Mozambique - Maputo Corridor Revitalization Technical Assistance Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 19305-MOZ vIPLEMENTATION COMPLETION REPORT REPUBLIC OF MOZAMBIQUE MAPUTO CORRIDOR REVITALIZATION (TECHMCAL ASSISTANCE) PROJECT (Credit 2454-MOZ) June 28, 1999 Transport I Eastern and Southern Africa Region This document has a restricted distribution and may be used by recipients only in the performanc4 of their official duties. Its contents may not be disclosed without World Bank authorization.  CURRENCY EQUIVALENT Monetary unit = Metical (NT) (MT/US$, period average) 1992 1993 1994 1 1995 1 1996 1997 1998 2,516.5 3,874.2 6,038.6 9,024.3 11,293.8 11,543.6 12,180.0 Source: International Financial Statistics, IMF. WEIGHTS AND MEASURES Metric System FISCAL YEAR OF BORROWER January 1 - December 31 ABBREVIATIONS AND ACRONYMS CAS = Country Assistance Strategy CFM = Caminhos de Ferro de Mocambique CFM(S) = Caminhos de Ferro de Mocambique (Sul) ESRP = Economic and Social Rehabilitation Program GOM = Government of Mozambique GSA = Government of South Africa IDA = International Development Association MCRP = Maputo Corridor Revitalization (Technical Assistance) Project MOP = Memorandum of the President MoU = Memoranda of Understanding MTC = Ministry of Transport and Communications MPF = Ministry of Planning and Finance PPF = Project Preparation Facility RPRP = Railways and Ports Restructuring Project TA = Technical Assistance TEU = Twenty-Foot Equivalent Unit (= 20-foot container) ODA = Overseas Development Administration USAID = United States Agency for International Development Vice President: Mr. Callisto E. Madavo Country Director: Ms. Phyllis R. Pomerantz Technical Manager: Mr. Yusupha B. Crookes Task Team Leader: Mr. Yash P. Kedia  FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT REPUBLIC OF MOZAMIBIQUE MAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT (CREDIT 2454-MOZ) Page No. PREFACE Table of Contents EVALUATION SUMMARY. i PART I - PROJECT IMPLEMENTATION ASSESSMENT ....................................... I A. Background .................................................................1 B. Project Objectives ............................................................... 2 C. Achievement of Project Objectives . ................................................................3 D. Major Factors Affecting the Project ................................................................. 9 E. Project Sustainability ................................................................ 10 F. Bank Performance ................................................................ 10 G. Borrower Performance . 11 H. Assessment of Outcome ............................................................... 11 I. Future Operations ............................................................... 12 J. Key Lessons Learned ................................................................ 12 PART II - STATISTICAL TABLES ............................................................... 13 TABLE 1: Summary of Assessments ............................................................... 14 TABLE 2: Related IDA Credits ........................ ....................................... 15 TABLE 3: Project Timetable ............................................................... 16 TABLE 4: Credit Disbursements: Cumulative Estimated and Actual ............ ............... 16 TABLE 5: Key Indicators for Project Implementation ............................ .................... 16 TABLE 6: Key Indicators for Project Operation .......................................................... 16 TABLE 7: Studies Included in the Project ............................................................... 17 TABLE 8: Project Costs ............................................................... 18 TABLE 9: Project Financing ............................................................... 18 TABLE 10: Economic Costs and Benefits ............................................................... 18 TABLE 11: Status of Legal Covenants in Credit Agreement . ......................................... 19 TABLE 12: Bank Resources: Staff Inputs ............................................................... 20 TABLE 13: Bank Resources: Missions ............................................. .................. 21 Annex 1: ICR Mission Aide Memoires ............................................................... 22 Annex 2: Borrower Contribution to the ICR ............................................................... 35 MAP: IBRD No. 30307 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.   IMPLEMENTATION COMPLETION REPORT REPUBLIC OF MOZAMBIQUE MAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT (CREDIT 2454-MOZ) PREFACE This is the Implementation Completion Report (ICR) for the Maputo Corridor Revitalization (Technical Assistance) Project, for which Credit 2454-MOZ in the amount of SDR 6.6 million (US$9.3 million equivalent) was approved on January 19,1993 signed on February 12, 1993 and made effective on September 27, 1993. The Credit was closed on December 31,1998 one year later than the original closing date. The final transaction took place on March 16, 1999 at which time a balance of SDR 2.5 million was canceled. Yash Pal Kedia, Task Team Leader and Gualberto Lima-Campos, Consultant prepared the ICR. Preparation of the ICR started during the Bank's final supervision mission on January 1998 and the implementation completion mission on November 1998. The report is essentially based on material in the project file and data provided by the Government of Mozambique. The Borrower contributed to the preparation of this ICR and prepared its own evaluation of the project's execution. The report is included as Annex 2 to the ICR.   