1. Alternative designs were considered for each project component: (i) the wharf rehabilitation, seismic strengthening, and capacity improvements for King's Wharf, Suva; and (ii) Queen's Wharf, Lautoka extension and reclamation. These were contrasted with capacity, cost, demand forecast, and ship service time considerations. Least cost technical solutions have been identified by comparing costs and benefits of mutually exclusive project options.

　

　

2. King's Wharf Component. The rationale for the component arises from the least cost analysis. Under the master plan, relocation of Suva Port was proposed to a site 5 kilometers (km) from its current location by 2005. The construction was to commence in 2000 and permit transfer of port and cargo operations to the new facility by 2005. The current facility will sustain the current cargo throughput until 2005 with the support of additional recurrent maintenance. Beyond this date, the wharf will require increasing maintenance and expenditure. The commissioning of the new facility was to correspond with the end of the structural life of the current facility. The relocation was estimated to cost F$120 million in 1997. However, a geotechnical study conducted in 1998 concluded that due to the extent of the required reclamation and the quality of the submarine soils, the cost estimates would nearly double. This estimate was prepared for the least cost option for the port relocation, namely the dredge option. The scope includes (i) dredging the reclamation area, (ii) bunding and installing rock armors, (iii) bunding the core material, (iv) bunding the core material to quarried rock, (v) paving, and (vi) reinstating all buildings and access roads.

　

3. In light of the increased and currently unaffordable costs of relocating the port, the Maritime and Ports Authority of Fiji (MPAF) sought to attain the greatest use of its existing Suva Port facilities. A program of deferred maintenance, repair, rehabilitation, and seismic strengthening was prepared to extend the life of King's Wharf by 15 years, to 2020. The proposed rehabilitation, together with the container handling and yard performance improvements, will enable King's Wharf to handle the anticipated throughput to 2020.

　

4. The selected seismic strengthening option was furthermore contrasted with a full seismic upgrade of the King's Wharf complex covering the Walu Bay berth and the three berths of King's Wharf. While the seismic strengthening needs to be adequately extensive to protect the reclamation, the container yard, and berths used most frequently, costs of a full seismic upgrade were estimated at F$42 million. The least cost seismic rehabilitation option of the northern section of Kings Wharf has been adopted for the Project.

　

5. To improve cargo handling operations, complementary institutional changes are required to the physical improvements including opening of cargo handling at both Suva and Lautoka ports to private sector competition. At present, vessel operators apply a surcharge of F$150 per container to freight rates into and out of the Fiji Islands to compensate for delays in vessel turnaround time caused by the slow rates of cargo handling. Together with the physical improvements to the wharf under the Project, increase in competition is expected to improve cargo handling performance, which is expected to be passed on to shippers through elimination of this surcharge.

　

6. Lautoka Port Component. The rationale for the Lautoka Port component is a least cost solution to provide adequate length for concurrent berthing of dry bulk cargo vessels and large container vessels. As presently constructed, when a bulk sugar or wood chip carrier occupies the southern Fiji Sugar Corporation berth it also occupies part of the west berth of Queen's Wharf, and an incoming container vessel might then have to wait, or the bulk vessel will have to be temporarily shifted. The new facility will provide unobstructed berthage for one large (250 m) or two small (120 m) vessels on the west berth of Queen's Wharf, and an additional shallower draft berth on east berth of Queen's Wharf.

　

7. Significant new trade through Lautoka is the export of bottled water to north America. This industry was established in 1996, and is rapidly expanding through a modern bottling plant at Rakiraki, north Viti Levu. The firm is implementing its plans to double production by early 2002, and could double again in subsequent years. Its business is well capitalized and has already developed a substantial market through diversified distributors in the United States and an effective advertising campaign. The export water is presently transported by road from the plant to Suva, which is both costly and unacceptable on environmental and social grounds due to the limited capacity of Queen's Road and the numerous villages and towns along the route. The production rate of the firm will result in a container truck every 8 minutes along the primary road link between Rakiraki, Lautoka, and Suva.The impact of heavy axle loads are damaging the road system, and the Land Transport Authority is reducing axle load limits to 16.8 tons from the current load of 24 tons. The new regulations will have cost implications for carriers and inland road transport. Construction of the wharf extension will allow this trade to be shipped directly from Lautoka Wharf eliminating at least 220 km of inland transport. Transport to Lautoka would be by road or barge. Port storage and wharf requirements and MPAF's revenues would be unaffected in either case.

