R E S T R I C T E D

R ep o r t N 0o TO-250b

This report was preparod for u5e within tho Bank. It mcy not be publis'iodnor may it be quoted as representino the Baonk's views. TFhe Bank accepts norosponsibility for tho accuracy or completeness of tho contents of the report.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPNIENT

APPRAISAL OF

THE

ISRAEL PORT DEVELOPMENT PROJECT

August 25, 1960

Department of Technical Operations

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CURRENCY EQUIVALENTS

$U.S. 1 = IL1. 80IL 1. 00 - $U.S. 0. 55

APPRAISAL OF T1h,E IS1-lJI:L PO'iT DBVELMOPI43NT PROJECT

Table of Content-s

S UA. i - ii

I. INTRODUCTION 1

II. EXISTING PORT SYSTEM 1A. General Rurpose, Function, and Service Areas 1B. Organization, V.anage-rent and labor 2C. Existing Port Facilities 2D. Port Operations 5E. Amount of Traffic 6F. Rate Structure ar.d Tariffs 6G. Present Port Finances 6H. Earnings

III. PORT DEVELOPMENT PROGRAM 10A. The Traffic Outlook 10B. The Ten-Year Program 1960/70 11

IV. THE PROJECT 12A. General 12B. Planned New Facilities 14C. Construction and Contract Procedures 15D. Economic Justification 16E. Expected Financial Results of Project 18

V. FUTURE POAiT AUTHORITY 19A. Establishment of Authority 19B. Facilities and Properties 19C. Financial Aspects 20

VI. CONCLUSIONS AMD RZCOMk2KDATIONS 22

Table No. 1 Manpower Employed in Israel's Prts - 1959Table No. 2 Port of Haifa - Dry Cargo Traff-:z - 1955-1959Table No. 3 Dry Cargo Traffic, Ports of Jaffa and Tel Aviv, 1956-1959Table No. 4 Dry Cargo Traffic, Port of Eilat - 1957-1959Table NTo. 5 Growth and Composition of Dry Cargo Traffic of Israel's

Ports 1955-1959Table No. 6 Income Account of Israel's Ports, 1954/55-1959/60Table No. 7 Comparison of 1959 with 1965 and 1970 Port Traffic by

Commodities and RoutingTable No. 8 Fixed Assets and W4orking Capitai of Future Port Authorfity

as of March 31, 1965 and 1970Table No. 9 Punded Debt of Future Port Authority as of March 31,1965 & 1970Table No. 10 Estimated Income Account of Port Authority for 1969/70

Appendix A The NTew Port of Ashdod

Map No. 1 Ports of IsraelMap No, 2 Port of Ashdod

APPRAISAL OF THE ISRAEL PORT DEV]LO?T1,CNT PROJECT

i. The Government of Israel has prepared a ten-year program of portdevelopment (a) to enlarge the countryts main port of Haifa, (b) to builda new port at Ashdod, and (c) to develop the port of Eilat. The first partof this program is to be executed in five years, by 1965, The proposed loanof US"27.5 million eauivalent (Ir 49.5 million) from the Bank would help tofinance construction of the port of Ashdod.

ii. The estimated total cost of the Ashdod port project is IT 98.4 mil-lion (us$54.7 million), including working capital and interest during construc-tion. Assuming that a loan is made by the Bank, the Government would assurethe availability of the balance of the funds reql red, IT- L8.9 million eQuiv-alent to 1US%27.2 million, to carry out the projec. ,. Since thne foreign e:-change costs (including interest during consttr-uc: .on on the loan amount) w'ouldtotal US$i8 million (I= 32.4 million), the remair:ler of US.Q)9.5 million wculdbe applied to local costs of construction, equipr.^nt and engineering.

iv. Foreign ex.-erts have advised the 11iinistry of Transport on -he KeSigA1and layout of Ashdod port, and qualified consulting engineers are preparing de-tailed plans. The cost estimates are realistic. All major construction con-tracts will be awarded through international coinetitive bidding. Consultingengineers will supervise construction. The project is technically sound andwell conceived, and the arrangements contemplated for its execution are satis-factory. The port should be ready to handle citrus in 1963 and be fuflly opera-tive (first phase) in 1965.

v, On the basis of the 1965/66 traffic volume and a reasonable allowancefor growth, present tariffs (with mninor adjustments), wages and prices theearnings of the new7 port of Ashdod wo-uld be sufficient to meet the debt serviceon a US.$27.5 million Bank loan repayable at 5-3/L,< in 20 years from 1965.Little would remain for working capital and other needs. However, the Govern-ment is to revise port tariffs, following recoyxaendations m.ade by its consult-arnt, the effect of which would im.rprove the financial position of the new port.

vi. Also on the advice of consultants, the Government has decided to es-tablish a Port Authority as an autonomous public enterprise empowered to formu-late port development policy, to plan, finance and e -ecute port works, and tomanage and operate the ports. The Authority should be financially self-support-ing and would be authorized to charge adequate rates for thiS purpose. The

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Bank agrees that there should be a Port At.'.uotl ty, The cond tions under whichit ,Tould be establi-'v!ed, as well as the terms on vThich the ezisting por'u facil-ities would be transferred to it by the Gover,:ur.ent w,ill recuire the Bank'1 sagreement. It is expected that the Authority will be established early in 1961,when the Government would transfer to it (a) all eaxisting port facilities, (b)all port works in progress, and (c) responsibi-ity for existing contracts forthe port development program.

vii. T'e Government's presen-t intention is to supply all constructionfunds and that the Authority should incur no debt (apart f'ron that of the pro-posed Bank loan, wlhich woul-d be mran Authori ty obibation to the Government) forthe development program. up to 1965. rT-e Authority w,ould be expected to co,pen-sate the Government for the value of all capital assets acqui ed from it, therate of payrm'ent to be related to the useful life of the asset, but the Goovern-ment has assured the Bank that it will draw no cash for interest or amortiza-tion on its investment until the port of Ashdod shall have been built, and thnat

withdraials thereafter would be limited to afount.,3 consistent wTith the Author-ityts o-in needs.

viii. Estimates of the earnings of the combined port system in 1965/66(Haifa, Ashdod and Eilat) indicate that the Port Authority would have amplefunds to service the Bank loan for Ashdod, that wjithin only a short time itcould begin to amortize the Goverm¶entts investment at 6% interest over Layrears, the average useful life of the assets, and to retain adequate worldngcapital.

ix. The Ashdod project is suitable for a Bank loan of US$275 millionequivalent. The Government would be the Borrower. A term of 25 years, in-cluding a five year period of grace, would be appropriate.

I. Iti1T RODJCTION

Israel Governmient's Reques-t to Bank

1. The Government of Israel is undertakLng a port developmnnt pro-grams Israel has seaports on the Mediterranean and the Red Sea (see 1Mlaa1). A ten-year program has been prepared to enlarge the m.ain port ofHaifa, build a new port at Aslidod, and develop the Red Sea port of Eilat.Planned expenditures for th'e works to be comnpleted and the operational equip-ment to be installed by Karch 31, 1965 would tot-al bout US$81 million equiv-alent at the official rate of exchange.

20 The Bank is considering a loan of US!$27.5 million equivalent tohelp finance the construction of Ashdod to its planned capacity as of early1965. The proposed loan is equal to about half the estimated project coststotalling some Us5%5 million equivalernt including interest during constructionand initial working capital. Approximately a third of the costs, or an es-timated $j18Q0 million, would be foreign exchange expenditure for goods, serv-ices, and financial charges.

3. The Governmenit will establish a Port Authority to develop and operatethe port system of Israel as a whole. Responsibility for the Ashdod works andfor the management of the future port will be transferred to this Authorityas soon. as it is established, probably no later than April 1, 1961l

4. 1 The project appraisal set forth in this report is based on the find-ings of a Bank Mission which visited Israel in March/April 19603 on subsequentdiscussions with a Govermment delegation which came to the Bank, and on inform,-ation supplied by the GovernmentIs consultants.

II. EXISTING PORT SYSTEiM

A. General Purpose, Function, and Service Areas

5. Haifa, Tel Aviv and Jaffa on the JMediterranean serve primarily fortrade with Western countries, while Eilat on the Red Sea is a port for tracewith Africa, Asia and the Far East. Haifa is a deep-water port of directloading and discharge; it is protected by a breakwater, completed in 1933,behind which ships can berth safely throughout the year. Tel Aviv and Jaffaare open-roadstead lighterage ports, situated less than six km apart, about100 km south of Haifa. There has been a port at Jaffa since Biblical times9but Tel Aviv is a new port dating back to 19380 Eilat, at the head of theGulf of Aqaba, is a deep-water port in service since November 1956.

6. Haifa is Israel's largest and best equipped port; it serves thewhole country for imports of grains, industrial materials and heav,y equipment,aand is also the local port of the northern region (see Map 1). Tel Aviv andJaffa are well situated to serve the central region, Israel's most denselypo<- -Uted and rapidly growing area, but have limited capacity. Eilat is pri-marily an outlet for potash, phosphates and cement from the southern region,

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7. The ports supplement each other; for example, during seasonal con-geE ±oi cargo can be diverted from Haifa to Tel Aviv/Jaffa, or vice versa,and at times of storm from Tel Aviv/Jaffa to Haifa.

