Uganda - Railways Project

Document of The World Bank FOR OMCLAL USE ONLY Report NO. 13748 PROJECT COMPLETION REPORT UGANDA RAILWAYS PROJECT (CREDIT 1986-GU) DECEMBER 2, 1994 Infrastructure and Energy Operations Division Eastern Africa Department Africa Region 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.  LIST OF ABBREVIATIONS ACIS Advance Cargo Information System CEO Chief Executive Officer DCA Development Credit Agreement EAP Emergency Action Program GOU Government of Uganda IAP Initial Action Program IDA International Development Association KK line Kampala - Kasese Line KKLP Kampala Kasese Line Rehabilitation Project PCR Project Completion Report PSO Public Service Obligations SAR Staff Appraisal Report SDR Special Drawing Rights URC Uganda Railways Corporation RIP Railway Investment Program FISCAL YEAR Government: July 1 - June 30 URC: January I - December 31  FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A Office of Director-General Operations Evaluation December 2, 1994 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Uganda Railwavs Project (Credit 1986-UG) Attached is the Project Completion Report on Uganda - Railways Project (Credit 1986-UG) prepared by the Africa Regional Office with Part II contributed by the Borrower. The SDR5.2 million Credit was approved in February 1989 and closed, with a six-month delay, on June 30, 1993. SDR1 million was cancelled. The Credit was to provide financial and technical assistance to improve the Uganda Railways Corporation's (URC) management and organization, and to carry out interim rehabilitation of the Kampala-Kasese line pending major rehabilitation that would be financed through an Italian credit. In 1990, URC's financial problems reached critical proportions because of dropping traffic and increasing arrears due to URC by other Ugandan parastatals. At the same time, the Italian credit fell through because of doubts concerning its economic justification. At appraisal, the estimated rate of economic return on the physical component was 34%. After completion, the re- estimated rate was negative. Consequently, attention was shifted with success towards management and institutional improvements, inter alia: a statute for URC was promulgated, financial accounts were made current and staff productivity doubled. Thus, one of the two key objectives of the credit was fully met. The Region and the Borrower hope that institutional improvements might allow URC to compete with the trucking industry on a financially sustainable basis, but this prospect is fraught with uncertainties. The project outcome is rated as marginally unsatisfactory, its sustainability as uncertain, and its institutional impact as substantial. The PCR's quality is adequate. No audit is planned. Attachment 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.   FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT UGANDA RAILWAYS PROJECT (Credit 1986 -UG) Table of Contents Page No. P R E F A C E ...................................................i Evaluation Summary .................................................. ii PART - I: PROJECT REVIEW FROM BANK'S PERSPECTIVE ...............I Project Identity .............................1...................... Background ...................................................1 Project Objectives and Description: ...................................................2 Project Design and Organization: ................................................... 3 Project Implementation: ...................................................4 Project Results: ..............6....................................6 Project Sustainability: .................................................. 11 Bank Performance: .................................................. 12 Borrower Performance: . ................................................. 13 Project Relationship: .................................................. 15 Consulting Services: .................................................. 15 Project Documentation and Data .................................................. 16 PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE.. 20 Introduction ............................................ 20 Analysis and Objectives related to the Project ................................... 20 Retrospective Assessment of Implementation of the Project .............. 21 Other Comments and Observations . ........................................... 2 3 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.  Table of Contents (Cont'd) Page No. PART III. STATISTICAL INFORMATION ................................. 26 Related Bank Loans / Credits: ............. .................... 26 Project Timetable: ................................. 26 Credit Disbursements: ................................. 26 Project Costs and Financing: ...... ............ ............... 27 Project Results: ................................. 29 Status of Covenants: ................................. 32 Use of Bank Resources: ................................. 33 Annexes 1. Railway Investment Program - 1989-93 ..18 2. Ex-Post NPV Kampala-Kasese Line .34 3. Summary of K-K . .............. 35  UGANDA RAILWAYS PROJECT (CREDIT 1986-UG) PROJECT COMPLETION REPORT PREFACE This is the Project Completion Report (PCR) for the Railways Project in Uganda, for which Credit 1986 -UG in the amount of SDR 5.2 million was approved on February 21, 1989. The Credit was closed on June 30, 1993, after an extension of six months. The last disbursement was made on November 16, 1993. The Account was closed on December 6, 1993 and the undisbursed balance of SDR 1,038,845.92 was canceled. The PCR was jointly prepared by the Infrastructure and Energy Operations Division of the Eastern Africa Department (Preface, Evaluation Summary, Parts I and I1), and the Borrower (Part II). A brief PCR mission was carried out by the Bank in May 1994, and the Report is based, inter alia, on the Staff Appraisal Report; the Development Credit Agreement, supervision reports; correspondence between the Bank and the Borrower; and internal Bank memoranda.   ii PROJECT COMPLETION REPORT UGANDA RAILWAYS PROJECT (Credit No. 1986-UG) Evaluation Summary Objectives of the Project: I. The twin objectives of the Project were: (i) implementation of a program of improvements in URC's management and organization, including the establishment of a track repair and renewal unit; and (ii) interim rehabilitation of the Kampala - Kasese line, pending major rehabilitation, which was expected to be financed by an Italian Credit. The first objective was intended to be achieved mainly through, inter alia, the provision of specialist technical assistance in various departments of URC and the improvement of labor productivity; and the second, through the provision of tools, equipment and spare parts, re-opening of two crossing stations, reactivation of a ballast quarry and the carrying out of repairs to the line. (Pt.I - #3) Implementation Experience: 2. The Project start-up was brisk. The project was scheduled to be completed in a little over three years. There was one extension to the life of the project to enable important stages of institution and organization building activities to be completed. 3. As the Project reached the mid-term of its duration, the following developments took place (Pt. I - # 5.03) (i) URC's financial cash flow position became critical owing to dropping traffic volumes and build-up of arrears due to UIRC from other cash-strapped parastatal entities. This resulted in paucity of local funds to finance the civil works on the Kampala - Kasese line. (ii) The follow-on major rehabilitation of the Kampala - Kasese line, expected to be carried out with bilateral financing became very uncertain owing to considerable doubts on its economic justification owing to (a) the large scale of the proposed investments, (b) uncertainties in funding,(c) uncertainties of the materialization of cement traffic from the Hima Cement Plant, the future of which itself was under considerable doubt, (d) low rate of economic return and (e) GOU's decision to upgrade to a high standard the partly paved Fort Portal - Mityana highway broadly parallel to the line.  Lii (iii) It became clear that URC had to take urgent steps to improve its competitive position vis-a-vis the trucking industry, if it were to survive as a viable entity. This led to the formulation and closely monitored implementation of an Emergency Action Program (EAP). 4 As a consequence, the relative emphasis in the components constituting the Project shifted to management improvement and institution and capacity building measures. A large number of these were undertaken, and in retrospect, it is seen that the EAP had not come a day too soon; it has helped URC to stabilize its position, and the management improvement measures have helped in laying the foundation for the major commercial orientation which was vitally and critically needed, and which is being further developed in the current Transport Rehabilitation Project. 5. This was the first IDA-financed project that URC had undertaken, and the time taken to ascend the learning curve of procurement procedures, coupled with the limited number of staff trained to do the work led to considerable delays in procurement. Proect Results: 6. The Project achieved very significant and positive results in terms of improvements in URC's management and organization, including the establishment of a Track repair and renewal unit, and the stage has been set for further support for URC's orientation towards commercial operations and financial viability in the current Transport Rehabilitation project. The Project has made a beneficial impact on sectoral growth and policies, human resource development and the technological environment. (Pt. I - # 6) Specifically: (i) Promulgation of the URC Statute stipulating URC's operation on sound commercial lines, with GOU's support in terms of compensation for Public Service Obligations. This has been followed up by a Performance Agreement signed by GOU and URC. in January 1994. (ii) URC has cleared a huge backlog of completion and auditing of financial accounts, going back to 1981. (iii) URC's staff strength has been reduced from 7280 in 1988 to 4100 in 1993, with a 117 % increase in staff productivity. (iv) A reorganization of the internal departmental set-up on URC has been carried out. New functions of Planning, Internal Audit and a Construction Unit have come into being.  