Senegal - Third Railway Project

Document of F I L E COM P Y The World Bank FOR OFFICIAL USE ONLY Report No. P-2174a-SE REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REGIE DES CHEMINS DE FER DU SENEGAL WITH THE GUARANTEE OF THE REPUBLIC OF SENEGAL FOR THE THIRD RAILWAY PROJECT January 24, 1978 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit: CFA Franc (CFAF) US$1.00 = CFAF 245 CFAF 1 million = US$4,080 FISCAL YEAR OF THE RAILWAY July 1 - June 30 SYSTEM OF WEIGHTS AND MEASURES: METRIC 1 meter (m) 2 3.28 feet (ft) 1 square meter (m ) - 10.8 square feet (sq ft) 1 kilometer (km) 2) = 0.62 mile (mi) 1 square kilometer (km = 0.386 square mile (sq mi) 1 metric ton (t) = 2,204 pounds (lb) ABBREVIATIONS AND ACRONYMS BOM - Bureau d'Organisation et Methodes OFERMAT - Office Central des Chemins de Fer d'Outre Mer Service Technique et du Materiel ONCAD - Office National de Cooperation et d'Assistance au Development SONED - Societe Nationale des Etudes de Developpement  FOR OFFICIAL USE ONLY REPUBLIC OF SENEGAL THIRD RAILWAY PROJECT Loan and Project Summary Borrower: Regie des Chemins de Fer du Senegal Guarantor: Republic of Senegal Amount: US$11 million equivalent Terms: 20 years including 5 years of grace, with interest at 7.45% p.a. Project Description: The focus of the proposed project is a large program of action which is aimed at improving operational and financial perfor- mance, and which includes measures to strengthen the Railway's organization, management, and staff training. To complement the action program, the project also provides for some impor- tant physical investments designed to improve productivity. The main components are: (i) track renewal (about 60 km); (ii) procurement of track maintenance equipment and materials, spare parts for motive power and rolling stock, and workshop equipment; (iii) extension and rehabilitation works at the Dakar-Bel Air marshalling yard; (iv) a three-year training program for selected middle- and high-level managers and about 300 skilled laborers and low-level supervisors annually; and (v) consulting services for studies. The project will yield direct benefits mainly from rehabilita- tion of existing infrastructure and rolling stock. If the proposed project were not carried out as planned, there would inevitably be a severe deterioration of railway capacity, and international traffic to landlocked Mali one of the poorest countries in the world, as well as domestic phosphate traffic, would be increasingly diverted to more expensive alternate routes. An additional risk would be the very negative effects of interrupting a major management and training program set in motion during project preparation. The main concern for physical implementation of the project is the possible shortfall of local funds; however, the project is based on very conserva- tive traffic assumptions, and it is likely that the Railway will achieve higher cash revenues than forecast. In any event, the Government has agreed to make available whatever funds are needed to cover any shortages in funds. 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.  Estimated Project Cost: The estimated cost of the proposed project is US$14.3 million equivalent (exclusive of taxes and duties from which the project is exempt), of which foreign costs comprise US$9.3 mil- lion (about 65%). A summary table of cost estimates is shown below: Local Foreign Total -----US$ Million------ Track renewal (60 km) 2.87 1.53 4.40 Track maintenance equipment and material - 1.65 1.65 Spare parts for motive power and rolling stock, and workshop equipment - 2.48 2.48 Improvements in Dakar area 0.41 0.63 1.04 Training 0.41 1.29 1.70 Consulting Services - 0.54 0.54 TOTAL 3.69 8.12 11.81 Contingencies Physical (10% on local track works) 0.33 - 0.33 Prices (Average 15%) 1.01 1.11 2.12 GRAND TOTAL 5.03 9.23 14.26 Financing Plan: The proposed Loan of US$11 million will finance 100% of the estimated foreign exchange component of the project and 35% of local costs, equivalent to about 77% of total costs net of taxes and duties. The Railway will finance the remaining local costs estimated at US$3.26 million equiva- lent. Estimated Disbursements: FY79 FY80 FY81 FY82 ------(US$ millions)----- Annual 5.96 3.16 1.24 0.64 Cumulative 5.96 9.12 10.36 11.00 Rate of Return: The project is expected to yield an overall economic return of 22%. Staff Appraisal Report: Report No. 1691a-SE dated January 23, 1978.  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REGIE DES CHEMINS DE FER DU SENEGAL WITH THE GUARANTEE OF THE REPUBLIC OF SENEGAL FOR THE THIRD RAILWAY PROJECT 1. I submit the following report and recommendation on a proposed Loan to the Regie des Chemins de Fer du Senegal with the guarantee of the Republic of Senegal for the equivalent of US$11 million to help finance the Third Railway Project. The Loan would have a term of 20 years including 5 years of grace, with interest at 7.45% percent per annum. PART I: THE ECONOMY* 2. A report entitled "The Economy of Senegal" (212-SE) was distributed to the Executive Directors on September 10, 1973. Since then, a series of preparatory sector missions and an October 1976 basic economic mission visited Senegal to update the macroeconomic data base and to review the country's development strategy. The following paragraphs reflect the findings of these missions, whose conclusions will be included in a basic economic report now being prepared. Updated country data appear in Annex I. Economic Structure and Past Developments 3. Senegal is situated at the extreme western part of the African con- tinent. In the interior, the mainstay of the economy is millet cultivation and nomadic cattle-raising for domestic consumption, and groundnut cultiva- tion for exports. Soils are generally poor, and variations in rainfall periodically cause severe food shortages in the months between the sowing and harvesting of the next crop. The large river basins -- some of them fed in the tropical rain zone -- have so far been exploited only marginally. Land distribution is fairly even. In the western part of the country arable land is becoming scarce, but in the extreme south-east some good land is still available. The modern sector of the economy is concentrated in Dakar, a well organized city of about 1 million inhabitants. The economic base of Dakar consists of excellent port facilities, an industry which is turning gradually toward exports, and a small but fast-growing tourist sector. Senegal's per capita GNP for 1976 was estimated at $390, but average in- come in Dakar is roughly five times as high as in the countryside. * The text of this Section is substantially unchanged from the President's Report for the Para-Public Sector Technical Assistance Project which was distributed to the Executive Directors on January 6, 1978.  -2- 4. During the 1960s, the Senegalese economy experienced virtual stag- nation as real output increased less rapidly than population, and per capita GNP declined. Two factors were responsible for this situation. First, with independence, Senegal lost its privileged position as the center of French West Africa, and therefore had to adjust to reduced economic, administrative and political circumstances. Secondly, in the latter part of the decade, groundnut production fell due to unfavorable weather and declining export prices. In the 1970s, a new stage in Senegal's development set in, charac- terized by a higher rate of private and public investment. Private invest- ments, which had hovered around 4 percent of GDP in the late 1960s, rose to 7.5 percent during the period 1970-75. Until 1972, public investments stayed at around 5.5 percent of GDP, but increased to 7 percent in during the 1973-75 period. 5. While the 1970's saw a rise in the rate of investment, output and incomes were depressed in 1972 and 1973 by the Sahel's most severe drought in over a century, which brought a decline in real national income. After 1973, when weather conditions improved and purchasing power of the rural population was restored, both agricultural and industrial production shot up. The long-standing Government program to modernize rainfed agriculture proved to be very successful in years with better rains. In 1975/76 the groundnut crop reached a historical record of 1.45 million tons (more than double the average for the 1968-73 period), followed by a crop of 1.1 million tons in 1976/77, but the 1977/78 crop was again below average because of bad rainfall; industry grew by about 10 percent per year between 1973 and 1975. Total production increased in real terms by 4 percent in 1974, about 10 percent in 1975, and 6 percent in 1976, but will stagnate in the following twiD years due to less favorable crops. 