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The World Bank
FOR OFFICIAL USE ONLY
j2Z Z Z (- -/ 7A
Report No. 9449-TA
STAFF APPRAISAL REPORT
THE UNITED REPUBLIC OF TANZANIA
RAILWAYS RESTRUCTURING PROJECT
MAY 24, 1991
Infrastructure Operations DivisionSouthern Africa Department
This document has a restricted distribution and may be used by recipients only in the perfonnante oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.
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CURRENCY EQUIVALENT
Currency Unit - Tanzanian ShillingTSh 1.0 - US$0.005USS 1.0 - TSh 194(as of March 1991)
WEIGHTS AND MEASURES
1 meter (m) 3.2808 feet (ft)1 kilometer (km) 0.6214 miles (mi)1 metric ton (tonnes) = 1.023 short tons
GLOSSARY OF ABBREVIATIONS
ADG = Assistant Director GeneralAfDB = African Development BankATC = Air Tanzania CorporationCIDA = Canadian International Development AgencyDG = Director GeneralDANIDA Danish International Development AgencyEAC = East African CommunityEARC = East African Railways CorporationEARH East African Railways and HarborsEDF = European Development FundEEC = European Economic CommunityEP Emergency Rehabilitation Program for TRCERP = Economic Recovery ProgramESAP = Economic and Social Action Plangtkm = gross tonnes-kmICB = International Competitive BiddingKfW = Kreditanstalt fur WiederaufbauLIB = Limited International Biddingmb = megabyteMCW = Ministry of Communications and WorksMOU = Memorandum of UnderstandingNTC = National Transport Corporationntkm = net tonne-kmODA = Overseas Development AgencyOIP = Operations Improvement PlanTAC = Tanzania Audit CorrorationTAZARA = Tanzania-Zambia Ri lways AuthorityTHA = Tanzania Harbours AuthorityTRC = Tanzania Railways CorporationWFP - World Food Program
FISCAL YEARJanuary 1 to December 31
TANZANIA FOR OMCIAL USE ONVW
RAILWAYS RESTRUCTURING PROJECT
STAFF APPRAISAL REPORT
TABLE OF CONTENTS
Page No.
DOCUMENTS CONTAINED IN THE PROJECT FILE . . . . . . . . ... . i
CREDIT AND PROJECT SUMMARY . . . . . . . . . . . . .. i-v
I. THE TRANSPORT SECTOR
A. Economic Background . . . . . . . . . . . . ..... 1B. The Transport Sector and the Eccnomy . . . . . . . . . 1C. Government Objectives and Policy in the Sector . . . . 3D. Strategy for Transport Sector Recovery . . . . . . . . 5E. Previous Bank Group Involvement in the Sector . . . . 9F. Rationale for IDA Involvement . . . . . . . . . . . . 9
II. THE RAILWAYS
A. Background . . . . . . . . . . . . . . . . . . . . . . 10B. Regulation . . . . . . . . . . . . . . . . . . . . . . 11C. Organization, Management and Staffing . . . . . . . . 12
(i) Organization and Management . . . . . . . 12(ii) Staffing . . . . . . . . . . . . . . . . . . . . 13
D. Physical Assets and Resources . . . . . . . . . . . . 14(i) Track . . . . . . . . . . . . . . . . . . . . . 14(ii) Signalling and Telecommunications . . . . . . . 14(iii) Motive Power . . . . . . . . . . . . . . . . . . 15(iv) Wagon Stock . . . . . . . . . . . . . . . . . . 16(v) Passenger Coaches . . . . . .. . 17
E. Operations . . . . . . . . . .. . . . . . 17F. Operations Information System . . . . . . . . . . . . 18G. Financial Performance . . . . . . .. . . . . . . . . 19H. Restructur 4g ng Strategyegy... ...... 21
III. THE PROJECT
A. Objectives .. . . . . . . . . . . . . . . . . . . . 29B. Genesis of the Project . . . . . . . . , . . . . . . . 29C. Project Description . . . . . . . . . . . . . . . . . 29
(i) Physical Investments . . . . . . . . . . . . . . 31(ii) Organization Development and Operational Support 37
D. Cost Estimates and Project Financing . . . . . . . . . 45E. Procurement . . . . . . . . . . . . . . . . . . . . . 46F. Disbursements . . . . . . . . . . . . . . . . . . . . 48G. Financing Plan . . . . . . .. . . . . . . . . . . . 49H. Project Implementation . . . . . . . . . . . . . . . . 50I. Reporting and Monitoring . . . . . . . . . . . . . . . 51
This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
Table of Contents (continued)Pane No.
J. Environmental Impact, Industrial Health and Safety . , 52
IV. FINANCIAL EVALUATION
A. Financial Recovery Strategy and Projections , . . . . 54B. Passenger Service . . . . . . . . . . . . . . . . . . 61
V. ECONOMIC EVALUATION
A. Project Benefits and Costs . . . . . . . . . . . . . 62B. Economic Returns . . . . . . . . . . . . . . . . . . . 63C. Project Risks . . . . . . . . . . . . . . . . . . . . 64D. Passenger Services . .. . . . . .. . . . .. . . . . 65
VI. AGREEMENTS TO BE REACHED AND RECOMMENDATION . . . . . . . . 66
ANNEXES
2-1 TRC Manpower Establishment2-2 Current Speed Restrictions2-3 Locomotive Types, Characteristics and Holding2-4 Loss of Capacity of Locomotives2-5 Wagon Types, Characteristics and Holding2-6 Ministerial Directive and Memorandum of Understanding2-7 Operations Improvement Plan Targets2-8 Traffic Analysis2-9 Organization Chart of TRC2-10 Maintenance Costs2-11 The Emergency Rehabilitation Program for TRC3-1 Track Rehabilitation Program3-2 Locomotive Rehabilitation and Rebuilding Program3-3 Locomotive Requirement Analysis3-4 Terms of Reference for Management and Supervisory Development
Program3-5 Proposed Project Costs3-6 Schedule of Estimated Disbursements
TaSle of Contents (continued)
ANNEXES
4-1 Traffic Projections4-2 Projected Freight Capacity Under Different Zfficiency and
Investment Scenarios4-3 Financial Projections5 Economic Evaluation6 Supervision Plan
CHARTS
1 Implementation Plan
This report was prepared on the basis of an appraisal mission that visitedTanzania in June/July, 1990 and a follow-up mission in February, 1991.The appraisal mission consisted of Messrs. Y. Crookes (Mission Leader/Sr.Financial Analyst), S. Nayak (Sr. Railways Engineer), Y. Kedia (RailwaysSpecialist) and M. Gustavason (Financial Analyst). Messrs. V. Kingsmill,J. Craik (ODA) and R. Waddington (Consultant Railways Specialist, CIDA)participated in the mission. Ms. C. Loys (KM) also participated in thepre-appraisal misselon. The report was reviewed by Mr. I. Sam (DivisionChief, AP6IN). The Director of the Department is Mr. S. Denning. Thelead adviser for the project is Mr. L. Thompson (Railways Adviser, INUTD)from whom valuable comments have been received in the preparation of theproject. The peer reviewers were Messrs J. de Weille (OEDDI) and J.Graves (AFTTF) and Ms. J. Holt (AF2IN). Their comments have been fullytaken into account in the report.
*A2A
RAILWAYS RESTRUCTURING PROJECT
DOCUMENTS CONTAINED IN TEE PROJECT FILE
1. 'Development Study - Draft Final Report' - Consultants' Study (CPCS,Canada), 1990.
2. 'Prograue for Transport Sector Recoverys The Transport Sector Donors'Conference, Arusha, December 1987 - Technlcal Working Papers"Government of Tanzania in collaboration with IDA, December 1987.
3. 'Matrix of Actions for Credit Processings Status on Conditions forNegotlations, Key Issues for Negotlations, Conditions for BoardPresentation" Tanzania Railways Corporation, February 2, 1991.
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UNITED REPUBLIC OF TANZANIA
RAILWAYS RESTRUCTURING PROJECT
CREDIT AND PROJECT SUMMARY
Borrowers United Republic of Tanzania
Beneficiary: Tanzania Railways Corporation (TRC)
Amounts SDR 56.1 million (US$76.0 million equivalent)
Terms: Standard IDA Terms, with 40 years maturity
On-Lendinp Terms: The Credit would be on-lent to TRC at a fixedrate of 112 for a term of 20 years, includingfive years of grace. The foreign exchange riskwould be borne by TRC.
Cofinancing: The project, with a total cost of US$275.2 million will beparallel-financed by the African Development Fund (AfDF),CIDA, the European Development Fund (EDF), KfV, ODA (UK)and WFP. TRC will finance 95Z of local costs, or &boutUS$109.6 million equivalent at prevailing exchange rates,out of its cash flow.
Project The main objectives of the project are to:Objectivess (i) strengthen the organization of TRC, eliminate
regulatory bottlenecks to its effective operations and setit on a path of a commercially viable entity; and (ii)rehabilitate infrastructural assets, replace obsolete anduneconomic operational assets and provide limited newinvestments consistent with the prospects for growth intraffic. The project will support a comprehensiverestructuring program for TRC comprising (a) reform of theregulatory framework governing the conduct of its business;(b) revamping of its organization to strengthen itscapacity to manage its core railways activity; (c)restructuring of its operating procedures and systems tomake operations more efficient; and (d) rebuilding of itscapacity through reducing the huge backlog of deferredmaintenance on its assets.
Project The proposed project would consist of: (a) theDescriytions rehabilitation of track, telecommunications systems, loco-
motives, wagons and coaches; (b) the replacement ofobsolete and life-expired maintenance equipment, vehiclesand coaches; (c) organizational support and training tostrengthen management systems and staff capacity in allfunctional areas; and (d) support for improvements in theworking environment and incentives, including enhancedpensions, for the workfo ce.
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Justification TRC represents a substantial investment in aand Risksa strategically located but poorly performing railways
system. The system links virtually all the major urbancenters of Tanzania and serves a command area of thecountr accounting for oer 40? of agricultural output andmust of the country's exports. Further, TRC is a majorartery for transit traffic from neighboring landlockedcountries of Burundi, Rwanda, Uganda and eastern Zaire.It is, under efficient operating conditions, the most cost-effective means of transport of bulky goods over the longdistances that are characteristic of Tanzania'sinternational trade. Yet, its effective capacity is onlyabout 502 of what it can achieve under reasonably efficientoperating conditions. The gross replacement cost of itsassets (today's prices) is about US$550 million equivalent,but it earns little return on this asset base and isincapable of maintaining it in good condition, let aloneprovide for its replacement. The project, by addressingthe underlying reasons for its poor operating and financialperformance will enable TRC to increase its capacity, lowerits unit cost, earn a good return on its assets and bewell-placed to be financially self-sustaining and pay areturn to Government's substantial investment in it. Theeconomy would benefit directly through lower transportcosts for long distance movements and the potential forgreater generation of foreign currency through TRC'sincreased capacity to handle transit traffic reliably andefficiently. The major risk is that TRC's management,after a decade of total lack of accountability foreffective use of its assets, may not be able to achieve theImprovements 'A managerial efficiency envisaged under theproject. The program of management strengthening to belmplemented under the project would contribute towardsmitigating this risk. However, the only durable insuranceagainst this risk would be Government's confirmedcommitment to hold TRC management accountable for themonitorable performance objectives of the strategy and totake effective remedial actions if these are not met.
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Estimated Costs:(US$ million equivalent)
Local Foreg Total Z Fore.g
Track Rehabilitation 50.5 24.8 75.3 32.9Bridge Strengthening 13.1 11.6 24.7 47.0Quarry 0.3 3.6 3e9 92.3Plant Maintenance Depot 1.6 4.4 6.0 73.3Locomotives Rehabilitation 0.8 8.4 9.2 91.3Wagons 0.9 4.9 5.8 84.5Passenger Coaches 1.0 10.1 11.1 91.0Maintenance/Accident Equipment 1.4 14.4 15.8 91.1Signals & Telecoms 2.1 2.5 4.6 54.3Service Vahicles 0.5 4.7 5.2 90.4Information Systems 0.4 3.5 3.9 89.7Technical Assistance 5.2 13.9 19.1 72.8Training 1.0 6.5 7.5 86.7Organizational Support 1.0 2.5 3.5 71.4Track Rehab Support 2.1 0.9 3.0 30.0Studies 0.3 0.6 0.9 66.7
Total Base Costs 82.2 117.3 199.5Physical Contingencies 12.5 17.4 29.7Price Contingencies 20.1 25.9 46.0
114.6 160.6 275.2 58.492= mm
Financing PlansLocal Foreign Total
(US$ million)
TRC 109.6 -- 109.6IDA -- 76.0 76.0AfDF -- 31.2 31.2EDP -- 18.0 18.0CIDA 3.0 7.3 10.3Kfw -- 18.3 18.3ODA -- 8.5 8.51"P 2.0 1.3 3.3
Total 114.6 160.6 275.2
EstimatedDisbursement ofIDA Credit (US$ million)s
FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99Annual 4.5 14.1 15.7 16.4 11.9 7.4 4.5 1.5Cumulative 4.5 18.6 34.3 50.7 62.6 70.0 74.5 76.0
Economic Rate ofReturns 18X
Maps IBRD Map No. 22878
I. THE TRANSPORT SECTOR
A. Economic Background
1.01 After a decade of good growth rates in GDP and substantialimprovements in the social sectors in the 1960s and early 1970s, theTanzanian economy experienced severe declines throughout the late 1970t andearly 19809 with per capita incomes falling sharply between 1978 and 1982.After several unsuccessful attempts at reversing the decline, Governmeat,in early 1986, launched arn Economic Recovery Program (URP) with theobjectives of (a) Increasing agricultural output through appropriate priceincentives, increasE loreign exchange and budgetary resources to thesector and restructured marketing channels for agricultural produce; (b)increasing capacity utilization in industry through increased allocati,n offoreign exchange to priority subsectors; (c) rehabilitating the country'sphysical infrastructure; and (d) ensuring the sustainability of therecovery of the economy through prudent fiscal, monetary and exchange ratemanagement with specific adjustment targets for each instrument ofmacroeconomic policy. Although some of the specific adjustment targetswere not achieved, the ERP, nonetheless, achieved its main objective ofreversing the secular decline in economic activity. In 1986, GDP grew byabout 3.4?, enough to generate a growth in per capita incomes for the firsttime since 1978. In the subsequent three years, GDP growth averaged about4.4? p.a. However, the recovery in economic activity exposed a number ofserious structural constraints inhibiting its sustainability in the futures(i) a banking system with most of its assets tied up in non-performingloans to loss-making parastatals and incapable of mobilizing domesticresources for productive investments; (ii) inadequate processing facilitiesand rigid and inefficient parastatal marketing channels for agriculturalproduce; (iii) severely deteriorated transport infrastructure andinefficient transport agencies; and (iv) significant erosion in thecapacity of social sector institutions to provide an acceptable level andquality of service in education and health. To address these structuralproblems and consolidate the achievements of the ERP, Government hasembarked on the implementation of a three-y6ar (1989 to 1992) Economic andSocial Action Plan (ESAP) with the objectives of (a) Improving theefficiency of domestic resource mobilization through reform andrestructuring of the banking system; (b) rehabilitating the country'sphysical infrastructure in support of directly productive activity; (c)rehabilitating the country's social services; (d) revamping the industrialsector; and (e) continuing to maintain a favorable macroeconomic climateand incentives structure for agricultural activity.
B. The Transport Sector and the Economy
1.02 A well functioning transport system is crucial to the sustainedeconomic recovery of Tanzania. The main linkages between transport andeconomic recovery are evident in four key areas: (a) the size of thecountry, its structure of production and its population distribution; (b)the cost to the economy of an unreliable, deteriorated network; (c) thefiscal implications of inefficient transport operations; and (d) thesector's importance as a major foreign exchange aarner.
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1,03 First, the pattern of settlement and economic activity in thecountry givi" transportation an extraordinarily strategic role in economicdevelopment. Tanzania has a large territory (almost equal in size toFrance and Spain combined) with a widely disp'rsed population, mainlyaround its geographic periphery. Agriculture, accounting for 542 of GDP,is dominated by smallholders scattered in small rural communities, whilethe major markets and the processing and collection centers for crops, aswell as the distribution points for agricultural inputs and fuel, areconcentrated in urban centers located at considerable distances from eachother and from the major coastal seaport of Dar es Salaam. Exports aredomisated by primary agricultural commodities of high bulk but low value.Growth in agricultural output, which will constitute the primary basis forgrowth in the economy for the foreseeable future, is predicated on thetransport system being able to efficiently integrate the rural communitieswith the urban centers and facilitate reliable and cost-effective transportof export crops from the major collection points to the port of Dar esSalaam. These two zoles have not been effectively performed by thetransport system and, as diecussed in the next paragraph, the cost to theeconomy has been enormous.
1.04 Second, Tanzania's domestic railway system, wh2ch isstrategically located to serve most of the major urban centers, has beenunable to meet the demand for low-cost, long-distance transport of exportcrops and of critical inputs such as petroleum products and fertilizer inrecent years, due to its poor operational performance. As a consequence,significant stockpiles of cotton - one of Tanzania's major export crops -for which road transport is inappropriate on competitive grounds, havebuilt up over the last few years and a significant proportion of the otherexport traffic, as well as bulk inputs, have been diverted to roads. Thetotal cost to the economy of stockholding and diversion of traffic, that aneffectively performing railway would have been able to handle, is of theorder of US$40 million p.a. Tanzania's road infrastructure, which iscrucial to the linkage cf rural cozmunities to the urban areas, hasdeteriorated markedly over the last decade and a half and its coverage ofrural areas is limited even by regional standards. The state of the roads, IFtwo thirds of which are impassable or unmaintainale, imposes significantpenalties on agricultural activity through its effect on vehicle operatingcosts, delayed evacuation and damage to crops. Losses imposed on theeconomy through higher vehicle costs alone are estimated at up to US$150million p.a., equivalent to about one-third of the country's exportearnings. For the ports, the long dwell time of containers in the port,caused by the inefficiency of operations as well as cumbersome customsprocedures to clear the cargo, costs the economy about US$10 million p.a.In working capital costs and demurrage charges (assuming excess dwell timeis 20 days per imported container). Based on these calculations, it isconceivable that the economy is losing nearly US$200 million p.a. in directeconomic costs due to the deteriorated transport infrastructure and itsinefficient operatiei. If the indirect costs such as loss of crop, theft,loss of export market, spoilage, etc, due to the current transport problemsare taken Into consideration, it would be difficult, if not impossible, tosee how Tanzanian goods could be competitive in the world market, or howthe cost of living could be held down. Vithout significant rehabilitationand actions to restructure the modes of operation and maintenance of the
roads and railways, these costs and physical impediments will constitute amajor barrier to sustained economic recovery.
1.05 Third, Tanzania's transport system is characterized by asignificant degree of public sector participation. The transportparastatals' financial performance has deteriorated substantially in thelast decade with most of them making losses or generating low returns ontheir assets as a result of inefficient utilization of capacity, high fixedcosts and sub-economic prices. In 1987, the combined losses of thetransport parastatals amounted to US$55 million. Government budgetarysupport of the transport parastatals' cash flow shortfall is small as mostof it is financed by short-term borrowings from the state-owned financialsystem or deferred payments to suppliers. Although not directly affectingthe level of the Government's current account deficit, this mode offinancing has significant and adverse implications on current levels ofdomestic credit creation and the future level of Government budgetarysupport to restructure unsustainable levels of short-term indebtedness tothe banking system and suppliers. Addressing the underlying causes of theparastatals' poor financial performance will contribute to the maintenanceof a sound macroeconomic climate, which is a key basis for theeffectiveness of the incentive structures set in place under the ERP andwhich will be maintained under the ESAP.
1.06 Finally, the tzansport sector has an important role to play inthe generation of additional sources of foreign exchange for the country.Tanzania offers the intrinsically lowest cost route to a seaport forZambia, Rwanda, and Burundi; and is an important alternative route for thetransport of Uganda's, Malawi's and eastern Zaire's foreign trade traffic,largely because of the possibility of using the railways network for mostof the distance, and because they can diversify their use of alternativetransport corridors rather than being held hostage to one route. However,this potential has never been fully tapped, largely because the costadvantages have been significantly outweighed by the inefficiencies of theroads and railways leading to extensive detention of traffic in transit.Impr:vements in the service reliability of the railways and the operatingcapacity of the port of Dar es Salaam and a generally more commercialorientation of financial management would allow Tanzania to increase itsnet foreign currency earnings from the transport sector. Currently, theport subsector is the second largest foreign exchange earner in the countryafter coffee, earning more than US$36 million p.a. Potentially, thetransport sector can earn between US$55 and 75 million p.a. (equivalent toabout 12-18Z of total export earnings) in foreign exchange from transittraffic if the system were operated more effectively.
C. Government Objectives and Policz in the Sector
1.07 Given the critical state of the tru. sport sector, the Governmentcalled a Transport Sector Donors' Conference in December 1987 in Arusha.At the Conference, a draft National Transport Policy document was presentedalong with a Conference document entitled 'Programme for Transport SectorRecovery* which outlined the basic policy, institutional changes andrehabilitation requirements of the sector in order to reestablish thetransport infrastructure and services to cater to the requirements of the
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economy. As enunciated at the Conferenca, the basic objective of theGovernment in the transport sector is to generate immediate improvements inthe supply of transport services in the first instance, followed by a moresustained growth in the capacity and the volume of services commensuratewith the expans4.on taking place under URP. As outlined in the Conferencedocument, sustained improvement in the delivery of transport services willrequire major effort and change in the way transport has been managed inthe past. The basic reforms needed in the seLtor are outlined belows
(a) deteriorated infrastructure requires a major shift in publicexpenditure towards the roads sector. Over the past decade anda half, there has been a precipitous drop in the funds allocatedfor recurrent and development funding for the road sectorsTanzania spent only 3-62 of its total public expenditures onroads, where 10-20? is normal for countries with far bettermaintained road networks;
(b) a more flexible and dynamic response to road infrastructuredevelopment requires a major institutional change to move awayfrom the existing highly centralized administrative system to amore decentralized system with greater delegation of authority;
5C) to improve the financial and operational efficiency of transportparastatals, comercially oriented management must be adopted,including cost-based tariff setting (taking into considerationproper depreciation of assets and improvements in operationalefficiency), bonus/incentive schemes to reward good performance,and a rigorous cost control systems. The enunciated Governmentpolicy is for all parastatals to generate at least an operatingsurplus in the short-term;
(d) similar to the financial objectives for parastatals, costrecovery for the road sector must be improved, i.e. the revenuesgenerated from the road sector should cover at least therecurrent and periodic road maintenance cost;
(e) to improve provision of road transport services, alladministered tariffs for trucking and passenger transport sectorshould be removed;
(f) to develop the local capacity in the transport sector morevigorously, private sector development should be promoted in theareas of civil works, engineering consultancy, mechanicalservices, truck and passenger transportation, and air charters;and
(g) to promote regional integration, customs procedures and transitarrangements should be simplified to improve the ease with whichtransit carlo can pass through Tanzania.
D. Strat.sa for Transport Sector Recovery
1.08 In partnership with IDA, the Government has formulated threemajor programs to address the shortcomings of the transport sectors theIntegrated Roads Project (Credit 2149 - TA), Port Modernization Project I1(Credit 2095 - TA) and the proposed Railway Restructuring Project. Withthe majority of required financing secured or pledged, the investments inthe transport sector, supported by Bank Group operations, will totalUS$1,400 million over the next five to eight years. The largest allocationis for the roads sector with US$980 million, followed by railways withabout US$300 million, and the port sector with US$120 million. Themagnitude of investment foreseen is consistent with the recommendation ofthe Public Expenditure Review (May 1989 Report No. 7558-TA), which suggestsa major shift of public funds to the transport sector, increasing to over20Z of the total development budget expenditure. The following sectionsoutline the development strategy for each of the subsectors as formulatedin the ongoing projects and this proposed project.
1.09 Roads. The deterioration of the road networks has been causedprimarily by: (a) inadequate funding for road maintenance; (b) a cumbersomeand inefficient institutional structure for road administration; (c) ahighly centralized and bureaucratic procurement and administrativedecision-making process; and (d) inadequate technical capacity to carry outmaintenance and manage contracts. Efforts to develop trunk roadmaintenance capacity under the Fourth and Fifth Highway Projects (Credits507-TA and 876-TA) failed to realize any improvements in road conditions(PPAR Nos. 6483 and 6938). Road rehabilitation under the on-going SixthHighway Project (Credit 1688-TA) was extremely slow in starting, mainlybecause of institutional weaknesses and the protracted procurement processcaused by outdated government regulations.
1.10 The Government has recognized that a major restructuring ofroads administration is necessary if road networks are to be maintained ingood condition to serve their economic purposes. The primary objectives ofthe Government in the subsector are to restore the country's essentialroads, to develop the institutional capacity for their maintenance and tostreamline procurement regulations to support the timely implementation ofmaintenance and investment activities. The institutional objective willbe to transform the Ministry of Works (MoW) from a "blue collar'construction-oriented ministry to a 'white collar' management-orientedministry, with executive authority being delegated to MoW's 20 RegionalEngineer's Offices (REOs) for implementing road investments andmaintenance. This effort is now being implemented under the IntegratedRoads Project (Credit 2149 - TA).
1.11 Road Transport. The trucking sector plays a major role in thedomestic transport industry, carrying nearly 702 of the estimated 2.5billion ton-km of freight movement within Tanzania. The existing fleetsize is estimated to be about 14,000 trucks (over three-ton capacity), ofwhich 78Z is owned by the private sector, 42 by the 12 Regional TransportCorporations (RETCOs) under the National Transport Corporation (NTC), and182 by other public sector organizations (marketing boards, cooperatives,etc.). The main feature until the mid-1980s was chronic shortage ofreplacement vehicles. spare parts, fuel and tires. Consequently, the
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vehicles were aged with very low availability rates. Fleet replacement wasonly about 42 p.a., inadequate under Tanzanian conditions, when over 15Zwould be optimal because of the poor road conditions. Freight movement byroad appears to have declined by at least 2? p.a. since the mid-1970e but,as the overall level of economic activity had stagnated, this did notresult in persistent or widespread capacity shortage. Between 1986 and1989, the situation changed dramatically with the revitalization ofeconomic activity under the ERP. Since the introduction of the "own-fundsimports program" and donor assistance for the import support program, thesector is in the process of being revitalized to cater to the rapidlyexpanding demand. The economy, however, continues to experience majorproblems in meeting the rapidly growing agricultural production and theeconomic activities in the rural areas. The Government, realizing thedistortional impact of tight administrative controls it had imposed on thetrucking industry, has eliminated essentially all barriers to market entryand administratively-set tariffs. The trucking business is now on anupswing, but will continue to require external assistance for procurementof spare parts and replacement trucks.
1.12 Passenger transport is served both by private and parastatal buscompanies; but due to the increased intercity mobility and high populationgrowth rate in Dar es Salaam, as well as excessive regulation of publictransport, the delivery of services has been adversely affented. A Dar esSalaam Passenger Transport Study was recently commissioned by RTC which isresponsible for Shirika la Usafiri Dar es Salaam, the city bus company, toinvestigate the existing regulatory and institutional framework formanaging passenger transport in the Dar es Salaam area with a view toimproving delivery of services and efficiency of operations. The study iscurrently in progress and its findings will be reviewed by IDA andpresented to a transport donors meeting to agree on future actions andassistance for urban transport.
1.13 Railways. In the railways subsector, the Tanzania ZambiaRailways Authority (TAZARA) operates a service that is principallydedicated to Zambian transit traffic, although it is increasingly cateringto local traffic in the southern part of Tanzania. In recent years,TAZARA's effective capacity has been sufficient to cater to the level oftraffic on offer. However, this level of traffic has been significantlyless than its installed capacity. TAZARA's ability to sustain or increaseits effective capacity is currently of some concern. Firstly, itsmaintenance capacity is weak and the availability of locomotives is muchlower than should reasonably be expected. Secondly, wagon turn-aroundtimes are unduly high for a very simple system with few intermediateloading and unloading points. The effect of low locomotive availabilityand high wagon turnaround times on TAZARA's effective capacity have so farbeen offset by the relatively large numbers of such assets available to it.Thirdly, cash generation is poor and thus TAZARA's capacity to befinancially self-sustaining is marginal. The effect of this on itscapacity has hitherto been masked oy a generous coverage of its maintenanceand assets costs by external donors and capital restructuring to ease itsdebt service burden. Finally, the number of accidents on the system inrecent years has been high. Unless this rate is reduced, an increasinglylarge proportion of its installed operating capacity would be eroded.
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These concerns are currently being addressed by TAZARA in concert with itsleading donors.
1.14 The effective haul capacity of the Tanzania Railways Corporation(TRC) -- which serves the central and northern parts of the country as wellas transit traffic from Burundi, Rwanda, Zaire and Uganda -- has declinedprogressively from about 1.7 million tonnes of freight in the early 1970swhen it was managed as part of the East African Railways Corporation (EARC)system to 0.9 million tonnes in 1989, despite considerable additions to itsasset base after its separation from the EARC in 1977. This decline hasproved particularly serious in the last three years with the pronouncedupsurge in domestic agricultural production and increased diversion oftransit traffic from other littoral countries to Tanzania. The decline intraffic moved reflects (a) the poor availability of TRC's locomotive andwagon assets as a result of limited access to spare parts, deficientmaintenance systems and skilled staff shortages; and (b) the poorutilization of assets when made available caused largely by ineffectivemanagement of operations and the unreliable condition of operational andinfrastructural assets. The chronic under-utilization of assets by TRCcoupled with regulatory restrictions on its ability to adjust its tariffsin line with costs or to control the large labor component of its costs,has led to a worsening financial performance and a massive erosion of itsfinancial position. As a commercial enterprise, TRC is currently bothfinancially bankrupt and insolvent. An Emergency Program (EP) for TRC waslaunched in 1987 with financing from IDA (through the Sixth Highway ProjectCredit and an advance from the IDA Project Preparation Facility) and donorsto stem and reverse the deterioration in TRC's performance. The program,which is being implemented, has so far succeeded in stabilizing TRC'sperformance. The proposed project will address the restructuring of TRC'sorganization and operating practices and systems, the changes in the systemof Government regulation of TRC and the investment requirements that arenecessary to enable it to cater fully and profitably t.o the demand forfreight transport by rail. Details of the condition of TRC's assets, itsrecent operating and financial performance and the restructuring strategyto turn around its performance are given in Chapter 11L The investmentprogram in support of the restructuring strategy is outlined in Chapter IIIane the expected impact of the strategy on its financial performance isdetailed in Chapter IV.
1.15 Ports. The port of Dar es Salaam is a major regional portserving the neighboring landlocked countries of Zambia, Malawi, Burundi,Rwanda, Uganda, and Zaire. The port throughput is the second largest onthe eastern coast of Africa after the port of Mombasa, and is the secondlargest earner of foreign exchange in Tanzania after coffee. Internationaltraffic constitutes nearly 602 of the total traffic throughput, and theefficiency and cost effectiveness of port operations is of paramountimportance to its users. In order to modernize the port of Dar es Salaam,a major program was started in 1984 under the Tanzania Port RehabilitationProject (Credit 1536 - TA) to (a) expand the container handling capacity ofthe port; (b) rehabilitate the general cargo berths; (c) improve equipmentmaintenance; and (d) improve the management and skill levels of theTanzania Harbours Authority (THA). Since 1984, the traffic volume, whichhad fallen continuously since the mid-1970s, began to recover at a rate ofnearly 7% p.a. During the same period, THA's operating efficiency also
showed gradual improvements. However, it has become evident in the pasttwo years that serious bottlenecks were beginning to develop. First,physically (and perhaps most seriously), the capacity of the newlyconstructed container terminal is inadequate, with the demand alreadyexceeding technical storage capacity by over 40X. Second, institutionally,inefficient customs procedures, inter alia, have contributed to theexcessive congestion in the container terminal through an unacceptably highdwell time of containers in the port. Third, managerially, a shortage oftrained middle management and skilled workers continues to make managementand operation of the port difficult. Better use of technical assistanceand a more systematized management information system is required toimprove management of operations. Fourth, operationally, equipmentmaintenance continues to be a major problem, especially with regard to theavailability of dry cargo handling equipment. Fifth, financial managementcould be further improved to expand the profitability of port operations.And finally, a better incentive scheme is required to improve output. ThePort Modernization Project II (Credit 2095 - TA), approved in February1990, is designed to address these issues.
1.16 Civil Aviation. Given the substantial distances between majorpopulation centers, aviation is an important means of transport in thecountry. The available seat kilometers (ASK) on Air Tanzania Corporation(ATC), the sole provider of scheduled domestic services, has grown at anaverage of 141 p.a. from about 83 million in 1977 to about 363 million in1987. The demand for ATC's services is high with an average passenger loadfactor of 762 on all routes and 83? in the domestic market, often resultingin a high turnaway rate for customers. Despite this favorable demand forits services, ATC's financial performance has been characterized by growingdeficitst in 1986 its operating deficit amounted to TSh 583 million (aboutUS$17.8 million equivalent). ATC faces perennial problems in acquiringminimum access to spare parts due to its inability to generate sufficientforeign exchange to finance its own recurrent requirements; it also hasconstraints on fleet utilization due to lack of proper facilities (e.g.lack of night-landing facilities and poor maintenance of runways).Furthermore, ATC is unable to train its staff properly due to lack offoreign exchange for training abroad. Given these conditions, a systematicassessment of ATC was carried out under a general civil aviation sectorstudy funded by the Irish Trust Fund, and an issues-oriented report *AirTanzania Corporation - Strategic Evaluation and Corporate Restructuring"carried out by the Bank (Report No. 7618-TA - April 1989), recommended astrategy for the sector both in terms of improvements to the financialperformance of ATC, improved cost recovery in the civil aviation sector ingeneral, and a least cost strategy to meet the unsatisfied demand in airtravel.
1.17 In order to rectify the situation and to implement therecommendations contained in the restructuring study, ATC increased faresby 100? to 150?; streamlined its operations through reorganization andstaff reduction; stopped operations on several uneconomic routes; and movedout of one floor of its three-floor headquarter offices and leased it forUS$200,000 in foreign currency. However, further measures to strengthenits financial position such as the sale and lease-back of its more highlymarketable aircraft to generate cash to pare down its debt and shore up itsworking capital have not yet been adopted. With the dynamic changes in its
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operating environment and a lack of continuing management actions to reducecosts and improve revenue yields, ATC's profitability has continued to beeroded, its financial position has deteriorated further and its viabilityas an operating entity is increasingly questionable as further substantiverestructuring are deferred.
B. Previous Bank Group Involvement in the Sector
1.18 The Bank Group has extended credits and loans to help financeseven highway projects, one trucking project, one railways project and fourport projects, totaling US$490.0 million since Tanzania became a Bank Groupmember in 1964. During the earlier years of lending, the projectsconcentrated on financing of new construction and equipment. The focuslater shifted to strengthening of local institutions with provisions fortechnical assistance and training, particularly for road maintenance androad transportation. While experience with ne execution of physicalcomponents has generally been acceptable, the objective of technicalassistance and training have been difficult to achieve mainly because of:(a) delays in appointment of technical assistance staff; (b) cultural andlanguage adjustment problems of technical assistance staff; (c) lack ofeffective administrative commitment by Government agencies; (d) lack ofsuitable local counterparts; and (v) unrealistic targets. These lessonshave been confirmed by the eight Project Performance Audit Reports (PPAR),and have been highlighted in the comprehensive audit carried out by theBank's Operations Evaluation Department on all Tanzania projects from 1961to 1987 (OED Report No. 8329, January, 1990) and have been incorporated inthe design of the Integrated Roads Project, the Ports II Project and thisproposed project.
F. Rationale for IDA Involvement
1.19 The rationale for IDA involvement in the sector is a logicalextension of its role in assisting the Government to carry out itsmacroeconomic reform. In the last two years, IDA's role has been deepenedto include reform of sectoral institutions and assistance in removingsector-specific bottlenecks that have emerged as obstacles to thesustainability of the recovery program. The comprehensive analysis of thetransport sector carried out by IDA in August 1987 formed the basis of theDecember 1987 Transport Sector Donors' Conference held in Arusha. Sincethen, IDA has taken the lead in working with the Government to bringtogether a comprehensive rehabilitation and restructuring program for thetransport sector of Tanzania. Nearly 20 donor agencies have mobilized overUS$1.3 billion in their resources to join Tanzania in implementing theambitious sector programs. Specifically, IDA contribution includes: (a) avision of how the transport sector can operate in the future if specificactions are taken to adjust the institutional and policy framework underwhich the transport sector is managed; (b) technical expertise which hasanalyzed the complex issues stifling the existing system and recommendedoptions on how the system can be changed to improve the effectiveness ofthe Government's effort; (c) supporting the changed attitude of Governmentofficials towards liberalization of transport operations, manifested in thefollowing policy actionss (i) decentralization of decision-making
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authority; (ii) expansion of private sector involvement and encouragementof parastatals to operate strictly on commercial merits; and (iii) lesscumbersome procurement and administrative practices; and (d) placing aPrincipal Highway Engineer in the field for three years to assist inimplementing the changes.
1.20 In the railways subsector specifically, IDA's role has been toassist Government and TRC to develop a coherent restructuring strategy toeffectively reverse the secular decline in its effective capacity and tostrengthen its capacity to be financially self-sustaining. The donorsactive in TRC, many of whom have provided substantial assistance to itsince its establishment, are conditioning their future assistance to TRC onagreement between IDA and Government on the restructuring strategy reachedunder this project.
