Cameroon - Railway and Highway Projects

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 7828 PROJECT PERFORMANCE AUDIT REPORT CAMEROON FEEDER ROADS PROJECT (CREDIT 749-CM/LOAN 1494-CM) FOURTH HIGHWAY PROJECT (CREDIT 926-CM/LOAN 1723-CM) FOURTH RAILWAY PROJECT (CREDIT 936-CM/LOAX 1734-CM) JUNE 12, 1989 Operations Evaluation Department Tlis document has a restricted distributmion and may be used by only In the perfoanumce of their ofalch duties. Its contents may not otherwise be disclosed World Bank authori1ation. ABBREVIATIONS AND ACRONYMS DCD Department of Comunity Development DH Department of Highways; now Directorate of Roads (FIR) FRU Feeder Roza Unit in the DO MINER Ministry of Equipment and Housing; now Ministry of Equipment (MINEQ); changed in mid-1988 to Ministry of Public Works and Transport MINEP Ministry of Economy and Plan; now Ministry of Planning and Territorial Development (MINPAT) MINIAGRI Ministry of Agriculture; now MINAGRI NCEEP National Civil Engineering Equipment Pool; now NATOENIS REGIFERCAM Regie Nationale des Chemins de Fer du Cameroun RMWA Resident Mission in West Africa RPU Road Planning Unit; now the Planning Division in the DH SATA SWiss Agency for Technical Assistance CURRENCY EXCHANGE RATES Name of Currencys CFA Franc (CFAF) Year Average Exchange Rate 1979 US$ 1 - CFAF 220 1984-1985 US$ 1 - CFAF 490 1986-1987 US$ 1 - CFAF 285 FOR OFFICIAL USE ONLY THE WORLO BANK Washington. DC 20433 USA. ONce of Duector-Gwal Operaons avalatman June 12, 1989 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Performance Audit Report on Cameroon Feeder Roads Project (Credit 749-CM/Loan 1494-CK) Fourth Highway Project (Credit 926-CM/Loan 1723-CM) Fourth Railway Project (Credit 936-CM/Loan 1734-CM) Attached, for information, is a copy of a report entitled "Project Performance Audit Report on Cameroon Feeder Roads Project (Credit 749-CM/Loan 1494-CM) Fourth Highway Project (Credit 926-CM/ Loan 1723-CM) Fourth Railway Project (Credit 936-CM/Loan 1734-CM)" prepared by the Operations Evaluation Department. Attachment This docuat ha atited distributon and may be ms by acpints only la the prommne of thei oflicia duties. Its contents amay not otwherie be discloed without World Bank authorietDw. FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT CAMEROON FEEDER ROADS PROJECT (Credit 749-CM/Loan 1494-CM) FOURTH HIGHWAY PROJECT (Credit 926-CM/Loan 1723-CM) FOURTH RAILWAY PRCJECT (Credit 936-CM/Loan 1734-CM) TABLE OF CONTENTS Page No. Preface ........................... Basic Data Sneets ........................................ 1 Evaluation Summary ..................... ............... viii PROJECT PERFORMANCE AUDIT MEMORANDUM I. BANK-GROUP ASSISTANCE TO THE TRANSPORT SECTOR Introduction ....................................... 1 Background and Objectives .......................... 2 II. CONCLUSIONS AND RECOMMENDATIONS Conclusions ....................................... 4 Recommendations .................................... 14 Appendix: Bank-assisted projects in Highways, Railways and Ports .. 17 PROJECT COMPLETION REPORT: FEEDER ROADS PROJECT/ FOURTH HIGHWAY PROJECT I. Introduction ............................................ 23 II. Project Identification, Preparation and Appraisal........ 24 A. The Feeder Roads Project ............................ 24 B. The Fourth Highway Project .......................... 26 III. Project Implementation .................................. 27 A. The Feeder Roads Project .......................... 27 B. The Fourth Highway Project .......................... 30 IV. Economic Reevaluation ........ ........... .... ........ 32 A. The Feeder Roads Project ............................ 32 B. The Fourth Highway Project .......................... 32 V. Institutional Performance .......*....................... 33 A. The Feeder Roads Project ...............0 ........... 33 B. The Fourth Highway Project .......................... 34 VI. The Consultants' Performance ............................ 34 A. The Feeder Roads Project ............................ 34 B. The Fourth Highway Project ......................... 35 VII. The Bank's Performance ................................ 35 A. The Feeder Roads Project ............................ 35 B. The Fourth Highway Pro;-t ........................ 35 VIII. Conclusions and Recommendations ......................... 36 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. Tables 1. Feeder Roads -- Compliance with Loan Covenants .......... 38 2. Fourth Highway Project -Overall Evaluation of Sconomic Returna ...................................... 39 PROJECT C~MPLETION REPORT: FOURTH RAILWAY PROJECT 1. Introduction ........................ *........ .... 41 II. Project Identification, Preparation and Appraisal........ 42 III. Project Implementation and Cost ......................... 45 IV. Traffic and Operations .................................. 48 V. Financial Evaluation .............................. 50 VI. Inotitutional Performance and Outlook ................... 56 VII. Economic Reevaluation .................................. 58 VIII. Role of the Bank ....................................... 58 Ix. Conclusions ...................................... 59 Tables 5.1 Income Statement, 1978179 -- 1986/87 .................... 61 5.2 Balance Sheet ......................... .......... 62 5.3 Source and Application of Funds . 64 5.4 Financial Ratios ..................................... 65 5.5 Tariff Increases, 1976-87 . 66 5.6 Compliance with Financial Covanants .ý................... 67 ATTACMENT 1. Comments from the Borrower .......................... 69 IBRD 13079 IBED 13733 IDRD 14058R PROJECT PERFORMANCE AUDIT REPORT CAMEROON FEEDER ROADS PROJECT (Credit 749-CMILoan 1494-CM) FuURTH HIGHWAY PROJECT (Credit 926-CM/Loan 1723-CM) FOURTH RAILWAY PROJECT (Credit 936-CMILoan 1734-CM) PREFACE 1. This is the Project Performance Audit Report (PPAR) on three transport projects financed by the Bank Group in Cameroon. For the Feeder Roads Proi3ct, Credit 749-CM (for US$6.5 million) and Loan 1494-CM (for US$4.6 million) were approved by the Board on December 7, 1977. The Closing Date was extended three times (from December 31, 1983 to December 31, 1986) and an outstanding balance of US$1.0 million was cancelled on July 5, 1987. For the Fourth Hirhway Project, Credit 926-CM (for US$10 million) and Loan 1723-CM (for US$38 million) were approved on June 7, 1979. The Closing Date was extended once (from June 30, 1986 to June 30, 1987) and the Loan/Credit amount was fully disbursed. For the Fourth Railway Project, Loan 1734-CM (for US$27 million) and Credit 936-CM (for US$ 20 million) were approved on June 19, 1979. The Closing Date was extended three times (from June 30, 1983 to June 30, 1986) and an outstanding balance of US$0.2 million was cancelled on April 13, 1987. 2. The PPAR consists of (I) an Evaluation Summary ants a Project Performance Audit Memorandum (PPAM) prepared by the Operations Evaluation Department (OED), and (ii) of two Project Completion Reports (PCR) --one for the Feeder Roads and for the Fourth Highway Project, and a second for the Fourth Railway Project -- prepared by the Africa Regional Office. Both PCRs contain a frank and thorough discussion of the experience from project inception through implementation. To prepare the audit, OED reviewed the respective Staff Appraisal (SAR) and the President's Reports (PR), as well as legal documents, and transcripts of the Executive Directors' mcetings which considered the three projects. After studying the file and discussing the projects with Bank staff in Washington, OED conducted a field mission to Cameroon in November 1988 to visit project sites and to secure the views of the Borrower. The review has led OED to endorse PCR findings as they stand. Accordingly, the PPAM contains few comments pertaining specifically to these three projects. Verification of the PCRe, involving consultation of past audits, economic and sector reports, and study of SARs of ongoing transport projects, led OED to consider the Bank's overall assistance to the Cameroon transport sector since 1970. The PPAM offers some suggestions which might be taken into account when Government, the Bank, and other donors contemplate future interventions to rehabilitate and strengthen the transport sector. 3. According to standard procedure, OED sent copies of the draft PPR to the Government for comments. Comments from the Cameroon National Railway Authority are appended as Attachment I. PROJECT PERFORMNCE AUDIT BASIC DATA SHRET CAMEROONz FEEDER ROADS PROJECT (Credit 749-CMILoan 1494-CM) KEY PROJECT DATA Borrower United Republic of Cameroon Executing Agency Ministry of Equipment and Housing,l Fiscal Year of Borrower July 1 - June 30 Appraisal Estimate Actual Total Project Cost (US$ million)g/ 21.1 22.5 Overrun (%) - 8 Loan/Credit Amount (US$ million) 11.1 10.1 Project Completion Date 09/82 06/87 Proportion Completed by Appraisal Completion Date (%) 40 Economic Pate of Return 20-271 N.A. OTHER PROJECT DATA Oriaial Plan Actual First Mentioned in Files - 01175 Appraisal 11/76 01/77 Negotiations 08177 09/77 Board Approval Date - 11/77 Loan/Credit Agreement Date - 12/77 Effectiveness Date - 03/78 Closing Date 12/31/83 12/31/86 Follow-On Project None Cumulative Estimated and Actual Disbursements (US$ million) FY78 FY89 FY80 FY81 FY82 FY83 FY84 FY85 FY86 FY87 PY88 Estimated 0.6 4.3 5.9 8.2 10.1 11.1 Actual 0 0.8 3.2 4.9 5.3 7.2 8.1 8.8 9.1 9.8 10.1 Actual as Z of Estimate 0 18 54 60 52 65 1/ The Ministry of Agriculture, the ZAPI East Organization, and the Societe pour le Developpement et l'Exploitation des Productions Animales (SODEPA), were also involved in project execution. X/ Including US$4 million equivalent in taxes. tit MISSION DATA Number of Number of Man-weeks ogthfjYear Weeks Persons in Field Report Date Identification 03176 1.5 1 1.5 04114176 3/ Identification/ Preparation 05/76 1.5 1 1.5 06116/76 Preparation 06/176 1.5 1 1.5 0712876 Preparation 08176 1.7 2 3 5 09114176 Preparation/ Follow-up 09176 1.5 1 1.5 10/06/76 Preparation/ Pre-Appraisal 12/76 1.5 1 1.5 01111/76 Apprais-t 01/77 3.0 2 6.0 Undated Post-Appraisal 06/77 1.5 1 1.5 No Report on File Total 18.5 Supervision 1 11/77 0.5 1 0.5 No Report on File 2 03/78 0.5 1 0.5 No Report on File 3 08178 2.0 1 2.0 09/01/78 4 12/78 0.5 1 0.5 02/09/78 5 04179 0.5 1 0.5 04/17/79 6 04/79 3.0 1 3.0 06118/79 7 10179 1.0 1 1.0 11/30/79 8 05/80 1.0 1 1.0 05/29/80 9. 09180 3.0 1 3.0 11/03/80 10 04/81 3.0 1 3.0 05/26/81 11 06/81 1.0 1 1.0 07/10/81 12 10/81 1.5 1 1.5 10/29/81 13 02/81 1.5 1 1.5 03/11/82 14 08182 2.0 3 6.0 10#05182 4/ 15 10/82 0.5 1 0.5 16 01/83 3.0 1 3.0 02/18/83t04/01/83 17 05/83 2.5 1 2.5 07/19183 18 11/83 2.0 1 2.0 01/19/84 19 02/84 2.0 1 2.0 04/13/84 20 10/84 1.5 1 1.5 12/03/84 21 03/85 1.0 3 3.0 07IG9/85 22 09/85 1.5 3 4.5 10115/85 23 12/85 0.5 2 1.0 06120/85 24 05/86 1.0 1 1.0 06/20/86 25 07/86 1.0 1 1.0 07/17/86 26 10186 1.0 2 2.0 11/13/86 27 03/87 0.5 1 0.5 04/1387 1.tal 49.5 ~/ Identification to Supervision Mission No. 10 were carried out by staff at the Resident Mission in West Africa (lWA). 4/ Bank Headquarters took over responsibility from ZM; one staff member from RW0 joined this mission to hand over. iv PROJECT PERFORMANCE AUDIT BASIC DATA SHEET CAMEROONs FOURTH HIGHWAY PROJECT (Credit 926-CM/Loan 1723-CM) KEY PROJECT -ATA Borrower United Republic of Cameroon Executing Agency Ministry of Equipment Fiscal Year of Borrower July 1 - June 30 Appraisal Estimate Actual Total Project Cost (US$ million) 83.0 83.0 g/ Loan/Credit Amount (US$ million) 48.0 48.0 Project Completion Date 12185 12/86 Proportion Completed by Appraisal Completion Date (Z) 100 Economic Rate of Return 82% 1331 OTHER PROJECT DATA Original Plan Actual First Mentioned in Files - 11129177 Appraisal - 04/178 Negotiations - 05/79 Board Approval Date - 06/79 Loan/Credit Agreement Date - 08/23/79 Effectiveness Date 10/22/79 01/22/80 Closing Date/Loan 06/30/83 06/30187 Closing Date/Credit 06/30/83 06/30/83 Follow-On Project Fitth Highway Project 5] Total cost figures conceal wide fluctuations in the value of CFA franc, which ranged from 220 to the US dollar at the beginning of the project, to 490 in 1984/85, and to 285 in 1986/87. Because of the very favorable rate of exchange, Government was able to do more work than originally planned by increasing the purchasing power of loan/credit funds for goods and services paid for in CEA francs on in European currencies. v Cumulative Estimated and Actual Disbursements (US$ aillion) FY80 FY81 FY82 FY83 FY84 FY85 FY86 FY87 Estimated 1.2 3.2 10.0 24.0 38.0 45.5 48.0 Actual 0.6 3.6 9.5 20.7 34.3 40.1 45.1 48.0 Actval as 2 of Estimate 50 113 95 86 90 88 94 MISSION DATA 6/ Number of Number of Man-weeks Month/Year Weeks Persons in Field Report Date Preparation 02/78 2.0 1 2.0 03/24/78 Appraisal 04/78 3.0 3 9.0 05/05/78 Post-Appraisal 10/78 1.0 3 3.0 11/03/78 Total 14.0 Supervision 1 12/79 0.5 1 0.5 01/11/80 2 03/80 0.5 1 0.5 04/24/80 3 05/80 0.7 2 1.5 07/11/80 4 10/80 0 1 3 1.5 11/30/80 5 06/81 1." 2 2.0 07/15/81 6 10181 0.5 1 0.5 10127/81 7 04/82 0.5 2 1.0 07/23/82 8 08/82 0.7 3 2.0 09/14/82 9 10182 0.5 1 0.5 12/03/82 10 01/83 1.0 2 2.0 03/30/83 11 05/83 1.0 1 1.0 06/24/83 12 12/83 0.5 4 2.0 03/08/84 13 03/84 0.3 3 1.0 04/13/84 14 04/85 1.5 1 1.5 06/27/85 15 09185 0.5 2 1.0 10107/85 16 02/86 0.7 3 2.0 04/08/86 17 06/86 0.5 1 0.5 07/17/86 18 10186 0.3 3 1.0 11/20/86 19 03/87 0.5 1 0.5 04/13/87 Total 24.5 g) Earlier preparation missions were conducted during preparation of the Third Highway Project. Some supervision missions were combined with supervision and preparation of other highway projects. vi PROJECT PERFORMANCE AUDIT BASIC DATA SHEET CAMEROONS FOURTH RAILWAY PROJECT (Credit 936-CM/Lean 1734-CM) KEY PROJECT DATA Borrower Regie Nationale des Chemins de For du Cameroun (REGIFERCAM) Executing Agency REGIFERCAM Fiscal Year of Borrower July 1 - June 30 Appraisal Estimate Actual Total Troject Cost (US$ million) 59.2 59.07/ Loan/Credit Amount (US$ million) 47.0 46.8 Project Completion Date 12/82 12/86 Economic Rate of Return 181 14-15% OTHER PROJECT DATA Original Plan Actual First Mentioned in Files - 11129177 Appraisal - 06/78 Negotiations - 05/79 Board Approval Date - 06/79 Loan/Credit Agreement Date - 08/23179 Effectiveness Date 10/22/79 01/22/80 Closing Date 06/30/83 06/30/86 Follow-on Project None Z] The precise final cost is unknown. The figure given comes from estimates of the last supervision mission (May 1986). vil Cumulative Estimated, and Acr%al Disbursements (US$ willion) ffSq YI E _"83 FY84 FY85 PY86 U8Z Estimated 14.2 37.8 46.6 47.0 Actual 2.8 8.7 20.1 28.6 31.6 34.2 37.7 46.8 Actual as I of Estimate 20 23 43 61 MISSION DATA Number of Number of Man-weeks nonth/Year Weeks Persons in Field Report Date Identification 12/76 0.5 2 1.0 01/77 IdentiV4cation 06/77 0.5 2 1.0 07177 Preparation 11/77 1.0 3 3.0 12/177 Appraisal 06/78 3.0 4 12.0 07/78 Post-Appraisal 12/78 1.0 3 3.0 12/78 Totpl 20.0 Supervision 1 10/79 1.0 2 2.0 12/79 2 12180 1.0 3 3.0 02/81 3 04/81 1.0 3 3.0 06/81 4 07/81 0.5 1 0.5 09/81 5 10181 1.0 1 1.0 11/81 6 03/82 i.0 2 2.0 05/82 7 10182 1.0 3 3.0 11/82 8 06/83 N,A N.A N.A C$183 9 10183 2.0 3 6.0 12/83 10 01184 1.5 3 4.5 02/84 11 06/84 0.5 3 1.5 07/84 12 03/85 1.5 3 4.5 04/85 13 09/85 2.0 3 6.0 10/85 14 12/85 1.0 3 3.0 01/86 15 05/86 1.0 3 3.0 09/86 Total 43.0 viii PROJECT PERFORMANCE AUDIT REPORT CAMEROON FEEDER ROADS PROJECT (Credit 749-CM/Loan 1494-CM) FOURTH HIGHWAY PROJECT (Credit 926-CM/Loan 1723-CM) FOURTH RAILWAY PROJECT (Credit 536-CMILoan 1734-CM) EVALUATION SUMMARY Introduction 1. The three projects under review belong to a series of fourteen Bank- assisted operations which were approved between 1970 and 1985, and provided the transport sector with a grand total of US$474.1 million in loans and credits. Verification work revealed that little could be added to the findings of the attached two PCRs, which are endorsed as they stand. The PPAM explores the efficiency and effectiveness of Bank assistance to the transport sector as a whole and concludes with some recommendations for future action (PPAM, paras 1-2). Proiect Objectives, Implementation, Results, Sustainability Feeder Roads Proiect 2. The objective was to improve Government's capacity to maintain the feeder roads network with departmental force account units (PCR, para 1.01). The project was too ambitious: appraisal was not based on surveys and preliminary or detailed engineering, nor was the decision to execute works by force account well conceived. Project completion was delayed by about five years (from 1982 to 1987), and the cost overrun was modest (from US$21.1 to US$22.5 million) only because about 800 km, or less than 40% of the expected 2,200 km were built (PCR, pars 3.11). The work put a heavy burden on inexperienced force account units lacking head office support (PCR, pares 5.01-5.04). Insufficient data on benefits precluded a complete economic reevaluation of the project; a sample of completed project roads yielded a rate of 27% (PCR, paras 4.01-4.02), but not much significance should be attached to this rate because the roads have not been properly maintained (PCR, pars 5.04). Institutional objectives failed becanse of little importance given to the project by Government; lack of a clearly defined organizational structure; and poor management of the work units (PCR, para 3.11). Sustainability of project benefits is dim but Government seems to have accepted the important lesson, that future feeder roads projects ought to be carried out by con-ract (PCR, para 8.09). Fourth Hiahway Project 3. The objective was to improve the Government's capacity to maintain principal highways with departmental force account units. The project did not ix include periodic maintenance of paved roads which, at the time of appraisal (1978), had not been regarded as the priority activity it has cow become (PCR, para 1.01). To avoid the problem encountered with the Feeder Roads Project, a detailed agreement was reached with Government during negotiations as to the organization and responsibilities of the Executing Agency. Project completion was delayed by one year (from 1985 to 1986) to accommodate a necessary extension of technical assistance contracts for management of maintenance operations (QCR, para 3.22). Total project cost is numerically identical to the appraisal estimate (US$83.0 million) but the favorable exchange rate allowed more work to be done than planned (PCR, para 3.23). The re-estimated economic rate of return is in excess of 100%, which confirms that the project was justified, and that maintenance operations generate high benefits (PCR, para 4.04). The Bank made appropriato arrangements to accommodate other donors (PCR, para 2.14) and deserves credit for the flexibility and patience it showed over an extended period of aid coordination discussions. Government provided od support but institutional act ements regarding management of maintenoyea operations fell short and . ther technical assistance was requirc'. '.his is being provided under the Sixth Highway Project (PCR, para 5.06). S-,ainability of nroject benefits would be strengthened if Government showed a-e perseverance with maintenance operations fseverely curtailed, due to fund shortages, during the last two years), and if maintenance work were done by contract rather than by force account. In the latter regard, progress made under the Sixth Highway Project to introduce maintenance by contract is an encouraging step in the right direction (PCR, para 8.08). Fourth Railway Project 4. The main oblectives were to increase the capacity and efficiency of the railway9s traffic handling facilities in the Douala area and to improve the efficiency of railway management and operations (PCR, para 2.07). Physical components of the project were correctly appralsed, with two major exceptions. Earthworks for the Douala Station were grossly underestimated both with regard to cost and to implementation time. The Yaounde maintenance facilities were postponed due to delays in the engineering studies, and uncertainty with regard to their location, role, and final need (PCR, para 8.01). Because of slow start-up and procurement delays, project completion took four more years than anticipated (PCR, para 9.01). Precise final costs are not available (PCR, para 3.13) and the available information suggests they were under the appraisal estimate of US$59.2 million. Howevez, aggregate cost similarities belie significant variations from one component to the next: while the cost of the new Douala Station overran the appraisal estimate, there were substantial savings from the deletion of the maintenance workshops in Yaounde. Operational efficiency almost met the targets set at appraisal, but financial targets proved to have been extremely optimistic (PCR, pars 8.02). The project failed to bring about planned improvements in the financial situation of REGIFERCAM, but the economic benefits of the project (14-15% re-estimated rate of return), are nonetheless real since Cameroon has been provided with transport capacity to meet anticipated demand. Bank supervision was thorough but the Bank did not succeed in persuading Government to take corrective action on financial matters. Although the Bank's role in project design, preparation and implementation was positive (PCR, pars 8.03-8.04), the Bank's association with x BEGIFERCAM did not provide the proper vehicle for influencing Government policy. Sustainabilit of project benefits (especially in the area of institution-building), would be increased if relations between the Government and REGIFERCAM were codified in a contractual document which would specify areas in which REGIFERCA1 would be granted the managerial freedom and financial autonomy it requires to optimize operational efficiency (PCR, pare 9.09). Bank Assistance to the Transport Sector Characteristics of Assistance 5. With the exception of civil aviation and merchant shipping, the Sank assisted all subsectors between 1970 and 1985: four projects in railways, six in highways, one in feeder roads, and three in ports (PPAK, para 1). Fourteen out of these seventeen projects have been audited. Since 1970, the Bank's objectives for the sector were consistent, sound and transparent: improve efficiency, and strengthen self-financing operations (PPAM, para 3). Specific objectives for railways were to augment carrying capacity, to improve financial results, to rehabilitate facilities, to improve operations. In hithways, the emphasis was on rehabilitation of major arteries, on strengthening of maintenance operations, and on institution-building. In ports, the Bank endeavored to increase capacity, to improve productivity, and to ameliorate road and railway access to the port installations (PPAM, paras 28-39). The instruments for the pursuit of all these objectives (financing of justifiable investments; maintenance of existing facilities; institutional strengthening), were appropriate. Moreover, they were persistently applied even during periods when Bank-Borrower relations were strained (PPAM, paras 6-8). 6. All physically measurable targets in Bank-financed projects (km of roads improved or maintained; procurement of traction equipment and rolling stock for the railway; construction of workshops and warehouses; procurement of port equipment, etc.) were, with the exception of the Feeder Roads Project, successfully met. No comparable success was registered in the areas of financial performance, maintenance activities, and institution-building (PPAM, para 9). 7. In the audit's view, the current performance of the transport sector (PPAK, para 10), is due to the Government's lack of commitment to genuine change, and to the lack of a coherent program (PPAM, para 11). The Bank advocated the need fur a comprehensive program more than ten years ago and its absence has meant that individual interventions were neither integrated nor additive (PPAM, paras 12-13). Cameroonian technical staff could have produced a program but they lack an appropriate work environment and incentives. This leads to delays in project preparation, procurement and execution, as well as to complications in aid coordination (PPAM, paras 14-17). Continued Bank assistance on a project-by-project, subsector-by-subsector basis would be counterproductive and might reinforce "aid dependence" (PPAM, paras 18-19). 8. The main, but not the sole, issue facing the transport sector is overdue reform. In addition, the sector needs massive financial resources, recasting of management responsibilities and procedures, reduction of excessive reliance upon technical assistance, and encouragement of domestic capacities for planning and operating the individual modes. Pulling these strands together would require commitment, discipline and determination. It is, nevertheless, a task to which Government might assign suitable priority (PPAM, paras 20-21), and for which it might consider the following suggestions. Recommendations 9. Sector objectives formulated twenty years ago remain appropriate: improved sector management and subsectoral organization; increased operational efficiency; increased emphasis on maintenance; investment decisions supported by rigorous comparison of costs and benefits; balanced allocation of resources among subsectors, and between new works and maintenance of existing facilities. The pursuit of one further objective ought perhaps to be added: regional integration through better transport (PPAM, para 22). 10. Major changes require time, and a 10-year horizon might be necessary for the Implementation of policy reform, as well as for estimating resource needs (PPAM, para 23). Sector planning ought to be entrusted to Vameroonians enjoying the full support of the Government, which ought to improve the work environment and to introduce an incentive system to motivate its officers sufficiently. Use of expatriate staff ought to be limited (PPMM, para 24). 11. In planning documents, simplicity ought to be of the essence. There are a sufficient number of local planners, and sufficient statistical material available, to produce within a 12-month period an issues paper (encompassing the 10-year horizon) on the principal economic, financial, operational, and personnel issues facing the sector; and an action program (encompassing the first five years) on the organizational, financial and personnel aspects judged to deserve the most urgent attention (PPAM, para 25). 12. The quality of the issues paper and of the action program would be critical for sector financing, which ought to be confronted in steps. First, Government would formally endorse the action program. Second, Government would specify the volume of its own financial contribution. Third, donors would be invited for discussion and pledges. Aid coordination would be paramount to harmonize donor preferences for financing specific activities or projects, and because of the variety of procurement guidelines prevailing in the donor community. The action program ought to contain measures related to policy, organizational and financial aspects, together with deadlines for the implementation of each. An incentive for meeting deadlines might be to tie disbursement of pledged contributions to achievement of specific milestones (PPAM, para 26-27). PROJECT PERFORMANCE AUDIT MEMORANDUM CAMEROON FEEDER ROADS PROJECT (Credit 749-CMILoan 1494-CM) FOURTH HIGHWAY PROJECT (Credit 926-CMILoan 1723-CM) FOURTH RAILWAY PROJECT (Credit 936-CN/Loan 1734-CM) 1. BANK-GROUP ASSISTANCE TO THE TRANSPORT SECTOR Introduction 1. Bank assistance was first extended in 1970 and the three projects under review belong to a series of fourteen operations approved between 1970 and 1985: Roads and Highways Highways I US$21.0 million 1970 Audited project Highways II US$63.0 million 1974 Feeder Roads US$11.1 millior. 