Colombia - Seventh Railway Project

Document of The World Bank FOR OFFICIAL USE ONLY FILELOP Report No. 3262b-CO STAFF APPRAISAL REPORT COLOMBIA SEVENTH RAILWAY PROJECT January 27, 1982 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Currency Equivalents Currency Unit = Peso (Col$) US$1 = Col$ 55.0 (October 1981) Col$ 1 = US$0.01818 Col$ 1 million = US$18,181 Fiscal Year January 1 to December 31 System of Weights and Measures 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) = 0.62 mile (mi) 1 kilogram (kg) = 2.20 pounds (lb) 1 ton = 2,205 pounds Abbreviations CNR Colombian National Railways COLPUERTOS Colombian Port Authority CONPES Social and Economic Policy Committee of the Cabinet DAAC Administrative Department of Civil Aeronautics DNP Department of National Planning DRI Integrated Rural Development ECOPETROL Colombian Petroleum Agency FAN National Aeronautics Fund FNCV National Rural Roads Fund FONADE Economic Development Fund IDB Inter-American Development Bank IDEMA Government Marketing Institution MOPT Ministry of Public Works and Transport SENA Colombian National Training Center FOR OFFICIAL USE ONLY STAFF APPRAISAL REPORT SEVENTH RAILWAY PROJECT COLOMBIA TABLE OF CONTENTS Page No. I. THE TRANSPORT SECTOR ............. ............. .... ...... 1 A. General ............ .. . *........... . ............ * ..... I B. The Transport System ..... ............. . ............... I C. Investments, Regulation, Planning and Coordination ...... 4 D. Bank Involvement in the Transport Sector ................ 6 II. THE RAILWAY SUBSECTOR .............. ........................ 6 A. Background ....... and Traini............................ 6 B. Organization ............ ..... . ......... ............. 8 C. Management, Staff and Training ......................... 8 D. RailVay Facilities ................................... 12 E. Traffic .................. .... ...................... 14 F. Operations ...d the.... .............................. 15 G. Tariffs and Costs ....... .......................... .... 15 H. Budget, Accounting and Audit .................. . ....... 17 III. THE INVESTMENTPLAN AND THE PROJECT .......................... 18 A. CNR's Investment Plan (1982-1986) .... .................. 18 B. The Project and the ProposedLoan ....................... 19 C. Main Project Items ................. ..... ...... 20 D. Cost Estimates ...... 0 ... ................................. 25 E. Financing Plan .......................................... 25 F. Project Implementation .............9 .............. 26 G. Program of Action ....... ............................... 26 H. Procurement ........ . . ................................ 26 I. Disbursements ......................................ng..... 28 J. Environment 18............ ............ .................. 28 IV. ECONOMIC EVALUATION e a o Enm.................................. 28 A. General .............................. 0................... 28 B. Traffic Forecast ........................................ 28 C. Costs ............................................. *...... 30 D. Benefits .............. ............................ *..... 30 E. Economic Return ....... ... ............ ...... ............*. 30 F. Sensitivity Analysis and Risk ..........#... ........0...... 30 This report is based on the findings of an appraisal mission which visited Colombia in September 1980. The mission comprised Messrs. Rasheed (Financial Analyst), Baigorria (Engineer) and Nordin (Economist). The report has been edited by Miss Virginia Foster. An update mission visited Colombia in November 1981. This documet has a restricted distribution and may be used by recipients only in the performance of their ofWcial duties. Its contents may not otherwise be disclosed without World Bank authorization. - 11 - TABLE OF CONTENTS (Continued) Page No. V. FINANCIAL EVALUATION .......................... 31 A. Financial Objectives ..................... 31 B. Past Financial Performance ............................. 31 C. Non-Remunerative Lines and Services ..................... 33 D. Forecast Financial Performance (1981-1986) .............. 35 E. Sensitivity Analysis ............... ...........*...... 39 VI. AGREEMENTS REACHED AND RECOMMENDATION ........................ 40 TABLES 1.1 National and International Passenger and Freight Transport .. 42 1.2 Colombian Road Network 1980............ ................ ... 43 1.3 National Highway Fund Revenues 1970-1980 .................... 44 1.4 Evolution and Composition of Regular Gasoline Prices 1971-1980 ................................... 45 1.5 Public Sector Investments in Transport 1972-1979 ........... 46 1.6 World Bank Group Involvement in Colombian Transport ......... 47 2.1 Selected Operating Statistics 1970-1980 ..................... 48 2.2 CNR's Motive Power and Rolling Stock Data ...............o.. 49 2.3 CNR - Freight Traffic for 1971-1980 ......................... 50 3.1 The Investment Plan 1982-1986 (2 pages) ................. 51-52 3.2 The 1982-1985 Project (2 pages )............................ 53-54 3.3 Items to be Financed by the Proposed Loan ................... 55 3.4 Track Rehabilitation Program 1981-1984 ...................... 56 3.5 Condition of Track Sections Programed for Rehabilitation (Before and After the Project) .................... 57 3.6 Locomotive Requirement and Availability - 1982-1986 ......... 58 3.7 Gondola Requirement and Availability - 1982-1986 ............ 59 3.8 Workshop Equipment and Tools Requirement - 1982-1985 ........ 60 3.9 Technical Assistance and Training Program .................. 61 3.10 Project Implementation Schedule ............................. 62 3.11 Estimated Schedule of Disbursements ..............oo9 .... 63 4.1 Freight Traffic Projections 1982-1986 ....................... 64 4.2 CNR's Passenger Traffic 1971-1985 .......................... 65 4.3 Economic Evaluation of Track Rehabilitation ................. 66 4.4 Economic Evaluation of Motive Power and Rolling Stock ....... 67 5.1 Revenues, Expenses and Net Income .................... 68 5.2 Summary Balance Sheets 1977-1979 .................... 69 5.3 Income Statements 1981-1986 (2 pages) ....................... 70-71 5.4 Government Financial Assistance to CNR during 1982-1986 ..... 72 5.5 Sources and Applications of Funds Statements ................ 73 5.6 Forecast Balance Sheets 1982-1986 ...................*so* ... 74 - iii - TABLE OF CONTENTS (Continued) Page No. ANNEXES 1. CNR's Operations Review ............ ..................... 75 2. Summary of the Plan to Increase CNR's Locomotive Availability. 77 3. Technical Assistance and Training Program - Guidelines ....... 79 4. Details of Financing Plan ........ o ... ...... o ......... ..... 82 5. Details of the Commodity Forecasts for 1982-1986 ............. 83 6. Economic Return Calculations ................................. 90 7. Uneconomic Lines and Passenger Train Services Closed ......... 96 8. Methodology and Assumptions Used in the Financial Forecast 1982-1986 ................................ .. .... 97 9. Selected Documents and Data Available in the Project File .... 99 CHARTS 1. Organization of MOPT ................................... . 100 2. Organization of CNR .................. ........ .......... ... 101 3. Traffic Density Chart for 1986 ............................. 102 MAPS 1. IBRD 3667R1 - Colombia National Railroads 2. IBRD 15410 - Colombia Transportation Network  I. THE TRANSPORT SECTOR A. General 1.01 The Andes Mountains in Colombia present formidable barriers to communication among the main population centers in the country, which, until recently, constituted separate and almost self-sufficient regions. It was not until the early 1950s that,-under the drive toward integration and modern- ization, the transport system began to evolve into a national network. 1.02 The Magdalena River had been the only transport route between the central region and the Atlantic coast until, in the early 1960s, construction and upgrading of the Western Road (Cartagena-Medellin-Cali-Pasto), the Eastern Road (Santa Marta-Bucaramanga-Bogota-Neiva), and the two main transverse roads that connect them in the central region were substantially completed. Since 1961, the Atlantic Railroad has provided a connection between the port of Santa Marta and the two major urban centers of Bogota and Medellin. During the last 25 years, the country's port capacity and air transport services have also expanded considerably. 1.03 During the period 1950-1980, the transport sector's contribution to GDP grew at an annual rate of 6.1%, which is larger than the annual growth rate of 5.2% of total GDP for the same period. At the same time, the share of the transport sector in GDP rose from 5.1% in 1950 to 9.4% in 1980. 1.04 The Colombian inter-urban transport system moved about 21.5 billion ton-km in 1980, of which about 81% was moved by truck.over the national highway network (Table 1.1). Coastal shipping accounted for about 8%, river transport about 5%, railways some 5% and aviation about 1%. Although agricultural output dominates, manufactured goods are becoming an increasing share of Colombian freight. Roads dominate passenger traffic, accounting for almost 71% of the pass-km, while aviation's share is close to 27%; railways serve only about 2% of the passenger traffic. B. The Transport System (i) Railways 1.05 The railway subsector is discussed in Chapter II. (ii) Highways 1.06 Colombia has a road network totaling about 77,000 km (Table 1.2), of which about 22,900 km constitute the national highway system, 40,400 km are departmental roads and 11,200 km are feeder roads. The balance of about 2,300 km of roads are private, municipal or in the national territories. About one-third (7,900 km) of the national system is paved, while only about 3% of the departmental roads are paved. All other roads are gravel or unsurfaced. The road network is not well maintained. At least half of the paved roads need asphalt overlays or strengthening in the next ten years to preserve the pavement structure. -2- 1.07 The construction and maintenance of the national highway network are the responsibility of the Ministry of Public Works and Transportation (MOPT). Following the reorganization of the Ministry implemented in May 1980 (Chart 1), the Highway Directorate, under the jurisdiction of the Technical Secretary, is in charge of the execution and supervision of highway and maintenance done directly by MOPT. This work is carried out through MOPT's 26 districts of public works located in each of the 23 Departments and in some of the national territories. 1.08 The administration of departmental secondary and rural roads is under the jurisdiction of the Secretariats of Public Works of the Departmental Governments. These Secretariats have responsibility for planning, constructing and maintaining secondary and rural roads within their Departments. The Departments of Antioquia, Cundinamarca and Valle have relatively strong road organizations, but are still heavily deficient on the maintenance side. Most of the other Departments have limited financial resources and, consequently, have not developed adequate organizations to deal with their roads. 1.09 The National Rural Roads Fund (FNCV), which is responsible for planning, constructing and maintaining rural roads in all regions of the country, rightly does not want to develop into another labor-heavy bureaucracy. Therefore, there is reason for delegating, in the long run, maintenance responsibilities of FNCV roads to the Departments as they acquire proper capabilities. 1.10 The National Highway Fund (Fondo Vial Nacional) was created in 1966 for the purpose of channeling all resources devoted to the highway subsector. The Fund, which has no staff of its own, is administered by MOPT. Its main source of income is the gasoline tax, which, since 1976, has accounted for over 70% of the Fund's revenues (Table 1.3). During the 1970s, about 30% of national highway expenditures were for maintenance, 50% for construction and 20% for other expenses. Rehabilitation has emerged as a significant category, constituting about 14% of the Highway Fund expenses in 1980. 1.11 The Government has been increasing gasoline prices gradually since August 1975. The price structure for regular, low octane gasoline appears in Table 1.4. It reflects taxes accruing to the National Highway Fund as well as other taxes, transportation costs (which go to the Colombian Petroleum Agency, ECOPETROL) and distribution margins. After the most recent increase in December 1981, prices have reached a level of Col$ 64 (about US$1.12) per gallon for high octane gasoline (87 octane) and Col$ 55 (about US$0.96) per gallon for regular gasoline (72 octane) and diesel fuel. This increase has brought domestic prices to the international c.i.f. Barranquilla level. -3- (iii) Inland Waterways 1.12 The traditional importance of inland waterway shipping has decreased because of the development of road and rail transport. The Magdalena and Cauca Rivers, together with the man-made Canal del Dique which connects the port of Cartagena with the Magdalena River, constitute a major transport system, totaling 1,366 km of navigable waterways, which accounts for almost all inland shipping. The Magdalena River is quite dependable in all seasons to Gamarra (about 470 km from the Barranquilla river-sea terminal); beyond there to Salgar (930 km from Barranquilla), only seasonal navigation is possible. Other river systems (Amazonas, Orinoco, Atrato), although very extensive, serve only intraregional transportation of small magnitude. 1.13 Bulk goods, especially petroleum, fertilizer products and cement, constitute the main freight movement, but there is still competition for this traffic from other modes. Total traffic in 1979 was 1.5 million tons, of which 85% consisted of petroleum products. Passenger traffic on the rivers is negligible. Freight transport services are mostly in private hands while the administration and maintenance of the river and most ports are under the jurisdiction of MOPT's Directorate responsible for inland waterways. Inland shipping has complemented rail traffic to some extent, particularly for goods originating from and destined to the ports of Cartagena and Barranquilla. Transshipments to both rail and road can be effected at a number of river ports further upstream; however, the comparative advantage of road transport relative to the combined river-rail or river-road movements makes these combinations viable for just a few products. (iv) Ports 1.14 The principal seaports of Colombia are Cartagena, Barranquilla and Santa Marta on the Atlantic coast, and Buenaventura and Tumaco on the Pacific coast. They are administered by the Colombian Port Authority (COLPUERTOS), which is an autonomous Government agency. For about a decade, this agency has been improving transit storage and cargo-handling facilities with financing from the Inter-American Development Bank (IDB). About 3 million tons per year move through the ports; of this total, more than 50% is handled by Buenaventura. In all ports, except Tumaco, the volume of inbound traffic is more than that of outbound traffic, and only Buenaventura has significant cabotage traffic other than oil, which is transported mainly from Tumaco to Cartagena via the Panama Canal. 1.15 One bottleneck to evacuating goods from the ports is the inland transportation system. At times, neither the railways (Santa Marta and Buenaventura have rail services) nor the trucking industry has been able to handle the volumes available to them. More coordination among modes of transport and improved information from COLPUERTOS to the transport services are also needed. Lack of bulk inland storage facilities by IDEMA-- the owner of most of the grains imported in bulk--is another cause of port -4- congestion. The structure of port charges, in particular low demurrage charges, also tends to increase freight congestion. Low labor productivity and inefficient cargo handling practices also contribute to high cost and port congestion. Finally, the use of containers in an efficient intermodal system would help to alleviate port congestion and has been studied by consultants, financed by UNDP with the Bank as Executing Agency. The recommendation to provide container facilities in Colombian ports is being reviewed in connection with the preparation of a proposed port project. (v) Aviation 1.16 The aviation subsector developed very early in Colombia as a result of the major problems to surface transportation caused by the topography. Air transport is now a major passenger transport mode for both international and intercity travel. Domestic freight tonnage has decreased in recent years although, in terms of ton-km, its volume has remained stable. International freight traffic, however, has been gaining importance. There are three major national airlines and eleven foreign airlines providing international services, and there are ten additional regularly scheduled domestic carriers. Since 1968, aviation has been governed by the Administrative Department of Civil Aeronautics (DAAC), which.is directly responsible to the President of the Republic. DAAC is supported by the National Aeronautics Fund (FAN). 1.17 There are some 70 airports whose standards vary widely. In general, those in the western half of the country are better developed than those in the east. At present, seven of the airports in mainland Colombia and one additional on the Caribbean Island of San Andres are equipped to handle international flights. In view of technological improvements in the aviation field and the inherent difficulties of surface transport, aviation is most likely to maintain an increasing role in the country, especially in passenger transport among major urban centers and in services to the more remote areas of the Colombian Amazonas. A new airport at Medellin and improvements to Bogota and Cartagena airports are being implemented under a Bank-financed aviation project (Loan 1624-CO). C. Investments, Regulation, Planning and Coordination 1.18 The effort to complete the basic transport network has required a considerable share of the country's total investments. Transport represented about half of public investments in the late 1950s. In the 1960s, when the trunk highway system and the Atlantic Railways were being completed, that share rose to more than 60%. More recently, however, the transport infrastruc- ture share of total public investments has been declining; in the late 1960s, it was about 35%, and, since 1970, it has been about 25%. 1.19 In 1980, about Col$ 19,195 million (about US$430 million) were invested in the transportation sector (Table 1.5). Of this amount, about 86% was for highways and road transport (including national highways and depart- mental and feeder roads), 7% for ports and inland navigation, 5% for airports and 2% for rail transport. The continuous decline in railway investments partly explains the decreased operating performance of the Colombian National Railways (CNR). - 5 - 1.20 The financing of the transport sector is arranged through a combina- tion of (a) National Funds, e.g., the National Highway Fund and the National Aeronautics Fund which are supplied by tax revenues, Government contributions and foreign assistance; and (b) general revenues collected by the transport entities from their customers, e.g., CNR and COLPUERTOS. The transport sector institutions follow a policy of cost recovery, and their pricing policies are generally adequate. However, CNR has had to resort to Government contributions to finance its operating deficits because of management difficulties and operational inefficiencies, in particular lack of motive power. Existing cross-subsidies, e.g., between import and export tariffs in the ports and between freight and passenger tariffs on the railways, are not of major significance. Subsidization of road transport over other modes was implicit in the past but has been virtually eliminated through gasoline and diesel fuel price increases (para 1.11). The taxes on CNR's purchases of diesel fuel contribute to the financing of the National Highway Fund, but, until recently, CNR did not receive any support from this Fund. In December 1981, a proposal to finance CNR's maintenance, improvement and extension from the Fund was approved by Congress and is expected to improve the situation of the railways. 1.21 The transport system developed in a relatively short period of time in response to-overwhelming demands by the rest of the economy and not as the result of a deliberate sector planning effort. The responsibility for trans- port policy was distributed among Ministries, regional and local governments and decentralized agencies, each of which played an important role in creating the rules and regulations governing its own activities. Consequently, there was little coordination among modes and a lack of regional planning. Until 1966, when, by Decree 3160, an attempt was made to tie in the various entities in charge of transportation with the Ministry of Public Works (MOP), no frame- work allowing central planning and policy formulation existed. Ministerial control remained limited, and the lack of coordination persisted. 1.22 More recently, however, there has been considerable strengthening of sector institutions, with the establishment of central control of the sector under the Ministry of Public Works and Transport (MOPT). This strengthening has been made possible through the restructuring of MOPT in 1976 and its reorganization in 1980, with the creation of a Sectoral Planning Office and a National Transport Council respectively (Chart 1). The National Planning Department (DNP) also maintains an overall coordinating role and has a trans- port section in its infrastructure division. The Sectoral Planning Offices of MOPT are responsible for carrying out intermodal planning and coordination. In addition, budgets and investment programs for all modes except pipelines and aviation require MOPT approval. The National Transport Plan, prepared by the Sectoral Planning Office in 1980, defines the role and goals of each mode and outlines investment programs and their financing for each component of the sector. It also establishes guidelines for the distribution of responsibilities for planning, construction and maintenance of the transport network among national and regional agencies. 1.23 Future revisions of the Plan would place increased emphasis on: (a) sector objectives within the framework of the National Economic Policy, (b) maintenance of infrastructure and equipment, (c) intermodal coordination, (d) transport safety, (e) transport pricing, and (f) energy considerations. -6- The Secretariat of the National Transport Council (MOPT's Sectoral Planning Office) would take the initiative of meeting regularly with the representatives of all autonomous institutions related to the transport sector in order to prepare sector policies and programs to be analyzed by the National Transport Council and later incorporated into the National Transport Plan. The long-term goal would be to integrate the programs of the different transport modes into a more comprehensive transport sector framework suitable, in the future, for a global transport sector project. 1.24 The present administration's development strategy combines expansion of the economic infrastructure, designed to integrate regional markets, with a return to export-led growth and increased emphasis on improving allocative efficiency. The renewed emphasis on transport infrastructure, combined with efforts to accelerate growth in less developed regions of the country, seems appropriate at this stage of Colombia's development. Transport costs are high and dis- courage interregional and external trade. With these costs lowered, transport services made more reliable, and incentives provided for investment in areas with growth potential, a substantial boost could be given to interregional and external trade and to overall economic growth and employment generation. D. Bank Involvement in the Transport Sector 1.25 The Bank has played an important role in the development of Colombia's transport sector. -Its involvement dates back to 1949, when a transport sector mission reported the transport system to be in exceptionally bad condition. Since 1950, the Bank has lent about US$474 million 1/ in 22 loans to the sector (Table 1.6). These investments accelerated the construction of an integrated highway network and, more recently, have contributed to the rehabilitation and maintenance of the network and to the development of an improved highway organization. They have also contributed to the construction of over 670 km of main line on the Atlantic railroad from La Dorada to Fundacion, as well as the rehabilitation of others. Five of the Bank-financed railway projects have been reviewed by the Operations Evaluation Department. 2/ In general, it was found that the construction of the Atlantic line was the single most important transport investment financed by the Bank in Colombia and that it contributed to the economic and social integration of the country. The domestic aviation project is helping to improve basic aviation infrastructure and to improve sector efficiency and planning. Bank participation in rural road construction has been through rural development projects, which also included other activ- ities in the agricultural sector. II. THE RAILWAY SUBSECTOR A. Background 2.01 CNR received US$113.7 million in six loans from the Bank over the past three decades; major improvements took place during the implementation of 1/ Including an IFC operation. 2/ Bank Operations in Colombia, SecM73-314 of 1972, Bank Operations in Colombia, an Evaluation, Report No. Z-18 of 1972, and Project Performance Audit Report - Fifth Railway Project, SecM75-446 of 1975. -7- these loans. Prior to 1950, the railway network was owned by national and departmental railroads and private companies. By 1963, the network had been consolidated through the creation of CNR and integrated by standardizing the track gauge to 914 mm. The Bank loans helped in (a) construction and equipping of the Atlantic Line, which is the backbone of the network linking the central highlands and the capital, Bogota, with the important port of Santa Marta; (b) dieselization and modernization of the railway; and (c) technical assistance to build up CNR. The Bank's association with CNR, therefore, has been a fruitful one despite some setbacks in the railway performance as described in the following. 2.02 Progress was excellent in the early period of the Sixth Railway Loan (1973-1974). The locomotive and wagon availability was either on, or better than, the target. The financial performance was substantially better than the plan of action targets (para 5.02). The number of derailments declined. Procurement was progressing well. Freight traffic increased by about 11% during 1973-1974 as compared with 1.4% between 1968 and 1972. The management consultants, hired under the technical assistance program of the project, completed their studies, and the implementation of their recommendations was initiated satisfactorily. In short, CNR was well on the way to becoming a strong and viable entity. The improving trend, however, was affected by unforeseen circumstances in 1975. The network was severed by line washouts. The economy slowed, and balance-of-payment difficulties adversely affected imports, reducing the railways' long-haul traffic of bulk commodities such as wheat and fertilizer. While total tonnage dropped and revenues shrunk, costs increased substantially. The unfavorable balance-of-payments situation and a fund shortage forced the Government to curtail investments in the railway; financial support was discontinued. The lack of revenues and finan- cial support meant that maintenance of railway plant and ordering of spare parts, necessary for efficient and economic operations, was not carried out. Furthermore, mechanical deficiencies in new locomotives, inappropriate practices of locomotive utilization at high altitudes (e.g., mismatching of locomotives) and inadequate repairs and maintenance due to shortages of funds caused locomo- tive availability to decline to 27% in November 1981. Frequent changes of CNR's top management affected the quality of performance and contributed to the flight of good middle-managers. This high turnover of management and supervisors severely constrained the institution's performance. Poor coordination between the railway and the ports of Santa Marta and Buenaventura caused long wagon-waiting time (11-12 days) at the ports, reducing the railway's traffic-carrying capacity. As a result, several users switched to other modes of transportation, causing a decline in railway traffic. Another shortcoming was the fact that the railway was unable to collect demurrage charges from shippers who claimed that they were not responsible for delays in returning wagons to CNR. 2.03 By early 1979, CNR had reached a stage at which a continuation of existing operations would have deteriorated the service to a point that, eventually, it would have been necessary to close down the entire railway network. An alternative course was to take appropriate technical, opera- tional and financial measures to remedy the immediate problems, followed by a well conceived investment and action plan designed to improve railway operations. In view of recent changes in the world energy situation, including rising petroleum prices which have enhanced the railway's competitive position vis-a-vis roads, and the potential for exploiting Colombia's coal deposits -8- which are among the largest in the world, as well as changes in traffic composition and patterns, the future role of the railway has changed. The Government has acknowledged this fact in the National Transportation Plan and has decided to upgrade the railway, particularly on the Atlantic network. This commitment to support the railway is critical since, without aid, the railway would decline to an inoperable level which would eventually lead to its abandonment. The Government has since been providing substantial funds to the railway (para 5.08) and is exploring the possibility of constructing a bypass between Saboya and Carare as an alternative route to the difficult section of the Atlantic Line between Facatativa and Puerto Salgar (Map IBRD 3667R1). Engineering and economic feasibility studies of the bypass are being carried out by CNR with Government financing: over Col$ 150 million has been given to CNR, about Col$ 90 million as a Government grant and over Col$ 60 million as a loan from FONADE. 