Report No. 38009-BD People's Republic of Bangladesh Revival of Inland Water Transport Options and Strategies May 29, 2007 Sustainable Development Department South Asia Region Document of the World Bank PrefaceandAcknowledgements This report was preparedby a team led by Jean-Noel Guillossou (World Bank, SASSD). WorldBankteam memberswho participatedinthe field work and contributed background papers commissioned for this report include: Mohi Uz Zaman Quai, SASSD; Ishtiaque Ahmed, SASSD; Reefat Sultana, SASSD; Jean Salles, Consultant; Anatoly Hochstein, Consultant; Cornelis Kruk, ETWTR. The BangladeshInland Water Transport Authority (BIWTA), the Department of Shipping and the BangladeshInland Water Transport Corporation(BIWTC) provided sector data complementedby surveys carriedout byParvezAli Anwar Khan, Consultantfor BIWTA. The work was carried out under the guidance of Guang Zhe Chen, Sector Manager, SASSD; ChristineWallich, fonner CountryDirector for Bangladesh; and Xian Zhu, CountryDirector for Bangladesh.The team benefitedfrom comments from the two peer reviewers, SimonDavidEllis, EASTEandPeter Roberts, ETWTR; as well as from Masood Ahmad, SASSD; Karin Kemper, SASSD; Catherine Signe Tovey, DACWB; SyedA. Mahmood, SASFP; NilufarAhmad, SASSD; ZafrulIslam, SARPS. The report benefited greatly from the inputs received from participants at two workshopsjointly organizedby BIWTA and the World Bank inDhakainFebruary2005 and February 2006. The Consultation Workshop organizedjointly by BIWTA and the World Bank discussedthe findings of the report extensively on February27, 2007. The Ministry of Ports and Shipping and the Department of Shipping, BIWTA and BIWTC reviewedthe reportandprovidedcomments. TABLE OFCONTENTS EXECUTIVE SUMMARY ................................................................................................. i 1. Background................................................................................................................. 1 1.1. Introduction......................................................................................................... 1 1.2. 1 Past and Present IWTProjects............................................................................ Current Government Strategy............................................................................. 1.3. 3 1.4. 4 2. 6 3.3.1.Operation andMaintenanceof IWT Infrastructure and Fleet..................................... Objectives and Scope.................................................................................................. Towards anew IWT Strategy............................................................................. 7 7 Network Maintenance......................................................................................... IWT Network ...................................................................................................... 3.2. 8 3.3. Ports andLandingFacilities.............................................................................. . . . 11 3.4. IWT Fleet.......................................................................................................... 14 3.5. Country Boats................................................................................................... 15 4. 5. 5.1.Economic Analysis ................................................................................................... 20 TransportDemandAnalysis ..................................................................................... 17 5.2. Intermodal Comparison .................................................................................... 20 IWT Productivity .............................................................................................. 20 6.5.3.Institutionalreview ................................................................................................... 25 Economic Justification ofDredging ................................................................. 23 6.1. Overview........................................................................................................... 25 6.2. Overlapping Responsibilities ............................................................................ Sector Coordination.......................................................................................... 25 6.3. 26 6.4. 26 27 Institutional Support for Country Boats............................................................ TIWTP Institutional Development Action Plan ............................................... Sector Management .......................................................................................... 6.5. 6.6. 28 6.7. 29 7.7.1.SectorFinancing ....................................................................................................... PoliticalEconomy ofthe IWT sector................................................................ 30 BIWTA ............................................................................................................. Sector Expenditures.......................................................................................... 30 7.2. 31 7.3. 32 Financing ofNetwork Maintenance.................................................................. BIWTC.............................................................................................................. 7.4. 34 8.8.1.Private Dredging ........................................................................................................... Sector Participation....................................................................................... . . . 36 36 8.2. Port Operations ................................................................................................. 36 8.3. 37 Ferryand Coastal Services................................................................................ Container Transport .......................................................................................... 8.4. 38 8.5. Private Projects................................................................................................. 38 9.9.1.Cross-borderIWTbetweenIndiaandBangladesh................................................... 40 Regulatory Framework ..................................................................................... 40 9.2. 40 Past Demand..................................................................................................... IWT Infrastructure ............................................................................................ 9.3. 40 9.4. 41 Investmentprogram.............................................................................................. Prospects for Development o f Intra-regional Trade using IWT....................... 10. 43 10.1. BIWTA Program........................................................................................... 43 10.2. BIWTC Program........................................................................................... 44 11.10.3.Safety.................................................................................................................... 45 BWDBProgram............................................................................................ 44 12 . 48 13. Environment.......................................................................................................... 50 14. IWT andWater Management................................................................................ Socialissues.......................................................................................................... 52 15. SWOTAnalysis.................................................................................................... 54 15.1. 54 Weaknesses................................................................................................... Strengths ....................................................................................................... 15.2. 54 15.3. Opportunities................................................................................................. 55 55 56 65 Annex 1: DredgingWorks ExecutedDuringThe Past 13Years...................................... 17. 16.15.4.Strategic Recommendations.................................................................................. Threats........................................................................................................... PossibleWorld Bank Support............................................................................... 67 h e x 2: SectionsOfIWTNetwork With SiltationProblems......................................... 69 Annex 3: IWT Fleet.......................................................................................................... 71 Annex 4: IWT OperatingCosts ........................................................................................ 72 Annex 5: Economicjustification of dredging................................................................... 73 Annex 6: GovernmentAnd BIWTAResourcesForDredging......................................... 74 Annex 7: IWTAndRoadAccidents................................................................................. 75 Annex 8.1: BIWTAThree-Year InvestmentProgram...................................................... 76 81 Annex 8.3: DepartmentOf Shipping. List OfProjects..................................................... Annex 8.2: BIWTC InvestmentProgram......................................................................... 82 83 References......................................................................................................................... Annex 9: BIWTC.ProfitAnd LossM CForm2001-2002To 2005 - 2006.................... 84 Map Section...................................................................................................................... 85 TABLES Table 1:Classes ofWaterways........................................................................................... 8 Table2: Cost ofdredging ................................................................................................. 11 Table3: IWT cargo transportcosts andrevenues with manualor mechanizedhandling 14 Table4: Modal Share ofPassengerandCargoTraffic..................................................... 18 Table5: IntermodalComparisonofTransportNetworks'Productivity........................... 18 Table6: MajorproductsusingIWT.................................................................................. 18 19 Table 8: Utilizationof IWTFleet ..................................................................................... Table7: IWTtraffic onmajor routes................................................................................ 20 Table 9: Comparisonofpassenger tariffs by transport mode........................................... 21 Table 11: BIWTAAnnual DevelopmentProgram(2005-2008) .ApprovedProjects.....21 Table 10: Comparisonofcargo tariffs by transportmode................................................ 43 Table 12: EmploymentinIWT Sector.............................................................................. 50 Table 13: PotentialSources ofFinancingfor Dredging................................................... 58 Table 14:ProposedIWT Strategy- BuildingBlocks andActions................................... 64 FIGURES Figure 1: Comparison ofport traffic and revenues........................................................... 13 Figure 2: Port Throughputs ............................................................................................... 19 Figure 3: Comparisonof IWT passengercosts and tariffs ............................................... 22 Figure 4: IWT Cargo Costs by loadingrate andjourney distance.................................... 22 Figure5: ADP allocationto IWT Sector .......................................................................... 30 Figure 6: BIWTC Revenues andExpenditures................................................................. 33 Figure 7: Intra-regional Traffic between India andBangladesh....................................... 41 Figure8: Causeso fAccidents on InlandWaterways ....................................................... Figure 9: Causes o fFerry Accidents................................................................................. 45 46 EXECUTIVESUMMARY Inland Water Transport: An unexploited opportunity for economic growth and povertyreduction 1. With the approval o fthe NationalStrategy for AcceleratedPovertyReduction (NSAPR) in October 2005, the Government o f Bangladesh (GOB) has adopted a development strategy more focused on growth and poverty reduction. Within the framework o f the NSAPR, the Government has expressed a renewed interest in Inland Water Transport (IWT) to achieve the objective o f providing better accessibility to services as well as cheaper modes o ftransport. 2. The potential contribution o f IWT to poverty reduction is significant. A substantial portion (12.3 percent) o f the rural population only has reasonable access to the transport system through IWT, and is directly affected by the availability o f IWT services. This is half o f all rural households, which have access to river transport (25.1 percent). Comparatively to roadtransport, accessibility provided by IWT is quite highfor a 24,000 km long network, which is much shorter than the road network. Although the road network is 274,000 km long, only 37 percent of rural households live within two kilometers (typically equivalent to a walk of20-25 minutes)o f an all-weather road. 3. Despite o f IWT being such an asset for Bangladesh, during the past ten years, the country's economy has not been able to reap the benefits that IWT can bring in terms of economic growth and poverty reduction in comparison to other modes o f transport. On the contrary, since 1996, IWT cargo traffic has stagnated and IWT passenger traffic has decreased at 1.3 percent per year while the total transport demandhas grown at about 7 percent per year. 4. Although sound IWT-related elements o f policies have been recently formulated in several Government documents, there remains a lack of genuine Inland Water Transport policy as would be expected as part of the National Transport Policy. Such policy would aim at reinstating the role that the IWT Sector can play in the national transport system andbeyond that, inthe economic and social development ofthe country. 5. As a first step in defining a new policy for the I W T sector, the present report proposes options and strategies for a revival o f IWT in Bangladesh. While lack o f resources has been claimed to be the main cause o f poor sector performance, the report does not limit itself to exploring options to increase the amount o f resources available for the sector. Indeed, poor performance has been caused by other reasons as well which need to be addressed in the new policy. The report thus also examines the means to improve the efficiency in the use of these resources as well as the quality o f the sector management and services provided by the sector operators. The report includes comments received fkom a number o f stakeholders andwas presented during a workshop heldinDhakaon February28,2007. IWT has a role to play in the transport sector in Bangladeshand in the country's economy 6. IWThas three hctionswith distinct modes ofoperations and stakeholders: 1 a. National: This consists in trunk haulage o f freight and passenger camage along the main corridors o f demand between the ports and major economic centers (including international). Trips are medium to long distance andhigh volume movements are recorded. Vessels are modem vessels o f large capacity (100 to 1,200 passengers, 20 to 1,800 tons). b. Local: This consists infeeder, distribution and local traffic. Trips are mostly on short distances with low volume movements to and from (and between) smaller communities. The demand is predominantly for passenger movement but with an important need to accommodate modest freight loads, usually for small enterprise, small-holder or `own account' purposes. Local trips use traditional country boats offering a capacity o f up to 100 passengers and 100 tons. c. Ferries: Femes link sections o f roads separated by large channels in the absence o f bridges. Functionally these are an entirely separate category since they are part o f the road transport system rather than the IWT system. However, operationally it is sensible to integrate aspects o f the ferry services (such as vessel maintenance and repair andriver dredging) with those o f IWT. 7. IWT is competitive for cargo transport IWT tariffs for cargo are below compared to road and rail on the niche market o f Tk 1 per ton-km whereas for bulk cargo and petroleum products. On the road they are around Tk 4.5. domestic market, IWT i s mostly used for transport Rail tariffs range between Tk of construction materials, petroleum products, 2.5 and 4. Even after adding to fertilizers and food grains. On the regional IWT and rail tariffs the cost of market, Bangladesh imports fly-ash, gypsum, rice handling at the porthailway and wheat from India using IWT. These are low station and terminal transport value products that can afford relatively long between the porth-ailway station transport times compared to road. They are also and the origidfinal destination, transported in large quantities in cargo vessels IWT still remains the cheaper filled with one product only. Products with higher mode o f transport. For example value in smaller packages are transported by road between Dhaka and Chittagong, as it would be inefficient to wait for enough the tariff to transport a 20-foot freight to be available to fill a cargo vessel when container i s around Tk 600 per trucks are available and can be filled quickly with ton by IWT, compared to Tk smaller quantities. 1,200 for rail and Tk 6,000 for 8. IWT can also provide large capacity for passenger transport but regulatory issues need to Based on the statistics for the be addressed if the sector wants to capture its past 15 years, fatalities on potential share o f the market. About 50 million inlandwaterways averaged 148 passengers on average are recorded in the 10 peryear against 2,400 for roads. major inland ports. IWT's share o f the overall The ratio o f fatalities per billion passenger transport market i s estimated at 8.9 o f passenger-km is 158 for percent in 2006. However, this share has eroded roads and 41 for IWT. inpercentage and in absolute value since 1996 reflecting poor operating conditions. IWT i s in competition with rail which has unreasonably low- tariffs determined by the Government for social reasons. Rapid .. 11 development o f the road network has also attracted a significant share o fpassenger traffic because o fmuch faster even ifcostlier services. IWT is also considered unsafe because o f dramatic accidents involving a large number o f passengers although statistics show that IWT is less dangerous thanroad. 9. Country boats, the traditional mode o f river transport for centuries, play and will continue to play an important role in the life o f rural people and inthe rural economy. It is estimated that about 745,000 country boats ply the rivers in Bangladesh o f which 464,000 are used for passengers and 261,000 for cargo. This is more than the 526,000 road vehicles registered in 2003 in the entire Bangladesh. During the monsoon season when roads become impassable, country boats are the only mode of transport for an important part of the rural population o f Bangladesh. They are also the main mode of transport in the Southern costal areas o f the country where the road network is little developed. The country boat sector is a major source o f employment inrural areas as it is estimated to employ about 3.8 million workers. 10. IWT is an environmentally-fkiendlymode o ftransport. The use o f IWT instead o f road transport i s estimated to save about 58.5 million liters o f diesel and 155,000 tons o f C02 per year because o f lower diesel consumption. Additional savings estimated at 100 million liters o f diesel and 260,000 tons o f C02 would be generated by adding a gearbox to country boats. The total diesel consumption o f the IWT sector is estimated at 350 million liters, about 13 percent of the total consumption o f diesel in Bangladesh. The quite significant amount o f savings would make installation of gearboxes a potential candidate for access to carbon finance resources. 11. From the standpoint o f the country's economy, dredging of waterways is highly economically justified. Inthe hypothesis where all IWT cargo is transferred to road, the additional cost for the economy i s estimated between Tk 2.1 billion and Tk 3.1 billion whereas the cost o f dredging to continue IWT cargo transport i s estimated at Tk 0.6 billion only. This does not include the additional cost o f road maintenance and road accidents due to the additional traffic on the roads. Using the data above, the threshold above which dredging i s justified is roughly estimated at 50,000 tons equivalent to 1.5 trip of a 600 ton ship perweek. This analysis is done globally on the entire IWT network to demonstrate the economic justification o f IWT for the economy. It would need to be carried out by sections o fthe network tojustify any dredging program. Water managementgoverns the futureofIWT 12. The constraint on the availability o f water provides the environment for any IWT strategy as it i s outside the sector and not under its control. River water is used for several purposes: water supply, electricity generation, irrigation and drainage. Availability o f river water is also subject to regional agreements and the vagrancy in their implementation due to political reasons. Even with improved water management, increased extraction o f water from rivers in the future combined with siltation resulting from deforestation will continue to impact significantly on IWT as it has increasingly done in the past decades. The impact o f water management on IWT is thus the major challenge faced by I W T inthe future. I W T has to face that reality and decide on the type of network and the type o f services that are affordable, sustainable and socially and economically acceptable. 111 ... 13. Inview ofthis constraint, the short-term priority for the Government shouldbeto determine the core IWT network which would be justified to receive resources for development and maintenance by distinguishing between the network that can be used by modem vessels andwhich will require a significant amount ofresources for maintenance, andthe remainingnetwork usedbycountry boats which does not needmaintenance. This will change from the past strategy where network development was based on internal IWT sector considerations only. 14. While water management and IWT projects need to be coordinated, it i s not the responsibility o f the IWT sector to develop projects with significant water management components and impacts. Development plans for the IWT sector should not be based on benefits resulting from better water management. This is particularly important for the establishment o f the core network as recommended above. It should be based on a given situation o f river waters resulting from the water management conditions existing or expected inwater management plans and should not be based on expectations that would assumeunapproved changes inwater management conditions. Improved governance is required to make sector management more efficient and transparent 15. There are two authorities responsible for the management o f this sector: The Department o f Shipping (DOS) and the Bangladesh Inland Water Transport Authority (BIWTA). DOS is responsible for safety, the provision o f the regulatory framework for the sector and for training and scrutiny o f maritime staff, It includes the Inland Ship Safety Administration (ISSA), which i s responsible for the definition and enforcement o f ship safety rules and for registering vessels. ISSA is also the institution responsible for managing environmental aspects o f the sector. BIWTA i s a parastatal responsible for maintenance and development o f waterways. This responsibility includes: (a) provision o f dredging services; (b) provision o f pilots and navigational aids; (c) provision o f hydrographic services; (d) management and administration o f inland ports and landing facilities o f significant importance; (e) regulation o f transport operations, including licensingand scheduling o froutes and setting up o ftariffs; and (f) training andresearch. 16. Allocation o f responsibilities between the DOS and the BIWTA needs to be clarified. The overlap o f responsibilities between BIWTA and DOS is apparent. While BIWTA defines construction design, DOS certifies the same vessel after construction; crew members are trained by BIWTA but licensed by DOS. BIWTA issues some classification rules for ship operations with DOS monitoring these rules. All o f these functions could bebetter executed byone o fthese two organizations. 17. An adequate level o f resources is required to ensure good sector management. Priority should be given to making enough humanresources available to enforce safety regulation (controlling the technical quality o f vessels design and construction, controlling overloading). An equivalent priority would be to provide the human and financial resources to monitor sector performance. Particularly important i s monitoring o f the waterways network as the last comprehensive hydrographic survey was carried out in 1989. Since then only surveys limitedto the most important inland and coastal waterways have beencarried out, and the present condition o fthe network o fnavigable waterways is unknown. As a result, planning is based on ad-hoc decisions without real sector iv perspective, objective information and technical and economical justification, making it difficult to resist political pressure. Improvedmonitoring would include environment for which equipment has been purchased during the past decade but has remained unused becauseo f lack o fhumanand financial resources. 18. Financial management o f BIWTA needs to improve for more efficient and transparentuse o fresources allocated to the sector. There is uncertainty on the actual cost o f dredgingexecuted by BIWTA.BIWTA estimates this cost at Tk 98 per m3,which i s in the range of unit costs in or outside Bangladesh. In view o f the quantity of dredging performed by BIWTA (3.48 million m3),BIWTA would have spent TK 341 million for dredgingin2004/2005, which is very low compared to BIWTA'stotal expenditures o fTk 1,115 millionthat year as dredgingis supposed to be the main and most costly activity o f BIWTA. The question would be then to justify the significant amount o f resources that are spent on other activities thandredging, inparticular administrative tasks. 19. Revision o f the sector's financing structure would also contribute to the more transparent and efficient use o f sector resources. Presently, the Government finances maintenance o f ferry channels without a clear view o f performance and costs. On the other side, BIWTC operates ferry services with profits that are used to subsidize loss- making coastal passenger services. It i s proposed that coastal passenger services be subsidized only after the level and quantity o f services as well as the level o f subsidy havebeen defined, andincentives have been introduced to improve efficiency andcontrol costs. Dredging o f ferry channels executed by private contractors through contracts and financed by a fee paid by ferry users would also give a much clearer view o f the costs, revenues and expenditures. 