Technical Assistance Consultant’s Report...Cardno Emerging Markets (Australia) Pty Ltd Trading as...

Technical Assistance Consultant’s Report

This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design.

Project Number: 48480 December 2017

Nauru: Sustainable and Climate-Resilient Connectivity Project Financed by the Asian Development Fund

Prepared by Cardno Emerging Markets

Fortitude Valley, QLD, Australia

For Ministry of Finance Implementing agency

Final Report (Feasibility Report) TA-9009 NAU: Sustainability and Climate Resilience in Nauru – Project Preparatory Technical Assistance (PPTA) Consultants

15 December 2017 Cardno i

Final Report (Feasibility Report)

TA-9009 NAU: Sustainability and Climate Resilience in Nauru – Project Preparatory Technical Assistance (PPTA) Consultants TA-9009

Prepared for Asian Development Bank (ADB) 15 December 2017


15 December 2017 Cardno ii

Contact Information

Cardno Emerging Markets (Australia) Pty Ltd

Trading as Cardno

Level 11,

515 St Paul's Terrace,

Fortitude Valley,

Queensland 4006

Australia

Telephone: +61 7 3369 9822

Facsimile: +61 7 3369 9722

[email protected]

www.cardno.com

Author(s):

Approved By:

Induni Senarath

Project Manager

Document Information

Prepared for Asian Development Bank

(ADB)

Project Name TA-9009 NAU:

Sustainability and Climate

Resilience in Nauru –

Project Preparatory

Technical Assistance

(PPTA) Consultants

File Reference TA-9009 NAU Final Report

- Version 3.docx

Job Reference TA-9009

Date 13 October 2017

Version Number V3

Effective Date 15/10/2017

Date Approved: 15/10/2017

Document History

Version Effective Date

Description of Revision Prepared by: Reviewed by:

1 21/09/2017 First Submission Scott Keane Induni Senarath

2 13/10/2017 Second Submission Scott Keane Induni Senarath

3 15/12/2017 Third Submission Scott Keane Induni Senarath

© Cardno. Copyright in the whole and every part of this document belongs to Cardno and may not be used, sold, transferred, copied or reproduced in whole or in part in any manner or form or in or on any media to any person other than by agreement with Cardno.

This document is produced by Cardno solely for the benefit and use by the client in accordance with the terms of the engagement. Cardno does not and shall not assume any responsibility or liability whatsoever to any third party arising out of any use or reliance by any third party on the content of this document.


15 December 2017 Cardno iii

Acronyms and Abbreviations

ADB - Asian Development Bank

AIDS - Acquired Immune Deficiency Syndrome

BCR - Benefit-Cost Ratio

BNPL - Basic Needs Poverty Line

BoM - Bureau of Meteorology

BOQ - Bill of Quantities

CAPEX - Capital Expenditure

CAWCR - Centre for Australian Weather and Climate Research

CBA - Cost Benefit Analysis

CEO - Chief Executive Officer

CDTA - Capacity Development Technical Assistance

CHS - Circular Hollow Section

CPU - Central Procurement Unit

CRVA - Climate Risk and Vulnerability Assessment

CS - Construction Supervision

DCIE - Department for Conservation, Industry & Environment

DDR - Due Diligence Report

DFAT - Department of Foreign Affairs and Trade (Australia)

DMF - Design & Monitoring Framework

DWT - Deadweight Tonnage

EA - Executing Agency

EIRR - Economic Internal Rate of Return

EMMP - Environmental Mitigation and Management Plans

EMP - Environmental Management Plan

ENSO - El Nino Southern Oscillation Index

EO - Explosive Ordnance

EOD - Explosive Ordnance Disposal

ERMF - Environmental Risk Management Framework

ERW - Explosive Remnants of War

ESMP - Environmental and Social Management Plan

FIRR - Financial Internal Rate of Return

FMA - Financial Management Assessment

FMICRA - Financial Management and Internal Control Risk Assessment

FMIS - Financial Management Information System

FMAQ - Financial Management Assessment Questionnaire

FPL - Food Poverty Line

GDP - Gross Domestic Product

HIES - Household Income & Expenditure Survey

HIV - Human Immunodeficiency Virus

IA - Implementing Agency

ICCP - Impressed Current Cathodic Protection

IHO - International Hydrographic Organization

IMO - International Maritime Organization

IP - Indigenous People

IPA - International Procurement Agent


15 December 2017 Cardno iv

IPSA - Initial Poverty Social Assessment

IR - Involuntary Resettlement

IRR - Internal Rate of Return

ISPS - International Ship and Port Facility Security

GAAS - Generally Accepted Accounting Standards

GoN - Government of Nauru

GPR - Ground Penetrating Radar

GRM - Grievance Redress Mechanism

GRT - Gross Registered Tonnage

JICA - Japan International Cooperation Agency

kPa - Kilo Pascal

LOA - Length Overall

M&E - Monitoring & Evaluation

MDB - Multi-lateral Development Banks

MetOcean - Meteorological and Oceanographic

MOF - Ministry of Finance

MOT - Ministry of Transport

MOU - Memorandum of Understanding

MPa - MegaPascal

NGO - Non-Governmental Organization

NOAA - National Ocean and Atmospheric Administration

NPA - Nauru Port Authority

NPDP - Nauru Port Development Project

NPV - Net Present Value

NRC - Nauru Rehabilitation Corporation

NSDS - National Sustainable Development Strategy

NUC - Nauru Utilities Corporation

NZ - New Zealand

O&M - Operations & Maintenance

OIMIP - Outer Island Maritime Infrastructure Project

OPEX - Operating Expenditure

Pa - Pascal

PAO - Procurement and Admin Officer

PACCSAP - Pacific-Australia Climate Change Science and Adaptation Planning Program

PDA - Project Design Advance

PFS - Pre-Feasibility Study

PFSO - Port Facility Security Officer

PIANC - Permanent International Association of Navigation Congress (recently

known as ‘The World Association for Waterborne Transport Infrastructure’) PNG - Papua New Guinea

PPRA - Project Procurement Risk Assessment

PPTA - Project Preparatory Technical Assistance

PRA - Procurement Risk Assessment

PRIF - Pacific Region Infrastructure Facility

PV - Procurement Vouchers

PVC - Polyvinyl Chloride

REA - Rapid Environmental Assessment


15 December 2017 Cardno v

RFP - Request for Proposals

RDU - Radio Detection Unit

ERMF - Risk Management Framework

RO - Reverse Osmosis

SBD - Standard Bidding Documents

SCF - Shadow Conversion Factor

SiD - Safety in Design

SOE - State Owned Enterprise

SPRSS - Summary of Poverty Reduction & Social Strategy

SPS - Safeguard Policy Statement

SPT - Standard Penetration Test

STD - Sexually Transmitted Disease

TA - Technical Assistance

TEU - Twenty Foot Equivalent Unit

THC - Terminal Handling Container

TOR - Terms of Reference

TTU - Trailer Unit

UCS - Unconfined Compressive Strength

ULS - Ultimate Limit State

US - United States

UXO - Unexploded Ordnance

WACC - Weighed Average Cost of Capital

WACOP - Waves and Coasts in the Pacific

WSA - Water Supply Code of Australia

NOTE

In this report, “$” refers to US dollars unless otherwise stated


15 December 2017 Cardno vi

Executive Summary

The island of Nauru has no protected port to facilitate international trade. Instead, general cargo

unloading is conducted at sea by the transfer of individual containers by ship’s gear into small self-propelled barges which are then unloaded in the safety of a small harbor. Fuel imports and

phosphate exports are handled at a separate facility which comprises two cantilevered loading arms.

A complex system of anchored buoys and mooring chains enables these vessels to be held off the

reef during transfer operations. This is only the case in limited / suitable conditions, beyond which

the vessels are necessarily moved off the mooring system to prevent damage and / or grounding.

In rough weather the transfer of cargo from vessel to barge is a dangerous operation which is often

suspended until seas abate. Consequently the unloading of a container vessel can take several

weeks to complete. Conversely the back loading of empty containers occurs in a reverse, time

consuming operation and can also require significant time to achieve.

The port is a lifeline to the people of Nauru since 95% of goods are imported to the country through

sea. Food, diesel fuel, commercial and consumer goods are imported to Nauru through Aiwo harbor.

Therefore, the country’s major economic operations rely on the availability of a reliable port. Only a

minor amount of cargo is imported through air (via flights from Australia and Solomon Islands).

The Government of Nauru has requested ADB for project preparatory technical assistance (PPTA) for the preparation of a project to improve the port facilities at Aiwo. The scope intended the

construction of a wharf for berthing vessels, an approach causeway from shore to wharf, and

replacement of derelict buildings with new structures for the harbor master’s office, staff amenities, gatehouse, plant workshop, secure fencing and a heavy duty industrial pavement in a container

storage yard. The project also includes capacity building and institutional strengthening of Nauru

Port Authority (NPA) to enhance the efficiency of port operations, port security, asset management,

occupational health and safety and reforms to tariff structure.

As input to the preparation of this Draft Final Report (Feasibility Report), the following tasks have

been completed:

1. Reviewed the concept of the port facilities proposed in the Pacific Region Infrastructure Facility (PRIF) Pre-Feasibility Study (PFS) and Japan International Cooperation Agency (JICA) Preparatory Study (2014);

2. Undertook analysis of wind, wave, sea level, temperature, rainfall and climate change, resulting in a report MetOcean Design Criteria;

3. Prepared of a Climate Risk & Vulnerability Assessment (CRVA) report 4. Considered alternative locations and structural concepts for the wharf; 5. Completed Ship simulation modeling which provided critical information on the navigational

and vessel maneuvering aspects for the wharf options; 6. Completed Unexploded Ordnance (UXO) assessment, geotechnical investigations,

topography, bathymetry and cadastral surveys (as part of Project Design Advance (PDA) project)

7. Prepared preliminary wharf designs (as part of PDA project) to enable cost estimates to be provided;

8. Completed economic analysis of the proposed project; 9. Completed environmental assessment; 10. Completed social/poverty, gender and resettlement studies; 11. Completed financial management assessment & analysis 12. Completed with monitoring and evaluation; 13. Completed procurement planning and risk assessment; 14. Completed Port reform activities


15 December 2017 Cardno vii

Upon completion of the data review, a considerable risk in the proposed project was identified as the

constructability of the proposed quay wall recommended in the PRIF PFS. Some of the

constructability issues identified were wave impacts during construction, working from a barge rather

than a land based plant, ability to create a level base, possible sliding of concrete blocks, durability

and strength of large scale concrete blocks (unreinforced), and safety issues with divers in the water

while blocks are placed. Therefore, two alternative design options which were originally proposed

in JICA preparatory study, were modified and proposed for analysis. A total of six upgrade options were identified, including:

- Do Minimum – Repairing and maintaining the current facilities

- Option 1 – a new quay wall constructed on the reef edge north of the existing harbor with an accessible causeway connecting to the existing container yard. Vessels moor parallel to the reef edge.

- Option 2A –a berth pocket dredged into the reef immediately north of the existing harbor. The berth is oriented approximately 450 to the reef edge. A wharf constructed to the south side of the berth connecting the existing container yard. A breakwater built on the north-west or seaward side of the berth.

- Option 2B – a berth pocket dredged into the reef immediately north of the existing harbor. The berth is oriented approximately 450 to the reef edge. A wharf constructed to the south side of the berth connecting the existing container yard. (Similar to Option 2A, but excludes a breakwater).

- Option 3A – a piled wharf with two working faces. Two berth pockets on both sides on the wharf dredged into the reef at 450 to the reef edge. The wharf in between the berth pockets. A breakwater built on the north-west or seaward side of the berth.

- Option 3B – a piled wharf with two working faces. Two berth pockets on both sides on the wharf dredged into the reef at 450 to the reef edge. The wharf in between the berth pockets. A breakwater built on the north-west or seaward side of the berth. (Similar to Option 3A, but excludes a breakwater)

Options 2 and 3 were developed to align the berth pocket and vessel with the critical wave direction.

The options were developed to provide a sheltered berthing area and greater resilience for the port

design to enable it to operate in a much wider range of conditions.

The cost of these six upgrade options are shown in Table 1. The options evaluation process

considered each of these upgrade options in comparison to a Base Case Do Nothing option, in which

maintenance of the existing mooring system was allowed to lapse. This is considered the Base Case

because this would be the option continued by Government of Nauru (GoN) unless a new port was

proposed. This option is suboptimal due to the risks, safety issues and time consuming operations

involved. The capital cost of this base case option is negligible (Table 1).

Table 1 Summary of Engineering and Cost Estimates of the Design Options

Option Description Engineering Cost

Estimate

Do Nothing (Base

Case)

Mooring system is no longer

used

US$0M

Do Minimum Repairing and maintaining the

current facilities

US$28.4M


15 December 2017 Cardno viii

1 PRIF PFS proposed quay wall

and causeway

US$ 71.4M

2A* Wharf, one berth pocket with

breakwater

US$62.5M (Concept

Design)

US$69.56M** (Detailed

Design in progress &

inclusion of PDA

Consultant Cost)

2B Wharf, one berth pocket

without breakwater

US$60.6M

3A Wharf, two berth pockets with

breakwater

US$78.7M

3B Wharf, two berth pockets

without breakwater

US$73.9M

*Option 2A was identified as the preferred option through the evaluation process and progressed to

detailed design level and costing estimation.

** US$ 3.042 M as the cost of Project Design Advance (PDA) was included in Option 2A cost

estimate as advised by ADB on 13 Nov 2017.

Table 2 Project Cost Estimates

Feasibility Study versus Detailed Design

Description Feasibility Study Detailed Design

Output 1- Climate Proofed Port Infrastructure 62.70 67.60

Off-shore works 45.87 54.87

Berthing Channel 7.84 9.66

Breakwater 6.47 0.27a

Wharf 31.56 44.94

On-shore works 7.29 11.22

Port Buildings 5.83 8.83

Building Services 1.46 0.00 b

Building Demolition 0.00 2.39 c

Civil Works Contract 53.16 66.09

Port Equipment 6.76 0.00 d

Supervision Consultant Services 2.78 1.50

Output 2- Reforms for NPA 2.50 0.00 e

Sub Total 65.20 67.59

Government in-kind Contribution 0.00 3.00 f

Total Project Capital Cost 65.20 70.59

a The breakwater will be constructed as a composite structure along with the wharf against a standalone structure in the feasibility study designs. This resulted in substantial cost reduction for the breakwater in the latest cost estimates.

b In the latest cost estimates, the cost of building services is included under port buildings. c The demolition of buildings were initially expected to be undertaken by the port authority. The government subsequently

requested this is to be included in the project. d Port equipment is expected to be financed separately by JICA under a bilateral agreement with the government and as

such excluded in the latest cost estimates. e Port reforms are implemented through ongoing technical assistance financed by a A$3.3 million grant from the

Government of Australia parallel to the project and as such excluded in the latest cost estimates. f. Salaries, audit fees, aggregate supply, taxes and duties were included as an in-kind contribution.


15 December 2017 Cardno ix

A. Technical Suitability and Climate Resilience

The ‘Do Minimum’ scenario retains the existing offshore mooring chain and buoy system, but

includes upgrade or replacement of a number of components that have reached the end of their

service life, as well as including installation of new onshore equipment and onshore works that would

be common across all project options.

A ship simulation exercise was conducted to determine the most appropriate configuration for the

wharf and breakwater.

(i). The simulation for Option 1 showed that arrival of the vessel without assistance (tugs) was

significant maneuverability issues for berthing and controlling speed of berthing. It further

showed that the departure of the vessel in benign conditions could easily result in the vessel

grounding on the adjacent reef. It was concluded that the movement of the vessel at the

wharf combined with cargo handling limits was highly improbable other than in ideal

conditions.

(ii). The simulation for Option 2A showed that the arrival of the vessel for Port Side (reversing

the ship in) was not difficult and relied heavily on pusher barges. Therefore, it was decided

that maneuvering the vessel at ‘slack’ water would become an operational parameter under

this configuration. The simulation showed that vessel departure, with the assistance of

tugs/pusher barges was satisfactory even in worsening conditions.

(iii). Since Option 3A follows the same angle of berth as Option 2A, a separate simulation for this

option was deemed unnecessary since the alignment of berth pockets was in the same angle.

As part of the PPTA study, Meteorological and Oceanographic (MetOcean) criteria were identified.

The MetOcean criteria presented information for design purposes on wind, waves, sea level,

temperature and rainfall; discussion of likely currents at the port site and potential impacts of climate

change and its impact on the design process. The design wave conditions and climate change

predictions were based on numerical wave models driven by reanalysis winds in the case of the

design and by climate models for future predictions. The accuracy of the wave modelling was

crucially dependent on the accuracy of the wind fields used to drive the model. The climate change

models varied in spatial resolution. These models were not able to properly resolve tropical cyclones

(typhoons in the western Pacific). However it was identified that tropical cyclones caused the most

extreme waves in Nauru (Trenham, et al., 2013), CAWCR report CTR068 states: “Note the predicted

extreme values are underestimates due to not fully resolving tropical cyclones.” Due to the

uncertainty in future wave climate predictions, it was important that the selected design option for

the port in Nauru to be resilient and robust, and not critically sensitive to changes in wave conditions,

particularly increases in extreme wave conditions. It was identified that the proposed options 2 and

3 provide far greater resilience to any future changes in wave climate, possibly unforeseen by

existing models.

Based on the ship simulation and MetOcean design criteria, it was identified that Options 2 and 3

were climate resilient compared to the Base case, Do Minimum and Option 1. Option 2A was

identified as the preferred option. The provision of a breakwater as part of the option was seen to

provide safer operating conditions, enhancing operational times of the wharf and aid in protecting

the long-term condition of the asset in response to climate change. The provision of two berths

(Option 3) will not be cost-effective as elaborated in the economic analysis.


15 December 2017 Cardno x

B. Economic Analysis

To compare and contrast the potential six upgrade options, an economic assessment was

undertaken comparing the net performance of each option against the costs and benefits of adopting

a Do Nothing Base Case scenario.

Table presents estimates of Net Present Value (NPV), Economic Internal Rate of Return (EIRR)

and Benefit-Cost Ratio (BCR) of the individual concept options assessed in comparison to the Do

Nothing base case scenario. Where the BCR is less than 1 it indicates that is economically preferable

to Do Nothing rather than adopt the relevant upgrade option (and vice versa for where the BCR is

greater than 1). Table presents the economic assessment results for the identified preferred concept

option (Option 2A) following advancement of detailed design.

Table 3: Estimates of NPV, EIRR and BCR of concept against Do Nothing (Base Case)

Do Minimum Option 1 Option 2A Option 2B Option 3A Option 3B

NPV (US$M)

-$5.4 -$10.8 $5.5 $6.0 -$5.1 -$3.8

BCR 0.84 0.81 1.11 1.13 0.92 0.93

EIRR 6.1% 6.9% 10.2% 10.4% 8.1% 8.3%

Option 2A that was identified as the preferred option during concept stage was modified during

detailed design. This involved proposing the wharf on the northern side of the berth pocket with an

accessway connecting the existing container yard. A revetment was proposed immediately to the

north of the wharf instead of the separate breakwater structure proposed during concept design.

Table 4: Estimates of NPV, IRR and BCR of Option 2A (detailed design in progress & inclusion of PDA consultant cost)

Option 2A

NPV (US$M)

2.33

BCR 1.04

EIRR 9.4%

BCR = Benefit-Cost Ratio, EIRR = Economic Internal Rate of Return, NPV = Net Present Value Source: Cardno estimates

Projects with a positive EIRR and a BCR greater than one are considered to be economically viable.

C. Governance Assessment

Financial Management. The financial management assessment concluded that the overall financial

management risk is substantial. It reveals that the executing agency, Government of Nauru (GoN)

Ministry of Finance, has a low risk due to the existence of a financial management information system

(FMIS) in the country, including effective budgeting and control systems. The Ministry of Finance

has experience in managing and implementing projects financed by ADB and other international

funding institutions. However, the risk of the implementing agency (NPA) was deemed high due to

no experience in managing and implementing foreign funded projects, including ADB funded

projects. Proposed mitigation measures include (i) providing institutional strengthening for NPA

including the development and implementation of FMIS for port operations/management, an asset

management and maintenance plan, and support to improve NPA’s accounting systems; (ii)

undertake a tariff study and reform for the ports; (iii) the inclusion in the construction supervision

(CS) team of a financial management specialist to provide project accounting and financial reporting

support; and (iv) training in ADB procedures that will be required in procurement, disbursement, and


15 December 2017 Cardno xi

project management. The project is deemed worthwhile and feasibile, since Nauru has no efficient

port in place.

Procurement. A Project Procurement Risk Assessment (PPRA) was carried out in accordance to

ADB Guidelines. Based on the assessment conducted it was determined that there exists both

strengths and weaknesses in the GoN Procurement Process, but nothing that would put the project

procurement for the project at unacceptable risk provided that ADB Procurement Guidelines were

followed and that ADB’s Project Delivery Consultant was in place to take direct management

responsibility. The Government, nor the current International Procurement Agent (IPA) has the

relevant experience in the Procurement of major capital works projects under International

Competitive Bidding.

D. Environmental and Social Safeguards Assessment

The Initial Environmental Examination (IEE) concluded that there were no identifiable environmental

significant impacts, no critical important terrestrial or marine habitats impacts, all impacts are site

specific, irreversible and can be minimized through appropriate mitigation measures. In accordance

with ADB Safeguard Policy Statement 2009 (SPS), the project was categorized through a Rapid

Environmental Assessment (REA) ‘Port Development’ checklist as a Category B environment. The

environmental impacts are minor, localized, and acceptable, providing that the set of mitigations

measures set out in the EMP are implemented and monitored properly.

E. Poverty, Social and Gender Assessment

The Poverty, Social and Gender Assessment identified key issues in the basic needs poverty line

and the increase in living costs as the country depends highly on imported goods and fuel. The

education and health sectors suffer from a chronic shortage of skilled staff. Lifestyle diseases

(diabetes, obesity), and low education attainment (especially in secondary education) are another

symptom for low social development. It is expected that the project will have positive impact in,

creation of new jobs for men and women and improving the health situation of Nauruans by medical

supply and affordable prices for fresh produce, which influences a healthier diet.

The project was assigned Category C for Involuntary Resettlement (IR) in respect of ADB SPS,

which means that displacement of people or property is not an issue. The same Category C applies

for Indigenous Peoples (IP) as the assessment concluded that the population in the project area is

not considered to be distinct from the mainstream society. The project scope is not expected to affect

any distinct and vulnerable group of indigenous peoples as defined by SPS, and does not require

an Indigenous people’s plan. The project outputs will be delivered in a cultural appropriate manner.

Social safeguarding measures have been proposed. A Gender Action Plan and Due Diligence

Report for Safeguards were also prepared. This report highlights in detail inter alia land acquisition

processes and compensation in Nauru and specifically the number of lots, which will need to be

leased by the executing authority before construction phase begins.

F. Reforming the Port Authority

Port reform will be critical to ensure that the infrastructure is sustainable, delivers servcies to people

and the business, and generate value for money for Nauru. Major reform measures are considered

critical irrespective of the development of a new Port facility at Aiwo in Nauru, and are also vital for

ensuring sustainability of the new development required. Broadly, the reform measures include:

(i) Significant investment in new equipment for efficient port operations and logistics

provision;

(ii) Adoption of a tariff structure based on equipment replacement and recovery of operating

costs only, achieving no net increase in tariff from what is already proposed for

implementation by NPA as gazetted by GoN, whilst longer term allowing for payment of

a concession or lease payment to GoN by a lessee;


15 December 2017 Cardno xii

(iii) Implementation of appropriate systems (Financial Management, Asset Management,

Operations and Maintenance etc);

(iv) Division of organisational structure into commercial and regulatory elements and

provision for future privatisation or lease of the commercial element;

(v) Management support to be implemented prior to the commencement of construction of

the new port including Chief Executive Officer (CEO), Operations Manager, Finance

Manager, HR Manager, Maritime Officer, Maritime Legal Specialist and Financial

Management and Asset Management System Project Manager. These roles are to

continue for varying lengths up until or including transfer of operations under a lease

arrangement;

(vi) Implementation of training programs to address deficiencies in technical skills throughout

the Port staff and to enable more efficient allocation of labour;

(vii) Significant institutional and governance related reforms including provisions for future

lease arrangements and performance management arrangements.


15 December 2017 Cardno xii

Table of Contents

Acronyms and Abbreviations iii

Executive Summary vi

1 Introduction 1

1.1 Background 1

1.2 Current Port Operation Methodology 3

1.2.1 Mooring System 3

1.2.2 Offshore Container Transfer and Associated Risks 4

1.2.3 Port Operations during Monsoon Periods 5

1.2.4 Status of Port Buildings 5

1.3 Need for New Port 7

1.4 Options Considered till 2015 for Developing a Port for Nauru 8

1.4.1 2009 Reeves Construction Services Pty Ltd and BMT WBM Pty Ltd Study 9

1.4.2 2009 ADB Scoping Study for Nauru Port Development 9

1.4.3 2011 Nauru Economic Infrastructure Strategy and Investment Plan 10

1.4.4 2012 World Bank / AusAID Port Infrastructure Priority Needs Assessment 10

1.4.5 2014 JICA Preparatory Study 10

1.4.6 2015 PRIF Pre-Feasibility Study 10

1.5 Scope of Technical Assistance 11

1.6 Objectives of the Feasibility Study for Aiwo Port 11

1.7 Scope of this Report 12

2 Engineering Assessment & Investigation 14

2.1 Preliminary Assessment 14

2.2 Ship Simulation Modeling 15

2.3 Wharf Design Philosophy 18

2.4 Cost Estimates 28

2.5 Other Engineering Considerations 30

2.6 Project Design Advance Activities 30

2.6.1 UXO Assessment 30

2.6.2 Topography and Underground Services Survey 31

2.6.3 Bathymetry Survey 31

2.6.4 Geotechnical Investigations 33

2.6.5 Cadastral Survey 34

2.7 Go – No Go Decision Point 34

2.8 Summary 35

2.9 Detailed Design Basis 35

2.9.1 Design Features 35

2.9.2 Wharf Structure 36

2.9.3 Design Optimization and Availability 37

2.9.4 Terminal and Buildings 41

2.9.5 Services 43

2.9.6 Other 44

2.9.7 Constructability 44

3 Economic Assessment 46

3.1 Summary and Recommendations 46

3.2 Guidelines 47


15 December 2017 Cardno xiii

3.3 Economic Analysis 47

3.4 Project Costs 47

3.5 Project Benefits 49

3.6 Cost Benefit Analysis (CBA) 50

3.7 Conclusion 51

4 Financial Analysis 53

4.1 Financial Internal Rate of Return (FIRR) 53

4.2 Financial Performance and Projections 54


5 Environmental Studies 56

5.1 Findings 57

5.1.1 Terrestrial Assessment 57

5.1.2 Marine Assessment 57

5.2 Anticipated Impacts and Mitigation Measures 59

5.3 Conclusion 60

6 Social Assessment 63

6.1 Safeguarding 63

6.2 Social Impacts 63

7 Poverty, Social, Gender and Resettlement 65

7.1 Land Acquisition and Resettlement 65

7.1.1 Land Acquisition/Resettlement 65

7.1.2 Next steps 69

7.2 Social and Poverty Assessment 69

7.3 Poverty 70

7.4 Consultation, Participation, and Disclosure – Communication and Consultation Plan 70

7.5 Grievance Redress Mechanisms (GRM) 71

7.6 Gender Assessment 72


8 Financial Management Assessment 74


9 Procurement 80

9.1 Procurement Responsibility in Nauru 80

9.2 Procurement Risk Assessment 81

9.2.1 Project Procurement Risk Assessment Process 82

9.2.2 Planning the assessment 82

9.3 Procurement strategy 83

9.3.1 Identify potential bidders for civil works 83

9.3.2 Local Capacity Development 84

9.3.3 E-Procurement 84

9.3.4 Contract Packaging 85

9.4 Draft Bid Documents 86

9.5 Project Procurement Risk Assessment Summary 86

9.5.1 Strengths 87

9.5.2 Weakness 87

10 Climate Change and Disaster Risk 88

10.1 Policy Context 88

10.2 Vulnerability 89


15 December 2017 Cardno xiv

10.3 Climate influencing factors 90

10.4 Approach to climate change assessment 90

11 Port Reform 94

11.1 Overview 94

11.2 Current Constraints and Opportunities 94

11.3 Development of Port Infrastructure 94

11.4 Improving Financial Performance 95

11.5 Upgrading Safety and Security 96

11.6 Improving Institutional Performance and Capacity Building 97

11.7 Reform Activities and Timeline 98

12 Monitoring and Evaluation 101

13 Conclusions and Recommendations 103

13.1 Conclusions 103

13.2 Recommendations 104

13.2.1 Financial Analysis 104

13.2.2 Environmental Assessment 104

13.2.3 Poverty, Social, Gender and Resettlement 104

13.2.4 Financial Management 105

13.2.5 Procurement 105

13.2.6 Port Reform 105

13.2.7 Climate Change and Disaster Risk Assessment 106

Appendix A: Neptune Pacific Line Correspondence 108

Appendix B: Government of Nauru Letter on Mooring System 109

Appendix C: Concept & Final Options 110

Appendix D: Ship Simulation Report 111

Appendix E: Concept & Detailed Option 2A Cost Estimates 112

Appendix F: Final UXO Report 113

Appendix G: Operability Comparison Report 114

Appendix H: Economic Analysis Report 115

Appendix I: Least Cost Approach Report 116

Appendix J: Financial Analysis Report 117

Appendix K: Initial Environmental Examination 118

Appendix L: Marine Assessment Report 119

Appendix M: Safeguards Due Diligence Report 120

Appendix N: Poverty, Social and Gender Assessment 121

Appendix O: Gender Action Plan 122

Appendix P: Financial Management Assessment 123

Appendix Q: Project Procurement Risk Assessment 124

Appendix R: Climate Risk and Vulnerability Assessment 125

Appendix S: MetOcean Criteria Report 126

Appendix T: Final Port Reform Report 127

Appendix U: Design & Monitoring Framework (DMF) 128


15 December 2017 Cardno xv

Appendix V: Contribution to the ADB Results Framework 129

Appendix W: Meetings 130

Tables

Table 1 Summary of Engineering and Cost Estimates of the Design Options vii Table 2: Estimates of NPV, EIRR and BCR of concept against Do Nothing (Base Case) ix Table 3: Estimates of NPV, IRR and BCR of Option 2A (detailed design in progress) ix Table 4 Container and Tanker Throughput Historically 8 Table 5 : Wharf location options - Advantages and Disadvantages 25 Table 6: Structural concepts considered for the wharf - advantages and disadvantages 27 Table 7 : Infrastructure Cost Estimates (Concept Design Stage) 29 Table 8: Advantages and Disadvantages of the Infrastructure Options 36 Table 7 Peak-to-peak vessel movements at which point container unloading may be unsafe 38 Table 8: Advantages and Disadvantages of Each Alignment Option based on Optimoor Analysis and

