Reporl No. 557a-YU FILE COPYAppraisal, of -the Port of BarYugoslaviaNovember 14, 1974

Regional Projects DepartmentEurope, Middle East and North Africa lkegional Office

Not for Public Use

Document of the International Bank for Reconstruction and DevelopmentInternational Development Association

This report was prepared for official use only by the Bank Group. It may not be published,quoted or cited without Bank Group authorization. The Bank Group does not accept responsibilityfor the accuracy or completeness of the report.

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CURRENCY EQUIVALENTS

Currency Unit Yugoslav Dinar (D)Us$0.066 =D. 1.00(1US$1.00 =D. 15.15Us$66,ooo =D. 1 millionUS$1 million D. 15,150,000

SYSTEM OF WEIGHTS AND MEASURES

Metric British/US

1 meter (m) 3.28 feet (ft)1 kilometer (km) 0.62 mile (mi)1 metric ton (m ton) = 2.200 pounds (lb)1 cubic meter (i 3) = 35.21 cubic feet (cu ft)

GLOSSARY OF ABBREVIATIONS

PBE - Port of Bar EnterpriseIBT - Investment Bank of TitogradRTE - Railway Transport EnterpriseDIRECTORATE - Federal agency dealirg with food and

strategic stocks (MATREZ)PMG - Project Management GroupSFRY - Socialist Federal Republic of YugoslaviaSR - Socialist RepublicSAP - Socialist Autonomous ProvinceSAS - Social Accounting Service

GOVERNMENT OF THE SOCIALIST FEDERAL REPUBLIC OF YUGOSLAVIAFISCAL YEAR

January 1 - December 31

/1 Currency conversions in this report are at the rate of US$1.00to D 15.15 current on August 1st, 1974.

APPRAISAL OF

THE PORT OF BAR

YUGOSLAVIA

TABLE OF CONTENTS

Page No.

SUMMARY AND CONCLUSIONS . ............. ... ............. i-iii

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

II. BACKGROUND ......... ....... 2

A. General ....... .............. . ................... 2B. The Transport System .................... * ...... 2C. Transport Policy, Planning and Coordination .... 3

III. THE PORT SECTOR ..................................... 3

A. Facilities ....... .............................. 3B. Traffic ....... .............................. 4C. Organization ...... ........................... 6D. Operations ....... ........................... 6E. Development Planning and Sector Coordination ... 6

IV. THE PORT OF BAR ENTERPRISE ..... ............. 7

A. Background ...................... 7B. Organization and Management ................ 8C. Operations ...................... 9D. Insurance ....... ................ 9E. Tariffs and Finance .. 9......................... 9F. Audit ...................................... .... 10

V. THE INVESTMENT PROGRAM AND THE PROJECT .... .......... 10

A. General ....... ............................ ... 10B. The Investment Program .................... . . ... 11C. Project Objectives ..... ........................ 11D. Project Description ..... ....................... 11E. Cost Estimates ...... .......................... 12F. Financing Plan ...... ...................... 14G. Implementation ...... ....................... 15H. Disbursement ...... ............................. 17I. Ecology ....... ................................. 17

Messrs. P. Bourcier (Economist), J. Kesson (Consultant), K. Strong(Consultant, Financial Analyst), and Mrs. P. Valad (Editor) preparedthis Appraisal Report.

TABLE OF CONTENTS (Cont'd) Page No.

VI. FINANCIAL EVALUATION ........ ...................... .. .0. . o. . .. 17

A. General ....................................... 17

B. Past Financial Performance ................... 18C. Forecast Financial Performance ....... 18D. Cash Flow .............. ... ..... **00-6 ... 18

E. Balance Sheets .................. ............ 19

F. Future Cash Position ....e... 19G. Financial Covenants ......... . . . . . . . . .... . . . . . . 20

VII. ECONOMIC EVALUATION ... . . . ............................ . 20

A. General . ..........................*..... *...... 20

B. Traffic Projections .... *....................... 20

C. Rate of Return ............... & ................ 21

D. Sensitivity Analysis ............. ............ 22

VIII. AGREEMENTS REACHED AND RECOMMENDATION ....... ........ 22

ANNEXES

1. Transportation Projects Previously Financed by the Bank2. Port Traffic by Type of Commodity3. Share of Seaborne Trade in Total International Trade4. Foreign Trade Projections 1971-19855. Organization Chart6. Operational Structure (Direct Lines of Comuand)7. Present and Future Operations8. Tariffs9. PBE Investment Program 1971-198010. Existing and Future Facilities11. Project Cost Estimate12. Sources of Funds13. Construction and Equipment Contracts14. Estimated Schedule of Project Execution15. Estimated Schedule of Disbursement16. Bases and Assumptions Used in Financial Analysis17. Income Statements18. Cash Flow Statements19. Balance Sheets20. Port Service Area21. Traffic Projections22. Bases for the Economic Evaluation23. Rate of Return Calculations

MAPS

IBRD 10916 - Port of Bar ProjectIBRD 10917 - Urban Development PlanIBRD 10918 - Main Lines of Communications and Hinterland

APPRAISAL OF

THE PORT OF BAR

YUGOSLAVIA

SUMMARY AND CONCLUSIONS

i. Yugoslavia's transport system consists of ten main commercialports, 96,000 km of roads, 10,300 km of standard and narrow gauge railways,a sizeable network of inland and coastal waterways and fifteen airports ofwhich ten handle international traffic. The railways, which before 1965 helda dominant position, have been losing traffic to the roads. The share ofseaborne trade in total international trade (oil excluded) has been decliningfrom 44% in 1965 to 33% in 1972, but recovery is expected as a result ofchanges in foreign trade structure.

ii. Over the past two decades, Governmental authority has been progres-sively transferred from the Federation to the Socialist Republics and SocialistAutonomous Provinces. Despite some initial difficulties due to lack of adequatestaff, progress has generally been made in promoting more rational and co-orclinated transport policies. Significant progress was made in railways wherethe five railways enterprises have agreed to a common finance plan and in high-wa- where the creation of the Road Council should improve project preparationand execution. Mluch remains to be done, however, to ensure proper coordinationwithin and among various modes.

iii. The ten main Yugoslav ports are operated by fully autonomous andlargely competitive enterprises which, to some extent, also compete with theItalian ports of Trieste and Venice. Over the past decade, port developmentwas based on arbitraty and somewhat overlapping expansion programs rather thanon a countrywide survey of future port requirements. The situation appearsto be chianging and the main Port Enterprises are discussing the meLstures tobe taken to improve cooperation among ports. It is, however, premature forthe Bank to be directly involved in these discussions. However, the Bankwill pursuc this matter with the Government during project supervision. TheGovernment was informed that a port development study would be a prerequisiteto fuirther Bank lending to the port sector.

iv. The proposed project is closely related to the construction ofthe Belgrade-Bar Railway line, which was partly financed by the Bank (Loan531-YU, March 1968). This line is expected to be completed by mid-1976 and,when it is, the overland route to eastern Yugoslavia will be shorter fromBar than from Rijeka and Koper on the Northern Adriatic Coast. It is expectedthat the use of the Belgrade Bar line and of the Port of Bar will reduce over-land transport costs to users by as much as 30%. However, existing facilitiesat Bar need to be expanded to cope with future traffic demand which is expectedto quadruple between 1975 and 1980.

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v. The project is part of the long-tern, development plan of the portand consists of: construction of wharves, storage facilities, housing andservices; procurement and installation of mechanical handling equipment forgeneral. and dry bulk cargo; and consulting services to assist management inproject preparation, execution and supervision. The project also includesconstruction of new railway facilities at Bar. The total cost of the project,including interest during construction, is estimated at US$78 million, ofwhich US$62 million and US$10 million will finance port and railway investments,respectively, and US$6 million will finance interest during construction onthe Bank loan and on loans from local institutions. The project will be fi-nanced by Government grants, loans from local institutions, internally generatedfunds and the proposed Bank loan. The foreign exchange component is US$36.9million (07.57) of which US$32.9 million (48.0%) are for ports and US$4.0 mil-lion (40%) for railway facilities. The Bank loan will be for US$44 million.VS~39.4 million will cover 55% of the cost of port and railway facilities andITSP4.6 million will be for interest during construction on the Bank loan. Thus,the Fank loan will finance US$7.1 million of local currency costs. The loanwill be for a 25-year term including 4 years of grace; the Port of Bar Enter-prise (PBE) will be the Borrower.

vi. Procurement will be by international competitive bidding in accord-ance with the Bank Group "Guidelines for Procurement", with the exception ofcivil work contracts below US$1 million and contracts below US$200,000 forwhich local competitive bidding and bids from selected international supplierswill be accepted. Disbursement will be based on 100% of the CIF landed costfor imported goods or of the ex-factory price of goods produced locally, 100%of interest during construction on the Bank loan, 100% of foreign exchangecost of consulting services, 57% on all civil works contracts except expropria-tion, housing, and ongoing civil work and dredging contracts which will not befinanced by the Bank loan and 55% of total railway expenditures.

vii. The project will be constructed between 1974 and 1977 and will pro-vide enough capacity to meet traffic demand until 1980. Additional investmentof D 220 million (US$14.5 million) will be required after 1978 to meet thedemand beyond 1980 until about 1985. Technical assistance will be requiredduring the construction period, and has been provided for in the project cost.

viii. The financial situation of PBE will be satisfactory by 1980. Financialforecasts indicate that in 1980 PBE will earn a rate of return on net fixedassets in excess of 8% and that maximum debt/equity will not exceed 50/50.Interest and debt service coverage will also be satisfactory. PBE will needto improve its accounting procedures and management consulting services havebeen included in the project for this purpose.

ix. The project is the least cost solution for foreign trade in easternYugoslavia. The main benefits achieved by the realization of the project willbe: (a) savings in port operating costs; and (b) savings in overland transportcosts. Some revenues will be generated from transit. The project yields areturn of 13%o which is conservative as some benefits were not taken intoaccount due to the uncertainty of other ports development schemes. The proj-ect will create some 800 permanent jobs and it will not disrupt the environ-ment.

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x. The proposed project is suitable for a Bank loan of US$44 millionequivalent, for a 25-year term corresponding to the average economic life ofthe assets, including 4 years of grace corresponding to the expected dis-bursement period.

APPRAISAL OF

THE PORT OF BAR

YUGOSLAVIA

I. INTRODUCTION

1.01 The Socialist Federal Republic of Yugoslavia has asked the Bankto help finance a project to expand the capacity of Port of Bar in theSocialist Republic (SR) of Montenegro. The project has been prepared by thePort of Bar Enterprise (PBE) and is designed to handle the traffic expectedafter completion on of the Belgrade-Bar Railway which, is being partly financedby the Bank (Loan 531-YU, March 1968). The project cost is US$78 million, ofwhich US$62 million is for port facilities, US$10 million for railway facil-ities, and US$6 million for interest during construction on the Bank loan andon loans from local institutions.

1.02 This will be the Bank's first port loan and twelfth transport sec-tor loan in Yugoslavia (Annex 1). The proposed loan will be for US$44 million,or 56.5% of the project cost; this amount includes US$7.1 million of local cur-rency financing. The balance of the project cost is expected to be financedby grants from the Governments of the SRs of Montenegro and Serbia (US$10.5million) and loans from a federal agency dealing with food and strategicstocks (The Directorate) (US$2.7 million) and the Investment Bank of Titograd(IBT) (US$14.3 millionl.). PBE will contribute US$2 million from internallygenerated funds and the Railway Transport Enterprise (RTE) of Belgrade willprovide 45% of the cost of the railway facilities (US$4.5 million).

1.03 The borrower will be PBE, which will undertake the project withtechnical assistance provided under the Bank loan. PBE will on-lend to RTEBelgrade 55% of the cost of the railway facilities. The Socialist FederalRepublic of Yugoslavia will guarantee the loan.

1.04 This report is the result of an identification mission in 1972 aswell as preappraisal and appraisal missions in 1973 and 1974. The appraisalmission consisted of Messrs. P. Bourcier (Economist), J. Kesson (Consultant),and K. Strong (Hu Harries and Associates, Canada). Mrs. P. Valad (Editor)assisted in preparation of the main text of this Appraisal Report.

1/ Including US$1.4 million interest during construction on local loans.

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II. BACKGROUND

A. General

2.01 Yugoslavia, with a population of about 21 million that is increasingat 1% p.a., has a diversified economy which has grown rapidly since World WarII. During the past decade, per capita income has grown at about 6% p.a. toreach about US$900 in 1973. Rising economic activity and personal incomeshave led to a rapid growth in transport requirements and international trade.Between 1960 and 1970, total overland freight and passenger traffic grew, re-spectively at 10% and 7% p.a., while seaborne traffic 1/ grew at about 8% p.a.

2.02 Yugoslavia is a Socialist Federal Republic consisting of six SocialistRepublics 2/ (SRs) and two Socialist Autonomous Provinces 3/ (SAPs). During thepast two decades, governmental authority and administration, previously con-centrated in the Federal Government, was decentralized to Republican and Pro-vincial Covernments and two enterprises which have gained considerable autonomy.

2.03 A distinguishing feature of Yugoslavia is the "self-management"principle of economic organizations. This means that transport enterprises,including railways and ports, are autonomous entities managed by the Workers.

B. The Transport System

2.04 Yugoslavia's transportation system comprises ten main commercialports (para. 3.01) 96,000 km of roads; 10,300 km of standard and narrow gaugerailways; a sizeable network of inland and coastal waterways and fifteen air-ports, ten of which handle international flights. Pipelines are an insignifi-cant means of transport, but they will become more important when a major oilpipeline system, now being planned, has been completed.

2.05 Since 1960, railways have lost their dominant role in internal trans-port to roads. That year railways accounted for respectively 74% of freighttraffic and 67% of passenger traffic and in 1970 they accounted for 47% and25% respectively. The railways are expected to regain some of their lossesas a result of heavy investment to modernize the equipment and improve thequality of service. Inland water transport is significant, carrying about11% of total freight. The five main sea ports (para. 3.01) almost doubled cargohandling since 1962 to reach about 18 million tons in 1973. A large part ofthe increase is due to rising imports of crude oil and oil derivatives (Annex 2).

1/ Including crude oil and oil derivatives.

2/ Bosnia--lerzegovina, Croatia, Macedonia, Montenegro, Serbia and Slovenia.

3/ Kosovo and Vojvodina.

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2.06 Physical improvements to the transport infrastructure have progressedrapidly over the past decade, yet much remains to be done. The railways needfurther modernization, and many roads are still below standard for the trafficthey currently carry and need improvements to handle expected traffic effi-ciently. The capacity of some ports needs to be increased to avoid congestion.

C. Transport Policy, Planning and Coordination

2.07 Yugoslavia has no clearly defined transport policy, but its thrustis implicit in the country's overall economic policies. The main principlesare: free choice by users in selecting transport facilities; free entry intothe sector and competition in a market economy among autonomous transportenterprises; and equal pricing treatment by Government. These principles,together with other major reforms in overall economic policies, have broughtabout a rapid evolution toward greater decentralization of policy making andliberalization of the transport industry.

?.n8 Within the framework of decentralization, the primary responsibilityfor Sector Administration and Planning was transfered from the Federation toSRs and SAPs and to transport enterprises. This has somewhat disrupted trans-port administration planning and coordination. Following discussion withthe Bank, the Yugoslav authorities have made significant progress in improvingsector coordination. A SFRY Secretariat of Transport and Communications wasestablished in 1971 and most SRs and SAPs have established and/or strengthenedsimilar secretariats. Since 1971, Governments have given considerable atten-tion to transport problems. Despite this progress, problems are far fromsolved and further improvements are being discussed with the Yugoslav author-ities (para 2.09 and Annex 1).

2.09 Of the several modes, only the railways established a comprehensiveFive-Year Plan which provides both realistic financial plans as well as com-prehensive schedules for implementation of investments. Investment Plans forRoad Transport and Ports did not provide a rational evaluation of future re-quirements. Attempts were made, with Bank assistance to remedy these defi-ciencies by promoting closer cooperation between independent transport enter-prises, users and/or Government agencies. Substantial progress was made inrailways, pipelines and to a lesser extent in highways. In the port sector,however, such attempts have been less successful, mainly because of institu-tional problems and competition among individual ports (para 3.15).

III. THE PORT SECTOR

A. Facilities

3.01 Along a 600 km coastline, Yugoslavia has about 89 landing placeswhich are considered as ports of entry; ten of these, are considered mainports of which the most important are: Koper (SR Slovenia), Rijeka and Bakar,

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Split, Ploce, (SR Croatia) and Bar (SR Montenegro), (see Map IBRD No. 10918).The coastline is separated from the interior by mountain ranges of consider-able height; therefore, the most important ports are near passes through whichroads and railways were built. Ports in general have a good depth and nosiltation problems. To some extent, Yugoslavia and neighboring countries,also use the Ports of Venice and Trieste (Italy) and Salonika (Greece).Yugoslavia has its own free zone in Salonika.

3.02 Rijeka is the most important port and in 1972 accounted for about50% of international and coastal traffic excluding petroleum and derivatives.It has rail and road connections with the interior of the country; however,rail connections are congested (Rijeka-Ljubljana) or subject to operatingdifficulties due to steep gradients (Rijeka-Zagreb). Bakar, a bulk cargoport located some 14 km to the southeast of Rijeka, is used mostly for bauxite,iron ore and coal. Its capacity is sufficient for present needs but expansionwould be costly because of difficult physical conditions. Koper is a natural-ly protected harbor and has rail connections with the main Yugoslav andEuropean systems. Split has new cargo handling facilities and also has goodrail and road connections with Zagreb, Sarajevo and Belgrade and Ploce, re-cently constructed, has a rail connection with Sarajevo.

