Tanzania - Railways Restructuring Project

Document of The World Bank FOR OFFICIAL USE ONLY j2Z Z Z (- -/ 7A Report No. 9449-TA STAFF APPRAISAL REPORT THE UNITED REPUBLIC OF TANZANIA RAILWAYS RESTRUCTURING PROJECT MAY 24, 1991 Infrastructure Operations Division Southern Africa Department This document has a restricted distribution and may be used by recipients only in the perfonnante of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENT Currency Unit - Tanzanian Shilling TSh 1.0 - US$0.005 USS 1.0 - TSh 194 (as of March 1991) WEIGHTS AND MEASURES 1 meter (m) 3.2808 feet (ft) 1 kilometer (km) 0.6214 miles (mi) 1 metric ton (tonnes) = 1.023 short tons GLOSSARY OF ABBREVIATIONS ADG = Assistant Director General AfDB = African Development Bank ATC = Air Tanzania Corporation CIDA = Canadian International Development Agency DG = Director General DANIDA Danish International Development Agency EAC = East African Community EARC = East African Railways Corporation EARH East African Railways and Harbors EDF = European Development Fund EEC = European Economic Community EP Emergency Rehabilitation Program for TRC ERP = Economic Recovery Program ESAP = Economic and Social Action Plan gtkm = gross tonnes-km ICB = International Competitive Bidding KfW = Kreditanstalt fur Wiederaufbau LIB = Limited International Bidding mb = megabyte MCW = Ministry of Communications and Works MOU = Memorandum of Understanding NTC = National Transport Corporation ntkm = net tonne-km ODA = Overseas Development Agency OIP = Operations Improvement Plan TAC = Tanzania Audit Corroration TAZARA = Tanzania-Zambia Ri lways Authority THA = Tanzania Harbours Authority TRC = Tanzania Railways Corporation WFP - World Food Program FISCAL YEAR January 1 to December 31  TANZANIA FOR OMCIAL USE ONVW RAILWAYS RESTRUCTURING PROJECT STAFF APPRAISAL REPORT TABLE OF CONTENTS Page No. DOCUMENTS CONTAINED IN THE PROJECT FILE . . . . . . . . . .. . i CREDIT AND PROJECT SUMMARY . . . . . . . . . . . . .. i-v I. THE TRANSPORT SECTOR A. Economic Background . . . . . . . . . . . . ..... 1 B. The Transport Sector and the Eccnomy . . . . . . . . . 1 C. Government Objectives and Policy in the Sector . . . . 3 D. Strategy for Transport Sector Recovery . . . . . . . . 5 E. Previous Bank Group Involvement in the Sector . . . . 9 F. Rationale for IDA Involvement . . . . . . . . . . . . 9 II. THE RAILWAYS A. Background . . . . . . . . . . . . . . . . . . . . . . 10 B. Regulation . . . . . . . . . . . . . . . . . . . . . . 11 C. Organization, Management and Staffing . . . . . . . . 12 (i) Organization and Management . . . . . . . 12 (ii) Staffing . . . . . . . . . . . . . . . . . . . . 13 D. Physical Assets and Resources . . . . . . . . . . . . 14 (i) Track . . . . . . . . . . . . . . . . . . . . . 14 (ii) Signalling and Telecommunications . . . . . . . 14 (iii) Motive Power . . . . . . . . . . . . . . . . . . 15 (iv) Wagon Stock . . . . . . . . . . . . . . . . . . 16 (v) Passenger Coaches . . . . . . . . 17 E. Operations . . . . . . . . . . . . . . . . 17 F. Operations Information System . . . . . . . . . . . . 18 G. Financial Performance . . . . . . . . . . . . . . . . 19 H. Restructur4g ng Strategyegy... ...... 21 III. THE PROJECT A. Objectives .. . . . . . . . . . . . . . . . . . . . 29 B. Genesis of the Project . . . . . . . . , . . . . . . . 29 C. Project Description . . . . . . . . . . . . . . . . . 29 (i) Physical Investments . . . . . . . . . . . . . . 31 (ii) Organization Development and Operational Support 37 D. Cost Estimates and Project Financing . . . . . . . . . 45 E. Procurement . . . . . . . . . . . . . . . . . . . . . 46 F. Disbursements . . . . . . . . . . . . . . . . . . . . 48 G. Financing Plan . . . . . . . . . . . . . . . . . . . 49 H. Project Implementation . . . . . . . . . . . . . . . . 50 I. Reporting and Monitoring . . . . . . . . . . . . . . . 51 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.  Table of Contents (continued) Pane No. J. Environmental Impact, Industrial Health and Safety . , 52 IV. FINANCIAL EVALUATION A. Financial Recovery Strategy and Projections , . . . . 54 B. Passenger Service . . . . . . . . . . . . . . . . . . 61 V. ECONOMIC EVALUATION A. Project Benefits and Costs . . . . . . . . . . . . . 62 B. Economic Returns . . . . . . . . . . . . . . . . . . . 63 C. Project Risks . . . . . . . . . . . . . . . . . . . . 64 D. Passenger Services . .. . . . . . . . . . . . . . . . 65 VI. AGREEMENTS TO BE REACHED AND RECOMMENDATION . . . . . . . . 66 ANNEXES 2-1 TRC Manpower Establishment 2-2 Current Speed Restrictions 2-3 Locomotive Types, Characteristics and Holding 2-4 Loss of Capacity of Locomotives 2-5 Wagon Types, Characteristics and Holding 2-6 Ministerial Directive and Memorandum of Understanding 2-7 Operations Improvement Plan Targets 2-8 Traffic Analysis 2-9 Organization Chart of TRC 2-10 Maintenance Costs 2-11 The Emergency Rehabilitation Program for TRC 3-1 Track Rehabilitation Program 3-2 Locomotive Rehabilitation and Rebuilding Program 3-3 Locomotive Requirement Analysis 3-4 Terms of Reference for Management and Supervisory Development Program 3-5 Proposed Project Costs 3-6 Schedule of Estimated Disbursements  TaSle of Contents (continued) ANNEXES 4-1 Traffic Projections 4-2 Projected Freight Capacity Under Different Zfficiency and Investment Scenarios 4-3 Financial Projections 5 Economic Evaluation 6 Supervision Plan CHARTS 1 Implementation Plan This report was prepared on the basis of an appraisal mission that visited Tanzania in June/July, 1990 and a follow-up mission in February, 1991. The appraisal mission consisted of Messrs. Y. Crookes (Mission Leader/Sr. Financial Analyst), S. Nayak (Sr. Railways Engineer), Y. Kedia (Railways Specialist) and M. Gustavason (Financial Analyst). Messrs. V. Kingsmill, J. Craik (ODA) and R. Waddington (Consultant Railways Specialist, CIDA) participated in the mission. Ms. C. Loys (KM) also participated in the pre-appraisal misselon. The report was reviewed by Mr. I. Sam (Division Chief, AP6IN). The Director of the Department is Mr. S. Denning. The lead adviser for the project is Mr. L. Thompson (Railways Adviser, INUTD) from whom valuable comments have been received in the preparation of the project. The peer reviewers were Messrs J. de Weille (OEDDI) and J. Graves (AFTTF) and Ms. J. Holt (AF2IN). Their comments have been fully taken into account in the report.  *A2A RAILWAYS RESTRUCTURING PROJECT DOCUMENTS CONTAINED IN TEE PROJECT FILE 1. 'Development Study - Draft Final Report' - Consultants' Study (CPCS, Canada), 1990. 2. 'Prograue for Transport Sector Recoverys The Transport Sector Donors' Conference, Arusha, December 1987 - Technlcal Working Papers" Government of Tanzania in collaboration with IDA, December 1987. 3. 'Matrix of Actions for Credit Processings Status on Conditions for Negotlations, Key Issues for Negotlations, Conditions for Board Presentation" Tanzania Railways Corporation, February 2, 1991.  - it - UNITED REPUBLIC OF TANZANIA RAILWAYS RESTRUCTURING PROJECT CREDIT AND PROJECT SUMMARY Borrowers United Republic of Tanzania Beneficiary: Tanzania Railways Corporation (TRC) Amounts SDR 56.1 million (US$76.0 million equivalent) Terms: Standard IDA Terms, with 40 years maturity On-Lendinp Terms: The Credit would be on-lent to TRC at a fixed rate of 112 for a term of 20 years, including five years of grace. The foreign exchange risk would be borne by TRC. Cofinancing: The project, with a total cost of US$275.2 million will be parallel-financed by the African Development Fund (AfDF), CIDA, the European Development Fund (EDF), KfV, ODA (UK) and WFP. TRC will finance 95Z of local costs, or &bout US$109.6 million equivalent at prevailing exchange rates, out of its cash flow. Project The main objectives of the project are to: Objectivess (i) strengthen the organization of TRC, eliminate regulatory bottlenecks to its effective operations and set it on a path of a commercially viable entity; and (ii) rehabilitate infrastructural assets, replace obsolete and uneconomic operational assets and provide limited new investments consistent with the prospects for growth in traffic. The project will support a comprehensive restructuring program for TRC comprising (a) reform of the regulatory framework governing the conduct of its business; (b) revamping of its organization to strengthen its capacity to manage its core railways activity; (c) restructuring of its operating procedures and systems to make operations more efficient; and (d) rebuilding of its capacity through reducing the huge backlog of deferred maintenance on its assets. Project The proposed project would consist of: (a) the Descriytions rehabilitation of track, telecommunications systems, loco- motives, wagons and coaches; (b) the replacement of obsolete and life-expired maintenance equipment, vehicles and coaches; (c) organizational support and training to strengthen management systems and staff capacity in all functional areas; and (d) support for improvements in the working environment and incentives, including enhanced pensions, for the workfo ce.  - iii - Justification TRC represents a substantial investment in a and Risksa strategically located but poorly performing railways system. The system links virtually all the major urban centers of Tanzania and serves a command area of the countr accounting for oer 40? of agricultural output and must of the country's exports. Further, TRC is a major artery for transit traffic from neighboring landlocked countries of Burundi, Rwanda, Uganda and eastern Zaire. It is, under efficient operating conditions, the most cost- effective means of transport of bulky goods over the long distances that are characteristic of Tanzania's international trade. Yet, its effective capacity is only about 502 of what it can achieve under reasonably efficient operating conditions. The gross replacement cost of its assets (today's prices) is about US$550 million equivalent, but it earns little return on this asset base and is incapable of maintaining it in good condition, let alone provide for its replacement. The project, by addressing the underlying reasons for its poor operating and financial performance will enable TRC to increase its capacity, lower its unit cost, earn a good return on its assets and be well-placed to be financially self-sustaining and pay a return to Government's substantial investment in it. The economy would benefit directly through lower transport costs for long distance movements and the potential for greater generation of foreign currency through TRC's increased capacity to handle transit traffic reliably and efficiently. The major risk is that TRC's management, after a decade of total lack of accountability for effective use of its assets, may not be able to achieve the Improvements 'A managerial efficiency envisaged under the project. The program of management strengthening to be lmplemented under the project would contribute towards mitigating this risk. However, the only durable insurance against this risk would be Government's confirmed commitment to hold TRC management accountable for the monitorable performance objectives of the strategy and to take effective remedial actions if these are not met.  - iv - Estimated Costs: (US$ million equivalent) Local Foreg Total Z Fore.g Track Rehabilitation 50.5 24.8 75.3 32.9 Bridge Strengthening 13.1 11.6 24.7 47.0 Quarry 0.3 3.6 3e9 92.3 Plant Maintenance Depot 1.6 4.4 6.0 73.3 Locomotives Rehabilitation 0.8 8.4 9.2 91.3 Wagons 0.9 4.9 5.8 84.5 Passenger Coaches 1.0 10.1 11.1 91.0 Maintenance/Accident Equipment 1.4 14.4 15.8 91.1 Signals & Telecoms 2.1 2.5 4.6 54.3 Service Vahicles 0.5 4.7 5.2 90.4 Information Systems 0.4 3.5 3.9 89.7 Technical Assistance 5.2 13.9 19.1 72.8 Training 1.0 6.5 7.5 86.7 Organizational Support 1.0 2.5 3.5 71.4 Track Rehab Support 2.1 0.9 3.0 30.0 Studies 0.3 0.6 0.9 66.7 Total Base Costs 82.2 117.3 199.5 Physical Contingencies 12.5 17.4 29.7 Price Contingencies 20.1 25.9 46.0 114.6 160.6 275.2 58.4 92= mm Financing Plans Local Foreign Total (US$ million) TRC 109.6 -- 109.6 IDA -- 76.0 76.0 AfDF -- 31.2 31.2 EDP -- 18.0 18.0 CIDA 3.0 7.3 10.3 Kfw -- 18.3 18.3 ODA -- 8.5 8.5 1"P 2.0 1.3 3.3 Total 114.6 160.6 275.2  Estimated Disbursement of IDA Credit (US$ million)s FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 Annual 4.5 14.1 15.7 16.4 11.9 7.4 4.5 1.5 Cumulative 4.5 18.6 34.3 50.7 62.6 70.0 74.5 76.0 Economic Rate of Returns 18X Maps IBRD Map No. 22878  I. THE TRANSPORT SECTOR A. Economic Background 1.01 After a decade of good growth rates in GDP and substantial improvements in the social sectors in the 1960s and early 1970s, the Tanzanian economy experienced severe declines throughout the late 1970t and early 19809 with per capita incomes falling sharply between 1978 and 1982. After several unsuccessful attempts at reversing the decline, Governmeat, in early 1986, launched arn Economic Recovery Program (URP) with the objectives of (a) Increasing agricultural output through appropriate price incentives, increasE loreign exchange and budgetary resources to the sector and restructured marketing channels for agricultural produce; (b) increasing capacity utilization in industry through increased allocati,n of foreign exchange to priority subsectors; (c) rehabilitating the country's physical infrastructure; and (d) ensuring the sustainability of the recovery of the economy through prudent fiscal, monetary and exchange rate management with specific adjustment targets for each instrument of macroeconomic policy. Although some of the specific adjustment targets were not achieved, the ERP, nonetheless, achieved its main objective of reversing the secular decline in economic activity. In 1986, GDP grew by about 3.4?, enough to generate a growth in per capita incomes for the first time since 1978. In the subsequent three years, GDP growth averaged about 4.4? p.a. However, the recovery in economic activity exposed a number of serious structural constraints inhibiting its sustainability in the futures (i) a banking system with most of its assets tied up in non-performing loans to loss-making parastatals and incapable of mobilizing domestic resources for productive investments; (ii) inadequate processing facilities and rigid and inefficient parastatal marketing channels for agricultural produce; (iii) severely deteriorated transport infrastructure and inefficient transport agencies; and (iv) significant erosion in the capacity of social sector institutions to provide an acceptable level and quality of service in education and health. To address these structural problems and consolidate the achievements of the ERP, Government has embarked on the implementation of a three-y6ar (1989 to 1992) Economic and Social Action Plan (ESAP) with the objectives of (a) Improving the efficiency of domestic resource mobilization through reform and restructuring of the banking system; (b) rehabilitating the country's physical infrastructure in support of directly productive activity; (c) rehabilitating the country's social services; (d) revamping the industrial sector; and (e) continuing to maintain a favorable macroeconomic climate and incentives structure for agricultural activity. B. The Transport Sector and the Economy 1.02 A well functioning transport system is crucial to the sustained economic recovery of Tanzania. The main linkages between transport and economic recovery are evident in four key areas: (a) the size of the country, its structure of production and its population distribution; (b) the cost to the economy of an unreliable, deteriorated network; (c) the fiscal implications of inefficient transport operations; and (d) the sector's importance as a major foreign exchange aarner.  - 2 - 1,03 First, the pattern of settlement and economic activity in the country givi" transportation an extraordinarily strategic role in economic development. Tanzania has a large territory (almost equal in size to France and Spain combined) with a widely disp'rsed population, mainly around its geographic periphery. Agriculture, accounting for 542 of GDP, is dominated by smallholders scattered in small rural communities, while the major markets and the processing and collection centers for crops, as well as the distribution points for agricultural inputs and fuel, are concentrated in urban centers located at considerable distances from each other and from the major coastal seaport of Dar es Salaam. Exports are domisated by primary agricultural commodities of high bulk but low value. Growth in agricultural output, which will constitute the primary basis for growth in the economy for the foreseeable future, is predicated on the transport system being able to efficiently integrate the rural communities with the urban centers and facilitate reliable and cost-effective transport of export crops from the major collection points to the port of Dar es Salaam. These two zoles have not been effectively performed by the transport system and, as diecussed in the next paragraph, the cost to the economy has been enormous. 1.04 Second, Tanzania's domestic railway system, wh2ch is strategically located to serve most of the major urban centers, has been unable to meet the demand for low-cost, long-distance transport of export crops and of critical inputs such as petroleum products and fertilizer in recent years, due to its poor operational performance. As a consequence, significant stockpiles of cotton - one of Tanzania's major export crops - for which road transport is inappropriate on competitive grounds, have built up over the last few years and a significant proportion of the other export traffic, as well as bulk inputs, have been diverted to roads. The total cost to the economy of stockholding and diversion of traffic, that an effectively performing railway would have been able to handle, is of the order of US$40 million p.a. Tanzania's road infrastructure, which is crucial to the linkage cf rural cozmunities to the urban areas, has deteriorated markedly over the last decade and a half and its coverage of rural areas is limited even by regional standards. The state of the roads, IF two thirds of which are impassable or unmaintainale, imposes significant penalties on agricultural activity through its effect on vehicle operating costs, delayed evacuation and damage to crops. Losses imposed on the economy through higher vehicle costs alone are estimated at up to US$150 million p.a., equivalent to about one-third of the country's export earnings. For the ports, the long dwell time of containers in the port, caused by the inefficiency of operations as well as cumbersome customs procedures to clear the cargo, costs the economy about US$10 million p.a. In working capital costs and demurrage charges (assuming excess dwell time is 20 days per imported container). Based on these calculations, it is conceivable that the economy is losing nearly US$200 million p.a. in direct economic costs due to the deteriorated transport infrastructure and its inefficient operatiei. If the indirect costs such as loss of crop, theft, loss of export market, spoilage, etc, due to the current transport problems are taken Into consideration, it would be difficult, if not impossible, to see how Tanzanian goods could be competitive in the world market, or how the cost of living could be held down. Vithout significant rehabilitation and actions to restructure the modes of operation and maintenance of the  roads and railways, these costs and physical impediments will constitute a major barrier to sustained economic recovery. 