Document of

The World Bank

FOR OFFICIAL USE ONLY

R.pn No. 7028-SU

STAFF APPRAISAL REPORT

3UDAN

RAILWAYS ENERGENCY RECOVERY PRO(RAM

March 17, 1988

Infrastructure Operations DivisionEastern Africa DepartmentAfrica Region

This document has a rstricted distibution and may be used by recipients ony in the performance of

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CURRENCY EQUIVALENTS

The official currency unit in the Sudan is the Sudanese Pound.

Official Rate US$1.00 -£Sd 4.5

WEIGHTS AND MEASURES

1 meter - 3.28 feet (ft)1 kilometer (km) - 0.62 miles (mi)1 square kilometer (km2) - 0.386 square miles (sq mi)1 kilogram (kg) = 2.2 pounds (lbs)1 metric tonne (tonne) = 2,205 pounds (lbs)

GLOSSARY OF ABBREVIATIONS

AfDB African Development BankCAD Civil Aviation DepartmentCPBE Central Bureau for Public EnterprisesEEC European Economic CommunityKfW Kreditanstalt fur WiederaufbauLMMC Livestock and Meat Marketing CorporationMCPW Ministry of Construction and Public WorksMFEP Ministry of Finance and Economic PlanningMOTC Ministry of Transport and CommunicationsODA Overseas Development Administration (UK)RBPC Roads and Bridges Public CorporationRERP Railways Emergency Recovery ProgramRTC River Transport CorporationSPC Sea Ports CorporationSRC Sudan Railways CorporationSRF Staff Rationalization FundUSAID U.S. Agency for International Development

FISCAL YEAR

Government July 1 - June 30SRC July 1 - June 30

FOR OFFICIAL Us ONLY

allwaey sermnac Recovewt Prottr_Staff Appraisal R port

Table of Coatents

Page No.

I PROJECT BACKGROUND AND SUIIART ...... I

II. TE TRANSPORT SC T.OR 5

A. The Transport System ............................................. SB. Role of Transport in the Economy ................................ 10C. Government Policy in the Sector ................................. 13D. Bank Lending Strategy in Transport .............................. 15

III. RAIL SUBSECTOR AND PROBLEMS ........................................ 17

A. Overview of Sudan Railways Corporation .......................... 17B. SRC's Infrastructure and Property ............................... 18C. Organization, Management and Staff .............................. 21D. Operating and Financial Performance ............................. 23E. Government/SRC Relations ........................................ 24

IV. PROPOSED PROJECT ................................................. 26

A. Project Origin and Preparation .................................. 26B. Project Objectives and Description . . 28C. Project Cost ................................................. 33D. Project Financing ............................................... 36E. Implementation ................................................. 37F. Procurement ................................................. 38G. Disbursements ................................................. 39H. Reports and Audits .............................................. 39

V. ECONOMIC EVALUATION ...................... 40

VI. FINANCIAl EVALUATION ............................................... 43

A. General ................................................. 43B. Past Performance ............................... : ................ 43C. Financial Forecasts ............................................. 44D. Projected Operating Statements .................................. 46E. Projected Balance Sheets ........................................ 46F. Projected Cash Flow ............................................. 47G. Financial Internal Rate of Return (FIRR) ........................ 47H. Impact of Inflation ............................................. 49

VII. RECOMHENDATIONS ................................................. 50

This report was prepared by Ms. J. Holt (Mission Leader) and Messrs. D.Jovanovic (Sr. Economist), M. Bery (Consultant) and B. Rollins (Consultant),following an appraisal mission in October 1987 and project preparationmissions in 1986 and 1987. Mesdames Blanca Gutierrez and Loan Dommen providedsecretarial services.

This document has a restricted distribution and may be used by recipients only in the perfomunceof their official duties. Its contents may not otherwise be discloed without World Dank authorization.

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List of Tables

2.1 Imports and Exports Throughput2.2 SRC'a Declining Market Share2.3 The Share of Rail and Road Transport in Import Traffic2.4 The Share of Rail and Road Transport in Export by Major Comodities2.5 Passenger Movement by Mode of Transport in tha Sudan4.1 Motive Power and Rolling Stock Workshop Maintenance Program5.1 A. Traffic Forecast and Estimated Operating Costs of SRC

B. Estimated Operating Costs of SRC with Alternative Traffic Forecast5.2 Economic Evaluation - Base Case5.3 Economic Evaluation - Sensitivity Analysis6.1 Comparative Statements of Profit and Loss6.2 Comparative Balance Sheet6.3 Traffic Forecast6.4 Projected Operating Statements6.5 Projected Balance Sheets6.6 Projected Cash Flow6.7 Financial Internal Rate of Return - Base Case6.8 Financial Internal Rate of Return - Sensitivity Analysis6.9 Development and Recurrent Budget - FY86/87

List of Annexes

I. Locomotives and Rolling Stock, October 1987II. Organization ChartIII. Technical AssistanceIV. Staff Rationalization FundV. TrainingVI. Estimated Locomotive RequirementsVII. Performance TargetsVIII. Staff Rationalization Plan - Implementation ScheduleIX. Project ScheduleX. Implementation: Target Dates