II. THE RAILWAYS
A. Background
2.01 The Tanzania Railways Corporation (TRC) is the successor to thefirst railway line in East Africa which was built by German settlers in1890 from Pangani in the vicinity of Tanga to a point 20 kms inland. By1911, 350 kms of track linking Tanga to Moshi and providing access to therich agricultural areas in the north-eastern region of the country werecompleted. The Central Line linking Dar es Salaam to the Lake Tanganyikaport of Kigoma was completed in 1915, whilst the line linking Mwanza toTabora to the Central Line was completed in 1928. Subsequent extensions tothe railway's geographic coverage were made between 1947 and 1963 and theseserved to link Tanga and the north-eastern region to Dar es Salaam, a now-exhausted lead mine in Mpanda in the southwest and the tobacco and coffeegrowing areas around Kidatu in the southeast to the main network. The TRCsystem now enjoys a strategic geographic location traversing regionsestimated to account for about 40? of Tanzania's agricultural output andmost of the country's export crops and links all major urban centers in thenorthern half and the central part of the country. The system provides oneof the major access routes to coastal seaports for the international tradeof northern-eastern Zaire, Burundi and Rwanda and Uganda. This strategiclocation is reinforced by the distribution of economic activity in Tanzaniaand the relatively underdeveloped and deteriorated nature of the roadsnetwork.
2.02 In tenms of its organization, the railway system in Tanzaniatogether with the national ports services were merged with Kenya and UgandaRailways and Harbours in 1948 to form the East Africa Railways and HarboursAdministration (EARH). In 1967, the East Africa Railways Corporation(EARC) was formed following the establishment of the East Africa Community(EAC) to operate the railways and allied activities of the EARH. In 1977,following the dissolution of the EAC, Tanzania Railways Corporation wasincorporated to operate the Tanzania segment of the defunct EARCactivities.
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B. Regulation
2.03 TRC's operations are governed by the Tanzania RailwaysCorporation Act, 1977, which sets out in detail its objectives and therelative powers of the Minister responsible for it (currently, the Ministerof Communications and Transport (MCT)), its board and its Director General.Under the Act, TRC is charged with providing a coordinated and integratedsystem of transport services by road, rail and inland waterways oncommercial principles. Specifically, in the discharge of its serviceobligations, TRC is required to (i) be sufficiently cash generative to beoperationally self-sustaining as well as earn a rate of return, asdetermined from time to time by the minister, on its assets as periodicallyrevalued ; (ii) provide all reasonable facilities for the carriage ofpassengers and goods; (iii) to give no person or body undue preference inthe provision of transport services.
2.04 However, the Act has not been and cannot be, on its own aneffective basis for ensuring that TRC operates on a commercial basis forfour main reasons. Firstly, no specific rate of return has ever beenestablished for TRC by past ministers and there has been no coherent viewin Government or TRC of the output potential of TRC. There has thus beenno performance objectives for TRC, either in physical or financial termsand no corresponding pressure on it to utilize its assets profitably.Secondly, even if a coherent set of performance objectives were set forTRC, it is unlikely that these could be achieved by it because of thelimited and ambiguous managerial powers granted to its Board and managementunder the Act. The Act provides that TRC has minor powers over its tarifflevel and structure, its organizational structure and manpower levels.Major powers over its prices and cost structure are granted in the Act tothe minister of MCT. What constitutes major or minor powers has never beendefined. This ambiguity has served to narrow or eliminate the scope forautonomous management actions within TRC. Thirdly, although the Act, byspecifically stipulating that no service shall be provided at a price lessthan its cost of provision, provides for TRC's services to '.; allocated tocustomers based on their ability to pay full cost-recovery tarif.s,restrictions on tariff increases arising from ministerial controls ontariffs have progressively eroded the role of tariffs in determiningservice allocation. As TRC's capacity has declined relative to traffic onoffer, the role of Government in dictating priorities for movement,irrespective of their commercial implications for TRC, has enlarged.Finally, although the Act provides for the appointment of a Board to guideTRC's operations, the Board is subject to the same lack of goals andperformance expectations and the same restrictions on its powers as is themanagement of TRC. In the absence of a clear mandate, successive TRCBoards have been ineffectual in ensuring an acceptable degree of financialor operating performance by TRC. The system of regulation embodied in theAct, which provides little incentive for TRC management to be efficient,has had a pervasive negative impact on all aspects of TRC's operations.
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C. Organization, Management and Staffing
(i) Organization and Management
2.05 TRC is organized mainly on functional lines with staff in fouroperating regions reporting to functional heads at headquarters in Dar esSalaam. Responsibility for coordination of the various railways operationsfunctions as well as the marine and road services operations is vested inthe Assistant Director General (ADG) for Operations who reports to the DG.A chief financial officer, also reporting to the DG, is responsible foraccounting and treasury functions which are centralized at headquarters.Two other ADGs -- the ADG for Corporate Planning and Marketing and the ADG(Services) who is responsible for the hotels and catering operations,manpower development and supplies -- report to the DG.
2.06 The current organizational structure of TRC was inherited fromthe EARC which was similarly organized at the three respective nationallevels but with substantial accounting and technical resources atheadquarters in Nairobi. With the breakup of the EARC and the limitedexperienced staff of Tanzanian origin, it proved pragmatic to maintain aknown structure with highly centralized management. The existing structureis however, no longer adequate for the effective commercial operations ofTRC. Although the span of control of the DG is acceptable, that of the ADG(Operations) is too extensive. A disproportionate amount of theincumbent's time is preoccupied with resolving day to day crises arising inthe different departments under his brief rather than on coordination andplanning. This division of his time frequently leads to the paralysis ofdecision-making on the eruption of departmental crises. The emphasis onfunctional specializations together with the highly centralized reportingstructure inhibits middle management responsible for operations in theregions from developing a corporate view of its activities as well as fromtaking a large measure of responsibility for day-to-day operations. Thishas the effect of confining corporate concerns for the railways financialand service objectives to the highest levels of the organizationalhierarchy. Finally, the performance of the non-railways activities isadversely affected by their location in the existing organizationalstructure. The roads and hotel and catering services are considered anextension of the railways services whereas in reality they perform fewservices that are complementary to the railways' activities. Theseservices enjoy only the limited attention of senior management which isfocussed on the core railways operations. Management of the servicesexercise no control over the key variables for commercial success --pricing, costs, investments and assets disposal -- and long lines ofcommunications between the services and headquarters senior managementleads to considerable delays in decision making on even basic operationalissues, adversely affecting the performance of the services. The marineservices, although linked to the railways service through its wagon ferryoperations operates an extensive passenger service as well as cargooperations around the lakes that are not tied to the railways. These non-railways linked activities are dominant in terms of assets requirements andcosts. The marine service, like the other non-railways services, suffersfrom lack of autonomy in pricing and cost control as well as long lines ofcommunications which inhibits quick decision-making. In addition, TRC'srailways oriented senior management which has little understanding of the
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competitive features of shipping operations has been unable to provide thedetailed operational guidance to the service that would justify theexisting day-to-day reporting relationship of the service to headquarters.
(ii) Staffing
2.07 Staff establishment levels for TRC and TRC's own assessment ofthe scope for staff reductions are shown in Annex 2-1. The currentauthorized staff establishment is 17,476. The actual staffing level as atDecember 1989 was 17,098 of which 2,127 were casuals. By any criteria, TRCis grossly overmanned. Staff productivity at 40,000 net tonne-km (ntkm)per employee or about 85,000 traffic units per employee is amongst thelowest of any railways system in the world and compares to over 300,000ntkm per employee in the National Railways of Zimbabwe where staff numbersare also considered excessive. The establishment levels which set theceiling on staff levels are essentially figures drawn from theestablishment structure of the defunct EARC and do not reflect thefundamental change in the technology of operations since the middle 19709on the appropriate level and skills-mix of staff -- in particular, thechangeover from steam . diesel operations and the mechanization of trackoperations which call for much less labor-intensive operations. There is,as a result, significant surpluses of unskilled and semi-skilled staff. Atthe same time, TRC has been experiencing significant difficulties inrecruiting skilled and managerial staff because of its uncompetitive wagestructure. TRC's wages for skilled staff are about 702 of those forcomparable workers in other parastatal and, adjusted for the monetary valueof benefits, are only about 35X of those for comparable workers on TAZARA.Besides its effect on TRC's ability to recruit skilled staff, the low wagestructure is a serious and recognized cause of disciplinary problems in TRCwith its large, widely dispersed and low paid labor force having a strongincentive to take secondary jobs on the corporation's time or misusecorporate resources to supplement their income. Similarly, theadministration of such a large, lowly paid work force in a highlycentralized organization consumes a substantial proportion of seniormanagement time.
2.08 In general, TRC's senior and middle management, although thin,is suitably qualified and experienced in their functional areas. Theireffectiveness has, however, been circumscribed by a number of factors ofwhich the most important are the limited delegation of authority and theconcentration of responsibility for cross-functional coordination at thehighest levels of the organization, limited facilities for and theirrelevance of general management training and the poor structure andlevels of remuneration which limits the incentive for promotion and thededication to corporate duties. In the supervisory and skilled grades, theeffectiveness of the TRC work force is seriously limited by the lack oftraining facilities for skills upgrading and the poor standard of living ofstaff.
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D. Physical Assets and Resources
(ii) Track
2.09 TRC operates a total of 2,580 km of track of which 2,259 km arepart of the mainline network and 321 km are branch lines. About 80 percentof the TRC system i8 on easy ruling grades of IU. The balance of thesystem is on steeper ruling grades of between 1.8Z and 2.2Z, mostlyconfined to the sections Dar es Salaam - Morogoro, Makutupora - Aghodi andTanga - Buiko sections. There are more than 1800 curves on the mainline ofwhich about 56X are of radii of 200 to 500 meters. The steep grades andsharp curves limit the tonnage that can be carried over the system with thecouplers currently in use. Rails of 45 to 80 lb/yard are in use with thefuture standard being fixed at 80 lb/yard. Sleepers are of steel except atturnouts, bridges and specific places needing wooden sleepers. Joints areonly now being welded and most of the bolted joints are permanently bentdown. Several locations on the track suffer from repeated flooding. Thereare a total of 391 bridges on the system. Even though the bridges are wellmaintained, a number of these have speed and axle load restrictions and asa result need strengthening. Bridge strengthening programs were initiatedin 1983 and, to date, 32 bridges have been completed. Heavy equipmentavailable for p4rmanent way maintenance comprises 4 tamping machines, 4ballast regulators, 1 track relaying machine, 2 front-end loaders, 1 trackrecorder trolley, 1 flash butt welding plant at Tabora and about 40 heavyand light inspection trolleys. About 5O of the equipment is not inoperating condition due to non-availability of spare parts and old designsfor which spare parts are not available any more.
2.10 The permanent way on TRC has suffered from a large amount ofdeferred maintenance. A very high percentage of the track has nil toinadequate ballast cushion whilst rails, sleepers and fastenings on around400 to 500 km of track need replacement. The lack of adequate maintenancehas resulted in speed restrictions being imposed on many sections,sometimes to a crippling level of 10 km/hour. Poor maintenarce of curvegeometry has resulted in an increase in the incidence of derailments. Arecent analysis shows that about 28S of the derailments in the last 3 yearscould be attributed to track defects. About 120 kms of track length indifferent sections has speed restrictions of less than 20 km/hour andunless improved another 400 km will need speed restrictions of 30 km/houror less within the next 3 years (Annex 2-2).
(iii) Signalling and Telecoanunications:
2.11 The existing signalling system on TRC is of the simple type witheither one or two aspect semaphore for entry to each station from eitherend. Points and crossings are not interlocked with the signals, except attwo stations, i.e. Dar es Salaam (Ilala) and at Maruazi Junction. Singleline block token instruments are used. The Dar es Salaam - Tabora sectionis being upgraded to a sophisticated system with solar battery elements,electric point machines, color light approach, home and station signals andcentrally controlled station panel operation of points. This project isexpected to be completed by 1992. The capacity and capabilities of such asystem in operation would exceed presently foreseeable needs of TRC. There
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is no need for upgr iing the system on sections not covered under thisongoing work.
2.12 TRC currently has 2,547 km of open-wire telecomunication lines,train control and telephone equipment at 116 stations, 9 telephoneexchanges, 10 teleprinter links and 13 radio-linked control offices andstations covering the system outside of the Kigoma to Tabora section. Thislatter section has relatively new telecommunJcations financed with'assistance from Kreditanstalt fur Wiederaufbau (KfW) of Germany. The open-wire system, now formally the property of the Tanzania Posts andTelecommunications Corporation (TPTC), needs to be taken over by TRC as theTPTC has installed a micro-wave system linking the main centers of thecountry and has no commercial interest in maintaining a system dedicated toTRC operations. The condition of the overhead open wire lines is poor, andthe lines and much of the associated equipment needs rehabilitation. Thereis also the incidence of thefts of wires in densely populated areas.Rehabilitation of the Dar es Salaam-Tabora-Hwanza open-wire lines andassociated equipment has recently commenced with financing from theCanadian International Development Agency (CIDA) and is expected to becompleted in 1993. The Tabora-Kigoma telecommunication system consists of611 km of aerial cable, telephones at 17 stations as well as portableunits, two telephone exchanges, one 12 channel multiplex carrier system andone teleprinter link. The system, being new, is in excellent condition.
(iv) Motive Power
2.13 The motive power fleet of TRC comprises 81 main line and 29shunting diesel locomotives. The main line locomotives are of fivedifferent designs and capacities, the hauling capacity of the differentloc'nmotive types ranging from 500 to 1250 tonnes or 10 to 25 loadedstandard freight wagons. The shunting locomotives are of three differentdesigns and capacities. The main technical characteristics, the names ofthe locomotive suppliers and the hauling capacities are indicated in Annex2-3. Twenty-one (21) main line and 9 shunting locomotives, out of theentire locomotive fleet, operate with hydraulic transmission and the restwith electric transmission. The Class 87 locomotives are the oldest, being24 years old.
2.14 Out of 110 locomotives on TRC's books (as of July 1990), 39 wereawaiting either rehabilitation or rebuilding and only 71 locomotives, i.e.,652 of the total locomotive fleet were serviceable. Except for tenlocomotives of Class 73, which suffered from technical problems from thedate of supply and six locomotives damaged during accidents, all the otherunserviceable locomotives have had to be set aside as a result of thelocomotives having suffered serious deteriorat!on due to deferred andinadequate maintenance. Due to the same reason, the hauling capacity of allclasses of locomotives has been reduced by 10 to 15?. Taken together,the capacity of the locomotive fleet has suffered an erosion of about 40?due to deferred and inadequate maintenance. The loss of capacity on bot'haccounts for each class of locomotive is indicated in Annex 2-4. Therecent trend of locomotive availability is shown in the table below.
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TRC - Locomotive Availability(Z of total fleet)
Class 1987 1988 1989 1990 a/
64 56 49 52 3972 34 0 0 073 23 24 25 2787 8 14 40 4688 59 57 56 5236 22 35 38 3137 94 93 93 9635 6 4 10 48
a/ first quarter of year
Sources TRC
(v) Wagon Stock
2.15 TRC currently possesses a total of about 3,300 wagons of alldesigns including tank cars. Many of these wagons are reaching the end oftheir accounting life, are of obsolete and inefficient designs and in poorcondition and would need to be progressively scrapped. The effective wagonfleet, at the end of 1992 when all existing defective wagons are expectedto have been scrapped, would consist of about 2,200 wagons. A considerablenumber of wagons have a low payload capacity. Even the most recentlyacquired wagons on TRC, except for tank wagons with a maximum specifiedpayload of 36 tonnes, are not designed to fully exploit the permissibleaxle loads on TRC's track. The different wagon designs available on TRC,their capacity, tare weight, current holding and expected holding afterscrapping are given in Annex 2-5.
2.16 The current availability of wagons, as a percentage of wagonsshown in the books of TRC (including wagons slated for scrapping butawaiting formal approval for disposal) is around 70X. Wagon availabilitywill show a small improvement after the scrapping of about 500 wagons isformalized and these wagons are removed from the fleet. However, untilthis scrapping is undertaken, the defective wagons, by occupyingoperational lines in the yards, will contribute to the slowing down ofswitching operations unless they are removed to non-operational yards. Aspart of the preparations for this project, TRC embarked on a crash programto clear operational lines in the main terminal yards in Dar es Salaam ofdefective wagons. Progress on this program has been reasonablysatisfactory (paras 2.27 and 2.29). Due to a substantial backlog ofmaintenance and continuation of a large number of wagons with plainbearings, the breakdown rate of the wagons is also very high and is one ofthe major causes of poor wagon availability.
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(vi) Passenger Coaches
2.17 TRC has a fleet of 127 passenger coaches, of which 100 areserviceable. The average age of the fleet is about 10 years. The fleet isin a very run-down condition with barely 75 in service. The coaches arescheduled for general repairs in the main workshops every two and a halfyears and for light repairs in the depot on a bi-annual basis. However,over 402 of the rleet is overdue for general repairs, in some instances foras long as nine years. This level of deferred maintenance coupled with theextensive vandalization of coaches is the main reason for the rapiddeterioration of the essentially young coaching stock.
E. Operations
2.18 TRC operations are characterized by a number of factors: (a)long queues for wagons by customers; (b) long detention of wagons atterminal yards; (c) high running times; (d) suboptimal trains formation;and (e) low wagon productivity. Detailed monitoring of performance and therelated management and control of operations is largely absent. As adirect result, very scanty operational data is routinely collected at TRC.Operational performance indicators like average wagon load, empty to loadedrunning ratio, gross tonne-km (gtka) to ntkm ratio, average haul fordifferent commodities, average train loads for different classes oflocomotives, wagon km per wagon day, and wagon turnaround times fordifferent services cannot be accurately established. The current status ofoperational performance has thus been derived through the analysis of thedata as available, on-the-spot observations and detailed discussions withTIC management.
2.19 Queues for Wagons: hgainst an average daily loading of about 100wagons, there is always a pendIng demand for 1,000 wagons. Even thougbpart of the demand appears te bW inflated and the waiting list in partrepresents a time lag in meeting the demand and the effects of low tariffs(para 4.04 (iii)), the waiting list does indicate the current limit toTIC's capacity to carry all the ):raffic on offer. The long waiting list isalso affecting the rational and aptimal allocation of wagons to the users.Terminal Yard Detentions: About '900 wagons, 20Z of the total inventory ofwagons on TRC, are due to be scra*ped during 1991 and currently the wagonshave been sot aside on different operating rail lines within various yards,rendering a major percentage of tuese lines ineffective for switchingoperations. As a result, switching operations take a long time and thetrain formations are erratic requiring reformation through additionalshunting enroute. Also, the time permitted to various users forloading/unloading operations is inordinately high. Eve- so, the users aretaking an even longer time, sometimes 4-5 days, mainly due to low demurragecharges. In effect, rail users find it cheaper to use wagons for storagerather than develop additional warehousing space. This has led to aconsiderable increase in the turnaround of wagons. Finally, inadequateavailability of shunting locomotives and their poor condition is alsoaffecting the shunting operations and timely placement and withdrawal ofwagons for loading and unloading, resulting in heavy detentions to wagons.Suboitimal Train Formation: Train formations are usually subuptimal for anumber of reasons: (a) the constraints on operations mentioned abovel (b)
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the almost total absence of an operations plan; and (c) the wide differencein the hauling capacity of the various classes of locomotives used forfreight traffic and the existence of steep gradients in certain sections.Despite the availability of relatively high volumes of traffic in cotton,tobacco, coffee, metals and general cargo between specific origins anddestinations, the number of through trains run between these points is verysmall and most of the traffic tends to move through slow pick-up type oftrains or through inadequately marshalled trains. The average trailingloads are also far short of the locomotive hauling capacity. High RunningTime: Train speeds have been restricted over a wide range of the tracklength due to the poor condition of the track. Owing to crew change andfueling facilities being in depots rather than in the yards, almost all thetrains suffer an additional detention of about one hour or more at everyintermediate yard. Train examination patterns and insistence on trainexamination at every yard add to the detentions. Low Wagon Productivity:Average wagon payload has been estimated at about 25 tonnes as against thedesign payload of the majority of wagons on TRC of 40 tonnes. Though partof the reason for the low average lies in the density of some of thecommodities like cotton and tobacco being low, the major responsiblefactors are the low tariffs, absence of weighment facilities and lack ofappreciation of the impact of inefficient loading of wagons. The use ofwrong types of wagons for different commodities and higher than requiredproportion of empty running of wagons are other factors contributing to lowproductivity of operations.
F. Operations Information System
2.20 The system for the collection, analysis and dissemination oftraffic operations data is highly deficient. Data on train operations andengine performance are not systematically collected, are not analyzed on asystematic basis on lines relevant to decision-making and are produced inan incomplete form with substantial time lags. Traffic data is collatc;with substantial time lags, classified in a form that has little analyticalutility and is invariably highly inconsistent with accounting data. Thisdeficiency in traffic operations information systems reinforces the ad hocsystem of working. More fundamentally, however, any traffic informationsystem will need to be reinforced by organizational incentives for theiruse to be effective. With respect to the maintenance planning andmanagement systems, CIDA and the Dan:ish International Development Agency(DANIDA) have provided considerable assistance to TRC in developingplanning, monitoring and control systems through their respective programsof assistance to the mechanical engineering workshops. These systems havetended to be project-specific, with little effort at institutional transferto TRC. They need to be generalized and standardized for use across allTIC programs and facilities. Under the EP, the Overseas Development Agencyof the United Kingdom (ODA) is providing assistance to TRC to strengthenits central procurement and supplies management system and to standardizematerials management systems throughout the organization. Theeffectiveness of this program has been handicapped by lack of adequatenumbers of qualified counterparts for the expatriate team and the highlyfragmented nature of procurement activities, which by removing mostelements of the procurement cycle from TRC responsibility to that of the
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donors financing specific programs undermines the rationale for TRC tomaintain effective systems.
2.21 The bulk of data processing in TRC is undertaken on an ICL ME29mainframe computer with 1 megabyte (mb) of memnry which is upgradeable to 4mb. This system is about sever years old and, although it has adequatecapacity to meet TRC's medium-term processing requirements, is subject toan increasing rate of failures. Spare parts and maintenance support forthis system, which is no longer manufactured, are difficult to obtain. Thesystem is supported by nine terminals for data entry and two obsolete line-printers that are prone to frequent failures. Data processing is on abatch basis with a heavy degree of reliance on manual preparation of datafor entry, data checking and verification. All computerized dataprocessing is concentrated at headquarters with little scope for anydistribution of such tasks to the regions due to the poor state ofcommunications facilities within the railways and the country. Informationsystems currently computerized include the general ledger, payroll, revenueaccounting, fixed assets, locomotives statistics, and stores accounting. Awagon control system has recently been completed and is under trial.
G. Financial Performance
2.22 TRC's overall financial performance since its establishment hasbeen very poor. Details of its historic financial performance are shown inthe table below. Its losses since 1979 have totalled a massive TSh 4.2billion, excluding the cost of much of the maintenance expenditure for itslocomotive fleet which were covered by donor grants and not provided for inits accounts. Its cumulative cash flow from operations amounted to TSh 4.4billion over the period. Net of investments in working capital to supportoperations, cumulative cash generation amounted to TSh 3.3 billion over theperiod. However, this net cash generation from operations has beeninsufficient to cover its debt service obligations, the interest componentof which amounted to TSh 4.0 billion. TRC has been able to finance only afraction of its debt service obligations and built up arrears of interestpayments of TSh 2.2 billion over the period whilst not effectively makingany principal repayments on its debt other than to its multilaterallenders. As of December 31, 1990, arrears of debt service amounted toabout TSh 4.6 billion. With its worsening profitability and poor cashgeneration, TRC's financial position deteriorated substantially between1979 and 1986 with debt as a proportion of its total capital employedincreasing from 36Z to 109X. To ease its interest burden and reduce itsrelative indebtedness, Government, in 1986, capitalised about TSh 5.0billion of its debt. However, the effect of this was transient. By 1989,TRC's interest obligations were again greater than its cash generation fromoperations. TRC's poor profitability and cash generation has had a numberof adverse implications for its operations. In particular, to curtailexpenditures, TRC has had to defer a significant amount of maintenance,particularly of its track infrastructure, which has not benefitted fromexternal donor financing and much of which could have been funded out oflocal resources. This deferral of maintenance has led to progressivedeterioration in the condition of its track and a vicious cycle of lowercapacity, lower traffic and lower revenues. Due to its limited cashgeneration, TRC has been unable to implement even the basic incentives
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schemes permissible under the country's wages policies, handicapping itscapacity to retain or recruit skilled staff and its ability to effectivelymanage the productivity of such staff.
TRC: Historic Financial Performance a/(TSh million)
19791984 1985 1986 1987 1988 1989
Operating Income 111 257 392 768 661 2183(excl. depreciation)
Operating Working Capital (81) (312) (330) 604 345 (1274)
Cash Flow from Operations 30 (55) 62 1372 1006 909
Interest obligations (423) (138) (1240) (452) (684) (1065)
(393) (193) (1178) 920 322 (156)
Capital Expenditure (1804) (379) (310) (350) (282) (884)
Total FinancingRequirement (2197) (572) (1488) 370 40 (1040)
=== = r
Net Income (832) (37) (1775) (2152) (676) (351)
2.23 The main sources of TRC's poor financial performance have been(i) the underutilization of its capacity; and (ii) the inflexibility of thetariff regime. Capacity utilization: The inherent capacity of TRC hasbeen much greater than actual traffic carried due to poor assetavailability and utilization. This has resulted in low contributionmargins per ton-km of freight and per passenger-km carried relative to thehigh fixed cost of operations (mostly labor costs) and debt-serviceobligations (mostly related to the poor performing operational units).Inflexible tariff regime: cumulative tariff increases for TRC between 1979and 1989 have averaged about 43Z p.a. and have been in line with thegeneral level of domestic inflation. However, these increases have beenmuch less than compensatory for TRC's unit cost increases which are muchmore related to movements in the exchange rate. Hoveover, the timing oftariff approvals has been poor with significant lags in awards (e.g. a gapof 26 months between tariff increases in 1981 and 1984, 22 months between1984 and 1986 and 15 months between 1989 and 1990). In addition to these'actors, TRC's management of its working capital has been poor with bothlax collection practices and inadequate management of its inventory,leading to large increases in its cash needs to finance working capital.
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H. Restructuring Strategy
(i) Past Experience and the Restructuring Strategy
2.24 The experience gained in attempting to turnaround TRC'sperformance under the EP has provided a number of valuable lessons ofconsiderable relevance to the design of the proposed project. The EP wasbased on a ten-point action plan covering (a) institutional measures andchanges to bolster TRC's cash-generating capacity; (b) organizationalmeasures to facilitate the effective commercial management of operatingactivities; (c) operational measures to facilitate better utilization ofoperating assets; and (d) rehabilitation activities to improve thecondition and availability of key operational and infrastructural assets.The success of these measures in improving and sustaining the operating andfinancial performance of TRC was mixed. In particular, the measures to beeffected by Government depended for their effectiveness on its commitmentto seeing that TRC was managed commercially whilst those intended tostrengthen TRC's capacity to manage its resources efficiently relied onstrong managerial initiatives from TRC in designing and implementingprograms of actions. Government commitment to a commercial objective forTRC was weak. No clear-and explicit financial and operational objectiveswere set TRC by Government or proposed under the program. There was nopressure for TRC to perform effectively. There was little supportingGovernment action to stem any deterioration in TRC's performance. Fewproposals for tariff increases were approved by Government beyond theinitial action agreed and implemented at the start of the program. Threeyears into the program, TRC had moved from being cash-generative to beinginsolvent as a result of huge, uncompensated inflationary increases in itscosts. Internally, TRC lacked the leadership or internal culture ofaccountability for performance to manage the program of action effectively.This resulted in considerable inertia in planning and implementing actionsto improve its operating efficiency. The rehabilitation objectives of theprogram, in the narrow sense of restoring classes of assets to service,were achieved - albeit, with about a 50Z time lag - largely as a result ofthe close participation of a large amount of external support. TRC as aninstitution continued to be weak. There has been no improvement in itseffective capacity since the start of the EP. A detailed review of theimplementation of the EP is attached as Annex 2-11. The experience underthe EP is similar to the experience of the Bark in other railways projectsin the region. In the two projects for which PCRs and PPARs have beenrecently completed (Zambia Third Railways Project (Loan 1790-ZA/Credit0973-ZA): PPAR No. 7975, June 1989; Zimbabwe - Transport RehabilitationImports Program (Loan 1994-ZIM): PPAR No. 8619, Hay 1990) , significantadditions were made to the railways assets through either therehabilitation of existing assets or new inv% ints. However, in bothcases the effective utilization of assets decli.-d considerably, offsettingthe effect of the projects on the railways effective capacity. In bothcases, the railways effective capacity was maintained subsequently at thepre-project level only through substantial hires of locomotives and wagons.The conclusion of the PPARs were that this effect could have been avoidedor minimized if greater attention was paid to putting effective pressureson the management of the railways to improve the utilization andavailability of assets and supporting such efforts under the project.Increasing the railways physical capacity on its own without regard to the
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efficiency of use of existing available assets only served to undermine theachievement of improvements in operating efficiency and paradoxically ledto a lower level of performance and the need for a greater amount of assetsto perform the same level of service as before the project.
2.25 The lessons of the EP for any meaningful strategy to turnaroundTRC's performance are as follows: Firstly, the legal framework governingTRC's operations needs to provide TRC with clear overall objectives andunambiguous powers to achieve these objectives. Without this, themanagement and Board of TRC cannot be held accountable for the effectiveand efficient use of the assets under their tutelage. Secondly, TRC'smanagers must be held accountable for specific efficiency objectives withrespect to the assets under their control. The past lack of anyperformance expectation of the corporation has led to both a correspondingabsence of managerial accountability for performance and little incentiveor pressure for TRC managers to use procedures or systems that willoptimize the use of the system's assets. Currently the availability anduse of assets is well below its potential even though significantimprovements can be effected within the competency of the existing managersand with the resources under their control. Thirdly, the internalorganization of TRC needs to be restructured to support a new performanceorientation. Fourthly, the backlog of deferred maintenance evident in allclasses of railways assets must be made good to prevent their total loss oravoid their significantly more expensive replacement; any new investmentsmust be consistent with the objectives of efficiency improvement measuresand not lead to a dilution of the pressure on TRC to perform effectively.These actions must be implemented as an integrated package. In accordancewith this strategy, agreement was reached with Government and TRC on anumber of specific actions detailed below.
(ii) Restructuring Actions
2.26 Regulatory Frameworks To clarify the powers of TRC under the TRCAct, the Minister of Communications and Transport will issue a MinisterialDirective reiterating the service and financial objectives set TRC underthe Railways Act, outlining the specific powers to be enjoyed by TRC withrespect to its organization structure, manpower complement, tariffs andfares and defining Government's obligation to redress TRC for any lossesincurred as a result of investing in or providing services at the directiveof Government. The Directive will also instruct the Principal Secretary ofMCT to enter into a Memorandum of Understanding (MOU) or performancecontract with TRC to operationalise the Ministerial Directive by detailingthe respective powers and obligations of Government and TRC under theDirective and the TRC Act and the reporting arrangements to ensure theeffective working of the regulatory system. The Directive and MoU will setTRC the primary objective of generating, through efficient and commercialoperations, a rate of return on its capital employed sufficient to enableit to be financially self-sustaining. To enable it to achieve thisobjective, the Directive and MOU will grant TRC the following powerst (i)to adjust its tariffs with such frequency and magnitude as it considersnecessary to achieve the rate of return objective, without reference toGovernment; (ii) not to provide any service below its full cost ofprovision; (iii) to make investments it considers appropriate subject onlyto an overall debt-to-equity limitation and submission of economic and
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financial justification to MCT for any investment in excess of US$ 2million equivalent; (iv) to restructure its internal organization as itconsiders to be commercially appropriate without reference to Government,except if this involves creation of new non-railways entities oramalgamation with an unrelated entity; (v) to reduce its staff by anyamount it considers appropriate to achieve its efficiency and commercialobjectives, without reference to Government; and (vi) pay salaries, bonusesand incentives payments as it considers commercially prudent, withoutreference to Government. Under the MOU, TRC is obligated to achieve orimplement the following monitorable performance objectives and measures:(a) a rate of return on its capital employed of not less than 152 in 1992,1993 and 1994 and not less than 20% thereafter, subject to revision ofthese rates after the revaluation of TRC's assets under the project; (b)the operational performance targets agreed with Government and IDA asfeasible with the proposed restructuring of working systems and practicesand management to be implemented under the project; (c) implement a revisedorganizational structure consistent with that agreed with IDA as conduciveto effective management of its core railways activity under currentlyprevailing conditions; (d) implement reductions in its manpower in linewith its preliminary assessment of its level of overstaffing and subject torevisions to be made after ongoing studies assessing the scope for furthermanpower reductions are completed. A Ministerial Directive was issued onMay 23, 1991 and an MOU was executed on May 24, 1991. The MinisterialDirective and MOU are shown at Annex 2-6. In advance of the issue of theMinisterial Directive and the execution of the MOU, Government in March1991 approved for immediate implementation tariff increases of 70X forfreight and first class passenger traffic and 40? for second class andeconomy passenger traffic as well as the package of restructuring measuresproposed under the project. The restructured regulatory system for TRCrepresents the furthest that Government has gone, to date, in spelling outa clear commercial mandate for any of its parastatals and the first timethat it has entered into an explicit performance contract with any suchenterprise.
2.27 A critical ingredient for the translation of the freedoms andobligation of the Directive and MoU into operational programs is thepresence of a commercially oriented Board of Directors. The existing TRCBoard's term of office expired in December, 1990 and the launch of a newGovernment strategy to turnaround TRC presents an ideal opportunity toselect a Board to guide management's operations in a new climate offocussed commercial orientation. Accordingly, during negotiations,agreement was reached with (:overnment that the appointment to office of thenew Board would be a condition of Credit Effectiveness (para 6.02 (i)).
2.28 Efficiency Objectives: During appraisal, agreement was reachedwith Government and TRC that TRC would implement an Operations ImprovementPlan (OIP) in three phases. Phase 1 would comprise actions within thetechnical competency and resources of TRC to (i) eliminate congestion inthe yards arising from the accumulation of sick and defective wagons; (ii)improve wagon availability by restoring to service sick wagons consistentlywith the current availability of work gangs and materials; (iii) improveavailability of locomotives consistent with maintenance plans based oncurrently available spare parts, labor and agreed levels of laborproductivity; (iii) improve the utilization of operating assets by reducing
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the detention of trains en-route to their destinations, the progressiveintroduction of through-trains, reduction in switching efforts andassociated delays by encouraging customer acceptance of larger rakes ofwagons.
2.29 Phase 2 would comprise actions to consolidate the gains inimprovement under phase 1 and would be based on action plans to be preparedduring the implementation of phase 1. In particular, agreement was reachedwith TRC that it would commission studies to review maintenance and trainoperations practices and recommend specific changes and improvements inmethods and organization of work to be incorporated into action plans. Anaction plan with respect to train operations has already been substantiallycompleted by TRC staff based on explicit analysis of traffic patterns andthe best way of serving such traffic to achieve optimm utilization oflocomotives and rolling stock. Consultants have already been selected byTRC to undertake audits of its maintenance practices as the basis forformulating action plans to further improve the quality of track works andthe availability and reliability of its fleet of locomotives and wagons.Phase 2 would be implemented over a period of about one year, starting fromJanuary, 1991 with the target completion of Phase 1.
2.30 Phase 3 would comprise actions to be supported under the projectand would focus on improvements in the planning and control of maintenanceactivities. The actions under phase 3 are dependent on improvements in thecondition of TRC's assets which can only be effected with the substantialassistance planned under the proposed project. Details of the actions tobe undertaken under phase 1 and the agreed performance targets for the OIPas a whole are detailed in Annex 2-7. With achievement of the OIP targets,TRC would be able to carry about 1.8 million tonnes of traffic, double itscurrent effective capacity, without any new infusion of assets (Annex 2-
2.31 Most of the efficiency objectives of Phase 1 of the OIP havebeen achieved satisfactorily. Availability of the locomotive fleet,adjusted for locomotives damaged in accidents and consequently renderedunavailable, improved as envisaged; the reliability of the locomotive fleetwas generally better than envisaged under the plan. The overall rate ofutilization of locomotives was about 15? less than the agreed target;however, the target was based on five locomotives being assigned to lowproductivity departmental service, As the number of available locomotivesincreased, most of incremental units were assigned to departmental ratherthan revenue-generating services depressing overall utilization. Bycorollary, the effective utilization of locomotives in revenue service wassignificantly better than targeted. The rate of removal of defectivewagons from operational lines in the major yards (and the total numbersremoved) was substantially greater in the six month period of the OIP thanin the previous three years. However, due to unanticipated problems ofshortages of key inputs and equipment, only 60Z of the target removals wasachieved. The ability of TRC to effectively implement Phase 2 of the OIPand further improve on the performance of Phase 1 would depend criticallyon the identification of existing inefficient or ineffective maintenanceand operating practices, feasible means to address them and concrete actionplans to implement such measures. Completion of action plans satisfactoryto IDA and satisfactory progress in the implementation of the action plans
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would be conditions of Credit Effectiveness (para 6.02 (ii)). Satisfactoryprogress would be deemed to be the achievement of the operational targetsagreed at appraisal for the period prior to the proposed date ofeffectiveness. TRC has already prepared plans that are satisfactory to IDAto reduce the number of locomotives assigned to departmental services.Finally, to ensure that the efforts of TRC in clearing operational lines ofdefective wagons are maintained, agreement was reached with it duringnegotiations that (a) it shall furnish to IDA for its review and commentsannually by not later than November 30, a plan for the scrapping of wagonsfor the following year; and (b) it shall implement such plan taking intoaccount IDA's comments (para 6.01 (i)).