1.05 Third, Tanzania's transport system is characterized by a significant degree of public sector participation. The transport parastatals' financial performance has deteriorated substantially in the last decade with most of them making losses or generating low returns on their assets as a result of inefficient utilization of capacity, high fixed costs and sub-economic prices. In 1987, the combined losses of the transport parastatals amounted to US$55 million. Government budgetary support of the transport parastatals' cash flow shortfall is small as most of it is financed by short-term borrowings from the state-owned financial system or deferred payments to suppliers. Although not directly affecting the level of the Government's current account deficit, this mode of financing has significant and adverse implications on current levels of domestic credit creation and the future level of Government budgetary support to restructure unsustainable levels of short-term indebtedness to the banking system and suppliers. Addressing the underlying causes of the parastatals' poor financial performance will contribute to the maintenance of a sound macroeconomic climate, which is a key basis for the effectiveness of the incentive structures set in place under the ERP and which will be maintained under the ESAP. 1.06 Finally, the tzansport sector has an important role to play in the generation of additional sources of foreign exchange for the country. Tanzania offers the intrinsically lowest cost route to a seaport for Zambia, Rwanda, and Burundi; and is an important alternative route for the transport of Uganda's, Malawi's and eastern Zaire's foreign trade traffic, largely because of the possibility of using the railways network for most of the distance, and because they can diversify their use of alternative transport corridors rather than being held hostage to one route. However, this potential has never been fully tapped, largely because the cost advantages have been significantly outweighed by the inefficiencies of the roads and railways leading to extensive detention of traffic in transit. Impr:vements in the service reliability of the railways and the operating capacity of the port of Dar es Salaam and a generally more commercial orientation of financial management would allow Tanzania to increase its net foreign currency earnings from the transport sector. Currently, the port subsector is the second largest foreign exchange earner in the country after coffee, earning more than US$36 million p.a. Potentially, the transport sector can earn between US$55 and 75 million p.a. (equivalent to about 12-18Z of total export earnings) in foreign exchange from transit traffic if the system were operated more effectively. C. Government Objectives and Policz in the Sector 1.07 Given the critical state of the tru. sport sector, the Government called a Transport Sector Donors' Conference in December 1987 in Arusha. At the Conference, a draft National Transport Policy document was presented along with a Conference document entitled 'Programme for Transport Sector Recovery* which outlined the basic policy, institutional changes and rehabilitation requirements of the sector in order to reestablish the transport infrastructure and services to cater to the requirements of the  - 4 - economy. As enunciated at the Conferenca, the basic objective of the Government in the transport sector is to generate immediate improvements in the supply of transport services in the first instance, followed by a more sustained growth in the capacity and the volume of services commensurate with the expans4.on taking place under URP. As outlined in the Conference document, sustained improvement in the delivery of transport services will require major effort and change in the way transport has been managed in the past. The basic reforms needed in the seLtor are outlined belows (a) deteriorated infrastructure requires a major shift in public expenditure towards the roads sector. Over the past decade and a half, there has been a precipitous drop in the funds allocated for recurrent and development funding for the road sectors Tanzania spent only 3-62 of its total public expenditures on roads, where 10-20? is normal for countries with far better maintained road networks; (b) a more flexible and dynamic response to road infrastructure development requires a major institutional change to move away from the existing highly centralized administrative system to a more decentralized system with greater delegation of authority; 5C) to improve the financial and operational efficiency of transport parastatals, comercially oriented management must be adopted, including cost-based tariff setting (taking into consideration proper depreciation of assets and improvements in operational efficiency), bonus/incentive schemes to reward good performance, and a rigorous cost control systems. The enunciated Government policy is for all parastatals to generate at least an operating surplus in the short-term; (d) similar to the financial objectives for parastatals, cost recovery for the road sector must be improved, i.e. the revenues generated from the road sector should cover at least the recurrent and periodic road maintenance cost; (e) to improve provision of road transport services, all administered tariffs for trucking and passenger transport sector should be removed; (f) to develop the local capacity in the transport sector more vigorously, private sector development should be promoted in the areas of civil works, engineering consultancy, mechanical services, truck and passenger transportation, and air charters; and (g) to promote regional integration, customs procedures and transit arrangements should be simplified to improve the ease with which transit carlo can pass through Tanzania.  D. Strat.sa for Transport Sector Recovery 1.08 In partnership with IDA, the Government has formulated three major programs to address the shortcomings of the transport sectors the Integrated Roads Project (Credit 2149 - TA), Port Modernization Project I1 (Credit 2095 - TA) and the proposed Railway Restructuring Project. With the majority of required financing secured or pledged, the investments in the transport sector, supported by Bank Group operations, will total US$1,400 million over the next five to eight years. The largest allocation is for the roads sector with US$980 million, followed by railways with about US$300 million, and the port sector with US$120 million. The magnitude of investment foreseen is consistent with the recommendation of the Public Expenditure Review (May 1989 Report No. 7558-TA), which suggests a major shift of public funds to the transport sector, increasing to over 20Z of the total development budget expenditure. The following sections outline the development strategy for each of the subsectors as formulated in the ongoing projects and this proposed project. 1.09 Roads. The deterioration of the road networks has been caused primarily by: (a) inadequate funding for road maintenance; (b) a cumbersome and inefficient institutional structure for road administration; (c) a highly centralized and bureaucratic procurement and administrative decision-making process; and (d) inadequate technical capacity to carry out maintenance and manage contracts. Efforts to develop trunk road maintenance capacity under the Fourth and Fifth Highway Projects (Credits 507-TA and 876-TA) failed to realize any improvements in road conditions (PPAR Nos. 6483 and 6938). Road rehabilitation under the on-going Sixth Highway Project (Credit 1688-TA) was extremely slow in starting, mainly because of institutional weaknesses and the protracted procurement process caused by outdated government regulations. 1.10 The Government has recognized that a major restructuring of roads administration is necessary if road networks are to be maintained in good condition to serve their economic purposes. The primary objectives of the Government in the subsector are to restore the country's essential roads, to develop the institutional capacity for their maintenance and to streamline procurement regulations to support the timely implementation of maintenance and investment activities. The institutional objective will be to transform the Ministry of Works (MoW) from a "blue collar' construction-oriented ministry to a 'white collar' management-oriented ministry, with executive authority being delegated to MoW's 20 Regional Engineer's Offices (REOs) for implementing road investments and maintenance. This effort is now being implemented under the Integrated Roads Project (Credit 2149 - TA). 1.11 Road Transport. The trucking sector plays a major role in the domestic transport industry, carrying nearly 702 of the estimated 2.5 billion ton-km of freight movement within Tanzania. The existing fleet size is estimated to be about 14,000 trucks (over three-ton capacity), of which 78Z is owned by the private sector, 42 by the 12 Regional Transport Corporations (RETCOs) under the National Transport Corporation (NTC), and 182 by other public sector organizations (marketing boards, cooperatives, etc.). The main feature until the mid-1980s was chronic shortage of replacement vehicles. spare parts, fuel and tires. Consequently, the  - 6 - vehicles were aged with very low availability rates. Fleet replacement was only about 42 p.a., inadequate under Tanzanian conditions, when over 15Z would be optimal because of the poor road conditions. Freight movement by road appears to have declined by at least 2? p.a. since the mid-1970e but, as the overall level of economic activity had stagnated, this did not result in persistent or widespread capacity shortage. Between 1986 and 1989, the situation changed dramatically with the revitalization of economic activity under the ERP. Since the introduction of the "own-funds imports program" and donor assistance for the import support program, the sector is in the process of being revitalized to cater to the rapidly expanding demand. The economy, however, continues to experience major problems in meeting the rapidly growing agricultural production and the economic activities in the rural areas. The Government, realizing the distortional impact of tight administrative controls it had imposed on the trucking industry, has eliminated essentially all barriers to market entry and administratively-set tariffs. The trucking business is now on an upswing, but will continue to require external assistance for procurement of spare parts and replacement trucks. 1.12 Passenger transport is served both by private and parastatal bus companies; but due to the increased intercity mobility and high population growth rate in Dar es Salaam, as well as excessive regulation of public transport, the delivery of services has been adversely affented. A Dar es Salaam Passenger Transport Study was recently commissioned by RTC which is responsible for Shirika la Usafiri Dar es Salaam, the city bus company, to investigate the existing regulatory and institutional framework for managing passenger transport in the Dar es Salaam area with a view to improving delivery of services and efficiency of operations. The study is currently in progress and its findings will be reviewed by IDA and presented to a transport donors meeting to agree on future actions and assistance for urban transport. 1.13 Railways. In the railways subsector, the Tanzania Zambia Railways Authority (TAZARA) operates a service that is principally dedicated to Zambian transit traffic, although it is increasingly catering to local traffic in the southern part of Tanzania. In recent years, TAZARA's effective capacity has been sufficient to cater to the level of traffic on offer. However, this level of traffic has been significantly less than its installed capacity. TAZARA's ability to sustain or increase its effective capacity is currently of some concern. Firstly, its maintenance capacity is weak and the availability of locomotives is much lower than should reasonably be expected. Secondly, wagon turn-around times are unduly high for a very simple system with few intermediate loading and unloading points. The effect of low locomotive availability and high wagon turnaround times on TAZARA's effective capacity have so far been offset by the relatively large numbers of such assets available to it. Thirdly, cash generation is poor and thus TAZARA's capacity to be financially self-sustaining is marginal. The effect of this on its capacity has hitherto been masked oy a generous coverage of its maintenance and assets costs by external donors and capital restructuring to ease its debt service burden. Finally, the number of accidents on the system in recent years has been high. Unless this rate is reduced, an increasingly large proportion of its installed operating capacity would be eroded.  -7- These concerns are currently being addressed by TAZARA in concert with its leading donors. 1.14 The effective haul capacity of the Tanzania Railways Corporation (TRC) -- which serves the central and northern parts of the country as well as transit traffic from Burundi, Rwanda, Zaire and Uganda -- has declined progressively from about 1.7 million tonnes of freight in the early 1970s when it was managed as part of the East African Railways Corporation (EARC) system to 0.9 million tonnes in 1989, despite considerable additions to its asset base after its separation from the EARC in 1977. This decline has proved particularly serious in the last three years with the pronounced upsurge in domestic agricultural production and increased diversion of transit traffic from other littoral countries to Tanzania. The decline in traffic moved reflects (a) the poor availability of TRC's locomotive and wagon assets as a result of limited access to spare parts, deficient maintenance systems and skilled staff shortages; and (b) the poor utilization of assets when made available caused largely by ineffective management of operations and the unreliable condition of operational and infrastructural assets. The chronic under-utilization of assets by TRC coupled with regulatory restrictions on its ability to adjust its tariffs in line with costs or to control the large labor component of its costs, has led to a worsening financial performance and a massive erosion of its financial position. As a commercial enterprise, TRC is currently both financially bankrupt and insolvent. An Emergency Program (EP) for TRC was launched in 1987 with financing from IDA (through the Sixth Highway Project Credit and an advance from the IDA Project Preparation Facility) and donors to stem and reverse the deterioration in TRC's performance. The program, which is being implemented, has so far succeeded in stabilizing TRC's performance. The proposed project will address the restructuring of TRC's organization and operating practices and systems, the changes in the system of Government regulation of TRC and the investment requirements that are necessary to enable it to cater fully and profitably t.o the demand for freight transport by rail. Details of the condition of TRC's assets, its recent operating and financial performance and the restructuring strategy to turn around its performance are given in Chapter 11L The investment program in support of the restructuring strategy is outlined in Chapter III ane the expected impact of the strategy on its financial performance is detailed in Chapter IV. 1.15 Ports. The port of Dar es Salaam is a major regional port serving the neighboring landlocked countries of Zambia, Malawi, Burundi, Rwanda, Uganda, and Zaire. The port throughput is the second largest on the eastern coast of Africa after the port of Mombasa, and is the second largest earner of foreign exchange in Tanzania after coffee. International traffic constitutes nearly 602 of the total traffic throughput, and the efficiency and cost effectiveness of port operations is of paramount importance to its users. In order to modernize the port of Dar es Salaam, a major program was started in 1984 under the Tanzania Port Rehabilitation Project (Credit 1536 - TA) to (a) expand the container handling capacity of the port; (b) rehabilitate the general cargo berths; (c) improve equipment maintenance; and (d) improve the management and skill levels of the Tanzania Harbours Authority (THA). Since 1984, the traffic volume, which had fallen continuously since the mid-1970s, began to recover at a rate of nearly 7% p.a. During the same period, THA's operating efficiency also  showed gradual improvements. However, it has become evident in the past two years that serious bottlenecks were beginning to develop. First, physically (and perhaps most seriously), the capacity of the newly constructed container terminal is inadequate, with the demand already exceeding technical storage capacity by over 40X. Second, institutionally, inefficient customs procedures, inter alia, have contributed to the excessive congestion in the container terminal through an unacceptably high dwell time of containers in the port. Third, managerially, a shortage of trained middle management and skilled workers continues to make management and operation of the port difficult. Better use of technical assistance and a more systematized management information system is required to improve management of operations. Fourth, operationally, equipment maintenance continues to be a major problem, especially with regard to the availability of dry cargo handling equipment. Fifth, financial management could be further improved to expand the profitability of port operations. And finally, a better incentive scheme is required to improve output. The Port Modernization Project II (Credit 2095 - TA), approved in February 1990, is designed to address these issues. 1.16 Civil Aviation. Given the substantial distances between major population centers, aviation is an important means of transport in the country. The available seat kilometers (ASK) on Air Tanzania Corporation (ATC), the sole provider of scheduled domestic services, has grown at an average of 141 p.a. from about 83 million in 1977 to about 363 million in 1987. The demand for ATC's services is high with an average passenger load factor of 762 on all routes and 83? in the domestic market, often resulting in a high turnaway rate for customers. Despite this favorable demand for its services, ATC's financial performance has been characterized by growing deficitst in 1986 its operating deficit amounted to TSh 583 million (about US$17.8 million equivalent). ATC faces perennial problems in acquiring minimum access to spare parts due to its inability to generate sufficient foreign exchange to finance its own recurrent requirements; it also has constraints on fleet utilization due to lack of proper facilities (e.g. lack of night-landing facilities and poor maintenance of runways). Furthermore, ATC is unable to train its staff properly due to lack of foreign exchange for training abroad. Given these conditions, a systematic assessment of ATC was carried out under a general civil aviation sector study funded by the Irish Trust Fund, and an issues-oriented report *Air Tanzania Corporation - Strategic Evaluation and Corporate Restructuring" carried out by the Bank (Report No. 7618-TA - April 1989), recommended a strategy for the sector both in terms of improvements to the financial performance of ATC, improved cost recovery in the civil aviation sector in general, and a least cost strategy to meet the unsatisfied demand in air travel. 1.17 In order to rectify the situation and to implement the recommendations contained in the restructuring study, ATC increased fares by 100? to 150?; streamlined its operations through reorganization and staff reduction; stopped operations on several uneconomic routes; and moved out of one floor of its three-floor headquarter offices and leased it for US$200,000 in foreign currency. However, further measures to strengthen its financial position such as the sale and lease-back of its more highly marketable aircraft to generate cash to pare down its debt and shore up its working capital have not yet been adopted. With the dynamic changes in its  - 9 - operating environment and a lack of continuing management actions to reduce costs and improve revenue yields, ATC's profitability has continued to be eroded, its financial position has deteriorated further and its viability as an operating entity is increasingly questionable as further substantive restructuring are deferred. B. Previous Bank Group Involvement in the Sector 1.18 The Bank Group has extended credits and loans to help finance seven highway projects, one trucking project, one railways project and four port projects, totaling US$490.0 million since Tanzania became a Bank Group member in 1964. During the earlier years of lending, the projects concentrated on financing of new construction and equipment. The focus later shifted to strengthening of local institutions with provisions for technical assistance and training, particularly for road maintenance and road transportation. While experience with ne execution of physical components has generally been acceptable, the objective of technical assistance and training have been difficult to achieve mainly because of: (a) delays in appointment of technical assistance staff; (b) cultural and language adjustment problems of technical assistance staff; (c) lack of effective administrative commitment by Government agencies; (d) lack of suitable local counterparts; and (v) unrealistic targets. These lessons have been confirmed by the eight Project Performance Audit Reports (PPAR), and have been highlighted in the comprehensive audit carried out by the Bank's Operations Evaluation Department on all Tanzania projects from 1961 to 1987 (OED Report No. 8329, January, 1990) and have been incorporated in the design of the Integrated Roads Project, the Ports II Project and this proposed project. F. Rationale for IDA Involvement 1.19 The rationale for IDA involvement in the sector is a logical extension of its role in assisting the Government to carry out its macroeconomic reform. In the last two years, IDA's role has been deepened to include reform of sectoral institutions and assistance in removing sector-specific bottlenecks that have emerged as obstacles to the sustainability of the recovery program. The comprehensive analysis of the transport sector carried out by IDA in August 1987 formed the basis of the December 1987 Transport Sector Donors' Conference held in Arusha. Since then, IDA has taken the lead in working with the Government to bring together a comprehensive rehabilitation and restructuring program for the transport sector of Tanzania. Nearly 20 donor agencies have mobilized over US$1.3 billion in their resources to join Tanzania in implementing the ambitious sector programs. Specifically, IDA contribution includes: (a) a vision of how the transport sector can operate in the future if specific actions are taken to adjust the institutional and policy framework under which the transport sector is managed; (b) technical expertise which has analyzed the complex issues stifling the existing system and recommended options on how the system can be changed to improve the effectiveness of the Government's effort; (c) supporting the changed attitude of Government officials towards liberalization of transport operations, manifested in the following policy actionss (i) decentralization of decision-making  - 10 - authority; (ii) expansion of private sector involvement and encouragement of parastatals to operate strictly on commercial merits; and (iii) less cumbersome procurement and administrative practices; and (d) placing a Principal Highway Engineer in the field for three years to assist in implementing the changes. 