2.04 Colombia needs a good railway system which would provide economic transport of bulk commodities over long hauls. However, the railway deterio- ration has reached a critical level. In view of these developments and the Government's request for Bank support, the proposed Seventh Railway Project addresses the most critical areas. This project has the firm commitment of. the Government. B. Organization 2.05 CNR is an autonomous Government enterprise headed by a five-member Board of Directors with the Minister of Public Works and Transport, ex-officio, as chairman. The other members are appointed by the President of Colombia and are from banking, industry, commerce and agriculture. The Board convenes bi-weekly. All major decisions, including tariff increases, are made by the Board. The General Manager of the railway is also appointed by the President. Decisions regarding the construction of new lines or abandonment of the existing lines and changes in personnel service conditions rest with the Government. The railway is presently organized into five Divisions.: Pacifico (Cali), Antioquia (Medellin), Central (Bogota), Santander (Bucaramanga) and Magdalena (Santa Marta). Each Division is headed by a Division Manager. 2.06 Over the years, favorable changes have taken place in the organiza- tion. The Operations Department was created in 1968. In 1972, the Operations Department was split into the Technical Department and the Operations Department. In 1974, based on consultants' (Coopers and Lybrand) recommendations, three new positions were created - the Deputy General Manager, the Commercial Manager (to control the marketing aspects of CNR), and the Coordinator of the Planning Unit. The Deputy General Manager directly controls the Division Managers and maintains a functional relationship with the Departmental Managers at head- quarters. The present organization is shown in Chart 2. C. Management, Staff and Training 2.07 Management below the General Manager level is generally weak. Beginning in 1975 with the decline of the railway, many inexperienced profes- sionals were hired from outside the railway because a number of qualified and experienced railway engineers and technicians left CNR for better paying jobs in private industries and other Latin American railways. The continuity of - 9 - career railway supervisors therefore deteriorated. During 1976-1979, the Commercial Manager was changed six times; the Technical Manager, four times; the Financial Manager, six times; and the Administrative Manager, four times. The General Manager was changed four times in the last six years. The Deputy General Manager, who should be a career railway expert, was changed twice. CNR's management improvement was also a central issue in the last appraisal in 1972. The Government had recognized the need for strengthening of CNR's management, but very little was done to circumvent the frequent staff turnover. Management improvements and institutional reforms are important goals of the proposed project. In order to eliminate the weaknesses, special conditions are being included in the project concerning salary increases, maintaining continuity of employment and proper training programs (items (a) to (d) in paragraph 2.09). 2.08 Although total staff decreased from 12,400 in 1976 to 10,328 in 1981, there is still an excess of employees in the administrative area. At the same time, there is a shortage of technicians and skilled workers in track maintenance and workshop areas. In addition to spare parts, the railway urgently needs experienced mechanics to work in the shops so that the locomo- tives can be rehabilitated, their availability can be improved and the railway can carry higher traffic. In order to rectify the imbalance of staff, CNR needs to take immediate action to hire experienced railway mechanics. Furthermore, CNR has agreed to prepare a plan for local and foreign training of the railway staff. Railway professionals should either be sent to already well established training centers in Latin American railways or should be trained in Colombia by qualified consultants (para 3.13). The present salary structure for intermediate and senior management is not competitive with that of the private sector nor with some of the public sector. Recruiting policies are inadequate. Staff morale is low because of these factors. Also, because assuming responsibility is discouraged, challenging and interesting positions for middle management do not exist. Organizational and personnel reforms and a recruiting campaign must be implemented for CNR operations to be successful. For unskilled workers, there is an excellent vocational training center, SENA (Colombian National Training Center), which trains technicians and tradesmen each year from all over Latin America. In the past, CNR's charter has permitted only the recruitment and subsequent training of unskilled laborers. Because it cannot hire skilled workers such as diesel mechanics directly from outside, an association with SENA would be desirable. Cumbersome procurement procedures have represented barriers to improving maintenance and repair performance for locomotives and rolling stock and for the maintenance of the track. The internal procurement procedures are slow and outdated and they involve unnecessary steps, e.g., (a) too much time is required to process the purchase requisitions; (b) too many people are engaged in approving them; and (c) the amounts which can be authorized without the Railway Board approval are too low. Moreover, CNR has used both private and public procurement procedures. The intermingling of the two has caused considerable confusion. CNR's Board abrogated the use of public procedures in February 1981; thus, much of the difficulty has been reduced, and further improvements are expected. 2.09 During appraisal, the above-stated problems and deficiencies were discussed at length with CNR, and the urgent need to find solutions was empha- sized. The railway management, since then, has been working effectively on - 10 - these problems and has taken positive steps toward their solution. This trend is expected to continue. The following paragraphs contain specific details of institutional and operational shortcomings which CNR must correct in order to operate efficiently. During negotiations, agreement was reached with CNR on the program and timing for the achievement of such objectives as discussed below. (a) Revising Salary Structure and Maintaining Job Continuity. CNR's existing salary structure for professionals and senior managers needs to be revised to bring it to a level competitive with that of the private sector so that CNR can attract and retain qualified and experienced staff. The railway's recruiting policy also needs improvement. Unnecessary and frequent changes in top and middle management (para 2.07) have deteriorated the performance efficiency of the scarce human resources at the professional level in CNR. While it is recognized that various factors which affect the staffing patterns are beyond the control of the railway, the improvement in job continuity should result in savings in staff costs and time. In view of the growing powers of the Railway Union, it is necessary for the railway to have a strong General Manager with reasonable job continuity and the backing of the Government. During the course of Bank lending to CNR, this is the first time that all agencies of the Government have committed themselves to working toward getting CNR's operations back at an efficient level. CNR should hire a qualified specialist, familiar with labor laws in the country and the constraints arising from the strong Railway Union, to carry out a detailed study on salary structure and recruiting policies. At the end of his study, the specialist should recommend necessary actions to be taken to increase salaries and improve the recruiting policy. During negotiations, agreement was reached that CNR, by January 1, 1983, would carry out a study of its salary structure and recruiting policy, on terms of reference satisfactory to the Bank, and, taking into consideration the resulting recommendations, revise its salary structure and recruiting policy to attract and retain competent and experienced staff. (b) Hiring Mechanics. CNR badly needs to hire additional qualified mechanics to undertake emergency locomotive repairs. CNR should discuss with the Railway Union the hiring of trained mechanics directly from SENA. Under the existing Union agreement, trained mechanics have the privilege of being promoted to locomotive engineers' positions, which command higher salaries. As a result of this privilege, CNR's workshops are losing trained and valuable personnel, which is a drawback in the workshop rehabilitation program. This practice should be discontinued; CNR should discuss this issue with the Union and reach an agreement to adopt measures which would provide incentives to skilled mechanics to stay on the jobs for which they have been trained. During negotiations, agreement was therefore reached that, by October 1, 1982, CNR would take all necessary steps to enable the railways to employ and retain, as required, experienced mechanics for the rehabilitation of its motive power and rolling stock. (c) Enforcing Disciplinary Action. Careless operations and human errors cause costly accidents and derailments. CNR's Industrial Security Department has done little to enforce disciplinary measures contained in the railway manuals and thereby reduce accidents. Locomotive drivers do not always observe speed limits, particularly at sharp curves and on slopes. Most of the speed recorders in the locomotives are broken and out of service, and no - 11 - disciplinary action is taken against the locomotive engineers who are respon- sible for their good operating condition. CNR needs to discuss and agree with the Railway Union that appropriate disciplinary actions will be exercised strictly. A similar problem was identified by the Bank during the last appraisal in 1972, but the railway did not resolve it. The present General Manager has promised to take rigorous disciplinary measures against careless operations. He also plans to strengthen inspection and supervision for the purpose of detecting faulty and irresponsible performance. During negotiations, agreement was reached that, by October 1, 1982, CNR would design and commence to carry out a program to improve supervision of railway employees and to take and enforce disciplinary actions against employees who have not observed, or acted in accordance with, the regulations applicable to the personnel of the railways. (d) Preparing 1982-1984 Manpower Plan. CNR needs to have a specific man- power plan for three years, 1982-1984, and an indicative one for 1985-1986. The total manpower for the railway is presently adequate, but the distribution between "operation" and "administration" is distorted. Workshops and track maintenance and operational areas are understaffed, and administration (a non-productive area) is overstaffed. CNR, while restricted by Union agreement from disposing of excess employees, will be able to reduce the administrative staff by attrition and by other permitted measures. It also plans to carry out a study for preparing short and long-term manpower plans and to submit it to the Bank for agreement. During negotiations, agreement was reached that, by October 1, 1982, CNR would prepare and commence to carry out a specific manpower plan for 1982-1984, and prepare an indicative plan for 1985-1986, with emphasis on job content and professional fulfillment for qualified career managers, profession- als and technicians of the railways; reduction of administrative staff and increase of technical staff. (e) Introducing a Training Program. CNR's mechanics and technicians need comprehensive vocational training, while the professionals and engineers need technical and administrative training either from foreign consultants or by visiting other railway training centers in Latin America. Such train- ing would help CNR staff to provide reliable, economic and efficient railway service. CNR is currently preparing plans to strengthen the railway training center in Colombia by hiring qualified trainers and required equipment. CNR should also study the possibility of using SENA's training facilities. During negotiations, CNR agreed to prepare and commence to carry out, by October 1, 1982, a program for local and foreign training of its staff. (f) Improving Procurement Procedures. CNR has improved its procurement practices by adopting private sector procedures (para 2.08). However, the procedure within the railway still needs further improvements. It was, there- fore, agreed during negotiations that CNR shall, by October 1, 1982: - take all measures necessary to reduce its procurement processing time; and - appoint a staff member to assume full responsibility for the timely execution of procurement of goods. - 12 - (g) Introducing an Adequate Pension Plan. The Government has accepted the Bank's suggestion to hire an actuarial firm to study and make recommendations on a practical pension plan which would be acceptable to the Government (para 5.13). CNR has been instructed by the Minister of Public Works and Transport to hire such an actuarial firm immediately. During negotiations, agreement was reached that CNR shall: - by December 31, 1983, carry out actuarial studies, with the assistance of actuarial experts, for the establishment of a pension scheme and afford the Bank an opportunity to review and comment on the recommendations resulting from such studies; and - by January 1, 1985, establish an adequate pension scheme taking into account such recommendations and comments. D. Railway Facilities (i) Permanent Way 2.10 CNR's network consists of 3,403 km, of which 2,822 km are in operation. The 491 km not in operation are mostly on the Pacific network (Antioquia and Pacific Divisions), including the Itagui (near Medellin)-La Felisa line which was washed out in 1975 and on which traffic has been suspended ever since. All tracks are single line, narrow gauge of 914 mm. Some sections in mountainous areas have gradients of more than 3%. About 62% of the track is laid with 75 lb rail and the rest 70 lb, 60 lb and 55 lb rail; 35% of the rail is less than 20 years old, 28% is between 20 and 30 years old, and 37% is more than 30 years old. All track renewal is now made with 75 lb rail, which is adequate for the 16-ton maximum axle load presently used. Sleepers are of local soft wood, mostly untreated, with a relatively short life in tropical areas, a factor which has contributed to increased derailments. Only 29% of the total sleepers are in good condition. During the last five years, more than 50% of the planned renewal of 434 km of track was made with soft wooden sleepers of substandard quality, and only part of them were chemically treated. Out of a program of 253,000 prestressed concrete sleepers, only 3,700 were procured between 1973 and 1979. Most of the network has only uncrushed river stone ballast or no ballast at all. 2.11 The general condition of the track, except for a few sections on the Atlantic Line, is poor. Neglected and delayed maintenance, combined with difficult terrain, poor soil conditions, human errors and severe sea- sonal rainfall have caused an unacceptable number of derailments (Table 2.1). Although the total number of derailments was reduced from 7,116 in 1970 to 2,863 in 1980, it is still high and unsatisfactory. Out of 3,117 derail- ments in 1979, 43% were attributable to bad track conditions, 24% to poor rolling stock, 8% to faulty operations and 25% to unidentified causes (presum- ably human error and lack of supervision). Funds for supplying track materials and making payments to contractors became scarce, and the track maintenance works suffered. The proposed project concentrates heavily on the rehabilitation of track on the Atlantic network, with hard wood and concrete sleepers and crushed stone ballast (paras 3.03 and 3.06). (ii) Motive Power and Rolling Stock 2.12 CNR's network is fully dieselized; this dieselization was the main target of the Bank's Fifth Railway Loan (551-CO). The total fleet consists - 13 - of 169 locomotives, out of which 63 are between 16 and 20 years old (Table 2.2). Fifteen locomotives, beyond repair, are being scrapped this year, and eight new locomotives with more powerful diesel engines will be purchased. These purchases are in line with future transportation demands. There is also a need to engage consultants to prepare and implement a locomotive scrapping program from the remaining fleet, specifically the GE U-10Bs (para 3.13). In the meantime, some of the GE U-OB locomotives, which are not working well at high altitude sections of the Atlantic network between Facatativa and Bagazal, will be moved to the low land plain, and the new locomotives will be commis- sioned to this difficult section (para 3.07). 2.13 There are 5,121 freight cars and 273 passenger coaches in stock (Table 2.2). Freight cars and passenger coaches are adequate for the foresee- able traffic up to 1986, with the exception of gondolas which are needed to cope with present and future coal, limestone, iron and steel, timber, asphalt and other mineral traffic. In view of increased demand to haul petroleum products between La Dorada and Neiva, CNR has converted 350 flat cars to tank cars with financing from the user of the line, ECOPETROL. (iii) Workshops 2.14 CNR's major workshops for diesel locomotives are at Facatativa (Bogota), Bello (Medellin) and Chipichape (Cali). Smaller workshops at Barrancabermeja, Puerto Salgar, Bucaramanga, Santa Marta, Grecia and Flandes take care of minor repairs. Although CNR has been providing the workshops with modern equipment partly financed by Bank loans, .there has been a marked deterioration in locomotive availability during the past four years, leading to a progressively declining rate of utilization of locomotives. Severe accidents, overloading of GE U-10B locomotives, and lack of spare parts and well trained operating personnel are claimed to be the main causes of this situation, which is being corrected through: (a) reduction of overloading by using three locomotives of the same type together (e.g., GE U-10Bs) on the steep gradient section between Facatativa and Bagazal in the short run; (b) purchase of locomotive spare parts with funds from a loan from the Banco de Cafeteros; (c) filling of vacancies with qualified personnel; and (d) exercise of stricter supervision. The proposed project includes purchasing of necessary shop machinery and tools to support the future repair and maintenance workload. (iv) Signaling and Telecommunications 2.15 CNR's signaling system is rudimentary and mainly concentrated in sidings and marshaling yards. It consists of signal indicators on the crossing points and warning boards on some sections of the main line. The telecommunications in CNR are carried out through selective aerial lines and telegraph, vulnerable to climatic conditions and subject to frequent - 14 - interruptions, especially on the Facatativa-Bagazal section. Traffic is dependent upon train orders, and all trains have to stop at each station for confirmation or new orders. The existing facilities need improvement, especially in equipment and spare parts. The proposed project includes the purchase of signals and necessary equipment. E. Traffic 2.16 Past freight and passenger traffic development is shown below (see also Table 2.3). Year 1971 1974 1975 1976 1977 1978 1979 1980 Freight Traffic Tons (thousand) 2,653 2,899 2,439 2,411 2,519 2,682 2,394 1,935 Ton-km (million 1,150 1,329 1,139 1,159 1,215 1,232 1,105 862 Average haul (km) 433 458 467 480 482 459 462 445 Passenger Traffic Pass (thousand) 3,161 4,552 5,099 4,081 2,967 2,569 2,456 2,215 Pass-km (million) 281 482 523 511 392 342 322 315 Average journey (km) 89 106 102 125 132 133 131 142 2.17 During the period 1971-1974, railway traffic measured in ton-km increased by 5% annually; thereafter, because of several factors mentioned in paragraphs 2.02 to 2.04, it suffered a setback. Although traffic started to increase again in 1977 and 1978, the substantial deterioration in locomotive availability (para 2.02 and Table 2.1) has not allowed CNR to handle the traffic on offer and regain the traffic it requires to be financially viable, as evidenced by the steep decline in traffic since 1978. The analysis carried 'out by MOPT (para 4.04) in connection with the National Transport Plan also demonstrates a large unsatisfied demand for railway services, in particular for low value bulk commodities over long distances. 2.18 The most important commodities during 1980, in terms of ton-km, were coffee 15%, fertilizer 13%, coal 6%, crude oil 9% and wheat 8%. Coffee and fertilizer have increased their shares over the past ten years while wheat has dropped from a previous 12% share. Coal and crude oil, however, have increased from shares of less than 1% each ten years ago. 2.19 Traffic is concentrated in the Atlantic corridor between Santa Marta and Bogota/Medellin. This corridor constitutes 1,287 km, or 48%, of CNR's network and carries over 70% of the total railway traffic. The rest of the network, particularly the Pacific Division, has a doubtful future unless significant new traffic develops. This possibility will be examined in the context of the proposed Bogota-Buenaventura Connection Study (paras 3.13(a) and 5.10). 2.20 Passenger traffic increased steadily from 1971 to 1975 by an average 12% per year, even after the freight traffic had started to decline. Since 1975, however, passenger traffic has been cut in half, partly as a result of improved bus services and partly because CNR was forced to divert its scarce - 15 - motive power to the more profitable freight traffic. Several passenger services primarily over short distances have been canceled, raising the length of the average journey by some 40% since 1975 to about 140 km in 1980. F. Operations 2.21 Table 2.1 gives a summary of CNR's operating statistics for the years 1970-1980. An evaluation of CNR's operational performance during the previous project is discussed in Annex 1. During 1973-1974, CNR improved car turnaround time from 16.7 days in 1972 to 13.1 days in 1974; the diesel locomotive-km/day from 156 to 206 (32% increase); freight car availability from 77.9% to 81.7%; locomotive availability from 86.1% to 86.9%; and traffic units per employee from 137,000 to 158,000 (15% increase). After 1974, railway operational performance deteriorated (paras 2.02 and 2.03). Currently, the locomotive availability is extremely low at 30% (latest available information showed that locomotive availability had declined even further to a low 27% in late November 1981), and derailments are rising because of a lack of sufficient maintenance of track, caused by scarcity of funds. The 65-km section between Facatativa and Bagazal, which is at an elevation of 2,700 m above sea level, has a 3.8% gradient and many sharp curves and is the bottleneck of the Atlantic Line. In the past, CNR allowed mismatching of locomotives in multiple units, resulting in overheating of diesel engines. As a temporary solution, today's practice is the utilization of three locomotives of the same power in multiple units (trios) for-about three hours per run with a total carrying capacity limited to 375 tons. Furthermore, CNR has also reduced the locomotive engi- neers' idle time pay resulting from derailments. This action should reduce derailments in the future. G. Tariffs and Costs 2.22 Unlike other Latin American railways, CNR does not depend upon the Government for approving tariff increases. The Railway Board makes the final decision after a request has been forwarded to it by CNR's management. CNR ,has been increasing tariffs practically every year, but not quite enough to absorb inflationary cost increases. The following table demonstrates cumula- tive increases in the consumer prices and in freight and passenger tariffs for an eleven-year period, 1969-1980. Average Increase Consumer Price Levels Tariff Levels Year (1969 base= 100) Freight Passenger (1969 base=100) 1969 100 100 100 1970 107 104 105 1971 119 111 107 1972 135 113 115 1973 168 130 127 1974 203 173 148 1975 252 193 181 1976 303 233 238 1977 383 320 341 1978 475 418 393 1979 587 519 448 1980 737 696 546 - 16 - Additional tariff increases of 23% for freight and 36% for passenger would have been required in 1979 to bridge the gap between costs and revenues. During 1980, freight tariffs were raised by about 34% against an inflation of about 26%. 2.23 CNR's financial viability is influenced by the adequacy of its tariff structure and level. CNR's existing tariff structure is based upon studies carried out by foreign consultants in 1965. The basic formula recom- mended in those studies was composed of the fixed cost and the variable cost in relation to the length of haul, load of the wagon and gradients. The formula does not, however, differentiate between the costs and the tariffs by type of commodity. Tariffs for each freight commodity and for each type of passenger service should be restructured to ensure that the revenues, at the minimum, reflect variable costs. Further, the ultimate aim of the tariff policy should be: (a) to enable CNR to earn sufficient revenues to absorb all costs on each service and make a fair return on net revalued fixed assets; (b) to encourage efficient and productive railway operations which reduce costs; and (c) to represent the true cost of railway services in order to give balanced consideration to the rapidly growing energy deficit in Colombia with an objective of encouraging shippers to use the,most economic mode of transport. The preceding points are in line with the Government's policy on transporta- tion. During negotiations, agreement was reached that CNR, with the help of consultants, would, by June 30, 1983: (a) strengthen its Costing Section by appointing a capable team under a qualified manager; (b) prepare terms of reference for consultants who would carry out a study for improving the tariff structure and levels, taking into consideration, among other things, the variable costs of carrying individual commodities based on revalued fixed assets and inter- modal competition with the trucking industry; (c) introduce changes after the tariff study is completed and as recommended by the consultants; (d) review and maintain, each year thereafter, the adequacy of the tariff structure and level; and (e) give the Bank an opportunity to review and comment on the terms of reference for the said tariff study prior to its initiation and, thereafter, on the recommendations resulting from such study. - 17 - 2.24 CNR carried out a study of revenues and costs for 1979 freight and passenger operations. The results were as follows: Total operating costs Revenues ------(1979 Million Pesos)------- Freight Service 2,343.0 1,906.6 Passenger Service 288.4 190.0 Total 2,631.4 2,096.6 Freight revenues of Col$ 1.73/net ton-km covered 82% of the total freight service cost of Col$ 2.12/net ton-km, and passenger revenues of Col$ 0.59/ pass-km covered only 66% of the total passenger service costs of Col$ 0.89/ pass-km. Staff costs, which constitute about 70% of CNR's total operating costs, have increased rapidly as a result of substantial increases in social benefits as well as salary increases. The cost of fuel has been increasing much faster than the general price index. 