1977 U " Highways III US$16.5 millien 1978 Highways IV US$48.0 million 1979 Highways V US$70.0 million 1982 Ongoing project Highways VI US$125.0 million 1985 U " Total US$354.6 million Railways Railways I US$5.2 million 1970 Audited project Railways II US$16.0 million 1974 Railways III US$2.3 million 1976 Railways IV US$47.0 million 1979 " Total US$70.5 million Ports Port I US$1.6 million 1971 Audited project Port II US$25.0 million 1976 * Port III US$22.5 million 1983 Ongoing project Total US$49.0 million The grand total of US$474.1 million in loans and credits approved over the 2 1970-1985 period represents a larger volume of assistance than that claimed by any other sector, including agriculture. 2. After study of the record, field visits, and discussions with Bank and Government officials, OED endorses the findings in the attached PCRs. Research work required for PCR verification illuminated the performance of individual subsectors and this offered the opportunity to consider Bank assistance to the transport sector as a whole. Did the Bank identify the correct Issues? Did it adequately discuss Its views with Government? Were its interventions appropriate? Did Bank assistance materially affect the performance of the sector? Did the Bank endeavor to collaborate with other donor agencies? %hat would sectoral performance be like without the Bank? Document review, field visits to different parts of the country, and discussions with Bank and Government staff, revealed that, in late 1988, transport sector performance continues to be hampered by constraints which were identified a long time ago, but were never removed. Many services (for example, railroad passenger transp%,rt) are offered at prices that do not cover costs; the major parastatals depend on large subsidies; technical assistance is still necessary for tasks which ought to have been taken over by national staff; but national staff is not provided either with the proper work environment, or with appropriate incentives to increase their productivity. As a result quality of service is not what it should be; infrastructure has deteriorated; and the need is urgent both for large injections of funds (primarily for maintenance), and for a reorientation of planning and operational responsibilities and practices. Background and Obiectives 3. In the late 1960s, when the First Highway, the First Railway and the First Port projects were being prepared, there was agreement between the Government and the Bank on the ultimate, though long-term, desideratumt Cameroonian nationals running an efficient transport sector whose components (road, rail, ports, aviation) would pay for their own operation, maintenance and expansion. As both the Government and the Bank were aware, this would be neither easy nor quick to achieve: --- transport policy formulation and implementation was inadequate --- investment planning tended to be influenced by political considerations rather than by comparisons of economic costs and benefits --- the railway subsector tendad to favor economically questionable investments and to rely on Government support to cover any deficits --- maintenance capacity was limited although the needs were growing In view of constraints such as these, efforts for sectoral development had to be focussed on essentialst --- improve sector management and strengthen sub-sectoral organization; 3 --- :increase operational efficiency; --- work towards a better investment balance among the different sub-sectors; --- emphasize the importance of maintenance and introduce better maintenance practices; and --- ensure that future investments would fo'low well-analyzed transport priorities. These guiding principles informed inception, preparation and implementation of the projects summarized in the appendix to the PPAR (Bank-assisted projects in Highways. Railways and Ports). 4. In reviewing Bank assistance to the transport sector, the audit took full account of the fact that Cameroon is characterized by remarkable diversity -- in ethnic groups and religious beliefs, in topograhical and climatic conditions, in vegetation and economic resources. The country has two official languages (English and French), and national unity and regional balance are at the top of the Government's agenda. Despite constant threats to a common purpose and to national unity from many potentially divisive forces, Cameroon maintained during the two decades discussed in the PPAR, one of the most stable governments in Africa. It was this stability, coupled with petroleum revenues, and a fairly conservative and well-managed economy, that produced an 8% rate of growth of GNP from 1973 to 1985, no mean achievement by any standards. While the economy has since suffered a major slowdown, Cameroon did not end up, contrary to other temporarily liquid oil exporting nations, either with a large foreign debt or with a huge number of "white elephant" projects. 5. Evaluation of nectoral performance over a twenty-year period may be conducted from two perzpectives. The first relies on international comparisons and takes a secular approach to change. The second focusses on one country, on one sector, and confronts stated objectives with measurable results over the short and medium run. OED's mandate for accountability dictates adoption of the second formula without, however, disregarding the wider context within which audit findings and recommendations ought to be placed. A broad assessment of Cameroon's achievements and failures in the last twenty years ought, consequently, to consider the economic and socio- political setting against which Government actions, decisions and policies were adopted. From this wider perspective, and while recognizing that insufficient attention was given to institutional and policy areas in the transport sector, one can see that some crucial decisions in building the new nation had to do with planning, financing and constructing an adequate infrastructure network. This was an indispensable task for the promotion of national u..ity and domestic trade, and it is a task not yet completed because Cameroon inherited from its former colonial powers a rudimentary and inadequate transport system. Without condoning or excusing failures, one must acknowledge that the Cameroonians have begun to endow their territory with a transport network much more teasonably and efficiently than many other countries. PPAR conclusions must therefore be seen not as historical essays but as suggestions which, hopefully, will contribute to better integration of future efforts by the Government, the Bank and the donor community as a whole. 4 II. CONCLUSIONS AND RECOMMENDATIONS Conclusions 6. Operating railway and air transport networks, running a port system, and maintaining roads and highways involve substantial recurrent expenditures, but, presumably, these would be covered by the sector's capacity to generate income of a comparable magnitude. If investments cannot pay for themselves, if traffic falls below forecasted levels, if too much is spent for salaries of redundant workers, income does not suffice to cover expenditure and the sector -- especially if it is dominated by public or parastatal corporations -- begins to depend on subsidies. If, furthermore, as it often happens, subsidies are insufficient, the sector will neglect maintenance, which will lead to physical deterioration of expensive facilities, and to progressive lowering of the quality of service offered to the public. For twenty years, the Bank*s sectoral -strategy remained anchored on encouragement of efficient operations and progressive self-reliance. The record shows that the Bank consistently asserted that efficiency and self-reliance are best pursued in socio-political environments committed to thorough comparisons of costs and benefits, and to sound financial practices. 7. The Bank was aware of the Government's belief that transport, while offering services for a price, constitutes a major instrument for social development. It was also aware that Government took strong exception to a number of positions expressed by the Bankt thai_- rigorous economic criteria ought to be applied on investment planning; that plethoric staff has an advers Impact on the operation of public enterprises; that adequate tariff increases ought to be implemented in time to offset rising costs; and that transport parastatals should not depend on public subsidies. Differences of opinion escalated to critical proportions over investments which the Government considered essential and the Bank unjustified. In late 1977, and in the course of preparing the Fourth Railway Project, Bank-Government relations became sufficiently strained over the justification of realigning portions of the Douala-Edea railway line for the President of the Republic to inform the President of the Bank that the proposed works would be financed by other donors. The Fourth Railway Project went ahead to finance other items but the quality of collaboration between the Government and the Bank did not Improve. Friction continued because Government was not prepared to take seriously into account comments on investments which the Bank considered grandiose rather than necessary..11 The Government's general posture is 11 A case in point was the design of the Douala Railway Station building which Bank staff considered to be "not quite suitable as it is too ambitious." Bank reservations notwithstanding, the building was constructed according to that design and the attached PCR on the Fourth Railway Project, echoing sentiments first expressed nine years ago, says (para 9.06) that the city of Douala might reimburse REGIFERCAM for part of the cost since the building "substantially improved the environment". 5 sumnarised in a letter dated November 17, 1981 from the Vice Minister of Sconomy and Plan to the President of the Bank. The letter concludes$ *It would be highly desirable if principal Donors, including the World Bank, with a long presence in other sectors in Cameroon, could understand that for certain questions related to national developmental alternatives, which to equivalent to national sovereignty, the Government cannot follow systematically and unqualifiedly their advice." 8. While noting the Government's views on the social role of transport, the Bank maintained its position that, unless pros rly monitored and tightly controlled, transport investment, maintenance, -. operation might generate recurrent obligations that the government budget uculd be hard pressed to meet. With financial robustness and national self-sufficiency as the end objectives, and always taking due account of the constraints for their achievement, the Bank adopted prudent tactics for its lending operations. Its interventions were focussed on economically justifiable projects to increase the system's capacity or geographical coverage; on methodical maintenance of existing facilities; on improving financial performance; and, above all, on the cultivation, through personnel training and institutional strengthening, of the human capital: much effort was devoted to Improve the technical and managerial expertise of Cameroonian staff on whose exertions would depend the long-term development of the transport sector. The record shows that whether a specific project supported by the Bank was in the highway, railway, or port subsectors, Its justification was primarily based on projected rates of domestic economic development and, secondarily, on estimates of transit trade demand by land-locked Chad and the Central African Republic. The Bank went to great lengths to facilitate co-financing from other donors (specifically, in the cases of the Fourth Highway, the Fourth Railway, and the Second Douala Port projects), even if this meant reducing its own lending targets, provided that Cameroon would thus be able to get cheaper funds from some other source. Considering the difficulties that debt repayment now Imposes upon the country, the Bank deserves special credit for its exertions in this respect. 9. The Bank extended to the transport sector a program of assistance based on correct identification of issues, on patient explanation of views that ran counter to Government sentiments, and (within the limits Imposed by the absence of a coherent sectoral strategy), on an appropriate series of interventions to strengthen planning and operations, and to help finance economically sound investment and maintenance activities. In terms of achieving physical targets, and with the sole exception of the Feeder Roads Project, Bank-assisted projects were successful. There have been delays2/ 21 Sometimes due to slow start-up and procurement (e.g., Highways I, Railways IV, Ports I), and, sometimes, to complications arising from discussions on cofinancing (Highway III). 6 and cost overruns3/ but roads were built, upgraded, or maintained; railway assets were increased; port facilities were modernised and expanded. Rates of economic return, calculated after project completion, are, on the whole, satisfactory. Results are not as rewarding for measures intended to improve institution-building,A/ policy formulation,1/ efficient use of technical assistance,6I financial perfirmance,Z/ operational performance,1/ and 31 Due to the 1973 oil price increases (Highways II) but, also, due to poor cost estimates (Highways II); significant overruns for some components (the Douala Station for Railways IV); increases in the original project scope (Ports II); and delays in contract awards (affecting, to a greater or lesser extent, all projects so far reviewed by OED). 41 Although results were good in port projects and particularly in Ports I, which helped establish the National Pot.;s Authority, not much was achieved in highways and railways. The Region notes that Transport Survey recommendations have been incorporated in part in recent policy statements by the Government but, on the other hand, the Road Planning Unit established under Highways IV is moribund; and efforts to strengthen local capacities through transport surveys, etc., conducted under Highways V and VI have come to little. 51 For example, in Highways III, poor results arose from the Bank's excessive reliance upon technical assistance staff; Government resistance to effective controls has kept the weigh stations provided under Highways IV from becoming operational; the railways' role in domestic passenger transport, though drastically altered, has not been recast after the opening of the Douala-Yaounde Road. 6/ The impact of Bank-financed technical assistance has generally been mediocre partly because the expatriate staff was of poor quality (Feeder Roads Project), partly because terms of reference were insufficient (Railways III), partly because of the problems created when a switch was made from one team to another (Ports II), and not least because Government believed that bilateral sources could provide experienced technical assistance personnel at a much lower financial cost to Cameroon. /1 Experience was good only with Ports I but even there performance was below expectations because of lower traffic. Higher than anticipated costs and lower traffic contributed to disappointing financial results in Railways I, II and III. Financial performance targets for Railways IV were not met largely because Government was not receptive to Bank suggestions on the need to define a correct tariff policy. Financial performance targets under Ports III are not being met parly because of insufficient tariff adjustments. 81 Fairly good results were obtained in the port projects, but the same cannot be said for the railways. Operational performance was below expectations in Railways I. There was lower than planned 7 effective coordination of Donor resources.91 This is disappointing because, all along, institutional developm^nt was fundamentally what the Bank had been after. 10. Considering the sector as a whole, its status in 1988 could have been better. Twenty years after the approval of the first Bank-assisted transport project, thoughtful planning, smoother procurement, timely execution of works, efficient service, and systematic maintenance -- all remain elusive goals. The road network has been expanded and selectively upgraded, but it is not routinely maintained to safeguard past investments and, in the case of minor roads, to allow all-weather access. Developing countries in Africa share a common attitude towards maintenance and, in Cameroon, this is reflected in the condition of the Yaounde and Douala urban roads. From the user's viewpoint, transfer of passengers and goods from one mode to another remains at a rudimentary state. From the viewpoint of the national economy, the three major public, corporations in the transport sector (REGIFERCAN, CAMAIR, ONP) impose a heavy burden upon the treasury which, every year, must pay out the equivalent of US$75-US$100 million in subsidies to keep railways, ports, and civil aviation in business. No consolation may be derived from pars 10 of the Bank's 1987 Country Economic Memorandum on Cameroon, which notes that poot :inancial results of public corporations is not a phenomenon peuliar to transports " The sharp growth of "subsidies and transfers" within government expenditure, the size of the banks' bad debts and the high volume of government capital expenditure on account of the public enterprises testify to the difficulties of the public enterprises and the inefficiency of many of them. The poor results recorded by the 60 enterprises in all sectors in which the Government holds greater or smaller participations are due, depending on the case, to oversized initial investments, low intrinsic rates of return, overstaffing, an unwieldy administrative structure and lack of clearly defined objectives, corresponding performance criteria, and management incentives. These enterprises also suffer from the customary ills of public enterprises: pursuit of social goals without direct productivity of rolling stock in Railways II, and failure to Improve availability of locomotives and rolling stock in Railways III. Both Railways II and III failed to elicit early management action to initiate cost, budget and staff control systems to keep working expenses in check. In roads and highways, operational practices, especially for maintenance, and in particular over the past three years when funds have been short, have shc.-n a steady deterioration. 91 The Bank made exceptional efforts to smooth out difficulties likely to emerge among donors with a variety of financing guidelines (see, for example, the record on Highways II, Highways III, Ports II, Railways IV, and Highways IV). Even so, major problems persisted partly because of the different procurement procedures favored by each Donor, and partly because, so far, neither the Government nor the Donors seem to have appreciated the benefits from genuine, as opposed to token, collaboration. 8 financial compensation by the Government, politicization of manAgements and interference by the supervisory ministries, slowness *o react to market developments, and poor financial structure. Total subsidies to the public enterprises in 1984 were estimated at some CFAF 150 billion (US$366 million), representing 50 percent of government oil receipts in that year and 18 percent of total government expenditure...." 11. It may therefore be argued that the desideratum envisaged twenty years ago -- Cameroonian nationals running an efficient transport sector which would pay for its own operation, maintenance and expansion -- has not been met. For the Bank, this lack of success is galling because institution- building, staff development, and the encouragement of sound financial practices were domains which, over the years, attracted much attention, and absorbed considerable effort and resources. The Bank was realistic enough not to expect drastic changes to occur overnight, but it did expect that small improvements wotld be additive, that subsequent projects would benefit from the experience of preceding ones, and that obstacles encountered along the way would be gradually removed. Hindsight suggests one major reason why twenty years of effort -- plus almost US$500 million of Bank Group funds; plus an amount undeterminable with precision but certainly in the hundreds of millions of US dollars from other donors; plus massive technical assistance and staff training; plus an uninterrupted "policy dialogue" -- have not brought about a more encouraging outcome: the Government was not committed to genuine change. This may have been because broad initiatives for sectoral strengthening, as well as virtually all specific measures, were sponsored by donors instead of being orchestrated by Cameroon. 12. For twenty years, prescriptions were advocated, and measures were taken to help the transport sector, without any coherent plan within which the different interventions might be integrated. Obviously, in the short run, such "divide-and-rule" approaches yield more money and demand minimal accountability. In the long run, however, their damage can be serious and this why the need for a coherent plan was stressed by the Bank as early as 1977. The Project Brief (dated March 31, 1977) for the Feeder Roads Project emphasized that improvement and maintenance of feeder roads ought to be pursued as part of a comprehensive effort for the sector's balanced development. That the absence of such a plan had adverse effects upon the sector's overall prospects was noted by OED as far back as 1982 when the PPAR on the Second and Third Highway Projects said the following: *... The projects generally achieved their objectives, albeit with delays and with increases in costs, and their physical components yielded satisfactory returns. It is helpful, nonetheless, to set this experience in the context of other Bank Group projects for transport in Cameroon. Most of these projects have been for the main trunk routes of the country, but they were unrelated to an overall plan for the transport sector and for the improvement of those trunk routes. Such a plan has not been developed despite considerable technical assistance provided to various Cameroon transport agencies by the Bank Group and others. The Audit considers that the creation of such a plan would have been more likely had the Bank agreed on this objective with the Borrower and 9 not merely provided finance for general planning help. Such a plan would have established some investment priorities which would have provided a basis for recasting or postponement of some major investments, particularly those on Cameroon's main trunk routes. Thus, while the two projects und- audit achieved their Immediate aims, they had only limited effecte on structuring the country9s overall transport system..."10/ 13. In the absence of a comprehensive program, subsectoral Improvements were undertaken by Governm.nt, and financed by donors, without sufficient preparation to see whether a better road might take business away from the railroad (and, in that case, what to do about the railroad); whether trucks are too heavy for the prevailing road standrds; whether improvement of merchandise handling facilities in a port might not create bottlenecks for road or railway transport. Transit traffic to Chad and the Central African Republic -- a potentially rich source of revenue for Cameroon -- has nut, so far as this review was able to ascertain, received the systematic attention which a complicated multi-modal operation might have deserved. The donor conmunity has been generous to Cameroon but the Impression persists that the transport sector absorbed resources for investments or activities which may have possessed special attractions for a donor without necessarily having a high priority for the national economy. The impression is strengthened by a study of the record (January-June 1980) on the discussions regarding track realignment between Edea and Maloume. In 1988, the debate over the new international airport at Yaounde indicates that donor assistance for not rigorously supervised prefeasibIlity studies of very major projects may encourage Government to contemplate investments unsupported by conventional cost-benefit analysis. 14. Preparation of a coherent program might have been expected to be among the first concerns of a country whose development has much to gain from good transport, and the absence of such a plan cannot be attributed to shortage of qualified Caueroonian personnel. The average member of the Government's technical services possesses sound academic credentials. A sensible blueprint for transport rehabilitation and strengthening would not be difficult for Cameroonian civil servants, many of whom, like many of their fellow-citizens, are eloquent in expressing their strong conviction that Cameroon can prosper with less interference from outside. In the audit9s view this conviction, which reflects past experience, has not so far been taken into proper account by donors, even though there has been no shortage of hints. For example, file documents show that, in the early 1980s, the unexpected oil income produced a feeling of iphoria that the country could dispense with external financial assistance. However, the feeling was short- lived and the resulting disappointment has reinforced not only a penchant for secrecy (illustrated by the Government's unwillingness to discuss with the Bank the financial situation of REGIFERCAM in the early 1980a, and by the comments on data availabilities in Cameroons Economic Memorandum, (February 1987), para 3), but, also, the general attitude, expressed succinctly by the President of the Republic who wrote in his Pour le Liberalisme Communautaire 101 OED Report No 3934 of May 24, 1982. 10 that "... for the Cameroonian economy to be relatively independent, it ought to rely more on the dynamism of Cameroonians rather than on foreign capital and foreign companies...". 15. The Bank subscribes to the thought behind this statement but, while the potential dynamism of Cameroonians working in transport is beyond dispute, action has not been forthcoming. Despite suggestions by the Bank over a period of almost twenty years, there is no tariff policy which might have helped the parastatals become financially independent. Continuous reassignment of responsibility through Ministerial reorganizations, Steering Committees, Advisory Groups, etc., may have achieved other objectives but contributed little to invigorate planning, management and operation of the transport sector. Scant evidence exists that investment proposals are evaluated with suitable rigor. On the contrary, as the ongoing debate about the new International Airport of Yaounde demonstrates, expensive symbols, unfortifiable by economic or technical justifications, may be advocated as beneficial for the national economy, even in a period officially designated as a "crisis*. But, perhaps most important of all, dynamism remains dormant because Cameroonian technical staff are constraineds they operate in a climate of bureaucratic strictness which does not tolerate mistakes, they have to be extra careful over social and ethnic issues, and they are not given material incentives for better performance. All this leads to delays in project preparation, procurement and execution, as well as to unnecessary complications in the coordination of external assistance. 16. A principal cause for insufficient motivation is the familiar -- and for the Bank as well as for all other donors, intractable -- problem of low salaries. That low salaries were a stumbling-block for productivity increases was documented as early as 1978 when a Bank Training Specialist visite4 Cameroon to review training needs in the Ministry of Equipment and Housing, but, as in other developing countries, upward revision of public sector emoluments is fraught with so many complications that nothing has been done in Cameroon either. Besides, Cameroon has a growing employment problem and civil servants, though regretting low pay, are content with job security. Technical staff who are poorly paid but ascure in their jobs cannot be expected to show either initiative, or excessive dynamismp especially when technical assistance personnel, financed by the Bank or other donors, are4Zvailable to get the work done. The concatenation of these two factors led to the well-intentioned but futile notion of "counterparts": local staff would work alongside technical assistance personnel and would "benefit" from proximity to the Imported expertise. Presumably, for the national economy, the "benefit" would be greater productivity of local staff. 