Madagascar - Third Railway Project (Vol. 1 of 2) : Report

Drcuman of The World Bank FOR OMCIL USE ONLY lipid Ne. 5702-MAG STAFF APPRAISAL REPORT MADAGASCAR THIRD RAILWAY PROJECT Volume I March 28, 1986 Transportation Division Eastern and Southern Africa Regional Office Thk don-"S has a 'dIk d d may be _ by cp*0 R y d he pof e d On fId Joa lb edm =m eXmb be bld_ wIdV w Bm __ ,ndo  CURRENCY EQUIVALENTS Unit Malagasy Franc (FMG) US$1.00 FMG 650 FMG 1 million US$1,538 WEIGHTS AND MEASURES: HMETRIC 1 meter (m) 3.28 feet (ft) 1 cubic meter (m3) 35.29 cubic feet (cu.ft) 1 kilometer (km) 0.62 mile (mi) 1 square kilometer (km2) = 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) I liter (1) 0.26 US gallons (gal) ABBREVIATIONS CCCE - Caisse Centrale de Cooperation Economique CIBA - Complexe Industriel du Bois d'Andasibe DGP - Director General of Planning MC - Ministry of Commerce MTP - Ministere des Travaux Publics (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) SEPT - Societe d'Exploitation du Port de Toamasina (The Toamasina Port Authority) SOFRERAIL - Societe Francaise d'Etudes et de Realisations Ferroviaires TSM - Transport Sector Memorandum Railway Lines: TCE - Antananarivo - Cote Est Line MLA - Moramanga - Lac Alaotra Line TA - Antananarivo - Antsirabe Line FCE - Fianarantsoa - Cote Est Line Fiscal Year January 1 - December 31  FOR OFFICIAL USE ONLY MADAGASCAR THIRD RAILWAY PROJECT STAFF APPRAISAL REPORT Table of Contents Volume I Page No. 1. THE TRANSPORT SECTOR .................................... I A. Geographic and Economic Setting .... ................ I B. The Transp3rt Sector ............................... 2 C. The Transport Network .......................... 3 D. Present and Future Role of the Railvay .... ..... 5 E. Past Rank Group Role in Transport .... .............. 6 F. Rationale for Bank Involvement .... ................. 8 II. RESEAU NATIONAL DES CHEMINS DE FER MALAGASY (RNCFM) .... 9 A. Introduction. 9 B. Track Infrastructure. 9 C. Signalling and Telecommunications .11 D. Motive Power and Rolling Stock .11 E. Workshops and Depots. 12 F. Container Handling Facilities .12 G. Traffic .12 H. Organization ....................................... 14 I. Training .16 III. RNCFM's INVESTMENT PLAN ................................. 17 IV. THE PROJECT .2........................................... 70 A. Objectives ................ 20 B. Scope ................ 20 C. Description . 20 D. Cost Estimates ................... 22 E. Financing ................... 24 F. Procurement ................... 26 G. Disbursements .................. 27 H. Project Execution and Environment ................... 29 I. Operational Objectives ......... .................... 29 - ECONOMIC EVALUATION ..................................... 32 A. General Objectives ................................. 32 B. Specific Project Objectives ......... ............... 32 C. Forecast of Future Traffic .......... ............... 33 This report has been prepared by Messrs. S. Capoluongo (mission leader), B. Bostrom (senior economist). C. E. Reynolds (railway engineer), C. Tran Luu (training specialist) and Mrs. J. Holt (consultant). Mss. Yvonne Hensley and Brigida Arriaza-de-Figueroa provided secretarial services. ThI doument has a srited dstrbutio and may be used by recipints only in tpformance of their oflkW dutie Its contents my not otherwise be dicksd wihou World Bank uthorzion  - ii - Page No. D. Economic Return of Project Components .... we ........... . 35 E. Sensitivity and Risk Analysis ..os...................... 37 F. Other Risks: Uneconomic Lines and Services ............ 42 VI. FINANCIAL EVALUAIION ........................................ 43 A. Past Performance .......* ...................... . ...... 43 B. Financial Objectives .... ..... .........*....... 44 C. Financial Forecasts ..... ............................... 44 D. Financial Covenants . ................................... 45 VII. RECOMMENDATIONS ...... ............... 47 CHARTS Chart I - RNCFMts Organizational Structure .................... 15 Chart II - Implementation Schedule ........................... 31 TABLES 2.1 - Railway Traffic .................. ...................... 13 3.1 - RNCFM's Investment Plan ... -oe.......... ............... 19 4.1 - Project Cost Summary .oo............o.o.o .........o.. 23 4.2 - Financing Plan ...oooo...................................... 24 4.3 - Procurement Arrangements ........o ........ 26 4.4 - IDA Credit Allocation o............. o..........o........... 27 4.5 - Estimated Disbursement Schedule for the IDA Credit ..... 28 4.6 - Operational Objectives ...o...o. ..........o..o....oo.........o.... 30 5.1 - Actual and Projected Railway Freight Traffic ........... 38 5.2 - Actual and Projected Railway Passenger Traffic .....o.... 39 5.3 - Project Costs and Benefits.o.oooo.. ..................... 40 6.1 - RNCF?-Financial Highlights ......o.....ooo..o......... ....... 43 6.2 - SurAary of Financial Forecast .......................... 45 MAP 1. Madagascar - Transportation Network (IBRD # 13645R). VOLUME II ANNEXES 1 - List of Materials Available in the Project File 2.1 - Telecommunications Study - Draft Terms of Reference 2.2 - Training 2.3 - Wood Sleeper Production Study - Draft Terms of Reference 2.4 - Ibity Terminal - Draft Terms of Reference 4.1 - Detailed Project Cost Estimates 5.1 - Rail vs. Road 5.2 - Economic Evaluation - Assumptions 5.3 - Economic Return of Project Components 5.4 - Sensitivity Analysis 5.5 - FCE Viability Study - Draft Terms of Reference  - iii - 6.1 - RNCFM's Income Statements for the years ended Decembar 31st 6.2 - RNCFM8s Balance Sheets at December 31st 6.3 - RNCFK's Funds Statements 6.4 - RNCFH's Ratio Analysis 6.5 - RNCFM's Financial Forecast - Assumptions 6.6 - RNCFM's Pro-forma Income Statemente for the years ended December 31st 6.7 - RNCFM's Pro-formsa Balance Sheets at December 31st 6.8 - RNCFM's Pro-forma Funds Statements 6.9 - RNCFM's Pro-forma Ratio Analysis MAP 1. Madagascar - Transportation Network (IBRD # 13645R).  DEIOCRATIC REPUBLIC OF MADAGASCAR THIRD RAILWAY PROJECT I. THE TRANSPORT SECTOR A. Geographic and Economic Setting 1.01 Madagascar is a large and diverse island with good natural endowments for agriculture. Ecological zones are varied and the agricultural sector is equally diverse. Rice and cassava are the main food crops, while cattle raising is common in most areas. Most exports, of which coffee, cloves and vanilla are the most important, are of agricultural origin though some minerals, mainly graphite, chromite and mica, are also exported. The country's mineral resources are limited, but recent exploration indicates good possibilities that petroleum may be found in economically exploitable quantities. Manufacturing consists almost entirely of consumer goods industries catering to local demand and agro-industries. 1.02 Fourth largest island in the world, Madagascar covers an area of about 590,000 km2. The topography is generally rugged and a central mountain range traverses the country from north to south. The climate is marine tropical with cyclones and heavy rainfall particularly frequent on the east coast. The country is sparsely populated (about 15 per km2) and the population is unevenly distributed, with about one half of all Inhabitants occupying the central one-quarter of the island. Total population is estimated at 9.5 million and growing at 2.5% p.a. Ninety percent of the population work in the agricultural sector; their output accounts for 40% of the Gross Domestic Product. Industry accounts for 14Z of GDP and annual per capita income is about US$290. Madagascar is thus at an early stage of development. 1.03 Prompted by economic stagnation and a resultant 12% decline in per capita income in the 1970's, significant investments were made in all sectors of the economy in 1979. Financed largely by foreign borrowing, the spending boom left the country with a debt servicing burden that is straining the economy. Economic developments over recent years reflect the need to correct serious imbalances on external account and in the Government budget. With generally declining exports the imbalance on external account has had to be corrected through cutting back imports. Imports declined steadily from 1981 through 1983; the volume of imports in 1983 was approximately 35% lower than in 1978. Imports of raw materials and spare parts have been particularly affected with disrupting consequences for the economy's production. The volume of GDP declined by about 9 percent in 1981, by about a further 2 percent in 1982 and estimates for 1983 and 1984 suggest a growth of close to 1 percent and 2 percent respectively. Industrial output has particularly declined and there are now serious shortages of a number of basic goods such as soaps, candles, oils, etc. Shortages of new equipment and spare parts have affected the transport system and greatly diminished its capacity.  