Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 4238

PROJECT COMPLETION REPORT

SENEGAL: DAKARMARINE ENGINEERING PROJECT(LOAN S3-SE)

December 28, 1982

Industry Department

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

FOR OFFICIAL USE ONLY

PROJECT COMPLETION REPORT

SENEGAL: DAKARMARINE ENGINEERING PROJECT(LOAN S 3-SE)

TABLE OF CONTENTS

Page No.

PREFACE ...............................................................BASIC DATA SHEET ................. (ii)HIGHLIGHTS ............................................. (iii)

I. INTRODUCTION .

II. DAKARMARINE - THE COMPANY.. 2A. Ownership. 2B. Organization and Management. 3C. Technical and Financial Support. 3

III. DESCRIPTION AND IMPLEMENTATION OF THE ENGINEERING PROJECT 4A. Background. 4B. Objectives, Scope and Description. 4C. Use and Performance of Consultants. 5D. Implementation of the Engineering Project. 6E. Project Cost, Financing and Disbursement. 7

- Project Cost. 7- Financing. 8

- Disbursement. 9

IV. MARKET FOR SHIP MAINTENANCE AND REPAIR FACILITIES. 9

V. NEW DRY DOCK PROJECT CONCEPT IN LIGHT OF MARKET DECLINE 10

VI. BANK ROLE AND CONCLUSIONS .11

LIST OF ANNEXES

Annex 1 - Project Costs . .. 12

Annex 2 - Disbursement of Loan S-3 SE .... . ............................. 13Annex 3 - Borrower's comments ......................................... 14

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

PROJECT COMPLETION REPORT

SENEGAL - DAKARMARINE ENGINEERING PROJECT(LOAN S 3-SE)

PREFACE

This report covers the Dakarmarine Engineering Project sup-ported by Loan S 3-SE. The Engineering Loan of US$0.6 million wasapproved in September 1973. US$0.49 million of the Loan (82%) wasdisbursed by the first quarter of 1976, three quarters behind scheduleand the balance was cancelled.

The loan was made to Dakarmarine, a joint venture companybetween the Government and several local and foreign private companiesinterested in the shiprepair business. The Engineering Project con-sisted of several studies to assess the feasibility of a dry dockproject for repair of large vessels proposed by the Senegalese Govern-ment. The proposed dry dock project was not considered feasible asa result of these studies.

The Project Completion Report (PCR) was prepared by theIndustry Department of the Bank on the basis of information from Projectfiles, from the Bank's staff involved, from co-lenders, and from theBorrower. Subsequently, comments on the draft report, received fromthe Borrower have been taken into account in finalizing the report.

The Senegalese Government and/or Dakarmarine approached theBank and IFC in 1977, 1978 and 1979, requesting them to consideralternative proposals of dry dock and floating dock projects. However,after further studies none of these projects was considered sufficientlyeconomic to warrant further Bank group support. The government finallydecided to go ahead with a smaller size floating dock with the assistanceof bilateral aid.

Comments from Government institutions on the draft report areattached as Annex 3.

This report has not been audited by the Operations EvaluationDepartment.

- ii -

PROJECT COMPLETION REPORT

SENEGAL - DAKARMARINE ENGINEERING PROJECT(LOAN S 3 SE)

BASIC DATA SHEET

KEY PROJECT DATAAmount (in US thousand)

As of 10/31/82Original Disbursed Cancelled Repaid Outstanding

Loan No. S-3 600 492 108 450 42

CUMULATIVE LOAN DISBURSEMENT

FY73 FY74 FY75 FY76

(i) Planned 90 511 600 600(ii) Actual - 246 413 492(iii) (ii) as % of (i) - 48 69 82

OTHER PROJECT DATA

Original Actual orLoan Date Re-estimated

Board Approval 9/11/73 9/11/73Loan Agreement 9/20/73 9/20/73Effectiveness 2/05/74 2/05/74Loan Closing 3/06/76 9/06/77Date of Physical Completion 10/73 6/75Borrower DakarmarineExecuting Agency Dakarmarine

