Document of The World Bank

Report No: 27705

IMPLEMENTATION COMPLETION REPORT(CPL-39760 TF-29112)

ON A

LOAN

IN THE AMOUNT OF US$120 MILLION

TO

ROMANIA

FOR A

RAILWAY REHABILITATION PROJECT

May 11, 2004

Infrastructure and Energy DepartmentEurope and Central Asia Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective March 2004)

Currency Unit = Leu 1 Leu = US$ 0.00003US$ 1 = Lei 32,230

FISCAL YEARJanuary 1 December 31

ABBREVIATIONS AND ACRONYMS

IBRD - International Bank for Reconstruction and DevelopmentEBRD - European Bank for Reconstruction and DevelopmentEU-PHARE - European Union Assistance Program for Eastern EuropePMU - Project Management UnitIRIS - Integrated Railway Information SystemRAP - Restructuring Action PlanSNCFR - Societatea Nationala a Cailor Ferate Romane

(Romanian National Railways)CFR - Infrastructure CompanySAR - Staff Appraisal ReportLANs - Local Area Net WorksSAAF - Surplus Asset Disposal CompanyPSO - Public Service ObligationsMTCT - Ministry of Transport, Construction and TourismLANs - Local Area NetworksIRIS (World Bank) - Intregrated Records and Information Services

Vice President: Shigeo Katsu, ECAVPCountry Director Anand K. Seth, ECCU5

Sector Manager/Director Mooto Konishi/Hossein Razavi, ECSIE Task Team Leader: Antti P. Talvitie, ECSIE

ROMANIA RAILWAY REHABILITATION PROJECT

CONTENTS

Page No.1. Project Data 12. Principal Performance Ratings 13. Assessment of Development Objective and Design, and of Quality at Entry 24. Achievement of Objective and Outputs 45. Major Factors Affecting Implementation and Outcome 116. Sustainability 127. Bank and Borrower Performance 138. Lessons Learned 149. Partner Comments 1610. Additional Information 21Annex 1. Key Performance Indicators/Log Frame Matrix 22Annex 2. Project Costs and Financing 23Annex 3. Economic Costs and Benefits 25Annex 4. Bank Inputs 26Annex 5. Ratings for Achievement of Objectives/Outputs of Components 28Annex 6. Ratings of Bank and Borrower Performance 29Annex 7. List of Supporting Documents 30Annex 8. Restructuring Action Plan 31Annex 9. Supplemental Tables 46

Project ID: P036013 Project Name: RAILWAY REHABILITATIONTeam Leader: Antti P. Talvitie TL Unit: ECSIEICR Type: Core ICR Report Date: May 11, 2004

1. Project DataName: RAILWAY REHABILITATION L/C/TF Number: CPL-39760; TF-29112

Country/Department: ROMANIA Region: Europe and Central Asia Region

Sector/subsector: Railways (100%)Theme: Infrastructure services for private sector development (P); Public

expenditure, financial management and procurement (S)

KEY DATES Original Revised/ActualPCD: 06/23/1994 Effective: 08/15/1996 08/15/1996

Appraisal: 00/00/0000 MTR: 06/01/1998 10/15/1999Approval: 01/18/1996 Closing: 12/31/2001 09/30/2003

Borrower/Implementing Agency: SNCFR/ROMANIA NATIONAL RAILWAY (SNCFR)Other Partners:

STAFF Current At AppraisalVice President: Shigeo Katsu Wilfred ThalwitzCountry Director: Anand K. Seth Michael WiehenSector Director: Hossein Razavi Ricardo HalperinTeam Leader at ICR: Antti P. Talvitie Anita GeorgeICR Primary Author: Antti P. Talvitie

2. Principal Performance Ratings

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible)

Outcome: HS

Sustainability: HL

Institutional Development Impact: H

Bank Performance: S

Borrower Performance: HS

QAG (if available) ICRQuality at Entry: S

Project at Risk at Any Time: No

3. Assessment of Development Objective and Design, and of Quality at Entry

3.1 Original Objective:The objective of the project is to support and deepen the restructuring process, which the Railways and the Government have initiated. The project supports a set of policy measures that are embodied in the new Railway Law, the Restructuring Action Plan (RAP), and the Performance Contracts that the Infrastructure and Passenger Companies have agreed with the Government.

3.2 Revised Objective:Not changed.

3.3 Original Components:The World Bank, the EBRD and Phare financed the project in parallel, but with independent time schedules and supervision. This section of the ICR describes the project components for each of the three financiers. This summary description gives the full picture about priorities at project start. This is followed by the summary of the entire railway sector financing in Romania during the duration of the project. This is necessary in order to put into perspective the fundamental reorganization of the railways, whose many details could not be foreseen at project start, that has taken place during this project. The subsequent sections of the ICR refer only to the World Bank financed project entity because it was supervised independently and the Borrower's PMU coordinated the several projects.

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Table 1PROJECT COST ESTIMATE

Cost Estimates (US$ mn) PROJECT COMPONENT Local¹ Foreign Total FEC

(%) A – BANK (IBRD)

1. Mechanization of Track maintenance and overhaul works, including track renewal on 900 kilometers routes

46.00 44.00 90.00 49.00

2. Integrated Railway Information System (IRIS) 8.00 22.00 30.00 49.00 3. Modernization of Telecommunication network (to support IRIS) 8.20 30.50 38.70 78.80 4. Catenary tensioning machine 0.60 1.60 2.20 72.70 5. Environment, equipment, priority items 0.40 1.00 1.40 71.40 6. Technical Services 0.40 0.60 1.00 60.00

Base Costs 63.60 99.70 163.30 61.00 Contingencies 11.80 20.30 32.10 0.00 Total Project costs (A) 75.40 120.00 195.40 61.00

B - EBRD 1. Rehabilitation of the traction 5.80 16.10 21.90 74.00 2. Equipment for traction depots 2.70 6.30 9.00 70.00 3. Coach Refurbishment 9.00 29.50 38.50 77.00 4. Wagon Rehabilitation 3.30 8.70 12.00 73.00

Base Costs 20.80 60.60 81.40 74.00 Contingencies 4.20 12.00 16.20 0.00 Total Project costs (B) 25.00 72.60 97.60 74.00

C-PHARE 1. Replacement of equipment at interlocking stations 6.90 26.00 32.90 79.00 2. Track material 9.60 29.20 38.80 75.00 3. Print Shop 0.30 1.10 1.40 79.00 4. Technical Assistance 0.40 1.70 2.10 81.00

Base Costs 17.20 58.00 75.20 77.00 Contingencies 3.20 11.60 14.80 0.00 Total Project costs (C) 20.40 69.60 90.00 77.00 GRAND TOTAL BASE COSTS (A+B+C) 101.60 218.30 319.90 68.00 TOTAL CONTINGENCIES 19.20 43.90 63.10 0.00 GRAND TOTAL (A+B+C) 120.80 262.20 383.20 68.00

¹The local component financed by SNCFR includes: local materials and installations, custom duties (15%) and value added tax (VAT of 18%).

The table shows that infrastructure modernization and rehabilitation required the most financing. Attention is directed, however, to the substantial IBRD funding of telecommunications network and the Integrated Railway Information System (IRIS) which were to play a significant role in the implementation of the World Bank project and its supervision--and which now have a central role as the technical and physical backbones of the entire railway restructuring process. It is even more important to note that neither IRIS nor the infrastructure modernization and rehabilitation, as important as they are, cannot replace the concept of restructuring and the process of how it was carried out. This will be discussed later in detail.

The large IBRD/EBRD/PHARE project of US$383 million is only a part of the railway investment that was made during the implementation of the World Bank supported project. The total picture is in table 2. It shows that the total investment was app. US$2 billion of which the World Bank loan was approximately 6.5 percent. An important fact in this context is that the Ministry of Transport, Construction and Tourism (MTCT), its General Directorate of Railways, and the PMU coordinated and implemented all these projects.

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Table 2The Main Railway Projects in Romania 1997 - 2003

No.

Financial Institution

Total amount

(USD mn)

Main Objectives

1 IBRD 120.0 Track machinery, IT, Telecom 2 EBRD 72.6 Rolling stock (Freight and Passenger) 3 PHARE 69.6 Interlocking, track materials 4 ISPA 429.0 Lines rehabilitation 6 JBIC 314.0 Line rehabilitation:

(i) Fetesti-Constanta (ii) Locomotives rehabilitation

7 EUROBONDS 144.00 Freight rolling stock 8 COMMERCIAL BANKS 60.00 Railways stations modernization 9 ROMANIAN GOVERNMENT 655.50 Local contribution

3.4 Revised Components:The components did not change during implementation, the exception was the dropping of the Catenary Tensioning Machine and reallocation of that money to the IT and telecom components. This change was entirely consistent with the broad aim of the project and, in fact, helped keep it on focus. The final figures are in annex 2.

3.5 Quality at Entry:Quality at entry was satisfactory. The project, especially its institutional component was complex and prepared in great detail.

4. Achievement of Objective and Outputs

4.1 Outcome/achievement of objective:The objectives of the project were fully achieved. The Project contributed to a major restructuring of the Romanian Railway industry. The following reforms have taken place:

A new Railway Law was enacted creating the appropriate legal environment for the railway lindustry in Romania.The Romanian Railway has been restructured through a series of evolutions to increase efficiency, lto respond to the market demands and to meet the requirements of European Integration (more of this below).Most non-core railway activities have been privatized.lMany Railway physical facilities such as stations and switching terminals have been rationalized.lThe staff has been reduced from 137,139 in 1996 to 72,744 in 2003.l

The restructuring that has taken place went beyond what was, and could have been, envisioned during project preparation and at appraisal. The diagram on the next page shows graphically the transformation of the Romanian Railways that occurred during the duration of the project. The diagram also explains the complex sequence of events that has taken place.

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SNCFR

Passenger

Freight MARFA

Passenger

Private Freight Operators

Subsidiaries

Subsidiaries

RESTRUCTURING & PRIVATIZATION

1998 2000 2002 2004 2007 EU1996

Project Start

137,139

72,744

1997 2003

Project Objective:Support & Deepen The Restructuring of The Railways

SurplusAssets

Infrastructure

Mgmt. Services

CFR

CALATORI

Local Railways

Interoperable Core Railway Network

Number of Em

ployees

A few paragraphs are in order about the diagram, about the political economy's effects on the railway restructuring, and about the learning experience in railway restructuring the figure portrays. In the initial reorganization the management services, including financial management, were centralized to one company (SMF). This enabled easier oversight from the Ministry over all the railway companies. As the railway companies grew more comfortable in the new market-oriented environment and assumed greater managerial freedom SMF's usefulness to them became less and the companies wanted to have full control of their financial services. This decentralization of managerial services, not envisioned at the start, was accomplished in 2002.

The Railways had a significant amount of surplus and obsolete rolling stock (Wagons and Locomotives). A dramatic decrease in volumes of traffic, together with a change in the types of traffic that was emerging in

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the new Romanian economy made this surplus even larger. In order to focus the disposal activity, a Surplus Asset Disposal Company (SAAF) was created to maximize the return from the sale of these assets. The proceeds from this activity were used to recapitalize and modernize the remaining active fleet used by the Railways. SAAF’s mission was completed when the bulk of the surplus and obsolete assets were disposed of. Consequently it was liquidated, and the continuing activity of any asset disposal was transferred to the infrastructure company (CFR).

Throughout the project implementation the railways operated in a difficult economic environment. The railways were not the only entity that needed to be restructured; the entire Romanian economy needed to be restructured and most industries laid of staff in large numbers. For this reason, the orderly staff reductions at the railways were a remarkable accomplishment.

Another noteworthy item is the emergence of the private freight operators, predicated on the "open access" doctrine of the EU. Traditionally, the freight operator, Marfa, had subsidized the passenger services. Calatori provided substantial passenger services, commuter, regional and inter-city. The Government was unable to pay for the full cost of the Public Service Obligations (PSO) for rail passenger service and Marfa cross-subsidized these services. This caused the track access charges (TAC) to be much higher for Marfa than Calatori, but it also reduced Marfa's competitiveness in the market place and reduced CFR's income to maintain the track and pay for the social taxes of its staff. This difficult equation is not yet fully solved, although the solution is known and being implemented. Marfa's competitive position was further weakened by the taken-for-granted services to large, but cash-poor SOEs, or even private enterprises, whose payments for transport services were delayed or bartered, or simply uneconomic. The behavioral change to money-based transactions and commercial marketing and management was not pulled off easily--and not yet fully completed.

Because the passenger services required substantial subsidies, the (former) Government divided the passenger railways into nine different companies, eight for short-haul regional services and one for long-haul international and inter-city services. The idea was that the local governments would pick up the subsidy payments as none was needed for the long haul services. This solution did not work out, and the (new) Government reversed it.

Nonetheless, these experiments served a useful purpose, and all parties, including the lenders learnt from them. The railway restructuring process, coordinated by the Ministry's General Directorate for Railway Transportation, never lost focus in spite of the difficult economic environment and behavior patterns deeply ingrained in the management culture. At critical points the Bank supervision team played an instrumental role to keep the process on track.

The diagram does not convey the remarkable impact that IRIS and the telecom network had, and continue to have, on focusing the railways' restructuring. Among the many things IRIS allows is the centralized management -- typical to railway technology -- of trains, infrastructure and rolling stock. This has permitted privatization of non-core activities, and reorganization of core-activities. The former is about completed, and parts of the latter are in advanced planning stages.

