RETURP TOREPORTS F 1 (RSICEIREPC>RT , D K R E S T R I C T E D

WITH: NONE WEEK R e p o r t N o. T.O. 70-a

This document was prepared for internal use in the Bank. In makingit available to others, the Bank assumes no responsibility to them forthe accuracy or completeness of the information contained herein.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

APPRAISAL OF THE

EAST AFRICAN RAILWAYS AND HARBOURS ADMINISTRATION

DEVELOPMENT PROGRAM

February 25, 1955

Department of Technical Operations

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CURRENCY EOUIVALENTS

1 Pound Sterling s U.S. $Zo80

£ 1 Million a U.S. $2.8 Million

Para.

Introduction 1

The Proposed Borrower:

East Africar High Corsaission 2-5

The East African Railways and Harbours

Adrinistration;

Properties 6

Organization and ilanagement 7-10

Financial Position '11-15

Traffic, post and future 16-20

I-eed for increased capacities 21-23

Development Program 1954-1957 24-25

Appraisal of the Program. 26-32

Schedule of Expenditures 33-34

Appraisal of Estimates and Construction Schedules 35-36

:inancina of the Develolnent Program 37-42

Gonclusiolls 43-45

Arrendices

A History of the E.h.R.H.A. SystemB Map of the SyEtemC Description of the SystemD E.A.R.rr.A. Balance Sheet at 12/31/53E Operating and FCet Hevenues, 1°53-1953F Traffic StatisticsG Estimated Cost of Deve2orment ProgramH Souarces ana Arplication of FundsI Estimated 'Revenues, 1954-1960

APPRAISAL OF THEEAST AFRICAN RAILWAYS AND HARBOURS ADMINISTRATION

DEVELOPM PRCRAM

Summar

The Bank has been asked to lend US$ 24.000,0OO (the equivalentof approximately ;8,570,000) to the East Africa High Commission, to meetpart of the costs to be incurred in the years 1954_1957 by the East AfricanRailways and Ilarbours Administration on its development program. The loanwould be guaranteed by Kenya, Uganda and Tanganyika, and by the UnitedKingdom.

The EARHA is a service of the East Africa High Commission (whichis a statutory body consisting of the Governors of Kenya, Uganda andTanganyika). It operates the railways of the three territories, the threemain harbors on the Indian Ocean, and extensive road and inland waterwayservices.

Freight traffic on the railways has doubled since 1938, and thetonnage handled by the ports has more than doubled in the same period. Therailways cannot handle all freight offered, and congestion in the portsdelays the movement of both exports and imports. Expansion of railway andport capacities is essential to the continued economic development of EastAfrica.

The development program designed for this purpose is sound andshould meet the needs of future traffic. There is likely to be a temporarysurplus of goods wagons in 1956 and for some years thereafter, but this doesnot affect the soundness of the whole program.

The EARHA is an efficient organization, competent to carry out thedevelopment program and to operate the expanded system in accordance withsound practices. Since its formation by the merger of several separatesystems in 1948 it has regularly shown a fair surplus of revenues, availablefor reinvestment, after meeting all expenses and financial charges. Itsrenewals policy is conservative. Its financial position is sound.

The estimated cost of the development program for the years 1954-1957is about 637,600,000, of which about L28,OO0,000 represents the cost ofimported goods. Loans raised in the London market, and from other sources,should provide all but about 48,50,ooo of the funds needed. The rates policyshould ensure that debt service will be covered comfortably and that therewill continue to be a surplus available for reinvestment.

The program is suitable for a Bank loan of US4, 24tOOO,9OOO. A termof 20 years would be appropriate. Since the project is scheduled to be infull operation by the end of 1957, it would be appropriate that repaymentshould begin in the first half of 1958.

APPRAISAL OF TIEEAST AFYULCAN, RAIlDAYS AND HARBOCFS ADINISTIRTION.

DEVELOPIMENT PRPOAM

INTrMDUCTION

1. This report is an appraisal of that part of the long-term developmentprogram of the :'.ast African Railways and Harbours Administration wJhich isscheduled for accomplishment in the four-year period 195h-19570 The presentlycstirated expenditure on the program cluring that period, (exclusive of sub-stantial e.pe^ditures from the Administration's own funds for projects better-ment) is about ;37.6 million. It is expected that other sources of financewill provide all of the fundls reouired except about E 85 million, and the Bankhas been requested to consider a loan in respect of this expected shortfall,The inforn-ation on which this report is based was obtained by Bank M,1issionswhich visited East Africa in October-November 1952 and September-October 1954*

THE PROPOSMD BMR9-O71R: EkST AFTICA i EC3I1 CO-iISSION

2. The East African Railwiays and Harbours Administ ration (hereinafterreferred to as the E.A.R*H.A. or as the Administration) is organized andoperated as a self-contained service of the East Africa High Commissionywhich is the coordinating authority of the three East African territories:the Colony and Protectorate of Kenya, the Trust Territory of Tanganyika, andthe Protectorate of Uganda.

3. The Hi-h Corrission was established as a body corporate wlith per-petual succession on January 1, 1948. It consists of the Governors of thethree territories, the Governor of Kenya being the chairman. At the samnetime, an Past African Central Legislative Assembly was created; the presentauthorization for the assembly expires on Janurary 1, 1956, but it is expectedthat the authorization will be extended before that date. one of the princi-pal executive officers of the High Commission, the Commissioner for Transport,controls and directs the Railways and Harbours Administration.

4. Prior to the creation of the High Commnission and Administration,loans had been raised for railways and harbours by the Governments of theseparate territories, and outstanding balances of these loans still remainas obligations of the Administration. The High Cormwission has now beenestablished as the borrower for long-term loans for the Administration, whichloans must be authorized by an Act of the Central Legislative Assembly.Because the High Commission is merely an authority set up to administer cer-tain common services, and has no assets except those pertaining directly tothe common services and no power to levy taxes on the property or resourcesof the territories, it has been the practice to have all loans made to theHigh Cormission guaranteed by the individual territories, by means of legis-lation passed by their respective Legislative Councils.

5.- The Governrment of the United Kingdom has expressed its willingnessto guarantee the Droposed Bank loan.

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TIM' BLST AFl CAN -.RAILWAYS Ai2 !ARUBOU. ADMIVISTR/ TION

6; Prorties

The history of the railway and harbour system now owrned and operatedby the East African Railways and Harbours Administration is described brieflyin Appendix A. A map of the system is attached (Appendix B). The presentproperties and services of the Administration are described in Appendix C.

