AFRICAN DEVELOPMENT BANK CAM/PIIM/2002/01

Language: English Original: French

APPRAISAL REPORT

PROJECT FOR THE CONSTRUCTION OF OIL RIG REPAIR FACILITIES IN LIMBE

CAMEROON SHIPYARD AND INDUSTRIAL ENGINEERING LTD

REPUBLIC OF CAMEROON

This document contains errata or corrigenda (see Annexes) COUNTRY DEPARTMENT OCIN CENTRAL REGION JUNE 2002

TABLE OF CONTENTS CURRENCY EQUIVALENTS, ACRONYMS AND ABBREVIATIONS, LIST OF TABLES, LIST OF ANNEXES, BASIC DATA, PROJECT BRIEF, PROJECT MATRIX, SUMMARY OF PROJECT. Pages 1. PROJECT ORIGIN AND BACKGROUND 1

2. THE INDUSTRIAL SECTOR 1

3. THE IRON INDUSTRY SUB-SECTOR 3

4. THE PROJECT 6

4.1 Project Design and Rationale 6 4.2 Project Area and Beneficiaries 8 4.3 Strategic Context 9 4.4 Project Objective 9 4.5 Project Description 9 4.6 Market and Prices 13 4.7 Environmental Impact 16 4.8 Project Cost 18 4.9 Sources of Finance and Expenditure Schedule 21 4.10 Expenditure Schedule 22

5. PROJECT IMPLEMENTATION 23

5.1 Executing Agency 23 5.2. Institutional Arrangements 23 5.3 Implementation and Supervision Schedules 23 5.4 Procurement Arrangements 25 5.5 Disbursement Arrangements 30 5.6 Monitoring and Evaluation 30 5.7 Financial Reports and Auditing 30 5.8 Aid Coordination 30

6. PROJECT SUSTAINABILITY AND RISKS 31 6.1 Recurrent Expenses 31 6.2 Project Sustainability 31 6.3 Major Risks and Mitigating Measures 31

7. PROJECT BENEFITS 32

7.1 Retrospective Financial Analysis 32 7.2 Analysis of Financial Forecasts 34 7.3 Economic Analysis 37 7.4 Social Impact Analysis 38 7.5 Sensitivity Analysis 38 7.6 Loan Guarantees 39

8. CONCLUSIONS AND RECOMMENDATIONS 40 8.1 Conclusions 40 8.2 Recommendations and Loan Approval Conditions 40

This report was prepared by Messrs. B. TRAORE, Principal Civil Engineer, Mission Leader, L. JOOTTUN, Senior Environmentalist, M.M. BAH, Public Utilities Economist, E. YOBOUE, Procurement Officer, J.C. LASSY, Legal Counsel, S.E. MIVEDOR, Financial Analyst, FTRY.4, M. TOURE, Credit Risk Analyst, FRMU, three Consultants, Financial Analyst, Maritime Works Engineer and Shipbuilding Engineer, following a mission to Cameroon from 17 September to 6 October 2001. For further information, please contact Mr. A.R. RAKOTOBE, Director, OCIN (Ext. 4124).

AFRICAN DEVELOPMENT BANK

01 B.P. 1387 ABIDJAN 01

Tel: (225) 2O 2O 44 44; Fax: (225) 20.21.77.53

PROJECT BRIEF Date: October 2001

The information given hereunder is intended to provide some guidance to prospective suppliers, contractors, consultants and all persons interested in the procurement of goods and services for projects and programmes approved by the Board of Directors of the Bank Group. More detailed information may be obtained from the Executing Agency of the Borrower. 1. Country : Republic of Cameroon 2. Project Name : Construction of oil rig repair facilities in Limbe 3. Location : Limbe Town 4. Borrower : Cameroon Shipyard and Industrial Engineering Ltd (CNIC) 5. Executing Agency : Cameroon Shipyard and Industrial Engineering Ltd (CNIC) Project Implementation Unit P.O. Box 2389 Douala.

Tel: (237) 340.15.60; Fax: (237) 340.61.99. 6. Project Description: Project implementation, which will cover three (3) years, consists of the following four (4) components:

Component A: Construction of marine and land structures Component B: Purchase of land and floating equipment Component C: Building of CNIC capacities Component D: Project Management

7. Project Cost

The total cost, exclusive of tax and customs duties, is estimated at US$ 120.82 million, or UA 93.79 million. 8. Sources of Finance: ADB US$ 45.40 million or 37.58 % BADEA US$ 12.00 million or 9.94 % IDB US$ 24.22 million or 20.04 % Dutch Fund US$ 22.55 million or 18.67% CNIC US$ 16.64 million or 13.77 % 9. Approval Date : July 2002

10. Estimated works start-up date : December 2002 11. Estimated duration : 40 months 12. Procurement of Goods, Services and Works:

a. Generalities: All Bank-financed goods, works and services will be procured in compliance

with the Bank’s rules of procedure for the procurement of goods and works or, as the case may be, with the Bank’s rules of procedure for the use of consultants, using the appropriate standard bidding documents of the Bank. The Bank will conduct an a posteriori review of procurements made for the functioning of the Project Implementation Unit, so as to help facilitate the achievement of project performance objectives (enclave project), and to ensure the proper management capacity of the project unit.

b. Procurement of Works: The works contracts for the construction of marine and land

structures will be awarded in accordance with the procedure of international competitive bidding with prequalification of companies, to ensure that the invitation to bid will be limited to capable companies.

c. Procurement of Goods: The supply contracts for the procurement of teaching aids, as well

as shipyard and workshop equipment will be awarded in compliance with the procedure of international competitive bidding. The supply contracts for the functioning of the project unit, of a value below UA 40,000 per contract, will be awarded in compliance with the procedure of national shopping.

d. Consultancy Services and Training: The service contract for the works inspection missions,

estimated at UA 2.09 million, will be awarded on the basis of a short list drawn up after prequalification advertized in Development Business. The training contracts for CNIC senior staff and employees will be awarded on the basis of a short list. All the contracts on works inspection and training will be awarded in compliance with the procedure of prequalification based on the technical evaluation of bids, taking into account their prices. The contract for the annual project audit will be awarded on the basis of a short list in accordance with prequalification based on the comparability of technical bids and the lowest price.

e. Information on the procurements table, the Bank’s review procedures, the procurement

schedule and the general procurement notice will be developed in the paragraph on procurements in the body of the text.

CURRENCY EQUIVALENTS

(October 2001)

Currency Unit = CFAF UA 1 = CFAF 922.715 UA 1 = US$ 1.28823 US$ 1 = CFAF 716.266

FISCAL YEAR

From 1 July to 30 June

LIST OF TABLES

4.1 Project Cost by Component 4.1 (a) Cost of Bank-financed Components 4.2 Project Cost by Expenditure Category 4.2 (a) Project Cost by Expenditure Category of Bank Components 4.3 Project Cost by Source of Finance 5.1 Expenditure Schedule by Component 5.2 Expenditure Schedule by Source of Finance 7.1 Summary of Financial Results and Indicators for the 1995-2001 Period 7.2 Summary of CNIC Balance Sheets 7.3 Summary of Forecast Results 7.4 Summary of Balance Sheet Forecasts 7.5 Summary of Financing Tables

LIST OF ANNEXES 1. Map of Cameroon 2. Organization Chart of CNIC 3. Detailed Project Cost 4. Terms of reference for the recruitment of a technical assistant 5. Works Implementation Schedule 6. Summary Income Statements 7. Financial Analysis 8. Determination of the economic rate of return 9. Sensitivity Analysis 10. Loan Conditions 11. Verification of enclave project criteria

ACRONYMS AND ABBREVIATIONS

ABEDA: Arab Bank for Economic Development in Africa ADB : African Development Bank CAMSHIP : Cameroon Shipping Lines CDC : Cameroon Development Corporation CEMAC : Economic and Monetary Community of Central Africa CNIC : Cameroon Shipyard and Industrial Engineering Ltd CNL : Limbe Shipyard CSPH : Hydrocarbons Price Support Fund DS : Detailed Sketches FPSO : Floating Production System offshore HIPPC : Heavily Indebted Poor Countries IDB : Islamic Development Bank MINEFI : Ministry of the Economy and Finance ONPC : Office national des ports du Cameroun (National Ports Authority of Cameroon) OPEC : Organization of Petroleum Exporting Countries PAD : Port autonome de Douala (Douala Port Authority) PIU : Project Implementation Unit QSHE : Quality, Security, Hygiene and Environment SCDM : Société camerounaise de métallurgie (Cameroon Iron Industry) SNEC : Société nationale des eaux du Cameroun (Cameroon National Water Corporation) SNH : Société nationale des hydrocarbures (National Hydrocarbons Corporation) SONARA : Société nationale de raffinage (National Refinery Corporation) SOWEDA : South West Development Authority TDW : Ton Dead Weight TMC : Technical Monitoring Committee UIC : Union industrielle du Cameroun (Cameroon Industrial Union)

PROJECT MATRIX

Narrative Description (ND) Verifiable Indicators (IOV) Means of Verification (MV) Major Assumption Sector Goal: 1. To increase the share of the industrial sector in the GDP of Cameroon

1.1 Creation of new industrial activities in 2005 in the Limbe area

Report by the Ministry of Transport and the Ministry of Industry

(Sect. Goal twds Sup.Obj.)

Project Objective: The specific objective of the project is to enable CNIC to capture a large part of the oil rig repair market in the Gulf of Guinea

1.1 As from 2002: wet docking of 2 rigs and 80

ships in Douala dock per year. (Continuity of current production).

1.3 As from 2005: dry docking of a semi-submersible rig and a self-lifting rig per year 1.4 Site repair of 4 production rigs as from 2005.

CNIC annual operating reports and financial statements.

(Proj. Obj. twds Sect. Goal):

Outputs 1. Wharf constructed Dredging done and wharf area constructed Breakwater constructed. Offices, buildings, training centre and industrial hangars constructed 2. Floating dock procured, 2 mobile cranes, workshop and shipyard equipment, and various machines procured. 3. CNIC employees trained

A 390 m long wharf constructed in 2005 590,000 m3 of materials dredged and 11 ha of wharf area completed in 2005 A 700 m long breakwater constructed in 2005. 3500 m² of offices and 12000 m² of workshop constructed in 2005. Procurement, not later than 2005, of a 30,000 tonne floating dock Procurement in 2005 of two 300 t.m cranes with a maximum jib of 100 m, machine tools, teaching aids, and sundry vehicles and machines All the staff concerned trained in 2005

Periodic progress reports and project completion report by the Borrower. Reports by supervision missions and project completion report by the Bank.

(Output twds Proj. Obj.) : CNIC has established a good commercial network at the regional and international level The level of maritime traffic and oil activities in the Gulf of Guinea is maintained. Reduced effects of volcanic activities in the area.

Narrative Description (ND) Verifiable Indicators (IOV) Means of Verification (MV) Major Assumptions Activities: 1. Implementation of Works a) Works - Acceptance of works - Implementation of works by companies - Award of works contracts - Opening and analysis of bids - Invitation to bid for works b) Works inspection - Supervision, inspection and acceptance of

works - Award of contract - Opening and analysis of bids - Invitation to bid - Prequalification of consultants c) Auditing of the project Dito 2. Supply of equipment - delivery of equipment - award of contracts - opening and analysis of bids - invitation to bid - short lists of suppliers 3. Training of employees - training of employees - award of training contracts - opening and analysis of consultants’ bids - invitation to bid - short lists of consultants

Resources: Table of Costs (UA million) F.E. L.C. Ttl Comp. A. 42.24 14.90 57.14 Comp. B. 17.72 2.19 19.91 Comp. C. 0.94 0.23 1.17 Comp. D. 2.82 0.79 3.61 Ttl base 63.72 18.11 81.82 Phys. Cont. 5.84 1.61 7.45 Inflation 3.63 0,88 4.52 Total 73.19 20.60 93.79 A. Construction of marine and land structures B. Procurement of land and floating equipment C. Building of CNIC capacities D. Project management Sources of Finance ADB: UA 35,250,000 CNIC : UA 12,920,000 ABEDA: UA 9,320,000 IDB : UA 18,800,000 Dutch Fund : UA 17,500,000 TOTAL : UA 93,790,000

Contracts signed Periodic progress reports on the project. Periodic and final works implementation reports prepared by the consultant and executing agency.

(Act. twd Output) : Effective increase in CNIC capital.

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SUMMARY OF THE REPORT 1. Project Background

The Limbe project was identified by the enclave projects identification mission undertaken by the Bank in October 1999. In an effort to look for financing for the project, the Cameroonian authorities organized a donors’ meeting in Douala from 1 to 2 December 1999. The Bank participated in the meeting along with the Islamic Development Bank (IDB), the Arab Bank for Economic Development in Africa (ABEDA) and the Kuwaiti Development Fund (FKD). 2. Purpose of the Loan

The ADB loan, amounting to US$ 45.40 million (UA 35.25 million) and representing 37.58% of the total project cost, will be used in financing 43.36% of the foreign exchange costs (US$ 40.88 million) and 17% of the local currency costs (US$ 4.52 million).

3. Sector Goal and Project Objectives

The project will contribute to the achievement of the following sector goal: to increase the share of the industrial sector in the GDP of Cameroon. The project objective is as follows: to enable the CNIC to capture a large part of the oil rig repair market in the Gulf of Guinea 4. Brief Description of Project Outputs

To achieve this objective, the project will consist of the following components: i) Component A: Construction of Marine and Land Facilities ii) Component B: Procurement of Land and Floating Equipment iii) Component C: Building of CNIC Capacities iv) Component D: Project Management 5. Project Cost

The total project cost is estimated at US$ 120.82 million, exclusive of tax (equivalent to UA 93.79 million) comprising US$ 26.54 million in local currency (21.96%) and US$ 94.28 million in foreign exchange (78,04%). The cost includes provisions for physical and financial contingencies. 6. Sources of Finance

The project will be financed by the African Development Bank, the Islamic Development Bank (IDB), the Arab Bank for Economic Development in Africa (ABEDA), the Dutch Fund, and the Cameroon Shipyard and Industrial Engineering Ltd (CNIC). The ADB resources will partially finance all the project components. The total amount of ADB contribution, representing 37.58% of the total cost, will be used in covering 43.36% of the foreign exchange costs and 17% of the local currency costs, representing about 22% of the total project cost. The contributions of the co-financiers will be used in financing the components below. CNIC contribution, amounting to US$ 16.64 million and representing 13.77% of the total project cost, will cover part of the cost of all the components.

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• ABEDA, contributing US$12.00 million, will finance part of component A; • IDB, contributing US$ 24,22 million, will finance part of components A and B; • The Dutch Fund, contributing US$ 22.55 million, will finance part of component A.

7. Project Implementation

7.1 The works are schedule to cover 30 months. ABEDA presented the project to its Board of Directors in June 2000, and its loan agreement was signed in February 2001. The IDB submitted the project to its Board of Directors, and it was approved on 10 September 2001. Negotiations are being finalized with the Dutch Fund to cover the financing deficit for the breakwater. 7.2 The Project Executing Agency will be the Cameroon Shipyard and Industrial Engineering Ltd (CNIC.) which was established on 5 February 1988 under the Government’s industrialization policy. The objective of CNI is to develop ship repair and construction activities, as well as protect the existing industrial pool through maintenance. The project will be managed by a Project Implementation Unit to be established within CNIC.

8. Conclusions and Recommendations

8.1 Conclusions

8.1.1 The project, which is co-financed with 3 other donors and CNIC, is a priority for the development of CNIC activities and for the Government’s development objectives for Limbe area and the South-West of Cameroon. The project is financed from the ADB window, given the fact that it is an enclave project. CNIC is the Borrower. It will generate an adequate financial rate of return. Similarly, it will also generate foreign exchange resources to cover the debt service.

8.1.2 The project is technically well designed and is economically and financially viable. It will generate a financial rate of return of 15.07%. 8.2 Recommendations It is recommended that an ADB loan not exceeding US$ 45.40 million (UA 35.25 million) be granted to Cameroon Shipyard and Industrial Engineering Ltd for the implementation of the project as described in this report, subject to the conditions defined in the loan agreement.

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1. PROJECT ORIGIN AND BACKGROUND

1.1 The project for the construction of oil rig repair facilities in Limbe was identified by the enclave projects identification mission undertaken by the Bank in October 1999. In an effort to look for funding for the project, the Cameroonian authorities organized a donors’ meeting in Douala from 1 to 2 December 1999. The Bank participated in the meeting, along with the Islamic Development Bank (IDB), the Arab Bank for Economic Development in Africa (ABEDA) and the Kowaiti Development Fund (KDF). In November 1999, the Government of Cameroon submitted a request to the Bank calling on the institution to participate in the financing of the project. The request was submitted again in August 2001.

1.2 The project is consistent with Cameroon’s industrial development policy. Its implementation would contribute to generating value added estimated at more than CFAF 200 billion, and creating about 3000 direct jobs related to the new activities to be carried out by Cameroon Shipyard and Industrial Engineering Ltd (CNIC). This company prepared sketches on the basis of which a preparation mission was undertaken in July 2000. Following the preparation mission, the Bank requested that: (i) an environmental and social impact assessment and detailed sketches should be prepared, and (ii) the legal problems connected with the nature of the enclave project should be solved. The Executing Agency transmitted the studies recommended by the preparation mission to the Bank in September 2001, and the Bank recruited a firm for a legal evaluation of the project in September 2001. 1.3 The Bank’s appraisal mission was in Cameroon in September/October 2001. The appraisal mission was led by OCDC, FTRY, and CLEG departments as well as FRMU and FPRU units. This report was prepared following the mission. It is based on the results of the various studies (feasibility, detailed engineering, and environmental and social impact) conducted by consultants recruited CNIC, as well as discussions between the mission and the Cameroonian delegation. The other co-financiers (IDB and ABEDA) had already appraised the project in 2000. The loan for the project was approved by ABEDA Board of Directors in June 2000, and the loan agreement was signed in February 2001. As for the IDB, the loan was approved by its Board of Directors on 10 September 2001, and the loan agreement was negotiated on 5 April 2002.

2. THE INDUSTRIAL SECTOR

2.1 Cameroon’s industry occupies a leading position among CEMAC (Economic and Monetary Community of Central African States) countries, with a turnover of CFAF 1,260 billion in 2000/01, which represents a 10% increase over the previous year. It accounted for 21% of GDP at current prices in 1998/99. It generates 51,600 declared jobs, with a total payroll of CFAF 26 billion. The corresponding exports generate CFAF 400 billion, accounting for 31% of the country’s total figures. 2.2 Cameroon’s industrial fabric comprises about 300 enterprises in the formal sector. They are classified under two main categories:

- non-manufacturing industries (agro-industry, logging industry, water and energy) which generates CFAF 660 billion turnover per year; and

- manufacturing industries (food industries, drinks and tobaccos, textiles and leathers, plastic paper and materials, chemical products, cement, and metal works) which generate CFAF 600 billion turnover per year.

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2.3 Industrial production is on the increase, with an estimated growth rate of 7% in 2001/2002. It will be obtained as a result of increased productivity and higher utilization rate of existing facilities, but the employed workforce will not increase. The increase will be brought about by the non-manufacturing enterprises, with the manufacturing sector remaining stable after the recovery noted in recent years. 2.4 The agro-industry processes agricultural products: cotton, palm oil, sugar, rubber, and cocoa. It generated a turnover of CFAF 176 billion in 2000/2001, a 27% year-over-year increase, but heavily dependent on changes in world prices. Its workforce represents more than half of the jobs in the industrial sector. The logging industry recorded a significant increase in production in 2000/2001, but its turnover of CFAF 96 billion and workforce remained stagnant. 2.5 The water and energy sector generated a turnover of CFAF 408 billion in 2000/2001. The sector comprises the following companies: SONEL (privatized under the name of AES/SONEL), SNEC which is being privatized, and SONARA (oil refinery) whose production declined by 5%. SONEL and SNEC recorded minimal production despite the high demand, with a 3% decline in comparison to the 1999/2000 financial year. 2.6 The food industry, with CFAF 335 billion turnover in 2000/2001, recorded a slight drop (1.4%). Industries in the textile and leather sector, as well as in plastic paper and materials sectors, generated CFAF 50 billion turnover, showing an increase over the previous year. Chemical products (soap, electric batteries, matches, etc.), with CFAF 24 billion turnover, is declining sharply as a result of competition in domestic markets and exports. The cement and iron industries sub-sector generated CFAF 204 billion turnover in 2000/01, and is increasing despite the decline in aluminium production. The workforce and payroll have scarcely changed. A more detailed review of the iron industries sub-sector is given in Chapter 3. 2.7 The industrial policy implemented until the economic crisis in 1990 aimed at agro-industrial development through the processing of local agricultural raw materials, and development of import substitution industries, as well as the creation of industrial free zones to increase the production of manufactured goods for exports. For a long time, the policy was based on an Investment Code which provided a series of tax and customs exemptions as incentives for potential operators and helped to develop the country’s industrial fabric. However, the scope of this policy was reduced significantly by macro-economic reforms introduced by the Government. 2.8 With the resumption of economic growth and the definition of new economic and social development objectives, the Government, by Decree No. 99/278 of 8 December 1999, took measures to revise its industrial development policy focused on the following objectives: (i) reform of the institutional environment through the introduction of an “Investment Charter” comprising a series of investment incentives; (ii) the development of agro-forestry, agro-industry, manufacturing industries, as well as capital-intensive and high value added iron and energy industrial units, such as aluminium production and oil refinery; and (iii) the creation of industrial free zones. The construction of ship and oil-rig repair facilities in Limbe is consistent with this new industrial policy.

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Operations by Other Donors 2.9 The other donors operating in the industrial sector are the World Bank (IFC), the European Investment Bank (EIB) and the “Agence Française de Développement” (AFD). These donors operate particularly in the aluminium, oil and energy sectors. However, in the ship repair industry sub-sector, the financing comes from equity capital or from private banks which grant loans directly to local industries. For example, in 1999, CNIC was granted a loan of two million six hundred and fifty-two thousand US dollars (US$ 2,652,000) by the Standard Bank of London for the procurement of a floating dock and operating equipment. In addition to private financing, CNIC received financing from the World Bank through the Douala Port Authority for feasibility studies on the displacement of the Bamousso floating dock. 3. THE IRON INDUSTRY SUB-SECTOR 3.1 Major Activities

The iron industry sub-sector, which generates an annual turnover of CFAF 152 billion, employs 3,100 persons. It comprises three very distinct groups: • A group focused on aluminium; the production factory in Edea (Alucam), established in

1954, produce local finished products such as household goods, corrugated iron sheets, etc. Its production stands at 87,000 tonnes per year for a turnover of CFAF 90 billion. An extension project is under study, but will depend on the investment policy in the energy sector.

