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