IMPLEMENTATION COMPLETION REPORT REPUBLIC OF MOZAMBIQUE MAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT (CREDIT 2454-MOZ) EVALUATION SUMMARY INTRODUCTION (i) The revitalization of Mozambique's three main port-railway systems, (Nacala, Beira and Maputo) was made a key element of the Government of Mozambique's (GOM) Economic and Social Rehabilitation Program (ESRP), formulated immediately after the signing of the peace agreement in 1992. At the request of GOM, the Bank agreed to support GOM's plans to revitalize the Maputo port-railway system through the Maputo Corridor Revitalization Project (MCRP) as a first step towards revitalizing all the main ports and railways systems in Mozambique. The Development Credit Agreement for MCRP was signed on February 12, 1993 and the Credit became effective on September 27, 1993. (ii) The main Project objective was to assist the Government of Mozambique (GOM) in identifying and implementing strategies that would lead to the long-term viability of the Maputo port-railway system. The strategy proposed during the Project preparation to achieve the long-term viability objective comprised two key elements: (a) Government's divestiture of direct involvement in the management and operation of those transport facilities in the corridor on the most commercially advantageous terms and establishment of an appropriate regulatory framework to regulate such divestiture; and (b) staff rationalization comprising retrenchment of staff considered surplus and labor redeployment measures to adequately cushion them against the impact of loss of employment. (iii) A subsidiary and related objective of the Project was to assist the Government in implementing actions to enhance the performance of the Maputo port-railway system in the interim, i.e., until the concessioning of the system. Two key actions were identified as: (a) a diagnostic study to enable CFM to evaluate its past performance, resources, commercial strategies, managerial and technical capabilities, and market and financial prospects; and (b) physical inputs in the form of critical equipment in order to relieve bottlenecks in the container terminal operations and to strengthen communications with the systems in the neighboring countries. During implementation developing consensus and commitment in favor of concessioning emerged also as an interim objective. (iv) The Project objectives were fully consistent with the Government's priorities and were very explicit in the Memorandum of the President (MOP) for the MCRP. The objectives also supported IDA's country assistance strategy at the time of appraisal.  - ii - IMPLEMENTATION EXPERIENCE AND RESULTS (v) The Project is assessed as satisfactory. (vi) The Project implementation helped develop a consensus and commitment in favor of the concessioning within GOM. During the Project's preparation and implementation, the Bank staff held substantial and fruitful discussions with the Government and CFM officials on adopting the concessioning option, which would offer all the advantages of private participation in the operation and management of the ports and railways while allowing GOM to retain their ownership. (vii) The concessioning process was substantially achieved. The process initiated by the Government in the divestiture of direct involvement in the management and operation of transport facilities in the corridor is considerably advanced and is likely to be completed by the end of 1999. Three port terminals have been concessioned, a joint venture with a private partner has been created to manage the Container Terminal; and Memoranda of Understanding (MoU) for the master concession of the Port of Maputo, and the rail network package comprising the Limpopo rail link, the Goba rail link, the Marshaling yard and the Railway Workshop have been signed with different private consortia. In addition, GOM is in the process of developing an alternative option for the concession of the Ressano Garcia railway line subsequent to the failure of negotiations with a potential concessionaire. (viii) Even though no progress was made in the retrenchment of surplus staff due to cancellation of the USAID grant, a comprehensive staff rationalization plan for the redundant work force was finalized and formally communicated to the Bank. This plan is scheduled to be implemented under the proposed Railways and Ports Restructuring Project (RPRP). (ix) CFM's operational and financial performance showed a modest improvement. The performance of the Maputo port and railway system has improved since 1994 in terms of the traffic carried as well as reduction in the overall yearly financial losses. The equipment for the container terminal was also successfully commissioned, contributing decisively to the elimination of bottlenecks. (x) Additionally, there were two key outcomes that were not fully anticipated at the time of project finalization, viz., building of capacity within CFM and GOM for managing