B. The Transport Sector 1.04 Development of the transport sector has been influenced by: (i) rugged topography and a tropical climate with heavy rains and frequent cyclones; (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. As a result, road construction and maintenance is costly and less populated regions remain relatively isolated. Transport needs are relatively well served on the central plateau where half of the population is concentrated. 1.05 Government policy towards transport development is to: (i) connect regional capitals by all-weather roads; (ii) improve communications between the centrally located capital and main seaport (the Antananarivo- Moramanga-Toamasina road/rail corridor); (iii) improve road maintenance; and (iv) improve the transport organizations and services. An overriding objective is to satisfy the country's quantitative and qualitative transport requirements at reasonable cost, respecting balance of payments difficulties. IDA is in general agreement with these objectives. A program of action to better coordinate measures relating to infrastructure and means of transport has been established for the 1984-1987 period. It seeks to: (i) coordinate and plan transport, with regard to services, complementarity, infrastructure, and pricing; (ii) improve the quality of service by introducing competition between the different types of transport and, where possible, between different operators of a given type of transport; Ciii) reorganize training of infrastructure specialists and transport company personnel; (iv) rehabilitate transport companies by importing sufficient quantities of spares and tyres and through regular upkeep of infrastructure; and (v) replace obsolete transport material and kee', the fleet properly maintained. Other objectives relate to the general development of Madagascar. The overall policy goals are to provide transport at lower cost and to reduce regional isolation through rehabilitation of the secondary road network. 1.06 Several ministries and Government organizations share responsibility for the transport sector: the Ministry of Transport, Supplies and Tourism (Ministere des Transports, du Ravitaillement et du Tourisme, MTRT) and the Ministry of Public Works (Ministere des Travaux Publizs, MTP) play the most important role. MTRT is responsible for road, rail, air and water transport, and oversees several autonomous Government agencies, including the Madagascar Railway, Air Madagascar, the Port of Toamasina, and the shipping companies. MIP is responsibile for planning, building and maintaining highways, ports and airports. 1.07 Other Government agencies whose responsibilities affect transport policy include: the Ministry of Commerce (MC), the Ministry of Agriculture (Ministere de la Production Agricole et de la Reforme Agraire, MPARA), the Director General of Planning (Direction Generale du Plan, DGP), and the regional governments. MC's responsibility to collect and market crops significantly affects road transport capacity and its price control of basic commodities influences transport tariffs. The supply of transport services is also affected by MC, through its establishment of policies on the importation and assembly of motor vehicles, as well as its  determination, with the Central Bank, of foreign exchange allocations for import. MPARA and the military operate large state-owned road transport enterprises. Also, each regional government has established a regional trucking company in the last four years. 1.08 As of early 1984, MTRT's Director of Planning is charged with transport sector planning. The director's main task is to coordinate transport investment plans with other agencies, which also prepare project and investment proposals. Pending the completion of a National Transport Plan expected in 1986, the DGP began to establish a Public Investment Program (PIP) with assistance primarily from MTRT and MTP for the transport sector. IDA and other bilateral and multilateral aid agencies have helped improve sector planning, but more assistance is needed. Under the Sixth Highway Project, planning has improved through the establishment of a planning department in the MTRT with technical assistance partly financed by French aid and partly by IDA. After consulting with other sectors such as agriculture, the planning effort yielded a priority -Economic Road Network list of about 10,000 km (4300 km paved roads, 3300 km engineered earth roads and 2400 km of feeder roads). This was the agreed basis for the IDA Sixth Highway Project. C. The Transport Network 1.09 Madagascar is naturally dependent as an island upon mainline shipping for its transport link with the outside world. There are four main ports, 18 lighterage ports and a navigable canal along the east coast. The country's internal transportation infrastructure includes an extensive but poor road network, two rail &ections of considerable length and a well-developed air network^. Nevertheless Madagascar's transportation infrastructure is inadequate in that it fails to provide access to all productive areas of the country. The country's lifeline, between the port of Toamasina and the central plateau area where most of the population lives, consists of a railway line and a badly maintained old road of modest original specifications. This road is currently being partially replaced by a new highway. Costly transport construction, poor road maintenance and inadequate overland communications has led to the develonment in Madagascar of an extensive system of ports and coastal shipping as well as an air transport network denser than in most comparable countries. Road Transport 1.10 About 5,200 km. of Madagascar's nearly 50,000 km. of roads are paved. The paved highway network now corsists of a main north-south link connecting Mahajunga on the west coast with Antananarivo (the capital) and Fianarantsoa in the highlands (parts of which can sustain use by heavy vehicles), and an east-west road (RN2) linking Moramanga, Antananarivo and Toamasina. A new paved section of the Toamasina-Moramanga road is providing all-weather transit between Moramanga and Brickaville on the coast. While this recent development has greatly improved road communications between Antananarivo and Toamasina, heavy truck traffic will continue to be constrained because the highland Moramanga-Antananarivo (115 km) road, as most of the island's roads, is of low standard, narrow, badly  - 4 - aligned and in poor condition. The Bank is assisting in rehabilitating the Mahajunga-Antananarivo road, RN 4, under the Sixth Highway Project. 1.11 Total vehicles in 1984 numbered 42,000, of these some 13,000 or 31Z are trucks and pickups. By contrast, in 1976 there were 104,000 vehicles, 47% of which were commercial. Passenger transport is provided by cooperative and individual carriers and regulated by MTRT and provincial authorities. Entry to the industry for passenger transport is nominally screened by the Government on the basis of supply and demand, but in practice is generally open for capable applicants. Transport tariffs have been determined within a minimum-maximum rate system established by MTRT. MTRT on the basis of these rates determined official rates for interprovincial traffic, and intraprovincial rates were set by provincial authorities. Since these rates have been lagging behind cost inflation, particularly the rates for transport of goods have generally not been enforced by the government. Under the Sixth Highway Project, the Bank has urged further liberalization, which has been studied by MTRT through its new planning directorate. The government, at negotiations, confirmed the importance of the road transport sector as well as its support for the vital agriculture sector. The government objective, based on the above studies, is to create sound competition between transporters taking into account the present limiting factors such as a run-down road network, an ageing transport fleet, and lack of spare parts. Concerning route restrictions the only present constraints, those concerning RN2, the main road between Antananarivo and Toamasina, will be removed. The Government also reaffirmed the principle of free transport of goods. Concerning tariffs, the principle is liberty by transporters to establish rates. Nevertheless the government reserves the right to intervene in exceptional circumstances, such as or services or routes without free competition. To assist transporters in their ratesetting the government will begin to publish average operating costs for different vehicles. The government will also improve compliance with measures of vehicle weight control and redefine the role of joint transport operators. Air Transport 1.12 By regional standards, Madagascar has developed a dense domestic air transport network in response to the distance between population centers, the rugged terrain, costly construction and the poor condition of surface transport. There are 56 airports, 17 of which are built to all- weather standards and five of which are suitable for international flights; the remainder are gravel or grass strips. The international airport at Antananarivo handles 50Z of all traffic; 15 small airports generate 30% of the traffic; and 40 very small airports share the remaining 20% of total traffic. Service to many small airports is not financially profitable but ensures access to otherwise isolated areas. 