ASIAN DEVELOPMENT BANK RRP: BAN 36105

REPORT AND RECOMMENDATION

OF THE

PRESIDENT

TO THE

BOARD OF DIRECTORS

ON A

PROPOSED LOAN

AND TECHNICAL ASSISTANCE GRANT

TO THE

PEOPLE’S REPUBLIC OF BANGLADESH

FOR THE

CHITTAGONG PORT TRADE FACILITATION PROJECT

November 2004

CURRENCY EQUIVALENTS (as of 1 November 2004)

Currency Unit – taka (Tk) Tk1.00 = $0.0169 $1.00 = Tk59.30

The exchange rate of the taka is determined under a floating exchange rate system. In this report, a rate of $1.00 = Tk58.0 was used, the rate prevailing at the time of completion of the project preparatory technical assistance.

ABBREVIATIONS

ADB – Asian Development Bank CHC – Customs House of Chittagong CCT – Chittagong container terminal CFS – container freight station CPA – Chittagong Port Authority CTMS – container terminal management system EA – executing agency EIRR – economic internal rate of return FCL – full container load ICB – international competitive bidding ICD – inland container depot IEE – initial environmental examination IT – information technology LCL – less than container load LIBOR – London interbank offered rate MARPOL – Marine Pollution and Prevention Convention MIS – management information system MOC – Ministry of Communications NMCT – New Mooring container terminal PEIP – port efficiency improvement plan PSIC – port service improvement committee RHD – Roads and Highways Department TA – technical assistance TOR – terms of reference US – United States VAT – value-added tax

WEIGHTS AND MEASURES

km – kilometer m – meter ppm – parts per million TEU – twenty-foot equivalent unit

NOTES

(i) The fiscal year (FY) of the Government ends on 30 June. (ii) In this report, "$" refers to US dollars.

This report was prepared by a team comprising P. N. Seneviratne (team leader), K. Ahmad, A. Faruque, F. Garcia, T. Nakazaki, D. S. Pyo, and D. Utami.

CONTENTS

Page

LOAN AND PROJECT SUMMARY iii MAP vii I. THE PROPOSAL 1 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1

A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 3

III. THE PROPOSED PROJECT 5 A. Objective 5 B. Components and Outputs 5 C. Special Features 7 D. Cost Estimates 8 E. Financing Plan 10 F. Implementation Arrangements 10

IV. TECHNICAL ASSISTANCE 13 V. PROJECT BENEFITS, IMPACTS, AND RISKS 14 A. Economic Benefits 14 B. Social Benefits 14 C. Financial Benefits 15 D. Risks 15 VI. ASSURANCES 16 VII. RECOMMENDATION 18 APPENDIXES 1. Project Framework 19 2. Transport Sector And Port Subsector Analysis 22 3. External Assistance to the Port Sector 33 4. Port Efficiency Improvement Plan 35 5. Summary Initial Environmental Examination 37 6. Summary Cost Estimates and Financing Plan by Project Components 41 7. Implementation Schedule 46 8. Indicative Contract Packages 47 9. Project Performance Management System 48

10. Economic and Financial Analysis 50 11. Summary Poverty Reduction and Social Strategy 56

. ii

SUPPLEMENTARY APPENDIXES (available on request) A. Short Resettlement Plan B. Outline Terms of Reference for Consulting Services for Detailed Design and Supervision

of Construction of Port Service Road, Oil Waste Receptor, and Oil Waste Separation Plant and Reconstruction/Upgrading of Internal Roads

C. Outline Terms of Reference for Consulting Services for Supervision of Computerization of Port of Chittagong

D. Outline Terms of Reference for Consulting Services for Upgrading Computer Systems of Customs House of Chittagong

E. Outline Terms of Reference for Consulting Services for Supervising Supply and Installation Contract of Scanners in Customs House of Chittagong

F. Outline Terms of Reference for Consulting Services for Detailed Design and Construction Supervision of Connector Road

G. Outline Terms of Reference for Consulting Services for Improving the Efficiency of Transport Logistics in the Dhaka-Chittagong Corridor

H. Outline Terms of Reference for Consulting Services for Improving the Operational Efficiency of the Port of Chittagong

I. Economic and Financial Data

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LOAN AND PROJECT SUMMARY

Borrower Bangladesh Classification Targeting classification: General Intervention Sector: Transport and communication Subsectors: Ports, waterways, and shipping; and

roads and highways Theme: Sustainable economic growth Subthemes: Fostering physical infrastructure

development; and addressing information and communication technology issues

Environment Assessment

Category B An initial environmental examination was undertaken and a summary is provided in Appendix 5.

Project Description The proposed Project comprises three main components;

Chittagong Port Authority (CPA) component, Customs House of Chittagong (CHC) component and Roads and Highways Department (RHD) component. The CPA component comprises installation of a computerized container terminal management system (CTMS), measures to improve port area water quality, and improvements to the intra-port roads and bridges. The CHC component comprises activation of ASYCUDA++ (an automated system for customs data management) with connections to the CTMS, and installation of container scanners needed to meet new security initiatives. The RHD component is construction of an access-controlled link (connector road) from Chittagong port access road to the two container terminals at the port of Chittagong.

Rationale

Unless immediate measures are taken to lower the country’s shipping and port costs, which are twice as high as those in some neighboring country ports, the trade competitiveness of Bangladesh will rapidly diminish. A fundamental source of high costs at the port of Chittagong is container yard congestion, due partly to paper-based terminal management and document processing, and limited road access. Additionally, the customs clearance process requires documents to be manually moved through several stages requiring 48 endorsements, thereby lowering port capacity and encouraging corruption. Accidental spillages of oil and wastewater containing oil from ships occur frequently in the port area. Management of such incidents according to the International Convention for the Prevention of Pollution from Ships (MARPOL 73/78) requires an immediate investment in spill cleanup equipment and an oil-waste treatment facility. Likewise, the port needs to meet national and

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international security standards, which require the installation of container scanners.

Objective

The Project will increase the capacity of the container terminal at the port of Chittagong and enable international port security and environmental standards to be met. In the medium term, the Project will lead to lower shipping and port charges, which will foster more international trade.

Cost Estimates

The total cost of the Project is estimated at $41.3 million equivalent. This figure includes value-added tax, cost of consulting services, physical and price contingencies on all base costs, capitalized interest, and commitment fees charged by Asian Development Bank (ADB) during implementation.

Financing Plan Source/

Component Foreign

Exchange ($ million)

Local Currency ($ million)

Total Cost

Percent of Project Cost

ADB 30.6 0.0 30.6 74.1 Government CPA Component 0.0 2.7 2.7 6.5 CHC Component 0.0 0.6 0.6 1.5 RHD Component 0.0 7.4 7.4 17.9

Total

30.6

10.7

41.3

100.0

Loan Amount and Terms

ADB - Asian Development Bank; CHC - Customs House of Chittagong; CPA - Chittagong Port Authority; RHD – Roads and Highways Department Note: CHC and RHD components will be financed through government budgetary allocations. CPA component will be financed out of its own funds. Source: ADB estimates. A loan of 30,600,000 from ADB’s ordinary capital resources will be provided under ADB’s LIBOR-based lending facility. The loan will have a 25-year term, including a grace period of 5 years, an interest rate determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility, a commitment charge of 0.75% per annum, and such other terms and conditions set forth in the draft Loan Agreement. Accordingly, ADB will finance all foreign exchange costs, amounting to 74.1% of the total project cost. The Government will finance all local currency costs, which amount to 25.9% of the total project cost. ADB loan proceeds will be made available by the Government to RHD and CHC through budgetary allocations. Amounts allocated to CPA will be subject to repayment to the Government under a subsidiary loan agreement with terms and conditions acceptable to ADB.

Period of Utilization

1 July 2005 to 1 January 2009

Estimated Project Completion Date

1 July 2008

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Executing Agency Implementation Arrangements

CPA, CHC, and RHD will serve as the executing agencies (EAs) for the respective components of the Project. Each EA will establish a project implementation unit to administer the component under its jurisdiction. A project coordination committee chaired by the chairperson, CPA, comprising commissioner, CHC and additional chief engineer, RHD, will serve as a channel of communication among the three EAs. The committee will meet every 3 months, or more often if necessary, to review progress and resolve outstanding issues pertaining to the Project.

Procurement All procurement to be financed under the ADB loan will be carried out in accordance with ADB’s Guidelines for Procurement. Contracts valued in excess of $500,000 for goods and $2.0 million for civil works will be procured through international competitive bidding (ICB). Procurement of civil works in the RHD component, and the supply of goods for computerization, environmental protection, and security will follow ICB procedures to encourage participation of international competitors and joint ventures through domestic contractors.

Consulting Services

Five separate international consultancy firms financed by the loan will be recruited by the respective EAs in accordance with ADB’s Guidelines on the Use of Consultants using ADB’s quality- and cost-based selection mechanism: CPA will recruit two firms to: (i) design and supervise the construction of the internal road

system and the environmental management facilities; and (ii) supervise the procurement and implementation of the

CTMS and the management information system. CHC will recruit: (i) United Nations Conference on Trade and Development on

a direct basis to activate the manifest module in ASYCUDA++ and other on-the-job training to CHC staff as a sole supplier; and

(ii) a firm to supervise the procurement of scanners and on-the-job training on use and maintenance.

RHD will recruit a firm to design and supervise the construction of the connector road.

Project Benefits and Beneficiaries

The primary economic benefits would be the lower overall costs due to shorter ship turnaround and container dwell times. The economic internal rate of return is estimated to be about 21.6% and the net present value is $61.5 million at a discount rate of 12.0%.The Project will also help increase Chittagong’s potential to be a gateway port for international trade of India, Nepal, and Bhutan.

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Risks and Assumptions

Insufficient capacity of EAs to attract and retain staff skilled in automated processes is the most likely, but a minimal, technical risk. Technical assistance will be provided to train existing staff and to formulate a human resource development plan to minimize that potential risk. It is assumed that the growth in traffic, fueled largely by increased trade and lower non-trade barriers, will continue as projected. Marginal sensitivity of the economic internal rate of return to lower than projected traffic demonstrates that economic risks are minimal. It is also assumed that the Government will support the respective agencies in implementing the key aspects of the port efficiency improvement plan, such as relocating customs auctioning and container stuffing activities to off-quay sites, needed to derive long-term cost reductions.

Technical Assistance ADB will finance an advisory TA of $700,000 equivalent on a grant

basis from the Japan Special Fund. The TA will have two components. A sum of $240,000 will be made available to the first component to address hinterland transportation issues at the macro level. The second component ($460,000) is targeted specifically at the port of Chittagong to help sustain project benefits in the long term. Both components will be financed from the Japan Special Fund. The first component will: (i) assess the performance of the three modes (road, rail, and inland waterways) in the Dhaka-Chittagong corridor, and (ii) recommend institutional, operational, and infrastructure improvements to increase the efficiency and competitiveness of the modes. The Ministry of Communications will be the EA for this component.

The second component will assist in the implementation of the port efficiency improvement plan. In particular, it will assist: (i) the Ministry of Shipping and CPA revise port tariffs, (ii) CPA prepare a strategic plan, and (iii) CHC and CPA comply with the agreed milestones for the planned actions. CPA will be the EA for this component. A working committee cochaired by the chief of planning of CPA and involving CHC management will be established to monitor the work.

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I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on a proposed loan to Bangladesh for the Chittagong Port Trade Facilitation Project (the Project). The report also describes proposed technical assistance (TA) for implementing a port efficiency improvement plan and developing operational strategies for improving the efficiency of transport and logistics in the Dhaka-Chittagong corridor, and if the Board approves the proposed loan, I, acting under the authority delegated to me by the Board, will approve the TA. The project framework is in Appendix 1.

II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES A. Performance Indicators and Analysis

1. Introduction

2. Driven by strong demand in its main trading partners, Bangladesh’s economy expanded at an average annual rate of over 5% in the last 5 years.1 International trade during that period grew at 10% per annum. By 2003, almost 45% of all exports was destined to European Union and over 25% to the United States (US), while nearly 30% of all imports originated in the People’s Republic of China and India. Almost 85% of exports and 25% of imports were textiles or textile materials. 3. More than a third of the nation’s economic activity is presently located within the Dhaka-Chittagong corridor, where the bulk of international trade is generated. The corridor is served by three modes of transportation: road, rail, and inland waterways, which together carry about 20 million tonnes of freight annually. There are three main ports in Bangladesh: Chittagong,2 Mongla,3 and Dhaka-Narayanganj (see map). However, 80% of the trade flows through the port of Chittagong, which is also an integral part of the subregional transport and logistics chain connecting northeastern India, Bhutan, and Nepal to Europe, North America, and Southeast Asia. Therefore, the efficiency of the transportation system in the Dhaka-Chittagong corridor, and the port of Chittagong in particular, is vital for sustaining economic growth.

2. Operational Performance

4. The port of Chittagong is owned and operated by Chittagong Port Authority (CPA). The Government, through provisions in the CPA Ordinance, oversees planning, expenditure, and human resource management. CPA’s operating revenues in the last 6 years have grown at an average annual rate of about 10%, and foreign exchange earnings reached $42.3 million in 2003, constituting nearly 49% of total revenues. Customs operations at the port are also an important source of revenue, which accounted for nearly 28% of total public revenue in 2002.

1 Export receipts in the first quarter of 2004 grew by 16.2% year on year while imports grew by 20%. Real gross

domestic product growth is expected to reach 5.7% in FY2003/04 and 6.0% in FY2004/05 (Economist Intelligence Unit/ADB Asian Development Outlook 2004).

2 The port facilities comprise 13 general cargo berths of which four are used for containers, and the Chittagong container terminal (CCT), which comprises two berths with a total length of 450 meters (m) and a backup yard area of approximately 20 hectares (ha) (49 acres). There are 5,355 twenty-foot equivalent units (TEU) yard ground slots in the area.

3 The number of ships calling at Mongla fell from 355 in 1998 to 106 in 2003, and revenue decreased by more than 80% between 2002 and 2003 due to the changes in trading patterns and increasing draft restrictions.

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5. Containers handled at Chittagong in the last 10 years increased at an average annual rate of approximately 15%. In 2003, it handled over 600,000 twenty-foot equivalent units (TEUs), and bulk cargo throughput reached approximately 21 million tonnes (Appendix 2). Traffic is expected to reach 43 million tonnes (with a container throughput of 1,678,000 TEUs) by 2016.4 Direct employment by CPA totals approximately 8,500 persons. The port creates additional employment for 6,200 dockworkers, 5,300 merchant laborers, and 3,000 stevedores. The total annual wages and salaries of the above groups amounted to about 27% of CPA’s total revenue in fiscal year 2002/03.5 The Government has plans to gradually reduce the labor force through an early retirement program, which began in May 2004, and outsource more activities to privately owned off-dock facilities. Those plans would allow the introduction of more mechanized cargo handling. 6. Despite the increase in throughput and overall performance in the past 8 years, productivity remains fairly low, and the port has become a serious tangle in the supply chain. In August 2004, asset utilization averaged only 184 TEUs per berth per day and port stay about 2.9 days.6 Average container dwell time at the port has remained almost unchanged over the past few years at about 18 days compared with about 10 to 12 days at comparable container terminals in the region. Average transit time by rail between the port and the inland container depot (ICD) in Dhaka,7 including port-handling time, is about 30 hours and costs about $250 per TEU. However, import containers have to remain at the port for about 2 days on average from the time of arrival before being assigned a slot on a train. In comparison, it costs about $400 per TEU to transport by truck, but takes about 12 hours for door-to-door delivery, and mostly in break-bulk form. Media reports claim that informal payments to expedite the flow of documents through CPA and Customs House of Chittagong (CHC) are on the rise. These delays and payments contribute to the higher maritime cost of Bangladesh’s textile exports to the US, compared with exports from the People’s Republic of China; India; Taipei, China; and Thailand. 7. At least one spill of oil or wastewater containing oil occurs in the port area every week. Consequently, water quality in river Karnaphuli under the jurisdiction of CPA is low. The concentration of oil in the water samples taken in the port area was found during the feasibility study to be between 30 and 338 parts per million (ppm). TA 3357-BAN, 8 through training workshops and discussions with the Government, produced contingency plans and monitoring and training manuals for environmental management. However, the main recommendations of the TA, including procurement of equipment and materials, and training of oil-spill contingency team staff, have not been carried out. 8. CPA has met the basic requirements specified under the International Shipping and Port Security code. However, it is yet to meet all the requirements specified under the container security initiative launched by US customs in January 2002. This initiative requires measures in place at the originating port to detect potential security breaches such as human and drug 4 "Ports System Development Project: Master Plan and Trade Facilitation Study". 1998. Mott MacDonald, United

Kingdom. However, TA 4136-BAN: Chittagong Port Trade Facilitation Project, July 2004 (ADB. 2004. Technical Assistance to the People’s Republic of Bangladesh for Chittagong Port Trade Facilitation Project. Manila), estimates the throughput in 2016 to be 1.3 million TEUs.

5 Halima Begum. 2003 . “Impact of Port Efficiency and Productivity on the Economy of Bangladesh: A Case Study of Chittagong Port.” (Dissertation for Master of Science degree in Maritime Affairs. World Maritime University. Malmo, Sweden).

6 In comparison, asset utilization in Kolkata and Haldia averaged 200 TEUs and 250 TEUs per berth per day, respectively.

7 Approximate rail and road distances between Dhaka and Chittagong are 350 and 280 kilometers respectively. 8 ADB. 1999. Technical Assistance to the People’s Republic of Bangladesh for Oil-spill Impact and Response

Management. Manila (TA 3357-BAN, approved 22 December 1999 for $1 million).

