Uganda - Railways Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-4983-UG MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 5.2 MILLION TO THE GOVERNMENT OF UGANDA FOR A RAILWAYS PROJECT JANUARY 31, 1989 This document has a restricted distribution and may be used by recipients only in the performance of their offcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENT Currency Unit = Ugar.den Shilling US$ 1.00 - USh 150 (July 1, 1988) USh. 1.00 - US$ 0.0067 FISCAL YEAR Government July 1 to June 30 Uganda Railways Corporation January 1 to December 31 WEIGHTS AND MEASURES Metric System ABRREVIATIONS AND ACRONYMS EARC - East African Railways Corporation ERR - Economic Rate of Return IAP - Initial Action Program KRC - Kenya Railways Corporation MLG - Ministry of Local Government MOTT - Ministry of Transport and Telecommunications MOW - Ministry of Works MPED - Ministry of Planning and Economic Development RIP - Railways Investment Program TRC - Tanzania Railways Corporation UCTU - Uganda Cooperative Transport Union URC - Uganda Railways Corporation VHF - Very High Frequency  FOR OMCIAL USE ONLY UGANDA RAILWAYS PROJECT CREDIT AND PROJECT SUMMARY Borrower: The Government of Uganda Beneficiarys Uganda Railways Corporation Amount: SDR 5.2 Million (USS 7.0 Million equivalent) Terms: Standard, with 40 years maturity Relending Terms: Government to provide the proceeds as a contribution to URC's equity capital Financings URC US$ 1.8 million IDA 7.0 Total US$ 8.8 million ERR: 34 percent Staff Appraisal Report: Report No.7608-UG dated January 31, 1989 Maps IBRD No. 21202 This document has a restricted distribution and may be used by recipients only in the performince of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  MEMORANDUX AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE GOVERNMENT OF UGANDA FOR A RAILWAYS PROJECT 1. The following memorandum and recommendation on a proposed Credit to the Government of Uganda for SDR 5.2 million (US$ 7.0 million equivalent) is submitted for approval. The proposed Credit would be on standard terms with 40 years maturity and the Government would provide the proceeds to the Uganda Railways Corporation (URC) as a contribution to its equity capital. * 2. Background. Within the macro-economic policy framework for stabilization and recovery agreed with the IMF and the World Bank, the Government considers rehabilitation of the severely neglected and rundown * transport system vitally importait for economic recovery. The transport system has to satisfy international, domestic and transit demands. Because Uganda is landlocked, it is dependent on close cooperation with its neighbors to ensure reliable flows of exports (coffee) and imports. While continuing to rely mainly on Kenya, Uganda is now also utilizing Tanzania, in a justifiable quest to maintain alternative routes to the sea at an affordable *insurance premium'. The bulk of Uganda transport demand derives from domestic transport, especially cash crops, foodcrops and fuel; transport demand is expected to exceed transport supply for the next few years. In addition, other landlocked countries move part of their transit transport through Uganda when they choose the Northern Corridor; this flow is presently relatively small. 3. The Government is strongly committed to reha-ilitation of the transport sector. As to modal split, it has a clear strategy of making the railways the backbone of Uganda's transport system, especially in long haul bulk (domestic and international) traffic. The Government has invested, mainly from its own resources, and intends to invest considerable additional amounts in the railways. At the same time, the Government is undertaking a major reconstruction program for trunk roads to serve the short and medium distance traffic and is beginning to repair the feeder road network as well. The truck road repair has already received substantial financial support from abroad, including IDA's. 4. The implementing agency Uganda Railways Corporation (URC) originally was a branch of the now defunct East African Railways Corporation. URC managed to increase rail transport by 29 percent in 1987 with the help of the new lake ferries and other investments; URC also became the sole transporter of Uganda's coffee exports. However, in order to further improve and maintain its performance, URC's