20. Involvement o f IWT users in management o f resources for maintenance o f navigable waterways would improve transparency in the decision-making process to allocate resources, and ensure adequacy o f resources allocated to maintenance. An IWT Maintenance Fund is envisaged in the draft Integrated Multi-modal Transport Policy at the image o f the Road Maintenance Fund that has been discussed for some time in Bangladesh. While arrangements for the management and operation o f the Fund will be confirmedby the Government, using the Road Maintenance Fundas a model, IWT users would be represented in the Board o f Directors o f the Fund and user fees paid by IWT users would be transferred directly to the Fund. 21. Management o f the country boat sector should be increasingly decentralized similarly to what exists for rural roads. Involvement o f country boats owners in the decision-making process at the local level will improve the consistency between the sector investments and the needs. This has often been an issue in the past when infrastructure was not built inconsultationwith the users. Registration o f countryboats at the local level will also generate revenues, which can be used then for the benefits o f the local population. 22. A political economy analysis o f the IWT sector has identified several sources of potential opposition to the reforms proposed in the sector, and these oppositions should V be addressed. Clause 4(c) of the Ghat Ijara Policy' should be suppressed. It has been abused as now 400 ghats have been leased out using this clause. The financial transactions associated to the lack o f transparency inthe process increase the cost o f the use o f the ports, which i s contrary to the initial objective o f people's welfare. To improve the governance, there i s a need to better control dredging expenditures (fuel consumption and overtime) as well as revenues collected from the passenger terminal fees and cargo fees. In addition, the Government needs to put in place the regulatory and control mechanisms to prevent misuse o f Government funds that may occur as a result o f increasedprivate sector participation inport operations or dredging. Sustainable IWT infrastructure requires increased users' contribution to sector financing 23. Untilnow, IWT users have contributed little to financing of river maintenance and Government budget has been haphazardly allocated. Resources collected from IWT users represent a small share (about 6 percent) o f the resources requiredfor maintenance. The Government is expected to provide the balance but has not given priority to maintenance when allocating resources to the sector. The share o f resources allocated to network maintenance has decreased from about 30 percent in 2002-03 to about 15 percent in2004/2005. In 2005/06, when dredging volumes were expected to jump to 6.5 million m3due to the availability o f resources from the Japanese Development Cost Fund, only resources for 1.1 million m3were allocated to maintenance dredging o f navigablewaterways. 24. The potential exists to increase contribution o f IWT users to financing o f maintenance. A significant share of BIWTA's budget is allocated to maintenance of channels where BIWTC operates ferries with profit. BIWTC should contribute to maintenance o f the ferry channels, which has not been the case until now. User charges collected by BIWTA can also be increased to contribute to financing maintenance in addition to covering BIWTA's administrative costs. Additional resources could come from a levy on petroleum products similarly to what is envisaged for road maintenance financing. However, this may not be feasible if this new user charge creates inequity, especially vis-&vis country boats which ply rivers that would not bemaintained. Another possibility i s to ask port users to pay tolls as river maintenance i s required to guarantee access to ports but the need to also increase resources to maintain port infrastmcture limitsthis option. 25. User charges can potentially cover the cost o f maintaining the IWT network as shown in the following table. An increase in the price o f diesel oil o f Tk 1.3 per liter would provide the resources necessary to cover maintenance needs assuming that BIWTC finances the dredgingof ferry channels and that other user charges are increased by50 percent. This seemsreasonable compared to the current price o fdiesel ofTk 30 per liter. The actual amount o f resources needed for IWT network maintenance needs to be clarified though. This requires defining the core IWT network as recommended above, the level o f service offered and the dredging requirements to maintain this level o f This clause authorizes local Members of Parliament, Ministers in charges o f districts or the Shipping Minister to lease out ghats and ports to institutions/ organizations/associations under the pretext o f people's welfare vi service. A dredging strategy where half of the IWT network would be maintainedwould result in a user charge on petroleum products o f Tk 0.4 per liter, which is quite affordable. Progressive implementation o f the user charge would also facilitate its acceptability. Performance of IWT services needs to improve to make them more attractive and viable 26. Quality o fIWT services suffers because o finadequate regulationand involvement o f Government in service delivery. Tariffs regulated by the Government are insufficient to generate a reasonable profit if applied, thus become a source o f overloading o f passenger vessels. The present arrangement where passenger tickets are delivered on board o f vessels2preventscontrol o f the numbero f passengersboarding, which results in overloading. As overloading contributes to 56 percent o f accidents on waterways, the Government i s responsible for failing to provide the framework that would prevent overloading. 27. Efficiency of dredging needs to improve. The productivity o f dredgers operated by BIWTA is relatively low. Insufficient supporting equipment and only two shifts per day explain this performance. Though the private sector offers a capacity3o f 6.9 million m3(2.5 times the capacity o f BIWTA) and lower cost (Tk 112 per m3with VAT), BIWTA gives priority to its own dredgers. BIWTA also turns to Bangladesh Water Development Board (BWDB) for dredgingworks before turning to the private sector. 28. The private sector has the capacity to progressively take over the responsibility for the execution o f dredging programs. Nevertheless, the Government i s in the process o f acquiring three new dredgers and i s considering the acquisition of nine additional dredgers. BIWTA does not provide the framework for efficient operation o f these new dredgers. How to transfer their management to the private sector should be explored. The Government should also recognize that the private sector has enough capacity to execute dredging programs, and should contract the private sector instead o f investing in more new equipment inthe future. BIWTC has the right to delivervessels inthe passenger terminals but this right is deniedto private operators. Five private companies operate six large cutterhead dredgers, two with a productivity in the range o f 2,500 - 3,500 m3/hourand four 18" dredgers with a productivity in the range of 350 - 400 m3/h0ur.The Engine Boat Association built seven smaller dredgers with a productivity of 150 m3/h0ur,which however are notutilizedpresently. vii 29. BIWTC divesting o f IWT operations has proved successful and should continue. Most o f cargo vessels have been already leased out to private operators. This should be followed by selling the assets to the private operators. Ferry services, starting with new services, should be offered progressivelyto the private sector through competition for the market or in the market. As for coastal services, progressively offering them to the private sector should be explored usingPublic Service Obligations. 30. Contractual arrangements between BIWTA and private port managers and operators should be revised to transfer more responsibilities to the private sector. Currently, BIWTA delegates port management to private operators through lease agreements o f one year only. The responsibilities o f port managers are limitedto collect port dues andpay a lease to BIWTA. Though BIWTA also leasesport space to operators who want to build warehouses, the one-year lease agreement puts risks on the private investor whenthe life o f the investment goes far beyond one year. This is also a potential cause o f problems when the lease agreement has to be renewed through a competitive process (pressure from the investor to obtain the lease, possibility o f corruption). In addition, one-year agreements prevent operators to invest in mechanized equipment for freight handling. As a result, port productivity i s low and ports are congested. Extension o f lease agreements beyond one year would give the opportunity to transfer the responsibility for maintenance to the port managers and to pilot the use o f mechanized equipment for freight handling. 31. Country boats services need to improve if they want to continue to compete with road services. Lack o f gearbox reduces control and causes hazards during maneuvers. Installing a gearbox would also reduce diesel consumption with a positive impact on environment. Women also complain about the lack o f comfort, which is aggravated by the lengthy time o f travel compared to buses, although the latter are not more comfortable. New business opportunities exist to further develop IWT services 32. IWT has the potential to become a major actor in the transport o f container between Dhaka and Chittagong. With the strong growth o f container traffic inthe port o f Chittagong, the port throughput will soon reach one million TEUs per year. At present, railways are congested and the road does not have the bearing capacity to carry container trailers. Under a project to promote container transport by IWT developed jointly by BIWTA and the Chittagong Port Authority (CPA), a new InlandContainer Depot (ICD) i s envisaged near Dhaka. I C D operation will be concessioned to a private operator. BIWTC i s also acquiring two 100 TEUs container vessels. Leasingout the two vessels to the private sector would be consistent with the past policy o f divesting BIWTC o f freight transport. While the Government may continue to play a role in the future development o f IWT infrastructure, further development o f container transport by IWT should be left to the private sector. 33. The development o f container transport by IWT between India and Bangladesh shows a strong potential as well. IWT has already attracted the bulk traffic for which it i s competitive compared to road and rail. Container transport has not grown however inthe absence o f port infrastructure. With the ICD project in Dhaka, the conditions will be in place to set up container transport services that would be faster and cheaper than the ... VI11 services presently offered by sea-trucks transiting through Singapore or Colombo. The cost o f transport by IWT is estimated at US$700. - per TEU for a 7- to 9-day trip compared to US$2,500.- for a 15- to 30-day trip by sea. Untilnow, however, cross-border transport has beenhamperedby short-term bilateral agreements anduncertainty makingit difficult to invest inand sustain IWT services. 34. The Government o f Bangladesh should pursue with the Government o f India the establishment o f a sustainable framework for development o f regional IWT. Although the current framework for cross-border movements between India and Bangladesh i s not conducive to development o f exchanges using IWT, regional traffic has grown gradually during the past five years. This is the expression o f a strong demand and demonstrates that IWT i s an appropriate mode of transport for these exchanges. Inter-country cargo traffic has grown from 46,000 tons in2000/01 to 414,000 tons in2004/05. Transit traffic from and to Northeast India is also growing although it is much smaller (2,000 tons in 2003/04 and 15,000 tons in 2004/05). IWT is the right transport mode for products crossing the border which are inbulk and large quantities with low value such as fly-ash, gypsum, rice andwheat, crushed bones, jute products, cement, coal andbitumen. Conclusionand recommendations 35. Three factors make it a particularly opportune time for Bangladesh to reform the IWT sector: a. First, there is a strong agreement within the Government that IWT is a key contributor to poverty reduction inrural areas and to economic growth in the country. b. Second, the momentum already exists with past restructuring measures implemented in BIWTC, the consultation process on reforms launched by BIWTA among stakeholders since 2005, and various similar reforms that are underway or discussed inthe roadmaintenance or the railways sector. a. Third, new business opportunities exist such as development o f container transport between Dhaka and Chittagong or between India and Bangladesh, and hrther expansion o f existing programs such as dredging, ferry services, port management and operations bythe private sector. 36. The benefits for the country o f implementing the proposed strategy justify the efforts that would be required. This report hopes, through its recommendations, to contribute to the momentum being built for speedier reforms and as a result for a substantialperformance improvement o fthe IWT sector inBangladesh. 37. To achieve this objective, the report recommends that the Government concentrates on the following areas: a. Adoption of a new sector strategy; b. Adoption o f a network development and dredging strategy providing a mid- term vision for the sector encompassing investment needs, financing of recurrent costs and the role o fthe private sector; i x C. Setting up o f a new framework for sustainable sector financing with enhanced participation o f IWT users (financing o f maintenance o f ferry channels, waterways maintenance fund); d. Adoption o f a new institutional framework for country boats with responsibilities for IWT regulation and infrastructure transferred to Local Government Institutions; e. Deregulation o fpassengertariffs; f. Adoption ofanewinstitutionalframework for IWTto streamline andimprove sector management; g. Adoption o f a new framework for public-private partnership in port management andcargo handling; h. Improvement o f governance in sector institutions (selection procedures for port managers and port operators, financial management system inBIWTA); 1. Improvement o f capacity to manage and monitor the sector with particular emphasis on safety and environment. 38. From the above assessment o f the IWT sector, including achievements under the Third Inland Water Transport Project (TIWTP), it can be concluded that World Bank involvement inthe sector ended in 2000 with an unfinished agenda. Sector development opportunities exist and the sector has strengths that justify enhanced donor support to the sector. Based on the experience o f TIWTP however, it is suggested to separate support to reforms and investments, using Development Policy instruments for the first one and sectoral investment instruments for the second. 39. The World Bank can provide support in implementing the above recommendations. A policy operation would ensure that the financial resources necessary for implementing the reforms as well as executing the priority recurrent expenditures are available. An investment operation would provide the resources necessary to improve infrastructure services and take advantage o f the new business opportunities where IWT has a strong development potential. X 1. BACKGROUND 1.1. INTRODUCTION 40. InBangladesh, being a country with manyrivers, InlandWater Transport (IWT), is a major mode for the transport o f goods and people. IWT is important for the poor as well as for the competitiveness and growth o f the economy as it is the cheapest mode of transport compared to road or rail. Untilrecently, however, the sector had received little attention from the Government o f Bangladesh with only limited resources allocated to its development. Inaddition, these resources were mostly used to develop the main routes (the ones most used by large mechanized vessels) while secondary rivers and transport usingcountry boats (mainly rural and untilrecently non-mechanized vessels constructed intraditional design) were givensecondpriority. 41. The total length o f rivers in Bangladesh is estimated to be in the range of some 24,000 kilometers, providing a very high degree o f penetration. Out of this total, 6,000 kilometers are accessible for movement o f modem mechanized vessels during the monsoon season, and out o f this, some 3,800 kilometers are navigable around the year. Country boats, inthe number of several hundredthousands, are traditional vessels which have been plying inland and coastal waters for hundreds o f years and which play a key role as a rural mode o f transport o f goods and people. Inland ports and other facilities include 11major inlandports, 23 coastal island ports, 133 launch stations and more than 1,000 minor landing points located in rural areas. In comparison, the road network is 274,000 km long with 70,000 km of paved roads, 21,000 km o f major roads and 253,000 kmo fruralroads. BangladeshRailways operates anetwork o faround 2,800 km. 1.2. CURRENTGOVERNMENT STRATEGY 42. With a development strategy more focused on growth and poverty reduction, and the objective o f providing better accessibility to services as well as cheaper modes of transport, the Government has expressed a renewed interest in IWT. This has been translated inrecent Government documents which give due reference to IWT. 43. The National Strategy for Accelerated Poverty Reduction (NSAPR) issued in October 2005 emphasizes that infrastructure may emerge as a binding constraint on the goal of accelerated poverty reduction unless the emerging challenges are effectively addressed. The NSAPR recommends the formulation o f a long-term strategy to develop IWT. The NSAPR acknowledges that the inlandwaterway system is not used to its full potential and identifies that the following factors be taken into consideration: a. Setting and enforcing standards for bridges andberthing facilities; b. Promoting internal government coordination to ensure sufficient clearance underroadbridges; c. Allowing country boat owners to participate inthe design o f sluice gates; d. Encouraging local authorities to develop facilities through self-financing by user charges. 44. The NSAPR confirms the Government commitment to preserving navigation o f country boats. However, the proposed measures are meant to be self-financed by the poor communities themselves and may not translate quickly into action and results. This clearly limitsthe impact o fthe Government commitment. 45. The draft Integrated Multi-modal Transport Policy (IMTP) issued by the Government in November 2005 proposes an efficient, safe and cheap IWT system with special attention to dredging, encouragement o f further mechanization o f country boats, and strengthening quality o fshipmasters for improvedsafety. 46. The draft proposal includes the establishment o f a single independent body to regulate fare structures in the transport sector in the public interest, separated from any other interests, with economic regulation being removed from individual public agencies inthe transport sector. The IMTPfurtherproposes alternative financingmeasuresthrough transfer o f resources collected on petroleum products from users o fthe river network to a special Inland Water Maintenance Fund allocated for dredging and maintaining waterways. The draft policy indeed highlights some o f the issues deemed most critical to sustainable development o f IWT. Notably tariff fixing mechanism is deemed a main hindrance to further involvement o f the private sector and alternative financing to Government subsidies for dredging seems to be key to the sector's sustainability. 47. Interms o f Operations, the IMTP sets out two goals: (i)for the private sector to introduce door-to-door services using IWT and the trucking industry; and (ii) to foster a highlevelo fruralmobilityusingruralwater transport. 48. The National Water Policy issued in2001 recognizes that IWT is o f substantial economic importance to Bangladesh because its numerous watercourses provide the cheapest means o f transportation. Siltation, however, has disrupted communications by river in many channels. Dredging o f these channels is required not only to restore their navigational capability but also to assist surface drainage. The policies o f the Government inthis regard are: a. Minimumwater flows indesignated rivers and streams will be maintained for navigation after diversion o fwater for drinking andmunicipal purposes. b. Water development projects should cause minimal disruption to navigation and, where necessary, adequatemitigation measures should be taken. c. Dredgingand other suitable measures would be undertaken, wherever needed to maintain navigational capability o f designated waterways. 49. The National Water Resources Council approved on March 31, 2004 a National Water Management Plan (NWMP). The NWMP envisages that the main river system will be comprehensively developed and managed for multi-purpose use through a variety o f structural and non-structural measures. To reduce the impact o f gradual siltation, measureswill be implementedto augment the surface water flow. These include dredging o frivers usinglabor-intensive methods. 50. The plan includes the project o f dredging for navigation, which seeks to restore the IWT waterways in a cost-effective manner, with a structured approach recognizing both the technical and enabling management issues that have to be overcome. A comprehensive national dredging management plan would be prepared covering short to 2 long term dredging requirements, as well as dredging operations and the role o f the private sector. The plan also makes provision for capital dredging (development o f new routes or improvement o f existing routes) and maintenance dredging o f the major rivers. 51. The NationalPolicy for Ports, Ocean Shippingand Inland Water Transport adopted by the Ministry o f Ports and Shipping in2000 established the Government's aim for Inland Water Transport of ensuring that Bangladesh has a safe and eficient inland and coastal water transport system able to support the national developmentaspirations. The policy provides a comprehensive guidance for the sector covering its management and administration, IWT infrastructure, services, safety and environment, technology and financing. 52. The Government through the PlanningSection o fthe Ministry o f Shipping (MOS) recently4 issued comments on the IWT Policy for Bangladesh as follows: d. Private sector participation in IWT in the coastal areas so that objectives o f the NSAPR will be achieved and balanced investment and development will be established. e. Evaluation o f fbture potential aspects/advantages for the IWT sector in view ofthe gradual loss o f inlandwaterways assets. f. Developmentofferry operations onsecondary routes. g. Inclusion ofMyanmar inthe development o fcross-border IWT. h. Improvement of aids to navigation to accommodate adverse weather conditions. i. Closeconsultationandparticipationofstakeholders intheconceptionofan IWTpolicy. j. Combating pollution caused by IWT, notably inports and landing areas, by shipbuildingandrepair activities. 1.3. PASTAND PRESENTIWTPROJECTS 53. Few donors are involved in the sector. The Danish International Development Agency (DANIDA) provided support to the Bangladesh Inland Water Transport Authority (BIWTA) until 2000. Spain is currently financing the construction o f two dredgers and SouthKorea the purchase o ftwo salvage vessels. 54. The Government o f Japan is currently contributing substantial subsidies to BIWTA through the Japan Debt Cancellation Fund(JDCF). The International Maritime Organization (IMO) is developing a project in Bangladesh to promote a safer design for domestic ferries. 55. Several NGOs and local or foreign institutions have expressed interest in promoting development and improving operations of country boats. A project to develop a new design for country boats had little success. Use ofmetal sheet instead o fwood was 4 In connection with the World Bank's Concept Note for the preparation of the present strategy note, the Ministry of Shippingissuedapolicystatementby letter dated 19 April 2006. 3 also promoted and was more successful because o f the increased rarity o f wood for construction o f country boats. 56. The World Bank financed three Inland Water Transport Projects completed in June 1982, June 1985 and June 2000. The first project financed spare parts and equipment needed for rehabilitationo f some vessels, andmodifications and repairs o f the offshore oil terminal inthe port o f Chittagong. The second project financed equipment, materials and spare parts for sector state enterprises and technical assistance to (a) assist in strengthening planningand project preparation; (b) review, recommend and assist in implementing measures for improving cargo vessel deployment, cargo handling operations and communications; and (c) review and recommend measures for improving the finances o f the sector state enterprises. The third project consisted of: (a) an institution building component to enhance the capacities o f the sector institutions; (b) a vessel safety improvement component; (c) an inland ports component to provide 100 launch landingpontoons in rural areas; (d) a waterways development component which included dredging, hydrographic survey equipment, and equipment to improve the productivity o f the existing dredging fleet; and (e) a country boat component to provide services to the country boat sector (mechanization, safety and financing o f country boats and establishment of boat owners associations). The ImplementationCompletion Report prepared in November 2000 rated the project's outcome satisfactory, its sustainability uncertainandits institutional development impact negligible. 57. Investments financed under the TIWTP have had a positive impact on the sector operations without doubt. Five dredgers were refurbished and have been operating since then. Aids to navigation were installed on 918 km o f class Iand I1waterways (see para. 68) improving navigation, especially at night. Dredging works at ferry terminals have been reasonably sustained by BIWTA. N o complete assessment o f the 200 landing facilities built under the project i s available to evaluate their usefulness, the appropriateness o f their design and whether they are still in good condition. Survey vessels purchased under the project are not utilized as initially expected. They are mostly used to monitor water depth on the route between Dhaka and Chittagong and at a few other spots such as ferry terminals and dredging sites. 