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LESSONS:

Avatiu Port Development Project: Completion Report

sector: Transport | country: Cook Islands

A major lesson stemming from the project is its inadequate preparation at appraisal, which caused problems by requiring supplementary financing, which was necessitated by exchange rate fluctuations and cost underestimation. About 55% of the increase in costs was attributable to exchange rate movements, and 45% to an underestimation of the cost. Cost estimates at appraisal were based on an exchange rate of NZ$1.00 = $0.67, whereas the revised cost estimate was based on the prevailing rate of NZ$1.00 = $0.76. More time needs to be taken at appraisal to thoroughly assess costs, especially in an isolated location such as the Cook Islands. At the supplementary financing stage it appears that the economic reevaluation took for granted that the benefits were as envisaged at appraisal, and no reexamination was made of the benefits on which the appraisal was based, despite the rapid decline in the number of cruise ship visits, and the fact that ships were not docking in Avatiu Port. Instead it was assumed that the benefits calculated at appraisal would continue. There were a total of three reallocations following the supplementary financing. This shows a lack of attention to detail when the project was designed and allocations made to different loan categories. It is essential that ADB carefully examine possible cost increases during project design.

Lessons from Validation

Cook Islands: Avatiu Port Development Project

The PCR (project completion report) identified a few important lessons from the project. It indicated the need for adequate preparation at appraisal. A scenario was drawn where arrivals of larger vessels would contribute to reducing cargo delivery costs. However, cargo volumes did not substantially increase since appraisal because the actual GDP (gross domestic product) growth was lower than expected. The achievement of higher cargo volumes will largely depend on future GDP growth. The risk of achieving lower economic growth rates could have been examined carefully. Also, it may be worthwhile to conduct needs and engineering assessments during the project preparation stage. Arrivals of large vessels were expected due to port improvements. However, this could have been firmed up or confirmed through the conduct of a survey among shipping companies. Also, project preparation of infrastructure projects could require checking of a project’s physical feasibility.

Likewise, there is a need to conduct a detailed cargo volume forecast for the port during project preparation stage. Appraisal documents for transport infrastructure projects normally indicate traffic forecast. In the PCR (project completion report), recent data on actual cargo volumes were indicated. However, there was no analysis on the discrepancy between estimated and actual cargo volumes. If the cargo volume forecast were provided in the RRP (report and recommendation of the President), it could have facilitated the assessment on how the port’s infrastructure was utilized.

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