Construction Methodology 40 Table 9 : Container throughputs assumed for container yard planning 41 Table 10 : Provision of Building Areas 43 Table 11 NPV, IRR and BCR of Option 2A 46 Table 12: Project (with) and Do Nothing (without) cost estimates 48 Table 13 Summary of Present Value Benefits ($M) 50 Table 14 Summary CBA 50 Table 15 Estimates of NPV, IRR and BCR of Option 2A 51 Table 16 Sensitivity Analyses 54 Table 17 Table of individuals met by the Environmental Specialist on 25, 26, 27 & 29 Nov 2016 during the in-

country visitation 56 Table 18 : Descriptions of Design Land Areas 67 Table 19 : List of Landowners and Leases for Nauru Port Development Project 68 Table 20 Risk Assessment and Management Plan 74 Table 21 Time-bound Action Plans 78 Table 22: Details of Potential International Bidders 83 Table 23 : Risk Assessment Findings 91 Table 24 : Assessment of Residual Risk following Application of Adaptation Measures 92 Table 25 – Summary of the Cost of Reform Activities (A$ million, mid-2017 prices) 98

Figures

Figure 1-1: Location of Nauru on World Map (Google Earth, 2017) ................................................................. 1 Figure 1-2: Nauru Harbor 1908 ......................................................................................................................... 2 Figure 1-3: Nauru Harbor 2016 ......................................................................................................................... 2 Figure 1-4 Project Site (Google Earth, 2016) .................................................................................................... 3 Figure 1-5: Tanker unloading on to container barge ......................................................................................... 4 Figure 1-6 : Offloading ....................................................................................................................................... 4 Figure 1-7 Offloading from container barge....................................................................................................... 4 Figure 1-8 : Status of Port Buildings (Shed 1) ................................................................................................... 5 Figure 1-9 Status of Port Building Structures (Harbormaster Building) ............................................................. 5 Figure 1-10 Status of Port Structure Buildings (Shed 1 – Internal View) .......................................................... 6 Figure 1-11 Status of Port Structure Buildings (Shed 2 – External View) ......................................................... 6 Figure 1-12 Status of Port Structure Buildings (Shed 2 – Internal View of Roof).............................................. 6 Figure 2-4: Concept Option 1 .......................................................................................................................... 22


15 December 2017 Cardno xvi

Figure 2-5: Concept Option 2 .......................................................................................................................... 23 Figure 2-6: Concept Option 3 .......................................................................................................................... 24 Figure 2-7: Bathymetry Survey ........................................................................................................................ 32 Figure 2-8 General Port Layout Plan (Option 2A) ........................................................................................... 36 Figure 2-9 Optimoor Analysis - Southern Alignment Option ........................................................................... 39 Figure 2-10 Optimoor Analysis - Northern Alignment Option .......................................................................... 39

TA-9009 NAU: Sustainable and Climate Resilient Connectivity in Nauru – PPTA Consultants (48480-001) Final Report – Feasibility Report

TA-9009 NAU –Final Report – Feasibility Report.docx 15 December 2017 Page 1 of 151

1 Introduction

1.1 Background

1. Nauru is a Micronesian island with an area of 21 km2 located in the Pacific Ocean. It is

located northeast to Papua New Guinea and Solomon Islands, southeast to Federated States of

Micronesia, south of Marshall Islands and northwest of Tuvalu. The location of the country is also

shown in Figure 1-1 below. Nauru has a population of about 10,982 (2013). The small island

nation hosts its population on the shores around the island. The inner part of the island is used

for phosphate mining.

Figure 1-1: Location of Nauru on World Map (Google Earth, 2017)

2. In the 1970s Nauru had the highest Gross Domestic Product (GDP)/capita in the world.

By 2003 the economic and financial situation continued to deteriorate, as the phosphate reserves,

the main natural resource, have become nearly exhausted. A complete collapse of the economy

has only been averted by continuing donor support, particularly Australia’s humanitarian and development assistance. The country is plagued by frequent fuel, power and water shortages

while the cost of living has increased. The education and health sectors suffer from a chronic

shortage of skilled staff. Lifestyle diseases (diabetes, obesity), truancy in schools and low

educational attainment are symptomatic of the neglect of the social sectors. Employment ratio

declined to 47% in 2011 from 84% in 2002. Unemployment rate was 23% in 2011. Since 2012,

the re-opening of the Australian immigration detention center has created job opportunities.

Phosphate mining has seriously affected the environment of Nauru. The mining methods

employed in the extraction of phosphate for some 90 years have devastated the country. The



natural vegetation and phosphate-rich top soils have been removed from over 70 percent of the

land area, leaving a wasteland at the center of the island, thus preventing the dispersal of a

rapidly-increasing population from the coastal fringe, heightening land pressures and disputes

around that fringe. The lack of subsistence economy by a non-existent farming or gardening

culture pushes the growing population in total dependency on imported goods and to increasing

poverty.

3. Nauru Port, located at Aiwo, on the west of the island, is limited in its ability to unload

general cargo from container vessels and fuel from tankers. The harbor in 1908 and 2016 are

shown in Figure 1-2 and Figure 1-3. In addition, the loading of phosphate into bulk carriers is

dependent on a complex system of anchored buoys and moorings, which currently are out of

operation. Container vessels are unloaded by ship’s gear individually into self-propelled barges

which transfer them to the small protected harbor where a crane unloads the barge. In rough

weather the transfer from vessel to barge is a dangerous operation which is often suspended until

seas abate. Consequently the unloading of a container vessel can take several weeks to

complete. Conversely the back loading of empty containers occurs in a reverse operation and can

also require significant time to achieve. This practice poses significant safety issues to personnel

as well as presenting great challenges to the efficient transfer of cargo. The project site is shown

in Figure 1-4.

4. Several studies have been undertaken in recent years by Asian Development Bank (ADB),

Japan International Cooperation Agency (JICA) and Pacific Region Infrastructure Facility (PRIF) to investigate options for the upgrade of port facilities, primarily to provide a wharf at which vessels

could berth for cargo unloading. All the studies are discussed in Section 1.4 in this report.

Figure 1-2: Nauru Harbor 1908

Figure 1-3: Nauru Harbor 2016



Figure 1-4 Project Site (Google Earth, 2016)

1.2 Current Port Operation Methodology

1.2.1 Mooring System

5. Initially developed to enable the loading of phosphate vessels about 90 years ago, the

mooring system at Aiwo comprises a complex system of deep sea anchors (in about 540m water

depth), chains, connecting plates, shackles and ten mooring buoys. Phosphate bulk vessels are

moored prior to loading and must be able to be pulled away from shore during the repositioning

of the cantilever loaders into appropriate holds.

6. Produce tankers (Fuel vessels) also used the mooring system during fuel discharges. A

flexible rubber hose was lowered from a loader to sea level and connected to the tanker’s manifold to enable the pumping of fuel to onshore tanks. This operation is inefficient and it presents safety

and environmental issues. The operation has to be discontinued when there is risk of weather

events and associated repositioning of the vessels.



7. Cargo vessels have used the facilities to moor during container offloading and back

loading but have not been able to do so since the mooring system has become inoperable (the

mooring system was upgraded in May 2017). The mooring activity for cargo vessels is the same

as the process followed by phosphate vessels and tankers. Currently container vessels drift along

the coast while being unloaded by ship’s gear into self-propelled barges which transfer them to

the small protected harbor where a crane unloads the barges.

1.2.2 Offshore Container Transfer and Associated Risks

8. There is significant risk during the unloading (or backloading of empty containers) of a

container vessel as each container is handled by the ship’s crane into or from a self-propelled

pusher barge. Sea conditions dictate when these operations are feasible and can extend the

loading/unloading period to several weeks. NPA workers are at risk as they attempt to land the

containers into the small pusher barges.

Figure 1-5: Tanker unloading on to container barge

Figure 1-6 : Offloading

Figure 1-7 Offloading from container barge



1.2.3 Port Operations during Monsoon Periods

9. During the monsoon period (approximately December to February), the sea conditions on

the west of the island can become too severe for container cargo unloading. During these three

months, at certain times, it has been the practice during bad weather to relocate the operation to

Anibare Fishing Harbor on the east coast. Here the container vessel drifts offshore while

unloading into pusher barges which convey the containers to a quayline within the Fishing Harbor

for unloading by crane. These containers are stored locally and transferred by truck to Aiwo for

unstuffing.

1.2.4 Status of Port Buildings

10. There are three major buildings in a severe state of disrepair: they have significant

corrosion of the steel structure and one has an asbestos cement roof. The NPA are investigating

demolition options for the existing facilities. It should be noted that asbestos cement debris is

prolific within the port area and within the island.

Figure 1-8 : Status of Port Buildings (Shed 1)

Figure 1-9 Status of Port Building Structures

(Harbormaster Building)

1.2.4.1 Shed 1

11. The main shed at Aiwo Port is an aluminium clad steel framed shed of approximately 100m

x 30m in dimension. This shed consists of 16 bays/sections, and in most places the sheeting is

supporting elements of the structure with major structural elements almost completely corroded

away. The shed also includes lower level crane rails. Figure 1-10 shows the existing condition of

this shed, which should no longer be used and should be demolished immediately.



Figure 1-10 Status of Port Structure Buildings (Shed 1 – Internal View)

1.2.4.2 Shed 2

12. This shed is approximately 70m x 35-40m and is an asbestos roofed steel frame

building. Wall cladding is perforated steel sheeting. The roof is a sawtooth / trussed

configuration. Internally, the shed consists of 8 ‘rows’ at 3 bays wide, and 3 rows at 2 bays wide. The shed includes crane rails in each section. The figures below show the current condition

of this building. As the shed is no longer utilised and the area will be re-allocated for Port activity,

it should be demolished..

Figure 1-11 Status of Port Structure Buildings (Shed 2 – External View)

Figure 1-12 Status of Port Structure Buildings (Shed 2 – Internal View of Roof)



1.2.4.3 Shed 3

13. Is an asbestos clad (roof and walls) building of approximately 55m x 17m. It has 13 steel

portal frames and metal purlins and braces. The figure below shows the current condition of this

building. Due to the condition of this structure, as well as location within the Port land, it should

be demolished.

Figure 1-13 Status of Port Structure Buildings (Shed 3 – External View)

1.2.4.4 Customs Office Building

14. There is an existing brick and asbestos building to the north of the site which will

requireremoval. The current state of the building is in disrepair and it should be demolished..

1.2.4.5 Harbourmasters Office

15. The old harbourmaster building also requires demolition / removal and whilst consisting of

masonry and fibro sheeting the steel bracing and frame beneath the building is highly corroded.

1.3 Need for New Port

16. Provision of the new port facilities are critical for the future of the inhabitants of the island

as this is the only channel for importing goods into the country. The port represents a life line to the people of Nauru with the majority of imports (95%) arriving by sea. All imports to the country

comprise of food, goods and fuel. Nauru’s major export is phosphate, Limestone rock and

aggregate has also been a minor export historically. Any interruption to regular shipping, either

the regular tanker deliveries (average of eight per year) or container vessels (up to 12 per year,

but less at present with one operator withdrawing service), has the potential to severely impact

on the population of Nauru in terms of power, food and water shortages. In particular, the

consequences of the failure of the port facilities would be dire for the local economy, workplace

and public safety, regional connectivity and the habitability of Nauru, as it relies upon import of



bulk fuel which is used for power and water generation on the island. Container vessel throughput

during 2015 – 2017 and tanker (fuel) product throughput during 2015 – 2016 is shown in the table

below.

Table 4 Container and Tanker Throughput Historically Year Cargo Tankers No.

Vessel calls

Import (TEU)

Export (empty) (TEU)

Breakbulk (mt)

No. Vessel calls

Diesel (mt)

Unleaded Petrol (ULP) (mt)

Jet A1 (mt)

2015 6 1217 1,554 3 (part year)

57,800 13,000 25,188

2016 7 1746 2267 6 41,241 5,865 12,907 2017 4 (to

April) 677 916 Note 1

*Note 1 – Breakdown of fuel for 2017 unavailable during preparation of this report

17. The current container operator, Neptune Pacific Agency, provides all containers to the

Island. Due to the poor state of the port and barges, unloading this container ship is a lengthy and

costly process exacerbated by refrigeration and fuel costs which are transferred to the consumers.

There may be a possibility of Neptune Pacific Agency withdrawing its services to Nauru due to

the port’s non-compliance to International Maritime Organization (IMO) requirements in relation

to the International Ship and Port Facility Security (ISPS) code. It is noted that the shipping

company Matson have ceased shipping to Nauru in November 2015 due to low margins. The

shipping operator withdrew due to delays which impacted financial viability. As discussed in the

economic assessment later on in this report (Section 3), the high operating costs associated with

servicing Nauru has led to the current shipping monopoly. The lack of adequate port facilities and

long waiting times, has contributed to a lack of competition within the Nauru shipping market, and

therefore high container rate costs. Letters from Neptune Pacific (29 January 2016 and 6 April

2017) discuss the costs being passed on to the consumer due to increases in tariffs as proposed

by NPA and recovery costs. These letters are included in Appendix A.

18. As discussed in Section 1.2.1 above, an offshore mooring system exists at Aiwo since a quay is not available for large ships. This mooring system utilized by phosphate vessels requires

yearly maintenance and replacement which is usually a burden to public finance. During monsoon

season from December to February, phosphate vessels experience difficulty in loading phosphate

due to bad weather. Vessels are required to steam offshore and wait till seas abate. This affects

the exportation of phosphate. GoN has confirmed commitment to utilize the new port for all imports

and exports within 5 years of the recent replacement of the mooring system (by May 2022).

Therefore all future exports of the island would be required to use the new facility instead of

repairing the existing mooring system. The letter provided by GoN on this commitment is provided

in Appendix B.

1.4 Options Considered till 2015 for Developing a Port for Nauru

19. There have been several studies in recent years aimed at improving or providing new port

facilities for Nauru.



1.4.1 2009 Reeves Construction Services Pty Ltd and BMT WBM Pty Ltd Study

20. This study focused on craneage, container handling and the two major port buildings

(structural steel frame sheds). The main recommendations were:

Due to the buildings’ unsafe condition, curtail operations inside the buildings

Procure additional operating equipment (new barge, crane and spares)

Continue to use existing cranes for container unloading

Demolish unsafe buildings

Construct a new portal lifting frame for lifting containers and barges.

21. The cost of these recommendations was US$10.8 million.

1.4.2 2009 ADB Scoping Study for Nauru Port Development

22. This study was a high-level assessment that focused on the engineering aspects of

improving the port. Some of the factors considered during the study were environmental

conditions; the country’s potential for economic growth; conditions of existing facilities; limitations

on constructing an enclosed harbor due to topography of the island; and environmental and social impacts from the new development. Five development scenarios were assessed as shown below:

Development Scenario 1 – Upgrading Existing Port (A$ 11.2 million): provide improvements in the efficiencies of handling general cargo, in particular containers, to improve turnaround times. This include additional mooring buoys; additional multi-purpose vessels and barges; additional crane; and reconfiguration of container yard.

Development Scenario 2 – New Unprotected Port (A13.1 million): provision of a berth on the edge of the reef connected to the existing port by a rockfill causeway. Improvement in landside storage area. Further investigation of this scenario recommended during the project’s feasibility stage. Additional facilities and lengthening of berth structure if phosphate loading is required. During adverse weather, safe berth at reef edge may not be possible.

Development Scenario 3 – Berth Beneath Cantilevers (A$13.8 million): new quay wall positioned adjacent to the existing phosphate cantilevers. Two breasting dolphins sited between the cantilever foundation pedestals. Procurement of new facilities for loading phosphate not required. All weather protections is not eliminated. This scenario cannot be used as the first stage for a protected harbor since due to insufficient space for a harbor basin.

Development Scenario 4 – New All-Weather Port (Scarlett Lucy vessel): development assuming Scenario 2 is Stage 1 of the all-weather port and is completed. Stage 2 of the scenario entails smaller version of the all-weather harbor constructed with an additional cost of A$ 31.4 million.

Development Scenario 5 – New All-Weather Port (phosphate ships): development assuming Scenario 2 is Stage 1 of the all-weather port and is completed. Stage 2 of the scenario entails larger version of the all-weather harbor constructed with an additional cost of A$ 92.7 million.

23. Development Scenarios 2 or 3 were recommended for further study due to their potential

to improve port facilities with tangible benefits for Nauru..



1.4.3 2011 Nauru Economic Infrastructure Strategy and Investment Plan

24. This plan was prepared by the Planning and Aid Division of the Government of Nauru,

assisted by consultants from Pacific Infrastructure Advisory Centre. Based on the ADB financed

study discussed in Section 1.4.2 above, he major recommendation was

development of a new quay wall constructed on the edge of the reef north of the existing

harbor accessible by a causeway (Development Scenario 2) and movement existing outer

buoys to Anibare harbor (A$ 14.4 million). The all-weather port facility scenarios were

ranked supplementary due to their large capital and recurrent costs.

1.4.4 2012 World Bank / AusAID Port Infrastructure Priority Needs Assessment

25. This study was directed at providing short term craneage solutions and longer term

planning of port infrastructure development requirements. The major recommendation was:

A new Port Manager with international experience be appointed to improve the poor

management of port operations.

1.4.5 2014 JICA Preparatory Study

26. JICA assessed seven options but concluded that, based on savings in maintenance and ship costs, the project was not economically feasible. Thei options included:

A new quay wall south of the existing Aiwo harbor (US$37.3 million in 2014)

A new quay wall north of the existing harbor (US$77.5 million in 2014)

Several layouts with the quay wall, both north and south of the existing harbor, and

perpendicular to the shoreline were dismissed as adequate quay lengths could not be

secured.

1.4.6 2015 PRIF Pre-Feasibility Study

27. Pacific Region Infrastructure Facility considered port proposals from earlier studies and

proposed three options be further investigated:

Option 1 - A new quay wall on the edge of the reef north of the existing harbor, and

accessible by causeway. No opportunity for replacing the existing phosphate loading

arrangements (costing A$23.0 million in 2015).

Option 2 - A new enclosed harbor basin excavated from the reef and coastal land north of

the existing boat harbor. The basin suitably sized to accommodate container and general

cargo vessels, but not phosphate ships. Existing phosphate loading arrangements to be

retained. (costing A$97.7 million in 2015)

Option 3 - A new quay wall on the edge of the reef south of the existing harbor below the

phosphate cantilever loaders and berthing dolphins to accommodate all types of vessels

(costing A$31.2 million in 2015).

28. The three development options were assessed against a range of criteria such as economic parameters, technical issues, engineering issues, operational efficiencies,



environmental impacts, and social impacts. After this multi-criteria analysis, the first option was

recommended for further study. This option recommended a scheme comprising a rock fill

causeway connecting an 80m long wharf located along the edge of the reef, adjacent to the

existing harbor. The proposed method of construction comprised mass concrete blocks in the

form of a gravity structure in which the blocks are keyed together without the use of reinforcement

or other means of connection.

29. A number of studies on developing a port for Nauru were completed from 2009 to 2015.

Each of these studies assessed a number of options; however only recommended a few after

completing each analyses. Options in these studies were analyzed based on certain criteria such

as unloading type, target vessel, operation rate of port, ship handling safety, cargo handling

efficiency, cargo handling safety, construction cost, buoy system maintenance, natural condition,

economic internal rate of return (EIRR), environmental, social and other factors.

30. The PRIF Pre-Feasibility Study was the latest study that had been conducted prior to the

PPTA project. All previous studies were high-level, preliminary or tended to be at an early-stage

(pre-feasibility). Therefore, after assessment of the previous studies, the PPTA Study identified

three (3) main options (which included the recommended option from the PRIF study) for

consideration. These three options are explained further in detail in Section 2.1 of this report.

1.5 Scope of Technical Assistance

31. The Government of Nauru requested ADB for project preparatory technical assistance

(PPTA) for the preparation of a project to improve the port facilities at Aiwo. The project includes the feasibility assessment, design and construction of a wharf for berthing vessels, an approach

causeway from shore to wharf, replacement of derelict structures with new buildings for the harbor

master’s office, staff amenities, gatehouse, plant workshop, secure fencing and a heavy duty industrial pavement in a container storage yard. The project also includes the preparation of the

terms of reference for consultants to be engaged for capacity building and institutional

strengthening of the NPA to enhance the efficiency of port operations, port security, asset

management, occupational health and safety and reforms to tariff structure.

32. The PPTA studied due diligence on technical, climate change, economic, financial,

environmental, as well as land acquisition and resettlement of indigenous people, governance,

poverty and gender issues. An option analysis for the management of port operations is currently

being prepared together with an assessment of the requirements for a capacity development

technical assistance (CDTA) for institutional strengthening of NPA.

33. A separate study, Project Design Advance (PDA) has undertaken unexploded ordinance

surveys, geotechnical investigations, topographic, bathymetric and cadastral surveys. These

investigations provided technical information to enable the selection of a preferred location and

method of construction for a new port.

1.6 Objectives of the Feasibility Study for Aiwo Port

34. The aim of the feasibility study is to determine a feasible port design that will:

Minimize downtime due to weather and complex interactions of infrastructure;

Remove dependence on time-consuming and dangerous at-sea cargo transfers;



Remove reliance on aging infrastructure including the mooring buoy system and cantilever

loaders;

Reduce freight costs through lower demurrage and faster turn-around for container and

general cargo vessels; and

Provide a safer and quicker transfer of fuels to the island.

1.7 Scope of this Report

35. The PPTA Consultant prepared this report under a Contract for Consultant’s Services with the Asian Development Bank under contract TA-9009 NAU: Port Development Project –

PPTA Consultants (48480-001).

36. This feasibility study report covers the approach and outcomes of the information

gathering phase, the development of options, the assessment of and consultation on options and

the nomination of a preferred option. This report describes the subjection of this preferred option

to feasibility study, including technical, economics, safeguards assessments, climate change

adaptation and disaster risk management.

37. The structure of this report comprises:

Section 1: Introduction – This section describes the background, current port operation

methodology, options considered so far for developing a new port, rationale for new port

facilities, current shipping line correspondences (Appendix A), Government of Nauru

correspondence (Appendix B), scope of technical assistance, objectives and the Go-No

Go decision point.

Section 2: Engineering Assessment and Investigation – This section discusses engineering

assessments, options considered (Concept drawings in Appendix C), ship simulation

modelling (Appendix D), cost estimates (Appendix E), surveys (Appendix F), design

optimization and availability (Appendix G) and constructability.

Section 3: Economic Assessment –This section summarizes the methodology and findings

of the economic analysis of the Project. It is complemented by the Economic Analysis

Report in Appendix H and Least Cost Approach Report in Appendix I.

Section 4: Financial Analysis - This section discusses the financial analysis conducted. The

Analysis report is provided in Appendix J.

Section 5: Environmental Studies – This section summarizes the findings of the

environmental assessment, anticipated impacts and mitigation measures. The section is

supplemented with a comprehensive Initial Environmental Examination (IEE) (in Appendix

K) and Marine Assessment Report in Appendix L.

Section 6: Social Assessment – This section discusses the safeguarding and social

impacts of the project. A Due Diligence Report on Safeguards is provided in Appendix M.

Section 7: Social/Poverty, Gender and Resettlement – This section of the report discusses

safeguarding, land acquisition and resettlement, social, gender and poverty assessment,

consultation, participation and disclosure, grievance redress mechanism (GRM), and

gender mainstreaming. A Poverty, Social and Gender Assessment Report and a Gender

Action Plan are provided in Appendices N and O respectively for further details.



Section 8: Financial Management Assessment – This section discusses the financial

management assessment (FMA) (Appendix P).

Section 9: Procurement – procurement tasks, responsibility in Nauru, risk assessment,

strategy and draft bid documents are discussed in this section. It is supplemented with a

‘Project Procurement Risk Assessment’ which is provided in Appendix Q.

Section 10: Climate Change and Disaster Risk – This section discusses the policy context,

vulnerability, climate influencing factors and approach to climate change assessment. A

Climate Risk and Vulnerability Assessment (CRVA) in provided in Appendix R and

MetOcean Design Criteria provided in Appendix S.

Section 11: Port Reform – This section discusses the port reform activities. The Fina Port

Reform Report is provided in Appendix T .

Section 12: Monitoring and Evaluation – This section discusses the Design & Monitoring

Framework (in Appendix U) and Contribution to the ADB Results Framework (Appendix V)

Section 13: Conclusions and Recommendations



2 Engineering Assessment & Investigation

2.1 Preliminary Assessment

38. Previous studies by ADB, JICA and the pre-feasibility study (PFS) by PRIF were reviewed.

39. Constructability of the proposed quay wall recommended in the PRIF PFS and as part of

the scope of works for the PPTA consltant was considered a major risk. Consideration was given

to issues relating to the foundation (both ability to support the mass concrete blocks and providing

a level and/or keyed foundation for placement) as well as stability of construction equipment and

accuracy/safety of placement. It was noted that many past projects using this type of construction

have been undertaken in ‘the dry’ as compared to in exposed near shore environments where

rock and concrete armoring is more common. Hence options and/or application of alternate

construction techniques were reviewed. With the examination of all existing and concept facilities, the study considered the port’s deep draft navigation, berthing areas, associated dredging, break bulk and containerized cargo transfer methods, and the improvements necessary to other

infrastructure and supporting facilities including shipping and cargo handling methods. With

regard to navigation areas, initial reef material and dredging requirements were also taken into

account.

40. Preliminary assessments relating to wave climate, berth operability / availability and

constructability all raised sufficient concerns with respect of the preferred PRIF development

option that alternative layouts were considered in parallel. As the orientation of the proposed wharf

is dependent on wave climate, a separate wave assessment study was undertaken (see

Appendices M and L for MetOcean Design Criteria Report and Climate Change and Vulnerability

Assessment respectively). The MetOcean Criteria concluded that wave climate in the vicinity of

Nauru is dominated by wave from the east, generated by the north-east and south-east trade

winds. However strong winds with a westerly component were identified during the years 1997,

2015 and to a lesser extent of 2001 and 2009. It was identified that the local wave climate will

determine the operability. The concept layouts (Options 1, 2 and 3) assessed based on early

specialist review are provided in Appendix C and are summarized below:

Do Minimum – This option involves the improvement of the existing facilities (mooring

system). This system is limited by the weather and in particular wind direction and velocity.

During adverse weather conditions, the vessels are necessarily moved off the mooring

system to prevent damage and/or grounding. When the mooring system is damaged and requiring repair, ships are forced to off-load while drifting in the open sea.

Option 1 (as proposed in the PRIF PFS) - A quay wall constructed on the edge of the reef

with a causeway connected to the existing container yard. Vessels moor parallel to the reef

edge and would be exposed to the ambient wave conditions.

Option 2 - A berth is cut into the reef platform immediately north of the existing port and

small boat harbor. The berth is oriented approximately 45° to the reef edge with an axis

aligned at about 243° to the south west. A wharf is constructed on the south side of the

berth connected to the existing container yard on shore. A breakwater is built on the north-

west or seaward side of the berth. This option provides a relatively sheltered berthing area

as waves from the south-west are rare. This option builds greater resilience into the port

design as it is able to operate in a much wider range of conditions than Option 1.



Option 3- An expansion of Option 2, with two berths cut into the reef flat with a wharf in

between and a breakwater on the north-western side. Similar to Option 2, this option has

greater resilience in the design since it is able to operate in a much wider range of

conditions. This option was proposed to account for additional capacity by providing two

berths.

41. These layouts possess a quay orientation that considers the operational wave climate as it relates to berth availability. The alignment is such that waves predominantly cause pitch and surge motions rather than roll and sway motions. The vessel types expected to use the facility will be less sensitive to pitch and surge motions. The wave climate operational data confirmed the preferred alignment of the quay.

42. Associated with the wave climate as well as ship mooring forces on the quay line there were significant concerns regarding the stability of a segmental mass gravity block quay construction as well as constructability issues. Although this layout has been retained as an alignment option, it has required the consideration of an alternative design and construction methodology to that initially presented as a preferred solution.

43. Geotechnical studies validated the proposal to excavate a berth pocket and to provide a wharf aligned in the most favorable direction to the waves.

