La C4i JPY | RESTRICTED

Report No. PTR-35a

This report was prepared for use within the Bank ond its affiliated organizations.They do not accept responsibility for its accuracy or completeness. The report maynot be published nor may it be quoted as representing their views.

INTERNATIONAL BANK POR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

APPRAISAL OF PROPOSED CREDIT

FOR ENGINEERING AND CONSULTING SERVICES

KARACHI PORT TRUST

PAKISTAN

April 7, 1970

Transportation Projects Department

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CURRENCY EQUIVALENTS

1 Pakistan Rupee - US$0.21PRs 100,000 = US$21,000PRs 1,000,000 - US$210,0001 US Dollar - PRs 4.76

Fiscal Year

July 1 to June 30

Utnits of Weights and Measures

Tons are metric tons of 2,205 lbs.

ABBREVIATION

KPT - Karachi Port Trust

PAKISTAN

KARACHI PORT TRUST

APPRAISAL OF PROPOSED CREDITFOR ENGINEERING AND CONSULTING SERVICES

Table of Contents

Page No.

SUMMARY

1. INTRODUCTION 1

2. KARACHI PORT TRUST 3

A. Background 3B. Organization and Administration 3

3. TRAFFIC 5

A. Shipping 5B. Operations 5C. Cargo Trends 6D. Traffic Forecasts 6

4. THE PROJECT 7

5. ECONOMIC JUSTIFICATION 10

6. FINANCIAL ANALYSIS OF KARACHI PORT TRUST 12

A. Accounting 12B. Finances 12C. Cash Slow 13D. Balance Sheets 14E. Financial Covenants 14

7. RECOMMENDATIONS 15

ANNEXES

1. Status of Present Construction Loan 376-PAK

2. Assumptions Used In Financial Projections

This report was prepared by Messrs. G. F. Bain (Port Specialist) andD. C. Elliott (Financial Analyst), members of the appraisal mission whichrrisited Karachi in September 1969.

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Table of Contents (continued)

TABIES

1. Volume of Imports and Exports, Karachi, by Type of Berth, 1948/h9 to1968/69.

2. Forecasts of Karachi Port Traffic.3. Berth Occupancy and Tonnage over each Berth, Karachi, Fiscal Years

1966/67 to 1968/69.4. Revenue and Expenses, Karachi Port Trust, 1963/64 to 1967/68.5. Projected Revenues and Expenses, Karachi Port Trust, 1968/69 to

1974/75.6. Projected Cash Flow, Karachi Port Trust, 1968/69 to 1974/75.7. Actual and Projected Balance Sheets, Karachi Port Trust, 1968/69

to 1974/75.

MAPS

1. Karachi Harbor on Completion of Current Project.2. Karachi Harbor Showing Areas Affected by Proposed Engineering Studies.

PAKISTAN

P-RR:CY-I PORT TRUST

APPRAISIL CF PROPOSED CREDIT FORENGINEERING AN]D CCNSULTING SERVICES

SUILaRY

i. The Association has been asked to assist in financing engineeringand consulting services and studies required for construction of furtherberths and facilities in the port of Karachi. The proposed credit of US$1million wfould be granted to the Government of the Islamic Republic ofPakistan which would relend it to the Karachi Port Trust (KPT). The creditwould cover the foreign exchange cost of the services estimated to be 60%of the total cost.

ii. The port of Karachi is heavily congested and further berths areurgently needed. It is expected that the studies will lead to an applica-tion for a construction loan early in fiscal 1971. Sites for eight newberths have been identified which could be in use by the end of 1975. Nofurther space would then be available in the present port basin. Sincetraffic is expected to corntinue to increase, KPT has requested a UNDPgrant to study development of the Western Backwater area, which the MlasterPlan recommended for future expansion.

iii. KPT has received two Bank loans -- 126-PAK for US$14.8 millionin 1955 which was disbursed by 1962 and 376-PAK for US$17.0 million in1964. The closing date of the latter has been extended from June 1969to June 1972 as a result of unforeseen difficulties with the design andconstruction of four of the berths. The berths have now been redesignedand construction will shortly go to international competitive bidding.The performance of the borrower on both loans has been satisfactory.

iv. The KPT administration is competent and experienced but theaccounting system has not kept pace iath modern developments. For sometime, the Association has urged KPT to install a system of managementaccounting. KPT has now agreed to this and the cost of the necessarystudies has been included in the credit.

v. KPT is financially strong and would be able to finance any costoverruns and service the credit.

vi. The credit would be made subject to the usual rules and proceduresof the Association with regard to the employment of consultants.

vii. lWrith the agreements reached during negotiations the proposedengineering and consulting services project is suitable for an Associationcredit of US$1.0 million to the Government for 10 years including a graceperiod of two years. It will be relent to KPT for the same period at theprevailing interest rate of the Bank. Should a subsequent constructionloan or credit be made the credit presently proposed should be refinancedfrom proceeds of such a loan or credit.

PAKISTAN

KARACHI PORT TRUST

APPRAISAL OF PROPOSED CREDIT FORENGINEERING AND CONSULTING SERVICES

1. INTRODUCTION

1.01 The Government of the Islamic Republic of Pakistan (the Govern-ment) has requested the Association for a credit to be utilized by theKarachi Port Trust (KPT) for consulting services for the following pur-poses:

(a) final engineering for a further expansion of portcapacity within the currently developed area;

(b) a feasibility study to determine ways to lower theimport and export cost of petroleum products;

(c) an adequate management accounting system; and

(d) economic analysis of the proposed expansion.