iv (v) PC-based systems for (i) Traffic Costing, (ii) Supplies Management, (iii) Wagon Tracking and (iv) Basic Management Information have been installed and are being used. (vi) URC has prepared a Corporate Plan and a Performance Agreement and agreed on them with GOU. URC is also negotiating its Financial Restructuring proposals with GOU. (vii) A first phase of training of deck officers and engineers for the ferry services has been completed. (viii) In terms of freight traffic levels, there has been a 22 % increase in 1993 compared with 1988; the deterioration in 1991 and 1992 has been made up. The Marketing Study carried out in the Project has helped URC to focus on its profitable traffic and nurture it. (ix) The repair and interim rehabilitation of the Kampala - Kasese line had a limited objective: to keep open the line until major investments were effected. The objective of keeping open the line was achieved, but the anticipated major investment program did not follow, owing to uncertainties in traffic demand and financing, as well as in the economic justification in the face of GOU's decision to upgrade the Fort Portal - Mityana Road, which runs broadly parallel to the line. About 60 percent of the projected US$ 5.0 million was actually spent on the line, work on which suffered from severe cash flow constraints in URC and delays in the arrival of imported inputs. The Economic Rate of Return, which was projected at 34 %, actually turned out to be negative, with a net present value (at 10 percent) of US$ ( - )1.4 million. (Pt. I - # 6.04) Project Sustainability: 7. A foundation has been laid, with minimum outlay, for URC's sustained viability as a commercial entity. Further action is planned in the current Transport Rehabilitation Project. URC's management will have the support of expert assistance in this project to build on its earlier gains and achievements. Risks to sustainability are: (i) de-motivation of management, to be guarded against by a proper system of management incentives ; (ii) GOU's lack of commitment to honor the terms of the Performance Agreement, which is not very likely owing to UJRC's strategic nature, and (iii) poor performance of contiguous transport agencies - Kenya Railways, Kenya Ports and Harbors, Tanzania Railway Corporation, and Tanzania Harbors Authority.  Finding,s and Lessons Learned: 8. The main strengths of the Bank's performance in this Project were: (i) the use of a relatively low cost project as a vehicle to get agreement and commitment to far-reaching and country-beneficial economic policy in respect of the railway sub-sector, (ii) the positive donor coordination efforts made up front, with the donor conference in London in April 1989 to firm up the Railway Investment Program, and (iii) the advisory role played by the Banik in the formulation of the Emergency Action Program in 1992, so as to optimize the utilization of the Credit funds during the last lap of the Project's course. 9 The borrower and executing agency displayed excellent commitment and initiative in carrying out a major staff rationalization program in a smooth and efficient manner. The initiative on details came from within URC, and the CEO as well as the Board played significant roles. The active involvement of the management of URC in the institution- building measures like (i) the introduction of the costing and wagon tracking systems, (ii) active canvassing for traffic with customer-oriented incentives, and (iii) the clearance of a big backlog of financial accounts was commendable 10. The lessons of experience are: * Procurement training to borrower staff should not be limited to one person, but given to a critical mass of staff, to enable the agency to be effective. * The length of time needed to get through the process of legislating a new measure like the URC Statute should not be under-estimated, in this case, it took three years. A project does not have to be large with massive investments in order to achieve major institutional changes, if borrower commitment is forthcoming, and intensive interaction between the borrower and Bank staff can be maintained.  I PROJECT COMPLETION REPORT UGANDA RAILWAYS PROJECT (CR. 1986 UG) PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE I. Project Identity: Name Railways Project Credit Number 1986 - UG RVP Unit Africa Region Country Uganda Sector Infrastructure: Transport (Railways) 2. Background 2.01 The railway system in Uganda, which comprises of the railway as well as the rail ferries operating on Lake Victoria, is state-owned. The Uganda Railways Corporation (URC) is responsible for the operations and management of the system Constructed in four stages between 191 1 and 1963, the meter gauge railway system was part of the East African Railways Corporation till its dissolution in 1977, when URC was established by Presidential Decree. The dissolution resulted in URC being left holding a distorted asset and staff base, compared to the requirements. The Government of Uganda (GOU) thereafter made major investments in URC equipment - in locomotives, the locomotive workshop, wagons and signaling and telecommunications in particular - but maintenance of permanent way, organization and management, and manpower development continued to suffer from lack of management attention. The freight traffic levels on URC, which stood at about 750,000 tons per year during the EARC days, fell to about half of this level on the average, and even as low as 200,000 tons in some years. 2.02 In March 1988, when the Bank was undertaking the preliminary work for a Transport Sector Project, GOU requested it to act as coordinating agency for donor assistance to URC under the 1989 - 93 Railway Investment Program (RIP) and provide support through an IDA Credit. A Bank staff mission visited Uganda in July 1988 to prepare a Staff Appraisal Report and an Assessment Report for interested co-financiers. The mission found that URC's focus had been mainly on mobile assets like locomotives, wagons and ferries, as well as telecommunications and a major repair workshop in Nalukolongo Serious weaknesses in respect of track and infrastructure maintenance, organization and management, and human resources existed, and GOU requested IDA for:  2 (i) assistance in the form of a project to address these weaknesses, and (ii) mobilization of coordinated donor support for the RIP. An SDR 5.2 million IDA Credit was approved by the Board in February 1989 and a donor meeting took place in London in April 1989. 2.03 Underlying IDA's judgment at the time that the railways have an important role to play in Uganda's expanding transport sector were the following assumptions: (a) URC's comparative advantage in long haul bulk traffic would lead to concentration of URC's activities on the international routes; (b) exports and imports would mainly use the ferry services, URC's preferred new route; and (c) the wagon ferry terminal at Jinja offered Uganda a degree of flexibility in its outlets to the sea, which did not exist via the roads, since the overland connections between Uganda and Tanzania were not well developed. 3. Project Objectives and Description: 3.01 Project Objectives: The objectives of the Project were to: (a) implement a program of improvements in URC's management and organization, including the establishment of a track repair and renewal unit; and (b) interim rehabilitation of the Kampala - Kasese line, pending major rehabilitation expected to be financed by an Italian Credit. 3.02 Project Description: The Project provided for: Part A: Strengthening tRC's Organization and Management 1. Strengthening URC's organization and management, in particular its track repair and renewal unit, accounting Department, and supplies management and telecommunications services, through the provision of technical assistance and training. 2. The preparation of (a) a detailed design to accommodate wagon repair activities '-' and (b) a list of machine tools and fixtures for the Nalukolongo Workshop. 3. The carrying out of a study for a staff training program.'- 4. Repair and improvement of staff living quarters in Kampala, Nalukolongo and along URC's western line. T he financing of this component was taken up by the African Development Bank during the course of project execution  3 Part B: Repair and Rehabilitation of the Kampala - Kasese line, through: 1. the acquisition of materials, tools, equipment and spare parts, 2. reopening of two crossing stations at Myanzi and Wamala, 3. reactivation of a ballast quarry at Kamwenge and supply of ballast, 4. the acquisition of track maintenance equipment; 5. repairs to line formation, draining and drainage structures; and 6. the acquisition of telecommunications supplies and vehicles. 