7. Org,anization and Mbanagernent,

The East African Railways and Harbours Administration Act, 1950(which is a statute of the High Commission), prescribes tlle organization andduties of the Administration. Subject to general direct;ons given by theHigh Conmission, the Commissioner for Transport heads the Admininstration andis responsible for its higher control. For the purposes of the Act he is acorporation sole, with the usual powers and responsibilities of a corporationoHe is assisted by a Transport Advisory Council consisting of himself as chair.man and nine other members; this Council must be consulted on all matters ofgeneral policy, and on estimates of revenue and expenditure, proposed legis.lation relating to the Acministration, substantial changes in tariffs, etc.The executive management of the Administration is vested in the GeneralManager, who is subject to the orders of the Commissioner.

8. The Act rec'uires that the Administration shall be managed on businessprinciples, and, so far as is not inconsistent uith those principles or withthe principles of sound finance, in such a way as to provide cheap transportto assist agricultural, mining and industrial development. Annual estimatesof receipts and expenditures are prepared by the General Manager, and afterbeing considered by the Advisory Council are submsitted by the Comnissionerto the LegLslative .'ssembly for final approval. The estimates are required tobe drawn up on a non-profit earning basis. The Commissioner has the authorityto fix rates, subject to his obligation to consult the Transport AdvisoryCouncil. NJo loans can be raised for the Adninistration except by authority, ofan Act of the Assembly. The repaynent of all loans, including all costs con-nected therewith,is a charge upon the funds of the Administration.

9. The management of the Railways and Harbours Administration is excellent.The Commissioner for Transport is an executive with long experience in thetransportation field, and the General Manager is an experienced and verycarable railwayman. The tecInical staff in general also appear to be verycmpetent* There is no doubt of the ability of the managenent and staff tocarry out the development program and to operate the transnortation sostemsin an efficient and satisfactory manner.

10. Of a total of approximately 62,000 employees at the end of 1953,about 2.3% were Europeans, 3.6% Asians, and the remainder Africans. BothAsians and Africans are used extensively as clerks, station staff, draftsmen,artisans, locomotive drivers, foremen, etc, There has been difficulty in ob-taining enough European employees in the supervisory and technical categoriesto meet the demands of increasing traffic, but the management has plans toovercome this difficulty by expanding its own training courses and by recruit.ing in overseas areas. It appears, therefore, that the enlarged staffs re-quired for future operations can be obtained. Relations between the manage_nient and the employees of all races have been good and have not been seriouslyaffected by racial difficulties occurring anywhere in East Africa,

-3-11. Financial Position

A summarized balance sheet of the E.A.R.H.A. as at Decemaber 31, 1953is attached (Appendix D). It shows a satisfactory situation. The debt equityratio is about 5050, although this ratio will increase as expenditures on thedevelonment program continue, and by the time it is finished may be about?0-30, Which is still not an excessive ratio for an organization of this kind.Practically all of the capital debt is in the form of loans raised by one oranother of the territories or by the High Commission, the service of which hasbeen assumed by the E.A.R*H.A. Ilone of the loans outstanding is sec'ired.

12. The renewals policy is conservative; the regular annual contributionsto the renewals fund are based on t'e estimated useful lives of the assetsand the estLmated present_day replacement costs, and arrears due to irncreasedreplacement costs and corresponding uncaer-contributions in the past are beingliouidated by special annual contributions to the fund iAuenever the revenuespermit. The renewals fund now amounts to nearly ;9.5 million, against physicalassets costing about #59*5 million. The valuation of physical properties isrealistic. The liquidity situation is satisfactory.

13* Earnings and Rates

The Kenya-Uganda and Tanganyika systems were both self-supporting formarny years before their amalgamation in 19L48, and the E.A.R.1.A. has continuedto operate profitably since its formation, despite the maintenance of prewarfreight rates until 1950. The operating and net revenues for the years 1950through 1953 are shown in Appendix E. It should be noted that the net revenuesare understated, since they are calculated after deduction of a 1. sinking fundon outstanding borrowings.

14. Prior to the amalgamation of the senarate sYstems in 19148, the Kenya-UJganda lines had a fairly well-balanced rate structure, but the Tanganyikalines, which had been less prosperous, had not been able to make rate adjust-ments to bring their schedules into line. The need for a general revision-and consolidation of the two schedules was obvious, and on October 1, 1951,a new common tariff for all operating lines was put into effect. The mainpurposes of the new tari-ff were to remove anomalies and inequalities and toeffect a modest increase in revenues by raising numerous rates that were outof line with current operating costs. This tariff increased the averagerates anproximately 15%.

15. The increase resulting from the 1951 tariff was the first generalrate increase in more than fifteen years, but it was already apparent at thattime that rising costs of operation and the necessity for undertaking a largedevelopment program at high postwar prices wTould soon require another generalrate increase. Such an increase, amounting to 20C4 on all but a few conmodities,was put into effect in January 1954, and was accepted by the public withoutserious protest. Further study is being given to the tariff wixth a view torecommending a revision of the rates for certain special commodities wthichare considered to be definitely under-rated, for some passenger services, etc.;the resulting recommendations, if approved, raight go into effect about the be-ginning of 1956 and might increase revenues byr some ;500000 or more annually.

16. Traffic Growth

Appendix F shows the growth of railway freight traffic, givingfigures for 1938, 1946 and for each year from the amalgamation in 1948.Freight tonnage rose h5% and ton-mileage more than 80/o bet:reen 1946 and 1953;and ton mileage more than doubled betwreen 1946 and 1953. The Kenya-Ugandasection regularly carries about five-sixths of the total freight. The appen-dix also gives the tonnages of the most important commodities carried in1938, 19h6 and 1953.

17. Passenger Traffic in 1953 (abolut 5,800,000 passenger journeys) was 385,greater than iri946 and more than four times the 1938 volume, though some10% less than 1952. Third class traffic accounts for 95% of passengerjourneys and 665p of passenger revenues.