1/ H. Budget, Accounting and Audit (i) Budget 2.25 CNR prepares annual operating and investment budgets and submits them to DNP and MOPT by September of each year. These budgets indicate the cash contribution needed from the Government for investments and to cover cash deficits comprising debt service charges, pensions and social benefits. After the budget is analyzed and approved by the Government, with or without modifi- cations, it becomes part of the National Budget. Government funds are then programed to be released to CNR at regular intervals. During the year, CNR may also submit an additional request for specific funding, which is examined by the Government, and approved figures are then included in the supplementary budget for that year. CNR's budgetary system and its presentation, however, need some improvements. Such improvements would be achieved through the consulting services included in the proposed project (para 3.13). (ii) Accounting 2.26 CNR's accounting system follows basically the same structure as that of commercial railway networks in the US and Canada. It is not quite suitable for cost accounting purposes, however, and there is some need to implement a fully integrated cost and financial accounting system. The account- ing information that would result from integration would provide reliable, detailed and cost-oriented data for railway traffic costing. CNR also needs to strengthen the internal control system. Another accounting function which needs updating and improving is the mechanical processing of financial and statistical records. CNR does have computer facilities available, but the reporting system is not functioning efficiently and needs guidance from experts in this field. These requirements would be accomplished through the technical assistance program included in the proposed loan (para 3.13). 1/ The fuel cost has gone up by 750% as compared with 233% general price index during 1975 to 1979. - 18 - CNR's inventory control system is inefficient; obsolete and excessive quanti- ties of slow-moving items remain in the stock. The railway management is presently engaged in disposing of the obsolete stock and scrap material as soon as possible and plans to improve the inventory control system. (iii) Audit 2.27 CNR's accounts are audited by Government auditors (Contraloria General de la Republica) and are published each month. However, the Government auditors do not issue their independent comments on the state of affairs of the railway's accounts and finances. At the Bank's suggestion, the Railway Board approved, in 1978, the hiring of private independent auditors who would carry out a proper performance audit, prepare annual audited financial statements, present their opinion and comments, and help the railway improve its financial operations. CNR then hired a Colombian auditing firm which audited the 1976 and 1977 accounts; however, since its services were found unsatisfactory, CNR canceled its contract. CNR has now selected another qualified audit firm. These auditors, apart from regular auditing work, would also help CNR to strengthen its internal audit and control and to carry out a revaluation of fixed assets (para 5.05). -III. THE INVESTMENT PLAN AND THE PROJECT A. CNR's Investment Plan (1982-1986) 3.01 CNR and its consultants have prepared a Five-Year Investment Plan (1982-1986). Since this Plan was rather ambitious, it was reduced consider- ably, after discussion with the Bank, to a size compatible with expected improvements in CNR's operations (Table 3.1). Because of complexities, the Plan has been divided into Group I, to be implemented forthwith, and Group II, ,to be implemented only if a 1983 mid-term review indicates that the project targets have been achieved (para 5.17(c)). The total cost of the Plan is about Col$ 15.9 billion, or US$249.78 million equivalent (Group I, US$219.96 million, and Group II, US$29.82 million) with a foreign exchange component of Col$ 7.6 billion (US$127.62 million). 3.02 The Investment Plan concentrates on the rehabilitation of the Atlantic Network between Bogota and Santa Marta, Grecia and Medellin and of a few specific lines where transport demand has increased substantially (para 4.06) and where derailments are frequent. The total track rehabilitation would be for 927 km in five years. Total investment related to permanent way, including infrastructure works, track rehabilitation, switches, track mainte- nance equipment and bridges, accounts for 59% of the Plan. Other important items are: (a) purchase of eight diesel locomotives and related spare parts (7%); (b) rehabilitation of 139 locomotives and improvement in the level of spare part inventories (14%); (c) purchase of 200 gondolas (6%); (d) rehab- ilitation of rolling stock (5%); (e) workshop equipment (1%); (f) freight handling equipment (2%); (g) signaling and telecommunications (4%); and (h) training and consulting services (2%). - 19 - B. The Project and the Proposed Loan 3.03 The proposed project is an integrated program of technical, economic and financial improvements. Any changes in one area would have an adverse effect on other areas of the program. The proposed project consists of the first four years (1982-1985) of the Investment Plan as well as a Program of Action (para 3.18). Table 3.2 shows how the project has been divided into Groups I and II. Track rehabilitation items in Group II would be carried out: (a) for Mexico--Buenos Aires (55 km), only if long term contractual agreements have been reached with ECOPETROL for the use of the line; and (b) for La Caro- Chiquinquira (28 km), only if the study, being prepared by CNR, proves that it is more feasible to load the railway cars with coal in Chiquinquira than to haul it by truck to the railway point (La Caro), and that long term contractual arrangements with Prodeco, satisfactory to the Bank, have been entered into. Procurement of four locomotives, one hundred gondolas and components of signaling and telecommunications, indicated in Group II, would be contingent upon: (a) the results of the project performance in the mid-term review in 1983 (para 5.17); and (b) the results of tests on the first batch of four locomotives included in Group I, which are to be purchased immediately and are to be delivered in Colombia by late 1983. At least a year would be allowed to carry out tests on the difficult section of Facatativa-Bagazal to obtain operating experience on these four locomotives before the next four are ordered. In accordance with present expectations, it is reasonably certain that the delivery of the second batch of locomotives would take place in late 1985. Similarly, the 100 cars in Group II would be procured only after the mid-term review shows satisfactory behavior of coal traffic in the Lenguazaque area. During negotiations, agreement was reached that no commitments shall be made for Group II investments unless the mid-term review (para 5.17(c)) shows, to the satisfaction of the Government, CNR and the Bank, that such commitments are economically and technically justified. 3.04 The project is focused upon the investments and actions most urgently needed to produce safer, more reliable and faster service for carrying existing and potential traffic. These actions include institutional reforms; training programs for skilled workers, mechanics and professionals; improvements in workshop performance to increase much needed locomotive availability; implemen- tation of strict disciplinary measures; elimination of weaknesses in existing procurement procedures and the achievement of financial viability. The invest- ments would be made on: (a) the most important sections of the railway track (improvements would include technological changes, in particular prestressed concrete and treated hardwood sleepers, welded rails, screw spikes, base plates, crushed stone ballast, signal and telecommunications, intended to reduce derailments and track maintenance costs and increase the average train speed); (b) purchase of eight new locomotives and 200 gondolas and better maintenance of motive power and rolling stock by providing adequate spare parts and rationalization of workshops; and (c) technical training for the operational staff and more discipline in train operations. Future capital expenditure related to the construction of the Saboya-Carare bypass is, however, not included in CNR's proposed project; unless the results of technical and economic feasibility studies of the bypass are satisfactory, no investment should be made on the construction of the bypass. Therefore, in order to ensure that such future investments are economically and technically justified, - 20 - agreement was reached during negotiations that, unless the Bank agrees otherwise, no investments would be made by CNR before December 31, 1985 which are not included in the Investment Plan for the years 1982-1985. The total project cost (both Groups I and II), including physical and price contingencies, is estimated at US$176.76 million equivalent, with a foreign exchange component of US$110.28 million. The cost estimates of Groups I and II are shown in detail in Table 3.2 and are summarized-in total in the following. Project Proposed Loan Local Foreign Total Amount % of Loan ---------------------(In US$ million)---------------- Permanent Way 35.82 30.28 66.10 18.85 24.5 Motive Power 2.43 34.15 36.58 21.40 27.8 Rolling Stock 5.58 14.97 20.55 13.90 18.0 Workshops 0.89 1.63 2.52 1.63 2.1 Freight Handling Equipment 0.18 2.94 3.12 1.85 2.4 Signaling and Telecommunications 0.12 7.13 7.25 5.05 6.5 Training and Consulting Services 1.53 2.22 3.75 1.22 1.6 Total 46.55 93.32 139.87 63.90 82.9 Contingencies - Physical 2.25 2.42 4.67 1.97 2.6 Price 17.68 14.54 32.22 11.13 14.5 Total 66.48 110.28 176.76 77.00 100.0 The above table also gives a summary of the proposed Bank loan of US$77.0 mil- lion, which is 70% of the foreign exchange cost of the project. The equipment and services which would be financed by the loan are shown in Table 3.3 and include rails, rail fittings, switches, track maintenance equipment, eight diesel locomotives, locomotive and wagon spare parts, 200 gondolas, workshop and freight handling equipment, signaling and telecommunications parts and equipment, and training and consulting services. The cost estimates have been based on October 1981 prices. The physical and price contingencies taken together represent about 26% of the base cost estimates. C. Main Project Items 3.05 The main items to be procured through the proposed project are: (i) Permanent Way 3.06 The track rehabilitation program in the project covers a total of 511 km, of which 363 km or 71% would be on the main lines in the Atlantic - 21 - Corridor (Table 3.4). The remaining 148 km would be on specific branch lines with identified new traffic (para 4.06). The program would comprise concrete and pretreated wooden sleepers, crushed ballast, materials for drainage struc- tures and new 75-lb rails and fittings (Table 3.5). A total of 200 switches, two ballast crushers, material and parts for the reinforcement of the existing bridges, track maintenance and equipment would also be covered under this item. (ii) Motive Power 3.07 Lack of tractive power is one of the major constraints preventing CNR from servicing traffic demand. The locomotive availability through 1980 was extremely low at 30%; at the end of 1981, it had declined further to 27%. If improvements are not made in the motive power availability, it will not be possible to increase the traffic, which is crucial to the success of the railway. From the existing fleet of 169 locomotives, there are 88 GE U-1OB type locomotives which are experiencing serious mechanical problems and, therefore, lack of power, particularly at the difficult and high gradient section of the Atlantic Region's main line between Bogota and Puerto Salgar. The main problem lies in the Caterpillar D 398 diesel engines, which overheat when exposed to sustained heavy loading at high altitudes. At this steep . gradient and difficult terrain, specifically between Facatativa and Bagazal (65 km), the diesel engine fails to give a sufficient margin of power for acceptable and reliable service. Further aggravating this problem was CNR's mismatching of locomotives in multiple units at the high gradient sections. As a consequence of this mismatching, the more powerful locomotive of the trio was overloaded and gradually failed to perform. 3.08 While the temporary solution to the GE U-LOB locomotives is to derate (reduce the horsepower) the D 398 diesel engine and use a group of three matched units (trio), which CNR is presently doing, the long-range solution would be to buy higher horsepower locomotives to meet the local conditions. The new locomotives would release some of the existing GE U-1OBs to be used in the low gradient sections where derating of diesel engines is not required. The proposed project includes the purchase of eight new, more powerful diesel locomotives to operate efficiently on the Facatativa and Bagazal section (Table 3.6). The careful selection of the right type of locomotive is important for the success of the rehabilitation program, and the past mistakes of selecting unsuitable motive power must be avoided. The Bank would therefore hire an expert to review the technical specifications. During negotiations, it was agreed that CNR would employ mechanical engineering experts, whose qualifications, experience and terms and conditions of employment are satisfactory to the Bank, to evaluate the tenders. The standard procedures of ICB would be applied in procurement of locomotives. The total cost of these eight new locomotives and the related spare parts (20% of the base cost) is estimated to be about US$14.0 million, including price contingencies. 3.09 In addition to the purchase of eight new locomotives, the existing locomotive fleet needs a program of rehabilitation. CNR, with the assistance of consultants, has prepared a program for rationalizing the locomotive repair works in the workshops. Each workshop was inspected and assessed for adequacy of facilities, equipment and tooling, based on the future workload. The main workshops would be Facatativa, Bello, Santa Marta and Chipichape, and would concentrate on major locomotive overhauls with specialized working teams; light repairs would be carried out at the running sheds. During 1982-1986, 139 locomotives would be rehabilitated. Of these, 49 would be rehabilitated using funds from a loan from the Federacion de Cafeteros, and the remaining 90 - 22 - would be rehabilitated with funds from the proposed loan from the Bank and contributions from the Government (Annex 2). The spares needed for repairing the 90 locomotives are estimated to cost about US$11.0 million, of which about US$5.1 million (in constant prices) are for spares from the original supplier of locomotives and would not be financed by the proposed loan. Since the timely procurement of locomotive spare parts is crucial to the improvement of locomotive availability, it was agreed during negotiations that the placing of orders for locomotive spare parts to be procured with funds from the Government and from the Federacion de Cafeteros would be a condition for loan effectiveness. In addition, there is a need to reconstitute the stock for spares, which is totally depleted; the cost would be about US$6.5 million, of which about one-half would be reserved procurement. It is contemplated that the spare parts financed by the Federacion de Cafeteros would be available in Colombia by the end of 1982 and the spare parts financed by the Bank and the Government would be available starting early-1983. The project, therefore, includes a program to improve the locomotive availability systematically. This program is based on the purchase of much needed locomotive spare parts, hiring of experienced railway retired mechanics to help CNR catch up with the backlog of locomotive rehabilitation, taking strict disciplinary measures against careless and irresponsible operators, introducing a comprehensive training program, strengthening workshop facilities and their operations and preparing and implementing a suitable manpower plan. With the described actions, the locomotive availability should increase from a low of 27% in November 1981 to 80% in 1986 (Table 3.6). However, in order to release locomotives to haul freight, it would be necessary to limit passenger trains, particularly in 1982. During negotiations, therefore, CNR, agreed to give priority, during 1982-1986, to the utilization of locomotives for moving freight traffic. Any remaining capacity of locomotives would be used for passenger services. In addition, the locomotive rehabilitation program includes the services of two mechanical experts to start carrying it out. By the time of the mid-term review, the experts would have completed a review of the adequacy of the locomotive fleet, which would include a decision on whether various locomotives could be rebuilt economically and which would have to be scrapped based on their overall condition (14 of the GEU-10B and one of the GEU-8B type are beyond repair and are in the process of being scrapped). On the basis of the experts' findings with respect to the condition of the fleet, it is possible that the project scope may be modified to include additional locomotives. (iii) Rolling Stock 3.10 The project includes the purchase of 100 new gondolas in Group I and another 100 in Group II to help meet the traffic demands for coal and general freight. The present system of using box cars, because of the shortage of gondolas for hauling coal, is time-consuming, expensive, and destructive. The roof of the metal box car is removed, and the coal is loaded from the top. This practice should be discontinued, and the right type of wagons (gondolas) should be used (Annex 6, para 9). The project also includes the purchase of spares for the rehabilitation of 1,410 wagons; 1,030 wagons will be rehabili- tated with funds from Fondo Cafeteros (Colombia) and 380 wagons with funds from the Government and the Bank. As agreed during negotiations, the 100 gondolas in Group I (Table 3.7) would be acquired after CNR signs a contract with Prodeco for carrying coal from Lenguazaque to Santa Marta Port. Depending on the development of this traffic, a decision regarding the acquisition of the additional 100 gondolas in Group II would be taken at - 23 - the mid-term review in September 1983. The improvement in wagon turnaround time is crucial to the carrying capacity of the railway. CNR must take all necessary actions to reduce this time. The project anticipates that the turnaround time would improve from an average of 18.9 days in 1981 to 11 days in 1985. The measures that would be taken to effect this improvement are as follows: (a) to promote proper coordination with the Port Authority (COLPUERTOS) and agree that no more than 48 hours would be allowed in unloading operations of the wagon in ports; (b) to enforce strict demurrage charges on a graduated scale basis by penalizing the users with higher charges as the delay increases; (c) to reject the traffic at the point of origin if the user has not released the wagons in time at destination points; (d) to prepare and adhere to a suitable transport plan and an aggressive commercial plan; (e) to improve yard operations; (f) to carry out tight supervision; and (g) to introduce through train operations. (iv) Workshop Machinery 3.11 The shop machinery and tools would be purchased to cope with the repairs and maintenance of the increasing number of wagons and locomotives and to replace outdated and uneconomic equipment (Table 3.8). The workshops would be completely reorganized to improve their performance (Annex 2). (v) Freight Handling Equipment 3.12 Under the proposed project, part of the existing freight handling equipment would be rehabilitated, and 16 new forklift trucks and six cranes would be purchased to alleviate inefficiencies in loading and unloading operations in main stations and yards. (vi) Signaling and Telecommunications 3.13 The project includes the installation of 136 speed panels, 244 speed restriction warning panels, 384 point hand locks on rail switches, 408 light signals, 68 signal boxes, 14 level crossing barriers and 500 level crossing warning panels distributed in the following sections of the track: Bogota- Bagazal, Bagazal-Mexico, Mexico-Grecia and Bogota-La Caro. It would also include the rehabilitation of the existing telecommunication system and equip- ment on the Atlantic line. (vii) Consulting Services and Training 3.14 This item is subdivided into two parts (Table 3.9). The first part, consulting services, includes studies to be carried out as follows: - 24 - (a) Bogota-Buenaventura connection. This study would include, as a first phase, traffic forecast and its modal distribution, preliminary cost estimates and economic feasibility study. If the results are encouraging, a detailed cost study would be carried out as a second phase (para 5.10); (b) signaling and telecommunications. This study would assess CNR's requirements for improving the existing rudimentary system of signals and telecommunications, particularly on main lines (Annex 3); (c) line capacity analysis. This study would analyze future traffic through the Saboya-Carare bypass and complete the basic review of railway modernization; it might provide the basis for a possible Eighth Railway Project, comprising the construction of the bypass and the modernization of the railway network (Annex 3); (d) tariff structure, cost accounting, financial planning, accounting and internal control, inventory control and statistical reporting. This study would concentrate on restructuring of cost-oriented tariffs, strengthening the Costing Section so that it becomes an important tool for management decisions. The study would also include improvements in accounting, financial planning, budgeting, internal auditing and statistical reporting by updating the mechanical processing through computer facilities (paras 2.25 and 2.26); (e) traffic demand model. This study would establish rail traffic demand.and result in long-term transport forecasts for passengers and cargo broken down by commodity and by line; and (f) reduction of operating costs. This study would assist CNR to introduce a new transport plan for an efficient utilization of locomotives and wagons, to revise demurrage charges, to improve wagon turnaround time and yard operations, and to introduce through train services. The second part relates to training of the railway's professional and technical staff (para 2.08). The purpose of the training would be to enhance the tech- nical skills and operating capabilities of CNR staff, to handle increasing traffic efficiently, to provide reliable and satisfactory service to the users and to optimize the use of improved railway facilities. Expatriate locomotive experts in diesel and electrical motors would be engaged to ensure that the rehabilitation program for 139 locomotives is carried out properly as well as to study and develop a scrapping program for those locomotives, specifically the GE U-1OBs, which would be uneconomical to rehabilitate. The training would prepare the railway staff to understand the basic need for, and to implement, institutional and administrative reforms. Draft terms of reference are being prepared in the Bank, based on discussions held with CNR during appraisal and on the guidelines shown in Annex 3. During negotiations, agreement was reached that CNR would employ consultants for the above-mentioned studies and training program in accordance with terms and conditions acceptable to the Bank. - 25 - D. Cost Estimates 3.15 Project costs for CNR are based on October 1981 price levels. Physical contingencies have been applied at 5% on total excluding rails, switches, locomo- tives and wagons. Price contingencies have been applied on foreign costs at 8% for 1982 and 7% annually thereafter; on local costs at 25% for 1982, 23% for 1983, 22% for 1984, 20% for 1985, and 18% for 1986. The cost of consulting services is estimated to be US$11,000 per man-month for expatriate staff and an average of US$2,600 per man-month for local staff including foreign and local travel and local subsistence. A total of 148 man-months are required for foreign consultants and 368 man-months for local consultants. The total cost of consulting services is about US$3.8 million excluding contingencies (US$1.1 million for training and US$2.7 million for technical assistance). E. Financing Plan 3.16 The details of the proposed financing plan for the project are given in the cash flow statement in Chapter V. A summary in current values is given in the following: 1982 1983 1984 1985 Total % -------------------(US$ Million)-------------- Application of Funds Proposed Investments: Local 16.6 23.1 26..8 - 66.5 Foreign 21.6 53.8 27.0 7.8 110.2 Total 38.2 76.9 53.8 7.8 176.7 Sources of Funds IBRD Loan 6.5 40.9 21.8 7.8 77.0 43 Federacion Cafeteros 7.6 1.2 - - 8.8 5 UNDP Technical Assistance - 0.5 0.5 - 1.0 1 Government Contribution 20.0 31.1 28.4 - 79.5 45 CNR's Contribution 4.1 3.2 3.1 - 10.4 6 Total 38.2 76.9 53.8 7.8 176.7 100 These amounts include physical and price contingencies. The terms and conditions regarding interest rate, amortization period, grace period and service charges are presented in Annex 4. The Bank would finance 43% of the project cost, and the Government would contribute 45% of the cost. UNDP would provide US$1.0 mil- lion representing part of the technical assistance in 1983 and 1984. CNR would provide materials in stock and hand labor throughout the implementation of the project. The financing plan was finalized with the Government when the Loan Documents were amended in December 1981. - 26 - F. Project Implementation 3.17 CNR would be responsible for the implementation of the project. The project execution and procurement would be in accordance with the Project Implementation Schedule (Table 3.10). The success of the execution of the project and the achievement of the Action Program targets would be specially examined by the Bank, CNR and the Government in late 1983 (para 5.17). The continuation of the disbursement of the Bank loan beyond this date would depend upon the progress achieved by then. Considering the relative complexity of the proposed Seventh Railway Project, given the proposed institutional, financial and technical aspects, and in order to minimize the risk, frequent and intensive monitoring of the implementation of the project through Bank supervision is crucial. At least four supervision missions per year are considered necessary. Because of the Bank's frequent missions in the last five years, the railway performance has not been as bad as it could have been. The targets in the proposed Program of Action are prepared and would be reviewed every six months so that a rigid control is exercised over the performance of CNR. It is proposed that the release of loan funds be related to the achievement of targets. CNR would also prepare quarterly reports on the progress of the project and forward them in order to reach the Bank during the month following the end of the quarter. These reports would describe the performance of the railway on various aspects of the Program of Action, providing a full explanation for any deviation from the targets. The reports would include information on matters related to procurements, disbursements, tariff increases, locomotive and wagon availability improvements, workshop performance, traffic trends, reduction of non-remunerative services and institutional improvements including establishment of a pension plan, a manpower plan and training. 