44. So that the options with the alternative alignment could be progressed, it was proposed that ship simulation modeling was undertaken to identify parameters following other related study inputs (i.e. waves and currents and ability of the reef to be excavated).

2.2 Ship Simulation Modeling

45. Ship simulation modelling is an exercise carried out to assess berth arrangements and

limiting operating parameters for a proposed wharf/jetty facility. It is usually carried out using a

simulator and bridge equipment. Ship models and the port area model (the area of interest) are

some of the data required for this activity. As well as alignments and environmental impacts, it

also provides input to the assessment of other assets required for safe vessel handling (i.e. tugs).

46. It is critical that the operability and any constraints of concepts be clearly understood. Ship

simulation modelling was therefore required to enable a better understanding of the scale and

alignment of the development, port support functions (i.e. towage) and assess design parameters.

It is evident that shipping operational/safety requirements for navigation had not been assessed

in previous studies. By undertaking ship simulation modeling and incorporating wave and current

information, the exercise allowed proper assessment of the ability to navigate the vessel into the

proposed berth and / or basin area under prescribed conditions/limits and further consider impacts

on maneuverability including need for and capacity of tugs.

47. In this exercise, undertaken at the Australian Maritime College (AMC), a Port Model for

Nauru was based on a building block model. This was selected to allow ready modifications

through the simulation exercise. The intent as such is to allow modifications to breakwater or wharf alignments readily throughout the planning phase of the exercise.

48. Whilst AMC has numerous ship models in its own library, some of the vessel

characteristics required for the Nauru exercise were smaller than those that AMC had. As such

the exercise made use of one (1) of their models (handy size bulker) whilst models were obtained

for the:



Tanker

Small geared container vessel

Next gen container vessel

On receipt of these models, they were tested by the hydrodynamicist and simulation manager

before use in the exercise.

49. Ship Simulation Modelling assisted with the selection of an optimal port design. It also assisted in identification of peripheral issues such as fendering systems, as well as the personnel and skills/training requirements associated with the Port Reform element of the project.

50. Full Mission Bridge Ship Simulation was undertaken at AMC (Launceston, Tasmania) on 8th and 9th September 2016 (see full report at Appendix D). This included the following personnel:

Helmsman;

Nauru Harbor Master;

Director (Maritime), Ministry of Transport, Nauru

Design Engineer (PDA Consultant); and

Port Reform Specialist (PDA and PPTA Consultant).

51. The building block based Port Model had been previously prepared, utilizing standard elements that could be rapidly reconfigured to represent changed alignments or breakwater lengths and the like, for the two major options under consideration.

Option 1: A rock fill causeway connecting a 120m long wharf located along the edge of the

reef, adjacent to the existing harbor (preferred PRIF option) (Refer Option 1 drawing in Appendix C); and

Option 2: A 30m wide wharf adjacent to a 50m wide berth pocket dredged into the reef with

an approximately 170m long breakwater on the seaward side (Refer Option 2 drawing in

Appendix C).

Option 3: Since wharf and breakwater in this option follows the same angle as Option 2,

simulation was not undertaken for Option 3

52. This was combined with the selection of different ship models representing the existing and future vessel types and dimensions associated with trade in Nauru, and assessment of future design vessels. In addition to ship models, other inputs included tugs of various bollard pull, and various environmental conditions (i.e. wave, tide currents, and wind).

53. The simulation exercise was run effectively as follows:

Initial familiarization runs and sensitivity assessments for the Pilot

Arrivals of various ship types and environmental configurations for Option 1

Departures under various environmental configurations for Option 1 including necessary

external / towage assistance

Arrivals Port side and Starboard side to for Option 2 under different environmental

configurations including configuration of pusher barges and / or towage options.



Departure of Port and Starboard side to vessels from Option 2 under different

environmental configurations and towage / external assistance.

Figure 2-1 : Ship simulation activity

54. The result of the simulation showed that arrival without assistance (tugs) was problematic for Option 1, with frequent loss of control and re-maneuvering the vessel to the berth (refer plots in Simulation Report in Appendix D). Whilst pusher barges were not tried it is considered they may have been suitable for use under ‘light’ (i.e. benign) conditions. Departure however was a different issue from Option 1, whereby even under light conditions this was problematic and could easily result in the ship grounding on the adjacent reef. As conditions worsened (i.e. conditions under which the Pilot would remove the vessel from the berth in any case) the need of a large tug of the order of 40T bollard pull and with azimuth drives became necessary. This combined with movement of the vessel at the wharf versus cargo handling limits showed that Option 1 was highly improbable other than in ideal conditions. It was also evident that Option 1 required isolated fore and aft mooring / berthing dolphins and ideally also a dredged departure pocket for the ship to use while ‘pivoting’ on the berthing dolphin.

Figure 2-2 : Ship simulation activity in progress

55. Simulation showed that the arrival maneuver for Option 2 for starboard side to was relatively simple, even considering stopping the vessel before the end wall of the berth pocket /



port hardstand area. Departure however under this configuration was very difficult without external assistance and even then not recommended unless in ideal conditions. By comparison however, the arrival of the vessel for Port side (reversing the ship in) was not too difficult and relied primarily on pusher barges. A resolution afterwards was that the Pilot would be very comfortable with this maneuver at ‘slack’ water and that this would become an operational parameter under this configuration. The departure also worked relatively well even in worsening conditions with the assistance of a smaller tug and / or pusher barges. Vessel movement at berth even under heavy conditions was far more suitable to reduce likelihood of damage and to allow cargo loading activity.

56. Whilst the facility would be lit, it was decided it was unlikely to require navigation aids for the approach and that arrival of the vessels in particular would normally be during daylight, in slack water (i.e. top or bottom of the tide when tidal currents are minimal).

57. A simulation video was made of the vessel at the berth in Option 1 configuration under average conditions. This showed significant pitch and roll motions of the vessel. The motions were shown to the extent that Option 1 would be likely to cause the vessel and / or wharf infrastructure damage and certainly limit handling or transfer of cargo. This was also undertaken to provide an indication of mooring line tensions and effects on typical construction options under consideration. Since a vessel simulation is not as accurate as other means with respect to vessel motions, mooring analysis was considered as part of further design development (discussed in Section 2.9.3).

58. Many of the above aspects, whilst critical to the design and orientation of the future Port facility, provided valuable input to future training and capacity considerations relevant to thePort Reform scope. These will be considered in association with the types of personnel and training required for existing versus future operation of the Port, as well as Port maintenance and operating requirements and costs. Some elements are also likely to trigger the need for tariff considerations (i.e. use of tugs versus pusher barges for example).

59. The opportunity was also taken whilst at the Maritime College to show the Nauru personnel

the facility and discuss after hours the range of training options potentially available for Nauruan

people in future, both as on site or in country training options.

2.3 Wharf Design Philosophy

60. It was recommended that the wharf be designed for vessels larger than currently calling

at Nauru to ensure port facilities can accommodate longer and deeper vessels. The design vessel

adopted for the project was based on an assumed future vessel that may call to the island if a

port was available. The size of vessel was chosen based on a search of vessels currently calling

to surrounding islands that may add the small island to a liner run. Vessels must be geared

general cargo vessels. It was observed that there are relatively few vessels above 160 m Length

Overall (LOA) and that vessels beyond 160 m would be less protected at berth due to the

projection of the bow beyond the reef in the preferred layout option. Catering for a 160 m vessel

therefore provides a good balance between cost and benefit. Similarly, for any future provision, bulk vessels presently utilized for Phosphate are generally not as long (with respect to LOA) as

the proposed cargo design vessel. Product (Fuel) tankers also have a considerably smaller LOA.

61. The vessel fleet profile should also consider the smallest vessels that may use the facility.

This is important mostly for fender spacing to ensure the hull of the small vessel does not make

contact with the wharf. It is likely that future Purse Seine fishing vessels making transhipment in

Nauru will be the smallest vessels to use the facility. No reliable data on Purse Seine fishing



vessel dimensions has been obtained for the project. However, analysis suggest that they

generally vary in length between 50 and 70 m LOA.

62. Whilst Cruise is not presently a market for Nauru, and since there is presently no demand

nor suitable infrastructure within Nauru to support such visits, it would be remiss not to consider

this as a potential vessel type for some time in the future. Based on assessment of a range of

vessels generally servicing the Pacific region for cruise shipping, these can be divided into

traditional cruise market and adventure/destination cruising. Adventure cruising vessels are

generally smaller; however the traditional cruise vessels servicing the area presently are as follow:

i. Pacific Dawn – draft 8.2m, 245m LOA

ii. Golden Princess – draft 8.7m, 290m LOA

iii. Sun Princess – draft 8.1m, 261m LOA

iv. Pacific Aria – draft 7.7m, 219m LOA

63. Based on the above, whilst draft of the proposed facility is sufficient, any future

consideration for the cruise sector might involve either lightering ashore or berthing the vessel

(there is sufficient wharf length to still berth and offload) with a tug or similar support services on

standby in case of unsuitable weather that might require mooring line assistance to hold the vessel in place due to the overhang into open water. This is not dissimilar to some other Pacific Island

cruise locations where the ship anchors or drifts and lighter people ashore (i.e. Kiriwina Island).

64. The selected design vessel was typified by the China Navigation Company / Swire

Shipping owned Chief Class vessels which services other Pacific islands and whose principal

characteristics are:

Length overall (LOA) 158m

Beam 22m

Maximum draught 8.35m

Deadweight tonnage (DWT) 13,970t



Figure 2-3 : The Kokopo Chief

65. Concept options were considered all using steel Circular Hollow Section (CHS) piles

embedded in the coral rock. It was expected that piles would need to be shallow driven and

anchored.

66. Option 1 comprises a rock fill causeway connecting a 120m long wharf located along the

edge of the reef, adjacent to the existing harbor. Two mooring dolphins are also proposed for this

option. The PRIF PFS in 2015 considered 50 tonne unreinforced concrete blocks keyed into each

preceding block layer and founded on a prepared level base. It was envisaged these blocks would

be constructed in a pre-casting yard to be established in Nauru. The key challenge for this option is expected to be the reliance on marine plant and diving works as well as the stability of the

blocks against wave and mooring loads.

67. A third option (Option 3) was also considered. Both Options 2 and 3 are aligned in the

most favorable direction to minimize wave effects on the structures. Option 2 comprises a 30m

wide wharf adjacent to a 50m wide berth pocket dredged into the reef with an approximately 170m

long breakwater on the seaward side. Option 3 is a variation on Option 2 and provides two berths,

one on each side of a 30m wide wharf. Each berth pocket is dredged into the reef, and are 30m

wide on the landward side and 50m wide on the seaward side of the wharf. For clarity, the options

with breakwaters are named Options 2A and 3A; those without breakwaters are named 2B and

3B.

68. Drawings showing these options (including the breakwaters for Options 2A and 3A, which

are considered optional) are shown in Figure 2-4, Figure 2-5 and Figure 2-6 below and are

provided in Appendix C.

69. As a result of wave studies and ship simulation exercises the preferred arrangement is

Option 2 for the reasons summarized in Table 5. The preferred infrastructure concepts shown in

the drawings have been discussed with an experienced Pacific maritime contractor who has

indicated a preference for a suspended deck on steel piles. All options will be under consideration

in the detailed design phase. Table 5 and Table 6 below summarize the advantages and



disadvantages of all alternatives considered including the base scenario, wharf location options

and structural concepts.



Figure 2-4: Concept Option 1



Table 5 : Wharf location options - Advantages and Disadvantages

Option General Design Features Main Advantages Main Disadvantages

1. Do Minimum

Mooring System - Deep sea anchors - Chains - Connecting plates - Shackles - Mooring buoys

- No dredging required and Economical option

- Limited unexploded ordinance risk

- Still results in delayed offloading times; - Does not address climate change and will involve periods

of inactivity due to high wave activity; - Requires continued maintenance of barges to unload

container ships. According to the GoN the maintenance cost for the mooring system is US$6 to 7 million every 5 to 6 years. This leads to high lifecycle costs. The NPV estimated is U$ -5.4 million.

2. Reef Edge (Option 1)

Wharf - 120m long - 30m wide - 2 mooring dolphins Causeway - 150m long causeway - 10m wide dual lane Dredging Trim edge of reef to -10m LAT

- Limited dredging required - Vessel is less exposed to

current forces at berth - Limited unexploded ordinance

risk

- High risk vessel departure maneuver with simulation revealing that wind and waves ‘push’ the vessel onto the reef. A high powered azimuth tug may be required to assist the ship off the berth and to safely maneuver to sea. There is a high upfront cost for this tug as well as an operational and maintenance cost to consider.

- Dredging from a spudded barge (costly and timely) is likely required to excavate rock with Standard Penetration Test (SPT) ‘N’ values of 50+

- Construction in exposed environment will increase construction cost to account for weather risks

- Vessel ‘beam on’ to waves likely resulting in lower berth availability

- Fenders are unlikely to last more than 5 years. - Stability and / or interconnectivity of block units - Manufacture quality on island (QA, materials, handling)

3. Berth Pocket (Options 2 and 3)

Wharf - ~160m+ long - 30m wide, with adjacent wharf apron /

cargo area - 1 mooring dolphin Ramp to Shore - 25m by 7m Dredging

- Alignment of berth pocket will result in waves ‘head-on’ to vessels at berth, minimizing wave related movements

- Construction can take place ‘in the dry’ with no or minimal reliance on marine plant

- Most of the reef can be excavated without drill and blast

- Operational advantage in cargo movements

- Arrival and departure maneuvers must be undertaken during ‘slack tides’ due to current pushing vessels onto the reef and fenders at high speed (will effect berth availability but not significantly)

- Current forces up to 1m/s parallel to the reef are expected to cause movement of the future 176 m design vessels. A deep water dolphin for the fore line will be required in the future



- Excavate berth pocket 165m by 50m to -10m LAT. (For Option 3, second berth pocket is 130m by 30m to -10m LAT.)



Table 6: Structural concepts considered for the wharf - advantages and disadvantages

Option Advantages Disadvantages Piled ‘suspended’ wharf

All construction would be undertaken from land with no or limited downtime risk from waves

Less reflective for improved basin wave climate

50 kPa + uplift forces in a 1/500 year ARI event will impact the deck soffit in an extreme event leading to the need for expensive tension piles. The ground conditions warrant installation of anchors (grouted to piles and substrate) for transferring actions. Drill-drive-drill would be required.

More formwork is required relative to a piled retaining wall

Safety in Design (SiD) workshop identified that challenge of maintaining the soffit of the deck in exposed swell conditions.

More excavation relative to a piled retaining wall.

Gravity wall Durability advantages if steel reinforcing can be avoided

An Ultimate Limit State (ULS) bearing pressure of 750 kPa has been advised which is favourable for gravity structures

The units would be placed under water to avoid hydrostatic pressure behind the wall. It would be challenging to place the units and this would likely require marine plant and divers.

More excavation relative to a piled retaining wall.

Piled retaining wall (preferred)


Good capacity to absorb wave and berthing forces

High deck load capacity

Easy to mount fenders

No initial earthwork required and overall less excavation is required relative to a gravity wall and suspended pile structure

A strong rotary drill rig will be required to advance piles to sufficient depth



2.4 Cost Estimates

70. Cost estimates were prepared for the six concept options for input into the preliminary economic assessment and were based on the following assumptions:

Lost time due to weather during dry season can be made up outside of a 5 day week Surplus excavated material to be dumped only - no allowance to spread and compact. No specific inclusion for armoring of a batter slope but this is well covered in the project/

design risk allowance (15% of cost). Dredging methodology is based on using the Ronphos 200T excavator which is assumed

in working order. Assessment of the utility of this excavator will be an element of the proposed contractor site inspection during tendering phase of the project. This would be part of the responsibility for the contractor to price this cost in if the equipment is unsuitable. Assumed rate allows for fuel and basic maintenance but not major service items.

No marine plant has been allowed for. All piling is from land on a temporary platform supported on permanent piles.

All excavation is also from land with temporary access bunds allowing plant to remain above water level. Pumps have been allowed to prevent hole from filling once bunds are in place.

Tension anchors for front rows of piles have been allowed in lieu of sockets as it will be impracticable to build sufficient temporary works to enable a large rotary drill rig to access the piles. A small percussion rig will be used to drill the anchor holes supported on a temporary platform moved along the wharf.

On shore work is based on similar work in Papua New Guinea (PNG). Mobilization and demobilization of plant and materials will be by barge from Brisbane or

by container from New Zealand (NZ) as best suits. A margin of 15% has been applied for Head Office overhead and profit. No estimate of risk is currently included in the rates but design creep and risk of 15% is

suggested. An overall Project Contingency of 20% is suggested. This high value considers the

remoteness of Nauru and the need to mobilize most equipment from Australia or New Zealand. This contingency value may need to be revised as detailed design is undertaken.

It is assumed that sea water will be used for dust suppression and for compaction of coral fill.

A rate of $1/m3 is allowed for fresh water used in the camp. An allowance of $20,000 has been made for a small waste water treatment plant or septic

system in the camp. Cost inputs exclude taxes and other duties. No allowance has been made for bonds to Nauru Government for plant, buildings or other

equipment intended to be removed after construction. No rental for site compound has been allowed for. It is assumed that construction site

compounds will be located within the existing port limits and will not affect port operation of other associated activities.

No escalation has been allowed for. No Government charges for the project were allowed for. As only construction time, not time on site, for major plant such as cranes, the estimate

assumes they will be demobilized at the end of the first year and returned as required. It is assumed that older equipment would be taken to the island and hence plant costs

are at the low end of the range.



Freight and barge costs have been kept as low as possible and these may need a delay contingency.

Building fitout A$646,037 added to all options Equipment (4 tractors/trailers at A$250,000/tractor or trailer and two 30T forklifts at A$

750,000/forklift) totaling up to A$ 2,500,000 added to all options. Under review with the client and Port Reform Specialist.

Port control equipment A$ 500,000 added to all options Under review with the client and Port Reform Specialist.

5% of sub-total added to all options as implementation costs

71. Costs have been calculated in A$ and converted to US$ at a rate of 1 A$ = 0.76 US$ on

22 October 2016.

72. The cost estimate spreadsheets for Concept Design Options 1, 2A, 2B, 3A and 3B (located

in Appendix E) indicate the cost estimates. The cost estimate for Option 2A based on detailed

design (in progress) is included in Appendix E. The sections that follow in this report discuss the

selection of Option 2A as the preferred design option.

73. The base scenario (mooring system and onshore works) has not been estimated in detail

but has been assessed from recent GoN budget allowance for refurbishment and installation of

offshore works. Preliminary costs of the infrastructure are detailed in Table 7 below.

Table 7 : Infrastructure Cost Estimates (Concept Design Stage) Base

Scenario (US$mil)

Option 1 (US$mil)

Option 2A – With

breakwater (US$mil)

Option 2B – Without

breakwater (US$mil)

Option 3A – With

breakwater (US$mil)

Option 3B - Without

breakwater (US$mil)

Preliminary and General

8.5 11.2 11.2 11.2 11.9 11.9

Dredging 0.9 4.0 4.1 7.0 7.0

Causeway 3.9

Mooring Chains and Buoys

5.1

Breakwater 3.3 4.0

Wharf 16.8 16.1 16.1 21.7 21.7

Services 1.2 1.1 1.1 1.1 1.1

Onshore Works 3.8 3.8 3.8 3.8 3.8 3.8

Fitout for Buildings 0.6 0.6 0.6 0.6 0.6 0.6

Tug/Barge 0.9 8.5 2.6 2.6 2.6 2.6

Equipment 2.1 2.1 2.1 2.1 2.1 2.1

Port Control Equipment

0.4 0.4 0.4 0.4 0.4 0.4

Consultant Implementation

1.0 2.2 2.1 1.9 2.4 2.3

Contingency and Sundry

6.1 19.8 15.4 16.9 22.1 20.5

Total 28.4 71.4 62.5 60.6 79.7 73.9 ‘* Costs are converted from AUD to USD on the 22 October 2016, 1 AUD = 0.76 USD. ‘** Costs for the Base Scenario are based on correspondence with the GoN and general engineering assumption. Final figures would need to be investigated further.



2.5 Other Engineering Considerations

74. A key element of the project success will be the ability to achieve suitable rate of return

from the proposed infrastructure. The project team has engaged with industry in order to identify

as many users, and associated demand, for any proposed infrastructure.

75. The Specialist visits have identified possible equipment already on the island that could

be very useful in construction of the options under consideration, and would reduce lead times

and costs / risks associated with importing suitable equipment by future contractors.

76. The three existing port buildings discussed in Section 1.2.4 which are in a very advanced

state of disrepair had been proposed to be demolished possibly by making use of other funding

sources. At the current stage of the PDA project, this is no longer the case and will now likely

now be included in the construction contractor’s scope of works for the project. Nauru Port Authority, with support of the GoN, is planning to undertake some works in the interim; however

both the extent and status of these works cannot be confirmed at the time of preparation of this

report. In addition to the removal of derelict buildings (and more particularly asbestos), the primary

aim is to achieve compliance with International Ship and Port Facility Security (ISPS) issues as

identified by United States (US) Coast Guard. This is particularly for fencing which would be

completed as part of the proposed port development project. Demolition, and more particularly

disposal of materials, will need to comply with best practice as well as GoN policy for disposal

(i.e. asbestos).

77. The assessment of the extent of the proposed container storage yard (based on the PRIF Option 1) has identified that the project foot print extends over seven lots; namely 131, 204, 205,

206, 207, 208 and 209.The layout includes empty standard storage areas, reefer points and

orderly management for ease of access to import containers when customers are ready to pick

up. Although not part of the detailed design, an area for other storage (such as cold stores) has

also been allowed in the layout.

2.6 Project Design Advance Activities

78. A number of surveys and investigations were conducted from August to September 2016

and are summarized below.

2.6.1 UXO Assessment

79. World War II operations in the Pacific led to Nauru being subjected to a broad spectrum

and volume of air and naval delivered munitions from both the Axis and Allied forces. Hazardous

Explosive Remnants of War (ERW) contamination from ordnance that has either not functioned,

or not functioned as designed is a certain byproduct to the delivery of Explosive Ordnance (EO)

during military conflicts. EO that has either not functioned, or not functioned as designed is

commonly referred to as Unexploded Ordnance (UXO). There is also a residual hazard of

stockpiled, cached, and dumped ordnance which after many years may be in an unstable and

potentially very hazardous condition.

80. The aim of the UXO survey was to assess the presence of any potentially dangerous ERW

remaining from World War II. The unexploded ordnance survey comprised an ERW Focused

Historical Desk Top Review. The review provided historical data of bombardments and attacks

throughout 1940 to 1945.

81. The desk top review was followed by a geophysical survey of the site. An Explosive

Remnants of War Risk Assessment and Risk Mitigation Plan were prepared subsequently. The



risk assessment concluded that there is high probability that hazardous ERW would be

encountered during the project. It was recommended that 100% area coverage ERW remediation

service should be conducted prior to the commencement of the proposed Nauru Port

Development Project. Due to the problematic site conditions, high levels of non-ordnance related

ferrous waste, the surf zone, and the small size, yet still hazardous nature of some ordnance

types, there will remain a small residual risk of ERW contamination on the site. It was

recommended that a qualified Explosive Ordnance Disposal (EOD) Technician should be

engaged as an ERW Safety Officer and should be present on-site for any construction phase of

the ADB Nauru Port Development Project. The ERW Safety Officer would provide advice

regarding ERW remediation certification and ERW mitigation requirements, conduct small area

clearance for unanticipated works outside the ERW remediation certified area, and also provide

an immediate response to any ERW finds.

82. The final UXO report that was prepared as part of the PDA project, is attached as Appendix

F for further information on the assessment.

2.6.2 Topography and Underground Services Survey

83. The topography survey covered Footprints and floor levels of all buildings; Levels across

the project site; Major Vegetation; Mooring system components (land side only); Mooring buoys

(position at sea level only); Visible services at ground level; Intertidal area levels; Edge of road

network; Level grid over the internal levels of the buildings; Additional levels on old building floor

areas; Survey of all wharf structures in the Aiwo port area.

84. The underground services scanned the location of the Reverse Osmosis (RO) line and

other services running parallel to the RO Line. The RO line was to be located on the land and the

intake line on the reef. Services lines along the buildings and where they connect to the buildings

and the project site were identified. A Ground Penetrating Radar (GPR) was used to scan the

area on an approximate 5 meter grid in diagonally opposite directions to identify if there were any

services. A Radio Detection Unit (RDU) was used to scan for underground power. Power is the

only service that can be located using the RDU unless it can be clamped onto other metallic

services (i.e. communication cables, metal water lines etc.)

85. A section of the onshore RO pipeline connecting to the pump station was not identified

during the underground services scanning investigation due to a number of containers obstructing

access to the area during the survey.

2.6.3 Bathymetry Survey

86. A bathymetric survey was undertaken incorporating side scan of an area outside the

existing boat harbor and as far as the 100m contour. Soundings were undertaken to determine

the contours of the port area. Draft restrictions prevented survey of most of the reef; however the

surveyors were able to extrapolate and interpolate the reef edge throughout the survey area.

Survey Control was WGS84 and supplied by the topographic surveyors. Survey data fitted

seamlessly with the topographic survey. Soundings in the deep water were difficult to receive as

the slope and depth of the terrain caused most of the transducer energy to be deflected out into

the deep water. However, adequate responses within of the transducer energy were received to confirm accurate depths within International Hydrographic Organization (IHO) guidelines.

87. The bathymetry survey is shown below in Figure 2-7.



Figure 2-7: Bathymetry Survey



2.6.4 Geotechnical Investigations

88. Twelve boreholes were drilled on the reef and five were completed onshore. In addition

eight test pits were excavated onshore but since rock was not encountered in these, the land

boreholes were undertaken. As a result of UXO survey, it was determined that any intrusive work

conducted during the investigative stages of this project would require the presence of an EOD

Technician to conduct small area ERW avoidance searches. This was undertaken and resulted

in relocation of two reef boreholes and the abandonment of two onshore boreholes.

89. A three man dive team investigated the reef edge to a depth of 15m on 16 September

2016. A 36 minute video recording of the reef edge between the northern boundary of the site

and the northern harbor wall (and return) was produced. The video indicates features to

approximately 15m depth. The main features of the footage include:

No undercutting of reef edge;

Very rough face of the sloping reef; and

Large amounts of debris, especially chain, broken piles and pipes.

90. The subsurface conditions at the proposed Nauru Port site comprised the following

stratigraphy:

Land area:

Fill (within the confines of the onshore port container yards only) - The composition of the

fill ranged from coral gravels to medium to coarse coral sands which appear to have been

placed behind the wharf quay wall to provide level building platforms. Gravels and boulders

were encountered along the northern portion of the container yards where the yards are

separated from the beach by a 4m high limestone boulder revetment. Whilst not

encountered in our investigations, there was a significant amount of construction rubble

(including asbestos sheeting) present elsewhere on the Nauru Port site;

Holocene beach deposits - The beach deposits were encountered underlying the fill

within the on-shore areas of the port. These materials generally comprised medium to

coarse sand with some coral gravel, and were typically medium dense with measured SPT

“N” values of between 13 to 28. The beach sands were generally 2-3m in thickness. These

deposits typically thickened moving eastward away from the port quay wall.

Coral limestone rock - The basal unit in the terrestrial investigations was the coral

limestone rock. The coral limestone was typically moderately strong to strong with minor

voids. Generally, 0.8m of competent coral limestone rock was proven within the land based

investigations.

Reef area:

Coral Limestone Crust - A crust of 0.8-2.5m thick coral limestone was consistently

present in all the reef boreholes. This crust typically comprised weak to moderately strong

coral limestone with some voids. SPT ‘N’ values within this material were generally in

excess of 50. Intact core was recovered for laboratory testing (unconfined compressive

strength-UCS) with measured strengths of between 5 to 42 MPa. The reef surface was



generally flat across the site, but some potholed areas were present at the outer margin of

the reef as well as several suspected bomb craters from World War II.

Coral detritus - Underlying the crust of coral limestone was a layer of broken, voided coral

gravels and sands. The coral detritus layer was typically between 2.0 to 5m thick. SPT ‘N’ values within the coral detritus ranged from 6 to 50, however the majority of the SPT test

results ranged from 20-30.

Coral Limestone rock - The lowest unit encountered in the investigations, and which was

proven for up to 3.7m comprised coral limestone rock. This rock appears to have been

dolomitized to form moderately strong to strong rock. SPT ‘N’ values within the rock exceed 50 blows, indicating very strong rock. The penetration of the SPTs generally reduced with

depth with only 20mm of penetration being recorded for 50 blows in some cases.

2.6.5 Cadastral Survey

91. The aim of the cadastral survey was to define the land ownership parcels within the port

limits and at its periphery. This work was undertaken during the period of the topographic survey

from 14 to 25 September 2016.

92. The Nauru Department of Lands and Surveys was requested to provide all spatial

connections and details in relation to the lease boundaries of the affected land parcels in the port

area. The Chief Surveyor indicated that the supplied file has been adjusted from boundary marks

found over the Island. The majority of these marks were found within the Top Side area where

little or no development has occurred in the last 70 years.

93. In addition to the above information the Department of Lands and Surveys have all the

Portion Boundaries in a digital format. The digital file is known to contain errors and it appeared

that this data was compiled using information provided by the Nauru Phosphate Corporation. With

the limited background information obtained in this investigation the task of verifying and or

upgrading the data that has been made available was considered to be a major task. Also with

the lack of original boundary marks in the port area, major assumptions would need to be made

and these would be impossible to check. Therefore it was recommended that the Portion

Boundaries as provided and as shown in the survey are adopted. They have been provided by

the Nauru Department of Lands and Surveys and the only adjustment made has been a block

shift to the adopted survey co-ordinate datum. No scaling or rotation has been carried out.