1.20 In the railways subsector specifically, IDA's role has been to assist Government and TRC to develop a coherent restructuring strategy to effectively reverse the secular decline in its effective capacity and to strengthen its capacity to be financially self-sustaining. The donors active in TRC, many of whom have provided substantial assistance to it since its establishment, are conditioning their future assistance to TRC on agreement between IDA and Government on the restructuring strategy reached under this project. II. THE RAILWAYS A. Background 2.01 The Tanzania Railways Corporation (TRC) is the successor to the first railway line in East Africa which was built by German settlers in 1890 from Pangani in the vicinity of Tanga to a point 20 kms inland. By 1911, 350 kms of track linking Tanga to Moshi and providing access to the rich agricultural areas in the north-eastern region of the country were completed. The Central Line linking Dar es Salaam to the Lake Tanganyika port of Kigoma was completed in 1915, whilst the line linking Mwanza to Tabora to the Central Line was completed in 1928. Subsequent extensions to the railway's geographic coverage were made between 1947 and 1963 and these served to link Tanga and the north-eastern region to Dar es Salaam, a now- exhausted lead mine in Mpanda in the southwest and the tobacco and coffee growing areas around Kidatu in the southeast to the main network. The TRC system now enjoys a strategic geographic location traversing regions estimated to account for about 40? of Tanzania's agricultural output and most of the country's export crops and links all major urban centers in the northern half and the central part of the country. The system provides one of the major access routes to coastal seaports for the international trade of northern-eastern Zaire, Burundi and Rwanda and Uganda. This strategic location is reinforced by the distribution of economic activity in Tanzania and the relatively underdeveloped and deteriorated nature of the roads network. 2.02 In tenms of its organization, the railway system in Tanzania together with the national ports services were merged with Kenya and Uganda Railways and Harbours in 1948 to form the East Africa Railways and Harbours Administration (EARH). In 1967, the East Africa Railways Corporation (EARC) was formed following the establishment of the East Africa Community (EAC) to operate the railways and allied activities of the EARH. In 1977, following the dissolution of the EAC, Tanzania Railways Corporation was incorporated to operate the Tanzania segment of the defunct EARC activities.  - 11 - B. Regulation 2.03 TRC's operations are governed by the Tanzania Railways Corporation Act, 1977, which sets out in detail its objectives and the relative powers of the Minister responsible for it (currently, the Minister of Communications and Transport (MCT)), its board and its Director General. Under the Act, TRC is charged with providing a coordinated and integrated system of transport services by road, rail and inland waterways on commercial principles. Specifically, in the discharge of its service obligations, TRC is required to (i) be sufficiently cash generative to be operationally self-sustaining as well as earn a rate of return, as determined from time to time by the minister, on its assets as periodically revalued ; (ii) provide all reasonable facilities for the carriage of passengers and goods; (iii) to give no person or body undue preference in the provision of transport services. 2.04 However, the Act has not been and cannot be, on its own an effective basis for ensuring that TRC operates on a commercial basis for four main reasons. Firstly, no specific rate of return has ever been established for TRC by past ministers and there has been no coherent view in Government or TRC of the output potential of TRC. There has thus been no performance objectives for TRC, either in physical or financial terms and no corresponding pressure on it to utilize its assets profitably. Secondly, even if a coherent set of performance objectives were set for TRC, it is unlikely that these could be achieved by it because of the limited and ambiguous managerial powers granted to its Board and management under the Act. The Act provides that TRC has minor powers over its tariff level and structure, its organizational structure and manpower levels. Major powers over its prices and cost structure are granted in the Act to the minister of MCT. What constitutes major or minor powers has never been defined. This ambiguity has served to narrow or eliminate the scope for autonomous management actions within TRC. Thirdly, although the Act, by specifically stipulating that no service shall be provided at a price less than its cost of provision, provides for TRC's services to '.; allocated to customers based on their ability to pay full cost-recovery tarif.s, restrictions on tariff increases arising from ministerial controls on tariffs have progressively eroded the role of tariffs in determining service allocation. As TRC's capacity has declined relative to traffic on offer, the role of Government in dictating priorities for movement, irrespective of their commercial implications for TRC, has enlarged. Finally, although the Act provides for the appointment of a Board to guide TRC's operations, the Board is subject to the same lack of goals and performance expectations and the same restrictions on its powers as is the management of TRC. In the absence of a clear mandate, successive TRC Boards have been ineffectual in ensuring an acceptable degree of financial or operating performance by TRC. The system of regulation embodied in the Act, which provides little incentive for TRC management to be efficient, has had a pervasive negative impact on all aspects of TRC's operations.  - 12 - C. Organization, Management and Staffing (i) Organization and Management 2.05 TRC is organized mainly on functional lines with staff in four operating regions reporting to functional heads at headquarters in Dar es Salaam. Responsibility for coordination of the various railways operations functions as well as the marine and road services operations is vested in the Assistant Director General (ADG) for Operations who reports to the DG. A chief financial officer, also reporting to the DG, is responsible for accounting and treasury functions which are centralized at headquarters. Two other ADGs -- the ADG for Corporate Planning and Marketing and the ADG (Services) who is responsible for the hotels and catering operations, manpower development and supplies -- report to the DG. 2.06 The current organizational structure of TRC was inherited from the EARC which was similarly organized at the three respective national levels but with substantial accounting and technical resources at headquarters in Nairobi. With the breakup of the EARC and the limited experienced staff of Tanzanian origin, it proved pragmatic to maintain a known structure with highly centralized management. The existing structure is however, no longer adequate for the effective commercial operations of TRC. Although the span of control of the DG is acceptable, that of the ADG (Operations) is too extensive. A disproportionate amount of the incumbent's time is preoccupied with resolving day to day crises arising in the different departments under his brief rather than on coordination and planning. This division of his time frequently leads to the paralysis of decision-making on the eruption of departmental crises. The emphasis on functional specializations together with the highly centralized reporting structure inhibits middle management responsible for operations in the regions from developing a corporate view of its activities as well as from taking a large measure of responsibility for day-to-day operations. This has the effect of confining corporate concerns for the railways financial and service objectives to the highest levels of the organizational hierarchy. Finally, the performance of the non-railways activities is adversely affected by their location in the existing organizational structure. The roads and hotel and catering services are considered an extension of the railways services whereas in reality they perform few services that are complementary to the railways' activities. These services enjoy only the limited attention of senior management which is focussed on the core railways operations. Management of the services exercise no control over the key variables for commercial success -- pricing, costs, investments and assets disposal -- and long lines of communications between the services and headquarters senior management leads to considerable delays in decision making on even basic operational issues, adversely affecting the performance of the services. The marine services, although linked to the railways service through its wagon ferry operations operates an extensive passenger service as well as cargo operations around the lakes that are not tied to the railways. These non- railways linked activities are dominant in terms of assets requirements and costs. The marine service, like the other non-railways services, suffers from lack of autonomy in pricing and cost control as well as long lines of communications which inhibits quick decision-making. In addition, TRC's railways oriented senior management which has little understanding of the  - 13 - competitive features of shipping operations has been unable to provide the detailed operational guidance to the service that would justify the existing day-to-day reporting relationship of the service to headquarters. (ii) Staffing 2.07 Staff establishment levels for TRC and TRC's own assessment of the scope for staff reductions are shown in Annex 2-1. The current authorized staff establishment is 17,476. The actual staffing level as at December 1989 was 17,098 of which 2,127 were casuals. By any criteria, TRC is grossly overmanned. Staff productivity at 40,000 net tonne-km (ntkm) per employee or about 85,000 traffic units per employee is amongst the lowest of any railways system in the world and compares to over 300,000 ntkm per employee in the National Railways of Zimbabwe where staff numbers are also considered excessive. The establishment levels which set the ceiling on staff levels are essentially figures drawn from the establishment structure of the defunct EARC and do not reflect the fundamental change in the technology of operations since the middle 19709 on the appropriate level and skills-mix of staff -- in particular, the changeover from steam . diesel operations and the mechanization of track operations which call for much less labor-intensive operations. There is, as a result, significant surpluses of unskilled and semi-skilled staff. At the same time, TRC has been experiencing significant difficulties in recruiting skilled and managerial staff because of its uncompetitive wage structure. TRC's wages for skilled staff are about 702 of those for comparable workers in other parastatal and, adjusted for the monetary value of benefits, are only about 35X of those for comparable workers on TAZARA. Besides its effect on TRC's ability to recruit skilled staff, the low wage structure is a serious and recognized cause of disciplinary problems in TRC with its large, widely dispersed and low paid labor force having a strong incentive to take secondary jobs on the corporation's time or misuse corporate resources to supplement their income. Similarly, the administration of such a large, lowly paid work force in a highly centralized organization consumes a substantial proportion of senior management time. 2.08 In general, TRC's senior and middle management, although thin, is suitably qualified and experienced in their functional areas. Their effectiveness has, however, been circumscribed by a number of factors of which the most important are the limited delegation of authority and the concentration of responsibility for cross-functional coordination at the highest levels of the organization, limited facilities for and the irrelevance of general management training and the poor structure and levels of remuneration which limits the incentive for promotion and the dedication to corporate duties. In the supervisory and skilled grades, the effectiveness of the TRC work force is seriously limited by the lack of training facilities for skills upgrading and the poor standard of living of staff.  - 14 - D. Physical Assets and Resources (ii) Track 2.09 TRC operates a total of 2,580 km of track of which 2,259 km are part of the mainline network and 321 km are branch lines. About 80 percent of the TRC system i8 on easy ruling grades of IU. The balance of the system is on steeper ruling grades of between 1.8Z and 2.2Z, mostly confined to the sections Dar es Salaam - Morogoro, Makutupora - Aghodi and Tanga - Buiko sections. There are more than 1800 curves on the mainline of which about 56X are of radii of 200 to 500 meters. The steep grades and sharp curves limit the tonnage that can be carried over the system with the couplers currently in use. Rails of 45 to 80 lb/yard are in use with the future standard being fixed at 80 lb/yard. Sleepers are of steel except at turnouts, bridges and specific places needing wooden sleepers. Joints are only now being welded and most of the bolted joints are permanently bent down. Several locations on the track suffer from repeated flooding. There are a total of 391 bridges on the system. Even though the bridges are well maintained, a number of these have speed and axle load restrictions and as a result need strengthening. Bridge strengthening programs were initiated in 1983 and, to date, 32 bridges have been completed. Heavy equipment available for p4rmanent way maintenance comprises 4 tamping machines, 4 ballast regulators, 1 track relaying machine, 2 front-end loaders, 1 track recorder trolley, 1 flash butt welding plant at Tabora and about 40 heavy and light inspection trolleys. About 5O of the equipment is not in operating condition due to non-availability of spare parts and old designs for which spare parts are not available any more. 2.10 The permanent way on TRC has suffered from a large amount of deferred maintenance. A very high percentage of the track has nil to inadequate ballast cushion whilst rails, sleepers and fastenings on around 400 to 500 km of track need replacement. The lack of adequate maintenance has resulted in speed restrictions being imposed on many sections, sometimes to a crippling level of 10 km/hour. Poor maintenarce of curve geometry has resulted in an increase in the incidence of derailments. A recent analysis shows that about 28S of the derailments in the last 3 years could be attributed to track defects. About 120 kms of track length in different sections has speed restrictions of less than 20 km/hour and unless improved another 400 km will need speed restrictions of 30 km/hour or less within the next 3 years (Annex 2-2). (iii) Signalling and Telecoanunications: 2.11 The existing signalling system on TRC is of the simple type with either one or two aspect semaphore for entry to each station from either end. Points and crossings are not interlocked with the signals, except at two stations, i.e. Dar es Salaam (Ilala) and at Maruazi Junction. Single line block token instruments are used. The Dar es Salaam - Tabora section is being upgraded to a sophisticated system with solar battery elements, electric point machines, color light approach, home and station signals and centrally controlled station panel operation of points. This project is expected to be completed by 1992. The capacity and capabilities of such a system in operation would exceed presently foreseeable needs of TRC. There  - 1S - is no need for upgr iing the system on sections not covered under this ongoing work. 2.12 TRC currently has 2,547 km of open-wire telecomunication lines, train control and telephone equipment at 116 stations, 9 telephone exchanges, 10 teleprinter links and 13 radio-linked control offices and stations covering the system outside of the Kigoma to Tabora section. This latter section has relatively new telecommunJcations financed with' assistance from Kreditanstalt fur Wiederaufbau (KfW) of Germany. The open- wire system, now formally the property of the Tanzania Posts and Telecommunications Corporation (TPTC), needs to be taken over by TRC as the TPTC has installed a micro-wave system linking the main centers of the country and has no commercial interest in maintaining a system dedicated to TRC operations. The condition of the overhead open wire lines is poor, and the lines and much of the associated equipment needs rehabilitation. There is also the incidence of thefts of wires in densely populated areas. Rehabilitation of the Dar es Salaam-Tabora-Hwanza open-wire lines and associated equipment has recently commenced with financing from the Canadian International Development Agency (CIDA) and is expected to be completed in 1993. The Tabora-Kigoma telecommunication system consists of 611 km of aerial cable, telephones at 17 stations as well as portable units, two telephone exchanges, one 12 channel multiplex carrier system and one teleprinter link. The system, being new, is in excellent condition. (iv) Motive Power 2.13 The motive power fleet of TRC comprises 81 main line and 29 shunting diesel locomotives. The main line locomotives are of five different designs and capacities, the hauling capacity of the different loc'nmotive types ranging from 500 to 1250 tonnes or 10 to 25 loaded standard freight wagons. The shunting locomotives are of three different designs and capacities. The main technical characteristics, the names of the locomotive suppliers and the hauling capacities are indicated in Annex 2-3. Twenty-one (21) main line and 9 shunting locomotives, out of the entire locomotive fleet, operate with hydraulic transmission and the rest with electric transmission. The Class 87 locomotives are the oldest, being 24 years old. 2.14 Out of 110 locomotives on TRC's books (as of July 1990), 39 were awaiting either rehabilitation or rebuilding and only 71 locomotives, i.e., 652 of the total locomotive fleet were serviceable. Except for ten locomotives of Class 73, which suffered from technical problems from the date of supply and six locomotives damaged during accidents, all the other unserviceable locomotives have had to be set aside as a result of the locomotives having suffered serious deteriorat!on due to deferred and inadequate maintenance. Due to the same reason, the hauling capacity of all classes of locomotives has been reduced by 10 to 15?. Taken together, the capacity of the locomotive fleet has suffered an erosion of about 40? due to deferred and inadequate maintenance. The loss of capacity on bot'h accounts for each class of locomotive is indicated in Annex 2-4. The recent trend of locomotive availability is shown in the table below.  - 16 _ TRC - Locomotive Availability (Z of total fleet) Class 1987 1988 1989 1990 a/ 64 56 49 52 39 72 34 0 0 0 73 23 24 25 27 87 8 14 40 46 88 59 57 56 52 36 22 35 38 31 37 94 93 93 96 35 6 4 10 48 a/ first quarter of year Sources TRC (v) Wagon Stock 2.15 TRC currently possesses a total of about 3,300 wagons of all designs including tank cars. Many of these wagons are reaching the end of their accounting life, are of obsolete and inefficient designs and in poor condition and would need to be progressively scrapped. The effective wagon fleet, at the end of 1992 when all existing defective wagons are expected to have been scrapped, would consist of about 2,200 wagons. A considerable number of wagons have a low payload capacity. Even the most recently acquired wagons on TRC, except for tank wagons with a maximum specified payload of 36 tonnes, are not designed to fully exploit the permissible axle loads on TRC's track. The different wagon designs available on TRC, their capacity, tare weight, current holding and expected holding after scrapping are given in Annex 2-5. 