3.03 The Port of Bar lies in a well-protected bay some 25 km from theAlbanian border. The port was planned to serve a large area encompassing mostof eastern Yugoslavia including SRs Montenegro, Macedonia, Serbia and SAPsKosovo and Voivodina, (Map IBRD No. 10918). Its service area is presentlylimited to Montenegro because of no adequate road and railway links with theinterior. Existing facilities have been, so far, more than adequate for gene-ral cargo traffic, as well as for liquid and dry bulk cargo traffic.

3.04 After the Belgrade-Bar Railway line (para. 1.01) is open to trafficby mid-1976, the service area will be greatly expanded. By 1980, totaltraffic through the port is expected to be about five times the 1973 level.Despite on-going construction of two new berths for bulk cargo and of somestorage sheds, existing port and railway facilities at Bar are not largeenough to process the expected traffic and need to be expanded; expansionwill be part of this project (para. 5.01).

B. Traffic

3.05 International traffic through the ten main Yugoslav ports, petroleumexcluded, was 7.2 million tons in :971, or about 33% of total foreign trade(Annex 3). Coastal and transit traffic was 1.5 and 3.2 million tons respect-ively. Petroleum traffic handled mostly through special facilities at Rijekawas an additional 6.6 million tons.

3.06 Due to the large share of Western Europe in total Yugoslav exchangesand to the increasing use of overland transport to reach European markets, the

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relative importance of seaborne foreign trade has been decreasing consistentlysince 1964, except for petroleum and derivatives. From 1961 to 1971, seabornetraffic grew at an average rate of 3.5% p.a. while total foreign trade grewat 9.75% p.a.

3.07 In 1971, Rijeka and Koper accounted for almost all transit traffic.Since 1968, transit traffic remained almost constant. Coastal traffic consistsprincipally of petroleum products from the Rijeka refinery (1.2 million tonsin 1971); and of cement (300,000 tons in 1971). Except for petroleum productscoastal traffic did not grow substantially over the past five years and thereare no indications that this trend will be reversed in the future. Passengertraffic between the main Yugoslav ports and Italy is substantial; from 1969to 1971 it grew from 8.4 million to 9.3 million passengers.

Future Prospects

3.08 Yugoslav exports enjoy a favorable commodity structure with a rela-tively large share of high elasticity products such as beef, wine, fruit andvegetables among agricultural products, non-ferrous metals and a wide rangeof engineering manufactures. Exports are expected to grow at a pace compar-able with past trends. Projected rates of growth for exports over the nextfive years vary from 2% for food products to 15% for electrical equipmentwith the rate for most products at about 10 to 12% p.a. The Yugoslav economydepends heavily on imports whose recent rapid growth is expected to leveloff in the future.

3.09 Since 1963, the regional structure of Yugoslav trade has changedconsiderably. Trade with the US and with less-developed countries has de-creased, while trade with Eastern Europe remained almost constant, and tradewith Western Europe increased substantially. In the future, trade withEastern Europe is likely to increase, however, Yugoslavia's most importanttrading partner will continue to be the West and more particularly the en-larged EEC despite strong competition in the field of exports. Trade withless-developed countries is not expected to grow substantially. The planfor regional trade distribution is set out in the Social Development Plan as50% to the West, 35% to the COMECON countries and 15% to less-developedcountries. Trade with the West is likely to take a larger share at theexpense of trade with less-developed countries.

3.10 Yugoslav trade projections, excluding petroleum show a strong re-covery of seaborne trade against overland trade (Annex 4). But given thefuture structure of foreign trade, such results are unlikely to be achieved,at least during the indicated time period (1975-1985). While the share ofseaborne trade in total exports appears reasonable, it is likely to be over-stated for imports which would mainly come from Western Europe and would useoverland transport routes.

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C. Organization

3.11 Ports are operated by independent enterprises which provide and main-tain port facilities, and carry out ship, shore and warehouse cargo handling.Exceptions are Ploce, now owned by the Sarajevo Railway Enterprise, and Split,where the Port Enterprise provides and maintains infrastructure while theStevedoring Enterprise handles cargo on ship and on shore. Port Enterprisesare fully independent and are responsible for their own development plans.Little coordination exists between the various Enterprises.

3.12 The main sea ports have formed a group (the association of ports)w- 'iittin the Federal Chamber of Economy. This association is a consultativebody with no real executive power, it now consists of the ten main ports andof several enterprises in charge of port construction and operation. Theassociation deals mostly with tariffs and represents the ports within theFederal Chamber of Economy. Within the association, decisions have to beunaniious, and this is seldom achieved since several ports compete to serveCAie same hinterland.

D. Operations

3.13 General cargo traffic is congested in Koper and Rijeka due to: (i)insufficient and obsolete handling equipment; (ii) inadequate layout of railwayfacilities; and (iii) lack of storage capacity especially in covered storage,grain silos, and edible-oil tanks. Problems are most acute at Rijeka, wherelarge ship operation is hampered by shallow depth. Some problems could bealleviated by streamlining cargo and by penalizing users for long storageperiods. These steps appear difficult to take, however, because of the lackof coordination between Port Enterprises and users. Cargo handling rates aregenerally acceptable at the largest ports, and labor relations are good.

E. Development Planning and Sector Coordination

3.14 In 1971, the Port Association published a five-year development plan(1971-1975) prepared by the various ports. The plan proposed a total invest-ment of D 2,300 million (US$151 million) which was subsequently scaled down toD 1,770 million (US$116 million) after discussions within the association.The ports, however, made little attempt to eliminate duplication in estimatingfuture traffic and defining facilities to be provided to meet future demand.The plan called for an increase of 30% in the length of general cargo berthagein the ten principal ports and the addition of one major bulk handling installa-tion at Bar and two minor container terminals at Rijeka and Koper, but did notcontain any analysis of capacity versus traffic, did not provide a rationalevaluation of future port requirements and did not address the main issues ofthe port sector such as the choice between alternative development schemesand the financing of investment programs.

3.15 Partly because tariffs have been kept low to compete with Italianports, Yugoslav ports have not been able to mobilize enough resources to carryout their program. Actual expenditures, amount to D 580 million i.e. 33% ofthe planned amount. Since ports could not secure long-term loans to financetheir expansion, Ploce and Rijeka used short-term borrowings and now faceliquidity problems. Recurrent financial problems as well as growing opera-tional difficulties induced more cooperation among main ports. Within theframework of the preparation of the next five-year plan, the main ports arediscussing, through the Chamber of Economy of the Federal Assembly, the mea-sures to be taken to improve cooperation among ports. In particular, themajor ports have been considering a joint port development study to be carriedout by Yugoslav consultants.

3.16 Over the past three years, the Bank has been urging the Yugoslavs tocarry out a port development study that would have provided the framework forfurther investment in the port sector. During loan negotiations, the Bankexpressed its willingness to assist in the financing of the foreign exchangecost of such a study under the present loan. The Government stated that theports must decide jointly on the measures to be taken to improve coordination,including the proposed study, and that this collective decision process wouldtake time. The Government felt, therefore, that although the study would beuseful, it would he premature to discuss it in connection with this project.The Government was informed that, although che Bank understood these problems,a port development study would be a prerequisite for Bank financing anotherport project in Yugoslavia. The Bank will further discuss this matter withthe Government during project supervision.

IV. THE PORT OF BAR ENTERPRISE

A. Background

4.01 PBE was created in 1954 to construct the port facilities at Bar.After construction was completed, PBE's status was changed from an "Enterpriseat Construction" into an Economic Organization in charge of "receiving, storingand dispatching goods, providing transport services for its own or for thirdparties' needs and of constructing and maintaining port facilities at Bar".The port has been operational on a small-scale since 1967 and is fully auto-nomous.

4.02 PBE follows the general concept of decentralized economic controland workers' self management of "social property." The policy making body isthe Workers' Council elected by the personnel of the Enterprises (workers'collective) which acts in much the same fashion as a board of directors ina western type corporation. The Workers' Council appoints the general manager.

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4.03 Starting January 1, 1974, PBE consists of five semi-independentunits of associated labor, without legal personality (Annex 5). Each unithas a large degree of autonomy in internal matters, and is responsible for itsown budget which must, however, be approved by the Workers' Council. Separateaccounts are kept principally for profit sharing purposes. Since no unit cancommit funds by itself no problem of inter-unit liability arises and no indica-tions exist that PBE would change its legal structure in the near future(Annex 5).

B. Organization and Management

4.04 The operational stricture of PBE consists of two departments dealingrespectively with operation and maintenance; finances, legal and marketing;and of a Project Management Group (PMG), whose head is directly responsible tothe General Manager, dealing with project preparations and supervision (Annex6). Although all positions have not yet been filled, the principles adoptedare satisfactory inasmuch as they will help management in promoting delegationof power and operational responsibility as well as proper coordination betweenthe various units. Senior management is generally qualified and experienced,but middle management requires strengthening and technical assistance for thenext few years.

4.05 The relative inexperience of the existing staff has generally re-sulted in deficiencies in the elaboration, transmission and analysis ofcosting, statistical and other financial information essential to management.The accounting department has an over-legalistic approach and sometimes lacksa clear understanding of accounting principles (paras. 6.01 and 6.04). Thegeneral manager and the Workers' Council are aware of these problems and haveemployed the Economic Bureau, (Consultants, Yugoslavia), to assist PBE inreviewing existing accounting practices and implementing a proper accountingsystem. The consultants have already produced an interim report recommendingimprovements in costing procedures and budget control for each unit. Theserecommendations are being implemented, but they are just a first step towardsimproving the accounting system. The consultants are presently studying theadequacy of existing tariff-setting, marketing, and financial procedures inthe light of future port expansion and should submit their final report by theend of 1974.

4.06 During loan negotiation the Bank and PBE agreed that PBE will con-tinue employing consultants acceptable to the Bank to assist in improving andimplementing managerial and accounting systems, and in reviewing tariff settingpolicies.

4.07 PMG with the assistance of the Economic Bureau is handling projectpreparation. PBE also intends to supervise project execution itself, and forthis purpose, PBE has recently appointed new staff to PMG. These arrangementsare satisfactory since PBE agreed: (i) to employ engineering consultants forthe design and detailed engineering of the main structures under the project(para 5.11); and (ii) to maintain the staff of PMG at standards acceptable to

the Bank. During loan negotiations the Bank and PBE agreed that PBE will add,not later than March 31, 1975, an economist and a financial analyst to thepresent PMC staff and that the services of the Economic Bureau will be continueduntil the new staff is fully acquainted with the project. PBE also agreed tosubmit to the Bank not later than March 31, 1975, the experience and qualifica-tion of senior staff to be appointed to PMG.

C. Operations

4.08 Operations are generally adequate for the volume of traffic handled,although considerable improvement could be achieved by further training andbetter use of available equipment (Annex 7). The growth in traffic at theopening of the Belgrade-Bar line will require an increase in the port laborforce from 560 workers in 1973 to about 1,500 in 1980. At the same time it isplanned that the output per worker will increase from 1,450 tons p.a. in 1972to about 2,900 tons p.a. in 1980. This increase in staff as well as new cargohandling procedures will require both training and technical assistance inthe introduction and development of new methods of cargo handling. PBE intendsto retain consultants to assist in improving existing cargo handling proceduresand to devise new procedures in line with the volume of traffic expected afterthe opening of the Belgrade-Bar line. During loan negotiations PBE agreedto employ such consultants on conditions satisfactory to the Bank and to makesatisfactory training arrangements for new staff. Operating targets given inAnnex 7 were agreed upon by PBE and the Bank during loan negotiations.

4.09 Most of the cargo in and out of the Port is expected to travel byrail and PBE has decided that the RTE Belg;rade will undertake railway opera-tion and provide the necessary equipment (locomotives, rolling stock) forcargo movements in and out of the Port area. During loan negotiations, PBE,RTE and the Bank agreed that RTE and PBE will, not later than March 31, 1975,make the necessary arrangements to ensure proper coordination between rail andport traffic.

D. Insurance

4. 10 P1E has full and adequate insurance coverage for all risks includingthird party risks.

E. Tariffs and Finance

4.11 PBE is free to set its tariffs, but decisions on tariffs haveusuallv been taken within the Port Association in consultation with otherports. Because of the competition of other Yugoslav ports, whose tariffsare already low because of the competition with Italian Ports, PBE's tariffs

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have generally been 10%, to 15% lower than those of Rijeka and Koper. Thepresent tariffs went into effect in September 1974. Over the past four yearstariffs were increased four times. The present tariff structure does notfully reflect costs (Annex 8). This is due partly to the necessity of follow-ing charges of competitive ports and also to the lack of adequate cost informa-tion. This is presently under study and should be corrected before the endof the construction period (para. 4.05). During loan negotiations PBE agreedthat a cost based tariff structure will be prepared before January 1, 1976and be made available to the Bank for review.

4.12 PBE's past financial results have been poor with the Port showingsmall operating losses in 1971 and 1972 (para. 6.02). This situation is duepartly to the low level of traffic for the capacity of the Port and to primi-tive operating procedures (para. 4.08). The financial situation of PBE isexpected to improve substantially during the construction period as a resultof better operating procedures and by 1976 the operating ratio is expected tobe 64% compared to 97% in 1971 and 89% in 1972. PBE will be able to contri-bute D 30.7 million (US$2 million) to the financing of the proposed project.PBE's financial situation will continue to improve after project completion.

F. Audit

4.13 The audit of PBE's accounts by the Social Accounting Service (SAS)is limited to verifying that accounts are kept and statements produced accord-ing to the prescribed uniform format. During loan negotiations, PBE agreedthat it will have its accounts audited, in accordance with sound auditing prin-ciples consistently applied, by SAS or another competent and experienced inde-pendent auditing organization and that the certified statements and the auditor'sreport will be submitted to the Bank within six months of the end of each year.

V. THE INVESTMENT PROGRAM AND THIE PROJECT

A. General

5.01 In 1970, PBE with the assistance of the Kirilo Savic InstituteConsultants, Belgrade, prepared a program for expansion of the port includingexpropriation of houses near the port area, construction of new bulk cargohandling facilities, extension of the general cargo and passenger handlingfacilities, construction of a bulk petroleum berth, and dredging of the mainport area to 14 m depth. The cost of the program was estimated at D 560million (US$37 million) and was expected to be financed largely by Governmentgrants. Because of difficulties in obtaining local financing the program wascurtailed and initial development was limited to construction of the petroleumberth and of about 80% of the new bulk facilities and dredging; and to the

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necessary expropriation. The Government and PBE requested Bank assistance forfinancing of the remainder. PBE's original proposal was not totally acceptableand at the request of the Bank, PBE revised its original program and addedrailway facilities at Bar. The new program was reviewed by the appraisalmission and is satisfactory.

B. The Investment Program

5.02 PBE's investment program (Annex 9) covers the period 1974-80 and isestimated at D 1,160 million (US$76.5 million) of which D 553 million (US$36.5million) is estimated to be foreign exchange. It will bring the port capacityto about 5 million tons in 1980, sufficient to handle the 1982 projectedtraffic. Plans for development beyond 1982 will be prepared during construc-tion of the proposed project. PBE's investment program was agreed upon duringloan negotiations and PBE agreed, that, except as the Bank shall otherwiseagree, its investments would be limited to those included in the program, ex-cept for small items not exceeding a total of D 6 million (US$400,000) annually.

C. Project Objectives

5.03 The objective of the project is to shorten overland transport forgoods imported to or exported from Eastern Yugoslavia. Such goods wouldotherwise be handled through other distant ports (Rijeka and Koper).

D. Project Description

5.04 The project is the realization of the 1974-1977 portion of theinvestment program and includes:

(a) Port Facilities

(M) Expropriation: Compensation to be paid for clearingabout 250 private and municipal houses from sectionsof the land to be developed by the port.

(ii) Accommodation: Construction of a hostel providing singleaccommodation for about 500 workers and of about 250apartments for family accommodation.

(iii) Infrastructure: Completion of the dry bulk cargo wharfnow under construction, construction of two new generalcargo berths, extension of the passenger ferry facil-ities and completion of the dredging program to provide14 m depth below L.W.O.S.T. in the main port area and13 m along the new general cargo berths.

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(iv) Services: Provision of water supply, drainage, electricpower, communication, roads, truck parking and railwayfacilities within the port working area.

(v) Storage: Construction of transit and storage sheds andof adequate open storage to increase existing sheddingand open stacking areas by 65% and 80% respectively; aswell as construction of grain silos and edible oil tankswith an initial capacity of 30,000 and 20,000 tonsrespectively.

(vi) Equipment: Procurement and installation of: 5 portalcranes and 3 transporter bridges for handling scrapiron, coal, grain, bauxite and phosphates; 4 portalcranes, 5 mobile cranes, 15 fork-lift trucks, 10 tractorsand 40 trailers for the general cargo berths; and of 2tug boats.

(vii) Technical Assistance: Including the services of consult-ants to assist PBE in: planning and improving portmanagement and financial control of operations; designingwharf structures, sheds, silos and bulk handling equipment;in improving the existing accounting system and in trainingexisting and additional staff.

(b) Railway Facilities. Construction of reception and dispatch yardsoutside the port area and of sidings for the distribution andmarshalling of wagons near the working area.

A detailed description of the project is given in Annex 10 and the layout ofthe main facilities is given on Map IBRD No. 10916.

