Uganda - Railways Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 7608-UG STAFF APPRAISAL REPORT UGANDA RAILWAYS PROJECT JANUARY 31, 1989 Infrastructure Operations Division Eastern Africa Depar.ment This doeument has a restrided distributon and may be used by recipients only in the performance of  CURRENCY EQUIVALENT Currency Unit - Ugandan Shilling USS 1.00 USh 150 (July 1, 1988) USh. 1.00 = US$ 0.0067 FISCAL YEAR Government July 1 to June 30 Uganda Railways Corporation January 1 to December 31 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS EARC - Eastern African Railways Corporation ERR - Economic Rate of Return LAP - Initial Action Program KRC - Kenya Railways Corporation MLG - Ministry of Local Government MOTT - Ministry of Transport and Telecommunications MOW - Ministry of Works MPED - Ministry of Planning & Economic Development RIP - Railways Investment Program TRC - Tanzania Railways Corporation UCTU - Uganda Cooperative Transport Union URC - Uganda Railways Corporation VHF - Very High Frequency This report was prepared by Ms. H. J. Goris, Sr. Economist (AF2IN) and Messrs. Mohindre Bery, Railways Engineer and Technical Coordinator; Grainger, Mechanical Engineer, Jennings, Civil Engineer; Buckley, Financial Analyst and Sharan, Organization and Management Specialist (Consultants) who appraised the project in July 1988. Messrs. Feeney, Transport Economist and Goel, Signalling and Telecommunications Specialist (Consultants) also contributed to the report.  FOR OMCUL USE ONLY UGANDA RAILWAYS PROJECT STAFF APPRAISAL REPORT TABLE OF CONTENTS Page CREDIT AND PROJECT SUNHMARY I. BACKGROUND A. Economic Performance and Government Policy.. 1 B. The Transport System and its Role in the Economy . . . . . . . . . 1 C. Transport Sector Management, Planning and Coordination . . . . . . . . . . . . . . . . . . . . . . . . 5 D. Transport Sector Investments ............. ... 6 E. World Bank Operations Transport .......... ... 7 II. THE RAILWAYS SUBSECTOR A. Overview of Uganda Railways Corporation . . . . . . . . . . . . . . 10 B. URC's Infrastructure and Property ..10 C. Organization, Management. Staff and Training ..15 D. Operational and Financial Performance . . . . . . . . . . . . . . . 18 E. Government - URC Relations ..20 F. Initial Action Program to Strengthen URC's Organization and Management ..21 G. Railways Investment Program 1989-1993 ..21 III. PROPOSED PROJECT A. Project Origin and Preparation ............ . 23 D. Project Objectives and Description ........... . 23 C. Project Cost ................ . 27 D. Project Financing ............... . 29 E. Implementation ......... . .............. . . 29 F. Procurement ..30 G. Disbursements ..31 H. Monitoring and Evaluation ..32 I. Accounts and Audits . . . . . . . . . . . . . . . . . . . . . . . 32 J. Environmental Impact . . . . . . . . . . . . . . . . . . . . . . . 33 IV. FINANCT4L ANALYSIS A. General ................. . 34 B. Past Performance and Tariffs . . . . . . . . . . . . . . . . . . . 34 C. Financial Forecasts .............. . 36 D. Financial Rate of Return ...... . ............ . . 37 V. ECONOMIC ANALYSIS A. Costa and Benefits ...................... 38 B. Sensitivity Analysis ...................... 40 C. Risks ...................... 40 VI. AGREEMtTS ANDRECO R)ZNDATION . ..41 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.  Annexes Annex 1 - Transport Sector Issues Annex 2 - Su-mary of Motive Power and Rolling Stock Annex 3 - Track Composition and Age Annex 4 - URC Organization Chart (Existing and Alternative) Annex 5 - Salary Structure Effective from June 1, 1988 Annex 6 - Staff Strength Annex 7 - Management Training Overseas Annex 8 - Operating Performance in 1985 and 1987 Annex 9 - Accident Statistics Annex 10 - Pattern of Export/Import Freight Traffic Movements via Malaba, Kisumu and Mwanza Annex 11 - Initial Acti-4n Program to Strengthen URC's Organization and Management including Performance Targets for 1989. Annex 12 - Proposed Railways Investment Program 1989-1993 Annex 13 - Financial Statements and Projections Annex 14 - Terms of Reference for Consultants and Work Program for Development of Cnief Account's Department Annex 15 - Economic Rate of Return Calculations M!Ss IBRD No. 21202  - i - UGANDA RAILWAYS PROJECT Credit and Project Summary Borrower : Republic of Uganda Amount s SDR 5.2 million (USS 7.0 million equivalent) Terms : Standard, with 40 years repayment period 'nlending Terms: The Government will transfer the proceeds of the Credit to the Uganda Railways Corporation (URC) as an equity contribution to its capital. Proiect Objectives and Description: The objectives of the proposed Project are to: (a) implement a program of improvements in URC's management and organization, including the establishment and operation of URC's track repair and renewal unit, (Initial Action Program); (b) improve railways operations on the Kampala-Kasese railway line by rehabilitation. The Project would consist oft (i) strengthening the railways organization and management by technical assistance and