1.13 Air Madagascar, 80% owned by the Government, 18% by Air France and 2% by private shareholders, provides international service to Paris, Marseilles, several countries in East Africa and al' domestic service. Aircraft in its fleet include a B-747 (combination cargolpassengers) for European service, two B-737s for domestic and regional service, two HS-748s  and five Twin Otters for domestic service, and several samller aircraft for air-taxi and charter services. In 1984, Air Madagascar's successfully re- negotiated maturities on Its long-term debt obligations to foreign banks, and in 1985 began a financial recovery program. Ports and Coastal Shipping 1.14 Madagascar relies on maritime shipping for foreign trade but coastal shipping is also important. Indeed, shipping by water is the only means of transporting freight between many areas of the country with no access to all-weather roads. There are four main ports: Toamasina, the main international port serving the populated central highlands via the railway, handles 55Z of the total traffic; Mahajunga handles IIZ; Antseranana in the north 5Z; and Toliara in the south, about 4Z. The remaining 25Z of traffic is handled by smaller coastal shipping ports. The port of Toamssina has adequate capacity to handle present traffic, but operations are hampered by low labor productivity and lack of spare parts for equipment. This port is administered by a separate agency, Societe d'Exploitation du Port de Toamasina (SEPT), whereas other parts are under the direction of MTRT. The increasing constraints on the railway's transport capacity has led to the diversion of soue international traffic to the port of Mahajunga. Capacity there is limited, however, as the port requires lightering and the subsequent transfer inland of goods is restricted by the condition of tbe road connecting Nahajunga to the capital (RN4). Rehabilitation of the worst sections of RN4 is included in the ongoing Sixth Highway Project. 1.15 The Societe Halgache des Transports Maritimes (SMTM), the state controlled international shipping line, operates three cargo vessels for the country's externally traded merchandise. Coastal shipping is handled primarily by the Compagnie Malgache de Navigation (CNN), 921 state-owned, and private ship owners. 1.16 Government objectives toward coastal shipping and ports are to improve efficiency. A survey of shipping services was performed in 1983 with French aid in order to work out a policy to rehabilitate and develop the country's ports. The survey will be supplemented by ongoing engineer- ing studies to better forecast capital expenditures. Additionally, re- placement of port handling equipment in the secondary ports has begun and will continue, chiefly with assistance from the Federal Republic of Germany. In future, a series of measures and actions, such as port re- habilitation and renewal of navigational aids, are recommended for the 1986-1990 period. The Bank is preparIng a Ports Rehabilitation Project, which was appraised in 1985. Portions of the intracoastal waterway on the East Coast are now being rehabilitated with AfDB financing but traffic is expected to be light. D. Present and Future Role of the Railway 1.17 The railway consists of two unconnected single track systems (Map IBRD #13645R). The northern system (about 700 track km) revolves around the capital and includes (i) a line -TCE- between Antananarivo, the capital, and Toamasina, the principal port (375 km); (ii) a line -TA- from Antananarivo to Antsirabe, an industrial and population center south of the  capital (154 km); and (iii) a section -iMLA- north from Moramanga to the agricultural IDgion of Lake Alaotra and the chromite mines (167 km). The southern system -FCE- (163 km) connects the regional center of Fianarantsoa and the agricultural areas in the southern plateau to the port of Manakara. The Antananarivo-Toamasina line is the most important link, since it is still the most reliable-means of surface transport between the country's main seaport and the capital city. The railways are operated by the Reseau Natfonal des Chemins de Fer Nalagasy (RNCFH), a parastatal agency unde: the supervision of MTRT,described in more detail in chapter II. NTRT's paramount aim with respect to rail transport is to ensure that the existing network is rehabilitated before any expansion of capacity is undertaken. Other aims are to improve network managment and monitoring of capital expenditures. 1.18 The railway's role is fundamental to Madagascar's transportation needs. Rail is the main mode of transport, both for cargo and passengers, between the most populated and economically developed parts of the country. Almost half the island's population lives in areas directly served by the raidlway and the railway has, until now, been virtually the sole carrier of freight imports from the main port to the main population centers located in the highlands. Completion of a new all-weather road from Brickaville to Moramanga, however, has brought competition for the railway along part of the TCE line and this has been taken into account in designing the proposed project. 1.19 The long term prospects are that the railway will continue to be the most economical mode of transport for a large proportion of the rail- way's present traffic: bulky and heavy commodities such as petroleum products, ores, grain, fertilizer, wood, etc. Even with the improvements, competing roads will not be built to standards that would eliminate the need for rail transport. Diversion to road of railway cargo and passenger traffic will also be affected by the deteriorated condition of Madagascar's road vehicles. Replacement of present vehicles requires foreign exchange that will be difficult to obtain given the present constrained economic situation. 1.20 Also favoring the railway over the long term ia the climate and topography of Madagascar. Heavy rains and frequent cyclones often cause landslides and inundation of roadworks. First of the modes to be established, the railway was built on the route best aligned and least vulnerable to landsides. Furthermore, the railway has developed the insti- tutional and technical capacity to maintain, service, and repair its in- frastructure in a reasonably efficient way. Rail, therefore, is likely to remain the most reliable mode. 1.21 The Southern line (FCE), from the port of Manakara to Fianarantsoa, also faces competition from a recently built road on the coastal plain. The road is not entirely new; however, a 35 km section is in poor condition and at least another 50 km needs rehabilitation. The needed repair work is estimated to cost about US$4.0 million and is includ- ed in the MTP road investment plan but it has a relatively low priority. The road between Fianarantsoa and the coast is poorly aligned and is 100 km longer than the railway. Yet traffic density on the FCE is still light and  - 7 - likely to remain so; a study concluded that the most economical long-term solution would be to close this link. Until adequate road transport can be provided, however, operation of the FCE will continue. Transport planning for the area now served by the Southern line has been studied under a Project Preparation Facility requested by the Government. Based on the study, the Government has submitted an Action Plan satisfactory to the IDA regarding the Southern line (para. 7.01). E. Bank Group Role in Transport 1.22 Bank involvement in the transport sector in Madagascar is substantial. Between 1974 and 1984 the Bank supported nine transport projects with IDA Credits totalling just over US$100 million, six in highways, one in ports, and two in railways. The Bank has and should continue to play a critical role in improving the railway's institutional capacity and policy framework. The Bank has supported two projects in the rail sector. 