　

8. A number of other export trades based in northern Viti Levu are at a planning or trial shipment stage including container shipment of compacted fodder (animal feed) crops to the Middle East, and other possibilities such as foodstuffs and building products. The market competitiveness of these products will depend on delivered (cargo, insurance, freight) price, which makes the distance to a suitable export port and efficient port handling critical in determining viability of these new economic and trading activities. Once established, the port extensions will encourage the establishment of such export industries and reduce the costs of imported goods.

　

　

9. A separate financial and economic analysis has been carried out for each project component. The financial analysis is summarized in Table A15.1.

　

10. Suva Port. The financial analysis for King's Wharf is based on with- and without-project comparison. The analysis considers the relevant incremental costs of civil works and maintenance. The financial calculations are based on 2001 constant prices including taxes, duties, and physical contingencies. They exclude price contingencies and financing costs. The cost estimates are prepared using conservative standards. In particular, for the seismic analysis, high cost estimates are used to sensitize these to the changes that may arise from the detailed designs. The costs of direct operation and maintenance of King's Wharf are adopted from the financial forecast of MPAF. The with-project case reflects no incremental maintenance during construction. Under the without-project case, the port operator is maintaining the facility to meet the current and anticipated loads until 2005, with the maintenance effort necessarily consuming increasing resources due to the deteriorating condition of the wharf. A physical contingency of 10 percent has been used for each physical project component, except the container yard reorganization, which have received physical contingencies of 5 percent. A 15 percent physical contingency has been calculated for the consulting services.

　

11. Under the with- and without-project comparison, the revenues include ship revenues calculated with the current tariff at current values. A growth of traffic volume is assumed in accordance with the low growth case of 2.3 percent per annum. Without the project, traffic growth will be affected by reducing serviceability of the wharf structure, and a lower rate of 1.0 percent is assumed until 2005, then static growth and eventually slow decline as the wharf reaches the end of its operable life. This decline is due to the increasing costs of shipping through King's Wharf arising from increasing limitations on wharf loading and the possible need to restrict the working berth length and have areas periodically shut off for repair work. The increasing, inefficiency and costs of sea transport make export goods less competitive and imported goods more expensive, dampening national economic growth and overall transport demand, and increasing a tendency for shipping companies to avoid Suva where possible. With the project physical improvements and accompanying freeing up of competition, the port will be able to improve ship turnaround time, reduce costs, and allow the growth target of 2.3 percent to be met.

　

12. Without the project there is an annual risk of earthquake damage costs to the wharf of F$0.22 million (tables A15.2 and A15.3) which would have to be met by MPAF and which would be averted with the Project. This is shown as a cost to MPAF in the without-project case, the annual cost being the probability of occurrence multiplied by the cost of repairs.

　

13. A financial net present value is a measure of financial benefit accruing to MPAF at the discount rate of 1 2 percent. The financial internal rate of return equalizes the present values of cost and benefit streams. It is estimated to be 22.3 percent for the Project, with F$17.7 million net present value for 12 percent discount rate.

　

14. Lautoka Port. The financial analysis for Lautoka Wharf extension (Table A15.4) and the container yard reclamation is also based on a with- and without-project comparison. Without the Project, the newly developing export trade in bottled water is expected to continue to be shipped by road to Suva, bearing high inland transport costs, and the future expansion of this trade would be constrained as a result. The export of animal feed (compacted Rhodes grass and cane leaves) would be compromised by the failure to provide adequate facilities at Lautoka, and this trade is assumed not to proceed in the without-project case. Other generated traffic would not occur, and there would be no transfer between road transport of inward freight from Suva Port to Lautoka Port as volumes would be insufficient to induce ship calls. With the Project, the base case assumes that the new trades would develop as projected by their stakeholders.

　

15. Under the base projection, container cargo exports through Lautoka would increase by 10,000 twenty-foot equivalent units (TEU) in 2003 on the opening of the new wharf, exceed 65,000 TEU in 2010, when the trade is fully developed as projected by the industry stakeholders. The container projections are based on continuation of an existing trade of 4,300 TEU per year, bottled water trade rising to export 17,500 TEU per year on a fortnightly liner service, fodder crops rising to 40,000 TEU per year on a weekly charter service, other new trades contributing 2,000 TEU per year, and 2,600 TEU per year transferring from Suva. There would also be empty container imports to balance the export traffic, although the growth in the transport of these would be less than exports as the Fiji Islands has a surplus of empty containers due to the existing trade flows.