training in particular the new track repair and renewal unit, the accounting and supplies departments, through preparation of a staff training program, a detailed workshop design for wagon repair and modest improvements to staff living quarters; (ii) repair and rehabilitation of the Kampala-Kasese line including the reopening of two crossing stations, reviving some ballasting capacity, providing some track maintenance plant and equipment and telecommunications supplies and equipment. Benefits s Contribution to long term improvements in URC's efficiency and increase in transport capacity in the short term and reduction in transport costs in the medium and long term due to traffic generation, diversion of traffic from road to rail, deferred rord construction and improved road safety. Risks s Insufficient autonomy for URC to move towards mo.e effective and efficient operations. Establishment of URC as a public corporation under a new Act which gives URC management clearly defined powers and relations with Government will help alleviate this risk. Another risk is failure to improve labor morale and productivity, leading to continued absence of routine maintenance. URC management is designing appropriate incentives and methods for staff attrition in consultation with the Railways Workers Union.  - ii - Estimated Costs t Com3onents Local Foreign Total (in US$ millions) Strengthening URC organization 0.6 1.3 1.9 Improving Kampala-Kasese LIle 2.4 3.0 5.4 Baseline Costs 3.0 4.3 7.3 Physical Contingencies 10 0.3 0.4 0.7 Price Contingencies C.4 0.4 0.8 Total Project Costs (excluding taxes) 3.7 5.1 8.8 Financing Plan: URC 1.8 - 1.8 IDA 1.9 5.1 7.0 Total Financing 3.7 5.1 8.8 Estimated Annual Disbutsement by Financing Agency: FY89 FY90 FY91 FY92 Total (in US $ millions) IDA 0.6 5.0 1.0 0.4 7.0 URC 0.3 1.2 0.2 0.1 1.8 Total 0.9 6.2 1.2 0.5 8.8 Percentage of Total 102 702 142 62 1001 Economic Rate of Re-arn of the Project: 34 percent  I. BACKGROUND A. Economic Performance and Government Policy 1.01 Uganda's economic performance in the 1980's has been poor, with alternating recovery and decline due to political instability, resulting in an average GbP growth rate of less than 2 percent between 1980 and 1987 and failure to halt the decline in the country's severely neglected infrastructure. The Government launched a wide ranging propram of reforms in Hay 1987 to restore economic stability, establish more realistic relative prices and initiate the rehabilitation of the country's rundown economic and social infrastructure. While encouraging progress was made in many aspects during the first year of implementation, the stabilization goals proved elusive, mainly due to ununticipated external shocks, a slower than anticipated external donor response and overly optimistic assumptions about the speed at which the economy would return to normalcy. The Government has therefore taken a number of corrective actions as part of a revised medium term program. Provided the sizeable external assistance anticipated following tha October 1988 Consultative Group meeting becomes available without delays, the Government can achieve improvements in Uganda's still fragile economy through speedy and determined action to remedy the constraints to growth including the elimination of transport bottlenecks. B. The Transport System and its Role in the Economy 1.02 Uganda is a landlocked country which borders on Sudan in the north, Kenya to the east, Lake Victoria, Tanzania and Rwanda to the south and Zaire to the west. Lake Victoria, a navigable inland sea, is situated between Kenya, Uganda and Tanzania. Uganda covers 236,000 Km2 in total, of which ibout one seventh is swamps and lakes. Most of the country lies at or above 1,200 m above sea level, and its topography is hilly rather than mountainous. Thanks to an average rainfall of 1,270 mm p.a., the central and eastern parts of the country produce several crops per year; national food production suffices to cover both fertile and drier regions' needs. Neither climate nor topography pose major impedirents to trar.sport. 1.03 The population is estimated at 16 million in 1988 and growing at about 3.2 percent p.a. Per capita income is US$ 230. About 92 percent of the population is rural, and urban-rural ties are still close, which creates considerable demand for passenger traffic. The Uganda economy is now slowly recovering from fifteen years of economic deterioration and at this stage depends heavily on agriculture, which contributes 76 percent of GDP, almost 97 percent of exports and a large proportion of Government revenue. Coffee represents over 90 percent of exports, but the Government is trying to boost other cash crop production and barter arrangements to increase exports. The total volume of exports plus imports is presently in the order of 700,000 tonnes p.a. (see table 1.1)  Table 1.1: Estimated TransDort Flows. 