18. Appendix- F also shows the growth of port traffic through the threemain ports. Figures are given for the years 19T6, 98and 1953. The in-creases in recent years would have been someurhat larger, particularly atMombasa, if there had been captacity enough to absorb them. The total tonnagehandled in 1953 wias more than t-wice the 1939 tonnage at IHombasa, mlore thantwice 1939 at Tanga, and more than four times 1939 at Dar es Salaam. Coffee,cotton and sisal, in that order, have been the most valuable commodities ex-ported through Monbasa, although soda ash has accounted for a greater tonnagethan any other export. Sisal is 'by far the most important export throughDar es Salaam and Tanga, both in value and in tonnage. The principal importsare manufactured goods, bot.h for consumption and for capital development.

19. Estimated Traffic Growth

In 1951 the E*A.R.H.A. made a stildy of postwar traffic trends and ofdevelopments planned along its lines, and concluded that the ton-raileage ofgoods traffic would probably increase about 10' a year in the period 1951-1955.Business interests criticized this estimate as too conservative, but thegovernments of the three territories agreed with it (subject to unforeseenchanges in wrorld nrires or in the demand tor particular commodities), and itwas adopted for planning the current develoDment program.

20. The actuaal traffic increase has been slower. Freight ton-miles roseon the average 6<. per year in the period 1951-53. The 1953 figures were only3% over 1952. This was due, among othIer things, to the emergency in Kenya,droughts in Kenya and Tanganyika, reduced demand for some e.-port items suchas soda ash from Y.enya, the abandonm,ent or s'owing doim of some proposedmining and industrial projects, etc. M'ost of these factors are temporary, andfairly firm estimates of future increased production (particularly agricul-tural) have led E.A*R.H.A. to adopt an increase of 5% per year as a basis forits plans for the next few years. Although this target may not be reached inany one year because of droughts, etc., it is believed to be a conservativeestimate w-hich will be met on the average. Caparate studies of probablefuture port traffic have led to the conclusion that it will increase at roughlythe same rate,

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21. Nleed for incrgased cacities

Railways. Since the end of World War II, the increases thatcould be made in traffic capacities have been limited, initially by thelack of funds and then by slow deliveries of materials and equipment fromthe United Kingdom. Conseauently, the growth of traffic haEs outrun thegrowvth of capacities and the railways have been forced into a difficultand continuous struggle to carry the load with inadequate means.

22. The Railrays generally, and the Kenya-Uganda Line particularly,have nearly reached their sustained traffic capacity with existing equip-ment and facilities, and will not be able to handle future increases intraffic unless their present capacity is expanded. -New locomotives androlling stock now on order and due for delivery in 1955 will more thansatisfy the needs for wheeled equipment for several years, but substantialimprovements to the permanent Ray, wvater supplies, repair shops and otherfacilities are essential.

23. Harbors. The condition of the three main East African harborshas recently been even more precarious than that of the railrays. Notonly has a large increase occurred in the total tonnages through theports, but also the proportion of imports to exports has risen and agreater part of the imports has been made up of difficult cargo to handle,such as machinery, structural steel, steel tanks, tractors, etc. Theresult has been serious overloading of all port facilities. The needs ofthe individual ports are described in Appendix C.

DEVELOPE1JT P CGRAPI 195'4-57

24. The development program of the E.A.R.H.A. has as its main purposethe provision of additional capacity to meet the future demands of traffic.The program is defined in three loan Acts passed by the Central LegislativeAssembly in 1949, 1951 and 1952, authorizing the raising of loans for theE.A.R.H.A. of 723 million, 13.5 million and L32.75 million respectively,or a total of L59.25 million. Of this total, L5.5 million was earmarkedfor the redem-tion of certain loans raised by Kenya, Uganda and Tanganyikafor transport Purposes before the railways were amalgamated, and the remain-der, less the expenses of issue, was aDnronriated by the loan Acts for thedevelopment of E.A.R,K.A. facilities. Since 1952, amendments have beenmade to the several loan Acts authorizinp the abandonment of certain projectsnot now considered to have hijh priority, and the redistribution of thetotal amounts available among the remaininE projects as necessary. Theamended loan Acts now give authority for the development program for 1954-57 as described below.

25. The Development Program 1954-57 comprises that part of thecontinuing program which is scheduled for execution durinF the calendaryears 1954-57, including the comnletion of work begun before 1954. The

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total estimated cost of the four-year program is approximately L37.5million, exclusive of estimated expenditures from Betterment Funds, etc.,amounting to nearly L6 million (a part of lwnhich will eventually becapitalized) and of estimated expenditures from Renewals Funds amount-ing to some 110 million. Approximately L6.3 million will be expended onprojects authorized by the Loan Act of 1949 providing for the borrowingand expenditure of L23 million for specific purposes. This Loan Act didnot contemplate borrowiing from the I.B.R.D., and the proceeds of anI.B.R.D. loan would not be apDlicable to its purposes. The succeedingLoan Acts have been amended to authorize I.B.R.D. loans, and the proceedsof any such loan will be applied exclusively to projects authorized bythose Acts, as amended. Appendix G sho.'s the estimated costs during theperiod under the L23 million loan authorization and the later authoriz-ations., classified by principal headings of expenditure for both therailways and the harbors. To obtain the total cost of the program,expenses of issue amounting to ;.0.300 mist be added to the total.

APPRAISAL OF TME FRGRAf9

26. The development program appears to have been carefully preparedby competent personnel. It has been reviewed and revised periodically,based on the continuing study of traffic trends, with a vier to insuringas far as possible that it will at all times be reasonably adequate for theneeds of expected traffic but that only essential projects for the purposehave been included. From the inception of the Drogram in the postwar perioduntil the present tirme, the actual increases in the capacity of E.A.R.H.A.'sprincipal facilities have failed to keep pace with the increased demandsof traffic, and the Administration has been severely criticized by theusers of the railways and harbors for that failure. It now appears, how-ever, that because the annual increases in Eoods traffic since 1951 havenot equalled the estimates made in that year, as mentioned in paragraph 20above, some of the facilities will probably have a temnorary surplus ofcapacity, beginning about the end of 1955.

27. The various Drojects for improving the permanent way and relatedfacilities by reducing grades, strengthening tracks and structures,enlarging yards, etc., are needed for the efficient and expeditious handlingof the present traffic, and ,would be justified on the basis of that trafficalone. Their beneficial effects will be substantial and will continue tobe felt indefinitely. Although, therefore, the immediate returns from thispart of the development program will be somewhat reduced by the slowingdown of traffic growth, these projects as a whole are sound and necessary.