• A group focused on the production of machine tools, mainly steel frames, located in the Douala area.

• A group focused on industrial maintenance (CNIC, UIC, Friedlander, etc.), which generates a turnover of about CFAF 20 billion, 500 permanent jobs, and 1,200 temporary jobs. The regular customers of the group are the onshore and offshore oil industry, large industries (refineries, liquid storage, agro-industry, etc.), and shipping companies.

3.2 Industrial Maintenance 3.2.1 This very narrow niche is composed of companies which maintain, repair or modify the facilities of other enterprises. They do not engage in the sale of specific trade-mark products, unlike enterprises which subsequently maintain the equipment sold (cars, electrical and electronic equipment, etc.). They generate significant resources in comparison to other industries, because of the high proportion of labour in billing. These companies are very mobile because their teams work in enterprises often located far from their geographical location. 3.2.2 The major industrial maintenance companies are: • CNIC, specialized in ship repairs, offshore repairs. Since it is the only company that

possesses floating docks and a private quay, the company is alone in its market niche. It is by far the largest maintenance company in Cameroon.

• UIC, a branch of the Bouygues Offshore Group specialized in oil industry works, employs 50 persons and generates a turnover of CFAF 1.2 billion.

• FRIEDLANDER, specialized in process piping works, is a direct competitor of UIC and generates a turnover of CFAF 2 billion with 50 permanent employees.

• The other maintenance companies are SMEs.

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3.2.3 Vocational training is very important for these companies which employ skilled labour. The country’s education system is efficient, but needs to be complemented with in-company training. Furthermore, qualified job-seekers are many; consequently, there is no recruitment problem for this sector. 3.3 Cameroon Shipyard and Industrial Engineering Ltd (CNIC)

Institutional Framework 3.3.1 CNIC is a company that was established by Act No. 95/97 of 5 February 1988. Its statutes have been modified and put in harmony with the OHADA Uniform Act. The new articles stipulate that CNIC is a limited liability company. A review of the company’s statutes shows that CNIC is a private corporation, endowed with financial autonomy; its capital is held by the State, represented by the Ministry responsible for Finance, State corporations, and a private company. This provision in the statutes makes CNIC a semi-public company. The statutes will be amended to take into account CNIC’s nature as semi-public company. This will be a loan condition. Its life will be ninety-nine years with effect from the day it is incorporated. 3.3.2 The policy-making body of CNIC is made up of a Board of Directors and a Management. The organization chart of CNIC is given in Annex 2. It comprises a Management, the Equipment and Production Directorate, and the Administrative Departments. 3.3.3 The Board of Directors, chaired by a senior Government official, is granted all the powers to act on behalf of the company. It has 8 persons appointed for a 3-year term by the General Assembly of Shareholders comprising: SNH (39.57%), ONPC (9.19%), MINEFI (40.78%), CAMSHIP (4.59%) and CSPH (5.87%). 3.3.4 The Management is responsible for implementing the policy defined by the Board of Directors, and has direct authority over the Equipment and Production Directorate and three administrative departments. The Equipment and Production Directorate is responsible for commercial activities, preparing pro forma invoices, carrying out works in the various services and workshops, coordinating ongoing work with respect to submitted orders, improving the methods, as well as preparing the investment and maintenance programme. The current director will very soon be assisted by another experienced manager, so as to develop production. 3.3.5 The Accounting and Financial Department, with 3 senior staff, is responsible for the accounting and financial management of CNIC. The Administrative and Human Resources Department, with 4 senior staff, is responsible for the administrative matters of the company, for monitoring legal and disputed matters and for managing human resources. The Computer and Management Control Department is attached to the Management. An administrative and financial director will be recruited to head these different departments. Furthermore, a specific unit will be set up to ensure the efficient management of the huge cash resources that would be generated following completion of the project.

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Staff and Training 3.3.6 CNIC has a total staff of 358 employees as follows: (i) 44 managerial staff (or 12%), including 2 expatriates, (ii) 132 supervisory staff (or 37%) and (iii) 182 operative staff (or 51%). The high number of managerial and supervisory staff is necessary because there are up to 1,100 part-time workers. Women account for 9% of the staff. CNIC has recruited many staff members (230 persons in 8 years) to meet the needs of its extension activities, and opened a training centre to adapt the staff to its techniques. 3.3.7 During the past five years, 24 seminars, attended by 43 employees including 10 women, have been organized for the administrative and technical staff. Furthermore, a special school has trained 200 shipyard welders, and is supervising the renewal of their licenses with specialized American agencies. The results have been very satisfactory, and the future training centre proposed in the project will be organized in the same manner. This will enable CNIC to work in compliance with internationally accepted technical standards. CNIC Activities

3.3.8 CNIC turnover, amounting to CFAF 14.8 billion, with more than 90% for export in 2000/2001, is broken down as follows: • CFAF 3.4 billion for ship repairs (fishing vessels, port service vessels, cargo ships, oil

tankers, oil support vessels); • CFAF 9.8 billion for mobile offshore works (drilling rigs and barges) • CFAF 0.5 billion for fixed offshore works (offshore platform works) • CFAF 1.1 billion for logistic and industrial works (transit, accommodation of teams,

and industrial works). The proportion of mobile offshore has increased significantly since 1998 following the development of drilling activities in the Gulf of Guinea. 3.3.9 CNIC facilities, located within the port area, comprise part of the fishing dock quays and two locations along the quays (berths 14 and 17). Its main components are: Fishing Dock • 250 m of quay quite close to the workshops • 30,000 m² of wharf area • 5.000 m² of covered workshops with modern boiler-making, piping, mechanical and

electrical equipment • 900 m² of office space for the Shipping Companies, the Management, the Production

Department and Administrative Services. • One 500-tonne floating dock (42 m x 13.5 m) • One 1,000-tonne floating dock (60 m x 15 m) • 1 floating crane with a lifting capacity of 250 tonnes • 6 platform derricks with a lifting capacity of 15 to 200 tonnes • One 230-tonne Nicolas self-hoisting trailer.

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Berths 14 and 17 • 350 m quay • One 3,500-tonne floating dock (100 m x 26 m) • One 10,000-tonne floating dock “Bamusso” (217 m x 40.8 m) • One 250 m berth for oil-tanker platforms. 3.3.10 Maintenance of Facilities: The quays used by CNIC are dredged regularly by the Douala Port Authority (PAD), which has two modern dredging ships, to maintain sufficient water depth for the docking of ships and the handling of floating docks. The facilities and equipment belonging to the CNIC are maintained by it, constitute a very heavy item in the operating expenses. The floating docks and cranes, which are inspected regularly by specialized companies, require frequent repairs and annual technical stoppages. CNIC Operating Constraints 3.3.11 The Douala Port Authority (PAD) is located 50 km from the sea on the Wouri river, the channel of which is dredged to 6.5 m and needs to be maintained annually. Consequently, oil rigs which draw more than 6 m cannot be towed to the CNIC facilities. 3.3.12 The PAD has already asked CNIC on several occasions to clear berth 14 which is in the Port area reserved for containers. The area is currently equipped with two specialized gantries. The only possible location for the Bamusso dock is in berth 17, already used by CNIC for its offshore works, hence the potential reduction in capacity. 3.3.13 The water depth along the PAD quays does not allow floating docks to take ships that draw more than 5.5 m. This makes it impossible for CNIC to repair large cargo ships and oil support vessels. Dispersion into three work areas in the Douala Port reduces productivity by about 25%, due to waste of much time in transporting workers and equipment. 3.3.14 These problems will be solved with the construction of a new shipyard in Limbe. The present yard will refocus on fishing dock facilities for ship repairs and industrial works, while offshore works will be carried out on the new deep-water yard with direct access to the sea and not depending on PAD. Productivity will be improved, and the time for technical stoppages reduced. 3.3.15 The project in Limbe will provide PAD with an additional berth. Given its maritime features and the available space, the Limbe yard will be the embryo of the future deep-sea port of Cameroon, which the authorities intend to construct by the year 2010. The feasibility studies are already underway, with financing from the US Trade and Development Agency (US-TDA). There is great synergy between the CNIC project and the future port, and a general development plan guarantees complementarity of the two structures.

4. THE PROJECT

4.1 Project Design and Rationale

4.1.1 To solve the operating constraints mentioned in the above paragraph, the CNIC in 1996 conducted study with World Bank financing on the location of a yard for its activities. The study recommended, among other things, a site on the Wouri river upstream the Douala

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Port. However, while the site solves the problem of port congestion, it has the same operating disadvantages (poor draught, navigability, etc.). After comparing several sites, the feasibility study finally selected the Limbe site, about 60 km from Douala (see Map of Cameroon in Annex 1). The site was selected in collaboration with operators in the sector. Located in the heart of the Gulf of Guinea, between oilfields belonging to Nigeria, Equatorial Guinea, Gabon and Angola, the site offers the following advantages: Clear water, because of the basalt bottom sediments, and deep water which will facilitate

underwater inspections and repair of large rigs, and reduces dredging operations; Easy direct access by ocean vessels and rigs to the quays; Still water berth that allows for repair activities throughout the year; Proximity to industries in Douala and good roads between the two towns; Available seaside space for pressing needs (handling areas, workshops, administrative

buildings, storage facilities, etc.) and for future developments. 4.1.2 However, the current site has the disadvantage of displacing the population of a riparian village. The displacement was considered in the environmental and social impact assessment, which made appropriate recommendations in accordance with the Bank’s relevant procedures. 4.1.3 Convinced of the project’s rationale and its future, the CNIC has accepted all the recommendations made at project preparation (procurement of land, resettlement of the population, additional geotechnical exploration, master development plan of the living quarters, etc.) despite the high costs incurred at that stage of the project. The expenses arising from the implementation of these recommendations were included in the project costs, under CNIC financing. 4.1.4 The overall location of the proposed structures is based on an optimization study between the length of the breakwater, the position of the quay, and minimization of underwater earthworks. Dredging of sediments to a depth of 12.0 m makes oil rig manoeuvre and drawing alongside the quay possible. The South breakwater, designed to withstand Atlantic swells of significant height (2.80 m), will protect a large dock in which the residual roughness will make it possible to work for more than 350 days per year. The quay is also well protected by the breakwater, especially the basin which will take the 10,000 t floating dock. The earth platform behind the quay offers an area of more than 11 ha on which support facilities can be constructed. A seabed dredged to a depth of 18 m will allow a floating dock specialized in the lifting of rigs weighing 30,000 tonnes to operate normally. 4.1.5 The project was designed using the participatory approach. In fact, the project site was identified during the feasibility study in collaboration with ship and oil-rig owners operating in the project area and who will be the future users. Similarly, during the appraisal mission, the same operators were contacted for discussions on the project, and they confirmed their needs. Lastly, the fishermen of the village on the project site were requested during the various meetings with the local authorities to confirm that the arrangements for their movement to the chosen site fully meet their expectations and that the compensations meet their aspirations. They were made to participate in the selection of the area for their resettlement.

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4.1.6 The project falls under the Bank’s enclave projects category. In fact, it fulfills the criteria developed in the Bank’s guidelines concerning enclave projects (ADB/BD/WP/96/166/Rev.3 of 19/5/1998); in particular, it will generate an adequate rate of return and foreign exchange resources to cover debt servicing. Similarly, the CNIC, which will be the borrower, is a semi-public company that enjoys financial and management autonomy, and records satisfactory financial performance (see Annex 11 for details on the criteria). However, the CNIC will have to provide sureties (mortgages, pledges, gage, etc.) to guarantee the loan in addition to the Government’s financial contribution. The independent legal evaluation financed by the Bank has determined the most suitable sureties for the project in the light of the relevant Cameroonian laws. 4.1.7 Furthermore, since the end of the crisis, the economic environment of the project has recorded good macro-economic performance. In fact, the country’s GDP growth rate increased from an average of about 4.3% during the 1998/99-1999-00 period to 5.3% in 2000/01. This rate should stand at around 4.6% during the 2001/02 financial year. Furthermore, the primary budget surplus, which accounted for 1.4% of GDP in 1999/00 surged up to 2% of GDP in 2000/2001. The inflation rate, which had been brought down from 2.9% in 1998/99 to 0.8% in 1999/00, stabilized around 2% in 2000/01. This trend should continue during the 2001/02 financial year. At the sectoral level, the economic recovery was evident in the good performance of industrial activity. In fact, the total turnover of enterprises of the sector was about CFAF 1,145 billion in 1999/2000, up by 5% in comparison to 1998/99 and sales abroad accounted for 40.2% of the industrial production. The major branches which produced most of their turnover abroad (export rate above 50%) include the building materials manufacturing industries and iron industries to which belongs Cameroon Shipyard and Industrial Engineering Ltd (CNIC), which is the beneficiary of the loan granted by the Bank for this project. 4.2 Project Area and Beneficiaries Project Area 4.2.1 The project area currently has a population of about 150,000 inhabitants, according to the last census figures, 51% of whom are women. The project is located in the South-West Province. The area is essentially an agricultural region, with the Cameroon Development Corporation (CDC) specialized in cash crops such as rubber, tea and palm oil, as well as the South-West Development Authority (SOWEDA) which focuses on activities in rural development, fisheries and stockbreeding. In addition to agricultural activities, the Limbe area also has the oil refinery (SONARA) and a quay to receive oil tankers. 4.2.2 The Limbe port is closed to exports, and since 1992 there has been no import or export of goods. The present port facilities comprise a small docking wharf with four stores and a shed which are used only from time to time. However, the proposed construction of a deep-water commercial port and an industrial free zone will render these facilities obsolete. 4.2.3 As a result of the construction of an offshore repair yard and its careening activities, the project area will cover areas from the Gulf of Guinea to the entire country, with oilfields and some service platforms and ships currently repaired by CNIC in its Douala workshops.

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Beneficiaries of the Project 4.2.4 The CNIC, as an enterprise, will be the primary beneficiary of the project; it will record a significant increase in its turnover and improve its working conditions. The other beneficiaries of the project are the cottage-type, industrial or semi-industrial undertakings already established in the area or those which will be established and whose activities will be directly or indirectly related to those of the CNIC. Further downstream and at the macro-economic level, the other beneficiaries of the operation will be the State whose fiscal revenue will ultimately increase and whose balance of payments will improve, as well as the population who will benefit from the job opportunities and whose income will consequently increase, thereby improving their living conditions significantly. The population will also benefit from the new socio-economic investments. 4.3 Strategic Context 4.3.1 The construction of a repair yard in Limbe fully meets the Government’s industrial policy as described in paragraphs 2.7 and 2.8. Its location in Limbe will create 3000 new jobs, which will improve the economic situation of the province; a ship repair yard will be maintained in Douala. It will clear two berths in Douala Port which is currently saturated, thereby enabling the PAD to develop traffic in the Port. It is also the first phase of the construction of a deep-sea port, that would allow ships to fully load their goods before leaving Cameroon. 4.3.2 The CNIC is the first company to establish in the Gulf of Guinea and capture the large oil-rig repair market in the area. In view of this favourable position occupied by CNIC, large private foreign companies have expressed interest in the project as partners. The Government, which accepted the principle of future privatization of the company, has decided to implement the first phase of the project, because of the initial investment required and in order to create the best conditions that would attract the private sector and be more cost-effective for the economy. The prospects for this activity will later help to open up the capital of the company under better conditions. 4.3.3 Furthermore, oil companies have expressed their interest in developing complementary activities on the project site. These activities concern, in particular, the storage of the products of ships undergoing repairs, the building up of supplementary stocks of petroleum products for tankers which cannot attain their loading capacity on the oil sites because of the weak draughts. Consequently, the project will generate foreign investments for the country. 4.4 Project Objectives The sector goal is to increase the share of the industrial sector in the GDP of Cameroon. Its specific objective to enable the CNIC to capture a large part of the oil rig repair market in the Gulf of Guinea

4.5 Project Description

4.5.1 The expected project outputs are as follows:

• a 390 m long quay constructed; • 590,000 m3 of materials dredged, and 11 ha of wharf area completed;

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• one 700 m long breakwater constructed; • 3500 m² of offices and 12000 m² of workshops constructed; • a 30,000-tonne floating dock procured; • two 300 t.m cranes with no more than 100 m jib, machine tools, teaching aids, and

sundry vehicles and machinery procured; and • all the staff concerned trained.

4.5.2 The project comprises the following four components.

Component A: Construction of marine and land facilities, comprising:

• A1 Procurement of land and resettlement of the population; • A2 Studies and reconnaissance of the site; • A3 The 700 m long and 14 m deep South breakwater; including the works inspection; • A4 The 390 m long and 12 m deep fitting-out berth; • A5 General dredging and underwater earthworks to a depth of 12 m and 18 m in the

seabed sediments; 11 ha embankment and wharf area; accesses to the docks/mooring posts; and aid-to-navigation;

• A6 Development of related activities and living quarters, and environmental protection; and

• A7 Landscape design and site development (yard); main workshop (2 bays); the administrative building; the QHSE building; public utilities (yard).

Component B: Procurement of land and floating equipment such as:

• B1- Procurement of land equipment and two mobile cranes; and • B2- Procurement of a dock and floating equipment.

Component C: Building of CNIC capacities through the training of senior staff, the

construction of a training center, and the procurement of teaching aids.

Component D: Project Management. This component consists of inspection and supervision in sub-components A4, A5, A6 and B1 as well as sub-components A7 and B2, support to the PIU, auditing of the project, legal advisory services and legal registration fees.

Brief Description of Components Component A: A1: This component, financed by the CNIC, concerns the purchase of land for its own use and land for use as living quarters for the resettlement of displaced families. It also includes the amounts required for compensations. A2: At the request of the ADB, and prior to the appraisal mission, complementary geotechnical studies were conducted on the facilities and quarry sites in order to allay any doubts as to the estimated amount of dredging, and ensure the availability of rocks required for the construction of the breakwater. A3: The breakwater is a structure composed of a core of unsorted quarry products protected by a layer of rocks of up to 5-6 tonnes or by artificial concrete blocks

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(accropodes). It will be graded to +4 m at the side, and have a 5 m wide crown wall, which will create an access passage. This component includes the breakwater works inspection. A4: The fitting-out berth is a structure constructed with concrete caissons. It will be used in mooring rigs and docks. The caissons will be crowned on the front by a girder to receive the mooring structures. A5: This sub-component concerns dredging and underwater earthworks which should bring the seabed to the required depth to ensure proper use of the facilities, wharf area and embankment which will be constructed behind the quay wall to provide work space (11ha), and aid-to-navigation (pier-head lights, channel lights, and approach transmitter). A6: The works in this sub-component concern all services to develop (i) areas to be made available to sub-contractors who will work for the CNIC, and (ii) areas reserved for the building of houses for the staff. Its sub-component on environmental protection concerns measures to be taken for the management of wastewater, sensitizing the population, preparing the resettlement plan, and monitoring the implementation of the plan, etc.

A7: This sub-component comprises the entire landscape design and site

development works to be undertaken by the CNIC for its own activities. It also includes the construction of the main workshop (2 bays out of 5), the administrative building on 2500m², the QHSE building (Quality, Hygiene, Security, Environment), and all the required public utilities (water, compressed air, gas, electricity and power, telephone, etc.) Component B

B1: It includes the purchase of workshop equipment (machine tools) and

shipyard equipment (welding sets, compressors, grindstones, etc.) and two 300t/m-capacity cranes on tracked caterpillars for the handling of heavy loads.

B2: It concerns the purchase of a 30000t floating dock and floating habour

gear (floating barges, etc.) Component C: C1: In order to strengthen CNIC capacities to manage and carry out its mission, the following activities will be undertaken (i) finance the training of some senior staff in Cameroon and abroad, and (ii) construct a training centre for skilled workers in the various trades. The training of senior staff will focus mainly on disciplines such as management, finance and accounting for managers, and quality control, design of metal structures, studies on various international standards and classification of ships for engineers.

C2: It concerns the purchase of teaching aids required for the functioning of

the centre. Component D:

D1: This sub-component concerns the recruitment of a consulting firm which

will be responsible for inspecting and supervising the works in sub-components A4, A5, A6

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and B1. The services for A3 will be financed by the ADB, while the works for this sub-component will be financed by ABEDA.

D2: It concerns the inspection and supervision of A7 and B2, financed by the

IDB. D3: Support to the Project Implementation Unit includes the services of a

specialized technical assistant, the purchase of vehicles (4), expenses on maintenance, insurance and fuel for the vehicles, bonuses for the staff and sundry supplies.

D4: An auditor will be recruited at works start-up on the site, and will

undertake three audit missions during works implementation. D5: An international firm will be recruited with CNIC financing to assist the

Bank in the design, formulation and negotiation of all legal loan documents. To that end, the firm will in particular prepare the draft loan agreement, the draft postponement agreement, the guarantee agreements and any other legal documents required for the project, and will assist the Bank in negotiations before project presentation to the Board of Directors. After project approval, the firm will participate in the preparation of additional documents covering agreements on common terms, sureties and sharing of sureties; it will also participate in the review of documents submitted in fulfilment of conditions precedent to the first disbursement, and in general, provide the legal opinion required by the rules.

D6: The legal registration fees, financed by the CNIC, will be part of the

expenses incurred in producing the sureties required by the ADB.

4.5.3 The Consultant will be responsible for monitoring the components financed by the ADB and the component financed by ABEDA. His team will include an environmental expert who will assist the PIU in environmental and safety aspects on the site. The importance of environmental and safety problems in works implementation as a result of proximity of sensitive installations such as the SONARA refinery, and the loading and offloading wharf for petrochemical products argue in favour of the inclusion of this expert in the Consultant’s team. The IDB-financed components will be monitored by the consultant to be recruited by the institution. Lastly, all the inspection and supervision firms will be coordinated by the consultant financed by the Bank loan. 4.5.4 The project will provide financial support to the unit for its monitoring and coordination activities by taking charge of the operating expenses, per diems, as well as the related salaries and allowances (paid by the CNIC). Similarly, expenses for four cross-country vehicles to be used by the PIU during project implementation as well as office supplies will be borne by the project with CNIC financing. Office furniture and equipment as well as computer equipment will be provided by the company responsible for works implementation. PIU expenses will be settled by a working capital regularly replenished by the CNIC and ADB. 4.5.5 ADB financing will concern sub-components A5 (except aid-to-navigation) and B1 as well as components C and D (except inspection and supervision of sub-components A7 and B2, sub-component D5 and legal registration fees).

