Document of The World Bank FOR OFFICIAL USE ONLY Report No. 2202-MAG MADAGAS CAR SECOND RAILWAY PROJECT STAFF APPRAISAL REPORT April 25, 1979 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Unit = Malagasy Franc (FMG) US$1.00 = FMG 220.00 FMG 1.00 = US$0.004545 FMG 1 million = US$4,545 WEIGHTS AND MEASURES: METRIC 1 meter (m) 3 3.28 feet (ft) 1 cubic meter (m3) = 35.29 cubic feet (cu.ft) 1 kilometer (km) 2 = 0.62 mile (mi) 1 square kilometer (km ) = 0.386 square mile (sq.mi) 1 hectare (ha) = 2.47 acre (ac) 1 kilogram (kg) = 2.2 pounds (lb) 1 metric ton (m ton) = 2,204 pounds (lbs) 1 litre (1) = 0.26 US gallons (gal) GLOSSARY OF ABBREVIATIONS CCCE - Caisse Centrale de Cooperation Economique CIBA - Complexe Industriel du Bois Andasibe MAT - Ministere de l'Amenagement du Territoire (Ministry of Works) MTP - Ministere de Travaux Public (Ministry of Public Works) MTRT - Ministere des Transports, du Ravitaillement et du Tourisme (Ministry of Transport, Supplies and Tourism) RNCFM - Reseau National des Chemins de Fer Malagasy (Madagascar National Railway) SOFRERAIL - Societe Francaise d'Etudes et de Realisations Ferroviaires USAID - United States Agency for International Development Railway Lines: TCE - Antananarivo - Cote Est Line MLA - Moramanga - Lac Aloatra Line TA - Antananarivo - Antsirabe Line FCE - Fianarantsoa - Cote Est Line Fiscal Year January 1 - December 31 FOR OFFICIAL USE ONLY MADAGASCAR SECOND RAILWAY PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. I. THE TRANSPORT SECTOR .................................... 1 A. Economic Background .............. ..1................ B. The Transport Sector ......... ...................... 1 C. The Transport Network .............................. 2 D. Present and Future Role of the Railway ............ . 4 E. Past Bank Group Role in Transport .................. 5 II. RESEAU NATIONAL DES CHEMINS DE FER MALAGASY (RNCFM) ..... 8 A. Introduction . ... ................................ 8 B. Track .................................... 9 C. Signalling and Telecommunications ......... ......... 12 D. Motive Power and Rolling Stock ........ .. ........... 12 E. Workshops and Depots ............................... 13 F. Container Handling Facilities .... .................. 13 G. Organization, Management and Staff ........ ......... 14 H. Training ..................... ...................... 15 I. Traffic - Actual and Forecast .... .................. 15 J. Budgets, Accounts, Audit and Insurance ...... ....... 19 III. THE PROJECT ............................................. 21 A. Objectives of the Proposed Project .... ............. 21 B. Scope of the Project ............................... 21 C. Details of the Project ............................. 22 D. Cost Estimates ..................................... 24 E. Financing and Procurement .......................... 26 F. Disbursements ...................................... 27 * G. Project Execution Environment and Employment ... .... 28 H. Operational Objectives (Implementation Schedule) ... 28 IV. ECONOMIC EVALUATION ..................................... 31 A. Forecast of Future Traffic ......................... 31 B. Project Benefits and Economic Return .... ........... 37 This report has been prepared by Messrs. P. 0. Cheryan (financial analyst), 0. Fraisse (economist), and R. Masthagen (engineer). Mr. Delvoie (economist) participated in completing it. I 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. -2- Page No. C. Sensitivity and Risk Analysis ......... ..... .. ... ... . 41 D. Long Term Prospects of the Railway ............... O.. 42 E. Uneconomic Lines and Services ....................... 43 V. FINANCIAL EVALUATION ...................... . . . .............*.* 44 A. Past Performance ................................... 44 B. Future Prospects ........................ ........... . 46 VI. RECOMMENDATIONS ....................................... 53 ANNEXES 1. Past Bank Group Financed Transport Projects 2. Selected Documents and Data Available in the Project File MAP 1. Madagascar - Transportation Network MADAGASCAR SECOND RAILWAY PROJECT I. THE TRANSPORT SECTOR A. Economic Background 2 1.01 Madagascar has an area of some 590,000 km , and a population esti- mated at only 9 million. Ninety percent of the population is working in the agricultural sector, which accounts for 40% of the Gross Domestic Product. Industry accounts for only 14% of GDP. With a per capita income of about US$200, Madagascar is thus at an early stage of development. B. The Transport Sector 1.02 Development of the transport sector has been influenced by: (i) the rugged topography and a tropical climate with heavy rains; (ii) an unevenly distributed population, concentrated in a few isolated regional centers; and (iii) the lack of suitable construction materials in some parts of the island. These characteristics result in high costs for road construction and road maintenance, which in turn sustain the relative isolation of the less popu- lated regions. Transport needs are relatively well served on the central plateau where half of the population is concentrated, but other regions rely mainly on coastal shipping or poor roads. 1.03 Government policy towards transport development is stated in the "Charter of the Revolution" of August 1975. The aims pertaining to transport development are to: (i) connect regional capitals by all-weather roads; (ii) construct the Antananarivo-Moramanga-Toamasina road; (iii) improve road maintenance and; (iv) improve the transport organization and services. 1.04 Formerly in charge of transport coordination and infrastructure development, the Ministry of Works (MAT) was split into three ministries in 1975: the Ministry of Posts and Telecommunications; the Ministry of Public Works (MTP), mainly responsible for infrastructure construction and mainte- nance; and the Ministry of Transport, Supplies and Tourism (MTRT) responsible for road transport regulations, the railway, the sea ports and air transport. Both MTP and MTRT prepare transport plans and submit them to the Directorate of Planning in the Ministry of Finance and Planning which is responsible for coordination. In fact, there has been little coordination, due to the lack of clearly defined programs in any sector, to the shortage of qualified transport experts to deal with the increasingly complex issues involved, and to the rivalry between the Ministries. MTRT was given assistance by the IDA-financed team of transport planning consultants (Credit 488-MAG), who finished their -2- assignment in August 1978. This team, however, did not fully achieve its major objectives, which were to improve the level and quality of transport planning in Madagascar, particularly in the highway subsector. Its work was impeded by the lack of cooperation between MTRT and MTP, by changes in its work program, and by the shortage of competent staff as counterparts to the expatriate experts. A local group trained as counterparts and attached to the MTRT is now responsible for the transport planning and coordination function, and their efforts are being strengthened with the increasing coordination that is being achieved through the intervention of the Directorate of Planning of the Ministry of Finance and Planning. 1.05 If in the past, the need to coordinate the investments in the different transport modes was not clearly perceived since the only objective was to provide a very basic transportation network, the need for a global strategy in the transport sector and of intermodal planning will become more acute as the network develops. The new road being built between Toamasina and Antananarivo for instance is likely to compete with the rail for non-bulk traffic. Although it is not expected to materially affect this project, a close coordination will be needed in the future to optimize use of the trans- port system in this corridor. Intermodal coordination on the country scale would also help designing investment priorities based on complementarity between the different modes and avoid duplication of investments. C. The Transport Network 1.06 Madagascar's transport network consists of about 27,500 km of roads of which only 4,500 km are paved; two unconnected railway systems totalling 860 km; 4 alongside ports and 11 lighterage ports of some significance; and 56 air fields of which 17 are all-weather standard. 1.07 The paved highway network (4,500 km) consists of a main north-south artery connecting Mahajanga, Antananarivo and Fianarantsoa, an east-west road linking Moramanga, Antananarivo, Tsiroanomandidy, and several short stretches around the major coastal towns. A paved road linking Toamasina (ex Tamatave) to Moromanga is being built with the help of the People's Republic of China, work on which has recently been started. This road is expected to be com- pleted in early 1980's and will compete with the railway for traffic on the Toamasina-Antananarivo corridor. Its standards will be: (i) 2.5 m minimum raidus; (ii) 8% maximum gradients; (iii) 6 m pavement width; (iv) 10 tons axle loads; and (v) 25 tons bridge capacity. It is not expected to attract bulk traffic. 1.08 Most roads are generally of low standard, narrow, badly aligned, and often in poor condition. Except in the southern region which has a dry climate, heavy rains make many roads impassable, and for half the year the north and part of the west have little or no road connections to the rest of the island. 1.09 Poor maintenance remains a major problem for the road network. MTP's Department of Infrastructure and Maintenance is responsible for the maintenance of both primary and secondary roads, but lacks the funds and organization to carry out its responsibilities efficiently. The recently appraised (October 1978) Fifth Highway Project has concentrated on road maintenance in order to improve the level and quality of maintenance standards. 1.10 In 1976, the vehicle fleet consisted of 104,000 vehicles, of which 53% are automobiles, and 47% commercial vehicles. In the period 1961-70 the automobile fleet grew at the rate of 9.0% p.a. and the commecial vehicles such as trucks at the rate of 6.0% p.a. Since then, however, the vehicle fleet growth has slowed down as indicated by the stagnation in oil consumption and in new vehicle registration. 1.11 The trucking industry is generally competitive, although rates are set by provincial authorities within a minimum-maximum rate system established by Government. The official rates are enforced for goods transported for the Government. These rates are somewhat lagging behind cost inflation, and truckers generally charge higher rates for privately-owned goods. 1.12 Passenger transport is also regulated by the Ministry of Transport and provincial authorities. Service is provided by cooperatives and indivi- dual carriers. Entry to the industry is nominally screened by the Govern- ment on the basis of supply and demand, but in practice all applicants are admitted, although they are required to join a cooperative in their second year of activity. 1.13 The Madagascar Railway dates back to 1913 when the main line between Toamasina and Antananarivo was completed as a means of transportation between the East Coast and the central plateau, where most of the population and economic activities are located. In 1977, it carried a total of 823,300 tons of freight over an average of 334 km, and 3.9 million of passengers over an average journey of 69 km. The main freight commodities are chromite ore, petroleum products and rice. 1.14 Madagascar has developed a very dense network of air transport as a means to cope with long distances and poor surface transport infrastructures. There are 56 airfields, 17 of which are built to all weather-standards. Two airports are capable of handling large jets of the Boeing 707 type, eight can handle Boeing 737 types, and the others handle DC-4's or smaller aircraft. Wide-bodied aircraft such as the Boeing 747 can land only at Ivato, Antananarivo's international airport. 1.15 Air Madagascar (owned 70% by the Government and 30% by Air France) has a virtual monopoly over scheduled air services. It owns 18 aircraft, including one B-707 for long distance services; two B-737's for domestic and regional use; six twin otters and nine other light aircraft. Air Madagascar has a cooperation agreement with Air France, and the two airlines will operate jointly the Boeing 747 which has recently been purchased. - 4 - 1.16 Madagascar's major ports are Toamasina, with two-thirds of total national traffic, Mahajanga with 11%; Antomboka (ex Diego Suarez) in the north and Toliari in the south, with about 4% each. They are used for both coastal shipping and foreign trade. Coastal shipping is important for local transport since the surface transport infrastructure is still inadequate. D. Present and Future Role of the Railway 1.17 To date, the railway has played a fundamental role in the trans- portation sector of the country and in the economy as a whole. Enjoying almost a monopoly, the railway is by far the most significant transport mode for carrying freight and passengers between the two eastern ports and the chief population centers of the central plateau. 1.18 With the completion of the Toamasina to Moramanga road in the early 1980's, the railway's quasi-monopoly will cease, and an all-weather, fully paved road will be available from Toamasina to Antananarivo and Antsirabe. 1.19 In spite of this new competition, the long term prospects of the railway remain good. Consultants who have looked at the future total trans- port situation in Madagascar, have found that the railway has a continuing important role to play. First, a large proportion of the railway's present and expected traffic consists of bulky and heavy commodities - petroleum products, ores, timber, wood, etc. - transportation of which by road would be uneconomical. Second, the traffic on the new road will be constrained by the very difficult terrain between Brickaville and Antananarivo. The road will have steep gradients, and narrow curves which will be difficult to negotiate by heavily loaded trucks. Finally, if the railway were to close, the traffic density on the new road would be such that either the road would have to be rebuilt to higher standards than those presently considered, or its mainte- nance costs would be prohibitive. As discussed in the economic chapter, the railway will still provide the most economical transport means between the East Coast and the central plateau. 1.20 In the early 1980's, the southern line (from Manakara to Fianarantsoa) will also face some competition from a new road between the coast and the plateau. This competition should remain limited, however, because of the road alignment selected and of the longer distance involved (263 km versus 163 km). The light density of traffic is and will probably remain the southern line's major problem; however, a study of this line's long-term prospects will be carried out by the railway as part of the project. 