58. The Country Assistance Strategy (CAS) for FY07-FY09 adopted by the World Bank acknowledges the importance o f IWT inBangladesh and, accordingly, the lending portfolio includes an IWT project inFY09. Duringthe CAS period, with the objective o f improving the investment climate, the World Bank Group will help address governance and institutional constraints inthe transport sector and support improvements on the main transport corridors. With the objective o f improving national transport and communication systems, the World Bank Group will support the Government's national transport strategy, aimed at gradually establishing an integrated multimodal transport system and promoting sub-regional cooperation by developing transit links and cross- border facilities. 1.4. TOWARDSNEWIWT STRATEGY A 59. While sound IWT-related elements o f policies have been recently formulated in the previously mentioned documents, there remains a lack of a genuine updated Inland Water Transport policy as would be expected as part o f the National Transport Policy. 4 Such policy would aim at reinstating the Inland Water Transport Sector at the level correspondingto the role it plays inthe national transport system andbeyondthat, inthe economic and social developmentofthe country. 60. The Government of Bangladeshhas initiated an effort jointly with the World Bank to define a new strategy for development of Inland Water Transport. This effort was launched during two workshops organized by the Bangladesh Inland Water TransportAuthority (BIWTA) to discussIWT sector issues with the mainstakeholdersin early 2005 and 2006. This report aims at providing the analytical underpinning that wouldserveto the Governmentto decideonthe newIWT strategy. 5 2. OBJECTIVESAND SCOPE 61. The primary goals o fthis Economic and Sector Work (ESW) are: (i) provide an to overview and assessment o f IWT in Bangladesh, (ii) identify and discuss the sector's to Strengths, Weaknesses, Opportunities and Threats (SWOT analysis); (iii) to help the Government to define a strategy agreed with stakeholders to bolster the sector's contribution to shared growth and poverty reduction; and (iv) to identify priorities for a possible support from the Bank to the sector scheduled inFY09. 62. The scope o f the report will be limited to transport issues and will not propose a strategy for river management inrelation to water management. However, the report will help to better integrate the IWT strategy and the water management strategy. The latter issue goes much beyond the transport sector as it encompasses the impact of dams built inBangladeshandIndiaas well asthe impacts ofimgationandon-going deforestation. It is acknowledged that those three factors reduce the water levels in the rivers, thereby increasing siltation. This has dramatic consequencesfor IWT as manyrivers have already completely silted up or have limited capacity duringthe dry season, thereby reducing the mobility o fpeople usingcountry boats inrural areas. The other consequence i s that rivers widen to compensate for the reduction o f their depth. In many locations, this causes dramatic erosion and results in loss o f land for an increasing number o f rural people. For example, a recent survey of rickshaw pullers inDhaka found that a significant percentage o f rickshaw pullers are landless people who lost their land because o f river erosion and came to Dhaka to findjob opportunities. 63. The report is structured into a number of sections (3 to 14) which analyze the sector's situation and issues, followed by an analysis o f the sector's Strengths, Weaknesses, Opportunities and Threats (section 15). The report then concludes insection 16 with a summary o f the main strategic recommendations that might constitute the foundations o f a new IWT strategy in Bangladesh. Section 17 provides orientations for hture World Bank involvement inthe sector. 6 3. OPERATIONAND MAINTENANCE OFIWT INFRASTRUCTUREAND FLEET 3.1. IWTNETWORK 64. Physical characteristics. Physical characteristics of the river system are one o f the first challenges to overcome when defining a strategy for sector development. The river system in Bangladesh can be divided in four categories from the point o f river stability. The northernpart o fthe MeghnaRiver (see map) and a network o f its tributaries represent basically meandering flows. These rivers, therefore, form sharp bends and are subject to wide channel shifting. At the same time, some o f the tributaries are relatively stable to the extent that a dredged channel may retain some residual deepening over several years. Unfortunately, for a number o f years and for various reasons, these rivers have not been dredged or surveyed and, apparently, are now intheir natural forms. 65. The second category is in the Jumuna basin where the rivers represent a meandering flow with channels divided by a number o f branches. To maintain navigation, normally one o f these branches i s open for navigation. The confluence o f the Jumuna and the Meghna creates the large Lower Meghna River, which is the third category and i s relatively easier to maintain with most dredging focused on tributaries and access to ports. Finally, the fourth category is a network of southern rivers under the influence o f tidal fluctuations. The insufficient flow in these rivers not only affects navigationbut also the general salinity o fthe water. 66. The rivers in Bangladesh are subject to large flow fluctuations between the high water stage inthe June-October period andlow flow stage duringthe rest o f the year. The Lower Meghna River's discharge fluctuates from less than 10,000 m3/secduring the dry season to up to 140,000 m3/sec during the monsoon season. The difference between seasonal water levels i s on the order o f 6-7 m. Water velocities reach a highvalue o f 3-5 d s e c duringthe monsoon season. 67. Network Condition. The condition o f the network of navigable waterways is not known as the last comprehensive hydrographic survey was carried out in 1989. From the partial information collected from operators and BIWTA, it can be concluded that the level o f service provided by the river network i s less than the level expected in the existing classification. Annual channel dimensions in many cases do not correspond to their assigned Class. For instance, out of 683 km expected to offer the better level o f service o f the entire network, only 360 km o f waterways between Dhaka and Chittagong actually offer this level o f service. Several similar discrepancies have been identified by BIWTAinall classes. 68. Network Classification. The navigable waterways are assigned to four Classes that define the level o f service to be guaranteed taking into account the economic importance o f the river as well as the technical and financial capacity to maintain the level of service. 7 IWT Classification Length(km) Depth(m) Class I 683 3.66-3.96 Class I1 1,000 2.1-2.44 Class 111 1,885 1.52-1.83 Class IV 2,400 Less than 1.52 years ago: a. Tvpe and size o f vessels: Draft requirements have increased on certain routes. The single-desk vessels, which existed in large numbers in the eighties, have now givenway to larger ships with two or three decks. Cargo ships with a 500 to 1,000 DWT (Dead Weight Tons, expressing the cargo carrying capacity) capacity are quite common, now compared to a capacity o f 250 DWT in the eighties. b. Navigationrestrictions: Navigationhas beenrestricted on certainrivers due to the construction o f bridges and overhead high tension wiredcables over waterways without taking into account the vertical clearance required for navigation. C. Transport demand: The number o f inlandports has increased from 11in 1988- 89 to 19 in2005 allowing new services to develop. The volume o f traffic has increased on certain routes and decreased on others. New traffic is expected to develop in the fbture such as cross-border traffic with India and dedicated container traffic, inparticular between Chittagong andDhaka. d. River regimes: Morphological changes are natural in a very complex hydrologic system o frivers. Changes can also result from other reasons due to human intervention such as increased siltation due to capture o f water for irrigation or construction o f dams andvariable inflow o fwater discharge. e. Maintenance: Maintenance needs result from the definition o f a minimum draft on each river o f the network as provided by the classification. They need to be confronted however to the financing capacity for maintenance. This specific issue i s analyzed insubsequent sections o fthis report. 3.2. NETWORK MAINTENANCE 70. Dredging methods. Dredging is an expensive method o f maintenance in Bangladesh where rivers are unstable. In addition, it needs to be repeated every year and there is rarely a permanent solution to the accumulation o f sediments. Inthe majority o f 8 waterways, floods totally wipe out dredging performed at low water stage and the volumes o f annual maintenance are practically equivalent to volumes required for capital dredging that has brought the depth o f the river to its initial value determined by the network classification. River training is another expensive method that has proved difficult to apply because its effect is not always as positive as expected. Bank protections have also often provedto be inefficient and are used only in a few places. 71. Dredging capacify. An ample dredging capacity exists in Bangladesh. Dredging capacity i s provided by BIWTA, BWDB (Bangladesh Water Development Board) and the private sector. The total capacity available for dredging is estimated at 14.4 million m3(BIWTA: 2.8; BWDB: 4.7; private sector5: 6.9 million m3).This capacity could be improved by increased productivity. With the present productivity, the capacity for river dredging is estimated at 5.4 million m3provided by BIWTA and BWDB to which an unknown quantityperformedby the private sector can be added. 72. Although no assessment of the condition o f the fleet owned by BIWTA is available, it is likely that its useful life is reaching its end and that the issue o f dredging capacity in Bangladesh needs to be addressed soon. BIWTA operates seven dredgers which are between 31- and 34-year old. Five dredgers were refurbished between 1991 and 2000 with World Bank financing. The project provided equipment and spare parts but the dredgers were not fully overhauled. Under a normal routine maintenance program, the dredgers would undergo docking every three years, but this has not happened. 73. Productivity o f the dredgers operated by BIWTA i s low. According to BIWTA, the average annual productivity o f the dredgers is 400,000 m3.Assuming that the period o f operations lasts six months duringthe dry season and that utilization is 85 percent, the weekly productivity is about 20,000 m3. The utilization rate is relatively high as maintenance and repairs of dredgers are performed during the high water stage when there is no execution o f dredging works. The weekly productivity i s higher than the productivity measured before the five dredgers were refurbished (18,000 m3)but still about half of the productivity o f similar dredgers in other countries. Insufficient supporting equipment and only two shifts per day apparently explain this low productivity. While three shifts per day are technically possible, lack o f experienced crews is the first reason given to explain the limitation to two shifts. The second reason is that increased utilization o f the dredgers would result in increased need for maintenance and overhaul and additional resources, which are unavailable within the limited budget, allocated by the Government to BIWTA. 74. BWDB's unused capacity available for river dredging is estimated at 2.3 million m3.BWDB owns a fleet o f 27 dredgers o f which 18 are suitable for river dredging. The dredgers are newer than those o f BIWTA with five delivered in 2001 and the rest between 1977 and 1981. According to BWDB, the newer dredgers operate with an annual productivity o f about 420,000 m3,which i s similar to BIWTA's performance. The older 5Five private companies operate six large cutterhead dredgers, two with a productivity in the range of 3,500 -2,500 m3ihour and four 18" dredgers with a productivityin the range of 350 - 400 m3hour. The EngineBoat Associationbuilt sevensmaller dredgers with a productivityof 150 &/hour, whichhowever are notutilizedpresently. 9 dredgers have half o f this productivity. Based on these numbers, BWDB's annual capacity is estimated at 4.7 million m3.BWDB performs dredging works for water projects, for BIWTA and for the Road and Highway Department. BWDBindicates that it dredges about 2.4 million m3per year o f which on average 0.3 million m3are performed for BIWTA. 75. Six private companies have developed a dredging capacity. Four companies have 18" cutter head dredgers with productivity similar to the productivity o f BIWTA and BWDB(350 - 400 m3ihour). Two dredgers have productivity 6 to 10times higher (2,500 - 3,500 rn3ihou.r). The information on the type of works performedby the private sector is not available. Private sector's contribution to BIWTA's programs ranges between 0.1 and 0.5 million m3. Inaddition, the Engine Boat Association owns seven small dredgers to dredge small routes for country boats. These dredgers are not utilized because o f the inability to recover the cost o f operations. A large fleet of makeshift small dredgers also exists inthe country but is not suitable for waterway dredging. 76. Dredging activities. Maintenance o fwaterways seems to have received the lowest priority from the Government o f Bangladesh compared to route development or maintenance o f ferry crossings. Dredging performance has been stable over time at around 3 millionm3(see Annex 1:DredgingWorks ExecutedDuringThe Past 13 Years). Dredging is performed either for maintenance of the river network or for development. The distribution o f resources between maintenance and development has been variable but the trend has been in favor o f development rather than maintenance. No clear mechanism has been established to decide on the quantities o f works to be performed for each of the tasks. Programs reflect demands from Launch Owners' Association, Cargo Vessels Owners'Association, BIWTC, BIWTA as well as political demands. 77. Maintenance works are divided between maintenance o f ferry crossings and dredging o f navigable waterways. Between three and four BIWTA dredgers are permanently assigned to ferry crossings. During the past three years, the quantity o f dredgingworks at ferry crossings has increasedfrom 1.09 million m3to 1.49 millionm3. On the contrary, the quantity o f maintenance of navigable waterways has decreased from 0.85 millionm3to 0.68 million m3. 78. In2006, BIWTA benefited from additional financing for dredgingfollowing the introduction o f the Japanese Development Cost Fund. As a result o f the availability o f additional resources, dredgingvolumes were expected to reach 6.5 million m3.However, only 1.1 million m3 were devoted to maintenance o f waterways with the remaining amount directed to development works and ferry crossings. 79. Dredging costs. Dredging costs estimated by BIWTA, BWDB and the private sector are similar but costs for BIWTA and BWDB would needto be carehlly analyzed to verify that they include all inputs, especially the right value o f depreciation as equipmentusedbybothentities is very old. 10 Cost per cubic meter BrWTA Tk 98.00 (including all charges) US$1,50 BWDB(withoutadditionalcharges Tk 82.00 for inlandwaterways US$1.25 for tugs, barges andother vessels) Tk 132.00 for coastal areas US$2.00 Private sector Tk 112.00 (withVAT andprofit) US$1.71 Tk 94.50 (withoutVAT andprofit) US$1.45 3.3. PORTSAND LANDING FACILITIES 81. Infrastructure. A large number o f facilities spread all over the country offer various levels o f services. About 1,400 sites are designated as facilities for river transport. BIWTA is responsible for construction and maintenance o f about half of these facilities which fall into four categories: a. Main ports built, maintained and regulated by BIWTA. Government Acts designate 19 such ports but only 11 have actually been developed. The infrastructure consists o f terminal buildings, pontoons, jetties, gangways and godowns or transit sheds. b. Landingfacilities (Ghats) also built and maintained by BIWTA. 373 sites are designated to have such facilities. Infrastructure consists o f pontoons or jetties. C. Landing points for country boats at about 400 locations under BIWTA's responsibility. d. Landing sites without more than a wooden plank for passenger and freight embarkationand disembarkation. 82. Warehouses in main ports are usually built by BIWTA and leased to a port operator or another private entity. A port operator or a private developer may be 11 authorized to build its own warehouse as well as jetties and benefit from a reduced lease fee. Public jetties (101 in 8 main ports) are mostly used for passengers while private jetties (178 in5 main ports) are used for cargo. 83. Absence o f sufficient mooring facilities (ghats) i s considered to be one o f the factors negatively affecting safety on rural waterways. BIWTA allocates little resources to landingpoints for country boats. As a result, local authorities or local associations o f boat owners develop additional sites. These sites are rudimentary and often do not represent more thana segment o f shore with walking accessto land. 84. Management. The framework for port management is not conducive to efficiency and sector development. In nearly all main ports, passenger and cargo operations are conducted by private operators under a lease agreement with BIWTA, with the exception o f ports operated by BIWTA where only cargo operations are subject to a lease agreement. However, the duration o f the lease is only for one year which prevents operators to invest inport development or maintenance o f the port infrastructure. For this reason, damages due to floods, accidents or cyclones are not repaired. Connections between jetties and pontoons are often in poor condition due to unstable anchorage and high fluctuation of the water level during the high and low water seasons (up to 6 meters). A 1997 survey concluded that 40 percent o f port operators prefer a two-year lease agreement, 33 percent a three to five-year agreement and only 27 percent approve a one-year agreement. 85. Port operators are selected every year through open tender. The lease agreement is awarded based on the highest offered rental fee. The tender, however, can be substituted by a letter from a local Member o f Parliament or the procedure can be opposed by pressure groups in favor o f direct negotiations. The tender documents and the decision- making process suffer from ambiguities. The tendering process also suffers from delays due to the highnumber o f procedures to be carried out at the same time every year and the limitedcapacity o fBIWTA. Competition i s also limited and BIWTA may not get the best results that can be expected. However, other methods such as auction, which was practiced before 1991-1992 or direct negotiations would not be more transparent nor improve the results. 86. The lease agreements do not provide the appropriate legal framework regulating relationships between BIWTA and the operator. Roles and responsibilities are not clearly defined. This often results in complaints in courts about the implementation o f the agreement, especially with respect to payment o f the rental fee. Licensees are requested to pay a certain percentage o f the rental fee within seven days o f receiving the award but then often do not pay the balance stating that they could not earn the revenues initially expected. Courts often support the licensees as BIWTA cannot counter the licensees' claims inthe absenceo fproper monitoring arrangements. 87. A comparison o f port traffic and revenues shows that port revenues do not seem to be related to the traffic. Daulatdia for example has the same cargo traffic as Baghabari but much more passenger traffic (12 million compared to about 0). Still, both ports generate the same revenues. Narshingi has the same level o f traffic as Barisal and Chandpur but generates almost 40 times fewer revenues. Aricha seems also to generate little revenues (six times less) compared to Dhaka, with little less cargo but slightlymore 12 passengers. Naryanganj generates as many revenues as Dhaka with almost the same cargo traffic but 6 times less passenger traffic. This may result from a less than perfect marketwith few operators as well as from collusion, corruptionandpoliticalinfluence. Figure 1:Comparison of port traffic and revenues Comparisonof porttraffic and revenues 1 BO - * - 1 60 1 40 1 20 1 00 0 80 --@- cargo 0 60 0 40 0 20 0 00 I I Ports I 88. A more detailed review of port revenues and tariffs would be neededto provide guidance on a reform o f tariffs and selection method o f port operators. By moving from flat rates or lump-sum payments to shared revenues, port administration can collect a portion o f additional fees with increases inport operations above the initial assumedlevel o f demand. With the new schemes BIWTA may obtain additional funds, without in principle affecting overall operator profits. The benefits should however be measured against the risk o f loss o f revenues resulting from comption or weak monitoring and management capacity in BIWTA. This option may be envisaged inports where modem management practices can be implemented with an acceptable level o f transparency and accountability and where the level o f traffic i s high enough to accommodate the additional cost resultingfrom improved management. 89. The procedure for selling tickets to passengers i s questionable. First passengers pay a fee before boardingthe vessels, either to BIWTA or to the terminal operator. Only after that passengers are allowed to board the vessels where they have to purchase their transport ticket. There i s no control o f the number o f passengers boarding vessels that result in frequent overloading. Owners o f passenger vessels attempted to sell tickets in the terminal in a more organized way so as to control the number o f passengers but BrWTA didnot allow it without clear reason. With about 600 independentboat owners, authorization to sell tickets within terminals will require some organization to avoid having one ticket booth per owner, which would make the situation unmanageable. Sub- contracting to a limited number o f operators would be the solution, which would in addition facilitate obtaining statistics. 90. Revenues directly collectedby BIWTA from passengers inthe mainports are said to be subject to pilferage. There i s no control mechanism reconciling revenues and the number o f passengers transiting through the main ports. Privatization o f revenue collection would improve the statistics as well as the performance inrevenue collection. BangladeshRailways improved significantly its revenues byprivatizing this activity. 91. Cargo handlingmethods inport have a low efficiency. All cargo handling i s done bymanual labor usingthe so-called "headload" method. None ofthe public ports has any mechanized equipment incontrast to terminals belonging to private sector that have some 13 Manuallabor Mechanized Variation equipment MechanizedManual Number ofannual two-way 12 26 +114% trips Operatingcosts* (Tkper ton- 0.90 0.67 -26% km) Total Annual Revenues(based 2,700,000 5,700,000 +114% on a tariff of 0.92 Tk/t.km) Total Annual Profit (Tk) 60,000 1,600,000 93. No recent information exists on the number and the characteristics o f the fleet o f passenger and cargo vessels. All records are maintained manually by both the Department o f Shipping (DOS) and BIWTA, but it was not possible to reconcile this information to provide an accurate description o f the fleet. DOS data appears to record the cumulative number o f registered vessels as the number o f surveyors is insufficient to regularlyupdate the files. The following section is based on 1998-1999 data provided by BIWTA and updated from discussions with various sector professionals: 94. The number o f passenger vessels has remainedmore or less constant since 1998- 99 with a static capacity estimated at 230,000 passengers for about 1,874 vessels. Operators claim that the trend is to increase the capacity o f existing vessels but BIWTA andDOS do not havedata confirming this trend. 95. The fleet o f cargo vessels has significantly changed since 1998-99. Dumb barges o f 300 tons on average have been replaced by self-propelled vessels o f higher capacity o f 500 to 700 tons. The total static capacity has increased by about one third from about 750,000 tons to about 1,000,000 tons (see Annex 3: IWT Fleet). The fleet consists o f 2,288 units (2,000 cargo vessels, 118 tankers and 170bay crossing coasters). 14 96. The total capacity offered by the fleet is estimated at 76 million passengers and 35.2 million tons. Operators estimate that passenger vessels accomplish one one-way trip per day. 10 percent o f the time is assumed to be spent on docking for repair. Cargo vessels makeon average 12 trips per year during a period o f 330 days. The comparison o f the capacity offered to the demand provides the utilization ratio o f the fleet which is analyzed inparagraph 112below. 97. While other countries where IWT exists have developed push-towing techniques, this type o f transport i s not exploited in Bangladesh. The reason for that is that the industry is relatively scattered among a large number o f small operators. None o f these operators owns a fleet sufficient innumber to provide the pusher tug with a set o f loaded barges as it arrives at destination with the incoming set o f barges. The pusher tug would then have to wait that the convoy o f barges be unloaded and then loaded which is inefficient and unprofitable inview o f the relatively highcost o fpusher tugs. 3.5. COUNTRYBOATS 98. A large fleet o fprivately-ownedcountryboats operate all over the country. While country boats are more and more in competition with roads, they still play an important role to provide access to remote areas without road access or to areas during floods. The sector is entirely informal and its importance i s not easy to quantify. BIWTA estimates the number country boats at about 745,000 o fwhich 484,000 are used for passengersand 261,000 for cargo6. Half o f the country boats are said to be mechanized, without knowledge o fthe percentage for each o fthe passenger and cargo categories. 99. Passengers and especially women are dissatisfied with services provided by country boats. In addition to the lack o f landing facilities, which forces to embark and disembark inthe water, boats are often overcrowded which is unsafe and a discomfort for women. Women also complain about the lack o f toilets, which is a major impediment on long journeys. In many South East Asian countries, very simple toilets are fitted on cantilever at the boat's poop desk, hanging over the water. The amount o f money involved is insignificant. Operators interviewed for this report did not express interest in applyingthis experience inBangladesh. 100. The IWT andRural Livelihoods Study7 recently completed inthe Southern region reported that landing(Ghat) facilities are generally inadequate. Planks are mostly used to provide passengers access from the riverbank onto the boat. Mothers with small children, elderly women andpregnant women find it very difficult to use them for embarkation and disembarkation. The lack o f toilets in most landing places adds to the inconvenience. This has discouraged manypassengers from usingcountry boats. 