced the period andbudget for the second phase, but the scope of work was left unchanged. Very little trainingequipment was procured and the MDU had to operate without designated training facilitiesthroughout the project. The Bank mediated at several points in order that this componentwould continue.

28 The railroad pilot project was implemented in accordance with the original design. Theonly alteration was the decision to use the 80 lb. rails removed as part of another project.rather than new rails, to replace the lighter rails on the line between Port Kelang and KuahaLumpur. The Bank approved this decision. as it expedited the project, and then approvedthe use of the loan funds to replenish KTM's rail inventory.

29. Project Costs The actual cost of the port project was less than half that originallyestimated (as shown in Part IIL Tables 5.a., 5.b, and 5.c) and there was almost no foreignexchange cost except for the T.A. components. There are several reasons for this. Theconstruction of Berth 15 and the breasting dolphins was undertaken at a time of worldwiderecession in the construction industry. This affected the bids so that the price was only halfthat of the original estimate and all the construction was done by local firms. Additionalsavings were realized when it was decided not to pave the backup area of Berths 15 through18. Also the expenditures for technical assistance were less than estimated because ofreductions in the scope of the component.

30. As a result of the reduction in project cost, LPK required far less funds than providedin the loan agreement. In order to reduce its exposure to commitment fees, LPK canceledUS$9.223 million of its loan in February 1988 and another US$2.0 million in March 1991.The remaining amount, US$5.5 million. was almost completely disbursed at the time the loanclosed.

31. In contrast, the total expenditures on the railroad pilot project were nearly identical tothat originally estimated. The onlv difference from the original estimate was the increase inexpenditures for civil works and the decrease in expenditures for equipment and consultancy.The full amount of the loan to the Government of Malaysia was passed on to the KTM inthe form of a single grant at the beginning of 1988. The actual disbursements continued untilApril of 1990.

32 Due to the delays in project implementation and the subsequent cancellation of asignificant portion of the LPK loan, the total amount disbursed was only 1/3 of that originallyplanned and the major part of the disbursement occurred a year later than anticipated. Thedifference is quite striking as shown in Part ILL Figure L.a. The disbursements for therailroad pilot project were completed and the project closed two years before thedisbursements for the port project as shown in Part III, Figure 1.b.

33. Changes in Transport Sector and Regulatoty Environment A number of changes in thetransport sector and its regulatory cnvironment occurred during the period of the Bank loanand these had a major impact on the implementation of the project. At the macro-economiclevel, the country went througb a recession in the period from 1986 though 1987. Thedecision to delay the investment in West Port and to develop Berth 15 in its place precededthe recession. However, the port management adopted a cautious attitude towards all

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expenditures during the project. Despite initial enthusiasm for the technical assistance, themanagement of LPK spent a considerable amount of time trying to cut back on thesecomponents. The recession also caused the government to delay granting a budget to theKTM for the railroad project.

34. T!he other change in policy which had a major impact on the project was the decision ofthe Government of Malaysia to encourage privatization of public transport facilities, inparticular, the maritime ports. The first phase of the port privatization took place in 1986and affected the container handling activities at LPK!s Berths 8 through 10. It involvedestablishing a subsidiary company, Kelang Container Terminal (KCT), owned jointly by LPKand a private sector joint venture Konas Terminal Kelang (KTK).4 KUC was given a licenseto provide container handling services in Port Kelang and a 21 year lease for Berths 8-10.LPK!s container handling equipment was transferred to KCT. These arrangements deniedthe LPK a major source of net income and left it with a surplus of about 1000 laborers, whowere not transferred to the subsidiary company (see Annex D).

35. The second phase of the privatization was initially discussed in 1986 and a financial studywas made to value the port in 1988. However, the scope of privatization was not determineduntil late in 1990 when the plan to transfer all port operations, excluding KC1, to a singleoperator was finalized. The uncertainty regarding the scope and torm of the second phaseprivatization lead to a certain amount of paralysis within the management of LPK during theperiod 1986 to 1990. It affected the scope of the technical assistance components. becausethe management was unsure as to whether the benefits from these components would beretained by LPK transferred to the private sector operator, or lost in the conversion froma public to a private operating port.

36. The government's policv on container haulage was changed during this project. In theBank's original Issues Paper and in subsequent discussions leading up to loan agreement. ithad been observed that the government's policy ot restricting contamer haulage to threecompanies created a monopoly situation with poor intermodal service and unnecessarily hightransport costs. However, nothing was done until early in 1992. when the governmentincreased the number of operators to five. This lead to a drop in rates and more aggrcssivemarketing of the service to accommodate the increase in chassis capacity.5 This has directlyaffected KITM which has seen a significant drop in its share of the container haulage market.

4 lhe term private sector is used loosely in this context. A better term would be partialfinancial divestiture. KTK was originally owned 80o by Kontena Nasional which is in tumowned by the Bumiputra Investment Fund (80o) a wholly-ownel government company,PERNAS (7.5%) and Malaysian Intemational Shipping (7.5%), two government shippingcompanies, plus others (3%). AU of these are govemment enterprises. The remaining 20%was held by a publicly traded Australian shipping company, P&O Australia.

s The staying power of this competition is unclear. In a previous expansion. Shapadu. inthe south, and Konsortium Kumpulan, in the north, were brought in to compete withKontena NasionaL Initially, there were significant improvements in service and the ratesdropped. However. the three companies soon established their market share and colludedto maintain their rates. The Bank and others have pushed for open competition but thegovernment maintains a policy of limiting access and investment in road haulage of containers.

37. In a related change in policy, the government has allowed KTM to operate a truckingcompany, Multi-freight, to provide door-to-door service for container haulage. Themanagement of KIM has used Multi-freight not only to complete rail-based, multi-modalcontainer movements but also to provide complete door-to-door road transport on routeswhere truck transport is less costly than the combination of rail and truck transport. Theresult has been to significantly reduce the number of boxes moved by rail between PortKelang and Brickfields.

38. The railroad has also been affected by the Government's policy towards privatization.Currently K`M is in the process of being converted to a public corporation and is expectedto be privatized within the next five years. While these changes have not had the sameparalyzing effect on management that they did on LPK, they did cause KTM to rethink themarkets they serve and to refocus on their primary businesses, passengers. freight and landdevelopment. This has led to a more cautious approach towards multi-modal services as thecompetition has increased.

Project Results

39. Before considering the impacts of the port project. it is necessary to examine the changeswhich have occurred in Port Kelang over the last six years. This has been an extremely activeperiod in terms of the development of infrastructure and the transfer of cargo handlingoperations to the private sector. These changes are as follows:

X 1986 - suspend construction of West Port* 1986 - transfer Berths 8-10 to private operation* 1989 - establish a terminal for timber exports behind Berth 19o 1990) - complete construction of Berth IS* 1991 - restart construction of West Port* 1991/92 - convert Berth 11 to containers for use by private sector* 1992/93 - convert Berths 19-21 to container berthse 1992 - equip Berth 15 with a conveyor for palm kernel expeller* 1992 - transfer control of Berths 12-25 in North Port and

all berths in South Port to private operation

There are also a number of projects planned or underway which will further alter the port.These include:

o 1994 - opening of West Port Phase I with two liquid bulk berths and600 meters of conventional cargo berths to be operated by LPK

o 1995 - opening of West Port Phase II with five general cargo berthso 1995 - conversion of Berths 16-18 to container berths (tentative)

40. Genera1 Objectives In order to evaluate the results of the project, it is necessary toconsider the general objectives of the investment The civil works in Port Kelang wereintended to provide capacity to meet the increase in traffic and to permit a delay of five tosix years in the start up of the much larger investment in West Port This goal has beenachieved with the construction of West Port occurring about 4% years later than originally

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planned. In addition, Berth 15 has provided essential capacity during the period when otherbreakbulk berths have been taken out of service for conversion to containers.

41. Tbe technical assistance component of the port project was meant to strengthen the LPKmanagement in the areas of training, MIS and marketing. As a result of this project, the porthas:

a. a marketing plan, which has furthered the port's efforts to develop dtyports, to introduce rebates to volume users and to seek out new trades,

b. a greater awareness of the need for marketing,c. a staffed management training center and an embryonic set of training

courses, andd. a stronger MIS capability, albeit in the form of distributed, un-integrated.

systems.

42. The railroad pilot project was intended to strengthen the ability of the KTM to operateunit trains for intermodal movements of containers. As a result of the project, a multi-modalunit was established in the Freight Division. It is headed by an intermodal marketingmanager and has separate divisions for selling to the shipping lines and to the shippers andconsignees. The volume of intermodal movements tripled during the project reaching 105thousand twenty-foot equivalent units (TEU's) in 1991. This was in contrast to the unevengrowth experienced in the early 1980's (see Annex E).

43. The improvement of the track between Port Kelang and Kuala Lumpur has allowed asignificant increase in operating speed, so that KTM has been able to double the number oftrains operating daily. KIM has also upgraded its rolling stock through conversions and newacquisitions so that now 29% of its bogied wagons and 19% of its rLxed axle wagons arespecifically designed to carry containers. KTM has also begun to promote the use of domesticcontainers in order to increase the utilization of these wagons. These domestic boxes aredesigned for side loading and have been used for the transport of rice, rubber and otheragricultural products.

44. Specific Desigi Goals The projects have been less successful in achieving the specificgoals for which the facilities were designed. Berth 15 was intended to be used for breakbulkcargo and for later conversion to a container berth. However, it is unlikely that it will everbe used for containers given expected cargo demand, the alignment chosen by LPKC, and thedevelopment of West Port

45. The route for the railroad pilot project was recommended because of the road congestionbetween Port Kelang and Kuala Lumpur. Its proximity to the KTM headquarters also addedto the visibility of the detnonstration project, however, the route was not expected to befnancialyr rviable over the long run. Ihe volume of containers moved by MM in and out ofPort Kelang was reonably strong for the first few years, reaching 52.4 trhousand TEU's in1991. Of these, 63% were loaded boxs However, the primary origins/destinations were Prai

' Even though the technology now exists for overcoming this relatively small angle whenmoving a gantry crane between Berths 15 and 16.

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and Sungai Way (Annex E) and Brickfields accounted fot only about 20%c of thesemovements.

46. KTM's competition from road transport has increased as new operators and chassis havebeen brought into the market. Road haulage prices have now fallen to a level equal to orbelow the rail rates. As a result, KTM has lost about half of fts container traffic betweenBrickfields and Port Kelang and will probably continue to lose market share to truckoperators. KTM management has decided to aggressively pursue this traffic through the useof its own road haulier which has meant that nearly all of the traffic to the destinationsbetween the port and Brickfields, especiaUly the industrial area of Petaling Jaya, has switchedto truclk The 1992 decision to cut back on the use of unit trains throughout the systemthreatens to accelerate the loss in market share.

47. The technical assistance components for the port project have not achieved their specificgoals. The marketing component increased management's awareness of the need formarketing, however, this component failed to develop a marketing research capability.Recommendations for changes in the department were not implemented and the department'ssales-oriented focus on specialized markets rather than towards a general market researchcapability has continued. Although management has accepted the need for marketing. it hasnot allocated the resources needed to strengthen this function.

48. The MIS component failed, as have previous etforts. to develop an integrated, computer-based information system. Data continues to be collected, and in many cases processed,manually, and managers are still presented with relatively voluminous and unfocused reports.Despite the movement away from an MIS, the LPK's EDi Department has implementedmany of the recommendations in the Phase I report. It has also been successful in makingthe transition to micro-computer based systems and has trained the staff in all Departmentsto use spreadsheet analysis at a relatively sophisticated level. As a result, Dcpartmcnts cannow produce their own management reports. The missing element remains the integrationof the operational and financial performance data.

49. The training component has so far failed to meet its goals of creating a national centerfor training, developing meaningful courses and training the MDU staff in the presentationof these courses. However, the effort to establish an effective, stand-alone, managementtraining function continues. The staff are now permanently assigned to their positions andare continuing to organize and conduct courses. Following the second round of privatization,the MOT will assume responsibility for funding the MDU, although it will continue tooperate within the management structure of LPK

50. The technical assistance program provided in the railroad pilot project was extremelysuccessful in developing a cadre of professionals capable of providing an efficient intermodalservice. Unfortunately, there appears to be little continuity. These professionals have beenpromoted into new areas and have taken their experience with them. The new managementof the Freight Department exhibits much less enthusiasm for intermodal container operations.The senior management's determination to develop its container road haulage business hasfurther diminished their enthusiasm.

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51. Financial Performance The port serves four basic types of cargoes, containers, breakbulk.Iiquid bulk, and dry bulk Although individual berths are dedicated to specific cargoes in theshort run. there is considerable flexibility in converting berths from breakbulk cargo tocontainers or dry bull. The construction of Berth 15 did not add to the capacity for a specificcargo, but rather, added to the overall capacity of North Port. So far there has beenrelatively fittle change in either the revenues or operating expenditures of North Port as aresult of adding this berth, but the additional berth space has given the port the flexibility toremove other berths from service for conversion to container operations. By so doing, it hasallowed the development of West Port to be delayed by several years. The construction ofthe dolphins was meant to increase the capacity of Berths 22 and 23, thereby delaying theneed for additional POL berths.

52. The decision to delay the investment in West Port did not change the design for thisdevelopment. LPK's proposal still includes the two loading jetties for POL. a hazardouscargo jetty, and a 600 meter wharf for conventional cargoes. The original cost was estimatedto be M$500 million including all cow ingencies. Construction was to begin in January of1987 with operation to begin early in 1990. In order to meet this schedule, the LPK wasprepared to pre-finance the construction of the bridges. rather than wait for governmentbudgeting of the project. and to recover the costs from the government.

53. The experience with Berth 15 and the POL dolphins indicates that the actual cost forWest Port in 1987 would have been lower than originally estimated. It is assumed that thecost would have been the same as currnntly projected, about M$300 million. The savingsfrom delaying the investment in West Port can be determined by comparing the stream ofexpenditures for constructing Berth 15 and then West Port Phases I and II under the currentschedule with the expenditure stream for constructing Phase I of West Port in three yearsbeginning in 1987 followed by Phase II as currently scheduled. This comparison is shown inTable 1. Since the implementation of Phase II is the same for both alternatives. it has notbeen included in this Table. The annual operating and maintenance costs were assumed tobe insignificant for Berth 15 but equal to M$4.5 million for Phase I of West Port. Thepresent value of the stream of net savings amounts to about $M64 million in 1992 when usinga discount rate in constant terms of 10%. Even if the start of Phase I of West Port wouldhave been delayed until 1988, the net savings would still be $M31 million.

54. The general financial performance of the port changed considerably during the period thatthe project was being implemented, but these changes occurred primarily because of theprivatization of the container operations. The sharp increase in the operating ratio in 1986shown in Table 2 (details in Part III, Table 7) is attributable to the loss in revenues fromcontainer handling and the cost of the excess container terminal labor which stayed with LPKrather than being transferred to KCT. In subsequent years, this excess labor problem waseliminated through a combination of attrition and growth in non-container traffic. Therefore,the operating ratio improved rapidly after 1987 and by 1991 had returned to its 1981 level.

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Table 1Relative Capital Costs for Different Investments (millions M$)

1987 1988 1989 1990 1991 1992 1993 1994..- -. - - -.-

Berth 15 3.7 13.9 9.7 3.3Phase 1-1991 | 50.0 58.5 66.8 105.2 20.7Addit. O&M _ 3.0Subtotal 3.7 13.9 9.7 53.3 58.5 66.8 105.2 23.7

Phase 1-1987 100.0 100.0 100.0 --~- . -- _ - . -4 -

Addit. O&M 4.5 4.5 4.5 4. 4.5Subtotal 100.0 100.0 100.0 4.5 4.5 4.5 4.5 4.5

Net Savinp 96.3 86.1 903 E488 -540 1-623 -100.7 -192

55. The same situation applies for the rate of return on assets, equity and capital employed.The privatization of KCT reduced the amount of LPK's fixed assets by only M$20.7 millionbecause these assets were carried on the books in historical value. At the same time therewas a significant drop in net income. The subsequent recovery of these performancemeasures in 1990 anld 1991 is due entirely to the increase in traffic and the reduction in theexcess labor. Most of the port's operating costs are fixed so the increase in trafficrepresented a gain in the operating surplus. This surplus had dropped from M$47.7 millionin 1985 to M$12.0 million in 1986 but then rose steadily to M$71.5 in 1990.