2.32 Internal Organizations To concentrate its managerial andmaterial resources on running the railways service, Government has decidedthat TRC should divest itself of all direct managerial and financialresponsibilities for the hotels and catering services. The assets of thisservice, comprising six hotels, will be leased out or transferred to theprivate sector under arrangements that will effectively fulfillGovernment's decision. Agreement was reached with Government and TRCduring negotiations on a time schedule of activities to be completed withrespect to the transfer of financial and managerial responsibilities forthe hotel and catering services. Consequent on this plan, agreement wasreached with Government and TRC that as a condition of CreditEffectiveness, TRC shall have signed contracts, satisfactory to IDA, forthe leasing of the hotels services' assets and the franchising of thecatering services (para 6.02 (iii)). Agreement was also be reached withGovernment and TRC that, by December 31, 1992, TRC shall have leased outits hotels and franchised the catering services on its trains (para 6.01(ii)). To fulfill this condition, hotels in which no one expresses aninterest in leasing would be closed. The Government/TRC action planprovides for the completion of all closure measures by June 1992. It isnot anticipated that there will be a lack of interest in the franchising ofthe catering services.
2.33 For the roads services, agreement was reached with Governmentand TRC during appraisal that NTC would be commissioned to review theservices' operating and financial viability. This review was designed tocover, inter alia, the market prospects for the services, the condition andeffective capacity of its fleet, its organizational structure and manpowercomplement, the financial, traffic and maintenance management systems inuse and the recapitalization needs of the service if its operations are tobecome viable. NTC has completed the review with the key finding that theservices (a) have been severely decapitalised over the last ten years; and(b) cannot be commercially viable under current market conditions and TRCmanagement. Consequent to the release of the findings of the review,Government has decided that managerial, financial and operatingresponsibilities for the services' residual assets should be transferred toanother operator to be selected pursuant to procedures satisfactory to IDA.These procedures would take the form of the leasing of the assets of theservice either as a package or as individual units. Any assets in which nointerest is expressed would be disposed of. In parallel with thepreparation of the offers for leasing, TRC has begun the process ofretrenchment of the services' workforce with the issue of terminationnotices to about 200 out of the services' current workforce of 360. During
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negotiations, agreement was reached with Government and TRC that as acondition of Credit Effectiveness, TRC would have signed contracts,satisfactory to IDA, for the leasing of the assets of the roads services(para 6.02 (iii)). Agreement was also reached with Government and TRCduring negotiations that, no later than December 31, 1992, TRC shall havecompleted the transfer of operational, managerial and financialresponsibility for its roads services to an independent operator (para 6.01(iii)). To meet this condition, TRC plans to complete all measures relatedto the divestment of responsibility for roads operations by June 1992.
2.34 TRC would retain the marine service as an autonomous divisionheaded by an Assistant Director General responsible for its financial andoperational performance. The head of the service would report directly tothe DG of TRC instead of to the ADG (Operations), whose predominantpreoccupation is with the dominant railways service. A comprehensive studyof the prospects for the marine service and the required changes in itsmanagement has already been completed by consultants financed by DANIDA.The study identified specific changes in sailing operations and maintenancepractices that need to be implemented to ensure that the services' shipsare efficiently utilized and the changes in staffing levels necess&ry toenable it to independently sustain its operations. A follow-on program ofaction has been planned to specify a time-frame for the achievement of thechanges in practices, performance targets to be achieved during this periodand financial objectives to be met. The new organizational arrangement forthe marine service has been endorsed by the Board of TRC and approved byGovernment prior to the issue of the Ministerial Directive. To implementthis new organization, The Board of TRC has appointed formally a suitablyqualified head for the service and has delegated to him all the powersnecessary for him to be able to manage the service as an autonomousdivision.
2.35 For the railways service, TRC would create a railways servicesdivision headed by a deputy director general accountable for the operatingperformance and profitability of the division. Under this reorganization,achievement of the efficiency objectives would be the direct responsibilityof the DDG. The DDG would have explicit responsibility for the associatedcosts and revenues of the service. Within the railways service, planningfor maintenance and transportation operations, marketing and pricingservices will be the responsibility of headquarters staff whilst co-ordination of day-to-day operational activities will be delegated to threezonal managers responcible for all operational activities in theirdistricts and reporting directly to the DDG. To assist in implementingthis restructured organization, TRC has hired consultants to preparedetailed job descriptions for all headquarters and zonal posts down toindividual office units, to detail the delegation of responsibilities tomanagers and supervisors in the structure, to design reporting andperformance monitoring systems between the zones and headquarters and toprepare a detailed implementation schedule taking into account, inparticular, any staffing constraints. On completion of this assignment bythe consultants, TRC will hire a consultant with experience in establishinga decentralized management structure in a railways system to assist the DDGin putting in place the new structure. Under the proposed restructuring ofthe railways service, the role of the DG would change from beingresponsible for all aspects of operations under the existing centralized
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structure to that of (a) setting corporate policies for manpower; (b)allocating budgetary resources to the divisions; (c) establishingdivisional performance objectives; and (d) the monitoring and control ofsuch objectives. The proposed restructuring of the railways service hasbeen approved by the Board of TRC and endorsed by Government. The Boardhas also appointed the current ADG (Operations) of TRC as the DDG for therailways service with all delegated powers for the efficient and commercialmanagement of the service. The appointment is icceptable to IDA.
2.36 Manpower: To start to address overstaffing in the organization,TRC in December, 1989, identified 1,150 casual staff and 740 permanentstaff as surplus to its requirements in various departments in the railwaysservice based on prevailing levels of operating efficiency. This surpluswas planned to be eliminated by December, 1990. Progress in achieving thisreduction in overmanned areas was slow initially with, in fact, increasesin staffing in some departments identified as overstaffed. Duringappraisal, TRC confirmed its commitment to eliminating the identifiedoverstaffing in all departments by the originally scheduled date. Thiscondition has been fulfilled with the target reductions in surplus staff,equivalent to about 112 of TRC's total workforce, effected by the end ofDecember, 1990. Since then, TRC has issued termination notices to afurther 750 permanent staff and maintained the level of casual staff tobelow 300 compared to a seasonal average of over 1000. With implementationof the OIP, TRC's staffing establishment and staff would need to be furtherreduced as the requirement for staff is reduced with more efficientoperations. To quantify the scope for staff reductions and to provide andcost the options for achieving such reductions, TRC has requested theconsultants engaged to undertake audits of its operations to identify thestaffing implications of their recommendations for more efficientoperations. This exercise in conjunction with a review of establishmentlevels by department and manpower planning practices, will form the basisof a staff reduction action plan to be prepared by TRC. To address theissue of inadequate remuneration, TRC has commissioned consultants todevelop a corporation-wide incentives scheme and salary structure to beimplemented by it. Terms of references for this proposed study wexe agreedwith TRC during appraisal. During negotiations, agreement was reached withGovernment and TRC that, by no later than January 31, 1992, TRC would havecompleted the preparation of and shall have started implementation ofaction plans, satisfactory to IDA, to further reduce its manpower levelsand to introduce a corporation-wide revised salary structure and incentivesscheme (para 6.01 (iv)). A monitorable schedule of activities to ensurethat the above action plans are completed on a timely basis was agreed withTRC at appraisal and reconfirmed during nepotiations.
2.37 Complementary Investments: An investment program to address thebacklog of deferred maintenance was agreed with TRC during appraisal andconfirmed at negotiations. The program will be funded under the project.This program will have a number of distinct components. Firstly,investments are required to rehabilitate locomotives, wagons, passengercoaches and track and telecommunications infrastructural assets. Thecondition, availability and reliability of these assets has deterioratedsignificantly because of lack of timely or appropriate maintenance. Theseassets would constitute a severe bottleneck on the achievement of theefficiency objectives of the restructaring program unless the restoration
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of their condition is quickly addressed. Secondly, investments are neededto enable TRC to sustain improvements in the condition of its assets andprevent the recurrence of a large backlog of maintenance in the future.These comprise improvements in workshop facilities, training of staff inimproved systems of work planning, monitoring and control and in upgradingof technical skills and strengthening of systems. To support its capacityto maintain its assets in good condition, TRC would need foreign currencyresources to ensure an adequate level of spare parts for normalmaintenance, particularly of its fleet of locomotives and wagons. Thevalue of locomotives and wagons spare parts required each year, excludingthat required to extinguish the backlog of maintenance, is estimated atbetween US$4.1 million and US$4.4 million (Annex 2-10). During appraisal,Government undertook to provide assurances to TRC in the MOU that the listof items eligible under the Open General License Import System (OGL) willcover, et all points in time, the categories of items likely to be importedby TRC for use in its maintenance activities. This provision has beenincluded in the MOU. Subject to the availability of adequate resources forthe OGL, the ability of TRC to maintain Its assets in good condition wouldnow depend whoily on its ability to generate sufficient cash from itsoperations to cover its maintenance requirements.
2.38 Finally, little growth in traffic beyond the inherent existingcapacity of TRC is expected. Accordingly, no provision is made in theproject for investments to increase TRC's nominal capacity beyond itsexisting level. TRC should have a strong commercial interest not to makeinvestments that would expand its capacity beyond what can be justified bya rigorous analysis of the likely demand for rail transport and its limitedcapacity to manage the implementation of projects. During negotiations,agreement was reached with Government and TRC that (a) TRC's annualinvestment plan will be reviewed annually by October 31 with IDA; (b) allinvestments in such investment plan will be subjected to economic andfinancial evaluation and justification; and (c) that of these investmentsall those costing in excess of US$2.0 million equivalent will beimplemented only after consultations with IDA (para 6.01 (v)). However, ifin spite of poor economic and financial justification, Government wishesTRC to make an investment, then the full cost of the investment, includingthe cost of external implementation assistance and consequential lossesattributable to it, should be borne by Government. The MOU makes explicitprovision for Government to compensate TRC for the losses incurred in thedischarge of such obligations.
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III. THE PROJECT
A. Objectives
3.01 The main objectives of the project are to (i) strengthen theorganization of TRC, eliminate regulatory bottlenecks to its effectiveoperations and set it on a path of a commercially viable entity; and(ii) rehabilitate infrastructural assets, replace obsolete and uneconomicoperational assets and provide limited new investments consistent with theprospects for growth in domestic traffic.
3.02 The attainment of these objectives is expected to lead to anincrease in TRC s effective haul capacity consistent with the demands ofthe growing economy, improve its capacity to handle transit traffic to thebenefit of both Tanzania and its landlocked neighbors and improve itsfinancial performance. The project objectives are consistent with andsupportive of Government objectives in the sector.
B. Genesis of the Project
3.03 The proposed project is a follow-on to the EP, which was plannedas the first phase of a two-phased approach to increasing TRC9s effectivehaul capacity. The success of the EP in meeting its objectives is analyzedin Annex 2-11 and summartzed in para 2.24. The proposed project has beendesigned to address the key institutional weaknesses encountered during theimplementation of the EP. As part of the EP a comprehensive DevelopmentStudy of TRC was to be undertaken. The study, financed by IDA, wasdesigned to review TRC19 organization, operations and traffic prospects andto recommend an action plan and a complementary investment program toaddress identified constraints on the system's capacity to meet theprospective level of demand effectively. To supplement the DevelopmentStudy, detailed studies on the condition of the track and the economic lifeof the locomotive fleet have been undertaken with financing from DANIDA andCIDA whilst a detailed assessment of the maintenance requirements of thelocomotive fleet and wagons has been carried out with assistance from CIDA,ODA, DANIDA and KfW. The Development Study was completed with substantialdelays. Its diagnosis of the structural problems in TRC has formed one ofthe bases on which the restructuring strategy proposed under this projecthas been formulated.
C. Project Description
3.04 The project consists of the following components:
Physical Investments
(a) relaying of about 200 km of rail and reballasting of about 800km of track (including matching sleepers for the rerailingprogram);
(b) rehabilitation and strengthening of 22 bridges;
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tc) establishment of one stone quarry for ballast;
td) procurement of equipment for track maintenance;
(e) construLion and equipping of a central plant maintenance andpermanent way workshop;
(f) procurement of accident relief equipment;
(g) procurement of about 40 trolleys and service vehicles;
(h) renewal of the Tanga and Link line overhead communications wiresand provision of equipment and spare parts for the TRCtelecommunications system;
(i) rehabilitation of about 1750 wagons;
(j) rehabilitation of 100 coaches and procurement of 27 newpassenger coaches.
(k) rehabilitation of 31 locomotives;
(1) upgrading of the mechanical engineering workshops;
Organizational Development and Operational Support Components
(a) improvement of TRC's operations through the adoptior. and imple-mentation of efficient methods of planning and control offunctional activities in the railways, including carrying out amanagement development program, development of TRC's in-housetraining capacity for apprenticeship programs and skillsupgrading and provision of on-the-job training to TRCmanagement;
(b) implementation of the assets (wagon, track and locomotive)rehabilitation components of the Project;
(c) improvement of TRC's financial management and accountingpractices;
ld) improvement of TRC's management and oper6tions informationsystems, through inter alia, the provision of training and theacquisition of computers, soft ware and other office equipment;
(e) improvement of working conditions for TRC's employees, includingestablishment of a revised salary and wages structure, aproductivity-based incentive scheme and the rehabilitation ofoperational facilities including stations and offices.
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(i) Physical Investments:
(a) Track Relaying
3.05 The project will provide for the complete relaying of 200 km oftrack identified as of the highest priority (in the sense of relieving themost binding speed or prospectively binding speed restrictions on thetrack) far rehabilitation out of 510 km assessed by consultants asrequiring relaying by the year 2000. About 140 km of rail is alreadyavailable with TRC, being leftover from an earlier rerailing program. Thebalance of rail requirements together with matching sleepers for the wholererailing program will be procured under the project. Agreement has beenreached with TRC that the choice of sections for rerailing will be madewith a view to achieving gradual restoration of speeds over the entiresection rather than having some sections with high permissible speeds andothers continuing with speed restrictions. The prioritization of sectionsto be relayed has been agreed based on the density of traffic on and therelative condition of sections. Relaying is anticipated to be at a rate of40 km p.a. which is consistent with productivity experienced to date onsimilar works and the widely scattered nature of the work planned. All newrails will have welded joints. The project will also provide for thereplacement of about 27,000 sleepers (19 km), the reballasting of about 800km of track and an intensive maintenance program covering about 540 km toclear the backlog of deferred maintenance. The program of trackrehabilitation will be confined to the mainline. Traffic density on thebranch lines do not justify any major track rehabilitation. The detailedtrack relaying and rehabilitation program is attached as Annex 3-1.
(b) Bridges rehabilitation
3.06 The project will finance the rehabilitation and strengthening of22 bridges on the Central line for which preliminary engineering has beencompleted. This will complete the program of bridge strengthening on theCentral line started with KfW assistance. Provision has been made for thedetailed study of the coh.dition of bridges on the Link line and forpreliminary and detailed engineering for any recommended program of bridgerehabilitation.
(c) Stone Quarries
3.07 There are at present two quarries under the control of TRC.Only one of these is currently operational but with low utilization due toproblems with plant and equipment. The capacity of the operational quarry,if rehabilitated, is sufficient to meet TRC's routine requirement forballast. However, given the backlog of reballasting to be done, there isan additional requirement for about 250,000 cubic meters of ballast p.a.for about five years to liquidate the backlog whilst keeping current withroutine requirements. The location of the existing operational quarry andthe concentration of track denuded of ballast, dictates the establishmentof a new quarry around Tabora on the Central line rather thanrehabilitation of the non-operational quarry in order to minimizetransportation costs. During appraisal, agreement was reached with TRCthat in view of its need to focus on implementing the track works and itspast difficulties with maintaining an adequate level of utilization of its
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quarry facilities, the operation of the proposed quarry should becontracted out to experienced quarry operators. This agreement wasconfirmed at negotiations (para 6.01 (vi)).
(d) Track Maintenance Equipment
3.08 The availability of track equipment is currently only about 50Zand the complement of track maintenance equipment is inadequate to supportthe level of programmed track work necessary to arrest future deteriorationin the condition of the track. To ensure that the track rehabilitationprogram and future track maintenance is not impeded by unavailability ofequipment, the project includes provision for purchase of new trackmaintenance machines and tools.
(e) Plant Maintenance and Permanent Way Depot
3.09 A large percentage of track maintenance equipment not currentlyserviceable can be economically reclaimed. It is planned to make abeginning with a small-scale maintenance depot to provide preventive aswell as breakdown maintenance to the track equipment and also take up therehabilitation of the equipment currently under breakdown. The componentsof the depot would include light and heavy machine shops; engine,fabrication and electric shops; diesel room; and cleaning and paintingsections. The depot will also have a section for the maintenance andmanufacture of turnouts. Material handling, cutting and milling equipmentand storage space have been included in this component. Support inestablishing maintenance planning systems and procedures and plantmonitoring systems will be provided to TRC under the Management Developmentand Support component of the project (paras 3.19 to 3.21).
(f) Accident Relief Equipment
3.10 TRC's inability to clear accident sites on the track on a timelybasis due to lank of appropriate equipment is a major cause of disruptionsto its operatio,s. TRC has two 60-tonne breekdown cranes both of which areundergoing major overhauls under the BP. The project will provideadditional accident relief equipment such as hydraulic jacks, lightingsets, communication sets and equipment and tools as well as equipment,spare parts and training for the maintenance of the cranes.
(g) Trolleys
3.11 TRC's stock of serviceable trolleys for transport of men andmaterial for track maintenance and renewal and for maintenance andinspection of the telecommunications system is inadequate. Theconsequential reduction in the mobility of its work force impedes theirproductivity and the quality of supervision. The project will correct thisdeficiency by providing an additional 40 trolleys to be distributed asfollows; light motor trolleys (4), flying gang trolleys with trailers (18),inspection trolleys (18).
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(h) Telecommunications
3.12 The open-wire system on the Link line is in a seriouslydeteriorated condition which impedes effective voice communications andtrain control. A number of studies of alternative systems to replace theopen wire system on this segment of the TRC system indicate that thecapital costs of such replacements would be very high and may not bejustified by the existing and foreseeable low density of traffic on theline. Based on this, the most cost effective system for restoration ofadequate communications facilities on this line is the restringing of theexisting system, with provision made for protecting segments of the linelikely to be vulnerable to vandalism and the theft of wires. Provision hasbeen made in the project to rehabilitate the system on this basis.However, at negotiations, it was agreed that before work on thisrehabilitation is initiated, a study on the future of telecommunications onTRC will first be undertaken. This study would shed more light on theappropriate replacement strategy for the Link line telecommunicationsnetwork than the partial studies done to date by placing prospectivedevelopments in the Link line segment of the network in the context of abroader strategy for the system as a whole. The study would review (a) thefuture needs for telecommunications on the system as a whole; (b) theability of the low capacity open-wire system that is the core of the TRCtelecommunications infrastructure to cope with the volume and nature of thedemand; (c) supplemental or replacement facilities that would be required;(d) the feasibility and desirability of meeting all or part of TRC's demandfor telecommunications services from facilities owned and dedicated to TRCas opposed to seeking appropriate access to the public telecommunicationsnetwork. The decision and basis on which to proceed with the Link lineopen-wire rehabilitation will be based on the conclusions of this review.
(i) Wagons
3.13 TRC's fleet of general purpose wagons is projected to declinefrom 3,206 units in 1989 to 1912 units by 1995 as a result of the scrappingof obsolete and life-expired wagons. Similarly, the fleet of tank wagonsis expected to decline from 320 units to 125 units over the same period.However, due to the anticipated improvements in productivity under the OIP,there will be a surplus of about 273 general purpose wagons and a shortfallof 122 tank wagons by 1996 despite a projected increase in traffic of about123X. The surplus of general purpose wagons will only be realized if theavailability of such wagons improves materially from about 60S in the firstquarter of 1990 to the targeted 92Z in 1994 onwards. For this to beachieved, TRC would need to liquidate the large arrears of general overhaulof wagons that has been accumulated by undertaking a regular overhaulmaintenance program of about 400 wagons a year. Support will be providedunder the project for this program of elimination of deferred maintenance.TRC currently has a fleet of 50 container wagons converted from its fleetof low-sided bogie wagons. The proportion of the total projected trafficthat is likely to be containerized is difficult to determine with anymeasure of confidence. However, there will be a large surplus ofserviceable general purpose wagons that can be converted to carrycontainers by equipping them with twist locks and modifying their sides asnecessary. This grants TRC considerable flexibility in catering to anyfeasible growth in containerized traffic at very low capital cost.
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Provision has been made in the project for the procurement of sufficientsets of twist-locks to enable the conversion of 200 general purpose wagonsto container-carrying wagons. TRC will plan for conversions on an annualbasis, taking into account evolving trends in traffic.
3.14 With respect to tank wagons, TRC's fleet will be adequate tomeet the demand for the domestic movem-ent of petroleum products providedthat these are undertaken on a basis that minimizes running times betweenthe major origins and destinations and detentions of wagons at terminalyards as envisaged under the OIP. The assessed shortfall in tank wagonsrelates to transit traffic. Since the utilization of wagons for transittraffic will be wholly dependent on the magnitude of such flows, it isappropriate that the financial risk related to such assets be assumed bythe parties responsible for determining the volume of such traffic. Underthe recently approved Petroleum Sector Rehabilitation Project, agreementwas reached between IDA and Government that about 42 tank wagons would beprovided to the oil companies through TPDC on this basis. Uganda Railwayswill provide the balance of the shortfall (80 tank wagons) which relates tofuel movements to Uganda. TRC and Uganda Railways have already starteddiscussions on the operational and commercial basis on which UgandaRailways would provide these tank wagons.
(j) Passenger Coaches
3.15 TRC currently operates passenger services on two main axes: (a)Dar es Salaam to Kigoma and Mwanza on the Central line with four pairs oftrains per week; and (b) Dar es Salaam to Tanga and Moshi with three pairsof trains per week. These services are operated with a consist of 10coaches per train although the time tabled provision (which is consistentwith the haul capacity of the locomotives assigned to these services andloop length capacity systemwide) is 19 coaches. Prior to 1985, theseservices were operated on a daily basis with the timetabled consist.However, in 1985, the decline in locomotive availability made thisfrequency of service unsustainable if freight capacity was not to bedrastically curtailed. Since then, the supply of capacity has beensubstantially reduced as the availability of coaches has declined. Inaddition to these services, TRC operates a thrice weekly service on theMpanda line and a thrice weekly service local service between Tabora andKigoma on the Central line. These services cover an extensive settled areanot served by roads. Other mixed services and shuttle services betweenvarious centers were discontinued in 1985. Under the project, the servicelevels of 1985 with respect to the main axes of service will be restored.Based on the timetabled turnaround cycles of passenger trains on theseaxes, which have been reviewed and are acceptable, this would require atotal complement of 127 coaches, including an adequate provision formaintenance spares. To achieve this complement of coaches, the projectprovides for the rehabilitation of the serviceable coaching fleet of 100units and the procurement of 27 new economy (third class) coaches. Therehabilitation of coaches would put special emphasis on reducing theirfuture susceptibility to vandalism through appropriate changes infurnishing and housings for lighting and other electrical equipment. Forthe Mpanda and Kigoma line services, the requirement of coaching stock (14units) can be met from minimal refurbishment of part of the coaching stockunder survey for scrapping.
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(k) Locomotive Rehabilitation and Rebuilding
3.16 TRC's locomotive rebuilding and rehabilitation program for thesix-year period, 1990 to 1995, is shown at Annex 3-2. Under this program,TRC is firmly scheduled to rebuild or rehabilitate 30 mainline and 11shunting locomotives and has provided for the possible rehabilitation ofseven other mainline locomotives now set aside. Ten of the fleet of 15Class 73 locomotives are planned to be rehabilitated. The remaining fiveof this fleet of locomotives were found, after a survey of the condition ofthis class of locomotives, to have defective traction motors requiringreplacement. Since the traction motors of this design are not manufacturedany more, the decision to rehabilitate these locomotives would be finalizedonly after the rehabilitation of the other ten locomotives and theidentification of an alternative equivalent traction motor. The Class 73rehabilitation program is a carry-over from the EP and the spare partsrequirements have been fully funded already. The mainstay of TRC's motivepower is the fleet of 35 Claas 88 locomotives. Ten of these locomotiveshave been set aside for various reasons and are proposed to berehabilitated under the program. The program also provides for thepossible rehabilitation of two Class 72 locomotives which were set aside in1987 due to TRC's inability to carry out major maintenance then due. It isproposed to undertake this rehabilitation only after a technical andeconomic evaluation of the merits of doing so has been done. Finally, 10Class 64 locomotives, six of which are accident-damaged, and 11 Class 36locomotives overdue for major maintenance are planned to be overhauledunder the project.
3.17 Assuming that the firm rebuilding and rehabilitation program isimplemented fully, analysis of TRC's operations indicates that it willrequire six new locomotives to cater to a peak projected traffic level of2.2 million tonnes in 1995 if it achieves fully the efficiency targets ofthe OIP. Details of this analysis are given in Annex 3-3. Viewedalternatively, TRC's effective capacity with its existing fleet of mainlinelocomotives, when fully rehabilitated, will be about 1.8 million tonnes.There is a substantial risk that a greater number of locomotives than willbe required by operations would result from the full implementation ofTRC's planned program of locomotives rehabilitation. This risk arises fromtwo sources. First, TRC currently has nine new mainline locomotives, to befinanced by the European Development Fund (EDF), on order from themanufacturers. These locomotives, when delivered, would give TRC anincremental capacity of about 0.6 million tonnes of traffic at its averagehaul or about 0.2 million tonnes more than the maximum projected trafficfor the system of 2.2 million tonnes. Under the financing agreement forthese locomotives, TRC is required to dedicate them to transit traffic. Ifthe locomotives are dedicated to transit traffic as envisaged, there willbe no surplus locomotivess the projected maximum transit traffic of 0.4million tonnes will absorb the full fleet of new locomotives, reflectingthe inherent redundancies in the system not being able to share locomotivesamongst different streams of traffic. Although, in principle, such anarrangement will be satisfactory, in practice the necessary pre-conditionsfor its successful operation are not yet in place. With the notableexception of Uganda Railways, there are no organizations in place to ensurethat transit traffic will be made available in train blocks to TRC ratherthan in unit wagon loads. Traffic in uncoordinated unit wagon loads would
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reduce the effective capacity of the circuit and increase the implicitredundancies in the use of the locomotives. Further, in the absence ofsuch intermediate organizations, there will be no parties with whom TRC canenter into clear commercial arrangements to ensure that the full capitalcost of the locomotives will be recovered from transit customers and thatservices are scheduled and performed efficiently. Under thesecircumstances, it is likely that the locomotives will be idle for prolongedperiods of time during which there will be no identified party tocompensate TRC for the consequential loss of revenue. The EDF is consciousof these potential obstacles to the efficient operation of a dedicatedtransit traffic circuit on the TRC system and the possible secondaryeffects on the performance of TRC. It is currently in the process ofrecruiting consultants to assist the governments of the participatingtransit countries, Tanzania and TRC to work out a detailed strategy for thefinancial and operational arrangements on the circuit. The recommendationsarising from this exercise might, however, take a long time to implementeffectively. Secondly, the traffic prospects, although well researched,are uncertain. If traffic is less than projected, the pressure for theefficient utilization of locomotives will be undermined. Also, TRC wouldhave incurred rehabilitation expenses with no corresponding increase intraffic and revenues. Given the foregoing, it would be prudent for TRC todefer the rehabilitation of some locomotives to hedge against the risk of agreater number of locomotives than dictated by realized traffic underminingthe restructuring strategy's efficiency and financial objectives. Duringnegotiations, agreement was reached with TRC on a core rehabilitationprogram comprising of the proposed TRC program but excluding the five Class73 locomotives with defective traction motors and two Class 72 locomotives.These would be considered for rehabilitation only after 1993 when theresults of a mid-term review of the project would be available. For thecore program, agreement was reached with TRC that it would be subject toannual review with IDA in the light of evolving traffic conditions (para6.01 (vii)). Funding has been provided for the core program (exc;.uding thepre-funded Class 73 locomotives) under the project.
(1) Maintenance Facilities
3.18 The project provides for the replacement of obsolete equipmentand the procurement of load boxes and other inspection equipment for theMorogoro, Dar es Salaam and Tabora mechanical engineering workshops anddepots. Provision has also beei! mede for changes in the layout of the Dares Salaam workshops to improve the flow of production to be undertakenafter completion of a study to be conducted by TRC staff assisted byexpatriate staff. In view of the environmentally unsound practicescurrently adopted for the disposal of used oil by TRC (para 3.32), -provision has been made for the procurement of a small-scale used-oilrecycling plant.
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(ii) Organizational Development and Operational Support
(a) ImRrovement of Operations
3.19 Management Development and Supports As detailed in Chapter II,TRC will embark on a three-phased program to improve the efficiency of itsoperations through a program of adoption and implementation of efficientmethods of planning and control of most functional activities in therailways. Phase 3 of this program will involve the systematic transfer ofmanagement systems and skills in all functional areas to TRC staff. Theassistance for the program will be structured in three phases: ti) apreliminary diagnostic review by a ten-member management developmentconsultant team to familiarize itself with the systems in use on TRC inorder to map out the desirable plan for changes needed to enhanceefficiency, and to identify the specific capabilities and training needs ofmanagerial staff; (ii) introduction of the changes in systems andprocedures, and training, both in organized formal classes and on the job,of TRC staff in managing efficiently with the changed systems; and (iii)subject to annual reviews, beginning after 12 months from the start of thefirst phase, modifications in the scope and continuation of the scheme forup to a further three years.
3.20 The precise role in the TRC organization of the individualfunctional specialists of the management support team will vary, dependingupon the technical competency and experience of the TRC managers and thestate of the systems currently in use. Two distinct roles for themanagement support team members are envisaged as a result of thevariability in the quality and experience of the TRC management. First,most of the functional specialists will be engaged primarily in developingor improving systems and procedures, the documentation of such work and thetraining of TRC managers in their use. Second, there will be instanceswhere management support will assume defined line responsibilities withdesignated TRC counterparts; these team members will have directresponsibility for systems development, counterpart staff training andcoaching and TRC line management duties and responsibilities for definedperiods of time. During negotiations, TRC indicated that, based on thecurrent staffing of its management positions, it does not envisage that anyof the technical assistance staff under the program will be in positionswith line responsibilities. However, the final role of individualtechnical assistance staff will be determined by TRC after taking intoaccount the result of the diagnostic review provided for in the program.
3.21 During negotiations, agreement was reached with Government andTRC that the annual review for the management development support programwill be conducted on a tripartite basis with TRC, the external team and IDA(para 6.01 (ix)). The review will evaluate the effectiveness of the systemchanges and the transfer of technology and know-how, taking into accountcorporate, departmental and individual performance results. To assist inensuring the effectiveness of the management development and supportprogram, an Institutional Development Advisor and Coordinator will berecruited by TRC under the project to assist the DG and the DDG of therailways service to monitor the program and to assist in defining desirablechanges in the emphases of its various components. This advisor, who
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should be a railways specialist with extensive general managementexperience in the industry, will be recruited on an individual basis.Detailed draft Terms of Reference for the management development andsupport program are attached as Annex 3-4. A total of 390 man-months oftechnical assistance is provided for this component.
3.22 Supervisorv Staff Development and Support: Assistance will beprovided to TRC to strengthen the capacity of its supervisory staff toeffectively manage the activities under their charge. This support will befinanced by a number of donors and will focus primarily on the mechanicalengineering department. To ensure that a consistent framework for theprovision of this assistance is adopted by all prospective donors,agreement was reached with TRC during appraisal on a template of activitiesthat should ordinarily be undertaken by its supervisory staff. Thistemplate will be used by TRC to determine the gaps in the capacity of itssupervisory level staff and the technical assistance requirements in thisarea as well as to monitor the effectiveness of technical assistance staff.The program of assistance for supervisory development and support will besubject to an annual review by TRC. Agreement was reached with TRC duringnegotiations that the results of the review will be made available to v Aand that TRC would, consequent to the review, make appropriate changes toany or all parts of the program taking into account the views of IDA (para6.01 (ix)). A provision of 360 man-months of technical assistance has beenmade for the program of management and supervisory development and support.
3.23 Training: Although training is acknowledged as being of crucialimportance to the long-term effectiveness of TRC as an organization, TRChas only recently started to evolve a coherent strategy for its provision.As a result, the training effort has up to now suffered from a number ofdeficiencies: there is no corporate-wide assessment of training needs andprioritisation of the allocation of resources for training has been alargely ad-hoc exercise, driven by immediate needs to fill basic skillsgaps. The training effort is currently highly fragmented, provided inadequate measure in areas where donor interest and support is available andabsent in other areas. There is no framework for the independentevaluation by TRC of the effectiveness of training provided. The trainingfunction offers no clear career progression path for TRC staff andconsequently suffers from an inability to recruit good staff. Investmentin training facilities and resources has been accorded a very low prioritygiven the pressing demands of operational activities, TRC's parlousfinancial state and the absence of a well-formulated strategy guiding theprovision of and investment in training. To correct this deficiency,agreement was reached with TRC during negotiations that by January 31,1992, TRC would prepare and furnish to IDA for its review, its trainingplan and strategy (para 6.01 (x)). In the interim, agreement was reachedduring appraisal and confirmed at negotiations, that the project wouldprovide coverage for the areas not covered or only inadequately covered byexisting programs. The project would provide for the set-up costs oftraining programs to be offered on a continuous basis locally and formanagement training overseas during the project period. The costs ofsustaining the local program would be borne by TRC and the trainingstrategy paper would provide the pointers on how this would be done withinTRC's resources.
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3.24 In accordance with the above, the project will provide about 80man-months of the services of training specialists for the preparation oftraining curricula and material covering the requirements of alldepartments (except for mechanical and telecommunications engineering,where extensive ongoing programs are already in place) for trainees tosupervisory level staff and for technical assistance to cover the initialimplementation of courses and the training of TRC trainers. An importantfacet to manpower development that is largely absent from TRC is thecontinuous upgrading of the skills of staff. There are fewinstitutionalized programs for training staff who are not in apprenticeshipprograms or who are not being prepared for promotion. As a result, oldpractices based on knowledge or training acquired in the distant past andno longer relevant to current circumstances tend to dominate, adverselyaffecting practically all areas of the organization. Provision has beenmade in the project for the development of training material for continuingeducation in all relatively specialized railways operational fields, exceptin locomotives maintenance and telecommunications engineering where thecurrent donor support is adequate. As part of the management developmentprogram, TRC's management staff would need exposure to the working of otherwell-run railways as well as periodic attendance on courses organized byrailways colleges and professional institutes overseas and the Eastern andSouthern African Management Institute (ESAMI) in Tanzania. Provision hasbeen made for the financing of this type of training activity in theproject. The provision made is for about 44 courses or periods ofsecondment to overseas railways of an average duration of three months.Support will also be provided to TRC to adequately equip its trainingschool with visual aids equipment and engineering demonstration modules.
(b) Implementation Support
3.25 During appraisal, agreement was reached with TRC on thefollowing approach to the implementation of the physical rehabilitationcomponents of the projects First, TRC will divide the rehabilitationactivities into subprojects based on the nature of work to be undertaken,the geographic location of activities, the expected source of inputs to beobtained externally, etc. Second, for each such subproject, TRC willdefine its resources requirements, the timing of such requirements and theoutput and completion schedule. These schedules of input requirements andoutputs will be formalized in production plans or resources budgets foreach subproject. Third, TRC will appoint a manager for each sub-project.These managers will be accountable for the output of the sub-projects perthe agreed schedules and budgeted costs. Quality control of the sub-project works will be effected under TRC procedures which are to bestrengthened under pre-project activities currently underway as well asunder the Management Development and Support component of the project.Fourth, TRC will appoint, by negotiations, a senior officer for thecoordination, monitoring and progress-chasing of the overall rehabilitationprogram. The scope of activities of this officer will include theconsolidation of sub-project schedules into a master plan; tracking of theflow of external inputs; resolution of conflicts particularly inrequirements of inputs; monitoring of the rate of progress in overallproject implementation, both physical and financial; and the initiation andreview of course-correction actions for the individual sub-projects.
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Provision has already been made for such a post in TRC's revisedorganizational structure.
3.26 TRC will need external assistance to satisfactorily undertakethe rehabilitation program within this implementation framework. Suchassistance will have two basic objectives: (a) fill the gapu in TRC'stechnical capacity to do some tasks; and (b) relieve some of TRC's managersof the task of monitoring and controlling the pace of rehabilitationactivities that are essentially one-off exercises in order to concentrateon improving and managing day-to-day operations to avoid further backlogsof maintenance. Technical assistance for operational support inimplementing the rehabilitation program will be provided in three areass(a) wagon rehabilitation; (b) track rehabilitation; and (c) locomotivesrehabilitation.
3.27 For the wagons and coaches rehabilitation programs, technicalassistance will be provided to draw up production plans and schedules andthe periodic resources budgets, to assist in monitoring the progress ofimplementation and to resolve technical problems arising during sub-project implementation. This arrangement has worked satisfactorily in TRCin the wagon rehabilitation program of the EP. About 72 man-months oftechnical assistance support has been provided for these programs. Inaddition to this provision, a total provision has also been made of 24 man-months of operational support to assist TRC in redesigning the layout ofthe Dar es Salaam workshop and in supervising the installation andcommissioning of new equipment.
