Colombia - Seventh Railway Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 9132 PROJECT COMPLETION REPORT COLOMBIA SEVENTH RAILWAY PROJECT (LOAN 2090-CO) NOVEMBER 16, 1990 re and Energy Division rtment III a and the Caribbean Regional Office restricted distribution and may be used by recipients only in the performance of Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit = Peso (Col$) US$1 = Col$55.0 (1981) Col$242.0 (1987) Col$1 - US$O.01818 Col$1 million = US$18,181 WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) = 0.62 (mi) 1 kilogram (kg) 2.20 pounds (lb) 1 ton = 2,205 pounds ABBREVIATIONS AND ACRONYMS CNR Colombian National Railways COLPUERTOS Colombian Port Authority CONPES Social and Economic Policy Committee of the Cabinet DNP Department of National Planning ECOPETROL Colombian Petroleum Agency MOPT Ministry of Public Works and Transport PCR Project Completion Report SENA Colombian National Training Center FISCAL YEAR January 1 to December 31 OR O IAL U= ONLY THE WORLD BANK Washington, DC 20433 USA OMe at Dreear-Caftoal Operaum Evaluatmn November 16, 1990 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report - Colombia Seventh Rai:wa' Project (Loan 2090-CO) Attached, for information, is a copy of a report entitled "Project Completion Report - Colombia Seventh Railway Project (Loan 2090-CO)", prepared by the Latin America and the Caribbean Regional Office. No audit of this project has been made by the Operations Evaluation Department at this time. Attachment This document has a restricted distribution and may be used by recipients only in the performance of their official dutie. Its contents may not otherwise be discosed without World kak authoriastion. PROJECT COMPLETION REPORT COLOMBIA SEVENTH RAILWAY PROJECT (LOAN 2090-CO) TABLE OF CONTENTS PAGE PREFACE ......................................................... i EVALUATION SUMMARY............................................ .iii PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE.............1 1. Project Identity............................................ 1 2. Background.................................................. 1 3. Project Objectives and Description........................ 2 4. Project Design and Organization............................ 3 5. Project Implementation..................................... 4 6. Project Results............................................. 7 7. Economic Evaluation...................................... 10 8. Bank Performance.......................................... 11 9. Borrower Performance...................................... 11 10. Project Relationship...................................... 12 11. Consulting Services....................................... 12 12. Lessons Learnt............................................. 13 PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE 15 PART III: STATISTICAL DATA 17 Tables 17 Table 1: Related Bank Loans............................... 17 Table 2: Project Timetable................................ 18 Table 3: Estimated and Actual Schedule of Disbursements... 19 Table 4: Project Implementation......................... 20 Table 5: Project Costs and Financing.......... ........... 21 Table 6: Project Results........ ...................... 22 Table 6A: Principal Indicators ..................... ... . 22 Table 6B: Economic Impact................................ 24 Table 6-Cl: Income Statements .................. ......... 25 Table 6-C2: Sources and Application of Funds............... 26 Table 6D: Government Contributions....................... 28 Table 6E: Studies........................................ 29 Table 7: Status of Covenants ................ ............ 30 Table 8: Use of Bank Resources............................ 34 Map: IBRD 3667R1 This document has a restricted distribution and may be used by recipients only in 'e performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. PROJECT COMPLETION REPORT COLOMBIA SEVENTH RAILWAY PROJECT (LOAN 2090-CO) PREFACE This is the Project Completion Report (PCR) for the Seventh Railway Project in Colombia, for which Loan 2090-CO in the amount of US$77.0 million was approved on December 6, 1982. The loan was closed on December 31, 1987, two years behind schedule. The total disbursement was US$28.9 million, with US$48.1 million cancelled. The PCR was prepared by the Infrastructure and Energy Operations Division of the Latin America and the Caribbean Country Department III (Preface, Evaluation Summary, Parts I and III). On May 22, 1990, the Bank sent the Borrower Parts I and III with the request to prepare Part II. On June 12, 1990, the Borrower informed the Bank, that it had no comments to add to those already sent, which have been already incorporated to the report. Preparation of this PCR is based, inter alia, on the Staff Appraisal Report, the Loan and Guarantee Agreements, Supervision Reports, correspondence between the Bank and the borrower, and internal Bank memoranda contained in the Project Files. - iii - PROJECT COMPLETION REPORT COLOMBIA SEVENTH RAILWAY PROJECT (LOAN 2090-CO) EVALUATION SUMMARY Objectives 1. The objective of this project was the technical economic and financial improvement of CN& by improving its operations and management, and comprised a Program of Action and investments to improve its infrastructure (para. 3) and organization. The project was not implemented adequately and was therefore not successful in meeting its objectives of improving CNR (para. 6.01). While some of the investments foreseen were made, most of the important investments remained unexecuted (para. 6.01). It is significant. however, that in the momentum generated by the project CNR reduced its staff substantially (para. 6.02). An unexpected bonus of the project was that towards the end of its grossly inadequate implementation, the Bank, on the suggestion of the Colombian Government, financed a study to define the role and orientation of the railway in the light of the changing economic landscape of Colombia (para. 5.07). This study recomended the adoption of a new railway policy, drastic institutional reforms restructuring the railway system, and the creation of a new enterprise, with substantial participation of-the private sector, to work as a commercially oriented entity (para. 11.02). The Government adopted these radical recommendations and is now-in the process of liquidating CR. Implementation and Results 2. Frequent changes in top management, and government indecisiveness in matters like project financing, tariff increases etc, prevented the achievement of operational and financial targets under the project. agreed during appraisal, and led to a progressive deterioration of CNR. The project was only partially completed in 1987 instead of full completion in 1985. Although traff4c projections forecasting annual increases of 19Z were clearly over-optimistic (pares. 6.06 and 8.02), the traffic carried by CNR actually went down during the project period as a result of which most of the operational targets were not achieved (Table 6.A). The loan closing date was extended by 2 years, but delays and government failure to provide local counterpart funds eventually caused the Bank to close the loan in 1988 when $28.9 million had been disbursed and a little over $48 million cancelled. Sustainability 3. Although the overall project ERR was relatively low at 12%, due to 'he poor implementation of the project, it is to be expected that because of the major restructuring of the railway, following the project, and at least in part instigated by the project, the reorganized railway will continue to maintain an adequate level of benefits. - iv - Findings and Lessons Learnt 4. This project is a classic case of the failure of a railway rystem, created in the years when railways had a monopoly, to adjust to the emergence of competition from other transport modes, principally highways. From the outset neither the government nor the borrower was willing to recognize the fundamental need of CNR to adapt to a changed competitive environment (para. 12.01). For its part the government repeatedly gave assurances that it was willing to finance CNR's increasing deficits, but failed to honour them, partly because of the lack of clear strategy and partly because the Government was unwilling to face the p-litical cost of dealing with a failed company. 5. The lessons for the Bank (para. 12.04) to be learnt from this project are (i) (for Colombia) the Bank needs to follow up the Government's actions for reorganization and restructuring of the railway system in line with the economic needs of the country; the process of restructuring of the railway has Already begun (para. 11.02) and the Bank would do well to remain involved in it. (ii) (for other countries az '%--. as Colombia) the Bank should require solid evidence that the government understands and supports this restructuring by forcing the railway to function as a commercial entity. The Bank should not support a project unless agreement has been reached on an adjustment proF an proposed and tangible actions have been initiated. (iii) (for other countries) institutional changes are important both in the way the railway company is managed and in the way the Government regulates it; and (iv) (for all countries) the government should strive for the "professionalization' and continuity of management in public sector enterprises in general and in the railway enterprises in particular. COLOMBIA SEVENTH RAILWAY PROJECT (LOAN 2090-CO) PROJECT COMPLETION REPORT PART I: PROJECT REVIEW FROM BANK'S PERSPFCTIVE 1. Project Identity Project Name: Seventh Railway Project Loan No.: 2090-CO RVP Unit: LA3IE Country: Colombia Sector: Transport Subsectorz Railways 2. Background 2.01 The Andes Mountains of Colombia present a formidable barrier to communication among the main population centers in the country, which until recent years constituted separate and almost self-sufficient regions. It was not until the early 1950's that, under the drive toward integration and modernization of the country the transport system of Colombia began to evolve into a national network. 