Table 2Financial Performance Measures

Performance Indicators 1986 1987 1988 1989 1990 19(1 i

Operating Ratio 0.90 0.89 0.78 0.68 0.59 0.65a __ -_-

Net Income/Operat.Revenue 0.05 0.09 0.15 0.23 0.29 0.27Return on Assets |89% 9.2% 11.0% 14.6% 19.1% 19.1%Return on Equity 1.7% 2.7%| 5.3% 82% 10.8% 10.4%Return on Capital Employed 4.9% 52% 6.3% 8.0% 10.1% 10.0o

56. At the time the Bank loan was made, LPK had about M$312 million in long term debtbut it also had about M$200 million in liquid assets. Clearly, LPK had the option of financingthe development of Berth 15 with its own reserves. The loan did not significantly increasethe LPK's debt-to-equity ratio because the receipts from the sale of stock in KCT weregreater than the amount of the loan and were used to pay-off outstanding loans.

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57. 'Me railway pilot project had no specific financial goals, however, it appears likely thatKIM's financial performance has been improved by the increase in its container traffic. Thepercentage of total revenues provided by container traffic is estimated to have increased from10%o in 1986 to about 22% in 1991. Since KTM continues to operate at a loss and thereforerelies heavily on government subsidies for all investments (Annex A), the precise financialimpact of the project is difficult to determine.

58 Economic Benefits and Evaluation Berth 15 was meant to provide additional capacityfor breakbulk cargo in expectation that some of the existing breakbulk cargo berths would beconverted to containers. What has occurred since the project was initiated is a major changein the allocation of the berths to the different cargoes, a transfer of responsibility for theoperations at the container berths from the public sector to the private sector. and anincrease in the capacity of these berths due to an increase in productivity.

59. The privatization of Berths 8.10 lead to an initial increase in productivity of about 20%which effectively delayed the requirement for an additional container berth until 1992.However, this increase was a one-time atfair resulting in large part from the reduction in thecontainer work force by more than half. Since 1987, KCT has not improved the productivityof these berths (Annex D). As a result, the average time at berth for container vesselsremains about 11 hours while the average waiting time has steadily increased with the growthin traffic (Annex B).

60. The LPK has also failed to increase productivity significantly. Breakbulk handling ratesper gang are relatively unchanged in North Port (Annex B) while the average time at berthfor foreign-going general cargo vessels has nearly doubled since 1986. The total volume of-onventional cargo has grown more rapidly as a result of the establishment of a timber exportterminal behind Berth 19. As a result, the average delay for torcign-going brcakbulk vessclsreached six hours in 1989 and nine hours per vessel in 1991 (Annex B).

61. The delay in investment in the conventional cargo berths at West Port has led to a higheroccupancy at North Port and a greater average delay for breakbulk cargo vessels. With thecurrent forecast of conventional cargo traffic and the conversion of Berth 11 to a containerberth for use by KCT, a severe shortage of capacity is expected in 1993. The problem willcontinue through the first half of 1994 until the berths at West Port become operational.The projected breakbulk traffic may preclude the conversion of Berths 19 to 21 to exclusiveuse as container berths until 1995 when both Phases I and II of West Port are completed.The rise in congestion and the change in berth capacity will affect the benefits derived fromthe construction of Berth 15.

62. The benefits that can be attributed to the construction of Berth 15 and the POL dolphinsdepend on the scenario as to what wouW have happened if the investment had not beenmade. The 'delayed investment' scenario assumes that no construction of new facilities wouldhave occurred until 1991 when Phase I and Phase II of the West Port would have begun ascurrently scheduled so that the additional eight conventional/container cargo berths and twoPOL berths would have become operational between mid-1994 and 1995. The "acceleratedinvestment" scenario assumes that the construction of Phase I of West Port would have goneahead as scheduled from 1987 to 1989 and operation of the 600 meters of conventional cargoberths and two POL dolphins would have commenced in 1990. The second Phase of the

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construction would have proceeded as currently scheduled and tive additional conventionalcargo berths would have become operational in 1995.

63. In both scenarios, it is assumed that the conversion of existing berths to container berthswill occur as scheduled for Berths 19-21 in 1993 and for two additional berths in 1999. It isalso assumed that the productivity of the conventional berths will increase following thesecond phase of privatization. Since nearly all of the labor will be transferred from LPK tothe private operator, the increase in berth productivity will have to be achieved throughbetter supervision and management control. An initial improvement of 20% is assumed, notunlike that achieved in the transfer of KCT to the private sector. Thereafter, improvementsare expected to continue at a rate of 3% per annum.

64. With the "delayed investment" scenario, the benefit from construction of Berth 15 andthe dolphins is a reduction in the levels of occupancy and vessel delays due to the availabilityof an additional berth. The average value of ship's waiting time for conventional cargo vesselsis assumed to be US$6,000 per day (M$625/hour at the mid-1992 rate of conversion). Theincrement in operating and maintenance costs which result from the introduction of Berth 15are assumed to be insignificant, however the cost of operating and maintaining Phase I andII is expected to total M$7.5 million per year. The calculation of the level of occupancv andresulting delays with and without Berth 15 are shown in Annex C. Table 2. and thecomparison of costs and benetits is presented in Annex C, Table 3. When the benefits arecompared with the capital cost for Berth 15 and tne dolphins, this scenario has an internalrate of return of 15.5% indicating that the decision to construct these facilities waseconomically justified. This is less than the 32% estimated in the SAR which foresaw agreater cost of delay for conventional cargo vessels with a traffic forecast similar to the actual.

65. For the "accelerated investment" scenario, the benefit from constructing Berth 15 is thereduction in the present value of the capital expenditure as a result of delaying the start ofPhase I of West Port by 41/2 years. This benefit is balanced against the capiLal cosLs forconstruction of Berth 15 and the dolphins and the cost for the additional waiting timeresulting from higher occupancy at the other conventional cargo berths in North Port. Thecalculation of the occupancies and additional delays are shown in Annex C, Table 2 and thecomparison of additional costs and savings is shown in Annex C, Table 4. This scenario hasan NPV of M$51.7 million (at the beginning of 1991 with a discount rate of 10%o)' indicatingthat the construction of Berth 15 and the dolphins followed by the both phases of West Portwas less costly then constructing Phase I first and then five years later starting Phase IL

66. These benefits are concerned exclusively with the marginal impacts on conventional cargoberths. It is assumed that the development of facilities for containers takes priority overthose for conventional cargoes. Therefore, the increase in container capacity would havebeen the same for all scenarios. Berth 15 reduced the congestion on the conventional cargo

An IRR calculation has Uittle meaning when considering a delay in investmenL TheNPV for the "delayed investment" scenario is M$17.1 million (beginning of 1991, discount rate10%)

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berths in North Port which resulted from the conversion of Berths 11 and 19-21 to containerberths.8

67. The benefits from the construction of the breasting dolphins at Berths 22 and 23 couldnot be determined from the available statistics. The vessels calling at these berths arerelatively smalL handling only a few thousand tons per call. The total number of vesselscalling at these berths was 474 in 1990 and 459 in 1991. The effect of the dolphins was toincrease the number of effective berths to 2½., thus reducing the occupancy from about 60%to its current level of 48%. The implied reduction in delay time would be between 25% and50%.9 Assuming an average reduction of 3 hours and an average cost for the vessels ofabout M$450 per hour, the reduction in delay resulting from the breasting dolphins is worthabout M$0.6 million per year. This would increase the IRR for the "delayed investment"scenario to 18% and the NPV for the "accelerated investment" scenario to M$56.1 million.

68 Given the demonstration nature of the Railway Pilot Project (LN2686-MA), no attemptwas made to calculate the benefits as part of the SAR and none have been attempted here.It would be difficult to estimate the benefits since the haulage of containers by rails remainin a state of flux. Furthermore. the future benefits of the railroad haulage of containers willbe realized not on the line between Kelang and Kuala Lumpur but over the longer routesbetween the Port Kelang and Penang and eventually between Kuala Lumpur and Singaporeand Thailand. The benetit of this pilot project was the expertise and incentives developedfor KTM to expand its intermodal activities. It remains to be seen if the current managementwill be able to maintain or expand its market share or whether it will allow the containerservices to deteriorate into movements on mixed freight trains with relatively long transittimes.

69. Studies Several studies were carried out as part of the technical assistance. These havebeen described above. Both the marketing studv and the MIS studv provided usefuiguidelines for future development. The study on the elimination of impediments to the flowof goods to and from Port Kelang was prepared by the marketing consultant. It suggestedthat the principal bottleneck was the inetficiency of the landside transport as a result ofgovernment regulation and the lack of competition.

70. At the request of LPK, the Bank carried out a review of the economic feasibility of theWest Port development in conjunction with the conversion of Berths 19 to 21 to containers.The estimated IRR was only 13%, but a sensitivity test of the effect of delaying the projectprojected a serious increase in congestion along with a rapid escalation of IRR. This study,conducted in 1988, gave additional priority to starting the project as soon as possible. It

'In the SAR, the benefits were computed separately for the container and conventionalcargo berths. However, since the existing container berths operate independently, thebenefits from construction of Berth 15 were assumed to accrue only to the remainingconventional cargo berths.

9 'The delay figures presented in Annex C for the liquid bulk terminals appear unrelatedto the occupancy figures, which themselves suffer from methodological problems. As a result,the estimate of benefits required considerable interpretation of the available statistics.

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confirmed the need to begin construction of West Port by 1992 and recommended that workon the road and bridges begin as soon as possible so that work on the port facilities couldbegin by this time.

71. Covenants The covenants included in the loans to Port Kelang and to the Governmentof Malaysia were complied with except for two relatively minor infractions (Part III, Table9 ). The requirement for an operating ratio of no more than 73% proved impractical giventhe amount of excess labor left with LPK following the KCT privatization. However,following a three year period of high ratios, LPK was able to lower its operating ratio belowthis target. Similarly, the requirement for LPK and KTM to make timely submissions ofannual audited financial statements was not enforceable in the initial years of the projectbecause these organizations had no control over the time required by the Auditor Generalto complete the audit of their books. The changeover to a private auditing firm resolved thisproblem for LPK, but KTM continues to be subject to the delays of the Auditor GeneraL

72. The remaining covenants to the loan were complied with. However, even when thecovenants were complied with, the results were not always as intended. LPK's assets wererevalued in 1987 by their accounting staff and the results were submitted to the Bank asrequired. However, these results were never formally introduced into the LPK's annualaccounts. Instead, LPK continues to report its financial performance based on the historicalvalue of its assets. The loan covenants did not require that the revised assets be used tocompute the financial performance ratios. This decision has allowed the port to continuereporting reasonable rates of return on assets and low operating ratios. It also leaves the portwithout an understanding of its costs, especially given the increasingly capital-intensive natureof its operations.

73. The LPK carried out a study to revise its tariff so as to be more in line with its costs.Their proposed revision focused on simplifying the relatively cumbersome taritf structurewhich had been inherited from the railroads, but failed to propose a rationalization of thecharges. In particular. it failed to recommend a dockage fee to encourage efficient use of thealready congested berths. The report was submitted to the MOT for approval but LPK'smanagement subsequently withdrew the proposal contending that it was not necessary in viewof the upcoming Phase II privatization. This was a serious strategic mistake on the part ofLPKY The private sector will have to operate under the old tariff, which has been in effectfor about 15 years, and this will seriously reduce the value of the port to the private sector.

74. Privatization An examination of the project would not be complete without consideringthe effects of privatization on the project and on the port as a whole.' The portprivatization began as a general program for privatization in the early 1980's and was directed

1 This process of Port Kelang's privatization has received extensive review. Among theBank's publications on this activity are 'Privatization in Transport: The Case of Port KelangContainer Terminal", H. Levy and A. Menendez, EDI Working Papers; "Malaysia: Genesisof a Privatization Transaction", R. Leeds, World Development V.17 N.5, 1989; and "WelfareConsequences of Selling Public Enterprises : Case Studies from Chile, Malaysia, Mexico andthe U.K - Malaysia", L Jones and F. A. Abbas, Country Economics Department ConferencePaper, 1992.

- 18-

by an Inter-Ministerial Committee under the chairmanship of the Director General of theEconomic Planning Unit. This program was not only directed at reducing the financial andadministrative burden of the government and increasing the efficiency of the organizationsto be privatizecL but it was also intended to stimulate economic growth while encouragingBumiputra entrepreneurship. Port Kelang was chosen as the first entity to be "privatized"because it was visible and profitable but suffered from excessive bureaucratic interference andwas inefficient by international standards.

75. Because the govemment had no experience in privatization, it contracted a localmerchant bank and two foreign firms, which were familiar with privatization activitieselsewhere in the world, to assist in preparing Port Kelang for privatization. Their report wassubmitted in December 1984. This same group assisted the government in preparinginvitations to bid and in reviewing the qualifications of the bidders. In the end. six consortiasubmitted approved bids in January 1985. Each included a foreign partner to providetechnical expertise. The winning bid was announced in March of 1985 and the same groupwas retained to assist in negotiations with the winning bidder. The mnost contentious issue inthe negotiations was the status of the port workers and the Prime Minister became directlyinvolved in order to sort out this issue. In the end, nearly all of the labor was retained asemployees of either the joint venture or of LPK only a few were given early retirement.

76. The joint venture was given the franchise for container handling at this terminal. It wasrequired to absorb less than half of the labor which had been previously been associated withthe terminal. The agreement called for the joint venture to purchase LPK's containerequipment and any additional equipment required for efficient operation. In return for thepayment of an annual rental and throughput charge, the joint venture was allowed to collectall of the cargo-handling charges stipulated in the port tariff for vessels calling at the terminal.The users of the port benefitted from this arrangemcnt because the tariftts remainedunchanged while the level of service improved dramatically in the first year of operation.Since then, the productivity has not increased but neither have the tariffs.

77. While it is generally agreed that the financial condition of the LPK was negativelvaffected by the privatization agreement, it is useful to consider the actual impact." Theeffect of the transfer of the container operations to KCT was to deprive the LPK of asignificant source of revenue while providing a relatively small initial payment and a very smallannual rent. The M$1SOEU throughput charge for any TEU's above a specified thresholdlimit proved to be the largest source of revenue due to a more rapid than expected growthin traffic. However, this charge only applies up to the year 1994, thereafter, a sliding scalefrom M$40TEU to M$24ITEU will apply. Even with this charge, the port has still sutfereda net loss as a result of the privatization. The calculation in Annex D suggests that the lossin cash flow to the port from privatization of the container operations will amount to M$289

I A recent Bank study by Galal, Jones, et. al, argues that the overall benefit to thecountry was positive. Their analysis focuses on the performance of KCT whereas the currentanalysis focuses on the performance of LPUK

19 -

million in 1986 Present Value for the first ten years of the agreement or approximately M$1billion in 1992 Present Value for the life of the agreement.'

78. The financial performance of LPK will change substantially in the coming year as a resultof the upcoming privatization of the remainder of the port. Although the agreement for thesecond round of privatization of the port is to be structured slightly differently, it remains tobe seen whether the terms will be more equitable. It appears that the private sector willabsorb almost all of the labor under an agreement that the workers cannot be terminated forthe fist five years of the agreement. The LPK will assume the role of landlord and willadminister the agreements while continuing to develop West Port. Once West Port iscompleted, it is expected that these berths will be leased to other private sector operators.

79. The Bank did not participate in or provide assistance to the Government in its first roundof privatization. At the time of the preparation mission, the government was still establishingits goals. The Bank staff interacted with the port officials on several of the technical issuesrelated to privatization, but most of the decisions were being made at the ministerial leveLThe initial round of privatization was nearly completed at the time of SAR. Had there beenan opportunity for greater participation by the Bank, it is likely that there would have beena conflict of objectives. As part of the project, the Bank had argued for an opening up ofthe container haulage industry. At the same time, the government was effecting a verticalintegration of the industry by allowing the major container haulier to take over Port Kelang'scontainer terminal. This difference in approach would have hindered any Bank participationin the second round of privatization.

80. The negotiations for the second phase of privatization were begun in 1986 and continuedup through 1990 when KPN was selected to take over both the North and South Portoperations. KPN is a joint ventuire. It includes KTK the joint venture which managres KCT.as a 40% shareholder, Malavsian International Shipping as a 22Y/:2% sharcholder. and Lhreeshareholders, Selangor State, Shapadu (another of the container hauliers) and, a companyowned by a wealthy Malaysian businessman, each owning 121/2%. This represents a furthervertical integration of the container transport industry and does little to reduce government'srole in this sector.