E. Cost Estimates

5.05 The total project cost, including interest during construction isestimated at US$78 million, of which US$67.8 million is for port facilitiesand US$10.2 million for railway facilities. The foreign exchange component isUS$36.9 million (47%) of which US$32.9 million (89%) is for port and US$4 mil-lion (11%) for railway facilities. Interest during construction on the Bankloan and loans from local institutions amounts to US$6 million. Annex 11 showsdetails of the cost estimate and page 13 shows a summary.

5.06 PBE with the assistance of the Economic Bureau prepared the costestimates. Expropriation costs are based on compensation paid to date.Costs of civil works are derived largely from prices of similar works under-taken by local contractors or joint ventures between local and foreign con-tractors and reflect prices expected by the end of 1974. Equipment costsare based on recent quotations from foreign suppliers updated to reflect

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----- D Million -------- -- US$ Million --- ForeignLocal Foreign Local Foreign Exchange

Currencv Exchange Total Currency Exchange Total Component

I. Port Facilities

_ Xpr_opriatie6n 56.o 18.7 74.7 3.7 41.2 4.9 25.0

Accommodation andHousing 67.5 22.5 90.0 4.5 1.4 5.9 24.0

Infrastructure 53.0 36.0 89.0 3.5 2.4 5.9 40.5Services 80.14 51.8 132.2 5.3 3.4 8.7 39.0Storages 7, 8 70.5 143.3 4.8 4.7 9.5 50.0Eauipment 44.0 145.0 189.0 -2.9 9.12.5 77.0Technical Assistance 20.0 8.0 28.0 1.3 )D.5( 1.8 28.0

Subtotal 393.7 352.5 746.2 26.0 23.2 49.2 39.1

Contingencies:

PhysiX 1- 35.0 25.7 60.7 2.3 1.7 4.0 44.0Price-2 78.0 55.1 133.1 5.2 3.6 8.8 40.0

Subtotal Port 506.7 433.3 940.0 33.5 28 .5 62.0 46.o

II. Railway Facilities

Marshalling Yard andreception, and dis-patch yard 72.2 48.4 120.6 4.8 3.2 8.0 40.0

Contingencies:

Physical-/ 2.2 1.7 3.9 0.2 0.1 0.3 33.0Price/2 17.8 7.7 25.5 1.2 0.5 1.6 29.0

Subtotal Railway 92.2 57.8 150.0 i.2 3.8 10.0 38.0

Subtotal Port andRailway 598.9 491.1 1,090.0 39.7 32.3 72.0 45.0

mi. Interest During Con-struction:Port 21.8 66.6 88.4 1.4 4.4 5.8 76.0Railway - 3.2 3.2 - 0.2 0.2 100.0

21.8 69.8 91.6 1.4 4.6 6.o 77.0

IV. Total Project Cost 620.7 560.9 1,181.6 41.1 36.9 78.0 47-5

/1 Physical contingencies at 15% for wharf structure. 10% for civil orks, 5% for portequipment and 3% for railway equipment.

/2 Price conti ngencies at 20%, 16% and 10% for local cost in 1975, 1976 and 1977respectively and 12%, l0, and 8% for foreign costs for 1975, 1976 and 1977 respectively.

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price increases of the first six months of 1974. Costs of consultant serv-ices are based on current rates for Yugoslavia and foreign experts.

5.07 The physical contingency applied is 15% on wharf structure stillto be designed in detail, 10% on other civil works and 5% on equipment; nophysical contingency has been applied on expropriation. The price contingencyfor local cost is based on trends in Yugoslavia for the first part of 1974 andfor foreign costs on average European inflation rates. The assessed figuresare 20%, 16% and 10% for local costs and 12%, 10%, and 8% for foreign costs for1975, 1976 and 1977 respectively. No price contingency was applied to ex-propriation as compensation is expected to be settled by the end of 1974.Prices for housing and hostel include contingencies of 25% of the estimatedcost. Total price contingencies on port and railway facilities (expropriation,housing and accommodation excluded) account for 26% and 14% of the local cur-rency and foreign exchange costs respectively, excluding interest duringconstruction but including physical contingencies.

F. Financing Plan

5.08 Annex 12 shows details of the financing plan for the expansion ofthe Port of Bar, summarized as follows:

(D. Million)Source of Finance Local Foreign Total

I. Port Facilities- IBRD 517.0 517.0- Government Contributions

Serbia 120.0 120.0Montenegro 37.3 37.3

- Long-Term LoansDirectorate 40.0 40.0IBT 195.0 195.0

- Internal Resources 30.7 _ 30.7

Subtotal Port 423.0 517.0 940.0

II. Railway Facilities- IBRD 82.5 82.5- RTE 67.5 67.5

Subtotal Railway 67.5 82.5 150.0

Total 490.5 599.5 1,090.0

III. Interest during construction- IBRD 69.8 69.8- IBT 21.8 21.8

Total 512.3 669.3 1 181.6

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5.09 A US$44 million Bank loan is proposed, with a 25-year term including4 years of grace. The loan will finance US$39.4 million (557O) of the projectcost including US$7.1 million of local costs. Since PBE will not generateenough revenue during the construction period, the Bank loan will also financeinterest during construction on the Bank loan for an amount estimated atUS$4.6 million. PBE will onlend US$5.7 million to RTE Belgrade on the sameterms and conditions as the Bank loan to cover 55% of the cost of railwayfacilities (US$5.5 million) and interest during construction (US$0.2 million) 1/.Contributions from Montenegro and Serbia will be grants. The Montenegro con-tribution will be used exclusively to finance expropriation. The IBT loan willbe for 13 years, including three years of grace at 8% and would include in-terest during construction. The Directorate loan will be for 30 years at 3%and 10 years at 8% for D 30 million and D 10 million respectively. RTE Belgradewill provide 45% of the cost of railway facilities from internally generatedfunds. IBT and RTE will guarantee the timely availability of funds for portand railway expenditures respectively; IBT will guarantee cost overruns forlocal and foreign costs. The financing plan was reviewed during loan negotia-tions and is satisfactory. Execution and ratification of agreements satisfac-tory to the Bank between the Governments of Serbia and Montenegro, PBE, IBT,the Directorate and RTE Belgrade are conditions of effectiveness of the pro-posed loan.

5.10 PBE has started employing consultants in 1974 and retroactive fi-nancing for consultant services is recommended for an amount estimated atUSS100,000 equivalent for expenditures incurred since January 1, 1974.

G. Implementation

Responsibility

5.11 PBE will be responsible for carrying out the project with the as-sistance of engineering consultants for the detailed design and preparationof bid documents for wharf structure, transit and storage sheds, grain siloscargo handling equipment and tug boats, on terms and conditions acceptable tothe Bank. PBE will also employ consultants to assist in the overall coordina-tion of the project. Suitable consultants are available in Yugoslavia, butfor bulk handling equipment foreign experts will be engaged to advise on theselection of equipment before final detailing. During loan negotiations, PBEagreed to employ engineering consultants in accordance with the Bank GroupGuidelines for "Uses of Consultants".

1/ Since the amount of interest during construction is small (US$0.2 million),it has been included in the project cost to simplify accounting and re-payment procedures between RTE, PBE and the Bank.

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5.12 Port management has been strengthened by a Project Management Group(PMG) which will coordinate and supervise the execution of the project. Thisis acceptable subject to the conditions in para 4.07.

5.13 RTE Belgrade will be responsible for carrying out the railway partof the project and for coordinating with PBE. During loan negotiations, PBEand RTE agreed to consult periodically to coordinate project execution andsupervision.

Procurement

5.14 Procurement will be on the basis of international competitive bid-ding in accordance with Bank Group's "Guidelines for Procurement." Civilworks contracts will be drawn for the major infrastructure, service and stor-age items and supply contracts for wharf cranes, bulk handling equipment,mobile mechanical handling equipment and tug boats each with an initial stockof spare parts. The list of contracts in Annex 13 was agreed by the Bank andPBE during loan negotiations and provides for grouping of contracts. Mostequipment financed under the Bank loan will be procured from abroad.Yugoslavia has no preference treaties and bids will be compared on a CIF basisnet of custom duties. Local manufacturers are not expected to contributesubstantially to procurement of Bank financed items. For the purpose of bidcomparison, preference of 15% of the CIF landed price of imported goods orthe actual custom duty, whichever is lower, will be given to local manufacturerswho qualify as preferred bidders.

5.15 There are competent contractors for civil and marine works inYugoslavia; it is, therefore, doubtful whether overseas contractors will beinterested even for the larger work contracts except possibly in joint venturewith Yugoslav contractors. Prequalification of bidders will be desirable toconfine bidding to reliable and experienced contractors. During loan nego-tiation, PBE agreed that prequalification will apply for all civil workscontracts estimated to cost more than D 45 million (US$3 million).

5.16 Experienced foreign contractors and suppliers are well representedin Yugoslavia and local competitive bidding is recommended for work contractsunder D 15 million (US$1 million) and supply contracts under D 3 million(US$200,000).

Construction Schedule

5.17 Expropriation and detailed design are expected to start before theend of 1974 with project execution starting at the end of the first quarter of1975 and completion by the end of 1977. The construction schedule was preparedon the basis of the bulk handling facilities being available by mid-1976 forthe start of the Belgrade-Bar line and the remaining work being completed in1977 in line with the expected build-up of general cargo traffic. More detailsare given in Annex 14.

< _ ~17-\

H. Disbursement

5.18 Disbursement for the items under the Bank loan is expected tostart early in 1975, except for technical assistance (para 5.10). For portfacilities disbursement will be made on the basis of: (i) 100% of the CIFlanded cost of imported goods or of the ex-factory prices for goods procuredlocally; (ii) 100% of the foreign exchange cost of consulting services; (iii)100% of interest during construction on the Bank loan; and (iv) 57% on civilwork contracts. The Bank will not disburse for expropriation, accommodation,housing, or dredging, which are governed by local regulations or are thecontinuation of existing contracts; or for local duties and taxes on importeditems. For railway facilities the Bank will disburse 55% of all expenditures.Any savings on the Bank financed items are recommended to be used to financesimilar items essential to the project. The disbursement schedule on theBank loan is given at Annex 15.

I. Ecology

5.19 The development of the port is in accordance with the general zon-ing plan of the Commune of Bar (Map IBRD 10917). No major changes to theexisting coastal regime will occur and there will be no detrimental effecton the existing environment. The port area has been studied by consultants(Industrio Project, Zagreb) and measures recommended for bilge water dis-charge and oil spillage containment are satisfactory.

VI. FINANCIAL EVALUATION

A. General

6.01 PBE's financial statements for 1971 and 1972 are unreliable becauseof inadequate methods of accounting used by the Port. They were revised asrequired for this analysis. Except for financial statements required by law,PBE does not maintain a meaningful cost accounting system, and proper financialand management information is not available for investment planning and controlof project execution. Technical assistance will be provided under this loanto improve PBE's accounting and management information systems (para. 4.06).

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B. Past Financial Performance

6.02 Past financial performance has generally been poor with PBE showingsmall operating losses in 1971 and 1972, operating ratios being respectively97% and 89%. This situation is partly due to the low level of traffic forthe capacity of the port resulting from delays in the completion of theBelgrade-Bar Line and from poor operating procedures. In the past, PBE hasnot been able to earn a reasonable rate of return on its net fixed assets orto contribute to the financing of its investment. Investment funds were pro-vided by Government grants and PBE was not required to incur any substantiallong-term debt. The debt equity ratio for 1971 and 1972 was 6:94 and 5:95,respectively.

C. Forecast Financial Performance

6.03 PBE's financial performance is expected to improve substantiallyuntil 1976 due to traffic increase and improvement of operating procedures,(para 4.08). It should remain stable for the two years following the com-pletion of the project as traffic builds up and should resume improving after1978 when all assets provided under the project are used to capacity. Grossrevenues, based on 1974 tariffs are expected to increase from D 26 millionin 1973 to D 88.5 million and D 203 million in 1976 and 1980 respectivelyreflecting traffic increase after the opening of the Belgrade-Bar line. Theoperating ratio is expected to decrease from 85% in 1973 to 64% and 57% in1976 and 1980 respectively. The rate of return on net fixed assets willincrease from 2.3% in 1973 to 8.7% and 9.8% in 1976 and 1980 respectively.Debt and interest service coverage should be satisfactory through the periodand should reach 2:1 times and 2.8:1 times respectively in 1980. Annex 16summarizes the assumptions used in the preparation of the forecasts and An-nexes 17 to 19 show past and projected financial statements for the period of1971-1980.

6.04 These projections assume, however, that proper depreciation becharged on breakwaters and wharves. This is not presently the case, so farthe main breakwater has been kept in work in progress although it is complete,because PBE feels that it was built for a larger capacity. Depreciation onwharves and secondary breakwaters has been charged directly to equity on thebalance sheet. This does not allow for the cost to be recovered and gives adistorted picture of operating results. During loan negotiations, PBE agreedto transfer the main breakwater to fixed assets and to charge depreciationon breakwaters and wharves through its income statement starting January 1, 1976.

D. Cash Flow

6.05 Cash flow projection show that although PBE will be able to con-tribute D 30.7 million towards the project in 1977, it will not generate

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sufficient cash during the construction period to pay interest on its loans.It is, therefore, proposed that the Bank loan include interest during cons-truction on the amounts financed by the Bank (para 5.09). After constructionis complete and the facilities provided start earning revenue the cash flowshows a lhealthy surplus (para 6.09). Details for the period 1975-80 areshown in Annex 18.

6.06 During loan negotiations, PBE, IBT and RTE Belgrade agreed to guaran-tee the timely provision of funds for the financing of the project (para 5.09).

6.07 Because of the lending arrangements (para 5.09) the cost of rail-way facilities at Bar was not included in PBE's cash flow projections. Itwas, however, taken into account in the financial evaluation of the fourthrailway project (Loan 1026-YU).

E. Balance Sheets (Annex 18)

6.08 The balance sheet at the end of 1972 shows PBE with negative work-ing capital. However, by the end of 1973, working capital should be at anacceptable level because of increased earnings and payment of government con-tributions to cover 1971 and 1972 capital expenditures which were originallyfinanced out of working capital. Projected debt equity ratios of 53:47 and48:52 in 1978 and 1980 respectively are satisfactory.

F. Future Cash Position

6.09 PBE will invest an additional D 220 million between 1977 and 1980to meet the expected traffic after 1980 which is expected to grow at 5% p.a.Starting in 1979, PBE is expected to earn a return on average net fixed assetsin excess of 8% and the financial projections show that it should be able tofinance more than 85% (D 170 million) of the investment required from internal-ly generated funds. It is expected that the balance (D 50 million) would beprovided by Government grants. During loan negotiations the Bank obtainedassurances from PBE that the necessity for Government assistance would bereviewed before launching the second phase of the expansion. A sensitivityanalysis shows that if traffic is 20% lower than projected in 1980, PBE willstill earn a return on net fixed assets in excess of 5%, which along with areasonable debt/equity 1/ ratio should enable PBE to dispense with Governmentassistance in financing future developments.

1/ The concept of equity does not exist in Yugoslavia since the assets ofthe enterprise are the social property of the workers, however, forpractical purposes the work equity was used to differentiate the enter-prise own funds and Government grants as opposed to borrowings.

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G. Financial Covenants

6.10 During loan negotiations PBE agreed to employ consultants, to improveits operating procedures during the construction period and to achieve anoperating ratio of not more than 70% by 1976. PBE also agreed: (i) to main-tain tariffs at such a level that it will earn a return on average net fixedassets of not less than 4% between the year following the opening of theBelgrade-Bar line and 1980 and of not less than 8% thereafter; 1/ and (ii)not to incur any additional long-term debt unless its net income for thefiscal year would be at least 1.5 times the maximum debt service requirementsof any succeeding year on all its long-term debt, including the debt to beincurred.

VII. ECONOMIC EVALUATION

A. General

7.01 The main benefits generated by the project will be: (i) savings inport operating costs; (ii) savings in overland transport costs; and (iii) netrevenues from transit. The main beneficiaries will be port users and shippersand consumers in eastern Yugoslavia to whom part of the savings in overlandtransport cost will be passed on.

B. Traffic Projections

7.02 PBE prepared traffic projections with the assistance of the EconomicBureau, based on extensive interviews with future users of the Port of Bar,Government and public agencies, and, to some extent, competitive ports. Theyare considered reasonable.

7.03 Annexes 20 and 21 give traffic projections for the main commodities,and the various types of traffic, (general cargo as well as liquid and drybulk cargo). They show that after the Belgrade-Bar line is opened, trafficis expected to increase to 1.1 million ton in 1975 and 4.3 million ton in 1980witlh dry bulk cargo traffic increasing from 490,000 ton to 2.4 million ton andgeneral cargo from 365,000 ton to 1.4 million ton during the same period.

1/ This is believed to be realistic despite competition among ports. Asexplained in para 4.11, tariff increases are decided jointly by the mainports and past experience shows that the Yugoslav ports have consistentlyadjusted their tariffs to reflect cost increases.

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7.04 To evaluate savings in overland transport costs, the EconomicBureau carried out an origin and destination analysis for: (i) local traf-fic; (ii) diverted traffic; and (iii) transit traffic. The results showthat by 1980 diverted traffic will account from about 59 percent of totaltraffic, petroleum excluded, and that traffic diverted to Bar from alter-native ports, Rijeka and Koper, represents the least cost transport alter-native to users. Based on prevailing railway and port tariffs, users' sav-ings are estimated at about D 100 million annually by 1980 or one third ofthe total transport cost to Northern Adriatic Ports. It is, therefore,reasonable to consider that users will use the Port of Bar rather than alter-native ports when the Belgrade-Bar line is open to traffic.