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trafficking. The measures include container scanners and automated tools for monitoring export containers and processing import containers by CHC. B. Analysis of Key Problems and Opportunities

1. Constraints 9. Container dwell times at the port of Chittagong, which have remained high but stable in the past 5 years are beginning to rise sharply due to manual operations management and document processing methods. Under the manual methods now in place, documents pass through many stages, requiring 48 endorsements, which, in addition to increasing dwell times, create opportunities for corruption. Likewise, the present manual container tracking system unduly delays container movements in the yard. Without the use of information technology (IT), berth productivity will further decline and add to shipping costs. 10. Even with a computerized port management system, certain customs processing rules now in force will continue to limit port capacity. One example is CHC’s rule related to off-port container freight stations (CFSs) and ICDs, which prevents newly constructed private CFSs from handling import containers. ICD Dhaka, the only facility permitted to handle both import and export containers, is poorly connected to the port both by road and rail. Consequently, only about 10% of the import containers are processed there, even though 70% of the import and export cargo either originates from or terminates in Dhaka. With the exception of another approximately 10% that are handled at nearby facilities, the remaining less than container load (LCL) and full container load (FCL) containers are unstuffed in the yards, thereby requiring additional vehicles to enter the port. Delays on the part of consignees taking delivery of import cargoes and CHC’s inefficient auctioning rules on unclaimed consignments also add to container dwell times. Since the port is already operating at capacity, such rules compound the barriers to trade. 11. The Government’s ratification of the International Convention for the Prevention of Pollution from Ships (MARPOL 73/78) in September 2003 can also be expected to limit port capacity unless oil-waste reception and treatment facilities, and other basic infrastructure and equipment necessary for managing maritime waste are provided. Moreover, no routine monitoring of concentration of pollutants, including oil and grease, is conducted in the port area. Under MARPOL 73/78, all ports are required to have adequate reception and treatment facilities for oil waste and noxious liquid substances as well as a clear management plan for handling other wastes in close coordination with the local government. It also sets out standards for the major categories of pollution from ship and port operations such as: (i) oil, (ii) noxious liquid substances, (iii) harmful substances, (iv) sewage, and (v) solid waste. Failure to comply with these requirements could result in possible embargoes.

2. Lessons Learned

12. According to a post evaluation conducted by ADB 9 the overall effectiveness and success of ADB-funded projects in ports and shipping is reportedly high. In the first Chittagong Port Project in Bangladesh, the recalculated financial internal rate of return (FIRR) was higher than at appraisal. The post evaluation report notes that lack of management reporting systems for assessing port operating efficiency is one factor adversely affecting operating performance, which this Project aims to remedy. In the case of advisory TAs, the post evaluation revealed 9 ADB. 1996. Sector Synthesis of Post-Evaluation Findings in the Ports and Shipping Sector. Manila.

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that institutional strengthening of financial and management reporting systems and data processing helped achieve some success, although lack of staff qualified for training constrained TA implementation. The advisory TA to CPA under this Project is structured to ensure that a firm with specific experience and broad understanding of related issues is recruited to provide consultancy services to compensate for the institutional weaknesses and to maximize knowledge transfer. The Government has provided specific assurances to assign suitably qualified staff to be trained in the operation and management of the new computer systems. The implementation delays of past road projects managed by the Roads and Highways Department (RHD) have been caused largely by lengthy government approval processes. Such delays will be lessened in future since the Government has introduced shorter time limits for approval and revised public procurement rules. Moreover, RHD is planning to award more design-build contracts, which would speed up implementation by eliminating the delays in recruiting separate design consultants.

3. Outlook 13. The Government has initiated several capital projects at the port of Chittagong under the sixth Five-Year Plan (2002–2007). CPA has procured 13 straddle carriers, 12 reach stackers, 22 trailers, six rubber-tired gantries, and other minor container-handling equipment in the last 5 years. Four gantry cranes will be installed at the Chittagong container terminal (CCT) by the end of 2005. A 1,000-meter container quay with a capacity of 500,000 TEUs (New Mooring container terminal or NMCT), which will be managed by a private entity under a concession agreement, is currently under construction. NMCT will be equipped with six to eight gantry cranes, and have a 220,000-square meter back-up area. These will help speed up container handling and lower ship turnaround times, which in turn would lead to lower freight rates. 14. Procedural and operational solutions have been introduced to improve capacity and thereby enhance the competitiveness of the exports and lower the price of imports. Under a project financed by the World Bank 10 , a computerized customs management system (ASYCUDA++) developed by United Nations Conference on Trade and Development (UNCTAD) has been introduced at four inland ports,11 port of Chittagong, and the National Board of Revenue’s headquarters. CHC has shifted all its import groups into the customs hall room and under ASYCUDA++ operations. ASYCUDA++ modules cover most foreign trade procedures, and can handle manifests and customs declarations, accounting procedures, and transit and suspense procedures. Although all modules are not activated, the system permits about 50% of importers to clear cargo within 24 hours. Since 1 June 2004, extra penal rent is charged on containers not cleared within 45 days, which forces importers to expedite clearance. Additionally, a new ICD is being initiated at Narayanganj. These measures in concert will partly ease container yard congestion in the short term. 15. The Government has clearly expressed interest in seeking an immediate solution to the present capacity problem through a transition from the existing manual, paper-based operational system to a transparent, expeditious IT system. In addition to speeding up operations, the IT system would also minimize opportunities for corruption, which takes place in the form of informal payments for expediting document processing or altering cargo manifests. Moreover, given the volume of time-sensitive exports to the US and increasing containerized imports, the Government is committed to meeting security requirements critical for maintaining

10 Customs Administration Modernization (CAM-1) Project. 11 ICD Kamalupur, Dhaka, Benapole, and Mongla.

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delivery schedules. Better access to the port area, enhanced internal circulation, and guaranteed ship operations with minimal environmental impacts are also port sector priorities.

4. Linkages to Asian Development Bank Strategy 16. ADB has adopted a programmatic approach to assist transport sector development in Bangladesh. Accordingly, interventions are planned in different subsectors of transport to improve operational efficiency and integrate the different modes. This Project is part of those interventions and is included in the Bangladesh Country Strategy and Program Update (2004–2006). It is also the first ADB investment project in the port sector in over two decades (a complete list of external assistance to the port subsector in Bangladesh is given in Appendix 3). Given that the port is an integral part of the subregional transport system linking four nations—of which various elements in Bhutan,12 India (West Bengal),13 Nepal,14 and Bangladesh15 were developed with ADB assistance—the Project, by increasing the port’s capacity, will serve as a catalyst for attracting a larger share of transit traffic to and from neighboring countries to Chittagong. Moreover, the proposed ADB loan for railway sector development 16 will help increase the capacity and speed of Dhaka-Chittagong rail services, while the access-controlled Chittagong port access road, which is already under construction with ADB financing17, will provide a direct link from the Dhaka-Chittagong highway to the port. The expected increase in land transport capacity in the corridor due to the rail and road projects will substantially enhance port capacity18 and contribute to long-term sustainability of the proposed Project.

III. THE PROPOSED PROJECT A. Objective 17. The objective of this Project is to increase the capacity of the container terminal at the port of Chittagong, and enable Bangladesh to meet international port security and environmental standards. The resultant reductions in overall shipping and port-handling charges will facilitate international trade and foster economic growth in the long term. B. Components and Outputs 18. The Project will comprise three main components with several interrelated subcomponents.

12 ADB. 2000. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to

Kingdom of Bhutan for the Road Improvement Project. Manila. 13 ADB. 2001. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to India

for the West Bengal Corridor Development Project. Manila. 14 ADB. 2001. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to

Kingdom of Nepal for the Road Network Development Project. Manila. 15 ADB. 2003. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to

People’s Republic of Bangladesh for the Road Network Improvement and Maintenance Project II. Manila. 16 ADB. 2000. Technical Assistance to the People’s Republic of Bangladesh for the Regional Traffic Enhancement

Project. Manila (Approved 29 August 2000 for $900,000). 17 ADB. 2000. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to

People’s Republic of Bangladesh for the Road Maintenance Improvement. Manila. 18 Currently less than 10% of daily container throughput at the port is moved by rail due to insufficient rail capacity

between Dhaka and Chittagong.

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(i) CPA Component

(a) Installation of a computerized container terminal management system (CTMS), upgrading of the existing management information system (MIS), and provision of training for CPA staff in the use and upkeep of the CTMS and MIS, which will enable overall terminal capacity to be eventually increased by 50%. CTMS will be designed to interface with the ASYCUDA++ system used by CHC.

(b) Improvement of the port environment and the environmental management

capacity of CPA by: (a) installing facilities for receiving and separating oil waste from ships as required under MARPOL 1973/78; (b) providing equipment to handle oil spills as part of the oil-spill contingency plan; and (c) constructing a building to store spill-management equipment and material, and house the port’s environment monitoring office and a laboratory (part of the waste-oil separation plant and used to analyze water samples from routine monitoring activities).

(c) Reconstruction and upgrading of internal roads and the bridge between

CCT and the general cargo berths, and improvement of two access/egress points (gates) to expedite intraport traffic flow after implementing the new CCT yard configuration and NMCT.

(d) Construction of a port service road (900 meters) and a bridge to provide

direct access from the yard to the port park, expected to be operational in 2006, and help relieve yard congestion.

(e) Consulting services for design of the CTMS/MIS and civil works, oil-waste

receptor, and separation plant; supervision of supply of goods and services; and contract administration to ensure timely and efficient project implementation and knowledge transfer.

(ii) CHC Component

(a) Activation of the manifest module of the ASYCUDA ++ system to replace the current manual processing procedure, and provision of workstations with connection to the CTMS.

(b) Installation of a system of container scanners to enable CHC to meet

international security standards and expedite customs clearance of import containers.

(c) Consulting services for supervision of supply of goods and services,

contract administration, and on-the-job training on use and maintenance of ASYCUDA++ and the scanner system to ensure timely and efficient project implementation and knowledge transfer.

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(iii) RHD Component (a) Construction of a 1.7-kilometer access-controlled road (Chittagong port

access road) to CCT/NMCT yards. (b) Consulting services for design of civil works, construction supervision,

and contract administration. C. Special Features 1. Port Efficiency Improvement Plan 19. In addition to introducing IT, several procedural and operational improvements are needed to realize the full potential of the planned and ongoing investment in infrastructure and cargo-handling equipment at the port. They include enhancement of personnel skills, introduction of a strategic plan for cutting costs and increasing port productivity, support for the preparation of an anticorruption strategy, modernization of specific customs procedures, revisions to port tariffs, and environmental management in the port as summarized in the port efficiency improvement plan (PEIP) in Appendix 4. The relevant agencies have already initiated discussions on possible improvements. Among the aspects considered are: (i) a new customs warehouse and other facilities along the Bangladesh Railway corridor adjacent to the Chittagong port access road, (ii) a FCL yard in the port park, (iii) an intermodal terminal in close proximity to the port park, and (iv) a new CFS facility. To facilitate timely implementation of the PEIP, support will be provided under the TA component of the Project.

2. Environmental Management 20. The Project will support the construction and operationalization of an oil-waste separation plant, a laboratory for routine monitoring, and implementation of a comprehensive environmental management plan to meet MARPOL 73/78 requirements. It is expected that ships without onboard oil-waste treatment equipment calling at the port 19 will utilize the proposed facilities to dispose of oil waste, and enable CPA to meet Bangladesh’s effluent standards for oil-related activities. 21. The Project has been classified as Environmental Category B. An initial environmental examination (IEE) was undertaken in accordance with ADB’s Environmental Assessment Guidelines (2003) and the Environment Policy (2002) and Environmental Guidelines for Selected Infrastructure Development Projects (1993). The summary IEE (Appendix 5) indicates that there will be no major adverse environmental impacts during and after implementation. Therefore, no further impact assessment studies are needed. 22. To address the minor, localized, and temporary impacts, a mitigation and monitoring plan as detailed in the summary IEE has been designed. The plan requires measures in place, particularly, to prevent any soil erosion and vegetation damage and prevent possible spread of, and exposure to, potentially hazardous and radioactive materials and waste in the project area.

19 About 1,700 ocean-going vessels and 4,000 coastal ships called at the port of Chittagong in 2003.

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3. Involuntary Resettlement 23. The land acquisition and other resettlement impacts of the Project will not be significant. However, they will affect about 112 people in 19 households, 6 businesses, and 3 community buildings, which are located on 9.5 hectares of land belonging to CPA. The affected persons (APs) are mainly informal dwellers who do not have land titles to the property that they currently occupy. The removal of APs will trigger resettlement safeguards. All APs are entitled to receive compensation packages, elaborated in the entitlement matrix of the short resettlement plan (Supplementary Appendix A). During socioeconomic surveys and consultations, all APs expressed their willingness to relocate themselves. Assistance with relocation will be provided to them as outlined in Supplementary Appendix A. The plan was translated into Bangla and was disclosed to all APs. It will also be posted on RHD and ADB web sites. The Project will not have any impacts on indigenous peoples. Indigenous populations are concentrated in the Hill Districts of Chittagong and are not engaged in employment activities associated with the port. 4. Collaboration with US Trade and Development Agency 24. The US Trade and Development Agency (USTDA) will provide grant funds for a detailed assessment of needs, including preparation of technical specifications, and training on law enforcement and procurement of container scanners. The grant will also enable recently initiated technology-based security management measures of CPA and CHC to be integrated with the scanner system to maximize the utility of the CHC component financed by the Project. D. Cost Estimates 25. As shown in Table 1 and Appendix 6, the total cost of the Project is estimated at $41.3 million equivalent. This figure includes value-added tax, cost of consulting services, and physical and price contingencies on all base costs, capitalized interest, and commitment fees charged by ADB during implementation.

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Table 1. Overall Cost Estimatesa

($ million)

Item Foreign

Exchange Local

Currency Total Cost

A. Chittagong Port Authority Component 1. Base Cost a. Civil Works

i. Port Service Road and Bridge across Mohes

Khal 0.4 0.6 1.0

ii. Reconstruction and Upgrading of Internal

Roads, Canal Bridge, and Gates 0.5 0.5 1.0 iii. Facilities for Environmental Management 0.2 0.3 0.5 b. Equipment i. Computerization of CPA Operation 3.9 0.3 4.2 ii. Gate Equipment 1.3 0.1 1.4 iii. Environmental Management 2.1 0.3 2.4 c. Consulting Services i. Design and Supervision of Civil Works 0.4 0.1 0.5

ii. Supervision of Computer System Installation

and Training 0.8 0.2 1.0 2. Contingencies a. Physical Contingenciesb 1.0 0.2 1.2 b. Price Contingenciesc 0.2 0.1 0.3 3. Interest During Constructiond 0.8 0.0 0.8 Subtotal (A) 11.6 2.7 14.3 B. Customs House of Chittagong Component 1. Base Cost a. Goods and Services–Scanners and PCs 9.5 0.5 10.0 b. Consulting Services

i. Supervision of Scanner Procurement and

Installation 0.6 0.0 0.6 ii. Implementation of ASYCUDA++ 0.3 0.1 0.4 2. Contingencies a. Physical Contingenciesb 1.0 0.0 1.0 b. Price Contingenciesc 0.6 0.0 0.6 3. Interest During Constructiond 0.6 0.0 0.6 Subtotal (B) 12.6 0.6 13.2 C. Roads and Highways Department Component 1. Base Cost a. Civil Works i. Connector Road 4.7 5.8 10.5 b. Consulting Services i. Design and Supervision 0.7 0.3 1.0 2. Resettlement 0.0 0.3 0.3

3. Contingencies a. Physical Contingenciesb

0.5

0.7

1.2

b. Price Contingenciesc 0.1 0.3 0.4 4. Interest During Constructiond 0.4 0.0 0.4 Subtotal (C) 6.4 7.4 13.8 Total 30.6 10.7 41.3 a Base costs at 2004 prices. b Physical contingency is estimated as 10% of base cost. c Price escalation of 5% per annum is projected in local currency. d Interest during construction is computed at 4.3% per annum and commitment charges at 0.75% per annum. Source: ADB estimates.

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E. Financing Plan 26. The Government has requested a loan of $30.6 million from ADB’s ordinary capital resources to help finance the Project. The loan will have a 25-year term, including a grace period of 5 years, an interest rate determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility, a commitment charge of 0.75% per annum,20 and such other terms and conditions set forth in the draft Loan Agreement. The Government has provided ADB with (i) the reasons for its decision to borrow under ADB’s LIBOR-based lending facility on the basis of these terms and conditions, and (ii) an undertaking that these choices were its own independent decision and not made in reliance on any communication or advice from ADB. 27. As summarized in the proposed financing plan for the Project in Table 2, ADB will finance all foreign exchange costs amounting to 74.1% of the total project cost detailed in Appendix 6. The Government will finance all local currency costs, which amounts to 25.9% of the total project cost. ADB loan proceeds will be made available by the Government to CPA, RHD, and CHC through budgetary allocations. Amounts allocated to CPA will be repaid to the Government under a subsidiary loan agreement with terms and conditions acceptable to ADB.

Table 2: Overall Financing Plan ($ million)

Source Foreign

Exchange Local

Currency Total Cost % of

Financing ADB 30.6 0.0 30.6 74.1 Government CPA Component 0.0 2.7 2.7 6.5

CHC Component 0.0 0.6 0.6 1.5 RHD Component 0.0 7.4 7.4 17.9

Total 30.6 10.7 41.3 100.0 ADB – Asian Development Bank, CHC – Customs House of Chittagong, CPA – Chittaong Port Authority, RHD – Roads and Highways Department Note: CHC and RHD components will be financed through government budgetary allocations. CPA component will be financed out of its own funds. Source: ADB estimates. F. Implementation Arrangements 1. Project Management 28. CPA, CHC, and RHD will serve as the EAs for the three components of the Project described para. 18 (i), (ii), and (iii) respectively. Each EA will establish a project implementation unit to administer the component under its purview. To oversee the implementation of the Project as a whole, a coordination committee chaired by the chairperson, CPA, and comprising the commissioner, CHC, and the additional chief engineer, RHD, will be established prior to loan effectiveness. The coordination committee will serve as a channel of communication and coordination of activities among the three EAs. The committee will meet every 3 months or more often, if necessary, to review progress and resolve outstanding issues pertaining to the Project.

