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Implementation Completion Report (ICR) Review - Ports Development And Environment Improvement Project

1. Project Data:   
ES Date Posted:
Project Name:
Ports Development And Environment Improvement Project
Project Costs(US $M)
 1,106.96  1169.94
South Korea
Loan/Credit (US $M)
 100  88.2
Sector, Major Sect.:
Central government administration, Ports waterways and shipping, General water/sanitation/flood protection sector,
Law and justice and public administration; Transportation; Water sanitation and flood protection
Cofinancing (US $M)
L/C Number:
Board Approval (FY)
Partners involved
Closing Date
12/31/2000 12/31/2003
Prepared by: Reviewed by: Group Manager: Group:  
Kavita Mathur
John R. Heath Alain A. Barbu OEDST

2. Project Objectives and Components:

a. Objectives
The stated objectives of the project were to: (a) help address the major environmental concerns in Korean maritime transport;

(b) reduce the level of noise, air pollution and traffic congestion in the City of Pusan (now Busan); and
(c) strengthen the Korea Maritime and Port Administration's (KMPA) capacity to deal with environmental issues during port development and operation.
As stated, the (primarily environmental) project objectives are somewhat misleading as there clearly were broader (but implicit) port infrastructure development objectives. When the project was restructured, the objectives should also have been reviewed accordingly.

b. Components
The project had five components (with appraisal estimates and actual costs in parenthesis):
(a) Ship Waste Disposal Facilities (appraisal US$12.4 million, actual US$8.2 million), to finance the construction of facilities for the collection, storage, treatment and disposal of liquid wastes, garbage and sewage from ships;
(b) Construction of the Port of Dadaepo (appraisal US$425 million, actual US$0 million), to finance a nine-berth port complex with 940m of linear wharves at Dadaepo for the handling of timber and marine products and other cargo;
(c) Vessel Traffic Management Systems (VTMS) (appraisal US$21.1 million, actual US$55 million), to finance the development and installation of a traffic management system to monitor, regulate and control vessel movements at Busan and Inchon/Asan in order to improve safety and provide better control and coordination;
(d) Development of Container Terminal in Busan (appraisal US$468.7 million, actual US$393.6 million), to finance procurement of quay side container cranes at the four berths of Phase IV of the Busan Container Terminal (the berths were constructed using local funds); and
(e) Technical Assistance and Training (appraisal US$3.4 million, actual US$5.0 million). This component included the following: (i) Establishment of a comprehensive program for marine monitoring and assessment of Yellow Sea Large Marine Ecosystem, (ii) technical assistance to formulate and evaluate investment options, policies and strategies, relating to the collection, storage, treatment and disposal of ship waste, (iii) Environmental Training, (iv) Operational and Technical Training, and (v) Institutional Development, to further improve port management and operations.
Revised Components:
Dadaepo port component was cancelled due to resistance from residents living near the proposed site. US$5.0 million was allocated for additional training of the Government staff in environmental and economic policy.
With the onset of the Asian Financial Crisis, the project was restructured and loan funds were reallocated for:
(i) construction of the second phase of a container port facility at the Gwangyang Bay (actual project cost 708.1 million),
(ii) two studies, one on port pricing and the other to improve Korea’s maritime environmental management, and
(iii) operations training for Korea Container Terminal Authority (KCTA) staff.

c. Comments on Project Cost, Financing and Dates
Following the cancellation of Dadaepo Port component, US$5.0 million was allocated for additional training and the Loan Agreement was amended. On March 10, 1998 the project was restructured and US$46.3 million was allocated for Phase II development of Gwangyang Port. and the Loan Agreement was amended on April 13, 1998. The closing date was extended by two years. Another extension of one year was granted to complete the training component. At project closing, US88.2 million was disbursed and US$11.8 was cancelled.

3. Achievement of Relevant Objectives:

The objective to help address the major environmental concerns in Korean maritime transport was achieved satisfactorily.
  • Ship Waste Disposal facilities were constructed for the collection storage, treatment and disposal of wastes from ships according to MARPOL 78/73 and Marine Pollution Prevention Law (Article 46).
  • VTMS was installed in both Inchon and Busan ports and became operational in 1998. VTMS has considerably reduced the number of ship accidents from 69 in 1995 to only 11 in 2002, thereby improving the environmental conditions of Korean waters.
  • A study to improve Korea's marine environment management was carried out and its recommendations were implemented.