1.23 The Madagascar First Railway Project (Credit 488-MAG;, approved in 1972, called for the expenditure over a three year period of US$6 million for 62 km of track renewal, purchase of rolling stock and provision of consulting services to improve managerial, operational and financial policies and practices. As described in the June 26s 1984 Project Performance Audit Report, the Project was a -holding operation' that successfully benefited the people of Madagascar by keeping the railway operational." At the same time, underestimated costs and delays in implementation resulted in a scaling downward of tue initial project; completion took 3 years longer than estimated; the overall estimated return was less than 1OZ; and RNCFM's financial and institutional performance was poor. 1.24 The Madagascar Second Railway Project (Credit 903-MAG), approved in 1979, involved the expenditure over a five year period of US$43.7 million. The Bank Group provided US$13 million of this total while the Caisse Centrale de Cooperation Economique (CCCE) provided US$20.5 million. Objectives of this project were: (1) renewal and improvement of 284 km of track; (ii) replacement of 7 locomotives and purchase of 1 rail car, 10 coaches and 76 freight wagons; (iii) improvement of telecommunications; (iv) replacement of workshop equipment; (v) improvement of the railway's financial management; and (vi) implementation of more market-based pricing strategies. Delays and lower tham anticipated ballast and sleeper production resulted in fewer lines being rehabilitated than planned (123 km vs. 180 km) and low cost estimates reduced the number of wagons and coaches actually purchased. Track renewal totalling 60 km out of 74 km initially planned was accomplished on the TCE line while only 63 km out of 106 km initially planned were renewed on the MLA line. 1.25 During the course of Railway II the Government continued to be reluctant to institute tariff reform until the Bank suspended disbursement of the Credit between March and October 1982. As described elsewhere (para. 6.01), RNCFM increased tariffs and made a significant financial turnaround. Government zas now agreed to more efficient rail operations  - 8 - and more appropriate pricing. Railway management has made significant pro- gress in the areas of planning and cofting. The Second Railway Project can be credited for creating this turnaround as well as for keeping operational the most critical element in the island's transportation infrastructure even though returns on some of the project's individual components were not fully realized. Operational improvements have been realized as well. Derailments have dropped from a high of 92 in 1980 to 44 in 1983. The Credit 903-iHG has been fully disbursed. 1.26 The railway reported a profit in 1983 and 1984 and is in compliance with the revenue covenant of Railway IITs Credit Agreement. As part of the evolution of RNCPK towards a commercially oriented institution, the Bank has advocated a program of cost reductions and a flexible managemenr approach adjusting quickly to changes in competitor's behavior and customer needs. Progress of this dialogue has so far been encouraging, and it has been a major accomplishment of Railway II. 1.27 There were some lessons - be learned from Railway II: the traffic forecasts estimated at al_ aisal were too high; the track rehabilitation targets were too ambitious; and the appraisal of technical and managerial skills and experience of INCFM's staff did not take sufficiently into account their need for training and technical assietance. These lessons are reflected in the design of the proposed Project. Investments are limited to the elements required to ensure that service is maintained at essentially the current level and that realistic operating objectives are achieved; Project implementation targets have been set at levels to reflect past achievements; and, most importantly, training and technical assistance have been given a higher emphasis in the project mix. F. Rationale for Bank Involvement 1.28 Transport is a key sector in the Bank's lending strategy in Madagascar because transport constrains economic development in other sectors as indicated in the Transport Sector Memorandum (TSM). The Bank has invested heavily and has seen results: (i) a gradually increasing emphasis on rehabilitation versus new investments; (ii) progress towards the creation of a highway maintenance institution; and (iii) increased management and filnancial autonomy for the Railway which enabled it to carry out significant tariff reform. The Bank has been promoting an integrated approach to transport to help Madagascar's economy, to maintain an ongoiug dialogue with the Government with a view toward furthering policy reform, and to-balance Bank presence among subsectors. For the forthcoming ports rehabilitation project to succeed, for example, the railways must remain operable to ensure an efficient flow of goods from the ports. The IFAD Hlghlands Rice Project is also dependent on railway transport for fertilizer and other agricultural inputs from Toamasina to Antuirabe, while the Lac Alaotra Rice Intensification Project must rely on railway service to deliver most of its production to consumers.  II . RESEAU NATIONAL DES CHEMINS DE FER HAIAGASY (RNCFM) A. Introduction 2.01 Madagascar's railway was built at the beginning of this century to consolidate the colonial power's military presence. It has evolved into an essential transport service that is a virtual life line between access to the outside world at Toamasina's main deep water port and the country's capital and central highlands, where half of the population resides. 2.02 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 establishment under Decree No. 82-014 from 1982. NTRT oversees RNCFM. 2.03 Re-establishment of the railway as a public industrial and commercial establishment was done in 1974 at the urging of the Bank Group to grant the railway a legal status with operational and financial autonomy. The Bank did so to isolate and better evaluate the effect on the railway of general Government transport policies to expand infrastructure, increase direct public investment, impose regulations and set prices. Plant and equipment maintenance had been given a low priority and the transport system deteriorated. At the Bank's urging, RNCFM gained significant operational independence, but its financial management did not achieve sufficient autonomy from the Ministry of Finance until the early 1980's (para. 6.01). 2.04 Once independence had been achieved in principle, the Bank began pressing the Government to institute more cost-based tariffs and to implement institutional improvements that strengthen financial discipline and independence. A Bank Transport Sector Memorandum (TSM) was issuel in 1983 to assist the Government in re-orienting its transport policies. The memorandum advocated: (1) financial recovery for transport enterprises; (2) increased efficiency in the road transport industry; (3) improved pricing; (4) priority for rehabilitation and maintenance rather than new investments; (5) improved sector planning; and (6) increased training and technical assistance. The Government has agreed to allow private transporters to compete on equal terms with the public sector. 2.05 Toward that end the government has begun to permit more appro- priate pricing of competing modes and to increase the freedom of railway management. In addition to the pricing improvements the Bank is also urging the deregulation of commercial haulage of goods on interprovincial roads. B. Track Infrastructure 2.06 RNCFM operates about 860 km of main line railway and some 175 km industrial branch lines and private sidings, for a total track length of 1,035 km. The system is single-tracked and the gauge is one meter. The  - 10 - railway actually consists of two separate and unconnected systems: the northern system, with about 700 km of track, connects the capital, Antananarivo, to industrial areas in the plateau region and to the main deep water port of Toamasina on the Indian Ocean; the southern system, about 160 km of track, connects 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 IBRD #13645R). 2.07 Madagascar's central platedu region, where much of the population lives, is at altitudes of 1,200 to 1,500 m. From the coast to the highland, the railway has to climb considerable grades and cross some very rugged terrain. Gradients of 2.5% are frequent and some are even as high as 3.5%. Curve radii are smaUl, dow to 50 m. The difficult terrain explains why this system has 362 bridges and 94 tunnels. These conditions make maintenance difficult, rehabilitation projects expensive, and speed restrictions common. Frequent heavy rains and cyclones exacerbate railway wear and tear. 2.08 There are 86 stations with an average distance of 10 km between them, and a large number of other stops near large towns are used for suburban passenger traffic. The maximum distance between stations is: 17.3 km on the TCE; 19.4 km on the TA; and 18.4 km on the FCE. The large numbers of stations and stops is largely related to passenger service, which has been declining in recent years. If this trend continues as projected, RNCFM should close some stations. 