B. Organization, Management and Labor

8. The ports of Haifa, Jaffa and Eilat are owned by the Govern.wnt ardoperated by the MKnistry of Transoort and Com%muaaications through a Divisionof Shipping and Ports in Jerusalem. The porG of Tel Aviv is owned by MarineTrust Ltd. - a private company three-fourths of whose shares are Governr.ent-owned, but is operated, for all practical purposes, like the public ports.

9e The Shipping and Ports Division is headed by a capable, efficientDirector. He is assisted by Section Chiefs responsible for ports, shippingand other services, and by an Engineer for Harbors and Coasts. The level 5f

administrative and operational efficiency is high,

10. Day-to-day operation of the ports is left to competent local Direc-tors. They are served by efficient staffs responsible for the variousfunctions of management, accounting, engineering, harbor services, traffic,etc.

11. The longshore3 stevedoring ard lighterage workers at each port fCo rMa permanent labor force organized in trade unions. About 3,000 men supplement-ed seasonally by casual labor are normally er,mployed in this work (see Table1); they are among the highest paid labor in Israel, and their productivityis equal to Western European standards. Management-labor relations are good.

C. Existing Port Facilities

a) Haifa

12, The city of Haifa wit'< a population of over 210,0CCO is built aroundthe port, which therefore lacks roorm for ex-pmansion. Haifa Bay is the onlynatural indent in Israel's smooth coastline; t1he port is protected fromsouthwesterly gales by Miount Carmel and from ncrthern gales by breakwaters.It can accom.odate 10 - 15 deep-sea freighters of a maximum draught of 33 feet.Normal tidal range is only 0,6 metters, Tankers can load and cLischarge throughsubmarine pipelines offshore; there is also an oil dock within the main har-bor.

13- To the east of the main port -ties the small coastal harbor ofKishon, also protected by breakwaters, which is used as an auxiliary port toHaifa by lighters and other small craft up to 300 feet in length and 18 feetdraught.

14. The present transit sheds provide covered storagel for about34,000 tons of dry carg,o; this is supplemented oy 70,000 so. m. of ope:.storage space. The storage tarnks for the oil 2efinery near the port can

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hold more than 4.0 millfon barrels; almost all -the crude oil is no; brmiEghtin by an overland pipe-line sfrom 2Uilat0 WithJin ,he port area are a r.crn silowith storage facilities for 20,000 tons of grain- and a transit shed, sct asidefor potash, of about 8,ooo tons capacity. C-utsi.d.ce the port area are ccldstorage facilities for about 12,O0O tons. The port is -well-equippedwithcranes, forklift truck s, tracto r-`ra;ilers and conveyors for handling generalcargo. There is also specialized equipment for discharging bulk graini andfor loading b.ulk potash, Passengers are accopmodated at temporary facilitiesin a transit shed, There are th-ree privately-owned shipyards at the potequipped to do most types of ship repair; they lhave the use of a modern7,500 ton fioating dock owned by the port adidn,stration. -- ess than half ofthe inland traffic to and from Haifa is moved b- railway, mrore than half bytruck; the proportion of truck-hauLed cargo is .`ncreasing. The State Rail-ways' main line skirts the port, making it necessary for all road trafficto cross the rail track in order to get JI or out of the port area. Thiscauses considerable congestion on the access roads and streetse

b) Tel Aviv and Jaffaillf~~ .1 u

At each Port there is a s.a'l bas-in for lighters; the depth of waterat each is less than three meters, Both have enough storage area, transitsheds and cargo-handling equipment on shore, and enough harbor craft afloat,to be useful lighterage ports of limited capacity. Neither port has railwayservice. Ocean-going vessels have to anchor about a half mile offshore.During periods of heavy seas, which occur from *December to April, all lighter-age must stzdp,

c) Bilat

16. Eilat is a natural deer.pwater port.> It is built on a coastal stripat the head of the Gulf of Aqaba, where the t-errain slopes steeply to a narrowbeach shelving quickly to deep water. The maxi-nmum difference between .ighand low water is 1.4 rm, There is no railway service; all cargo is broughtto or carried from Eilat by trucks which cross the Negev. The port is es-sentially a single "T"'-headed pier capable of barthing two freighters vwithdraught up to 30 feet, Tankers discharge crude oil at two offshore submarinepipelines which feed into a 16 inch diameter overland pipeline to the Haifarefinery about 300 km away, Covered storage capacity is inadequate 'but anew transit shed is being built,,

Condition of Existing 1ort Facilities

17. The facilities of all the ports are well-maintained and in a goodstate of repair. The entrance to Haifa port has been virtually free fromsiltation but there are now signs that the built-in sard catchment areaformed by the main breakwater is about full. Studies will soon be made todetermine how best to remove the sand and prevent it from encroaching onthe harbor entrance.

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Do Port Operations

18. A11 ports are w;ell managed and efficiently operated. Modern cargohandling techniques are employed and mechanized equipment is used extensively.Operations at the Mediterranean ports have to cos -with seasonal traffic.Haifa is the home port of Tsrael's merchant marine, Kishon the base of theMediterranean fishing fleet+

19. The Haifa port administration provildes for the pilotage, moving,berthing, shifting, fire fighting and salvage of ships, and repairs and main-tains all the Government-owned facilities such as the quays, sheds, andportal cranes. Stevedoring, lighterage and porterage are done by privatecargo handling finrs which work urnder the contrcl of the port adrrLnist"ration.They own, operate and maintain their own lighters, mobile cranes, forklifts,etc. The facilities for handling bulk grain, potash and petroleum are owned,operated and maintained by the local silo, potash and refinery enterprise.Kishon Harbor, although Government property, is operated by a private cornces-sionaire.

20. Cargo at Haifa is palletized whenever practical and worked by fork-lift trucks and tractor-trailer units; this equipment is used intensively.The tonnage of general cargo handled per foot length of quay, 600 tons a year,is among the highest in the world. Labor prcductivity is good. The turn-around time of ships averages about five days for an average loading or dis-charge of 2,200 tons of dry cargo; this is a good rate of dispatch.

21. The Haifa facilities are overtaxed} particularly during the citrusexport season. As a result, ships are delayed awaiting berths, have to bemoved frequently between berths, and the port s orage and wnrking areas arecongested. The port is ncw comoelled to work oi. a two-shift basis all vhroughthe year, and to make increasing use of lighterage during traf Pc pea1.s. Thetourist season coincides with the neavies-t cargo movement3 the resulting oc-cupation of berths by large passenger ships for days at a time causes seriousdelays in the flow of goods. Haifa is now at the linit of its sustained wor.<-ing capacity and must have additional facilities.

223 All port services at Tel Aviv, Jaffa, and Eilat are provided by theport administration which also owrns all the handling equipment. Tel Aviv andJaffa are inadequate, as exposed lighterage ports, for the growing trafficof their service area. They cannot be converted into deep-water ports ofsufficient size for the followiing main reasons:

i) Each port is surrounded by a built-up areawhich restricts landward expansion.

ii) Geological conditions offshore are not favor-able for the economical construction of adeep-water port.

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iii) There are no rail connections to Tel Aviv/Jaffa;road access is already difficult and any largeProwth of trade would create serious urban trafficproblems.

23. The limited facilities at Eilat are auequate for -che present .3mallvolume of traffic.

E. Amount and Trvce of Traffic

24. Dry cargo traffic through Israel's ports has grown steadily over thepast five years and now totals al-nost three million tons annually (see Tables2 to 5), The Mediterranean ports handle about twice as large a volume ofimports as of exports. Eilat has more export t'nan import volume.

25. Traffic through the iYediterranean ports during the winter season(December to April) is almost twice as large as in any other season of theyear. This is due to tle need to move all the itrus exoor';s in a few -onths;more ships call during this period, thus import 5 as well as exports increasesubstantially.

26. Haifa handles 85% of the country's seaborne trade and all thepassenger traffic. Traffic has been increasing from 500,000 tons in 1933,when the port was opened, to over 2,400,000 tcns in 1959. The optimum. capaci-ty of the present port is estimated to be 2,100,000 tons of dry cargo perannum; the 1959 volume was reached only by uneconomic working.

27. Citrus is normally 40 - 50% of Haifa's export volume, but the pro-portion of cement, potash and phosphates has been increasing in recent years.Total exports have increased rapidly from 570,J"OO tons in 1955 to 930,C00 in1959. Wheat and oilseeds are the largest of Hafals imports (50%) folLowedby sawn wood and logs, iron and steel, and some industrial raw materials.Imports now approximate 1.5 million tons a year,

28. The auxiliary harbor at Kishon takes the overflow of trade from themain port. The Haifa port administration guarantees the Kishon concessionaire100,000 tons of goods a year. Lighterage traffic to Kishon in 1959 rose toabout 18,0CO tons of general cargo.

29. The present passenger traffic througnh Haifa is about 1CO,000 personsper year. The number fluctuates with the movement of immigrants, but touristtraffic has been growing steadily.

30. Traffic through Jaffa and Tel A4viv- is primarily inbound generalcargo, but Jaffa also handles considerable city-s exports. The combiredtraffic of the two ports is 300,000 to 400,000 tons annually, which is beyondtheir optimum capacity,

31. Eilat's traffic is now about 130,0CO tons a year, predominantlyexport of cement, phosphates and potash. This is close to the full amountwhich could be handled efficiently with existing facilities.

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F. Rate Struc.tures ard Tan.3.fs

32. The Ministry of Transport in consultation with other interestedministries, fixes the port charges on ships and cargo. The same kinds ofcharges which are normally levied at ocean ports throughout -he world arealso levied at the Israeli ports; (a) ships' dues for navigation, lights,anchorage, berthage, mooring, pilotage, etc.; (k) cargo-handling chargesfor stevedoring, porterage and li4ghterage; ard (c) various charges (oncargo) for the use of terminal facilities, mainly wharfage and storage dues.