the concessioning process, and a great boost to the inflow of capital for the overall development of the Maputo Corridor, including construction works on a cross- border toll road, a US$1.4 billion aluminum smelter, two new power lines and numerous smaller projects such as manufacturing and service establishments, housing, offices, hotels, leisure facilities, shopping centers and casinos. (xi) Even so, the Project suffered from delays during the early stages of implementation, poor response from the potential bidders, and lengthy negotiations. First, GOM officials were in general cautious in accepting the idea of privatizing ports and railways as they viewed these as a strategically important geo-political asset for Mozambique. It was only through a continuous and persistent dialogue between the Bank  - iii - and GOM that a decision in favor of concessions was finally made. Second the decision- making process was slow and the concerned Ministers were not always aware of the discussions and recommendations. It was only after a high-level committee comprising the Ministers of Transport and Communications and Planning and Finance was established that the pace of decision-making process accelerated. Third, USAID cancelled the Grant Agreement for the labor retrenchment and redeployment component and as a result, the staff rationalization plan could not be implemented. Finally, the relations between the consultants engaged to provide investment and advisory services and GOM/CFM officials remained indifferent and acrimonious resulting in prolonged discussions, disagreements, and loss of time. (xii) The Bank's identification was highly satisfactory since the introduction of the idea of private participation in the management and operations of ports and railways under MCRP was a path-breaking concept. Through the identification process, the Bank was able to convince the Government of the need to look at a radically different strategic approach to the ports and railways systems. This approach ran counter to the prevailing orthodoxy both inside and outside the Bank, which characterized the railways and ports as strategic or patrimonial assets that needed to be managed wholly within the public sector. The potential impact of this concept is now fully appreciated. The Bank's preparation and appraisal was satisfactory. The Bank's supervision was satisfactory as the Bank kept up a close monitoring of the Project and maintained a continuous and persistent dialogue with the Borrower on the advantages of involving the private sector on the management of port facilities which was crucial for Government acceptance of the idea of concessioning the corridor facilities. The Borrower's performance was overall satisfactory as regards project identification, preparation and implementation. (xiii) The sustainability is likely for two reasons: (a) because the agreements and contracts that define the concessions and other forms of private participation in the operation and management of the railways and ports are legally-binding on both the concessionaires and the Government, compliance is expected to be far better than one could expect in the past from similar agreements between the Government and the publicly-managed entities; and (b) the Project has helped establish a strategic direction for the whole port and railway sub-sectors in the country. The forthcoming Railways and Ports Restructuring Project (scheduled for Board presentation in FY2000) is designed to deal comprehensively with issues of concessioning of all remaining railway and port systems including what is remaining to be concessioned under the Maputo port-railway system, staff rationalization, regulatory framework, and the corporate restructuring of CFM itself. As a result, not only would the restructuring/concessioning become progressively irreversible, appropriate institutional arrangements would have been made to deal with any problems between the concessionaires and the Government. FUTURE OPERATIONS AND KEY LESSONS LEARNED (xiv) The RPRP was negotiated in May 1999 and the Credit is likely to be approved by the Board in early FY2000. The Project will aim at addressing all issues pertaining to the concessioning of all the ports and railways in the country and restructuring of CFM in a comprehensive manner. The main objective of RPRP will be to substantially increase the operating efficiency of the three major port-rail systems in Mozambique and enable them  - iv - to capture the maximum possible share of the available freight traffic, mostly the export/import traffic from the neighboring countries. (xv) The following lessons can be learned from the Maputo Corridor Revitalization (Technical Assistance) Project: (a) Developing genuine ownership of a dramatic shift in business and political strategy, as in the privatization program in this case, is a complex process. Although the main objective of the MCRP focused on the divestiture of the Government's involvement in the management and operation of the corridor facilities, there was no clear indication of Project ownership when the Project started to be implemented since most GOM officials were reluctant about privatization of corridor facilities. The Project proved to be an effective tool in establishing continuous, persistent, and intensive dialogue between the Bank and the borrower leading to government's