MISSION DATA

Month, No. of No. of Date ofYear weeks Persons Manweeks Report

Preappraisal I 3/72 1/2 2 1 3/15/72"1 II 4/72 2 1 2 5/23/72it III 5/72 1 1 1 6/22/72

Preappraisal IV 7/72 1/2 2 1 7/25/72Appraisal I 10/72 1 3 3 11/20/72Appraisal II 2/73 1/2 2 1 n.a.Appraisal III 3/73 1 3 3 n.a.Appraisal IV 7/73 1 3 3 7/07/73Appraisal V 8/73 1 1 1 9/14/73

Supervision I 11/73 1/2 1 1/2 n.a.Supervision II 2/74 2/5 1 2/5 4/12/74Supervision III 12/74 1/2 1 1/2 n.a.Supervision IV 1/75 1/2 1 1/2 n.a.Supervision V 10/76 1/2 1 1/2 10/04/76

CURRENCY EXCHANGE RATES

Appraisal: Spring 1973 US$l = 230.0Completion: Spring 1976 US$1 = CFAF 235.12Average during Implementation US$1 = CFAF 230.0

- iii -

PROJECT COMPLETION REPORT

SENEGAL - DAKARMARINE ENGINEERING PROJECT(LOAN S 3-SE)

HIGHLIGHTS

In the Fall of 1971 the Bank was approached by the SenegaleseGovernment to participate in the financing of a dry dock project forship repair which could comprise: (1) construction of dry docks forrepairing ships up to 500,000 dwt; (2) construction of the breakwater,two repair berths and ancillary buildings; (3) dredging of the requiredbasin and entrance channel. The project was estimated to cost US$100million in 1973 terms. The Bank perceived substantial risks in theproject, as proposed, and recommended further studies to establish itsfeasibility with the dry dock project to be considered in a second phasebased on satisfactory results of these studies (paras. 1.01, 1.02, 1.05and 1.06).

The Project under review was an Engineering Project to studythe feasibility of the proposed dry dock project and consisted of threecategories of studies: (a) technical studies, to determine: thegeological, physical and environmental soundness of the proposed siteand layout and the optimal scope and size of dry docks which would betechnically feasible as a basis for developing sound capital costestimates; (b) market and economic studies, to develop financial andeconomic forecasts for the dry dock project based on the supply-demandsituation in the shiprepair industry and to establish its financial andeconomic feasibility; and (c) manpower and training studies, to determinethe need for personnel as well as the required qualifications formanagement and operating personnel for the proposed dry dock project(para. 3.04).

Implementation of the studies under the Dakarmarine EngineeringProject was satisfactory, mainly as a result of the relatively stableand experienced management of Dakarmarine assisted by the technicalsponsor, Beliard Murdock (paras. 2.03 and 3.09). The total cost of thestudies (including Dakarmarine's operating expenditure with respect tosupervision and coordination of the studies) was US$2.52 million, 18%below appraisal estimates, due to cancellation of some components in thetechnical studies, i.e., design work and preparation of tender documents(para. 3.10); the cancellation resulted from the conclusion by the Bankthat the proposed dry dock project was not economically or financiallyviable. The Government never fully accepted the Bank's views and con-tinued studying alternative proposals, some of which were subsequentlydiscussed with the Bank and IFC. One of these eventually led to thedecision by Senegal to order a 60,000 dwt floating dock supplied andfinanced under bilateral assistance and operating since 18 months.

- iv -

The Bank loan was disbursed to an amount of US$0.49 million,of which US$0.40 million was to finance the studies and US$0.09 millionto finance the interest on Bank loan during the implementation (paras.3.12-3.13). The Engineering Project was completed about six monthsbehind schedule, due to a substantial change in the shiprepair marketwhich required the carrying out of additional market and economicstudies (para. 3.08).

For analyzing the Engineering Project's experience, thefollowing points are highlighted in the PCR:

- Through the Engineering Project, the Bank assisted theSenegalese Government in its negotiations with the privatesponsors on the conditions of their participation in theproposed dry dock project aiming at an equitable sharingof risks and benefits between the Government and theforeign sponsors (paras. 3.01 and 3.02).