One feature of this is the creative way the Romanian railways has approached the EU requirement for open access and interoperability, both of which can be costly in terms of infrastructure quality and regulation. The Romanian Railways have an excess of (line) track. However, reducing the railway track by means of abandonment is politically very difficult in any country. The approach adopted and accepted in the Ministry is to divide the railway track into two parts: interoperable and non-interoperable. The former, 65 percent of the total, would be consistent with EU regulations and standards, the latter 35 percent would be

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sold or given to private entrepreneurs or local governments or abandoned. This approach would enable development of the successful short-line railways, feeding the main railways, common in North America. The benefits from this operation will be substantial in terms of further reorganization of the railways, staff reductions, maintenance and regulation costs--and benefits to shippers.

4.2 Outputs by components:Track Renewal, Maintenance Equipment and Track Maintenance on Priority Routes (38% of the loan) was implemented as planned and on schedule. Acquisitions in this component included: switch tamping machines, dynamic track stabilizers, ballast cleaning machines, multipurpose machines, track recording car, switches, long rail transport wagons, rail positioning equipment, railway bridge maintenance equipment, and small track maintenance equipment.

The Integrated Railway Information System (28 % of the loan) was implemented as planned. However, the Bank induced rebidding of this highly complex component caused a delay of 18 months and necessitated project extension. IRIS is a very sophisticated Railway Information System that aims to improve the effectiveness and efficiency of all Railway operations. It consists of four subsystems:

Railway Infrastructure Management is an up-to-date data base of the railway physical plant and lserves the management in the control of maintenance of all the railway infrastructure

Rolling Stock Management is a continuously and automatically updated data base of all llocomotives and wagons and serves the railway management in the planning of maintenance and repairs of all rolling stock

Train Circulation System is a real time system that displays the status of all trains circulating on lthe railway. It is used by the railway operators to optimize the movement of trains on the system.

Freight Operations and Commercial Management System is also a real time system that lmonitors all freight movements, controls all switching activities in the stations, the administration of commercial contracts, and the bills of lading for all rail shipments. It is used by the freight operations companies to optimize service to the customers.

The development of all the above four subsystems of IRIS have been completed and the systems are now in various stages of installation. Some initial benefits of the system are being realized. Obviously IRIS will have a profound impact on how the railways are managed and requires behavior changes from both management and staff. The system is made available for a fee to the private operators as well.

The Telecommunications Upgrade (32% of the loan). The objective of this component was to improve the capacity and the reliability of the internal railway communications infrastructure, and to provide the data transmission network required to support IRIS. The project supported the installation of 3530 km of optical fiber on the backbone network of the railway, 60 Siemens High Capacity Switches were installed to form the backbone ATM Network; 224 switches of different capacities were installed to form the backbone ISDN Network; LANs (Local Area Networks) were installed. The entire communications network infrastructure required to support IRIS implementation and operation is in place. The telecom network also supports all railway communications.

Equipment for Environment (1 % of the loan). To improve the environment at priority sites, measurement equipment and control instruments for selected depots were acquired and installed.

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Technical Assistance (1 % of the loan). The following support was provided:

Point-to-Point Costing model. A Canadian based costing model was installed in the Romanian lRailway to support the efforts to develop specific costs of different types of traffic. This model assists both the passenger and freight railways in deciding on tariffs and what shipments to accept or reject based on their costs to the operator. The model also can assist in understanding the determinants of a differentiated Track Access Charge and in determining the railway line segments that are profitable.

Management Training. The project supported the following technical support and management ltraining activities for railway restructuring and as a means of introducing a commercial approach to the management of the railways:

Human resources management including a study tour for environmental protection at the 1.railways.Consultancy support for restructuring the SNCFR, the original railway entity.2.A two-day seminar for all senior and middle management in April 2002 given by 3.prominent railway experts.A one month training program in 2003 for fifty (50) railway managers from the three 4.railway companies (CFR, Marfa, and Calatori) representing different railway regions. This program, given by a Railway Consultancy company, focused on the changes in management culture required to run a railway as business in a market driven economy as opposed to simply running a railway.A study tour to the UK and Canada for fifteen (15) senior managers to experience 5.firsthand the results of railway restructuring in those two countries.A substantial training component embedded in the IRIS contract.6.

4.3 Net Present Value/Economic rate of return:NA

4.4 Financial rate of return:The project financial rate of return was not estimated at project appraisal and therefore no comparison is possible. However, given the broad scope of the project and the importance of the railway’s financial situation on its future, the railway’s financial performance during project implementation is elaborated at length in this section. The supporting tables are in Annex 9.

The financial projections for the period 1995-2000 for the Romanian National Railways (SNCFR) were prepared based on the traffic forecast, operational targets and staffing levels of the agreed Restructuring Action Plan (RAP). The financial targets for 2000 set in the RAP were: (i) working ratio (operating costs excluding depreciation/operating revenue excluding government subsidy for capital expenditure) not exceeding 100%; and (ii) debt service coverage ratio (total sources from operations including government subsidies/debt service) of 1.5 or higher. These targets were closely monitored. The working ratio target was met, and the debt service coverage ratio was effectively met. The target outcomes at project completion mirror, however, a much different world than was assumed during project preparation. The financial numbers alone do not reveal the rich and knotty story, told next, as they evolved during the project.

Traffic volume suffered a sharp reduction during project implementation. The SAR emphasized the uncertainties surrounding traffic forecasts in the economic and political circumstances of the time. There

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was optimism, however, and the assumption was made that freight traffic would remain at the 1995 level as a result of an active market-based approach and customer orientation, and specialized international operations such as transshipment through Constanza to Black Sea ports and inter-modal operations with Western Europe. Passenger traffic was expected to decline marginally because of the growing car ownership and the potential competition of private buses. The financial performance targets were set assuming that both freight and passenger traffic remain constant during project implementation.

Between 1995 and 1997, the closure of coal mines led to a sharp reduction of freight traffic, while the rapid fall in passenger traffic resulted from reduced purchasing power of the population due to macro-economic instability and very high inflation, which in 1997 reached an annualized rate of 300%. The decline in production in the traditional sectors, such as heavy industries and mining, was reflected in traffic volumes, which declined over 35% between 1995 and 2000. Traffic continued to decline by another 15% in 2000-2002, resulting in a 45% drop during project implementation. This outcome was much different than what was assumed in the SAR. The rail share in freight market (in terms of ton-km) went down significantly from 70% in 1994 to 40% in 2001. During the same period the share of the passenger traffic (in terms of passenger-km) remained at 40-50% of the intercity passenger services market. While passenger traffic continued to decline in 2003, freight traffic is stabilizing at the 2002 level and is expected to recover lost traffic gradually in view of the improving macro-economic situation and increased production. The ongoing modernization of the rolling stock with the proceeds of the recent Eurobonds, and the integrated railway information system to manage daily railway operations efficiently will also improve the competitiveness of the railways. The state's freight company (MARFA) is facing competition from private operators (now 12 in the market), and its rates and services will need to be competitive with the private operators'. The private operators could weaken the financial viability of MARFA by "cherry picking", although their current market share is negligible.

Over the period 1995 to 2002, the average unit revenue (in lei) for freight increased 23 fold, about 20% above inflation for the period; the passenger revenue increased about 47 fold, well above the inflation. The average unit revenue increased from US$0.016 to US$0.022 for freight and from US$0.006 to US$0.017 for passenger services. Thanks to these increases, the impact of reduced traffic on revenues has been much less important and the total traffic revenue for 2002 remained at the 1995 level despite the 45% decline in traffic. The freight traffic accounts for about 70% of total traffic revenues and total traffic units (ton-km + passenger-km) and covers all its costs.

Since the 1998 reorganization, the Government has provided about US$150 million annually in PSO compensation. The passenger fare box revenues cover 40% of the costs, with the budgetary support for PSO covering about 50% of the costs. The remaining 10%, the unfunded costs, is one of major causes of the unsatisfactory financial situation of the railways. Under the Transport Restructuring Project, now under preparation, the system of PSO would be refined further so that only those obligations deemed essential and affordable by the State budget are retained in the PSO contract between the Government and the operating company and other services be terminated.

Staff has been reduced by almost 50% from about 141,000 in 1995 to about 74,000 in 2003. This was accomplished by voluntary separations and by separating 34 non-core activities of the railway companies and establishing them as subsidiaries. As of end-September 2003, 16 subsidiaries were privatized and 9 more are expected to be sold by 2004. The remaining 9 subsidiaries will eventually have a total staff strength of about 4,000. As a result, labor productivity has improved from 277,000 Traffic Units (TU)/employee in 2002 to 313,000 TU/employee (average) and 340,000 (year-end), close to the target of 360,000. This compares with about 700,000 TU in Western Europe, 450,000 TU in Poland, and 200,000 TU in Bulgaria.

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Operating costs have declined only slightly from US$940 million in 1995 to US$920 million in 2002, despite significant staff reduction and the corresponding salary savings. Total labor cost decreased from 47% of total revenue in 1998 to 23% in 2002. Since the reorganization, all the separated railway companies have significantly increased expenditures for maintenance to reduce the backlog in deferred maintenance. The operating cost per traffic unit (excluding track access fees) doubled from US$0.02 in 1995 to US$0.04 in 2002. Consequently, on the downside, the cost of operations and public service obligations and the dependence of the railways on the Government continue to remain high. On the upside, the railway network and services (in particular for passengers) have not yet been adjusted to the reduced demand. These actions will provide cost savings once they are implemented.

The staff reductions and labor cost cuts, and a significant increase in the budget support have decreased the net deficits of the railway as a whole during the project implementation period, from US$214 million in 1995 to US$44 million in 2002. Currently the Government PSO compensation and other subsidies amount to about 0.7% of GDP. The targeted working ratio of 100% (including PSO compensation but excluding subsidy for infrastructure maintenance) has been met, but there was underperformance for the debt service coverage ratio (target:1.5 times).

During the project implementation, the passenger services incurred over 90% of the losses in the railway as a whole. The principal reason was the unreasonably high, noncompetitive and uncompensated level of passenger services. The remaining 10% of the losses was incurred in the Infrastructure Company, mainly from the unfunded high maintenance cost of a too large railway network relative to travel demand. The financial gaps were covered by accumulating arrears to the State social taxes. At end-June 2003, these arrears increased sharply to US$280 million for the Infrastructure Company and US$34 million for Calatori.

The Government has recently issued an ordinance to forgive a part of accumulated liabilities to the state for selected loss-making state-owned enterprises. Under this program, the outstanding arrears of the two railway companies in various taxes and social contributions would be paid back in monthly installments in 2004-2006, while the accumulated interest and penalties would be forgiven. It is of interest that, at the time of 1998 restructuring, the accumulated tax arrears of US$600 million were placed at the SNCFR -- which was placed at dormancy-- to create viable commercial railway companies for infrastructure, freight, and passenger operations. The EU directive 91/440 of July 29, 1991 mandates member states to set up appropriate mechanisms to help reduce the indebtedness of a publicly owned or controlled railway. At end-2002, SNCFR has been able to reduce over 80% of the old tax arrears using the money collected from old receivables.

In sum, substantial progress has been made in financial restructuring of the Romanian Railways, which is, if not the essence, the key to successful railway restructuring. Some undesirable legacies of the past remain and negatively affect the financial well-being of the railways. In this respect, the main challenges facing the railway are: (i) reduction of the railway network to include only economically viable segments and services; (ii) further reduction of the number of employees; (iii) reassessment of the maintenance and safety standards; (iv) freedom from political interference in railway management and service provision; (v) private sector participation in core railway activities; (vi) implementation of fair and competitive track access charges; and (vii) establishment of a revised regulatory regime. All these issues are well-known to the Railway Management in Romania and all of them are in various stages of readiness for implementation once the political and technical windows are favorable. The proposed Transport Restructuring Project, together with the PAL program, will help the Government and the Railways tackle the above issues to complete the transformation of the Romanian railways into financially viable entities and establish regulatory competence for multiple operator market.

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4.5 Institutional development impact:The institutional development impact of the project on Romania's railway sector was nothing short of remarkable. The railways are EU compatible and in restructuring ahead of many EU member countries.

As shown in the diagram on page 5, the industry has evolved from a single monolithic State Railway (SNCFR) into a series of market-focused companies. Non-core business have been spun off through a series of subsidiaries, most of them have been privatized, and the remaining will be privatized in 2004. Private Freight companies are now sharing the same track and competing with the state owned freight operator. The Infrastructure Company is being reorganized into a High Density Interoperability segment, and a Low Density Branch line segment that will be a candidate for privatization and rationalization. The State owned freight company is now being prepared for privatization.

The Bank encouraged and supported the above evolution through carefully organized Project reviews and supervision -- and in case of IRIS more frequent supervision by a recognized expert -- and by organizing well-timed railway restructuring workshops, and management training programs. Importantly, the institutional development would not have been possible without an able and knowledgeable counterpart management, well-managed project implementation unit, and interested key managers who were responsible for making things happen.

5. Major Factors Affecting Implementation and Outcome

5.1 Factors outside the control of government or implementing agency:Factors outside the control of the government or the implementing agency had effects on project on-time completion. One year delay to the project was caused by the World Bank's rejection of the contractor initially selected for the IRIS system, forcing a re-bid of the entire IRIS system. This was a very complex issue and opinions differed, and still differ, whether a right decision was made. After the contract was signed a further nine month delay to IRIS was caused by technological change and the need to switch from certain obsolete hardware and software suppliers. Both of these delays effectively delayed the entire project because IRIS was on the project's critical path for the duration of the project.

There also was a delay in the procurement of the Track Geometry Car due to the complexity of the Vehicle, difficulty in finalizing the technical specifications of the vehicle and finally determining the responsiveness of the bids and evaluating them. This however did not affect the project's outcome nor was it a major factor in the delays for project completion.