33. MXuch the same rate structure applies at all-the ports. It is de-signed partly to produce revenue for the port administrations, partly to paycargo handlers the full cost of their services, and partly to encourage ex-ports.

34. Ships calling at the Israeli ports pay nominal dues compared withships' dues in other countries. Import cargo pays materially higher han-dling charges, as a rule, than export cargo. Wharfage dues are assessed advalorem at much higher rates for inports than eyports, as follows:

Dry cargo imports: All ports except Tel Aviv 2%, c.i.f.Tel Aviv port 1%, c.i.f.

Dry cargo exports: All ports 1/4.%,f.o.b.Crude oil imports 1/2%,c.i.f.

35. At Haifa, the porterage and lighterage charges as fixed by a pub-lic tariff are collected by the port administration, vhich then pays the car-go-handling firms w,rhich do the work, such fees, fixed by a contract scale, aswould compensate them for their full costs. Stevedoring charges are collect-ed directly by the contractor, who pays to the %iinistry of Finance the differ-ence between the public tariff and the contract scale.

36. This system of chnarging for cargo-handling services at one scalebut paying the firms which do the work under another scale, is designedpartly to produce revenue for the Haifa port administration and partly topromote exports. The public tariff is materially higher than the contractscale for, most import commodities, but the cargo handler is ordinarily paidlarger fees for working export goods than the amount which port administra-tion charges for the service.

37. The Jaffa, Tel Aviv and Eilat port admiristrations perform cargo-

handling work themselves and collect the charges for their own account.

G. Present Port Finances

38. Governmaent Ports: Haifa and Jaffa ports were transferred to theGovernment debt-free when Israel became a state in 1948. All port workssince 1948, including ccnstruction of Eilat, hava been firanced out of cap-ital provided by the Government.

39. ach port is eYxcTe&C to rain i's canital cost from revenue. Prior

to 1953/59, the Haifa;,r, i.t.on pa d to the ;inistrj 0o i2ance,from revernue, the e AUivaClct 0' t-- C ;dQbt o-e On all Ioaros incurred fo` theport plus an annuYal anoint re;cs3nting a r&-urn on the value of debt-freeassets.

40. 1%w arranienets wor"e ^an i. %l95,/5 ; hereby the I4ini t-r oG Fi-rnance is paid (a) as i7terest 7,. an,>;-ally on tne value of all fi,-e assets atori7inal cost less or vious : raents from iccat -evenue to amortize dCet --curred for new const-uction, . . (b) as dcepnreci_7t on, an annual amrouln-t ecualto service life depreciation or t,h re)laceaont value of the fixed assets.

These payments are applied.q fjirst to the inte,r.-., and amortization of' I oaIns-ncurred for the port, arand- then to the gener:-a- p!.urposes of the Government Iscurrent and capital bud gets. daddr these arrang3-ement,s the vidnistry was apaicd

about IT 3.4 mill ion in 1958/596

II, rPil'l.:ns

Pre-1948 plant at ori,Jinal cost 10 .01948/59 plannt at origi.nal cos t 1. '.7Storees

Total tJ 30.2

Less previous cap-ial 1reipaymments 9.3Dasis for j- -- est chal-ge 20.9

Interest atO ? 1. 5

Depreciati on c1harg-es (Oilreplacemntr value 1S

Tot-al '

41. T he :Ha ia f'acilities are now,: bei r5nz rcevalued to det-ermine a ncw; basisfor future interest a:;d de;,recia-v on charges. According to official eastimates,Hiaifa's reproductvio-2nI cost- new in 1959 was 8 31,5 millLon, equal to 5l 59.7

million net of accrued ceoreciation, About I' 4 million of "ebtt, mainly thebalance of the amount appl'fed to Hai_fa port wuor,ks out of a 1952 EBaimibank loanto tne Governm.ents is che only outstanding (inc irect) charge on the ea. ningpower of these assets,

42. Apart from th..e sm-all residue of silar (indirect ) charges arisingfrom the 1952 Exi7br-.e'an: loan, t'e Jaffa invest.m.ent has beer, fully reinaid fromport revenue. Eilat, a new n-ort, has incurred smpll start-up losses; nointerest and depreciatiLon has yet been paid 4-o the IM.inistry.

43, The debt serv.rice w'hlich the 1MI.inist-ry of Finance nw rmakes gocd out ofport administration reverue i s bown below,

Haifa: 7Lri- (10•2/67)foa.r ec: ip:',i,enti anr stores p3.2 :iillion cacuivalent

Cutstacic:iLng balance i_n1r 17960 $9.'J15 rnllionAnnual pa._yment of principal ', 265,000

Interest Ia'L

Citrus i Larketi-n'- Boacdfor construction ofcitrus wa.rehcuse i; 800,000.A.mortizable ovcr a period offouar years starting October 1960Interest 5-1/2•7

Kishon Company JI: 440,0C0for construction of a ware-house in ,{Kishon Harbor areaAmortizable over a period offour years starting October1960interest 5-1/2,•

Jaffa: labank (1952/63) $ 32L,179 equivalentOutstuanding balance April 1960 $ 133,677Annual paymen.t of principal $ 33,419

Intearest 45

A1l the abor-e debt will have been repaid as of farch 31, 1965, except aresidlue of us.QA0,o000 ouu of an orig,inal jlSe`3.2 rUllaon for the rort ofHaifa from the proceeds of the Eximbank loan.

44. The ports' accounting system is shaped primarily to meet govern-mental budgetary requirements. The system is satisfactory for this p ruoseand thne accounting work is well done.

45. Private Port: Ma_rine Trust Ltd., Tel Aviv, is a private conpanywith II 3336,00 of paid-in capital. The ocvernment nowt owns 75;, of thesh'ares and the Eunicipality of Tel Av-_iv-ja-fLa another 5%A OTwership of theremaLnder is not knoun; the Government is buyi-ig all shares that come onthe market.

46. Outstanding debt totals 11 300,000 ow-ed to banks plus IT 180,000owied to the riovernment,

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H. E arnings

47. Port earnLngs have been satisfactory. by and large 0 The incomeaccount of each port- for the nast few years -s suirmarized in Table 6.

48. The net revenu;e of the Haifa port administration from cargochandling differentials has been dirmnishing for five years and its re-ceipts firom, the porterage and light,era;ge of a nlmber of export gocds fallShort of its payments for the -vorIC to the handling firmis. AS a resulrof an inter-dinisterial study, the porterage anrd lizhterage charges at a1loPorts were increased an avrerage IC', irn February 1960; and action is noe,pencing to increase shipst dues C103va The h.igher handling charges shnou-ldincrease the net revenue of the port adnini-it-ra bions, but the Haifa ad-ministration would continue to pay out more than it collects for thehandling of' various exports 0 The penCdinE increase in ships, dues wouldproduce about Th 100,cco a year additional revenue for the present traf-fic volume at Haifa alone.

49. The Government appreciates the need for increasirg Sport rev-enue in order to be able to pay for port development without over-bu-rden-ing the public budget0 Toiward this end, it has recently increased cargo-handlimng charges. as explained above, is planning to increase ship berthagedues as well, has giver, t-hought to introducing. -. Ashdod (; lien operati, )and at Eilat (when enlarged) th_ system of cart -handling cmifferenti swhich is now in use at Haifa, and has retainaed a consultant on port tarlif'swhose recomm.endations it is now considering.

50. The consultantfs main recor.mmendations are that (a) in lieu ofcargo-handling differentiials, the handling firrms should be required to Daylicense fees plus suit-able chaes for their us_ of port-o-ned eouipmertand facilities; (b) present leases "or port-owred lands and structuresshould be renegotiated, as they expire, at higher rentals; (c) ship berth-age dues should be increased by the f-ull aaount which the Governmnent nowlhas in mind; and (d) the ad valorem wharfage dues should be calculated forexports as well as imports on the basis of eff t4ive forei n exchange rates.

51. The Government has indicated its reac iness to revise the struc-ture of port rates, within the near future, along the broad lines of icsconsultant's reconimendations. This should inc-ease the net revenue ofthe port administrations as a whole at least 10 - 15jS for the presenttraffic volume.

52. The accounts of the Government's por--s are audited by the Min-istry of Finance and the Stat e Controll' er. The auditors of M,1rarine TrusvLtd., Tel Aviv, are Larti, IVilner and Rich, Inc., of Tel Aviv, a firstclass firm.

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='I. PORT L2`L0OGiT P?OG 1AN

A. The Traffic Cutlook

Gener-al

53. Exports and imports through the 1dtecitDrranean and Red Sea portsshould ir.crease substantially during the next five to ten years. ThTeGovernirnt has made detailed forecasts based on extensive studies of' theresources and needs of the natural service area of each port (see Niap 1),existing and potential sou-rces of production, nrnrketing prospects abroad,inland transportation distances, and the continuing development of an econ-omy that is making impressive gairs.

54. The export estinates are limited to cormmodities for the produc-tion of which Israel enjoys a comparative advantage, such as clirtate andsoil in the case of citrus, abundant raw- materials in the case of potashand phosphates, and technical know-how and skilled labor in the case ofcertain manufactures. The import estimates are related inter alia to ex-pected population growth, consumption trends and irport substitution.