7.05 Traffic projections prepared by the Economic Bureau are substantial-ly lower than those prepared by the railways due to a more optimistic atti-tude of the railways regarding the possibility of diverting bulk traffic fromalternative routes and modes. Railway projections are expected to be revisedin the near future. During loan negotiations, PBE and RTE Belgrade agreed toestablish and maintain proper coordination for the evaluation of futuretraffic and to keep the Bank informed of changes in traffic projections bymeans of quarterly progress reports starting June 30, 1975. For the purposeof this evaluation, the projections prepared by the Economic Bureau have beenretained.

C. Rate of Return

7.06 The basis for the economic evaluation is given in Annexes 22 and 23.The rate of return of the project compared to the next best alternative(Northern Adriatic Ports) is 13%, which is higher than the estimated oppor-tunity cost of capital in the country. This rate is conservative since the:

(a) present project is burdened by expropriation charges whichare not entirely related to port capacity expansion, butwould enable the municipality to promote a policy of gradualindustrialization in the rear area of the port. If only 50%of these costs were attributed to the project, the rate ofreturn rises to 16%; and

(b) because of the lack of coordination between ports in Yugoslavia(Chapter II), it has not been deemed reasonable to take intoaccount any postponement of capacity expansion at Rijeka as aresult of diversion of traffic to the Port of Bar.

7.07 The proposed project will create some 800 permanent jobs in Nlontenegroand will enable PBE to increase the level of wages of port workers to theaverage level in Yugoslav ports.

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D. Sensitivity Analysis

7.08 An increase of 20% in the project cost would cause the rate of re-turn to drop by two percentage points, an increase of 20% in projected trafficwould cause the rate of return to increase by three percentage points.

VIII. AGREEMENTS REACHED AND RECOMMENDATION

8.01 During loan negotiations, the Bank obtained agreement from:

(a) RTE Belgrade regarding the financing of 45% of the cost ofrailway facilities (para 5.09) and the timely availabilityof funds (para 6.06); and

(b) PBE regarding:

- employment of management and accounting consultants(para 4.06), engineering consultants (para 4.07) andport operations consultants (para 4.08);

- employment of qualified staff in PMG (para 4.07);

- preparation of a cost based tariff before January 1,1976 (para 4.11);

- audit of PBE's accounts by qualified independent auditors(para 4.13);

- investment limitation (para 5.02);

- prequalification of bidders (para 5.15);

- adoption of realistic depreciation practices (para 6.04);

- future financial performance (para 6.10); and

- debt limitation (para 6.10).

(c) PBE and RTE regarding the creation of a joint unit to coordinateproject execution and supervision (para 5.13) as well as foroperation at Bar (paras 4.09 and 7.05); and

(d) IBT regarding the financing plan (para 5.08) and the timelyavailability of funds (para 6.06).

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8.02 The Government was informed that a port development study would bea prerequisite for Bank financing another port project in Yugoslavia (para3.1 ).

8.03 A condition of loan effectiveness will be that the agreements refer-red to in para 5.09 have been ratified by competent authorities.

8.04 The project is suitable for a Bank loan of US$44 million to PBE fora 25-year term corresponding to the average life of the assets, including 4years of grace corresponding to the expected disbursement period.

ANNEX 1Page 1

APPRAISAL OF

THE PORT OF BAR

YUGOSLAVIA

Transportation Projects PreviouslyFinanced by the Bank

1. So far the Bank has lent US$487.4 million in total to the transportsector, including US$180 million for six Highway Projects, US$59.4 million forthe Naftagas Project and US$248 million for four railway projects.

Highway Projects

2. The First Highway Project (Loan 344-YU, US$35 million) was financedin 1963 and the Second (Loan 485-YU, US$10 million) in 1967; they were com-pleted within the original cost estimates and agreed time schedules. TheThird (Loan 608-YU, US$30 million) Project was financed in 1969 was substan-tially completed within the closing date but for an access road which delayedfinal completion by 20 months. The Fourth (Loan 678-YU, US$40 million) wasfinanced in 1970 and is being implemented satisfactorily, although with somedelays and cost increases due to inflation and foreign exchange rate adjust-ments. The Fifth Highway Project (Loan 751-YU, US$35 million) became effectiveone year late due to Government administrative delays, but is now being im-plemented satisfactorily, although also with some cost increases due to infla-tion and foreign exchange rate adjustments. The cost overruns are beingcovered by additional domestic financing. The Sixth Highway Project (Loan990-YU, US$30.0 million) was signed on May 31, 1974 and is not yet effective.

Naftagas Project

3. The loan for the Naftagas Project (Loan 916-YU, US$59.4 million)was made in June 1973, but due to organizational reforms within the Enter-prises, and Government delay in ratifying the guarantee agreement, becameeffective on March 22, 1974, after almost six months delay.

Railways

4. The first railway loan was made in 1963 (Loan 361-YU, US$35 million)to finance the completion of the Sarajevo-Ploce line to standard gauge, withelectric traction and modern signalling and telecommunications equipment.The project was substantially completed and put in operation in 1970, i.e.with a delay of about two years.

5. The second railway loan was made in 1964 to help finance a Moderni-zation Program for the main lines (Loan 395-YU, US$70 million). The projectwas to be executed between 1964 and 1968, at an estimated cost of US$185 mil-lion; the Bank loan was US$70 million. The project is now expected to be

ANNEX 1Page 2

completed at the end of 1976 at a total cost of about US$360 million (includ-

ing contingencies), twice the original estimate. The increase is due to

quantity increases and inflation, the latter due largely to the long delayin completing the project.

6. The third railway loan in 1968 (Loan 531-YU, US$50 million) financed

the completion of 372 km of the Belgrade-Bar line, with electric traction,

signalling and telecommunications equipment. Its completion was originallyscheduled for 1973, but geo-technical and other construction difficulties in

mountainous terrain are expected to delay operation of the line at least until

the middle of 1976. Also, the cost estimate has increased from US$225 million

to about US$300 million. SFRY, SR Serbia and Montenegro have already takenmeasures to provide funds for all the works to be carried out in 1974, as

well as part of the works in 1975, further steps will be necessary to close

the remaining financing gap estimates at US$21 million.

7. The fourth railway loan (1026-YU, US$93 million) for a modernization

program for main railway lines was signed on July 10, 1974 and it is not yeteffective.

8. The first three railway projects experienced considerable difficul-ties which resulted from (i) insufficient project preparation; (ii) declining

rail traffic due to increased road competition; (iii) transfer of responsibi-lity from the Federal Government to the Republics and Provinces which created

some financial problems; and (iv) managerial difficulties. The Yugoslav

Government after discussing with the Bank agreed to take the measures required

to create more stable conditions for the railways and the railways agreed to

a more realistic investment plan and to an action plan to improve their manage-

ment. Subject to the Government and the railway implementing these measures,

there will be adequate finance for railway investment and substantially in-

formed management.

ANNEX 2

APPRAISAL OF THE PCRT OF BA.R

YUGOSLA VIA

Main Parts Traffic oy TB Of Ccaumodi.tj(000 Tons)

Years Oil Products 3ky Bulk General Cargo Total

1961 n.a n.a. n.a. 6,554

1966 4,192 5,168 3s167 12,527

1967 4,55o 4h,405 3,O85 12,040

1968 4,851 4,643 3,378 12,879

1969 4,504 4,890 3,436 12,830

1970 6,247 5,614 3v525 15,386

1971 7,865 6,213 4L,120 18,198

Average annual increase (%)fram 1966 to 1971 13.5 3.6 54 7.8

1/ Koper, Rijeka, Split, Ploce, Bar

Source: Institute for Foreign Trade. Belgrade.

October 1974

ANNEX 3

APPRAISAL OF THE PORT OF BAR

Y1OSLAVIA

Share of Seaborne Trade in Total Inter-national Tradec

('1000 tons)

Total International SeaborneTrade Trade %

1961 8,670 5,209 60

1963 11,339 6,243 55

1965 14,184 6,232 44

1967 15,562 5,948 38

1971 21,854 7,189 33

Average annual increased (%) 9.75% 3.5%from 1961 to 197).

/1 Excluding petroleum and petroleum derivatives.

Sources: Institure for Foreign Trade, Belgrade

October 1974

ANNEX 4

APPRAISAL OF THE PORT OF BAR

YUGOSLAVIA

Foreign Trade E-'ojections 1971-1985A

Average rateof growth p.a.

197 . 1975 1980 1985 _ 0

I. Export (000 T)

Total 6 ,954 8,412 10,010 12,175 4

Seaborne 1,958 2,540) a,490 3,05,8 3.5

% 28 30 o5 t3

II. Import (000 T)

Total 14,900 18,560 20,a00 o3,650 3.5

Seaborne 5,231 8,600 11,495 16,8oo 9.0

35 47.5 57.0 70.0

!II. Total (000 T)21,854 26,972 30,210 36,025 3.5

Seaborne 7,189 11,340 13,985 19,898 7.5

,'% 33 42 46 55

A Excluding petroleum and petroleum derivatives.

Source: .Institute for Foreign Trade Belgrade

October 1974

YUGOSLAVIAAPPRAISAL OF THE PORT OF BAR

Organization ChartWorkers' Collective

WORK UNIT 1 WORK UNIT 2 WORK UNIT 3 WORK UNIT 4 WORK UNIT 5

CARGO HANDING WORKSHOP CONSTRUCTION & PERSONNEL RESTAURANTPILOTAGE ELECTRICAL SECTION SUPERVISION ADMINISTRATION HOUSINGSTORAGE MAINTENANCE AND COMMERCIALNORMS REPAIR FINANCES

PLANNING &DEVELOPMENT

_ _ _ ~~~~~~~~~~~TRAINING_

COMMISSIONS | WOKR'COUNCIL

|GENERAL MANAGER|K

October 1974 World Bank-9199

YUGOSLAVIAAPPRAISAL OF THE PORT OF BAR

OPERATIONAL STRUCTURE(Direct Lines of Command)

GENERAL MANAGER

ASSISTANT l | ASSISTANTMANAGER MANAGEROPERATIONS ADMINISTRATION

OPERATIONSCONSTRUCTION & DEVELOPMENT &COMRILFNCEADDEPERATIONS MAINTENANCE PLANNING PROJECT LEGAL DEPARTMENT DEPARTMENT ACUTNDEPARTMENTDEPARTMENT GROUP (PMG) DEPARTMENT

ECONOMIC ITCNIAAND PLANNING AND

FINANCIAL SUPERVISION 0PLANNING

October 1974 World Bank-9200

ANNEX 7Page 1

APPRAISAL OF

TIlE PORT OF BAR

YUGOSLAVIA

Present and Future Operations

A. Shipping

1. The number of ships entering the Port in 1972 was about 400 and isestimated to increase to about 1,400 in 1978 and 1,800 in 1980. Accordingto analysis made by Economic Bureau, there is not likely to be any fundamentalchanges in the size of ships using the port in the period in 1980.

2. Bulk cargo shipping should be spread evenly throughout the year atabout 15 - 18 vessels entering the port per month, but for general cargo thereare two peak periods at Yugoslav Adriatic ports. The main one is in July -September arising from agricultural exports and imports of cotton and othercommodity; the lesser and occasional one is in November - December due toenterprises endeavoring to achieve their planned target by the year end.The summer peak could bring into Bar about 120 ships a month in 1978 and 160a month in 1980. The respective numbers in the slackest periods may be about50 to 70. The average cargo carried per ship is likely to vary between 300and 1,000 tons for coasters and from 1,000 to 25,000 tons for general and bulkcargo ships.

3. The port has an additional pilot boat on order and can recruitadditional pilots as and when required. Two tugs are proposed for purchaseunder the Project for assistance in handling ships. With these arrangementsthe port does not anticipate any difficulties in dealing with the increasedamount of shipping.

B. Cargo Working

Present Situation

4. In 1972, the total traffic was 810,000 tons of which 115,000 tonswas bulk oil, 350,000 tons dry bulk cargo and 345,000 tons general cargo.This was handled as follows:

ANNEX 7Page 2

Oil Dry Bulk General Cargo Total…-----------------…(tons)----------------

Pier 2 (6 berths) 282,000 267,000 599,000Pier 5 (coasters) 68,000 78,000 146,000Main breakwaters 115,000 115,000

Total 115,000 350,000 345,000 810,000

The output for general and dry bulk cargo was about 91,000 tons per berthand about 565 tons per meter of wharf.

5. Cargo handling is carried out both on ship and on shore by portstaff. Normal working time is 42 hours per week on 5 days, there are twoshifts per day. Overtime can be worked at weekends and on an extra nightshift; at port or at ship cost. The port is able to engage extra temporaryworkers, if required, during the summer peak periods.

6. There are agreed norms for gang strengths and for outputs per gangshift for various cargoes and for the various operations on the ship, onthe wharf apron and to and from storage shed and open stacking area.

Ship/Wharf apron Warehouse/WagonTons Tons Tons Tons

Number Per Per Number Per Perof men Shift Hour of Men Shift Hour

Sacked cargo 12 100 12 6 70 8Baled cargo 10 80 9 5 40 5Sawn timber 14 90-160 11-19 4 30-40 4-5Metal ingots 8 160 19Scrap iron 2 160 19

7. Norms are usually exceeded by an average of 30% but studies byEconomic Bureau indicate that still better overall outputs could be achievedby improved operating methods and additional mobile equipment. Examples, forcomplete movement, ship to storage area or vice versa, are:

Present Possible PercentageNumber Tons per Number Tons per Increase onof Men Hour of Men Hour tons per hour

Sacked cargo 16 12.5 14 16.7 34Baled cargo 10 9.5 11 11.9 25Sawn timber 14 8.1 11 19.6 142

8. Existing shed and stacking areas are small for the number of berthsand because of the lack of alternative warehouse space, some goods remain forlong periods in the transit sheds. The overall result is that the throughputof cargo is low but, on the other hand, has been adequate so far for thepresent traffic offering.

ANNEX 7Page 3

9. Future Situation: The position will change radically with thegreatly increased traffic forecast after the opening of the Belgrade-BarRailway connection. Summarized from Table 1, the forecasts will requirecargo to be handled as follows:

1976 1978 1980----- 000' tons----…

Pier 1 and 2

General Cargo 440 886 1,162Transit Cargo 60 115 165Alumina, in bulk 100 100 100

Total 600 1,101 1,427

Pier 5

Coastal General Cargo 45 55 60

Main Breakwater

Bulk Oil 250 290 380Other Bulk Liquids 67 105 125Cement 105 125 140

Total 467 575 705

Volujica Berths

Dry Bulk 1,115 1,826 2,195

Total 2,182 3,502 4,327

(i) Bulk Cargo

10. Bulk alumina, cement, oil and chemicals will continue to be handledat the installations owned by the respective Enterprises, all in the Volujicaarea. These are adequate for the tonnages forecast. Bulk liquid vegetableoils will be stored in new tanks to be constructed adjacent to the liquidchemical tanks. All dry bulk cargo operations will be transferred to thearea at Volujica where new wharves are being built. They are to be equippedwith a grain silo, phosphate store, open stacking for other commodities andbulk handling equipment. The tonnages per year, per ship and outputs forloading are given at Table 1 with the assessed number of ships and berthdays occupation per year. Summarized the latter are:

ANNEX 7Page 4

1978 1980

Number of ships 173 193Number of berth days occupation 502 586Number of berth days available 875 875Percentage berth occupation 57 67

The maximum capacity of the berths and equipment, at about 90% berth occupation,would be about 3.0 million tons. This could be increased further by occasionalthird shift working but normally the period should be retained for routinemaintenance of equipment and to offset any delays through major breakdowns.For traffic beyond 3.0 million per year additional wharfage will be required.

(ii) General Cargo

11. The existing six berths will be used entirely for general cargo.Additional mobile handling equipment, transit and storage shedding and par-ticularly, improvement in handling methods, will improve the general cargocapacity. However, the number of ships and the volume of cargo also requiresthe provision of two deep water berths, with sheds, open stacking areas andassociated facilities. This would give a total of 8 berths and for the peakmonths the position will be fully occupied 1/. That is, during peak seasons,even with two additional berths, seven day a week general cargo operationsplus some additional third shift working, may be needed to avoid undue con-gestion and ship waiting time. During other periods the percentage occupa-tion would vary between 50 and 75%.

B. Storage

12. With the provision of 3,800 m2 of transit shed and storage sheds,there will be a 10% excess available in 1978 against peaks but by 1980 morecovered storage will be needed. For open storage the existing area surfacedis about 7,000 m2 with other areas unsurfaced. An addition of 26,000 m2 ofsurfaced space is proposed; of this some 2,000 m2 is intended for livestock,giving 24,000 m2 net for general cargo which will be sufficient for thelevel and structure of traffic expected until 1980.

C. Staff

13. The increased traffic is assessed as requiring an increase in portworkers from 560 in 1973 to about 1,300 in 1978 and 1,500 in 1980. No prob-lem is envisaged in recruiting additional staff. Output per worker will in-crease from about 1,440 tons/year to about 2,690 tons/year in 1978 and 2,890tons/year in 1980. The increase in staff and the changes in operations will,

1/ Based on 700 tons handled per ship per day.

ANNEX 7Page 5

however, require both (a) intensive training of new and existing staff, and(b) technical assistance on the introduction and development of the opera-tional improvements. The traffic foreseen will also require seven days aweek operations, both on dry bulk and general cargoes, for continuousperiods. The port management consider this to be feasible with gangs work-ing overlapping 5-day periods.