6. Strong price increases for Senegal's major exports helped to bring about the economic recovery. The prices of both groundnuts and phosphates quadrupled over the period 1969-74, providing strong incentives to production. However, since prices of imported oil and food also increased at high rates, the gains in real income from the rise in export prices were limited. More- over, in 1975 international prices for Senegal's exports again began to fall, almost offsetting the growth in real output. These wide international price fluctuations had serious consequences on domestic prices, public finance, and balance of payments. Public Finance and Balance of Payments 7. The Government responded with flexibility in the adoption of eco- nomic policies. In 1974, the Government initially tried to maintain stable domestic prices in the face of the skyrocketing food import prices. By end-1974, it became clear that the costs of this policy were becoming ex- cessive and that changes would need to be made, even though transfers to the public sector resulting from improved groundnut production and prices were much higher than in the preceding year. To reduce subsidies and put public finances on a sounder footing, the Government raised the prices for rice, sugar, and groundnut oil by 40 to 90 percent. To compensate for the rapid  -3- increase in basic food prices, Government salaries were raised on average by 16 percent, with actual increases ranging from 60 percent for the lower grades to 3 percent for the higher ones. The minimum wage was increased by 47 per- cent, thus raising the entire wage scale of the private sector. Average consumer prices rose by some 28 percent in six months' time, but the Govern- ment managed to stabilize prices almost completely thereafter. At the end of 1974, the Government also increased producer prices for groundnuts to bring them closer to world prices which were at that time particularly high. The cost to the Treasury of this latter step was expected to be compensated in large part by additional revenues from the profitable phosphate mine in which the Government increased its participation while levying an 80 percent tax on the excess profits accruing from the quadrupling of the export prices of phosphates in 1972/73. In 1974 and 1975, Government revenues from phosphates amounted to roughly $45 million a year. 8. These steps led to an increase in public savings from a yearly average of US$27 million during fiscal years 1970 through 1973, to US$46 million during fiscal years 1974 through 1976. The higher level of public savings was doubtless an important factor in stimulating the Government to increase its expenditure on public investments from a yearly average of US$24 million to US$56 million during the same two periods. In addition to the rise in investment, purchases of equity and lending to domestic enterprises by the Government increased from an annual average of US$5 million to US$62 million in FY74, $35 million in FY75, and about US$32 million in 1976, mainly because of the participation in the phosphate mine and the acquisition of two foreign-owned public utility companies. The combined capital outlays of the Government were thus substantially in excess of public savings, and were financed in large part through foreign bank loans. As a consequence, foreign debt service carried by the Central Government increased from $8 million in FY73 to $38 million in fiscal year 1976, representing about 10 percent of Central Government revenues. 9. The balance of payments came under heavy pressure in 1973 because of low groundnut exports and increasing imports of foodstuffs and equipment goods, and net foreign reserves of the country fell to minus US$15 million. In the following years the deficit on current transactions was reduced, but the outflows of private capital related to the acquisition of foreign enter- prises continued, and net foreign reserves reached a level of minus US$48 million at the end of 1975. This was financed by US$30 million in IMF oil facilities, and the rest by increasing indebtedness of the mostly foreign- owned commercial banks with their parent companies. Senegal's membership in the West African Monetary Union, the European Economic Communities (EEC) Stabex Fund, and available IMF facilities, lessens the risks usually asso- ciated with such low foreign reserves. 10. During 1976, the balance of payments remained under pressure. The state marketing board purchased the large groundnut crop from the farmers at the favorable prices established in 1974, injecting massive purchasing power into the economy, while the Government continued expansive monetary and budgetary policies. This substantially increased the demand for imports. However, export revenues stagnated since groundnut prices were 45 percent  - 4 - below the 1974 peak, and phosphate prices were down by 40 percent. Price declines of the same order of magnitude took place in some of Senegal's food imports, but the net effect on the terms of trade was heavily negative. The year 1977 did not bring any substantial improvement in the balance of payments situation, although the groundnut crop was again good. In August 1977 net foreign assets were down to minus $62 million, and with a 1977/78 groundnut harvest about one-third below average, use of the existing safeguard mechanisms is likely this year. Senegal has already been declared eligible for drawings on the IMF Trust Fund of up to $7.7 million. 11. The drop in export prices also created a considerable problem for public finance. The losses on groundnut transactions in the stabilization fund were, to a large extent, compensated by gains on the domestic sales of rice and sugar imports, but budgeted revenues from excess profits on phosphate operations did not materialize, creating unexpected deficits during 1976/77. Moreover, the decline of phosphate revenues diminished Government's ability to cover its financial deficits on the Eurodollar market. In January 1977, the Government decided to adjust its fiscal policies. It postponed all new cur- rent and capital expenditure programs, increased duties on imports from the EEC, and is considering an increase in the sales tax and taxes on the export of groundnut products. It also abolished subsidies on wheat flour, and reduced fertilizer subsidies by 50 percent. The whole package should improve Government finances by $37 million on an annual basis which will, to a large extent, compensate for the loss of phosphate revenues. Finally, in 1977 there was a recovery of groundnut prices which eliminated the losses on groundnut transactions in the stabilization fund. One can conclude that the Government has successfully restored a balance in its current operation. Prospects and Creditworlhiness 12. The Government's long-range development strategy remains based on promotion of agriculture and export-oriented activities. The agricul- tural program calls for development of areas less affected by rainfall fluctuations (Casamance and Eastern Senegal) where cash crops other than groundnuts can be grown. Irrigated cereal production is being developed in the arid northern part of the country along the Senegal River. This policy will make the country less dependent on the uncertainties of its climate and world market prices; but since the majority of the rural poor are involved in groundnut farming, the Government is continuing its efforts to promote animal traction, treated seeds, fertilizer use, and crop rotation to raise the productivity of farmers. The Government also aims at long-term improvement of the balance of payments mainly through modest expansion of phosphate mining capacity, promotion of local cereal production to reduce the heavy burden of food imports, and development of light export industries and of tourism. The Government is actively preparing projects in these fields, but because costs are relatively high in mining and other export sectors, progress in developing efficient investments may be slow, and a cautious view of the long-term outlook is warranted. In particular, the expansion of phosphate mining is uncertain owing to capacity increases in other parts of the world and falling world market prices. With chances for export growth limited, and substitution of locally produced cereals for imports critically dependent on very large investments in irrigation, the trade deficit may stay  high, even if the growth objective is cut back to about 4 percent a year, as compared to an official objective of 5.8 percent. Foreign capital aid and some commercial loans are expected to be available up to a potential of $200 million a year during the 1977/78-1980/81 Plan period in order to finance a widening gap in the balance of payments. 