4. Project Design and Organization: 4.01 An Initial Action Program (IAP) to strengthen URC's organization and management was agreed upon during negotiations. The IAP had the following facets: (I) Organization and management in general: Action through (i) formalization of URC's legal status by a Railways Corporation Act providing for autonomy to URC, (ii) clarification of URC's financial and asset structure (iii) better coordination between URC departments; (iv) upgrading of the status of the head of the Telecommunications department within URC; and (v) the establishment of a system of annual performance criteria and periodical reviews thereof (2) Building up of URC's track renewal and repair capability: Setting up of a distinct Civil Works Construction Unit, and the provision of a civil engineering consultant so that the Unit will be able to, in due course, have the capability to undertake future minor and major track maintenance work independently. (3) Improving Labor Productivity: By (i) staff strength verification by a personnel census; (ii) a recruitment embargo, providing only for limited exceptions in special cases; (iii) periodical reviews of staff complements; (iv) introduction of production-linked incentive schemes; (v) intensification and task-orientation of supervision (vi) staff attendance checks, (vi) adequate adherence to inspection and maintenance schedules; (vii) rationalization of locomotive maintenance schedules; (viii) timely supply of consumables; (ix) closer interaction between the locomotive maintenance units and traffic control; (x) increase in the proportion of staff housed at Nalukolongo for the workshops; (xi) improvement of office accommodation and staff living conditions and (xii) preparation of a staff training program. (4) Improving Financial Management: By: (i) clearance of the large scale arrears, dating from 1982, in the preparation of financial statements and the  4 auditing thereof, (ii) acquisition of micro-computers and computerization of accounts, and (iii) regular annual budgeting procedures with reviews. (5) Improving Materials Management: By: (i) inventory and review of existing stocks; (ii) computerization of stock management; and (iii) the use of technical assistance in the form of a Materials Management Specialist 4.02 The RIP covered a total investment of US$ 151.0 million, and agreement had been reached with GOU / URC on this figure and the components constituting it, and on prior consultation with IDA about any proposed changes in the RIP. 4.03 URC , the executing agency, was responsible for the implementation of the project. 4.04 The project had been well prepared. There was a clear conceptual foundation for the project, understood by the relevant parties. The scope, scale and timing were appropriate, particularly in respect of the rationality and discipline it introduced into the major Railway Investment Program. In retrospect, the weaknesses which surfaced during implementation were chiefly (i) longwinded procedures and procedural delays in the borrower's system, particularly for procurement of goods (ii) delays in legislative matters and (iii) URC's stringent financial situation leading to problems in providing timely funds for project-related activities. 5. Project Implementation: 5.01 Credit Effectiveness and Project Start-up: The start-up of the project was brisk. Board approval was obtained in February 1989, followed by signature of the Credit Agreement in March 1989 and credit effectiveness in November 1989. 5,02 Implementation Schedule: The project was originally scheduled to be completed by December 31, 1992. There was one extension of six months and the credit closed on June 30, 1993. The six month extension was needed to complete important institution and organization building activities. 5.03 Mid-course corrections: Results of work carried out in connection with the Uganda Transport Sector Memorandum in 1990 and 1991 led to a second look at the component of the Kampala - Kasese Line Rehabilitation Project (KKLP) in the URC Investment Program. The factors which cast considerable doubt on its economic justification were: (i) The scale of proposed investments on KKLP (US$ 160 million estimated for all the phases of the project, with about US$ 75 million for a low cost scenario), (ii) uncertainties in funding, (iii) uncertainties of the materialization of cement traffic from the Hima Cement Plant, (iv) low rate of economic return, and (v) GOU's decision to upgrade the Fort Portal - Mityana road broadly parallel to the rail line. A detailed overall assessment was considered necessary prior to major rail investments to determine the best means of serving the transport needs of Western Uganda and adjoining  5 areas in Rwanda and Zaire. URC planned to organize this study with its own financing, for presentation to the bilateral donor (Italy, in this case), who had originally agreed to finance this work. Ultimately, this study was not carried out, and the KKLP did not materialize. In so far the Project was concerned, it was, defacto, restructured in its relative emphasis on the components, even though there was no dejure formalization of the fact. The reasons for keeping the line operating became much less stringent, but were not eliminated completely, as GOU insisted that URC continue to provide services on the line. Concurrently at that stage, URC's operating and commercial performance were critically suffering for lack of efficient working systems and the IDA project continued with increased emphasis on institutional, organizational and management improvement and the formulation and implementation of an Emergency Action program (EAP). The physical inputs were a ballast crusher, basic track maintenance tools and equipment, repairs to formation and drainage on a small section of the KK Line (to support and train the Construction Unit; this was severely constrained by lack of funds from URC), and the acquisition of standby telecommunications equipment (wireless communication sets). The proposed acquisition of 10 km. of rails could not be financed from the Credit, owing to GOU restrictions on trade with South Africa, which had not been excluded in the tender documents; the lowest bidder was a South African firm. Eventually, URC procured the rails with its own funds, after the closure of the Project. 5.04 Project Risks: The risks identified at appraisal, and risk alleviation measures were: (i) The risk of URC's not becoming an autonomous entity: This was to be guarded against by the GOU commitment to promulgate the Railways Corporation Act by December 31, 1989. In actual fact, there was a delay and the URC Statute was made effective only on November 1, 1992. This has formalized URC's autonomy to function on commercial principles and move towards financial independence and viability, even though the budget still needs to be approved by the Minister. Major transitional actions initiated already (vide paragraph 6.01) will be strengthened during the course of the proposed Transport Rehabilitation Project. (ii) The risk of low staff motivation and low labor productivity: URC has introduced, since 1990, a series of basic staff incentive schemes concurrently with a major staff rationalization exercise, reducing the staff strength from 7280 at the beginning of the Project to 4200 at the end of the Project. This has led to substantial improvement in productivity. The productivity index in terms of Tons per employee improved from 51.9 in 1987 to 11 5.1 in 1993 - an increase by 122 %. 5.05 Factors that affected Project Implementation: (a) The change in the thrust of the project, occasioned by the mid-course correction has been referred to in paragraph 5.03. (b) This was the first IDA Project for URC staff and management, and they needed time to ascend the learning curve in respect of procurement procedures and  6 principles, in spite of formal training of the staff concerned. This contributed to delays in procurement. The internal procedures in URC, as well as the inter-acting procedures with the ministries and Central Bank, in the absence of systematic monitoring, were time consuming. This resulted in SDR 1.038 million of the SDR 5.2 million credit being canceled at the close of the Project. (c) This short project ( three years and eight months from effectiveness to close) saw three Chief Executive Officers, in succession, on URC. This affected the continuity of monitoring and control to some extent. (d) Serious cash flow problems on URC constrained significant track maintenance work being undertaken on the Kampala - Kasese line. Only one crossing station was opened on the KK Line, instead of the two planned. The second is expected to be completed in August, 1994. 6. Project Results: 6.01 The first objective of implementation of a program of improvements in URC's management and organization, including the establishment of a track repair and renewal unit was largely achieved and the stage has been set for the URC component in the Transport Rehabilitation Project, which is directed to further support URC's reorientation towards commercial operations and financial autonomy. The specific achievements are: (i) Promulgation of the URC Statute (Statute no. 13 of August 1992, effective November 1, 1992). This Statute stipulates that URC shall operate on sound commercial principles, with its income being able to cover operating expenses including depreciation, debt servicing, pension liabilities, as well as an annual return on capital employed. It also provides for compensation from GOU to URC if the former requires the latter to provide services at charges below costs. This has set the stage for URC to become commercially oriented in reality, and the seal has been set by the signing of a Performance Contract between GOU and URC in January 1994. The Statute also provides for persons having knowledge and experience in transport, finance, industry, administration or engineering to be appointed (by the Minister) to the Board of Directors of URC, thus obviating the loading of the Board with GOU officials. (ii) URC had a huge backlog in respect of completion and auditing of annual accounts, going back to 1981 at the time of the start of the Project in 1989. URC has become current in respect of the completion and auditing of annual accounts in 1993. (iii) The total staff strength of URC, which stood at 7280 in 1988, had been reduced to around 4100 by the close of the Project, leading to a productivity improvement of 117 %.  