Zambia - Fourth Railway Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 14703 IMPLEMENTATION COMPLETION REPORT REPUBLIC OF ZAMBIA FOURTH RAILWAY PROJECT (CREDIT 1575-ZA) JUNE 21, 1995 Energy and Infrastructure Operations Division Southern 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. CURRENCY EQUIVALENT (as of March 1, 1995) Currency Unit = Zambian Kwacha (ZK) US$1.00 = K 660 FISCAL YEAR April 1 to March 31 WEIGHTS AND MEASURES 1 foot (ft) = 0.305 meters (m) I mile (mile) = 1.609 kilometers (km) 1 square mile (mi2) = 2.590 square kilometers (kn2) 1 ton (t) = 0.907 metric tons (m ton) GLOSSARY OF ABBREVIATIONS AfDB = African Development Bank BOD = Board of Directors CIDA = Canadian International Development Agency FRP = Fourth Railway Project in Zambia GOZ = Government of Zambia GDP = Gross Domestic Product ICR = Implementation Completion Report IDA = International Development Association IMF = International Monetary Fund KfW = Kreditanstalt fur Wiedraufbau MOF = Ministry of Finance MOCT = Ministry of Communications & Transport PCR = Project Completion Report ROCE = Return on Capital Employed RRP = Railways Restructuring Project SAR = Staff Appraisal Report SATCC = Southern Africa Development Coordination Conference SDR = Standard Drawing Right SIDA = Swedish International Development Agency TDP = Ten-year Development Plan TKM = Tonne Kilometers TRP = Third Railway Project USAID = United States Agency for International Development ZIMCO = Zambia Industrial and Mining Corporation, Ltd. ZK = Zambian Kwacha ZR = Zambia Railways ZAMBIA FOR OFFICIAL USE ONLY FOURTH RAILWAY PROJECT (CREDIT 1575-ZA) IMPLEMENTATION COMPLETION REPORT Table of Contents Page No. PREFACE EVALUATION SUMMARY Introductionti P roject O bjectiv es....................................................................................................... Im plem entation Experience and Results....................................................................... Summary of Findings, Future Operations, and K ey L esson s learned ............................................................................................ PART I: IMPLEMENTATION ASSESSMENT FROM THE BANK'S PERSPECTIVE A . P roject O bjectives .................................................................................................. B . A chievem ent of O bjectives .....................................................................................2 C . M ajor Factors A ffecting the Project........................................................................4 D. Project Sustaiability .5 5 E . B ank P erfo rm ance ..................................................................................................6 F . B orrow er's P erform ance ........................................................................................7 G . A ssessm ent of O utcom e .........................................................................................9 H . F utu re O peration...................................................................................................9 I. K ey L essons L earned .............................................................................................9 PART II: STATISTICAL TABLES Table 1. Summary of Assessments Table 2. Related Bank Loans/Credits Table 3. Project Timetable Table 4. Loan/Credit Disbursements Table 5 & 6 Key Indicators for Project Operation and Implementation Table 7. Studies Included in Project Table 8A. Project cost Table 8B. Project Financing Table 9. Economic Costs and Benefits Table 10. Status of Legal Covenants Table 11. Compliance with Operational Manual Statements Table 12. Bank Resources Table 13. Bank Resources-Missions APPENDICES A. Mission's Aide-Memoire B. Borrower's Contribution to the ICR C. Map IBRD No. 26792 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 ZAMBIA FOURTH RAILWAY PROJECT (CREDIT 1575-ZA) Preface 1. This is the Implementation Completion Report (ICR) for the Fourth Railway Project (FRP) in Zambia, for which credit 1575-ZA in the amount of SDR 20.5 million was approved on March 28, 1985 and made effective on December 17, 1985. The credit was closed on June 30, 1994, after five extensions of the original closing date of June 30, 1989. 2. The project was formally revised in 1993, at which time SDR 8 million was canceled. Final disbursement took place on October 31, 1994, at which time a balance of SDR 4.4 million was canceled. Cofinancing for the project was provided by African Development Bank (AfDB), United States Agency for International Development (USAID), Belgian Government, Kreditanstalt fur Wiederaufbau (KfW), and Swedish International Development Authority (SIDA). Canadian International Development Agency (CIDA), Japan, and India also provided some financing in the later stages of the project. 3. The ICR was prepared by Yash Pal Kedia, Task Manager, and Agnieszka Grudzinska, Private Sector Development Specialist, from the Energy and Infrastructure Division of the Southern Africa Department and reviewed by Jacomina de Regt, Acting Operations Adviser, and Jeffrey Racki, Division Chief of the Energy and Infrastructure Division. 4. Preparation of this ICR was begun during the Bank's completion mission in November 1994. It is based on material in the project file. The borrower contributed to the preparation of the ICR by preparing their own evaluation of the project, and contributing views reflected in the mission's aide-memoire. ZAMBIA FOURTH RAILWAY PROJECT (CREDIT 1575-ZA) Evaluation Summary Introduction 1. Prior to the Fourth Railway Project (FRP), the Bank Group had extended assistance to six projects in the transport sector, which included three railways and three highways projects. In chronological order, the projects were: (i) Loan 74-ZA of US$14.0 million for the railways, approved in 1953; (ii) Loan 197-ZA of US$9.5 million for the railways, approved in 1958; (iii) Loan 469-ZA of US$17.5 million for the highways, approved in 1966; (iv) Loan 563-ZA of US$10.7 million for the highways, approved in 1968; (v) Loan 563-ZA of US$22.5 million for the highways, approved in 1978; and (vi) Loan/Credit 973-ZA of US$40.0 million for the railways, approved in 1980 (Table 2). 2. The first two railway projects concentrated on provision of workshop equipment, rolling stock, and track improvements and were executed satisfactorily. The Third Railway Project (TRP), focused additionally on improvement of communications and upgrading of skills. According to the Project Completion Report (PCR), except for the financial rate of return, the objectives of TRP were largely achieved. The PCR blamed the non-achievement of the financial objective on economic recession and obviously ignored key factors such as overcapitalization, overstaffing, and inadequate management. 3. During FRP preparation and appraisal, Zambia Railways (ZR)'s management and the Bank staff viewed the railways' inability to cope with expected traffic volumes as the main performance constraint. However, major differences in the perceived dimension of the problem and strategies to address it surfaced already during project appraisal. Whereas ZR management expected very large traffic volume increases and wanted to add new capacity, the Bank staff expected the traffic increases to be modest and viewed a strategy of increased efficiency and utilization of existing resources as more appropriate. In the end, ZR's management agreed to proceed with the project as designed by Bank staff but the lack of ownership continued to adversely affect implementation (para 2). 4. During the 10 years between FRP's approval in March 1985 and its closure in June 1994, ZR's performance suffered serious setbacks due to two major developments. The first, largely exogenous to ZR, was Zambia's abandonment of the IMF-led structural adjustment program, which was followed by the suspension in 1987 of IDA's disbursements to Zambia, including FRP. Disbursements to Zambia were resumed in 1991. However, changes in the macro environment coupled with a greater awareness of the deficiencies in ZR's operations, resulted in disbursements under the FRP being suspended for a longer period. The disbursements under FRP resumed in 1993, after ZR management had recognized the internal constraints to improved performance and demonstrated its commitment to the restructuring of ZR by developing comprehensive restructuring plans. The second development was the liberalization of the Zambian economy, and the consequent increase in competition from truckers from 1990 onwards. As a result of the increased competition in the transport sector and some deterioration in the overall economic performance, railway traffic volumes dropped from 1,444 million ton-kilometer (tkm) in 1990 to 653 million tkm in 1994 (paras 17,19). - ii - Project Objectives 5. FRP's central objective was to enhance ZR's effective capacity primarily through rehabilitation of existing assets and their improved utilization in order to enable the railways to fulfill its function of transporting domestic and external freight traffic at minimum economic cost. The Staff Appraisal Report (SAR) anticipated significant benefits accruing to the country from ZR's increased efficiency and consequent avoidance of traffic diversion to more costly road transport. The main objective was, and still is, important for the transport sector and the Zambian economy. The approach to improve the efficiency with which the existing assets were utilized rather than finance capacity expansion, reflected good economic principles and sound judgment of potential traffic development (para 1). 6. In retrospect, it is apparent that while the initial approach of focusing on enhancing efficiency rather than expanding the resources was sound, the incremental approach taken was probably too timid, and a more radical initiative was required. However, given the reluctance with which ZR management embraced even this modest approach, it probably would not have been possible to adopt a program of more fundamental change. Nevertheless, even in the context of the more limited initial reforms, the operational targets designed to support the objectives had a number of shortcomings. The targets, as defined, were difficult to achieve and monitor and tended to encourage inefficient behavior. More specifically: (i) no comprehensive financial target was specified; (ii) the operational targets were not adequately defined; (iii) management actions necessary to achieve the objective were not elaborated; and (iv) the targets did not appear to have been completely accepted and owned by ZR's management (paras 3-7). 7. At the reactivation of the project in 1993, the project strategy was changed from incremental improvements in operational efficiency of the existing structure to a fundamental restructuring of ZR. The choice not to pursue formal reappraisal was instrumental in maintaining an uninterrupted and intensive dialogue with the implementing agency at a critical time, and contributed to an internally-driven restructuring effort. However, it also resulted in yet another lost opportunity to involve (GOZ) in a more intensive manner in project implementation (para 8). Implementation Experience and Results 8. The original project objectives were not achieved due to the following: (i) shortcomings in project design mentioned above, most notably lack of ownership of project objective; (ii) initial project delays; (iii) the suspension of IDA disbursements; (iv) lack of specific mechanism to adjust for the withdrawal of one or more donors; (v) deterioration in ZR's business environment and its inability to adapt to the change; (vi) lack of a broader transport policy framework; and (vii) a general lack of involvement by GOZ (section C). 9. The Bank's performance was satisfactory during identification, deficient during preparation and appraisal, and highly satisfactory during supervision. The view that the focus should be improved operational efficiency rather than capital investments was highly appropriate. In this sense, the identification was well conceived. The lack of ZR's commitment to this approach inhibited the preparation and appraisal performance with appraisal being further weakened by relatively unfocused performance targets being set. Supervision in the early years of the project was marred by the suspension of disbursements. Once the project recommenced, supervision was intensive and, given the challenge posed by incremental improvements in a flawed project design, relatively effective. The borrower' performance reflects the lack of underlying agreement on the strategy to achieve the project objective and has been unsatisfactory almost throughout the project - iii - period. The performance was particularly deficient during the 1987-1991 period, when ZR resorted to heavy recruitment of staff and procurement of physical assets, as a result of which its financial position became exceedingly precarious (sections E-F). 10. In spite of cancellation of about US$8 million of the IDA Credit, the actual project cost exceeded the original estimates by about US$68 million (or about 80% of the original project cost), mainly on account of additional capital expenditures of about US$76 million for new locomotives, wagons, and spare parts. The ERR was found to be negative (para 14, Tables 4, 8A-B, & 9). 11. The outcome of this project has been unsatisfactory. The original targets have not been met, and benefits anticipated in the SAR have not materialized. The benefits are unlikely to materialize even in the future unless far reaching restructuring is carried out and the loss of traffic to the trucking sector arrested and, at least, partially reversed. Even though, in the last two years of project implementation, significant progress was made in the preparation of restructuring plans, the short time-frame limited the progress that could have reasonably been achieved in implementing these plans (paras. 14, 37). Summary of Findings, Future Operations, and Key Lessons Learned 12. Important Findings. First, for satisfactory implementation, particularly for complex organizations such as the railways, the main objectives and the performance targets have to be defined more comprehensively and precisely, and well understood and accepted by the departments responsible for achieving them. Second, in view of wide fluctuations in traffic demand and the increasing rail-road competition, considerable flexibility needs to be built into the project design to enable quick response to the changing environment. Third, for activities where the railway management has persistently been unable to achieve performance objectives such as locomotive availability and reliability, more fundamental restructuring including private sector involvement must be made a part of the project design (sections B,C & I). 