13. In the medium term, the Government will need a relatively large proportion of foreign financing for its public investment program. The share of the public sector in total investments will go up, partly because of the critical dependence of the economy on the acceleration of publicly financed irrigation, partly because of the increased share in ownership and control which the Government has recently acquired in the most important sectors of the economy, and partly because of the private sector's low propensity to invest due to high production costs in Senegal. Unfortunately, public savings cannot be expected to increase at the same pace as public investments. The tax effort is already considerable in Senegal, and all additional taxable capacity has been used to offset the revenue losses in the phosphate sector. There may be scope for slowing down growth of recurrent expenditures in some categories of the budget; however, insufficient maintenance of the existing capital stock, operating costs of ongoing development projects, and efforts of foreign donors to persuade Government to increase its contribution to their current programs all augur for higher recurrent expenditures, which in turn limit the possibility of significantly increasing public savings. The Govern- ment could further increase taxation of groundnut farmers; but since this is still the most profitable large-scale production open to Senegal, higher taxation of this sector would harm the long-term growth prospects of the economy. Additional savings would have to be generated within the para-public sector whose efficiency Government is trying to improve for this purpose. 14. Through the economic stabilization program launched in 1977, the country re-established itself as a potential borrower of Eurodollar funds. Should the Government use these funds to finance projects whose internal cash generation covers the additional debt service, then the availability of Eurodollars will not worsen the public finance situation. However, if this borrowing is used to finance infrastructure or social projects which do not generate cash, the high debt service on these loans would compete with other recurrent expenditures essential for economic development. Without a suffi- cient level of public savings, the periodic disturbances inherent in the Senegalese economy could easily force the Government to a position of having to roll over medium-term commercial debt. In such a case, the confidence of foreign private lenders would be eroded, and the country's creditworthiness would be adversely affected. To avoid such a situation, one important step would be an undertaking by Government to foreign donors that at least 15 per- cent of the public investment program would be financed from public savings (in the Fourth Plan, 1973/74 - 1976/77, public savings financed 30 percent of public investments mainly because of the relatively low level of public investment actually achieved). Achieving the 15 percent target during the Fifth Plan period means a 25 percent reduction in planned investments, and some reduction in the growth rate of current expenditure which requires, among other measures, rigorous screening of new projects on the recurrent  - 6- costs that they may generate. As to foreign financiers, it would mnean that out of the roughly 85 percent of the public investment program to be financed by them, a substantial part of the local costs would be covered. This high percentage of foreign financing would have to be maintained for some years to give the Government time to make the structural changes required to achieve a iiore satisfactory contribution to public investment. 1V 5.On the assumption that Government takes steps to maintain a balance between public investments and public savings, Senegal would remain credit- worthy for lending on IBRD terms. The Government has demonstrated its commit- ment to development by increasing public investments between 1970 and 1976 by 19 percent per year in current prices. The development strategy continues to be based on agricultural production and rural development, to which 27 percent of the new investment program is allocated. The Government has also demon- strated its capacity to respond adequately to the problems which its vulner- able economy is bound to encounter periodically. There are also reasonable prospects for long-term diversification and growth. Senegal's access to short-term financing facilities and membership in the West African Monetary Union also reduces the risks associated with economic fluctuations. However, lenders (including the Bank) should provide a large part of their assistance on concessionary terms in order to avoid a rapid buildup of debt service. In conclusion, assuming the continuation of responsive and sensible policies, public debt service is expected to increase from 6 percent of export earnings in 1976 to roughly 11 percent in 1980, and to be kept between 10 and 15 percent in the long run. PART II: BANK GROUP OPERATIONS IN SENEGAL 16. The Bank Group has had 37 operations in Senegal to date. Total outstanding lending amounts to US$167.3 million, including eighteen IDA credits, thirteen Bank loans, two blends of Bank and IDA funds, three IFC operations, and one blend of Bank and IFC funds. Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of December 31, 1977, and notes on the implementation of ongoing projects. Execution of these projects is progressing reasonably well, except that some operations particu- larly in highways and education have been affected by the shortage of counter- part funds due to the Government's continuing difficult public finance situa- tion, as well as by lack of qualified local staff for key positions. The Government is very well aware of the need to constantly seek ways to reduce delays caused by these problems, and particularly of the importance of assur- ing good management supervision of projects in all sectors. In this respect, we shall try through the technical assistance project approved by the Board in January 1978 to resolve on a sector-wide basis some of the issues regarding the general situation of the country's finances and Government control of public enterprises and mixed companies, particularly those which are channels tot Bank Group assistance.  -7- 17. The Bank Group's share in total external aid disbursements to Senegal over 1977-81 will stay at around 16 percent, of which roughly 45 per- cent in IDA financing. The Bank Group's share in outstanding debt was 21 per- cent in 1976, and will slowly start to surpass that level after 1981. The Bank Group's share in public debt service is expected to increase from 3.8 percent in 1976 to about 8 percent in 1981, a rise which is mainly due to the increase in Bank loans from 21 percent of Senegal's outstanding disbursed debt to the Bank Group at end-1976 to about 42 percent by 1981. 