1987 (in Thousands of tonnes) Rail Road Total A. Domestic Flows (origin Uganda-destination Ug.nda) (mainly foodcrops, coffee, tea, 100 1,900 2,000 agricultural inputs, cement) B. International Flows (origin or destination abroad) (mainly coffee, petrol, tea, sugar, 300 1/ 400 700 salt, cement, general, goods) C. Transit Transport Flows (to!from Rwanda, Burundi, Zaire and Sudan) - 300 300 TOTAL (excl. air transport) 400 2,600 3,000 Modal share in Z of volume 12.5Z 87.5X 100? 1/ Includes ferry transport of 284,000 tonnes. 1.04 The Government considers reliable export and import routes the most important objective in the transport sector. In addition to the traditional rail and road routes over the Northern Corridor via Kenya, it has since 1985 actively developed an alternative outlet by wagon ferry from Jinja to KXs mu in Kenya and alternatively to Mwanza and onward via Tanzania Railways to Dar es Salaam. The ferry system gives Uganda flexibility and reduces its dependence on a single outlet to the sea. Transit transport through Uganda as part of the Northern Corridor (Mombasa - Rwanda, Burundi, Eastern Zairo and Southern Sudan) declined in the last few years due to security problems and special levies; it is presently in the order of 300,000 tonnes and exclusively by truck. 1.05 Staple foods including matoke (plantain), which is predominant in central and western Uganda, represent probably the bulk of Uganda's present domestic transport demand, on the order of 2 million tonnes p.a. While the Government does not face overall food shortages, food distribution to the non- farm population and deficient regions requires a large transport effort, which depends on trucks in case of perishable products. Return freight to the rural areas comprises agricultural inputs, essential consumer goods and fuel. Domestic manufacturing is still at a low level compared to original capacity. 1.06 In 1987, the modal split for total transport was estimated at 12.5 percent rail and 87.5 percent road transport. In international transport, the railways carried a larger shares more than 40 percent including nearly 100  - 3 - percent of coffee exports, and high percentages of bulk imports such as sugar. salt and cement. One exception is petroleum products of which 85 percent is imported from the Kenya pipeline der.vt in Nairobi via Malaba by truck, and only 15 percent by tanker wagon via Mwanza (including bartered oil). The proportions of ferry traffic via Jinja-Kisumu in Kenya and jinja-Mwanza in Tanzania are estimated at 65:35 percent. With help from URC locomotives Tanzania Railways Corporation (TRC) managed to move about 45,000 tonnes both ways. When goods accumulated in Dar es Salaam, the Government experimented in 1988 with ferry/vehicle traffic via MwRnza, but this was not very successful. 1.07 A World Bank traffic :emand projection for 1992 suggests an overall growth in volume of 6 percent per annum. This assumes a growth rate of 6 percent in domestic value added, 8 percent in export volume combined with a 7 percent growth in import volume and 0 percent growth in transit traffic. Domestic sugar and cement production will increase and reduce the need for imports of these products. Overall, the unit value of imports may increase as the composition of imports moves towards less bulky, more processed imports. Growth of inputs in volume terms is, therefore, expected to be somewhat lower than in value terms. The pronounced excess of import volume over export volume is expected to continue. Transit traffic is expected to remain constant and to be nearly all by road. The order of magnitude of various traffic flows is shown in Table 1.2. Table 1.2: Projected Transport Flows, 1992 kin Thousands of tonnes) Rail Road Total Domestic Flows 200 2.500 2,700 International Flows 430 570 1,000 Transit Flows - 300 300 Total 630 3,370 4,000 Modal share in Z of volume 162 842 100l 1.08 Uganda's transport infrastructure consists of about 27,000 kms of roads of which about 2,000 kms are paved, 1,200 kms of railways, lake and river landings on navigable sections, an international airport in Entebbe and 11 domestic airfields. A new feature since 1985 is the ferry services on Lake Victoria between Jinja in Uganda. Kisumu in Kenya and Mwanza in Tanzania, 1.09 Means of transportation are insufficient to satisfy present transport demand. General neglect during the economic decline of the early seventies coupled with civil war and prolonged insecurity have worn out Uganda's originally good transport infrastructure and vehicle fleet. Parts of the railways were built with second hand material and are approaching the end of their useful life. Maintenance and replacement investment ceased while staff  morale, discipline and productivity in the public sector dropped steeply, private entreprer.eurs suspended their operations, foreign exchange to renew equipment and vehicles and to buy spares and consumables became scarce and nominal wage payments absorbed an increasing share of recurrent expenditures, even though real wages fell dramatically. It is generally understood that civil servants cannot exist on their official income only and have to find income supplements. 