13. Future Operations and Sustainability. Project sustainability is uncertain at this stage. ZR's current management recognizes the urgent need for far reaching restructuring, including staff retrenchment, as reflected in its Revival Plan. However, the staff retrenchment program has been put on hold because of lack of funds for the payment of retrenchment packages. In view of the very competitive environment that has now emerged, participation of private sector in the management of ZR, through concessioning of some or all railway activities, appears unavoidable if ZR is to be commercially viable. In the event that GOZ supports a major restructuring of the railway followed by concessioning, the Bank could assist GOZ through a follow-up project. In the meantime, a privatization study is about to start and its conclusions and GOZ's acceptance of these conclusions will determine the nature of future Bank involvement (section H). 14. Key Lessons Learned. The FRP experience underscores the importance of: (i) a comprehensive, but flexible, project design, fully owned by the borrower; (ii) meaningful institutional arrangements and donor coordination; (iii) clearly defining the role of the railways, including separation of commercial services from public service obligations; (iv) avoiding strategies based on incremental improvements in the case of parastatal organizations with a track record of poor performance; (v) adequate and timely availability of local funding; and (vi) a clear understanding of the borrower's internal systems and the need for training in Bank procedures (section I, paras 41-49). PART 1: IMPLEMENTATION ASSESSMENT FROM THE BANK'S PERSPECTIVE A. Project Objectives 1. The overriding objective of the Fourth Railway Project (FRP) was to increase the efficiency with which Zambia Railways (ZR) utilized its existing resources. This increase in efficiency was expected to ease the capacity constraint faced by ZR and consequently avoid traffic diversion to more costly road transport. The approach to improve the efficiency with which the existing assets were utilized rather than finance a capacity expansion, as made at the time of the Staff Appraisal Report (SAR), reflected good economic principles and sound judgment of potential traffic development. Although subsequent macro-economic developments and ZR's performance indicated that this incremental approach could not have been very successful, ZR management's reluctance to accept even this modest approach would likely have made more radical solutions, such as downsizing and/or private sector participation in operations, unworkable at the time. 2. It was clear from the start that neither the ZR management nor the Government of Zambia (GOZ) did completely identify with the project's objective, and consequently the project suffered from lack of ownership. The short and medium term strategic plans developed by ZR just prior to negotiations were clearly oriented towards expansion rather than intensive utilization of existing capacity. ZR's management agreed to proceed with the project with an understanding that the preparation for a follow-up project, which would more closely reflect the management's strategy, would start immediately after the commencement of FRP with the two projects eventually overlapping. GOZ's and ZR's preference for expansion rather than the rehabilitation and intensive utilization of existing capacity was also demonstrated when GOZ and ZR not only accepted the US$400 million Ten-Year Development Plan (TDP) prepared by SATCC-financed consultants, but also actively sought donor financing for its implementation. These actions took place during the period of suspension of IDA disbursements and were in clear violation of the legal covenants to the FRP credit. 3. The main project objective was supported by a number of operational targets (Table 6). The set of operational targets had a number of shortcomings which made them difficult to achieve and monitor, and tended to encourage inefficient behavior. More specifically: (i) no comprehensive financial target was specified; (ii) the operational targets were not comprehensive and were not adequately defined; and (iii) management actions necessary to achieve the objective were not elaborated; and (iv) the targets did not appear to have been completely accepted and owned by ZR's management. 4. Lack of Comprehensive Financial Target. The absence of a comprehensive financial target was the most glaring omission in the project design, more so in view of the unsatisfactory financial performance under the Third Railway Project (TRP). By linking traffic earnings, costs, and capital employed, a comprehensive financial objective such as the return on capital employed (ROCE) would have underscored the need for reducing both operating costs and investments, without which it was impossible for ZR to provide least-cost transport. However, such a target was not specified and no link was established between the improvements in operational efficiency and financial performance of the railway, nor between the improvements in operational efficiency of the railway and transport policy and budget. The lack of these connections facilitated the ZR management turnabout after disbursements to Zambia were suspended in 1987, at which time the SAR strategy was completely abandoned and ambitious expansion plans pursued without raising questions from the Government and cofinancing institutions. -2- 5. Inadequate Operational Targets. The operational targets specified in the SAR were also neither comprehensive, nor adequately defined, and were prone to dysfunctional consequences. Emphasizing locomotive utilization rather than locomotive productivity undermined the importance of maximizing trailing and wagon loads, and minimizing empty train running. Emphasizing locomotive availability without simultaneously emphasizing locomotive reliability tended to relegate quality to secondary importance. By not according weights to different categories of staff, the staff productivity target tended to encourage staff reduction at lower levels with little impact on staff costs. 6. Lack ofManagement Action Plan. The management actions necessary to achieve the performance targets were not adequately elaborated. More specifically: (i) staff and wagon productivity targets could not have been achieved without considerable reduction of staff and rolling stock but such requirements were not explicitly or implicitly indicated in the project design; (ii) locomotive utilization, wagon productivity, and wagon turnaround targets could not have been achieved without restructuring operations, streamlining loading/unloading arrangements, and improving coordination with the neighboring railways, but no such arrangements were defined in the project nor was an operational improvement study commissioned until 1992; (iii) the operational targets were static in nature (to be reached by 1987 with no targets defined for the intermediate years), and were not explicitly linked to traffic projections. The drastic drop in traffic rendered some of the productivity targets unachievable without drastic restructuring of ZR, while other targets (locomotive and wagon availability) became less relevant to the achievement of the main objective. 7. Targets Not Owned by ZR Management The lack of ZR's ownership of project objective had a direct implication for the implementation of the supporting operational targets. The achievability of these targets was not given adequate importance by ZR management and actions taken in the following years indicate very little concern for their impact on the achievement of these targets. 8. The project strategy was changed informally, i.e., without a formal reappraisal, at the reactivation of the project in 1993. The incremental approach of improving the operational efficiency of the existing structure was replaced by a fundamental restructuring of ZR. The performance targets were modified to make them more appropriate for the much changed environment. A more comprehensive ROCE target was included. A short-term action plan was developed, together with ZR's management, to achieve the revised targets. During the period of intensive supervision which followed the project's reactivation, the short-term action plan was continuously reviewed and adjusted. While the choice not to pursue formal reappraisal was instrumental in maintaining the dialogue with the implementing agency, it also resulted in a lost opportunity to involve GOZ more intensively in project implementation and supervision. B. Achievement of Objectives 9. During the first two years of project implementation, i.e., after becoming effective in 1985 until the suspension of the IDA credit in 1987', almost all the performance indicators declined to values lower than those at the start of the project. The shortcomings in defining the performance In 1987, only fifteen months after FRP became effective, and after only about US$3 million disbursed out of the total credit of US$20.5 million, IDA's disbursements to Zambia and to FRP were suspended subsequent to Zambia defaulting on payments. 1 -3- targets, the absence of a clear action plan, too short a period for effective implementation resulting from delayed effectiveness and suspension of disbursement, and delay in the cofinanciers' commencement of their respective components did no doubt contribute to the worsening performance. However, ZR management's inertia and GOZ's indifference played a very significant role in the deterioration of performance. 10. During the period of suspension of disbursement, ZR's performance deteriorated further with locomotive, wagon, and staff productivities declining to 75, 55, and 60% of their respective targets, the lowest in the last ten years. Continuing ineffectiveness of ZR's management in the face of the declining traffic, coupled with the management's decision to purchase additional assets (15 locomotives and 500 wagons) not specified in the project and heavy hiring of staff (700 or 10% of the total staff strength), greatly contributed to the sharp decline in profits. The net losses for the year 1990 reached an all time high of 30% of the gross income. 11. By 1991, when the disbursements to Zambia were resumed, the change in the market environment had already compromised the initial project design and rendered the original objective obsolete. Traffic had declined and was still declining, productivity was low. Yet, even at the low productivity levels, the staff and assets were surplus to the requirements. Further disbursement under FRP was, therefore, made conditional on ZR developing a strategic plan aimed at increasing ZR's share of freight traffic through improved operations; reducing staff; mothballing surplus assets; abandoning uneconomic lines, stations, and facilities; and reducing operating and capital costs. 12. Between 1991 and 1993, ZR completed an Operations Improvement Study and complied with some of the above-mentioned conditions: (i) staff numbers were reduced, though only marginally; (ii) some surplus assets were scrapped while some others were mothballed; (iii) hiring of locomotives from South Africa was discontinued; (iv) average holding time of foreign wagons on ZR was reduced; and (v) some cost controls were introduced. As a result the locomotive, wagon and staff productivity indicators improved marginally but were still much below the original target. Based on this performance and ZR's promise of developing a comprehensive corporate strategy, limited disbursements (SDR 8 million were cancelled) were resumed mainly to improve the condition of the infrastructure and to enable ZR to recapture some of the lost fteight traffic. 13. Since the resumption of disbursement under FRP in 1993 and until the close of the project, only about 30% of the originally allocated IDA funds was disbursed, and the materials purchased from funds disbursed in 1993-94 were still awaiting custom clearance at the end of 1994. Nevertheless, ZR made some progress in achieving targets identified in the short-term action plan for downsizing the railway. Progress was also made towards reaching targets of increased locomotive utilization, locomotive reliability, and reduction in yard detention times. 14. Inspite of cancellation of about US$8 million of the IDA Credit, the actual project cost exceeded the original estimates by about US$68 million (or about 80% of the original project cost), and the ERR was found to be negative (Tables 4, 8A-B, and 9). The additional capital expenditures of about US$76 million included the following: (i) US$30 million for 15 new locomotives financed through internal borrowing; (ii) US$30 million for 500 new wagons under grant financing from CIDA and India; (iii) US$10 million for locomotive spare parts financed by Japan; (iv) doubling of its contributions by USAID from originally anticipated US$5 million to US$10 million; and (v) provisions by KfW of an additional US$1 million. All other cofinanciers continued with their original program and most of the allocated funds were disbursed except for: (i) about US$8 million of the IDA credit which, as indicated above, were eventually canceled; and (ii) -4- about US$4 million of the ADB loan and accrued interest on the Belgian grant which remain to be disbursed. C. Major Factors Affecting the Project 15. Apart from the shortcomings in the original project objectives discussed in section A, most notably the lack of ownership, the project outcome was affected by at least five other major factors: (i) initial project delays; (ii) suspension of disbursement of funds under the IDA credit; (iii) lack of specific mechanism to adjust for the withdrawal of one or more donors; (iv) deterioration in ZR's business and economic environment after 1991; and (v) lack of adequate concern and attention for the critical issues on part of GOZ, even after ZR lost a considerable share of its freight traffic. 16. Initial Project Delays. The project was approved in March 1985 but did not become effective until December 1985. Until May of 1987, very little disbursement took place. Specifically, only 1% of the IDA credit was disbursed as compared to the 44% anticipated in SAR. The other cofinancing institutions, except for SIDA, did not commence their disbursements until 1988. By the initially planned project closing date in 1989, only about 20% of total project funds had been disbursed. As of the project closing in 1994, US$1.1 million of accrued interest on the Belgian grant and 2.5 million U.S. dollars of AfDB loan remain undisbursed (Tables 3 and 4). 