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APPRAISAL OF

MOGADISCIO PORT PROJWEC

SOMALIA

February 14, 1973

Regional Projects DepartmentFastern Africa Regional Office

This tqprt was ptepaxed for officiA use ony by the Bank Goup. It WAY nt be plh. Ior cied without Bank Group authorization. The Bank Gro4p dom t PApt w _ fb t1z4accuracy or ompletense of the report.

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CURRENCGr EQUIVALES

Currency unit Somali shilling (So.Sh)US$1 - So.Sh 6.925So.Sh 1 US$O.01444So.Sh 1 million us$1444,oo

WEIGHTS AND MEASUL

1 meter (mI) 3.28 feet (ft)1 cubic metr (i3) 35.29 cubic foot (cu ft)1 kiloneter (km) - 0.62 mile (xi)1 square kilometer (Oa2) 0.386 aquare mile (sq xi)1 hectare (ha) - 2.47 acres (ac)1 kilogram (kg) - 2.2 powads (lb)1 metrio ton (a ton) - 2,204 pouds (b)1 liter (1) = 0.22 Imperial gallon (Ig)

= 0.26 US gallon (gal)

GLOSSARY OF AMVIATIONS

AIC - Associated Industrial Consultants Ltd.dwt - Deadweight tonsFED - Fonds Europeen de DeveloppezentLLW - Low low waterNRT - Net registered tonsSOGREAX - Societe Grenobloise d'Etudes et d'Applications

HydrauliquesSPA - Somali Port AuthorityUNDP - United Nations Development ProgrammeUSAID - United States Agency for International

Development

Note: For consistency, where there are alternative Italianand English spellings of names of places andgeographic areas, the Italian spelling has been used.

GOERNMENT OF SOMALIAFISCAL YEAR

January 1 - December 31

SOMALIA

APPRAISAL OF MOGADISCIO PORT PROJECT

TABLE OF CONTENTS

Page No.

SUMMARY AND CONCLUSIONS ....................... i - ii

I. INTRODUCTION ................ .. 1

II. BACKGR<OUND ...................................... 2

A. Economic Setting 2................... . 2B. The Transport Sector ..... o... 3C. Transport Planning and Coordination ...... 4D. Government Policy for Autonomous Agencies 5

III. PORT ORGANIZATION AND ADMIINISTRATION .......... 6

A. Organization and Management .............. 6B. SPA's Functions .......................... 7C. Port Regulations ...... ...... ..........*. 7D. Accounting Systems, Audit and Insurance .. 7

IV. THE PROJECT PORT ...... ....................... 8

A. Existing Facilities ...................... 8B. Operations ............................... 9C. Facilities Required ..... ................. 10

V. THE PROJECT ................................... 10

A. Project Description ..... ................. 10B. Project Execution ..... ................... 12C. Cost Estimates, Financing and Disbursements 13

VI. ECONOMIC EVALUATION ........................... 14

A. Traffic Forecasts * ....................... 14B. Evaluation of Benefits ................... 14C. Economic Costs of Project ................ 16D. Economic Return ...... .................... 16E. Employment Effects ....... ................ 16

This report was prepared by Messrs. J. Bigosinski (consultant-economist),A.11. Clark (financial analyst), C. Okurume (economist) and H. van Helden(consultant-engineer).

TABLE OF CONTENTS (Cont'd)

Page No.

VII. FINANCIAL EVALUATION .......................... 17

A. Tariffs, Other Port Investments, Relendingof External Finance and Fixed AssetsValuation -. * ** * *** **...... *.* .............* * es 17

B. SPA's Financial Situation ................ 18C. Financial and Economic Objectives and

Covenants ... *** **...... ..*.*.*.*** *....** 21

VIII. ACTION TAKEN AND RECOMMENDATION ............... 22

ANNEXES

1. New Facilities at Other Main Ports2. Main Project Characteristics

Attachment - General Plan of Harbor Works3. Traffic Forecasts4. Economic Justification5(a) Terms and Conditions of USSR Loan for Berbera - Summary5(b) Terms of Conditions of USA Loan for Chisimaio Project - Summary6. Assumptions Used in Financial Forecasts

TABLES

1. Total Port Traffic in 19712. Project Cost Estimates3. Estimated Schedule of IDA Disbursements4. Mogadiscio Port Dry Cargo Forecasts5. Livestock Diversion: Estimates of Benefits6. Estimated Benefits and Costs7. Principal Tariff Items8. Forecast Revenue Accounts9. Forecast Source and Application of Funds Statement10. Forecast Balance Sheets11. Forecast Debt Service Statement

MAPS

IBRD 10007 - Somalia and Mogadiscio Service AreaIBR) 3015 - Location of New Port Site

SOMALIA

APPRAISAL OF MOGADISCIO PORT PROJECT

SUMMARY AND CONCLUSIONS

i. Somalia is an extremely poor country with an economy based on agri-culture. 75% of the population are nomads. Exports are dominated by live-stock (60%) and bananas (30%). The most productive area is served by theinadequate lighterage port at Mlogadiscio, the country's capital and its majorimport port. Obsolete facilities and inefficient and uneconomic operationsat this port have inhibited economic growth. Modern port facilities have re-cently been provided at Berbera in the north by the USSR and at Chisimaio inthe south by USAID.

ii. The proposed project, the first stage in a master plan to replacethe lighterage harbor with a sheltered deep-water port, will provide a break-water with two general cargo berths, a banana berth and a livestock-handlingfacility. It also includes an access road, paved areas, two transit sheds,a warehouse, ancillary buildings, harbor and navigational aids, cargo-handlingequipment and technical assistance, including training for management, account-ing and operations. The total cost of about US$25 million will be sharedequally by IDA and the Fonds Europeen de Developpement (FED), who will alsojointly undertake administration and supervision of the project. Foreignexchange costs amount to about US$20.3 million.

iii. Construction of a new port and consequent increase in efficiency andcapacity will enable Mogadiscio to recapture some of its service area trafficnow handled uneconomically through other ports. Livestock now moved from theMogadiscio hinterland to the port of Berbera in the north for export will behandled by Mogadiscio, as will cargo that must now be handled by Chisimaio,500 km to the south, when the monsoon season makes lighterage operations atradiscio impossible. Bananas now exported through the inefficient lighterage

port of Merca, 90 km to the south, will also go through Mogadiscio. Furthermore,the efficiency and lower cost of operations at the new port will generate newtraffic. These developments will help to increase the annual volume of drycargo traffic through Mogadiscio from the current 160,000 tons to 382,000tons in 1977 and 525,000 tons in 1981.

iv. Technical preparation of the project has been thorough. Preliminaryengineering, financed by a Bank Technical Assistance Grant of US$311,000and completed in 1967, and detailed technical studies, for a two-berth project,financed by an IDA Engineering credit (S5-SO) of US$550,000 and completed in1970, were conducted by the consultants Societe Grenobloise d'Etudes etd'Applications Hydrauliques (SOGREAH). SOGREAH will supervise constructionof the civil works. Procurement will be on the basis of international com-petitive bidding under Bank/IDA guidelines.

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v. The port will be operated by the Somali Port Authority (SPA), anautonomous Government agency created in 1962. SPA has the necessary powersto operate the port effectively but is inefficiently organized, with allauthority until recently vested in a commissioner of ports and no coordinationbetween its departments. However, the Government has recently amended thePort Authority Law to provide for administration by a board of directors witha general manager. A financial manager will also be appointed. The projectprovides for management consultants to review the organization and administrationand recommend improvements, to reorganize port operations and to continue therecent services provided under Credit S5-SQ to install accounting systemsand to train accounting and operating staff. A project agreement has beennegotiated between SPA and the Association.

vi. In general the tariff structure covers principal facilities andservices, but the charges are not based on costs. There is an anachronisticad valorem harbor tax which should be replaced by cost-based harbor dues onships. The general level of rates is high and the lower costs of an effi-cient modern port should permit reductions while still meeting acceptablefinancial objectives. The management consultants provided for in the projectwill also be required to review the tariff structure and recommend cost-basedlevels of charges.

vii. In response to FED's request, to enable its half share of financingto be provided by way of a grant, the credit proceeds will be relent to SPAon IDA terms. At the same time Government borrowings for other port invest-ments, not previously relent to SPA, will be relent on the same financialterms as received by the Government. External finance by way of grants, in-cluding the FED grant, will be treated as Government equity capital in SPA.Under the Government's recent legislation on the finances of autonomousagencies, SPA will be required to pay over to the Government surplus fundsgenerated by revenue surpluses and depreciation after full provision is madefor working capital, specified reserves, debt service, asset replacement anddevelopment investment, based upon agreed financial plans. According to thefinancial forecasts, total payments to the Government under this legislationwill substantially exceed what the debt service would be if the credit pro-ceeds were relent to SPA on Bank terms. The Government's financial policywith respect to these agencies is acceptable.

viii. The economic return will be about 15%, which is satisfactory. SPAwill be financially viable and a minimum financial return of 5% on net fixedassets will be required.

ix. The project is suitable for an IDA credit of 50% of the projectcosts, i.e. US$12.5 million equivalent, to the Somali Democratic Republic onthe usual terms. The amount of the credit will be increased by the outstand-ing balance on Credit S5-SO to enable that credit to be refunded. The amountexpected to be outstanding at the time of credit effectiveness is US$450,000.

SOMALIA

APPRAISAL OF MOGADISCIO PORT PROJECT

I. INTRODUCTION

1.01 The Government of the Somali Democratic Republic has requested theAssociation and the Fonds Europeen de Developpement (FED) to finance theconstruction of a new deep-water protected port at Mogadiscio to replace theexisting uneconomic lighterage port. The Government gives the highest prior-ity to this project in its current economic development program.

1.02 Because of chronic Government budgetary deficits and shortage oflocal currency, the Government has requested 100% financing. FED have agreedto this, and FED and the Association will contribute equally to the totalproject cost. FED's financial contribution will be in the form of a grantto the Government. Administration and supervision of the project will beundertaken jointly by the Association and FED; an Administration Agreementhas been negotiated between the Government, FED and the Association.

1.03 This will be the first Bank Group port project in Somalia. In March1965 the Association made a credit of US$6.2 million (74-SO), followed in June1968 by a supplementary credit of US$2.3 million (123-SO), to help finance theFirst Highway Project, construction of the Afgoi-Baidoa road which has now beencompleted. The credits were supplemented by grants from FED and the UnitedNations Development Programme (UNDP). The project also included technicalassistance to set up a Civil Engineering Department in the Ministry of PublicWorks and feasibility studies of two roads, including the Hiargeisa-Berberaroad. This road is the subject of the Second Highway Project, the totalcost of which is being financed by an IDA credit of US$9.6 million (295-SO),signed March 30, 1972, and an African Development Bank loan of US$1 million.(Map, IBRD 10007).

1.04 In February 1964 a Bank Group mission visited Somalia to reviewa Government proposal to construct a deep-water port at Mogadiscio. InNovember 1964 the Bank made a technical assistance grant of US$311,000(Report No. R64-134) for a preliminary engineering study (which was carriedout by Societe Grenobloise d'Etudes et d'Applications lHydrauliques (SOGREAH,France), to determine the suitability of the existing shallow draftharbor for development or, alternatively, a suitable location for a new port.In February 1967, SOGREAH produced a flexible master plan for an extendableseven-berth port, behind a breakwater, to be located about 1-1/2 km southwestof the existing port (Map IBRD 3015). An IDA appraisal mission in May/June1967 resulted in an engineering credit of US$550,000 (S5-SO) (March 3, 1969)for detailed engineering and preparation of tender documents for a two-berth first phase of the master plan, based on then-current traffic forecasts.The tender documents were completed in 1970. The credit also includedconsultants' services awarded to Associated Industrial Consultants Ltd.(AIC, UK), to install accounting systems and train accounting staff.The outstanding balance on Credit S5-SO, expected to amount to US$450,000will be refunded by increasing the IDA credit by this amount.

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1.05 Reappraisal of the port construction project was delayed untilNovember/December 1971, largely because of uncertainties after the change ingovernment in 1969 and the effect of the closure of the Suez Canal. Thetime lapse between the 1967 and 1971 appraisals necessitated a completereview of the project. Traffic forecasts now justify two general cargoberths, a banana berth and a livestock loading dolphin berth, all of whichcan be contained within the breakwater needed for two berths; also an ad-jacent area formerly used by the military has now become available allowinga better layout for the land area and access to the new port. Modifica-tions and additions to the original design, including the banana berth andthe dolphin berth, were discussed and agreed between the Government, FED,the Association and the consultants. These revisions form the basis of theproposed project which also includes a tug, cargo-handling equipment andtechnical assistance for management, accounting and operations. The totalproject cost is estimated at US$25.0 million equivalent, based on SOGREAH'sdetailed engineering estimates for the civil works.