17. Things have not worked out that way. As already noted, the average Cameroonian technical officer possesses academic qualifications comparable to those of most expatriates. The practical experience of some of the latter was often balanced by the inexperience, or overbearing manner, of others, with the result that any Cameroonian desire to "benefit" from the presence of foreign experts was considerably dampened. Furthermore, Cameroonian staff soon realized that expatriates sitting at the next desk were earning anywhere from ten to fifty times more than they were. As in many other developing countries, this has made expatriate personnel not particularly appreciated and the 11 message was not lost upon the Bank. A Back-to-Office Report (dated April 13, 1984) on a February/March 1984 supervision mission noted the followings "On the one hand, the presence of consultants is clearly indispensable for carrying on with the present project and for preparing a future project -- but on the other hand, the relationship between the road services and the Consultant's team leaves much to be desired." In November 1988, the 0ED audit mission gained the impression that Cameroonian technical officers have reservations about the possible contribution of expatriate staff to the rehabilitation of the transport sector while, at the same time, admitting that their own working environment, low salaries, and job security, give them no reason to exert themselves. On Its own, the Bank is unable to resolve the impasse and continues to count on incentives of dubious effectiveness, illustrated by the November 15, 1988 President's Report on the Livestock Sector Development Program which notes, under "Risks" in para 9, that the project's success would depend, inter alia, on "the motivation of MINEPIA's (The Ministry of Livestock and Fisheries) field extension staff..." And then says: "Field staff are expected to be motivated through Improved training and the introduction of mixed crop and livestock farming to contain the effects of increasing population pressure on pastoral activities." 18. Government was never unaware of the planning, managerial and operational problems in the transport sector but, so far, has not been unduly disturbed partly because of the largess of the donor community, and partly because no serious attempt to introduce dynamism and cost-effectiveness into transport-related activities would be free of political risks. Increasing emoluments for technical staff in the transport sector would inspire demands for identical increases in other parts of the civil service; instituting a cost-based tariff for railway and air transport would be loudly resisted by transport uaers; enforcing axle load legislation would provoke the ire of truckers; dismissing redundant staff in the major transport parastatals would create civil disturbances. Faced with risks of this nature, Government preferred to do nothing decisive and this lack of commitment, coupled with budgetary difficulties of the last few years, does not augur well for better performance in transport planning, maintenance, or operations. In the long, or even medium run, lack of action is permissible if the economy can subsidize the unsatisfactory operation of the transport sector, or if external financing can be indefinitely counted upon to cover the. deficits. The first condition does not really apply and, as for the second, there are indications, noticeable world-wide, of "aid fatigue" from whose effect Cameroon should not consider itself to be immune. At this point, two questions arise for the Bank. First, when so little progress has been made in institution-building, efficiency, and self-reliance, would continued assistance be beneficial? Second, if the Bank withheld further support to transport, which segment of the country's population would really suffer? 19. Answers to such complex questions cannot be simple. In the audit's view, continued Bank assistance using the modus operandi employed over the past twenty years would be counterproductive, and might reinforce "aid dependence". Conversely, Bank withdrawal would probably discourage other donors and the reduction of financial assistance would mean further 12 deterioration of the physical infrastructure, of the quality of service to t:- mport users, and a significant increase of transport costs. The Impact would be felt mostly in urban centers because rural areas, being traditionallf self-sufficient, do not depend upon long-distance movement of persons and goods for their survival, or even welfare. Therefore, by refraining from further lending operations, the Bank would not deprive the rural poor (one of the principal target groups of its developmental efforts), of services that they cannot do without. On the other hand, continued Bank assistance -- dispensable for survival but indispensable for equitable growth -- would be justifiable only if Government offered persuasive evidence that it appreciates the importance of transport for economic development, and that it is fully prepared actually to adopt the admittedly difficult, but essential, policies and measures which it has been contemplating for years. For example, the 1987 Country Economic Memorandum, reflecting discussions which took place in November 1986, states in par& 44t *To prepare the adjustment measures, prepare an external borrowing strategy and establish orders of priority and an implementation timetable, it would be advisable to set up a coordinating group which would comprise officials of the Ministry of Finance, the Ministry of Planning and the Ministry of Trade and Industry." The April 1987 Initial Executive Project Summary on a proposed Transport Parastatal Project says under the heading of "Government Strategy": "Aware of the financial drain, the Government established in mid- 1986 a Public Enterprises Rehabilitation Mission, whose technical committee would operate in close association with the Bank to formulate a strategy and measures to avoid or reduce the continued dependence of parastatals on publ.c funds. Also, for the transport sector in particular, a high-level Steering Committee has existed since 1984 to supervise and review the recommendations of the Bank- financed Transport Sector Survey. The survey has recommended to the Government reformatory measures for the sector, including (a) to carry out a financial restructuring of the sector parastatals; (b) to clarify respective responsibilities of the State and parastatals; (c) to improve profitability and financial autonomy, and (d) to strengthen management and planning capabilities of the parent Ministry and the parastatals." Thus, the main -- though not the sole -- issue facing the transport sector is overdue reform, and its implementation would demand commitment, discipline and determination. 20. For sector rehabilitation, major policy changes cre necessaggybut not sufficient remedies. Given the magnitude of investment and maintenance requirements in the Immediate future, financial assistance in the hundreds of millions in Loreign exchange would be required. In addition, the sector needs recasting of management and organisational procedures, and development of domestic capacities for planning and operating the individual modes. Since domestic revenues cannot meet the costs associated with such initiatives, external assistance would be indispensable over, at least, the next ten years. Experience has shown that traditional methods for resource transfers (i.e., project-by-project, and subsector-by-subsector interventions) are unlikely to 13 produce durable results, Excessive reliance upon technical assistance and uncoordinated aid flows are also matters that ought to be urgently addressed. The question is how all these strands can be pulled together in a coherent program, and two alternatives present themselves. Either a foreign consulting firm (or expatriate technical assistance staff working under the supervision of some donor), would be asked to formulate diagnoses and prescriptions; or the Government would undertake a comparable exercise primarily on its own. In the audit's view, the latter approach has more merit and deserves serious consideration by Government, the Bank and the donor community, all of whom ought to keep in mind the absolute necessity for discipline as well as for frank and open exchange of views. Unless the donor community presents a totally united front on fundamental reforms, however unpalatable these may be, asking Government to formulate its own plan would result in the production of reports similar to those already produced by consultants, whereas what is needed is a planning, financing and implementation formula of an altogether different nature. For genuine change to take place, Government, the Bank and other donors must collaborate in earnest and without even a hint that the time has come for genuine "leverage". The Bank ought to continue showing good faith and it should not interrupt preparatory work for operations such as the proposed Feeder Roads Project in the belief that sudden firmness (not demonstrated in past occasions which might have fully warranted it) would make the Government change its ways. But, by the same token, the clear message ought to be sent that a sectoral approach, based on Government-determined plans and priorities, will be the future formula for Bank and, hopefully, all other donor assistance. 21. That, henceforth, the initiative must come from the Government requires minimal elaboration. Foreign-sponsored initiatives during 20 years did not produce lasting institutional and operational improvements, possibly because foreign prescriptions did not inspire the Government to proceed with hard decisions and potentially unpopular measures. The Bank now realizes that Government commitmeut is a critical factor for sectoral rehabilitation. A major paper (Aproach to Bank Lending for Agriculture in Sub-Saharan Africa-- Selected Issues), presented to the Board on December 7, 1988, reflects the Bank's position regarding policy-based and project-based lending, as well as the significance attributed to institution-building in Member Countries. Para 8 of this paper reads in parts "... Policy-based lending is necessary to create a supportive economic environment in Sub-Saharan Africa. If policy and investments are not made complementary parts of lending, the problem of weak suppl responses in agriculture will resurface.... The success of lending epen of hXgaers to pokiq reforms and on their involvement in all phases of the project' cycle.... Institutional development, far more than just being necessary for the success of investment projects and policy reforms, is indispensable for sustained growth in the future.... " If Government were to assume the initiative for diagnosis, this might generate commitment, and might also prepare public opinion for the implementation of those measures which Government, on its own, feels to be both urgently needed and politically feasible. Para 63 of Approach to Bank Lending, reads as follows: 14 "In Sub-Saharan Africa, there exists a range of receptivity to policy reform. At one of this range are countries that have already initiated programs of reform and where commitment is deep-seated for continuing and widening reforms. In this receptive environment, ministers, bureaucrats, and opinion leaders see the need for change and agree on its general directions, but perhaps not on the pace or specifices of the reform program. At the other end of political commitment spectrum are governments that have not yet perceived the need for policy change or see themselves in such a perilous political situation that they have little power to implement a program. In between are the majority of African governments where some in government and some outside foresee and support the need for policy reform while others oppose reform." Assuming that Government already perceives, or will soon do so, the benefits of policy reform, the following suggestions might perhaps be useful for facilitating the integration of Government initiatives with donor assistance. Recommendations 22. Sector obiectives formulated twenty years ago remain appropriate and deserve to be preserved as the list of issues which Government would endeavor to confront: (a) improved sector management and subsectoral organization; (b) increased operational efficiency; (c) increased emphasis on maintenance; (d) investment decisions supported by rigorous comparison of costs and benefits; and (e) balanced allocation of resources among subsectors, and between new works and maintenance of existing facilities. The pursuit of one further objective ought perhaps to be added: regional integration through better transport. This would go beyond the mere provision of access to landlocked Chad and the Central African Republic, and would aim at the encouragement of greater factor mobility -- people, capital, and trade -- betwee Sameroon and its neighbors. In the past, regional integration was constrained ty exchange rates and other protectionist instruments but as more and more African countries, among which Cameroon may soon come to be counted, are liberalizing under the incentive of structural adjustment, the hope is permissible that national policies could be aligned in such a way that there need be no unnecessary barriers. When this happens, the role of transport would become decisive for the creation of the larger market units which are necessary for the industrial future of African countries. 23. Wide objectives such as the above may only be achieved over a long period. It might therefore be wise to adopt a 10-year horizon for the implementation of policy reform, as well as for estimating resource needs. The 1.eriod would be long enough to provide perspective, and short enough to allow the setting of specific milestones against which performance can be measured and course corrections made. 15 24. Sector Planning ought to be entrusted to Cameroonians enjoying the full support of the Government. Most of the planning effort would come from the Government's own technical officers, partly because they are familiar with the sector, and partly because they would subsequently supervise the Implementation measures sanctioned by Government on the basis of their suggestions. For Cameroonian staff to exercise initiative and dedication, Government at sponsor attitudinal changes: bureaucratic procedures have to be relaxed, fear of making mistakes must be reduced, meritorious work must be visibly recognized and rewarded. In the latter connection, Government ought to introduce, as a matter of the highest priority, an incentive system to motivate its officers sufficiently. Use of expatriate staff would be limited to those instances where Cameroonian authorities wuld conclude they need technical assistance, and would themselves take the necessary steps to identify and recruit the expatriate staff required. 25. In planning documents, simplicity ought to be of the essence. There are a sufficient number of local planners, and sufficient statistical material available, to produce within a 12-month periodt (a) an issues paper (encompassing the 10-year horizon) on the principal economic, financial, operational, and personnel issues facing the sector; and (b) an action program (encompassing the first five years) on the organizational, financial and personnel aspects judged to deserve the most urgent attention. These ought to include: (i) Five-year priorities for new investments and maintenance expenditures by subsector; and (ii) For the major parastatals, cost-based tariffs to be introduced within an 18-month period after the action program had been adopted by Government. In the interest of simplicity, the temptation to use sophisticated techniques (system analyses, national transport surve:s, macroeconomic models), ought to be firmly resisted. Most of these tools have already been tried and their products did not succeed in inspiring Government commitment to the solutions proposed. No doubt, clear statements of intention, and comprehensible descriptions of how intentions would be pursued, are harder to produce than multi-volume studies. Nevertheless, clarity and explicitness are the two characteristics which the Government's sectoral strategy ought to possess and if it is difficult for the Government to be clear and explicit, it will be impossible for anyone else. 26. The quality of the issues paper and of the action program would be critical for sector finaning, which ought to be confronted in steps. First, Government would formally endorse the action program. Second, Government would specify the volume of its own financial contribution to sectoral rehabilitation. Third, the donor community would be invited for discussion and pledges. At that point, aid coordination would be paramount because of the need to harmonize donor preferences for financing specific activities or projects, and because of the variety of procurement guidelines prevailing in the donor community. 16 27. The action program would spell out measures related to policy, organisational and financial aspects (for example, parastatal debt restructuringi reorganization of ministries and agencies; redundant staff reduction and redeployment; enforcement of legislated axle-load 1imits; closure of uneconomic railway passenger lines). Presumably, the action program would include deadlines for the Implementation of each measure. An effective incentive for meeting such deadlines might be to tie disbursement of pledged contributions to achievement of specific milestones. The quality of discussions on sector financing between Government and the donor community would be enhanced by advance agreement on reasonable dates by which each milestone would be achieved. Such agreements would permit proper scheduling of resource disbursement for the achievement of subsequent milestones. Appendix BANK-ASSISTED PROJECTS IN HIGWAYS, RAILWAYS AND PORTS Hilhway Proiects 28. The First Highway Project (Loan 633-CM/Credit 180-CM, US$21 million, of 1970) would contribute to an improved trunk network by improving the N'Gaoudere-Garoua and Tiko-Victoria roads. Execution of physical works was not smooth: completion was delayed by two years and the standards of the first road were reduced extensively. Nevertheless, and although the cost of road improvement and of consultant's services was 15% over the forecast, traffic volumes increased sufficiently for the reestimated economic rate of return to be higher than expected at appraisal. Project implementation was not easy because several Government agencies shared responsibility for the various components, with no one responsible overall. This contributed to delays and emphasized the importance of better communication between the Bank and the Executing Agency. The project also demonstrated the need for adequate procurement procedures to remain within the forecasted Implementation period. Preinvestment studies financed under the project were successfully completed (albeit with a 1.5 year delay) and the roads involved were constructed under the Second Highway Project. However, institutional improvements contemplated under the First Project did not materialize.111 29. The Second (Loan 935-CM/Credit 429-CM, US$63 million, of 1973) and the Third (Loan 151&-CM, US$16.5 million of 1978) Highway Projects were to continue improving the main trunk network. The Second Project -- consisting of reconstruction of nearly 500 km of highways, "lue technical assistance and studies (on transport policy, highway maintenance and feeder roads, and forestry policy and forestry roads) -- suffered from unfortunate timing because detailed design and cost estimates for the road works were prepared only shortly before Board presentation in July 1973. Tenders and actual costs greatly exceeded cost estimates, primarily due to the oil price increase is late 1973 but, also, because of poor estimation of physical quantities and of unit costs. To reduce costs, Government cancelled about 95 km of construction and increased its own contribution, while IDA provided supplementary financing of US$15 million equivalent. The Third Proiect was approved when construction under the Second Project was virtually completed. It provided for reconstruction of the cancelled 95 km segment, for which the contractor of the adjoining segment had made a favorable offer. The contractor was a German firm, the Bank 11/ For a detailed discussion, please see the PPAR on Cameroon -- First Highway Project (OED Report No 1574 of April 29, 1977). 18 vainly sought to obtain cofinancing from the Federal Republic, and physical work was delayed while attempts were made to find more funds. After work began the contractors worked more or less to schedule and all work was satisfactorily finished (except for some localized pavement failures on one road), two years later than the original target date. Traffic grew at double the projected rates and vehicle operating costs also rose significantly, with a consequent increase in benefits. Therefore, despite construction cost increases, rates of return remained at about 20 percent. The two projects financed a road maintenance study which formed the basis of the Fourth Highway Project. Feasibility studies of nearly 400 km of forest roads were also completed, but a planned feeder road betterment program was not developed. The two projects provided technical assistance for various transport agencies but effective formulation of -ransport policy remained elusive. The record shows that, in the late 1970s, government officials were beginning to be skeptical regarding the contribution of technical assistance to planning and policy formulation tasks. This is illustrated by the fact that the technical assistance (provided under the Second Project) to formulate a forestry policy was never arranged. Some expatriate staff was eventually obtained bilaterally but forestry policy had still not been formulated when the project was essentially completed in 1979.121 30. The Feeder Roads Preset (Credit 749-CMILoan 1494-CM, US$11.1 million, of 1977) -- one of the oubjects of this audit -- was an ambitious scheme to establish the institutional framework for planning, constructing, and maintaining feeder roads which would support agricultural and rural development efforts. It consisted of a four-year program for the construction and Improvement of about 2,200 km of feeder roads; of technical assistance to establish a Feeder Roads Unit within the Department of Roads to implement the program and train local staff; and of a study for a follow-up feeder road program. Planning, administrative and organizational problems emerged the moment the project was approved. Project inception and design were flawed, the executing agency was badly administered, its personnel poorly qualified, and the impact of the technical assistance less than expected. At the Bank's insistence, the executing agency was reorganized in mid-1982, and a work program reduced by about 50 percent was developed. Nevertheless, even the reduced project was not a success.131 31. The Fourth Highway Project (Loan 1723-CM/Credit 926-CM, US$48.0 million, of 1979) -- the second subject of this audit -- was primarily 12/ For a detailed discussion, please see the PPAR on Cameroon --Second and Third Highway Projects (OED Report No. 3934 of May 24, 1982). 131 For a detailed discussion, please see the attached PCR, paras 3.01- 3.13, 4.01-4.02, 5.01-5.04, 7.01-7.04, and 8.03. 19 designed to improve road maintenance capacity and, secondarily, to promote domestic contractors, to control vehicle loads, and to improve road planning. The project consisted of a three-year training program for maintenance staff; of a four-year program for the maintenance of about 16,900 km of roads and the rehabilitation of about 1,350 km of unpaved roads; of the rehabilitation of about 340 km of unpaved road.; of the provision of two weighing stations; of the setting up and staffing of a Road Planning Unit in the Department of Highways; and of a number of road preinvestment studies. Physical objectives of the project were successfully met but institution-building, planning, and vehicle control do not promise sustainable benefits.141 32. The Fifth Hishway Project (Loan 2180-CM, US$70.0 million, of 1982) -- not fully disbursed as of October 31, 1988 -- consists of the construction of the 181-km Edea-Yaounde road; and of technical assistance to supervise construction, prepare a national transport survey, evaluate the paved road network, and strengthen the Ministry of Equipment, the Ministry of Transport, and the National Civil Works Laboratory. After an initial delay in awarding a contract for the Bank-financed section, construction works proceeded well. Cofinancing is provided by the Kuwait Fund, Islamic Fund, and Abu Dhabi Fund; the Governments of Canada and The Netherlands and private banks in The Netherlands to a total of US$91.5 million. 33. The Sixth Highway Project (Loan 2584-CM, US$125.0 million, of 1985) -- largely undisbursed as of October 31, 1988 -- is to increase road transport capacity; pursue institutional development for the transport sector; strengthen the management system of the National Equipment Pool; and strengthen the operational and research capacity of the National Civil Works Laboratory. The project consists of a four-year pavement strengthening program (about 600 km); upgrading of about 150 km of gravel roads to paved standards; technical assistance for works supervision and preparation of feasibility studies; and institutional development in the transport sector, encompassing technical assistance to and staff training in the Ministry of Equipment, the Ministry of Transport, the National Civil Works Laboratory, and the National Equipment Pool. Organizational difficulties affecting the Ministry of Public Works and Transport in 1988, as well as the Procurement Ministry, have slowed down implementation which, to begin with, was never problem-free. 141 For a detailed discussion, please see the attached PCR, paras 3.14- 3.23, 5.05-5.06, 7.5-7.07, and 8.08. 20 Railway Projects 34. The First Railway Project (Loan 687, US$5.2 million, of 1970) was to increase carrying capacity by rehabilitating fixed installations, purchasing new rolling stock and motive power, improving operating efficiency, and strengthening the railway's (REGIFERCAM) financial performance. Implementatlon was not fully in line with appraisal expectations. Rolling stock and motive power was delivered on schedule but there were delays in the completion of the works and some items were dropped from the project. This produced savings in project coAsts which were offset by overruns in the other items so, in arithmetical terms, actual project cost remained close to appraisal estimates. Although traffic was lower than expected, the audit rates of return were satisfactory. Financial performance was below expectations mainly because of the traffic shortfall and the lack of an adequate tariff policy. Improvements in operating efficiency were also below expectations. On the whole, realization of project objectives suffered from insufficiently comprehensive consultants' terms of reference, and from failure of tariff increases to offset inflationary cost pressure.151 35. The Second (Loan 1038, US$16 million, of 1974) and Third (Loan S4, US$2.3 million, of 1976) Railway ProJects continued with rehabilitation. This was to be achieved through replacement of a major bridge; track renewals procurement of locomotives and rolling stock; and technical assistance. Physical components were satisfactorily implemented but the re- estimated economic rate of return was lower than at appraisal because of the shorter useful life of track renewal works and lower than expected productivity of rolling stock. Financial targets were not fully met because of rapidly rising costs and lower than expected traffic. Post-completion review revealed that Government- Bank communications on railway realignment decisions were unsatisfactory; that REGIFERCAM suffered from a weak working capital position; and that institutional weaknesses of the Borrower, and weaknesses in the Bank's appraisal and supervision, led to late identification of certain technical problems and less than optimal use of consulting services. Both projects suffered from overoptimistic traffic forecasts; from failure to achieve any marked improvement in the availability and utilization of locomotives and rolling stock; from failure to initiate cost, budget and staff control systems to keep working expenses in check; and from inability to achieve the forecast economic rate of return. These negative aspects faced REGIFERCAM at a time when its favored position in the Douala-Yaounde transport corridor was threatened by 15/ For a detailed discussion, please see the PPAR on Cameroon -- First Railway Project (OD Report No. 1633 of June 15, 1977). 