Export and Im=ort Esti.r,ates

55. The Government's estimates of the growth of dry cargo trafficto 1963, 1965 and 1970 are summarized below:

1959 1963 1965 1970000 I-9etric Tons

Actuals --- Estimates ------

Mediterranean 2,S44 3,070 3,675 4,,,4j50Red Sea 131 550 975 1,5CO

2$975 3,620 4,650 5,95o

Crude oil imports should also increase xiithout, however, occasioning anyneed to expand the existing facilities which are am.ple.

56. Of the expected traffic with Western countries through the Ned-iterranean ports in 1965, about 2.7 million tons would move via Haifa and900,000 via Ashdod. Eilat, serving Africa, Asia and the Far East, wouldhandle about one million tons yearly, An analysis by commodities androuting is shown in Table No. 7.

57. The traffic estimates to 1965 seem reasonable and those for1970 possible of realizatiorn, provided no major event were to affect the

development of Lsrael)s trade. ?Ihe ne cessary production of citrus fruit torealize the 1965 traffic forecast is assured by the area now; planted withfruit bearing and maturiag trees. Fine qual!ty and the earlier ripeningseason of Jaffa oranges gives Israel's fruit a mnarketing advantage in 'ViTe ternEurope, where almost the entire export crop is sold. Consum¢ption thrcu-houtEurope should increase with higher living standa-ds.

58. Existing and notential world markets for potash and phosphate couldabsorb the forecast exports if production is increased. The Government hasplans to exapnd production of potash frc,m the Dead Sea and phosphate from -theNe gev.

59. The import traffic of Isreal's ports should develop proportionatielywith the growth of the economy. It consists of commodities essential to in-dustrial and agricultural production and for the subsistence of a growincpopulation.

B. The Ten-Year Program 1960/70

60. As shc-n earlier, the present facilities at Haifa are overworwed.Tel kviv and Jaffa are functiona4ly inadequate, and Eilat is unequipped forany substantial increase in traffic. The Govern.nt has therefore prepareda ten-year development program, the total cost of which is estimated acEJ 199.4 million (equivalent to US$110.8 million). This program is in twoparts; first, definitely planned works to be carried out from 19601-965,and second, proposed works (at Lshdod and Eilat) fron 1966-1969 contingenton the actual growth of traffic.

The planned works for 1960-1965 are mainly:

Haifa: The constr-uction of three to four additionalberths, two transit sheds and a passengerterminal.

Ashdod: The construction of a new por, with breakc-atersand an initial five berths plus storage facili-ties.

Eilat: The construction of three new berths and theprovision of bulk loading equipment.

61. The works at Haifa would increase the port t s optimum working ca-pacity by approximately 650p000 tons a year. Ashdod, intended to replaceTel Aviv/Jaffa, should be able as of 1965 to handle at least 900,000 tonsof dry cargo a year, of which one-third arould be citrus. Eilat., when, en-larged and equipped, would have a working capacity of a million tons a year,of which half would be in the form of potash ar. phosphate exports.

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62. The ports of Tel Aviv and Jaffa will continue in service untilAshdod comes into full operation in 1965. Tel Aviv port would then beclosed while Jaffa would become a mere stand-by facility. No difficl tiesare expected in dissolving Miarine Trust Ltd. Both Tel Aviv and Jaff a nayrequire the inves tment of small sums in the next few years for temporarystructures and equipment which would later be transferred to Ashdod. TIheamounts involved will not be charged to the port development program.

63. lThen the 1960/65 program is comoleted, each of the three mainareas of Israel will be served by a well-equipped deep-water port (seeMap 1).

IV. TH PROJECT

A. General

64. The project is the construction and equipment of Ashdod to itsplanned capacity as of 1965. Estimated construction costs excluding in-terest during construction would approximate IS 81 million, equivalentto Us$P45 million at the official rate. Of this, about US$11.5 millionequivalent would be foreign exchange for imported goods and services,and about US$30.7 million equivalent would be for local currency forlabor, materials, supplies, contractors, and engineering.

Estimated Construction CostsExcluding Interest During Construction

-US4$000 equivalent-Foreign LocalExchange Currency Total

Construction of port works andrelated rail links 9,530 26,190 35,720

Purchase and installation ofport operation equipment 2,050 4o0 2,l50

En- . ring design and super-vision 1,560 1,340 2,900

Sub-Total 13,1k ) 27,930 41,070Contingencies © 10% 1,310 2,790 4,100

-Total 14,450 30,720 45,170

I= 000 equivalent (26,010) (55,300) (81,310)

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6 5 The approximate phasing of the constri-ction expenaiture wozld be asfollows:

us5t 000 n cooPeriod equivalent equivalent

September 1959 - March 1960 820C lgL801960/61 2,f200 3,9601961/62 10.,l40 18,7901962/63 11,870 21,3651963/64 12,320 221l1751964/65 6,000 10,8COApril - September 1965 15202

Total 15,170 81,310

66. The planned works woula take about five years to complete, therebynecessitating considerable expense for interest during construction. Being anew port, Ashdod will need initial working capi-'al as well as plant and equip-ment. The total cost of the project including interest during constructionand working capital would approximate IS 98.4 million, equivalent to US4>O54.7million. The foreign exchange costs, including US.Q305 million for interestduring construction at a 5-3/4% on an assumed Bank loan of US$27.5 million,would total $18.0 million, or 33% of the total expenditure.

Estimated Project Costs

US$ million I; millionItem equ.valent equivalent

Port works, operating equipmentand engineering 15.2 8103

Interest during construction 7.0 12.6

Sub-total 52.2 93,9

Initial working capital 2,5 4S

54,7 98.L

Foreign exchdnge U8.0 32.4Local currency 36.7 c6.o0

67. About 6% of the project costs, or some $3.3 million equivalent,would be expenditure for self-financing facilities - first, rail links toconnect the port site with a construction quarry and second, lift trucks,tractors, and other mobile handlimng equipment. The rail links would becomethe property of the State Railway which would repay the Goverment construc-tion cost on terms designed to recover the full amount plus 6% interest overthe useful life of the facilities. The handling equipment would be sold tocargo-handling firms on hire-purchase terms at 6% interest.

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B. Planned New Pacilities

68. The history of the project, natural conditions at the site, theessentials of the master plan, and particulars of the works and equipment areset forth in Appendix A which also gives an ana?ysis of the cost estimLates.The layout of the new port and the phasing of construction are illustraLed inYap 2.

69. The main works to be comppleted and the main equipment to be in-stalled by early 1965 include (a) the full length (about 3.2 km) of all thebreakwaters for the future port, (b) dredging within the porti area to properdepths for deep-sea ships; (c) wharves of a length to accomodate five s-uchships at once, (d) track and roadway within the port area, and rail links out-side it to a construction quarry, (e) several transit sheds for citrus fruitand general cargo plus some paved open storage areas, (f) port utilities andauxiliary structures, and (g) some harbor craft, cranes and mobile loadingequipment.

70. About half the estimated cost of Ashdod through early 1965 would befor the breakwaters. These have been designed for the much larger port facili-ties which might be needed as early as 1969/70 if trade develops as eXpectedby the Government. It is not, unreasonable to ex,pect rapid growth because thenew port would not only serve the productive, grow,ing area now served inade-quately by Tel Aviv/Jaffa, but would also be th3 nucleus of a planned rewtown with large industrial and residential districts.

71. The cost estimaces which have been prepared I-y the consultants forthe project are realistic, They are based on current costs of materials,equipment and services. They allow lG%o for contingencies over and above unitprices which also incorporate some allowance for contingencies.

72. Iabor costs in Israel are generally high because workers enjoy stard-ards of living comparable to those of Western Europe. However, wages arefixed at the present rates until January 1, 1961, and prices have been fairlysteady since 1958.

73. Israel can produce indigenously a la:ge part of thze construcionmaterials for the project, and can supply from its own engizeers and contrac-tors much of the needed services. The 33% rat-.o of foreign exchange e;.pendi-ture to total project cost is therefore lower than would normally be found inDank-financed port projects in under-developed countries.

Financing of Pro.iect Costs

74. Of the project costs amounting to $54.7 million equivalent, theGovernment would finance 50% from the proposed Bank loan and the remaining50% by reinvesting cash generated by the operation of Haifa port, by capital-izing interest during constructicn, and by appropriations from the developmentbudget.

75. Port operations at Haifa over the ne.t few years should yield aminimum of $15 million equivalent which the Government intends to apply to theport development including Ashdod.

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76. Interesu during construction on the portion of the project costs to befinanced from Government funds would aporo- .ate 'UShi3.5 million equivalent.All such interest will be capitalized until Ashdod becomes fully operative inearly 1905.

77. TEe Govern,ment is ready to appropriate from the development bdc,getwhatever funds may be needed to complete the construction of 1shdod to 'ts

initial plarned capacity. Sufficient furds would therefore be available, toassure the completion of the project.

78. The proposed loan of $27.5 million exceeds the estimated fore.gnexchang.e costs of $18.0 million. About $9.5 million of the proceeds wouldtherefore be applied to the local currency costs of construction, equipmentand engineering estimated to total ̀ 30.7 million.

Estimrated Application of Loan Proceedsus;t OCOequivalent

Foreign exchange component of payments toconstruction contractors 9'530

Purchase price and ocean freight ofoperational equipment 2,050

Foreign exchange component of engineering,design, tests and supervision 1,560

Sub-total 13,,14O

Contingencies 1,310Interest during construction on requestedloan 3,500

Foreign exchange costs 17,953Local currency costs of constructionequipment and engineering 9,550

Total 27,500

C. Construction and Contract Procedures

791 The project has been carefullyr worked out and is technically uellconceived. Foreign experts have advised the Yvinistry of Transporton the design and layout of the new port, and qualified consulting engineershave been retained to prepare the detailed plans and specifications,and toadvise on the award of contracts.

