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DEGTYAREV CLUB GEORGIA LTD REG. № 404971884
+995 (577) 540 888, +7 (985) 125 04 72, E-mail : [email protected]
www.dclubg.ru
Stay on course!
Tbilisi 2016
Seaport of Supsa, Georgia • Degtuarev Club Georgia is proposing to develop a port at Supsa for handling of Oil products, grains, general cargo and containers etc.
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Contents Project Background ................................................................................................. 3
Location of Port ...................................................................................................... 3
Summary ................................................................................................................. 4
Hinterland analysis .................................................................................................. 5
Commodity analysis: crude oil and oil products ..................................................... 6
Commodity analysis: containers and general cargo ................................................ 7
Commodity analysis: dry bulk cargo ...................................................................... 8
Phasing of construction ........................................................................................... 8
Tariff analysis ....................................................................................................... 15
Project cost ............................................................................................................ 17
Financial analysis .................................................................................................. 20
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Project Background Degtyarev Club Georgia is proposing to develop a port at Supsa for handling of Oil
products, grains, general cargo and containers etc. The port is an artificial lagoon with North – West and South Breakwaters. There will be a total of proposed to be developed as seven berths for handling general cargo, grain and bulk cargo, containers, crude oil and petroleum products. The port will be developed in three phases.
Key financial indicators The following table presents the key outputs of the financial analysis from the base model,
in terms of the standard indicators. Capital structure 100% equity Project cost (including price escalation and interest during construction)
US$653.16 million
Project Internal Rate of Return 21.03%
Location of Port The location of Supsa Port is at 42001’38.06” N latitude and 41044’51.56” E longitude. The
location has been arrived based on navigational chart of Black Sea taking reference pint form the existing offshore oil terminal (SBM) north of the proposed port location. Georgia map of the location of port site is shown below.
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Summary Georgia has been important to trade between Europe and Asia for many centuries. In
contemporary times, Georgia’s shoreline on the Black Sea and its linkages with countries in the region makes it an important transit point for regional and global trade. A substantial part of this trade is routed through Black Sea ports of various countries, including Georgia and Turkey. The existing Georgian ports of Poti and Batumi and oil terminals at Supsa and Kulevi serve trade through the sea route. With growing cooperation between countries in the region, and support from the United States and European Union, trade passing through the Black Sea ports is expected to increase substantially.
To respond to this opportunity, a project has been proposed for developing a world class port at Supsa on the Georgia coastline. The port is visualized as a facility able to cater to all types of cargo and the large cargo ships prevalent in modern international trade. Supsa will be positioned as one of the major ports in the Black Sea and will cater to trade between countries in the region and Europe through the Bosphorus Strait. Based on this concept, this report estimates the potential traffic for the proposed port at Supsa.
The traffic assessment study focused on two key aspects: understanding the macroeconomic characteristics of the broader region, and assessment of the trade within the hinterland of the proposed port at Supsa. The macroeconomic overview in turn was centered on directions of cargo flow, types of commodities traded, and the growth in trade expected in the future. The hinterland analysis identified the area of influence of the port of Supsa and then divided it into primary, secondary, and tertiary hinterlands.
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Hinterland analysis
The hinterland of a port is defined as its area of influence. In other words, it is the area that a specific port serves. The hinterland includes the area whose production of goods is intended for export through the port as well as the area that consumes the goods imported through the port.
Primary hinterland is the catchment area the port can primarily target. From the port’s viewpoint, the immediate hinterland is the area generating a major share of the port’s cargo.
Secondary hinterland is the region within the port’s service area that can be catered by more than three ports along the same coastline in competitive manner. The port of Supsa competes with not only its neighboring ports in Georgia, but also the ports in a neighboring country, Turkey, for cargo from Armenia and Azerbaijan. Therefore, Armenia and Azerbaijan constitute the secondary hinterland of the Supsa port.
Tertiary hinterland can be defined as the area in the hinterland of port that can be serviced by multiple ports on different coastlines. The countries in Central Asia—Turkmenistan, Uzbekistan, Kazakhstan, Kyrgyzstan, and Tajikistan—have the option to use ports on the Iranian coastline as well as those on the Black Sea. Accordingly, these countries constitute the tertiary
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hinterland of the Supsa port. Supsa is well connected through roads and railways with all of its primary and secondary hinterland. Supsa is connected to its tertiary hinterland through the ports of Baku in Azerbaijan, Aktau in Kazakhstan, and Turkmenbashi in Turkmenistan.