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4.6 Market and Prices 4.6.1 The CNIC market is broken down into three categories of products, namely (i) ships, (ii) the offshore and (iii) industrial engineering and sundry services. The trend of these different market segments is presented below. 4.6.2 The ship repair market in the Gulf of Guinea has been stable for the past several decades. Up to 1970-1975, it concerned fishing boats: shrimp boats, trawlers, ocean tunny boats, service boats from various ports, merchant ships: oil tankers, coasters, dispersal container ships (cargo vessels have all increased in size and those which go on international voyages can be careened only in large yards in highly industrialized countries). 4.6.3 As from 1975, the offshore emerged, as a result of the search and development of offshore oil fields in the Gulf of Guinea. The continental shelf has been successfully explored from Côte d’Ivoire to Angola, creating a market for supply vessel repairs (oil rig support vessels working for operations relating to towing, safety, and supply of men and/or equipment), barges, drilling tenders and production rigs, which existing yards have absorbed without difficulty because the characteristics of these new products are compatible with their capacities. 4.6.4 With reserves proved to be diminishing inexorably, new deep-sea explorations started in the 1990s and resulted in the discovery of large oil fields. The fields, which are more difficult to tap, required the use of more powerful ships capable of handling semi-submersible rigs that can work in areas up to 1,000m deep. The local shipyards did not keep up with this rapid change of floating structures in their neighbourhood. There is no worksite on the west coast of Africa capable of taking a semi-submersible platform in the dock, whereas this type of repairs accounts for the biggest share of the potential market. Moreover, recent discoveries in Equatorial Guinea, Nigeria and Angola have rapidly brought about change in the offshore market. 4.6.5 Since 1995, shipyard facilities have not been adapted to the potential offshore market, which is divided into three segments: (i) The mobile offshore or estuary drilling rigs (semi-submersible low draught jack-ups, working in deep water drawing about 12 metres, swamp barges drilling in estuaries which are towed to their work place). Currently, there about fifty mobile rigs operating in the Gulf of Guinea, which need to be maintained periodically either by wet docking or by dry docking. These machines can stop for technical reasons only every 5 years, except drill ships which careen every two years, which gives an annual repair market of 11 machines. The current rig repair market concerns only wet technical stoppages, since no shipyard in West Africa can take them in the dock. As soon as the floating dock of the future Limbe yard becomes operational, it will be able to undertake dry-docking and rig upgrading. This would give bigger contracts amounting to an annual average of CFAF 12 billion for the repair of a jack-up, and CFAF 20 billion for a semi-submersible; (ii) The work barges used for heavy transport (cargo barges), staff housing (hotel barges), and the laying of pipe-lines. There are 12 barges in the region, excluding swamp barges in Nigeria on which there is no specific information. On average, the barges are careened every ten years. It could be estimated that this market niche has 5 units per year, that is an annual potential market of CFAF 13 billion; and (iii) The fixed production rigs requiring that the staff board them for maintenance. The fixed rigs, used for production, replace the mobile rigs on the oil fields as tapping goes on. In 1998, there were 620 fixed rigs in the Gulf of Guinea, and this number could reach 1,000 in the coming 10 years. Supposing that the CNIC cannot operate in the

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south of Gabon or west of Nigeria for logistic reasons, it could be estimated that 100 rigs would constitute the potential market. 4.6.6 Increased offshore exploration, development and production in the Gulf of Guinea will lead to an increase in heavy equipment. The annual market in the area by category of equipment is summarized in the table below:

Category of Equipment

Number in 1998

Number in 2008

Number of passages to

the dock per year

Potential Annual Market (CFAF

billion)

Fixed offshore production rigs 620

1022

Not

applicable

Mobile offshore Total Self-hoisting rigs Semi-submersible rigs Drill ships Semi-submersibles FPSO Derrick-Barges Cargo-barges, hotel barges Buoys Others

203

28 14 6 5 5 70 55 20

334

49 25 10 9 9

100 97 35

10 5 5 1 1 10 10

235

92 100 25 2 2 10 4

(From First Marine study – Project Reappraisal, September 2001). 4.6.7 The amount of CFAF 100 billion for the semi-submersible rigs takes into account the dry upgrading of a large number of units. 4.6.8 Industrial engineering and others include CNIC complementary activities, namely: (i) transit, a new activity consisting in managing the administrative operations required for forwarding to the shipyard the different equipment and spare parts ordered directly by customers, and in providing, during technical stoppages, living quarters with lodging and meals for the technical teams and customer crews, and (ii) local industrial works. Competition 4.6.9 For ships, the situation will remain the same as today, on account of the shipyards in the Gulf of Guinea: CARENA in Côte d’Ivoire, DPS in Gabon, Walvis Bay in Namibia. The CNIC should not lose its market share in this sector. On the other hand, the commissioning of the Bamusso dock in Limbe, the reorganization of the Douala yard, and the improvement of productivity through training of staff should make the CNIC more competitive with respect to its current competitors. 4.6.10 As regards the offshore, competing shipyards with activities similar to those in Limbe are currently located in Capetown in South Africa, Lisnav, Portugal, Spain and, to a lesser degree, Asia (Singapour). Within this context, the advantage of the Limbe shipyard lies in: (i)

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its geographical location, in the heart of the Gulf of Guinea, a few cable lengths from countries with oil fields that have operating oil rigs, (ii) the absence of a direct competitor in the region working in the same niche, because there is no shipyard that can carry out wet-dockings for large rigs, and (iii) the high cost of towing rigs to South Africa or to Europe (CFAF 500 million for towing to Europe and back, and CFAF 40 million for each day of immobilization, or a total of CFAF 2.9 billion, representing about 20% of the overall repair expenses). 4.6.11 Competition in West Africa is possible, but more probable in the wet docking of units with moderate draught, than taking the rigs in the dock because of the very limited number of shipyards which have a depth of 18 m and are near a large industrial town. The location of CNIC will be all the more advantageous as productivity, meeting of deadlines, and quality of work continue to improve. Already, oil operators have confidence in the CNIC, and entrust it with increasingly larger repairs; furthermore, they request that the yard be developed in a better location and designed specially for this type of works. Nevertheless, the targeted market share is only 20%, which is a moderate objective, giving room for competition that is still possible. Prices 4.6.12 The notion of price in a repair yard is relative, because it depends on several factors such as the geographical location, the speed of the work and its quality. Generally speaking, the prices in West Africa are comparable to those in Europe, and are significantly higher than those in Singapour or the Far East, with longer repair periods. Nevertheless, the shipyards on the West African coast are competitive because of the (transportation) periods and additional costs, mentioned in paragraph 4.6.10, due to the fact that competing shipyards are far off. These costs and periods are such that the oil rig operators prefer to carry out the works locally. Tariffing and Invoicing 4.6.13 The CNIC basic rate defines a price for each work that can be done in the shipyard. It is based on experience and it is updated in the light of an analysis of various orders, and changes in the cost of external factors (water, electricity, petrol, gasoil, and labour cost). It includes the fixed costs and a profit margin, but not the direct costs which are charged in addition. This rate is applied only to orders billed during a specific period. Larger orders are charged in terms of a list of works prepared by the customer, and negotiated for a contractual amount. On the other hand, additional works are generally calculated using the tariff. 4.6.14 The bills are negotiated with the representative of the ship owner monitoring the works, and expressed in US dollars for export. They indicate the cost of labour, material costs, the fixed amount for the works and the amount for sub-contracts. Small orders are billed at completion of the works. Large orders have intermediate bills. The bills are paid within two months following issue. Doubtful debts will account for less than 2% of the turnover. 4.6.15 The estimated turnover is presented in the table below (turnover expressed in CFA billion).

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Activity Turnover 2000/2001

Future Turnover

Remarks

Ships, Fishing, Service Supply vessels Mobile Offshore Fixed Offshore Transit and misc.

1.2

2.1

9.8

0.5

1.2

1.9

3.0

50.0

2.0

3.1

Careening of large ships possible in Limbe Careening of large ships possible in Limbe New activity. 4 operations/ year. Logistics, industrial works.

Total CFAF billion

14.8 60.0

Turnover obtained in 2011

4.6.16 The development of the shipyard has been spread out over a period of 5 years to take into account the difficulties of adaptation to be encountered by the employed or displaced staff, and the inevitable adjustments of a new shipyard. The production assumptions for the project were validated with the CNIC. The fishing and service activities will remain stable because the market is not changing. The cargo and supply activities will increase, because the Bamusso dock will be used at full capacity in Limbe. The mobile offshore activity will increase considerably as a result of the operation of a floating dock for drilling rigs and the possibility of receiving rigs undergoing repairs with high draught, and reach 20% of the market. The barges, fixed offshore, and transit & other activities will increase as a result of an increase in the offshore market. Their trend could be summarized in terms of number of units as follows:

Market Segment At Present Future Remarks Fishing boats 22 22 Douala Merchant vessels 13 15 Douala + Limbe Service vessels 6 6 Douala Supply-vessels 35 40 Douala + Limbe Mobile offshore 2 wet 3 wet 2

dry Special docking and possible upgrading

Barges 4 6 Douala + Limbe 4.7 Environmental Impact 4.7.1 Given its nature, location, scope as well as its possible direct and indirect impacts, the project is classified in category 1 from the environmental point of view. An Environmental and Social Impact Assessment (ESIA) has therefore been conducted. A summary of the ESIA has been submitted to the Board of Directors. A review of the ESIA and an evaluation of the environmental conditions during field trips indicate that during the construction phase the environmental impacts will be fairly significant. On the other hand, during the operation of

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the shipyard, serious impacts could appear if appropriate measures are not taken in time. Details on the environmental impacts and mitigating measures are available in the Bank’s Public Information Centre. Positive Impacts 4.7.2 The project will have significant impacts on the country’s economy in general, and on the South-West Province, in particular. These positive impacts will be developed in paragraphs 7.3 and 7.4 below. At the ecological level, the project will provide fixation and colonization substrata (floating objects strategy) for many sea benthic organisms, and protect the quality of sea water by implementing an oil spill management plan. Negative Impacts 4.7.3 The foreseeable impacts during the works would concern: safety problems due to traffic, noise and vibrations; the temporary destruction of the sea population and their habitats in the project area, deterioration of the ecosystem in the area and its environs as a result of dispersion and depositing of mud, hydrocarbons or other poisonous products, clearing of the plant cover and reduction of biodiversity in the area and quarry zones, sexually transmissible diseases as a result of the inflow of migrant population. The potential impacts during the operation phase would concern: marine pollution by the spilling of hydrocarbons and other pollutants, as well as pressure on natural resources and social services by the influx of foreign population. Recommended Mitigating Measures 4.7.4 To mitigate these impacts, the following measures have been recommended: the installation of temporary signs offshore and on land for the safety of the riparian population and the fishermen; the control of normal working hours; the use of geotextile screens, settling tank, retaining wall, suction dredger and other appropriate equipment to reduce the dispersion of sediments; the minimum use of explosives in underwater earthworks; the supply of hydrocarbons for boats and machinery on land and regular maintenance of these machines; the removal of all rock and sedimentary debris, machines, pipes and other unusable pieces; the rehabilitation of quarry dump sites and borrow pits; the organization of sensitization and education campaigns for villagers on STDs, alcoholism, hygiene, cultural value, and the protection and management of environmental resources. Furthermore, in order to control marine pollution, the project will prepare and implement risk prevention plans (oil spills, waste management) and an operating manual for reduced pollution ship repairs, before works start-up. 4.7.5 As regards the resettlement of 232 persons who will be displaced, 35 ha of land has already been identified in collaboration with the affected population. Payment for the land has already been made under the project with CNIC financing. Similarly, compensation for the loss of crops and plantations, amounting to CFAF 29 million, has already been paid. An expropriation procedure has already been initiated to obtain the necessary land and start the project. A displacement and resettlement plan for the persons affected has already been prepared in compliance with Cameroonian law and Bank guidelines. The total cost of the displacement (compensation for loss of houses and crops, selection and demarcation of resettlement sites, land security, development and management of sites, monitoring of construction and resettlement, etc.) is estimated at CFAF 881 million. The compensation for

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expropriation of houses will be paid after validation of the appraisal report of the Verification and Evaluation Commission by the Minister of Town Planning and signing of the expropriation decree by the Prime Minister. 4.7.6 In the new resettlement sites for the population, social facilities (health centre, road, water, electricity) will be constructed and placed at the disposal of the population. As regards the monitoring of the displacement and resettlement of affected persons, as well as payment of compensation, three organizations will be set up within the CNIC, and financed by CNIC itself; they are the monitoring and steering committee for the displacement of population, the management unit for the displacement of population, and the commission for the payment of compensation. As much as possible, the displaced persons will be employed by the project on the yard and even after, depending on the opportunities. 4.7.7 The environmental and social specifications are described in the environmental and social management plan (PGES) the total cost of which is included in the project cost. The environmental specifications, which are based on international standards, will be included in the bidding documents. The implementation of these detailed environmental and social specifications will be monitored by the Environmental and Social Management Unit (UGES) and coordinated by an environmental and security expert throughout the project. The Permanent Environmental Secretariat will also be called upon to monitor the effectiveness of the mitigating measures. The PGES will be incorporated in the loan documents signed by the Bank and the Borrower. One of the loan conditions will be the implementation of the displacement and resettlement plan and the payment of compensation for the expropriation of houses and land. 4.7.8 The cost of the environmental and social measures of the project is estimated at about CFAF 1,301,000,000. This cost mainly concerns compensation for loss of houses and crops, selection and demarcation of resettlement sites, setting up of monitoring organizations, land security, preparation of priority action plans, an oil spill plan, a waste management plan, incorporation of environmental and social specifications in the bidding documents, organization of sensitization campaigns on STD/AIDS and cultural value, etc. Costs relating to the protection of marine ecosystem, the development of resettlement sites and the payment of compensation for expropriation are included in the total project cost.

4.8 Project Cost

4.8.1 The total project cost is estimated at US$ 120.82 million exclusive of tax, or UA 93.79 million. It is broken down as follows: US$ 26.54 million, or UA 20.60 million, in local currency, or 21.97%, and US$ 94.28 million, or UA 73.19 million, in foreign exchange, or 78.03%. It is based on detailed sketches produced by the consultant in line with unit market prices for recent similar works. It is summarized component by component in Tables 4.1 and 4.1. (a) below. The detailed project cost is given in Annex 3. These costs include 10% provision for physical contingencies and 3% provision for price escalation per year.

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Table 4.1 Summary of Project Cost Estimates by Component

(in US$ million) (in UA million) Components L.C. F.E. Total L.C. F.E. Total

% F.E.

Component A 19.20 54.42 73.62 14.90 42.24 57.15 A1 2.00 0.00 2.00 1.55 0.00 1.55 0.00 A2 0.50 2.00 2.50 0.39 1.55 1.94 80.00 A3 6.75 18.25 25.00 5.24 14.17 19.41 73.00 A4 3.90 9.10 13.00 3.03 7.06 10.09 70.00 A5 1.75 14.45 16.20 1.36 11.22 12.58 89.20 A6 1.86 4.53 6.39 1.44 3.52 4.96 70.89 A7 2.44 6.09 8.53 1.89 4.73 6.62 7140

Component B 2.82 22.82 25.64 2.19 17.71 19.90 B1 0.49 12.52 13.01 0.38 9.72 10.10 96.23 B2 2.33 10.30 12.63 1.81 8.00 9.80 81.55

Component C 0.30 1.21 1.51 0.23 0.94 1.17 C1 0.30 0.79 1.09 0.23 0.61 0.85 72.48 C2 0.00 0.42 0.42 0.00 0.33 0.33 100.00

Component D 1.00 3.63 4.63 0.78 2.82 3.59 D1 0.40 1.95 2.35 0.31 1.51 1.82 82.98 D2 0.11 0.60 0.71 0.09 0.47 0.55 84.51 D3 0.32 0.55 0.87 0.25 0.43 0.68 63.22 D4 0.05 0.05 1.10 0.04 0.04 0.08 50.00 D5 0.02 0.48 0.50 0.02 0.37 0.39 96.00 D6 0.10 0.00 0.10 0.08 0.00 0.08 0.00

Total Base Cost 23.32 82.08 105.40 18.10 63.72 81.82 77.87 Implementation Contingencies

2.08 7.52 9.60 1.61 5.84 7.45 78.33

Price Escalation 1.14 4.68 5.82 0.88 3.63 4.52 80.41 Total Project Cost 26.54 94.28 120.82 20.60 73.19 93.79 78.03 4.8.2 A summary of the cost of ADB-financed components is given in Table 4.1 (a) below.

Table 4.1(b)

Summary of Project Cost Estimates by Component Financed by ADB (in US$ million) (in UA million) Components

L.C. F.E. Total L.C. F.E. Total %

F.E. Component A 3.61 18.98 22.59 2.80 14.73 17.54

A5 Dredging & underwater earthworks 1.10 9.90 11.00 0.85 7.68 8.54 90.00 Dyke & wharf area 0.35 3.15 3.50 0.27 2.45 2.72 90.00 Access dock/dolphins 0.30 1.20 1.50 0.23 0.93 1.16 80.00 Aid-to-navigation 0.20 0.20 0.00 0.16 0.16 100.00

A6 Development of areas & related activities 1.74 4.06 5.80 1.35 3.15 4.50 70.00 Environmental protection 0.12 0.47 0.59 0.09 0.36 0.46 79.66 Component B 0.49 12.52 13.01 0.38 9.72 10.10 B1 Land equipment 0.39 3.37 3.76 0.30 2.62 2.92 89.63 B2 Purchase of two mobile cranes 0.10 9.15 9.25 1.08 7.10 7.18 98.92 Component C 0.30 1.21 1.51 0.23 0.94 1.17 Training of senior staff 0.30 0.79 1.09 0.23 0.61 0.85 72.48 Teaching aids 0.42 0.42 0.00 0.33 0.33 100.00 Component D 0.89 3.03 3.92 0.69 2.35 3.04 Inspection packages 2,3,4 & 6 0.40 1.95 2.35 0.31 1.51 1.82 82.98 Support to PIU 0.32 0.55 0.87 0.25 0.43 0.68 63.22 Audit 0.05 0.05 0.10 0.04 0.04 0.08 50.00 Legal counsel 0.02 0.48 0.50 0.02 0.37 0.39 96.00 Legal registration fees 0.10 0.00 0.10 0.08 0.00 0.08 0.00 SUB-TOTAL 5.29 35.74 41.03 4.11 27.74 31.85 87.11 Physical contingencies 0.53 3.57 4.10 0.41 2.77 3.18 Financial contingencies 0.29 2.36 2.65 0.23 1.83 2.06 TOTAL EXCL. OF TAX 6.11 41.67 47.78 4.74 32.35 37.09 87.21

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4.8.3 The costs by expenditure category are given in Tables 4.2 and 4.2 (a) below:

Table 4.2: Summary of Project Cost Estimates by Expenditure Category Expenditure Category (in US$ million) (in UA million) % F.E.

L.C. F.E. Total L.C. F.E. TotalA – Civil works 1 – Buildings 1.82 2.96 4.78 1.41 2.30 3.71 61.922 – Infrastructure 17.18 49.26 66.44 13.34 38.24 51.57 74.14B – Goods 1-Equipment/ teaching aids 2.82 23.44 26.26 2.19 18.20 20.38 89.262-Supply/ PIU vehicle 0 0.20 0.20 0 0.16 0.16 100C – Consultancy services 1 – Studies and engineering 0.50 2.00 2.50 0.39 1.55 1.94 80.002 – Supervision 0.51 2.55 3.06 0.40 1.98 2.38 83.333-Legal counsel 0.02 0.48 0.50 0.02 0.37 0.39 964- Auditing of the project 0.05 0.05 0.10 0.04 0.04 0.08 505-PIU Tech. Assistance 0 0.31 0.31 0 0.24 0.24 1006 – Training 0.00 0.79 0.79 0.00 0.61 0.61 100.00D – Miscellaneous 1-PIU operating costs 0.31 0.04 0.35 0.24 0.03 0.27 11.112- Legal registration fees 0.10 0 0.10 0.08 0 0.08 0 Total base cost 23.32 82.08 105.40 18.10 63.72 81.82 77.87Physical contingencies 2.08 7.52 9.60 1.61 5.84 7.45 78.33 Financial contingencies 1.14 4.68 5.82 0.88 3.63 4.52 80.41Total project cost 26.54 94.28 120.82 20.60 73.19 93.79 78.03

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4.8.4 ADB financing by expenditure category is given in the table below:

Table 4.2 (a) Summary by Expenditure category of Components Financed by ADB

Expenditure Categories In US$ million In UA million. % Foreign Exch.

L.C. F.E. Total L.C. F.E. Total A-Civil works

1- Buildings 0.30 0.30 0.23 0.23 2 - Infrastructure 3.61 18.78 22.39 2.80 14.58 17.38 83.88

B- Goods 0.49 13.14 13.63 10.20 10.20 100.001-Equipmt/ teaching aids 0.49 13.14 13.63 0.38 10.20 10.58 962-Supply/ PIU vehicle 0 0.20 0.20 0 0.16 0.16 100C- Consultancy Services 1- Supervision 0.40 1.95 2.35 0.31 1.51 1.82 82.98

2- Legal counsel 0.02 0.48 0.50 0.02 0.37 0.39 963- Auditing of the project 0.05 0.05 0.10 0.04 0.04 0.08 50

4- PIU Technical Assistance 0 0.31 0.31 0 0.24 0.24 100 3- Training 0.79 0.79 0.61 0.61 100.00

D- Miscellaneous 1- PIU operating costs 0.31 0.04 0.35 0.24 0.03 0.27 11.11

2- Legal reg. costs 0.10 0.00 0.10 0.08 0 0.08 0Total base cost 5.29 35.74 41.03 4.11 27.74 31.85 87.11

Physical contingencies 0.53 3.57 4.10 0.41 2.77 3.18 Financial contingencies 0.29 2.36 2.65 0.23 1.83 2.06

Total Cost 6.11 41.44 47.78 4.74 32.35 37.09 87.21 4.9 Sources of Finance and Expenditure Schedule

4.9.1 The project is co-financed by the IDB (US$ 24.22 million), ABEDA (US$ 12 million), the Dutch Fund (US$ 22.55 million) and ADB (US$ 45.40 million or UA 35.25 million, representing 37.58% of the total project cost, exclusive of tax). The CNIC will provide US$ 16.64 million. The structures financed by the different institutions are:

• IDB: all the sub-components A7 and B2 as well as supervision of related works; ABEDA: the fitting-out berth jointly with the CNIC;

• Dutch Fund: the South breakwater jointly with the CNIC; and • CNIC: all the sub-components A1 and A2, part of sub-components A3, A4, A5,

A6 and B1, and components C and D.