7 (iv) URC's internal organization has been revised and streamlined to provide for adequate importance to the functions of ferry operations, commercial operations, planning and telecommunications. (v) An Internal Audit Department has been set up and has started functioning. (vi) A Construction Unit has been set up in URC, with the basic capability for heavy maintenance and renewal of track, and essential tools and equipment, including a ballast crusher have been acquired. However, it has not been possible to undertake significant work, owing to cash flow problems and delayed arrival of inputs. (vii) A PC-based basic Management Information System has come into existence in URC, and management information is fairly up to date, even though there is room for improvement. (viii) The Planning department, headed by the Planning and Development Officer has come into being, and annual rolling plans are being prepared, basic project evaluation capability has been installed. (ix) A custom-designed "Supplies Manual" has been brought into use to lay down clear directions for the Supplies Management function. URC is also computerizing its Supplies Management System, using PCs and off-the-shelf software (financed from the Credit), building on the work already done on German locomotive spares with KfW assistance. (x) URC has used Credit funds to install a PC-based Traffic Costing System (OSCAR), which has been used as the basis for the assessment of PSO compensation provided for in the Performance Agreement. OSCAR will also assist URC in tariff setting. (xi) Credit funds were also used to install the first phase of UNCTAD's ACIS Railtracker cargo information system with the objective of improving customer service and monitoring efficiency of operations. The second phase is scheduled to be completed in the forthcoming Transport Rehabilitation Project. (xii) A Core Corporate Plan has been prepared with the help of Consultants to define the general sense of direction URC has to follow till the year 2000. This has assisted URC in drafting and signing the Performance Agreement with GOU. (xiii) URC has prepared detailed proposals for financial restructuring, with emphasis on capital restructuring with the help of consultants. This is being negotiated with GOU, and is a condition for disbursements under the URC component of the Transport Rehabilitation Project.  8 (xiv) A Marketing Study with special reference to petroleum products and containers was carried out by consultants and its recommendations are being progressively implemented. (xv) Training of deck officers and engineers for operating the ferries has commenced in earnest in institutions in Kenya and U. K. This is scheduled to be continued in the Transport Rehabilitation Project. (xvi) Traffic Results: In terms of physical performance, URC's freight traffic levels recorded the following figures immediately preceding and during the life of the Project: Year > 1987 1988 1989 1990 1991 1992 1993 Freight tonnes 378 404 414 491 415 364 495 ('000) Freight tonnes KK Line ('OOOT) 26 32 22 31 32 32 55 URC: FREIGHT TONNES (000) 500- !491 1 495 450 44041_5 400 4-- 4 1364 350 36 300 . TOTAL 250 200 .{' K K LINE 150 100 50 Ti26 ---32 A-_-29-1- 55 O~~~ ---N r, a) CY) o _N CY) co) co co al au a, a, U) U U U U U U The reasons for the drop in 1991 and 1992 were mainly the drop in demand due to the drought conditions in the region, and the effect of increasing road competition. The latter factor emphasizes the importance of URC's commercial orientation, operating efficiency and marketing strategy; this has been realized by URC and GOU and the foundation for these has been laid in the Project, to be fully established under the Transport Rehabilitation Project.  9 (xvii) Equipment Maintenance and Utilization: Locomotives: The problems with axle breakages on the 73 class locomotives were tided over during the first half of the Project duration by a German-financed planned axle replacement program using re-designed axles, and some modifications on the locomotives. A French-financed program of rehabilitation of the heavy French diesel-electrics was also completed, and six of them were resurrected, and URC is scrapping the other three. The Nalukolongo workshop was equipped, staffed and commissioned during the Project period. Overall, the locomotive availability was below targets, but traffic capacity was not affected owing to the surplus of locos (strategic surplus) in the fleet. At the close of the Project, ten of the surplus locos were working on hire on Kenya Railways, earning valuable revenue. Locomotive utilization continued to be low, the surplus of locomotives contributed to this. Hiring out of locomotives should improve the utilization. Wagons: Wagon availability and turn-round were up to targets; wagon loads were slightly under targets. Preventive Maintenance for wagons has been started in 1992 in the Danish-funded program. 6.02 Other donor inputs into URC's Investment Program: Details are listed at Annex 1. 6.03 The second objective of the Project, viz., keeping the Kampala - Kasese Line operating in anticipation of a major rehabilitation project lost its primary justification as a result of the mid-course correction referred to in paragraph 5.03 above. 6.04 Economic Rate of Return: The repair and basic rehabilitation of the Kampala - Kasese line had a limited objective: to keep the line open for about five years until major investments would be effected. This objective to keep the line open was achieved, but the anticipated major investment program did not follow, owing to the course of events described in paragraph 5.03. The SAR projected investments of nearly US$ 5.0 million, with freight volumes projected to increase from 24,000 tonnes in 1988 as the base year to 80,000 tonnes in 1992 and 1993, yielding an ERR of 34 percent. The actual value of investments in equipment and works during the project was about US$ 3.0 million of which nearly US$ 1.0 million worth of equipment arrived towards the very end of the project and hence, could not effectively contribute to the benefits within the project implementation period. The repair and rehabilitation work suffered considerable delays owing to late procurement and URC cash constraints. Starting from the 1989 volume of 21,990 tonnes as the base volume since effectiveness occurred on November 8, 1989, URC's traffic levels on the line remained around 32,000 tonnes during the three years from 1990 to 1992, and reached  10 55,000 tonnes in 1993. There was probably real demand for rail transport on the line, but inadequacy of rail capacity and the low standard of service constrained the rail traffic volumes. Hence the net present value for this part of the project is negative. (Annex 2). The traffic carried over the line in the first four months of 1994 was 21,000 tonnes, and URC has forecast over 60,000 tonnes for the year. This has reasonable prospects of being achieved, and if it is, it will be an indication of the spill-over of the project benefits into succeeding years. 6.05 Financial Rate of Return: The SAR (para 4.10) projected a Financial Rate of Return of 24 percent for the Kampala - Kasese line interim rehabilitation under the Project. The ex-post calculation shows an aggregated incremental loss of US$ 1.457 million during the period 1989 - 1993. While capital costs of only 60 percent of the projected US$ 5.0 million were invested, the aggregated volume of incremental freight traffic reached only about 20 percent of the projected volume. The incremental revenues, including passengers and livestock as well, measured in US$ were positive only in 1993 (Annex 3). 6.06 Project Impact: a. Sectoral policies: The Project laid the groundwork for the railway sub- sectoral policy of GOU, which is being implemented in the Transport Rehabilitation Project. Basically, the Project generated commitment from GOU, URC and donors that URC has to survive in a liberalized transport market environment, by adopting a fully commercial orientation with emphasis on customer service, operational efficiency and flexibility, and not expecting operational support from GOU, except for the PSO compensation payments. b. Human Resource Development: When the Project commenced, there was acute shortage of trained technical personnel, particularly in the mechanical, civil engineering and ferry operations and maintenance departments of URC. This has been improved, particularly in the first two departments by the combined inputs of the Bank and donors in the course of the Project. The management was also exposed to modern management techniques by the T. A. inputs for training and studies. There has been substantial value added to human capital in URC. c. The Technological Environment: Increase in the technical know-how in URC, as well as the introduction of computers and some appropriate track maintenance equipment has substantially enhanced the technological capacity of URC. d. The Physical Environment: The Project has had no direct effects on the physical environment, except that increased transport of goods by rail and  l/ ferry has, by implication, reduced consumption of hydrocarbon fuels and road damage associated with transport by trucks. The risk of oil spills in Lake Victoria has, no doubt, increased with increased movement of tank wagons containing petroleum products; this is being addressed to a modest degree in the Transport Rehabilitation Project. A full-fledged mitigation plan will be possible only on an international basis to serve the three lacustrine countries. e. The Social Environment: The reduction in staff resulting from the staff rationalization exercise on URC, and the countervailing effects of direct salary and production incentive enhancements in URC cannot be estimated within the scope of this report. There will be a marginal social impact on the living conditions of URC staff living in URC's railway quarters by the input of materials (costing approximately $100,000) for improvement of sanitary and water supply fittings therein, when the materials which were received towards the end of the Project are actually put to the intended use. f National and / or local institutions: IDA utilized a local consultant for financial supervision and analysis during the supervision phase. The output was of satisfactory quality. Auditing of financial statements and project accounts was entrusted to a local private firm of auditors on behalf of the Auditor-General. The quality of output showed some improvement over time. Software support for the extension of the Supplies Management System was also provided by a local firm. This experience can pave the way for more work to be entrusted to local institutions in the future, provided their Terms of Reference are spelt out clearly, and supervision of their task is adequate. 