81. The option for Bank participation in the second phase was severely limited not onlybecause of policy differences but also because the government already had considerableexperience in "privatization" having converted the national airlines, telecommunications andshipping company into public corporations (with the government maintaining a dominantrole). Local financial firms were employed to perform evaluations and have showedincreasing sophistication in their evaluations.

| Tis estimate involves a number of assumptions which are detailed in Annex D. Thebasic assumption is that the growth of traffic would have been the same. It has been arguedthat, without the improvement in productivity introduced by the private sector, this growthwould have been constrained. It should be noted that the NPV refers only to the loss inincome to the LPK, not the govemrnmnt, since the government is also the principal owner ofthe "private sector" participant in KCT.

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Institutional Performance

82. Borrower and Executing Ageencies Performance The Government acting through theMOT and EPU was instrumental in identifying the project, and establishing a revised scope.These agencies also assisted in resolving some of the more contentious issues with regards tothe training project. The major negative in their performance was the confusion that wasgenerated by the government's approach to privatization of the port. It is inevitable that,when a government decides to transfer public assets to the private sector and to select whomin the private sector will be given these assets, an effort will be made to maintain secrecyregarding the decisions made and the negotiations with the private sector. However. thefailure to provide LPK with a clear indication of its future has made it difficult to effectivelyimplement the port project. The only other impediment by the government was the decisionto delay the railway pilot project for 17 months by not providing KTM with a budget for thisproject.

83. The LPK management performed extremely efficiently and professionally in designingand contracting for the civil works. It showed much less professionalism when planning andcontracting for technical assistance. During the initial years of the project, the managementsuffered from a considerable amount of internal conflict. Added to this was a concern on thepart of the senior management with cutting costs. The lack of clear objectives with regardsto the technical assistance components led to a lengthy internal debates as to the scope ofthese efforts with frequent referrals to the Board of Directors for guidance. Only in the finalyears of the project did the management seemed to steady in its resolve, but by then thecomponents had been considerably weakened.

84. The KThl's management performed all of its tasks with efficiency and enthusiasm.Where it failed was in not sustaining the institutional development required for cticientoperation and aggressive development of intermodal transport. It remains to be seen whetherthe upcoming privatization will restore the priority given to intermodal operations.

85. Consultants The performance of the consultants was generally good. The constructioncompanies which were selected under Local Competitive Bidding (LCB) for the Marine Baseand under International Competitive Bidding (ICB) for Berth 15 performed well. They hadextensive experience in port construction, many having worked on earlier civil works projectsin Port Kelang. The consultants for the MIS and marketing components also performed well.The report submitted in Phase I of the MIS component was thorough and useful. Theconsultant's for the second Phase provided a less insightful report, but the output was suitedto the requirements of the LPK The studies for the marketing component were alsoextremely useful even though the consultants were not able to go into depth in many of themarketing areas because of the reduction in budget. Although the interaction between theMarketing staff and consultant was extremely productive, the period of their contract was notsufficient to allow for the needed institutional strengthening.

86. The performance of the consultants for the Training component was less than acceptable.The consultants were selected even though they had much less experience in the area oftraining than the other bidders. The first training coordinator sent to Port Kelang did nothave much experience in the area of training. Furthermore, the LPK had failed to providetraining for its counterpart staff before the coordinator arrived. although LPK had agreed to

- 21 -

do so. The initial training seminars proved to be disastrous and compromised MUD'sreputation with the shipping community as well as with the port management. The firsttraining coordinator was replaced after one year with an individual more experienced in thetechniques of training, but the new coordinator was unable to regain the lost momentum.

87. The responsibility for the poor performance of the training component rests equally withthe consultants and LPK management. The management delayed the contracting of thisactivity and then reduced its budget and period of time. The consultants agreed to thecontract although neither the scope nor the personnel had been changed to reflect the delayand reduction in budget. The support provided by the consultant's head office was extremelyweak. This led to uncertainties as to who would be presenting seminars and how long theywould be available for interaction with MDU staff. In the end, the quality of presenters wasvery low and the consultants did not allow them sufficient time to assist in the developmentof the courses.

88. Bank's Performance The Bank was instrumental in redesigning the port project to asmaller and more economically efficient format. It also led in the decision to include therailroad pilot project in the loan package and in the formulation of the technical assistancecomponents. In the end, it was the offer of the Bank's technical expertise and support whichconvinced the Government and the LPK to accept these loans even though alternativefunding was readily available.

89. The SAR provided a good basis for guiding the implementation of the project. Most ofthe proposed civil works were completed according to the LPKCs original proposal. The SARfaile,d to consider the possibility that the future development of the container berths mightproceed southward from Berth 21, since the LPK's original plan had been for an expansionnorthward in continuation of the existing KCT berths."

90. The SAR provided an outline of the technical assistance components, their objectives andlevel of effort, but most of the details were to be worked out in the identification phase ofthese projects. Therefore the SAR was less effective in guiding the outcome of theseactivities. Although the Bank had received assurances as to the interest of the LPK inundertaking these technical assistance components, it failed to anticipate the level ofsupervision required for these components to be successful. Regular supervisory missionswere performed, and additional short missions were made to assist in moving the technicalassistance ahead (Part IIL Table 10). Bank officials also sought out the assistance of theEPU and MOT officials to resolve problems in implementing these components, and in somecases were able to move the components ahead. The Bank's failure in this situation was notin the supervision but in anticipation of the difficulties in obtaining consensus and consistencyfrom a weak and fragmented port management.

91. Although the covenants were relatively standard, some of them proved to be problematic.In the end, the Bank chose to overlook early failures to comply with the covenants. This

13 It was the second round of privatization which allowed for the separation of KCT andthe new container berths that permitted the less costly expansion from Berth 21.

- 22 -

proved to be the more expeditious than revising the terms of the loan, since by the end ofthe project these covenants were complied with.

92. Project Documentation and Data LPK maintained good documentation on the projectwhich was supported by the financial and operational data normally collected and reportedby the management. The privatization of KCr reduced the amount of information availableconcerning container operations, otherwise, there was sufficient data to evaluate the impactsof the project. The quality of the quwrterly reports submitted to the Bank by the LPKdeclined over time in part because they did not receive direct feedback from the Bank as tothe usefulness of these reports. The LPK met all additional requests for data made duringthe performance of the PCR.

93. KTM's documentation was not as well organized as LPK's. but all the necessary financialand performance data were obtained and both the Freight Department and the AccountingDepartment provided additional information to assist in completing this report.

Conclusions and Sustainabllitl

94. The civil works components of the project succeeded in meeting their objectives. In thecase of Port Kelang, they provided additional capacity to reduce the overall level of berthoccupancy and resulting vessel delay. In the case of KTM. they provided a demonstrationunit train service for containers moving between Port Kelang and Kuala Lumpur. Theestimated rate of return on the port project was acceptable. but this was due in large part tothe lower than expected cost of construction for the berth facilities.

95. The technical assistance components suffercd from a lack of commitment on the part ofLPK's management and poor performance by the consultants for the training component.The lack of commitment was due not only to the uncertainties about the future role of theport but also to LPK's cautious, and often contentious. style of management. The decisionto allow the management to design the technical assistance program through a two-phaseeffort of identification and implementation made sense given the uncertain environment, butit resulted in delay and in a reduction and re-orientation of the scope of thesecomponents.

96. The TA components achieved only a few of their objectives. This is not an uncommonresult because of the greater difficulty in providing effective technical assistance. Althoughthe results were less than intended, the management did complete all components and thetargeted management functions have been strengthened. Now, however, the lack of follow-onactivity in all components except management training may limit the long-term impacts of thiseffort.

97. The technical assistance component for KTM proceeded according to the original scopeand level of effort. Ihe results were a greatly strcngthened management function in the areaof intermodal transport. However, there was no follow-on training for the successors to theprevious managers, and it is possible that the benefits of the technical assistance will be lost.

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98. The objectives of encouraging a more efficient use of part resources by introducing acost-based tariffs and providing a more realistic estimate of the port's financial returnsthrough the use of revalued assets were not achieved. The loan covenants stated only thatthese activities be undertaken. Since there was no connection with LPK's managementobjectives, the LPK& quite reasonably, fulfilled the terms of the covenant without achievingits intention. Technical assistance to strengthen management's understanding and use ofthese changes might have led to a more useful outcome.

99. Any question of the success and sustainability of the project must address the underlyvingissue of privatization which was occurring during the project. The initial round ofprivatization of Port Kelang's container facilities resulted in a significant financial loss to theport. It also produced very little improvement in berth productivity, despite the low price andfavorable labor situation given to KCITs owners. As a result, the financially weaker LPK hadto continue its investment in new container facilities with little change in schedule since thecapacity of the KCI berths were not significantly above those that could have been achievedby LPK

100. LPK's lack of knowledge as to the scope of the second round of privatization left themanagement with considerable uncertainty as to its future role and its ability to realize thebenefits from future expansion. The decision to transfer most of the LPK staff to the newprivate sector operator indicates that management's indecisiveness and ambivalence towardsfuture development from 1986 through 1990 was not without cause.'

101. The anticipation of privatization of KIM has had a quite different impact. Theincreasing orientation towards profitability has caused a rethinking of the role of intermodaltransport. It is expected that the relatively short hauls. which suffer from a competitivedisadvantage relative to truck transport. will be phased out rapidly. and in their placc will bethe longer haul container movements especiallv for those movements to and from Thailandand Singapore.

102. The experiences of this project demonstrate the need for flexibility when funding aproject in a business environment which is in tlux. This flexibility will inevitably require agreater commitment of personnel on the part of both the Bank and the executing agency.The LWK responded to the changing environment by modifying its plans for converting thecontainer berths and by adjusting its loan commitment. The Bank responded quickly to theseproposals as well as to the changes in the TA components.

u The decision of the government to privatize the remainder of the port as a single entityand to transfer this entity to a joint venture, whose major shareholder already controls KCI,raises serious questions of the efficacy of the whole privatization effort. However, there arecertain elements in the new agreement which might open the door to a limited amount ofcompetition in the future.

- 24

103. With regard to the decision to delav the larger investment in West Port, there is aquestion as to whether the decision to restart the project should have been taken a yearearlier. LPK should have undertaken an annual review of the feasibility of that project asrecommended by the Bank rather than a single update of the feasibility study in 1988. eventhough the results would not necessarily have been different.

104. While the relationship between the Bank and the executing agencies was good, thereis little option for follow-on. There are a number of reasons for this:

o the preference of Malaysian public agencies for local commercial fundingsources which provide comparable terms without the foreign exchange risk.

* the government's desire to move quickly once a consensus decision has beenreached, and

e the understandable reluctance on the part of the government to open itsinvestment decisions to external scrutiny with the attendant delays for review.

105. It is difficult to say whether the Bank could have been involved in the major investmentdecision regarding privatization of Port Kelang, the development of West Port and thepreparation of a Master Plan for the port. These- would have required a considerablecommitment of Bank staff resources with only a limited potential for continued dialogue.Some effort was made in these areas, but without the level of commitment to allow the Bankto seek a major role in these activities. Overall. it is likely that the government would havebeen reluctant to involve the Bank in the evolving privatization, since this was largely apolitical process.

MALAYSIA

PORT KEIANG PROJECT (LOANS 2686-M. 2687-M)

PROJECT COMPLETION REPORT

ANNEXES

A. FINANCIAL STATEMENTS1. LPK - lncome and Expense Staemend

Lembaga Pelabuhan Kebng_________ _Income & Expenditure Account 1984.1991

1984 1985 1988 1987 1988 1989 1090 1991Continer Tralfic

VW RT 3.837 4,166 4,313 4.933 6.152 7,298 9.136 12t175868 3.56 14.40 24.79 18.69 2529 33.39X

TEUs 241 245 242 276 326 399 497 6071.7X -1.2A 14.0 18.1 22.39 24.79 _22I1

Operak _ _ _ Ships 39,009 35.005 30.543 32.039 35.299 39.913 41.190 44.362Cargo 49,841 45.935 33,539 33.702 40,463 44,084 54.594 60.501Container Seth 64.323 63.642 12.864 1,592 1.792 1,786 1.502 2,125S _vedodng 30.838 27.536 20.486 21.340 24,602 27.077 29.039 30.907Rent 6.929 6,409 19,016 23,033 24.515 33.917 44.684 60.065Sundry hoome 2.557 3,33s, 5,688 4,451 4.174 4,847 4,197 4,463

Subtotdl 193.297 181,861 122,135 116.157 130.845 151.624 175,206 202.423Ojierathnp A Amhlarel

Opeons 32.545 32.651 24.066 20.459 20,882 25.137 28.599 32.024Ma bntnae 19,585 28,998 14.590 11,230 12182 11.179 10.977 10.982S l_edoeV 25,370 23.280 22,501 22,004 21.815 21,587 21.748 22.943Sect"'uY 3,650 3,784 3,859 3.911 4.018 4.220 4.496 4.792Administration & General 17,955 19.240 19,973 19,394 20,812 19,696 19.148 28.808Deprclato 27.795 26.187 22,158 22,082 20,456 19,910 16.933 17.233Specala Sevioe Expendtre 0 0 3.000 4,578 2.279 757 1,706 15.390 t

Subtotal 126.900 134.140 110,147 103,658 102.424 102.486 103,607 132,172Operabt Stwrpjs 66,397 47.721 11,988 12,499 28.421 49.138 71.599 70,251

Non-Oplhafti meOideAs 0 0 2,078 0 0 0Invesbmets 16.342 19,656 21,385 22,414 20,156 22.305 21.637 30.672Sundry boome 2,306 2436 2.211 0 0 0Gain on Disposa d Assets 178 0 0 0Oth 0 0 9 2550 837 2,884 3,794 1,904

Subtotal 18.648 22.092 25.851 24,964 20,993 25.189 25,431 3t5764n.-O,wWJsrg Egpenciawe

Interes 25,888 26,806 27.245 23,428 18.950 16.901 14,710 11.431Loss on 0sposel of Assets 4,919 608 0 0 0 0SpecW Srvices Expendture 6.290 4.862 0 0 0 0

SubotWa 37.097 32.276 27.245 23.428 18,950 16,901 14.710 11.431Surplis &Bo.e T4=Dauo &Rxrrno*.dy l7mS 47,948 37,537 10.594 14,035 30,464 57.426 8,320 91.396

Taxaion 21,600 1¢,900 4.02? 4,110 10.286 23,258 31.637 36.827Surpis &foe Eia. lkems 26.348 20,637 6.567 9.925 20,178 34.168 50,683 54.569Ext. Item Lss Taatoim 0 0 94.495

araird dSurgis For The Year 26.348 20.637 101,082 9.925 20.178 34,168 50.683 54.589

Opekaing Rafio 0.66 0.74 0.90 089 0.78 0.68 0.59 0.65

2. LPK Balance Sheet

Lembaga Pelabuhan Kelag_________ Balance Sheet 1984.1991

1984 1985 1986 1987 1988 1989 1990 1991

Fixed Asute 419,468 411,130 381,575 361,708 355,492 349,973 343.253 345,177

Interet in Assocfted Company0 0 54,696 55,709 56,958 64,497 75,001 68.896

Other Investments 2,253 2,001 2.003 3 0 0 75

Loan Recsvableeceivable after twelve mronth 33,138 41,635 45,838 45,416 47,634 47,2tO 48,674 49,238

Current AssebStores and Materials 4,942 5,225 1,726 1,487 1,396 1,568 1.580 1,453Accounts Recevalbl 35,029 34,288 18,763 22,704 22,530 24,301 25,566 21,688Loan Peeivabe-CArent Porlon 1,707 2,290 2,450 2,236 2,402 2,429 1.852 2,077Deposits with Fhnancial Inttom 184,700 184,700 213,500 182,031 176,500 186,300 218,800 278,100Bank and Cash Balances 972 7,817 4,585 5,527 3,377 5,136 540 587

Subtotal 227,350 234.320 241,024 213,985 206,205 219,734 248,338 303.905Current Usbilitles

Creditos 10,805 15,767 7,353 13,466 15,756 13.391 14,451 24.544Loans Repayable Wthn 12 Mont 11,168 11,733 9,063 8,448 10,366 10,210 8,190 36,211Taxation 42,417 32,741 18,791 9,126 14,436 23,964 48,907 70,139 s

Subtota 64,390 60,241 35,207 31,040 40,558 47,565 71,548 130,894Currert Asset-Curret Uabi_ 162,960 174,079 205,817 182,945 165.647 172,169 176.790 173,011Tota Assets-Crent Uablity 617,819 628,845 689,A-9 645,781 625,731 633,849 643,718 656.397

Lorng Term Loans 359,8B0 350,186 312,028 275,270 241.084 216,589 178,203 135,920Defered Taxation 1,159 1,183 1,201 7,937 2,600 (761) (2,82 (2,821)