1.21 The Government has been repeatedly stressing that it will continue to support the railway in maintaining its important role and that the rail- way's current and future investment plans will be accorded high priority in the Government's development plans. The railway's management is in good hands, the high calibre of the Director General being particularly noteworthy. The railway has been managing its operations in a commendable manner under - 5 - very difficult circumstances as for example, poor track resulting in frequent derailments, outmoded equipment, and shortages of spare parts, etc. However, there is scope for improving the railway's overall efficiency and productivity by providing essential replacements of its worn out track and equipment. Although the railway's general management is capable, its financial management needs to be strengthened. The introduction of appropriate tariffs and timely reimbursements of accounts receivable from the Government and its agencies are also crucial to the railway's financial well-being. E. Past Bank Group Role in Transport 1.22 Bank Group lending to date in Madagascar has amounted to US$190.8 million of which the transport sector accounts for about US$93.0 million. The highway subsector has received about 80% of this latter amount. 1.23 Involvement in Madagascar's transport sector began in 1966 with a highway project to help improve the trunk network in conformity with the Government's policy of linking all the provincial capitals to Antananarivo, the national capital. Accordingly, the First Highway Project (Credit 90-MAG; US$10 million; 1966) provided for construction to paved standards of two sections of the Antananarivo-Mahajanga road, totalling 145 km. A Project Performance Audit Report (No. 1409) dated January 3, 1977 found that, because the cost of the road construction was far below original estimates, the project's expected economic return was exceeded. The remaining portion of the Credit was used to finance supplementary works and studies which necessitated a delay in formal project completion. 1.24 The Second Highway Project (Credit 134-MAG/Loan 570-MAG; US$8 mil- lion; 1968) helped finance the construction of 146 km of road and the provi- sion of three major bridges. A Project Performance Audit Report (No. 811), dated July 18, 1975, found that the original economic justification of one of the roads in the project, Ambilobe-Ambanja, which accounted for 54% of the total investment, was doubtful in view of its low expected economic return (8%) and the risk associated with the project. The other major component of the project Fanjakamandroso-Tsiroanomandidy road (28% of the total investment) had an economic rate of return of 21% at audit against 13% at appraisal. The actual cost of the project was US$15.2 million in contrast to the estimate of US$11.5 million. This represents an overrun of some 30%, of which about half was due to price increases and half to quantity overruns. The overrun was financed in large part by Government, but savings under the First Highway Project also contributed some financing. 1.25 The Third Highway Project (Credit 351-MAG/Loan 876-MAG; US$30 mil- lion; 1973) provided for construction of 417 km of primary roads, detailed engineering of the Antsohihy-Ambanja road and a review of the traffic counting system. In 1975, the project was modified due to substantial cost increases and currency realignments, and a supplementary credit of US$5.6 million was provided while construction was reduced by 67 km. This project is now completed. 1.26 The Fourth Highway Project (Credit 641-MAG; US$22 million; 1976 and cofinancing by the Arab Bank for Economic Development in Africa US$5.0 million) is currently helping to finance construction of the 67 km of primary roads deleted from the Third Highway Project and construction of 370 km of secondary roads between Tsiroanomandidy and Maintirano. The primary road construction is 90% complete, while the secondary road construction is expected to start in the spring of 1979. Construction of bridges along the latter route is well under way. A road maintenance component is also included, with consulting services and funds for equipment procurement to improve highway maintenance. 1.27 A Fifth Highway Project has recently been appraised in October 1978. The proposed objectives are the improvement of the country's capacity to rehabilitate and maintain its road network. The project components are: (i) rehabilitation and resurfacing of some 500 km of paved roads; (ii) con- struction of bridges; (iii) improvement of road maintenance operations; and (iv) provision of technical assistance and training. It is estimated to cost the equivalent of US$42 million of which about US$34.0 million equivalent will be in foreign currencies. The Association will contribute for US$24.0 million. 1.28 Lending to other transport subsectors began with a credit (200-MAG; US$9.6 million; 1970) for extension and improvement of the port of Toamasina (Tamatave) by providing for the addition of two deep-water berths, (making a total of seven), a corresponding lengthening of the breakwater, a tanker terminal, transit sheds, warehouses, open storage, cargo handling equipment, as well as the establishment of an autonomous port authority and financing of technical assistance in the form of consultants' services and expatriate port management personnel. In 1973, the credit was increased by US$1.8 million to cover shortage of funds resulting from currency realignments. The tanker terminal was deleted from the project due to the high cost of its construction resulting from delays in processing bids. Construction was completed in 1974; and the project is virtually completed. The Project Performance Audit Report (No. 2299 dated December 22, 1978) has drawn attention to the importance of a cautious approach in requiring Borrowers to introduce untried institutional reforms, and to the exercise of care in the selection of individual consultants under technical assistance programs. Its conclusions are (i) the physical objectives of the project have been satisfactorily realized; (ii) lower revised economic return at 7.0% has been due to lack of traffic growth result- ing from adverse local and international political and economic conditions that could not have been foreseen at the time of appraisal; and (iii) although the technical assistance towards institution building purposes did not produce the expected results initially because of the low calibre of expatriate experts, signs are now appearing that autonomy and better management are being achieved by the port authority. 1.29 Government proposals for a major modernization program for the railway have been under discussion since the early 1970's. In 1971, a Bank mission identified a possible project consisting of the 1972-74 portion of Reseau National des Chemins de Fer's (RNCFM) proposed 1972-76 Investment Plan, which called for a total investment of about US$16 million. The plan was subsequently changed several times and the version presented at th- time of appraisal of the first railway project in 1973 covered the period 1973-77, total investments having been increased to about US$43 million. Many of the investment proposals, which included the construction of new lines and major acquisitions of rolling stock were not, however, accompanied by sufficient technical and economic data. Moreover, these investments were considered premature, given the uncertainties of the role to be played by the railway in the future, if the competing road between Antananarivo and Toamasina were to be built. The Government and the railway agreed that the time span and com- position of the Investment Plan should be limited to immediate needs for the period 1973-75 and that the major investments originally envisaged should be deferred until the completion of the railway modernization and rationalization study proposed for inclusion in the project. The agreed Investment Plan for 1973-75 included completion of the ongoing realignment of the Ambila-Bricka- ville section of the main line financed by the United States Agency for International Development (USAID); provision of seven locomotives financed by the French Caisse Centrale de Cooperation Economique (CCCE) and a minimum of rolling stock, track renewal and track maintenance equipment to enable the railway to carry projected traffic through 1976; and services of consultants to improve the railway's management, investment planning and operational efficiency. 1.30 The Bank-Group-financed first railway project in Madagascar (Credit 488-MAG; US$6.0 million; 1974) was designed as a "holding operation" to assist the railway in replacing outdated equipment and to determine its long-term prospects and requirements, as well as the needs in the transport sector as a whole. It included that portion of the railway's 1973-75 Invest- ment Plan for which financing had not been arranged, and technical assistance to the Government in transport planning and coordination. The Bank-Group- financed items included 60 km of track renewal, 50 freight wagons, 20 passenger coaches, miscellaneous equipment, consultants' services for the railway and provision of a transport planning team for the Government. 1.31 The physical execution of the project has generally been satisfactory, though somewhat behind schedule. Cost increases have made it necessary to reduce the number of wagons to be purchased (freight wagons from 50 to 35 and passenger coaches from 20 to 15). Because of proposed changes in the constitu- tion of public bodies, including that of the railway, implementation of technical assistance to the railway in the administration and accounting areas has been postponed and the proceeds of the credit released thereby have been used to purchase 12 urgently needed ballast wagons. The project is virtually completed except for a minor portion of technical assistance, the delivery of the ballast wagons and some track work. The latter items are expected to be completed in 1979. 1.32 The Bank Group's experience with the railway's ability to implement the project has in general been satisfactory though its performance in achiev- ing the financial targets has been disappointing because of the effects of the recent economic recession and the delays in introducing tariff increases required to achieve the 3% annual rate of return on net fixed assets required under the credit. This rate of return has not yet been achieved. The railway's operating performance indicators show that its efficiency has generally improved over the years from 1975, though further improvements are required in the administration and accounting areas of activity. The benefits of this project are just beginning to materialize as the project is nearing completion, but due to delays in the track renewal progrm, and to the poor traffic growth, the full impact will only be felt in the future. The outlook for the future can be promising, provided the railway's overall efficiency and productivity can be maintained and appropriate tariff increases are introduced. 1.33 Generally speaking, while some projects have not been completed on time, all have had satisfactory results from the point of view of their physical objectives, in spite of the problems that have beset the country in recent years. Institution building efforts towards developing financial discipline have not met with the results originally intended, although of late, the Tamatave Port Authority is showing signs of progress towards achiev- ing financial stability. II. RESEAU NATIONAL DES CHEMIN DE FER MALAGASY (RNCFM) A. Introduction 2.01 Until 1965 RNCFM operated as a "Regie Autonome" under the old Ministry of Transport with a substantial degree of autonomy. Since then the railway passed through various forms of state control, from functioning as a Government department to its present form as a state-owned public industrial and commercial establishment (effective January 1, 1974) under Decree No. 74-154 of 1974. The Government reconstituted the various Ministries in 1972 and 1975, as a result, responsibility for overseeing the railway has also been changing, and since 1975 it has been with the newly formed Ministry of Transport, Supplies and Tourism. 2.02 The reasoning behind the re-establishment of the railway as a public industrial and commercial establishment in 1974 was the intention on the part of the Government to grant the railway a legal personality with operational and financial autonomy at the urging of the Bank Group. The railway now has the necessary powers to carry out its operations, but in the financial area, the satisfactory integration has not been achieved between the accounting activities of the railway currently being performed by the railway staff for the Agent Comptable acting as representative of the Ministry of Finance on the one hand, and the financial controls and accounting information needs of the - 9 - railway as an autonomous organization on the other. This has been repeatedly urged by the Bank Group as a requirement under the previous project. Also, the impact of the Charte des Enterprises Socialistes on the railway still remains to be determined. Under this Charter, a policy making Orientation Council would be established and made up of representatives of the State, the Management Committee, the railway employees, and the National Assembly. The Management Committee consisting of the General Manager, and representatives of the State and the railway employees, would be the executive arm of the Orienta- tion Council. The General Manager would be accountable to the Management Committee. Further, the employees would elect a Workers Committee which would look after their interests and which would be consulted on all reforms affect- ing them. Also, a commission would be set up to look after various issues affecting personnel matters. It is not known when the Charter would be made applicable to the railway. During negotiations agreement was reached that the Government and the railway would consult with the Bank Group before making material changes in the statutes relating to the railway's present organization and constitution. B. Track 2.03 RNCFM operates an 860 km main line single track railway and some 175 km industrial branch lines and private sidings, in total 1,035 km of track. The gauge is one meter. The railway is made up of two separate unconnected systems, the northern system, with about 700 km of track, connecting the capital, Antananarivo, to the industrial areas in the plateau region and to the port of Toamasina on the Indian Ocean, and the southern system with about 160 km of track, connecting the semi-industrial town of Fianarantsoa and the agricultural areas in the southern plateau region to the port of Manakara, also on the Indian Ocean (map). Northern System Antananarivo - Toamasina (TCE) - 374.8 km Moramanga - Lake Alaotra (MLA) - 167.4 km Antananarivo - Antsirabe (TA) - 154.1 km 696.3 km Southern System Fianarantsoa - Manakara (FCE) - 163.3 km 2.04 The plateau regions are at an altitude of 1,200 to 1,500 m and the railway has to cross very rugged terrain on its way to the coast. Gradients of 2.5% are frequent and some are even as high as 3.5%. Curve radii are small, down to 50 m. The difficult terrain has required a large number of bridges and tunnels. The system has 362 bridges and viaducts totaling 8,046 m and 94 tunnels totalling 9,625 m. - 10 - 2.05 There are 86 stations with an average distance of 10 km between them, and a large number of other halts near large towns used for suburban passenger traffic. The maximum distance between stations, which determines the line capacity, is: - 17.3 km on the TCE - 19.4 km on the TA - 18.4 km on the FCE 2.06 Marshalling yards are located at Toamasina, Antananarivo and Moramanga on the northern system and at Fianarantsoa and Manakara on the southern system. 