Commodity analysis: crude oil and oil products Among the many oilfields within the hinterlands of the port of Supsa, key examples
include the Azeri Chirag Gunashli (ACG) field, Shah Deniz natural gas field, Tengiz oil field, Karachaganak oil field, and Kashagan oil field. The crude oil from these fields is transferred through pipelines and surface transport.
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Commodity analysis: containers and general cargo
Based on this analysis, the total container and general cargo was projected to be around 11 million tonnes in 2018 for all Georgian ports combined, growing to 24 million tonnes in 2025. This cargo would be divided among Supsa, Poti, and Batumi. Poti has capacity to handle
Oil pipelines from these fields include the Baku-‐Tbilisi-‐Ceyhan (BTC) pipeline transferring oil from ACG and Shah Deniz fields through Georgia to Turkey, the Baku Supsa pipeline transferring oil from ACG to the exisHng oil terminal at Supsa, and the
Baku Novorossiysk pipeline transferring oil from Baku to Russia
A porHon of the crude oil and oil products come to Georgia from Aktau and Turkmenbashi through the Caspian Sea port of Baku. This oil is transferred from Baku using trucks or trains. Oil is re-‐exported mainly through the port of Batumi,
with a small share through the port of PoH.
The crude oil/oil products cargo flowing through the Georgian ports can be classified as either capHve or non capHve. The oil now transported via the Baku
Supsa pipeline to the Supsa oil terminal is capHve cargo and has not been considered in esHmates of the market for the proposed port development. The volume of non-‐capHve oil handled through the ports of Batumi and PoH was 10
million tonnes (an average). Batumi accounted for 90% of this turnover
General cargo movement in the port of Supsa’s primary hinterland takes place through surface transport. A substanHal part of the cargo desHned for Azerbaijan and Armenia from their major trading partners in Europe passes through the Georgian ports. This is because landlocked Armenia only has an established trade relaHonship with Georgia among its neighbors. Armenia mainly imports industrial goods, petroleum products, and food products. Azerbaijan imports machinery and equipment, food products, and minerals. The route for imports by Azerbaijan is through Turkey or Georgia. The route through Georgia is shorter than alternaHve routes.
The approach used for esHmaHon of container and general cargo at the port of Supsa was based on development of a regression model. For development of the model, the first step was to idenHfy the key factors that would affect container and general cargo volume at Supsa. Then, by trying different parameters as input to regression models, the parameters having the highest correlaHon with historical trends of Georgian general cargo were idenHfied. The idenHfied parameters were the GDP of Georgia and GDP of Armenia. Using the selected regression funcHon, the turnover volume for Supsa port from container and general cargo was projected.
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substantial amount of container traffic, and a private sector-‐operated container terminal was recently commissioned in Batumi.
Supsa would have a competitive advantage, as the draft available in its harbor
would allow bigger ships to come, providing cost savings due to economies of scale.
Commodity analysis: dry bulk cargo The dry bulk cargo originating in or destined for the Supsa hinterland consists mainly of
• Agricultural produce, • Minerals, and • Chemicals.
As in the case of general cargo, a substantial part of the dry bulk cargo at Georgian ports is
contributed by the external trade of Georgia, Armenia, and Azerbaijan. The dry bulk cargo turnover at the ports of Poti and Batumi has been increasing at a CAGR
of 8% since 2000. However this period was a period of recovery from severe economic recession, and this pace is unlikely to be repeated. Longer-‐term traffic growth is more likely to parallel the growth over the past last three years, approximately 6% year-‐on-‐year, and this figure has been used in forecasts.
The projected traffic would be shared among Poti, Batumi, and Supsa. The port of Batumi
focuses on crude oil cargo and oil products, claiming only a minor share of bulk and general cargo. Primary competition for Supsa for dry bulk cargo would be from the port of Poti. There would not be any specific user preference for either Supsa or Poti as far as dry bulk cargo is concerned, as neither port has a logistical advantage.
Traffic at Supsa would be limited to the capacity of the port, which has been designed to cater to 40 million tones of cargo per annum.
Phasing of construction The proposed design capacity of the port of Supsa based on the technical studies and the
traffic assessment is 40 million tones per annum. The following table lists the various berths and their capacities totaling up to the overall design capacity of the port.