1.10 In brief, the traniport system Sas the following strengths: (a) strong Government commitment to rehabilitate the transport sector; (b) standing instructions to use the railways for public sector transport, in light of a stated Government strategy to make railways the backbone of the transport system and realize its comparative advantage in long haul bulk traffic by improving railways efficiency; (c) efficient wagon ferry services from Jinja to Kisumu and MW-anza; td) considerable stock of locomotives which can be repaired and brought back into operation relatively quickly and considerable stock of wagons present and on order; (e) sizeable foreign financing to reconstitute major trunk roads. The weaknesses include: (a) dependence on neighboring states for moving exports and imports; (b) rundown state of most of the road network; (c) breakdown of maintenance systems for highway and railways equipment and vehicles; (d) breakdown of periodic and routine maintenance systems of major and rural roads and railways infrastructure; (e) inadequate trucking fleet; (f) lack of clarity in Govertment policies concerning private and public sector roles in trucking; Cg) insufficient foreign exchange and credit allocations notwithstanding the high priority accorded to the transport sector, and (h) demoralized public service leading inter alia to ineffective monitoring and implementation of projects. Paragraphs 1.13 - 1.21 contain more details on issues in highways and airlines, while railways issues are covered in chapter II of this report. 1.11 In its present state, the transport sector presents serious bottlenecks in the short term to the efforts to revive agricultural and industrial production. Therefore, strong efforts to improve both railways and highways transport are essential. In the medium term, transport supply is expected to catch up with transport demand. While systematic planning and management capacity for the sector is being established to create an effective, financially viable and economically justifiable system of transport services in the medium term, the Government is giving priority to addres!ilig the present transport bottlenecks by pragmatic, if not always fully coordinated measures. 1.12 As summarized in the matrix below, the Government is pursuing action simultaneously in several fields; the impact of some actions can be expected to start in the immediate future (S), while others will only show results in the medium (M) or long (L) term.  - 5 - Posible Field. of Actlon to Imorovo Transport SuplIW Flld of Actlon Activity Goal Insect timina A. RailwaYs 1) Operating efficiency Strongthoning URC Better Uttlza. sesets S/M/L tl) Ineroese stock Ordered in 19d0 Incre ecpaecty i/L 111) Rehab. track Rehab. selected sections Increas sections capacity i/L iv) Regional cooperation Agreemnts and regular Secur. access to the working contracts se S/N/L v) Maintenance of track Crete Renewal unit. Incroase transport cap. S/d/L vi) Maint. rolling stock Organize sint, system Improv- utilization S/N/L 8. Highways I) Vehicle fleet Procure public and enable Increase transport on private sector to procure passable roads procure vohicles S/N/L II) Rehabilitation of Improve supervision Improve carrying cop. trunk roads In order and mobilize funds of priority i/L 111) Rehab. rural roads by Supervise closely and Improvo carrying cap. priority organize local participation M/L iv) Road saint, trunk Establish capacity Maintain carrying cap. and rural roads i/L The proposed Railways Project and the components included in the Rallways Investment Program (RIP) being coordinated with World Bank assistance (Chapter II G) will assist the Government in priority activities in the railvays sector; ongoing World Bank assistance in highways investment and transport sector planning is described in Sector I E. C. Transport Sector Management, Planning and Coordination 1.13 Two Ministries share the primary responsibility for the transport sector, the Ministry of Transport (MOT) and the Ministry of Works (MOW). Other ministries involved are the Ministry of Local Government (MLG) and the local authorities for rural roads, the Ministry of Commerce for transit traffic, the Ministry -i Cooperatives and Marketing as the parent Ministry to the Uganda Cooperative Transport Union (UCTU), the Ministry of Planning and Economic Development (MPED) for overall investment planning and the Ministry of Finance for budgetary and taxation issues, fuel prices and foreign assistance. The MOT sets strategy and policies in matters of road, rail, air and water transport and is respo)nsible for transport regulation, coordination, control, tariffs and road transport safety. MOT does not have sufficient numbers of qualified staff to perform these tasks. MOW is responsible for planning, constructing and maintaining 7,000 kms of classified highways and for airport operatio.as. MLG assumed more responsibilities for planning, executing and maintaining 20,000 kms of rural roads as local authorities  - 6 - became weaker and is now mobtlizing support from abroad to undertake the major task of rehabilitation of rural roads. 