2.07 The track is in poor condition throughout the entire system; only 40 km of track has been replaced with new rail in the last ten years. The rail is badly worn, the sleepers, fasteners and fishplates are in poor con- dition and the ballast is inadequate. About 50% of the points and crossings are also worn beyond repair. Derailments, average two a week, of which more than 50% are due to poor track conditions. To reduce derailments, speed restrictions have been introduced to a degree that the line capacity is affected. In 1977, the track on TCE was closed for 26 days because of derail- ments, and train delays of 45 to 60 minutes each due to speed restrictions, are frequent. 2.08 The track has 25, 26 and 30 kg/m rail and has both timber and steel sleepers. It is adequate for sections carrying light traffic but not for the heavy traffic sections on the MLA and TCE which need at least 36 kg/m rail, reduced sleeper spacing and more ballast. RNCFM has already started this track upgrading program. TCE has 40 km rail less than 5 years old and 335 km rail between 25 and 40 years old. MLA has 19 km rail between 40 and 60 years old, and 149 km rail over 60 years old (Chart 1). 2.09 The bridges, viaducts and tunnels are generally in good condition in spite of recurrent torrential rains and cyclones which damage embankments, erode subgrades and undermine subbases of bridges to the point where urgent repairs are required frequently. - II - MADAGASCAR Chart 1 AGE OF RAIL AMBATOSORATRA ._..TOAMASINA MLA~ |167 km A LARO BIA ANTANANARIVO SOAHIERANA l -DrRAIL AGE LESS THAN 5 YEAPS / ~~~~~~~~MORAMANGA t62km AMBILA // ~~~~~~~TCE .LA 154 km | ~~~< 5 Years l ANTSIRABE >E0Yer FIANARANTSOA < - ~~~~~~~FCE 163 km MANAkAFA VVorld Bark -1 8944 - 12 - C. Signalling and Telecommunications 2.10 A train order system is used for directing the trains. Signals exist only at the approach to Antananarivo. All trains are controlled by telecommunications to the stations from Antananarivo on the northern system and from Fianarantsoa on the southern system. 2.11 The telecommunications system on the TCE line was modernized re- cently by laying a new cable along the line and providing all stations except Antananarivo with new equipment. On the other lines the system, including cable, is old, in poor condition and obsolete, spare parts for which are no longer made. Repair and selective renewal of this system are required. Repair can be accomplished by using serviceable spare parts from the old equipment released as a result of the recent and the proposed renewals. D. Motive Power and Rolling Stock 2.12 RNCFM is fully dieselized and has 32 line locomotives, 24 shunters and 13 motorized railcars. Eighteen line locomotives and 22 shunters are 24 years or older. Four shunters are 35 years old. The availability of line locomotives is 87% which is surprisingly high. The horse power of the line locomotives are as follows: two 260 HP ; four 625 HP; twelve 750 HP; six 1,000 HP; seven 1,200 HP; and one 3,600 HP. The 3,600 HP four bogie loco- motive is mostly out of service because it requires specific tools and specific spare parts, which are too expensive to store for one single unit. It should usefully be replaced by one RNCFM standard locomotive. Although the line locomotives still have a high availability, some of them are not powerful enough for future traffic and have therefore to be replaced. 2.13 The oldest shunting locomotives will be ready for retirement within the next few years; but some of the old line locomotives can however be downgraded, when replacements are available, to shunters thus eliminating the need for new shunters. 2.14 Most of the 13 motorized and 42 non-motorized railcars are in good condition except two of each which are over 35 years old and should be scrapped. The railcars are used for short distance movements, part of which is commuter traffic in the vicinities of the larger cities. The railway has also 43 specifically built coaches which can be used for both long distance and short distance traffic; 14 of which, used exclusively for short distance traffic, are over 40 years and will soon be scrapped. For long distance traffic the fleet is adequate since 15 new steel coaches acquired under the previous project are now in service. 2.15 The total stock of freight wagons numbers 1,052 units, 79 of which are privately owned (77 tank wagons and 2 refrigerated wagons). Of the other - 13 - 973 units 895 are allocated to the northern system and 78 to the southern system. Their average availability is also remarkably high (95%) and the fleet is in good condition, although about 250 units are more than 35 years old. The turnaround times for different kind of wagons are also fairly good as shown in table on page 29. About 160 of the wagons are more than 50-year old, 10-ton, 2-axle types. These wagons are causing derailments when mixed in trains with heavier bogie wagons which tend to lift the lighter ones off the track. RNCFM is, therefore, planning to replace these wagons before 1982. E. Workshops and Depots 2.16 RNCFM has a workshop for locomotives, coaches and wagons in Antananarivo, depots for diesel service in Antananarivo, Moramanga, Manangareza and Fianarantsoa, and sub-depots at Antsirabe, Mororano and Anivoramo. The workshop in Antananarivo is old and does not lend itself to modular mainte- nance methods. Furthermore, it is too small and working at its capacity limit. Its restructuring is being considered for implementation in mid 1980's and a preliminary plan is being prepared. Other depots will also need some restructuring by the mid 1980's, in particular the Manangareza depot which needs to be enlarged. F. Container Handling Facilities 2.17 Container traffic is relatively new to the railway (starting around 1971), and is limited to the main line from Toamasina to Antananarivo. Container traffic is increasing; exact statistics, however, are not available because until lately they have not been maintained separately. In Toamasina the Port Authority is responsible for handling containers. In Antananarivo the railway is responsible for handling containers which is done in the yard area in the vicinity of the railway station using one fixed crane and one mobile crane, and also at another yard nearby which is used as a bonded area. Both yards are already congested and the increasing container traffic, which is a valuable development for the railway, requires new and improved facil- ities, which the Chamber of Commerce and the railway have agreed to provide. The Chamber of Commerce will be responsible for the planning of facilities, the building of warehouses, and the provision of loading and unloading facil- ities, while the railway will be responsible for the laying of track. An area close to a branch line of the TA line outside Antananarivo has been selected, and the new container terminal is expected to be completed in 1982. During negotiations agreement was reached that the Government and RNCFM will exchange views with Bank Group on the development of the proposed new container handling facility in Anatananarivo. - 14 - G. Organization, Management and Staff 2.18 Under the general supervision of the Ministry of Transport, Supplies and Tourism and a Board of Directors, the railway is managed by its Director General, who is competent. The Board is presided over by the Minister of Transport, Supplies and Tourism, and has 12 other members mainly from other Ministries. Its chief function is to approve the annual budgets of the railway. 2.19 Under the previous Credit 488-MAG, provision was made for the appointment of management consultants for effecting improvements to the railway in two phases. Phase I was concerned with a review of the existing situation and the making of recommendations, and Phase II was to be concerned with the implementation of new and improved methods. SOFRERAIL (France) was appointed as the consultants, and they commenced work in 1974. The areas covered in Phase I included: - Organization; - Operations (including a study of the railway investment needs based on a review of its operational transport plan); - Financial management, accounting and budgets; - Costs, tariffs and marketing; - Statistics; - Selection and training of personnel; and - Internal information. 2.20 SOFRERAIL submitted their report in August 1975. Their recommenda- tions were generally sound. However, questions as regards railway autonomy and its practices in the personnel, organizational, financial control and accounting methods were raised by the Bank Group and solutions sought from the Government and the railway. Because of the uncertainties surrounding the railway's autonomy, particularly in the light of the Charte des Enterprises Socialistes, it was decided with the agreement of the Bank Group to postpone in the ongoing Project the implementation of the consultants' recommendations regarding organizational and procedural improvements in the financial planning, management and cost accounting, data processing and information systems, until the railway had the flexibility to benefit from the introduction of new and improved methods. This flexibility is still lacking. The railway's financial and accounting systems continue to operate within the framework of routine bookkeeping concepts. The proposed project includes continuation of the technical assistance for implementing a unified financial planning, management and cost accounting and information system based on the recommendations of the - 15 - previous consultants. New personnel regulations for the railway as recom- mended by the consultants were introduced in 1977. As a result it is expected that the railway will be able to attract and retain competent staff in the various cadres. 2.21 RNCFM's functional activities are adequately organized uader various technical divisions and support services as shown in Chart 2. Management of the day-to-day operations of the railway is carried out effectively by competent staff. The planning activity as a regular exercise is limited to annual investment and operating budgets. Long-term investment plans were prepared in 1977 by the consultants under the previous project. 2.22 The railway currently employs about 4,500 people which is an optimum number for a railway of this size. Relations with employees appear to be satisfactory, although there was a partial strike lasting 21 days in July- August 1977. This strike related to the personnel regulations introduced effective July 1977, which the employees wanted to be made retroactive to January 1977. Finally, the railway and the Government agreed to the strikers' demands. H. Training 2.23 RNCFM presently operates a training center in Antananarivo at the railway headquarters. The center has been in existence for some time and is essentially designed to familiarize new recruits and employees at lower levels in the technical, operational and administrative aspects of railway operations. The center's estimated capacity of some 100 places has not been fully utilized in recent times, the annual output in the last two years being no more than five trainees. This low figure has been due to the reorganization of the training centre and the limited demand for formal training courses in addition to the ongoing on-the-job training programs. Correspondence courses are given for employees outside Antananarivo. In any case the railway is well-equipped to provide most of the training for employees at lower levels. It is expected that 15 new students will enroll for the 1978-79 courses. As regards training for high cadre staff, the consultants, SOFRERAIL, have investigated and made recommendations for the appropriate utilization of resources available in Madagascar, especially at the technical schools and the university, as well as for the training of a few in France. Three trainees have recently returned from France after receiving training with the French Railways. Two more are under training there now. These technicians will also help with the running of the training center, as they were also trained to be instructors as well. I. Traffic - Actual 2.24 Since 1962, the railway's freight traffic went through four phases: a small decline in total tonnage (by 2.3% per year) from 1962 to 1966, the years following independence; extremely fast growth (almost 12% per year) from 1966 to 1971; a sudden slump in 1972 due to the political disturbances; MADAGASCAR RESEAU NATIONAL DES CHEMINS DE FER MALAGASY ORGANISATION CHART MINISTEHE DES TRANSPORTS, DOU HAVITAILLEMENT ET DU TOURISME CONSEIL D'ADMINISTRATION |DIHECTEUFH GENERAL 1301 | DIRECTEUH |SERVICE TECttNIOUES|| CHEF ~~~~CHEFF CHEFFCE lE HFCE HFCE SERiCE SERVICE SERiVICE SERVICE SERVICE SERVICE SERVICE SERVICE SERVICE CE IN H ETUDES COMMEHCIAL I.TANSPORTS MATERIEL CIBA VOIE ET APPROVISI' AFF AIRESSRVC | 6) 0UGl SAITOE112) El ET TELECOM ET TRACTION ITRAVERSESI BATIMENTS ONNEMENTS GENERAL DIVISION DIVISION DVSO DIVISION SI ATISTIOUES TARIFS DIIINENTRETIEN DIVISION DVI INDVIINDVISION DI VISION IIUDGLIS LTOOE ~~~~~~~~~~~~~ ~ ~~~~~~~ET COMMERICAL ENTHEYIEN APRVS-PERSONNEL CENRRVAfES *101 |LONOMIOUES CONTENTIAUX | NICA01 N |FABRICATION 1821 | Ib971 | O181 FE| Rt4tA|TE 1101 4)161f0 90 11fe 14) DIVISION DIVISION DIVISION TAVAUJX | DIVISION DIVISION DIVISION DICEsN EtlJDE5 DIVISION CONTROL MATERIEL DIVISION COURANT ETUDES SOLDE COMMISSANIAT 151 FPO(iAMME5 MAHKETING TMOPILE R Et AFFAIRES PROGRAMMES El RENTES SPECIAL 12:11 121 (241) 16915OMANIALES fig) fill 1421 CL)NIHOAOE DIVIIONDIIONO DI VISION DIVISION ADE IESMIIONI EXPOMENTATIORN FORMATION AGENCE 134 110E2 ION MAGASINS INFORMATION COMPTABLE 1261 441 (31) F. ~ I,. ,,, UIdUy 1 h1b Ul...ucliup...... Glusd Iu-I 4tAI8 APRIL 1979 WoW 8..k 19067 - 17 - TABLE 1 MADAGASCAR Second Railway Project Total Traffic Freight- Total Total Average Passengers Average Tonnage Ton-km Haul Number Pass-km Trip ('000 tons) (million) (km) ('000) (million) (km) 1962 555.3 157.6 284 2,062 136.8 66 1963 538.0 150.4 280 2,090 147.9 71 1964 540.1 153.1 283 2,175 149.6 69 1965 540.7 157.0 290 2,133 148.9 70 1966 506.8 148.3 293 1,961 151.3 77 1967 572.2 169.3 296 2,307 172.8 75 1968 663.7 205.6 310 2,294 181.0 79 1969 714.2 229.1 321 2,099 174.5 83 1970 834.6 276.1 331 2,365 182.4 77 1971 888.2 297.5 335 2,586 200.0 77 19722/ 755.2 247.5 328 2,580 191.8 74 1973 770.3 251.5 326 2,951 208.7 70 1974 812.2 272.5 335 3,607 253.8 70 1975 830.9 278.7 335 3,710 248.6 67 1976 825.4 275.1 333 4,265 292.6 68 1977 823.3 272.7 334 3,929 271.5 69 1/ Excluding service transport. 