18. The objectives of Bank Group lending in Senegal fall under five main headings. We continue to give priority to rural development, including dev- elopment of irrigation in the Senegal River Valley Region (e.g., the ongoing River Polders project, and the Debi Lampsar Irrigation Development project which we expect to present for consideration by the Executive Directors later in FY 78), intensification of groundnut production and diversification into new crops and new regions (e.g., the Sine Saloum agricultural development project, Terres Neuves Resettlement and Eastern Senegal Livestock projects, and the Second Sedhiou rice project in Casamance); as in the past, we would expect our agricultural lending over the next few years to exceed one-third of the total. Secondly, we have supported diversification of the economy by lending to the growing industrial sector through the Societe Financiere Senegalaise pour le Developpement de l'Industrie et du Tourisme (SOFISEDIT), a development finance company established with Bank Group assistance in 1974. This diversification objective is being further assisted by a second Loan to SOFISEDIT approved early in FY 77 which includes provision for de- veloping an integrated scheme to provide assistance to small-scale Senegalese entrepreneurs, as well as by a tourism project approved later in FY 77 for construction of infrastructure and common facilities to support a 2,500-bed hotel development on the Petite Cote. Thirdly, we have encouraged moderniza- tion and expansion of the country's infrastructure particularly through lending in all modes of the transport sector; we are pursuing this effort through a project for a major extension of the Dakar Fishing Port approved by the Board in April 1977, as well as through the present project which is designed to improve the organization, management, and operational and finan- cial performance of the Senegal Railway. Fourthly, Government has asked us to help re-orient and expand the country's education system at all levels, and we have identified a proposed Third Education Project which would help meet some of the major objectives in the sector, particularly the need for trained high- and middle-level technicians and managers in the modern sector and in agricultural development activities, and enable a start in gradually reducing existing widespread illiteracy. Overall, we remain conscious of the need to prepare project components in the social services sector (par- ticularly nutrition and health), within the limits of the Government's ability to bear the recurrent costs involved. And finally, we are assisting Govern- ment in increasing its absorptive capacity for planning, executing, and managing development projects through institutional support within individual Bank Group projects, and through broader efforts such as the recently approved Technical Assistance Project for the Para-Public Sector.  - 8 - PART III: THE TRANSPORT SECTOR 19. Senegal possesses a fairly well-developed transport system concen- trated on the Cap Vert Peninsula (including the capital city of Dakar) and the Groundnut Basin farther to the east, which are the areas with the largest population and economic activity. Roads are the principal mode of domestic transport, carrying about 75% of commercial inter-urban passenger and freight traffic excluding phosphates. The railway system consists of a main line from Dakar to Kidira on the Mali border, and several branch lines including connec- tions from Dakar to St. Louis in the north and to the Taiba phosphate mine. Traffic at the Port of Dakar, mainly phosphates, petroleum, general merchan- dise, and international traffic for Mali and to a limited extent Mauritania, has doubled over the last ten years, and now totals about 6 million tons annually. Aviation centers on the Dakar airport, a major international transit point for Europe-Africa-South America traffic. Three secondary seaports and 18 regional airports and airfields are located outside the Cap Vert region. Traffic volumes on the three navigable rivers are modest and declining due to substitution by road transport. 20. The Government's transport strategy aims essentially at: (i) devel- oping local transport infrastructure in support of overall economic growth, particularly in agriculture and fisheries and in the newly developing indus- trial and tourism sectors; (ii) promoting regional integration, especially to develop efficient transport links within rural areas, and connections with Eastern Senegal and the Casamance region in the South; (iii) assuring adequate maintenance for the already extensive investment in the sector; and (iv) main- taining Senegal's position as a regional center for international transport for its own economy, and to a lesser extent for Mali, Gambia and Mauritania. The Government's ability to do effective sector planning and coordination has been improved by the creation in 1975 of the Directorate of Studies and Pro- gramming (DSP) within the Ministry of Public Works, Urban Development and Transport. The primary responsibilities of DSP are to execute economic and technical studies, and help to determine strategy and investment priorities in the transport sector. During its initial years of operation, the Director- ate is staffed with technical assistance personnel financed by the Bank Group under the ongoing Third Highway Project. 21. Bank Group operations in the sector have helped to establish the basic transport infrastructure, and then to assure its successful maintenance and efficient use; the greatest activity has been in highways, particularly in pavement strengthening and maintenance operations, as well as feeder road construction and improvement. Total lending in the amount of US$48.3 million equivalent has helped finance four projects in the highway sub-sector, two directed toward improving the physical infrastructure of the railway system and increasing locomotive capacity, one in aviation for major improvements to the Dakar Airport, and two for construction and extension works at the Port of Dakar; the more recent of these port operations was an FY77 project which represented a major step in expanding fishing port facilities so that Senegal can realize the important potential contribution of the industrial fishing sector to the country's economic growth. Details on execution of ongoing projects are given in Annex II.  - 9 - PART IV: THE RAILWAY Organization and Management 22. The Railway is a state-owned public corporation under the authority of the Minister of Public Works, Urban Development, and Transport (MPWUT). Following a Presidential Decree of early 1976, the Railway now enjoys consid- erable financial and managerial autonomy. The Railway is administered by a board of 23 members, including a Chairman nominated by the Prime Minister, eighteen representatives of Ministries or governmental agencies, two repre- sentatives of the trucking industry, and three representatives of the rail- way union. The Board has overall authority for railway administration, but financial planning and commitments require specific approval by the Ministers of MPWUT and of Finance. 23. The Railway has in the past proved highly sensitive to outside pressures, mainly from a strong labor union. This situation combined with the lack of qualified personnel, has had an adverse effect on the Railway's ability to operate efficiently and led to its poor financial performance. The Government and the Bank have discussed several options for changing the Railway's administrative structure, including an eventual merger with the connecting Mali Railway to simplify organization, administration, and opera- tions of the two systems which were once under single management. The proposed project provides consulting services to review the relative advan- tages and disadvantages of various alternatives, and draft terms of reference have been discussed and agreed. After agreement with the Bank on final objectives and terms of reference for the study, the Senegalese Government and Railway will agree with the Malian Government and Railway on items affecting both countries. All parties will then agree in consultation with the Bank on how to implement the consultants' recommendations. The study is expected to start towards end-1978, and to take about one year to complete (Sections 3.03 of Loan Agreement and 2.03 (b) and (d) of Guarantee Agreement). 24. Operational and financial management of the Railway is the respon- sibility of a General Manager appointed by the President of the Republic, assisted by an Assistant General Manager (Technical) appointed by the Minister of MPWUT following Board approval, and a Secretary-General. Since the enact- ment in 1976 of specific laws and decrees reinforcing staff discipline, the General Manager functions with adequate authority. The Railway is now being reorganized and staffed according to a plan prepared by the Bureau d'Organisa- tion et Methodes (a Government consulting and training agency attached to the Office of the President), at the Government's request and in consultation with the Bank. The reorganization provides for five administrative and four technical departments each headed by a Director. The reorganization, as well as the appointment of a new Senegalese General Manager and an expatriate technical specialist as Assistant General Manager, were all conditions of project appraisal which were fully met. To ensure that future Assistant General Managers meet the required qualifications and experience, agreement has been reached that such appointments would be subject to Bank approval  - 10 - (Section 2.02 (b) of Guarantee Agreement and Section 3.02(a) of Loan Agreement). All positions of director and deputy director have been filled, some by French technical assistants until qualified nationals can be trained under the project (paras. 