Cargo Type Berths Annual Capacity (million tonnes) Crude oil and petroleum products 2 16 Container 2 14 General cargo/multi-purpose 3 6 Dry bulk cargo 1 4 Total 8 40
The number and type of berths listed above are based on the assessment of the cargo volumes and types that are likely to be transported through the port. However, the projected traffic is based on current traffic catered to by the existing ports. The current cargo volumes and types are in turn based on various macroeconomic factors, including demand and supply variations in cargo. These include oil market behavior, changes in composition of cargo, higher levels of containerization in the hinterland of the port, and movements in transportation costs.
It is advisable to retain the flexibility to change the composition of port berths in terms of
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types of cargo to they are dedicated. This can be achieved through phasing the development of the port over a 10-‐to-‐15-‐year horizon. Phasing of development ensures that the impact of traffic risk on substantial port investment is mitigated to a certain extent.
We therefore propose that development of the port of Supsa be divided into three phases.
The phasing is based on consideration that the cargo types served first should be those for which demand has comparatively higher certainty, because of the long-‐term demand/supply situation.
Phase I of the project includes development of the backbone infrastructure including
• Breakwaters, • Dredged entry channel and turning circle, and • Utilities and • Administrative infrastructure,
along with the development of oil and oil products berth.
Phase I would have the following constituents:
The first phase Therefore the first phase would cater to crude oil and oil products, for which the direcHon and volume of trade can be projected with a fair amount of certainty. AddiHonally, since oil cargo has lower costs for storage, and loading and unloading, the operaHng margins for these services are likely to be higher. This, in turn, helps ensure that the port is able to reach financial sustainability faster than with other types of cargo
1. Breakwaters • The port will have two breakwaters, one to the north with a length of 1900m and the other on the south side with a length of 685m. The Hp of the north breakwater will be at about -‐15m contour and the Hp of south breakwater about -‐8m contour. The width between breakwaters at the port entrance will be 400m to allow passage of the largest ships transiHng the Bosphorus Straits.
2. Turning circle and entry channel • The turning circle would have a diameter 510m. The entry channel would be 700m long and 230m wide. The harbor basin and the turning circle would be dredged to a depth of 18m and the entry channel to a depth of 19.5m
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The cost of developing phase I of the project has been estimated including the features
mentioned above. The following section presents the estimated cost of phase I.
3. Oil berths • The two berths proposed for Phase I would handle crude oil and oil products, located in harbor basin along the northern breakwater. Each berth would 350m long and have the following features:
• § Loading plaeorm • § Two berthing dolphins • § Four mooring dolphins • § Approach jefy • The dredged depth of the jefy would be around 18m.
4. Dredging • It is proposed to dredge the port basin up to a depth of 18m, to cater to ships requiring up to 16.5m draught. Due to the presence of 20m depth near the entrance to the harbor, the dredging required for the entry channel is low; it will be dredged uniformly to a depth of 19.5m and a width of 230m. The dredging will be done either by cuter sucHon dredgers or by trailer sucHon dredgers based on the requirement. The total dredging quanHty of Phase I development is 7 million cubic meter. The dredged material will be dumped in offshore area in deep sea. Some quanHty of dredged material will also be used for raising the exisHng ground level backup area now at +1.7m to +4.0m
5. Equipment • The key equipment that would be constructed/ installed would be: • § Marine loading arms • § OperaHng envelope • § Safety systems for handling of oil and oil products cargo • § Pipelines and manifold • § Slop tanks and slop pumps • § Metering system
6. Backup area • The total backup area proposed for development of port facility at this stage is 50 of the 200 available hectares. Around 10 hectares is proposed to be used for oil tank farm. The backup area will have internal roads, railway tracks, port operaHon building, administraHve building, canteen, substaHons, fire staHon etc.
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Estimated capital cost of Phase I (US$ million, 2016 prices)
Cost Area Amount Land US$174.00 Breakwaters 65.97 Dredging 30.65 Pre-project activities 0.37 Navigational aids 0.48 Port craft 10.33 Oil berths (2) 35.07 Stockyard area development (including oil tank farm) 22.20 Handling equipment 6.32 Harbor craft berth 7.54 Buildings and utilities 21.12
Total US$374.04
Phase II of the project involves the development of two container berths and a general
cargo berth, with the associated backup area.