7. Project Sustainability: 7.01 As can be seen from the preceding paragraphs, the project results ( including other donor inputs into the Investment Program ) are in two main categories: (i) Institutional and Organizational Development and (ii) build-up of assets required for URC's commercial operations, mainly from other donor inputs. (i) Institutional and Organizational Development: The outputs from this category cannot be quantified easily; however, it is clear that a foundation has been laid, with minimum outlay, for URC's sustained viability as a commercial entity. Further action is scheduled in the Transport Rehabilitation Project. The risk of non-sustainability stems mainly from the possibilities of (a) URC's top management getting de-motivated and (b) GOU not honoring its commitments under the Performance Agreement. A system of incentives for management should be considered by the Board of Directors. There is, at the present moment, no sign of any lack of commitment on the part of GOU to implement the provisions of the Performance Agreement; the strategic nature of URC also adds to the probability of GOU taking steps to ensure its continued viability.  12 (ii) Build-up of operational assets: Proper and prudent utilization and maintenance of the assets received with donor financing under the Railway Investment Program would aid sustainability. URC's management will have the support of expert assistance during the first year or more of the Transport Rehabilitation Project, and it can be said with a reasonable level of confidence that the knowledge and expertise to be transferred will be retained, to make for sustainability. 7.02 Overall, the Project has been a "jump start" for URC's viability, and the Transport Rehabilitation Project will endeavor to achieve sustained improvements in URC's performance. 7.03 Another essential ingredient for URC's success, the lack of which can jeopardize URC's performance, is the level of operational and commercial efficiency of the adjoining railway systems in Kenya (KR) and Tanzania (TRC) and the ports (Mombasa and Dar es Salaam). 8. Bank Performance: 8.01 The main strengths of the Bank's performance in this Project were: (i) the use of a relatively low cost project as a vehicle to get agreement and commitment to far-reaching and country-beneficial economic policy in respect of the railway sub-sector, (ii) the positive donor coordination efforts made up front, with the donor conference in London in April 1989 to firm up the Railway Investment Program, (iii) the continuous information by IDA to other donors on the progress of the Project, and (iv) the advisory role played by the Bank in the formulation of the Emergency Action Program at the end of 1992, so as to optimize the utilization of the Credit funds during the last lap of the Project's course. 8.02 The weakness observed was that of IDA taking the risk of making a legislative action, over which URC had little control, as a dated covenant. This turned out to be an unrealistic target. Eventually, URC did obtain its Statute during the course of the Project, though. 8.03 The Bank had explored the need for a Railway Project in Uganda with missions in 1979, 1982, 1983 and 1984. Following changes in government in Uganda, the efforts resumed in earnest in July 1988, when a preparation-cum-appraisal mission visited Uganda in July 1988, which culminated in negotiations in December 1988, Board presentation in February 1989, credit agreement signature in March 1989 and declaration of effectiveness in August 1989. This work on the fast track was effective in meeting Uganda's need to get a sense of direction on railway policy and investment choices in a timely manner. Supervision missions were mounted regularly: October 1989, March 1990, October 1990, April 1991 (limited), February 1992, September 1992 and January 1993. The missions fulfilled the roles of monitoring of implementation, analysis of operating and financial performance, assisting in removing hold-ups in procurement and execution, and advising on management and operations.  13 8.04 The lessons of experience are: * Procurement training to borrower staff needs to be given to a critical mass of staff, to enable them to be effective. In this case, the two trained "specialists" - one from the Supplies Department, and the other from Finance Department - tended to keep much of the procurement and disbursement information with themselves; there were delays in procurement, and URC's top management was often put in an embarrassing position. This training should be a part of project preparation. * The length of time needed to get through the process of legislating a new measure like the URC Statute should not be under-estimated. * A project does not have to be large with massive investments in order to achieve major institutional changes, if borrower commitment is forthcoming, and intensive interaction between the borrower and Bank staff is maintained. 9. Borrower Performance: 9.01 Commitment of the executing agency of the borrower to institutional changes was extremely strong at the commencement and concluding stages of the Project, but less so in mid-term. This may be the result of discontinuity in the tenure of the Chief Executives. Management of institutional and organizational change within the Corporation was generally well handled. 9.02 The borrower and executing agency displayed excellent commitment and initiative in carrying out a major staff rationalization program in a smooth and efficient manner. The initiative on details came from within URC, and the CEO as well as the Board played significant roles. 9.03 The borrower (GOU) could have accelerated the pace of change on UJRC, if the promulgation of the Railway Statute had been carried out in 1989, as agreed upon during the negotiations of the Project. 9.04 The active involvement of the management of URC in the institution-building measures like (i) the introduction of the costing and wagon tracking systems, (ii) active canvassing for traffic with customer-oriented incentives, and (iii) the clearance of a big backlog of financial accounts was commendable. 9.05 However, lack of managerial experience and expertise in the Finance and Marketing functions on URC was a weakness. In the past, the emphasis in the Accounts Department had been traditionally inward looking, dealing with Corporate Accounts, with few outward looking activities like pro-active budgeting and budgetary control as tools for top management. Partly arising from this weakness, and mainly from defaults in payments  14 of freight dues by cash-strapped parastatal customers of URC which was not foreseen at the start of the Project, the organization suffered extreme cash flow stringency, resulting in its not being able to fund basic maintenance operations on track, locomotives and rolling stock, as well as in shortfalls in the physical execution of project components wherein URC was providing counterpart funds. For a while, the Construction Unit became almost defunct for want of funds, and full advantage of the Civil Engineering Consultant's presence, in terms of actual execution of substantial work under his guidance, could not be taken by the Unit, 9.06 There was no marketing function in URC till towards the close of the Project. With this missing component in the management function, URC was not in a good position to take pro-active decisions to stave off the erosion in its share of traffic in petroleum products. In early 1992, it was clear that URC's competitive position was being rapidly eroded, and the Emergency Action Program was formulated by the management, in consultation with IDA. This timely action, and the close follow-up of its implementation helped in the stabilization and recovery being witnessed by URC currently. 9.07 The procurement process for IDA-funded items in the Project has had to go through tortuous routes on account of the various agencies like the parent ministry, the Bank of Uganda, the Ministry of Finance, the Revenue Department (Customs), etc., apart from the circuitous inter-departmental processing route within URC. The two IDA procurement-trained specialists tended to work in insulated boxes of their own, to the detriment of timely procurement. This, coupled with (a) occasional departures from IDA Procurement Guidelines by URC in bid evaluation, which led to correspondence with IDA and attendant delays for rectification, and (b) lack of close follow-up of the myriad procedures at each stage led to significant delays in procurement. The procedural issues external to URC are being addressed in CPPRs and the situation is expected to improve. In case of future projects with substantial procurement content, procurement training for a URC staff team, rather than a few individuals, and including management personnel would be necessary. 9.08 URC management had tended to be highly "railway oriented" till towards the close of the Project, and the main revenue-earning marine section had tended to get secondary importance. It was in 1992 that, ultimately, the ferry operations and maintenance functions were accorded full-fledged departmental status. Ferry operations were adversely affected by delayed overhauls and insufficient manning complements, attempts to reverse these weaknesses were commenced in 1992, and will need to be continued. 10. Project Relationship: 10. 01 The preparation and early stages of project implementation were marked by close understanding and cooperation between the executing agency and the Bank, in which the personality of the Chief Executive of URC had a leading part to play. The situation was equally good towards the close of the Project, when major initiatives were taken by URC  15 management in association with the Project Team of IDA, in streamlining management systems. 10.02 The Bank's relationship with GOU and the other donors in the Railway Investment Program was uniformly good. The initial donors' conference held in London in April 1989 was a success, and helped crystallize and lay down the ground rules for URC's Investment Plan. Supervision missions had fruitful inter-action with the representatives of the main RIP donors in the country. The mid-course correction in the URC Investment Program, which resulted in the proposed major rehabilitation of the Kampala - Kasese line having to be deferred till a re-evaluation of the economic justification, was also supported by the prospective donor, Italy. In the event, the re-evaluation was not carried out, and there was no follow-up action on the component. 