3.28 On track rehabilitation works, TRC uses a well-establishedproject approach with a distinct resource budget, including staff, for eachsuch work program. However, work scheduling, resources budgeting andresources control has tended to be inadequate. Progress on TRC-controlledrehabilitation programs is hampered by untimely and uncoordinatedavailability of inputs from TRC-controlled plants such as ballasts from itsquarry, sleepers from the sleeper reconditioning plant and low availabilityof maintenance equipment. Technical assistance will be provided under themanagement development and support program to strengthen TRC's capacity tomanage the maintenance of equipment devoted to track maintenance andrelated activities. Ballast for the rehabilitation works will bepredominantly from the proposed new quarry. To ensure timely and adequateavailability of this item, agreement was reached with TRC duringnegotiations that the operation and mn 'gement of the proposed quarry wouldbe contracted out to an external party who should provide guarantees oftimely production of ballast (para 3.07). Further, during appraisal,agreement was reached with TRC that the movement of ballast and othermaterials to work sites would be the responsibility of the trafficdepartment and would be based on a time schedule of requirements, based onthe resources budget, to be provided to this department by the civilengineering department. This arrangement would ensure a focal point ofresponsibility for movement of material whilst ensuring the optimal use oflocomotives assets. The residual requirement is for assistance to ensurethat the program of works is implemented to acceptable standards of qualityand that productivity levels are acceptable. Provision has been made forabout 24 man-months of operational support in the form of an experiencedtrack inspector to fill this role. Under the EP, track rehabilitation
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works were organized along similar lines but without adequate arrangementsto ensure the availability of all related resources to the projectmanagers. The arrangements proposed under the project adequately cover theareas where control was weak under the EP and which impeded the rate ofprogress.
3.29 Past locomotive rehabilitation programs in TRC have relied onexternal assistance. However, there was no clear framework for suchassistance. Responsibility for output, both in quality and quantity terms,as between TRC managers and expatriate assistance was unclear. Althoughproduction schedules were routinely prepared, these were not linkedexplicitly to a resources budget agreed with TRC senior management and usedas the basis for monitoring of performance. The management of therehabilitation works tended to be highly commingled with that of managementof running maintenance, leading to frequent conflicts over the allocationof resources and diluting the assignment of responsibility for suchprograms. Low value but critical items were frequently not adequatelybudgeted for in the rehabilitation programs but were expected to beavailable as the need arises, leading to frequent disruption of work.During appraisal, agreement was reached with TRC that the locomotivesrehabilitation program would be divided into sub-projects based onlocomotives classes. For each sub-project, a TRC engineer would beappointed as a manager. Technical assistance would be provided to eachsub-project manager to assist in drawing up schedules and resourcesrequirements for each year and to assist in resolving technical problems asthey arise. A total of about 250 man-months of technical assistance hasbeen provided under the project for support of the locomotivesrehabilitation component.
3.30 In addition to the above project implementation support,technical assistance will be provided to TRC to establish systems andprocedures for the coordination and monitoring of the projectrehabilitation program and to provide complementary training to the overallproject coordinator and his staff. To provide such assistance, TRC willrecruit an experienced project manager with extensive railways experienceor substantial experience in managing large and complex engineeringprojects. This arrangement will enable TRC to progressivelyinstitutionalize the capacity to manage future investment programs. Also,a small provision has been made for technical assistance to fill linepositions that may become vacant for unavoidable reasons and for whichtimely recruitment of a suitably qualified local national may be difficult.The tenure of such technical assistance staff would be strictly bounded.
(c) Financial Management Support
3.31 Under the EP, ODA has been providing assistance to TRC inaccounting and financial management. Assistance uader this program hadconsisted of the financing of an accountant in a senior line managementposition. The primary tasks of this officer evolved to focus on themanagement of working capital and cash, monitoring of debt and in providingadvice to the DG on capital budgeting matters and capital restructuring.ODA also financed a diagnostic review of the accounting system - both forexternal reporting and internal budgetary and management control. It isproposed to continue assistance in the area of financial management but to
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refocus it more sharply on the development of formal systems for workingcapital management, investment vetting and capital budgeting, debtmonitoring and corporate financial planning. As a follow-up to thediagnostics study of TRC's accounting system, assistance will be providedto TRC to implement changes in its accounting system and to prepareaccounting manuals documenting the procedures for entries in the accountingsystem. Assistance will also be provided to TRC revamp its managementaccounting system, introduce effective cost and budgetary controlprocedures and to establish an operational auditing unit within itsinternal audit department to monitor the cost-effectiveness or efficiencywith which selected operational activities are undertakeni. Finally, TRCdoes not currently have a complete knowledge of its fixed assets. Theassets register and the assets records maintained by the operatingdepartments are inconsistent. Asset values in the balance sheet aresignificantly understated and provide a highly distorted picture of thefinancial position of TRC. Profits, defined as the surplus after makingadequate provision for the maintenence of TRC's operating capacity, aregrossly overstated as a result of the understatement of the truereplacement cost of assets and the consequential understatement ofdepreciation provisions. To rectify this situation, the project providesfor consulting services to assist TRC in undertaking a complete inventoryand revaluation of its physical assets.
(d) Information Systems
3.32 A number of initiatives have been taken, are underway or areplanned for under the project to restructure the information systems ofTRC. Under the EP, ODA-financed consultants undertook a comprehensivereview of TRC's financial accounting system and recommended changed in thestructure and scope of the system to facilitate easier and more timelycompilation of the accounts and generate, more readily, information forfinancial management and analysis. The assistance to be provided under thefinancial management component of the project will extend this work bydeveloping specific analytical systems for financial management and byrestructuring TRC's expenditure accounting systems for more effective costand budgetary control. For operating activities covering mechanicalengineering and transportation, on-going studies to improve the efficiencyof such activities will identify operating data requirements, reviewcurrent statistical collection, analysis and dissemination practices andrecommend appropriate changes in such practices to facilitate moreeffective monitoring, planning and control of such activities.Improvements in the structure of these information systems will however,not lead to any significant corresponding improvements in operating andfinancial performance unless the information generated can be madeavailable to users on a timely basis. To enhance TRC's data processingcapacity to achieve this timeliness objective, provision has been madeunder the project for the replacement of the existing mainframe computer,which is now prone to increasingly frequent failures. It is proposed toreplace the existing central mainframe with a host computer under thecontrol of TRC's data processing department linked by a local area networkto a selected number of local sites around the TRC headquarters complex. Asmall number of personal computers will also be provided under the projectfor primarily stand-alone applications. Agreement was reached with TRCdui.ing negotiations that a short study would be taken prior to any
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procurement action to determine the most cost-effective configuration ofsuch a system to meet short-run and long-run needs and to determine thedistribution of responsibilities and functions of the local and hostcenters. The project provides for assistance to TRC in developingstatement of user requirements based on the information systems reviews andfor procurement of software for the applications identified by such reviewsand technical support in installing the software and training TRC staff.The project also provides for photocopying and printing machines, shortagesof which hinders considerably effective communications in TRC.
(e) Organizational Support
3.33 The effectiveness of TRC's workforce in meeting corporateobjectives is affected by a number of factors, other than those relating totechnical and managerial competency and the condition of its major classesof operating and infrastructural assets already referred to above. Thesefactors divide into three groupst (a) the adequacy of immediateremuneration; (b) the prospects for pensions; and (c) the adequacy of theworking environment.
3.34 Immediate Remuneration: The level and structure of wages,salaries and related benefits paid by TRC to its workforce are bothinadequate to attract good quality entrants into its workforce, elicit themaxfimum commitment of the existing workforce to the organization'sobjectives and encourage the acquisition of skills and assumption ofgreater managerial or supervisory responsibilities by its workers (para2.07). Under the MoU, TRC has been granted the autonomy to set its wagesand salaries in accordance with what is necessary for it to achieve itscommercial objectives. To enable TRC to discharge this autonomyeffectively, agreement was reached with it during appraisal that a studywould be undertaken to review its salary structure and levels, to recommendchanges in such structure and levels that would make it competitive and todevise a productivity-based incentive scheme for various categories ofworkers. Consultants to assist in the cnnduct of the study have a.Ceadybeen selected. Agreement was reached with Government and TRC duringnegotiations that by January 31, 1992 the study would be completed and anincentives packages plan and revised salary structure based on its findingswould be prepared and implementation on them started (para 2.33). Based onthe financial projections prepared for this project, TRC should notencounter difficulties financing an adequate plan provided it maintainsrelatively efficient operations.
3.35 As part of the package of incentives to be introduced during theproject, TRC intends, with support from the World Food Program (WFP), toimplement a food-based incentives program under the project. The programwill be for workers engaged in track maintenance project work who generallyreside in remote areas along the line of rail. The program has been costedat about US$ 5.0 million equivalent representing the estimated cost ofmeeting the food requirements of the families of the gangmen over a periodof five years. The food would be sold to the gangmen with an implicitsubsidy on market prices embodying an incentive element of 25Z. Duringappraisal, agreement was reached with WFP and TRC that the net proceedsgenerated from food sales would be used by TRC for the digging of wells to
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serve gang encampments. This would have two benefits. It wouldprogressively reduce the requirement for watering trains which currentlyserve the gang cmps and to which about four locomotives are continuouslyassigned and diverted from revenue service. It would also enhance thepotential for agricultural output by the families of gangmen who arecurrently restricted by limited access to water along a significant stretchof the line of rail. During appraisal, agreement was reached with WFP andTRC that a food-based incentive scheme would be introduced only after theaction plans for TRC's manpower reduction and incentives programs havebeen completed. This would enable the scheme to be integrated into a widerscheme for rationalizing the numbers employed on track work and introducingand funding sustainable incentives schemes. Also, the WFP would during itsdetailed appraisal of the scheme take full acco'ct of the distributioncosts that would be entailed by the scheme in order to ensure that thebenefits of the scheme are not eroded by such costs.
3,36 Pension Prospects: the majority of TRC workers belong to thenational pension scheme administered under the National Provident Fund orthe parastatal pension scheme managed by the National InsuranceCorporation. The best available information suggests that the funding ofthese schemes is inadequate to provide an adequate level of pensions to thetheir participants. Of even greater concern, the schemes are unlikely tobe able to ensure an adequate or any degree of indexation of theentitlement of beneficiaries. After a lifetime of working, a majority ofTRC workers are likely to get an initially low fraction of their terminalwages and face the prospect of the value of this benefit progressivelyeroded by inflation. A minority of TRC staff that were officers in theZARC belong to the EARC pension scheme with externally held and managedassets. This scheme was fully funded as of the date of dissolution of theEARC. Although most of these officers continue to enjoy salaries that arepersonal to them (outside of sad higher than the TRC or parastatal payscales), the effective value of their pension rights has been severelyeroded due to their subsequent incorporation into the national schemeswhose assets are local and locally managed and the returns on which havebeen severely eroded by inflation. The precarious post-retirementfinancial prospect of all levels of workers in TRC has understandable andadverse effects on the productivity of TRC's most experienced staff, whoseprimary concerns as they approach retirement shifts towards outsideactivities to accumulate income-generating assets rather than totalcommitment to TRC work. To alleviate this problem, agreement was reachedwith TRC during appraisal that an actuarial review of the schemes in whichTiC staff are members would be undertaken under the project. The reviewvould assess the existing pension entitlement or terminal benefits ofvarious categories of workers under different scenarioa as to assetsyields, inflation and salaries, establish adequacy benchmarks for pensions,recommend schemes (including criteria for eligibility) to be financed byTRC to top up pensions to this benchmark and options for the management ofsuch schemes and -ovide an assessment of the cost to TRC of such schemesover a defined period of time. The feasibility of funding an adequate topup scheme would depend wholly on TRC's cash generating ability which inturn is dependent on its operating efficiency.
3.37 Physical Work Znvironzsnts The physical working environment formost TRC staff has deteriorated significantly over the last 14 years as the
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basic maintenance of workplaces and the replacement of work tools and aidshas been neglected. In particular, stations all over the system which arethe basic place of work for most staff are very dilapidated. In remotestations, away from the major urban centers and thus with no access toelectricity, few operating kerosene lamps, vital for effective trainsworking as well as for office work are available. TRC main headquartersbuildings, listed as of significant historical interest, have progressivelyfallen into a state of disrepair. The mortar of the walls of the buildingsis crumbling at an alarming rate. There is no locally available expertiseon determining the cause of and the most effective remedial action to stopthe deterioration. Lacking funds, TRC has resorted to simply covering upthe internal walls with timber cladding leaving the underlying structuralproblems unattended. The replacement of working clothes and aids -uniforms, rainsuits for outdoor staff, flags etc. - has fallen way behindschedule, adding significantly to the demotivation of the workforce.Functioning clocks, a vital tool for scheduled transportation operations,are not present in the vast majority of stations and few station mastersand assistant station masters have or can afford reliable watches. Thereis an acute shortage of rule books which provide the basis for adherence tooperating rules and safety practices on a uniform basis across the system.The current rule book dates to EARC days, is written in English, which isincreasingly little understood by TRC staff, and needs updating andrationalization and circulation to all staff. Finally, there is littleconsciousness of occupational safety and health. As a consequence, TRCworkers, particularly in the workshops are exposed to significant healthhazards and do not enjoy the benefit of either training in occupationalsafety and health or periodic medical checkups to effectively monitor work-related ailments. During appraisal, agreement was reached with TRC thatthe project would make provision for (a) the procurement of working clothesand aida; (b) consulting services to determine an appropriate strategy forpreservation of historic buildings and inmediate remedial actions to arrestthe deterioration of such buildings; (c) technical assistance and medicaltesting equipment to establish an effective occupational health and safetycapacity in TIC; and (d) technical assistance to rewrite the rule book inEnglish; and (e) the translation of the rule book into Swahili and itsprinting and distribution in English.
D. Cost Estimates and Project Financlng
Project Costs
3.38 The total project costs, including price and physicalcontingencies and the refinancing of advances from the IDA PPF is estimatedat US$ 275.2 million with an estimated foreign cost of US$ 160.6 million orabout 58Z of total costs. A summary of the project costs is shown in Table3.1 below. Detailed project costs are given in Annex 3-5. Taxes andduties are expected to account for about 22 of total costs or about US$5.5millioa equivalent. Price escalation of 4.9Z p.a., representing estimatesof increases in foreIgn costs based on the Bank's projections of the indexof wanufactures unit value (muv), has been applied to all costs. It isassumed that domestic inflation higher than this estimate will be reflectedin changes in the exchange rate which is taken at TSh 194 to US$1 in thisreport. The costs are estimated based on a 7 year implementation period,
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which is consistent with the Bank experience of transport projects inTanzania and the region.
Table 3.1 Project Cost Estimates(USS million equivalent)
Local Foreign Total Z Foreign
Track Rehabilitation 50.5 24.8 75.3 32.9Bridge Strengthening 13.1 1l.G 24.7 47.0Quarry 0.3 3.6 3.9 92.3Plant Maintenance Depot 1.6 4.4 6.0 73.3Locomotives Rehabilitation 0.8 8.4 9.2 91.3Wagons 0.9 4.9 5.8 84.5Passenger Coaches 1.0 10.1 11.1 91.0Maintenance/Accident Equipment 1.4 14.4 15.8 91.1Signals & Telecoms 2.1 2.5 4.6 54.3Service Vehicles 0.5 4.7 5.2 90.4Information Systems 0.4 3.5 3.9 89.7Technical Assistance 5.2 13.9 19.1 72.8Training 1.0 6.5 7.5 86.7Organizational Support 1.0 2.5 3.5 71.4Track Rehab Support 2.1 0.9 3.0 30.0Studies 0.3 0.6 0.9 66.7
Total Base Costs 82.2 117.3 199.5Physical Contingencies 12.3 17.4 29.7Price Contingencies 20.1 25.9 46.0
114.6 160.6 275.2 58.4C=Z= G2Z"==m
3.39 The cost estimates have been derived on the following bases:(a) track rehabilitations the base cost of track components - rail,sleepers and ballast - are based on unit costs for such items experiencedby TRC under the EP; (b) workshop equipments recent quotations obtained forsimilar equipment; {c) technical assistance: actual person-month rates fortechnical assistance and consultancy services in TRC, adjusted as relevantto take account of prevailing rates for similar services from othergeographical sources experienced bv railways in the region; (d) wagonrehabilitations unit rates for general repairs based on TRC's experienceunder the EP; (e) locomotive rehabilitation: costed estimates by TRC andconsultants provided by donors currently financing such programs.
E. Procurement
3.40 The procurement arrangements are summarized in the tablebelow:
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Procurement Methods and Costs(US$ million)
(Amounts in parentheses represent the amounts to be financed by IDA)
Procurement MethodProject Element ICB LIB Other Total
Works
A. Permanent Way -- -- 40.0 40.0(Quarries, Bridge Strengthening)
B. Signals and Telecoms 6.4 -- -- 6.4
(3.5) (3.5)
Goods
A. Track Materials 34.8 -- 70.9 105.7(34.8) (34.8)
B. Plant Maintenance Depot 6.2 -- 2.2 8.4(6.2) (6.2)
C. Locomotives 12.0 12.0
D. Rolling Stock 22.6 22.6
E. Maintenance Equipment -- -- 22.3 22.3
F. Service Vehicles 4.6 - 2.7 7.3(4.2) (4.2)
G. Information Technologyand Software 6.1 -- 6.1
(5.6) (5.6)
Services
A. Technical/Operational -- 24.9 24.9Assistance (9.3) (9.3)
B. Training -- -- 9.5 9.5(8.3) (8.3)
C. Other -- -- 10.0 10.0(4.1) (4.1)
Total 58.1 -- 217.1 275.2(54.3) - (21.7) (76.0)
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The procurement procedures for IDA-financed components will be as follows:(a) Works: the rehabilitation of the telecommunications system on the Linkline will be awarded on contract under ICB following the Association'sguidelines; (b) Goods: the procurement of rails, sleepers and fastenerswill be o. the basis of ICB under the Association's guidelines. Sleepersand fasteners will be packaged as one lot whilst rails will be another lot.Vehicles and information systems equipment, consisting of photo-copyingmachines and computers, will be procured on the basis of ICB under theAssociation's guidelines. Computers will be packaged as one lot as will bephotocopying machines. However, owing to the need for adequate domesticback-up services for these goods, potential bidders will be limited tofirms already represented or willing to be represented in Tanzania.Information systems software will be procured on the basis of contractsawarded to software firms selected from a shortlist of firms with provenexperience and satisfactory performance in the supply or development ofspecific application packages. The procurement of equipment for the plantmaintenance depot will be on the basis of ICB under the Association'sguidelines; all contracts for the supply of equipment will provide for theassociated installation and commissioning of the equipment by the supplier.(c) Services: contracts for technical assistance for Management DevelopmentSupport and for Operational Support will be awarded in accordance with theBank's Guidelines for Use of Consultants (1981) to the best evaluated firmfrom a short list of firms comprised uf consulting firms with adequateback-up in terms of expertise and personnel from operating railways;specialists for institutional coordination and for project co-ordinationand monitoring will be recruited on an individual basis throughinternational advertising. Finally, the studies to be commissioned underthe project will be awarded to the best evaluated firms from a shortlist offirms compiled for each study in accordance with the Bankls Guidelines.The stuldies proposed are of limited scope and duration. Accordingly, itwould be economical to confine each shortlist to no more than three firms.All procurement packages over US$400,000 equivalent would be subject toIDA's prior review of procurement documentation. This would result in anestimated coverage of 90Z of the value of all contracts. The balance ofthe contracts would be subject to random post-review by IDA after contractaward. The procurement of items to be financed by the cofinanciers will bein accordance with their own procurement procedures. The procurementarrangements were confirmed with Government and TRC during negotiations.
F. Disbursements
3.41 The loan will be disbursed on the following basis: (i) 55Z oftotal cost for works; (ii) 100l of foreign expenditures and 90Z of localexpenditures for goods; (iii) 902 of expenditures on technical assistance,consulting services and training. All disbursement claims would be madeagainst standard documentation, except for disbursements for procurement ofgoods and works costing less than US$50,000 which will be made againststatements of expenditures. In order to expedite disbursement of funds, aspecial account with an initial deposit of US$4.5 million (equivalent toabout four months of estimated expenditures and the cost of refinancing theadvances from the PPF) will be established in foreign currency. Thespecial account will be replenished by IDA in accordance with proceduresagreed at negetiations. A schedule of estimated disbursements is shown at
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Annex 3-6. The project ir )xpected to be completed by June 30, 1999 andthe Closing Date for the g ,dit is expected to be December 31, 1999.
G. Financing Plan
3.42 The proposed IDA credit of SDR 56.1 million (US$76.0 million,equivalent) and the participation of the cofinanciers is expected to amountto US$165.7 million or 607 of total project costs and 1002 of foreigncosts. The project is expected to be parallel-financed by CIDA. KfW. ODA,the EDP?, WP and the AfDB. All the cofinanciers (except for the VIP) areparticipants in the EP and are expected to continue their assistance in theareas in which they are currently active. The finacing plan for theproject is shown in Table 3.2 and was confirmed vith Government duringnegotiations (para 6.04 (ix)).
Table 3.2 FinancinRg Plan(US$ Million)
NBMA C0 cm IDam kw MA VW TOTAL i_w
T..ci fthbilit.ati 70.0 14.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 no.? 106.1W.dg.. 18.6 0.0 0.0 0.0 0.0 0.0 1S.2 - 0.0 U6.S 84.6iAre 0.6 0.0 0.0 6.0 0.0 0.0 0.0 0.0 0.0 a.' 8.8
MM.. fimetm ew 2.2 6.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.4 6.4
Cie" 0D 0.4 0.0 0.0 0.0 4.? 0.0 0.0 0.0 0.0 6.1 8.1CI7' 44 0.2 0.0 0.0 0.0 0.0 0.0 1.0 0.0 0.0 1.0 1.8clom 0.6 0.0 0.0 0.0 0.0 0.0 0.0 4.6 0.0 8.1 6.1
Woomo ~~1.1 0.0 0.6 0.0 0.0 0.0 0.0 0.0 0.0 1.? 7.?P.in..00 co0.. 1.4 0.0 18.61 0.0 0.0 0.0 0.0 0.0 0.0 14.9 14.91,..& lbi*6. ftim 0.8 0.0 0.0 0.6 0.0 0.0 0.0 0.0 0.0 9.6 0.8wDkoe b.pmt, 8.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 10.0 10.6fteldu,tUI. Rol t imp 0.i 0.0 0.0 9.0 0.0 0.0 0.0 0.0 0.0 2.2 2.20l.i. "d 1.I.co 9.9 81.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 S.d 0.4VW10.In Rue 0.4 4.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 64. 4.6WiI*inv IftolI 0.2 0.0 0.0 9.8 0.0 0.0 0.0 0.0 0.0 9.? 2.?Or.;. UqaIg,m 0.6 4.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 8.4 8.4
baOh . Vow, 6..ovf *.6 8.0 0.0 0.0 0.0 0.0 0.0 0.? 0.0 0.6 9.8000"Al". OMuw* 0.6 0.0 1.6 0.0 8.0 0.0 0.6 9.8 0.0 13.0 U.0Fl.. b.igl UBofot 0.4 0.0 0.0 0.0 0.0 0.0 0.0 0.90 0.0 1.0 3.0An*" b..I..t5a. 0.1 0.? 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.6SW.4 T,mewe 0.6 0.? 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.0 1.00pw.tmt"O ftws 1.4 8.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 4.9 4.9fee& NOW. 0weour 0.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 6.6 4.0 4.0
TfaieIau 1Sg.8 0.0 0.? 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.? 0.?Obdoe ?,oi.I.e 0.8 6.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 6.9 0.9b..i.I.fe C..,... 0.0 0.? 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.0 1.8§8Cm.dM*6^8/F.Si1V 0.0 1.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.0 4.884.41.s 0.8 0.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.9 0.9
TOW. 10.6 74.8 81.9 18. 10.6 0.0 16.6 6.6 0.8 678. 378.?I
NBefo:M PWF 1.8
T , Va.0
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3.43 The recent pattern of financing of rehabilitation expenditures hasbeen for donors to finance the cost of materials and expatriate labordirectly, treating the value of the expenditure as a grant to bothGovernment and TRC. Since the costs of rehabilitation are not borne by it,TRC has felt little financial pressure to use these rehabilitated assetseffectively or to price its services to cover their cost. Such financinghas also effectively absolved TRC of the responsibility for ensuring thatrehabilitations are undertaken on a cost effective basis. With a tariffstructure that provides for adequate recovery of TRC's costs underefficient operations, TRC should be sufficiently cash generative throughoutthe project period (except for the first year) to finance all project-related local costs and the local currency equivalent of all projectforeign costs for the rectification of the backlog of assets maintenance,technical assistance and training. To ensure that TRC covers as much ofthe project rehabilitation costs as is consistent with its cash generatingcapacity whilst improving its financial position and that it enjoys noimplicit subsidy on the project expenditures, agreement was reached withGovernment during negotiations that the financing terms for the projectwould be as follows (para 6.01 (xi)):
(a) IDA-Financed Expenditures: to be on-lent to TRC at a fixedrate of 112 for 20 years, including five years of grace,with TRC assuming the foreign exchange risk;
(b) Donor-Financed Fixed Assets: (i) to be on-lent to TRC on thesame terms as the IDA Credit; or (ii) if this is notconsistent with the donor's policies, to be provided asGovernment equity in TRC;
(c) Donor-Financing of Other Project Expenditures: (i) the valueof the expenditure to be reimbursable to Government in localcurrency by TRC; or (ii) if this is not consistent with thedonor's policies, to be on-lent to TRC on the same terms asthe IDA Credit; or (iii) if this is further not consistentwith the donor's policies, to be provided as Governmentequity in TRC.
Execution of a subsidiary loan agreement between Government and TRCcovering the above on-lending terms for the IDA Credit will be a conditionof effectiveness (para 6.02 (iv)). To complement this financing policy,agreement was reached with Government and TRC during the negotiations thatall expenditures by TRC on technical assistance, training and allexpenditures related to the rectification of the backlog of deferredmaintenance (rehabilitation expenditures) would be explicitly disclosed inits financial statements.
B. Pro1ect Implementation
3.44 The implementation strategy for the project is detailed in para3.23 and was agreed with TRC during appr6isal. Under this strategy TRCwould be responsible for the execution of the project with externalassistance contracted on a sub-project by sub-project basis. This is animproved version, building on recent experience, of an approach to
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implementation that has worked satisfactorily in TRC. TRC has hadexperience in implementing IDA-financed technical assistance and consultingservices but none with IDA-financed goods or works. However, delays inimplementation of these programs were encountered due to problems inmeeting IDA requirements, specifically, the rules relating to selectioncriteria and procedures. The financial regulations governing TRCoperations grant it considerable flexibility in meeting the procurementrules of IDA and the donors and there are no limits of authority withrespect to the size of contracts for which awards may be made by TRC'smanagement or Board. The problem of lack of familiarity with IDAprocurement procedures will be addressed through specific training seminarsprior to Credit Effectiveness for selected TRC staff including the staff ofthe office responsible for overall monitoring of the rehabilitationprograms. As a result of the recent extensive involvement of IDA in thesector, a considerable degree of familiarity with IDA's procurement anddisbursement policies has been developed in the sector ministries. Use ofthis capacity will be explored as an effective and more accessible means ofproviding assistance to TRC in building up its own capacity to implementIDA procedures. To be able to take timely action to ensure that theproject achieves its objectives, during negotiations, agreement was reachedwith Government and TRC, that, no later than December 31, 1993, TRC wouldundertake in conjunction with Government and IDA a mid-term review of theprogress of the project (para 6.01 (xii)). Prior to such review, TRC shallprepare a report focussing on the following principal issuess (a) theachievement of the operational efficiency improvement objectives of theproject; (b) the financial performance of TRC since the start of theproject; (c) the operation of the MoU; (d) progress in physical projectimplementation relative to both physical and cost targets and expectations;and (e) the success of the institutional development components of theproject. The review would recommend desirable changes in project contentor management which TRC would subsequently be expected to implement.
I. Reporting and Monitoring
3.45 During appraisal, agreement was reached on an outline frameworkfor reporting on the physical progress of project components underimplementation and on periodic operating and financial performance. Thesewould be developed prior to Credit effectiveness by the project monitoringstaff. A framework for quarterly reporting on physical -roject progress isalready in place under the EP. However, reporting on operating andfinancial performance is weak due to the inadequacies of operating andfinancial information systems which, as currently structured, permitcompilation of reports only with considerable time lags. During appraisal,agreement was reached with TRC that consultants would be engaged to assistTRC in redesigning its systems and processes for collection, tabulation anddissemination of statistics pertinent to its operations. These consultants
have already been selected and have commenced work. Completion of thistask, which was a part of the action plans to be prepared for phase 2 of
the OIP, is a condition of effectiveness.
3.46 As part of the program of action under the EP, TRC has eliminated
the backlog of overdue annual financial accounts which at the start of the
EP had accumulated to four years. Final accounts are now produced within
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four to five months of the financial year-end. TRC's annual accounts areaudited by the Tanzania Audit Corporation (TAC), The quality of the auditis good. However, TAC is overtaxed with its responsibility for audit ofmost parastatals. Audited annual accounts cannot be produced within sixmonths of TRC's financial year-end without a further reduction in the timefor closing the accounts and producing final accounts or reducing the timefor audits. Reducing the time taken for the annual audit of TRC'sfinancial statement will be infeasible given the workload managed by TAC.During negotiations, agreement was reached with Government and TRC thatannual audited accounts will be prepared and submitted to IDA within sixmonths of the TRC's financial year-end (para 6.01 (xiii)). To this end,agreement was reached with Government and TRC that TRC and TAC would takewhatever measures are necessary to ensure that TRC's audited accounts aremade available to IDA within this time-frame, including, inter alia, changein the audit procedures employed, subcontracting of other TAC audits orsubcontracting of the TRC audit to other independent firms of auditors.
J. Environmental Impact, Industrial Health and Safety
3.47 There are two issues of significant environmental concern in TRCs(a) the remedial actions to be taken to relieve flooding in sections of thesystem without shifting flood hazards to contiguous areas; and (b) the useof toxic chemical compounds and the satisfactory disposal of used oil.Floods: TRC's operations are subject to severe disruptions during the rainyseason by floods and the consequent inundation of embankments and theoverflowing of bridges. The problem is most severe in the Luiche riverbasin and Lake Sagara area, around Kigoma and on the Mpanda branch line.This area covers the Ugalla Games Park. Under the project, some bridges inthis area would be rehabilitated. However, aside from the technicalconcern of the likely incidence of flooding and its impact on bridgedesign, there is the implication of any bridge design for the passage offlood waters and the shifting of flood hazard. With the assistance of KfW,TRC has commissioned consultants to undertake a detailed hydrological studyof waterways on the system, the likely incidence and pattern of floods, theimplications of such projected flood patterns for the design of the bridgesto be rehabilitated and any environmental implications of such designs.The consultants' findings indicates that no adverse environmental impact inthe form of the shifting of flood hazard is anticipated from the bridgeswork. In the Luiche area, widening of the opening of the existing bridgeover the River Luiche would reduce the incidence of overflowing of thebridge, whilst not having a significant flood shifting effect. On LakeSagara, TRC proposes to raise the embankment of the section of the Mpandaline most vulnerable to flooding. The consultants review of this proposedwork does not indicate any adverse environmental impact. KfW, who areexpected to fund the bridges rehabilitation component of the project, haveindicated to IDA that they will review the final designs for each bridge inecologically sensitive or flood-prone areas to ensure that no adverseenvironmental effects arise from the rehabilitation program. The resultsof these reviews will be made available to IDA as part of the well-established cooperative arrangements for supervising TRC Donor Groupproject activities.
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3.48 Chemical Compounds and Used Oils TRC currently uses coolant withchromate-based compounds in its locomotives. There are no set proceduresfor the disposal of such compounds. Chromate is a health hazard. Duringappraisal, IDA was informed that with CIDA's assistance, TRC has begun aprogram of using an environmentally safe substitute (Nalcool) as an engineadditive for the Canadian-supported fleet of locomotives. Confirmation ofthe use by TRC of an environmentally sound compound as the standard enginecoolant for all of its locomotive fleet was obtained from TRC duringnegotiations. The current practice for the disposal of used oil isenvironmentally unacceptable. TRC sells used oil to the general public forreuse as a coagulant in stagnant water to inhibit the breeding ofmosquitoes. There is no available third party recycling facility for itsused oil. Accordingly, the installation of a used-oil reclamation plant inTRC has been provided for under the project. TRC does not currently usechemicals to control the growth of weeds on the track. However, it isencountering increasing difficulties in controlling such growth throughhighly labor intensive methods. As a result, TRC proposes to use aherbicide for weed control. The proposed herbicide is "Roundup*(containing the equivalent of 360 grams/litre of glyphosate). Thisherbicide is environmentally acceptable. Benzene is used routinely forcleaning material in the workshops and for hand-cleaning by TRC's workshopsstaff. Benzene is increasingly recognized as a health hazard. TRC wasunaware of the health hazards of continued exposure to benzene and hasundertaken to discontinue its use as a hands cleaning compound. Readilyavailable degreasers would be used in its place for hands cleaning whilstgloves will be provided to workers in contact with benzene for the cleaningof components.
3.49 In general, occupational health and safety awareness in TRC ispoor. There is one routine medical check-up for acceptance into servicebut no subsequent follow-up, even of workers exposed to high levels ofnoise or toxic substances in workshops. There is sporadic and inadequateprovision of safety or protective clothing and equipment and there is noorganized safety training effort. To address this issue of an absence ofadequate consciousness of occupational safety and health in theorganization, specific provision has been made in the project for technicalassistance and equipment to establish an effective occupational health andsafety capacity in TRC (para 3.37). A medical and welfare unit currentlyexists in TRC's manpower department but its major pre-occupation has beenwith attempting to expand the number of clinics on the system rather thanaddressing the specific sources of risk to the health of workers arisingfrom their conditions of work.
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IV. FINANCIAL EVALUATION
4.01 The historical financial performance of TRC is presented inChapter II.
A. Financial Recovery Strately and Projections
4.02 TRC represents a substantial investment in poorly performingrailways assets, both operationally and financially. At currentlyprevailing prices, the estimated value of TRC's physical asset base on agross replacement cost basis is about US$ 550 million, divided equallybetween infrastructure and operating assets. The amount of outstandingdebt related to the acquisition of its existing assets (after substantialassumptions of debt by Government) is currently about US$72 millionequivalent whilst the present value of the future replacement costs of itsoperational assets as they reach the end of their useful lives is estimatedat about US$76 million. An additional US$156 million (at present prices)needs to be spent to make good the accumulated deferral of maintenance oninfrastructure and operating assets and avoid their premature replacement.In addition to its railways assets, TRC has substantial investments in landand residential properties. TRC's non-operational landholdings in Dar esSalaam and the other major cities have been conservatively valued at US$77million whilst its buildings, mainly residential structures in the centerof Dar es Salaam, are worth an estimated US$36 million on an open marketbasis. This investment in real property currently makes no contribution toTRC's financial performance.
4.03 During appraisal, agreement was reached with Government that aspart of the explicit statement of objectives to be contained in the MOU,TRC would be set specific targets of return on its capital employed. Thegoal of such targets is to ensure that TRC progressively utilizes itsassets and prices its services such as to generate an adequate level offree cash flow to meet its existing debt service obligations, finance thecosts related to the rehabilitation of its existing assets and their futurereplacement, and provide a return to Government on its equity investment.To meet this self-financing goal, TRC would need to earn a rate of returnof at least 15Z on its total capital employed (valued on a historic costbasis) between 1992 and 1994 and at least 202 from 1995 onwards, assumingprogressive improvements in its operating performance. Duringnegotiations, agreement was reached with Government that TRC be set thesetarget rates of return on its total capital employed as its primaryfinancial objecttve (para 6.01 (xiv)). These rates would be subject toannual review and change after consultation with IDA. In addition, TRC'sproperty assets which are not required for operational purposes,specifically its landholdings, could contribute significantly tostrengthening its financial position if they are exploited in a commercialmanner. To this end, during negotiations, agreement was with Governmentand TRC that, no later than January 31, 1992, TRC shall prepare a policy,satisfactory to IDA, on the commercial use of its surplus land (para 6.01(xv)).
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Restructuring Actions
4.04 For TRC to be able to achieve the returns on its assets that areconsistent with its long-term capacity to be self-financing, TRC andGovernment must implement a number of actions within a coherent framework.These actions would cover the following areas:
(i) Efficient Operations; The inefficiency of current operationsconstrains the utilization of capacity, reduces the revenuegenerating potential of TRC and increases the unit cost of TRCoperations. Improved operating practices will have a number ofeffects on TRC's financial performance. Firstly, with its currentassets base, TRC can double its freight traffic, which at currentunit contribution margins (prior to the March 1991 tariffincreases) would provide an additional contribution to fixed andfinancing costs of an estimated TSh 2.0 billion, enough toeliminate its operating loss. Secondly, improved operations canimprove TRC's contribution margins by improving variable costs perunit of service provided through running fewer trains for a givenvolume of traffic thereby reducing running and maintenance costs.Finally, efficient operations reduce the need for prematurereplacement of assets as well as the quantity of assets requiredto do a given amount of service.
(ii) Fixed Cost Reduction: TRC's complement of labor is significantlylarger than is warranted by its scale of operations. Reductionsin staffing to levels commensurate with the scale of TRCoperations and improvements in efficiency are an integral part ofany program of financial recovery. However, significant directcost savings are not envisaged from such a program. Rather,savings generated from such a program should go towards financingincreases in the remuneration of retained staff to a levelconsistent with expectations of good performance.