Subtotal 361,039 351,369 313,229 283,207 243,684 215,828 175,382 133,099altV-2 277,476 376,70 37 41 52,9

FINANCED BY:Retaned Eamlns,Govnt Grant 256,780 277,480 378,786 364,818 384,996 419,164 469.847 524,973Exchange Adjuent Account _ _ _ (2,244 (2,949) (1.143) (1,411) (1,675)

Subtotal 256,780 277,480 378,786 362,574 382,047 418,021 468,436 523,298

Deterred Taxation for 1984-86 refers to category other reserves

3. LPK - Sources and Applicaon of funds

Latibaga Petabuhan KetangSoticfes and Appioatlon of Funds

1986 1987 1988 1989 1990 1991SOURCES OF FUNDSSurpus be"e taation 10,593 14,035 30.464 57,426 82.320 91.396Ad4ustroent: 1761,9

Fbed assets expensed 757 1,706 15,390DepreatIon 22,158 22,082 20,456 19,910 16,933 17.233Amotation of foreign 321 457 193 302 463ewhaelobse

(Gln)Loss on Sale of (178) (117) 1,447 243 (724) 624FMed Assots _

Funds gewweated from Opwalion 32,573 36,321 52,824 78,529 100.537 125.106

Funds tfrom otwh sourcesProceedS fom sale ofixed 411 117 204 724 1,009

assets 111.624Tenn lans 24.247 6,236 4,649 5.572 680 966Prooeeds for sale of Ivestments 2,000 3Amount due rom Assoc Co. 1,072Inuance Claims 5,346A*usbmnts from Prior Yoars 246 _ _

141,874 9,425 4,856 5,572 1,404 1,975 .174,44 45746 5768 84,101 10,4 ______ o

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ~~~~~~~~~~~~~~~00

APPUCATION OF FUNDSLoans reoevable 1,813Purchased of fixed assets 9,074 6,982 15,891 15,391 11,919 35,625Taxation paid 22,625 12,514 10,312 17,091 8,754 15,594Repayment of Term Loans 65,056 53,068 38,080 28.610 41,656 16,029Amount due from assoo. o. 54.696 1,249 7,539 10,504 13,895

151,451 74,377 65,532 68,631 72,633 81.14322= 996 W2B631) (7 85 5 7 2 e8 5

INCRASE (DECREASE) IN WORWIJNGStoes and naterials (2,110) (240) (91) 172 12 (127)Debtor (13,279) 1.927 1,287 1,771 1.365 (3,978)Loans reoeiab4e 4,203 (198) (18) (397) 887 790Credhors 8,413 406 (1,349) 2365 (1,060) (10,094)

(2,773) 1,895 (171) 3.911 1,204 (13,409)Movment Not Workng Capital

Bar and cosh balanoes (3,031) 942 (2,150) 1,759 (4.596) 47Deposits wih financial instiuons 28,800 (31 468) (5,531) 9,800 32,500 59,300

25,769 (30,526) (7,681) 1 1.59 27,904 59,34722,996 (28,631) (752) 15,470 29,10 45,938

X 29 -

4. KTM - Income and Expense Statement

Keretapi Tanah MelayuIncome and Expense Statement

Operating Revenues 1989 1990 1991Passenger 73,552 148 76,059,803 76,902,848Freight 71,126,964 76,074,592 77,545,493Parcels & Mail 7,047,883 7,560,757 8,061,045Miscellaneous 1,109,440 2,505,065 1,118,455

Subtotal 152,836,435 162,200,217 163,627,841Operatln ExRgnsesMaintenance of Way & Works 31,351,591 31,586,609 30,086,078Maintenance of Rolling Stock 26,246,885 13,784,395 44,893,400Traffic Operations 75,689,804 88,629,916 66,988,787General Adminsitration 10,697,659 9,951,075 9,613,766Signalling and Communications 5,936.261 6,641,418 6,502,656Provision for Depreciation 42,086,695 38,434,027 39,150,568

Subtotal 192,008,895 189,027,440 197,235,255Operating Profit (39,172,460) (26,827,223) (33,607,414)

Non-Operating RevenuesRental 9,346,366 8,865,705 12,633,812Interest on Investments 2,698,381 2,576,686 1,854,783Amortization of Govnt. Grant 2,459,098 2,926,650 1,847,425Miscellaneous 8,779,701 9,391,653 9,734,475

Subtotal 23,283,546 23,760,694 26,070,495Non-Operating ExpendituresProvision for Doubtful Debt 3,959,669 2,431.060 3,111,872

800.000Non-recurrent Expenditure 8,130,990 15,735,678 19,563,388Deferrred Expenditure 408,018 529,971 767,002

Subtotal 12,498,677 18,696,709 24,242,262Non-Operating Prfit 10,784,869 5,063,985 1,828,233Total Profit (28,387,591) (21,763,238) (31,779,181)

Interest on Loan (58,638,568) (62,425,160) (58,739,269)Income Tax (189,768)Prof it Beferm Eardiwryitems (87,026,159) (84,378,166) (90,518,450)

Extraordinary Items (19,040,159) (29,249,800) (21,317,551)Profit(loss) for the Year (106,066,31 8) (113,627,966) (111,836,001)

- 30 -

5. KTM- Balance Sheet

Keretapi Tanah MelayuBalance Sheet

1989 1990 1991Fixed Assets 980,998,550 1,107,639,996 1,243,121,342

Investments In EauIties 976,501 1,081,500 1,581,499

Current AssetsInventories 76,936,102 66,974,036 65,201,584Sundry Debtors 57,982449 32556,786 29,718,155Cash on Hand & in Bank 36,497,904 47,754,644 17,310,524Deferred Expenditures 2,119,882 2.538,037

Subtotal 171,416,455 149,405,348 114,768,300Current UabilltlesSundry Creditors 52,827,679 78,600,931 75,367,467Provisions 257,946,643 348,254,080 428,656,874Deposits 6,523,696 7,589,114 11,281,918

Subtotal 317,298,018 434,444,125 515,306,259Net Current Assets (145,881,5(ij (285,038,777) 400,537,959Plus Fixed Assets 836,093,488 823,682,719 844,164,882

Lona Term DebtFederal Government Loan 1.180,773,976 1,272,035,608 1,311,137,557Foreign Loans 51,631,671 41,126,320 26.309,913Local Loans .Z. 2,025,000 39,435,450

Subtotal 1,232.405,647 1,315,186,928 1,376,882,920

E9ultV (396,312,159) (491,504,209) (532,718,038)Financed 8By:Capital and ReservesFederal Government Equity 194,459,261 194,459,261 194,459,261Fire fnsuranca Reseives 288250 288,250 288,250Federal Government Grant 73,727,831 92,163,747 162.785,919

Subtotal 268,475,342 286,911,258 357,533,430Cumulative Profit (Loss? (664,7 87,50) (778,415,467) (890,251,468)

Total (396,312,159) (491,504,209) (532,718,038)

B. PERFORMANCE STATISTICS

1. Type of Commodities Handled at Port Kelang (tonnes)1986 | 1987 19881 1989 1990 1 1991

IMPORTS _Fertilizer 481 668 867 727 863 897Chemical 222 284 369 419 512 564Iron & Steel 561 663 1,013 1.176 1,439 1,870CKD Vehiles Parts 53 42 76 119 177 168Machineiy&ComputerParts 124 167 176 294 423 425Sugar in Bulk & Bags 179 200 227 222 256 251Wheat Grain Bulk & Bags 199 196 262 178 362 429Rice 12 28 38 45 46 71Paper (ncl. Reels N/Prints) 274 256 337 349 395 514Palm Oil Bulk 81 29 1 1 4 30General Cargo 939 1,004 1,302 1,382 1.846 2,509Petroleum&OfterLiqud 1,703 1,752 1,842 2.017 2.418 2,594Cement Bulk 206 139 148 230 409 451Maize Bulk 146 161 244 221 258 316Coal 446 936 1,247 1.339TOTAL 5.179 5,589 7,348 8,315 10.656 i 12,427EXPORTS __Fertilizer 47 47 67 62 72 86Iron & Steel 96 153 154 130 179 210Rice 0 0 0 1 0 0Palm Oil Bulk 1,123 892 810 857 1.069 1,077Rubber 566 599 634 565 522 534Timber 681 929 899 1.047 984 898Plywood 84 128 133 131 104 142Latex In DOum & Bulk 199 221 248 208 173 196Palm Kernel Oil Bulk 188 147 107 132 189 156Palm Kernel Waste 336 288 280 398 356 332General Cargo 970 1,165 1,426 1,674 1.848 2,470Petroleum & Other LiquLd 3 14 1 14 9 5TOTAL _ 4,293 4,584 4,759 5,218 5.505 6,107

2. Port Kelang Container Statistics - Actual and Projected

Actual1984 1985 1986 1987 1988 1989 1990 1991

Total General Cargo 8,672 8,306 7,477 8,488 10,326 12,039 14,301 18,043Conventional Cargo 4,835 4,140 3,164 3,555 4,174 4,741 5,165 5,868Containerized Cargo000's revenue tons 3,837 4,166 4,313 4,933 6,152 7,298 9,136 12,175000's TEU's 241 245 242 276 326 399 497 607

Percentage Containerization %Conventfal Cargo 44% 50% 58% 58% 60% 61% 64% 67%Containerizable Cargo 31% 33% 35% 37% 39% 40% 41% 46

Rate of GrowthConventional -14.4% -23.6% 12.4% 17.4% 13.6% 8.9% 13.6Container 8.6% 3.5% 14.4% 24.7% 18.6% 25.2% 33.3q

Forecast1992 1993 1994 1995 1996 1997 1998 1999 2000

Total General Cargo 20,807 22,708 24,500 26,270 27,981 29,620 31,343 33,112 34,708Conventional Cargo 6,481 6,949 7,290 7,592 7,697 7.752 7,847 7,974 7,931Containerized Cargo000's revenue tons 14,326 15,758 17,210 18,679 20,284 21,868 23,496 25,139 26,777000's TEU's 735 808 883 958 1,040 1,121 1,205 1,289 1,373

Percentage ContainerizationConvential Cargo 69% 69% 70% 71% 72% 74% 75% 76% 77%Containerizable Cargo 49% 49% 50% 51% 53% 54% 55% 56% 580/c

Rate of GrowthConventional 10.5% 7.2% 4.9% 4.1% 1.4% 0.7% 1.2% 1.6% -0.50/YContainer 17.7% 10.0% 9.2% 8.5% 8.6% 7.8% 7.4% 7.0% 6.5/

Total Number of Ships Handled at Pot KelangFor 1986-1991

Type d Ships 1986 1987 1988 1989 1990 1991Contahin 1.197 1,257 1.453 1,680 1884 2159DOy Ebk 222 205 228 259 334 391UquLd Bulk 1,012 927 877 986 1032 1055General Cargo 1,931 1,858 1.920 2,014 2055 2186Others 111 190 163 176 135 119TOTAL 4,473 4,437 4,641 5.115 5,440 5.910

Number of Containers Handled at Port KelangFor 1986-1991

Import (TEU's) 1986 1987 1988 1989 1990 1991FCL 79,661 85,547 106,498 135,321 184,797 229.689LCL 15,618 17,030 19,787 24.494 28,467 28,992MTs 27,825 39,648 42579 50.012 42,083 46.432

TOTAL 123,104 142.225 168.864 209,827 255,347 305.113Export (TEU'S)

FCL 67,238 88.534 107,247 130,472 157,697 197.451LCL 26.367 27,023 30,936 33,802 31,045 29.004MTs 25.495 17,918 18,596 24,947 52,437 76,058

TOTAL 119.100 133,475 156,779 189,221 241,179 302.513

4. Port Kelang Container Statitistics

Number of TEUS per Container Vessel Call

_ _ ___ ~~~~~ ~~~1986 1987 198 198 199 1991Import 103 113 116 125 136 141Export 99 106 108 113 1281 140Total 202 219 224 238 264 281

Growth in Container Traffic

-1r71986 1987 1988 1989 1990 1991Loaded TEUs 189 218 264 324 402 485

% Annual Increase 15% 21% 23% 24% 21%Vessels 1,197 1,257 1,453 1,680 1,884 2,159

% Annual Increase 5% 16% 16% 12% 15%

Number of Containers Handled at Port Kelang

Import (TEU's) 1986 1987 1988 1989 1990 1991FCL 79.7 85.5 106.5 135.3 184.8 229.7LCL 15.6 17.0 19.8 24.5 28.5 29.0MTs 27.8 39.6 42.6 50.0 42.1 46.4

TOTAL 123.1 142.2 168.9 209.8 255.3 305.1Export (TEU's)

FCL 67.2 88.5 107.2 130.5 157.7 197.5LCL 26.4 27.0 30.9 33.8 31.0 29.0MTs 25.5 17.9 18.6 24.9 52.4 76.1

TOTAL 119.1 133.5 156.8 189.2 241.2 302.5

5. Nortlh Port Vessel and Tonnage Statistics

Vcssels Dry Cargo Liquid Cargo Total Cargo

Berth No Type 1990 1991 1990 1991 1990 1991 1990 1991

8-10 Container 1,884 2,159 8,842,473 11,821,399) 8,842,473 11,821,399

11 Gen.Cargo 158 23 343,2(4 26,72() 343,204 26,720

12 Gen.Cargo 81 91 340,4h3 394,225 340,463 394,225

13 Gen.Cargo 143 121 360,388 335,0()4 360,388 335,004

14 (Gen.Cargo 95 130 209,860 377,681 625 270,485 377,681

15 Gen.Cargo 181 241 452,650 710,102 452,650 710,102

16 Gen.Cargo 172 153 489,423 485,367 489,423 485,367 1

17 Gen.Cargo 160 167 542,561 666,623 542,561 666,623 w

18 Gen.Cargo 220 248 578,899 695,595 578,899 695,595

19 Gen.Cargo 160 185 478,550 614,409 2,200 478,550 616,609

20 Gen.Cargo 117 140 534,240 605,917 1,0(0 534,240 606,917

21 Gen.Cargo 133 117 650,513 549,416 31,910 999 682,423 550,415

22 Liquid Bulk 176 177 596 6,321 431,116 404,398 431,712 410,719

23 Liquid Bulk 298 282 14,461 902,728 1,126,830 977,189 1,126,83()

24 Dry Bulk 83 100 036,850 698,387 12,890 11,800 649,740 710,187

25 Dry Bulk 62 119 430,902 650,480 335 4,000 431,237 654,480

Total 4,123 4,453 14,966,033 18,637,646 1,439,604 1,551,227 16,405,6371 20,188,873

Totals (exci KCI) 2,239 2.294 h 6,123,560 6,816,247 1,439,604 1,551,227 7,563,164 | 8,367,474

- 36 -

6.a Berth Occupancy for Each Berth -Port KelangFrom 1986-1991

Berth No. 1986 1987 19?Q 1989 1990 1991South Port

I Uquld Bulk 45 35 37 38 40 NA2 Uquid Bulk 48 41 42 42 43 NA3 Multipurpose 51 50 68 82 71 NA4 General Cargo 61 56 67 71 67 NA5 Genersl Cargo 41 37 39 32 50 NA6 General Cargo 23 NA7 General Cargo 52 50 48 53 30 NA7a General Cargo 52 54 61 65 77 NA

KC.T.8 Container 39 41 51 61 64 NA9 Container 46 48 51 61 64 NA10 Container 39 44 51 61 64 NA

North Port11 General Cargo 42 48 40 63 57 7012 General Cargo/Dry Bu 64 63 70 71 72 8113 General Cargo 7 20 57 66 69 7314 General Cargo 6 9 48 52 51 7015 General/Pass 20 9516 General Cargo 58 56 77 70 79 7417 General Cargo 54 61 76 77 78 7618 General Cargo 58 59 71 79 77 8219 General Cargo 53 54 69 77 50 8420 General Cargo 47 61 72 76 76 8121 General Cargo 46 48 65 71 76 79

N.P. Bulk Berths22 Uquid Bulk 19 21 20 46 45 3223 Uquid Bulk 33 37 50 57 59 4224 Dry Bulk 37 35 56 56 73 7025 Dry Bulk 9 27 45 49 35 65

NotesBerth 16 closed for repairs on April 86 onwardsBerth 7 closed the first quarter of 1990Berth 15 closed to cargo vessels but occuppled by naval

and passenger vessels in 1986 and part of 1987Berth 25 partially closed in 1986

- 37 -

6.b Berth Occupancy - North Port

1986 1 1987 1 1988 1 1989 1 1990 1 1991Container 41% 44% 51% 61% 64%General Cargo 44% 48% 64% 70% 69% 79%Liquid Bulk 26% 29% 35% 35% 35% 37%Dry Bulk 23% 31% 50% 52% 54% 67%