The Project would be financed in part by an IDA credit of the equivalentof US$1.0 million to be repaid in 10 years. It would be made to theGovernment of Pakistan and relent directly, at the Bank's prevailinginterest rate, to KPT.

1.02 The engineering designs would provide the basis for a subse-quent construction loan to KPT. It is anticipated that the constructionproject could be appraised in October 1970, by which time final engineer-ing desigas would have been prepared and potential contractors prequali-fied. For the engineering portion of the credit, this procedure wouldgive a smooth transition from design to construction.

1.03 A preliminary estimate of the maximum cost of construction worksnow envisaged is US$48 million with a foreign exchange component of aboutUS$15 million. Until the various studies have been completed it is notpossible to ascertain the amount of any future construction loan.

1.04 KPT has received two Bank loans: 126-PAK in 1955 for US$14.8million and 376-PAK in 1964 for US$17.0 million. The work financed bythe first loan was satisfactorily completed in 1962. As of November 30,1969, US$7.9 million of the second loan had been disbursed against com-mitments and orders of US$119 million. The remaining work, consistingof four berths and transit sheds, is now out to retender. The originaldesign was modified by the consultants following discovery of unsuitablesoil conditions. KPT decided, with Bank concurrence that the modifieddesign was too expensive; it suspended the work, discharged the consult-ants, and appointed a new firm of consultants (Lackner and Partners,Federal Republic of West Germany) who have produced a new and acceptabledesign for construction. As a result of these delays, the Bank hasextended the loan until June 1972 when it is expected that the work will

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be completed. Claims by the previous contrac-tors and consultants have notyet been finalized and may go to arbitration. This, however, mill notaffect KPT's performance under the loan since they have sufficient fundsto meet any eventual award.

l.o5 This report is based on information obtained from KPT by a mis-sion consisting of G. F. Bain (Port Specialist) and D. C. Elliott (Finan-cial Analyst), which visited Pakistan in September 1969.

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2. KAPACIr, P0T TRUST

A. Background

2.01 The port of Karachi is the only port serving West Pakistan,which has an area of over 300,000 square miles and .a population of some60 million. Tonnage handled at the port has risen from about 2.5 milliontons in 1948 to about 8.5 million tons in 1969. About 4.5 million tonsconsist of mixed general and dry bulk cargoes, the balance being petroleumproducts.

2.02 With the establishment of the Islamic Republic of Pakistan in1947, the role of Karachi altered from being mainly an export port tobecoming the only port of a large part of a new nation. In the followingyears port facilities were improved by:

(a) building a second oil berth in 1954;

(b) reconstructing 13 berths frcn 1956 to 1964;

(c) building a third oil berth in 1965;

(d) building a ship repair jetty in 1966; and

(e) building a new lighterage wharf in 1967-1968.

2.03 The current Bank loan (376-PAK) has not yet been entirely dis-bursed for the reasons mentioned in paragraph 1.04. A summary of the pro-gress of the six schemes included in this loan is given in Annex 1. Theloan covers construction of the third oil pier, the two lighterage berths(already completed) three berths on the W4est wharves, reconstruction offour berths on the tast wharves, together with supporting services andequipment; rebuilding a brealkwater and dredging the navigable channelto 34 feet. The loan also provided for consultant services to producea Master Plan for the port.

2.04 The result of these various construction and development pro-grams is that room for further expansion in the present deepwater basinof Karachi is limited as can be seen from Map 1 showing the port as itwill appear when the current loan is disbursed. Yet the port is overlycongested with berth occupancy in the past two years being just over 100%.This has been achieved by double banking of ships, which is the onlypractical means of preventing an increase in the average delay of shipswaiting for berths. However, unloading costs of double banked ships arehigher than for ships alongside quay walls.

B. Organization and Administration

2.05 The Karachi Port Trust Act of 1886, as modified subsequently,created a Board called "The Trustees of the Port of Karachi", commonlyknown as the Karachi Port Trust (KPT). Section 79A o' the Act subjects

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all acts and proceedings of the Board to the control of the Government.The Board is a body corporate consisting of 11 tru.stees representingshippers, importers and labor. The Chairman, who is also a trustee andthe chief executive of the port, is appointed by the Government. He isresponsible for the day-to-day administration and holds office as theGovernment may prescribe. The trustees normally have a two-year term.

2.06 The Board has far reaching powers and, subject to the over-riding right of veto by the Government, may raise money, enter intocontracts, alter tariffs, buy equipment, undertake construction and sellassets. There has been no interference in the Board's exercise of thesepowers which have been used prudently and to the benefit of the Port andits users.

2.07 The functions of the KPT are carried out by five major depart-ments assisted by service groups and a secretariat. The major departmentsare:

(a) Civil Engineering;

(b) New Construction;

(c) Traffic;

Cd) Port and Pilotage (Conservator's Department);

(e) Mechanical and Electrical Engineering.

Servicing these functions are accounts, stores, medical, welfare and publicrelations, civil defense, police, and real estate departments plus asecretariat. These functional departments are each headed by competentand experienced men.

2.08 Of the service departments, the most important ones are Account-ing and Stores. The Accounting department is not geared to produce use-ful management data because KPT is required to provide data related tothe budgetary processes of the Government; and the Stores Department whilewell run has some related accounting problems. These problems are discussedlater in paragraphs 6.03 and 6.o4.

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3. TRAFFIC

A. Shipping

3.01 During the past nine years between 1,400 and 1,600 vessels peryear entered Karachi with 1,405 dry cargo vessels in 1968/69, approxi-mately the same number as in the two previous years. However, the tend-ency has been for larger vessels discharging a larger amount of cargo.