The second phase The second phase involves development of the berths catering to container cargo. This choice is based on the expectaHon that the containerizaHon levels in the hinterland would increase in the medium to long term. AddiHonally one general cargo berth has been proposed in this phase
1. Container berths • Two container berths are proposed in this phase of development; each with a length of 340m and a breadth of 34.25m. These berths are parallel to the shoreline about 100m west of the exisHng coastline. Dredged depth at these berths is 16.5m
2. General cargo berth • A single berth would cater to general cargo (that is, containerizable cargo that is not transported in containers). This berth has a length of 290m and width of 34.25m, and is north of the container berths and parallel to the shore. This berth would be able to handle different types of cargo using mobile harbor cranes
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Estimated capital cost of Phase II (US$ million, 2016 prices)
Cost Area Amount Dredging US$12.62 General cargo berth (1) 20.44 Stockyard area development for general cargo berth 1.55 Handling equipment for general cargo berth 6.98 Container berths (2) 47.28 Stockyard area development for container berths 9.93 Handling equipment for container berths 44.29 Buildings and utilities 9.46
Total US$152.53
3. Dredging • The port basin along the three berths would be dredged to a depth of 16.5m, allowing accommodaHon of vessels with draught requirements up to 15m. The dredging will be done either by cufer sucHon dredgers or by trailer sucHon dredgers, based on the requirement. The total dredging quanHty of Phase II would be about 3 million cubic meters. Most of the dredged material would be dumped offshore area in deep sea. Some quanHty of dredged material would be used for fill in the backup area, raising the seabed to 3.2m above sea level to reclaim 26 hectares addiHonal backup area
4. Backup area • The total backup area in Phase II development is about 76 hectares, including the reclaimed area lying behind the container berths. This reclaimed area would be used for the container parking yard. Similarly, an addiHonal area of 7 hectares would be hardened and developed as open storage area for general cargo. The backup area would have two transit shed/container freight staHons for storing in-‐transit break-‐bulk cargo from containers before loading on vessels or transportaHon to the hinterland
5. Equipment • The following equipment has been specified for Phase II: • § Rail mounted quay cranes (RMQC) for container handling • § Rubber Hre gantry cranes (RTGC) for container handling • § Empty container handlers • § Reach stackers for handling containers • § Tractor-‐trailers for transporHng containers • § Mobile harbor cranes for handling general cargo • § Crawler mounted cranes for handling general cargo
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Phase III of Supsa port development includes two berths: one dry bulk cargo berth and
one multi-‐purpose berth. There is flexibility in assignment of these two berths so that the port operator could decide to change their use based on the evolution of demand/supply dynamics for cargo categories.
The following sections summarize the key features of this phase:
The third phase The third phase involves development of the remaining berths, including one dry bulk cargo berth and one mulH-‐purpose berth. The mulH-‐purpose berth would involve the modificaHon of a harbor drak berth built in the first phase. It could be adapted cater to oil or containers based on the demand/supply situaHon at the Hme of third-‐phase development
1. Dry bulk cargo berth/grain berth • A dry bulk berth of 300m length and 24m wide will be constructed near north breakwater for handling wheat and other commodiHes in bulk. A ship loader and conveyor belt system will be constructed and installed for transporHng cargo to the grain silos or other storage faciliHes
2. MulJ-‐purpose berth • This berth will have a length of 290m and it will handle different types of cargo by mobile harbor cranes
3. Backup area • The backup area has been designed assuming that grain would consHtute the majority of the dry bulk cargo transported through the port. Grain would be brought in by railway wagons/dumpers and pumped into silos in the backup area. Silos would have an aggregate storage capacity of 150,000 tonnes. An open area of 2 hectares is earmarked north of the north breakwater to provide silos, a railway siding from the railway yard proposed in Phase I, and pumping equipment for loading grains into silos and transfer of grain to the conveyor when vessels arrive at the berth. The area around the silos will be hardened to enable movement of dumpers handling bulk cargo
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Estimated capital cost of Phase III (2016 prices)
Cost Area Amount Dry bulk/ grain berth 19.22 Stockyard area development for dry bulk berth 15.46 Handling equipment for dry bulk terminal 9.73 Multi-purpose berth 13.53 Stockyard development for multi-purpose berth 1.55 Handling equipment for multi-purpose berth 6.98 Buildings and utilities 4.54
Total 71.01
The following table indicates the proposed sequence and tenure of the development phases:
Phase Berths Commencement Conclusion
Phase I Oil berths (2) and harbor vessel/potential conversion to multi-purpose berth (1)
2017 2020
Phase II General cargo berth (1) and container berths (2)
2024 2026
Phase III Dry bulk cargo berth (1) and multi-purpose berth (1)
2027 2029
The port is designed to cater to 40 million tones per annum of cargo, in the following
categories: Design capacity of the port
Cargo Type Number of Berths Capacity (million tones)
Crude oil and petroleum products 2 16 Containers 2 13 General cargo/multi-purpose 3* 6 Dry bulk 1 5
Total 8 40 *Including potential modified harbor craft berth
Based on these considerations the following table presents a summary of the traffic forecast.