101. Operators o f country boats have to pay a berthing fee to the nearest BIWTA pontoon operator, without using the facilities. Country boats are compelled to paytolls to nearby ghats, which is expensive and also not fit for use by country boats. The Engine Boat Owner's Association reported that landingfacilities such as pontoons are very often ill-located without consultationwith country boats operators. 'BIWTAYear Book 2004-2005. IWT and Rural Livelihoods, Case of Amtali Upazila, Barguna District, Naved Ahmed Chowdhury- Nov 2002 for DFID. 15 102. The need for infrastructure specifically designed for the informal water transport sector has not been consistently addressed. As a result there i s hardly any infrastructure available for operation o f country boats. As a matter of fact the pontoons commonly installed are too high and are not fit for country boats. The pontoonsherthing stations set upbyBIWTA acrossthe country are suitable for largepassengervessels and cargo ships, but are not workable with country boats because the level o f the landingplatformis too highabovethe water level. 103. In the absence of Government support to development of facilities adapted to country boats, local initiatives have emerged, but are limited. Some small landing stations and landing stages suitable for berthing o f country boats were developed by the Local Government EngineeringDepartmentunderrural development projects. The EngineBoat Owner's Association outposts have also erected makeshift landing facilities made o f bamboo by resorting to their own funds. The number o f such facilities is small compared to the requiremento f about 745,000 country boats. 104. Underthe Third InlandWater Transport Project, boat centers were intended to be established to provide technical assistanceto boat owners for repairs andimprovement o f their boats e.g., inrespect o f safety or gearbox upgrading. This component o f the project was unsatisfactory. Only three centers were built and two were actually completed. The centers were to be leased to the two former Boat Owner's Associations but this failed becausethe Boat Owner's Associations were not interested inrunningthe centers for lack o fresources and pointlessness. 105. The EngineBoat Owner's Association confirms that the establishment of country boat centers was the right thingto do. There was a slipway for maintenance of the boats. The centers could have been a supply center for spare parts and employ a few skilled workers such as mechanics and carpenters. The Association believes that the centers could be financially sustainable, but that the major flaw o fthe project was the location o f the centers. According to the boat owners, the authorities selected the locations regardless o f actual users' needs. This may not be the only reason, but nevertheless the centers have never been operating. 16 4. TRANSPORT DEMANDANALYSIS 106. Main IWTfunctions. IWT has three functions with distinct modes o f operations andstakeholders: e. National: This consists in trunk haulage o f freight and passenger carriage along the main corridors o f demand between the ports and major economic centers (including international). Trips are medium to long distance and high volumes o f movements are recorded. Vessels are modern vessels o f large capacity (100 to 1,200 passengers, 200 to 1,800 tons). f. Local:This consists infeeder, distribution andlocaltraffic. Trips are mostly on short distances with low volumes o fmovements to and from (andbetween) smaller communities. The demand is predominantly for passenger movements but with an important need to accommodate modest freight loads, usually for small enterprise, small-holder or `own account' purposes. Local trips use traditional country boats offering a capacity o f up to 100 passengers and 100 tons. g. Ferries: Ferries link sections o f roads separated by large channels in the absence o f bridges. Functionally these are an entirely separate category since they are part o f the road transport system rather than the IWT system. However, operationally it i s sensible to integrate aspects o f the ferry services (such as vessel maintenance andrepair andriver dredging) with those o f IWT. 107. Share of IWT in total transport demand. The share o f IWT in the passenger transport market has decreased from 16 percent in 1975 to 15 percent in 1996 and 8 percent in2005. Incomparison, rail lost more o f its market share from 30 percent in 1975 to 6 percent in 1996 and 4 percent in 2005. The road share has dramatically increased from 54 percent in 1975 to 88 percent in 2005, reflecting the heavy investments in the sector. Comparing again rail and IWT, IWT continuously lost traffic in absolute values during the period analyzed, whereas since 1996 rail has been able to reverse the negative trendobserved during 1975 and 1996. 108. The share o f IWT inthe cargo transport market has decreased from 37 percent in 1975 to 30 percent in 1996 and 16 percent in 2005. Like for the passenger market, rail lost more o f its market share than IWT, from 28 percent in 1975 to 7 percent in 1996 and 4 percent in 2005. The road share has again dramatically increased from 35 percent in 1975 to 80 percent in2005. Comparing rail and IWT, IWT traffic in absolute values has stabilized since 1996 while since 1996 rail has continued to increase modestly since 1975. 17 Source: Bangladesh Integrated Transport System Study, Final Report, Planning Commission, 1998 and owncalculations' Road Rail IWT Network (km) 274,000 2,800 24,000 Productivity per kmof network -- Passengers-km 359,000 1,500,000 369,000 Tons-km 57,000 293,000 127,000 MillionTons (1996) Percentage Construction materials 12.54 57 Petroleum, Oil and Lubricants 3.08 14 Fertilizers 2.42 11 Food grains 1.32 6 Other (jute, salt, etc.) 2.64 12 Total 22.00 100 * The distribution o f traffic among transport modes in2005 has been estimated based o n actual data for rail, on IWT traffic inports for formal IWT traffic, and assumptions on growth o f overall transport demand and o f informal IWT traffic. Data for previous years are obtained from traffic surveys. 18 1996 Passenger (millions) Cargo (milliontons) Dhaka-Chittagong 3.7 2.8 Dhaka-Northwest 1.9 2.6 Dhaka-Khulna 12.5 2.3 Dhaka-Sylhet 4.0 2.0 Total 22.1 9.7 112. Port throughputs.The analysis of port throughputs during the 1986-2006 period shows that IWT traffic has grew significantly fi-om 1976 to 1986 reflecting investments in new ports but then has decreased reflecting the competition with roads. Passenger traffic grew from 21 millionpassengers in 1986to 58 million in 1996but was down to 48 million only in 2005. Similarly, cargo traffic averaged 5 million tons between 1986 and 1994, grew to about 6 million tons in 1996but fell to 4 million tons in 2003 to increase againto 5.7 million tons in2005. Figure2: PortThroughputs In 70.00 $ 60.00 50.00 p 0 40.00 Passengers f 30.00 IIIm Cargo 2C 20.00 .o 10.00 -- 5 0.00 1986 1996 2005 19 5. ECONOMICANALYSIS 5.1. IWT PRODUCTIVITY 113. The comparison o f the capacity offered (para. 96) to the quantities actually transported provides an estimate o fthe utilization ratio o f IWT vessels. Capacityoffered Actual demand Utilizationratio Passengers(million passengers) 76.0 63.O 83% Cargo (million tons) 35.2 18.1 5 1% 117. Comparison of tarijjfs for passenger transport. Although passenger tariffs are regulated, private road and I W T operators use different tariffs. Bangladesh Railways which competes with IWT applies tariffs determinedby the Government. The following table provides a comparison o ftariffs between road, rail and I W T on two major routes. 20 Table 9: Comparison of passenger tariffs by transport mode Dhaka-Chandpur Dhaka-Barisal ROAD Distance 130km 250 km Fare Tk 110 Tk 250 Tarifupass-km Tk 0.85 Tk 1.00 RAIL Distance 315 km Fare Tk 72 No rail connection Tarifupass-km Tk 0.23 IWT Distance 68 km 175km Fare Tk 61.2 Tk 146.5 Tarifupass-km Tk 0.90 Tk 0.84 120. The tariffs reflect results found in other parts o f the world with IWT being the least expensive mode o f transport, followed by rail androad which i s the most expensive mode. The data above do not include handling costs at the port and railway station, nor transfer costs from the initial destination to the port andrailway station as well as transfer costs from the port and railway station to the final destination. Inview o f the gap between the tariffs, the position o f IWT as the cheapest mode o f transport i s not expected to change ifthese additional costs are included, the gap beingonly slightly reduced. 121. Comparison of IWT tarvfs and costsfor passengers. The comparison suggests that operators need to overload their vessels to make a profit if they apply regulated tariffs, with the exception o f long distance journeys (300 km and beyond). Regulated tariffs are Tk 0.90 per passenger-km for journeys up to 100 km and Tk 0.75 for journeys o f more than 100 km. Passenger transport is profitable for long distance journeys with a loading rate above 50 percent. For mid-distancejourneys (150 km), a 100percent loading 21 rate i s necessary to make a profit. For short distance journeys (75 km), a 180 percent loading rate is necessary to make a profit. The following graph compares the transport costs to the regulated tariffs in various scenarios o f loading rate and length o f j o km). The modelusedfor calculatingcosts is providedin Figure 3: Comparison ofIWT passengercosts and tariffs i i --- 300km --I_ -4 - -*150 km +Tk0.75 Tk0.90 I---- -7 40 50 60 70 80 90 100 Loadingrate (Yd 122. Comparisonof ZWT costsfor cargo.W T costs are below the road and railtariffs above, confirming that IWT i s the cheapest mode o f transport. The following graph compares costs per ton-km based on various assumptions o f loading rate and distance o f journey. Comparing costs to the tariffs offered on two routes as presented inpara. 119, IWT is profitable for a distance o f 300 km with a 60 percent loading rate or higher and for a distance o f400 kmwith a 80 percent loading rate or higher. Figure 4: IWT Cargo Costs by loadingrate and journey distance -e- 100km +200 km 300 km 40 50 60 70 80 90 100 Loadingrate (%) I 123. Due to its low transport costs, IWT would be competitive for transport o f containers between Chittagong and Dhaka as well as between India and Bangladesh. Assuming an average load o f 12 tons per 20-foot container and a 100 percent loading rate, the cost o f transporting containers from Chittagong to Dhaka would be about Tk 22 1,900. The tariffs as indicated above are Tk 300 per ton or, for an average 20-foot container o f 12 tons, Tk 3,600. There is thus a considerable marginbetween tariffs and costs, which give the IWT industry the possibility to be very competitive, compared to road and rail. By rail, the current tariffs are Tk 6,000 and by road Tk 12,000. For international transport between India and Dhaka, goods have presently to transit through the port o f Mumbai and then Singapore or Colombo. From there, they are transported by feeder vessel to Chittagong. The total transport cost from origin in India to final destination in Bangladesh (Dhaka in general) is around US$2,500 per TEU and the delivery time is between 15 and 30 days. With a transport o f freight within India by rail to Kolkata and then by IWT to Dhaka, the cost would be reduced on average to US$700 per TEU andthe delivery time to seven days. 124. Country boats. Operation of country boats is financially viable. A comparison of costs and revenues in the Mongla area with a relatively high demand for country boat services concludes that the operation breaks even with a 50 percent loading rate including depreciation. Without depreciation, which i s often ignored in the informal sector, the operation breaks even with a 26 percent loading rate. Still actual earnings are low and insufficient when large repairs are needed. Local associations provide some support in this case but boat owners depend often on rural moneylenders that have the practice to take 50 percent o f the operating profit to repay the loan. Loans carry a 10 percent monthly interest rate and are thus extremely difficult to repay. 125. Profitability o f country boats could be improved by the use o f a gearbox. For the calculation o f transport costs usingcountry boats, the fuel consumption i s estimated at Tk 900 per day. Assuming 180 days o f operation and a reduction o f consumption of 30 percent, annual savings on fuel would amount to Tk 48,600. This i s about twice the cost to install a gearbox package, including new shaft and propeller. It i s likely that country boats owners are not fully aware o f these savings and that the difficulty to find the resources for the investment also explains why they do not invest ina gearbox. 126. Tariff regulation for passengers does not seem justified as operators do not comply with the tariff regulation. Passenger tariffs for country boats are fixed by BIWTA, but the local unions of operators determine their own tariffs. In the example above in the Mongla area, the tariff is Tk 1.0 per passenger-km, one third above the BIWTAtariff. Cargo tariffs are deregulated. 5.3. ECONOMICJUSTIFICATIONOF DREDGING 127. From the standpoint o f the country's economy, dredging o f waterways is highly economicallyjustified. Savings intransport costs o f cargo resulting from the use o f IWT rather than road are estimated at Tk 7.5 billion whereas the cost o f dredging i s estimated at Tk 0.6 billion (see ). Cost of road maintenance and transfer costs o f IWT cargo between the ports and the origin and destination o fthe freight would need to be added but this is unlikely to change the results of the comparison between dredging costs and benefits from using IWT significantly. This analysis i s done globally on the entire IWT network. It would need to be carried out by sections of the network. Using the data above, the threshold below which dredging would not be justified is roughly estimated at 30,000 tons equivalent to one trip of a 600 ton ship per week. 23 128. While there i s an economic justification to maintain the network used by the modem sector, there is no rationale for improving the rural navigation network beyond its natural depth. Indeed, there is no justification to increase the depth of the thousands of kilometers o f rural waterways by dredging as long as the country-boats operate year- round under current conditions. As a general rule dredgingi s not relevant where country- boats can accommodate the natural conditions of waterways. Owing to the limited draft of country boats, dredging on the thousands kilometers of rural waterways would not be economically justified because it would not generate benefits for the economy beyond those which already occur. 24 6. INSTITUTIONALREVIEW 6.1. OVERVIEW 129. The main public institutions inthe sector are: a. The Ministry o f Shipping (MOS), which has overall responsibility of the sector; b. TheDepartmento fShipping(DOS), whichis adepartment o fMOS; c. The Bangladesh InlandWater Transport Authority (BIWTA); d. The BangladeshInlandWater Transport Corporation(BIWTC). 130. Department of Shipping. DOS is responsible for safety, the provision of the regulatory framework for the sector and for training and scrutiny o f maritime staff. It includes the Inland Ship Safety Administration (ISSA), which i s responsible for the definition and enforcement o f ship safety rules and for registering vessels. ISSA is also the institutionresponsible for managingenvironmentalaspects o fthe sector. 131. Bangladesh Inland Water Transport Authority. BIWTA is a parastatal responsible for maintenance and development o fwaterways. This responsibilityincludes: a. Provision o fdredgingservices; b. Provisiono fpilots andnavigational aids; c. Provision o fhydrographic services; d. Management and administration of inland ports and landing facilities o f significant importance; e. Regulation o f transport operations, including licensing and scheduling o f routes and setting up o ftariffs; f. Approval ofthedesignofvesselsplyinginthe inlandwater ofBangladesh; g. Training andresearch. 132. Bangladesh Inland Water Transport Corporation. BIWTC is a parastatal providing passenger and freight shipping services. Its main business is the provision o f ferry services at four major river crossings and the operation of passenger services in the coastal area. 6.2. SECTORCOORDINATION 133. Inland Water Transport is part o f a domestic multi-modal system. However, development o f inland waterways and development of roads and railways are conducted by two separate ministries, the Ministryof Shipping andthe Ministry o f Communication (MOC). Individual proposals are submitted separately by the two Ministries to the Planning Commission, which has to decide between competing proposals when this should be based on a comprehensive vision for the development o f national transport infrastructure. As a result, decision is often taken by resorting to political considerations or by extending past trends. Multimodal coordination i s being improved at the level of 25 the Planning Commission with a Transport Sector Wingbeing created with support from the UK Department for International Development. At the level o f the sector Ministries, while transfer o f IWT institutions to MOC would help to builda more coherent vision for transport sector development, another alternative would be to set up a coordination mechanism between the two Ministries. Such mechanism would likely have a more limited impact, but could ensure that road projects are not an impediment for IWT transport or that IWT projects do not stop at the border o f the port but include the links to the roadnetwork. 134. Country boats are facing more and more competition from other sectors. Embankments are built by BWDB for preserving habitat and human life from flooding but often restrict movements o f country boats. More and more roads are built on embankments and provide a faster access to other parts o f the country. Bridges are built on roads without leaving the clearance necessary for boats because o f lack o f coordination between Government agencies. Use o f water for other purpose than transport impacts also on country boats movements. Fishermen and farmers use fishing nets, build earth dams or extract water for irrigation, all o f which are potential obstacles for rural IWT. 6.3. OVERLAPPINGRESPONSIBILITIES 135. The overlap o f responsibilities between BIWTA and DOS i s apparent. While BIWTA defines construction design, DOS certifies the same vessel after construction; crew members are trained by BIWTA but licensed by DOS. BIWTA issues some classification rules for ship operations with DOS monitoring these rules. All o f these h c t i o n s could be better executed by one o f these two organizations. The Inland Water Transport Authority Ordinance o f 1958 created BIWTA. The Ordinance set up an Authority for development, maintenance and control o f inland water transport and o f certain inlandnavigable waterways. The subsequent Inland Shipping Ordinance o f 1976 conferred sector responsibilities to both BIWTA and DOS without clarification and drawing the line between the two institutions. The 1983 Merchant Shipping Ordinance conferred responsibilities for international transport through sea-going ships to DOS. 6.4. SECTORMANAGEMENT 136. While only DOS personnel havejudiciary rights to control vessel behavior on the waterways, it does not have the capacity to exercise this responsibility. For instance, it is quite common that pontoon sites are overcrowded by fleets, especially by passenger launches, creating unsafe conditions. BIWTA representatives, who are normally present at the port to oversee cargo handling operations, do not have the rights to regulate these situations. This function is for DOS staff, which i s usually not present at the port. DOS i s a relatively small organization with only 62 employees assigned to IWT. Options to increase the capacity to control vessel behavior would be to transfer the right to supervise vessel behavior to BIWTA representatives or to increase DOS staff to ensure a presence at the ports. BIWTA i s envisaging the creation o f a safety and traffic management department but clarification o f responsibilitiesbetween DOS and BIWTA will be needed to make this new department operational andprevent redundancy with DOS. 26 137. Capacity to enforce vessel regulation is weak. It is stated that about 1,000 vessels are not registered with DOS. Controls o f fleet condition are insufficient because o f lack o f surveyors and inspectors. Recruitments expected under TIWTP did not happen. As boat owners are willing to pay an additional amount for timely surveying, there is no incentive in DOS to recruit additional staff. However, acknowledging that this situation can hardly continue because o f the price paid in lives lost, DOS envisages delegating inspection andsurveying to private companies ofinternational standing. 138. Lack o f financial and management information system in BIWTA hinders BIWTA planningandmonitoring capacity. Planningis done on an ad-hoc basis without a sector perspective, objective information and justification. Costs are not objectively known. BIWTA does not monitor the sector: a. No comprehensive hydrographic survey o f the entire network o f waterways has been carried out since 1989 and as a result the condition o f the network is not known. Partial information is collected from the operators and surveys limited to the most important inlandand coastal routes but this can hardly be used to properly planmaintenance or investments. b. BIWTA does not monitor port performance. As indicated previously, port operators often claim that they cannot pay the lease that they committed to pay in their bid but this claim cannot be rejected in the absence o f proper monitoring mechanism. Leasing agreements do not require port operators to provide information on their activities and port performance. 139. Passengertariffs are regulated by BIWTA negatively impacting on the sector. The comparison of tariffs and costs for passenger transport concludes that regulatedtariffs are insufficient andthat operators do not have another solution thanto overload the vessels to generate profit if official tariffs are enforced. Tariffs regulated by BIWTA are not updated regularly (they were revised in2005 following a new rise of fuel costs). BIWTC tariffs remained constant between 1991 and 2005. The analysis o f costs also shows that they are highly dependent on the size o f the vessel, the length o fthe trip and the loading rate, which themselves depend on the demand and on the tariffs. Official tariffs cannot reflect the diversity o f the situations encountered in the sector. IWT is also competing with the railway sector, which applies tariffs that do not reflect the cost. This is unfair competition and this would limit the capacity of I W T operators to adapt their tariffs when they are deregulated. 6.5. TIWTPINSTITUTIONAL DEVELOPMENTACTIONPLAN 140. Few actions included in the action plan agreed in 1991 during the preparation o f TIWTP were implemented. a. A dredging unit reportingto Member-Engineering was created. b. Activities related to regulation o fcargo tariffs were terminated. c. BIWTC redundant staff was not transferred to BIWTA to compensate for the shortfall inpilots and crews on dredgers. d. The Barisalworkshop was not transferred to BIWTC. 27 e. Inland vessel design approval responsibilities and associated staff were not transferred to the Departmento f Shipping. f. TheDeckPersonnelTrainingCentrewas nottransferredto DOS. 141. Among the actions above, transfer o f redundant BIWTC staff to BIWTA to increase the crews working on dredgers maynot be necessary ifthe policy to develop the use o f the private sector is adopted. Transfer o f vessel design approval and staff to DOS remains pertinent inview of the need to strengthen DOS capacity in enforcing regulation on vessel safety. Transfer o f the Barisal workshop and Training Centre, although justified, are not major institutionalreforms. 6.6. INSTITUTIONALSUPPORT FORCOUNTRYBOATS 142. Country boats associations have had little impact on the Government policy. At the local level, their representatives have been successful in setting up some landing facilities, collecting funds from their members to provide a safety net and maintaining some order and discipline in the profession. Country boats are organized in two associations, one for mechanized and one for non-mechanized boats. 143. Country boats owners often complain from being harassed by local authorities and the police, the reason beingthat they have no formal title o f ownership of their boat and they do not have a license to operate. As these documents are not required in any regulation, this harassmenti s likely to be caused actually by corruption. The Department o f Shippinghas started to register mechanized country boats and is considering the same for non-mechanized country boats. 144. Country boats are charged a fee by ghat managers although they do not use the facilities. This i s authorized by the ghat lease agreement. Country boats often load or unload passengers and cargo in the vicinity o f the ghat without using the infrastructure. The fees they have to pay further erode the profitability o f the activity. 145. BIWTA does not pay very much attention to country boats. It focuses more on the modern sector operating along the major routes. It is unlikely that this will change in the future because o f the informal character o f country boats and the difficulty for a Government institution to have a grasp on the sector. However, two issues would need to be addressed: a. Regulation: Some basis for regulation exists in the Inland Water Transport Authority Ordinance o f 1958. Country boats fitted with engines o f up to 16 horsepower were exempted from registration in the Inland Shipping Ordinance adopted in 1976. Since then, mechanization has spread quickly and it is estimated that half o f the country boats are mechanized. Some local governments have established their own regulation. The issue thus remains to decide whether some regulation should be introduced and who should administer this regulation. b. Infrastructure: Little has been done to improve infrastructure for country boats. While BIWTA has developed a project to build 400 landing facilities, and some donor-funded projects have allocated funds to such facilities, developing infrastructure for country boats has not been considered as a 28 priority by the Government. BIWTA has difficulties to represent the interests o f country boats, as it is a very centralized institution that does not have representatives at the decentralized level where discussions with representatives o f country boats could be held. 6.7. POLITICALECONOMY THE IWT SECTOR OF 146. A large number o f stakeholders influence the political economy o f InlandWater Transport. Sector institutions have been described in the paragraphs above. While Government institutions are expected to play a regulatory, policy, budgetary and technical role, State institutions, such as Ministers andthe National Assembly, also play a role more governed by political considerations. The private sector is represented by several associations o f owners: Cargo Owners' Association (for passengers), Cargo Freight Owners' Association, Tanker Owners' Association, and workers: Porter (Kuli) association with local Collective Bargaining Associations (CBAs) in the ports. The EngineBoat Owners' Associationrepresents country boat operators. 