3.02 Coastal vessels trading mainly between East and West Pakistanand with countries bordering the Arabian Sea use Karachi; in 1967/68 therewere 279 clearances and entries by such vessels.

B. Operations

3.03 The average time for cargo operations was about 87 hours pership in 1968/69 compared to 112 hours in the previous year. Overall,about 35 tons of cargo per ship per hour were handled in 1968/69.Allowing for the large proportion of older ships with restricted workingspace, the port is well and efficiently operated and general-cargo han-dling rates are high compared to North American and European ports.

3.04 Congestion of the general-cargo piers can be measured by thefact that 12 of 19 operating berths showed calculated ship-day occupancyof over 365 days in 1968/69. This was accomplished by double-bankingships and unloading them both onto the wharf and into lighters which weresubsequently unloaded at shallow-draft berths.

3.05 Average annual tonnage handled per berth has risen in recentyears well above the tonnages reported in the previous Appraisal Reportdated April 7, 1964 (No. TO-401b). Comparative figures are, in tons:

East Wharf West Wharf

1960/61 173,000 217,0001961/62 167,000 145,0001962/63 190,000 179,000

1966/67 267,500 245,O0O1967/68 239,200 206,0001968/69 193,000 210,000

The decline in the last three years from the high point of 1966/67 isdue in part to the increase in the number of berths in operation andin part to the virtual cessation of imports of wJheat which previouslyaveraged 1.2 million tons a year. There has, however, been an increasein imports of fertilizers and general cargo and new exports such ascement, rapeseed, fish and rice have supplemented traditional exports,indicating a probable rise in dry cargo in the future.

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C. Cargo Trends

3.06 In fiscal 1968/69 about 8.45 million tons of total cargo werehandled at Karachi, up from 4.166 million tons in 1957/58 (see Table 1).Although there has been a decline in dry cargo during the last two years,this is due to the cessation of imports of wheat, while other dry cargohas continued to increase. The growth rate of total cargo over the 11-year period for which consistent statistics are available was 6.75% perannum compounded, a somewhat more rapid growth than over the past 20years when traffic increased at a compound rate of 6.25% per annum.

D. Traffic Forecasts

3.07 Several forecasts for traffic through the sort have been made -a Bank mission forecast in 1964, the Economist Intelligence Unit (EIU)forecast in 1967 and the Pakistan Planning Commission and KPT forecastin 1968 (see Table 2). KPTts forecast of port traffic which is amongthe more conservative is given for reference:

1968/69 197h/75 1978/79('000 tons)

Oil Cargo Actual ---- Forecast----

Oil Cargo 3,950 7,000 10,200Dry Cargo 4,500 11,000 13,800Total Cargo 8,450 18,000 24,000

There are various factors which may affect the growrth rate of cargo andfacilities required in the port of Karachi. They include the likelytrend toward containerization, the quantity of grain which may passthrough the port and whether it is to be bulk or bagged, the timing ofthe proposed steel mill, the possibility and location of a second portand the general rate of economic growth of both the city of Karachi andPakistan as a whole. No attempt has been made in this report to evaluatethe probable effect of these factors. They will be taken into considera-tion by the UNDP study mentioned in paragraph 4.01.

3.08 However, assuming the most conservative rate of growth or evennone at all, expansion of the port facilities is needed to deal withpresent congestion.

4. THE PROJECT

4.0l The present deepwater area of Karachi port is almost fullydeveloped. The Master Plan drawn up by the consultants (Messrs Coode andPartners) under loan 376-PAK, identified the Western Backwater (see Map 2)as the next area for port expansion where deeper-draft berths for con-tainer traffic and bulk-handling facilities might be built. The UNDPhas been approached by KPT to finance the economic, traffic and engineer-ing studies required before a decision on development in the Western Back-water can be properly made. These studies will take into account thevarious traffic forecasts already made, probable future trends and divi-sion between various types of cargo and the possibility of a second port.The studies are estimated to take approximately two years and reclamationof land, final engineering and construction a further six years. There-fore, no berths in the W4estern Backwater would be available before thebeginning of 1979.

4.02 Meanwhile berths are urgently needed to deal with the presentcongestion and expected increase in traffic. Four additional berths willbe available by 1970/71 when the current construction program will becomplete. But, due to increases in traffic, tonnage per berth will stillbe over 200,000 tons per year and berth occupancy will remain close to100%. By 1975 further berths are essential if congestion is not to in-crease. The purpose of the studies to be made under the proposed creditis to provide the basis for the timely construction of these berths.

4.03 Two possible areas where eight berths might be built have beenidentified. A plan for providing storage areas behind these berths hasbeen developed. A rebuilding of the Mansfield railway marshalling yardto better serve the entire Western berthing area and reduce congestion isalso proposed. Rebuilding the Napier Road bridge to the east berthareas is also needed and this important link would be included in anynew construction (see Map 2).

4.04 Prior to applying to the Bank for a construction loan for theseworks, KPT wishes to proceed with a study to compare alternative designsand provide final engineering design and economic justification of theselected solutions.

4.05 Two other items are proposed. One is a feasibility study ofalternative methods of reducing the costs of crude oil imports to WestPakistan by making provision to handle large tankers. The other item isfor accounting services so that a system of commercial accounting com-patible with the present system of budgetary accounting can be developed(see paras. 6.02 to 6.o4).