17. Suspension ofDisbursements. The suspension of disbursements had two very adverse consequences. First, the IDA-financed components were integral parts of the project, and the suspension of their implementation, while other components were being implemented, compromised the integrity of the original design. Second, while the IDA credit was suspended, the ZR management acquired 500 new wagons through donations from CIDA and Africa Fund, and decided to purchase 15 new locomotives. Furthermore, during the period of credit suspension, ZR engaged in heavy recruitment, which resulted in a net addition of approximately 700 staff. The locomotive purchase, and the debt incurred to finance it, violated two of the project's covenants and were in clear conflict with the project objective, as was the heavy recruitment. The Association did not learn about these acquisitions until 1991, which indicates how limited was IDA's ability to supervise the project while its lending to Zambia was suspended. 18. Lack of Specific Mechanism to Adjust for the Withdrawal of One or More Donors. SAR rated the project physical and economic risks as minimal. However, the number of cofinanciers combined with the lack of specific mechanism to adjust for the temporary or permanent withdrawal of one or more donors, made the project inherently vulnerable. The suspension of IDA disbursements created a void in project supervision that was neither filled by GOZ nor other donors. Despite the fact that the suspension of IDA disbursement created a major gap in project financing and that FRP objectives were openly abandoned and the covenants violated by ZR's management (as described in the paragraph above), the implementation of the project continued and disbursements from other donors were made without major adjustments to project design. 19. Deterioration in Business Environment. In 1991, when the disbursement to Zambia was resumed, the circumstances had changed significantly since the preparation of SAR. The freight traffic on ZR was sharply declining due to: (i) the liberalization of the economy which led to a significant expansion of the trucking sector; (ii) the slowing down of the economic growth which led to less transport demand; (iii) more intensive utilization of the rail route to Dar-Es-Salaam, which led to significant reduction in ton-kms as compared to the use of southern routes; and (iv) 1 -5- increased customer demand for quality of service and information regarding their goods, which ZR was not geared to provide. Under the changed environment, simple commencement of disbursements according to the initial project design was not considered desirable. The project, therefore, had to undergo another two-year project preparation phase, which however involved only one of the donors while the other co-financing institutions continued the disbursement of their funds. 20. Lack of Involvement by GOZ. The project design suffered from the lack of a broader transport policy framework within which the railway sector issues should have been addressed. This may have contributed to GOZ's lack of involvement in the project. Despite the changing environment and ZR's steadily declining performance, GOZ undertook no concrete actions aimed at reversing or at least stemming the decline. More specifically GOZ: (i) did not clarify the roles of ZIMCO, the Ministry of Communications and Transport, and the Board of Directors (BOD), as a result of which ZR not only lacked good direction but often were caught between conflicting perceptions and demands of these supervising agencies; (ii) constituted an extremely unwieldy and ill-functioning BOD with about 16 members, some of whom lacked the necessary qualifications; (iii) failed to introduce a transparent process for ensuring the selection of the most qualified professional as ZR's Managing Dirctor; and (iv) did not sign an appropriate memorandum of understanding regarding the compensation to ZR for public service obligations and incentives for meeting its performance targets. D. Project Sustainability 21. Project sustainability at this stage is uncertain. More promising and hopeful indications include: (i) GOZ's acceptance of the Japanese grant for a privatization study and subsequent implementation of the recommendations, if considered acceptable; (ii) ZR's recognition of the urgent need for major restructuring, including staff retrenchment, as reflected in its Revival Plan which was presented to ZIMCO, and subsequently the Cabinet in the fall of 1994; (iii) possibility of eliminating/curtailing the role of ZIMCO; (iv) GOZ's willingness to reconstitute BOD and select the Managing Director through a transparent selection process; (v) GOZ's signing of an agreement with Sweden for providing technical assistance for defining the restructuring strategy; (vi) GOZ's intention to separate operations from infrastructure; and (vii) availability of substantial track and other materials to enable ZR to speedily improve the condition of its infrastructure. 22. The discouraging indications include: (i) GOZ continuing with the loss-making and uneconomic service such as the inter-city and commuter passenger services, and the passenger operations on the Mulobezi line; (ii) GOZ continuing with the construction of the Mchinji-Chipata extension despite clear indications of very little traffic; (iii) delay by GOZ in promoting a simplified organization structure for ZR and in selecting ZR's Managing Director; (iv) GOZ taking exceedingly long time in clarifying the issue of import duty for about US$8 million worth of track and other materials which continued to be detained by the customs department; (v) GOZ not having decided on a clear exit policy and not providing any financial assistance to enable ZR to retrench staff; and (vi) ZR management still needing to adequately define some elements of the restructuring strategy. 23. ZR's current financial position and cash flow renders its ability to carry out the restructuring uncertain. The staff retrenchment program has been put on hold because of lack of funds for the payment of retrenchment packages. The feasibility of the privatization of some support function such as workshops have been discussed but final decision is pending the completion of the privatization study. In the absence of thorough restructuring of operations, ZR's -6- operational and financial results will continue to deteriorate and improvements financed by the project will not be sustained. E. Bank Performance 24. The Bank's performance was satisfactory in the identification phase, unsatisfactory in the preparation and appraisal phase, and highly satisfactory during supervision. 25. In the early eighties, exports and imports each constituted around 35% of Zambia's GDP making the country highly dependent on its transport network and its access to seaports through neighboring countries. ZR was at the center of all available rail routes linking Zambia to various seaports, and the operating efficiency and reliability of the rail network was critical to the growth of Zambia's external trade. Identification of a project to enhance the railways' performance by focusing on increased utilization of existing assets rather than undertaking fresh investments accorded well with the country's strategy of preventing transport from becoming a bottleneck to external trade and the Bank strategy of encouraging rehabilitation of existing assets. The commencement of the project cycle was also well timed to avoid a gap between the closure of TRP and start of implementation of FRP. 26. With the Bank's assistance in preparing the project, the existing constraints were identified and the project design turned out to be cost-effective and covered most aspects of ZR operations. If implemented properly, the project would have improved the operating ratio from 95% to 65%, and offered an economic rate of return of 24% without causing any adverse impact on the environment. The Bank's performance in the area of preparation can not, however, be considered satisfactory due to less focus on a few aspects which later adversely affected the project outcome. First, ZR, the implementing agency, did not fully own some aspects of the project design particularly the absence of provision to buy new locomotives. Second, while staff productivity was emphasized, no explicit program of staff retrenchment was included as a part of the project design. Third, no specific strategy was defined for overcoming the institutional and policy constraints, though the constraints were well identified. Finally, the project design lacked flexibility and there were no fall-back positions in the event of basic assumptions of traffic growth proving wrong. 27. The Bank's performance in the area of appraisal was unsatisfactory. Under the scenarios examined in the SAR, the project was technically, economically, environmentally, commercially, and financially viable. The appraisal, however, under-emphasized the institutional and policy constraints, overstated ZR's technical competence, ignored the problems associated with ZR's obvious top-heavy and multi-layered organization structure, minimized the risk of declining traffic, some indications of which had already become available by 1982/83, did not recognize the absence of intermediate performance targets and of clear action plans to achieve the agreed targets, failed to appreciate the borrower's reluctance to embrace of some of the difficult components of the project such as locomotive and staff productivity, and did not address the various risks inherent to lack of flexibility in the project design. 28. Both the progress of implementation of FRP and the effectiveness of the Bank supervision were grossly undermined, first, due to an abnormal delay of almost one year in the Project becoming effective and, second, due to the suspension of Bank disbursements to Zambia between 1987 and 1991. As a result, until the designated closing date of June 30, 1989, the Project had been effectively implemented for only one year during which only about 15% of the credit allocation, i.e., US$3 million, was disbursed. Despite these constraints and despite a complete break in dialogue between the Bank and GOZ regarding this project between 1987 and 1991, the 1 -7- Bank's performance in the area of project supervision has been highly satisfactory. During the period prior to the suspension of disbursement, the focus of the supervision missions was to enhance ZR's performance targets, and more specifically, to discourage fresh investments in locomotives and wagons. The failure in this regard was due to the discontinuation of the supervision missions subsequent to suspension of disbursements. 29. The 4-year period of suspension proved to be the most damaging for the project. Despite the continuing of implementation of the donor-financed components during the period of suspension, the Project suffered serious adverse consequences due to the absence of supervision by the Bank. In the face of steadily declining freight traffic and falling productivity indicators, ZR management, supported by the SATCC-financed studies and the resulting 10-year Development Plan (TDP), continued to harbor hopes of achieving unrealistically high levels of freight traffic. Instead of staff cutbacks, refocusing of investment priorities, and concentration on improved operating efficiency, ZR management expanded its staffing levels, and enthusiastically sought donor support for the US$400 million TDP. When that support failed to materialize, ZR management invested its own and commercially-borrowed funds to finance purchase of 14 main line locomotives. The resulting overcapitalization and increased staffing costs have had a debilitating effect on ZR's financial performance. According to ZR's own analysis, the capital- output ratio on ZR doubled during the 1984-94 period. 30. When the Bank resumed its role after the lifting of suspensions in 1991, the economic, business, and political environment had changed quite dramatically. The Bank rightly insisted on ZR agreeing to downsizing and restructuring its operations and involving private sector in its core activities before agreeing to the disbursement of the remaining FRP funds. As a result of intensive dialogue between the Bank and ZR/GOZ during this period, ZR finally abandoned the TDP and started the process of developing realistic restructuring and privatization plans. The need for restructuring/privatization found progressively more acceptance as the freight traffic on ZR continued to decline. The decline was partly due to reasons beyond ZR's control - economic liberalization leading to more intensive competition from other transport modes, slowdown of economic growth in Zambia, worsening of political situation in Zaire, reemergence of Tazara as a viable alternative. Several important reasons behind the decline were, however, within ZR's control - poor operating efficiency, accidents, and inadequate marketing. Even though the actual restructuring of ZR did not take place before the final closing of the project, the intensive supervision of the project led to a series of actions aimed at commercializing the railway and involvement of the private sector in ZR's core activities such as acceptance of a grant for a privatization study, preparation of internal plans for retrenchment of staff and rationalization of physical assets, and increased focus on financial rather than operational performance. F. Borrower's Performance 31. The Borrower's performance was generally unsatisfactory throughout the project cycle and more so in the areas of project implementation and covenant compliance. The detailed evaluation of the main parties involved is given below. GOZ/MOTC 32. The unsatisfactory performance of GOZ/MOCT during the implementation phase of the project stemmed from: (i) GOZ's inability to act as a shareholder and ensure commercially sound behavior from the parastatal organization under its supervision; (ii) lack of response to suspension of IDA disbursement; and (iii) lack of broader transport policy framework. -8- 33. Shareholder's Responsibility. As a shareholder, GOZ failed to exercise proper oversight and demand efficiency, profitability and commercial justification for investments. Even though ZIMCO, as ZR's holding company, was expected to take full responsibility for ZR's performance, its role was never clarified by the Government. ZIMCO neither exercised its proper authority nor shouldered its responsibility towards ZR. ZIMCO's interventions in ZR's affairs lacked focus and were often inconsistent. The performance of ZR's successive BODs was also inadequate. The BODs were generally unwieldy comprising as many as 16 members often inadequately qualified for the job, and functioned without clearly defined role and responsibility. Most of BOD members were officials of other parastatals with no or little experience of commercial operations. BODs were made further ineffective by persistent internal conflicts. The MOTC allowed ZR to continue to operate at low efficiency levels, supported the TDP and the acquisition of additional locomotives and wagons without any sound commercial justification, and insisted on the continuation of many loss-making activities such as the Mulobezi line and inter-city passenger services. Furthermore, GOZ created a very damaging environment of uncertainty through frequent, abrupt, and less than transparent changes of ZR's top executives. 