D. Railway

14. RTE and Ekonomski Biro assess that 90% of port traffic will arriveand depart by railway. At present with the railway serving Titograd and Niksiconly, the percentage is about 80%. The tonnage to be handled by rail willthen be about 3.1 million tons in 1978 and 3.8 million in 1980. RTE proposeto provide (i) a reception and dispatch yard to the east of the port and(ii) three sets of distribution sidings immediately adjacent to the port.The latter are intended to serve the (a) Pier 2 area; (b) Pier 1 area; and(c) bulk cargo area. The preliminary design of these facilities was re-viewed by the mission and was found adequate to handle the traffic until 1980.

ANNEX 8Page 1

APPRAISAL OF

TIE PORT OF BAR

YUGOSLAVIA

Tariffs

1. The present tariff structure and level of rates for the Port of Barwent into effect in September 1974, when the ports in Yugoslavia were allowedto freely establish their charges. Prior to this, proposed tariff increaseswere subject to government review and approval before they could be implement-ed. Over the last four years the Port of Bar has increased its tariffs fourtimes.

2. The ports along the Eastern Adriatic coast operate in competitionwith each other and tariff structure and level of charges are established byreference to the two largest ports, Rijeka in Yugoslavia and Trieste in Italy.The remaining ports in Yugoslavia set their tariffs approximately 10% to 20%lower than those established by Rijeka. The present tariffs of the Port ofBar are about 10% lower than those of Rijeka. However, with the completionof the Belgrade-Bar Railway and the building of the facilities included inthe project, Bar will be in a much stronger competitive position with regardto Rijeka, and it is expected that tariffs will be increased to the samelevel as Rijeka's tariffs.

3. The published Tariff Book for the Port of Bar lists charges forthe following activities: (Based on 1973 rates)

(i) Stevedoring and Shorehandling of Cargo. Per ton of cargolisted by various commodities. The following movement ofgoods are charged:

- Ship's hold to/from ship's tackle- Ship's tackle to/from vehicles- Ship's tackle to/from warehouse- Warehouse to/from vehicle

(ii) Storage - Per ton of cargo and divided into either coveredor open storage. The charges are on an increasing scaledepending on the number of weeks of storage. One week offree storage is given for imports and two weeks of freestorage for exports. This free storage time is reasonablein light of the time necessary for the dispersal or assemblyof commodities and compares favorably to Rijeka where up to4 weeks of free storage is given.

ANNEX 8Page 2

(iii) Ship Charges:

lWharfage. This is a charge to ships for the use of quayand is charged per ton of cargo loaded or unloaded. Mostgeneral cargo is charged 3.34 dinars per ton and most bulkcargo is charged 2.58 dinars per ton.

Towage. Per tug boat hour and by tonnage of ship.

Pilotage. According to tonnage of ship.

Mooring and Unmooring. According to tonnage of ship.

Miscellaneous charges:

- Berthage when a ship is not loading or unloadingcargo

- Use of telephone, electricity and fresh water- Services in workshop- Sorting and other work on cargo- Palletizing of goods- Shifting cargo on ship

4. The Port of Bar has also entered into contracts with four enter-prises in Yugoslavia for the handling of their goods. The contract pricesfor 1973 are:

(a) Scrap iron, raw iron and iron products - 40 dinars per ton.

(b) Alumina clay - 5.5 dinars per ton for a minimum of 160,000tons.

(c) Import of copper at 30 dinars per ton and export of cableat 78 dinars per ton.

(d) Oil and oil derivatives - 850,000 dinars for all shipmentsin 1973.

5. The present tariffs of the Port of Bar provide for charges for theuse of specific services and facilities, but they are not based on costs.This results from the necessity of following the charges of other competitiveports. Also, the present small size of the port and the inadequacies of thepresent accounting system make it difficult to accumulate any cost informa-tion and to establish cost centers.

6. Technical assistance has been included in the project to improvethe accounting system and develop costing data. This will enable the Com-mercial Department of the Port to work with meaningful cost information when

ANNEX 8Page 3

they are renegotiating present contracts and negotiating new contracts for.commodities that will be handled when the Belgrade-Bar Railway opens. Itwill also alow the Port to review the adequacy of its published tariffs torecover costs. However, until a review of the structure and costs of tariffsfor all the major Yugoslav ports is carried out and implemented, any changesin tariffs that Bar may desire to make will be somewhat limited by the chargesof these other ports, especially Rijeka.

APPRAISAL OF

THE PORT OF BAR

YUGOSLAVIA

PBE Investment Program 1971-1980 (D. Million)

Actual 1971-73 The Project 1974-77 Proiected 1977-80Local Foreign Total Local Foreign Total Local Foreign Total

I. Expropriation 10.2 - 10.2 56.0 18.7 74.7

II. Dredging and Excavation 45.3 - 45.3 53.0 36.0 89.0 - - -

III. Infrastructure 33.4 - 33.4 - - - 14.0 14.0 28.0

IV. Superstructure -- - 72.8 70.5 143.3 25.0 15.0 40.0

V. Equipment - - - 44.0 145.0 189.0 7.0 28.0 35.0

VI. Services and Housing - - - 147.9 7h.3 222.2 10.0 10.0 20.0

VII. Technical Assistance - - - 20.0 8.0 28.0 3.0 2.0 5.0

Subtotal 88.9 - 88.9 393.7 352.5 746.2 59.0 69.0 128.0

FITT. Contingencies - - - 113.0 80.8 193.5 41.0 51.0 92.0

'Total 88.9 - 88.9 506.7 433.3 940.0 100.0 120.0 220.0

Source: Port cf Bar, Economic Bureau, Mission

OCtOber 197L

ANNEX 10Page 1

APPRAISAL OF

THE PORT OF BAR

YUGOSLAVIA

Existing and Future Facilities

A. General

1. The Port of Bar lies at the southern end of a large bay, some 10 km.long; the port is protected by a main breakwater of 1,300 m and a secondarybreakwater of 770 m. The bottom, mainly silty sand, varies in depth from 5to 14 mi, work on deepening to the latter figure, (from 13 m) being still inprogress. No siltation is normally experienced. Tidal range is small, atabout 50 cm. Maximum winds, force 8, are from the northeast from which thebay is partly protected by the land to the north; maximum recorded waveheight outside the port has been about 5 m while inside wave action is small.Bar is in an earthquake area, intensity 9 on the Richter scale.

B. Existing Facilities

2. The principal existing facilities (see Map 10916) are:

(a) Pier 2, a finger pier with water depth of 10 m with five shipberths (total length 800 m); at present the north side is usedfor general cargo and the end and south side for dry bulkcargo, mainly mineral ores and scrap iron. There are threetransit sheds, each of about 3,500 m2 and four 3-ton and six5-ton portal wharf cranes. Storage silos of 8,200 m3 capacityand mechanical handling equipment are provided, for bulkaluminia, by a separate enterprise.

(b) A marginal single berth, 170 m long, with a water depth of 10 mused for general cargo; a transit shed of 3,500 m2 is owned byanother enterprise, centro-textil and is used as a warehousefor imported cotton bales.

(c) Additional storage to the rear of Pier 2 and the marginal quay;there is one transit shed of 3,500 m2 and another 6,300 m2 underconstruction. Adjacent to these is a multi-storied buildingbelonging to two enterprises, Centroprom and Agricombinat, andused partly for storage and partly for produce processsing.

(d) A bulk oil tanker berth, recently constructed, with a depth of14 m, on the main breakwater; piping to and storage tanks onhigh ground at the inner and of the breakwater, belong toJugopetrol, the petrolewn enterprise.

ANNEX 10Page 2

(e) A quay 300 m long, at the inner end of the main breakwaterand with 5 m depth alongside, for small bulk cement ships;the handling and the storage (2,500 m3 capacity) equipmentbelong to the cement importing enterprise.

(f) A finger pier (Pier 5), 100 m long on the secondary break-water with depths alongside of 4-6 m used for passenger shipsand ferries; these also lie alongside adjoining sections ofthe breakwater.

(g) Rear storage, consisting of a cold store, 13,000 m capacity,and a "Matrez" multi-storied warehouse, both belonging toseparate enterprises.

3. Reclamation has been partly carried out in the past for Pier 1 butis not at present used. Also nearby, and below the "Volujica" hill, a wharfstructure 317 m long for two future bulk cargo berths, is now being built.

4. Ships at anchor or awaiting berths use the anchorage in the bay andoutside the breakwater where there is ample room. Tug facilities are at pre-sent provided by one old tug from a sea-going tug enterprise. The port hasone pilot launch.

5. Port road and railway access and facilities are adequate for presenttraffic. Open stacking areas are also provided but are not now sufficient, es-pecially for export timber traffic; they are also mainly unpaved and diffi-cult for mechanical handling equipment.

6. The existing mobile cargo handling equipment consists of thefollowing:

1 Mobile crane, 11 ton capacity2 Mobile cranes, 3 ton capacity2 Forklift trucks, 5 ton capacity24 Forklift trucks, 2-3.5 ton capacity

7 Tractors, 32 Il.P.4 Tractor trailers, 10 ton capacity

29 Tractor trailers, 5 ton capacity

C. Tute Project

7. The project includes:

(a) Expropriation. A housing area, partly private and partlymunicipal, exists below the "Volujica" hill and requires tobe cleared for the storage and road and rail facilities atthe new bulk cargo berths. The Commune of Bar is providinga new site, with services for private development; residents

ANNEX 10Page 3

removed receive compensation and can either build on thisland or rent municipal owned apartments. Some 130 houseshave already been replaced, with another 250 still to bedealt with.

(b) Hostel Accommodation and Housing. The increase in portoperations will involve the worker strength being increasedfrom some 560 at present to about 1,200 in 1977-78. Theport now provides hostel accommodation for 100 men and willhave to provide accommodation in future for an additionalsingle 500 men. The port will also provide 250 apartmentsfor married workers.

(c) Infrastructure

(i) Excavation. The existing port area has been largelyformed by reclamation, the material coming from therocky Volujica hill on the south side; rock from herewas also used to form the breakwaters. Material willcontinue to be excavated to carry on withl the formationof Pier 1 (already partly filled), to the rear of thetwo new general cargo berths to be constructed in thepresent phase. Selected stone from this excavationwill also be used for concrete works, roadways andopen storage areas. The area being thus levelled, tothe rear of the new dry bulk carrier berths (para 5below), will form the handling and storage areas forthe various bulk commodities.

(ii) Dredging. Under a contract starting in 1972, the entrancechannel to the port and the approaches to the new oil anddry bulk cargo berths are being dredged (about 80%complete) to give 14 m depth. There will remain a limitedamount of dredging to provide a depth of 13 m in thevicinity of the new Pier 1; this work is not large andshould be continued by the existing contractor. Thematerial being dredge is a silty sand and is not suitablefor reclamation in the port; it is pumped over the mainbreakwater for deposit in deeper water.

(iii) Bulk Wharf Extension. The original plan had been tobuild, below the Volujica hill, (in 1972-73), twoberths with a wharf length of 396 m to take dry bulkcarriers up to 25,000 ton capacity. Due to the limitedfunds available, however, the length, now being cons-tructed was reduced to 317 m. The remaining 79 m needsto be built to complete both the full wharf length andthe road and rail access to the berths. This extensionshould be provided to the same design of structure as

ANNEX 10Page 4

the present; concrete deck and beams carried on largediameter reinforced concrete cylinders taken down tothe rock strata. The structure has been designed tocarry portal wharf cranes and also the seaward legs oftransporter bridges for the handling of bulk grain,phosphate and bauxite.

(iv) New Wharves, Pier 1. The provision of wharves, storageareas and handling equipment for dry bulk cargoes inthe Volujica area will enable the existing Pier 2 to beused entirely for general cargo handling in future. Thelevel of general traffic forecast however will stillrequire the provision of additional ship berthing andcargo handling room (see Annex 7 on operations). Thefirst two berths, totalling 330 m length, are thereforeto be constructed on the new south side of Pier 1. Thetype of construction proposed is reinforced concretesuperstructure carried on large diameter cylinders. Thewharf structure is to be capable of carrying portal wharfcranes and also container cranes should these be requiredin future.

(v) Wharf Extension Pier 5. To cater for increasing passengerand freight vehicle traffic and also for a new Italianvehicular vessel, the port propose to construct additionalberthing facilities at the present passenger handling area,Pier 5. This will be mainly a wharf extension of about100 m, parallel to the secondary breakwater, with end-onberthing facilities for the new roll-on roll-off Italianferry. The wharf wall will be constructed of mass concreteblocks already available from a previous project, laterabandoned.

(d) Services

(i) Water Supply and Drainage. The extension of water supplyand drainage facilities to serve the extended port areawill be required. Drainage and sewage are handled in asingle system and are, at present, discharged into theport area; the same occurs with discharge from the nearbynew and developing town area. The port and municipalitypropose that a new main outfall will be taken by tunnelunder the Volujica hill for discharge into the open seato the southward. Later they proposed that a treatment

ANNEX 10Page 5

works be added for full treatment of all effluent beforedischarge, but this is not included in the present project.

(ii) A stream previously had its outlet into the port area(Rena Creek) but was diverted by tunnel through the Volujicahill. Trouble is still occasionally experienced from flood-ing of the stream channel and some additional work isnecessary to protect the port area.

(iii) Power Supply and Cormmunications. The electric powersupply will also require extension to serve the enlargedarea and increased equipment. The existing rnain supply,also serving the commune area, is not reliable withseasonal liimitations on utilization. The port thereforeproposes to provide additionally its own generator andtransformers for its own requirements.

(iv) The itema for communications is mainly to cover theextension of the internal telephone system to the newwharves, sheds, etc. and to provide a fire alarm systemfor the whole port area.

(v) Railway Tracks. The arrangement agreed between the portand the railway (RTE) enterprise is that the port willprovide the tracks serving the various port facilities,with the RTE being responsible for the groups of marshal-ling sidings and for the main freight train reception anddispatch yard. Rails on the wharf structures will belaid directly on the concrete decks while elsewhere theywill be carried on impregnated local timber sleepers.

(vi) Roads and Parking. The present elementary road system inthe port area will require considerable enlargement toserve all the extended facilities; hard surface parkingareas for freight vehicles and for staff and public willalso be provided.

(vii) Workshops. The existing port workshops for the maintenanceof mechanical hancdling equipment are small and will requireenlargement and particularly the addition of more machinetools to handle the increased amount of equipment.

(viii) Ilarbor Oil Protection. There is a need to protect theport sea area from contanmination by oil spillage fromtankers at the bulk oil berth and also by waste andgarbage from ships at the cargo berths. Equipment is tobe provided in accordance with recommendations made byconsultants (Industra - projekt, Zagreb) during 1973.

ANNEX 10Page 6

(e) Storage

(i) Grain Silos and Natural Oil Tanks. The first phase,capacity 30,000 tons of grain silos is to be constructedadjacent to the new dry bulk cargo berths; the ultimatecapacity will be 100,000 tons. The silos, includingequipment, are to be provided in partnership with thegrain handling enterprise, Matrez, which will contributetowards the cost. The design will be prepared by con-sultants, to be appointed by the port, in agreement withMatrez which will provide the outline requirements.

(ii) Four oil tanks, with a total capacity of 20,000 tons,for vegetable oils and molasses, will also be providedin partnership with Matrez.

(iii) Storage Sheds and Stacking Areas. Considerable exten-sion of the transit storage sheds and open stackingwill be needed to cater for the general cargo trafficforecast at 1978. A large amount of container trafficis not anticipated until at least this time. Provisionis accordingly made for about 21,000 m2 of transitshedding, 17,000 m2 of storage shedding and 26,000 mn2

of hard surfaced open stacking areas. Additionally abulk phosphate store of about 3,400 m2 will be constructedat the dry bulk cargo berths. All shedding will be de-signed with clear level floors for ease of cargo handlingby mobile equipment. The storage shedding will be usedinitially for both short- and long-term storage but theport will encourage enterprises using the port, after theopening of the railway to Belgrade, to build their ownlong-term shedding for storage and processing; this willthen enable the port to concern itself mainly with transitand short-term storage for goods awaiting on-ward landtransport or shipmenit. There will be adequate land avail-able for public storage facilities in the rear port areaand the port has the right to lease such land to otherusers.

(i) Bulk Cargo Wharves. The main equipment proposed is threetravelling transporter bridges, complete with ship off-loading and loading gear and conveyors, one to handlegrain, one for bauxite, and the third for phosphate.There will also be five portal 8 ton cranes to deal withscrap iron, coal/coke and metal ingots. Molasses andvegetable oils will be handled by pumps and pipelines.Economic Bureau's proposals for the equipment are to bechecked by seeking advice from foreign mechanical handlingexperts before details are finalized and bids called for.

ANNEX 10Page 7

(ii) General Cargo Wharves. Four 5 ton portal cranes areproposed for the two new general cargo wharves at Pier 1.Additionally a considerable increase is proposed in theport fleet of mobile cranes, fork lift trucks, palettes,tractors and trailers to increase the potential outputper hatch hour between wharves, sheds and stacking grounds.Road/rail tractors are allowed to enable the port to makelocal movements of railway wagons, especially at the wharvesand transit sheds. Provision is also made for weighingscales for use in sheds and tarpaulines for covering cargotemporarily outdoors.

(iii) Tug Boats. The existing arrangement by which one tugis provided by an Adriatic deep sea towing enterpriseis not satisfactory because the vessel is not underport control, is old, unreliable and not powerful enoughto handle the bigger ships in strong winds. There willalso be an increasing number of ships, especially bulkcarriers using the port. Provision is therefore madefor the port to have two tugs under its own control forfuture operations.

(iv) Spares. The large increase of mechanical equipmentwill involve the build up of stocks of normal operationalspare parts. Provision is accordingly made for initialsupply to cover the first two years.