4.o6 The project for which funds are now required, therefore con-sists of the following elements:

(a) Engineering surveys and soil surveys to establishconditions for estimating the cost of proposed works;

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(b) Preliminary engineering designs and cost estimates for anumber of alternative designs for anticipated cargo berthsand sheds;

(c) Final engineering designs and cost estimates for the selecteddevelopments, together with the preparation of tender documents,construction schedules, specifications and bills of quantities,prequalifications of tenderers and invitation and evaluationof bids;

(d) Preparation of final designs for rebuilding the Napier RoadBridge together with tender documents, construction schedules,specifications and bills of quantities;

(e) A feasibility study, including preliminary cost estimates andengineering designs, of various methods of handling increasingoil traffic. This study would calculate the economic advan-tages of using larger tankers;

(f) Final engineering designs, drawings and cost estimates forthe selected method;

(g) An economic justification in terms of cost-benefit analysesand return on investment for the solutions finally selectedunder the previous paragraphs; and

(h) Accounting consulting services to enable and assist the Boardto install a management accounting system consistent with thecurrent system of budgetary accounting.

4.07 The estimated cost of these services is:

Rs ('000) US$ ('000) Expendi-Local Foreign Total Local Foreign Total ture

1. Soil and Site 670 140 810 140 30 170 11.6Surveys

2. Design of Berthsand Sheds 900 2,400 3,300 190 50o 690 47.3

3. Design of New Bridge 190 810 1,000 40 170 210 14.44. Feasibility Study

Oil Handling 140 620. 760 30 130 160 11.05. Economic Studies 50 90 140 10 20 30 2.16. Management Accounting

Study 100 380 480 20 80 100 6.8

Subtotal 2,050 4,440 6,490 430 930 1,360 93.2

7. Contingencies 150 320 470 30 70 100 6.8

Total 2,200 4,760 6,960 460 1,000 1,460 100.0

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The cost of the dejigr of berths arnd sheds is based on a negotiated contractwAith Dr. Lack1ier and Partners of Gerirmany. The cost of other studies hasbeen based on estimates made by KPT and reviewed by the Association. Termsof reference for these studies have been drawn up and agreed to by theAssociation and proposals invited from consultants acceptable to the Asso-ciation. Since over fifty per cent of the foreign exchange cost of studiebis based on an initialled contract a contingency of US$70,000 would appearto be adequate.

4.o8 The Association will disburse the foreign exchange portion of thestudies on the basis of agreed contracts approved by the Association andcertified invoices. KPT has agreed to meet the local exchange cost and anycost overruns and the Government has agreed to make available to KPT anyforeign exchange required for this purpose.

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5. ECONOMIC JUSTIFICATION

5.01 In the past eight years, annual tonnage handled at each of theoperating dry cargo berths has ranged from about 145,000 to 267,000 tons.The average for all berths worked, and this includes berths 3 and 44, whichare umder reconstruction, was 233,200 tons in the year July 1, 1968 toJune 30, 1969. Some 12,140 tons of cargo were handled each day over the 19operating berths or, in 1968/69, about 650 tons per berth per day (see Table 3).

5.02 Congestion in the port is reflected in the high average berth occll-pancy figures for the past several years. These figures range from 125% oc-cupancy in fiscal 1966/67 to 109% and 101% in the two follooing years. Thedrop in overcrowding reflects the introduction of the various new facilitiesconstructed under the current loan as well as a change in the mix and tempo-rary decline in dry cargo tonnage due to the elimination of wheat imports(see para. 3.05).

5.03 The cost of ship waiting time plus the added cost of double handlinigcargo from double-banked ships was estimated at US$3.8 million in 1968/69as shown in the Table below. At unchanged traffic levels the constructionof eight new berths (to give a total of 32 in the port) implies that berthoccupancy would decline from 101% to 64% and that these costs would beeliminated. With forecast 1974/75 dry cargo traffic and 32 berths, occupancywould be about 80% rising thereafter. To achieve this situation some US$21.0million would have to be spent on the new berths.

Costs of Ship WpJaiting and Double BankingKarachi 196b/68

Ship Waiting Time Value

No. of Valued @Ships Hours Ship-Days $1,500/day

Year Calling Waiting Waiting ($'000)

1966/67 1,407 106 6,214 9,3211967/68 1,405 37 2,166 3,2491968/69 1,488 25 1,550 2,325

Double Banking Value

Extra Cost @No. Ships Tons Handled $3.00/ton

Year Banked ('000) ('000)

1966/67 330 1,053 3,1591967/63 206 456 1,3681968/69* 250 (est.) 500 (est.) 1,500

lource- Karachi Port Trust data.

* Data not available at time of writing.

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5.04 By spending US$21 million or new berths, the waiting and doublebanking costs can be eliminated saving costs, calculated on present con-gestion, of US$3.8 million per year. This would result in a rate of returnXf 17.55 on the investment in proposed berths indicating that the proposedconstruction would be well justified. In the absence of agreed traffictrends, it is difficult to calculate the future cost of congestion if con-struction does not take place. It would certainly be higher and the rateof return of 17.5% is therefore a conservative rate.

5.05 Should this investment not be made, the persistence and probableincrease in congestion would result in shipping co-panies applying sur-charges to Karachi cargoes with consequent adverse effect on the Pakistaneconomy.

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6. FINTACIAL ANALYSIS OF KARACHI PO.RT TRUST

6.01 KPT's financial position is strong and it is able to make a sub-stantial contribution to the proposed future expansion of the port. However,the accounting function is weak and part of the proposed credit is for ac-couinting studies to remedy this. The accounting function and financialposition are discussed in detail below.

A. Accounting

6.02 KPT's accounts are kept in accordance with the traditional portdouble account system. They are audited twice a year by auditors from theDepartment of the Accountant General of Pakistan in accordance with Section68 of the Karachi Port Trust Act of 1886. The latest audit (August 1969)covered the half year up to June 1968. The Association has reviewed theaudit report and found it acceptable.