3.18 Another important aspect of the assessment of the success in the implementation of the project is its general evaluation at the conclusion of the project. This evaluation should be reflected in the Project Completion Report. During negotiations, therefore, assurances were obtained that, not later than six months after project completion, CNR would prepare a Completion Report, satisfac- tory to the Bank, describing the implementation of the project, the achievement of financial and physical goals and the lessons learned from past experience. G. Program of Action 3.19 During negotiations, CNR agreed to carry out the necessary measures to reach or exceed the goals listed on the following page. The goals are considered realistic and within the capacity of the railway; CNR has attained most of them previously. H. Procurement 3.20 All items to be acquired with the proceeds of the proposed Bank loan would be subject to international competitive bidding (ICB), in accordance with Bank guidelines. Local bidders would be granted a margin of preference by adding 15%, or the relevant prevailing level of custom duties, whichever is lower, to the c.i.f. value of the foreign bid. The principal items to be purchased under ICB would be locomotives, freight cars, rails, switches, workshop machinery, forklift trucks, signal and telecommunication equipment and some of the spare parts for locomotives and wagons. Civil works contracts would be awarded by CNR in accordance with the country's procurement procedures and would not be eligible for Bank financing. Summary Description of the Program of Action 1982-1986 The main features of the Program of Action are the: Achievement of quantitative targets in accordance with the table given below 1979 1980 1981 19A2 1983 1984 1985 1986 JUNE DECEMBER JUNE DECEMBER JUNE DECEMBER JUNE DECEMBER JUNE DECEMBER 1i Availability of diesel locomotives as a 58 32 30 36 39 48 53 58 64 67 73 76 80 % of total fleet 1,2 Availability of freight cars as a % of 75 75 77 78 79 80 81 82 84 85 86 87 total fleet 301 322 N/A 305 305 307 307 308 308 309 309 309 309 1.3 Average net load per train (tons) 29.5 30.3 30.5 32.8 32.8 32.8 32.8 32.9 32.9 33.0 33.0 33.0 33.0 Average net lead per car (tons) 15.6 18.2 N/A 16.5 16.0 15.5 15.0 14.5 13.5 13.0 12.0 11.5 11.0 1.4 Wagons turnaround time (days) 1.5 Procurement of Ties N/A N/A N/A 100,000 101,700 120,000 134,700 130,000 124,900 160,000 162,257 160,000 162,480 1.5.1 Wooden treated ties N/A N/A N/A 15,000 18,400 24,000 26,000 26,000 32,500 12,000 13,000 12,000 13,000 1.5.2 Concrete ties N/A N/A - 70 71 90 92 90 98 100 108 100 108 1.6 Track Rehabilitation (kin) 1.7 Average Staff 1.71 Administration N/A N/A N/A 2,027 1,987 1,952 1,922 1,887 1,857 1,822 1,792 1,757 1,727 - Administration N/A N/A N/A 123 123 123 123 123 123 123 123 123 123 - Engineers Operations N/A N/A N/A 2,150 2,110 2,075 2,045 2,010 1,980 1,945 1,915 1,880 1,850 1.7.2 Operations: N/A N/A N/A 1,813 1,813 1,968 1,968 2,011 2,011 2,011 2,011 2,011 2,011 - Workshops N/A N/A N/A 2,938 2,938 3,088 3,088 3,238 3,238 3,288 3,288 3,338 3,338 - Way and works N/A N/A N/A 3,285 3,285 3,285 3,285 3,305 3,305 3,355 3,355 3,370 3,370 - Transportation N/A N/A N/A 422 422 444 444 466 466 466 466 466 466 - Telecommunicatione N/A N/A N/A 8,458 8,458 8,785 8,785 9,020 9,020 9,120 9,120 9,185 9,185 Subtotal Operations 10.345 10.392 10,320 10,608 10,568 10.86 10,830 11,030 11,000 11,065 11,03& 11,065 11,033 Total Average Staff 1038 1 1.8 Before Normalization 1.8,1 Working Ratio (%) 175 170 143 112 96 86 1.8.2 Operating Ratio (%) 181 175 159 124 107 94 1 1.9 After Normalization 1.9.1 Working Ratio (%) - 148 127 104 91 82 1.9.2 Operating Ratio (%) 153 142 115 101 90 1.10 Freight tariff increase (in real terms) % 10(Jan.) 10(Jan.) 10(Jan.) 1.11 Implementation of Staff Improvement Plan January 1, 1983 1.12 Commencement of Training Program October 1, 1982 1.13 Completion of Acturial Studies December 31, 1983 1.14 Implementation of Pension Plan January 1,1985 1.15 Implementation of Improved Procurement Procedures October 1, 1982 1.16 Implementation of Disciplinary Actions October 1, 1982 1.17 Revaluation and Updated Depreciation of Fixed Assets December 31, 1983 Actual: 1979.1981 Forecast: 1982-1986 Source: ITALCONSULT, CNR and Mission January 1982 - 28 - I. Disbursements 3.21 Disbursements would be made on the basis of CIF costs, (a) 100% of the foreign expenditures for imported equipment and materials or (b) 100% of the ex-factory cost of locally manufactured equipment and mate- rials if local bidders are successful; and (c) 100% of foreign expenditures for technical assistance and training. Disbursements would be fully docu- mented. An estimated schedule of disbursements is given in Table 3.11. J. Environment 3.22 No negative impact on the environment is anticipated from this project. IV. ECONOMIC EVALUATION A. General 4.01 Colombia today has a basic railway network that should be capable of handling the type of traffic for which railway transport is clearly more cost effective than competing modes, i.e., low value bulk commodities over long distances. Over the last five years, however, CNR's performance has been weak, and the system has been allowed to run down to such an extent that the vital role it could and should play in the economy of Colombia is questioned. Nevertheless, in the long term, this role is likely to be strengthened with future increases in coal traffic and possible increases in other traffic as a result of the development of container transport by rail. The soaring energy costs also indicate an increased role for the railway, which is generally more energy-efficient than highway transport. The task now is to reverse the deterioration of the railway and to set proper objectives. 4.02 Already the demand for railway transport, as documented by the National Transport Plan and through customer surveys, far exceeds the amount that CNR can handle, and the project would address this problem. Through its emphasis on rehabilitation of track, motive power and rolling stock as well as on the limited new procurement of locomotives and wagons, the project not only would reduce the cost of transporting existing traffic but also would enable the railway to carry traffic presently transported by more costly modes, or not transported at all. Details of the commodity demand forecasts are given in Annex 5. 4.03 An economic evaluation has been carried out for each of the track sections to be rehabilitated, as well as for the rehabilitation of motive power and rolling stock and the acquisition of new locomotives and wagons. Details of the economic evaluation are given in Annex 6. B. Traffic Forecast 4.04 The traffic forecasts are based on a countrywide study of some 40 major commodities by origin and destination and modal distribution carried out by MOPT. Railway demand has been assessed commodity by commodity, with the estimation of relevant factors influencing modal choices. These data have been complemented by a survey among CNR customers concerning their production - 29 - plans and transport needs. Annex 5 gives the resulting potential demand forecast for railway transport for 1981-1985. The average growth rate is about 10% per year during the period, due to substantial traffic increases in cement, coal, iron and steel, petroleum, fertilizer, rice and coffee. The long term average annual growth rate in potential rail traffic demand beyond 1985 is estimated at 4%. 4.05 Since the project would not enable CNR to handle the potential traffic demand for railway services, the economic evaluation has been based on CNR's expected carrying capacity as a result of the proposed project (Table 4.1). Passenger traffic, although benefiting incidentally from the rehabilitation under the project, is comparatively insignificant and declining (Table 4.2) and has therefore not been included in the evaluation. The project would enable CNR to increase its carrying capacity substantially. It has not been considered prudent, for institutional reasons, to increase the project further to satisfy the potential demand for railway services. To reach even the reduced level would be a considerable achievement for CNR and would require strong institutional measures (para 2.09). This would have to be accompanied by aggressive marketing efforts to assure customers of the dependability of CNR's services and to regain lost traffic. 4.06 Most of the commodity forecasts are detailed in Annex 5. There are, however, three major new traffic developments that have been considered separately and that primarily affect three lines of the network. First, the Bogota-La Caro-Belencito line has a potential for carrying new traffic, mostly cement, amounting to almost one million tons a year by the mid-1980s. Second, the Bogota-La Caro-Chiquinquira line either may handle over 600,000 tons of coal per year by the mid-1980s, from the Lenguazaque area via Bogota to Santa Marta, or may transport the entire traffic between Bogota and Santa Marta if the Saboya-Carare bypass is constructed. The evaluation has been based on the lower traffic alternative, i.e., the coal traffic. Finally, the La Dorada- Neiva line may receive about 250,000 tons per year of new petroleum traffic presently moving by road. CNR and its potential customers are negotiating formal agreements on minimum long-term annual tonnages to be hauled, the tariffs to be charged including price adjustment formulas, and the customers' financial participation in the investments requiredA For the Bogota-La Caro- Chiquinquira line, the alternative of hauling coal by truck for transshipment to rail at La Caro would also be considered. During negotiations, agreement was reached with CNR that long-term contractual agreements would be reached with potential customers, satisfactory to the Bank, prior to rehabilitating the above-mentioned three lines. CNR would also provide evidence, satisfactory to the Bank, that it is more feasible to load the railway cars with coal in Chiquinquira than to haul such coal to La Caro. 4.07 CNR's potential for new traffic as a result of possible increases in container traffic from the maritime ports to inland destinations is under study in connection with an ongoing port modernization study financed by UNDP and carried out by consultants (Lyon Associates, Ltd. (USA)/Economist Intelligence Unit, Ltd (UK)/Consultoria y Sistemas Ltda. (Colombia)) with the Bank acting as Executing Agency. No major impact of container traffic is expected before 1985, however, and the resulting investment requirements would be considered either as part of a possible port project or in the context of a next railway project. Another potential long-term traffic, also not considered, consists of new coal movements that are being identified in the context of a - 30 - National Energy Study commissioned by DNP and presently being carried out by local and foreign consultants. The preceding possible developments could significantly boost CNR's role in the transport sector and would be taken into account in the proposed Bogota-Buenaventura corridor study (paras 3.13 and 5.10). C. Costs 4.08 The investment base costs were adjusted by excluding taxes and price contingencies to obtain the economic costs for the analysis. The signaling and telecommunications investment costs were distributed over the respective lines to be rehabilitated. Costs of spare parts for rehabili- tation of locomotives and wagons are distributed over the years during which the rehabilitation would be carried out. The cost of rehabilitation also includes workshop costs, particularly for new equipment in the Investment Plan. D. Benefits 4.09 The benefits of track rehabilitation considered in the evaluation are, primarily, reduced track maintenance costs and reduced wear and tear on motive power and rolling stock (Annex 6). Other important benefits are the expected reduction in derailments and, to a lesser extent, the savings as a result of possibly increased train speeds. 4.10 For the rehabilitation, as well as the acquisition of new equipment, motive power and rolling stock, the benefits consist of the difference between the economic costs of road and rail transport for the additional rail traffic made possible by the investment. For the purposes of this evaluation and to avoid double counting, the benefits have been distributed over the investment items according to an allocation system (Annex 6). E. Economic Return 4.11 The economic returns for the various track sections to be rehabil- itated are given in Table 4.3 and range from 13% to 32%. The economic returns for rehabilitation and acquisition of motive power and rolling stock are given in Table 4.4 and range from 22% to 61%. The components of the project that have been quantified for the economic evaluation constitute 86% of CNR's 1982-1986 program and yield an overall rate of return of 26%. With Colombia's opportunity cost of capital being 11%, the project is thus well justified in economic terms. F. Sensitivity Analysis and Risk 4.12 A standard sensitivity analysis was carried out for variations in costs and benefits, and the results are given in9Tables 4.3 and 4.4. Insti- tutional problems may delay the pace at which CNR recovers lost ground, especially when alternative transport arrangements have been made. This possibility is provided for in the project by requiring a mid-term review before the latter half of the new locomotives and wagons are procured. The - 31 - justification for the rehabilitation of La Caro-Belencito, La Caro-Chiquinquira and Mexico-La Dorada-Buenos Aires rests upon the development of new cement, coal and oil traffic respectively. The specific risks involved are being addressed by requiring, prior to the start of rehabilitation works, agreements between CNR and its customers on the terms of such traffic (para 4.06). 4.13 The project provides CNR with the physical means to enable it to meet its role in the economy of the country (para 2.03). The carrying capacity is expected to grow at an average rate of 17% per year until 1986. This growth rate is high, but CNR appears, more than most other railways, to have lost traffic because of its sheer inability to carry the traffic offered to it. There are, actually, a few examples in Latin America which demonstrate the feasibility of even higher growth rates (e.g., a 34% increase in 1980 over 1979 for FEPASA in Brazil). Furthermore, the traffic increases forecast during the project period may appear high in percentage terms but mainly because the base on which they are calculated is low as a result of the lowest locomotive availability in the history of CNR (30% in mid-1980 and 27% in November 1981). The analysis indicates that ample traffic is available for CNR and that every effort should be made to enable CNR to transport it. The traffic forecast does not imply a massive transfer of traffic from roads to rail but rather that a larger share, about 13%, of Colombia's overall total traffic growth would go by rail than has been the case in the past. Whether CNR will be able to achieve its targets is the major risk element of the project, and it depends upon several institutional measures addressed in paragraph 2.09. Because of the fast traffic growth between 1982 and 1985, CNR needs to concentrate on rapid implementation of institutional measures. The project, properly implemented and with strong emphasis on the operations of CNR, would simply enable CNR to carry about the same absolute volume of traffic in 1985 (the end of the project) that it carried in 1973, representing a railway share in 1985 of 5.0% of estimated total traffic (the railway share in 1973 was 7.2%). V. FINANCIAL EVALUATION A. Financial Objectives 5.01 One of CNR's principal objectives is to achieve financial viability by improving efficiency in operations, carrying more traffic with lower operating costs and implementing realistic cost-based tariffs. CNR's revenues should be able to cover total operating expenses, debt service charges and a fair contribution to the capital needs of the railway through adequate depre- ciation reserves provided on revalued fixed assets. B. Past Financial Performance 5.02 CNR's financial performance was good compared to appraisal targets during the first two years (1973-1974) of the last project. It achieved the following working and operating ratios: - 32 - Actual Appraisal Target 1973 - Working Ratio 97.8 106.2 - Operating Ratio 110.2 122.3 1974 - Working Ratio 90.7 102.3 - Operating Ratio 98.8 117.5 In 1974, the operating ratio not only was better than the target, but also was less than 100. Government contributions to CNR were adequate and were made in a timely way. Since 1975, for reasons stated in paragraphs 2.02 and 2.03, the financial situation has deteriorated. 5.03 The revenues and costs for the years 1973-1980 are shown in Table 5.1 and summarized below in US dollar equivalent: ------------------------(in 000 US$)-------------------------- 1973 1974 1975 1976 1977 1978 1979 1980 Operating Revenues 26,792 32,240 28,748 31,450 41,221 49,450 49,217 48,807 Working Expenses 26,204 29,252 31,568 43,801 49,373 55,615 59,877 77,805 Working Revenue/(Loss) 588 2,988 (2,820) (12,351) (8,152) (6,165) (10,660) (28,998) Depreciation 3,318 2,619 2,532 2,402 2,383 2,140 1,902 1,915 Net Operating Revenue/ (Loss) (2,730) 369 (5,352) (14,753) (10,535) (8,305) (12,562) (30,913) Non-Operating Revenues 798 627 577 3,717 1,056 509 235 1,535 Interest Charges 5,506 14,276 16,377 11,922 12,296 14,190 12,093 18,675 Net Losses 7,438 13,280 21,150 22,958 21,775 21,986 24,420 48,053 Traffic (in millions) Freight (ton-km) 1,331 1,329 1,138 1,159 1,215 1,232 1,105 862 Passenger (pass-km) 427 482 523 511 392 342 322 315 Total Staff Employed 11,408 11,662 12,002 12,107 11,345 10,980 10,345 10,392 Operating Ratios: Actual 110 99 119 147 126 117 125 163 Target 122 118 111 104 99 N/A N/A N/A While revenues increased by 82% from 1973 to 1980, working costs increased by 197% for the same period. Apart from inadequate tariff increases, staff costs, which form about 75% of the working costs, increased considerably as a result of higher social benefits and the hiring of additional staff. Pensions and indemnities (cesantias) to retired staff, as a percentage of basic salaries, increased from 8% in 1969 to about 25% in 1980 because of the strong bargaining power of the Railway Union. Moreover, fuel costs have also risen and, since 1978, have increased considerably as a result of the Government's efforts to bring local petroleum prices in line with international price levels. The operating ratio in 1980 was 163, compared to 99 in 1974. The main reason for this deterioration is the fact that revenue-earning freight traffic has declined drastically from 1.3 billion ton-km in 1974 to 862 million ton-km in 1980. This reduction in traffic reflects directly the declining locomotive availability from about 87% in 1974 to 32% in 1980. By contrast, the drastic decline in traffic and locomotive availability during the past two years caused only a slight decline in operating revenues, mainly due to continuous increases in tariffs (during the last two years) which increased yearly by an average of 30% and which more than compensated for inflationary cost increases, which averaged about 25% per year. - 33 - 5.04 CNR produced a net operating profit of about US$0.4 million in 1974, but, thereafter, the position reversed and the railway started suffering losses which reached US$30.9 million in 1980. Interest charges also more than tripled during this period because of increased investment borrowing (Sixth Railway Project) and because of additional local loans when Government contri- butions fell short of railway needs. 5.05 The revaluation of fixed assets has not been carried out, except for a partial revaluation in 1972. The adjustment due to fluctuation of the exchange rate of the Colombian peso is, however, taken into account for purchases financed in foreign currencies. The depreciation cost, there- fore, represents mostly the historical capital cost and is not sufficient to meet the replacement cost of the assets. The depreciation in the preceding tabulation shows a continuous decline in US dollars since 1973 because of greater devaluation of the Colombian peso than the depreciation cost increases. CNR's balance sheets for 1977-1980 are shown in Table 5.2. CNR agreed to have its fixed assets revalued in 1973 as per Section 5.07 of the previous Loan Agreement. In 1975, CNR was contemplating, although with some delay, carrying out this revaluation, but the more serious economic and technical problems encountered kept it from doing so. Since CNR has now appointed a private audit firm, it is an opportune time to carry out the revaluation with the help of the auditors. During negotiations, agreement was reached with CNR that the fixed assets would be inventoried and revalued by December 31, 1983 and at least every two years thereafter and that a full report prepared by the auditors would be furnished to the Bank. 5.06 The debt equity ratio was high during 1977-1980. During implementa- tion of the Sixth Railway Project, CNR agreed not to incur debts if the net revenues were less than 125% of the debt service requirement. CNR could not comply with this covenant since the need for funds was growing during 1975-1980 and the Government contribution was shrinking. CNR, therefore, had to borrow from local banks either to refinance existing loans or to pay off local contractors and similar other obligations. Most of these loans were taken with the Government's guarantee. 5.07 Except for 1973 and 1974, the cash flow position of CNR remained poor. The working capital was never sufficient, and the outstanding payments to local suppliers, staff bonuses and indemnities were paid by obtaining loans from local commercial banks. 5.08 In order to relieve the railway from serious financial difficulties, the Government, in line with its policy to upgrade the railway (para 2.03), started providing funds in large quantities to CNR in 1979 to meet the urgent maintenance program and to cover cash deficits consisting of debt payments, pensions and indemnities and other needs. In 1979, the Government's total allocation was about US$57.0 million (more than CNR's total revenues), and, in 1980, similar funds were allocated. C. Non-Remunerative Lines and Services 5.09 CNR made good progress in reducing the number of stations and station employees as was agreed during the last appraisal in 1972-1973. CNR not only met the targets on these reductions, but exceeded the targets in many cases. In addition, CNR closed several branch lines and passenger train - 34 - services (Annex 7). In spite of such actions, several non-remunerative lines and services still remain. A study of revenue and cost analyses indicated that the entire Pacific network is operating under heavy losses and that the following branch lines on the remainder of the network are non-remunerative: 1. Bogota-Belencito 2. Bogota-Chiquinquira 3. Facatativa-Espinal 4. Mexico-Buenos Aires Because of the development of new traffic prospects, Lines 1, 2 and 4 will not be closed at this time (para 4.06). Presently Line 3 provides the only alternative route to the traffic between Bogota and Santa Marta if the treacherous section of the main line, Bogota-Puerto Salgar, breaks down. Therefore, the closure of Line 3 will be deferred until the construction of the proposed Saboya-Carare bypass (para 2.04). The number of stations and staff will, however, be kept at a minimum level. 5.10 Regarding the Pacific network, the low density traffic is evidence that the network is not financially viable (Table 5.3, Page 2). However, the consultants have indicated that a new railway line between Armenia and Ibague linking the Pacific network with the rest of CNR's network might make the former economically justified. They also state that sharp increases in fuel costs, the possible development of container traffic, and modern techniques of constructing tunnels with a possibility of cheaper costs should be given full consideration. Accepting the consultants' recommendation, the study would be carried out in two phases (para 3.13(a)). The first phase would determine preliminary cost estimates and provide an economic feasibility study. If results are encouraging, the second phase, including borings and detailed cost estimates, would be carried out. If either phase of the study does not justify the connection, appropriate action would be needed to phase out the railway operations on the Pacific network. During negotiations, it was therefore agreed with CNR, that: (a) the terms of reference for the two-phase connection study would be agreed with the Bank before it is launched, and, thereafter, the recommendations following from such study; and (b) if either phase of the study indicates that the connection is not justified, the Government and CNR would prepare, within six months of the completion of the study, a time-phased program of action, satisfactory to the Bank, to eliminate the losses on the Pacific network by increasing tariffs, enforcing demurrage charges, implementing cost reduction programs and closing lines. 5.11 CNR has recently calculated the revenues and costs of each passenger train service. The results indicate that, of 11 sbrvices on the Atlantic Line, only four cover variable costs through revenues, and, of five services on the Pacific network, only one covers variable costs. CNR and the Government should correct the situation by first increasing fares to the extent possible and then closing the services which remain unremunerative wherever an alternative mode of transport, such as bus service, is available. For the remaining unremunerative services, if the Government decides to keep them operating, it should provide subsidies to CNR under a normalization scheme in such a manner that each service would be budgeted at the beginning of the year and the Government's - 35 - contribution predetermined accordingly. The normalization payments should create an incentive to the railway to improve efficiency and performance and to reduce costs. Any savings achieved from efficiencies would be retained by the railway, but any losses suffered from inefficiencies would be borne by the railway. The normalization payments should be made only on services which are potentially economic in order to reduce the waste element in the Government subsidy. During negotiations, the Government and CNR agreed that: (a) CNR would take action to improve railway service, increase passenger fares and reduce or eliminate operational losses, including but not limited to reducing services progressively on low-density traffic lines; (b) CNR would introduce a system for calculation of normalization payments on the passenger service losses to be paid by the Guarantor starting September 30, 1982; and (c) the Government would provide normalization payments to CNR on non-remunerative passenger services. The first payment for the year 1982 would be made on September 30, 1982, and subse- quent payments would be made on a regular basis throughout the year for each year thereafter. D. Forecast Financial Performance (1981-1986) 5.12 CNR's financial viability can be achieved by introducing a proper relationship between tariffs and costs for each freight commodity and for each type of passenger service. However, CNR must improve its locomotive avail- ability, the quality and reliability of service and reduce costs by improving the performance efficiency so that its public image is improved and a greater incentive is created among shippers to patronize rail services. The Government is fully in favor of a policy which would allow the railway to increase revenues, eliminate operating deficits and gradually reduce Government subsidies. 5.13 A financial forecast for 1981-1986 1/ has been prepared based on the above criteria, the investment plan, traffic forecasts, debt service charges and the financing plan. Further details on the methodology and assumptions used in this forecast are described in Annex 8; two important assumptions are as follows: (a) Three tariff increases of 10%, in real terms, are to be introduced for January 1983, January 1984, and January 1985; it is assumed that inflationary cost increases would be covered through regular tariff increases. (b) Pension and indemnity (cesantia) paymentq to retired employees are excluded from the forecast expenses since they do not relate to current or future railway operations; it would be the Government's obligation to meet such expenses. An estimate of the future pension obligations is, however, included in the forecast. CNR does not have an adequate pension plan. For a long period, the Govern- ment has been paying over 80% of the current cost of pensions and indemnities through the National Budget. The balance is CNR's obligation, but, since CNR 1/ 1981 actual figures are not yet available. - 36 - is unable to make these payments because of recurring operating deficits, the responsibility is shifted to the Government. This situation is unsatisfactory, and an institutional reform must be introduced. Ideally, CNR should implement a contributory pension scheme carefully studied and recommended by actuarians. There is, however, a strong resistance to the contributory scheme from the Railway Union, which insists that CNR, like all other public employers in the country, must pay the total cost of pensions and benefits. Undoubtedly, this issue is very complex; nevertheless, it must be resolved, and CNR is presently studying a possible solution. Details of agreements reached on the pension plan during negotiations are spelled out in paragraph 2.09(g). 5.14 The forecast income statement is shown in Table 5.3 and is summarized as follows. Estimate Forecast 1981 1982 1983 1984 1985 1986 ------------------(in 1981 Col$ million)------------ Operating Revenues 1,968 2,470 3,081 4,150 4,952 5,763 Working Expenses 3,449 4,196 4,414 4,654 4,773 4,928 Working Revenues/(Loss) (1,481) (1,726) (1,333) (504) 179 835 Depreciation 112 135 500 500 510 515 Net Operating Revenues/(Loss) (1,593) (1,861) (1,833) (1,004) (333) 320 Government normalization payments on passenger train losses 310 367 383 334 271 265 Working Ratio - before normalization 175 170 143 112 96 86 - after normalization 151 148 127 104 91 82 Operating Ratio - before normalization 181 175 159 124 107 94 - after normalization 156 153 142 115 101 90 Pension Payments 1,234 1,252 1,275 1,304 1,334 1,368 Indemnity (Cesantia) Payments 400 423 431 440 449 458 The Income Statement is prepared separately for the total network and for the Pacific network. The forecast is prepared in mid-1981 constant Colombian pesos (Table 5.3, pages 1 and 2)'. The working and operating ratios before normaliza- tion are included in the Program of Action. The forecast indicates that CNR would gradually improve its financial performance by fulfilling obligations included in the Program of Action. The improvements are considered realistic and within the reach of CNR. The operating revenues are expected to grow by Col$ 3,795 million (or about US$70 million) in the 1981-1986 period, while the operating costs are expected to rise by Col$ 1,882 million (or US$34 million), thus a net gain of US$36 million. The working and operating ratios would improve from 175 and 181 in 1981 to 86 and 94 in 1986 (before normalization). Because of the revaluation, the depreciation charges are increased considerably from Col$ 112 million in 1981 to Col$ 500 million in 1983. 