organization and management would need to be strengthened, since URC continues to be seriously handicapped by organizational and financial management deficiencies, very low labor productivity and cessation of routine maintenance of rolling stock, telecommunications and track and permanent way. 5. In addition to this general need to strengthen URC, a specific problem is arising with regard to repair of the Kampala-Kasese Line. In the short term, this railway line has to service several important  - 2 - agricultural production areas in Western Uganda with both traditional and new export crops while the trunk roads in these areas are under zeconstruction. If in the medium term, Uganda's major cement plant at Hima close to Kasese were restored, this would create an additional considerable rail transport demand. But while there was an increase in overall URC freight volume, the volume on the Kampala-Kasese Line dropped since sections of the line have reached the end of their useful life. To prevent further decline URC established a track repair and renewal unit attached to the Civil Engineering Department to execute routine repair and renewal by force account in line with general railway practice. Such units undertake work too dispersed and small to be contracted out and are better suited than outside contractors to do repair work with a minimum of disruption to continuing traffic. The URC unit is starting to address the problem on the Kampala-Kasese Line, but it needs to be properly constituted and its lack of materials, tools, spares and qualified manpower needs to be addressed. 6. The Bank Group's strategy for assistance to Uganda is to help the Government achieve a rapid overall economic recovery, attain a viable balance of payments position and lay the basis for sustainee economic development. In the short term the focus will be on stabilization and the creation of a supportive environment to increase output of the productive sectors. For the medium term the Bank's objectives are to support the key growth sectors of agriculture and industry while continuing its assistance to the transport and power sectors which have a direct impact on the efficiency of the productive sectorq, including operations to eliminate transportation bottlenecks. IDA has supported the highways sector for a long time, with mixed but improving results, and intends to continue this support. The rationale for IDA to expand its support to railways is twofold: IDA intends to support Government's strategy to make the railways the backbone of the transport system and second, IDA considers it essential that URC receives assistance to strengthen URC's organization and management. Therefore, IDA is taking action on two parallel tracks: (A) to obtain approval for a US$ 7.0 million IDA Credit for the Railways Project proposed in this memorandum, so as to strengthen URC's general organization and management and help improve performance on the Kampala-Kasese Line, and (B) to advise the Government on size and timing of future railways investments and help mobilize donor support for the Railways Investment Program (RIP). The World Bank staff is finalizing an Assessment Report for distribution to interested donors as the basis for a possible cofinancing meeting in the spring of 1989. 7. Project Obiectives. The proposed Project would provide assistance to the URC for (i) implementing a program of improvements in organization and management, including the establishment and operation of URC's track repair and renewal unit (Initial Action Program), and (ii) improving the railways performance on the Kampala-Kasese Line through repair and rehabilitation. Implementation could start about seven months from now and require about two and a half years. 8. Project Description. Total costs of the Project are estimated at US$ 8.8 million excluding taxes, of which US$ 5.1 million are foreign costs. The Project would consist of (iM strengthening the railways organization and management, in particular the new track repair and renewal unit, the accounting and supplies departments and the signalling and  -3- telecommunications services, through technical assistance, preparation of a staff training program, a detailed design for wagon repair facilities and modest improvements to staff living quarters (USS 1.9 million base costs) and (ii) repair and rehabilitation of the Kampala-Kasese Line, including the reopening of two crossing stations, reviving of ballasting capacity, providing track maintenance plant and equipment and telecommunications supplies and equipment (US$ 5.4 million). A Project Preparation Facility Advance of US$ 550,000 has been in effect since November 2, 1988. 