21 the anticipated construction of a competitive paved road after 1983. Management effort and correct economic, financial and operating decisions were regarded to be of the essence and, when OED published its audit in 1980, it was felt that REGIFERCAM was fortunate in having the time to prepare for the increased competition. It was also hoped that the Fourth Railway Project, which had been designed to reduce weaknesses identified during the Second and Third Projects, would contribute in turning the situation around.16/ 36. The Fourth Railway Project (Loan 1734-CM/Credit 936-CM, US$47 million of 1979) -- the third subject of this audit -- was to increase the capacity and efficiency of traffic handling facilities in the Douala area, and to Improve tae efficiency of REGIFERCAM management and operations. The project included construction of the marshalling yard, track and rolling stock, civil works, training equipment, technical assistance, and refinancing of Credit S-4 CM, As noted above, urgent and decisive action was indispensable but, because of slow start-up and procurement delays, the project took four more years to complete than anticipated. Operational efficiency did almost meet the targets set at appraisal, although it did so considerably behind schedule due to delays in carrying out works and taking advantage of technical assistance. Conversely, financial targets proved to have been extremely optimistic. The Bank did not succeed in persuading the Government to take appropriate corrective action on financial matters and, in retrospect, it is now certain that the Bank's association with REGIFERCAM did not provide the proper vehicle for influencing the Government to formulate either an intermodal tranaport policy, or a proper action plan for REGIFERCAM financial rehabilitation.171 Port Proiects 37. The First Douala Port Project (Credit 229-CM, US$1.6 million, of 1971) was to finance expansion of facilities at the Port of Douala, the purchase of a small dredger, and provision of advisory services. Despite a two-year delay in the completion of tl works, the project succeeded in removing serious bottlenecks in Cameroon's port capacity. Reestimated rates of return were satisfactory. Implementation suffered from delays attributable to tender and contract award procedures, while project benefits were lower than 161 For a detailed discussion, please see the PPAR on Cameroon -- Second and Third Railway Proiects (OED Report No. 3056 of June 30, 1980). 171 For a detailed discussion, please see the attached PCR, and especially parea 3.01, 3.08, 3.12, 5.02-5.03, 5.06, 5.12, 6.03-6.07, and 9.01-9.07. 22 anticipated because of coordination problems. An important contribution of the project was to define a long-term strategy for port development in Cameroon -- including the creation of the National Ports Authority (NPA) -- and the improvement ,2 port operations and planning. The project also strengthened the financial position of the port of Donala, although the final outcome, in money terms, was less favorable than had been hoped because the traffic was less than expected.J1/ 38. The Second Douala Port Project (Loan 1321-CM/Credit 657-CM, US$25 million of 1976) was to provide additional capacity for traffic projected through 1985; to enable specialized log carriers and semi-specialized container ships to use the port; and to improve road and rail access to the port add traffic within the port. Total project cost was US$145 million (about 21% higher than estimated at appraisal), mainly due to a justified increase of the original project scope. Financing was provided by several donors (AfDB, BADEA, CCCE, CIDA, FAC and KfW); all components were satisfactorily implemented; and the reestimated economic rate of return is 22%, compared to 18% estimated at appraisal. Higher than expected benefits obtained from rental of land for oil companies offset the 21% cost increase. The NPA financial performance improved and substantial productivity gains were achieved.191 39. The Third Dou&& Port Project (Credit 2259-CM, US$22.5 million, of 1983) -- not fully disbursed as of October 31, 1988 -- consists of the construction of three berths with a warehouse; provision of cargo handling equipment, one tugboat and various navigational aids; data processing services and equipment; and studies and technical assistance to the National Ports Authority. Project execution has proceeded satisfactorily. 181 For a detailed discussion, please.see the PPAR on Cameroon -- First Douala Port Project (OED Report No. 1605 of May 24, 1977). 19/ For a detailed discussion, please see the PCR on United Republic of Cameroon -- Second Douala Port Project (OED Report No. 4942 of February 14, 1984). - 23 - REPUBLIC OF CAMEROON FEEDER ROADS PROJECT. CREDIT 749/LOAN 1494-CM FOURTH HIGHWAY PROJECT, CREDIT 916/LOAN 1723-CM PROJECT COMPLETION RPORT I. INTRODUCTION 1.01 The preparation of a maintenance project was included in the Second Highway Project as part of a study to define a five-year road maintenance program. The feeder roads were studied separately because of their special needs, such as their links with agriculture and rural development, and because they require more local involvement. The Fourth Highway Project was based on the road maintenance study referred to above which was not completed until Nay 1978. The main objectives of both the Feeder Roads and Fourth Highway Proj- ects were to improve the Government's capacity to maintain the respective networks with departmental force account units. Some maintenance of paved roads was also included in the latter project, but periodic maintenance of paved roads was not because it was not a priority at that time. 1.02 The Feeder Roads and Fourth Highway Projects were the fourth and fifth Bank-financed highway operations in Cameroon. Earlier projects had mostly concentrated on the construction of trunk roads. The Project Coop'.e- tion Reports for these two projects are presented together because of their complementarity in building up the Government's maintenance capacity for all levels of roads. However, performance under both the projects was quite. different and while maintenance of trunk roads is nov adequate, maintenance of feeder roads remains a problem. 1.03 The overall responsibility of both projects was entrusted to the Ministry of Equipment and Housing (MINER) 1/ through its Department of High- ways (DR). 2/ But while the Fourth Highway Project was centrally managed, the day-to-day management of the Feeder Roads Project was entrusted to a Feeder Roads Unit (FU) established in Bafoussam away from the head office. The Ministry of Agriculture (MINIAGRI) and other related organizations were also involved in the Feeder Roads Project. 1.04 This report is based on information in Bank files, the completion report prepared by the consultants assigned to each project, and on intervises with Bank staff and Government officials associated with the projects. I/ Now Ministry of Equipment (MINEQ). 2/ Now Directorate of Roads (DR). - 24 - II. PROJECT IDENTIFICATION, PREPARATION AND APPRAISAL A. The Feeder Roads Project Identification 2.01 In the early 1970s, more attention was being given to the poor condition of feeder roads, and Government increased budget allocations but without, however, building-up the necessary capacity to carry out the con- struction and maintenance tasks. At the Bank's insistence, a separate feeder roads project was prepared in late 1975. The project would concentrate on a few well-defined areas also benefitting from agriculture development projects. The project was identified by the Bank's Resident Mission in West Africa (RHA) located in Abidjan. Preparation 2.02 The preparatory work was carried out predominantly by Government with the assistance of only five man-sonths of short-term consultant assign- ments, and with considerable input from R1WA. At that time, responsitility for the administration of feeder roads was not clearly defined, with 'ocal authorities and several Government agencies involved. As the activities of the various agencies was uncoordinated, the Bank insisted that a feeder roads unit be set up within the DR by MINER to coordinate and administer the plan- nag and development of feeder roads throughout the country, and, more specif- ically, to execute the project. Appraisal 2.03 The project was appraised in January/February 1977. The most important issue involved the selection of the executing agent. MINER took the position that it should be the sole institution responsible for all roads, Lacluding feeder roads, while the Bank favored the Ministry of Economy and Plan (MINEP) with a participation of MINIAGRI, as every effort had been made to include roads in the project that would help develop agriculture. In fact, most of the roads selected were to support future Bask-financed agricultural projects. The issue was eventually resolved at negotiations in favor of the Bank's position. 2.04 The Decision Meeting on April 11, 1977 Insisted that more emphasis be placed on training in order to support the major institutional building effort proposed under the project. It supported the appraisal mission as regards the institution to be in charge of project execution, by suggesting the establishment of a steering committee to include the MINER, MINEP and MINIAGRI. 2.05 A post-appraisal mission took place in June 1977 to resolve remain- ing issues including the definition of the specific roads to be included in the project, and to finalize with the Government the scope of technical assistance and other matters. The project was negotiated in September 1977. - 25 - Project Objectives and Description 2.06 The main objective was to initiate a long-range program to rehabili- tate, improve and maintain feeder roads by establishing an efficient institu- tional framework to carry the work out. The project was designed to start this program. It was recognized at the time that a parallel effort would be required on the national and provincial networks, which became the basis for the Fourth Highway Project. 2.07 To meet the project objective, the project consisted of: (a) a four-year program of construction, improvement, rehabilitation, and maintenance, mainly by force account, of about 2,200 km of feeder roads including: (i) purchase and rental of equipment; (ii) purchase of spare parts, fuel, lubricants, and materials; and (iii) minor civil works by local contractors; (b) construction of, and provision of equipment and tools for, a DR workshop Including office facilities at Nguelemenduka; (c) technical assistance to establish and strengthen the Feeder Roads Unit (FRU) to be set up within DR, to implement the program, and to train local staff of the Unit in planning, implementing and monitor- ing feeder road improvement and maintenance, and in maintaining and repairing road equipment; and (d) consultant services for: (i) studying the resources for feeder road maintenance; and (ii) preparing a follow-up feeder road program. 2.08 Of the 2,200 km of feeder roads in the project, 850 km were to be within the proposed ZAPI East Rural Development Project, 1,200 km in the Western Highlands (about 900 km within the proposed Western Highlands Agricul- tural Development Project in the West Province and 300 km in the proposed FED/German agricultural project in the Northwest Province) and 150 ka in the Adamaoua area of the ongoing Livestock I Project. The proposed improvement and rehabilitation works were to consist of (a) reshaping with or without widening of roadway; (b) regravelling selected sections; and (c) building, repairing and reinforcing drainage and drainage structures. To achieve the objectives of the project roads, the road network linking them to the ultimate export outlet or regional market centers had also to be in reasonable condl- tion. Therefore, some national and provincial roads in the project arem which required minor but essential works were also included under the project. 2.09 The project provided for on-the-job training, through the technical a9vistance experts and short-term consultants, for the Cameroonian engineers and transport economists at MINEH's headquarters. Training of operators was to be carried out at MINER's training center at Douala. Additional training of personnel for the brigades was also to be carried out by the Swiss Agency for Technical Assistance (SAT) which had a training center in West Cameroon. The technical assistance was to be phased out gradually, and, in the last year, the proj*an was to be managed entirely by Cameroonians. - 26 - B. The Fourth Highway Project Identification 2.10 The project was based on the study of a five-year road maintenance program prepared for inclusion in the Third Highway Project. Rov .ver, the study by consultants progressed slower than anticipated and was not completed until May 1978, after the Third Highway Project had been appraised; thus, the maintenance component had to be deferred to the Fourth Highway Project. Appraisal 2.11 The project was appraised in April 1978. The main issue was the scope of the project. In the Bank's judgment, the road maintenance and rehabilitation component of the project appeared to be the maximum that the Government could carry out by force account and within the limits of its financial resources. The Government disagreed, and, finally, it was agreed that if additional financial resources became available for road maintenance during project execution, the Government vould review, in consultation with the Bank, its overall road maintenance program to determine how these addi- tional funds might best be used in combination with the existing adminis- trative and manpower resources. This later occurred through a considerable appreciation of the dollar exchange rate. Consequently, Government was able to carry out a program which was substantially larger than the one appraised and lasted until December 1986 as compared to the estimated completion date of December 1985. 2.12 Another issue raised by the appraisal team concerned the need to improve the efficiency of DR's road maintenance operations through a simpli- fied accounting system and regular reporting on the volume of works actually carried out. There was also a coordination problem between DR and the nation- al Civil Engineering Equipment Pool (NCEEP) on the assignment of equipment. It was agreed that NCEEP's equipment was to be permanently assigned to specif- ic DR units and brigades. To plan the road investments responding to economic criteria, the appraisal mission recommended that a Road Planning Unit (RPU) be set up in the DR. 2.13 The Decision Meeting of May 30, 1978 expressed concern over the ability of the Government to successfully carry out a maintenance progrem of the scope proposed. The mission responded that (a) the program was designed to ensure balanced treatment of all the regions of the country; (b) the proposed volume of work was essentially the same as the Government had seemed capable of executing a few years ago; and (c) the project would be implemented progressively in three phases to provide the necessary flexibility against possible execution problems. 2.14 Following the circulation of the Yellow Cover SAR in September 1978, the Bank learned that the Japanese Government was considering the financing of a large amount of road maintenance equipment outside the Bank project. This added to the concern over the size of the Bank project as it was felt that the Government would not have the resources to absorb additional equipment. The Japanese Government coordinated its proposed financing with the Bank, and the equipment was made available in 1987 (pars 3.18), when the Bank-financed equipment was beginning to wear out. - 27 - 2.15 Negotiations were held in April/May 1979. To counter the issue of project size, the Bank called for special implementation measures to be taken to ensure that the overall road maintenance program to be carried out by the Government, would always be in line with the absorptive capacity of the DR. To avoid the problem already encountered with the Feeder Roads Project, a detailed agreement was reached with the Government as to the organization and responsibilities of the DR. The project was approved by the Board in June 1979. Project Objectives and Description 2.16 The major goal of the Fourth Righway Project was to improve the Government's capacity to maintain roads by strengthening DR and NCEEP's operations. The emphasis of the project was on staff training to build up institutional capacity. Other objectives were to promote the domestic con- tracting industry, control vehicle loads and improve road planning. 2.17 The project consisted of: (a) a three-year training program (FYs 1981-83) for DR and NCEEP staff engaged in road maintenance; (b) a four-year road maintenance and rehabilitation program (FT8 1982-85) for execution of routine maintenance on about 16,900 km of roads and rehabilitation of about 1,350 km of major unpaved roads by force account; (c) rehabilitation of about 340 km of unpaved roads by, and technical aid to, domestic contractors; (d) installation of two weighing stations; (e) establishment of a Road Planning Unit (RPU) within the DR; (f) pre-investment studies for the Douala-Yaound6 road and about 500 km of forestry evacuation roads to be defined; and (g) technical assistance for: (i) the training program; (i) the road maintenance and rehabilitation program; (iii) promotion of the domestic contracting industry; and (iv) the RPU. III. PROJECT IMPLEMENTATION A. The Feeder Roads Project 3.01 Start-up of the project was initially delayed by about ten months because of delays in selecting consultants for technical assistance, procedur- al hold ups in establishing the FRU, and the slow procurement of equipment. Later, some of these contracts had to be renegotiated because the bids had expired before the awards were made. The equipment evaluation was done satisfactorily. 3.02 By early 1979, the FKU had been set up, but its establishment had not been officially decreed. Offices and workshops in two out of four regions - 28 - were under construction, and an existing shop had been made available in a third region. It was not until March 1980, 18 months behind schedule, that all equipment had been delivered. Thus, field work did not get started in three of the four regions until the equipment arrived, while in the fourth region, which involved labor-intensive works, work had started in July 1979. 3.03 In August 1980, two years into the project, the supervision mission reported that 100 km of roads had been built. The quality of the work was noted as good to excellent, particularly the labor intensive work of the Department of Community Development (DCD) in MINIAGRI. All the brigades were working except the one run by the Zones d'Actious Prioritaires IntfgrAes (ZAPI) in the eastern part of the country. The mission nrted for the first time, problems which eventually had ominous consequences for the execution of che project. Roads were being built substantially over the agreed-on design standards, and FRT had not developed the cost accounting system agreed upon, and thus, was unable to determine unit construction and operating costs. 3.04 In April 1981, the supervision mission reported that the project was in a "precarious position" and in "serious difficulties". It noted that the agriculture and rural development projects, which the Feeder Roads Project was designed to support, would be seriously affected if the project roads were not completed within a reasonable time. The most urgent prerequisite to improve progress was the official establishment of the FRU in MINER as the Minister could not assign personnel to the FRU until it was officially established. The FRU was weak and lacked key management and operational personnel needed to assist the construction brigades. 3.05 In one region, it had been intended that farm access roads would be built by a brigade to be created by the ZAPI East Organization. However, this entity had not been able to field a brigade and needed FRU's help to staff and operate it. At about the same time, a memorandum prepared by the Agriculture Division supervising their projects in Cameroon noted that the proposed brigade would add a new component to ZAPI's already over-extended activities, and that it was trying to move out of technical fields for which it did not have trained manpower resources. The supervision mission also called for the preparation of a detailed financing plan for the completion of the project, and noted that the Government had not been paying its suppliers promptly and was thus having problems obtaining spare parts and fuel from the same suppliers. 3.06 In view of the serious problems facing the project, it was declared a problem project in March 1981. A Project Implementation Review mission concluded that the project should be reformulated by (a) transferring the Western Highlands regional brigade to the DCD; (b) returning the ZAPI. brigade to the FRU; (c) extending the technical assistance team; and (d) procuring additional equipment. The Government undertook to prepare a proposal for restructuring the project. The Government had still not approved the estab- lishment of the FRU as a sub-directorate in MINEQ, and the only project management was the decentralized project unit in Bafoussam. 3.07 The October 1981 supervision mission found no substantive iaprove- ments in the performance. Only about 380 km out of the 2,200 km in the project had been built, and no work had yet been accomplished by the ZAP! brigade. Estimated average costs had risen from US$5000-8,000 at appraisal to US$19,000/km. The Government still had not prepared the reformulation as promised earlier. The mission, however, concluded that the FRU was now - 29 - reasonably well established, and that the organization, while still lacking official status, was capable of doing reasonably competent work. 3.08 Despite the Bank's efforts through the RMWA and its resident office in Yaound4, no progress occurred due to the inaction of MINEP and MINER. In the meantime, the Bank considered suspending disbursements or cancelling the loan. RIMTA believed that suspension would be unlikely to have any effect since the Government had not been submitting requests for disbursements to which it was entitled. However, following the threat of suspension, MINER informed the Bank in June 1982 that it was moving ahead with the reformulation proposal. 3.09 The August 1982 mission found that there had not been any Improve- ment in field operations since the last mission. As regards project restruc- turing, it mainly involved further decentralizing the FRU, transferring the ZAPI brigade to the northwest region, and contracting out the ZAPI roads to a private contractor; the mission agreed with the Government's proposals. In the meantime, the Feeder Roads Maintenance Resources Study had been completed by the consultants. By October 1982, the Government had finally made progress in putting together the restructured project, and by January 1983, feeder roads were being constructed at a satisfactory rate. The Bank accepted the Government's project reformulation. 3.10 Progress continued normally through the remainder of 1983 and 1984. The Government awarded a smaller road construction contract in the ZAPI area than the one proposed earlier but because it 4id not follow Bank procurement guidelines, the works had to be paid for entirely by the Government. A March 1985 supervision mission reported continued progress, but noted that maintenance was inadequate. The borrower's compliance with the loan covenants is given in Table 1. 3.11 Because of all the delays, at the scheduled closing date, only a minor part of the original project objectives were achieved. In Decem- ber 1985, the Bank agreed to postpone the closing date for a third and final time to December 31, 1986 provided that, among other things, the Government had consultants define an action plan for the further development of feeder roads and prepare a follow-up project. These studies were completed and submitted to the Bank in September 1987. Remaining funds in the loan account amounting to US$1 m were cancelled. Also, during the final extension, at the insistence of the Bank, maintenance was done on the project roads, unfinished roads wvere completed, and equipment repaired for continuing maintenance of roads built under the project. Only about 800 km, or less than 40%, of the expected 2,200 km of roads had been built. The project's poor performance was due to (a) marginal importance given to the project by the Government; (b) the lack of a clearly defined organization set-up; (c) an over-ambitious initial project program, without due regard for implementation problems; and (d) poor management of the work units. 3.12 According to the consultants in their final report, "the manner in which the initial project was conceived made its execution impossible; the main reason for this was the lack of appreciation for the difficult terrain in which the feeder roads were to be constructed as far as costs were concerned and inadequacy of performance of equipment." In their view, costs were greatly underestimated and the equipment was not suited to the work. The consultants recommended that for future projects careful field investigations should be carried out as to the nature of the terrain, availability of - 30 - materials for gravelling, and size and number of bridges and culverts to be built so as to better estimate the costs and better select the equipment for the work. However, the cost estimates were done in auch the same way as in other countries where they proved reasonably accurate. It appears that a combination of problems in logistics and administration, and constant thrust towards higher design standards than those foreseen at appraisal contriL;ited significantly to reduce the length of road actually built. 3.13 Because of the delays in project implementation, disbursements greatly lagged the appraisal estimate throughout the period of execution. The cost overrun was modest, but only because about 402 of the total length of roads were built as compared to the appraisal estimate. Construction costs per kilometer were much higher than the appraisal estimate because of inefft- ciency and poor performance of the force account units. On the other hand, it appears that the appraisal costs were considerably under estimated, given the difficult terrain and inaccessible location of the project roads. B. The Fourth Highway Project 3.14 The Fourth Highway Project got off to a reasonable start, although not without problems. The consultants' proposed team was carefully scrati- nized by the Bank and a number of staff changes were made at the Bank's insistence. Furthermore, the consultants were required to produce an Incep- tion Report outlining how they proposed to proceed. Lastly, individual team members were held back from mobilizing until they were needed in the field. The Government was slow in making decisions, particularly as regards the appointment of the project coordinator. 