5.15 Success of the project depends upon CNR's improvements in railway performance and achieving of the targets specified in the Program of Action. Success of the project also depends very much upon the Government's adequate and timely provision of funds to CNR. A statement has been prepared showing the - 37 - financial obligations of the Government to CNR during 1982-1986 (Table 5.4). These obligations are broken down by types of subsidies and current budgetary allocations. The Government's financial contributions would be high in the next few years, but they are necessary. However, as revenues would grow, the Government's financial contribution would decline from an estimated US$102 mil- lion in 1982 to about US$48 million in 1986. Without the proposed investment plan, the Government would still be obligated to keep paying 70% to 80% of its estimated annual contribution to CNR because the debt service charges on CNR's existing loans would continue to occur and the pension indemnity payments to retired employees would continue to fall due each year. The railway's operating deficit would not diminish; it might even increase in the absence of the rehabili- tation and maintenance program. The railway would continue to deteriorate, revenues would decrease, costs would increase and the deficit would get worse, resulting in a heavier burden on public funds. If the railway is closed down, the Government would have the burden of finding jobs for about 10,300 employees of the railway in addition to paying pensions to 11,600 employees already retired. On the other hand, if Government support for the next five years is given as planned, the railway should be able to recapture the lost traffic, eliminate its operating deficit by 1986, and contribute to the payment of debt service charges. The Government subsidy for operating deficit should be eliminated in 1985.- 5.16 The cash flow forecasts for 1982-1986 are given in Table 5.5 and are summarized on the top of page 38 following. During the five years, the Government would provide 75% of total funds needed. The annual financial burden of the Govern- ment is estimated to be US$102 million, US$92 million, US$69 million, US$59 million, and US$48 million for the years 1982, 1983, 1984, 1985, and 1986 respectively. CNR is expected to generate net revenues and depreciation of about US$9.3 mil- lion in 1985, which should be applied toward the payment of the debt service charges. The Bank loan would provide 43% of the total cost of the project (1982-1985), or 70% of the foreign component. 5.17 In order to achieve the objectives stated in the foregoing paragraphs, agreement was reached with the Government and CNR during negotiations that: (a) the Government would provide sufficient funds to CNR in a timely fashion to meet the estimated expenditures required for the carrying on of the operations of CNR, including the implementation of the project as planned; (b) the Government would create a Quadripartite Committee comprising MOPT, DNP, Hacienda and CNR to monitor the railway progress and the timely availability of required funds to the railway; (c) the Bank, the Government and CNR would, by September 30, 1983, or upon commitment by the Bank (by way of irrevocable or qualified agreements to reimburse) and withdrawal by CNR of 40% of the proceeds of the loan, whichever occurs first, carry out an in-depth review, satisfactory to the Bank, of the progress made by CNR, the achievement of the targets set forth in the Program of Action and the status of the flow of funds from the Government to CNR. No commitments shall be made for Group II investments unless the review shows that such commitments are economically and technically justified; - 38 - Estimate Total 1981 1982 1983 1984 1985 1986 1982-1986 % ----------------------(in 1981 Col$ Million)---------------- Application of Funds Operating Loss Less Depreciation 1,426 1,299 890 110 - - 2,299 9 Normalization for Passenger Services - 367 383 334 271 265 1,620 6 Investments 636 1,902 3,544 2,177 1,593 1,185 10,401 38 Debt Payments 1,309 1,343 1/ 750 645 644 712 4,103 15 Pension & Indemnity (Cesantia Payments) 1,634 1,675 1,706 1,744 1,783 1,826 8,734 32 Total 5,005 6,586 7,273 5,010 4,291 3,997 27,157 100 Sources of Funds Operating Surplus Plus Depreciation - - - - 510 1,160 1,670 6 Loans: IBRD - Proposed - 339 1,976 984 327 - 3,626 13 Federacion Cafeteros 250 389 51 - - - 440 2 Other Commercial Banks 130 - - - - - - - CNR's Internally Gener- ated Funds - 68 45 53 17 6 189 1 Labor Input - 157 133 170 180 189 829 3 Sale of Fixed Assets 1,063 - - - - - - - UNDP Grant for Technical Assistance - - 28 27 - - 55 - Government Contribution 3,562 2/ 5,633 5,040 3,776 3,257 2,642 20,348 75 Total 5_005 6L586 7273 5,010 4,291 32997 27,157 100 I/ Includes about Col$ 200 million payable in January 1982. 2/ Of which Col$ 1,052 million are still outstanding and yet to be transferred to CNR. (d) CNR would increase tariffs in real terms by 10% in January 1983, by 10% in January 1984 and by another 10% in January 1985, in addition to regular tariff increases in January of each year to cover inflationary cost increases and to achieve the working and operating ratios as specified in the Program of Action; and (e) CNR's revenues would cover, from 1987, itt total operating costs and debt service charges (interest and amortizaton). 5.18 The forecast balance sheets are shown in Table 5.6. The current ratio is expected to improve from 1.0 in 1981 to 1.60 in 1986. The debt/equity ratio, which is expected to improve from 65/35 in 1981 to 37/63 in 1986, should be rigidly monitored to avoid the repetition of non-compliance with the debt limitation covenant (para 5.06). Agreement was, therefore, reached with CNR, during negotiations, that: - 39 - unless otherwise agreed by the Bank, CNR would not incur any debt, other than that provided for in the Financing Plan (para 3.15), if the net revenues of CNR for the fiscal year or the 12 consecutive months immediately before the date of incurrence, whichever is greater, would be less than 125% of the maximum debt service pay- ments of any succeeding fiscal year on total debts of the railway, including the debt to be incurred. E. Sensitivity Analysis 5.19 The objective of the sensitivity analysis is to test whether CNR produces operating income sufficient to meet the capital expenditures, operating expenditures and debt payments under more pessimistic assumptions. Main risk elements for CNR are traffic not materializing as forecast, tariffs not increasing as anticipated, or capital and operating costs occurring higher than estimated, particularly staff salaries and pension costs. 5.20 A sensitivity analysis of the financial forecast was performed taking into consideration tariffs, traffic and costs. The effect on the operating ratios was found to be as follows: 1982 1983 1984 1985 1986 Forecast Operating Ratios 175 159 124 107 94 (Before Normalization) (a) If 10% tariff increases in real terms in January 1983, 1984 and 1985 do not materialize 175 174 148 139 123 (b) If freight traffic growth is: (i) 50% lower than forecast 193 185 154 137 126 (ii) 25% lower than forecast 184 171 138 120 108 (c) If freight traffic: (i) materializes a year ahead of the forecast 157 133 115 94 87 (ii) falls 10% below the forecast 191 174 136 117 103 (d) If operating expenses are: (i) 20% higher than assumed 210 191 149 128 113 (ii) 10% higher than assumed 193 175 137 117 104 (e) Combination of (a) & (d,ii) 193 191 183 153 135 (f) Combination of (a), (b,i) & (d,i) 232 241 220 212 195 (g) Combination of (a), (b,ii) & (d,ii) 202 205 180 171 154 (h) Combination of (a), (c,i) & (d,i) 187 173 165 147 137 (i) Combination of (a), (c,ii) & (d,ii) 210 208 178 167 148 - 40 - The financial performance of CNR is sensitive to traffic as well as cost increases. The operating ratio would deteriorate to 126 in 1986 against the forecast of 94 if traffic growth is reduced by 50%. Should freight traffic fall below 10% of the forecast, the operating ratio would increase to 103. The operating ratio would increase to 113 in 1986 if costs increase by 20%. The conclusion is that careful control should be exercised during the supervision of the loan in achieving planned traffic increases. CNR should also ensure that tariff increases are adequate to cover cost increases. The financial obligations of the Government to CNR would also increase should traffic fall below the forecast and/or costs be higher than expected. VI. AGREEMENTS REACHED AND RECOMMENDATION 6.01 During negotiations, agreement was reached with CNR and the Government on the following: CNR to: (a) revise the salary structure, hire former railway mechanics, enforce disciplinary action, prepare a manpower plan, introduce a training program, improve procurement procedures and intro- duce an adequate pension plan (para 2.09(a) to (g)); (b) strengthen its Costing Section, restructure tariffs and continue to make improvements in the tariff levels (para 2.23); (c) seek Bank's approval on additional investments prior to their occurrence (para 3.04); (d) seek specialized technical assistance for evaluation of tenders for the eight new locomotives (para 3.08); (e) place orders for locomotive spare parts, not financed by the Bank, as a condition for loan effectiveness (para 3.09); (f) give priority to the utilization of locomotives for moving freight traffic (para 3.09); (g) place order for 100 gondolas in Group I only after signing a contract with the users of coal traffic (para 3.10); (h) employ consultants in accordance with terms of reference and other conditions acceptable to the Bank (para 3.14); (i) prepare a Completion Report not later than six months after project completion (para 3.18); (j) implement the Program of Action in accordance with agreed targets (para 3.19); (k) not incur any investments on the La Caro-Belencito, La Caro- Chiquinquira and Mexico-Buenos Aires lines unless satisfactory agreements have been reached with its potential customers (para 4.06); - 41 - (1) complete the inventory and revaluation of fixed assets by December 31, 1983 (para 5.05); (m) agree with the Bank on terms of reference for the corridor study of the connecting of the Atlantic and Pacific systems; if the study is not satisfactory, phase out the Pacific network except those lines where operating losses can be eliminated (para 5.10); (n) introduce a program to increase fares, to discontinue unremuner- ative services and to implement the normalization payments on passenger service losses to be paid by the Government, all from September 1982 (para 5.11); (o) review, by September 30, 1983, with the Bank and the Government, the railway's progress in project implementation; no commitment shall be made for Group II investments unless the mid-term review is satisfactory (para 5.17(c)); (p) increase tariffs in real terms by 10% in January 1983, by 10% in January 1984 and another 10% in January 1985 (para 5.17(d)); (q) cover through its earnings, from 1987, total operating costs and debt service charges (para 5.17(e)); and (r) observe debt limitation covenant (para 5.18). The Government to: (a) provide normalization payments to CNR on passenger service losses starting September 30, 1982 for the year 1982 and on a regular basis throughout the year for each year thereafter (para 5.11); (b) provide all funds as needed by CNR to carry on its operations and the project (para 5.17(a)); (c) create a Quadripartite Committee comprising MOPT, DNP, Hacienda and CNR to monitor the railway progress and the availability of required funds to CNR (para 5.17(b)); and (d) participate with CNR and the Bank, by September 30, 1983, in an in- depth review of CNR's progress in executing the project and achieving the targets in the Program of Action and the status of flow of funds from the Government to CNR; no commitment shall be made for Group II investments unless the mid-term review is satisfactory (para 5.17(c)). 6.02 The project provides a suitable basis for a Bank loan of US$77.0 mil- lion to CNR. The amortization period would be 17 years, including a grace period of four years. January 27, 1982 COLOMBIA SEVENTH RAILWAY PROJECT National and International Freight and Passenger Transport (1970-1979) International Freight National Freight Transport Transport National Passenger Transport International Ton/km (millions) Ton (thousands) Pass/km (millions) Passenger Coastal 1/ Transport Year Road Rail River Shipping Air Subtotal Sea- Air Subtotal Road Rail River Air Subtotal Pass (thousand) 1970 10,285 1,173 1,545 786 85 13,874 2,599 20 2,619 7,637 249 1 2,067 9,954 467 1971 10,879 1,150 1,319 843 79 14,270 2,709 25 2,734 8,055 281 7 1,953 10,296 524 1972 11,726 1,198 1,451 2,116 121 16,612 2,652 28 2,680 8,114 398 4 2,273 10,789 596 1973 12,559 1,331 2,003 2,482 124 18,499 3,068 31 3,099 9,223 427 4 2,539 12,193 685 1974 13,316 1,329 2,585 3,240 152 20,622 3,227 46 3,273 9,735 482 4 2,702 12,923 815 1975 13,824 1,139 2,400 2,398 144 19,905 2,864 48 2,912 10,179 523 4 2,870 13,576 891 1976 14,461 1,159 1,609 2,535 136 19,900 2,696 51 2,747 10,199 511 5 3,181 13,896 966 1977 15,158 1,215, 1,820 2,650 185 21,028 3,500 71 3,571 10,709 392 4 3,649 14,754 1,041 1978 16,507 1,232 1,402 2,195 267 21,603 3,808 93 3,900 11,244 342 4 4,048 15,638 1,140 1979 17,332 1,105 1,166 1,584 268 21,455 4,689 89 4,778 11,807 322 4 4,488 16,621 1,265 Excludes freight handled in private ports. Source: MOPT August 1981 COLOMBIA SEVENTH RAILWAY PROJECT Colombian Road Network (1980) (Estimated Length, km.) Primary Secondary-and Rural Roads Total Paved Unpaved Total Paved Unpaved Total Paved Unpaved Total National 7,900 2,600 10,500 12,400 12,400 7,900 15,000 22,900 Departmental -- -- -- 900 39,500 40,400 900 39,500 40,400 FNCV -- -- -- -- 11,400 11,400 -- 11,400 11,400 Private -- -- -- -- 2,300 2,300 -- 2,300 2,300 TOTAL 7,900 2,600 10,500 900 65,600 66,500 8,800 68,200 77,000 Source: MOPT August 1981 COLOMBIA SEVENTH RAILWAY PROJECT National Highway Fund Revenues (1970-1980) (Thousands of Col$) 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 Gasoline Tax 767,382 932.700 1,200,400 1,188,927 1,207,394 1,654,494 2,614,785 3,351,971 4,708,407 8,095,292 10,754,012 Government Contribution 313,641 280,249 101,870 94,759 55,013 684,251 178,017 920,786 629,293 1,915,701 2,684,425 IBRD Projects 53,739 200,686 163,828 93,958 22,426 19,996 230 - - 3,276 133,429 IDB Projects 60,970 - 131,841 179,963 143,601 128,737 23,657 35,526 38,364 188,646 23,171 161,761 FONADE Contracts - - 1,303 18,292 28,317 29,136 15,602 - - - IS Government Donation for Inter-American Highway - - - 1,580 253 - 3,014 -- - - -- Own Resources 47,737 49,800 98,795 67,068 78,229 111,848 117,845 161,442 182,883 216,935 563,045 Previous Balance Carry-over 125,140 45,886 - 278,325 266,459 43,583 - 25,284 26,517 48,042 1,826,554 Dutch Government Credit - - - -1642 - - - - Subtotal 1,368,609 1,641,162 1,746,159 1,886,510 1,786,828 2,566,965 3,076,661 4,497,847 5,735,746 10,302,417 16,123,226 Unappropriated Revenues 186,044 315,643 400.139 295,129 888,759 158,103 6 197,434 883,369 (33,045) 1.110,897 TOTAL 1,554,653 1,956,805 2,146,298 2,181,639 2,675,587 2,725,068 3,687,229 4,695,281 6,619,115 10,269,372 17,234,123 National Highway Fund Expenditures (1970-1980) (Thousands of col$) 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 Studies and Technical Services 26,759 27,301 27,921 55,837 85,123 60,508 119,261 93,951 49,809 68,393 242,972 Bridges 67,062 86.475 72,850 84,844 86,124 132,688 100,841 85,166 97,265 183,033 279,330 Trunk Highways (North-South) 461,577 492,101 500,724 486,828 482,047 410,160 696,871 899,611 708,554 850,603 1,690,018 Trunk Highways (East-West) 132,236 187,630 214,446 288,018 367,134 368,829 379,506 483,661 1,024,510 1,031,619 3,043,257 Other Highways 107,608 103,273 131,953 153,646 196,508 233,148 164,515 326,552 590,445 660,049 976,099 Access to Cities 21,052 47,992 57,982 57,936 107,868 23,918 53,232 252,645 269,476 265,564 408,356 Paving Program 133,023 220,526 277,295 178,680 107,782 223,348 414,182 245,622 416,360 581,569 1,259,216 Hydraulic Works 42,118 44,740 65,552 78,671 123,868 162,732 277,416 231,360 216,816 419,905 526,318 Rehabilitation - - -- - 92,792 216,938 383,980 958,791 2,362,502 Highway Maintenance 425,788 515,210 561,354 538,984 780,225 871,887 966,112 1,352,351- 2,354,794 3,935,009 4,698,335 Other Expenditures 13,930 62,865 32,117 8,129 5,6 39,564 249,141 156,689 73,433 433,126 332,170 Subtotal 1,4:1,153 1,788,114 1,942,194 1,932,173 2,492,925 2,526,782 3,513,869 4,344,546 6,185,442 9,387,751 15,818,573 ' Contribution to National ti 7eeder Roads Fund 123,500 168,691 204,104 249,466 1 198,286 173,360 350,735 433,673 881,621 1,415,550 t-I TOTAL 1,554,653 1,956,805 2,146,298 2,181,639 2,675,587 2,725,068 3,687,229 4,695,281 6,619,115 10,269,372 17,234,123 1/ Difference between appropriated revenuesand actual expenditures normally financed with subsequent year's budgetary. appropriations. Source: MOPT COLOMBIA SEVENTH RAILWAY PROJECT Evolution and Composition of Regular Gasoline Prices (1971-1980) (Col$ per gallon) Refinery Taxes Transportation Distribution Price Highway Sales Departmental and Wholesale Retail Price Fund Handling Jtne 1971 1.31 1.44 ko.16 (0.104 0.13 0.16 0.18 3.42 January 1975 1.31 1.44 0.16 0.04 0.13 0.21 0.18 3.47 January 1976 1.77 1.96 0.28 .0.04 0.48 0.32 0.30 5.15 January 1977 3.03 3.39 0.60 0.04 2.06 0.46 0.42 10.00 January 1978 3.46 3.88 0.73 0.04 2.82 0.50 0.57 12.00 0Qtober 1978 5.06 5.69 0.92 0.04 3.04 0.60 0.65 16.00 March 1979 5.06 5.69 1.30 0.04 6.41 0.75 0.75 20.00 Jly 1979 5.06 5.69 1.84 0.04 11.65 0.85 0.87 26.00 May 1980 8.07 9.10 2.48 0.04 12.05 0.98 1.28 34.00 October 1980 11.00 12.42 2.87 0.04 14.97 1.16 1.54 44.00 December 1981 N/A . N/A N/A N/A N/A N/A N/A 55.00 Source: MOPT, Planning Office January 1982 COLOMBIA SEVENTH RAILWAY PROJECT Public Sector Investments in Transport (1972-1980) (millions of current Col$) I/ Inland Year Roadsl M Rail _M Water (%_ Airports Seaports _%) Total _JM 1972 2,576.7 (81.7) 289.4 ( 9.1) 65.6 (2.1) 172.5 ( 5.5) 50.9 (1.6) 3,155.1 (100) 1973 2,746.8 (81.1) 299.2 ( 8.8) 78.7 (2.3) 211.0 ( 6.2) 49.5 (1.5) 3,385.2 (100) 1974 3,363.2 (73.6) 343.8 ( 7.5) 123.9 (2.7) 660.1 (14.5) 77.0 (1.7) 4,568.0 (100) 1975 3,335.7 (68.9) 540.5 (11.2) 162.7 (3.4) 651.9 (13.5) 153.8 (3.2) 4,844.6 (100) ' 1976 4,752.2 (80.1) 465.2 ( 7.8) 277.4 (4.7) 169.1 ( 2.8) 271.8 (4.6) 5,935.7 (100) 1977 6,016.3 (83.2) 382.3 ( 5.3) 231.4 (3.2) 433.6 ( 8.0) 169.7 (2.3) 7,233.3 (100) 1978 6,439.7 (83.1) 271.7 ( 3.5) 216.8 (2.8) 506.0 ( 6.5) 315.1 (4.1) 7,749.3 (100) 1979 9,482.4 (78.2) 79.9 ( 0.6) 420.0 (3.5) 1,531.3 (12.6) 619.7 (5.1) 12,133.3 (100) 1980 L6,460.1 (85.8) 467.7 ( 2.4) 747.7 (3.9) 1,039.8 ( 5.4) 480.0 (2.5) 19,195.3 (100) 1/ Includes national highways, departmental and rural roads. Source: MOPT August 1981 HA 9z Ln. - 47 - TABLE 1.6 COLOMBIA SEVENTH RAILWAY PROJECT World Bank Group Involvement in Colombian Transport Highways Loan 43-CO 1951 US$ 16.50 First Highway Project Loan 84-CO 1953 US$ 14.35 Second Highway Project Loan 144-CO 1956 US$ 16.50 Third Highway Project Credit 05-CO) 1961 US$ 19.50) Fourth Highway Project Loan 295-CO) US$ 19.50) Loan 550-CO 1968 US$ 17.20 Fifth Highway Project Loan 680-CO 1970 US$ 32.00 Sixth Highway Project Loan 1471-CO 1977 US$ 90.00 Seventh Highway Project Loan 1966-CO 1981 US$ 33.00 Rural Roads Project US$ 258.55 Rural Roads Components of Agriculture Projects Loan 739-CO 1971 US$ 3.80 Caqueta I Project Loan 849-CO 1972 US$ 1.60 Second Atlantico Project Loan 1118--CO 1975 US$ 5.90 Caqueta II Project Loan 1163-CO 1975 US$ 5.10 Cordoba II Project Loan 1352-CO 1976 US$ 3.50 Integrated Rural Dev. Project US$ 19.90 Railways Loan 68-CO 1952 US$ 25.00 First Railway Project Loan 119-CO 1955 US$ 15.90 Second Railway Project Loan 267-CO 1960 US$ 5.40 Third Railway Project Loan 343-CO 1963 US$ 30.00 Fourth Railway Project Loan 551-CO 1968 US$ 18.30 Fifth Railway Project Loan 926-Co 1973 US$ 25.00 Sixth Railway Project US$ 119.60 Aviation Loan 1624-CO 1978 US$ 61.00 Domestic Aviation Project Pipelines IFC-R76-66 1976 US$ 13.00 Loan to PROMIGAS, S.A. US$ 2.00 Equity in PROMIGAS, S.A. US$ 15.00 TOTAL US$ 474.05 Source: IBRD, Transport Sector Survey, 1979 September 1980 - 48 - COLOMBIA TABLE 2.1 SEVENTR RAILWAY PROJECT Seleeted Operating Statistics 1970-1980 Unit 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 I. System Total Route km 3,431 3,431 3,431 3,403 3,403 3,403 3,403 3,403 3,403 3,403 3,403 In Operation km 3,353 3,353 3,353 3,232 3,232 3,138 2,767 2,912 2,912 2,912 2,822 Out of Operation km 78 78 78 171 171 265 636 491 491 491 581 Total Staff N 11,526 11,654 11,516 11,408 11,662 12,002 12,107 11,345 10,980 10,345 10,392 II. Traffic Passengers Carried million 2.95 3.16 4.27 4.20 4.56 5.10 4.08 2.97 2.57 2.46 2.21 Passenger km million 248 281 398 427 482 523 511 392 342 322 315 Average Journey km 84 89 93 102 106 102 125 132 133 131 142 Total Net Tons million 3.06 3.04 3.07 3.06 3.38 2.92 2.99 2.88 2.96 2.60 2.12 Net Paying Tons million 2.78 2.65 2.73 2.76 2.90 2.44 2.41 2.52 2.68 2.39 1.93 Net Not Paying Tons million 0.29 0.39 0.34 0.30 0.48 0.48 0.58 0.36 0.28 0.21 0.19 Total Net Ton-km million 1,239 1,215 1,248 1,368 1,291 1,206 1,221 1,254 1,261 1,128 888 Net Paying Ton-km million 1,173 1,150 1,198 1,331 1,329 1,138 1,159 1,215 1,232 1,105 862 Net Not Paying Ton-km million 66 65 50 37 62 68 65 39 29 23 26 Total Gross Ton-km million 2,416 2,409 2,418 2,640 2,234 2,366 2,379 2,358 2,313 2,055 1,678 Freight Gross Ton-km million 2,190 2,159 2,124 2,315 2,413 2,028 2,047 2,088 2,088 1,854 1,497 Passenger Gross Ton-km million 226 250 2'5 325 321 338 332 270 224 201 181 Average Haul km 442 433 439 482 458 467 480 482 459 462 445 Total Freight Car-km million 70.41 69.89 64.81 70.13 75.74 63.23 63.49 64.20 63.59 55.83 46.96 Loaded Freight Car-km million 47.14 46.28 44.18 47.43 50.53 42.99 43.51 42.33 42.86 38.24 29.91 Empty Freight Car-km million 23.27 23.61 20.63 22.70 23.20 20.24 19.98 21.87 20.73 17.59 17.05 III. Traffic Density Passenger-km per Route km (000) 70.4 79.6 113.- 126.8 144.8 161.8 184.3 134.2 117.1 109,2 111.6 Freight Net Ton-km per Route km (000) 349.8 342.9 357.3 411.8 411.2 362.6 417.2 417.2 423.1 403.5 305.1 IV. Operations Total Train-km million 8.39 7.61 6.49 6.98 7.38 6.99 6.92 6.27 F.76 5.31 4.21 Train-km, Passen2ers million 1.92 2.16 2.40 2.57 2.69 2.70 2.69 2.23 1.82 1.56 1.26 Train-km, Freight million 6.47 5.45 4.09 4.41 4.69 4.29 4.23 4.04 3.94 3.75 2.85 V. Operating Efficiency (Freight) Gross Ton-km/Train-km t 338.5 396.1 519.1 524.9 514.5 472.4 484.0 516.6 529.3 494.0 525.2 Net Ton-km/Train-km t 181.3 211.0 293.0 301.8 283.0 281.0 288.6 310.2 319.1 300.8 311.2 Net Ton-km/Car-km t 24.9 26.2 28.3 28.8 27.5 28.0 28.1 29.6 29.4 29.5 28.8 Car Turnaround Time days 14.2 15.8 16.7 16.2 13.1 13.0 14.3 15.9 15.3 16.6 18.9 Average Speed km/h 20.8 20.3 19.7 19.4 17.1 18.1 18.1 17.6 17.2 17.4 18.2 Loco, km/day 1/ 231.9 222.5 193.7 216.4 223.9 215.7 219.7 225.4 243.7 251.6 293.7 Traffic Units/Employee (000) 123.3 122.8 138.5 154.1 155.3 138.3 137.6 141.6 143.3 138.0 113.1 VT. Availability Diesel Locomotives % 85.2 85.4 86.1 86.2 86.9 83.2 80.5 73.8 68.1 57.9 32.0 Freight Cars % 83.9 85.7 81.7 80.2 77.9 67.7 73.4 75.4 77.8 74.8 70.3 VII. Derailments Total Number/Year 7,116 5,969 4,368 5,471 3,614 3,122 3,306 3,228 3,510 3,117 2,863 Total Hours/Lost 25,759 18,263 14,584 21,589 13,526 12,172 11,114 9,587 10,003 n.a. n.a. Sours Lost/Derailment 3.62 3.06 3.34 3.95 3.74 3.90 3.36 2.97 2.84 n.a. n.a. Vehicle aae4 kun\ts) 11,569 3,402 1,101 10,2+3 6,132 6,303 6,136 5,652 6,31t 4,laa 3,562 Derailments/Million Train-km 848 784 673 784 490 447 477 515 609 587 696 1/ Average per locomotive in service. Source: CNR October 1981 - 49 - Table 2.2 COLOMBIA SEVENTH RAILWAY PROJECT CNR's Motive Power and Rolling Stock 1981 YEARS IN SERVICE H.P. TOTAL 0-5 6-10 11-15 16-20 21-25 26-30 31-35 36-40 LOCOMOTIVES GE-U-6-B 750 8 8 GE-U-8-B 1/ 850 8 8 GM-GA-8-B 850 2 2 GE-U-10-B 2 1050 88 28 60 ALCO-C.B.C. 1200 5 5 GE-U-12-C 1300 18 18 GE-U-13-C 1400 6 6 GH-GR-12-C 1425 24 24 GE-U-20-C 2050 10 10 Total 169 28 60 63 18 .RAIL CARS 40 Seater 23 19 4 4( Seater (Trailers) 24 24 Total 47 43 4 PASSENGER COACHES Coaches 207 13 78 34 82 Sleepings 13 12 1 Restaurant 21 2 8 4 7 Bar 1 1 Baggage 31 2 11 18 Total 273 17 91 19 39 107 FREIGHT CARS (CNR) Box Cars 2197 794 1343 50 9 1 Cattle Cars 202 184 18 Gondolas 914 38 150 625 6 93 2 Flat Cars 780 120 271 367 22 Tank Cars 385 126 17 242 Fruit Cars 250 250 Refrigerated Cars 11 11 Hopper Cars 382 23 108 217 34 Total 5121 -1 187 1189 2698 652 120 2 251 22 PRIVATELY OWNED TANK CARS Fuel 199 190 9 Propane Gas 2 2 Honey 24 24 Total 225 214 11 1/ 1 in process to be phased out in 1981. 2/ 14 in process to be phased out in 1981. 3/ 1734 cars out of service of which 250 will be scrapped. Source: ITALCONSULT and CNR October 1981 COLOMBIA SEVENTH RAILAY PROJECT CNR's Freight Traffic 1971-1980 Year Agricultural Products Livestock Timber Minerals Manufactured Goods Petroleum Products Other Products Total Ton Ton-km Ton Ton-km Ton Ton-km Ton Ton-km Ton Ton-km Ton Ton-km Ton Ton-km Ton Ton-km (thousand) (million) (thousand) (million) (thousand) (million) (thousand) (million) (thousand) (million) (thousand) (million) (thousand) (million) (thousand)(million) 1971 821.8 440.1 119.0 25.1 30.3 7.1 349.1 125.0 964.1 465.2 341.2 78.7 16.9 5.8 2,653.2 1,150.5 1972 900.2 479.3 115.5 23.9 24.2 5.7 306.6 105.1 970.3 466.5 376.9 104.3 5.7 1.9 2,730.8 1,198.5 1973 913.6 537.6 116.3 26.7 30.7 7.3 273.7 108.7 1,059.8 543.2 329.0 92.2 4.9 1.8 2,759.7 1,330.8 1974 917.8 510.0 86.2 15.1 39.2 10.1 295.0 122.9 1,169.8 557.6 357.6 101.1 4.5 1.7 2,899.3 1,329.2 1975 846.4 492.7 79.4 13.4 29.7 7.8 260.4 109.7 876.4 410.9 318.4 93.5 4.3 1.3 2,438.5 1,138.5 o 1976 819.5 473.1 78.8 13.2 34.8 8.6 287.0 144.7 845.8 413.5 311.0 89.7 34.6 14.2 2,411.4 1,156.9 1977 784.0 421.0 57.3 9.8 33.5 6.0 375.4 199.7 926.4 483.3 316.9 87.8 24.9 7.6 2,518.5 1,215.4 1978 803.0 401.3 62.0 11.4 46.7 10.6 444.1 266.3 872.5 396.8 429.8 136.0 24.2 7.5 2,682.4 1,232.0 1979 675.0 334.0 43.7 7.3 23.7 6.7 383.9 226.8 817.7 386.5 428.5 138.2 21.0 6.0 2,393.6 1,105.4 1980 576.4 279.2 38.7 7.6 18.5 5.2 245.5 128.2 661.2 320.2 378.6 117.0 15.6 4.1 1,934.5 861.5 Source: CNR October 1981 COL0OMBIA S-EVENTH RAILWAY PROJECT The 1982-1986 Investent Pln 1982 1983 1984 1985 1986 Total Expenditures 1982-1986 Col Peos. ('000) Col Pe.s (000) Col Pesos ('000) Col Pesos ('000) Col Pesos ('000) Col Pesos ('000) USS ('000) GR0UP I Local Foreign Total Local Foreign Total Local Foreign Total Local F'ogn Total Lcal Foreign Total Local Fore!jn Total Local Foreign Total 1. Permannt Way 1.1 Inftastructure 43.1 - 43.1 43.1 46.3 89.4 43.1 22.9 66.0 43.1 16.0 59.1 43.1 7.6 50.7 215.5 92.8 308.3 3.92 1.69 5.61 1.2 844 Track Rehabiltation 338.0 191.7 529.7 551.8 372.9 924.7 422.3 238.3 660.6 697.9 344.9 1.042.8 680.8 292.9 973.7 2,690.8 1,440.7 4,131.5 48.92 26.19 75.11 1.3 230 Switches - - - 10.8 36.9 47.7 10.8 36.5 47.3 1.6 5.0 6.6 2.2 6.6 8.8 25.4 85.0 110.4 0.46 1.55 2.01 1.4 Bridges 39.4 - 39.4 39.4 16.5 55.9 39.4 - 39.4 39.3 , - 39.3 39.4 - 39.4 196.9 16.5 213.4 3.58 0.30 3.88 1.5 Buildings 26.9 26.9 26.9 -, 26.9 26.9 - 26.9 6.9 - 26.9 26.9 - 26.9 134.5 - 134.5 2.45 - 2.45 1.6 Rehabilitation of Equipment 31.7 103.1 134.8 15.7 118.6 134.3 - - - - - - - - 47.4 221.7 269.1 0.86 4.03 4.89 1.7 Maintenance Equipment - - 191.8 191.8 19- 3.49 3.49 479.1l294.8 773.9 687.7 783.0 1,470.7 542.5 297.7 840.2 80-8 365.9 T174~7 792.4 307.1 1,099.5 3.310.5 2,048.5 5.359.0 60.19 37.25 97.44 2. Motive ower 2.1 4 Locomotives 6Spare Parts - - - - 327.2 327.2 - - - - - - - - - - 327.2 327.2 - 5.95 5.95 2.2 RehObilitation 139 Locomotives 43.2 454.1 497.3 37.5 383.2 420.7 27.1 - 27.1 30.9 - 30.9 29.1 - 29.1 167.8 837.3 1,005.1 3.05 15.22 18.27 2.3 Spares for Stock - - - 12.9 166.4 179.3 12.9 166.4 179.3 - - - 25.8 332.8 358.6 0.47 6.05 6.52 2.4 8 LocoMotive Engines .· - 53.9 53.9 - - - - - - - 53.9 53.9 0.98 0.98 S tl43.2 454.1 497.3 50.4 930.7 981.1 40.0 166.4 206.4 30.9 - 30.9 29.1 - 29.1 193.6 1,551.2 1,74.8 3.52 28.20 31.72 3. Rollng Stockt 3.1 100 Gondolas & Spare Parts - - - - 302.5 302.5 - - - - - - - - 302.5 302.5 - 5.50 5.50 3.2 Reh4bilitation of 1410 Cara 135.4 123.0 238.4 85.8 95.6 181.4 85.8 .8- - 307.0 218.6 525.6 5.58 3.97 =9.55 S,btal 135.4 123.0 238.4 85.8 398.1 483.9 85.8 - 85.8 - - - - - - 307.0 521.1 828.1 5.58 9.47 15.05 4. Workshooa 4.1 Equipment and Tool. 16.2 35.9 52.1 24.3 53.9 78.2 - - - - - - - - 40.5 89.8 130.3 0.74 1.63 2.37 4.2 Modificiation of Existing installations 3.2 - 3.2 4.8 - 4.8 - . - - - - _- - - 8.0 - 8.0 0.15 - 0.15 Subrtol 19.4 35.9 35.3 29.1 53.9 83.0 - - - - . - - - - 48.5 89.8 138.3 6.89 .6-3 2.52 5. Transporton 5.1 Freight Handling Equipment - - - ' 101.9 101.9 - - - - - . - - - - 101.9 101.9 - 1.85 1.85 5.2 Rehabilitation Freight Bandling Equipment 4.8 30.0 34.8 4.9 30.0 34.9 - - - - - - 9.7 60.0 69.7 0.18 1.09 1.27 Sbotl- - 4.8 131.9 136.7 4.9 30.0 34.9 - - - - - - 9.7 161.9 171.6 9.18 2.94 3.12 6. Signaling 0 Telecommunications 6.1 Parts & Equipment 1.4 76.2 77.6 2.7 156.1 158.8 2.7 71,7 74.4 - . - - - 6.8 304.0 310.8 0.12 5.53 5.65 1.4 76.2 77.6 2.7 156.1 158.8 2.7 71.7 74.4 - - -304.0 0.8 0.12 5.53 5.65 7. Technical Assistance 6 Training - - - 6. 