26 and 27); all candidates for these positions were selected and approved in consultation with the Bank. Audit 25. The Government's Commission de Verification des Comptes et de Controle des Etablissements Publics (CVCCEP) is responsible for reviewing the audit of accounts in para-public sector companies, including the Railway. However, because the Commission is understaffed, the account reviews are not done on a regular basis and will not meet the Bank's annual auditing require- ments. This situation has been discussed with the Railway, and agreement reached on the scope, form, and timing of future audit reports to be submitted to the Bank for review no later than six months after the end of each fiscal year (Section 5.02 of Loan Agreement). Staff and Training 26. Total railway staff numbers about 3,300, of whom about 1,600 are permanent employees and 1,700 auxiliary staff; there are also 28 technical assistance experts financed by French technical aid through the railway agency Office Central des Chemins de Fer d'Outre-Mer Service Technique et du Material (OFERMAT). The Government and the Railway have agreed that tech- nical assistance staff will be gradually replaced by local personnel, and have prepared a plan for recruitment of qualified Senegalese which lists measures proposed to attract and retain qualified candidates and to provide appropriate additional training, as well as a timetable for implementation. This plan has been reviewed by the Bank and found satisfactory, and it will be updated and reviewed annually in consultation with the Bank (Section 3.04 of Loan Agreement and Section 2.04 of Guarantee Agreement). 27. The Railway's training activities have to date consisted only of informal programs carried out in most cases without provision for practical application, and under part-time instructors without the appropriate pedago- gical and technical skills. Training has therefore not been very effective, partly due also to inadequate facilities and equipment, and because technical assistants in the operating departments have tended to neglect training in favor of concentrating on their other duties. An attempt was made under the previous project to step up the training effort, but with very limited success. The Railway and the Bank have now made a joint effort to remedy this situation, and a comprehensive training scheme has been agreed consisting in principle of: (i) a short-term interim program which can be carried out with resources presently available; (ii) a two-year priority program to start as soon as Bank funds can be utilized; and (iii) a three-year program which would follow and consolidate action taken under the priority program, and which would be initiated under the proposed project. To allow implementation of this scheme, the proposed project provides for: (a) establishment of a new training center at Thies; (b) purchase of training equipment and mate- rials; (c) training of 10-12 Senegalese technicians in Thies and abroad to  - 11 - become instructors; (d) recruitment of training advisers and expatriate instructors, and (e) training of selected middle- and high-level management personnel in Thies and abroad. The program also provides for expansion of the curriculum to include new courses for about 300 skilled laborers and low-level supervisors to be trained annually. The necessary design, refine- ment, and coordination of the proposed extensive training programs will be done in consultation with the Bank under the responsibility of a highly qualified expatriate instructor financed by the French technical aid program who assumed duties as head of the Training Division in October 1977. The Railway has agreed to make available qualified and experienced personnel for training as instructors, and to release adequate numbers of personnel from their various departments for training (Section 3.02 of Loan Agreement). Traffic 28. The railway is the only land connection with the transit center at Dakar for most of eastern Senegal and Mali, and provides Mali with the cheapest route to the sea for about 70% of its international traffic (see Map 13064). However, international traffic on the Dakar-Bamako line has been subject to continuing difficulties, primarily due to operational prob- lems on both the Senegal and the Mali railways, and to insufficient institu- tional and technical coordination between the two railway systems (para. 34). As a result, Mali traffic particularly in bulk commodities such as petroleum, fertilizers, and cement has increasingly been diverted via the Abidjan route at unnecessarily high cost. In an attempt to reduce this, the Mali Government and Railway agreed under a project approved by the Board in May 1977 to take all necessary measures to allow the Senegal Railway to recapture this lost traffic (para. 36). The present project is expected to increase the effi- ciency of the Senegal Railway and allow it to carry out its responsibilities in this effort. 29. While the transport of Mali international traffic is the main justification for rail service, the Railway's financial viability depends very much on the transport of almost all short-haul domestic phosphate pro- duction, much of the groundnut crop, and miscellaneous domestic freight traffic. The volume of freight traffic carried has varied over the past ten years, increasing from 1.7 million tons in 1965/66 to a peak of 1.9 million tons in 1971/72 - 1972/73, and dropping again to 1.6 million tons in 1975/76; the average growth rate over the period was about 3%. The level of traffic has been determined primarily by the transport capacity which the Railway has been able to provide (the record traffic in 1971-73 occurred shortly after six new locomotives were delivered). Throughout the ten-year period, and particularly in the later years, demand for railway transport has far exceeded the traffic actually carried, resulting in increasing diversion to other modes at substantialy higher transport costs. 30. The Railway carries most of the country's phosphate production (about 1.5 million tons annually in normal years); but only over about 100 km between the two phosphate mines and Dakar port. Inefficient railway services have increasingly resulted in diversion of phosphate traffic to road trans- port. However, in view of expected improvements as a result of the proposed project, the Railway should in future be able to carry all available phosphate  - 12 - traffic, and it has negotiated an agreement with the Taiba phosphate company defining their individual responsibilities for improving terminal operations at the mine and the port of Dakar. This agreement has been reviewed by the Bank and found satisfactory. 31. The volume of groundnut traffic transported has also declined over recent years partly because of inadequate railway service, but primarily because of continuing problems of coordination between the Railway and ONCAD (Office National de Cooperation et d'Assistance pour le Developpement), the State marketing agency. In view of this experience, only modest increases in groundnut rail traffic have been forecast. Transport options for carrying the groundnut crop will be examined in a Government-sponsored comprehensive study to be carried out by the para-public enterprise Societe Nationale des Etudes de Developpement (SONED). The study will examine the related problems and costs associated with these options, with special emphasis on rationalizing the allocation of traffic flows between road and rail, and including recommendations for improving terminal operations and the distri- bution system. The proposed project provides for a contribution toward the cost of that study, and draft terms of reference have been agreed with the Bank. The study is expected to start in February 1978 and to take about one year to complete. The Government has agreed to review the consultants' report with the Bank, to inform the Bank of recommendations which it has approved, and to implement those recommendations affecting railway traffic and operations in consultation with the Bank according to an agreed timetable (Sections 2.03 (b) and (c) of Guarantee Agreement). 