2.02 The Bank has played an important role in the development of Colombia's transport system since 1949 when country strategy emphasized capital intensive infrastructure projects as a vehicle for the selective expansion and strengthening of the transport network. By 1980 when this loan was appraised the Bank had lent about $474 million in 22 loans to the sector, which financed the development of an integrated highway ne work, the construction of the 670 km Atlantic Railway and strengthening of the Railway System, improvement of the domestic aviation network, and more recently (in the late 1970's) the construction of rural roads. 2.03 Bank sector strategy has focussed on promoting the economic role for the different modes of transport, their complementarity on the important trade routes, and on raising their revenue-earning capabilitils to reduce the burden on the national exchequer. At the institutional level the Bank'c interest has been in improved transport planning and emphasis on the budgeting and programming functions by strengthening the financial and personnel management systems of the transport agencies. Accordingly the basic objectives of the sector work program have been: a) to enhance the dialogue with the Government in regard to the monitoring of transport developments and th evolution of transport policies: b) to provide continuing analysis of selected policy issues: and c) to assist in project formulation. 3. Project Objectives and Description 3.01 Project Objectives: Following the first three railway loans for the construction of the Atlantic Railway, the rail network was integrated through the creation of CNR and the standardization of the gauge to 914 m. (3 feet). Three subsequent loans in 1963, 1968 and 1972 contributed to the rehabilitation of track and rolling stock and to the improvement of managentent practices. However, implementation under these three loans was slow and the financial results were 8hort of expectations. In particular, performance under the sixth loan was disappointing due to lack of Government financial support, frequent changes in CNR management and a drop in CNR's revenues and performance. In fact, by early 1979, CNR had reached a stage when continuation of existing operations would have deteriorated the service to a point where it would become necessary to close down the entire railway network. An alternative course of action envisaged was to take appropriate technical, operational and financial measures, including an investment and action plan designed to improve railway operations. Changes taking place at that time in the world energy situation enhanced the railway's competitive position vis-a-vis roads in petroleum transport, the pe ntial for exploiting Colombia's coal deposits and the transport of other bulk commodities over long distances. The Government acknowledged the increasing importance of the railway system. A Seventh Railway project was considered advisable to upgrade CNR, particularly on the Atlantic network, with the aim of improving the physical condition of the railway infrastructure and its operations to enable CNR carry more traffic and with judicious cost-based tariff increases, to eventually improve CNR's finances. 3.02 Project Description: The Seventh Railway Project was conceived as an integrated program of technical, economic and financial improvements. It comprised essential investments related to the most important sections of the railway track, motive power and rolling stock, as well as a program of institutional recovery defined in terms of operational and efficiency goals which were considered within the capacity of CNR to achieve during the project period. 3.03 The project comprised the first four years of the 1982-1985 investment plan, and was divided into groups: Group I - Rehabilitation of about 428 kms of track on the Atlantic network. - Acquisition Rnd installation of rail switches. - Acquisition of track maintenance -quipment. - Acquisition nf four new locomotives. spare parts. rehabilitation of 139 locomotives. and the establishment of an appropriate scrapping program for unserviceable locomotives. - Acquisition of 100 gondolas and spares and rehabilitation of 1410 wagons. - Improvement and reorganization of the workshops. acquisition of machinery and tools. forklift trucks. cranes and rehabilitafion of freight-handling equipment. - Acquisition of an assortment of elementary signalling equipment comprising, inter alia. level crossing barriers. warning panels, etc.. for the Atlantic line. - Rehabilitation of telecommunications equipment and systems. - Studies in connection with tariffs, accounting and control, traffic demand, operating cost reductions and the Bogota - Buena Ventura and Saboya-Carare lines. - Training of professional and technical staff of CNR. Group II - Rehabilitation of 83 kms of track on the Atlantic network. - Acquisition of four more locomotives and spare ports. - Acquisition of 100 gondolas and spare parts. - Acquisition of 7 level crossing barriers and 250 level crossing warning panels. - Rehabilitation of telecommunications systems and equipment. 3.04 From the beginning of the appraisal process, the limited success under preceding projects led to skepticism regarding the prospects of success under the proposed Seventh Railway Project. This was in fact the main cause for the conditionality accompanying the Seventh Loan, and the development of the concept of the two-tranche loan. In order to avoid the poor experience of the previous operations, the loan was divided into two tranches corresponding to each investment group. Release of the second tranche would be allowed only if CNR and the Government would have performed satisfactorily in carrying out the first group investments and the specific project conditionality. 3.05 The program of action laid down the operational and performance targets to be achieved year to year during the implementation of the project. Among the most important operational measures included in the program of action were quantified targets for track rehabii -ation, improvements in locomotive and rolling stock performance, and fundamental changes in the railways' operation, including introduction of unit trains and improved intermodal coordination. On the institutional and financial side, the program of action included inter-alia, a staff rationalization program, the development of a new pension plan, and financial performance targets. 3.06 Due to delays in reaching final agreement and "in declaring loan effectiveness (para 5,01) the project slipped by one year, from 1982-1985 to 1983-1986. This led to some reductions in the track rehabilitation program (from 428 kms to 364 kms in Group I and 83 kms to 78 kms in Group II). 4. Project Design and Organization 4.01 The conceptual foundation for the project was clear and was apparently shared by the Borrower and the Government. The project content was however conventional, although its division into two groups corresponding to the two tranches of the loan was an innovative approach and reflected the World Bank's concern for the Borrower's performance. The project was prepared in considerable detail, and the roles and responsibilities of the three main participants i.e., CNR, the GovernmEnt and the World Bank, were clearly defined, although it would appear from the results achieved that the Government's resistance to institutional reforms was underestimated. 4.02 Coordination of work in connection with the implementation of the project was entrusted to the Planning Officer of CNR who, in his capacity as Project Officer, coordinated the work with the executing departments of CNR, and with the different agencies of Government. The Project Officer was also responsible for the compilation of the periodic reports to the Bank, which were prepared by CNR and were sent regularly to the Bank, despite the lack-lustre implementation of the project (see paras. 5 to 6). 