80. All the necessary land for the planned port as of early 1965 isalready in the possession of the Government. The State Railways will startlaying the track, within the next fe-w weeks, of a spur from the port to themain line and another spur from the main line to the construction quarry;both service lines should be ready for traffic by early 1961. The plans and

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spec½ _ations of the breakwaters and dredging are nearing completion. Ton-dezo for these works will be invited in the next few months, for th2 wharvesby the end of the year, for the transit and citrus sheds early in 1(362, andfor the paving, utilities and other structures and buildings late in 1962.

81. According to the consultant's constru stion schedule, which the Bankconsiders realistic, the new port should be ready to handle citrus fruit latein 1963, and would be fully operative early in 1965. The harbor craft, crares,lift trucks, tractors, and other handling equipment would be ordered in duetime for this schedule.

82. The main contracts, those for the breakwater, wharves, and dredging,will be awarded to prequalified contractors on the basis of international com-petitive bidding. The tenders would be reviewed by a special Tender Board tobe appointed by the Kinistry of Transport, which would be advised by the con-sulting engineers. All main items of operating equipment, such as the cranes,lift trucks and tractors, will also be procured by inviting internaticnalcompetitive bids.

83. Local contractors selected through competitive bids will be used forconstruction of the transit sheds, the port utilities and buildings, and otherminor works.

84. The Kinistry of Transport will be responsible for carrying oUt theproject pending the establishment of a Port Authority which the Governmentplans to seti up as soon as practicable. The execution and progress of thework will be supervised by the consulting engineers in cooperation with theMinistry of Transport and Port Authority staff.

85. Satisfactory procedures have been used for planning and designingthe new port, and the procedures which the Government has in mind for carryingout the project are satisfactory. The planned timing of construction isrealistic.

D. Econiic Jstification

Necessity of Program

86. The expansion of the Mediterranean and Red Sea ports to theirplanned capacity by 1965 is urgent. The IWediterranean ports are working upto or beyond their optimum capacity as measured by the amount of traffic theycould handle without congestion or delay and at minimum expense for cargo andships. Eilat lacks the berths, loading equipment and storage facilities forthe large amounts of potash and phosphate which would be moving to the port by1965.

87. According to official traffic forecasts which the Bank considersreasonable, the Israeli ports would have to co e with 56% Lore dry carlo traf-fic by 1965/66 than at present.

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Exnort TrInort 'PotfKl000 cargo tons

Forecast. lc,6-5/66, trafric 2,340 2,310 4,650Estimate: 1959/60 traffic 1,130 1,845 2,975Increase 1965/66 over 1959/60 1,210 465 675Mtediterranean ports 640 275 c915Eilat 570 190 760

Percent increase (total traffic) 107% 25% 56

88. M2ost of the increase (1.4 million tons out of a total of 1.7 .ni-lion) would be outbound citrus and mqanufactures, and inbound iron and steel,wood and pulp2 and wheat moving mainly throu-h >he Iediterranean ports, p'usoutbound potash and phosphate movina mainly through Eilat.

89. Unit costs of cargo handling and ocean freight rates would increaseconsiderably if the futu,-e traffic had to be ha.adled with the present facili-ties. There could also be serious marketir, losses from inability to sh'ipcitrus fruit promptly. Eilatts present limitatLons could rstard the growth ofpotash and phosphate e-pcorts.

90. The port construction program up to 1965 is essentially a plan toprovide additional capacity and more efficient Cacilities, so that the heaviertraffic loads in sight can be handled economically and efficiently. Addition-al capacity may be needed soon there-after if traffic grows as expected by theGovernmrent.

Economic RetLUrn of Prcject

91. The minimum return to the Israel economy can be measured by relatingthe benefits for the 1965/66 traffic volume to the total project costs.

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93. The project costs total 1h 98.4 millioIn. The new facilities wouldhave an average useful life of 40 years. The net benefits of I3 7.6 milliona year would (a) amortize the total investment over 40 years and (b) return7-1/2% on the investment.

94. The computed 7-1/2`J return is an understatement. First, the pjannedfacilities could handle at least 10% more traffi, than the forecast fo- 1965/66.The benefits attr-butable to the project would therefore increase materiallywith traffic growth. Second, the investment base includes the full cost ofbreakwaters of a size needed for a much larger port than the planned port of1965. According to the depreciation schedules, aalf the breakwater expendi-tures might reasonably be treated as a ceferred cost of the planned port of1969.

95. The project is economically sound in terms of the need for the capac-ity to be provided, the potential traffic in sight, the cost of the facilitiesand their benefits to Israel.

E. Expected Financial Results of Project

96. The new port as of 1965 should be able to generate from operations,over the useful life of the facilities, sufficient funds to meet debt service.On the basis of (a) 1965/c6 traffic volume as forecast by the Government;(b) a 10% allowance for traffic growth; (c) present tariffs (with minor ad-justments), wages and prices; and (d) productivity as improved (over Tel Aviv/Jaffa) by the new facilities, the cash generation of Ashdod port per annumwould be:

Bn 000

Operating revenue 5,474Hire-purchase receipts (railway trackand handling equipment) 619

Revenue 6 ,093Working costs (before depreciation) 1,530

Cash generated by operation, 4,563

97. The cash generated, IS 4,563,000 a year, would (a) amortize thetotal investment of IS 98.4 million over 40 years, and (b) provide a returnof almost 3-1/2% on the investment.

98. The debt service on a USp27.5 million Bank loan repayable in 20years from 1965 at 5-3/4% interest would be IS 4,227,ooo per annum. Thiswould absorb practically the entire amount of cash generated by operationsattributable to the 1965 facilities. Only IB 340,000 a year would remainfor renewals and repairs, for working capital to finance expansion of plantand equipmen'., and to reimburse the Government for its investment.

99. On the above shoTing, the financial return from the project wouldbe low. Iowever, earnings would be larger than IS 4.6 million a year becausethe estimates do not give full effect to the Governmentts decision to make

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effective the revision o0' Dort tariffs recomf,,ended by the Governmentœs consul-tant. Also, the investm:Dnt base on which the return is computed charges theproject with the full cost of breaki-xaters fron t,he start of operat+ion.s.

l00. The actual financial return shoUld thk refore be higher than 3 1/2%but the resulting cover of debt sezrice would s.,ill be narrow. The PortAuthority which the Government intends to estabLish would pool the net rev-enues of Ashdod with those cf Haifa and Eilat. "Is shown. below, these revenueswould suffice to meet the debt service of the proposed loan by a wide margin.

V. FUTURE PORT AUMHORITY

A. Establishment of A-uthoritv

101. On the advice of consultants, the Government has decided to estab-lish, as soon as possible, a Port leuthoriyh wh-iJh WOUld take over and oerateHaifa; Ashdod and Eilat pernmanently, and Tel viv and Jaffa as long as useful.Broadly, the Authoritywould be an autonomous p-iblic enterprise ema-powered toformulate port development policy) to plan, finance and execute port works,and to manage anid operate the ports. The enterprise would be set up to befinancially self-supporting, would be authorized to charge sufficient ratesfor this purpose, and would have wide powers to determine its tariffs andbudgets.

102, The exact form, organization) duties and powers of the Autho-rityhave not yet been decided. However, the Government has already appointedan inter-ministerial committee to draft a statute. It is expected thatlegislation will be introduced in Knesset before the end of 1960, in whichevent the Authority could be established by early 1961.

103. The Bankagrees that a Port Authorit.r such as the consultants haverecomm.ended should be established. Arrangements have been made for consul-tation betweern the Government and the Bank on thae charter and regulationsfor the Port Authority, its powers,managemenc, resources and capital struc-ture, etc., and the terms under which the port properties Tould be trarsferredto it by the Government. The Bank's agreement on these matters will berequired. A preliminarystatement of basic prirciples prepared by the Gov-ernment has already been discussed with the Bank.

104. If a loan is made, the Government would be the Borrower but suit-able arrangements would be made to transfer to the Authority the responsi-bility for completing the construction of Ashdod, and for meeting the debtservice.

B. Facilities and Properties

105. The Government will transfer to the Authority (a) all the presentport facilities; (b) all port works in progress; and (c) the Government'sinterest in construction and equipment contracts for the port developmentprogram.

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106. The values at which these facilities and properties would be takenover have nlot yet been fixed. In principle, the take-over value of existingplant and equipm.ent would ber eplace.ment cost with allowance for accrued de-preciation, and the take-over value of the works in progress would be basedon prior expenditure including capitalized interest during construction.

C. Financial Aspects

Development Progra.m to '965107. It is the Governmentts intention that apart from the Banlc loan, theAuthority should incur no debt or debt service charges for the port developmentprogram up to 1965, in any event, and possibly u. to 1969. A11 other corstruc-tion funds for the program would be provided by the Government itself by rein-vesting revenue generated by port operations and by approprictions from thedevelopment budget.