6.03 The port double account system presents many disadvantages.Appropriations are made frcm revenue to reserve accounts such as deprecia-tion reserve on an ad hoc basis depending on the financial results of theyear. The expenditure accounts mainly represent payments made during theperiod rather than the expenses of the period. Stores accounting is ofnecessity a hit and miss affair since the main ledger is based on paymentsand the stores ledger is based on cost, and reconciliation is difficultif not impossible. A revision of accounting procedures was made in 1961within the framework of the double account system. It has not provedeffective. Little or no management information is produced except in rela-tion to the budget. DeternBnation of costs is on an ad hoc basis and re-quires considerable effort. hle balance sheet slhows only original costof those assets purchased by the Trust. It does not include the value ofland.

6.o4 The Association has for some time been urging the Port Trust tochange its accounting methods and introduce proper management and costaccounts based on the accruals system of accounting. KPT has agreed to thisand terms of reference for an accounting study have been drawn up and sentto consultants acceptable to the Association. An amount of US$80,o00 hasbeen included in the credit to enable these studies to be made.

B. Finances

6.o5 Revenues and expenses for the years 1963/64 through 1967/68 areshown in Table 4 and cmipared with the forecasts in the Appraisal Report ofloan 376-PAS. With the exception of the year 1965/66 in wqhich special cir-cumstances prevailed, net surplus has been consistently higher than fore-cast and debt service has been adequately covered.

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6.o6 Projected revenues and expenses for the years 1968/69 through1974/75 based on KPT tonnage forecasts are shown in Table 5 and summarizedbelow in millions of rupees:

1969 1970 1971 1975

Revenue 93.77 103.30 110.37 1h8.91Operating Expenditureincluding depreciation 59.40 63.10 65.19 90.43

Net Revenue 34.37 40.20 45.18 58.48Interest 3.79 3.39 3.09 6.39Net Income 30.58 36.81 42.09 52.09Operating Ratio 63 61 59 61

6.07 Revenue is based on current tariffs and increases in trafficbased on KPT forecasts. The increase in revenue is li1kely to be achievedprovided that the physical facilities to handle the cargo are completed ontime. There is no reason to believe this will not be the case. Operatingexpenditure is shown increasing as fast as revenue but the operating ratiois maintained below 65. As a result, net income increases from PRs 30.58million in 1969 to PRs 52.09 million in 1975 and is able to make a substan-tial contribution to the funds required for capital investment. Financialassumptions used in projections are shown in Annex 3.

C. Cash Flow

6.o8 K-PT's financial strength is illustrated by its projected cashflow shown in Table 6 and summarized below in millions of rupees:

1969/75

Intemnally generated funds 361.37Loans 137.30

498.67

Capital Investments 437.5oRepayment of Loans 63.17

500.67

Decrease in Woriking Capital 2.00

498.67

Less than one-third of the funds required for capital investment is financedby loans, the remainder being provided by KPT's own resources.

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D. Balance Sheets

6.o9 The projected balance sheets which are given in Table 7, furtherillustrate KPT's strong financial position. They show net fixed assetsincreasing from PRs 338 million in 1968 to PRs 699 million in 1975. Duringthe same period the long term debt rises from PRs 100 million to PRs 174million only and the debt equity ratio increases from 16:84 to 17:83.

E. Financial Covenants

6.10 The previous loan (376-PAK) made in 1964 did not include anyparticular financial covenants other than that cost studies should becarried out. KPT has managed its financial affairs well in the past andit is not felt appropriate to attach any further obligation t,o this credit.KPT were however informed during negotiations that financial covenants mightwell be attached to any future construction loan or credit.

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7.01 During negotiations the following principal points were discussedand agreed with the Government-and KPT:

(a) The employment of consultants and the terms of referencefor the various studies included in the project (para. 4.07);

(b) Tne financing of local exchange and cost overrun by KPTand the provision of any foreign currency required forsuch cost overrur. by the Government (para. 4.o8);

(c) The introduction by ITT of a management accounting system(para. 6.04).

7.02 With the assurances and agreements reached during negotiations,the proposed project constitutes a suitable basis for an IDA credit of US$1.0million to the Government for a period of 10 years including two years grace,to be relent to KPT for the sane period at the Bank's prevailing interestrate. Should a subsequent construction loan or credit be made as a resultof these studies the credit presently proposed should be refinanced fromouch loan or credit.

April 7, 1970

ANEX 1Page 1

PAKISTAN

KARACHI PORT TRUST

APPRAISAL OF PROPOSED CREIETFOR ENGINEERING AND CONSULTING SERVICES

Status of Present Construction Loan 376-PAK

Progress on Loan 376-PAK to the end of September 1969 follows:

(a) New Oil Berth. Completed and in commission sinceJanuary 1966.

(b) Widening and Deepening of the Navigable Channel.The dredging and reclamation plant, received in Karachiin May 1968, was commissioned in September 1968, i.e.,three months ahead of schedule, and dredging operationsare progressing satisfactorily. The shallow-draft"Ellicott" cutter-suction dredger has reclaimed al5-acre triangular plot.

Tenders for the sea wall reclamation dyke for reclaimingabout 45 additional acres for port purposes and procuringbuoys and chains for mooring relays have been receivedand are being examined.

(c) Reconstruction of Berths 1 to 4, East Wharf. Constructionof the quay wall for Berths 1 to 4, the Return and theCommissairat wharves started in September 1966. Work atthe site progressed satisfactorily up to June 1967, whendifficulties in laying a rubble stone apron for foundationof a gravity blockwork quay wall led to suspension of workby the consulting engineers. Later it was decided to aban-don the blockwork quay design for Berths 1 to 4 and retenderthe work. New designs have been approved by new consultantsand tenders are to be issued soon.