4.9.2 It should be noted that assistance for the construction of the breakwater would comprise subsidy from the Dutch Government and a loan from the Dutch private sector at market rates. The conditions of the different loans of the co-financiers are summarized in Annex 10. 4.9.3 Part of the local currency costs has been proposed for donor financing, in particular, the IDB, ABEDA and ADB. The ADB will finance US$ 4.52 million in local currency, or about 17% of the total cost in local currency. This significant fraction of the local currency provided by the Bank would enable the CNIC to make its contribution estimated at 13.77% of

22

the total project cost, exclusive of tax, because: (i) the proportion of local currency is relatively high (about 22%), (ii) the CNIC has already committed part of the foreign exchange costs to finance studies and geotechnical drilling, and (iii) it will take charge of the foreign exchange costs of the International consulting firm, which will intervene before fulfilment of the conditions precedent to the first disbursement of the loan. 4.9.4 Table 4.3 below summarizes the contributions of the co-financiers:

Table 4.3: Sources of Finance (in US$ million) Sources L.C. F.E. Total % of Total ABEDA 1.39 10.61 12.00 9.93 IDB 5.50 18.72 24.22 20.05 ADB 4.52 40.88 45.40 37.58 Dutch Fund 1.27 21.28 22.55 18.67 CNIC 13.85 2.79 16.64 13.77 Project Total Cost 26.53 94.28 120.81 100.00 4.10 Expenditure Schedule: 4.10.1 The expenditure schedule by component is given in Table 5.1 below.

Table 5.1: Expenditure Schedule by Component (in US$ million)

Components 2001 2002 2003 2004 2005 TOTAL Component A 4.50 11.64 37.86 27.54 2.92 84.46 Component B 8.74 10.44 8.17 2.03 29.38 Component C 0.23 0.23 0.65 0.62 1.73 Component D 1.16 1.70 1.70 0.69 5.25 Total Project Cost 4.50 21.77 50.23 38.06 6.26 120.82

4.10.2 The expenditure schedule by source of finance is as follows:

Table 5.2: Expenditure Schedule by Source of Finance

Sources of Finance 2001 2002 2003 2004 2005 TOTAL ABEDA 5.63 6.37 12.00 IDB 5.68 9.27 9.27 24.22 ADB 6.43 25.72 8.59 4.68 45.40 Dutch Fund 6.43 8.06 8.06 22.55 CNIC 4.50 3.24 1.55 5.77 1.58 16.64 Total Project Cost 4.50 21.77 50.23 38.06 6.26 120.81

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5. PRJECT IMPLEMENTATION

5.1 Executing Agency

5.1.1 The Executing Agency of the project will be the Cameroon Shipyard and Industrial Engineering Ltd (CNIC). The project will be managed by the task force, currently responsible for project preparation, the staff of which will be strengthened, and it will be upgraded to a Project Implementation Unit (PIU). The task force currently comprises a civil engineer, an administrative officer, and support staff. In view of the complexity of the project, the PIU will be reinforced by a technical assistant, and comprise at least the following staff: two engineers (one civil engineer and a mechanical engineer or electromechanical engineer) one of whom will be the Head of the PIU, a confirmed accountant, an administrative manager, and all the support staff required for its smooth running (secretary, office clerk, driver, etc.). 5.1.2 The curriculum vitae of the engineers and accountant, brought to strengthen the PIU, will be submitted to the Bank for an opinion of no-objection. This will be one of the conditions precedent to the first disbursement of the loan. The PIU will receive technical assistance in the form of the services of a civil or maritime engineer with great experience in this type of project and familiarity with the procedures of the various donors of the project. The terms of reference of the technical assistance are given in Annex 4. The Head of Unit will coordinate the different persons involved in the project. He will report to the Director General of CNIC. Furthermore, the Executing Agency will be assisted throughout project implementation by consulting firms which will be responsible for inspecting and supervising the implementation of the various sub-components. 5.2 Institutional Arrangements 5.2.1 For the monitoring of studies and project design, the CNIC has set up a Task Force comprising an engineer and an administrative manager. This project team has carried out all the operations relating to project preparation. The PIU will be strengthened with the staff of this Task Force, and will receive technical assistance to reinforce its project management capacity. 5.2.2 The PIU will be responsible for preparing the bidding documents, managing the contracts, and monitoring the works. It will coordinate the activities with the donors, and report directly to the Director General of CNIC.

5 3 Implementation and Supervision Schedules

5.3.1 The project will be implemented over a period of 40 months. The works will be carried out in 30 months with effect from the date de signature of their contracts. The implementation schedule, which is summarized below, is given in detail in Annex 5.

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N° ACTIVITIES RESPONSIBLE START END Approval and Effectiveness 1.1 Loan approval ADB July 2002 1.2 Signature and effectiveness CNIC/ADB July 2002 June 2003

Project Implementation 2.1 Approval of APA CNIC/PIU Oct .2001 Nov. 2001 2.2 Project coordination PIU/CNIC July 2001 July 2005 2.3 Technical Assistant

Approval of TOR ADB July 2002 Invitation to bid, analysis, selection CNIC /ADB Aug. 2002 Oct. 2002 Mob. and allocation CNIC/Tech. Ass. Nov. 2002 June 2005

2.4 Consultant/ inspection and supervision Invitation to bid and selection CNIC/ADB Nov. 2001 July 2002

Works supervision/inspection Consultants Dec. 2002 June 2005 2.5 Works Invitation to bid A5, A6 CNIC/PIU Nov. 2001 July 2002

Reception, analysis, selection CNIC/CEP Aug.2002 Nov. 2002 Mob. Works implementation Enterprise Dec. 2002 May 2005

2.6 procurement of equipment Invitation to bid B1 CNIC/PIU Aug 2002 Oct. 2002

Reception, analysis, selection CNIC/PIU Nov. 2002 Dec. 2002 Supply of cranes Supplier Jan. 2003 Jan. 2004 Supply of land equipment Supplier Nov. 2004 April 2005 2.7 Component C 2.7.1 Invitation to bid/selection/training CNIC/PIU Aug. 2002 Nov. 2002

Training of managerial staff CNIC Dec. 2002 April 2005 2.7.2 Invitation to bid/training centre CNIC/PIU March 2004 April 2004

Analysis and selection CNIC/PIU May 2004 June 2004 Works implementation Enterprise July 2004 April 2005

2.7.3 Invitation to bid/ teaching aids CNIC/PIU April 2004 June 2004 Analysis, selection CNIC/PIU July 2004 Nov. 2004 Supply of aids Supplier Dec. 2004 March 2005

2.8 Component D 2.8.1 Support to PIU ADB/CNIC Oct. 2001 July 2005 2.8.2 Invitation to bid/audit, selection CNIC/PIU Nov. 2002 Dec. 2002

Auditing of the project Auditor Jan. 2003 June 2005 2.8.3 Invitation to bid/selection/Legal Counsel CNIC/ADB Aug. 2002 Oct. 2002

Legal Counsel CNIC/ADB Nov. 2002

5.3.2 The Bank will undertake a joint launching mission for the project with the other co-financiers, and subsequently undertake supervision missions. A mid-term review mission will also be undertaken. The tentative schedule for these missions is given below.

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Approx. Date (month/year)

Activities Required Skills Staff Contribution (staff/weeks)

December 2002

Launching of the project

Civil Engineer, Disbursement Officer, Internal Auditor, Environmentalist, Legal

Counsel

5

June 2003 Supervision Civil Engineer, Electromechanical Engineer, Environmentalist,

6

December 2003 Supervision Civil Engineer, Electromechanical Engineer, Environmentalist

6

June 2004 Supervision and mid-term review

Civil Engineer, Environmentalist, Electromechanical Engineer, Disbursement Officer, Financial Analyst, Legal Counsel

12

December 2004 Supervision Civil Engineer, Environmentalist, Electromechanical Engineer

6

Nov/Dec. 2005 Project Completion Report

Civil Engineer, Environmentalist, Disbursement Officer, Financial Analyst,

Legal Counsel, Electro. Engineer

12

5.4 Procurement Arrangements

5.4.1 The following arrangements will be applied, taking into account the specific nature of the project: • The CNIC Special Contracts Board set up in December 2000, the competence of which

will be extended to the approval of all contracts financed under the project; this will be a loan condition.

• All Bank-financed goods, works and services will be procured in compliance with the Bank’s rules of procedure for the procurement of goods and works, or as the case may be, with the Bank’s rules of procedure for the use of consultants, using the appropriate standard bidding documents of the Bank.

• All Bank-financed goods, works and services will be procured in compliance with the

provisions defined for the procurement of goods and services for the Project1. 5.4.2 The CNIC will be responsible for the award of contracts. The resources, capacity, expertise and experience of the project management team are adequate to carry out the mission. However, an assessment of the team staff has shown the need to upgrade their knowledge of the Bank’s procurement procedures. The technical assistance to the PIU is intended to remedy this shortcoming, and provide training to the PIU officials at the Bank Headquarters before project start-up. Definition of Procurement Methods Advance Procurement Action (APA) 5.4.3 An advance procurement action has been authorized for contracts relating to the construction of marine and land structures and the consultancy contract for works inspection and supervision. An information note on this aspect was submitted to the Board by the Vice-President, OCVP, on 7 January 2002.

1 See Table 5.4.2.

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Civil Works 5.4.4 The works contract for the construction of marine and land structures, amounting to UA 19.39 million, will be awarded through international competitive bidding, with prequalification of enterprises. 5.4.5 The works contract for the construction of the Training Centre, estimated at UA 270,000, will be awarded through national competitive bidding (NCB). Goods 5.4. 6 The goods contract for the supply of shipyard and workshop equipment, mobile cranes and teaching aids, amounting to UA 12.12 million, will be awarded through international competitive bidding. 5.4.7 Goods contracts, below UA 20,000 per contract, will be awarded through local shopping (LS). These contracts will be awarded, as regards the functioning of the project unit, for office supplies, communication, vehicle maintenance and insurance, and sundry expenses. The amount for these contracts is estimated at about UA 120,000. Consultancy and Training Services 5.4.8 The service contract for works inspection and supervision, estimated at UA 2.09 million, will be awarded on the basis of a short list drawn up after prequalification. It will be advertised in “ Development Business ”. The prequalification procedure will be based on a technical evaluation of the bids, taking into account their prices. The technical evaluation report, prepared by the Borrower, will be transmitted to the Bank for an opinion of no-objection before the financial bids are opened. 5.4.9 The service contracts for the training of CNIC senior staff, estimated at UA 700,000, will be awarded on the basis of a short list. The prequalification procedure will be based on a technical evaluation of the bids, taking into account their prices. 5.4.10 The service contract for the annual auditing of the project (amounting to UA 100,000), will be awarded on the basis of a short list. The prequalification procedure will be based on the comparability of the technical bids and selection of the lowest price. 5.4.11 The contract relating to technical assistance to the PIU, amounting to UA 270,000, will be awarded on the basis of a short list, in compliance with Bank procedures for the recruitment of individual consultants. 5.4.12 The contracts relating to environmental protection will be awarded, through direct negotiation with the Fisheries and Oceanographic Research Centre in Limbe (CRHOL) for an amount of UA 50,000, and the other contracts will be awarded on the basis of short lists for an estimated amount of UA 480,000. The CRHOL, located near the project, is already conducting research on fisheries and marine ecology. The approach proposed for the environmental management of the project is based on the principle of financial assistance to CRHOL activities to cover the project area. The assistance will be provided on the basis direct negotiation with CRHOL. 5.4.13 The international Legal Counsel will be recruited by the Bank. The CNIC will directly pay the Law Firm selected, and only on the Bank’s instruction, and all the service charges of the said firm shall not exceed UA 450,000.

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General Procurement Notice

5.4.14 The text of a General Procurement Notice (GPN) has been adopted with the CNIC and will be issued for publication in Development Business, upon approval of the loan proposal by the Board of Directors. Review Procedures 5.4.15 The following documents will be submitted to the Bank for review and approval before publication: prequalification notice, specific procurement notice, bidding documents or letters of invitation to consultants, evaluation reports on bids submitted by enterprises and suppliers or consultants with recommendations on the award of contracts. To that end, the Bank’s prior opinion on the analysis report will be required; the same will apply to the draft contracts, if different from the drafts included in the bidding documents.

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Table 5.4.1 Procurement Arrangements

En million UA

Project Components ICB NCB Others _

Shortlist* Financing other than from ADB

Total

1. Civil Works 1.1 Buildings 1.2 Infrastructure 2. Goods

2.1 Machines / Equip. / Training Materials

2.2 PIU Vehicles 2.3 PIU Supplies

3. Consultancy Services

3.1 Designs and Engineering

3.2 Supervision 3.3 Technical Assistance PIU 3.4 Training

3.5 Audit

3.6 Legal Counsel 3.7 Environmental

Protection 4. Other Items

4.1 PIU Operations 4.2 Legal Registration Fees TOTAL

19.39 [19.28]

12.12

[11.75]

31.51 [31.03]

0.27

[0.27]

0.33

[0.27]

0.12 [0.12]

0.05 [0.05]

0.33

[0.24]

0.50 [0.41]

2.09 [2.09]

0.27 [0.27] 0.70 [0.70]

0.10 [0.10]

0.48 [0.38]

3.64 [3.54]

3.99

39.19

11. 22

0.06

2.23

0.63

0.45

0.10

57.87

4.26

58.58

23.34

0.06

0.12

2.23

2.74

0.27

0.70

0.10

0.45

0.53

0.33

0.10

93.79 [35.25]

* The shortlist applies only to the use of consultants. _ "Other" refers to Limited Competition, National or International Shopping, Negotiated Contract or

Works on Force Account. + The figures in brackets concern the amounts financed by the Bank/ADF/NTF as applicable. - ‘ADB’ means the African Development Bank Group

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Table 5.4.2: Project Procurement Framework Table of Distribution of Tasks between CNIC (EA) and the Special Procurement Commission of the CNIC (CSM/CNIC) * Organ responsible for Task

N° Duties Borrower ADB Period2 Observations EA CSM 1 Identification of the Procurement * variable Time frame related to the project’s

operational provisions. 2 Technical or Reference

Specifications * variable Same as Task 1.

3 Bidding Documents (BD)

* 10 days BD prepared on the basis of the Bank’s standard document.

4 CSM endorsement * 5 days

5 Notice of No-Objection * 15 days The time taken by the Bank could be shortened in the light of project implementation considerations.

6 Publication of the General Procurement Notice in UNDB

* 20 days This period takes into consideration the time required to forward the the advertisement to UNDB.

7 Launching of Bidding * * 2days The bid notice is signed by the Chairman of CSM/CNIC.

8 Bid Opening * 1 day CSM/CNIC will chair the sitting and define the Internal Bid Analysis Committee.

9 Bid Analysis * 20 days This activity will be carried out by the above-mentioned Internal Commission.

10 Proposals for the Award of Contracts

* 5 days In accordance with the provisions of the regulatory text modifying the level of jurisdiction of CSM/CNIC.

11 Notice of No Objection * 15 days The bid evaluation report shall be accompanied by the draft contract.

12 Drafting of Contract * 10 days 13 Notification of Award * 2 days 14 Signature and Approval

of Contract

* 10 days In conformity with the provisions of the CNIC Articles3 approved by the Bank.

15 Contract Performance Monitoring * variable The periods are related to the Project operational provisions

16 Audit of Procurements * variable Same as task 1. Total Recommended Duration, from No.3 to 14, includinga 12-week advertising period4

175 days(8.5 months)

2 The periods are expressed in working days. 3The Articles of Association of CNIC which will be approved by the Bank should enable the said company to sign and approve all the contracts awarded under the project. 4 This average advertising period (60 working days) takes into consideration the large scale operations planned under the project.

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5.5 Disbursement Arrangements The direct disbursement method is to be used for works, consultancy services and the procurement of goods. The funds to be allocated to the operation of the PIU will be deposited in a special account to be managed in conformity with the appropriate procedures. This account will be used exclusively for the purposes of the project and all ineligible expenditure will be reimbursed by the Borrower prior to its replenishment by the Bank on the basis of an expenditure programme prepared by the PIU following approval by ADB. Expenditure will be justified after utilization of the funds, in conformity with the appropriate procedures. The account will be managed at the level of the General Directorate of CNIC and the Unit. It will be audited in the same way as the project. The opening of the account will constitute a condition precedent to the first disbursement in favour of the PIU. 5.6 Monitoring and Evaluation 5.6.1 The Project Implementation Unit (PIU) will be assisted by consulting firms with regard to works supervision and control, as well as by technical assistance. The PIU will prepare quarterly status reports on the basis of the consultants’ monthly reports. These will enable CNIC and the Bank to assess the status of the works, problems which may arise and the solutions proposed. 5.6.2 Supervision missions will be organized by ADB with a view to reviewing implementation of the project components. These missions will be carried out jointly with the other project co-financiers. The Bank will conduct a mid-term review of the project. On completion of the project, CNIC will prepare the Borrower’s Project Completion Report which will serve as the basis for the Bank’s completion report.

5.7 Financial and Audit Reports 5.7.1 The Project Implementation Unit, under the supervision of CNIC, shall maintain detailed project accounting which will make it possible to identify expenditure by component, category and financing source. It will be the subject of an annual audit, the report on which shall be submitted to the Bank. These different reports will enable the Bank and CNIC to ensure that: i) loan resources are used exclusively to finance the planned and authorized expenditure, ii) the loan accounts are properly maintained, and iii) the Bank’s Rules of Procedure for the Procurement of Goods and Works and the Use of Consultants are complied with. The audit will be carried out by an external firm financed by the project. 5.7.2 The project accounting will be maintained in separate ledgers clearly showing all ADB-financed operations. The project accounts will be regularly controlled in conformity with recognized international accounting practices considered satisfactory by ADB. 5.8 Aid Coordination 5.8.1 At the national level, aid coordination is the responsibility of the Ministry of Public Investment and Regional Development (MINPAT). Through the Directorate for Economic and Technical Cooperation (DCET), it is responsible for the implementation of economic and technical cooperation strategies with the country’s different partners and is engaged in the promotion and monitoring of bilateral, multilateral, sub-regional and regional cooperation. With regard to the coordination of aid with the other donors, the Bank participated in the

31

1999 donors meeting in Douala alongside the Islamic Development Bank (IDB), the Arab Bank for Economic Development in Africa (ABEDA), and the Kuwaiti Development Fund (KDF).

5.8.2 During the project appraisal mission, the Bank held consultative meetings with the co-financiers experts present in Yaounde (IDB and ABEDA) to harmonize their positions on the estimated financing plan, as well as on works supervision and control-related issues. Furthermore, during project implementation, aid coordination will be organized around joint supervision missions. This coordination will also be reflected in exchanges of works status reports prepared by the different control agencies whose activities will be coordinated by the engineering consultancy firm to be recruited for the supervision of the Bank-financed components. ADB will assume a leadership role among the donors. 6- PROJECT SUSTAINABILITY AND RISKS 6.1 Recurrent Costs

The project recurrent costs have been calculated, as follows:

• routine maintenance of all the facilities except the buildings: UA 78,000 per year; • routine and periodic maintenance of buildings: UA 78,000 • periodic Maintenance: 1. Wharfs every 10 years UA 780,000 2. Breakwaters every 10 years UA 1,170,000 3. Dredging every 5 years UA 390,000

The current and periodic maintenance costs of future equipment will amount to UA 400,000 per year. These amounts are included in the CNIC budget forecasts. Maintenance of the existing equipment is included in CNIC’s operating costs at an annual cost of UA 870,000.

6.2 Project Sustainability

Known oil reserves in West Africa, including recent discoveries in Angola, Gabon

and Equatorial Guinea, are sufficient for approximately 40 years. The offshore market is, therefore, guaranteed for a similar period. The ship repairing market is stable and is expected to expand. The estimated maintenance budget for plant and equipment is calculated on the basis of the cost of maintaining the existing facilities, which is extremely high. Maintenance of the plant and equipment of the Douala facility in operating condition is, therefore, financially provided for. The recurrent costs of the previous paragraph cover the maintenance of the new plant and equipment. 6.3. Principal Risks and Mitigating Measures Exogenous Risks 6.3.1 The primary project risk is a fall in oil exploration and development activities in the sub-region. Barring force majeure of a political and economic nature, oil production in the Gulf of Guinea is expected to rise in the coming years thus creating a potential offshore market for repairs. To fully benefit from this situation, CNIC will have to pursue its efforts to improve management in order to consolidate its market share. However, a cyclical fall in

32

the price of crude (to below the US$ 15 per barrel mark) could significantly curtail oil exploration and lead to a contraction of CNIC’s activities, which occurred during the 1999/2000 period when the company’s annual earnings fell by over 43% owing to an approximately 64% slump in the prices of petroleum products. It is, therefore, vital that CNIC continue to contain its fixed costs so as to minimize the turnover required to ensure its survival in such a situation. Six months of payments will be retained in a trustee account as a guarantee for lenders. Moreover, the importance of oil in the economies of the oil producer countries of the Gulf of Guinea is a guarantee of the sustainability of production activities including those of CNIC. In fact, over the past twenty years, there have only been two sharp falls in the price of a barrel (in 1986 and 1999) which impacted significantly on the demand for offshore rigs. They were, however, of short duration (less than six months). 6.3.2 The environmental risk which could affect the project lies in the possibility of a volcanic eruption. This risk is, however, mitigated by the fact that the last lava flow was over 10 km. from the site. On the other hand, SONARA has a refinery, next to the selected site, which has never been affected by its proximity to the volcano. Endogenous Risks 6.3.3 The institutional risk would be the possibility of default by one or more shareholders on their capital increase obligations. However, it should be specified that all the shareholders have already paid up three quarters (3/4) of the amounts corresponding to their participation. The remaining quarters will be paid up at CNIC’s request. MINEFI has fully paid up its contribution. Another contribution to the increase in capital was the assets in kind of the Bamusso Dock (valued at CFA.F 1.7 billion). The full payment of amounts owed by shareholders will constitute a loan condition. 6.3.4 Since the project is an enclave project, it will not benefit from any State Guarantee. There is a real risk of the periodic non-payment of the loan. This risk could arise from a fall in CNIC’s activities owing to cyclical fluctuations in the price of a barrel of oil. These fluctuations have been observed twice in the past 20 years and have been of short duration (less than six months). However they are unlikely to jeopardize the survival of CNIC and the repayment of the debt over a long period. In addition, CNIC will give the Bank real guarantees, in conformity with the recommendations of the legal assessment of the project. Furthermore, the Bank will have access to the terms granted to other donors namely the trust agreement and the agreement on the domiciliation of earnings. 7. PROJECT BENEFITS

7.1 Retrospective Financial Analysis

7.1.1 The CNIC profitability analysis was made on the basis of the retrospective operating accounts presented in Annex 6. A summary of the results and indicators is presented below. The retrospective analysis is based on the audited financial statements of CNIC for the 1994-2001 financial years. The different reports of the independent CNIC auditors show that the internal control system was satisfactory over these years. CNIC’s operations were maintained at a significant level over the 1994-1997 financial years with average turnovers of CFA.F 6,000 to 7,000 million achieved mainly in the ship-repairing sector (approximately 80%). Offshore works remained modest with an average of 4.6% of turnover. CNIC’s

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turnover stagnated in 1998 at CFA.F 6,784 million, but was still dominated by ship repairing (82.6%). 7.1.2 The analysis of CNIC’s operations over the last three financial years (1999-2001) indicates strong growth in 1999 with a turnover of CFA.F 15,423 million, i.e. up by over 50% on 1998. This performance is primarily due to the satisfactory performance of the first offshore contract for the SEDCO 709 rig. Offshore activities are now ranked highest (52.3%) in CNIC’s activities portfolio. During the 2000 financial year, CNIC’s operations were severely disrupted, with turnover dropping by over 43% (CFA.F 6,712 million) owing to market difficulties in the year 2000. Finally, the 2001 financial year marked the reversal of the sharp downward trend of the year 2000 with a turnover of CFA.F 17,693 million. Table 7.1 presents a summary of the financial results and indicators.