5. Project Implementation 5.01 Loan Effectiveness and Project Start-Up. Although the Project was appraised in September 1980, and negotiations took place in May 1981, the Colombian Government requested a delay in Board presentation because of budgetary constraints and the lack of a clear financial plan to carry it out. In the meantime, CNR's traffic and financial situation continued to deteriorate and at the end of 1980 the project had to be re-appraised and the loan documents amended. After a formal commitment from the Colombian Government had been received to provide CNR with the necessary funds to cover its accumulated deficits, its operating costs and a financing plan to implement the railway's 1982-1986 investment plan, a lGan of $77 million was approved by the Bank's Board in February 1982. The financing plan provided for counterpart funds mainly from the National Budget, and in part through annual budgetary allocations from the the National Highway Fund.1 The Loan Agreement however was not signed until December 1982 as there was a hiatus due to a change 4n Government ad.ninistration (mid-1982) and a railway strike. At the time of loan signature the Colombian Government confirmed to the Bank, through a supplemental letter, that by February 1983, the Guai,ntor would: (a) Reach a solution to all accumulated cash deficits of the borrower as of December 31, 1982, estimated at no less than the equivalint of US$67 million; (b) Finalize arrangements to meet the financial requirements of the Borrower for the year 1983; and (c) Prepare a financial plan covering the Borrower's financial requirements for the years 1983 thr6ugh 1986. 5.02 On February 15, 1983, with Resolution No. 6, the national Monetary Counc I authorized the Central Bank to act as a financial agent for the rai',ays to obtain, from Colombia's private banks, bridge loans for a six- month period to cover CNR's 1982 accumulated deficits and these bridge loans were to be repaid by CNR when it obtained the supplementary budget allocations for CNR. With this action, the Bank considered that the Government had fulfilled item (a) of the supplemental letter. Evidence for items (b) and (c) was also provided in early 1983, when CCNPES approved CNR's financing plan to meet CNR's financial requirements. 1/ The National Highway Fund or "the Fondo Vial" transmits resources from gasoline taxes and enables the railways to apply these funds towards the maintenance, improvement and expansion of its network. - 5 - 5.03 The loan became effective in June 1983 and t e original investment plan (1W82-1986) was updated to mid-1983 prices and eicheduled to cover the period 1983-1988. The Loan and Guarantee Agreements, the Program of Action, and the Supplemental Letters, were revised and updated in July 1983. Group I investments were to be implemented immediately and Group II only if a mid-term review in March 1985 indicated that the project targets had been achieved and project performance had been positive. The project was estimated to coet $176.7 million, with a foreign exchange component of $110.2 million, of which the Ban!. loan of $77.0 million would finance most of the imported hardware and technical assistance. 5.04 Implementation Schedule. CNR had actually started execution of its investments in 1982, with limited resources allowing it to reach only 332 of the annual investment level agreed at -.ppraisal. However, progress was even poorer in 1963 and 1984. Investment levels were only 82 and 13? respectively of the revised Investment Plan as amended in 1983. There were two causes for the slow rate of investments. The predominant reason was the lower-than-expected internal generation of funds and the Government's inadequate contribution to local costs (paras. 6.07 and 6.10). The other riason was delay in procurement of Bank-financed items. The lack of funds paralyzed execution of the project. CNR cash crisis left no money to pay for civil works related to the various project items, such as track workr, workshops and handling equipment, etc. As a result, the condition of the rail infrastructure, motive power and rolling stock continued to deteriorate (para. 6.02). As far as procurement is concerned, not only were there holdups in the evaluation of bids by several ccmmittees and subsequent approvals by the CNR Board, but the evaluations were not always correctly done. The main dispute in procurement arose in a tender for rails. The Bank did not accept an award recommendation by CR in favor of a local supplier who was not the lowest evaluated bidder and did not clearly meet the technical requirements. This led in 1984 to the cancellation, at the request of CNR, of $3.2 million2 of the loan, lelaying, in the meantime, the entire procurement process by well over a year. As a result, by April 1985, when the mid-term review was done, only $0.3 million out of $77.0 million of the loin had beer. disbursed against $70.5 million forecast at appraisal and $52.5 million foreseen when the 1983 amendments were made. 5.05 Mid-Term Review: The mid-term review of project implementation indicated that progress in almost all areas was well below appraisal expectations. The railways had implemented only a part of the project and had failed to achieve virtually al.l the targets in the action program and most of the loan covenants. A key factor was Government's failure to provide CNR with the funds required to implement the project and to improve its operations. Even the budgetary allocations to cover its past deficits were delayed by 1-2 years. Frequent changes in CNR mana ,ement aggravated the situation. As a result, CNR's performance deteriorated, the traffic 2/ The cancelled amount was later re-instated into the loan in JVly 1986, on the request of CNR, after CNR agreed to place the order to the lowest evaluated bidder. carried by rail dropped and CNR's finances completely collapsed. The mid- term review, after listing all the failures in the implementation of the project concluded on the somber note that unless the Government and the railways showed evidence of a firm commitment to overcome the problems, the Bank would withdraw from the project and cancel the Loan. 5.06 In the following months details of the proposed "evidence" of firm commitment were worked out between the Bank, CNR and the Colombian Government. These included: (i) satisfactory arrangements for the financing of CNR's accumulated and projected deficits to meet CNR's expenditures in respect of its operations and the project for the period 1986-1987, and (ii) agreement inter-alia on an updated action program, a transport plan, tariff adjustments, and a manpower plan. Accelerated procurement procedures, the establishment of a project monitoring committee and a Project Account to ensure counterpart funds for the project were also agreed upon. After a lengthy-exchange of telexes and several Bank missions, the loan agreement was revised on July 18, 1986, incorporating the above provisions referred to in (ii) above, and postponing the loan closing date by one year to December 31, 1987. However, the amended loan agreement was not declared effective until evidence satisfactory to the Bank was available that the money required by CNR was actually secured to satisfy (i) above. The Bank telex authorizing dirbursements was sent on November 1, 1986. 5.07 Termination of Project: There was a flurry of loan disbursements in 1987. A Bank mission visited Colombia in January 1987 reported little progress in the project, particularly in the locally financed items a decline in CNR traffic, further deterioration in CNR's financial situation, and delays in GoveLnment's cash contribution to CNR. The mission concluded that wiLh the aggravating situation of CNR, it would not be possible to achieve even any of the revised targets, unless a substantial institutional change was brought about in the organization and relationships of CNR. The Bank agreed, upon the suggestion of the then Transport Minister to finance a study of the future role and orientation of the railways in light of the most recent developments. This, in effect, turned out to be the most significant spin-off from the project. Disbursem nts against contracts already signed continued until the revised closing date, and for all practical purposes the project came to a halt at the end of 1987. Needless to say, the release of the second tranche of the project was not authorized by the Bank. 5.08 Project Costs. The estimated cost of the Seventh Railway Project at appraisal was about US$176 million, and it was to be executed in the years 1982-1985. The final cost in the years 1982-1987, with all the amendments and extensions, was about $64.8 million, as shown in Table 5A (Part III). The foreign-exchange cost was about $45.3 million as against the appraisal estimate of $110.3 million. The Bank loan contributed about $29 million ol the foreign exchange costs. The local costs, which are the best measure of the Government's contribution to the project totalled, in six years, $29.4.million, which represents less than 45% of the appraisal estimate of $66.5 million for four years. Taking the average for each year the Government contributed less than one third of its promised contribution. This, coupled with the railway's accelerating losses and the delayed and inadequate Government subsidies for meeting the operating expenses, almost crippled the railway. Table 4 (Part III) shows that over the extended period of the project: (i) only 372 of the vital track program was carried out. This, together with the reduced maintenance caused by lack of funds, seriously undermined the carrying capacity of the railway; (ii) 782 of the expenditure proposed for the locomotive program was incurred, but locomotive availability deteriorated due to poor maintenance and frequent accidents; (iii) 42Z of the rolling stock investments were done but maintenance deteriorated: (iv) almost insignificant proportions of the investments in the vital areas of workshops (192), operations (12) and signalling and telecommunications (18Z) resulted in serious deterioration of operations and the quality of services. 