Summary of phased traffic forecast for Supsa port (thousand tonnes)
Cargo Type Year 1 Year 3 Year 5 Year 7 Year 9 Year 11 Year 16
4. Equipment • The following equipment has been proposed for this phase of development: • § Ship loader for handling dry bulk cargo. • § Mobile harbor cranes/crawler-‐mounted for cargo handling at the mulH-‐purpose berth.
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Crude oil and petroleum products
3,399 4,700 7,080 9,210 10,440 12,060 15,200
Containers 1,340 4,740 6,580 8,740 12,350 General cargo 510 1,790 4,980 5,700 5,700 Dry bulk 4,210 4,730 4,750 Total 3,399 4,700 8,930 15,740 26,210 31,230 38,000
Tariff analysis The Tariff charged by the port can be divided into three broad categories:
These heads of costs are described in detail in the following sections.
Vessel-‐related charges These charges are calculated on the size and carrying capacity of the vessel. Charges under
this category include port dues, pilotage charges and berth hire charges. The incidence of these charges occurs in the following cases, respectively:
1. The vessel enters the port waters.
2. The vessel avails inward or outward pilotage services within port waters.
3. The vessel occupies a berth, wharf, quay, or jetty at the port. The basis for charging vessel-‐related fees is tabulated below:
Basis for vessel-‐related
Charge Basis Port dues Per GRT1 (gross registered tonnage) Pilotage Per GRT (gross registered tonnage) Berth hire charges Per GRT (gross registered tonnage) per hour
Cargo-‐related charges
1 Gross registered tonnage, a measure of a ship's size found by dividing the volume of the space enclosed by its hull (measured in cubic feet) by one hundred
1 • Vessel-‐related charges
2 • Cargo-‐related charges
3 • Charges for miscellaneous services
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These charges are calculated based on the amount of cargo handled at the port. The incidence of such charges occurs (a) in respect of import cargo, from the start of unloading of import cargo from the vessel; and (b) in respect of export cargo, from the point of cargo being brought into the port prior to loading onto the vessel. Cargo-‐related charges are levied per metric tonne.
Charges for miscellaneous services Apart from ship-‐anchoring and cargo unloading, the port offers other services like supply
of water, telecommunication, etc. Such services form very insignificant part of the total earnings of the port and are hence not considered in the tariff analysis.
The factors influencing the tariff determination are: 1. Competitive advantage of the port 2. Cost recovery
These considerations are explained in the following sections.
Competitive advantage of the port
Competitive advantage of the port can be analyzed in two aspects, location advantage and higher discharge rate advantage. The ports of Supsa, Poti, and Batumi share nearly the same hinterland. Supsa, Batumi, and Poti are connected to the hinterland, specifically the secondary and tertiary hinterland, through the rail junction of Samtredia. Supsa is the nearest port from the Samtredia junction and has marginal distance advantage over other ports.
The Supsa port has deeper draft and therefore will be able to accommodate larger vessels. Additionally, the planned equipment at the port would ensure that the handling rates for the port are globally competitive. The proposed discharge rates for the vessels at port of Supsa are listed in the following table.
Proposed maximum discharge rates for Supsa port
Type of Cargo Discharge Tonnes per Hour Liquid cargo 2,500 Containers 1,500
Dry bulk 1,200
The higher vessel sizes that the port of Supsa could accommodate would bring economies of scale, which would in turn translate into savings per tonne.
At the competing Poti port, draft varies from 8.5 meters in general cargo berths to 12.5 meters in the liquid terminal. This poses a disadvantage to the port as it cannot accommodate vessels beyond a certain size. Vessel sizes handled at the Poti port follow:
Quantities of vessel types handled at Poti
Vessel GRT Average number of vessels per year 0-5000 850
5000-10000 160 10000-15000 40 15000-20000 18 20000-25000 10 25000-30000 4
>30000 2 Total: 1084
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The weighted average vessel size at Poti is about 20,000 GRT, which roughly translates into dead-‐weight tonnage (DWT) of 32,000. The deeper draft at the site for port of Supsa means that the average vessel size might be about 40,000 GRT.