108. ALt the start of operations, the new Authority would be indebted tothe Government for an amount equivalent to the Bank loan plus the remainingbalance of previous loans applied to port construction. The Authority wouldalso be expected to compensate the Government for the take-ovrer value of allfacilities acquired from the Government and for the additional investmentcost of all facilities paid for by the Government. The period of repaymentwould depend on the useful life of the individual facilities; interest wouldbe charged at rates equal to those paid by the Government on its internalborrowfings. However, the Government's claim to interest and amortizationwould be subordinate at all times to the debt service of the Bank loan, toany present Government debt assumed by the Authority, and to any future debtwhich the Authority might incur on its own credit.

109. The Government has assured the Bank that it will draw no cash forinterest or amortization on its investment in the ports until Ashdod shallhave been built to its planned 1965 capacity, and thaT, any cash withdrawalsthereafter will be linited to amounts consistent with the Authority's burdenof debt service, repair and renewal needs, and adequate working capital.

110. It was shown earlier that Ashdod as of 1965 should be able to paythe debt service of the Bank loan from revenue but that the cover would bevery narrow. However, the Port Authority would then be operating, in additicnto Ashdod, (a) the port of Haifa as expanded, and (b) the port of Eilat asenla 0 4d and mechanized for bulk cargo. Haifa, Ashdod and 3ilat would forma coordinated port syste-m, and the thlree ports should therefore be treatedas a single entity for the purpose of assessing the ability of the PortAuthority to service the debt incurred for the A3hdod projec E. This ca] u-lation should take into account the total plant and equipment of the futureport system, the total revenue and expense of all three ports, and the totalfinancial charges of the Port Authority.

111. The tables below show the cover of debt service from the operationsof the port system for two different years; 1965766, for which it is assumedthat total traffic will be 4.5 millicn tons, somewhat short of the plamnedcapacity; and 1969/70, or earlier, when Haifa will be operating at capacity,and Ashdod and Eilat should have experienced a 10% traffic growth withoutadditional investment.

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Haif a-Ashdod-Eilat

(or earlier)-- Th I000- --

Operating revenue 25,870 27,660Hire-purchase receiDts (railway track

and handling equipment) 850 550Revenue 26b,720 2T,30

Working expenses (before depreciation) 12,700 12 700

Cash generated by operations andavailable for debt service 114,,020 15,830

Debt service of Barnk loan for Ashdod 42230 LZ2L

Balance for amortizirg Governmentinvestment, for expansion, renewal.s,working capital, etc. 9,790 .11,600

112, The balance after debt service would provide the Authority withample funds; from the beginning it would be able to make some retu-rn to theGoverrnment on its investmznt and within a short while it should be able tobegin amortizing this investment at null rate over LO years at 6% interest,and retain adequate working capital,

m. 000

Estimated investment cost of project plusplanned works at Haifa and Eilat l145,200

Subtract: equivalent of requested Bank loan 4s95co

Government investment for port development program 95,700

Estimated take-over value of Haifa and Lilat 50J500

Total Government investment 146,200

Required (1) to amortize Governmentts investmentover 40 years, and (2) pay 6% interest 9,720

113. The cash flow position is satisfactory, but there is the questionof the financial return. Calculations show thav the net operating revenue(after depreciation and before interest charges) would yic1d a r.tu r, of 6.6ron tho net fiod acacts at Mefrch 31, 1970.

22 _

Longer-Range Progr=- - ?eyon% d I°65

ll4 The second part of the ten-year pi;wram which covers proposed worksfrom 1966-1969 is contingent on th e actual growth of traffic. Implenentationwould cost about U; 540 2 million at, present pr_ces, including workcing capitaland interest duiinz constractforn. Tne qlestion i3 whsther the Authority wJould havesufficient earning powier from the larger investw.ent as from 1969/70 if 'heseplans, which concern Ashdod and Eilat, were carried out.

115, The net fixed assets and permanent working capital of the Authoritywiould approximate IT 210 million as of Narch 31, 1970 (see '2able 8) and theGovernmerntts total investment is estim.ated at IS 185.5 million (see Table 9).

116. On the basis of conservative income and expense forecasts for oper-ations in the year 1969/70 at the traffic level forecast of 5,9 million tons(Table 10), the retizn on net fixed assets would be 5.6%; interest chargeswould be earned 5.2 times; debt service would be covered 4.5 times; and thereturn on the Government's investment would be 5e9%.

117. The Authority would therefore be financially viable, Since the Gov-ernment intends to adopt in substance the recommr.endations made by its con-sultant on port tariffs, the earning power and financial strength of thePort Authority would be greater than indicated above.

Set Aside of Foreign Exchange Revenue

118. If a Bank loan is made, the charges on ships and cargo paya'ble inforeign exchange would be set aside for its debt service. The present volumeof traffic through Israel's ports generates annual foreign exchange paymentsfor ships' dues and stevedoring equal to the full debt service of the re-quested loan.

VI, CONCLUSIONS AIMD RECOXIENDATIONS

119e The project is economically and technically sound, and the PortAuthority which the Government intends to establish would be appropriatefor the efficient developrment and management of Israel's ports.

120. The amount of the requested loans, USt27.5 million equivalent, isreasonable for the cost of the project, and the debt service could be met, bya wide margin, out of the operating revenue of the Authority.

121. The project is suitable for a Bank loan to the full amount of therequest, but there should be restrictions on disbursements until the PortAuthority is actually established.

122. Considering the useful life of the facilities, and the expectedearning power of the Port Authority, a 25 year loan, including a 5 yearperiod of grac, Vrou2A be arpproDrinto.

TAiE 'iO. 1

IS,iL~AL PORT DE-LVZO?0..i',T PAO.ECT

Manpower Ey-n-oloyed in Israel's lDorts- 195Q

Haila Jaffa Tel Aviv Eilat Total

Admninistration, storekeepingand accountancy staff 259 57 31 32 4L29

Cargo department 153 _ - - 153

Sea department 139 _ _ _ 13S

Engineering department 211 - - - 211

Security and surveillancestaff 145 20 23 15 203

Firemen 25 - - - 25

Stevedores, mechanicaloperators and porters 1,306 203 302 48 1,859

Lightermen 70 104 127 10 321

iaintenance staff 130 54 70 29 283

Passenger launch service 140 - _ - 140

Total permanent staff 2L573 C 35 603 _134 37_5I

Casual lacor up to 400 100 100 50 650

M`dximum manpower employed 2,978 538 703 184 4,403

TABTF N'CO. 2

IS:3I,EL PLO7-FT DEV:EJLO?MJiT FRCJECT

BO027 0' FiAI-ADry Ca-rgo Wai?2ico Port of Ifaifa,

7Q5-19,9 1/(1,000 Tons)

Comrmodity 195 1956 1.57 22f l

Imoorts

1. Grain and oilseeds dischargedin bualk 445 419 530 633 710

2. Bagged cargo 159 114 126 128 1323. Iron and steel 104 119 109 101 1164. Sawn wood 67 31 113 67 lo15. Wooden logs 52 41 44 50 576. Barrels and drums 45 54 49 43 557. Minerals in bulk 71 48 40 44 548. Boxboards for citrus fruit 28 16 22 27 339. Coal and coke 20 29 32 26 30

10. Seed cakes in bulk 10 18 10 14 2,11. Cargo in paper bags 1)4 11 20 1] 1312, Frozen cargo 22 23 14 29 613. Liquid chemicals and liquefied gases

;n bulk - - - - 414. Copra 9 9 13 6 -

15. Other commodities 137 163 144 138 160

Total Imports 1,183 1,145 1,266 1,320 1,496

Exports

1. Citrus fruit 270 311 327 304 3682. Cement in paper bags 156 191 180 123 2023. Phosphates, copper, cement

and Kaolin in bulk 40 34 33 64 914. Potash in bulk by conveyor - - 72 65 905. Hard w,fheat in bulk - 25 5 166. Bagged fertilizers 14 25 15 23 127. Bagged groundnuts, potatoes, etc. 5 6 14 8 108. Liquid chemicals and edible

oils in bulk - - - - 8

9. Scrap iron 19 17 22 - 410. Pyrites slag - 12 - - -11. Sulphuric acid in bulk 24 3 - - -

12. Other cargo loaded (2) )42 58 67 86 129

Total Exports 570 662 755 673 930

Total Cargo Handled 1,753 1,807 2,021 1,998 2,420

1/ Oils and shinst supplies are not included in this table. (2) Lncl.:citrus fruit products, tomato and other preserves, bottled i-rLne, bananas,eggs, ply-vood, insulating boards, corrugated cardboard, tires, sheet glass,motor cars, etc.