-38-

7. Turnaround and Waiting Times in Port KelangAverage Vessel Turnround Time (hours)

1986 1987 1988 1989 1990 1991Liquid Bulk 26.0 21.6 21.6 26.8 26.0 32.8Dry Bulk 79.0 67.4 79.9 80.3 93.7 130.5General Cargo 29.9 29.8 36.7 44.3 45.4 55.3

a. Coastal 32.0 6.5 35.9 38.4 43.4 49.2b. Foreign 285 30.9 380 47.2 46.0 57.8

Container 11.7 11.3 11.3 11.3 11.7 13.3a. Feeder 9,4 9.4 9.5 10.2 10.5b. Main Line 13.6 13.1 13.0 12.8 13.4 -

Average Waiting Time for Berth in Hours1986 1987 1988 1989 1990 1991

Liquid Bulk 7.9 5.8 4.3 7.2 7.4 7.0Dry Bulk 0.2 0.0 0.0 9.3 13.5 37.5

General Cargo 1.3 0.1 0.0 5.3 2.6 6.8a. Coastal 2.1 0.2 0.0 4.1 0.4 2.4b. Foreign 0.7 0.0 0.1 6.6 3.6 9.2

Container 0.4 0.4 0.5 0.5 1.1 2.6a. Feeder 0.4 0.4 0.5 0.41.1 2.7b. Main Line 0.4 0.4 0.5 0.6 1.2 2.6

Average Service timc in Hours (Includus Idle Time at Berth)19(M6 1987 19 -8.8 1989 It99( 1491

Liquid Bulk 15.7 14.7 15.7 17.7 16.7 18.3Drv Bulk 76.2 66.2 77.5 69.6 80.8 91.2General Cargo 26.3 29.0 35.4 37.3 39.7 47.1

a. Coastal 27.8 28.0 34.3 33.7 39.) 44.9b. Foreign 25.3 29.6 36.8 39.2 40.0 48.2

Container 9.3 8.9 9.3 9.3 10.0 10.3a. Feeder 7.0 7.0 7.7 8.2 9.0b. Main Line 11.2 10.6 11.0 10.8 11.5

Average Effective (Net) Service Time in Hours1986 1987 1988 1989 1990 1991

Liquid Bulk 12.2 11.1 12.4 14.2 13.4 14.7Dry Bulk 71.2 62.9 73.1 66.0 77.3 87.5General Cargo 23.4 26.3 32.6 34.8 36.2 44.1

a. Coastal 24.8 25.0 30.0 30.6 34.7 41.6b. Foreign 22.4 27.2 34.1 36.8 37.2 45.6

Container 6.7 6.7 7.2 7.2 7.8a. Feeder 4.7 5.1 6.0 6.2 6.4b. Main Line 8.4 8.1 8.6 8.6 7 9.2

8. Gang Productivity at Conventional Berths(metric tons per gang hour)

Average Tonn 1986 1987 1988 1989 . 1900 1991North Port

Gross 23.3 24.2 22.5 23.0 25.8 25.6Net 28.4 28.5 26.7 27.5 29.9 30.0

South PortGross 12.6 14.2 14.7 i 5.5 14.7 16.2Net 14.3 15.8 16.9 17.5 16.4 18.6

OverallGross 20.3 21.4 20.3 21.3 23.3 23.7Net 24.1 24.7 24.2 24.9 26.8 27.4

- 40-

C. ECONOMIC EVALUATION OF PORT KELANG PROJECT

1. Port Traffic - Projected in SAR and Actual

Actual I Forecast DifferenceContainer Cargo

Rubber 518 605 -14%Chemicals 394 545 -28%Timber/Plywood (Exp) 516 414 25%Latex in drum 63 81 -22%Machinery/Comp Parts 596 1.108 -46%Paper & Newsprint 556 594 -6%Others 6,493 4,963 31%Container Cargo 9.136 8.310 10%(000's revenue tons)Containers (TEU's) 497

Breakbulk Cargo

Rubber 96 25 284%Timber/Plywood 863 46 1776%Iron & Steel 1,257 2.609 -52%Machinerv/Comp. Parts 380 651 -42%Paper & Newsprint 69 31 123%Others 2,50() 1,455 72%?

Total (000's revenue tons) | 5,165 4,817 7%Containerization Rate 63.9% 63.3%

2. Berths, Berth OLcupancy, and (Cost of Delays wilh Vari(ous Invesiment Alternatives

Growth Average Number of Prodwuai Otcupancites C') Tons per Vessl I louts Dclay Factors Total DelaysRate for Dcep-Water vity Vsscl Calls perConven- Berths/Year Gains _ (7% per Call

tional Current Split Current Phase Split yar) Current Split Current Phase 1+11 SpllitCargo Phase 1+11 Phase 1+11 Phase Phase 1+11 Phase - Phase

I&ll d1l 1&11 l1l&l

with w/o W/o 15 wilh 15 witO w/o 15 with w/O w/o 15 with 15 wio 15 wlo 1515 15 15 15 15

1989 13.6% 10 10 10 68 (- 68 2,909 l,6)10 37.0

1990 8.9%/ 10.5 10 -3 71 74 57 3,113 1,020 40.1 (LOS 0.06 0.01 3,29S 3.827 3162

1991 13.6% 10.5 9.5 12.5 8X 8') 67 3,382 1,616 45.6 0.15 0.28 0.02 10,759 20,7081 1,341 6

1992 10.5% 10 9 12 . 93 103 77 3,619 1,668 48.8 ).5 .l04 0.17 40,715 84,41.3 56/48

1993 7.2% 10 9 12 20% 83 )2 693 3,872 1,671 43.5 t). 17 0.56 002 12,147 40,743 1.641 I

1994 4.9% 11.5 10.5 12 5%1f 72 79 69 4,143 1,638 44.4 0.04 0.09 0.02 2,875 6,258 I,6-(AO

1995 4.1 % 18 17 17 3% 47 49 49 4,433 1,594 46.1 OA.X) 0.00 0.00 0 1) I

1996 1.4% 18 17 17 3% 46 49 49 4,743 1,510 47.9 0.( .0.00 o00 0 0 _ )

1997 0.7% 18 1 7 17 2%Ot 45 4; 48 5,075 1,421 50.3 .t1X) O.0 0Q00 0 O 0

1998 1.2% I1 17 17 2% 45 48 48 5,431 1,344 52.7 OAX) 0.00 0O0 0 0)

1999 1.6% 1 7 17 1%eW, 45 48 48 5,81 1 1,276 55.9 O.K) 0.00 0.00 0) 0

200 -0.5% 18 17 17 1 %N 45 47 47 6,218 1,186 59.2 0K) 0.00 0.00 0 l) l)

Assume- For the split option, Phase I would have started in 197 and been available in 1y91)and Phase 11 would have been started in 1992 and bcen available in 1995- Berth 11 converted to cointainer operations from mid 1991 to mid 1'92- Berths 19-21 to be used for conventional cargo until 1'95i when tihey will bt- converied to containsef berths- Phases I and 11 will add 8 conventional berths, ihree in mid 1994 and live in mid 1995- Tw) additional berths will be convered to containers in 2(XX)

42 -

3. Comparison of Current Investment With and Without Berth 15Berth 15 Savings forMarginal Reduced Net Savings

Capital Cost Delays1986 0.01987 3.7 (3.7)1988 13.9 (13.9)1989 9.7 (9.7)1990 3.3 0.3 (3.0)1991 6.2 6.21992 27.3 27.31993 17.9 17.91994 2.1 2.11995 0.0 0.01996 0.0 0.01997 _.0 _ .01998 0.0 0.01999 0.0 0.02000 0.0 0.02001 0.0 0.02002 _0.0 0.02003 0. 0.02(0)4 (.(0 _ (2005 ____________ 0.0 0.02.0060.0 0.0

Assumes no change in Operating Costs With Additional BerthIntemal Rate of Return 15.5%NPV at 10% 7.5 million

43 .

4. Comparison of Split Phases with Current Investment ScheduleSplit Phases Current Investment Savings from

Capital Additional Capital Additional Reduced Net SavingsCost Operating Cost Cost Operating Cost Delays

1986 100.0 3.7 96.31987 100.0 13.9 86.11988 100.0 19.7 80.31989 4.5 53.3 (1.8) (50.7)1990 4.5 58.5 _ (5.9) (59.8)1991 87.0 4.5 153.8 (21.9) (84.2)1992 139.3 4.5 244.5 (6.6) (107.3)1993 115.0 4.5 135.7 3.0 (0.8) (19.9)1994 7.5 75 0.0 0.01995 7.5 7.5 0.0 0.01996 7.5 7.5 0.0 Q0_1997 7.5 7.5 0.0 -1998 7.5 75 0.0 (1999 7.5 __ _ 7.5 0.0 Q0_2000 7.5 75 0° 0°2001 7.5 T o.o o.o2002 7.5 75_0.(_ 0.02())3 7.5 7.52004 7.5 v -_ _j 7.5 0.() - (l0 _

2005 7.5 7.5 0.0 0.0

NeL Present Value 51.7 million in 1991

44-

D. IMPACr OF PRIVAITZATION OF KCT

The introduction of the private sector on the port's container handling operations produced asignificant increase in productivity. Although KCT absorbed some of the LPK labor working atBerths 8-10. it limited the amount of manpower absorbed to an efficient level and left LPK with theexcess staff' As a result of better use of labor, KCT was able to reduce the average berth time andimprove handling productivity by 25% during the first two years. However, it has failed to continueimproving productivity over the last two years. Its current annual throughput of 250 thousand TEUper berth or 150 thousand TEU per gantry crane is expected to continue. This would imply that thefourth berth at KCT (Berth 11) will provide sufficient capacity until West Port is open. Assumingan increase in productivity with the added competition from the KPN, it is likely that only oneadditional berth would be required up through 2000 according to the cargo forecast shown in AnnexB.

The financia: impacts of the privatization of KCT are relatively complex. The privatization reducedLPKs revenues and expenditures. provided it with a rental fee. gave it an initial payment of M$56.8million for 51% ownership of the terminal. and left LPK with a 49% share in the issued stock ofKCT. On the revenue side. the effects were a loss of the container handling revenues and part ofthe cargo dues and storage revenues. There were partially compensated by the annual rental ofM$17 million (with a 10% escalation every 3 years) and a throughput charge for all boxes in excessof 335 thousand TEIJ of M$150fIEU through 1994. On the expenditure side, KCT assumedresponsibility for the operation of the terminal and the maintenance of the equipment therebvreducing LPK's expenditures for operations and maintenance. Since KCT was able to introduce anincrease in productivity in the initial years, the privatization also allowed the conversion of anadditional berth to container operations to be delayed by about one year.

In order to estimate the effects on LPK's cash flow, a number of assumptions had to he made asfollows:

First, the change in cash flow excludes both in depreciation and the initial pavment for theequipment sold to KCT.

Second, LPK was profitable throughout the period being considered, and there would havebeen additional taxes paid which would have reduced the cash flow to LPK A marginal taxrate of 25% was assumed to take into account not only the tax rate but the reduction inincome from depreciation of the assets transferred to KCI.

Third, the estimates of the changes in the revenues and expenditures were made bycomparing the reported values in the tvo years prior to the privatization and in the threeyears following the privatization.

'The excess labor problem appears to have been a result of over-staffing. At the timeof transition, the affected LPK labor was offered the choice to go with KCT with a five yearguaranteed job, remain with LPK or, if eligible, except early retirement. About 800 workerschose to go with KCr out of a total LPK work force of some 7,000. This included most ofthe container operations and maintenance division. howcver, it left a large amount of workersformerly associated with the container operations in LPK without productive work.

* 45 -

Fourth, the revenue data was used to estimate the average unit revenue per TEU which waslost as a result of the privatization. Since the tariff has not changed, these unit revenues wereused to extrapolate the revenue stream beyond 1991 using the current forecast of boxes tobe handled in the port.

Fifth, the operating and maintenance costs associated with the container terminal wereassumed to be unaffected by the volume of cargo but instead to increase at 2% per annumin line with previous experience.

Sixth, the maxmum throughput of the three berths plus Berth 11, if left under the controlof LPK is estimated to be 800 thousand TEU. This number was used to limit LPK'spotential revenues.

Seventh, the introduction of a fourth berth was assumed to increase LPK's operating andmaintenance costs by 1/3 beginning in the year it was commissioned. Since the productivityof LPK was lower than KCT, it was assumed that the berth would have had to have beenoperational by the middle of 1991 rather than that middle of 1992 as required by KCT.

Eighth, the equipment purchased by KCT to equip the four berths included two Panamaxgantry cranes with supporting equipment costing about M$50 million. This cost would havebeen incurred by LPK The same applies for equipment purchased earlier by KCT includinga gantry crane. 24 straddle carriers and 4 high loaders.

The resulting change in cash flow is shown in Table 2 below. This calculation excludes the effect ofan accelerated investment in the conversion of Berth 11.

The cost to LPK resulting from the privatization was computed as the Present Value of the cash flowin 1986 terms using a discount rate of 10% in constant terms. The results indicate a loss to the LPKof M$298 million. This calculation assumes that LPK sells part of its shares in KCT at the time theshares are floated. It has been assumed that this will occur in 1996 and that the LPK would chooseto sell its shares so as to reduce its holding to the agreed limit of 20%. It has further been assumedthat the share price at the time of sale is M$5. This number is arbitrary, but even if it were doubledand LPK were able to totally liquidate its position, the Present Value would only be reduced to a lossof M$163 million.

1. KC'I- Prwductivity Improvements

1983 1984 1985 1 966 1987 1988 - 1989T 1990Average Turnaround Time

All 13.7 15.6 13.4 11.7 11.3 11.3 11.3 11.7Main Line 14.8 17.2 15.6 13.6 13.1 13.0 j 12.8 j 13.4Feeders 10.5 11.5 10.2 9.4 9.4 9.5 10.2 10.5

Average 13erth TimeAll 11.2 13.1 1 1.(0 9.3 8.9 9.3 9.3 10.0

Main Line 12.1 14.6 13.2 11.2 10.6 11.0 10.8 11.5Feeders 8.6 9.3 7.7 7.0 7.0 7.7 1 8.2_ 9.0

Average TEU's/Ship All 221.5 232.4 206.3 188.7 207.6 213 225 240Main Line 239.1 255.8 254.4 231.1 246.2 1Feeders 170.7 1733.4 133.8 137.9 168.7 1

Avcrage TEIJ (serth HourOverall 19.8 17.7 18.7 20.2 23.5 122.9 24.2 24.0Main Line 19.8 117.5 19.2 20.6 23.21 _

Feeders 19.8 18.7 17.4 19.6 24.0Cranc lliatidling Rate

Main Line _

Gross 19.2 [ 17.8_ 19.4 |l 24.2 || 27.3 | _

Net 25.0 22.2 23.4 25.7 27.9 |Feeders

Gross 19.4 17.7 j 19.6 il 22.2 25.1 1Net 25.9j 22.8 j 27.8 23.5 25.3

2. LPK's Incremental Cash Flow from Privatization of KCI (Million Ringgit)

Item 11986 11987 _ 1988 1989 19M9 1991 1992 1993 1199 1995 | 1996

Container ForecasL

'000 RT 4,313 4,933 6,152 7,298 9,136 12,175 14,326 15,758 15,758 15,758 15,758

growth rate 3.5% 14.4% 24.7% 18.6% 25.2% 33.3% 17.7% 10.0% Q0o. 0.0% 0.0%

TEUs 242 276 .326 399 497 607 735 800 800 800 800

growth rate -1.2% 14.0% 18.1% 22.3% 24.7% 22.1% 21.0% 8.9% 0.0% 0.0%o 0.0%

non-container 3,164 3,555 4,174 4,741 5,165 5,868 6,481 6,949 7,290 7,592 7,697

growth rate -23.6% 124% 174% 13.6% 8.9% 13.6% 10.5% 7.2% 4.9% 4.1% 1.4%

Revenues Foregone

Dues and Storagc 16.6 19.0 23.2 27.8 34.7 44.9 53.3 58.5 58.5 58.5 58.5

Container Berth 163.0 71.9 84.9 103.8 129.5 158.0 191.3 208.3 2083 208.3 208.3

Revenues Rccived

Rent, Fixed 17.0 17.0 17.0 t8.7 18.7 18.7 20.6 20.6 20.6 22.6 22.6

Throughput 0.0 0.() 9.6 24.3 40.8 60.0 69.8 69.8 14.9 14.9

Revenues Subtotal 62.6 73.8 91.0 103.3 121.2 143.4 164.1 176.4 176.4 229.2 229.2

Expenditures Foregone

Operations 9.2 13.5 i3.8 10.2 7.5 4.7 11.1 18.8 19.2 19.5 19.9

Maintenance 9.8 14.0 13.6 15.1 15.8 16.3 21.3 27.3 27.8 28.4 28.9

Capital 0.0 12.0 12.0 12.0 26.0 50.0 0.0 0.0 0.0 0.0 0.0

Taxes 10.9 11.6 15.9 19.5 24.5 30.6 32.9 32.6 32.4 45.3 45.1

Subtotal 29.9 51.1 55.3 56.8 73.7 101.7 65.3 78.6 79.3 93.2 94.1)

Extraord. Receipts 56.8 161.5

Net Cash Flow 24.1 (22.7) (35.8) (46.6) (47.4) (41.8) (98.8) (97.8) (97.1) (136.0) 263

NPV- 10o (289-2) in 1986 (512.3) in 1'02

48 -

notes:1986 revenues estimated by assuming that revenues would be unchanged from 1985

Revenues beyond 1991 increases by rate of increase in traffic

Dues and Storage revenues from containers based on difference in revenues from1985 to 1987 divided by the Tons and TEU of 1985. respectively

Container berth revenues based on average unit revenues for 1984 and 1985

Operating and maintenance costs assumed to be difference between average of 1984and 1985 less the average of 1987 through 1989

Operating and maintenance costs assumed to increase by 2% per annum up to startof 1991 when Berth 11 conversion required

From 1991, the operating and maintenance costs increase by 113 to account for Berth11

Reduce shareholding to 20% in 1996 and sell other shares at $M5 per share

Equipment purchased bv KCr include 3 gantry cranes (about M$50 million). 33straddle carriers (about M$33 million). 4 high stackers and to trailers and primemovers.