- The Bank's experience in the subsector of maintenance andrepair of very large ships was limited, but sufficient toselect and supervise experienced and competent consultantsfor execution of the studies deemed necessary to establishthe feasibility of the dry dock project and to reduce therisks foreseen in its implementation and operation (paras.1.03, 2.04, 3.01, 3.05 and 3.06).

- During the execution of the studies, several,developmentstook place in the international large vessel sector, whichreduced the chances for the commercial viability of theproposed dry dock project (paras. 4.01-4.03). Those devel-opments had already been identified as potential risksduring the Balk's appraisal. By recommending mui:e de,ailedstudies prior to investing in a large capital intensiveproject, the Bank prevented Senegal from launching anindustrial venture which would have resulted in seriousfinancial and economic consequences for Senegal. The Bank'sviews did not prevent, however, the Government from pursuingthe idea of building some shiprepair facilities and fromordering a 60,000 dwt floating dock (paras. 5.01-5.03 and6.04)

PROJECT COMPLETION REPORT

SENEGAL - DAKARMARINE ENGINEERING PROJECT(LOAN S 3-SE)

I. INTRODUCTION

1.01 For the purpose of this project completion report, we need todistinguish between two projects: (i) the Engineering Project, which refers tothe execution of the studies required to establish the feasibility of a drydock project proposed by the Government of Senegal and is the object of thiscompletion report; and (ii) the dry dock project for ship repair, which wasproposed to comprise: (a) construction of two dry docks, one for repairingships up to 300,000 dwt and another for ships up to 500,000 dwt; (b)construction of the breakwater and two repair berths; (c) the dredging of therequired basin and entrance channel; and (d) necessary buildings. The Bankprovided a loan of US$0.6 million for the Engineering Project.

1.02 The dry dock project, then estimated to cost US$100 million in 1973terms, was one of the main industrial projects considered by the SenegaleseGovernment in the early 1970's. In the fall of 1971 the Government of Senegalapproached several financial institutions to consider financial assistance forthe project and asked the Bank to take the lead in this respect. At the sametime, the Bank was presented with a similar project by the MalagasyGovernment. The Senegalese project was to be located in Dakar, 15 km East ofthe Dakar port, with existing small ship repair facilities, while the Malagasyproject was to be placed into Narinda Bay, an undeveloped area in theNorthwest of Madagascar.

1.03 During the spring and summer of 1972, Bank staff carried out an inten-sive study, assisted by two marine consulting firms, Shipping Consultants ofOslo, which conducted a market survey and Shipping Research Services, also ofOslo, which looked into the technical and operational aspects of the two drydock projects. The findings of the study suggested that (i) a high risk wasassociated with this type of project, and (ii) if both projects were toproceed at the same time, each would create market difficulties for theother. Dakar was in a better position because: it had technical sponsors,Beliard Murdoch I/ and SCAC, 2/ who were committed to the project; it had anexcellent geographic location with some experience in shiprepair business; andsome of the on-shore industrial and social infrastructure was alreadyavailable. Upon completion of the preappraisal of both projects in September1972 it was therefore decided to consider only the Dakar project.

1.04 Under the proposed dry dock project, a Government financed infra-structure company would construct and own the dry docks, breakwater and otherinfrastructure, and lease these facilities to a second superstructure company,to be owned and financed largely by the private partners and experienced shiprepair firms who would be responsible for providing the superstructure(cranes, equipment, wareho'ses) and for operation of the dry docks. The Bank

1/ A private Belgian group owning five shipyards in Belgium and France, whowas seeking to set up a center for the repair of supertankers and orecarriers. The existing facilities of the group could only accomodatetankers/carriers up to 300,000 DWT.

2/ Societe Commerciale d'Affretement et de Combustibles, a French privatecompany, owner of a small shipyard at Dakar, who had similar interests toBeliard Murdoch.