10.03 URC's business strengths are very much dependent on its relationships with the two contiguous railway systems, viz., KR and TRC. While at the railway managerial level, URC maintained uniformly good relationships with both the transit partners, on the political level, there were ups and downs on the Uganda - Kenya relationship, which inevitably affected the transit movements. The need for close regional cooperation was recognized and acknowledged at the political level towards the close of the Project, and the operational and business links between the railways were further strengthened. Also, IDA's involvement in Railway projects in Kenya and Tanzania had a beneficial and catalytic effect in strengthening the relationships. 11. Consulting Services: 11.01 The man-month content of the Technical Assistance provided under the IDA component of the Project was as follows: Activity M/Mths Firm / Consultant 1 . Verification of Accounts 3 CIE Consult, Ireland 2. Dev. of Track Renewal Capability 36 Geri Engg.Gmbh, Germany 3. Streamlining Supplies Management 18 DE Consult, Germany 4. Petroleum Marketing Study 2 Hickling, Canada 5. Core Corporate Plan 8 Hickling, Canada 6. Financial Restructuring Proposals 2 Hickling, Canada 7. OSCAR Traffic Costing System 3 Hickling, Canada 8. ACIS Cargo Inf System (Ph. I) 3 UNCTAD, Geneva  16 1 1.02 The T. A. for development of track renewal capacity helped in getting the Construction Unit of URC operational. Basic track renewal, work measurement, incentive management, and monitoring capacity were developed in the Unit. However, the serious cash flow problems limited the actual volume of work and on-the-job training carried out in the field. Delays in procurement of equipment and machinery also meant that transfer of expertise was limited to the level of the equipment available. 11.03 The response of the Supplies Department on URC to the recommendations of the Supplies Management Consultant was lukewarm. It was much after his departure, and following the constant persuasion efforts by IDA Supervision teams that, ultimately, the Supplies Manual was brought out, and a beginning was made in its implementation with a PC based system for URC as a whole. The locomotive section, meanwhile, had developed a working system for German locomotive spares with T.A. financed by KfW. The two consulting groups, financed by IDA and KfW worked well together. 1 1.04 The Financial Consultants were appointed mainly for verification of the first set of accounts (for 1987), which were produced by URC. This input helped in ultimately bringing URC's accounts up to date. 11.05 Short term consultancies for drafting the Core Corporate Plan, preparing proposals for Financial restructuring, and installation of a Traffic Costing System paved the way for the formulation and signing of the URC Performance Contract, which was a condition of negotiations for the Transport Rehabilitation Project. The ACIS Phase I, which was installed at the very end of the Project is helping URC in its marketing and operations monitoring functions. 12. Proiect Documentation and Data: 12.01 Legal Agreement: The Development Credit Agreement had the usual clauses, and there was no significant special strength or weakness observed in its terms. The weaknesses observed in implementation, as described in paragraph 4.04 did not result from the contents of the DCA. 12.02 Staff Appraisal Report: The SAR was very useful in project implementation and supervision. It provided clear guidelines for the Initial Action Program, the Railway Investment Program, Terms of Reference for Consulting Services, as well as the technical background data needed for supervision. The document was used by both URC and the Bank for reference and guidance during implementation of the Project.  17 12.03 Data for preparation of PCR: The data for PCR preparation was generally available easily from the project files in the Africa Information Services Center and the Division's files. URC's expenditures on the Project had not been recorded in the Bank's files, and for future projects, it would be worthwhile to obtain such information along with periodical progress reports. This procedure will also ensure that project accounts in the implementing entity are kept up to date.  18 Annex 1. UGANDA RAILWAYS CORPORATION RAILWAY INVESTMENT PROGRAM - 1989-93 OTHER DONOR INPUTS 1. EEC Financing: 50 low sided and 50 covered wagons were received. 2. Spanish Financing: 100 tank wagons for petroleum products and 51 ballast hopper wagons for track maintenance were received. 3. French Financing: (i) Six heavy diesel electric locomotives were rehabilitated, (ii) the telecommunications system on the Central and Western Lines was rehabilitated with a simplified system and (iii) an 80 ton breakdown crane and two container fork lifts were received. 4. Danish Financing: The Preventive Maintenance and Overhaul Program for freight wagons was started, and is in progress. The railway line to Port Bell, close to Kampala, was relaid and the jetty there opened for ferry traffic: this has substantially reduced the rail haulage component of international traffic on the difficult and highly graded Jinja-Kampala line with its cost-intensive operations. 5. Financing from the Islamic Development Bank: The critical bridge over the river Nile at Jinja, which was overdue inspection was inspected in detail by experts. No major defects were found, but the urgent repair work necessary from safety considerations was carried out by URC's own financing. More work is to be carried out when suitable financing is available. 6. African Development Bank Financing: The Wagon Workshop and Training Needs Study are yet to commence. 7. German Financing: (i) The Nalukolongo Workshop was provided with equipment, machinery and tools, (ii) staff were trained and positioned in the workshop, (iii) Spares support was provided for the axle replacement program. preventive maintenance, overhauls and repairs of 73 class locomotives ( This was largely instrumental in URC's being able to hire out locomotives to Kenya Railways), (iv) a computerized spares supplies management system was put into place for German locomotive spares, and (v) Technical Assistance was provided for Workshop Management.  19 8. GOU Financing 140 covered wagons were received against orders placed with a firm in Zimbabwe. 160 low-sided wagons are on order, and supplies are expected by the end of October, 1994.  20 PROJECT COMPLETION REPORT UGANDA RAILWAYS PROJECT CR. 1986-UG PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE 1. Introduction We have had the opportunity to go through Parts I and III of the Draft PCR and we have found part III adequate and accurate. Our observations, analysis and comments on the analysis contained in Part I is contained in paragraphs 2.0, 3.0 and 4.0 herein. 2. Analysis and Objectives Related to the Project 2.01. Objectives. The basic objectives of the project described in para 3.0 Part I of the PCR were essentially covered to the satisfaction of the Board and Management of Uganda Railways Corporation. The shortcomings, on the Repair and Rehabilitation of the Kampala Kasese line, have been addressed separately in para 2.3 below. 2.02 Strengthening URC's Organization and Management. As a result of the Bank's initiative, Government passed URC's statute which constituted URC into a dejure and de facto commercial organization. The improvement of URC's management and organization including the establishment of a track repair and renewal unit was, in URC's view a success. It has enabled URC to create capacity, strengthen its organization and management particularly in the track repair and renewal, marketing, marine and planning areas. URC Management has been able to tap immense expertise from the technical assistance provided by the various consultants in areas of track repair and renewal, accounts, materials management, costing, corporate planing and marketing. This realization manifested in the improvement of the following areas:- (a) the change in the declining volumes of traffic, experienced in 1991 (415,000 tonnes), 1992 (364,000 tonnes). Traffic increased by 36% from 1992 to 495,000 tonnes in 1993 and a total of 139,000 tonnes has been realized in the first quarter of 1994. (b) the increased haulage in petroleum and Containerized traffic.  21 (c) the establishment and strengthening of the departments of Marine, Marketing, Planning and Development and Internal Audit. 2.03 Repair and Rehabilitation of Kampala Kasese line. The original objective of the project as described in para 3.01 (b) of part I, was to provide an interim rehabilitation of the Kampala Kasese line, pending major rehabilitation of the line. Whereas acquisition of materials tools - equipment and spare parts was adequately covered, the failure to acquire rails owing to an infractions tender and sufficient sleepers adversely affected this objective. Some of the factors which cast doubt on the economic justification of the project need to be updated: (i) the potential of the Hima cement factory which has now made considerable progress; (ii) improvement in Power Supply to Hima Cement Factory; (iii) the reactivation and rehabilitation of the Kilembe Mines, (iv) the volume of grains from the Kasese/Kamwenge areas; and (v) the distance between the railway line and Mityana-Fort Portal roads. 