KCT paid M$26 million for the conversion of Berth 11

49 -

E. KM STATISTICS1. Container Movements to and From Port Kelang (TEU)

1989 1990 1991

Port Kelang To/From | TEU % Totals TEU% Totals TEU% Totals

Kuala Lumpur

Loaded 1,878 4.1% 3,963 7.6% 4,270 8.2%Empty 485 1.2% 780 1.9% 85 0.2%Subtotal 2,363 2.7% 4,743 5.0% 4,355 4.1%

Sungai WayLoaded 7.435 16.2% 8.320 15.9% 8.209 15.8%Empty 2,515 6.1% 1,618 3.8% 1,065 2.0%Subtotal 9,950 11.4% 9,938 10.5% 9.274 8.8%

IpohLoaded 522 1.1% 651 1.2% 759 1.5%Empty i,799 4.3% 2.636 6.3% 4,170 7.8%Subtotal 2.321 2.7% 3.287 3.5% 4.929 4.7%q

PraiLoaded 6,289 13.7% 6,801 13.0% 5.527 10.6%Empty 4,853 11.7% 4.517 10.7% 5.790 10.9%Subtotal 11.142 12.8% 11,318 12.0% 11.317 10.7%e

Total toitrom Port KelangLoaded 16,760 3(6).5% 20.7?1 39.8% 19.744 37.9%

Empty 14,498 35.0% 14-366 34.1% 14.903 280%1oSubtotal 31,258 35.8% 35.154 37.2% 34.647 32.9%

Total For System

Loaded 45,951 52275 52.120Empty 41,432 42.128 53181Sbtotal 87,383 94,403 105,301

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2. Ipoh Container Yard Traffic Statistics

1989 I 1990 1991 1992(Jan-Apr)|Loaded TEU's

Penang 122 2,219 3,939 1,366Kelang 286 3,072 4,880 2.293

Pasir Gudang 269 136Singapore 23 2Padang Besar 6 8 4

Subtotal 408 5,589 8,965 3,663Empty TEU's

Penang 140 1,907 2,587 1.277Kelang 264 2,625 5,440 2,699

Pasir Gudang. 6

SingaporePadang Besar 6 1

Subtotal 404 4,538 8.028 3.982Total TEU's

Penang 262 4.126 6,526 2.643Kelang 550 5,697 10t320 4,992

Pasir Gudang 269 136 6

Singapore 23 0Padang Besar 12 9 4

Subtotal 812 10,127 16,993 7,645

-51 -

Figure 1

Growth in Container MovementsBy Railroad in Malaysia

110,000 ..

100. 000

90,000 .

a 80. 000 ,

70.000 -

*r 60 000'a , 000 oo- .1

O SO000

D 0. 000 ~LL

30. 000

20,000

10, 0001977 1979 1981 1983 1985 1987 1989 1991

1978 1980 1982 1984 1986 1988 1990Year

Ftgure 2

Raiiroad Traf,.c in ,Malaysia1977-199 1

4.20' 62.00

4.00 0\- 0.0

3.80 /-58.003.00' < -4856.00 2

2 3.60 c

o 3.40 -52.00

.2 3.20' -oo

3.00" h 48.00 7

2.80 -. 46.00

2.60' -4A.001977 1979 1981 1983 1985 1987 1989 1991

1978 1980 1982 1984 1986 1988 1990Year

- Tonnage - Revernues

- 52 -

Figure 3

Comparison of All Traffic and ContainerMovements on KTM, 1977-199 1

3.00 -/

O 2.50 -

112.00-

zo O.'O

0.001976 '978 1980 1982 1954 1986 1988 i990

1977 1979 1981 1983 1985 1987 1989 1991Year

- Al1 Traffic (tons) - Containers (TEU)

3. KTM Fleet lnventorvFixed Axke Wagons

Covered Wagons 820 51%Container Flats (20') 297 19%Flat Low 94 6%Log Wagon 123 8%Tankers 74 5%

Others 190 12%Subtotal 1598

Bogied WagonsCovered Wagons 347 13%Container Flats (40') 784 29%Flat Low 242 9%Bulk Cement 600 22%

Log Wagon 112 4%Tankers 448 17%

Others 146 5%Subtotal 2679

- 53 -

F. MIS SYSTEMS DEVELOPED SINCE 1986

System Subsystem KPM LPK

1 Conventional Cargo Manamement Dangerous Cargo x ximport Manifest xBerth Allocation x xShip Tracking/Movement x xForklift System x

Marine System Marine Services xTraffic Conventional IEDlISD x

SWR xClaims x16 Shed Pilot' Import Shipside Proc. x' Expon Shipside Proc. x* Import Shed Proc. x' Export Shed Proc. x

Stevedore Labor Utilization xGang Productivity x

R&D Ship Statstics x x(Statistics) Container Statistics x x

Impon/export Statb. x x2. Commercial Information

Customer Information x x

Shippen Information x x

3. PersonnelPersonnel Administration (Discipline/Medical Leave) x xPersonnel Services (Welfare, Loans. Funds) x xManpower Planning (Recruit/Training) x xPaymroU x x

4. FinanceAccounts Receivable x x

Acounts Payable x xBudget Control x x

Monitor Financial Performance x xPurchasing x xMonitor Purchases x xReceive Goods x xIssue Stock x xStock Control (including Fxed Assets) x xTender Anaysi x x

Bank Reconcilintion x xLoans x x

Fixed Deposits x x

5. EngineerineMaintenance Management x xSpare Parts Registtation/Control x xJob Costing x x

6. AdministrationLand Administration/Property Management xAsses Accounting xLiensing and Contracts x

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Parts of Original MIS Still to be Automated and Schedule for Completion

Conventional Cargo Management Schedule Completion

Marine Operation Staff January 1993

Marine Craft Information January 1993

Stevedore Absenteeism January 1993

Stevedore Bonus and Allowance January 1993

Stevedore Gang Booking January 1993

CCMS Implementation on AllOperation Points January-March 1993

Integration with Billing anJ Statistics January-March 1993

- 55 -

0. COURSES/SEMINAR/WORKSHOP CONDUCTED BY CROWN AGENTS AT MDU

Training Courses Implemented in 1990 and 1992

Courses No. of Presentations

1990

Port Promotion and Marketing Workshop 2Motivation and Delegation 2Team Building and Leadership 2Problem Solving and Decision Making 1Developing Your Staff 1Corporate Planning 2International Trade Facilitation 2Maritime Crime Seminar IPrivatization in the Port Sector Seminar I

1991

Corporate Planning 2Strategic Planning 4Port Promotion and Marketing Course 6Port Promotion and Markcting Seminar 1.Self-Development and Personal Effectivcness and

Time Managemcnt 4Intemational Trade FacilitaLion Course 2International Trade Facilitation Seminar 1Organizational Development and Problem Solving 2

- 56 -

MALAYSIA

PORT KELANG PROjECT (LOANS 2686-MA 2687-MA)

PROJECT COMPLETION REPORT

PART II. PROJECT REVIEW FROM BORROWER'S PERSPECTIVE(Prepared by the Executing Agencies)

Implementation of Bank Finance Civil Works

1. Introduction Following the World Bank's appraisal of the West Port plan in July 1985. itwas recommended that the implementation schedule of the West Port at Pulau Lumut bedeferred. A new Berth 15 would, however. be required to be built as an interim measure tomaintain the conventional cargo capacity when Berths 16-21 wcre converted for containeroperations.

2. The present Berth 15 was occupied by the Marine Base. It was planned that a new MarineBase, complete with a new marine office, be constructed to serve the needs of the marinepersonnel. An existing floating pontoon for embarkation and disembarkation of staff was alsoplanned to be shifted to the new Marine Base once it was readv for use.

3. Marine Base The Marine Basc is comprised of a jetty measuring about 156 m x IO.() m wiLha single lane access bridge. The jetty and bridge were to be of slab and beam constructionsupported by prestressed concrete piles. Dredging for the berthing basins were to be on bothsides of the jettv. Tenders were advertised in local newspaper in accordance with ther.-quirement of the World Bank as well as Pusakabumi, a central body for the regisLration ofcontractors in Malaysia. When tenders closed on January 15, 1986, a total of 18 firmssubmitted their bids.

4. The initial plan for the Marine Base was to use the access road in KCIT (Jalan Tenggiri).However, on award of the tender, KCT did not approve the use of the road and in view ofthe objection by KCT, L.PK was forced to look for another accss road for the Marine Base.With the acute shortage of available waterfront area in North Port, it was not possible torelocate anywhere else except near the vicinity of the initially proposed jetty.

5. An area adjoining to KCI which was outside the customs fence was identified. This pieceof land, with an area of about 1.5 acres, belonged to Selangor State DevelopmentCorporation. It was eventually purchased by LPK for the crcction of the marine office andat the same time providing an access to the Marine Base.

6. Meanwhile a Siltation Study of Kelang Delta was carried out by foreign consultants andindicated that the original position of thc Marine Base was not suitable in view of siltation

* 57 -

problems at the wharves. They recommended that the Marine Base should be in line withthe navigational channel and also to be brought as close to the channel as possible. A fewpositions were tried out by them and eventually it was decided that the marine jetty cope linebe defined by a line set-back 15 m towards land and parallel to the line extending from Berth8 cope to 170 m south of Berth 8 with bearing 120 eastward. The north end of marine jettywas 200 m from Berth 8. Due to the realignment of the marine jetty, the access bridge wasrequired to be extended a further 60 m. Revised drawings were prepared and these were onlyissued to the contractor on January 22, 1987.

7. While waiting for the solution to the problems of access and realignment, the contractorwas unable to set up his site office even though he had already partially mobilized his plantsand equipment, which were left in a temporary storage area outside the port area. Thoughthe contract asked for this work to commence on June 20, 1986. LPK was unable to handover the site until September 30, 1986.

8. Piling was one of the major works of this contract. In view of the initial delays caused tothis project. LPK had requested the approval from World Bank on the use of pile drivinganalyzer (PDA) for testing of piles after the initial pile test was made using the conventionalmethod. The use of PDA would save about 3 weeks of project time and the method wasapproved by the World Banl.

9. The various delays in the project had caused the project to overrun by about 92 days forwhich an extension of time was granted to the contractor. The contractor was alsocompensated for additional works to the contract as well as his claims for extra costs toequipment and personnel as a result of the late handing over of site and the delay in the issueof revised drawings.

10. The work was satisfactoriiv completed bv the contractor on December. 30. I1987 andhanded over to LPK for operations. The electrical installation to the Marine Base was carriedout under a separate contract by the Electrical Department.

11. Marine Office The marine oftice comprised of a three-story office with a five-storyobservation tower at one end and a canteen. Other ancillary works, e.g., substations. Imhofftank, etc. were included in the contract. Because of the lack of land at the site. the buildingswere planned to be built over water with the deck to be supported by prestressed concretepiles.

12 Based on a similar procedures as the tender for the Marine Base, tender notice wasadvertised in the local papers in January 1986. When tenders closed on March 5, 1986, atotal of 31 firms had submitted their bids. The successful contractor was informed andinstructed to commence work as from October 30. 1986. The completion period for thiscontract was 300 days.

13. For similar reasons, the buildings were not able to be built as proposed. An adjacent newpiece of land of about 1.5 acres was purchased form Selangor State Development Corporationfor the new site of the marine office. There were earlier difficulties with regards to theboundaries and survey of this piece of land. The original measurement of 212 feet allocatedwas found to be insufficient to locate the building facing the sea and aftcr an appeal, the

- 58 -

length was increased to 260 feet. The area given was low-lying and of substantial amount ofsand fill was used to bring up the level of the ground. In addition, the ground condition wasconsidered soft and settlement was expected.

14. The layout of the marine buildings was entirely changed in the new site. Many new workssuch as an access road, fencing, car park, turfing, drainage, and landscaping were added.Foundations for the buildings were also changed. While the prestressed concrete piledfoundations for the main office building were retained in this new layout, the foundations forthe other buildings, e.g. canteen, substations, etc. were changed to bakau piled foundations.

15. Due to the change in site and additional works involved, the contract completion date,which was to be August 25. 1987 was extended by LPK for an additional 118 days. Thebuildings were satisfactorily completed by the contractor on December 21. 1987. Theelectrical and air-conditioning installations were undertaken as separate nominatedsubcontracts by the Electrical and Mechanical Departments respectively.

16. Berth 15 For this project, a pre-qualification exercise was carried out. Notices wereadvertized in the local newspapers in April 1986 and also sent to local representatives of theWorld Bank members embassies. Out of a total of 129 firms which collected the Pre-qualification questionnaires. a total of 60 applications were received by the closing date ofJune 12 1986. Based on the evaluation which was reviewed by the World Bankrepresentatives. a total of 30 rirms were pre-qualified. A pre-bid meeting was held in June12, 1987 during which a total of 71 representatives from 21 bidding firms attended. On thebid closing date of August 12. 1987 in which a public bid opening was also conducted. a totalof 16 bids were received.

17. There was some initial deliberations on the front alignmcnt of Berth 15. Afterconsideration of the various options, the management decided to align Berth 15 on Lhc point-to-point basis with Berths 16 and 14. The management had considered this to be the mostappropriate choice in view that the future expansion of container expansion would commencefrom Berth 21 downwards to Berth 15. This being the case, Berth 15 would be the last berthto be containerized and the need to move the crane from Berth 16 to Berth 15 might notarise or would be very minimal. Also, if it was proved to be necessary, then a turntable wouldbe installed.

18. Initially, there was a delay of about a month in handing over the Berth 15 site to thecontractor as the marine crafts and personnel were still located there while waiting to beshifted to the new Marine Base.

19. One of the main features of this project was that the contractor was asked to propose apiling method whereby pile installations would be done using a non-percussion and non-displacement method. The reason for proposing this method was that the accumulatedsediments of un-consolidated silty clays under the existing wharves were only marginally stable.It was feared that any substantial applied forces might cause a collapsc of the unstablesediment which might over-stress the existing piles.

- 59 -

20. The method used a vibro-hammer to bring the steel casing down to the required depth.after which, the soil in the casing was removed. A prestressed concrete pile with a biggerbase and pre-welded to the required length was placed in the casing and sand were then usedto fill the space between the pile and the casing. After this the steel casing was removed.Another problem of pile installation was that sometimes, old existing piles were left in theground and if they were at or near the positions of proposed new piles. the new pile wouldhave to be shifted in order to avoid the existing piles. Modification of the beams would thenbe necessary and eventually extra cost to the project would be needed.