(iii) Tariff Increases: For TRC to be able to meet its financial goal.the level of tariffs must be sufficient to enable it to meet itstotal costs (including the annualized cost of future assetsreplacements) at efficient operating levels. Based on thefinancial evaluation of the project, TRC would need to take threesets of actions with respect to its tariff levels to enable it toearn an acceptable return on its assets. Firstly, the increase inits operating costs since the tariff increase of June 1989 must bemade good. Secondly, tariffs would need to be increased in realterms to provide adequate coverage of its existing debt service,the debt service related to the investments required to supportrestoration of efficient operations and adequate capacityutilization and provision for the cost of replacing its assets andmaintaining its operating capacity. Thirdly, TRC's tariffs needto be protected against future erosion by inflation. Governmentapproved tariff increases of 25X for freight traffic in October,1990 to compensate in part for inflation since the tariff increaseof June 1990. A further increase in freight tariffs of 7CZ tostart addressing the structural imbalance in TRC tariffs wasapproved by Government in March 1991. TRC now requires an
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additional tariff increase of 80S to enable it to cover its totalprojected costs at efficient operating levels. TRC will remainvery competitive after these proposed tariff increases.Currently, TRC's tariffs for a wagon load movement of 40 tonnes ofgeneral cargo over a distance of 800 km is TSh 184,000 compared toabout TSh 700,000 (and up to TSh 1,000,000) for movement of asimilarly sized consignment by road. Movements of comparablegoods for similar distances on TAZARA cost about TSh 500,000. Abyproduct of the huge differentials in transport costs between TRCand truckers operating on similar routes is the existence of anactive secondary market for wagon allocations (TRC now hasadequately effective, albeit administrative, procedures in placeto stem this trade in the absence of a price mechanism toeliminate this unwarranted rent). Increasing TRC tariffs by acumulative total of about 2002, as proposed, would still leaveexisting trucking rates at least twice as expensive as railtransport and provide TRC with a sufficient cushion againstreductions in trucking rates as the country's road network andtrucking supply capacity are improved. To prevent TRC fromincurring losses that would need to be financed from additionalborrowings or covered by subsidized project financing and torestore its tariffs to full efficient-costs recovery levels,agreement was reached with Government and TRC during negotiationsthat the implementation of a further cumulative structural tariffincrease of 80Z would be a condition of Credit Effectiveness (para6.02 (v)). With these tariff increases and assuming achievementof the operating performance objectives, TRC's major pricing focuswould be on offsetting the impact of inflation and foreigncurrency fluctuations on its cost structure (an estimated 70? ofits costs is represented by imported inputs including theannualized cost of replacement investments) and adjusting tariffson specific movements for competitive reasons. Consequent to theissue of the Ministerial Directive and the execution of the MoU,TRC now has a clear mandate to make such decisions as it considersthem to be commercially appropriate.
(iv) Capital Structures TRC does not have a defined strategy guidingits capital structure. Investments are financed predominantly bydebt, part of which is capitalised periodically to ease its debtservice and liquidity problem. Equity represents the initialliability of TRC to Government on account of assets transferred toTRC from the EARC as eroded by subsequent losses and increased bythe capitalization of debt. There is no notion of an expectedreturn on either debt or equity, a reflection of the past lack ofa defined financial objective and the expectation that investmentswould always be financed by some external party irrespective ofthe performance of the corporation. Currently, TRC's capitalstructure is virtually wholly debt, which now comprises about 100?of its total assets (including deferred foreign exchange losses).However, the debt is highly concessional with a weighted interestcost of about 2.5Z. With a mix of efficient operations and thetariff increases and policies proposed (para 4.05 (iii)), TRC'scash generation would be adequate to cover its working capitalrequirements, the cost of project expenditures to make good the
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deferral of assets maintenance and strengthen its managerialcapacity and its debt service obligations in all, but the first,project years (para 4.06). It would also generate a level of cashfrom its operations that is consistent with an ability tocomfortably finance major assets replacements as they arise. Bythis measure, TRC is well within its debt capacity notwithstandingits current high financial leverage. However, to be prudent andprovide it with a debt service cushion in the early years ofproject implementation, capitalization of debt associated withpast but unproductive investcents may be justified. Thiscapitalization could be subsequently refinanced, in effect, byearlier and larger dividend payments. One loan that could bepartially or wholly capitalised for such purpose has beenidentified by TRC and Government has undertaken to do so. Thereis no justification for capitalizations beyond this level.
(v) Investments: The proposed investments under the project representall the major investments planned for the next seven years and areclosely tied to a clearly defined strategy to enhance theutilization of TRC's existing assets and make it a financiallyself-sustaining,entity. To avoid imprudent investments that willnot contribute to the strategy's goals, agreement was reached withGovernment and TRC on an annual investment review mechanismbetween IDA and TRC and on consultation with IDA before TRCimplements any proposed investment costing in excess of anaggregate of US$2.0 million equivalent (paras 2.38 and 6.01 (v)).
(vi) Working Capital Management: TRC has a policy of providing serviceonly on the basis of payments being made in advance of performanceof the service. This policy which would minimize its investmentin working capital has not been implemented in practice. As aresult, accounts receivables have ballooned to the point where asof its 1990 financial year-end they represented over 452 of annualrevenues (168 days of revenues) with most of it being obligationsof major parastatals and government departments, a major transittraffic forwarding and clearing agency based in Tanzania andUganda transit traffic customers. This level of investment inaccounts receivables represents an additional cost of doingbusiness that TRC can ill-afford and which cannot be offset by TRCstretching out payments on its obligations to its suppliers.Since the 1990 year-end, TRC has made a concerted effort to imposeits stated policy for the provision of service and has reduced thelevel of receivables outstanding from domestically-based customersto about 20 days. The overall level of accounts receivables isstill high however, reflecting amoants outstanding from Ugandacustomers which are blocked by Uganda Railways to offset a largeand disputed level of indebtedness to it by TRC for hire oflocomotives and wagons. This dispute is being resolved withsatisfactory progress. To ensure that TRC's accounts receivablesare reduced to and maintained at an acceptable level, agreementwas reacb|d with Government and TRC during negotiations that TRC(a) shall maintain its accounts receivables at a level no greaterthan 45 days of annual revenues until completion of the project;
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and (b) shall furnish semi-annually to IDA an aged analysis of itsaccounts receivable (para 6.01 (xvi)).
(vii) Marketing: An average cost analysis for railways freight transportand trucking undertaken by the appraisal mission and TRC staffsuggests that at iti 1989 cost structure, TRC's unit cost offreight transport were lower than those for trucking only atdistances greater than 1100 km. With the improverl efficiency ofoperations envisaged under the project, the cut-off point forlower railways transport cost will be approximately 500 kms. Ananalysis of traffic on offer in 1989 also suggests that about 75?of traffic was greater than 500 kms. Although TRC should continueto cater to traffic at all distances as long as its tariffs atsuch distances provides a contribution to its fixed cost and ithas capacity to do so, increasingly its focus should be ongranting priority to long-distance traffic where it has acompetitive edge and where it can generate greater volumes oftraffic. The appropriate selection of markets to serve wouldbecome even more important for TRC as improvements in the roadsnetwork undercut TRC's cost competitive edge notwithstanding theexisting huge differentials in rates between trucking and railtransport. This would be a change from its present pattern ofoperations where a disproportionate amount of resources is devotedto running short pick-up trains on short distances. Also for as9.gnificant proportion of the longer distance traffic (cotton.transit traffic, coffee, oil products), a few customers accountfor the major part of traffic. This creates a favorablecompetitive basis for TRC to negotiate risk sharing arrangementswhereby certain customers can assume the financial risk ofownership of major classes of assets (such as wagons) in returnfor enhanced quality of service. These arrangements are alreadyplanned for oil products and should be extended to other areas.These strategies based on analysis of the structure of its marketscould conciderably reinforce TRC's competitive position and itsprofitability.
Projected Financial Performance
4.05 The impact of the restructuring actions on TRC's future financialperformance is summarized in the table below and detailed in Annex 4-3.The financial projections are in 1989 Tanzania Shillings. It is assumedthat freight tariffs are raised by 70X at the end of the first quarter of1991 and by a further 80? by the end of 1991, representing structuralincreases in overall tariffs to meet the proposed financial objectives ofTRC. Tariffs are thereafter maintained in real terms throughout theperiod. The projections of demand for rail transport are detailed in Annex4-1. The projected freight capacity of the system under differentefficiency and investment scenarios are detailed in Annex 4-2. For theprojections, it is assumed that all improvements - ranging from theintroduction of block trains to enhanced locomotive and wagon availability- are successfully e-.ecuted as planned. As a consequence, TRC's share ofthe assessed traffic on offer increases from 652 (1.1 million tonnes out of1.8 million tonnes) of such traffic in 1991 to 922 (1.9 million tonnes out
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of 2.1 million tonnes) by 1994. TRC is assumed to capture all traffic onoffer (2.2 million tonnes) in 1995 and onwards. The projections alsoassume that an adequate level of current maintenance of assets isundertaken and accounted for in the ,inancial statements.
4.06 As shown in the table below, TRC's financial performance will beradically transformed by full implementation of the turnaround program.TRC's operating income breakeven level from 1992, when the structuraltariff increases are assumed to be fully implemented and excluding projectexpenditures of a recurrent nature, is approximately 530 million nettonnes-km or 0.5 million tonnes of traffic at its average haul. This isthe same level as in 1989. The static breakeven level reflects the factthat current maintenance expenditures are assumed to be increased by agreater rate in real terms than the tariff increases thereby eroding theunit contribution rate. However, with the greater absolute level of unitcontribution margins and double to triple the incremental traffic levelover the breakeven level from 1992 onwards as compared to 1989, TRC issufficiently cash generative to meet its operating and financial costs,finance all local costs and much of the recurrent foreign expenditure costsof the project out of its cashflows, pay substantial dividends toGovernment and accumulate large cash balances. Subsequent to the proposedrevaluation, TRC's depreciation charges will increase by an estimated TSh3.0 billion and its net income will fall by a corresponding amount.Nonetheless, a substantial level of dividends can still be paid withoutimpairing TRC's financial viability. However, as TRC improves the benefitsto its workforce through further enhanced wages and pension benefits,dividend payments would have to be reduced. The financial projections alsoindicate that the financial leverage of TRC will unwind rapidly from 92? in1989 to about 50? from 1993 onwards. It is expected to fall furtherconsequent on the proposed revaluation of its assets. Finally, as thetable above indicates, TRC would need to generate a gross cashflow of aboutTSh 9.0 billion between 1993 and 1995 to cover the projected total claimson its cash generation. At its contribution margin rate of 751 for therailways service and fixed costs of about Tsh 4.0 to 5.0 billion p.a., TRCwould need a traffic level of aruund 1.5 million tonnes at its avezage haulto be financially solvent during this period. If traffic falls below thislevel, TRC would need to finance a greater proportion of the project'sforeign recurrent costs (expenditures to rectify the accumulated backlog ofmaintenance) out of borrowings rather than its cashflows. In practicalterms, this would mean a reduction in the short-term cash transfers fromTIC to Government for reimbursement of donor-financed expenditures ratherthan TRC recourse to the domestic banking system.
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TRCs Projected Financial Performance(TSh Million)
1991 1992 1993 1994 1995 1998Revenues:
Rail 9580 16836 20551 22844 25557 25557Other 1057 582 582 582 582 582Total 10637 17418 21133 23426 26139 .6139
Contribution Margins: 6337 12803 16199 18002 20169 20169
Fixed Costs 3704 4077 4379 4676 4940 5260lincl. Depreciation)
Recurrent OperatingIncome 2633 8726 11820 13326 15229 14909
Gross Cashflow fromRecurrent Operations 2819 8955 12364 14193 16339 16339
Claims on Gross Cashflowt
1. Working CapitalRequirements (2830) 602 (1438) (310) (169) 139
2. Project Expenditures (foreign costs)for training, supportactivities and rectifi-cation of maintenancebacklog (271) (1806) (4273) (4085) (2835) (592)
3. Claims 2 Debt-financed -- 580 2094 2366 2235 575
3. Local Project Costs (86) (1081) (4221) (4776) (4726) (1342)
4. Existing Debt Service (1049) (1018) (986) (954) (922) (467)
5. Project Debt Service -- -- (147) (756) (1444) (3161)
Total Claims (4263) (2723) (8971) ,8515) (7861) (4848)
Available Cashflow (1417) 6232 3393 5678 8478 11491from Operations
Dividends -- -- 1197 1534 3062 6872------------------------------------------
Net Income 1033 4623 1996 2557 5103 9164
Return on Total CapitalEmployed (Z) 18 37 16 16 20 24
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B. Passenger Service
4.07 In 1989, TRC carried 2.3 million passengers, well below the 1983peak of 3.1 million passengers. The drop in volume was caused by (a) adeteriorating coach fleet; (b) the reallocation of locomotives frompassenger service to freight; and (c) poor track conditions, leading tospeed restrictions and underutilization of the existing fleet.
4.08 To return passenger service to an acceptable standard, two actionsneed to be taken. First, out of the existing fleet of 127 coaches, 100should be rehabilitated, and the remaining 27 replaced. Second, motivepower equivalent to two new Class 87 locomotives needs to be provided.Such a program should, in combination with the track rehabilitationprogram, make it possible for TRC to double its passenger volume. However,the increased traffic will not translate one for one into revenues asovercrowding, with current coach occupancy rates well over lOO, is likelyto fall. The resulting passenger level is estimated at 4.3 million. Thefinancial impact of the project is summarized in the table below.
TRC: Projected Financial Performance of Passenger Services
Without project With project(Tsh millions)
Revenue 935 1777
Passenger specific costs:- Variable operating cost 607 1195- Fixed operating costs 252 345- Capital replacement charge 461 966- Contribution to TRC'sfixed costs (385) (384)
Break-even tariff increase, S 41 22Passenger carried, millions 2.2 4.3
4.10 In the financial evaluation above, passenger service is treated asa joint-product with only specific costs allocated to it. This impliesthat freight should, for example, receive prioiity over passenger servicein a case of locomotive scarcity. In addition, TRC must be allowed tocover specific passenger costs. Based on the analysis above, presentpassenger fares would need to be increased by about 41? in real terms forthe service to generate sufficient revenues to cover all its specific costsat current traffic levels and with existing assets. The unit passengerfare increase required will be halved to 22Z if passenger volumes aredoubled with expanded frequency of servico that is possible with theinvestment proposed under this project. the fares increases for passengerservices already approved by Government are adequate to ensure fullrecovery of the avoidable costs of passenger services (para 2.26).
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V. ECONOIQC EVALUATION
A. Prolect Benefits and Costs
5.01 The main benefits of the project are increases in the effectivecapacity of TRC and reduction in its unit variable cost of transport(assuming aa adequate capacity-sustaining maintenance program isimplemented, with or without the project). The forecast of traffic onoffer to the railways and its composition is detailed in Annex 4-1. TRC'sprojected effective freight capacity witi. implementation of the project issummarized in Annex 4-2 and contrasted to the traffic on offer in Annex 4-1. TRC's effective capacity to handle traffic increases pragressively from65Z of the traffic on offer in 1991 to 1001 in l995. Withnoit the projectand the increase in TRC's effective capacity, the incremental trafficprojected for TRC with the project would be diverted to road transport,continue to go by road (as is the current case for some traffic offered TRCbut which it cannot carry due to restrictions on its capacity) or not bemoved at all. In the cases of continued use of road transport or diversionof traffic to roads, the economic cost to the economy of not undertakingthe project is the economic cost of road transport. In the case of trafficnot moved at all in the absence of available rail capacity, it is assumedthat the economic cost to the country of lost or spoiled production isgreater than the additional road transport costs of moving it.Accordingly, the cost to the economy of lost or spoiled production is takenas the economic cost of road transport as well. For purposes of theeconomic evaluation and taking into account the recent performance of TRCin implementing programs to improve its effective utilization of itsassets, it is assumed that the traffic carried by it is capped at 1.5million tonnes, rising from 1.18 million tonnes in the first project yearto this level in the fifth year of project implementation. This isconsistent with assuming that either the traffic is not available or thatthe full availability and utilization targets of the OIP will not berealized. The latter case is equivalent to assuming that although the fullrange of project investments are implemented, no material benefits arederived from the institutional components (see Annex 4-2, Scenario 4).
5.02 Witbhout the project, it is assumed that the investments alreadyplanned by donors, but currently contingent on the successful outcome ofthe credit negotiations between Government and IDA for the proposedproject, are implemented. These investments cover mainly the locomotiverehabilitation component of the proposed project and are continuations ofthe programs begun under the BP. It is further assumed that the OIPalready initiated in the preparation for this project is continued but withless success than under the comprehensive program planned under theproject. The program of investments to arrest the deterioration in thecondition of the track and replace obsolete equipment is assumed not to beimplemented. On this basis, it is projected that the effective capacity ofTRC would stay more or less constant at the current level (Annex 4-2,Scenario 7). Under these circumstances, traffic not currently going byrail would continue to be diverted to roads. Other plausiblecounterfactuals that were considered are depicted in Annex 4-2.
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5.03 The economic cost of rail transport is based on the variable costof rail transport derived from the financial evaluation of the project withthe assessed foreign component of such costs shadow priced by a factor of1.4. The assessed costs attributable to operation of the passengerservices are excluded from the analysis. These costs are estimated to beabout 302 of the shared resources (locomotives fuel and maintenance) and351 of labor costs. To be conservative, although traffic is capped at 1.5million for the purposes of the economic evaluation, it is assumed that thecosts of maintenance of locomotives are kept at levels consistent withtraffic levels increasing to 2.2 million tonnes by 1996. To compensate forthe additional handling costs entailed in rail transport for the movementof most types of commodities compared to more direct truck routings, theunit variable costs of rail transport have been increased by 20S. On thesebases, the variable economic cost of rail transport is estimated to declinefrom TSh 4.6 per ntkm in 1991 to TSh 4.4 per ntkm after 1995. Details ofthe derivation of railways operating costs are given in Annex 5-1.
5.04 Road transport costs are derived from NTC's truck operating costsdata for inter-regional (long-distance) movements in Tanzania and aredetailed in Annex 5-2. The road transport costs are based on a 30-tonnetruck-trailer combination which is incressingly typical of long distancetrucking operations in the country. All costs are net of taxes and duties,with all underlying imported content of such costs shadow priced by afactor of 1.4. In view of the ongoing comprehensive efforts to improve thecondition of the roads in Tanzania under the Integrated Roads Project, itis assumed that truck operating costs will decline from 1994 as a combinedresult of the impact of improved roads on the life of tires, reducedmaintenance costs and higher vehicle utilization. To be conservative, noaccount has been taken of damage cost to roads by trucks. The economiccost of road transport (operating and capital) is estimated at TSh 12.0 perntkm between 1991 and 1993, declining to TSh 11.4 from 1994 onwards. Thedifferential in rail and road costs is TSh 7.4 per ntkm in 1991 falling toTSh 7.0 per ntkm from 1995 and onwards.
5.05 The investment costs used in the economic evaluation are the costsof all project components net of the costs of investment which it isassumed will be undertaken in the absence of the project (Annex 5-3) and ofthe passenger services component. No corresponding benefits have beentaken for the investment in coaching stock rehabilitation and replacement.
B. Economic Returns
5.06 The economic returns to the project, based on the abovemethodology, are summarized in the table below and are detailed, for thebase case, in Annex _:-4.
Proiect Economic ReturnsEconomic Rate of Return Net Present Value (10X)
(X) (TSh million)
Base Case 18 10892
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The base case economic rate of return (ERR) to the project is satisfactoryat 19X. To test for the robustness of the economic returns, an analysiswas undertaken of the extent to which the key variables identified in thesensitivity analyses above would need to deteriorate before the projectyields an ERR of 10X. The results of this analysis of the circumstancesunder which the project switches from being economically viable to unviableare shown in the table below:
Switching Values of Key Variables
Traffic Growth (? of Base) 69?Road/Rail Savings (2 of Base) 72?Project Costs (? of Base) 140?
The analysis of the project's switching value indicates that the projecteconomic returns are sensitive to feasible downturns or lack of growth intraffic and erosion in the cost competitiveness of railways vis-a-vistrucking. These risks are explored in greater detail below.
C. Project Risks
5.07 The main risks faced by the project are (a) operational: the riskthat management may not be able to meet the performance objectives of theOIP; (b) business environment: the risk that traffic may not materialize asprojected, and (c) physical project implementation: the risk that projectcompletion and benefits may be delayed or cost over-runs may beencountered.
5.08 Operational Risk: The major operational risk is that TRCmanagement may not be able to plan and control its operations such as toachieve the target rates of utilization of its locomotives and wagons andthe associated projected increases in its effective capacity. Theeffective capacity projections used in the analysis are reasonablyconservative and assume that TRC achieves (i) only 75? of the locomotiveavailability targets of the OIP; (ii) 50? of the block trains planned underthe OIP; and (iii) 90? of the locomotive utilization targets. Nonetheless,these targets are still significantly more than TRC is currently achievingnotwithstanding its relatively successful implementation of the first phaseof the OIP. The switching value analysis indicates that the threshold forviability of the project is 1.3 million tonnes of traffic achieved from thefifth year of project implementation or a decline in the traffic figureused in the analysis of 13?. The risks that TRC management may performworse than implied by this traffic level is substantial. To mitigate thisrisk, improvements on TRC's current performance would require not onlyextensive assistance to TIC in putting in place technical systems to helpmanage operations but also substantial pressure on and powers to itsmanagers to manage effectively. A key objective of the project is toachieve this mix of managerial accountability and power.
5.09 Business Environment: The key business risk facing theproject is the likelihood that traffic on offer, as opposed to TRC'seffective capacity, may be less than forecast. The demand for railtransport depends on three key elements: (a) growth in production of bulky
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commodities like cement and cotton; (b) TRC's competitive position vie-a-vis trucking; and (c) the rustainability of the economic recovery inTanzania and the development of the general economy in bordering states.As the switching value analysis shows. however, TRC needs additionaltraffic of 0.4 million tonnes before the project becomes viable. About 80Sof this required incremental t,nnage is currently on offer from the oil andcement industry but cannot be accepted by TRC because of existingrestrictions on its capacity. Nonetheless, TIC would need to strengthen itscapacity to offer a reliable and competitive service to fully cope withthis risk, particularly with the likely improvements in the costcompetitiveness of the trucking industry as the roads network isrehabilitated.
5.10 Physical Proiect ImDlementations The risk of project delaysor cost over-runs is substantial due to the significant civil works contentof the proposed project and the project returns are relatively sensitive tothis factor. To safeguard against this risk, the implementation profilefor the project has been based on conservative assumptions whilst themanagement of project implementation has been designed such as to minimizethe risks of delay and unacceptable quality of work that would requiresubsequent and more costly rectification.
D. Passenger Services
5.11 The proposed investment in coaches is to replace the part of thecoaching fleet that is currently slated for scrapping and to restore to anacceptable degree of operating reliability and comfort, the currentlyoperational fleet. The economic evaluation of the proposed investment hasbeen undertaken on the basis of the assessment of the relative economiccosts of the investment compared to service provision by road transport.The analysis is detailed in Annex 5-4 and Annex 5-5. The analysis assumesthat TRC's average passenger haul is 400 kme. However, this is based onthe last comprehensive survey of ridership patterns undertaken in the early19809. Recent sample surveys undertaken by TIC indicate that the averagepassenger haul is about 800 km, which appears consistent with the increasedsupply of road capacity for intermediate distance travel since the start ofthe EMP. To that extent, the analysis is conservative. The analysis alsoassumes that four new locomotives are required by the passenger services inaddition to the assignment to it of four existing locomotives. Thisassumption is based on the fact that with efficient operations and fullassignment of the complement of locomotives required by the passengerservices, there is an assessed overall shortfall of four locomotives basedon the existing fleet size. This effectively gives priority to freightservice which bears the full cost of the system's joint fixed costs ofoperations. In reality, this assumption is also very conservative. Withthe already committed locomotives procurement program. TRC is likely tohave surplus locomotives. Bus operating and capital costs and operatingdata are detailed in Annex 5-4.
5.12 The economic analysis indicates that, at a discount rate of 102,the unit long-run incrmental cost of the railways passenger service is, atTSh 2.3, about 71 less than that of road transport. However, given theconservative assumptions as to the resources requirements on which the cost
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analysis is undertaken, this is a reasonably robust differential. Forexample, assuming that the locomotives used by the passenger services areall existing locomotives not due for replacement until around 2015 wouldreduce the unit long run cost of passenger services to TSh 1.8 and widenthe differential to 28S. Similarly, using what are probably more realisticaverage hauls would widen the differential.
VI. AGRWSENE S REACHED AND RZCOtENUDATIONS
6.01 During negotiations, the following agreements were reached withGovernment and TRCs
Mi) that TRC shall (a) furnish to IDA for its review and commentsannually by not later than November 30, a plan for the scrappingof wagons for the following year; and (b) shall implement suchplan taking into account IDA's comments (para 2.31);
(ii) that, by December 31, 1992, TRC would have leased out its hotelsand franchised the catering services on its trains (para 2.32);
(iii) that, by December 31, 1992, TRC shall have completed the transferof operational, managerial and financial responsibility for itsroads services to an independent operator (para 2.33);
(iv) that, by no later than March 31, 1992, TRC shall have completedthe preparation of and started on the implementation of actionplans, acceptable to IDA, to introduce a corporation-wide revisedsalary structure and incentives scheme for its workforce and tofurther reduce its manpower (para 2.36);
(v) that (a) TRC's annual investment plan will be reviewed annually byOctober 31 with IDA; (b) all investments in such investment planwill be subjected to economic and financial evaluation andjustification; and (c) that of these investments all those costingin excess of US$2.0 million equivalent will be implemented onlyafter consultations with IDA (para 2.38);
(vi) that the operation of the proposed quarry to be established underthe project would be contracted out to experienced quarryoperators (para 3.07);
(vii) that the program of locomotive rehabilitation to be implementedduring the project period be subject to an annual review with IDA,taking into account traffic prospects (para 3.17);
(viii) that a review of the management development program be conductedannually on a tripartite basis with IDA, TRC and the consultants(para 3.21);
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(ix) that an annual review of the program for supervisory level staffdevelopment and support be undertaken; that the results of suchreview would be made available to IDA and that TRC, wouldconsequent to the review, make appropriate changes to any or allparts of the program taking into account the views of IDA (para3.22);
(x) that, by January 31, 1992, TRC would prepare and furnish to IDAfor its review, its training plan and strategy (para 3.23);
(xi) the project financing terms for the project costs (para 3.43);
(xii) that by no later than December 31, 1993, TRC shall have undertakenin conjunction with Government and IDA, a mid-course review of theproject (para 3.44);
(xiii) submission of accounts to IDA within six months of TRC'sfinancial year end (para 3.46);
(xiv) that, subject to annual reviews, TRC earns a rate of return on itstotal capital employed of at least 152 in its fiscal years 1992,1993 and 1994 and at least 202 for each fiscal year thereafter(para 4.03);
(xv) that TRC shall prepare and adopt, by no later than March 31, 1992,a policy on the comtercial use of its surplus land satisfactory toIDA (para 4.03);
(xvi) that TRC (a) shall maintain its accounts receivables at a levelno greater than 45 days of annual revenues until completion ofthe project; and (b) shall furnish semi-annually to IDA an agedanalysis of its accounts receivable (para 4.04 (vi)).
6.02 The following actions were agreed upon as conditions for CreditEffectiveness:
(i) the appointment by Government of a new Board of Directors for TRC(para 2.27);
(ii) the completion of the action plans to improve maintenance andtrains operations practices and satisfactory progress in theimplementation of such plans (para 2.31);
(iii) TRC has signed contracts, satisfactory to IDA, for the leasing ofTRC's road and hotel services' assets and for the franchising ofTRC's catering services (para 2.32);
(iv) the execution of a subsidiary loan agreement between Governmentand TRC for the IDA Credit (para 3.43); and
(v) the implementation of cumulative tariff increases of 80? by TRC(para 4.04 (iii)).
- 68 v
6.03 Based on the above agreements reached, the project is suitable foran IDA Credit of SDI 56.1 million (US$76.0 million equivalent) on standardterms to Tanzania to be onlent to TRC.
- 69 - Annex ";
--- -- - -----
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oro I I I I I 1: ~~1.1 :1 1 1 1 10 1 1el aZ -g
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a..L:1:~......I _ _ _l_l.. I_ |j ._l _I _ _ _d__a!1' 2l § X"lR ^Z #12$ s |" l: ............ ti
- 70 -
TANZANIAt RAILWAYS RESTRUCTURING PROJECTTANZANIA RAILWAY CORPORATION ANNEX 2.2
CURRENT SPEED RESTRICTIONS
SECTION LENGTH TRAFFIC EXISTINGNO. KM MILLION T SPEED
458 17 1.9 10528 10 1.7 1032B 25 1.5 1022B 5 1.5 10718 10 0.7 10101E 184 0.2 10111A 57 0.2 1042D 5 1.9 15410 17 1.9 1591X 80 1 15104A 48 0.2 15103A 48 0.2 151OSA 88 0.2 1562A 40 1.7 2066A 50 1.7 2052A 10 1.7 2065A 20 1.7 2064A 91 1.7 2034A 63 1.5 2072A 20 0.7 2078A 40 0.7 2079A 40 0.7 2077A 51 0.7 20710A 40 0.7 20112C 51 0.2 20102C 28 0.2 2043E 15 1.9 3054C 63 1.7 30210 5 1.5 3092X 100 1 3092X 100 1 3092X 100 1 3074C 40 0.7 3076C 123 0.7 3075C 97 0.7 3073C 40 0.7 3044C 180 1.9 3563C 130 1.7 3533X 34 1.5 3524C 170 1.2 4023C 30 1 40
ITEM LENGTH % OF TOTAL LENGTHSPEED < =10 KM 308 13SPEED c =I5 KM 286 12SPEED <=20KM 544 23SPEED < =30 KM 683 29SPEED <=35 KM 344 15SPEED < =40 KM 200 aTOTAL 2365 100
TANZANIA: RAILWAYS RESTRUCTURING PROJECT
|__ ___ MAINLINE AND SHUNTING LOCOMOTIVESN DATE OF TYPE OF WHEEL TP O CONTINUOUS MAXIMUM ADHESIVE TRARNG
NUMBER MANUF AC- MANUFAC- TRANSMI ARRANGE TYPE OF H.P.I TRACTIVE TRACTIVE ADHE SIVE LOAD ATCLASS IN BOOK TURE TURER SSION MENT ENGINE RPM EFFORT EFFORT WEIGHT ALE LOAD I% GRADF ._,_ ___ __,_ {¢f) --_ . ._ISJF) (TOlN!~ES) (TQNNEL (
t4 21 1979 THY9SEN HYDO- B-B MTU 12V 7401 10.400 12.500 30 10.3HENSCHEL AUUC 300 IC is0W."__ANY __11112 _ .
72 2 t972 EN4GUH ELEC- 1-BC-BC-1 EE SCSVI 1240* 14.645 16.150 is 6 12.475 meELECTIrC TIO MARK t t50
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ U .K . _ _ _ _ _ _ _ __ _ _ _ _ _ __ _ _ _ _ _
73 Is 1976 DIESEL ELEC- CO-CO ALCO 1300t 16.000 24.420 72 t2.6 700LOCO W10 TFUC 251061NINDIA LINE __ __ _
7 0 les6 ENOUSH ELEC. tCO-COi EE 126 16401 20.180 27.25 109 3 13 3 1000ELECTfIC TRAC 8VT 650tU.K. . _ __.____
Bs 20 1*72 MLWIALCO ELEC- *CO-CO1 ALCO 10501 16.775 35.000 ItO 13.5 120015 1907 CANADA TAlC 251C 12V 1050 | ___ _
3s 4 102 NDREW HYWR- C PAXMAN 300 0.070 11.100 30.6 13t_BARCLAY AULIC ORPHL MK .___ _ _ _
36 20 197 . USH ELEC- 0-6-0 PAXMAN 326 7.020 11.000 362 *32
ELECTRC TRC 6RPHL 150
7 to" HENOCt1EL HYOR- C MTUOV 25K 63KN 120 KM 32 13 2_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ UUc _ _ _ _ _ _ 306 TC 12 1600 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __T2 g
U~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~I
1'
- 72 -
Annex 2-4
TANZW IAsfAIL WYS USTRUCTUIMIlG PRLOJECT
LOCOROTIWVIIO0LIM. AND ING CApACttY *1990
AWAITING LOCOS-ON-L:NE/ ORIGINAL CURRENT PERCENTAGE
NINER REHS A LOCOSON- LOCOS IN lOOKS TRAILING LOAD TRAILING LOA REO TION IN
CLASS IN BOOKS RWEUILD LINE (PERCENTAE) At 1% tgIENT AT 1Z GADIENT ALIN(TOtNES) (TOWSHE) CAPACITY
64 21 6 15 71 S0o 450 10
72 2 2 0 0 660 595 10
73 is 10 S 33 700 59f 15
s7 a 0 8 100 1000 900 10
88 35 10 25 71 1250 1125 10
35 4 0 4 100
36 20 11 9 45
3? 0 5 100
TOTAL 110 39 71 65
TAN2WNAs RAILVAYS RESTuRIG PROJEC?
TANZANIA RAILWAY CORPORATI
WACON TYPES. CHRACISTICS AND HOLDING
l.a WaGn Stocs 8 per Fxccrds
CAPACM/Y) TAFEWAGZON STOCK BAIANCE AS ON DECEMBER WAGON WEKIHT,Pw COVE 1989 1990 1991 1992 1993 1994__ 19__(lqa (w u -121 0 0 14 12CL 557 4B4 446 407 367 3:17 337 13 12CGB 67 ;F O 32 17CGS" 395 &V7 B337 3 3337 333 17CIa 973 670 850 ON 807 8D7 36 172073 1717 1633 1564 1511 1481 1481OPN .S B2 41 0 15 - _ 16LSB 374 274 274 274 196 118 40 34 16ISOL lD 100 100 100 100 100 100 35 16556 415 374 374 296 218 140HS 48 19 is 11 7 3 0 14- t2HSB 91 42 34 26 in 10 0 24 16HF 13 11 9 7 5 3 0 3 16HWB 12 4 3 2 1 1 0 32 16HBO 413 347 347 337 317 232 291 37 17577 423 408 383 348 309 291TAN( tF 2 2 2 2 2 0 0 117 17(tJ 20 6 6 6 6 0 0 0 12338 18PT so 45 45 3 33 33 :13 tas 21CFO 50 40 0 0 0 0 0 37765 24D06 10 6 0 395 23DO 5 3 0 22ZFMB 19 16 5 5 5 5 5 23022O ?187 153 123 88 a8 88 s8 50C 23329 271 181 134 128 123 136 _ _C0Tll£ - LW 8 0 0 10 12CF 9 0 0 10 12cHB 173 g9 98 Os 98 99 Os 30 18190 96 98 so 98 98 98BHB 75 7s 7s 75 7S 75 75 40 _.C8 6 5 5 5 5 5 s:MV 4 0 0MG 15 9 9 0Mae 23 20 2D 23 20 2D 2 IF8L 14 14 14 14 14 14 14 t CONTARER 50 100 150 2DO 3)0 20DPHOSPHAEE 25 25 25 25 23 25 25
B6 12_ 173 214 24 254 254 ''AL-- 3.__6 2 3122 2942 2342 2 2571 -. 2475,. _., . . _ _ . , . . . *w~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.
TANZANIA: RAILWAYS RESTRUCTURING PROJECT
i .b Stock Bdonce in Tenrs of the Highest Capacity Wagon 1.c Wagons Available fot Traffic
STOCKBALANCE AS ON DECEMiBER _ _- WAGONS AVAILABLE AS ON DECEMBERCG_____ 1989 1990 1991 1992 1993 1994 1995 1990 1991 _ 1992 1993 1994 1895C5 47 0 0 0 0 CVRE CL 201 175 161 147 133 122 122CBS 67 26 0 0 0 0 0CGB( 355 337 337 337 337 337 337CLII 973 870 650 620 807 807 807 Avail. % 74 83 86 69 92 921643 1408 1346 1304 1277 1266 1266 No. Avail 1042 1119 1121 1136 1164 1164LS 35 1i8 0 0 0 0 0 OPEN LOWYLSB 243 266 268 266 190 115 39LSBL 100 l0o 100 100 100 100 100 Avail. % 72 83 86 89 92 92
498 384 366 366 290 215 139 No. Avail 276 304 315 258 197 128HS 16 7 6 4 3 1 0 OPEN1S8 59 27 22 17 12 6 0 HIGHHF 1I 10 a 6 4 3 0HFI3 10 3 3 2 1 1 0"Lo 413 347 347 337 317 292 291 Avail. % 72 83 86 89 92 92512 394 365 366 337 303 291 No. Avail 284 320 315 299 279 2600 0 0 0 0 0 0 TANK
2 2 2 2 0 0 0PT 18 17 17 12 12 12 12 jWB 38 30 0 0 0 0 0
7 4 0 0 0 0 0DUB 2 1 0 0 0 0 0FlB 9 7 2 2 2 2 2Pro 187 153 123 88 86 88 88 Aveil.% 80 83 86 S9 92 92
.--Ii 263 215 144 104 103 102 102 No.Avail 172 119 90 92 94 94LW 3 0 0 0 0 0 0 CATTLECF 3 0 0 0 0 0 0aHB 173 98 98 98 98 98 98 Aved. % 70 83 86 89 92 92
179 98 98 98 98 98 98 No. Aval 69 e1 84 67 90 90HOPPER 5H8 75 75 75 75 75 75 HOPPER 53 62 65 67 69 69MISC. 5 0 5 5 5 5 5 MISC.
4 0 015 9 9 023 20 20 20 20 20 2014 14 14 14 14 14 14
50 100 150 200 200 20025 25 25 25 25 25 25 veil.% 70 83 aS 89 92 92es 123 173 214 264 264 264 No.Avail 86 144 184 235 243 243
3181 2697 2569 2527 2443 2323 2235 TOTAL 1981 2149 2174 2175 2i3i 2056
_ . _
-75 -
-j~44~W Annex 2-6Page 1 of 11
.,THE UNITED IC- F TANZAN1A
MINISTRY Df COMMUNZCATIONS AND IRANSPORT
MINISTERIAL DIRECTIVE No. 1 dated ........... ,, l91
THE TANZANIA RAIltAYS:CORPORATION ACT, 1977(,N4o:ll .Qf:.1977)
MINYJ*F.RIAL DIRECTIVEMade tinder Soction 13
1. This Ministerial Diroctivaopay, ao Cited ae' TRC Ministerial DlrectiveNo. 1 of IM9; and shall come intqo effect as of the dato of signing.