2/ Traffic drop due to the political disturbances and closure of Toamasina Port in December 1972. Sources: RNCFM and Bank Staff November 1978 MADAGASCAR Second Railways Project Traffic Statistics Total Northern and Southern Systems ('000 tons) Northern System ('000 tons) 1977 1976 Average Average 1974 1975 1976 1977-1/ Haul (ki) 1974 1975 1976 Haul (km) Rice 94.6 98.9 99.3 99.4 311 88.0 95.1 95.2 327 Food Products 10.4 11.1 16.8 18.0 234 10.3 10.7 16.5 261 Flour 14.0 12.4 19.8 24.2 329 14.0 12.0 19.2 350 Metal Products 31.5 26.4 21.5 26.3 346 30.2 25.4 20.9 330 Cement and Building Materials 21.3 12.3 5.3 16.3 313 20.7 11.6 4.6 288 Chemicals 11.4 12.6 14.3 24.5 296 11.4 12.6 14.3 372 1 Paper 1.1 0.9 0.9 3.7 354 1.0 0.9 0.9 374 O Textiles 11.2 5.5 8.7 9.4 390 10.4 5.4 8.2 310 1 Ores 4.5 4.9 5.7 5.7 235 4.5 4.9 5.7 269 Manufactured Products 12.2 10.9 12.0 16.4 376 12.1 10.9 11.9 351 Industrial Oils 6.6 10.9 8.4 6.4 329 6.6 11.0 8.4 376 Livestock 65.8 62.6 60.8 66.4 312 49.5 49.1 43.6 388 Wood 14.1 14.7 13.6 15.8 162 13.6 14.0 13.0 155 Miscellaneous 122.9 148.1 135.7 92.4 296 114.7 137.5 127.7 266 Total 421.6 432.2 422.8 424.9 387.0 401.1 390.1 Chromite 158.4 183.6 185.3 134.7 392 158.4 183.6 185.3 392 Petroleum Products 138.2 129.7 133.3 138.9 372 130.4 121.1 122.8 395 Empty Wagons and Packaging 94.0 85.4 84.0 97.4 370 87.4 78.2 76.3 398 Total Traffic 812.2 830.9 825.4 795.9 334 763.2 784.0 774.5 346 >W 1/ Excluding service transport Source: Railway Statistics November 1978 - 19 - followed by a slow recovery (about 0.7% per year) during 1973-77. Traffic in ton-km followed the same trends, but with fewer fluctuations, because increases in average haul distance have partly compensated by the decreases in tonnage. The low 0.7% yearly average increase in freight traffic in the years 1973-77 has been due to the policies adopted by the Government which have had a depressing effect on economic growth and which in turn have affected traffic growth. It does not, however, reflect the long term potential for sustained growth of the Madagascar economy and its transport sector. Passenger traffic has steadily increased both in numbers and in passenger-km over the 15-year period (by an annual average of about 4.5%). Since 1972, however, the growth pace has considerably increased (8.7% in numbers of passengers, and 7.2% in passenger-km). Suburban passenger traffic is growing faster than long- distance traffic, resulting in the slower growth of passenger-km, shorter average trips, and higher costs per passenger-km. 2.25 An analysis of traffic by commodities shows wide tonnage fluctua- tions of tonnage over the past four years, particularly for cement, metal products, textiles and industrial oils. These resulted from a variety of causes: the lack of foreign exchange led to drastic cuts in imports of non- essential commodities; the depressed level of economic activity in Madagascar led to erratic imports; and finally the low productivity and labor unrest at Toamasina port resulted in some traffic being rerouted through Mahajanga, which is not connected to the rail network. Three commodities - chromite, petroleum products and rice - accounted for 47% of total tonnage in 1977. The decrease in chromite traffic between 1976 and 1977 - from 185,300 tons to 134,700 tons - was caused by difficulties encountered in marketing the ore. 2.26 Stations located on the TCE line account for 55% of the railway's total ton-km, while those on the MLA, TA and FCE lines account for 36%, 6% and 3% respectively. With only 51,900 tons of traffic, the southern line FCE has the lowest traffic density. On the TCE, TA and FCE lines, the traffic is generally well-balanced in both directions, but on the MLA line, 92% of the ton-km transported are going from Lac Aloatra to Moramanga. J. Budgets, Accounts, Audit and Insurance Budgets 2.27 RNCFM's operating and investment budgets are prepared annually and approved by the Board of Directors initially, and then by the Ministry of Finance before final approval by the Council of Ministers. The budgets serve as approval mechanisms of the monetary limits within which the railway is allowed to operate, they are not, however, used as management tools since there is no regular feedback. Absence of specialists in this field has also resulted in heavy reliance on consultants for long-term planning and the preparation of investment plans. Thus the railway's proposed Investment Plan for 1978-1985 was prepared by the consultants (SOFRERAIL, France) under the previous railway project. In preparing the 1979-1983 Investment Plan which forms the basis for the proposed project, the consultants' proposals for the 1978-1985 plan period served as a useful guide. - 20 - Accounts 2.28 RNCFM's accounting organization and activities are not clearly delineated. The financial accounting is administered by the Agent Comptable who is an official appointed by and responsible to the Ministry of Finance. His responsibilities include those of a cashier and partly that of a con- troller. As a cashier he takes care of payments and collections, and as controller he examines the cash transactions for their propriety and authen- ticity. Although working with the railway staff, he is responsible to the Ministry of Finance and not to the railway management. The railway has its own Chief of Financial Services, whose task is to monitor the transactions from the budgetary control point of view. However, no budget control reports are prepared on a regular basis, say monthly or quarterly, indicating the status of operating and investment budgets, compared with actual performance. Monthly reports showing operating results are not prepared. Financial accounts are not maintained on a current basis and a reliable cost accounting system is not in operation. Satisfactory solutions should be found for the unification of the responsibilities exercised by the Agent Comptable on behalf of the Ministry of Finance on the one hand, and by the railway's Chief of Financial Services on the other. The consultants under the previous project studied the problem, but their recommendations for improvements were not implemented pending resolution of the question regarding the railway's autonomy and the application of the Charte des Enterprises Socialistes to the railway referred to previously in para. 2.02. 2.29 In order to overcome the above financial and accounting problems it is essential that a unified financial and cost accounting system should be set up and that it should be maintained on a current and commercial basis. It is also essential that a finance manager with qualifications and experience acceptable to the Bank Group be appointed to head the accounting and financial activities in the railway. He should be responsible to the railway management for the financial and accounting functions which should be responsive to the needs of the railway as a viable and autonomous organization. The system should naturally protect the interests of the Government as the owner of the railway, but the Government should not be involved as its financial operator. A similar problem in the financial organization and management had existed in the case of the Toamasina Port Authority (Credit 200-MAG) and was corrected with the help of a capable local consulting firm. During negotiations the Government and the railway have agreed that a new financial manager for the railway would be appointed before December 31, 1979, and that new consultants would be employed also before December 31, 1979 to implement during 1980 the unified accounting system and its organization, as recommended by the consul- tants under the previous project. The cost of consultants' services is included in the proposed project. Under the new system the Agent Comptable's functions in the railway would be limited to carrying out post audit work for the purpose of confirming compliance with public accounting rules. The proposed project also includes provision for training of the financial manager in advanced management accounting methods as applied to railway operations. - 21 - Audit 2.30 RNCFM's audit is conducted by a firm of public accountants and carried out according to generally accepted auditing practices. Insurance 2.31 RNCFM provides insurance coverage of its fixed assets and its liabilities as a public carrier through self-insurance and follows the practice of writing off all claims, damages, and losses against current operations. III. THE PROJECT A. Objectives of the Proposed Project 3.01 The proposed project is a continuation of the previous project under Credit 488-MAG, which included track renewal, provision of wagons, coaches and technical assistance. As part of the technical assistance, the railway engaged consultants, SOFRERAIL (France), in 1977 to prepare an Investment Plan for the period 1978-1985. The Government and the railway have basically accepted the consultants' recommendations, and the proposed project is a modified version of these recommendations for the shortened period of 1979-83. 3.02 The principal objectives of the proposed project are to help the railway to continue to: (a) renew and modernize its fixed installations, motive power, rolling stock, telecommunications, and container handling facilities; (b) improve its operations and make them more reliable and efficient through increased productivity and capacity; and (c) improve the railway's management, operations, documentation and information systems. B. Scope of the Project 3.03 The proposed project is expected to achieve the above objectives by including in its scope the following components: - 22 - (a) renewal of 160 km of worn-out track, improvement of another 124 km, renewal of points, crossings and procurement of track maintenance equipment and tools; (b) replacement of seven line locomotives; (c) replacement and new acquisitions of railcars, coaches and wagons; (d) improvement of telecommunications; (e) replacement of workshop equipment; and (f) improvement of the railway's financial management and accounting system, implementation of its new Transport Plan, and carrying out of studies concerning the long-term viability of Antsirabe-Antananarivo and Manakara-Fianarantsoa lines, with the help of consultants. C. Details of the Project Track 3.04 The poor condition of the track is reducing the capacity of the line due to a great number of speed restrictions and frequent derailments. Increasing axle loads and traffic density call for heavier track, which the railway has started introducing on the recently renewed sections by changing 25-30 kg/m rail to 36 kgAm rail, reducing thS sleeper spacing, and increasing the ballast from 0.2 m per meter to 0.8 m per meter. This track renewal program will continue under the proposed project which provides for renewal of 160 km of track, improvement of another 124 km, replacement of 136 points and crossings, and procurement of 47 ballast wagons, maintenance equipment and tools. 3.05 Local wooden sleepers will mostly be used, but imported steel sleepers have to be procured for the most steeply curved sections of the track, particularly where there are also high gradients. The average life of wooden sleepers will be increased from six to nine years to about fifteen years by improved treatment with a new boiler included in the proposed project. The present inadequate capacity for transporting logs from the forest to the sleeper production and treatment plant will be increased by the construction of an aerial ropeway also included in the proposed project. The present quarry is exhausted, so a new site is being developed. Existing quarry equipment will not have sufficient capacity fo5 the enlarged track renewal and upgrading program, requiring some 55,000 m of ballast per year. The proposed project, therefore, provides for an additional crusher. - 23 - Motive Power and Rolling Stock 3.06 The four oldest shunting locomotives must be retired but can be replaced by four downgraded line locomotives. Seven line locomotives will be required to replace the downgraded units, and to cope with the 'oxpected increase in traffic. No line locomotives will be retired during the period. Spare parts for the locomotives are included. 3.07 The short distance commuter traffic has been increasing steadily over the last few years. The new railcar will replace two old ones which are being scrapped, and the 10 new coaches will replace the 14 wooden body old coaches. The reduction in numbers of the new units is made possible by their higher capacity and the expected increase in their availability. 3.08 The increased traffic on the northern system from 268 million ton-km in 1976 to 328 million ton-km in 1982 (traffic statistics on pages 17 and 31) requires more wagons as shown below: Wagons Required to Meet 1982 Traffic (at present level of Existing Type of Wagon efficiency) Fleet Deficit Covered 620 555 65 Flat 624 348 276 Tank 97 77 20 Gondola 76 72 4 Total - All Types 1,417 1,052 365 The track improvement program and the implementation of the railway's Trans- port Plan are expected to reduce wagon needs by 307, leaving a gap of 58. The oldest (50 to 65 years old) two-axle wagons numbering 160 units will be scrapped and replaced by wagons of 30 to 35 tons capacity. Because of the larger pay-loads of the replacements, and of the expected improvements in productivity, 76 new wagons instead of the 218 should suffice to meet trans- port needs. Infrastructure 3.09 The 14 km track section between Ambila and Brickaville requires realignment and levelling to reduce the frequency of derailments and to eliminate the need for additional locomotives for heavy trains, which cannot otherwise negotiate the steep grades. The first phase of the realignment (originally financed by USAID, and now continued by the railway on its own) is expected to be completed during the first half of 1979, and is there- fore not included in the project. The project provides for the completion of the work as well as the rebuilding of the Brickaville yard at the end of - 24 - the realigned track. Also included are minor improvements of other yards, upgrading of the telecommunications system, replacement of workshop equipment, and repair of embankments and bridge foundations damaged by floods. Technical Assistance 3.10 Technical assistance is provided in the following areas: (i) imple- mentation of a unified financial planning, accounting and information system (paras. 2.20-2.29); (ii) supervision of the implementation of the railway's Transport Plan (para. 3.18); and (iii) participation in the studies on the long-term viability of Antsirabe-Antananarivo and Manakara-Fianarantsoa lines (para. 4.31). The technical assistance is estimated to involve some 50 man- months at an average foreign cost of US$8,000 per man-month. D. Cost Estimates 3.11 The project cost is estimated at FMG 9,606 million (US$43.7) million equivalent). Of this FMG 7,360 million (US$33.5 million equivalent) is in foreign exchange, and FMG 2,246 million (US$10.2 million equivalent) in local costs. Local taxes and customs duties are not included in the project cost, and are estimated to amount to FMG 2,477 million (US$11.3 million equivalent). During negotiations it was ascertained that the items included in the project will be exempt from local taxes and customs duties. Details of cost estimates are given in the attached table entitled "Project Cost Estimate 1979-1983" on page 25. These cost estimates are summarized below: FMG Million US$ Million % Items Local Foreign Total Local Foreign Total Foreign Track 960 2,961 3,921 4.36 13.46 17.82 76 Motive Power and Rolling Stock 100 2,502 2,602 0.45 11.37 11.82 96 Infrastructure 774 722 1,496 3.52 3.28 6.80 48 Technical Assistance 10 90 100 0.05 0.41 0.46 89 Physical Contingencies 11 60 71 0.05 0.27 0.32 84 Price Contingencies 391 1,025 1,416 1.78 4.66 6.44 72 Total 2,246 7,360 9,606 10.21 33.45 43.66 77 3.12 The cost estimates are based on recent quotations and bids for similar equipment, obtained in 1978. Physical contingencies of 10% have been provided for realignment of the Brickaville - Ambila section and for rebuild- ing of Brickaville yard only, as the quantities for the other items can be MADAGASCAR SECOND RAILWAY PROJECT 1978 Y... PrIto. 1979 1980 1981 1982 1983 1979-1983 FLnanil,, Plan, Loto1 kr-ign Totl1 Loal For-lg. Totl Local For-ig. Total Local foro_1_ Total Lo-'. For.tign Total Locl Foreig. T.,.l RNEFN 11A CCCE 2. TCE. , MILA (160 tia) 38 98 136 155 733 888 155 733 888 155 - 155 117 - 117 620 1,564 2,184 620 1,564- 2. InProvenont (124 kin) 33 17 50 44 50 94 66 74 140 66 - 66 64 - 64 273 141 414 273 141 3. PInt o rd Craan8 ~g(13) - - - 2 139 141 3 194 197 2 139 141 - - - 7 472 479 7 472 4. B.allot .E n (45) 10 308 318 - - - - - - - - - - - 10 308 318 111 308 5. C-uh- 9 46 55 - - - - -- - - - 9 46 55 9 46 6. : Ilep-a - - - 30 213 243 - -- - -- --30 213 243 30 213 - 7. 