5.2 Factors generally subject to government control:The Government did what it said it was going to do: restructure and reorganize the railways. This was a commitment that was kept even though there was a change in the political power. The financial situation of the railways, detailed in section 4.4, was a worry to the task team -- probably more than to the government or the implementing agency. There was an apparent and persistent cash crunch. The PSO payments to Calatori and the payments to CFR for maintaining the public infrastructure were insufficient, and the railways had huge investment needs. Nonetheless, during the project, the restructuring process advanced and the new structure became established. New management practices were adopted, and the infrastructure and rolling stock were modernized. These activities continue.

5.3 Factors generally subject to implementing agency control:There were two main positive factors that were material to project implementation. The implementing agency had a broadly defined vision what it wanted to accomplish and this was backed up with diligent project management. There were numerous difficulties, often highly nuanced with political considerations

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in a difficult macroeconomic situation. To overcome these difficulties, and to manage in spite of them, required patience, perseverance, and tact. This the implementing agency, or the managers above it, and the project management unit had.

Many of the difficulties hovered around IRIS because it, besides being complex to implement, also required substantial changes in the way the railway companies operated and were managed. A holdup of three months in both the IRIS and the Telecommunications components was caused by the difficulties of the Railway securing the hard currency required to pay customs duties on the imported hardware for both. Later, IRIS implementation was delayed due to problems in completing the necessary physical modification to the Local Area Network at the Railway headquarters facilities. To sort out these financially-tinged issues required much time from all affected interests.

The financial situation at the Railways, discussed above and detailed in section 4.4, was a constant worry of the task team and at least some in the implementing agency. However, the implementing agency could not do much to reverse the declining demand, which was driven by the macroeconomic situation and the low disposable income of the people. For the better part of the project there was a losing battle to achieve the project's targets for productivity, staff reduction, working ratio and debt service ratio, and, at the same time, keep implementing the project components. As it turned out, the targets were achieved, approximately, which was a huge accomplishment given the extraordinary and totally unanticipated decline in demand. [One might take issue of whether the debt service coverage ratio of 1.1 is close to the target of 1.5. Suffices it to say that the "industry standard" for the debt service ratio is well below 1.0 in ECA. A ratio of 1.1, achieved in Romania, does more than cover the debt payments and is a respectable figure. It is not out of place to claim that the target figure of 1.5 was an ill-considered target in the circumstances prevailing in mid 90s in Romania, and, perhaps, should have been revised downward as the events unfolded. On the other hand, given the project objective, the project's conflicting targets and the unrealized assumptions, and the political economy of the country, the specific target of 1.5 had little effect on project implementation. But, the concept of pushing the debt service ratio above 1 and closer to 1.2 did have an effect, and was part of a comprehensive financial and technical restructuring of the railways. It is a decent accomplishment].

5.4 Costs and financing:

The project was fully disbursed. There were no substantial cost overruns. The counterpart funds were generally available, except as noted above in Section 5.3, in the second paragraph. The Catenary Tensioning Car was not procured because it was deemed unnecessary and the funds were used for IRIS' technological improvements and training, and for completing the telecom network.

6. Sustainability

6.1 Rationale for sustainability rating:Sustainability of this project is highly likely. The reason simply is that the changes are embodied in the law, the privatization's and staff reductions that have been carried out are irreversible, the investments made in the project are permanent and in use and yield steady benefits, and the management of the Railways has improved. The Romanian Railways have been irrevocably transformed. Furthermore, the next steps are well-thought out, their planning is advancing rationally, and there simply are not any important issues on which there is substantial disagreement.

6.2 Transition arrangement to regular operations:No transition to regular operations is needed. The railways have continued to operate regularly, but they do so in a different way.

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7. Bank and Borrower Performance

Bank7.1 Lending:The Bank staff carried out the Project preparation in a professional manner. The Project preparation took into consideration the Romanian Governments objective of establishing a new legal and institutional framework for the Romanian Railway industry. It recognized and responded to the need for upgrading the Railways' technological base to meet the emerging market demands both in terms of infrastructure improvements and management information systems. In retrospect, if there is a caveat to this praise, it concerns the Restructuring Action Plan, an integral element of the project. This plan was too detailed and could not be followed as the events unfolded in reality. It also was internally inconsistent--a productivity target, a staff reduction target, and a demand "target" could not all be satisfied when the demand declined much more than anticipated. One, the productivity target, would have been enough. On the other hand, the RAP did enumerate the key issues needing attention. But, again, responses to issues in the real world are much different and more complicated from responses to issues as they appear on a spreadsheet.

7.2 Supervision:Supervision of the Project was Highly Satisfactory. Supervision missions were carried out on a regular basis, normally twice a year, with competent professional staff. At a critical period of IRIS implementation, supervision was intensified and took place every three months; this change in frequency was an important intervention. All of the project components were completed and implemented according to the original intentions and goals.

As will be discussed in Section 8, the project supervision activity became much broader than the review of progress on each component. The World Bank team played an important role in the discussions of the legal and institutional reforms in the Railway sector and how these were integrated into daily railway operations and management.

Training Programs and Executive Workshops were organized to expand the understanding of railway reform issues, and to present models from other countries that had proven to be successful.

7.3 Overall Bank performance:The Overall Bank Performance was Satisfactory, given the complexity of the project, its economic and social environment, and Romania's macroeconomic situation. All the components of the loan were completed, including the significant restructuring of the Romanian Railways that was achieved during the duration of the project.

Borrower7.4 Preparation:The Borrower was integrally involved in project preparation; it was the Borrower's vision and project. Specific components were defined to upgrade the track maintenance equipment, to modernize the Railways' telecommunications infrastructure, and, especially, to design a state-of-the-art integrated Railway Information System to facilitate the Borrower's goal of the Railways' restructuring.

7.5 Government implementation performance:The Romanian Government, the Ministers of Transport and the General Directorate of Railways have taken all the necessary steps to create the legal and institutional framework for a restructured railway industry in Romania. They have supported very tough adjustment and retrenchment decisions that were necessary to reduce the Railways' physical and human resources to match the market demand.

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They have, and are continuing to address the need for an open access and equitable access fee for all licensed, private railway operators, as well as a need for Public Service Obligations for uneconomic Government supported social transport services.

7.6 Implementing Agency:The responsibility for the Project changed from SNCFR (The Romanian Railway) to the CFR (The Infrastructure Company) after the project was initiated. During the span of the project, the Bank had to deal with different configurations of the Railway companies to address the Railway reform objectives.

Overall, the Railways responded in an effective way to the changing economic and legal framework in Romania. Organization changes and staff levels were adjusted as necessary and possible to respond to the realities in the Market place.

The Railways' appointed excellent managers for each of the project components. These 'component managers' received support from the organization, and each component was managed in a very professional manner.

The Project Management Unit (PMU) did an excellent job of coordinating all the procurement and disbursement activities associated with the loan and keeping the project on schedule and target. Project records were updated on a current basis, and reports were produced on time. The PMU coordinated the agendas and the organization of the World Bank Supervision Missions in a very effective manner.

7.7 Overall Borrower performance:The overall Borrower performance was Highly Satisfactory. All project components were completed as planned. The Railway reform has gone beyond what was foreseen at the time of project preparation and the Borrower evolved and responded to new requirements and circumstances as they emerged.

8. Lessons Learned

The objective of the loan was to support and to deepen the Railway restructuring process in Romania. The conditionality of the loan required the creation of a legal and institutional framework under which the restructuring process would continue. This shaped a partnership relationship with the Government, the Railways and the Bank that had a major influence on the reforms beyond the scope of the loan, and beyond the specifics of each of the components that it financed. Lesson:

The partnership in the loan -- in this case between the Government, the Railways, and the Bank -- lbestows upon the Bank a greater responsibility than simply monitoring progress of the lending program and the progress on each of its components. Through the interaction with the Ministry of Transport and the Executive Management of the Railway, the Bank staff needs to understand the changing (Railway) environment and share in the development of strategies to ensure the overall success of the Railway reform.

The evolution of the Romanian economy, and the Romanian government’s drive to join the EU, created forces within the transport sector that were not foreseen at the time of project preparation. The Railway and the Bank needed to adjust and coevolve to keep in step with these new developments. Hence:

In projects with significant institutional development or restructuring objectives, the supervision lmissions need to become review and consultation meetings that go beyond the project components,

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to guide the process towards the shared objectives between the client and the Bank. The Bank team can encourage and assist the Borrower's (Railway in this case) Management team to make the though decisions to continue with the necessary reform programs, while at the same time building support for such actions at the Government level.

The Bank and Railway partnership, in restructuring projects, needs to address the details of a lproject's components only when needed, but when this is necessary, do so exceptionally. The Integrated Railway Information System (IRIS) was one of the most complicated and extensive Railway information System ever developed. The risk of failure was extremely high. The Bank recognized this early in the review and supervision process, and increased the consultations and reviews on this component and its supporting telecommunications component to every three months in order to provide the expertise it required to avoid the many pitfalls that could have derailed that complex component. However, many components in this loan progressed satisfactorily without much oversight.

There are two other general lessons:

The Borrower does best the coordination of several projects and several lenders. This lender/donor lcoordination is a valuable learning experience and should not be overtaken by the Bank. The present project was implemented amidst many other projects; recall that the Bank loan was 6.5 percent of the total railway investments during its implementation period. The Bank team was informed of these other projects. While this knowledge of other projects was useful to the Bank team, it remained focused on the Bank project's objective and left the coordination to the Borrower because it is the Borrower who is in the best position to judge when and how specific interventions, often having a broad scope, are possible and should be made. However, the Borrower should discuss the content of these interventions with the lenders before undertaking them.

Restructuring projects need not and should not be planned in detail far in advance. What is limportant are the Mission Statement and the Mandate. The mission statement should have the following three parts: (i) a brief description of the issues; (ii) the strategic approach directions how the entity will approach, deal with, or solve those issues; and (iii) why this (new or restructured) entity is the right one to deal with handle the issues. The Mission Statement out of the way, the mandate expresses the government’s intentions for the entity and its rights and responsibilities. It details the objectives of the entity, the Railways in this case, the freedoms entrusted with the management, time horizon of specific actions, and how the government plans to exercise its oversight function. If appropriate, the mandate should also spell out the subsidy policy as clearly as possible. Once there is an Agreement on the mission statement and the mandate that is sufficient at project preparation. The context of restructuring is likely to change once the work gets underway. Supervision is the right time for the details of the project’s policy and institutional components, not in preparation to plan them outside the context. If there is a change in government, like there was in Romania, or other good reasons, the mandate and the mission statement should be reviewed and revised if necessary. If there are specific targets, they should be reviewed and revised from time to time, without compromizing the overall restructuring and other project objectives. This approach to project preparation will save costs and lead to quicker and better project implementation that can take advantage of the windows as they open.

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9. Partner Comments

(a) Borrower/implementing agency:

ROMANIA RAILWAY REHABILITATION PROJECT (LOAN 39760)IMPLEMENTATION COMPLETION REPORT

BORROWER CONTRIBUTION

I. Loan Overview

IBRD loan no. 3976-RO (USD 120.000.000), together with EBRD loan no. 438 (USD 68.585.644), EIB loan no. 1.7521 (EUR 200.000.000) and PHARE grant no. 9604 (EUR 58.000.000) jointly formed the foreign financing for the Romanian Railways Rehabilitation Project.

The IBRD loan was distributed almost equally among 3 main tasks: the track renewal program (38% out of the total loan), the upgrading of signaling and telecommunication project (32%) and IRIS (28%); the other components (environmental equipment, training and technical assistance) representing, all together, only 2%.

Part A – Track Renewal and Maintenance on Priority Routes

From the financial point of view it is the biggest component of the loan. This component was parallel-financed by the PHARE grant, out of which rails, fastenings and sleepers have been purchased. The IBRD financed only track equipment: switch tamping machines, ballast cleaning machines, switches and crossings replacing machines, three long rails transporting trains LRT and three rail positioning machines RPM, twelve multipurpose track/road self-propelled machines, track & catenary self-propelled recording car, machines of small mechanization for track maintenance, railway bridges maintenance devices, dynamic track stabilizer. All the contracts were in due time, completed successfully. These machines had a major contribution in both ensuring the maintenance of the railway allover needed and providing specialized contribution on the rehabilitation of the line Bucuresti – Brasov (financed out of the EIB loan).

Part B – Integrated Railway Information System (IRIS)

An important point in implementation of the project was the construction and introduction of integrated railway information system of CFR and their communication infrastructure. This project had a two stage bidding process, which started on September 1997 and ended on April 1999, when the contract was signed. IRIS re-bid demonstrated that for integrated IT projects (including hardware, communication, software and services) a single bid package may lead to high project risk estimated by the bidders and therefore bid differences of their Bid Prices or Contract Clauses. For the contract performance the supplier and the purchaser established dedicated project teams and management. Even when the supplier project team was changed in the project tasks, the purchaser managed to keep a permanent team involved in the project development and implementation. This was one of the key factors that made this project successful. The other one was the Bank constant assistance for the purchaser, especially for the critical stages as implementation in defined pilot area, conclusions and acceptance from pilot, system hand-over process and IRIS take-over by the railway business.

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IRIS Rollout

1. National Data Transmission Network for Romanian Railways (RENTRAD-CFR)

One of the IRIS objectives was the construction of a modern IT network infrastructure.