2. In accordarice with the provisiune f the Tanzania Railways CorporationAct the Minister iu desirous.that the Tenzanie Railways Corporation provide
rail and inland waterways,'-frei§tt and.passenger servicos on an efficient
-nd commorcial basis. .
3. To that end, the.Governmenf intends pursuant to the TRC Act and thisDirective to clarify the rols2aiJO.powers8.f TRC, to ssciet TRC to oatablishen appropriate corpo hte plan '4d$to..set out certain obligations andpractices, which will enable IRfto adminiofer ito undertaking on the basis
of sound business principles with BiWiew w4. generating through sustained
efficioht and oommercAns operations incomhi sufficient t.n meet itoexpenditures and earn a rate of i-*ss?n on its assets sufficient to sustainofficient and commercial operotavt.eo
4. Undpr the provisions of Section 26 of the TRC Act, the Minister isrequired, from time to time, to aetermine the ratio of debt. to totalcapit1l omplayed by TRC. Pursuant to this provision TRC is horebydirected to ensure that it ehallenot incur any debt if after tho incurronceof such dobt, the ratio of debtA .total capital employed shell exceed 60%.
5. Section 11(d) ofthe TRC Act-empowers the Diroctur-Gouteral subject to
to directions of the Board to a"nrovo any alteration to the oetablishment,of TRC, other than an alteration Involvng a major roorganization or aeubstantial reduction In the numlMr of omplojeoa. To clarify this provi8ionand to ensure that 1RC adapts its? .oorporate structure and manpower lovel8 toichanging commercial ccnditionea
-76 -
Annex 2-6Page 2 of 11
.~~~~:
(*) A major reorganization chall mean reamalgamation of thediviaions to be created under TRC,e now organizationalstructure or the creation of new non-railways servipsdivisions or subsidieries or the amalgamation of TRC.with any other unzelated corporation or entity.
(b) A reduction in the. number of employees shall refer t°reductions in the.tevised staff estsblishment of TRC thatthe ioard and theo nagement conseider appropriate toachieve TRC,s eofip4ency and commorcial objectives.
6. Under Section 20 ot1Ahe TRC Act, TRC slill not be requiredto provide services to any buthority either gratuitously or at a rateor charge which is insufficient to meet the cost involved in theprovisions of such services, unless the authority conceornedundertakes to make good the smount of the lose incurrod by reasonof the provision of such services. In order to on:ure compliancewith this provicion, the Governments
(a) hereby permits TRC to adjust Ito tariffs with suchfrequency as TRC considers commercially prudent tocovor Its full costs under efficient operating conditionsand including an appropriets provision for an edequaterate of return; and
9b) undertakes to makeogood any lose incurred by TRC by. reswnof provision of ttonsport -r? eerw4ces, Jnvestmento 6rinland waterway fatill)Jesedt 'he diiective of theCovernment. J
7. It is furthor directed thiat In ordor to operationalize andoxpand this DirectJvef the Principal Seoretary shall afterconsultation with the Ministart from time to time, enter intoa memorandum of understanding, performance agroement or otherinatrument with TRC. consistent with the provisions of thisDirective and the IRC Act.
Dar eo SALAAM4 tiilcoC n ons end23 May, 1991 Transport
- 77 -
Annex 2-6Page 3 of 11
TANZANIA RAILWAYS RESTRUCTURING PROJECT
MEMORANDUM OF UNDgRSTANLIONG, dated 24 May 1991INRTWREN
THES (QVERNNNT OF THE UNITED REPUBLIC OF TANZANIA.THROUGI
THE MrItSTRY OF COMMUNICATIONS ANI) TRANSPORT (MNCTAND
TANZ7.ANIA RAILWAYS CORPORATION (TIC)
I The Government, consistent with the Tanzania RailwaysCorporation Act (TRC Act) and Ministerial Dlrective No.1 dated23 May, 1991 of 1991, is deslrous that TRC provides rail, roedsand Inland waterways fr,eicht and passonger servioeo on anefficient and commercial basin.
2 In conformity wlth this TRC will ulndertake all neceossryoctions within Its powers- Inter ella, tat
a) olosely plan Its level and pattern of services to mootthe changing needs of Its customersi and
b) manage Its operations so that services are providedefficlently and In a cost effective manner.
3 TIC will carry on Its opwatlona and conduct Its affairs Inaooordance with sound administrative, financial and oporatlonsmonagement aseisted by competent otaff In adequate numbers. Tothot end. TRC ulil lplemnt:
a) the revised corporate orranlsational structure sot forthIn rhehdulo 1; and
b) the manpoar restructuring plan set forth In Schodule 2
4 The governsent shall ensure that TRO revised capitalstructure met forth in Schodule 3 Is lmplesented.
5 In carryli out Its oprations and financall offairs, TRCwill use Its best efforts to achieve the operatlokal targets Gotforth irn Schdbule 4 and the rates of return on total eapitalemployed oet torth in schedule S hereof. It is understood thatsuch pormoance shall be subject to review and to attOdmentpursuant to the provisions of paragraph 17. Further, It IsunderstoOd that the rates of return on "aital u ployod speol l'edIn Schedule 3 shall be subject to amendment to take account ofthe revaluation of assets to be undertaken a part of theRai lways Ketructuring Project. for purpose of this mmorandus,capital employed means thu us of capitel, proviwionu, long-termand short term*debt, accumulated profIts avd louses mu1d anyrevaluation surplus. Profits to be taken Into account Indetermining the rate of return shall be protits before intereston debt but after duprwctltion.
- 78 -
Annex 2-6Page 4 of 11
2
6 The Government ahall aupport and provlde all t1he fa&clitlesand other resources required by TRC Jn the lmplementatlon of therevise4 corporate organisation and capltal structure referred toin paragraph 4. To ensure that TRC can continue to adopt itsmanpower levels to changing coamercile conditions, as providedin the Directive, TRC may reduce Its staff complement asnecessary for efficienty and commercial purposes. Accordingly TkCshall Implement the manpower reduotion plan referred to inparagraph 3 abovc, as the some shall be revsord following TRCmaanpower reduction study.
7 Pursuant to Section 20, Part lV asnd Sectlou 2C Part V of theTRC Act, the government hereby affirms the prJnclple ttiat TRO incosting it& services shall make full provision for the earningof a rato of return on Its not flxed as*ts an periodicalJyrevalued (or as a surrogate for thiA a rate of return on itstotal capital employed) suffIcIernt to cover Its financlng chareeson existing assets and ensure that Ito cashflow generatlon willbe sufflicent to cover the flnancing charges related to the costof replacing its flxed assets. Further to perasraph 6 (a) of theDirectlve effloent optrating conditions means that TRC shall beIn compllance with the porformance target. not. forth In Sohedule4 to this femorAndum.
8 Pursuant to parograph 6 (b) of the Directive, logsesincurred by TRC on the provision of services at the direction ofthe Government wil) be determie an a thweo monthly basis by TRCand presented to the Hinistvy of Finanee. Payments te TRC to makegood such losses will be mad. to TRC pursuant to the appropriateGovernment budgetary procedure, as dacided by the itnistry ofFinance. The ro vrnment hereby und6rtakes that such payments I Ilbe made no later then ninety day. after the prosontation of thequarterly assessment of losses. Yt to understood that Suchpayments will be sub.tJut to audit and adjustment will be made onthe basis of such audits. No other losses incurred by TIC In itaoperattQnu golall be roiburtied by Covornnesnt.
9 The Government hereby perilte, TRC to undertake invaetmentsIn support of its comercial operations subject only tol
a) tho debt to tatea cepitati euloyed limitation outlinedin tk& Direoctgves and
b) submieswon to MCT, an part of the anu&l capitalbudagetng process, of tchnloal economic and tinaalelalevaluation of any Investment euoeoding US: $ 2 millionwhich it proposes to undertalt outside of the plainnedprogramE of Investments under the pwepomed Rlelwayemostructurtin Project. it to understood that thislatter figure will be ubjeot to review ou an annualbasis taking into account changes in the prices ofmalor classes of transport wervices' assets.
- 79 -
Annex 2-6Page 5 of 11
3
10 To Suppvft TRC's ability to maintain an offiolrnt level ofoperating performanoc:, (;overnment shall ensure that the list ofitems eligible under the Open Gesaeral Llcense System at; any pointuvvers all categories of items likely to be iuported by TRC foruee in its maintonanle. activities.
11 In ne.w-dr to aveJ6t. Govornment to determine progreoss mad* Inmeeting itg. obligations under this tis-uorandum, TRC shall preparepromptiy at the end of six ivonths during Its flnancial year hut,In any event., not later than 45 days thereafter, and furnish toMCIT, a report setting forth Inter a) la:
a) Its performance as agalnst operating targetse set forthlit £chadtile 4;
b) ito profit and loss and cashflows tor the six monthisperiod* cumulative statement of profit and lose andcash flowa for tho year to dato and, If relevant,revised prolections for the financial year as a whtole;
c) 8tatement of progress on key capital projects underimplementation and compared to those contemplated Inits capital budget approved by MCT; and
d) any actions which it proposes to take to remedy anymajor deviations which have beon Identified In thosaid report.
12 Promptly at the end of each of TRC'B firnancial years and Inany event not later than six uonths aftor such year end, ThCshall preparge and furnish to 4CT a report on its performanceagainst the targets vat forth In Schedule 4 to this Memorandum,a preliminary statement of its financial position and a narrativereport on tho causes of devistionw ft actual performance grom theagreed performance.
13 Arter review by tC' of each of the roports referred to lnparagraphs It and 12 of this Memorandum, the Minister shalldetermine any actions which he doom, necessary imprcovinsmanagement of TRC's aftairs and wLth reSpect to the ensuirnquarters or financial year.
14 The Oovernmunt hereby permits TRC to adopt porwonnelpolicies, including, inter slia, pay, incentives and conditionsof service which will enable TRC to attract and retainappropriately qualified ald experienced otaff.
15 The (overnment and TRC shall cooperate fully to assure thatthe objectives of tlhle Mmorandus xre accomplished. To that and,the Government or TRC, As th) case may be* will promptly Informeach otheo of Any condittion which interferes wLth the achievemente,f the objectives of thiS Mgmorandum.
80 Annex 2-6Page 6 of 11
4
Ir. Taic Mainva "e&6JA sIall -" %&*P. ioL1va us& Liao %I& u-a %dih1s.It In signed by the partles thereto and shaJi subsist for aperlod of five years.
17 Any amonduent to this Memorandum or the Schedules theretoshall be effected by mutual agreement of the parties through anexchange of )*ttors.
On behalf of NOT On belhalf of TRC
Dated: _y"I ^9?grV- lociQ Dated i ; e s- 99
4INEM,VA. IkCEIiCIARYA"bsrhlY (IF .O?.Ufl:NICAMWNS
ANIUAM1*PORT
- 81 -
Page 7 of 11
5
CULS BI ORGOANSATfONAL SThUCTUKM
I
- 82 -
Annex 2-6Page 8 of 11X
6
KANP(OWBa- RUSTRUCTURIO P'LAN SCIIEDULE X
TRC has arranged for asslstance so that the detalled staffrequirements over the plan period can be established. Provi llonalfigures for the whole corporation, subject to an estb1lishatentstudy and the reorganisatJon rpEerred to in Peragraph 3 of theagreement, are:
Year 1991 1992 M993 1994 X995
Number 13579 13247 12890 12890 12890
- 83 -Annex 2-6Page 9 of 11
7
CAPITAL. STRUCTURE .tHRWi.P :
Debt Equity Reserves
31.12.90 Tsh billion 16,976 7.165 (B.500)
Converted tomillion US& 64.8 38.3 (42.5)
Debt/Equityswop --Italian Loan (27.4) 27.4
57.4 65.7
Reserves (42.5)
57.4 23.2
The rates of return on capital employed to be earned by TRCreferred to iti paragraph S of tkte agreement shall be the
followings
1991 951992 15S1993 19L1994 2011905 and thereafter 201
- 84 -Annex 2-6Page 10 of 11
PBRVORMANCB TAROBIS SC)DIWLS 4
1991 1992 1993 1994 199&
1.c'c00otlve availability it
Clams 35 7S 75 75 75 75Class 30 50 75 75 75 75Class 37 75 75 75 75 75Class 64 60 70 75 75 75Claos 73 33 33 40 40 40Clamss 7 71 71 72 72 71Close as 64 71 74 7S 75Overarl .58 64 70 70 70
Looomteltv tJtMlIsgt)Jon km/day
cJrta 35 150 175 180 200 200Class 36 176 17b 190 200 200Class 37 200 200 200 200 200Class 64 300 350 350 350 350Class 73 250 300 3S0 400 400Class 87 350 400 450 500 500Class 88 425 475 500 550 S50Overall for Nainline .162 413 433 409 409
I.o0omotive reliabIlity OOOk.
Close 36 10 20 30 40 50Cleas 37 45 435 6 45 4SClass 64 20 30 40 43 50Class 73 20 30 40 45 50CU1 OD 87 20 30 40 45 jiClass 00 20 30 40 45 50Ovorall *20 *30 *40 p46 SQ
blook Rkes
CU'ored Wagons 10 15 18 20 2&Open wVgons 3 4 5 5 5Phosphate Wagons 1 I 1 1 ILivestock Wagono I I 1 1 IPOL ifeoN 4 S 6 10 10 UContainer Waons 2 3 3 3 3Total 21 20 ^U 40 45
Average Yard Detention
Through train, minutes 30 30 an 30 3Origtnatitng/?i., days 6 5 4 3 3
- 85 - Annex 2-6page 11 of l1
9
Wagon Availability I
Covered wagons 83 f6 89 92 92Open W^Agon 83 86 89 92 92POL wagons 83 66 89 92 92ContLln.r wagong 83 80 89 92 92LiVesOtok Wagons 83 86 89 92 92Overall 83 86 89 92 92
Wagon km,/Wagon day 123 143 15 169 181
TANZANIA; RAILWAYS RESTRUCTURING PROJECT
OPERATIONS IMPROVEMENT PLANPERFORMANCE TARGS
1. LOCOWTMOE AVALMILITY
UNff OF CURFEW -- SHORT TERM PLAN-- -MEDIUM TERM- LONGTERMMEASURE- NO.OF STATUS JULY AUG. SEP. OCT. NOV. DEC. 1991 1992 1993 1994 1995LOOO CLASS MENT LOCOS J-M 90 1990
Ctus35 % 4 48 60 60 65 65 70 75 75 75 75 75 75ChM36 20 32 35 5 40 45 45 45 50 60 75 75 75CIS37 5 96 85 85 85 80 80 75 75 75 75 75 75CLms64 21 39 45 45 45 47 47 50 60 70 75 75 75CIS73 15 ?7 30 30 31 31 32 33 33 33 40 40 40Cass87 7 45 50 s0 55 55 60 64 71 71 71 71 71Class B8 3a 52 57 57 57 57 57 57 64 71 74 75 75Oweri 107 44 48 48 49 50 51 52 58 64 70 70 70
2 LOCOMOTIVE UTILIZATIN
UNIT OF CURENT ---- I-OLEM PLAN- -MEDIUM lERM- LONGTERMMEASURE- STATUS JULY AUIG SEP. OCT. NOV. DEC. 1991 1992 1993 1994 1995LOGGCLASS IENT JIM 90 1990
CLas3s LOOOKhw 100 110 120 120 13 130 150 175 190 21 200Clas 36 LOCO DAY 140 150 150 1 160 160 175 175 19D 0 20 03Cs37 160 160 170 170 180 230 200 310 310 310 20D 0M aOs64 230 2 250 250 275 275 275 300 350 30 350 350CLm73 171 180 180 180 310 210 200 350 300 350 40D 400SS87 210 270 270 270 300 300 300 350 400 450 500 500CinsU8 33D 350 30 3 300 400 42 475 500 550 550O0r ForMaiLkhe 20 297 302 307 323 328 331 362 413 433 469 469
3. LOCXMOTIVE RELIABLffY
UN OF CURREN -SHORT TERM PLAN- -MEDIUM TERM- LONG TERMMEASUFE- STATUS JULY AUG. SEP. OCT. NOV. DEC. 1991 1992 1993 1994 1995LOCO CLASS MENT J-M 90 1990
Class3S ME1tNKMW 3971 50O 5000 5000 5000 5000 000 10000 2000 300X 40oo 500aClass 37 I-AlLURE 69136 43100 4230 4 4100 4500 45000 4500 4500 450 45M00 50000Class64 IN USE 15S70 1000 10 11000 10000 10000 10000 2000 30000 4000 45 00 5a5000Glass 73 12519 1(000 10000 10000 10000 15000 15000 21000 31000 400 45000 50000Class87 10698 12D00 1300 12000 13000 13000 13000 23000 30000 40[0 45000 50000 _Class 88 11287 12000 123O0 12000 13000 13000 13000 3120 30C00 4M00 4500 B0OOMOveall 7489 >10000>13100>13000 >14000>15000>1500 >23000>30000>40000 >450>50
4. BLOCK RAKEFORMATION
CoveredWagomn CUMULATh 0 1 1 1 2 2 3 10 15 18 20 25Open Wagons NUMBER 0 0 0 0 1 1 1 3 4 5 5 6PhospaeWagons OFRAKES 0 1 1 1 1 1 1 1Uvestock Wagons 0 1 1 1 1 1 1 1 1 1 1 1POL Wagons , 0 0 0 0 1 2 3 4 5 6 10 10POL Wagons (Mough) 0 1 1 1 1 2 2ContainerWagons 0 1 1 1 1 1 1 2 3 3 3 3Total 0 4 4 4 7 9 11 20 28 33 39 4A5.. AVERAGE YARD
DETENTION)WAGON
Through Wagons MINUTES 120 120 60 60 6) 60 30 30 30 30 30OginaingjTenn. DAYS 10 10 9 9 9 8 7 6 5 4 3 36. WAGON
AVAILABILY
CoveredWagons % 52 56 60 64 68 72 74 83 86 89 92 92OpenWagons 61 62 64 66 68 70 72 83 86 p9 92 92 -POLWagons 52 55 60 65 70 75 80 83 86 89 92 90'ŽContaneWagons 70 72 74 76 78 79 80 83 86 89 92 92Livestock Wagons 46 sO 54 58 62 66 70 83 86 8I 92 92Overal 55 59 63 67 71 75 77 83 86 89 92 92
7. SCRAP WAGONSAWArlnNG DISPOSAL
Covered Wagons BALANCE 369OpenWagons TO BE 296POLWagons DISPOSED 60Misc.Wagons (NO.) 96Total 821 821 724 628 53 436 340 0
8. WAGON KMJWAGON DAY <50 8s 85 85 92 97 102 123 143 155 189 181AsswnptomnsBlock- 200 iPick-up -75Blocks in 1995-85%of total Traffic
TANZANIAt RAILWAYS RESTUCTURING PROJECT
EXPECtEO tIF fIC UNOEI OIlt ILi NI ASsiUMPS IOuWNSA AN SC6.NARIOS
Vrn.abl..s $ 1991 t S 92 1003 ItH4 less 1900 I tl9 1000 Me 2000
eabbe I0 e00 0 Go I 00 I Go 00 1 00 00 Ie00 I 00 * 00 00bk ete% S I 00 100 I00 I00 0 o I 00 Io00 I 00 $ oo D e too 10euIzteoa I00 o 0 Io00 I00 oe D oe00 1 00 Io00 100 I oo 100 D0eswu mIo@u@Ive. 000
I I LOCOMOTIE AVAILABSiTY %
CLASS MAXIMUS TRAILING 0 FLEET AVAILABILITY (% ITRACTIVt EFFORT LOAO&OCO SiZE
IXOF) @00.4.
05 35000 1200 35 53 at el 72 is is is is is is is n07 22215 loo I so el 71 it is Is 7i to is is is it
a 24420 I0s te 2e 33 33 40. 40 40 40 40 40 40 40:2 Isis a00 2 0 0 0 as 70 is 75 is is is n 104 1250 000 2I 42 55 as 72 i5 ts 75 is i5 is is is50 1300 0 0 0 0 71 75 is is is Is 1
0 At 1% ety de A*IT IMATIC MEAN Of AVAILAUILITYEXPfcECTE AT InE BEGttINNItG * Ef OF OfYEAR
1.8 LOCOMOTIVE AVAILABILITY NO.)A
CLA9S MAXnMUM TRAtN 0 FEET AVANASILITY IN NuMERSTRACItIV EFFORT LOADIOCO SIZE 1000 1991 102 1903 0094 *15
(CF1 @004.) I
60 35000 1200 35 Is 21 23 2as 20 a 20 2e 2 20 2a 2t $*7 2at25 1o0o 1 3 5 5 5 5 5 s o 6 5 1a 24420 Too is 4 5 0 s a 0 0 a 0 O * o12 lot"e 0 2 0 0 e I I 2 2 2 a 2 2 204 law 00 a" el S i 14 e S Oo to lO to to to to to00 1200 0 a 0 a 0 0 0 0 0 a 0
2 L LOCO REQUIREMENT NO0
CLASS TYPE OF SERVI BAStS OFASSESSMENT
2 S S 7 * 4 4 4 4 4 4 44S BLOCKS &tRANSIT MODEL a tO 34 or as t0 20 20 2t a X ae*s PASSE"uERlRANS8 TRAIN KS S S a S a a a 0 a o a 0IS OEPARTMENTALTRAMS WORKLOAO S 4 4 a * a e 0 e n2 "InmO PROVISIONt t 3 I I I * 3 I 3 * I 04 PICKuPTRAMS MOOEL 20g 22 Is I? 1 14 10 la to to la to
00 0 ~ ~~ ~~ ~~ ~~ ~~ ~~ ~~ ~ 5 a a 0 0 0 0 0a
0
TYAZANIAt RAILWAYS RESTRUCTURING PROJECT
31 L0CO SUftPUSt1s)SetTl.A1tat)
CLASSas 0s 0 a 00 00
6) .5 3 3 .3 .3 .3 3 .3 3 -3
12 3 I I .3r2 1 t t 0 O 0 0 I I a t64 -20 10 -6 2 1 * 6 6 6 6 a 6
60 0 0 ~~ ~~ ~~ ~~ ~ ~ ~ ~ ~~0 0 0 0 0 0 0 0 0 a
3 LOCO SURPLUtIS0I4nORIFAL1.4I -YYPE 66 EQUIVALENI...
CLASS66 11 Ii 0 6 5 0 0 0 0 0 o
? .4 . .3 -3 .3 -3 .3 .3 .3 .-3 . -
13 2 1 0 0 0 0 0 0 0 e 0 0
72 - .1 0 0 o0 0 0 0 o o
64 S6 4 2 - I 3 3 3 3 3 3 2
00 0 0 0 0 0 0 0
lOtt AL 0 4 0 5 4 I I 1 1 1 I I
ADO FOR OPERATIONAL FLEXIBILITY O3 .4 .4 .4 .5 5 .5 .5 .5 5
NE1 SIOFRIACE OF tOCOS*lt-US0 1 I I 0 .4 .4 .4 .4 -4 4 4
ttET StORIAGE OF LOCOS-041 tNE -0 Ss 1 23 0 62 0 le -0 s -5.92 -5 92 -5 e2 -S2 -50 2 -5 2 -602
lAs.u.Iaf 75% A.ailooitU.* - EQUIVAt EtuT NUMBER * FLEEI SiZE-
TRACTIVE EFFORTIIE OF tLOCO 6
4 1 TRAFFIC UNDER DtFFEREN4T SCENARIOS I
e TiISC AstmodtIoBeeC..e.4#=oqaTonaeT. 0.09 I 1.41 1.00 IesO kis 21t 216 210 211 2le 216 Co'0
. Scenario I -FULL W SV # OIP 0." t.1B It S II t as 215 2 15 21 25 21I 21I 215 2.15
latro.. Ia tote ... U.bmp - 100% 0of. be$, 60Sactk being. 100% as pIa.a.dloomotieU isones". 100o% as plOaned
a. Sc..ado I FWg.rnwv oi 60 1.16 I 51 I i 1.60 1 64 1644 1.64 1 04 1 04 1644 10
Stl lavotoalMIC160. I. taCO eoVUeabW - 100% 1O b" es".Black hbr t00% as planned
e t oot Se ae to*F ml t" OtP o as 1t $t I t t I te ^41 41"l e 0
10t@eu t1' ta z.2. .OOS .pleand
No.w Loc otives rA
00 0
0Irt.,
S.-
TRC - APflROVED ORGANISATION SIRUCIURE
*3 J E43 __ _ -*-
a +~ I .,. -. __ - I I 'S-'
l l - I - ~~~~~~w-. _~fu~ _.
I L__1 ,-. 0-- r
= m rj . _ _ .W t=~~-i-, - - -=
, ---- CWt----.R2 . *~~~~~~~-
-* - *z -II - . . . i. e-- a. ~ . - t.. -e . __ ___ ___.J_5._ I* -
. ~ ~ ~ ~ ~ 9.n ~ - ~ ~- - ~ -- . . -; . * ,, ,~ -- ,
TANZNIA t RAILWAYS RESTRUCTURING PROJECTMAINTENANCE COST
WPECf rYPECF MT COST PEF NO. OURN TOTAL COST il lUOIMIE SERVifCE SEfbICE 1990 1991 U966 1ow 1930 1995 1990 1991 1E96 lo lw
A. UXX E NO. 029 3 3 3 3 3 3 0.86 0.8 0116 086 0.86L(073 0.29 11000.73 902 0.00 0.00 0.00 0.O0L00072 .000 0.00 0.00 0.00 0.0000 0.00 0.00 D 00L(x)064 0.06 8 8 S B 8 8 0.3 0.38 0.38 38 L(00036 Q22 4 O.Q0 O00 0O. D 000 #00LCOO3t #14 4 4 40.00 000 o.0o O.O OLa00o3" 0 1 4 1 3 2 0.0 0Q13 0Q00 0.00 0.0
1.5S 1.36 1.2 1.27 1.CM2. LOCOIS ARO NO. OF #l: 24 27 32 36 35 36 0.6 0.74 0Q8 0.99 0LOB(.000.6 #Mr. (0 0.66 6 7 7 7 7 7 0.10 0.12 0.12 0.12 Qt12L0073 0A0 4 1 5 10 10 10 0.11 0.03 0.14 0.3 am10072 amO 2 2 2 f.0 0.0 0.00 000 000 LOCOWBO GM I5 la 21 21 21 21 0.56 0.68 0.79 0.79 0.791000.5 #01 5 5 O 5 5 5 Q03 .. 03 000 0.00 0.00(.00D45 a01 9 9 14 19 20 20 #05 0o0 0.0 #12 0.12Uoo.u' 0.0 4 4 4 4 4 4 0.11 0.11 0.11 0.11 Q011
1.63 1.76 25 2.43 243& WAMO OVB*W. NM OF 0.0 0 300 30 350 350 350 1.68 1.6 16 1.6 1.
.WU NO. 0.F0 am 2 M Z Qo 2100 20 20 242 2i 22 212 2.08
& 0A a AU. NO OF 1101 10 2D 20 20 0.00 0.00 0.10 O.2D 020MEMS NM OF 0.QO 1OO 100 100 127 12? 127 #01 0.01 t0.01 Ot O1 Q01
7.27 7.10 7.37 7.68 8l19O0NTWir 0.15 1.09 1.07 1.11 1.15 1.238.38 6.17 6.47 6a83 942
- 92 -
Annex 2-11Page 1 of 4
TANZANIA: RAILWAYS RESTRUCTURING PROJECTTHE EMERGENCY REHABILITATION PROGRAM FOR TRC (EP)
The EP was based on a ten-point action plan covering (a) Institutionalmeasures and changes to bolster TRC's cash-generating capacity; (b)organisational measures to facilitate the effective commercial managementof operating activities; (c) operational measures to facilitate betterutilisation of operating assets; and (d) rehabilitation activities toimprove the condition and availability of key operational andinfrastructural assets. The success of these measures in improving andsustaining the operating and financial performance of TRC was mixed.
Institutional Measures. Three key measures were proposed to improveTRC's cash-generating capacity: (a) immediate tariff increases averagingabout 602 for freight traffic and about 100l for passenger services; (b)grant of limited dIscretionary powers to TRC's Board to increase tariffswithout reference to the Minister responsible for the railways and anexplicit statement of the additional increases that can be granted by theMinister without reference to the Cabinet; and (c) capitalisation of aboutUS$80 million equivalent of TRC's outstanding foreign currency debt. Inretrospect this approach was inadequate to ensure that TRC's tariffs weremaintained at an an appropriate cost recovery level. The immediate tariffincreases compensated for the erosion of tariffs which had not beenincreased for the four previous years and restored TRC's overall tarifflevels to adequate cost (including capital costs) recovery levels, assumingcapacity utilisation was reasonably efficient. However, the discretiongiven to TRC to increase tariffs (cumulative 102 p.a.), and the combinedpowers of TRC and the Minister to increase tariffs without reference toCabinet (201 p.a.), has proven inadequate to protect its cash-generationagainst erosion by a subsequently much higher degree of inflation. Tariffshave only been increased twice since thens once within the discretion ofthe Board (102) and another (252) by Cabinet. The key lesson from this hasbeen that discretionary powers for TRC management has to be set within thecontext of what is necessary for it to achieve its commercial objectives.The commercial objective was implicitly self-sustaining financialperformance and TRC should have been granted unambiguous powers to achieveit. This is particularly Important, since discretionary powers expressedas rules could easily lose their relevance in a dynamic economicenvironment. Finally, only a fraction of the proposed capitalisation waseventually effected. The real reason for the proposed capitalisation inthe action plan was to limit tariff increases subsequently required byproviding an implicit subsidy to TRC's capital costs. As it happens theMinistry of Finance has been unwilling to bear this liability explicitly.Since TRC has been insufficiently cash-generative due to inadequate assetsutilisation and tariffs, it has had little option but to build up areas ofdebt service which will now have to be borne by Government or paid forthrough tariff increases by railways users. The main lesson from this isthat debt servicing difficulties reflect a number of structural problems:poor pricing structure, inadequate utilisation of capacity, unproductiveassets financed by dett that create claDms on cashflows generated byproductive assets, mismatched assets financing i.e financing long-livedassets constituting significant proportions of capital employed withrelatively short term debt. Capitalisations can only address the problemscreated by inappropriate debt financing or imprudent Investments financed
- 93 -
Annex 2-11Page 2 of 4
by debt. Used as a panacea for other structural problems, it would serveonly to reduce the entity's capacity to be financially self-sustaining.
Orzanisational Measures. The action plan proposed the following mainorganisational measuress (a) institution of corporate and departmentaloperations improvement plans; (b) divisionalization of hotels and cateringservices and roads services; and (c) rationalization of manpower levels andimprovements in remuneration. Corporate and Departmental ImprovementPlans: Some efficiency targets were set for most of the operatingdepartments. However, this process had severe flaws. No analytical workappeared to have been done to determine the feasibility or optimality ofthe plans. Whether slack or tight, the plans had no operationalsignificance since input requirements and input productivity underlying theplans were never well-defined and causes for underachievement of planscould never be determined. No manager was held accountable for theachievement of plans. These problems carried over to the overall corporatetargets (traffic carried, financial performance). There was no supportableview of what could be achieved with available resources. Consequently, theobjectives were largely meaningless other than as relatively arbitraryperformance yardsticks. Given the lack of control of the underlyingdepartmental performance, no effective control could be exercised over theoverall performnace of the corporation even if the stipulated objectiveswere optimal. The one successful area of improvements was in theaccounting department where reasonably designed plans to eliminate thebacklog of accounts were drawn up and responsibility for achievement ofthis objective was clearly assigned and the planned objective wassubstantially achieved. The key lesson learnt from this is that corporateand operations improvement initiatives can only be succesful if based onwell articulated plans, with explicit assumptions about resourcesrequirements and productivity and whose key elemnts are susceptible tomonitoring. Also, responsibility for the achievement of the plans'objectives must be clearly assigned. Divisionalisation: the steps actuallytaken were limited to accounting separately for the direct costs and therevenues of the non-railways services and granting limited procurementautonomy to the hotels'local management. The hotels and cater:Lng and theroads services performance continued to deteriorate. The effectivecapacity of the roads service continued to decline sharply as it provedunable to generate sufficient resources to maintain its vehicles, let alonereplace the life-expired ones. The physical condition of most of thehotels deteriorated and the marine services performance were shored-up byconsiderable external assistance. Lesson learnt: divisionalisation couldonly be an effective measure to reverse the performance of the services iftwo conditions were present: (a) the divisional managers were grantedsufficient autonomy to operate commercially; and (b) headquarters staffunderstood the nature of the businesses and could set, monitor and controlappropriate performance standards. At initiation of the EP, IDA wassceptical of the existence of both conditions. Disengagement of TRCmanagement from the operation of the roads, hotels and caterlng services,wh:ch have little operational complementarity with the core railwaysservice, faced considerable political opposition at the time but wasconsidered Imperative if the divisionalisation proposal failed to besatisfactorily implemented. In a sense, this position has proved expensivein terms of the subsequent losses incurred by the services and themangerial attention diverted from the core railways services. Manpower
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Annex 2-11Page 3 of 4
Measures: A limited incentives program was established for the workshopsstaff about three years into the implementation of the EP and afterconsiderable pressure from the donors. TRC has encountered considerabledifficulties financing this scheme. This has probably undermined thecredibility and motivational effect of the scheme with its staff. Noeffective action was taken to fulfill the proposal of the action plan tostart on a program of staff reduction until three years into the EP whenTRC action to implement staff reductions in areas of considerableoverstaffing identified by it was made a condition for negotiations of thisproposed project. Measures were proposed to be undertaken to strengthenTRC's capacity to recruit staff in areas of shortage. TRC has however, notbeen proactive in designing or implementing remuneration packages to enableit to compete effectively for skilled staff. It has relied instead onadjusting salaries as prescribed by national statutory bodies. Theseadjustments have barely been sufficient to enable salaries to keep pacewith inflation. They have not addressed the core problem of severely lowsalaries, relative to other industries in the public and private sectors.
Operational Measures: The main operational measure to be implemented underthe action plan was the removal of scrap or defective wagons from the majorterminal yards in Dar es Salaam. The capacity of the yards had beenprogressively reduced by the storage of scrap or defective wagons onoperational lines, limiting manouevrability in the yasds and contributingsignificantly to wagon detentions and to reduction in TRC's effectivecapacity. Little effective action to clear the yards of non-functionalwagons was taken during the program. It took two years and pressure fromthe donors for a monitorable program to remove such wagons from the yardsto areas where they would not inhibit smooth train opei -7ons was drawn-up. The actual process of removal was slowed by lack Lmelyavailability of inputs. In the meantime, the program . scrap sales hasonly been recently decided after years of debate on the appropriateness ofinternational or domestic tenders. Lesson: Given the importance of thisprogram for TRC's effective capacity, a detailed action plan should havebeen agreed from the start. This should have enumerated the priority asremoval of non-functional wagons from the lines and specified a time framefor such action after agreeing on the manpower and material resourcesavailable for this. A time frame should then have been agreed upon withinwhich the disposal options would have been settled and a disposal timeschedule for the options agreed. Responsibility for the implementation ofthe different aspects of the plan should then have been firmly fixed. Theprogram as structured relied wholly on TRC management initiative whichtended to be mirred in bureaucratic tangles and had no focus
Rehabilitation Activities: The rehabilitation program was to cover wagons,locomotives and track. In addition, technical assistance was to beprovided to assist in managing the sub-projects within the program andconsultants were to be employed to define a future program ofrehabilitation and new investments as well as areas for institutionalstrengthening. Some container wagons were to be procured under theprogram. Implementation of the pro;gram was expected to take about two anda half years. The program has been substantially completed with a time lagof about one year. The lag in implementation was due mainly to procurementdelays for the various components. The number of serviceable operationalassets increased as envisaged under the program. However, the impact of
- 95 -
Annex 2-11Page 4 of 4
this on TRC's capacity was offset by two factors: (a) follow-up maintenanceof the rehabilitated assets and of the other assets not included in theprogram was not as effective as it could have been, reducing theavailability of assets as a whole; this problem was exarcebated by the highrate of accidents on the system rendering rehabilitated assetsunserviceable; (b) utilisation of assets in revenue service deteriorated.