3. Retrospective Assessment of Implementation of the Project 3.01 Track Renewal Unit. The track renewal unit was set up in April 1989 under the Chief Civil Engineer. It was later elevated to departmental level with its own Chief answerable to the Managing Director. The track repair and renewal unit (Construction Unit) has since its inception been carrying out heavy track maintenance and repair from Kasese station to Kamwenge. The quarry at Kamwenge was erected towards the close of the project. Offices were put up and machinery was procured using proceeds from the credit. In addition, staff houses were also put up. A qualified Quarry Manager and other necessary staff were recruited. The quarry is now instrumental in the rehabilitation effort of the Kampala - Kasese line. The entire distance from Kasese to Kamwenge is fully ballasted and other critical areas of the line are to be ballasted using ballast from Kamwenge quarry. Further, the unit has managed - as indicated in the credit specific objectives to open up Wamala station and is in process of opening up a second station at Myanzi - both stations were destroyed during the 1979 war.  22 We are happy to report that since the inception of the credit, the Construction Unit has developed enormous capacity in the areas of track renewal and repair. This has been facilitated by the Technical Assistance that was obtained out of the credit proceeds. 3.02 Equipment. The Unit's capacity has improved through the acquisition of the machinery and tools over the credit period designed for track maintenance, quarry works and housing. Funds allocated for procurement were used except for 10 km of rails which were purchased with URC funds. The procurement of the Railroad Excavator and fire fighting equipment were time barred. 3.03 Institutional Strengthening MIS C.I.E. was commissioned to update the corporation accounts which was accomplished successfully. DE-Consult was charged with a study to reorganize the supplies department and recommend to URC as to the future management of the same. The Consultant produced a Supplies manual and recommended computerization of the department which has already been done. As indicated in the preamble of this report, towards the end of the credit period, a substantial amount of the credit was reallocated to institutional strengthening and training of the marine staff Under this component, considerable improvement in strengthening of URC was attained in the following areas: A total of 13 (thirteen) deck officers and 10 (ten) engineers were trained in Bandari college-Mombasa and the United Kingdom (Tyneside College) respectively. The training of the above officers has gone a long way to improve on the deck discipline and engineering capacity of the marine department. A seven-year Corporate Plan was developed by URC, assisted by Hickling Corporation of Canada. The Corporate Planning process enabled URC management to have deeper insights into the commercial and economic environment affecting URC operations. The Corporate Plan further identified some key critical aspects in terms of equipment utilization, core business activities and set strategies to be followed by URC to work in a commercially competitive market to the year 2000. The Corporate Plan gave URC management a sense of direction. The Operational Simplified Costing for African Railways (OSCAR) model was successfully installed. This has enabled URC to cost traffic movements by determination of cost recovery tariffs. The model can also be applied to analyze operations sensitivity and determine loss making routes. The Supplies Management report was studied by URC and using proceeds from the credit, computer hardware and software was procured. The stock control program and the supplies manual were made and are operative.  23 A cargo tracking system was installed with Technical Assistance from UNCTAD. Six URC officials were trained in operating the system. The system has enabled URC to establish the whereabouts of its wagons, locomotives and wagon ferries at any given time. The initial evaluation of this system indicates that it has greatly improved on the turnaround of wagons and cargo monitoring. The marketing study for POL products and containerized traffic was completed and a time based action plan for implementation of the findings of the consultant was made. Initial results of this time-based action indicate a lot of improvement in marketing which has led to increased traffic of up to 495,000 tonnes in 1993 compared to 363,000 tonnes in 1992 and in particular fuel traffic doubled between 1992/1993. The Financial Restructuring Study was completed in July 1993. The report identified key areas that needed attention in the management of finances in URC and all assets were revalued. The study also identified all the loans and grants forwarded to UJRC by government since 1977. Following completion of the Corporate Plan and the Financial Restructuring Study, the Government of Uganda signed a Performance Agreement on 28th January, 1994 with URC which specifically defines the relationship between government and URC. In particular, government recognizes that URC must operate commercially and government undertook to compensate URC on the loss making services that will be provided at the request of Government. 4. Other Comments and Observations 4.01 Taxation. The policy of GOU on taxation on items funded by IDA resulted in adverse financial implications to the borrower. These include: (a) Import license commission 1% (b) S.G.S. fees 1% (c) Withholding tax 1% (d) Sales tax (e) Import duty The total tax may be as high as 30% of the total FOB cost. 4.02 ICB Procedure. The IDA procurement procedure is tedious, requiring rather too many "no objections" which tend to delay the procurement process. Streamlining of the process and more staff training will greatly expedite the procurement. 4.03 Disbursements. Payments by LC take unnecessarily long to confirm. The supplier is usually notified of the confirmed LC after or when the LC is about to expire. IDA should open up accounts with reputable Commercial Banks in borrowers' countries to expedite the disbursement process.  24 4.04 Participation. For an IDA project to succeed, it is necessary to hold regular seminars among senior officers of the Corporation. This would lead to more involvement and participation of the staff concerned. 4.05 Performance of the Bank. In addition to the above benefits in para 2 and 3, a handful of URC staff have been trained and amassed experience to handle IDA loans. This will go a long way to improve project execution for future projects. Timely intervention by IDA staff whenever they realized that something was going wrong on the side of URC, steered the project to success. As a result of the EAP and the changing of URC management, a vigorous approach was put in place by URC management which facilitated URC to accelerate the implementation of the project and improvement in URC's performance. 4.06 Performance of URC. In the early stages of the project, progress was slow as a result of URC's inability to cope with procurement procedures. However, during the course of the project, URC gained momentum and is now in position to execute future projects expeditiously. 4.07 Relationship between the Bank and URC. Other than during the period interregnum in the middle of the project, the relationship between IDA and URC was close and effective. In particular, the Emergency Action Plan (EAP) shall always be viewed by URC as a timely program which saved URC from total collapse. Management believes that with the new structure and strategy, the new project must also be a success.  25 PROJECT COMPLETION REPORT UGANDA RAILWAYS PROJECT CR. 1986-UG PART III. STATISTICAL INFORMATION 1 Related Bank Loans / Credits: Title Purpose Year of Status Comments Approval Transport Rehab. Project To improve the basic road FY 94 DCA signed URC component infrastructure and ensure on May 3, 1994 builds on that this and the rail / ferry institutional & infrastructure is well organizational maintained and efficiently base developed managed. in Cr. 1986. 2. Project Timetable: Item Date Date Date Planned Revised Actual Initial Exec. Proj. Summary 09/15/88 09/15/88 09/15/88 Appraisal Mission 11/14/88 11/14/88 11/14/88 Negotiations 12/19/88 12/19/88 12/19/88 Board Approval 02/21/89 02/21/89 02/21/89 Credit Signature 03/10/89 03/10/89 03/10/89 Credit Effectiveness 11/08/89 11/08/89 11/08/89 Credit Closing 12/31/92 06/30/93 06/30/93 Credit Completion 06/30/92 12/31/92 12/31/92 3. Credit Disbursements: Cumulative Estimated and Actual Disbursements (US $ million) FY - 89 90 91 92 93 94 Appraisal Estimate 0.60 5.60 6.60 7.00 7.00 7.00 Actual 0.00 0.67 1.41 2.69 5.30 5.60 Actual as % of estimate 0 12 21 38 76 80  26 ESTIMATED & ACTUAL CUMULATIVE DISBUREMENT z 0 7_ 4 "- 0 11 |: LESTIMATED z 3 ACTUAL I; _ __ __X U20 m~ o- U) ao) 0 - CN O a cox a) ) a) a) a) IL UL LL LL iL 11 The factors that affected project implementations, as described in paragraphs 5.03 and 5.05 of Part I of this Report, resulted in a reduction of actual disbursements compared to the estimates. 4. Project Costs and Financing: (costs in US $ '000 equivalent) A. Project Costs Appraisal Estimate Revised Estimate Actual Cost Item Local FOREX Total Local FORFX Total Local FOREX Total I Civil Works 2635 1056 3691 2108 1263 3371 688 962 1650 2. Equipment 365 3244 3609 292 3534 3826 19 2861 2880 3 Services 700 800 1500 400 1202 1602 - 1753 1753 (TA., Iraining, Studies) TFOTAI 3700 5100 880() 2800 6000 8800 707 5576 6283 Comments: (i) The revised estimates are based on the amendment to the Credit Agreement made in May 1990. (ii) The difference between the estimates and the actuals resulted from (a) serious cashflow problems on URC affecting track maintenance work, (b) emphasis on institution and capacity building activities from the project period mid-term, and  27 (c) delays in procurement resulting from internal procedures within URC and in interacting procedures with the ministries and the Central Bank B. Project Financing (Figures in US Dollars '000) 1. IDA Financing: Planned (DCA) Revised Final Category 1 2110 1790 1158 (Civil Works) Category 2 3390 3607 2861 (Plant, equipment and supplies) Category 3 1500 1602 1753 (T.A., training and studies) Total 7000 7000 5772 Comments: In the above figures, the small PPF component has been shown distributed to the relevant categories. The mid-course correction, placing emphasis on the institutional development and capacity building aspects resulted in the substantial drop in the expenditure under Category 1, and the slight excess expenditure under Category 3. Delays in procurement resulted in the drop in Category 2. 