34. Lack of Response to Suspension of IDA Disbursement. GOZ did not undertake any initiatives to modify the FRP design and compensate for the loss of IDA funds and supervision. When GOZ's decision to abandon the IMF-led structural adjustment program resulted in the suspension of disbursement, it was necessary for GOZ to ensure that the project plans are appropriately modified and priorities rearranged with the assistance of the remaining donor agencies. The loss of the Bank support and supervision should also have been replaced. In the absence of any alternative arrangements, FRP went adrift with no mechanism to deal with changes in the socio-economic and political environment. 35. Lack of Transport Policy Framework. The lack of a broader transport policy framework, within which the railways' role would be clearly addressed, contributed to ZR's poor performance and its inability to adapt to the changing macroeconomic and business environment. More specifically, GOZ should have: (i) created a level-playing field for the different modes of transport; (ii) clarified ZR's role as a commercial entity by clearly separating commercial services from public service obligations and compensating for the latter; and (iii) resolved the issue of import duty on capital goods imported by ZR without unduly delaying the much needed track investments. ZR 36. Until 1992, ZR's performance had been characterized by poor project commitment, a marked inability to tackle the most pervasive issues of inefficiency and poor quality, lack of accountability for non-performance, and inadequate sensitivity to changes in the economic and business environment. Even though ZR's performance steadily deteriorated, no attempts were made to restructure the top-heavy, multi-layered and unwieldy organization structure. Instead, more staff was recruited and 14 new locomotives were procured, thus tying scarce resources to non-priority assets and violating FRP legal covenants (Table 10). During that period, ZR's management consistently resisted offers of strategic planning assistance. In the face of progressively increasing competition from road transporters, increased customer expectations and selectivity, and overall sluggish growth of the economy, ZR's management proved largely ineffective and failed to stop the steady decline of ZR's operational and financial performance. 37. Only towards the end of the project cycle, i.e., between 1992 and 1994, did ZR take actions to arrest the deteriorating performance. However, the reform process faced serious -9- problems. The retrenchment of staff proved to be quite expensive, and due to scarcity of funds the progress has been slow. Bringing traffic back to railways is also proving to be difficult. Involvement of the private sector in the core activities of railways could help, and thus the management's acceptance of a privatization study was an important step forward. G. Assessment of Outcome 38. The outcome of this project is unsatisfactory. The original targets have not been met and despite the disbursements made, benefits anticipated in the SAR have not materialized. The benefits are not likely to materialize unless far reaching restructuring is carried out and the loss of traffic to the trucking sector arrested, and at least partially reversed. In the last two years of project implementation, significant progress has been made on institutional development of the railways and in the preparation of restructuring plans. However, short time-frame and outdated project design limited the progress that could reasonably have been achieved on implementing these plans. Sustainability is uncertain but could be improved by a follow up project focused on the restructuring of the railways. H. Future Operation 39. At the closing of the project, ZR was in the process of implementing five initiatives aimed at improving ZR's operational and financial performance, the current status of these being as follows: (i) the Revival Plan, which is phase 1 of the main corporate plan under preparation, is under implementation; (ii) a draft corporate plan has been prepared by ZR, and is in the process of being reviewed and refined; (iii) GOZ has agreed to accept the Japanese grant and a privatization study is expected to commence by September 1995; (iv) GOZ has concluded an agreement with Sweden to finance a few Restructuring Experts to join ZR for a period of 12 months to further assist in preparing and implementing the restructuring plan; and (v) materials ordered during the last year of FRP, and already received, are in the process of being released from customs subject to GOZ's exempting import duties; their use should make a marked difference to the quality of infrastructure. Even though both the original and revised Project objectives were not satisfactorily achieved, the Bank's intense involvement, though for a short period, has helped ZR in developing a more realistic and pragmatic corporate strategy for future implementation. 40. The Bank's preparation of a follow up project is contingent on GOZ following through on the privatization study and its recommendations. The Bank would be interested in facilitating reform, which would involve radical restructuring of ZR and possible privatization of the whole of ZR or its key business units, in a follow-up project called the Railways Restructuring Project (RRP). The project will be taken up for preparation after the conclusion of the privatization study and the finalization of ZR's restructuring plan. I. Key Lessons Learned 41. The lessons learned, discussed below, underscore the linkage between project success and the clarity of project design, project ownership, institutional arrangements, donor coordination, railways role, capability constraint, local funding, and local and Bank rules. 42. Project Design. The project design must be comprehensive, flexible enough to adjust to changes in the environment, and allow for easy monitoring of progress against specific action plans and intermediate performance targets. In case of FRP, the project implementation suffered considerably because of the following deficiencies in project design: (i) the project design was not - 10 - comprehensive enough and left pockets of weakness which later became the main excuses for non- performance; (ii) the project was not flexible enough to automatically adjust itself in case of non- realization of traffic as projected; (iii) there were no clear action plans to achieve the agreed target; (iv) no intermediate targets were specified; (v) operational targets were subject to varying interpretation and resulted in a lack of organizational focus and accountability; and (vi) lack of broader policy transport policy framework left a void in project design and contributed to the lack of GOZ involvement in project implementation. 43. Project Ownership. The importance of project ownership by both the implementing agency and the government cannot be overemphasized. Furthermore, for projects involving major restructuring, downsizing, or concessioning, as was the case with FRP in the last few years of the project, the project success is highly dependent upon the presence of a champion. The entity being restructured can hardly fit this role, staff at all level being potential losers in the short term. The main driving force for such a project has to come from the government. To ensure progress, designating a separate entity to take care of retrenchment of surplus staff and assets is likely to prove very useful in minimizing conflicts and promoting ownership of key restructuring objectives of improved performance and downsizing. 44. Institutional Arrangements. Meaningful institutional arrangements, including clear definition of authority and responsibility of each of the supervising agencies, are essential for project success. ZR's performance and FRP implementation suffered from too many supervising agencies with unclear and overlapping authorities and responsibilities. 45. Donor Coordination. Projects designed to involve multiple donors need to include arrangements to compensate for the withdrawal or suspension of the participation of one or more donors. In particular, in the case of the suspension or withdrawal of the lead donor agency, arrangements should be made for one of the remaining donor taking the lead and responsibility for the overall project integrity. 46. Railways' Role. A clear demarcation between the commercial services and those provided as part of public service obligation is essential. The railways' role as a commercial organization becomes unclear when, against their commercial judgment, the railways are required to operate loss-making passenger and commuter services, small stations with negligible traffic offerings, and uneconomic branch lines without clear agreements with their governments regarding compensation. Before commencement of a project, it is important to insist on a clear demarcation between commercial services and those being undertaken by the railways as a part of public service obligation. This demarcation would invariably result in a clear appreciation of the capital and operating costs involved and lead to a more efficient decision-making process. 47. Capability Constraints. In case of parastatals with a track record of poor performance, incremental improvements are usually not feasible and fundamental restructuring, including involvement of private sector in operations, is required. Not withstanding the availability of technical assistance, spare parts and workshop equipment, most Sub-Saharan railways have failed to manage their locomotive fleet and meet acceptable targets of efficiency and reliability. All future railway projects need to consider concessioning of locomotives management if not the whole railway as a necessary component of the project design. 48. Local Funds. Considerable delay was experienced by ZR in getting the materials and equipment procured under the project due to the import duty and taxes imposed by GOZ and ZR's - 11 - shortage of funds. It is important to either get the government to waive the taxes and duties or to require the borrower to guarantee the availability of funds required for payment of such. 49. Borrowers' Internal Systems and Training in Bank Rules. A careful study of the borrowers' internal systems, particularly procurement and accounting, and of the need to train borrower's staff in Bank rules and procedures, should be made an integral part of the project design. Inefficient internal systems often become the main cause of project delays. Training the borrower staff in the Bank rules and procedures pertaining to procurement, disbursement, special accounts, Bank-administered grants and loans, and other key processes is likely to enhance the effectiveness of implementation. s PART H: STATISTICAL TABLES Table 1: Summary of Assessments Not A. Achievement of Objectives Substantial Partial Negligible Applicable Macro Policies Sector Policies Financial Objectives _ Institutional Development I Physical Objectives _ Poverty Reduction Gender Issues I Other Social Objectives I Environmental Objectives I Public Sector Management / Private Sector Development Other (specify) B. Project Sustainability Likely Unlikely Uncertain IL _ _ _ _ _ _ _I_I I I_m_II III _ I __ _ I J Highly C. Bank Performance Satisfactory Satisfactory Deficient Identification Preparation Assistance Appraisal Supervision _ Highly D. Borrower Performance Satisfactory Satisfactory Deficient Preparation Implementation Covenant Compliance OEration (if aplicable) III II II I III Highly Highly 1E. Assessment of Outcome Satisfactory Satisfactory Unsatisfactory Unsatisfactory Table 2: Related Bank Loans/Credits Loan/Credit Title Purpose Year of Approval Status Preceding Operations 1. Third Railway Project The project was to assist in modernizing the 1980 Completed rolling stock fleet and increase its utilization, and thereby its effective capacity to handle the expected growth in traffic up to 1986. Following Operations 1. Railway Restructuring Proposed Draft form Table 3: Project Timetable Steps in project cycle Date Planned Date Actual/Latest Estimate Identification (Executive Project Summary) 5/26/83 5/26/83 Preparation 9/83 9/83 Appraisal 2/84 6/86 Negotiations 11/12/84 01/23/85 Effectiveness 12/17/85 Project Completion 6/30/89 6/30/94 Loan Closing 12/31/89 6/20/94 Table 4: Loan/Credit Disbursements-Cumulative Estimated and Actual (US$ thousands) FY85 FY86 FY87 FY88 FY89 FY90 FY91 FY92 FY93 FY94 Appraisal Estimate 500 5500 17000 20000 Suspended Suspended Suspended (2500) 17500 17500 Actual - 240 761 1351 1930 4115 4186 4206 5737 12120 Actual as % of 0% 4% 4% 7% - - - - 33% 69% Estimate Date of Final Disbursement 0/31/94 US$2.5 million was cancelled prior to resumption of disbursement in 1993. 