IBRD Map No. 18998

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RELATED DOCKNINTS AND DATA AVAILAILE IN PROJECT FILE

- Teroc of Reference - Technical Assistance Poeition- RITZS Report- T.T. PSICO Study- Norconsult Highway Study- Port Project - Inception Report for Inland Container Terminal (Draft Final)

WMpower Planning and Training Reprt

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SUDNRAILWAYS MIMGE=C RECOVERY PROGRM

CRSDIT AND PROJECT SiMIARY

Borrower: The Republic of Sudan

Beneficiary: Sudan Railways Corporation (SRC)

IDA Credit Amount: SDR 25.65 million (US$35.0 million)

Terms: Standard with 40 years maturity.

Onlendins Terms: Government would pass on the proceeds of the Creditto SRC as an equity contribution by way of budgetarytransfers in accordance with normal Governmentprocedures.

Prolect Description: The project consists of:

(a) Institutional Development: (i) Technical assist-ance to strengthen managerial and operationalskills and to assist SRC in carrying out anemergency recovery program that will arrest itsfinancial and operating decline, make itscorporate functions more commercially oriented,and streamline its operations and organization;(ii) Training funds to provide SRC with a rangeof technical and managerial training programs,and to make operational the physical facilitiesfor carrying out these purposes; Studies toassist in strategic planning and preparation ofa follow-up project, in detailing staffreduction options and in assessing feasibilityof privatizing or spinning off operationalentities within SRC capable of standing alone;Staff rationalization to be achieved by using ofGovernment's Public Enterprise RationalizationFund to channel cofinanced local counterpartfunds to implement staff reduction, relocation,and/or redeployment options to enable SRC tomeet targeted staff reductions of about 9,000over the three-year Project period.

(b) Motive Power and Rolling Sto^:k Improvement:Increase locomotive and rolling stockavailability through provision of spare parts,equipping workshops with appropriate tools, andestablishing sound maintenance practices so asto restore capacity and improve services.

(c) Infrastructure Repair: Provide materials tocarry out urgent repairs to track andcommunications and prevent deterioration belowsafe levels.

Estimated Costs:

Loa oeCimA Tot-l. 11----- USS Million -----

I. Institutional Development

A. TOchnical Assistance 1.9 9.1 10.9B. Training 0.4 2.9 3.3C. Studies 0.0 1.5 1.5

II. Motive Power Improvement

A. Locomotive Spar.. & Rehabilitation 1.1 35.4 36.5B. Workshop Spares & Equipment 0.2 5.0 5.2

III. Rolling Stock & Replac me nt Spares 0.4 4.9 5.3

IV. Infrastructure Repair

A. Track Spares & Emrgency Track Repair 1.5 12.5 14.0B. Signalling & Telecom. Spares & Repairs 0.2 2.3 2.5

Base Costs 5.6 73.6 79.2

Contingencies

Physical (102) 0.3 6.0 6.3Price 4.0 9.9 13.9

GRAND TOTAL 9.9 89. 5 99.4

N/ t of taxes estimted at UM_ .0 MlIon equivalent and exclusive of estimutee of U_27.9 Mlon equivalent counterpert tumnd to be channel led threug Government PubilaEnterpris Rationalization Fund to achiev targetted staff reductions. Also exclusiveof three annual Inetal mente totalling &Sd 11U mlIleon (FY80 ISd 79 mIlIIon, FY90 LidUm IIIon, FY 91 LSd 9 atillIon) to be provided by Governmnt out of It Development8u--tas eoquity contributene to SUC* working apital requirements during the Projoet

Financina Plan 1/USS Million

IDA Credit 35.0AfDB 14.2EEC 9.8KfW 11.0Netherlands 2.8ODA 20.5SRC/Government 6.1

99.4

3/ USAID and the Netherlands to provide counterpart funds for tAff reduction paymenttentatively estimated at US 27.0 tillIon. Aleso Government to provide Lid 15U milIon(USU.$ m Illion) as an equity contribution to i&C to finance Its working capital needs.

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Estimated Disburements (US$ Million)

IDA Credit rne$ 882 fo nY91 nIY92 TIDTAL- - - - - - - - US$ Million - - - - - - - - -

Annualt 2.7 14.7 9.4 4.9 3.3Cumulative$ 2.7 17.4 26.8 31.7 35.0 35.0

Total IDA: 35.0

Economic Rate of Returns 12.32

Benefits and Risks: The main economic benefits erpected of the Projectar- reductions in transport costs on Sudan Railways(SRC), in particular on the main transport corridorKhartoum-Port Sudan. The Project will enable SRC toincrease locomotive availability and improve theefficiency of its operations, which in turn, shouldarrest SRC's financial decline, make SRC morecompetitive with road traunport dnd rogin some losttroffic The institutional d avelopmdnt benefits ofthe Project, including reduction of staff using afund *stablish d pursuant to Government's generalparastattl reform efforts, are also expected to besubstantial and should contribute to fimpro ingmanagement of the parastatal sector in Sudan.