77 155 12 .1 26 7.1 Technical Assitance0 a4.8 8.6 13.4 35.0 44.8 79.8 28.0 24.3 52.3 - - - - - - 67 77.7 145.5 1.23 1.41 2.64 7.2 Training 2.7 8.8 11.5 8.3 25.4 33.7 5.7 10.5 16.2 - - - - - - 16.7 44.7 61.4 0.30 2.22 1.75 Subtotal 7.5 17.4 24.9 43.3 70.2 113.5 33.7 34.8 68.5 - - -2.4 206.9 .53 2.22 3.75 Total 686.0 1.001.4 1687.4 903.8 2,523.9 3,427.7 $49: 600.6 1,310.2 839.7 365.9 1,205.6 8215 307.1 1128.6 3,960.6 4,798.9 8,759.5 72.01 87.24 159.25 8. Physical Contingencle. al 33.6 36.3 69.9 43.1 72.8 115.9 40.3 18.7 59.0 42.0 17.8 J9.h 41.0 15.2 56.2 200.0 160.8 360.8 3.64 2.92 6.56 9. Price Contlngeances bl 143.9 72.3 216.2 435.6 488.9 924.5 622.4 209.6 832.0 1,066.9 208.4 1,275.3 1,405.9 254.6 1,660.5 3,674.7 1,233.8 4,908.5 39.44 14.71 54.15 TOTAL GROUP i 863.5 1,114.0 1,973-5 1.302.5 3,085.6 4.468.1 T172. 828.9 2,201.2 1,948.6 592.1 2,540.7 2.268.4 576.9 2.845.3 7835.3 6.193.5 14,028.8 115.09 104.87 219.96 N.te: Ul1 - 55.0 ColS Pesos al 5% excluding rails, switches, looemtovies and Wgons. 1982 1983 1984 1985 1986 b/ Local% 25 23 22 20 18 For.ign % 8 7 7 7 7 Snurce: CNR, Consultant, and Migeio Estim~tes October 1981 COLOMBIA SEVENTH RAILWAY PRO3ECT Th. 1982-1986 Ive.tuent Plian 1982 1983 1984 1985 1986 Total Ependitures 1982-1986 Col Pesos ('000) Col P-sos ('000) Col P... ('000) Col Peson <'000) Col Psos <'000) Col Pesos <'000) US$ ('000) Local Foreign Total Local Foreign Total Local Foreign Total Local Foreign Total Local Poreign Total Local Foreign Total Local Foreign Total CROUP II 1. Permanent ay 1.1 55 km Track Rehabilit-tion (Mexico-Bnosoo Aires) 1l 56.0 82.8 138.8 - - - 104.1 149.7 253.8 - - - - - - 160.1 232.5 392.6 2.91 4.23 7.14 1,2 28 ko Track Rthablitation (La Caro-Chlquinquird) - - - - - 100.4 57.3 157.7 - - - - - - 100.4 57.3 157.7 1.83 1.04 2.87 Subtotal 56.0 82.8 138.8 - - - 204.5 207.0 411.5 - - - - 260.5 289.8 550.3 4.74 5.27 10.01 2. Motive power 2.1 4 Locomotives 6 sp.ar Parts - - - - - - - - 327.2 327.2 - - - 327.2 327.2 - 5.95 5.95 3. Rolling StoCk 3.1 100 Gondolas & Spare Part - - - - - - . 302.5 302.5 - - - - - - - 302.5 302.5 - 5.50 5.50 4. SignallinR & T.1eommunIcation - - - - - - - 88.2 88.2 - - - - - - 88.2 88.2 - 1.60 1.60 Total 56.0 82.8 138.8 - - - 204,5 597.7 802.2 - 327.2 3272 - - - 260.5 1.007.7 1,268.2 .4 18.32 23.06 5. Physital Contingencies bf 3.1 3.3 6,4 - - - 3.6 2.1 '5.7 - - - - . - 6.7 5.4 12.1 0.12 0.10 0.22 6 price Contingencios £/ 11.8 6,0 17.8 - - - 172,7 203.7 . 376.4 - 177.6 177.6 - - - 184.5 387.3 571.8 2.21 4.33 6.54 3~ - 451.7 1.400.4 1852.1 7 27 98 TOTAL GROUP TI 70.9 92.1 163.0 - - - 380.8 803.5 1.184 3 -04.8 504.8 5122 GRAND TOTAL (GRQUP I + CROUP In. Bastc Co-t Estimatt 742.0 1.084.2 1.826.2 903.8 2,523.9 3,427.7 914.1 1,198.3 2,112.4 839.7 693.1 1,532.8 821.5 307.1 1,128.6 4,221.1 5.806.6 10,027.7 76.75 105.56 182.31 Con.ti8na:- phy.il. b 36.7 39.6 76.3 43.1 72.8 115.9 43.9 20.8 64,7 42.0 17,8 59.8 41.0 15.2 56.2 206.7 166.2 372.9 3.76 3.02 6.78 Pric. ej 155.7 78.3 234,0 435.6 488.9 924.5 795.1 413.3 1,208.4 1,066.9 386.0 1,452.9 1,405.9 254.6 1,660.5 3.859.2 1.621.1 5.480.3 41.65 19.04 60.69 GRAND'TOTAL 9344 1_20_2 2.1365 1,3825 3,085.6 4 1 1 ,753.1 1 .4 3, 5 1,948.6 1.096.9 3.045.5 2.268.4 576.9 2,845.3 8.287.0 7,5.9 15,880.9 122.16 127.62 249.78 Not.: US$1 - 55.0 Col P'9o- g/ investment. for 1981 vill be ade from CWR's natertaIs an hand bl 5% ~xcluding rait., switches, locomotive and ~ agont. 1982 1993 1984 1985 1986 t/ L.o. % 25 5 22 28 18 Foreign % 8 7 7 7 7 Source: CNR, Consultants, MiOsion Esttiatch October 1981 COLOMBIA SEVENTH RAILWAY PROJECT The 1982-1985 Project 1982 1983 1941985 total roJec- .962-lOll col Pesos (000o) Cal Pesos ('000) Cal Pess ('000) Col Pesos ('000) Cal Pesos ('000)r1100 ('000) GROUP I Local Foreign Total Local Foreign Total Local Foreign Total Local foreign Total Locl Froigo Total Local Foreign Total 1. Pereanent Tay 1.1 Infrastructure 43.1 - 43.1 43.1 46.3 89.4 43.1 22.9 66.0 - - - 129.3 69.2 198.5 2.35 1.26 3.61 1.2 428 km Track Rehabilitation 338.0 191.7 529.7 551.8 372.9 924.7 422.3 238.3 660.6 - - - 1,312.1 802.9 2,115.0 23.86 14.60 38.46 1.3 200 Switches - - - 10.8 36.9 47.7 10.8 36.5 47.5 - - - 21.6 73.4 95.0 0.39 1.33 1.72 1.4 Bridges 39.4 - 39.4 39.4 16.5 55.9 39.4 - 39.4 - - - 118.2 16.5 134.7 2.15 0.30 2.45 1.5 Buildings 26.9 - 26.9 26.9 - 26.9 26.9 - 26.9 - - 80.7 - 80.7 1.47 - 1.47 1.6 Rehabilitation of Equipment 31.7 103.1 134.8 15.7 118.6 134.3 - - - - - 47.4 221.7 269.1 0.86 4.03 4.89 1.7 Maintenance Equipment - - 191.82 - 19. 191.8 3.49 3.49 Subtotal 479.1 294.8 773.9 487.7 783.0 1,170.7 342.5 297.7 840.2 1,709.3 1,375.5 3,084.8 31.08 25.01 56.09 2. Motive Power 2.1 4 Locomotives & Spare Parts - - - 327.2 327.2 - - - - - - 327.2 327.2 - 5.95 5.95 2.2 Rehabilitation 139 Locomotives 43.2 454.1 497.3 37.5 383.2 420.7 27.1 - 27.1 - - - 107.8 837.3 945.1 1.96 15.22 17.18 2.3 Spares for Stock - - 12.9 166.4 179.3 12.9 166.4 179.3 - - - 25.8 332.8 358.6 0.47 6.05 6.52 2.4 8 Locomotive Engines - 53.9 53.9 - 53.9 13.9 0.98 0.98 Subtotal 13.2 434.2 437.3 50.4 930.7 982.1 40.0 2664 206.4 133.6 1,551.7 2,684.0 2.13 28.20 30.63 3. Rol S 3.1 100 Gondolas & Spare Parts - - - 302.5 302.5 - - - - - - - 302.5 302.5 - 5.50 5.50 3.2 Rehabilitation of 1410 Cars 135.4 123.0 238. 85.8 93.6 182.4 85.8 85.8 307.0 218.6 535.6 5.58 3.97 9.55 sbtotal 135.4 173.0 238.4 85.8 398.1 183.9 85.8 - 85.8 - -- 307.0 321.2 828.2 5.58 9.47 13.03 4. Workshops 4.1 Equipment and Tools 16.2 35.9 52.1 24.3 5S.9 78.2 - - - - - - 40.5 89.8 130.3 0.74 1.63 2.37 4.2 Modificiation of Existing Sbstallations 3.2 3.7 4.8 4.8 8. - 8.0 0.15 0.15 Subtotal 19.1 35.9 55.3 29.0 53.9 .85.M 48.5 89.8 138.3 0.89 1.63 2.52 5. Traosportation 5.1 Freight Handling Equipment - - - - 101.9 101.9 - - - - - - - 101.9 101.9 - 1.85 1.85 5.2 Rehabilitation Freight HSb dling Equipment - - 1.8 0 34.8 4.9 30.0 34.9 - 1- - 0 69 0.19 09 0.7 Subtotal -4 .8 131.9 136.7 4.9 30.0 31.9 - --9.7 161.9 171.6 0.18 2.94 3.12 6. Signaling & Teleommusicatios 6.1 Parts & Equipment 1.4 76.2 77.6 2.7 156.1 158.8 2.7 71.7 74.4 6.8 304.0 310.8 0.12 5.53 5.63 Subtotal 1.4 76.2 77.6 2.7 156.1 158.8 2.7 71.7 74.4 - 6.8 304.0 310.8 0.12 5.53 5.65 7. Technical Assistance & Training 7.1 Technical Assistance 4.8 8.6 13.4 35.0 44.8 79.8 28.0 24.3 52.3 - - - 67.8 77.7 145.5 1.23 1.41 2.64 7. roio 2.e. 1. . 25.4 337 3.7 18.5 16. - - 16.7 44.7 61.4 0.30 0.82 1.07 7.2 Tr ing - ,-. . - . 1 Subtotal 7.5 17.4 24.9 43.3 70.2 113.5 33.7 34.8 68.5 - - -84.5 122.1 206.9 1.53 7.22 3.75 Total 686.0 1,001.4 1,9. 903.8 2,923.9 3427.7 796 606 13.2 - -- ,994 ,259 ,253 181 580 116.81 8. Physical Contingencies a! 33.6 36.3 69.9 43.1 72.8 115.9 40.3 18.7 59.0 - - - 117.0 127.8 244.8 2.13 2.32 4.45 9. Price Contingencies b/ 143.9 72.3 216.2 435.6 488.9 924.5 622.4 209.6 832.0 - - - :,201.9 770.8 1,972.7 15.47 10.21 25.68 TOTAL GROUP I 63.5 110.0 1,735 382.5 3,885.6 468.1 372.3 8289 2,202 116.94 Note: US$1 = 55.0 Col$ Pesos a/ 5% excluding rails, switches, locomtovies and wagons. 1982 1983 1984 1985 1986 b/ Local % 25 23 22 20 18 Foreign % 8 7 7 7 7 Source: CNR, Consultants, and Mission Estimates October 1981 COLOMBIA SEVENTH RAILWAY PROJECT The 1982-1985 Project 1982 1983 1984 1985 Total Project 1982-1985 Col Pesos ('000) Col Pesos ('000) Col Pesos ('000) Col Pesos ('000) Col Pesos ('000) US$ ('000) Local Foreign Total Lmal Foreign Total Local Foreign Total Local Foreign Total Local Foreign Total Local Foreign Total GROUP I 1. Permeanent Way 1.1 55 km Track Rehabilitation (Mexico-Buenos Aires) a/ 56 0 82.8 138.8 - - - 104.1 149.7 253.8 - - - 160.1 232.5 392.6 2.91 4.23 7.14 1.2 28 km Track Rehabilitation (La Caro-Chiquinquire) - - - - - - 100.4 57.3 157.7 - - - 57j 1_7. A.83 1.04 2.87 Subtotal 56.0 82.8 138.8 - - - 204.5 207.0 411 5 - - - 260.5 289.8 550.3 4.74 5.27 10.01 2. Motive power 2.1 4 Locomtotives & Spare Parts - - - - - - - - - - 327.2 327.2 - 327.2 327.2 - 5.95 5.95 3. Rollicg Stock 3.1 100 Gondolas & Spare Parts - - - - - - 302.5 302.5 - - - - 302.5 302.5 - 5.50 5.50 4. ignaglli & Telecomnunications - - - - - - - 88 2 88.2 - - - 88.2 88.2 - 1.60 1.60 Toal56.0 2 8 __ 13 8 - 204 5 597 7 802.2 7 322 3272 260.5 1.77 5T2 44 183 2.0 Total -- 5. Physical Contingencies b/ 3 1 3 3 6 4 - - - 3.6 2 1 5 7 - - 6-7 5.4 12.1 0.12 0.10 0.22 6 Price Contingencies c/ 11.8 6,0 17 8 - - 172 7 203.7 376.4 - 177.6 177 6 184 5 387 3 571.8 2 21 4.33 6.54 TOTAL GROUP II7 9 1630 380 8 803.5 1,184 3 504.8 504,8 451.7 1 1,852- 7.07 22.75 29.82 GRAND TOTAL (GROUP I + GROUP II): Basic Cost Estimate 742.0 1,084 2 1,826.2 903 8 2,523.9 3,427 7 914 1 1,198 3 2,112.4 - 327.2 327 2 2,559.9 5,133.6 7,693.5 46.55 93.32 139.87 Contingenciesi physical b/ 36 7 39 6 76 3 43 1 72 8 115 9 43 9 20.8 64,7 - - - 123.7 133.2 256.9 2.25 2.42 4.67 Price c/ 155 7 78 3 234 0 435.6 488.9 924.5 795 1 413.3 1,208.4 - 177.6 177.6 1,386.4 1,158.1 2,544.4 17.68 14.54 32.22 GRAND TOTAL 34 4 1 2,3 5 632.4 385.5 4,070.0 6.424.9 1 66.48 110.28 176.76 Note: US$l = 55.0 Col Pesos a/ Invetments for 1981 ill be made from CNR's materials on hand b/ 5% excluding rails, switches, locomotives and wagons 1982 1983 1984 1985 1986 e! Local % 25 23 22 20 18 Foreign % 8 7 7 7 7 Source: CNR, Consultants, Mission Estimates October 1981 -55 - TABLE 3.3 COLOMBIA SEVENTH RAILWAY PROJECT Items to be Financed by the Bank Loan Col Pesos ('000) us$ ('000) 1982 1983 1984 1985 Total 1982 1983 1984 1985 Total GROUP I Rails & fittings (less material on-hand) for the 428 km to be rehabilitated. 77.18 347.31 209.14 - 633.63 1.40 6.31 3.80 - 11.51 200 Switches - 36.84 36.46 - 73.30 - 0.67 0.66 - 1.33 Track maintenance equipment - 191.81 - - 191.81 ~ 3.49 - - 3.49 Four locomotives & spare parts - 327.20 - - 327.20 - 5.95 - - 5.95 Spare parts for Locomotives 129.48 194.21 - - 323.69 2.35 3.53 - - 5.88 Locomotive spare parts for stocks - 99.80 99.80 - 199.60 - 1.81 1.81 - 3.62 100 gondolas - 302.50 - - 302.50 - 5.50 - - 5.50 Spares for freight oars 63.80 95.66 - - 159.46 1.16 1.74 - - 2.90 Workshop equipment 35.97 53.94 - - 89.91 0.65 0.98 - - 1.63 Freight handling equipment - 101.90 - - 101.90 - 1.85 - - 1.85 Signaling & telecocmunications - 123.38 61.69 - 185.07 - 2.24 1.12 - 3.36 Technical assistance & training 17.40 39.00 10.50 - 66.90 0.32 0.71 0.19 - 1.22 Subtotal 323.83 1,913.55 417.59 - 2,654.97 5.88 34.78 7.58 - 48.24 Contingecies: Physical 14.74 62.15 25.30 - 102.19 0.27 1.13 0.46 - 1.86 Price 23.59 371.03 147.67 - 542.29 0.37 5.02 1.74 - 7.13 SUBTOTAL GROUP 1 362.16 2,346.73 590.56 - 3,299.45 6.52 40.93 9.78 - 57.23 GROUP II Rails & fittings (less material on-hand) for: 55 km - Mexico-Buenos Aires - - 88.21 - 88.21 - - 1.60 - 1.60 28 km - La Caro-Chiquinquira - - 50.59 - 50.59 - - 0.92 - 0.92 Four locomotives & spare parts - - - 327.20 327.20 - - 5.95 5.95 100 gonolas & spare parts - - 302.50 - 302.50 - - 5.50 - 5.50 Signal & telecommunications - - 93.19 - 93.19 - - 1.69 - 1.69 Subtotal, - - 534.49 327.20 861.69 - - 9.71 5.95 15.66 Cootingencies: Physical - - 6.25 - 6.25 - - 0.11 - 0.11 Price - - 183.32 177.56 360.88 - - 2.16 1.84 4.00 SUBTOTAL GROUP II - - 724.06 504.76 1,228.82 - - 11.98 7.79 19.77 SUBTOTAL GROUP I + GROUP 1I 323.83 1,913.55 952.08 327.20 3,516.66 5.88 34.78 17.29 5.95 63.90 Contingencies Group I + Group II: Physical 14.74 62.15 31.55 - 108.44 0.27 1.13 0.57 - 1.97 Price 23.59 371.03 330.99 177.56 903.17 0.37 5.02 3.90 1.84 11.13 GRAND TOTAL 62.16 2,34673 1,314.82 504.76 528.27 8.52 40.93 21.76 7.79 700 Note: US$1 = 55.0 Col Pesos Source: CNR, Consultants, and Mission Estimates October 1981 - 56 - TABLE 3.4 COLOMBIA SEVENTH RAILWAY PROJECT Track Rehabilitation Program 1982-1984 1982 1983 1984 1982-1984 TRACK KT ------------------- LINES GROUP I: 1. MAIN LINE 1.1 Facatativa - Bagazal km (48-106) 59 - - 59 1.2 Patio Barrancabermeja (4 km) 4 - - 4 1.3 Bagazal - Mexico km (150-202) - 53 - 53 (106-150) - - 45 45 1.4 Mexico-Grecia km (202-220); (270-296) - 45 - 45 (220-264) - - 45 45 1.5 Patio Grecia (4 km) - 4 - 4 1.6 Grecia-Garcia Cadena km (397-408) - 11 - 11 1.7 Medellin-Grecia km (328-371); (380-394) 58 - - 58 (424-436); (445-453); (457-476) - 39 - 39 Subtotal 121 152 90 363 2. SECONDARY LINES 2.1 La Caro - Belencito km (120-150) - 30 - 30 (150-184) - - 35 35 Subtotal - 30 35 65 Total I 121 182 125 428 GROUP II: 2. SECONDARY LINES 2.1 Mexico - Buenos Aires km (146-152); (165-177) 20 - - 20 (111-145) - - 35 35 2.2 La Caro - Chiquinquira: km (68-80) (95-110) - - 28 28 Total II 20 0 63 83 GRAND TOTAL (I + II) 141 182 188 511 Source: CNR, Consultants and Mission October 1981 COLOMBIA SEVENTH RAILWAY PROJECT Condition of Track Sect,ons to be Rehabilitated Before and After the Proiect Present Conditions Overhauled Trak Section Lenght Rails Sleepers FasteninRa Ballast No. Derailmnts (1979) R.il 11_, Derail. Rails Schedule Wear Con- Con- Base- ig Opek.- ents Spad Weight Sepe Speed of kH,n Name Xm tojtm hm Weight % T _tU TY.O tion nlateg Ty,- rndi P T ZIrak gtock tin thrs Total n-r k. -k/h lh/"d T-yn FasteniZn Type Ballat. k.Ih Overhaul 1in Line Pcatativ-Bagazal (65 k) 48-106 59 30 75 ASCE Wooden Bad Spikes Bad 90% Otoshed & Fair 197 79 16 65 357 5.49 10 No rail Treated Sena Base- Crushed River Stones hange wood epike platese one 40 1982 trenc.. anbeeja Yard 4 40 60 Woode Bad Spikes Bad None Earth Bad Yard Ussd 75 Treeatd Scron -- Crushed Yard 1982 Ibs nood epiket stone 8esa-Mexico (98 km) 106-150 45 30 75 ooden Bad Spikes Bad Nooe C-rhed & Fair 97 69 10' 28 204 2.08 15 No rail Treated Sonen Bate- Crushed 40 1984 River Stones change wood spikes ptaes tone 150-202 53 30 75 Wooden Bad Spikes Bad None Crushed & Fair 15 No rail Treted Srew Be- Crushed 40 1983 River St.oes change wood epikes plates stone Nxico-Grecia (127 k) 202-220 18 30 75 Woede Bad Spike- Bad None Crushed & Fair 37 19 9 7 72 0.57 15 Bo rail Treated Serew Be- Crushed 40 1983 River Stones change enad spike. plates etoe 220-264 45 40 75 Weede Bad Spikes Bad None Crushed & Fair 15 No rail Treated Screa B.e- Crushed 40 1984 River Stones change nood spike pla tas stone 270-296 27 40 75 Wooden Bad Spikes Bad Noen River Stones Fair ts No rail Treated ew Be- Crushed 40 1983 .hange wood epikes plates ctone Ntio Grecia 4 40 60 Wooden Bad Spiken Bad None Earth Bad Yard U.ed 75 Treeted Screw -- Cruhed Yard 1983 tb ood epikes stene Gieie-Garcia Cadena (146 k) 397-408 11 40 75 Wooden Bad Spikes Bad None River Stones Bad 30 22 40 5 97 0.66 20 No rail Trated Scrta Bat- Crushed 35/55 1983 & Earth ahaege eod spikes platse tone MIdellin-Grecia (192 k) 328-371 43 30 75 Woodne Bad Spikes Bad Nooe Crushed & Fair 392 145 44 518 1099 5.06 15 No ratl Treated Screw Base- Crushed 40 1982 River Stones change et-d epikes plate. atae 380-394 15 30 75 .n.den Bad Spikes Bad None Crushed & Fair 15 No pail Treated Screw Base- Crushed 40 1982 River Stes change woed spikes plates stoe- 424-436 12 30 75 Wooden Bad Spikes Bad None CEruhed & Pair 15 No rait Treated Bcee Base- Crushed 40 1983 River Stores change nond epika pate.. stone 445-453 8 30 75 Wooden Bad Spikes Bad Nona Crhed & Fair 15 No rail Treated Screw Base- Crnehed 40 1983 River Stones change enad spikas plates state 457-476 19 30 75 Wooden Bad Spiks Bad Nene Crushed & Fair 15 No rail Tr~eted Sc w Base- Cru-hed 40 1983 River Stanes change nood epikes platse stone ntedary Litn Caro-Be'-cito (228 km) 120-150 30 40 60 Wooden Bad Spikes Bad Noe Earth Bad 98 43 7 9 157 0.69 15 N rail Conerete BB -- Crushed 35 1983 change stone 150-184 35 40 60 Wooden Bad Spikes Bad None Earth Bad N rail Concte SR -- Crushed 35 1984 Chaege stone xico-Bueno. Airen 146-152 7 25 55 onden Bad Spike. Bad None River Fair 100 40 11 18 169 0.95 20 75 2/ Concrete BR 2/ -- Cruehed 40 1982 (177 m)1 Stones ste 165-177 13 25 55 Wooden Bad Spikes Bad Nn River Fair 20 75 2/ Conrete SR -- ehd 40 1982 Stones 111-145 35 25 35 Vo.den Bad Spikes Bad None River Fair 20 75 Concrete SR -- ed 40 1904 Stones ate.e LA Cao-Chiquinquira 68-80 13 30 55 Wooden Bad Spikes Bad Bann Earth Bad 37 13 7 15 72 0.57 10 N nail Treaed Scren Be- Crushed 40 1984 (126 km) 1/ -hange enad epiket pltes etone 95-110 15 30 55 Wooden Bad Spikes Bad Noee Earth Bad 10 No rail Treated Screa Base- Cruehed 40 1984 ohange enad npikes ptates stone 11ncluded in Part B. New 75 tb rail and fastening for conrete sleepers in tock. Source: CNR and Consultants Oltober 1981 COLOMBIA SEVENTH RAILWAY PROJECT Locomotive Requirements and Availability Actual (1972-1979) Forecast (1982-1986) 1972 1973 1974 1978 1979 1982 1983 1984 1985 1986 1. Freight traffic, mil ton km 1248 1368 1391 1261 1128 925 1086 1395 1617 1908 2. Average load per train tons 305 310 297 320 301 305 307 308 309 309 3. Freight train km in mil (1):(2) 4.09 4.41 4.69 3.94 3.75 3.02 3.54 4.53 5.24 6.18 4. Pass. traffic mil pass km 398 427 482 342 322 180 280 250 210 170 5. Pass. per train equiv. 166 166 179 188 206 250 250 250 250 250 6. Pass. train km (4):(5) 2.40 2.57 2.69 1.82 1.56 0.72 1.12 1.00 0.84 0.68 7. Total train km (3)+(6) 6.49 6.98 7.38 5.76 5.31 3.74 4.66 5.53 6.08 6.86 1 8. Loco. km in mil (7)x 1.4 9.08 9.77 10.33 8.06 7.43 5.24 6.53 7.74 8.51 9.61 Ln 9. Loco. km per loco. (000) 79 79 82 89 92 90 90 93 94 95 OD 10. Loco. for traffic (8):(9) 115 124 126 91 81 58 73 84 91 102 1 11. Loco. in yards 12 12 12 12 17 2 4 10 13 15 12. Locos. for maint.works 1 2 6 9 11 13. Locos. under or awaiting repairs 19 22 31 66 71 93 71 58 43 32 14. Total locos. required 146 158 169 169 169 154 150 158 152 160 15. Availability [100-(13):143 86 86 86 68 58 39 53 64 73 80 16. Locos. in stock 146 146 158 169 169 154 154 154 158 158 17. Locos. to be scrapped - 2 3 - - - - - - 2 1/ 18. Loco. to be purchased - 14 14 - - - - 4 - 4 19. Loco. needed in fleet 146 158 169 169 169 154 150 158 156 160 1/ 2 locomotives to be scrapped (tentative); this situation would be reviewed in 1983. Source: CR, Consultants and Mission January 1982 - 59 - TABLE 3.7 COLOMBIA SEVENTH RAILWAY PROJECT Gondolas Requirements and Availability 1982-1986 1982 1983 1984 1985 1986 1. Traffic(tons '000)1/ 410 600 748 832 932 2. Total tons per day (000) 2/ 1,138 1,667 2,078 2,310 2,590 3. Average net load per gondola (tons) 35 35 35 35 35 4. Gondolas per day (2):(3) 33 48 60 66 74 5. Turnaround time (days) 16 15 14 13 12 6. Gondolas needed for traffic (4)x(5) 528 720 840 858 889 7. Availability 78 80 82 85 87 8. Total gondolas needed (6):(7) 677 900 1,025 1,009 1,022 9. Gondolas in fleet 914 914 914 914 914 10. Gondolas in fleet in service 714 730 766 806 846 11. Theoretical gondolas requirements (8)-(10) (-37) 170 259 203 176 12. Gondolas under repair 200 184 148 108 68 13. Actual gondola requirements (1l)-(12) - - 111 95 108 1/ Considers a coefficient of 1.4 for unbalanced traffic, 60% loaded and 40% empty gondolas. 2/ 360 working days. Source: CNR, Consultants and Mission January 1982 - 60 - TABLE 3.8 COLOMBIA SEVENTH RAILWAY PROJECT Workshop Equipment and Tools Requirements (1982-1985) Item Quantity Estimated Cost (US$) Wheel lathe 1 750,000 Axle lathe 1 182,000 Jib crane 7 tons 2 77,000 Jib crane 5 tons 3 102,000 Forklift 3 1/2 tons 1 36,000 Furnace for electric motors 1 41,000 Electric motors testing bench 1 18,000 Testing bench for speed recorders 1 41,000 Electro-hydraulic jacks 15 tons 4 31,000 Testing equipment for injectors 1 23,000 Swing crane 1 3,000 Water jet cleaning equipment 2 23,000 Air compressor 3 41,000 Tool sets for diesel engines 22 62,000 Tool sets for diesel electric 14 40,000 Tool sets for air brakes 14 40,000 Tool sets for diesel traction 15 42,000 Tool sets for general use several 77,500 Total 1,630,000 Source; CNR, Consultants, Mission Estimates October 1981 COLOMBIA SEVENTH RAILWAY PROJECT (Excluding Price Contingencies) Technical Assistance and Training Program 1982 1983 1984 Man-Months 1982 1983 1984 1982-1984 Local Foreign Total Local Foreign Local Foreign Local Foreign Local a/ Foreign Total ------------------- Cost (Col Pesos Million) ------------------------------ 1. TECHNICAL ASSISTANCE 1.1 Feasibility Study of Bogota-Buenaventura connection. Phase 1: Traffic forecasts model distri- bution preliminary cost estimates, economic feasibility study. 81 10 91 - - 25.5 4.6 - 2.1 25.5 6.7 32.2 Phase II: Detailed cost estimates. 103 5 108 - - - - 26.9 2.5 25.9 2.5 29.4. 1.2 Signal and Telecommunication Studies. 40 20 60 - - 1.0 6.2 1.1 6.2 2.1 12.4 14.5 1.3 Line capacity analysis 24 12 36 - - 0.9 7.4 - - 0.9 7.4 8.3 1.4 Cost accounting, tariff structuring, accounting and financial planning, operating statistics. 24 49 73 0.5 3.6 0.5 16.7 - 9.9 1.0 30.2 31.2 1.5 Traffic demand model. 24 12 36 0,3 3.6 0.5 3.7 - - 0.8 7.3 8.1 1.6 Reduction of operating costs. 72 18 90 4.0 1.4 6.6 6.2 - 3.6 10.6 11.2 21.8 Subtotal 368 126 494 4.8 8.6 35.0 44.8 28.0 24.3 67.8 77.7 145.5 2. TRAINING 2.1 Operational training programs in local and foreign training centers. 2.7 5.0 8.3 15.5 5.7 10.5 16.7 31.0 47.7 2,2 Workshops technical assistant and training c/ , - 22 22 - 3.8 - 9.9 - - - 13.7 47.7 Subtotal - 22 2 2.7 8.8 8.3 25.4 5.7 10.5 16.7 44.7 61.4 Total 368 148 516 7.5 17.4 43.3 70.2 33.7 34.8 84.5 122.4 206.9 a! FromUS$575 to US$6,000/man month. b/ US$11,000/man-month. c/ Includes the preparation of a locomotive scrapping program. Source: ITALCONSULT, CNR and Mission January 1982 - 62 COMALBIA TABLE 3.10 SEVENTH RAILWAY PROJECT Project Ialementation Schedule Year 1982 1983 1984 1985 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jam Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Oct Dee Item 1. PERKANENT WAY II1 Infrastructure - ork 1.2 511 km Track Rehabilitation - bidding - supply of material - vork 1/ 1.3 200 SWitches - bidding - supply of material - Work 1.4 Bridge. - bidding - supply of material - vouk 1/ 1.5 Buildings - work 1.6 Rehabilitation of eq,ipent - bidding - supply of material 1.7 Maintenance equipment - bidding - delivery 2. MOTIVE POWER 2.1 8 locomotives and spare parts - bidding - deliveryTRA 2.2 Rebsbilitation of 90 loc-ootives T I AL bidding - supply of material - Sork 2.3 Rehabilitation of 49 locomotives - *ork 2/ 2.4 Spare for stocks - bidding - delivery 2.5 8 locomotive engines - puchae - delivery 3. ROLLING STOCK 3.1 200 gondolas and spare parts - bidding - delivery 3.2 Rehabilitation of 1,410 freight cars - bidding for material - supply of matariAl - tork 3/ 4. WORKSHOPS 4.1 Equipment and Tools - bidding for material - delivery 4.2 Xodification of existing installations - works 5. TRANSPORTATION 5.1 Freight handling equipment - bidding - delivery 6. SIGNALLING AND TELECOMMUNICATIONS 6.1 Parts and equipment - works (signalling) - bidding * delivery - installation 7. TECHRNICAL ASSISTANCE AND TRAINING 7.1 Technical Assistnete - Evaluation - Work 7.2 Training - Work programs 1/ Track Works to start January 1982 with CNR's materials in stock. 2/ Materials already requested with funds from Pederacion Nacional de Cafeteros. 3/ Works to start January 198 .vith CNR/s materials. Source: ITALCONSULT, CNR and the mission Octobet 1981 - 63 - TABLE 3.11 COLOMBIA SEVENTH RAILWAY PROJECT Estimated Schedule of Disbursements (Millions US$) IBRD Fiscal Year Quarterly Disbursement Cumulative Disbursement 1983 I September 1982 2.0 2.0 II December 1982 4.5 6.5 III March 1983 6.0 12.5 IV June 1983 9.0 21.5 1984 I September 1983 10.0 31.5 II December 1983 16.0 47.6 III March 1984 5.0 52.5 IV June 1984 6.0 58.5 1985 I September 1984 7.0 65.5 II December 1984 4.0 69.5 III March 1985 1.0 70.5 IV June 1985 1.0 71.5 1986 I September 1985 2.0 73.5 II December 1985 2.0 75.5 III March 1986 1.0 76.5 IV June 1986 0.5 77.0 Source: Mission Estimates January 1982 COLOMBIA SEVENTH RAILWAY PROJECT Traffic Forecast Related to CNR's Expected Cying Capacity 1982-1986 1982 1983 1984 1985 1986 ton ton-km ton ton-km ton ton-km ton ton-km ton ton-km ('000) (million) ('000) (million) ('000) (million) ('000) (million) ('000) (million) Agricultural Products 570 277 620 300 775 376 846 411 990 481 Livestock 30 5 30 5 30 5 30 5 30 5 Timber 20 6 25 7 25 7 25 7 25 7 0 Mineral Products 320 180 370 213 510 285 560 321 705 408 Manufactured Products 650 300 800 365 1,040 462 1,150 505 1,374 585 Petroleum Products 360 126 400 140 431 154 455 162 480 166 Other Products 20 6 20 6 20 6 20 6 20 6 1,970 900 2,265 1,036 2,831 1,295 3,086 1,417 3,624 1,658 Source: Mission Estimates October 1981 - 65 - TABLE 4.2 COLOMBIA SEVENTH RAILWAY PROJECT CNR's Passenger Traffic 1971-1986 Average Passenger Passener-km Journey (thousand) (million) (km) Actual 1971 3,161 281 89 1972 4,262 398 93 1973 4,206 427 102 1974 4,552 482 106 1975 5,099 523 102 1976 4,081 511 125 1977 2,967 392 132 1978 2,569 342 133 1979 2,456 322 131 1980 2,215 315 142 Forecast 1982 2,140 300 140 1983 2,000 280 140 1984 1,785 250 140 1985 1,500 210 140 1986 1,215 170 140 Source: CNR and Mission Estimates October 1981 - 66 - TABLE 4.3 COLOMBIA SEVENTH RAILWAY PROJECT Economic Evaluation of Track Rehabilitation Economic Return (%) Rehabili- Economic Cost 20% Decrease tation of Investment]l 10% Cost in Traffic Section Start (Col$ million) Base Case Increase Benefits Facatativa-Bagazal 1982 177.5 32 28 30 Bagazal-Mexico 1983 295.0 25 22 24 Mexico-Grecia 1983 381.0 16 14 15 Grecia-Garcia Cadena 1983 39.3 15 13 14 Medellin-Grecia 1982 389.6 17 15 16 La Caro-Chiquinquira 1984 133.8 13 12 12 La Caro-Belencito 1983 246.7 17 15 16 Mexico-Dorada-Buenos Aires 1982 338.1 13 12 12 2,001.0 18 16 17 1/ August 1980 prices. Souce. C n aad tission Estimates December 1981 - 67 - TABLE 4.4 COLOMBIA SEVENTH RAILWAY PROJECT Economic Evaluation of Motive Power and Rolling Stock Economic Return (%) Economic Cost of Investment 1/ 10% Cost 10% Decrease Item (Col$ million) Base Case Increase in Benefits Rehabilitation of Locomotives 679.5 42 39 22 New Locomotives 591.7 27 24 22 Rehabilitation of Wagons 288.8 61 56 55 New Wagons 508.7 22 21 19 TOTAL 2,068.7 35 33 26 1/ August 1980 prices. Source: Consultants and Mission Estimates December 1981 COLIOMBIA SEVENTH RAILWAY PROJECT Revenues Expenses and Net Income (Millions Pesos) 1973 1974 1975 1976 1977 1978 1979 1980 Appraisal Appraisal Appraisa 7 Appraisal Appraisal 7 Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast 1/ Actual Actual Aidual Actual Operating Revenue: Freight - Comnercial (including IIL) 466.0 519.9 495.9 689.9 520.6 659.9 547.2 807.1 564.3 1,168.1 1,545.0 1,721.1 1,850.6 - Non-tevenue (Government paid) 26.0 25.6 26.0 57.2 25.0 73.5 25.0 98.3 25.0 104.2 75.4 71.2 98.6 Passenger and Oxpress 65.3 66.9 70.9 88.8 70.7 117.5 76.0 150.3 76.0 165.6 166.6 178.9 248.5 Miscellaneous - (storage, rent.demurrage, water & light) 22.5 25.9 23.0 38.3 26.0 46.0 28.5 44.9 32.0 83.9 154.0 125.4 101.3 Tarifflnerease - - 65.2 - 145.0 - 242.6 - 354.7 - - - Total (a) 579.8 638.3 681.0 874.2 787.5 896.5 919.3 1,100.6 1,052.0 1,521.8 1,941.0 2,096.6 2,298.8 Operating Expenses: Road Maintenance 166.5 179.6 186.0 225.0 203.8 304.5 223.9 458.9 245.4 540.6 634.4 730.4 1,080.4 Equipment Maintenance 126.3 100.3 149.6 120.8 168.3 156.5 185.8 239.0 207.0 291.0 349,.0 388.7 553.6 Sales and Transportation 247.8 258.9 283.4 307.9 312.2 378.2 342.3 624.2 376.3 757.1 888.0 1,082.3 1,462.4 General 80.4 85.5 86.4 139.8 93.3 145.9 100.8 210.1 109.0 234.2 312.2 .348.5 568.2 Total Working Expenses 621.0 624.3 705.4 793.3 777.6 985.1 852.8 1,532.2 937.7 1,822.9 2,183.6 2,549.9 3.664.6 o Depreciation 93.0 79.3 104.0 70.8 113.0 78.7 118.0 84.4 120.0 87.8 83.7 81.4 90.2 m Reduction of losses in uneconomic lines 5.0 - 9.0 - - 14.0 - 16.0 - 16.0 - - - t * Total (b) 709.0 703.6 800.4 864.1 876.6 1,063.8 954.8 1,616.6 1,041.7 1,910.7 2,267.3 2,631.3 3,754.8 Net Operating .evenue/(Loss) e- (a - b) (129.2) (65.3) (119.4) 10.1 (89.1) (167.3) (35.5) (516.0) 10.3 (388.9) (326.3) (534.7) (1.456.0) Non-operating Revenue (net) (sale of scrap and land- Profit only) 19.0 18.5 19.0 17.1 15.0 18.3 10.0 129.7 10.0 38.9 19.7 9.7 72.3 Net Revenue/(Ioss) (d) (110.2) (46.8) (100.4) 27.2 (74,1) (149.0) (25.5) (386.3) 20.3 (350.0) (306.6) (525.0) (1,383.7) Interest 87.5 131.0 97.5 387.0 129.9 510.6 143.6 416.7 143.8 454.2 556.6 515.1 879.6 Net Income/(Deficit) (197.8) (177.8) (197.9) (359.8) (204.0) (659.6) (169.1) 803.0 (123.5) (804.2) (863.2) (1,040.1) (2,263.3) Breakdown of Working Expenses Personnel 423.5 435.9 487.6 553.9 538.8 687.9 591.0 1,070.0 650.1 1,314.4 1,524.8 1,780.6 2,908.8 Fuel 28.4 28.2 32.2 35.9 36.5 44.5 40.6 69.3 47.0 86.2 98.7 115.3 173.2 Material 97.2 82.8 108.7 105.2 120.3 130.6 133.2 203.1 147.5 215.6 289.5 338.1 336.2 Other 71.9 77.5 76.9 98.3 82.0 122.1 88.0 189.8 93.9 _280S.7 270.6 315.9 246.4 Significant Rati0 Working Ratio 106.2 97.8 102.3 90.7 97.0 109.9 91.0 139.2 87.6 119.7 112.0 121.6 159.6 Operating RatiO 122.3 110.2 117.5 98.8 111.3 118.7 103.9 146.9 99.0 125.5 117.0 125.5 163.3 Times Interest gned - - - - - 0.3 - - 0.1 - Debt Coverage- - DbCoeae- -- - 0.1 - 0.2 - 0.4 - Return on Net Fjx sets - - - - - 0.2 - 1/ This appraisal forecast was shown in the Appraisal Report but the operating ratio was not shown in the Loan Document. Source: CNR December 1981 - 69 - TABLE 5.2 COLOMBIA SEVENTH RAILWAY PROJECT Summary Balance Sheets (Million Pesos) 1977 1978 1979 1980 ASSETS Current Assets Cash 91.0 148.5 241.9 183.4 Inventories 887.0 801.7 739.5 955.5 Other 397.2 549.9 687.6 941.2 Total 1,375.5 1,500.1 1,669.0 2,080.1 Fixed Assets Gross Fixed Assets 1/ 5,083.5 5,177.2 5,250.9 5,445.7 Less Accumulated Depreciation (917.1) 993.4 1,072.8 1,156 2 Net Fixed Assets 4,166.4 4,183.8 4,178.1 4,289.5 Miscellaneous Assets 740.6 890.2 900.5 1,081.6 TOTAL ASSETS 6,282.5 6.,574.1 6,747.6 7,449.8 LIABILITIES AND CAPITAL Current Liabilities 1,235.6 1,424.4 1,657.1 2,426.6 Long-Term Debts 3,727.9 3,811.5 3,213.6 3,447.2 Capital and Surplus 5,218.7 6,094.3 7,534.4 8,690.9 Less Accumulated Deficits (4,047.5) (4,912.7)) 5,944.5 (,445.8) Net Capital 1,172,2 1,181.6 1,589.9 1,245.1 Reserve for Social Benefits - (cesantias, pensions, vacations, etc) 147.8 156.6 287.0 330.9 TOTAL LIABILITIES AND CAPITAL 6 