20 Commitment charges form part of interest during construction, shown as separate line items in Table 1.

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29. At the central level, a steering committee chaired by the secretary, Ministry of Shipping, will review progress and as necessary, provide guidance on implementation. The committee will consist of representatives of MOC, National Board of Revenue, Economic Relations Division and Finance Division of the Ministry of Finance, Planning Commission, Implementation Monitoring and Evaluation Division of the Ministry of Planning, and representatives of the three EAs. The steering committee will meet at least every six months or more frequently if necessary.

2. Implementation Period 30. The Project will be implemented over a period of about 48 months from 2005 to 2008, including procurement and pre- and postconstruction activities. The scheduled date of completion of civil works and equipment installation is July 2008. The proposed timings for the various components are shown in Appendix 7. 3. Procurement 31. All procurement to be financed under the ADB loan will be carried out in accordance with ADB’s Guidelines for Procurement. Contracts valued in excess of $500,000 equivalent for goods and $2.0 million equivalent for civil works will be procured through international competitive bidding (ICB). Procurement of civil works on the connector road, and the supply of goods for computerization, environmental protection, and container scanning equipment will follow ICB procedures to encourage participation of international competitors and joint ventures through domestic contractors. Civil works contracts valued less than $2.0 million equivalent will be procured based on local competitive bidding procedures. Indicative contract packages are listed in Appendix 8. 32. In view of the significance and relationship of the Project to ongoing road and port development activities, ADB approved advance procurement action. The advance action, up to but not including the signing of the contracts, will cover (i) selection of consultants, (ii) prequalification of civil works contractors, and (ii) tendering and evaluation of bids for civil works and supply of goods. Advance action will be undertaken in accordance with ADB’s Guidelines for Procurement.

4. Consulting Services 33. CPA will recruit a firm of international consultants financed by the loan to design and supervise the construction of the internal road system and the environmental management facilities. Outline terms of reference (TOR) for the consultants are given in Supplementary Appendix B. 34. A firm of international consultants financed by the loan will be recruited by CPA to supervise the procurement and operationalization of the CTMS and MIS. Outline TOR for the consultants are given in Supplementary Appendix C. 35. UNCTAD will be recruited on a direct selection basis by CHC to implement the manifest module of ASYCUDA++ and provide on-the-job training to CHC staff. Outline terms of reference for the consultants are given in Supplementary Appendix D. 36. A firm of international consultants financed by the loan will be recruited by CHC to supervise the procurement of scanners and provision of on-the-job training customs officers. Outline TOR for the consultants are given in Supplementary Appendix E.

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37. RHD will recruit an international consulting firm to design and supervise the construction of the connector road. Outline of TOR for the consultants are given in Supplementary Appendix F. 38. The recruitment of consultants will follow ADB’s Guidelines on the Use of Consultants using ADB’s quality- and cost-based selection mechanism.

5. Disbursement Arrangements 39. For consulting services, procurement of equipment, and civil works contracts, loan funds will be disbursed using direct payment and reimbursement procedures in accordance with ADB’s Loan Disbursement Handbook. 6. Accounting, Auditing, and Reporting 40. Each EA will maintain separate records and accounts adequate to identify the goods and services financed from the loan proceeds, the financing resources received, the expenditures incurred on the Project, and the use of local funds. The accounts will be set up in accordance with sound accounting principles. In addition to the audit conducted by the Comptroller and Auditor General, consolidated project accounts will be audited annually by private sector auditors acceptable to ADB. CPA will submit its audited financial statements and audited project accounts to ADB not later than 6 months after the end of each fiscal year. CHC and RHD will submit their audited project accounts to ADB not later than 9 months after the end of each fiscal year. 41. The EAs will prepare and submit to ADB monthly, quarterly, and annual progress reports on project implementation, the form and content of which will be agreed with ADB. The EAs will monitor project preparation and implementation in accordance with the implementation schedule, and will keep ADB informed of any significant deviations from the schedule. To facilitate postevaluation of the Project, each EA will submit a project completion report to ADB within 3 months of physical completion of the Project.

7. Project Performance Monitoring and Evaluation 42. A set of indicators for monitoring and evaluating the performance of the Project in relation to its goals, purposes, and outputs was agreed upon with the EAs. Shortly before implementation, baseline values will be established for: (i) traffic volumes and vessel turnaround times; (ii) port tariffs and transport charges; (iii) environmental indicators; 21 and (iv) social, poverty, and economic indicators. Monitoring indicators will be computed, with the necessary frequency, during project implementation, and 2, 4, and 6 years after completion. Comments and findings regarding these project indicators will be incorporated in every alternate quarterly report to ADB. The project performance management system, which will be reviewed and revised during the inception mission, is given in Appendix 9. 43. Where relevant, social indicators will be disaggregated by gender. Participatory surveys will be conducted and results compared with the baseline. A final report will consist of an evaluation of changes that occurred in the 6 preceding years. The construction supervision consultants will assist the EAs carry out the baseline surveys, establish parameters and a

21 For this Project, oil and grease content in Karnaphuli river will be used as an indicator to monitor environmental

conditions.

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system for data collection and analysis, and prepare quarterly performance reports during implementation and, subsequently, project completion reports.

8. Project Review 44. The Government and ADB will carry out regular reviews of project implementation including a detailed midterm review in January 2007. The midterm review will focus on project impacts, particularly those relating to institutional, administrative, organizational, technical, and environmental aspects, including the resettlement plan. The Project’s economic viability and other relevant aspects that may have an impact on performance will also be assessed during the review. The review will also cover the implementation of the advisory TA, and compliance with assurances in the Loan Agreement.

9. Anticorruption Measures 45. The EAs and the Government will create and sustain a corruption-free environment in accordance with the relevant provisions of ADB’s Anticorruption Policy, and will follow the policy when preparing all documents and contracts during the bidding process and during implementation of the proposed Project. The emerging national and local initiatives are expected to eliminate opportunities for corruption related to port operations. The Anti-Corruption Commission Bill 2004 has led to the formation of an independent commission that will investigate corruption charges and arrange trials by special judges. TA 4140-BAN22 is expected to support the operationalization and capacity building of that commission. Moreover, the National Board of Revenue and the finance ministry have prepared draft regulations and the code of conduct for the tax ombudsperson at the port. The ombudsperson will act upon receipt of a written allegation of corruption against any tax or customs official. He or she will have the authority to initiate an investigation against any tax or customs official and enter the residence or the business establishment of a suspected tax evader. As part of the Project, a port service improvement committee (PSIC) will be established during implementation. With assistance from consultants recruited under the advisory TA, the PSIC will prepare an anticorruption strategy that will include publication of a schedule of port charges and maximum allowable times for the core processes related to shipping and clearing cargo and other port-related activities, such as pilotage and vessel berthing, as well as procedures for addressing complaints of unscheduled or excessive charges.

IV. TECHNICAL ASSISTANCE 46. The advisory TA attached to the loan will have two components. A sum of $240,000 will be made available for the first component to address hinterland transportation and logistics issues at the macro level. The second component ($460,000) is targeted specifically at the port of Chittagong to ensure the sustainability of project benefits. 47. The first component is intended to identify and design mechanisms to promote the development of modern logistic chains within the Dhaka-Chittagong corridor involving transport, information flows, and logistics terminals. It will develop a framework for developing a competitive transport system where the three modes—road, railway, and inland waterway transport—are integrated and complement each other to offer a broader range of service options to shippers. To that end, a team of consultants recruited by ADB will (i) assess the 22 ADB. 2003. Technical Assistance to the People’s Republic of Bangladesh for Supporting Good Governance

Initiatives. Manila (Approved on 4 July 2003 for $1.0 million).

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performance of the three modes in the Dhaka-Chittagong corridor, and (ii) recommend institutional, operational, and infrastructure improvements to increase efficiency and competitiveness of the modes. The Ministry of Communications will be the Executing Agency. Outline TOR for the consultancy services are given in Supplementary Appendix G. 48. The second component is designed to assist in the implementation of the PEIP (Appendix 4). A team of consultants will be recruited by ADB to (i) assist CPA and CHC implement the actions according to the milestones in the PEIP, (ii) support the implementation of a human resource development plan to broaden employee skills, (iii) assist the Ministry of Shipping and CPA implement the restructured port tariffs, (iv) assist CPA develop and implement a strategic plan, and (v) help CPA establish and initialize the PSIC. CPA will be the EA for this component. A committee, chaired by the chief of planning of CPA with a representative of the Commissioner of CHC as a member, will be established to monitor and guide the work of the consultants. Outline TOR for the consultants are given in Supplementary Appendix H. 49. ADB will finance $700,000 equivalent of the TA cost on a grant basis from the Japan Special Fund. Two separate teams of domestic and international consultants, to be recruited by ADB in accordance with ADB’s Guidelines on the Use of Consultants and other arrangements acceptable to ADB for the recruitment of domestic consultants, will carry out the two components.

V. PROJECT BENEFITS, IMPACTS, AND RISKS

A. Economic Benefits 50. Total benefits derived from the Project principally comprise time-savings on the portside (container shipowners) and quayside (containerized cargo owners) due to increased port capacity. Indeed, those benefits will not be realized unless the complementary measures such as the access road, internal circulation system, and scanners are implemented. Moreover, the types of vessels and shipping lines willing or able to enter the port, unless the international marine pollution standards are not met, will limit port capacity. Therefore, analyses were performed under different scenarios of traffic growth and capacity gains. Additional analyses were performed to examine the levels of economic risk under the different scenarios as described in Appendix 10. 51. The economic internal rate of return (EIRR) of the Project is estimated to be 21.6% and the net present value is $61.5 million (Tk3.6 billion) at a discount rate of 12.0%. To test the robustness of the Project, the sensitivity of EIRR to changes in three key variables was tested. It showed that the forecast generated traffic must be less than half the most likely forecast for the EIRR to drop below 12%, but in the case of total annual costs and normal traffic, an increase of more than 12% or a drop of more than 11% of the respective most likely estimate is needed for the investment to be nonviable. A risk analysis based on the assumption that the distributions of the above variables are known showed that the 5th percentile of the EIRR is 16.5% and the risk of EIRR falling below 12% is zero. B. Social Benefits 52. The national poverty rate in Bangladesh is 49.8 % (the estimate is based on the upper poverty line method used by the Bangladesh Bureau of Statistics Household Income and Expenditure Survey, 2000), and 53.1% and 36.6%, respectively, in rural and urban areas.

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Although agriculture is the largest sector, employing about 51% of the country’s total labor force, it is still primitive in nature. The Project will contribute to economic growth required to reduce poverty through expansion of foreign trade leading to greater utilization of national transport corridors. The principal project benefits will accrue to the shipowners in terms of reduced port turnover times, and cargo owners will benefit from reduced container dwell times through computerization of the terminal management and the resultant expansion of capacity. That will create new employment opportunities in the port as well as related sectors. Furthermore, the Project will also bring benefits to the surrounding communities, through increased port-related activities. A summary poverty reduction and social strategy is provided in Appendix 11.

C. Financial Benefits 53. Financial projections have been prepared for CPA in accordance with ADB’s Guidelines for the Financial Governance and Management of Investment Projects Financed by ADB to assess the financial viability and sustainability of the CPA component (Appendix 10). The projected financial statement indicates that financial revenues will be sufficient to cover operation and maintenance costs (including incremental recurrent costs associated with the Project), income taxes, and debt servicing, and provide a reasonable rate of return. Based on the financial projections, a debt service coverage ratio of 113.1 and an operating ratio of not less than 53% will be achieved over the project life. 54. The financial evaluation of the CPA component was undertaken in real terms using constant 2004 prices. The project cost estimates and financial projections in nominal terms were converted to real terms by adjusting for the projected effects of foreign and domestic inflation and currency fluctuations. Incremental costs and benefits were derived by evaluating the financial position of CPA under with- and without-project scenarios. The FIRR for the component, computed on an after-tax basis, is 18%. This compares with the weighted average cost of capital, also computed on an after-tax basis, of 4%. Sensitivity and risk analyses indicate than the FIRR is robust under adverse conditions. Based on financial projections and the financial evaluation of the CPA component, the Project is considered both financially viable and sustainable. D. Risks 55. The proposed Project has been formulated to minimize most technical and economic risks through detailed analyses during project preparation, support for project implementation, and assurances from the Government. However, insufficient capacity of CPA and CHC to attract and retain staff skilled in IT remains a potential technical risk. Additional support will be provided through a loan-financed consultancy firm and a grant-financed advisory TA to train existing staff and formulate a human resource development plan to minimize that risk in the long run. 56. It is assumed that growth in traffic will continue as projected. However, container traffic is highly sensitive to external factors such as a decline in trade and/or an increase in nontariff barriers, which are beyond the control of the port agencies. Regardless, it was found that the sensitivity of EIRR to traffic is marginal and the economic risks are minimal. 57. It is also assumed that the Government will support the respective agencies in implementing the key aspects of the PEIP, such as relocating customs auctioning and container stuffing activities to off-quay sites, needed to derive the long-term cost reductions. TA is provided to enable the EAs meet those requirements.

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58. An analysis of financial performance and projections of CPA (Appendix 10), which as a financially autonomous public entity is liable for repayment of the loan component, has shown that operating revenues have grown by more than 10% a year on average over the past 6 years. Hence, there is no appreciable risk associated with the lending.

VI. ASSURANCES A. Specific Assurances 59. In addition to the standard assurances, the Government, CPA, CHC, and RHD have given the following assurances, which are incorporated in the legal documents: 60. Counterpart Funding. To ensure successful implementation of the Project, the Government will provide, in a timely manner, its counterpart funds under the financing plan as well as any additional funds that may be required to complete the Project. 61. Port Efficiency Improvement Plan. CPA and CHC will take all actions necessary to increase container yard capacity, revise port tariffs, improve port performance, develop human resources, and improve environmental quality according to the agreed schedule as outlined in Appendix 4. 62. Monitoring and Evaluation. Prior to implementation, each EA will collect relevant baseline data required to monitor and evaluate impacts as outlined in the project performance management system in Appendix 9. The EAs, with the assistance of construction supervision consultants and other experts, will also continue to monitor project impacts with the necessary frequency, during project implementation, and 2, 4, and 6 years after completion. During implementation, the EAs will submit semi-annual reports to ADB. 63. Environment. The Government will ensure that RHD will obtain site and operational clearances from the Department of Environment (DOE) prior to implementation of any civil works activities. CPA will also obtain clearances prior to operationalization of the oil-waste separation plant. To obtain these environmental clearances, CPA and RHD will submit the requirements as described in the Environmental Conservation Act 1995 and the Environmental Conservation Rule 1997. According to the instructions of the DOE, the oil waste will meet effluent standards for oil refineries without limitations on the amount of water discharged, but will meet the limits on concentration of suspended solids, dissolved oxygenphenol, sulfides, oil, and grease. CPA will obtain input from DOE on the design and implementation of the facilities. 64. CPA and RHD will ensure that environmental mitigation measures described in the IEE reports are implemented throughout project implementation and operation, and in compliance with the Bangladesh Environmental Conservation Act 1995 and other adopted environmental policies as well as ADB’s Environment Policy (2002) and its Environmental Assessment Guidelines (2003). 65. Health Risks. The Government will ensure that the civil works contracts include a requirement to conduct an information and education campaign on communicable diseases, including but not limited to sexually transmitted diseases and HIV/AIDS for construction workers as part of the health and safety program at campsites during the construction period. The Government will also ensure that the civil works contracts include provisions on health, safety and security, sanitation and appropriate working conditions, including accommodation, accidental death, dismemberment and disability benefits, and clean drinking water for

17

construction workers at campsites at standards acceptable to ADB during the construction period. The Government will also require each of CPA and RHD to provide to ADB a detailed report on how each of the provisions herein is implemented by the civil works contractors. 66. Resettlement. The Government will ensure that RHD implement the short resettlement plan in accordance with all applicable government laws and regulations and in accordance with ADB’s Policy on Involuntary Resettlement (1995) and resettlement framework. This will include the following: (i) compensation will be provided at replacement cost together with any entitlements as stipulated in the short resettlement plan, with ADB’s policy to prevail in the case of any difference with the Government’s laws and regulations; (ii) counterpart funds and disbursements will be provided promptly to affected people, with agreed compensation provided to them before any land is taken or civil works contracts are awarded, and the Project will not use any emergency provisions that allow land to be taken in advance of payment; (iv) RHD will guarantee to meet unforeseen obligations in excess of budget estimates; (v) RHD will implement the Project with adequate supervision, monitoring, and reporting; (vi) a resettlement specialist within the Project construction management consulting team will be charged with external monitoring and evaluation of the resettlement; (vii) resettlement fund disbursements and expenditures will be audited annually by an independent auditor; (viii) adequate information dissemination and consultation with affected people will be carried out; (ix) consultations and grievances related to the Project will be documented; (x) resettlement plans will be updated if the scope of the Project is changed; and (xi) progress will be regularly reported to ADB. 67. Grievance and Redress Mechanism. The Government will cause RHD to form within 3 months of the Effective Date an independent committee consisting of individuals unrelated to the Project to hear any grievances or other complaints relating to resettlement or any other issues arising out of the implementation of the Project. Such a committee will have at least two members who are women and a member who is a representative of a nongovernmental organization (NGO); one of the women members may be the NGO representative. Local media will be invited to participate as observers and ask questions during meetings of the committee. The formation of the committee will be announced through the public media, such as daily Bengali newspapers published in Chittagong. The committee will inform the public of its findings and recommendations through press releases for the local media within 3 months of the filing of any complaint. In the event a press release is not published in the local media within two weeks of its release, the committee will publish the press release in the two largest daily Bengali newspapers published out of Chittagong. 68. Labor Laws. The Government will cause each of RHD and CPA to ensure that the civil works contractors comply with all applicable labor laws and regulations and do not employ child labor in the construction activities. The Government will cause each of CPA and RHD to set employment targets acceptable to ADB for women for road construction activities and will monitor progress and cause its contractors to adhere to such targets. The Borrower will ensure that each of CPA and RHD provides equal opportunities for women for road construction activities, as well as require contractors not to differentiate wages between men and women for work of equal value. The Government through CPA or RHD, as the case may be, will ensure that a specific clause to this effect is included in all relevant bidding documents, and that compliance is strictly monitored and documented during project implementation. 69. Anticorruption. The Government acknowledges that ADB, consistent with its commitment to good governance, accountability, and transparency, reserves the right to undertake directly, or through its agents, investigation of any possible financial or management impropriety in the conduct of the Project. The Government will fully cooperate and will ensure

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that each of CPA, CHC, and RHD fully cooperates with any such investigation and each extends all necessary assistance, including access to all relevant books and records as well as engagement of independent experts needed for satisfactory completion of such investigations. The Government further acknowledges that all costs related to such investigations will be borne by the Project. 70. The Government will ensure that within 6 months of the date of loan effectiveness, CPA will establish a PSIC, chaired by the chairperson, CPA, to serve as a forum for discussing issues such as port tariffs, service quality, and development plans. PSIC will comprise port users such as shipping agents and owners, freight forwarders, clearing agents, and chambers of commerce. PSIC will establish procedures for receiving complaints and suggestions from port users and the general public. PSIC will meet every 3 months, and CPA will provide minutes of all meetings to ADB within 2 weeks of every meeting. All government accredited members of the media will have access to the proceedings and minutes of PSIC meetings. CPA will also, in consultation with representatives of CHC and members of PSIC, prepare an anticorruption strategy acceptable to ADB, which will be implemented during the remaining project implementation period. 71. Indigenous People. The Government will ensure that no person will be adversely affected in terms of ADB's Policy on Indigenous Peoples (1998). 72. Performance Audit. The Government will cause an annual performance audit for each of the components of the Project to be completed.