147. Political influence i s particularly evident for the selection o f port managers and cargo handling operators. Clause 4(c) o f the ghat Ijara policy authorizes local Members o f Parliament, Ministers in charge o f the district or the Shipping Minister to lease out ghats and ports to specific institutions/organizations/associations for people welfare. As a result, all the most important ports and ghats have been leased out using clause 4(c). The financial terms o f the leasing agreements for these ghats and ports are defined without competition and through a non-transparent process. Often, the owner of the lease agreement i s not the actual port manager or cargo handling operator as it does not have that capacity but it sub-contracts port managementor cargo handlingoperations to actual operators. This however is accompanied by various financial transactions that benefit the decision-makers andthe intermediaries. As a result, this also increases the cost o f the use o fthe ports, which is contrary to the initial objective o fpeople's welfare. 148. Bangladesh has generally suffered from lack o f continuity in key managerial positions inthe Government or state owned enterprises. This i s similar inthe IWT sector. Key positions are often given as a political rewardor as a promotion before the end o f a career. This often translates into lack of leadership, because o f either lack o f time to develop and start implementing a vision for the sector, or bureaucratic approach to sector management or lack ofmotivation to do aproperjob. 149. Inaddition to the practices above for leasing out ports and ghats, other cases of bad governance have been identifiedinthe sector, which are likely to create opposition to reforms. The actual level o f dredging costs i s difficult to measure, one o f the reasons being poor control o f expenditures (fuel consumption and working hours). Similarly, revenues generated by port terminal fees applied to passengers or cargo fees are not controlled and fees are not collected in proper manner. Up to two third o f the revenues mightthus belost for the sector. 29 7. SECTOR FINANCING 7.1. SECTQR EXPENDITURES 150. While lack o f resources has been the reason given to explain why IWT has lost its share o f the transport market in Bangladesh, the Government has not given priority to maintenance o f the I W T network within the resources allocated to the sector. Indeed,the priority given to other expenditures than network maintenance such as development dredgingandmaintenance o f ferry channels may explain why the overall condition o fthe network has deteriorated and why the demand has transfenred to road, especially during the dry season. The data provided by BIWTA for the past three years show that maintenance dredging on navigable waterways, exclusive o f ferry crossings, has actually decreased from 0.85 to 0.68 million cubic meters, a 20 percent reduction. In2005-2006, when dredging volumes were expected to jump to 6.5 million m3due to the introduction o f resources from the Japanese Development Cost Fund, only resources for 1.1million m3were allocated by BIWTA to maintenance dredgingofnavigable waterways, the rest being directedto ferry crossings and development works. 151. The Government allocates resources to BIWTA from two sources: a. Annual Development Program (ADP): These resources are used for development dredgmg. The following graph presents ADP allocation to IWT since 1993-1994. While resources increased regularly from 1995 to 2000, from 2001 to 2005 they fell below or near the 1995 level. 2006 shows a dramatic increase in the budget in current Takas, which i s above the maximum reached in 2000. However, in constant Takas, the 2006 budget is similar to the 2000 budget. The annual variations however reflect the volatility o f the Government budget and the difficulty to sustain sector development in the absence o f a coherent mid-term vision for the sector supported by the Government. b. Government grants: These resources are used for maintenance (IWT network and femes). They appear inthe Government annual revenue budget. Figure 5: ADP allocation to IWT Sector 1400 1200 1000 800 +Current Tks 600 -+-- Constant Tks 1996 400 200 0 152. Ex statements do not reconcile. presents the ADP 30 allocation, the corresponding expenditures registered in the Government accounts and revenues registered by BIWTA in its financial statements from Government grants and dredging revenues financed by the Government. Clarification would be required to reconcile the numbers. 7.2. BIWTA 153. Although BIWTA's financial situation improved between 2000/01 and 2005/06, BIWTA is unable to recover its costs from its revenues even after receiving a subsidy from the Government. Since 1991/92, the costhecovery ratio has deteriorated until 2000/01, when it reached a low 52 percent. The cost/recovery ratio has improved since then and was expected to reach 86.7 percent in2005/06. This improvement results from a reduction inthe service o f the debt (from Tk 338 million in2002/03 to Tk 146 millionin 2005/06) and a significant increase in the Government subsidy (from Tk 210 million in 2000/01 to Tk 530 million in2005/06). 154. The financing sustainability o f BIWTA is deteriorating. The Government contribution to BIWTA revenues increased from 25 percent in 1995-96 to between 31 percent and 35 percent during the 2000/01-2004/05 and recently jumped to 47 percent in 2005/06. Revenues collected by BIWTA have increased or decreased haphazardly during the past ten years. However, since 2004/05 they are above Tk 600 million after having been below Tk 519 million during the previous years. Still, the increased reliance on Government financing weakens the financial sustainability o f the enterprise. 155. The 2006/07 budget expects a slight deterioration o f BIWTA's financial situation compared to the current year. The Government subsidy i s expected to decrease from Tk 530 million to Tk 474 million which would however be compensated by an equivalent increase inBIWTA's own revenues. Expenditures are expected to increase due to a large increase in salaries decided by the Government for the entire public sector. With a 26 percent increase expected in 2006/07, this would continue the trend started in 2005/06 when salaries increasedby 36 percent. 156. The distribution o f BIWTA resources between operational and administrative expenditures seems largely in favor o f administrative expenditures. In the year 2004- 2005, only 13 percent o frevenue expenditures were allocated to dredging. While BIWTA calculated that the cost of dredgingwas about Tk 83 per cubic meter on average in2004- 2005, there i s uncertainty on how much administrative cost should be allocated to dredgingand how muchthe actual cost o f dredging would be after this allocation. Total expenditures for both maintenance and capital dredging amounted to Tk 238 million in 2004-2005 for 2.875 million cubic meters. This represents only 21 percent o f the total expenditures o f BIWTA during the same year. Adding other development expenditures, the percentage o f non-administrative expenditures would still represent only 33 percent o f total expenditures. 157. Depreciation o f new equipment under acquisition i s expected to worsen BIWTA's financial situation significantly. The equipment includes dredgers and salvage vessels for an amount o fUS$66 million. Assuming a 25-year amortization period, the annual amount o f depreciation is estimated at Tk 159million, equivalent to the current amount registered inBIWTA's books for already own equipment. As the new equipment is not expected to generate a significant amount of resources, the deficit is going to increase by the same amount plus the interest on the loans. Obviously, BIWTA will not be able to service the debt nor amortize the equipment, which makes the investment unsustainable from BIWTA's point o f view. Inaddition, it raises the question o f the rationale o f on-lending the loans to BIWTA. This reflects the lack o f trust from the Government in the management and accounting system of parastatals, fearing that the subsidy provided to service the debt will be used for other purposes and that the amount o f the subsidy itself does not correspond to services actually provided. This also reflects the Government preoccupation to keep better control o f its expenditures. As a result, the Government does not provide the resources to the parastatal to service the debt and service the debt itself. 158. BIWTA collects a small percentage o f its revenues from port and inland waterways users. Port revenues ranged between Tk 300 million and Tk 360 million during the past five years and their share in BIWTA's overall revenues has decreased from 73 percent to 61 percent. Revenues from conservancy and pilotage have regularly increased but their share inBIWTA'srevenues has remained constant between 8 percent and 10 percent. The share of canal dues in BIWTA's has remained constant around 3 percent. These revenues are complemented by resources from the Government inaddition to the Government subsidy. These resources are allocated to development dredging and have regularlyincreased from Tk 28 million to Tk 115.6 million. Their share inBIWTA's revenues now represents 20 percent against 7 percent five years before. 7.3. BIWTC 159. After the opening of the Jamuna Bridge in 1998, which entailed heavy losses to BIWTC finance due to the closure of an important part o f its ferry activities, BIWTC has undertaken reforms in line with recommendations made under the Third Inland Water Transport Project (TIWTP) financed by the World Bank. Restructuring measures were agreed as part of the institutional and financial components of TIWTP, including deregulation o f freight tariffs, establishment o f profit centers within BIWTC, creation of business units by type o f activities, and reduction of BIWTC fleet by phasing out cargo operations. Although all these measures have not yet been hlly implemented, BIWTC has managed to improve its financial viability over recent years (see Annex 9: BIWTC. Profit And Loss A/C Form 2001 -2002 To 2005 - 2006). This situation remains fragile in view o f new projects such as the Padma Bridge, which could have an adverse impact on BIWTC inthe future. 160. BIWTC revenues come from three activities: (a) passenger services operated in coastal areas; (b) ferry services operated at the main crossings between the river and the road networks; and (c) cargo services. Ferry services generate about 85 percent o f operational revenues and their revenues have grown at an annual 11 percent per year since 1998/99. Passenger services represent 8 percent o f BIWTC operational revenues and have grown at a steady rate o f 12 percent per year. Cargo revenues represent 7 percent o f operational revenues. They have grown at a 21 percent annual rate due to the progressive leasing out o f the fleet to private operators. The following graph presents the total annual revenues and expenditureso fBIWTC duringthe past 7 years. 32 Figure6: BIWTC RevenuesandExpenditures 1600 - ---- - - ~ -- -_- - Expenditures - 1 BRevent~es LosslProfir 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 ~ 161. Gradual implementation o f restructuring measures has contributed in the improvement o f BIWTC's financial situation. Staffinghas beenreduced by 32 % over the 1995-2004 period. From 4,780 staff in 1995, the workforce has decreased to 3,234 permanent as o f March 2004 plus 298 casual staff, BIWTC has leased out to private operators 36 of its remaining 58 units fleet o f cargo vessels inoperating condition, which has reduced the losses generated by cargo activities. Freight tariffs have been deregulated. Separate profit centers have been created for cargo and passenger activities. 162. Ferry services are operated at five sites linking the Northern and Southern regions with the Eastern regions. The fleet consists o f 35 ferries plus 20 auxiliary vessels. The demandexpressed inpassengerstransported has grown at a 15 percent annual rate, which is higher than the average growth o f road traffic in the country, estimated at about 7.5 percent. A profit and loss account for ferry services was not available for the present report. As this information is available for cargo services and assuming that the loss on coastal passenger services i s equivalent to the increase in the subsidy receivable account o f BIWTC, the profit on ferry services i s estimated at Tk 327 million in 2002/03, representing about 37 percent ofrevenues from the ferry services. 163. BIWTC has become a minor actor in the cargo sector suggesting that general cargo activities should be shortly phased out altogether. BIWTC has faced growing competition fi-om the private sector. BIWTC cargo service has dramatically declined over the years from some 167,000 tons per annum inyear 1999/2000 down to 58,000 tons in 2003/04 including transport o f oil products. At the same time, about five million tons o f cargo was recorded in the major ports o f Bangladesh. Tanker service is the only profit making activity among BIWTC cargo services due to the fact that all vessels being leased out to private operators. Other cargo activities are recording huge losses with only part o f the vessels being leased out to private operators. Crews on leased vessels are still on BIWTC's payroll, probably because their salaries are much higher than in the private sector. This reduces the interest o f the operation. Barges are generating limited revenues, confirming that they are not appropriate any more to transport cargo. Private operators have already stopped to operate barges. 33 164. Loss-making passenger routes in coastal areas are entrusted to BIWTC and have been maintained by Government order as Public Service Obligation. The Government allocates an annual subsidy o f Tk 5 million per year to cover the deficit generated by these services. BIWTC claims that the actual deficit amounts to Tk 98 million and records the balance between this amount and the subsidy received from the Government inits Subsidy Receivable Account. Inreality, a cross-subsidy coming from the profit on ferry services covers this deficit. The number o f passengershas increased duringthe past five years from 874,000 to 1.1million. This remains modest compared to the population o f the areas covered by the 12 services operated by BIWTC. The low demand i s explained by the low income o f the population that is among the poorest o f Bangladesh. This explains why until now no private operator has expressed an interest in opening a passenger line serving this region. 7.4. FINANCINGNETWORK OF MAINTENANCE 165. Until now network maintenance has received a low priority in the Government and BIWTA. From data provided by BIWTA, BIWTA concentrates on maintenance o f ferry channels and network development (see Annex 1: Dredging Works Executed DuringThe Past 13 Years). The share ofresources allocated to network maintenance has decreased from about 30 percent in 2002/03 to about 15 percent in 2004/05. That year, only 290,000 cubic meters were dredged when needs are estimated at about six million cubic meters. Based on an average cost of Tk 192 per cubic meter and a quantity of six million cubic meters' usually estimated for the maintenance o f the entire IWT network, additional resources to maintainthe network can be estimated at Tk 1,152 million. This i s equivalent to the current budget of BIWTA or about twice the Government subsidy budgeted byBIWTA in2005/06 and2006/07. 166. Cost recovery in the sector i s low. Assuming that port revenues are used for expenditures related to ports, the only revenues collected from IWT users are conservancy, pilotage and channel dues. They amounted to Tk 74 million in 2004/05. Dredging revenues, which represent the third most important source o f revenues for BIWTA, are coming from the Government budget and are usedto finance IWT network development. Compared to the resources needed for maintenance estimated above at Tk 1,152 million, the cost recovery ratio would be 6.4 percent only. Revenues from piloting amount to about Tk 20 million per year for about 533 pilots. The average revenue per staff i s equivalent to the average salary o f staff employed on a daily/casual base. Therefore resources from piloting at their present level serve to pay salaries and do not contributeto financing o fnetwork maintenance. 167. Road users pay for the use o f ferries operated by BIWTC but these revenues do not finance maintenance o f ferry channels. Earnings from ferry services in 2003-2004 amounted to Tk 946 million. The cost o fmaintenance o f ferry channels is estimated at Tk 362 million. About 13 million passengers and 1.2 million vehicles used ferries in While there is some uncertainty on the actual dredging needs, the above estimate seems reasonable if not below the reality. It can be compared to the quantity of 2.5 to 7.5 million cubic meters to dredge the channel of the Congo river between Kinshasa and Matadi in the Democratic Republic of Congo on a distance o f approximately 350 kmor a quantity o f three million cubic meters to dredge the channel o f the river Wouri to access the port o f Douala inCameroon. 34 2003/04. Assuming that a vehicle pays on average ten times the fare of a passenger, about 25 million equivalent passengersused ferries and the average fare was Tk 38. A fee o fTk 14.4 per equivalent passengerwould cover maintenance o f ferry channels. 35 8. PRIVATE SECTOR PARTICIPATION 8.1. DREDGING 168. As indicated inpara. 71, the private sector has already the capacity to fill the gap between the existing dredging capacity in BIWTA and BWDB and the maintenance requirements. This should be used as a means to reduce BIWTA's dredging costs and increase its performance through comparisonwith the private sector. 8.2. PORTOPERATIONS 169. Inland Container Facility. Inview o f the urgency to establish adequate container facilities with adequate waterfront in the Dhaka area, the Government contemplates the project o f converting the existing conventional cargo port o f Khanpur in Narayanganj into a temporary container terminal. This would require costly reinforcement o f the existing infrastructure that i s inadequate for container handling. The private operators are much in favor o fthis development andwould be ready to operate barges from Chittagong as well as from Kolkata (India) for the transport o f containers usingthis facility. 170. However, prior tendering that was attempted to engagethe project through public- private partnership, failed to attract qualified bidders. The reason i s that the conditions o f eligibility included a requirement for longstanding experience in construction and operation o f container terminals, which none o f national operators has. Likewise interested national firms failed to seek for joint venture with qualified foreign firms. 171. The Chittagong Port Authority (CPA) and BIWTA are jointly promoting the project o f developing a new inland container facility near Dhaka. BIWTA provides the land that has already been acquired at Pangaon (opposite to Pagla on the Burigonga River, south o f Dhaka, not far from Narayanganj) and reclamation works are already completed. Port infrastructure i s being developedjointly by BIWTA along with CPA and CPA has been entrusted the responsibility o f operating the port by engaging private operators with handlingequipment. 172. Port Management. The present arrangements where BIWTA leases out port areas for a short period o f time do not provide the incentive to the port manager to develop the Port area. Ports are one o f the instruments available for the economic development of regions. This instrument has not been used until now, with ports more considered as a public infrastructurerather than an instrument o f economic growth. Several options exist to revise the status o finlandports and their management: a. Management by the public administration: While ports are presently leased out to private managers, port management can be considered as public. The port leasing agreements are essentially an arrangement to facilitate the collection o f revenues. Therefore, the return to direct management by the administration cannot be expected to improve the present situation but rather deteriorate it by makingcollection o f revenues more difficult. Continuation o f the existing arrangements should be examined with the possibility of transferring some responsibilities o f BIWTA to the private managers. This would require a change in the financial conditions and the duration o f the lease agreements (see paras. 84 to 92). 36 b. Creation o f autonomous port authorities: The port authorities would have a landlord status focusing on collection o f port revenues and leasing out o f port services to private operators. Port authorities would be responsible for maintenance o f port area and for port development. While port authorities would have a public status, this arrangement would open to the door to more involvement o f port users, local economic operators and local government institutions in the decision-making process regarding port management and development. c. Concession o f port management to private operators: While this arrangement wouldbe appropriate for managing port assets, specific modalities would need to be defined for port development when the investment lasts more than the concession agreement. The decision on the more appropriate arrangements should bebased on the characteristics o fthe port (volume o f traffic, potential revenues andpotential for development). 8.3. CONTAINER TRANSPORT 173. A new business opportunity arises with a strong demand for transfer o f containers between Dhaka and the seaports o f Chittagong and Mongla. With the strong growth of container traffic at the port o f Chittagong, the port's throughput will soon reach the threshold o f one million TEUs per year. Railways are congested and the road does not have the bearing capacity to carry container trailers. Presently 90 percent o f the containers are strippedstuffed in the ports o f Chittagong and Mongla and transported as conventional general cargo". Only 10 percent o f the containers are loaded on the rail and transferred to the Inland Container Depot located southeast of Dhaka City. While road capacity i s expected to increase and improvement o f railway services is envisaged with support from the donor community through a program o f policy and institutional reforms and investments in the track and in a new inland container depot, IWT will remain competitive due to its lower costs and the limited need for investment. 174. BIWTC envisages the acquisition o f two 100 TEUs container feeder vessels to operate between Chittagong and Dhaka. The feasibility report prepared by BIWTC produces a low 8.1 % EIRR. The study is based on 12 hours o f navigation, one day for loading and one day for unloading. Apparently the operating productivity could be increased, loading and unloading times appearing to be quite high. Such dedicated operations usingdedicated terminal facilities at both ends should complete a round trip in less than three days making use o f day and night navigation Le., ten round-trips per month. Yet the project needs much further indepth examination before its economic and financial feasibility can be firmly established. 175. Providedthat its feasibility i s confirmed, the BIWTC project can be considered as a pilot operation to test and promote container transport using IWT. Assuming a three- day round-trip during 330 days, the two vessels to be acquired by BIWTC would be able to transport 44,000 TEUs per year to and from Chittagong and Dhaka. This represents 4.4 percent o fthe container traffic inthe port o f Chittagong, which leaves many opportunities 10The large percentage o f containerized cargoes being transported ina conventional way i s also due to the fact that the Port Labor Unions untildate demand this so as to protect the labor opportunities inthe ports. 37 to private operators to develop this market once it has been tested successfully with the operation o fthe two BIWTC vessels andthe landinfrastructurebecomes available. 8.4. FERRY COASTALSERVICES AND 176. Introduction o f the private sector in the provision of passenger ferry and coastal services was recommended in the 1997 Inland Water Transport Sector Policy and Strategy Study without beingpursued. Two modalities were proposed: a. Competition for the market: The total responsibility for the provision o f a particular service on a particular route would be contracted to a private sector operator. Tariffs would be regulated in accordance with the contract. Assets could be rented out by BIWTC or owned by the private operators, as defined inthe biddingdocuments. b. Competition in the market: Private sector operators would be introduced in direct competition among themselves or/and with BIWTC. This modality would have the advantage that the private sector would provide efficiency as well as a safety benchmark for the public sector and vice versa. 177. The 1997 recommendation remains valid but, to be applied to existing services, would require a full restructuring o f the present operational conditions of these services. In particular, this would require an analysis of BIWTC costs for operating ferry and coastal services and a redefinition of the Public Service Obligation between the Government and BIWTC for operating coastal services as well as o f the related subsidy. While this restructuring i s unlikely to happen in the short term, new ferry or coastal services to be developed in the future would be an opportunity to test the provision o f these services by the private sector. 8.5. PRIVATE PROJECTS 178. Two industrial projects developed by private investors present a dramatic potential for IWT and the role o f the State should be examined inview o f promoting the role o f I W T ifit proves to bemore competitive thanroad andrail: a. Coal mine project at Phulbari: The mining potential i s 572 million tons. Annual exploitation would be about 15 million tons. The bulk of Phulbari's coal production will be sold abroad and it i s plannedthat some eight million tons will be exported through Khulna-Mongla annually. Coal would be transported by rail to an inland terminal located near Khulna and then transferred by barges to a floating sea terminal located at Akram Point near Mongla. Two types o f barges are envisaged, of 3,600 tons with a draft o f 3.90 m and 8,000 tons with a draft o f 4.70 m. This would require a channel improvement programto enable the safe navigation o fthe barges. b. A cement factory is contemplated by a foreign investor in the North of the country, near the border o f India. The planned capacity o f the plant is 2.5 million tons per year that would be distributed throughout the country by barges o f 1,000 tons o f capacity. As indicated below, this project represents also a significant potential for developing cross-border IWT between India andBangladesh. 