Table 7.1: Summary of Financial Results and Indicators for the 1995-2001 Period

1996/1997 1997/1998 1998/1999 1999/2000 2000/2001 Total income 7 239 8 276 15 423 17 693 Product costs 3 560 4 259 9 233 6 712 4 931 Operating costs 1 596 2 042 3 340 3 341 7 627 Gross operating income 2 083 1 975 2 850 697 5 135 Financial charges 25 33 136 410 195 Amortization 504 897 1 358 1 975 2 508 Operating income before taxes 1 554 1 045 1 356 -1 688 2 432 Corporate tax 367 320 175 - 336 Net income 1 187 725 1 181 -1 688 2 096 Retained earnings 1 691 1 622 2 539 287 4 604 Operating ratio 0.88 0.78 0.60 0.34 0.20 Profitability ratio 0.24 0.15 0.24 -0.35 0.43 Liquidity ratio 2.23 1.77 1.14 1.78 1.63 Debt ratio 0.54 0.72 1.60 0.69 0.50 Debt coverage 1.09 1.70 3.13 21.01 1.63 Productivity ratio 46 37 75 18 48

Source: CNIC and ADB Mission 7.1.3 Net income over the 1994-1997 period secured a comfortable level of retained earnings of CFA.F 1,622 million as at 30/06/1998, compared with CFA.F 1.691 million in 1997, CFA.F 997 million in 1996 and CFA.F 1,229 million in 1995. Furthermore, the operating and profitability ratios were favourable with a slight deterioration (9%) in 1999, compared with 11% in 1998 and 18% in 197. The management indicators (liquidity ratios, debt service coverage, profitability and productivity) were satisfactory. 7.1.4 Over the 1999-2001 period, the operating results and profitability were favourable with the exception of the 2000 financial year when net income was negative (CFA.F 1,750 million). These losses were mostly (CFAF 1,588 million) due to the project preparatory works on the Limbe site (CFA.F 2,307 million). The profitability indicators deteriorated over the first two years of the period with a ratio of 9% in 1999, which became negative (-37%) in 2000. Profitability was restored in 2001 with a ratio of 15% following the resumption of CNIC’s activities. Retained earnings were fairly comfortable in 1999 at CFA.F 2,539 million, but fell sharply in 2000 before rising to CFA.F 4.604 million in 2001. Financial costs rose considerably from 1998-1999 with CFA.F 136 million, CFA.F 410 million in 2000 and

34

CFA.F 195 million in 2001, compared with financial costs of CFA.F 33 million in 1997-1998. 7.1.5 The analysis of CNIC’s financial structure was made on the basis of the balance sheets in Annex 6, of which Table 7.2 below is a summary.

Table 7.2: Summary of CNIC Balance Sheets (in million CFA francs) 1996/1997 1997/1998 1998/1999 1999/2000 2000/2001 Assets Fixed assets 1 147 1 735 6 663 7 336 11 986Current assets 4 126 4 875 6 236 7 480 10 543Total assets 5 273 6 610 12 899 14 816 22 529Liabilities Shareholders’ equity 3 422 3 848 4 960 8 787 15 047Medium & long-term debt 0 0 2 491 1 829 1 013Short-term debt 1 851 2 762 5 448 4 200 6 469Total liabilities 5 273 6 610 12 899 14.816 22 529Working capital 2 275 2 113 788 3.280 4 074Liquidity ratio 2.23 1.77 1.14 1.78 1.63Debt ratio 0.54 0.72 1.60 0.69 0.50Debt equity ratio - - 1.99 4.80 14.85 Source: CNIC and ADB Mission

7.1.6 The analysis of Table 7.2 shows a spectacular increase in fixed assets and low long-term indebtedness. On the other hand, short-term debt rose significantly in 1999 (over 50%), i.e. CFA.F 5,448 million compared with CFA.F 2,762 million in 1998. Short-term debt dipped slightly in 2000 to CFA.F 4,200 million before rising to CFA.F 6,469 million in 2001. The financial structure was balanced throughout the period. 7.1.7 The financial restructuring of CNIC through a capital increase begun during the year 2000 financial year was successfully completed. In all, CNIC’s capital rose from CFA.F 2,850 million to CFA.F 9,916 million accompanied by a share premium of CFA.F 2,924 million. To that should be added the assets in kind of the BAMUSSO floating dock by MINEFI for an amount of CFA.F 2,989 including a share premium of CFA.F 1,249 million. MINEFI’s real capital contribution is CFA.F 1,740 million. In all, CNIC’s equity capital is CFA.F 9,916 million and the amount already paid up is CFA.F 7,200 million. 7.2 Analysis of Financial Forecasts 7.2.1 Financial forecasts were prepared for the 2002-2022 period, on the basis of i) the CNIC Development Strategy Paper prepared by First Marine International; ii) the revised turnover forecasts table prepared by CNIC’s General Management; and iii) CNIC’s budget for the 2001-2002 period. The assumptions, forecast income statements and balance sheets, as well as the financing table, are presented in Annex 7.

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Operating Analysis 7.2.2 The table below presents a summary of the forecast operating accounts for the 2002-2022 period.

Table 7.3: Summary of Forecast Results (in million CFA.F)

2002 2005 2006 2011 2 022Total income 17 000 20 000 25 000 60 000 60 000Total consumption 9 135 11 770 14 175 30 540 30 550

Personnel costs 1 700 2 206 2 251 2 485 3 090Gross operating surplus 6 165 5 054 7 554 25 845 25 230Other costs 850 970 1 326 1 436 1 436Amortization 2 000 1 400 1 400 6 802 4 692Operating income 3 415 2 854 4 998 17 887 19 382Financial charges 1 128 4 548 4 317 2 859 250Pre-tax income 2 287 -1 695 682 15 028 19 132Corporate tax 880 0 262 5 786 7 366Net income 1 406 -1 695 419 9 242 11 766Indicators GOS/VA 0,78 0,61 0,70 0,88 0,86PC/VA 2,25 3,24 2,32 1,37 5,34FC/GOS 0,18 0,90 0,57 0,11 0,01Pre-tax income/Total income 0,13 -0,08 0,03 0,25 0,32Net income/Total income 0,08 -0,08 0,02 0,15 0,20

Source :CNIC and ADB Mission

7.2.3 CNIC’s turnover rises steadily from CFA.F 17,000 million to CFA.F 61,000 million, i.e. an increase of 259% over the period, thus reflecting the attainment of the objectives of 20% of market share from 2011. Furthermore, the commencement of oil filling activities will provide additional annual revenue of CFA.F 1,000 million from 2004. Over the period, the GOS/VA ratio will improve from 0.78 in 2002 to 0.86 in 2022, reflecting a sound intermediate consumption management policy. In any event, despite an increase in amortization costs and provisions for major repairs, CNIC’s net income will rise from CFA.F 199 million in 2005 to CFA.F 13,076 million in 2022. Similarly, the debt service coverage ratio is respectable over the period and remains at 1.37. Analysis of the Financial Structure 7.2.4 Table 7.4 below presents a summary of the principal items of CNIC’s balance sheets for the 2002-2022 period. The detailed balance sheet forecasts are presented in Annex 7.

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Table 7.4 Summary of Balance Sheet Forecasts (in million CFA.F)

ASSETS 2002 2005 2006 2011 2022Fixed Assets 21 570 87 913 88 913 88 511 101 621Current Assets 14 340 12 390 9 762 22 145 77 164Total Assets 35 910 100 303 98 675 110 656 178 785LIABILITIES Shareholders’ Capital 14 896 16 426 14 865 30 103 147 303Medium and Long-Term Debt

16 679 79 015 78 682 51 106 0

Short-term Debts 2 928 4 663 3 610 18 779 18 405Net Income 1 406 199 1 518 10 668 13 076Total Liabilities 35 910 100 303 98 675 110 656 Indicators Liquidity Ratio 4.90 2.66 2.70 1.18 4.19MLD/Shareholders’ Capital 0.99 4.64 5.13 1.69 0Total Debt/Shareholders’ Capital

1.32 5.09 5.54 2.32 0.12

Debt-Equity Ratio 0.50 0.18 0.16 0.37 1.00Source: CNIC and ADB Mission 7.2.5 Over the period, the financial structure of CNIC remains stable with the exception of 2009 when working capital is slightly negative owing to a fall in the level of SMTD and the full repayment of the SNH debt. The upturn in CNIC’s activities will lead to an increase in working capital requirements which will peak at CFA.F 8,879 million in 2014 despite increased recourse to suppliers and connected accounts. However, these working capital requirements are fully covered by the revolving fund so that CNIC’s cash flow remains positive throughout the period. The liquidity ratio is respectable at 4.90 in 2002, but will fall during the project implementation period to 0.96 in 2009 before improving in the following year to 4.19 at the end of the study period. Similarly the long-term debt ratio reflects the relative importance of borrowings contracted for the implementation of the project, rising from 0.99 in 2002 to 5.13 in 2006, the year corresponding to the completion of the investments. However, owing to the shareholders undertaking not to distribute any dividends throughout the loan repayment period, the annual results are incorporated under ‘Carry Forward’ thus consolidating equity capital so that the ratio begins to fall from 2007, and to less than 1 from 2013. 7.2.6 Table 7.5 below summarizes the financing tables. The detailed table in Annex 7 shows the existence of cash flow pressure over the 2004-2005 period with a negative cash flow in 2004. Following the opening of the Limbe site in 2006, CNIC’s financial situation will begin to improve with positive cash flows and rising turnover. Cumulative cash flows will remain positive throughout the period and will reach CFA.F 181,322 million in 2022, following the repayment of all the project-related medium and long-term debts.

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Table 7.5: Summary of Financing Tables

SOURCES 2002 2005 2006 2011 2 022Net income 1 406 199 1 518 10 668 13 076Amortization 2 000 1 400 1 706 7 108 4 998Borrowing 14 468 3 349 - - -Shareholder loan SNH 2 000 - - - -Other supplementary loans - - - - -Capital increase payment 1 500 - - - -Total Sources 21 375 4 948 3 224 17 777 18 074 APPLICATIONS Investment 17 458 3 885 1 000 1 000 1 000Variation WCR 1 041 213 666 2 721 100Debt repayment - - - 5 065 -Repayment of SNH loan - 333 333 - -Repayment of supplementary loan - - 250 250 -Total Applications 18 499 4 431 2 229 9 036 900Cash flows 2 876 517 995 8 741 17 174Cumulative cash flows 1 594 6 211 7 206 44 849 181 322

7.2.7 The project financial internal rate of return is measured by the operating surplus (excluding financial costs and amortization) which corresponds to the difference between the operating results in ‘with’ and ‘without’ project situations. 7.2.8 The project internal rate of return calculated on the basis of the assumptions set out in Annex 7 p 1/7 is 15.07%. This rate is far higher than the average weighted cost of the resources used to finance the project (6%). 7.3 Economic Analysis 7.3.1 Implementation of the Limbe project, all of whose activities will be paid for in foreign exchange, will help to considerably increase CNIC’s earnings and consequently impact significantly on the level of public finances. On the basis of the estimates prepared, the value added to be generated will be CFA.F 200 billion. In addition, domestic wages are estimated at approximately CFA.F 100 billion and the social surplus at CFA.F 100 billion. In addition to the creation of 3000 direct jobs owing to the new activities of CNIC, the project will lead to the downstream establishment of many activities both in the area of industry, agriculture and housing and the hotel and catering industry, thus helping to lower unemployment and increase consumption, improve the living and working conditions of the labour force, increase the income of the population, and significantly reduce poverty. 7.3.2 The project economic rate of return was estimated at 17% and was calculated taking into consideration the investments already made, the operating and maintenance cost of the facilities and equipment, as well as the direct and indirect savings resulting from the implementation of the project (refer to Annex 8). This rate reflects the project’s contribution

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to the increase in economic and social activities stemming from the new operations, and consequently to the country’s economic and social development. 7.4 Analysis of the Social Impact 7.4.1 The main social impact stemming from the project concerns the displacement of the population living on the project site. The 232 people concerned by this displacement will be rehoused in a new, fully-serviced village with the appropriate socio-economic facilities. In addition the huge influx of workers, both from the CNIC and the activities stemming form the shipyard, will lead to an increase in Limbe’s population from 84,000 in 2001 to approximately 112,000 by 2013, i.e. a population increase of 25%. The immediate impact of this rapid population growth on the project area will be to exert considerable pressure on housing demand leading to a sharp increase in rents. The financing of housing for the accommodation of CNIC employees is a loan condition. 7.4.2 In the education sector, this population increase will result in increased demand for classrooms estimated at an additional 70 primary and 20 secondary classrooms. The population increase resulting from the project activities will also put pressure on health facilities, leading to additional demand for beds and qualified personnel for health centres and hospitals. The schools and health facilities to be established under the project and the public authorities will help to improve the town’s educational and health conditions. 7.4.3 From the standpoint of economic infrastructure and public utilities in particular, the principal impact lies in increased electric power generating and drinking water production capacities. The increase in electric power generation will contribute to the development of several income-generating artisanal and semi-artisanal activities which will make it possible to improve the population’s standard of living. Similarly, drinking water production capacity will increase and its large-scale distribution will help to significantly reduce water-borne diseases. 7.4.4 The establishment of appropriate social infrastructure comprising the building of houses for workers, health centres and educational facilities on the one hand, and on the other the redistribution of a large amount of income as a result of the project, will help to increase demand for goods, in particular agricultural goods, and consequently to increase incomes in both urban and rural areas. This will help to improve the population’s standard of living and reduce poverty. 7.5 Sensitivity Analysis 7.5.1 The sensitivity analysis primarily concerns the assessment of the risk of non-repayment of loans and a reduction in oil exploration and development activities in the sub-region. This entails an assessment of CNIC’s capacity to generate adequate cash flows in the most difficult situations to ensure the timely honouring of its commitments. Several sensitivity tests have been carried out on the basis of the most relevant parameters, turnover, and production costs (fixed) in order to assess the sensitivity of the project’s financial rate of return set at 15.07%. This analysis is based n three financial projection scenarios; reference scenario, low-case scenario and worst-case scenario. 7.5.2 In summary, an approximately 10% fall in offshore turnover from 2003 under the low-case scenario would lead to a fall in overall turnover and show a rate of return of

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13.04%, i.e. a difference of 0.69% (refer to Annex 7 p 7/7). Furthermore, 10% increase in production costs (fixed) in a worst-case scenario would reduce the rate to 14.38% (a fall of 0.69%). These tests clearly show that the project rate of return is high. 7.6 Loan Guarantees 7.6.1 The outcome of the financial analysis and the different simulation scenarios presented above would appear to indicate that CNIC is financially sound enough to ensure satisfactory debt servicing. Since this project is an enclave project, no guarantee will be required of the Cameroonian Government. In any event, the Bank’s credit policy adopted by the Board of Directors in November 1994 (document ABD/BD/WP/94/104/rev.1) does not allow exclusively ADF countries (Category A) to borrow or guarantee non-concessionary resources. 7.6.2 The following security arrangements have been agreed upon to guarantee the Bank’s loan. • On the basis of the conclusions and recommendations of the above-mentioned legal

study, the collateral proposed includes all the usual guarantees (lien on equipment procured on ADB financing, a mortgage to be secured on the site title deed and/or operating licence, and surety bonds of CNIC’s shareholders with the exception of MINEFI). This combination of collateral will also include insurance delegation and an escrow or suspense account for debt service payments.

• The surety bond of CNIC’s shareholders will be a joint and several guarantee with a

ceiling of fifteen million United States dollars (US$ 15,000,000), which may only be called in during the year to the amount of the annual debt service owed to the ADB, except in the event of default.

• Furthermore, in order to guarantee the smooth completion of the works, a supplementary

financing agreement will be concluded between the donors and CNIC shareholders stipulating that they will undertake to provide the Project with the necessary resources to complete the works in the event of supplementary costs or cost overruns.

7.6.3 In addition, a guarantee mechanism will be established comprising the principal donors and consisting of a trust agreement and a domiciliation agreement, under the terms of which an earnings revenue domiciliation mechanism will be established under which all payments in respect of works carried out shall be effected by CNIC’s clients to an external foreign exchange account opened for that purpose. The depository bank shall then transfer the amounts deposited to the Trustee to enable it to effect the necessary payments in respect of the loans awarded by all donors. Furthermore, the Bank will also negotiate an additional guarantee with CNIC and the donors currently sharing the Trust Funds and shall request that an amount be retained with the Trustee equal to at least six months of loan repayments throughout the duration of the loan.

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8. CONCLUSIONS AND RECOMMENDATIONS 8.1 Conclusions 8.1.1 The project, co-financed with 3 other donors and the CNIC, is a priority for the development of CNIC’s activities as well as for the Government’s development objectives for the region of Limbe and Southwest Cameroon. The project will be financed by the ADB window in view of its enclave project status. CNIC is the Borrower. It has a satisfactory rate of return. Similarly, it will generate foreign exchange resources which will make it possible to cover debt service payments. 8.1.2 Technically, the project is well designed and is economically and financially viable with a financial rate of return of 15.07%. 8.2 Recommendations and Conditions for Loan Approval It is recommended that a loan not exceeding US$ 45.40 million, to participate to the tune of 37.58% in the financing of the project, net of taxes and customs duties, be awarded to CNIC. The loan will be granted subject to the following conditions: A Conditions Precedent to Loan Effectiveness The Loan Agreement will become effective when the Borrower has produced to the satisfaction of the Bank: (i) a certified true and updated copy of its amended Articles of Association taking into

consideration CNIC’s status as a semi-public company (paragraph 3.3.1); (ii) a certified true copy of the resolutions(s) of the Borrower’s Board of Directors

approving the signing and granting of the Loan and authorizing the appropriate persons to sign it;

(iii) a certified true copy of the resolution(s) of the Borrower’s Board of Directors approving the signing and implementation of all the agreements and conventions to be signed by CNIC in the context of the loan; and

(iv) the Cameroonian State’s letter of no objection to the financing of the project by ADB and to the repayment of the loan by the Borrower.

B. Conditions Precedent to the First Disbursement on the Loan Prior to the disbursement of the loan resources, the Borrower shall fulfill the following conditions: (i) provide evidence that all the guarantees provided for under the Loan Agreement are

duly signed and where necessary registered by the parties concerned (Section 7.6); (ii) provide evidence that all consents, authorizations, approvals and exemptions required

under Cameroonian laws and necessary to enable the Borrower to contract the Loan, fulfill its obligations in respect of the Loan and to implement the Project have been issued and are in force;

(iii) submit the legal opinion of the Borrower’s Board of Directors confirming the accuracy of the declarations of, and guarantees given by the Borrower, as well as the

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validity and enforceability of the Loan and Guarantees in conformity in substance with the models to be attached to the Loan Agreement;

(iv) submit the opinion of the competent Cameroonian Authorities confirming that the 1991 Agreement of Establishment and its 1998 Amendment between the Borrower and the Republic of Cameroon are in conformity with the texts in force and remain effective;

(v) submit the Cameroonian State’s letter of comfort containing in particular its undertaking (a) not to enact any legislative or regulatory measures which could call into question and/or jeopardize the Borrower’s ability to repay the Loan awarded to it and the undertaking by the Cameroonian State not to impede by legislative or regulatory measures the Borrower’s right to freely repatriate the funds required to repay all the loans in trust throughout the validity of the respective financing agreements related to such loans, and (b) to exercise due diligence in the realization of the securities which encumber the concession for the occupation of the site and the conduct of CNIC’s activities This latter point includes the formal clarification of the State on the position of semi-public companies with regard to immunity from enforcement or seizure with, in particular, the explicit mention that such semi-public companies shall not benefit from immunity from enforcement or seizure;

(vi) submit the Borrower’s insurance policies, indicating in particular the goods insured, the amount of the risks covered and the period of validity;

(vii) submit evidence that financing has been found to build staff accommodation (paragraph 7.4.1) ;

(viii) provide evidence that all persons displaced or affected by the project have been rehoused or compensated prior to the start up of works, in conformity with the resettlement plan submitted to the Bank (paragraph 4.7.7) ;

(ix) prior to the signing of any contracts, by regulatory act, extend the jurisdiction of the Special Procurement Commission set up at CNIC for the award of all contracts financed under the project (paragraph 5.4.1);

(x) provide evidence of the opening of a special account in a commercial bank for the payment of the working capital for the operation of the PIU (paragraph 5.5);

(xi) submit for notice of no-objection the CVs of the PIU engineers and accountants (paragraph 5.2.2);

(xii) undertake to retain the profits in the company and to refrain from any investment until the completion of the project, with the exception of maintenance of the existing plant and equipment;

(xiii) provide evidence of the commitment of the other donors to the financing of the project (paragraph 4.9.1);

(xiv) provide evidence that all the shareholders have paid up the amounts due in respect of the last capital increases of CNIC (paragraph 6.3.4).