94. A plan was prepared by the Cadastral Surveyor showing all of the lease boundaries in the

port area with their dimensions shown. This plan was sent to the Nauru Lands Department on 17

November 2016 for checking against their records. The digital file that the Nauru Lands

Department supplied was adopted but the Department may have used other hardcopy plans and

copies of the original Lease Plans to verify the boundaries. On 2 December 2016, the Nauru Chief

Surveyor verified the plan as correct.

2.7 Go – No Go Decision Point

95. The project had a go or no-go decision point (31 October 2016) based on the findings of

the geotechnical investigations and surveys (topographic and bathymetric) carried out during the

PDA as well as the findings of the economic assessment (PPTA). The investigations and surveys determined the extent of UXO and relative difficulty of clearance and disposal of ERW and the

capacity of the reef to accommodate wharf structures. The economic assessment provided the

Net Present Value (NPV) (i.e. the value of net future benefits/costs converted into present dollar



terms to account for the time value of money), Internal Rate of Return (IRR) and Benefit-Cost

Ratio (BCR) required for a decision to proceed or not.

96. On 11 November 2016, ADB advised that the PPTA and PDA studies should proceed, but

could be cancelled at any time. On 14 November 2016, the Ministry of Finance (MoF), GoN

provided approval for the PDA project to proceed.

2.8 Summary

97. Based on Ship simulation modelling, MetOcean criteria, constructability and engineering

assessments of the proposed options, Option 2A was chosen as the preferred design option. This

option was endorsed by the NPA on 22 December 2016.

2.9 Detailed Design Basis

98. The detailed design consists the following infrastructure:

Wharf structure

Breakwater

Navigable waters and berth pocket (dredged areas)

Storage and terminal building

Container Yard

Perimeter Fencing

Services

2.9.1 Design Features

99. The proposed option that has been agreed comprises a 30m wide wharf adjacent to a

50m wide berth pocket dredged into the reef with an approximately 170 m long breakwater on the

seaward side. The wharf is a suspended concrete slab supported on steel piles. The berth pocket is aligned in the most favorable direction to minimize wave effects on the structures and moored

vessels. The breakwater is located on the seaward side of the berth pocket to provide protection

from waves from directions from west to north. The location is sheltered from waves from north

through east to west of south by the island itself. Waves form the south west are rare and thus

the berth optimizes the potential operability.

100. Figure 2-8 shows the masterplan of the port layout at concept stage.



Figure 2-8 General Port Layout Plan (Option 2A)

2.9.2 Wharf Structure

101. In addition to layout options, a number of infrastructure options were considered together

with an experience Pacific Maritime Contractor. Table 8 summarizes the advantages and

disadvantages of each option.

Table 8: Advantages and Disadvantages of the Infrastructure Options

Option Advantages Disadvantages Piled ‘suspended’ wharf

Waves are not forced to ‘break’ on structure due to lack of vertical wall


Less reflective for improved basin wave climate

The ground conditions may warrant installation of anchors (grouted to piles and substrate) for transferring actions. Rock drilling may be required for installing anchors.

Need to drill through the annulus of the pile to advance the pile to the design toe depth.

Corrosion of piles

50 kPa uplift forces will impact the deck soffit in an extreme event leading to the need for expensive tension piles.

Gravity wall Durability advantages if steel reinforcing can be avoided

A Ultimate Limit State (ULS) bearing pressure of 750 kPa has been advised

Works may be undertaken in the dry

It may be challenging to place the seaward units as this will likely need to be done underwater using marine plant and divers.

Interaction between the gravity structure and steep cut slopes will need to be assessed using Finite Element Analysis

Retaining wall The top 6 m of dredged berth pocket would need to be cut at a batter of 1V:1.7H. Below this the excavation could be vertical. The fill behind the

High tonnage of steel required (unless bored concrete piles can be used)



Option Advantages Disadvantages wall would therefore be minimal and the earth pressure low.

Good capacity to absorb wave forces

High deck load capacity

Easy to mount fenders

Berthing forces are transferred back into the natural rock

Impressed Current Cathodic Protection (ICCP) likely to be required.

A very strong rotary drill rig will be required to advance piles to sufficient depth (and also for bored piles)

Causeway/Breakwater

102. The breakwater will be designed for the survival wave and current conditions. The

breakwater structure will be designed to cater for the waves overtopping during storm conditions.

It is understood that suitable natural rock is not available locally and coral dredged from the

channel will be the best construction material available in bulk. The breakwater design will

endeavor to maximize use of the excavated coral with minimum imported construction material.

Aids to Navigation

103. The proposed Aids to Navigation are limited to two lateral markers, placed at the edge of

the reef and marking the horizontal extent of the dredge pocket.

Dredging

104. Dredging will be required for the project to create a berth pocket. The slope stability of

dredge batters will refer to the guidance provided in the geotechnical report. Rock armor will be

placed over slopes to decrease reflectivity of the basin boundaries and mitigate waves.

2.9.3 Design Optimization and Availability

105. Following the selection of Option 2A as the preferred alignment, considerable work was

progressed in relation to construction methodology and wharf availability. In relation to

constructability, the key issues to be addressed were (i) protection of detritus layers within the

dredged profile and (ii) the ability to pile through the limestone rock material. In association with

these assessments are the two primary construction methods (i) deck on piles or (ii) piled face

(i.e. contiguous or sheet piles) with reclaimed deck area.

106. The new Port will cater primarily for container trade and tanker vessels. A key challenge

of the design was to provide a layout that maximized available weather windows. The new Port will be able to provide the small island nation with the benefit of quick vessel turn-around and

interest from shipping companies that may already be serving surrounding countries and may add

the island nation to their liner service at a more competitive shipping rate. Such an arrangement

also results in demurrage risk for the new Port (noting that demurrage costs are already an issue

at the existing port). Vessels on a liner route will not accommodate large delays. An operability

assessment was made using a mooring analysis package, specifically Optimoor’s Wave Response Module. A Hydrodynamic Coefficient File (HCF) for a container vessel was used to

best resemble the vessels specific hull characteristics below water (i.e. the vessels block

coefficient).



107. There are several publications that provide safe movement limit data for vessels at berth.

The published movement limits for coastal freighters unloading from a ships gear were taken from

BS6349-1 [2] (Maritime works – Part 1-2: General – Code of practice for assessment of actions)

and the movement limits for coastal freighters have been summarized in Table 9.

Table 9 Peak-to-peak vessel movements at which point container unloading may be unsafe Type of Motion Limit

Surge 1.0 m

Sway 1.2 m1

Heave 0.6 m

Yaw 1°

Pitch 1°

Roll 2°

108. In addition to movement limits, the Port’s pilot was consulted on conditions at which he would depart port. The advice received was that swell of 1 m and worsening would likely result in

the need to depart port.

109. The following options for wharf alignment were assessed during the Optimoor analysis:

i. Wharf on Northern Alignment of the Berth Pocket (refer to Figure 2-9)

ii. Wharf on Southern Alignment of the Berth Pocket (refer to Figure 2-10)

110. The Optimoor analysis revealed that the critical movement limits for both options were roll

and heave. It was found that where the vessel at berth was aligned to head-on or oblique waves

considerable operability was achieved relative to where the vessel was beam-on. An in-shore

wave model was created to determine the optimum berth alignment to narrow, as much as

possible, the directional spectrum of waves impacting the vessel (i.e. aligning to waves that are

head-on or near head-on). It was found that the wave height limits were very sensitive to the wave

period which ranges at the site between 4 and 9 second typically. A vessel was estimated to

require at least 72 hours of favorable metocean conditions in order to arrive, unload, load and

depart.

1 Motion limit is zero-peak



Figure 2-9 Optimoor Analysis - Southern Alignment Option

Figure 2-10 Optimoor Analysis - Northern Alignment Option



111. The following table summarizes the advantages and disadvantages of each option.

Table 10: Advantages and Disadvantages of Each Alignment Option based on Optimoor Analysis and Construction Methodology

Northern Alignment Southern Alignment Secant / Contiguous Piling

Pile with Suspended Deck

AD

VA

NT

AG

ES

Significant increase in

year round operability

through protection

provided from

associated revetment

structure. Some

benefits in

maneuvering vessel for

berthing due to working

into dominant swell.

Overall availability of

the alignment is

98.67%

Most inoperable days

in any month is 9

Overall availability

of the alignment is

93%

Allows close

dredging limits

(noting dredging in

hard rock material)

whilst providing

protection to detritus

layer. Reduction in

dredging and

associated revetment

protection – costs

and traditional wharf

deck construction

and piling costs of

order of $25m

Fewer piles

compared to

Secant/Contiguous

Piling.

DIS

AD

VA

NT

AG

ES

More exposed

condition that, whilst

aligned to swell in

order to reduce roll

of vessel at berth,

results in lower

availability.

Most inoperable

days in any month

is 21

Significant number of

hard and soft piles as

well as contiguous

piles (cost of approx.

$11m) required to

protect detritus layer,

and need to core

these in hard rock.

Need to anchor

piles to potential

uplift forces. Also

associated increase

in area for dredging

such that all detritus

layers / dredged

areas are then

protected by

traditional

seawall/revetment

structure (i.e. almost

double the dredge

volume and

additional 36,000m2

of revetment.

112. Based on the availability results listed in Table 10, the Northern Alignment option was

selected as the proposed design layout. Basis to the selection of the northern wharf location using

contiguous and secant piling to protect the detritus layers as well as provide the quayface for the

wharf development is listed in the table above. A review of persistence of conditions revealed that

most of the operational benefits of the chosen alignment were realized during El Nino years where

swell is commonly from the West. During El Nino years it is just as important to receive container vessels on the Island and the analysis showed that the number of downtime days in these years

improved considerably in the chosen alignment relative to previously considered alignments. The

availability / operability report is included in Appendix G. Figure 2-10 shows the resultant detailed

Port Layout.



2.9.4 Terminal and Buildings

Container Throughput

113. One container vessel calls at the Nauru Port every month. The vessel off-loads imported

goods and loads empty containers from the port. On the basis of trade data and other information

gather from the site/ stakeholders the following container throughput has been assumed for the

planning of container yard:

Table 11 : Container throughputs assumed for container yard planning

Number of 20’ dry containers unloaded per voyage 170-220

Number of 40’ dry containers unloaded per voyage 02

Number of 20’ reefers unloaded per voyage 30

Number of 20’ empty containers loaded per voyage 220-300

Container dwell time Up to 10 days

Number of containers not cleared from the yard before

arrival of next ship (10%)

20

Number of reefers not cleared from the yard before arrival

of next ship (10%)

0

Standard 20’ container dimensions 6058mm (20’) x2438mm (8’) x2590mm(8.5’)

Standard 20’ container ground slot dimension 6358mm x 2738mm (300mm

spacing between containers)

Container Handling

Ship to Shore Transfer

114. The containers will be loaded and unloaded using ship’s gear and no shore based crane will be provided. The facility will be designed for a maximum of 12 moves per hour per crane. It is

noted that in the berth design, installation of shore to ship crane at a future date is achievable;

however may require alterations in the berth to yard transfer system.

2 Neptune advises low demand through the Pacific for 40’ containers and will not allow use of the vessel’s containers due to inadequate handling equipment. However, the proposed container yard layout is such that 40’ containers could be accommodated within the layout



Berth to Yard Transfer

115. For planning purpose, it is assumed that the containers unloaded from the ship will be

transferred from berth to yard via tractor – trailer unit (TTU) and yard handling will be using Reach

stackers.

Yard Container Storage

116. The container terminal is designed considering the following parameters, conforming to

Permanent International Association of Navigation Congresses (PIANC) Working Group 135

Report:

Width of container stack = 3 wide (3 x 2.5 = 7.5m)

Average height of stack = 3 stack height (3 x 2.6=7.8m)

Width of reefer stack = 3 wide (3 x 2.5 = 7.5m)

Average height of Reefers =3 stake height (3 x 2.6=7.8m)

Spacing between stacks = 16m

Road lane width = 3.5m

117. Empty container to be bulk stacked and to be handled with empty handling forklifts. The

40’ containers, if any will be handled using existing forklifts and therefore main access roads to be minimum 12m wide.

118. The issue of unstuffing (unloading of the container) has been considered as part of the

Port Reform activities, associated with staffing, safety and ISPS compliance arrangements. This

has been an infrequent activity within the Port; however used to be more common when the

shipping provider did not allow containers to be taken off site. In more recent times that was

impractical and lead to a change whereby most (if not all) containers have more recently been

taken away and then returned later after unloading. Under revised security and ISPS arrangements, unstuffing would be allowed within the Port terminal area, however it is proposed

that this would be given the lowest priority – i.e. all other container deliveries offsite would be

finalized before unstuffing is allowed. This is due to safety as well as security considerations.

Regarding security, and associated ISPS requirements, it is proposed that this activity could be

done under supervision of the Port Facility Security Officer (PFSO) or other Maritime Security

Guard, with appropriate vehicle inspections on and off site as well.

Breakbulk Cargo

119. In the past there has been periods involving significant breakbulk cargo associated with

construction activity in Nauru. While the new proposed yard space would be suitable for use for interim breakbulk storage, the Neptune Pacific vessel is now loaded from the AutoStrad terminal

in Brisbane, and as such break-bulk cargoes will be more expensive in future as the terminal is

not able to simply convert operations to handle these cargoes.

Parking

120. All equipment will have a dedicated covered parking spot. There are allocations for trucks

and car/ bike parking.

Weighbridge



121. One weighbridge is provisioned near the gate for installation in future for weighting of

containers when exports increase or regulations dictate.

X-Ray Scanner

122. One set of x-ray scanning probes is allowed for future provision on the outgoing lane, in

line with the above.

Buildings

Gate Buildings

123. The Gate building will be designed to include one incoming and one outgoing 3.5m wide

lanes to cater for incoming and outgoing trucks. One 7.5m wide gate will be provided to cater for

non-truck traffic and oversize cargo. 4m wide control building will be provided between incoming

and outgoing truck lanes.

Other Buildings

124. The following area will be provisioned for other buildings:

Table 12 : Provision of Building Areas

Building Area

Shed with Equipment

Storage Areas

66mx22m

Office Building including

Amenities

20mx15m

Cold Storage 25mx20m

Generator

Room/Substation

12mx12m

Container washing area 12mx4m

2.9.5 Services

All stormwater drainage infrastructure will be designed in accordance with AS/NZS 3500:3,

relevant statutory best practice guidelines for management of stormwater runoff and

requirements in the Policies and Procedures.

The design of new water mains associated with these works is to be undertaken in

accordance with Water Supply Code of Australia (WSA) 03-2002. The design for potable

water services shall provide for a potable outlet at the berth and at key locations (i.e. shed,

ablution blocks, etc.)

Provide three-phase power supply with outlet sockets, rated at 63 amps per outlet for each

berth on wharf

The sewage reticulation design associated with the proposed works is to be completed in

accordance with AS3500: Parts 0-3 National Plumbing and Drainage Codes.



Lighting (TBC) is to be provided on the finger jetties and hardstand area. The illumination

level for the light installation shall be a minimum of 50 lux and designed in accordance with

AS1680.2 and AS1680.5. Light installation to provide illumination for safe operations and

access to and from the finger jetties.

2.9.6 Other

Pavements

125. The earthworks for the project will be designed and constructed to adhere to relevant local

and international (likely Australian) standards.

Security Fencing

126. Security fencing and gates shall be installed as per AS 1725 and other relevant standards.

Security fencing shall be a Type 2-T-B – top and bottom rails with 3 barbed top as per Appendix

K of AS 1725. The fence will have following characteristics:

Chain link fabric height – 2100mm

Black Polyvinyl Chloride (PVC) coated chain link fabric

Heavy duty 3.15mm chain link fabric

Vertical 3 barbed top extension

Top and bottom rails

Ladders

127. Ladders will be provided along the operational length of the wharf for safety, allowing for

a person who is in the water to climb onto the structure. Ladders shall be installed at regular

intervals as per the requirements of AS1657 and AS 4997. The maximum spacing will be no

greater than 60 m.

Edge Protection Vehicle Barriers

128. The side edges of the wharf (non –berthing) will be protected with a regular level 250 kN‐rated concrete containment barrier in accordance with AS 5100.2.

Handrails

129. Handrails for all structures will be designed for occupancy type C3 per AS 1170.1

2.9.7 Constructability

130. One of the key challenges in the design will be in ensuring the design considers the practical limitation of construction on the remote island nation of Nauru. The following limitations

on construction have been established through consultation with a marine construction

consultant:

There are no major contractors operating on the Island with Canstruct leaving in early 2017



EIGIGU is a local construction company with just over 100 employees. Skilled worked are

charged out at $5.50/hour

There is an opportunity to use the Ronphos 200T excavator for dredging/excavation works

Any barges, heavy land based equipment (with the exception of the excavator) and diving

equipment will need to be mobilized by the contractor

A ready-mixed concrete plant is on the island that uses crushed coral. The selling rate is

$147/m3 (Japan International Cooperation Agency 2014). There are no concrete testing

laboratories

Aggregates can be procured in Nauru but all other RC materials need to be procured

elsewhere (e.g. cement and reinforcement). Gravel sizes range from 40 mm down to 5 mm

The avoidance of marine plant will be critical given the sites open exposure to swell waves

and the relative low sensitivity of marine construction plant (e.g. 0.15 m wave limit for some

operations). There is no safe refuge for marine plant in adverse conditions

Mobilization and demobilization of plant and materials will be by barge, likely from Brisbane

Below RL -5 m, it is expected that excavation need assistance to rip the rock (e.g. drill and

blast)

Some elements of the project construction could be affected by coral sea cyclonic activity

(i.e. wave action at site) and as such has been catered for in respect on total construction

timeframe considered during estimation

All drilling work would need to be done by a large rotary drill due to the hardness of the

rock according to the geotechnical investigations

Armor rock of avarying maximum size can be sourced from the island. In addition to the

availability of this material, an engineering assessment of material properties will be

undertaken as part of the PDA project in near future, particularly as it relates to aggregate

supply and quality.

131. A meeting was held between two representatives from Cardno’s design team and seven representatives from the NPA and the Planning & Aid Division of Ministry of Finance, Nauru. The

meeting was held at the Port of Nauru on the 20th of February 2017. Cardno presented the design

basis for the new Port and revised master plans including marine and landside layouts. The aim

of the meeting was to obtain feedback from stakeholders and update the design basis and master

plans as required. Feedback from the meeting indicated that the NPA were content with the design

basis for the onshore and offshore port elements.



3 Economic Assessment

3.1 Summary and Recommendations

132. A cost benefit analysis of the preferred option (2A) was undertaken in comparison with a

Do Nothing base case. The Do Nothing options assumes that the existing maintenance program

for the mooring system ($5M every five years) was abandoned and utilization of tug boats to aid

in fuel vessel control would be adopted to maintain operational capacity of the Port (container

vessels would be able to unload without mooring through the use of pusher barges). A do nothing

scenario in which the port was allowed to close was not considered a realistic option. The

limitations and costs associated with existing infrastructure is such that only a single shipping line

now services Nauru (Captain Quiros) and it is understood that this company is also considering

pulling out from operations due to the very high operational costs. The economic costs to Nauru associated with the loss of all container shipping operation would be extremely high. The Do

Nothing does not include any upgrade or replacement of onshore components that have reached

the end of their service life.

133. Costs of each options were developed based on the project bill of quantities for each

option, and adjusted with a Shadow Conversion Factor (SCF) of 0.92 to non-traded goods and

services (estimated as 30% of total project cost) and a Shadow Wage Rate Factor of 0.75. These

factors were equally applied to project benefits identified.

134. Benefits for each option were determined based on current and forecast port demand

requirements, and included:

Port call cost savings

Pusher Barge Cost savings.

Avoided Charter Vessels and Operational Costs

Port Operation Savings.

Savings from greenhouse gas emissions

Incremental port call benefits

135. The table below presents estimates of Net Present Value (NPV), Internal Rate of Return

(IRR) and Benefit-Cost Ratio (BCR) of the current project, in comparison to the base case, under

the options considered.

Table 13 NPV, IRR and BCR of Option 2A

Option 2A

NPV (US$M) 2.33

BCR 1.04

IRR 9.4%

136. Projects with a positive EIRR and a BCR greater than one are considered to be

economically viable. Based on the current assessment adopted and the costs associated with the

Do Nothing to maintain port operational viability, economic returns from the proposed project are

seen to outweigh the associated costs. Using a 9 per cent discount rate, the proposed NPDP

shows a positive BCR implying that for each dollar spent on the project, economic benefit values



are generated in the order of $1.04. This low return is considered to reflect the limited incremental

benefits identified in the form of future vessel demand. Further demand projections that reflect

Nauru’s changing economic prospects will provide greater clarity as to project performance.

3.2 Guidelines

137. The Economic Analysis follows the guidelines set by the Asian Development Bank’s “Guidelines for the Economic Analysis of Projects (2017), supplemented by other ADB relevant policies and guidelines, including:

ADB Operations Manual Bank Policies: Economic Analysis of Projects (2003) Key areas of economic analysis of investment projects (2013).

3.3 Economic Analysis

138. The economic assessment was undertaken through a cost benefits analysis (CBA). The CBA compared the performance of the preferred option (Option 2A) to the Do-Nothing scenario. A cost effectiveness analysis was previously undertaken. This included a high level CBA of all potential upgrade options against the Do-Nothing scenario. Option 2A was identified as the preferred option and taken forward to detailed design. This economic analysis provides a more detailed assessment of the economic costs and benefits of Option 2A in comparison to undertaking the Do Nothing base case scenario.

139. A 30-year period was used for the evaluation with a residual value of 40% of capital costs assumed, based on the significantly improved port facilities with 50 years of engineering design life of the new assets. A two-year construction period was assumed, with the upgraded port opening in 2020. An economic internal rate of return (EIRR) was estimated and evaluated against the ADB target rate of 9%

140. To ensure financial estimates were adjusted to economic values due to potential market distortions (e.g. lack of market transparency, information distribution and inequality in transaction costs), a world price numeraire was applied to both identified costs and benefits. Non-Traded inputs (i.e. those not imported/exported by Nauru) are estimated at their market price equivalent and then adjusted to the world price by multiplying by a Shadow Conversion Factor (SCF) of 0.92, adopted from the 2014 ADB Electricity Supply Security and Sustainability Project for Nauru. No adjustment for Tradable portions of cost/benefits is applied. In the absence of detailed labor cost estimates, the labor component of costs and benefits was adjusted through use of an industry-standard Shadow Wage Rate Factor (SWRF) of 0.75. No adjustment to economic prices for leisure time was made.

141. All taxes and custom duties were excluded from the analysis. Similarly, price contingencies were excluded from the analysis.

142. In accordance with the distinction made in the ADB 2017 guidelines for economic appraisal, the project benefits were evaluated in terms of non-incremental (e.g. resource cost savings) and incremental (e.g. willingness to pay) benefits. Given the nature of the project, the key benefit identified is the non-incremental benefits, directly to shipping lines through lowered vessel times and port operation costs. Incremental benefits associated with generated shipping traffic are low in comparison. The resource cost savings were utilized as representative of the willingness to pay for generated trips and estimated using the rule of half.

3.4 Project Costs

143. The project plans to provide Nauru with improved port facilities, improving accessibility of cargo, fuel, and emergency relief vessels under all weather conditions. Construction works of each of the upgrade option will broadly include: (i) dredging and seawall construction, (ii)



provision of a new wharf, (iii) construction of a breakwater, (vi) provision of upgraded operational / storage facilities.

144. There are no capital costs associated with the Do Nothing scenario. Ongoing operational and maintenance costs are primarily related to the provision of tug-boats to support port operations in the absence of a mooring system.

145. A Bill of Quantities was developed for the Do Nothing and Preferred Option by the project engineers after canvasing the potential market in Australia, Fiji and New Zealand and the subsequent cost estimates are expressed in United States Dollars.

146. The principal investment cost is the provision of a wharf designed to sufficient standards to permit year-round operation. There is a substantial mobilization cost given that the expertise and materials will have to be imported from overseas due the remoteness of Nauru. Dredging and breakwater costs, although material, represent a smaller portion of overall project costs.

147. As advised by ADB on 13 Nov 2017, US$ 3.042 M as the cost of Project Design Advance

(PDA) was included in the total project cost. The following Table 14 summarizes the derivation of

economic project capital costs (excl. maintenance and operational costs).

Table 14: Project (with) and Do Nothing (without) cost estimates Without Project ($) With Project ($) Difference ($)

Financial Cost (excl. price contingency and taxes)

0 69,551,944 69,551,944

Labor component 20% 20%

Non-traded component

30% 30%

SWRF 0.75 0.75

SCF 0.92 0.92

Economic Cost (excluding contingency and taxes)

0 63,643,485.24 60,790,089.24

148. A two-year construction period was assumed, with an equal distribution of costs. This

returned a present value of capital costs of$32.5M for 2018 and $31.1M for 2019.

149. The provision of additional infrastructure will increase maintenance requirements. For the

purposes of this assessment annual maintenance cost were estimated as 1% of total capital

costs, with additional periodic maintenance requirement of 2% every five years. This returned a

net present value of maintenance cost of $5.5M.

150. The design service life of 50 years, will leave 20 years of service life post the end of the

CBA assessment period. Utilizing a straight-line depreciation, a residual value of 40% of the

capital worth was assumed in the final assessment year (2049). This resulted in a present value

benefit of $1.6M.



3.5 Project Benefits

151. The estimated quantifiable benefits include the following:

a) Port call cost savings. Under the ‘with project’ scenario, the number of days vessels will spend in the port will decrease from 21 to 3 days in good weather. The savings were estimated based on the normal traffic of 10 ship visit per year over the project life time at the operating cost of $6,750 per day (this daily rate is considered highly conservative and includes wages, fuel and other resources) and average historic mooring times adjusted for a no-mooring system scenario. The present value of the saving from port call costs is estimated to exceed $11.2 million. The SCF, a labor component of 30% and non-traded component of 20% were used to convert the benefit to economic prices.

b) Pusher barge cost saving. The project will reduce pusher barge costs. Cargo vessels moored offshore currently unload containers onto pusher barges which ferry the containers to the existing shallow harbor where they unload directly to shore. This process is time consuming and incurs high pusher barge costs at average $640 per hour. Currently, two pusher barges on 12-hour shifts operate to load unload each vessel. The present value of pusher barge cost saving is estimated $13.3 million.

c) Avoided charter vessels and operational costs. The project will avoid the need to charter vessels. Without the project, the current mooring system will become inoperable in 2020, resulting in shipping lines ceasing services to Nauru. In this event, government would have to charter container vessels to maintain the country’s lifeline (i.e. imports/exports). The cost of a charter vessel is valued at $6,750 per day plus an additional 18-day hire period per vessel call to travel to and from Nauru. A present value saving of over $23.3 million is estimated as the avoided cost of chartering vessels (a non-incremental present value saving of $21.0 million and an incremental benefit of $2.3 million).

d) Port operation savings. The project will eliminate the barge ferrying process and generate minor operational benefits. These include: (a) reduced risk of worker injury through reduced handling activities (non-incremental) - $0.05 million per year; (b) reduced risk of equipment and cargo loss/damage through reduced handling and improved systems (non-incremental) - $0.05 million per year3; (c) labor savings (non-incremental) – $0.13 million per year through reduced stevedoring components; and (d) support for transshipment (fish storage and processing) and other vessel operation costs (e.g. bunkering) - $0.18 million per year (incremental). All benefits were adjusted through the SCF and SWRF based on estimates of non-tradable and labor components.

e) Savings from reduced greenhouse gas emissions. A $8.6 million climate change benefit was identified due to reduced greenhouse gas emissions associated with the project. The value of reduced emissions was assessed based on estimated fuel use by pusher barges and berthed container and fuel vessels. Standard CO2 fuel emission factors (3,179 kg of CO2 per ton of fuel4) was adopted in estimating CO2 emissions. An inflation adjusted estimated price of carbon emissions ($37.03 per CO2/t) were also adapted in estimating this.5

f) Incremental port call benefits. The project will reduce vessel costs in terms of distance travelled, waiting time at port and additional pusher barge and tug boat requirements. It

3 Anecdotal evidence indicates losses of containers with values in excess of $0.3 million per event. 4 Intergovernmental Panel on Climate Change. 2014. Climate Change in the Pacific: Scientific Assessment and New

Research report. Geneva. 5 ADB Guidelines for the Economic Analysis of Projects.



is considered that this will encourage additional port calls (through one or more shipping lines servicing Nauru). An additional two container vessel visits and one additional fuel vessel visit is anticipated per year. Using the estimated cost reductions and rule of half, the value of this incremental benefit was estimated to be approximately $2.3 million per year.

152. A range of further benefits associated with the project have been identified but not

incorporated within the CBA (see Appendix H)

153. Table 15 summarizes the quantified benefits of the Project Case in comparison to the Do

Nothing.

Table 15 Summary of Present Value Benefits ($M) Benefit Non-Incremental Incremental TOTAL

Port Call Cost

Savings 11.2 - 11.2

Pusher Barge

Savings 13.3 - 13.3

Vessel Charter &

Operational

Costs

21.0 2.3 23.3

Port Operational

Savings

1.7 1.4 3.1

Generated Call

Incremental

Benefits

- 4.6 4.6

Savings from

Reduced

Greenhouse Gas

Emissions

8.6 - 8.6

TOTAL 55.8 3.7 64.1

3.6 Cost Benefit Analysis (CBA)

154. The Cost Benefit Analysis (CBA) integrates all discounted costs and benefits of the

Project, relative to the Do-Nothing base case, to produce its summary economic indices: Net

Present Value (NPV), Economic Rate of Return (EIRR) and Benefit-Cost Ratio (BCR).