38 179. Both projects would require sustainable and efficient maintenance of the rivers concerned by the projects where the existing available dredging capacity of the private sector could be best used rather than developing additional capacity in BIWTA. The contribution of the private investors to the financing o f maintenance dredging along the routes that they will use shouldbe examined. 39 9. CROSS-BORDERIWT BETWEEN INDIAAND BANGLADESH 9.1. REGULATORY FRAMEWORK 180. A protocol signed between India and Bangladesh in 1999 regulates waterborne transport transiting between the two countries. The protocol covers four routes linking Dhaka to Kolkatta through the Sunderbans (South-West route), Farraka (North-West route), Karimganj (North-East route) and DhubdGuwahati (North route). The protocol has been extended 10 times since its first approval. Extensions are signed month by month and on occasion for a few months at a time. Only in 2007, the protocol was extended for two years. The protocol defines the ports o f call for IWT and specifies that inter-country cargo transit o f cargo has to be shared between (operators of) the two countries on an equal tonnage basis. With some extensions to the protocol limitedto one month and trips between Kolkataaldia and Dhaka, Guwahati and Karimganj exceeding 30 days, the protocol is an obstacle to the use and development o f IWT for trade and transit between India and Bangladesh. This however is not typical only o f difficult intra- regional trade using IWT, but characterizes obstacles to intra-regional trade between the two countries as well within South-Asia generally, which is one o f the least integrated regions inthe world. 9.2. IWT INFRASTRUCTURE 181. With the exception of the North-West route, river infrastructure is not an obstacle to IWT but some improvements and sustained maintenance would be required to facilitate cross-border movements. The South-West, North-East and North routes are categorized as classes Iand I1 and have a targeted minimum designated depth o f 2.1 meters except for a section o fthe North-East route which i s categorized as class I11with a minimum depth of 1.5 meters. No information is available on the actual depth o f the protocol rivers, but it is likely that the depth required by the classification i s not maintained. For example, the section Chalna-Raimongol on the South-West route has a class I11depth instead of class 11. The North-West route cannot be used for navigation between Godagari and Rajshahi because of insufficient water depth caused by restricted water discharges from the Farrakabarrage inIndia. 9.3. PASTDEMAND 182. Although the current framework for cross-border movements between India and Bangladesh is not conducive to development of exchanges using IWT, regional traffic has grown gradually during the past five years. This is the expression o f a strong demand and demonstrates that IWT is anappropriate mode o ftransport for these exchanges. Inter- country cargo traffic has grown from 46,000 tons in2000/01 to 414,000 tons in2004/05. Transit traffic from and to Northeast India is much smaller although growing (2,000 tons in 2003/04 and 15,000 tons in 2004/05). Products imported by Bangladesh by IWT include fly-ash, gypsum, rice and wheat. Products exported include crushed bones, skin and hides andjute products. Transit traffic from/to India through Bangladeshconsists of cement, coal andbitumen. 40 183. While the policy should be to grant preference to the more competitive operators, it is not reflected inthe protocol which may be arisk for the future development o fIWT. The protocol requires that transport be shared equally between the two countries. However, recent trends have seen a strong increase in the share o f Bangladeshi vessels. From a 1/3 - 2/3 distribution in favor o f Indian vessels in 2000/01, Bangladeshi vessels now represent 87 percent o f the intra-regional fleet. The number o f vessels has been multiplied by five during the same period and all new vessels are o f Bangladeshi nationality. The reasons given by the shippers to prefer Bangladeshi vessels are that freight rates quoted by Bangladeshi operators are lower due to deeper draft and consequently higher volume o f cargo, low operating costs due to better fuel efficiency and lower crew rate, as well as lower ship building costs in Bangladesh. The fact that Indian vessels were operated by the Central Inland Water Transport Corporation (CIWTC) which is a public company performing poorly, may be an additional reason why Indian vessels are losing their share o f the inter-country traffic. Recently some private operators have entered the market and the Inland Water Transport Authority o f India also has started to operate services to Assam. 9.4. PROSPECTSFORDEVELOPMENTINTRA-REGIONAL TRADE OF USINGIWT 184. IWT competes with road and rail on intra-regional routes. Road traffic is penalized by the regulatory framework, which requires that goods are transhipped between Bangladeshi and Indianvehicles since neither o f the two countries allow foreign trucks to enter their national temtory. Rail traffic was hampered by the difference inrail gauges between the West and East rail networks. The following graph compares IWT, road and rail traffic between India and Bangladesh (rail traffic i s limited to traffic recorded at the border station o f BenapolePetrapole as this i s the traffic which is in competition with IWT). 185. Total intra-regional traffic grew steadily between 2002/03 and 2004/05. Data from 2005/06 are not available for IWT and rail and would be requiredto confirm the sharp decreasefound for roadtraffic. Intra-regionaltraffic is very sensitive to the regional political environment and statistics may not reflect the real volume o f demand. Figure 7: Intra-regional Traffic between India and Bangladesh I OO/Ol 01/02 02/03 03/04 04/05 05/06 I Road data are missing in00101 and 01102. Rail data are missing 00101,04105 and 05106. 41 186. Potential for transfer from rail and road to IWT is limited.Rail traffic is expected to increase as a result o f the extension of the broad gauge to Dhaka. Untilnow, Indian freight entering Bangladesh by rail was mostly entirely transferred onto Bangladeshi vessels at Noapara. Transfer from rail to IWT on the entire journey from India to Bangladesh is therefore unlikely and, on the contrary, transfer from IWT to rail on the stretch from Noapara to Dhaka i s a strong possibility. Most cargo moving by road between India and Bangladesh is neitherbulk nor petroleum products. Therefore, it i s not fit for transport bywaterways. 187. From the above, it seems that IWT has already attracted the traffic for which it i s competitive compared to road andrail. Growth can be expected from existing IWT traffic as well as from new business opportunities: a. As suggested previously, container traffic is a new promising development for IWT. The cost o f transport using rail within India to Kolkata and IWT from Kolkata to Narayanganj and then Dhaka would be a low US$700 per TEU for a seven to nine day trip compared to US$2,500 per TEU for a 15 to 30 day trip using rail within India to Mumbai, sea transport to Chittagong through Colombo or Singapore and then rail or road from Chittagong to Dhaka. The question is whether the volume of traffic will be sufficient to organize a regular service with enough frequency to be competitive. Presently, Concor (Container Corporation o f India) transports 5,000 to 6,000 TEUs o f yam for the textile industry in Bangladesh. This would represent 50 to 60 trips for a 100TEUvessel per year and an average frequency o f one trip per week which should be enough to attract container traffic. An obstacle to development o f container traffic using IWT could however be the unbalance between exports and imports which could raise the cost of imports from India. This is less an issue for sea transport and containers going through large hubs such as Colombo or Singapore. b. Fly-ash is a by-product o f coal-fired electricity generating plants and is used by the cement industry. It improves the performance and quality of concrete cement and offers environmental advantages compared to the use of pure clinker. The power plants in the Kolkata area have large surplus of fly ash while the capacity o f production o f cement in Bangladesh is expected to increase with a 2.5 million ton cement plant under construction. With a 26 percent content o f fly-ash in cement, the potential additional demand for fly ash from this only project would be 650,000 tons. 42 10. INVESTMENTPROGRAM 10.1. BIWTAPROGRAM 188. BIWTA has prepared a three-year Annual Development Program (ADP), which includes 23 projects and totals Tk 26.8 billion (Annex 8.1: BIWTA Three-Year Investment Program). The Planning Commission already approved eight projects for an amount o fTk 6.6 billion. Table 11: BIWTA AnnualDevelopmentProgram(2005-2008) ApprovedProjects - Investment Upto June Percent of (US $ Million equivalent) 2005 200906 2006/07 2007/08 Total Total Dredging Works 0.63 5.54 2.69 8.86 9.4% Ports 0.20 4.62 10.22 15.04 16.0% Navigational Aids 0.01 2.37 1.42 3.80 4.0% Dredgers 2.44 2.06 9.71 11.00 28.72 30.5% SalvageVessels 0.00 0.00 26.73 10.88 37.61 40.0% Total 3.28 14.59 50.77 21.88 94.03 100.0% 189. While each project i s subject to a Development Project Proposal used by the PlanningCommission to decide on GOB financing, there is no comprehensive analysis o f the financingrequirements necessary to achieve the objectives o f the projects and ensure the sustainability o fthe investments. For example, dredgers are being purchased but there i s neither a dredging strategy, nor a dredging program for the mid-tern to justify the purchase o f the dredgers, nor a guarantee that the budget will be available to operate the dredgers. Similarly, the impact o f dredging works is not evaluated in terms o f maintenance required after the works are executed to ensure that the depth will be maintained and that the investment will not be lost. There is no analysis either o f the economic and financial return o f port investments. Finally, sector stakeholders are not involved in the preparation o f the three-year ADP, especially for the definition o f priorities. The 1977 IWTA Ordinance provides for an Advisory Committee on matters relating to the development, maintenance and operation o f IWT and inlandwaterways in Bangladesh. However, this Advisory Committee has neverbeen formally created. 190. The second part o f the ADP that has not yet been approved includes 13 new projects, for a total equivalent to US$262 Million. The bulk of the program i s procurement of new dredgers and port improvement works. Inthis second part o f the budget, the dredging component is even smaller than inthe first one withjust 1% ofthe total budget. Dredging works would bringback about 1,752 km o f waterways to the level targetedinthe network classification. 191. Projects executed by BIWTA are not subject to comprehensive post-evaluation. For example, while the first phase o f the circular waterway around Dhaka seems to have had a certain positive impact, this impact should have been more carefilly evaluated before launching the second phase estimated at Tk 1,413 million (US$24 million). Very often, projects are evaluated by their outputs without measuring the outcome and no correlation is established between the cost of the project and the outcome assuming that anyproject isjustified for the simplereason that it has beenexecuted. 43 10.2. BIWTCPROGRAM 192. BIWTC had identified a list of investments for the period 2006-2007. The investments fall under four categories: landinfrastructure (ports, landingstations), coastal passenger vessels, freight vessels and navigation equipment. The list o f investments i s provided in Annex 8.2: BIWTC Investment Program. The total cost o f the program is estimated at Tk 6 billion, the equivalent o f US$67 million. The program should be reviewed in order to estimate the impact o f coastal passenger services on the financial situation o f BIWTC is these new services generate losses similarly to existing services. Also, the program should be reviewed in view o f the potential role o f the private sector especially for profitable freight services. 10.3. BWDBPROGRAM 193. The National Water Management Plan (NWMP) developed inDecember 2001by the Water Resources Planning Organization (WARPO) o f the Ministry o f Water Resources includes two InlandWaterways DevelopmentProjects: a. MRO11: River Dredging For Navigation. The program covers dredging for navigation purposes in the main rivers over a period o f 7 years. Both capital and maintenance dredging would be funded by GOB.The project description refers to private sector participation in dredging as beingpromoted under the World BankPrivate Sector InfrastructureDevelopment Project. Increased cost recovery from IWT users i s further noted as deserving more emphasis as part o fthe overall institutionaldevelopment o fthe IWT sector. b. MR006: Regional River Management and Improvement. This program will complement MROl1River Dredging for Navigation Program quoted above. It highlights the main thrusts o f the Government's policy to develop andmanage the river systems to bring multi-purpose benefits. The program intends to accomplish this policy within a framework o f decentralized and devolved management responsive to end-user needs. The strategy for this recognizes three levels o f system management as follows: (i) BWDBretainingresponsibilityfor mainandregionalrivers; (ii) Local Government Institutions assuming responsibility for water resources managementwithin their areas; and (iii) Communities assuming responsibility for field level systems and local channels. The program i s targeted at the first level and provides the resources to plan, develop and maintain the regional river systems in an integrated manner, interfacingwith Local Government inorder to bringmutual benefit to boththe central Government's and the local Governments' programs. 44 11. SAFETY 194. Accidents on rivers attract attention with often manyhundreds people perishing at once. These accidents however are not as frequent or damaging as those o f other modes o ftransportation. Duringthe past 15 years, fatalities on the roads averaged 2,400 per year whereas on the inlandwaterways, 148 people died on average (Annex 7: IWT And Road Accidents). The ratio o f fatalities per billion o f passenger-km is 158 for roads and 41 for IWT. 3,280 accidents without fatalities on average per year would need to be added to road fatalities to better reflect the seriousness o f the situation andthe lack o f safety o f the road network. Still, because o f the dramatic character o f IWT accidents, people consider IWTto be unsafe. 195. On waterways, 56 percent o f accidents are caused by overloading (see Figure 8). On ferries, accidents are caused by a combination o f inclement weather, collision and overloading (see Figure 9). Figure8: Causes ofAccidents on InlandWaterways P/" A 40 Overloading PassengerKargo ~ Collision I 0 LossofBalance, Grounding 0 AbsenceofPilot HumanErrors I I ~ h % 0 StormiTomado I Source: Department of Shipping 196. Overloading, the main reason for accidents, i s the result o f human actions or decisions and for this reason can be reduced. One factor causing loading is that boarding conditions are inadequate. As mentioned inparagraph 13, passengers entering terminals pay an entrance fee to BIWTA or a usage fee to port operators. Tickets for travel are sold only on board with the exception o f BIWTC which has the right to deliver tickets in the passenger terminals. A BIWTA representative is supposed to come on board to verify that the launch i s not overloaded, but this does not eliminate overloading, which frequently occurs during holidays with massive numbers o f passengers in a rush to take the first available ship going to their destination. While sale o f tickets in the terminal would help control the number o f passengersboarding vessels, the only reason given not to proceed this way was that passengerterminals are not sufficiently comfortable and are not suitable for prolonged waiting times. The terminal conditions certainly are a factor requiring improvements. However, inview o f the need to prevent overloading and reduce accidents, this only reason should not prevent to sell passenger tickets in the terminals beforeboarding, to allow control over the total number o fpassengers. 45 Figure9: Causesof Ferry Accidents 1% 1%,1 2 10'0 31% Fire Source: Departmentof Shipping 197. Regulations are insufficiently monitored and enforced. In accordance with the sector regulation, DOS is supposed to examine the number o f passengers and to penalize a ship owner in case o f overloading. There is also a regulation regarding passenger vessels that does not allow people to occupy vessel superstructures. These regulations are usefill but are not applied and the ship's superstructures remain a place favored by passengers. Rules and procedures exist for issuance o f completion certificate for the construction o f a new ship, but very few ships (if any) undergo the regular procedure. Paperwork is done after completion for the purpose o f registration and it is too late to correct mistakes. Also actual construction may not comply with the drawings and DOS does not have the capacity to verify consistency between design and construction. In Bangladesh, the cost to comply with the rules i s estimated at 50 percent o f the cost o f construction against 5 to 10percent inindustrializedcountries that is hardlyaffordable by the industry. An upcoming regulation will require dry-docking o f vessels every five year in addition to annual fitness surveys. Again, DOS does not have the staff to perform all the surveys requiredinthe regulationthat it develops. Enforcement i s weak and, with one magistrate only, the marine court in Dhaka has limited capacity to settle cases in reasonable delays. On average about 60 cases are settled per month but 4,000 cases are said to be pending which correspond to a 6-year workload o f the marine court. The situation has deteriorated since 1997 when 2,500 cases were already pending. Police on rivers is the responsibility o f landpolice, which i s not equipped for this task. 198. DOS' capacity to monitor and enforce safety regulations has not been strengthened as recommended by the Third Inland Water Transport Project. While a specialized Inland Ship Safety Administration (ISSA) was created in DOS, it i s not operational and has been unable to fillfill its responsibilities. Under TIWTP, 600 surplus staff from BIWTCwere supposedto berecruitedbyDOS and deployed inlaunch stations to control and report overloading. DOS was to appoint six special officers for marine safety. Six speed boats were also to be procured for DOS. Vessel design approval responsibility was supposed to be transferred from BIWTA to ISSA with BWTA personnel employed for this task. DOS was also supposed to employ 20 additional vessel inspectors and 8 surveyors but actually employs only seven inspectors and four surveyors. 199. Poor conditions such as high water velocities, continuously changing channel configurations and fast changing weather conditions also contribute to the frequency o f 46 accidents. Specifically damaging is a very strong northwestern wind, which normally, is localized in a small area; it occurs without warning and is difficult to predict. More meteorological stations, better hydrographic surveys and communication systems may improve the situation. At this time, the main communication system between vessels, owners and Government agencies is by means o f mobile telephones, which are effective and also common in other countries. At the same time, radio communication should be improved and utilized during emergency situations to inform all vessels in the area. Creation o f so-called Safe Haven harbors at difficult waterway reaches would also improve safety. This measure, however, might be overly expensive and alternative measuresto enhance safety would be more practical and cheaper. 200. Another factor to increase safety is the training o f ship's crews including ship's masters and engineers. Training o f these seafarers is done by BIWTA and examination by DOS. The training, in general, is not sufficient both in numbers and quality. To improve the situation somewhat, DOS is about to introduce a written examination, which will better demonstrate the overall level o ftraining. The low education level o f unskilled crews i s an obstacle to improving the efficiency o ftrainingthough. 201. IWT operators are not insured because the cost o f insurance is too high or insurance companies do not want to insure vessels. The highlevel o f insurance premium does not seem inrelation with the risk and could be discussed with insurance companies. IWTA has created a passenger welfare fund (Marine Casualty Trust Fund) in case of accidents. Funds are collected annually from launch owners (through an annual fee of Taka 10 per'passenger on capacity basis), and from passengers at Dhaka terminal (Tk 1 per passenger). The victims are paid Taka 20,000. However, the Government has to bear substantial costs such as salvage and cleaning up, which usually are borne by the private sector through insurance coverage. The mechanism does not provide an incentive to the private operators to improve the safety o f their operations, as their contribution to the fund is the same, independentlyof compliance with safety requirements. While the fund could be used to promote safety through incentives andpenalties dependingon the safety perfonnance, this would require significant improvement in enforcement o f safety regulationbefore such mechanism can have an actual impact on safety. 202. While inexpensive, engines used on mechanized country boats are unsafe for navigation. The engines were originally designed for irrigation pumps. They have been massively imported by the BangladeshAgriculture Development Corporation from China in an effort to support development of imgation to increase agricultural production and reduce poverty. The pumps were subsidized by the Government and sold to farmers at low cost. They are used now by country boats but also by motorized rickshaws. On country boats, they are fit inthe hull at a cost o f about Tk 15,000 to 20,000. They do not have a gearbox that reduces control and causes hazards duringmaneuvers and crossing of other boats. 203. The possibility to import second-hand engines at very low price from Japan and China (as it occurs inneighboring countries) or from India would be worth investigating inthe long run. For illustration, second-handcar and truck engines with a gearbox are imported from Japan into Thailand in bulk container loads providing fast, efficient, maneuverable, low-cost and relatively safe propulsion units to "long-tail" boats plying inlandwaterways across the country. 47 12. ENVIRONMENT 204. The Government's environment policy'' defines the following objectives for the IWT sector: (i)to maintain ecological balance and overall development through protection and improvement o f the environment; (ii) to identify and regulate activities which pollute and degrade the environment; (iii) to ensure environmentally sound development in the IWT sector; and (iv) to ensure sustainable, long term and environmentally sound use o f the resources o f the inland waterways. This chapter will focus on the impact o f IWT on the environment and how IWT can contribute to restore the ecologicalbalance o f the river environment. 205. A number o f activities influence the water and sediment quality o f the inland water systems. These activities originate both from the Inland Water Transport (IWT) sector itself and from other sectors, such as Industry, Agriculture, Housing and Urbanization. With respect to the latter, pollution o f rivers can happen independently of their use for transport or not. The report will thus limit its analysis to the incremental impact on the environment resulting from development o f other sectors as a result of development o f IWT. 206. Inland Water Transport may cause increased level o f water pollution through discharges o f oily bilge water, accidental oil spills from ships (three accidents occur on average per year), effluence o f toxic substances and increased contamination inrivers and port areas. Hot spot pollution may occur locally, e.g. in urban and industrial areas, ports and ghats, where discharges from ship transport are most numerous and the risk o f accidental spillage from handling and storage o f fuel and hazardous cargoes i s higher. Safer navigation, safer loading and unloading operations, and better training o f inland vessel operators can mitigate these impacts. Installation o f new pontoons is likely to increase safety o f loading and unloading, thus minimizing the occurrence o f spillage o f hazardous cargo and fuel supplies. Safer navigation, due to aids to navigation and procurement o f other safety equipment i s expected to reduce the number o f accidental spillages, thus reducing the overall impact on environment. 207. Dredgingactivities may cause removal and disturbance o f flora and fauna at the dredging sites, burial o f biotopes inthe disposal area, and impacts due to the dispersion o f spilled sediment by spreading existing pollution, which in turn may be detrimental to the natural aquatic environment and fisheries. The environmental impact assessment o f the sector carried out in 1989 for the preparation o f the Third Inland Water Transport Project concluded at that time that sediments were generally little contaminated due to the high turbidity o f rivers. It is likely that the situation today is different due to high population growth and industrial developments. Another issue is the potential acid or alkaline character o f sediments and the accumulated impact on disposal sites o f dredged materials. Similarly, dredging releases acid inwater, which again can impact on riverine fish and habitats when it accumulates during the dry season where the water level is low and dredging, i s performed. This may happen inparticular at ferry sites where dredging is performed annually. The analysis o f dredging activities above has shown that little Environment policy, 1992, and environmental action plan developed by Department of Environment (DOE). 48 recurrent maintenance is done other than at ferry sites and that other dredging activities consist mostly inone-time development. 208. Environmental monitoring o f dredging activities is not executed although the capacity exists. TWITP helped establish a fully equipped laboratory for chemical testing o f dredged materials, water, oil and oily substances used on ships, and to initiate moni- toring activities. The laboratory is capable of carrying out a number o f routine chemical analyses. The program included some 40 stations spread across the country to monitor various chemical parameters. The necessary laboratory equipment was procured under TIWTP. 209. IWT has a positive impact on environment by reducing engine emission o f CO;! and heavy molecules. IWT efficiency is such that average performance is 100-200 ton- kmper liter o f fuel whereas road transport performance is four to eight times lower with 25 ton-km per liter. With an estimated 1.95 billion ton-km performed by IWT in 2005, excluding country boats, about 58.5 million liters of fuel were saved by using IWT instead o f roads. Using the Integrated Pollution Prevention and Control (IPPC)12 conversion factors, this represents 155,000 tons o f C02. 