(g) Consultants/Technical Assistance. The port management willcontinue the services of general consultants to assist in thegeneral planning of the project and also for short-term (2 years)technical assistance to develop and improve the management, ope-rations and financial control of the port. Additionally, theport will engage technical consultants for the detailed designand documentation of: (i) new deep water wharf structures, (ii)transit and storage shedding, (iii) grain silos and natural oilstorage tanks and (iv) bulk handling equipment.

(h) Railway. The RTE will be responsible for principal railwayfreight wagon operations within the port and particularlyfor the distribution of wagons between the various mainareas and for the reception and dispatch of freight trainsfrom and to the interior. For this purpose it will providethree groups of marshalling sidings adjacent to the portand, further to the eastward, a group of reception and dis-patch tracks. The RTE siding and yard additions will requireabout 20 track km of rail. RTE proposes that new rail beobtained and be installed on the main Titograd/Bar line;second-hand rail released would then be used for the sidings

ANNEX 10Page 8

and yards. The remainder of the rail Titograd/Bar is con-pidered by RTE to be adequate for traffic until towards 1985.Some additional expropriation of housing will be involvedat the site of the port marshalling sidings and receptionand dispatch yard. This will be dealt with in the same wayas the main expropriation at para. 1 above.

ANNEX 11

APPRAISAL OF

THE PORT OF BAR

YUGOSLAVIA

Proiect Cost Estimate

ND Million US$ Million % Foreign

Local Foreign Total Local Foreign Total exchange

A. Port

Expropriation 56.0 18.7 74.7 3.7 1.2 4.9 25.o

Accomrnodation and Housing 67.5 22.5 90.0 4.5 1.4 5.9 25.0

InfrastructureExcavation and reclamation 15.5 10.4 25.9 1.0 0.7 1.7

Dredging 3.6 0.9 4.5 0.2 - 0.2

Bulk wharf extension 7.0 5.8 12.8 0.5 0.4 0.9

Two new wharves, Pier 1 21.0 17.4 38.4 1.4 1.2 2.6

Passenger wharf extension 5.9 1.5 7.4 0.4 0.1 0.5

53.0 36.0 89.0 3.5 2.4 5.9 41.0

ServicesWater supply 3.6 0,4 4.0 0.2 - 0.2

Drainage 12.6 1.4 14.0 0.8 0.1 0.9

Power supply 10.8 7.2 18.0 0.7 0.5 1.2

Communications 5.0 5.0 10.0 0.3 0.3 0.6

Port railway tracks 20.0 21.5 41.5 1.4 1.4 2.8

Port roads and parking 19.7 8.3 28.0 1.3 0.5 1.8

Workshops 4.4 1.8 6.2 0.3 0.2 0.5

Harbor oil protection 4.3 6.2 10.5 0.3 0.4 0.7

80.4 51.8 132.2 5.3 3.4 8.7 39.0

StorageGrain silos 27.5 31.0 58.5 1.8 2.0 3.8

Natural oil tanks 3.8 14.0 17.8 0.2 1.0 1.2

Transit and storage sheds 37.5 24.5 62.0 1.5 1.6 4.1

open stacking areas 4.0 1.0 5.0 0.3 0.3

72.8 70.5 143.3 4.8 4.7 9.5 50.0

EquipmentPortal cranes 15.8 60.5 76.3 1.0 4.0 5.0

Transporter bridges 7.0 26.5 33.5 0.5 1.7 2.2

mobil cranes, fork lift trucks,tractors and trailcrs 6.3 25.5 31.8 0.4 1.7 2.1

Palettes and tarpaulins 4.9 1.0 5.9 0.3 - 0.3

Two tug boats 6.0 24.0 30.0 0.4 1.6 2.0

Spares - initial stock 4.0 7.5 11.5 0.3 0.5 0.8

44.0 145.0 189.0 2.9 9.6 12.5 77.o

Technical Assistance 20.0 8.0 28.0 1.3 0.5 1.8 28.0

Physical Contingency 35.0 25.7 60.7 2.3 1.7 4.0 44.o

Price Contingency 78.0 55.1 133.1 5.2 3.6 8.8 40.0

Total Port 506.7 433.3 940.0 33.5 28.5 62.0 46.o

B. Railway

Marshalling Yards 34.5 23.0 57.5 2.3 1.5 3.8 9.0

Reception and despatch yards 27.4 18.4 45.8 1.8 1.2 3.0 4oConnection Port-Railway 10.3 7.0 17.3 0.7 0.5 1.2 42.o

Physical contingency 2.2 1.7 3.9 0.2 0.1 0.3 33.0

Price contingency 17.8 7.7 25.5 1.2 0.5 1,7 29.o

Total Railway 92.2 57.8 150.0 6.2 3.8 10.0 38.0

Total Port and Railway 598.9 491.1 1090.0 39.7 32.3 72.0 45.o

C.. Interest During ConstructionPort 21.8 66.6 88.4 1.4 4.4 5.8 76.0Railway - 3.2 3.2 _ 0.2 0.2 100.0

Total Proiect Costs 620.7 560.9 1181.6 41.1 36.9 78.0 47.3

Note: US$ equivalent adjusted to first decimal place

Source: Port of Bar revised by Bank Staff.

Uctober 1974

ANNEX 12

APPR45AISA OF

ThE PORT OF UAR

YUGOSlAVIA

Sources of Funds/

EstimatedAmount Disbursement Schedule

(million) (D Million) Terms andSource Dinar u 1974 1975 1976 1977 Conditions Status

A. LOCAL CURRENCY

I. Covcrnen ts:

Motcnuegro 37.3 2.46 37.3 Grant Funds to be drawn from governenc's sources afterFunds are ear- 1975. Meanwhile government will contract a short-erke4 to finance term loan with a commserci-l bank, Titograd Invest-expropriation ment Bank (IBS), so that funds could be made avail-expenditure able to the Port in 1974.

Serbia 120.0 7.92 24.7 95.3 Grant Law passed on May 15, 1973. Funds would be channel-ed through RTI Belgrade (Railway enterprise) andwill be used primarily to finance railway facilitieswithin the Port area. The balance, after expenditurefor railway facilities, will be used for any otheritem the Port may decide upon.

Total

Govern-ot: 157.3 10.38 24.7 132.6

II. Port of Bar 30.7 2.02 30.7

III. External Sources:

Directorate 40.0 2.64 40.0 Loan D 30 Loan to finance the local currency component of grainmillion.30 silos and edible oil storage tanks in the Port. Theyears 3%,D10 totalicy of the funds vill be transferred to a cocoser-million. 10 ci-l bank (IBT) which will be in charge of disbursement.years 8%

Ticograd 195.0 12.86 20.0 135.4 39.6 Loan 13 years 87. In addition to D 195 million, IBT will finance interestInvestment during construction and guarantee cost overrure forBank (IBT) _ local and foreign costs.

Total ExternalSources 235.0 15.50 40.0 20.0 135.4 39.6

Total Port: 423.0 27.90 64.7 152.6 135.4 70.3

IV. Railwayv 67.5 4.50 33.0 34.5

Totallocal Fundr 490.5 32.40 64.7 189.6 169.9 70.3

S. FOREIGN EXCHANGE

IBRD Port 517.0 34.10 6.0 199.0 240.0 72.0IBRD Railway 82.5 5.50 _ 4.0 0 42. 5

C. TOTAL 1090.0 72.00 70.7 424.6 452.4 142.3

/1 Including contingencies but excluding interest during construction.

/2 1 US$ 15.15 Dinars.

Sorce: Port of Bar revised by Bank Staff

October 1974

ANNEX 13

APPRAISAL OF

THE PORT OF BAR

YUGOSLAVIA

Construction and Equipment Contracts

Contract Value/IType of ND US$ Bank Loan

Works Bidding Pregualification Million Million % US$ Million

l. Expropriation Hostel Accommodationand Housing Local _ 164.7 10.9 - -

2. E:;cavation and ReclamationBulk Wharf ExtensionLwo new Wharves - Pier I International Yes 77.1 5.2 57 3.0

3. Dredging Extenision of exist-ing contract - 4.5 0.2 - -

4. Passenger Wharf Extension Local - 7.4 0.5 - -

5. Services; water supply, drainage,roads and parking, open stacking areasand railway tracks. International Yes 92.5 6.0 57 3.4

6. Grain Silos, Transit and StorageSheds and workshops International Yes 126.7 8.4 57 4.8

7. Power supply and communications International - 28.0 1.8 57 1.0

8. Natural Oil Tanks International - 17.8 1.2 57 0.7

9. Harbor Oil Protection International - 10.5 0.7 57 0.4

Equipment 343

10. Portal Cranes with Spares International ) -I

11. Transporter Bridges, etc., with Spares International) ~~~~~ ~~141.6 9.3 100 9. 3

12. Mobile Cranes with Spares, Forklift )Trucks with Spares, Tractors and Trailerswith Spares, Weighing Scales with Spares International

13. Two Tug Boats with Spares International - 30.0 2.0 100 2.0

14. Palettes and Tarpaulins Local - 5.9 0.4 - -

15. Spares Own Procedures - 11.5 0.8 100 0.8

Total Port 718.2 25.4

16. Railways International Yes 120.6 8.0 55 4.4

Total Project 838.8 55.4 54 29.8

- Excludes Contingencies

Source: Mission

October 1974 XC

YUGOSLAVIAAppraisal of Port of BarConstruction Schedule

1974 1975 1976 1977

J F M A M ii A S N J M AM J A S O N D J F M A M J J A S O N D JF MA M J J A |O N D

EXPLORATION m mm

DREDGING - m m

BULK WHARF EXTENSION m m m . mNEW WHARVES (21 PIER Im.m.m-

m---

EXTENSIONPIER v m ml m nWATER SUPPLYDRAINAGEROADS & PARKING I _ _ . _ _ m_OPEN STORAGE AREAS JPORT RAILWAY TRACKS

GRAIN SILOS -m m m m m I

STORAGE SHEDS | _ u _ _ _ _ _ _WORKSHOPS

POWER SUPPLY------- mmi umumCOMMUNICATIONS

EDIBLE OIL TANKSmmm-m

OIL PROTECTION-------

RTE. RAILWAY TRACKS _ _ Lt+mm

WHARF CRANES "A ~' 'AA AIIII'A

TRANSPORTER EQUIPMENT WA ;AI VAN FANOVAWAW W A AMOBILE CRANES LuFORKLIFTDTRUCKS

W… tt SITEWORK o, DIVY WA IV ATRACTORS & TRAILERSWEIGHING SCALES

PALETTES & TARPAULINS ->WA

HOUSING -mmmmmmmmmmmmmmm

Source: PBE and Bank staffOctober, 1974

DESIGN. DOCUMENTS, SITE WORKS inini DITTO OVWAV DELIVERY & World Bank-9203BIDDING & INTERMITTENT ERECTIONEVALUATION

ANNEX 15

APPRAISAL OF THE PaRT OF BAR

YUGOSLAVIA

Estimated Schedule of IDLsbursements(cumulative to end of quarter)

IERD Fisoal Year $ 000and Quarter

1974/75

December 31, 1974 400)kroh 31, 1975 3,000June 30, 1975 5,600

1975/76

September 30, 1975 10,800December 31, 1975 16,000-Mrch 31, 1976 22,000June 30, 1976 28,000

1976/77

September 30, 1976 34,000December 31, 1976 37,000March 31, 1977 40O0ooJune 30, 1977 44,000

Source: Mission's estimates

October 1974

ANNEX 16

APPRAISAL OF

THE PORT OF BAR

YUGOSLAVIA

Bases and Assumptions Used in Financial Analysis

1. Operating revenues and expenses have been calculated using 1973tariffs and costs, escalated to account for 1974 tariff increase and infla-tion. Commencing in 1976, wage expense has been calculated using the cur-rent average Yugoslav wage paid to various categories of port workers, whichis higher than those presently paid by the Port.

2. In order to keep the financial projections in constant 1974 terms,price contingencies have been excluded from fixed assets. Depreciation onnew assets to be acquired thus has been calculated on 1974 costs. Pricecontingencies also have been excluded from debt service calculations so thatthese figures are also in constant 1974 terms.

3. The present work under construction has been assumed to be complet-ed and capitalized as a fixed asset on January 1, 1975. The breakwaterpresently in work in progress is assumed to be capitalized as of January 1,1976 and maximum depreciation taken for 1976 and subsequent years.

4. Contributions for housing funds have been calculated according tothe legal requirements. Contributions for the workers' common assets werebased on the estimates made by the consultants.

5. Income taxes were calculated according to the law that came intoeffect for 1974 and subsequent years.

6. The terms and conditions used for the long-term debt are:

- IBRD Loan - Interest at 8%, repayable in 42 semi-annualinstalments, first payment October 1, 1978.

- Investment Bank of Titograd - Interest at 8%, repayablein 20 semi-annual instalments, first payment December 31,1977.

- Directorate: D 30 million at 2% interest repayable in 60semi-annual instalments, first payment December 31, 1978.D 10 million at 8% interest repayable in 20 semi-annualinstalments, first payment December 31, 1978.

7. For the construction work necessary in 1978-80 costing D 220 mil-lion, it has been assumed that government grants will be made in the sameproportion as for the present project. The remaining funds required (D 170million) have been assumed to come from internally generated funds.

APPRAISAL OF ANNEX 17

THE PORT OF BAR

YUGOSLAVIA

Income Statements - Years ended December 31(Dinar Million)

Actual Forecast1971 1972 1973 1974 1975 1976 1977 1978 1979 1980

Operating Revenue

Stevedoring and Shore Handling of Cargo 16.4 21.3 26.5 33.2 40.6 88.4 144.4 160.8 179.8 203.2

Storage 2.1 3.3 3.6 4.5 5.5 12.1 20.0 22.8 25.2 27.8

Ship Dues: /aWharfage - 1.5 1.8 2,4 3.0 7.0 10.6 11.6 12.8 14.4

Mooring and Unmooring / 0.5 0.5 0.7 0.7 1.3 1.9 2.0 2.4 2.6Towage 3.5 3.2 4.6 5.1 6.0 6.9

Pilotage /a 0.3 0.4 0.5 0.5 1.2 0.9 1.0 1.1 1.2

Other Dues and Services 0.5 4.0 4.2 5.0 5.9 6.1 6.4 6.8 7.1 7.5

22.5 30.9 37.0 46.3 56.2 119.3 188.8 210.1 234.4 263.6

Operating Expenses

Wages 12.1 15.8 18.4 21.2 24.4 45.0 63.7 67.4 71.4 75.2

Fuel and Electric Power 0.8 1.3 1.3 1.7 2.2 3.8 5.9 6.5 6.9 7.3

Materials 2.3 1.9 1.7 2.1 2.6 2.8 3.2 3.6 3.7 3.7

Maintenance 0.2 0.2 1.0 1.1 1.7 3.8 8.1 10.2 10.2 11.7

Insurance 0.9 1,3 1.3 1.9 1.9 2.8 4.6 5.4 5.9 6.0

Other Operating Expenses 2.1 1.7 1.8 2.1 2.4 4.0 4.4 4.8 5.1 5.5

18.4 22.2 25.5 30.1 35.2 62.2 89.9 97.9 103.2 109.4

Depreciation 3.4 5.2 5.9 5.8 7.3 13.9 30.4 37.1 37.1 41.6

21.8 27.4 31.4 35.9 42.5 76.1 120.3 135.0 140.3 151.0

Gross Operating Income 0.7 3.5 5.6 10.4 13.7 43.2 68.5 75.1 94.1 112.6

Housing Revenue 6.1 6.1 6.1 6.1

Miscellaneous Revenues (Expenses) (2.3) (3.4) 0.1 0.2 0.2 0.3 0.3 0.4 0.5 0.5

Amortization - Deferred Expenses 4.5 9.0 9.0 9.0

Net Operating Income (1.6) 0.1 5.7 10.6 13.9 43.5 70.4 72.6 91.7 110.2

Contributions:

Housing and Other Funds 0.5 0.7 1.0 1.3 1.5 2.8 4.0 4.2 4.5 4.7

Workers' Common Assets 0.2 1.0 0.6 0.8 0.5 1.8 2.2 2.2 4.3 6.2

Income before Interest Expense and Income Tax (2.3) (1,6) 4.1 8.5 11.9 38.9 64.2 66.2 82.9 99.3

Interest Expense 0.7 0.9 0.7 0.6 0.5 0.5 0.4 28.4 54.9 52.8

Income Tax 0.2 0.2 0.5 0.8 0.7 0.6 0.8

Net Income (Loss) - to Business Fund (3.0) (2.5) 3.4 7.7 11.2 37.9 63.0 37.1 27.4 45.7

Ratios

Operating Ratio 97% 89% 85% 78% 76% 64h 64% 64% 607 57%

Times Interest Covered - - 8.1x 17.7x 27.8x

8 7.Ox 176.Ox 2.6x 1.7x 2.lx

Financial Return on AverageNet Fixed Assets in Use (0.8%) -% 2.3% 4.4% 5.0% 8.7% 7.7% 6.4% 8.4% 9.8%

/a Information regarding these charges was not accumulated separately for 1971.