A comparison of charges payable at the ports of Poti and Supsa for liquid cargo carried by the vessels of average size for each port shows that Poti costs per tonne of cargo would be 3.5% higher than at Supsa. This saving likely would be greater in actuality, as adding in the benefits of newer and faster technology yield higher discharge rates and greater time savings.
Comparison of port charges
Average vessel sizes Unit Port of Poti Port of Supsa Average GRT tonnes 20,000 40,000 Average payload tonnes 32,000 75,000 Vessel-related charges Port dues USD US$14,200 US$28,400 Berth hire charges USD 1,200 2,400 Channel usage USD 6,800 13,600 Cargo-related charges Handling fees USD 72,762 170,535 Total charges payable USD 94,962 214,935 Total charges per tonne US$2.97 US$2.87
The draft available at the proposed Supsa port would enable it to handle vessels larger than the Panamax category. This coupled with the higher discharge rates proposed would put Supsa in superior competitive position.
However, as a new entrant to the market, the port of Supsa could attract cargo share faster by passing on the benefit to the user. Therefore we recommend Supsa charge the same tariff as Poti for all cargo types. The consolidated charges per tonne are still less than at Poti, as Supsa will be able to handle larger ships and offer better discharge rates.
Cost recovery The financial feasibility analysis in the subsequent section shows that the Supsa port
operator gets a reasonable rate of return when the tariffs are pegged to those of Poti.
Project cost Project costs, including the capital cost for development and O&M cost for operating the
port of Supsa, have been estimated in this section. The capital cost includes
• Constructing the berths, • Development of back up area, • Procuring and installing the port equipment, • Establishing the utility infrastructure.
O&M costs include • Manpower, • Fuel, • Electricity, • Repair, • Maintenance.
These costs have been listed in the following sections. Capital costs
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The capital cost for the project is a sum of the cost of development of the three phases explained in the preceding chapter. The total project cost divided into the major heads is presented in the following table.
Summary of capital costs (US$ million)
Category Cost Land US$174.00 Pre-project activities 0.37 Capital dredging 43.27 Breakwaters 65.97 Berths 143.08 Buildings and utility infrastructure 35.12 Stockyards 50.68 Equipment including harbor craft and navigation aids 85.11 Inflation and contingency (@ 13% of non-land costs) 55.56
Total 653.16
Operation and maintenance costs O&M costs have been estimated based on in-‐house data for other port projects of similar
size. Variable O&M costs are based on standard costs per unit of cargo handled. Fixed O&M costs have been estimated as a percentage of the related project cost.
Assumptions for fuel cost The following price of fuels has been assumed based on the prices prevalent in Georgia:
Cost of fuel
Item Price per Liter Petrol/gasoline US$0.94 Diesel US$0.82 Lubricants US$7.53
Rate of consumption of fuel by various port equipment (liters per hour per unit of equipment)
Equipment Fuel oil Lubricant Container terminal Quay crane 135.00 0.32 Transfer cranes 27.00 0.22 Tractor-trailers 11.70 0.09 Empty container handler 27.00 0.22 Reach stacker 27.00 0.22 General cargo operations Mobile harbor crane 27.00 0.22 Forklift (3 tonnes) 8.00 0.06 Forklift (15 tonnes) 40.00 0.30 Dumpers (15 tonnes) 3.30 0.02 Tractor-trailers 11.70 0.09
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Equipment Fuel oil Lubricant Other operations Mobile harbor crane 27.00 0.22 Tractor-trailers 11.70 0.09 Crawler-mounted crane (10 tonnes) 40.00 0.30 Shunting locomotives 11.70 0.09 Utilities 3,500.00 25.00
Assumptions for energy cost The price of electricity has been assumed as US$0.18 per kilowatt hour for power supplied
by the government, based on the price prevalent in Georgia. Electricity consumption
Component Consumption (kilowatt hours) Quay cranes 1,200 Ship loader 800 Marine loading arms 900 Port internal roads 200 Berths 40 Admin building 50 Workshop 60 Other areas 800
Assumptions for manpower cost Cost of manpower is based on typical staffing patterns at similar port projects.
Compensation estimates are based on the average salary in the transport sector reported by the Georgian Department of Statistics, and typical salary differentials at other port projects.
Staffing levels are estimated for port operations at full capacity in the table below. For financial estimates, operational manpower has been phased in proportionately over the ramp-‐up of port operations.