282.5 6,574.1 6,747.6 7,449.8 RATIOS Current Assets/Current Liabilities 1.1 1.1 1.0 0.9 Current Assets less Inventories/ Current Liabilities 0.4 0.5 0.6 0.5 Debt/Equity 76/24 77/23 67/33 73/27 1/ Includes foreign exchange rate adjustment in book values of those fixed assets which were purcahsed from external financing. Source: CNR December 1981 - 70 - TABLE 5.3 Page 1 of 2 COLOMBIA SEVENTH RAILWAY PROJECT Forecast Income Statements Total Network (In Mid-1981 Col$ Millions) Estimate Forecast 1981 1982 1983 1984 1885 1986 OPERATING REVENUES FREIGHT 1716.00 2206.26 2793.57 3841.23 4623.39 5409.72 PASSENGER 117.00 109.20 107.50 98.70 88.40 83.20 OTHER 135.00 155.00, 180.00 210.00 240.00 270.00 TOTAL OPERATING REVENUES 1968.00 2470.46 3081.07 4149.93 4951.79 5762.92 GOVERNMENT NORMALIZATION PAYMENT ON PASSENGER SERVICES 310.00 367.00 383.00 334.00 271.00 265.00 TOTAL REVENUES 2278.00 2837.46 3464.07 4483.93 5222.79 6027.92 OPERATING EXPENSES PERSONNEL 2646.00 2738.00 2833.00 2906.00 2944.00 2974.00 FUEL & LUBRICATION 238.00 306.00 352.24 440.30 481.78 563.72 MATERIAL 355.00 700.00 750.00 800.00 820.00 840.00 OTHER 210.00 452.00 479.00 508.00 527.00 550.00 WORKING COSTS 3449.00 4196.00 4414.24 4654.30 4772.78 4927.72 DEPRECIATION 112.00 135.00 500.00 500.00 510.00 515.00 OPERATING COSTS 3561.00 4331.00 4914.24 5154.30 5282.78 5442.72 NET OPERATING REVENUES/(LOSS) BEFORE NORMALIZATION -1593.00 -1860.54 -1833.17 -1004.37 -330.99 320.20 AFTER NORMALIZATION -1283.00 -1493.54 -1450.17 -670.37 -59.99 585.20 NON-OPERATING REVENUES 55.00 60.00 60.00 60.00 60.00 60.00 PENSION PAYMENTS 1234.00 1252.00 1275.00 1304.00 1334.00 1368.00 SOCIAL BENEFITS- CESANTIA PAYMENTS 400.00 423.00 431.00 440.00 449.00 458.00 INTEREST 900.00 263.00 334.00 445.00 468.00 445.00 NET INCOME/(LOSS) BEFORE NORMALIZATION -4072.00 -3738.54 -3813.17 -3133.37 -2521.99 -1890.80 AFTER NORMALIZATION -3762.00 -3371.54 -3430.17 -2799.37 -2250.99 -1625.80 AVERAGE NUMBER OF. STAFF EMPLOYED 10328.00 10588.00 10845.00 11015.00 11050.00 11050.00 PENSIONERS 11620.00 12120.00 12620.00 13170.00 13720.00 14270.00 CESANTIA RECIPIENTS 1350.00 1400.00 1400.00 1450.00 1450.00 1450.00 TRAFFIC NET TON-KM (MILLIONS) 700.00 900.00 1036.00 1295.00 1417.00 1658.00 PASS-KM (MILLIONS) 300.00 280.00 250.00 210.00 170.00 160.00 SIGNIFICANT RATIOS BEFORE NORMALIZATION WORKING RATIO 1.75 1.70 1.43 1.12 0.96 0.86 OPERATING RATIO 1.81 1.75 1.59 1.24 1.07 0.94 AFTER NORMALIZATION WORKING RATIO 1.51 1.48 1.27 1.04 0.91 0.82 OPERATING RATIO 1.56 1.53 1.42 1.15 1.01 0.90 1/ A TARIFF INCREASE OF 10% IN REAL TERMS IN EACH YEAR OF 1983, 1984 AND 1985 WAS ASSUMED. SOURCE; CNR, CONSULTANTS AND MISSION ESTIMATES DECEMBER 1981 - 71 - TABLE 5.3 Page 2 of 2 COLOMBIA SEVENTH RAILWAY PROJECT Forecast Income Statements Pacific Network (In Mid 1981 Col$ Millions) 1981 1982 1983 1984 1985 1986 Operating Revenues Freight 227 270 312 378 453 491 Passenger 72 72 69 65 36 - Other 36 42 48 54 59 66 Total Operating Revenues 335 384 429 497 548 557 Government Normalization Payment on Passenger Services 41 55 56 48 37 - Total Revenues 376 439 485 545 585 557 Operating Expenses Personnel 457 461 465 469 475 479 Fuel & Lubricants 46 56 58 64 70 76 Material - 90 140 145 150 152 154 Other 19 21 22 23 24 25 Working Costs 612 678 690 706 721 734 Depreciation 14 17 63 63 65 68 Operating Costs 626 695 753 769 786 802 Net Operating Revenues/(Loss) Before Normalization (291) (311) (324) (272) (238) (245) After Normalization (250) (256) (268) (224) (201) (245) Traffic Net ton-km (millions) 80 95 100 110 120 130 Pass-km (millions) 80 80 70 60 30 - Significant Ratios Before Normalization Working Ratio 183 177 161 142 131 132 Operating Ratio 187 181 175 155 143 144 After Normalization Working Ratio 163 154 142 130 123 N/A Operating Ratio 166 158 155 141 134 N/A Source: CNR and Mission Estimates November 1981 - 72 - TABLE 5.4 COLOMBIA SEVENTH RAILWAY PROJECT Government Financial Assistance to CNR During 1982-1986 (In Mid-1981 Col$ Millions) 1982 1983 1984 1985 1986 Type of Subsidies INVESTMENT PLAN 949.2 1311.3 942.9 558.6 DEBT SERVICE LOCAL 730.7 175.1 120.9 99.3 FOREIGN 612.5 574.4 524.3 545.1 550.5 TOTAL 1343.2 749.5 645.2 644.4 550.5 PENSION PAYMENTS 1252.0 1275.0 1304.0 1334.0 1368.0 CESANTIA PAYMENTS 423.0 431.0 440.0 449.0 458.0 NORMALIZATION FOR PASSENGER SERVICES 367.0 383.0 334.0 271.0 265.0 OPERATING DEFICIT 1298.5 890.2 110.4 TOTAL 5632.9 5040.0 3776.5 3257.0 2641.5 US$ EQUIVALENT MILLION AT COLS 55 = US$1 102.4 91.6 68.7 59.2 48.0 CURRENT BUDGETARY ALLOCATION COVERED BY GENERAL GOVERNMENT PENSION BUDGET 1252.0 1275.0 1304.0 1334.0 1368.0 MINISTRY OF FINANCE BUDGET FOREIGN DEBT SERVICE 612.5 574.4 524.3 545.1 550.5 INVESTMENT 359.7 THE HIGHWAY FUND 1/ 2107.0 2171.0 2265.0 2393.0 2500.0 MINISTRY OF PUBLIC WORKS AND TRANSPORT BUDGET 1301.7 1019.6 SURPLUS FUNDS AVAILABLE FOR FUTURE INVESTMENT NEEDS -316.8 -1015.1 -1777.0 TOTAL 5632.9 5040.0 3776.5 3257.0 2641.5 1/ A recent law enacted in December 1981 transfers 10% of the Fondo Vial (Highway Fund) funds to CNR. The amounts shown above represent CNR's, the Government's, and mission estimates. SOURCE; CNR AND MISSION ESTIMATES DECEMBER 1981 73 - TABLE 5.5 COLOMBIA SEVENTH RAILWAY PROJECT Forecast Sources and Applications of Funds Statements (In Mid-1981 Col$ Millions) E6tmAte oreewt 1981 1982 1983 1984 1985 1986 APPLICATIONS OF FUNDS OPERATIONS OPERATING (REVENUE)/LOSS BEFORE NORMALIZATION 1593.0 1840.5 1833.2 1004.4 331.0 -320.2 NON-OPERATING REVENUES 55.0 60.0 60.0 60.0 60.0 60.0 DEPRECIATION 112.0 135.0 500.0 500.0 510.0 515.0 SUB TOTAL 1426.0 1684.5 1273.2 444.4 -239.0 -895.2 INVESTMENT LOCAL 636.0 778.7 946.9 958.0 881.7 862.5 FOREIGN 1123.8 2596.7 1219.1 710.9 322.3 SUBTOTAL 636.0 1902.5 3543.6 2177.1 1592.6 1184.8 DEBT SERVICE CHARGES LONG-TERM-FOREIGN-PRINCIPAL 525.0 431.6 290.8 112.8 97.6 206.9 -INTEREST 232.0 180.9 283.6 411.5 447.5 434.9 LOCAL -PRINCIPAL 386.0 60.9 113.8 87.1 78.9 69.2 -INTEREST 166.0 16.8 50.3 33.8 20.4 10.2 SHORT-TERM-LOCAL -PRINCIPAL 588.0 11.0 -INTEREST 65.0 SUB TOTAL 1309.0 1343.2 749.5 645.2 644.4 721.2 PENSIONS & BENEFITS PENSION PAYMENTS 1234.0 1252.0 1275.0 1304.0 1334.0 1368.0 CESANTIA PAYMENTS 400.0 423.0 431.0 440.0 449.0 458.0 SUB TOTAL 1634.0 1675.0 1706.0 1744.0 1783.0 1826.0 TOTAL APPLICATIONS 5005.0 P586.2 7272.3 5010.7 3781.0 2836.8 SOURCES OF FUNDS CNR INTERNALLY GENERATED FUNDS INVENTORIES 68.3 44.9 52.8 17.3 6.2 CNROS STAFF INPUT FOR THE PROJECT 157.2 132.8 170.3 179.5 189.1 UNDP GRANT FOR TECHNICAL ASSISTANCE 27.5 27.5 SALE OF LAND 1063.0 SUB TOTAL 1063.0 225.5 205.2 250.6 196.8 195.3 LOANS FEDERACION CAFETEROS 250.0 389.2 51.4 IBRD - PROPOSED LOAN 33B.6 1975.7 983.6 327.2 BARRED POPULAR 130.0 SUB TOTAL 380.0 727.8 2027.1 983.6 327.2 GOVERNMENT CONTRIBUTION INVESTMENT PLAN 626.0 949.2 1311.3 942.9 558.6 DEBT SERVICE CHARGES 650.0 1343.2 749.5 645.2 644.4 550.5 PENSION 1234.0 1252.0 1275.0 1304.0 1334.0 1368.0 CESANTIA PAYMENTS 423.0 431.0 440.0 449.0 458.0 NORMALIZATION FOR PASSENGER SERVICE LOSSES 367.0 383.0 334.0 271.0 265.0 OPERATING DEFICIT 1052.0 2/ 1298.5 890.2 110.4 SUB TOTAL 3562.0 5632.9 5040.0 3776.5 3257.0 2641.5 TOTAL SOURCES 5005.0 6586.2 7272.3 5010.7 3781.0 2836.8 1/ INCLUDES ABOUT COL$ 200 MILLION PAYABLE IN JANUARY 1982 2/ NOT YET TRANSFERRED TO CNR SOURCE; CNR. CONSULTANTS AND MISSION ESTIMATES DECEMBER 1981 COLOMBIA SEVENTH RAILWAY PROJECT Forecast Balance Sheets 1981-1986 (In Mid 1981 Col$ Millions) Six Months Estimate Forecast 1981 1981 1982 1983 1984 1985 1986 ASSETS Current Assets Cash & Banks 231.1 237.0 257.1 320.6 431.8 51.5 599.5 Inventories 1,048.1 1,241.5 1,173.2 1,191.3 1,168.8 1,184.2 1,178.0 Accounts Receivable 697.1 717.6 765.7 955.1 1,286.5 1,535.1 1,786.5 Other Current Assets 841.3 851.1 870.0 875.0 880.0 885.0 890.0 Subtotal 2876 3,047.2 3,066.0 320 3,767.1 4383 4,454.0 Fixed Assets Gross Fixed Assets 5,476.5 5,789.5 7,667.1 11,059.1 13,250.9 14,672.4 15,857.2 Less Accumulated Depreciation 1,210.7 12 66.7 .91 7 1 901.7 2,3,426.7 Net Fixed Assets 4,265.8 4,52.8 6,265.4 9_147.4 10,849.2 11,760.7 12,430.5 Other Assets 1,144.8 1,044.8 1,306.7 1 9 1885.8 _1396.8 515.7 Total Assets ,621 8 10,638.1 14,227.3 16,502.1 17,515.8 11,400.2 LIABILITIES & CAPITAL Current Liabilities 3,001.9 3,100.5 2,948.0 2,982.0 3,051.0 2,950.0 2,810.0 Long Term Debts 3,298.8 3,338.8 2,986.1 4,597.6 5,381.3 5,532.0 5,255.9 Other 396.4 310.9 315.0 315.0 315.0 315.0 315.0 Total Liabilities 6,697.1 6_,75.2 6,249.1 7A9. 8,747.3 1_97.0 8 380.9 Capital and Reserves 9,218.4 10,593.4 14,551.3 17,885.2 19,917.7 21,391.7 22,207.2 Less Accumulated Deficits 78i.3 8,_j28.8 10,162.3 11,552.5 12,2. 12,672.9 13 187.9 Net Capital 1,531.1 1,864.6.0 6,332.7 1 81 09. 3 Total Liabilities & Capital 8,228.2 8,614.8 10.638. 4 227.3 16,1502,1 1515.8B 17 4O0.2 Current Assets/Current Liabilities 1.0 1.0 1.1 1.2 1.5 1.6 Current Assets Less Inventories/ Current Liabilities 0.6 0.6 0.7 0.8 1.0 1.2 Debt/Equity 65/35 40/60 42/58 41/59 39/61 37/63 Source: CNR and Mission Estimates November 1981 - 75 - ANNEX 1 Page 1 COLOMBIA SEVENTH RAILWAY PROJECT CNR's Operations Review 1. Operating statistics from 1970 to 1980 are set out in Table 2.1 of the report. The main points that may be noted are: (a) Passenger numbers increased up to 5.10 million in 1975 and then started to decline, down to 2.21 million in 1980; passenger-km also increased through 1970-1975, but decreased about 40% to 1980 with an increase in the average journey from 102 km to 142 km. These decreases are due to the discontinuance of a number of services. (b) Freight tons remained level during 1970-1973, increased over 10% in 1974, and then decreased a total of about 37% by 1980; however, net ton-km increased over 12% during 1970-1974, but decreased 26% in the period 1974-1980; the average haul increased 0.6% (442 to 445 km) during 1970-1980. The decrease in freight traffic is caused by the slowdown of the economy in Colombia and a decline in locomotive availability. (c) On freight operations, the average net ton-km/car-km increased 16% during 1970-1980, and the average net ton-km/train-km increased 72% since 1970. The total freight train-km decreased 144% in the same period; the average car turnaround improved from 14.2 days in 1970 to 13.0 days in 1975 and then declined to 18.9 days in 1980. Freight car availability decreased 13.6% in 1970-1980, one of the reasons being the delays in unloading CNR's cars in Santa Marta and Buenaventura ports due to the inefficiency of the Port Authority's personnel and to the poor coordination between the two interested parties. As a result, CNR's freight cars had to wait 11 to 12 days to be unloaded, with the subsequent Port Authority's refusal to pay demurrages. Coffee producers used CNR's cars for storage in the ports, affecting car availability. MOPT is aiming at establishing port regulations which would help to improve the railway car turnaround time. CNR, at present, does not allow coffee to be loaded inland while there are cars with coffee waiting to be unloaded in the ports. (d) Locomotive availability improved from 85.2% in 1970 to 86.9% in 1974, but then started to decline as a result of technical problems with the Spanish GE locomotives, failure to enforce disciplinary actions, insufficient supply of spares and inade- quate maintenance program, reaching 57.9% in 1979 (and a low of 28% in 1981). Locomotive km/day (average per locomotive in service) increased 26% since 1970. - 76 - ANNEX 1 Page 2 (e) The operational targets set in the Plan of Action for CNR under Loan 926-CO were achieved in 1974-1975 and surpassed in some cases, but, from then to the end of 1980, performance declined because of (i) the slowdown in investment in 1976-1978; (ii) institutional problems; (iii) deterioration of the track aggravated by heavy rainfalls and (iv) the marked decline of locomotive availability from 1977. In 1969, CNR began to receive from Spain 60 GE U10B diesel locomotives; the diesel engine of these locomotives (D 398) soon showed turbocharger and piston failures as a result of overheating. The manufac- turers introduced some modifications in these components, but, after a period, monoblocks and some other vital parts of the engines failed also. A second lot of 28 GE Ul0B locomotives with modifications to the diesel version D 398 arrived in 1972-1973, but, after a year in service, they also began to show failures. Further investigations were made with Bank assistance, and it was found out that the diesel engines purchased did not have the power requested by CNR in the original technical specifications. Some of the locomotives that were used coupled in trios were of different types (e.g., different engine efficiency and wheel diameters). The result was that the best of the three locomotives was always overloaded and went out of order within a short while on the most difficult terrain between Facatativa and Bagazal (2,700 m above the sea level). Locomotives therefore started deteriorating rapidly. This situation led CNR to an abnormal need for spare parts and to the utilization of locomotives without an adequate maintenance program. December 1981 - 77 - ANNEX 2 Page 1 COLOMBIA SEVENTH RAILWAY PROJECT Summary of the Plan to Increase CNR-s Locomotive Availability 1. The limited availability of locomotives, as a consequence of the lack of spare parts, the use of hand labor and the damages frequently suffered by locomotives in service, represents the main constraint to CNR's transport capacity. 2. CNR, with the assistance of consultants, has elaborated a plan for the reorganization of the workshops and has studied the present condition of the locomotive fleet with recommendations for normalization of the maintenance schedules. The plan takes into account the availability of spare parts during 1981 and subsequent years. The timely arrival of these spares in the workshops is crucial for meeting the targets set. 3. The plan consists of two phases. The first focuses on the most urgent heavy repairs for the greatest number of locomotives on a short-term basis, which would require reorganization of the present staff in the workshops and maintenance sheds and improvement of the facilities, equipment and tools. The second phase mainly refers to the Corzo (Facatativa) workshop, which is to be restructured with emphasis on specialization to enable it to deal with specific locomotive repair in order to increase productivity and improve staff working conditions. The same rationale would be applied to the other diesel locomotive repair workshops. All jobs were scheduled on the basis of man-hours needed and workshop equipment available; allowance has been given for locomo- tive light damages and minor accident repairs. 4. In the period 1982-1986, it is expected that 139 locomotives would be overhauled, i.e., 21 in 1982, 28 in 1983, 28 in 1984, 32 in 1985 and 30 in 1986. It is assumed that, in the period 1981-June 1982, the spares avail- able would be those procured with funds from the "cafeteros" loan and, during July 1982-July 1986, would be those purchased with funds from the Government and the Bank. The plan envisages that the heavy locomotive repairs would be normal at the end of 1986. 5. The reorganization of the Corzo workshop has been designed to ensure: - normalization of the locomotive backlog: - completion of light and heavy repairs on schedule; - general improvement of vocational level and staff utilization; - improvement in the quantity and quality of work; - reduction of special equipment for certain repairs; - rational distribution of materials and stock in stores; - 78 - ANNEX 2 Page 2 - systematic work control; - establishment of work schedules for repairs and for locomotives remaining in the workshops; - continuity of the works; and - provision of future possibilities for development and for increasing productivity. 6. Repair time would be substantially reduced if new or reconditioned assemblies are available and a defined program of work distribution within the various sections of the workshops is adopted. Other actions should also be taken, such as the purchase of eight new locomotive engines; the utilization of the local Caterpillar workshop to repair locomotive engines; and the hiring of experienced mechanics to carry out locomotive repairs. 7. A detailed annex on the plan has been prepared and placed in the project file. October 1981 - 79 - ANNEX 3 Page 1 COLOMBIA SEVENTH RAILWAY PROJECT Technical Assistance and Training Program - Guidelines 1. Consulting Services (a) The Bogota - Buenaventura Corridor The Atlantic and Pacific railway networks are no longer linked; the line between Itagui (near Medellin) and La Felisa was washed out in 1975 during severe rainy seasons. Preliminary studies made by CNR indicated that reconnecting Itagui with La Felisa would not be economically justified. Some years ago, CNR started the construction of a railway link between Armenia and Ibague (about 110 km) in order to have a more direct and shorter route between Buenaventura, Cali and Bogota. About 50 km of infrastructure and some bridges and tunnels were built, but, because of lack of funds, works were interrupted. Some studies were carried out later by MOPT's Planning Office, and recommendations were made favoring the construction of a highway instead of a railway in this corridor. CNR's consultants, Italconsult, do not agree with this recommendation. They recommend that, in view of new techniques to construct tunnels at a much reduced cost, rapidly increasing energy costs in Colombia and the fact that only about 60 km of new railway line would have to be built, a more detailed study should be carried out. Buenaventura port handles twice the traffic of Santa Marta port and, with proposed containerization, the traffic is likely to increase further. The major part of this traffic goes to Bogota. The time has come for CNR and the Government to take a final decision on the future of the Pacific network, and the consultants' recommendation has been accepted on the base that the study would be carried out in two phases as follows: (i) the first phase would be an economic feasibility study based on preliminary cost estimates and (ii) the second phase would include borings and detailed cost estimates, if the results of the first phase are encouraging. (b) Line Capacity Analysis If the feasibility studies actually being carried out by CNR on the proposed Saboya-Carare bypass are satisfactory, it would be necessary to study the line capacity of the Atlantic corridor in relation to the expected increase in traffic through the bypass. The study would provide all information needed for the preparation of an efficient transport planning and would also identify the present bottlenecks to be eliminated, as well as the line capacity limita- tions related to the specific characteristics of the fixed installations and motive power. - 80 - ANNEX 3 Page 2 (c) Signaling and Telecommunications CNR's signaling is rudimentary and mainly concentrated in sidings and marshaling yards. It consists of signal indicators on the crossing points and warning boards on some sections of the main line. In order to prevent accidents, the railway is adopting adequate warning signals and barriers at level crossings with main roads, and implementing a policy for the elimination of some railway crossings. CNR, in an attempt to reduce derailments, has also started a program for the installation of speed restric- tion warning panels on the Bogota-Facatativa-Bagazal-Puerto Salgar section, which would be extended to the whole railway network. Telecommunications on the railway also need improvements. To complete the basic studies for the modernization of the railway and to cope with the future traffic demands, it is necessary to study carefully the signaling and telecommunication systems to be adopted, in relation to CNR's operational characteristics. (d) Tariff Structure, Cost Accounting, Financial Planning, Accounting and Internal Control, Inventory Control and Statistical Reporting The present tariff structure of CNR is based on studies carried out by foreign consultants, but the coefficients used in the cost equations are still the same as those established in 1965. A revision is required in these coefficients. The tariff structure should be cost-based for each type of freight commodity and each type of passenger service, showing the variable costs and the minimum tariffs to be established. The ultimate aims of the tariff policy should be to: - earn sufficient revenues to cover all costs and make a fair return on net fixed assets; - provide depreciation reserves based on revalued fixed assets; and - encourage efficient and productive railway operations. The con- sultants will carry out a detailed cost analysis, establish revised cost-based tariffs for freight and passenger traffic, prepare and complete a costing manual to be followed by CNR, and help CNR to strengthen the existing costing section with a competent costing manager. Consultants will concentrate on the establishment of cost-oriented accounting codes and a fully integrated cost-accounting system. The existing financial planning and budgetary control system is weak and needs considerable improvement. Consultants should help CNR to improve these areas with a focus on management by objective and responsible accounting. The annual budgets should be properly classified into capital and revenue expenditures, subsidies, pensions and debt service charges, and help the Government to understand the financial needs of CNR. - 81 - ANNEX 3 Page 3 The consultants should review the existing inventory control system and help CNR to improve it. The minimum and maximum levels and purchasing limits should be established, and obsolete and slow-moving stock should be disposed of. A system of ordering of spares for locomotives and wagons should be streamlined. The present financial, operating and statistical reporting system is adequate, but needs further improvements, especially in preparing . significant information on time and in helping management to make important and timely decisions. The consultants should develop, with the help of CNR's computer facilities, a comprehensive management information system to provide the management with accurate and timely statistical, operational and financial data. 2. Training CNR is preparing a detailed program to train its personnel locally and abroad. The Colombian National Training Center (SENA), which is a well- known vocational training center, would give CNR's technicians and tradesmen the opportunity to be trained in areas such as diesel-electric mechanics, workshop machine operation - areas in which the railway is lacking skilled personnel. In addition, CNR would systematically send .its staff to take advanced courses at the universities or local training centers in fields such as planning, programing, engineering, accounting and finance. CNR is also making preliminary contacts with well established railway training centers in Latin America where the railway professionals will have the chance to be instructed in all railway operations. It is also considered advantageous that CNR's engineers would visit other railways in Latin America with similar topographical and environmental conditions. The staff would be able to learn how other railways have implemented new techniques, exchange ideas with their colleagues and improve their own operations. To ensure that the rehabilita- tion of 139 locomotives is carried out properly, expatriate locomotive experts in diesel and electric motors would be engaged. These experts would also develop a scrapping program for those locomotives which would be uneconomical to repair. March 1981 - 82 - ANNEX 4 COLOMBIA SEVENTH RAILWAY PROJECT Details of the Financing Plan for the Project CNR's cash flow and financing plan are shown in Table 5.5 of the report. The investment figures include physical and price contingencies. The sources of funds for the Project (1982-1985) in US$ are as follows: Current US$ million 1. IBRD 77.0 2. Federacion Cafeteros of Colombia 8.8 3. UNDP Technical Assistance 1.0 4. Government Contribution 79.5 5. CNR's Own Contribution (material in stock and staff costs in the implementation of the Project) 10.4 TOTAL 176.7 The terms and conditions of financing are as follows: IBRD IBRD will finance US$77.0 million at 11.6% interest rate and 0.75% commitment charges on undisbursed amounts for a period of 17 years including a tour-year grace period. Federacion Cafeteros This loan has already been received by CNR with the Government's guarantee for a sum of US$8.8 million at a 20% interest rate for a period of five years including a one-year grace period. CNR will pay the debt service charges partly by cash and partly by carrying Federacion Cafeteros' freight. The annual installment is agreed at Col$ 30 million for interest and amor- tization. UNDP Technical Assistance UNDP will grant free funds of US$1.0 million, of which US$0.5 million are for 1982 and 1983. December 1981 - 83 - ANNEX 5 Page 1 COLOMBIA SEVENTH RAILWAY PROJECT Details of the Commodity Forecasts for 1982-1986 1. The assumed overall future development of the various commodities used by the Consultants in estimating potential railway traffic demand is consistent with the Bank's estimates, but slightly on the low side for several commodities. Railway demand has been assessed commodity by commodity, taking into account all relevant factors influencing modal choices, such as line haul costs, collection, transshipment and distribution costs. Whenever the railways have not been able to provide direct service to the customers either at the origin or the destination point, a transshipment and local collection and/or distribution cost ranging from Col$ 80 to Col$ 250 per ton was added to the line haul cost before a comparison with the road alternative was made, to determine modal distribution. Inventory costs and damages to cargo are more difficult to assess when comparing competing modes, but the railways already carry traffic that is typically of lower value and less subject to damages. Furthermore, interviews with customers suggest that it is not the longer transport time by-railway that would cause them to transfer to road transport, but, rather, the unavailability of timely railway services and the unpredic- tability and unreliability of the transport times. The individual commodity demand forecasts given below therefore assume that a reliable railway service is available. No consideration has been given to the potential for cost reductions that exists with a better utilization of the railway infrastructure and the accompanying possible further attraction of traffic to the railway mode. Rice 2. Total production of rice in 1980 was 1.8 million tons. Until 1975, the railway share of rice transport was increasing and reached 13.2% in that year. By 1979, it had dropped to 4%, only because of CNR's inability to haul. The railway share is assumed to be back to 10% by 1986 and to stay at that level, although the Rice Grower's Association maintains the share should be higher in view of possible increases in exports. The Bank estimates rice exports to reach 300,000 tons by 1985. Railway traffic takes place from the production areas of Tolima and Huila to the consumption centers of Bogota, Medellin, Santander and the Atlantic regions. Rail exports normally pass through the port of Santa Marta. Occasional exports via Buenaventura have also taken place. Average haul is about 550 km. Corn 3. Production and import of corn in 1980 totaled 950,000 tons. The railway transport is related more to imports than to production. Imports, around 10% of total consumption, are required to make up the deficit between production and consumption. The railway share of corn transport has fluctuated between 6% and 16%, and demand is forecast to average around 10% based on - 84 - ANNEX 5 Page 2 average past performance. Annual consumption growth is forecast at 1%. Railway traffic takes place from the Atlantic port of Santa Marta, which has convenient transshipment facilities, to the consumption regions of Bogota, Medellin, and Neiva. Average haul is about 550 km. Wheat 4. Production and import of wheat in 1980 totaled 547,000 tons. The railway share of wheat transport has always been very high and was 63% in 1977 before it dropped to 29% in 1979, only because of CNR's inability to handle the traffic on offer and IDEMA's decision to sell directly to truckers in the ports. The railway traffic in bulk is related to imports, which, in 1979, were about 501,500 tons. Starting 1981, the Government has allowed private millers to import directly, and IDEMA has reversed its above-mentioned decision. The demand for railway traffic is forecast to be at least 55%. Railway traffic takes place from Santa Marta to Bogota, La Caro, Tunja and Bucaramanga and from Buenaventura to Cali and Zarzal. Average haul is about 600 km. Bananas 5. Total production of bananas in 1979 was 3.0 million tons. The Bank estimates banana exports to reach some 750,000 tons by 1985. The railway share of banana transport is modest and has fluctuated between 1.5% and 2%. It is forecast to stay at 1.5%. Railway traffic is concentrated to the south of Santa Marta. Average haul is 70 km. Coffee 6. Total production of coffee in 1980 was 732,000 tons. Until 1975 when CNR's services started to deteriorate, the share of traffic was above 50% and increasing. In 1979, however, it had dropped to 31% because