2 Actual disbursement in FY94 reached 61% of the appraisal estimate. Tables 5 & 6: Key Indicators for Project Operation & Implementation Target' FY 1987 Actual SAR JPA FY 1987 FY 1994 L Key Operating Indicators in SAR 1. Average diesel locomotive availability (%) 75 75 58 74 2. Productivity per available locomotive per year 105 95 85 98 (locomotive-km '000) 3. Average wagon Availability (%) 90 85 88 89 4. Average turn-around for wagons (days): (a) General freight domestic 9 10 15 (b) Minerals domestic 8 7 10 (c) Transit traffic border-to-border 30 4 6 (d) Export/Import in Zambia 30 10 13 5. Average wagon load (tonnes): (a) General freight 25 25 34 (b) Minerals 40 40 41 6. Productivity per available freight wagon per 300 260 209 127 year (tonne-km '000) 7. Staff productivity ('000 traffic units* per 260 230 187 170 employee) II. Modified Indicators Target FY 1994 1. Locomotive Utilization 300 N/A 278** (locomotive kms/day) 2. Wagon Utilization 60 N/A 60 (wagon kms/day) 3. Locomotive Reliability 20,000 N/A 10,500 (kms between successive failures) 4. Hiring of SA Locomotives (max) 0 N/A 0 5. Foreign Wagons in Zambia (max) 1,000 N/A 200 6. Derailments (track related) (max) 60 N/A 17 1 Targets in the Joint Project Agreement (JPA) differ from those in the SAR. Borrower has been referring to the JPA. * Tonne-km plus passenger-km. ** Average for Ist quarter 1994. Table 7: Studies Included In Project Purpose as Defined Study at Appraisal/Redefined Status Impact of Study 1. Operational Improvement The study was to concentrate on yard The study was completed. Recommendations services to improve the circulation and which were accepted transit of wagons at border stations, and at are being the TAZARA connection station at Kapiri implemented and are Mposhi. yielding results. 2. Component Rehabilitation The study was to identify suitable parts that The study could not be There has been no could be manufactured locally, on priority undertaken due to impact as the study basis thereby assisting ZR to reduce future suspension of the Credit was not undertaken. requirements of foreign exchange. Facility. 3. Operational Improvement Improve yard operations, the circulation and The redefined study was Recommendations transit of wagons at border stations. undertaken and completed which were accepted in September 1993 under are being undertaken the reactivated credit. and are yielding results. 4. Techno-Economic Feasibility Determine cost/benefits of easing grades and Although terms of Nil Study for Easing Grades and flattening curves in the Lusaka-Kafue reference had been Flattening of Curves sections. prepared, the study did not take off due to inadequate time. 5. Operations of the CTC Determine whether Zambia Railways needs The study was not Nil to keep the present CTC system, or replace it undertaken due to by some less sophisticated system and inadequate time. whether maintenance should continue in- house or be contracted out. 6. Contracting out Maintenance Determine the economies of contracting out The study could not be Nil and Rehabilitation of Track maintenance and rehabilitation of track vis- under-taken due to and Other and Infrastructure A-vis doing these in-house. inadequate time. 7. Development of Management Develop and implement Management The study could not be Although the study Information System Information System. undertaken under the IDA was undertaken the Credit funds but was recommendations carried out with Banks' have not been own funds and was implemented due to completed. lack of funds. 8. Implementation of Materials Develop and implement an effective stores An in-house study has been Study findings require Management System and accounting system. undertaken and completed. implementation. 9. Manpower and Organization Determine ideal organization structure and Study undertaken in-house Structure manpower levels commensurate with and is still in progress. existing levels of traffic. Table SA: Project Cost Appraisal Estimate (USSM) Actual/Latest Estimate (US$M) Original Revised Local Foreign Foreign Revised Local Item No. Cost Cost Cost Total Cost Foreign Cost Total 1. Track 0.7 5.2 5.2 5.9 1.2 9.9 I1.0 2. Signal/Telecom 1.8 9.1 9.1 10.9 2.2 9.5 11.7 3. Rolling Stock' 1.9 7.7 7.7 9.6 1.7 35.1 36.8 4. Workshop 0.4 1.2 5.4 5.8 0.4 4.9 5.3 Equip. Vehicle 5. Spare Parts2 3.4 21.1 23.9 27.3 2.9 34.1 37.0 6. Operations 0.6 2.2 4.2 4.8 1.6 4.5 6.1 Facilities 7. Training 0.7 2.7 1.1 1.8 0.4 0.6 1.0 8. Tech. Asst. 1.4 5.2 4.1 5.5 1.1 2.0 3.0 9. Locomotives3 -- -- 30.0 30.0 10. Price 5.4 12.4 11.2 16.6 -- - -- Contingencies & Other Unallocated Amounts TOTAL 16.3 66.8 71.9 88.2 11.5 130.4 141.9 '500 new wagons financed by grants from CIDA and India. 2 Includes locomotive spare parts financed by Japan. 3 14 new locomotives financed through internal borrowing. Table 8B: Project Financing Appraisal Estimate (US$M) Actual/Latest Estimate (USSM) Revised Local Foreign Foreign Revised Local Foreign Source Costs Costs Cost Total Costs Costs Total IDA' -- 20.0 17.5 17.5 -- 12.1 12.1 Cofinancing institutions AfDB'2 -- 20.0 20.0 20.0 -- 22.6 22.6 SIDA -- 5.2 3.1 3.1 -- 2.4 2.4 USAID4 -- 5.0 10.0 10.0 -- 10.0 10.0 Belgium' -- 4.0 5.1 5.1 -- 3.4 3.4 KFW6 -- 1.6 5.2 5.2 -- 3.2 3.2 Other external sources Canada/India' -- 30.0 30.0 Japans -- 10.0 10.0 Domestic contribution ZR9 16.3 11.0 11.0 27.3 11.5 36.7 48.3 TOTAL 16.3 66.7 71.9 88.2 11.5 130.4 141.9 'IDA credit was reduced from SDR 20.5 million to SDR 12.5 million in 1992, an equivalent of US$17.5 million at the exchange rate of US$1.4 to I SDR. 2 AfDB Loan - The actual foreign cost increased as a result of currency fluctuations. 3 SIDA - The correct estimated should have been US$3.052 million against US$5.2 million, as reported in the SAR. 4 USAID increased its contribution from US$5 million as anticipated in the SAR to US$10 million. s Belgian Grant - Increased by accrued interest of US$1.1 million. 6 KFW - The actual foreign cost increased as a result of currency fluctuations and provison of additional funding of DM 1 million in 1990. 500 new wagons financed by grants from CIDA and India. 8Locomotive spare parts financed by Japan. 9 Includes 14 new locomotives financed through internal borrowing. Table 9: Economic Costs and Benefits The economic rate of return (ERR) was re-estimated as follows: 1. the assumptions underlying the original ERR calculation in the SAR were recreated through a financial simulation 2. this set of assumption was then used to re-estimate the ERR using the actual projet costs and the actual traffic. Conclusions: The ERR was found to be negative when all expenditures were included. The ERR was found to be 4% when the additional US$ 60 millions, spent in violation of the project agreement, were excluded. Despite the much lower traffic, the re-estimated ERR would have remained positive, though much lower than anticipated in the SAR, had the additional expenditures not been made. The following table summarizes the calculations performed. SUAT OPF H ORfIIALERCACUATION' forecast* 1986 1987 198$ 1989~ 1990 199? 91 19 99 9519 NO PROJECT SCENARIO Assumptions: kms per day per available locomotive 300 load per locomotive per km (t) 500 number of running days per year 365 % of empty runs 0.33 available locomotives 44 41 37 36 36 36 36 36 36 18 Total tkms transported obtained from above assumptions(in millions) 1504 1357 1321 1321 1321 1321 1321 1321 660 Check (obtained from anticipated project benefits) 1489 1398 1233 1310 1341 1372 1403 1434 647 Accuracy of simulation 1% -3% 7% 1% -2% -4% -6% -8% 2% TRAFFIC ANTICIPATED IN SAR Total tkms transported (in millions) 1542 1576 1610 1641 1672 1703 1734 1765 978 PROJECT BENEFITS ANTICIPATED IN SAR Assumption: amount saved per tkm transported by rail (US$) 0.05 Benefit stream (in million of US$) 0.00 2.65 8.90 18.87 16.54 16.54 16.54 16.54 16.54 16.54 PROJECT COSTS ANTICIPATED IN SAR Cost stream (in million of US$) 20.80 22.20 14.80 0.00 0.00 0.00 0.00 0.00 0.00 0.00 NET BENEFITS (COSTS) ECONOMIC RATE OF RETURN ANTICIPATED IN SAR Net benefit (cost) stream (in million of US$) -20.80 -19.55 -5.90 18.87 16.54 16.54 16.54 16.54 16.54 16.54 Cumulative net benefit (not discounted) 137.98 ERR 24% ... -. ..... ... .. =. 1 ..6 1.. .. 8 1.. ..0 1 X9 1 194 192004 NO PROJECT SCENARIO (As per the original ERR calculation in the SAR) ACTUAL TRAFFIC PERFORMANCE Total tkms transported (in millions) 1481 1365 1355 1342 1444 1081 1025 1074 653 978 PROJECT BENEFITS Assumption as per the original ERR calculation in the SAR. Benefit stream (in million of US$) 0.00 0.00 0.00 1.07 6.17 0.00 0.00 0.00 0.00 15.89 PROJECT COSTS Cost stream (in million of US$) 0.93 2.71 4.42 36.13 18.98 18.11 43.32 20.47 29.69 0.00 NET BENEFITS (COSTS) Net benefit (cost) stream (in million of US$) -0.93 -2.71 -4.42 -35.06 -12.81 -18.11 -43.32 -20.47 -29.69 15.89 Cumulative net benefit (not discounted) -8.61 ERR NEGATIVE : .. ..i . . .. .. .. .. .. .. . (USS40miellimtaiedepeditureecued) 1986±± 1987 $98 19 1 990( 199 199j.993 [ 19941j993.2004 0 PROJECT SCENARIO CTUAL TRAFFIC PERFORMANCE - as above ROJECT BENEFITS ROJECT COSTS Cost stream (in million of US$) 0.93 2.71 4.42 6.13 18.98 18.11 13.32 20.47 29.69 0.00 NET BENEFITS (COSTS) Net benefit (cost) stream (in million of US$) -0.93 -2.71 -4.42 -5.06 -12.81 -18.11 -13.32 -20.47 -29.69 15.89 Cumulative net benefit (not discounted) 51.39 ERR 4% * per year Table 10: Status of Legal Covenants Original Covenant Present Fulfillment Description of Agreement Section Type Status Date Covenant Comments 1. Joint Project 4.01 1 C N/A ZR shall maintain records adequate to reflect in accordance with consistently maintained appropriate accounting practices in its operations and financial conditions 2. Joint Project 4.02 (a) 1 C N/A (i) ZR shall have its accounts and financial statements for each fiscal year audited in accordance with appropriate auditing principles consistently applied by independent Auditors acceptable to the Association. 1 CD N/A (ii) Furnish to the Association as soon as ZR has been submitting available, but in any case not later than six the certified accounts months after the end of each such year: - over the past years a) certified copies of its financial statements although with some for such year as so audited, and delays. b) the report of such audit by said Auditors, of such scope and in such details as the Association shall have reasonably requested. 9 C N/A (iii) Furnish to the Association such other information concerning said accounts, financial statements, records, and expenditures, as well as the audit therefore, as Association shall from time to time reasonably request 3. Joint Project 4.02(b) 1 C N/A (i) Maintain in accordance with section 4.02 (a) separate records and accounts reflecting such expenditures with respect to which withdrawals are requested from the Credit Account on the basis of statements of expenditure. 1 C N/A (ii) Retain until one year after the closing date, all records (contracts orders, invoices, bills, receipts, and other documents) evidencing such expenditure. 1 C N/A (iii) Enable the associations representatives to examine such records, and 1 CP (iv) ensure that such separate accounts are Although Annual Audits included in the annual Audit referred to in have been done no para 4.02(a), and that the report therefore separate opinion by the contains in respect of such separate accounts, Auditors was expressed. a separate opinion by the said auditors as to whether the proceeds of the Credit withdraws in respect of such expenditures have been used for the purpose for which they were provided. 4. Joint Project 4.03 2 NC N/A From the date hereof until completion of the ZR purchased 15 project, ZR shall not undertake any locomotives at about investment beyond those included in the USS30.0 million without project estimated to the aggregate of two clearance from the Bank. million dollars (US$2.0 million) without the prior approval of the Associations. 5. Joint Project 4.04 2 NC N/A Except as the Association shall agree, ZR ZR incurred a debt to shall not incur any debt unless the net fulfill the contract for revenue of ZR for the fiscal year, or for the purchase of locomotives. twelve consecutive months immediately proceeding the data of such incurrence. Table 11. Compliance with Operational Manual Statements No significant lack of compliance with applicable Bank operational manual statement has been found. Table 12: Bank Resources Stage of Project cycle Planned Revised Actual Weeks USS Weeks USS Weeks USS Preparation to appraisal N/A N/A - 44 N/A Appraisal N/A N/A - 44 N/A Negotiations through N/A N/A - 14 N/A Board approval Supervision N/A N/A - 104 N/A Completion 11.5 N/A - 12 N/A TOTAL N/A N/A - 218 N/A Table 13: Bank Resources-Missions Performance Rating Stage of Project Month/ No. of Days in Specialize Staff Skills Implementation Development Cycle Year Persons Field Represented Status Objectives Types of Problems Through* N/A N/A N/A N/A - - appraisal Appraisal* N/A N/A N/A N/A - - through Board approval Supervision 7/86 3 11 Financial Analyst 2 1 Financial Senior Economist Procurement Operations Analyst Operations 7/87 1 7 Financial Analyst 2 1 - 2/88 3 7 Financial Analyst 3 2 Financial Transport Specialist Procurement Operations 3/92 2 16 Railway Engineer N/A N/A - Transport Economist 10/92 2 12 Railway Engineer 3 3 Financial Senior Economist Operations 3/93 1 9 Railway Engineer 2 2 Financial Operations 8/93 1 - Railway Engineer 2 2 - 5/94 3 - Railway Engineer 2 2 Financial Transport Economist Operations Transport Specialist Completion 11/94 2 13 Railway Engineer - - - Private Sector Development Specialist *W B database does not include information dating as far back as this project preparation phase, and the paper files for the period before 1986 are incomplete. Appendix A ZAMBIA FOURTH RAILWAYS PROJECT - CR. 1575 ZA AND WORLD BANK COMPLETION MISSION - NOVEMBER 1994 AIDE MEMOIRE 1. The World Bank mission, comprising Ms. Agnieszka Grudzinska (Private Sector Development Specialist, AF1El) and Mr. Yash Pal Kedia (Senior Railway Engineer/Mission Leader, AFIEI), visited Zambia between November 2 and 10 and again between November 18 and 22, 1994 to initiate the preparation of the Implementation Completion Report (ICR) for the Fourth Railways Project (FRP) and to provide advice and support to Zambia Railway (ZR) in the preparation of its contribution to the ICR. 2. At the request of the mission. ZR set up a task force comprising representatives from the key departments, at the middle and top management level, to prepare the FRP evaluation report from their perspective. The mission explained to the task force the Bank procedures for implementation completion reporting (BP 13.55). The mission and the task force agreed on the project-specific data, to be collected in addition to that specified in the BP 13.55, as well on the report format Further, the mission and the task force agreed on the timetable for completion of data collection and review, preparation of ZR's draft implementation completion report, and exchange of views on FRP implementation experience. The mission would like to record its appreciation of ZR management for providing the agreed inputs in a timely and professional manner and for the frank discussion that followed. The following sections record the summary of discussions and the actions to be taken by ZR and the Bank to complete the ICR. Summary of Discussions 3. Due to substantial changes in the environment over the 10-year period of project imp:ementation, and the suspension of d.sbursement between 1987 and 1991. it was a;geed that the evaluation will be facilitated by breaking the projection implementation into distinctive periods such as prior, during, and after suspension of IDA disbursement to Zambia. The original project objective of improving the utilization of existing assets was not achieved up to the time of lifting the suspension of IDA disbursement to Zambia. This was mainly due to the problems created by the delayed effectiveness of the project and suspension of disbursement, agggravated by inadequacies in ZR's management and the deterioration in the enabling environment Both parties agreed to further elaborate on the impact of the above mentioned factors. After the suspension was lifted, considerable effort was made to modify the original project objective and targets. When the agreement was reached on the modified objective, the project was reactivated and some progress was made in achieving the revised objective and targets. 