B. Conditions for Disbursement 73. Disbursement for the CPA component will be subject to establishment of PSIC and announcement of its schedule of meetings. Following the first disbursement for this component, subsequent disbursements will be subject to preparation by CPA of an anticorruption strategy acceptable to ADB. 74. Disbursement for the RHD component will be subject to the following conditions: resettlement compensation will have been provided as stipulated in the resettlement plan; and the independent committee for hearing grievances relating to resettlement under the Project will have been established, and such establishment will have been announced through the public media such as daily Bengali newspapers published out of Chittagong.

VII. RECOMMENDATION

75. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve the loan of $30,600,000 to the People’s Republic of Bangladesh for the Chittagong Port Trade Facilitation Project from ADB’s ordinary capital resources, with interest to be determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility; a term of 25 years, including a grace period of 5 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft Loan and Project Agreements presented to the Board.

TADAO CHINO President 25 November 2004

Appendix 1 19

PROJECT FRAMEWORK

Design Summary Performance Indicators/Targets Monitoring Mechanisms Assumptions and

Risks Goal Facilitate trade

Annual percentage change in national GDP after project completion Annual percentage change in trade after project completion

Government provides GDP and other economic data from state statistics bureau

Purpose Increase container terminal capacity

Annual growth in container throughput sustained at above 6% in the first 6 years after project completion Port charges reduced by 20% within 2 years of project completion Vessel turnaround time and berth occupancy rate reduced by 20% within 2 years of project completion

CPA provides baseline, periodic, and post-implementation survey data

Assumption: CHC and CPA share and utilize computer systems for processing documents and providing information to port users Assumption: CPA revise port tariffs

Outputs 1. Automated manifest system (at CHC) 2. Container terminal management system (at CPA) 3. Container scanning system (at CHC)

Average customs clearance time for imports containers reduced by 30% within 2 years of project completion Annual number of customs declarations increased by 20% one year after project completion Average container dwell time at the port reduced by at least 20% within 2 years of project completion Customs inspection time reduced by 30% within 1 year of project completion

Data provided by CHC, RHD, and CPA through PPMS compared with baseline data.

Assumption: Off-terminal FCL yard is operational by June 2006 Assumption: CHC adopts risk management and compliance measures Assumption: Adequate personnel assigned to operate and manage CTMS, scanners, and ASYCUDA++ system Assumption: New gantry cranes are operational by January 2006

Continued on next page

Appendix 1 20

Design Summary Performance Indicators/Targets Monitoring Mechanisms Assumptions and

Risks 4. Improved access through connector road from CPAR to NMCT and CCT 5. Improved terminal traffic circulation and gate house system 6. Oil-waste reception and treatment facility and spill management system implemented 7. Port Service Improvement Committee established

50% of all traffic to and from container terminals use the connector road within 2 years of project completion Number of vehicles inside the port at any given time reduced by 50% within 2 years of project completion Vehicle waiting time to enter and exit the port reduced by 30% within 2 years of project completion Reduced oil content in water at sample stations in KarnaphuIi river within 2 years of project completion Anticorruption strategy submitted to ADB

Monthly testing of water samples in the environmental lab ADTA consultants reports

Risk: New security measures increase processing time Assumption: At least 75% of coastal ships and ocean vessels without on-board treatment equipment will voluntarily use the facility

Activities 1. Procurement of consulting services for all three components 2. Evaluation of civil works contractors and bids for CPA and RHD components 3. Procurement of civil works for CPA and RHD components 4. Procurement of goods 5. Provision of training 6. System evaluation

Consultants mobilized by mid-June 2005 Prequalification of contractors by end-November 2005 Contracts awarded by 1 April 2006 Computer systems at CHC and CPA installed by 1 July 2006 Container scanners installed by 1 July 2006 Number of persons trained Computer system operational evaluations completed by 1 December 2006

Project progress reports and review missions

Assumption: Effective and efficient review of proposals and selection of consultants and contractors Risk: Weak project administration by EAs Risk: Loan effectiveness after 1 May 2005

Continued on next page

Appendix 1 21

Design Summary Performance Indicators/Targets Monitoring Mechanisms Assumptions and

Risks 7. Monitoring and evaluation of the Project 8. Environment management 9. Recruitment of ADTA consultants

Finalize PPMS before 1 March 2005 Complete baseline data collection by 1 June 2005 Performance reports submitted quarterly Certified completion of all works by end of 2008 Number of defects in civil works reported during liability period Environmental management plan approved by CPA board before 1 June 2005 Environmental unit operational by 1 June 2005 Laboratory testing of water samples begins by 1 January 2007 Consultants mobilized by 1 January 2006

Inputs 1. Civil Works

CPA RHD

2. Equipment & Software

CPA CHC

3. Consulting services

CPA CHC RHD

4. ADTA

$2.5 million $10.5 million $8.0 million $10.0 million $1.5 million $0.9 million $1.0 million $0.7 million

Withdrawal applications, progress reports, review missions

Assumption: Declaration of loan effectiveness by 1 March 2005 Assumption: Project implementation units fully staffed and all advance procurement action completed

ADTA – Advisory Technical Assistance, CCT – Chittagong container terminal, CHC – customs house of Chittagong, CPA – Chittagong Port Authority, CPAR – Chittagong Port Access Road, CEA – Executing Agency, FCL – full container load, GDP – gross domestic product, NMCT – New Mooring container system, PPMS – Project Performance Management System, RHD – Roads and Highways Department

Appendix 2 22

TRANSPORT SECTOR AND PORT SUBSECTOR ANALYSIS A. Introduction

1. General Overview

1. The transport system of Bangladesh consists of roads, railways, inland waterways, two seaports, maritime shipping, and civil aviation, catering to both domestic and international traffic. Presently there are about 21,000 kilometers (km) of paved roads; 2,706 route-kilometers of railways; 3,800 km of perennial waterways, which increase to 6,000 km during the monsoon, and the ports of Mongla and Chittagong; and two international airports (Dhaka and Chittagong) and eight domestic airports. 2. Development and maintenance of transport infrastructure are responsibilities of the public sector as is provision of most rail and port services. Private sector involvement in road and inland water transport (IWT) and ocean shipping has increased considerably in recent years. It is also gradually entering the domestic air transport and passenger rail markets as well as transport logistics. The inland waterway system (IWW) is limited due to geographic factors. The presence of a large number of rivers without high-capacity bridges and the requirement to use ferries result in the reliance on small trucks for both intra- and interurban distribution services. The rail and road services are also constrained by network capacity and poor quality of infrastructure. Inadequate maintenance has led to severe deterioration of even major road and rail sections. Cost recovery levels of all modes are low due to numerous regulations and subsidies. Asset replacement, in particular for the railways, is infrequent and unplanned. Thus, service quality is low and unit costs of transport are high and rising. 3. The overall annual growth rate in the past 10 years has been nearly 8.2% for freight transport and 8.4% for passenger transport. Even then, transport intensity is considerably lower than in many developing countries. There is general recognition that the seaports in Bangladesh are constrained by rigid customs regulations, physical capacity, and inadequate hinterland transport connectivity. It is manifested as congestion on the quays and the long port-to-door delivery times. In summary, the hinterland transport system barely connects Dhaka’s inland container depot (ICD) and privately owned container storage depots across the country1 to the international trading gateways. 2. Ports 4. Chittagong is the principal port, handling 85% of imports and 80% of exports. It is situated in the estuary of the Karnaphuli river. The significance of this port is that it provides a deep-water anchorage a few miles inland from the Bay of Bengal. The port comprises Chittagong container terminal (CCT) with two multipurpose (container and general cargo) berths spanning 450 meters and two general cargo berths (used mostly by container vessels), and the dedicated general cargo terminal with 11 berths, some of which are privately operated and handle only break-bulk cargo,2 clinker, fertilizer, and other bulk cargo. The rededication of the later berths for container handling is hardly possible under the present high berth-occupancy

1 Babul, Hadi Hussain. 2003. Key issues for port’s efficiency: development of inland distribution system (road, rail &

inland waterways in Bangladesh. Chittagong. 2 Break-bulk cargo traffic is defined as all general cargo that is not containerized, for instance in loose, palletized,

bagged or in a pre-slung packing form.

Appendix 2 23

rates. However, the New Mooring container terminal (NMCT), which is expected to be operational in early 2006, can more than double the container-handling capacity of the port. 5. The port of Mongla is situated 85 km inland from the Pussur river entrance, which has a dynamic erosion and sedimentation profile. Cargo is almost entirely handled directly between oceangoing vessels and inland river craft at the port's river moorings, which have deeper water than alongside the port's berths. The port has 11 jetties, 7 shades for loading and unloading of goods, and 8 warehouses. It uses 12 swinging moorings or floating berthing places in deeper sections of the river. The port has trade links with most of the major ports of the world, although vessels arriving there are mostly from ports in Asia. Mongla has lost a large part of its dynamics compared with Chittagong, largely as a result of its physical constraints, including poor land and maritime accessibility. In the last 10 years, Mongla has lost half of its market share to Chittagong, and now handles only about 15% of Bangladesh’s seaborne trade. At present, about 400 ships call at the port and it handles about 3 million tonnes of imports and exports each year, of which only a very small part is container cargo. 6. Operational and institutional constraints at the two ports render import cargo overpriced for domestic consumers and export commodities less competitive on world markets. To correct that situation, infrastructure problems, institutional constraints (such as paper-based management of operations and port labor schemes), poor logistics organization, and nontransparency of transport and port-handling costs have to be addressed immediately.

3. Inland Transport a. Roads 7. There are five main road transport corridors in Bangladesh: (i) Dhaka-Chittagong, which is the major national freight route; (ii) Dhaka-Northwest region, which is the second most important freight route with Jamuna bridge; (iii) Dhaka-Khulna region, a difficult transport corridor with a major ferry at Padma; (iv) Dhaka-Sylhet region, mainly for transport of construction material with Bhairab bridge; and (v) Khulna-Northwest region, a nondeveloped corridor up the west side with a major ferry at Paksey. This latter corridor is Khulna bound for Mongla port. 8. As evident from Table A2.1, road transport is the dominant mode of inland freight distribution with a market share of over 70% in terms of tonnage carried. However, apart from the localized operations in Chittagong and Dhaka, the amount of container movements in the national road network is at present negligible. 9. Road freight services are offered almost exclusively by the private sector (98%) comprising mainly small transport companies. The standard transport unit is a 2-axle 7-tonne capacity truck, with a gross vehicle weight of 12 tonnes. Overloading is a problem especially in relation to semi-bulk products. Larger vehicles used for movement of heavier unit loads such as containers are not common and are mainly used for local transport or limited intercity operations along the Dhaka-Chittagong corridor. Recently private companies have increased their fleet of heavy trucks for carrying containers to and from Chittagong.

Appendix 2 24

Table A2.1: Inland Transport in Bangladesh—Modal Share (%)

Year Rail IWT Road Total

Ton–km (billion)

Total Pass–km (billion)

Freight Passenger Freight Passenger Freight Passenger Freight Passenger

1974-75 28 30 37 16 35 54 2.6 14.6 1984-85 17 20 35 16 48 64 4.8 29.6 1988-89 11 17 30 15 59 68 6.3 26.4 1992-93 7 12 32 13 61 75 9.0 32.5 1999-00 6 13 20 14 74 73 14.5 32.1 2004-05a 7 12 19 14 74 74 20.3 34.0

IWT – inland water transport; Ton–km – tonne–kilometer; Pass–km – passenger–kilometer a Planning Commission forecast. Soucre: Babul, Hadi Hussain. 2003. Key issues for port’s efficiency: development of inland distribution system (road, rail & inland waterways in Bangladesh. Chittagong.

b. Rail 10. The rail system is principally divided into broad gauge in the west of the country and meter gauge in the east. The sector has suffered a decline in freight traffic and its market share has dropped from around 30% to an estimated 7% at present, mostly due to the growth in manufacturing industries such as textiles, for which road transport can provide a more frequent and reliable service. Even for bulk traffic movements, obsolete rail wagons and speed restrictions have made rail increasingly unattractive. These problems are compounded by thefts and the necessity for frequent safety checks, thus increasing transit times and congestion on the dominantly single-track system. As it is, only the Dhaka-Chittagong route is cost-effective for inland distribution. However, the recent rail links of Rajsahi-Joydevpur and Khulna-Joydevpur over Jamuna bridge have opened up an opportunity to cater to the rail-borne traffic in the northern and southern regions of the country. c. Inland Waterways 11. IWW has an important role in transport due to the large network. Both Chittagong and Mongla ports are dependent on IWT for the movement of bulk and semi-bulk products. At Mongla, most of the tonnage handled at the port is distributed by IWT, although there are some navigational constraints in the IWW from Mongla to Dhaka-Narayanganj. While IWT has long been used for distribution of bulk and break-bulk cargoes, transportation of containers has not developed due to the lack of appropriate river terminals in Dhaka and other freight centers. Moreover, the river is passable only for vessels with a maximum draught of 4 meters. 12. At present, IWT provides services to outer anchorages, and facilitates inland distribution of products from specialized terminals—oil, grain, fertilizer, clinker, etc.—and overside working of semi-bulk vessels in the port. The vessels used for IWT are mainly bay-crossing cargo vessels and, despite the fact that intermodal operational arrangements would enable cargoes to be transported from door-to-door, it has not yet played a major role in the transport of containers. The lack of a dedicated terminal facility at Dhaka is also a major problem. However, if the necessary operational arrangements are established, IWT could be a real alternative to road and rail. A riverside container terminal is under construction at Khanpur by a private company on a build-operate-transfer (BOT) basis, and a public terminal is also being built at Paangooan. These terminals, both situated in the Dhaka-Narayanganj area, will have an

Appendix 2 25

estimated annual capacity of respectively 60,000 twenty-foot equivalent units (TEUs) and 120,000 TEUs and could attract a share of over 10% of Chittagong-originated container traffic.

4. Dhaka-Chittagong Corridor 13. The Dhaka-Chittagong corridor contributes annually about 30% to gross domestic product (GDP). Demand for transport in the corridor is already exceeding capacity and causing major delays to passengers and freight. Traffic on Dhaka-Chittagong highway, most of which is two-lane, is about 16,000 vehicles per day (33,000 passenger car equivalent units [PCUs]).3 Rail carries about 15% of the transport along the Dhaka-Chittagong corridor, including containers and bulk cargo. It is Bangladesh Railways’ (BR) most profitable freight segment, adding about 22% to annual freight revenues. 14. About 80% of freight traffic in the Dhaka-Chittagong corridor is moved by trucks, but little in containers. The only ICD in the country is in Dhaka, but only about 10% of the import containers are handled there although 70% of the import and export cargo either originates from or terminates in Dhaka. Cargo is usually unstuffed at the port or the few nearby container depots and then transported by small trucks in break-bulk form. This is not only wasteful in terms of resources, as each container is loaded in 3-4 trucks, but also defeats the economic benefits of containerization. Moreover, cargo is open to more pilfering and damage in transit. 15. Customs allows containers to be transported to Dhaka ICD by rail under the original bill of lading and the consumers can take delivery at the ICD or at premises at their choice. The service is hassle free, cheaper than road, and popular. However, BR is currently able to capture only a fraction of the Dhaka-Chittagong traffic (about 43,100 TEUs or less than 10% of the total in 2002) due to capacity constraints—line capacity is limited by sections of single track between Dhaka and Chittagong and inadequate wagons. Services are limited to two daily container-trains transporting about 60 TEUs each. Consequently, containers now have to wait up to 10 days to be able to secure a place on trains. It is likely that, in light of such severe congestion, there will not be a substantial increase in rail traffic on these lines until the ADB-financed Rail Sector Development Project, aimed at establishing a double track for the entire rail line between Dhaka and Chittagong, is complete in 2009. 16. An estimated cost comparison of the three freight haulage systems for container transport is shown in Table A2.2. It is clear that IWT is the cheapest, but even if full costing principles are used to include environmental and social costs in the analysis, the time cost may preclude a shift in the high-value traffic, which is currently moved by road and rail. 17. Following the promulgation of guidelines for development of private ICDs by the National Board of Revenue in 1998, investors have constructed 11 ICDs in and around Chittagong with a total capacity of 22,215 TEUs. Under the present regulations, private ICDs are used only for stuffing export and storage of empty containers, but not as container freight stations (CFS) for import cargo. In addition, restrictions on siting of private ICDs to 20 km from the port is also discouraging potential investors, especially because appropriate land is unavailable within that area.