28. The cese is not quite so clear for the locomotives and rollingstock included in the program. Following the 1951 traffic estimate addition-al orders were entered, and it novT seems likely that when deliveries arecompleted in 1956 there vill be some surplus capacity. The surplus inmotive power is not expected to be large, but recent calculations indicatethat the supply of goods ragons of various types may be substantially

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greater than the number needed for the 1956 traffic, and that thesurplus may not be entirely absorbed until about 1958. When thiscoadittion become known the Administration considered the eancellationof certain contracts for wagons, but found that in all cases manu-factur, had proceeded to such a point that cancellation could bearranged only at a eost approaching the total cost of the eagonS. Forthis reason, the decision was reaehed to accept delivery of the wagonsas they are completed. This will mean that for a period of perhaps twoor three years E.A.R.H.A. will possess a substantial number of wagonsthat ewnnot be fully utilized. The expenditures involved will not bean entire loss, however, since the possession of a surplus of wagonswill permit the earlier retirement of some less-efficient overagewagons, and rill also enable the railways to give much better servicethan has recently been possible and thus to recover some of the good-will that has been lost as the result of past inadequate equipment. Inany event, the temporary surplus capacity will be absorbed within arelatively abort period, and it will have no lasting harmful effect onE.A.R.H.A,ts financial condition.

29. The new lines under construction - the Western Uganda Ex-tension and the Southern Province Railway - are guaranteed againstlosses arising out of their operation. The Western Uganda Extension isguaranteed by the Government of Uganda. The Southern Province Railwayis presently guaranteed jointly by the Overseas Food Corporation and. theGovernment of Tanganyika, but a new agreement will probably be ratifiedsoon whereby Tanganyika will assume the guarantee alone in return for theUnited Kingdom's agreement to waive repayment of capital advances forthe project by the O.F.C. up to March 31, 1953, writh interest, andinterest on advances after that date up to the date of signing' theagreement; this will have the effect of writing down the cost of the newrailway line and port of Mtwara from about &6.5 million to about L2.5million. The E.A.R.H.A. will have to repay this amount, plus certainlater advances and interest, to the United Kingdom at some as yet un-specified time, from the proceeds of future loans. The W1estern UgandaExtension is expeeted to approach a self-supporting status soon aftercompletion, but the Southern Province Railway will probably incur ratherlarge losses for a good many years. The amounts received under theseguarantees will not involve any liability for repayment.

30. The program of harbor works appears to be well suited to meetthe needs of the predicted traffic, although it has been criticized asbeing too late, since the deep-water berths under construction at Dares Salaam and one of the two deep-water berths under construction atMombasa cannot be completed before the end of 1955, by rhich time theexisting confestion at those ports will undoubtedly have become consider-ably more serious. It is doubtful rhether the two new berths at Mombasawill give a sufficient increase in capacity to meet future needs, and thedevelopment program includes the beginning of work on a third new berth.

31. In general, therefore, the development program is sound,carefully olanned, and well adaDted to the probable future needs of theareas served, without important excess exceDt the temporary surplus ofrolling stock mentioned in paragraph 28 above, The program must beunderstood to have a considerable degree of flexibility, particularly inrespect of its many minor items, which may be altered, omitted or sub-stituted for as new information dictates.

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32. The distances involved, the nature of the country and the kindof goods to be transported, combine to make railway transportation thebest system. Road and water transportation serve primarily as feedersand distributaries for the railway system, or as links in it.

SCHETL;E OF EXPENDITURES

33. The total estimated cost of the l954/57 program, broken down byyears and by local and overseas expenditures, is as follows:

(tOOO)

1954 1955 1956 1957 Total

Local Expenditures 3,200 3,40oo 2,4oo 500 9,500Overseas Expenditures 10,h4o0 13,500 300o00 28,100

Total 13,600 16,o00 6,200 900 37,600

The expenditures by years are based on the latest delivery and constructionschedules; but these revised schedules may not be met exactly, and the annualexpenditures may therefore be somewhat less during the first two years andsomewhat greater during the last two years.

3h. Practically all of the payments to be reimbursed from the proposedI.B,R.D. loan will be in respect of contracts made before 1954. In accordancewith the E.A.R.HI.A. 's customary practice, the primary contracts were placedwith British manufacturers., although a small proportion of the equipmentrequired was supplied by Continental manufacturers under sub-contracts.

APPRAISAL OF ESTIMATES AND CONSTRUCTION SCFEDUILS

35. The cost estimates on which the original loan Acts were basedproved in the case of many major projects to be too small, largely becauseof inadequate preliminary investigations or of large increases in materialcosts following the Korean War. The increased costs were provided forthrough contingencies in the original estimates and by the postponement ofcertain low-priority projects and the redistribution of the amounts set upfor them. At the present time the estimates may be regarded as reasonablyfirm, and it can fairly be assumed that the program will be substantiallycompleted for the total amount shown as the estimated cost. Reasonableallowances for contingencies are included in the estimates.

36. Although further delays in the delivery of equipment and in thecompletion of major construction projects are not unlikely, there is noreason to suppose that the program cannot be substantially completed by theend of 1957, except for the construction of a third new deep-water berth atMombasa, which will extend over into a new program that will have to beprepared before that date,

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THE FINANCIG OF THE DEVELOPMENT PROGRAM

37. The EARHA plans to finance the 1954-1957 development program fromthe following sources:

L 000

a) Proceeds of loans on hand at 1 January 1954 6,267b) Loan from F.O,A. 2,390c) Advances from Uganda Government 2,681d) Borrowings in London (1954-1957) 17,000

Increased advances from Joint ColonialFund and E.A.R.H.A. liquid funds 654

Proposed I.B.R.fD, loan 8,570

37,562

a) This item is the unused balance of loans raised before 1954,b) This loan was granted out of Sterling counterpart funds to

the Government of the U4 K, (to be re-lent to the East AfricanHigh Commission for the EARHA) in June 1953. It covers halfthe estimated cost of specified projects at the ports ofMombasa and Tanga. It carried 5% interest, and is repayablein 23 equal annual installments beginning in 1956.

c) These advances are for the Western Uganda Extension.d) This is estimated to be the amount which could undoubtedly

be raised in the Lendon market in 'he period; 15,O00,O00 wasactually raised in September 1954.