210. Improving the efficiency o f engines used by country boats by adding a gearbox would further reduce consumption of C02. It is estimated that fuel consumption would be reduced by between 30 and 40 percent. Fuel consumption o f engines i s presently estimated at 16 liters per kilometer. Assuming that half o f country boats are mechanized and that each country boat consumes 900 liters per year, the use o f gearbox would save about 100million o f liters o f fuel per year that represent about 260,000 tons o f C02. 12 European Community. Council Directive 96/61/EC o f24 September 1996 49 13. SOCIAL ISSUES 211. The social importance o f IWT derives from the role that the sector plays in domestic and external transport o f Bangladesh as well as inthe rural sector where social impact is most significant. While IWT contributes directly to social benefits nationwide by providing a cheaper mode o f transport and employment opportunities, in rural areas IWT provides essential communication for the poor and contributes to reducingpoverty. The comparative cost analysis between IWT and other modes o ftransport is presented in another section o f this report. This section will focus on the employment and economic opportunities generated by the sector and the contribution o f IWT to reducing poverty in rural areas. 212. Employment opportunities. About 4.6 million people are estimated to be employed in the I W T sector. The private sector represents 99.8 percent o f the sector workforce and country boats 82 percent. The details by type o f employment are presented inTable 12. Table 12: Emdovment in IWT Sector Public sector 4,000 5,000 Inlandvessels 71.000 Country boats - Mechanizedvessels 2,275,000 - Non-mechanized vessels 1.510.000 , , Country boats yards 10,000 TOTAL 4,644,000 213. IWT in rural areas. A substantial portion o fthe rural populationhas no access to road transport and is directly affected by availability of IWT services. From about 50 percent in2000, the portion o f the population livingbelow the poverty line has increased to 57 percent in rural areas. The National Strategy for Accelerated Poverty Reduction (NSAPR) emphasizes that infrastructuremay emerge as a binding constraint on the goal of accelerated poverty reduction unless the emerging challenges are effectively addressed. IWT can contribute to the objective o f reducing poverty by improvingaccess o f the rural poor to economic opportunities and basic services. While the rural road network has considerably developed during the past ten years, many rural areas remain isolated, especially during the high water season, particularly in the South where road densityis lower than inthe rest o fthe country. 214. While road network development will continue, maintaining the IWT network, especially inregions where the road network is still underdeveloped, is key to provide to the rural population the accessibility that i s targeted by the Millennium Development Goals (MDGs). InBangladesh, taking into account the specificity o f the country and the importance o f rivers, the I W T network should be acknowledged as a contributor to the 50 rural accessibility index (an indicator associated to the MDGs), which measures the number ofrural people who live within two kilometers (typically equivalent to a walk of 20-25 minutes) o f an all-season road as a proportion o f the total rural population. This indicator was estimated at 37 percent in200013.Incomparison, the indicator is 77 percent inPakistan, 60 percent inIndia and 15 percent inNepal. The percentage of households, which have access to river transport, is 25.1 percent, which is quite highconsidering that the river network is much less developed than the roadnetwork. Adding roads andrivers, the rural accessibility index equals 52.4 percent, closer to the value o fthe index inIndia. 215. Particular attention should be given to the role that IWT plays for the 12.3 percent o f the rural population that only have reasonable access to the transport system through IWT. Itwould be important to understand: a. whether this vital access might be at risk andwhat action is required to secure it; b. what proportion o f the rural population which still does not have satisfactory access to any transport service might be more effectively included in the country's economy by facilitating extension o f country boat operations rather thanbuildingruralroads. 216. Surveys andresearchworks carried out for two years inthe district o f Barguna, in the southwestern coastal area o f Bangladesh demonstrate the social importance o f IWT. Located on the Ganges tidal floodplain the district is historically one o f the poorest and least developed areas o f Bangladesh. It i s recurrently prone to cyclones. Major roads in Barguna district are inpoor condition, almost impassable in the wet season. Certainparts o f the network are closed to vehicle traffic due to inadequate structure o f ferry connections. Cargo and passengers transport heavily rely on IWT and manually operated transport modes such as tricycles and human camages. Short distance transports between villages and homesteads i s by foot utilizing footpaths with narrow bamboo bridges. IWT i s the dominant andpopular mode o f short, mediumand longdistance transport. 217. From the report mentioned in the previous paragraph, it can be easily perceived that the main effects o f IWT have resulted in lowering transport costs and increasing people's access to social services. People can easily use their boat for transporting products to the market. Although the report could not ascertain to what degree the benefits o f free or reduced transport costs are passedon to the consumers, it is understood that the producers, especially the small producers, feel some sort o f convenience inusing country-boats to transport their goods to the market. 218. I W T personnel are a population at risk with respect to HIV AIDS similarly to truckers. They carry out long journeys. Vessels transport a large number o f passengers which creates promiscuity. No specific evaluation has been made of the risk and no specific action has beenidentified targetingthis particular population to mitigate this risk. 13 Source : Income/ExpenditureHousehold Survey in Rural Access Index : A Key Development Indicator. PeterRoberts, ShyamKC, Cordula Rastogi.World Bank. Transport Papers.TP-IO. March 2006. 51 14. IWTAND WATER MANAGEMENT 219. Water management will be one o f the big challenges for Bangladesh in the years to come with huge social and economic implications. Multipurpose use o f water (water supply, irrigation and drainage), conjunctive use o f groundwater and surface water, continued expansion o f minor irrigation, water for fisheries andwildlife, adequate upland flow in water channels to limit salinity intrusion and preserve estuary ecosystems, and availability and treatment o f water in sprawling urban areas are key issues which will shape the life o frural and urbanpopulations. 220. These socio-economic challenges have been addressed in the National Water Management Plan adopted by the Government in2004 and IWT is part o f the planwhich recommends integrating development o f waterways for navigation with the needs o f the population for drainage and water supply. While the scope o f the present study is generally limited to transport issues and it is not intended to propose a strategy for river management inrelation with water management, this report i s also expected to help better integrate the IWT strategy and the water management strategy. 221. An in-depthanalysis o fthe social impact o fIWTwould serve this purpose. Sound water management does not have adverse effects on navigation, as it i s often believed. In the case o f Bangladesh there seems to be great potential for convergence o f navigation and water management goals because o f ample supply o f water from the main three rivers. Combining resources from different sectors e.g., Agriculture and Fisheries, Water Resources and IWT, may ultimately give way to integrated water management schemes which would bring huge social benefits to the population in addition to the economic, social and environmental benefits o f IWT development, an issue worth investigating in the long-term perspective. 222. The Country Water Resources Assistance Strategy issued by the World Bank in December 2005 presents the Bank's recommendations to improve country-level water management and the priorities for Bank involvement. These priorities have been selected because they are expected to have the most impact on long-term systemic challenges, they fit with the Bank's comparative advantages, and they support Bangladesh's Poverty Reduction Strategy implementation and complement the Bank's Country Assistance Strategy. They would concentrate around four themes: a. Institutional framework : including the responsibilities o f different actors, standards for water quality and service provision (especially for the poor), for the environment, for land use management and for construction and management o f infrastructure, which affects the quantity and quality o f water resources at various levels; b. Management instruments: including regulatory arrangements, financial instruments, standards and plans, mechanisms for effective participation o f stakeholders, knowledge and information systems that increase transparency, motivate effective water allocation, use and conservation, and secure maintenance and physical sustainability o fwater resources; c. Development and management o f infrastructure for irrigation, floods and droughts and for water quality and source protection; and 52 d. Political economy o f water management and reform with particular emphasis on the distribution o f benefits and costs and the incentives that encourage or constrain more productive and sustainable resource use and inwhich there i s a pragmatic, sequences andprioritized reform path. 223. Among the following list o f activities that would be priorities for World Bank engagement, several would have a direct relationship with the IWT sector: a. Integrated water management o f greater Dhaka region: While this would focus on water pollution, the program would also support the development o f a policy on urbanization that addresses the uncontrolled growth o f urban centers. Increased use o f rivers for IWT would be an option for development o f greater Dhaka. Addressing impact o f IWT on water pollution would need to be part o fthe proposed integrated water management for Dhaka. b. Rehabilitation and rationalization o f infrastructure: While the programwould focus on flood control and drainage infrastructure, inappropriate infrastructure has been identified as an obstacle to movements o f country boats. The program would also help setting up standards and ensuring intermodal coordination. c. Studies to better understand the major rivers: Management o f the main rivers, namely the Ganges, Brahmaputra and Meghna, requires major investments. Studies are proposed to improve understanding o f long-term and cost- effective development prospects. The studies would also serve to broaden the country's development perspective to include the rivers' basis and thus facilitate cooperation o f these international rivers. Further investments resulting from the studies would help promote IWT both domestically and regionally. d. Management o f river erosion: These activities would help address riverbank erosion and channel instability. Deeper and more stable waters will have a positive impact on IWT. e. Restoration o f Gorai River: The objective is to increase dry season discharge and as a result increase the volume o f fresh water as the Southwest region is presently suffering o f increased salinity o f surface water, groundwater and soils, deterioration o f Sundarban ecosystems, sedimentation o f the rivers, reduced crop and fishproduction andreduce navigability. 224. While water management and IWT projects need to be coordinated, development plans for the IWT sector should not be based on benefits resulting from better water management. Indeedit is not the responsibility o fthe IWT sector to propose projects with significant water management components and impacts. The IWT sector should establish its strategy using the water management strategy and development plans adopted by the Government as an input. This i s particularly important for the establishment o f the dredging strategy recommended above. It should be based on a given situation o f river waters resulting from the water management conditions existing or expected in water management plans and should not be based on expectations that would assume unexpected changes inwater management conditions. 53 15. SWOTANALYSIS 15.1. STRENGTHS 225. A highdegree o f penetration o f the IWT network providing access to 25 percent o f the rural households. 226. A dynamic private sector which is the leader in most o f the sector activities (passenger (excluding ferries), cargo transport, port management and operations, ship building). 227. A Government which seemsto havetakenthe importance o fIWT at heart andhas started to acknowledge this importance invarious recent documents. 228. Highcompetitiveness of IWT for bulk and container transport compared to road andrail. 15.2. WEAKNESSES 229. Never ending dredging requirements and unstable rivers. 230. Sector prone to corruption because o f the difficulty to monitor and control recurrent and capital expenditures. 231. Low productivity o f IWT due to use o fmanual labor resultinginport congestion. 232. A position inthe transport marketwhichhas eroded duringthe past ten years. 233. A weak position in the competition with road and rail for allocation of Government resources. 234. Weak sector management capacity (insufficient humanresources for planningand monitoring) andcapacity to enforce regulations. 235. Fragmented responsibilities andlack o fintermodal coordination. 236. Regulated passengertariffs that erode profitability and encourage overloading. 237. Low skilled and educated workforce with little interest beyonddaily earnings. 238. Lack o f knowledge o f the actual situation o f the IWT network and potential for huge maintenance backlog. 239. Weak environment for public-private partnership (procurement, contractual arrangements, political interference, limited competition). 240. Lack o f Master Plan, including dredging strategy, as a basis for the mid-term sector development. 241. Lack o f adequate financial management and information system in BIWTA resulting inpoor control o frevenues and expenditures. 242. Perception o f IWT as unsafe. 243. Country Boats Associations with little influence beyondthe local level. 244. Fewdonors interested inthe sector. 54 15.3. OPPORTUNITIES 245. Existingdredging surplus capacity inthe private sector. 246. Development o f intra-regional traffic and India-to-India traffic through Bangladesh. 247. Development o f container traffic between Dhaka and Chittagong in a growing market. 248. Privateprojects interested inusingIWT for bulk cargo inlarge quantities. 249. Private sector interested in piloting mechanized cargo handling and longer-term leaseor contractual agreements for port management andcargo handling. 250. Development and management of rural IWT infrastructure by Local Government Institutions having demonstrated this capacity with rural roads andmarkets. 251. New financing sources for the sector (from ferry revenues, from user charges, from petroleum products) benefiting from on-going discussions on developing similar sources for road maintenance. 252. Positive environmentalimpact o f IWT compared to other transport modes. 253. Development o f synergies betweenwater management andIWT. 15.4. THREATS 254. Development of road network in competition with and in opposition to the IWT network. 255. Poor water management at national and regional level and lack o f compliance withregional agreements. 256. Internal and external opposition to reforms from those who benefit unduly from the present situation or from those who would lose theirjobs/positions. 257. Increased corruption may result from enhanced private participation. Corruption is a serious risk related to an increased role o f the private sector inprovision o f dredging services. While private dredging companies are supposed to be contracted by BIWTA based on competition, there i s an unusual practice o f awarding contracts to dredger operator/company who do not have dredging equipment and lease equipment from other operators. This practice i s contrary to good governance and basic principles o f selection o f contractors. 258. Similarly control o f dredgingoperations i s prone to corruption as there is no trace o f the quantities dredged after they have been disposed. The use o f performance-based contracts would limit human involvement in the control as performance would be measured using electronic equipment and with a lower frequency than when quantities are measured. 259. Negative environmentalimpact o fdredgingandIWT. 55 16. STRATEGIC RECOMMENDATIONS 260. The Government needs to develop a coherent mid-term vision o f sector development which is affordable, sustainable and socially and economically acceptable. This vision will have to integrate the constraints that exist in the river environment in Bangladesh and agree to the future role for the various stakeholders in the sector. This will encompass the role o f traditional country boats and modem commercial vessels, the share o f investment versus maintenance, and the role o f the public and the private sector. The following paragraphs propose elements as contribution to the establishment o f this mid-term vision. 261. Network development and dredging strategy. In view o f the constraints created bythe environment outside o fthe IWT sector, the short-term priority for the Government should be to determine the core IWT network which would be justified to receive resources for development andmaintenance. The impact o f water management on IWT is the major challenge faced by IWT in the future. The constraint on the availability o f water provides the environment for any IWT strategy as it is outside the sector and not under its control. River water is used for several purposes: water supply, electricity generation, imgation and drainage. Availability o f river water i s also subject to regional agreements and the vagrancy intheir implementation due to political reasons. Even with improved water management, increased extraction o f water from rivers in the future combined with siltation resulting from deforestation will continue to impact significantly on IWT as it has increasingly done in the past decades. IWT has to face that reality and decide on the type o f network andthe type o f services that are affordable, sustainable and socially and economically acceptable. The past strategy where network development was based on considerations internal to the IWT sector needs to be revised to take into account recent and future changes in the outside environment. This entails determining the core network that can be used by modern vessels which ply rivers which are deeper than those usedbycountry boats andwhich require a significant amount o fresources for maintenance, the remaining network being left to country boats which ply rivers that do not needmaintenance. 262. The Government would thus need to define a new dredging strategy which : a, Ensures consistency between the resources allocated to the sector and the dredging requirements necessary to sustain the level o f service defined in the classificationo fwaterways; b. Defines criteria for the prioritization o f waterways in order to establish their classification; c. Secures financing o f maintenance o f navigable waterways preventing these resources from beingused for other dredging activities; and d. Defines the respective contributions o fBIWTA, BWDBand the private sector to the dredgingo fnavigablewaterways. 263. A sector master plan should be prepared to provide the basis for the mid-term vision interms o f IWT infrastructuredevelopment and maintenance. Sector requirements for funding development projects should shift from the claim that resources should be allocated proportionally to the importance o f the IWT sector inthe total transport market 56 to requiring funds that are necessary to implement the mid-term vision for the sector. Projects are presently developed without evaluating their impact or their overall costs, especially recurrent costs (service o f the debt, subsequent maintenance). The Planning Commission is conducting studies for preparingmaster plans for road and rail but not for IWT. 264. The second part o f the ADP should be reviewed to be consistent with the revised sector policy. Inparticular, should the policy confirm that the role o f the private sector in dredgingworks should be enhanced, the purchase o fnine dredgers inaddition to the three dredgers already financed by Spain may not be justified in view o f the capacity already available or which can be developed inthe private sector. 265. Financing of maintenance of IWT network. The strategic objective would be to commercialize financing o f maintenance o f IWT network byputtinginlandwaterways on a fee-for-service basis. This strategic option is confirmed in the draft Integrated Multimodal Transport Policy which recommends the creation o f a Waterway Maintenance Fund. While the Government increased significantly its resources allocated to dredging in 2005/06, cost recovery needs to be increased to improve sustainability o f sector financing. Network development would remain dependent on Government financing through its investment budget. Options exist to develop financial participation o fusers inmaintenance o f the IWT network: a. As the Government i s discussing the possibility o f creating a Road Fund to sustain financing o f road maintenance, the possibility exists to create a similar Water Maintenance Fund. It is recommended that the principles of so called "Second Generation RoadFunds14"apply to the Water Maintenance Fund: (iv) The Fund would be a financially autonomous agency managed in accordance with commercial principles. To improve sector governance, the agency wouldbe submittedto regular technical andfinancial audits. (v) The Fund would be overseen by a Board, which would include representatives from users. The Board would approve the maintenance program established by BIWTA and financed by resources from the Fund. b. Road users can contribute through the fare that they pay for the use of ferry services operated by BIWTC. The current amount spent by BIWTA for the maintenance o f ferry channels i s estimated at Tk 362 million, more or less equivalent to BIWTC's profit on ferry services. However, for transparency and sustainability reasons, maintenance o f ferry channels should not be financed from the profit on ferry services but from a specific fee, ferry fares beingreduced accordingly. c. IWT users' contribution to financing o f maintenance o f IWT network through conservancy, pilotage and channel dues can also be increased. At this time, 14Ian G. Heggie and Piers Vickers. 1998. Commercial Management and Financing o f Roads. Technical Paper409. World Bank. Washington D.C. 57 Users o f ferry services 362 I Actual cost o fmaintenance o f ferry channels Increase inIWT user charges 147 Twice the present revenues User charge on petroleumproducts 453 For 350 million liters TOTAL 962 6 million m3 at Tk 100per m3 plus the actual cost o f maintenance o f f e r n channels The increase in the price o f the liter of diesel oil would be Tk 1.3 per liter15, which is reasonable compared to the current price o f Tk 30 per liter. The actual amount Based on a consumption o f about 350 million liters o f diesel per year (cf. para. on environment for data on consumption o f diesel). 58 o f resources needed for IWT network maintenance needs to be clarified though. This requires defining the core IWT network as recommended above, the level o f service offered and the dredging requirements to maintain this level o f service. A dredging strategy, which would conclude that half o f the IWT network needs to be maintained, would result in a user charge on petroleum products o f Tk 0.4 per liter, which is quite affordable. Progressive implementation o f the user charge would also facilitate its acceptability. 267. The decision on developing a user charge on petroleum products needs also to take into account the impact on the rural poor andthe equity among users. A strategy that would require all users to pay but would allocate resources only to part o f the network would be highly inequitable and would be rejected by users. The Bangladesh Water Management Plandesignates the Regional River management and Improvement Program aimed at both navigation and drainage as a Public Obligation Service financed by the Government possibly with donor support. 268. Country boats. Government support should go beyond the commitment in the NSAPR to preserve navigation o f country boats without actually taking actions or allocating resources to translate this commitment into results. It is proposed to support country boats through institutional and financial measures. 269. Responsibilities for regulation and infrastructure should be transferred to local governments. Registration o f country boats will generate revenues to local governments and these revenues will be used at the local level, which is more appropriate. Local governments have the capacity to include investments in infrastructure for country boats intheir development plans andcan get fbndingmore easily whensuchprojects are giving a highpriority locally. Local Governments also have more capacity to implement projects with the support o fLGEDthat has demonstrated this capacity inthe road sector andmore recently in the river sector under the on-going Rural Transport Improvement Project financed bythe World Bank. 270. Decentralization o f these responsibilities at the local level will increase participation o f country boats owners in decisions, which impact on their activity. This will ensure for example that investments in IWT are rightly located to respond to the demand of users. Similarly the central administration will need to ensure through a consultation mechanism that there i s good coordination with country boats owners when investments that impact on IWT are decided at the central level. 271. A micro-finance mechanism should be promoted to develop private, small-scale investment in boat upgrading, and community-based development o f adequate landing facilities. The lack o f credit facilities in rural Bangladesh is the critical issue in this connection. Providing micro-credit facilities i s expected to trigger straightforward development o f this essential sub-sector o f IWT. The communities themselves feel that they can solve their problems but need to be mobilized first. Thus, such improvements will only be effective on a community basis with the technical support o f the Boat Owner's Association and established micro-credit facilities. This is an area to be fbrther looked into with the view to promote IWT in rural areas and improve the quality o f services through provision of muchneeded cash-flow. 59 272. To effectively address this issue recommendation is made for a Rural Navigation Development Project that is clearly segregated from other potential activities involving the Formal IWT Sector. The Informal Sector needs recognition for the genuine economic and social role it plays inBangladesh. It is believed that a stand-alone project dedicated to it would set the trend for the recognition it deserves. It is also expected that a stand- alone project would enhance its efficiency and impact through more autonomy. Funds would be clearly allocated to activities devoted to improvement o f economic and social condition o fthe poor andto poverty reduction. 