1.06 The Ministry of Public Works will be responsible for executing theproject, with the assistance of consulting engineers, on behalf of the SomaliPort Authority (SPA), an autonomous Government agency responsible for allseaports in Somalia; there is a project agreement with SPA.

1.07 In November/December 1971, a mission composed of Messrs. A. H. Clark(financial analyst), H. van Helden (engineer - consultant), J. Bigosinski(economist - consultant) and G. Okurume (economist) visited Somalia to appraisethe project. Mr. Clark paid a further visit to Somalia in March 1972. Thisreport is based on their findings.

II. BACKGROUND

A. Economic Setting

2.01 Somalia's 640,000 km2 (about the size of Spain and Portugal combined)consist largely of sparse grazing land and desert. Only about 13% of the landis suitable for cultivation, and this lies, for the most part, between theGiuba and Scebeli rivers in the southern part of the country where irrigationis possible. Natural resources are scarce and the economy is dependent on theexport of livestock (and livestock products) and bananas which account for 60%and 30%, respectively, of export earnings. Budget deficits have been a con-tinuing feature, financed by Italian budgetary support and foreign develop-ment aid. Per capita income is one of the lowest in the world.

2.02 The population, estimated at between 2.5 million and 3 million, islargely nomadic. The highest concentrations are around Mogadiscio (225,000),the capital, commercial center and chief import port, and in the northernHargeisa/Berbera area. The arid nature of the country, the low level of eco-nomic activity, and the sparseness of the population between distant popula-tion centers combine to make the provision of a transport system adequate todevelopment needs a formidable problem.

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B. The Transport Sector

General

2.03 The exploitation of Somalia's limited resources has been inhibitedby lack of adequate transportation facilities, particularly ports and goodroads between inland livestock-raising areas and the ports. The transportsystem is in the early stages of development. Many areas are not accessibleby motor vehicles for much of the year. There is no railway, and air servicesare minimal. There are two (recently completed) deep-water ports, at Berberain the north and Chisimaio in the south; Mogadiscio is served by an inefficient,uneconomic, lighterage port. For all modes freight and passenger densitiesare light.

Road Transport

2.04 The road network comprises about 16,000 km of which less than 1,000km are bituminous surfaced roads. Long distances and light traffic densitiesmake road projects difficult to justify economically although they arenecessary to ensure national unity and administrative accessibility. In addi-tion to the Afgoi-Baidoa highway, providing a road link from lIogadiscio throughthe center of its service area, the Hargeisa-Berbera road and a feasibilitystudy of the Borama-Hargeisa road, all IDA financed, a 1,045 km road isprogrammed from Belet Uen in the central region, from which there is a roadto Mogadiscio, to Burao in the north; this road is to be financed by thePeople's Republic of China. About 15,300 motor vehicles were registered in1970, of which about two-thirds were cars. Motor vehicle registrations havegrown at 6% per annum in recent years.

Air Transport

2.05 Somalia is beginning to develop its domestic air transport systemSomali Airlines) to connect scattered urban areas with Mogadiscio and now

has direct flights between Mogadiscio and twelve other centers. Domesticfreight transport reached only 321 tons and domestic passenger movements18,000 in 1969, growing at an annual average rate of 34% and 19% respectivelyin recent years. International airlines have scheduled flights connectingMogadiscio with Europe, the Middle East and North and East Africa. Between1965 and 1969, international freight traffic (166 tons in 1969) grew atan annual rate of about 34% and passenger traffic (10,000 in 1969) atabout 26%.

Ports

2.06 Somalia has 27 ports along the more than 3,000 km of coastline,including four major ones at Berbera, Chisimaio, Merca and Mogadiscio. Newports have recently been built at Berbera in the north and Chisimaio in thesouth, with the help of international aid (para 7.03), and now have sheltereddeep-water facilities. Mogadiscio and Merca are lighterage ports open to theIndian Ocean with its rough sea and seasonal high swells. The four major

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ports account for more than 95% of Somalia's oceanborne foreign commerce.There is little coastal traffic and virtually no passenger traffic. Mogadiscio,the principal import port, handles about two-thirds of the country's importsbut normally only about 5% of its exports. Berbera is the only major porton Somalia's northern coast and the principal outlet for livestock exports.Merca and Chisimaio, located respectively 90 km and 500 km south of Mogadiscio,are primarily banana export ports but also handle small quantities of imports;Chisimaio also exports livestock and meat products and handles, during thesouthwest monsoon season, some import cargo destined for Mogadiscio. Therelative importance of individual ports is shown in Table 1. Informationon the new ports at Berbera and Chisimaio is given in Annex 1.

Mogadiscio Port Service Area

2.07 The service area of tIogadiscio comprises the most productive partof the country and has the greatest potential for economic development. Itcovers the greater part of the southern region, including the administrativeregions of Benadir (including Mogadiscio), Urpper Giuba, Hiran, and part ofMudugh; it does not extend to Lower Giuba, for which Chisimaio is the port,but it includes the area between the Giuba and Scebeli rivers, which has thehighest average rainfall in the country. An important livestock-raising arealies in the more northern part of the southern region. The highway systemhas been improved to serve the area but this has not been matched by improve-ments in the port. This is a serious constraint on economic development.Mogadiscio port is also a potential outlet for landlocked regions of south-eastern Ethiopia.

C. Transport Planning and Coordination

2.08 Four Ministries are concerned with the transport sector: theHinistry of Planning and Coordination; the Ministry of Public Works, throughits Department of Civil Engineering, responsible for planning and constructingtransport infrastructure and for highway maintenance; the Ministry of Transportfor vehicle registration and control; and the Ministry of the Interior fortraffic control. No Government agency exists to oversee the functioning ofthe whole sector. While there is no pressing need at present for an agencyfor intermodal coordination, sectoral planning will eventually become moreimportant as transport demand increases.

2.09 In the current tlhree-year Development Program (1971-73) the Govern-ment has allocated So.Sh 353 million, or 35% of the total development budget,to the transport and communications sector. The most important items arethe proposed 1,045 km road (So.Sh 95 million) between Belet Uen and Buraoto be financed by the People's Republic of China, the Association's HighwayII Project (So.Sh 52 million), the I4ogadiscio port construction project(So.Sh 76 million), and a telecommunicationis project (So.Sh 40 million).These items account for 85% of the sector's total budget.

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D. Government Policy for Autonomous Agencies

2.10 The Government has reviewed the financial situation of publicagencies in the context of development fund requirements and availability.In the past the public sector has suffered from a lack of savings in theform of cash generated surplus to the requirements of individual agencies,while, at the same time, there has been some wastage of resources becauseof a lack of skill in management and especially financial management.The Government is unable to provide necessary capital out of its budgetaryresources; it is also aware that some agencies are better able to generatecash resources than others. Unless these resources are controlled, theywill not be put to the best use for the country's economy and may encouragewasteful expenditure and neglect of cost control. Pricing policies arealso distorted in some cases by excessive depreciation charges which havebeen used to reduce liability to income tax.

2.11 The Government has now passed a law (Law No. 58), which came intoeffect on January 1, 1973, on the Finances of Public Enterprises and Agencies.Its main provisions are the following:

(a) Responsibility for strict financial management and economicoperations is imposed on each enterprise through the GeneralManager, Chief Accountant and Financial Officer.

(b) The Mlagistrate of Accounts is responsible for auditing theaccounts.

(c) Income tax for the enterprises is replaced by a turnover tax,assessed on sales and services; the percentage for each yearis fixed by the Ministry of Finance.

(d) Annual investment estimates and finance plans must beprepared.

(e) Caslh generated annually, surplus to the enterprise's require-ments, is paid to the Government; this comprises the balanceof profits after specified appropriations and a share ofdepreciation for development as fixed by the Ministry ofFinance on the basis of the finance plan.

2.12 In general, the law lays down acceptable principles. The Secretaryof State for Finance is responsible for issuing regulations and implementingthe law. The policy underlying the law is reasonable and acceptable. Itwill help to ensure the optimum use of scarce capital resources and encouragegood financial management; in particular, capital recovered through depreciationwill be available for reinvestment according to the priority needs of thecountry's development program. It will also ensure that enterprises willnot accumulate large cash reserves beyond their individual requirements.

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III. PORT ORGANIZATION AND ADMIINISTRATION

A. Organization and Management

3.01 The Somali Port Authority (SPA), an autonomous agency, was createdin 1962 and reconstituted under Law No. 70 of November 22, 1970, under thesupervision of the Secretary of State for Transport, who can give directivesin matters affecting the interests of the State. SPA's object is to promotethe development of all of the country's ports; its functions are comprehensiveand it has all necessary powers to carry out those functions. It has powerto issue regulations, including the fixing of tariffs.

3.02 Until recently, responsibility within SPA for all policy makingdecisions and executive action resided solely in an Extraordinary Commissionerof Ports, although the law governing autonomous agencies (Law No. 16 of April1, 1970) provides for either a sole executive head or a board of directors.There was no management team, and the twelve department heads, with nointerrelationship among them, reported directly to the Commissioner. TheExtraordinary Commissioner and the four Ministries concerned agreed that SPA'sorganization must be improved, and the Government has recently amended LawNo. 70 so as to restructure SPA's organization along lines agreed with theAssociation, i.e., to provide for a Board of Directors and a General Manager.

3.03 With respect to accounting, SPA has failed to benefit fully fromthe accounting systems introduced and the staff training undertaken by theaccounting consultants (AIC) provided under S5-SO. The principal reasonsfor this identified by the consultants are:

(a) a lack of understanding and interest in the use and value ofmanagement information systems and statistical data on thepart of top management;

(b) the transfer of trained accounting and statistical staff toother posts; and

(c) failure to appoint a qualified and experienced financialdirector.

During negotiations, the Government agreed that management consultantssatisfactory to the Association will be appointed to review the presentorganization and administration and to recommend improvements; these consul-tants will be employed under the project. The Government also agreed to con-sult with the Association regarding appointments to the positions of General1-Ianager and Financial Manager of SPA and to ensure that, at all times, theSPA's operations are carried out under a qualified and experienced managerialstaff.

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B. SPA's Functions

3.04 Originally, SPA's function was to provide port facilities onlyand its principal source of revenue was an ad valorem harbor tax (para.7.01). Later, SPA took over stevedoring at all ports and lighterage andshore handling at Mogadiscio and Merca, shore handling at Berbera andChisimaio continuing in private hands on payment to SPA of a tonnage royal-ty. On January 1, 1971, SPA also took over shore handling at Berbera andChisimaio and now provides all port services. From the same day, ware-housing and storage charges, collected by customs and previously paid overto the Government, were paid to SPA, which now receives all port revenues.

C. Port Regulations

3.05 Comprehensive port regulations have not yet been promulgated. Theneed for these is recognized and a United Nations Adviser on Maritime Law iscurrently engaged in preparing them. During negotiations, the Governmentagreed to issue comprehensive port regulations applicable to all ports underSPA's jurisdiction not later than December 31, 1973.

D. Accounting Systems, Audit and Insurance

3.06 Considering the short period of training available to AIC and thesubsequent transfer of some of the trained staff, the financial accountingsection is carrying out its functions well. Accounts are audited by theMagistrate of Accounts.

3.07 The consultants (AIC) were required to make recommendations forchanges in the schedule of port charges after determining the costs of pro-viding the various port services. They concluded that only two operatingcost centers are necessary (cargo handling and all other) and recommended atariff related to an ad valorem tax, rather than one related to various ser-'ces and their costs as favored by the Government. As a result, the costing

systems introduced are little more than budgetary-control systems. This isunsatisfactory and it is essential for the ports to have a tariff structurecovering the principal facilities and services used by ships and cargo respec-tively and with charges based on costs. During negotiations it was agreedthat SPA's tariff policy will be based on costs (para 7.15).

3.08 SPA's internal audit section is moderately competent, but with theexpansion of SPA's functions and particularly in anticipation of the projectport, the section requires expansion and additional training and upgrading.