Port staffing
Level Number Average salary (2016) Chairman & managing director 1 US$461,630.04 Chief executive officer 1 276,978.02 Administrative department 257 2,362.40 Corporate offices & branches 100 5,835.93 Utility services 179 4,541.51 Operations: Liquid 25 8,198.55 Operations: Container 528 1,874.98 Operations : Bulk 214 4,360.46 Total staff 1,305
Assumptions for cost of repair and maintenance, and insurance These costs have been assumed as standard percentages of the value of assets, based on
typical values at other port projects. Cost of repair and maintenance cost is estimated at 1.0% of gross value of structure and equipment, while Insurance cost is estimated at 1.0% of depreciated value.
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Financial analysis The financial analysis of the project has been undertaken based on the cargo volumes
estimated in the traffic assessment study. The other inputs to the financial model prepared for the proposed port of Supsa were from the concept master plan prepared for the port, comparative assessment of port tariffs in the hinterland and other publicly available information. The following sections present the key inputs for the preparation of the financial model, snapshots of the projected financial statements and the output of the financial analysis.
Inputs for financial analysis The inputs for financial analysis include assumptions regarding the project milestones,
taxation policy, depreciation policy and financing assumptions. These inputs are presented in the following sections.
Macroeconomic assumptions
GEL/USD conversion rate (current) 2.5 Georgian inflation rate (current) 7% US inflation rate (current) 3%
Financial assumptions Senior debt for Phase I
• Interest rate during construction: 18.50% • Interest rate after construction: 18% • Moratorium after construction: 2 years • Repayment term: 6 years • Repayment start: January 2017 • Repayment end: January 2022
Senior debt for Phase II
• Interest rate during construction: 18.50% • Interest rate after construction: 18% • Moratorium after construction: 0 • Repayment term: 6 years • Repayment start: January 2019 • Repayment end: January 2025
Senior debt for Phase III
• Interest rate during construction: 18.50% • Interest rate after construction: 18% • Moratorium after construction: 0 • Repayment term: 6 years • Repayment start: January 2022 • Repayment end: January 2028
Subordinate debt for Phase I
• Interest rate: 20% • Moratorium after construction: 2 years • Repayment term: 10 years • Repayment start: January 2017 • Repayment end: January 2026
Subordinate debt for Phase II
• Interest rate: 20%
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• Moratorium after construction: 0 years • Repayment term: 10 years • Repayment start: January 2019 • Repayment end: January 2029
Subordinate debt for Phase III
• Interest rate : 20% • Moratorium after construction: 0 years • Repayment term: 10 years • Repayment start: January 2022 • Repayment end: January 2032
Interest on working capital loan: 19%
Taxation policy Tax assumptions in the financial model are based on the taxation handbook issued by the
Georgian Ministry of Finance. Profits as defined under Georgian tax policy are taxed at a flat rate of 15%.
An enterprise is treated as a Georgian company if it is either incorporated in or has its place of management in Georgia. Georgian companies are liable for Georgian corporate income tax on their worldwide income, subject to double-‐taxation or other international-‐treaty relief. The assessment period for corporate income tax is the calendar year.
Both Georgian and foreign companies conducting business activities in Georgia through a PE must make advance corporate income tax payments. Each payment is equal to 25% of the corporate income tax liability for the preceding tax year. The due dates for the payments are 15 May, 15 July, 15 September and 15 December of the current tax year.
Income subject to corporate income tax (tax base) is currently computed on the basis of International Financial Reporting Standards (IFRS), modified by certain tax adjustments. The tax base includes the following: trading income; capital gains; income from financial activities; dividend income, gratuitously received goods and services; and other items of income (benefits, etc).
Generally, a deduction is allowed for all expenditures contributing to the generation of taxable income, except for special non-‐deductible or partially deductible expenses. Realized capital gains are included in taxable income and are subject to tax at the regular corporate income tax rate. Capital losses can be carried forward for up to a five-‐year period or ten-‐year period, together with other losses.
Depreciation policy Depreciation charges for long-‐term (fixed) assets used in economic activities are
deductible for tax purposes in accordance with the rates and conditions set out in Georgian tax legislation. The depreciation method used for corporate income tax purposes is the diminishing balance method. (That is, current depreciation charges are calculated applying underlying depreciation rate to the net value, reduced by previous depreciation charges, of the respective fixed assets group.)