'oto troleI (6) - . 4 162 166 - - - - --4 162 166 4 - 162 8. In.Pnt1o I -ra (5) I 10 11 I 10 it I -. 10 9. Tanpiegin-,hin. 4 34 38 - 4 - -3 -- -38 4 34 an.D:d ale.I 11.BIle - 2 11 13 - --t-- - --2 ....l 3 2 -11 S.bEota1 94 503 597 738 1 318 1 556 274 1 CII 1 2 223 139 362 18t t 18 960 2,961 3..921 960 2~ 39..l h. WIolo P-rn ..J RolInig Stook 1. L-r.oLi-a (7) - . - 10 497 507 6 300 306 6 300 306 - -22 1,097 1.119 22 - 1, 097 2. RollrIr (1) - - - - - - - 3 250 253 - --3 '250 753 3 - 250 3. Co-ches (10) - - - - - 10 570 5R0 to --1 5 70 580 t0 - 570 4. Za.o. (76) - * 44 385 429 21 200 221 - - - -- 65 585 __ 65 585 Subtotal --- 7 - 54 882 93 37 00 1 107 9 550 559 - - 10 2.0 2.0 100 ____ ____2 1. Ael8en f.ioll.- 60 300 360 60 300 360 - 7 - - - - 120 600 720 120 - 6100 ln"oi of b)rldgneu 60 - 60 60 - 60 60 - 60 60 - 60 - -- 240 240 240 - - 3. 1OoO1otOa - - - 175 175 - - - - - - - - 175 -175 t175 - - -opletton 4. Ipone t.o y.rde 40 - 40 - - - 21 - 21 - - -- 61 -61 61 - - 5. -eeolleyr, 9 9-77 - 77 - - - - - - - --86 -86 86 - - 6. Wokshop andeqllaon 24 - 26 34 122 156 31 - 31 3 -3 - --92 122 214 92 -122 lubtor-l 193 3o 493 40 422 878 112 - 112 63 -63 - -- 774 722 1,9 774- U). Techn-Iclulaat 1.5 ... . Ea-nnh. 7 8 1 10 3 37 35 3 32 35 2 18 20 - --10 90 100 10 90- Tot.l --l,urunng-tr- 299 811 1.100 731t 2,654 3,355 376 2,103 2.479 297 707 1,004 181 -181 1,844 6,775 8,119 1,844 2,480 3,195 lliya,rul rontlngenolna 3 3. 33 a 30 38 - - - . - - - it k0 71 II - 60 rootln8000leu IS 43 78 94 345 42 87 410 497 108 207 315 87 - 7 391 ,05 I46 391 ..I0 645 T,tol -i) -otlng-t- la 107 904 1,211 803 3,029 3,832 463 2,513 2,976 405 914 1,319 268 - 68 2,246 7,360 9.606 2.246 ?.86 4,5100 IS) e9uIOOlrOt In tnT I liona 10.21 32.43 43.66 1O.?I 13.00 20.45~~~~~~~~~~~~~~~~~~~~1021 ?.5 43.6 ld] 0.0 ?.4 - 26 - considered as fixed. Price contingencies have been as follows: - for imported items at the rate of 7.5% for the year 1979 and 7.0% for the years 1980 to 1983; and for local costs at the rate of 10.0% for the years 1979 to 1983. E. Financing and Procurement 3.13 Of the total cost of the project amounting to US$43.7 million equivalent, the foreign cost of US$33.5 million is expected to be met from external borrowings, and the local cost of US$10.2 million, equivalent, is expected to be financed from the railway internally generated funds. It is proposed that the Bank Group provide a credit of US$13 million. CCCE of France is expected to finance the equivalent of some US$20.5 million. The above cofinancing arrangements were confirmed during negotiations. Fulfill- ment of all conditions precedent to initial disbursement of the CCCE loan would be a condition of effectiveness of the IDA Credit. 3.14 Equipment and material financed by the Bank Group will be obtained through international competitive bidding in accordance with Bank/IDA guide- lines except for small orders of under US$25,000 each. These small orders are not expected to exceed US$250,000 in total. These items will be procured abroad or locally through local purchase procedures which are acceptable to the Bank Group. The Bank Group is expected to finance track materials, points and crossing, aerial ropeway and technical assistance; while CCCE will finance ballast wagons, locomotives, motorized railcars, coaches and realignment works. - 27 - F. Disbursements 3.15 Disbursements from the Credit will be made on the following basis: (a) 100% of the foreign cost of imported materials and equipment or 75% of local expenditures when procured locally; (b) 100% of the foreign cost of technical assistance. All disbursements will be fully documented. IBRD Fiscal Disbursement Cumulative Disbursement and Quarter during Quarter at end of Quarter % 1980 June 30, 1980 0.4 0.4 5 1981 September 30, 1980 0.5 0.9 11 December 31, 1980 1.0 1.9 24 March 31, 1981 0.8 2.7 34 June 30, 1981 0.8 3.5 44 1982 September 30, 1981 1.0 4.5 35 December 31, 1981 1.0 5.5 42 March 31, 1982 1.5 7.0 54 June 30, 1982 1.6 8.6 66 1983 September 30, 1982 1.5 10.1 78 December 31 1982 1.0 11.1 85 March 31, 1983 0.8 11.9 92 June 30, 1983 0.6 12.5 96 1984 September 30, 1983 0.5 13.0 100 Any savings on items to be financed by the Bank Group should be used to finance the foreign exchange cost of similar additional items, should these be found necessary in subsequent review of the projet and subject to a request to that effect from the Government and RNCFM and approval by the Association. - 28 - G. Project Execution, Environment and Employment 3.16 RNCFM, which will have direct responsibility for execution of the project, is competent to execute the project. The Implementation Schedule (page 30) was discussed and agreed to during negotiations. 3.17 The project will have no adverse effect on the environment, or on employment. H. Operational Objectives 3.18 In spite of the limitations in track capacity due to derailments and speed restrictions, the railway is operating quite efficiently as evidenced by the standard performance indicators shown on page 29. However, it will be possible to achieve further improvements particularly in the utilization of locomotives and wagons because the proposed project is designed to remove some of the physical obstacles which the railway is contending with such as poor track conditions. This in turn will make it possible to apply the new oper- ational Transport Plan in full to railway operations by the time the project is completed, and to rationalize train operations. Since improvements in efficiency are expected to take place only towards the end of the project period, no attempt has been made to establish intermediate targets. The proposed operational objectives (page 29) below were discussed and agreed to during negotiations. - 29 - Actual Objectives 1977 1982 Comments 1. Average Motive Power Availability (%) (a) Line locomotives 86.9 85-90 Availability (b) Shunting locomotives 94.9 90-95 of locomotives (c) Railcars 95.5 90-95 is already high, and therefore 2. Productivity per available motive significant power unit ('000) km improvements are expected to be (a) Line locomotives 94.6 100 confined to (b) Shunting locomotives 18.8 25 better utiliza- (c) Railcars 99.1 100 tion of available locomotives. 3. Average availability of freight wagons (%) (a) Ore wagons 92.0 90-95 Track renewal (b) Tank wagons 97.0 95-98 program will (c) General cargo 96.0 95-98 facilitate intro- duction of the new 4. Average turnaround time (days) Transport Plan resulting in (a) Ore wagons 6.9 3.5 improved turn- (b) Tank wagons 5.5 5.0 around time of (c) Covered wagons 9.1 7.5 wagons. The (d) Flat wagons 15.0 11.0 operation of ore trains will parti- cularly be affected. 5. Average wagon load (%) Further significant improvements in (a) Ore wagons 100.0 100.0 average wagon load (b) Tank wagons 91.0 91.0 are not expected due (c) Covered wagons 53.0 55.0 to already high (d) Flat wagons 42.0 45.0 utilization. 6. Productivity per available wagon per year ('000 net ton-km) (a) Ore wagons 937 950 Productivity is (b) Tank wagons 631 650 expected to in- (c) Covered wagons 209 250 crease as a result (d) Flat wagons 141 200 of improvements in wagon turnaround 7. Staff productivity ('000) traffic time, and rationa- units per employee 127 150 lization of staff. MADAGASCAR SECOND RAILWAY PROJECT IMPLEMENTATION SCHEDULE 1978 1979 1980 1981 1982 1983 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 A. TRACK 1. Piepare specifications and tender docu- ments for ai rail, sleepers, fastenings, joints and crossings bl ballast wagons and track maintenance equipmilent 2 Advertise, receive tenders, evaluate, award for a) rail, sleepers, fasteninigs, joints and crossings b) Ballast wagons and track maintenance equipmnerit 3. Delivery of material and equipment a) rail, sleepers, fastenifigs, joints and crossings b) ballast wagoris and track maintenance equipmenit 4. Relaying of 100 km of track arid irmproveirent of another 80 km B. MOTIVE POWER AND ROLLING STOCK 1 Prepare specifications and tender documents 2. Advertise, receive tenders, evaluate, award 3. Delivery of a) locomotives bi wagonis c} railcars and coaches _ _ _ _ C. INFRASTRUCTURE 1. Prepare specifications and tenider docu - ments for a) realignement of Ambila Brickaville b) improvemenits of yards and crossings c) workshops equipmnent 2 Advertise, receive teniders, evaluate, award for a) realignement of Ambila-Brickaville b) improvements of yards and crossings cl workshops equipment 3. Delivery of material and equipment a) realignement of Ambila-Brickaville b) improvements of yards and crossings c) workshops equipment 4. Realignement, inistallations, improvements a) realignement of Ambila-Brickaville b) improvements of yards and crossings ci workshops equipment D. TECHNICAL ASSISTANCE 1 Appointmenit of Finance Manager 2. Appointimient of Consultants 3 lTImplemenitation of Unified Accotuniting Systemr anid Training So,,rce Bank Staff lanualy 1979 World Bank -18945 - 31 - IV. ECONOMIC EVALUATION A. Forecast of Future Traffic 4.01 Since 1972, Madagascar has been going through a period ot economic and political difficulties which have resulted in almost stagnant rail traffic growth. However in view of Madagascar's diversified and substantial human and physical resources, and of the economic performance of the 1966-1972 period, a recovery is on balance considered likely. 4.02 Two factors make traffic projections for the railway particularly difficult: (i) present abnormally low traffic levels do not provide a reliable projection base; (ii) rail/road competition will begin to develop on the Toamasina - Antananarivo corridor when the road from Toamasina to Moramanga is completed (in the early 1980's) and, to a relatively minor extent, on the southern corridor from Manakara to Fiananratsoa, beginning in 1985 when another proposed road is completed. The planned Toamasina - Antananarivo road however is of limited standards with steep gradients, sharp curves, and one lane bridges. In the Manakara - Finanarantsoa corridor, the rail line is much shorter than the proposed road (163 km versus 270 km). 4.03 Traffic forecasts were prepared using a three-pronged strategy: (i) a sectoral analysis of Madagascar was carried out to identify the main traffic flows for each commodity by origin and destination; (ii) a modal allocation of these traffic flows was then made based on road/rail transport cost differentials, quality of service and likelihood of cargo damage or theft, and cargo value; (iii) these traffic allocations were finally compared with information gathered on rail/ road competition on the Antananarivo- Antsirabe line. 4.04 Based on this methodology and assuming a reasonable economic re- covery starting in 1979 rail traffic in 1985 would represent some 82% of total surface traffic in the catchment area of the northern system, excluding traffic relating to new economic development projects to be implemented over the next ten-year period. Rail traffic is expected to grow by some 3.4% yearly, and total surface traffic by some 7.3%. The table on page 32 shows the percentage of total surface traffic by commodity which is expected to go by rail in 1985. The tables on pages 33 and 34 show rail traffic projections for the northern system until 1987, and the table on page 35 for the southern system. 4.05 The railway's northern system should carry some 1,080,000 tons of traffic by 1985, increased from some 768,000 tons in 1976. This projected growth is much slower than in the period 1966-1971, when traffic tonnages increased by almost 12% annually. Some 58% of the estimated traffic -- rice, ores, petroleum products, industrial oils, wood, etc. -- representing some 600,000 tons, is most unlikely to shift to the road because of the bulk nature and the quantities involved. - 32 - MADAGASCAR Second Railway Project Analysis of Traffic Modal Allocation for the Northern System ('000 tons) 1980 1985 Rail Traffic Total Rail As % Tonnage Surface Tonnage of Total Rice 97.0 135.9 132.6 97.6 Food Products 22.2 55.8 24.0 43.0 Flour and Wheat 40.4 99.1 44.6 45.0 Cement and Building Materials 9.3 13.2 13.2 100.0 Chemicals and Fertilizers 30.1 64.7 46.6 72.0 Paper and Pulp 10.2 30.2 14.8 49.0 Textiles 10.0 16.4 12.0 73.0 Ores 8.8 13.2 12.9 98.0 Manufactured Products 14.3 25.4 9.9 39.0 Industrial Oils 14.5 21.0 20.6 98.0 Livestock and Food 50.0 94.8 55.0 58.0 Wood 49.0 69.1 62.2 90.0 Miscellaneous 80.0 120.0 90.0 75.0 Total Tonnages 467.0 821.3 587.8 71.6 Chromite ore 200.0 200.0 200.0 100.0 Petroleum Products/Tank Wagons 245.0 293.0 293.0 100.0 Total Traffic Excluding New Projects 912.0 1,314.3 1,080.8 82.2 Sources: The Ministry of Transport, Supplies and Tourism (Transport Planning and Coordination Study Group), and Bank staff. November 1978 MADAGASCAR Second Railway Project RNCFM - Northern System Computations of Ton-Km (million) Average Haul (1977) 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 Rice 311 29.54 29.86 30.17 32.34 34.52 36.70 38.88 41.24 43.54 45.72 Food Products 234 4.68 4.91 5.19 5.27 5.38 5.43 5.52 5.62 5.69 5.78 Flour and Wheat 329 9.87 11.52 13.29 13.55 13.82 14.11 14.41 14.67 14.94 15.23 Metal Products 346 8.27 9.52 10.80 12.04 13.29 14.57 15.81 17.09 18.34 19.58 Cement and Buildings 313 2.41 2.66 2.91 3.13 3.38 3.63 3.88 4.13 4.35 4.60 Chemicals 296 6.96 7.93 8.91 9.89 10.86 11.84 12.82 13.79 14.77 15.75 Paper 354 2.94 3.26 3.61 3.93 4.25 4.57 4.89 5.24 5.56 5.88 W Textiles 390 3.59 3.74 3.90 4.06 4.21 4.37 4.52 4.68 4.84 4.99 Ores 235 1.67 1.86 2.07 2.26 2.44 2.63 2.82 3.03 3.22 3.41 Manufactured Products 376 6.02 5.68 5.38 5.04 4.70 4.36 4.02 3.72 3.38 3.05 Industrial Oils 329 3.95 4.34 4.77 5.17 5.56 5.95 6.35 6.78 7.17 7.57 Livestock 312 14.98 15.29 15.60 15.91 16.22 16.54 16.85 17.16 17.47 17.78 Wood 162 7.08 7.50 7.94 8.36 8.78 9.22 9.64 10.08 10.50 10.92 Empty Wagons and Sacks 370 32.49 33.82 35.15 36.48 37.81 39.15 40.48 41.81 43.14 44.47 Miscellaneous 296 23.68 23.09 23.68 24.27 24.86 25.46 26.05 26.64 27.23 27.82 158.13 164.98 173.37 181.70 190.08 198.53 206.94 215.68 224.14 232.55 Chromite 392 78.40 78.40 78.40 78.40 78.40 78.40 78.40 78.40 78.40 78.40 Petroleum Products 372 51.34 53.57 55.80 58.03 60.26 62.50 64.73 66.96 69.19 71.42 Total Traffic 287.87 296.95 307.57 318.13 328.74 339.43 350.07 361.04 371.73 382.37 Sources; The Ministry of Transport, Supplies and Tourism (Transport Planning and Coordination Study Group), and Bank Staff. November 1978 MADAGASCAR Second Railway Project Rail Traffic Projections (Excluding all New Industrial Projects Planned for the Future) (Northern System) ('000 t) Projected Average Yearly 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 Growth Rate (M) Rice 95.0 96.0 97.0 104.0 111.0 118.0 125.0 132.6 140.0 147.0 4.9 Food Products 20.0 21.0 22.2 22.5 23.0 23.2 23.6 24.0 24.3 24.7 2.4 Flour and Wheat 30.0 35.0 40.4 41.2 42.0 42.9 43.8 44.6 45.4 46.3 4.9 Metal Products 23.9 27.5 31.2 34.8 38.4 42.1 45.7 49.4 53.0 56.6 10.0 Cement and Building Materials 7.7 8.5 9.3 10.0 10.8 11.6 12.4 13.2 13.9 14.7 7.4 Chemicals and Fertilizers 23.5 26.8 30.1 33.4 36.7 40.0 43.3 46.6 49.9 53.2 9.5 Paper and Pulp 8.3 9.2 10.2 11.1 12.0 12.9 13.8 14.8 15.7 16.6 8.0 Textiles 9.2 9.6 10.0 10.4 10.8 11.2 11.6 12.0 12.4 12.8 3.7 Ores 7.1 7.9 8.8 