3.09 Additional management consulting services are required, andare included in the project, to:

(a) make a new appraisal of the tariff structure witlh recommenda-tions for amendments;

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(b) review and improve as necessary the financial and cost account-ing, statistical and management information systems introducedby AIC, and their implementation by SPA;

(c) review the ability of staff in the accounting, statistical andinternal audit departments, and to plan and undertake additionaltraining programs; and

(d) conduct seminars for top management in the use of managementinformation systems.

3.10 During negotiations, the SPA agreed that its accounts and financialstatements for each fiscal year will be audited by independent auditors accept-able to the Association and that copies of the audited financial statementsand the auditor's report will be submitted to the Association within fourmonths after the end of each fiscal year. The UK Government has providedthe services of an expert for two years to set up within the Magistrate ofAccounts' Department a special unit to audit the accounts of autonomousagencies, including SPA's. If the expert is successful in setting up andtraining an adequate audit unit, audit by the Department would be acceptableas an independent audit.

3.11 SPA has no insurance, in spite of its substantial assets; theextent of its public liability risks is uncertain. During negotiations SPAagreed to engage competent insurance experts to advise on insurable risksborne by SPA and, by .iarch 31, 1974, to insure, to the Association's satis-faction, against such risks and in such amounts as shall be consistent withsound business practices.

IV. THE PROJECT PORT

A. Existing Facilities

4.01 The existing port is a lighterage harbor, protected from the south-east by a 500 m breakwater but open to the southwest (Map IBRD-3015). Lightersare discharged or loaded at four finger jetties running at right angles to theshore, and by a berth approximately 100 m long on the landward end of thebreakwater. Storage shed area is adequate but, as floors are about 1 m aboveground, cargo-handling equipment such as forklift trucks and tractor-trailerscannot enter and must reload at the platforms.

4.02 Because of erosion of the adjacent shallow sandy coast and theabsence of breakwater protection against southwest waves and currents, theharbor is silting up. Tidal range is about 3 m, and with depths varying from0.5 to 2 m below low water within the port area, several finger piers, andsometimes the main berth, are unusable by lighters at low tides. The smalldredge available cannot keep pace with siltation.

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B. Operations

4.03 SPA undertakes all cargo-handling operations, stevedoring, light-erage and shore handling. Mlost labor is casual, engaged by the SPA on piece-work. SPA's handling equipment consists of 14 lighters of 60 to 120 tonswith another six 120-ton lighters on order, five launch-tugs, 10 mobilecranes, six tractors and 20 trailers, and three forklift trucks. Deep-watervessels anchor in the open sea about 1 km from the entrance of the lighterageharbor. Lighterage operations in an open roadstead, always cumbersome, areparticularly so in Mlogadiscio where the sea is nearly always choppy. Heavystorms are rare, but frequent swells result from storms elsewhere in theIndian Ocean. During the southwest monsoon, from mid-May to October, es-pecially from June through September, there are many days when work is im-possible, and some cargo is diverted to Chisimaio (see Chapter 6, EconomicEvaluation). On many days adjacent hatches cannot be worked simultaneouslyat the lee side of the vessel. Night stevedoring is impracticable. Opera-tions at ship side result in accidents to personnel and losses and damageto cargo which suffers further damage during unloading onto the quay.

4.04 Ship discharge rates have improved over the past year, reducingship time in port; rates average between 200 and 400 tons per day per ship,depending on weather conditions and type of cargo. However, unloading fromship's hook requires little time since cargo is more or less dumped intolighters and has to be re-sorted in the lighterage harbor. The new manage-ment has improved the dock labor system. All casual labor is now organizedin gangs which are called forward in rotation as required. Supervision hasbeen tightened up.

4.05 iNevertheless, in general, cargo handling is primitive in spiteof considerable mechanization (para. 4.03); there is no palletization orpreslinging, and every parcel is handled manually several times, aboardnip, aboard lighter, at the pier and in the sheds. Considerable improve-ments in efficiency and reduction of damage are possible with relativelysmall investments for pallets, nets and slings and with improvements ofpavements on the piers and in the sheds. Technical assistance by experi-enced port operations consultants is included in the project, initiallyusing the existing port as a training ground for efficient cargo-handlingoperations in the proposed new port. Skilled and semi-skilled labor,such as supervisors and crane and forklift operators, should be carefullyselected and trained. The proposed technical assistance will include suchtraining and will also help users of the future port decide how to handleand ship special cargoes, such as bananas, most efficiently. The consultantswill also be responsible for recommending the quantities and types of equip-ment required and for assistance in procurement.

C. Facilities Required

4.06 In planning for a new port, adequate facilities should be providedto handle volumes and types of cargo expected for five or six years afterport completion (in the case of Mogadiscio, to be completed in 1976, through

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at least 1981). Traffic growth over the following five years should also beconsidered. Assuming reasonably efficient operations, a mixed general cargothroughput of 1,000 tons per meter of berth per annum, or 160,000 tons per160 m berth, should be achieved after a few years' experience. At Mogadiscio,the volume of total dry cargo for 1977 is forecast to be 382,000 tons, in-cluding 103,000 tons of bananas, which would be more than the capacity oftwo berths, making a third, specifically for bananas, necessary. By 1981general cargo, excluding bananas and livestock, would reach about 330,(00tons, about the capacity of two berths, bananas will be about 180,000 tonsand livestock 18,000 tons. By 1986 general cargo (excluding bananas andlivestock) is expected to be about 400,000 tons. It is probable that, withthe new port coming into use, the present world trend to cargo unitization(e.g. on pallets, in containers, etc.) will apply at 1!ogadiscio; this, to-gether with increasing productivity through experience, may increase thecapacity of the two berths.

4.07 The capacity of the banana bertlh can be increased with the intro-duction of loading equipment as traffic growth justifies it. With adequateequipment, the one berth could handle the maximum projected volume of bananaexports of 240,000 tons expected in 1986 and may also take some general cargoduring peak periods. Livestock exports must be separated from bananas andgeneral cargo because of ecological and sanitary problems and a simple ramp-loading arrangement to a dolphin mooring berth is adequate.

4.08 In addition to possible use for lighterage in times of congestionof the new port, the existing port will continue to be of operational usefor storage, berthing harbor craft, and fishing boats and perhaps fora small-boat shipyard and maintenance area. In any event, it must be im-proved and siltation controlled if it is to be able to continue to handlelighterage traffic until the new port is constructed. Some capital invest-ment is urgently required, and SOGREAH have recommended construction of alee mole to protect the harbor entrance and dredging of the harbor, at anestimated cost of US$400,000 equivalent. During negotiations, the SPAagreed to take all measures which are necessary or advisable to ensure, tothe satisfaction of the Association, the improvement and the continued andefficient use of the present harbor at least during the construction periodof the project. SPA will finance this work,

V. THE PROJECT

A. Project Description

5.01 The project comprises the first stage of the master plan (para. 1.04)for the development of a new port at Mogadiscio. It includes the following:

(a) the construction of a 770 m breakwater, two berths of 160 m andone of 140 m, a dolphin berth for mooring livestock vessels, amarshalling area for livestock, an access road, paved areas, twotransit sheds, one warehouse and ancillary buildings;

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(b) the provision of harbor and navigational aids and cargo-handlingequipment; and

(c) technical assistance and engineering services by consultants.

Details of the new port are described in Annex 2 and shown graphically inthe attached drawing.

Technical Features

5.02 After a brief survey had confirmed that no better location existsreasonably near Ilogadiscio, a hydrographic survey was made at the proposedsite over a full year, covering depth soundings, wind speeds and directions,and tide, wave and current measurements. A hydraulic model based on thesedata was built, on a 1:100 scale, first to compare alternative solutions,such as an inner harbor versus an outer harbor basin, and thereafter todetermine the optimum location of the breakwater. The solution arrived atproved to be the least expensive solution meeting acceptable standards.The civil works are a first three-berth stage of the master plan; the break-water can be extended in two further stages of about 200 m each, and twoberths can be added with each extension, one alongside the breakwater andone on the landward side. Berths of varying lengths and depths may beadded later.

5.03 Since no rivers enter the sea in this area of the Somali coast,siltation is due to the littoral drift of sand only and not mud. The seabedis stable because of low tidal current velocities and large areas of coralor limestone. Very little maintenance dredging will therefore be required.Soil conditions in general are favorable, and no particular foundation pro-blems are envisaged. Ample drillings and soil tests have been made at thesite, for the location of material for fill, and at a quarrysite for rockto be used for the breakwater core.

Technical Assistance

5.04 Technical assistance (paras. 3.09 and 4.05) will start while thepresent lighterage port is still in use and continue after the new port hasbecome operational, since accounting and operations under present conditionsare only partly relevant to the new port. The number of foreign expertsrequired is relatively small but their assignments are likely to be spreadover a three to four-year period. Altogether, some 100 man-months of tech-nical assistance are foreseen. To ensure coordination and consistency, thework will be undertaken by a management consultancy firm experienced in portoperations and satisfactory to the Association.

Engineering Services

5.05 The Government, with the agreement of FED and the Association,instructed SOGREAII to (a) review the original two-berth layout and design,(b) revise and update the cost estimates, (c) undertake the detailed design

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for the third berth and dolphin bertlh, and (d) assist with the prequalifica-tion and tendering. This work is almost complete. SOGREAH will also beresponsible for construction supervision.

B. Project Execution

5.06 The Department of Civil Engineering of the Ministry of PublicWorks will be responsible for execution of the project on behalf of SPA.Contracts for construction and procurement will be awarded on the basis ofinternational competitive bidding in conformity with Bank/IDA guidelines;FED has waived its usual requirement that such contracts be restricted toits members. There is some small but inexperienced contracting capabilityin Somalia, and it is expected that such contractors might be retained bya foreign main contractor in a subcontracting capacity. While, as a signatoryto the Yaounde Convention, Somalia allows proferential duties to member andassociate member countries of the European Economic Community, it has beenagreed between the Government, FED and the Association that for the purpose ofcomparing bids, any import duties or other local taxes will be excluded.The civil works construction period is expected to last about three yearsfrom arrival on site.

5.07 All land needed for the project is owned by the Government and isavailable. A report dated 1971 by Studio Architetti Ingegneri Specializzation the development of the Mogadiscio urban area, financed by FED, accepts thesiting of the project port in its recommendations.

5.08 The project is not expected to affect adversely fish and othermarine plant and animal life in the area. It could, however, create someenvironmental problems relating to (a) the city's existing sewerage marineoutflow, (b) disposal of the animal wastes from the livestock marshallingyards, (c) control of vermin, (d) treatment of ships' oily ballast waste and(e) avoidance of coastal erosion. To the extent possible, these problemshave been minimized in the detailed port design. During negotiations, theGovernment agreed to take all reasonable measures to ensure that executionand operation of the project are carried out with due regard to ecologicaland environmental factors.

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C. Cost Estimates, Financing and Disbursements

5.09 The total cost of the project is estimated at US$25.0 million witha foreign exchange component of about 82%. Details are given in Table 2 andsummarized below:

So.Sh Ilillion US$ flillion %Local Foreign Total Local Foreign Total Foreign

Civil Works 31.1 128.4 159.5 4.5 18.5 23.0 80.5%

Engineering Supervision 0.7 6.2 6.9 0.1 0.9 1,0 89.5%31.8 134.6 166.4 4.6 19.4 24.0 80.9%

Operating Equipment - 4.2 4.2 - 0.6 0.6 100.0%

Technical Assistance 0.1 1.9 2.0 0.0 0.3 0.3 95.0%

31.9 140.7 172.6 4.6 20.3 24.9 81.5%

Project costs are net of taxes and duties. The cost estimate for civil worksis based on costs derived by SOGREAH from their detailed engineering and in-cludes allowances for engineering quantities (6%) and price contingencies(12%). Foreign exchange costs are high because Somalia lacks most construc-tion materials; suitable rock is not available for breakwater armoring toprotect the surface and concrete tetrapods will have to be used.

5.10 The above cost estimates were carefully reviewed during projectappraisal and found to be reasonable. Given, however, the uncertaintiesinvolved in construction in Somalia, the inability of the Government to-ontribute to project costs should there be a shortfall in available funds,and the desirability of maintaining the respective shares of IDA and FEDin the financing and supervision of the project, the Government proceededwith the prequalification and tendering of civil works prior to Board pre-sentation. Bids have now been received and suggest that the contract pricewill be well within the cost estimates.