5.09 Disbursements: Table 3 (Part III) indicates the estimated and actual schedule of disbursements. No disbursements took place in FY83 and FY84 although the Special Accounts Fund of $10.1 million was opened in 1984. Disbursements started very slowly in FY85, about $8 million was disbursed in FY86, $11 million in FY87, and the final $8 million in FY88. When the loan was closed in 1988, $28.9 million had been disbursed and a little over $48 million cancelled. The table shows that the course of disbursements bears no resemblance tc the appraisal forecast, although it compares more favorably with the standard profile of disbursements for Colombia. 6. Project Results 6.01 Project Objectives: Overall, the project was not implemented adequately and was therefore not successful in meeting its objectives of improving the operatiQns and finances of CNR. The railway's performance deteriorated and the financial position grew worse instead of improving (paras. 6.04-6.08). The study in regard to the role and institutional reform of the railway, conducted at the final stage of the project, was an unexpected bonus of the otherwise inadequately executed project, as the analysis of the consulk-ants and their suggestions provided useful guidance for future planning. However, notwithstanding the rather optimistic projections of traffic, here again, as in the case of the appraisal of this project, the benefit to be derived from the work of the consultants will depend upon the manner in which the Government utilizes and acts upon the recommendations made. - 8 - 6.02 Physical Results and Operations: A statement of the principal indicators of performance in comparison with the appraisal targets is given in Table 6A (Part III). None of the important physical targets of the projects were achieved, except reductions in railway staff, which were reduced from 10,072 in 1981 to 7,734 in 1987, as against the target of 8,000 for 1987. Some equipment, track materials and four locomotives were purchased with loan funds, with considerable delays and a considerable lack of coordination. For instance the rails, locomotives and rolling stock spare parts kept lying in the port for months because CNR did not have the funds to pay for the port charges and import duties. As a result, the track rehabilitation works were only partially carried out, and the locomotive fleet further deteriorated, because all the spare parts were not available. The four new locomotives were acquired but were rendered inoperative by a succession of derailments, and remained out of commission for some time as they had to undergo major repairs. The improvements to the workshops, operations and signalling/telecommunications equipment, although relatively minor in terms of cost, were hardly carried out. As a result locomotive availability fell to below 35Z, freightcar availability o 55Z, wagon turn-around time went up from 16 days at the start of the project to 22 days when the project was closed, instead of improving to 11 days as forecast. 6.03 Freight traffic carried by CNR fell 16Z to 1.6 million tons during the project period instead of going up to 3.6 million tons as forecast at appraisal, and the financial position of CNR deteriorated. The main reasons for this fall were the increasing competition of road transport, and the deterioration of the railway services as a result of the delay in initiating the investment plan. CNR failed to adjust to its changing role in freight transport, which required a change of direction towards a more commercially oriented railway, with a concentration in train-load operations. In addition, the railway's policy of attempting to increase traffic regardless of its revenue potential, only worsened its financial situation, since such traffic, particularly coal, was not earning sufficient to cover even its cash operating cost. On the other hand, the delays and inadequate implementation of the project resulted in substantial deterioration in the railway's infrastructure and operations, preventing CNR from meeting the traffic demand forecast at appraisal. 6.04 Financial Performance. Except for selected years, CNR has suffered from endemic operating losses over the last two decades. The reasons behind the poor financial performance have been numerous, the most important being: (i) the continued loss of traffic to highway transport as a result of poor quality of service; (ii) an inadequate tariff system that does not permit full cost recovery completed with ineffective efforts to reduce uneconomic services, and finally (iii) excessively high staff costs arising from the pressures exerted by powerful labor unions. 6.05 As stated above, in order to overcome the railways' operational and financial deterioration, Bank involvement in the subsector through its last five loans had relied heavily on rehabilitating the infrastructure, improving railway operations. and streamlining management procedures and financial practices. However, the carrying out of the projects (including the Seventh) depended on Government provision of subsidies to cover CNR's operating deficits and equity contributions to cover local cost of its -9- investment program, given the poor cash generation capacity of the railways. As a result, the execution of the projects was vulnerable to both the availability of resources of the National Budget, and the priority, often changing, assigned to the railways by the successive governments in office. The Sixth Railway project failed to meet its objectives, mainly because the project implementation period coincided with an economic slow-down in Colombia, which prevented the Government from providing the necessary financial support. This project, for which the Government agreed at appraisal to provide 762 of total investment funds required, failed mainly because of lack of consensus in the government, not only on the role of the railway but also the measures required to realize its fulfillment. As a result, Government financial contributions were both late and insufficient, leading inevitabl/, to the failure of the project. 6.06 CNR's financial statements, including appraisal and actual results for the period 1981-1987, are presented in Tables 6C1 and 6C2 of Part III. The main assumptions upon which the appraisal forecasts were made, were that freight traffic (in ton-kms) would pick up and grow at an average annual rate of 19Z between 1981 and 1986; tariffs would remain constant in real terms during 1981 and 1982 and would then be increased by 10, also in real terms, in 1983, 1984 and 1985; the number of staff would increase slightly (7Z over the 6-year period) to strengthen the technical and operational areas, but the average cost per employee would remain constant; and the Government would support CNR financially by providing funds to cover the accumulated cash deficit as of December 1982 and CNR operational and investment needs during the remainder of the project period (1983-1986). 6.07 Unfortunately, none of the assumptions for CNR's financial recovery materialized. As a result, working and operating ratios remained substantially above appraisal forecasts because CNR's operating losses increased instead of diminishing, and the Government's transfer of funds for the 1982 deficit and the project needs started flowing in over one year late. 6.08 As shown in the Income Statements (Table 6C1), revenues, instead of increasing by almost 200Z during 1981-1986, as forecast, remained at the 1981 level or below, in real terms. Further data provided by the Borrower shows that the declining trend continued in 1987. This situation was the result of CNR's inability to achieve forecast traffic levels and the failure to increase tariffs as originally foreseen. Indeed, freight traffic, after a slight pick-up in 1984 and 1985, dropped again in 1986 to levels lower than those forecast for 1981 and equivalent to only 42Z of the target originally established for 1986. Lack of adequate tariff adjustments resulted in a gradual deterioration of the average revenue per ton-km, such that by end 1986 it was 23Z lower than in 1981, and 41Z lower that the average revenue per ton-km originally planned for 1986. 6.09 As regards working expenses, which were forecast to increase slightly in line with the pick-up in traffic activity, these remained roughly constant in real terms. This performance, however, cannot be considered an achievement on CNR's side since: (a) the lower-than-expected fuel and material cost was a result of the railway's lower level of activity, and b) in order to maintain personnel costs under control - 10 - following several salary increases. CNR reduced considerably the number of its staff (by attrition), creating imbalances in staff skills as the skillpd staff were reduced ad hoc whereas the administrative staff remained at high levels. 