The vorlc at Return 'Wharf was recommenced during January 1968according to a modified gravity quay design and is almostcompleted. Progress of work at the Commissariat Wharfalso improved and work is substantially complete exceptfor cathodic protection.

The functional details of the proposed double storiedpassenger and cargo transit sheds (Berths 1 and 2) andthe single story transit sheds (Berths 3 and 23) havebeen redesigned and preparation of tender documents hascommenced.

ANNEX 1Page 2

(d) Construction of Three Additional Berths at West Wharf.Construction of the quay wall for Berths 22 to 24 startedin November 1966 and was completed in September 1969. Mean-while, dredging in front of the berths is progressing satis-factorily and is expected to be completed by February 1970.The ancillary works are progressing satisfactorily. Tendersfor construction of a cooling water intake culvert have beeninvited and were received on October 6, 1969.

The construction of the two new lighterage berths, includ-ing the installation of a cathodic protection system, wascompleted by the contractors early last year. The berthsbegan operating during March 1968. Construction of a newship repair jetty at East Wharf has been completed and theberth has been in use since 1967.

(e) Rehabilitation of Manora Breakwater. Strengthening of theManora Breakwater structure by providing precast concreterectangular armor blocks started in December 1966, andwas completed in April 1968 ahead of schedule and beforethe onset of the Mionsoon season. The armoring has success-fully withstood the onslaught of the last Monsoons.

(f) Master Plan. The comprehensive Master Plan studies forlong-term development of the port were divided in two mainparts. The first comprised preparation of traffic forecastreports which were prepared and submitted by the EconomistIntelligence Unit of London (EIU) in Augast 1967.

The Master Plan report for development of future physicalfacilities was submitted in September 1967 and commentedon by the Bank and the appropriate Government agencies.A supplementary Master Plan report, was requested by KPTand received late in September 1969. The Master Planprovides a satisfactory general outline for future portexpansion.

January 6, 1970

PAKISTAN

KARACHI PORT TTRUST

APPRAISAL OF PROPOSED CREDITFOR EMGINEERING AND CCNSULTING SERVTCES

Assumptions Used in Financial Projections

1. Interest during construction is capitalized but is not includedin any of the funds borrowed or to be borrowed.

2. Debt service is calculated in accordance with the terms of thevarious loans granted to KPT.

3. Income is based on present tariffs and orojected traffic.

4. Depreciation is based on 1/70th of cost of structural assetsand 1/30th of mechanical assets plus 0.5% of total assets.

5. The cost of engineering services provided under this credit iscapitalized in account books.

January 6, 1970

PAKISTAN

KARACHI PORT TRUST

APPRAISAL OF PROPOSED CRFDIT FOR 82AGINEMaING AND CONSULTING SERVICES

Volume of Imports ard Exports at Karaohi by Type of Berth - 1948/49 to 1968/69

(1000 'tons)

Tons 0 'OO m oBlitted) IMPORTS SADF OVER EXPORTS YADE OV8E TOTAL VOLUME OVER12 AfosthsErdisig June 011 Berths Other Berths S All Berths Oil Bert-s Oter Berths I All Bertns Oil Berths All Other Berths S All Berths

1968-69 3,274 2,241 41 5,515 680 2,255 77 2,935 3,954 4,496 53 8,4501967-68 3,103 3,302 52 6,h05 353 1,904 84 2,257 3,456 5,206 60 8,6621966-67 2,823 3,964 58 6,784 358 1,929 84 2,287 3,181 5,893 65 9,0741965-66 2,528 2,658 51 5,186 406 1,464 78 1,870 2,934 4,122 58 7,0561964-65 2,635 3,639 58 6,274 370 1,164 76 1,534 3,005 4,803 61 7,8081963-64 1,961 2,562 57 4,523 118 1,215 91 1,333 2,079 3i777 64 5,8561962-63 1,731 2,285 57 4,016 65 1,481 45 1,546 1,796 3,766 68 5,5621961-62 1,315 2,174 62 3,489 33 1,084 97 1,117 1,348 3,258 71 4,6061960-61 1,284 2,627 67 3,911 38 1,030 96 1,068 1,322 3,657 73 4,9791959-60 1,227 2,198 64 3,425 65 1,013 94 1,078 1,292 3,211 71 4,5031958-59 1,160 1,821 61 2,981 15 857 98 872 1,175 2,678 70 3,8531957-S8 1,158 2,115 65 3,273 3r) 863 97 893 1,188 2,978 71 4,166

12 M4othsEnding April

1956-57 1,092 1,920 3,012 1,041 1,041 1,092 2,961 4,0531955-56 1,088 1,481 2,569 1,102 1,088 2,583 3,6711954-55 909 1,143 2,052 840 909 1,983 2,8921953-54 830 1,916 2,746 90g 830 2,824 3,6541952-53 853 2,213 3,f16 929 853 3,142 3,9951951-52 944 1,678 2,622 1,156 944 2,834 3,1781950-51 776 1,616 2,392 1,182 776 2,698 3,47419489-50 522 1,3949 1,1 925 522 2,319 2 841194*8-4*9 505 1,09S 1,6^3 940 506 2,038 21543