The major risks associated with the Project stemfrom the possibility that technical assistance maynot be sufficiently effective in helping SRC becomemore efficient and commercially oriented or that theprojected staff reductions and labor savings do notmeet agreed targets. Should either of these events*rise, the projected (moderate) traffic increase andreduction of SRC operating cost per ton (by 38S overfive years) may not materialize. These risks arereduced by SRC's commitment to using technicalassistance as shown during Project preparation andby Government's commitment to reform as evidenced byits action to improve SRC management.

SUDAN

RAILWAYS EMERGENCY RECOVERY PROGRAM

Staff Appraisal ReDort

I. PROJECT EACKGROUND AND SUMMARY

1.01 The Project, for which an IDA Credit of SDR 25.65 million (US$35.0million) is proposed, would provide a team of technical and managerialassistance, training, urgently needed locomotive spare parts, essentialequipment and other spares and some emergency track repairs along the mainroute of the Sudan Railways Corporation (SRC). The Railways EmergencyRecovery Program (RERP) aims to meet SRC's immediate and urgent spare partsand equipment needs and set the stage for longer term efforts toreestablish SRC as financially sound and economically efficient. Totalling'US$99.4 million, the Project would include: (1) technical assistance; (2)training and completion of a training center and technical assistance toensure its start-up; (3) studies to assist in labor rationalization, tohelp resolve computer needs and to set the stage for a follow-up project;(4) funding to implement staff redundancy and redeployment options; (5)locomotive spare parts and essential workshop equipment; and (6) materialsfor emergency track repairs and spares for signalling andtelecommunications equipment. SRC will provide US$6.1 towards projectcosts and GOS will provide approximately US$33.3 million equivalent tofinance SRC's working capital needs and meet SRC's forecasted operatingcash flow deficit over the Project period. Other donors would contributeUS$58.3 million equivalent: AfDB US$14.2 million, EEC US$9.8 million, KFWUS$11.0 million, Government of the Netherlands US$2.8 million, ODA US$20.5million. In addition, USAID and the Netherlands would provide US$ 27.0million in equivalent counterpart funds toward the Staff RationalizationFund (SRF).

1.02 The purposes of the Project are: (i) to arrest furtherdeterioration in the railway's financial and operating performance and toimprove utilization of existing capacity; and (ii) to assist instrengthening and restructuring SRC so it can compete more effectively withtruck transport and develop into a commercially oriented provider of longhaul freight transport. Broadly speaking, the Project seeks to initiate aprocess of institutional reform and structural adjustment of the railwaysector. More specifically, the Project aims to improve SRC'sorganizational structure, strengthen managerial and operational skills,impr^ve locomotive availability by repairing locomotivee and establishingsounder maintenance practices, establish train operations that more closelymatch capacity to traffic potential, meet SRC's need for spare parts, carryout emergency repairs of track and equipment, reduce staff by 9,000employees during the Project period, cut costs wherever possible, and setthe stage for further improvement.

1.03 SRC's inadequacies were dramatically exposed during the drought of1984/85 and are now being felt by farmers trying to move a bumper harvestfrom agriculturally revived areas in the west to Port Sudan for export.

During the drought serviceable locomotive power was insufficient to clearfood relief shipments lying in Port Sudan or to delivor grain to reootofamine stricken areas of the western regions where the track and formationin many stretches had fallen into disrepair. Now, despite emergencyrepairs of track in the west and delivery of ten new locomotives in 1984,locomotive power is still so low that SRC cannot muster enough trains tomoet demand and is increasingly losing traffic to road transporters. SRC'spoor performance stems from a host of fundamental factors including: (i)lack of managerial direction, organizational difficulties and excessivestaff; (ii) aged facilities and lack of spare parts; (iii) insufficientlocomotive maintenance; (iv) the low level of exports country-wide and theresulting imbalance of traffic flows; (v) opening of a pipeline in 1977;(vi) rising truck competition due to completion of a road; (vii) Governmentpolicies that favor truck operations; and (viii) SRC's lack of knowledge ofhow to operate in a competitive environment. Physically, SRC's track isrundown; night time signalling is almost non-existent due to lack ofbatteries and bulbs; .the telecommunications system is prone to highfailures, and lack of spare parts inhibits all facets of operations. SRC'sfinancial and operating performance has been steadily deteriorating since1976. Freight volume has dropped from 2.7 billion ton/km in FY1976 to 680million ton/km in FY1986. SRC has reported net losses for years andincurred a deficit in 1986 of nearly £Sd 28.8 million (US$6.4 million); thedeficit for FY87 is estimated £Sd 93 million (US$20.6 million).1 Staffingof the railway has not been reduced commensurate with its decliningoperations and now annual labor costs alone are projected to exceedrevenues by £Sd6 million in FY87. Government is already having to fundoperating deficits of between ESd 5.0 million and £Sd 15.0 million permonth and will likely have to assume responsibility for FY 87 scheduleddebt repayments. SRC's Rrowing funds flow gap represents an importantfiscal drain on the economy.