38. When the development program was planned, it was intended to financeit by raising long-term loans in London, in accordance with invariable pastpractice. However, it is not expected to be possible to do this, and it isplanned to fill the gap partly by increased advances from the Joint ColonialFund and the E.A.R.1K.A. rs liquid funds and partly by borrowing the equivalentof about 08,570,000 from the Bank. If a loan is made, consideration shouldbe given to permitting the reimbursement of some expenditures made from thebeginning of 1954, in order that the EARHA may draw down the loan in accordancewith its financial needs, taking into account the timing of future loan opera-tions in the London market. The eame considerations should be taken intoaccount in determining the List of Goods.

39. It should be noted that following the completion of the 1954/57program the Administration will have the obligation to repay certain advancese.g., (1) advances made by the Government of Uganda for the 'Western UgandaExtension, amounting to about a.8 million; and (2) an as yet undeterminedamount of the advances made by the Overseas Food Corporation for the SouthernProvince Railway, representing the written-down capital plus some interestcharges. It will also have to replenish its liquid funds. The present loanActs do not authorize further loans for tLese purposes, but the necessity forthe loans is recognized and additional loan authorizations will undoubtedly beenacted before 1957.

40. The estimated cash position of the EARHA during the period of theprogram is shown in Appendix H. The figures show that there is no likelihoodof the EARHA becoming short of cash during the period. It is realistic toassume that the sound financial and rates policies followed in the past willcontinue and will ensure the maintenance of a good liquid position.

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41. Earning Prospects

A-ppendix I gives the estimated revenues of the EARHA from 1954 to1960. It takes account of the additional revenues from the increase in rateswhich becom.e effective in January 1954, but not of any further increases whichmay be made in the future. Debt service is covered comfortably. There is asurplus in every year, after charging renewals and interest, which representsa fair return on the equity. It is not practical to extend these forecastsbeyond 1960, but in view of the policy described in the following paragraph,there is no reason to doubt that revenues will cover debt service in futureyears, and that there will continue to be a surplus available for reinvestment.

42. The East African Railways and flarbours Act governing the EARHAprescribes that the estimates for the operations of the Administration shall beframed on a non-profit basis, i.e., on the basis that the total earnings shallnot be more than sufficient to meet all operating and maintenance expenses,proper provision for the renewal of wasting assets, interest and sinking-fundcharges on interest-bearing capital, and such contributions to reserve iundsand betterment funds as may be ap-rroved by the Transport Advisory Council. Itwill be noted that this provision of the Act is negative in form and does notspecifically require that the estimates sha.ll be sufficient to meet the listedclasses of expenditures. However, the 11ission has been informed that theprovision is interpreted in the positive sense and that the Commissioner forTransport will. give official assurances to the Bank to this effect.

COTICLUSIOI.TS

43. The general conclusions in this report may be sunmarized as follows:

a) large increases in the traffic demands on EARHAts facilitiesthat have occurred si-nce the war, together with smaller increasesexpected in the future, have requiired the adoption of a largedevelopment program to expand its facilities, which will be sub-stantially completed by the end of 1957.

b) The development program is generally a well-planned and soundprogram for accomplishing the necessary expansion. An over-estimate in 1951 of the needs for rolling stock in 1956 willcause a temporary surplus of goods wagons beginning in 1955, butthe surplus will be absorbed within a few years and in the mean-time will not have a serious effect on EALRHA's finances.

c) The Administration plans to raise the funds necessary forcarrying out the program during the four-year period 1954/57 bylong-term loans, and by short-ter-a ad.rances repayable from futureloans. The total of long-term loans that can probably be raisedin the London market .Juring the period will fall short of therequirements by some 1g.5 million, and the Pank has beenrequested to covrer this shortfall boy a loan of about ;8.5 millioneouivalent, The program is considered to be suitable for Bankfinancing in approxinmtely the requested amount. The Borrowerwould be the East African High Coirmlission. Phe loan would beguaranteed by the Governments of the three territories and of theUnited Kingdom.

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d) The management and staff of the EARHA are well qualifiedand are regarded as being entirely competent to carry outthe program satisfactorily and economically and within theper'od allotted, and to continue the efficient operation ofthe system. The estimated cost of the program is consideredto be realistic.

e) The revenues of the EARHP. are expected to be enough tomeet all charges, including debt service.

14k. Since the servicing of its debts, including the Bank's loan, woulddepend on the revenues accruing to the Administration and these in turn woulddepend on the rates in effect, it is suggested that in connection with theloan the Commissioner for Transport should give assurances satisfactory to theBank that it is the Commissionerts intention to continue the fixing of ratesfor the EARFA in such a way as to produce earnings sufficient to meet alloperating and maintenance expenses, adequate provision for the renewal ofwasting assets, interest and sinking fund charges on interest-bearir.g capital,and such contributions to reserve funds and betterment funds as may be approvedby the Transport Advisory Council.

4!5. The life of the assets being acquired under the development programis likely to be at least as long as twenty years. In view of this, and of thesound financial position and prospects of the EARM4, a term of twenty yearsfor the proposed loan 4s reasonable. In view of the fact that the project asscheduled will be in full operation by the end of 1957, it would be appropriatethat repayment should begin in the first half of 1958.

APPGNDIX A

Histoly of the E.A.R.H.A. System

The rail;;ays and harbors in East Africa wrere developed originallyas turo separate systems, one in lKenya and Uganda and the other in Tanganyika.The first Nenya-Uganda line was begun by Great Britain in 1896 at ]ombasaand reached Lakce Victoria, at Kisumu, in 1901; the Nakuru-Kanpala sectionof the present main line was undertalken later and co,mpleted in 1931. TheVoi-Kahe branch was built during 'lforlc WVar I as a m-ilitary project~ andbranches to other noints in Kenya ancl Uganda were built from time to timeas the development of the territories demrandecd. In Tanganyika the originalrailvrays -rere built w.,hile that territo-r was a German colony: the Ta:4ga--oshi line between 1G91 and 1911 and. tha Dar es Salaam - Kigoma line between1905 and lglL. l.hen Tanganyika beco-.re a Br-itish Vandate in 1919 these lineswere taken over by Great Britain, h.-hic. h has siince added the important branchto Ilwanza on Lake Victoria, anc. the >ranches to Arusha, Xongwa and .Ipanda.The previouslyW separate systems in Kenya-TUganda and 'anganyika were amialga-

mated in -i ay 1948 to form the presen-t East .Aofrican Railwrays and HarboursAcdayA nistration. The Southern -rovince Line from i.Pitwara to Nachingwea wasconstructed in 194_-54 to serve the projected ground-nuts schIem-e in thatareas

EAST AFRICAN RAILWAYSS U D A N AND HARBORS SERVICES

/, EXISTING RAILWAYS

/ =zzm RAILWAYS UNDER CONSTRUCTION

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l~~~K KLOMETERS , ' PO TUGUESE EAST AFRICAlI

APINUIX C

DESCRIPTj.h ON,E .A .E_R.H.A. SYSTFHi

The E.A.R.H.A. operates th-e railway sy,,rstems of the territories,the main harbors on the Indian Ocean, marine services on many lakes and in-land waterways, and certain road transportation services in Uganda andTanganyika. Brief descriptions of the .- rincipal elements of these servicesfollow.