32. Railway passenger traffic has declined continuously over the past several years from 3.8 million in 1966/67 to 1.8 million in 1975/76, and its contribution to total operating revenues has decreased over the period from 25% to about 20%. The drop in passenger transport has been due mainly to increased road competition following pavement improvements and increased modernization and provision of passenger vehicles, as well as faster and more reliable road service compared to the continuing deterioration in rail- way service. The decline has been particularly sharp on the main line Dakar- Kidira, and within this section, for short-distance traffic close to Dakar. Rail passenger fares are lower than for buses, but the difference is rela- tively small and tariffs are not a decisive factor in the choice made by passengers on short distances such as Dakar-Thies. International passenger traffic has increased at a good pace over the past years, and this trend is expected to continue. Plan of Action 33. Traffic and operating statistics over the past ten years show that railway motive power and rolling stock have been underutilized because of poor availability and inadequate planning of operations. Also, because of the Railway's inability to use its equipment efficiently, actual traffic carried has been far less than the demand for railway transport, and the excess has been diverted to competitors offering comparable costs and ser- vices; worse, however, the Railway has even lost access to transport of large  - 13 - volumes of commodities for which it enjoys an important cost advantage. In order to achieve the required overall quality and efficiency of opera- tions, agreement has been reached on the implementation of a detailed plan of action (Annex IV) with specified targets calculated to allow the Railway to carry expected volumes of traffic. (Section 4.01 (c) and Schedule 5 of Loan Agreement). The Railway has also agreed to prepare monthly reports for review by the Bank explaining its performance vis-a-vis the expectations set out in the plan of action, and detailing problems encountered and remedial steps taken. The Railway will also prepare a detailed Project Completion Report. (Sections 3.06 (c) and 4.01 (b) of Loan Agreement.) PART V: THE PROJECT Background 34. The Bank Group has financed two previous railway projects in Senegal which provided for extensive equipment purchases and physical rehabilitation works. The first project started in 1966 (Credit 96-SE, US$9.0 million) and the second in 1972 (Loan 835-SE, US$6.4 million/Credit 314-SE, US$3.2 million). Physical implementation under both projects has been very slow, due primarily to early problems of the Railway in following Bank Group bidding procedures, and later to the Railway staff's lack of experience in mechanized track lay- ing, and to frequent shortages of local funds. The Railway's operating per- formance has been disappointing as a result of poor management, an inadequate organizational structure and staffing, and generally low productivity. These problems have affected the connecting Mali Railway since the two railways basically operate a single system, and parallel Bank Group operations have therefore been carried out to produce coordinated results. Despite the inadequate performance of both Railways, however, the projects have helped prevent the total collapse of operations on the important Dakar-Bamako line which is essential to both countries. 35. An audit report on the First Senegal Railway Project issued by the Operations Evaluation Department on January 10, 1977 specified as major issues the Railway's poor financial performance, under-achievement of fore- cast traffic levels, and resulting reduced economic rate of return. These have been taken into account in preparation and appraisal of the present project by highlighting the problems and expectations of the Railway's finan- cial situation; by using a three-fold approach in traffic forecasting ('best estimate' for the economic and financial analyses, 'target' for establishing objectives under the plan of action, and 'conservative' for sensitivity testing); and by ensuring that the estimated economic return is acceptable under the conversative forecast. 36. Follow-up projects were prepared for both Senegal and Mali despite the abovementioned shortcomings, because the Governments have demonstrated over the past two years a sincere desire to remove the underlying deficiencies of the Railways by taking strong remedial action to restore their efficiency.  - 14 - In the case of Senegal, important measures have been taken to strengthen the Railway's management, financial autonomy, the quality of technical assis- tance, and to overcome obstructive actions of the trade union. To minimize the occurrence of any such actions in the future, the Government and the Railway have agreed under the proposed project to cooperate closely with the union to achieve smooth implementation of the ongoing Railway reorganization, to improve staff productivity and the Railway's overall efficiency, and to ensure the payment of productivity-linked bonuses. Further Bank Group assis- tance to the two Railways would provide for continued physical rehabilitation of the Dakar-Bamako line, but more importantly, would provide support to steps already taken by the Governments and the Railways to improve their operating efficiency and financial performance. To this end, a Third Railway Project for Mali (Credit 713-MLI, US$10.5 million) was approved by the Executive Directors in May 1977. 37. The proposed Third Senegal Railway Project covers the Railway's investment plan for 1978/79 - 1980/81 which has been prepared in consulta- tion and agreement with the Bank. The project is designed to fit into the Government's overall transport strategy, particularly by allowing the Rail- way to fulfill its main role in providing the principal outlet to the sea for Mali's foreign trade, and as the prime carrier for domestic phosphate traffic; the Railway would also contribute to the continuing effectiveness of Dakar as a large international port and transit center. The project has some important physical elements, but its focus is a large training component to supplement and support a very substantial input of highly trained personnel from the French railway aid agency OFERMAT, and a program of action aimed at improvement of management, staff training, productivity, and operational and financial performance. Preparation of this project has been marked by an exceptional effort on the part of the Government to cooperate with the Bank's own initiatives to try to establish the conditions for efficient railway operation, and significant progress has already been achieved as outlined in para. 36 above. 