1.04 SRC's increasing unreliability and poor service have forcedshippers to use costly truck transport, particularly along the railway'smain axis, between Khartoum and Port Sudan, but increasingly even inagriculturally productive areas in the west (and in the northern provincesbordering Egypt) where rail otherwise provides the only all-weather links.Rail now transports inland only 122 of total imports and to Port Sudan on.l;112 of total exports. Due to insufficient pumping capacity, the pipelineis also losing traffic to the road, and rail cannot provide enough motivepower to take up the slack, a surplus of tank wagons notwithstanding.Truck transport is costly given Sudan's dependency on imports for petroleumand vehicles and given the high rate of wear and tear these vehiclesexperience in Sudan. Moreover, the road is being destroyed far faster thananticipated by the constant stream of overloaded vehicles and largecapacity trucks and trailers using it. An on-going IDA-funded ThirdHighway Project (Cr.1450-SU) is providing assistance to build upGovernment's capacity to maintain this and other parts of its road network,as well as to establish some control over axle loads, but the Project hasnot yet progressed to the point where results are sufficient to prevent

1/ At the current exchange rate of US$1.0 - 4.5 £Sd

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undue destruction of the roads. In fact, Government is seeking a separateHighways Emergency Project for the most damaged sections of the vital PortSudan-Khartoum link.

1.05 Revival of efficient, reliable train service would lengthen thelife of the road and help Sudan's economic recovery. Revival isachieveable if SRC can reduce costs, improve locomotive availability, offerblock train services to shippers of bulk comodities and convince clientsthat it has a management and staff that can operate efficiently. SRC'spotential for cutting coats, improving locomotive availability andachieving managerial reforms is great. A recent consultant studyundertaken for the Government concluded that SRC needs no more than 18,000employees, even if current traffic levels were to triple, yet presently ithas about 33,000. The proposed Project is designed to help SRC retire,transfer to other sectors, establish separate entities from operating areaswithin SRC capable of standing alone, or otherwise offer inducements toreduce staff by a total of 9,000 employees over a three-year period.Starved of foreign exchange for spare parts, SRC had, as of October 1987,only 37 heavy main line locomotives available out of a fleet of 136; yet 10of these locomotives were acquired in 1984 and 40 in 1981/82. The proposedProject will provide spare parts and expertise in locomotive maintenance toraise the availability of heavy locomotives to 115 by the end of theProject period.

1.06 Demand for efficient rail transport in the corridor remainsatrong; indeed rail service is essential to the economic viability of someventures, including the IDA-financed Third Power Project. Yet financialsupport by the Bank Group stopped in the early 1980's because ofdisagreement with SRC about the causes of its decline and means of recoveryand because of Government intervention in railway business and lack ofcommitment to needed reforms. In fact a Government decree in 1982 greatlyhandicapped management's ability to get a grip on the railway's erodingperformance by decentralizing authority and ordering management put on aregional basis. Five of SRC's top management at the t'me resigned inprotest. The decree also moved the General Manager to Khartoum which ledto a blurring of control as both the General Manager and the full-timeChairman cast themselves in the role of chief executive. After a change inGovernment in 1985, however, Government requested the Bank to reassess thesituation and the Bank led a multi-donor effort that resulted in theproposed Project. Subsequent project preparation was slow and processingof the Project was halted altogether in early 1987 when it became apparentthat neither SRC nor Government believed at that time that the railroad'simmediate survival was at stake and so were not prepared to postponeconsideration of longer term investments, with marginal justification atbest.

1.07 As SRC's deterioration continued and bankruptcy became moreimminent, Government's perception changed. The highest levels ofGovernment became involved and are now deeply committed to rescuing SRC;indeed Government views revitalization of the railroad as a criticalelement in its effort to improve the economy and institute parastatalreform. To this end Government has recently taken bold steps to strengthenSRC's management anid organizational structure, including appointing a

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competent and experienced General Manager, revising Terms of Reference forthe Chairman of the Board and the General Manager to eliminate the pastproblem of dual authority and agreeing to support SRC in its efforts toreduce staff '>y 9,000 employees during the proposed Project. Government isin the process of replacing the entire Board of Directors with a slate ofnationally prominent figures. Government has also agreed that maximizationof freight revenues should be SRC's first priority. Support to SRC by theBank and other donors is now required to underpin Government's actions toaddress serious issues.

1.08 The proposed Project would be the Bank Group's fifth with SRC.Evaluation of these past efforts, which were not successful, revealed thattoo much reliance had been placed upon procurement of equipment and notenough upon improving its utilization through better management andorganization. The adverse consequences of the decentralization decree(1982) on management effectiveness was also not recognized in time. ThisProject thus seeks to strengthen managerial and operational skills whilealso providing spare parts and other equipment absolutely essential toimproved operations. The proposed Project is the result of collaborationamong a number of donors, with the EEC, KfW, and ODA playing particularlyinstrumental roles in its preparation and appraisal. rhese and otherdonors have been assisting SRC as part of food-reli-ef effotts but none isprepared, or in a position, to coordinate the aid or mount an effort largeenough to help SRC make the necessary institutional or managerial changesessential to improved operations. This Project is designed to be aninterim rescue operation, at the end of which Government and donors wouldbe in a position to assess the advisability of longer term investments. Ifthe project is not successful, then the case for routing all traffic to theroad, though theoretically less efficient for many products, will haveemerged. On the other hand, if the project saves SRC from physicalcollapse, averts bankruptcy and triggers a financial turnaround, a longterm program of rehabilitation and renewal of the organization's agingassets will be required to sustain the railway system. Preparation of afive-year corporate plan and determination of longer-term needs that shouldbe included in a follow-up project will be undertaken with the help of thetechnical assistance team in the third year of the Project.