1.14 MPED is responsible for national planning and routinely prepares the medium term plans, the latest of which Is the proposed FY89-FY92 Rehabilitation and Development Plan. Sectoral plauz.ing is the responsibility of the Ministry of Transport, but the Ministry was not adequately staffed for this function and is now in the process of strengthening its planning unit with the help of World Paik assistance under IDA and UNDP financing. The MOT aim is to establish a sound data base, create a permanent planning capability and produce a Transport Sector Strategy. Coordination between various ministries and parastatals in the transport sector is less than satisfactory, as elsewhere in Government, and needs systematic improvement. D. Transport Sector Investment 1.15 Throughout the 1980's Uganda's economic planners recognized that transport was a serious constraint to agricultaral and manufacturing recovery and accordingly gave the sector high priority in rehabilitation investments. The Government has managed to mobilize over US$ 250 million from foreign and domestic resources for transport rehabilitation in highways and railways, and improvement in wagor. ferries, respectively. About $150 million has been allocated to trunk road reconstruction and maintenance, and benefitted from prepa[atory studies and financing by IDA, as well as EEC, Federal Republic of Germany and the African Development Bank. After a slow start, to which repeated military conflicts contributed, reconstruction is now under way on most trunk sections and is expected to restore transport capacity on the major arteries in about two to three years. In order to avoid further delays, the first deputy Prime Minister is now in charge of monitoring implementation of infrastructure projects. 1.16 The Transport and Communications outlays proposed for inclusion in the FY89-92 Plan represent 222 of total investments planned, of which 162 for highways and 62 for railways. The dollar amounts (converted at UShe 60 to the Dollar) in constant 1988 prices ares Table 1.3: Rehabilitation and Developmerst Plan Investment Requirements, Commitments and Financing Gan (in $ million) Pre-1988 1989-1992 Carry-over Total Total Plan requi!:. 1,177 1,631 712 3,52u commitm. 1.177 1.008 121 2,306 fin.gap 0 623 591 1,213 of which Transp. & Comm. req. 246 432 101 779 commitm. 246 305 16 567 fin.gap 0 127 85 212  - 7 - Table 1.4u Railways. Highways. Telecommunications and Civil Aviation Investments 1989 - 1992 (in $ million) Railways Telecommunications requirements 95.9 requirements 73.0 commitments 53.7 commitments 14.0 financing gap 42.2 financing gap59.0 Highways Civil Aviation requirements 256.7 requirements 6.0 commitments 237.1 commitments 0.0 financing gap 19.6 financing gap 6.0 Total Transport and Telecommunications requirements 432.0 commitments 305.0 financing gap 127.0 1.17 Tfhe FY89-92 plan is a rolling plan; projects which were completed such as the Equator road are no longer included, and new studies and projects have been added since the FY88-91 plan. The coverage of priority projects is fairly comprehensive, although projects funded under barter arrangements are -difficult to record and may not all be included. The project selection in the transport sector covers the highest priority needs in the sector. However, in some railways projects World Bank staff recommend different phasing or scope of investments. The Government, URC and IDA also agreed that increased emphasis on spare parts procurement was necessary. Chapter III, the Railways Investment Progr-n FY89 - FY93 (RIP) contains these agreed changes and additions. Z. World Bank Operations in Transport 1.18 Worl- Bank Group commitments to Uganda total USS 765.2 million, of which US$ 17.4 million from IFC. There have been one loan and 31 credits for a total of 31 projects, of which 16 are under implementation. This total includes US$ 92.6 million of direct transport project support to Uganda. In addition, an IDA financed Railways Project is proposed for USS 7.0 million in FY89 (see para 1.38). 1.19 The Bank Group's strategy for assistance to Uganda is to assist the Government to achieve a rapid overall economic recovery, attain a viable balance of payments position and to lay the basis for sustained economic development. In the short term, the focus will be on stabilization and the creation of a supportive environment to increase output and nurture growth of the productive sectors. For the medium term the Bank's objectives are to support the key growth sectors of agriculture and industry while continuing  - a - its assistance to the transport and power sectors which have a direct impact on the efficiency of the productive sectors. Measures to maintain producer incentives, increase the availability of inputs and to increase capacity utilization in both the agriculture and industry sectors, will be accompanied by operations to eliminate transportation bottlenecks and to ensure the flow of goods between production areas, processing points and export centers. 