38. Negotiations for the proposed Loan were held in Washington in December 1977 with a Senegalese delegation headed by Mr. Ousmane Seck, Minister of Planning and Cooperation. The Staff Appraisal Report (No. 1691a- SE) is being circulated separately to the Executive Directors. A Loan and Project Summary is given at the front of this report, and the railway system is shown in Map 13064. Description 39. The proposed project consists of the following components: (i) track renewal (about 60 km); (ii) procurement of track maintenance equipment and material (switches, gang-cars, and miscellaneous items); (iii) procurement of spare parts for motive power and rolling stock, and workshop equipment;  - 15 - (iv) extension and rehabilitation works at the Dakar-Bel Air marshalling yard, including telecommunications improve- ments in the Dakar area; (v) staff training (a three-year program aimed at improving the standard of railway operations, maintenance, and safety, by training and re-training annually about 300 skilled laborers and low-level supervisors, as well as selected middle- and high-level managers); and (vi) consulting services for studies to determine (a) the optimal administrative structure and ownership of the Railway; and (b) the least-cost mode for groundnut transport and its effect on railway traffic. Cost Estimates 40. The total cost of the proposed project is estimated at US$14.3 million equivalent (exclusive of taxes and duties from which the project is exempt), with foreign costs of about US$9.3 million (about 65%). A summary table of cost estimates is shown below: Local Foreign Total Local Foreign Total -----CFAF Million---- ---US$ Million------ Track renewal (60 km) 702 375 1,077 2.87 1.53 4.40 Track maintenance equipment and material - 405 405 - 1.65 1.65 Spare parts for motive power and rolling stock, and workshop equipment - 608 608 - 2.48 2.48 Improvements in Dakar area 100 154 254 0.41 0.63 1.04 Training 102 315 417 0.41 1.29 1.70 Consulting Services - 133 133 - 0.54 0.54 TOTAL 904 1,990 2,894 3.69 8.12 11.81 Contingencies Physical 80 - 80 0.33 - 0.33 Prices 247 274 521 1.01 1.11 2.12 327 274 601 1.34 1.11 2.45 GRAND TOTAL 1,231 2,264 3,495 5.03 9.23 14.26  - 16 - 41. Cost estimates for track renewal works and procurement of equipment and materials for track maintenance are based on prices quoted by suppliers. Costs for locomotive spare parts and telecommunications equipment have been estimated by the Railway on the basis of recent quotations updated to 1977 prices. Estimates for consulting services (about 64 man-months) are based on an average cost of $100,000 per man-year, according to recent costs for similar services in the region. Physical contingencies have been provided at 10% of the local cost of track renewal works. Price contingencies have been applied as follows: for 1977-79, 9% on civil works and 7.5% on equipment; for 1980-81, 8% on civil works and 7% on equipment. The overall average price contingency is 15%. Execution and Procurement 42. Project implementation is expected to start in early 1978 and to take about three years to complete. Track renewal work on the international line and track work at the Dakar-Bel Air marshalling yard (US$3.8 million) will be carried out by the Railway's staff since they have the necessary equipment and the work has to be done under traffic conditions. Civil works contracts for construction of a repair workshop at the marshalling yard and for the training center at Thies (US$0.6 million) will be too small to attract the interest of foreign firms, and will therefore be awarded following com- petitive bidding advertised locally under local procedures acceptable to the Bank. Local procedures will also be followed for the purchase of trucks and workshop equipment, and furniture and materials for the training center (US$0.6 million). Small items of track maintenance tools and workshop equip- ment costing less than US$10,000 individually (US$350,000 in total) will be procured through competitive bidding following local procedures, and by international and local shopping as appropriate, all in accordance with Bank Group guidelines. Critical spare parts for motive power, rolling stock, and tampers (to a maximum of US$3.0 million) will be purchased by obtaining quotations from established manufacturers and by direct negotiations with original suppliers. All other equipment and goods financed under the proposed Loan, particularly track maintenance equipment and material, and telecommuni- cations equipment (US$4.3 million), will be procured following international competitive bidding in accordance with Bank Group guidelines. The Railway has appointed a supervisor responsible for preparing detailed lists of spare parts to be purchased for all locomotives and railcars as outlined in the plan of action, and for ordering required spare parts and keeping the lists updated. 43. All consultants for the proposed studies and instructors for the training program will be selected in agreement with and under terms and conditions acceptable to the Bank. Recruitment of expatriate training in- structors will be based not only on their knowledge of railway operations, but also on their actual training experience in developed as well as in developing countries. Draft terms of reference for the proposed studies have been agreed with the Government and the Railway. All the above arrangements for procure- ment of goods and services have been agreed with the Government and the Railway (Schedule 4 of Loan Agreement).  - 17 - Financing and Disbursements 44. The proposed Loan of US$11 million will finance 100% of the foreign costs and 35% of the local costs of the project, equivalent to about 77% of total costs net of taxes and duties; the Railway will finance the remaining local costs, estimated at US$3.26 million equivalent. The Government has agreed that, in case of any shortfall in Railway funds, it will provide the amounts necessary or secure alternative financing to assure full implementa- tion of the project (Section 2.02 (a) of Guarantee Agreement). 45. Loan proceeds will be disbursed towards the various project com- ponents as follows: (i) for track renewal, extension of marshalling yard and improvements in the Dakar area, and the training items, 100% of foreign costs and 35% of local costs; (ii) for track maintenance equipment and mate- rial, spare parts for motive power and rolling stock, workshop equipment, and consulting services (except for the groundnut study), 100% of foreign costs; and (iii) for the groundnut study (para. 46), 75% of total expenditures. 46. A condition of disbursement of Loan funds allocated for the track renewal component will be the completion of improvements to track renewed under the Second Project to meet modern track maintenance standards. (Sche- dule I of Loan Agreement). Financial Evaluation 47. The Railway's financial position has deteriorated over the past ten years, despite large subsidies from the Government, because of its low produc- tivity and resulting poor traffic performance, and also because necessary tar- iff increases were implemented late. The financial analysis carried out for the proposed project examined the extent to which expected improvements in operating performance would allow the Railway to meet its financial commit- ments. The analysis shows that even if the Railway were to achieve forecast target traffic and productivity levels, it would still need substantial Gov- ernment assistance for several years to cover its debt service and its share of project costs, and would not reach financial equilibrium until at least 1982. 48. The calculation of operating revenues includes selective tariff increases implemented to generate revenues 30% higher in 1977/78 than would have been possible using tariff levels at February 1977. The major part of this increase was applied between March and May 1977, and the rest was im- plemented in late 1977. Additional selective increases are assumed to be made in each year through 1981/82 to produce annual revenues 10% above those generated by the previous year's tariffs. Higher tariff increases would jeopardize the Railway's ability to compete successfully with Ivory Coast routes for international traffic, and with road transport for domestic traffic.  - 18 - 49. In recognition of the urgent need to restore some financial stabil- ity to the Railway, and as a demonstration of the Government's commitment to making available satisfactory rail service, the Minister of Finance, acting under the instructions of the Prime Minister, is arranging to convert into equity about CFAF 2.7 billion of the Railway's outstanding debt owed to the Government, by June 30, 1978. Implementation of this and other similar measures will result in a substantial improvement in the Railway's working capital. 50. In the meantime, in order to preserve the Railway's financial position during the project period, agreements have been reached on the following principal items: (i) the Government will provide appropriate subsidies to Railway working capital if the Railway's cash generation is insufficient to reach an agreed desirable level by June 30, 1982 (Sections 2.02 of Guarantee Agreement and 5.05 of Loan Agreement); (ii) the Railway will take appropriate measures to achieve working ratios (based on target traffic) not exceeding 87% in 1977/78, 83% in 1978/79, 81% in 1979/80, 79% in 1980/81, and 78% in 1981/82 (Section 5.09 of Loan Agreement); and (iii) to give the Bank an opportunity to comment on the Railway's budget before presentation to its Board and the Government for approval, the Rail- way will discuss with the Bank, by March 15 of each year of the project, the draft budget for the following year; if necessary, the Government and the Railway will promptly agree with the Bank on appropriate remedial action (Section 5.08 of Loan Agreement). 