2. URC Financing: Planned Revised Final (DCA) Category 1 1800 1800 493 Category 2 - - 19 Category 3 - - 2 Total 1800 1800 514  28 Comments: URC's critical cash flow situation severely constrained the expenditures on the Civil Engineering works on the Kampala - Kasese line. This was compounded by the late arrival of imported inputs for carrying out the works. 5. Project Results: A. Direct Benefits Principal Performance Indicators (Annex 11 of SAR) Particulars 1989 1990 1991 1992 1993 1. Locomotive Availability % (Main line units): Target: 55 55 60 69 75 Actual: 43 49 59 58 75 (Shunters): Target 40 52 46 67 60 Actual: 31 31 26 28 50 2. Loco Utilization: (000) Km./yr./ loco: Target: 35 36 36 36 36 Actual: 31 25 20 70 751 3. Wagon Availability: Target: 75 75 80 82 85 ( % ) Actual: 77 78 83 83 87 4. Wagon Turnaround: Target: 18 33 25 30 25 (Days) Actual: 33 48 46 26 23 5. Ferry Availability: Target: 80 80 75 75 85 ( % ) Actual: 80 80 75 75 632 6. Trips/ferry/yr: Target: 110 110 110 110 110 Actual: 69 84 82 92 673 Staff productivity, as measured by tonnes carried per employee per year had not been a targeted performance indicator. With the staff rationalization exercise carried out by URC, this indicator increased from 55.5 in 1988 to 120.7 in 1993 - an increase of 117 percent. Increase of locomotive utilization in 1992 and 1993 was due to the hiring of locomotives to Kenya Railways, leading to more intensive usage. 2 The grounding of "Pamba" for over ten months of the year, initially for overhaul, and then for major rudder damage due to an accident led to lower availability and number of trips per ferry per year. The fleet was supplemented by increased usage of the Kenyan ferry, "Uhuru". 3 do -  29 B. Economic ImDact Appraisal Actual Estimate (at end of Project) Economic Rate of Return 34 % negative Net Present Value US$ 0.673 mn. (-)US$ 1.4 mn. Underlying Assumptions 1. Incremental freight volume: 56, 000 T 29,000 T 2. Investment Costs: About US$ 5.0 mn. US$ 3.0 mn. 3. Exchange Rate(U.Shs: US$) minor adjustments major devaluation of U. Shs. 4. Reliable cash flow in URC Smooth URC Serious constraints in counterpart URC counterpart financing financing Comments: The repair and basic rehabilitation of the Kampala - Kasese line had a limited objective: to keep the line open for about five years until major investments would be effected. This objective to keep the line open was achieved, but the anticipated major investment program did not follow, owing to the course of events described in paragraph 5.03. The SAR projected investments of nearly US$ 5.0 million, with freight volumes projected to increase from 24,000 tonnes in 1988 as the base year to 80,000 tonnes in 1992 and 1993, yielding an ERR of 34 percent. The actual value of investments in equipment and works during the project was about US$ 3.0 million of which nearly US$ 1.0 million worth of equipment arrived towards the very end of the project and hence, could not effectively contribute to the benefits within the project implementation period. The repair and rehabilitation work suffered considerable delays owing to late procurement and URC cash constraints. Starting from the 1989 volume of 21,990 tonnes as the base volume since effectiveness occurred on November 8, 1989, URC's traffic levels on the line remained around 32,000 tonnes during the three years from 1990 to 1992, and reached 55,000 tonnes in 1993. There was probably real demand for rail transport on the line, but inadequacy of rail capacity and the low standard of service constrained the rail traffic volumes. Hence the net present value for this part of the project is negative. (Annex 2). The traffic carried over the line in the first four months of 1994 was 21,000 tonnes, and URC has forecast over 60,000 tonnes for the year. This has reasonable prospects of being  30 achieved, and if it is, it will be an indication of the spill-over of the project benefits into succeeding years. C. Studies Purpose as defined at Impact of Study / Consultancy Appraisal Status Study 1. Accounts updating Verification of completed Helped to clear accounts for 1987 backlog of accounting 2. Rolling Stock To evaluate needs not yet n. a. /1 Maintce. Facilities and plan facilities undertaken 3. Training Needs -do- -do- n.a. /1 4. Machine Tool Lists -do- completed Workshop equipped with listed tools /2 5. Costing System /3 completed Costing system in place 6. Cargo Tracking /3 completed Phase I in place 7. Corporate Plan /3 completed Plan formulated and agreed with GOU 8. Financial Restructuring /3 completed Proposals being negotiated with GOU by URC 9. Marketing Study /3 completed Under implementation 10. Supplies Management /4 completed Computerization under implementation Comments: /1: These are being funded by AFDB. The contracts are being processed by URC. /2: Study and provision of tools financed by KfW. /3: Studies and activities following mid-course correction- financing from the Credit. /4: Consultancy and implementation financed under the Credit  31 6. Status of Covenants: Deadline for Covenant Subject Compliance Status 3.01(b) of DCA Implementation Program (Sch.4) 1. Organizational changes 12/31/89 Modified changes (Dy. M.D. & Signal Engr) implemented (89 - 92) 2(a). Basic M.I.S. installation 09/30/89 12/31/89 (b). Performance monitoring for 1989 1989 complied with- 1989 (c).&(d) Fixation of Annual PerformanceTargets 1990 onward complied with. 3. Construction Unit 1989 complied with 4. Work of Constn. Unit 1989 onward partly complied with; constraint of cashflow 5. Labor Productivity 12/31/89 measures onward complied with 6. Efficient working 07/01/89 generally complied of diesel depot onward with 7. Staffing and housing- 07/31/89 completed in 1990 Nalukolongo 8. Improvement of offices 06/30/90 work still in progress & housing accommodation 9. Preparation of 12/31/90 Marine Staff Program Training Program implementation from 1992; training needs study not yet completed. 10(a) Clearing backlog 07/01/89 backlog cleared in of accounts 1992 10(b) Computerization of 09/30/89 partly complied with  32 accounts & staff training at end of project 11. Annual Budgeting & Depreciation accounting every year complied with 12. Streamlining Materials commencing partly complied with, Management and from Sept. 89 Computerization in Computerization progress at end of Project. 3.02 of DCA Promulgation of Railways 12/31/89 Statute promulgated Act in August 1992 3.03 of DCA Credit funds to be GOU Under formalization equity in URC - at end of Project 4.01(b) of DCA Annual audited financial every year Backlog cleared in Statements within 6 mths. 1992; lag of two months beyond target at end of Project. 4.0 1(c) of DCA Audited Statements of First Stt. received in Expenditure -do- 1992; currently full Project period cleared 4.04 of DCA Investment Criteria - complied with. 7. Use of Bank Resources: A. Staff Inputs (in SW) Stage of Project Cycle Planned Revised Final Through Appraisal 49.7 45.1 Appraisal through Board Approval 9.2 4.3 Supervision 70.0 75.0 58.0 Total 70.0 133.9 107.4  33 B. Missions Stage of Month/ Number of Days in Specialization Performance Types of Proj. Cycle Year Persons Field Represented Rating Status Problems /a /b /c Through Appraisal Preparation 7/ 88 6 10 TM, RE(C) ME(C), CE(C) F(C), RS(C) Appraisal 11 / 88 8 22 TM, RE(C) ME(C), CE(C) F(C), RS(C) E(C), SE(C) Appraisal through Board Approval: No missions Board Approval through effectiveness: Donors Conf. 4/89 1 4 DC, TM,RR - RE(C) Follow - up 7/89 4 1 TM Initial SPN 10 / 89 2 7 TM, RE(C) 0-2,P-I F Supervision: Mission 1. 2/90 3 7 TM,RE,F(C) O-2,P-I C Mission 2. 9/90 2 11 RE, F(C) C-2,P-2 P, C Limited SPN 4/91 1 3 RE Mission 3. 2 /92 3 10 TM, RE,F(C) 0-3,P-2 P, F, C Mission 4. 1 / 93 2 6 RE, F(C) 0-3,P-2 P,F /a: TM: Task Manager, RE: Railway Engineer, F: Financial Analyst, CE: Civil Engr., ME: Mech. Engr., SE: Signal Engineer, RS: Rly. Management Specialist, E: Economist, DC: Divn. Chief, RR: Res. Rep., suffix (C): Consultant /b: 0: Overall Rating in Form 590, P: Project Development Objectives Rating in Form 590 /c: F: Financial Management, C: Compliance with Covenants, P: Procurement  Ex Post NPVKampala-Kasese Line for PCR, May 1994 c,aptal C9s counterpart Ma-n-t-EYen Assumed-Eaint. sxp Assumed TOTAL COSTS Implied FX WB Price 1009% IDA fi cap. investme 100 or 71%U Timg IDA fin Timg at shadow fx r Shadow Rate Index Calendar K-K portion 100% Ugand. f assume 50% C and D 40 or 25% Column F In US$ thou 1988=100 Year US$ Thou In UShs mln In UShs mln In US$ t:hou and 1988 constant 2633.0 224.7 389.8 140.0 prices (current D) 1989 26.0 0.0 0.0 0.0 0.0 0.0 26.0 400.0 99.3 1990 200.0 67.4 58.5 30.0 35.0 25.0 421.6 600.0 105.5 1991 752.0 56.2 48.7 25.0 42.0 30.0 837.7 1000.0 107.3 1992 756.0 56.2 48.7 25.0 49.0 35.0 796.8 1200.0 112.0 1993 899.0 44.9 39.0 20.0 14.0 10.0 866.8 1200.0 113.4 1200.0 113.4 WithoutPro With Project Increm. Fre Freight VOC Svgs Maint. SvTOTAL BENEFITS NET BENEFITS NPV(in disc (In Tonnes (In Tonnes) (In Tonnes) Genrted In US$ th In US$ th 1988 US$ thou 1988 US$ thou US$ thousan 1989 22000.0 22000.0 0.0 0.0 0.0 0.0 0.0 -26.0 -23.2 1990 27000.0 30719.0 3719.0 0.0 53.5 12.2 62.2 -359.4 -286.5 1991 25000.0 31772.0 6772.0 0.0 97.3 22.1 111.4 -726.4 -517.0 1992 20000.0 31581.0 11581.0 0.0 166.5 37.8 182.4 -614.4 -390.4 1993 15000.0 55000.0 40000.0 0.0 575.0 130.7 622.3 -244.5 -138.7 Assume: -1355.9 NPV disc at 121 Do not u IRR - model applicable as witnesse following: If net bits assumed in 1989, IRRshown as 4.2 % Model asd faulty:if in 1989, IRRshown as 2.2 % Road Trpt C as per SAR $0.061/tonkm variable rail costs $0.0134/tonkm net operat.costs $0.0476/tonkm aver.triplg K-K 302 km svgs/ton/tr 302*0.476 14.4 US$/302 m journey Road Mai Cost Savinq Utilizin WB infl.raE 1989 base co as per SAR translat into 1988 cst 1989 3245.0 per thousand ton 3267.9 1990 3430.0 per thousand ton 1991 3505.4 per tlhousand toni 1992 3656.2 per thousand ton 1993 3634.2 per thousand ton z X  Summary of K-K Increm. Losses instead of FRR Incr. Fin. Costs Incr. revenue Incr. Net Rev in US$ Thou in US$ Thou in US$ thou current p current p current p 1989 39.7 -29.0 -68.7 1990 253.0 160.0 -93.0 1991 837.7 -77.0 -914.7 1992 89.2 -334.0 -423.2 1993 98.3 141.0 42.7 -vaqreg.incr,losses -1457.0 w rn