155. The CBA utilized a 30-year horizon (in addition to two construction years), with quantifiable

costs and benefits are discounted at 9% per annum.

156. The CBA results of the preferred option in comparison to the base case are shown in

Table 16.

Table 16 Summary CBA Option 2A PV of Capital Costs ($M) 56.1 PV of Maintenance Costs ($M) 7.3 PV of Residual Value* -1.6 PV TOTAL COSTS ($M) 61.76 PV of Port Call Cost Savings ($M)

11.2



PV of Pusher Barge Savings ($M)

13.3

PV of Vessel Charter & Operational Costs

23.3

PV of Port Operation Savings ($M)

3.1

Generated Call Incremental Benefits

4.6

PV of Savings from Reduced Greenhouse Gas Emissions ($M)

8.6

PV of TOTAL BENEFITS ($M) 64.1 NPV ($M) 2.33 BCR 1.04 EIRR 9.4%

*negative cost represents a Project benefit

3.7 Conclusion

157. The economic assessment shows an EIRR of 9.4% for Option 2A - comprising a 30m wide

wharf adjacent to a 50m wide berth pocket dredged into the reef with an approximately 170m long

breakwater on the seaward side. This is marginally above the ADB standard target rate of 9%.

158. Table 17 presents estimates of Net Present Value (NPV), Internal Rate of Return (IRR)

and Benefit-Cost Ratio (BCR) of the preferred option in comparison to the base case.

Table 17 Estimates of NPV, IRR and BCR of Option 2A Option 2A

NPV (US$M) 2.33

BCR 1.04

IRR 9.4%

159. Projects with a positive EIRR and a BCR greater than one are considered to be

economically viable. Based on the current assessment adopted and the costs associated with the

Do Nothing to maintain port operational viability, economic returns from the project are seen to

outweigh the associated costs. Using a 9 per cent discount rate, the proposed NPDP shows a

positive BCR implying that for each dollar spent on the project, economic benefit values are

generated in the order of $1.04. This low return is considered to reflect the limited incremental

benefits identified in the form of future vessel demand. Further demand projections that reflect

Nauru’s changing economic prospects will provide greater clarity as to project performance.

160. Marginal increases in costs or decreases in forecast benefits will realize an IRR of less

than 9%. However, it is noted that the economic assessment adopts a number of highly

conservative assumptions. In particular, the adopted container vessel charter operational / hire

cost of $6,750 per day is considered low (values are likely to be between $10,000 and $25,000.

When a value of $10,000 per day is adopted then projects IRR increases to 11.3% and a NPV of

$13.7M.

161. To further assess this, the sensitivity of the project to incremental benefits was assessed.

In the event that the port upgrade works to not generate additional container and fuel visitation, then the IRR would drop to 8.6%, showing the economic performance of the project to be weakly

linked to growth in shipping demand. Conversely, if realized demand exceeds that forecast by an

additional container and fuel vessel per year, the IRR increases to 9.9%. The port upgrade will

provide infrastructure that supports and facilitates the long-term growth of Nauru. However, the



project itself is unlikely to be the key driver behind this growth. It is also recognised that vessel

demand for Nauru is highly variable and uncertain within Nauru due to its location, size and

industries. This economic analysis assumes a base case container vessel call frequency of 10

vessels per year. This is lower than historic vessel call rates and less than one a month; a typical

frequency for the provision of many containerized goods within the pacific. A contraction scenario

of six vessels per year was also assessed as a sensitivity test. An IRR of 6.3% was observed.

This indicates that the ongoing economic stability of Nauru is important to the economic feasibility

of the project.

162. An Economic Analysis Report and Least Cost Approach Report is provided in Appendix

H and Appendix I.



4 Financial Analysis

163. The financial analysis of the project was carried out in accordance with Financial

Management and Analysis of Projects of the ADB.6 The financial evaluation considered the cost

of the overall investment in all project components and compared this with the financial internal

rate of return (FIRR) to ascertain the financial viability of the project. NPA staff has cooperated in

attempts to accurately determine volume and sales data, but the recording inadequacies leave a

high degree of uncertainty7. Consequently, assumptions of some key parameters were based on

the best estimates of the NPA and consultant.

164. A pre-requisite for the GoN to obtain funding for the implementation of this project was a

commitment to use the new port for all imports and exports within 5 years of the recent

replacement of the mooring system (May 2017). The letter provided by GoN on this commitment is provided in Appendix B.

4.1 Financial Internal Rate of Return (FIRR)

165. Financial Costs and Benefits: The financial analysis quantified the costs and benefits of

the project for the implementing agency (NPA). The costs included (i) capital costs for dredging,

rock protection works, wharf, building works, (ii) consulting services during implementation and

(iii) contingency .

166. Tariffs: NPA charges fees for port entry, pilotage, mooring and berthage for phosphate

ships and fuel ships based on GRT based on the tariff rate. For cargo ships, container handling

charges for discharging and back loading of containers are charged additionally for each

container. NPA receives payment through shipping agents for phosphate shipments. Since 2011,

tariffs have been imposed on these various types of port fees based on gross registered tonnage

(GRT) of a vessel8 and quantity of containers loaded and unloaded in the port. In 2016, the

Government of Nauru (GoN) announced new tariffs, which has, to date, not been implemented

due to concerns by stakeholders on the level of increase. Prior to this, port fees have been in

effect, are based on 2011 tariff regulations. The financial analysis assumes that the tariff

increases are implemented over three years with 30% of the proposed increase in 2017/18, 30%

in 2018/19 and 40% in 2019/20 based on the 2016 tariffs schedule, as approved by Parliament

and gazetted.

167. Weighted Average Cost of Capital: The financial evaluation is conducted at project

level. The incremental revenues are compared against the weighted average cost of capital (WACC) for the project. To calculate the WACC, the approach followed has been to calculate a

real, pre-tax WACC based on the cost of the ADB and Australian grants equivalent to the cost of

equity of Nauru. The cost of equity has been calculated based on proxy 10-year bond9, with

maturity and project risk premium of 0.20. This nominal WACC has been converted to real pre-

tax WACC using n foreign inflation rate of 1.5% and a tax rate of zero. The derived value is thus

1.31%.

6 ADB. 2005. Financial Management and Analysis of Projects. Manila. 7 Prior to 2015/16, there has been no financial recording, reporting and auditing of NPA accounts. 8 Port Authority (Fees) Regulation 2011. 9 Based on 10-year Australian treasury bond of 3.7% .



168. Calculation of FIRR: The project has a FIRR of 2.89%, and a financial net present value,

using a financial discount rate equal to the WACC of 1.31, of $22.5 million. Sensitivity analysis

was carried out on the following key parameters:

i. increase in capital costs;

ii. increase in O&M costs; and

iii. decrease in revenues

169. The results are sensitive to fuel prices and tariffs. At present, the NPA does not fully

recover costs for is operations.

170. Adverse movements of several variables, such as increases in capital costs and O&M

costs and delays in completion, have marginal impact on the project FIRR, as these are all passed

through in the current and proposed tariffs. The variables considered for the sensitivity analysis

were a 10% increase in capital costs, a 10% increase in O&M costs, and 10% decrease in

revenues (Table 18). Even in a worst-case scenario, the lower FIRR compares favorably with the

estimated WACC of 1.31, substantiating that the project is viable. Sensitivity analysis further

shows the FNPV will be positive, indicating the financial viability of the project.

Table 18 Sensitivity Analyses

Scenario FIRR (%) FNPV ($ million)

Base case 2.89% 22.5 10% increase in O&M 2.16% 12.0 10% increase in capital costs 1.67% 5.4 Decrease in revenues by 10% 1.86% 7.1

WACC 1.31 Source: PPTA estimates.

4.2 Financial Performance and Projections

171. The GoN still lacks significant tax revenue, largely as a result of the narrow tax base, and

relies heavily on revenue from the state-owned enterprises (SOEs) that manage the production

of phosphate.

172. The NPA provides port services to Nauru, with major clients in the phosphate, fuel and

cargo businesses. Port tariffs for all customer categories have been set well below full cost-

recovery levels. The NPA accounts indicate that tariffs will have a significant impact on NPA’s finances. The NPA is fully funded by government, and does not pay dividends to the sole

shareholder (GoN). The financial performance of NPA was analyzed based on financial

statements provided for July 2014 to January 2017 period. The analysis revealed that NPA had

net revenues $3.74 million and total costs of $7.84 million. However, this included the cost of

extraordinary expenses (special projects), resulting in a net loss for the NPA of $4.11 million for

the period. Special projects have been described as extraordinary but necessary expenses in

order that port operations are not hampered due to malfunctioning of equipment, lack of

competent personnel, and the absence of infrastructure needed to carry out the operations of the

port. After the new port is commissioned, the financial performance of the NPA is projected to

improve as a result of the project The financial projections are provided in Appendix 1 to 3 in the

‘Financial Analysis’ Report in Appendix J of this report.




173. At present, the NPA does not fully recover costs for its operations. The financial analysis

based on data of 3 years revealed that NPA had net revenues $3.74 million and total costs of

$7.84 million. The proposed project has a FIRR of 2.89%, and a financial net present value, using

a financial discount rate equal to the WACC of 1.31, of ($22.5 million). Even in a worst-case

scenario, the lower FIRR compares favorably with the estimated WACC of 1.31, substantiating

the financial viability of the proposed project.

174. The following financial covenants to the grant agreement are recommended for the

project:

Implement accounting and operating systems to capture correct revenues – not just automated systems but business processes and rules/regulations as well

Implement 2016 tariff in phases as follows: 30% in 2017/18, 30% in 2018/19, and 40% in 2019/20. Implement tariff reforms through adjustments to meet the recovery of costs10.

Cost efficiency – review cost structure, streamline and remove unnecessary spending.

The NPA shall prepare regular audited project financial statements (APFS) and audited entity financial statements (AFS), plus other opinions, and submitted annually by an external auditor

acceptable to ADB.

ADB shall disclose the annual audited financial statements for the Project and the opinion of the auditors on the financial statements within 14 days of the date of their receipt by posting

them on ADB’s website.

NPA shall install computerized financial management systems based on the new port

operations, based on international best practice, Ministry of Finance (MOF) system and Pacific Ports system.

NPA shall hire qualified accounting and finance staff to perform the necessary financial

management function.

Financial performance indicators shall be reported on a reqular basis, including profitability

ratios, i.e.gross profit margin (GPM), operating margin (OM), return on assets (ROA) , return

on equity (ROE), return on sales (ROS) and return on investment (ROI).

175. The Financial Analysis is provided in Appendix J.

10 This is proposed to be implemented initially, but with further review and inter-relationship between expenses and cargo types, as well as agreed profit margins etc, thereafter has been undertaken. The tariff study needs to be implemented to ensure the viability of the proposed project.



5 Environmental Studies

176. An Initial Environmental Examination (IEE) was prepared as defined in the ADB’s Safeguard Policy Statement 2009 (SPS) and the country safeguards requirements of the Republic

of Nauru. This document is presented in Appendix K. The IEE presents a discussion of potential

environmental impacts associated with the design/pre construction, construction and operational

activities of the proposed NPDP and include mitigative measures and a plan to implement all

recommended mitigative and monitoring actions associated with the project. These activities are

detailed in the IEE Environmental Mitigation and Management Plans (EMMP).

177. In general, the key tasks for the IEE includes qualitative and quantitative environmental

impact assessment of the existing terrestrial, coastal intertidal and subtidal marine environments

associated with the Nauru Port and the potential environmental impacts of the project’s proposed redevelopment activities. This work involved completion of the standard steps as defined in ADB’s SPS 2009 and included an Environmental and Social Management Plan (ESMP) as well as

findings of all public consultations, a grievance redress process and appropriate climate change

issues.

178. Key activities undertaken during preparation of the IEE included:

Terrestrial Site Assessment – undertaken with the NPA staff providing background

information pertaining to past activities and operational activities;

Coastal and Marine (Intertidal and Subtidal) Ecological Assessment - undertaken with

senior marine staff from the NFMRA associated with the Port’s coastal and marine areas. Included visual, photographic and detailed transects.

Assessment of Neighboring Ecological Systems (terrestrial and marine) adjacent to the

NPA boundaries with special emphasis on environmental input sources and impacts to the

coastal and marine areas. This included potential anthropogenic sources (not port derived)

of pollution associated with waste water systems and sewage discharge points.

Assessment of environmental areas on the island that may receive wastes derived from

the port activities (i.e. rubbish dump, land fill area – associated with the mines land

rehabilitation program).

Preparation of a detailed marine assessment.

Stakeholder meetings - including key government and private sector agencies (see Table 19) to initiate project contact and to solicit information and documentation relevant to the

environmental issues associated with the Port and associated activities.

Table 19 Table of individuals met by the Environmental Specialist on 25, 26, 27 & 29 Nov 2016 during the in-country visitation

Stakeholder Position Contact

Mr. Anton Jimwereiy CEO Nauru Ports Authority [email protected]

Mr. Henry Cocker Deputy Secretary

Planning & Aid Division, Ministry of Finance.

[email protected]

Mr. Beeing Yeeting Fisheries Specialist Nauru Fisheries and Marine Resource Authority (NFMRA).

[email protected]



Mr. Jonas Star Fisheries Extension Officer – Coastal NFMRA

Not supplied.

Mr. Delvin Thoma Acting Senior Coastal Fisheries Officer NFMRA

[email protected]

Ms. Erana Aliklik UN Coordination Officer - UN [email protected]

Mr. Blake Thackrah Plumbing Coordinator – Canstruct company

PH: 5570097

Ms. Mavis Depaune Secretary - Department of Commerce, Industry and Environment (DCIE).

[email protected]

Ms. Camilla Solomon Nauru ADB representative [email protected]

Mr. Taufia Papol Chief Account Nauru Government [email protected]

Mr. Shawn Otal Government Consultant Asset Management

[email protected]

Mr. Grahma Leing Secretary of Justice [email protected]

Ms. Novena Itsimaera Planning & Aid Division (PAD), Ministry of Finance.

[email protected]

5.1 Findings

179. The data collected and acquired during the in country assessments were analyzed and

are summarized in the following subsections:

5.1.1 Terrestrial Assessment

The terrestrial assessment identified the port land area and shoreline has been previously

cleared of all vegetation and natural ecosystems. Land reclamation throughout the site is

apparent.

Poor standards of waste management throughout the port were recorded. Petrochemical

collection and storage, general garbage, infrastructure (buildings), old equipment and

asbestos roofing/cladding, both affixed to the roof and in piles throughout the port site are

problematic. The correct demolishing, storage and disposal management of these issues

is required and detailed processes and guidelines have been included in the EMP. It is

however acknowledged that recent changes in senior management within the port have

shown considerable commitment for improvement.

5.1.2 Marine Assessment

Intertidal Reef Flat

The reef flat sites are homogenous throughout the port site and extend into the adjacent

ecosystems.

The reef flat is horizontal with limited vertical relief, completely exposed during periods of

low water and is dominated by several species of macro and micro algae. Algae percentage

coverage remain similar throughout all sites; however higher densities were recorded in

inshore areas located in close proximity to the communities residing to the north of the port

boundaries.



Very low numbers of marine invertebrates were located; however the black sea cucumber

Holothuria atra was found in moderate densities throughout the northern intertidal reef flat

sites.

Hard coral coverage and biodiversity throughout the intertidal reef flat is extremely low (a

very small number of encrusting colonies) and are located only in areas close to the reef

crest and/or the small depressions in the reef, most of which are bomb craters.

The intertidal reef flat areas associated with the port have been heavily impacted by

anthropogenic activities. This includes channels cut through the bedrock, port retaining

break walls, anchorage points and associated chains, all of which have had a direct

negative impact on the sessile marine resources, habitat and ecology of this environment.

The intertidal reef flat terminated in a distinctive wave dominated reef crest. This region is

subjected to oceanic waves and as such is dominated by coralline algae.

Subtidal Reef

The subtidal reef ecosystem is relatively homogenous throughout the port site and extends

into the adjacent ecosystems.

The subtidal reef is composed of a distinctive gentle sloping reef edge – 2 to 6 meters in

depth and extends to the reef slope that in some parts includes a distinctive shelf (no wider

than 10 meters) before it rapidly drops away into the outer reef slope and beyond.

The reef edge is dominated by macro algae and has been cut and channeled in several areas to allow the desalination intake and discharge lines to be deployed, the port channel

itself and is impacted by a number of mooring chains. The mooring chains dominate the

reef edge and upper reef slope in the southern areas of the port.

The reef upper and lower reef slope directly opposite the existing port entrance and to the

north has a very low percentage of live hard coral coverage. Areas to the north and south

of this area (outside the projects area of influence) in contrast in general shows a higher

percentage coverage of live hard coral (up to 95% in some cases), although biodiversity is

low.

Healthy populations of finfish were seen during the assessment with the majority

associated with algal grazing and planktivores. Population stocks of predator finfish were

recorded as very low.

Population numbers of macro invertebrates (e.g. bivalves, gastropods, echinoderms, etc.)

were very low which may be a direct result of local fishing pressure, although a number of

octopi were located.

The reef slope has a considerable amount of equipment located throughout the port site

(e.g. truck tires, old chain, pipes, steel frames). Heavy mooring chains are located in a

number of intertidal and subtidal locations throughout the port site. The chains located in

the south that remain in use have impacted the reef slope in areas where they move and

these areas are scraped clean of all benthic attached organisms.

180. Further details can be found in the Marine Assessment Report presented in Appendix L.



5.2 Anticipated Impacts and Mitigation Measures

181. The project has been categorized through the Rapid Environmental Assessment (REA)

“Port Development” checklist, as environment Category B in accordance with ADB Safeguard Policy Statement 2009 (SPS). The site has a number of small scale, but nevertheless potential

adverse construction environmental impacts that are site-specific all are reversible, and mitigation

measures can be designed and implemented readily.

182. Three distinctive potential environmental impacts were highlighted through the REA.

These can be summarized as impacts associated with (i) the pre-construction/design phase, (ii)

the construction phase which includes the demolition of the ports existing infrastructure (buildings)

and (iii) operational/management phase of the Port. It was identified that the majority of potential

impacts associated with this project are within the construction phase, and the operational phase

to a much lesser degree.

183. The IEE includes an Environmental Risk Management Framework (ERMF) which has

been prepared based on international best practice. The ERMF describes the processes

undertaken to evaluate the risks associated with the activities of the project and a risk assessment

matrix. A total of 21 potential environmental risks were screened through the ERMF. Three (3)

associated with the pre-construction (design) phase, fourteen (14) associated with the

construction phase and four (4) associated with the operational phase of the NPDP.

184. The Risk Management Framework (RMF) identified that there are no identifiable

significant environmental risks for the NPDP project scope of works; however a high level of risk was recorded for four (4) construction phase activities. This includes two major scope of work

activities for the terrestrial component of the project including; Site Contamination – Land Based

Hazardous Material (specifically residue petrochemicals on site) and Site Contamination – Land

Based Asbestos (roof sheeting) and two associated with the marine component of the project

including; Site Construction – Marine Environment (physical disturbance of the intertidal reef flat

for the proposed NPDP scope of works) and Flora and Fauna Removal – Marine Environment

(associated with the scope of works).

185. The two terrestrial high level risks associated with the scope of works for the NPA site

includes the presence of asbestos (roof and cladding) and residue petrochemical products, albeit

at significant low levels (refer figure 5 a & b). Both risks will be addressed during the demolition

of the ports existing infrastructure (e.g. buildings and machinery) and general whole of site

clearance during the construction phase in preparation for the development of the new ports

infrastructure facilities.

186. The decommissioning of the existing port infrastructural components (the three sheds,

customs office building and the Harbormasters office refer figure 40) and the collection, storage

and disposal of existing asbestos roofing and cladding material, petrochemical and other

harmful/toxic waste material will be undertaken using internationally acceptable practices which

will greatly reduce potential environmental and OH &S issues. Due diligence is required to ensure

these substances are managed through internationally accepted safeguard protocols as

described below to ensure minimum further disturbance and contamination of the port’s facility grounds.

187. All asbestos material located within the ports existing’s buildings and grounds will be collected from the site and stored in shipping containers (held within the NP site) and managed

according to national protocols and codes of practices to prevent exposure to staff. It is mandatory

(refer EMP) that all workers who are working with asbestos are provided with suitable asbestos



PPE and that the site should be clear of asbestos before construction of the ports new

infrastructure is initiated. In addition, all hazardous wastes (oily wastes, used batteries, fuel

drums) need to be separated and stored, transported and disposal of in a manner to prevent

further contamination and shall be undertaken consistent with national regulations and code of

practice.

188. Impacts to the terrestrial environment and resources associated with the NPDP will be

very insignificant as the environment existing at the site has already been highly modified and the

presence of terrestrial flora and fauna extremely low.

189. The two marine high level risks includes the expansive scope of works to be principally

undertaken on the intertidal reef flat including the removal of the reef flat for the berthing pocket,

the construction of the breakwater, wharf including the piles required to support the structure and

the backfilled area between these structures and the foreshore. The scope of works for these

activities is considerable with approximately 150,000m3 of material to be removed from the

intertidal reef flat to create the berth pocket and alteration to the reef flat to construct the

breakwater and suspended wharf.

190. These activities have a direct negative impact on the sessile benthic marine resources

located within the impact areas, however due to the paucity of sessile flora and fauna in this area

impacts to these resources are seen as not significant (refer marine assessment report). In

addition, the projects scope of works will not impact the island coastal or marine biodiversity nor

will it affect the areas ecological functions, financial or cultural importance.

191. The high level recorded for these activities when appropriate mitigation measures are

implemented decreases the level of risk in all cases to low. Subsequently with the careful

implementation of the recommended mitigation actions (detailed in the EMP) there are no

significant environmental concerns for the project associated with the sessile and mobile marine

resources in the area of influence.

192. Material removed from the intertidal reef flat to create the berth pocket will be principally

used to develop the breakwater which may be armored and backfill area behind the new port

infrastructure on the ports foreshore. Additional construction material will be sourced on island

directly from the rock quarries located within the island phosphate mine. Similarly, unused or

inappropriate material (including rocks, grave and sand) sourced from the berth pocket for

construction will be transport to the island phosphate mine and used to backfill old mining areas

and incorporated directly into the mines rehabilitation activities. All transport activities required for

these activities have been detailed in the project EMP and will follow current island regulations

associated wit the movement of mine derived material.

193. An Environmental Management Plan (EMP) has been prepared to address the

environmental impacts during the design, construction and operational phases of the project. This

is provided in Table 3 of the IEE. It outlines the key environmental management and safeguards

that will be initiated by the project proponent to manage the project’s key environmental impacts. It provides tools for mitigating or offsetting the potential adverse environmental impacts resulting from various activities of the project and management measures that are to be applied during the

project’s implementation to avoid, reduce and mitigate adverse environmental impacts.

5.3 Conclusion

194. The IEE concludes that there were no identifiable significant environmental impacts, no

critical important terrestrial or marine habitats impacts, all impacts are site specific, irreversible

and can be minimized through appropriate mitigation measures. Impacts arising from the



construction including the demolition of the existing ports infrastructure buildings and machinery

and operational phases of the project are minor, localized, and acceptable, providing that the set

of mitigations measures set out in the EMP are implemented, and monitored properly. Key

impacts include;

The NPDP is located within the existing land parcel of the Port that has been highly

modified (cleared, filled, built on) and does not support any terrestrial ecological or

biological (flora or fauna), endemic, endangered or significant biodiversity.

The Nauru Port land site does not have any freshwater (rivers, streams), forests or

agriculture.

The NPDP includes the coastal foreshore, intertidal reef flat and sub tidal reef slope. The

coastal foreshore and intertidal reef flat areas have been highly modified (dredged, built

on, rock walls) whilst the sub tidal shallow water reef areas have been impacted by port

activities (e.g. mooring chains, existing harbor entrance) resulting in the degradation of

benthic habitat and the removal of sessile benthic marine resources.

The intertidal reef flat ecosystem associated with the NPDP does not support any marine

shallow water ecological or biological (flora or fauna) endemic, endangered or significant

biodiversity. Hard coral is all but absent in this area and as such the proposed dredging

area (berth pocket) and adjacent area of influence have negligible impact on marine

benthic resources.

The subtidal reef edge, and upper slope ecosystem associated with the NPDP does not support any marine shallow water ecological or biological (flora or fauna) endemic,

endangered or significant biodiversity. Hard coral coverage and biodiversity in the region

proposed for the NPDP scope of works has a very low level of coverage.

Impacts on the terrestrial and shallow water marine ecosystems and their environments

resulting from the projects construction activities are expected to be minor and

manageable.

Impacts on the environment associated with the intertidal reef resulting from the physical

dredging of the area and subsequent increased short lived sedimentation has a low impact

on the marine fauna and flora due to the scarcity of resources located within and adjacent

to the projects the area of influence and the constant movement of sea water throughout

the area (tidal currents and oceanic waves).

The NPDP site does not impact any terrestrial or marine conservation and/or protected

area/s, sites of cultural, customary or heritage significance nor any national or international

endangered or protected species.

Due diligence and proactive management of all pre-construction, construction including

demolition of the existing infrastructure and operational activities will ensure limited

disturbance to the daily business activities undertaken within the Port and surrounding

business and community activities.

Nauruan laws and regulations associated with labor, employment, OH&S need to be adopted by the pre-construction contractors monitored by the NPA.

195. Climate change adaptation measures have been included in the pre-construction design

and implemented activities. The pre-construction, construction and operational EMP identifies

potential environmental impacts arising from the project along with a corresponding schedule and

monitoring of mitigation measures to ensure potential impacts are maintained at insignificant



levels. It also includes the institutional arrangements for implementing the EMP to ensure its

effectiveness.

196. The proposed scope of works associated with the project are environment-friendly and will

result in the substantial increase in the efficiency and safety of the Nauru port operational

functions. This will result in more frequent inbound and outbound movement of shipping

containers and commodities providing increased business opportunities and income generation

for the nation and foreign trade.



6 Social Assessment

197. The Specialist started input on 24 November 2016 till 09 December 2016 with a field visit

to Nauru. The specialist met with the Team Leader, CEO and other key staff of the NPA, Nauru

Department of Lands: Survey, Records and Management and different stakeholders. The existing

port area and boundaries of the proposed port development were assessed to identify affected

persons and other beneficiaries of the project like neighboring communities.

198. Meetings and first contact were done with the Department of Finance Planning & Aid

Division, and the Department for Conservation, Industry and Environment (DCIE). The specialist

discussed various strategies of community and stakeholder consultations with the Social Sector

Planner, Acting Secretary of DCIE and also the ADB Country Coordinator. The specialist further

met with government officials, civil society representatives and landowners. Apart from project related documents and other background reports a study was done on the secondary data from

the Nauru Household and Population Survey (Household Income and Expenditure Survey (HIES),

2012/13) to retrieve data for the poverty, social and gender assessment. Meetings were held with

officers from the Nauru Bureau of Statistics together with the Monitoring & Evaluation) M&E

Specialist and the receipt of raw data from the Bureau was arranged for further analysis. Two

landowner meetings were held and the Specialist met with Leaders of the Community Committee

of Aiwo District and Location, an area adjacent to the planned port (Northern end), which is part

of Denigomodu District.

6.1 Safeguarding

199. Safeguarding work was carried out in respect to the visited sites and according to ADB’s Safeguard Policy Statement (SPS) from 2009. Apart from environment, the policy addresses key

safeguard areas like land acquisition and resettlement and indigenous peoples. A separate Due

Diligence Report (DDR) on Safeguards is provided in Appendix M.The project does not trigger

any safeguards on indigenous peoples, which is also stated in the Initial Poverty and Social

Assessment (IPSA) provided in Appendix N in this report. Gender as mainstream was addressed

in all key areas: community consultation, communication and disclosure, land acquisition and

resettlement, core labor standards and grievance redress mechanisms. Gender indicators reflect

outcomes of all social and environment assessments in the Monitoring Framework. A Gender

Action Plan, provided in Appendix O, was designed with performance targets and activities

according to three main project outputs on constructed port infrastructure, strengthening of NPA capability and efficient project management. A thorough assessment of gender issues in Nauru

was done and elaborated in section nine of the Poverty, Social and Gender Assessment Report

(Appendix N) According to ADB’s key policy principles affected persons were identified and main

beneficiaries consulted.

200. The situation of main beneficiaries and affected persons were screened and described in

the DDR.

6.2 Social Impacts

201. A negative impact on indigenous people is not expected since there are no indigenous

people around. The greatest risk during construction work is the risk of accidents and the impact

on public safety. This risk should be mitigated by ensuring efficient and safe operation in

accordance to international best practice and training. The construction phase will also affect the

residents in areas 132 and 203 which are adjacent to the project location. Noise and possibly dust



will affect the resident. They may also not be allowed to carry out fishing in the vicinity of the

project during construction. The contractor should provide a community liaison plan to minimize

the negative impacts. It is advisable that NPA prepares awareness about the port development.

Different media such as television and radio can be used for this purpose. NPA plans to employ

a community liaison person who will be responsible for the contact and consultation with residents

and affected people. Positive social impacts may occur in employment opportunities for local

people. The number of positions is not large, however the employment of local staff will improve

economic and employment situation at local level and will support communities.