3 The typical average daily volume to maintain a level of service of C (average speed 84 km/h during the 30 most

congested hours per annum) on a similar road with 12% trucks should not exceed 26,000 PCUs.

Appendix 2 26

B. Chittagong Port Authority 18. The port’s administration was first legalized with the Port Commissioner’s Act of 1887. The Port Commissioners and Port Railway jointly administered the port until July 1960 when it was reorganized as Chittagong Port Trust, thus ending the dual administration of the port by the two agencies. In order to provide more autonomy to the port’s management, Chittagong Port Authority (CPA) was established in September 1976 as an organizational unit of the Ministry of Shipping.

Table A2.2: Cost Comparison of the Three Modes of Transport ($)

Item Containerized

Cargo via ICD (Rail)

Break Bulk via Road

Containerized Cargo via IWW

1. Terminal-handling charge 43.40 43.40 88.00 2. River dues 9.60 9.60 9.60 3. Inland haulage (haulage

time–distance) 141.18 (Rail)

(9 hours–347 km) 188.11 (Road)

(8 hours–280 km) 55.00 (IWW)

(20 hours–305 km) 4. Unstuffing charge (11 tons) 32.47 (at ICD) 32.47 5. Container demurrage (10

days) 4.21 4.21

6. Container storage (10 days) 9.00 9.00 7. Landing charges 44.91 44.91 12.00 8. Road transport—final

delivery 35.30 12.00

Total

320.07

331.33

164.60

ICD – Inland container depot, IWW – Inland waterways Source: Babul, Hadi Hussain. 2003. Key issues for port’s efficiency: development of inland distribution system (road, rail & inland waterways in Bangladesh. Chittagong.

19. Port management responsibilities are vested in a board comprising a chairperson and three members who are appointed by the Government. There is also an advisory committee consisting of representatives from port users, Bangladesh Navy, customs, Bangladesh National Railway (BNR), Inland Water Transport Authority, and Chittagong City Corporation. CPA owns, maintains, and operates all vessel- and cargo-handling facilities in Chittagong. However, there is no regular forum or channels of communication or dialogue among key port users and port management. 20. CPA’s organization consists of three divisions reporting to the chairperson: operations, engineering, and finance, with a total employment level of 8,489 salaried employees and blue-collar workers and laborers. In addition to the three divisions, six departments report to the chairperson. In terms of the number of employees, the traffic department is the largest with a staff level of 2,014. While there are over 200 highly qualified technical personnel assigned to the engineering, planning, and finance departments, low wage levels and lengthy procedures for changing job classifications have precluded CPA from recruiting new staff with special skills. However, the educational levels and general interest among existing staff make them suitable candidates to be retrained. Moreover, staff have received informal training and exposure to modern port management and operational practices, and are genuinely eager to have new practices introduced to the port.

Appendix 2 27

21. With the enactment of the Financial Act of 2000, CPA became a corporate entity entitled to retain control of its revenues and expenses, and was obligated to pay income taxes to the Government. In fiscal year (FY) 2000/01, CPA paid income taxes of $5.14 million. Its foreign currency earnings in 2002/03 amounted to $42.33 million, which constituted 49% of its total revenue. C. Performance Indicators and Analysis

1. Recent Trends 22. Container-handling operations at Chittagong started in 1976/77 when 6 TEUs (all 20-foot containers) were imported. At that time there were no specialized facilities or equipment to handle containers. The rapid growth of container traffic has surpassed all expectations, reaching in excess of 121,000 TEUs in 1991/92 and more than 560,000 TEUs in 2002/03 (Table A2.3).

Table A2.3: Container Traffic Projections (1,000 TEUs)

High Growth (9%) Moderate Growth (6.4%) Low Growth (3.2%)

Year Import Export Total Import Export Total Import Export Total 2002/03 279.33 281.16 560.49 279.33 281.16 560.49 279.33 281.16 560.49 2003/04 304.47 306.46 610.93 297.21 299.15 596.36 288.27 290.16 578.43 2004/05 331.87 334.05 665.92 316.23 318.30 634.53 297.49 299.44 596.94 2005/06 361.74 364.11 725.85 336.47 338.67 675.14 307.01 309.02 616.04 2006/07 394.30 396.88 791.18 358.00 360.35 718.35 316.84 318.91 635.75 2007/08 429.78 432.60 862.38 380.91 383.41 764.32 326.98 329.12 656.09 2008/09 468.46 471.53 940.00 405.29 407.95 813.24 337.44 339.65 677.09 2009/10 510.63 513.97 1024.60 431.23 434.06 865.29 348.24 350.52 698.76 2010/11 556.58 560.23 1116.81 458.83 461.83 920.66 359.38 361.74 721.12 2011/12 606.67 610.65 1217.32 488.19 491.39 979.59 370.88 373.31 744.19 2012/13 661.28 665.61 1326.88 519.44 522.84 1042.28 382.75 385.26 768.01 2013/14 720.79 725.51 1446.30 552.68 556.30 1108.99 395.00 397.59 792.58 2014/15 785.66 790.81 1576.47 588.05 591.91 1179.96 407.64 410.31 817.95 2015/16 856.37 861.98 1718.35 625.69 629.79 1255.48 420.68 423.44 844.12 2016/17 933.44 939.56 1873.00 665.73 670.09 1335.83 434.14 436.99 871.13 2017/18 1017.45 1024.12 2041.57 708.34 712.98 1421.32 448.04 450.97 899.04 2018/19 1109.03 1116.29 2225.32 753.67 758.61 1512.29 462.37 465.40 927.78 2019/20 1208.84 1216.76 2425.60 801.91 807.16 1609.07 477.17 480.30 957.46

Source: TA Consultant based on growth rates provided by Chittagong Port Authority (CPA). 2002/03 figures represent actual traffic. 23. During the first 9 months of 2003/04 (until the end of March 2004) the port’s container traffic reached 487,252 TEUs. On an annualized basis, this volume translates to 650,000 TEUs, a 15.9% increase over 2002/03. 24. Containers are handled at the two multipurpose berths at jetties 9 through 13 and at CCT. The onshore container-handling system consists of forklift and straddle-carrier systems. At the general cargo berths (GCB), tractor-trailers are used to move containers between the quay and the yard. Forklifts are used to move containers in the yard. At CCT, the straddle-carrier system is used for both yard operations and transferring containers between the quays and yards.

Appendix 2 28

25. The number of TEUs increased by 14.9% annually during the 12-year period 1991/92 to 2002/03. The corresponding increases in tonnes and the number of container ships are 15.5% and 6.7% per year, respectively. The lower rate of growth in the number of ships in relation to TEUs or tons resulted in a corresponding increase in the average number of TEUs or tons per ship. From 1991/92 to 2002/03, the average number of TEUs per ship increased from 388 to 874 and the average number of tonnes from 3,458 to 8,271. 26. In terms of TEUs, import/export traffic is nearly balanced. However, in terms of tonnes, the traffic is not balanced with an import/export ratio of approximately 5:2. This is also reflected in the average weight per TEUs for imports at 13.3 tonnes and for exports at 5.6 tonnes, in 2002/03. This disparity is due to the large number of export containers shipped empty, confirming that the port is primarily an import port for containerized cargo as in the case of bulk and general cargoes. In 2002/03 for example, 111,051 empty TEUs were exported (39% of TEUs exports), whereas only 11,404 empty TEUs were imported (4% of TEUs imports).

2. Customs Interface 27. The customs operations are primarily paper-based with some computerization in the form of 1 of 6 ASYCUDA modules running. From a port operations perspective, however, the key problems relate to customs regulations dealing with the stripping of containers. For security reasons, customs requires that all CFS operations take place inside the port area. Customs also requires cleared full container load (FCL) containers to be unstuffed inside the port area. These activities are slowing down operations at CCT due to inadequate space. They occupy from 20% to 40% of CCT operating space, depending on the time of day. Two reasons are provided for this practice: first, customs regards the containers themselves as dutiable items and second, a customs officer is required to observe the cargo as it is removed from the container to see if it contains contraband. The former reason is in contrast to international norms and the second is primarily a result of not having an adequate computerized risk assessment system in place to determine which containers should be inspected. 28. The container stripping process is slowed further by the archaic system used to handle cargo in the warehouse. Cargo is placed in a semi-organized manner on the floor requiring 98 clerks to sort everything out. All accounting and inventory control is done by hand. The average dwell time in the warehouse is 10 days. The loading of the outbound trucks is also a very slow process. These operations interfere with the yard movements. 29. The practice of stripping both less than container load (LCL) and FCL containers within CCT contributes significantly to the 18-day average dwell time that is characteristic of current operations. It also generates delays that reverberate throughout container operations. Yet it is an artificial contrivance. In most modern ports these operations are carried out in off-dock facilities. Even in many ports lacking computerized clearance systems, the boxes move to the off-dock facility using internal transit procedures. 30. While the negative consequences of these customs requirements on the port and CCT operations are enormous, Customs House of Chittagong (CHC) and its central ministry (National Board of Revenue within the Ministry of Finance) are planning to relocate the customs warehouse and auction house to an off-dock site just north of the Port Park. The Port Park in itself is a facility being constructed by CPA to handle CFS and some FCL containers. It is expected to be complete by January 2006.

Appendix 2 29

3. Labor 31. The port is an important contributor to employment in the Chittagong region. Direct employment by the CPA totals approximately 8,500 jobs. In addition, the port creates employment for 6,200 dockworkers, 5,300 merchant laborers, and 3,000 stevedoring workers. There are as many as 23,000 workers involved in different activities in different sections of the port. 32. There are two areas where unskilled labor is employed: in the operations on the quay, and in the CFS and FCL container stripping operations. The gang sizes for those activities tend to be excessive: in container loading/unloading operations a gang includes about 12 workers where only 2 or 3 would be needed. Given the low wages, this has little impact on cost, but efficiency is lowered when too many persons are handling equipment and cargo. 33. Recently, CPA and the Government started to gradually reduce the labor force through mutually agreed retirement compensation. The process is very similar to those conducted in most of the ports in the world, where technological improvements in port operations created large redundancies in both port employees and dockers. Although costly, this has been proving a successful model for reducing long-term costs and improving productivity. The Government also plans to introduce a system of performance-based remuneration, which will eliminate the system of informal earnings. 4. Port Environmental Management 34. CPA is surrounded by many industrial plants and almost all of them discharge untreated wastes into the Karnaphuli river. In addition, intentional discharging and accidental spillages of oil and oily substances (e.g., bilge) from ships occur almost weekly. Sometimes, oil pollution in the river becomes noticeable. However, due to strong currents, wind, and wave action the oil dissipates fast. It reaches the riverbanks, and stains the vegetation along the river. Although around 1,700 ocean ships and 4,000–5,000 coastal ships (on average five ocean ships and 15 coastal ships daily in 2003) call on Chittagong now (and will increase in the future), there is no routine monitoring of oil pollution within CPA’s area jurisdiction and there is no pollution monitoring along the river. Water samples taken from the river in March 2004 at 10 different sites within CPA’s area jurisdiction have confirmed that the oil and grease content range from 30–338 parts per million (ppm), exceeding the allowable limits. 35. The existing government regulations have established comprehensive standards for industries to fight pollution. However, enforcement is weak. In this regard, pressure due to international requirements on environmental management is pushing individual industries to internalize their environmental problems. As for the port sector, the Government has ratified the convention on Marine Pollution (MARPOL) 73/78, which came into effect in September 2003. 36. At present, CPA is not fully equipped to comply with MARPOL 73/78 in terms of facilities, equipment, or staff. MARPOL 73/74 covers the 1954 Oil Pollution Convention that requires contracting parties to take all appropriate steps to promote the provision of facilities for the reception of oily wastewater. Aside from prevention of pollution by oil, the convention is also intended to address other forms of pollution from ships such as (i) noxious liquid, (ii) harmful substances in packaged form, (iii) sewage, (iv) solid wastes, and (v) air pollution. It is, therefore, necessary for CPA to have as a starting point an oily waste reception facility. Having this facility will force CPA to allocate resources for improving their environmental performance, which will strengthen Chittagong port’s competitiveness.

Appendix 2 30

5. Container Traffic Projections 37. CPA recently prepared cargo throughput projections for container traffic as well as for other cargoes. They are based on alternative levels of high, moderate, and low annual growth rate assumptions of 9%, 6.4%, and 3.2%, respectively. Considering the annual 14.9% growth rate of container traffic expressed in TEUs during the last 12 years, these growth rates represent realistic trends, even if a reduction in exports will follow the expiration of the Multifiber Arrangement at the end of 2004. Besides, the economy is expected to grow at an average of about 5%, and if the rule-of-thumb estimate of twice the GDP growth is used, the 9% growth seems realistic. The growth rate experienced in the last 12 years is well above average for a port of its size and is indicative of the changing pattern of the nation’s foreign trade. 38. Based on the assumed growth rates, Table A2.3 shows the projected TEUs for the 15-year period from 2003/04 to 2019/20. Under the high growth rate assumption, the port is expected to handle 2.4 million TEUs in 2019/20. In the case of moderate and low growth rates, the corresponding figures are 1.6 million and 957,000 TEUs, respectively.

Figure A2.1: Traffic Growth Forecast

0

500

1,000

1,500

2,000

2,500

3,000

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

2013

-14

2014

-15

2015

-16

2016

-17

2017

-18

2018

-19

2019

-20

Year

Thou

sand

TEU

s

High Growth Moderate Growth Low Growth

High

Moderate

Low

D. Opportunities for Improving Port Sector Efficiency 39. In recent years, the Government has been progressively implementing a number of institutional reforms and operational improvements intended to improve port sector efficiency. Private sector participation in port-related activities has substantially evolved and now includes: (i) operation of specialized cargo terminals; (ii) operation of warehouses; (iii) construction and operation of 11 CFSs and ICDs in and around the port of Chittagong and a major (IWT bound) ICD near Dhaka, at present under construction; (iv) fuel storage facilities and tank farms;

Appendix 2 31

(v) ownership and operation of container-handling equipment; (vi) dry docking and ship repair facilities; (vii) pilotage; and (viii) river dredging operations. 40. Several public investments are also currently under way or in preparation to improve transport infrastructure on the Dhaka-Chittagong corridor. These are: (i) the ADB-financed double-tracking of the Dhaka-Chittagong rail corridor to increase capacity and speed of rail services; (ii) the ADB-financed Chittagong Port Access Road, which will provide a direct link between Dhaka-Chittagong highway and the port; (iii) the planned widening of the two-lane Dhaka-Chittagong national highway to a four-lane facility, of which the initial 28 km have been completed; and (iv) the construction of two new ICDs—one public and one private under a BOT contract—at Dhaka-Narayanganj to serve IWT of containers. 41. CPA has also started an important program of public investment to meet its modernization requirements:

(i) A new 1,000-meter container quay (NMCT) with a capacity of 500,000 TEUs is under construction with completion date set for 2006. NMCT will be equipped with six to eight gantry cranes and a 220,000 square meter back-up area. These will help increase the speed of container handling and lower ship turnaround time, which will in turn lead to lower freight rates.

(ii) Four gantry cranes are being procured for CTC, and will be operational by the

end of 2005. Current efficiency levels at CTC are very poor. Throughput per ship day in container operations is a low 178 boxes, and average turnaround time of vessels is 4.8 days, including a service time of 3.2 days. These indicators are expected to improve substantially with the entry into service of the new cranes.

(iii) A total of 13 straddle carriers, 12 reach stackers, 22 trailers, 6 rubber tired

gantries and other minor container-handling equipment have been mobilized in the last 5 years.

42. A private firm will operate the NMCT under a concession contract. This will be the first privately operated container terminal in Bangladesh. CPA expects the operator to establish high productivity targets, which will have a general positive impact on CCT operations. Competition between private-operated NMCT and CPA-operated CCT will raise the need to guarantee transparency and fair practices. Improved efficiency will also have an impact on labor productivity, thus paving the way for labor union rationalization. 43. Under the Customs Administration Modernization (CAM-1), CHC has shifted all its import groups into the customs hall room and under ASYCUDA++ operations. Although certain system modules are not activated to reap the full benefits of computerization, 50% of importers can now clear cargo within 24 hours after (CAM-1) project, while others may take 2 to 3 days. 44. To realize the full potential of the planned physical and technological enhancements, other procedural and organizational changes are needed. They include the development of the workforce, modernization of selected customs procedures, reform to port tariffs, and improvements to port environmental management. Activities ongoing in that regard are summarized in Table A2.4.