5.11 Project costs will be met by equal contributions from FED and theAssociation. Disbursements under the FED grant and IDA credit will be madepari passu and will cover 100% of the cost of civil works, equipment, tech-nical assistance and engineering services up to a total of US$25.0 millionequivalent. Some minor retroactive financing for detailed engineering, inexcess of the funds available in Credit S5-SO, will be required, estimatedat US$30,000. The IDA credit of US$12.95 includes its share of project costs(US$12.5 million) plus US$450,000 for refunding the outstanding balance ofCredit S5-SO. An estimated schedule of disbursements under the IDA creditis shown in Table 3. Surplus funds remaining in the credit account uponcompletion of the project will be cancelled.

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VI. ECONOlIC EVALUATION

A. Traffic Forecasts

6.01 The construction of a protected deep-water port with alongsideberths at togadiscio will provide more efficient and less costly servicethan the present port and even than some other Somali ports for some of theircargo, resulting in substantial amounts of both diverted and generated trafficin the new port. Specifically, all cargo now handled by the banana lighterageport of Merca will transfer to Mogadiscio, which will also recapture liveanimal exports originating in its hinterland now going through the northernport of Berbera. Also, with a deep-water port at Mogadiscio, general cargoimports destined for the capital area will no longer have to be unloaded atthe southern port of Chisimaio during the southwest monsoon season. As aresult, dry cargo traffic using Mogadiscio port is expected to increasefrom an annual average of 160,000 tons in 1970-1971 to about 525,000 tonsin 1981 and 660,000 tons in 1986. The basis of the forecast is given inAnnex 3, and the detailed projections are shown in Table 4.

B. Evaluation of Benefits

6.02 Detailed information on methodology and data used in the economicjustification are given in Annex 4. Table 5 gives estimates of benefits oflivestock diversion and Table 6 the annual flow of estimated benefits andcosts.

6.03 Project benefits will commence in 1976 and continue for the use-ful life of the new port facilities, estimated at 40 years. However, no in-creases in annual benefits are expected for banana exports after 1985 (sincemaximum exports are expected to be reached then) or for other dry cargo after1986, when further growth of traffic would require additional facilities toavoid ship and cargo congestion and economic losses. Total quantifiable pro-ject benefits are estimated at US$3.3 million in 1977, are expected to in-crease to US$5.2 million by 1986, and have been assumed to remain constantat that level for the remainder of the project port's life. The followingis a summary of the estimated quantifiable project benefits in 1977 and 1986,shown in more detail in Table 6.

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(US$, 000)

Source 1977 1986

Shipping surcharge savings 1,723 2,465

Reduction in cargo losses 1,082 1,491

Import diversion (Chisimaio) 207 398

Banana export cost savings 180 422

Livestock diversion (Berbera) 60 375

Total 3,252 5,151

6.04 The first and largest source of savings (all in foreign exchange)will be the elimination of a port surcharge of US$5.80 - 8.40 per ton ofdry cargo. Vessels calling at 'logadiscio impose this surcharge because ofthe cost of extended time in port due to the unprotected anchorage and in-efficient lighterage operations. Cargo losses in Miogadiscio port attributa-ble to present operations are conservatively estimated to average 1.5% of thevalue of dry cargo imports and 0.5% of exports; the new port will virtuallyeliminate these losses, most of which also involve foreign exchange. All ofthe benefits will accrue to Somalia.

6.05 Benefits from traffic diversion are expected from dry cargo importsand livestock exports. Dry cargo imports destined for Ilogadiscio are fre-quently unloaded at Chisimaio and trucked 500 km overland to the M4ogadiscioarea., at a cost of about US$14.75 per ton, during the southwest monsoon seasonwThen cargo handling at Mogadiscio becomes particularly hazardous. The new,t will eliminate this practice. Because of inadequate facilities, thepresent port of Mogadiscio now handles only a fraction of the livestockexports originating in its hinterland. MIost animals from the area aretransported on the hoof, at substantial cost, to the recently constructedport of Berbera some 1,250 km north of Mogadiscio. Diversion of this trafficwill improve the quality of livestock exports and offer the potential forhigher prices for the animals. Traffic diversion to the new port will inboth cases result in substantial savings to the Somali economy.

6.06 The present use of the lighterage port of Merca for banana exportsfrom the Afgoi-Genale area results in substantial costs in ship waiting timeand in damage to and loss of banana cargo. Construction of a banana berthin Mogadiscio and termination of banana exports through Merca will reduceship waiting time and cargo losses, though these savings will be partly offsetby additional land transport costs. The indicated benefits are the net annualsavings attributable to the transfer of banana export operations from t4ercato Mogadiscio, and will accrue to Somalia through adjustments in port charges.

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6.07 Other benefits will include those arising from generated traffic,and from the undoubted advantages to tile economy of a more reliable and ef-ficient port facility. However, no meaningful estimate of these benefits waspossible, and they have not been included in the cost-benefit evaluation ofthe project.

C. Economic Cost of the Project

6.08 For the purpose of economic evaluation, the economic cost of theproject is estimated at US$22.66 million, that is, the estimated total cost(US$25.0 million) less price contingencies. The annual maintenance cost isestimated at 1% of the capital cost. It must be emphasized that, while allproject-connected costs have been allocated to this project, several impor-tant cost elements such as the breakwater, access road and administrativefacilities will directly benefit future stages of the port developmentprogram.

D. Economic Return

6.09 On the basis of the quantifiable benefits and economic costs dis-cussed above, the economic return on the investment in the project is esti-mated, on conservative assumptions, at about 15%, demonstrating that it iseconomically justified. The first year return is 11%, fully justifying thetiming of the project. Some 75% of the savings are in foreign exchange andthe present value of such savings over the 40-year assumed life of the proj-ect exceeds the foreign exchange costs; thus the project will more than self-finance the foreign exchange cost.

6,10 In order to test the sensitivity of the economic return to changesin the important parameters, a further analysis was undertaken by varyingcosts upward and benefits downward. The results (given in Annex 4, para. 18)show that, even with a 10% increase in project costs combined with a 25% dropin benefits, the economic return will exceed 11%. However, bids received in-dicate that project costs are likely to be at least 20% below estimates whichsuggests a return of close to 18%.

E. Employment Effects

6.11 The expected expansion in overall port traffic, following provisionof the new port at Mogadiscio, will be accompanied by substantial increasesin the total port labor force, but an initial problem will be created by thetransfer of banana traffic from Merca, where some 600 port workers will losetheir jobs. The Government is anticipating this problem, however, and istaking active steps to increase employment in the area. The nation-wide"crash program," which combines training with paid labor on self-help schemes,will be expanded locally, and increases in banana and grapefruit cultivationare planned. In addition, Merca will soon become the administrative capitalof a newly-created Lower Benadir region, which will also increase jobopportunities.

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VII. FINANCIAL EVALUATION

A,, Tariffs, Other Port Investments, Relending of ExternalFinance and Fixed Assets Valuation

Tariffs

7.01 The present tariffs are not based on costs, although in generalthe tariff structure provides for charges for individual services and facil-ities. Also, there is an ad valorem harbor tax of 1.5% on the value of allcargo loaded or unloaded, except bananas; this tax is applied at all portswhether lighterage or deep-sea. On the other hand no harbor dues are chargedon ships for the use of the harbor, as distinct from the berth, although suchcharges would be justified at Chisimaio and to a lesser extent at Berbera torecover the costs of dredging and breakwater construction. Upon completionof construction of the new l4ogadiscio port similar charges would be justifiedto cover the costs of constructing the harbor.

7.02 The principal charges at SPA ports are given in Table 7. In gen-eral, they are high, although it is difficult to compare charges at differentports. A change from the present inefficient lighterage operation to an ef-ficient modern deep-sea port will effect reductions in overall por,<t costs andtariff reductions should be possible (para 7.13 and 7.14).

Other Port Investments and Relending of External Finance

7.03 Any evaluation of SPA's financial situation is affected by re-cent and possibly premature investments at the ports of Berbera and Chisimaio.At Berbera, construction was completed in 1968 of a new two-berth (320 mquay) port, financed by the USSR at a cost of So.Sh 54 million (US$ 8 mil-lion equivalent), out of development and commodity loans, as part of a gen-eral program amounting to about So.Sh 375 million (US$54 million). AtiPisimaio, a new four-berth (619 m quay) port was completed between 1967-69,financed by a USAID grant and a loan of US$ 1 million. The total cost ofthe project was US$9.8 million (So.Sh 69.9 million at 1970 exchange rates).Traffic forecasts indicate that these investments may have been premature bysome five to ten years. Details of the loans are given in Annex 5(a) and (b).

7.04 During meetings between representatives of the Association and FEDin July 1972, the question of relending the proposed IDA credit to SPA andthe treatment of other external financing in the capitalization of SPA wasdiscussed. FED would be unable to provide financing by way of a grant ifthe Association's 50% contribution of the project cost were to be relentto SPA on normal Bank terms. FED further considers that other externalGovernment borrowings for SPA should be relent to SPA on the same financialterms as obtained by the Government and that grants should be passed on asequity capital. This is an acceptable solution since it provides SPA witha rational capital structure based on facts. Also, the financial forecastsshow that, in accordance with the new finance law (para. 2.11), SPA payments

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to the Government by way of contributions from revenues and from depreciation,representing repayments of equity capital, together with debt service calcu-lated on the above basis will exceed what the debt service would be if thecredit were relent to SPA on Bank terms.

7.05 It was therefore agreed during negotiations that an exception wouldbe made to the general policy regarding relending the proceeds of IDA creditsand that a Subsidiary Loan Agreement would be entered into between the Bor-rower and SPA whereby the credit proceeds will be relent on the same termsas to payment of service charges and repayment of capital as contained in theDevelopment Credit Agreement. During negotiations the Government also agreedthat it will:

(a) lend to SPA the amount of the loans received from the USSRapplicable to the port of Berbera and the amount of the loanreceived from the USA applicable to the port of Chisimaioupon the same terms and conditions relating to interest andrepayment as are contained in the respective loan agreementsand

(b) treat as equity capital of SPA the amount of the grant receivedfrom the USA applicable to the port of Chisimaio and theproceeds of the proposed grant from FED.

Fixed Assets Valuation

7.06 AIC carried out an inventory of fixed assets and valuation as atDecember 31, 1969. The basis of valuation was actual cost of the new invest-ments at Berbera and Chisimaio and replacement cost for other fixed assets,except land, less accumulated depreciation to that date. Nominal valuationswere ascribed to land, since all the land belongs to the Government andthere is no free market in land. The valuation is satisfactory.

B. SPA's Financial Situation

7.07 Revenue accounts for 1969-1981 are given in Table 8, a statementof the source and application of funds in Table 9, and balance sheets inTable 10. Table 11 gives forecast debt service. Capitalization has beenassumed as agreed during negotiations (para. 7.05). Present tariffs andlevels of operating costs have been used in forecasting future revenue andexpenses. Other assumptions made are given in Annex 6.

7.08 In 1969 the cash operating surplus was insufficient to cover de-preciation, and the operating ratio, including depreciation, was 110%. In1970, reorganization of dock labor and improved supervision (para 4.04) andimproved cost control effected substantial savings in operating costs andreduced the operating ratio to 79%. The takeover by SPA of shore handlingat Berbera and Chisimaio and of storage revenue in 1971 increased revenuesand expenses and resulted in all profits from shore handling operationsaccruing to SPA, instead of a much smaller concession revenue; this, combinedwith traffic growth, further reduced the operating ratio to 67%. However,

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since traffic in 1971 was unusually heavy the operating ratios thereafterare expected to stabilize at about 70% or less; such ratios are relativelylow, considering that SPA provides all cargo-handling services, and are anindication of a general high level of tariff rates. Significant revenuedata are given below for representative years.

So.Sh Million

1969/1 1970L2: 1971 1973 1977-- 1979 1981

Operating revenues/3 17.6 19.5 34.8 35.6 48.7 54.1 60.9

Operating expenses 19.3 15.5 23.3 24.7 34.1 36.9 40.6

Operating surplus (1.7) 4.0 11.5 10.9 14.6 17.2 20.3

Interest 0.1 0.1 1.4 1.6 1.3 1.1

Income tax 1.4 4.0

Turnover tax 3.6 4.9 5.4 6.1

GovernmentDevelopment fund 2.0 5.9 5.8 7.8 10.3 12.9

Net Surplus 0.5 1.5 0.1 0.3 0.2 0.2

Operating ratio 110% 79% 67% 69% 70% 68% 67%

Interest coverage 53x 137x 7.8x 9.4x 13.2x 18.8x

Debt service coverage 6.3x 11.2x 2.7x 3.6x 4.2x 4.9x

,-nancial return onaverage net fixedassets 2.8% 8.2% 8.2% 5.2% 6.4% 7.9%

/1 Actual./2 First full year of use of new project facilities./3 Based on current tariffs.