3.15 Detailed plans had been worked out in the SAR and the legal docu- ments to provide a step-by-step action plan for project implementation and to prevent an over build-up of equipment out of line with the borrower's capacity to manage it. The issue of Japanese equipment (para 2.14) was a continuing matter of concern to the Bank during implementation as it continually raised the question of the Government's absorptive capacity to produce sufficient trained operators and mechanics, organize and staff work units and find the necessary operating funds. 3.16 By id-1981, the project, although about one year behind the ap- praisal schedule, was considered off to a good start. Most of the consultants were in place. They were working closely with the DR and had produced a satisfactory Inception Report. Construction of the training facilities was underway and local staff were being selected for training, bids for the -first tranche of equipment were being analyzed, the Planning Unit had been set up and work started on the promotion of the domestic construction industry. 3.17 By id-1982, the technical assistance team was complete, the first tranche of equipment was being delivered, the training facilities were ready, and road maintenance programming and guidelines for the regional offices had been completed. Also, domestic contractors had been pre-qualified for bidding on 300 km of regravelling, the RPU was established and the detailed engineer- ing of the Douala-Yaoundi road was completed. On the basis of the above progress, the Bank authorized the ordering of the second equipment tranche. 3.18 By early 1983, the first tranche of equipment was being fully used in three regions, the second tranche was being delivered to three further regions and the third tranche was being ordered. The Government had also - 31 - completed its negotiations with Japan and an agreement had been reached for the supply of about USS16 m of equipment. This would constitute a fourth tranche of equipment, but most of it was only delivered in 1987 when the Fourth Highway Project had been completed. Budgeting allocations for mainte- nance were adequate, production targets were being met, and the quality of maintenance personnel was good. 3.19 Technical assistance to NCEEP was not producing the expected results because of (a) operational constraints; (b) unsatisfactory management of NCEEP; and (c) procurement of new equipment out of balance with needs. The operational constraints involved too many makes of equipment as a result of bilateral aid and ICB procedures, resulting in an inventory which would be difficult to control even with good management. The proliferation of makes also made it difficult to maintain an adequate spare parts supply and suffi- ciently trained mechanics. To follow up these problems, two training experts were sent to assess the existing training programs at MINER and NCEEP. 3.20 By the end of 1983, the third tranche of equipment had been deliv- ered, and annual output of the maintenance activities was well in line with appraisal targets. The consultants were doing a good job and the Government had asked that their contract be extended. The Government had awarded a contract for the training of future trainers abroad. Contracts also had been awarded for regravelling, but work had not yet started. Costs were in line with the appraisal estimates. The main problems were that institution build- ing was proceeding more slowly than expected in the DR, and training of 4CEEP personnel was less successful than the training of field maintenance forces. due to the lack of interest on the part of NCEEP management. 3.21 Early in 1984, the supervision missiz. expressed concern that when the equipment needed repairs, the NCEEP would not be able to handle it. It called for urgent measures to avoid the NCEEP becoming the bottleneck of future highway maintenance operations. The mission noted that the Government now fully recognized the need for adequate maintenance and this was reflected in road maintenance budgetary allocations. The 1980/81 maintenance budget was CFAF 6.5 billion while the 1984/85 budget was of the order of CFAP 18 billion. 3.22 By aid-1985, the project had developed a fully successful momentum, but further technical assistance was needed for management of the maintenance programs. Another extension of the consultant's contract was agreed upon and further technical assistance would be provided under the recently-approved Sixth Highway Project. All of the project's maintenance and rehabilitation objectives were reached by December 1985; the one concern was that because of aging equipment, increased traffic and limited budget, overall maintenance capacity was no longer adequate. The consultants presented a report in Jube 1987 which formed the basis for further maintenance activities to be implemented under the Sixth Highway Project. The training of the middle and senior management of DR was particularly emphasized, as well as expanding the capacity of the FRU. Steps are now being taken under the Sixth Highway Project to improve training and planning under Action Plans prepared by a Bank mission in November 1987. 3.23 Disbursements of credit and loan funds were quite close to the appraisal estimate. Total project cost is not comparable to the appraisal estimate because of the wide variations in the value of the CIA franc to the dollar, which ranged from 220 at the beginning of the project, to 490 in 1984/85 and fell in 1986/87 to 285. The very favorable rate of exchange - 32 - resulted in increasing -he purchasing power of loan funds on goods and servic- es paid for in CFA francs or in European currencies. This enabled the Govern- ment to do considerably more work than originally fnrecast. Also, the project was extended by one year to the end of 1986 which added to the recurrent costs contributed by the Government. According to the consultants, the Government contributions to the project rose from CTAT 17 billion estimated at appraisal to 47 billion over the 1981-86 period. IV. ECONOMIC REEVALUATION A. The Feeder Roads Project 4.01 A complete economic reevaluation of the project has not been carried out due to lack of sufficient data on benefits. However, the DR did carry out a reevaluation of a sample of feeder roads. The sample covered one third of the completed feeder roads in the Western Province for 11 roads totalling 144.4 km, with an average construction cost of CFAF 5.1 million per km (rang- ing from CFAF 2.7-7.4 million), and an average traffic volume of 77 vehicles per day (ranging from 23-253 vpd) based on a one-week traffic count from 6:00 a.m. to 10:00 p.m. outside the main harvest period. Private cars and taxis accounted for about 54% of the traffic, pick ups for 20%, minibuses for 10% and trucks for the remaining 16%. 4.02 The adjdsted rate of retur,- for the sample roads was 27% on the basis of vehicle operating cost savi-gs alone (over a ten-year life, with no residual value). The ERR ranged f- m -6% to 255% with the lowest rates of return generally associated with t .e lowest traffic volumes (22-33 vpd) and above average construction costs (WFAF 5.9-7.1 minion per kW). These rates of return are conservative as on the one hand, they do not take into account agricultural benefits, and, on the other, the vehicle operating savings estimated by the DR have been adjusted downwards by 38% to avoid the apparent inclusion of taxes, while no adjustment was made to the costs which also may include some taxes. The expected rate of return at appraisal was 20% for the Western Highlands and 27% for Zapi with a cut off rate of 10%. B. The Fourth Highway Project 4.03 The economic rates of return have been recalculated for the physical parts of the project. The table which follows shows the comparisons between the appraisal and recalculated returns: ERR in Percent item An"Isal Recalculated (a) Maintenance of paved roads 105 165 (b) Maintenance of gravel roads 185 151 (c) RegraveMing by the DR 40 106 (4) Regravelling by contract 46 57 - 33 - The overall rate of return for these parts of the project is 133% which is well above the figure of 82% estimated at appraisal. The detailed results on a year-by-year basis are given in Table 3. 4.04 ERRs are usually high for a road maintenance project. In the case of the Fourth Highway Project, the reslts can be taken as a confirmation that the project was successfully implemented and an indication of the merits of substantially improving roads that were in a poor state of repair when the work started. The greater-than-expected growth in traffic contributed sub- stantially to the higher returns, particularly for the paved roads and those regravelled by DR. The lower-than-expected return from maintenance of gravel roads was due to an overestimation at appraisal of the improvements which could be achieved; due to insufficient number of brigades, a part of the network (30%) could not be improved as expected. V. INSTITUTIONAL PERFORMANCE A. The Feeder Roads Project 5.01 It appears evident that the Government was unable to properly manage the feeder roads project. This contributed heavily to its failure to meet the project objectives. The management of the FRU was so inept that the award of procurement contracts was delayed beyond bid expiration dates, withdrawal applications were prepared late, and it was unable to award a construction contract in accordance with Bank guidelines, or make use of all the funds in the loan account, despite a continuous shortage of funds during project execu- tion. Payment to suppliers was also slow which hampered the procurement of spare parts and fuel, and demoralized staff. 5.02 The question remains whether implementation of a feeder roads project before Improving the DR's capacity to maintain its trunk road network (the reason for the Fourth Highway Project) was a reasonable decision. The Government and the Bank should have realised that the setting up of a special unit in the DR to build and maintain a large network of feeder roads in remote areas and difficult terrain, to train personnel, to supply and operate force account brigades would tax even a highly efficient highway organization. 5.03 The setting-up of the FKV in the project area, inadequately support- ed at the central Government level, was also a questionable decision especial- ly in light of the weakness of the steeyrag comittee. The technical assis- tance to assist the FRU was also not adequate as the consultants were not in an executive role. Furthermore, they were neither trained nor experienced in directing force account construction operations. For the type of work which finally was carried out, contractors would have been a more logical choice than force account units. This, however, had not been foreseen during ap- praisal because the extent of the construction needed to complete the program had not been adequately evaluated. 5.04 Finally, only about 40% of the physical objectives of the feeder road project were met; even these were not properly maintained. As regards the institutional building objectives, this largely failed because of a lack of Government comitment to the project. The main institutional benefit of the project was the training of operators and mechanics and thus some strengthening of the country's work force for future road work. Under the - 34- second feeder roads project now under preparation, Government has decided to reduce the proportion of roads to be built with departmental forces. It will turn this work over to contractors and focus its own effort on naintenance. B. The Fourth Highway Project 5.05 The main difference between the Feeder Roads Project and the Fourth Highway Project is that under the former, although not originally conceived that way, new, relatively high standard roads were being built in remote areas and difficult terrain, while in the latter, existing roads were being improved and maintained. Thus, while in magnitude the Fourth Highway Project was much larger, the Feeder Roads Project was more difficult to manage institutionally, and, since the capacity to do so was lacking, the project was doomed to failure. 5.06 Also, the Government was obviously more convinced of the need for the Fourth Highway Project than for the Feeder Roads Project. It made the procurement decisions and staff appointmeits, albeit slowly, supported the consultants and provided the local funds, actions that only a Government can take to ensure success. Physically, the project objectives were well at- tained, but the institutional achievements regarding management of maintenance fell short, and further technical assistance for that purpose is needed and is being provided under the Sixth Highway Project. Overall, the project was a remarkable success. VI. THE CONSULTANTS' PERPO10ANCE A. The Feeder Roads Project 6.01 The Consultants were engaged to provide technical assistance to FRU, carry out a study of resources for feeder road maintenance and to prepare a follow-up project. During the first two years, because of the delay in obtaining equipment, the consultants were only involved in the procurement process and training. Staff members who were to assist in the implementation phase were relatively unoccupied, and as a result of the long delays, their services had to be extended repeatedly. SATA, which was to provide technical assistance to a force account brigade (para 2.09), did not participate in the project. The project consultants assumed responsibility for the overall project. 6.02 Friction between FRU staff and the consultants sometimes acted as a constraint to progress, and their role was eventually reduced to that of monitoring progress. In the light of events, it would have been more economi- cal to have brought out the personnel for the procurement first, to be fol- lowed by the remainder of their team when the equipment arrived. The consul- tants produced a satisfactory resource study. 6.03 Because of the late start, it was necessary to employ a new team of consultants to prepare the action plan which included a detailed program for reconstruction and maintenance of feeder roads, and a follow-up project which was to form the basis for the next feeder roads project. These consultants delivered a satisfactory report in September 1987. - 35 - B. The Fourth Highway Project 6.04 The consultants' staff was carefully selected, and included the appointment of an able and dynamic project manager which contributed greatly to the project's success. The consultants' final report provided qn excellent guide as to the next steps to strengthen the DR management and its maintenance operations under the Sixth Highway Project. The overall performance of the consultants was very good indeed, and they should be given credit for the successful implementation of the project. VII. TEE BANK' S PERFORMANCE A. The Feeder Roads Project 7.01 The single condition most damaging to the project's performance was a nearly complete lack of commitment to both the goals and the methods of the project by the Government, and in wrongly assessing this element at appraisal and negotiations, the Bank failed. 7.02 Because the construction works were to be executed by force account, it would appear that the project roads were not designed or even surveyed before work started. While it is understandable that in some situations, because of difficult access and to save time, the builder lays out the roads, this procedure can also lead, as it did, to over-design and cost overruns. 7.03 While the project was not well prepared, a serious mistake in the light of the DR's lack of experience (para 5.02). it appears from the files that the Bank made every effort to Improve the project's performance. The RWA, being relatively close to Cameroon, made frequent visits, as indeed did Headquarters staff after it took over responsibility for the project. In all, 27 supervision missions were sent to Cameroon over the 1977-86 period of execution. In addition to the RWA, the Resident Mission in Cameroon was often called on to assist, and in 1981, the Implementation Review Mission included a senior manager from Headquarters. Both RMWA and headquarters supervision missions were followed up by detailed letters to the Government comprising mission findings, and urging that it take appropriate actions to resolve project problems. However, these letters were largely ignored by the project unit, which continued according to its own plans. 7.04 Only when the threat of suspension was raised did the Government make a half hearted effort to improve performance. By then, time and funds had begun to run out. The Bank might be faulted for not posing the threat of suspension or cancellation earlier, but concern over the need to have the roads ready for the agricultural projects then underway, and which these roads were to serve, might have been a deterrent to stronger action. B. The Fourth Highway Project 7.05 Undoubtedly, the Bank's experience with the Feeder Roads Project was taken into account in planning and supervising the Fourth Highway Project. The implementing requirements were more tightly drawn, no substantial changes were called for in the Borrower's executing organization, coordination with co-financiers was closer, and the careful screening of the consultants' team all contributed to minimizing implementation problems. Some progress was made - 36 - in contracting out regravelling work, and further use of the domestic con- struction industry for these tasks should be considered. 7.06 Bank staff who prepared, appraised and supervised the project deserve full credit for carefully formulating a large and difficult project, and closely monitoring its execution so that most unexpected problems were quickly resolved. The project's success is due in large measure to their efforts in formulating and supervising a manageable project. 7.07 During the execution of the Feeder Roads Project, the staff indicat- ed some concern that the project was not sufficiently coordinated with other donors involved in giving assistance on feeder roads. This criticism cannot be leveled against the Fourth Highway Project, as the record shows that a considerable effort was made to liaise with and coordinate the project with other donors. VIII. CONCLUSIONS AND RECOMENDATIONS 8.01 Both projects demonstrate th. importance of having Government support, if they are to succeed. The Government did not support the Feeder Roads Project during the critical inception phase, and although it made an effort to do so towards the end of the project, it was too late to achieve the project goals. On the other hand, Government supported the Fourth Highway Project probably because the need for maintenance of the trunk road system was more obvious than building feeder roads. 8.02 The project demonstrated once again how critical to the success of a project is the appointment of a capable project manager to head up the consul- tants' team. With Government support and a capable project manager, even a very large and difficult project like the Fourth Righway Project can be successfully executed. 8.03 The Feeder Roads Project appears to have been overly ambitious, given the fact that there was no existing organization in MINER for buil ving and maintaining feeder roads. Perhaps, as a condition of effectiveness or procurement of equipment, the Government should have been required to offi- cially establish the FRU. Also, most of the construction should have been put out to contract with foreign and local contractors, depending on availability. 8.04 There are many advantages to contracting out works. These include (a) engineering has to be done beforehand, thus achieving better control over costs and the works; (b) contractors furnish their own equipment thus elimi- nating long delays and other problems associated with Government procurement; and (c) contractors are better equipped to provide logistical support than force account units. 8.05 Both the Government and the Bank benefitted from their experience on the Feeder Roads Project in formulating and executing the Fourth Righway Project. The phasing of equipment delivery into three tranches was a wise move; by the time the last tranche had been delivered, the organization was so well experienced in training personnel and setting up work units that even the delivery of the unanticipated Japanese-financed equipment could be absorbed by the project with little or no problem. - 37 - 8.06 Both projects were thoroughly supervised by the Bank. Unfortunate- ly, even good supervision cannot substitute for an unresponsive borrower who is either unwilling or unable to take the organizational and administrative steps to implement a project. 8.07 The economic rate of return for a sample of roads built under the Feeder Roads Project was 27%, while the return on the Fourth Highway Project was in excess of 1002. 8.08 As a special effort was made under the Fourth Highway Project to assist the local construction industry, any follow-up maintenance project should include a maintenance or rehabilitation component to be carried out by contract. Such works might include regravelling and repaving. If the indus- try is to develop and expand, it must be given a role to play, and should be able to count on a minimum annual outlay reserved for work by contract. This policy has already been initiated under the follow-up Sixth Highway Project. 8.09 The studies carried out under the Feeder Roads Project have provided a basis for a second feeder roads project now under preparation. The Govern- ment has indicated its intention to carry out part of the project by contract. - 38 - TABLE I REPUBLIC OF CAMEROON FEEDER ROADS PROJECT, CREDIT 749POAN 1494-CM PROJECT COMPLETTON REPORT Compliance with Loan Covenants Section Loan Covenant Comments 3.02 Borrower shall employ consultants satisfactory to the Complied with. Bank. 3.04 (a) Borrower to furnish specifications, reports, contract Complied with. documents, etc. (b) Borrower shall maintain recordi to record the progress Complied with. of the Project. 3.06 (a) Borrower shall set up a feeder roads unit within the Complied with. Direction des Routes. (b) Borrower shal) provide the feeder roads unit with Substantially 2omplied with considering qualified and experienced staff. th, availability of skilled manpower in Cameroon. 3.07 (b) Borrower shall furnish to the Bank for each fiscal year Complied with through submitting progress the proposed annual work program. reports which include work programs. (d) The Borrower shall ensure that the work programs for After the reorganization in 1982, ZAPI de 1978, 1979, 1980 and 1981 shall be prepared in a timely I'Est does not participate any further in manner by ZAPI de 1'Est, UCCAO and BCA which shall se- the project. Because of the delays in lect the roads to be included in such programs, and the executing the project, the program, until FRU shall prepare the detailed planning of the works. late 1985, included only the roads that were in the original 1979 and 1979 pro- grams. 3.08 The Borrower shall convene before May 31 of each year a For the reason mentioned under 3.07 (b), provincial meeting to review and approve the annual work the annual work programs consist mainly programs in the Provinces included in the project. of those of the 1978 and 1979 programs. 3.09 The Borrower shall ensure that workshop and office faci- Complied with. lities in Nguelemendouka shall be constructed. 3.10 The Borrower shall furnish to the Bank for its approval Not complied with and academic since a a training program, appoint trainees and take budgetary training institute for the Direction des measures allowing for personnel training. Routes was set up in Akonalinga in 1982. 3.11 The Borrower shall complete a study of the resources for Complied with. feeder road maintenance. 3.12 The Borrower shall complete a study for a follow-up Complied with. feeder road program. Source: Supervision Report of 12/03/84 and subsequently updated. AF1IN, December 1987. ・・’争，！。―(--―・―-.---.------------; - 41 - REPUBLIC OF CAMEROON 'FOURTH RAILWAY PROJECT, LOAN 1734/CREDIT 936-CM PROJECT COMPLETION REPORT 1. INTRODUCTION 1.01 The railway of Cameroon comprises two main lines emaitating from Douala: the 913 km iranscameroon line to Nlgaound6r6 with a 31 km branch line linking Yaound6 and Mbalmayo, and the 160 km western line to Nkongsamba with a 29 km branch line from Mbanga to Kumba. When the Fourth Railway Project was appraised, FT78 freight traffic totalled 1.3 million tons, of -which over 902 was on the Transcameroon line, and about 1.5 million passengers, of which over 80% moved on thi Transcamiroon line. 1.02 The Cameroonian railway system is operated by the R6gie Nationals des Chemins de Fer du Cameroun (16gifercam) a public sector corporation functioning under Government guidelines established in 1965. At the time of appraisal, the Board of Directors consisted of 12 members, mostly Government representatives, including the corporation's general manager as chairman. The Board had the dual function of implementing Government policy and supervising the railway's, management which runs the railway with a reasonable degree of ence in its day-to-day operations. The Government had succeeded In finding Cameroonians for its entire top and middle management, with the exception of one deputy general manager. The quality of management had improved, due, inter alia, to technical assistance provided under the two preceding Bank projects and by the Canadian International Development Agency (CIDA). 1.03 The PCR of the Second and Third Railway Projects (Loan 1038 CM and Engineering Loan 54 CM) concluded that implementation of these projects had been successfully completed and that they had generated adequate rates of return. The two projects had been instrumental in halting the deterioration of the Railway's operational performance and financial situation. Rowever, progress in improving the management and operations of R&gifeream was not up to expectations. More technical assistance was therefore necessary for improving management and operations, train staff and prepare a future expew- sion of maintenance facilities. 1.04 The Fourth Railway project was designed in broad lines during implementation of the Third Railway project. Rdgifercam was deemed iompetent to carry out and supervise the project with the assistance of consultants# Thuss consulting services were included to supervise construction. Technical assistance wav , included to strengthen management and continue the train- ing initiated -u. r earlier projects. 1.05 T'.U report is based on information in Bank files, interviews with Bank staff and Railway officials, and on a project completion miision to Cameroon in November 1987. -42- II. PROJECT IDENTIFICATION, PREPARATION, AND APPRAISAL Identification and Preparation 2.01 The need for a follow-on project was identified during the supervi- sion of the Second and Third Railway Projects. Freight traffic was expected to increart by about one third by 1981, and while there would be sufficient line capacity to cope with that increase, the following constraints existed: (a) shortage of motive power and rolling stock capacity; (b) inadequate marshalling and ancillary facilities in Douala; (c) insufficient ioaintenance capacity for rolling stock and track; and (d) inefficient operations and management. France and Canada were expected to finance locomotives and wagons, respectively; and the Bank project was to be designed to resolve the remaining constraints. The project was essentially prepared under the Third Railway Project (para 1.04). Appraisal 2.02 The project was appraised in May/June 1978. The following main issues were raised in the Issues Paper of July 5, 1978: (a) The railway requested financing of an additional breakdown crane, but this could not be justified. (b) The railway requested financing of spare parts for locomotives which the apptaisal mission recommended against as it believed that the railvay should use its own cash flow for financing such high-priority items, rather than items like housing for staff or extension of stations. (c) The Yaound6 running shed and wagon workshop were included on the condition that the railway clearly separate the operation of the two facilities. (d) The Bank expressed the wish to receive timely information from the railway om the progress and financing of the planned procurement of 20 locomotlvza from CIDA as well as on any cofinancing of rolling stock. (a) As progreze in transport sector planning was slow, the invitation to negotiate the loan was conditional on the following steps being taken by the Government: (i) establish a transport planning unit at the Ministry of Transport and appoint at least one expatriate transport economist and at least two local counterparts; and (ii) sign the contract for the second phase of a forestry develop- ment study which would generate more timber traffic for the railvay. Funds for both of these requirements were available under existing Bank loans. (f) As the railway's operational and financial performance was inediocre in spite of growing traffic and sannal tariff increases, the invita- tion to negotiate the loan was also conditional on the railway clearly demonstrating its willingness to take steps to reduce the passenger services deficit by increasing tariffs and reducing costs, reinforce budgetary control, set up organization and methods (O&W) - 43 - units in its technical departments, improve staff management effi- ciency, prepare a draft manpower plan and implement an action plan for management control, and reduce its bank overdrafts. (g) The railway was also reminded that it would have to make more serious efforts to comply with existing covenants, especially as regards obtaining the Bank's agreement before engaging in major investments projects, and adhering to auditing and reporting re- quirements. 