Appendix 2 32

Table A2.4: Government Initiatives to Facilitate Trade Action Taken Purpose Discussions between CPA and CHC about relocating customs warehouse and auction house

Increase container terminal capacity

Construction of the Port Park Relocate CFS and FCL activities to increase container terminal capacity

Ministry of Shipping plan to rationalize labor unions

Increase labor productivity

Review of port tariffs Enable better billing using CTMS Creation of the national anticorruption committee

Investigate and penalize guilty parties

CFS – container freight station, CHC – Customs House of Chittagong, CPA – Chittagong Port Authority, CTMS – container terminal management system, FCL- full container load

Appendix 3 33

EXTERNAL ASSISTANCE TO THE PORT SECTOR

Source

Project Name

Loan/TA Amount (in funding agency currency, million)

Date Approved

ADB Loans: 143 BAN (SF) Improvement and rehabilitation of

railway track within port area. $ 3.20 18 Oct 1973

144 BAN

Construction of one warehouse and rehabilitation of 5 transit sheds behind jetties 1-6.

$ 3.60 18 Oct 1973

TAs: TA 96 BAN Chittagong Port Project $ 0.16 1973 TA 2863 BAN Ports Upgrading Project $ 0.29 May 1998 TA 4136 BAN Chittagong Port Trade Facilitation

Project (CPTFP) $ 0.50 16 Mar 2004

JBIC Procurement of telecommunications

equipment ¥30.0 11 May 1976

World Bank TAs: IDA 622 (TA-III) Port Development Project $ 0.50 1979 IDA 872 (TA-III) Port Development Project $ 0.95 1979 IDA 1124 (TA-IV) Port Development Project SDR 0.03 1983 IDA-2393 (TA-VI)

Port system development plan : trade facilitation study and master plan.

$ 0.98 21 May 1992

Loans: IDA Credit # 424 Crude oil landing system $ 1.60 10 Aug 973

IDA Credit #1096 Trial dredging in river Karnaphuli $ 4.23 13 Feb 1981

IDA Credit #1247 Construction of 2 multipurpose berths and procurement of cargo-handling equipment

SDR 33.00 21 May 1982

IDA Credit #1504-2 BD (Supplemental)

Construction of 2 multipurpose berths and procurement of cargo-handling equipment

SDR 6.32 25 Jul 1984

France (Credit) (Bangladesh French Financial Protocol) :

Procurement of one trailing suction hopper dredger (i) Financial Protocol—1983 (ii) Financial Protocol—1987 (iii) Financial Protocol—1989

FF 47.40 FF 93.00 FF 7.05

FF 147.45

7 May 1983

2 Jun 1987

12 Jun 1991 Finland (Grants) Construction of 2 multipurpose berths

and procurement of cargo-handling equipment:

- interim container-handling equipment

- Moheshkhal bridge - 5 weighbridges

FIM 71.41

FIM 0.89 FIM 3.60

25 Aug 1984

19 Feb 1988

21 Sep 1989

Continued on next page

Appendix 3 34

Source

Project Name

Loan/TA Amount (in funding agency currency, million)

Date Approved

Netherlands (Grants)

1.Procurement of one High Powered Tug (3200 BHP)

NLG 2.72 23 Jul 2000

2. Salvage and removal of vessels and craft sunk in river Karnaphuli during the cyclone, 1991.

NLG10.00 1991–1992

Chittagong port entrance study NLG 3.25 January1977 Denmark (Loan) 1. Procurement of vessels and crafts

(buoy lifting vessel) DKK 15.90 29 Sep 1976

2. Procurement and installation of fire

sprinklers in sheds DKK 2.96 11 Aug 1978

ADB – Asian Development Bank; DKK – Danish Krones; FF – French Francs; FIM – Finnish Markka; IDA – International Development Association; JBIC – Japan Bank for International Cooperation; NLG – Netherland Guilders; SDR – special drawing rights; SF – special fund; TA – technical assistance; Source: Chittagong Port Authority.

Appendix 4 35

PORT EFFICIENCY IMPROVEMENT PLAN

Objectives Necessary Actions Timeframe for the Actions

Responsible Agencies

Increase Yard Capacity

• Identify new site for customs cargo warehouse

• Commence preliminary design of

customs warehouse and planning of other logistics arrangements such as cargo transport to new site

• Streamline and introduce new

auctioning procedures to reduce container dwell time

• Award tender for construction of

customs warehouse

• Relocate customs auction warehouse and operations

• Relocate FCL stripping activities to

Port Park

1 December 2004 1 January 2005

1 March 2005 1 October 2005 1 January 2006 1 January 2006

CHC

CHC, CPA, BR

CPA

NBR/CHC

CHC/CPA

CPA/CHC

Port Tariff Restructuring

• Commence review and revision of port tariffs to ensure transparency and uniformity in line with regional ports

• Implement new tariff structure

1 December 2004

1 July 2005

MOS/CPA

MOS/CPA

Improve Port Performance

• Commence preparing a strategic plan

• Submit final strategic plan to MOS

• Start implementing strategic plan

1 January 2005

1 June 2005

1 October 2005

CPA/MOS

CPA/MOS

CPA/MOS

Human Resource Development

• Commence preparing a human resource development plan (HRDP) for retraining and increasing skill levels of CPA staff

• Implement HRDP

1 January 2005

1 June 2005

CPA

CPA

Environmental Performance Management

• Conduct management consultation on formulation of environmental management plan

Continuous starting 1 January 2005

CPA

Continued on next page

Appendix 4 36

Objectives Necessary Actions Timeframe for the Actions

Responsible Agencies

• Conduct institutional assessment to establish environmental unit and formulate scope of responsibility, and SOP of this unit

• Hire/assign qualified staff for

environmental unit and commence operating this unit

• Formulate and adopt environmental

management plan to improve environmental performance by complying with MARPOL 73/78 requirements and other international environmental standards

• Submit request for funding for

additional facilities to meet MARPOL 73/78

Continuous starting 1 January 2005

1 January 2005

1 June 2005

1 June 2005

CPA

CPA

CPA

CPA

BR = Bangladesh Railways; CHC = Customs House of Chittagong; CPA = Chittagong Port Authority; FCL = full container load; HRDP = Human Resource Development Plan; MARPOL = Marine Pollution and Prevention Convention; MOS = Ministry of Shipping, NBR = National Board of Revenue. Source: Asian Development Bank estimates.

Appendix 5 37

SUMMARY INITIAL ENVIRONMENTAL EXAMINATION

A. Introduction 1. The Project has three main physical interventions: (i) construction of a connector road to link Chittagong container terminal (CCT) and New Mooring container terminal (NMCT) with the Chittagong port access road (CPAR); (ii) upgrading internal roads and the bridge between CCT and general cargo berths (GCB), and construction of the port service road (PSR) and a bridge linking the port and the proposed Port Park; and (iii) installation of a waste-oil separation plant and construction of a building (around 1,500 square meters (m2) consisting of a laboratory, storage room for oil-spill clearance equipment, and office space for the new environmental unit. Based on these physical interventions, the Project is categorized as a “B” Project in accordance with the Environmental Assessment Guidelines of the Asian Development Bank (ADB). Based on the Environmental Conservation Rules (ECR) 1997, the road component is categorized as an “Amber A or B” project, while the oil-waste separation plant has no categorization under the ECR. However, site clearance and environmental clearance to operate the plant need to be obtained from the Department of Environment (DOE). On these bases, an initial environmental examination (IEE) was prepared from January to June 2004, but the detailed engineering drawings are yet to be prepared. B. Description of the Project

2. The details of Project activities are summarized in Table A5.1 below:

Table A5.1: Summary of Project Activities

Project Component Detailed Activities

1 Road linking CCT and NMCT with CPAR

• Construction of 1.7 kilometers of new road with a 960-meter flyover

2 Internal roads and bridges • Construction of a 900-meter service road • Construction of 2 bridges: (i) 55-meter

bridge over Mohesh Khal, and (ii) bridge on the PSR

3 Waste-oil separator and building (around 1,500 square meters) comprising laboratory, office space, and storage room for oil-spill clearance equipment

• Construction of pontoon moorings at the oil-waste reception facilities

• Installation of oil-waste separator • Construction of building

CCT = Chittagong container terminal, CPAR = Chittagong Port Access Road, NMCT = New Mooring container terminal, PSR = Port Service Road,

C. Description of the Environment

1. Physical Environment

3. The city of Chittagong and surrounding areas, including the project site, are coastal areas. These areas are mainly plain land at an elevation of about 3–4 meters above sea level. Cyclonic storms frequently hit this coastal region during monsoon periods. The soil condition in the project area is stable with no erosion problems and groundwater can be found at 3–5 meter depths. Deep tubewell water is fresh and free from salinity, but the shallow underground water is susceptible to

Appendix 5 38

seawater intrusion due to its proximity to the bay of Bengal. The area of the proposed physical works is considered to be within a seismic risk zone. 4. The Chittagong port area is located on the banks of Karnaphuli estuary, and is a nursing ground for many species of fish and varieties of marine life. The river is favorable for migratory fish. However, the water quality and fish population have been drastically lowered. Many polluting industries discharge untreated effluent directly into the river. Untreated city sewage together with many other wastes such as storm run-off and wastewater from various ships and port activities go directly into the river, causing frequent localized pollution. In addition, oil spills from ships occur at least once a week. The movement of the migratory fish in the river has declined also due to interference from seagoing vessels, port activity, construction of the Kaptai dam, reclamation, and construction of large-scale fertilizer industries, etc., in the coastal areas. 5. The project area does not have any forests, though within a 10-kilometer (km) radius of the project site, a small patch of mangroves comprising a mainly new plantation of kewra can be found. There is no endangered wildlife reported in the project area, but a large number of different birds are seen in the mangrove forest. The nearest forest area is in Sitakhunda thana (fortress), which is approximately 30 km away from the project area.

2. Sociocultural Aspects

6. The project site lies in Bandar thana of Chittagong district. This thana covers an area of 44.6 square kilometers (km2) with 30,726 households and a population of 187,739. The population density is 4,207/km2. The people of this thana are engaged in different types of activities for livelihood. Nearly 5% of the population is engaged in agriculture, 53% in services, 12% in commerce, and 3 % in nonagricultural labor. The productivity of the industries and means of livelihood are favorable so the general economic condition of the people is good. Nearly 3,000–4,000 people are engaged in fishing in the Karnaphuli river and the estuarine areas. 7. The major sources of drinking water are tap, tubewells, and dug wells followed by ponds and rivers. Most of the households of the Bandar colony (77% of total households) use tap water, whereas 87% of households in Madhya Halishahar and 74% of households in Dakshin Halishahar use tubewell water for drinking. About 50% of the total households in the project area use sanitary latrine facilities, 47% use nonsanitary latrines, while 3% use open places for defecation. 8. There are no historical, cultural, or archaeological places of importance in the areas surrounding the Project.

D. Screening of Potential Environmental Impacts and Mitigation Measures

9. No environmental impacts are expected in association with the siting or location of the Project because it is located within the existing port jurisdiction and not in the coastal area. However, the construction of the road from CPAR to CCT will involve an area that is now encroached by local communities. The resettlement plan to handle this matter has been prepared separately.

10. The environmental impacts associated with the road component mostly relate to construction works. The impacts will include: (i) loss of tress due to land clearing, (ii) disruption of traffic in the construction area and main road of Chittagong port area due to the movement of construction equipment and vehicles, (iii) increased air pollution due to increasing dust from the earth work, (iv) noise and vibration, and (v) disruption of water system due to construction. All these

Appendix 5 39

impacts will occur only during the construction period. The mitigation measures to deal with the impacts associated with the construction phase include: (i) rerouting traffic with clear signs and by moving equipment and vehicles as much as possible by rail, (ii) maintaining optimum moisture content during handling of soil, and spraying adequate water to minimize dust, (iii) strictly controlling the construction works that create noise and vibration by prohibiting night work, (iv) pumping stagnant water and providing an adequate drainage system, and (v) locating storage areas for construction materials away from water bodies and river banks. These mitigation requirements will be included in the contract documents for the contractors. Clearly, these impacts are temporary and manageable. Roads and Highways Department (RHD) and Chittagong Port Authority (CPA) will implement these mitigation measures for each activity under their responsibility.

11. The camps for construction workers will be placed in areas to avoid social conflict. Furthermore, the camps will be provided with adequate sanitation and waste management facilities to avoid disruption to the communities. Construction material that contains hazardous and toxic substances such as petroleum and lubricants will be stored in proper places and managed in accordance with government standards.

12. The environmental impact associated with the operation of the road component is expected to be positive, because the new road is expected to ease traffic movement and it will lead to lower vehicle emissions. The potential negative impact is leakage and spillage of hazardous goods transported by truck. CPA and RHD will work with other relevant government agencies as well as the community to develop a safety plan. A separate plan will be prepared by RHD and CPA to reduce traffic pollution and noise by minimizing the exit/entry points from the port (gates) and channeling traffic to the Chittagong Port Access Road.

13. The impacts associated with the construction of the oil-waste separation plant will be very minimal, and will be confined within CPA’s jurisdictional area. However, since the location of this is only about 100 meters from the main road connecting Chittagong city to the airport, it is expected that traffic congestion will worsen during the construction period. Therefore, adequate traffic signs and rerouting of traffic may be necessary. The environmental impacts associated with the operation of the plant will be positive. The waste oil from ships will be received and treated at the plant, and effluent discharged from the plant will be designed to meet the Bangladesh standards for effluent from oil-related activities. This is expected to eliminate the impact of ships on the water quality in Karnaphuli. Moreover, the oil separated from the wastewater could be sold in the open market. In this context, the supervision consultant for this subproject component will also undertake a study of the potential uses for the oil and sludge derived from the separator. The sludge is not expected to be significant in volume terms and is also expected not to have any oil substances. However, routine tests on the quality of sludge will be carried out to ensure that there are no oil and toxic substances, and therefore the sludge can be disposed of at the municipal disposal sites. The sludge will be collected in drums and stored in the plant area in special ways to avoid leaks and spills.

E. Institutional Requirement and Environmental Monitoring Program

1. Institutional Framework and Responsibility

14. Implementation of mitigation measures during the construction stage will be the responsibility of the contractors. An environmental engineer, hired as part of the consultant team for implementing the Project, will assist RHD and CPA to prepare contractual documentation so that the bidding documents, bills of quantity, and other obligations of the contractors clearly identify environmental responsibilities and describe penalties for noncompliance. The environmental

Appendix 5 40

engineer will also assist RHD and CPA to monitor and supervise the contractor in implementing mitigation measures. CPA and RHD will be responsible for implementing the overall environmental monitoring and management plan as part of the IEE for the oil-separation/treatment facility and the connector road, respectively.

2. Environmental Monitoring and Management Plan

15. The IEE has identified the generic monitoring and management program, which will be part of the mitigation of the adverse impacts. Detailed location and timing to undertake the monitoring work are also identified. For the road subcomponent, during the construction phase, RHD’s and CPA’s environmental monitoring will focus on the implementation of the mitigation measures to minimize dust, noise, stagnant water, and contamination from activities of temporary worker camps, accidents, and traffic disturbances. During operation of the oil-waste separation/treatment facility, environmental monitoring will focus on water quality parameters such as dissolved oxygen, pH, oil and grease, and sulfides. Ten monitoring sites have been identified.

16. CPA will prepare an annual report on implementing the monitoring and management plan and submit it to ADB and relevant government agencies. Similarly, RHD will prepare an annual report on the implementation of the environmental management plan for its project component and submit it to ADB and other relevant institutions.

3. Public Consultation

17. During the IEE study, in July 2004, consultations were held with the local communities. The consultations focused on providing information related to the Project and seeking the community’s concerns. There were no public objections raised to the Project during the consultations.

F. Findings and Recommendations

18. The IEE shows that environmental impacts associated with the physical interventions under the proposed Project are manageable and can be mitigated. Therefore, a full EIA to assess further impacts is not required. However, continuous monitoring will be required and further support to CPA to formulate a comprehensive environmental management is necessary.

G. Conclusion

19. The Project will not cause significant environmental problems and the potential adverse impacts are manageable. However, continued monitoring of implementation activities should be carried out.

SUMMARY COST ESTIMATES AND FINANCING PLAN BY PROJECT COMPONENTS (million)

Table A6.1: Chittagong Port Authority Component

Total Cost Foreign Exchange Local ADB Government

Currency ($) ($) Project Components Tk $ Tk $ Tk $ FX LC Total FX LC Total

CPA Component A. Base Cost: 1. Civil Works a. Port Service Road

(phase 1) 55.5

1.0 22.5 0.40 33.1 0.6 0.4 0.0 0.4 0.0 0.6 0.6

b. Re-construction or Upgrade of the internal Road and Canal Bridge between the CCT and New Mooring Terminal

57.2 1.0 26.9 0.5 30.2 0.5 0.5 0.0 0.5 0.0 0.5 0.5

c. Waste Collection and Disposal Facility

32.0 0.6 13.7 0.2 18.3 0.3 0.2 0.0 0.2 0.0 0.3 0.3

Subtotal Base Cost 144.7 2.5 63.1 1.1 81.6 1.4 1.1 0.0 1.1 0.0 1.4 1.4B. Equipment 1. Gate Equipment 80.0 1.4 76.0 1.3 4.0 0.1 1.3 0.0 1.3 0.0 0.1 0.1 2. Computerization 245.3 4.2 225.9 3.9 19.4 0.3 3.9 0.0 3.9 0.0 0.3 0.3 3. Waste Management 138.8 2.4 123.4 2.1 15.4 0.3 2.1 0.0 2.1 0.0 0.3 0.3Subtotal Equipment 464.1 8.0 425.3 7.3 38.8 0.7 7.3 0.0 7.3 0.0 0.7 0.7C. Design Supervision 1. Port Service Road

(phase I) 12.2 0.2 9.1 0.2 3.0 0.1 0.2 0.0 0.2 0.0 0.1 0.1

2. Re-construction or Upgrade of the internal Road and Canal Bridge between the CCT and GCB

5.1 0.1 3.9 0.1 1.3 0.0 0.1 0.0 0.1 0.0 0.0 0.0

3. Waste collection and disposal facility

15.4 0.3 11.5 0.2 3.8 0.1 0.2 0.0 0.2 0.0 0.1 0.1

Appendix 6 41Continued on next page

Total Cost Foreign Exchange Local ADB Government

Currency ($) ($) Project Components

Tk $ Tk $ Tk $ FX LC Total FX LC Total

Subtotal Design and Supervision

32.7 0.6 24.5 0.4 8.2 0.1 0.4 0.0 0.4 0.0 0.1 0.1

D. Computerization Consulting Services

1. Procurement Consultant

24.0 0.4 20.4 0.4 3.6 0.1 0.4 0.0 0.4 0.0 0.1 0.1

2. CTMS Implementation Consultant

32.0 0.6 27.2 0.5 4.8 0.1 0.5 0.0 0.5 0.0 0.1 0.1

Subtotal TA Services 56.0 1.0 47.6 0.8 8.4 0.1 0.8 0.0 0.8 0.0 0.1 0.1E. Contingencies 1. Physical

Contingency 69.7 1.2 56.4 1.0 13.3 0.2 1.0 0.0 1.0 0.0 0.2 0.2

2. Price Contingency 18.0 0.3 12.8 0.2 5.1 0.1 0.2 0.0 0.2 0.0 0.1 0.1Subtotal Contingencies 87.7 1.5 69.3 1.2 18.4 0.3 1.2 0.0 1.2 0.0 0.3 0.3F. Interest During

Construction 44.9 0.8 44.9 0.8 0.0 0.0 0.8 0.0 0.8 0.0 0.0 0.0

Total Cost of CPA Components

830.1 14.3 674.6 11.6 155.4 2.7 11.6 0.0 11.6 0.0 2.7 2.7

42 Appendix 6

CCT = Chittagong container terminal, CPA = Chittagong Port Authority, CTMS = container terminal management system, FX = foreign exchange, GCB = general cargo berths, LC = local cost, TA = technical assistance Source: Asian Development Bank estimates.