2.16 The current availability of wagons, as a percentage of wagons shown in the books of TRC (including wagons slated for scrapping but awaiting formal approval for disposal) is around 70X. Wagon availability will show a small improvement after the scrapping of about 500 wagons is formalized and these wagons are removed from the fleet. However, until this scrapping is undertaken, the defective wagons, by occupying operational lines in the yards, will contribute to the slowing down of switching operations unless they are removed to non-operational yards. As part of the preparations for this project, TRC embarked on a crash program to clear operational lines in the main terminal yards in Dar es Salaam of defective wagons. Progress on this program has been reasonably satisfactory (paras 2.27 and 2.29). Due to a substantial backlog of maintenance and continuation of a large number of wagons with plain bearings, the breakdown rate of the wagons is also very high and is one of the major causes of poor wagon availability.  - 17 - (vi) Passenger Coaches 2.17 TRC has a fleet of 127 passenger coaches, of which 100 are serviceable. The average age of the fleet is about 10 years. The fleet is in a very run-down condition with barely 75 in service. The coaches are scheduled for general repairs in the main workshops every two and a half years and for light repairs in the depot on a bi-annual basis. However, over 402 of the rleet is overdue for general repairs, in some instances for as long as nine years. This level of deferred maintenance coupled with the extensive vandalization of coaches is the main reason for the rapid deterioration of the essentially young coaching stock. E. Operations 2.18 TRC operations are characterized by a number of factors: (a) long queues for wagons by customers; (b) long detention of wagons at terminal yards; (c) high running times; (d) suboptimal trains formation; and (e) low wagon productivity. Detailed monitoring of performance and the related management and control of operations is largely absent. As a direct result, very scanty operational data is routinely collected at TRC. Operational performance indicators like average wagon load, empty to loaded running ratio, gross tonne-km (gtka) to ntkm ratio, average haul for different commodities, average train loads for different classes of locomotives, wagon km per wagon day, and wagon turnaround times for different services cannot be accurately established. The current status of operational performance has thus been derived through the analysis of the data as available, on-the-spot observations and detailed discussions with TIC management. 2.19 Queues for Wagons: hgainst an average daily loading of about 100 wagons, there is always a pendIng demand for 1,000 wagons. Even thougb part of the demand appears te bW inflated and the waiting list in part represents a time lag in meeting the demand and the effects of low tariffs (para 4.04 (iii)), the waiting list does indicate the current limit to TIC's capacity to carry all the ):raffic on offer. The long waiting list is also affecting the rational and aptimal allocation of wagons to the users. Terminal Yard Detentions: About '900 wagons, 20Z of the total inventory of wagons on TRC, are due to be scra*ped during 1991 and currently the wagons have been sot aside on different operating rail lines within various yards, rendering a major percentage of tuese lines ineffective for switching operations. As a result, switching operations take a long time and the train formations are erratic requiring reformation through additional shunting enroute. Also, the time permitted to various users for loading/unloading operations is inordinately high. Eve- so, the users are taking an even longer time, sometimes 4-5 days, mainly due to low demurrage charges. In effect, rail users find it cheaper to use wagons for storage rather than develop additional warehousing space. This has led to a considerable increase in the turnaround of wagons. Finally, inadequate availability of shunting locomotives and their poor condition is also affecting the shunting operations and timely placement and withdrawal of wagons for loading and unloading, resulting in heavy detentions to wagons. Suboitimal Train Formation: Train formations are usually subuptimal for a number of reasons: (a) the constraints on operations mentioned abovel (b)  - 18 - the almost total absence of an operations plan; and (c) the wide difference in the hauling capacity of the various classes of locomotives used for freight traffic and the existence of steep gradients in certain sections. Despite the availability of relatively high volumes of traffic in cotton, tobacco, coffee, metals and general cargo between specific origins and destinations, the number of through trains run between these points is very small and most of the traffic tends to move through slow pick-up type of trains or through inadequately marshalled trains. The average trailing loads are also far short of the locomotive hauling capacity. High Running Time: Train speeds have been restricted over a wide range of the track length due to the poor condition of the track. Owing to crew change and fueling facilities being in depots rather than in the yards, almost all the trains suffer an additional detention of about one hour or more at every intermediate yard. Train examination patterns and insistence on train examination at every yard add to the detentions. Low Wagon Productivity: Average wagon payload has been estimated at about 25 tonnes as against the design payload of the majority of wagons on TRC of 40 tonnes. Though part of the reason for the low average lies in the density of some of the commodities like cotton and tobacco being low, the major responsible factors are the low tariffs, absence of weighment facilities and lack of appreciation of the impact of inefficient loading of wagons. The use of wrong types of wagons for different commodities and higher than required proportion of empty running of wagons are other factors contributing to low productivity of operations. F. Operations Information System 2.20 The system for the collection, analysis and dissemination of traffic operations data is highly deficient. Data on train operations and engine performance are not systematically collected, are not analyzed on a systematic basis on lines relevant to decision-making and are produced in an incomplete form with substantial time lags. Traffic data is collatc; with substantial time lags, classified in a form that has little analytical utility and is invariably highly inconsistent with accounting data. This deficiency in traffic operations information systems reinforces the ad hoc system of working. More fundamentally, however, any traffic information system will need to be reinforced by organizational incentives for their use to be effective. With respect to the maintenance planning and management systems, CIDA and the Dan:ish International Development Agency (DANIDA) have provided considerable assistance to TRC in developing planning, monitoring and control systems through their respective programs of assistance to the mechanical engineering workshops. These systems have tended to be project-specific, with little effort at institutional transfer to TRC. They need to be generalized and standardized for use across all TIC programs and facilities. Under the EP, the Overseas Development Agency of the United Kingdom (ODA) is providing assistance to TRC to strengthen its central procurement and supplies management system and to standardize materials management systems throughout the organization. The effectiveness of this program has been handicapped by lack of adequate numbers of qualified counterparts for the expatriate team and the highly fragmented nature of procurement activities, which by removing most elements of the procurement cycle from TRC responsibility to that of the  - 19 v donors financing specific programs undermines the rationale for TRC to maintain effective systems. 2.21 The bulk of data processing in TRC is undertaken on an ICL ME29 mainframe computer with 1 megabyte (mb) of memnry which is upgradeable to 4 mb. This system is about sever years old and, although it has adequate capacity to meet TRC's medium-term processing requirements, is subject to an increasing rate of failures. Spare parts and maintenance support for this system, which is no longer manufactured, are difficult to obtain. The system is supported by nine terminals for data entry and two obsolete line- printers that are prone to frequent failures. Data processing is on a batch basis with a heavy degree of reliance on manual preparation of data for entry, data checking and verification. All computerized data processing is concentrated at headquarters with little scope for any distribution of such tasks to the regions due to the poor state of communications facilities within the railways and the country. Information systems currently computerized include the general ledger, payroll, revenue accounting, fixed assets, locomotives statistics, and stores accounting. A wagon control system has recently been completed and is under trial. G. Financial Performance 2.22 TRC's overall financial performance since its establishment has been very poor. Details of its historic financial performance are shown in the table below. Its losses since 1979 have totalled a massive TSh 4.2 billion, excluding the cost of much of the maintenance expenditure for its locomotive fleet which were covered by donor grants and not provided for in its accounts. Its cumulative cash flow from operations amounted to TSh 4.4 billion over the period. Net of investments in working capital to support operations, cumulative cash generation amounted to TSh 3.3 billion over the period. However, this net cash generation from operations has been insufficient to cover its debt service obligations, the interest component of which amounted to TSh 4.0 billion. TRC has been able to finance only a fraction of its debt service obligations and built up arrears of interest payments of TSh 2.2 billion over the period whilst not effectively making any principal repayments on its debt other than to its multilateral lenders. As of December 31, 1990, arrears of debt service amounted to about TSh 4.6 billion. With its worsening profitability and poor cash generation, TRC's financial position deteriorated substantially between 1979 and 1986 with debt as a proportion of its total capital employed increasing from 36Z to 109X. To ease its interest burden and reduce its relative indebtedness, Government, in 1986, capitalised about TSh 5.0 billion of its debt. However, the effect of this was transient. By 1989, TRC's interest obligations were again greater than its cash generation from operations. TRC's poor profitability and cash generation has had a number of adverse implications for its operations. In particular, to curtail expenditures, TRC has had to defer a significant amount of maintenance, particularly of its track infrastructure, which has not benefitted from external donor financing and much of which could have been funded out of local resources. This deferral of maintenance has led to progressive deterioration in the condition of its track and a vicious cycle of lower capacity, lower traffic and lower revenues. Due to its limited cash generation, TRC has been unable to implement even the basic incentives  - 20 - schemes permissible under the country's wages policies, handicapping its capacity to retain or recruit skilled staff and its ability to effectively manage the productivity of such staff. TRC: Historic Financial Performance a/ (TSh million) 1979 1984 1985 1986 1987 1988 1989 Operating Income 111 257 392 768 661 2183 (excl. depreciation) Operating Working Capital (81) (312) (330) 604 345 (1274) Cash Flow from Operations 30 (55) 62 1372 1006 909 Interest obligations (423) (138) (1240) (452) (684) (1065) (393) (193) (1178) 920 322 (156) Capital Expenditure (1804) (379) (310) (350) (282) (884) Total Financing Requirement (2197) (572) (1488) 370 40 (1040) === = r Net Income (832) (37) (1775) (2152) (676) (351) 2.23 The main sources of TRC's poor financial performance have been (i) the underutilization of its capacity; and (ii) the inflexibility of the tariff regime. Capacity utilization: The inherent capacity of TRC has been much greater than actual traffic carried due to poor asset availability and utilization. This has resulted in low contribution margins per ton-km of freight and per passenger-km carried relative to the high fixed cost of operations (mostly labor costs) and debt-service obligations (mostly related to the poor performing operational units). Inflexible tariff regime: cumulative tariff increases for TRC between 1979 and 1989 have averaged about 43Z p.a. and have been in line with the general level of domestic inflation. However, these increases have been much less than compensatory for TRC's unit cost increases which are much more related to movements in the exchange rate. Hoveover, the timing of tariff approvals has been poor with significant lags in awards (e.g. a gap of 26 months between tariff increases in 1981 and 1984, 22 months between 1984 and 1986 and 15 months between 1989 and 1990). In addition to these 'actors, TRC's management of its working capital has been poor with both lax collection practices and inadequate management of its inventory, leading to large increases in its cash needs to finance working capital.  - 21 - H. Restructuring Strategy (i) Past Experience and the Restructuring Strategy 2.24 The experience gained in attempting to turnaround TRC's performance under the EP has provided a number of valuable lessons of considerable relevance to the design of the proposed project. The EP was based on a ten-point action plan covering (a) institutional measures and changes to bolster TRC's cash-generating capacity; (b) organizational measures to facilitate the effective commercial management of operating activities; (c) operational measures to facilitate better utilization of operating assets; and (d) rehabilitation activities to improve the condition and availability of key operational and infrastructural assets. The success of these measures in improving and sustaining the operating and financial performance of TRC was mixed. In particular, the measures to be effected by Government depended for their effectiveness on its commitment to seeing that TRC was managed commercially whilst those intended to strengthen TRC's capacity to manage its resources efficiently relied on strong managerial initiatives from TRC in designing and implementing programs of actions. Government commitment to a commercial objective for TRC was weak. No clear-and explicit financial and operational objectives were set TRC by Government or proposed under the program. There was no pressure for TRC to perform effectively. There was little supporting Government action to stem any deterioration in TRC's performance. Few proposals for tariff increases were approved by Government beyond the initial action agreed and implemented at the start of the program. Three years into the program, TRC had moved from being cash-generative to being insolvent as a result of huge, uncompensated inflationary increases in its costs. Internally, TRC lacked the leadership or internal culture of accountability for performance to manage the program of action effectively. This resulted in considerable inertia in planning and implementing actions to improve its operating efficiency. The rehabilitation objectives of the program, in the narrow sense of restoring classes of assets to service, were achieved - albeit, with about a 50Z time lag - largely as a result of the close participation of a large amount of external support. TRC as an institution continued to be weak. There has been no improvement in its effective capacity since the start of the EP. A detailed review of the implementation of the EP is attached as Annex 2-11. The experience under the EP is similar to the experience of the Bark in other railways projects in the region. In the two projects for which PCRs and PPARs have been recently completed (Zambia Third Railways Project (Loan 1790-ZA/Credit 0973-ZA): PPAR No. 7975, June 1989; Zimbabwe - Transport Rehabilitation Imports Program (Loan 1994-ZIM): PPAR No. 8619, Hay 1990) , significant additions were made to the railways assets through either the rehabilitation of existing assets or new inv% ints. However, in both cases the effective utilization of assets decli.-d considerably, offsetting the effect of the projects on the railways effective capacity. In both cases, the railways effective capacity was maintained subsequently at the pre-project level only through substantial hires of locomotives and wagons. The conclusion of the PPARs were that this effect could have been avoided or minimized if greater attention was paid to putting effective pressures on the management of the railways to improve the utilization and availability of assets and supporting such efforts under the project. Increasing the railways physical capacity on its own without regard to the  - 22 - efficiency of use of existing available assets only served to undermine the achievement of improvements in operating efficiency and paradoxically led to a lower level of performance and the need for a greater amount of assets to perform the same level of service as before the project. 2.25 The lessons of the EP for any meaningful strategy to turnaround TRC's performance are as follows: Firstly, the legal framework governing TRC's operations needs to provide TRC with clear overall objectives and unambiguous powers to achieve these objectives. Without this, the management and Board of TRC cannot be held accountable for the effective and efficient use of the assets under their tutelage. Secondly, TRC's managers must be held accountable for specific efficiency objectives with respect to the assets under their control. The past lack of any performance expectation of the corporation has led to both a corresponding absence of managerial accountability for performance and little incentive or pressure for TRC managers to use procedures or systems that will optimize the use of the system's assets. Currently the availability and use of assets is well below its potential even though significant improvements can be effected within the competency of the existing managers and with the resources under their control. Thirdly, the internal organization of TRC needs to be restructured to support a new performance orientation. Fourthly, the backlog of deferred maintenance evident in all classes of railways assets must be made good to prevent their total loss or avoid their significantly more expensive replacement; any new investments must be consistent with the objectives of efficiency improvement measures and not lead to a dilution of the pressure on TRC to perform effectively. These actions must be implemented as an integrated package. In accordance with this strategy, agreement was reached with Government and TRC on a number of specific actions detailed below. (ii) Restructuring Actions 2.26 Regulatory Frameworks To clarify the powers of TRC under the TRC Act, the Minister of Communications and Transport will issue a Ministerial Directive reiterating the service and financial objectives set TRC under the Railways Act, outlining the specific powers to be enjoyed by TRC with respect to its organization structure, manpower complement, tariffs and fares and defining Government's obligation to redress TRC for any losses incurred as a result of investing in or providing services at the directive of Government. The Directive will also instruct the Principal Secretary of MCT to enter into a Memorandum of Understanding (MOU) or performance contract with TRC to operationalise the Ministerial Directive by detailing the respective powers and obligations of Government and TRC under the Directive and the TRC Act and the reporting arrangements to ensure the effective working of the regulatory system. The Directive and MoU will set TRC the primary objective of generating, through efficient and commercial operations, a rate of return on its capital employed sufficient to enable it to be financially self-sustaining. To enable it to achieve this objective, the Directive and MOU will grant TRC the following powerst (i) to adjust its tariffs with such frequency and magnitude as it considers necessary to achieve the rate of return objective, without reference to Government; (ii) not to provide any service below its full cost of provision; (iii) to make investments it considers appropriate subject only to an overall debt-to-equity limitation and submission of economic and  - 23 - financial justification to MCT for any investment in excess of US$ 2 million equivalent; (iv) to restructure its internal organization as it considers to be commercially appropriate without reference to Government, except if this involves creation of new non-railways entities or amalgamation with an unrelated entity; (v) to reduce its staff by any amount it considers appropriate to achieve its efficiency and commercial objectives, without reference to Government; and (vi) pay salaries, bonuses and incentives payments as it considers commercially prudent, without reference to Government. Under the MOU, TRC is obligated to achieve or implement the following monitorable performance objectives and measures: (a) a rate of return on its capital employed of not less than 152 in 1992, 1993 and 1994 and not less than 20% thereafter, subject to revision of these rates after the revaluation of TRC's assets under the project; (b) the operational performance targets agreed with Government and IDA as feasible with the proposed restructuring of working systems and practices and management to be implemented under the project; (c) implement a revised organizational structure consistent with that agreed with IDA as conducive to effective management of its core railways activity under currently prevailing conditions; (d) implement reductions in its manpower in line with its preliminary assessment of its level of overstaffing and subject to revisions to be made after ongoing studies assessing the scope for further manpower reductions are completed. A Ministerial Directive was issued on May 23, 1991 and an MOU was executed on May 24, 1991. The Ministerial Directive and MOU are shown at Annex 2-6. In advance of the issue of the Ministerial Directive and the execution of the MOU, Government in March 1991 approved for immediate implementation tariff increases of 70X for freight and first class passenger traffic and 40? for second class and economy passenger traffic as well as the package of restructuring measures proposed under the project. The restructured regulatory system for TRC represents the furthest that Government has gone, to date, in spelling out a clear commercial mandate for any of its parastatals and the first time that it has entered into an explicit performance contract with any such enterprise. 