2.03 The Decision Meeting of July 14, 1978 approved the project scope, estimated cost and proposed financing arrangements as recommended by the appraisal mission with three minor exceptions. The Meeting agreed that the project should finance 50% of the locomotive spare parts; it recommended flexibility in negotiating the conditions with regard to the operations of the running shed and wagon workshop; and it agreed that if CIDA did not go ahead with the financing of the*locomotives, these should be included in the project even if additional external co-financing had to be sought. A post-appraisal mission was carried out in December 1978 to follow-up on the recommendations of the Issues Paper and the Decision Meeting. 2.04 During negotiations, which started in April 1979, prolonged discus- sions were held on the subject of future investments in the Edea-Maloum6 section of the railway between Douala and Yaound4. The Cameroon Delegation rejected the idea that the Bank should be the sole arbiter of the optimal solution to be adopted for the investment while the Bank was concerned that the railway might proceed with an uneconomic investment. The Bank had, in fact, financed the preinvestment studies for that realignment under the Third Railway Project, and the ensuing consultant's report, which assumed the construction of a modern two-lane highway between Douala and Yaound4, showed that realignment of the Douala-Edea section was justified but that, at the present time, such an investment on the section between Edea and MalouvA was not. It was finally agreed that the previous study should be updated by an independent consultant both as regards the economic and technical aspects. 2.05 A draft Action Plan prepared by the railway was discussed in detail and appropriately amended. The Plan was incorporated in a supplemental letter. It was noted at the time, that there was considerable evidence of a strong commitment of the railway management to the Action Plan which it had prepared and which was fully consistent with Bank objectives. 2.06 The total project cost was revised upwards to US$59.2 M because of an increase in contingencies and the addition of workshop tools and training materials. A slightly smaller tariff increase over that originally proposed was negotiated. Negotiations were completed on May 2, 1979. The project was approved by the Board on June 19, 1979, and loan/credit documents signed on August 23, 1979. The loan/credit became effective on January 22, 1980. Project Objectives and Description 2.07 The primary objectives of the project were to increase the capacity and the efficiency of the railway's traffic handling facilities in the Douala area; to improve the efficiency of the railway's management and operations; and to improve and expand the railway's training facilities, to reorganize the railway's training department and to improve its training program. - 44 - 2.08 The project consisted of the following components: (a) the new Douala station including: (i) a marshalling yard with two sets of tracks for freight traffic and a rail bridge for access to the workshops and maintenance facilities; (ii) a platform and surfaced areas for cargo-handling, including required service sidings; (iii) a warehouse and service tracks; (iv) a wagon mainte- nance shed; (v) various small service buildings and fixed installa- tions including, in particular, a signalling system; (vi) internal service roads and parking areas; (vii) tracks and platforms for a passenger station; (viii) a set of tracks for servicing and parking passenger coaches; (ix) a public road connection to the freight station and yard; and (x) a road bridge to replace the present level-crossing on the Douala-Yaound4 road; (b) railway equipment comprising: (i) track maintenance equipment, mainly for renewal; (ii) 50 turnouts for service sidings and renew- al, in addition to the 75 required for the- new marshalling yard; (iii) 50 bogies to replace those damaged in accidents; (iv) a fire truck; and (v) locomotive spare parts which would be financed 50Z by the proposed loan and credit, and 50% by R4gifercas; (c) the expansion of the Douala workshop comprising: (i) the civil works; (ii) the construction of a service station in the vicinity of the new Douala marshalling yard, with refueling facilities; and (iii) machine tools, cleaning and lifting equipment for the work- shop. This workshop expansion was the first phase of the implemen- tation of a master plan proposed by the railway and was deemed sufficient to meet traffic and maintenance requirements needed after 1982; (d) the first-phase of the construction in Yaoundd of a locomotive ruanins-shed for the running maintenance of all the diesel locomo- tives operating on the Transcameroon railway; (a) Yaoundd rolling stock maintenance facilities, including a workshop in Yaound6 for routine checks and maintenance of freight cars and passenger coaches. This would enable the railway to postpone construction of new freight car workshops in Douala until completion of the studies financed under the project; (f) 306 man-months of consulting services and technical assistance for the improvement of railway operations and management, and, addition- ally, feasibility and engineering studies for the construction of maintenance facilities provided for in the project, the preparation of a possible workshop extension and the supervision of construc- tion; (g) 194 man-months of technical assistance to strengthen manpower and personnel management and training, including the development of an improved training scheme based on manpower planning, the training of supervisory training staff and instructors, and the implementation of the recommndations of the training study carried out by Consul- tants; the supply of furniture and equipment; and the renovation of existing buildings and the addition of classrooms and offices; and - 45 - (h) the refinancing of the outstanding amount of the engineering loan of the Third Railway Project (Loan S4-CM), as planned under the terms of that loan. III. PROJECT IMPLEMENTATION AND COST 3.01 By the end of 1982, when the project was to have been completed, project execution and disbursements were 18 to 24 months behind schedule due to excessive delays in finalizing major contracts and appointilig training experts and their Cameroonian counterparts, problems in execution of civil works in Douala station, changes in the layout of the Douala workshop, and delay in preparation of bid documents for the maintenance facilities in Yaoundd. The physical works were essentially completed by 1986. However, from the institutional point of view, there was the positive aspect that Rdgifercam's maniagement had become more dynamic by 1983,' but there was the negative aspect that Government interference led to measures which raised costs while it refused approval of sufficient tariff increases, thus forcing the railway into financial dependoncy on the Government and jeopardizing efforts toward managerial efficiency. Physical Components 3.02 New Douala Station. The four contracts for the main remodeling works were finalized by mid-1979. By October 1981, there was a cumulative delay of 12 months, occasioned by two seasons of abnormal rains and unexpected additional works which had to be undertaken. The initial plans prepared in 1976/77 were based on the reasonable assumption that the peripheral highway around Douala would be completed before the Douala station; however, because that project was delayed, the railway project had to bear the cost of recon- structing a gendarmerie and the access roads to the station. 3.03 A substantial part of the marshy site of the new station had been previously occupied by squatters which prevented a topographical survey as well as soil testing during project preparation. During construction, poor soils were found; pockets of mud had to be excavated and earth had to be hauled in to fill these pockets. Thus, drainage works had to be more exten- sive and elaborate to prevent flooding, and foundations for bridges and buildings had to be deepened by 2 to 18 m. Excavation of the bridge founda- tions unexpectedly uncovered the main pipeline supplying water to the city of Donala, which had to be diverted and major support works built to protect it. The water system for the station and its facilities was to be supplied direct- ly from the city mains, but the waterworks authorities would not approve such a large intake; thus, two reservoirs had to be built and a pumping station had to be installed. Lastly, the consultants had missed or underestimated various items in their estimates. By 1984, all civil works had been completed except for track laying by R4gifercam. 3.04 The design of the new passenger station building which was to be financed by the railway was far too ambitious, and in December 1979 the Bank unsuccessfully tried to persuade Rgifercam that it might be retained as a master plan, but that only a part of it should be constructed now. Construc- tion started by mid-1983, and the building was completed in June 1986 as per the initial design. As this was deemed to serve civic requirements, the Bank requested the Government to pay for the construction rather than the railway, - 46 - but it did not do so. It was also suggested that R4gifercam approach the City of Douala for reimbursement of part of the cost of the station. The contract for the signalling, telephone and public address facilities was completed in 1986. 3.05 Railway Equipment. All equipment was bought through ICB, except for the locomotive spare parts and a few itema on which no satisfactory bid could be obtained. 3.06 Douala Workshop Expansion. The expansion to be carried out under the project was the first phase of the implementation of a master plan pro- posed by the railway and was deemed sufficient to meet maintenance require- ments beyond 1982. The Bank agreed in March 1982 to a proposal by R4gifercan to alter the master plan with a view to streamlining the flow of work and in- creasing productivity, thus making the project more cost-effective. This involved shifting the existing running shed to the new Douala station in order to free space so *that the' existing diesel repair shop could be extended. The running shed was substantially completed by the end of 1984. 3.07 Yaound4 Locomotive Runnifig Shed and Rolling Stock Maintenance Facilities. Both items were delayed 18 months due to slow detailed engineer- ing and preparation of tender documents. In the course of the studies, questions were raised regarding the planned location of these facilities, about 10 km from Yaound4 station, and significant changes in the layout of the facilities appeared to be warranted. The Bank agreed that further studies were justified. These studies showed that an additional US$9.0 M would be required to build the locomotive running shed, the coach and wagon repair workshop, and the coach washing platform. The Bank proposed to reallocate US$2.0 M from project funds, but R4gifercam was unable to raise the difference from the Government or foreign sources. It was finally decided to build only the coach washing platform and to expand the existing service station, as initially planned, to accommodate 50 locomotives, railcars and shunters. Consulting Services and Technical Assistance 3.08 This project component consisted of: (a) continuing the management strengthening action started under the Third Railway Project; (b) setting up an 06 unit in each of the Mechanical and Engineering (MT), Operations (DOT) and Permanent Way (VET) departments; (c) improving personnel management procedures and staffing control; (d) carrying out final engineering studies for the Yaound4 locomotive running shed and rolling stock maintenance facili- ties; (e) carrying out feasibility studies for the second phase of the work- shop expansion; and (f) supervising contracted project work. Although slow, implementation of parts (b), (d), (e) and (f) was satisfactory overall. Rgifercam's personnel management techniques improved as a result of part (c) but, mainly because of Government interference, overstaffing worsened from 5,800 by project start to 6,750 by the end of FY85. Management is aware of the adverse effect of this situation on its financial performance and managed to reduce staff by 120 workers by the end of FY87. It believes that the workforce could be reduced by at least 1,500 staff and still handle. present and future traffic demandv- A staff reduction program is under preparation, but the reduction of staff to the technically desirable number will take several years, as Government regulations make dismissal of staff extremely difficult and time consuming. - 47 - 3.09 The objectives of the management strengthening consulting services were to: (a) design and help implement a computerized Management Information System (MIS); (b) improve budgeting, general and cost accounting procedures; and (c) strengthen the electronic data processing (EDP) department to allow for full computerization of the MIS, budgeting and accounting. Some progress was achieved in all three fields, mainly in the computerization of store accounting. However, this progress fell far short in meeting project objec- tives. The major reasons for this lack of success were the numerous changes in management staffing and the lack of qualified counterparts during project implementation. R4gifercam's statistical information system lacks consisten- cy, reliability and speed. Its general and analytic accountiig plan is complicated and difficult to control leading to late issuance of financial statements. The cost accounting system is incomplete as no reliable long-term cost information has been built into the system. Its EDP equipment is far from being used at capacity because of the lack of qualified analytical and programming staff, and mistrust between EDP staff and users. A comprehensive overhaul of the Tailway information system, budgeting and accounting proce- dures and of their computerization is urgent4y needed with adequate technical assistance. Training 3.10 In addition to preparing the training program and teaching material, and training Cameroonian instructors, a training plan and training organiza- tion system was prepared. During 1985, three-week training sessions were held for about a quarter of the staff. Reporting 3.11 Towards the end of the project, Rggifercam was submitting quarterly progress reports on a regular basis, and its completion report has been received. Procurement 3.12 At the beginning of the project, procurement proceeded satisfactori- ly, but following the involvement of the Commission Centrale des March6s, every stage of procurement resulted in longer contracting time than if RAgi- fercam had handled the awards. In January 1981, the Bank expressed reserva- tion on the award of four major contracts but following a revaluation and additional justification, the proposed awards were approved. Even though Bank guidelines were followed thereafter, contracting remained slow. No improve- ment in contracting procedures occurred throughout the remainder of the project. From 1982 onward, RAgifercam was also slow in awarding t6chnical assistance contracts. Although the Bank suggested in December 1985 that funds which remained available might be used for the feasibility and engineering studies of projects proposed to be included in the five-year plan, no such study has been commissioned. Costs 3.13 Judging by the report of the last supervision mission (May 1986) and a review of disbursements, it seems likely that costs were slightly under the appraisal estimate of US$59.2 M. While the cost of the new Douala station overran the appraisal estimates, there was a substantial savings arising from - 48 - the deletion of the maintenance workshops in Yaound6. In CFAF, total project costs were higher than estimated at appraisal because of fluctuations in the exchange rate which ranged from CFAF 211 in 1980, to 449 in 1985, and 285 in 1986. Disbursements 3.14 Due to cumbersome contracting procedures, delayed civil works and lengthy certification of invoices, disbursements lagged considerably behind appraisal estimates, with only US$28.6 M, or 612 of the loan/credit proceeds disbursed by the time of the last scheduled disbursements. The closing date for the Loan was June 30, 1986, three years later than the original date of June 30, 1983. However, the project duration and disbursements were close to the regional profile for railway projects. The Bank accepted disbursements up to December 31, 1986, and the Loan account was closed on April 23, 1987 with the cancellation of US$0.2 M. IV. TRAFFIC AND OPERATIONS Traffic 4.01 Passenger Traffic. The appraisal estimate of passenger traffic in terms of passenger-kmas was an average 9.3% growth per annum for FY80 and FY81, followed by an average decline of 4.4Z per annum until FY84 as a result of the expected opening of the new Douala-Yaound4 highway, and then leveling off. Actually, passenger-kms diminished by an average 1.5% per annum in FT80 and FT81, and increased by 38% in FY82, due to better quality of services provided by new equipment, a drastic reduction in ticketless travels and in total accidents, and better policing. Traffic further increased by an average of 16.1% per annum from FY82 to FY85. With the opening of the new Douala-Yaound6 highway in 1985, passenger-kms dropred by 182 during the FY86; but recovered partly (+ 8%) in FY87. The traffic was thus 15% below target for FY81. 932 above target for FY83 and 110% above target for FY85. The Western Line ac- counted for 4.82 of passenger-kms in FY79 and 3.3% in FY87. 4.02 Freight Traffic. The appraisal estimate of freight traffic in terms of ton-4o was a 7% growth in FTY80, then a 13.8% growth per annum up to FY83, a 5% drop in 1984 following the expected opening of the new Douala-Yaound6 highway, and a 2-3% increase each following year. Due to insufficient trans- port capacity, traffic did not pick tp until FY81 when it grew by 162, which was only 52 under target. This was due to the commissioning of new locomo- tives, a reduction of the number of derailments and economic growth of the country. Traffic grew by 17% in FY82 when it was 22 below target. The growth per annu was then reduced to 62 for FY83 and 12 for FT84 due to a decline in transit transport to Chad, lower locomotive availability, inefficiencies in transport management, train control and marketing, and, for certain commodi- ties, excessive tariff increases. However, traffic picked up again to 9% above target for FY85. It declined by 11.3Z during FY86 and 22.6% in FY87 as a consequence of the opening of the highway. The Western Line accoubted for 1.81 of total ton-kms in FY79 and 0.4% in FY87, having decreased by 52%. - 49 - Operations 4.03 Action Plan Targets. Selected targets related to locomotive and rolling stock availability, locomotive and railcar failures, train loads, wagon turn-around and staff productivity were established by the Bank and R6gifercam, and included in the Loan Agreement. 4.04 Locomotives. The availability of locomotives was 62% in FY79. Targets in the plan oi action were 75% in FY80, 76% in FY81 and 77% thereaf- ter. The actual performance was 70% in 1980, 71% in 1981, dropped to 66% and 61% ii FY82 and FY83 respectively, improved to 73% in FY84, and fell again to 67% in FT86 and a low 59% in FY87. Improvements resulted from: (a) increased availability of spare parts financed from the Loan/Credit; (b) the addition of 50 new locomotives from mid-FY80 to FY83; and (c) marked improvement in maintenance due to the efficient action of the ORKM unit in the MT department and the effect of the implementation of the training program. The adverse performance in'the later years is explained by (a) the ever worsening perfor- mance of the BB 1000 and the 4B 3600 series, availability of which was 34% and 26%, respectively, in FY87; and (b) the drastic reduction in the spare part purchase budget which fell from CFAF 204 per loco-km in FT84 to CFAF 81 in FY86. The Bank recommended that the railway adequately fund the supply of spares, and that intensive training with expatriate assistance be given to about 150 foremen and supervisors with regard to accurate diagnosis and proper utilisation of spares. Nevertheless, the Bank noted that Rfgifercam's system of locomotive maintenance in general had many desirable features worthy of adoption by other railway systems in West Africa. 4.05 Railcars, Shunters and Rolling Stock. The availability of railcars and shunters worsened throughout the period, to reach 57% and 53%, respec- tively, by FY86. The availability of ciaches and wagons remained constantly above targets; that of wagons was 0.94 for FY87. 4.06 Permanent War. By 1979, train operations were being severely hampered by derailments and wash-outs, especially on the portion of the Yaound&-Douala line earmarked for realignment, and beyond Yaound4. R6gifercam had in hand a program for renewing rail welds, carrying out subgrade repairs, replacing sleepers and increasing their density. By the end of 1980, partly due to intensive maintenance and partly to the renewal of defective track as part of the realignment program, the number of derailments 'had been reduced from twelve to four per month, rail breakages from twenty to six per month and the total interruption of main line traffic from 6 hours to 35 minutes per day. The number of derailments went up from 41 in FY82 to 61 in FY83, and clearance of the line took two days on average. These accidents were mostly localized on the non-realigned portion of the Eseka-Maloum section and beyond Yaound6. On the latter section, expansion gaps had closed due to rail creep. Although this could be remedied for the long term through increasing ballast, R4gifercam acted on the Bank's recommendation for the short term, by pulling back creep and opening up the joints. 4.07 The unreliability of communications hampered operations throughout the implementation period. In 1981, the Bank suggested to R4gifercaa that it study the feasibility of installing overhead lines beyond Yaound6, as prefer- able to a costly microwave system. By 1985, the persistently poor reliability of telecomunmication facilities was explained by shortages of batteries and spares, due to lengthy customs clearance. - 50 - 4.08 Traffic Management. By 1981, significant improvements could be noted in some areas of train operations. However, the productivity of the OK unit in the Operations Division was very low. The situation improved during FY84 thanks to the new management team, but, by May 1986, performance was again disappointing. The reasons wert poor telecommunications which ham- pered traffic management, unscheduled speed restrictions, insufficient avail- ability of shunters, lower availability of line locomotives due to the lack of spare parts, numerous derailments and rail breakages, and the fact that the signalling at Bessengue was not yet in operation. 4.09 - Commercial and Tariffing. A commercial division was 'created in October 1979 with a view to implementing a dynamic marketing policy to counter the competition from the new Douala-Yaoundd highway. However, it remained ineffective as statistics were insufficient due to data processing problems and inadequate staffing. In March 1984, KfW financed an expert to prepare specific recommendations for strengthening R4gifercam' s marketing and opera- tions where it *has a comparative advantage. This study was also expected to throw light on the disparity between the cost of efficient transport and the relatively high tariffs of Rgifercam, a result of its operating inefficiency. 4.10 Staff Productivity and Cost. The staff productivity index was 143,000 TU (traffic units) per employee per year in FY79. Targets were set at 170,000 TU for FY80, 175,000 for FY81 and 180,000 thereafter. Productivity lagged at 141,000 and 151,000 TU for FYs8O and 81, respectively, but reached 173,000 TU in FY82, when the staff was increased by an average 3.9% per annum. As a result of a more cost conscious management, the staff level remained unchanged during the period FY83-85. This together with increased traffic volumes resulted in a productivity index of 221,000 TU per employee for 9Y85 declining to 167,000 in FY87 as a result of declining traffic volumes not being offset by corresponding staff reductions. Due to salary increases granted by the Government, the basic cost of labor (CFAF per employee per year) increased by an average 16.5% per annum over the FY79-86 period, or 81 p.a. in real terms. However, overall personnel expenditures increased by an average of 18.7% p.a. or 10.4%'in real terms. V. FINANCIAL EVALUATION 5.01 The objective of the financial evaluation is to assess the impact of the project on the financial performance of R4gifercam upon project completion at the end of CY86 as compared with the situation at project start, i.e., July 1, 1979. The analysis, thus, covers FT80 through FY87. Since the appraisal report did not cover FY87, each of the sections dealing with R6gi- fercam's income and cash flow provide for a comparison between appraisal projections and actuals over FY&8O-86 and a separate comment on FT87. The analysis is supported by Tables Fl to F5 showing, respectively, R4gifercam's income statement, balance sheet, sources and applications of funds, selected financial ratios over 1979/87, and a list of tariff increases over 1976-87. Financial Situation at Project Start 5.02 R4gifercam's summarized balance sheet as of June 30, 1979 was as follows (in CFAF billions). ~ 51 - LIABILITIES 7ixed Assets: 'et Value 44.3 LonV*Term Debt and Provisions 24.2 orkin Canital EquitvSyEuvalent .urren Asset: Inventories 3.4 Opening capitaL 2.8 Receivables 1.4 Subsidies for Investments 17.0 Cash and Banks 0.5 Sub-total 5.3 Sub-total Gov. Funding 19.8 .esa Current Liabilitiest Paiables 2.7 Cumulated Results 0.1 Sank Overdraft 1.8 Reserve Fund 1.0 Sub-total 4.5 Sub-total over Contributions 1.1 to Increase in Equity let Working Capital 0.8 Total Equity 20.9 TOTAL ASSETS 45.1 TTAL LIABILITIES 45.1 5.03 The balance sheet reflects a mediocre financial situation. The 1.2 current ratio (current assets/current liabilities), the 0.4 liquid ratio (current assets excluding inventories/current liabilities) and the CFAF 1.8 billion bank overdraft, were evidence of serious liquidity problems at the start of the project. The 54/46 long-term debt/equity ratio shows that R&gifercam's long-term position was also weak since long-term debt exceeded equity. Appraisal projections indicated that the project would improve the balance sheet by June 30, 1986 to a current ratio of 3.4, a liquid ratio of 2.2 and a debt equity of 40/60 under the main assumption, and to 2.8, 1.6 and 52/48 under the sensitivity assumption. The degree to which these projections were achieved is described in para 5.13. Financial Performance during Project Implementation Degree of Achievement of Loan Agreement Targets (Table 5.6) 5.04 To achieve the above ratios, R&gifercam needed to reach operational targets which were not met, but good progress was made on most of them (pa- ra 4.03 - 4.05). R6gifercas was to (a) ensure that, starting Decem- ber 31, 1980, gross revenues from passenger services on the entire network and from freight services on the Western Line would cover at least 60% of the total cost of these services; and (b) by June 30, 1981, study measures to cover long-term marginal cost of these services. The 60% passenger cost coverage target was met in FY81, exceeded in subsequent years to peak at 731 in FY84 and drop to 591 in FY86. No reliable data on the cost coverage for freight traffic on the Western Line are available, but achievement of the target is unlikely because of the low traffic on this line and the railway's high fixed costs. Long-term marginal costs were studied in 1980/81, but recommendations were never applied. The railway was to achieve a working ratio of no rore than 75% in FY80, 722 in FY81, and 701 in subsequent FYs; however, targets achieved were only 811 in FY80, 761 in FYs81/82, 73 in FY85, but worsening to 90% in FY86 and even to 1021 in FY87, when freight traffic dropped. Income Statement 5.05 The following table shows a summary of R4gifercam's income statement cumulated -ver FYs80 through FY86 under the two appraisal. options and in actuals over FYs80-86 and 80-87: - 52 - CFAP Billions *.