Table A6.2: Roads and Highways Department Component

Total Cost Foreign Exchange Local ADB Government Currency ($) ($)

Project Components

Tk

$

Tk

$

Tk

$

FX

LC

Total

FX

LC

Total RHD Component

A. Base Cost:

1. Civil Works (Connector from CPAR to the NMCT and CCT)

631.9 10.9 272.3 4.7 359.6 6.2 4.7 0.0 4.7 0.0 6.2 6.2

2. Equipment 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0B. Design and Supervision

56.9 1.0 39.8 0.7 17.1 0.3 0.7 0.0 0.7 0.0 0.3 0.3

C. Contingencies 1. Physical

Contingency 68.9 1.2 31.2 0.5 37.7 0.6 0.5 0.0 0.5 0.0 0.6 0.6

2. Price Contingency 23.5 0.4 8.4 0.1 15.1 0.3 0.1 0.0 0.1 0.0 0.3 0.3Subtotal Contingencies 92.4 1.6 39.6 0.7 52.7 0.9 0.7 0.0 0.7 0.0 0.9 0.9D. Interest During

Construction 21.8 0.4 21.8 0.4 0.0 0.0 0.4 0.0 0.4 0.0 0.0 0.0

Total Cost of RHD Components

803.0 13.8 373.6 6.4 429.4 7.4 6.4 0.0 6.4 0.0 7.4 7.4

CCT = Chittagong container terminal, CPAR = Chittagong Port Access Road, FX = foreign exchange, LC = local cost, NMCT = New Mooring container terminal, RHD = Roads and Highways Department Source: Asian Development Bank estimates.

Appendix 6 43

Table A6.3 Customs House of Chittagong Component

Total Cost Foreign Exchange Local ADB Government Currency ($) ($)

Project Components

Tk

$

Tk

$

Tk

$

FX

LC

Total

FX

LC

Total CHC Component

A. Equipment – scanners and PCs

580.0

10.0 551.0 9.5 29.0 0.5 9.5 0.0 9.5 0.0 0.5 0.5

B. Design and Supervision

52.2 0.9 49.6 0.9 2.6 0.0 0.9 0.0 0.9 0.0 0.0 0.0

C. Contingencies 1. Physical

Contingency 63.2 1.1 60.1 1.0 3.2 0.1 1.0 0.0 1.0 0.0 0.1 0.1

2. Price Contingency 34.8 0.6 32.4 0.6 2.3 0.0 0.6 0.0 0.6 0.0 0.0 0.0Subtotal Contingencies 98.0 1.7 92.5 1.6 5.5 0.1 1.6 0.0 0.6 0.0 0.1 0.1D. Interest During

Construction 37.1 0.6 37.1 0.6 0.0 0.0 0.6 0.0 0.6 0.0 0.0 0.0

Total Cost of CHC Components

767.3 13.2 730.2 12.6 37.1 0.6 12.6 0.0 12.6 0.0 0.6 0.6

44 Appendix 6

CHC = Customs House of Chittagong, FX = foreign exchange, LC = local cost, PC = personal computer Source: Asian Development Bank estimates.

Appendix 6 45

Table A6.4 Grand Total for Project

Total Cost Foreign Exchange Local ADB Government Currency ($) ($)

Project Components

Tk $ Tk $ Tk $ FX LC Total FX LC TotalBase Cost (Civil Works) 776.5 13.4 335.4 5.8 441.2 7.6 5.8 0.0 5.8 0.0 7.6 7.6Equipment 1,044.1

18.0 976.3 16.8 67.8 1.2 16.8 0.0 16.8 0.0 1.2 1.2Design Supervision 141.8 2.4 113.9 2.0 27.8 0.5 2.0 0.0 2.0 0.0 0.5 0.5Consulting Services for Computerization

56.0 1.0 47.6 0.8 8.4 0.1 0.8 0.0 0.8 0.0 0.1 0.1

Contingencies: 1. Physical

Contingency 201.8 3.5 147.7 2.5 54.1 0.9 2.6 0.0 2.6 0.0 0.9 0.9

2. Price Contingency 76.2 1.3 53.7 0.9 22.5 0.4 0.9 0.0 0.9 0.0 0.4 0.4Subtotal Contingencies 278.1 4.8 201.4 3.5 76.7 1.3 3.5 0.0 3.5 0.0 1.3 1.3Interest During Contruction 103.8 1.8 103.8 1.8 0.0 0.0 1.8 0.0 1.8 0.0 0.0 0.0Grand Total of Project 2,400.3 41.3 1,778.4 30.6 621.9 10.7 30.6 0.0 30.6 0.0 10.7 10.7FX = foreign exchange, LC = local cost Source: Asian Development Bank estimates.

IMPLEMENTATION SCHEDULE

A. Land Acquisition, Resettlement and Clearance of ROW

Consulting ServicesSelection Review of PPTA and preparation of bidding documents (out of loan)Evaluation of bidding documents and selection of Supplier Supervision of Supply, Training and Contract Administration

SelectionDetail design and Preparation of bidding documents Evaluation of bidding documents and selection of Contractor (Civil Works & Env)Supervision of Supply, Training and Contract Administration

Consulting ServicesSelectionPreparation of bidding documents (scanners)

Evaluation of bidding documents and selection of Contractor (scanners)Supervision of Supply, Training and Contract Administration (scanners)Full implementation of manifest module in ASYCUDAOn-the-job training for NBR and CHC

Consulting ServicesSelection

Prequalification of biddersDetail design and Preparation of bidding documents Evaluation of bidding documents and selection of Contractor (Civil Works)Construction Supervision and Contract Administration

Construction of Connecting Road

Consulting Services

Construction and Supply of goods (Civil Works & Environment)

C. Customs House of Chittagong Component

Supply of PCs (IS) and Scanners

2005 2006Q3 Q4 Q3Q2Q1Q3 Q4Q2Q2 Q3 Q4

Project ComponentQ4 Q1

2004

D. Roads and Highways Department Component

B. Chittagong Port Authority Component

Computerization

Civilworks & Environmental equipment in the port

Installation and operation of Gantry Cranes

Supply of goods

2009Q1 Q2 Q3 Q4

2007 2008Q2Q1 Q4Q3Q2 Q1

46 Appendix 7

Appendix 8 47

INDICATIVE CONTRACT PACKAGES

Package No.

Description

No. of Contracts

Mode of Procurement

Approximate Value

($ million)

Chittagong Port Authority

CPA 1

Supply and installation of computer software/hardware (CTMS and MIS)

1 ICB 4.2

CPA 2

Supply and Installation of equipment for Waste reception and oil-spill protection

1 ICB 2.3

CPA 3 Facilities for environmental management 1 LCB 0.6 CPA 4

Reconstruction and upgrading of internal roads and canal bridge between CCT and GCB and gate control equipment

1 ICB 2.4

CPA 5 Port service road and bridge across Mohes Khal

1 LCB 1.0

Roads and Highways Department

RHD 1

Connector road 1 ICB 10.5

Customs House of Chittagong

CHC 1

Supply and installation of scanners and PCs 1 ICB 10.0

CPA = Chittagong Port Authority, CCT = Chittagong container terminal, CTMS = container terminal management system, GCB = general cargo berth, ICB = international competitive bidding, LCB = local competitive bidding, MIS = Management Information system, RHD = Roads and Highways Department Source: Asian Development Bank estimates.

Appendix 9 48

PROJECT PERFORMANCE MANAGEMENT SYSTEM

Goal and Objectives of the

Project

Issues

Indicators

Baseline

Reporting Frequency

Goal: Facilitate trade.

• Sustainability

of trade • Economic

growth • Local

employment

• % change in import/export

volumes • Freight rates to and from key

markets • Maritime cost as a percent of total

product costs for selected commodities (garments, fruits, etc.)

• % change in GDP (local and

national) • % change in unemployment &

underemployment rates in Project area

• Labor employed in the transport sector in the Project area disaggregated by gender:

– % of poor in labor force – % of women in total labor force • Change in wages in transport

sector in Project area categorized by employment groups

Two months prior to start of project

Quarterly during implementation, at completion, and 2, 4 and 6 years after completion

Objective: Increase container terminal capacity

• Low asset utilization

• Inadequate container yard capacity

• Document processing delays

• Delays to ships • High port costs

• Berth utilization (TEUs/berth per

day) • Gantry crane utilization

(TEUs/crane hr) • Average dwell time of containers

in the yard by commodity type, direction of flow (import, export) and origins/destinations

• Percentage of import and export LCLs and FCLs handled at the port per year

• Average dwell time for unclaimed containers

• Time for customs clearance • Number of customs declarations

per year • Total customs cost per declaration • Time between cargo clearance

and CPA billing • Waiting time for berths • Ship turnaround time

• Terminal handling charges ($/TEU)

• Storage cost ($/day)

Two months prior to commissioning of IT systems and other equipment

Quarterly during implementation, at completion, and 2, 4 and 6 years after completion

Continued on next page

Appendix 9 49

Goal and

Objectives of the Project

Issues

Indicators

Baseline

Reporting Frequency

• Restricted port access and internal circulation

• Poor water

quality in port area

• International

security and customs inspection needs

• Annual traffic (national, regional and international) by vehicle type and tonnage/containers on the port access road link

• Truck waiting time for delivery and pick-

up of containers • Monthly water quality data in the port

area (oil content) • Volume of oil-waste received at the new

oil-waste treatment facility • Number of ships using the new oil-waste

treatment facility • Number of infringements before and after

implementation of scanners • Value of recorded imports and exports

before and after implementation of scanners

• Revenue collected/customs staff

Two months prior to commencement of civil works, waste treatment facility, and operationalization of scanners

CPA – Chittagong Port Authority, FCL – full container load, GDP – gross domestic product, LCL – less than container load, IT – information technology, TEU – twenty-foot equivalent

Appendix 10 50

ECONOMIC AND FINANCIAL ANALYSIS A. Economic Analysis 1. The economic analysis1 is based on container traffic forecasts under different scenarios. Forecasts for “with Project” and “without Project” were made for the period from 2005 to 2020. Since the Project is expected to be implemented starting 2006, the analysis period of 15 years is considered from 2006 to 2020. Under the “with Project” conditions, it is assumed that the moderate growth scenario of the recent Chittagong Port Authority (CPA) forecast would be the likely growth rate. This scenario assumes a compound annual growth rate of 6.4%. Under the “without Project” case, the average compound annual growth is assumed to be 2.6%. The resulting forecasts for both “without Project” and “with Project” assumptions are summarized in Appendix 2 (para. 36 and 37).

2. The following parameters and general assumptions were also used in the economic assessment:

(i) Numeraire. For all quantifiable project costs and benefits, the unit of account used is the domestic price level expressed in local currency (Taka).

(ii) Price level. The price level used for all project costs and benefits is constant 2004 prices.

(iii) SERF and other factors. The shadow exchange rate factor (SERF) of 1.05, and shadow wage rate factors for skilled/unskilled labor (SWRF) of 0.87/0.67 were used based on loan projects approved in 2002.2 The corresponding value for the shadow conversion factor (SCF) when the 13% value-added tax (VAT) rate is applied becomes 0.91, in comparison to the 0.83 average of the 2002 loan projects. These values were found to be reasonable also due to the marginal sensitivity of the economic internal rate of return (EIRR) and net present value (NPV) in the present case to both SERF and SWRFs. A 20% increase in SERF to 1.26 lowered EIRR from 21.6% to 20.9%. Likewise, an increase in SWRF of skilled labor to 1.0 lowered EIRR to 21.4%.

3. Project Costs. The project resource statement (PRS) expressed in domestic prices in million takas is presented in Table A10.1. The PRS consists of the project costs (including initial capital and annual fixed and variable operating costs) and benefits. Conversion of initial capital costs expressed in nominal financial terms to economic costs is detailed in Table A10.2. Fixed and variable operating costs are estimated on the basis of annual accounting records and information provided by CPA.

4. The shore gantry cranes will be installed at the same time as the container terminal management system (CTMS). Although the cranes and the CTMS are separate investments, the full benefits of the investment in cranes will not be derived without the computer system. Therefore, the cost of the cranes is not included in the total project cost, but as described below, the benefits from the cranes are computed as reduction in ship turnaround times. Indeed, the reduction in turnaround times is assumed to be less if the Project is not implemented. 1 Performed according to the Guidelines for the Economic Analysis of Projects. 1997. Asian Development Bank.

February. 2 Source: A. Lagman-Martin. 2004. Shadow Exchange Rates for Project Economic Analysis. ERD Technical Note

No. 11. Manila: Asian Development Bank. Average values for Bangladesh are in Appendix 1.

Table A10.1: Project Resource Statement (Tk million)

Costs Benefits to Vessels Benefits to Cargo Owners

Year Initial Investment

Recurring Fixed Costs

(Note 1)

Recurring Variable

Costs (Note 2)

Total Costs

Normal Traffic

Incremental Traffic

Total Benefits

to Vessels

Normal Traffic

Incremental Traffic

Total Benefits to

Cargo Owners

Total Benefits

Net Economic Benefits

2005 0.0 0.0 0.02006

762.0 130.7 1,000.0 1,892.8 329.0 47.9 376.9 0.0 376.9 -1,515.82007 928.3 66.6 1,500.0 2,494.9 418.6 53.9 472.5 0.0 472.5 -2,022.42008 331.0 348.7 2,659.8 3,339.5 568.1 52.6 620.8 1,204.9 272.5 1,477.5 2,098.3 -1,241.32009 115.3 363.7 2,830.1 3,309.0 465.3 80.2 545.5 2,134.9 392.1 2,527.0 3,072.5 -236.52010 379.4 3,011.2 3,390.6 474.6 110.4 585.0 2,508.5 540.2 3,048.8 3,633.8 243.22011 396.0 3,203.9 3,599.9 482.4 145.1 627.5 3,151.3 677.1 3,828.5 4,455.9 856.12012 413.3 3,409.0 3,822.3 553.6 172.7 726.3 3,546.2 850.9 4,397.1 5,123.4 1,301.12013 447.6 3,627.1 4,074.7 620.7 200.1 820.8 3,954.0 1,037.5 4,991.5 5,812.3 1,737.62014 466.7 3,859.3 4,326.0 361.2 238.7 869.9 4,931.5 1,178.4 6,109.8 6,979.7 2,653.82015 486.8 4,106.3 4,593.1 642.0 280.1 922.2 5,376.1 1,383.0 6,759.1 7,681.2 3,088.22016 507.9 4,369.1 4,877.0 653.1 324.6 977.7 5,469.0 1,602.5 7,071.5 8,049.2 3,172.22017 530.1 4,648.7 5,178.8 664.5 372.3 1,036.8 5,857.2 1,837.8 7,695.1 8,731.9 3,553.12018 569.4 4,946.2 5,515.6 676.2 423.4 1,099.6 5,960.4 2,090.1 8,050.5 9,150.1 3,634.52019 593.8 5,262.8 5,856.6 688.3 478.1 1,166.4 6,066.4 2,360.3 8,426.7 9,593.1 3,736.52020 619.5 5,599.6 6,219.0 700.6 536.7 1,237.4 6,484.0 2,649.8 9,133.8 10,371.1 4,152.1

NPV @ 12% 3,565.93 EIRR 21.55%

Notes: (1) Fixed costs include annual asset maintenance and repair (assumed at 3%/year for the first 5 years;4% for the next 5 yrs and 5% of total capital cost thereafter) and fixed administrative and overhead charges of 300 million Tk/yr. Excluding depreciation with annual escalation of 5%; (2) Variable cost/container includes labor and utilities estimated at 3,480 TK/TEUs by CPA from annual financial records. Source: Asian Development Banks estimates.

Appendix 10 51

52 Appendix 10

Table A10.2: Conversion of Financial Cost (Tk million)

Conversion Factors: Reference Shadow Wage Rate Factor for Unskilled Labor 0.67 from recently completed Project RRPs in Bangladesh Shadow Exchange Rate Factor (SERF) 1.05 from recently completed Project RRPs in Bangladesh Shadow Wage Rate for Skilled Labor 0.87 Non-Tax Elements of Traded Materials Import Duty 7% Handling Cost 1%

Weighted average values estimated from data reported in GOB annual statistical publications.