21. At times the founding level of the ground was not as good as expected from the resultsof standard penetration tests performed for each pile position. One solution was to extendthe pile deeper into the ground while another method was to grout the base of the pile. Thecheaper approach of grouting the base of the pile was eventually adopted. Where steelcasings could not be driven as a result of obstructions nearby, a faster but more expensivemethod was adopted where a steel pipe would be vibrated into the ground to replace theprestressed concrete pile.

22 Problems arose when the casings met with some obstructions below sea-bed. The casingswould be damaged while being vibrated into the ground. In order to reduce or minimize thedamage to casings during pile installations, a probing device having thc same diameter as thecasing was used to probe the pile positions before the use of casings. This helped to reducedamage to casings in the many areas, especially at the areas where the old dolphin berthswere located.

23. During the course of the works, the span of the crane beams was also changed from 50'to 90' to cater for container cranes in the futurc. In vicw of this change. some of the pilearrangements and beams were also changed.

24. The initial program of the contractor did not allow for works beyond late nights.However, the method of piling was new to the contractor and the rate of the pile installationswas underestimated in his initial program. After reviewing the overall program. the contractorrealized the need to work 24 hours per day in order to complete the piling as scheduled.

25. At the initiation of the World Bank representative during one of the supervision mission.tests were performed to determine the points of fixity of piles below sea-bed. Two tests werecarried out for steel piles.

26. One of the problems faced during the construction of the dolphin berths was that thecontractor had to cease all work whenever ships carrying dangerous cargo such as premiummotor spirit, regular motor spirit, A-1 jet fuel, etc. were berthed at either berths 22 or 23.The frequency of stopping work was excessive and unforeseen and thus caused a substantialdelay to the construction of the dolphin berths. Consequently, extra costs were incurred dueto standby and idling time of the contractors plants and equipment. An extension of 46 dayswas granted to the contractor for various rcasons, e.g. late handing over of site, delay due toclosure of dolphin wharf and obstructions during piling. The contractor was also compensatedfor the above delays. The contractor, being experienced in marine works, completed theproject satisfactorily on March 7, 1990.

Acoomglishments of the Manpower Development Unit

27. The MDU was established in accordance with the recommendations of Phase I Report.The first resident consultant to act as counterpart to the Head of MDU was replaced afterone year.

28 The training facilities were kept to basic requirements to conform with Phase I Reportrecommendations against "a greatly enlarged training edifice". This, to some extent, affectedthe image of developing a "Center of Excellence". The usefulness of MDU to LPK and otherports was acknowledged by the client system but MDU has yet to upgrade its capability inorder to earn the desired credibility. MDU attempted to market itself through visits anddissemination of course information but experienced problems.

The uncertainty of the privatization issue blurred MDU's vision to some extent and affectedthe commitment to the project.

The rapport between MDU and heads of department on post-training follow-up was lacking.

The programs which were deemed to have been based on training surveys did not fullv meetthe training needs of departments. A proper system to evaluatc training programs wasintroduced. However. follow-up on coursc evaluation was not effectively carried out.

The MDU failed to develop training packages due to the inability to master local institutionalsupport and the lack of proper guidance and material from the consultants/experts.

An activc involvement of MDU in LPK's manpower planning so as to identilv MDIU's tuturetraining and devclopment objectives was not evident.

29. The component budget of M$t.531.056 was 81.11 percent expended leaving an unspentbalance of M$289.069. An addition LPK/MDU budget of M$360./)) was overspent bv$76.818 (21.33 percent).

30. The total number of courses held was 44 including 24 repeats. This compares with the33 types of courses that were originally planned for the two years.

31. The total number of persons trained was 755 (including 151 personnel from port-relatedagencies).

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avuWg cm perday of training = M$9.703.02

aveme cot pertrainee = M$1.643.69

avmge tmnfigdurations = 3 days

maege trgcost per trainee day = M$547.90

wvtage tpercourse = M$28,227.00

32. The resource personnel supplied bv the consultants did not fully meet the expectationsof LPK The resident consultants were not 'training specialists" and could not therefore. giveprofessional guidance on training. They were mainly occupied with administration andcoordination of training programs. Out of the nine orginal specialists, ftve were replaced.Three of them performed below expectations. Handouts and depth of material for somecourses were inadequate or unprofessionally prepared.

33. The plan to develop NIDUs own core of trainers was started but did not make muchprogress. The assistance from other training institutions to help MDU develop local coursematerial has been minimal owing to the poor commitment and unavailability of localconsultants on terms offered by LPK.

34. In the absence of measurable targets and objectives, it was difficult to objectively measurethe shortfall except to draw inferences based on assumptions. interviews and survev responses.T-hese indicate that the general objectives of MDC have been implemented and indicate a50 percent to 60) percent range of achievement overall. Furthermore. the consultantsshortfall has to be considered in line with the saving clause in para. 1.2.8 of Phase I FinalReport which reads:

"To attempt to complete the Project more quickly would not allow sufficient time for learningto be consolidated in training staff or fully proven systcms of control to be established beforehandover."

ImDlementat_on of Railroad Pilot Prolect

35. The advent of the containerization posed a great challenge to the transport industuyparticulary in Malaysia. At the initial stage, the clearance of containers from the Port Kelangto the Kelang Valley and vice versa was undertaken mainly by the road transport operatosThe Malayan Railway had a minimum market share for conveying these containes Theinflux of thousands of containers froin Port Kelang and the expansion or the KelangContainer Terminal present a good opportunity for the Malayan Railway to capture a biggershare in the market. The KTM had to play a role along with its competitors by adoptingintermodalism and door-to-door services.

- 62

36. The KTM had its own right-of-way but this was not to the standard required to run trainsefficiently from Port Kelang to Kuala Lumpur. Furthermore, a terminal for stacking,delivering and receiving the container was needed. The upgrading of the track and theconstruction of the Inland container Depot (ICD), new station and other facilities called forcapital investment. The World Bank, after careful study agreed to finance this project. Thesum of M$10 million as then granted by the government to the KTM to carry out this project.

37. The funds were allocated for the following project components:

MA millionConstruction of sidings at KCT! and Central 1.300

Yard and new stationBrickfields Yard-Phase I 1.700Brickfields Depot-Phase 11 1.800Upgrading of P. Kelang - KL branch 1.500Handling equipment 2.000Training and Technical Asst. 0.711Signalling and Communications 0.395Electrical Installation 0.250Contingencies 0.344Total 10.000

38. The project was executed as follows:

a. Phase I: the construction of the Brickfields Yards.b. Phase 11: the construction of the depot (ICD).c. Upgrading of Port Kelang: Kuala Lumpur Branch Line.d. The construction of tracks within Kelang Container TerminaLe. The construction of new station and vard at Port Kelang Central Yard.f. Additional facilities for Port Kelang: North Port.g. Upgrading the Public Level Crossing next to the Port Kelang Authority HQ.h. The purchase of Handling equipment: Front Loaders and Prime Movers

39. The project was delayed due to various constraints namely the problem of the resolvingconsultant tax liabilities with the Department of Inland Revenue and delays in funding on thepart of the Government of Malaysia.

40. The KTM has increased its market share tremendously as a result of efforts initiated aspart of this project.

Evaluation of Performance for Port Kelanz Proiect

41. Protect Evolution The World Bank's appraisal report was based on the findings of a BankMission which visited Malaysia in July 1985. The appraisal report recommended. among otherthings, that the investments in Pulau Lumut be deferred. The postponement of the WestPort project was due not only to the economic recession encountered then but also to theoverall improvement achieved in port productivity rates.

4. The appraisal report recommended, as an interim measure, that the civil works projects.including the Marine Base, Marine Office. Berth 15 and Dolphin Wharf. be built to maintainthe conventional cargo capacity when Berths 16-21 were converted to container operations.In order to strengthen the institutional framework of LPK and improve on its operationalefficiency, the project included a technical assistance component on management informationsystem (MIS), port training and port marketing. The original budget allocation for the PortKelang loan projects amounted to US$16.7 million.

43. The appraisal report and project conception was the outcome of preparatory discussionsheld between the World Bank mission team and senior port management in 1985. The reportalso recommended that a mid-term review be carried out in 1988 in order to reassess theport's capacity requirements and the timing for commcncement of the West Port Project.

44. Good support was received from World Bank supervisory mission visits once or twice ayear in the implementation phases of the civil works and technical assistance components.The purpose of the supervisory visits was to review progress and ascertain the latest projectstatus, identify outstanding problems and discuss actions to be taken with senior portmanagement and the implementing departments.

45. Owing to the time lapse between the project evolution and implementaLion. stalt transters.imminent privatization, re-thinking of the project's scope of work and so on, there was achange in focus which invariably affected some parts of the project implementation schedulesand activities.

46. Difficulties were encountered by the implementing departments in identitication andselection of consultants for the technical assistance components as these activities were newto LPK Tenders called were by way of invitation and in most instances the endorsement ofthe World Bank was sought. Since this was the first time LPK was involved with the WorldBank, there was some difficulty initially in understanding the procedures and requirement ofthe World Bank.

Performme of the Borrower

47. Impact of Port Privatization on Port Kelang Loan Projects The privatization of thecontainer terminal handling operations to Kelang Container Terminal (KCT) in March 1986did not adversely afiect the implementation of the project as the identified activities excludedthe container department.

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48. When privatization of the rest of the port services was announced in 1989, theimplementation of the outstanding technical assistance components, especially Phase 2 of thetraining component, were affected.

49. After this announcement, it was still not clear how and who would manage the proposedManagement Development Unit (MDU) during the post-privatization era. This issue wasdeliberated at length by management. Consent to proceed with Phase 2 was based on theneeds of Port Kelang to have a body of trained men to manage and operate the port services.efficiently and professionally. However, the establishment of MDU, originally a three-vearprogram. was shortened to two-year with little change to its terms of reference. The thirdyear training improvement efforts were to be carried out by the LPK staff with some supportfrom local/foreign training consultants.

50. Generally there was good support from senior port management for the projectsundertaken. Coordination of efforts between the departments was prevalent. This could beseen in the drafting of the TOR's and scopes of work for the technical assistance componentsto ensure the desired results were achieved during the project implementation stage. In-house steering committees were established to coordinate and monitor the componentsundertaken from the time of commencement until completion.

51. Local counterparts were drawn from the departments concerned to work closelv with theproject consultants on an attachment training basis in order to acquire the necessary cxposureand experience and eventually to take over the leadership role from the consultants.

52 Senior port management and members of the Board were kept informed of the civil worksprojects and the tcchnical assistance components from time to time through the submissionof progress reports and memorandum tor necessary feedbacks and endorsements of theproject undertaken.

Financial Performance

53. Audited Accounts for the year 1987 to 199.) were not furnished to the World Bank asscheduled due to delays in the performance of the external auditors and the proceduralrequirements of the government. Understandably, the deadline for submission of the auditedfinancial reports to World Bank is by September the following year.

54. The agreed operating ratio of 73 percent was not achieved for the years 1987 (89 percent)and 1988 (78 percent) but in the subsequent years, the agreed operating ratio was achieved.ie. 1989 (68 percent), 1990 (59 percent) and 1991 (65 percent). 1987 and 1988 were badyears for LPK following the takeover of the lucrative container operations by KCr.However, the operating ratio improved in 1989, 1990 and 1991 due to a dramatic increase inport traffic and rise in supplementary base rental above the agreed threshold volume collectedfrom KCr. The excess labor issue, comprising mainly stevedores and clerical stafE is nownon-existent due to the increase in port trafTic handled and statf turnovers.

55. No major problem was encountered on loan disbursements. Periodical supervisorymissions proved helpful where problems relating to disbursements could be discussed orbrought back to the bank for further clarirications. Response time was satisfactory.

- 65 -

56. LPK is still in communication with World Bank over a disbursement equivalent to poundsterling 54,065.03 in respect of Application No. 41 for the Phase 2 port training component.Based on the January to April 1992 estimates, the Bank's outstanding disbursement to LPKis approximately US$140.000.

Technical Assistance Compognents

57. Training Project implementation of the Phase 2 port training project was fraught withdifficulties from the onset. Imminent privatization resulted in a cut in the training budget inview of uncertainty over the fate of MDU and whether it would remain with the PortAuthority or would operate as a department of the privatized company. In the light of theproposed UNCTAD/Trainmar-sponsored courses in basic training, the Ministry of Transportwas committed to implement a basic training program for management development of theport officers in group A and B.

58. Delay in the privatization exercise caused corresponding delays in procuring the necessarytraining facilities such as training venue and equipment. The LPK officers appointed toMDU did not receive training in their new field. The two resident consultants on trainingwere not seen to be management development specialists but rather project coordinators.Good cooperation and coordination between departments were torthcoming despite thelimited resources except in the releasc of senior officers for training as trainers and localresource specialists.

59. The MDU has medium term plans to develop the resource personnel course material andtraining packages and to establish a training network with other training center. Its long-termobjective is to establish itself as the center of excellence in management development for allports in the country.

60. MIS The MIS consultancy study carried out in 1987 identified 60 subsystems to bedeveloped which were grouped into 7 major systems to achieve the MIS objectives of LPKHowever. the consultant's recommendation on hardware procurement of five PC's and onesuper-micro system was found to be inadequate to implement the MIS project proposals. Inthe course of the MIS implementation. LPK appointed Price Waterhouse Associates in 1989to review the MIS project. Among its major findings were that the proposed conventionalcargo management system (CCMS) was conceptually sound and the functional specificationsprovided an adequate framework for the eventual development of the system

61. To date, LPK has acquired and installed one concurrent super-mini based at itsheadquarters to manage the Financial Systems and port statistics and one Altos super-microstationed at the control shipping office to develop the CCMS. In addition, another 45 PC'swere acquired and installed at the various departments of LPK to meet local processingneeds. The MIS software development was done using LPKs internal resources.

62. Replacement of the old IBM 4331 computer system by a new Concurrcnt XF610 super-mini computer system in 1988 was done through internal financing. The reasons why WorldBank funds were not used for the hardware procurement were as follows:

- 66 -

the urgency in replacing the old IBM 4331 with a new computer system inview of the expiry of the IBM contract; and

the inability to obtain World Bank's endorsement on the tender specirications dueto the critical time constraints.

63. The implementation of the CCMS project as part of the original MIS is scheduled forcompletion by March 1993. The major activities identified to be carried out includeimplementation of the CCMS at all operational working points and systems integration withthe port billing and statistics system.

64. Marketing Attachment of local marketing officers to the port marketing consultants duringthe project proved beneficial and provided valuable feedback to the officers. However.exposure to international marketing is still somewhat lacking. Management's commitment tomarketing and its desire to create the right business environment have resulted in seriousdiscussions on implementing a number of load-centering strategies. The strategies to bedeveloped are:

Free Commercial ZoneInland PortsDistribution Parks and cargo consolidation center.Port Development PlansPort Promotion ProgramsElectronic Data InterchangePort Privatization Plans.

65. Continuing efforts are being made to develop a strong database to mect the corporatemarketing needs of Port Kelang. Mark-et research and port promotion activities so tarundertaken include customer research, shipping information and disbursement, portintelligence, comparative cargo throughput costs analysis. bottleneck studv. etc. On the otherhand, direct marketing functions are gradually being reduced in tandem with privatization ofthe port services. The technical assistance on marketing was successfully carried out. Itachieved its objective in creating a market-driven culture among the officers and an awarenesson the importance marketing in the port and shipping industry.

66. Civil Works All civil and engineering works included in the Port Kelang Loan Projectshave bene satisfactoriy completed. These indude the construction of Marine Base, MarineOffice, Berth 15 and the terminal breasting dolphins. Project tender notices were advertisedin the local newspaper in accordance with the requirements of the World Bank as well asPusakabumi, a central body for the registration of contractors in Malaysia.

67. Owing to unforeseen problems, the completion schedule of some of the projects wereaffected. Due to the change in site and additional works involved. the contract completiondate of the Marine Office was extended by LPK for an additional 118 days and the MarineBase Project for 92 days. An extension of 46 days was also granted to the contractor forBerth 15 due to late handing over of site, delay due to closure of dolphin wharf andobstructions during piling. The contractors were compensated for the above delays.

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68. Berth 15 which was designed for container handling operations was affected by the portrationalization plan as management decided to develop the second Container Terminalcommencing from Berth 21 downwards to Berth 16. Berth 15 will be equipped with conveyorhandling systems and back-up storage facilities to handle palm kernel expellers and part ofthe cereal traffic in North Port. Despite the change in status, this multi-user berth alsoprovides the additional berth capacity for conventional break bulk ships as the conversion ofother conventional berths to container operations is implemented on planned schedule.