2.27 A critical ingredient for the translation of the freedoms and obligation of the Directive and MoU into operational programs is the presence of a commercially oriented Board of Directors. The existing TRC Board's term of office expired in December, 1990 and the launch of a new Government strategy to turnaround TRC presents an ideal opportunity to select a Board to guide management's operations in a new climate of focussed commercial orientation. Accordingly, during negotiations, agreement was reached with (:overnment that the appointment to office of the new Board would be a condition of Credit Effectiveness (para 6.02 (i)). 2.28 Efficiency Objectives: During appraisal, agreement was reached with Government and TRC that TRC would implement an Operations Improvement Plan (OIP) in three phases. Phase 1 would comprise actions within the technical competency and resources of TRC to (i) eliminate congestion in the yards arising from the accumulation of sick and defective wagons; (ii) improve wagon availability by restoring to service sick wagons consistently with the current availability of work gangs and materials; (iii) improve availability of locomotives consistent with maintenance plans based on currently available spare parts, labor and agreed levels of labor productivity; (iii) improve the utilization of operating assets by reducing  - 24 - the detention of trains en-route to their destinations, the progressive introduction of through-trains, reduction in switching efforts and associated delays by encouraging customer acceptance of larger rakes of wagons. 2.29 Phase 2 would comprise actions to consolidate the gains in improvement under phase 1 and would be based on action plans to be prepared during the implementation of phase 1. In particular, agreement was reached with TRC that it would commission studies to review maintenance and train operations practices and recommend specific changes and improvements in methods and organization of work to be incorporated into action plans. An action plan with respect to train operations has already been substantially completed by TRC staff based on explicit analysis of traffic patterns and the best way of serving such traffic to achieve optimm utilization of locomotives and rolling stock. Consultants have already been selected by TRC to undertake audits of its maintenance practices as the basis for formulating action plans to further improve the quality of track works and the availability and reliability of its fleet of locomotives and wagons. Phase 2 would be implemented over a period of about one year, starting from January, 1991 with the target completion of Phase 1. 2.30 Phase 3 would comprise actions to be supported under the project and would focus on improvements in the planning and control of maintenance activities. The actions under phase 3 are dependent on improvements in the condition of TRC's assets which can only be effected with the substantial assistance planned under the proposed project. Details of the actions to be undertaken under phase 1 and the agreed performance targets for the OIP as a whole are detailed in Annex 2-7. With achievement of the OIP targets, TRC would be able to carry about 1.8 million tonnes of traffic, double its current effective capacity, without any new infusion of assets (Annex 2- 2.31 Most of the efficiency objectives of Phase 1 of the OIP have been achieved satisfactorily. Availability of the locomotive fleet, adjusted for locomotives damaged in accidents and consequently rendered unavailable, improved as envisaged; the reliability of the locomotive fleet was generally better than envisaged under the plan. The overall rate of utilization of locomotives was about 15? less than the agreed target; however, the target was based on five locomotives being assigned to low productivity departmental service, As the number of available locomotives increased, most of incremental units were assigned to departmental rather than revenue-generating services depressing overall utilization. By corollary, the effective utilization of locomotives in revenue service was significantly better than targeted. The rate of removal of defective wagons from operational lines in the major yards (and the total numbers removed) was substantially greater in the six month period of the OIP than in the previous three years. However, due to unanticipated problems of shortages of key inputs and equipment, only 60Z of the target removals was achieved. The ability of TRC to effectively implement Phase 2 of the OIP and further improve on the performance of Phase 1 would depend critically on the identification of existing inefficient or ineffective maintenance and operating practices, feasible means to address them and concrete action plans to implement such measures. Completion of action plans satisfactory to IDA and satisfactory progress in the implementation of the action plans  - 25 - would be conditions of Credit Effectiveness (para 6.02 (ii)). Satisfactory progress would be deemed to be the achievement of the operational targets agreed at appraisal for the period prior to the proposed date of effectiveness. TRC has already prepared plans that are satisfactory to IDA to reduce the number of locomotives assigned to departmental services. Finally, to ensure that the efforts of TRC in clearing operational lines of defective wagons are maintained, agreement was reached with it during negotiations that (a) it shall furnish to IDA for its review and comments annually by not later than November 30, a plan for the scrapping of wagons for the following year; and (b) it shall implement such plan taking into account IDA's comments (para 6.01 (i)). 2.32 Internal Organizations To concentrate its managerial and material resources on running the railways service, Government has decided that TRC should divest itself of all direct managerial and financial responsibilities for the hotels and catering services. The assets of this service, comprising six hotels, will be leased out or transferred to the private sector under arrangements that will effectively fulfill Government's decision. Agreement was reached with Government and TRC during negotiations on a time schedule of activities to be completed with respect to the transfer of financial and managerial responsibilities for the hotel and catering services. Consequent on this plan, agreement was reached with Government and TRC that as a condition of Credit Effectiveness, TRC shall have signed contracts, satisfactory to IDA, for the leasing of the hotels services' assets and the franchising of the catering services (para 6.02 (iii)). Agreement was also be reached with Government and TRC that, by December 31, 1992, TRC shall have leased out its hotels and franchised the catering services on its trains (para 6.01 (ii)). To fulfill this condition, hotels in which no one expresses an interest in leasing would be closed. The Government/TRC action plan provides for the completion of all closure measures by June 1992. It is not anticipated that there will be a lack of interest in the franchising of the catering services. 2.33 For the roads services, agreement was reached with Government and TRC during appraisal that NTC would be commissioned to review the services' operating and financial viability. This review was designed to cover, inter alia, the market prospects for the services, the condition and effective capacity of its fleet, its organizational structure and manpower complement, the financial, traffic and maintenance management systems in use and the recapitalization needs of the service if its operations are to become viable. NTC has completed the review with the key finding that the services (a) have been severely decapitalised over the last ten years; and (b) cannot be commercially viable under current market conditions and TRC management. Consequent to the release of the findings of the review, Government has decided that managerial, financial and operating responsibilities for the services' residual assets should be transferred to another operator to be selected pursuant to procedures satisfactory to IDA. These procedures would take the form of the leasing of the assets of the service either as a package or as individual units. Any assets in which no interest is expressed would be disposed of. In parallel with the preparation of the offers for leasing, TRC has begun the process of retrenchment of the services' workforce with the issue of termination notices to about 200 out of the services' current workforce of 360. During  - 26 - negotiations, agreement was reached with Government and TRC that as a condition of Credit Effectiveness, TRC would have signed contracts, satisfactory to IDA, for the leasing of the assets of the roads services (para 6.02 (iii)). Agreement was also reached with Government and TRC during negotiations that, no later than December 31, 1992, TRC shall have completed the transfer of operational, managerial and financial responsibility for its roads services to an independent operator (para 6.01 (iii)). To meet this condition, TRC plans to complete all measures related to the divestment of responsibility for roads operations by June 1992. 2.34 TRC would retain the marine service as an autonomous division headed by an Assistant Director General responsible for its financial and operational performance. The head of the service would report directly to the DG of TRC instead of to the ADG (Operations), whose predominant preoccupation is with the dominant railways service. A comprehensive study of the prospects for the marine service and the required changes in its management has already been completed by consultants financed by DANIDA. The study identified specific changes in sailing operations and maintenance practices that need to be implemented to ensure that the services' ships are efficiently utilized and the changes in staffing levels necess&ry to enable it to independently sustain its operations. A follow-on program of action has been planned to specify a time-frame for the achievement of the changes in practices, performance targets to be achieved during this period and financial objectives to be met. The new organizational arrangement for the marine service has been endorsed by the Board of TRC and approved by Government prior to the issue of the Ministerial Directive. To implement this new organization, The Board of TRC has appointed formally a suitably qualified head for the service and has delegated to him all the powers necessary for him to be able to manage the service as an autonomous division. 2.35 For the railways service, TRC would create a railways services division headed by a deputy director general accountable for the operating performance and profitability of the division. Under this reorganization, achievement of the efficiency objectives would be the direct responsibility of the DDG. The DDG would have explicit responsibility for the associated costs and revenues of the service. Within the railways service, planning for maintenance and transportation operations, marketing and pricing services will be the responsibility of headquarters staff whilst co- ordination of day-to-day operational activities will be delegated to three zonal managers responcible for all operational activities in their districts and reporting directly to the DDG. To assist in implementing this restructured organization, TRC has hired consultants to prepare detailed job descriptions for all headquarters and zonal posts down to individual office units, to detail the delegation of responsibilities to managers and supervisors in the structure, to design reporting and performance monitoring systems between the zones and headquarters and to prepare a detailed implementation schedule taking into account, in particular, any staffing constraints. On completion of this assignment by the consultants, TRC will hire a consultant with experience in establishing a decentralized management structure in a railways system to assist the DDG in putting in place the new structure. Under the proposed restructuring of the railways service, the role of the DG would change from being responsible for all aspects of operations under the existing centralized  - 27 - structure to that of (a) setting corporate policies for manpower; (b) allocating budgetary resources to the divisions; (c) establishing divisional performance objectives; and (d) the monitoring and control of such objectives. The proposed restructuring of the railways service has been approved by the Board of TRC and endorsed by Government. The Board has also appointed the current ADG (Operations) of TRC as the DDG for the railways service with all delegated powers for the efficient and commercial management of the service. The appointment is icceptable to IDA. 2.36 Manpower: To start to address overstaffing in the organization, TRC in December, 1989, identified 1,150 casual staff and 740 permanent staff as surplus to its requirements in various departments in the railways service based on prevailing levels of operating efficiency. This surplus was planned to be eliminated by December, 1990. Progress in achieving this reduction in overmanned areas was slow initially with, in fact, increases in staffing in some departments identified as overstaffed. During appraisal, TRC confirmed its commitment to eliminating the identified overstaffing in all departments by the originally scheduled date. This condition has been fulfilled with the target reductions in surplus staff, equivalent to about 112 of TRC's total workforce, effected by the end of December, 1990. Since then, TRC has issued termination notices to a further 750 permanent staff and maintained the level of casual staff to below 300 compared to a seasonal average of over 1000. With implementation of the OIP, TRC's staffing establishment and staff would need to be further reduced as the requirement for staff is reduced with more efficient operations. To quantify the scope for staff reductions and to provide and cost the options for achieving such reductions, TRC has requested the consultants engaged to undertake audits of its operations to identify the staffing implications of their recommendations for more efficient operations. This exercise in conjunction with a review of establishment levels by department and manpower planning practices, will form the basis of a staff reduction action plan to be prepared by TRC. To address the issue of inadequate remuneration, TRC has commissioned consultants to develop a corporation-wide incentives scheme and salary structure to be implemented by it. Terms of references for this proposed study wexe agreed with TRC during appraisal. During negotiations, agreement was reached with Government and TRC that, by no later than January 31, 1992, TRC would have completed the preparation of and shall have started implementation of action plans, satisfactory to IDA, to further reduce its manpower levels and to introduce a corporation-wide revised salary structure and incentives scheme (para 6.01 (iv)). A monitorable schedule of activities to ensure that the above action plans are completed on a timely basis was agreed with TRC at appraisal and reconfirmed during nepotiations. 2.37 Complementary Investments: An investment program to address the backlog of deferred maintenance was agreed with TRC during appraisal and confirmed at negotiations. The program will be funded under the project. This program will have a number of distinct components. Firstly, investments are required to rehabilitate locomotives, wagons, passenger coaches and track and telecommunications infrastructural assets. The condition, availability and reliability of these assets has deteriorated significantly because of lack of timely or appropriate maintenance. These assets would constitute a severe bottleneck on the achievement of the efficiency objectives of the restructaring program unless the restoration  - 28 - of their condition is quickly addressed. Secondly, investments are needed to enable TRC to sustain improvements in the condition of its assets and prevent the recurrence of a large backlog of maintenance in the future. These comprise improvements in workshop facilities, training of staff in improved systems of work planning, monitoring and control and in upgrading of technical skills and strengthening of systems. To support its capacity to maintain its assets in good condition, TRC would need foreign currency resources to ensure an adequate level of spare parts for normal maintenance, particularly of its fleet of locomotives and wagons. The value of locomotives and wagons spare parts required each year, excluding that required to extinguish the backlog of maintenance, is estimated at between US$4.1 million and US$4.4 million (Annex 2-10). During appraisal, Government undertook to provide assurances to TRC in the MOU that the list of items eligible under the Open General License Import System (OGL) will cover, et all points in time, the categories of items likely to be imported by TRC for use in its maintenance activities. This provision has been included in the MOU. Subject to the availability of adequate resources for the OGL, the ability of TRC to maintain Its assets in good condition would now depend whoily on its ability to generate sufficient cash from its operations to cover its maintenance requirements. 2.38 Finally, little growth in traffic beyond the inherent existing capacity of TRC is expected. Accordingly, no provision is made in the project for investments to increase TRC's nominal capacity beyond its existing level. TRC should have a strong commercial interest not to make investments that would expand its capacity beyond what can be justified by a rigorous analysis of the likely demand for rail transport and its limited capacity to manage the implementation of projects. During negotiations, agreement was reached with Government and TRC that (a) TRC's annual investment plan will be reviewed annually by October 31 with IDA; (b) all investments in such investment plan will be subjected to economic and financial evaluation and justification; and (c) that of these investments all those costing in excess of US$2.0 million equivalent will be implemented only after consultations with IDA (para 6.01 (v)). However, if in spite of poor economic and financial justification, Government wishes TRC to make an investment, then the full cost of the investment, including the cost of external implementation assistance and consequential losses attributable to it, should be borne by Government. The MOU makes explicit provision for Government to compensate TRC for the losses incurred in the discharge of such obligations.  - 29 - III. THE PROJECT A. Objectives 3.01 The main objectives of the project are to (i) strengthen the organization of TRC, eliminate regulatory bottlenecks to its effective operations and set it on a path of a commercially viable entity; and (ii) rehabilitate infrastructural assets, replace obsolete and uneconomic operational assets and provide limited new investments consistent with the prospects for growth in domestic traffic. 