TABLE .'.0. 3

ISRJ1EL PORT DE3L0PTEINT PROJECT

Dry Cargo raffic, Ports of Jaffaand Tel Aviv, 1956-1959,

(1,000 Tons)

1956 1957 1958 1959

JAhFA

ExportsuthTiTs 58 72 73

Scrap metals - 6 5 1General cargo 3 1 1 1

Total E)qorts b o7

Irortsffr'ains 2 3 3 3 16 17Sugar 14 11 - -

Other Lood 5 1 8 2Timber 18 5 7 8Iron, steel and tin plate 38 30 22 28Chemicals 16 16 10 15Paper and cardboard - 2 7 7Not specified 36 33 28 30

Total I.ports 1 5 130 107 -r07

Jaffa-Total Exports & Inports 216 186 176 182

TEL AVIV

ERports 1 1 2 3

ImportsGrains 48 4.2 19 4Sugar 12 8 22 20Other food 5 6 6 6Wood 12 -2 11 12Steel, iron and tin 39 37 47 49Fertilizers and chemicals 36 18 18 24Paper 5 10 12 11Not specified 36 36 9 49

Total Imports 19 19 267 0215

Tel Aviv-Total Exports & IWports 194 170 186 218

ThBLE II0. 1,

ISRLEL PORT JL ELOP:IZN? PR4 WJECT

Dry Cargo Traffic, Port of Eilat1957-19959

(1,000 Tons)

1957 1958 1959

ExportsCement 17 '5 35Potash - - 20Phosphates - - 11Others 3 25

Total Exports 20 28 91

ImportsGrains and seeds 16 20 24Ccffee 1 2 L4Not specified 8 6 12

Total Imports 25 28 140

Combined Total Imports and Exports )5 6 131

TABIE NO. 5

IS>IAEL PO.RT D:noLOPI0NT P1'.0j-CT

Growth and Co=nosition of Dryr CargoTraffic of Israel t s Ports 1955-1959

-. 1,000 Tons)

1955 1956 1957 1958 1959

ExDortsCitrus fruit 329 367 38g 377 448Potash 35 36 72 75 110PhosDhates 25 32 30 60 96Other rinerals - 2 3 4 -°Cement 150 1844 180 143 237Industrial products 28 33 65 76 130Agricultural products 15 17 28 25 49Scrap and wastes 27 22 38 5 10Unspecified 18 2L 1 15 _ Li

Total Exports 627 717 850 780 1),131

ImoortsWheat 315 331 332 279 310Oil seeds, fodder & chicken feed 264, 245 334 467 512Other food items 149 126 126 153 142Wood and pulp 215 206 226 215 245Iron and steel 173 214 197 205 226Raw materials, minerals &

fertilizers 212 198 205 213 247ivachine'y and paper 30 37 45 64 65Unspecified 180 116 . 0 S5 96

Total Imports 1.538 1.473 1,5 165 4L1 LL

Totial Exports & Imports 2,165 2,190 2,395 2,421 2,974

The totals shown above are slightly different from the sum ofindividual port figures because the statistics are in some instancesbased on the fiscal year, and in others on the calendar year.

TABLB N4O. 6

T~~~~~

IS!7L PORT DERI5LOPFEITT EI0JBCT

Inrz-o,e Account of 7srael 1 s Pnrts,

.5.1/55 954 56/57 976 5-59 59/60-- I 000 -------------------- (10 mos.)

HaifaRevenue from cargoand passengerservices 12.,367 13,0 11 13,976 14,032 14,447 14,398Hevenue fromships' services 325 374 340 376 402 369

Other 1.L77 1,211 _1502 l J)L8 712 _1 5S14,169 14,596 15,313 15,456 15,561 15,825

Expenses 7.8.62 7f5Q7 8;18l g3,& 10,317 .11.176Net revenues 6,300 6,999 7,637 6,823 5,244 4,649

Interest 120 103 178 154 1,647 1,375Repayment of loans 30 477 466.Refund on accountof governmenttsprevious invest-ment, or depreci-ation allowance = 1,_00 2t045 2,,9L1 1.935 1,616I.et incorne 4,233 5,061 4,937 3,262 1,662 1,658

JaffaRe ---;_ 3,242 3,221 2,834Expenses. 2 796 _2925Net incore 446 296 50

Nov56/TNia r 5 8 __ 5_(11 mos.)

EilatRevenue 760 474 1,5COExpenses 67L.. 549* 1.519*!;Ret income or (loss) 86 (75) (19)

* No depreciation charged1957 55/59 _,/60

(15 mos.) (11 imoS.)Tel Aviv

Income 3,706 5,087 4,424Expenses j676 5.,0 0 a259Net income 30 47 165

TABLE7 NIO. 7

ISRAEL PORT ` TEI,OP:'1i: tROJECT

Comparison of 1959 with 1965 and 1970Port Traffic bZyCoymmodities and Routing

Mediterranean R _ed Sea Total1959 1965 1970 1959 1965 1970 1959 1965 1970--------------- --- 000 Metric Tons -----

Citrus 448 700 900 - - - 448 700 9C0

Potash 90 200 250 20 350 600 110 550 850

Phosphates 85 50 150 11 1,0 250 96 200 400

Cement 202 250 250 35 -O 50 237 300 300

Iron ore, steeland coal 226 300 300 - - - 226 300 300

Grains andoilseeds 798 675 800 24 125 150 822 800 950

General cargo 995 jjf00 1.800 _4 b 3,§0 450 L036 .8 00 2 2 0

Total Exportsand Imports 2,844 3,675 4,450 131 9'75 1,500 2,975 4,650 5,950

.~ ~ ~ ~ ~ ~ ~~~~T3 .co .8

Fixed Assets and l,Torkirg Capital ofFuture Port Authority

as of 1Iarch 31, 1965 and 1970

1965 1970- l millions -

Assetsa/ a

Pre 1960/61 Plant 84.6 8L.61960/61-196h/65 Fixed Assets b/ 129.8 129.81965/66-1969/70 c/ - 48.1

Ficed Assets at Cost 214.4 262.5

Permanent WiaJorking Capital 6.6 9.2

Total 22'..0 271.7

Accrued Depreciation

Pre 1960 Plant 34,1 h44o6New Plant 11.6

34_1 56.2

Net Fixed Assets 180.3 206.3Permanent Working Capital 6.6 9t2

Total 221.0 271.7

a/ Haifa I' 81.5 million reproductiion cost new as of i-arch 1959prices plus budgeted investment of In 1.3 million for 1959/60and Eilat It- 1.8 million.

b/ "TewT plant less railroad track and cargo handling equipment boughtfor the account of others.

c N New plant less cargo handling equipment bought for tlhe account ofothers.

TABLI NO. 9

ISRAEL POcrT DIF;LTOPITP PROJECT

Funded Debt of Future Port Authority

as of M4arch 31, 1965 and 197J

1965 1970

- ZL; millions -

Funded Debt

Pre 1960/61 0.8 -

1960/61-1964/65 49.5 42.2

Sub Total 50.3 42.2

Government1 s In-vestment i4504 185e5

Total l95.7 227.7

Fixed Assets and VWorking Capital

Net Fixed Assets and PermanentWorking Capital 186.9 215.5

Value of New Plant (railroad trackand cargo handling equipment)bought for the account of others 8.8 12.2

Total 195.7 227.7

Ratio of Debt to Net Fixed Assetsand Permanent Working Capital 27% 20%

TABLE i.T0. 10

ISRAEL PORT DEVTLrOPIE.TC PROJECT

Estimated Income Account of Port Authority for 1969/70,Based on 5.9 million tons (with no allowance for trafficgrowth) and present tariffs with onl. ii,nor adjustrments.

1969 / 70IL 000,000

1. Operating Revenue 31.72. Working Expenses 13 93. Balance 17.64. Depreciation 5e65. Net Operating Revenue 12.26. Hire-purchase Purchase Receipts

(railway track and handlingequipment) 103

7. Net Income before Fixed Charges 1 3 58, Interest on Funded Debt 2,690 Net Income 1009

Return on Net Fixed Assets and PermanentWorking Capital 5.6%

Times Interest Earned 5*2xDebt Service Covered 4.5xYield on Governmentts investment 5.9%

Appendix A.

ISRAEL PORT DE"rELOPi2NT PRjLO.ECT

THE NEVW FORT OF ASHDOD

General

In 1952 the Central Planning Commission of the Ministry of theInterior recommended that any new Mediterranean port should be located scme-where between Tel Aviv and the southern frontier. It has since been decidedby the Government of Israel to construct - ne-w port at Ashdou at the site ofthat tow.n's projected industrial area. The site is relatively barren withsand stretching from the seashore for several mi:es inland an d is about 30 kmosouth of Jaffa and some 120 km from Haifa (see Map No.1). The new toTl-n ofAshdod is planned ultimately to have a population of 160,000 with a firststage population of 50,000 by 1970. The water supply for the new town wouldcome from ample, deep wells in the area. Adequa&e road and rail connectionsto the rest of Israel are to be provided as required and can be built withoutany physical difficulties.

North of the new port site is Ashdod electrical benerating staticn,which was completed early in 1959, and is the third largest power station inthe country. The cooling water basin of the station is formed behind a smallbreakwater offshore and, in the ultimate stage of development of the port,care will have to be taken to ensure that the proximity of the port structuresto the cooling basin does not interfere with the operations of either. Thisis being investigated by the Laboratoire Centrale dfHydraulique de France atpresent. The presence of the power station will ensure a plentiful electricitysupply for the new port.

Natural Conditions

Starting in 1957, extensive geological and oceanographic studieswere carried out by the French Laboratoire Centrale dlHydraulique de Franceand are being continued b- the iMinistry of Transport's Coast Study Group inthe area. The usual sand dune formation that is characteristic of Israel'slong smooth coast line fades out in the Ashdod area and for about 2-1/2 miles,the coastal area is fairly flat for a width of half a mile, so forming a morefavorable terrain for port and industrial development. The sand continuesinland for some three miles thus lowering the value of the area for agricul-tural purposes. The port site consists of sand with stratified layers ofsand-shell conglomerates. Offshore, the indications are of unstable conditionsover a gradually sloping beach out to tlle eight meters contour but thereafterthe sea-bed is flatter and conditions are stable. Like the rest of the coastof Israel the site is subject to a slight littoral drift of sand, but theconditions at Ashdod are better than can be found at any other suitable loca-tion along the Mediterranean coast.