full commitment to the Project objectives. (b) Committees comprising lower-ranking officials without adequate authority are not adequate in advancing a process as complex as the one involving concessioning. The establishment of a High-Level Committee comprising Ministers having adequate decision-making power proved critical in accelerating the decision-making process and in contributing to the achievement of the Project objectives. (c) While undertaking concessioning or privatization of a complex railway and/or port system, it would be a better idea to commence the concessioning process with one or two key components of the system and to use the lessons to improve the process for the rest of the system. The concessioning of the Maputo Corridor has offered many experiences that have made or are expected to continue to make the concessioning of the other Mozambique corridors less time-consuming and more efficient and effective.  IMPLEMENTATION COMPLETION REPORT REPUBLIC OF MOZAMBIQUE MAPUTO CORRIDOR REVITALIZATION (TECHNICAL ASSISTANCE) PROJECT (CREDIT 2454-MOZ) PART I - PROJECT IMPLEMENTATION ASSESSMENT A. BACKGROUND 1. Until 1975, Mozambique's three main port-railway systems, Nacala, Beira and Maputo, carried most of the overseas traffic of the neighboring land-locked countries, viz., Malawi, Zimbabwe, Swaziland, as well as the north-eastern provinces of South Africa. The income from the regional overseas traffic (about US$250.0 million at today's prices at its peak) financed most of the large structural deficit in the country's balance of trade. However, after independence in 1975, this traffic declined precipitously, from about 18.0 million tons in 1973 to about 1.6 million tons in 1991, due to the violent internal conflict and the consequent damage to the transport infrastructure, disruption of transport operations, and the massive exodus of the managerial class, as well as the weakening of the structure of economic incentives and management in the country. 2. Recognizing the potential of the port-railway systems in Mozambique in generating foreign exchange and accelerating the country's economic growth, the rehabilitation and revitalization of these systems were made key elements of the Government of Mozambique's (GOM) Economic and Social Rehabilitation Program (ESRP), formulated immediately after the signing of the peace agreement in 1992. At the request of GOM, the Bank agreed to support GOM's plans to revitalize the Maputo port- railway system through the Maputo Corridor Revitalization Project (MCRP) as a first step towards improving the performance Mozambique's major railway and port systems. The Project was the second intervention by the Bank in the railways and port sub-sectors in Mozambique. The first intervention was in the Beira port-railway system and its focus was on increasing operating efficiency of the system through technical assistance, training, and investments in operating assets to bridge capacity gaps in the system. While the main objective of MCRP was about the same, the focus was on institutional change including substantial private participation in the operation and management of the Maputo port-railway system. 3 . The initial revitalization effort was restricted to the Maputo port-railway system and was not extended to all the ports and railways in Mozambique with a view to containing the risk of failure. The choice of Maputo as a pilot instead of Beira or Nacala was made for two reasons. First the strategic calculations at that time was that a delay in the taking up of the revitalization of the Maputo port-railway system might have triggered investments in the competing ports of Durban and Richards Bay, thus reducing  -2 - the opportunity for the port of Maputo to ever increase its market share of the international traffic from the neighboring countries, particularly the north-eastern region of South Africa. Second the demonstration effect of revitalization would have been much greater in the case of Maputo because of the large volume of traffic handled by the system and the potential market of the system when compared to Beira and Nacala. B. PROJECT OBJECTIVES 4. The main Project objective was to assist the Government of Mozambique (GOM) in identifying and implementing strategies that would lead to the long-term viability of the Maputo port-railway system, a key objective of the Government in the transport sector. The strategy proposed during the Project preparation to achieve the key sectoral comprised two key elements: (a) Government's divestiture' of direct involvement in the management and operation of transport facilities in the corridor on the most commercially advantageous terms and establishment of an appropriate regulatory framework to regulate such divestiture; and (b) staff rationalization comprising retrenchment of staff considered surplus and labor redeployment measures to adequately cushion them against the impact of loss of employment2. Being dependent on the successful implementation of the divestiture and staff rationalization strategy, the achievement of the main objective of long-term viability was not expected during the lifetime of the Project. Therefore, concessioning and staff rationalization were considered as surrogate objectives for the purpose of evaluation. 