51. A sensitivity analysis was conducted to test the impact on the Railway's financial position of the following risks: (i) traffic levels achieved according to the conservative forecast rather than the best esti- mate forecast; (ii) 10% increase in working expenditures; and (iii) 10% increase in project costs. The analysis showed that simultaneous material- ization of all three assumptions, which is however unlikely, would result in a cumulated shortage of funds over 1977/78 - 1981/82 totalling approximately CFAF 7.8 billion (US$32 million equivalent). As tariff increases assumed in the main analysis are already high and close to what traffic could reasonably be expected to bear, agreement has been reached that these shortages would be overcome by a combination of additional Government subsidies and borrowing (Section 2.02 (a) of Guarantee Agreement). Economic Evaluation 52. The proposed project is expected to yield direct benefits mainly from rehabilitation of existing Railway infrastructure and rolling stock which is the main objective of the proposed physical investments; these in- vestments are expected to allow a reduction in the number of derailments and corresponding cost savings, as well as savings in labor maintenance costs, and benefits from avoided traffic diversion. Overall, the physical invest- ments should lead to greatly improved operating efficiency, thereby avoiding continuing increases in operating and maintenance costs. The only project component designed to increase capacity is the proposed improvement of the Dakar-Bel Air marshalling yard for handling phosphates, a commodity for which a steady growth in production is forecast.  - 19 - 53. The proposed project also includes provision for technical assis- tance and staff training, elements which account for only about 20% of total project costs, but which supplement and support a large technical assistance input by the French railway aid agency OFERMAT which has worked in close coop- eration with the Senegal Railway and the Bank to make available highly quali- fied expatriate managers and technicians on temporary assignments. 54. All the main physical components of the project have been evaluated separately, and each investment yields an acceptable economic return, as follows: track renewal, 13%; extension of the marshalling yard, 39%; spare parts, 57%; track maintenance equipment, 26%. The overall economic re- turn for the project (including the investment for training and consulting services) is estimated at 22%. A sensitivity analysis carried out for each component shows that even if traffic follows only the conservative forecast and investment costs are 10% higher than estimated, the economic returns for individual components remain satisfactory, and the economic return for the project as a whole drops to 17% which is still acceptable. Project Risks 55. If the project were not carried out as planned, there would in- evitably be a severe deterioration of railway capacity, and international traffic to landlocked Mali, as well as domestic phosphate traffic, would be diverted to more expensive alternate routes; this would mean increasing losses for the Government which is already forced to provide heavy subsidies for railway operations. An additional risk would be the very negative effects of interrupting a major management and training program already set in motion during project preparation. Overall, it is considered safe to assume that the Government's recent wholehearted support to the Railway will continue, and that there will be such a marked improvement in operations that the Railway will have a significant long-term role in domestic and international transport patterns. 56. The main concern for physical implementation is the possible short- age of local funds, a problem which has hampered execution of the two previous railway projects. Since the present project is based on very conservative traffic assumptions, it is likely that the Railway will achieve higher cash revenues than forecast. In any event, the Government has confirmed that it will make available whatever funds are needed to cover any shortages in funds (Section 2.02 (a) of Guarantee Agreement). 57. There is always the possibility that the agreed new railway organ- ization and its staffing will not bring about all the desired operational improvements. The Bank has taken an active role during project preparation and since appraisal in reviewing and approving the organizational structure and the selection and assignment of senior managerial and technical staff. For the future, the Bank is committed to follow the performance of the organi- zation and staff through intensive supervision of the project which will give early warning of any necessary corrective actions to be taken.  - 20 - PART VI: LEGAL INSTRUMENTS AND AUTHORITY 58. The draft Loan Agreement between the Bank and the Regie des Chemins de Fer du Senegal, the draft Guarantee Agreement between the Bank and the Republic of Senegal, and the Report of the Committee provided in Article III, Section 4 (iii) of the Articles of Agreement of the Bank, are being distributed to the Executive Directors separately. Special conditions of the project are listed in Annex III, Section III. Features of particular interest in the draft Loan and Guarantee Agreements are described in paras. 23 through 52 of the present report. The draft Loan and Guarantee Agreements conform to the normal pattern for loans for railway projects. 59. I am satisfied that the proposed Loan would comply with the Articles of Agreement of the Bank. PART VII: RECOMMENDATION 60. I recommend that the Executive Directors approve the proposed Loan. Robert S. McNamara President by J. Burke Knapp Attachments: Washington, D.C. January 24, 1978  ANNEX I TABLE 3A Page 1 of 4 pages SENEGAL - SOCIAL INDICATORS DATA S,.EET LAND AREA (THOU KM2) ------------------------------------------------ _______________ SENEGAL REFERENCE COUNTRIES (1970) TOrAL 196.2 MOST RECENT AGRIC. 80.0 1960 1970 ESTIMATE GHANA IVORY COAST TUNISIA GNP PER CAPITA (USS) 200.0 * 270.0 * 390.0*/a 430 .0 350.0 370.0 POPULATION AND VITAL STATISTICS _______________________________ POPULATION (MID-YR, MILLION) 3.4 4.4 5.1/a B.6 5.4 5.0 POPULATION DENSITY PER SQUARE KM. 17.0 22.0 26.0/a 36.0 16.0 31.0 PER SQ. KM. AGRICULTURAL LAND L,3 0 55.0 64.0/a 64.0 32.0 67.0 VITAL STATISTICS CRUDE BIRTH RATE (/THOU. AV) 48.0 47.6 47.6 49.8 46.1 44.7 CRUDE DEATH RATE (/THOU,AV) 27.5 24.4 23.9 24.4 23.3 16.9 INFANT MORTALITY RATE (/THOU) 193.0 .. 158.0 156.0 .. 125.0 LIFE EXPECTANCY AT BIRTH (YRS) 35.9 40.0 40.0 41.5 41.0 51.6 GROSS REPRODUCTION RATE .- 3.0 3.0 3.2 3.1 3.4 POPULATION GROWTH RATE (X) TOTAL 2.1 2.6 2.7 2.6 3.4/a 2.3/a URBAN 3.5 6.0 6.0 4.5 8.7/b 3.0/b URBAN POPULATION (% OF TOTAL) 22.7 29.0 38.8 28.4 28.0 40.1/C AGE STRUCTURE (PERCENT) 0 TO 14 YEARS 42.6 41.2 44.2/a 46.9 42.5 46.3 15 TO 64 YEARS 53.6 54.9 52.7taT 49.5 54.8 50.2 65 YEARS AND OVER 3.8 3.9 3.17a 3.6 2.7 3.5 AGE DEPENDENCY RATIO 0.9 0.8 0.9/a 1.0 0.8 1.0 ECONOMIC DEPENDENCY RATIO 1.2/a 1.2/a 1.4/d 1.4 0.9 1.a/C,d FAMILY PLANNING ACCEPTORS (CUMULATIVE, THOU) .- .. .. 10.9 . 112.2 USERS (% OF MARRIED WOMEN) .. .. .. 2.0 . 12.0 EMPLOYMENT TOTAL LABOR FORCE (THOUSAND) 1300.0 1600.0 1650.0 3300.0 2600.0 1300.0 LABOR FORCE IN AGRICULTURE (X) .. 73.0 .. 54.0 /a 82.0 57.0 UNEMPLOYED (% OF LABOR FORCE) .- 7.0 .. 6.2 .. 12.0 INCOME DISTRIBUT1ON X OF PRIVATE INCOME REC'D BY- HIGHEST 5% OF HOUSEHOLDS lb HIGHEST 20% OF HOUSEHOLDS 62 ... LOWEST 20% OF HOUSEHLOLS 3.21b .. .. LOWEST 40X OF HOUSEHOLDS 9-4/b .. .. DISTRIBUTION OF LAND OWNERSHIP ______________________________ % OWNED BY TOP 10% OF OWNERS X OWNED BY SMALLEST 10% OWNERS .5 05 HEALTH AND NUTRITION POPULATION PER PHYSICIAN 22100.0/C 16640.0 17330.0 1295D0o/b 15320.0 5950.0 POPULATION PER NURSING PERSON .. 2680.0/C 2100.0 1070.o7F 2830.0/d 730.0/f POPULATION PER HOSPITAL BED 830.0/d 80.07F 850.0/e 760.60 1150.0 4730l.0f PER CAPITA SUPPLY OF - CALORIES (% OF REQUIREMENTS) 97.0 91.0 97.0 99.0 114.0 94.0 PROTEIN (GRAMS PER DAY) 64.0 64.0 65.0 46.0 60.0 63 I/h -OF WHICH ANIMAL AND PULSE .. 28.0/d ** 10.0/c 18.0/e i4