*. - Appraisal ..-. - ACtualS ACtuals Item Main Assumption Sessitivisy TU86 W47 Traffic: Passengers (P allions) 1780 1694 2569 3013 Freight (TK millit'.) - 5798 4783 5549 6224 Total (TE millions) /a 7578 6477 8118 9237 Gross Operating Revenuess Passengers 24.7 23,8 25.8 30.6 Freight 158.0 129.5 134.9 151.8 Other 4.6 4.5 5.4 6.1 Total 187.3 157.8 166-1 188.5 Working Cost 124.3 112.0 131.0 153.9 Cash Generated from Operations 63.0 45.8 35.1 34.6 Depreciation 22.1 22.1 33.8 41.3 Net Operating RLavnue 40.9 23.7 1.3 (6.7) Interest Charges 21.0 23.5 19.4 22.5 Net Revenue (Loss) from Operations 19.8 0.2 (18.1) (29.2) Goverrment Operating Subsidies 5.8 5.7 15.1 No*operating Revenue -- (0.5) 4.5 Net Incoe 19.8 6.0 (12.9) (9.6) /a P * Passenger Kilometers; TK - Ton kilometers. 5.06 Over 1980-86, the railway's passenger traffic exceeded traffic projections by 44%. and freight traffic reached 96% of forecasts. Gross operating revenues from passengers barely matched the forecast, and receipts from freight were 15% below forecast, all because tariffs were not increased with inflation. At appraisal, it had been assumed that over 1980-86, (a) real passenger tariffs would remain constant; (b) real freight rates would be reduced by 2% p.a. to maintain R4gifercam's competitiveness; and (c) inflation would be running at 102 p.a. As a result, tariffs would double during project implementation. In reality, passenger tariffs only increased by 42% and freight rates by 52% between July 1, 1979 and January 1, 1984, about in line with inflation. But, as the Government has not authorized any further rate revision, although inflation continued to run at about 101 p.a., rates actual- ly decreased in real terms over the project period. In FY87 passenger traffic continued its upward trend but freight traffic fell sharply, 23% below FY86. The net result of the tariff freeze is that real term tariffs, which remained constant over 1980-83, fell 19% for passengers aud 231 for freight over 1984-87. 5.07 Operating costs continued to grow at a gradually decreasing rate due to a freeze on salaries since July 1, 1985. Despite this freeze, the propor- tion of staff cost to total operating cost continued to grow to 512 in FT80. 591 in FY84 and to 66% in. FT86. This growing percentage, which resulted mainly from an increase in the number of staff by the end of FT80 to FY85 (para 3.08) and from an extensive use of temporary gangs. 5.08 The tariff decrease in real terms and the growth in operating cost explain why the CFAF 35.1 billion cash generated from operations over 1980-86 was far below appraisal expectations, even under the sensitivity assumption (- 25%). Since depreciation exceeded appraisal projections by CFAP 11.7 bil- lion because of the steeper-than-anticipated increase of the gross value of fixed assets, the railway only generated a net operating revenue over the six year project period of CTAF 1.3 billion, i.e., 0.81 of the accumulated CYAP 166.1 billion gross operating revenue, a negligible return on assets. Appraisal expectations were CFAF 40.9 billion under the main assumptions and - 53 - CPAP 23.7 billion under the sensitivity assumptions which translate into rates of return of 7% and 3.6%, respectively. By the end of FY87 the cumulated net operating revenue fell to 6.7 billion as a result of: (a) the drop in freight traffic; (b) stagnant tariffs; and (c) the sharp increase in the depreciation allowance. 5.09 The low net operating revenue prevented the -ilway from contribut- ing to the coverage of interest charges incurred on its long-term debt. The actual net loss reached CTAF 18.1 billion while a CPA? 19.8 billion profit had been foreseen over 1980-86. A further reduction of the accounting loss occurred in FY87 as a result of: (a) the CPAF 4.8 billion subsidy against operating losses provided by the Government; (b) the CFAF 4.6 billion waiver by the Government of taxes and custom duties owed by R4gifercam; and (c) the write off of the CFAF 6.3 billion provision for renewals which lapsed after the revaluation of fixed assets. Year by year PerformAnce 5.10 The following table shows key annual financial result indicators in actuals over FMs80-87. - -- ------- *------ Billions CIFAF ------- Ite FY8 FY81 FY82 FY83 FY84 FT85 FY86 F87 Traffic (MU billions) 0.8 0.9 1.1 1.2 1.3 1.5 1.3 1.2. Cash Generated from Operation 2.6 4.2 6.4 41.0 6.6 8.7 2.6 0.5 Net Operating Revenues (Loss) (0.2) 1.1 1.7 (1.8) 0.7 3.7 (3.8) (8.0) Net Result (Loss) (2.0) (1.2) (1.0) (4.9) (3.0) 1.1 (7.1) (11.1) Operating Subsidies 0.9 0.3 0.3 1.4 0.7 1.2 0.9 9.4 Net Inacme (Loss) (1.1) (0.9) (0.7) (3.5) (2.3) 2.3 (6.2) 3.2 The best year was FY85 under the double effect of record traffic and a tariff increase which took effect on July 1, 1984. The worst years were FY86 and FY87 when traffic fell substantially as a result of the opening of the Douala- Yaound6 highway, as costs (mainly fixed staff costs) could not be reduced in line with the decline in traffic. Because of its high fixed costs, RAgiter- cea's financial performance is highly sensitive to traffic. This sensitivity is the major reason behind the CFA? 4.3 billion worsening of the net operating loss in FY87 as compared with FY86, due to the decrease in cash generated from operations, and the increase in the depreciation allowance. Analytical Results 5.11 R&gifercam's cost accounting system was established in' .T81 by consultants. Calculations made at that time resulted in a full cost per passenger km of CAT 14.67 and p/ton km of CTAP 21.62, versus respective gross revenues of CPA? 8.88 and 22.23. Respective unit coverages by gross revenues were 61% and 103%. respectively. These cost calculations are only estimates and, thus, are not fully reliable; they need to be confirmed by further studies. These coverages evolved over the period as follows. -54 - Coversee of Tetal Unit Cost by Unit Gross Operating Revenue % Iten Y FY82 FY83 FY84 FY85 FY86 FY87 Passengers 61 61 68 73 69 60 N.A. Freight 103 115 98 102 106 106 N.A. The cautious conclusions to be drawn from these indicators are that (a) pass- enger traffic has genera-ed heavy losses mainly because of low fares and high costs, especially fixed costs; and (b) freight traffic seems to generate a reasoVable profit due to bulk transport. Sources and Aoplications of Funds 5.12 The following table shows a summary of Rigifercam's sources and applications of funds cumulated over FY80 through FY86 under the two appraisal assumptions and in actuals in FYs86 and 87. CFAF Billions Item Main Assumtion ;ensitivia FY86 FY87 Oprstiona sources ilsFnerated! 63.0 45.8 35.1 34.6 Subsidies 5.8 5.7 15.. Sub-total 63.0 51.6 40.8 49.7 Avlications interest Carss 0 23.5 19.4 22.5 Contributions to livestments and Increase (Decrease) in Working Capital 42.0 28.. 2.4 27.2 Mon-mperatint Revenues (Loss) Increase/Decrease k MT_ (5.7) Iav"stMents Sources Man Rtributions 35.2 24.6 18.. 21.5 Borroving 30.7 42. 63.7 66.7 Subsidy 11.6 11.6 39.8 73.7 Other Sub-total 77.5 78.0 123. ; 61.9 Applications Investments 60.6 60.6 110.7 15.1 Debt Servicing Paymnts 16.9 17.4 21.8 24.4 Sub-total 7s 78.0 132.5 174.5 Increase (Decrease) In Working skital Incresse/Decreass in Working Capital over Project Period 6.8 3.5 (10.9) (12.6) Brought over from 06(30/79 2.2 2.2 7 7 .05.7 (10.2) (11.9) /a Transferred to iwestme- financing. Under the main assumption at appraisal, R4gif ercam was expected to generate CFAP 42 billion over FYs80-86 from its operations after payment of all working cost and interest charges, and to contribute CFAF 35.2 billion to the f inanc- ing of investments and the repayment of its long-term debt , and the remaining CFAF 6.8 billion to Increase its working capital. The contribution to invest- ment and debt repye, an to the increase in working capital would have C, a1 . 5 , s p 19. 22.h amunedto246 ilio ad 42A . 28lio, 21pctvl. 27.2h - 55 - sensitivity appraisal assumption had materialized. The actual cash generation only reached CPAP 18.1 billion after deduction of CFAF 3.3 billion of non-operating losses, while the cost of investments was CTAF 50 billion, i.e., 832 higher than assumed at appraisal, to reach CFAP 110.7 billion. Although the Government contributed CFAP 40 billion to the finucing of the increased investment plan, R6gifercam had to borrow about twice the amount planned. This additional borrowing triggered an increase in the debt repayment sched- ule. To fill the financing gap, the railway depleted its working capital, delayed payments to its creditors, mainly the Government, and resorted to bank overdrafts. 5.13 In FY87, R4gifercam invested CFAP 39.4 billion in additional fixed assets, including 33.9 billion for the realignment of the Eseka-Maloum& section of the Douala-Yaound4 line entirely financed by a Government grant. The remainder came from CFAF 3 billion in long-term borrowing and CFAF 2.5 billion from the Government subsidy against operating losses. To honor its CFAP -2.6 billion long-term debt repayment, the railway used more of this subsidy and increased its bank overdraft by 1.1 billion. This, and the need to make up for the shortage in cash generated from operations, explains how R6gifercam's working capital decreased during FY87 by CFAF 1.6 billion to an uncomfortable CFAF - 11.8 billion. Financial Situation upon Project Completion 5.14 R6gifercam's balance sheet for FY87, reflecting its operating financial performance and the financial implications of project implementa- tion, is sumnarized below: CTAP Billions ASSETS LU=Z Fixed Assets: Net Value M95ET Lea-term Debt and Provision Worktaq Cagital Essit Equivalent _urrent Assets: Inventories 3.8 OpenIng Capital 2.8 Receivables 4.3 Subsidies for Investments 84.3 Cash and Banks 0.4 Sub-total 8.5 Sub-total Govt. Funding 87.1 Less Current Liabilities: Payables 13.8 Cumulated Resales (0.6) Bank Overdrafts 6.5 Reserve Fund LO Sub*total 20.3 Revaluation Reserve S.9 Sub-total Own Contribution to Increase in Equity 52.3 Net orking Capital (11.8) Total Equity 139.4 TOTAL ASSETS 194.8 TWL LIABILITIES 18 A comparison with the opening balance sheet leads to the following findings: - Gross value of fixed assets increased by CFAP 200 billion, and the not value by CTAP 162 billion of which CPAF 63 billion and.52 bil- lion, respectively, are a result of the FT87 revaluation. - Working capital decreased by CFAF 11 billion; the current ratio deteriorated from 1.2 to 0.4 and the liquid ratio from 0.4 to 0.2. - 56 - -- Net worth grew more than six times from CFAF 20.9 billion to 139.4 billion. The Government financed 57% (CFAF 67.3 billion) of this growth through an increase in its equity contribution. The rest of the increase reflects the net effect of the FY87 revaluation of fixed assets. -- Long-term debt increased from CFAF 24.2 to 55.4 billion; the debt to equity ratio improved substantially from 54/46 to 28/72 mainly due to the above mentioned increase in equity. VI. INSTITUTIONAL PERFORMANCE AND OUTLOOK Covenants 6.01 Though behind schedule, R4gifercam generally complied with the Loan Agreement's institution building covenants. Not later than June 1980, Rdgi- fercam had to submit to the Bank a draft manpower plan; however, this was only complied with in October 1981 and implementation only started in 1982. However, the railway exceeded the agreed limits on increase of staff beyond that needed for operational requirements. Moreover, three O&M Units were to be set up no later than December 1979; this was only complied with in 1981. The railway did review with the Bank the annual technical assistance require- ments as stipulated in the Loan Agreement. Furthermore, R4gifercam had to improve current cost accounting to identify cost centers and assess the economic and financial justification of its services by line; this was done from FY82 onwards. From FY81, R4gifercam had to prepare an investment and financing plan for each fiscal year; this was only achieved when a new Econom- ic and Financial Studies Unit became operational in 1981. Consultants' Performance 6.02 In general, the technical assistance experts performed satisfacto- rily. Preparation studies for civil works, namely for the Douala Statiom and the Yaound4 locomotive shed, were less satisfactory and cost overruns resulted from insufficient detailed studies. Institutional Performance 6.03 The project's objectives were to provide R4gifercam with sufficient autonomy, independent management and its own budget to have direct control over its operating staff and staffing policies, and authority to prepare and implement its own investment programs. Also, the project provided for.uanage- ment strengthening to improve operational efficiency and financial results. Achievements fell short of expectations in the financial field, while reason- ably good results were obtained on operating managerial aspects. 6.04 While administrative and managerial improvements progressed satis- factorily from the outset and traffic increased modestly, R6gifercam's financ- as gradually deteriorated. In 1980, the Bank insisted on the preparation of a financial recovery plan. A comittee was appointed by the Government, but its report was not comunicated to the Bank; the Bank learned that the report contained recommendations for massive subsidies to the railway as a permanent feature of the financial recovery plan. The Bank continued to insist on a mutually acceptable financial recovery plan. - 57 - 6.05 Due to the Bank's efforts, the investment plan for FY83 was reduced, and a plan ranking projects by priority was prepared. The Western Line, because of its low traffic and tariffs, continued to be the subject of conten- tion between the Government and the Bank; the Government insisted that the line be kept in operation for political reasons. To help R4gifercam obtain satisfactory compensation for these uneconomic services, in June 1983, the Bank provided it with guidelines for the drafting of a "contract plan" betweau the railway and the Government. The Government did not agree but instead reorganized R4gifercam; this was aimed as improving operations, better manpow- er management and provide a structure for carrying out economic studies. 6.06 In FY84, the budget was based on the previous year's performance and this led to a more realistic budget. Also, the new management was more receptive to Bank suggestions and was prepared to limit investments, increase emphasis on training and technical assistance, and limit the growth of staff. Finally, the preparation of a contract plan was undertaken, but it did not materialize. Instead, Government interference in railway management, by imposing costly new measures while refusing tariff increases, resulted in making Rfgifercan financially dependent on Government subsidies. 6.07 Standa,ds of operation went down during FY85. Although some correc- tive steps were promptly taken, improvement in overall profitability was insufficient to cover R4gifercam's heavy debt-service and new investment requirements. By FY86 a substantial injection of capital by the Government was needed; this did not occur and the railway's financial situation remains critical. Institutional Outlook 6.08 In line with similar developments in other parastatals, a major managerial change occurred by Presidential Decree of September 6, 1985. The railway's general manager is no longer ipso facto Chairman of the Board, and the latter is now appointed by presidential decree. The Board still assumes the dual function of implementing Government policies, and supervising the railway's management which is headed by a general manager, assisted by one or two deputies and one or two technical advisors. However, all are appointed by presidential decree, and neither the chairman of the board, nor the general manager are free to choose their subordinates. 6.09 While the administrative and operating framework established by the new decree is adequate, the effects of its implementation on R4gifercan management are not. The major drawback is that only one deputy general manager and one technical advisor have been appointed. The general manager is fully occupied with general matters and relations between R4gifercam and other Government agencies, and the technical adviser is assigned to specific tasks on behalf of the general manager; thus, all responsibility for management rests with the deputy general manager, who is, consequently, overtaxed. 6.10 The inadequate distribution of functions within R6gifercam's manage- ment, combined with shortcomings in the MIS and in financial and accounting procedures, are the main reasons for the deficiencies in budgeting control and internal auditing. These have also resulted in the railway's inability so far to raise its standards of financial planning as called for under the Loan Agreement. Several attempts were made during project implementation, the last of which in May 1987. However, none were fully satisfactory and additional assistance on these matters will be required. - 58 - VII. ECONOMIC RETVALUATION 7.01 The central assumption in forecasting the economic benefits from the marshalling yard was that without it wagon turnaround would increase as a result of traffic growth causing congestion in the existing inadequate facili- ties. In fact, traffic through the marshalling yard did not increase as rapidly as expected, but despite this wagon turnaround times increased until the marshalling yard was opened and then declined by about two days on aver- age - roughly in line with forecasts. Since 1984/85, turnaround times have increised somewhat, but this is at least partly due to increased average hauls as traffic between Douala and Yaound6 has declined in importance relative to that originating further north. 7.02 At appraisal, the e-onomic rate of return (ERR) for the overall project was 18%. For the marshalling yard facilities, the single largest item in the projecti-the ERR was 20%. On the basis of available cost data, it is concluded that the ERR for the overall project is about 14-15%, and for the marshalling yard facilities it is about 15%. VIII. ROLE OF THE BANK Project Implementation 8.01 The physical components of the project proved to have been correctly prepared with two exceptions. The earthworks for the Dounala station were grossly underestimated both as regards cost and implementation time. The Yaound6 maintenance facilities component were postponed due to delays in the engineering studies, and uncertainty at the time of execution with regard to their location, role and final need. Project implementation also suffered delays due to cumbersome procurement procedures introduced by the Government in 1981 and its reluctance to hire expatriates for technical assistance. 8.02 Regarding the Bank's traffic forecasts: freight was only 2% below forecast in FT81, but 9% above in FY85; traffic declined in FY86 and FT87 to well below the appraisal estimate. From FY82 onwards, passenger traffic was well above forecast, thanks to improvement in operations. Targets for opera- tional efficiency were well behind schedule due to delays in carrying out the works and implewmting technical assistance, but eventually were almost all met. By contrast, financial targets proved to have been extremely optimistic. Supervision of the Project 8.03 Supervision of the project by the Bank was thorough through project implementation. Bank missions set in motion technical assistance in such critical areas as data processing, the purchase of spare parts, marketing, and the preparation of a contract plan. The Bank constantly pressed R4gifeream and the Government to appoint counterparts to technical assistants, increase tariffs to match costs, curb staff growth and salary increases, impkove the policing of the railway, audit the accounts, technical and economic evaluation of proposed investments, and strengthen inspection by supervisory staff. Bank missions presented suggestions for remedying track defects, repairing bridges and communication equipment, and expediting the commissioning of the Donala - 59 - freight yard; they were instrumental in the recruitment of expatriate talent when the retirement of the deputy general-manager threatened to weaken RAgi- fercam's management. However, the Bank was less successful in persuading the Government to improve the railway's financial performance and to ensure its autonomy. 8.04 Overall, the Bank's role in project design, preparation and imple- mentation led to positive results. Completion of the physical components of the project increased R4gifercam's capacity to meet traffic demand. The establishment of the O&M Units and implementation of the training program improved operational productivity. While action aimed at improving managerial organization and procedures was not as successful as anticipated, it still brought about some positive results in personnel management. It also led to the identification of additional organizational and procedural inadequacies and/or weaknesses. Financial results did not meet expectations; however, financial performance would undoubtedly have been worse without the Bank's intervention. IX. CONCLUSIONS 9.01 The project was well prepared and implementation was generally satisfactory; however, some of the objectives, in particular the financial. targets, were not fully met. Because of slow start-up and procurement delays the project was completed four years behind schedule. The most serious delays involved the construction of the Douala station, the expansioL of Douala workshop, and the construction of the Yaound4 facilities. 9.02 With the help of the project, R6gifercam actually met traffic demand after 1982. Toward the end of the implementation period, operational effi- ciency almost met the target set at the time of appraisal. With regard to institutional performance, although the consultants engaged for the improve- ment of administrative and managerial activities worked satisfactorily from the outset, significant progress materialized only around 1983. 9.03 The railway's financial situation has deteriorated almost < atinu- ously and calls for: (a) financial restructuring combined with cost cutting measures; (b) a review of all services performed by the railway and compensa- tion by the Government for uneconomic services performed in the public inter- est; and (c) review of the tariff structure and evaluation of the commercial competitiveness of the railway. 9.04 Urgent action is needed to: (a) reorganize management to strengthen its administrative, financial, and commercial capability; (b) design anq implement a comprehensive management information system; (c) improve finan- cial, accounting and cost accounting procedures; (d) improve budget control and internal audit; and (e) strengthen marketing effort. Implementation of most of these measures depends heavily on the reorganization and strengthening of R6gifercam's data processing department, and training of its staff to sensitize it to the advantages of computerizing technical, administrative and financial operations. Particular attention should be paid to the reorganisa- tion/sIplification of financial planning, budgetary and accounting proce- dures, including the proper analysis of this data, and to the selection and/or training of staff qualified in these fields. - 60 - 9.05 The railway requires financial restructuring. An injection of capital of the order of CFAF 20 billion is needed to reduce the debt burden due to bank overdrafts, and medium- and long-term borrowings; and steps have to be taken to ensure a significant increase in cash generation. This also involves further curbing of operating expenditures, and tariff increases to catch up with inflation; staff numbers and salaries have to be contained, and structurally unprofitable services should be reviewed and compensated for if imposed by the Government. 9.06 Measures to improve R4gifercam's short-term financial situation are urgently needed. One of these could consist in the Government's waiver of the CFAP 4.2 billion the railway owed it as of June 30, 1986. Another, aimed at alleviating the railway's shortage in cash, could consist of the city of Donala reimbursing R4gifercam part of the cost of the new Douala passenger station. This construction substantially improved the environment, and in addition, generates revenues for tne city in terms of taxes, parking fees and customers for the urban ttansportation system. 9.07 The ERR of the overall project as completed is 14-15%, or somewhat less than the estimate at appraisal df 18%. 9.08 Implementation of the project did not bring about the imprtvement in the railway's financial situation anticipated at appraisal. The benefits of the project are economic since it provided Cameroon with the transport capaci- ty tor meeting anticipated demand. From the financial point of view, utiliza- tion of the increased capacity paralleled by substantial cost reduction measures, aggressive commercial policies and a sensible tariff policy could improve the railway's financial performance over the medium-term to a level no longer requiring Government subsidies, but all of this requires stronger management and autonomy in tariff setting and personnel policies. 9.09 Relations between the Goverment and R6gifercam will have to be streamlined and codified in a contractual document which would specify areas in which R6gifercam would oe granted managerial freedom and financial autonomy it requires to optimize operational efficiency and financial autonomy. 9.10 The Bank can play a useful role in assisting the Government and Rdgifercam to take action on the above mentioned institutionai, financial and operational improvements aimed at allowing the railway to fulfill its role in the country's economy. This assistance would provide the basis for a follow-up project. ·小．‘墾鴃點u ！引’&’轔’喜鳥擊龔妒，雲醒審”, 水！薯―”緊””•響”嗎喜興斗響鰓籐喜賽鳥 !11一！- ―一―。方― 1馴“擊’雜震鑒鑒騷鑒豐合鰓g露藝鰓鬍 鄴引曹！鰓叢吧，審磬”蘿壅響襲鰓豐鰓界界藝舊藝 -&―引’緊”&”鑒”料勢珍，&! ！引•粤”裴’喜喜鑾界響，，籐霹艮纓響 州到韋―‘輩日輩露磬’認華鰓龔墨龔鑿露纏露露 -&1,l1‘緊”&’喜‘馴’樂答獎’壅’& -．引”,’裴’鳥響’龔”&&’豐各’中 圳劇’緊‘&”一器”鑾”,’〕”& l。＿阿‘糼‘&&”器”樂”,!’〕’ 攔襲．―引‘，膩”羈喜謬藝誹賽響鑿”謬 玀’嗣’&&&&&&，彆物，! W凶’引“繁“&“一肥’‘憐魯’藝’!!_! &-．馴”斗”&‘書魯’悲’藝”’豐，餐鰓 圳劇’緊”&&”獎雲’興”莽’〔“ ―倘―‘輩”&”霎“縱，瞧藝”’壅導， 1;．吃波怯養霆弓•擊發織＇目觀吃發叢奮易煩賽庭麗 ―且l哺齋喊”鳥日，黠黠盤魯魯誌》斗斗匹鸛魯“烽“ ,―劉重l“墾莖“藝。”魯二蠶露鑒界藝界界響藝界露藝“& -}!-’擎“&”喜‘“豐’鰓‘擊”&& ―、，‘華，認•；•您．認要寫為號馱要痲症看•藝痲 ,1引償―‘藝莖認藝豐鳥藝。。藝界界離鳥邑藝暴鳥藝露望翁細 ―牛l-‘緊”&&”騷”矓’乞思”& 蓬―劉”&”勞麩喜忽”,，丰“望藝基•妒 ：藝 。―101 101!1．一譽！．。 1 1111!11.,；徑I:,＿。11,！。i。． 揮―日渥邊晨“1秀I黑。星―遺，屆渥屆織邊譽。豐屆。曾 審―奮！