9.6 10.4 11.2 12.0 12.9 13.7 14.5 8.9 Manufactured Products 16.0 15.1 14.3 13.4 12.5 11.6 10.7 9.9 9.0 8.1 -9.0 Industrial Oils 12.0 13.2 14.5 15.7 16.9 18.1 19.3 20.6 21.8 23.0 7.5 Livestock 48.0 49.0 50.0 51.0 52.0 53.0 54.0 55.0 56.0 57.0 1.9 Wood 43.7 46.3 49.0 51.6 54.2 56.9 59.5 62.2 64.8 67.4 4.9 Miscellaneous 80.0 78.0 80.0 82.0 84.0 86.0 88.0 90.0 92.0 94.0 1.8 Total Tonnages 424.4 443.1 467.0 490.7 514.7 538.7 562.7 587.8 611.9 635.9 4.5 Chromite 200.0 200.0 200.0 200.0 200.0 200.0 200.0 200.0 200.0 200.0 0 Petroleum Products 138.0 144.0 150.0 156.0 162.0 168.0 174.0 180.0 186.0 192.0 3.7 Empty Tank Wagons 87.8 91.4 95.0 98.6 102.2 105.8 109.4 113.0 116.6 120.2 3.6 Total Traffic excluding 850.2 878.5 912.0 945.3 978.9 1,012.5 1,046.1 1,080.8 1,114.5 1,148.1 3.4 new Projects Sources: The Ministry of Transport, Supplies and Tourism (Transport Planning and Coordination Study Group), and Bank Staff November 1978 MADAGASCAR Second Railway Project Traffic Projections on the Southern System 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 Tonnages ('000) Rice 4.8 5.5 5.0 6.8 7.5 8.2 8.8 10.0 10.2 10.8 Food Products 1.3 1.7 2.5 2.5 2.9 3.3 3.7 4.0 4.5 4.9 Flour and Wheat 0.8 0.9 1.0 1.3 1.4 1.6 1.7 2.0 2.1 2.2 Metal Products 0.6 0.7 0.7 0.8 0.8 0.8 0.9 1.0 1.0 1.0 Cement and Building 1.4 1.7 2.3 2.3 2.5 2.8 3.1 3.3 3.7 4.0 Materials Chemicals, Fertilizers 0.8 1.0 1.8 1.6 1.8 2.1 2.4 2.5 2.9 3.2 Textiles 0.6 0.6 0.7 0.7 0.7 0.8 0.8 0.9 0.9 1.0 Manufactured Products 0.2 0.2 0.4 0.3 0.3 0.3 0.4 0.4 0.4 0.5 Livestock, Food Products 18.6 19.3 20.1 20.8 21.5 22.2 23.0 23.7 24.4 25.1 Wood 0.8 0.9 1.1 1.1 1.2 1.4 1.5 1.6 1.7 1.8 29.9 32.5 35.6 38.2 40.6 43.5 46.3 49.4 51.8 54.5 Petroleum Products 11.4 12.0 12.4 13.0 13.5 14.0 14.5 15.1 15.5 16.0 Empty Tank Wagons and 8.0 8.3 8.5 9.1 9.5 9.9 10.2 11.0 11.2 11.4 Packaging Total Traffic 49.3 52.8 56.5 60.3 63.6 67.4 71.0 75.5 78.5 81.9 Ton-Km ('000) Dry Cargo 4,126 4,485 4,912 5,271 5,602 6,003 6,389 6,817 7,148 7,521 Petroleum Products 1,858 1,956 2,021 2,119 2,200 2,282 2,363 2,461 2,526 2,608 5,984 6,441 6,933 7,390 7,802 8,285 8,752 9,278 9,674 10,129 Sources: The Ministry of Transport, Supplies and Tourism (Transport Planning and Coordination Study Group), and Bank Staff November 1978 MADAGASCAR Second Railway Project Passenger Traffic Projections Average Yearly 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 Growth Rate I. Number of Passengers ('000) TCE 1,602 1,650 1,690 1,750 1,803 1,857 1,913 1,970 2,029 2,090 3.0 MLA 943 1,011 1,079 1,147 1,215 1,283 1,350 1,418 1,486 1,554 5.7 TA 1,068 1,155 1,241 1,327 1,414 1,500 1,586 1,673 1,759 1,845 6.2 FCE 958 987 1,016 1,047 1,078 1.178 1 3250 3.0 Total Number 4,571 4,803 5,026 5,271 5.510 5 750 5,992 6,239 6.487 6,739 4.4 _____ __ ___ 1.)a II. Passenger- Km (million) TCE 107 106 105 105 105 102 105 104 108 11l 0.4 MLA 63 65 67 69 70 71 74 75 79 82 2.9 TA 72 74 77 80 82 83 87 89 93 98 3.5 FCE 64 63 63 63 63 61 63 62 64 66 0.3 Total Passenger- Km 306 308 312 317 320 317 329 330 344 357 1.7 III. Average Trip 67 64 62 60 58 55 55 53 53 53 Source: Bank Staff November 1978 - 37 - 4.06 The traffic forecasts do not include the Government development projects to be implemented over the next ten years in view of the uncertainty of their timing. These projects alone would ensure the long term viability of the railways by generating some 900,000 tons of additional traffic yearly. This is a conservative assumption since some of these projects are in an advanced stage if preparation and would rely heavily on rail transportation, such as a flour mill and a cement plant in Antsirabe, a ferrochrome plant and a pulp mill in Moramanga, and fertilizer plants at Toamasina and Maintirano. 4.07 Passenger traffic which is still expanding in spite of the economic slowdown, is expected to grow in the period 1978-1987 by 4.4% yearly in numbers and by 1.7% in passenger-km. These assumptions are very conservative compared to the 1972-77 period, when the growth rate was 7.6% for numbers of passengers and 7.2% for passenger-km. The average trip length is expected to decrease from 69 km in 1977 to 53 km in 1987 because of the increasing pro- portion of commuters among the railway passengers. Passenger traffic growth will slow down on all lines, but the largest reduction in the rate of growth will be faced by the TCE (on the Antananarivo-Toamasina route) and the FCE (from Manakara to Fianarantsoa) because of road competition and decreases in the average distances travelled reflecting the higher proportion of suburban traffic in total passenger traffic expected in the future. The respective average yearly growth rates for passenger-km over the period 1972-77 when compared to the period 1980-87 are expected to show sharp reductions from 6.1% to 0.4% on the TCE and from 6.8% to 0.3% on the FCE. On the MLA and the TA they will decline from 9.5% to 2.9% and from 8.0% to 3.5%, respectively. Passenger traffic estimates are shown in the table on page 36. B. Project Benefits and Economic Return 4.08 The only transport alternative to the railway between Antananarivo and Toamasina is an earth road which is scheduled to be paved by 1981 at the earliest. The benefits from all the project components have thus been com- pared to the road alternative in order to have a standard basis to evaluate the overall return. This project is limited to the investments needed to meet the 1982-83 traffic level of some 300 million net ton km yearly. Track Improvements 4.09 Most of the proposed track improvements and the track renewal pro- gram correspond to deferred maintenance and the principal benefits will be derived from better utilization of existing locomotives and rolling stock. Due to the limited capacity of its maintenance equipment, until recently, the railway has not been able to carry out all the required track maintenance, as a result of which track condition has deteriorated to the point where renewal is required. 4.10 On the northern system, the number of derailments due to poor track was 28 in 1975 or 38% of the total number of derailments. Following the introduction of speed restrictions it declined to 20 in 1976, but again - 38 - increased to 39 in 1977 due to worsening track conditions. The time lost because of derailments, however, has increased steadily; 468 and 90 hours for TCE and MLA respectively in 1975, 520 and 65 hours respectively in 1976, and 629 and 136 hours respectively in 1977. To these periods, during which the line was closed, should be added the time lost because of speed restrictions. Failing to renew and/or improve track at this stage would result in an exponen- tial deterioration of the track which in turn would result in a rapid decrease in the railway's operating efficiency. Speed would also have to be limited further on a number of line sections to reduce the risk of accidents, each limitation causing an estimated loss of 2.5 minutes per train, or 7 days per year. With the present train schedule the number of speed restrictions could easily triple over the next five years. The frequency of derailments, however, is likely to increase despite speed restrictions. Assuming 10 additional derailments per year due to poor track, each resulting in 12 hours of line closure, the line closures would increase by 120 hours yearly. Speed restric- tions and line closures would thus result in a substantial increase in turn- around time for wagons and locomotives, by two days or more. With the longer turnaround times, the existing fleet could only provide 204 million net ton-km by 1982, as against the 240 million it provided in 1976, and the expected 295 million net ton-km traffic requirements of 1982. In addition, without the proposed track upgrading program, it will be impossible for the railways to implement the new operational transport plan proposed by the consultants, which should also result in substantial turnaround time improvements. 4.11 With the track upgrading program and the new transport plan, the present fleet could carry 275 million net ton-km by 1982. Therefore, if the track upgrading program were not implemented, about 70 million net ton-km traffic will have to be transported by road by 1982 at higher economic oper- ating costs (US$0.10 per ton-km before the road is paved and US$0.05 per ton-km after, versus US$0.025 for the rail). Assuming truck productivity to be one million ton-km per year (20 ton trucks; 75% load; 65,000 km yearly), this traffic diversion would require the purchase of 70 trucks at US$40,000 per unit, with an economic life of five years. In the subsequent years, ten additional trucks would have to be purchased yearly to carry the 10 million net ton-km additional traffic diverted from the railway due to the worsening of the track, assuming only a linear depreciation of the tracks. Based on these benefits, and allowing for the residual value of the trucks, the return on the track upgrading program (49% of total project costs) over the 1979- 1980 period is 22% when shadow-pricing the foreign component and 21% at the official exchange rate. Without including the indirect benefits resulting from the new transport operational plan, the return on the track upgrading program would be 16%. Motive Power and Rolling Stock 4.12 Of the seven line locomotives included in the project, four will replace the same number of old, less powerful line locomotives which are due for retirement from line service, and the other three will increase the railway's motive power to the level required by expected traffic. The four - 39 - locomotives to be retired will be downgraded to shunting service. This will allow the retirement of two shunters which are over 30 years old, and provide some additional capacity to cope with traffic increases in the yards. 4.13 Assuming there is no improvement in the railway's efficiency, wagon requirements in 1982 would be an additional 365 units to the existing fleet of 1,052. As mentioned earlier in para 3.08 the track improvement program and the implementation of the railway's operational Transport Plan are expected to reduce needs by 307 wagons, leaving a gap of 58 wagons of all types. General freight wagons will mainly be in short supply while the productivity increases are expected to result in a surplus of ore wagons. In addition, 225 general freight wagons are over 40 years of age, of which at least 160 need to be scrapped. To keep them in service would not only increase maintenance costs but would also need high repair costs for a relatively short economic life. Because of the larger payloads of the new wagons, however, no more than 76 should suffice to meet transport needs for general freight traffic if the expected productivity increases materialize. 4.14 The benefits of this component stem from: (i) the increased transport capacity. Even with the track upgrading program and the implementation of the operational transport plan, there is a gap of 20 million net ton-km to reach the 1982 traffic level; (ii) the replacement capacity. To maintain the traffic level even with the productivity increases, the railways have to replace four locomotives and some 160 wagons, which would otherwise result in an additional traffic deficit of 30 million net ton-km; (iii) the residual value of the new investments; since their economic life is 30 years versus 5 years for trucks. The scrap value of the old wagons and locomotives has been deducted. 4.15 The economic return from the locomotives and the freight rolling stock (21% of the total project costs) versus road transportation is thus 24% at both shadow and official exchange rates. 4.16 The railcar and the 10 coaches to be procured under the project will be needed to replace 2 railcars and 14 wooden body coaches which have largely exceeded their normal economic life (over 40 years life). The pres- ent passenger fleet capacity for short distance and commuter traffic is fully utilized and does not cope with the transport demand during the peak periods. The 14 coaches are in such bad condition that they must now be scrapped. If they are not replaced, an estimated 30 million passenger-km a year would have to travel by road at higher operating cost (US$0.018 per passenger-km, versus US$0.015 by rail). Their transport would also require the acquisition of 40 buses costing US$35,000 per unit, with a six year - 40 - economic life. The economic cost of the new railcar and coaches amounts to US$3.8 million (10% of the total project cost), with a 30 year life period. Based on the above savings, the economic rate of return is 10% at both offi- cial and shadow prices. These investments are not proposed for Bank Group financing. Workshop Equipment 4.17 Without the proposed investments in this equipment, the presently high availability of locomotives and wagons would not be maintained. It is estimated that the availability would decrease by at least 1% by 1982; this would imply a traffic loss of some four million net ton-km which would have to be transported by road. The economic rate of return on these investments is 18% at shadow prices and 17% at official foreign exchange rates (on 3% of the total project cost). If the traffic were to be carried by rail, the alter- native for the workshop would be to buy one locomotive at US$700,000 and 12 wagons at US$40,000 per unit by 1983. Allowing for the residual value of the locomotive and wagons, this would give a return on the workshop equipment of 24% at the official exchange rate and of 17% at shadow rate. Ambila Brickaville Realignment 4.18 Completion of realignment of Ambila Brickaville will eliminate the most difficult portion of the track where the sharp curves result in frequent derailments (10 derailments in 1977), and the steep gradients make necessary additional banking locomotive assistance resulting in speed restrictions. The total time lost due to derailments and speed restrictions on this portion was estimated at 12 days in 1977. The proposed investments will thus result in a better turnaround time which would give an additional capacity of 12 million net ton-km a year to the railways. Without the project, the number of speed restrictions and derailments will increase, although it is difficult to know to what extent since the time lost in 1977 was already very high and renewal of the track is at least needed if this portion is to be kept in service. Compared to the road alternative, the return on this component is at least 12% at shadow and 11% at official foreign exchange rates (on 8% of the total project costs). Other Project Components 4.19 The benefits attributable to other items to be provided under the project - telecommunication, repair of bridges and structures, improvement of yards and crossings and technical assistance - accounting for about 9% of the total project cost, could not be specifically quantified although their benefits in terms of turnaround time improvement could be substantial. However, these investments are essential to improve the general level of the railway's operational efficiency, and have been included in the cost of the project in estimating the overall economic return. - 41 - Overall Economic Return 4.20 On the basis of the benefits and costs described above, the economic return for the overall project over the 1979-1990 period is at least 18% at shadow prices and 17% at the official exchange rate. The project is designed to provide some 137 million ton-km additional freight capacity yearly to the railway (around 71 from the track upgrading programs; 20 from increased roll- ing stock capacity and 30 from replacement capacity; 4 from the provision of workshops equipment; and 12 from the Amaila Brickaville realignment works); and some 30 million passenger-km yearly for commuter and short distance traffic. This additional capacity should enable RNCFM to meet the 1982/83 projected traffic level of some 300 million ton-km of freight per year. C. Sensitivity and Risk Analysis 4.21 The major uncertainty of the proposed project is whether the expected traffic will materialize. It could fail to do so either because the economy may fail to recover within the projection period, or because road competition may be stronger than forecast. These two uncertainties, however, were to some extent already taken into account in the previous analysis. 