- 2 -

considered this enclave character of the project as highly risky for theGovernment, unless appropriate arrangements were made to share the project'srisks between the two companies.

1.05 The Bank also foresaw a high degree of market-, technical, andresulting financial risk for the Dakar dry dock project. The market riskcombined with uncertain technical conditions 3/, which could substantiallyincrease capital costs, and possible problems with productivity, couldjeopardize the project's viability. Failure of such a large investment wouldrepresent a serious burden for the Senegalese economy.

1.06 The Bank recommended phasing of the project. The initial phase wouldcomprise required studies as well as minor investments to be made almostimmediately in order to rehabilitate and expand the existing small ship repairfacilities. The Bank would assist in financing the required studies. Theperformance of the existing facilities would demonstrate the ability ofDakar to build up clientele for ship maintenance and repair, and would enableprospective investors to see whether the existing yard could build up a goodreputation. Only after completion of the studies, a decision would be made onwhether to proceed. The next phase would involve execution of the large drydock project, after the required studies would have (i) demonstrated itsmarket potential, (ii) provided detailed capital cost estimates, and (iii)established the project's feasibility; and after new financial arrangements,acceptable to the Bank, had been negotiated.

II. DAKARMARINE 4/ - THE COMPANY

A. Ownership

2.01 Dakarmarine was founded by the Government of Senegal, in 1971, tocarry out the pre-feasibility studies for and to promote the dry dockproject. Originally, the Company was established with a capital of CFAF 100million (US$0.44 million) of which 90% was provided by the Government ofSenegal, 5% by Beliard Murdoch and the remaining 5% by SCAC. Practically allof the original capital was used for pre-feasibility study work undertakenprior to the Bank's involvement.

2.02 To participate in the financing of the required studies proposed bythe Bank, Dakarmarine increased its share capital to CFAF 210 million (US$0.9million). The Senegalese Government provided CFAF 16 million (US$0.07 million)of the capital increase, with the balance taken up by Beliard Murdoch, SCAC,SENEMATEL (a subsidiary of a French industrial group), FINCANTIERI (a subsi-diary of the Italian group IRI), A.G. Weser (a German shipbuilding and repairfacility and subsidiary of a German industrial group), two Senegalese Banks(Union Senegalaise de Banque and the Banque Internationale pour le Commerce etl'Industrie au Senegal) and the European Investment Bank (EIB). As a result,the Government's shareholding decreased to about 51%.

3/ The uncertainty related to the soil conditions which could significantlyaffect project design.

4/ Societe pour le Developpement de l'Infrastructure de Chantiers Maritimes.

- 3 -

Subsequently, EIB transferred its share of the equity to the Government as agrant. The shareholding structure of Dakarmarine at inception, at appraisal,and subsequently is shown in the following table.

SENEGAL - Shareholders of Dakarmarine(in CFAF million)

Share- As OfAddi- holdings at December

Original % tional appraisal % 31, 1976 %

Government 90 90 16 106 50.5 136 64.8Beliard Murdoch 5 5 15 20 9.5 20 9.5SCAC 5 5 15 20 9.5 20 9.5SENEMATEL - 10 10 4.8 10 4.8A.G. WESER - 10 10 4.8 10 4.8FINCANTIERI - 10 10 4.8 10 4.8USB - 2 2 0.9 2 0.9BICIS - 2 2 0.9 2 0.9EIB - 30 30 14.3 - -

100 100 110 210 100 210 100

B. Organization and Management

2.03 Until the Bank's Engineering Loan was made, Dakarmarine had littleoperating staff. Its Chairman and Chief Executive was Mr. Issa Diop, aSenegalese with extensive administrative experience and the head of severalSenegalese corporations. The technical director responsible for projectpromotion and execution of the studies, was Mr. Dinechin, a dynamic expatriateengineer who had been associated with the project since its inception. Underthe financing plan for the Engineering Project, funds were included for theemployment of two engineers, a financial and accounting officer, and thenecessary secretarial and accounting staff, as well as for offices andcommunication facilities required for coordination of the studies.