5. A subsidiary and related objective of the Project was to assist the Government in implementing actions to enhance the performance of the Maputo port-railway system in the interim, i.e., until the concessioning of the system. Two key actions were identified as: (a) a diagnostic study to enable CFM to evaluate its past performance, resources, commercial strategies, managerial and technical capabilities, and market and financial prospects; and (b) the physical inputs in the form of critical equipment in order to relieve bottlenecks in the container terminal operations and to strengthen communications with the systems in the neighboring countries. 6. Even though experience everywhere else had revealed the inadequacy of the publicly-managed railways to respond effectively to the changing business environment and market competition, the majority of GOM and CFM officials, like everyone else in the region, were highly skeptical of any strategy involving divestiture and private management and operations. In particular, CFM felt that a phase of internal restructuring and commercialization of ports and railways should precede any privatization effort. To provide comfort to GOM/CFM and some donor agencies, who were also skeptical of the concessioning option and favored some other forms of public-private partnerships, the strategy was appropriately modified to provide for a study to identify the right option after evaluating various options for the restructuring and/or privatization of the Maputo Since divestiture was to be achieved through award of concessions to private operators/groups, divestiture and concessioning have been used interchangeably in the text ahead. 2 The severance payments were proposed to be financed through a separate USAID program of providing budgetary support to the Govermment, for which USAI) had allocated close to US$30 million and this aspect is not discussed in this report.  - 3 - port-railway system. It could be argued that, in the face of GOM's weak commitment, it was probably advisable not to go ahead with the Project. On the other hand, it was felt that a consensus and commitment in favor of divestiture could be built more quickly and more convincingly through the Project, rather than by maintaining a dialogue outside of the Project. Finally, it was agreed to go ahead with the Project and the development of a consensus and commitment in favor of divestiture also emerged as a key element of Project strategy and as an interim objective. 7. The Project objectives were fully consistent with the Government's ESRP. They were also in confonnity with the Government's priorities as expressed by the Minister of Finance in a Letter of Development Policy dated April 30, 1992 addressed to the President of the World Bank, i.e., "... continuing the establishment of an appropriate business environment by enhancingprivate sector-based growth through restructuring/privatizing large state enterprises... and rehabilitating the economic and social infrastructure." The Project objectives were very explicit in the Memorandum of the President (MOP) for the MCRP. The objectives also supported IDA's country assistance strategy at the time of appraisal, as stated in the Bank's Country Assistance Strategy (CAS) of 1992 and articulated in the MOP for the Economic Recovery Program (Cr. 23 84-MOZ) "to establish an economic environment conducive to economic growth ... and support the rehabilitation of key economic and social infrastructure. The overall approach is to strengthen key institutions, policies andfunctions in a way that will be conducive to increased productivity ofpublic resources, enhancedprivate sector growth and reduced poverty... Our operations would support the rehabilitation of key infrastructure, restructuring andprivatization ofstate enterprises... 8. The Project was estimated to cost a total of US$10.5 million. IDA's contribution, SDR 6.6 million (US$9.3 million equivalent), represented 89% of the initial Project cost. Cofinancing by the United States Agency for International Development (USAID), the Overseas Development Administration of UK (ODA) and GOM was initially indicated as US$0.6 million (6%), US$0.1 million (1%), and US$0.5 million (5%). The final Project cost was US$5.9 million, 56% of initial estimate, since USAID cancelled its contribution and about 35% of the IDA Credit was not utilized. C. ACHEEVEMENT OF PROJECT OBJECTIVES 9. The objectives of the MCRP were to a large extent achieved and the Project is overall rated as satisfactory. Achievement of the various objectives is discussed in the following paragraphs. C.1 Consensus and Commitment-Building 10. This interim objective of consensus and commitment-building in favor of concessioning (as discussed in paragraph 6) was substantially achieved. The three main transport corridors have always occupied an important position in the economy and political history of Mozambique and are viewed as a strategically important geo-political asset in the Region. A consequence of this history has been the political concern about keeping the ownership of the corridors' infrastructure and other long-lived assets in the hands of the state in order to guard them against their use in ways inconsistent with  - 4- perceived Mozambican national interests. During the Project's preparation and implementation, the Bank staff held substantial and fruitful discussions with Government and CFM officials on adopting the concessioning option, which would offer all the advantages of private participation in the operation and management of the ports and railways while allowing GOM to retain their ownership. Even so, GOM remained cautious and took considerable time to finally take a decision in favor of concessioning in 1996. 