South Africa - Fourth Transport Project

/ VRv[=U lRa(>,> IREPORTS DESK| R E S T R ! C T E D I WITHIN I | ONE W EEK ~ IJgt g f Report No. TC-152a ~~~~- I infl,L,>,|Y? i r This repnnrt was prepared for use within the Bank, in making it 1 available to others, the Bank assumes no responsibility to them for the accuracy or completeness of the information contained herein. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT APPR1AISAL OF THE SOUTH A I rDTeA NT D A T TWA VYS A'PTY'% T-IA 1rVjQ1-TTT~ rThir'L?T RTIXXMAT'T p rDrw- n A iA AND1' JLr V D r-LOiPVLE1 I PRJOGXRAMLVL September 4, 1957 Department of Technical Operations  CLURRENCY E Q UTiVAiL ELN TIS 1 South African Pound 1 Pound Sterling a .In I ml U.S. $2.80 S.A.L 1 million M! U.S'. $2,8 million  TABLE OF CONTENTS Page I. Introduction 1 II. South African Railways and Harbours Administration: A. Structure and Organization 1 B. Facilities 1 C. Railway Traffic 2 D. Finances and Earnings 2--4 E. Operational Efficiency 6f the Railways III. SAR Development Program: A. Background and past Accomplishments 5--6 B. Present Program 6--7 C. Foreign and Local Cost of the Preserit Program 7--8 D. Financing Miethods 8 E. Procurement Methods 8 F. Economic Aspects 8--9 TV, Conclusion 9 Annexes: A. SAR Railway Revenue by Source 10 B. Tonnage of Principal Commodities Railed by SAR 11 n. flrowth of SAR Rail Traffic 12 D. SAR Income and Expense Accounts 13 E. SAR Purchases from the Proceeds of Former Bank Loans 14 F, SAR Gross Capital Expenditure under Former and Present Programs 15 rG S-R Gross Canital Expenditure under Former and present Programs (Source and Application of Funds) 16 H. Purchases of Equipment and Materials under Former Programs and Esti- mated purchases under present Program (Abroad and in South Africa) 17 I. Esti mAted SAR Pavments due to Overseas Suppliers for Railway, Port, and Road Trnsnpnrt Goods 18  APPPAISAL OF THE SOUTH kFRICAN RAILWA.YS AND RiARBOURS DEVELOPIME3NT PROGRAMI I. IiATRODUCT ION 1. Since 1951 the Bank has been providing part of the financing for the continuing program of development and expansion of the transport facilities of the South African Railways and iHarbours Administration (SAR). Three loans have been made for this purpose in a total amount of 9 75,2 mi'lion equivalent. 2. The South African Government has novw expressed its desire to borrow another (!50 million abroad for further financing of the SkR program. As in 1955, when the last loan was made, half of this amount would be floated as a public issue on the New York market under an agreement between the Govern- ment and United States underwriters; the Bank has been asked to lend the other e25 mi'llion at the same time. 3. The proceeds of the public issue and of the Bank loan vwould be ap- plied to capital expen4iture for the SAR program during the three fiscal years ending N`arch 31, 1960. This program has been investigated by a Bank Miission w hich visited South Africa recently. Its findings are contained in the pres- ent report. II. SOUT H AFRICAN RAILEVA>YS & 14 H Li .- ADMIIrlSTRATION A. Structure and Organization l. Created under the South Africa Act (1909), SAR is a Government de- partment under the T5inister of Transport. Policy control is exercised by the M!inister advised by a Railway and Harbor Board. The administration is conducted by the nleneral IMlanager with the assistance of a large and well organized staff. B. Facilities 5. SkR operates the entire railroad network in the Union and South West Africa (see map), cart2ge services in the m2in critipes rnad transpnrt services the main ocean ports, coastal shipping and domestic and international airlines. Its nronYrpe rpnresent a tntal investment. Pt nriginal const of annrroyirn.t.lv S;l.L billion equivalent. They are manned by a labor force of 21L,000 workers and-% yiel gr rpvpnuis of some 0)i70 millinn a year 6. The railway properties account for mrore than nine-+.ent.hs of the total investment in fixed assets. They extend 13,450 route miles, almost entirely 36t1 gauge, of which i86 miles are electrifie Trhe rolling stock includes about 2,700 steam and 300 electric locomotives, 6,ooo passenger coaches, a,nd 91 ,000 freight cars.  -2- _. Railway Traffic 7. SAh. is principally a freight carrier and derives about four-fifths of its revenue from this source (Annex A)., The principal commodities car- ried are coal, other minerals, agricultural products and building materials. Total freight carried during 1955-56 amounted to some 75 million tons (more than 20 billion ton-miles). Haulage of coal and other minerals constituted more than 25 percent, and SAR service traffic - increasing on account of the execution of the large development program - more than 10 percent, of this total (Annex B). 8. Sinco the end of the war the tonnage of freight traffic (Annex C), has increased by more than 55 percent (by almost tvwo-thirds in ton mileage) but the railways have not succeeded in keeping up vwith the requirements of the rapidly expanding economy of South Africa. Althoughi emergencies w-hich occurred in the early fifties, when coal stockpiles at power stations and industrial plants shrank belovw a safe level, have not reappeared, the rail- ways have not been able to provide for all potential exports, in particular of coal, iron ore, manganese and chrome. Production of these minerals i-s being held back for lack of transport. The South Africans estimate that the exports of chrome could be increased by some 10 to 15 percent. Recently an order of 4.5 million tons of coal for export had to be refused for lack of transport. 9. Owing to a temporary slowdovwn of the economy during the past few years the increase in freight traffic h-ias been somewhat less than the aver- age rate of 5.2% (compounded) since the end of the war. While the ecnnomyts generhl grbwth rate may hot rise. additional facilitie6eshould make pDossible inreases in railway trafflc. SAR expectB that during the coming year the inaresse wi11 be of the order of three to four million tons. 10. Passenger volume has levelled off in recent years. Tt is estimated that in future the carriage of Europeans wiill decline further but that the nnmber of Natives rill incre2se when more HTative resettlements are nopulated. D. Finances and Fqrnings 11= SAR is required hv law to administer its nronerties on hbsiness principles so as to yield enough revenue, but not more than required, to cover operations, renewnPals, betterments,an lnterest c-harges on Goverprnment loans. Rates are set so as to yield sufficient revenue for all of these iurposes. 12 Additions to plan.t and eoquipimnent are financed mainly by perpetual interest - bearing loans from the Government, and partly by internally g-enerated fur.ds. Bettermsents, definedasipoe.n fextngse+ wrhich do not add materially to their value, are financed entirely by in- ternally generated funds. Ienealsre finane - y dercltonchag 1Is a GoverrUment enterpri. s e S p1 LAR U