Source: 1971-72 - Port of Bar and Economic Bureau, modified by Bank Staff1973-80 - Economaic Bureau, revised by Bank Staff

October 1974

APPRAISAL OF ANNEX 18

THE PORT OF BAR

YUGOSLAVIA

Cash Flow Statements - Years Ended December 31(Dinar Million)

1973 1974 1975 1976 1977 1978 1979 1980 Total

FUNDS REQUIRED

Capital Investments

IBRD Projects:Fixed Assets 24.2 343.5 299.8 111.4 778.9

Deferred Expenses:Engineering Studies and

Other Consultants 6.5 13.0 5.4 3.1 28.0

Interest during Construction 8.4 30.4 49.6 88.4

Price Contingencies 35.1 70.2 27.8 133.1

30.7 400.0 405.8 191.9 1,028.4

Other Projeccs 7.4 17.8 74.8 90.2 55.0 245.2

Operating working Capital Increase 12.6 0.3 0.4 7.1 1.6 1.4 1.9 1.6 26.9

Other non-Current Assets Increase (Net) 1.8 2.0 1,8 2.0 2.1 2.5 2.9 3.4 18.5

Income Taxes _ 0.2 0.2 0.5 0.8 0.7 0.6 0.8 3.8

21.8 51.0 402.4 415.4 196.4 79.4 95.6 60.8 1,322.8

Debt Service

Interest 0.7 0.6 0.5 0.5 0.4 28.4 54.9 52.8 138.8

Principal 2.3 2.3 1.9 1.5 1.5 12.7 25.1 27.1 74.4

3.0 2.9 2.4 2.0 1.9 41.1 80.0 79.9 213.2

Total Funds Required 24.8 53.9 404.8 417.4 198.3 120.5 175.6 140.7 1,536.0

FUNDS AVAILABLE

Cash Generated

Income before Interest Expernse and Income Tax 4.1 8.5 11.9 38.9 64.2 66.2 82.9 99.3 376.0

Depreciation 5.9 5.8 7.3 13.9 30.4 37.1 37.1 41.6 179.1

Amortization-Deferred Expenses 4.5 9.0 9.0 9.0 31.5

10.0 14.3 19.2 52.8 99.1 112.3 129.0 149.9 586.6

Borrowings

IBRD 6.0 206.6 263.4 107.6 583.6

Other 60.8 142.4 53.6 256.8

6.0 267.4 405.8 161.2 840.4

Government Contributions

IBRD Project 24.7 132.6 157.3

Other Projects * 21.6 10.0 20.0 30.0 81.6

21.6 34.7 132.6 20.0 30.0 238.9

Total Funds Available 31.6 55.0 419.2 458.6 260.3 132.3 159.0 149.9 1,665.9

Excess (Deficiency) of Funds 6.8 1.1 14.4 41.2 62.0 11.8 (16.6) 9.2 129.9

Investment Cash, Beginning of Year 4.5 11.3 12.4 26.8 68.0 130.0 141.8 125.2 4.5

Investment Cash, End of Year 11.3 12.4 26.8 68.0 130.0 141.8 125.2 134.4 134.4

Times Debt Service Covered 3.3x 4.9x 8.0x 26.4x 52.2

x 2.7x 1.6x l.9x 2.8x

Source: Economic Bureau, revised by Bank Staff

October 1974

APPRAISAL OF ANNEX 19

THE PCRT OF BAR

YUGOSLAVIA

Balarre Sheets as at December 31(Dinar Million)

Actual Forecast1971 1972 19173 19 9 197 1977 1975 1979 1980

ASSETS

Fixed Assets

Gross 291.2 290.7 290.7 290.7 379.6 750.4 1,251.3 1,251.3 1,251.3 1,392 .3Accumulated Depreciation 37.4 41.6 47.5 53.3 60.6 74.5 104.9 142.0 179.1 220.7

Net Fixed Assets in Use 253.8 249.1 243.2 237.4 319.0 675.9 1,146.4 1,109.3 1,072.2 1,171.6Work in Progress 109.0 156.5 163.9 205.9 460.5 389 _ 47.8 86.0

362.8 405.6 407.1 443.3 779.5 1,065.4 1,146,h 1,157.1 1,15G.2 1,171.6

Deferred Expenses - Less Amortization 6.5 63.0 169.0 245.0 263.0 306.0 297.0

Other Non-Current Assets 3.2 2.3 4.1 6.1 7.9 9.9 12.0 214.5 17.4 20.8

Net Current Assets

Operating Working Capital 2.4 (9.4) 3.2 3.5 3.9 11.0 12.6 14.0 15.9 17.5Investmnt Cash 8.6 4.5 11.3 12.4 26.8 68.o 130.0 141.8 125.2 134.4

11.0 (4.9) 14.5 15.9 30.7 79.0 142.6 155.8 141.1 151.9

Total Assets 377.0 403.0 425.7 471.8 881.1 1,323.3 1.516.0 1,590.4 1,622.7 1,611.3

LIABILITIES AND EQUITY

Long-Term Debt 22.0 2014 18.1 21.8 287.3 691.6 851.3 838.6 813.5 786.4

Equity

Government Contributions 25.6 55.7 77.3 112.0 244.6 244.6 244.6 264.6 294.6 294.6Business Fund 329.4 326.9 330.3 338.0 349.2 387.1 450.1 487.2 514.6 560.3

355.0 382.6 407.6 450.o 593.8 631.7 694.7 751.8 809.2 854.9

Total Liabilities and Equity 377.0 403.0 425.7 471.8 881.1 1,323.3 1,546.0 1,590.4 1-622.7 1,641.3

Debt/Equity Ratio 6/94 5/95 4/96 5/95 33/67 52/48 55/45 53/47 50/50 48/52

Average Net Fixed Assets in Use 197.8 251.5 246.2 240.3 278.2 497.5 911.2 1,127.9 1,090.8 1,121.9

Source: 1971-72 - Port of Bar and Economic Bureau, modified by Bank Staff1973-80 - Economic Bureau, revised by Bank Staff

October 1974

ANNEX 20Page 1

APPRAISAL OF

THE PORT OF BAR

YUGOSLAVIA

Port Service Area

A. General

1. The Port of Bar currently serves a small hinterland along the railconnections to Titograd and Niksic (see Map IBRD 10918). Road connectionswith the rest of Montenegro, Serbia and Macedonia exist, but roads are roughdue to mountainous terrain and are subject to temporary closures during thewinter timne. Once the Belgrade-Bar line is open, at the end of 1975, thepotential hinterland of the Port of Bar will include the Republics of Monte-negro, Serbia and Macedonia and the Autonomous Provinces of Kosovo andVojvodina.

2. The limits of the Port of Bar service area have been determined onthe basis of transport distances from tlie main urban centers to existingPorts, Rijeka and Ploce and to the Port of Bar. These distances have beencalculated using existing railway routes and the Belgrade-Bar line route.While the differential is important for Serbia, Macedonia and Kosovo, it isless si-nficant for the northiern part of the service area, particularlyVojvodina (Table 1). The miiost likely alternative to Bar is the Port ofRijeka.

B. The Transport System in the Service Area

3. The port service area includes 47, of total railway track inYugoslavia, (Belgrade-bar line excluded) and 49% of roads. It accounts forabout 40% of total rail traffic, passengers and freight and for about 50%of total road traffic. The Port of Bar is the only port located within theservice area anid it accounted for only 3%' of total port traffic in 1971.MIore detailed figures are given in Table 2.

4. Main cities in the service area are or will be connected to therailway system, after the completion of the Belgrade-Bar line. Road connec-tions are relatively good in the northern part of the service area, but arepoor in the soutlhern part and are not expected to improve substantially inthe foreseable future.

ANNEX 20Page 2

C. Economic Potential of the Service Area

5. The Port of Bar service area covers about half of the territoryof FR Yugoslavia, with about half the population. The whole area includestwo of the less-developed regions; SR Montenegro and SAP Kosovo, in 1971 itaccounted for about 40% of Gross Material Product (GMP).

(i) Agriculture, Livestock and Forestry

6. The northern part of the service area include some of the richestagricultural regions of Yugoslavia, Vojvodina in Serbia, together withSlovenia represent only one sixth of the country total area but contain near-ly a third of the arable land and produce more than half of the country'soutput of wheat and corn and over three quarters of its sugar beet. Thehills in Serbia are important for livestock raising and fruit production.Cereals are grown in river valleys. The mountainous part is generally un-favorable for crop production but extensive pasture make possible livestockraising (Table 3). There is also an important potential in forestry exploit-ation and development along the Belgrade-Bar line.

7. The northern part of the service area is fairly well developed butthe southern part (SR Montenegro and SAP Kosovo) has not yet been reached bymodern methods of production. The main constraints for further developmentare: (i) lack of capital; (ii) lack of credit facilities for the purchaseof better quality inputs, seeds and fertilizers; (iii) poor mechanization;and (iv) lack of extension services. These weaknesses have been identifiedin the "green plan" and concrete steps are to be taken in the near future toimprove the situation (see Basic Economic Report 194a-YU, November 26, 1973).It is expected that these measures, and the completion of the Belgrade-Barline and of the project, will help the opening of these less-developed areas.

(ii) Industry and Mining

8. A large part of the Yugoslav industry is located within the servicearea (Table 4) which is particularly important in coal, crude oil and mineralproduction, food processing and fertilizer production. The large potentialin wood processing and paper production is presently under exploited.

9. Except for non-ferrous metallurgy, most of the industries are rely-ing on imports (iron ore and scrap iron for Smederevo and Niksic plants,phosphate for the fertilizer industry, raw edible oil for refining, etc.).Exports are limited to steel products, processed food, timber and non-ferrousores. Presently raw materials are imported through northern Adriatic portsand transported overland by rail to eastern Yugoslavia. In most cases, thePort of Bar is a better alternative to the users.

10. The main expected developments are in non-ferrous metallurgy, foodprocessing, clothing and fertilizers and there are indications that enter-prices are taking steps to develop their production.

ANNEX 20Page 3

Non-Ferrous Metal Production1971 1975176

_-- ------- '00 tons--------

Copper 90 130Lead 100 200Zinc 65 130Aluminum 75 200

In addition the area is rich in bauxite which could be profitably exported,in 1971, 1.75 million tons were exported, of which 220,000 tons went throughBar. It is expected that exports will remain at the same level in the futureand that the Port of Bar will capture most of the traffic.

D. Conclusions

11. The service area has a potential for economic development, althoughin some less-developed areas, it might take some time to materialize. It ispresently relatively isolated from other regions and there is little doubtthat an integrated transport system giving access to the coast will helppromote new activities which otherwise would have been located somewhere elseor would not have been created at all. However, the impact of these newactivities would only be felt progressively in the less-developed regions,since potential investors would probably wait until the link between theAdriatic Coast and Belgrade is completed before making any decision to locatelarge capacities in the area.

APPRAISAL OF ANNEX 20Table 1

THE PORT OF BAR

YUGOSLAVIA

Main Distances to -Uternative Ports and to Bar(km)

Bar Rijeka Ploce

Vojvodina

Subotica 653 629 708

Kiki nda 651 728 807

Vrasc 574 741 830

Novi Sad 551 624 703

Serbia

Belgrade 476 643 722

Bar 673 1044 113

Kraljevo 384 845 923

Nis 523 894 973

Ma cedonia

Skorje 642 1116 1195

Kosovo

Kosovska ftitrovica 524 975 1054

Bosnia

Zvorniik 648 685 764

Source: Port of Bar, Yugoslav Railways.

October 1974

ANINEX 20Table 2

APPRAISAL OF

THE PORT OF BAR

YYUGOSIAVIA

The Transport System in the Service Area (1971)

Yugos- Mbnte- Mace- % of Yugos-lavia negro donia Serbia Vojvodina Kosovo Total lavia

I. Railway

Track km 10,300 200 700 1,900 1,700 300 4,800 47Passengers (mil.) 143 2 5 27 18 4 56 39Freight (mil. tons) 130 1 7 22 14 4 48 37

II. Road Transport

A. Rtoads (km)Asphalted roads 27,300 800 1,700 6,ooo 3,100 800 12,400 45Mietalled roads 41,400 2,200 1,300 9,000 1,000 1,000 14,500 35Earth roads 26,300 - 3,500 11,300 3,500 1,500 19,800 75

Total 95,000 3,000 6,500 26,300 7,600 3,300 46,700 49

B. Total RegisteredVstehicles (000) 1,475 21 71 360 196 25 673 46

C. Public TransportPassenger carried

(mil.) 608 12 23 187 53 12 287 47Passenger km

(mil.) 16,700 479 129 5,155 1,484 300 8,637 52Freight carried

(mil. tons) 72 2 7 22 5 .4 36.4 50Ton-km (miu.) 1,330 279 900 1,455 566 42 3,242 44'

II. Air Transoort(domestic)

Passengers (ooo) 971 100 25 338 - 5 468 48

fiV. >iaritime Transr.ort

Sei pDortsFreight (mil. tons) 21 0.8 - - - - 0O8 3Passengers (mil.) 9 0.2 - - - _ 0.2 2

Souarces: Statistical year book of Yugoslavia, 1973

October 1974

ANNEX 20APPRAISAL OF Table 3

THE PORT OF BAR

YUGOSLAVIA

Agricultural Data on the Service Area

I. 1iain Cro0 Productions

Wheat Corn Potatoes Plums Grapes

Yugoslavia )4,844 7,953 2,323 980 1,132

service Area

Montenegro 10 21 38 5 7

Macedonia 284 106 73 25 146

SerbiaSerbia proper 1,313 1,998 539 680 460

Vojvodina 1,464 3,193 291 27 83

Kosovo 221 233 62 16 34

Total 3,292 5,551 1,003 753 730

,% of Yugoslavia 68% 70% 43% 77% 64%

TI. Livestock and Poultry

Cattle Pigs Sheeo Pou11tr<

Yuaoslavia 5,148 6,216 8,236 44,584

3ervice AIrea

i'-onteiegro 147 29 510 46414-acedon:V 332 107 1,903 3,0966erbi-DSerbia oroper 1,546 2,053 2,439 11,501Vo vodina 372 1,584 306 6,650Kosovo 343 50 508 1,191

Trotagl 2,710 3,823 5,666 22,902

,0 o' Yu{JOS1avia 53% 62% 690 51%

Source: Yugoslav statistical year book. 1972 - 1973

October 1974

ANNEX 20Table 4

APPRAISAL OF

THE PORT OF BAR

YUGOSLAVIA

Rasic Industrial Data on Service Area (selected goods only)'

Total Montenegro Macedonia Serbia Service AreaUnit Yugoslavia Value S Value j Value i Value

I. Forsible fuels

Coal 000 tons 31,000 500 1.4 - - 13,000 42.2 13,500 43.6Crude oil 1 1 3,200 - - - - 900 28.o 900 28.0

jII. 'ion ferrous ores " ! 2,750 350 13.0 50 2.0 650 24.0 1,050 38.0

I1l. Steel products it 3,550 100 2.0 450 13.0 350 10.0 900 25.0

IV. Non ferrous products " 1,068 75 7.0 220 20.5 410 38.2 705 66.0

V. Building materials " " 6,350 - - 1,090 17.0 173 27.0 2,820 44.0

VI. Equipment "

Transport " 320 5 1.5 - - 210 65.5 215 67.0Others 95 - - - 1.0 55 58.0 56 59.0

VII. Wood Tumber 000 m3 3,200 150 5.0 80 2.5 290 9.0 445 14.0

VIII. Paper 000 tons 350 25 7.0 15 4.0 80 23.0 120 34.0

IX. Textile and leather

Cotton and wool fabrics 000 m2 350 10 3.0 45 13.0 75 21.0 130 37.0Others 000 tons 45 - - 1 2.0 25 45.0 26 46.o

A. Food industry

Canned food 000 tons 160 1 0.5 15 9.5 85 53.0 101 63.0Tobacco " " B0 1 1.25 30 37.5 20 25.0 51 63.75Edible oil " " 165 5 3.5 10 6.o 65 40.0 80 48.5sugar " " 345 - - 15 4.0 220 64.0 235 68.o

X. Sulfuric acid, sunerphosphates and complexfertilizers " " 1,710 - - - - 1,460 85.0 1,460 85.0

CIl. Livestock feed " I 1,550 0.5 3.0 75 5.0 640 41.0 720 46.5

/1 Figures have been rounded off to nearest thousand to indicate order of magnitude.

Source: Economic Bureau Belgrade, Stastical year book 1972 - 73

October 1974

ANNEX 21Page 1

APPRAISAL OF

THE PORT OF BAR

YUGOSLAVIA

Traffic Projections

A. General

1. Traffic projections prepared by the Port of Bar with the assistanceof the Economic Bureau (Belgrade) are based on results of discussions withfuture users of the port and with the main associations of importers andexporters which together account for about 80% of the projected traffic in1980. These projections have been reviewed by the mission and checkedagainst previous Bank reports and are considered reasonable. A summary offuture traffic is given below for main commodities or group of commodities.

B. Total International Traffic Expected Through the Port of Bar

2. Agricultural Products: The main products likely to go through Barare: grains, edible oil and molasses, fruit, vegetable and processed foodwood, and agricultural inputs (cattle food, seeds, fertilizers ... ).

(i) Grain - (corn and wheat)

In the past Yugoslavia has been a traditional exporter ofcorn and importer of wheat mostly from the U.S.A. The"Green Plan" projections indicate that by 1985 there shouldbe a surplus of corn which will be exported to WesternEuropean countries of which 200,000 tons p.a. will beexported to Southern Italy through Bar by 1980. AlthoughYugoslavia should achieve self-sufficiency in wheatproduction by 1975, it is expected that by 1980 about100,000 tons of wheat will be imported annually throughBar to complement local production in certain qualitiesof wheat.

(ii) Edible Oil

Yugoslavia has always been a large consumer of animal fatsand edible oil, however over the years, the structure ofconsumption changed in favor of vegetable oil. More thantwo-thirds of the raw oil (soya and sunflower) imported isrefined within the Port of Bar service area.