69. Relationship teen the Bank and the Borrower There was close interaction andcoordination between the Bank and the Borrower in respect of identification of consultants.tendering processes and technical evaluation exercises. The frequency and usefulness of thesupervisory missions was acceptable to the LPK as well as the implementing departmentsespecially where problems related to rinance, civil works and technical assistance projects werediscussed or brought back to the Bank for further classifications.

70. As part of the project loan arrangements, LPK as the Borrower has been sending itsprogress reports to the World Bank on a quarterly basis from the time of projectimplementation until completion. Problems encountered in the implementation exercise andthe progress achieved to date were highlighted in these reports tor the necessarv attentionand action of the Bank. With the exception of the usual acknowledgement letters. there werehardly any written comments on the quarterly reports from the World Bank.

71. Following the signing of the loan agreement in 1985, LPK has periodically reviewed thestatus of the projects. especially the tinancial aspects. and these reviews resulted inadjustments to be made in the loan agreement. The cancellation of the surplus loan fundsfrom the Bank arose as LPK decided to drop projects. such as the container stacking yard.and in view of the latest development and changes that took placc in the port. Managemcntwas also concerned about Lhe size of the commitmcnt charges and procecded to finance someof the projects with LPK's own funds so as to reduce the loan repayment requirements. Theoverall costs of ongoing civil engineering projects were also less than what was originallyestimated.

72. The Bank and Borrower understood the reasons and implications for the cancellation ofthe surplus loan. Requests for loan cancellation amounting to US$9.2 million and US$2.0million were made by LPK in 1988 and 1991, respectively.

Evaluation of Performance for the Railrad Pilot lProect

73. World Bank's Perfornance In the course of the implementation of the project. the KTMhad support from the Bank staft The World Bank helped the KTM in obtaining all theinformation required.

74. Mec*i gs with the Department of Treasury were conducted on number of occasions todiscuss the implementation on the project.

75. The Borrowers Performance The project was delayed due to the Malaysian Governmentpolicy during the recession. The budget was withheld by the government and the clearance

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of certain aspects of the Inland Revenue Department's regulations. The consultant had toclarify with this department on the subject of taxes.

76. The KTM overlooked the Bank's procurement procedures.

77. The KTM played a role in constructing of the Ipoh Cargo Terminal (a diy port),Brickfields Container Depot and Padang Besar Container Depot. The outcome and theknowledge gained during the training session, enabled the KTM to construct the three depotsmentioned.

78. The level of interaction/cooperation given by the consultants was beyond expectation.

79. No delay occurred once the implementation of the project began.

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OR KELANG PRE&Qn (LOANS 26f&MA. 2687-MA)

PROJC COMEWON EORT

PART m . STATISTICAL INFORMATION

1. Related Bank L,oans and/or Credits

Loan Tttle Purpose Fiscal Year StatusApproved

Sabah Port To improve the facilities to scrve the expanding 1971 Completed PPAR No. 1244,LN 774-MA economy ol tuc State of Sabah 776 has been

issuedSecond Sabah Port To rehabilitate and expand(l tihe port facilities at Tawau 1978 Completed PCR No. 6110,LN 1580-MA by repairing the existing qlutay and providing new berths 3/86 has been

and backup facilities to increase port capacity. This issucdproject also aimed at developing the institutional

strength of the Sabah 1'orts Authority by ticusing onoperations and training

0

.71.

2. Project Timetable

Date Actual Date ActualItem Loan 2686 MA Loan 2687 MA

Inidal Project Brief March 1985 March 1985Preparation Mission May 1985 May 1985Appraisal Mission July 1985 July 1985Loan/Credit Negotation March 1986 March 1986Board Approval April 1986 April 1986Loan Signature June 1986 June 1986Loan Effectiveness August 1986 August 1986Loan Closing December 1989 December 1991Loan Completion December 1989 June 1992Loan Account Closed April 1990 May 1992

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3. Project Implementation

Implementation Schedule

Planned Actual

Activity Start Finish Start Finish

Port Project

Construction

Marine Base June 86 June 87 Sept 86 Dec 87Berth 1S Jan 87 Dec 88 Jan 88 Mar 90Dolphins Jan 87 _a._ 88 Feb 88 Feb 89

Technical Assistance

Marketing Jan 87 April 88Training, M.D.U. J May89 June 88 Dec 91MIS (Phase I) _ Dec 86 Jan 89

Railway Project

Technical Assistance Jan 88 June 89

Trackwork Oct 88 Feb 89

Brickfields Depot March 87 Sept 87 Sept 88 April 89

Equipment April 87 Sept 87 Oct 88i March 8)

.73.

4. Loan Disbursements

Fiscal Loan/Credit Estimated Actual Actual % of Actual % ofYear Disbursements Cumulative Cumulative Estimated Revised

Quarter.Year

1987 3.86 150 0%4.86 300 0%1.87 1,300 150 12% 2%287 3,300 340 10% 4%

1988 3.87 5,300 590 11% 8%4.87 8.300 870 10% 11%1.88 11,300 1,140 10% 15%2.88 13,330 2,230 17% 29%

1989 3.88 14.800 2.450 17% 32%4.88 16.300 2.800 17% 37%1.89 17,300 '3,720 22% 49%2.89 18.300 4.420 24% 58c%

1990 3.89 18,550 5,230 28% 69%4.89 18,800 6,260 33% 82%1.90 18.800 6,790 36% 89%2.90 18.800 7,000 37% 92%

1991 3.90 18.8(0 7,040 37% .93C@%

4.90 18.8a0/ 7.070 38% 93%1.91 18,800 7,350 39% 97%2.91 18.800 7.350 39% 97%

1991 3.91 18,800 7.440 40% 970%c4.91 18,800 7,430 40% 100%1.92 18,800 7,430 40% 100%

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Figure l.aDisbursements - 2686-MA and 2687-MA

Disbursement ProfileLoans 2686-MA and 2687-MA

.20

$16 ;,

$141 /

X $12

$6- ,..l

So -3.86 1.87 3.87 1.8S 3.88 1 89 3.89 1.90 3.90 1.91 3.91 '.92

4.86 2.87 4.87 2.88 4.88 2.89 4.89 2.90 4.90 2.91 A 91

Oucrter.Year

Figure l.bDisbursement Protile Port Kelang and Malavsian Railwavs

DEsburserment Pro-ilePort Kelang and Malaysian Railways

$6.0

$5.0i ~.$4.0 - _ _ _ _ _ _ _ _ _ _ _

$23.0-

1.87 3.87 1.88 3.88 1.89 3.89 1.90 3.90 1.91 3.91 1.922.57 4.87 2.88 4.88 2.89 4.89 2.90 4,90 2.91 4.91

Quorter.Year

Port Kelang Malaysian Railways

-75.

5.A Project Costs (Mil}ions Ringgit)

Appraisal Estimate ActualItem Foreign Foreg

Local Exchange Total Local Exchange Total. Costs Costs Costs Costs

Loan Account 2687 MA Port Kelang

Civil worksMarine Base 3.8 3.9 7.7 4.5 4.5

Marine Office 0.0 2.3 2.3

Berth 15 & 19.9 20.7 40.6 20.9 20.9

Oil Berth Dolphins 0.7 0.8 1.5

Backup Area 3.4 3.6 7.0Engineering Surveys 0.7 0.5 1.1

Subtotal 28.5 29.4 57.9 27.8 0.0 227.8

Training and Technical Assistance

Consultant Services

MIS 0.1 0.1 0.2 0.2 0.2

Marketing 0.1 0.2 0.2 0.2 0.6 ().8

Training 0.5 1.0 1.5 1.2 0.3 1.5

Equipment 0.8 0.6 1.4 0.4 1.5 1.9

Subtotal 1.5 1.9 3.3 I.( 2.4I 4.4_ _ _ _ _ _ _ J _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

Loan Total 30.0 31.3 61.2 29.8 2.4 32.2

Loan Account 2686 MA Kerctapi Tanah Melayu

Equipmcnt and Material 1.2 1.6 2.9

Civil Works 3.3 3.5 6.8

Consultancy Services, 0.5 0.5Trahiing

Subtotal 1.9 4.3 6.3 4.5 5.7 10.2

ContingenciesPhysical 3.2 3.6 6.8 0.6 0.6

Price 4.4 6.9 11.3 0.3 0.3

Subtotal 7.6 10.5 1&1 0.0 0.9 0.9

Loan Total 95 14.8 24.3 4.5 6.5 11.0

Combined Loan Total 39.5 46.1 85.5 34.3 8.9 43.2Comments: The Difference between estimates and actuals for the port project was a

result of low bids and subsequent loan cancellations, Totals may not agree dueto rounding

-76-

5.B Project Costs (Millions US$)

Item Appraisal Estimate Actual

Foreign ForeignLocal Exchange Total Local Exchange TotalCosts Costs Costs Costs

Loan Account 2687 MA Port Kelang

Civil works

Marine Base 1.55 1.60 3.15 1.72 1.72

Marine Office 0.00 0.88 0.88

Berth 15 & 8.12 8.45 16.57 7.89 7.89

Oil Berth Dolphins 0.30 0.31 0.61 0.00

Backup Area 1.40 1.46 2.86 0.00 0.00

Engineering Survevs 0.27 0.18 0.45 0.00

Subtotal 11.64 12.00 23.64 10.49 0.00 10.49Training and Technical Assistance

Consultant Services 0.26 0.50 0.76

MIS 0.00 0.09 0.09

Marketing 0.00 0.07 0.22 0.29Training 0.00 0.45 0.11 0.56

Equipment 0.0( 0.15 0.56 0.71Subtotal 0.26 0.51) 0.76 0.76 0.90 1.65

Loan Total 11.90 12.50 24.40 11.12 0.90 12.U2Loan Account 2686 MA Keretapi Tanah Mclavu

Equipment and Material 0.34 0.25 0.59 0.46 0.60 1.06

Civil Works 0.78 1.77 2.55 1.22 1.31 2.52

Consultancy Services, 0.20 0.20Training

Subtotal 1.12 2.02 3.14 1.68 2.11 3.78

ContingenciesPhysical 130 1.45 2.75 0.22 0.22

Price 1.79 2.83 4.62 0.10 0.10

Subtotal 3.09 4.28 7.37 0.00 0.32 0.32

Loan Total J 4.21 6.30 10.51 1.68 2.43 4.10

Combined Loan Total 16.11 18.80 34.91 12.76 3.32 16.13

.77.

S.C Project Financing (million USS)

PlannedIBRD/IDA Expenditure (Loan/Credit) Final

Categories Agreement

Loan 2687-MA 16.7 5.5Part A 12.0Part B 0.6Part C 0.7Unallocated 3.4

Loan 2686-MA 2.1 2.1Civil Works 0.76Equipment, Materials 0.74Consultant Services 0.37Unallocated 0.24

Government funds 16.1 8.5Total 34.9 16.1

-78-

6. Economic Impact - Summary

Appraisal Actual at FinalDevelopment

Economic Rate of Return 30.5% 18%

Underlying Assumptions Based on Scenario:Comparison with no investment in facilitiesConversion of Berths 8410 to container berths in 1986Conversion of Berth 11 to container berth in 1992Conversion of Berth 19-21 to mixed container/conventional 1993

Comments1. Comparison with accelerated development of West Port producedpositive NPV2. Costs for new Marine Base included as part of cost of developmentof Berth 15. no direct benefits from this structure

7.a Financial Performance Indicators. LPK

Performance Indicators 1984 1985 1986 1987 1988 1989 1990 1991

Current Ratio 3.53 3.89 6.85 6.89 5.08 4.62 3.47 2.32_____ .__________ ____ ___1.2z. 09 089l- 078 Operating Ratio 0.66 0.74 .90 89 0.78 0.68 0.59 0.65

Working Ratio 0.51 0.59 0.72 0.70 0.63 0.54 0.49 0.57

Net Income/OperatRevenue 0.14 Q1O1 0.05 0.09 0.15 0.23 0Q29 0.27Return on Assets 12.5% 11.5% 8.9% 9.2% 11.0% 14.6% 19.1% 19.1%

Return on Equity 10.3%c 7.4% 1.7% 2.7% 5.3% 8.2% 10.8% 10.4%,Return on Capital Employed 8.5% 7.6% 4.9%1 5.2% 6.3")% 8.;M% 1 0. 1% 10.0%Debt Seice Coverage 2.35 2.05 0.84 1.04 1.56 2.48 1.98 5.19Long Term Debt/Total Equity 1.40 126 0.83 0.76 0.63 0.52 0.38 0.26Acid Test Ratio 3.45 3.80 6.80 6.85 5.05 4.59 3.45 2.31

7.b Financial Performance Indicators, KTM

Performance Indicators 1989 1990) 1991

Long Term Debt/Total Equity -3.11 -2.68 -2.58Operating Ratio 1.26 1.17 1.21Working Ratio 0.98 o.93 0.97Operating Surplus/Operating Revenuc -0.26 -0.17 -0.21Current RaiLio (.54 (o.34 11.22Acid Test Ratio 0.30 0.19 0.10

8. Studies

Studies Purpose as Defined at Appraisal Status Impact of Study

Bottleneck to identify and documaent the Completed Continuing dialogueStudy bottlenecks which impede the smooth on need to deregulate

flow of goods into and out of the port haulage of containersand to prepare an action plan

West Port added later with intent to update the Completed Construction nowevaluation of the requirement and underway in accord-timing for new facilties on Pulau ance with the study'sLumut schedule

comments: Bottleneck study conducted as part of marketing study,West Port Study conducted at request of LPK and funded directly by Bank

9). Status of Covenants

Section DeadlineCovenants (Brief Description) Applicabhe for Status

ComplianceLoan 2686-MA

KTM shall submit audited financial statments, audit report and a 4.01 Complied with followingseparate report on SOE's by 9/3(0 of each year delays in submittal

Prior to compeltion of the National Ports Study, the GOM shall only 5.02 Complied withallow investmenis in new port development estimated to cost more than

M$10 million after consultation with the Bank

Borrwer shall implement an action plan agreed to by the Bank to 5.03 6/30/87 Complied witheliminate the impediments to the glow of goods to and from Port Kelang

Loan 2687-MA

LPK shall furnish the results of a study on the elimination of 3.03 12131/86 Complied withimpediments to the flow of goods to and Irom Port Kclang

LPK shall cany out an agreed upon training program 3.04 _ _ Complied with

LPK sball submit audited financial statments, audit report and a separate 4.01 Complied with followingreport on SOE's by 9/30 of each year delays in submittal

LPK shba operate under competent management, maintain its faciltiies 5.01 Complied with subjectand its rights and power. to changes brought

about by privatization

LPK shall complete the revaluation of its fixed assets 5.02 12/31/87 Complied with

LPK shall fumish the Bank with a plan to revise its tariff structure 5.03 12/31/87 Complied withreflecting the actual cost to provide the port services.

LPK shall maintain for each year after its fiscal Year ended on 12/31/87 5.04 Complied with for allan operating ratio not higher th.in 73% years except 1988

10. Bank Missioms

Ste of prec Cyce MOab Numnber o I)0av in Specialization Ipzfora lps of Ctnucet5Year Petuons HIAlM Reptesented Rating Status Problems

ib gh Appri_ _ _

Prpwatio (with ADB) may 1985 3 1 2 Transport Fontimast IYngineer

FinandalC AnalySt

Appbas July 198S 3 19 'rransport Economist IEIngineter

Intancial Analyst

Apprais through Board Approal

Board Appra througt Effectiveness

Supervision Febnuty 1987 3 n ransport EconomistEngineer

F-inancial AnalystSuperviion November 31 t Transpon licotirmiss 2 Technical Delays in Ralw project.

1987 Fingineer Pon civil works and tiningFinancial Analyst projct; probklms with KThM

understanding procuremet procedure'

Supervision June 1988 I 2 Transport Economist 2 lechnical Delay in Marine Base O

Supevision October 1988 2 Transport Fxonomist reduction in amount of toanEngineer

Supervion January 1989 3 3 Transport EcCnomisi 2 Technical Delays in Civil Works,Fnginr-er submission of audit reports

Fincial Analyst and tariff revision

Supervision May 1989 I 4 Engineer I

Supervision October 1989 3 14 Trmnsport EconomistEngineer

Financial Analyst

Supervision Febmraty 1990 nrasx)n port on onmu 2 Technical Delays in training componentE:ngineer and lack of commitment by manage.men

Supervision October 1991 1 s Engineer 2 Technical Problems between consultants and I Ilk1with regards to training program

Total Missions I I n2 )ays in Field

y-ftatus Column: I -prolkm Iree or minor probkms; =um crate pROTbIms: 3= mar"jor prolerms