9. Rationale for IDA Involvement. Although several donors are providing specific assistance to the railways, mostly related to earlier equipment supplies, while others are interested in major investments in construction and equipment supplies, URC did not find a donor except IDA interested in providing the full range of different inputs required expeditiously. In addition, the proposed Project would set the stage for close cooperation between URC and Bank in URC's efforts over time to become an effective and efficient long haul bulk transporter. 10. Agreed Actions. During negotiations, Government and URC agreed on the following major actions (a) the URC Act establishing URC as an autonomous legal entity would be promulgated before December 31, 1989; (b) URC would implement the Initial Action Program to strengthen its organization and management; (c) to ensure that only high priority railways investments included in the Railways Investment Program will be undertaken, Government would promptly adopt the RIP, which would only include investments meeting mutually acceptable criteria, and for which feasibility studies would have demonstrated an acceptable rate of return; IDA would be consulted about possible future changes in the RIP; (d) URC and IDA would jointly monitor operating performance against targets agreed for 1989 and to be agreed for 1990 and 1991, and (e) the Government would transfer the proceeds of the Credit as an equity contribution to URC. As conditions for effectiveness, (a) URC would have put the track repair and renewal unit's key personnel including the civil engineer coi.sultant in post, and (b) URC would have employed a materials management consultant. 11. Justification and Risks. The proposed Project has definite but unquantifiable institution building benefits as well as quantifiable operational benefits, especially transport generation in a period of shortage of transport services. They are the result of an improved transport performance on the Kampala-Kasese Line reaching an intermediate level of about 80,000 MT p.a. in 1992 and 1993. To sustain and further increase this level URC will need to undertake a major additional investment, which is being considered under the RIP. The projected rate of return of the proposed project is 34 percent in itself, that means irrespective of whether subsequent investments will take place or not. A major risk is that URC will not be granted sufficient autonomy to move towards more effective and efficient operations. Establishing the URC as a public corporation under a new Act and giving its management clearly defined powers and relations with Government will help alleviate this risk. Another risk is failure to improve labor morale and labor productivity, leading to continued absence of routine maintenance. URC management is designing several incentive schemes and methods for staff attrition in consultation with the Railways Workers Union to improve productivity.  - 4 - 12. Recomendation. I am satisfied that the proposed Credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed Credit. Barber B. Conable President Attachments Washington D.C. January 31, 1989  -5- Schedule A UGANDA RAILWAYS PROJECT SUMHARY OF PROJECT COST ESTMALTES AND FINANCING PLAN Components Local Foreign Total X of Base --- (US$ million) --- Costs Strengthening URC organization 0.6 1.3 1.9 26 Improving Kampala-Kasese Line 2.4 3.0 5.4 74 Baseline Costs 3.0 4.3 7.3 100 Physical Contingencies 0.3 0.4 0.7 10 Price Contingencies 0.4 0.4 0.8 11 Total Project Costs 3.7 5.1 8.8 121 excluding taxes Financing Plan URC 1.8 - 1.8 IDA 1.9 5.1 7.0 Total Financing 3.7 5.1 8.8  6- StShedule f page 1 iF2 Amounts and Methods of Procurement (in USS thousands) Items to be Pr'(redj Pr oiramt ilethxs TOTAL PROJECT ICB LCB iS D/S OTHERS COST Total IDA Total lI Total IDA Total I[A Total IDA Total IDA 1. Cal I Ibr ox a) Materlals: 1. Track 594 5B4 584 59 2. CeWt 332 332 332 332 3. Rooflng aterlalrd brldcs 113 42 113 42 4. Smitary wIp.t a8 Oa so Os 5. olivert