7 Poverty, Social, Gender and Resettlement

7.1 Land Acquisition and Resettlement

202. The preliminary assessment has shown that no involuntary resettlement is needed for this

project; no residential houses or vegetation of any kind have to be removed. The port operates

on several land sections, which are leased by the Government. Adjacent land, which is needed

for the new proposed design is either customary land without lease or customary land under lease

agreement, which will expire by 2017and 2020. The requested land areas are in Lots 206, 207,

208 and 131 Land lease of 203 for the extension of an administration block as described in the

draft inception report (submitted on 01 December 2016), is not an option any more after

consideration by NPA. The administration block will be built within the designed port development

and an extension might be considered after the development of the port is finalized and in use.

203. Department of Lands, Records and Admin already provided the specialist with a list of

registered landowners. According to the CEO, the Ag. Director of Lands Managementt.

7.1.1 Land Acquisition/Resettlement

204. Lots 204, 205, and 209, leased by the Government and are valid until 2020. Although the

leases expire in 2020, NPA would like to renew all leases in this year. Lots 206 and 207 are under

lease agreement with Ronphos till 31 March 2020, and for 131 understood that there is an old

government lease in place.

205. The requested land area covers the land lots in Aiwo district 204, 205, 206, 207, 208, 209

and 131 in Denig district. These land lots are shown in Figure 7-1.

206. There is another residential area in 132 adjacent to 131 north, which is in Denig district,

but called ‘Location’. It consists of landowners and ex-workers of the phosphate mine, who rent

houses. These residents have to be included in the awareness of the project. During construction

phase, people from Location will be impacted by noise and probably dust. The contractor should

provide a plan of community liaison so as to minimize negative impacts on residents and positively

involve them in upcoming activities e.g. engagement for unskilled labor. A certain percentage of

women must be included.

207. The CEO of NPA, Anton Jimwereiy confirmed on 20 January 2017 that Ronphos holds

leases for lots 206 and 207 till 31 March 2020. NPA has leases on sections 204, 205 and 209 till

31 March 2020.

208. After the meeting with landowners from 208 on 02 December 2016, the landowners did not object the possibility to come to an agreement with the government on a lease. Their general

condition was that the government should consider recruiting family members for security

purposes, which is already practiced by Canstruct, the current lease holder. This will give their

families additional income.

209. The foreshore area is identified by the Lands Department as man- made land (5,963). A

total of 16,830 m2 should be leased by NPA.

210. A total of 16,830 m2 should be leased by NPA.



Figure 7-1: Project Footprint covering Lots 204, 205, 206, 207, 208, 209 and 131 in Denig district

207

208 209

131

206 204

205 203



Table 20 : Descriptions of Design Land Areas

Lot Advantages Disadvantages/Risks Activities Comments 208 Big area for container yards

and free movement of trucks Adjacent sections are leased by NPA (207 and 209)

Now used by Canstruct, which will finish by April 2017 Landowners ask additional payment per container from said company Landowners not easy to negotiate with NPA will not pay money/container Landowners expressed concern on environmental damages of their land in second meeting 8 Dec 2016 and asked for separate presentation Time frame of land lease process might delay project implementation Landowners ask for additional ‘benefits’ for family members (e.g. being recruited as security service for port)

Initiate meetings with representatives of landowners and NPA Meeting with stakeholders and environmental specialist recommended

Meeting with landowners only preliminary; Short introduction into the port development design and upcoming project Lease process will be followed with meetings and consultations; initiate process and continue in 2017 In a second landowner meeting from 8 Dec. 2016, landowners expressed their wish to come into negotiation with the government Environmental concerns to be addressed by consultants in meetings and presentations within PPTA; Under Nauruan land law, payment for land, which is not used for mining, is limited to one amount ( 8.50 Dollars/m2)

131 needed for turnaround point of trucks from wharf Movement of trucks with containers

Customary landowners; old government lease expired; Negotiations should start as soon as possible length of lease process might delay project; Landowners express concern on environment

Meetings with landowners will be initiated Responsible driver of process is NPA Start in 2016 if possible Process continues in 2017 Meeting with stakeholders and environmental specialist recommended the coming weeks to reduce concerns

Meeting with landowners are only preliminary; Short introduction into the port development design and upcoming project Landowners have chance to contribute with questions on project and land;

206 + 207

Main area used for container yard Leased to Ronphos

Additional negotiations with landowners for lease to NPA

Land negotiations between government/NPA and landowners to start in 2017 Meeting with stakeholders and environmental specialists recommended

According to a member from Law and Justice, a land lease agreement can be done in a few weeks under Nauruan land law (depending on possible issues being resolved)



Table 21 : List of Landowners and Leases for Nauru Port Development Project District Portion

No No of

landowners M2 Status of Lease Activity

Aiwo 204 122 2275 Old Government lease till 31 March 2020 to be updated (copy available)

NPA seeks new lease now

Aiwo 205 38 (same landowners)

2612 Old lease to be confirmed (no copy available)


Aiwo 209 1949 Old Government lease till March 2020 and needs to be updated (copy available)


Aiwo 206 111 778 Ronphos till 31 March 2020 (no copy available)


Aiwo 207 68 4040 Ronphos till 31 March 2020 (copy available)


Aiwo 208 53 3822 Canstruct until departure of Canstruct this year (mid 2017)

New lease, when old expires; Negotiation with landowners for beneficial requests (recruitment for security) in a separate Memorandum of Understanding (MoU)

Denig 131 34 1354 Old Government lease, needs to be renewed and updated


Total to be leased

426 16,830

Foreshore area (131 to 205)

5963

Backfill 4959 Total land mass

27,743

211. A second landowner and stakeholder meeting on 8 December 2016 showed some concerns

on the port development design impacting environmental damage. Landowners asked for a separate

meeting with the environmental and engineering specialists, where these concerns could be

addressed. The Social and Gender Specialist brought this to the attention of the PPTA team to follow

up. In general landowners and residents were interested and positive towards the proposed project,

but had issues with the government procedures and attitudes, which they describe as political.

Different topics were drawn in. Main issues (many of which are for separate Government

consideration) were:

Environmental damage, erosion, oil spill by vessels; how can this be minimized by the project

and the government later? How can the project/government guarantee that their land will not

be spoiled by truck traffic?

What assessments have been done e.g. climate change and wave movement?

Will neighboring residents be affected?

How can the government guarantee reduction of consumer prices once cargo arrives more frequently into Nauru?



Border control established for international ships and how does it affect the spread of

transmittable diseases (Human Immunodeficiency Virus/ Acquired Immune Deficiency

Syndrome (HIV/AIDS), Sexually Transmitted Diseases (STDs))?

Landowners be represented as a member in the Board of NPA.

212. Residents from Location settlement were concerned that their children will not have the

chance any more to go swimming once the port is developed. These concerns were addressed by

explaining that there are other places for swimming and fishing further north of the affected houses

and in walking distance. There are also two houses, which are directly at the border to the proposed

port limit. Now, it is not planned to resettle any houses as the design of the port extension does not

propose this. NPA will fence the area for safety purposes and to avoid accidents involving residents.

Any further changes of port borders to the northern part must consider adjacent houses of Location

settlement. A resettlement assessment before construction will be required if the design of the project

is changed.

213. All concerns above could be addressed by the CEO, who will inform the government about

main issues raised in that meeting.

7.1.2 Next steps

Continue consultations with other beneficiaries for awareness on the project, especially

residents from 203 and Location. Awareness will be required prior to construction. This can

be conducted by NPA as part of stakeholder consultation. Residents can be informed through

information sheets, brochures or in public meetings.

A question catalogue was prepared as output from the second landowner meeting; specialists

from the respective areas have provided their answers and comments. This paper can be used by NPA for stakeholder consultations.

A presentation to landowners and other stakeholders on environmental issues by specialists

is highly recommended during the PPTA phase

Government should start to initiate land lease processes.

7.2 Social and Poverty Assessment

214. The project benefits in general the whole population of Nauru through a developed wharf,

safe offloading and on loading of cargo containers and reduction of time and payments. Additionally,

working conditions for port workers will be much safer and accidents will decrease by trained work

force on safe handling of equipment and the establishment of an occupational health and safety system by NPA. International cargo vessels will return more frequently to Nauru. The anticipated

reduction of consumer prices will benefit all households, although this will occur at the end of the

project and/or beyond. Education and health services will receive regular essential equipment,

materials, and goods. The Social Safeguard Specialist screened through secondary data, which was

retrieved from the latest household and population census (HIES) 2012/2013 and other reports

published by United Nations Development Programme (UNDP) and the government of Nauru (2016).

That latest census provides a very detailed analysis of income and expenditure, demographic, health

and education data per district. To summarise, the HIES has revealed that the majority of consumer

expenditure is associated with food and non-alcoholic beverages (43.4%). Transport is the next most

significant group (14.5%), with eight other groups registering contributions of between 3.6–7.8 per

cent. Only the groups of health and education recorded extremely low contributions (both at 0.1%)

due to the government’s significant assistance in these areas. Government and state-owned



enterprises dominate employment in Nauru, particularly the Nauru Phosphate Company (RonPhos).

Per 2010 estimates by the Bureau of Statistics, 42% of all people in cash employment worked for

the government, 40% for state-owned enterprises, and the remaining 18% for other sectors,

including the private sector. Government is encouraging private sector development, particularly for

small businesses. Regarding the education data the highest level of education completed, 72.5% of

males and 69.1% of females 15 years and older did not have any educational qualification, and only

20.7% and 24.7% of males and females respectively had a secondary leavers certificate (see in detail Poverty, Social and Gender Assessment par. 2.2.; 2.3). This has a big impact of finding skilled

and qualified staff for various positions during and after the implementation period of the project.

215. Capacity building is recommended for workers in the port area on transmittable diseases like

STDs and HIV/AIDS and basic gender issues; and to workers of the contractor doing construction

work (provided under construction supervision consultant contract).

216. The Summary of Poverty Reduction and Social Strategy (SPRSS) is included in the Poverty,

Social and Gender Assessment provided in Appendix N.

7.3 Poverty

217. Poverty in Nauru is measured following a Food Poverty Line (FPL) and a Basic Needs

Poverty Line (BNPL).

218. The BNPL is the estimate of the costs for non-food essential basic needs to achieve

acceptable standard of living.11 Non - food essential basic needs include clothing, shelter, education,

transport, communication, water, sanitation and health services. The HIES demonstrated that while

the incidence of food poverty is zero, about 24 % of the population (16.8% of households) are below

the basic needs poverty line. According to the report 7.9% of Nauru’s population or 6.2% of households is extremely vulnerable. Nauru has the worst poverty index out of all Pacific nations.

219. The proposed port development will reduce the time to unload or load cargo from weeks to

days and greatly improve the safety of personnel and goods by trained personnel and use of proper

handling facilities and storage in safe container yards. By reducing time for unloading cargo and

improving turnaround time, more essential goods will arrive in the country contributing to health, educational and social conditions for the population. More fresh produce will contribute to a healthier

diet, which is a major problem in the country. It is anticipated that more goods arriving the country

will lead to a reduction of consumer prices, which will contribute to poverty reduction in the country.

220. During construction, more jobs will be created and contractors will be held responsible to

recruit men and women from Nauru for unskilled labor.

7.4 Consultation, Participation, and Disclosure – Communication and Consultation Plan

221. Consultation meetings with landowners of leased and proposed leased portions for the port

and adjacent communities were implemented on two different occasions. The response was positive

and residents could express their views and concerns. See Appendix S. However, these were only

two meetings with landowners and more awareness should be done. The specialist met with

community leaders from Aiwo and Location settlement and it was recommended for further meetings

with affected people from peripheral areas around Aiwo port, mainly with residents from lot 132

(Southern part of Location) and 203, a small peripheral area around the port

222. Noise, dust, and truck traffic during excavation work will have impact on vulnerable groups

like children (section 132 specifically). These issues were addressed during meetings with

landowners but also community leaders from Aiwo district and Location. It is advisable that NPA

11 Government of Nauru Statistics Office and UNDP Pacific Centre (2014). Nauru Hardship Report. Fiji.



prepares awareness about the planned port development although it is still in its preliminary phase

and the CEO of NPA has mentioned that implementation will not start before 2018.

223. NPA as the Project Management Unit will prepare a Communication Plan for the project

together with specialists from the PIU. The Communication Plan will be based on methods used in

similar projects and follow custom and tradition for communication requirements. Once the process

for dialogue with stakeholders at different levels has been established, consultations will be

undertaken to share information about the project, receive information from communities and beneficiaries, and discuss potential impacts and mitigation measures. Internally, NPA will ensure

that communication of information about environmental and social management will be regularly

delivered to personnel to ensure that they are sufficiently informed and are able to fulfil their

responsibility in a manner compliant with the environmental, health and safety (EHS) regulations.

Appropriate information and training will be provided to personnel depending on the level of their

involvement in EHS activities and their respective responsibilities. All port personnel will be informed

of the EHS policies, regulations, procedures and programs pertinent to their job. Trainings will be

organized and periodic information may be developed to communicate information on progress

made by the civil works contractor in environmental and social management.

224. Externally, stakeholders will be engaged to ensure that they are adequately informed about

the contractor’s and NPA’s environmental and social performance. In addition, NPA will also prepare

quarterly and annual environmental and social performance reports. NPA will also periodically

prepare information bulletins to inform stakeholders and the public on environmental and social

aspects. The extent of information to be communicated to specific external stakeholder groups (e.g.

governmental bodies, monitoring agencies, etc.) and the communication methods will be defined by

the management depending on the separate requirements of each stakeholder. The decision body

about awareness and consultation will be the NPA Board of Managers and another level higher, the

Project Steering Committee.

225. Primary and secondary stakeholders will be members of the Committee. Customary Landowners expressed their wish to be represented in the NPA Board of Governors.

226. NPA will consider whether to engage a community liaison person during construction phase.

227. The contractor for implementation of construction the port development should present a

community liaison plan in their bidding document to address issues about noise, dust, employment

of unskilled labor, gender inclusiveness and training of workers in HIV/AIDS.

7.5 Grievance Redress Mechanisms (GRM)

228. Discussions with NPA staff revealed that the greatest risks to port development are potential

disputes over customary landownership and environmental damage. The grievance mechanism

therefore should be able to effectively resolve these types of disputes. All other grievances related

to construction work and core labour standards, when Nauruan nationals are involved, have to be

dealt with by the contractor and the CEO’s office of NPA. 229. The NPA/PMU will establish a grievance redress mechanism to receive and address, in

coordination with government authorities, project related concerns and to resolve land related and

environmental disputes that may arise during project implementation. The PMU will inform affected

persons about how they have access to the grievance redress mechanism. Other than disputes

relating to land ownership rights and environmental issues, it is anticipated that all grievances related

to benefits and other assistance will be resolved at the PMU level.

230. NPA will employ a Liaison/Public Relation Officer, who is responsible to deal with

stakeholders’ issues and complaints and has to refer to authorities if issues cannot be solved. The

position for this officer will be budgeted for 2017/18. Depending on the nature of the complaint the

officer will resolve it by consultation or pass it on to the CEO’s office. All related land issues or



grievances will be dealt through the CEO’s office of NPA and/or through the government and other legal systems. All environmental issues will be directed to the Ministry of Environment if issues

cannot be resolved.

231. The CEO should respond to the complainant within 14 days, if the matter cannot be solved,

then it will go up to the Board of Management, the last step then is the Cabinet (or Court).

7.6 Gender Assessment

232. Although the IPSA indicated no specific gender issues related to this project, a detailed

country gender assessment and a Gender Action Plan (GAP) for this project were prepared on

request by ADB. The GAP is in line with the outputs of the project as described in the Design

Monitoring Framework.

233. The gender assessment has shown that Nauru undergoes various changes in gender roles.

Traditionally, the country follows a matrilineal system, where women have major power and all born

children belong to a mother group or clan. Land inheritance rights are passed on by women without

seeking larger consent by the clan. Cash economy and the mining sector have impacted gender

relations and balances as more men are working in the mining sector and are represented in public life. Life at the house is centred around the mother, but men are the driving force in decision making.

234. While Nauru is likely to meet the indicator for gender parity in education, may meet the target

of the economic empowerment of women, it is still lacking gender equality in high-level decision-

making. In 2013 the second ever woman was elected to a 19 members Parliament.

235. Most women work in clerical and professional occupations and men in occupations related

to crafts, trades, plant and machine operation. There is nearly a non - existence of subsistence

economy in Nauru, whereas in most Pacific countries women work in the garden, do fishing and

market their products informally. Around 7.5% of female-headed households in Nauru were

categorized as being extremely vulnerable (within 20% above BNPL), accounting for nearly 42% of

households in this vulnerability group. Female headed households, therefore, are more vulnerable

than male-headed households.

236. Like in other Pacific Island countries, it is difficult to reliably estimate the level of domestic

violence in Nauru due to the high level of underreporting and sensitivity around the issue. According

to the Women’s Affairs Department, the country’s small population size and the lack of privacy in the communities seem to have created peer pressure and stigma against reporting. The Nauru Family

Health and Support Study implemented by Nauru Department of Home Affairs and DFAT and United

Nations Population Fund (UNFPA) from 2014 analyzed that violence against women especially in

the domestic space is a matter of concern.

237. In 2011, Nauru has acceded to the United Nations Convention on the Elimination of All Forms

of Discrimination Against Women (CEDAW). Since then its government made reviews of domestic

legislation to identify its compliance with CEDAW. The Criminal Code is under review and through

the National Sustainable Development Strategy (NSDS) 2005-2025 it is planned to implement

CEDAW related programmes. NSDS includes the development goal of a just society that recognises

and respects the rights of women and promotes equal opportunities with related milestones. The National Plan of Action for Women (1994) was revised in 2004 and a National Women’s Policy developed in 2014.

238. Women are generally expected to benefit from potential lower consumer prices and reliable

supplies of essential goods such as medicine and fresh produce due to improved trade from efficient

port operations.

239. The Gender Action Plan (GAP) has outlined specific activities and targets to ensure women’s benefits to the project. Key activities to provide economic gains to women include proposed



recruitment for skilled and unskilled labour by the work contractors, recruitment for Project

Management Unit staff and recruitment for Supervision Consultant. The proposed capacity building

training and preference to women candidates by the National Port Authority are expected to improve

women’s chances of getting promotion within NPA and engagement of potential women external candidates. Emphasis on equal pay and equal work opportunities and safety on the job will ensure

an appropriate job environment in the port. Furthermore, provision for sanitation facilities for both

men and women will cater to the specific gender needs. Training programs on HIV/AIDS and sexually transmitted diseases will address the low level of awareness among both men and women regarding

these issues which have great impact on them. Women will continue to be involved in consultations

and activities requiring stakeholder participation.


The Poverty, Social and Gender Assessment (in Appendix N) and other required documents

provide information about the socio - economic situation of beneficiaries and affected persons.

There are no major social issues, which would require full attention in the implementation

phase of the project. Consultation of stakeholders and disclosure strategies, grievance

redress mechanisms are described to include affected people in a participatory way during

the planning and implementation of civil works. NPA and the executing agency will play a

major part to monitor safeguarding of landowners’ issues, the contractor’s compliance with requirements on HIV/AIDS awareness and other social issues and gender mainstreaming in

all project activities. Monitoring safeguard reports should be prepared in the time frame, which

is requested by ADB for this project. Monitoring on the indicators of the GAP is part of the

project’s quarterly reports and done by the implementing agency.



8 Financial Management Assessment

240. This assessment involved an evaluation of the financial management systems of NPA, the

Implementing Agency, and Ministry of Finance (MoF), the Executing Agency. Financial risks,

mitigation actions, project cost estimates and financing plan, funds flow, as well as due diligence on

the financial management system of Nauru were all assessed. Data was collected for the preparation

of the financial analyses, including detailed revenue and operating costs, macroeconomic data,

tariffs, and other information. Costing of the project entailed alignment with technical studies

including contingency provisions.

241. The assessment was conducted using the financial management assessment questionnaire

(FMAQ) for both NPA and MoF. The preparation of Financial Management and Internal Control Risk

Assessment (FMICRA) involved analyses of previous assessments conducted by ADB and other

agencies, focusing on areas of the IA’s capacity for planning and budgeting (Capital Expenditure (Capex) and Operating Expenditure (Opex)), management and financial accounting (including cash

flow, debtor control, balance sheet and profit and loss), reporting, auditing, internal controls, and

information systems.

242. A risk assessment for both NPA and MoF was conducted. The analyses are summarized in

Table 22 and Table 23.

Table 22 Risk Assessment and Management Plan

Risk Description Risk and Impact Likelihood Mitigation Measures or Risk Management Plan

Inherent Risk Country Specific-

Since the submission of government financial statements for FY1995/1996, GoN has not been able to submit any other financial accounts to Audit. In 2014, the FY2013/14 annual accounts were submitted and it is now with Audit. Treasury is now working on completing the FY2014/15 and 15/16 accounts for submission and this is a major improvement from the last PEFA assessment. (From 2016 PEFA Self-Assessment).

Financial reports include approved budget estimates, cash flow budget, commitments, transfers and running balances. The weekly reports are timely,

High Likely The Nauru Public Accounts Committee will conduct further review to verify the audit findings and recommendations. Audit office is currently auditing the account and the coverage and standards utilized in this audit will be provided once the report is being submitted to Parliament.

Development partners are in dialogue with the government. Grants have been provided by the Australian Government to improve the FMIS. There has been a gradual rollout of the various modules (AP, AR, Bank Rec, Asset Management, Payroll and HR) of the Financial




comprehensive, accurate and useful for key decision makers at line agencies.

management information system (FMIS).

EA is a central level Government institution. It has experience in ADB-funded project and has adequate and experienced staff in financial management of ADB-funded projects.

MOF accounting policies and procedures is based on generally accepted accounting principles and standards, but not on internationally accepted accounting standards. FMIS and procurement manuals are available to all staff. MOF uses an automated FMIS system; however, current and capital budgets are not reported separately.

Entity Specific- The roles of the

Entity as a whole, the Project Management Unit for the ADB-assisted project, and the design and supervision consultants are not clearly delineated.

Entity financial management needs to reflect port-specific financial accounting

High FMIS will be installed during first year project implementation to be funded by GoN and/or development partners. The FMIS for NPA will be aligned to ongoing FMIS development at country specific level. A port-specific software is proposed to be provided currently available for the Pacific region. Alternatively, a consultant will be provided to prepare an accounting manual, and disseminate this to relevant staff including handholding in the initial implementation. Strict policy to be in place to ensure proper recording, reporting and analysis of financial transactions for management review.

IA has no FMIS in place, suited to port operations. NPA currently relies on the FMIS of MOF as well as a software purchased by the Finance Manager for its financial reporting. No proper and adequate financial recording and reporting is in place, needed for effective




decision making (e.g. no details on revenue sources, capital expenditures are lumped with recurrent expenditures/budgets).

Overall Inherent Risk Substantial Project Risk 1. Implementing

Entity

High Likely systems is rudimentary; a new FMIS is proposed to be funded by GoN as well as development partners; this will be undertaken prior to grant effectiveness; the FMIS will be based on generally accepted accounting principles (GAAP) and standards.

2. Funds Flow flows

are highly centralized at MOF for revenue and expenditure transactions

Low

Likely

the IA, aligned to existing GoN FMIS

3. Staffing

manager is not a qualified accountant; there are no additional finance and accounting staff to undertake proper financial accounting in NPA

High

Likely

finance manager to be hired prior to grant effectiveness, including national accounting staff to undertake the internal audit and other accounting functions

4. Accounting policies and procedures

Due to weak control over fixed assets, there is risk of loss of project assets, leading to risks for project completion and operation

Agency (IA) does not maintain original supporting documents, and does not have a document retention policy.

High

Likely

project assets will be introduced as a condition for grant award.

verification plan will be developed prior to grant award, with provision for periodic counts including reconciliations.

in fixed asset management (including reporting and monitoring)

continue to strengthen awareness of the importance of asset management and internal control over fixed assets across the IA

5. Internal Audit High

Likely




No internal audit exists in the IA

be developed under the new FMIS to be developed during first project year implementation; this will be conducted by the accounting staff proposed to be hired as auditor.

6. External Audit High

Moderate

Likely

Likely

pursue external audit for all state-owned enterprises (SOEs); however, central government audits are a priority

will be audited by an independent external auditor on a semi-annual basis. The audit will be done in accordance with the Nauru government’s accounting and auditing system and will comply with the requirements of ADB. Audited project financial system (APFS) and entity-level audited financial statements (AFS) will be prepared by the IA

7. Reporting and Monitoring

Financial reporting weakness – risks of not accurately providing information on port transactions Internal control weakness – standard procedures are not in place

High

Likely

FMIS to be developed during grant implementation (see proposed FMIS in item 8 below)

standard operating procedure will be introduced whereby the reconciliation of project funds is to be performed by someone other than the person maintaining the financial records.

8. Information Systems No adequate information systems is regularly prepared and reported

High Likely nformation plan to

prepared and implemented prior to grant effectiveness

e IA proposes to use accounting system software for financial reporting for the Project. There is an ongoing Pacific Maritime Transport Alliance project whereby accounting software for port operations in the




Pacific has been implemented by several, with others also looking at the system and shared platform and development. It is proposed that Nauru becomes part of this program.

9. Overall Project Risk

High Likely

Overall (Combined) Risk

Substantial

243. Based on the risk analysis, mitigation measures have been proposed as follows:

Table 23 Time-bound Action Plans

Mitigation Actions Responsibility Timeframe

computerized financial accounting system in the IA

and procedures manual developed in order to guide staff activities and ensure staff accountability

EA, IA, development partners, provider of FMIS effectiveness

Introduce inventory accounting, control over issue and utilization, physical verification and reconciliation. 2 additional staff to be recruited and trained.

Implementing agency month of grant effectiveness. First and second year – with 100% help of project implementation consultants. Third year onwards by staff.

procedure for recording and safe custody of original supporting documents including safe storage, and retention period, access control, etc.

persuade the management to adopt a similar policy for the enterprise.

IA and ADB implemented at project level as a condition for year 2 disbursement.

continued until satisfactory resolution is achieved.

maintained for all project outputs financed by ADB in Ministry of Finance financial system, and to be audited by an independent auditor or Government Auditor as agreed between ADB and GoN

structure will be prepared; specific terms of reference will be developed for PMU staff and the design and supervision consultants

EA, IA and ADB the PMU, EA and IA implementation structure will be drawn, including detailed terms of reference



Mitigation Actions Responsibility Timeframe

EA/IA and the ADB to ensure that ADB guidelines are followed

segregated and rotated, where feasible

coordination at all levels to be put in place to discuss the portfolio performance of the grant

accounting systems and appropriate security measures over backup data to be put in place

ter every 2 years

(annually)

Appointment of qualified expatriate staff, with accounting background and experience in port operations; recruitment of two additional local accounting staff (one accountant and one cashier)

IA and ADB implementation, qualified staff will be in place in the IA

will be undertaken in Year 3 of project implementation

accounts and underlying working papers prepared on a timely basis in preparation for the annual financial statement audit

-annual and annual entity level financial statements prepared on timely basis in preparation for the annual financial audit

EA and IA EA, IA and ADB

submitted to ADB within 6 months after the end of the year

-annual, and annual progress reports on project implementation and operation prepared

covenants monitored


244. The FMA concluded that the overall financial management inherent risk is “high” and the project risk rating is deemed ‘high”. Hence, the assessment concluded the combined financial

management risk for the project as ‘substantial’, despite the EA’s current use of FMIS and effective

budgetary control systems as well as experience in managing and implementing projects financed

by ADB and other international funding institutions. The risk for the IA was deemed ‘High’ due to lack of adequate financial management systems (financial recording, reporting, auditing), as well as the

lack of experience in managing and implementing foreign-funded projects. The overall financial

management risk was concluded to be ‘substantial’. Nevertheless, the project is deemed worthwhile

and feasible, since Nauru has no efficient port in place.

245. The recommended mitigation measures that are under way or proposed include: (i) technical

assistance (TA) should be provided for the institutional strengthening of NPA, including the

development and implementation of a financial management information system (FMIS) for port

operations/management, an asset management and maintenance plan, and support to improve

NPA’s accounting systems; (ii) TA to undertake a tariff study and reform for the ports; (iii) the

inclusion in the construction supervision (CS) team of a financial management specialist to provide

project accounting and financial reporting support; and (iv) training in ADB procedures will be

required in procurement, disbursement, and project management.

246. The Financial Management Assessment is provided in Appendix P.



9 Procurement

247. An assessment of procurement capacity included;

a) assessment of procurement capabilities of the Ministry of Finance (MoF) and NPA,

b) assessment of project procurement risk, a market survey to identify potential bidders for the

civil works and their capacities, and development of the procurement strategy to attract

competent bidders,

c) search for an e-procurement service provider suitable for Nauru and ADB for a possible use

for bidding of the civil works and other contracts under the project,

d) recommendation on packaging of works, goods and services, procurement procedures, and

advertisement methods with justifications,

e) preparation of a procurement plan, master bidding documents and provision of training to

the government staff on procurement

9.1 Procurement Responsibility in Nauru

248. Since 2014, the Government has been using an International Procurement Agent (IPA) to

undertake all government departmental procurement. The original Procurement Agent (JV of

Charles Kendall and Project Procure) was terminated in June 2015 due to poor performance. The

GoN, in order not to impact on Government supply, entered into a direct arrangement with Pacifix,

based in Brisbane, to act as the interim IPA and also as GoN’s financial intermediary in Australia. This company was set up by a former employee of Charles Kendall. This engagement is not a

formalized arrangement and no contract has been signed between the parties; only a verbal

agreement is in place.