The impervious underground strata that contain the subterraneanwater of the area have outcroppings rising toward the sea so that, shouldpiles or deep foundations penetrate these water-holding layers, leakagesor contaminations are likely to result with sericus effects on the future

Apuendix A.Page 2.

water supply of the region. This factor hias b9een taken into account inthe siting on the ne-wo porte

The coast, hav-ng no natuLral protection on land or off-shore,is exposed to severe wave action fromi waves up to 8 m. in height. Thereare no strong ocean currents along the coast. Visibility is good at allseasons and winds seldom exceed 30 knots, with gusts up to 60 knots veloc-ity. The tidal range is sm.all varying only one meter betreen average highand low water.

Tne Master Plan

Frederick R1. Harris, Inc. of New York, were retained as consult-ing engineers and have prepared an approved master plan. The plan envis-ages an off-shore port comprising a basin protected by means of brealk.-aters,*sith finger piers projecting into the sheltered wqater area (see 14ap ,IMo. 2 ).To suit the cargo forecasts, the development is planned to take place in thefollowing three phases:

Phase I. - l960-65 - Construct main and lee breaktaaters with2 citrus berths and 3 general cargo berths.Capacity 900,000 tons/year. (Shown insolid black line on liap MTo. 2).

Phase II.- 1966-70 - Further develop tihe port behind the break-waters by completing the first finger pierand construct three others for general andbulk cargo handling - total 16 berths.Capacity 2,500,000 tons/year (shotm insolid red line on Rlap .Jo. 2).

Phase III.- After 1970 -

Extend the main and remove the lee break-water to the north and develop thie enclosedarea with additional general cargo berths,Total 30 berths. Capacity over 4 milliontons/year. (ShoTn in broken red line onIMap 2Jo. 2)

Generally spealcing, it is initially chseaper to build a harbor in-shore by diaging and dredging rather than to build off-shore and protect theenclosed water area by e-xensive breakwaters.Hows-ever this solution Twas notpractical at Ashdod for the following reasons:

(a) As mentioned above, the sinking of deep foundations in-shiorewTould interfere with the undergr und water suipply of thearea;

(b) A dredged channel leading to mn in-shore harbor wouald have tobe cut across the flow of thae litzoral drift and wTould be sub-ject to heavy siltation and require expensive maintenance dredg-ing; and

Appencix A.Page 3.

(c) Storms usually come from the western quarter and the normalentrance to an in-shore harbor under such storm conditionswould present very considerable navigational difficulties.

lhe present plan for a new port at Ash&c I iswell-conceived and has demonstrable advantages o.rer any alternative schli;.e.The balance between the quantities of "cut" and -fi11 is well maintainedand none of the foundations will interfere with the underground water sources.The breakwaters should, with negligible maintenance, provide a safe, shel-tered water area not only for the immediate development but, without alter-ation, for all developments up to 1970. The harbor entrance should be nav-igable in all but extreme storm conditions and, subject to the results ofhydraulic studies now in progress, it is considered very hopeful that thefinal breakwater shapes and locations will provide a port practically freefrom siltation.

The Project

The project, submitted for Bank-financLng, is the Phase I. develop-ment of the master plan. It entails the construction of the main and leebreakwaters, wharves, transit and citrus sheds, open storage areas, road andrail facilities and dredging.

Model Tests

Extensive hydraulic model tests are at present being conducted intwo laboratories in France and some tests have been completed. The testsare to determine the best location for the breakwaters, their ability towithstand the worst storm conditions and at all times afford maximum shelterto the port basin. The final results of all tests will be incorporated inthe detailed designs, but the preliminary findings are that the present plansand designs will require little if any modification.

Details of the costs of the Phase I. project are given at the endof this Appendix and the various items are:

A. The Breakwaters

The main breakwater will be about 2,300 meters and curve offshoreas shown on Map No. 2, to a depth of 15.5 meters. The lee breakwater willhave a length of about 900 m. and will jut out of a depth of 11 m., the tworoundheads forming an entrance to the port 220 m. wide and with a depth of12 m, Both breakwaters will be constructed on the rubble-mound system withrock sizes ranging up to 10 tons each, armored with tetrapods ", up to 40tons each on the sea-side slope. The main breakwater will be topped with aconcrete wave deflector. Some 2-1/4 million tons of rock will be requiredfor the breakwaters alone.

B. Dredging and Wharves

About 700,000 cu. m. of sand will have to be dredged to form the12 m. deep entrance, the 11.7 m. deep turning circle, and provide 10 mn.

->/ A tetrapod is a French, patented type of concrete block used in sea-defence work.

Annendi.x A.Page 4.

depths alongside the berths. Dredged material ,,Tll be puiTed ashore andused for reclamation or bacl-filling work. The 9Lo0 in. of wharves will beof concrete pile and cozicrete deck construction, complete wvith moorin.- a-dsand service ducts. The spacious citrus berths will contribute greatly tothe smooth and speedy delivery to shipside of tho crated fruit during thefour monthst season.

C. Buildings and Structures

2\.o transit sheds of 8,000 and 10,000 sq. m. area wdill be con-structed on the citrus, wharf adjacent to the lee brealkwater. The generaldesign and type of construction has not yet been finally determined nor hasthe mechanical citrus handling equiprment. Other structures will includepaved areas for open storage of goods, administrative buildings maintenanceand equipment shops, a road overpass across the port railways, a lighthouseand breakwater beaconls, a restaurant and the necessary fences, gatehousesand wyeighbridges, and two general car6o sheds.

1). Railways

'The railT-ray layout in the port and tlhe rail comnections to theState railfTay system were reconimmended by an expert of the French nationalrailways. Each new berth wiill have a railway siding. A small holding-yard ii11 lbe laid out inside the port area and a larger marsh& iing yardconstructed some 3 km. along the track from the port. The connection wfiththe main Ashqelon-Lydda line is about 6 km. long and the junction will besouth of Yibna. Lydda is a very busy center and to avoid the added conges-tion of all rail traffic between Ashdod and the south passing through Lydda,it is proposed to build a 22 km. diversion comnecting Yibna with the linefrom Beersheba. This is not included in the port project.

The nearest suitable quarry is situated 15 km. north of the port.It i rroposed to import all quarry materials 'oy rail and a 7 km. rail con-nection is to be laid to the quarry from the main line north of Lydda forthis purpose. Approximately one million tons of material will be handledannually for the three years of construction, th.3reafter the rail connec-tion will be used for carrying ballasting material and supplying the TelAviv area.

B. Utilities

The cost of the electrical power, telephone and fire alarm sys-tems are included under tihis heading, as vwell as the usual fresh-waterbunkering, drainage, sewYage and hydrant services.

F. General Construction Eouipment

In additioin to the specialized equipment needed fo- the construc-tion of the breakw-yaters and for the dredging, some items of equip-ment wh'i-chwould require mostly to be purchased abroad,comprise this item. Includedare 6 trucxs from 1-1/2 to 30 tons capacity, a service launch, a fuel supplybarge, and a 50 ton lighter.

ApDer.d-~ A.

G. Contractor's 7-enscs and Su-pervisi-on

This connonent of the cost was based on contractors? overheadsof 10, on labor, materials ard equipment, and on contractorst pro-fits of5% on labor and materil s, Super-ision by quali:, ed staff over a fiveyear period has been allowed 0

H. Plannin-g and Tests

This headinrg covers the contract entered into with F. R. IHarris,Inc., consulting engiineers, New York, for the investigations, planninQ- anddesign of the iwork. The tests are those at present being carried o-lt bythe two French hydraullic laboratories, Laboratoire Central d' Hydraulique deFrance and Sogreah.

I. Operational Equipment

In order to operate the new port with 1:Yo citrus berths plus tinthree general cargo berths, the following land ard floating equiprent isrequired:

Floating Equipment

1 - 80 hpn. service launch1 - 125 hp. pilot launch1 - 80 1-1 p .- ,.ooring lauinch1 - 800 hp. tug-cum-fire boat1 -1500 hp. tug1 - 50 tori lighter

Land Equipment for Citrus Cargo

3 - 1-1/2 ton fork lift trucks6 -2 It if2 -32 - 5, It t

10 -60 " tractors80 - 2 t trailers20 --

1000 -- pallets2 -50 weighing maachines

Land Equipment for General Cargo

6 - 5 ton portal cranes10 - 1-1/2 It fork lift trucks20 - 2 Ii tl It it

j4 3 i it 1t It

2 -5 t lt it

15 -60 " tractors200 - 2 " trailers

30 - 5 "i2500 pallets

2 - - portable conveyors2 - 6 Il track cranes

Anzr,rdix 4.

Page 6.

J. Contingencies

These cost est-nat-es are based on conservative unit prices -:I'-icherbody a contingency al-lowanice and in add:ition an overall corntingency o-f lT%has been applied.

The following tab2L lists the main headings of tim project andtheir estinated costs.

Cost Stmrrary for Phase I. DBeplor, mnt -,960/65

Item Descri-tion Total

A Brealkwaters 36,L,86B DredgCing and wharves 9g,50C Bmildings and structures L.,770D RailwLays 2, 218. Utili tie s 1,368

F General construction equipment 150G Contractors 1 expenses and supervision 7,5214H Planning and tests 5,220I Operational equipment 1, ,10J ContLigencies 7,380

Tot al 81 ,306In US.- 000 1 5,170

Map I

PORTS OF ISRAEL X 7 R- WK .- de COAStf .igd LIB*

GENERA SEVC AREA F>

J L

k{W ~~~~~~~UAE

- GUST 1960 IBRD-6841112