2 4. Deviations from the original project design, and investments in violation of the FRP strategy were highlighted during the discussions. These included substitution of the spot track renewal strategy with renewal of a continuous stretch of 66 kms; procurement of 15 new high powered locomotives; and procurement of about 400 additional wagons; and lobbying for donor financing of the Ten-year Development Plan which would have required US $400 million in new investments. 5. It was agreed that IDA's role as a project leader subsequent to the suspension of disbursements to Zambia was not clear and contributed to the erratic implementation of the project and subsequent deviation in the original FRP strategy. Perhaps, the targets should have been reviewed and resources reallocated. ZR also felt that, when the project was reactivated, the period given for implementation was unrealistically short particularly in the light of the Bank's rigid procurement rules. 6. Some of the other factors that contributed to poor project implementation included frequent changes of ZR's top executives, changes in the overall policy directions, and insistence on imported spare parts and components being routed through Dar Es Salaam and withdrawal of import duty exemption which caused delay in the procurement of these spare parts. The impact of these factors would be further examined. 7. Several issues such as management committment and accountability, Government's committment, revision of objectives and targets in cases of delay, strong internal montoring by implementing agencies, adherence to IDA's procurement rules, avoiding the co-financing of indivisible project components were discussed with regard to lessons learnt. These would be elaborated in more detail. 8. Project sustainability and future operations were discussed in light of ZR's Revival and' Restructuring Plans and it was agreed that an Action Plan in suitable format would be extracted from the above mentioned documents and annexed to the completion report. The Action Plan will also include a detailed plan for utilizing materials, procured just prior to project c.shg. to further the project objectives. Actions to be taken 9. ZFTwould finalize their completion report, including the Action Plan, in view of the discussions described above, and send the same to the Bank as soon as possible but before 3 December 9, 1994. The Bank would finalize its report and send the same to the Govememnt of Zambia and ZR as well as the co-financing donor agencies by December 30, 1994. 10. ZR agreed to make the following modifications to the 1984-94 data on traffic, operating and financial performance, human and physical resorces, and the disbursement and the financial covenants under FRP: (a) staff strength at the end of each year will be reconciled taking into account the changes during each year and the casual and regular staff strengths will be shown separately; (b) comments will be provided against all financial covenants which have not been complied with; (c) for evaluating the operating performance from and after 1988, the targets for 1988 indicated in the joint Project Agreement will be used and the target for wagon loading for general wagons will be taken as 35 tonnes instead of 25 tonnes; and (d) the compliance against the short-term action plan will also be indicated in a separate table; 11. This Aide-Memoire will be confirmed by the World Bank Headquarters. Hanson Sindo-.we Yash P. Kedia Managing Director Senior Railway Engineer Zambia Railways Limited World Bank s Appendix B BORROWER'S CONTRIBUTION TO THE ICR 1. INTRODUCTION The Bank Group has extended financial assistance to Zambia Railways during the ten (10) years prior to the Fourth Railway Project. In 1980 under loan 1790-ZA and Credit 973-ZA, a total of US$40 million was provided to co-finance the Third Railway Project. The facility was provided for Track and Telecommunication Improvements, rolling stock and maintenance spare parts, workshop equipment, data processing facilities and technical assistance. The total project cost was US$130.15 million. The project was completed in 1986. 2. EVALUATION SUMMARY - FOURTH RAILWAY PROJECT 2 .1 PROJECT OBJECTIVES The project's general objective was to improve the operational efficiency of the railway by replacing life expired materials and equipment. This included the following: - a) the renewal of 66km of track and casual renewals of 13km of rails and 25km of sleepers; b) the replacement of the overhead open wire system with radio communication equipment; c) the replacement of 170 wagons; d) replacement of workshop equipment; e) provision of spare parts; f) operational facilities; and g) training, technical assistance and studies. In order to meet the above objectives, operational targets were set as given in Table 1. However, after the reactivation of the Credit in 1993, some of the targets were revised in line with the short-term action plan. 2.2 ACHIEVEMENT OF PROJECT OBJECTIVES The project components were implemented as follows: - 2.2.1 Track Renewal In 1990, end-cropping the 801b rails, welding and relaying over prestressed concrete sleepers, over the 66km section were completed. However, residual works which include reballasting, tamping and conversion to long welded panels are yet to be completed. These works are now expected to be completed by the end of October 1995. The major problems in completing these works include inadequate and erratic supply of ballast, defective tamping machines and flushbutt welding plant. However, since rehabilitation spare parts are not in the country and are only waiting customs clearance, repair work is expected to start soon. The track has become safe in the section. However, sectional speed is expected to increase when the residual works are completed. -2- The casual renewals of 25km of wooden sleepers and 13km of rails were completed. A further 147km was renewed with concrete sleepers in derailment prone areas using own funds. This has reduced incidence of derailments in the affected sections. 2.2.2 Signaling and Telecommunication The installation of radio equipment in place of overhead open wire links was completed. This has improved the quality of communication channels. However, the general performance of the CTC system still remains unsatisfactory because of the signaling field equipment which is prone to vandalism, theft and delayed replacement of track batteries. 2.2.3 Wagons Out of 170 wagons proposed in the Staff Appraisal Report, only 160 wagons were purchased because of inadequate funds. In addition, Zambia Railways acquired 505 wagons through donations from CIDA and AFRICA Fund. These wagons were mostly of specialized nature in which shortages were being experienced i.e. tanks, flats and covered wagons. This improved the reliability and availability of the wagon fleet. 2.2.4 Workshop Equipment Due to the suspension of the IDA Credit, the Wheel Lathe and the Signal Workshop equipment were not purchased. This adversely affected the maintenance of wheels and signal and telecommunications equipment. The procurement of the Workshop Equipment under the Belgian grant facility was further delayed following the failure by the purchasing agent to abide by the Bank's procurement guidelines. 2.2.5 Spare parts Spare parts under the USAID grant for locomotive overhaul were all received and 25 locomotives overhauled. Although their performance improved, the average availability of 65% and reliability of 7,000km per failure were below the targets. This was due to the fact that substandard components were utilized on the first batch of nine (9) locomotives following the late delivery of spare parts. In addition, 17 locomotives were overhauled using spare parts received under the Japanese grant. The average availability increased to 80% and reliability to 26,077km per failure as against the target of 75% and 20,000km per failure respectively. Further, Zambia Railways purchased 15 new locomotives using its own funds and a loan from a Commercial Bank. This has further improved the average availability and reliability of the locomotive fleet. The spare parts for the Signaling and Telecommunications Equipment financed by the African Development Bank loan were all received for ongoing maintenance works. The track machine spare parts have arrived in the country but are awaiting customs clearance. -3- 2.2.6 Operations Facilities The original concept was the implementation of a Wagon Monitoring System, Production Planning and Control and the acquisition of the Computer Software. These were dropped due to the suspension of the IDA Credit and when the credit was reactivated, the original concept was changed in preference to track materials. The track materials have since arrived in the country and are only awaiting customs clearance. 2.2.7 Training Fellowships Prior to the suspension of the IDA Credit 120 man-months were undertaken against the initial budget of 100 man-months. Out of the five (5) students who benefited, only two (2) attained the qualification. After the reactivation, 98 man-months were utilized on short courses as against the initial budget of 90 man-months. The impact of this programme is yet to be felt. 2.2.8 Technical Assistance and Studies No new technical assistance staff was recruited other than continued funding of the thirty (30) recruited under the Third Railway Project. Thirty contracts have since expired. In addition, funding of the implementation of accounting system packages which was a carry- over from the Third Railway Project was provided for under this project. As regards studies, only the Operations Improvement Study was undertaken after the reactivation of the IDA Credit. The following studies could not undertaken because of insufficient time: a) Organization Restructuring and Manpower Study; b) Operations of the CTC System; c) Contracting Out Rehabilitation/Maintenance of Track, Buildings, Bridges and Other Structures; d) Materials Management System; e) Development of Management Information System; and f) Techno-economic Feasibility Study for Easing Grades and Flattening of Curves. 2.3 IMPLEMENTATION RECORD AND MAJOR FACTORS AFFECTING THE PROJECT 2.3.1 Factors Affecting the Project a) The project was scheduled to start on 3 July 1985 but was delayed until 7 December 1985 due to failure to finalize the on-lending agreement between GRZ and Zambia Railways and legal opinion between GRZ and the Bank within the stipulated period of 90 days. Consequently procurement and disbursements started fifteen (15) months late. b) The poor response by the Bank to approve procurement and disbursement, adversely affected the flow of materials and equipment required for the project. For instance, documents sent on 16 December 1993 were only approved on 8 February 1994. -4- c) The failure by the Government to service the debts led to the suspension of the IDA Credit barely seven months after the first disbursement and the African Development Bank's intermittent suspension of the disbursements affected the project adversely. 2.3.2 Experience and Results The overall result of the Fourth Railway Project was unsatisfactory and the main factors which contributed to this performance were as follows: a) More commitment and accountability on the part of Zambia Railways Management would have reduced delays in the implementation of the Project and utilization of funds such as the 66km track renewal and the Belgian funds, respectively. b) The delay in the credit effectiveness coupled with the suspension of disbursement between 1987 and 1993 resulted in further deterioration of the existing equipment. Consequently, targets and objectives became unrealistic and required revision. c) The frequent changes in top executives tended to disrupt the set priorities, thereby adversely affecting the implementation of the project. In addition, the Project Monitoring Committee which was in existence eventually phased out. d) Withdrawal of exemption of duty and sales tax on railway infrastructural materials in 1991 contributed to the cashflow constraint, thereby delaying the utilization of imported materials. e) The deliberate policy by the Zambian government to route imports through the Dar-es- Salaam port and the use of a single clearing agent, brought about long lead times e.g. delay in receipt of USAID financed spare parts. f) While the acquisition of 15 new locomotives adversely affected the Company's cashflow, it improved the availability and reliability of the fleet and eliminated costs on hired locomotives. g) The change in Government economic policy led to further decline in traffic levels and increase in operating costs. 