1.20 The rationale for IDA involvement in the railways sector is as follows. First, IDA agrees with the Government strategy to make the railways the backbone of Uganda's transport system, and second, IDA believes that only by introducing measures to strengthen URC's organization and management can URC fulfill this role effectively and at acceptable financial and economic costs. Underlying the Association's judgment that the railways have an important role to play in Uganda's expanding transport are the following assumptionst (a) URC's comparative advantage in long haul bulk traffic will lead to concentration of URC's activities on the international routes and the Kampala-Kasese line, with the Northern and Central lines as secondary lines; (b) exports and imports w_ll mainly utilize the wagon ferry services, URC's preferred new route; (c) the wago; ferry terminal in Jinja, to be joined soon by a terminal in Port Bell, offers the Ugandan Government a degree of flexibility in its outlets to the sea, which does not exist via the roads since the overland connections between Uganda and Tanzania are not well developed. 1.21 Experience with past transport lending in Uganda has been mixed. The Association has helped finance four highway projects. The First Highway Project (Credit 108-UG, US$5.0 million, 1967) provided for construction to paved standard of the Mbarara-Ishaka-Katunguru road (122 kms), construction of several small agricultural and feeder roads, and detailed engineering of 740 kms of main and feeder roads. According to the Bank audit (No. 1623 dated June 19, 1977) the main road construction was of poor quality as a result of the contractor's inefficient organization and workmanship. The Second Highway Project (Credit 164-UG, US$11.6 million, 1969) helped finance: (a) construction/reconstruction of 665 kms of primary, secondary and feeder roads engineered under the previous project; (b) a highway investment, maintenance and organization study; (c) feasibility studies and detailed engineering for about 400 kms, and (d) technical assistance to MOW. The Project was completed in 1980. Project implementation was hampered by a lack of qualified staff and high prices for locally purchased goods due to Uganda's deteriorating economy. A limited Project completion note was prepared in June 1984. 1.22 The ongoing Third Highway Project (Credit 1445-UG, US$ 58.0 million, 1984) supports a four-year program to improve maintenance of the classified network and periodic maintenance of about 6Ci0 kms of bitumen-surfaced roads and about 1,000 kms of gravel roads. The Project includes provision for road maintenance arid workshop equipment, spare parts, tools, training aids, training center and MOW workshops. Technical assistance to MOW and HOT, a pilot program for the development of the local construction industry and a study for the preparation of a future road maintenance program are also included in the Project. The Project experienced initial delays, but performance is now improving. The ongoing Fourth Highway Project (Credit  - 9 - 1803-UG, US$18.0 million, 1987) supports the rehabilitation of 24 kms on the Kampala-Jinja road and of the 60 km Ishaka-Mbarara road; a pilot rural roads maintenance program, technical assistance, and a feasibility study plus detailed engineering of the Soroti-Lira road are also included. 1.23 The 1972 Highway Investment, Maintenance and Organization Study financed under Credit 164-UG (para 1.33) was updated in 1982-83 through a Highway Maintenance and Organization Study, carried out with funds under the First Technical Assistance Credit (1077-UG). In addition, the transport sector has been assisted by other credits such as the Second Reconstruction Credit (l252-U..) which provided funds for equipment and spare parts for MOT and MOW, as well as for some transport parastatals. 1.24 The Bank has also made three loans totalling US$104 million to the now defunct East African Railways Corporation (EARC) to ni 'rnize and develop railways in Kenya, Uganda and Tanzania. All three loan. have been disbursed, and a mediation exercise was completed in 1984 to allocate EARC assets and liabilities amang the member states. 1.25 The Bank is also the executing agency under a UNDP financed project (UGA-86-014, US$1.4 million, 1987) on Transport Strategy, Development and Training, which provides technical assistance to the MOT to strengthen its planning capacity, produce a Transport Sector Strategy and formulate and implement training for selected categories of transport sector personnel.  - 10 - II. THE RAILWAYS SUBSECTOR A. Overview of Uganda RailwaYs Corporation 2.01 Constructed in four stages between 1911 and 1963, the 1,232 km Uganda meter gauge railway system formed a district of the East African Railway Corporation (EARC) until its dissolution in 1977, when the Ugandan Railways Corporation sJRC) was established by a Presidential Decree, with a managing director and an eight-member Board of Directors. Hastily promulgated, the decree conferred an institutionally weak and "provisional' status on the Corporation, Many EARC assets were physically located in Kenya and Tanzania. Through mediation, agreement was eventually reached on the claims of the three countries in 1984. After additional delay, Uganda received a number of wAgons and compensation payments in kind, services and money to settle its claims. 2.02 EARC's break-up left URC with a fleet of (a) the lighter range of locomotives; (b) wagons mostly over 30 years old though generally in fair conditior. but many of them 2-axle stock with plain bearings (presently about twenty percent of the holdings); (c) vintage coaches; and (d) only lineside depots fot running maintenance of locomotives and rolling stock as the main workshops, located In Nairobi, reverted to KRC. The dissolution caused at the time large scale transfer and exchange of personnel in the highly-skilled, supervisory and superS,r cadre categories and resulted in the URC having to carry more staff than actually required, particularly at superior cadre levels. 2.03 Since 1977, the Government of Uganda has made major investments in URC equipment, especially locomotives and wagons, while allowing maintenance of the permanent way, staff training, organization and management to be neglected. This contributed to URC's traffic decline from about 750,000 tons annually under the EARC to about half of that level on average during the last ten years and less than 200,000 tons in some years. In addition, staff morale has declined due to wages not keeping pace with the country's high rate of inflation and to poor working conditions, including deterioration of staff housing. Inadequate accounting procedures and financial management have resulted in the Railways' depending on Government for most investments. URC's last audited accounts were in 1981. Tariffs have been increased regularly to cover cash operating expenditures but not to provide for repayment of investments or depreciation. In the last year Government and URC have tried to improve URC's performance by focusing on long haul bulk commodity traffic where the railways has a natural aivantage over roads. In 1987, freight traffic increased by 29 percent to 376,500 tonnes but further improvement, and even maintaining this level of traffic, will require external assistance as well as internal reforms. Government and URC are determined to undertake a sus .ained institutional strengthening for which the World Bank has been asked to assist. B. URC's Infrastructure and Property 2.04 Uganda's. 1232 km single line meter gauge tailway divides broadly into three interlinked routes:  - 11 - i) the Southern Line (251 km) from Tororo/Malaba (Kenyan border) to Kampala which includes a 146 km loop skirting Lake Kyoga (Busumbatia-Nbulamuti-Jinja) and a 5 km spur from Jinja to Jinja Pier, the Lake Victoria terminal for URC's wagon ferry services to Kisumu (Kenya) and Mwanza (Tanzania). ii) the Western Kampala-Kasese Line (333 km), originally built to serve the Kilembe Copper mine. A 9 km spur from Kampala to Port Bell, now scheduled for reconstruction as a second wagon ferry terminal, was lifted in the sixties when the rise in Lake Victoria's water level closed the terminal. iii) the Ncrthern Line (502 km) from Tororo to Packwach. Insecurity prevailing in the Northern provinces has kept this line out of commission for several years: presently only a skeleton freight/mixed train service of two trains weekly operates between Tororo and Mbale (km 56) to clear the small amounts of cotton and coffee offered. Land-locked Uganda has three rail outlets to the sea: a single rail- ferry-rail route through Jinja Pier to Dar es Salaam Port and two routes to Mombasa Port, the all-rail route via Malaba and the rail-ferry-rail line via Kisumu, the Kenyan wagon ferry terminal on Lake Victoria. The two Kenyan routes are about equal in distance (around 1300 km) while the Dar es Salasam route is about 400 km longer. URC's preference is to maximize ferry throughput, rather than moving via the Malaba all-rail route, because this helps conserve motive power resources and avoids the dilatory land border customs formalities. 2.05 On the Kenyan side, the Kisumu-Nakuru section has capacity limitations on account of the light rail track and the Mau viaduct which restrict operation of heavy duty locomotives. Track relaying is under way and the imminent viaduct survey may provide low-cost solutions to the problem in the medium term. On the Tanzanian side, there are management problems as well as shortage of motive power and wagons on TRC and shunting locomotives in Dar es Salaam Port. Tanzania Railways has realized the potential for capturing an increased share of the Ug.nda transit traffic while the Kenya traffic is hampered by cumbersome custezms procedures and a decline in the efficiency of the Port of Hombasa (see als8 para. 2.23) 2.06 The minimum curvature on the URC system is 175 meters and the maximum ruling grade is 1.5 percent. Sharp curves and steep gradients are clustered in the upper reaches of the Kasese line, the Tororo-Soroti section of the Northern Line and on the 90 km Kampala-Jinja section where, besides the concentration of sharp curves, the ruling gradient is an exceptional 2.0 percent in both directions. 