RENTRAD-CFR is a private data transmission network for Romanian Railways, with secured and controlled access. This network is based on 8 regional Gigabit networks, interconnected through high-speed ATM channels (155Mbit/sec). Each regional level concentrates Sites’ Local Area Networks from railway stations, depots, wagon workshops, other sites. RENTRAD-CFR was designed for maximum 2700 IRIS users, however there are 2682 users connected on December 3, 2004 distributed as follows:

74 IRIS users,l174 Oracle Financials users,l1634 other users.l

RENTRAD-CFR operates 24 hours, 7 days per week and provides user access to applications, data transfer, INTERNET and e-mail services.

The network is managed by a Central Management System based on C.A. Unicenter products TNG, daily incidents being recorded and managed through TNG Central Help Desk. The operational support is based on one central and 8 regional technical department.

Further Developments:

Increase the network capacity for the estimated 10,000 users by the end of 2004. lKeep the network technology up-to-date through a long-term modernization plan.lEnforce the network security and access control policy. l

2. IRIS – IMA (Railway Infrastructure Management)

The Railway Infrastructure Management System IRIS-IMA is operational since February 2003 for three management levels Railway Headquarter, Regional Headquarters (Track and Installation Operational Divisions and all the Operations and Maintenance Sections of CFR (122 Railway Maintenance Sections).

The IRIS-IMA system allows the users to:

Hold detailed infrastructure elements inventory, by railway domains (track, installations, lreal-estate, telecommunications)Manage the inspections and current maintenance works (technical details, materials, lmanpower)Manage the maintenance costs and keep their history. lThe Romanian Railways specialists added new functionality to the contracted packages, to lmanage the Installation incidents and Track speed restrictions.

Further Developments:

Implementation of the interface between IRIS-IMA and Financial Management System based on Oracle Financials Applications.

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3. IRIS-Circulation (Train Circulation Monitoring)

IRIS-Circulation is operational since 31 December 2003, on the Pan-European Corridor IV (Curtici – Constanza). Between July and December 2003 there were more than 800 users trained. A WEB based application was implemented for management users.

Further Developments

A specialized module for Infrastructure Access Fee will be implemented and integrated with the Financial Management System (based on Oracle Financials Applications) by the end of 2004.

4. IRIS-RSMA (Rolling Stock Management)

IRIS-RSMA system is operational since February 2003 for rolling-stock fleet management and is currently used by the railway operators "CFR Calatori", "CFR Marfa" and by the Infrastructure Company "CFR". The IRIS-RSMA database includes the entire Romanian rolling-stock fleet.

The Maintenance Management function of IRIS-RSMA is not fully implemented since the maintenance activity was outsourced.

Further Developments:

IRIS-RSMA system rollout for maintenance activities monitoring.lInterface with the Financial Management System based on Oracle Financials Applications.l

5. IRIS – ARGUS (Freight and Passengers Trains Operation)

IRIS-ARGUS System was implemented since September 2003 on the Pilot Area (Bucuresti – Brasov) and is used in parallel with the old Freight Operations System called BETA. A Migration Plan from BETA to IRIS-ARGUS will be implemented by the end of 2004.

Further Developments:

An Empty Wagons Distribution module will be added to IRIS-ARGUS by the end of 2004.lThe system will include also the integration with the European Data Transmission Network lApplications (HERMES Applications) for interoperability purposes.

6. IRIS – MERCUR (Freight Commercial Management)

IRIS-MERCUR is operational since September 2003 on the Pilot Area (Bucuresti-Brasov). Due to a number of organizational and business rules changes the system is not in use yet.

Further Developments

The business rules adapted to new market requirements.lInterface with the Financial Management System based on Oracle Financials Applications.l

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IRIS Benefits

Consolidated IRIS benefits will be visible by the end of 2004, when the system will be loperational for the entire Romanian Railways and the integration with the Financial Management System based on Oracle Financials Applications will be effective.Early benefits can be, however, identified for this stage.l

IRIS General Benefits:

Through IRIS Project the Romanian Railways implemented a modern Data transmission lnetwork, operational for the entire business, providing all the necessary services for its users (access to specific applications and databases, file transfers, INTERENET and e-mail).An integrated, standardized and open model for IT support to the Romanian Railways lbusiness, both for technology and specific business applications.

Benefits for the Infrastructure Company (“CFR”)

Infrastructure database, as a key instrument for railway infrastructure maintenance and loperation, already includes more than 450.000 infrastructure elements (track segments, signaling, switches, bridges, tunnels, buildings, electrification, utilities, telecommunication), with their specific technical and operational data. Infrastructure incident management for railway installations and signaling is operational at the linfrastructure maintenance sections and regional divisions (operations) and headquarter (management).Train Circulation Monitoring is operational for the most important railway path – the lPan-European Railway Corridor IV (the Romanian part from the Border station CURTICI to the Constanta Harbor). IRIS-IMA and IRIS-Circulation integration provides information for speed restrictions and lInfrastructure Access Fee effective determination.

Benefits for Railway Operators (“CFR Marfa” and “CFR Calatori”)

Railway Rolling Stock fleet management transferred this responsibility from the Data Center l(many years responsible for fleet information), directly to the rolling stock owners. This significantly increased the business performance for fleet management.IRIS-ARGUS and IRIS-MERCUR are real-time instruments for railway operators core lbusiness and their benefits will be visible only by the end of 2004.

Part C – Upgrading of Signaling and Telecommunication

Out of this part of the project have been financed the acquisition of the fiber optic cables, together with digital transmission backbone network (DTBN) and integrated services digital network (ISDN). All these three kinds of contracts have their one specific benefits, but, all together, form the infrastructure for IRIS, thus being the major benefit.

From the specific benefits, the most important are:

the fiber optic cable network covers the whole CFR’s territory and offers a safe and flexible lcommunication infrastructure, with large interconnection capabilities with other railway administration networks, keeping the UIC recommendations concerning quality, technological

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level and services volume. The complexity and homogenity of the network are the most important assets.

TBN provides services and support for digital communications. The contract financed the lacquisition of equipment and accessories for developing the SDH (Synchronous Digital Hierarchy) Backbone Network, Access Network and Synchronization Network. There are 550 points of presence in urban and rural locations all around the country. The access locations are in the railway stations, offering an easy interconnection capacity.

ISDN is a fully digital network designed for modern and high quality communication services, lhigh-speed data transmission and images transmission, including videoconference applications.

II. Final Conclusions

All in all, the project was a success. And this is the result of good cooperation between all the 3 main “actors” involved:

the Bank;lthe Government;lthe Borrower (both the company and the PMU).l

The Bank contribution was HIGHLY SATISFACTORY because the Bank has used the team working approach with the Borrower, which was the key of success and full disbursement of the loan.

The Borrower PMU benefited from prompt support and guidance from all TTLs, from Procurement, from Disbursement, as well as from the railway and IT experts. They helped in drafting specifications for very complex projects (should be considered at least two major issues: the re-writing of the IRIS bidding documents within 5 days at the Bank's head-quarter in 1998, and Mr. Pozniak's key contribution to the IRIS success). The average time spent for consultations with the Bank during bidding documents preparation, bid evaluation and contracting for each project was of slightly less than 5 months in aggregate. This is not much at all if considering the high risk when having not such a support.

Another very important area was the professional support of the Bank's staff during the ambitious restructuring process. As in all other countries of the world, the restructuring proved to be a long process of reorganization and optimization, which is not yet entirely completed. The World Bank significantly supported the realization of the railway reform in Romania by establishing, together with the Borrower, some clearly defined measures to obtain the long-term viability and efficiency. These measures (all of them have been already implemented and they have a real, positive feed-back) are:

1. rationalization of the railway network and services and concentration on those services for which rail transport has a competitive advantage;

2. agreement between the Government and the new operating company on the provision of a limited amount of non commercial passenger services that should be fully remunerated under PSO contracts and ceasing of loss-making services that will not be subject to PSO;

3. gradual increase of passenger tariffs and parallel investments to enhance the service quality;4. autonomy of the operating companies;5. establishment of an infrastructure fee reflecting the full economic costs of infrastructure

provision.

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The Romanian Government also significantly supported the realization of the railway reform, its contribution being HIGHLY SATISFACTORY as well. Its role could be summarized as follows:

support in allocating the local financial component for the project;lsupport in implementing very significant restructuring measures:l

- 1996 - separation of accounting for infrastructure and operations, as well as financial support by approving tariff increases;

- 1998 - reorganization plus beginning of PSO compensations to CFR Passengers and some 28.000 employees downsizing;

- 2003 - cost cutting measures by 18% layoffs.

It should be also noted that the Ministry of Finance promptly supported the Borrower when extending the validity of the Loan Agreement in 2001.

The Borrower, with its two components, was also had a HIGHLY SATISFACTORY contribution. PMU on one hand and the entirely company one the other, made all necessary efforts for the best implementation of the project. The PMU learned the language of both the Bank and Government and knew how to deal with them, which allowed a smooth cooperation among the three main actors in achieving the project objectives. The entirely loan amount was successfully used and there were no rejected withdrawals (out of total of 270).

The company, by its different departments, made all the efforts to ensure the best local support (in all means) for all contracts. This was a key factor that made all the contracts to be successfully finished in due time.

(b) Cofinanciers:

(c) Other partners (NGOs/private sector):

10. Additional Information

None

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Annex 1. Key Performance Indicators/Log Frame Matrix

Outcome / Impact Indicators:

Indicator/Matrix

Projected in last PSR1

Actual/Latest Estimate

Staff Productivity (t.u./per thousand-employees)

360 340

Working Ratio (percentage) 99 95Debt Service Ratio 1.5 1.1

Output Indicators:

Indicator/Matrix

Projected in last PSR1

Actual/Latest Estimate

Network (lines-km) 10180 10600

Staff (thousands employees) 92 75

Train (million train km) 99 95

1 End of projectHowever, with the support of the project and consultants the Railways have identified, 3500 km of network lines that will be closed down or sold during 2004. This action is supported by the Government.

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Annex 2. Project Costs and Financing

Project Cost by Component (in US$ million equivalent)AppraisalEstimate

Actual/Latest Estimate

Percentage of Appraisal

Component US$ million US$ millionTrack Maintenance Machines and Materials 44.00 46.05 115Integrated Railway Information System 22.00 33.54 152Telecommunications Network 30.50 38.28 151Environment Equipment 1.00 1.23 123Consultant Services 0.60 0.90 90Catenary Tensioning Machine 1.60 0.00 0Contingencies 20.30 0.00 0

Total Baseline Cost 120.00 120.00Total Project Costs 120.00 120.00

Total Financing Required 120.00 120.00

Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent)

Expenditure Category ICBProcurement

NCB Method

1

Other2 N.B.F. Total Cost

1. Works 0.00 0.00 0.00 0.00 0.00(0.00) (0.00) (0.00) (0.00) (0.00)

2. Goods 118.10 0.00 1.20 0.00 119.30(118.10) (0.00) (1.20) (0.00) (119.30)

3. Services 0.00 0.00 0.70 0.00 0.70(0.00) (0.00) (0.70) (0.00) (0.70)

4. Miscellaneous 0.00 0.00 0.00 0.00 0.00(0.00) (0.00) (0.00) (0.00) (0.00)

5. Miscellaneous 0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

6. Miscellaneous 0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

Total 118.10 0.00 1.90 0.00 120.00(118.10) (0.00) (1.90) (0.00) (120.00)

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Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent)

Expenditure Category ICBProcurement

NCB Method

1

Other2 N.B.F. Total Cost

1. Works 0.00 0.00 0.00 0.00 0.00(0.00) (0.00) (0.00) (0.00) (0.00)

2. Goods 117.87 0.00 1.23 0.00 119.10(117.87) (0.00) (1.23) (0.00) (119.10)

3. Services 0.00 0.00 0.90 0.00 0.90(0.00) (0.00) (0.90) (0.00) (0.90)

4. Miscellaneous 0.00 0.00 0.00 0.00 0.00(0.00) (0.00) (0.00) (0.00) (0.00)

5. Miscellaneous 0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

6. Miscellaneous 0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

0.00(0.00)

Total 117.87 0.00 2.13 0.00 120.00(117.87) (0.00) (2.13) (0.00) (120.00)

1/ Figures in parenthesis are the amounts to be financed by the Bank Loan. All costs include contingencies.2/ Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff

of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units.

Project Financing by Component (in US$ million equivalent)

Component Appraisal Estimate Actual/Latest EstimatePercentage of Appraisal

Bank Govt. CoF. Bank Govt. CoF. Bank Govt. CoF.Track Maintenance Machines and Materials

44.00 46.00 0.00 46.05 16.49 0.00 104.7 35.8 0.0

Integrated Railway Information System

22.00 8.00 0.00 33.54 0.94 0.00 152.5 11.8 0.0

Telecommunications Network

30.50 8.20 0.00 38.28 7.34 0.00 125.5 89.5 0.0

Environment Equipment 1.00 0.40 0.00 1.23 0.24 0.00 123.0 60.0 0.0Consultant Services 0.60 0.40 0.00 0.89 0.01 0.00 148.3 2.5 0.0Catenary Tensioning Machine

1.60 0.60 0.00 0.00 0.00 0.00 0.0 0.0 0.0

Contingencies 20.30 11.80 0.00 0.00 0.00 0.00 0.0 0.0 0.0

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Annex 3. Economic Costs and Benefits

N.A.