C. Technical and Financial Support

2.04 The original feasibility report presented to the Bank in November 1971was prepared by Beliard Murdoch and its consultants. The Bank suggested thatit was essential that the dry dock project included sound technical andcommercial assistance to ensure a full service capability competitive with theEuropean yards, which was deemed to be critical. Beliard Murdoch, thetechnical advisor and main sponsor, was capable of providing technicalassistance and operating the dry dock project. Further, the Bank proposed toDakarmarine that it also associate itself with other financial or industrialfirms who would be able to help provide the financial resources needed for the

- 4 -

ultimate realization of the dry dock project. This prompted participation ofthe above mentioned firms in the company's shareholdings (para 2.02).

III. DESCRIPTION AND IMPLEMENTATION OF THE ENGINEERING PROJECT

A. Background

3.01 In Spring 1973, following the Bank's proposal to the SenegaleseGovernment for a phased approach (para 1.06), the Bank held meetings with theGovernment, private sponsors and co-lenders such as FAC, EIB and Fond Europeende Developpement (FED). The Bank decided to participate in financing thestudies because of its leadership in organizing and supervising earliertechnical work, its objective of ensuring the quality of the studies, as wellas its desire to help secure more equitable risks-and-rewards sharingarrangements between the Government and the private partners. Preliminaryagreement was reached on the estimated cost of the necessary studies (U.S.$3.09 million equivalent), the scope and terms of reference for theEngineering Project, the financing plan (including guaranteed reimbursement)and the disbursement arrangements. These arrangements were confirmed duringnegotiations which took place in Washington from August 6 to 10, 1973. Thefollowing points were agreed:

(i) A Bank loan of US$600,000 would be provided to Dakarmarine forpartial financing of the studies;

(ii) Beliard Murdoch would guarantee, jointly and severally with theGovernment of Senegal, for repayment of the Bank loan, in casethe dry dock repair project did not go forward;

(iii) Equitable financial arrangements between the Government and thesponsors on the dry dock project were necessary includingprovision of a significant share of the capital by privatesponsors; and

(iv) Arrangements for adequate technical backing by private sponsorswould be worked out.

3.02 It was also agreed, prior to negotiations, that the existingshiprepair facilities at Dakar would be expanded and improved to serve shipsup to 30,000 dwt and be operated during the study execution to buildexperienced manpower, a client base and a good reputation. The success ofthis expansion and operation was to be a condition for Bank participation inthe financing of the large dry dock project.

B. Objectives, Scope and Description

3.03 The objectives of the studies were to:

(i) assess the market for ship repair in order to reduce the marketrisk through the formulation of an appropriate scope for theship repair facilities to be built in Dakar;

- 5 -

(ii) provide technical and design information, such as exactlocation, type of foundation, size of dry dock and scope ofnecessary maritime infrastructure leading to a reliablecapital cost estimate for the ship repair facilities;

(iii) establish the feasibility of the dry dock project, based on (i)and (ii) above; and

(iv) suggest more equitable arrangements to share the risk andrewards between the infrastructure and superstructurecompanies.

Through this Engineering Project, the Bank would have an opportunity to assistthe Government in its negotiations with the private sponsors on the conditionsfor their participation, technical assistance and operations of the proposedship repair facilities.

3.04 The studies were divided into three components:

(i) Technical Studies included drillings and ultrasound testsnecessary to investigate the geological and physicalcharacteristics of the soil to determine the possible site,layout and dimensions of the dry dock, repair yard andbreakwater. These studies also included the preliminary designof the docks and yard, based on the optimal scope and size ofdry docks resulting from the economic study. Detailed costestimates were to be calculated on the basis of the selectedproject scope;

(ii) Market and Economic Studies included a survey of the worldfleet of large vessels and demand for repair facilities, aforecast of the evolution of the world fleet and traiffic likelyto pass the West African region to determine the likely demandfor services at the proposed dry dock as well as aninvestigation of actual and planned dock capacity to determinethe supply of competitive services. Based on the above,financial and economic forecasts were to be developed for thedry dock project; and

(iii) Manpower Development and Training Requirement Studies includeddetermination of the requirements for management andoperational personnel as well as the required qualifications.