273. The Boat Owner's Association would coordinate the project, both in terms of credit and technical assistance. The Boat Owners' Association i s regarded as the most appropriate operator of such micro-financing scheme since it already has an existing network o f outposts and can reach most o f the population o f boat owners. Inorder for it to be viable, the line o f credit wouldbe implementedby one or more organizations with a proven track record in supplying credit for poor people. There are active NGO's with micro-credit financing facilities e.g., ASA (Association for Social Advancement), CODEC (Community Development Center) VOSD (Voluntary Organization for Social Development) or Bangladesh Krishi Bank, but they do not consider the boat owners to fall in their beneficiary criteria. However, some boat owner associations such as the Barguna Trawler Merchant Association reportedly help their members with repair and maintenance costs. NGOs such as BRAC, a development bank such as Grameen; or a foundation such as PKSF are other possible links and partnerships to be explored in the view to prepare amicro-finance project inthis sector. 274. Institutionalframework. The institutional framework would needto be revisedto prevent overlapping o f responsibilities in the sector institutions and to reflect the increased role of the private sector. One option would be to focus DOS on maritime shipping and give all responsibilities for IWT, including coastal waterways, to BIWTA. As importantwould be the needto ensure that the sector institutions have the capacity to enforce regulation, especially related to safety, planning o f investments and sector monitoring. The Government shouldprovide the humanand financial resources to ensure that this capacity is inplace. 275. Sector regulation. Passenger tariffs should be deregulated. Bangladesh Railways is expected to be grantedthe autonomy to define its tariffs with the exception o f services that would be subsidized through Public Service Obligations. Public Service Obligations are contracts between the Government and a parastatal which define the services that the Government requests the parastatal to provide and the mechanism to compensate the parastatal when such service i s not profitable. Should the Government want specific services to be operated with subsidized tariffs, it should sign Public Service Obligations with the operators providing the services. Deregulation would allow increased cost recovery from users by increasing user charges dedicated to financing of maintenance o f the IWT network, operators having the capacity to reflect the new charges in the tariffs. However, strengthening o f capacity to enforce safety regulation as recommended above shouldbe implemented at the same time that tariffs are deregulated to prevent cut-throat competition and aggravation o f overloading. 60 276. The obligation to pay tolls to nearby ghats even though country boats do not use the facilities should be discontinued. Similarly to the modem sector, passenger tariff for country boats shouldbe deregulated as operators do not comply with them any way. 277. Stakeholder consultation and sector coordination. Stakeholder involvement in policy and sector investment decisions should increase and a mechanism should be defined that provide for regular consultation with stakeholders. Similarly, a procedure shouldbe put inplace to improve inter-sectoral coordination, especially betweenthe road andthe IWTsectors, to prevent other sectors to create physical obstacles to IWT. 278. Role ofprivate sector. a. Port management: Leasing arrangements for port management should be revised to transfer maintenance responsibility to private port managers moving beyond the only responsibility for revenue collection. These arrangements, which would also involve an extension o f the leasing period, could be piloted inports where port managers are interested inexpanding their role. b. In the main ports where BIWTA is the port manager, the possibility of conceding port management to private operators should be explored. This would be consistent with the decision to grant management to private operators o f the new inland container facility which is beingdeveloped. While this could be piloted in one port as a test o f the new arrangement, the management framework in other ports should evolve to give more autonomy to port managers similarly to the framework existing for sea ports. c. Cargo handling: Mechanization o f cargo handling could be piloted by an operator which expresses an interest. The licensing period should then be extended beyond the current one-year period to ensure that the licensee can recoup the investment costs duringthe period. d. Container transport: Private operators should be the only operators for container transport. During the preparation o f this report, they expressed an interest in transport o f containers. At this time, they do not want to invest as the land infrastrucfure is not yet available. With the development o f inland container depots, this obstacle will be removed. Container vessels being purchased by BIWTC should be leased to private operators who should then be left to develop themselves this type o f transport without further Government intervention. 279. Role of BIWTC. a. General cargo activities should continue to be phased out as they continue to generate losses even if they are reduced by leasing out part o f the fleet to private operators. The policy o f divesting o f general cargo transport should be pressed further by selling the related assets to the private sector. b. While the use o fPSO for coastal passenger services is acceptable, the cost of services should be in line with market prices. BIWTC costs are higher than those of the private sector, which likely explains why the Government does not want to fully compensate BIWTC for losses on these services. 61 c. BIWTC should finance dredging o f ferry channels from revenues collected from road users. This, however, would require a careful analysis o f the dredging costs as well as the costs o f ferry services to ensure that road users pay a price that is in line with market prices. Progressive opening o f competition for ferry services would allow for gradual alignment o f costs to marketprices. 280. Cross-border IWT. The Government of Bangladesh should continue to promote IWT for intra-regional trade. This is however subject to the quality of relationships between neighboring Governments which is not a sector-related factor. Bangladesh has a keen interest in increasing intra-regional trade as it can significantly reduce the cost o f transport for the import o f containers o f fly-ash used in cement factories. Bangladesh therefore should unilaterally take measures that promote IWT by developing infrastructure such as an inland container facility in Dhaka and facilitating customs procedures. 281. IWT Safety. Measures to improve waterways safety are listed below. While they will not prevent all accidents, they all are within the power o f the Government and address the real causes o f the accidents beyond the reasons which are often given such as overloading or badweather: a. Authorize selling o f boarding tickets by vessel owner in the terminals and improve control of overloading byboth, BIWTA andDOS; d. Improvethe level o fcomfort andnumber o fpassengerterminals; e. Make Inland Ship Safety Administration at DOS operational with the necessary staff, fbnding and equipment; f. Ensure presence of DOS representatives at ports to regulate vessel operation or transfer this regulatory function to BIWTA's port manager; g. Increase the number o f pilots with mandatory pilotage at more dangerous reaches; h. Expandthe numberofwell-trained ship crews; i.Increasethenumberofshipinspectorsandsurveyors; j. Expand hydrographic surveys at more dangerous reaches and provide ship operators with more current nautical charts; k. Improvecommunications betweenshipsandprovidetimely weather reports; 1. Modernize floating salvage cranes; m. Negotiate with insurance companies to adjust their rates proportionally to actual frequency o f accidents and make insurance mandatory for ship licensing; and n. Examinethe possibility o fdeveloping safehavenharbors. 282. Environment. Strengthening the institutional capacity to assess environmental impacts, monitor and enforce mitigation measures in the sector i s a pre-requisite to achieve the objectives set upby the Government for the environment inthe IWT sector. 62 283. Social aspects. Country boat owners should be sensitized to improve the quality and safety of their services. The use o f a gearbox would be a major improvement which would require informing owners on the savings in fuel consumption which are large enough to compensate for the investment. Also toilets should be built on the country boats similar to the practice inEast Asia. 284. IWT plays a particularly important role for the 12.3 percent o f the rural populationthat only have reasonable access to the transport system through IWTI6.Little is known o f this population, o f the services that are provided by IWT and the opportunities that they offer but also o f the threats that may endangered the provision o f these services in the future with the negative social consequences that this would imply. This makes it thenessential to understand: b. whether this vital access might be at risk and what action is requiredto secure it; c. what proportion o f the rural population which still does not have satisfactory access to any transport service might be more effectively included in the country's economy by facilitating extension o f country boat operations rather thanbuildingruralroads. 285. Sector Governance. a. Contracting procedures and financial terms o f leasing arrangements: Contracting procedures should be reviewed to ensure transparency and better results o f the procedures in an imperfect market environment. Financial terms should also be revised to arrive at more homogeneity in port revenues compared to traffic. b. Collection o fPort revenues: Procedures to collect revenues from passengersin the main ports managedby BIWTA shouldbe revisedto reduce pilferage and corruption. Involving the private sector could be explored similarly to what Bangladesh Railways has introduced. c. Financial management o f BIWTA: Financial management in BIWTA should be strengthened to increase transparency in the use o f resources by providing better information on the costs of services provided by BIWTA and thus provide the basis for future decisions on the role of BIWTA versus the role of the private sector. 286. The following table summarizes the building blocks and actions that are part o f the proposedstrategy. 16National Income and Expenditure HouseholdSurvey for 2000 63 Table 14: ProposedIWT Strategy BuildingBlocksandActions - Buildingblock Action Ensure adequate allocation o f Define new dredging strategy to ensure consistency between resources, financial and humanresources maintenance requirements andpriorities Prepare IWT sector master plan Review three-year development program consistently with revised sector policy Commercialize financing o f IWT network maintenance (creation o f Water Maintenance Fund, contribution o f road users to maintenance of ferry channels, increased contributionof IWT users through user fees) Focus the Government's role on Revise the institutional framework regulation, enforcement, planning and monitoring: Promote private sector participation Revise leasing arrangements for port management andport operations inprovisionofservices Lease out BIWTC container vessels to private operators Phase out freight activities inBIWTC Sustain the provision o f IWT Transfer responsibilities for rural IWT regulation and infrastructure to services to the poor, in particular in local government institutions remote areas Promote micro-finance mechanism to develop country-boat upgrading and community-based landing infrastructure Stop obligation made to country boats to pay tolls to nearby ghats even though the facilities are not used Adopt Public Service Obligations for service delivery in poor and remote areas Make IWT safe and dependable Deregulate passenger tariffs ImplementIWT safety action plan Improve sector governance Restructure organogram and introduce capacity-building measures in BIWTA Implementtransparent financial management system inBIWTA Involve stakeholders insector planning Revise contracting procedures and financial terms o f leasing arrangements withport managers and operators Revise procedures to collect port charges from passengers Implement transparent financial management system inBIWTA Promote IWT as an environmentally Strengthen the institutional capacity to assess environmental impacts, friendly mode o f transport while monitor and enforce mitigation measures protecting the environment from Promote the use o f a gearbox o n country boats IWT-relatedneeative imnacts Promote IWT as an instrument o f Develop infrastructure for cross-border IWT and facilitate transit regional integration procedures 64 17. POSSIBLEWORLD BANKSUPPORT 287. From the above assessment o f the IWT sector, including o f achievements under TIWTP, it can be concluded that World Bank involvement in the sector ended in 2000 with an unfinished agenda. Since TIWTP was completed, the sector has continued to evolve buildingon andpursuingTIWTP achievements. Sector development opportunities exist andthe sector has strengths that justify enhanced donor support to the sector. World Bank support could be provided to increase sector efficiency through reforms and investments. Based on the experience o f TIWTP however, it is suggested to separate support to reforms and investments, using Development Policy instruments for the first one and sectoral investment instruments for the second. 288. Development Policy support is proposed to focus on the following aspects: a. Adoption o f a new sector strategy; b. Adoption o f a network development and dredging strategy providing a mid- term vision for the sector encompassing investment needs, financing o f recurrent costs andthe role o fthe private sector; C. Setting up o f a new framework for sustainable sector financing with enhanced participation o f IWT users (financing o f maintenance o f ferry channels, waterways maintenance fund); d. Adoption o f a new institutional framework for country boats with responsibilities for IWT regulation and infrastructure transferred to Local Government Institutions; e. Deregulation o fpassenger tariffs; f. Adoption ofanewinstitutionalframework for IWTto streamline andimprove sector management; g. Adoption o f a new framework for public-private partnership in port managementand cargo handling; h. Improvement o f governance in sector institutions (selection procedures for port managers and port operators, financial management system inBIWTA); 1. Improvement o f capacity to manage and monitor the sector with particular emphasis on safety and environment. 289. The Government has identifiedthe following list o f priority projects proposedfor World Bank financingfor atotal o fUS$146million: a. Establishment of landing facilities at different wayside landing stations and coastal islands (US$3.4 million); b. Provision o f monitoring and signaling equipment, hydrographic survey and weather forecasts (US$32.7 million); C. Modificatiodmodernization o f existinginlandriver ports (US$5.5 million); d. Construction of new port including facilities and four harbors (US$4.8 million); e. Construction of Inland Container River Terminal at Khanpur, Narayanganj (US$32.7 million); 65 f. Constructionoftowing tdship modelcenter (US$3.3 million); g. Construction of landing stations for mechanized country boats (US$5.4 million); h. Dredging athot spots (US$57.4 million); i. Strengtheningofhumanresourcescapacityandreviewoforganizational set- upincludingrestructuringstudy o fBIWTC (US$0.3 million); and j. Revisionofexistingrules andregulations andsurvey ofvessels. Further discussions will need to be held to define more precisely the content of the proposed projects and determine their justification as well as c o n f m their sustainability, inparticularinview o ftheir modeo foperations includingbythe private sector. 290. While environment would be fully integrated during preparation and implementation of any future lendingin the IWT sector, the possibility will be explored to use carbon finance to promote the use o f a third gear on motors usedby country boats. 66 ANNEX 1:DREDGINGWORKS EXECUTEDDURINGTHE PAST 13YEARS Table A.l: Dredged Quantities for the Year 2002-03 to 2004-05 by location , , I Nameof Shoal Name-ofRiver Quantity(Million m3) * - + 2002-03 12003-04 12904-05 Daulatdia Ferry Ghat Basin and 67 Table A.2: DredgedQuantitiesfor the Year 2002-03 to 2004-05 by type (LTP-.858 (BIWTA-1.75 1 (BIWTA-3.122 CWP-0.463 BWDB-0.096) BWDB-0.096) MPP-0.050) 2004-2005 1.585 1.887 0.008 3.480 (LTP-0.636 (BIWTA-1.362 (BIWTA-2.875 CWP-0.453 BWDB-0.525) BWDB-0.605) GCP-0.265 4W-0.179 PFT-0.052) 2005-2006 3.500 3.000 0.0 6.500 68 ANNEX 2: SECTIONSOF IWT NETWORKWITH SILTATION PROBLEMS 1. A major recurrent siltationprobleminthe Jamuna river system north o fNagarbari causes disruption o f navigation up to the port o f Baghabari. This port is o f strategic importance. It contains a major oil depot and fertilizer storage used to supply the northern region o f the Country. Whereas the passage is usually not seriously affected, major siltation problems have begun to occur in recent years. Tankers have to sail at half load for 4 months o f the year. Duringthe December 2005-January 2006 period, navigation of tankers came to a complete stand-still for one month causing wide-spread shortages o f fuel in the northern districts. This has entailed a dramatic rise o f fuel prices and had a huge economic and social impact. There is no alternative route for oil products on this corridor because Bangladesh railways do not operate tanker wagons. The road transport industry does not have the capacity to supply that part o f the country either. Fuel is primarilyusedto irrigate land, and also for IWT androad transport. The shortage o f fuel has resulted inlosses o f crops and disruption of social life across an estimated number o f 20 districts representing almost one third o f the country's population. As to the reason why this stretch o f the river cannot be trained or dredged, it is said to be due to the high current velocity. The dredgers cannot operate because o f the force o f the water flow. Bandalling has been attempted on some sections but does not prove efficient. Major training schemes may be required to channel the river and assist in maintaining water depthby self-dredging. 2. As a general rule siltation affects all navigation routes serving the north o f the country (Jamuna and Meghna river systems) for a period o f 6 months per year. There i s hardlyany waterborne traffic o fpassengersinthe northernpart o fthe country (other than local traffic o f country boats, which are operated everywhere in Bangladesh). Cargo traffic can only take place on waterways inthe north o f the country during the highwater period. Conversely the road network in the northern areas and through to neighboring India is reportedly good. Consequently there is relatively less potential for IWT improvement in those areas. Extending LAD would require large schemes (dams, river training) to master water resources andmaintain sufficient depththe year-round. 3. The route from Chittagong to Borisal is affected by recurrent siltation in the vicinity o f Borisal. Ships have to wait for hightide to access to the port city. Three 600- seats, 4 m draft passenger vessels are regularly operating on this line providing three weekly passenger services. Vessels loaded with 600 passengers eventually have to wait 7-8 hours for the tide to access Borisal, causing much delay on a 24-hour journey. The route i s a Class Iwaterway with a design LAD o f 4.0 m. The actual depth o f the section comprised in the lower Meghna, also used for the traffic from Chittagong to Dhaka, meets the prescribed LAD. But the depth available in the connecting distributary branch to Borisal is only 3.5 m. BIWTA regularly attempts to cope with recurrent siltation by dredging o f the affected section on a regular basis, but siltation is high and BIWTA has failed so far to tackle the problem. This problem also affects the traffic on the important Dhaka-Khulna route, which uses the same channel to access to Borisal. 4. Several ferry channels are prone to recurrent siltation and riverbed morphology instability. This is the case at Chandpur, Mawa and Paturia ferry landing places (Padma 69 and lower Meghna Rivers). Two or three units of BIWTA dredgers are believed to operate almost continuously at this location, whereby diverting some 54 % of BIWTA dredgingpotential away fi-om IWT, each year. 70 Cargo 199811999 2005 Number Static Capacity Total capacity (tons) (million tons) Vessels + 1,913 520,000 2000 1,000,000 24.0 launches Tankers 118 101,000 118 101,000 3.6 Bay 143 100,000 170 160,000 7.6 crossing Total 2,174 I 721,000 1 2,288 1 1,261,000 1 35.2 I I I I The total capacity i s the product o f the static capacity by twice the number o f trips as the capacity i s offered in each o f the two directions o f the trip. Only for tankers the total capacity i s the product o f the number o ftrips by the static capacity as tankers are loaded inone direction only. 71 $-? h l m ANNEX 5: ECONOMIC JUSTIFICATION OF DREDGING 1. The volume o f cargo traffic transported on waterways by formal operators i s estimated at 1.95 billion ton-km in2005. The average distance o ftransport is estimated at 138 km, similar to the distance found in 1995-1996. The cost is calculated using the model developed for the present study and i s estimated at Tk 0.972 per ton-km. The total cost o f transport o f freight by IWT i s then estimated at Tk 1.9 billion. The cost o f handling at the port plus the cost of the terminal transport between the port and the origiddestination o fthe freight is estimated between Tk 3.9 and 5.0 billion. 2. The same tonnage is assumed to be transported by road, but the average distance o f transport i s higher (150 km) based on the results o f the 1995-1996 survey on road transport. The cost i s calculated as the average between the tariffs between Dhaka and Chittagong and between Dhaka and Sylhet and is estimated at Tk 4.42 per ton-km. The total cost o ftransport o f freight by road i s then estimated at Tk 9.4 billion 3. The volume o f dredging on the entire waterway network is estimated at 6 million cubic meters. The cost i s taken at Tk 100 per cubic meter. The total cost of dredging i s thenestimated at Tk 600 million. 4. The minimum traffic necessary to justify dredging i s obtained by dividing the average cost o f dredging bythe averagebenefit from dredging per kilometer. The average cost o f dredging per kilometer i s obtained by dividing the total cost o f dredgingby the length o f the navigable network (5,968 km). The average benefit from dredging per kilometer is obtained by dividing the difference between IWT and road costs by the numbero fton-km for IWTtraffic. 73 ANNEX 6: GOVERNMENTAND BIWTARESOURCES FORDREDGING BIWTA BIWTA revenues revenues ADP (development (Government 361.2 1995 312.4 318.8 IIII1996 347.6 347.3 1997 450.5 485.8 1998 587.3 587.8 1999 II11 639 1III 675 2000 917.3 955.9 80.53 177.50 2001 140.8 86.4 28.21 209.50 111 2002 65 65.8 35.16 225.50 2003 139.7 138.7 43.50 I 234.02 2004 2005 III 346.9 371.6 III 254.1 69.26 251.3 115.01 11 278.65 1 318.79 1325.4 87.49 530.40 104.80 474.50 74 ANNEX 7: IWTAND ROADACCIDENTS Average No.Nr 148 3 3,280 2,398 3,019 75 W 0 m 0 /% 0 0 0 g 2 0 0 m N 3 12 0 x m 0 N N 0 0 r: 9 Wp' P m. 0 0 0 0 0 0 0 I 0 0 0 0 a N 0 N m p: a. B 2 W N N m m ci : a N 01 N & k-8 4 0 0 VI 0 0; LD 2 g x VI d rn rn 2a 2 VI d rn p! rn m dN. m 2a: P N" d 0 0 d z 0 0 N" - 0 N 0 5 0 v; 5 0 v; 0 0 0 0 0 0 0 0 0 4 1 d: 0 0 0 8 0 0 x m vi P 0 P. N 0 0 0 09 z N sR N 0 0 2 0 0 0 0 00 0 0 0 0 m N - m N Project Estimatedcost (Tk millions) Rehabilitationo f 6 Ro-Ro ferries, 2 K-type ferries and 7 195 landingstations Construction o f4 sea-trucks for coastal passenger services 170 Rehabilitationof4 Ro-Ro ferries 198 Rehabilitationo fRo-Ro pontoon-3 14 Modification o fpassenger steamer 77 Construction of container vessels First phase :2 vessels 610 Second phase :4 vessels 1464 Rehabilitationo f dockyards 400 NavigationEquipment for ferries 100 Construction of 2 coastal ferries and2 pontoons (Bhola 1883 Luxmipurroute) Rehabilitationo f 4 medium-type ferries 140 Construction o f 2 ghat pontoons and 14 spuds 135 Constructiono f salvage tug 300 Construction o f 2 oil tankers 600 Total 6286 The equivalent o f US$97 81 ANNEX 8.3: DEPARTMENTOF SHIPPING.LISTOF PROJECTS -- Establishment o fa databaseto manage Inlandshippingrelated data Strengthening o f Inland Ship Safety Administration (provision o f infrastructure facilities) -- Institutionalcapacity buildingo fthe Departmento f Shipping, including office space Establishment o f Research and Development cell for accident investigation o f inland ships - Establishment ofcomputer network inDepartment o f Shippingand associated offices - Establishment o fcomputerized examinationandcertification cell for inlandshipping 82 I 1 TrafficEarnings: Passenger Service 481.76 753.26 864.96 790.98 837.79 Feny Service 8010.64 8782.90 9525.48 9574.59 10416.07 Cargo Service 228.98 145.06 129.71 89.71 37.19 Charter Hire 526.54 504.02 584.49 714.41 848.31 I 2 Misc. Income: Others 149.92 219.47 170.33 157.06 185.24 Incomeon Investment 574.93 II 556.28 540.87 I1 835.02 II 1080.00 Sub-Total 724.85 775.75 711.2 992.08 1265.24 3 Total Eamings(1+2) I 9972.77I 10960.99 11815.84I 12161.77I 13404.60 I 13 ISub-Tota1(12+13+14) I 1729.20I 2111.53I 2241.05 I 2206.60 I 2149.76 I 17 INet Profit / loss after subsidy I 1051.80I 1858.35I22534.67 I 2650.30 I 2717.72 83 REFERENCES 2004 Statistical Yearbook o f Bangladesh - Chapter 7 Transport and Communication, Bureau of Statistics, 2004 A National Strategy for Economic Growth, Poverty Reduction and Social Development, ERD (Economic Relations Division), MinistryofFinance (PRSP), 2003 Annual Ports and Traffic Report 1998-99.BIWTA,Dhaka, Bangladesh., 1999 Annual Report 2002-2003 and 2003-2004, BIWTC, 2002-2004 Bangladesh Integrated Transport System Study - Final Report, Planning Commission, Physical Infrastructure Background PaperIV: BangladeshIWT, The World Bank, May 2004 Bangladesh IWT Master Plan, Final Report, DHV Consulting Engineers (Netherlands) - BIWTA, Dhaka. 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