II. THE TRANSPORT SECTOR

A. The Transport System

2.01 Sudan's transport network is inadequate for the largest country inAfrica; with an area of 2.5 million square kilometers, Sudan's 16,000 km ofroads (only 3,000 km of which are paved) and 4,800 km railway networkaverage only 6.4 km of road and 1.9 km of rail per thousand squarekilometers. Transport is sparse because a harsh climate and long distancesbetween major markets make difficult the provision of inexpensive,efficient and reliable surface transport. Rail and road systems cross hot,arid deserts in the north, northeast and central zones and skirt swamps inthe south. Sudan also has 3,000 km of navigable waterways but in practicethe Nile contributes very little to transport; in the north it isrepeatedly interrupted by unnavigable rapids, while in the south the WhiteNile meanders through the Sudd, a vast swamp with continually shiftingchannels. An 815 km pipeline and about 20 airports supplement surfacetransport. In sum, little use is made of potentially cheap rivertransport, and the reach of land transport is limited and barely penetratesthe western and southern parts of the country.

2.02 The major transport corridor is between Port Sudan on the Red Seaand Khartoum, the capital, 787 km by rail or 1,175 km by road. Thecorridor handles most of land transport and all imports and exports throughthe Port, roughly 4.5 million tons annually. Betdeen these two cities therailway and pipeline (completed in 1977 for the transport of white oils),traverse a fairly straight route through the desert while the highwayswings south to Kassala before turning westward to Khartoum and is about30X longer. Transportation in the west is mostly rudimentary, dependingalmost entirely on unpaved roads and desert tracks and on two old, poorlymaintained, rail branch lines. The overall lack of transport capacity is aserious problem in Sudan and has slowed development of maior sectors of theeconomy, haampered recent drought relief measures and made difficult theexport of harvested crops in the west. In addition to its effect onagriculture, the inadequacy of Sudan's transportation infrastructure isalso cited as a major reason why Sudan's manufacturing sector has not beenable to reach acceptable levels of capacity utilization, efficiency andprofitability.

2.03 Scope is not the only limitation to transportation in Sudan.Although the rail system is extensive and has a significant advantage indistance over road transport, the quality of rail service is poor.Reliability is low, transit time excessive and locomotive and wagonavailability sporadic. Substandard management and operations together withlack of spare parts, are largely responsible for the decline. In addition,the poor performance of SRC can also be attributed to Government policiesthat favor road transport. The trucking industry is virtually unregulatedand very efficient as a consequence, while the railroad is an over-regulated, over-staffed parastatal corporation that is inefficient.Moreover, the railways have been deprived of the bare maintenance needs to

keep going. At the same time, road transport is costly because of Sudan'sdependency on imports for petroleum and the high rate of wear and tearthese vehicles experience in Sudan. Fuel shortages, shortages of spareparts and tires, and lack of appropriate repair facilities are making itincreasingly difficult to keep vehicles operational.

Railways

2.04 Sudan's railway system is discussed in detail in Chapter III.

Piipeline

2.05 Fuel (diesel) is primarily transported between Port Sudan andKhartoum by a pipeline 850 km long which was opened in 1977. In 1986/87the pipeline transported over 480,000 tonnes of white fuel (gasoline,diesel fuel). The pipeline is presently operating at about 60% of designcapacity because of low pumping power; 6 pumping stations are now inoperation. Meanwhile, an increasing amount of fuel is moving by the moreexpensive road transport.

The Highway Network

2.06 Sudan's harsh climate and the enormous distances between majorpopulation centers make it difficult and costly to build and maintainroads. Sudan's road network is relatively young and totals an estimated16,000 km, of which 3,000 km are paved and another 3,000 km, mostly in theSouth, are gravelled. The rest of the road network consists essentially oftracks, passable only by trucks or four-wheel drive vehicles. The tracksin the clay plains, which cover most of the country's eastern half, aregenerally closed for three to four months during the wet season.

2.07 The main road from Port Sudan on the Red Sea to Khartoum viaHaiya, Kassala, El Gedaref and Wad Medani, is 1,182 km long and thusrepresents 40% of Sudan's paved network. The road was built in sections,between 6 and 17 years ago. The oldest section between Khartoum and WadMedani was finished in 1970; the last section, between Wad Medani and ElGedaref was completed in 1981 but received an overlay three years later.Due to severe overloading and lack of proper maintenance, certain sectionsof the road are now experiencing severe base failure and are in urgent needof repair.