pipes 135 135 135 135 6. Ballast Ud awepte 74 28 74 28 b) ExwAtlon of works: 1. Repenlng crossIn statflr My1/ 261 169 261 2. Forutlon aid drinage resIrs 14291/ 537 1429 537 S. Improvement staff thowre 220y 83 220 83 2. au 1. PRactivatirn iarry 1068 1088 44 44 6 8 2501 94 1450 1284 2. Track malntsno 1177 1171 590 ley 881/ 33 185l 1800 3. Telecoi. siilles 188 188 10 I 105 121/ 5 303 2986 3. Servlc 1. Tedtical Asslstm, stuls ard tralnlrq 1500 1500 1500 1500 TOTAL (acludlrq tams) 12 312 231 114 688 68 1t3 173 416 2513 8800 70o 1/ Foroc accnt / Prorletary Item  -7- Schedule B Page 2 of 2 UGANDA RAILWAYS PROJECT DISBURSEMENT SCHEDULE Category Amount of Credit 2 of estimated cost (In $ Thousands) to be financed 1. Civil Works: 1002 of foreign expenditures and 402 of local expenditures Materials 986 Labor 742 2. Plant, Equipment and Supplies, 2,538 1002 of foreign expenditures including installation and 402 of local expenditures 3. Technical Assistance, Training and Studies 1,094 1001 4. Refinancing of PPF 560 Unallocated 1,080 Total IDA Credit 7,000 Estimated Disbursements from IDA Credit (US$ Million) IDA Fiscal Year FY89 FY90 FY91 PY92 Annual 0.6 5.0 1.0 0.4 Cumulative 0.6 5.6 6.6 7.0 Economic Rate of Return of the Projects 34 percent  Schedule C UGANDA RAILWAYS PROJECT Timetable of Key Processing Events Time taken to prepare: 5 months Prepared by: Government, Government consultants and World Bank staff and consultants First IDA Missions July 1988 Appraisal Mission Departure: July 1988 Negotiations: December 1988 Planned Date of Effectivenesst June 21. 1989 l  ^9- Schedule D Page 1 of 2 THE STATUS OF BANK GROUP OPERATIONS IN UGANDA A. STATEMENT OF LANK LOANS AND IDA CREDITS (as of September 30, 198) - - --USS million ------- Amount (Lose Cance lotions) Loan or Undie- Credit No Lo r Borrower PurDO Dank IDA bwrsed One (1) loan and fourten (14) credits fully disbursed 8.40 283.43 1248-U1 192 Uganda Industrlal Rehabilitation 85.00 14.02 1328-U 1903 Uganda Agricultural Rehabilitation 70.00 10.62 1329-10 1903 Uganda Third Education 32.00 .10 1434-1 19S4 Uganda S eond Technical Assist. 1S.00 0.53 144S-UC 194 Uganda Third Highwxiv 68.00 46.91 1510-11 1905 Uganda Water Supply and Sanitation Program 28.00 0.09 i539.4- 1905 Uganda Agricultural Development 10.00 9.92 1560-UC 1905 Uganda Second Power 289.0 34.71 1561-U3 l905 Uganda Petroloum Exploration Promotion 5.10 0.23 1603-U3 198? Uganda Fourth Highway 18.13 14.75 1824-UG 1590 Uganda Forestry Rehabilitation 13.00 11.24 0340-13 1986 Uganda Non-Sector Specif i (Econ. R*cow. Cr/SAF) 24.00 9.11 1844-UC 1986 Uganda Non-Sector Specific (4con. Recow. Cr./SAF) 68.00 32.20 1869-30 1990 Uganda South W..t Ag. Rehab. 10.43 9.41 1893-3 1980 Unda Sugar Rehab. 24.90 24.39 1934-13 1988 Usgnda HnIth ROc. 42.50 39.74 1051-U 1908 Uganda Tech. Aset. SII 16.Q0 17.1 Total 6.40 756.79 $03.90 of which has ben repeid 8.40 Total now outatandtng IDA amount sold: 17.60 of which has bee repaid 17,60 TOTAL NOW HELD BY BANK ND IDA 0.00 7M1.90 TOTAL UNDISI1!SED 0.00 J"M  - 10 - S. STATEMENT OF IFC INVESTMENTS Setse *0. 193 Obileor Tn. ot Business ~~~~Amount INiUs ml I I IoIn Flxcol Obiloor TYPOo Busine ss Loan tauI_ Total 1060 llulc Tezttll, Ltd. Textilee 2.79 .71 8.60 1972 Tourpl) Prootlons Servle. Touril 1.11 - 1.11 1968 Toro and Mltyana Ta Fooed and Co., Ltd. (TAMTEC0) Food POCosilng 1.02 - 1.62 1968 Suger Corp. of Uganda Food *nd Food Procetag 0.00 - C.00 194 Uganda Tea Corp. Ltd. Food and Food Processing 2.61 - 20 1984 Oevelomnt Finance Development Finance - 0.88 0.88 Coepany of Ugnd- Total gros commitmen 16.84 1.09 17.42 Low: Repaymten, cne llotions, - u exchange adjustment. and so " 4.96 .72 6.59 NOW hold by IFC: . V 11i.6 Total undliburved (including 0.0 0.0 0.0 partielpant, portion) _ _ _ Sorce: IFC DOIsreamensa Section  . ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~IBRD 2120 UGANDA )/ s. RAILWAYS PROJECT 77 uD A N o RAILtWAYS AND HIGHWAYS NETWORK hi a tjp ------iX ' 8, o~~ = Teniy iai gS 5RJ i t { \ti<>b K8 , ,_,J 7 \~~~~~~~~~~~~~~~ K E N Y A R_ Od_. rodOTIDOhiloI Mowhe r-di] ~ >GULU --Xfarsolenel 5 / - 3 b } \ 1q 1 Wo /r ~~~~~~~~~~~~~k, I / $ ii1 t< - {-~/ ~~ "~'6 ;\> Z A I R E f /l7tSNSf- >lNd;Aut i {> | \ S w iSlAS.41:A\V_-_: \ ! . !~~~~~1iI5E v/c ro ' it ) Ei { 1 eni $;i !) .Lb b > ;>;>j <> Y . \ Z tA ~~~N I A \ '/ Xt > '; /v~/ t_WAN|D A b;,, F,f .rt*g