2.09 Marshalling yards are located at Toamasina, Antananarivo and Moramanga on the northern system and at Fianarantsoa and Manakara on the southern system. The yards are, therefore, in the main points of origin or destination for the bulk commodities transported by the railway. Marshalling of traffic is not as efficient as could be because the railway lacks a mobile crane and proper lifting facilities for containerized traffic. 2.10 Track conditions in general require improvement. The rate at which work is accomplished is slow and therefore even more expensive than warranted. Some of the rail procured under the Second Railway Project has yet to be installed. Repairs are concentrated on the worst sections so track work is not necessarily done in the most methodological order. To address these deficiencies, RNCFM has requested the technical assistance proposed under the Project (para. 4.10). 2.11 Track is composed of 25, 26 and 30 kg/m rail laid on timber sleepers except in sharp curves where steel sleepers have been used. Closer sleeper spacing and more ballast is needed. The railway is old and for years was not well maintained. Since the early 1970's, RNCFM has been gradually trying to rehabilitate and upgrade the track. Under Railway II, the oldest and most worn out rail on the TCE has been replaced. Most of the rail on the entire MIA section, however is over 60 years old; ballast is sparse; and the sleepers, fasteners and fishplates are in poor condition. The rate at which work is accomplished is slow and therefore  - 11 - even more expensive than warranted. Today approximately 120 km of rail on the TCE segment is less than 5 years old while 255 km is between 25 and 45 years old. The track improvement component of this Project is for the worst portion of the MLA segment (paras 4.03, 5.19-5.22). 2.12 In general, the bridges and viaducts are in fair condition but various structural members have been damaged in derailments and must be strengthened, repaired or replaced. Bolts and rivets must be replaced or tightened and bridge seats need to be cleaned and greased. The proposed Project includes the rebuilding of one very old bridge as well as repairs to another (para. 4.04). C. Signalling and Telecommunications 2.13 A train order system is used to direct trains. Signals exist only at the approech to Antananarivo. All trains are controlled by phone to the stations from Antananarivo on the northern system and from Fianarantsoa on the southern system. The methods of control are adequate for the traffic involved. 2.14 The telecommunications system on the TCE Line was modernized recently by laying a new cable underground along the line and by providing all stations except Antananarivo with new equipment. On the other lines, the system is old, in poor r'.ndition and much o' the equipment is obsolete. Repair and selective renewal of this system are required. Yet spare parts are no longer manufactured. Repair can be accomplished by using serviceable spare parts from old equipment released as a consequence of the replacements proposed in the Project (para. 4.08). D. Motive Power and Rolling Stock 2.15 RNCFM is fully dieselized. The present locomotive fleet consists of 33 line locomotives, 10 railcars and 24 shunters. Eleven 750 horsepower locomotives are now over 30 years old and must be progressively retired as spare parts are no longer available. All are due for major overhaul. CCCE has agreed to finance the purchase of four locomotives which should satisfy RNCFM's motive power needs (paras. 3.06 and 3.08). The 500 horsepower railcars are 26 years old and also lack spare parts. The small shunters are 30 years old but remain serviceable. Most gang trolleys for track work, bowever, are very old and some need replacement. 2.16 The passenger cars (58) and freight wagons (967) are in fair condition. Except for 5 new passenger coaches, they vary in age from 16 to 36 years. Their availability is relatively high and the fleet is adequate for the traffic handled at the present time. As container business increases, however, demand for more flat wagons may require a conversion of some of the non-covered wagons. E. Workshops and Depots 2.17 Equipment maintenance and major overhauls are done in the wo-Ashops in Antananarivo. Depots for minor locomotive service are located in Antananarivo, Moramanga, Manangareza and Fianarantsoa and sub-depots at  - 12 - Antsirabe, Mororano and Anivoramo. RNCFM's equipment maintenance is far less effective than it could be due to lack of spare parts, tools and other machinery necessary to more easily move and repair broken cars and locomotives. F. Container Handling Facilities 2.18 Container traffic is developing steadily between Toamasina and Antananarivo and is starting to expand to Antsirabe. Container loading and unloading facilities at Toamasina are up to date and are operated by the Port Authority. RNCFM's inland container facilities in Antananarivo, how- ever, are overtaxed and incapable of handling the increasing business. Installation of a new more spacious facility located closer to the freight shed and equipped with a container handling fork lift would vastly improve operations (para 4.07). Antsirabe's present container facilities are sufficient to handle current volume but may require upgrading in the future as business develops. G. Traffic 2.19 Traffic carried by the railway, particularly the northern system, is critical to Madagascar's economy. Without rail transport, the local production of rice would be more expensive and mining of chromite ore in the Lac Alaotra region would be uneconomic at current international prices. Rail is also the primary means of transporting other bulk commodities, such as petroleum, grain, chemicals and construction materials, to the central highlands. 2.20 The total volume of goods shipped by rail varies with economic conditions in Madagascar: GDP and foreign exchange availability ultimately dictate rail traffic levels. As can be seen in Table 2.1, freight volume dropped 35% from 1975 to 180.5 million ton-km in 1981; since then, it increased 24Z. to 224.1 million ton-km in 1984.  - 13 - Table 2.1 - Railway Traffic Freight Northern Northern System FCE Total System FCE Total - (Million net ton/km) - - (Thousand tons) 1975 272.2 6.5 278.7 783.5 47.3 830.8 1976 265.6 7.3 272.9 767.4 50.5 817.9 1977 268.8 6.8 275.6 743.3 48.6 791.9 1978 233.7 7.6 241.3 697.3 52.1 729.4 1979 218.2 7.3 225.5 632.0 49.5 681.5 1980 220.1 6.3 226.4 653.8 43.8 697.6 1981 175.7 4.8 180.5 552.0 34.6 586.6 1982 191.0 4.7 195.7 567.0 35.0 602.0 1983 202.1 4.7 206.8 593.1 38.6 631.7 1984 220.5 3.6 224.1 623.5 27.1 650.6 Passengers Northern Northern System FCE Total System FCE Total - (Million passenger/km) - - (Thousand passengers) - 1975 208.6 40.0 248.6 2899.2 761.1 3660.3 1976 249.5 43.1 292.6 3387.0 877.7 4264.7 1977 231.7 44.8 276.5 3086.4 888.3 3974.7 1978 248.6 47.8 296.4 3217.9 897.8 4115.7 1979 262.1 41.4 303.5 3311.9 730.8 4042.7 1980 239.7 34.2 273.9 2959.5 547.2 3506.7 1981 216.0 29.5 245.5 2719.2 406.8 3126.0 1982 218.5 25.0 243.5 2757.2 344.8 3102.0 1983 204.8 19.8 224.6 2469.7 244.7 2714.4 1984 187.6 17.9 205.5 2165.1 254.7 2419.8 Source: RNCPN  - 14 - 2.21 Passenger traffic has also declined; 1984 levels on the northerin system were 28Z lower than 1979's high of 262.1 million passenger-km. A more detailed discussion of current and future traffic levels is contained in Chapter V. (paras. 5.05-5.16) H. Organization Management 2.22 RNCFM is managed by a Director General, under general supervision of a Board of Directors. The Board has 12 members from Government ministries and is presided over by the Minister of Transport, Supplies and Tourism. Since 1982, the quality of management has improved. The senior management team, led by a most dynamic and dedicated General Manager, is competent and motivated. 