Technical assistance for management and coordination of these studies wasprovided by Beliard Murdoch throughout the execution of the Project.

C. Use and Performance of Consultants

3.05 The procedures followed for the selection of consultants wereacceptable to the Bank.5/ The main consultant for the technical studies wasJ.C. DeWeger International, B.V., of Holland, who also coordinated and

5/ At that time there were no published guidelines on the use ofConsultants.

- 6 -

supervised other engineering firms (drilling, hydrographic studies) andprepared the preliminary design of the layout and structure of the ship repairfacilities. Drillings were carried out by INTRAFOR-COFOR of France inassociation with a Senegalese company SASIF (Societe Africine de Sondage,Injections et Forages). Hydrographic studies were carried out by DelftHydraulic Laboratory (DHL) of Holland, acting as a subcontractor to DeWeger.DHL covered the mathematical and physical models to determine the mosteffective location of the dry dock and the shape of the breakwater.

3.06 The main consultant in the market and economic studies was SEMA ofFrance, which also coordinated the work of Lloyds Shipping Company of Englandand Shipping Consultants of Norway. Lloyds investigated frequency andduration of vessels staying for maintenance and repair, including frequency ofvessel accidents and resulting repair requirements. Shipping Consultantsprepared the forecast for the evolution of the World Fleet and thecorresponding traffic relevant to Dakar. Input of information from oneconsultant to another about the optimum size and number of dock and quayfacilities based on the market situation was not produced in time and resultedin a delay of one month of the report on yard layout, preliminary drawings andthe detailed cost estimates. Investigations on the necessary training andrecruitment for the management and operating personnels of the ship repairproject were done by EUREQUIP of France, under the supervision andcoordination of SEMA.

3.07 The technical studies were satisfactory and established that the soilconditions at the selected site were suitable for the construction of a drydock. The Bank considered the conclusions of the market and economic reportsto be optimistic; the impact on the dry dock project's viability of (i) thepossibility of the widening and reopening of the Suez Canal, (ii) theconstructions of new dry dock projects in several parts of the world, notablyin OPEC countries, and (iii) most importantly, the low growth in oil con-sumption with the resulting stagnation of the world tanker fleet, wasconsidered underestimated. The training and recruitment studies werejudged to be satisfactory in their content.

D. Implementation of Engineering Project

3.08 Drilling at the proposed site was started as early as June 1973 basedon a contract between Dakarmarine and INTRAFOR-COFOR and SASIF, signed in July1973, prior to the presentation of the Bank loan to the Board. The Bankagreed to financing initial payments of up to US$25,000 under the contractretroactively. The technical studies were completed by DeWeger withinschedule and submitted to the Bank in September 1974, whereas the market andeconomic studies were submitted in April 1975, six months behind schedule dueto requests for additional information in the light of a changing marketsituation. This also delayed the final submission of the manpower and trainingstudies which were combined with the market studies in a single report. Therealized schedule, as compared to appraisal projections, is shown in thefollowing table. Recruitment of staff under the Engineering Project (para2.03) proceeded satisfactorily.

- 7 -

SENEGAL - Dakarmarine Engineering Project

Implementation Schedule

Starting Month Ending MonthAppraisal Actual Appraisal Actual

Technical Studies June '73 June '73 Aug. '74 Sept. '74 a/

Economic Studies Oct. '73 Oct. '73 Oct. '74 Apr. '75

Manpower and TrainingRequirement Studies Oct. '73 Oct. '73 Oct. '74 Apr. '75

a/ Only reflects the first stage. A second stage dealing with design andtender document preparation was subsequently cancelled.

3.09 Beliard Murdoch was effective in its role as Project promotor,coordinator and the firm providing technical assistance and facilitatedProject implementation. It was responsible for relations with the co-lendersand was effective in gaining their approvals etc. expeditiously.