TANZANJi: RAILWAYS RESTRUCTURING PROJECT
TANZANIA RAILWAY CORPORATIONTRACK REHABILITATION PROGRAM
SECTION TO 8E LENGTH TflAFFiC| EXISTING EXPECTEO F.j Pi bi COST CUMULATIN % OF PRIORITYREHASIUTATED KM MILON T SPEEO SPEE MILLION TSH COST TOTAL
718 10 0.7 10 48 1 79 69.9 69.90 142D 5 1.9 1S 45 1 115 36.6 106.50 1 SECTIONS410 17 1.9 1S 48 1 66 223.4 329.90 2 WITH52A 10 1.7 20 56 1 37 147.6 477.50 3 CURRENT62A 40 1.7 20 56 1 34 640.6 1118.10 8 SPEED <72A 20 0.7 20 48 1 9 470 1588.10 11 20 KM91X so 1 15 | S 0.88 576 59.7 1647.80 12 2328 25 1.5 10 40 0.88 140 176.6 1824.40 13 SPEED c -228 S 1.5 10 48 0.69 117 35 1859.40 13 20 KM528 10 1.7 10 48 0.43 74 78.7 1938.10 14 IN NEXT458 17 1.9 10 44 0.33 55_ 55 150.1 2088.20 15 3 YEARS92X 100 1 30 56 0.69 205 52.1 2140.30 15 392X 100 1 30 S6 0.61 181 52.1 2192.40 1692X 100 1 30 52 0.54 146 52.1 2244.50 16 AS PER63C 130 1.7 35 S5 0.76 134 137.5 2382.00 1754C 63 1.7 30 48 0.48 128 50.3 2432.30 18 P144C 180 1.9 35 44 0.54 76 142.7 2575.00 1943E 1S 1.9 30 48 0.78 71 39.2 2614.20 1921D 5 1.5 30 48 0.78 52 14.2 2628.40 1924C 170 1.2 40 52 0.48 42 134.6 2763.00 2023C 30 1 40 56 0.48 32 31.7 2794.70 2076C 123 0.7 30 48 0.68 31 240.9 3035.0 2233X 34 1.5 35 40 0.29 28 19 3054.60 2274C 40 0.7 30 48 0.78 26 104.2 3158.80 23730 40 0.7 30 48 0.78 21 130 3288.80 2475C 97 0.7 30 48 0.78 21 315.4 3604.20 2664A 91 1.7 20 56 0.78 24 1646.2 5250.-40 3 4 REQUIRES ECONOMICIlA 50 1.7 20 56 0.78 20 1054.6 6305.00 46 ANALYSIS FOR EAC. I6SA 20 1.7 20 S6 0.76 20 433.2 6738.20 49 SECTION7A 51 0.7 20 48 0.78 7 1226 7964.20 5878A 40 0.7 20 48 0.72 6 948.8 8913.00 6534A 63 1.5 20 40 0.29 5 1310 10223.00 74 NOT S79A u 40 0.7 20 48 0.43 4 831.2 11054.20 80 JUSTIFIED710A 40 0.7 20 48 0.43 4 831.2 11885.40 861120 51 0.2 20 32 0.48 17 53.7 11939.10 86 6I11A 57 0.2 10 32 0.78 1 t 582 12521.10 91105A se 0.2 15 32 0.69 12 358.6 12879.70 93104A 48 0.2 15 24 0.88 9 242.4 13122.10 95 BRANCH LINES TO103A 48 0.2 15 24 0."8 9 242.4 13364.50 97 BE FINALLY 0102C 28 0.2 20 32 0.78 28 29.6 13394.10 97 SCRAPPED XI0tE 184 0.2 10_ 15 1 29 417.2 13811.30 __ 100 _ _ .
13811.3NOTES: 1 Fl DENOTES THE FACTOR FOR DETERMINING THE PRESENT VALUE OF FUTURE INVESTMENT
bl PI DENOTES THE PRJORITY FACTOR FOR DIFFERENT SECTIONSPi - NTKMl(COST OF REHABILTATION) EXPECTE0 REDUCTION IN TRAVEL TIME ̂F1
- 97 -
TANZANIA: RAILWAY3 RESTRUCTURING PROJECT Annex 3-2
LOCOMOTIVE REBUILDINGIRENABILITATk)N PROGRAMLOCO TYPE OF NUMBER DURINGCLASS SERVICE 1990 1991 1962 1993 1994 1995 TOTAL88 MODIFICATION 12 14 9 3588 REBUILD 1 1 1 3
REHABIUTATION 3 4 7TOTAL 0 1 4 5 0 0 10
73 REBUILD 0REHABILITATION 1 4 5 3 2^ 10TOTAL 1 4 5 0 0 0 10
72 REBUILD 0REHABILITATION 1V V* 0TOTAL 0 0 0 0 0 0 0
64 .8EBUILD 3 3 2 2 10REHABIUTATION 0
_TOTAL 3 3 2 2 0 0 1038 REBU;LD 0
REHABILITATION 5 S 1 11. TOTAL 0 5 S 1 0 0 11
Decision on rehabilitation to be taken after a separatodetailed techno-economic analysis for each locomotive
LOCOMOTIVE PREVENTIVE MAINTENANCE PROGRAMLOCO TYPE OF NUMBER DURINGCLASS SERVICE 1990 1991 1992 1993 1994 1995 TOTAL88 E 3 3 3 3 3 3 18
D 2 6 6 8 9 9 40A,B,C 178 190 247 285 289 289 1478
87 E 1 1A,B,C,D 61 84 84 84 84 84 481
73 D 1 4 5 10A,B,C 14 20 39 52 53 178
72 D 1 1 2A.,BC 22 22 22 66
64 W5,W6 8 8 8 8 8 8 48W2,W3,W4 172 252 338 360 360 360 1842
37 W5 1 4 1 3 2 11W2W3.W4 64 64 64 64 64 64 384
36 G 4 4 8A,B,C,D,E,F 180 200 320 537 560 560 235735CDE 4 6841A,B,C.O.E,F 114 114 114 114 114 114 684
TANZANIA 98
RAILWAYS RESTRUCTURING PROJECT Annex 3-3
LOCOMOTIVE AVAILABILITY & REQUIREMENT . MAIN LINE
1.1 LOCOMOTIVE AVAILABIUTY %
CLASS MAXIMUM TRAIUNG O FLEET AVAILABIUTY (%) 88TRACTIVE EFFORT LOADILOCO SIZE 1090 199t 1092 1093 1994 1995
(KCF) (nnos)
88 35000 1200 35 53 61 67 72 75 7567 27215 1000 7 50 ^7 71 71 71 7173 24420 700 15 29 33 33 38 40 4072 18150 860 2 0 0 0 75 75 7564 12500 500 21 42 55 65 72 75 75
Now 35000 1200 9 33 75 75
O Al 1% gradIent * ARITHMAtlC MEAN OF AVAILABILITYEXPECTED AT THE BEGINNING a END OF YEAR
1.2 LOCOMOTIVE AVAILABIUTY (NO.)
CLASS MAXIMUM TRAiJUNG FLEET AVAILABILITY IN NUMBERSTRACTIVE EFFORT LOAD/LOCO SIZE 1990 1991 1992 1993 1994 1995
(KOF) (tonnes)
88 35000 1250 35 19 21 23 25 26 2687 27215 1000 7 3 5 5 5 6 573 24420 650 1S 4 5 5 5 a 672 18150 S0 2 0 0 0 2 2 264 12500 450 21 9 12 14 15 16 16
New 35000 1200 0 0 0 3 7 7
2.1 LOCO REQUIREMENT (NO.)
CLASS
TYPE OF SERVICE BASIS OFASSESSMENT
12 9 8 7 6 486 BLOCK &TRANSIT MOOEL 8 10 14 17 21 2687 PASSENGER TRAINS TRAIN LINKS 8 8 8 8 8 873 DEPARTMENTALTRAINS WORKLOAD 4 4 5 6 6 672 BANKING PROVISION I I I I I 164 PICK-UPTRAINS MODEL 29 22 19 17 14 10
New 0 0 0 0 0 0
3.1 LOCO SURPLUS(+)ISHORTFALL(-)
CLASS
88 11 11 0 8 5 087 65 -3 .3 .3 .3 *373 0 1 .0 .1 0 a72 .1 .1 *1 1 1 164 .20 .10 46 .2 1 6
Now 0 0 0 3 7 7
3.2 LOCO SURPLUS(+)/SHORTFALL(-) -TYPE 88 EQUIVALENT-
CLASS
88 11 11 9 8 5 087 .4 .3 .3 .3 .3 .373 0 1 40 40 0 072 .1 .1 .1 0 0 064 -4 -4 *2 .1 1 3
New 0 0 0 3 7 7
TOTAL .2 4 4 8 10 7ADO FOR OPERATIONAL FLEXIBILITY .3 .3 .3 .3 .3 .3NET SHORTAGE OF LOCOS-IN-USE .8 1 1 5 7 4NET SHORTA( I OF LOCOS4ON.LINE .6.48 1.23 1.03 4.87 7.31 4.31(Aauming 75% AvalabIlw
- EQUIVALENT NUMBER F fLEET SIZETRACTIVE EFFORT/TE OF LOCO 88
_ 99 -
Annex 3-4Page 1 of 9
TANZANTA RAILWAYS CORPOtATION
RAILWAYS RESTRUCTURING PROJECT
ManaRement Support and Develoment
Terms of Reference for Technical Assistance
1. The Tanzania Railways Corporation (TRC) intends to undertake theRailways Restructuring Project (RRP) during the period 1990-95 with the mainobjective of becoming a viable self-sustaining entity, operated on soundcommercial principles to the benefit of the economy of the country by providingeconomical and efficient means of transport in an environment of competition andcomplementarity with other transport modes, both for domestic as well asinternational traffic. The Government of Tanzania intends to obtain assistancefor the Project from the World Bank and other bilateral and multilateralinternational financing agencies for carrying out the Project.
Manaaement Support and Development
2. In view of: (a) the heavy worklcad of project execution combinedwith s,;stems and efficiency improvements, (b) the major challenge of managementof change, (c) the need to set up proper and modern systems to suit the majorrestructuring exercise, and (d) the close and constant coordination requiredamong the departments, TRC considers it necessary to obtain the services ofconsultants to assist the management in carrying out the Project and attainingits objectives.
Guiding Principles in the Structure of the Planned Technical Assistance
3. The group of consultants must be found from one source or grouphaving the back up of an established railway system or systems, which has/ haveexperience of undertaking similar changes and successfully managing change.There must be a reservoir of management talent with the Consultant or therailways concerned to provide competent staff, to effect changes in compositionof the team as and when needed, and to provide overseas training support for TRCmanagement officers.
4. TRC will be actively involved in the selection of the individualconsultants from a panel to be proposed by the firm, usually of three candi-dates for each post.
5. The duration of t.Le T.A. is expected to be a period of about fouryears, with three phises - the first for one year, the second for two years andthe third for one year. There will be reviews at the end of each year to assessthe effectiveness and success of the functioning of the T.A. to decide on anycorrections or modifications in the system that may be found necessary.
6. The individual consultants will work in close coordination withthe TRC managers corresponding to their disciplines. Some ox the consultantswill be in line management positions and will be responsible for the running ofthe department efficiently, carrying out the respective components of the Projectand attaining the micro and macro targets, designing, testing, installing and
- 100 -
Annex 3-4Page 2 of 9
establishing the system changes necessary and responsible for setting up adequatemonitoring systems for performance, production and quality control. Theseconsultants will have designated counterpa:ts. The rest of the consultants willhave primary responsibility for developing, documenting and monitoring theimplementation if systems and procedures in their respective departments.
7. The individual coneultants will maintain detailed diaries of workdone and interaction with TRC management officers, which will be initialledweekly by the TRC officers concerned.
8. At the end of each quarter, each consultar.t/TRC group will preparea joint report covering progress of work compared to the workplan, reasons forvariations and urgent action needed to be taken by top management. The reportwill also include the detailed workplan for the rnext quarter. The consultantwill also comment on the interaction with the TRC officers, highlighting anypoints where management counseling is called for in a separate report addressedto the DO. The TRC officers working with the consultant will also prepareinteraction reports every quarter to submit to their respective superiorofficers.
9. In addition to the consultants defined in this terms ofreferences, TRC will also be recruiting, separately, specialists to assist indeveloping financial management systems and procedures, management accountingand budgetary control systems and in rationalising and strengthening its suppliesmanagement systems and practices. These consultants will be formally part ofthe management support unit and will be o.abject to the same defined guidelinesand reviews as would the group identified in these terms of references. Thegroups constituting the m&..agement support unit will be expected to co-operatefully to achieve the corporate objectives of TRC. To !nsure that theseobjectives are achieved on a running basis and to assist in co-ordination, TRCwill also be recruiting, on an individual basis, an experienced railwaysspecialist with a strong general management background, to assist the DirectorGeneral and the Deputy Director of TP.C in devising systems and procedures formonitorinj the achievement of key corporate goals and targets and in identifyingweaknesses in the implementation of the restructuring program and appropriateremedial measures.
- 101 -
Annex 3-4Page 3 of 9
Phasnkg and Content of the Technical Assistance
Phase I:
10. The first phase vill commence with a Team consisting of the followingmembers:
Function No.
Traffic Operations Planning 1
Commercial Management 1
Planning & Quality Assurance (Locomotives) 1
Planning & Quality Assurance (Rolling Stock) 1
Mechanical Equipment Maintenance 1
Telecoms Engineering 1
Civil Engineering 1
Supplies Management 1
Manpo¢r Development 1
Corporate Planning 1
Safety/Accident Relief Specialist 1
Zonal Management 1
Total . . . . . . . . . . . . . . . . . . 12
11. The Traffic Operations Planning Specialist will work with the ChiefTraffic Manager and her management team and be responsible for the followingmajor tasks:
(i) Devising procedures for the effective implementation of the OperationsImprovement Plan (OIP) and the monitoring of results thereof;
(ii) Detailed formulation of yard working instructions, train order systemsand wagon allotment systems;
(iii) Formulation of the content of revised General and Subsidiary Rule Bocksfor operations and the Working Time Table of TRC;
(iv) Central Operations Planning and coordination of the operations betweenthe proposed Zones;
- 102 -
Annex 3-4Page 4 of 9
(v) Formulation of procedures and systems to ensure close liaison with theCommercial Branch to ensure the attainment of commercial objectives;
(vi) Interdepartmental coordination procedures and systems, especially withthe Civil Engineering, Mechanical Engineering, and Signal/Telecommunica-tions branches;
(vii) Organizing proper interface operations with the ports, customers andother transport operators including neighboring railways forstreamlining operations and monitoring them, with provision foraccountability for delays and defaults on either side.
12. The Planning and Quality Assurance Specialists for the MechanicalEngineering Department will work jointly with the Chief Mechanical Engineer andhis management team and they will undertake the following major tasks:
(i) Formulation of planning and control procedures and related systems forthe implementation of the OIP in so far as it concerns the MechanicalEngineering branch and monitoring of results thereof;
(ii) Ensuring the adoption and availability of quality control proceduresand systems for all works with special reference to locomotivereliability and safe operation of rolling stock;
(iii) Minitoring and control systems for fuel and lubricants;
(iv) Ensuring adequate planning and implementation tracking systems are inplace for timely, correct and complete execution of PreventiveMaintenance Schedules, and repair, rehabilitation and overhaul programsfor locomotives, rolling stock and equipment;
(v) Interdepartmental coordination systems, with special reference to theTraffic and Supplies branches;
13. The Civil Engineering Specialist will work jointly with the ChiefCivil Engineer, TPC and his management team and will be responsible for thefollowing major tasks:
(i) Assist in strengtnening scheduling and monitoring systems for theimplementation of the track rehabilitation and renewal program;
(ii) Ensuring the presence of adequate systems for the timely, correct andcomplete execution of preventive maintenance of permanent way,structures and bridges;
(iv) Ensuring quality control of work with special reference to the safetyaspects;
- 103 -
Annex 3-4Page 5 of 9
(v) Planning and setting up of a Bridge Inspection ant. maintenanceorganization and supportive systems and procedures on TRC;
(vi) Setting up of a Permanent Way workshop as planned in the RRP forreclamation of sleepwrs and points and crosses.
14. The ,.r. ical Equipment Maintenance Specialist will beresponsible for the follrv tasks:
(i) Establishing pri..,idu e; for the tracking of plant and equipmentsystemwide;
(iL) Establishing systems ar.d procedures for the recording and monitoringof the availability of all plant and equipment and of their use;
(iii) Formulating policy with respect to preventive and periodic maintenanceschedules for all categories of plant and equipment;
(iv) Review the capacity of existing maintenance facilities to undertake themaintenance of different categories of plant and equipment orsubassemblies or components of such parts;
(v) Establish systems and procedures to ensure the timely execution ofmaintenance schedules and repairs to acceptable quality standards andcomplementary systems for the analysis and remedy of failures.
15. The Safety Officer will work directly under the DDG and willassist him in establishing a safety cell and the procedures to govern theorganisation and work of this unit. His work will include the following:
(i) Establishing the framework for the analysis of the main causes ofaccidents and derailments and the corrective actions to be taken toprevent the recurrence of such accidents;
(ii) Undertake the first set of analyses of accident and derailment incidentsin conjunction with designated counterparts;
(iii) Write simple set of instructions for different categories of workersfor improving safety consciousness and practices;
(iv) Identify equipment needs for effective handling of accidents; determinethe optimal location of key pieces of accident relief equipment toensure effective responses to accidents or derailments systemwide; andthe standards with respect to mobilization of equipment;
(v) Prepare the regulations governing the secondment of staff from theoperating departments to the safety unit;
16. The Commercial Management Specialist will work with the CommercialManager of TRC to set up the Commercial Branch and organize the Marketing andTransport Pricing sections. He will advise TRC management on commercial and
- 104 -
Annex 3-4Page 6 of 9
pricing strategies, and liaison with customers, paying special attention toquality of service. Special attention will be paid to block train facilitationand confidential contracting for traffic and tariffs. He will establish liaisonprocedures with the Accounting and Finance Department and the Market ResearchUnit in the Corporate Planning Group of ?RC. He will assist TRC to developprocedures for traffic and revenue forecasts for TRC's budget.
17. The Manpower Development Specialist will work jointly with theManpower Manager of TRC and they would be responsible for carrying out thefollowing major tasks:
(i) Implementation of the Staff Reduction Plan of TRC;
(ii) Preparation of annual Training Programs and monitoring of implementationthereof;
(iii) Formulation of TRC policies for recruitment, promotion, progressionstreams, retirement and rotation;
Uv) Ensuring compliance with Labor Laws including safety regulations;
(v) Monitoring and coordination of Incentive Studies and schemes.
18. The Corporate Planning Specialist will work with TRC's CorporatePlanning Unit (CPU) and undertake Railway Transport Planning and CorporateDevelopment. He will initially assist in the setting up of this unit, selectingits staff and organizing its work. The Unit will include a Market Research Group(MRG), as well as the Efficiency Cell (EC). The MKG will undertake marketresearch with the objective of improving TRC's commercial performance and workin close liaison with the Marketing and Transport Pricing Units in the ConuercialBranch. The CPU will undertake the preparation of investment programs, includingthe appraisal and evaluation of all projects involved. A Traffic ForecastingModel will be designed and detailed documentation will be prepared.
19. The Zonal Management specialist will assist the Deputy DirectorGeneral in establishing the Zonal system of working in accordance with the TRCDecentralization Plan. His task will include establishing the procedures andmodalities for coordination, monitoring and control of the functioning of thedepartments in the zone, and interaction with neighboring zones and theheadquarters of TRC. He will ensure that the technical standards set down bythe headquarters technical departments are strictly observed and that there areadequate procedures for headquarters monitoring of compliance without intrusioninto the day-to-day operating mandate of the zones. He will assist the new zonalmanagers to organize the functioning of the zones in accordance with the budgetallotment and prepare forward budgets as per time schedules laid down by TRCmanagement. The progressive devolution of powers to the zones should beeffectively used to decentralize decision making as envisaged in theDecentralization Plan. He will ensure that the line and staff functions of theheadquarters vis-a-vis the zones are correctly understood by the zonal officersto avoid conflicting activities.
- 105 -
Annex 3-4Page 7 of 9
20. The Team will work harmoniously with the various T.A. groupsfunded by various financing agencies, and assist the TRC managers working withthem to coordinate and monitor these activities. The members will pay specialattention to the inspection systems on TRC at all levels and organize effectivesystems of inspection and follow-up action. They will lay great stress onaccountability and the hierarchy of accountability within TRC and specify theclear lines and procedures to follow to inculcate the culture of accountability.They will aid TRC managers in the proper exercise of the delegated powers andin quick and effective decision making. They will be economy-conscious andexamine cost-effectiveness in all their proposals.
21. Within two months of the arrival of the Team in Tanzania, theConsultants will undertake a quick diagnostic study of the existing systems andprocedures, as well as the management expertise available and will submit anInception Report to the DG, covering the results of this study and their planof action with a time frame, covering all phases of the MSD program. This planof action will be examined by TRC management and the final plan of action agreedupon by the end of the first quarter. Thereafter, the Team will work to theagreed plan.
22. At the end of the first year of work, the Team Leader will submitthe Annual report covering the activities, achievements, and shortfalls, withthe updated plan of action for the Phase II.
Phase Ili
23. The functioning of the MSD T.A. program will be reviewed at theend of Phase I by a tripartite body comprising the DG, the World Bank and theconsulting firm. Based on this review, a decision will be taken on the mid-course corrections, if any, including the composition of the Team. The annualleave of all the members, excepting the PCU and the Zonal Management experts(who, in any case are scheduled to be in position for one year only) will beavailed of during the thirteenth month of the consultancy. This will give anopportunity to the DG to assess the independent performance of the TRC managementofficers associated with the Team. Phase II should effectively conmence fromthe fourteenth or fifteenth month of the Consultancy.
24. The activities during Phase II, which will last for two years,will follow, in general, the same pattern as in Phase I, in continuation, exceptfor discrete items which would have been completed, with suitable modificationsresulting from the end-of-phase review at the end of the first year. The numberof members is planned to be the same as in Phase I, but may be increased orreduced based on the findings of the first annual review. Periodical reportingwill be on the same lines as in Phase I.
Phase Ills
25. At the end of Phase II, there will be a review similar to thatat the end of Phase I and, based on the rev mw, the composition of the team forPhase III will be decided upon. It is estimated that about five man-years ofT.A. will be required for Phase TIT.
- 106 -
Annex 3-4Page 8 of 9
Trainig Supports
26. During the course of the Consultancy, TRC management will makedecisions on specific and specialized training programs needed for theirindividual managers overseas in the railway system supporting the Consultantfirm, and such training will be provided by the firm at reasonable notice. Itis estimated that about 20 courses of three months each will be needed. TheConsultant firm and the trainee will submit training evaluation reports to TRCas and when an individual officer has completed a course.
27. TRC will organize specialized courses in the Railway TrainingCollege with visiting Instructors from the Consulting firm as needed, and thelatter should provide these services at reasonable notice. In such instances,the visiting Instructors should leave behind detailed documentation andinstructional material for the course, as well as an evaluation of the individualtrainees. It is estimated that about ten visits of an average duration of sixweeks each will be required. The visiting instructors should be recognizedexperts with proven track records in their respective fields.
General _ualifications of Consultants:
28. In general, the maximum age limit at the beginning of their termsshould not exceed 55 years. In exceptional cases, outstanding track record andprofessional ability can permit relaxation up to 60 years.
29. The Consultants should have good University degrees or equivalentprofessional qualifications/affiliations in their respective fields.
30. The Consultants should have held senior positions ofresponsibility in railway management for at least ten years, and should haveproven track records of success in management, with particular reference to thetype of change envisaged on TRC.
31. The work would call for intensive field work and the Consultantsshould be in robust health to undertake arduous duties.
32. Experience in and exposure to a working environment similar tothat obtaining in Tanzania will be an important added qualification.
Specific Qualifications of Consultants:
33. Traffic Management Consultants: They must have held senior manage-ment positions with specific responsibilities and track records of achievementof time-bound programs similar to TRC's OIP and of interface operations withother transport modes and operator (waterways and ports, specifically), as wellas international transit traffic operations and facilitation. They must haveworked in a decentralized environment with specific line and staff functions.
34. Mechanical and Civil Engineering Consultantst They must have heldsenior management positions with specific responsibilities for rehabilitation
- 107 -
Annex 3-4Page 9 of 9
programs for locomotives and rolling stock and track, respectively. They musthave a track record of working rigorous quality assurance systems and inspectionarrangements.
35. Comiercial Management Consultants He should have held a seniormanagerial position with responsibilities for tariffs, marketing and customerrelations. He must have a track record of having achieved results in his field.He must be fully conversant with railway costing systems and procedures and befamiliar with traffic operations and allied parameters.
36. Manpower Development Consultants le mr- have held a seniormanagerial position with responsibilities for manpower pLanning and development,establishing of incentive schemes, staff redundancy, redeployment and retrainingschemes. le must have a track record of success in these fields as well as inlabor relations.
37. Corporate Planning Consultant: le must have professional qualifi-cations in Transport Economics. le must have headed a Railway Planning Unit witha track record of Corporate Planning, Project Evaluation and Appraisal, MarketResearch and Efficiency Studies.
38. Zonal Management Consultant: He should have worked as head ofa railway division, controlling all the functional departments within it. Hemust have proven track record of successful implementation of programs to improveoperational efficiency, interdivisional coordination, field marketing work,customer and labor relations and management of change. Specific experience ina decentralized program will be an extra qualification.
Other Requirements
39. The consulting firm may be required to furnish p-s -.janel forshort-term consultancies and studies as may be found necessary by TRC during theproject execution stage, and a lump sum provision for about 18 man-months hasbeen made for this purpose.
- 108 - Annex 3-SPaee I of 2
TANZANIARAILWAY RESTRUCTURING PROJECT
Ead PectCos
Fo Loca Towl Foeign Local Tota
(US$ mUion) (TSH m_o)A. Pennanent Way
A.1 Track Rehabltawlon 24.80 50.50 75.30 4611 8797 1460A.2 Bdgoe SvenUieln 11.55 13.05 24.60 2241 2532 4773A.3 TrackMMainLance6quipmont 6.05 0.61 6.66 1174 117 1291A.4 Troleys 1.72 0.17 1.88 333 33 367A.5 Son QuaTos 3.58 0.34 3.82 695 66 760A.6 Plant MMiitwc Depot 4.37 1.60 5.97 84 310 1156A.7 Track Tr"Ouellalon Suppon 0.90 210 3.00 175 407 S62
Subtota ses Coats 52.97 66.37 121.34 10270 13284 23540PT"sSca Contingencies 7.95 10.26 16.20 1541 1t90 3531Prie Esoalan 13.41 17.38 30.72 2502 3356 5860
TOTAL 74.33 95.94 17026 14419 16611 33031
S. Locomosivec
a.1 RehabillUdWin Class 36 3.60 0.36 3.90 696 70 7668.2 Rhabufwon.Clanss64 1.20 0.12 1.32 233 23 2568.3 Rbuild. Class 66 2.40 0.25 2.74 464 48 5328.4 Rehabhkfia-CU m66 1.15 0.11 1.27 223 22 245
Subtob Son Coas 8.44 0.64 .29 1639 164 1802PYyski caConUnwenso 1.27 0.13 1.30 246 26 270Prb Escaalbon 1.08 0.11 1.18 209 21 230
TOTAL 10.76 1.06 11.06 2092 209 2301
C. Roltng SOtak
C.1 PahaMblltanofpWagon. 4.,6 a49 5.34 942 94 1036C-2 Converson- 200 Flat Wagons 0.06 0.40 0.46 16 78 93C.3 Refwbishmet C;oches 2.00 0.20 2. 366 39 427C.4 Now Coahes 8.10 0.81 6.91 1571 157 1729
Subotal Bas Costa 15.04 1.90 16.93 2017 366 3265Physiod Conlide 228 0.26 2.54 436 55 493Pflb Esoallen 267 0.34 3.00 517 66 512
TOTAL 19.66 2.52 224 2672 466 4360
O. Mdntants Flfl
0.1 CmR epotw 3.84 0.36 4.00 706 71 7760.2 OSM Wkdtop 2.30 0.23 2.53 446 45 4910.3 Cl"eeW Ib 1.05 0.10 1.15 23 20 2230.4 AMds ROW &$*s* 1.40 0.14 1.54 272 27 299
SuboldsS os 6311 0.64 0.22 1632 163 1769Physa Conlgne 1.20 0.13 1.3 244 24 266Prim Escason 2.12 0.21 233 412 41 453
TOTAL 11.76 1.16 12.94 M 2 2510
Slnl.T I_ _ V
E.l efhtban .*1 Norh Uns 2.45 2.10 4.56 475 407 693
SubtoS COt 2.45 210 4.6 475 407 683Physi C@fligefdes 0.37 0.32 0.66 71 61 13Poce fEcaaion 0.62 0.53 1.11 120 103 223
TOTAL 3.44 2.98 .3 67 572 123
- 109 - Annex 3 5Pase Z Ot 2
P. onvOtwgi d _st
F.1 Oqld_mhil suppmt 25 1L.00 3s0 45 1"4 6a90 0 0
8Mo ea. Cutb I0 1.0 3.50 46 104 6oftvwiwc4wi4nd 0.39 0.15 0. 71 3 102Pdew mamln 0.83 025 0.6 123 4 172
TOAL 3.51 1.40 491 681 273 953
0. Seiv VeIN
el Rad V.doe 1.00 0.10 1.10 1M4 1 2130.2 Rai VNd 2 tO0 0.20 2.20 36 39 427
Sklabl Ban cow 3.00 0.30 2.30 682 56 540Phyal C*npnd.s 0.45 0.05 0.0 67 9 soP,u ESalafin 0.76 0.09 0 86 147 1? 116
TO-AL 4.21 0.83 4.64 617 014 6t
M. tnbnao $Vt
HtI Quit PM*q EquOnvent 0.50 0.05 0.56 97 10 107H.2 CoiIibm & SdiIw. 3.00 0.30 3.30 682 so 640
St.BeS " CoIbs 3.50 0.35 3S86 619 66 747Phy CeMnsao_ld 0.53 0.05 05 102 10 112Pe" E@s5a n 089 0.10 0.68 172 20 19
TOTAL 4.91 0.51 5.42 9 9 1051
L T "chnkm Arnlics
1.1 Mm " _mnt0ewhpmeA ts. 4.91 2.11 7.02 93 409 1321.2 Fh_AI MgommwSpout 0.67 0.33 1.00 130 94 1041.3 sn_v5 SwpO.t 5.80 2.48 6.2 1124 482 1606IA Sun TunrCedlq,y 0.54 02 0.77 104 45 146L5 AsusesPb un 0.60 0.10 0.60 67 10 116
s8biSlBais Coe 12.42 6.2 17.6 2408 1016 342Pnyl CEqngwi. 1.66 0.70 2.6 361 153 514Pde Emkmau 2.20 0.93 3.13 42 160 607
TOTAL 16.448 .87 24- 3186 13U 44
J. T,slr4g
J.1 S.minm &fabwaNpe 1.00 0.00 1.00 104 0 104J.2 Arntfor Scpdaed Coues 0.50 0.50 1.00 07 97 104J.3 Tm* G*dpmns 0.50 0.00 0N O? 0 071.4 Hand-on thfVi 1w dlm 4.50 0.46 4.6 67 S on6
Sk6low Bsm Cca 6.0 0.95 7. 126 164 1445PhYhuICo_ _snua 0.86 O.4 1.12 180 21 217Prim gE_=Usn 1.49 0.10 1.69 20 o 327
TOTAL 6-7 1T.0 100. 1740 250 1060
K. Shbde 0J8 0.27 0.0 12 52 175
MOPb MWnbrv-ed smvel9lh1 4* LOisOeP & UMab"wim Amd
PaPa. By RushC_~~PI
OSm VANP _Ewdno
Si*tm Bse Cu O03 O0 o00 13 5 175pIyu Cetiqnie 0.0 0.04 0.14 16 a 25Pdm E.emMIsn 0.04 o03 O.L.3 I 3 11
TOTAL 0.78 0aa 1.0 140 04 n1
PV. Toetl Sam Coals 116.63 62.17 107.9 n470 15041 3411PhIniCed"Voa" 17.37 123 3.70 8371 2861 OMP,ea1bse 25.01 20.06 45.9 S5 36 89
TOTAL 150.11 11418 2726 306 2 10u _. _ _ _
- 110 -
Annex 3-6
TANZANIASTAFF APPRAISAL REPORT
RAILWAYS RESTRUCTURING PROJECT
Estiated Schedule ot Disbur.oemte
(USS million)
Sank FlscalYear Quarepr Date Disburd Cuamulativ
1002 2 Dec. 81 1.50 1.604 June 80 2.90 4.48
1008 2 Dec. 81 ?.45 11.984 June 80 0.71 18.64
1004 2 Dec. 81 7.45 20.094 June 80 0.20 84.28
1005 2 Dec. 81 8.94 48.224 June 80 7.45 60.67
1006 2 Dec. a1 6.21 "6.4 June 80 0.70 62.50
1997 2 DOc. 81 4.47 07.064 June 80 2.90 70.04
1990 2 DeC. 81 2.08 78.024 June 80 1.49 74.51
1900 2 Doe. 81 1.49 70.00
- 111 -
TANRANUAs RAILWAYS RZST1UCTURUNG PRtOJECTANNEX 4-1
TANIWIA RAILWAYS CORPORATIONI TRAFFIC PROJECTIONS IjTof 9
A. Methodology
1. An earlier estimate of potential rail traffic was developed by Canadian
Pacific Consultancy Sorvices (CPCS) In 1987. CPCS projected demand to grow
from 1.1 million tonnes in 1990 to 1.4 in 1995. TRC, on the other hand,
estimated 1990 and 1995 traffic on offer to 4 and 6 million tonnes
respectively.
To update, verify and concile the two projections, ten major commodIties
were analyzed, namelys Cement, Coffee, Gypsum, POL, Fertilizers, Phosphate,
Cotton, Maize, Sugar and Transit traffic. Together they reprisent over 70:
of the estimated 1990 traffic demand. Minor comodities were discussed with
TRC and the Ministry of Agriculture.
The traffic forecasts were developed through In depth interviews with major
customers. Specifically, customers were asked to present growth projections
and expected modal spilt. Projections were, together with the interviewee,
compared to past data, as well as to CPCS's and TRC's estimates. Customers
were also asked to elaborate on future expanion plans. If projections
showed large deviations from past trends, feasibility studies and
verification of financial support for expansion plans were requested. The
collected data was thereafter modified in consultations with government
authorities and TRC. This annex sumarizses the overall traffic forecasts
and then describes the underlying assumptions.
B. Sumary
2. Demand for rail troanport os forecast to grow from 1.7 million tonnes in
1990 to 2.2 million tonnes by 1995. If TRC mee this dmand, it will
represent a compound annual growth rate of 52. Trawit traffic is expected
to grow by 72, while daoestic freight will be confined to 3.82. However, in
the project analysis, it is ssumd that TIC will only slowly build
capacity to meet demand. Not until 1996 does the corporation c&pt%ar. the
full potential. Table I surises actual traffic hauled during he 1965-
1989 period and table It projects demad and capacity for the 1990-199S
period.
- 112 -
AM= 4-1Table I £a5331 4-2
Traf f ic Hauled 1985-1989(1000 to°es)
Year: 19sS 1986 1987 1988 1989Coffee 83 110 54 31 34Cotton 20 33 91 49 77Fertilizers 40 49 60 34 43Mai2e 46 13 27 8 13Tobacco 16 15 20 8 11Cement 79 89 94 107 123Phosphate 25 11 n/a 10 5P.O.L 125 120 118 111 124Other 358 253 327 346 264Transit 142 186 218 224 232
Total 934 879 1009 974 890
Table IIProjected Demand, 1990-1995(1000 tonnes)
Year: 1990 1991 1992 1993 1994 1995Coffee 33 33 33 33 33 33Cotton 60 63 66 68 69 70Fertilizers 40 30 31 32 33 34Maize 60 61 64 65 66 68Tobacco 11 11 12 13 13 14Cement 225 252 282 316 354 400Phosphate 42 32 32 33 34 35P.O.L 303 312 321 331 341 351Sugar 30 35 38 45 48 SOSalt 25 26 26 27 28 29Wheat 30 30 30 30 30 30Cattle cake 25 26 27 28 29 31Gypsum 16 17 18 18 19 20Tlinbez 48 48 48 48 48 48Rice 80 82 84 87 90 92Oil seeds 40 41 42 44 45 46Livestock 30 30 30 31 31 31Beans 20 21 21 21 22 22Grains 38 40 40 42 42 44Tea 4 4 4 4 4 4Other 206 206 206 206 206 206Transit 348 372 398 426 450 450
Total 1710 1770 1859 1954 2058 2169
TRC haul 990 1100 1470 1660 1890 2160
C. Domestic freight
- 113 - A*=-4-1Page S 0f 9
3. Cment. over the last five years, aI&l transportation of ement
incaeased by 122 per annum; from 79,000 tonnes in 1985 to 1239000 tonnes In
1989. CPCS projected that TRC9* share of cement transportation would
increass to 223,000 tonnes In 1990, after vhich demand would stabillie. The
one-time jump wa to be caused by the rehabilitation of cement factories in
Dar as Salaam. CPCS argued that additional volume would be restricted bys
(1) continued low utilization of existing plants and, (2) foreign exchange
scarcity hindering increased importation.
Since CPCS made their study in 1987, several factors have changed. Capacity
utilization at the Saruji Corporation (Tanzania's largest cement
manufacturer) - currently at 602 - has and is expected to continue to
increase. By 1995, the Saruji Corporation, expeets production to reach
950,000 tonnes or 852 of capacity. Such an iprovement seem quite
optimistic. If utilization stays below the 802 mark, total production would
reach 850,000 tonnes. This translates into an annual compound growth rate
of 52. Considering the housing shortage in major cities and pent up demand
In Uganda, a 52 growth rate does not seem unrealistic.
Past and Future Cement Production
Thousand tonnes
F&r.tory 1985 1987 1988 1990 1995Dar Es Salasm 181 276 361 440 550Tanga 154 168 171 186 235Mbeya 42 47 62 72 90
In 1990 local consuption was approximately 609000 townes in Mbeya, 75,000
tomnes In Tang& and 120,000 tones in Dar es Salasm. By 1995, total local
consumption is expected to grow to 400,000 tonme, leaving 430,000 tonnes
on offer to TRC.
In 1989, ThC manged to carry saw 702 of traffic on offer (.3 mdllion
toAess). In 1990, TiC is expected to carry only 452 of the potential
traffic. Saruji hs responded to the current tranportation shortage byt
(1) curtailing production to avoid a stock build-up, and (2) by shifting
some transportation to roads. Had wagons been available, Saruji would have
shipped all its output by train. Given the foreseen operational
Liprovaents, Saruji's t:ansportation and storage problem will ease,
- 114 -ANNEX 4.3Page 4 of 9
making a further bolstering of production possible. TRC should capture most
of the created traffic.
4. Gypsum. Demand for gypsum is derived from cement production. As a
rule of thumb, each ton of cement require a gypsum content of some 6-72.
Most of the gypsum is produced domestically, and its production "an be
expected to grow proportionately with cement. In 1989, TRC carried 15,000
tonnes of gypsum. By 1995, demand is projected to have grown to 20,000
tonnes, which gives us a compound annual growth rate of 52.