C. Other Conditions (i) implement the solution found to the problem of CNL staff accommodation so as to

ensure the availability of such accommodation during the project operational phase. (paragraph 7.4.1);

(ii) submit annually, six months after its closure, the audit of CNIC and the project accounts for the period;

(iii) include in the works bidding documents, the mitigating measures for the negative impacts of the project on the environment as described in the SEIS;

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(iv) make the necessary recruitments to build the existing capacity of CNIC (paragraph 3.3.5);

(v) an undertaking to prioritize the settlement of the annual amounts owed to the Bank prior to the repayment of amounts owed to shareholders and those due in respect of loans on-lent by the State; and

(vi) the Borrower shall, moreover, submit to the Bank, no later than forty-five (45) days following the end of each quarter, the quarterly statements presenting the financial indicators

D. Terms In conformity with the Guidelines for the financing of enclave projects, the loan terms are defined below. The loan will be in US dollars. i) Duration: twenty (20) years with a five (5)-year grace period; ii) Interest : fixed rate iii) Commitment Fee: three quarters of one per cent (0.75 %) per year on the undisbursed

amount, commencing sixty (60) days after the signing of the loan agreement. iv) Repayment: in consecutive six monthly payments as from the end of the grace period

and on the Bank’s repayment dates (1 February and 1 August).

MAP OF CAMEROON

This map is intended exclusively for the use of the readers of the report to which it is attached. The names used and borders shown do not imply on the part of the Bank and its members any judgment concerning the legal status of a territory nor any approval or acceptance of these borders.

ANNEX 2

BOARD OF DIRECTORS

MANAGEMENT Cost Accounting and Budgetary Control Service

Audit and Evaluation Service

Computer Service

PROJECT

IMPLEMENT. UNIT (PIU)

EQUIPMENT DEPARTMENT

SHIPPING

DEPT.

INDUSTRY

AND & OFFSHORE

DEPT.

COMMERCIAL &

MARKETING DEPT.

ACCOUNTING

AND FINANCIAL

DEPT.

ADMIN. &

HUMAN RESOURCES

DEPARTMENT

Agency Services

Supplies Service

Financial Service

Account. Service

Legal and

General Admin. Service

Human

Res. Service

ORGANIZATION CHART OF C.N.I.C.

COMPUTER AND MANAGEMENT

CONTROL DEPT.

Hygiene Health and Security Service

Quot. and

Billing Service

Consult. Firm

EQUIPMENT AND PRODUCTION DIRECTORATE

Ship

Repair Unit

CND and Quality Control Service

Equip.

& Tooling

Sce

Work Shop Service

Apprent.

& Training Service

LIMBÉ PROJECT ANNEX 3 FINANCING PLAN (in million US DOLLARS)

DESCRIPTION US$ (Million) ABEDA IDB ADB DUTCH FUNDS CNIC L.C. F.E. TOTAL L.C. F.E. Total L.C. F.E. Total L.C. F.E. Total L.C. F.E. Total L.C. F.E. Total

COMPONENT A: Construction of Maritime and Land-based Facilities A1 Land acquisition /Compensation. 2.00 0.00 2.00 2.00 - 2.00 A2 Site Reconnaissance 0.50 2.00 2.50 0.50 2.00 2.50 A3 South Breakwater 6.75 18.25 25.00 1.09 18.25 19.34 5.66 5.66 A4: Wharf A 3.90 9.10 13.00 1.19 9.10 10.29 2.71 2.71 A5 Dredging/Underwater Earthwork

1.10 9.90 11.00 1.10 9.90 11.00

Backfill and Wharf Area 0.35 3.15 3.50 0.35 3.15 3.50 Access Dock/Pile Mooring

0.30 1.20 1.50 0.30 1.20 1.50

Aid-to-navigation - 0.20 0.20 0.20 0.20 A6 Development Area of Related

Activities 1.74 4.06 5.80 1.36 4.06 5.42 0.38 0.38

Environmental Protection 0.12 0.47 0.59 0.02 0.47 0.49 0.10 0.10 A7 Landscape Site Dev. (Yard) 0.15 1.34 1.49 0.15 1.34 1.49

Main Workshop (2 halls) 0.82 1.92 2.74 0.82 1.92 2.74 Administrative Building 0.50 0.74 1.24 0.50 0.74 1.24 QHSE Building 0.20 0.30 0.50 0.20 0.30 0.50 Utilities (Yard) 0.77 1.79 2.56 0.77 1.79 2.56

COMPONENT B: Onshore and Floating Equipment B1

Onshore Equipment 0.39 3.37 3.76 3.37 3.37 0.39 0.39 Mobile Crane 0.10 9.15 9.25 9.15 9.15 0.10 0.10

B2 Dock /Floating Equipment 2.33 10.30 12.63 2.33 10.30 12.63 COMPONENT C: Building of CNIC capacities C1 Training /Training Centre 0.30 0.79 1.09 0.30 0.79 1.09 C2 Teaching Aids - 0.42 0.42 - 0.42 0.42 COMPONENT D: Project Management D1 ADB Supervision and Control 0.40 1.95 2.35 0.40 1.95 2.35 D2 IDB Supervision and Control 0.11 0.60 0.71 0.11 0.60 0.71 D3 Support to the PIU 0.32 0.55 0.87 0.55 0.55 0.32 0.32 D4 Audit 0.05 0.05 0.10 0.05 0.05 0.10 D5 Legal Counsel 0.02 0.48 0.50 0.02 0.48 0.50 D6 Legal Registration Fees 0.05 - 0.05 0.10 0.10 SUB-TOTAL 23.27 82.08 105.35 1.19 9.10 10.29 4.88 16.99 21.87 3.88 35.06 38.94 1.09 18.25 19.34 12.28 2.68 14.96

Physical Contingency 2.08 7.52 9.60 0.12 0.91 1.03 0.49 1.21 1.70 0.39 3.51 3.89 0.11 1.83 1.93 0.98 0.07 1.05 Financial Contingency 1.19 4.68 5.87 0.08 0.60 0.68 0.13 0.52 0.65 0.26 2.31 2.57 0.07 1.20 1.28 0.59 0.04 0.63

TOTAL NET OF TAXES 26.54 94.28 120.82 1.39 10.61 12.00 5.50 18.72 24.22 4.52 40.88 45.40 1.27 21.28 22.55 13.85 2.79 16.64 VAT (18.70%) 4.96 17.63 22.59 OVERALL TOTAL INCL. ALL TAXES

31.50 111.91 143.41 The above costs include the mob/demob for each component

Annex 4

TERMS OF REFERENCE FOR THE RECRUITMENT OF A TECHNICAL ASSISTANT 1. Introduction

In the context of the Project for the Construction of Shipping and Oil Rig Repair Facilities in Limbe, it will be necessary to strengthen the Project Implementation Unit through the provision of continuous Technical Assistance for the duration of the works. This technical assistance will be in the form of an engineer who has specialized in similar projects and who will be assigned to the unit. 2. Duties

His/her duties will be as follows: • reporting to the Managing Director of CNIC, he/she shall integrate the team and advise its

members in respect of their daily duties; • he/she shall review the bidding documents and comment adequately on them to improve them

where necessary and bring them into line with donors’ procedures, • he/she shall participate in the analysis and evaluation of bids and, in collaboration with the

Consulting Firm responsible for works, shall prepare the review report and recommendations, • he/she shall contribute to the final drafting of works contracts in conformity with the donors’

procurement procedures, • he/she shall participate in the preparation of the works implementation programme taking into

consideration the different operators on the site and will see to the smooth coordination among them,

• in agreement with the PIU and the Consulting Firm, he/she shall monitor the implementation of the works and ensure that they are implemented in conformity with the implementation schedules,

• he/she shall ensure that the works implementation schedule is adhered to and, in the event of slippage, propose corrective measures,

• he/she shall participate in the preparation of monthly payment statements and ensure that expenditure remains within the approved budget limits,

• he/she will consider possible amendments, supplementary works and works on force account, will assess their timeliness and carry out a cost assessment,

• in collaboration with the consulting firm, he/she will prepare monthly works status reports and the quarterly reports for submission to the different donors,

• he/she will participate in the provisional acceptance of works and give his opinion on any possible contractors claims,

• he/she will assist with the preparation of the works completion report and the final breakdown of expenses.

• it is understood that these duties are not exhaustive and may be redefined on site if required.

3. Selection Criteria The engineer shall have at least 15 years civil engineering experience and shall have been in

charge of at least two major port facilities. He/she shall also be familiar with the procurement and disbursement procedures of international financial institutions. Owing to the high likelihood of the participation of international contractors, he/she shall be fluent in French and English and be familiar with software such as “ Word ”, “ Excel ”, “ PowerPoint ” and “ Project ”.

Annex 5 WORKS IMPLEMENTATION SCHEDULE

Years 2002 2003 2004 2005 Description 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

COMPONENT A A3- South Breakwater A4- Fitting-out Wharf A5-Dredging/Underwater Earthwork

Backfill and Wharf Area Access to Dock/Pile Mooring

Aid-to-Navigation A6- Development of T/ Accommodation Areas

Environmental Protection A7-landscape/Site Development (yard)

Principal Workshop Administrative Building QHSE Building Utilities (yard)

COMPONENT B B1 Workshop/

Site

2 cranes B2 Floating

Dock

Floating

Equipment

COMPONENT C C1-Training Centre C2-Teaching

COMPONENT D D1- Control A3, A4, A5, A6 D2- Control A7 and B2 D3-Support to PIU D4-Audit D5-Legal Counsel

Annex 6 SUMMARY INCOME STATEMENTS

OPERATION 1994/1995 1995/1996 1996/1997 1997/1998 1998/1999 1999/2000 2000/2001 Total Income 3 458 5 445 7 239 8 276 15 423 6 712 17 799 Product Cost 1 464 2 969 3 560 4 259 9 233 3 341 8 840 Operating Costs 747 1 272 1 596 2 042 3 340 2 674 3 685 Gross Operating Income 1 247 1 204 2 083 1 975 2 850 697 5 274 Financial Costs 18 4 25 33 136 410 167 Amortization and Provisions 150 247 504 897 1 358 1 975 1 521 Pre-tax Operating Income 1 079 953 1 554 1 045 1 356 -1 688 3 586 Corporation Tax 0 203 367 320 175 63 1 381 Net Income 1 079 750 1 187 725 1 181 -1 751 2 205 Retained Earnings 1 229 997 1 691 1 622 2 539 224 3 726 Operating Ratio (Turnover /Shareholders Capital) 1.60 1.93 1.92 1.76 2.69 0.54 0.91 Profitability Ratio (Income/Turnover) 0.36 0.15 0.18 0.11 0.09 -0.37 0.15 Liquidity Ratio (Current Assets /Short-Term Debts 2.13 2.42 2.23 1.77 1.14 1.78 1.84 Debt Ratio (Overall Debt /Shareholders’ Capital) 0.79 0.50 0.54 0.72 1.60 0.69 0.44 Productivity Ratio (Turnover/Employee * 1 000 000) 37 41 46 37 75 18 48

SUMMARY BALANCE SHEETS AND INDICATORS (in million CFA.F)

1994/1995 1995/1996 1996/1997 1997/1998 1998/1999 1999/2000 2000/2001 BALANCE SHEET Assets Fixed Assets 377 663 1 147 1 735 6 663 7 336 12 105 Current Assets 2 968 2 837 4 126 4 875 6 236 7 480 11 439 Total Assets 3 345 3 500 5 273 6 610 12 899 14 816 23 544 Liabilities Shareholder’s Capital 1 872 2 327 3 422 3 848 4 960 8 787 16 340 Medium and Long-Term Debts 81 0 0 0 2 491 1 829 994 Short-term Debts 1 392 1 173 1 851 2 762 5 448 4 200 6 210 Total Liabilities 3 345 3 500 5 273 6 610 12 899 14 816 23 544 Working Capital (Capital Funds and Fixed assets) 1 576 1 664 2 275 2 113 788 3 280 5 229 Liquidity Ratio (Current Assets /Short-term Debts) 2.13 2.42 2.23 1.77 1.14 1.78 1.84 Debt-Equity Ratio Debt Ratio (Overall Debt /Equity Capital) 0.79 0.50 0.54 0.72 1.60 0.69 0.44

Annex 7 page 1/8

REPUBLIC OF CAMEROON CAMEROON SHIPYARD AND INDUSTRIAL ENGINEERING LTD.

FINANCIAL ANALYSIS Turnover: Turnover forecasts were calculated on the basis of CNIC’s Development Strategy Paper prepared by First Marine International (FMI), the revised forecast turnover table prepared by CNIC’s General Management and the budget for the 2001/2002 Financial Year. Investments: Investments were estimated at their base cost net of taxes and customs duties. Amortization: Amortization on donor-financed investments was calculated at rates in force in Cameroon by type of fixed asset:

Buildings 5% over an estimated life of 20 years Infrastructure 5% over an estimated life of 20 years

It should be noted that some items in this category have longer actual life spans; thus the breakwater and wharf will, according to expert opinion, have a life span of 50 years

Goods/Site equipment 10% for an estimated duration of 10 years

mobile crane, floating dock and equipment will have actual life spans of 15 and 20 years respectively

Consultancy Services 20% over an estimated life of 5 years Financial Costs: The financial costs are calculated in conformity with the loan agreements for the financings of all donors on the basis of an average weighted cost of capital of 6%. The loan duration is 20 years with a 5-year grace period. The repayment of the principal is calculated over 15 years with the first repayment date in 2007.

Annex 7 page 2/8

CONSUMPTION: Consumption (materials and supplies, transport and other services) was estimated as follows: Materials and supplies and sub-contracting:

.35% of the offshore turnover

.20% for ships

.40% for miscellaneous products The permanent staff salaries are estimated at CFA.F 1,700 million in 2022. These amounts will increase sharply following the establishment of the Limbe Site, with a 4% increase in 2002, 2003, and 2004, followed by 20% in 2005, then 2% per year in future years. The recurrent maintenance costs (i.e. provisions for major repairs) were estimated by expert opinion at CFA.F 306 million per year and detailed in the calculation of the project cost. DIVIDEND DISTRIBUTION POLICY: The Board of Directors of the CNIC has decided to suspend the distribution of dividends throughout the project period.

Annex 7 page 3/8

Cameroon Shipyard and Industrial Engineering Ltd (CNIC) Forecast Income Statements (in million CFA.F)

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2 022 Production Sold 17 000 18 000 20 000 20 000 25 000 35 000 41 000 45 000 55 000 60 000 60 000 60 000 60 000 60 000 60 000 60 000 60 000 60 000 60 000 60 000 60 000 Income from Oil Filling Centre 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 Total Income 17 000 18 000 21 000 21 000 26 000 36 000 42 000 46 000 56 000 61 000 61 000 61 000 61 000 61 000 61 000 61 000 61 000 61 000 61 000 61 000 61 000 Materials and Supplies 7 515 8 265 8 970 9 150 11 425 15 595 18 510 20 700 24 880 27 350 27 350 27 351 27 352 27 353 27 354 27 355 27 356 27 357 27 358 27 359 27 360 External Costs 1 620 1 720 1 820 2 620 2 750 2 860 2 970 3 080 3 190 3 190 3 190 3 190 3 190 3 190 3 190 3 190 3 190 3 190 3 190 3 190 3 190 Total Consumption 9 135 9 985 10 790 11 770 14 175 18 455 21 480 23 780 28 070 30 540 30 540 30 541 30 542 30 543 30 544 30 545 30 546 30 547 30 548 30 549 30 550 Value Added 7 865 8 015 10 210 9 230 11 825 17 545 20 520 22 220 27 930 30 460 30 460 30 459 30 458 30 457 30 456 30 455 30 454 30 453 30 452 30 451 30 450 Personnel Costs 1 700 1 768 1 839 2 206 2 251 2 296 2 342 2 388 2 436 2 485 2 535 2 585 2 637 2 690 2 743 2 798 2 854 2 911 2 970 3 029 3 090 Gross Operating Surplus 6 165 6 247 8 371 7 024 9 574 15 249 18 178 19 832 25 494 27 975 27 925 27 874 27 821 27 767 27 713 27 657 27 600 27 542 27 482 27 422 27 360 Other Charges and Losses 750 750 750 800 850 850 850 850 850 850 850 850 850 850 850 850 850 850 850 850 850 Taxes and Duties 100 100 100 170 170 280 280 280 280 280 280 280 280 280 280 280 280 280 280 280 280 Provisions for Major Repairs 0 0 0 0 306 306 306 306 306 306 306 306 306 306 306 306 306 306 306 306 306 Amortization 2 000 1 400 1 400 1 400 1 400 1 400 1 400 1 400 1 400 1 400 1 400 1 400 1 400 1 400 1 400 1 400 1 400 1 400 1 400 1 400 1 400 Amortization- Limbe 5 402 5 402 5 402 5 402 5 402 4 388 4 388 4 388 4 388 4 388 3 955 3 955 3 955 3 955 3 955 3 292 Operating Income before Limbe

3 055 3 847 5 941 4 454 6 904 12 469 15 398 17 052 22 714 25 195 25 145 25 094 25 041 24 987 24 933 24 877 24 820 24 762 24 702 24 642 24 580

Operating Income 3 415 4 097 6 221 4 824 7 018 7 291 10 220 11 873 17 535 20 017 20 981 20 930 20 877 20 823 20 768 21 146 21 089 21 031 20 972 20 911 21 512 Financial Costs 260 150 180 200 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 Financial Costs- Limbe 868 2 984 4 255 4 300 4 300 3 515 3 238 2 965 2 692 2 420 2 147 1 874 1 602 1 329 1 056 784 511 238 0 0 0 Pre-Tax Income 2 287 963 1 786 323 2 468 3 526 6 732 8 658 14 593 17 347 18 584 18 805 19 025 19 244 19 462 20 112 20 328 20 543 20 722 20 662 21 262 Corporation Tax 880 371 688 124 950 1 357 2 592 3 333 5 618 6 679 7 155 7 240 7 325 7 409 7 493 7 743 7 826 7 909 7 978 7 955 8 186 Net Income 1 406 592 1 098 199 1 518 2 168 4 140 5 325 8 975 10 668 11 429 11 565 11 700 11 835 11 969 12 369 12 502 12 634 12 744 12 707 13 076

Indicators GOS/VA 0.78 0.78 0.82 0.76 0.81 0.87 0.89 0.89 0.91 0.92 0.92 0.92 0.91 0.91 0.91 0.91 0.91 0.90 0.90 0.90 0.90 PC/VA 1.89 2.03 1.61 1.78 1.26 0.87 0.78 0.84 0.81 0.99 1.29 1.62 1.96 2.29 2.64 2.99 3.35 3.72 4.09 4.46 4.84 FC/EBE 0.18 0.50 0.53 0.64 0.48 0.25 0.19 0.16 0.12 0.10 0.09 0.08 0.07 0.06 0.05 0.04 0.03 0.02 0.01 0.01 0.01 Debt Service Coverage Ratio 4.92 1.67 1.59 1.37 1.68 1.46 1.71 1.88 2.38 2.66 2.68 2.77 2.86 2.96 3.07 3.16 3.29 3.44 3.57 3.57 AI Income / Total Income 0.13 0.05 0.09 0.02 0.09 0.10 0.16 0.19 0.26 0.28 0.30 0.31 0.31 0.32 0.32 0.33 0.33 0.34 0.34 0.34 0.35 Net Income / Total Income 0.08 0.03 0.05 0.01 0.06 0.06 0.10 0.12 0.16 0.17 0.19 0.19 0.19 0.19 0.20 0.20 0.20 0.21 0.21 0.21 0.21

Annex 7 page 4/8

Cameroon Shipyard and Industrial Engineering Ltd (CNIC): Forecast Balance Sheets (in million CFA.F) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

ASSETS Fixed Assets 28 108 62 968 89 967 93 851 94 851 95 851 96 851 97 851 98 851 99 851 100 851 101 851 102 851 103 851 104 851 105 851 106 851 107 851 108 851 109 851 110 851 Amortization on Fixed Assets -6 538 -5 938 -5 938 -5 938 -5 938 11 340 -11 340 -11 340 -11 340 -11 340 -10 326 -10 326 -10 326 -10 326 -10 326 -9 893 -9 893 -9 893 -9 893 -9 893 -9 230 Net Fixed Assets 21 570 57 030 84 029 87 913 88 913 84 511 85 511 86 511 87 511 88 511 90 525 91 525 92 525 93 525 94 525 95 959 96 959 97 959 98 959 99 959 101 621 Operating assets 2 731 3 004 3 260 3 325 4 152 5 667 6 727 7 523 9 042 9 939 9 939 9 940 9 940 9 940 9 941 9 941 9 941 9 942 9 942 9 942 9 943 Liquid assets 6 220 5 153 3 333 5 350 4 167 5 833 6 833 7 500 9 167 10 000 10 000 10 000 10 000 10 000 10 000 10 000 10 000 10 000 10 000 10 000 10 000 Cash 5 389 9 111 5 608 3 715 1 443 1 456 1 956 2 056 2 056 2 206 2 592 2 641 5 517 10 255 15 138 19 998 25 435 31 014 36 521 47 017 57 221 Current Assets 14 340 17 268 12 201 12 390 9 762 12 957 15 516 17 079 20 264 22 145 22 531 22 581 25 457 30 195 35 079 39 939 45 376 50 956 56 463 66 959 77 164 Total Assets 35 910 74 297 96 230 100 303 98 675 97 467 101 027 103 589 107 775 110 656 113 056 114 106 117 982 123 720 129 604 135 898 142 335 148 914 155 422 166 918 178 785 LIABILITES Equity Capital 9 916 9 916 9 916 9 916 9 916 9 916 9 916 9 916 9 916 9 916 9 916 9 916 9 916 9 916 9 916 9 916 9 916 9 916 9 916 9 916 9 916 Share premium 4 173 4 173 4 173 4 173 4 173 4 173 4 173 4 173 4 173 4 173 4 173 4 173 4 173 4 173 4 173 4 173 4 173 4 173 4 173 4 173 4 173 Carry over 355 1 761 1 864 1 877 160 583 1 287 3 974 7 856 15 398 24 645 34 677 44 855 55 180 65 650 76 264 87 289 98 457 109 767 121 201 132 598 Reserves 310 310 310 310 310 310 310 310 310 310 310 310 310 310 310 310 310 310 310 310 310 Provisions for Major Repairs 142 100 150 150 306 306 306 306 306 306 306 306 306 306 306 306 306 306 306 306 306 Equity Capital 14 896 16 260 16 413 16 426 14 865 15 288 15 992 18 679 22 561 30 103 39 350 49 382 59 560 69 885 80 355 90 969 101 994 113 162 124 472 135 906 147 303 MLT Debts 14 679 52 541 72 832 76 181 76 181 71 116 66 051 60 986 55 921 50 856 45 790 40 725 35 660 30 595 25 530 20 465 15 400 10 335 5 270 0 0 MT Debts– SNH Shareholder 2 000 1 667 1 334 1 001 668 333 0 MT Debts-Supplementary Loan 1 500 1 500 1 250 1 000 750 500 250 0 Suppliers and Connected Accounts