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Annex 4. Bank Inputs

(a) Missions:Stage of Project Cycle Performance Rating No. of Persons and Specialty

(e.g. 2 Economists, 1 FMS, etc.)Month/Year Count Specialty

ImplementationProgress

DevelopmentObjective

Identification/Preparation10/10/1994 6 FIN. ANALYST; ENGINEER;

ECONOMIST; ENVIRN. SPECLIALIST; SYSTEMS ANALYST; PROJECT OFFICER

S S

Supervision10/18/1996 3 RAILWAY ENGINEER;

FINANCIAL ANALYST; PROJECT OFFICER

S S

10/14/1997 5 FIN. ANALYST; SYSTEMS ANALYST; TRANSPORT ECONOMIST; RAILWAY SPECIALIST; PROJECT OFFICER

S S

11/11/1998 3 RAILWAY SPECIALIST; FINANCIAL ANALYST; PROJECT OFFICER

S S

04/05/1999 4 PROGRAM TEAM LEADER; RAILWAY SPECIALIST; FINANCIAL ANALYST; OPERATIONS OFFICER

S S

10/01/1999 1 SR.TRANS. ECONOMIST S S10/01/1999 3 PROGRAM TEAM LEADER;

FINANCIAL ANALYST; OPERATIONS OFFICER

S S

06/21/2000 1 TEAM LEADER S S12/15/2000 3 SR. EVALUATION OFFICER;

SR. FINANCIAL ANALYST; TRANS. SPECIALIST

S S

05/25/2001 3 SR.TRANSP. SPECIALIST; SR.FINANCIAL ANALYST; CONSULTANT

S S

10/26/2001 3 TRANSPORT SPECIALIST; FINANCIAL ANALYST; CONSULTANT

S S

02/15/2002 2 TRANSPORT SPECIALIST; CONSULTANT

S S

02/15/2002 3 TRANS. SPECIALIST; FINAN. ANALYST; CONSULTANT

S S

ICR05/16/2003 3 TRANS. SPECIALIST;

SR.FINANCIAL ANALYST; CONSULTANT

S S

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(b) Staff:

Stage of Project Cycle Actual/Latest EstimateNo. Staff weeks US$ ('000)

Identification/Preparation NA 315,197.00Supervision NA 800,337.00ICR NA NATotal NA 1,115,534.00

The current accounting system no longer gives the detailed breakdowns requested in the above table.

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Annex 5. Ratings for Achievement of Objectives/Outputs of Components(H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable)

RatingMacro policies H SU M N NASector Policies H SU M N NAPhysical H SU M N NAFinancial H SU M N NAInstitutional Development H SU M N NAEnvironmental H SU M N NA

SocialPoverty Reduction H SU M N NAGender H SU M N NAOther (Please specify) H SU M N NA

Private sector development H SU M N NAPublic sector management H SU M N NAOther (Please specify) H SU M N NA

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Annex 6. Ratings of Bank and Borrower Performance

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory)

6.1 Bank performance Rating

Lending HS S U HUSupervision HS S U HUOverall HS S U HU

6.2 Borrower performance Rating

Preparation HS S U HUGovernment implementation performance HS S U HUImplementation agency performance HS S U HUOverall HS S U HU

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Annex 7. List of Supporting Documents

The programs and presentations on the Railway Management Workshop held in April 2002 and the key materials for the Leadership Training Program held in 2003 are available in the ECA Transport Web page [ECA Transport Website:http://ecaweb.worldbank.org:8080/Transport.nsf (intranet),http://wbln0018.worldbank.org/ECA/Transport.nsf (internet)]; and most of them also in IRIS (World Bank).

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Additional Annex 8. [Restructuring Action Plan]

RESTRUCTURING ACTION PLANOF THE RAILWAY SECTOR IN ROMANIA

FOR THE PERIOD 2001-2003

CONTENTS

A. Institutional ObjectivesB. Organization and ManagementC. OperationsD. MarketingE. InfrastructureF. Traction and Rolling StockG. Human ResourcesH. InvestmentsI. FinanceJ. Environment K. Implementation and monitoring of the Railway Rehabilitation Project L. Implementation of the Restructuring Action Plan of the Romanian railway sector

ABBREVIATIONS

GOR - Government of RomaniaMTCT - Ministry of Transport, Construction and TourismMOPF - Ministry of Public FinanceAFER - Romanian Railway Authority (state body under MTCT)SNCFR(f) - Former SNCFR (Romanian State Railways)SNCFR - Present SNCFRCFR - National Railway Company (CFR-SA) - InfrastructureCFR-F - Rail Freight Company (CFR Freight-SA)CFR-P - Rail Passengers Company (CFR Passengers-SA)SAAF - Rail Assets Management Company (SAAF-SA)SMF - Rail Management Services Company (SMF-SA)PMU - Project Management UnitIFIs - International Financing Institutions - IBRD, EBRD and EC-PHAREGO - Government OrdinanceGD - Government DecisionPSO - Public Service ObligationRAP - Restructuring Action PlanTA - Technical Assistance

BACKGROUND

1. The Railway Rehabilitation Project is financed by IBRD - Loan no. 3976-RO, EBRD - Loan no. 438 (plus a BNP Paribas co-financing loan - ECLAT), and EC-PHARE, on a grant basis. The IBRD, EBRD and EC-PHARE financing agreements became effective in 1996. The original Borrower/Grantee was SNCFR(f).

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2. A Restructuring Action Plan (RAP), covering the period 1995-2000, had been originally prepared and then agreed between the Banks, the GOR and the Borrower before the loans/grant became effective. The meeting of the RAP targets is one of the Borrower's obligations. The RAP is reviewed by the Banks, GOR and Borrower once a year, as stipulated in the Loan Agreements. One of the major issues stipulated in the original RAP was the restructuring of SNCFR(f).

3. On October 1, 1998, a major measure of the SNCFR(f) restructuring was implemented: SNCFR(f) was reorganized into five new and companies, i.e., CFR, CFR-F, CFR-P, SAAF and SMF. SNCFR continues to exist, but it was awarded a different mission. Subsequently, the original IBRD and EBRD Loan Agreements have been restructured so as to reflect the new organization of the railway sector in Romania. The new/amended Loan and Project Agreements were signed on June 28, 1999, and on July 30, 1999, with IBRD and EBRD respectively. The new/amended Loan Agreements took over the above-mentioned obligation as far as the RAP is concerned.

4. As a consequence of the SNCFR(f) reorganization, a new RAP was prepared for the period 1999-2001 (December 31, 2001 was the original Loan Closing Date) and then submitted to the two Banks at the end of June 1999. It was one of the effectiveness conditions for the amended Loan Agreement.

5. It is recalled that the RAP prepared in 1999 was essentially based on the existing Romanian railway institutional framework within which the rail companies operate independently, keeping at the same time the continuity with the former RAP in the following way:

the initial RAP structure was kept (i.e., chapters and most of the topics included in the lattachment to the RAP), but most of the objectives/targets/indices became individual ones (i.e., specific for each of the rail companies); and

certain indices in the attachment to the RAP were kept as overall ones (by adding values lcorresponding to all rail companies) in order to show the evolution of the entire railway sector during the referred period (1994-2001). Such indices were:

(i) the overall staff productivity (Traffic Unit / thousand employees in all five companies);(ii) the overall productivity index;(iii) the working ratio.

6. The 1999 RAP was updated and extended over the period 2001-2003. This RAP (version October 2001) was included in the Pre-Completion Report, submitted to the Bank in January 2002.

7. The present version of RAP updates the period 2001-2002 and the first 10 months of 2003. It covers the entire period of loan implementation by taking into consideration that the Loan Closing Date was 30 June 2003.

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RESTRUCTURING ACTION PLANOF THE RAILWAY SECTOR IN ROMANIA FOR THE PERIOD 2001-2003

January 2004

NO. OBJECTIVES ACTIONS RESPONSIBILITIES TIME TABLE FOR ACTIONS

ACTUAL (October 2004)

1 2 3 4 5 6

A. INSTITUTIONAL OBJECTIVES Main Objective: The strengthening of the institutional framework within which: § the relationships between the five rail companies are based on contracts; § in this framework, each of the five rail companies can pursue its own commercial objectives; § the private sector involvement is promoted; § the state contributes for the PSO of the passenger services, and for the public infrastructure.

A. I

NST

ITU

ITIO

NA

L O

BJE

CT

IVE

S

1. To operate business oriented rail companies the railways legislation should cover: operation in a commercial manner including freedom to set tariffs, content and requirement of Public Service Obligations (PSO) and Government of Romania (GOR) financial support for infrastructure and PSO and promoting private sector involvement

The railways legislation was adopted in 1998: GO no. 12/1998 on the SNCFR(f) reorganization (ratified by the Law no. 89/1999) and GDs from 581 to 585/1998 on the establishment of the five new rail companies. Based on this legislation, the SNCFR(f) reorganization took place on October 1, 1998. A review of this legislation and an identification of privatization opportunities are among the tasks of the Consultant providing the Phase 2 of the TA to the restructuring of the railway sector under EBRD financing. Based on the GD 1046/1999 CFR-P was further divided into one long distance passengers railway transport company (further referred to as CFR-P) and 8 regional short and medium distance passengers railway transport companies starting with Jan. 27, 2000. After 1 year, the 8 regional companies merged back to one Company, CFR-P. Strategy of the railway sector up to 2010 approved by GOR in May 2001. It was submitted to IBRD end June 2001 together with financial projections up to 2005. SMF dissolution on November 2002 Outsourcing of some non-core businesses of CFR, CFR-F and CFR-P

CFR, CFR-P, CFR-F, MTCT, MOPF and GOR

Outsourcing of some non-core businesses of CFR, CFR-F and CFR-P in 2001. Refining of the companies' strategies and business plans - ongoing tasks.

The outsourcing process: CFR-F established 7 new branches in 1999-2001 of which 4 have been privatized in 2002. For the remaining 3 the process in ongoing. CFR-P created 5 branches in 2003. All of them have been privatized in the same year. CFR created 11 branches in 2001 (8 of them have been privatized in 2002) and 7 others in 2002 (2 are privatized already). Of the last group, 3 branches (CFR Telecom, CFR-IT Center and CFR Special Interventions) will be kept by the company because them activity is considered as strategic one. For the other, the outsourcing process will continue.

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1 2 3 4 5 6 2. To identify and agree with GOR, CFR’s and CFR-P's performance and expected GOR support for a 3-5 year period

Performance Contracts were concluded for four years (1999-2002), between MTCT and CFR and CFR-P respectively, stipulating the GOR's contribution for infrastructure and PSO respectively. They were approved by GOR through GD no. 698 of August 26, 1999. The Performance Contracts are to be updated annually by including the corresponding annual budgets of the companies.

CFR, CFR-P, MTCT, MOPF

Performance Contracts have been established for each year. The one for year 2003 was approved by Addendum to the Performance Contract no 1220/ 3 April 2003.

Budget support was established for each year, budget contribution for 2003 was approved by low 507/2003.

3. To identify privatization opportunities and prepare privatization wherever appropriate

Identification of privatization options for CFR-F and for ancillary activities of the other rail companies.

CFR-F, CFR, CFR-P, SAAF, SMF, MTCT, MOPF, GOR

Ongoing Beside branches privatization (see section A. 1. above) privatization of CFR-F is subject to a separate program of GOR.

B. ORGANIZATION AND MANAGEMENT Main Objective: To create and operate business oriented structures, with effective relationships between the rail companies and with government and customers and a management style encouraging responsibility, initiative and decisions at the lowest effective levels and producing efficient business and related investment plans giving satisfactory financial results

A. I

NST

ITU

TIO

NA

L O

BJE

CT

IVE

S

infrastructure access charge on commercial basis (i) Improve the current methodology for the infrastructure access charge by applying commercial principles (ii) Strengthening of departments of statistics (track capacity, traffic data, use of IT, etc.), as well as of cost control systems (iii) Implementation of the improved infrastructure access charge in contracts between CFR and operators, as well as in Performance Contracts with GOR

CFR, CFR-P, CFR-F

Ongoing task Ongoing task

The implementation of two IT systems would be of crucial importance: IRIS (IBRD financed) - and the roll out of the Oracle Financials pilot system (under the EU funded TA). Ministry Order 457 / 2002 sets the methodology and tariff for access charge

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1 2 3 4 5 6

2. Strengthening of organization and management of the railway companies to respond to market demands (i) Development of market strategies and business plans (ii) Adaptation of companies' internal organization and staffing. Strengthening of departments for marketing and relations with consumers. Provision of economic analysis capacities (iii) Development of management skills (iv) Development of MIS for all companies

Strategy of the railway sector up to 2010 approved by GOR in May 2001. Training programs in project management were attended by some of the CFR relevant staff (financed out of the IBRD loan) Agreements on the use of IRIS and Oracle Financials by all railway companies

CFR, CFR-P, CFR-F, SAAF, MTCT CFR, CFR-P, CFR-F, SAAF, MTCT All four rail companies All four rail companies

(i) and (ii) - ongoing tasks Ongoing IRIS and Oracle Financials

Included in companies’ strategies. CFR-F Business Plan for 2002-2006 sets the market targets. Organizational structure reconfigured to allow new marketing tasks to be taken over by relevant structures Marketing departments are in place in the relevant railway companies, at the headquarters and regional levels IRIS contract amended to respond to present demands; the EU funded TA to restructuring - Phase 3 (that includes Oracle Financials roll out); project completed

3. Prepare the new operational and financial targets

All railway companies

Review of targets for each year during the 4th quarter of the previous year

Strategy of the railway sector up to 2010 approved by GOR in May 2001.

B. O

RG

AN

IZA

TIO

N A

ND

MA

NA

GE

ME

NT

4. Reshape the network including the changing of the status of lines, yards and stations. Business activity of the rail companies to meet their new role and objectives

Prepare, implement and continuous development

CFR, CFR-P, CFR-F, MTCT, GOR (wherever appropriate)

Ongoing task

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1 2 3 4 5 6 5. Identification of privatization options and opportunities and implementation. Involve the private sector in ancillary and associated activities.