Growth RatesFer Annum

1957-58to

1968-69 10.0 0.50 1.5 50.0 9.5 11.' 11.25 4.0 6.75

129L-49to

1956-57 10.5 7.25 8.25 1.25 1.25 10.0 5.0 6.0

1948-49 mto

1968-69 9.75 3.75 6.25 4.25 5.75 io.5 4.0 6.25

Jnuy 6, 1970

PAKISTAN

KARACHI PORT TRUTST

ADPRAISAL OF PROPOSED CREDITFOR ENGINEERING AND CONSULTING SERVICES

Forecasts of Karachi Port TrafficTons ('000 oaitted)

1941,i /'-~ J19 S9/7- 198 /D)

Economist Intelligence Unit (N`ote 1)

Total Traffic 7, ' 3,39? Q42,180Oil 3,005 5,100 18,0O0Other 4,830 8,2050 24,180

Pakistan Planning Commission(.oe2

Total Traffic 8,300 11,500 n/a

Oil 3,000 4,900 n/a

Other 5 300 6,600 n/a

Karachi Port Trust (Note 3)

Total Traffic 7,8o5 11,550 38,550

Oil 3,005 5,100 18,000

Other 4,800 6,450 20,550

Bank Mission, 196L (TO-401b, ADprox 10)

Total Traffic 6,650 7,755 -

Oil 2,300 2,800

Other -4,350 4,955

Note (1) The forecast was delivered in 1967; it used preliminary 1964/65 data.

Note (2) Only the short-range position of the forecast prepared in 1967 was made available

by KPT. No explanation of the different base year data was provided.

Note (3) KPT provided diagrams from which the data was estimated.

January 6, 1970

KARACHI PORT TRUST

APPRAISAL OF PROPOSED CRED!T- FOR ENGILNEERING AND CONSTELTiNG SERVICES

Berth Occupancy and Tonrage Over Each Berthb Fiscal Yea s 1966/67 to 1968/69

Berths 1966/67 1967/68 1968/69'0OC 0O'000 000

% Tons % Tons % Tons

1 15 t42 28 3 - - - -3 83 123 81 93 46 394 88 128 80 118 74 765 97 427 96 259 94 2816 121 257 111 224 102 3017 143 363 127 280 109 2448 138 269 114 205 109 2989 129 274 119 216 114 23610 137 319 128 362 110 26311 147 297 116 310 107 25812 131 293 130 264 109 25213 128 269 126 221 114 29014 148 471 118 275 109 24715 146 378 124 379 114 25016 109 311 68 285 107 21717 144 673 138 954 123 305

18 95 182 85 155 90 20819 95 207 95 162 86 17220 134 411 105 273 97 30321 111 179 87 - 156 78 192

Total ex 1 and 2 124 5,832 109 5,191 101 4,431Sorc:_arci or T-

-

Source: Karachi Port Trust

PAKISTAN

KARACHI PORT TRUST

APPRAISAL OF PROPOSED CREDITFOR ENGINEERING AND CONSULTING SEC ES

(lPEs '000)

TO-401b TO-401ob TO-4Olb TO-401bEstimated Actual Estimated Actual Estimated Actual Estimated Actual Actual1963/64 1963/64 1964/6 1 964/65 15/66 1965/66 1966/67 1966/67 1967/68

Operating Revenues 53,823 58,n95 58,770 91,435 62,250 73,775 66,050 83,620 84,300

Oerating Expenses 28,769 26,907 30,1450 33,971 32,300 314,989 34,250 34,590 38,890

Contributions to Funds

Depreciation and Replacement 5,500 5,500 6,Doo 6,300 6,500 6,500 8,500 7,000 7,000

Other Funds 457 13,067- 500 15,588- 500 17,53h" 500 20,0903 19,6140

Total Operating ExPenses 34,726 45,474 36,950 55,859 39,300 59,o67 43,250 61,680 66,530

Net Operating Revenue 19,097 12,621 21,820 25,576 22,950 14,708 22,800 21,940 17,770

Non-Operating Revenue 2,214 2,930 2,000 3,325 1,800 4,025 1,600 4,280 4,1480

Met Revenues 21,311 15,551 23,820 28,901 24,750 18,733 24,400 26,220 22,250

Contributions to Sink4Og Fandsfor Debt Redemption-. 7,374 7,510 13,078 12,110 114,390 12,110 15,460 12,910 10,300

Net Surplus 13,397 8,041 10,742 16,791 10,360 6,623 8,940 13,310 11,950

Debt Service Coverage - Times 3.6 4.5 2.3 4.2 2.2 3.5 2.1 5.3 4.3

Operating Ratio2/ 65 56 63 50 63 56 65 5° 56

Conr±sts of principal and interest; includes advance contributions of principal for Loan 376-PAK, amortization of which started April 1, 1969.2/ For the purpose of this calculation, contributians to Capital Account have been added to net operating revenues.I/ Constituted as follows:

1963/64 19614/65 1965/66 196767 1967/68

Capital Account 13,000 15,500 17,500 20,000 19,500Fire Insurance Fund 10 10 10) 10Accident Insurance Fund 20 20 20)Employees Welfare Fund 25 143 36) 90* 140*Compassionate Fund 5 5 5)Motor Vehicles Insurance Fund 7 10 7)

i3,067 15,588 17,578 20,090 1Q,640

4/ In calculatingrates of return related to the forecasts, no allowance has been made for retirement of assets.

!/ Breakdown not available.