7.09 All earnings criteria are satisfactory; the financial rate of re-turn on average net fixed assets after completion of the project would reach6% in 1979 and nearly 8% in 1981, in spite of the overinvestment at otherports. Interest coverage is high because of soft interest terms on borrowing;debt service coverage is ample because much of debt amortization is also onsoft terms. Operatino working capital is maintained by appropriations fromsurplus. The fall in operating expenses in 1970 and increases in revenuesand expenses in 1971 are explained in para. 7.08.

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7.10 Because of 100% FED/IDA financing of the project on country grounds,SPA will not contribute directly to the financing of the project costs. Itwill, however, generate funds during the construction period in excess of thelocal currency costs of the project, estimated at about So.Sh 32 million, andwill pay to the Government some So.Sh 44 million (after meeting debt service)by way of taxation, profit contributions and capital repayment. It will alsofinance So.Sh 3.3 million for improvements to the existing port and for otherminor capital expenditure. An analysis of the source and application of fundsfor the period 1970-1981 is given in Table 9, from which SPA's financing planfor the project construction period 1973-1976 is summarized below.

So.Sh US$lillion Million

Funds RequiredProposed project 173.12 25.0Other capital expenditure 3.28 0.5

176.40 25.5 %

Sources of FundsGross internal cashgenerated 71.52 10.3 40.4

Less: Debt service (24.02) (3.5) (13.6)Turnover tax (15.82) (2.3) (9.0)Contribution to

Development (27.74) (4.0) (15.7)Capital Repayment (0.79) (0.1) (0.4)

Net cash generated by SPA 3.15 0.4 1.7

Less: Increase in cashreserves (2.99) (0.4) (1.6)

Net cash generated appliedto investments 0.16 0.0 0.1

FED grant 86.56 12.5 49.1

IDA credit 89.68 13.0 50.8

176.40 25.5 100.0%

7.11 Over the whole period, 1970-1981, SPA is expected to pay to theGovernment So.Sh 51 million in income and turnover taxes, So.Sh 99 millionin development capital contributions and equity capital repayments, whilemeeting all its commitments and increasing its cash reserves by So.Sh 16million.

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7.12 The balance sheets (Table 10) show a strong and continually improv-ing financial position. Debt/equity ratios are acceptable, the highest pointafter completion of the project being 42/58.

C. Financial and Economic Objectives and Covenants

7,13 As stated in para 2.12 the Government's financial policy towardsSPA is acceptable. However, in considering the financial objectives thatought to be required of SPA, as related to a rate of return on investment,various matters should be considered:

(a) The present general level of port charges is high and shouldbe capable of being reduced after completion of the projectand introduction of efficient operating methods. Tariffreductions would especially benefit exports which are highlysensitive to port handling costs.

(b) The already acceptable financial rates of return derived fromthe forecasts (5.2% in 1977, rising to 7.9% in 1981) are basedon inclusion of the full costs of the Chisimaio and Berberaports and full depreciation on them. If allowance is made foroverinvestment the comparable rates of return would be of theorder of 7% in 1977 rising to over 10% in 1981.

(c) After providing for the admittedly low interest charges onrelending borrowings on soft terms, the actual return to theGovernment on its equity capital in the form of turnover taxand profit appropriations is substantial, being 7.5% in 1977and rising to 12.5% in 1981, on the present level of tariffs.

(d) Alternatively, if the profit appropriations are considered asan additional return on borrowed money (as distinct from grantsor equity capital), for the year 1977 (the first full yearafter completion of the project) in which the financial rateof return is 5.2%, the profit appropriation added to actualinterest and service charges on debt would equal approximately7% on that debt.

7.14 It is concluded that a minimum financial rate of return of 5% ontotal average net fixed assets would enable SPA to maintain adequate workingcapital and reserves, meet debt service and pay to the Government in oneform or another out of profits a reasonable return on investment. Also,after completion of the project there would be the opportunity to reducetariffs in areas where this would be of benefit to the economy. At the sametime it is important to ensure that (a) the Government reaps the full benefitfrom capital investment borrowings, including the proceeds of the IDA credit,and that unnecessary cash operating surpluses are not retained by SPA or dis-sipated in investments or expenses that would not benefit the economy, and(b) that SPA will be able to retain sufficient funds for future investmentas they are required. During negotiations it was therefore agreed that:

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(i) all necessary steps shall be taken, including, where necessary,revision of port tariffs, to ensure that SPA will earn a financialrate of return of at least 5% on total average net fixed assetsin use;

(ii) the Association will be consulted prior to any capitalinvestment by SPA;

(iii) SPA will not incur any debt unless its net revenue for thefiscal year or the 12 consecutive months immediately beforethe date of occurrence, whichever is greater, would be atleast 1.5 times the maximum debt service requirements of anysucceeding year on all SPA debt;

(iv) Finance Law No. 58 will not be amended in any materialrespect without prior consultation with the Association;and

(v) the Association will be provided promptly with copies of allregulations applicable to SPA issued under the Finance Law.

7.15 During negotiations, it was also agreed that SPA's tariff policy willbe:

(a) to levy dues and charges for the principal categories offacilities and services provided, based on the costs of thosefacilities and services;

(b) particularly as regards charges on cargo, to cover at leastthe economic costs;

(c) to ensure that, so far as is reasonable and practical, theeconomic savings and benefits from investments in the portsthat would otherwise accrue outside the economy of thecountry are recovered; this applies principally to savingsand benefits enjoyed by foreign-owned ships; and

(d) in the event that the overall level of tariffs can bereduced, the first beneficiaries should be export cargo.

VIII. ACTION TAKEN AND RECOMMENDATION

8.01 During negotiations agreement was reached on the following matters:

(a) employment of consultants, improvement in organizationand management, and appointments of general managers andfinancial managers (paras. 3.03 and 4.05);

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(b) promulgation of port regulations (paras 3.05);

(c) audit and insurance (paras 3.10 and 3.11);

(d) improvement of the existing harbor (para 4.08);

(e) exclusion of customs duties and other taxes for bidevaluation (para 5.06);

(f) protection of the environment (para 5.08);

(g) relending of credit proceeds to SPA on IDA terms; relendingof other port investment loans and treatment of grants asequity capital (para 7.05);

(h) financial rate of return and other financial covenants(para 7.14); and

(i) tariff policy (para 7.15).

8.02 The project is suitable for an IDA credit of US$12.5 million to the

Somali Democratic Republic, plus US$450,000, being the amount outstanding on

Credit S5-SO, making a total of US$12.95 million.

February 14, 1973

ANNEX 1

SOMALIA

MOGADISCIO PORT PROJECT

New Facilities at Other Main Ports

1. BERBERA

Main berth 300 m longMaintenance berth 40 m2longQuay area 40,300 m2Transit shed 5,472 mBreakwatersWorkshops, stores, etc.Housing estate

Total cost So.Sh 53,972,000

Completed 1968

2. CHISIMAIO

Dredging to 31 ft*Berth and jetty* 619 m longBreakwaters and causeway* 2Banana conveyor shed** 521 mCargo shed, including 2

refrigerated store** 1,985 mAdministration buildings,

workshops, etc. **

Total cost So.Sh 69,917,047

* Completed 1967** Completed 1969

February 14, 1973

ANNEX 2Page 1

SOMALIA

MOGADISCIO PORT PROJECT

Main Project Characteristics

1. As the natural depth of the open sea near the harbor entrance isover 13 m at low low water (LLW), there is no need for a dredged entrancechannel. Along the quays, a depth of 10 m below LLIW has been chosen for thetwo berths alongside the breakwater, and 8.5 m for the landward berth. Thesedepths will accommodate vessels with drafts of 9.5 m and 8 m respectively,which is ample for the vessels expected to call at the port. The 10 m depthwill acconmodate most vessels of 15,000 dwt; because of depth limitations inmany ports all over the world, the trend towards larger vessels is reflectedin increasing length and width of vessels, rather than depth. The chosenberth lengths (two of 160 m and one of 140 m) correspond with the abovedepth; it is unlikely that more than one maximum-size vessel would have to beaccommodated at any one time. Spring highwater tide is 3.05 m above LLW andmay reach 3.75 m in exceptional cases. The crest of the quay wall is there-fore 4.50 m above LL1-7.

2. 2 Two transit sheds along the deep quays and one warehouse, each of5,000 m , will be sufficient to handle the cargo volumes expected in the1980's. Another transit shed and/or air-conditioned banana storage shed atthe third berth can be added later should the need arise. A 15,000 m2livestock marshalling yard can accommodate one shipload of livestock (cattle,camels, sheep and goats), and its location is planned so that animals can-each the walk-on loading ramp without crossing any traffic or other quays.

3. Although the construction of the quay walls and aprons allows forthe installation of cranes, no such equipment is included in the projectsince it is envisaged that ship's gear will be used. Buildings for theport administration, customs and police, and utilities are included in theproject. Consideration was given to accommodating tankers for the supplyof petroleum products to the tank farm adjacent to the port area, but thisidea was abandoned because of the danger involved.

4. The construction of the breakwater is conventional, consisting ofa rock-rubble core, covered at the seaside by heavy limestone blocks andconcrete tetrapods. To minimize wave action, damping embankments will beconstructed within the harbor basin where there are no quay walls. For thequay walls the conventional construction with heavy concrete blocks has beenchosen; a sheet-piling construction was considered but was found to be moreexpensive, and it could not be used for the landward berths where there arerock layers through which sheet piling cannot penetrate. Even so, bidders

ANNEX 2Page 2

will be allowed to submit bids for alternative types of construction for thequay wall if they believe that such construction would be cheaper, and forthe sheds and warehouses which are designed with glued laminated timber spans.

5. Pavings of roads and aprons and within sheds is to be of asphaltconcrete. Since the fill between breakwater and quay wall will be insertedhydraulically using vibrators, little settlement is expected.

Equipment

6. Procurement of 12 forklift trucks and a tug is included in theproject. SPA has sufficient mobile cranes and launches.

February 14, 1973

ANNEX 2Att-Rohment

6X,

t:x 5"~~~~ ---0.00)-----

> %. In~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~10 0

(2(17 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ¾>~~~~~~~ ~~ ~ ~ ~ ~ AE MD"

(1~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~EEA LNO ABU OK

AMTEX 3Page 1

SOMALIA

MOGADISCIO PORT PROJECT

Traffic Forecasts

A. Introduction

1. Mogadiscio is primarily a foreign trade cargo port, handling onlya nominal volume of coastal cargo and virtually no passenger traffic. It isthe principal port for Somalia's imports which account for ovet 90% of drycargo moving through the port.

2. Cereals are the most important dry cargo import commodity, followedby cement, transport machinery and equipment and other general cargo. Drycargo exports consist of myrrh, animals and animal products and small quanti-ties of general cargo. (Charcoal used to be Mogadiscio's most important ex-port commodity but the export was banned in 1967 to preserve the scrub forestsbadly needed to prevent further soil erosion.) Bulk oil imports are handledthrough an offshore pipeline facility located adjacent to, but outside, theport area.

3. Dry cargo traffic (other than charcoal exports) through the port ofMogadiscio increased erratically from 58,000 tons in 1961 to 98,000 tons in1970, reaching or exceeding 125,000 tons in 1965 and again in 1969. Thoughthe data are not entirely comparable, the traffic volume was probably over200,000 tons in 1971. A variety of reasons including recurrent droughts,improvement of competing ports, balance of payments considerations, theclosure of the Suez Canal, development project needs and recent politicalc_--velopments in Somalia explain the wide swings in Mogadiscio port traffic.

4. Three other Somali ports will be affected by the proposed improve-ments at Mogadiscio: Chisimaio, Berbera and the lighterate port of Merca.Merca and Chisimaio are banana export ports but also handle small quantitiesof general imports, mostly related to banana industry needs. In addition,Chisimaio with its modern port facilities handles, during the southwestmonsoon season, some cargo imports destined for the Mogadiscio area. Berberais Somalia's principal port for live animal exports.