6.10 Two determinant factors in the recovery of CNR's cash-flow situation during the project period were expected to be: (a) improvement of CNR's physical infrastructure in line with forecast demand levels in order to increase revenue generation, and (b) adoption of new operational and commercial practices, including establishment of block-train operations and concentration on commodities with high revenue-earning potential. In actual fact investments in the project were substantially delayed as a result of the Government's failuie to comply with the agreed financing plan. Financing for the 1982 accumulated deficit was received in May 1984 and funds for CNR's 1983 operational and investment needs were insufficient. Indeed, since only 8% of investments planned for 1983 were realized, CNR's carrying capacity, continued to deteriorate and operating losses increased. These higher than-expected-losses, in turn, increased the resources to be required from the Government the following year. The delays in the Government's transfer of funds persisted throughout the following three years and the end result was that, by end-1986, the Government had been required to contribute or commit almost US$550 million instead of the US$345 million forecast at appraisal (Table 6D). The higher-than-expected Government transfers were mainly the result of higher operating losses (US$205 million) and higher interest costs (about US$53 million) the latter resulting from CNR's continuing rolling-over of commercial bank debts while the Government contributions came. In addition, only 25% or US$46 million of planned investments (local and foreign) materialized during that period. Although investments did pick up during 1987, CNR was only able to use up 38Z of the Bank loan or US$28.9 million (para. 5.09). Likewise the new commercial and operational plan was not implemented properly and CNR, instead of attracting profitable traffic, continued to carry commodities such as coal at a loss, and was unable to reduce costs as planned as unit trains operations continued to be limited. The great majority of the financial covenants of the Loan Agreement were not complied with (Table 8). 7. Economic Re-evaluation 7.01 The general and subproject specific methodologies followed for the economic re-evaluation are basically the same as the ones used at appraisal. Also the benefits taken into account for the re-evaluation of each subproject were essentially the same as the ones included in the SAR, namely: (a) reduced track maintenance costs, reduction in derailments and better speeds for track rehabilitation works and (b) for the rehabilitation and acquisition of new equipment, motive power and rolling stock, benefits arising from he difference between the economic costs of road and rail traisport for the rail traffic made possible by the investment. - 11 - 7.02 The SAR indicated an overall economic ERR of 26% with partial ERRs of 18Z for track rehabilitation, 27% for new locomotive purchases, 42% for parts for existing locos, 22Z for new wagons and 61Z for major rehabilitation. The benefits of capacity increases were measured by multiplying the difference between road and rail operating costs by the volume of freight which would otherwise travel by road. The investment in track rehabilitation produced an unsatisfactory ERR of under 5%, largely due to the failure of traffic growth, on which the benefits depended, to materialize. For locomotives and loco spares (loss subject to economies of scale than track) the ERR was fully satisfactory at over 19%. For wagon rehabilitation, the ERR was 19%. The minor investments in workshops, technical assistance etc. were not separately evaluated. Their costs were included in the total project costs. The overall project ERR on that basis was 122. Details of the estimated and actual ERRs are given in Table 6 (B). 8. Bank Performance 8.01 At over 22 staff weeks in the field, for project preparation/ appraisal and 33 staffweeks in the field for supervision, the Bank made extraordinary effort to assess the CNR situation and to ensure an efficient project implementation in accordance with the program agreed with the Borrower and Guarantor. A comprehensive and thorough analysis was made at the mid-term review and the project and action program were adjusted to accommodate the borrower's difficulties. 8.02 The questions that arise are, whether the agreements reached between the Bank and the Borrower were reasonable and enforceable, and whether the leverage inherent in the legal documents and the two-tranche concept of the project were adequately exercised. The agreements were, by and large, reasonable, although the traffic increases forecast (nearly 19Z per year) were inordinately high, and the tariff increases foreseen, at least in retrospect, were clearly over-optimistic. The second part of the question is more difficult. The leverage inherent in the two-tranche concept was actually exercised as the second part of the project was not started when it became evident the first part had failed. However, well before the second part of the project was due to start, the first part had already begun to unravel because of inadequate Government funds, poor management, indecisiveness and inordinate delays and above all institutional weaknesses, all features which can be loosely characterized as inadequate Government and Borrower's commitment to the project. The legal agreements provided for withholding the second tranche of the loan financing group II investments. However, the project dragged its feet almost from the start. Indeed, the causes of the failure of the Railway Project were not dissimilar to the reasons for the poor performance under the 6th Railway Project a fundamental change in CNR's business prospects brought about by road competition, lack of government leadership, frequent changes in CNR management, and the inability to deal the high labour costs and operational rigidities of CNR. One wonders therefore whether the 7th Railway Project should have been undertaken at all. In retrospect, at any rate, the answer would appear to be in the negative. 9. Borrower Performance 9.01 The performance of the Borrower was poor because of: - 12 - (i) inadequate financial support from the Government for its cash needs and the project; (ii) frequent changes in the top management of CNR; and (iii) institutional weaknesses in the management of CNR particularly in dealing with the labor unione and in failing to carry out reforms agreed with the Bank. During the years 1982 to 1987, in the space of five years, the General Manager of the CNR was changed five times, often with accompanying changes in senior management. The most important results of these changes were: (i) lack of discipline in the operations of CNR in general, and poor coordination in the work of the different departments in particular; and (ii) serious delays in project implementation and the procurement of Bank- financed goods and services. In fact, the managers of CNR were engaged full-time in finding funds for the payroll and routine expenditures of CNR rather than in implementing the project and introducing the institutional reforms agreed with the Bank and the Colombian Government. 10. Project Relationship 10.01 Review of project files and mission reports indicates that whereas the relationship between the Bank and CNR was a close one, the Government did not appear to have a clear strategy not only in that it did not honor the commitments made by it for the provision of funds for carrying out CNR's operations and the project, but also failed to ensure that CNR had a reasonably co mpetent and stable management at a time when it was critical for it to have one. 11. Consultants . 11.01 Among the consulting assignments carried out under this project two were of relevance: (i) a study of financial and accounting systems and (ii) the role of the railway and its future. Both the studies were fairly competently done. The former did basic work in connection with the reorganization of the financial and accounting systems, including compilation of manuals for the guidance of staff. Some of the recommendations of this study have been implemented, but much remains to be done as indicated in the auditors' reports repeatedly. The study for the role of the railway made an in-depth review of the role of CNR in the Colombian context, and discussed the various scenarios and the ways and means to make this role more effective. During the final stages, a team of four international specialists in railway administration joined in the task and recommended that as there was no future for the railway in its present form it should be liquidated and reformulated with a new structure and relationship with the Government. 11.02 Following the consultants' review of the role of the railway and the termination of the Bank project in 1987, the Colombian Government proceeded to take legal action to liquidate CN., retired large numbers of staff, and formed two organizations: (i) FERROVIA, a state enterprise under MOPT for the maintenance and rehabilitation of railway infrastructure; and (ii) Sociedad de Transporte Ferroviario (STF), a government subsidiary with 51Z state ownership, for rail operations, on a - 13 - commercial basis. A third entity was created to manage a benefit fund for taking care of the retirees and laid-off staff. These three bodies have been charged with the responsibility of completing the transition by 1991. 