249. In order to support this IPA, the Government established a small Central Procurement Unit

(CPU) which operates under, and reports through the Ministry of Finance and Sustainable

Development. The CPU is responsible to oversee all Government Procurement in Nauru, and

forward procurement orders onto Pacifix to fulfil. All Government Ministries and Government

Departments and Authorities have to submit a Procurement Proposal to the CPU for approval. If the

procurement proposed is of a “minor nature” (<$ 3,000), the CPU will approve the Ministry / Department to proceed, if they have procurement capability, otherwise the CPU will undertake the

necessary process. Any procurement exceeding “minor value” ($ 3,000) will be initiated by the IPA,

with support from the CPU. It should be noted that the Ministry of Transport does not have its own

procurement capability and relies on the CPU to manage any procurement on its behalf. CPU

prepares and registers all necessary Procurement Vouchers (PV’s) and forwards them to Pacifix

who then source quotes, and select the preferred suppliers. For PV’s greater than $10,000, the IPA is supposed to prepare bidding documents and call competitive tenders, but information given

suggests that this is not happening and that Pacifix is not following the correct process, perhaps

because they do not have the skills, understanding of international procurement and capacity to do

so.

250. It has also been noted that RonPhos has in the past assisted the GoN in procurement, most recently assisting the Nauru Ports Authority for procurement, under Japanese aid funding, of mooring

systems and new workboats for un-loading ships.

251. Procurement for Donor funded Projects are not handled through the GoN IPA. They have

been in the past, handled directly by the Donor appointed Consultants, using the relevant Donor

Procurement Guidelines. In general, therefore the team within the CPU gain little opportunity to

participate in any significant procurement activities. They are mainly used as clerical support to



prepare and register PV’s, check available budgets and receive and process quotations/purchase recommendations for the IPA. It can be concluded that GON “Lack the procedures for planning and capital expenditure (CAPEX) procurement planning”. They also do not have the experience or

perhaps it is the commitment to monitor what Pacifix is doing, and evaluate what benefits if any are

being delivered through outsourcing procurement. It should be noted that the procurement that has

recently been undertaken by the past IPA’s is of a minor nature and does not involve bidding of major

project Implementation or consultancy services.

252. At the moment, unlike in some of the other Pacific Islands in the Region, ADB is not providing

Technical Assistance to support the strengthening of the CPU. This is leaving any relevant technical

assistance in procurement to Department of Foreign Affairs and Trade, Australia (DFAT). An

opportunity to provide some assistance may be considered during the procurement activities for this

Project.

253. At the moment, the CPU has only 4 officers assigned through Treasury, but only 2 of the

officers are allocated full time to procurement activities. Neither of the officers have relevant

procurement qualifications, nor significant relevant experience beyond completing the current

administration tasks that are assigned, which support the Government Agencies and act as a post

box for the current IPA. The main constraints in doing the project procurement through the CPU is

the lack of experience in procurement of civil works for such a large project as this, and the lack of

resources available within the CPU, and also within the key Nauru Government Departments

responsible for Infrastructure. To overcome these deficiencies, International Donors, both bilateral

and multilateral, such as DFAT and World Bank undertake major Infrastructure Procurement in

accordance to their own procurement Guidelines using their own appointed Consultants to tender

for any goods and services required for their Programs.

254. DFAT has committed funds to assist with the development of appropriate Procurement

Guidelines and to conduct bidding for the appointment of a new full time GoN International

Procurement Agent with staff based in Nauru. If this progresses, hopefully some capacity building directed to the CPU will form part of the assigned tasks. The new Procurement Agent’s role will cover all GoN Procurement needs, but not directly major donor funded project needs, unless specifically

requested. The previously appointed IPA’s have never played a role in the procurement of construction services for major infrastructure Projects, and this is not expected to change in the

immediate future. As indicated above the consultants appointed by Donor Agencies have undertaken

responsibility for such procurement.

255. One aspect studied in detail by the Procurement Specialist has been Technical Evaluation of

bids, and the capability (in regard to technical matters) to adequately evaluate technical bids relating

to major civil works infrastructure projects. Staff from the CPU do not have engineering/technical

skills, and there are also no staff within the NPA with the required experience. The NPA cadre consist

of port operational people, not engineers and construction experts, and hence will generally not be

suitable to undertake technical bid evaluation of projects like the port development being considered.

It will be necessary to find suitable people to induct into a Technical Evaluation Committee (3–4

people).

9.2 Procurement Risk Assessment

256. The assessment of risks associated with the overall project procurement activities relating to

the Nauru Port Development has involved assessment of processes, Government staff, past

practices etc. In the bidding process, the key function is ensuring that appointed key contractors,

both required to support the data gathering for design, and for construction, have the capacity and

knowledge to effectively undertake the work, have appropriate logistic skills to understand

mobilization constraints, can appropriately provide, or have sufficient capital to acquire, plant to undertake the work and also can deliver a capable and experienced management team. Any team



involved in the bidding process must have relevant skills to correctly evaluate these skills as

presented in bid documents.

257. A detailed Project Risk Assessment was conducted, following the existing ADB Guideline for

Project Risk assessment and is summarized as follows.

9.2.1 Project Procurement Risk Assessment Process

258. ADB’s Project Administration Instructions require an assessment of the capacity of the

executing agency (EA) and the implementing agency (IA), if any, to procure the goods, works and

consulting services as part of the project preparation process. The purpose of the project procurement risk assessment (PRA) was to determine the overall procurement risk, and establish

appropriate review and supervision processes (including thresholds) and other measures to mitigate

these risks.

259. The project procurement risk follows on from the country and sector / agency procurement

risk assessments, but in this case these had not been carried out. The Risk assessment is also

affected by the characteristics of the proposed project. For example, although large, a project with a

single contract may have less risk than a smaller project with multiple implementing agencies,

multiple geographic locations and a large number of low value contracting packages. The framework

guiding procurement risk assessment at the country, sector and project level is based on the

cascading approach adopted under ADB’s Governance framework.

260. Risk assessment is a subjective exercise. It requires knowledge of good procurement

practices, but also country context and sector specific conditions. The purpose of the risk

assessment is to identify situations or events which could hamper the effective implementation of

the ADB financed project.

9.2.2 Planning the assessment

261. As stated above, no recent Country Assessment had been carried out, and therefore no

background to assist with better understanding the systemic issues that could impact project

performance.

262. The project procurement risk assessment involved, but was not limited to: (i) the review of

GON procurement process, and sector/agency procurement experience and capacity to support; (ii) an assessment of past project procurement arrangements and EA capacity; (iii) a narrative

assessment of procurement systems including strengths and potential weaknesses; (iv) risk

assessment and preparation of a risk management plan; and (iv) initial draft of the project’s procurement plans.

263. There are no creditable GoN Procurement Guidelines and accordingly DFAT has engaged

an International Procurement Specialist to develop appropriate guidelines which will then be used to

seek submissions from relavant companies to be engaged as the Government’s Procurement Agent.

The current incumbent Pacifix has only been appointed as an Interim Procurement Agent (IPA).

264. Due to a lack of resources, no direct past involvement in major procurement events and the

compulsory outsourcing of procurement (albeit of a minor nature), the Procurement Risk for the

Nauru Port Development has been rated as high.

265. The primary source of information was interviews conducted with Government staff,

development partners and other stakeholders using the ADB Procurement Risk Assessment

Questionnaire. Direct discussions with DFAT’s Procurement Specialist also provided valuable insight to current Government procurement activities.



266. The results were analyzed and form the basis for completing the proposed project

procurement arrangements. The full Project Procurement Risk Assessment Report was prepared as

a standalone Project Procurement Risk Assessment and Management Plan (P-RAMP) which is

provided in Appendix Q.

9.3 Procurement strategy

9.3.1 Identify potential bidders for civil works

267. The consultant carried out an initial market survey to identify potential bidders for the civil

works. This drew upon a similar task recently carried out for Tuvalu Outer Island Maritime Infrastructure Project (OIMIP). It included construction companies with maritime experience either

based in the region, or who have recent work experience in the Pacific Islands region. Whilst this

project is considerably larger than the OIMIP in Tuvalu, it was reasonable to assume that the same

companies with be interested in bidding for the Nauru Port Development Project. At this stage, only

email and telephone communications have taken place, but the response has been favorable and

greater interest in Nauru is being shown, simply because of the size and likely value of the Project.

268. Information to hand suggests the number of International Contractors with recent experience

in Nauru is limited. CANSTRUCT (from Brisbane) has been involved with building projects such as

regional processing centers, hospital refurbishment, schools, community centers, etc. and Barclay

Engineering from Perth has refurbished the power station and provided heavy foundations for new

generators. Graig Construction are currently contracted to DFAT for construction of an Education

facility.

269. Table 24 provides details of Contractors identified as having some interest and relevant

experience and capacity to bid for the proposed Contract.

Table 24: Details of Potential International Bidders

Company Name Base Location Relevant Experience in the Sector

Relevant Experience in Nauru

CANSTRUCT Queensland, AU Building Construction Current presence in Nauru, mainly building projects. Completing work in March/April 2017, and will demobilize.

Barclay Engineering Perth Concrete and steel structures, civil works

Concrete and steel works

Hall Contracting Queensland, AU Dredging, breakwaters, marine construction

Recent work in Tuvalu

McConnell Dowell Constructors

Auckland, NZ Marine structures, civil works Worked throughout the Pacific

Hawkins Infrastructure New Zealand Civil and Marine PNG, Vanuatu

Cruz Holdings Fiji/Solomon Islands Barges/Support ships, Channel Excavation

Funafuti Beach Replenishment

Pacific Marine and Civil Solutions

Fiji Civil and Marine, Barges, Tugs Supported Channel Excavation in Tuvalu under NZ Aid Program, Jetties and dredging in Cook Islands, Wharfs and Coastal Bridges Fiji

Downer (New Zealand) Ltd

New Zealand Civil & Marine Works, piling, Bids for PNG and Vanuatu, work in Samoa, Fiji

Waterworks Group (now incorporates Smithbridge)

Australia Maritime and Bridge Construction

Australia (Smithbridge has offices in Guam, PNG, New Caledonia and NZ)



China Harbour Engineering Company Ltd

PNG Civil & Marine Works, piling, dredging

Completed Lae Tidal Basin in PNG and have continued Bidding in PNG and Vanuatu (maybe a problem with Tiawan Diplomatic recognition in Nauru (Bid Prices High)

China Civil Engineering Construction Corporation/CRRC Harbour and Channel Engineering Bureau JV

PNG Civil & Marine Works, piling, dredging

Has recently bid for some port works in the region.

Golding Australia Civil, Maritime and Mining Construction.

Bid work in JV in Vanuatu (ADB) and PNG

Graig Construction New Zealand Civil Building works Building works for DFAT in Nauru

Waterway Constructions

Brisbane Marine Civil Const.

Maritime Constructions Brady Marine & Civil Pty Ltd

Western Australia

Brisbane

Marine Civil Const.

Marine Civil Const

York Civil

Brisbane, Australia Marine Civil Const

Toa Construction Japan Port Marine works JICA Port Project Vanuatu

Takehiko Hirose

Japan Building Construction

270. Dialogue will be maintained with these contractors to ascertain their continued interest.

271. The local construction industry is very limited, and it is expected that any role local companies

could play would be limited (through provision of plant, skilled tradepersons, and local labor).

9.3.2 Local Capacity Development

272. Despite the above findings, there may be some strengths and abilities in Nauru that can be

built upon. The Consultant will make all reasonable effort to create awareness of available job

opportunities. International Contractors will be encouraged to recruit local ‘contractors’ and skilled labor and advertise ‘Notice for New Positions’ through the use of flyers placed at strategic positions around the Island.

273. Contractors will be encouraged to commit to local capacity development and use every

opportunity to develop the workforce of Nauru in construction skills that will provide a valuable

community resource. For the core team of construction workers, training needs to be undertaken via

daily mentoring by site supervisors and trade professionals.

9.3.3 E-Procurement

274. E-procurement was studied as a possible method for facilitating bidding. However, Neither

the GON (Department of Finance), nor its IPA, has any experience with e-Procurement. It was

suggested that e-procurement would be restricted by the unreliability of the Nauru Government

Internet services, but experience of the Consultant suggested that these Services were reasonably

reliable, so would not be an impediment for the small scale of procurement the GON/IPA are

undertaking.

275. Investigation of e-Procurement revealed that the Nauru Utilities Corporation (NUC) were using e-Procurement based on a Portal supplied and maintained by Tenderlink, out of New Zealand.



NUC is using this to procure services to Construct a New Power Distribution Control Building, and a

brief review of the documentation prepared putting this out to bidding via the e-Procurement Portal

was well prepared. This procurement however, under the GON arrangements, was required to be

carried out by IPA, but it is really NUC that is facilitating this Tender by guiding the IPA, who have

no experience with e-Procurement, through the process.

276. Given our review of the NUC e-Procurement Portal and procurement that NUC has

undertaken, the Procurement Specialist is reasonably confident that the system could be developed into a useful procurement tool for the smaller scale procurement of the standard government goods

procurement, but this current use is in its infancy, and results of the current procurement for NUC

Project are yet to be delivered. To progress this to a level that it can be used for the procurement of

a major infrastructure project such as the Nauru Port Redevelopment would require the new IPA that

is to be engaged under DFAT assistance to have substantial e-Procurement experience and allocate

the resources to adequately train national staff assigned to an expanded CPU. This could be

sometime in the future, so to risk using e-Procurement for such a high value and critical project like

the Ports Redevelopment as a potential training exercise, is not recommended. The potential risks

of doing so, do not provide sufficient measureable benefits over using conventional ADB

Procurement processes.

277. Whilst the Consultant recommends that the use of e-Procurement by the Government should

be further investigated, particularly after the appointment of a new IPA (experience in e-Procurement

should be a prerequisite to appointment), a conventional issue and subsequent receipt of hard copy

Bid Documents and evaluation should be followed for this Project.

278. As discussed above, the CPU and the NPA do not have the resources or experience to

undertake this experience, and based on past experience neither have the previous IPA’s engaged by the Government. It is also not possible to predict whether a future IPA appointed to assist the

Government in Procurement will have such experience. Therefore it is further recommended that the

process that has previously been used for procurement of donor funded projects, that of having the

appointed Consultants manage the procurement process under the donor’s own procurement

guidelines, be adopted. They are the team that understand fully all elements of the Project, and are

well versed in the required procurement needs and process.

279. This would be carried out in-country, so that the status is fully known at any one time, and

training of relevant government staff from the CPU and NPA, to allow them to participate in the

procurement would be an important part of the process. A team drawn from the NPA and other

relevant technical Government Departments, and from MOF (Treasury’s CPU) would be formed to

participate as the Tender Evaluation Team under the guidance and direction of the International Procurement Specialist. This is important as it is the government that has to own the procurement

recommendations and sign the Contract with the approved Contractor.

280. A pre-requisite to proceeding with the procurement process would be that either the Project

Design Consultant is still in place to manage the bidding process, or that the Supervision Consultant

(if different) has been appointed to undertake this task.

9.3.4 Contract Packaging

281. The general thought is that the Project would be implemented under one large contract,

covering the excavation of the channel and the ship berth, the concrete wharf, and the land side

buildings and hard stand areas, mainly because the working area is not large, and it may be difficult

to split the works for 2 different Contractors to be working on site at the same time. However, if

required to stage the works due to budget constraints, it would be possible to do the marine works



(Channel and berth excavation, and wharf structure), first, and then the Buildings and other landside

works as a second contract.

282. Given the very high mobilization costs, particularly if a Contractor was to mobilize from

Australia or New Zealand, packaging options would favor one Contract Package for the approved

work. This would avoid the duplication of large mobilization etc. It is considered important to ensure

the contract package(s) is of a size large enough to attract sufficient bidders with the appropriate

resources and experience to successfully undertake the works on time. Given the current cost estimate for the project, this is not a problem.

283. The consideration of package size to suit local contractors will not be relevant, although some

mechanism within the Contract to support the development of domestic private construction sector

should be considered. Certainly it is expected that some labor (skilled or non-skilled) would be

available on a contract basis to the main international Contractor. Employment of such people in the

Project should be encouraged, with the aim of targeting long term maintenance needs.

9.4 Draft Bid Documents

284. As recommended, procurement should be carried out following ADB Procurement

Guidelines. Draft bid documents for international competitive bidding will be prepared based on ADB

Standard Bidding Documents (SBD) for Large Works (Post Q), December 2016.

285. The documents will commence with the development of a detailed scope of works to support

the Request for Proposals (RFP), and the Invitation to Bid, to be posted by ADB.

286. As there will be limited companies in the region with the capabilities / resources to undertake

a project of this nature (given the isolated locations and logistical constraints), a prequalification

stage is not considered necessary or appropriate, post technical qualification will be followed.

Bidding for the Tuvalu Outer Island Marine Infrastructure Project, also funded by ADB is expected to

be called in February 2017, and this will give a good indication of the level of Contractor interest in

bidding for port projects in the Region. It is expected that given the larger scope of works for the

Nauru Port, it will attract a greater number of competent bidders.

287. The invitation to bid advertising the Project will be widely circulated, to ensure appropriate Contractors are encouraged to participate. This will be listed on ADB Project Procurement, various

trade Offices in the region, and also directly distributed to likely interested bidders that have been

identified during our market survey.

288. The Bidding will follow ADB practice of a one stage, single envelop system, with a combined

Technical and Price Bid. Whilst the detailed price assessment will only be carried out after Technical

Qualification has been confirmed, this one envelope system will speed up the evaluation process

and generally has been shown to ensure a more competitive market response, and hence a lower

contract cost. It is critical however not to let the immediate sighting of the alternate prices influence

the process of conducting a thorough technical assessment of capability and track record of

successful completion of projects.

9.5 Project Procurement Risk Assessment Summary

289. A Project Procurement Risk Assessment (PPRA) was carried out in accordance to ADB

Guidelines. Based on the assessment conducted it was determined that there exists both strengths

and weaknesses in the GoN Procurement Process, but currently the weaknesses outway the

strengths, but there is nothing that would put the project procurement for the project at unacceptable

risk, but it would require ADB and their Consultant to take the management role of the Procurement

process.



9.5.1 Strengths

The CPU has been playing a role in registering and tracking procurement (albeit on a very

minor scale) utilizing FMIS.

DFAT has commissioned an independent Procurement Specialist to prepare new

procurement Guidelines for GoN. This task will hopefully focus attention of the current

inadequacies of procurement in Nauru.

It is expected that the work initiated by DFAT relating to the new Procurement Guidelines will

also include recommendations to provide capacity development to the CPU. This should be

of benefit to this procurement, but the CPU will need to add (not less than 2) additional staff

who can be involved in capacity building.

The PDA Consultant’s Procurement Specialist will be in place and assigned to take a leading

role in the preparation of Bidding Documents for the Project, and manage the full procurement

process , in accordance with ADB Procurement Guidelines

9.5.2 Weakness

Continued use of IPA for Government Procurement without proper contract and procedures

being in place. Also, it is reported that there is a complete lack of transparency.

Current IPA has no practical experience in the procurement for large scale capital works

projects.

No functional GoN Procurement Guidelines

Lack of national staff within government with procurement experience.



10 Climate Change and Disaster Risk

10.1 Policy Context

290. The Government of the Republic of Nauru has articulated within the National Sustainable

Development Strategy (NSDS) 2005-2025 (2009 update) the vision for development as “A future where individual, community, business and government partnerships contribute to a sustainable

quality of life for all Nauruans”, or more simply, “Partnerships for quality of life.”

291. The Transport sector goal is to “improve transport infrastructure and provide reliable and affordable public transport service.” The list of specific strategies includes “Refurbish and develop

port infrastructure for vessel handling”. The project contributes directly to the achievement of this strategy, and also indirectly supports a range of other strategies by providing more reliable, efficient

and cost-effective freight handling, thereby improving the reliability of other services (aviation, water

supply, etc.), improving Government revenue, and promoting economic development.

292. The Republic of Nauru Framework for Climate Change Adaptation and Disaster Risk

Reduction (RONAdapt) represents the Government of Nauru’s response to the risks to sustainable development posed by climate change and disasters. It identifies priorities relating to climate change

adaptation and disaster risk reduction, and provides a general framework for longer term planning

and programming of relevant activities.

293. As the NSDS highlights, Nauru struggles with the challenge of ensuring sustainable social and economic development. A scarcity of arable land and fresh water resources, geographic

isolation, dependence on imports for meeting basic food and energy needs, environmental

degradation and the emergence of chronic health problems all make achieving sustainable

development a difficult task, and at the same time create vulnerability to other stresses, such as

those brought on by climate change and disasters. Against this background, climate variability and

climate change have the potential to make Nauru’s efforts to secure sustainable development even more challenging.

294. The priorities outlined in RONAdapt contribute to the achievement of the NSDS by increasing

Nauru’s resilience to climate change and disasters by targeting Water security; Energy security; Food security; a healthy environment; a healthy people; and Productive and secure land resources

as goals.

295. Infrastructure is important as it can play an important role in improving economic productivity

and/or reducing community vulnerability, and thus in making Nauru more resilient. Priority actions

of the RONAdapt framework under the Infrastructure and Coastal Protection Sector include:

Reduce coastal risks to key infrastructure; and

Reduce flooding occurrence and intensity.

296. It is recognized in the RONAdapt framework that infrastructure needs to be designed and

managed with future conditions in mind; it needs to be “climate –proofed.” Accordingly, a key design principle that underlies this project is to develop a port for Nauru which not only has improved

resilience to present day coastal hazards, but also for future climate conditions.

297. The Government has developed a National Plan to support the Disaster Risk Management

Policy. It is intended to assist the process of effectively managing hazards and risks in Nauru. The

National Disaster Risk Management Plan (RoN, 2008) provides the overarching framework to

support national disaster risk reduction and disaster management planning for the mitigation of,

preparedness for, response to and recovery from the impact of hazards that have the potential to

become national disasters.



298. The Plan notes that disaster risk management is a process designed to motivate societies at

risk to engage in the conscious management of risk as an ongoing process to strengthen resilience

and reduce vulnerability to hazards.

299. The hazards listed below have been identified as having the potential to create national

emergencies or disasters in Nauru:

Economic Decline/Civil Unrest – High

Public Health Crisis – High

Fire (Structure and Non-Structure) – High

Tsunami – High

Transport Accidents (Air, Sea and Land) – High

Fuel Storage Accident – High

Environmental Degradation – High

Animal Disease – High

Lifeline Failure (Power, Water & Communications) – High

Oil Spill (land and sea) – High

Pollution (larid and sea) – High

Drought – Medium

Storm Surge – Medium

Terrorist Attack – Low.

300. The Plan outlines the roles and responsibilities of lead and support agencies in Nauru in

terms of disaster management (including preparedness, response and recovery). It is of relevance

to the project with respect to the role of the new port in reducing disaster risk, but also in that the

port will be exposed to risk of disaster.

10.2 Vulnerability

301. Following an initial screening of hazards and potential impacts, a vulnerability assessment

was carried out for the area of interest. Some of Nauru’s vulnerability against climate change-related

hazards have been identified as :

The workforce being impacted by increased temperature/ heat waves which may slow down

freight handling times

Flooding of port land and/or buildings due to increased intensity and frequency of extreme

rainfall events (even though the onshore facilities is thought to be currently unaffected by

flooding, it may experience nuisance drainage issues or more severe flooding than the present

day)

Sea level rise/waves which may result in corrosion to structures is currently an issue. Increase

in height of splash zone under sea level rise conditions will increase vulnerability. Rise of sea

level or waves will result in no change over existing level of vulnerability for the existing port,

although increased water depths under sea level rise may improve access for ships to the

proposed port.

Wave overtopping and/or storm surge over the wharf and breakwater in the proposed design

and shoreline. This may cause increased forces on structures to due increased sea levels.



302. A vulnerability and Risk Assessment is discussed in detail in Section 4 of the Climate Risk &

Vulnerability Assessment (CRVA) Report presented in Appendix R. The MetOcean Design Criteria

Report is provided in Appendix S.

10.3 Climate influencing factors

303. The meteorological and oceanographic climate in Nauru is driven by strong intra- and inter-

annual cycles. The South Pacific Convergence Zone (SPCZ) and the El Niño-Southern Oscillation

(ENSO) are discussed in detail in Section 3 of the Climate Risk & Vulnerability Assessment (CRVA)

Report. Nauru experiences two main seasons, the wet season from November to October Nauru has consistent monthly average temperatures throughout the year which are strongly tied to the

surrounding ocean temperature. The wet season usually starts in November and continues to April

of the next year, while drier conditions occur from May to October.

304. Inter-annual variability is strongly influenced by the ENSO. Compared to normal (neutral)

years, Nauru experiences wetter, warmer conditions during El Niño years, and drier, cooler

conditions during La Niña. In some years Nauru’s climate can be affected by the West Pacific Monsoon. This occurs when the persistent monsoon westerly winds reach as far east as western

Kiribati.

10.4 Approach to climate change assessment

305. A qualitative risk assessment was conducted to assess the likelihood of hazards. For the

climate risk and vulnerability assessment, likelihoods have been assigned based on consideration

of both the historical occurrence, and the level of confidence associated with the climate change

projections, for the key hazards.

306. Based on the climate change projections for Nauru (Section 4.3) and the vulnerability

assessment (Section 5) of Appendix R ‘Climate Risk & Vulnerability Assessment’ report, the

assessment identified the following high risks:

The increased incidence of high temperatures in future negatively impacts on the workforce,

reducing efficiency by increasing cargo handling times;

Due to higher water levels under sea level rise, adverse wave conditions prevent the transfer

of cargo between ship and shore, and increase the potential for damage to cargo. There is also an increased safety risk for port workers;

Increased wave overtopping of the wharf and/or breakwater under sea level rise conditions

reduces the efficiency (or prevents) the transfer of cargo between ship and shore, and results

in increased incidence of loss or damage of cargo. There is also an increased safety risk for

personnel working on the wharf or breakwater;

Increased wave run-up and/or overtopping of the shoreline under sea level rise conditions

reduces the efficiency (or prevents) shore-based activities at the port (e.g. transport of

cargo/containers within the port), and results in increased incidence of loss or damage of

cargo. There is also an increased safety risk for personnel working at the port; and

Due to higher water levels under sea level rise, there is an increased risk of wave damage to

the wharf or breakwater.

The findings from the risk assessment are shown in the table below.



Table 25 : Risk Assessment Findings

Hazard Risk Statement Risk Category

L C R

Existing (Present Day) Risk to Proposed Port

Temperature / heat wave

High temperatures negatively impact on the workforce, reducing efficiency by increasing cargo handling times.

L2 C2 M

Extreme rainfall events

Heavy rainfall causes flooding of port land and/or buildings, reducing efficiency and increasing handling times. The flooding may also result in damage to cargo, and can represent a risk to workplace safety.

L3 C2 L

Waves / mean sea level

Waves and seaspray corrode structures, resulting in the need for regular maintenance.

L1 C2 M

Adverse wave conditions prevent the transfer of cargo between ship and shore, and increase the potential for damage to cargo. There is also an increased safety risk for port workers.

L2 C2 M

Wave overtopping / storm surge

Overtopping of the wharf and/or breakwater reduces the efficiency (or prevents) the transfer of cargo between ship and shore, and results in increased incidence of loss or damage of cargo. There is also an increased safety risk for personnel working on the wharf or breakwater.

L2 C2 M

Wave run-up and/or overtopping of the shoreline reduces the efficiency (or prevents) shore-based activities at the port (e.g. transport of cargo/containers within the port), and results in increased incidence of loss or damage of cargo. There is also an increased safety risk for personnel working at the port.

L2 C2 M

Where wave overtopping results in inundation of the port lands there is a reduction in efficiency (or prevents) shore-based activities at the port (e.g. transport of cargo/containers within the port), and results in increased incidence of loss or damage of cargo. There is also an increased safety risk for personnel working at the port.

L3 C2 M

Wave overtopping causes damage to shore-based infrastructure, which may result in inability to (or less efficient) transfer of cargo between ship and shore.

L3 C3 M

Tsunami

(Note: Also a future risk).

A tsunami results in inundation of the port, resulting in damage to structures and buildings, damage to cargo/containers, and risk to workers on the site.

L5 C5 M

Future (Climate Change) Risk to Proposed Port

Increased temperatures / incidence of heat waves


L1 C3 H

Increased intensity & frequency of extreme rainfall events

Heavy rainfall causes flooding of port land and/or buildings, reducing efficiency and increasing handling times. The flooding may also result in damage to cargo, and can represent a risk to workplace safety.

L2 C2 M

Sea level rise / waves

Higher water levels and seaspray corrode structures, resulting in the need for regular maintenance.

L1 C2 M

Due to higher water levels under sea level rise, adverse wave conditions prevent the transfer of cargo between ship and shore, and increase the potential for damage to cargo. There is also an increased safety risk for port workers.

L1 C3 H

Due to higher water levels under sea level rise, there is an increased risk of wave damage to the wharf or breakwater.

L2 C3 M

Wave overtopping &/or storm surge

Increased wave overtopping of the wharf and/or breakwater reduces the efficiency (or prevents) the transfer of cargo between ship and shore, and results in increased incidence of loss or damage of cargo. There is also an increased safety risk for personnel working on the wharf or breakwater.

L1 C3 H



Hazard Risk Statement Risk Category

L C R

Increased wave run-up and/or overtopping of the shoreline reduces the efficiency (or prevents) shore-based activities at the port (e.g. transport of cargo/containers within the port), and results in increased incidence of loss or damage of cargo. There is also an increased safety risk for personnel working at the port.

L1 C3 H

Where increased wave overtopping results in inundation of the port lands there is a reduction in efficiency (or prevents) shore-based activities at the port (e.g. transport of cargo/containers within the port), and results in increased incidence of loss or damage of cargo. There is also an increased safety risk for personnel working at the port.