B. Traffic Forecasts

5. The construction of a new port at Mogadiscio will facilitate themovement and spur the growth of cargo through the port and will also providea more efficient and economic alternative to some of the cargo using otherSomali ports. Specifically, it will handle all cargo going through thepresent banana lighterage port of Merca and will recapture its share of liveanimal exports now using the port of Berbera. Also, it will no longer benecessary for general cargo imports destined for Mogadiscio to unload atthe port of Chisimaio during the southwest monsoon season. Finally, it isanticipated that less costly and more efficient operations at the new port

ANNEX 3Page 2

will generate marginal traffic that would not otherwise materialize. As aresult of these developments, it is estimated that dry cargo traffic usingthe port would increase from an annual average of 160,000 tons in 1970-71to over 525,000 tons in 1981 and 660,000 tons in 1986 (Table 4).

C. Normal Traffic

6. Dry cargo forecasts are based on the average 1970-71 data to mini-mize the distorting effect of the wide variations between 1970 and 1971.Separate forecasts are prepared for cereal imports, general cargo imports,and general cargo exports. General cargo imports are expected to grow atan average annual rate of 10%, as in the recent past, until 1976, at 7%during 1976-81 and at 5% thereafter. This is a conservative assumption;a considerably faster growth rate is possible if the new government is suc-cessful in realizing Somalia's economic development potential and after in-creased banana export earnings enlarge the country's capacity to import.Imports of cereals should increase at a much lower and falling' rate untilabout 1975 when total cereal imports will begin to decline rapidly as gov-ernment-instituted programs to make Somalia self-sufficient in food produc-tion take effect. In the absence of definite programs to broaden and diversifythe area's export base, general cargo exports other than live animals andbananas are expected to grow at an average rate of 5% annually.

D. Traffic Diversion from Merca

7. The lighterage port of Merca, located some 90 km south of Mogadiscio,serves as an export facility for bananas grown in the Afgoi-Genale area. Foreconomic reasons discussed in Chapter 6 (para. 6.06), banana exports will bediverted to the improved port of Mogadiscio and the port of Merca will ceaseoperations. Merca also handles small volumes of imports related to the needsof the banana industry. Most important of the latter are cardboard boxes andplastic wrapping used for banana packing, which are to be produced locally,thus eliminating the need for future imports.

8. Banana exports through Merca have declined from the 1965 level of62,000 tons to about 40,000 tons a year, but this is due in part to improvedpacking techniques which have reduced shipping weight. There is reason tobelieve that the stagnation period is over and that banana exports from thearea will expand rapidly in the immediate future. All banana marketing func-tions have recently been centralized in the National Banana Board, which hasthe means to implement its programs for strengthening Somalia's banana in-dustry through cost reduction, yield improvements, and modernizing bananaproduction methods. The Italian Government may grant Lira 5 billion (US$8,330,000)for irrigation and related improvements in the Genale region. FED is makinga study of the Scebeli River with a view to preparing possible irrigationprojects. In the more distant future, furth,er increases in banana exportsare planned through the expansion of acreage under banana plantation. Bananaexports from the area are expected to reach 103,000 tons in 1977 and 180,000

ANNEX 3Page 3

tons in 1981 and may reach 241,000 tons in 1986, particularly if the SuezCanal is reopened, as this would improve Somalia's competitive position in

the European market.

E. Traffic Diversion from Chisimaio

9. The recently constructed new port at Chisimaio handles some imports

destined for Mogadiscio, especially during the southwest monsoon season inJune-August when unloading in Mogadiscio port is particularly hazardous. The

volume of diverted cargo is estimated to be 8,000 tons for 1970-71. Thistraffic will be handled by Mogadiscio after it is improved and is expected togrow at the same rate as general cargo imports generally.

F. Livestock Export Diversion from Berbera

10. Raising livestock is the principal economic activity in Somalia and

its largest source of foreign exchange earnings. The Mogadiscio hinterlandaccounts for over one-third of Somalia's livestock population. Prior to the

port improvements at Berbera, the port of Mogadiscio handled 10-20% of Somalia'slive animal exports. The balance of livestock exports from the port's servicearea was trekked overland to Kenya and, to a lesser extent, to the port ofBerbera which, even then, offered better animal handling facilities thanMogadiscio. As a result of port improvements at Berbera, Mogadiscio's shareof the country's livestock exports dropped in 1970 to less than 2%.

11. The proposed port improvements at Mogadiscio will help recapturemost if not all livestock traffic lost to the port of Berbera, estimated atabout 9,000 tons in 1971. Long-range forecasts of livestock exports fromSomalia anticipate an overall annual growth rate of 10%, which is also therate assumed for the port of Mogadiscio through 1976. Afterwards, increasinglocal meat consumption and growing demand of the Mogadiscio meat processingplant will reduce the growth rate of live animal exports to an estimated 8%

per annum.

G. Generated Traffic

12. In view of the substantial savings to be achieved by constructinga deep-water port at Mogadiscio, and the probability that a large proportionof these savings could be passed on to Somali consumers and producers, com-bined with the general development potential of the area induced by highwayconstruction, considerable export and import traffic is likely to be generatedby the proposed project. This generated traffic is conservatively estimatedat 25,000 tons in 1981, increasing thereafter at the average growth rate in-

dicated above for general cargo traffic.

February 14, 1973

ANNEX 4Page 1

SOMALIA

MOGADISCIO PORT PROJECT

Economic Justification

A. Introduction

1. There is an urgent need to improve the port at Mogadiscio. Theexisting lighterage facility is totally inadequate, highly inefficient and issilting up rapidly. An economic appraisal of the project shows it will offeran attractive rate of return on investment from several conservatively esti-mated project benefits, including the elimination of the shipping surcharge,reduction in cargo losses, lower banana export costs and diversion of drycargo imports from the port of Chisimaio and of live animal exports from thenorthern coast port of Berbera. Also considered, but not quantified for lackof adequate data, are benefits from generated traffic.

B. Shipping Surcharge Savings

2. The East African Conference Lines impose a surcharge of US$8.40 perton on dry cargo shipped to or from lighterage ports along the East Africancoast, including Mogadiscio. No specific surcharge is imposed on dry cargomoved in charter (tramp) ships but, according to local shipping agents and

forwarders, the higher cost of lighterage operations is reflected in negotiatedcharter rates and in the demurrage paid to such vessels. Based on the ratioof daily operating costs for representative ships serving the port of Mogadiscio,US$1,450/day for conference ships and US$1,000/day for charter ships, the-lircharge cost for the latter can be estimated at US$5.80 per ton.

3. The surcharge is imposed to cover higher ship time costs due to theunprotected nature of the anchorage, which makes ship waiting time atMlogadiscio unpredictable, and the inefficiency of present lighterage opera-tions. There is no similar surcharge at Chisimaio, Somalia's other, recentlybuilt, East African coast port. The elimination of the surcharge at Mogadisciowill directly benefit the national economy by reducing total shipping costsby 20-25%, increasing the speed and reliability of freight movements, and, asa result of these improvements, stimulating Somalia's economic development.

4. An analysis of dry cargo shipments shows that in 1971, conferenceline vessels carried 67% of general cargo imports, and nearly all generalcargo exports moving through the port. Charter or tramp vessels carried thebalance. Based on this and assuming no changes in the competitive positionof conference and charter ships during the forecast period, the followingsavings can be expected when the surcharge is eliminated.

ANNEX 4Page 2

Conference Line Ships Charter or Tramn Ships Total SurchargeVolume Savings Volume Savings SavingsTons ('000) US$ Tons ('000) US$ US$'000

1977 123 1,033.2 119 690.2 1,723.4

1981 159 1,335.6 124 719.2 2,054.8

1986 203 1,705.2 131 759.8 2.465.0

1987-2015 203 1,705.2 131 759.8 2,465.0

C. Reduction in Cargo Losses

5. During lighterage operations at Mogadiscio, losses occur throughdamage and by falling into the sea. Weather also damages cargo too largeor too heavy to be moved manually into the transit sheds. Detailed informa-tion on cargo losses or damage in the port area is not available, but on thebasis of data from various sources, it can be conservatively assumed thatcargo losses average about 1-1/2% of value for dry cargo imports and about0.5% for dry cargo exports other than bananas. The value of dry cargo movingthrough the port of Mogadiscio in 1970 averaged US$308 per ton for importsand US$440 per ton for exports. This implies savings in cargo losses ofUS$4.60 per ton for imports and US$2.20 per ton for exports.

6. The following table shows the estimated savings from reductions incargo losses:

Imports Exports Total SavingsYear Volume Savings Volume Savings US$'000

Tons ('000) US$ Tons ('000) US$

1977 229 1,053.4 13 28.6 1,082.0

1981 268 1,232.8 15 33.0 1,265.8

1986 315 1,449.0 19 41.8 1,490.8

1987-2016 (annual) 315 1,449.0 19 41.8 1.490.8

D. Chisimaio Traffic Diversion Benefits

7. Dry cargo imports destined for Mogadiscio but unloaded at Chisimaioduring the southwest monsoon season are trucked to the Mogadiscio area, overa 500 km coastal road, of which only 210 km are paved. The costs of themovements is estimated at US$14.75 per ton including the empty return Journey.Based on the traffic diversion estimates (Annex 3, para. 9), traffic diversionbenefits are estimated as follows:

ANNEX 4Page 3

Diverted AnnualYear Traffic Savings

Tons ('000) US$

1977 14 206.5

1981 19 208.3

1986 27 398.3

1987-2016 27 398.3

E. Banana Traffic Diversion Savings

8. Banana exports from the Afgoi-Genale area use the lighterage portat Merca, some 90 km south of Mogadiscio, incurring substantial costs in shipwaiting time and cargo losses. Construction of a banana berth at Mogadisciowill reduce the ship waiting time and largely eliminate cargo losses. Thesebenefits will outweigh the additional costs incurred as a result of longer landtransport distances between the port and the banana-growing areas.

9. At present, 72 hours are required to load 3,000 tons of bananasaboard a refrigerated banana ship in Merca. Port improvements at Mogadisciowill reduce the loading time to 24 hours, saving 48 hours of a ship's time.The value of time for a banana ship is estimated at US$3,500 per day, orsavings of US$2.33 per ton of bananas. Banana ships, which are chartered,make about 8.0 round trips annually, but with the proposed improvements,they will be able to make 8.5 round trips annually. W4hen the Suez Canalreopens, the number of annual round trips will be 19 without, and 21 with,L_;e proposed port improvements.

10. Based on current production and local marketing costs, the localcost of bananas is US$83.42 per ton excluding export tax. The losses tobananas at Merca are estimated at 3% of total volume compared with less than1% at Chisimaio which has modern berthing facilities for banana ships. Aloss reduction of 2% or US$1.67 per ton can be expected from the proposedport improvements at Mogadiscio.

11. The transfer of banana exports from Merca to Mogadiscio will increaseland transport costs for bananas grown in the Genale area and decrease them forbananas grown in the Afgoi area. Since about 90% of all bananas come from theGenale area, the net effect of exporting bananas via Mogadiscio will be toincrease the average road transport distance by about 60 km,, thereby incurringadditional land transport costs, estimated at US$2.25 per ton.

12. Net savings attributable to the resiting of the banana export portfrom Merca to Mogadiscio are estimated at US$1.75 per ton as shown below:

ANNEX 4Page 4

US$/ ton

Ship time savings 2.33Cargo loss reduction 1.67

Gross savings 4.00

Less additional landtransport cost 2.25

Net savings 1.75

13. Based on the banana export forecasts described in Annex 3, para. 8,banana traffic diversion savings are expected to increase as folloxws:

AnnualYear Banana Exports Savings

Tons ('000) US$

1977 103 180.3

1981 180 315.0

1987-2016 241 421.8

F. Livestock Diversion Benefits

14. Somali livestock is transported to the port almost exclusively onthe hoof. Because of the better shipping facilities and established exportmarkets in the northern region, a large portion of the livestock fromMogadiscio's hinterland is exported through Berbera, some 1,250 km north ofMogadiscio. Shipping livestock through Mogadiscio will shorten the landtransport distance by about 1,000 km, and offer savings equivalent to anestimated So.Sh 100 per ton (Table 5). The annual estimated benefits fromthis source are:

Year Diverted Livestock SavingsVolumeTons ('000) US$

1977 4 60

1981 17 255

1986 25 375

1987-2016 25 375

ANNEX 4Page 5

G. Economic Costs of the Project

15. Construction of the project is expected to be completed by June 1976,with the new port beginning operation by July 1976. The total project cost,including engineering and price contingencies, is estimated at US$25.0 million.For the purpose of economic evaluation, excluding price contingencies, theeconomic cost of the project is estimated at US$22.66 million. The annualmaintenance cost is not expected to exceed 1% of the capital cost.