11.03 A review of all the studies conducted during the implementation of the project, including the work done "in-house" by CNR is given in Table 6D (part III). 12. Findings and Lessons Learnt 12.01 From the outset neither the Government nor the railway company realized the need for the railway to adapt to a changed competitive environment. More specifically, road transport in Colombia --as everywhere else-- has improved radically, because of the highway network and technological change in vehicles. The railway no longer has a monopoly, it has to operate commercially in competition with other modes of transport. In addition, the growing competition has eroded the need to regulate rail rates and fares in order to protect users. Thus the technological change requires institutional change. Yet, entrenched interests have resisted the "structural adjustment" needed. 12.02 The Government's attitude to the railway has evolved, although clearly from the lack of success in this project, it would appear that at the time of negotiations the government did not have sufficient experience in the restructuring of major public sector enterprises such as the railways, and therefore tended to underestimate the political social and fiscal pressures that affect such processes. Then again the benefit of Lindsight points to the possible need for more decisive apriori action that might have been required by the Bank from the Government before starting the project, although clearly there are limitations to the extent such action can be taken before project start-up. The Bank was at the time strongly supporting Colombia's macro-economic program which was considered cautious and prudent, at a time when many other Latin American economies were getting deeply involved in unsustainable debt, and pressures to maintain a high level of lending to Colombia were strong. 12.03 The Government reacted very slowly to the rapid deterioration of CNR's operational and financial condition. It continued to partially support the finances of the railway, but with increasing difficulty. Uncertain as to where this support might lead, it did not make the full financial commitment to investments necessary for the railway to be in a strong physical and financial position, to take advantage of the institutional changes that in the end were realized to be essential. Even before the project started, the Government saw the symptoms of the railway's decline, but failed to understand the extent of the drastic remedies needed. A rational objective would have been to assist the railway renew its assets, whilF at the same time looking for a better way of managing their use. In brief, the Government did not attempt to change either CNR's management structure or the institutional arrangement between the Government and the railway. It was only toward the end of the project, after the study for the role of the railway was done, that the Government saw its way towards accomplishing a major shake-up of the railway (para. 11.02). Although there might be differences of opinion as to whether the current Government proposals for the railway system are the most - 14 - appropriate, it is clear that the need for fundamental change has at last been recognized and action has been initiated to reform the railway system, both in regard to its organization and its institutional relationship with the Government. 12.04 The lessons for the Bank are to: (i) (for Colombia) the Bank needs to follow up the Government's actions for reorganization and redefinition of the railway's role as a selective commercial carrier in a competitive transport market. The process of restructuring the railway has already begun (para. 11.02) and the Bank would do well to remain involved in it. (ii) (for other countries as well as Colombia) the Bank should require solid evidence that the Government understands and supports this redefinition of the railway's role, by taking substantial action to make the railway function as a commercial entity to play its appropriate role in the economy of the country; (iii) (for other countries) institutional changes are important, both in the way the railway company is managed and in the way the Government regulates it; (iv) (for other countries) the Government should strive for 'professionalizations and continuity of management in public enterprises in general and in the railways in particular. - 15 - PART II PROJECT REVIEW FROM BORROWER'S PERSPECTIVE CNR has informed the Bank that it has no further comments; see Preface, second paragraph. - 17 - PART III STATISTICAL DATA Table 1: Related Bank Loans1/ Title Loan No. Year of Original Disbursed Comments Aproval Ameunt Railway Construction 08-0 1981 25.0 25.0 Closed 3/81/88 and Rehabilitation (Government) Railroad Extension 119-0 1955 15.9 15.9 3/31/64 (CHR) Atlantic Raifroad 207-0 1960 5.4 5.4 12/31/88 Equipment (cHR) Railway Rehabilitation 848-0 1908 80.0 29.4 Closed 12/81/67 Cancelled 0.631 Fifth Railway 551-0 198 18.8 12.4 Closed 12/31/72 Cancelled 6.87 Sixth Railway 920-0 1978 25.0 25.0 Closed 6/31/80 1/ Source: IBRD Statement of Loans Vol II (EMENA & LAC Regions), July 31, 1989. - 18 - Table 2: PToject Timetable Item D#te Planned Actual Date Identification --- 4/23/79 Preparation 1/23/80 3/4/80 Appraisal 6/15180 10/3/80 Negotiations --- 5/6-8/81 Board Approval --- 12/6/82 Loan Signature 12128/82 Loan Effectiveness --- 6/Z7/83 Loan Closing 12/31/85 12/31/87 Loan Completion 6/30/86 6/30/88 - 19 - Table 3: Estimated and Actual Schedule of Disbursements IBRD Fiscal Year Appraisal Actual Total Actual as Z of and Quarter Estimate Disbursements Appraisal Estimate 1983 I September 1982 2.0 0 0 I: December 1982 6.5 0 0 III March 1983 12.5 0 0 IV June 1983 21.5 0 0 1984 I September 1983 31.5 0 0 II December 1983 47.6 0 0 III March 1984 52.5 0 0 IV June 1984 58.5 0 0 1985 I September 1984 65.3 0 0 II December 1984 69.5 0.1* 0.15 III March 1985 70.5 0.3* 0.4 IV June 1985 71.5 0.5* 0.7 1986 I September 1985 73.5 2.6* 3.5 II December 1985 75.5 4.7* 6.2 III March 1986 76.5 6.9* 9.0 IV June 1986 77.0 8.7* 11.3 1987 I September 1986 10.1* 13.1 II December 1986 14.8 19.2 III March 1987- 18.8 24.4 IV June 1987 19.8 25.7 1988 I September 1987 23.0 29.8 II December 1987 24.8 32.2 III March 1988 27.1 35.2 IV June 1988 28.9 37.5 * The initial disbursements were made from the Special Account of $10.1 million pened in Colombia in 1984. * Figures in US$ million. - 20 - Table 4: Project Implementation GROUP 1 APPRAISAL ESTIMATE ACTU7AL Track rehabiliLation 426 kms 279 kms Railevitches 200 200 Track maintenance equipment various partially procured 4 new locomotives 4 4 Rehabilitation of locos 139 34 Spare parts procurement partially done Locomotive scrapping program not done New gondola care 100 not procured Rehabilitation of wagons 1410 1030 Machinery & equipment for workshops various not done Forklift trenches 16 not procured Cranes 6 Freight handling equipment various Signalling and tele- Various partially procured communication equipment Studies See Statement 6D Training of professional and partially done technical staff of CNR ROUP II Track Rehabilitation 83 kms not done New locos and spares & not purchased New gondolas and spares 100 Signalling equipment Level crossing barriers Z50 and warning panels Rehabilitation of partially procured telecommunications network miscellaneous - 21 - Table 5: Project Costs and Financing A. Comparison Between Appraisal Estimates and Actual Costs --------------s $Million------------- Estimates Costs Actual Costs Actuale as X of Estimates Local Foreign Total Local Foreign Total Local Foreign Total 1. Track 88.8 30.3 66.1 11.0 18.5 24.5 at 44 37 2. Motive Power 2.4 84.2 36.6 2.3 25.6 23.6 183 70 78 3. Rolling Stock 6.6 15.0 20.6 4.7 8.9 6.6 64 26 42 4. Workshops 0.9 1.6 2.5 -- 0.5 0.5 1 23 19 S. Operations 0.2 2.9 8.1 - 3.03 0.08 0 1 1 6. Signals a Telecom 0. 7 1 7.2 0.2 ).4 0.6 175 6 8 7. Technical Assltance 1.$ 2.2 8.7 0.7 1 4 2.0 47 57 S3 8. Conti"gencies 19.9 17.0 36.9 - - - - - 9. TOTAL 66.4 110.3 176.7 19.4 48.4 ed.8 29 41 37 B. Pr21ect Financing Source Ptanned Actual IBRD 77.0 28.9 Cofinancing institutions 8.8 8.8 UNDP 1.0 -- CPR and Government 89.9 27.1 TOTAL 176.7 64.8 Table 6: Projezt Results A. Principal Indicators Principal indicators of Actual Performance in comparison with Appraisal Targets I Pla of Action APPRAISAL EVISE AC1TUAL CaTS O PUFVRMACE INDICATRS TARGET TARE1 1.1 Availability of diesel locomotives 80.0 66.0 84.9 Non-Compliance as of I of total fleet 1.2 Availability of Freight cars as I of 87.0 75.0 54.9 Non-Compliance total fleet 1.8 Average not load per train (tons) 809.0 806.0 348.0 Net load of trains and cars seat up only because fewer Average not load per car (tons) 83.0 82.8 88.0 cars were available. 1.4 Wagon Turn-around time (days) 11.0 16.0 22.0 Wagon turr-around time increased instead of reducing2 1.5.1 Wooden tie replacement 200,000.0 100,000.0 18,000.0 Non-Contliance per year per year per year 1.5.2 Concrete tie replacement 30,000.0 80,000.0 6,500.0 Nm-Compliance per year per year per year 1.6 Track Rekabilitation (kne) 160.0 km 180.0 kme 60.0 km Only partial rehabilitation of per year per year per year 60 km per year was done. 1.7 Average staff 11,035.0 8,000.0 7,784.0 Although staff reductions were substantial, salary, training and other program were not implemeated. 