2.08 Sudan's highway authority, the Roads and Bridges PublicCorporation (RBPC), is trying to improve its ability to maintain the roadnetwork and undertake reconstruction projects.2 Little maintenance isactually achieved due to budget limitations, organizational and managerialinadequacies (para. 2.08). As for reconstruction, two teams are operatingon the worst sections of the Khartoum-Port Sudan road but they cannotundertake more than about 40 km annually. In view of the urgent need toreconstruct about 250 km, Government has requested the Bank to initiate a

2/ These efforts are supported by the ongoing IDA-funded Third HighwayProject (Cr. 1450-SU).

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separate emergency project to rehabilitate the most critical sections ofthis vital link. Final preparation of this Project is being funded byNorway with the Bank as Administrator of the funds. Issues relating toroad transport (paras. 2.03 and 2.11) and adequacy of road user charges formaintenance needs will be examined within the context of this proposedemergency project.

2.09 RBPC's 1986-87 budget called for an expenditure of £Sd 8.0 millionfor routine maintenance and £Sd 10.0 million for periodic maintenance, butactual expenditures for the year will probably total only £Sd 6 million ora little more than 22 of Government's recurrent budget and a little morethan 0.22 of the GNP. This level of expenditure is far from adequate toproperly maintain Sudan's road network. Maintenance of bitumen roads couldvary between US$ 1,000 and US$ 3,000 per km., depending upon factors suchas climate, remoteness, efficiency of the maintenance organization, trafficvolume, age, frequency of periodic maintenance, etc. Sudan's budget isequivalent to less than US$400/km, which is far from adequate, even on thisrelatively young network. Bitumen, as well as other materials, isdifficult to obtain, and even if available, the price is high. Sudan'smaintenance budget, as in many other countries, is heavily burdened bysalaries, leaving little for materials and equipment expenses. In view ofthe inadequacy of funds, donors have felt compelled to continue theirinvolvement in projects even after construction is completed. Temporarily,this aid has lessened the maintenance burden on the Government, and vitalroad links have been kept open. Donors are also heavily involved in roadconstruction to extend the road system to the west and south. A list ofprojects in the highway sector is contained in Table 6.9.

2.10 To help Government address policy issues and investment prioritiesin the road sector a 'Highway Organization and Investment Study' wasincluded in the Third Highway Project. A draft final report of this studywas completed in March 1987, and a final report is to be issued shortly.The study examines and makes recommendations regarding Sudan's highwayorganization, legal framework, road safety, and road financing mechanism;the study also ranks proposed road investment projects. Once the study hasbeen finished and approved, Government has requested Bank assistance toorganize a donors conference so that external support for the highwaysector can be directed toward the most economic activities.

Road Transport

2.11 Tho expansion of Sudan's highways has brought tremendous growth inroad transport. Over the 1977-86 period, road transport's share of thetotal freight market has grown from 57% to 87% and road vehicles now carryabout 882 of all traffic on the main corridor between Port Sudan andKhartoum. The shift is not entirely due to the growing network of pavedroads; some of it is also due to the fact that the quality and quantity ofrail service has declined. Road transport is now being substituted forrail even in regions from El Obeid westward, (and north toward Wadi Halfa,)where the established rail system should have an advantage. Althoughcostly in absolute terms, road transport is essentially 'unregulated",

heavily competitiv, and efficient as a consequence. Most of the country'sestimated 24,300 trucks are privately owned and there are few large fleets.Competition has been heightened by the presence of about 700 truckers fromEthiopia who undercut prevailing rates. As of early 1987 there were 4,600long haul vehicles, trucks, tractor-trailers and tankers less than tenyears old, with an estimated annual capacity of 4.2 million tons. Capacityof all heavy trucks and trailers in the country is estimated at 230,000tons; capacity of small and medium trucks for hire is 170,000 tons. Thiscapacity is more than adequate for Sudan's transport demand (para 2.24).Indeed capacity is excessive and has made competition so keen that presentrates are not sufficient to pay the full costs of staying in business overthe long term. Fuel shortages, lack of spare parts, tires and repairfacilities, and the scarcity of foreign exchange to replace depreciatedvehicles are beginning to handicap the industry. The combination ofexcessive capacity and rising costs make it likely that the truckingindustry will contract in the future.

Ports

2.12 Sudan has only one major seaport, Port Sudan, located on the RedSea about 800 km from Khartoum. The Port is operated by a parastatal, theSea Ports Corporation (SPC), with a General Manager in Port Sudan and afull-time Chairman located at headquarters in Khartoum. The SPC'sfinancial situation is very sound, with a working ratio averaging 38.7%between 1984 and 1986. The port has 11 general cargo berths (located onthe north side) and 4 specialized ones (located on the south side) forgrain (unloaded to an adjacent silo) and container, roll-on, roll-offtraffic and petroleum products.