Identification of the possibilities and implementation

All five rail companies, MOPWTH, GOR, with TA - Phase 2 restructuring

Ongoing task

Privatization of CFR-F is subject to a separate program of GOR. For branches privatization see section A. 1. above.

6. Implement external and internal audit procedures

Implementation of procedures

CFR, CFR-P, CFR-F, MTCT (through AFER)

Ongoing task

All railway companies have concluded audit contracts with PriceWaterHouseCoopers. All companies also formed during 2002 and 2003 them own internal audit compartments.

B. O

RG

. AN

D M

AN

AG

EM

EN

T

7. Pursue improvement in railway safety

Permanent knowledge of the requirements

CFR, CFR-P, CFR-F, MTCT (through AFER)

Ongoing task - Safety rules permanently updated and reviewed; - Safety-related investment

programs in infrastructure.

C. OPERATIONS Main Objective: Identify opportunities by being aware of the transport market in Romania and of the strengths and weaknesses. Select and develop specific freight and passenger traffic flows to maximize the railway market advantage in terms of volume, net revenue and customers. Develop and operate railway services to meet these requirements efficiently, economically and safely.

C.

OPE

RA

TIO

NS

C.1. FREIGHT SERVICES 1. Examine the characteristics of existing railway freight flows and identify those which can be developed as trainloads, block loads, container services and wagon load (I) Develop cost structure methodology for each category of service and flow including the appropriate market pricing. (ii) Determine the necessary action plan by customers, associated with each freight traffic flow to achieve mutual benefits and implement the actions.

Study and implementation of the results. Improvement of the traffic timetable Study

CFR-F for all topics under C.1

Ongoing task Ongoing task

Implemented starting with May 2000 Timetable. Preliminary measures already implemented. Framework contract and commercial measures are implemented for major clients.

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1 2 3 4 5 6 2. Development of combined transport services

Study and negotiations with customers, identification of the private sector parties who are interested to invest

Ongoing task Progressively introduced already, and continuing.

• 50 RO-LA inter-modal wagons started operation under agreements with European operators.

• New inter-modal block trains operated under agreements with European operators.

3. Maximize fleet efficiency by improving the train timetables, including changes in the format of the public timetable book

Introducing productive working diagrams for traction, rolling stock and personnel

Ongoing task (expected improvement following IRIS implementation)

IT software for optimal locomotive usage under implementation.

4. Increase in operating efficiency by 2.5%

Meeting all proposed operational targets

CFR-F for all topics under C.1

Ongoing task

C.2. PASSENGER SERVICES 5. Analyze the country’s passenger market, identifying competition, costs, and prices, obtaining details about bus, air and private car travel. In addition, segregate the market into categories and identify services financially self-supporting and services to be provided under national/regional PSO contracts

Ongoing task.

The outcome from all market analysis performed for the passenger market implemented starting with 2001-2002 timetable. More flexible and market-oriented tariff system included in the Strategy of the railway sector.

6. Examine present passenger business including train loading, flows at all stations, service pattern, frequency and quality and identify resources needed for a better quality of services

Research and ongoing improvement

Upgrading of the PHARE funded IT based train timetable - by April 2002.

PHARE funded contract for an IT based train timetable system under upgrading operations. Future improvement following IRIS implementation.

C.

OP

ER

AT

ION

S

7. Increase in operating efficiency by 2.5%

Meeting all proposed operational targets

CFR-P for all topics under C.2

Ongoing task.

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1 2 3 4 5 6

D. MARKETING Main Objective: Identify the opportunities open for the rail companies and covering largest possible market shares through plans for each segment, major flow and important customer by maximizing at mutual advantages.

1. Establish marketing structures, including their objectives, procedures, methodologies, and posts, appoint and training staff.

All railways companies created marketing departments: CFR-P in June 2001, CFR-F in December 2002 and CFR-SA in December 2003.

CFR-F, CFR-P, CFR, SAAF

Accomplished Marketing departments are in place in the relevant railway companies, at the headquarters and regional levels. They are working continuously to update the clients database, to clearly define market demands, to identify possible new markets for the railways companies.

2. Prepare a Business Plan for each market segment, commodity type and passenger group, key freight customers and passenger markets and maintain constructive relationships with major customers

Study and application

CFR-F, CFR-P

Ongoing task

New tariff policy developed, commercially oriented for different customer needs. CFR-F 2002-2006 BP sets the market targets and provides specialization measures for marketing staff. CFR-P under an UE TA financed contract, developed a BP covering the period 2003-2008.

D. M

AR

KE

TIN

G

3. Prepare and administer full tariff autonomy system and pricing policies reflecting cost recovery, commercial principles such as offering discounts in contracts

Continual actions

CFR-F, CFR, SAAF (CFR-P wherever possible)

Ongoing task Implemented starting with February 2000 for CFR-F. New passenger tariff system included in the Strategy of the railway sector. Contracts signed by CFR with different suppliers and maintenance and overhaul contractors.

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1 2 3 4 5 6

E. INFRASTRUCTURE Main Objective: Maintain and develop track structure, signaling and telecommunications and electric traction systems and maintenance facilities to meet capacity, quality, and reliability. Focus on investments on main lines (European corridors). (a) Civil Engineering 1. 2001-2003 Operational Plan for track maintenance, including track machinery and tools, introduction of a new technology, high quality rails, turnouts, fastenings and new sleepers

The Strategy for the Railway Sector between 2001-2010 was approved by GD 1003/2001.

CFR

Ongoing task

Some track machinery and tools, as well as rails, turnouts and welding materials have been already purchased under IBRD and PHARE financing respectively.

2. The infrastructure will be improved to progressively ensure maximum transport speed of 160 km/h on main lines.

The Strategy for the Railway Sector between 2001-2010 was approved by GD 1003/2001.

CFR Ongoing task Modernization works on Bucharest - Campina section of Corridor IV (EIB financing) have been finalized in December 2003. Similar works will start on the same Corridor as follows: Bucuresti – Baneasa and Fetesti - Constanta section with JBIC financing and Baneasa – Fetesti and Campina – Predeal with ISPA financing.

(b) Signaling and Telecommunications 3. 2001-2003 Operational Plan, including the improvement of signaling regulations (according to UIC standards), improvement of safety systems, replacement of out-dated signaling systems, finishing uncompleted but essential projects and development of communication system

The Strategy for the Railway Sector between 2001-2010 was approved by GD 1003/2001.

CFR + AFER involvement for safety regulations

Ongoing task

IBRD financed railway telecom project completed in September 2003. PHARE financed project for replacement of worn out interlocking systems in 4 railway stations is under implementation.

E. I

NFR

AST

RU

CT

UR

E

(c) IT Systems 4. Introduce the Integrated Railway Information System (IRIS) consisting of sub-systems: § Infrastructure Management § Rolling Stock Management § Freight Operations § Traffic Monitoring

Installation and testing, preparing contracts of services with beneficiary railway companies.

CFR + contributions of the other four rail companies

Ongoing task

IRIS contract completed in September 2003.

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1 2 3 4 5 6 (d) Overhead Contact Lines OCR 5. Prepare 2002-2003 Operational Plan including: (i) assessment of rehabilitation needs and installations of material and equipment; (ii) develop technical competence and ensure infrastructure management

The Strategy for the Railway Sector between 2001-2010 was approved by GD 1003/2001.

CFR

Operational Plan to be updated annually.

Characteristics to be enhanced (for speed up to160 km / h) over the Trans European Network. Rehabilitation requirements defined.

(e) Station, Yards, Lines and Services Closures Plan 6. Prepare 2002-2003 Plan for closure of stations, yards, lines and services on economic criteria

Study and implementation

CFR, CFR-P, CFR-F, MTCT

Ongoing

Stations closed annually, according to the operating requirements of both CFR-P and CFR-F.

E. I

NFR

AST

RU

CT

UR

E

(f) Workshops 7. Separate and develop workshops for all infrastructure facilities to facilitate private sector progressive involvement

Outsourcing of non-core businesses of CFR-f, CFR-P and CFR-SA. See also section A.1. above.

CFR, MTCT

Ongoing

Independent branches expected to be established in territory, intended for specific infrastructure activity.

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1 2 3 4 5 6

F. TRACTION AND ROLLING STOCK Main Objective: Provide, maintain and develop / scrap locomotives, wagons, coaches, train sets and maintenance equipment to meet capacity, quality and safety requirements.

F. T

RA

CT

ION

AN

D R

OL

LIN

G S

TO

CK

1. Prepare and adopt Operational Plans for Traction and Rolling Stock fleets, to ensure commercial competence and competitive development by undertaking the following measures: (i) sizing of the fleet in accordance with traffic demand; (ii) improving the efficiency of locomotive and car fleet utilization by:

− improvement of locomotive and staff diagrams;

− systematic checking and shortening of the time provided for the preparation and end of shift duties;

− improvement of locomotive check up methods; establishing quality standards and control programs;

− improvement of the fleet maintenance efficiency;

− refurbishment of rolling stock and locomotives;

(iii) identification of new rolling stock types to be introduced according to market demands in order to operate more efficiently and with a higher quality (e.g., EMUs, DMUs, inter-modal).

Procurement (including test equipment for workshop and depots). Study, search for funds, procurement plan Study, search for funds, procurement plan

CFR-F, CFR-P

Ongoing task. Plan to be updated annually. Permanently Permanently Permanently

Equipment procured with EBRD and other funds. CFR-F obsolete wagons are constantly monitored and taken away from the operational fleet. Measures to adapt the fleet to the actual needs of CFR-P included in the 2002-2006 BP. Relevant EBRD financed contracts implemented. See comment under C.1.3 for CFR-F. Contract signed for 120 new DMUs for CFR-P and modernization of other 1.832 for CFR-F. Financing from different sources.

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1 2 3 4 5 6 2. Create value from the exceeding/scrapped rolling stock

Identify business opportunities and implement

SAAF, CFR-F, CFR-P

Ongoing task According to the Railway Strategy approved by GOR, SAAF's role has been limited to the main purpose for which it had been established, i.e. to create value for the other railway companies from exceeding/scrapped rolling stock. CFR-P sold only in 2002 496 coaches by Romanian Stock Exchange and transferred other 510 to CFR-SA.

F. T

RA

CT

ION

AN

D R

OL

LIN

G S

TO

CK

3. Prepare Operational Plan for traction and rolling stock maintenance taking into account: (i) rationalization and reduction of equipment and number of depots and sheds to reduce costs and productivity improvement; (ii) changes in maintenance methods and service specifications including introduction of a preventive maintenance system with spare parts; (iii) improving technical facilities at specified depots; (iv) identification of maintenance services that could be outsourced / privatized.

Prepare plans and implementation

CFR-F, CFR-P

Ongoing task. Plans to be updated annually.

Plans prepared in May 2000 and implementation thereafter. CFR-F reduced / stopped the activity in 3 hauling related facilities during 2002. Outsourcing of several non-core activities started in 2001. In August 2003 all 5 branches of CFR-P have been privatized, of which 4 had as main activity coaches maintenance. See also section A. 1. above.

G. HUMAN RESOURCES Main Objective: Provide and maintain a quality of highly motivated and well-trained staff with skills; capacity standards and productivity consistent with the market requirements. 1. 2001-2003 Human Resources Development Plans (appraisals, promotions, training, career development, discipline and retraining)

Preparation, revision and implementation

All railway companies

Ongoing. Plan to be updated annually.

In 200 -2003 both CFR-P and CFR-F organized training courses for the staff involved in using IRIS and Oracle Financials systems.

G. H

UM

AN

RE

SOU

RC

ES

2. Training needs by preparing 2001-2003 Training Program

Preparation, revision and implementation

All railway companies

Ongoing. Program to be updated annually.

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1 2 3 4 5 6

H. INVESTMENTS Main Objective: The achievement of the investments and implement those investments which will ensure the development of the rail companies and bring the physical assets back to a safe and appropriate condition, enable the rail companies to meet their commercial objectives. 1. Develop and implement Investment Plans with focus on high priorities, based on the criteria mentioned above, which will provide safety and better performance, support restructuring, reduce costs and improve competitiveness on the market in the future

The Strategy for the Railway Sector between 2001-2010 was approved by GD 1003/2001.

All railway companies, MTCT, MOPF, GOR

Ongoing. Plans to be updated annually according to the resources.

Plans updated for all companies.

H. I

NV

EST

ME

NT

S

2. Obtain funds from all possible sources (public / private), based on debt service capability

Continual actions

All railway companies, MTCT, MOPF, GOR

Ongoing projects: 1.Railway Rehabilitation Project (IBRD and EBRD+ECLAT finalized September, respectively June 2003, still ongoing only EC-PHARE) 2. Rehabilitation of Bucharest-Campina section of Corridor IV(EIB) 3. Rehabilitation of Bucharest-Baneasa and Fetesti-Constanta section of Corridor IV(JBIC) 4. Modernization of Baneasa-Fetesti section of Corridor IV(ISPA) 5. CFR –main city railways station enhancement project (EBRD) Future projects: Infrastructure (EC-ISPA founds for track rehabilitation) Rolling stock (new EIB loan)

Funds are provided for modernization of parts of Corridor IV (EIB, EC-ISPA and JBIC). Works started under EIB financing on June 2000 and finalized in December 2003. Modernization under ISPA financing is still at the beginning. JBIC loan for modernization of 57 Diesel-electric locomotives for CFR-P.