The objective to reduce the level of noise, air pollution and traffic congestion in the City of Busan was not achieved. There has been some progress in reducing the use of "Off-Dock Container Yards" in the city. However, cancellation of Dadaepo Port component halted the movement of timber and marine cargoes and related processing industries from the center of Busan to Dadaepo. Substantial growth in container traffic at Busan exacerbated congestion and pollution related to port activities.

The objective of strengthening the institutional capacity to deal with environmental issues during port development and operation was modestly achieved (see section 5 for shortcomings). Training program for staff was carried out.

  • Eight KCTA staff were trained in Netherlands, Japan, Taiwan, and the USA on topics relating to developing, operating and managing container terminals.
  • Sixteen Ministry of Maritime Affairs and Fisheries (MOMAF) staff received international training on advanced technology on port development and environmental protection.
  • Forty-nine Ministry of Finance and Economy (MOFE) staff received extensive training at various universities in the USA, Europe and Japan on issues related to public policy and the environment.

The implicit objective of the development of major port infrastructure was also satisfactorily achieved. The project did build substantial infrastructure for Phase II of the Gwangyang Port and Phase IV of Busan Port. The ex-post economic rate of return for Gwangyang II is 14%, which is in line with the original estimate of 16% for base case estimate and 14% for low traffic case estimate. For Busan Phase IV, the ex-post economic rate of Return is 19% compared to the appraisal estimate of 25%.

4. Significant Outcomes/Impacts:

Mobilization of private resources - Container Development Bonds and yen denominated Samurai Bonds, for the construction of Phase II of Gwangyang Port.
  • Adoption of VTMS at all ports in Korea. VTMS led to an increase in port operational efficiency which provides increased vessel safety, better management of vessel entry/departure and shorter berthing time of vessels by providing real time information to port operators.
  • Successful implementation of the waste facilities at 13 small ports countrywide.

5. Significant Shortcomings (include non-compliance with safeguard features):

Lack of borrower commitment in implementing the institutional development subcomponent of the project as laid out in the SAR. These include: (a) a system to privatize the multipurpose terminals at all 27 international ports; (b) an improved system of performance agreements with various terminal operating companies; (c) standard operating procedures and engineering designs for the retrofit of existing port facilities to minimize the pollution caused by their operations.
  • Substantial delays in the implementation of the training and technical assistance, except for items directly related to investments, such as the planning and design of the Ship Waste Disposal Facilities.
  • The Bank did not systematically monitor or report performance indicators.
  • There is uncertainity regarding the sustainability of benefits from Gwangyang Container Terminal. Traffic at Gwangyang is behind the original forecasts and there possibility that Busan might capture business from Gwangyang.
  • 6. Ratings:ICROED ReviewReason for Disagreement/Comments
    SatisfactorySatisfactoryThe rating is based on the achievement of both explicit and implicit objectives.
    Institutional Dev.:
    LikelyLikelyOverall, sustainability has been rated "Likely". However, there is uncertainty regarding the sustainability of benefits from Gwangyang Container Terminal. Traffic at Gwangyang is behind the original forecasts and there possibility that Busan might capture business from Gwangyang.
    Bank Performance:
    Borrower Perf.:
    Quality of ICR:

    7. Lessons of Broad Applicablity:

    Based on the ICR the key lessons are:
    • The Bank can effectively leverage its credibility to mobilize private sector funds for investment. The experience of the project shows that even though the Banks contribution was less than 6% of the total project cost, the Banks participation provided confidence to the markets for other bond placements.
    • The Bank has difficulty monitoring expenditures on project components financed entirely by the Borrower. Therefore, in designing future similar projects, this should be carefully taken into consideration. The project should include indicators that can be easily monitored. If institutional development is entirely funded by the Borrower, the Bank should have these developments covenanted in the Loan Agreement.
    • Stakeholder participation is critical for successful implementation of the project.

    8. Audit Recommended?  No


    9. Comments on Quality of ICR:

    The quality of ICR is satisfactory. The discussion of the project experience was thorough and a good effort has been made to draw out important lessons. However, the ICR should have clarified the main thrust of the project at the outset, including both its explicit and implicit objectives

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