4.22 Most of the investments are in fact needed even if rail traffic did not increase at all throughout the projected period. Much of the proposed program of track renewal and improvement corresponds to deferred maintenance and should be carried out even without traffic growth. Since the railway has no excess capacity above the actual level of traffic, failure to renew the track at this stage will result in a decline in capacity. Without any traffic increase, the return on the track upgrading program will be 10% at both official and shadow exchange rates. 4.23 The purchase of locomotives and wagons is also partly justified on replacement considerations. If the traffic does not increase at all while the projected productivity improvements resulting from the track upgrading program and the new operational transport plan do materialize, there will still be a deficit of some 60 wagons for general freight traffic if all wagons over 40 years of age are to be retired. Because of the heavier payload of the new wagons, this would justify the purchase of some 20 new wagons. As already explained in para 4.12, four out of the seven locomotives are needed to replace four line locomotives to be downgraded to shunting service. One additional locomotive would also be justified by the retirement of two 180 HP locomotives too weak to be of much use besides yard services, and the sale to a foreign railway of the 3,600 HP locomotive which performs poorly in the RNCFM network. This strategy, advised by the consultants and approved by the World Bank Group, will allow the railway to reorganize its fleet around a 1200 HP standard locomotive, and thus result in lower maintenance costs. The benefits from this component will thus be to maintain the capacity to carry some 35 million net ton-km of traffic by 1983, which would otherwise have to be transported by road. This gives a return of 17% at both shadow and official exchange rates on this component. - 42 - 4.24 There would still be justification for the workshop equipment, the passenger railcar and coaches, and the Ambila Brickaville realignment even if traffic were to stagnate. Assuming no traffic expansion at all, which is an extreme case since the railway is not even able to carry the present traffic, the return on the whole project would be 10% at both shadow and official exchange rates. 4.25 Assuming the forecast traffic increases do materialize, but the road competition is stronger than forecast, i.e., a 50-50% split between rail and road in 1985 for non-bulk items, the rail traffic would still not be expected to decline below 300 million ton-'km after 1985, which is the capacity the project provides for, because most of the traffic consists of bulk products. In any case, road competition is not likely to materially affect this project since the road is expected to be completed in 1981 at the earliest. The increased road competition over the non-bulk traffic would be compensated by the bulk traffic growth, in which the railway has a comparative greater advantage, resulting in an overall traffic stagnation at about 300 million ton-km carried by rail after 1985. The extent of the road competition will however need to be closely analyzed when evaluating the additional investments required by the railway after 1983. 4.26 A complete stagnation of the traffic or strong competition from the road resulting in a 50% diversion of the non bulk traffic two or three years after the road is completed are both unlikely. It must be emphasized that the Government's major projects have not been taken into account in the forecasts although their impact on rail traffic is expected to be substantial. In addition, the new Antananarivo-Toamasina road crosses difficult mountainous terrain; the operating conditions on such a road are thus expected to be higher than the conservative operating conditions taken into account in the calculations, increasing the rail economic advantage on this major line. Finally the risk of a stagnation in traffic is much less important than that of failing to provide sufficient capacity for the expected increases. 4.27 Another risk facing the proposed project is whether the expected efficiency improvements will be achieved. In view of the railway's relatively high standards of technical and operational capabilities, RNCFM should have little difficulty in reaching the proposed targets. D. Long Term Prospects of the Railway 4.28 The analysis of para. 4.08 through para. 4.20 showed that the pro- posed project is economically justified taking into consideration costs and benefits over the 1979-1990 period. The longer term prospects of the railway, however, also warrant analysis. Accordingly, the economic viability of the railway is considered by analyzing the consequences of its abandonment and - 43 - relying fully on road transport, particularly in the area served by the principal (northern) part of the rail system. In the event of exclusive reliance on road transport for all transport needs in the catchment area of the northern system from 1979 to 1993, Madagascar would need to: (a) import some 350 20-ton trucks at a unit cost of US$40,000 because the available truck fleet is inadequate to cope with additional traffic. Total traffic to be carried by road is estimated at 350 million tons-km yearly from 1987 onwards; (b) meet higher operating costs. A very conservative assumption of US$0.050 per ton-km for trucks when the road is paved versus US$0.025 for rail would generate additional costs of some US$8.75 million yearly; and (c) replace the trucks every 5 years rather than after 30 years for the rolling stock. No residual value for the tracks and other infrastructure investments has been taken into account. 4.29 To carry on its rehabilitation program beyond the scope of the pro- posed project and cope with the expected rail traffic beyond 1983, the railway will probably require an additional investment of some FMG 5,700 million (US$25.9 million) between 1983 and 1986. About half of the investment is expected to consist of acquisition of additional rolling stock (96 wagons, 6 non-motorized railcars, 3 motorized railcars and 6 locomotives), and the other half of various infrastructure and track improvements. 4.30 Based on these assumptions and excluding passenger traffic and in- vestments, the economic return from continuing railway operations versus the road alternative over a 15 year period is 22% at both shadow and official foreign exchange rates. This clearly shows that exclusive reliance on the road for all freight transport needs in the catchment area of the northern system would be uneconomical. Such reliance would also be difficult because some 50% of projected traffic consists of bulk products such as minerals, petroleum products, timber and to a lesser extent rice, which would require the use of specialized road vehicles. E. Uneconomic Lines and Services 4.31 Two lines of the railway system (the Antsirabe-Antananarivo and the Manakara-Fianarantsoa lines) have light traffic density and have limited prospects for growth. During negotiations it was agreed that their long term viability would be studied during the proposed project implementation period, and that the findings of the study will be discussed with the Association. Agreement was also reached that the Government would compensate RNCFM through appropriate measures, including the provision of funds, for any services found to be uneconomical, but retained on other grounds. - 44 - V. FINANCIAL EVALUATION A. Past Performance 5.01 Financially, RNCFM's operating results have not come up to the levels forecast at appraisal of the previous project (Credit 488-MAG). The reasons are: (i) reduced traffic growth; (ii) higher operating costs; (iii) inadequate tariff increases; and (iv) unavailability of income from two sources previously forecast. First, as explained earlier in para. 2.24, traffic has been growing at a reduced scale in the years 1973-77. Secondly, personnel costs which constitute some 50% of the total operating costs, have been rising somewhat steeply since 1976 at the rate of 17% in 1976, 15% in 1977 and 25% in 1978. The railway claims that these increases were needed to keep in step with general pay increases in the country, while the 1978 increase was also due to salary adjustments made as a result of the railway's new personnel statutes. Thirdly, introductions of tariff increases after approvals by the Ministries of Finance and Economy have been implemented too late and on too small a scale. Tariff increases which should have been introduced in 1974 were actually made effective in October 1976; and at 10% for freight rates and 25% for passenger fares were insufficient. The Govern- ment has been reluctant to approve further increases because they are seen as contributing towards inflationary pressures. Fourthly, revenues from two sources forecast in the appraisal report for the previous project have so far not materialized: (i) CIBA, the wood treatment plant subsidiary of RNCFM for producing sleepers and utility poles, has not been operating successfully and as a result has not produced any net gains; and (ii) reimbursements for concessionary fares granted by the railway under Government directives have not been forthcoming from the Government. 5.02 The income statement summarized below shows the situation (at current prices) from 1975 to 1977 compared with the appraisal forecasts made in 1973 for the previous railway project.l/ RNCFM has failed to achieve the 2.5% annual return on net fixed assets through 1976 and 3% thereafter required under the Project Agreement; instead it has incurred operating losses for the last two of these years. The main issues which the railway faced during the period 1975 to 1977 are that operating expenses increased at an average annual rate of 12% per annum due largely to high increases in personnel costs without corresponding increases in productivity, while operating revenues increased at a rate of only 9% because of the low volume of traffic and inadequate tariffs. 5.03 In 1971 RNCFM revalued its fixed assets, bringing the values in line with current price levels, which resulted in a doubling of book values. Revaluation of fixed assets was not a specified covenant in the previous Project Agreement, and in the circumstances RNCFM's fixed assets have not been revalued since 1971. Tariffs will have to be increased possibly by an addi- tional 10% (over and above the 25% increase introduced recently) to cover the accelerated depreciation resulting from a revaluation. During negotiations agreement was reached that: (i) RNCFM will revalue its fixed assets on the basis of replacement costs every year beginning in 1980; and (ii) that the annual and accumulated depreciation will be adjusted to reflect the revised valuation. 1/ 1978 accounts were not available at the time of the latest revision of the report. - 45 - RNCFM - Income Statement (FMG Million) 1975 1976 1977 Previous Previous Previous Project Project Project Appraisal Appraisal Prelim- Appraisal Actual Forecast Actual Forecast imary Forecast Operating Revenues Freight 2,190 2,440 2,332 2,589 2,535 2,764 Passengers and baggage 716 578 799 596 913 613 Miscellaneous 189 236 162 243 134 250 Reimbursement for concessionary fares 1/ 103 106 109 CIBA net revenues 90 95 100 Tariff increases 156 165 174 Total 3,095 3,603 3,293 3,794 3,582 4,010 Operating Expenses Personnel 1,418 1,502 1,741 1,577 2,005 1,656 Materials and supplies 674 690 768 760 866 836 Miscellaneous 196 221 175 232 335 244 Depreciation and amortization 736 757 713 787 758 817 Total 33,024 3170 3,97 3,356 3,964 3,553 Net operating income/(loss) 71 433 (104) 438 (382) 457 Non-operating Items Interest charges 82 158 139 172 140 162 Provision for cyclone damage - 50 - 50 - 50 Total 82 208 139 222 140 212 Net income/(loss) (11) 225 (243) 216 (522) 245 Operating ratio (%) 98 88 103 88 111 89 Rate of return on net fixed assets (%) 0.4 2.9 - 2.8 - 3.0 1/ RNCFM has received no reimbursements so far. - 46 - 5.04 RNCFM's balance sheets are summarized below. Current assets have been increasing annually, because of the large amounts of accounts receivable from the various Government agencies. This has also resulted in higher current liabilities. As the debt equity ratio shows, RNCFM's debt has been increasing slightly while the equity position is slowly eroding because of the losses. The railway has been financing its capital additions through borrow- ings mainly from the Association and CCCE. RNCFM - Balance Sheet Summaries (FMG Million) 1975 1976 1977 Previous Previous Previous Project Project Project Appraisal Appraisal Prelim- Appraisal Actual Forecast Actual Forecast inary Forecast Current assets 2,076 1,543 2,302 1,626 2,732 1,746 Net fixed assets 16,311 15,605 16,488 15,458 16,396 15,281 Deferred charges 75 218 72 221 79 181 Total assets 18,462 17,366 18,862 17,305 19,207 17,208 Current liabilities 332 865 494 887 1,512 858 Long-term debt 2,486 3,746 2,990 3,447 2,671 3,134 Equity 15,644 12,755 15,378 12,971 15,024 13,216 Total liabilities and equity 18,462 17,366 18,862 17,305 19,207 17,208 Debt/equity ratio 14/86 23/77 16/84 21/79 15/85 19/81 Current ratio 6.3 1.8 4.7 1.8 1.8 2.0 B. Future Prospects 5.05 Projections of the railway's financial results have been made through 1984. Projected operating revenues and operating expenses are shown in the Income Statement given on page 49. 5.06 Traffic is assumed to grow at the rates projected in the economic evaluation. Manpower increases to handle this modest growth are assumed only for the traffic department, requirements of other departments being offset by - 47 - productivity increases. Consumption of materials and supplies is estimated to increase at an average rate of 3% per annum. 5.07 In addition, the projections assume the following: (i) the intro- duction in 1979 of a real tariff increase of 17%, which cumulated with the inflation rate would raise revenues by 25%; (ii) increases of oDerating revenues and working expenses at a rate of 8% annually to reflect price level changes caused by inflation; (iii) replenishment of shortfalls in RNCFM's cash flow in 1978, the reimbursement by the Government of two thirds of the outstand- ing receivables due by various Government agencies; (iv) timely collection of accounts receivable; and (v) annual reimbursements by the Government to the railway of amounts foregone by the latter on account of concessionary passenger fares imposed by the Government. Arrears due from the Government on this account starting 1974 are estimated at FMG 400 million. Since the railways fixed assets have not been revalued the projected depreciation has been calculated on the basis of historical costs and current values of the new additions. In recent years, the new additions have been quite substantial. 