1.8 Working Ratio before normalization 36.0 188.0 179.0 Non-Compliance after normalization 82.0 .0 . N p APPRAISAL REVISED ACiTUL CGINENTS ON PMRFAMC DICATORS TARGET TARGET 1.9 Operating Ratio Before nermalization 94.0 140.0 181.0 den-Compliance After normalization 90.0 -- r:10 Freigh Tariff Increase (in real terms) 105-55 305-55 Complied Altbough tariff increases were made as foreseen, financial position did not improve as traffic declined and operations deteriorated. 1.11 Implementation of Staff Improvement Jan/84 JaS/7 Not-complied Plan 1.12 Coimencement of Training Plan Jan/84 Mar/97 Not-complied 1.13 Completion of Actuarial Studies Dec/84 Jul/906 Jan/87 1.14 Implementation of Pension Plan Dec/86 Dec/87 Partially compiled 1.16 Implementation of Disciplinary Actions Jan/84 Apr/87 Not-complied 1.17 Revaluation and Updated Depreciation of fiscal assets Dec/96 Jun/S? Not-complied a 1. Revised targets were agreed with the Borrower after the Mid-Term Review in the Amendment dated July 18, 19M6. 2. Increase in wagon turn-around time is a clear indicator of deteriorating train operatloes. sg/1012/89 - 24 - Table 6: Project Results B. Economic Impact Component Cost Weight ERR US ($m) % Track 24.5 38 5 Locos/Spares 28.6 44 19 Wagon/Spares 8.6 13 17 Others 3.1 5 (TA etc.) TOTAL 64.8 100 12 Table 6: Project Results Ci. Actual and- Pro ect-ed Income Statements (FT-gwres i~Bm"i C984 lCllom7~e)¯ 1981 1982 1983 1984 198 1986 1967 Appr. Actuai Appr. Actual Appr. Actual Appr. Act.al Appr. Actual Appr. Actua, 0cratin Revenucs röig 1,716 1,666 2,206 1,26m 2,794 1,472 3,841 1,269 4,623 1,331 6,410 1,326 1,136 Paeseger 117 232 109 1 108 209 99 196 8 224 8 186 189 Other 136 222 156 165 10 265 210 220 240 490 270 296 218 Total Operating Ravs. 1,9m8 2,000 270 1,101 1¯,rw V ',-4 41m0 iEEf -I r~51w E-7m3 1-mSE 1- 2,646 2,650 2,738 2,997 2,833 2,726 2,906 2,766 2,944 2,506 2,974 2,440 2,468 Fual 238 203 06 181 352 218 440 222 481 224 663 26 139 aterial.. 356 289 700 213 750 267 800 363 820 289 840 248 249 Other 210 221 462 233 479 217 S0 226 627 211 660 31 246 Working Costa E-m1 1~~11 1,-IR 1-88 1-111 E 1~111 1~187 J-771 1~1a -,~117 1~v11 r1rI Depreciatien 112 104 , 185 79 600 66 600 57 610 60 .616 6 80 Operating Costa 17111 17~87 1i7 1 1 r. m -KM 7mT r-N 1E'81 1851m 1-1 Oparating Pröfit/(Locs) (1,693) (1,468) (1,861) (2,087) (1,832) (1,640) (1,004) (1,939) ( 831) (1,216) 312 (1,463) (1,619) Non Operating Reves 66 -- 60 -- 60 -- 60 - 80 -- 80 -- Nn ratin En se 1,234 1,384 1,262 1,646 1,276 1,714 1,04 1,974 1,834 1,937 1,68 1,977 1,977 Cesantlas Paid 400 423 423 421 431 38 440 898 449 2m6 458 ..224 201 Interest 900 6836 283 886 334 1 040 446 842 488 823 446 485 80 Total Non Operating Exp. r-m1 17111 1-81E 17511 1-5m ,w r-~ 7111 f18m 1-.=T 1"1 1-171 -Y11 51 Net lacem./(Loss) (4,072) (3,980) (3,739) (4,939) (3,812) (4,862) (3,13) (6,148) (2,522) (3,770) (1,890) (4,029) (4,502) Noraliation 810 301 387 646 383 -- 34 -- 271 -- 264 Personneol ~Tr~mployod 10,328 10,166 10,63 9,467 10,846 3,88 11,016 8,589 11,060 8,310 11,060 8,097 N.A. Peansloer* 11,620 11,821 12,120 12,356 12,620 18,068 18,170 13,89 18,720 19,386 14,270 13,774 13,844 Traf f ic Nh-non-t (mill ion) 700 626 900 663 1,06 842 1,296 728 1,417 778 1,668 894 62 Pass-Km (bil Ion) a00 28a 290 166 260 176 210 190 170 22 180 182 177 SigIficant Ration rkimg Rat-. 176 167 170 226 143 178 112 212 8 157 86 179 201 i.rat14mg RaLe 181 178 176 230 19 179 124 216 107 19 94 181 11 Averag Revecus per Toa-I (Cl 8) 2.81 2.48 2.46 2.27 2.70 2.29 2.97 1.75 8.5 1.71 8.26 1.91 2.0 Avbragm Ccst per EpIDy** (Cel 3 Mitl&«) 0.28 0.28 0.28 0.32 0.28 0.90 0.28 0.82 0.8 0.30 0.27 0.80 - Table 6: Project Results C2: Actual and Projected Sources and Application of Funds (Figuree Ia aid 1e1 CoIS Miliem) 1981 1982 1983 1984 1986 1966 1967 n.a. Appr. Actual Appr Actual AEr. Actual Ager. Actual Amr Actual Actuel Sources of Funds CNR Internally Generated Funds inventories 68 - 44 19 52 10 17 s 6 55 a.S. CNR$s staff input for the project 157 - 1a 49 170 88 30 - IBn - UNDP Grant For T.A. 28 - 28 - - - - Subtotal 225 - 206 68 250 48 197 8 194 5 Loans IRD - 2090-CO 289 - 1976 - 904 9 827 190 - 977 Re,eg. Existing Debts - - 51 - - - - - 240 Subtotal 289 - 2026 - 964 9 827 190 - 1117 Government Contributions Already Approved Pensions 1251 1634 1275 1715 1804 1929 1884 1987 3s8 1677 Fondo Viol - - - 1678 - 1742 - 1796 - 1t? Debt Service 1843 810 750 - 645 1962 644 - 551 - Operating Deficit 1297 645 890 138 110 072 - 286 - 1753 Investments 949 244 1811 - 943 - 559 - - - Rehab. Permanent Way - 400 - - - - - - Cesantias 423 - 431 - 440 - 449 - 45 - Subtotal 62683 783 4857 3529 8442 624 2966 8970 2377 5447 a Total Sources 5777 1733 6888 3697 4676 6876 8510 4243 2571 6419 a Additional Financial Assistance o A Deficit of the Year 246 2604 - 1252 - 906 - 251 - 853 Cash Deficit Previous Years - 1365 - 1086 - 1987 - 2158 - 45 Total Accumulated Deficit 246 8969 - 2837 - 2193 - 2414 - 1298 Totam mare sams maa amWs m022 7a9- Total Sources Equal Total Needs 6022 7701 6888 5984 4676 9269 8510 6657 2671 7912 C2: Actual and Projected Sources and Application Funds (Figurep Ia mid 1981 C*IS Nillite) 1981 1962 1963 1984 139865 1986 1987 n. a. Appr Actual Apr Actual Appr. Actual Apr. Actual Appr Actual Actual Application of Funds a.*. Operations Operating (Prof it)/Loss Before Normalization 1661 2067 1632 1540 1004 1989 831 1215 (321) 1468 Less: Normalization 867 - 888 - 84 * 271 . - 265 - Non-Operating Revenues 60 - 60 - 60 - s0 - 0- Depreclatios 136 79 500 66 500 57 510 50 515 as Plus: Not Paying traffic - 49 - 87 - 75 - 67 - 48 Indemnity Payments - - - 138 - 43 - 103 - - Subtotal 1299 2067 89 1694 110 2000 (510) 385 (1161) 1475 Investments Local 745 235 947 120 968 121 662 129 se3 96 Foreign 960 336 2598 126 1219 70 711 169 322 1126 Subtotal 1706 571 8543 248 2177 191 1598 818 115 1222 Debt Service Loag-Term Foreign - Principal 432 481 291 284 113 155 97 147 207 897 - Interest 181 261 264 132 411 1s? 448 232 435 419 Local - Principal 61 - 114 34 87 61 79 - 63 - - laterest 17 - .60 65 34 Ba 20 - 10 - Short-Term Local - Principal 58 66 11 - - 1893 - 143 - 269 - Interest 65 814 - 312 - 340 - 90 - 48 Subtotal 1343 1742 750 827 646 2724 644 619 721 1131 to 0 a Social Benefits Peesise 1252 1546 1276 1714 1304 1974 1314 1937 136 1577 Cesentias 423 421 431 8s$ 440 393 449 296 456 224 Subtotal 1675 1966 1706 2062 1744 2367 173 2232 126 2101 Past Accumulated Debts - 1365 - 1085 - 197 - 2153 - 1983 Z== as= 29== Mam =us UU sm mMZ Total Applications 6022 7701 6888 6934 4676 9269 3510 8857 2571 7912 - 28 - Table 6: Project Results D. Actual and Projected Government Contributions (in mid-1981 Col$ million) Appraisal Forecast Actual 1. Already Approved qf 1982 5,263 3,733 1983 4,657 3,529 1984 3,442 6.324 1985 2,986 3,970 1986 2,377 5,447 Subtotal 18,725 23,003 2. Additional Required 1982 245 3,969 1983 - 1,252 1984 906 1985 261 1986 858 245 7,246 Total (1 + 2) 18,970 30,245 Total in US$ equivalent 1/ 345 550 (millions) 1/ Average exchange rate assumed for 1981 - Cc1 35 U USS 1. - 29 - Table 6: Project Results E. Studies A. Project Studies Purpose as defined at Appraisal Status IMact of Study Bogota-Buenaventura line-economic feasibility Done No Action Saboya-Carare Bypass-line capacity study Done Signal and Telecom System assessment study Done Not Implemented Tariff structure Done Implemented Cost Accounting, Financial Planning Budgeting and Statistical reporting Done Inadequately Imcompleted Transport Plan for CNR Done Not Implemented Preparation of Traffic demand model Done Not Implemented Study for warp of reducing cost (Workshops rationalization and way and works) Done Not Implemented Acturial studies Done Action Plan to rationalize Pacific Division Partially Done Not Implemented B. Studies decided durinm Project Implementation Role and Future of Railway Done These two studies ha Formulation of strategies for relationship formed the basis for between Government and Railways restructuring of the Railway System. - 30 - 7. STAWUS OF COVEMANTS Table 7 Page 1 of 4 Covenant Subect Status Guarantee Agreement See. 2.02 Provision of funds for the Inadequate compliance to non-compliance. operations of CNR and for implementing the project. Se 8.02 (a) Guarantor to take all steps to Inadequate compliance, particularly !n enable borrower to perform the regard to provision of funds and obligations In Secs. 4.00 and 4.06 competent/stable management for CNR. of Loan Agreement and to carry out the Program of Action. Loan Agreement 3.01 (a)A(b) The Borrower shall carry out the Severe delays in project implementation project with due dlligence and because of inefficiencies in project efficiency, and shall take all management and shortage of counterpart actions as shall be necessary on its funds. Not compiled. part to carry out the Program of Action and the Investment Plan. 3.01 (c) Agreement with customers before Line not rehabilitated because of lack of rehabilitation of La Caro-Belenuito. funds. Not compiled. 