Transport Cost 5% Estimated by consultant from international merchandise trade and balance of payments data for services

Conversion Factor for Trade Materials 0.91 [1.00 – total adjustment for non-tax elements (0.13)] * SERF

% Distribution of Cost Components Economic Costs (Million Taka) PRS Item No.

Description

EstimatedFinancial

Costs ( million

Taka-Nominal)

Traded Materials

Untraded Materials

Skilled Labor

Unskilled Labor

Equipment TradedMaterials

Untraded Materials

Skilled Labor

Unskilled Labor

Equipment TotalCost

A InitialInvestment Schedule

A.2 Civil Works and Environmental Protection

776.54

20 20 10 30 20 141.87 155.31 67.56 156.08 141.87 662.70

A.4 Computerizationand Container Handling Equipment

1,044.10 70 0 25 0 5 667.65 0.00 227.09 0.00 47.69 942.43

A.5 Design andSupervision

141.78 10 5 55 10 20 12.95 7.09 67.84 9.50 25.90 123.28

A.6 TA Services for Computerization

56.00 10 5 55 10 20 5.12 2.80 26.80 3.75 10.23 48.69

A.7 Contingencies

278.08 20 20 10 30 20 50.80 55.62 24.19 55.89 50.80 244.92

A.8 Interest DuringConstructiona

103.82 103.82

Total Cost 2,400.31 2,125.84 a conversion factor of 1 Source: Technical Assistance Consultant..

Appendix 10 53

5. Project Benefits. With the CTMS, with better access and circulation roads, and with faster customs processing, two principal benefit streams are created. One accrues to ship owners due to the anticipated reduction in vessel turnaround time (less waiting for loading and unloading). The other accrues to cargo owners (shippers and consignees) due to the lowering of capital costs tied up in inventories or idle cargo. The benefits fall into two categories: normal traffic and incremental traffic. Supplementary Appendix I Table I-1 details the estimated benefits to ship owners. Despite the gantry cranes, the vessel discharge/load rate without the Project is assumed to increase only to 14 TEUs per hour because congestion is likely to worsen. With the Project, this rate is assumed to increase from 15 TEUs per hour in 2006 when the trial operations are expected to commence, to 20 TEUs by 2013. The rate is expected to remain steady until 2020 due to the limitations in vessel size (maximum 1,200 TEUs) that can be expected to call at Chittagong.

6. The operating cost of those vessels is around $10,000 per day. Using this daily rate and the estimated reduction in port time at the above load/discharge rate, the shipowner benefits were estimated as detailed Supplementary Appendix I Table I-1. For normal traffic, the net benefit under with-project assumptions is the difference between the total vessel costs in without-project and with-project conditions. For the incremental traffic, it is assumed to be one half of the savings, representing the consumer surplus. 7. The benefits accruing from lower average container dwell time is computed for two main categories of cargo: garments and other (nontextile). In the case of garments, the average value per TEUs is assumed to be $80,000 according to CPA statistics. The average value of cargo for other containers is assumed to be $50,000. Assuming an opportunity cost of capital of 12%, a reduction of the average dwell time of 1 day represents a benefit of $26.30 for the opportunity cost of working capital for the exporter. Supplementary Appendix I Table I-2 shows the detailed estimates of benefits associated with the Project for the cargo owners. 8. As shown in Table A10.1, the NPV of the Project at a discount rate of 12% is Tk3.6 billion and the EIRR is 21.6%. 9. Risk and Sensitivity Analysis. Financial and economic risks of port projects stem largely from uncertain traffic and project costs. To estimate the economic risk induced by traffic variations, the model @RISK was used assuming normally distributed traffic forecasts to derive vessel and cargo owner benefits. The total project cost was assumed to follow a triangular distribution, with the estimated cost as the mean with the lower bound and upper bound set at 90% and 110% of the mean. Accordingly, NPV can be expected to lie between $10.1 million and $79.2 million, while EIRR will range from 16% to 23%. Therefore, it is reasonable to conclude that the economic risk of the Project is zero.

10. CPA’s traffic is largely captive since Mongla, the other seaport, cannot serve containerized exports and imports either due to lack of hinterland and infrastructure or geographic location. Therefore, traffic projections are unlikely to vary significantly. The switching value of 53% for incremental traffic as shown in Table A10.3 suggests that the likelihood of the Project becoming infeasible is negligible. Costs, on the other hand, may vary from the estimates at appraisal, but the likelihood of the variation exceeding 10% of estimated costs or benefits (which are based on expected normal traffic) being 12% less (switching values shown in Table A10.3) is negligible.

Appendix 10 54

Table A10.3: Sensitivity Indicators and Switching Values

Parameter

Reference Value (%)

Change By (%)

Revised EIRR (%)

Switching Value

(%) EIRR 21.6 User Benefits 10 12.8 11.2 Costs 10 13.5 12.4 Incremental Traffic 30 15.3 53.1

EIRR – economic internal rate of return Source(s): Asian Development Bank estimates.

B. Financial Analysis

1. Financial Management, Organization, Accounting, and Audit 11. According to the provisions of the ordinance, CPA is a body incorporated as a perpetual going-concern. The fund of CPA is to be utilized to the charges in connection with CPA’s functions under the Ordinance including payment of development expenses, salaries and other remunerations to the port employees.

12. While CPA has considerable independence under the ordinance in day-to-day operations, the overall planning and financial control is exercised by the Government through budgetary controls or the Ordinance provisions which allow the Government’s intervention. Major capital expenditures and their financing must be approved by the Government. Recruitment of employees is also required to be cleared by the Government. Tariffs in the ports are set and revised by CPA, subject to the approval of the Government.

13. CPA maintains its accounts as prescribed by the Government. In some respects, its accounting is not in accordance with generally accepted accounting principles. For the analysis of their financial performances, some adjustments have been made on their financial statements to make them in conformity with generally accepted accounting principles (details of the adjustments made are provided below). The financial statements are prepared annually and submitted to the Government. They are required to be audited by external auditors.

2. Financial Performance

14. As shown in the Supplementary Appendix I Table I-3, turnover on fixed assets has increased and return on fixed assets has improved over the years because of dwindling size of net fixed assets. Owing to these factors, a huge amount of internally-generated surplus funds is accumulated. The accumulated funds are deposited mostly in public sector banks and in part in commercial banks under the direction of the Government. The funds created from CPA’s income is effectively beyond the control of CPA since the Government’s prior approval is required for major capital expenditures. To accelerate replacement of aging assets and to upstream the capital investments needed for upgrading the ports’ facilities, CPA needs to be given financial autonomy to have direct control over internally-generated resources.

15. The past financial performance of CPA is summarized in Supplementary Appendix I Table I-3. Operating revenues have grown by more than 10% a year on average. This high increase

Appendix 10 55

was due to the same high growth in export and import in Bangladesh for the period. In comparison, the growth of operating expenses was no higher than 6% a year on average since staff costs have been well under control. Consequently, the operating ratio has decreased from 63% in 1998 to 55% in 2003. Return on equity has remained at the level of 12-16%, which can be considered a satisfactory level.

16. CPA’s high profitability is attributed in part to high interest income from bank deposits. Interest income amounts to 50% of total operating income. CPA holds a large sum of accumulated surplus earnings in the form of bank deposits. As of 30 June 2003, such bank deposits amount to around 60% of CPA’s total assets. The deposits generate a fixed interest income that increases earnings, which is accumulated again. Because of this huge amount of surplus cash and low level of external debt, debt-service ratio is very high as shown in Supplementary Appendix I Table I-3. Consequently, financial ratios related debt-service, or capital structure are not so critical for analysis of financial performance.

3. Financial Forecasts

17. The financial forecast takes into account: (i) past performance; (ii) estimated capital and operating expenses; (iii) forecast growth in traffic; and (iv) projected level of fixed asset investment. The financial projections are summarized in Supplementary Appendix I Table I-3. 18. Operating income is expected to grow about 10% a year on average. For the past 6 years, the yearly normal fixed asset replacement rate has been around 6-7%. For the projection, the asset replacement rate of 9% was assumed, considering CPA’s capital investment plan. This increase in fixed assets resulted in increase in depreciation and increase in operating expense. Consequently, operating ratio will grow to 57% in the next 3 years from 2004 to 2006, and fall thereafter to 53%. For the same reason, turnover on fixed assets will fall, and return on fixed assets will deteriorate during that period. But they will bounce back thereafter. Return on equity will remain at the reasonable level of 13%. Debt-service ratio will remain high despite the loan resulting from the Project because CPA has paid back almost all external debts by 2003. 19. The financial internal rate of return (FIRR) was estimated using a “with” and “without” project comparison. The major assumptions are: (i) FIRR reflects constant 2004 prices, (ii) the capital costs include all incremental capital expenditures associated with the proposed investment program including price contingency and interest charges during construction, (iii) projections for incremental port revenue streams were based on the forecast of incremental traffic with gantry cranes and computer systems, (iv) current tariffs are maintained, and (v) revenue and cost streams are over a 15 year-period with a 10% residual value. The expenditure components of the analysis include the initial capital cost, and recurrent annual operation and maintenance costs.

20. The weighted average cost of capital was calculated as 4% in line with the minimum requirement as set out in ADB’s Guidelines for the Financial Governance and Management of Investment Projects Financed by ADB. The FIRR is calculated as 18%, which demonstrates the financial viability of the Project.

Appendix 11 56

SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY

A. Linkages to the Country Poverty Analysis Is the sector identified as a national priority in country poverty analysis?

Yes

No

Is the sector identified as a national priority in country poverty partnership agreement?

Yes

No

Contribution of the sector or subsector to reduce poverty in Bangladesh: The Chittagong port, being the main port of Bangladesh, provides an important link between international maritime transportation, coastal shipping services, and national transport corridors (road and rail) to all parts of the country. It also has the potential to provide transit facilities to neighboring countries, namely Bhutan, Nepal, and the eastern part of India. The port carries nearly 80% of the total seaborne exports and imports of the country. The development of the port has vast prospects of further increase in foreign trade, leading to economic growth with special emphasis on industrialization and development of services. This will in turn generate new employment opportunities leading to a decrease in the national poverty rate. B. Poverty Analysis Targeting Classification: General intervention What type of poverty analysis is needed? Bangladesh is one of the poorest countries of the world, where poverty is widespread and particularly severe in the rural and remote areas of the country. The national poverty rate is 49.8 % (the estimate is based on upper poverty line method used by the Bangladesh Bureau of Statistics (BBS) Household Income and Expenditure Survey, 2000) and this is 53.1% and 36.6%, respectively, in the rural and urban areas of the country. Though agriculture is the major sector of country employing about 51% of the country’s total labor force, it is still primitive in nature. Unless the absorptive capacity of the workforce is increased in other sectors of the economy, the poverty situation will not improve. So, rapid development of some sectors, especially transport and communication, trade, and business and industry is necessary to cope with the existing situation. The Project, located in Chittagong, is positioned to generate multisector impacts. The Government of Bangladesh has recently declared Chittagong as the business capital of the country due to its contribution to exports and imports and other general business of the country. Chittagong is also the second largest industrial city. The Government is further planning to declare the Dhaka-Chittagong highway as the new “economic corridor” in which case the port will be its lifeline. This will also give a big boost to agricultural growth, given the agro-ecological conditions of Chittagong. A rapid decline in the poverty ratio will require a rapid growth in employment and livelihoods in the nonagriculture sector. With Sangu natural gas and other natural resources in Chittagong, the region has the potential for expanding its rural and small-scale industries, as well as medium and large industries, to enrich the existing industrial base of the area. The Chittagong Port Trade Facilitation Project will contribute to the economic growth required to reduce poverty through expansion of foreign trade, leading to optimum utilization of national transport corridors of the country. The principal project benefits will accrue to the ship owners in terms of reduced port turnover time, and cargo owners will benefit from reduced container dwell time. The Project will also improve efficiency and effectiveness of port management as well as expand the capacity of cargo handling. It will also create new employment opportunities in the port as well as related sectors of the country. Proposed development of the port will improve the road and railway network of the country to promote regional integration and a more equitable distribution of benefits. Improved management and expansion of different facilities in the port in the long run will result in increased volume of the country’s trade, and freight charges, with benefits to all sectors of society. Furthermore, the Project will also bring benefits to surrounding communities, through increased port-related activities.

Appendix 11 57

C. Participation Process

Is there a stakeholder analysis? Yes No Is there a participation strategy? Yes No As part of the project social analysis and labor issues, in-depth consultation meetings were carried out among port officials, labor and trade union leaders, and other stakeholders of the Project. The focus of the consultation meetings mainly included social appraisal, analysis of alternative options, and other relevant issues. During consultation meetings, the representatives of different port stakeholders took active interest and participated in discussions with regard to existing port scenarios relating to different labor issues including efficiency of labor/workers and productivity of the Chittagong port. Queries and apprehensions of the participants were answered; the participants were also consulted to assess perceived problems and prospects in particular to the port issues. The consultation interviews were conducted using multiple qualitative research techniques such as group discussions, key informant consultation, and participatory observations following a checklist of issues. A total of 16 consultation meetings were conducted. The consultation meetings were organized to ensure wider input from both the primary and secstakeholders on various social dimensions and project impacts so as to develop a comprehensive perspective on the Project. Stakeholder consultations and community-based impact assessment were carried out to (i) develop a socioeconomic profile of the port workers and laborers and/or community impacts resulting from the Project; (ii) establish a dialogue with beneficiaries/stakeholders and provide an opportunity for them to understand the Project and its potential beneficial impacts on socioeconomic development of the country; and (iii) enable mitigation of the negative impacts of the Project where required. Community consultations and public participation processes will continue during implementation of the Project. D. Gender Development Strategy to maximize impacts on women: The proposed project works will not have any adverse impacts on women. The consultation process showed that people (both men and women) were in favor of the Project. They know that the improvement of the port will improve the socioeconomic condition of the people as a whole. In fact, in the port few women work in the CPA office and the project will have no impact on them. But the executing agencies (EA) will address gender issues for women workers to be employed in construction-related activities and in civil works construction contracts. Contractors will be required to ensure that there are no wage differentials between men and women, and that adequate health and sanitation facilities are available to women workers. Furthermore, contractors will be required not to discriminate against the employment of women in project works. Generally, there is a lack of awareness and knowledge of communicable diseases among the workers of construction-related activities. The Project will ensure that each civil contract will include provisions for promoting awareness and preventing the spread of communicable diseases, including sexually transmitted diseases and HIV/AIDS. The supervision consultants will monitor contractors’ performance of these responsibilities. Has an output been prepared? Yes No

Appendix 11 58

E. Social Safeguards and other Social Risks

Item

Significant/

Not Significant/ None

Strategy to Address Issues

Plan

Required

Resettlement

Significant

Not significant

None

The proposed development interventions under Chittagong Port Trade Facilitation Project will require only about 9.5 hectares (ha) of land. There will be no land acquisition cost since the land is already under the control of the Port of Chittagong (POC). Despite the above, the development interventions will affect some 19 households, 6 businesses, and 3 different types of community establishments. The total number of affected people is 112. All the affected establishments except the petrol pump are informal settlers. The owners of the affected structures will be compensated, based on a short resettlement plan, for their losses. During survey and consultation meetings, they expressed their willingness to relocate themselves with all entitlements paid. The short resettlement plan contains details about the impact and entitlement matrix and guidelines reflecting the general principles of the Asian Development Bank policy on involuntary resettlement.

Full

Short

None

Affordability

Significant

Not significant

None

With the construction of internal and service roads of the port, including flyover to connect the port access road, the port networks will be integrated with the national network Furthermore, the proposed development of the port will improve the road and railway network of the country to promote regional integration and more equitable distribution of benefits. In addition, the Project will bring benefits to surrounding communities, through increased port-related activities. As a result, it will lead to overall socioeconomic development of the country, creating additional employment opportunities.

Yes

No

Labor

Significant

Not significant

None

The Project may have some negative impacts on the employees of the port due to modernization of port activities. In this regard, the port’s main labor supply organization (DWMB) has an existing plan for a skill development training program for unskilled workers to cope with the situation. In addition, in order to reduce overstaffing, POC has recently implemented a “golden handshake program” to reduce the excess workforce, under which 1,042 old-aged and disabled workers were retired in May 2004. CPA also has a strategy to restrict new recruitment to preclude further growth of staff. Furthermore, the Project has prepared a social analysis report on the port laborer issues.

Yes

No

Appendix 11 59

Indigenous Peoples

Significant

Not significant

None

There are no negative impacts on the indigenous population. The major proportion of such indigenous population is concentrated in the Hill Districts of Chittagong. None was found working or related to port activities. Consultations among the stakeholders of the port revealed that they would not suffer any negative impact as a result of the Project. On the contrary, the development of the port was viewed as a channel of socioeconomic development and growth in the region. Port road connections with the national road network would be beneficial for indigenous people as it will open up alternative options of employment for them and will also indirectly increase their sources of income.

Yes

No

Other Risks and/or Vulnerab-ilities

Significant

Not significant

None

The most significant risk is inadequate institutional capacity of the EA to conduct social assessment and implement the Asian Development Bank safeguard policies, particularly involuntary resettlement. This risk has been mitigated in the design of the short resettlement plan, by requiring social assessment and income rehabilitation program to be implemented by third parties such as nongovernment organizations. The other likely risks and vulnerabilities are as follows: The development of the port might raise certain critical social and health issues such as increasing exposure of women to the sex trade and the issue of spread of HIV/AIDS and other sexually transmitted diseases. The EA is largely unaware of Asian Development Bank policy on involuntary resettlement, which raises concern with regard to their capacity to implement the social aspects of the Project.

Yes

No