5.08 The operating results shown in the projections, though not immedi- ately meeting the financial covenant of the previous project, are reasonable inasmuch as the financial viability of the railway takes a favorable turn. The operating ratio improves from 95% in 1979 to 86% in 1984, and the annual rate of return on net fixed assets in use (based on the historical values of existing fixed assets and the current values of the new additions) shows an increase from 1.5% in 1979 to 6.1% in 1984. In order to achieve the projected operating results, the Government has increased the tariff level by 25% effec- tive April 23, 1979; has reimbursed RNCFM of two-thirds of all the amounts outstanding for more than 90 days due by the Government departments and agen- cies as of October 31, 1978; and has agreed to reimburse the remaining third before the end of 1979. During negotiations, the Government has also agreed that all such accounts will be collected in the future within a credit period not exceeding 90 days, and that it will reimburse RNCFM of the amounts foregone on account of concessionary passenger fares. 5.09 The Government should clearly recognize the importance of establish- ing and requiring RNCFM to operate within a framework of sound overall finan- cial objectives. Specifically, the Government and RNCFM should take all steps within their powers to ensure that: (a) RNCFM's tariff structure and levels are established in accordance with appropriate economic and commercial principles for railway operations; and (b) such tariff structure and levels cover the economic cost of individual services and the individual carriage of goods but, taken as a whole, such tariffs should: (i) cover the full costs of services; and (ii) internally generate such funds as shall be sufficient to service RNCFM's debt, provide adequate working capital, and make a reasonable contribution towards investment needs including replacements. - 48 - During negotiations, the Government and RNCFM agreed that the above objectives will be established for RNCFM and that these objectives will form the basis for the decisions they will take in setting tariffs and controlling operating maintenance and administrative costs. 5.10 The projected statement of Source and Application of Funds given on page 50 shows that RNCFM should be able to achieve the above-mentioned financial objectives. - 49 - RNCFM - Income Statement Projection FMG Million Year ending December 31, 1978 1979 1980 1981 1982 1983 1984 Operating Revenues Freight (1978 cbastant) 2,770 2,860 2,970 3,070 3,170 3,270 3,380 Passenger (1978 constant) 1,030 1,080 1,130 1,180 1,230 1,290 1,340 Subtotal 3,800 3,940 4,100 4,250 4,400 4,560 4,720 Real Tariff increase /1 670 697 723 748 775 802 8% Inflation factor on above 315 798 1,292 1,856 2,505 3,240 Total Traffic Income 3,800 4,925 5,595 6,265 7,004 7,840 8,762 Miscellaneous income 100 102 104 104 106 105 112 Reimbursement for concessionary fares 125 130 135 140 146 152 158 Total 4,025 5,157 5,834 6,509 7,256 8,097 9,032 Operating Expenses Personnel (1978 constant) 2,500 2,520 2,540 2,560 2,580 2,600 2,625 Materials & supplies (1978 constant) 1,000 1,030 1,060 1,090 1,125 1,160 1,195 Miscellaneous 220 230 240 250 260 270 280 Subtotal 3,720 3,780 3,840 3,900 3,965 4,030 4,100 8% Inflation factor on above 300 640 1,010 1,435 1,890 2,410 Depreciation and amortization 800 840 920 1,049 1,190 1,233 1,275 Total 4,520 4,920 5,400 5,959 6,590 7,153 7,785 Net operating income/(loss) (495) 237 434 550 666 944 1,247 Less: Non-operating Items Reimbursement of concessionary fares for prior years (credit) (400) Interest charges 171 195 312 489 592 608 575 Provision for cyclone damage and insurance _ 50 50 50 50 50 50 Total 171 (155) 362 539 642 658 625 Net income/(loss) (666) 392 72 11 24 286 622 Operating ratio (%) 112 95 93 92 91 88 86 Return on net fixed assets in use (%) - 1.5 2.8 3.2 3.4 4.6 6.1 /1 17% in 1979. - 50 - RNCFM - Source and Application of Funds Projection FMG Million Year ending December 31, 1978 1979 1980 1981 1982 1983 1984 Source of Funds Net operating income/(loss) (495) 237 434 550 666 944 1,247 Add: Depreciation 800 840 920 1,049 1,190 1,233 1,275 Internal generation 305 1,077 1,354 1,599 1,856 2,177 2,522 Reimbursement from Government for concessionary fares (prior years) 400 Reimbursement of outstanding receivables 390 Borrowings: - Previous project 200 160 - IDA Credit - proposed project 128 1,302 1,234 196 - CCCE - proposed project 776 1,727 1,279 718 Subtotal 1,064 3,029 2,513 914 Total Sources 895 2,541 4,383 4,112 2_770 2,177 2,522 Application of Funds Proposed project-Investments 1,201 3,797 2,941 1,299 268 Proposed project- Technical Assistance 10 35 35 20 Other investments 500 160 1,000 1,000 Debt Service: - Repayment of principal 333 319 303 322 242 222 538 - Interest charges 171 195 312 489 592 608 575 Changes in working capital 130 (133) (81) 145 425 435 557 Total Application 1,134 1,752 4,366 3,932 2,578 2,533 2,670 Annual surplus/deficit (239) 789 17 180 192 (356) (148) Opening cash position 300 61 850 867 1,047 1,239 883 Cumulative cash position 61 850 867 1,047 1,239 883 735 - 51 - 5.11 The financing agencies are the Association and the French CCCE. The Association will be making the credit available to the Government, and the Government would then onlend the proceeds to the railway. It is assumed the subsidiary loan will carry a rate of interest of 8% per annum and its life will be 20 years with a grace period of 5 years. 1/ During negotiations agreement was reached on the terms of the subsidiary loan. CCCE will be making the loan direct to the railway and its loan will carry anL interest rate of 6% per annum over 17 years including a 5 1/2 year grace period. The railway will be executing the project, and financing the local currency requirements from its own internal generation of funds. It was agreed during negotiations that, if for any reason the railway should be unable to cover the local currency expenditures under the proposed project, the Government would make available all necessary funds to complete the project. 5.12 In making the financial projections, the railway's likely capital additions and/or replacement requirements, including the local currency expenditures under the proposed project, have been taken into account. Apart from routine investment requirements of FMG 500 million in 1978 and FMG 1,000 million each in 1983 and 1984, no financial commitments for any major investment plan other than the proposed project are envisaged. It is assumed that such major investments will be financed through external borrowings. During negotiations, agreement was reached that until the proposed project shall have been completed, RNCFM shall inform the Asociation, before committing itself to any capital expenditures not required in the proposed project, exceeding FMG 200 million for any fiscal year of RNCFM or FMG 50 million for any individual capital item. It was also agreed that the railway shall keep the Association informed of all investments in the railway sector whether public or private. 5.13 Projections of RNCFM's balance sheets are summarized below. They show that RNCFM is well-capitalized. The current ratio stays at reasonable levels, and the Debt-Equity ratio ranges from 17/83 in 1979 to 32/68 in 1984 reflecting the borrowings for the proposed project. 1/ The annual rate of inflation in the most recent three-year period was 7.7%. Indications are that it might be slightly higher in the coming years. The current interest rates charged by domestic lending institu- tions vary between 7% to 9% per annum. - 52 - RNCFM - Balance Sheet Summaries Projection FMG Million Year ending December 31, 1978 1979 1980 1981 1982 1983 1984 Assets Current assets 2,284 2,940 2,976 3,351 3,756 3,635 3,744 Net fixed assets 16,105 16,636 19,533 21,445 21,574 21,629 21,374 Deferred charges 69 69 84 99 99 79 59 Total 18,458 19,645 22,593 24,895 25,429 25,343 25,177 Liabilities and Equity Current liabilities 1,881 1,865 1,984 1,954 1,722 1,838 1,559 Long-term debt 2,219 2,980 5,687 7,958 8,650 8,112 7,553 Equity 14,358 14,800 14,922 14,983 15,057 15,393 16,065 Total 18,458 19,645 22,593 24,895 25,429 25,343 25,177 Debt/Equity ratio (%) 13/87 17/83 28/72 34/66 36/64 34/66 32/68 Current ratio 1.2 1.6 1.5 1.7 2.1 1.9 2.4 5.14 The previous Project Agreement specifies an annual rate of return on net fixed assets of 3.0% starting 1977. The Income Statement shown on page 45 indicates that it is not realistic to expect the railway to achieve the above rate of 3.0% before the 1980's. Therefore, during negotiations it was agreed that the railway will achieve 1.3% rate of return in 1979, 2.5% in 1980, 1981 and 1982 and 3.0% thereafter. These are considered adequate for assuring the railway's financial viability. However, it was agreed that in the light of the revaluation of fixed assets in respect of year 1980 as envisaged in para- graph 5.08 above, the Government, the railway and the Association shall agree on revised rates of return for the purpose of maintaining the railway's financial viability. 5.15 RNCFM's financial stability could be endangered if it were to incur substantial additional debt. During negotiations, agreement was reached that RNCFM will not incur any additional long-term debt without the Associa- tion's prior agreement unless its net cash revenues for the fiscal year or the twelve consecutive months immediately before the date of incurrence, whichever is greater, would be at least 1.5 times its maximum debt service requirements of any succeeding year on all its debts. - 53 - VI. RECOMMENDATIONS 6.01 During negotiations agreement was reached with the Government and RNCFM on the following matters: (a) consultations with the Bank Group before making material changes in the statutes affecting RNCFM's present organization and constitution (para. 2.02); (b) exchange views on the development of the proposed container handling facility (para. 2.17); (c) setting up a unified accounting system to implement a unified accounting system (para. 2.29); (d) appointment of financial manager with qualifications and experience acceptable to the Bank Group (para. 2.29); (e) appointment of consultants (para. 2.29); (f) implementation schedule (para. 3.16); (g) operational objectives (para. 3.18); (h) study of the long-term economic viability of TA and FCE lines (para. 4.31); (i) revaluation of fixed assets and adjustment of depreciation (para. 5.03); (j) taking of financial measures related to tariff adjustments, receivables collection, and concessionary fares reimburse- ment (para. 5.08); (k) establishing RNCFM's financial objectives (para. 5.09); (1) onlending terms (para. 5.11); (m) investment limitation (para. 5.12); (n) financial rate of return (para. 5.14); and (o) debt limitation (para. 5.15). 6.02 Fulfillment of all conditions precedent to initial disbursement of the CCCE loan would be a condition of effectiveness of the IDA credit (para. 3.13). 6.03 The following were conditions for Board presentation: (a) introduction of tariff increases (para. 5.08); and - 54 - (b) settlement of accounts receivable owed by the Government departments and/or agencies to RNCFM (para. 5.08). 6.03 Project progress and completion reporting requirements were also agreed with the Government and RNCFM. 6.04 On the basis of the above, the proposed project provides a suitable basis for an IDA Credit of US$7.0 million to the Government of Madagascar. -55- ANNEX 1 Page 1 MADAGASCAR SECOND RAILWAY PROJECT Past Bank Group Financed Transport Projects Credit/Loan Amount Year Number US$ Million 1966 Credit 90-MAG 10.0 First Highway Project. Con- Completed struction to paved standards and fully of two sections of the disbursed. Antananarivo-Majunga Road. 1968 Credit 134-MAG ) 30 Second Highway Project. Con- Completed Loan 570-MAG ) struction of 146 km road and and fully three major bridges. disbursed. 1970 Credit 200-MAG 11.4 Tamatave Port Project. Addi- Completed tion of 2 deepwater berths, except for lengthening of breakwater two items of construction of transit sheds, equipment warehouses and open storage still to be facilities, procurement of delivered. cargo handling equipment, and Credit amount provision of technical assis- fully commit- tance. ted. Undis- bursed as of April 17, 1979: US$25,000 1973 Credit 351-MAG ) 35.6 Third Highway Project. Con- Completed. Loan 876-MAG ) struction of 417 km primary Credit and roads, detailed engineering loan amounts of Antosohihy-Ambanja road, fully committed. and review of the traffic Undisbursed as counting system. of April 17, 1979: US$42,000 1974 Credit 488-MAG 6.0 First Railway Project. Almost com- Renewal and rehabilitation pleted with the of the Madagascar railways exception of (RNCFM) through 60 km of ballast wagons track renewal; procurement and some part of of freight wagons, passenger technical assis- coaches, and some miscel- tance. Credit laneous equipment; and amount fully provision of technical committed. assistance. Undisbursed as of April 17, 1979: US$447.000 ANNEX I Page f Credit/Loan Amount Year Number US$ Million 1976 Credit 641-MAG 22.0 Fourth Highway Project. Con- Project started struction of 67 km of primary early 1977. roads between Tsiroanomandldy Progress is and Maintirano, and provision satisfactoryv of road maintenance expertise As of July 31. and equipment. 1978 construc- tion is about 40% completed, but disbur.e mnerLt i s iapai-g behind at 15%. -57- ANNEX 2 MADAGASCAR SECOND RAILWAY PROJECT Selected Documents and Data Available in the Project File A. General Reports and Studies on the Sector and Sub-Sector A.1 Consultants' (SOFRERAIL, France) Report on the Madagascar railway's Investment Plan - 1978-1985. A.2 Consultants' (SOFRERAIL, France) Report on the Madagascar railway's Transport Plan. A.3 Project Brief (January 12, 1978). A.4 Madagascar Transport Sector Memorandum, May 1978. A.5 Etude de Coordination Rail-Route Prevision des Trafics, July 1977, Ministere des Transports, du Ravitaillement et du Tourisme. B. General Reports and Studies Relating to the Project B.1 Traffic Statistics 1974 to 1977, with corrections. C. Selected Working Papers C.1 Project Benefits. C.2 Wagon Requirements with the Project. C.3 List of freight wagons, passenger coaches and locomotives. C.4 Locomotive Requirements. C.5 Operating Statistics. C.6 Economics: Cost Benefit Analysis (5 tables). C.7 RNCFM's Financial Tables. C.8 RNCFM's Tariff Rates - October 1976. __________________________________________ ~~~~~1BRD13645R RAILWAY NETWORK (Aoooo, M MRH17 I? ~MADAGASCAR M Mon ' rooboko Vohid~~~~~~~~~oIo~~~~~~ ~RAt.WAY PROJECT + to PK371 ~~TRANSPORT SYSTEM Mnangareso 0 - ~~~~~Roi,Koys NOSSI-BE -- ---- --RmlwayReooignmentUnoderwoy Hell Pi ANTANANIARIVO -. A/D W~oi,rRo-ods nor ( PkoQ.> Mrornorgd~ b 05PK ----- No.s Persasn0t Road$ P5122.1 '* At[ Wssottssr Ai,poro PKO66. 6AA.b.toIo,py ~~~0~~~~~ntskobe AsM4hQ~~~~~~~~~~~~~~~~~~~~~~~~~~~P OAr,bos tr Wnoo 16' k> msn Toonmniyb%
Groupe de la Banque mondiale · Staff Appraisal Report
Madagascar - Second Railway Project
Voir le document original
Le texte intégral est hébergé par l’organisation qui le publie. lawenc.com indexe les métadonnées et renvoie vers la source officielle.
Texte intégral
Informations clés
Organisation
Groupe de la Banque mondiale
Type de document
Staff Appraisal Report
Pays
Madagascar
Source
Banque mondiale