Annual depreciation rates
Asset Group Depreciation per Annum Passenger cars; automobile equipment for use on roads; office furniture; automotive transport rolling stock; trucks, buses, special automobiles and trailers; machinery and
20%
22
equipment for all sectors of industry and the foundry industry; forging and pressing equipment; construction equipment; and agricultural vehicles and equipment Special instruments, inventory and equipment; computers, peripheral devices and data processing equipment; and electronic devices
20%
Railway, naval and river transport vehicles; power vehicles and equipment; thermal technical equipment and turbine equipment; electric engines and diesel generators; electricity transmission and communication facilities; and pipelines
8%
Buildings and premises 5% Assets not included in any other asset class 15%
Projected financial statements Based on the assumptions documented in this and the earlier chapters, the following
financial statements have been prepared: 1. Projected Income Statement (Annexure I) 2. Projected Balance Sheet (Annexure II)
Key financial indicators
The following table presents the key outputs of the financial analysis from the base model, in terms of the standard indicators.
Capital structure 100% equity Project cost (including price escalation and interest during construction)
US$653.16 million
Project Internal Rate of Return 21.03%
Sensitivity analysis A sensitivity analysis was carried out on the financial model, with the following input
parameters. 1. Traffic 2. Tariff 3. Project cost 4. Operating expenses The following tables present the results of the sensitivity analysis
Variation in Traffic Project IRR +10% 22.07% +5% 21.56% 0% 21.03% -5% 20.49%
-10% 19.91%
Variation in Tariff Project IRR
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+10% 22.26% +5% 21.66% 0% 21.03% -5% 20.38%
-10% 19.68%
Variation in project cost Project cost (US$ million) Project IRR +10% US$856.33 19.61% +5% 701.80 20.67% Base - 3% 653.16 21.03%
Variation in operating cost Project IRR +10% 20.75% +5% 20.89% 0% 21.03% -5% 21.17%
-10% 21.31%
ANNEXURE I: INCOME STATEMENT (US$ MILLIONS)
Year 1 Year 3 Year 5 Year 7 Year 9 Year 11 Year 16 Revenue Cargo-related revenue
9.85 18.08 73.23 225.84 427.22 527.79 626.20
Vessel-related revenue
5.97 10.86 19.49 35.67 61.70 74.84 96.08
Total 15.82 28.94 92.72 261.51 488.92 602.63 722.28 Operating expenses Fuel consumption costs
1.57 3.09 11.67 22.85 48.17 62.40 89.43
Electrical consumption costs
0.54 1.05 2.01 3.94 6.53 8.46 12.13
Manpower 2.07 3.47 5.72 9.48 17.33 22.88 33.70 Repair and maintenance
1.49 2.87 3.32 4.29 4.73 4.84 4.84
Insurance 1.78 2.17 3.11 3.59 3.75 3.75 3.75 Total 7.45 12.64 25.83 44.15 80.51 102.33 143.84 EBITDA 8.37 16.30 66.89 217.37 408.41 500.31 578.44 Depreciation and amortization
12.15 12.14 20.33 27.69 32.79 16.87 16.87
EBIT (3.78) 4.16 46.56 189.68 375.62 483.43 561.57 Interest on debt Pre-tax income (3.78) 4.16 46.56 189.68 375.62 483.43 561.57 Tax - 6.98 28.45 56.34 72.52 84.24 Net income (9.74) 4.16 39.58 161.22 319.28 410.92 477.34
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ANNEXURE II: BALANCE SHEET (US$ MILLIONS)
Assets Current assets Year 1 Year 3 Year 5 Year 7 Year 9 Year 11 Year 16 Cash and bank balance
6.51 33.91 89.95 352.99 921.10 1,726.82 4,080.64
Working capital 1.94 3.46 9.88 25.47 47.45 58.75 72.18 Total 8.45 37.38 99.83 378.46 968.55 1,785.57 4,152.82 Fixed assets Gross block 380.21 431.10 559.37 628.56 653.16 653.16 653.16 Depreciation 16.80 41.08 75.70 130.14 193.31 227.05 311.40 Net fixed assets 363.40 390.02 483.67 498.43 459.85 426.10 341.76 Total assets 371.85 427.40 583.50 876.89 1,428.40 2,211.67 4,494.58
Liabilities Current liabilities Working capital borrowing
- - - - - - -
Total - - - - - - - Long-term liabilities Equity capital 380.21 431.10 542.25 542.25 542.25 542.25 542.25 Reserves and surplus
(8.35) (3.70) 41.25 334.64 886.15 1,669.42 3,952.33
Debt capital - - - - - - - Total 371.85 427.40 583.50 876.89 1,428.40 2,211.67 4,494.58 Total liabilities 371.85 427.40 583.50 876.89 1,428.40 2,211.67 4,494.58