H. Economic Justification

16. The comparison of quantifiable benefits with project costs yieldsa economic return of 15.4% on the investment. Project benefits will commenceabout July 1976 and will continue for the useful life of the new port facili-ties estimated to be 40 years. However, no increases in annual benefits areassumed after 1985 for banana exports and after 1986 for other dry cargo. Asummary of project benefits is given in Table 6.

17. Project benefits have been understated by the exclusion of benefitsfrom generated traffic, while all project-connected costs have been allocatedto this project although several important cost elements such as the breakwater,the access road, administrative facilities, etc., will directly benefit futurestages of the port development program.

18. A sensitivity analysis carried out as part of the project appraisalproduced the following results:

Sensitivity Analysis

Project Cost Project Benefits Economic Return

Estimate Reduced 25% 12.1%Estimate Forecast 15.4%Estimate Increased 25% 18.3%Increased 10% Reduced 25% 11.1%oIncreased 10% Forecast 14.1%Increased 10% Increased 25% 16.9%Increased 20% Reduced 25% 10.2%Increased 20% Forecast 13.1%Increased 20% Increased 25% 15.7%Reduced 10% Forecast 16.2%Reduced 20% Forecast 17.8%

They show that, even if actual project costs and benefits turned out to be20% higher and 25% lower respectively than the appraisal estimates, the projectwould still yield an economic return in excess of 10%. Much more likely, how-ever, would be lower project costs (on the basis of bids already received) andhigher benefits (for reasons stated in pEra. 17 above), yielding a return of18% or more.

February 14, 1973

ANNEX 5 (a)

SOMALIA

MOGADISCIO PORT PROJECT

Terms and Conditions of USSR Loan for Berbera -

Summary(Millions)

Total Loan Roubles So.Sh

Development Loan 37.5 297.64Commodity Loan 9.5 75.4

Interest

Interest rate is 2-1/2% and is chargeable from the date the respectiveportion of the loan has been utilized. Payment is due in first 3months of the year following that in which respective portions of theloan are debited.

Capital Repayment

Development Loan. Repayable in 12 annual installments starting in theyear after all equipment for respective project has been delivered.

Commodity Loan. Repayable in 5 annual installments staring in theyear following utilization of respective parts of loan.

T)eferment Clause

50% of repayment of capital and 50% payment of interest may bedeferred until January 1, 1972, and is then to be paid in full over12-year period.

February 14, 1973

ANNEX 5 (b)

SOMALIA

MOGADISCIO PORT PROJECT

Terms and Conditions of USA Loan for Chisimaio Project -

Summary

(millions)Total Loan US$ So.Sh

6 42.8568

Interest

Interest rate is 3/4% of first US$3.6 million, 1% on remainingUS$2.4 million for first ten years and 2-1/2% thereafter.First interest payment was due June 18, 1968.

Capital Repayment

Loan is to be repaid in US dollars over a period of 40 years and thefirst payment is due December 18, 1977.

Special Clause

Both interest and caoital payments are due semiannually.

February 14, 1973

ANNEX 6

SOMALIA

MOGADISCIO PORT PROJECT

Assumptions Used in Financial Forecasts

1. Income tax was continued at 35% until December 31, 1972, including5% for local taxes.

2. The new turnover tax will be at the rate of 10%, to include anamount for local taxes. Tariffs will not be increased because of this tax.

3. A contribution of 80% of after tax profits was be paid over to theGovernment's Development Fund until December 31, 1972, in accordance witVthe Government's provisional policy prior to the new legislation.

4. The variable payments to the Government out of profits and deprecia-tion from January 1, 1973, under the new legislation, have been calculated byanalyzing the application of individual sources of funds.

5. Increases in working capital have been calculated on 10% of cashoperating expenses.

6. SPA's capitalization (debt and equity) and debt service calculatedas agreed during negotiations (para. 7.05).

7. Present tariffs and levels of cash operating costs are assumed tocontinue. Additional maintenance costs of 1% on the project are assumed.

8. Miscellaneous capital expenditure on plant replacement and otherminor works has been assumed at So.Sh 500,000 per annum.

9. It is assumed that the ad valorem liarbor Dues will be replaced byShips' Dues in 1977.

February 14, 1973

TABlI 1

S0!-f LIA

I.OGADISCIO PORT PRJO,jCP

Total Port Traffo n_Ln- 72Z - t A p

(O0O0 ton:s)

Four Major Ports------- -~- - 23 Total.

Sub- M4inor All Mogadiscio -

Mogadiscio Bcrbera Merca Chisimaio Total Ports Ports % of Total

Exports; 20.9-/ 90.0 40.4 79.9 2312 5. ,/ 236.2 9%

Imports 2h8.1 96.9 12.9 30.1 18r8,o L2.0S 3OO. 62%

Total 1971 269.0 186.9 53.3 110.0 619.2 l7.o2/ 636.2 42%

Total 1970 1144.8 140.2 51.4 92.3 42u.7 16.9 445.6 32%

Total 1968 131.5 106.3 4&.8 84.9 371.5 10.5 382.0 34%

Total 1266 123.0 121.7 61.4 72.2 378.3 14.1 392.4 31%4

Source: 1966, 1968 Customs Department1970, L°71 SPA

Notes: I Includes bulk petrolcuTm products2/ Includes exceptional exports of scrap iron3! Estimated

February 14, 1973

SOMALIA

MOGADISCIO PORT PROJECT

Lro.ect LCot Et_timatqs

So. Sh Million US$ Million Equivalent

Local Foreign Total Local Foreign Total Foreign

CIVIL WORKS

Breakwater, Berths, Marshalling Area, Roads and Paving 23.5 93.9 117.4 3.39 13.56 16.95 807/

Transit Sheds, Warehouse 2.1 8.2 10.3 0.30 1.19 1.49 87o

Ancillary Buildings 0.5 2.2 2.7 0.08 0.31 0.39 807%

Water supply, Electricity, Telephone, etc. 0.1 2.4 2.5 0.02 0.34 0.36 95%

Miscellaneous (Fencing, Weighbridge, Fire-fighting,Equipment, Navigation Aids, etc. 0.1 2.2 2.3 0,02 0.31 0.33 95%

26.3 108.9 135.2 3.81 15.71 19.52 80.5%

Contingencies:

Engineering 6% 1.6 6.5 8.1 0.23 0.94 1.17

Price 12% 3.2 13.0 16.2 0.45 1.89 2.34

31.1 128.4 159.5 4.49 18.54 23.03 80.5%

Engineering Supervision 0.7 6.2 6.9 0.10 0.90 1.00 89.57.

Total Civil Works 31.8 134.6 166.4 4.59 19.44 24.03 80.9%

OPERATING EOQUIPMENT

Tug, Forklift Trucks, Pallets, etc. - 4.2 4.2 - 0.60 0.60 1001

TECHNICAL ASSISTANCE

For Management, Operations, Accounting, Training O.l 1.9 2.Q 0.01 0.28 o.29 957.

TOTAL 31.9 140.7 172.6 4.60 20.32 24.92 81.5%

Say 25.00

Source: Bank Staff, derived from SOGREAl's estimates

February 14, 1t73

TABLE 3

SOMALIA

MOGADISCIO PORT PROJECT

Estimated Schedule of IDA Disbursements

IDA Fiscal Year Cumulative Disbursementand Quarter at End of Quarter

(US$'000)

1972/73

June 30, 1973 1.771/

1973/74

September 30, 1973 2.65December 31, 1973 3.55March 31, 1974 4.45June 30, 1974 5.35

1974/75

September 30, 1974 6.35December 31, 1974 7.35March 31, 1975 8.35June 30, 1975 9.35

1975/76

September 30, 1975 10.25December 31, 1975 11.15March 31, 1976 12.05June 30, 1976 12.95

1/ Including US$450,000 for the refunding of outstanding balanceof s5-so.

Closing date: June 30, 1977

February 14, 1973

TABLE 4

SOMALIA

MOGADISCIO PORT PROJECT

Mogadiscio Port Dry Cargo Forecasts

('000 tons)

1971/ 1977 1981 1986

Dry Cargo Imports - Total 150 243 287 342

Cereals 55 65 53 41All Other 95 164 215 274Diverted traffic - 14 19 27

Dry Cargo Exports - Total 10 121 213 286

Bananas - 103 180 241Livestock 1/2 5 18 26All Other 9' 13 15 19

Generated Cargo - 18 25 32

Dry Cargo - Total 160 382 525 660

/1 1970-1971 average/2 Excludes 9,000 tons of scrap netal in 1971

February 14, 1973

TABLE 5

SO4ALIA

MOGADISCIO PORT PROJECT

Livestock Diversion: Estimates of Benefits

Measurement Goats &Unit Camels Cattle Sheep

A. Animal trekking cost Shillings perhead/km 0.03 0.03 0.01

B. Live animal conversionratio Kg 500 250 30

C. Animal trekking cost Shillings perton/km 0.06 0.12 0.33

D. Average distance Km 1,000 1,000 1,000

savings

E. Trekking cost savings Shillings perton 60 120 330

F. Live animal exportvolume mix 57.2 35.6 7.2

G. Weighted average trekkingcost savings Shillings per

ton 34.3 42.7 23.8

Sources and Notes:

(A) FAO, SOMALIA: Livestock Development Survey, Rome, 1967

(B) Ministry of Planning & Coordination, A Macroeconomic Approach to DevelopmentPlanning in the Somali Democratic Republic. Mogadiscio, 1970

(C) Derived from (A) and (B)

(D) Average distance from Mogadiscio's hinterland to the port of Berbera 1,250 kmi,

to the port of Mogadiscio 250 km

(E) Derived from (C) and (D)

(F) Ministry of Planning & Coordination, Foreign Trade Returns for Year 1966,

Mogadiscio, 1967

(G) Derived from (E) and (F)

February 14, 1973

TABIE 6

SOMALIA

MOGJIDISCIO PORT PROJECT

Estimated Benefits and Costs

(US$ '000)

Cargo Chisimaio Banana Traf- LivestockSurcharge Loss Traffic Div- fic D. verSion Transport Tot4l Proiect

Year Savings Reduction ersion Savings Savings Cost Savings BenefitS Costs

1973 - - - _ _ 5,630

1974 - - - - - _ 6,900

1975 - - _ - _ 6,900

1976 850 500 100 80 25 1,555 (3,230( 113

1977 1,723 1,082 207 180 6o 3,252 227

1978 1,788 1,119 221 208 90 3,426 227

1979 1,869 1,162 251 240 135 3,657 227

1980 1,968 1,215 266 275 180 3,904 227

1981 2,055 1,266 280 315 255 4,171 227

1982 2,134 1,309 295 340 285 4,363 227

1983 2,209 1,348 325 364 300 4,546 227

1984 2,291 1,392 339 392 330 4,744 227

1985 2,369 1,438 369 422 345 4,943 227

1986 2,465 1,491 398 422 375 5,151 227

1987to 2,465 1,491 398 422 375 5,151 2272016

F Port facilities provided in this project, except for the banana wharf, will be fullyutilized by 1986. No increase is currently planned for banana exports through Mogadiscioafter 1985.

February 14, 1973

TABLE

SOMALIA

MOGADISCIO PORT PROJECT

Principal Tariff Items

(So.Sh)

Mosadiscio Merca ChimOalo Berbert

SCHEDULE A: LIGHTERAGE AND SHOREHANOLING

Landing general cargo(Par ton weight or volumewhichever is greater) 28.00 28.00 26.00 26.00

Loading general cargo(Per ton weight or volumewhichever is greater) 26.00 26.00 26.00 26.00

Loading banana and otheraimilar fresh fruits(Per cubic meter) 14.00 14.00 14.00 14.00

Landing banana packing materialincluding empty cartons andfertilizers (per ton weightor volume whichever is greater 23.00 23.00 23.00 23.00

Surcharge or overtime on landing/loading cargo excluding banana,other similar fresh fruits,charcoal and fresh meadow 74'/. 7kY% 57. 5%

Loading/landing camel (per head) 15.00 15.00 5.50 5.50

Loading/landing cattle (per head) 8.00 8.00 4.00 4.00

Loading/landing sheep/goat (per head) 2.00 2.00 0.55 0.55

Surcharge or overtime on livestockhandling 77. 737. 57. 57.