2.07 URC owns 48 main line locomotives, 12 shunting engines, about 1500 waxons and 104 coaches (see Annex 2). The 20 standard diesel-hydraulic units (class 73), are the mainstay of the fleet; in addition URC has 19 light duty diesel hydraulics inherited from the defunct EARC and 9 heavy duty Alsthom diesel-electrics, especially acquired for the Kampala-Jinja freight hauls.  - 12 - Half the wagon fleet is relatively new, purchased in the post 1977 period; the inherited stock is over 30 years old and 250 of them are low capacity 2-axle, derailment prone wagons with plain bearings. The ex-EARC coaching stock has been withdrawn from service and replaced by new coaches purchased in the last ten years. Thirteen new standard main line locomotives (Class 73), ordered recently are expected to be delivered in mid-1989. One hundred tank wagons ordered in Spain (EEC financed) are to be delivered in 1988 and orders for another 300 to 600 covered/open wagons from Zimbabwe are being negotiated. The Class 73 locomotives have been afflicted by axle breakages and whili this problem is expected to be resolved in the new order, the manufacturers have yet to find and apply a solution to the existing fleet. Three new ferries, each of 22 bogie wagon capacity, were acquired within the last few years for the Lake Victoria services. Two motor vessels, recently refurbished, are used for passenger and cargo services to the off-shore islands, near Jinja. For accident emergencies, a diesel rail breakdown crane is stationed at Kampala. In the framework of the Railways Investment Program, IDA and the Government expect to agree that further purchases of locomotives and wagons have to be phased in line with the projected increase in transport demand. They also have to agree that a fleet of 68 locomotives and 1,500 wagons is adequate to transport the 760,000 tonnes of freight projected for 1993 and provide an affordable "insurance premium' to keep alternative outlets to the sea. (see Annex 12, paras. 7-11) 2.08 The EARC dissolution deprived URC of main workshop facilities for locomotive and rolling stock. Left with just two main running inspection and maintenance depots at Kampala and Tororo, the latter -- a major converted steam shed -- was developed for light repairs and heavy diesel-hydraulic locomotive maintenance until the new base workshop, planned at Nalukolongo near Kampala was built. The workshop construction, however, took ten years owing to lack of funds. Commissioned in 1987, it has yet to be fully manned, a process delayed by the housing shortage and high rents prevailing in Kampala. URC intends to purchase some available public housing to expedite the process. Elimination of this staff housing constraint by July 1989 was agreed as part of the Initial Action Program under the proposed project (Annex 11, para. 10). The fleet is not anticipated to exceed 75 locomotives in the next ten years. With a designed capacity of 150, the workshop has, therefore, ample space and equipment capacity to also accommodate most of the critical items of carriage and wagon overhaul and maintenance. Wheel-turning, retrying, roller bearing maintenance and overhaul and testing of air brake equipment is already so organized. Facilities and space exist for body and chassis repair work and for the addition of spring-testing equipment. In the medium term, the combined locomotive, wagon and coach holdings are not expected to be such as to require a separate workshop for rolling stock overhaul. It may be sufficient to add independent small paint shed in the Nalukolongo workshop yard area. To establish the most efficient way of arranging the wagon body and chassis repair, a study will be undertaken under the Railways Investment Program, while provision is also included under the Railways Project so that IDA can act as lender of last resort if necessary. 2.09 A carriage and wagon running maintenance depot is situated in a congested zone of the main Kampala station yard. The facilities here are substandard, the covered area inadequate and work generally comes to a halt in  - 13 - Inclement weather. In the medium term, relocating and rebuilding of the depot will be necessary. The possibility also exists of abolishing the Kampala locomotive depot and transferring the running maintenance to the base workshop. If feasible, the carriage and wagon running maintenance could be resited in the Kampala depot area. Outstation motive power fueling and trip servicing depots are located at Kasese, Jinja and a currently inoperative one at Gulu. Civil engineering plant and equipment ownership is, at the present, minimal and no separate workshop ie necessary. Motor trollies can continue to be maintained by the Mechanical Eng