2.3.3 Assessment of Results The Company could not attain most of the targets which were set and agreed (refer to Table 1). a) Average Locomotive Availability After experiencing an initial decline in the locomotive availability from 65% in 1984 to 55% in 1990, there was a steady increase from 60% in 1991 to 74% in 1994 due to various spare parts which were received under USAID and Japanese Grant. The commissioning of 15 new locomotives in 1993 and the sidelining of 25 bad performing locomotives also contributed to the improvement in average availability. b) Productivity Year Per Available Loco Per Year Productivity declined from 92,000 loco-kilometres in 1984 to 75,000 loco-kilometres in 1993 mainly due to low traffic offerings. However, in 1994 productivity increased to 98,000 loco- kilometres despite the decline in traffic because of the sidelining of some locomotives. -5- c) Average Wagon Availability There was a marked improvement in wagon availability from 85% in 1984 to 93% in 1990 due to the acquisition of 665 wagonS during the project period. However, average availability started declining in 1991 to 89% by 1994. The levels attained in 1990 could not be sustained because of lack of spare parts for maintenance. d) Average Turn-round Time of Wagons The turn-round of wagons were redefined to take into account the following: i) Transit Traffic-Border to Border; ii) Export Traffic-Loading Point to Exit; and iii) Import Traffic-Entry Point to Destination. The set targets were not attained as illustrated in Table 1. e) Average Wagon Load The average wagon load of 35 tonnes for general traffic and 40 tonnes for mineral traffic was attained. The average wagon load for the general traffic was revised from 25 tonnes to 35 tonnes in 1988. f) Productivity Per Available Freight Wagon Per Year There was a decline in the index from 220,000 tonne-kilometres in 1984 to 127,000 tonne- kilometres in 1994 because of reduced volume of traffic while the number of wagon holding remained almost the same for much of the project period (see Tables 1 and 5). g) Staff Productivity The target has not been achieved. Although the traffic levels declined by 50% there has been no significant reduction in the number of employees (see Table 4). 2.4 PROJECT SUSTAINABILITY To sustain the project, Management has formulated the Revival Plan and is in the process of finalizing the Railway Restructuring Programme which are all aimed at making the Company commercially viable. 2.4.1 Measures Taken a) Reduction in subsidies on the medical scheme, staff canteen and community services. b) Withdrawal of and restrictions on some of the conditions of service, such as telephones, water, free rental house, electricity and house servants. c) Reduction in fuel consumption by switching off idling locomotives and 30% cut on fuel allocation for motor vehicles. d) Restriction in participation in non-core business such as Agriculture Shows. e) Sidelining 25 locomotives and 2,948 wagons. f) Restrictions on local and foreign travel. -6- 2.4.2 Measures Planned a) Increasing the traffic levels from the current 2.5 million net tonnes to 3.6 million net tonnes by 1996 in order to break-even at the current prices rates and manpower levels. b) Reducing manpower levels by about 2,000 employees in order to reduce costs. c) Scrapping 1,260 wagons which are over 40 years and uneconomic to operate. d) Commercialization of the workshop operations. e) Improvement in the procurement of spare parts. f) Approach Government for further capitalization of K 25 billion of loans. g) Disposal of 1,648 excess houses. h) Seeking support in the technical areas. 2.5 BANK PERFORMANCE 2.5.1 The Bank should not have stopped supervising the project during the suspension of disbursements under the IDA Credit as other project components were still in progress. 2.5.2 In view of the delay in credit effectiveness, the project objectives should have been reviewed to match with the changed circumstances. 2.5.3 After reactivating the credit, the period for the implementation was too tight in view of the rigid Bank procurement rules. 2.6 ZAMBIA RAILWAYS PERFORMANCE 2.6.1 After the credit reactivation, the Company failed to fully utilize the facility because of the short implementation period. 2.6.2 The Company partly failed to provide the local component for locomotives spares. 2.6.3 The Company did not comply with three of the legal covenants as follows: a) undertaking an investment exceeding US$2 million; b) incurring a debt; and c) delay in submitting audited accounts for the fiscal year 1993/94. 2.7 GOVERNMENT OF THE REPUBLIC OF ZAMBIA PERFORMANCE The Government suspension of debt servicing resulted in the suspension of the IDA Credit and the intermittent suspension of the ADB facility. 2.8 KEY LESSONS The Key Lessons learned from the Fourth Railway Project are: -7- 2.8.1 In case of a long delay in the commencement of implementation of a project or part of the project, there is need to review the objectives and targets of a project. 2.8.2 Management commitment, accountability and staff motivation are a pre-requisite for the successful implementation and sustainability of a project. 2.8.3 A project coordinating committee to effectively monitor the project management cycle and take prompt decision is necessary. 2.8.4 The failure by either an agent or the Borrower to comply with the Bank's laid down guidelines and procedures, results in delays e.g. the Belgian Grant. 2.8.5 Delayed projects lose momentum resulting in ineffective implementation. 2.8.6 To avoid delays in project implementation, co-financing of indivisible project components should be discouraged. 2.8.7 The Company benefited from the project in terms of staff exposure to project management techniques, skills and experience. 2.9 FUTURE OPERATIONS In addition to make the Company commercially viable Management has formulated the Short Term Revival Plan and the Long Term Restructuring Programme. The Revival Plan is a two year plan aimed at improving traffic levels to 3.6 million net tonnes by the year 1996. To achieve the objective of the Short Term Plan the following have been undertaken: 2.9.1 Adopting marketing strategic such as flexible pricing, concessional backhaul rates, rebates based on volume commitment, and organized workshops to meet potential and existing customers. 2.9.2 Reduction in operating costs by doing away with some of the social services and other non core business activities. 2.9.3 Reduction in manpower to levels commensurate with traffic levels. 2.9.4 Reduction in the asset base by scrapping and sidelining the surplus equipment and disposal of obsolete and uneconomic assets. 2.9.5 The Government has been approached to participate in the restructuring of the Company by: a) reorganizing the Company's capital structure through capitalization of some loans; and b) exempting the Company from duty and sales tax on railways infrastructural materials. 2.9.6 Reorganizing the passenger service in order to break-even and possibly make a profit. These measures taken by Management will be supplemented by follow-up actions as outlined in the proposed long-term Railway Restructuring Programme. /S/ H. SINDOWE (Acting Managing Director) SELECTED OPERATING INDICATORS Table I ACTUAL TARGET ACTUAL ITEM DESCRIPTION UNIT 1984 1987 1987 1988 1989 1990 1991 1992 1993 1994 I Average locomotive availability. % 65 75 60 55 55 55 60 66 71 74 2 Productivity per available locomotive per year. Loco - km (000) 92 95 85 85 85 74 70 76 75 98 3 Average wagon avalability. %85 go 88 86 0 93 91 89 88 89 4 Average wagon turnaround time. Days a) General freight - Domestic Days 13 9 13 14 15 18 20 17 14 15 b) Mineral (Intermine) - Domestic Days 4 8 9 9 7 6 12 13 11 10 c) Transit Traffic (Border to Border) Days 4 4 4 4 5 7 6 5 6 6 d) Import - Detention period of foreign wagons on ZR lines Days 10 15 17 18 14 15 13 a) Export -Transittime:CB-NKP Days 2 4 4 3 2 3 2 2 2 - Transittime: CB - VFB Days 3 5 6 6 5 4 4 3 4 - Turnround lime: CB - DAR - CB Days 40 37 36 29 25 30 32 28 - Turn round time: CB - E.LONDON/BEIRA - CS Days 25 25 29 24 19 20 23 21 5 Average Wagon Load Tonns - General Freight Tonns 25 25 30 30 37 36 34 34 36 34 - Minerals Tonns 40 40 40 40 40 42 40 40 39 41 6 Productivity per freight wagon per year Ton - km (000) 220 300 209 212 210 210 160 145 161 127 Staff productivity In traffic units per year employee Ton - km (000) 196 260 187 238 209 158 159 172 160 170 per year TABLE 2 TRAFFIC PERFORMANCE(1984-1994) NUMBER(MILLIONS) 20 10 PERIOD 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 FREIGHT TONNES * 4.60 4.90 4.60 4.60 4.60 4.40 4.09 3.40 3.20 3.60 2.60 FREIGHT TKM(X1OO)$ 13.12 15.33 14.81 13.65 13.55 13.42 14.44 10.81 10.25 10.74 6.63 PASSENGER *4D 1.90 1.60 1.30 1.80 1.90 2.10 1.20 0.60 LO.90 1.20 b BALANCE SHEET AS AT THE END OF THE FINANCIAL YEARS{ 1984 - 1994) K000 Table 3(a) _________________ C1NAL ' CT AC CTUA! CUAL "AJA C-" ËAClUAL AC UAL CNA ALt 0 UAlut UA043TIM ASSETS FIXEDASSETS 168266 194459 367583 581728 628740 948837 1481474 2620498 4996783 17786321 19428497 INTERESTIN SUBSDIARY 6463 5574 5507 5814 9679 16006 19202 59833 68169 234694 190468 MULOBE2 BRANCH UNE 4743 6456 3658 UNTARY SYSTEM ACCOUNTS 40807 40920 41033 41183 43105 45083 45443 45108 465760 37522 41605 TOTAL nXEDASSETS 220279 247409 417781 608725 681524 1009926 1526119 2725439 5530692 18058537 19660570 CJRRENT ASSETS STOCKS 20074 21409 54175 68606 192656 258416 314113 410618 615046 2380706 6289855 DEBTORS 22389 33590 132001 189306 155960 136273 503460 1078877 3503868 8677131 13695293 BANK &CASH 490 1746 8560 72339 99953 194043 252490 107777 346523 2558949 ~ 2317678 TOTAL CJRRENT ASSETS 42953 56745 194736 310451 448569 588732 1068063 1597272 4465437 13616786 22302826 UNREAUSED EXCHANGE LOSSES 16547 10338 28679 54115 44615 127855 792727 241782 910752 4811463 11064896 TOTAL ASSETS 279779 314492 641196 973291 1174708 1726513 3388009 4564493 1090861 36488786 53028292 UABIUTIES CJRRENT UABLTIES CREDITORS 52158 36051 119357 266295 372306 548769 1485560 676885 3138444 13994888 28709898 TAXATION 2861 2966 2968 2968 296m 5933 26197 38223 15041 BANK OVERDRAFTS 10671 11154 6335 9472 1403 5801 5355 114609 233811 148581 478232 TOTAL CURRENTLIABLITIES 63027 47205 128553 278733 376675 555536 1493881 797427 3398452 14181672 29203171 LONG TERM UALITIES LONG TERUA LQANS 151818 79018 314270 453437 460147 620353 1584899 1476829 3474832 16254405 23783551 DEFERRED LIABIUTIES 687127 907840 1891909 TOTAL UÅBLITIES 214845 126223 442823 732170 836822 1175889 3078780 2274058 7540211 31343917 54878631 EGUITY SHARE CAPITAL (AUTHORISED &ISSUED) 70000 190725 190725 197756 197758 197758 197756 197756 197756 197756 197756 PENDNG ALLOTMENT 2636 20938 2317648 2317848 2317848 2317848 GRANTS 89241 331274 466542 586401 545691 595806 595544 RESERVES (5066) (2458) 5012 22427 50889 21594 (358619) (811368) 305575 2033859 (4961287) TOTAL EQJITY 64934 188269 198373 241121 337886 550624 308129 2290437 3366670 5142869 (1850339) TOTAL IABLITIES & ECJITIES 279779 314492 641196 973291 1174708 1726513 3386909 4564493 10906881 36488786 53028292 t b cASHFLOW STATEMENT FOR THE PEFOD (984 - 1994) K000 Table 3(b) -CTUA A AC A C A 7*wA ATE NET CASHFLOW FROM OPERATINGAC1VITIES 1263 (409) (496) 177987 81041 203770 11196 145036 2212175 331514 242590 RETURNS ON INVESTMENT AND SERVIONG OF FINANCE Diidends pid 0 0 0 0 0 0 0 0 0 (1704031 (100000) Inlerestpaid (11323) (6100) (492S2) (50678) (60306) (74719) (1h6126) 125437 (290125) (944997) (2673706) (11323) (6500) (49282) (50676) 160306) (74719) (16126) (125467) (20525) (1115400) (2773706) TAXATION Tax paid 0 0 0 (2861) (2966) (2966) (2966) 0 0 (2966) (2629 INVESTMENT ACTIVITIES Paymentstoacquire (29263) (36250) (185817) (152950) (107997) (386400) (334002) (751924) (1496993) (7325876) (S891304) tangible lixed assets interestinSubsidiary (1519) 342 (568) 1870 (3865) (5204 3974 (13796) 2402 (152438) 178315 Mulobei Banch Line Unitary system accounts (68) (113) (113) (150) (1922) (1978) (360) 335 (420652) 426238 (40831 Receipts tron sales of tangiblefixd assets 65 228 289 70 459 0 1536 5434 1267 4060 35142 NET CASH OUTFLOW FROM (30785) (35793) (182209) (151160) (113325) (393562) (329452) (766923) (1915966) (7046056) (16"19301 INVESTING AClIVITIES NET CASH (OUTFLOW) INFLOW BEFORE FINANONG (40845) (46702) (231967) (26712) (96556) (282437) (376578) (747311) 6064 (196266) (2057945) FINANCING Amounts received from the Govnt of he Republic cf Zambia 0 3944 2636 25333 68303 242033 135266 119359 3339 49915 (62) FundstorMulobezi line Rehab 0 0 5732 9453 12290 24339 33880 75601 0 0 0 Loans repaid (983) (1119) 0 0 (33) (36) (70999) (40) (1677) (03015) (1771653) Loans received 39528 44650 235252 52566 43679 85653 337320 267724 76796 4363110 3258718 NET CASH INFLOW FROM FINANONG 38545 47675 243620 87354 124239 352189 435469 493344 113480 3493944 1487003 INCREASE IN CASH AND CASH EQUIV (2300) 973 11633 60642 35683 89692 51893 (253967) 119544 2267676 (570942) SUMMERISED PROFIT AND LOSS STATEMENT FOR THE PEROD (1984 - 1989) Table 3(c) INCOME PASSENGERS 9693 9797 12962 17228 28719 44415 GENERAL GOODS &MINERALS 76087 92773 183580 366426 448681 552994 STORAGE, DEMURRAGE & OTHER 2921 4261 5561 10458 24457 20044 UVE STOCK 450 723 1270 3312 793 2499 STAFF RENTS 988 1031 2072 2588 2731 5943 MISCELLANEOUS 2916 2296 3181 6984 10935 17436 TOTAL INCOME 93055 100.00 110881 100.00 208626 100.00 406992 100.00 514296 100.00 643331 10000 EXPENDITURE ADMINSTRATIVE CHARGES 27421 29.50 26178 23.60 45638 21.90 77588 19.10 174477 33.90 276192 4290 OPERATiNG & RUNNNG 41830 45.00 42014 37.90 73368 35.20 90604 22.30 127317 24.80 162331 25 10 MAINTENANCE/TERMINAL 20968 22.50 31799 28.70 34277 16.40 94077 23.10 97725 19.00 101299 15 70 GOODS & PASSENGER HANDLING 10626 11.40 6699 6.00 (31112) -14.90 31854 7.80 34954 6.80 15351 240 TOTAL OPERATING EXPENDITURE 100845 108.40 106690 9620 122171 58.60 293923 72.20 434473 84.50 555173 8360 OPERATING SURPLUS (7790) -8.40 4191 380 86455 41.40 113069 27.80 79823 15.50 88158 1370 NON OPERATING EXPENDITURE FINANCE CHARGES 11323 1220 6100 5.50 50358 24.10 51245 12.60 60909 11.80 . 75250 1170 EXCHANGE LOSSES/(GAI NS) 28300 13.60 49873 12.30 0.00 50372 7.80 PROMSIONS 223 - 0.20 547 0.50 14923 230 TAX 0 2861 1.40 2966 0.70 2986 0.60 296 050 TOTALNONOPEXPENDITURE 11546 12.40 6647 6.00 81519 39.10 104084 25.80 63875 12.40 143511 22.30 NET INCOME (19336) -20.80 (2456) -2.20 493 2.40 8985 2.20 15948 3.10 (55353) -860 SJUMMERISED PROFIT AND LOSS STATEMENT FOR THE PEROD <1990 - 1994> Tabie 31c Cmnd INCOME PASSENGERS 39838 83053 180439 241094 905484 GENERAL GOODS & MINERALS 1306208 2945800 5845804 16530929 23480078 STORAGE. DEMURRAGE & OTHER 50830 138591 281139 43800 870184 ULVE STOCK 11120 22050 204381 STAFF RENTS 4863 6477 209181 MISCELLANEOUS 38389 114497 110051 384540 904933 TOTAL INCOME 1451248 10000 3310528 100.00 6397433 100.00 17574643 100.00 26580241 10000 EXPENDITURE ADMINSTRATIVE CIARGES 353169 2430 942540 28.50 2847735 44.50 7808724 44.40 14029629 52.80 OPERATING & JNNNG 410031 28.30 1383909 41.80 1702766 28.60 8039000 34.40 7387835 . 