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1 2 3 4 5 6

I. FINANCE AND ACCOUNTING Main Objective: Provide financial management service, prepare, coordinate and monitor annual budgets and investment plans according to the commercial objectives of the railway companies and the performance of PSO. Develop, in parallel, MIS and cost management ability to ensure effective and detailed business evaluation and financial results. 1. 2002-2003 Financial Restructuring Plans, as part of the Business Plans of the five rail companies, including: (i) the financial impact of the implementation of all actions on reducing costs; (ii) a plan of tariff adjustment; (iii) analysis of Government contribution for PSO and infrastructure.

Included in Performance Contracts with the state (CFR , CFR-P)

All railway companies, MTCT, MOPF, GOR

Ongoing. Annual updating. Achieved by May 1997 and implementation and updating annually

Cost reduction actions implemented. Railway Strategy 2001-2010 approved by the GOR, including new passenger tariff policy.

I. F

INA

NC

E A

ND

AC

C.

2. Prepare a plan for the introduction of modern financial and accounting procedures

Design and implementation of a modern financial and accounting IT system.

All railway companies

Solution developed under EU funded TA The application, especially designed for railway companies, was completed at the end of 2003.

Implementation of the financial and accounting IT system “Oracle”(contract financed using EU grant) was completed in September 2003. Training of personnel was performed in 2000 and 2001.

J. ENVIRONMENT 1. Environment management capacity building

Periodic environmental performance review and equipment procurement

CFR, CFR-F, CFR-P, SAAF

Ongoing task. Study tour done in 1999. Further specific training sessions provided by local and international bodies. Equipment procured in 1997 using IBRD funds. Laboratories homologated. Investment in equipment addressed to CFR-F depots and other specific facilities with environmental constraints.

J. E

NV

IRO

NM

EN

T

2. Setting environmental priorities

CFR, CFR-F, CFR-P, SAAF

Ongoing task According to CFR strategy for 1999-2003 Study performed by AFER for CFR-F.

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1 2 3 4 5 6

K. IMPLEMENTATION AND MONITORING OF THE RAILWAY REHABILITATION PROJECT

K. I

MPL

EM

. R

RP

1. Adequate carrying out of all project components and meeting of loans conditionalities

Project management and implementation, contracts administration, reporting to IFIs

PMU (for project and contracts management) + all rail companies (implementation, meeting of conditionalities)

Project completion for EBRD loan 30 June 2003, for IBRD loan 30 September 2003, PHARE will be completed by end 2004. Quarterly Reports to IFIs. Final Report to IFIs after completion.

All contracts completed, except one “Modernization of the interlocking system in four main stations”.

L. IMPLEMENTATION OF THE 2001-2003 RESTRUCTURING ACTION PLAN

L. I

MPL

EM

. R

AP

1. Meeting of annual RAP objectives / targets

a) Analyze the progress in the implementation of the RAP with the IFIs b) Update the RAP

All railway companies + MTCT and MOPF

According to IBRD and EBRD Loan Agreements provisions. Up to the end of June each year.

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Additional Annex 9. [Supplemental Tables]

Table 1. Romanian Railways Operational and Financial Performance (amount in US$ million) Table 2. Financial Performance (amount in US$ million) Table 3. Traffic VolumeTable 4. Average Revenue (per passenger-km and per ton-km)Table 5. State Budget SupportTable 6. Staff NumbersTable 7. Labor CostsTable 8. Unit Cost (US$ per traffic unit)Table 9. Accounts Receivable and Payable [Tables (9a) and (9b)]Table 10. Private Freight OperationsTable 11. Subsidiarization of Non-core Activities and Privatization of Subsidiaries

- 46 -

Table 1

1995 1996 1997 1998 1999 2000 2001 2002 2003 2003

6 mos. est.

Passenger-Km (billion) 18.9 18.3 15.8 13.4 12.3 11.6 11.0 8.5 3.9 8.1

Ton-Km (billion) 27.2 26.9 24.8 19.7 15.9 18.0 17.8 17.2 7.6 17.3

Total Traffic Unit: (pkm+tkm) (billion) 46.1 45.2 40.6 33.1 28.2 29.6 28.7 25.7 11.5 25.4

Revenue 1/ 601 640 700 803 612 728 748 835 418

Costs 1/ 963 939 875 1019 842 938 979 1068 519

Net deficit (361) (299) (175) (216) (230) (210) (231) (233) (101)

State budget subsidy, of which: 148 99 82 148 253 235 230 248 122 259

PSO payment (operating subsidy) 52 196 167 146 147 85 186

Payment for discount tickets (operating subsidy) 8 11 27 9 19 9 18

Infrastructure maintenance (operating subsidy) 148 99 82 78 32 29 26 24 4 23

Infrastructure investment 9 14 12 37 27 4 10

Investment for passenger services 12 31 10 14

IFI loans debt service 1 1 10 9.6

Net deficit, incl. effect of operating subsidy (214) (200) (93) (77) 8 14 (51) (44) (3)

RAP Target Working Ratio (excl. subsidy for infra.maint) 130% 120% 110% 110% 100% 100%

Working ratio (excl. subsidy for infra.maint) 136% 134% 113% 108% 99% 99% 103% 99% 95%

Working ratio (excluding all subsidies) 136% 134% 113% 113% 121% 116% 120% 114% 111%

State support as % of GDP 0.4% 0.3% 0.2% 0.4% 0.7% 0.6% 0.5% 0.5%

PSO Payment per passenger-km (US$) 0.016 0.014 0.013 0.017

Operating cost per traffic unit (US$) 1/ 0.020 0.020 0.021 0.029 0.029 0.030 0.032 0.036

Operating revenue per traffic unit (US$) 2/ 0.013 0.014 0.017 0.025 0.022 0.024 0.025 0.029

Labor productivity (thou. TU per employee) 310 325 300 278 272 287 284 277 313 average340 year-end

1/ Track access fees within CFR are excluded.

2/ Track access fees within CFR and subsidies are excluded.

Romanian Railways

Operational and Financial Performance

(amount in US$ million)

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Table 2

1999 2000 2001 2002 2003 (6 mos)

Operating revenue 263 266 319 371 176

Operating costs, excl. depreciation 283 284 341 378 174

Depreciation 6 6 6 5 3

Other revenue 6 13 29 80 1

Financial, tax, and other expenses 14 15 29 96 10

Net deficit (32) (26) (28) (28) -10

State budget subsidy

Infrastructure maintenance 32 29 26 24 4

Net deficit, including effect of subsidy 0 3 (2) (5) (6)

Working ratio (excluding subsidy) 107% 107% 107% 102% 99%

1999 2000 2001 2002 2003 (6 mos)

Operating revenue 154 188 136 137 70

Operating costs, excl. depreciation 354 371 315 309 165

Depreciation 5 4 4 6 5

Other revenue 1 2 2 6 0

Financial costs 2 9 14 28 7

Net deficit (206) (195) (196) (199) (106)

State budget subsidy

PSO payment 196 169 146 147 85

Payment for discount tickets 11 27 10 19 10

Net deficit, including effect of subsidy 0 0 (40) (33) (11)

Working ratio (excluding subsidy) 230% 198% 231% 225% 234%

Cost Recovery, without subsidy 43% 50% 43% 44% 42%

1999 2000 2001 2002 2003 (6 mos)

Operating revenue 388 435 409 430 241

Operating costs, excl. depreciation 361 418 395 405 218

Depreciation 7 7 7 10 4

Other revenue 4 10 7 7 11

Financial costs 15 12 15 24 18

Net income 10 8 (1) (2) 11

Working ratio 93% 96% 97% 94% 91%

Cost Recovery 106% 102% 102% 104% 108%

Marfa

Financial Performance(amount in US$ million)

Infrastructure

Calatori

- 48 -

Table 3Traffic Volume

Part (a)

% % % %

1995 1996 change 1997 change 1998 change 1999 change 2000

from 95 from 96 from 97 from 98

Passenger 18.9 18.3 -3% 15.8 -14% 13.4 -15% 12.3 -8% 11.6

(billion pkm)

avg. distance (km)

Freight 27.2 26.9 -1% 24.8 -8% 19.7 -20% 15.9 -19% 18.0

(billion tkm)

avg. distance (km) 257.6 253.1 251.6

Traffic Units 46.1 45.2 -2% 40.6 -10% 33.1 -18% 28.2 -15% 29.6

(pkm + tkm) billion

No. of passengers 211.0 213.0 1% 187.0 -12% 146.8 -21% 129.4 -12% 117.5

(million)

Passenger Train Km 75.0 70.0 -7% 69.3

(million)

Freight tons 105.1 105.0 0% 93.9 -11% 76.5 -19% 62.9 -18% 71.5

(million)

Freight Train Km 33.8 28.9 31.5

(million)

Source: Calatori and Marfa data

Traffic VolumePart (b)

% % % % revised % 1st half

change 2001 change 2002 change change 2003 change 2003 2004

from 99 from 00 from 01 1995-2002 forecast from 02 actual forecast

Passenger -5% 11.0 -6% 8.5 -22% -55% 8.1 -5% 3.9 8.3

(billion pkm)

avg. distance (km)

Freight 13% 17.8 -1% 17.2 -3% -37% 17.3 1% 7.6 17.3

(billion tkm)

avg. distance (km) 247.3 252.5 252.9

Traffic Units 5% 28.7 -3% 25.7 -11% -44% 25.4 -1% 11.5 25.6

(pkm + tkm) billion

No. of passengers -9% 113.7 -3% 95.6 -16% -55% 89.9 -6% 47.7

(million)

Passenger Train Km -1% 67.9 -2% 65.4 -4% 67.0 68.0

(million)

Freight tons 14% 71.8 0% 68.1 -5% -35% 68.4 0%

(million)

Freight Train Km 31.3 27.1 28.2 4% 13.1

(million)

Source: Calatori and Marfa data

- 49 -

Table 4

1995 1996 1997 1998 1999 2000 2001 2002 2003

1st half

Lei/US$1 2,033 3,083 7,168 8,876 15,333 21,709 29,062 33,055 33,063 Passenger (without PSO)

Lei/passenger-km 12 21 57 103 165 235 317 557 599

US$/passenger-km 0.006 0.007 0.008 0.012 0.011 0.011 0.011 0.017 0.018 % increase (in lei) 77% 176% 80% 60% 43% 35% 6% 8%

% increase (in $) 19% 17% 19% 45% -8% 1% 1% 54% 15%

Passenger (with PSO)

Lei/passenger-km 228 504 654 704 1,127 1,318

US$/passenger-km 0.026 0.033 0.030 0.024 0.034 0.040

% increase (in lei) 121% 30% 8% 11% 17%

% increase (in $) 28% -8% -20% 41% 31%

Freight

Lei/ton-km 32 50 141 240 338 477 610 735 949 US$/ton-km 0.016 0.016 0.020 0.027 0.022 0.022 0.021 0.022 0.029

% increase (in lei) 56% 185% 70% 40% 41% 28% 21% 26% % increase (in $) -8% 3% 23% 37% -19% 0% -4% 6% 27%Source: Calatori and Marfa data

Average Revenue (per passenger-km and ton-km)

- 50 -

Table 5

1995 1996 1997 1998 1999 2000 2001 2002 2003 2003

6 months full year est.

Lei/US$1 2,033 3,083 7,168 8,876 15,333 21,709 29,062 33,055 33,063 33,600

Passenger PSO

Billion Lei 465.0 3001.6 3623.2 4,242.2 4,850.5 2807.8 6,241.0

US$ Million 52.4 195.8 166.9 146.0 146.7 84.9 185.7

Subsidized tickets

Billion Lei 72.2 162.7 591.6 268.7 633.9 313.5 600.0

US$ Million 8.1 10.6 27.3 9.2 19.2 9.5 17.9

Investment for passenger services

Billion Lei 338.5 1,035.2 344.4 455.0

US$ Million 11.6 31.3 10.4 13.5

Infrastructure maintenance

Billion Lei 300.0 306.3 587.3 696.0 497.1 638.0 743.8 775.5 130.4 764.0

US$ Million 147.6 99.4 81.9 78.4 32.4 29.4 25.6 23.5 3.9 22.7

Investment for infrastructure

Billion Lei 75.7 209.6 248.8 1,081.8 905.5 127.6 323.0

US$ Million 8.5 13.7 11.5 37.2 27.4 3.9 9.6

IFI Loans Debt Service 1/

Billion Lei 4.2 13.6 - 285.7 323.7 323.7

US$ Million 0.5 0.9 - 8.6 9.8 9.6

Sub-total Budget Support

Billion Lei 300.0 306.3 587.3 1,313.1 3,884.6 5,101.6 6,675.0 8,486.2 4,047.4 8,706.7

US$ Million 147.6 99.4 81.9 147.9 253.3 235.0 229.7 256.7 122.4 259.1

Budget as % of GDP 0.4% 0.3% 0.2% 0.4% 0.7% 0.6% 0.6% 0.6% 0.2% 0.5%

EIB, ISPA, PHARE, Other

Billion Lei 302.5 2,005.1 2,448.9 3,353.9 3,353.9

US$ Million 13.9 69.0 74.1 101.4 99.8

Total Budget Support

Billion Lei 300.0 306.3 587.3 1,313.1 3,884.6 5,404.1 8,680.1 10,935.1 7,401.3 12,060.6

US$ Million 147.6 99.4 81.9 147.9 253.3 248.9 298.7 330.8 223.9 358.9

Budget as % of GDP 0.4% 0.3% 0.2% 0.4% 0.7% 0.7% 0.8% 0.7% 0.4% 0.7%

GDP

Billion Lei 72,136 108,920 252,926 371,194 539,357 796,534 1,123,710 1,512,300 1,838,700 1,838,700

US$ Billion 35.5 35.3 35.3 41.8 35.2 36.7 38.7 45.8 54.7 54.7

Arrears to the state budget & social funds (on December 31) 2/

Billion Lei 5,390 3,132 4,589 6,506 9,690 15,417

US$ Million 607 204 211 224 293 466

GDP: World Bank estimates

1/ Debt service payments of the following IFIs: CFR (EIB, PHARE, JIBIC, London forfaiting); Calatori (PARIBAS, JIBIC)

2/ Arrears to the state/social funds include historial debt accumulated prior to the 1998 reorganization.