January 6, 1970

PAKT3TL4,

KkA'CHI PORT TRUKT

A; iJ 4r m EL ti#' PeWRL-?UP CeLDII1

FOR -N]INEER"iUCG AND CO+iS ULTING SERVITCZ

Projected Revenu.e and Epenses

(piis 'o000)

1969 1970 1971 1972 1973 1974 1975

Revenue

Operating 89,170 98,600 105,570 111,880 118,850 128,120 143,710

Other 4,600 4,700 4,800 4,900 5,000 5,100 5,200

Total Revenue 93,770 103,300 110,370 116,780 123,850 133,220 148,910

Expenditure

Operating 44,300 48,900 52,700 57,200 61,900 66,900 71,700

Replacements and Renewals 7,700 5,900 3,200 3,600 3,700 3,500 3,500

Depreciation 7,400 8,300 9,290 10,640 12,390 13,950 15,230

59,4o0 63,100 65,190 71,440 77,990 84,350 90,h30

Net Revenue 34,370 40,200 45,180 45,340 45,860 48,870 0%,480

Interest 3,790 3,390 3,090 3,290 7,290 6,890 6,390

Net Income 30,580 36,810 42,090 42,050 38,570 41,980 52,090

JarRary 6, 1970

PAKISTAN

KARACHI PORI' mlUST

APPRAISAL OF PROPOSED CREOITFOR ENGINEXG -N ONDNSULTING SERVICES

Projected Cash-Flow

(PRs '000)

1969 1970 1971 1972 1973 1974 1975 TOTAL

Sources

Net Income 30,580 36,810 42,090 42,050 38,570 41,980 52,090 284,170

Add Depreciation 7,400 8,300 9,290 10,640 12,390 13,950 15,230 77,200

Loan 376-PAX 15,400 18,100 15,800 1,300 - - - 50,600

Others . 9,600 29.600 20,000 17,800 9,700 _ 86,70

Total Soirces 53,380 72,810 96,780 73,990 68,760 65,630 67,220 498,670

Disposals

Capital Investment

Project 376-PAK 34,500 45,500 32,000 10,300 2,300 - - 124,600

3rd Port Extension - 4,000 35,0no 38,000 37,000 36,ooo 4,000 M14,O00

Other Works 12,700 15,200 18,000 21,00 214,000 28,000 40,000 158,900

Total Capital Investment 17,200 6b1,70r 95,000 69,300 63,300 64,000 44,000 437,500

Repayment of Loans 6,210 7,610 7,910 7,710 9,1410 9,610 14,910 63,170

Total Investment and Payment 53,410 72,310 92,910 77,010 72,710 73,610 58,710 500,670

Changes in Working Capital 17,000 12,300 13,300 10,800 5,800 3,900 - 63,100

Total Disposals 70,410 84,610 106,210 87,910 78,510 77,510 58,710 563,770

Surplus (Deficit) Annual (17,030) (11,900) (9,430) (13,820) (9,750) (11,880) (8,610) (65,100)

Cumulative 75,770 63,970 54,540 40,720 30,970 19,090 27,700 -

January 6, 1970

PAKISTAN

KARACHI PORT TRUST

APPRAISAL OF PROPOSED CREDITFOR ENGINEERING AND XNSULTING SERVICES

Falance Sheets

(PRs 1000)

A C T U A L P R O J EC T E D

1968 1969 1970 1971 1972 1973 1974 1975

Assets

Cash 92,800 75,770 63,970 54,540 40,720 30,970 19,090 27,700

Debtors 20,500 18,000 17,500 18,000 16,500 16,000 16,000 16,000

Stores 16,800 16,000 15,000 14,000 13,000 12,000 12,000 12,000

Investment in Funds 193,100 211,000 224,000 237,000 249,500 256,100 260,000 260,000

Total Current Assets 323,200 320,770 320,470 323,540 319,720 315,070 307,090 315,700

Fixed Assets 375,300 422,500 487,200 5'72,200 641,500 704,800 768,800 812,800

Less Depreciation 36,500 43,900 52,200 61,490 72,130 84,520 98,470 113,700

Net Fixed Assets 338,800 378,600 435,000 510,710 569,370 620,280 670,330 699,100

Total Assets 662,000 699,370 755,470 834,250 889,090 935,350 977,420 1,014,800

Liabilities

Current liabilities 18,500 10,100 15,300 14,500 13,700 13,000 13,000 13,000

Long term debt 99,600 108,790 128,880 166,370 179,960 188,350 188,440 173,730

Equity reserves

Capital account 334,700 365,200 398,300 433,100 469,700 496,700 523,700 550,700

Other reserves 209,200 209,280 212,990 220,280 225,730 237,300 252,280 277,370

543,900 574,S0o 611,290 653,380 695,430 734,000 775,980 828,070

Total liabilities 662,000 699,370 755,470 834,250 889,090 935,350 977,420 1,014,800

Januar-y S, 197)

MAP I

C H I N N A :C R E E K PAKISTAN

KARACHI PORT TRUSTPORT AFTER COMPLETION OF CURRENT PROJECT

B A CK WA TE R\o ooo 2000 3000 4000 5000

FEE E

0

<faS~~~~~~~~~~~~~~~~~~~~~~~~~~~~ C04NE

0

0

~~~~~',~~~~~ ~ 4'

0',

BACI( c ~~~~~~~~~~e e~~~

* - *~** PtO~A0V . . * OCEA0

NOVEMBER 1969 BED - 272~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~*

MAP 11

C H I N N A -C R E E K PAKISTAN

KARACHI PORT TRUST- ENGINEERING CREDITPROPOSED EXPANSION a IMPROVEMENT PROJECT AREAS

\\ X \ / / X 3~~~~~ A C K _ W A T E R I/

L , J s1 Pun/ 8CI(e ^WATERC <\

o 1000 2000 3000 4000 50 0

FEET

(D~~ L

DECEJMEET 9T6D I ,EA IHBRD-2 CCLP

0-

DECEMBER 1969 IBRD-2722R~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~