L2 C3 M


L2 C4 H

Increased wave overtopping causes damage to shore-based infrastructure, which may result in inability to (or less efficient) transfer of cargo between ship and shore.

L3 C2 L

307. The risk assessment was re-evaluated following adoption of the adaptation measures in

order to assess their effectiveness in reducing risk and optimizing the project. This is shown in the

table below.

Table 26 : Assessment of Residual Risk following Application of Adaptation Measures

Risk Statement Inherent Risk

Risk Treatment Residual Risk

L C R


H Option A: Develop a policy that includes measures to reduce the health risk to port workers during heat waves.

L1 C2 M

Due to higher water levels under sea level rise, adverse wave conditions prevent the transfer of cargo between ship and shore, and increase the potential for damage to cargo. There is also an increased safety risk for port workers.

H

Option B: Adopt a deck level for the wharf that takes into account both design water level and sea level rise. This would require higher piles for the wharf.

L3 C3 M

Option C: Adopt crest level for the breakwater that take into account both the design wave criteria and sea level rise.

L3 C3 M

Increased wave overtopping of the wharf and/or breakwater reduces the efficiency (or prevents) the transfer of cargo between ship and shore, and results in increased incidence of loss or damage of cargo. There is also an increased safety risk for personnel working on the wharf or breakwater.

H

Option B – see above. L3 C3 M

Option C – see above. L3 C3 M

Increased wave run-up and/or overtopping of the shoreline reduces the efficiency (or prevents) shore-based activities at the port (e.g. transport of cargo/containers within the port), and results in increased incidence of loss or damage of cargo. There is also an increased safety risk for personnel working at the port.

H

Option D: Adopt crest level for the foreshore structure(s) that takes into account both the design wave criteria and sea level rise.

L3 C2 L

Option E: Increase the ground level of the port land above the wave run-up and/or storm surge level.

L3 C1 L

Option F: Increase the floor levels of the buildings proposed for the new port.

L3 C2 L



Risk Statement Inherent Risk

Risk Treatment Residual Risk

L C R


H

Option G: Design a more robust wharf structure. This may involve use of deeper piles, thicker/more reinforcement, and a thicker concrete slab for the deck.

L2 C2 M

Option H: Design a more robust breakwater structure. This would involve using larger armor units.

L2 C2 M

308. The climate change and disaster risk assessment identified high temperatures; sea level rise;

increase in average annual rainfall; increase in the intensity and frequency of extreme rainfall events;

and wave climate as the key climate-related hazards for this project. Key vulnerabilities were

identified as the effects from;

damage to infrastructure, cargo or containers due to wave attacks/flooding

difficulty for ships accessing the port under adverse weather conditions (e.g. extreme wave

conditions)

inefficiencies in operations due to adverse weather conditions that may lead to flooding, ocean

inundation, or wave overtopping of the port land

the need to ensure port personnel are provided with a safe working environment

309. In order to mitigate the climate-related risks for the project, mitigation measures were

identified to reduce vulnerability and to improve the resilience of the port. The following design

options that will climate-proof the port were assessed;

Selection of appropriate design criteria for the deck level of the wharf and breakwater crest

level that take in account existing and future wave climate and sea level rise;

Adoption of measures to prevent ocean inundation and catchment flooding of the port land,

such as providing a shoreline revetment, filling of the port land and/or suitable floor levels for

buildings; and

Adoption of a more robust design for the wharf and breakwater to ensure the structures are

able to withstand the wave forces under sea level rise conditions.

310. The Climate Risk & Vulnerability Assessment (CRVA) Report and MetOcean Design Criteria

Report are provided in Appendix R and Appendix S.

311.



11 Port Reform

11.1 Overview

312. This report details the consultations completed, findings and recommendations for Port

Reform in Nauru. These elements are considered critical irrespective of the development of a new

Port facility at Aiwo in Nauru, but are also vital for ensuring sustainability of the new development.

The preparation of this report is based on the scope to address both immediate and longer-term

reform activities. In assessing the existing limitations and devising the long term reforms necessary

for sustainability, risks have been considered and addressed through proposed arrangements.

11.2 Current Constraints and Opportunities

313. The Port is currently managed by the Nauru Port Authority, which is a statutory authority

rather than a state-owned enterprise. The NPA proposes tariffs, which need to be approved by the

Government of Nauru (GoN) before coming into effect. The Port, and Nauru in general, face many

challenges. The Port provides an essential service that is necessary for the daily needs of the

community. However, low population results in infrequent services and hence a challenge in the

financial viability of the Port. Its current performance is constrained by limitations in the technical and

managerial capacity of NPA staff, the general absence of formal management systems, including

asset management, accounting and other financial systems, incomplete data on shipping volumes

and other data that indicates the technical and financial performance of the Port, and poor

maintenance practices. There is no evident commitment to a clear program for reform of tariffs, which currently generate less revenue than the total capital and operating cost of the Port. There is

uncertainty about future demand given changes in the role of the Regional Processing Centre and

other current and potential economic activities.

314. Notwithstanding these limitations, the NPA manages to perform to the extent of servicing

vessels and moving freight through the Port, albeit in an inefficient manner. Other infrastructure

needed to support the Port such as power, water and roads do not generally constrain its activities,

though there is a need to upgrade a section of road that serves the Port. The Port has sufficient land

to meet its current and anticipated needs, though access to the land is not secure.

315. The greatest threats to the Port are related to: (i) a lack of maintenance of its assets, which

results in inefficient and sometimes poor service to customers; (ii) tariffs that do not reflect costs,

neither relative to the cost of various services nor with regard to the total cost of providing

infrastructure and services; (iii) poor accounting and financial management systems; (iv) limitations

in the technical and managerial capacity of NPA staff; (v) the current inability to meet the needs of

the International Ship and Port Facility Security Code; and (vi) low volumes of freight.

316. The proposed Project will address these matters, as set out in following paragraphs.

11.3 Development of Port Infrastructure

317. Proposed upgrading of the Port has been primarily designed around safe berthing operations,

design vessel size and cargo handling limits or conditions. As part of the engineering assessments,

particularly in relation to berth availability for cargo handling, it has been determined that as long as

the vessel can be safely berthed at the wharf that cargo handling can be completed at close to 99% of the year.

318. Recommended infrastructure improvements include: (i) replace badly deteriorated Port

buildings, being sized according to optimal maintenance and storage activities and staffing numbers;

(ii) develop a gatehouse and facilities to meet staffing, customs and quarantine, security

requirements for compliance with provisions of the International Ship and Port Security Code and



longer term options for container x-ray and inspection as may be required in future; (iii) improve data

communications to meet Port needs; and (iv) fencing, CCTV and guard services for improved safety

and security. Separate to the Port project there is 320m of external road linking the Port to island’s ring road which requires upgrade / reconstruction. Septic and/or storage tanks are included in the

design layout as there is no sewerage treatment system in Nauru. There is no need for additional

investment in other support services such as power and water. The recommended investment will

enable infrastructure requirements needed to comply with ISPS requirements. The total cost of this civil works investment is estimated at U$ 67,590,030 (mid-2017 prices including contingency and

fee for consultants implementation).

319. Additional investment in equipment is also required, including: (i) 7 major items of equipment

for handling containers (including spreaders, a stacker, forklift; tractor, trailer and crane); and (ii) a

tug, which can most probably be secondhand. The cost of this investment is estimated at U$

5,350,469 (mid-2017 prices).

320. The NPA does not currently have a formal asset management system, or even a formal asset

register. It is essential that such systems be implemented so ensure that the proposed investments

under the Project, and other current infrastructure also, are properly maintained and that their full

potential value is secured.

11.4 Improving Financial Performance

321. A significant concern, and one shared by customers and locals alike, relates to tariff structure

and the apparent disconnect with cargo throughputs, types and operational costs, and therefore

transparency. In addition, current tariffs generate insufficient revenue, by a considerable margin, to

cover operating (defined here to also include maintenance costs) and capital costs of the Port. It will

be impractical to expect such full cost recovery to occur in the circumstances faced in Nauru.

However, improved sustainability requires that sufficient revenue be generated to cover operating

costs and at least the cost of plant and equipment. This would require the GoN, with the support of

donors to undertake other, generally more major capital works that need be incurred on only an

occasional basis.

322. Tariffs needed for each of three cost-recovery scenarios have been analyzed in the current

review:

(i) Scenario 1: Gross, all-in = total fixed overhead (operating lease fee included) + other fixed overhead (insurance only) + depreciation (infrastructure and equipment). The benefit of this tariff option is that Nauru will be able to fully recover its investments for both the port infrastructure and related equipment through collection of tariffs. For potential operating lease contractors, however, this may not be a viable option;

(ii) Scenario 2: Net of infrastructure = gross all-in less depreciation of infrastructure only. Under this tariff option, equipment replacement only is assured and recovery of operating costs. This option would be attractive to potential Public Private Partnership (PPP) and the Nauru government as well; and

(iii) Scenario 3: Net of all depreciation = gross all-in less depreciation of infrastructure and equipment (i.e. depreciation of project cost). This option would be the least attractive for the Nauru government, since only recovery of operating costs through tariffs is assured.

323. The tariff model was updated using finalized project cost estimates, which excluded the 20%

profit margin originally planned to be included as guaranteed cost recovery. Costs of the mooring

Operations & Maintenance (O&M) was likewise added as additional cost to the fixed overhead (which



was projected to end on the 5th year). Likewise, sensitivity analyses were conducted assuming

varying assumptions for the port revenues. Four sensitivity tests entailed:

(i) increased fishing revenue by 50% (over earlier conservative estimates) at the start of the new port operations;

(ii) increased fuel revenues by 30% (over earlier estimates) based on the new port’s opportunity to serve as a hub in the region;

(iii) decreased cargo revenue in the light of recent trends in the macroeconomic situation in the country; and

(iv) decreased concession fees (from $600k to $400k) to offset otherwise unsupportable tariff increases for basic food and goods imports.

324. Such analyses have been undertaken to address the macroeconomic situation in Nauru, as

well as capture opportunities that can be further tapped, particularly in the fishing and fuel areas.

The resulting financial ratios indicate that under all scenarios, the project remains to be viable, with

sufficient returns on investment. However, due to sizable investment, the payback period ranges

from 21 years to around 44 years at adverse conditions. The base scenario projections are deemed

conservative, with significant revenue potential from transshipment of goods from fishing and fuel

businesses. Cost containment is likewise an opportunity, with the port reform to provide the

necessary capacity building and systems development to ensure NPA’s institutional sustainability.

The tariff setting model indicates that aside from the implementation of the 2016 tariff of Nauru to be

phased over 3 years from 2017, the tariffs need not be increased in the medium term12. .

325. A major issue for the Port is its current responsibility for the existing mooring system. It is

recommended that responsibility for the system be transferred to Ronphos following construction of

the new facility, as the only user of the system. This approach is supported by GoN advisers. The

transfer will have the beneficial effect of simplifying management of the Port. Its effect is included in

the financial forecasting undertaken in the current review.

326. The NPA needs to implement a financial management information system to properly record

all financial transactions, to compare actual revenue and expenditures with budgeted amounts and

to provide information to aid management decisions. It is recommended that the system should be

compatible with that used by the Department of Finance of the GoN to aid data transfer and

oversight. The proposed system includes an asset management component that allows this activity

to be closely integrated with overall financial management.

11.5 Upgrading Safety and Security

327. The International Ship and Port Security Code (ISPS) establishes requirements for ports to

meet if vessels are to sail between them and other ports adhering to the code. In April 2017 NPA

was formally advised by the United States Coast Guard (USCG) that it had listed Nauru on its Port

Security Advisory list, which places serious restrictions on vessels visiting Nauru. This listing

therefore has the potential to impact upon trading arrangements.

328. Investments described above will address infrastructure requirements of the Code. It also

proposed that unstuffing of containers be allowed within the Port terminal area where container

12 Upon completion of the ‘Draft Port Reform Report’, the tariff model was revised using finalized project cost estimates. The following were excluded: port handling equipment; 20% profit margin cost recovery; and O&M costs of the mooring system. The assessment completed as part of the ‘Draft Port Reform Report’ proposed port tariffs (increased by 71%, 39% and 18% for Scenarios 1, 2 and 3, respectively) which have been adjusted. Under the four sensitivity scenarios calculated, the resulting tariffs ranged from -1% to -3% for cargo/container levies, charges and tariffs. (Appendix J present details on the tariffs for the varying scenarios). Hence, revenues need not be raised, should volumes reach the levels that will cover the costs plus a reasonable concession payment to GON



deliveries cannot be made offsite. To meet security and associated ISPS requirements, it is proposed

that this activity could be done under supervision of the PFSO or other Maritime Security Guard, with

appropriate vehicle inspections on and off site as well. Issues regarding ships personnel will be easily

managed and controlled through passport control and access passes at the new port. Associated

with landside access, penalties must be introduced and linked to the broader penal provisions within

Nauru, for unauthorized incursions into the Port land area. Together with appropriate signage this

will act as sufficient deterrent and be supplemented by security and systems.

11.6 Improving Institutional Performance and Capacity Building

329. A revised organization structure for the NPA is proposed. This responds to two key issues.

Firstly, the current Port has more staff than is needed for the level of activity that occurs at it. It is

estimated that the number of staff could be reduced from the current 86 to around 60, with some

complementary changes to management arrangements to improve accountability. The second issue

is the need for an organization that can deliver improved outcomes in the short term and lead a

process to secure a longer term sustainable operation of the Port. Means to achieve the latter are

discussed in following paragraphs.

330. In the medium term, there is potential to engage the private sector to operate the Port. This

should reduce operating costs and introduce a more entrepreneurial approach to operation of the

Port. Five possible approaches have been considered: (i) public sector reform; (ii) management

service contract; (iii) operating lease; (iv) a concession; and (v) privatization. Initial assessment

indicates that an operating lease arrangement is likely to be best suited to conditions, with due

consideration given to matters such as the limited scale of the Port, the capacity to manage a contract

with the private sector, the ability to secure only partial cost-recovery for the Port from user charges,

the appropriate transfer of risk to the private sector and measures to incentivize the contractor to

perform to the highest possible level.

331. There is, however, considerable uncertainty about the present and potential performance of

the Port given the constraints described earlier. This uncertainty makes it difficult, if not impossible,

at the present time to attract the high level of private sector interest that is needed to secure private sector involvement at the lowest possible price and with the best performance outcomes for the GoN.

The recommendations in this report to establish sound financial accounts and other such data and

systems that indicate the technical and financial performance of the Port will address these

limitations. There is also a need for a clear commitment from the GoN for reform of tariffs. With these

matters in place, future NPA management can, within the duration of the Project, lead a process to

review, refine and implement a scheme to engage the private sector in the operation of the Port.

332. The desired improvements in the operation of the Port will depend on the actions of a few

key executives in the organization. Insufficient capacity will persist as a more generally due to the

limited number of skilled staff availability in the local market. Therefore, significant attention has been

placed on the provision of short term specialist recruitment as well as training schemes, including in-

house and specialized training, to make sustainable improvements. The need for this support is

based on the assessment of current capacity, with due consideration for planned reform and

performance targets associated with significant commitment of donor funds, and the objective for

improved financial outcomes.

333. The focus of recommended management support is specifically where there are key

leadership and change management actions associated with improving efficiency and performance.

They include NPA management roles as well as project related roles, and involves both long and

short inputs in areas such as project management for introducing financial systems, legal drafting

for proposed regulatory reform and actions to secure private sector participation in the port. The bulk

of the roles proposed require more significant commitment of time to ensure that change is implemented before and during the Project, and that immediately following the development,



processes are optimized and opportunities realized. Specific positions that it is recommended by

financed by the Project are: Chief Executive Officer and Operations Management (each for 48

months), financial Manager and Human Resource Manager (each for 36 months), Maritime Officer

(24 months), and Maritime Legal Specialist and a Project Manager for the Financial Management

and Asset Management Systems (each for 6 months). Terms of Reference for these positions have

been prepared.

334. Training programs to address deficiencies in technical skills have also been proposed. It is recommended that training be provided in 16 skill areas (e.g. mooring, safety, use of ship cranes,

forklift and other equipment, stevedoring, etc.) with around 900 person-days of training over the

course of the Project.

11.7 Reform Activities and Timeline

335. The estimated total cost of the reform for five years amounts to $11.81 million, with staffing

and capital investment being the largest components and with two-thirds of the expenditure scheduled for 2019/20 (see Table 27). An implementation program is presented in Figure 2.

Table 27 – Summary of the Cost of Reform Activities (A$ million, mid-2017 prices)

Year Staff Training Materials & Expenses

Capital Expenditure

Total

Year 1 (July 2017-June 2018) 1.187 0.115 0.354 0.086 1.742

Year 2 (July 2018–June 2019) 1.050 0.051 0.060 0.000 1.161

Year 3 (July 2019–June 2020) 0.935 0.045 0.020 7.032 8.032

Year 4 (July 2020–June 2021) 0.675 0.000 0.050 0.000 0.725

Year 5 (July 2021–June 2022) 0.150 0.000 0.000 0.000 0.150

Total 3.997 0.211 0.484 7.119 11.810

336. Appendix T provides further details of port reform activities in the ‘Final Port Reform Report’.


TA-9009 NAU –Final Report – Feasibility Report.docx 15 December 2017 Page xcix of 151

Figure 2 – Implementation Program



12 Monitoring and Evaluation

337. The Design and Monitoring Framework (DMF), a core link between project design,

implementation and evaluation, provides the basis for the Project Performance Management System

of the ADB. It briefly describes the design summary (hierarchy of objectives) of a project including

the performance indicators, targets and baseline, data sources and reporting mechanisms, and

assumptions and risks. The DMF for the ensuing project was developed using results of past studies

such as those of the ADB, JICA and PRIF. More important are results of the technical, financial,

social and gender, economic, environment, governance and climate change assessments under this

study. Based on these and results of consultations with the CEO and Board Chairman of the NPA

and with other specialists, a preliminary design summary is presented below.

338. The impact of the ensuing NPDP is improved resilience and socioeconomic conditions of the

people of Nauru as food security is enhanced. The outcome is improved efficiency in the operation

and management of Nauru Port. The measurements envisaged at are:

a. Decrease in port closure days from baseline [90 days per year in 2016] to 10 days by 2020;

b. increase in container vessel call from baseline (less than 2 per quarter in 2016), to at least

2 by 2020;

c. by 2020, reduction of 15% in freight cost from USD5,300 per dry goods TEU and USD7,600 per reefer container in 2016; and

d. reduction in vessel time at port from 14-21 days in 2016 to 2-3 days by 2020.

339. Three outputs are being considered to achieve the outcomes, and these are presented

below.

a) Output 1 (priority climate-resilient port infrastructure constructed). Existing port structures

(sheds, offices of Customs and Harbor Master) will be demolished. Additional physical

structures being considered are those under Design Option 2A (wharf with breakwater). (a)

160-m wharf; (b) climate-proofed access from wharf to shore; and (c) around 2,400 sq. m-

port building. The container storage yard will be improved. HIV/AIDS prevention and

awareness activities as well as port safety activities will be conducted prior to and during

civil works. Activities to comply with social safeguard policies will be conducted. An

operation and management plan will be prepared.

Output 2 (sustained and effective port maintenance). Port reform legislation as well as tariff

regulations through a cost recovery scheme will be implemented for sustained port

maintenance. Equipment for port maintenance will be procured. A financial management

information system to properly track costs and revenues will be established. Key officials

and senior and junior officers of the NPA will be trained on technical/engineering aspects as

well as on areas that would be identified based on an organizational assessment of NPA.

Activities under this second output will be carried out in conjunction with the proposed

CDTA (depending on port reform activities).

Output 3 (efficient and effective port management) will cover activities such as:

staffing of approved organizational structure;

training for management and technical staff of NPA;

preparation and funding of O&M Plan;

establishment and operationalization of a suitable port business process.



340. Baseline data for most of the indicators are available. Additional baseline data on the socioeconomic condition of target beneficiaries are available from the 2012-2013 Household Income and Expenditure Survey of the Bureau of Statistics of the Ministry of Finance. The processing of raw survey data provided by the Bureau is near completion. Baseline data will be updated once the final estimates from the Bureau become available.

341. A draft Design and Monitoring Framework (DMF) is provided in Appendix U and the ‘Contribution to the ADB Results Framework’ document can be found in Appendix V.



13 Conclusions and Recommendations

13.1 Conclusions

342. A number of concept options were identified for assessment during the concept stage of the

project. Cost estimates were prepared for these concept options in order to progress with economic

analysis. The economic analysis of the options were carried out in comparison to a Do Nothing Base

Case (scenario in which maintenance of the existing mooring system was allowed to lapse). Based

on the assessment adopted and the costs associated with the Do Nothing Base Case to maintain port operational viability, economic returns from the project were seen to significantly outweigh the

associated costs; all options were identified as potentially economically viable.

343. Engineering assessments were undertaken, including metocean, wave analysis and ship

simulation, to further assess differing design configurations. The result of these assessments was

clear advantages associated with berthing and departure of vessels from a berth cut into the reef at

an angle to coincide with the dominant swell direction. Further analysis of mooring arrangements

and operability criteria confirmed that this alignment provided greater availability, and therefore ability

to meet present and future shipping demand. On the basis of this configuration being confirmed by

GoN, detailed design and cost estimation were progressed, against which final economic and

financial feasibility were assessed.

344. The results from the financial analysis concluded the financial viability of the project. The

environmental assessment concluded that there were no identifiable environmental significant

impacts and no critical important terrestrial or marine habitats impacts. All impacts were identified as

site specific, irreversible yet could be minimized through appropriate mitigation measures. Due

diligence on social safeguards and resettlement identified no involuntary resettlement of persons or

their properties. The procurement risk assessment identified that there exists both strengths and

weaknesses in the GoN Procurement Process; but nothing that would put the project procurement

for the project at unacceptable risk provided that appropriate ADB Procurement Guidelines were

followed, and that the Consultant’s International Procurement Specialist was available to take management responsibility of the Procurement process.

345. There are significant capacity issues in relation to port staffing and management. Interim

management support has been identified during the port construction and shortly thereafter in order

to maximize returns and efficiency measures, after which an operating lease is proposed. Interim

capacity is provided in relation to CEO, Operations Manager, HR Manager, Finance Manager,

Maritime Legal Specialist and Maritime Officer roles. Significant training and / or re-skilling is

proposed in order to reduce the workforce yet reward members of the Port team, as well as readying

the workforce for future operations and equipment, and associated maintenance activities toward

sustainable management.

346. Tariff assessment concluded that forecasts, particularly in relation to fishing throughput

resulted in not requiring further raise in tariffs, whilst providing interim maintenance funding and

longer term concession (lease) payment from the private operator to the Government. Effective

payback period, assuming conservative forecasts, remains 20-40 years and it would be unrealistic

in terms of port charges to seek to improve this payback period.

347. A range of equipment is necessary to the port in order to achieve the cargo efficiencies

identified, and to ensure port capacity for other vessels.



13.2 Recommendations

13.2.1 Financial Analysis

348. The following financial covenants to the grant agreement are recommended for the project:

Implement accounting and operating systems to capture correct revenues – not just

automated systems but business processes and rules/regulations as well

Implement 2016 tariff in phases as follows: 30% in 2017/18, 30% in 2018/19, and 40% in

2019/20. Implement tariff reforms through adjustments to meet the recovery of costs13.

Cost efficiency – review cost structure, streamline and remove unnecessary spending.

The NPA shall prepare regular audited project financial statements (APFS) and audited entity

financial statements (AFS), plus other opinions, and submitted annually by an external auditor

acceptable to ADB.

ADB shall disclose the annual audited financial statements for the Project and the opinion of

the auditors on the financial statements within 14 days of the date of their receipt by posting

them on ADB’s website.

NPA shall install computerized financial management systems based on the new port

operations, based on international best practice, Ministry of Finance (MOF) system and

Pacific Ports system.

NPA shall hire qualified accounting and finance staff to perform the necessary financial

management function.

Financial performance indicators shall be reported on a reqular basis, including profitability

ratios, i.e.gross profit margin (GPM), operating margin (OM), return on assets (ROA) , return

on equity (ROE), return on sales (ROS) and return on investment (ROI).

13.2.2 Environmental Assessment

349. It is recommended that the Environmental Management Plan (EMP) is followed in order to

avoid, reduce and mitigate the environmental impacts during the design, construction and

operational phases of the project.

13.2.3 Poverty, Social, Gender and Resettlement

350. The Poverty, Social and Gender Assessment identified key issues of which not all can be

fully addressed by the project. Recommendations under the assessment are listed below:

During construction contractors will be held responsible to recruit men and women from Nauru for unskilled labor.. Short term job opportunities may include simple admin works, heavy lifting,

cleaners, traffic control and hospitality. A tailor designed training program for NPA staff will initiate

skills in the maritime sector the following years.

The Gender Action Plan (GAP) has outlined specific activities and targets to ensure women’s benefits to the project. Key activities to provide economic gains to women include proposed

recruitment for skilled and unskilled labor by the work contractors, and recruitment for Project

Management Unit staff .

13 This is proposed to be implemented initially, but with further review and inter-relationship between expenses and cargo types, as well as agreed profit margins etc, thereafter has been undertaken. The tariff study needs to be implemented to ensure the viability of the proposed project.



Training programs on HIV/AIDS and sexually transmitted diseases will address the low level of awareness among both men and women regarding these issues which have great impact on

them. Women will continue to be involved in consultations and activities requiring stakeholder

participation.

13.2.4 Financial Management

351. The recommended mitigation measures that are under way or proposed are:

technical assistance (TA) should be provided for the institutional strengthening of NPA,

including the development and implementation of a financial management information system

(FMIS) for port operations/management, an asset management and maintenance plan, and

support to improve NPA’s accounting systems;

the inclusion in the PIU of a financial management specialist to provide project accounting and financial reporting support; and

training in ADB procedures will be required in procurement, disbursement, and project

management.

13.2.5 Procurement

352. It is recommended for the Consultant’s International Procurement Specialist to take management responsibility of the Procurement process.

13.2.6 Port Reform

353. It was identified that port reform will be critical irrespective of the development of a new Port

facility in Nauru. Recommendations raise significant attention on mentoring, training schemes, in

house and specialised training and succession in order to provide initial improvements to NPA

capacity.

354. Adopt a tariff structure net of infrastructure = gross all-in less depreciation of infrastructure

only. Under this tariff option, equipment replacement only is assured and recovery of operating costs.

This option would be attractive to potential Public Private Partnership (PPP) and the Nauru

government as well.

355. Unstuffing of containers be allowed within the Port terminal area where container deliveries

cannot be made offsite. It is proposed that this activity could be done in line with ISPS allowances,

under supervision of the PFSO or other Maritime Security Guard, with appropriate vehicle

inspections on and off site as well.

356. Introduction of broader penal provisions within Nauru for ISPS purposes, for unauthorized

incursions into the Port land area. Together with appropriate signage this will act as sufficient deterrent and be supplemented by security and systems.

357. Provision within the port landside area / terminal space for a container washing together with

an inspection process by Customs and Quarantine for all ‘exports’ prior to being allowed in to the

terminal.

358. Provision of a logistics service, making use of newly acquired port equipment.

359. Work with Vital to determine transshipment/regional supply opportunities for fuels. Similarly,

maintain close working relationship with Fisheries to ensure transshipment and bunkering

opportunities are capitalized on.



360. A staged approach for management wherein the management support approach is adopted

in the short term, with a view to pursuing an operating lease approach in the medium term (though

still within the term of the Port Development Project).

361. Implement a new organizational structure inclusive of commercial and regulatory elements,

with staffing allocated as recommended.

362. Implement detailed training for new / existing staff and continue roll-out up to and including

new equipment provision.

363. Following commissioning of the new port facility, and prior to the 5 year period of active use

of the existing moorings being expended, transfer operation and associated responsibility of the

moorings to Ronphos as the sole beneficiary for that interim period.

364. Institutional arrangements implemented including provision for private sector engagement

and payment structure, respective roles for the GoN and the operator/contractor in the setting of and

approval of tariffs, verification processes, efficiency measures or plans, guarantees that the

contractor should provide to the GoN and those that the GoN should provide to the contractor,

equipment replacement and facility maintenance arrangements, Service Level Agreements (SLAs)

etc. Typical performance criteria to be considered in the SLA and related breach for which

performance / security can be claimed are:

Average turnaround time for different types of vessels.

Accidents / damage / lost time injuries.

Average waiting time.

Gross berth productivity.

Berth occupancy rate/level.

Working time overtime at berth.

Dwell time (Cargo).

Ship productivity indicator.

Tons per gang hour.

TEUs per crane-hour.

Tons / ship / day.

365. Governance arrangements implemented including removal of unnecessary burden or

Government interaction, so long as operations maintain commerciality and deliver on agreed

obligations, Investment and/or financial delegations and responsibilities in line with operation,

acknowledgement of authority related to externally recruited / funded specialist roles in management

and operation of the NPA, Preparation and audit of accounts to International Standards, nominated

training under reform requirements and timelines, and legislative authority for NPA to negotiate and

enter into future concession / lease arrangement.

13.2.7 Climate Change and Disaster Risk Assessment

Selection of appropriate design criteria for the deck level of the wharf and breakwater crest

level that take in account existing and future wave climate and sea level rise;

Adoption of measures to prevent ocean inundation and catchment flooding of the port land,

such as providing a shoreline revetment, filling of the port land and/or suitable floor levels for

buildings; and



Adoption of a more robust design for the wharf and breakwater to ensure the structures are

able to withstand the wave forces under sea level rise conditions.

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