2.13 The number of vessels calling at the Port increased from 1,163 in1985 to 1,278 in 1986. Of the total number of vessels, container shipsnumbered 260 in 1986 versus 209 in 1985. Total throughput of the Port was4.6 million tons in PY85/86, and 4.2 million tons in FY86/87. Throughputis thus well below the Port's optimal handling capacity of 6.5 milliontons. 3

2.14 The average number of days ships wait for berths increased to 1.8in FY86/87 from 1.5 in FY84/85. Also, ship time at berth in FY86/87 was3.5 days vs. 2.9 days in FY85/86. The increase in waiting time and declinein performance is partially attributable to a decline in equipmentavailability. Spare parts, in particular tires for the heavy forklifts,are in short supply.

3/ This total includes the handling of about 2.0 million tons ofpetroleum. Port Sudan's theoretical dry cargo handling capacity hasbeen estimated to be :Dry bulk : 550,000 tonsGeneral (break bailk) : 1,800,000 tonsContainers : 2,190,000 tons (150,000 containers)Total 4,500,000 tons

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2.15 Container traffic received by the Port is increasing and is thefocus of future port development. Host of the contained traffic is broughtin on 'Load-on/load-off" vessels so 70-80% of off-loading is done with shipcranes. The average load per vessel was 42 import containers and 36 exportcontainers. The total number of 'container moves" handled by the Port was20,865 in 1985/86. Only 4% of imported containers are consigned door-to-door; most are pier-to-pier shipments. This means that the contents ofmost of Sudan's containers must be unpacked within the Port, adding to portcongestion and delaying the movement of goods inland. The high level ofpier-to-pier shipments arises from: (i) complicated customs rules andregulations related to the clearing of containers; (ii) high depositscharged consignees by customs authorities and agents to receive cargo incontainers door-to-door; (iii) lack of enough customs stations inland; and(iv) the high cost of road transport from Port Sudan and back (to deliverthe empty containers).

2.16 Clearance of containers out of the Port has improved in the lastsix years but is still far too slow and represents a significant cost tothe economy of Sudan. The average days dwell time for import containers inthe terminal rest area was 25 days in 1985/86 (vs. 60 days in 1980/81).According to SPC's own analysis, the high dwell time is due to: (i) lackof efficient communications between Sudan and the rest of the world; (ii)shortage of money due to high container charges on imports; (iii) missingshipping documents or lack of knowledge as to how to release goods incontainers from customs; (iv) incorrectly followed procedures by importers;and (v) smuggling.

2.17 Operational efficiency is being addressed through technicalassistance financed under the Second Port Project (Cr. 1233-SU), and isexpected to improve further under the proposed Third Port Project whichwill concentrate in improving container facilities. An ongoing study forthis project includes the consideration of an inland rail containerterminal in Khartoum. As SRC does not currently handle any containertraffic the RERP will have to emphasize container development.

River Transport

2.18 River transport is used on the Kosti-Malakal-Juba (1,450 km) andthe Karima-Dongola (290 km) sections of the Nile system and currentlyaccounts for only 1% of total freight traffic in the country. Lately,however, due to security problems the River Transport Corporation has beenoperating only as far as Malakal (500 km). The Kosti-Juba section is byfar the most important, accounting for about 90% of river traffic, andserves as the major surface transport link between southern and centralSudan. Even so, it falls short of meeting the south's freight transportrequirements. Use of river transport is constrained by adverse physicalconditions, such as shallow water during the 3-4 low-water months, a hugeswamp in the south, water hyacinth encroachment, inadequate berthing andcargo handling facilities and by the inefficient services of the RiverTransport Corporation (RTC) for traffic other than oil products and foodwhich receive priority. RTC's fleet has been expanded with assistance fromNorway, Belgium and the Federal Republic of Germany. Low fleet

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utilisationi, attributable to poor maintenance and shortage of spare partsis compounded by low load factors which ar- largely the result of thedirectional imbalance of traffic and the necessity to underload on shallowriver sections. River transport is slow and it takes several weeks tocover the 1,450 km from Juba to Kosti. For many years RTC had a monopolyof river transport, and though this was reacinded in 1981, no significantrival transport operator has yet materialized.

Civil Aviation

2.19 Sudan has about 20 airports, of which only 3 are paved and onlyone, Khartoum, is classified as an international airport that can take widebody aircrafts in all-weather conditions. Upgrading of *lectronic landingaids and installation of navigational aids and telecommunications equipmentfor major regional routes was completed two years ago. The Government hasplans to construct new airports at Malakal, Wau and Nyala, and upgradefacilities at El Obeid. Air traffic control end navigationalcommunications within Sudan are the responsibility of the Civil AviationDepartment (CAD) which, although part of the Ministry of Defense, functionsas a civil government department.