A. The Railway System

The railway system of the E.A.R.H.A. compromises 3,100 route milesof single-track meter-gauge lines open for traffic, with the four maindivisions described below.

(1) The Kenya-Uganda main line extends 871 miles from the portof Mombasa, through Nfairobi in Kenya, to Kampala, Uganda. Itsprincipal branches are: (a) the I'Eekuru-Kisumu line (134 miles),conecting the maain line writh Lake Victoria, (b) the Toroto-Siroti branch (100 miles), serving the Eastern Uganda cottonarea, (c) the Magadi branch (91 miles), serving the soda de-posits at Lake Magadi, and (d) the Voi-Rahe line (92 miles),connecting the main line with the Ihorthern line in Tanganyika.Other branches have a total length of 349 miles. A new linerunning about 209 miles to the west from Kampala is underconstruction, and will be completed in 1955.

Thle standard of maintenance on these lines is high. Themain line has 80-lb. rail on steel sleepers for miost of thedistance from Mombasa to Eldoret (567 miles), while 50-lb. railis in general use elsewhvere. The greater part of the main lineis well ballasted with stone. The capacity of the main Lineto handle prospective traffic loads is limited by a nuaber offactors, such as scanty water supplies in the Mombasa-Nairobisection, an insufficient number of stations and crossing loops,congested marshalling and goods yards, etc.

The other three divisions are known collectively as theTanganyika Lines. Tie relatively light traffic on those lines,and the uncertain future political status of the territoryresulted during the years befo-re the end of World War 11 inminimum expenditures for both maintenance and improverments, andthose lines emerged from the War with serious arrears in main-tenance and renewals, many of which have not yet been made good.

(2) The Central Line extends 780 miles from the Port of Dares Salaam through the Central Province of Tanganyika to TIigoma

on Lake Tanganyika. Its branches are: (a) the Tabora-Mwanzaline (237 miles), connecting with Lalce Victoria, (b) the Kaliuwa-Mpanda branch (131 miles), serving the mineral producing areaaround i4panda, and (c) the Msagali branch (17 miles), serving an

area of the Overseas Food Corporation in the Central Province.This line, with its old 55-lb. German rai.l from Dar es Salaamto Kigoma, has suffered particularly from lack of proper main-tenance. The section from Dar es Salaam to itorogoro (125 miles)is very unsatisfactory because of heavy curvature,poor drainagein many places, and an almost complete absence of ballast.Certain old German bridges on this line limit the maximum axle-load to 10 tons or less and thus prevent the use of the largermodern locomotives, and water supplies are inadequate in severalsections.

(3) The Northern Line (210 miles), frequently called the TangaLine, extends from the Port of Tanga in Tanganyika to iMoshi.The Moshi-Arusha branch (54 miles) serves the Mt. Xieru agriculturalarea. This line still has its original l5-lb. German rail and jainadequately ballasted.

(Is) The Southern Province Line (132 miles) from the new portof Mtwrara to Nachingwea, was constructed to serve a large areawhich was to be developed by the Overseas Food Corporation forthe production of ground nuts. It was opened for traffic inJanuary 1954. This line has been constructed with 60-lb ra11,but local untreated wood sleepers had to be used because steelsleepers were unobtainable, The wood sleepers will have tobe replaced with steel sleepers in the imediate future. Theshortage of staff housing is acute.

Re-.3air Facilities. The main workshops are at hairobi for theKenTa-Uganda and Tanga lines and at Dar es Salaam for the Central andSouthemr Province lines, with sheds for xunning repairs at some fifteenpoints along the various lines. The Nairobi shops are well laid out, andhave been able in the past to keep abreast of the maintenance work. How-ever, they are now being used nearly to capacity. The Dar es Salaam shopsare too small for the present load and much of their equipment is antiquated.The city has grown up around them in such a way as to prohibit anr worthwhileexpansion of their area and the rmanagemnent is accordingly studying aproposal to move the shops in the early 1960's to a new site in tlhe vicinityof Morogoro,

Locomotives and Rolling Stock

The following table shows the locomotives, coaches and wagonson hand at the end of 1953, and their average ages.

Kernya-Uganda Average AgeLocomotives and Tanga Tanganyika Total (years)

Steam locomotives 238 75 313 19Diesel shunting 5 14 19 3

243 89 332

Coaching Stock 511 205 716 23

Goods Wagons 5,40/4 1,h38 6,932 22

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The locomotives on the Kenya-Uganda and Tanga lines and branches havebeen converted from coal-burners into oil-burners, and the conversion ofthe Central line locomotives will be completed within the next few months.

There is a shortage of locomotives and of practically all typesof rolling stock to meet the present demands of traffic, particularlyduring crop-moving seasons. The available equipment is, on the whole, ina good state of maintenance.

B. Harbors

The following are the principal harbors operated by the E.A.R.H.A.:

(1) Mombasa (Kilindini). The original port is now used solelyfor the extensive dhow trade. The modern Kilindini Harbor on theother side of Mombasa Island is a well-sheltered and commodiousharbor. There are seven main berths for ocean-going vessels, withdepths of 30 to 32 feet at low water ordinary spring tide, withcovered storage aggregating about 500,000 square feet. The portalso has a jetty for discharging bulk oils, a small jetty forhandling cased oils, and a lighterage quays All quays haveroad and rail connections and are served by travelling cranes.