　

16. With the Project, it is assumed that new trades will develop as projected by their stakeholders. The Project is estimated to achieve a financial internal rate of return of 16.5 percent with a F$8.1 million net present value at 12 percent discount rate.

　

　

17. Correspondingly, the economic internal rate of return equalizes the present values of economic costs and benefits that accrue to the national economy. An economic net present value of the Project reflects return in excess of the discount rate of 1 2 percent. Economic values for costs and benefits are obtained by extracting taxes and duties, and by applying a conversion factor to labor, local materials, and locally produced benefits to reflect their value in external terms. Local components are adjusted to their border values using a standard conversion factor of 0.986 and a labor conversion factor of 0.86 calculated for the Fiji Islands. The conversion factors are applied to the maintenance costs, as local materials and labor will be used for to carry out works. The economic analyses for each project component are calculated separately based on with- and without-project comparisons.

　

18. Suva Port. For King's Wharf, the economic benefits (Table A15.5) comprise returns to cargo shippers of cargo in the form of savings in handling charges. At present a F$150 surcharge per TEU is added to the normal freight rate to recover costs to vessel operators from cargo handling inefficiencies. The seismic strengthening confers a benefit from the averted damage cost should an earthquake occur, expressed as the expected value of damage multiplied by the annual probability of occurrence. For King's Wharf, an economic internal rate of return of 15.8 percent has been obtained with a net present value of F$5.0 million for a discount rate of 12 percent.

　

19. An additional separate economic analysis has been prepared to estimate the real costs of earthquake damage if an earthquake occurred the year after construction is completed. Project benefit-cost ratios are calculated for each earthquake intensity measured by ground acceleration on the basis of a probability of 1.00. Replacement of the facility is assessed at F$62 million based on MPAF's asset revaluation.¹ Probabilities of an earthquake at various intensities were determined based on the MPAF's geotechnical study² and data obtained from the South Pacific Applied Geoscience Commission. The damage ratio before mitigation and after mitigation is the cost of damage divided by replacement cost. Damage ratios were assigned to each level of earthquake intensity. FOT each earthquake level, the benefits of mitigation are calculated and divided by the cost of the seismic strengthening component, estimated in economic terms at F$7.2 million. The results show that the strengthening is rational and that the chosen strengthening option is the most cost effective.

　

20. Lautoka Port. Economic benefits of the Lautoka Port component (Table A15.6) arise from the (i) reduction in transport costs of the existing cargo traffic through the port instead of through the road system, (ii) cost savings to existing container traffic through improved cargo handling efficiency, and (iii) savings to the new cargo loads made viable by the new logistics systems provided by the additional Lautoka Port facilities.

　

21. Transport cost savings include efficiencies in port cargo handling, reduced ship delay, and reduced internal transport costs where maritime transport substitutes for land transport connection to maritime transport. Ship delay savings accrue to the shipping operator, and are only partially returned to the Fiji economy. For locally owned shipping companies and single commodity charters, the contract between shipper and shipping company would be expected to take advantage of the transport cost savings.

　

22. Savings also accrue from the vehicle operating cost savings and reduced road deterioration, which have been estimated through axle loads applied to the road system by the incremental traffic expected to transfer to direct shipping of containers from Lautoka to destination ports without transit to Suva by road.

　

23. An economic internal rate of return of 17.6 percent has been obtained, and a net profit value of F$9.8 million based on a discount rate of 12 percent.

　

24. The economic analysis shows both components. Suva and Lautoka, to be viable in economic terms. More risk is associated with the Lautoka port due to its reliance on newly developing trades. However, discussions with the project proponents and shipping companies, determination of commercial commitments made, and inspection of production plant give good reason to expect that projections of new trade will be realized. The new exports will have a substantial flow-on impact on the economy of northern Viti Levu and the Fiji Islands as a whole. The port development is an essential element and is expected to catalyze other economic growth. The animal feed project, in particular, is well aligned with the Asian Development Bank's objectives for improving the economic welfare of the poorer members of society, as it will widely benefit owners and leaseholders of land, much of which is lying fallow or showing declining returns with the progressive reduction in prices paid for sugar cane.