Mozambique - Rail and Port Restructuring Project

Report No. PID7290 Project Name Mozambique-Rail and Port Restructuring... Project Region Africa Sector Transport Project ID MZPE42039 Borrower Government of Mozambique Implementing Agencies Ministry of Transport CFM Date of PID January 8, 1999 Projected Appraisal Date February 1, 1999 Projected Board Date June 8, 1999 Project development objective To substantially increase the operating efficiency of the three major port- rail systems in Mozambique and enable them to increase its share of the available freight traffic, mostly the export/import traffic from the neighboring countries. This would enable: The concessioned ports and railways to become financially self-sustaining as a result of substantial increase in revenues and cost reductions; CFM to increase its earnings from concession/leasing fees and pay dividends to GOM after meeting its expenses and its liability for long-term infrastructure replacement; The neighboring countries to reduce the surface transport costs of their exports and imports as a result of increased use of shorter routes, increased efficiency of operations, and use of railways in preference to roads; and Mozambique to generate more foreign exchange as a result of the neighboring countries' payment in foreign exchange for the use of rail and port facilities in Mozambique. Project Description Summary The project would comprise the following five main component categories and a total of 9 sub-components. A brief description of the components follows. Component 1. Concessioning Concessioning of main sea ports, airports, and railways. This component would focus on provision of consultant services to advise the Government on a strategy to attract private participation in sea ports and railways and on structuring concessioning arrangements for the main port-railway systems and airports. Component 2. Staff Rationalization Various studies show that CFM, with a total employment of nearly 22,000, is grossly overstaffed. Average labor productivity indicators in both the rail and port sectors are well below those in neighboring countries and elsewhere. Based on a detailed staff inventory and functional analyses for each system,  the estimated staff requirements are about 8,200, leaving a surplus of close to 14,000. CFM has already identified individual redundant staff while recognizing that final redundancy levels will be determined by the concessionaires who will select staff from the existing CFM pool according to need. Concerned about the large numbers of surplus workers involved, the Government of Mozambique and CFM have developed a staff rationalization program to minimize the social effects of restructuring and privatization in consultation with workers and the union. The staff rationalization program consists of three main components: (i) financing of severance payments to staff being retrenched or retired early; (ii) creation of a pension fund for the rail and port staff employed by CFM or concessionaires; and (iii) provision of redeployment support to help workers find alternative jobs or become self-employed. Component 3. Corporate Restructuring This component would focus on provision of consultant studies for the spin-off of the commercial activities of CFM under a new holding company, and the provision of consultant services, equipment, and of learning and dissemination activities to enable the implementation of the recommendations of the study thereof. Component 4. Institutional Reform This component has two sub-components: (i) organizational assessment of the Ministry of Transport and Communications (MTC); and (ii) regulatory reform. The Ministry sub-component would comprise a study to review the new organizational requirements of MTC in a framework dominated by an increasing private participation in transport, and the provision of consultant services, equipment, and of learning and dissemination activities to enable the implementation of the recommendations of the study. The Regulatory Reform sub-component, would include a study for the development of an independent regulatory framework for the transport sector, and the provision of equipment and twinning services to enable the launching of the Regulatory Unit(s) and the preparation of its(their) staff thereof. In addition, finance would be provided under this component for the first three years of operation of the Unit(s). Component 5. Tertiary Ports This component would include rehabilitation works for the small ports of Angoche, Macuse, Mocimboa da Praia, and Pebane, initially considered under the IDA-financed ROCS 1 Project. This component would also include consultant services for the supervision of civil works and for the preparation of a study on the revitalization of the Inhambane Port. Environment aspects An Environment Management Plan (EMP) has been prepared by CFM/GOM with assistance from external consultants. The plan has been prepared , taking into account the safety- and environment-related regulation included in Mozambique's transport sector policy and the railways-related legislation. EMP would form an integral part of the Performance Contract to be signed between GOM and CFM and of all the concession contracts. The progress of -2 -  implementation would be periodically reviewed. The concessionaires would be required to make specific allocation of funds for procurement of safety- and environment-related equipment for the railways and the ports, and for technical assistance and consultancy studies, if required. Project implementation Implementation period: Five years