2 903 2 879 2 694 4 563 3 560 6 927 13 360 17 650 19 569 18 579 16 387 12 408 11 061 11 405 11 750 12 095 12 440 12 784 12 936 18 305 18 405

Banks 25 25 25 100 50 50 150 200 250 200 100 25 0 0 0 0 0 0 0 0 0 Net Income 1 406 592 1 098 199 1 518 2 168 4 140 5 325 8 975 10 668 11 429 11 565 11 700 11 835 11 969 12 369 12 502 12 634 12 744 12 707 13 076 Total Liabilities 35 910 74 298 96 229 100 303 98 675 97 467 101 027 103 590 107 775 110 656 113 056 114 105 117 982 123 720 129 604 135 898 142 335 148 914 155 422 166 918 178 785

Working Capital (WC) 11 412 14 364 9 482 7 727 6 151 5 980 2 006 -771 446 3 366 6 044 10 147 14 396 18 790 23 329 27 844 32 937 38 172 43 527 48 655 58 758 Working Capital Requirements (WCR)

6 048 5 278 3 899 4 112 4 759 4 574 200 -2 627 -1 361 1 360 3 552 7 532 8 879 8 535 8 191 7 846 7 501 7 158 7 006 1 637 1 538

Variation WCR 1 041 -770 -1 378 213 646 -185 -4 374 -2 827 1 267 2 721 2 192 3 979 1 347 -344 -345 -345 -345 -344 -152 -5 369 -100 Cash Flow (WC- WCR) 5 364 9 086 5 583 3 615 1 393 1 406 1 806 1 856 1 806 2 006 2 492 2 616 5 517 10 255 15 138 19 998 25 435 31 014 36 521 47 017 57 221 Indicators Liquidity Ratio 4.90 5.95 4.49 2.66 2.70 1.86 1.15 0.96 1.02 1.18 1.37 1.82 2.30 2.65 2.99 3.30 3.65 3.99 4.36 3.66 4.19 LTD/Equity Capital 0.99 3.23 4.44 4.64 5.13 4.65 4.13 3.26 2.48 1.69 1.16 0.82 0.60 0.44 0.32 0.22 0.15 0.09 0.04 0.00 0.00 Total Debt/Equity Capital 3.53 4.80 5.09 5.54 5.23 5.06 4.26 3.38 2.32 1.58 1.08 0.78 0.60 0.46 0.36 0.27 0.20 0.15 0.13 0.12 Debt-Equity Ratio 0.24 0.18 0.18 0.16 0.18 0.19 0.23 0.29 0.37 0.46 0.55 0.63 0.70 0.76 0.82 0.87 0.92 0.96 1.00 1.00

Annex 7 page 5/8

Cameroon Shipyard and Industrial Engineering Ltd. (CNIC) Forecast Financing Table (in million CFA.F

SOURCES 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Net Income 1 406 592 1 098 199 1 518

2 168

4 140

5 325

8 975

10 668

11 429

11 565

11 700

11 835

11 969

12 369

12 502

12 634

12 744

12 707

13 076

Amortization 2 000 1 400 1 400 1 400 1 706 7 108 7 108 7 108 7 108 7 108 6 094 6 094 6 094 6 094 6 094 5 661 5 661 5 661 5 661 5 661 4 998

Borrowings 14 468 37 862 20 291 3 349 - -

-- - -

- - - - - - - - -

-

-

Shareholders Loans- SNH 2 000

Other Shareholder Loans 1 500

Capital Increase Payments

Total Resources 21 375 39 854 24 289 4 948 3 224 9 277 11 249 12 433 16 083 17 777 17 523 17 659 17 795 17 929 18 063 18 030 18 162 18 294 18 404 18 367 18 074

APPLICATIONS

Investment 17 458 34 860 26 999 3 885 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000

Variation WCR 1 041 - 770 - 1 378 213 646 185 4 374 2 827 1 267 2 721 2 192 3 979 1 347 344 345 345 345 344 152 5 369 100

Repayment of Debts - 5 065 5 065 5 065 5 065 5 065 5 065 5 065 5 065 5 065 5 065 5 065 5 065 5 065 5 065 5 065 -

Repayment of SNH Loan 333 333 333 333 333 333

Repayment of Supplementary Loan 250 250 250 250 250 250

Total Applications 18 499 34 090 25 953 4 431 2 229 6 463 2 274 3 821 7 582 9 036 8 257 10 044 7 412 5 721 5 720 5 720 5 720 5 721 5 913 696 900

Cash Flow 2 876 5 764 - 1 664 517 995 2 814 8 974 8 613 8 501 8 741 9 266 7 615 10 382 12 208 12 343 12 309 12 442 12 573 12 491 17 671 17 174

Accumulated Cash Flow 1 594 7 358 5 694 6 211 7 206 10 020 18 994 27 606 36 108 44 849 54 115 61 730 72 112 84 320 96 663 108 972 121 414 133 987 146 478 164 148 181 322

Note:

Working Capital (WC) 11 412 14 364 9 482 7 727 6 151 5 980 2 006 -771 446 3 366 6 044 10 147 14 396 18 790 23 329 27 844 32 937 38 172 43 527 48 655 58 758

WC Requirements (WCR) 6 048 5 278 3 899 4 112 4 759 4 574 200 2 627 1 361 1 360 3 552 7 532 8 879 8 535 8 191 7 846 7 501 7 158 7 006 1 637 1 538

Variation in WCR 1 041 - 770 - 1 378 213 646 185 4 374 2 827 1 267 2 721 2 192 3 979 1 347 344 345 345 345 344 152 5 369 100

Annex 7 page 6/8

Cameroon Shipyard and Industrial Engineering Ltd (CNIC) Financial Analysis – Project Internal Rate of Return (IRR)

Annex 7 page 7/8

PROJECT SENSITIVITY TEST

The three scenarios concerned are analyzed below:

1. Scenario I: Management’s Reference Scenario

.Assumptions: • Turnover: CFA.F a maximum of 20,000 million until 2005, then rising gradually from 2006 to a

ceiling of CFA.F 60,000 in 2011. • All the other factors remain constant.

The reference scenario is the one retained by CNIC’s management in forecasting its future results and which enable it to calculate the economic and financial rates of return. The assumptions underpinning this scenario are deliberately very conservative. CNIC’s management retained this scenario with a fairly low increase in turnover in a concern for caution and to reduce the risks and uncertainties related to possible fluctuations in the price of a barrel on the world market. There is therefore a deliberate containment of the increase in turnover and consequently a fall in income and gross operating surpluses. Also, production costs are deliberately high. The critical period remains the 2005-2010 period during which the capital repayment and interest payments continue though the enterprise has not reached full capacity. The other scenarios are based on the offshore turnover and the increase in fixed production costs. Under the reference scenario, the cash flows are negative for the 2002-2005 period during which CNIC will be making major investments in maritime structures and equipment. During this period, CNIC will not generate adequate internal resources to meet all the financing requirements. The capital expenditure will be financed from external sources for four (4) years, in conformity with the financing projections for CNIC. Maintenance expenditure is on the other hand financed from internal resources. CNIC is in a position to cover the financial costs and debt service payments for all the financial years under review, despite highly likely cash flow constraints. The internal rate of return is determined at 15.07%. 2. Scenario II: Low-case scenario: • Turnover: a 10% fall in offshore turnover from 2003 • All other factors remain constant Scenario 2 is based on conservative assumptions. In fact, the low-case scenario is planned to last throughout the loan period (i.e. until 2022) whereas an analysis of the cyclical fluctuations of the price of a barrel of oil over the last 20 years shows that these fluctuations were only observed twice and were of short duration (six months). Under this scenario, CNIC’s net incomes are negative over the 2002-2005 period. They become positive from 2006 with net incomes of CFA.F 1,362 million, then CFA. F 11,828 million in 2007 reaching CFA.F 20,236 million in 2022. Similarly, net cash flow position will deteriorate throughout the project implementation periods. Under this scenario, the internal rate of return is 13.04% which represents a 2.03% fall on the rate determined in Management’s reference scenario (15.07%). Under this scenario, the assumptions retained are very conservative and the sensitivity tests carried out (Annex 9, page1/2) show that the project remains financially viable in a situation with a falling offshore turnover.

Annex 7 Page 8/8

3. Scenario III: Worst-Case Scenario:

Assumptions: • Turnover: identical to Scenario 1 above • Cost Structure: increase of 10% in production costs (fixed) • All other factors remain constant

Under this scenario, CNIC’s cash flow position will be unfavourable throughout the project implementation period (2002-2005). Net cash flow will become positive from 2006 with a balance of CFA.F 1,866 million to reach CFA.F 22,775 million in 2022. Under this scenario, an increase in CNIC’s fixed costs will lead to a downward variation of 0.69% compared with the rate of return calculated with the benchmark scenario. The rate of return falls to 14.38% but remains much higher than the cost of capital of 6% retained for the appraisal. Conclusion As mentioned in paragraph 6.3, the principal risks for the project are the decline in oil exploration and development activities in the sub-region. However, this risk is minimized in so far as oil production in the Gulf of Guinea should increase in future and should ensure a potential offshore repairs market. Furthermore, the risk of periodic non–repayment of the loan remains. This risk would be related to a fall in CNIC’s activities owing to cyclical fluctuations in the price of a barrel of oil. Thus a cyclical fall in the price of crude below the threshold of US$ 15 per barrel could lead to a significant reduction in exploration activities and consequently of CNIC. However, these fluctuations were only observed twice in the past 20 years and were of short duration (six months), as mentioned in paragraph 6.3.5. They are therefore unlikely to affect the survival of CNIC.

Annex 8 page 1/2

PROJECT FOR THE CONSTRUCTION OF SHIP AND OIL RIG REPAIR FACILITIES IN LIMBE DETERMINATION OF THE ECONOMIC RATE OF RETURN Calculation Assumptions Investment Costs: the project investments were estimated on the basis of their base costs. These

costs are net of taxes and customs duties. Furthermore, it is estimated that no significant investment will be made in the post start-up phase of the operation.

Operating/Maintenance Costs: the operating and maintenance costs are incorporated in the variable

and fixed costs generated by the operation and maintenance of the plant and equipment. Project Benefits: The project economic benefits comprise CNIC services plus miscellaneous direct

quantifiable surpluses: social surplus, domestic wages, surpluses generated by the impact of the exchange rate, national value. (refer to § 7.3 of the economic analysis).

Project Life: the life span of installations such as the breakwater, the wharfs and other civil works is

approximately 50 years. However, to facilitate the calculations and to remain in step with the business plan calculation assumptions, the determination of the cash flow was based on a project life of 20 years, with the year 2002 to be considered as year 1 of the project.

5. Method of Calculation: the methodology used in the determination of the ERR is that of ‘Costs and Benefits’.

CAMEROON PROJECT FOR THE CONSTRUCTION OF OIL RIG REPAIR FACILITIES IN LIMBE TABLE FOR THE CALCULATION OF THE ECONOMIC RATE OF RETURN

Annex 8 page 2/2

(in million CFA.F) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Total Sales 0 0 0 27250 47960 55590 63220 64310 65400 65400 65400 65400 64500 64500 64500 64500 64500 64500 64500

Operating Costs 7810 7926 8433 9266 10694 13177 14897 16211 18640 20051 20079 20107 20137 20167 20198 20229 20261 20293 20327

Maintenance Costs 6135 6227 6626 7280 8402 10354 11705 12737 14646 15754 15776 15799 15822 15846 15869 15894 15919 15945 15971

Investment Costs 20589 34564 26761 3861 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Net Flows -34534 -48717 -41820 6843 28864 32059 36618 35362 32114 29595 29545 29494 28541 28487 28433 28377 28320 28262 28202 ERR 17%

Annex 9 page 1/3

Cameroon Shipyard and Industrial Engineering Ltd. (CNIC)

Sensitivity Analysis (in million CFA.F

Scenario 1 – Reference scenario Turnover Increase in income Variation in operating costs Variation in net income Amortization Variation cash flow Variation investment Cash flow IRR

Note: The method used is that of costs and benefits

Annex 9 page 2/3

Cameroon Shipyard and Industrial Engineering Ltd (CNIC) Sensitivity Analysis (in million CFA.F)

Scénario 2 - Hypothèse: baisse de 10% du C.A. à partir de 20032002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2 022

Chiffre d'affaires (C.A) 17 000 16 650 18 460 18 460 23 090 32 150 37 600 41 200 50 200 54 700 54 700 54 700 54 700 54 700 54 700 54 700 54 700 54 700 54 700 54 700 54 700

Augmentation des produits 0 -1 350 -1 540 -1 540 3 090 12 150 17 600 21 200 30 200 34 700 34 700 34 700 34 700 34 700 34 700 34 700 34 700 34 700 34 700 34 700 34 700Variation coûts d'exploit . 0 -473 -539 809 3 128 7 124 10 003 12 210 16 197 18 541 18 591 18 643 18 695 18 749 18 804 18 860 18 917 18 975 19 034 19 094 19 156Variation Revenu net 0 -878 -1 001 -2 349 -38 5 026 7 597 8 990 14 003 16 159 16 109 16 057 16 005 15 951 15 896 15 840 15 783 15 725 15 666 15 606 15 544Amortissements 1 400 6 802 6 802 6 802 6 802 6 802 5 788 5 788 5 788 5 788 5 788 5 355 5 355 5 355 5 355 5 355 4 692Variation Cash Flow 0 -878 -1 001 -2 349 1 362 11 828 14 400 15 793 20 805 22 961 21 897 21 846 21 793 21 739 21 684 21 195 21 138 21 080 21 021 20 960 20 236Variation Investissements -21 266 -33 860 -25 999 -2 885 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0Cash flow -21 266 -34 738 -27 000 -5 233 1 362 11 828 14 400 15 793 20 805 22 961 21 897 21 846 21 793 21 739 21 684 21 195 21 138 21 080 21 021 20 960 20 236

TRI 13,04%

Note: la méthode utilisée est celle des coûts et avantages

Scenario 3: Assumption 10% increase in production cost from 2003

Turnover Increase in income Variation in operating costs Variation in net income Amortization Variation cash flow Variation investment Cash flow

IRR

Note: The method used is that of costs and benefits

Annex 9 page 3/3

Cameroon Shipyard and Industrial Engineering Ltd (CNIC): Sensitivity Analysis (in million CFA.F)

Scénario 3 - Hypothèse: 10% hausse des coûts de production à partir de 20032002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2 022

Chiffre d'affaires (C.A) 17 000 16 650 18 460 18 460 23 090 32 150 37 600 41 200 50 200 54 700 54 700 54 700 54 700 54 700 54 700 54 700 54 700 54 700 54 700 54 700 54 700

Augmentation des produits 0 0 0 0 5 000 15 000 21 000 25 000 35 000 40 000 40 000 40 000 40 000 40 000 40 000 40 000 40 000 40 000 40 000 40 000 40 000Variation coûts d'exploit. 0 529 549 2 027 4 534 8 895 11 992 14 359 18 718 21 242 21 296 21 353 21 411 21 470 21 530 21 591 21 654 21 718 21 783 21 849 21 917Variation Revenu net 0 -529 -549 -2 027 466 6 105 9 008 10 641 16 282 18 758 18 704 18 647 18 589 18 530 18 470 18 409 18 346 18 282 18 217 18 151 18 083Amortissements 1 400 6 802 6 802 6 802 6 802 5 788 5 788 5 788 5 788 5 788 5 355 5 355 5 355 5 355 5 355 4 692 0Variation Cash Flow 0 -529 -549 -2 027 1 866 12 907 15 810 17 443 23 084 24 547 24 492 24 435 24 377 24 318 23 824 23 763 23 700 23 637 23 572 22 843 18 083Variation Investissements -21 266 -33 860 -25 999 -2 885 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0Cash flow -21 266 -34 389 -26 548 -4 912 1 866 12 907 15 810 17 443 23 084 24 547 24 492 24 435 24 377 24 318 23 824 23 763 23 700 23 637 23 572 22 843 18 083

TRI 14,38%

Note: la méthode utilisée est celle des avantages avec et sans projet

Scenario 2: Assumption 10% fall in turnover from 2003

Turnover

Increase in income Variation in operating costs Variation in net income Amortization Variation cash flow Variation investment Cash flow

IRR

Note: The method used is that of costs and benefits

Annex 10

LOAN CONDITIONS

Donors Loan Amount (in million US$) Loan Conditions IBD 24.22 1) The equipment is leased directly from the Government

which on lends it to CNIC (US$ 13.35 million) 2) The US$ 10.87 million loan for infrastructure is awarded

directly to CNIC at a rate of 6% over 20 years accompanied by a bank guarantee.

ABEDA 12 The loan is awarded to the Government at a rate of 3% over 20 years with a five year grace period which will on lend it to CNIC on the same terms.

ADB 45.40 Loan over 20 years with a five-year grace period at a fixed rate of 6%.

Netherlands Fund 22.55 30% of the amount as a grant to the Government which will on lend it to CNIC and 70% as a loan over 20 years with a 5-year grace period at the LIBOR+ 1.75 rate.

Annex 11 page 1/3

VERIFICATION OF ENCLAVE PROJECT CRITERIA

ELIGIBILITY OF PROJECTS VERIFICATION For projects to be awarded enclave project financing: - they must be located in a regional member country;

and - they cannot be presented for financing solely under

the private sector facility, on account of the level of government participation.

Cameroon is a regional member country According to paragraph 3.3.3, direct and indirect State participation is significant through public bodies: MINEFI (40.78%), SNH (39.57%), ONPC (9.19%), and CSPH (5.87%) i.e. over 95%. CAMSHIP with 4.59% is the only private shareholder.

4.2 Projects should also satisfy the following economic and financial criteria:

- be financially and economically viable paragraph 7.2.6 indicates a rate of return of 15.07% which exceeds the capital borrowing rate of 6% and the economic rate of return is 17% (refer to paragraph 7.3.2). Refer also to paragraphs 7.3.1 and paragraph 4.6 (Question of market sensitivity)

Produce goods or services for export so as to generate sufficient foreign exchange revenues to repay the ADB loan, as well as other financiers, or generate an adequate cash flow in any of the Bank’s lending currencies.

Refer to paragraph 4.6.14, bills for exports are denominated in dollars. Export services represent 92% of turnover.

Use significant amounts of domestic raw materials so that linkages in the economy can be fostered.

Refer to paragraph 4.6.13. Local materials and energy used: sand and wood (mainly for scaffolding), electricity, diesel fuel and petrol

- Contribute to job creation

Paragraph refers to the creation of 3000 jobs (directly and in downstream activities)

- Have reasonable costs and an adequate financing plan Reasonable costs compared with competitors (investment and operating costs). Advantageous geographical situation which will make CNIC more competitive. Paragraphs 4.6.9 to 4.6.12. For the financing plan the conditions of the different donors seem acceptable (refer to Annex 10)

Annex 11 page 2/3

- Have a sound concept, and be consistent with the with

the country’s development objectives and have an adequate comparative advantage to be likely to succeed.

The project is in keeping with the Country’s industrial development objectives (refer to paragraph 2.7). The comparative advantages will stem from costs related to the distance from other sites and the related cost of transport and fixed assets. Refer to the section on competition (paragraphs 4.6.9 to 4.6.12)

- employ modern management techniques and technology as a means to guarantee success

As specified in paragraph 3.3.5, The recruitment of an administrative and financial director is necessary to strengthen the management of CNIC. Furthermore, CNIC has adopted modern working methods (paragraphs 3.3.7 and 3.3.10)

- having strong potentials for inducing foreign investment paragraph 4.3.2 mentions the interest expressed by foreign companies in participating in the opening of CNIC’s capital. Furthermore, other foreign investments could be generated by the project (refer to paragraph 4.3.3) for complementary projects.

- have an assured foreign market for its products or services

The "First Marine" study reassures the Bank as to the market and its medium and long-term trend in the Gulf of Guinea. Eleven foreign customers account for 92% of turnover. (refer to paragraph 1.3.1.3 of the implementation document)

- where applicable be socially viable and environmentally friendly

The social component concerns the rehousing of displaced persons, their compensation and the building of social infrastructure (refer to paragraphs 7.4 and 4.7.5). Impact study carried out and imitative measures planned.

ELIGIBILITY OF ENTERPRISES 4.3. Furthermore, the enterprise promoting the project shall have the following attributes:

- be fully or partly owned by the government. Refer to answer given above on the shareholding. - be an autonomous legal entity, i.e. be able to contract debt and to sue and be sued.

Refer to the condition on the modification of the Articles of CNIC. Condition (i) of Section A of 8.2.

- have adequate accounting and cost control arrangements Refer to the criterion on modern management (refer to paragraph 3.3.5) and the auditors opinion (paragraph 7.1.1) Refer also to Component C1 of the project regarding the building of CNIC’s management capacities.

Annex 11 page 3/3

- be managed autonomously from the host government so as to ensure objective decision-making and transparency.

The Board of Directors (BD) and General Management are autonomous. The Articles will be modified to strengthen this autonomy (refer to paragraph 3.3.1). All the powers are vested in the BD.

Have a legal life exceeding that of loan maturity by a reasonable margin which will determined during appraisal

The new Articles stipulate that the company shall be constituted for 99 years (refer to paragraph 3.3.1)

Sponsor projects which would require investments to establish, expand, diversify or modernize productive entities.

This is the specific purpose of the project as defined by its components (paragraph 4.5.1)

Have a track record of good performance or be supported by an entity with a good track record in the field under consideration or related area.

Financial results and rate of return satisfactory from 1994 to 2001 (paragraph 7.1.1).

Section 4.4 of the guidelines stipulate that the Bank shall in making its decision not only consider the viability of the project concerned but also the general economic environment in the host country including budgetary and monetary policies

Refer to paragraph 4.1.7

Loan amount 40% of the total project cost or UA 40 million, whichever is lower. This upper limit can be exceeded under exceptional circumstances which would need to be justified on a case-by-case basis.

The loan amount is UA 35.25 million (below UA 40 million and 40% of the project cost). The project cost is UA 93.79 million and the 40% represent UA 37.51 million.