SCHEDULE B: STEVEDORING CHARGES

Landing/loading general cargoexcluding banana (per ton weight) 12.00 12.00 12.00 12.00

Loading/landing camel (per head) 5.00 5.00 4½ 44

Loading/landing cattle (per head) 44 4½ 4.00 4.00

Loading/landing sheep /goat(per head) 0.60 0.60 0.50 0.50

Overtime on stevedoring wrks exclud-ing livestock, banana 157. 15% 15% 15%

SCHEDULE C: SHIP CHARGES

Boat service (per trip) 60.00 60.00 60.00 0.60

Accostage (berthage) for ships(per foot (0.a.) per hour) - - 0.10 0.10

Pilotage for ships (per operationper NRT) _ - with a mini- with a minimum of

mua of 200.00 200.00 & Maxi. 500.00& Maxi.500.00

Towage (per operation per tugover 300 hp ) 600.00 600.00

(per tug of 300 hp. sod below) - - 300.00 300.00

Pilot (for every half an hour) - - 50.00 50.00

Pilot services not utilized(per operation) - - 100.00 100.00

Mooring (berthing) dues(per operation) - - 100.00 100.00

SCHEDULE 0: PORT DUES AND HARBOR TAX

Harbor tax (on ad valorem) 147. 1 h7 1%. 113%

Anchorage for ships (per arrivalper SRT for 30 days) 0.60 0.60 0.60 0.60

Anchorage for ships(on annual basis) 1.20 1.20 1.20 1.20

Pebruary 14, 1973

SOMALIA

MOGADISCIC PORT PROJECT

SOMALI PORT AUTHORITY

Forecast Revenue Accounts, Years Ending December 31(So. Sh '000)

1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981

OPERArING REVENUES

Ships Dues 480 1,014 955 1,066 1,147 1,231 1,317 2,627 13,685 14,245 14,895 15,670 16,473Stevedoring 1,655 1,864 4,011 3,753 3,999 4,245 4,527 4,612 5,415 5,616 5,838 6,150 6,447Lighterage and Shorehandling 10,093 9,978 20,705 19,448 20,784 22,206 23,848 24,909 27,539 29,339 31,2Co 33,438 35,605Storage 1,350 1,275 1,365 1,450 1,557 1,730 1,890 1,970 2,040 2,125 2,200Miscellaneous 106 285 100 104 110 116 122 128 135 142 149 156 163H-rh-r T.. 5.263 6 351 7,675 7.4S5 S.) I 755 9.275 9.795 - _ __ __

17.597 19,492 34,796 33.101 35.560 38.003 40.646 44.001 48.664 51,312 54,130 57.539 60.888

OPERATING EXPENSES

Labor Costs - Stevedoring 1,904 1,793 1,914 2,035 2,173 2,311 2,592 2,685 2,794 2,944 3,087Lighterage and Shorehandling 9,807 9,534 10.353 11.214 12,180 13,125 14,889 15.561 16.569 17.787 19,005

4,359 11,711 11,327 12,267 13,249 14,353 15,436 17,481 18,246 19,363 20,731 22,092Other Operating Costs, Maintenance& Administration 6_369 6,689 7.023 7.374 7.744 8.132 8,132 9.215 9.663 10,134 10,628 11.147

14,797 10,728 18,400 18,350 19,641 20,993 22,485 23,568 26,696 27,909 29,497 31,359 33,239Depreciation 4,549 4,758 4,908 _ 5.037 5,037 5.072 5,072 6,239 7,406 7.406 7.406 7,406 7.406

19,346 15,486 23.308 23,387 24,678 26.065 27,557 29.807 34,102 35,315 36.903 38.765 40.645

OPERATING SURPLUS (1,749) 4,006 11,488 9,714 10,882 11,938 13,089 14,194 14,562 15,997 17,227 18,774 20,243

INTEREST AND SERVICE CHARGES PAYMENTS 76 84 1,432 1,395 1,465 1,555 1,610 1,564 1,449 1,332 1,214 1,097

SURPLUS AFTER INTEREST AND SERVICE CHARGES 3,930 11,404 8,282 9,487 10,473 11,534 12,584 12,998 14,548 15,895 17,560 19,146

INCOME TAX @ 35% 1,376 3,991 2,899

TURNOVER TAX, ASSUfMED 107. 3,556 3,800 4,065 4,400 4,866 5,131 5,413 5,754 6,089

CONTRIBUTION TO GOVERNMENT DEVELOPMENT FUND 2,043 5,930 4,306 5,807 6,538 7,319 8,076 7,819 9,296 10,323 11,620 12,869

RETAINED SURPLUS - WORKING CAPITAL 511 1,483 1,077 124 135 150 108 313 121 159 186 188

OPERATING RATIO 110% 79% 677. 71% 69% . 9%S 68% 68% 70'b 69% 68% 677. 677.

INTEREST COVERED - TIMES - 53% 137x 6.8x 7.8x 8.1x 8.4x 8.8x 9.3x 11.Ox 12.9S 15.5x 18.5x

DEBT SERVICE COVERED - TIMES - 6.3x 11,2x 2.2x 2.7x 2.9x 3.0x 3.3x 3.6x 3.9x 4.2x 4.5x 4.9x

INANCAIA. RATE OF RETURN Oi AVERAGE NET FIXED - 2,8% 8. 2% 7.2% 8.2% 9.3% 10.5% 7.0% 5.27. 5.8% 6.4% 7.27. 7.97.ASSETS IN USE

Source: 1969 AIC, SPA1970 Bank Staff, based on SPA a&,dited acconunts1971-1981 Bank Staff

February 14,1973

SOMA_ IA

MOGADISCI 2_ORT PROJECT

SOMALI PORT AUTHORITY

Forecast Source and Application of Funds Statement- Years Ending December 31(So. Sh '000)

Project Construction Period----- Sub-Total1973-

1970 1971 1972 1973 1974 1975 1976 1976 1977 1978 1979 1980 1981

FUNDS REQUIRED

InvestmentFED/MDA Project 42,934 52,630 52,630 24,932 173,126

Other 1,522 1,290 850 1,782 500 500 500 3.282 500 500 500 500 500

1,522 1,290 850 44,716 53,130 53,130 25,432 176,408 500 500 500 500 500

Debt Service - Table 11 1,401 1.465 6.749 5,893 5,963 6,053 6.108 24.017 6.152 6.037 5.920 5.802 5.685

2.923 _ 7.599 50.609 59.093 59.183 31.540 200.425 6.652 6.537 6420 6.302 6-123

SOURCES OF FUNDS

Internally GeneratedOperating Surplus 4.006 11,488 9,714 10,882 11,938 13,089 14.194 50,103 14,562 15,997 17,227 18,774 20.243Depreciation 4.758 4.908 5.037 5,037 5.072 5.072 6.239 21.420 7.406 7.406 _Z.J.06 7.406 7.406

8,764 16,396 14,751 15,919 17,010 18,161 20,433 71,523 21,968 23,403 24,633 26,180 27,649

Less Distributions to Government

Fros Revenue

Incose Tax 1,376 3,991 2,899Turnover Tax 3,556 3,800 4,065 4,400 15,821 4,866 5,131 5,413 5,754 6,089Developent Fund - 807 2,043 5,930 4,306

Variable 5,807 6.538 7,319 8.076 27.740 7,819 9.296 10.323 11.620 12.869

3,419 9,921 7,205 9,363 10,338 11,384 12,476 43,561 12,685 14,427 15,736 17,374 18,958From Capital _ 789 789 1.866 1.866 2.318 ___

3.,419 9.,921 7.205 9.363 10.338 11,384 13.265 44.350 14,551 16.293 18.054 17,374 18.958

Net Intermally Generated

Funds Retained 5,345 6,475 7,546 6,556 6,672 6,777 7,168 27,173 7,417 7,110 6,579 8,806 8,691

External SourcesFED Grant 21,467 26,315 26,315 12,466 86,563IDA Credit _ 24-583 26.315 26 315 12 466 89.679

6475 7.546 52.606 59.302 59.407 32.100 203415 7.417 7.110 6.579 8.806 8.691

Annual Surplus (Deficit) 2,422 3,720 (53) 1,997 209 224 560 2,990 765 573 159 2,504 2,506

Opening Balance 2,364 4,786 8,506 8,453 10,450 10,659 10,883 8,453 11,443 12,208 12,781 12,940 15,444

Closing Balance 4,786 8,506 8,453 10,450 10,659 10,883 11,443 11,443 12,208 12,781 12,940 15,444 17,950

Source: Bank Staff

February 14, 1973

SOMALIA

MOGADISCIO PORT PROJECT

SOMALI PORT AUTHORITY

Foretet )a'Iance Shets as at December 31( So .aSh 't000)

1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981

ASSETS

Fixed Assets

Written Down Value December 31, 1969 144,731 144,731 146,205 147,495 147,495 150,127 150,627 151,127 318,268 318,768 319,268 319,768 320,268Additions - 1.522 1,290 2.632 500 500 170.226 500 500 500 500 500

144,731 146,253 147,495 147,495 150,127 150,627 151,127 321,353 318,768 319,268 319,768 320,268 320,768

Retirements 48 3,085

146,205 318,268Depreciation 4.606 9,362 14.247 19,132 24,052 28.972 33.409 40.527 47.645 54.763 61.881 68.999

144,731 141,599 138,133 133,248 130,995 126,575 122,155 284,859 278,241 271,623 265,005 258,387 251,769

Capital Work in Progress 850 42,934 95,564 148,194

Technical Assistance, Less AmountsWritten off - 3,657 3,505 3,353 3,201 3,049 2,897 6,077 5,789 5,501 5,213 4,925 4,637

Net Current Assets (Table 9) 2.364 4.786 8,506 8.453 7,334 7,543 7.767 8.3Z7 9.092 9.665 9.824 12.328 14.834

147.095 15004_2 150,144 184,464 232,731 281,013 299,263 293,122 286,789 280,042 275,640 271,240

CAPITAL

Equity

Balance Brought Forward - 83,285 83,748 85,231 86,308 107,899 134,349 160,814 171,096 169,543 167,798 165,639 165,825FED Grant 21,467 26,315 26,315 12,466Revenue Surrlus After Interest 3.930 11.404 8.282 9,487 10,473 11.534 12.584 12.999 14,= 17sq% 1725n 19.,146

87,215 95,152 93.513 117,262 144,687 172,198 185,864 184,094 184,091 183,693 183,199 184,971

Less: Total Payments Against Equity (Table 9) 3,419 9,921 7,205 9,363 10,338 11,384 13,265 14,551 16,293 18,054 17,374 18,958Fixed Asset Retirenents 48 1.503

Bslance Forward 83,285 83,748 85,231 86,308 107,899 134,349 160,814 171,096 169,543 167,798 165,639 165,825 166,013

Debt 63.810 66.294 64,913 59,596 76,565 98,382 120.199 128,167 123,579 118,991 114.403 109.815 105.227

147.095 1, 150.144 145.904 &46 323 8 299.263 293.122 2 280.042 275.640 271,240

Debt/Equity Ratio 43/57 44/56 43/57 41/59 42/58 42/58 43/57 43/57 42/58 41/59 41/59 40/60 39/61

Averase Net Fixed Assets in Use 143,165 139,866 135,691 132,122 128,785 124,365 203,507 281,550 274,932 268,314 261,696 255,078

Source: 1969 AIC, SPA1970 Bank staff, based on SPA audited accounts197b-84 Bo1k Staff

February 14, 1973

SOMALIA

MOGADISCIO PORT PROJECT

SOMALI PORT AUTHORITY

Forecast Debt Service Statement

(So. Sh '000)

1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981

Medium Term Debt Capital 1,325 929 367

Berbera-USSRInterest 1,349 1,237 1,124 1,012 900 787 675 562 450 337Capital 4,498 4,498 4,498 4,498 4,498 4,498 4,498 4,498 4,498 4,498

Chisimaio-USAIDInterest 61 61 61 61 61 61 61 104 101 97 91 87Capital - - - - - - - 90 90 90 90 90

IDA Development Credit S5-SOService Charge 15 23 22Capital - 452 452

Proposed IDA Credit'/Service Charge - - - 97 280 482 649 673 673 673 673 673Capital (Comnence 1983) - - - - - - - _

1.401 1,46s 6,729 5 5 6,053 6,108 6,152 6,037 5,20 5,802 5,685

Interest and Service Charges 76 84 1,432 1,395 1,465 1,555 1,610 1,564 1,449 1,332 1,214 1,097Capital 1,325 1,381 5,317 4,498 4,498 4,498 4,498 4,588 4,588 4,588 4,588 4,588

/ Including refunded portion of Credit 55-SO

Source: Bank Staff

February 14, 1973

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