27.80 MANTENANCE/TERMINAL 160779 11.50 531771 16.10 854749 13.40 2499185 14.20 4071027 15.30 GOODS & PASSENGER HANDLING 36519 2.50 84335 2.50 1294061 4.90 TOTAL OPERATING EXPENDITURE 966498 66.60 2942615 88.90 5405250 84.50 16346969 93.00 26782572 100.70 OPERATING SURPLUS 484750 33.40 367913 11.10 992183 15.50 1227674 7.00 (202331) -0.0 NON OPERATING EXPENDITURE FINANCE CHARGES 156126 1080 219623 8.60 324329 5.10 1198459 8.80 3033391 11.40 EXCNGE LOSSESJ(GAJNS) 716017 49.30 704599 21.30 (185046) -2.90 (2787296) -15.70 3618229 13.80 PROAGONS 29750 2.00 TAX 2966 0.20 2968 0.10 20264 0.30 14992 0.10 5108 0.02 TOTAL NON OP EXPENDITURE 904859 62.40 927188 28.00 159547 2.50 <1553845) -8.80 8651726 25.04 NETINCCNE (420109) -28.90 (559275) -16.90 832636 13.00 2781519 15.80 <6859057) -25.80 ANALYSS OF OPERATING EXPENDITURE Table 3(d) TOTAL REVENUE 431 000. 145145 100 00 30 00 00 97 15440 0 5775 100.00 EXPENDITURE SALARIES AND ALLOWANCES 120314 18.70 298617 20.58 638481 19-23 1382094 21.60 3816870 21.72 9434805 3549 OTHER PERSONNEL RELATED COSTS 34428 5.35 57613 3.97 154690 4.60 821232 12.64 1415345 805 3691303 14 64 FUELCOSTS 58076 9.03 110342 7.60 32620 9.86 709481 11.09 1648934 9.38 2633611 991 NET INTERCHANGE COSTS 119614 18.59 133071 9.17 1145055 34.59 605186 9.46 3220718 18.33 1191987 448 OTHER OPERATING COSTS 3667 0.57 14300 0.99 16735 0.51 174787 2.73 536041 306 792773 2 98 ADMIN MGT & OTHER GEN EXPENSES 76687 1t 92 153738 10 59 481322 14 54 597027 9.33 802895 4.57 2372791 8 92 REPAIRS &MAINTENANCE 71817 11.16 160692 11.07 111574 3.37 538102 8.41 1801782 10.25 2811837 1058 FINANCE CHARGES 75250 11.70 156126 10.76 104363 3.15 324328 5.07 1198459 6.80 3033391 1141 EXCHANGELOSS/GAIN) 50372 783 716017 4934 763457 2306 185046 -2.89 (2767296) -15.75 30618299 1361 DEPREQATION 73536 11.43 67875 4.68 126900 3.83 286181 4.47 1457736 829 1852603 697 PROVISIONS 14923 2.32 29750 205 78004 2.38 291161 4.55 1644648 9.36 1800662 6 77 TOTAL OPERATING EXPENSES 698684 108.60 1668391 128.74 386837 116.60 5544533 6.67 14776132 64.09 33434192 12575 YANPOWER 8TAT1ST1C8 (10а1-1001� ' А МАИРОWЕП STRENCTM : OEPARTMENTAL ANALYSIS Тв01в 4 1М4 10в4 100s 100е 1007 !Ои l000 100о !00! !Оп t003 (sврр Оривliопв 200] 2733 2020 2017 2407 2E4S 2005 200Е 2b7b 2170 2440 Fмвnсв впд Асеоиnlв 427 400 Е01 Sц Е47 S!3 Е40 606 И7 1Е0 /07 Адмiп мд Ривоппвl 010 Е03 031 1000 1103 123� 1�74 14Е0 l301 12Е0 l224 Ткhп'ка1 1300 4l00 4004 1271 3000 3707 3004 3050 3030 3SЧ 3000 TOTAL ' О]S4 6Э)i •3S9 3469 Т{7i 1000 0411t bS44 0025 7753 7737 В ANALYSIS OF CHANGE 1N ТМЕ MANPOWER STRENaTH 1004-1004 Тда1 ИитЬвг о! Етрlоуввв at !hв Ев0iппм0 0405 ЧS4 0335 O�SO 0400 7070 0000 0410 ОЧ4 002Е 77Е3 dth• иг + ЕпОвnОвпвпtв 700 021 4Е0 /2Е N 7 100 203 303 707 203 + Тгвпаlи !о Рвгтапвп! ЕвlвЫiвhтвпlв 10 12Е 112 4i N 47Е - Sвpвratlona/Waatвp• �201) (304) (п70� (ЕОЛ 1и4� (е00� (оо7! (ит! (00� р3>, �40р TOTAL NUMBER OF EMPLOYEES АТ W34 , 0375 {3S0 0400 7070 0000 0410 {S44 002Е 7703 7737 ТНЕ END OF Тl1Е YEAR С ANALYSI3 OF SEPARATION AND ЕИаА0Е МЕИТ8 й Sврвrвдап/WввtвОв • о.гвиоп. 77 03 �1 10! 274 и1 1Et !2в 100 1ы 13е fiпвпев впд Аесоипlв 10 10 12 110 100 70 130 04 1i0 40 10i Адтй.пдРвгвомвl 71 se 02 12е 100 120 1ц 104 200 1т4 !12 Tвchnical 120 14S 124 171 2S2 2ц 173 140 144 120 147 TOTAL 201 304 270 Е07 Ч4 500 007 412 .007 437 400 i6 Епуврвтмtв 100 20S 303 707 20J 70S 021 4SS 12S 00 7 Transfвr 1о Рвгтвпвпl EstaЫishmвnlв 10 12S 11 4� 00 47Е SELECTED ASSETS STATISTICS: 1984-1994 b Table 5 YEARS ITEM DESCRIPTION UNIT 1984 1 1985 1986 1 1967 1988 1 1989 logo 1 1991 1992 1993 - 1994 Locomotives .U20C (main line) No. 65 68 68 68 59 59 59 56 56 56 51 b) UI5C (shunQ No. 12 12 12 12 12 12 12 12 12 12 12 c) GT36 (main line) No. 15 15 d) CMI (shunt) No. 2 2 2 2 Passenger Coaches No. 84 84 04 84 82 82 152 82 so 75 75 3 Wagons No. 5866 5682 5684 5913 6134 6158 6019 6019 5075 5328 5306 (Revenue Generating) 4 Track a) Route length km 1273 1273 1273 1273 1273 1273 1273 1273 1273 1273 1273 ) Track upgrade km 54 82 130 157 185 240 289 305 322 325 325 c) Maintenance Wooden sleeper replacement (cumulative) - Target No. 2000D 40ODD 60000 wooo 110000 180000 210000 310000 410000 510000 SIODOO - Actual No. 15= 24000 340DO 44 $7000 imp - n 1 123000 164000 200000 212000 Backlog No. 5000 Is= 26M 44000 73000 110111M 187000 246000 302000 3MM ECONOMIC DATA Table 6 ITEM DESCRIPTION UNIT 1984 1985 1986 1987 196 1989 1990 1991 1992 1993 1994 1 Inflation % 54.8 47.0 54.0 12.8 109.0 93.4 191.3 187.1 34.7 2 GDP at crent prices K (million) 4931 7072 12963 19779 30021 55181 113340 219553 568730 1440663 3 Agriculture GDP by kind of Economic Activity at current prices K (Million) 925 1578 2180 5056 10562 20631 34518 121132 393930 4 Manufacturing GDP by kind of Economic Activity at current prices K (Million) 1617 2936 5548 9496 17060 36107 72786 189048 350503 5 Mining GDP by kind al Economic Activity at curent prices K (Million) 1102 2355 2689 3155 7720 10217 18230 31820 142957 - Copper Production Tons 523300 479446 459172 483000 422200 450707 441174 399400 400000 400000 - Cobalt Production Tons 3472 4359 4344 4479 5055 4489 4615 4500 4700 4221 6 GDP at current prices Transpart and communications (overalQ K (Million) 342 594 640 1207 2861 5501 12093 39106 77782 - Road K (Million) 96 167 249 358 Ga1 1972 4607 470 20016 - Rai K (Millon) 103 182 244 342 779 1331 2541 6224 15972 7 Annual Average Excharge Rate 1 US $-Kwach (K) 27 27 7 9 a 13 31 65 542 563 670 LOANICREDT DISBURSEMENT (US $000) CUMULATIVE (1984-1994) Table 7(s) ITEM DONOFFUNDED BY 1985 1966 1987 1968 1989 1990 1991 1992 1993 1994 1995 1 IDA - Estimate 500 5500 17000 20000 Suspend Su spende (2500) 17500 17500 - Actuals 240 761 1351 1930 4115 4186 4206 5737 12120 - Disb: % 0.00% 4.36% 4.48% 6.76% 32.76% 69.26% 2 BELGIUM - Estimate - - - - - - . - - 4000 5100 - Actuals - - - - - 1833 3166 3196 3354 3354 4854 - Disb: % - - - - - - - - - 83.85% 95.18% 3 USAID - Estimate - - - - - - - - 10000 - Actuals - - - 1148 1652 2830 3716 9961 9961 9961 - Disb: % - - - - - - - - - 99.61% 4 SIDA - Estimate - - - - - - - - - 5200 - Actuals - - 1444 1845 1845 1845 1645 2403 2403 2403 - Disb:% - - - - - - - - - 46.21% 5 KFW - Estimate - - - - - - - - - 5200 - Actuals - - 3 243 2395 2399 2399 2399 2923 3154 - Disb:% - - - - - - - - - 60.65% 6 ADB - Estimate 1460 10730 19000 20000 20000 20000 20000 20000 20000 20000 20000 - Actuals - - - 961 6950 9297 14618 14964 15611 22582 25122 - Disb: % - - - - - - - - - 112.91% 125.61% 7 ZR - Estimate - - - - - - - - - 1099 - Actuals - 875 2170 3021 4061 4061 4751 6660 6660 6860 - Disb: % - - - - - - - - - 62.37% 1.1 1?. 't r-,." I3.G - NOTES: 1 IDA credit was reduced tom SDR 20.5 million to SDR 12.5 millIon In 1992 an equivale of US$ 17.5 milloi at * xchange rate of US$ 1.4 to I SDR. 2 ADB Loan - The actual foreign cost Increased as a result of curency fluctuations. 3 SIDA - The correct estimated should have been US$ 3.052 million against US$ 5.200. as reported in te BAR 4 KFW - The actual foreign cost Increased as a result of curency fluctuations and provision of additional fundIng of DM I million in 1990. 5 BELGIAN GRANT - Increased by accrued Interest of US$ 1.1 million. 6 Additional costs In 1995 will aise tom Wacilities that are not fully drawn and local tAxes. PROJECT FINANCING (US $000) Table 7(b ESTIMATED EXPECTED FUTURE COST SOURCE LOCAL ORIGINAL REVISED REVISED ACTUAL FOREIGN COST FOREIGN FOREIGN TOTAL LOCAL COST TOTAL LOCAL FOREIGN TOTAL COST COST COST IDA 20000 17500 17500 12120 12120 ADB 20000 20000 20000 22582 22582 2540 2540 SIDA 5152 5152 5152 2403 2403 USAID 5000 10000 10000 9961 9961 BELGIUM 4000 4000 4000 3354 3354 1500 1500 KfW 1600 1600 1600 3154 3154 ZRL 16300 10999 10999 27299 11464 6860 18324 3190 3190 TOTAL 16300 66751 69251 85551 11464 60434 71898 3190 4040 7230 PROJECT COSTS (US $000) __________________ _______Table 7(c) ORIGINAL ESTIMATES REVISED ACTUAL EXPECTED FUTURE COST COMPONENTS EST. ESTIMATED LOCAL FOREIGN FOREIGN REVISED LOCAL FOREIGN TOTAL LOCAL FOREIGN TOTAL COST COST COST TOTAL COST COST Track 700 5200 8900 9600 1175 9849 11024 2900 2300 5200 Signalling and Telecomm. 1800 9140 8400 10200 2160 9543 11703 50 180 230 Rollingstock 1900 7650 7650 9550 1724 5079 6803 Workshop Equipment/Vehicle 400 1200 5370 5770 425 4857 5282 50 1500 1550 Spare Parts 3400 21000 23413 26813 2905 24070 26975 60 60 Operating Facilities 600 2200 4200 4800 1600 4461 6061 190 190 Training 700 2700 1100 1800 425 591 1016 Technical Assistance 1400 5200 4100 5500 1050 1984 3034 Price Contingencies 5400 12361 6118 11518 TOTAL 16300 66751 69251 85551 11464 60434 71898 3190 4040 7230 RELATED BANK CREDIT/LOANS Table 8 LOAN/CREDIT PURPOSE YEAR OF STATUS TITLE APPROVAL 1 Preceding Operations Third Railway The project was required to avoid 16 06 80 The Project was completed Project a deterioration in ZR's operations in 1986, two years behind and reduction in its transport schedule. capacity. The project was to assist in modernizing the rolling- stock fleet and increase its utilisation and thereby its effective capacity to handle expected growth in traffic up to 1986. 2 Following Operations Railway To commercialise the operation of Proposed The draft project profile Restructuring the Company and to improve the for has been prepared by Programme track, signalling and implement- Zambia Railways telecommunications systems, ation Management. It is workshop and data processing during awaiting appraisal. facilities and to provide for 1995-99 training and technical assistance. STUDIES INCLUDED IN THE PROJECT Table 9 STUDY PURPOSE AS DEFINES/UNDEFINED STATUS IMPACT I Component Rehablitation The study was to identify suitable parts The study could not be There has been no impact as thi that could be manufactured locally, on undertaken due to suspension study was not undertaken. priority basis thereby assisting ZR to of the Crefit Facility. reduce future requirements of foreign exchange. 2 Operational Improvement Improve yard operations, the The redefined study was under- Recommendations which were circulation and transit of wagons at taken and completed in accepted are being under- border stations. September 1993 under the taken and are yielding results. reactivated credit. 3 Techno-economic Determine cost/benefits of easing Although terms of reference Nil Feasiblity Study for grades and flattening curves in the had been prepared, the study Easing Grades and Lusaka-Kafue sections. did not take off due to the time and Flattening of Curves factor. 4 Operations of the CTC Determine whether Zambia Railways The study was not undertaken Nil needs to keep the present CTC system due to inadequate time. or replace it by some less sophisticatec system and whether mairtenance should continue being undertaken in - house or be contracted out. 5 Contracting out maintenance Determine the economies of contractiri The study could not be under- Nil and Rehabilitation of track out maintenance and rehabilitation of taken due to inadequate time. and other infrastructure track vis-a-vie doing these In-house 6 Development of Management Development and implement The study could not be under- Although the study was under- Information System Management Information System. taken under the IDA Credt taken, It has not been funds but was carried out with implemented due to lack of Banks' own funds and was funds. completed. 7 Implementation of Materials Develop and implement an effective Could not be undertaken Study findings require Management System stores and accounting system. but an In-house study has implementation. been undertaken and completeid. 8 Manpower and Organsiation Determine Ideal orgwnisatlon structure Study undertaken in-house Structue and manpower levels commensurate and Is still in progress. with existing levels of traflic. LEGAL COVENANTS Table 10 CONVENANT REVISED AGREEMENT SECTION TYPE STATUS DATE DESCRPTION OF CONVENANT COMMENTS 1 Joint Project 4.01 Accounts/Audit C N/A ZR shall maintain records adequate to r~llect in accordance with consistently maintained appropnate accounting, practices n its operations and financial condition. 2 Joint Project 4.02(a) Accounts/Audit C N/A i) ZR shalt have its accounts and financial statements for each fiscal year audited in accordance with appropriate auditing principles consistently applied. by independent Auditors acceptable to the Association. CP bi) Furnish to the Association as soon ZR has been submitting the as available, but in any case not certified accounts over the later than six months ater the past years although with and of each such yea: - some delays. a) certifed copies of its financial statements for such year as so audited; and b) the report of such Audit by the said Auditors. of such scope and in such details as the Association shall have reasonably requested. C N/A i Furnish to the Association such other information concerning said accounts. Inancial statements. records and expenditures, as well as the audit therefore, as Association shall ton time to time reasonably request. 3 Joint Project 4.02(b) Accounts/Audit C N/A i) Maintain in accordance with Section 4.02(a) separate records and accounts reflecting such expenditures with reaped to which withdrawals are requested torn the Credit Account on the basis of statements of expenditure. C N/A i) Retain unti one year after the closing date. all records (contracts orders, invoices, bills, receipts and other documents) evidencing such expendure. C WA 1l) Enable the Assoceation representaires to examine such records; and CP N/A Iv) Ensure that such separate accounts Athough Annual Audit have are included in the Annual Audit been done no separate refred to in para 4.02(a) and that opinion by the Auditors the report therefore contains in was expressed. respect of such separate accounts, a separate opinion by the said Auditors as to whether the proceedi of the Credt withdraws in respect of such expenditures have been used for the purpose for which they were provided. 4 Joint Project 4.03 Financial NC N/A From the date hereof until completion ZR purchased IS locos at of the project. ZR shall not undertake about USS0.0M without any investment beyond those included clearance tom the bank. in the project estimated to in the aggregate in any given year more than the equivalent (USS2.00M) without the prior approval of the Associations. 0 Joint Projed 4.04 Financial NC NIA Except as the Association shall agree, ZR incurred a debt to ZR shall not incur any debt unless the Iuill the contract for net revenue of ZR for the scal year, or purchase of locos. for tweoe consective months immediately proceeding the data of I such incunence. � 22° 7в" гб° 2В° _ 32� >4" � •--�'• � •\ �•- "•�` TANZANIA � ! / \ � LJ I / \ / � МЬа1а • �, то мЬеуп 4 � tr`.�.. 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