The port has been operating at or above its theoreticalcapacity since 1948, and has been subject to recurrent periods ofserious congestion. The most acute congestion began in 1951 andled to the creation of a "tPhasing"t committee which limits allincoming cargoes to the capacity of the port facilities. Thesemeasures have considerably relieved the congestion at IMiombasa,but at the expense of building up a substantial baclclog of freightin the United Kingdcan and delaying shipments of needed goods.Work is under way on the construction of two additional deep-waterberths, and exftension to the lighterage quay, and the cutting backthe bluffs behind the quays to provide more adequate stackinggrounds. If the load on the -;0o-t continues to increase, as maybe expected, conditions will rernain critical until the two newdeep-water berths are completed; and it seems certain that a thirdberth will have to be added to enable the future traffic to behandled expeditiously and efficiently.

(2) Dar es Salaam, The harbor of Dar es Salaam is a shelteredbasin 7ith adequate anchorage areas for deep-water vessels. Thereare no existing deep-water berths and all cargo is lightered.The main lighterage wharves aggregate about 1,650 feet in length,and there is also an additional wharf, called the Belbasewharf, which serves as a free-zone for freight to and from theBelgian Congo. The estimated theoretical capacity of the light-erage facilities has been exceeded in each recent year by constantlyincreasing margins, but this stretching of the port's capacitycannot be continued indefinitely. The construction of t1hree

- 4 -

deep-water berths was begun in 1951 and should be completedin 1956; one of the berths is being built at the expense of theBelgian Government for aindling Belgian Congo traffic. Theseimprovements will provide adequate capacity for some time to come.

(3) Tanga. The Port of Tanga, at the terminus of the Northernor Tanga Line in Tanganyika, has a sheltered anchorage areaadequate for vessels drawing up to 29 feet. The capacity of thePort is limited by the structural weakness and insufLicientlength of the lighterage wharf, the lack of enough covered andopen storage) and inadequate crane capacity on the wvharf, Theconstruction of a new lighterage wharf 700 feet long, withcovered and open storage, electric cranes, and rail and roadconnections, is nearing completion, and will make it possibleto meet traffic needs for some time.

(4) Mtwara. The new deep-water quay at Mtwara, 1,284 feet long,is in service as the term.inus of the Southern Province Line.

C. Lake Marine Services

Steamer and tug-and-ligIlter services with a total route mileageof roughly 6,000 miles are operated on Lake Tanganyika, Lake Victoria, LakeKioga, Lake Albert and the Nile to the Sudan port of Juba.

The inland waterways fleet is in fairly good condition, butadditional floating equipment and additional nachinery for the repair shopsare needed.

D. Road Motor Transport Services

Passenger and goods services are operated over 75 miles of roadin Uganda from Iasindi Port to Butiaba, providing a connection betweenLakes Kioga and Albert, which cannot communIcate by water because ofrapids. In Tanganyika passenger and goods services are operated overnearly 1,600 miles of roads, the principal services being from Itigi andDodoma to the Southern Highlands, Dodoma to Arusha, and Norogoro to Korogwe.

The road transport services, particularly those in Tanganyika,have been largely rehabilitated since the amalgamation, and when vehiclesnow on order are received will be in reasonably good operating condition,

APPENDIX DE.A,R.H.A.

Balance Sheet at 31 December 1953E 000's

ASSETS LIABILITIES

Fixed Assets CapitalCapital expenditure 1/ 59,509 Non-Interest-Bearing 26,646

Investment on Account Interest-Bearing Capitalof Reserves. etc, Loans - Kenya 6,696

Renewals funds 6,876 Loans - Tanganyika 720Sinking funds 582 Loans - E.A.H.C. 17,735Pensions & Loans - Miscellaneous 82 31,663miscellaneous 1,489 8,783

ReservesLoans at interest 23 Renewals Funds 9,483

Betterment Funds 3,558Current Assets General Reserve 575Cash, Balances on Rates StabilizationDeposit in Banks 10,,863 Account 1,470end Joint Colonial Supplementary SinkingFund, etc. Fund 587Inventories 3,157 Pensions & Miscellaneous 1,726 17,399Accounts receivable 1,811 15,931

Sinking Fund. E.A.H,CTanganyika Govt, Ad~vances - Loans 369Deficiency in 'Vorkine 289

Current LiabilitiesMpanda Branch Line - Accounts Payable 1,088Loss on, aorkinF 141 Loan Charges Accrued 411

Deposits 450 1,949

Advances for Ner Con-struction Renavable fromFuture LoanGovt. of Uganda 2/ 2,128Overseas Food Corp.,3 4,075 6,203

Tanganvika Govt. - De-ficiency in 'iiorking1.919/21 Re-aable inAnnual Instalments 2891951/60

Combined Net Revenue Apn'nAccount Balance

TOTALS 84,576 84,576

APPENDIX E

OrEEATING AND NET REVENUES1950 THROUGH 1953

1950 1951 1952 1953

Operating 1'evenue 11,327 13,241 15,470 15,455Deduct: 'Workin, F.xpenditures 7,676 9,108 10,808 12,068

Current renewals contributions 939 1,074 1,352 1,520Net Operating Eevenue 2,712 3,059 3,310 1,857

(Operating ratio %) (76.05) (76.90) (78.61) (87.92)

Add: Interest earnings, etc. 69 71 99 154Reimbursenient of losses on branch

lines, etc. - 414 59 54GROS,S INCOME 2,7,M 3,174 3,468 2,075

Deduct: Interest, Sinking Fund (1D) e25 846 903 1,171'Misc. Expenditures 168 242 157 298

NET INCOUE 1,7lP. 2,086 2,408 606T

Add: Balance of surplus from iprevir.us year 269 242 156 288TOTAL AVATLATLE FO? jAV.i.,OFRIATIO N ,057 2,328 2,564 894

AVPROPTIAT1ONS TO:Renewals (Special Contributions) 470 470 570 50Bettenient Fund 1,100 1,425 1,450 680Reserve Accomnts 241 175 215 65Miscellaneous 4 102 41 41

TOT1L AzrPlO0 -'"Tr2.IONJS 1,815 2,172 2,276 836

SURPLUS (AVAILABLE FOR A2OIOI1ATIONSBETTEK21ITY ETC., OR CARR9IED rORgARD) 9242 156 288 58

-2-

a/ Canital ExDenditure includes an amount of L8,397 thousandfinanced from advances by Uganda and the Overseas FoodCorporation and from the liquid resources of E.A.R.H.A.Except as mentioned in Note I/ below, all of this amountis to be repaid later from the proceeds of future loans.

2/ Partial advances by Uganda for construction of the WesternUganda Extension. E.A.R.H.A. has informed Uganda that itwill probably not be possible to repay these advances before1958.