3.02 The attainment of these objectives is expected to lead to an increase in TRC s effective haul capacity consistent with the demands of the growing economy, improve its capacity to handle transit traffic to the benefit of both Tanzania and its landlocked neighbors and improve its financial performance. The project objectives are consistent with and supportive of Government objectives in the sector. B. Genesis of the Project 3.03 The proposed project is a follow-on to the EP, which was planned as the first phase of a two-phased approach to increasing TRC9s effective haul capacity. The success of the EP in meeting its objectives is analyzed in Annex 2-11 and summartzed in para 2.24. The proposed project has been designed to address the key institutional weaknesses encountered during the implementation of the EP. As part of the EP a comprehensive Development Study of TRC was to be undertaken. The study, financed by IDA, was designed to review TRC19 organization, operations and traffic prospects and to recommend an action plan and a complementary investment program to address identified constraints on the system's capacity to meet the prospective level of demand effectively. To supplement the Development Study, detailed studies on the condition of the track and the economic life of the locomotive fleet have been undertaken with financing from DANIDA and CIDA whilst a detailed assessment of the maintenance requirements of the locomotive fleet and wagons has been carried out with assistance from CIDA, ODA, DANIDA and KfW. The Development Study was completed with substantial delays. Its diagnosis of the structural problems in TRC has formed one of the bases on which the restructuring strategy proposed under this project has been formulated. C. Project Description 3.04 The project consists of the following components: Physical Investments (a) relaying of about 200 km of rail and reballasting of about 800 km of track (including matching sleepers for the rerailing program); (b) rehabilitation and strengthening of 22 bridges;  - 30 - tc) establishment of one stone quarry for ballast; td) procurement of equipment for track maintenance; (e) construLion and equipping of a central plant maintenance and permanent way workshop; (f) procurement of accident relief equipment; (g) procurement of about 40 trolleys and service vehicles; (h) renewal of the Tanga and Link line overhead communications wires and provision of equipment and spare parts for the TRC telecommunications system; (i) rehabilitation of about 1750 wagons; (j) rehabilitation of 100 coaches and procurement of 27 new passenger coaches. (k) rehabilitation of 31 locomotives; (1) upgrading of the mechanical engineering workshops; Organizational Development and Operational Support Components (a) improvement of TRC's operations through the adoptior. and imple- mentation of efficient methods of planning and control of functional activities in the railways, including carrying out a management development program, development of TRC's in-house training capacity for apprenticeship programs and skills upgrading and provision of on-the-job training to TRC management; (b) implementation of the assets (wagon, track and locomotive) rehabilitation components of the Project; (c) improvement of TRC's financial management and accounting practices; ld) improvement of TRC's management and oper6tions information systems, through inter alia, the provision of training and the acquisition of computers, soft ware and other office equipment; (e) improvement of working conditions for TRC's employees, including establishment of a revised salary and wages structure, a productivity-based incentive scheme and the rehabilitation of operational facilities including stations and offices.  - 31 - (i) Physical Investments: (a) Track Relaying 3.05 The project will provide for the complete relaying of 200 km of track identified as of the highest priority (in the sense of relieving the most binding speed or prospectively binding speed restrictions on the track) far rehabilitation out of 510 km assessed by consultants as requiring relaying by the year 2000. About 140 km of rail is already available with TRC, being leftover from an earlier rerailing program. The balance of rail requirements together with matching sleepers for the whole rerailing program will be procured under the project. Agreement has been reached with TRC that the choice of sections for rerailing will be made with a view to achieving gradual restoration of speeds over the entire section rather than having some sections with high permissible speeds and others continuing with speed restrictions. The prioritization of sections to be relayed has been agreed based on the density of traffic on and the relative condition of sections. Relaying is anticipated to be at a rate of 40 km p.a. which is consistent with productivity experienced to date on similar works and the widely scattered nature of the work planned. All new rails will have welded joints. The project will also provide for the replacement of about 27,000 sleepers (19 km), the reballasting of about 800 km of track and an intensive maintenance program covering about 540 km to clear the backlog of deferred maintenance. The program of track rehabilitation will be confined to the mainline. Traffic density on the branch lines do not justify any major track rehabilitation. The detailed track relaying and rehabilitation program is attached as Annex 3-1. (b) Bridges rehabilitation 3.06 The project will finance the rehabilitation and strengthening of 22 bridges on the Central line for which preliminary engineering has been completed. This will complete the program of bridge strengthening on the Central line started with KfW assistance. Provision has been made for the detailed study of the coh.dition of bridges on the Link line and for preliminary and detailed engineering for any recommended program of bridge rehabilitation. (c) Stone Quarries 3.07 There are at present two quarries under the control of TRC. Only one of these is currently operational but with low utilization due to problems with plant and equipment. The capacity of the operational quarry, if rehabilitated, is sufficient to meet TRC's routine requirement for ballast. However, given the backlog of reballasting to be done, there is an additional requirement for about 250,000 cubic meters of ballast p.a. for about five years to liquidate the backlog whilst keeping current with routine requirements. The location of the existing operational quarry and the concentration of track denuded of ballast, dictates the establishment of a new quarry around Tabora on the Central line rather than rehabilitation of the non-operational quarry in order to minimize transportation costs. During appraisal, agreement was reached with TRC that in view of its need to focus on implementing the track works and its past difficulties with maintaining an adequate level of utilization of its  - 32 - quarry facilities, the operation of the proposed quarry should be contracted out to experienced quarry operators. This agreement was confirmed at negotiations (para 6.01 (vi)). (d) Track Maintenance Equipment 3.08 The availability of track equipment is currently only about 50Z and the complement of track maintenance equipment is inadequate to support the level of programmed track work necessary to arrest future deterioration in the condition of the track. To ensure that the track rehabilitation program and future track maintenance is not impeded by unavailability of equipment, the project includes provision for purchase of new track maintenance machines and tools. (e) Plant Maintenance and Permanent Way Depot 3.09 A large percentage of track maintenance equipment not currently serviceable can be economically reclaimed. It is planned to make a beginning with a small-scale maintenance depot to provide preventive as well as breakdown maintenance to the track equipment and also take up the rehabilitation of the equipment currently under breakdown. The components of the depot would include light and heavy machine shops; engine, fabrication and electric shops; diesel room; and cleaning and painting sections. The depot will also have a section for the maintenance and manufacture of turnouts. Material handling, cutting and milling equipment and storage space have been included in this component. Support in establishing maintenance planning systems and procedures and plant monitoring systems will be provided to TRC under the Management Development and Support component of the project (paras 3.19 to 3.21). (f) Accident Relief Equipment 3.10 TRC's inability to clear accident sites on the track on a timely basis due to lank of appropriate equipment is a major cause of disruptions to its operatio,s. TRC has two 60-tonne breekdown cranes both of which are undergoing major overhauls under the BP. The project will provide additional accident relief equipment such as hydraulic jacks, lighting sets, communication sets and equipment and tools as well as equipment, spare parts and training for the maintenance of the cranes. (g) Trolleys 3.11 TRC's stock of serviceable trolleys for transport of men and material for track maintenance and renewal and for maintenance and inspection of the telecommunications system is inadequate. The consequential reduction in the mobility of its work force impedes their productivity and the quality of supervision. The project will correct this deficiency by providing an additional 40 trolleys to be distributed as follows; light motor trolleys (4), flying gang trolleys with trailers (18), inspection trolleys (18).  - 33 - (h) Telecommunications 3.12 The open-wire system on the Link line is in a seriously deteriorated condition which impedes effective voice communications and train control. A number of studies of alternative systems to replace the open wire system on this segment of the TRC system indicate that the capital costs of such replacements would be very high and may not be justified by the existing and foreseeable low density of traffic on the line. Based on this, the most cost effective system for restoration of adequate communications facilities on this line is the restringing of the existing system, with provision made for protecting segments of the line likely to be vulnerable to vandalism and the theft of wires. Provision has been made in the project to rehabilitate the system on this basis. However, at negotiations, it was agreed that before work on this rehabilitation is initiated, a study on the future of telecommunications on TRC will first be undertaken. This study would shed more light on the appropriate replacement strategy for the Link line telecommunications network than the partial studies done to date by placing prospective developments in the Link line segment of the network in the context of a broader strategy for the system as a whole. The study would review (a) the future needs for telecommunications on the system as a whole; (b) the ability of the low capacity open-wire system that is the core of the TRC telecommunications infrastructure to cope with the volume and nature of the demand; (c) supplemental or replacement facilities that would be required; (d) the feasibility and desirability of meeting all or part of TRC's demand for telecommunications services from facilities owned and dedicated to TRC as opposed to seeking appropriate access to the public telecommunications network. The decision and basis on which to proceed with the Link line open-wire rehabilitation will be based on the conclusions of this review. (i) Wagons 3.13 TRC's fleet of general purpose wagons is projected to decline from 3,206 units in 1989 to 1912 units by 1995 as a result of the scrapping of obsolete and life-expired wagons. Similarly, the fleet of tank wagons is expected to decline from 320 units to 125 units over the same period. However, due to the anticipated improvements in productivity under the OIP, there will be a surplus of about 273 general purpose wagons and a shortfall of 122 tank wagons by 1996 despite a projected increase in traffic of about 123X. The surplus of general purpose wagons will only be realized if the availability of such wagons improves materially from about 60S in the first quarter of 1990 to the targeted 92Z in 1994 onwards. For this to be achieved, TRC would need to liquidate the large arrears of general overhaul of wagons that has been accumulated by undertaking a regular overhaul maintenance program of about 400 wagons a year. Support will be provided under the project for this program of elimination of deferred maintenance. TRC currently has a fleet of 50 container wagons converted from its fleet of low-sided bogie wagons. The proportion of the total projected traffic that is likely to be containerized is difficult to determine with any measure of confidence. However, there will be a large surplus of serviceable general purpose wagons that can be converted to carry containers by equipping them with twist locks and modifying their sides as necessary. This grants TRC considerable flexibility in catering to any feasible growth in containerized traffic at very low capital cost.  - 34- Provision has been made in the project for the procurement of sufficient sets of twist-locks to enable the conversion of 200 general purpose wagons to container-carrying wagons. TRC will plan for conversions on an annual basis, taking into account evolving trends in traffic. 3.14 With respect to tank wagons, TRC's fleet will be adequate to meet the demand for the domestic movem-ent of petroleum products provided that these are undertaken on a basis that minimizes running times between the major origins and destinations and detentions of wagons at terminal yards as envisaged under the OIP. The assessed shortfall in tank wagons relates to transit traffic. Since the utilization of wagons for transit traffic will be wholly dependent on the magnitude of such flows, it is appropriate that the financial risk related to such assets be assumed by the parties responsible for determining the volume of such traffic. Under the recently approved Petroleum Sector Rehabilitation Project, agreement was reached between IDA and Government that about 42 tank wagons would be provided to the oil companies through TPDC on this basis. Uganda Railways will provide the balance of the shortfall (80 tank wagons) which relates to fuel movements to Uganda. TRC and Uganda Railways have already started discussions on the operational and commercial basis on which Uganda Railways would provide these tank wagons. (j) Passenger Coaches 3.15 TRC currently operates passenger services on two main axes: (a) Dar es Salaam to Kigoma and Mwanza on the Central line with four pairs of trains per week; and (b) Dar es Salaam to Tanga and Moshi with three pairs of trains per week. These services are operated with a consist of 10 coaches per train although the time tabled provision (which is consistent with the haul capacity of the locomotives assigned to these services and loop length capacity systemwide) is 19 coaches. Prior to 1985, these services were operated on a daily basis with the timetabled consist. However, in 1985, the decline in locomotive availability made this frequency of service unsustainable if freight capacity was not to be drastically curtailed. Since then, the supply of capacity has been substantially reduced as the availability of coaches has declined. In addition to these services, TRC operates a thrice weekly service on the Mpanda line and a thrice weekly service local service between Tabora and Kigoma on the Central line. These services cover an extensive settled area not served by roads. Other mixed services and shuttle services between various centers were discontinued in 1985. Under the project, the service levels of 1985 with respect to the main axes of service will be restored. Based on the timetabled turnaround cycles of passenger trains on these axes, which have been reviewed and are acceptable, this would require a total complement of 127 coaches, including an adequate provision for maintenance spares. To achieve this complement of coaches, the project provides for the rehabilitation of the serviceable coaching fleet of 100 units and the procurement of 27 new economy (third class) coaches. The rehabilitation of coaches would put special emphasis on reducing their future susceptibility to vandalism through appropriate changes in furnishing and housings for lighting and other electrical equipment. For the Mpanda and Kigoma line services, the requirement of coaching stock (14 units) can be met from minimal refurbishment of part of the coaching stock under survey for scrapping.  - 35 - (k) Locomotive Rehabilitation and Rebuilding 3.16 TRC's locomotive rebuilding and rehabilitation program for the six-year period, 1990 to 1995, is shown at Annex 3-2. Under this program, TRC is firmly scheduled to rebuild or rehabilitate 30 mainline and 11 shunting locomotives and has provided for the possible rehabilitation of seven other mainline locomotives now set aside. Ten of the fleet of 15 Class 73 locomotives are planned to be rehabilitated. The remaining five of this fleet of locomotives were found, after a survey of the condition of this class of locomotives, to have defective traction motors requiring replacement. Since the traction motors of this design are not manufactured any more, the decision to rehabilitate these locomotives would be finalized only after the rehabilitation of the other ten locomotives and the identification of an alternative equivalent traction motor. The Class 73 rehabilitation program is a carry-over from the EP and the spare parts requirements have been fully funded already. The mainstay of TRC's motive power is the fleet of 35 Claas 88 locomotives. Ten of these locomotives have been set aside for various reasons and are proposed to be rehabilitated under the program. The program also provides for the possible rehabilitation of two Class 72 locomotives which were set aside in 1987 due to TRC's inability to carry out major maintenance then due. It is proposed to undertake this rehabilitation only after a technical and economic evaluation of the merits of doing so has been done. Finally, 10 Class 64 locomotives, six of which are accident-damaged, and 11 Class 36 locomotives overdue for major maintenance are planned to be overhauled under the project. 3.17 Assuming that the firm rebuilding and rehabilitation program is implemented fully, analysis of TRC's operations indicates that it will require six new locomotives to cater to a peak projected traffic level of 2.2 million tonnes in 1995 if it achieves fully the efficiency targets of the OIP. Details of this analysis are given in Annex 3-3. Viewed alternatively, TRC's effective capacity with its existing fleet of mainline locomotives, when fully rehabilitated, will be about 1.8 million tonnes. There is a substantial risk that a greater number of locomotives than will be required by operations would result from the full implementation of TRC's planned program of locomotives rehabilitation. This risk arises from two sources. First, TRC currently has nine new mainline locomotives, to be financed by the European Development Fund (EDF), on order from the manufacturers. These locomotives, when delivered, would give TRC an incremental capacity of about 0.6 million tonnes of traffic at its average haul or about 0.2 million tonnes more than the maximum projected traffic for the system of 2.2 million tonnes. Under the financing agreement for these locomotives, TRC is required to dedicate them to transit traffic. If the locomotives are dedicated to transit traffic as envisaged, there will be no surplus locomotivess the projected maximum transit traffic of 0.4 million tonnes will absorb the full fleet of new locomotives, reflecting the inherent redundancies in the system not being able to share locomotives amongst different streams of traffic. Although, in principle, such an arrangement will be satisfactory, in practice the necessary pre-conditions for its successful operation are not yet in place. With the notable exception of Uganda Railways, there are no organizations in place to ensure that transit traffic will be made available in train blocks to TRC rather than in unit wagon loads. Traffic in uncoordinated unit wagon loads would  - 36 - reduce the effective capacity of the circuit and increase the implicit redundancies in the use of the locomotives. Further, in the absence of such intermediate organizations, there will be no parties with whom TRC can enter into clear commercial arrangements to ensure that the full capital cost of the locomotives will be recovered from transit customers and that services are scheduled and performed efficiently. Under these circumstances, it is likely that the locomotives will be idle for prolonged periods of time during which there will be no identified party to compensate TRC for the consequential loss of revenue. The EDF is conscious of these potential obstacles to the efficient operation of a dedicated transit traffic circuit on the TRC system and the possible secondary effects on the performance of TRC. It is currently in the process of recruiting consultants to assist the governments of the participating transit countries, Tanzania and TRC to work out a detailed strategy for the financial and operational arrangements on the circuit. The recommendations arising from this exercise might, however, take a long time to implement effectively. Secondly, the traffic prospects, although well researched, are uncertain. If traffic is less than projected, the pressure for the efficient utilization of locomotives will be undermined. Also, TRC would have incurred rehabilitation expenses with no corresponding increase in traffic and revenues. Given the foregoing, it would be prudent for TRC to defer the rehabilitation of some locomotives to hedge against the risk of a greater number of locomotives than dictated by realized traffic undermining the restructuring strategy's efficiency and financial objectives. During negotiations, agreement was reached with TRC on a core rehabilitation program comprising of the proposed TRC program but excluding the five Class 73 locomotives with defective traction motors and two Class 72 locomotives. These would be considered for rehabilitation only after 1993 when the results of a mid-term review of the project would be available. For the core program, agreement was reached with TRC that it would be subject to annual review with IDA in the light of evolving traffic conditions (para 6.01 (vii)). Funding has been provided for the core program (exc;.uding the pre-funded Class 73 locomotives) under the project. (1) Maintenance Facilities 3.18 The project provides for the replacement of obsolete equipment and the procurement of load boxes and other inspection equipment for the Morogoro, Dar es Salaam and Tabora mechanical engineering workshops and depots. Provision has also beei! mede for changes in the layout of the Dar es Salaam workshops to improve the flow of production to be undertaken after completion of a study to be conducted by TRC staff assisted by expatriate staff. In view of the environmentally unsound practices currently adopted for the disposal of used oil by TRC (para 3.32), - provision has been made for the procurement of a small-scale used-oil recycling plant.  - 37 - (ii) Organizational Development and Operational Support (a) ImRrovement of Operations 3.19 Management Development and Supports As detailed in Chapter II, TRC will embark on a three-phased program to improve the efficiency of its operations through a program of adoption and implementation of efficient methods of planning and control of most functional activities in the railways. Phase 3 of this program will involve the systematic transfer of management systems and skills in all functional areas to TRC staff. The assistance for the program will be structured in three phases: ti) a preliminary diagnostic review by a ten-member management development consultant team to familiarize itself with the systems in use on TRC in order to map out the desirable plan for changes needed to enhance efficiency, and to identify the specific capabilities and training needs of managerial staff; (ii) introduction of the changes in systems and procedures, and training, both in organized formal classes and on the job, of TRC staff in managing efficiently with the changed systems; and (iii) subject to annual reviews, beginning after 12 months from the start of the first phase, modifications in the scope and continuation of the scheme for up to a further three years. 3.20 The precise role in the TRC organization of the individual functional specialists of the management support team will vary, depending upon the technical competency and experience of the TRC managers and the state of the systems currently in use. Two distinct roles for the management support team members are envisaged as a result of the variability in the quality and experience of the TRC management. First, most of the functional specialists will be engaged primarily in developing or improving systems and procedures, the documentation of such work and the training of TRC managers in their use. Second, there will be instances where management support will assume defined line responsibilities with designated TRC counterparts; these team members will have direct responsibility for systems development, counterpart staff training and coaching and TRC line management duties and responsibilities for defined periods of time. During negotiations, TRC indicated that, based on the current staffing of its management positions, it does not envisage that any of the technical assistance staff under the program will be in positions with line responsibilities. However, the final role of individual technical assistance staff will be determined by TRC after taking into account the result of the diagnostic review provided for in the program. 3.21 During negotiations, agreement was reached with Government and TRC that the annual review for the management development support program will be conducted on a tripartite basis with TRC, the external team and IDA (para 6.01 (ix)). The review will evaluate the effectiveness of the system changes and the transfer of technology and know-how, taking into account corporate, departmental and individual performance results. To assist in ensuring the effectiveness of the management development and support program, an Institutional Development Advisor and Coordinator will be recruited by TRC under the project to assist the DG and the DDG of the railways service to monitor the program and to assist in defining desirable changes in the emphases of its various components. This advisor, who  - 38 - should be a railways specialist with extensive general management experience in the industry, will be recruited on an individual basis. Detailed draft Terms of Reference for the management development and support program are attached as Annex 3-4. A total of 390 man-months of technical assistance is provided for this component. 3.22 Supervisorv Staff Development and Support: Assistance will be provided to TRC to strengthen the capacity of its supervisory staff to effectively manage the activities under their charge. This support will be financed by a number of donors and will focus primarily on the mechanical engineering department. To ensure that a consistent framework for the provision of this assistance is adopted by all prospective donors, agreement was reached with TRC during appraisal on a template of activities that should ordinarily be undertaken by its supervisory staff. This template will be used by TRC to determine the gaps in the capacity of its supervisory level staff and the technical assistance requirements in this area as well as to monitor the effectiveness of technical assistance staff. The program of assistance for supervisory development and support will be subject to an annual review by TRC. Agreement was reached with TRC during negotiations that the results of the review will be made available to v A and that TRC would, consequent to the review, make appropriate changes to any or all parts of the program taking into account the views of IDA (para 6.01 (ix)). A provision of 360 man-months of technical assistance has been made for the program of management and supervisory development and support. 3.23 Training: Although training is acknowledged as being of crucial importance to the long-term effectiveness of TRC as an organization, TRC has only recently started to evolve a coherent strategy for its provision. As a result, the training effort has up to now suffered from a number of deficiencies: there is no corporate-wide assessment of training needs and prioritisation of the allocation of resources for training has been a largely ad-hoc exercise, driven by immediate needs to fill basic skills gaps. The training effort is currently highly fragmented, provided in adequate measure in areas where donor interest and support is available and absent in other areas. There is no framework for the independent evaluation by TRC of the effectiveness of training provided. The training function offers no clear career progression path for TRC staff and consequently suffers from an inability to recruit good staff. Investment in training facilities and resources has been accorded a very low priority given the pressing demands of operational activities, TRC's parlous financial state and the absence of a well-formulated strategy guiding the provision of and investment in training. To correct this deficiency, agreement was reached with TRC during negotiations that by January 31, 1992, TRC would prepare and furnish to IDA for its review, its training plan and strategy (para 6.01 (x)). In the interim, agreement was reached during appraisal and confirmed at negotiations, that the project would provide coverage for the areas not covered or only inadequately covered by existing programs. The project would provide for the set-up costs of training programs to be offered on a continuous basis locally and for management training overseas during the project period. The costs of sustaining the local program would be borne by TRC and the training strategy paper would provide the pointers on how this would be done within TRC's resources.  - 39 - 3.24 In accordance with the above, the project will provide about 80 man-months of the services of training specialists for the preparation of training curricula and material covering the requirements of all departments (except for mechanical and telecommunications engineering, where extensive ongoing programs are already in place) for trainees to supervisory level staff and for technical assistance to cover the initial implementation of courses and the training of TRC trainers. An important facet to manpower development that is largely absent from TRC is the continuous upgrading of the skills of staff. There are few institutionalized programs for training staff who are not in apprenticeship programs or who are not being prepared for promotion. As a result, old practices based on knowledge or training acquired in the distant past and no longer relevant to current circumstances tend to dominate, adversely affecting practically all areas of the organization. Provision has been made in the project for the development of training material for continuing education in all relatively specialized railways operational fields, except in locomotives maintenance and telecommunications engineering where the current donor support is adequate. As part of the management development program, TRC's management staff would need exposure to the working of other well-run railways as well as periodic attendance on courses organized by railways colleges and professional institutes overseas and the Eastern and Southern African Management Institute (ESAMI) in Tanzania. Provision has been made for the financing of this type of training activity in the project. The provision made is for about 44 courses or periods of secondment to overseas railways of an average duration of three months. Support will also be provided to TRC to adequately equip its training school with visual aids equipment and engineering demonstration modules. (b) Implementation Support 3.25 During appraisal, agreement was reached with TRC on the following approach to the implementation of the physical rehabilitation components of the projects First, TRC will divide the rehabilitation activities into subprojects based on the nature of work to be undertaken, the geographic location of activities, the expected source of inputs to be obtained externally, etc. Second, for each such subproject, TRC will define its resources requirements, the timing of such requirements and the output and completion schedule. These schedules of input requirements and outputs will be formalized in production plans or resources budgets for each subproject. Third, TRC will appoint a manager for each sub-project. These managers will be accountable for the output of the sub-projects per the agreed schedules and budgeted costs. Quality control of the sub- project works will be effected under TRC procedures which are to be strengthened under pre-project activities currently underway as well as under the Management Development and Support component of the project. Fourth, TRC will appoint, by negotiations, a senior officer for the coordination, monitoring and progress-chasing of the overall rehabilitation program. The scope of activities of this officer will include the consolidation of sub-project schedules into a master plan; tracking of the flow of external inputs; resolution of conflicts particularly in requirements of inputs; monitoring of the rate of progress in overall project implementation, both physical and financial; and the initiation and review of course-correction actions for the individual sub-projects.  - 40 - Provision has already been made for such a post in TRC's revised organizational structure. 3.26 TRC will need external assistance to satisfactorily undertake the rehabilitation program within this implementation framework. Such assistance will have two basic objectives: (a) fill the gapu in TRC's technical capacity to do some tasks; and (b) relieve some of TRC's managers of the task of monitoring and controlling the pace of rehabilitation activities that are essentially one-off exercises in order to concentrate on improving and managing day-to-day operations to avoid further backlogs of maintenance. Technical assistance for operational support in implementing the rehabilitation program will be provided in three areass (a) wagon rehabilitation; (b) track rehabilitation; and (c) locomotives rehabilitation. 3.27 For the wagons and coaches rehabilitation programs, technical assistance will be provided to draw up production plans and schedules and the periodic resources budgets, to assist in monitoring the progress of implementation and to resolve technical problems arising during sub- project implementation. This arrangement has worked satisfactorily in TRC in the wagon rehabilitation program of the EP. About 72 man-months of technical assistance support has been provided for these programs. In addition to this provision, a total provision has also been made of 24 man- months of operational support to assist TRC in redesigning the layout of the Dar es Salaam workshop and in supervising the installation and commissioning of new equipment. 3.28 On track rehabilitation works, TRC uses a well-established project approach with a distinct resource budget, including staff, for each such work program. However, work scheduling, resources budgeting and resources control has tended to be inadequate. Progress on TRC-controlled rehabilitation programs is hampered by untimely and uncoordinated availability of inputs from TRC-controlled plants such as ballasts from its quarry, sleepers from the sleeper reconditioning plant and low availability of maintenance equipment. Technical assistance will be provided under the management development and support program to strengthen TRC's capacity to manage the maintenance of equipment devoted to track maintenance and related activities. Ballast for the rehabilitation works will be predominantly from the proposed new quarry. To ensure timely and adequate availability of this item, agreement was reached with TRC during negotiations that the operation and mn 'gement of the proposed quarry would be contracted out to an external party who should provide guarantees of timely production of ballast (para 3.07). Further, during appraisal, agreement was reached with TRC that the movement of ballast and other materials to work sites would be the responsibility of the traffic department and would be based on a time schedule of requirements, based on the resources budget, to be provided to this department by the civil engineering department. This arrangement would ensure a focal point of responsibility for movement of material whilst ensuring the optimal use of locomotives assets. The residual requirement is for assistance to ensure that the program of works is implemented to acceptable standards of quality and that productivity levels are acceptable. Provision has been made for about 24 man-months of operational support in the form of an experienced track inspector to fill this role. Under the EP, track rehabilitation  - 41 - works were organized along similar lines but without adequate arrangements to ensure the availability of all related resources to the project managers. The arrangements proposed under the project adequately cover the areas where control was weak under the EP and which impeded the rate of progress. 3.29 Past locomotive rehabilitation programs in TRC have relied on external assistance. However, there was no clear framework for such assistance. Responsibility for output, both in quality and quantity terms, as between TRC managers and expatriate assistance was unclear. Although production schedules were routinely prepared, these were not linked explicitly to a resources budget agreed with TRC senior management and used as the basis for monitoring of performance. The management of the rehabilitation works tended to be highly commingled with that of management of running maintenance, leading to frequent conflicts over the allocation of resources and diluting the assignment of responsibility for such programs. Low value but critical items were frequently not adequately budgeted for in the rehabilitation programs but were expected to be available as the need arises, leading to frequent disruption of work. During appraisal, agreement was reached with TRC that the locomotives rehabilitation program would be divided into sub-projects based on locomotives classes. For each sub-project, a TRC engineer would be appointed as a manager. Technical assistance would be provided to each sub-project manager to assist in drawing up schedules and resources requirements for each year and to assist in resolving technical problems as they arise. A total of about 250 man-months of technical assistance has been provided under the project for support of the locomotives rehabilitation component. 3.30 In addition to the above project implementation support, technical assistance will be provided to TRC to establish systems and procedures for the coordination and monitoring of the project rehabilitation program and to provide complementary training to the overall project coordinator and his staff. To provide such assistance, TRC will recruit an experienced project manager with extensive railways experience or substantial experience in managing large and complex engineering projects. This arrangement will enable TRC to progressively institutionalize the capacity to manage future investment programs. Also, a small provision has been made for technical assistance to fill line positions that may become vacant for unavoidable reasons and for which timely recruitment of a suitably qualified local national may be difficult. The tenure of such technical assistance staff would be strictly bounded. (c) Financial Management Support 3.31 Under the EP, ODA has been providing assistance to TRC in accounting and financial management. Assistance uader this program had consisted of the financing of an accountant in a senior line management position. The primary tasks of this officer evolved to focus on the management of working capital and cash, monitoring of debt and in providing advice to the DG on capital budgeting matters and capital restructuring. ODA also financed a diagnostic review of the accounting system - both for external reporting and internal budgetary and management control. It is proposed to continue assistance in the area of financial management but to  - 42 - refocus it more sharply on the development of formal systems for working capital management, investment vetting and capital budgeting, debt monitoring and corporate financial planning. As a follow-up to the diagnostics study of TRC's accounting system, assistance will be provided to TRC to implement changes in its accounting system and to prepare accounting manuals documenting the procedures for entries in the accounting system. Assistance will also be provided to TRC revamp its management accounting system, introduce effective cost and budgetary control procedures and to establish an operational auditing unit within its internal audit department to monitor the cost-effectiveness or efficiency with which selected operational activities are undertakeni. Finally, TRC does not currently have a complete knowledge of its fixed assets. The assets register and the assets records maintained by the operating departments are inconsistent. Asset values in the balance sheet are significantly understated and provide a highly distorted picture of the financial position of TRC. Profits, defined as the surplus after making adequate provision for the maintenence of TRC's operating capacity, are grossly overstated as a result of the understatement of the true replacement cost of assets and the consequential understatement of depreciation provisions. To rectify this situation, the project provides for consulting services to assist TRC in undertaking a complete inventory and revaluation of its physical assets. (d) Information Systems 3.32 A number of initiatives have been taken, are underway or are planned for under the project to restructure the information systems of TRC. Under the EP, ODA-financed consultants undertook a comprehensive review of TRC's financial accounting system and recommended changed in the structure and scope of the system to facilitate easier and more timely compilation of the accounts and generate, more readily, information for financial management and analysis. The assistance to be provided under the financial management component of the project will extend this work by developing specific analytical systems for financial management and by restructuring TRC's expenditure accounting systems for more effective cost and budgetary control. For operating activities covering mechanical engineering and transportation, on-going studies to improve the efficiency of such activities will identify operating data requirements, review current statistical collection, analysis and dissemination practices and recommend appropriate changes in such practices to facilitate more effective monitoring, planning and control of such activities. Improvements in the structure of these information systems will however, not lead to any significant corresponding improvements in operating and financial performance unless the information generated can be made available to users on a timely basis. To enhance TRC's data processing capacity to achieve this timeliness objective, provision has been made under the project for the replacement of the existing mainframe computer, which is now prone to increasingly frequent failures. It is proposed to replace the existing central mainframe with a host computer under the control of TRC's data processing department linked by a local area network to a selected number of local sites around the TRC headquarters complex. A small number of personal computers will also be provided under the project for primarily stand-alone applications. Agreement was reached with TRC dui.ing negotiations that a short study would be taken prior to any  - 43 - procurement action to determine the most cost-effective configuration of such a system to meet short-run and long-run needs and to determine the distribution of responsibilities and functions of the local and host centers. The project provides for assistance to TRC in developing statement of user requirements based on the information systems reviews and for procurement of software for the applications identified by such reviews and technical support in installing the software and training TRC staff. The project also provides for photocopying and printing machines, shortages of which hinders considerably effective communications in TRC. (e) Organizational Support 3.33 The effectiveness of TRC's workforce in meeting corporate objectives is affected by a number of factors, other than those relating to technical and managerial competency and the condition of its major classes of operating and infrastructural assets already referred to above. These factors divide into three groupst (a) the adequacy of immediate remuneration; (b) the prospects for pensions; and (c) the adequacy of the working environment. 