量•饕•“蘊―騙一，蓬•睡豐號奮纏雲曇響澀晝 耑言：．品；了”蘿荔•贏不言－婪r贏筑鬥訂r贏邢計‘眾鬥訂斗言－不鬥斤萬齋－邵馴需婪：“莽r言r必言甚 ,l騙i不？品不不一’不－一茹不一”不不”．斤’不”一祈一編不不－一不－’蔽；’不一‘必中一’．必斤以－“以－一斤斤不一蘇一不一泌涵‘ 士聶；；一不汗不，；二·痲碳一不一訂二；一；;－祈二？．一不一訂二一不一痲騙－一不一祈；「－不一二二汗石二屆二不 震侈！勺州1驢，助化做唱醒．I勸朧跚磚•閑•‘悶 ．勺幫“縱，‘。嗆d‘機閑＇,&.：必常開”.．唱。 衛嗡。，t州•t螂化州江縱、，J化伐，t細，么‘寥“言化j。韶露“、礪，．以，莽劇；朧，州“以，；龍寥、俗化。．認偶找“”細陣州悶 ．點，c目討磁婦師”“馴 •州露細、鵬化較．召面‘：勸．‘謝，州露劉I掬馮州利 ，螂馴、dl細，神，州“臢州網悶悶“肖‘域甲學 也、謝．t州，常•g勸，；州，織，l開．,．騙螂，g縱調戶閱 膩認11酒頗口t細•■。 •嗡‘嗡•勿•勿州。細，．口‘州、”取州d州勿細．遲劍《卸嗎州，．曉．’戲．&&.,&,，州，．化矚．’觔．．翮‘州•居•口’• 以，網，開，網，。勰•勸，‘州，細，。勸，d協，：常，。磁，&r:&：。”&,,，•，．聯化瀉烽哎‘．細化“.t馴爍蟹11&&，戶n露啊 讓，．常，.,：鳥·，。·，。·，斗：，·：.：簽．。，，二：巢．,,，二，果，、，4：雜，::．為閑二婪 于”汗不－汗不不一斗「州痲～汗不一不一必7不一不才么不不7．一斤不一勰州蔽－一不一斤不不一薇才斤才汗才一屆不－不不一：. •鑼一口物州婦“l婦言鶴•戶鰓 。以亂盔郃：=,t認拳，冷：講霹才勰兀 •，劍申隨州悶開•“閱 •調閱，戶n 劉當網，〞．叫煙〞。越勿州．叫奮州t刨t縱煙謬，偽〝翮c口．償個州才，、〞露似化‘、鵬勿〞勰瀉煙州網•叫 引口口口口口口 日一森不－i一不一痲一斤一－7叮i－不一不一f”不一么一i－邢一“斤一J’斤一斤一f•日一～才－7一必蘇面 •騙，協•勿〞為州。叫勿中〝。嗡州”，蔔〝刎“。＇。．紹．結“、爛、t&9〝j“〞颼娜潘懈勺聯〝鄒婉卹〝讓〝••，.‘秘 砷．神州．為．“州．州鰓嶼勿〞，榭唸憫．l州，甲：〞▼硎《爾、州〕朧、州，黝〝鐵，t細由蝴呵 州螂摔舛縱〝回路謬“謝〝，〞“飾騙必州計斗磁編〞威袱奮“嗡礪他硎”妒”〞”州〝州，a〞“〞“刨“•〝馴” 蜜魚叫雙！憚。嗡〞。’倘•痲耐薇必“痲編痲磁州。似嗡州a細嗡爛繁爛夕州艾也〝州醒幟〝傷，LI以，&I川〝開啊！網”州••’ 口•煙州勿縐嗡．州勿州伯當馮物m勿”勿申床辭勵辭勵州山冷．&Il中、”•．&.t州馴朮細縱勿”d&”騙山嗡d“州他。騙•州網用，, L露劉日•實‘ 一贓闕臘斤噸“一號斤””一織才一“&”鴨r鬨”&&&,,’噸“&”觀才’噸“謝”鴛r‘闕“闕門啊二噸 •叩州叫，口•用州叫，•閑n州叫網閣•州叫劉纖為州叫州個物州叫補口”州叫”,”戲州叫”. ）唱露閱闢騙零各嗡電玲勵電紛閑”》勵露開哺細•個吋州“唱瀾 ＿緘馨篆森· 弱 轟 •d••嗡！仕”卹“寫．頗闐r州州“個f•叫．切•嗡配“才。，州昤I∥俗州。州•耐一勵瀾榭編•唱朧勺觀他“d“馴嗡•以他•“，•‘ &’•細。網細“r•馴嗡”『“州”•細龍r“謝，州嗡州∥，〝”〝•〝螂嗡州”祠『。儷個•〝“〝州•叩嗡•嗡個i煙」•，．•“屆•，. •網•個向·•六，•啼．物雜，“六•繁哺“,0k,’。州1,！絀南唱欐勿鰓常“州．認仕繃開名濤群，回，叫劬。“娜啊，&，開”••寫 •喝勺’·“•陶一 牌飼”個、。、州個六配飼••’乓••間闖闢 “『•山〝頂〝二•〝＿._&＿•〝＿論〝．‘州‘_.＿一‘_d露．一一為〝I單，間碼囉閑 一皰一晌確一“瀾吶．＿叭“〝一山嗡網－以瀾“嶼〞“_&＿嘯哦一！一 酌一幼一－一〞，一〞，,,&-－一，&，州，州I- 《’戲－－一，一”&&&”一”.＝日任 不石石 勵勿•六似嗆觀鰓耐l鸞州，州，州寥•••自••••“ •〝開’〞•〞鰓〞••，．州‘織〝州•勵〝縱〝ta．。〞認〞。州訪，〝必〝以〝劍飾觀〝也〝州〝“〝豐生煙•國 鄙石痲騙不日兩痲州兩痲痲兩－-－鬨“－綱由，開一－向．加。闕．吧，際勰””間亡戶闖“－間亡狎開 一－一一一痲－一－一。，。啊啊啊狗啊 石騙兩面－-．騙湯騙瀾一”，州－．一，-,__ 一―j面．•寫個”叫．•“個悶卻．細電開哺•••“,“嗡囉 口鰓n目r •■闢】爾月口 矚口劉口間 祠口鏽念．劉劉個口閱個啊細開 醞州盞義襲評“ 個綱口個國口．甩．口口闖口 黝••一州鰓山•j細向 口夢網：“中開 的”個憫．個•刊嗡網卜個州劇開瀾馴領悶卜•開b口 細瞭細細魷•細瞼細細坎••鉑州地細開細．勿d州細間細•h州•恤”細‘黝州州“•自曲黝哈州細•自‘仰吋國頃• 制•細•勵細糾．細•馴自自細細細 細•妒細細‘&“細細細‘細•啊“細叫““物‘細‘細．妒細細“你山細州細開卹••叫“黝．細“細劉妒．細‘“喊勿‘細“細•妒“••“齣纏物自細“細•妒“．目園贓勿細細“細•卹“細叫汝均自細‘ •••――一一’一―一――一―－一→一―一騙――一――一――一 “•，州洶，••嗚曉嗎聯。J騷”＇抽鳥叩”抑秀螂斗巒各酌亂里獰劉鳥坐鳥塑懸合各中禹”鳥憫鳥鴉鳥勵禺州鳥。鳥•鳥中 細面騙叫．痲面“沐“洶“州鳥憫矯，作開州中亂鳥勵”一m為細認禺州•鳥巒鳥巒亂煙州崤”州調開編細戴j咸面云面 臘，．誠“袖•州“馴鳥m斗榭，州細．k州犧。鳥州k口．刈騙，，開鳥巒幼一賺一悶為鵠鳥，編．擊•鳥網•訕油 一，目陶磁’州化徊•，細權訓償間I漁偽鐵，一▼’•洶玉 -I嬴·拱驟綢綴馮濛馮綴偶、勰綴綴。二綴、．綴．馮二 ～竺竺豐豐豐豐竺竺竺竺竺竺竺竺坐豐竺豐竺竺豐 •為州國開．&‘開．攔＿ 么．細面騙－痲騙頃臢物勸巒盔遝黝鑽．巒，州常“• ．編騙必州‘鑽鳥網．p鳥聯鳥榭亂州“戶各竺‘徑細開li；面：〞I．涵細屆 涌汗，--.-－一瀾”’鳥聯馴一’一”一，－一• 一一。．,．調二．∥，。‘中，…，．。宇 ，一仕仕豐仕仕仕豐仕仕仕仕豐仕仕竺忿仕豐仕仕豐仕恕 勰二1,.－瞋唱”禺”戶”常．牌綱蠟’戶，.-”憎｀黝牌喂矯‘囑”，唱，& 一嗷勰禺·准准馮馮准驟冷馮淡環樣縐馮環攜馮穠樣·嬌馮馮馮馮 黑－鍰斤黑法法鑼濃汗濃媚謠器器器濃憲鯈耀撚鉉細共尖 二謐二勰二慶生由跚生日跚生營三必胛三三泌選遝必生生·巒生巒征 93 2 1 2 2 a ena Des om 2 3 3 i a ute 2 et 11093 2 2 2 Z te% a Z 2 att 3 2 3 fas 0et Ref 202 2 2 2 2 3 2 9 M 599 si[ a '039 3 2 z a a Eeg ,ingå 2 2 3 2 9 Rea 255 2 2 2 i egg Z 2 2 1 sta all i - 66 - TABLE 5.5 REPUBLIC OF CAMEROON FOURTH RAILWAY PROJECT LOAN 1734/CREDIT 936/CM PROJECT COMPLETION REPORT Rdgie des Chemins de Fer du Cameroun (REGIFERCAM) Tariff Increases, 1976-1987 Year Date Passengers Z Freight % 1976 07/01 15 12 1977 07/01 15 20 1978 07/01 15 15 1979 07/01 12 12 1980 07/01 15 13 1981 07/01 5 11 1982 --- - 1983 - - - 1984 01/01 5 8 1985 - - -- - 1986 1987 --- -- AF1IN December 1987 - 67 - TABLE 5.6 Page 1 of 2 REPUBLIC OF CAMEROON FOURTH RAILWAY PROJECT. LOAN 1734-CM PROJECT COmPLETION REPORT Comyliance with Financial Covenants Sections Financial Covenants ComentS 5.02 Have accounts audited annually and furnish to the Bank Complied with. Audit report on FY86 not later than six months after the end of each fiscal accounts finalized on 02/10/87. year certified copies of annual financial statements and auditor's report. 5.04 Revalue fixed assets at least every three years to their Complied with. replacement value and charge the accounts with a depre- ciation provision based on historic value of fixed as- sets and an additional allowance for fixed assets renew- als based on the difference between the replacement and the historic value of these assets. 5.05 Establish and maintain a costing system providing on a Complied with but REGIFERCAM's costing regular basis for total and short- and long-term margi- system does not fully meet the covenant's nal costs. provisions. ** Calculations are made manually, which adversely affects their reliability; ** Coefficients' calculations in 1980-81 uy the Consultants who designed the system have not been updated; -- The system does not provide for the es- tablishment of long-term marginal costs. 5.06 Take action to have gross revenues from passenger ser- Cost recovery for passenger services vices on the entire network and from freight service on reached 61% in FY81, grew to 73% in FY84 the Western Line cover at least 60% of the cost of these and fell back to 60% In 1986. No relia- services for December 31, 1980; and provide the Bank not ble computation of the cost of freight later than June 30, 1981 with a study of measures re- services on the Western line neither on quired for cnsuring the coverage of long-term marginal long-term marginal costs is available, costs of these services although the latter item was a part in consultant's study on costing carried out in 1980-81. 5.07 Provide the Bank with annual budgets and investment Complied with In principle. REGIFERCAM plans and proposals for modifying these plans for review produced several "plans d'entreprIse" and comments not later than 30 days prior to their sub- which included five years' investment mission to the Railway's Board, plans and related financing plans. The last of these plans was issued in May 1987. However, they did not reach the standard required for making them a compreheisive management tool. .../... (continued on page 2) - 68 - TABLE 5.6 Page 2 of 2 REPUBLIC OF CAMERCON FOURTR RAILWAY PROJECT. WAN 1734-CN PROJECT COMPLETION REPORT - Compliance with Financial Covenants (con't) Sections Financial Covenants Comments 5.08 not undertake any capital investment not included in the Generally complied with except for the Project, costing in aggregate more than US$2,50*,000 oversizeu Douala passenger station. The without prior Bank approval; this ceiling reduced to Bank bas repeatedly recogiended that the US$250,000 for Investments on the Western Line. Government or the City of Donala should participate in the financing of this US$20 a investment on the ground that the City of Douala takes an environmental and financial advantage from its construc- tion. 5.09 Obtain Bank approval for incurring long-term debt ex- Broadly complied with. ceeding the aggregate amount of new borrowing agreed betweec the Bank and the borrower as reviewed from time to time. 5.10 Bank overdrafts not to exceed CPAF 800 million. Not complied with; the overdraft reached CFAF 5.3 billion by the end of FY86. 5.11 Achieve working ratios of not more thin 0.75 for Not complied with. the best working 1979/80, 0.72 for 1980/81 and 0.70 in subsequent years. ratio REGIFERCAM achieved was 0.73 in F285. ARIN March 2, 1988 Attachment I -69 - Page 1 of 14 Comments from the Borrower Cameroon National Railway Authority P.O. Box 304 Douala Republic of Cameroon Ap:il 28, 1989 No. 03029/DG/DEP Mr. Graham Donaldson Chief, Agriculture, Infrastructure and Ruman Resources Division Operations Evaluation Department (OED) World Bank Washington, D.C. (Care of the World Bank Resident Representative, P.O. Box 1128, Yaound6) Sir: I am writing in reply to your letter of March 14, 1989, which accompanied the project performance audit report on the Fourth Railway Project. I am pleased to inform you that I have no particular comments to make on the content of the report. I confirm that the completion of this project now means that current and medium-term traffic demand can be met under normal conditions. With regard to some of your recommendations concerning the management of R6gifercam, I want to let you know what we are doing in this respect: - R6gifercam is continuing its efforts to bring costs under control. As a result, operating costs for 1987/88 showed a CFAF 3 billion reduction compared to 1985/86. - a freeze has been placed on hiring but attrition has unfortunately been insufficient to bring staff numbers down to a normal level. Studies are being undertaken to find ways of reabsorbing surplus staff. - R6gifercam has again updated the allocation formula used to establish average transport costs. It is also currently in the process of setting up, with the assistance of OFERMAT, a new computerized short- and medium-term decompensating marginal costing system to help with commercial negotiations. The study could be extended, of necessary, for the purpose of revising the tariff structure. - efforts are continuing in the field of marketing; - R4gifercam introduced a management performance chart in 1988 to monitor the various management criteria for all the enterprise's activities; Attachment I - 70 - Page 2 of 14 - Computerization guidelines are being prepared with the assistance of users. The latter were introduced to the problems of computerization in a recent seminar. - with regard to the financing of the new Douala passenger station, it appears difficult to ask for any financial contribution from the City of Douala because, as yet, it is not deriving any substantial benefit from the operation of the station and its access area. R4gifercam is seeking compensation for the uneconomic public services maintained by the Government. Finally, I would inform you that I have followed your suggestion and have proposed a "performance contract" which sets out the relations between the Government and R6gifercam. Please find enclosed a copy of this draft contract, which also incorporates the main recommendations referred to earlier. Very truly yours, Is/ Samuel MINKO General Manager, of R6gifercam, Douala Enclosure: I draft performance contract Attacbmant I -71 - Page 3 of14 REGIE NATIONALE DES CHEMINS DE FER DU CAMEROUN (REGIFERCAM) Proposed PERFORMANCE CONTRACT between the Government and RNCF March 1989 Attachment I Page 4 of 14 - 72 - PROPOSED PERFORMANCE CONTRACT BETWEEN THE GOVERNMENT AND RNCF The REPUBLIC OF CAMEROON, represented by the Minister of Finance and the Minister of Public Works and Transport, hereinafter THE GOVERNMENT, party of the first part, and REGIE NATIONALE DES CHEMINS DE FER DU CAMEROUN, represented by its Chairman of the Board, Mr. Samuel EBOUA and its General Manager, Mr. Samuel MINKO, hereinafter RNCF, party of the second part, DO HEREBY AGREE to enter into a ?ERFORMANCE CONTRACT according to the following terms: TITLE I - GENERAL BACKGROUND ARTICLE 1: PURPOSE OF THIS PERFORMANCE CONTRACT This performance contract establishes the objectives assigned to RNCF It sets forth the conditions on which these targets are to be achieved and the means that are to be adopted in order to achieve them, the implementation schedule to be followed and the respective obligations of the GOVERNMENT and RNCF. ARTICLE 2: TERM The term of this contract shall be four years. It shall run from the beginning of the 1989/90 financial year until the end of the 1992/93 financial year. ARTICLE 3: GENERAL BACKGROUND OF THE PERFORMANCE CONTRACT This document is a key component of the plan for the recovery and financial rehabilitation of RNCF. As a public enterprise RNCF is one of the essential instruments for the country's development. By entering into this performance contract the Government will be confirming its interest in the future of the railway as a modern and efficient mode of transport, provided it is managed as a business enterprise and operates in an environment of healthy competition. The policy set forth in this contract accordingly seeks to ensure normal conditions for the operation and development of the railway in Cameroca. A prerequisite for accomplishment of this objective is that RNCF be restored to a sound financial footing, which will require: Attachment I Page 5 of 14 - 73 - - a slight increase in passenger and freight traffic; - an improvement in operating conditions; - an improvement in the profitability of the enterprise; - an equalization of the conditions of competition among the various modes of transport. HEAD II - RNCF'S OBJECTIVES AND OBLIGATIONS ARTICLE 4: DEVELOPMENT OF MARKETING ACTIVITIES In order to achieve the traffic target set, RNCF undertakes to develop its marketing activities and in particular its efforts to upgrade the quality of its service as regards: - safety; - on-schedule performance; - comfort; - alignment of timetables on needs; - damage prevention; - diversification of service offered with the development of combined rail-road transport; - fraud prevention. ARTICLE 5: TRAFFIC TARGETS The various actions provided for in this document are all designed to increase traffic. In light of current trends and the competition, however, the traffic forecasts given in Annex I are conservative in terms of both traffic development and tariff levels. Passenger traffic is expected to show a 2% annual increase, on average, during the period in question, with a sharper increase in 1991/92 reflecting a new transport plan providing for through seivice between Douala and Ngaounder6 as soon as the fleet of passenger equipment has been rehabilitated. The bases for the freight traffic forecasts included the use of the railway as far as Ngaounder6 for hauling hydrocarbons to Garoua; instead of transporting them entirely by road, as at present, which is considered less economical. They are also based on the development of rail container traffic, which will be facilitated, in particular, by the improvement of customs procedures and by the rail terminals being provided with handling equipment. The annual growth in volume of freight traffic is expected to be 2.4% on average and the annual increase in revenue 2%. Attachment I Page 6 of 14 - 74 - ARTICLE 6: OPERATING CONDITION IMPROVEMENT OBJECTIVES RNCF must regain the flexibility and resources needed for normal operation, by improving equipment management and availability, on the one hand, and by having a flexible and differentiated tariff policy suited to the completion. RNCF undertakes, in particular, to: 1. bring the average locomotive availability rate up to 80% by the conclusion of the contract period, subject to the implementation of the overhaul program included in the priority investment program; 2. improve the use of through freight trains by bringing the average gross load hauled up to 870 tons, i.e. a 15% increase, within a period of two years; 3. reduce, within a two-year period, the average delay in train arrival time to: 10 minutes in the case of intercity and express trains (instead of 30 minutes in 1987/88), two hours in the case of freight trains (instead of 3 hours and 30 minutes in 1987/88); 4. prepare computerization guidelines prior to the close of the 1989/90 financial year and adapt existing equipment and applications accordingly. ARTICLE 7: PERSONNEL MANAGEMENT 1. RNCF undertakes to reabsorb any surplus staff provided the necessary financial resources are made available. By January 1991 it shall have regained a normal staffing level, which is put at 4,675. Staff numbers will be reduced as follows: 1987/88 1988/89 1989/90 1990/91 1991/92 1992/93 No. of staff 6,525 6,350 6,200 5,050 4,675 4,675 2. RNCF undertakes to introduce "forward personnel management" from the start of the 1989/90 financial year, aimed, in particular, at identifying personnel requirements, achieving a better match between individuals and positions and providing training as and when needed. To do this RNCF undertakes to establish a multi-year training p.ogram by the end of the 1989/90 financial year. 3. RNCF undertakes to freeze the Special Staff Regulations (r6gime du Statut Particulier du Personnel). Attachment I Page 7 of 14 -75 - ARTICLE R: MANAGEMENT INDICATORS The following indicators measure RNCF's management efforts and the enterprise's improvement in productivity and return during the period covered by the performance contract. 1987/88 1988/89 1989/90 1990/91 1991/92 1992/93 Gross operating profit 1,434 1,891 3,8566 6,486 7,776 7,716 (in CFAF millions) Cash flow - 2,130 - 1,543 265 3,440 5,023 5,223 (in CFAF millions) Operating ratio (Operating costs: 0.93 0.91 0.84 0.76 0.69 0.69 revenue) Staff productivity (traffic units 170,000 182,000 190,000 240,000 269,000 274,000 per employee) ARTICLE 9: INVESTMENT PROGRAMMING The priority investment program described in Annex 2 to this contract shall be implemented during the contract period. ARTICLE 10: FINANCIAL RECOVERY Improvements in the financial situation are incorporated in the provisional operating account, the provisional financial chart and joint provisional balance sheet-- given in Annexes 3, 4 and 5 of this contract, respectively, on the strength of the enterprise's own efforts and the assistance it is to receive from the Government, as described under Title III. RNCF undertakes to pay off all its arrears to suppliers within a period of three years and to pay off its debt to the Government and to eliminate all bank overdraft loans within four years. Its cash flow will become positive in 1990/91. TITLE III - OBLIGATIONS OF THE GOVERNMENT ARTICLE 11: GENERAL OBLIGATIONS The Government undertakes to take whatever steps are necessary to facilitate accomplishment of the objectives identified in TITLE II. ARTICLE 12: INSTIUONAL FRAMEWORK 1. The Government undertakes to grant RNCF tax and customs exemptions prior to July 1, 1989. RNCF shall also be exempted from the special tax on fuel. Attachment I Page 8 of 14 - 76 - 2. The Government undertakes to give RNCF every latitude in the setting of freight tariffs, on condition that the average rate of increase in the tariffs for the various categories of products is no higher than the rate resulting from the following formula: 0.20 + 0.65 P/Pi + 0.15 G/Go, where P is the RNCF salary index corresponding to the average staff salary of all staff combined during the period under study; Po is the RNCF salary index for 1987/88; G is the price per liter of diesel fuel, delivered to the Douala locomotive depot, in effect for the period under study; and Go is the price of diesel fuel in effect as of January 1, 1989. 3. The Government will promote shipment by rail as far as Ngaounderi of hydrocarbons being sent to Garoua. 4. The Government undertakes to ensure compliance with the rules governing the shipment of products to and from neighboring countries. 5. The Government undertakes to provide RNCF with every assistance to enable it to return to a normal staffing level, i.e. 4,675, by December 31, 1990, including, in particular, provision of a CFAF 3,300 million subsidy in the course of the 1990/91 financial year to enable RNCF to pay a severance allowance to the surplus staff who will be required to leave (app:oximately 1,300 persons), i.e. compensation corresponding to 17 months' salary. 6. The Government undertakes to cover for three years, starting with the 1989/90 financial year, the debt service payable on the loans contracted by RNCF and guaranteed by the Government. 7. The Government undertakes to guarantee loans contracted by RNCF. ARTICLE 13: UNECONOMIC SERVICES 1. RNCF is currently operating slow passenger train service, the revenue from which is insufficient to co-er costs. As part of its overall policy for regional development and for -ringing the rural areas into the mainstream, the Government considers it necessary to maintain these services and undertakes to help compensate for their operating deficits. To this end a service agreement between the Government and RNCF for each of the slow train services shall establish the configuration of the service and procedures for calculating and paying the contribution. The approximate total amount of this contribution is shown in the provisional operating account (Annex 3). 2. The Government undertakes to examine in conjunction with RNCF the financial conditions concerning the operation of other uneconomic services which RNCF will be expected to provide. ARTICLE 14: ASSURANCE OF BALANCED COMPETITION 1. In order to ensure normal conditions of the competition among the various modes of transport, the Government undertakes to assume responsibility on a permanent basis for debt service relating to existing or future infrastructure. Attachment I Page 9 of 14 - 77 - 2. The Government undertakes to introduce an axle tax on road traffic or to take any other steps that will have the effect of balancing the conditions of the competition between rail and road. TITLE IV - PERFORMANCE AND MONITORING OF THE CONTRACT ARTICLE 15: SUBMISSION OF MONITORING DOCUMENTS RNCF shall take whatever steps are needed in order to submit to its supervisory authorities and to the lenders and donors the documents required to facilitate assessment of the achievement cf targets and the actions undertaken to accomplish these objectives. These monitoring documents shall be produced on a six-monthly basis. ARTICLE 16: MONITORING COMMITTEE A monitoring committee is hereby established, made up of representatives of RNCF, the supervisory authorities and lenders and donors. This committee shall meet at least once every six months when the monitoring documents referred to in Article 14 are submitted. It shall, in particalar, be responsible for examining the means employed by each contracting party for the accomplishment of the objectives set. The General Manager of RNCF is hereby appointed Secretary General of the Monitoring Committee. He will be responsible for organizing meetings of the committee and for publishing the minutes following such meetings. Done in Yaound6 on.................. For the Republic of Cameroon For the Regie Nationale des Chemins de Fer: Minister of Finance Chairman of the Board of Directors Minister of Public Works and General Manager Transport Attachment I Page 10 of 14 - 78 - ANNEX 1 TRAFFIC TARGETS 1987/88 1988/89 1989/90 1990/91 1991/92 1992/93 Actual Estimated & Actual PASSENGERS No. (in thousands) 2,413 2,410 2,445 2,475 2,550 2,590 Passenger-km (in millions) 471 470 477 483 504 513 Revenue (in CFAF millions) 5,385 5,385 5,460 5,530 5,780 5,870 FREIGHT Tons (in thousands) 1,380 1,420 1,454 1,490 1,520 1,560 Tons - km (millions) 643 685 7805 728 748 770 Revenue (in CFAF millions) 15,571 16,100 16,480 16,810 17,230 17,460 ANNEX 2 INVESTMENT PROGRAM 1988/1989 - 1992/1993 in CFAF Millions Identification of Operation Total 1988/89 1989/90 1990/91 1991/92 1992/93 Financing Amount Enviaged Reinforcement of earth structures (Pitti region) 500 200 300 World Bani Rehabilitation of formation subgrade between Dibamba and PK 23 340 100 240 World Bank Consolidaticn of track on Transcam II (st stretch) 1,800 200 800 800 World Bank I Modernization of signaling including BMVU 300 100 100 100 CCCE (CFAF 200 million) M Modernization of telecommunications network 5,000 150 850 2,000 2,000 KfW Procurement of switchgear for Franscam 1 650 300 350 CCCE Container terminals at Ngaound6r6 and Belabo (civil engineering) 600 300 300 World Bank Extension of BV, YAound6 300 100 200 Own funds Procurement of gang cars and track maintenance units (1st stretch) 760 760 KfW (subsidy) Procurement of gang cars and track maintenance units (2nd stretch) 500 500 World Bank Overhaul of 8B-type locomotives 500 100 300 100 CCCE Overhaul of Bombardier locomotives 2,000 1,000 1,000 *CIDA (subsidy) Rehabilitation of SOULE 80 cars 450 100 250 100 CCCE Conversion of brakes 2.330 950 800 580 KfW operation in progress Studies 600 200 200 200 World Bank and technical assistance 600 200 200 200 CCCE Miscellaneous operations 2,550 950 520 360 360 360 Own funds Total 19.780 2,000 4,030 5,090 5,300 3.360 ANNEX 3 PROVISIONAL OPERATING ACCOUNT in CFAF Hillions 1987/88 1988/89 1989/90 1990/91 1991/92 1992/93 Actual Actual & Estimated OPERATING REVENUE Traffic receipts: - Passenger receipts 5,385 5,385 5,460 5,530 5,780 5.870 - Freight receipts 15,571 16,100 16,480 16,810 17,230 17,460 - Additional receipts 36 36 36 36 36 36 Subtotal 20,992 21,521 21,976 22,376 23,046 23,366 Govt. compensation for slow train service - - 1,200 1,200 1,200 1,200 Cn Subsidy for staff reduction - - - 3,300 - - c Nontraffic receipts 829 800 800 800 850 850 Total receipts 21,821 22,321 23,976 27,676 25.096 25,416 OPERATING COSTS Personnel 14,845 14,700 14.640 12,160 11,480 11,700 Severance compensation - - 3,300 - - Fire 2,175 2,400 2,050 2,050 2.050 2,050 Other materials 2,612 2,580 2,680 2,780 2,890 3,000 Services 1,442 1,450 1,450 1.600 1,600 1,650 Subtotal 21,074 21,130 20,820 21,890 28,020 28,400 Capital works done by RNCF 687 700 700 700 700 700 Total operating costs 20,387 20,430 20,120 21.190 17,320 17,700 Gross operating surplus 1,434 1,891 3,856 6,486 7.776 7,716 Financial costs (including overdraft 3,564 3,434 3.591 3,046 2,753 2,493 a interest) (1,118) L919) (729) (353) (170) (0) Cash flow -2,130 1,543 265 3,440 5,023 5,223 Depreciation allowance 12,136 12,000 11,662 11,517 11.380 11,280 Operating result - 14,266 - 13,543 - 11,397 - 8,077 - 6,357 - 6,057 Exceptional profit and loss 976 3,625 3,158 3,247 3,602 3,606 Net result -13,290 -9,918 -8,239 -4,830 -2,755 -2,451 ANNEX 4 PROVISIONAL FUNDS STATEMENT in CFAF Millions 1987/88 1988/89 1989/90 1990/91 1991/92 1992/93 Actual Actual & Estimated SOURCE OF FUNDS Gross operating surplus 1,434 1,891 3.856 6,486 7.7?6 7,716 Nonoperating payable loss -628 - - - - - borrowing 321 950 1,750 3,630 4,740 3,000 SUBSIDIES Government: equipment, 493 - - - - - aO Government: infrastructure 2,170 2,510 2,453 2,399 2.343 2.292 Government: debts to others 3,680 3,928 4,560 4,297 4,304 - KfW and CIDA = investments - - 1,760 1,000 - - Subtotal 6.343 6,438 8,873 7,696 6.647 2.292 Total Resources 7,470 9,279 14,379 17,812 19,163 13,008 USE OF FUNDS Inv,.stments 2,612 2,000 4,030 5,090 5,300 3,360 Debt Service (2) Interest 3,564 3,434 3,591 3,046 2,753 2,493 rt Principal 3,339 4,396 4,318 4,033 4,054 3,670 Subtotal 6.903 7,830 7,909 7,079 6,817 6.163 Total requireiments 9,515 9,830 11,939 12,169 12,117 9,523 s re Chdige in working capital -2,045 -551 2,440 5,643 7,046 3,48 Workirig capital -13,870 -14,421 -11,981 -6,338 708 4,193 (1) Year-end working capital z working capital at start of year + change in working capital for the year. () based on tollowing exchange rates: US$1 = CFAF 303, DMI = CFAF 170, FCUI = CFAF "55, AUB VA = CFAF 437 ANNEX 5 PROVISIONAL FUNDS STATEMENT in CFAF Milliona 1987/88 1988/89 1989/90 1990/91 1991/9' 1992/93 Actual Actual & Estimated ASSETS % FIXED ASSETS Gross fixed investments 256,230 258,230 262,260 267.350 272,650 276,010 Depreciation 60,874 72,874 84,536 96.053 107,433 118,71.3 Net value of fixed assets 195,356 185,356 177,724 171,297 165,217 157,297 % CURRENT ASSETS Operating income 2,852 2,500 2,500 2.500 2.500 2,500 Assets from: private clients 2,757 2,700 2,600 Z,550 2,500 2,400 public clients 552 600 500 400 350 200 personnel 111 100 100 '00 80 80 Liquid assets 629 650 800 909 1,500 2,000 Equalization of assets 999 700 600 600 500 500 Total current assets 7,900 7,250 7,100 7,050 7,430 7.680 Total assets 203,256 192,606 18- 824 178,347 172,647 164,977 LIABILITIES 4 CAPITAL AND RESERVES Capital 2,800 2,800 2,600 2,800 2.800 2.800 Reserves 1,003 1,003 1,003 1,003 1,003 1,003 Balance carried forward (accrued results) -8,001 -17.919 -26,158 -34,288 -37,043 -39,494 Revaluation reserve 51.823 51,823 51,823 51,823 51,823 51,823 Equipment subsidy 89,183 92.678 98,395 106,142 109,287 107,973 Risk and contingency reserves 2,282 1.60 1,500 1,500 1,400 1,400 Total capital and reserves 139,090 131,985 129.361 135,580 129,270 125,505 LONG VERM LIABILITIES 42,396 38,950 37,382 35,979 36,655 35,985 % LIABILITIES DUE Local suppliers 4,289 3,540 2,940 2,080 1,500 1,500 Foreign suppliers 1,930 1,860 1,550 1,160 350 350 Other private creditors 3,850 3.500 3,000 2.150 600 400 Public creditors 4,137 4,871 4,541 4,098 3,092 257 r, Personnel 105 100 100 100 80 80 Equalization ot liabilities 1,294 1,300 1,250 1,200 1,110 900 Creditor banks 6,165 ,6,500 5.600 2,600 0 0 Total liabilities due 21,770 21.671 19,081 13, "1 6,722 3,487 Total liabilities 203,256 192,606 184,424 178, I 172,647 164,977 Working Capital -13,870 -14,421 -11,981 -6,338 708 4,193 目 呈 큐。，.-