]/ Partial advances by the Overseas Food Corporation forconstruction of the Port of ic.twara and the SouthernProvince Line to Naching."ea. An agreement has been reachedwith the U.K. Government, subject to ratification byParliament, rhereby repayment of all advances to 31 March1953, rith interest, will be waived. The amount to bewritten off has not yet been accurately determined, but itwil-1 be substantial.

Appendix F

TRAFFIC STATISTICS

Railw,ay Freight Traffic, 1938 1953

Year Thousands of Long Tons %illions of Ton-i4iles

1938 2,165 58719146 3,065 7701948 3 ,479 90019149 3,689 101471950 4,152 1,2071951 L4.,U4o 1,2791952 4,720 1,3991953 4,737 1,440

Tonnages of Selected Corimodities

Col-a'odity 1938 1946 1953(thousw=d of tons)

Cef:ient 37 142 289Coffee 77 814 112Cotton 91 55 79Fertilizers 8 26 39Grain and grin flours 179 369 647Iron and Steel 13 10 70l>kachine ry 17 24 48oil seeds 215 65 112Petroleum Droducts 79 167 406Sisal fiber 94 106 139.oda ash 30 85 84Sugar and sugar cane 66 62 135Timber 36 130 121w,attle bark and extract 16 44 55

Port Perfort.iances 1946 to 1953(000 B/L tons7)

Cargo Moribasa Dar es Lalaam Tanga1946 194b' 1953 1946 194b 1953 1946 94B 195

Imports 816 1,,492 1,871 138 333 530 46 70 98Exports 729 852 916 160 171 247 118 236 177

GMRAMD TOTALCARGO 1$545 2,344 2,787 298 504 777 164 206 275

Appendix G

Estimated Cost of

Development Prograrii 1954/57

Expenditures underE23 Ta loan h 3BU.25 ra loan Total

BO00 B00Q 0O0ORAILt,AYS1. Iri-proveaents to existing lines

and facilitiesa) Permanent way 294 4,502 4.,796b) Station buildings 28 555 583c) Ilachinery & Equipment 449 1,669 2,118d) Telegraphs, etc. 62 156 218e) i1iscellaneous 25 200 225

2. NIew lines under construction(including major realignmentsof exis ting lines)

a) Realignments and regradings, etc. 89 182 271b) Southern Province itailv,ay 1,283 1y283c) ,estern tgarda Extension 2,680 2,680

3. liolling stocka) Locomotives, coaching and goods stock 890 12,773 13,663b) Contingenci-es 20 20

4. Manufacturing and repair shopsa) Buildings 8 548 556b) Plant and machinery 6 169 175

5. Viater Transport Servicesa) Steamiers, tugs, lighters, etc. 159 159b) tiachinery and plant 3 3

6. Road Servicesa ) Road service vehicles 11 19 30b) Buildings 67 67

7. Staff i4uarters 21 2,268 2,2898. Sundries 43 4_3

Total for Riailvays 17Z 27,253 29179

HURBORS9. Improvement to existing vharvres,

quays, etc.a) Iharves, quays, etc. 50 50b) Permanent .iay 195 195

10. New wharves, quays, etc.a) Mombasa, Dar es Salaan, Tanga 3,813 2,922 6,735b) Southerni Province pcrt h.tvrara 590 590

11. Floating plant and machine7rJ 13 1312. Shore plant and machinery 201 20113. Land and buildings

a) Transit and goods sneds 100 100b) Staff quarters 119 70 189c) Other buildings 10 10

Total for t rbors _3__3___U

Grand total for Development Program 6,267 30,995 37,262

APPENDIX H

SOURCES AND APPLICATION OF FUNDS

(n 000)

Sources 1954 195$ 1256 1957

Cash at beginning ofperiod 10,863 6,920 6,675 7,947

Net revenue 4,401 5,170 5,574 6,010

Loans (long-term)F.O.A. 2,390EAHC or IBM 5,000 14,500 5,000

Advances (short-term):Uganda Government 1.1521 670 490

Anplication

Development program 13,578 16,910 6,195 879Betterment etc. 2,277 1,701 780 500Debt service:

London debt 1,310 1,580 2,189 2,444F.O.A. 90 119 221 216IBRD - .275 407

17,255 20,585 9,792 4,446

Balance at end of period 6, 920 6,675 7.9L7 99,51

24.1'75 27 260 .

APPi, IX IE.A.R.R.A. ESTIMATED .WINiUYES, 194i41960

(z 000'Is)15__4 2.6 f i 252 i58 l 9 2; 1960

Reveiue :AccountOperating Revenue 18,366 19,928 20,925 21,971 23,o69 24,222 25,433Interest and Miscellaneous Revenme lqj 296 270 270Q 270 270 270

Grogg Revenae 18,561 20,224 21,195 22,241 23,339 24,492 25,703Dedxuct:

Operating :x2censes (exclusive ofcurrent renewals contributions) 13,797 14,745 15,330 15,940 16,580 17,250 17,940

Miscellaneous Expenses 32 9291 291 291 291

Total 14,160 15,054 15,621 16,231 16,871 17,541 18,231

Net Revene Bef ore Current Contri-butions to Renewals ?und-Availablefor Debt Service and Reserves ,4.401 S170 , 6.010 6 6.9'1 7

Debt ServiceLondon Borrowing 1,310 lt580 2,189 2,444 2,65o 2,795 2,840F.O,A. Loan 90 119 221 216 210 205 200I.B,R.D. Loan - .25 407 407 736 , 2 3 6 73 6

Total 1,40p 2,817 6

Relation of ReveM?e to Debt ServiceNumber of Times Net Revene BeforeCurrent Contriblutions to RenewalsFund Covers Debt Service 3.1 1.8

Net Revenue (as above) 4,401 5,170 5,574 6,010 6,468 6,951 7,472

Renewals Contributions 1,667 1,802 2,100 2,300 2,300 2,300 2,300Interest on Debt:

London Borroiring 1,050 1,264 1,751 1,955 2,120 2,236 2,272'.O.A. Loan 90 119 117 112 106 101 96

I.B.R.D. Loan - 27-5 407 407 399 382 755

2,807 3,460 4,375 4,774 4,925 5,019 5,023Return on Capital After

Renewals and Interest 1,594 1,710 1,199 1,236 1,543 1,932 2,449