2.23 The organizational structure of the Railway is by categories of rail asset, such as rail, ties, and equipment, or by function such as training, purchasing, special police. There is no grouping of these responsibilities into profit centers or into functional lines of operation such as maintenance of way, maintenance of equipment, traffic, train operatioas, yard operations and so forth. Marketing is being organized as a separate department but there is no separate traffic, tariff or passenger department. An organization chart is attached (Chart I). Staff 2.24 In December 1984 RNCFM had 4,000 permanent and 850 temporary employees. Approximately 3% are managers, 10% are supervisors and 87% are operational personnel. Employee levels are somewhat lower than in recent years. Staff turnover is low. In 1984, a total of 90 employees left for all reasons; about 350 people will become eligible for retirement over the next five years. A large number of these staff are highly experienced and their replacements will require considerable training. Working Environment 2.25 As a whole the staff is hardworking and enthusiastic. Basic wages are equivalent to those of the civil service although regulations provide for several bonuses and allowances. Promotion often requires competitive examination and certain key posts are accessible only through internal promotion (inspector, chief auditor, shop foreman, chief district inspector, etc.). 2.26 Physical working conditions are fair. The offices are small and the office equipment is often inadequate. The physical plant at the central depot in Antananarivo is unsatisfactory: the lighting system is poor, the car inspection pits are frequently full of dirty oil, hand tools are in short supply and sometimes unsuitable. Labor is organized in unions, but industrial relations are relatively good by country standards.  Fe- I~~~~~~~~~~ I  - 16 - I. Training 2.27 Despite Limited resources, RNCFM has paid special attention to personnel training. Over the 1963-73 period, primary emphasis was placed on the training of senior supervisory staff via Second-Level Advanced Vocational Training Courses (Cours Superieurs Professionnels du 2e degre - CSP2) and on evening training courses for operating personnel. Since then training has broadened to include: (i) special short-term refresher and advanced training courses for professionals; (ii) regular, CSP2 courses; and (iii) apprenticeships for the training of skilled workers. Annex 2.2 describes the present training programs in more detail. 2.28 RNCFM's training center is, however, seriously lacking in physical and technical resources. The center has four classrooms (with a capacity for 70, 80, 25 and 25 students, respectively), which serve the CSP2, the apprenticeship and the refresher training. One of the rooms doubles as a library and a classroom at the same time. Teaching materials are virtually non-existent; the apprenticeship workshop does not have enough of the tools or measuring instruments essential to practical work. The audio-visual equipment consists of one projector. The copying equipment needed for the correspondence course is decrepit. The library consists of 200 books, none of which is more recent thaa 1970. Human resources, however, are well used. RNCFM offers attractive incentives to induce experienced staff to teach others and recently overall management of training has been given high status within the railway hierarchy. The proposed project would provide the required physical facilities, teaching equipment, overseas fellowships and technical assistance (para 4.09).  - 17 - III. RNCFM'S INVESTMENT PLAN 3.01 Although RNCFM has made improvements in accounting and financial controls, the railway still lacks expertise in making long term financial and strategic plans. RNCFM does prepare annual operating and investment budgets but they are not used as management tools and their purpose is more related to estimating foreign exchange needs than to long term strategies of the railroad within the context of Madagascar's economy and total transport needs. 3.02 To fill the gap in personnel and to meet long term planning needs, the Bank funded the preparation of an initial investment plan for the 1978-1985 period as part of the First Railway Project. Since then, RNCFM has continued to rely heavily upon consultants, and upon Bank guidance and analyses, in planning capital budgets and developing operating strategies for the future. The initial investment plan was revised by consultants into a shorter 1979-1983 Investment Plan that served as the basis for the Second Railway Project. As mentioned earlier (para. 1.24), there was some slippage in carrying out the Second Railway Project's track improvements and actual traffic levels in the last several years were lower than those forecast for the 1979-1983 Investment Plan. To reflect these developments, RNCFM has prepared, with assistance from consultants, a new five year investment plan for 1985-1989. This plan was revised at appraisal to reflect more realistic traffic projections and the railway's long term role in meeting Madagascar's transportation needs. The plan, which emphasizes improving efficiency and rehabilitation, forms the basis for the proposed Project. 3.03 RNCFM's original investment plan assumed that the railway's traffic levels will increase in direct proportion to increases in GDP. In the past, rail traffic has proved to be so related but the one-to-one relationship is not expected to continue as other modes improve conditions and increase their share of the Madagascar transport network. The opening of the road between Brickaville and Moramanga and the improvements proposed on the road between Moramanga and Antananarivo have increased road competition with rail traffic, both passenger and freight. RNCFM's original forecast, however, envisioned no such competition. 3.04 In the near term increased truck competition may be limited by the relatively small number of highway vehicles in Madagascar, but the convenience and time savings associated with use of the road will ultimately lead to the purchase of as many new road vehicles as foreign exchange availability will permit. The railway's role in the long term, therefore, will be to handle bulk commodlties that are not time sensiti-e. As is the case in many countries, the railway's future lies in reliable performance, moving goods that are above the capacity of a road structure to handle and for which tariffs can be less than any other form of competition.  - 18 - 3.05 Madagascar's rail traffic therefore, is unlikely to increase significantly even if the economy continues to grow and rebound from nearly a decade of decline. More likely, overall traffic will stabilize at the current level: losses of passenger and short haul freight traffic to road transport are expected to be offset by increases in bulk traffic. The revised Investment Plan, as agreed to by RNCFM and the Bank, is itemized in Table 3.1. 3.06 The railway's original plan called for 6 locomotives, a railcar, 5 passenger coaches, 10 freight wagons (of a series of 30), a high cost cable telecommunications system for the MLA, more machine tools, more equipment and higher costs for the bridge at PK2 of the TA line. It also envisioned much higher local costs for track rehabilitation and the installation of a branch line all the way to the cement plant being built at Ibity. In consultation with CCCE, which is financing the agreed to investment in 1985, locomotives were reduced to four and the railcar and 5 passenger coaches were eliminated. 3.07 The Investment Plan address RNCFM's human resources development needs as well as its need to repair physical assets and maintain current service levels. Track renewal will improve service reliability, travel times and car availability. Reducing the number of employees and implementing more advanced ballast-production methods, more systematic equipment maintenance procedures, and better methods of sleeper production are also necessary. Such measures will improve completion times as well as raise the rate of return on track and equipment rehabilitation. The proposed technical assistance and training components described in Annex 4.1 and paras. 4.09-4.10 aim to achieve these objectives. 3.08 The proposed Project was based on those items that comprised the highest priority elements in the three mid years, 1986-88, of RNCFM's original Five Year Plan. CCCE has agreed to finance expenditures planned for 1985. In 1989 and beyond, additional investments will be required to continue the track renewal program, but no major capital investments are forseen, barring an unexpected surge in traffic. The actual components included in the Plan, however, were scaled back from RNCFM's original capital budget to levels more consistent with the outlook for the railway. The Investment Plan now includes only those improvements and additions to plant and equipment necessary to maintain service at present levels. The Government has agreed that it will not allow RNCFM to undertake any investments which are not included in this Investment Plan unless the economic justification of such investment has been established in consultation with IDA (para 7.01). The investment plan will be reviewed and updated yearly between IDA and RINCFM. Cyclone repairs (para 4.12) have not been included in these plans.  - 19 - MIble 3.1 - lNCUK' Investment Plan 1985 1986 1987 1988 1989 1990 ToiAL TAL (milll EW;s) (ndLUlx E$'s) Penet Why Track Reimblitaticn Rpal 463 447 910 1.4 Steel sleepers & atachnents 556 133d 1,894 2.9 track relayfrg (incl. labor maerlals other tha rail cr steel sleepers) 603 185 185 180 456 444 2,053 3.2 Repair an rebuild bridge 372 650 650 1,672 2.6 Bud, bridge ard clit ztemmnal 532 532 0.8 hatmiarivo 59 59 0.1 Lac-laotra tne (hc. study) 410 410 0.7 bDUve Pc Four ILotives 2080 2,080 3.2 Gg trlleys 292 292 0.4 Shp tools 1380 143 134 1,657 2.6 iacddnery 85 85 0.1 pare ,p rts 334 333 167 167 1,001 1.5 Yad E4Ape1 Tools & cxntatxer equipz4t 475 475 0.7 TraIning 350 140 450 320 1,260 1.9 echnical Assistare 75 75 75 225 0.3 stiiles 300 300 0.5 1;UAL 5,734 2,371 3,321 1,392 1,082 1,S25 14,905 22.9  - 20 - IV. THE PROJECT A. Project Objectives 4.01 The main objective of the Project is to ensure that Madagascar's northern railways system operates at a reasonable level of efficiency over the next 5 to 10 years. In order to enable RNCFM to maintain service at the current level of capacity, the rehabilitation program initiated with the Second Railways Project (CR. 903-MAG) will continue with an emphasis on selected high priority investments for track rehabilitation, supply of spare parts for maintenance of rolling stock including locomotives, provision of essential equipment for workshop and maintenance, telecommunication improvements, training of key staff, and technical assistance to address specific operating problems. B. Project Scope 4.02 As explained in Chapter III, the proposed project will consist of RNCFM's Investment Plan for 1986-88 as revised and agreed to by the Bank. In particular, the proposed Project will comprise the following components: (a) Permanent Way. Rehabilitation of about 60 km of track on the Moramanga-Lac Alaotra line; reconstruction of a bridge on the Antananarivo-Antsirabe line; and construction of ancillary facilities for a cement plant located near Antsirabe; Cb) Rolling Stock. Provision of spare parts for locomotive and wagons, and of five gang trolleys for track maintenance; Cc) Shop machinery, tools, and other equipmen_; (d) Telecommunications. Provision of a low cost radio telecommunication system for the Moramanga-Lac Alaotra line; (e) Training; (f) Technical Assistance; (g) Studies; and (h) Cyclone Damage repairs. C. Project Description (a) Permanent Way 4.03 About 60 km of track on the Moramanga-Lac Alaotra line will be re- habilitated because the main track components are beyond repair. (para. 5.19-5.22) The work will use steel sleepers and rail attachments for track sections with many curves; Madagascar's production of wood sleepers is limited and their quality is better suited for normal maintenance replacements. The longer term objective of the Government is to eliminate dependence on imported sleepers while improving production, possibly by devolving this activity to the private sector. The terms of reference of the study included in the Project (para. 4.11) will address this objective.  - 21 - 4.04 A 60 year-old concrete arch bridge on the Antananarivo-Antsirabe line has deteriorated because of poor initial design, original type of con- struction, old age, and lack of adequate maintenance. This bridge will be rebuilt. Additionally, loading and unloading facilities will be improved, and a 6 km road link and a small bridge will be built for the nearly completed Ibity cement plant located near Antsirabe. The combined road and rail access to the plant is expected to be cheaper than building a 20 km railway spur, as riginally envisaged by RNCFM, and will be sufficient to handle transport of coal and other inputs to the plant, a traffic estimated to reach 26,000 tons by 1990 (para 5.23). (b) Rolling Stock 4.05 Essential spare parts for locomotives and wagons will be provided to maintain and repair the fleet. Past shortages have resulted in deferred maintenance which has seriously affected car and engine availability. The major repair program iniciated under Railway II therefore must continue. Also, five gang trolleys will be purchased to alleviate the acute shortage of reliable transport of tools, materials and workers for track maintenance and repairs. Cc) Shop Machinery, Tools and Other Equipment 4.06 Several machine tools in the workshop are old and beyond repair. These tools are required to make parts not available locally. A limited amount of lathes, turret drills and planers will be replaced under the Project. 4.07 The proposed Project will also include the provision of mechanical handling equipment for containers at Antananarivo and for coal at Vinanikarena near Antsirabe. A bulldozer, track tools and equipment would be also provided to handle washouts and other emergencies. (d) Telecommunications 4.08 The Moramanga-Lac Alaotra line links an important rice and chromite producing region to major population centers and to Madagascar's main seaport, Toamasina. The telecommunication system on this line cannot be repaired because it is outdated and spare parts are no longer available. While the need for replacement is well established, a least cost solution is recommended. It will consist of two way radios and will be developed in detail (para. 4.11) as an alternative to the expensive underground cable recommended by an earlier study (para 3.06). (e) Training 4.09 With assistance from France, RNCFM prepared a training program for 1985-90 which was over-ambitious and was revised by the appraisal mission to reflect more realistic objectives and target dates. A detailed evaluation of RNCFM's past training achievements, and mission's recommendations are presented in Annex 2.2. Briefly, this component would consist of (i) construction of new training facilities; (ii) procurement of teaching equipment; (iii) provision of 32 overseas fellowships for senior  - 22 - and middle managers; and (iv) provision of 48 staff-montl- of technical assistance for manpower planning, job analysis, and specific techniques. The training component is aimed at improving staff productivity in the near term. (f) Technical Assistance 4.10 About 30 staff-months of technical assistance will be provided as follows: (i) six staff-months to improve ballast production; (ii) eight staff-months to improve train operations planning and coordination; (iii) eight staff-months to strengthen planning and scheduling of workshop re- pairs; and (iv) eight staff-months to demonstrate techniques to increase the productivity of track rehabilitation. Details are shown in Annex 2.2. (g) Studies 4.11 Several studies are included in the Project to help RNCFM and the MTRT's planners in specific areas. They are: (i) 12 staff-months to improve production of wood sleepers, including quality control, resources management, sustainable yield, and financial viability (Annex 2.3); (ii) 10 staff-months for the detailed engineering for the cement plant terminal, road and bridge link at Ibity (Annex 2.4); (iii) 8 staff-months to develop the least cost solution to improve telecommunications on the NLA line (Annex 2.1); and (iv) 10 staff-months to develop practical alternatives to serve the transport needs to the Fianarantsoa-Manakara axis more economicAlly than currently done (para. 1.21 and Annex 5.5) by rail. (h) Cyclone Damage Repairs 4.12 In March 1986, an unusually fierce cyclone hit the Eastern coast and in particular the TCE-line and the port of Toamasina. To provide for i ediate urgently needed relief, funds were included both for RNCFK repairs of damaged track, buildings and communications and for the port authority, SEPT, for port facility repairs. Details could not be provided at the time of negotiations, but preliminary assessments indicate an urgent need for US$1.0 million each for RNCFM and SEPT, including contingencies. D. Cost Estimates 4.13 The total project cost is estimated at FMG 11,027 million (US$16.9 million) including contingencies. The foreign exchange cost is estimated at FMG 7,782 million (US$12.0 million), or about 71% of total project costs. The project cost summary is shown on the following page.  - 23 - Table 4.1: Project Cost Summary Local Foreign Total Local Foreign Total - Million FMG - -Thousand US$ a) Permanent Way Bridge 650 650 1,300 1,000 1,000 2,000 Sleepers 72 1,062 1,134 111 1,634 1,745 Rail attachments 13 191 204 20 294 314 Track relaying 540 10 550 831 15 846 Road, bridge and cement terminal 239 293 532 368 451 819 b) Rolling Stock Gang trolleys 16 276 292 25 425 450 Spares 27 640 667 42 985 1,027 c) Machinery, Tools and Equipment 94 466 560 145 717 862 d) Telecommunications 118 292 410 182 449 631 e) Training 390 520 910 600 800 1,400 f) Technical Assistance 30 195 225 46 300 346 g) Studies 40 260 300 62 400 462 Base Cost 2,229 4,855 7,084 3,432 7,470 10,902 b) Cyclone Damage RNCFM 205 614 819 315 945 1,260 SEPT 53 597 650 82 918 1,000 Cyclone Costs 258 1,211 1,469 397 1,863 2,260 Contingencies; (for a) - g): Physical 223 486 709 343 747 1,090 Price 535 1,230 1,765 824 1,893 2,717 Total Project Costs 3,245 7,782 11,027 4,996 11,973 16,969 m m  - 24 - 4.14 Cost estimates were prepared by engineering consultants financed by IDA (Cr. 903-MAG), reviewed by the appraisal mission, and revised as appropriate to reflect known costs for similar items. Base costs were estimated in mid-1985 prices. Local taxes and duties were excluded from the estimates because project expenditures would be exempted from them. Physical contingencies were calculated at 10% of base costs except for cyclone damage. Price escalation for foreign ane local costs is based on projected increases in international US dollar prices of 7.5X p.a. in 1986, and 8Z p.a. in 1987 and onwards. The inte;national rates have been also used for local costs assuming that the difference between domestic and international price inflation will be offset by adjustments in the foreign exchange rate in accordance with Government policy. 4.15 Detailed engineering for the reconstruction of the bridge on the TA line (para 4.04) was completed in June 1985. Detailed engineering for the road bridge and cement terminal at Ibity has been financed under a PPF advance. Project costs include approximately US$1.7 million equivalent for about 155 staff-months of services by internat'onally recruited specialists. E. Financing 4.16 A preliminary financing plan is shown below: Table 4.2 - Financing Plan (million US$) (Z) IDA 12.0 71.0 RNCFM 4.8 28.4 SEPT 0.1 0.6 Total 16.9 100.0 In addition to the above, CCCE has provided a loan to RNCFM of FF98 million (US$14.0 million) to finance new locomotives and other equipment which are economically justified (paras. 3.08 and 5.26). 4.17 An US$200,000 equivalent Project Preparation Facility Advance was granted to MTRT to finance the study of the cement plant terminal and the study of the Fianarantsoa-Manakara axis (para 4.11). The advance would be refinanced from the proceeds of the IDA Credit. The Government would onlend US$10.5 million to RNCFM on the following terms: (i) final maturity of 14 years; (ii) four year drawdown period; (iii) two years grace; (iv) repayment in 28 equal semiannual installments; (v) interest rate of 9.5% p.a.; (vi) commitment fee of 0.75Z; and (vii) interest and principal payment would be adjusted to reflect variations in the FMG/US$ exchange rate. The Government will onlend US$1.0 million to SEPT on the same terms as to RNCFM above. For the studies under the PPF (US$200,000) and the cement plant road connection a total of US$500,000 will be provided by the Government as a grant. A condition of effectiveness of the Credit Agreement is that subsidiary loan agreements have been executed on behalf of the Government and RNCFM and on behalf of the Government and SEPT,  - 25 - incorporating the above terms and acceptable to IDA (para 7.02). It has been agreed to provide funds retroactively up to a total of US$500,000 for cyclone repair works after April 1, 1986. Since details could not be provided at the time of negotiations, but only preliminary assessments of a need for US$1.0 million each for RNCFM and SEPT, there would be a condition of disbursement that a works program and execution arrangements have been agreed with IDA for this part of the project (para 7.03).  - 26 - F. Procurement 4.18 Procurement arrangements are summarized in Table 4.3 below: Table 4.3 - Procurement Arranaemcats Procurement Method Project Elemnt ICB LCB Other N.A. Total Cost (million US$')- a) Civil Works Track Relaying 1.1 1.1 Bridge PR2 2.7 2.7 Ibity terminal 0.8 0.8 Training Center 0.7 0.7 2.7 0.7 1.9 5.3 (2.3) (0.5) (2.8) b) Track Materials Sleepers 2.3 2.3 Fastenings 0.4 0.4 2.3 0.4 2.7 (2.1) (0.3) (2.4) c) Rolling Stock Spares 1.4 1.4 Gang Trolleys 0.6 0.6 0.6 1.4 2.0 (0.5) (1.2) (1.7) d) Equipment Shop Machinery 0.3 0.3 Crane 0.2 0.2 Telecommunication 0.8 0.8 Training 0.4 0.4 Ibity Terminal 0.3 0.3 Other 0.6 0.6 2.0 0.6 2.6 (1.4) (0.2) (1.6) e) Cyclone Repairs 2.3 2.3 (2.0) (2.0) f) Consulting Services 1.7 1.7 (1.2) (1.2) g) Fellowships 0.3 0.3 (0.3) (0.3) TOTAL 7.6 0.7 4.3 4.3 16.9 (6.3) (0.0) (2.2) (3.5) (12.0) Note: Figures in parenthesis are the respective amounts financed by IDA.  - 27 - 4.19 Procurement of goods and services by RNCPM and SEPT would follow Bank Group guidelines. RNCFM will carry out track relaying and repair works by force account and will issue local tenders for the construr-tion of the training center. Orders would be grouped whenever possible into contracts valued at US$ 100,000 or more and would be procured through ICB except for: (i) proprietary spares and supplies (US$1.4 million) which would be procured by direct order; and (ii) rail fastenings and miscellaneous equipment costing less than US$ 100,000 and totalling no more than US$ 1,000,000 would be procured by international and local shopping based on comparing price quotations from at least three manufacturers, dealers or suppliers. Consultants would be selected in accordance with IDA guidelines. Their terms of reference and conditions of employment would be satisfactory to IDA. G. Disbursements 4.20 Funds from the IDA Credit would be allocated as follows: Table 4.4 - IDA Credit Allocation Thousand US$ a) Works 2,300 b) Track materials 2,200 c) Spare parts 1,500 d) Equipment and tools 1,700 e) Consultants' services and fellowships 1,1,00 f) Project Preparation Facility 200 g) Cyclone damage repair 2,000 h) Unallocated 1,100 Total 12,000 4.21 Disbursements would be against 100I of foreign expenditures for imported materials, equipment and consulting services and 75X of local ex- penditures eligible for IDA financing in the above categories. Disburse- ments would be fully documented. The estimated schedule of disbursements for the IDA credit is given In the following table.  - 28 - Table 4.5 - Estimated Disbursement Schedule for the IDA Credit IBRD Fiscal Year Disbursement Cumulative Disbursement and Quarter during Quarter at the end of Quarter (USS million) (USS million) (x) 1987 September 30, 1986 0.3 0.3 3 December 31, 1986 0.4 0.7 6 March 31, 1987 0.7 1.4 12 June 30, 1987 0.7 2.1 17 1988 September 30, 1987 0.5 2.6 22 December 31, 1987 0.5 3.1 26 March 31, 1988 0.7 3.8 32 June 30, 1988 0.7 4.5 38 1989 September 30, 1988 0.7 5.2 43 December 31, 1988 0.7 5.9 49 March 31, 1989 0.8 6.7 56 June 30, 1989 0.8 7.5 63 1990 September 30, 1989 0.9 8.4 70 December 31, 1989 0.9 9.3 78 March 31, 1990 0.8 10.1 84 June 30, 1990 0.8 10.9 91 1991 September 30, 1990 0.6 11.5 96 December 31, 1990 0.5 12.0 100  - 29 - 4.22 The above disbursement schedule is based on the implementation schedule presented in Chart II. The disbursement profile for the Project is faster than the standard profile for transportation projects as the proposed Project is a rehabilitation project, the extent of civil works and erection work involved is limited, and the implementation period for this Project is considerably less than for a full scale conventional railway project. The Credit is expected to be fully disbursed by December 31, 1990. H. Project Execution and Environment 4.23 RNCFM will be responsible for implementing the rail project and SEPT for the port damage repairs. The track improvement will be carried out by the railway's track and building department which has done similar work under past projects, reinforced by technical assistance included in the project to ensure the work proposed is accomplished with the available funds. Rehabilitation and maintenance of locomotives and wagons will be carried out in the railway's central workshops in Antananarivo strengthened by technica'l assistance to improve the quality and quantity of work produced. The project will have no adverse effect on the environment. I. Operational Objectives 4.24 The project is oriented to track and locomotive improvements which are the principal limiting factors to higher efficiency. With these improvements the railway can concentrate on better operations by improving wagon turn around and train scheduling. The proposed operational objectives (Table 4.6) and Implementation Schedule (Chart II) were discussed and agreed to during negotiations (para 7.01).  - 30 - Mable 4.6: pndu.ts