Annex

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CAMEROON SHIPYARD AND INDUSTRIAL ENGINEERING LTD

PROJECT FOR THE CONSTRUCTION OF OIL RIG REPAIR FACILITIES IN LIMBE: ADDENDUM TO THE APPRAISAL REPORT (DOCUMENT ADB/BD/WP/2002/48 OF 5 JUNE 2002) This addendum seeks to update and clarify the information concerning the institutional framework, market, project cost, predictive financial analysis, and interest rate. Cameroon Shipyard and Industrial Engineering Ltd. (CNIC) The information below updates and supplements that given in 3.3 of the Appraisal Report as regards the institutional framework. 1. The project will mark an important development in CNIC’s volume and type of

activities. The increase in activities will require more skills for operations on larger rigs, as well as a reorganization of the management method, in particular financial and production management. To that end, several measures will be taken to enable the company to implement its Business Plan. Concerning human resources, the staff will be reinforced, and new technical, financial and accounting skills will be recruited upon start-up of the project. The recruitment will be part of the loan conditions. Furthermore, in order to upgrade the skills of the staff, the CNIC has prepared a training plan for its staff. Aspects relating to CNIC capacity building have been taken into account in the project component on training, as described in paragraph 4.5.2 of the Appraisal Report. This component will finance training abroad for managerial staff, and construct a training centre in which semi-skilled workers of the various required trades will receive further training in the case of existing staff, and training for additional staff. As regards financial and accounting management, a specific unit will be set up to ensure efficient management of the huge cash resources that would be generated following completion of the project.

2. Furthermore, it should be pointed out that since the early 90s, the CNIC has been

successfully transforming its activities from traditional ship repairs to the repair and rehabilitation of oil rigs. The transformation has led to a gradual increase of its turnover from CFAF 4.8 billion in 1993 to CFAF 6.78 billion in 1998 and to CFAF 14.8 billion in 2001, which represents a 208% increase. The turnover expected for the 2001/2002 fiscal year stands at CFAF 17 billion (which is nearly thrice the turnover for the 1998 fiscal year). This trend has been accompanied by a gradual increase in the equity capital of the company, with three increases from CFAF 1 billion in 1988 to CFAF 9.915 billion as at 9 January 2001. Another increase is currently being made by incorporating a share premium of CFAF 4.173 billion to bring the amount to CFAF 14.089 billion. Similarly, the CNIC organization chart has been progressively adapted to its new activities with the creation, in July 1999, of an Accounting and Financial Department, an Offshore and Industry Department, and a Computer and Management Control Department. Lastly, the number of managerial staff has increased from 8 in 1991 to 25 in 1998 and to 34 in 2001, raising the company’s management-staff ratio from 9% in 1991 to 13% in 2001.

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3. Thanks to the new facilities for the Limbe site, the CNIC will be able to work on a higher number of rigs and transformation operations which can be carried out only on dry docks to be acquired by the project (see paragraph 4.6.5 of the Appraisal Report). This increase in CNIC activities will quadruple the turnover in 10 years as from start-up of development works on the site. The measures relating to recruitment, training and institutional arrangements are described in the Appraisal Report. The CNIC, which has already increased considerably in size in less than 12 years, should be able to conveniently sustain this growth.

Market The information below updates and supplements that given in 4.6 of the Appraisal Report. 1. The main targeted market is the repair of offshore oil rigs, whose numbers are

growing rapidly in the Gulf of Guinea (see paragraph 4.6.6 of the Appraisal Report). The objective of the project is to develop CNIC capacities so as to enable it to target 20% of the market. Since 1998, the CNIC has been honouring contracts for the repair of oil rigs on its site in Douala, to the satisfaction of its customers. The work is done under rather difficult conditions due to unsuitability of the site and inadequate equipment. In view of the inadequate draught in Douala port (depth of 6.5 m subject to silting), the rigs are raised on floater in the Limbe roadstead and towed to Douala with all the risks of this makeshift mode of transport. Some are repaired on the spot in Limbe under extremely difficult nautical and working conditions with makeshift structures on the unequipped site.

2. Under these conditions, the CNIC can repair only 1 or 2 rigs each year for technical

wet dockings. The development of the Limbe will increase this capacity, at full development of the project, to 3 wet-docking units and 2 dry-docking units per year, and facilitate the transformation of rigs. These projections are based on a feasibility study and the business plan prepared by a renowned international consultant in ship repairs operating in London

3. The CNIC is currently the leader in rig repairs on the West African coast. However, it

is targetting only 20% of the existing market, which leaves room for competition. However, the advantages of the site, as well as the experience and skills already acquired by the CNIC place the company a step ahead of potential competitors that might establish in the area or traditional ship repair competitors (South Africa) that might want to take up rig repairs. In fact, they would have to make much larger investments and resort to external skills to start this type of activity, hence the higher costs in comparison to the CNIC which already has recognized skills.

4. The major problem currently facing the CNIC as regards sustained growth of its share

of the market is the lack of adequate space on the Douala site (see paragraphs 3.3.11 to 3.3.15 and 4.1.1 of the Appraisal Report). The site is narrow and offers only a shallow draught, thereby making access to it difficult or even impossible for some types of rigs in the region. Furthermore, the lack of space also makes it impossible to work on several rigs at the same time. These limitations are not found in Limbe, which offers adequate potentials for more work.

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Project Cost The information below supplements that given in 4.8 of the Appraisal Report relating to any cost overrun for contracts to be concluded with the works companies. 1. The engineering design of the detailed sketches, as well as the environmental and

social impact studies of the project will be conducted by a renowned international consultant. In order to minimize the risks of cost overruns, the engineering studies consisted of a model-building phase for the maritime structures, and optimization of their design (see paragraph 4.1.4). Nevertheless, a provision of 10% of the base cost of the works has been included in project cost to cover physical contingencies (see paragraph 4.8.1 of the Appraisal Report). Furthermore, under the advance procurement action authorized by the Bank, the most renowned companies and consultants in marine engineering have been short-listed. In addition, the Bank’s standard bidding documents will be used by the Borrower; these documents define the regulations governing project cost overruns. The draft bidding documents (BDs, contracts, etc.) will be submitted to the Bank for approval on a lapse-of-time basis before being finalized. The contracts will include penalty clauses for delays in implementation by the company.

2. Lastly, the shareholders, including the Ministry of Finance and the Budget, have

pledged, under the Supplementary Financing Fund, to cover any project cost overruns. In compliance with the outcome of negotiations with the Borrower, this pledge will be formalized in a Supplementary Financing Agreement.

Analysis of Financial Forecasts The information below supplements that given in 7.2 of the Appraisal Report. 1. The initial analysis of financial forecasts indicates an equity debt ratio increasing from

0.99 to 5.13 over a period of five years (2002 to 2006). To ensure rapid improvement of the company’s financial structure, the shareholders have pledged not to distribute any dividends throughout the loan repayment period. Consequently, the financial projections show that the ratio will start falling in 2007, and will be below 2 as from 2011, that is 4 years after completion of the project.

2. Following the recent negotiations, it was agreed with the Cameroonian parties that the

Dutch grant, amounting to 9.5 million Euros, intended to be onlent to the CNIC as a loan, should be granted as a non-reimbursable subsidy. It should be recalled that the grant would be used in financing part of the construction of breakwaters. This additional contribution by the Government will substantially improve the company’s financial structure, in particular the debt ratio the maximum of which will be brought down from 5.13 to 2.63. This special contribution by the Government reflects its determination and commitment to the project.

3. Other measures have been envisaged to further improve the company’s financial

structure. These include, in particular, the Government’s undertaking to subject the debt onlent to the CNIC to the payment of CNIC’s direct borrowings, as long as the debt ratio remains above 2. On the basis of the financial projections, the debt ratio should go below 2 by the year 2008. Consequently, subjecting the onlent debt to the

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payment of direct borrowings should end by that time. In any case, it should be pointed out that in addition to this arrangement, the financing agreements have stipulated the payment of the Bank’s claims on each due date before any other payment to the State and shareholders. The revised balance sheet and operating account forecasts of the CNIC are given in Annex 1.

Loan Conditions The information below supplements that concerning the loan conditions given in Chapter 8 of the Appraisal Report.

Since the project is rate 5 as regards the risk by the FFMA, the spread negotiated with the borrower has been fixed at 2.25.

Legal Evaluation of the Project A note on special legal procedures carried out under the project is given in Annex 2.

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Cameroon Shipyard and Industrial Engineering Ltd (CNIC) ANNEX 1

Forecast Income Statements (in CFAF million) P 1/2

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2 022Production sold 17 000 18 000 20 000 20 000 25 000 35 000 41 000 45 000 55 000 60 000 60 000 60 000 60 000 60 000 60 000 60 000 60 000 60 000 60 000 60 000 60 000Income from Oil-Filling Centre 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000Total income 17 000 18 000 21 000 21 000 26 000 36 000 42 000 46 000 56 000 61 000 61 000 61 000 61 000 61 000 61 000 61 000 61 000 61 000 61 000 61 000 61 000Materials and supplies 7 515 8 265 8 970 9 150 11 425 15 595 18 510 20 700 24 880 27 350 27 350 27 351 27 352 27 353 27 354 27 355 27 356 27 357 27 358 27 359 27 360External costs 1 620 1 720 1 820 2 620 2 750 2 860 2 970 3 080 3 190 3 190 3 190 3 190 3 190 3 190 3 190 3 190 3 190 3 190 3 190 3 190 3 190Total consumption 9 135 9 985 10 790 11 770 14 175 18 455 21 480 23 780 28 070 30 540 30 540 30 541 30 542 30 543 30 544 30 545 30 546 30 547 30 548 30 549 30 550Value Added 7 865 8 015 10 210 9 230 11 825 17 545 20 520 22 220 27 930 30 460 30 460 30 459 30 458 30 457 30 456 30 455 30 454 30 453 30 452 30 451 30 450Personnel costs 1 700 1 768 1 839 2 206 2 251 2 296 2 342 2 388 2 436 2 485 2 535 2 585 2 637 2 690 2 743 2 798 2 854 2 911 2 970 3 029 3 090Gross operating surplus 6 165 6 247 8 371 7 024 9 574 15 249 18 178 19 832 25 494 27 975 27 925 27 874 27 821 27 767 27 713 27 657 27 600 27 542 27 482 27 422 27 360Other charges and losses 750 750 750 800 850 850 850 850 850 850 850 850 850 850 850 850 850 850 850 850 850Taxes and duties 100 100 100 170 170 280 280 280 280 280 280 280 280 280 280 280 280 280 280 280 280Provisions for major repairs 306 306 306 306 306 306 306 306 306 306 306 306 306 306 306 306 306Amortization 2 000 1 400 1 400 1 400 1 400 1 400 1 400 1 400 1 400 1 400 1 400 1 400 1 400 1 400 1 400 1 400 1 400 1 400 1 400 1 400 1 400Amortization- Limbe 5 402 5 402 5 402 5 402 5 402 4 388 4 388 4 388 4 388 4 388 3 955 3 955 3 955 3 955 3 955 3 292Operating income before Limbe 3 055 3 847 5 941 4 454 6 904 12 469 15 398 17 052 22 714 25 195 25 145 25 094 25 041 24 987 24 933 24 877 24 820 24 762 24 702 24 642 24 580Operating income 3 415 4 097 6 221 4 824 7 018 7 291 10 220 11 873 17 535 20 017 20 981 20 930 20 877 20 823 20 768 21 146 21 089 21 031 20 972 20 911 21 512Financial costs 260 150 180 200 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250Financial costs- Limbe 314 1 099 2 796 3 323 3 400 3 285 3 039 2 792 2 545 2 298 2 051 1 805 1 558 1 311 1 099 887 675 543 411 279 147Pre-tax income 2 841 2 848 3 245 1 301 3 368 3 756 6 931 8 831 14 740 17 469 18 680 18 875 19 069 19 262 19 419 20 009 20 164 20 238 20 311 20 382 21 115Corporation tax 1 094 1 096 1 249 501 1 297 1 446 2 668 3 400 5 675 6 725 7 192 7 267 7 342 7 416 7 476 7 704 7 763 7 792 7 820 7 847 8 129Net income 1 747 1 752 1 996 800 2 072 2 310 4 263 5 431 9 065 10 743 11 488 11 608 11 727 11 846 11 943 12 306 12 401 12 446 12 491 12 535 12 986Debt service 314 1 099 2 796 3 323 3 400 3 285 7 995 7 748 7 501 7 254 7 007 6 761 6 514 6 269 5 295 5 083 4 871 3 404 3 272 3 140 Indicators Debt service coverage 13.05 5.66 1.73 2.11 2.14 3.11 1.49 2.26 2.67 2.89 2.99 3.09 3.20 3.31 3.99 4.15 4.32 6.16 6.39 6.85GOS/VA 0.78 0.78 0.82 0.76 0.81 0.87 0.89 0.89 0.91 0.92 0.92 0.92 0.91 0.91 0.91 0.91 0.91 0.90 0.90 0.90 0.90PC/VA 1.89 2.85 2.41 2.89 2.33 1.69 1.56 1.63 1.46 1.61 1.93 2.30 2.68 3.07 3.46 3.85 4.25 4.66 5.07 5.48 5.89FC/EBE 0.09 0.20 0.36 0.50 0.38 0.23 0.18 0.15 0.11 0.09 0.08 0.07 0.06 0.06 0.05 0.04 0.03 0.03 0.02 0.02 0.01AI income / Total income 0.17 0.16 0.15 0.06 0.13 0.10 0.17 0.19 0.26 0.29 0.31 0.31 0.31 0.32 0.32 0.33 0.33 0.33 0.33 0.33 0.35Net income / Total income 0.10 0.10 0.10 0.04 0.08 0.06 0.10 0.12 0.16 0.18 0.19 0.19 0.19 0.19 0.20 0.20 0.20 0.20 0.20 0.21 0.21

Cameroon Shipyard and Industrial Engineering Ltd (CNIC) ANNEX 1 Forecast Balance Sheets (in CFAF million) P 2/2 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022ASSETS Fixed assets 23 107 57 968 85 457 90 425 93 342 95 437 97 900 100 354 102 330 103 865 105 219 107 615 110 002 112 377 114 743 117 098 119 443 121 776 129 100 131 410 133 719Amortization -6 538 -5 938 -5 938 -5 938 -5 938 -11 340 -11 340 -11 340 -11 340 -11 340 -10 326 -10 326 -10 326 -10 326 -10 326 -9 893 -9 893 -9 893 -9 893 -9 893 -9 230Net fixed assets 16 569 52 030 79 519 84 487 87 404 84 097 86 560 89 014 90 990 92 525 94 893 97 289 99 676 102 051 104 417 107 205 109 550 111 883 119 207 121 517 124 489 Operating assets 2 731 3 004 3 260 3 325 4 152 5 667 6 727 7 523 9 042 9 939 9 939 9 940 9 940 9 940 9 941 9 941 9 941 9 942 9 942 9 942 9 943 Liquid assets 6 220 5 153 3 333 5 350 4 167 5 833 6 833 7 500 9 167 10 000 10 001 10 001 10 001 10 001 10 001 10 001 10 903 10 903 10 000 10 000 10 000 Cash 5 730 10 611 8 008 6 715 2 901 6 026 7 081 7 718 7 846 8 493 9 361 9 885 13 218 18 399 24 447 30 435 36 059 43 977 46 692 54 476 62 051Current assets 14 681 18 768 14 601 15 390 11 220 17 526 20 641 22 741 26 055 28 432 29 301 29 826 33 159 38 340 44 389 50 377 56 903 64 822 66 634 74 418 81 994Total Assets 31 250 70 798 94 120 99 877 98 624 101 623 107 200 111 754 117 044 120 957 124 194 127 114 132 835 140 391 148 805 157 582 166 454 176 705 185 842 195 936 206 483 LIABILITIES Equity capital 9 916 9 916 9 916 9 916 9 916 9 916 9 916 9 916 9 916 9 916 9 916 9 916 9 916 9 916 9 916 9 916 9 916 9 916 9 916 9 916 9 916Share premium 4 173 4 173 4 173 4 173 4 173 4 173 4 173 4 173 4 173 4 173 4 173 4 173 4 173 4 173 4 173 4 173 4 173 4 173 4 173 4 173 4 173Carried forward 355 1 927 3 504 5 301 6 021 7 885 9 964 13 801 18 689 26 847 36 516 48 004 59 612 71 339 83 185 95 128 107 434 119 835 132 281 144 772 157 307Reserves 310 485 660 860 940 1 147 1 378 1 804 1 487 1 487 1 487 1 487 1 487 1 487 1 487 1 487 1 487 1 487 1 487 1 487 1 487Subvention 6 238 6 238 6 238 6 238 6 238 6 238 6 238 6 238 6 238 6 238 6 238 6 238 6 238 6 238 6 238 6 238 6 238 6 238 6 238 6 238Provisions for repairs 142 100 150 150 306 306 306 306 306 306 306 306 306 306 306 306 306 306 306 306 306Equity capital 14 896 22 839 24 641 26 637 27 593 29 665 31 975 36 238 40 809 48 967 58 636 70 124 81 732 93 459 105 305 117 248 129 554 141 955 154 401 166 892 179 427MLT debts 9 679 41 303 61 597 64 943 62 448 60 753 56 119 51 485 46 851 42 217 37 583 32 949 28 315 23 681 19 807 15 933 12 059 9 520 6 981 4 442 1 903SNH shareholder 2 000 2 000 1 667 1 334 1 001 668 333 0 Additional loan 1 500 1 500 1 500 1 250 1 000 750 500 250 0 State current account Suppliers 2 903 2 879 2 694 4 563 3 560 6 927 13 360 17 650 19 569 18 579 16 387 12 408 11 061 11 405 11 750 12 095 12 440 12 784 11 968 12 067 12 167Banks 25 25 25 100 50 50 150 200 250 200 100 25 0 0 0 0 0 0 0 0 0Net income 1 747 1 752 1 996 800 2 072 2 310 4 263 5 431 9 065 10 743 11 488 11 608 11 727 11 846 11 943 12 306 12 401 12 446 12 491 12 535 12 986Total Liabilities 31 250 70 798 94 120 99 877 98 224 101 623 107 200 111 754 117 044 120 956 124 194 127 114 132 835 140 391 148 805 157 582 166 454 176 705 185 841 195 936 206 483 Working capital 11 753 15 864 11 882 10 727 7 210 10 549 7 130 4 890 6 235 9 653 12 814 17 392 22 098 26 935 32 638 38 282 44 464 52 038 54 666 62 352 69 827Variation WCR 6 254 4 111 -3 982 -1 155 -3 517 3 339 -3 419 -2 240 1 345 3 418 3 161 4 578 4 706 4 837 5 703 5 643 6 182 7 574 2 628 7 686 7 475 Indicators Liquidity ratio 5.01 6.46 5.37 3.30 3.11 2.51 1.53 1.27 1.31 1.51 1.78 2.40 3.00 3.36 3.78 4.17 4.57 5.07 5.57 6.17 6.74LTD/equity capital 0.78 1.90 2.63 2.54 2.35 2.11 1.80 1.44 1.16 0.87 0.64 0.47 0.35 0.25 0.19 0.14 0.09 0.07 0.05 0.03 0.01

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ANNEX 2

NOTE ON SPECIAL LEGAL PROCEDURES CARRIED OUT UNDER THE PROJECT

In the appraisal of the CNIC project, in addition to the usual legal procedures, the Bank carried out special procedures related to the nature and legal environment of the Project and to the Cameroonian legal and judicial system. At the Bank’s request, one of the best local law firms carried out a legal audit as part of the overall appraisal of the Project. For the purposes of this legal audit of the Project, the Consultant has reviewed all the principal documents related to the Project environment and, more generally, all the other documents, works, publications, texts and legal rulings relating to the mission. The principal documents reviewed include:

1) the Bank Group’s Guiding Principles for the financing of ‘enclave projects’;

2) Project-related documentation;

3) the Articles of Association of Cameroon Shipyard and Industrial

Engineering Ltd (CNIC) (the Borrower);

4) the Agreement of Establishment between the State of Cameroon and CNIC;

5) the first amendment to this Agreement;

6) the minutes of CNIC’s Annual General Meetings over the last five

years;

7) the minutes of CNIC Board meetings held over the last five years;

8) CNIC’s financial statements over the last five years;

9) the Constitution of the Republic of Cameroon of 18 January 1996;

10) the Treaty establishing the Organization of Business Law in Africa (OHADA) signed in Port Louis on 17 October 1993;

11) the OHADA Uniform Act n° 2 relating to commercial companies and

economic interest groups;

12) opinion No. 001/2001 EP of 30 April 2001 of the OHADA Common Court of Justice and Arbitration (CCJA) concerning the precedence of the OHADA treaty and its Uniform Acts over national legislation;

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13) OHADA Uniform Act No. 3 organizing securities;

14) OHADA Uniform Act No. 6 organizing simplified recovery procedures and measures of execution;

15) Decree No. 90/1257 of 30 August 1990 implementing Ordinance No.

90/004 of 22 June 1990 relating to the privatization of public enterprises;

16) Law No. 99/016 of 22/12/1999 governing the general status of

statutory bodies and public and parastatal enterprises;

17) Decree No. 95/101 of 9 June 1995 regulating public procurement, amended and complemented by Decree No. 2000/155 of 30 June 2000;

18) Decree No. 95/102 of 9 June 1995 concerning the attributions,

organization and functioning of public procurement commissions, modified and complemented by Decree n° 2000/156 of 30 June 2000;

19) Rule No. 02/00/CEMAC/UMAC/CM concerning the harmonization of

exchange rates in CEMAC member countries;

20) The Merchant Shipping Code;

21) compilation of texts organizing the land tenure and public land system;

22) the Civil Code; and

23) the record books of the clerks of the Douala Courts and Court of

Appeal. Following the review of all these documents and the work carried out by the auditor, all appropriate measures have been taken, in particular on the basis of the recommendations of the legal audit. Both the structuring of all the legal documentation of the Project and the design and formulation of the guarantee documents took into consideration the nature of the Project, the Borrower’s legal system, and the country’s legal and judicial system. On the basis of these initial special procedures called for by the socio-legal environment of the Project, and in accordance with the different recommendations of the above-mentioned audit, the Bank also secured the services of one of the most renowned law firms in the area of marine engineering. With its assistance, the contractual legal documentation was structured to take into account all the factors

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raised during appraisal of the Project so as to protect the interests of the Bank as far as possible in the planned financing. Finally, it should be emphasized that the State of Cameroon shall submit to the Bank a comfort letter in which it shall undertake not to take any measures of any kind which might affect the Borrower’s ability to honour its commitments to the Bank under the Project.