of CNR's low carrying capacity and inability to provide sufficient freight cars. The National Coffee Federation is expressing a clear preference for rail traffic and is frustrated over CNR's poor performance. Coffee production is expected to grow at 3.5% annually, and the demand for railway traffic is expected to be well above 40%. Coffee is transported by rail from Medellin and Ibague to Santa Marta and from Cartago, Armenia and Cali to Buenaventura. Average haul is about 500 km. Cotton 7. Total production of cotton in 1980 was 321,000 tons. The average railway share of traffic has been just over 10%, and the demand is expected to remain around 10% based on a stable past performance. Railway traffic takes place from Tolima, Huila and the Atlantic regions to Medellin. Average haul is about 575 km. - 85 - ANNEX 5 Page 3 Barley 8. Production and import of oats and barley in 1980 totaled 200,000 tons. The railway share of traffic has been high, around 40%, but largely related to imports. The imports are expected to decline, and the demand for railway traffic is forecast at 20% by 1986. Railway traffic takes place from the Atlantic ports to the consumption regions of Valle, Cundinamarca, Risaralda and Antioquia. Average haul is 600 km. Livestock 9. Total production in 1980 was 600,000 tons. The railway share has been declining steadily since 1973, when it was 17%, to 4% in 1979. It is expected that the demand will go down to 3%. Railway traffic is limited to a short haul from Barranca to Dorada. Average haul is 160 km. Timber 10. Railway transport is very modest in comparison with total production. In 1980, 14,700 tons of exports moved by rail. Total production is estimated to grow by 5%. Railway traffic takes place on the Carare-Bogota lines and in the Pacific region. Average haul is about 300 km. Salt 11. Total production of salt in 1980 was 620,000 tons. The average railway share of salt transport has been stable just above 10% and is expected to stay there. The railway carries salt for human consumption with origin in Zipaquira and Betania to many destinations. Average haul is about 450 km. Coal 12. Total production of coal in 1980 was 5.3 million tons. The railway share of coal transport increased from 1% in 1974 to 4.7% in 1978 but fell back in 1979 because of CNR's lack of equipment to provide an efficient service, primarily lack of locomotives to move loaded wagons but also lack of gondolas. Coal is the traffic that is potentially most promising for CNR since substan- tial production increases are forecast by the Government and road transport is clearly not suitable. However, for the time being, the viability of mining the coal deposits affecting CNR is not determined, and the demand is therefore set at the proven deposits of the Lenguazaque area. This results in a forecast demand of some 600,000 tons of export via Santa Marta by 1986. Average haul is about 750 km. Other Minerals 13. Railway transport demand for other minerals such as limestone, sand, gypsum, volcanic rock, and bauxite, based on natural growth, was increased as a consequence of the request of the Cemento Diamante firm of Apulo, which needs to transport more than 400,000 tons/year of these raw materials for its cement factories in expansion. This traffic will involve the Bucaramanga-Garcia Cadena-Dorada-Buenos Aires-Espinal-Apulo line. Average haul is about 300 km. - 86 - ANNEX 5 Page 4 Sugar 14. Total production of sugar in 1980 was 1.3 million tons. The Bank estimates a growth rate of 3% per year and exports reaching 300,000 tons by 1983, with increase in sugar prices. The railway's share of sugar traffic dropped from 19% in 1975 to 8% in 1979 because of CNR's difficulties. This product is transported directly from the users' railway sidings and could have a significantly higher railway share if the Pacific lines, which serve the production areas, were linked with the rest of the railway network which serves the consumption areas. This not being the case, the demand forecast was limited to 12% of production based on average past performance. The railway traffic takes place to the port of Buenaventura. A smaller part is transshipped to rail in Ibague with destinations Bogota, Neiva and Bucaramanga. Average haul is about 230 km. Molasses 15. Total production of molasses in 1980 was 200,000 tons with a railway share of 44%. This traffic is centered in the Pacific region and forecast demand is set at 40%. Average haul is about 200 km. Fertilizer 16. Production and import of fertilizer in 1979 totaled 800,000 tons. The railway share of fertilizer transport was stable above 40% until 1975, but dropped to 28% in 1979. Production and import of fertilizer in Cartagena and Barranquilla are related to the growth of agricultural activities and have grown by 4% per year in the past. This growth is expected to continue until 1985 and to decline to 3% thereafter. Railway traffic demand is forecast to increase from 30% to 50% by 1985 according to recent negotiations with the producers. Railway transport takes place from Puerto Capulco after trans- shipment from barge to Bucaramanga, Medellin, Neiva and Ibague, but will change to be transshipped from road to rail at Cienaga. Average haul will be about 750 km. Cement 17. Total production of cement in 1979 was about 4.3 million tons. The railway share of cement traffic has been around 2-3% but is expected to increase dramatically because of new factories under construction in Belencito and Nobsa. Some of this traffic has already started, and, if CNR can provide adequate services, there is a future potential for some 6,000 tons/day of cement traffic in bulk. By 1986, railway traffic demand is expected to be around 800,000 tons as against 65,000 tons in 1979. The railway will haul this new traffic to Bogota where distribution centers are being planned. Railway traffic in the rest of the country is expected to be diverted progres- sively to roads. Average haul is about 220 km. - 87 - ANNEX 5 Page 5 Paper 18. Production and import of paper in 1979 totaled 494,000 tons. Imports accounted for 180,000 tons. The railway share of paper transport has been declining slowly from 23% in 1970 and is expected to reach 12% by 1986. Railway transport takes place from the ports to the consumption areas, i.e., from Santa Marta to Bucaramanga, Medellin and Bogota and from Buenaventura to Cali. Average haul is about 750 km. Iron and Steel 19. Production and import of iron and steel in 1979 totaled 1.0 million tons. The railway share of traffic was low, around 15%, until 1975 and has since dropped to 5% in 1979. The steel factory in Belencito is expanding. The road to Bogota is already congested with heavy vehicles, and road transport costs, about Col$ 4 per ton-km, are about twice as high as the railway costs. There is therefore a potential demand for railway traffic that could boost the railway transport to 45% by 1985. This would, however, require a change in the marketing channels and the construction of a distribution center on CNR land in Bogota. Although this could be a long-term goal, the forecast demand for railway transport is only 15% by 1986, the increase accounted for largely by new sponge iron traffic from Santa Marta. The traditional traffic will continue to follow the present Santa Marta-Bogota and Buenaventura-Cali routes. Average haul is about 700 km. Other Manufactured Products 20. For railway transport of these commodities which are primarily non- flat steel products for the construction industry, scrap iron, beverages, auto spare parts, textiles, tubes and other non specified manufactured products, the indices for domestic industrial production, published by the Banco de la Republica, were used as a reference. Forecasts of industrial production taken from "Plan de Integracion Nacional 1979-1982" show 7% growth until 1985 and 6% thereafter. The railway share of transport in the past decade followed production expansion with an elasticity coefficient of 0.3. Based on actual past performance, it was estimated that the demand for railway transport could be set at 300,000 tons in 1980, growing at 2% a year thereafter. Railway transport takes place from the ports and Medellin to the consumption areas of the country. Average haul is about 550 km. Oil and Oil Products 21. The forecasts of production, import and consumption of oil products are very uncertain. New oil field explorations are under way throughout the country. Forecasts are available only up to 1985, and conservative. ' Past increasing trends are not taken into account, and no significant increase in consumption is envisaged. Future railway transport of oil products is forecast to be stable, in absolute terms, except for asphalt, for which a slight increase is envisaged. As for crude oil, transport demand for rail services is much higher than CNR can handle, and CNR has been requested to provide additional - 88 - ANNEX 5 Page 6 capacity. In 1980, some 207,000 tons were hauled, but this figure could easily double. Crude oil is hauled from Neiva to refineries in La Dorada and Barranca. A new pipeline from Neiva to La Dorada is being studied but it is an uncertain proposition that would, in any event, not be operational before 1986. Oil products are hauled from these refineries to the consumption centers of Bogota and Medellin. Summary 22. The aggregate demand forecast for transportation of the above commodities during 1982-1986 is given in the attached table and shows a large unsatisfied potential demand for railway services in 1982. The potential demand for railway services then grows to 1986 by some 9.3% per year in terms of ton-km, or 10.2% in terms of tons, because of substantial new traffic and increases in cement, coal, iron and steel, fertilizer and rice traffic. Assuming these commodities had a more modest development of some 7% per year, the overall potential demand for railway services would grow by 5% per year in terms of ton-km and 4.8% in terms of tons. The long-term trend beyond 1986 is assumed to be-4% per year. To capture an appropriate share of the traffic would require marketing efforts on the part of CNR and assurances of a depend- able and efficient railway operation. The traffic forecast, provided in Table 4.1 of the report and used for the economic and financial evaluation of the project, amounts, in reality, to an ability forecast for CNR to haul traffic as a result of the project. A comparison of .CNR's carrying capacity (Table 4.1) with the estimated demand for rail services indicates that CNR is expected to haul some 44% of the demand in 1982, increasing to some 60% in 1986. It has not been considered prudent, for institutional reasons, to increase the project further to satisfy the estimated demand at a faster rate. January 1982 COLOMBIA SEVENTH RAILWAY PROJECT Potential Traffic Demand for Railway Services 1982-1986 1982 1983 1984 1985 1986 Ton Ton-Km Ton Ton-Km Ton Ton-Km Ton Ton-Km Ton TnK (thousand) (million) (thousand) (million) (thousand) (million) (thousand) (million) (thousand) (million) Agricultural Products 1,140 606 1,232 654 1,326 703 1,379 738 1,447 768 Rice 233 128 255 141 281 154 307 169 337 186 Corn 88 44 89 45 90 45 91 46 92 46 Wheat 342 205 359 215 375 225 392 235 408 245 Bananas 46 3 47 3 48 3 49 3 50 3 Coffee 323 162 377 188 433 217 448 224 464 232 Cotton 40 23 42 24 44 26 47 27 48 28 Barley 68 41 63 38 55 33 45 34 46 28 Livestock 30 5 32 5 33 5 34 5 36 Timber 41 19 43 19 44 20 45 20 47 21 Mineral Products 812 403 946 473 1,046 524 1,149 576 1,260 629 Salt 62 28 64 29 66 30 68 31 70 32 Coal 300 240 400 300 465 340 530 380 600 420 Other 450 135 482 144 515 154 551 165 589 177 Manufactured Products 1,129 593 1,450 707 1,762 830 2,007 925 2,213 1,018 Sugar 153 35 162 37 171 39 180 41 189 43 Molasses 64 13 67 13 71 14 74 15 78 16 Fertilizer 290 217 334 250 383 288 441 331 507 380 Cement 135 30 360 79 550 121 700 154 800 176 Paper 74 56 79 60 86 64 92 69 98 74 Iron and Steel 107 74 137 96 183 128 195 137 210 147 Other 306 168 312 172 318 175 324 178 331 182 Petroleum Products 730 291 732 291 733 291 735 292 737 292 Fuel Oil 100 20 100 20 100 20 100 20 100 20 Gasoline and Fasoil 100 33 100 33 100 33 100 33 100 33 Crude Oil 500 230 500 230 500 230 500 230 500 230 qQZ Other 30 8 32 8 33 8 35 9 37 9 Other Products 25 7 26 8 27 8 28 8 29 9 Total 3,907 1,924 4,461 2,157 4,971 2,381 5,377 2,564 5,768 2,742 Source: CNR, Consultants and Mission Estimates October 1981 - 90 - ANNEX 6 Page 1 COLOMBIA SEVENTH RAILWAY PROJECT Economic Return Calculation General 1. The economic analysis has been carried out on the basis of the traffic forecast given in Table 4.1 of the report. In view of the low level of passenger traffic, which is expected to decline further, the evaluation is based on freight traffic only. The unsatisfied potential transport demand by rail is ample, and CNR could service it at a lower cost compared to that of competing modes if it had the means to handle the traffic. An economic evaluation was carried out separately for the major project components, i.e., (a) line rehabilitation, (b) rehabilitation of locomotives, (c) purchase of locomotives (d) rehabilitation of wagons and (e) purchase of wagons. Project Costs 2. The investment costs used for the economic analysis exclude taxes, duties and price contingencies. 3. Rehabilitation of Lines. The analysis was carried out for each of the following sections to be started during the project period: Facatativa-Bagazal Bagazal-Mexico Mexico-Grecia Grecia-Garcia Cadena La Caro-Chiquinquira La Caro-Belencito Medellin-Grecia Mexico-Dorada-Buenos Aires The investment costs for signaling and telecommunications have been distributed over the respective lines to be rehabilitated. 4. Rehabilitation of Locomotives. For the purpose of the economic evaluation, the cost of spare parts has been distributed over the years when the rehabilitation will actually be carried out. The investment costs also include a number of workshop costs, in particular depreciation of new workshops equipment, which is listed separately as investment in workshops in the Investment Plan. 5. Purchase of Locomotives. The economic evaluation considers 1983 as the purchase year with benefits starting to accrue in 1984 when the locomotives will be available. - 91 - ANNEX 6 Page 2 6. Rehabilitation of Wagons. The economic costs have been calculated along the same principles as mentioned above, under locomotive rehabilitation. Project Benefits 7. The following benefits of line rehabilitation expressed in August 1980 prices have been considered: (a) Reduction in maintenance costs of the rehabilitated lines. This represents the most important type of benefit (about 80%). To compute the benefits of the rehabilitation, it has been assumed that, without the project, the lines would have to be kept at least in the conditions of today, which would require frequent, not- programed and costly extraordinary maintenance works such as those which CNR is obliged to perform at present. On the basis of CNR experience, the costs of such works have been estimated at Col$ 1.3 million per km per annum. The "with the project" situation would, on the other hand, require just the systematic maintenance of the line, estimated at some Col$ 180,000 per km per annum, plus Col$ 3.1 million per km every four years. Whenever rails are not changed during the rehabilitation project period, an additional cost of Col$ 1.5 million per km is considered in the 15th year. (b) Reduction in maintenance costs for motive power and rolling stock. The rehabilitation of the lines would produce savings in the mainte- nance costs of, primarily, wheels and wheel flanges. This reduced wear has been estimated as follows. Average annual mileage per locomotive is assumed to be 75,000 km. Annual maintenance cost of locomotive bogies is Col$ 300,000. Line rehabilitation is assumed to reduce these costs by Col$ 100,000, yielding a saving of 100,000 T 75,000 = Col$ 1.33 per locomotive-km. The same type of benefit for wagons with a cost reduction of Col$ 5,000 (20%) and 20,000 km per wagon yields a saving of Col$ 0.25 per wagon-km. (c) Reduction in the number of derailments. It has been assumed that derailments would decline appreciably in the sections to be rehab- ilitated. It has been estimated that, on average, each derailment causes the interruption of the line for some five hours, involves one locomotive and 10 wagons, and takes place 50 to 100 km away from the nearest workshop. As a whole, the cost of each derailment has been estimated at Col$ 50,000. (d) Increase in the average train speed. This can be expected as a result of the rehabilitation project; in the economic analysis, it has been estimated that the average train speed would increase from 25 km/h to 35 km/h. Locomotives were assumed to operate on the lines for one-third of their lives; an increase in speed would permit the provision of the same service with a smaller fleet, and the saving in interest on invested capital has been estimated as follows. Value of a locomotive is assumed to be Col$ 15 million. Interest costs at 10% are Col$ 1.5 million per year. Average annual mileage - 92 - ANNEX 6 Page 3 per locomotive in the fleet is assumed to be 75,000 km. Interest per km is Col$ 20. Interest saved is thus 20 (35 - 25) t 35 = Col$ 5.7 per locomotive-km. Regarding wagons, the same type of benefit has been estimated at Col$ 0.28 per wagon-km. Savings in train personnel cost (five people per train) have been estimated at Col$ 2.2 per train-km. 8. The analysis for motive power as well as for rolling stock has been carried out separately for rehabilitation and new purchases. Through these investments, CNR will be able to reverse the declining traffic trend and recapture lost traffic. The economic gross benefit of this traffic is the marginal road transport cost which is avoided by the improved rail service. These benefits, estimated at Col$ 3.6 per ton-km, can be attributed to the various railway investments in the following way: 30% lines, 22.5% locomotives, 32.5% wagons and 15% others. Subsequently, maintenance and operating costs of the motive power and rolling stock have been deducted to arrive at the net benefit. The gross benefit of a rehabilitated locomotive, estimated to haul 265 ton-km per locomotive-km, is 265 x 3.6 - x 22.5% = Col$ 215 per locomotive-km. The expected 60% to 70% higher per- formance of the new locomotives yields a gross benefit of about Col$ 350 per locomotive-km. In a similar way, the gross benefit of a new and a rehabilitated wagon is estimated at Col$ 25 per wagon-km. Economic Return 9. Samples of the results of the economic analysis are shown in the computer printouts attached. The results are summarized in Tables 4.3 and 4.4 of the report. The above-mentioned components of the investment plan constitute 86% of CNR's 1982-1986 program and yield an overall economic return of 26%. The project is thus well justified. A sensitivity analysis has been carried out for variations in the costs and benefits. The results are shown in Tables 4.3 and 4.4 of the report. January 1982 -93 - ANNEX 6 COLOMBIA Page 4 SEVENTH RAILWAY PROJECT Economic Evaluation of Track Rehabilitation Mexico-Grecia YEAR C I C 2 c 3 81 8 2 1 0.00 0.00 0.00 0.00 0.00 2 170.G0 0.00 0.00 0.00 0.00 3 201.40 0.00 8.10 58.50 0.70 4- 5 0.00 0.00 15.90 114.40 1.30 6 0.00 139.50 15.80 114.40 1.30 D A T A T A B L E- 7 0.00 133.30 15.80 114.40 1.30 25 YEARS, 3 COST STREPMS, 5 BENEFIT STREAMS. 8- 9 0.00 0.00 15.80 114.40 1.30 10 0.00 139.50 15.80 114.40 1.30 - YFAR TOTAL COST TOTAL 9ENEFIT NET BENEFIT 11 u.00 133.30 13.80 114.40 1.30 - 12-13 0.00 0.00 15.80 114.40 1.30 l 0.00 0.00 0.00 14 .00 135.50 15.80 114.40 1.30 2 179.60 0.00 -179.G0 15 0.00 133.30 15.80 114.40 1.30 3 209.50 81.30 -148.20 16 0.00 0.00 15.80 114.40 1.30 4 13.80 120.00 104.20 17 G7.30 0.00 15.80 114.40 1.30 5 15.00 128.80 113.00 18 64.50 139.50 15.80 114.40 1.30 6 155.30 129.60 -25.70 19 C.00 133.30 15.80 114.40 1.30 7 149.10 130.80 -16.30 20-21 0.00 0.00 15.80 114.40 1.30 8 15.80 132.20 116.40 22 0.00 139.50 15.80 114.40 1.30 9 15.G0 136.50 120.70 23 0.00 133.30 15.00 114.40 1.30 10 155.30 137.90 -17.40 24 0.00 0.,0 15.80 114.40 1.30 11 149.10 139.50 -9.G0 25 -107.20 0.00 15.10 114.40 1.30 12 15.80 140.40 124.r0 13 15.80 141.20 125.40 AR 8 3 3 4 B 5 14 155.30 142.00 -13.30 15 149.10 142.90 -6.20 1- 2 C.00 0.00 0.00 16 15.80 143.80 128.00 3- 020 1.10 - 0.80 -- - ------ 17 É3.30 144.20 60.60 4 0.40 2.20 1.70 18 213.80 144.60 -75.20 z 1.00 5.80 6.30 10 149.10 145.00 -4.10 S 1.00 - 1-.10 6.0- - -- 20-21 15.80 145.2<0 130.10 7 1.10 G.40 7.60 22 155.30 145.30 -9.40 8 1.10 6.60 0.G0 23 149.10 143.90 -3.20 -S- t.-3) --7-.f0 11.60 24 15.80 145.90 130.10 10 1.40 8.20 12.60 25 -gl.40 145.60 237.30 11 1.40 8.60 13.80 Go 12 1.5- ' 30 14.40- 13 1.30 0.00 15.0,0 *****RATE OF RETURN * 15.750 +/- 0.050 PERCENT*... 14 1.50 8.20 15.G0 Note: C 1 - Investment Costs i .G J GC 2 - Periodic Maintenance LG . .50 17.00 C 3 - Routine Maintenance I., .G0 9.'0 i.130 B 1 Track Maintenance Savings W t oo 70 . B 2 - Derailment Cost Savings B 3 - Train Crew Savings n 1 .00 0.130 17.00 B 4 - Rolling Stock Maintenance Savings 10.00 10.,0 B 5 - Line Capacity Benefits YDars 1-23: 1982-2007 December 1981 - 94 - ANNEX 6 COLOMBIA Page 5 SEVENTH RAILWAY PROJECT Economic Evaluation of New Locomotives - D A T A T A B L E----- 25 YEARS, 3 COST STREAMS, 1 BENEFIT STREAMS. YEAR C 1- C 2 C- C 3-- B ----- 1 0.00 0.00 0.00 0.00 2 295.80 0.00 0.00 0.00 3 295.80 6.10 43.20 129.60 4-17 0.00 12.20 SG.40 259.20 18 176.00 12.20 86.40 259.20 19-24 0.00 12.20 8.40 259.20 25 -250.50 12.20 86.40 259.20 YEAR TOTAL COST TOTAL BENEFIT NET BENEFIT ---- .-- 0- - ---.00--.00-- - - - - - 2 295.80 0.00 -295.80 - 3 345.10 129.60 215.50 I-17 9.G0 - 253.20 1GO.0 10 274,0 259.20 -15.40 19-24 28,60 259.20 160.(0 25 151.90 253.20 ---411. - EXEC RR GO RM OF RER %5 - t- 0,050 F'PCENT***** NOTE: C 1-Investment Costs; C 2-Maintenance Costs; C 3- Operating Costs; B 1-Avoided Road Transport Costs Years 1-25: 1982-2007 December 1981 - 95 - ANNEX 6 COLOMBIA Page 6 SEVENTH RAILWAY PROJECT Economic Evaluation of Rehabilitation of Wagons - D A T A T A B L E----- 25 YEARSF 3COST STREAMSI T BENEFITSTREAKS YEAR C 1 C 2 C 3 8 1 1 ~ 0.00 0.00 0.00 0.00 44'.40 . 0.0 0.00 '3 144.40 6.50 0.80 -95.70 4-25 Q00 12.-0 - T. O 191.50 Y TOTAL COST TOTAL BENEFIT~ NET- BENEFIT 1 0.00 0.00 0.00 2 144.40 0.00 --144.40 3 151.70 95.70 -56.00 4-25 14.40 191.50 177.10 EXEC RR GO *****RATE OF RETURN 61.250 +/- 0.050 PERCENT***** NOTE: C 1 - Investment Costs C 2 - Maintenance Costs C 3 - Operating Costs B 1 - Avoided Road Transport Costs Years 1-25 : 1982-2007 December 1981 - 96 - ANNEX 7 COLOMBIA SEVENTH RAILWAY PROJECT Uneconomic Lines and Passenger Train Services Closed Branch Lines 1. Cartago - Pereira (33 km) Pacific Network 2. Pereira - Manizales (78 km) Pacific Network 3. Pereira - Armenia (60 km) Pacific Network 4. Suarez - Popayan (94 km) Pacific Network 5. La Felisa - Itagui (Medellin) (130 km) Pacific Network 6. Chiquinquira - Barbosa (67 km) Central Division Passenger Services 1/ 1. Cali - Armenia (suspended) Pacific Network 2. Cali - Buenaventura Pacific Network 3. Cali - Tulua Pacific Network 4. Bogota - Chiquinquira Central Division 5. Bucaramanga - Barrancabermeja Central Division 6. Bogota - Girardot Central Division 1/ In addition the frequency of a number of existing services had been reduced. Source: CNR February 1981 - 97 - ANNEX 8 Page 1 COLOMBIA SEVENTH RAILWAY PROJECT Methodology and Assumptions Made in Forecasting CNR's Revenues and Expenses 1. Operating Revenues Average tariffs/revenues (freight and passenger tariffs) for the six months of 1981 were used as the base for 1981 revenue projections. No increase, in real terms, was assumed for the second half of 1981 and for 1982. For 1983, 1984 and 1985, an increase of 10% per year, in real terms, has been assumed. For other operating revenues, the increase reflects the historic pattern between these revenues and the freight revenues. 2. Government Normalization Payment on Passenger Services This represents the difference between variable expenses for passenger services and the passenger revenues collected by CNR. 3. Operating Expenses (a) Personnel Expenses Average salaries paid per worker during the first six months of 1981 were used as the base for 1981 personnel expenses. An increase of 1%, in real terms, in salaries was assumed for 1982 and thereafter. The average number of staff employed for 1982 and thereafter is the result of a staff requirement analysis prepared by CNR and reflected in the action plan. (b) Fuel and Lubricants The average expenses per train-km and ton-km for the first six months of 1981 were used as the base for 1981 fuel and lubricant expenses. An increase of 3%, in real terms, in fuel cost increases was assumed for 1982 and thereafter. A factor of 3% in efficiency in train operations - composi- tion of trains - was assumed for 1982 and thereafter. (c) Materials In order to achieve the rolling-stock availability and permanent way maintenance levels shown in the action plan, the consultants, as well as CNR staff, have forecast an increase of 100%, in real terms, over the historic pattern for material expenses. This will allow CNR to carry out arrear and preventive maintenance instead of emergency maintenance. (d) Other Expenses For other operating expenses, the increase reflects the historic pattern between these expenses and all other working expenses. - 98 - ANNEX 8 Page 2 4. Depreciation The average depreciation on the historical value of fixed assets for the first six months of 1981 was used as the base for the 1981 forecast. A 20% increase was assumed for 1982. By the end of 1983, according to the action plan, CNR will have revalued its fixed assets used in railway operations and will institute a more realistic depreciation. The consultants and CNR staff have estimated that at least Col$ 500 million will be the charge for depreciaiton in 1983, representing about 4% of the estimated value of the revalued fixed assets. 5. Pension Payments A forecast of yearly average number of pensioners was prepared by CNR. The average pension paid in the first six months of 1981 was used as the base of the forecast. It should be noted that pension payments do not increase at the same rate as prices in the economy as a whole. The historic pattern shows that pension payments increased by about 10% to 15% less than inflation. The forecast assumes that yearly average pension payments increased by about 90% of the,inflation in Colombia. 6. Cesantia Payments A forecast of yearly average number of cesantia recipients was prepared by CNR. The average cesantia paid in the first six months of 1981 was used as the base of the forecast. Cesantia payments are based on the average monthly salary plus other benefits of the staff. An increase of 2% in real terms in the average cesantia payment was assumed for 1982 and there- after. 7. Interest on Loans This corresponds to actual interest payable by CNR on obtained and still outstanding loans and a forecast of interest payable on loans to be obtained. December 1981 - 99 - ANNEX 9 COLOMBIA SEVENTH RAILWAY PROJECT Selected Documents and Data Available in the Project File 1. Consultants' Report on the Preparation of the Seventh Railway Project 2. Details of the Final Investment Plan 3. Track Renovation Program 4. Report on Spanish GE Diesel Locomotives 5. Details of Consulting Services 6. Traffic Forecast and Analysis of Costs, Benefits and Economic Returns 7. Financial Forecast 8. Financing Plan and Terms and Conditions of the Proposed Loans 9. Plan to Increase Locomotive Availability October 1981 ----－一一一―－一一－－一－一―-－一刁 ._＿一。―: COLOMBIA SEVENTH RAILWAY PROJECT CNR Orgaiization Chart Ministry of Public Works [ B 0- IRKD:] G General ene 1 Mana er Secretary Planning., General Leg Deputy General Manager 'Finance 1 , Commercial Technical Administration and Industrial Relations Acc()untiniz Transportation -Way and Treasury Freight Works Personnel _T-alning Passenger Workshops Industrial Security Financial Signalling Administration Analysis and Development SYstems Telecommu- Purchasin nications Property AccOuntin Cen.ral Division Pacific Divis Antioguia Division F _ g dfena Division-] Biv Source: CNR October 1980  BIEAVENTMRA 8.- - fl 11 - YAhMNia - IAGU f--- - Ia .0 0 o asa s'-i- (a -8-FAAJTIA n I LA CAR9 9.' 9.' i~ 0E <fs -m<  IBRD) 3667RI -- _D-..~ ECGMBEfR i9*( rac-7r i bo -5zý F-N E Z U E L. A -C c SANTANDER This o t s sb pepaedby th Gara acan o sch ts to s lhe- ~t -.-en f th-ssedas Of -- x Cadeno iucaramang AThs No s d rrancabermeh \od sh N ThAs -p G Grecia iper o S0Medeldn r BlomboL lo- P B s a z delaPRmAnTE BarcboeoromeR a SBeenit ut E ) N T A o7 et qunqurd r Bonza,-- c A/ 0Aa Dorada rlo l'~S CADAA RISARALDA' Marritt to con < 1Zpaqu ro GrL FelI ao . M nizales UN D arua S A N CtaF arai 0La Caro Pere<aeSabo ohlOY I aidBOGOTA Zarza - ba BarboSalt ndaljcia BuenosQ ··rardot Aires Y Bpinal r. 'ftura, T OL IM fl Pamo a b o P adera San an e 0Inoco NevCC L M I Poy6 ýS NATIONAL RAILROADS -- CAQU ETA R~~~~ ~ ~ ~ -- MAS LINESDP z',, aiqia c T Fb a- BRANCH LINES Elaa Diviso - SECONDARY LINES j.-Q LLINES CLOSED 100 10 200PROJECTED LINE AOe Te1 iS 2 RIVERS QPUTUMAYO -- DEPARTMENT BOUNDARIES ECUADOR - - INTERNATIONAL BOUNDARIES  *11 BRD 15410 Iµ - -[ i ~. rJ , 1 :- - - -5-- - - - , 4 -4-- .,.1 -y 0- --I ----J- V i - - C -1* -f - E1 - _ | - - nJ ._ _ _-_-_-_