from January 1, 2000 to December 31, 2004. Executing agencies: (a) The Ministry of Transport and Communications (MTC) for components pertaining to the Regulatory Framework, MTC's Restructuring and Capacity Enhancement, Tertiary Ports Rehabilitation, and Privatization of Airports; and (b) CFM for components pertaining to the Corporate Restructuring of CFM, Privatization of the Port-Railway Systems, Staff Rationalization, Staff Retraining and Redeployment and Social Mitigation, and Establishing the Pension Fund. Project coordination will be undertaken by the Ministry of Transport and Communications and the Project oversight would be provided by a High Level Committee to be especially set up for this Project Project Financing Component Category Indicative W of Bank- W of Costs Total Financing Bank- (US$M) (US$M) Financing Concessioning Institutional 5.2 6.8 1.8 34.6 Ports and Railways Building 4.6 6.0 1.2 26.1 Airports 0.6 0.8 0.6 100.0 Staff Rationalization Institutional 49.8 64.6 47.4 95.2 Staff Redundancy Building 40.0 51.9 40.0 100.0 Pension Fund 0.6 0.8 0.6 100.0 Staff Redeployment and 9.2 11.9 6.8 73.9 Social Mitigation Corporate Institutional 2.3 3.0 2.3 100.0 Restructuring Building Institutional Institutional 7.9 10.3 6.7 84.8 Reform Building 1.1 1.5 1.1 100.0 MTC Restructuring 6.8 8.8 5.5 80.9 Regulatory Framework Tertiary Ports Physical 11.2 14.5 11.2 100.0 PPF Refinancing Institutional 0.6 0.8 0.6 100.0 Building Total 77.0 100.0 70.0 90.9 - 3-  Project Sustainability The long-term sustainability of the port and rail systems in Mozambique would be enhanced under the Project by: (a) the very implementation of the project which focuses on long-term private concessions for the ports and railways in Mozambique: (b) reorienting CFM's remaining operations to their most competitive and productive advantage; (c) balancing the pace of the concessioning process to reflect existing capacity constraints; (d) emphasizing transparency in the selection of the private concessionaire in order to optimize the value of the concession; and (e) addressing implementation issues in sufficient detail in the concession agreements so as to preempt any possible legal action namely by setting a credible, independent, and fast system for the settlement of disputes. The long-term sustainability of operations of the three Zonal port-railway systems would also depend upon the efficient operation of the railway systems in the neighboring countries. To ensure this, RPRP would provide assistance to CFM in: (i) setting up institutional mechanisms, one for each of the neighboring railways, to facilitate close coordination among the entities managing the different segments of the rail route; (ii) developing agreements between the neighboring railways with regard to using the same, if not similar, rolling stock management systems, each other's workshop facilities; (iii) easing transit formalities at the borders; and (iv) collaborating in developing and implementing regional marketing strategies. Lessons Learned from Past Operations 3. Lessons learned and reflected in the project design: Lesson 1: With Government-appointed managers managing without adequate authority, motivation, commitment, and accountability; continuing government interference in their management; and political considerations distorting rational decisions, most railways and ports in sub-Saharan Africa, with only a few exceptions, have been unable to become financially self-sustaining or sustain financial sustainability, if achieved. To enable the railways and ports to become financially viable and self-sustaining, the proposed Project would focus on private sector involvement in ports and railways through long- term concession agreements. Lesson 2: Every railway and port in the sub-Saharan African region is overstaffed, some even to the extent of about 200 to 300 percent. As recognized by railway managements in the region, whether managed as it is or through private participation, the railways and ports are unlikely to become financially viable unless surplus staff is retired/retrenched. Lesson 3: Massive investments in infrastructure, locomotives, rolling stock, and communication systems have generally been ineffective in improving reliability or efficiency partly because the investments were not always directed at removing the most critical constraints, and partly because the publicly-managed railways were incapable of managing big projects, modern technology, or complex equipment. The proposed Project would, therefore, require that the future investments in railways and ports are linked to firm government plans for the concessioning of the port-railway systems and the selected private concessionaires share the risk in proportion to their equity. Lesson 4: A change in the legislative framework which affects the railways and ports is important as most past legislation is generally restrictive of - 4 -  their autonomy, particularly with regard to its organizational restructuring, commercialization, and privatization. In the case of CFM, modifying the legislative framework would be particularly essential in view of the proposal to restructure CFM to separate commercial functions and to establish a holding company to take responsibility for these functions. Contact Point: The InfoShop The World Bank 1818 H Street, N.W. Washington, D.C. 20433 Telephone No. (202)458 5454 Fax No. (202) 522 1500 Note: This is information on an evolving project. Certain activities and/or components may not be included in the final project. Processed by the InfoShop week ending January 29, 1999. - 5 -