11. The following also helped in building consensus and commitment-building in favor of concessioning: (a) study tours by key CFM and GOM officials to Brazil, Argentina, USA, and UK, where railway and port concessioning/privatization had made substantial headway and had met with considerable success in terms of increased traffic, lowering of tariffs, increased quality of service, and lowering of fiscal burden on their respective governments; (b) exposure of CFM/GOM staff to the Policy Options Seminar organized by the Southern African Transport and Communications Commission (SATCC) in 1996; (c) the Options Study report, which unequivocally recommended concessioning of the ports and railways; and (d) macro-economic dialogue between the Bank and GOM, which highlighted the role of privatization in accelerating the country's economic growth. C.2 Concessioning 12. This objective of concessioning (as discussed in paragraph 4) was substantially achieved. The concessioning of Maputo port and railway facilities is still not completed, but the concessioning process has advanced to an extent so as to make the award of concessions an almost certainty. The current concessioning status is as follows: (i) three port terminals (Sugar, Citrus, and Matola Coal) have been concessioned, with the graph illustrating how traffic increased in the three port terminals after they were concessioned Port Terminals Traffic - +Coal Terminal -U-Citrus Terminal --Sugar Terminal 900 800 - 700- 600- o 500 400- 300- 200- 100 1992 1993 1994 1995 1996 1997 Year in 1995; (ii) a joint venture with a private partner has been created to manage the Container Terminal; (iii) Memoranda of Understanding (MoU) for the master concessions for of the Port of Maputo and the rail network package comprising the Limpopo rail link, the Goba rail link, the Marshaling yard, and the Railway Workshop have been signed with different private consortia; and (iv) GOM is in the process of  -5- developing an alternative option for the concession of the Ressano Garcia railway line subsequent to the failure of the negotiations with a potential concessionaire. 13. MoUs for the master concessions were expected to be followed by identification of staff and operating assets to be taken over by the MOU signatories and signing of formal concession agreements between CFM and the identified concessionaires. However, some differences appear to have emerged on the final terms of the concession agreements. The main reasons for these differences are embedded in the overall complexity of concessioning the ports and railways in general and the Maputo port- railway system in particular. The concessioning of the Maputo port-railway system emerged as particularly complex due to: (a) its connection to three neighboring countries with different and often conflicting business interests and operating requirements; (b) a high degree of perceived risk of operating within Mozambique; (c) an uncertainty about the future of the railway systems in the neighboring countries; and (d) a considerable difference between the country and the potential bidders with regard to the expectations from the concession. It is possible that the on-going negotiations with the preferred bidders may take some more time to finalize or may even fail necessitating commencement of negotiations with the next preferred bidder, but given the fundamental viability of the Maputo port-railway system and the commitment and capability of the borrower, the successful outcome of the process is not in doubt. Further developments in this regard are proposed to be monitored through the proposed follow-on Railways and Ports Restructuring Project (RPRP), which has already been negotiated between IDA and GOM. 14. Three main interventions, designed to help GOM in achieving the concessioning objective, comprised: (i) Investment and Advisory Services including a diagnostic study; (ii) Legal Framework Study; and (iii) Environment Analytical Study. 15. The Investment and Advisory Services comprised three phases. The first phase, comprising a diagnostic study of the Maputo port-railway system, led to recommen- dations for the improvement of the financial and operational performance of the Maputo port-railway system as well as traffic and financial projections. The second phase, comprising a privatization options study, led to the adoption of the concessioning option subsequent to the identification and evaluation of various options. The third phase comprised investment and advisory services for assisting GOM in implementing the agreed concessioning option including, inter alia, the preparation of the bidding documents and tender rules, the evaluation of the proposals received from potential concessionaires, negotiations with the preferred bidders, and the finalization of the concession agreements. These services were provided mainly by one consultant but a number of short-term consultants were also engaged for specific tasks and for providing second opinions on key issues. Almost all phases of the advisory services were marked by indifferent and somewhat acrimonious relations between GOM/CFM officials and the main consultants. As a result, only phase two and part of phase three could be considered as satisfactory. Even so, the final result turned out to be satisfactory due to supplementary inputs of short-term consultants. 