E. Project Cost, Financing and Disbursement

Project Cost

3.10 The total financing required for the Project was estimated at CFAF 710million (US$3.09 million) including: (i) an estimated cost of the studies ofCFAF 540 million (US$2.36 million), (ii) CFAF 75 million (US$0.31 million) forlocal expenses of the studies and operating cost of Dakarmarine to coordinatethe studies and (iii) a provision of CFAF 95 million (US$0.42 million) forprice escalation and contingencies. The actual costs of the studies amountedto CFAF 475 million (US$2.07 million) or about 75% of the original estimate,including contingencies. Co-lenders had concluded based on the studies andtheir own assessment that the dry dock project was not financially andeconomically viable and therefore there was no need to go ahead with designand tender document preparation included in the original scope of theEngineering Project. This resulted in a cost underrun in the technicalstudies. The actual cost of the economic studies was higher than theappraisal estimate due to the additional work done in response to the changingmarket condition. The detailed Project costs are shown in Annex 1 andsummarized in the following table.

- 8 -

SENEGAL -Dakarmarine Engineering Project

Project Cost(Appraisal: million, constant 1973 terms)

(Actual: million, current terms)

Appraisal Estimate ActualCFAF US$ a/ CFAF US$ b/

Studies 540 2.36 475 2.07Operating expenditures 75 .31 105 .45(Project CoordinationExpenses)

Sub-total 615 2.67 580 2.52

Escalation and Contingencies 95 .42 - -

Total Costs 710 3.09 580 2.52

a/ Exchange rate: US$1 =CFAF 230b/ Average exchange rate during implementation: US$1 = CFAF 230

Financing

3.11 The co-lenders financed 100% of the foreign exchange cost of thestudies, whereas Dakarmarine financed, out of its additional equity (para2.02), the local cost, as well as its own operating and coordinationexpenses. The appraised and actual financing plan are contrasted below:

SENEGAL - Dakarmarine Engineering Project

Financing Plan(million, current terms)

Appraisal ActualCFAF US$ % CFAF US$ %

Equity: Dakarmarine 110 .49 15 110 .48 19

Loan: EIB 240 1.04 34 189 .82 31FAC 240 1.04 34 189 .82 31IBRD 120 0.52 17 113 .49 19

710 3.09 100 601 2.61 100

3.12 The Bank loan financed 92 million CFAF (US$0.40 million) of the costof the studies, including US$25,000 retroactively as originally envisioned,and 21 million CFAF (US$0.09 million) of interest charges during the two yearsof implementation.

-9-

Disbursement

3.13 Disbursement was arranged based on an agreed "lenders protocol",whereby all lenders received evidence of expenditure from Dakarmarine. US$.49million of the Bank's loan was disbursed and $.II million cancelled. Thefirst disbursement was one quarter behind the appraisal schedule, due todelayed effectiveness, and the last disbursement of US$.08 million was made inthe first quarter of 1976 or about two quarters behind schedule, mainly due tothe delay in the execution of the economic study. The disbursement schedulefor the Bank loan is shown in Annex 2.

3.14 The closing date of the loan was extended by 18 months, from theoriginally agreed date of March 6, 1976 to September 6, 1977, mainly becausethe Senegalese Government was still considering a reformulated ship repairproject and reappraising the ship repair market (para 5.01).

IV. MARKET FOR SHIP MAINTENANCE AND REPAIR-FACILITIES

4.01 Demand: Dakarmarine's dry dock project was originally aimed at theconstruction of two dry docks for repair and maintenance of large oil tankersand ore carriers of 100,000 dwt and up to 300,000 dwt (VLC's), with acapability of handling vessels up to 500,000 dwt. During 1968-1973, thegrowth of the vessels with capacity between 100,000 - 300,000 dwt had beenrapid, with over 200 VLC's in use in 1973. During the time of appraisal, thegrowth of these large vessels was projected to continue to be high leading toan estimated 600 VLC's in service in 1975. However, a stagnation in world oilconsumption and imports as a result of drastic fuel price increases startingin late 1973, the reopening and widening of the Suez Canal in 1975, and theconstruction of the SUMED pipeline in Egypt in the mid 1970s led to astagnation and even a partial mothballing of VLC fleets. Moreover, newtechnology in tanker repair and maintenance also contributed further todrastically reducing the demand for repair facilities. Because of thesedevelopments, and the corresponding reduction in demand for ship repairfacilities, co-lenders asked Dakarmarine in Spring 1975 to investigate thepossibility of seeking a "captive" market, i.e. of obtaining firm assurance(contracts) from oil producing countries to send their fleets to Dakar forrepair. This measure was intended to reduce the substantially increasedmarket risk; without it the dry dock project was perceived to be unacceptablyrisky.