3.01 (d) An arrangement with coal shippers Prodeco requested rail capacity from the before procurement of gondolas. Borrower for coal export of 300,000 ton/year from Lenguezeque to Sta. Marts. In addition, there was new coal traffic of 60,000 tons/year from Zipaquire to Capulco that started in 1988. 8.01 (e)(i) Arrangements with producers of The Borrower secured traffic for about coffee, cotton, rice and fertilizer 100,000 tons/year of coffee, fertilizers prior to rehabilitating Mexico- cotton and rice on that line. Buenos Aires line. 3.01 (*)(1i) An arrangement with customers and The rehabilitation of this line was economic study before rehobilitating econ',milsly justified based on the coal La Caro-Chiquinquire. transoort, however works were not undertaken. 3.01(f) Test of Group I locomotives for one Four locomotives under group I were year before Group II locomotives are tested, but later damaged by bought. accidents/derailmentse. - 31 7. STArU OF COVOMTS Table 7 Page 2 of 4 Covenant SubJ*ct Status 8.01(g) Justification of need before The potential coal traffic for gondolas preure&nt of Group II gondolas. of Group II justified thel acquisition. However, the Borrower would first require to rehabilitate the line and locomotives under Group I of the project, which was not done. 8.01 Employment of mechanical engineering A consultant was hired, and his report consultants to assist the Borrower was used by the Borrower In the in bid evaluation for Group I and II locomotive bid evaluation. locomotives. 8.08 Employment of diesel-electrical Consultants were hired in March 1965. locomotive consultants to assist the Borrower in locomotive rehabilitation and scrapping program. 8.04 Employment of consultants to asalst Consultents were hired and started to in the carrying out of the studies work with the Borrower in February-March under Part 0 and training under Part 1985. A training program (Part H) was H. prepared in 1984, but implementation did not start because of the Borrower's lack of funds. 3.05(s) Give the Bank the opportunity to Study was not completed by consultants. reviow and comment on terms of reference for the two-phase study of the Bogota-"uenaventure connection. 3.05(b) If the Bogote-Bueneventure study Not complled. shows that i rail connection Ia not justifled, the Borrower should, Yithin 6 months, prepare a program of action to eliminate losses on the Pacific network. 3.00 Preparation and start of a training The training program implementation was program and general improvement of homered by lack of funds. the quality staff by March let, 1917. 8.07 In carrying out Part 6(2) of the Port (a) was fulfilled In 1915, and Part project (rehabilitation of 139 (b) was fulfilled with Bank financing In locomotives), the Borrower shall 19". place order for the acquisition of: (a) e leat 50 of the required spare parts by March 81, 1994; and (h) the remaining 502 of such parts by December 31, 1996. - 32 - 7. STATUS OF COV94ANTS Table 7 Page 3 of 4 Covenant Sub ect Status a.08(a) Mid-term review by March 81, 1988. The mid-t*rn review took place during April 8-20, 1905. 8.00(b) Second in-depth review by June 10, Bank Mission/Review recommended closing 1997. of project because of poor performance. 3.09(s) He Group II investments unless the Did not arise. Bank receives evidence that such commitments are economically and technically justified. 3.09(b) No commitments in excess of Did not arise. $42,000.000 including Group II investments unless second in-depth review shows satisfactory progress of project. 3.18 (a) Establish and maintain Project Partisl compilance; accounts established (b)ond(c) Account in pesos for local but deposits into it were insufficient to expenditures of the project. cover required expenditures. 4.06(a) The Borrower shall, by March 80, Substantial reductions were made in staff 1987 take all such action as shall members but salary structure reform and be feasible and necessary to improve recruiting policy reviews not done du to the quality of its staff (prepare lack of Interest on the Government's and and commence a specific manpower CHR' parta plan, carry out a study of its salary structure and recruiting policy, review its salary structure). 4.06(b) ImplementotJon of Improved The Borrower conducted seeminers for supervision and disciplinary actions managerial and superviTory staff in order by April 1st, 1987. to focus on the rehabilitation of the railway, including stricter disciplinary measures already being implemented, but results achieved not perceptible. 4.07 Reduction in processing time for Several actions were taken by CNR; (s)end(b) procurement documents and however, the procurement process remained appointment of staff members inefficient, and procurement delays responsible for procurement by endemic. December 81, 1986. - 33- 7. STATU OF COVWAMTS Table 7 Page 4 of 4 Covenant Subj ct Status 4.03 Appointment of competent and Team not appointed. experienced teem to he costing section of the Borrower by Sept. 30, 1964. 4.09(s) The Borrower shell take all such Service deteriorated considerably; action to improve service on the operational losses increased. railways and to reduce or *liminate operational losse. 4.09(b) Introduction of a system for the Neither was a satisfactory system calculation of normalization developed, nor did the Government make payments on the passenger service either adequate or timely normalization losses to be paid by the Government payments. starting Sept. 30, 1984. 6.02(s) Audit of accounts, financial External auditors were appointed. and(b) statements and Special Account. However, there were considerable delays in the work and the submission of reports and auditors refrained from giving an opinion because of numerous issues requiring attention. 6.04 Study and change of the structure Studies started and completed late. and level of the Borrower's tariffs by June 1986. 6.06(a) Tariffs to provide the Borrower with Despite tariff increrses, ratios revenue sufficient to meet working continued to be higher than forecast and operating ratios of Program of because of less then expected traffic *nd Action. high operating expenses. 6.05(b) By January 1st, 1966 and every Tariffs were increased s recommended by semester thereafter increase tariffs the Bank. by 9% In real terms. 5.07(a) Preparation of inventory of fixed Invvntory of fixed assets was not assets by December 31, 1986. provered. 5.07(b) Revaluation of fixed assets by June Not done. 30, 1987 and every two years thereafter. 6.08(s) Actuarial studies completed by July Studies completed six months late. 31, 1986. 6.08(6) Penskon scheme by December 31, 1987. Not done. 0. USE OF BANK RESOURCES - MISSION DATA MONTH/ NUMBER OF DAYS IN SPECIALIZATION PEAFAMANCE RATEM/ SIACE OF PROJECT CYCLE YEAR PERSONS FIELD REPRESENTEDe/ STATUSb/ TYPES OF PRO EMS Through Appraisal Project identification April 1t" 6 2 I(3), F, EC Project preparation Jan-Jun 1ow 1 7 E, F, EC Pro-appraisal Aug. 1980 a -14 E (2), F Appraisal Sept. 1980 8 21 E, F, EC (Negotiations) May 1933 a 7 by Div. Chief (Proj), Loe Officer, Div. Chief (Ceentry Proj) Appraisal to Board Approval Post appraisal sission Dec. 1961 2 6 E, F (Board approval) Feb. 1962 I Board Approval to Effectivemess * First supervision March 1982 a 4 E, F, EC 1/2 Supervision May 1962 E . E, F, EC 1/2 October 1982 7 E, F, EC 2/8 To expedite stles for lose effectLivenese March 1983 a 5 E, F, EC 1/2 Me flamcial **mtaest by Govt. (Effectiveness) June 1983 Ir Il@ 13 MONTH/ NUMBER OF DAYS IN SPECIALIZATION PERFORMANCE RATING/ STACE OF PROJECT CYCLE YEAR PERSONS FIELD REPRESENTEDeY- STATUSb . TYPES OF PROBLEMS Supervision Sept. 1e03 4 7 E, F(2), EC 1/2 Prej. stert* *lowly become of leedequate feed Oct. 19 1 4 E U * Jan. 1984 a 5 E, F, EC 1/2 6 May 194 & 4 E, F. EC 1/2 a * July 1984 1 5 ED Review of trailig component Sept. 1984 2 6 E. F 2/3 Serloes lok of funds for proj. Implemsntatie Nov. 1984 1 2 F 2/8 Feeds availability April 16 a 10 E, F, EC 8/4 Lack of Ovt./rrower commitment to project June 1985 2 6 E. E Mission discusses MTR with Government May 1966 1 2 E July 1986 1 2 E 5 March 1987 2 a E, F 4 No progrems all aroemd. Project closing recomes. Dec. 1907 8 0 E, F., EC 4 Final mislese lea closing ./ Engineer (E). Financial Analyst (F), Economist (Ec), Education Expert (Ed) 6/ Status/Performance Rating: No problem to minor problems (1). moderate problems (2). major problems (8), grave problems (4) SUMMARY OF MISSIONS: Through appraisal: 167 mandays Appraisal to Board approval: 10 Board approval to effectiveness: 86 Supervision 167 U 0 Ut1RM, I~ 5 AMERA bA - Sanra Mart 8erranqu Ka '* ° Fundýac n aragena ( c E S AR lake V4AGDALENA Ch,~nMameo/bO Champan F 4 VENEZUELA NOIRTIE . 8A DE CaGoø c SANTANDER Puerto •n , icr Garc.a 'Cadena aCararnang enoo. 0'r ,o.n, Barrancabermeic arare ARAU C A S T A DE R/ ~- Berr~o- Mede i P- r-- z del Bo mb .a a R;,o PP VATE Biencc o N E Alejandro Lp Dorad ýaiga, .0PE M'r ,'. ýbuncC SA A R O le ii A 5 A N A R E a z 0 ~BOGQTA II Bo I0 a -za bag ' 00 na umb a Yc era Toban 0 Ne-a COLOMBIA NATIONAL RAILROADS A " MAIN LINES onc ---- BRANCH LINES E Dvso SECONDARY LINES LINES CLOSED PROJECTE D LINE nNsc ico 15 20c 25 C RIVERS OØET!EES - - DEPARTMENT BOUNDARIES IECUADOR --- INTERNATIONA L BOUNDARIES