16. The Legal Framework Study reviewed the existing legal framework goveming concessions of ports and railways. The study recommendations were useful in clarifying  - 6- the legal authority of CFM in awarding concessions and the role of a future regulatory body. The recommendations of the study could not be implemented as the scope of the study was restricted to the Maputo Corridor and subsequent discussions favored a regulatory framework encompassing the whole transport sector, the studies for which are scheduled to be undertaken under the proposed follow-on Project. The study also resulted in enhancing the government's awareness of the issues pertaining to the regulatory framework 17. Under ODA financing, a consultant carried out a Study on Environmental Analytical Study. A draft version of the report was submitted to GOM, which CFM(S) reviewed and commented. The recommendations of the study were expected to lead to agreements on the liability of the potential concessionaires with regard to environmental management. However, at Project closing, the consultant had not yet submitted to GOM the report's final version. In the meantime, GOM had taken the decision of concessioning all corridor facilities and it became necessary to enlarge the scope of the environmental study to cover the whole CFM network of ports and railways. A comprehensive environment audit has since been completed. C.3 Staff Rationalization 18. This objective of staff rationalization (as discussed in paragraph 4) was partially achieved. Staff rationalization was considered critical to the successful concessioning of the Maputo port-railway system as well as for the improvement of its operational and financial performance. USAID had agreed to the financing of this component under a different program to the extent of US$30.0 million. This financing was conditional on progress being made towards restructuring of CFM and the privatization of railways and ports. Delay in the decision for concessioning/restructuring and change in USAID priorities, however, led to cancellation of the grant. Subsequently, after the Government had taken a firm decision on concessioning, a comprehensive staff rationalization plan for the redundant work force was prepared and communicated to the Bank. This Plan is scheduled to be implemented under the proposed RPRP. C.4 Interim Performance 19. Diagnostic Study. The study was satisfactorily completed. One of the key tasks undertaken by the main consultants engaged to provide advisory services was an operations' diagnostic study leading to recommendations for improvement of CFM's performance. The diagnostic study covered all rail and port functions - operations, marketing, maintenance and finance. However, the consultants' recommendations were not initially well received by CFM. Subsequent discussions did lead to some refinement and agreement, but CFM remained somewhat skeptical. Even so, some recommendations were implemented while some others were implemented after appropriate modification by CFM. As a result, CFM's performance has shown a modest improvement as illustrated in the table below. It is clear that the study with its analysis, identification of the causes of poor performance, and recommended actions did make a difference, though the overall impact was much lower than expected. However, major improvements are expected only after the entire concessioning process of ports and railways is completed.  - 7- Item Unit 1993 1994 1995 1996 1997 1998(*) Rail Total Freight Traffic Million Tons 3.1 2.6 3.1 4.1 3.8 4.1 Rail International Freight Million Tons 2.2 2.2 2.8 3.6 3.2 3.3 Port Total Freight Traffic Million Port Tons 6.6 6.5 7.5 8.4 9.0 7.6 Port Transit Freight Traffic Million Port Tons 5.9 6.1 7.1 6.9 7.2 5.6 Operating Ratio Percentage 180 176 150 DeficitlRevenue Percentage 80 77 50 (*) First 10 months 20. Asset Revaluation. The Project also funded studies to revalue and reconcile CFM assets in order for CFM to complete the accounts and have them audited. Currently, there are no outstanding audit reports. However, in spite of substantial efforts and improvements, the intemal controls still need strengthening. In addition, although not initially foreseen, the Project financed Technical Assistance (TA) to support CFM's financial management through the contracting of a long term consultant. Overall, this TA had a positive impact on CFM performance in particular through an upgrading of financial and managerial skills and the adoption of new organizational procedures. 21. Physical Inputs. The Project financed the acquisition of US$ 1.1 million in equipment for the port container terminal: two forklifts, three trailers, three tugmasters and diversified spare parts. The commissioning of the equipment in 1996 along with the transfer of the management to a private sector-led joint venture company had a remarkable impact on the terminal performance as illustrated by the graph below. The port container terminal traffic, which reached its lower level of 5,800 TEUS in 1995, Container Tenninal Traffic 40 C