ANNEX 21Page 2

Yugoslav Consumption ofAnimal Fats and Edible Oil

('000 tons)

Total 1962 1965 1968 1971

Animal fats 138 137 145 162Olive oil 5 3 7 5Other edible oil 88 121 143 200

Per Capital Consumption

Animal fats 7.2 7.9Olive oil 0.4 0.2Other edible oil 7.1 9.7

The predominance of vegetable oil is likely to continue andit is expected that by 1980 about 80,000 tons of raw oil aswell as 45,000 tons of molasses will be imported through Bar.

(iii) Fruit, Vegetables, and Processed Food

Yugoslavia is a major exporter of fresh and dried fruit(plums, apricots, strawberries ... ). In 1972, about 45,000

tons were exported mostly to western Europe, of which about4,000 tons will be exported to Italy annually through Bar.Consumption of tropical and citrus fruit has been increasingfrom 119,000 tons in 1969 to 166,000 tons in 1972 at anaverage rate of 12X p.a. Most of these fruits arepresently imported through Rijeka and transported by roadand rail to the main consumption centers. The main importersconsider that once the Belgrade-Bar line and the Port of Barare open to traffic about 40% of their products could beimported through Bar, thus saving in transportation costand reducing losses due to long travelling time. Totalimports through Bar are estimated at about 120,000 tonsin 1980.

(iv) Other Food Products, Beverages and Tobacco

Traffic estimates for these products are based on discussionswith the main importers (Centroprom, Granexport and Pik-Pec.)and reflect their judgement as to what volume of traffic couldbe diverted to Bar or generated in the area. These projectionsare considered reasonable.

ANNEX 21Page 3

Expected Traffic in 1980(tons)

Export Import Total

Tobacco 8,000 3,000 11,000Rice 20,000 20,000Coffee 25,000 25,000Sugar 40,000 40,000Meat 5,500 5,500Beverages 15,000 3,000 18,000Cocoa Beans 8,000 8,000Livestock 4,000 4,000Others 2,500 1,000 3,500

Total 35,000 100,000 136,000

Source: Economic Bureau Belgrade, Port of Bar,main importers.

(v) Cattle Food, Seeds

Yugoslavia is a net importer of cattle food and exporter ofseeds. The main part of these products comes from or isdestined to overseas countries and is presently processedtihrough north Adriatic ports. It is expected that by 1980,a total volume of 170,000 tons will go through the Port ofBar.

Export Import Total

Cattle Food (tons) 80,000 80,000Seeds (tons) 80,000 10,000 90,000

Total 80,000 90,000 170,000

(vi) Wlood and Wlood Products

Total trade for wood and wood products amounted to 2.1 milliontons in 1972 (1.4 million tons for export, 0.7 million tonsfor imports), and consisted mostly of pulp wood, import ofexotic wood from Gabon and Ivory Coast and Timber. A largepart of these products are used in the Port of Bar servicearea which accounts for 25 to 50% of the production of semi-finished and finished wood products and paper. It is expectedthat by 1980 about 90,000 tons of import of raw material andabout 40,000 tons of exports of finished products will bediverted to Bar.

ANNEX 21Page 4

(vii) Fertilizers and Plhosphates

Yugoslavia is a net exporter of manufactured fertilizers,however, the export potential of the Port of Bar is limited.Despite the number of fertilizer, plants located in theservice area tle main exporter, IPrahilavo, uses the Danubeand Black Sea ports. Total export through Bar should notexceed 60,000 tons in 1980. The other plants, Zorka, Sabacand Subotica and Kosovska Mtitrovica depend entirely onimported phosphates for their production. Raw phosphatesare presently imported through the Port of Sibenik whichhas no adequate bulk handling facilities. The threemanufacturers have indicated their intention to use Baras soon as the facilities included in the project are readyand the Belgrade-bar line is open to traffic. Total importsbased on the development plans of these plants would amountto about 1.0 million tons in 1980.

!aw VLaterials and Semi-Finished Products

3. The nmain raw materials likely to be handled through the Port ofBar are: bauxite and non-metallic ores, scrap iron and other semi-finishedietal products.

(i) Bauxite and Alumina

Total bauxite commercial reserves in the service area exceed30 million tons. Production which is presently about 350,000tons p.a. is projected to increase up to about 1.0 milliontons bv 1980, 80%' of which will be used to supply industrialplants in the service area, the remainder will be exportedthlrough bar. Aluraina is produced in the service area tosupplv aluminium plants, there is presently an excess capacityof about 100,000 tons which is presently and will continueto be exported through Bar.

(ii) Scrap Iron and Semi-Finished Steel Products

The steel industry in Yugoslavia lacks raw materials and semi-finislied products and over a million tons of these productswere imported in 1972. There are three steel plants in theservice area (Niksic, Smederevo, and Skopje) which togetheraccount respectively for 30%, 20%' and 60% of the domesticproduction of pig iron, rolled semi-finished products andspecial steel. All three mills are presently expanding theircapacity whicii by 1980 should reachi about 1.7 million tonsp.a. compared to 750,000 tons in 1972. The supply and demandprograms of these firms show that from 1976 to 1980 the fol-lowing quantities will be exported or imported through Bar.

ANNEX 21Page 5

1976 1980Exports Imports Exports Imports-------------- tons -------

Scrap iron - 30,000 200,000Pig iron and semi-finished products 200,000 100,000 105,000

Total 200,000 80,000 100,000 305,000

(iii) Other Metal Products

These consist of wrought and rolled products, steel, sheets,cable, etc. The estimates have been prepared on the basisof past trends as these are expected to continue in thefuture.

1980Export Import Total…------- tons -------… -

Wrought and rolled products 45,000 45,000Copper 70,000 35,000 105,000Aluminium blocks 40,000 40,000Lead 40,000 5,000 45,000Zinc 25,000 25,000Cables 35,000 35,000Other industrial products _50,000 50,000

Total 305,000 40,000 345,000

Chemical Products

The main chemical products are sulphuric acid, causticsoda and aluminium chloride which in 1980 will amount to10,000 tons of exports and 60,000 tons of imports.

C. Coastal Traffic

4. The main commodities transported by coasters are, oil productsfroma the Rijeka refinery, cement fron Split, and some general cargo, (mostlyagricultural products and supplies). Except for oil products traffic whichis expected to grow at about 14% p.a. between 1973 and 1980, other trafficis not expected to grow substantially.

ANNEX 21Page 6

D. Transit Traffic

5. The best opportunity for transit traffic are with Romania, whichalthough it has port facilities on the Black Sea could use the Port of Barand the Belgrade-Bar line to supply the western part of its territory. Onthe basis of sea and overland distances Bar is an attractive alternative tothe Port of Constanza, however, the final volume of traffic will depend onnegotiations presently underway between the Port of Bar, the Railway andRomanian authorities.

6. Prospects for Bulgaria and Hungary are much dimer, Bulgaria usesand will continue to use its own ports as they provide shorter routes.Hlungary which has no access to the Adriatic Sea will continue to use Rijekaor Triest for the major part of its requirements. On the basis of preliminarydiscussions transit traffic, which will consist of general cargo has beenestimated to 60,000 tons in 1976 growing up to 165,000 tons in 1980. Al-though these figures are considered conservative by RTE Belgrade, it is notexpected that under the most favorable circumstances transit traffic couldgrow beyond 300,000 tons in 1980. For the purpose of the evaluation thelower estimate has been retained.

E. Summary and Conclusions

7. Total traffic, by type is given in Table 1 for the years 1974 to1980 and can be summarized as follows:

1973 1976 1978 1980_____ _~00 - tons -

Oil products 150 250 290 380Liquid bulk - 117 155 175Dry bulk 375 1,290 2,001 2,385General cargo 315 545 1,056 1,387

Total 840 2,182 3,502 4,327

The main increase is in bulk cargo, which will consist mainly of phosphates,grains, scrap iron and semi-finished steel products and bauxite and willbe handled by specialized facilities.

8. Part of this traffic can be considered as natural growth ofexisting traffic or as traffic generated in the service area, while theother part can be considered as traffic diverted from other ports. Thedistinction between the two kinds of traffic is somewhat arbitrary since thereasons for the users to use one or another alternative are not alwaysrational. However, it has been estimated, and this has been confirmed byinterviews with future users of the Port of Bar, that users will diverttraffic from alternative ports when: (i) the financial incentive to do sois large enough; and (ii) when operating conditions in Bar are superior tothose existing in other ports.

ANNEX 21Page 7

9. On the basis of distances and assuming that port charges at Bar

would be similar and possibly lower than at competitive ports, (Rijeka

and Ploce), most users do have a financial incentive to switch over to Bar.

Calculated according to existing tariffs transport savings would amount to

the following:

1976 1978 1980Rijeka Ploce Rijeka Ploce Rijeka Ploce----------------… -000 dinars ----------------

Imports 19,500 27,500 44,700 63,000 52,250 73,800Exports 9,300 12,500 24,600 29,600 29,500 37,600

Total 29,300 40,000 69,300 92,600 81,750 11,400

Direct savings to the users amount to about 30% of the total transportcost which is substantial. For some commodities (phosphates, scrap iron)the savings would be greater since alternative ports are Sibenik and Zadarrather than Rijeka.

10. The quality of service should also improve considerably for theusers of the Port of Bar against other ports, and more particularly Rijeka.

For bulk cargo, Bar will be equipped with modern handling equipment andis e;pected to operate more efficiently than most other ports. This is

particularly true for phosphates which are presently handled by inadequatefacilities at Sibenik (users have been reviewing their contract on anannuial basis in order to take advantage of the bar facilities as soon asthey are operating) and for edible oil which is handled at Zadar wherethere are no proper storage facilities.

11. According to the above, it is estimated that traffic would be

distributed between existing diverted and generated as follows:

1976 1978 1980'000 tons /o '000 tons % '000 tons %

Existingtraffic /1 1,010 52 1,200 37 1,450 37

Diverted traffic 855 44 1,929 60 2,330 59

Generated traffic 67 6 83 3 167 4

Total 1,932 100 3,212 100 3,947 100

/1 Oil excluded.

ANNEX 21Table I

APPRAISAL OF

TEE PORT OF BAR

YUGOSLAVIA

Sucmmary of Proiected Traffic 1973-1980 (Metric Tons)

----- Actual --------- ------- Projected -------- ------------------ Projected --------------------

1970 1971 1972 1973 1974 1973 1976 1977 1978 1979 1980

Internotional Traffic

Impor isLiquid Bulk _ - - - - 117,000 143,000 155,000 165,000 175,000

Dry Bulk - 31,917 60,264 50 000 50,000 85,000 620,000 1,151,000 1,276,000 1,430,000 1,585,000

General Cargo 169.254 221.860 20000 230,000 245.000 275.000 434,000 481.000 545,000 615,000

Subtotal _ 201 171 282.124 250,000 280D000 330,000 1012,00 1.725.000 1.9123OnO 2,140,000 2,375,000

ExportsLiquid Bulk - ---Dry Bulk - 265,620 221,303 220,000 250,000 300,000 545,000 570,000 600,000 610,000 660,000

General Cargo - 43 234 44,952 70, 75.000 75,000 165.OO 377.000 405.000 441.000 547,000

Subtotal - 308.854 266.255 290.000 325,000 375,000

710,000 947,000 1,005,000 1,051,000 1,207,000

Total International TrafficLio uid IBulbio1Trfic - - - - 117.000 140,000 155,000 161,000 175,000

Dry Bulk - 297,537 281,567 270,000 300,000 385,000 1,165,000 1,721,000 1,876,000 2,040,000 2,245,000

General Cargo _212488 266.812 270,000 305.000 320,000 440.000 811,86,000 _98,000 1,162,000

Total _ _O,O 5 548.379 540,000 605.000 705.000 2 (, )0 2,91_7,0 3O 3&, 582000

Coastal Traffic

In-bound and out-bound

Liquid Bulk (Oil) 135,000 115,000 150,000 175,000 220,000 250,000 270.000 290,000 330,000 380,000

Dry Bulk (Cement) )120,000 68,000 105,000 105,000 105,000 105,000 115,000 125,000 135,000 140,000

General Cargo 200 78,000 45900 45_000 45.000 45,000 50 000 55,000 55,000 60,000

Total 255.000 261.000 3,0 325.000 370,000 400,000 435.000 470 000 520 000 _O_OO

Transit 60,000 90,000 115,000 140,000 165,000

Grnud Total 765.025 809.379 840,000 930,000 1,075,000 3197,L000 3.502,000 3,851,00 4.327,00

Oil Product 135,000 115,000 150,000 175,000 220,000 250,000 270,000 290,000 33 ,000 380,000

Liq.id Bulk 117,000 140,000 155,000 165,000 175,000

Dry Bulk 510,025 349,567 375,000 405,000 490,000 1,270,000 1,836,000 2,001,000 2,175,000 2,385,000

General Cargo 5 0 344,812 315,000 350,000 365,000 545,000 951,000 1,056,000 1,181,000 1,387,000

SOURCE: Port of BAC, Economic Bureau and Mission's estimates.

0,stoblr 19 ,l.

ANNEX 22Page 1

APPRAISAL OF

THE PORT OF BAR

YUGOSLAVIA

Basis for the Economic Evaluation

A. General

1. The economic evaluation is based on a comparison of the situationwhich would prevail if the proposed project is not undertaken and the situa-tion which would prevail after the project is completed. The economic lifeof the project is considered to be of 25 years of age on an average, however,it has been assumed that traffic will remain constant beyond 1980. This as-sumption is conservative, but is justified by the present lack of knowledgeon the development plans of other ports in Yugoslavia.

B. Project Cost

2. The total project cost excluding custom duties, taxes and price con-tingencies is D 880.0 million equivalent to US$58.2 million. Railway facilitiesoutside the custom area have been included since they will be required in con-nection with port traffic. Additional investments after the completion of theproject have not been included with the exception of those required to replaceproject items and existing facilities. The project cost excludes the cost ofsilos and edible oil tanks which are to be built in the port area on accountof the Directorate. The decision to build these facilities was taken by theDirectorate and only their location was in question. The economic justifica-tion of building these facilities was not appraised, and the present evalua-tion only measures the relative benefits of locating them at Bar instead ofat another Port (Rijeka).

3. No attempt was made to shadow price land since there are no immediatealternative uses for land allocated to port development. Past investments havebeen considered as sunk costs.

C. Project Benefits

4. Benefits of the projects are: (i) savings in operating costs; (ii)savings in overland transport costs; and (iii) net revenues derived from trans-it to llungary and Czechoslovakia.

ANNEX 22Page 2

(i) Saving in Operating Costs

Once the proposed project is completed, direct operating costsare expected to amount to about D 20/ton of cargo which willcompare favorably with the present situation at Bar (D 30/ton)and other Yugoslav ports (D 50/ton on average). Savings inoperating costs have been calculated at D 10/ton for localtraffic at Bar and at D 30/ton for diverted traffic for theeconomic life of the project as reduction in operating costsin competitive ports would imply further investments whichhave not been taken into account.

(ii) Savings in Overland Transport Costs

Distances from Bar to Serbia, Macedonia and Kosovo are shorterthan those from alternative ports. Savings in overland trans-port costs were calculated on the basis of origin and destina-tion for the years 1976, 1978 and 1980 for diverted and gen-erated traffic only.

Resulting savings in terms of ton-km are as follows:

1976 1978 1980…Million ton-km ----

SerbiaNorth 36.0 84.0 100.0Southl 50.0 86.0 95.0

Subtotal 86.0 170.0 195.0

Macedonia 24.0 48.0 48.0Kosovo 45.0 90.0 110.0

Total 155.0 308.0 393.0

The savings in railway operating cost (fuel and other consumable)have been estimated at D 0.17/ton-km on the basis of re-evaluatedfuel prices to take into account recent changes in world petroleumprices (taxes have been excluded).

(iii) Income from Transit Traffic

The income, net of direct operating costs, has been calculatedon the basis of present tariffs applied by RTE Belgrade forfreight. Since transit will remain marginal, compared tototal traffic on the Belgrade-Bar line no provision was madefor additional maintenance cost on the line.

ANNEX 22Page 3

D. Non-Quantifiable Benefits

5. Although the use of the Port of Bar will reduce ship turn around timecompared to the use of alternative ports, these benefits have not been takeninto account for the following reasons: (i) due to competition between Yugoslavports, it has not been possible to obtain reliable data on shipping patterns;and (ii) PBE will not be able to charge higher tariffs than competing portsand, therefore, recover a substantial portion of the benefits accruing toforeign shipping organizations as a result of reduced congestion in theYugoslav ports.

ANNEX 23

APPRAISAL OF

THE PORT OF BAR

YUGOSLAVIA

Rate of Return Calculations (D. Million)

---------------------------------- Berefits -------------------

Savings inProject Cost Savings In Overland Net Cost/Benefit

Years Port Railway Total Operating Cost Transport Costs Transit Total Stream

1974 25 - 25 (25)1975 285 55 340 (340)1976 285 55 340 32 24 1 57 (283)1977 160 - 180 61 50 1 112 (68)1978 72 54 2 128 1281979 82 56 2 140 1401980 82 58 2 142 1421981 82 60 2 144 1441982 82 60 2 144 1441983 82 60 2 144 1441984 20 82 60 2 144 1241985 82 60 2 144 1441986 5 82 60 2 144 1391987 82 60 2 144 1441988 8 82 60 2 144 1261989 82 60 2 144 1441990 2 82 60 2 144 1421991 82 60 2 144 1441992 20 82 60 2 144 1241993 75 82 60 2 144 691994 82 60 2 144 1441995 82 60 2 144 1441996 25 82 60 2 144 1191997 82 60 2 144 1441998 82 60 2 144 144

Rate of discount equalizing cost and benefit streams: R = 13%.

Source: Mission's calculationsOctober 1974

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