SNCFR is in charge of reducing historical debt including arrears to the State budget, using the receivables outstanding as of October 1, 1998.

State Budget Support

- 51 -

Table 6

1995 1996 1997 1998 1999 2000 2001 2002 total 2003 % change 2003

staff as of from 95 to

reducd Sept. 30 9/30/2003 estimate

End-Year

total 141,027 137,139 133,201 105,033 102,287 104,425 97,831 87,637 74,692 74,692

of which: 1/

Infrastructure 47,309 47,308 47,350 45,451 41,642 5,555 36,087 36,087

Freight 30,628 28,708 29,081 27,104 26,572 5,867 20,705 20,705

Passenger 24,245 23,230 24,899 22,187 19,060 1,283 17,777 17,777

SAAF 350 345 388 388 362 240 122 122

SMF 2,500 2,695 2,706 2,700 - - -

SNCFR 1 1 1 1 1 1 1

Total reductions 3,888 3,938 28,168 2,746 (2,138) 6,594 10,194 12,945 12,945 12,945

% reduction -3% -3% -21% -3% 2% -6% -10% -15% -47% -15%

Staff productivity 310 325 300 278 272 287 284 277 313 average

Source: CFR railways data

1/ With the dissolution of SMF effective as of November 1, 2002, its total employees of 2,611 have been assigned to the Infrastructure, Freight 340 year-end

and Passsenger Companies.

Staff Numbers

Table 7

End-year Annual labor Total labor cost Total labor cost

number Total cost as % of operating as % of

of labor cost per person 1/ cost 2/ total revenue 3/

staff (US$M) (US$) (%) (%)

1998 105,033 379 3,181 40% 47%

% change -3% -31% -21%

1999 102,287 262 2,524 33% 43%

% change 2% 14% 14%

2000 104,425 298 2,885 34% 41%

% change -6% 2% 4%

2001 97,831 303 2,995 34% 43%

% growth -10% -42% -37%

2002 87,637 174 1,880 20% 23%

1/ For 1998, total labor cost includes labor restructuring cost of laying off 28,000 workers.

2/ Excludes track access and rental fees involving CFR railways. Also excludes depreciation.

3/ Excludes track access and rental fees involving CFR railways. Also excludes govt. subsidies.

Labor Cost

- 52 -

Table 8

1995 1996 1997 1998 1999 2000 2001 2002

Traffic Unit (TU) 46.1 45.2 40.6 33.1 28.2 29.6 28.7 25.7

Total Revenue/TU (incl. subsidy and access and rental fees) 0.016 0.016 0.019 0.037 0.038 0.039 0.037 0.045

Total Revenue/TU (excl. subsidy) 0.013 0.014 0.017 0.033 0.030 0.032 0.031 0.038

Total Revenue/TU (excl. subsidy and access and rental fees) 0.013 0.014 0.017 0.025 0.022 0.024 0.025 0.029

Track access fees 0.007 0.008 0.008 0.006 0.008

Rental fees 0.001 0.000 0.000 0.000 0.000

Fuel 0.001 0.001 0.001 0.002 0.002 0.002 0.002 0.003

Electricity 0.001 0.001 0.002 0.002 0.002 0.001 0.003 0.004

Overhaul 0.004 0.005 0.005 0.010 0.011 0.011 0.010 0.010

Maintenance 0.001 0.001 0.001 0.003 0.003 0.004 0.004 0.005

Other Material 0.000 0.000 0.000 0.000 0.000 0.001 0.000 0.001

Salaries 0.007 0.007 0.006 0.008 0.006 0.007 0.007 0.009

Social insurance 0.002 0.002 0.002 0.003 0.003 0.003 0.003 0.003

Other labor cost 0.000 0.001 0.000 0.000 0.000 0.000 0.000 0.000

Adm. Expense 0.000 0.000 0.000 0.001 0.000 0.001 0.001 0.001

Depreciation 0.003 0.001 0.002 0.001 0.001 0.001 0.001 0.001

Total Oper. Cost/TU (incl. access and rental fees) 0.020 0.020 0.021 0.038 0.037 0.038 0.038 0.044

Total Oper. Cost/TU (excl. access and rental fees) 0.020 0.020 0.021 0.029 0.029 0.030 0.032 0.036

Cost recovery* (excl. subsidy and access and rental fees) 64% 70% 82% 83% 75% 81% 78% 83%

Working Ratio** (excl. subsidy and access and rental fees) 136% 134% 113% 117% 130% 121% 125% 118%

* Including depreciation

** Excluding depreciation

Unit CostUS$ per traffic unit (pkm + tkm)

- 53 -

Table 9(a)

TOTAL TOTAL CFR Freight Passenger SAAF SMF SNCFR

incl. SNCFR excl. SNCFR12/31/1999

Accounts Receivable 5,768 3,463 812 1,628 848 149 26 2,305

Accounts Payable (A/P) 6,631 3,133 669 1,450 851 131 33 3,498 Difference (863) 330 143 178 (2) 18 (7) (1,193)

A/P, of which Arrears to State/Social Funds 3,132 164 10 122 50 (27) 10 2,969

12/31/2000

Accounts Receivable 8,337 6,061 2,017 2,074 1,607 300 62 2,276

Accounts Payable (A/P) 11,022 7,701 2,501 2,661 2,162 293 84 3,321

Difference (2,685) (1,640) (483) (587) (555) 7 (22) (1,045)

A/P, of which Arrears to State/Social Funds 4,589 1,634 1,486 40 90 (31) 50 2,955

12/31/2001

Accounts Receivable 9,042 8,094 4,431 2,207 1,029 219 208 948

Accounts Payable (A/P) 14,775 11,626 6,116 2,577 2,376 347 210 3,149

Difference (5,733) (3,532) (1,686) (370) (1,347) (127) (2) (2,201)

A/P, of which Arrears to State/Social Funds 6,506 3,557 3,167 371 (105) (36) 160 2,949

9/30/2002

Accounts Receivable 14,751 13,518 7,261 3,129 2,022 768 339 1,233

Accounts Payable (A/P) 20,427 17,399 8,935 4,266 3,441 413 345 3,027

Difference (5,676) (3,881) (1,673) (1,137) (1,419) 355 (6) (1,795)

A/P, of which Arrears to State/Social Funds 9,336 6,410 5,008 555 544 29 274 2,926

12/31/2002

Accounts Receivable 13,306 10,543 5,723 2,271 2,383 166 - 2,763

Accounts Payable (A/P) 22,233 19,268 10,921 3,843 3,928 575 - 2,966

Difference (8,928) (8,725) (5,198) (1,572) (1,546) (409) - (203)

A/P, of which Arrears to State/Social Funds 9,690 6,765 5,513 1,216 16 19 - 2,925

6/30/2003

Accounts Receivable 23,656 21,581 14,988 3,111 2,776 706 - 2,075

Accounts Payable (A/P) 26,773 23,805 15,592 3,910 3,866 436 - 2,969

Difference (3,118) (2,224) (604) (799) (1,090) 270 - (894)

A/P, of which Arrears to State/Social Funds 14,842 11,925 9,281 1,495 1,123 26 - 2,917

Source: CFR railways data

1/ Net of receivables

Accounts Receivable and Payable(in billions of Lei)

- 54 -

Table 9(b)

TOTAL TOTAL CFR Freight Passenger SAAF SMF SNCFR

incl. SNCFR excl. SNCFR

FX 15,333 15,333 15,333 15,333 15,333 15,333 15,333 15,333

12/31/1999

Accounts Receivable 376.2 225.9 53.0 106.2 55.3 9.7 1.7 150.3

Accounts Payable (A/P) 432.5 204.4 43.6 94.5 55.5 8.5 2.2 228.1

Difference (56.3) 21.5 9.3 11.6 (0.2) 1.2 (0.5) (77.8)

A/P, of which Arrears to State/Social Funds 204.3 10.7 0.6 7.9 3.2 (1.8) 0.7 193.6

FX 21,709 21,709 21,709 21,709 21,709 21,709 21,709 21,709

12/31/2000

Accounts Receivable 384.0 279.2 92.9 95.5 74.0 13.8 2.8 104.9

Accounts Payable (A/P) 507.7 354.7 115.2 122.6 99.6 13.5 3.9 153.0

Difference (123.7) (75.5) (22.3) (27.0) (25.6) 0.3 (1.0) (48.1)

A/P, of which Arrears to State/Social Funds 211.4 75.3 68.4 1.8 4.1 (1.4) 2.3 136.1

FX 29,062 29,062 29,062 29,062 29,062 29,062 29,062 29,062

12/31/2001

Accounts Receivable 311.1 278.5 152.5 76.0 35.4 7.5 7.2 32.6

Accounts Payable (A/P) 508.4 400.0 210.5 88.7 81.8 11.9 7.2 108.3

Difference (197.3) (121.5) (58.0) (12.7) (46.4) (4.4) (0.1) (75.7)

A/P, of which Arrears to State/Social Funds 223.9 122.4 109.0 12.8 (3.6) (1.2) 5.5 101.5

FX 32,918 32,918 32,918 32,918 32,918 32,918 32,918 32,918

9/30/2002

Accounts Receivable 448.1 410.7 220.6 95.1 61.4 23.3 10.3 37.4

Accounts Payable (A/P) 620.5 528.6 271.4 129.6 104.5 12.5 10.5 92.0

Difference (172.4) (117.9) (50.8) (34.6) (43.1) 10.8 (0.2) (54.5)

A/P, of which Arrears to State/Social Funds 283.6 194.7 152.1 16.9 16.5 0.9 8.3 88.9

FX 33,055 33,055 33,055 33,055 33,055 33,055 33,055 33,055

12/31/2002

Accounts Receivable 402.4 318.9 173.1 68.7 72.1 5.0 - 83.6

Accounts Payable (A/P) 672.6 582.9 330.4 116.3 118.8 17.4 - 89.7

Difference (270.1) (264.0) (157.3) (47.6) (46.8) (12.4) - (6.1)

A/P, of which Arrears to State/Social Funds 293.1 204.6 166.8 36.8 0.5 0.6 - 88.5

FX 33,063 33,063 33,063 33,063 33,063 33,063 33,063 33,063

6/30/2003

Accounts Receivable 715.5 652.7 453.3 94.1 84.0 21.4 - 62.7

Accounts Payable 809.8 720.0 471.6 118.3 116.9 13.2 - 89.8

Difference (94.3) (67.3) (18.3) (24.2) (33.0) 8.2 - (27.0)

A/P, of which Arrears to State/Social Funds 448.9 360.7 280.7 45.2 34.0 0.8 - 88.2

Source: CFR railways data

1/ Net of receivables

(in millions of $US)Accounts Receivable and Payable

- 55 -

Table 10

Operator Market Main Commodity Carried Statusentry

SEFER Brazi 2000 oil, petroleum productsUnifertrans Bucharesti 2000 construction materials

TAF Bacau 2000 coalTAF has outstanding arrears of $0.5 million to CFR Infra. Co.CFR Infra. Co. has stopped servicing TAF.

Transcombi Galati 2000 cementCerealcom Galati 2001 grain and grain productsTransferoviaria Sibiu 2002

Rompetrol Bucharesti 2002oil, natural gas, mining and construction materials

Operates 11 routes in Costanta and Prahova

Servtrans Invest Bucharesti 1/ 2002steel, coal, ore, chemical products, raw materials

Group Feroviar Roman Bucharesti1/ 2002 oil, petroleum productsFiliala Ferotrans Chitila 2002

Romania Euroest Constanta 2003 shunting/repair of locos, wagons Servicing Port of Constanta

Via Terra Spedition Cluj-Napoca 20031/ Major operators

Private Freight Operators

- 56 -

Table 11Subsidiarization of Non-core Activities and

Privatization of Subsidiaries 1/

1999 2000 2001 2002newly newly newly newly staff reduction staff

Railway formed formed formed formed already strength with sev. strengthco. subsid. total subsid. total subsid. total subsid. total privatized total end-Aug pay end-Sept

Infra. 11 11 7 18 9 9 6872 3100 3772Marfa 4 4 4 3 7 7 3 4 6313 1380 4933Calatori 5 5 5 3 8 1 9 4 5 5623 720 4903

Total 9 9 9 17 26 8 34 16 18 18808 5200 136081/ At end 2004, a total of 9 subsidiaries will remain with the railways as follows: Infrastructure: (I) IT center, (ii) Telecomm, (iii) Emergency track repair Marfa: (I) Wagon repair workshop, (ii) Locomotive repair workshop Calatori: (I) Coach repair workshop, (ii) Locomotive repair workshop, (iii) Ticket sales, (iv) Sleeping cars

3-Sep-03

staff reduction staffRailway to be strength to be with strength

co. privatized total end-Dec privatized total privatization end-Dec

Infra. 2 7 3,772 4 3 1,873 1,899Marfa 2 2 4,933 0 2 0 417Calatori 1 4 4,903 0 4 0 1,234

Total 5 13 13,608 4 9 1873 3550

200431-Dec-03

- 57 -

- 58 -