5. Sugar. Sugar is currently rationed in Tanzania. In 1989, 90,000
tonnes was domestically produced and an additional 15,000 tonnes was
Imported. By the end of 1990 sugar production should reach the 100,000
tonnes level.
Domestic production is concentrated to three major plants: Kagera, Kidatu
and TPC. Production is expected to grow to 187,000 tonnes by 1995, which
would increse the plant utilization rate from 43S today, to 812 in 1995.
However, increasing production to 187,000 tonnes would require
rehabilitatlon of all three plants. Currently, only the rehabilitation of
Kagera ha left the drawing table. If only one plant is rehabilitated, 1995
output would Increase to 165,000 tonnes.
Of the expected 1990 output of lO0,000 tonnes, 652 will move on road,
leaving 30,000 tonnes on offer to TRC and 5,000 tonnes to TAZARA. The modal
split is not expected to chage by 1995.
6. Fertilizer During th. past decade, fertilizers have been heavily
subsidised. In 1989, farmers only paid some 202 of fertilizer costs. The
Fecrtillser Marketing Board (FM) will, by 1995, have Increased its prices
to a cost r eovery level. Thus, prices will, in real tems, incre"e by a
factor of five over the next five years. As a result, the Board foreases a
sharp drop In eonsumption.
In 1989, the PMB distributed some 52,000 tonnee of fertilizers, of which
43,000 tonnes were on offer for rall transportation. An fertilize prices
rise, farmers are likely to substitute factory made fertilizers with
- 115 - ANNEX 4-1
.Pas 3 of 9natural substances. In addition, past overe-onsumption will be seducodfHowever, the revitaliattion of the agricultural sector and the expansion of
cultivated land9 should increase demand. Thus, after a sharp drop in
fertilizer consumption in 1991, demand will once again start to grow. By
1995, FMf projects a demand for rail transportation of 34,000 tonnes.
7. Phosphate Each ton of fertilizer require 1.6 tonnes of
phosphate. Most of FMB's phosphato is extracted In the Arusha/Tanga area.
The current rail transportation demand is 42,000 tonnes. Due to a lack of
suitable wagons, TRC only carried 4,000 tonnes of phosphate in 1989.
TRC is, however, purchasing x Hopper wagons. Thus, TRC should be able to
capture most of this traffic in 1995. The projected fall in fertilizer
production will reduce the required amount of phosphate in the fertilizer
plants. By 1995, TRC is expected to carry ca 35,000 tonnes of phosphate.
When CPCS made their Interviews, subsidies of fertilizer were expected to
continue. Thus, neither the interviewee noc the conaultantt, foresaw any
decline in production. In light of recert Aevelopments, the CPCS
projections needs to be revised downward4 for both phosphate and
fertilizers.
8. Cotton Cotton production has remair ti, except for occasional
bumper crops, quite stable over the years. Tzs, expected 1990 cotton
production is 320,000 bales, or 61,000 tonne.s. After the bumper crop in
1987, cotton output wa curtailed because of a transportation backlog.
Farmers responded with a shift from cash crops to subsistence farming. In
1989, the transportation backlog was finally removed, reducing the Cotton
Marketing Board's (C0B) cah shortage. Thus, CMB should once again ') able
to pay farmes on time, which in itself, should sttmlate production.
Cattle cake and cotton seed productlon usually move In taadem with cotton
output. In 1989, TRC carried 19,000 tonnes of cattle cakel slightly below
transportation on offer. Cattle cake on offer In 1990 is 25,000 tonnes,
expected to increase to 31,000 tonnes by 1995.
- 116 -
F&i07 of 9
National Milling's pyment difflcultieo continues, the foreseen improvemntIn TIC's compttiive position In the Iong haul segment should make itpossible for the fim to capture the bulk of this market. In 1990, the longhaul seseat consistod of some 30,000 tonnes; expected to lncresse to33,000 tones by 1993. The sise of the short haul market is approximatelyof the sme sie so that of the long dLetance market. Based on interviewwith National milling and the Ministry of Agriculture, wheat production andtraffic is expected to grow by 32 per annum over the next five years. Aspreviously mentioned, the assumption that TRC will capture 1002 of theshort haul segmnt is somewhat optimistic.
11. Other agricultural products In addition to the above mentionedcrops, TRC carries a fair mount of coffee, rice, oil seeds, tobacco,livestock and timber. In 1989, aggregate traffic demnad for these productsamounted to 270,000 tonnes. TRC carried S02 of this traffic.
Coffee on offer is mainly from the Arusha district and, to a lesser degree,from the district south of Kidatu. Previously, coffee from the South wasshipped to curing plants In Arusha and from thereon to Tanga for exports.The completion of new curing plants In tho Southern district will divertcoffee traffic from TRC to TAZARA. However, output growth in the north isexpected to eompensate for the loss of Kidatu traffic. We expect TRC'sshare of coffee transportation to remain at 30,000 tonnes throughout the1990-1995 period. CPCS did not correctly predict the timing of the lose ofSouthern coffee.
TRC carried 21,000 tonnes of livestock in 1989. An additional 9,000 tonneswas on offer, but, due to wagon scarcity, had to be herded to the coastalarea. Becaue of the poor state of the current breeding stock, the Ministryof Agricultural does not foresee incresed output over the next five years.
National Milling offered TRC to carry 80,000 tonnes of paddy rice In 1990,and expects deaund to Increase to 92,000 by 1995. TIC ha accepted to carrysome 17,000 tonnes in 1990. NM's deteriorating finaneial health and thedevelopment of the informal marketing sector, could reduce the projected
amount on offer.
- 117 - AM 4-1Page 6 of 9
Our estimate of cotton production deviate from the CPCS projections for two
re"ons: (1) The CPCS estimates were madi during the bumper crop of 1987.
Thus, the forecat was founded on an unusually high base year. (2) CPCS did
not take Into account CH3's ensuing cash shortage and the production shift
it caused. Nor did they subtract the transportation backlog from the 1987
base year. Consequently, we lowered CPCS's 1995 forecast from 110,000 to
70,000 tonnes.
9. Wheat During the 1980's, National Hilling (MM), sold 30,000 -
50,000 tonnes of wheat and 200,000 - 300,000 tonnes of maize per year. The
annual figure depends on a number of factors, includings weather ,
productivity improvements, population growth and the development of an
informal market. The growth of the informal market Is likely to be the
factor having the greatest effect on future demand for traffic.
In 1989, TRC had some 30,000 tonnes of wheat on offer. However, National
Millings inability to pay for transportation services forced TRC to curtail
the allocation of wagons. As a result, National Milling was forced to sell
a large portion of its grains to local disttibutors with limited storage
facilities. Local distributors turned to truckers for the redistribution of
the comodity. If the operational improvement plan is successful, TRC could
recapture the diverted 12,000 tonnes of wheat.
10. Maize Despite Increased maise production, TRC has dramatically
reduced the amount it carries. The reasons were twot (1) small holdersreceived low priority during times of wagon shortage, and (2) National
Milling experienced a severe cah shortage, making it difficult for tho
firm to pay its creditors on time.
Predicting TRC's share of the transportation market for maize is difficult
for two reasons: (1) National Hilling. survival as a major grain
distributor li, at best, insecure. and (2) the curront fragmentation of the
dlstributlon sector alght divert future traffle from TRC.
Fragmntation of maize production and dlstribution In combination wlth the
deteriorating financial health of National Hilling, makes lt dlfficult to
predict the future percentage of output on offer to TRC. However, even lf
- 118 - AN= 4-1
Page 8 of 9Based on discussions with the Ministry of ASriculture, we have, for the
remaining agricultural products, assumed growth rates of between one and
four percent.
12. POL The forecast of POL demand, was based on interviews with
BP, CALTEX and Shell. The interviews reinforced the projectic.n presented in
the World Bank's 1989 POL Study. The World Bank team and the Oil
Distributors had agreed on the following data:
White POL Traffic on Offer to TRC
Million Tonnes1990 1991 1992 1993 1994 1995
Moshe 115 118 120 125 130 135Dodoma 25 26 27 29 30 31
Isaka 16 16 17 18 19 20
Kigoma 10 11 11 12 13 14
Mikumi 12 12 13 14 15
Mpanda 2.5 3 3.5 3.8 4.0 4.2
Mwanza 59 60 62 65 70 73
Tabora 13 14 15 16 17 18
Black POL 62 64 66 67 70 72
POL transportation is expected to grow at appr'oximately the rate of GDP,
i.e. 3.32. Demand for POL between 1984 and 1988 increased by 132 per annum.
In light of past growth levels, a 3.3 $ growth rate seem slightly
conservative.
D. Transit traffic
The potential for expanding the volume of transit traffic is large. The
main bottle-neck ha been and is TRC's operational inefficiencies.
Potential Transit Market
Central Corridor Northern Corridor1987 1995 1987 1995
Imports 186 519 862 1035Exports 132 256 216 274
According to the Great Lakes Report, traffic on offer to TRC could grow to
750,000 tonnes in 1995. However, this forecast in based on a traffic shift
from Mombasa to Dar es Salaam that might not materialize. Interviews with
several customers - AM!, Uganda Coffee Marketing Board, CKM and STIR -
- 119 - AM=9 4.1Pape 9 of 9
revealed a deep rooted mistrust towards TRC's management and operational
capabilitieso
In 1989, TRC only carried 220,000 tonnes of transit traffic, or 692 of
demand. Due to TRC's past record, customers have started to divert traffic
to Mombasa. Changing customer's attitudes will require time. Thus,
improving TRC's efficiency will not guarantee TRC the full traffic
potential. We have assumed that only 400,000 tonnes will, de facto, be on
offer by 1995.
PROJECTED FREIGHT CAPACITY UNDER VARIOUS SCENARIOS (MILLION TONNES) ANNEX 42SCENARIOS & DESCRIPTION 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 200 2001SCENARIO 1-FULLINV. OIP 0.98 1.18 1.51 1.71 1.86 2.15 2.15 2.15 2.15 2.15 2.15 2.15fu investmentboo availability 100% Of base caseBlock talns -I 00% of base caselocomotive utilization 100% of base caseSCENARIO2-PARTIALINV+ OIP 0.96 1.15 1.18 1.21 1.19 1.31 1.18 1.19 1.19 1.19 1.19 1.19partial investmentbco avaitability - 90% Of base caseBlock trains - 75% of base caselocomotive utilization - 95% of base caseSCENARIO 3-NO INV + OIP 0.92 0.68 OA7 0.35 0.16 0.09 0.03 0.00 0.00 0.00 0.00 0.00no Ivestrmntboo availability - 100-50% Of base caseBlock trains -10% of base casebcomotive utlization 100-50% of base case
oSCENARIO4-FULLINV+ NOOIP 0.92 1.01 1.08 1.19 1.26 1.45 1.45 1.45 1.45 1.45 1.45 1.45ful investmentboo availability - 75% Of base caseBlock trains -50% of base casebocomotive utilization - 90% of base caseSCENARIO5 -PARTIAL INV+ NO OIP 0.88 0.91 0.91 0.93 0.85 0.87 0.78 0.70 0.63 0.57 0.51 0.46partial investmentbco availability - 75% Of base caseBlock trains -25% d base casebocomove utilization -100-50% of base caseSCENARIO 6-NO INV + NO OIP 0.86 0.47 0.21 0.09 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00no investmentloco availability - 100-40% Of base caseBlock trains -10% of base casexcomotive utilization -100.40% of base case
SCENARIO 7-PARTIAL INYV PARTIAL OIP 0.97 0.83 0.85 0.85 0.83 0.78 0.78 0.78 0.78 0.78 0.78 0.78partial investmentbco availabiliy -100-70% Of base caseBlock trains -20% of base casebocomotive utilization - 100-70% of base case
- 121 -
TANZANIA
RAILWAYS RESTRUCTURING PROJECT Annex 4-3Page 1 of 3
WITH PROJECT: PROJECTED INCOME STATEMENT
(TSh 000)
19614 . 1 1i9 t14 19 19 199 s1" so"
Rail Roeie
Teasl rtg6 166868 1911066 8600660 666878 8616600 866600 869660 816600 8616Transi At tss taiB "am m lpl tiSalm ttaS II _WMA $a"#" $"a_ smmo
Total Pie ipt, 76 18 14666 t0401 191017W o1 1141W Iffi 111S419 91410 21614109
Itaeaneee Ser ices I746 I9600 816 874176 8741766 S7 6 SUM 8741a6 W87417
Total Rail Rteuf we 96476 1666577 16l8l6 224840 26978 1666697 gloom 1666697 66697
Reveavee: OIlier Service. 1066088 861678 8e67 6 7 8e67 8s1um sum Sei7 8167
Totl iRevenue 1067809 1741744 91166 1411 168s6" 9618 1866 wi1 6 16
cOoti ls Cmt
"Din*. at.6 78824 6 S1 "Om ion"1110 1tA1W U3111, 1t5W 1110sagon. 6818is 86406 6415 819064 8196 109 81904 a1"" 60o4
Caecltes a 006 14318 47170 47170 MM 4n7 4n78 4170 477bt*"e,l 1601 16476 171180 18807 176 all Wm 1311 1l t 0176 107136
Other "Oteri,l/Serv ice. 11t 1147172 1146" 1116 110 6900 106 116t 1106 100Labor Costs 13666 10981 304066 1966 196"69 160 1606 1986666 1"906Incentive/
_leatal Paymt 461 60761 6m0761 071 66 00761 6071 606 607otler 766"1 766861 766661 76411 7661 76lt 766l 761 76"Oaeclotioa: Esieting Ae.ta 1o118 17212 6010t 848W 4157 841,197 J78 8 1 814SU9
: Ma. AO"t 0 86759 218 816w 761147 9566 10767i 11o09 10600t
oeeret; ne Coets: Ro; 691679 62619 66666 _ 967478 1846464 106646 10771 10060 1017"----------.- - - --0.eat,ag Coota Nan-ailI 1076999 40l188 4i14 4i18 41481 414 484815 4141 41481,
Totel IOarotiag Coot. 79"9M 6919 U9128541 10079 10909160 11S649 121478 1129424 l1061_____________________
Oasa tisg Incoe 9687517 6716116 11620104 188468 1549 18010 1466160 14096 146_64
ac;ewtion.al sate.:
PForei Coats of Ret.ificetioa:(i)Loco Na t. Backlio 16082 728911 O418ls 817700 #t948 0 0 0 0(ii) Track "Dint. 6ack log 0 286024 11842l 0 18789 14706 1l66 716744 4461199 I1(;) WOon "Dina. Sacklog 0 116486 49210 810s76 18106 0 0 0(;v) Coast.. abist. backlog 0 4796 20106 110 549 0 0 0
Subtotal: Naint. sOckloo 1e98 11268i6 27801 9428814 17119 6l 7 7644 44996 148112
Training Ceaacity Building 0 108176 e 464 381214 40610 6 1186 Sun71 SIOOT*chnical Assitance 0 4768O 9961O 10476O 848111 0 0 0 0
other 16a6 97977 20414 t 9i20 1612 182499 96 6186 11186
Local Project Coo" 657 1061169 4120988 77680 4726017 846 117060 18412 4708
Total: Emeoptienel Expenes 887848 267281 6494160 6O6149 7560991 48404 81278 194819 67891
Proft ibefore Pe". Chereo 01O75 8666 88I61O 4464986 T7I6686 10 9 1107425 1274909 14160
Interst Payebl e:Long-term Debt: bleat 2875 1915 18609 12101a 96148 64460 46106 419
:Na 0 0 1466 78681 14446 1o068o 1462124 1741012 266686Shorl-tar 0.1btSutotal 66278 191592 8060 86484 18467 21190M 28837487 976721 1909600
mInteast Inca..
Nat Interest Payable 2_873 1919 06U07 6849 1861 2139970 168467 276S77 19068
Am,lmasatien of ForeignRecktago Lease. 1094077 104077 104077 104077 102407 108407 100407 10940 10a407
Nt" k 19 4428196 19987 2606 81068 70164 624 91 16 1066148
Dividondo 0 0 1197846 1880 8018 41269 618 68727 7748968
i4tsi" 4lbralow Ia027 462381 796261 1010i 6 0i491 _ 9 9061476 1190606 966111
- 122 -Annex 4-3
TANZANIA Page 2 of 3
RAILWAYS RESTRUCTURING PROJECT
WITH PROJECT: PROJECTED BALANCE SHEETS
(TSh 000)
Not p;i e14io'arc olaw ama= lo m Mm a Slm. am"" OWw 1997 sam 21 1114..eree8141 irni@WS 8036 1331m 30943 1 4 mill sses i33NM LOOM 0 0 O 310 511 O 38106 S 8186 0M 4670 47800 4306
vlroies mm, 821111" 4149"O 4111011111i IM tm weu w lmon tw 111407 M"Tofta Fiead Arnte 8816441 864431 838306 983983 1411101 1345153 1718618 1io 3 156983 1160
0.efread F.r.;p,Egac g Itea Los" 1024079 9339 319114 7133 6140. am" 4033 8i I 1033183 1037
I"^"e_tomo 41185 611 41A8 411U 412 4118 4118 * m 4113 4118I
Not Narbiet Ca,.
LIrwatari 1760791 141q0 81*0780 4071 4133 41810s11 006t 8 9064 34546W i4iDalb-z 8368306 37236W 161*617 318391 89 83156283 163393 8uW 81116mI M"3 71 3 89Crod,t,re 81613 21 1148111111 33783 1309 2787 1998 1"am 86376 10 6978L 199M
98M 87933 810438 4360396 49331 5 11116l3 43196 4478093 4373
Cur. Portia, LTD se39C1l smi _S3331 U m i I 47 m 111 13183 176 loam0
bsen blbnI.a"oaalm 14896 3370 3390W U 49031 1*333 18308 16139 196394 8496 m11i?1ek Ove.rdr,ft 1116686 1183308 11 8 1*138 11138 11863 ias"" 118333 118 1183333
Pvaiair, 461874 431874 41874 4I374 461174 432874 43154 431574 432874 441574
total Not Amt, 11*800 144836 198680 37431112 88311987 480633 4378 932 1900 63M4 831137
R inoaed f':
.6qmw. Capital:
Casital Account 780018 141866 1*66416 41519815 1810341 161064" 131061 18106415 2103415 2810642
Retaieed ora a.i 403 - 8029s67 -891789 3071 14837 83339 6736 41479 1035111 10196-________________
Ensity Ca3ital 114891 70416M 1e167684 138w 198040 21586911 169n17 188344 W744 s81833
Leog-tore Det
Pro-Projet Debt 1614S6 933S 877941* i986 71149 68061 8636 83844 49839 43111
Project bet 0 140 680M3 1100312M 171*1803 10334367 41m76? 28304818 83471
Gros LTD 1414886 e9368 10001891 142*6467 19 1019 saa 1631m6 83173o 17963 2780
Cwr. Porti LTD 890616 33361 3168161 *81 47 0 336W 641W4 sm 116660._________._____
Met Lang-tars Debt 181070 67M412 917660 1840 184078 83M0 4 29U12 373866 27513886 16483076
LTD ejotaanct 0 -1567611 -155761 6111711 -1157611 -116e61 -18711 -113576111 -1887611 .11731
Total Libb i ite 114806 1443259 198060 27469112 81197 4806866 40790 811900 47094 16190837--.---------------
c.. tag ElirWa d 12301661 15642915 S1O6I6 13673 87433311 44110 499481 83086 88 90
RSAirn On COViftl EIla.Y0(l) 1i 87 16 i6 10 as 24 14 go
Debt/Ca,ital E lod (5) ad so 61 82 85 86 4
1991 1962 1998 1994 199- 1996 1997 1998 1999Ca Omratte r Operatl - ---RaIl *ewe 08047 1688677t 2055109 226440 26556078 26556976 25666978 26556979 25556976;Oarable Cease:
material 806441 4027082 486500 4863779 65 98066 559668 3896636 63968 589 685mLabor 280111 895240 36660 876974 878974 $87974 879974 878974 876974882s66a 4422272 472 528274 5777010 5777610 677?610 6777610 6777610
Contrlibutlo margin: Rail 5324 124185oo 15608636 17811767 197780e 107798 1917936 19779960 19779: Oer 56118134 8665 86967 8967 8 69857 86 7 8 60657 86965? 868e"7
Fild Cte "58"? 8649545 8681469 88002 8626668 SUMS 862968 U829688 862Eoptieal Ce 7s40 2967262 844100 6091496 7560991 4840408 8128t7 1934819 78922 ofre" Catle 2461869 6067m51 86664 5 129 6778s2 11499185 18210766 14406224 15666621Mat Inv. io Working Cap. -2880147 002040 -1488062 -809724 -16875 297111 200097 188675 147841Free Operating Caeht I.,. -8667o9 6660799 2480602 502140 660976 117116246 1841060 14644099 15812982Capital Expndltereg 0 642429 6970 6279741 26996 20T87 18070 807500 277 5 21st C&lOW -8606799 0027869 -861" -12688 570797 9766486 121089 18t789 15"5487 .. ?
Fl_lw x w
Equity Fimaaleg 0 0 2910000 2910000 0 0 0 0 0 J ca.-tn 0 Non Debt 0 1222480 6060206 578578 5174028 8471784 2286696 1a86226 476868 $ tM .- g
bIrld_dPaid 0 0 1190748 1588906 8062188 4288a89 6184419 67272 748988 °>7nterest Paid 228875 191562 8057 6"449 1540671 2129970 84ST 2737217 2909800 z 0
Deot ta 82561 e6m2s 25681 625681 626681 478 6SS60386 941844 1228768
on 0Nat Eabernal Finacing -1049006 2062568 5660724 5401989 -254812 -888118 -7088018 -9116047 -11401575 E t______
UZ Cah Accreti" 1417M9 4282826 -219C6 -41488S -S41866 -6404874 -50847 -4016S52 -41886Nat Finnsaclng 888789 -6027389 8435168 126688 -5670797 -9769496 -12103859 -1873889 -155587
cn
E~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
0o
TANZAN IA
RAILWAYS RESTRUCTURING PROJECT
WH PROJECT: RAILWAYS VARIAl OETIN COSTS
(TSh mi II ton)
1991 1992 1993 1s04 1996 1996 199? 1998 1999 2000
Vara;ble Imported Matorial 1378.20 12.50 1417.80 1491.70 1624.70 1624.70 1624.70 1624.70 1624.70 1824.70Adjested Ecoseic Costs: 1963.66 1991.26 2027.45 218.13 2823.32 2323.82 2323.82 2823.82 2828.32 2328.32Variable FmI 1867.10 1626.40 1625.40 162.40 1625.40 1626.40 1625.40 1625.40 1625.40 1626.40Adjusted Ecoomie Costa I04.6 2824.82 24.82 2824.82 2824.82 2824.82 P824.82 2324.82 2324.82 2824.82
Variable huontic Costsatewlrl 110.10 110.70 111.40 112.00 112.00 98.00 10.90 08."0 98.90 90.90Lobor 176.50 8.00 685.00 385.00 8.00 386.00 858.00 868.00 M3.00 8U5.00Issetives 41.40 62.00 62.90 62.60 62.60 62.60 62.60 62.60 62.60 62.60
Subtol 826.00 54.60 547.20 647.60 547.60 584.70 584.70 54.70 584.70 584.70
Total Imcro.aatl keo_sic Costs 4246.68 4862.10 4096.96 5006.25 619.44 5162.84 5162.84 5162.84 5162.84 6162.84
Unit Coet (TSh)g
Total Iacramotl £co.. Co.t M 8." 8.69 8.47 8." 8." 8.90 8.66 8.08 8." 8.N6Total Incr_mat9l Eoen. Coetat/N1 4.50 4.48 4.17 4.26 4.42 4.41 4.41 4.41 4.41 4.41(.209 adjuoott for Interior eavico)
Roed Traowt Cot (Econ)PlTM 12.02 12.02 12.02 11.40 11.40 11.40 11.40 11.40 11.40 11.40
Differential: Rail/Read Costa (T78) 7.42 7.56 7.65 7.14 6.97 6.09 6.0 0.900 6.00 6.0
Annex 5-2- 125 -
TANZANIA
RAILWAYS RESTRUCTURING PROJECT
ECONOMIC EVALUATION
Truk Physical and Operting Characteriefts:ExIsting Road With RoodCondWons Improvemomto
Vehiclo Payload 15.00 tonneoTrailer Payload 15.00 tonnesTotal Payload 30.00 tonnes
Truck/Trailer Load Factor 70.00 %Vehicle Km/year 42000.00 50400.00Fuel ConsumptUonVKm 0.90 lItro
Tyre SetalTruck-Traller Combinaton 10.00Tyre Llfe 26000.00 km 3e(00.00 kmTiroe Setoyear 15.00 14.00
Road Transport: Capital and Operating Costa
Truck: Chassis and Cab (TSh 000) 7954.00 (excluding duty and sales taxTruck B (rSh 000) 1070.00 (exol. sales tax; Wool manufacturo using Imported componentTraler Chassis (TSh 000) 3246.00 (off I.e excl. duty and sales txes)Trailer Body (TSh 000) 60000 (tocal manut. using Impoded oomponents; cxl. sales tax)
Fuel: Finanio price (TSh) 64.00 per litre: Net of taxes (TSh) 64.00
Oil & Lubricants (TSh) 10.00 %of cost of fuelCwCosts {TSh 000) 137.00 per annumSundry Operating Costs (TSh) 2.00 /kmMaintenance (TSh) 18.00 /km 15.00Admin & other overheads (TSh) 8.00 /km
PriceMre Set (TSh) 81000.0C (excl. sales taxTire Set/year (TSh) 915000 (exel. sales tax) 854000
Economic Cost of Road Transport (TShfveh. km)
Exist Rod With RoadConditions lmprovem.mts
Capital Cost 101.32 101.32Fuel 62.37 82.37Oil/lube 8.24 8.24Crew cost 3.26 .74TIres 25.27 19,66Maintesn"e 21.67 15.00Sundry & Overheads 10.00 10.00
Tota Costs/veh. km 252.33 239.32
Total CostasTonne.km (TSh) 12.02 11.40
PROJECT ECUINC RETURNS
lavetmeont TraffiC Cost of Road Transpot:(TSh million) (million NTKU) Additional Traffic Net Bene fit
With Without with Project Without Projet Difference (TSh mlillon) (TSh million)Project Project Different.
1991 as24 428 1s2 1109 752 a? 26m1 10191012 9168 2006 7m 1175 762 423 320? -4543198 1070 2220 66 122 752 470 3s6s -40971904 11299 2826 014 1310 752 564 4025 -4940lo6 8218 1682 6526 1410 762 O6C 4569 -19871996 5186 1067 4071 1410 762 65s 4697 5131997 8062 64 2447 1410 752 65 4597 21461998 1027 211 810 1410 752 056 4607 87811999 0 0 0 1410 762 e6g 4597 46972000 1410 752 a65 4597 47972001 1410 752 6on 4597 46972002 1410 72 86 4597 45972008 1410 762 66 4597 45972004 1410 762 56s 4507 469?2005 1410 752 a65 4597 45972006 1410 752 669 4697 46072007 1410 752 659 4597 46972008 1410 752 656 4597 4597200 1410 752 S68 4507 4572010 1410 752 65S 4597 46972011 1410 752 a8g 4697 45972012 1410 762 a6s 4597 45972018 1410 752 6C8 4597 46972014 1410 752 668 4597 45972015 1410 752 65s 4597 45972016 1410 752 a" 4697 4S972017 1410 752 668 4597 46972018 1410 762 656 4697 46972019 1410 ?62 650 4S97 45972020 1410 762 660 4697 4597
Economtc Rat, of Reurn: 1is Not Present Value (1o0): 10692 mlilleon
IXU'
TANZANIARAILWAYS RESTRUCTURING PROJECT
Road Transport: Etimatd Operating C.,t of Passeger Transport
Seating Capacity 65Sue-Ku/year 130000 (705 effective availability 6 500 km/day)S"t occupnc () O0Passenger-ku 7605000
Economic Cost of Bue (TSh 000) 22179 (net of duties and sales toese; shadow-priced)Annual Equivalent Cost (TSh 000) a/ 9NO?Capital Costs/Paseagenr-ii (TS%) 1.25
F"l Costs (ocon)/SBu-ku (TSh) 22.40 (.36 litro/km*TSh 84/litre)01I Costs (econ)/BSus-& (TSh) 0.43 (1.7 Iitree/1000 km o TSh 260/litre)Crew CostasjSe-ku (TSh) 2.22Tyroe/yeer (TSh) 3740000 (sot of 7 tyres/bue * 1 spars, 25000 km Iife/tyro, TSh 100000/tyro)Tyrsa/S"u-ka (TSb) 28.77waI te"ace/goo-ke (TSh) 6.00Othr Coat/yeor (ThU 000) 1250 (Insurance and other non-transfer expensp)
Sboltal: Variable Opeating Cost.jflu-lu (Ze) 71.43
Variable Operating cPResePossnager-ir (2c) 1.22
Totals Ltin- Avoidable Costs 2.47
a/ bsed on presst value of chal of replacement cot every five (5) yre a.to lnfinty;dilsost rau 1a6; _
TANZAN I A
RAIL1AYS RESTRUCTURING PROJECT
Passengr Sorvice. Cost Structure
Casehing Stock mosecamsnt P e, l201
Coach Unit. 14 18 is 18 1is n #
veg,. oiss mliil. 1 0 .6 5 6.5 7.6 10.6 10 4Present ain. Sof b 1 plsseta$(U55 sullen 5.30 4.54 2.61 1.50 1.25 1.60 a.40 0.60Total Prevent Vale (U a) a 15.55
_Iae Eulv. Cest Of POpl_OC t!Vsa ( *N) * 5.37
Lecootive Capital Coot:
Anmel Eiqpvaleat Cost ef 4 MsIllm L.emtiv.s (UN a): 0.90
Presget Voivo of fetwr SIplcemt* o 4 mi1> low LeceAsivo (N a) 1.55
A_ l E4ibvalet Cst Of RepInement f 4 lbliilin Los (UN a) 0.20Total A_n1lie Capitatl Cast(f Service Petilues OM a)O 8.41
Tota Ast lend Capital cast (1Eesnalc) (m a): 4.5
PasesegR'al.w .(1111..)s 4.41
Atom"g IRAdsrhip VlSIOmee (bo)t 0
tal P _soasa (4IIIos) 1720
Capital sts_--ansr- (EseMic) (): 0.6
_1ngua 1e"Mag Cilia of Eupenad SIlce Preiole.s
Fleomseia fEcosos
Matrial (-11st mliii) m.
Past (TO milli") 1855
Ler (TM *ilios) 7"4 724
Total tin nu
r"s c (h) 1.87 1.75
/ all present vale at t1;b/ litf of d.oaatives a 30 learsa/ rideal lltf. etltin leotle as teo _ ice * 15 yers;
lIfe of oaches a 40 p"er;s life poile o cf e _h ed I T IKC records; pwoject coahese *Mowd to bo precfed lain aN 100;
- 129 -Annex 6Page 1 of 3
RJVLWAYS R8WNSRTI P SOJUC?
SUPVISION PLAN
1. IDA Supervision Inputs Bank staff Input into thesupervision of the project will take the following formt
(a) Portfolio management operations: the review of procurementdocuments, progress reports and financial statements atheadquarters and correspondence and internal reportingrelated to such activities are estimated to require sixstaff-weeks in each of the first three project years andfour staff weeks thereafter.
(b) Field supervision: the supervision of the project in thefield will comprise five broad aspects:
(i) Operating Performances the detailed review ofmaintenance and traffic operations;
(i) Financial Performance: the detailed review withTRC of financial performance and prospectstaking operating performance and traffic pros-pects into account;
(iII) Regulatory Climates review with Government, theBoard of TRC and TRC management of progress inimplementing the provisions of the Memorandum ofUnderstanding;
(iv) Pro1ect Implementations review of progress inthe implementation of subprojects againstphysical and cost targets;
(v) Donor Coordinations IDA supervision would be ona cooperative basis with the TRC Donor Group andwould entail meetings with donors individuallyand as a group on every field visit to discussthe performance of the project.
It is planned to undertake field supervision of the project on aquarterly cycle for the first three project years and on a semiannualcycle thereafter. The activity plan for the first two project years isindicated in the table below.
- 130 -Annex 6Page 2 of 3
2. Borrower's and Beneficiary's Contributions to Supervisions
(a) TRC will provide quarterly reports in the format agreed atappraisal and confirmed at negotiations;
(b) TRC will provide annual financial statements in the form andtine schedule agreed at negotiations;
(c) on each supervision visit in the third quarter of TRC'sfiscal year. Government and TRC will prepare and discusswith the IDA mission the operating and financial targetsproposed to be set for TRC for its ensuing fiscal year andthe investment program proposed to be implemented.Government is expected to be represented by officials ofMCT;
(d) Mission briefing meetings on arrival will be chaired by thePrincipal Secretary (PS) or a senior official of MCT. Wrap-up meetings will be chaired by the PS of HCT and attended bysenior officials of the Ministry of Finance and TRC's seniormanagement.
3. At the end of each mission, an Aide Memoire will be prepareddocumenting TRC's compliance with the performance objectives agreedunder the project and during the preceeding supervision mission, themeasures to be taken to remedy any shortfall in performance and theperformance objectives for the ensuing quarter or half-year.
4. In the th'rd quarter of the fiscal year 1993, TRC willprepare, for review by the Government and IDA, a detailed analysis ofprogress in implementing all aspects of the project (the mid-termreview).
- 131 -
Annex 6Page 3 of 3
Bank Field Suervision Plan
Approximate Date Activity Expected Staff Input(month/year) Skill Requirement (staff-weeks)
8/91 Review Reporting Railways 5Requirements/Formats. Engineering/Opera-Review progress on tions Specialistconditions of Financial Analysteffectiveness. Review ofProcurement Activities.Review of operatingperformance
11/91 Review of operations & Railways Engineer- 7financial performance. ing/OperationsReview of performance Specialistobjectives for PY92. Financial AnalystReview of investment Procurement/Sup-program. plies SpecialistProcurement/MaterialsManagement Review
3/92 Review of FY91 operating Railways Engineer- 5and financial ing/Operationsperformance. SpecialistReview of project-related Financial Analystprocurement activitiesand progress.
6/92 Review of operating and Railways Engineer- 5financial performance and ing/Operationsprogress in project Specialistimplementation. Financial Analyst
Years 93, 94 Same pattern as 91/92 Railways Engineer- 20 swplus detailed mid-term ing/Operations p.a.review in 11/93. Specialist
Financial Analyst
Year 95, 96, 97 Supervision Missions in: Railways Engineer- 12 sw98, 99 (a) April/May of each ing/Operations p.a.
year to review plans Specialistfor ensuing year and Financial Analystprogress in projectimplementation
(b' September/October toreview full perform-ance in past year andproject progress
PCR mission in late 1999.
TANZANIARAILWAY RESTRUCTURING PROJECTIn lmetaoPlan
1991 1992 1993 1994 1995JJASCIEJFvtkJu C'CJF PUJJASCCJF FPLJJASCOWJFU*LJJ£SCWCJFUMRehabiation of loootives
-Technical Specfcations..-Tendering & Contacting xxxxxxxxxxxx-delvery of Equipment m am4Impokntion & Comnussioning ooooooooooooooooooooooooooooooTrack Rehabilitafion-Technical Specifications -----Tendering & Contracting xxxxxx-delivery of Equipnent uiinmnmi-a3umwmui-Implementation & Commissioning ooooooooooooooooooo0ooooooooooooooooooooooRehabilitation of Wagons-Technical Specfications ....-Tendering & Contracting xxxxxx-defivery of EquWpment umwmSminam-Implementation & Commissioning ooooooooooooooooooooooooooooooRefurbishment of Coaches-Technical Specifications ....-Tendering & Contracting xxxxxx-delivery of Eqljlpment-Impiementation & Comnnissioning ooooooooooooooooooooooooooooooBridge Strengthening-Technical Specicatons ................-Tendering & Contacting xxxxxxxxxxxxxxxxxxxxxxxx-deliery of Equient-Implementation & Commissioning oooooooooooooooooooooooooooooooooooooooooo0Disel Workshop-Technical Specfications ........-Tendering & Contacding xxxxxxxxxxxx-delivey of Equipment =o--"=-=-Impementaton & Commissioning oooooooooooooooooooooooooooooo
DSM Workshop-Technical Specifications-Tenderng & Contcing xxxxxxxxxxxx-devery of Equipment ==mww =Maca--I 8t tlon&Commissioning_. .__ ooo°°°°o°o°°°°--°
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-Tendering & Contacting xxxxxxxxxxxxdeiey of Equipment we""""I_pbnwnWm & Cosmtsioning o000000
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New Coaches-Technical Spedfications-Tenderng & Contracting xxxxxx-delivery of Equipment-Implementation & Commissioning 00000000Acddent Relief Equipment-Technical Speiications -----Tendering & Contracting xxxxxx-delivery of EqLdipment-Implementation & Commissioning 00000000Road and Rail Vehides-Technical Specifications ....-Tendering & Contracting xxxxxx-delivery of Equipment-Impl ementation & Commissioning 0000Office Equipment-Technical Specifications -----Tendering & Contracting xxxxxx-delivery of Equipment-Implementation & Commissioning _oooooTechnical Assisngnce-Technical Specifications -----Tendering & Contracting xxxxxx-delivery of Equipment-Implementation & Commissioning ooooooooooooooooooooooooooooooooooooooooooTrainieg-Technical Specifications -----Tendering & Contracting xxxxxx-deliveS y oa Equcpmentions-Imtplementation & Comnmissioning 0ooo00000000ooooooooooooooooooooooooooooooStudies-Technical Specfflcations ..-Tendering & Contracfing xxxxxx-tudy and Recomrnendations -- "--=--"==-=-Implementation & Commissioning 000000
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