3.34 Immediate Remuneration: The level and structure of wages, salaries and related benefits paid by TRC to its workforce are both inadequate to attract good quality entrants into its workforce, elicit the maxfimum commitment of the existing workforce to the organization's objectives and encourage the acquisition of skills and assumption of greater managerial or supervisory responsibilities by its workers (para 2.07). Under the MoU, TRC has been granted the autonomy to set its wages and salaries in accordance with what is necessary for it to achieve its commercial objectives. To enable TRC to discharge this autonomy effectively, agreement was reached with it during appraisal that a study would be undertaken to review its salary structure and levels, to recommend changes in such structure and levels that would make it competitive and to devise a productivity-based incentive scheme for various categories of workers. Consultants to assist in the cnnduct of the study have a.Ceady been selected. Agreement was reached with Government and TRC during negotiations that by January 31, 1992 the study would be completed and an incentives packages plan and revised salary structure based on its findings would be prepared and implementation on them started (para 2.33). Based on the financial projections prepared for this project, TRC should not encounter difficulties financing an adequate plan provided it maintains relatively efficient operations. 3.35 As part of the package of incentives to be introduced during the project, TRC intends, with support from the World Food Program (WFP), to implement a food-based incentives program under the project. The program will be for workers engaged in track maintenance project work who generally reside in remote areas along the line of rail. The program has been costed at about US$ 5.0 million equivalent representing the estimated cost of meeting the food requirements of the families of the gangmen over a period of five years. The food would be sold to the gangmen with an implicit subsidy on market prices embodying an incentive element of 25Z. During appraisal, agreement was reached with WFP and TRC that the net proceeds generated from food sales would be used by TRC for the digging of wells to  - 44 - serve gang encampments. This would have two benefits. It would progressively reduce the requirement for watering trains which currently serve the gang cmps and to which about four locomotives are continuously assigned and diverted from revenue service. It would also enhance the potential for agricultural output by the families of gangmen who are currently restricted by limited access to water along a significant stretch of the line of rail. During appraisal, agreement was reached with WFP and TRC that a food-based incentive scheme would be introduced only after the action plans for TRC's manpower reduction and incentives programs have been completed. This would enable the scheme to be integrated into a wider scheme for rationalizing the numbers employed on track work and introducing and funding sustainable incentives schemes. Also, the WFP would during its detailed appraisal of the scheme take full acco'ct of the distribution costs that would be entailed by the scheme in order to ensure that the benefits of the scheme are not eroded by such costs. 3,36 Pension Prospects: the majority of TRC workers belong to the national pension scheme administered under the National Provident Fund or the parastatal pension scheme managed by the National Insurance Corporation. The best available information suggests that the funding of these schemes is inadequate to provide an adequate level of pensions to the their participants. Of even greater concern, the schemes are unlikely to be able to ensure an adequate or any degree of indexation of the entitlement of beneficiaries. After a lifetime of working, a majority of TRC workers are likely to get an initially low fraction of their terminal wages and face the prospect of the value of this benefit progressively eroded by inflation. A minority of TRC staff that were officers in the ZARC belong to the EARC pension scheme with externally held and managed assets. This scheme was fully funded as of the date of dissolution of the EARC. Although most of these officers continue to enjoy salaries that are personal to them (outside of sad higher than the TRC or parastatal pay scales), the effective value of their pension rights has been severely eroded due to their subsequent incorporation into the national schemes whose assets are local and locally managed and the returns on which have been severely eroded by inflation. The precarious post-retirement financial prospect of all levels of workers in TRC has understandable and adverse effects on the productivity of TRC's most experienced staff, whose primary concerns as they approach retirement shifts towards outside activities to accumulate income-generating assets rather than total commitment to TRC work. To alleviate this problem, agreement was reached with TRC during appraisal that an actuarial review of the schemes in which TiC staff are members would be undertaken under the project. The review vould assess the existing pension entitlement or terminal benefits of various categories of workers under different scenarioa as to assets yields, inflation and salaries, establish adequacy benchmarks for pensions, recommend schemes (including criteria for eligibility) to be financed by TRC to top up pensions to this benchmark and options for the management of such schemes and -ovide an assessment of the cost to TRC of such schemes over a defined period of time. The feasibility of funding an adequate top up scheme would depend wholly on TRC's cash generating ability which in turn is dependent on its operating efficiency. 3.37 Physical Work Znvironzsnts The physical working environment for most TRC staff has deteriorated significantly over the last 14 years as the  - 45 - basic maintenance of workplaces and the replacement of work tools and aids has been neglected. In particular, stations all over the system which are the basic place of work for most staff are very dilapidated. In remote stations, away from the major urban centers and thus with no access to electricity, few operating kerosene lamps, vital for effective trains working as well as for office work are available. TRC main headquarters buildings, listed as of significant historical interest, have progressively fallen into a state of disrepair. The mortar of the walls of the buildings is crumbling at an alarming rate. There is no locally available expertise on determining the cause of and the most effective remedial action to stop the deterioration. Lacking funds, TRC has resorted to simply covering up the internal walls with timber cladding leaving the underlying structural problems unattended. The replacement of working clothes and aids - uniforms, rainsuits for outdoor staff, flags etc. - has fallen way behind schedule, adding significantly to the demotivation of the workforce. Functioning clocks, a vital tool for scheduled transportation operations, are not present in the vast majority of stations and few station masters and assistant station masters have or can afford reliable watches. There is an acute shortage of rule books which provide the basis for adherence to operating rules and safety practices on a uniform basis across the system. The current rule book dates to EARC days, is written in English, which is increasingly little understood by TRC staff, and needs updating and rationalization and circulation to all staff. Finally, there is little consciousness of occupational safety and health. As a consequence, TRC workers, particularly in the workshops are exposed to significant health hazards and do not enjoy the benefit of either training in occupational safety and health or periodic medical checkups to effectively monitor work- related ailments. During appraisal, agreement was reached with TRC that the project would make provision for (a) the procurement of working clothes and aida; (b) consulting services to determine an appropriate strategy for preservation of historic buildings and inmediate remedial actions to arrest the deterioration of such buildings; (c) technical assistance and medical testing equipment to establish an effective occupational health and safety capacity in TIC; and (d) technical assistance to rewrite the rule book in English; and (e) the translation of the rule book into Swahili and its printing and distribution in English. D. Cost Estimates and Project Financlng Project Costs 3.38 The total project costs, including price and physical contingencies and the refinancing of advances from the IDA PPF is estimated at US$ 275.2 million with an estimated foreign cost of US$ 160.6 million or about 58Z of total costs. A summary of the project costs is shown in Table 3.1 below. Detailed project costs are given in Annex 3-5. Taxes and duties are expected to account for about 22 of total costs or about US$5.5 millioa equivalent. Price escalation of 4.9Z p.a., representing estimates of increases in foreIgn costs based on the Bank's projections of the index of wanufactures unit value (muv), has been applied to all costs. It is assumed that domestic inflation higher than this estimate will be reflected in changes in the exchange rate which is taken at TSh 194 to US$1 in this report. The costs are estimated based on a 7 year implementation period,  - 46 - which is consistent with the Bank experience of transport projects in Tanzania and the region. Table 3.1 Project Cost Estimates (USS million equivalent) Local Foreign Total Z Foreign Track Rehabilitation 50.5 24.8 75.3 32.9 Bridge Strengthening 13.1 1l.G 24.7 47.0 Quarry 0.3 3.6 3.9 92.3 Plant Maintenance Depot 1.6 4.4 6.0 73.3 Locomotives Rehabilitation 0.8 8.4 9.2 91.3 Wagons 0.9 4.9 5.8 84.5 Passenger Coaches 1.0 10.1 11.1 91.0 Maintenance/Accident Equipment 1.4 14.4 15.8 91.1 Signals & Telecoms 2.1 2.5 4.6 54.3 Service Vehicles 0.5 4.7 5.2 90.4 Information Systems 0.4 3.5 3.9 89.7 Technical Assistance 5.2 13.9 19.1 72.8 Training 1.0 6.5 7.5 86.7 Organizational Support 1.0 2.5 3.5 71.4 Track Rehab Support 2.1 0.9 3.0 30.0 Studies 0.3 0.6 0.9 66.7 Total Base Costs 82.2 117.3 199.5 Physical Contingencies 12.3 17.4 29.7 Price Contingencies 20.1 25.9 46.0 114.6 160.6 275.2 58.4 C=Z= G2Z"==m 3.39 The cost estimates have been derived on the following bases: (a) track rehabilitations the base cost of track components - rail, sleepers and ballast - are based on unit costs for such items experienced by TRC under the EP; (b) workshop equipments recent quotations obtained for similar equipment; {c) technical assistance: actual person-month rates for technical assistance and consultancy services in TRC, adjusted as relevant to take account of prevailing rates for similar services from other geographical sources experienced bv railways in the region; (d) wagon rehabilitations unit rates for general repairs based on TRC's experience under the EP; (e) locomotive rehabilitation: costed estimates by TRC and consultants provided by donors currently financing such programs. E. Procurement 3.40 The procurement arrangements are summarized in the table below:  - 47 - Procurement Methods and Costs (US$ million) (Amounts in parentheses represent the amounts to be financed by IDA) Procurement Method Project Element ICB LIB Other Total Works A. Permanent Way -- -- 40.0 40.0 (Quarries, Bridge Strengthening) B. Signals and Telecoms 6.4 -- -- 6.4 (3.5) (3.5) Goods A. Track Materials 34.8 -- 70.9 105.7 (34.8) (34.8) B. Plant Maintenance Depot 6.2 -- 2.2 8.4 (6.2) (6.2) C. Locomotives 12.0 12.0 D. Rolling Stock 22.6 22.6 E. Maintenance Equipment -- -- 22.3 22.3 F. Service Vehicles 4.6 - 2.7 7.3 (4.2) (4.2) G. Information Technology and Software 6.1 -- 6.1 (5.6) (5.6) Services A. Technical/Operational -- 24.9 24.9 Assistance (9.3) (9.3) B. Training -- -- 9.5 9.5 (8.3) (8.3) C. Other -- -- 10.0 10.0 (4.1) (4.1) Total 58.1 -- 217.1 275.2 (54.3) - (21.7) (76.0)  - 48 - The procurement procedures for IDA-financed components will be as follows: (a) Works: the rehabilitation of the telecommunications system on the Link line will be awarded on contract under ICB following the Association's guidelines; (b) Goods: the procurement of rails, sleepers and fasteners will be o. the basis of ICB under the Association's guidelines. Sleepers and fasteners will be packaged as one lot whilst rails will be another lot. Vehicles and information systems equipment, consisting of photo-copying machines and computers, will be procured on the basis of ICB under the Association's guidelines. Computers will be packaged as one lot as will be photocopying machines. However, owing to the need for adequate domestic back-up services for these goods, potential bidders will be limited to firms already represented or willing to be represented in Tanzania. Information systems software will be procured on the basis of contracts awarded to software firms selected from a shortlist of firms with proven experience and satisfactory performance in the supply or development of specific application packages. The procurement of equipment for the plant maintenance depot will be on the basis of ICB under the Association's guidelines; all contracts for the supply of equipment will provide for the associated installation and commissioning of the equipment by the supplier. (c) Services: contracts for technical assistance for Management Development Support and for Operational Support will be awarded in accordance with the Bank's Guidelines for Use of Consultants (1981) to the best evaluated firm from a short list of firms comprised uf consulting firms with adequate back-up in terms of expertise and personnel from operating railways; specialists for institutional coordination and for project co-ordination and monitoring will be recruited on an individual basis through international advertising. Finally, the studies to be commissioned under the project will be awarded to the best evaluated firms from a shortlist of firms compiled for each study in accordance with the Bankls Guidelines. The stuldies proposed are of limited scope and duration. Accordingly, it would be economical to confine each shortlist to no more than three firms. All procurement packages over US$400,000 equivalent would be subject to IDA's prior review of procurement documentation. This would result in an estimated coverage of 90Z of the value of all contracts. The balance of the contracts would be subject to random post-review by IDA after contract award. The procurement of items to be financed by the cofinanciers will be in accordance with their own procurement procedures. The procurement arrangements were confirmed with Government and TRC during negotiations. F. Disbursements 3.41 The loan will be disbursed on the following basis: (i) 55Z of total cost for works; (ii) 100l of foreign expenditures and 90Z of local expenditures for goods; (iii) 902 of expenditures on technical assistance, consulting services and training. All disbursement claims would be made against standard documentation, except for disbursements for procurement of goods and works costing less than US$50,000 which will be made against statements of expenditures. In order to expedite disbursement of funds, a special account with an initial deposit of US$4.5 million (equivalent to about four months of estimated expenditures and the cost of refinancing the advances from the PPF) will be established in foreign currency. The special account will be replenished by IDA in accordance with procedures agreed at negetiations. A schedule of estimated disbursements is shown at  - 49 - Annex 3-6. The project ir )xpected to be completed by June 30, 1999 and the Closing Date for the g ,dit is expected to be December 31, 1999. G. Financing Plan 3.42 The proposed IDA credit of SDR 56.1 million (US$76.0 million, equivalent) and the participation of the cofinanciers is expected to amount to US$165.7 million or 607 of total project costs and 1002 of foreign costs. The project is expected to be parallel-financed by CIDA. KfW. ODA, the EDP?, WP and the AfDB. All the cofinanciers (except for the VIP) are participants in the EP and are expected to continue their assistance in the areas in which they are currently active. The finacing plan for the project is shown in Table 3.2 and was confirmed vith Government during negotiations (para 6.04 (ix)). Table 3.2 FinancinRg Plan (US$ Million) NBMA C0 cm IDam kw MA VW TOTAL i_w T..ci fthbilit.ati 70.0 14.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 no.? 106.1 W.dg.. 18.6 0.0 0.0 0.0 0.0 0.0 1S.2 - 0.0 U6.S 84.6 iAre 0.6 0.0 0.0 6.0 0.0 0.0 0.0 0.0 0.0 a.' 8.8 MM.. fimetm ew 2.2 6.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.4 6.4 Cie" 0D 0.4 0.0 0.0 0.0 4.? 0.0 0.0 0.0 0.0 6.1 8.1 CI7' 44 0.2 0.0 0.0 0.0 0.0 0.0 1.0 0.0 0.0 1.0 1.8 clom 0.6 0.0 0.0 0.0 0.0 0.0 0.0 4.6 0.0 8.1 6.1 Woomo ~~1.1 0.0 0.6 0.0 0.0 0.0 0.0 0.0 0.0 1.? 7.? P.in..00 co0.. 1.4 0.0 18.61 0.0 0.0 0.0 0.0 0.0 0.0 14.9 14.9 1,..& lbi*6. ftim 0.8 0.0 0.0 0.6 0.0 0.0 0.0 0.0 0.0 9.6 0.8 wDkoe b.pmt, 8.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 10.0 10.6 fteldu,tUI. Rol t imp 0.i 0.0 0.0 9.0 0.0 0.0 0.0 0.0 0.0 2.2 2.2 0l.i. "d 1.I.co 9.9 81.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 S.d 0.4 VW10.In Rue 0.4 4.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 64. 4.6 WiI*inv IftolI 0.2 0.0 0.0 9.8 0.0 0.0 0.0 0.0 0.0 9.? 2.? Or.;. UqaIg,m 0.6 4.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 8.4 8.4 baOh . Vow, 6..ovf *.6 8.0 0.0 0.0 0.0 0.0 0.0 0.? 0.0 0.6 9.8 000"Al". OMuw* 0.6 0.0 1.6 0.0 8.0 0.0 0.6 9.8 0.0 13.0 U.0 Fl.. b.igl UBofot 0.4 0.0 0.0 0.0 0.0 0.0 0.0 0.90 0.0 1.0 3.0 An*" b..I..t5a. 0.1 0.? 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.6 SW.4 T,mewe 0.6 0.? 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.0 1.0 0pw.tmt"O ftws 1.4 8.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 4.9 4.9 fee& NOW. 0weour 0.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 6.6 4.0 4.0 TfaieIau 1Sg.8 0.0 0.? 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.? 0.? Obdoe ?,oi.I.e 0.8 6.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 6.9 0.9 b..i.I.fe C..,... 0.0 0.? 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.0 1.8