4.02 Supply: A report on "Repairing and Dry Docking Large Carriers" byDrewry 6/, of July 1974, suggested that a potential over-supply in dry dockfacilities would result if only 12 of the 30 large carrier repair docks,planned at that time, materialized. At the same time, some OPEC countries whohad been approached by Senegal to consider investing in the proposed dry dockproject and commit repair of their tanker fleets to the Dakarmarine projectwere starting ship repair projects of their own, i.e. in Dubai, Bahrain andIran, and therefore showed no interest. Japanese yard owners, because ofempty order books, converted existing yards for VLC construction to repairfacilities. Moreover, Dakar would have to compete against yards in Europe andJapan which had definite advantages over Dakar through the ready availability

6/ H.P. Drewry, Shipping Consultants Ltd. of London.

- 10 -

of repair materials, the ease of obtaining sophisticated parts, theavailability of highly qualified labor forces and an established reputationfor expertise, reliability and speed.

4.03 Demand-Supply Balance: The residual demand for dry dockingfacilities, which had been projected mainly based on the fast growing demandof VLC's had turned out to be non-existent: on the contrary, the stagnantnumber of VLC's coupled with several new dry dock facilities to meet theearlier optimistic forecast had created an oversupply situation in the repairmarket.

V. NEW PROJECT CONCEPT IN LIGHT OF MARKET DECLINE

5.01 In spite of the developing oversupply situation in repair facilitiesfor VLC's, the Senegalese Government continued to consider a VLC repairproject.7/ In late 1977, the President of Senegal requested the Bank toevaluate a reappraisal of the ship repair market and to consider anotherproject concept, considerably scaled down and reformulated in response to arevised market study. The Government also requested the Bank to financethe final engineering studies necessary for the new scaled-down project. Themarket study prepared by A & P Appledore, a shipping consultant of England(published in August 1977 and presented to the Bank in April 1978), had beenfinanced by the Senegalese Government and suggested existence of demand forship repair facilities in the Dakar region, capable of receiving ships up to60,000 dwt. The project cost for the shipyard itself, its docks and itsequipment was estimated at US$60 million in 1977 prices, the rate of return ataround 15-20%. The project was proposed to be implemented in two phases: afloating dock capable of taking ships up to around 30,000 dwt in the firstphase, followed by a 60,000 dwt dock in the second phase.

5.02 Since the financial viability of the project would still hinge on theestablishment of a sufficient market share, the Bank was in favor of firstestablishing Dakarmarine's ability as a competitive ship repairer in Dakar'sexisting facilities. The Bank again recommended a phased approach. The firstphase would be upgrading and expanding the existing facilities, serving shipsup to 30,000 dwt and establishing training programs for marketing managementand technical operation of the project. The acquisition of a facility tohandle vessels exceeding the capacity of the existing dry dock, was suggestedto go ahead only in a second phase when the operations were proven to beefficient and financially viable and the future market was assured.

5.03 Nevertheless, the Senegalese Government went ahead with the order of a60,000 dwt floating dock assisted by a bilateral aid program. The dock, wasinstalled in the port of Dakar in 1980, and- began operation on March 18,1981. At this point, it would be difficult to make a fair judgment on itsperformance since the project has been in operation for not even two years.

7/ Several alternative project scopes were considered by Dakarmarine and itsconsultants subsequently, but none of them was considered feasible by thecolenders.