2.20 Sudan's domestic air traffic is handled nearly exclusively by theSudan Airways Corporation, using Khartoum as its hub; in 1987 SAC owned 6jets (4 Boeing 707 amd 2 Boeing 737) and three Fokker 27. The number ofdomestic air passengers has been stagnating between 1980 and 1986 at about124,000 per year, mainly due to fuel shortages. The principal routes arebetween Khartoum and Port Sudan, Malakal, El Obeid and Juba. Sudan Airwaysalso provides international services to neighboring African countries andthe Middle East. Passenger traffic on these international lines has beenincreasing in the same six years, reaching 223,000 in 1986. Recently, theGovernment took steps to improve the long term potential of the airlines.The agency ceased to exist as a public corporation, end became a so-calledprivate company under the 1925 Companies Act, but is still 100 percentgovernment-owned. All staff were given severance pay and their jobs in thecorporation terminated. Then a percentage of the staff were rehired on aas-needed basis. This reduced the financial burden of overstaffing, whichwas one of the factors causing financial problems in the airlines.

B. Role of Transport In the Econom

2.21 Sudan's economy suffers from enormous structural imbalances: inproduction; between consumption and savings; between public revenues andexpenditures; and between imports and exports. Other circumstances 4 have

4/ These problem include (i) a three-year drought and poor harvest in1984 that produced in 1985 the worst famine of the century and leftSudan caring for 1.4 million refugees from other countries as well astrying to avert starvation for an estimated 202 of its own 20 millionpopulation; (ii) less-than-full implementation of a recovery programworked out among donors oaud Government; (iii) reduction in exportpotential due to drops in world cotton prices and to drought-relateddeclines in production of Sudan's other exports; (iv) an unstablepolitical climate; and (v) civil strife in the South.

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exacerbated Sudan's probles but rigid price controls, an overvaluedexchange rate, a lack of financial discipline and Government's propensityto solve economic issues through controls and regulations are fundamentalcauses. As * result, Sudan has severe liquidity problems and a large debtburden far in excess of Sudan's ability to repay. Between 1980/81 and1985/86 real GDP declined at an average rate of -1.1 percent per yeat.

2.22 Econormic recovery depends upon increasing agricultural productionand, in turn, exports, but also on reducing the deficit financing of thepublic' and private sector and accomplishing institutional reform ofGovernment and state-owned enterprises. Transport plays a large role onboth the production and institutional sides. Sudan's geography makestransport critical to the pricing of agricultural inputs and exports. Thecountry is vast and the major centers of population are far from Sudan'son'y real connection with the outside world: Port Sudan. Khartoum is 800kim, by rail, and nearly 1200 km, by road, inland; the southwesternagricultural areas, the economic hope for the country, are another 1000 kmfrom Khartoum. Productive areas in the El Gedaref and eastern areas of thecountry are more than .800 km south of Port Sudan. Bordering Ethiopia,these areas, and those further south, have little alternative to using PortSudan. Virtually, all imports and exports, therefore, must travel at least1000 km and more likely, close to 2000 km. Economic recovery is thusgreatly dependent upon having transport sufficient to meet demand and uponhaving transport servicet that are as low cost, reliable and efficient aspossible.

2.23 Transport demand in terms of imports and exports, totalled about4.6 million tons in 1986, excluding the nearly 0.4 million tons shipped bypipeline. Of the total, imports far exceed exports. Imports in 1986,including petroleum, totalled 4.1 million tons; exports 0.5 million. Interms of value, imports represented 17% of GDP and exports 9Z 5 Based onmid-year data, total tonnage for 1987 is estimated to have dropped to about3.5 million tons. Overall throughput of the port has remained relativelysteady since 1980 but the balance of imports vs exports has shiftedgreatly, as has the mix of commodities. Imports grew rapidly, from 2.8million tons in 1980 to 4.1 million tons while exports declined from 1.3million to 0.5 million tons. Details are contained in Table 2.1. As seentherein, wheat and flour, (aid cargo) and fertilizer and cement make upmost of the imports while cotton and molasses are the main exports. Foodaid cargo was less in 1986 than in 1985 (813,000 tons vs 691,000 tons) andtrends point to a further decline in 1987. Aid cargo is being replaced bypetroleum (323,000 tons greater in 1986 over 1985), fertilizer (184,000tons greater), insecticides and chemicals (32,000 tons greater) and juteand stacking (110,000 tons greater). These import levels, however, areexpected to be far lower in 1987 as Sudan's worsening economy leaves itunable to purchase goods, even those like cement and fertilizer, that wouldstimulate growth.

5/ Table 1.08 Sudan Problems of Economic Adjustment, The World Bank,Report No. 6491-SU, June 19, 1987.

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2.24 For the next few years, therefore, it would appear that longdistance transport demand on the Khartoum-Port Sudan route is unlikely toexceed 4.5 - 5.2 million tons. Of this amount, about 1.5 is likely to bepetroleum, leaving 3.0 - 3.7 million tons of dry cargo. Since exports areunlikely to exceed 1.0 million in the near future, the current directionalin-balance is likely to remain.

2.25 Most of this traffic has been and likely will remain, bulkcommodities theoretically more suitable for rail transport than road. Yetin Sudan, road transport has captured an increasing percentage of the totaltonnage moved. In 1986, the transport split was rail 16%, pipeline 40X androad 441. Trucks handle most exports, including all cotton and allmolasses, as well as the majority of imports, including 600,000 tons ofpetroleum (vs. 194,000 tons for rail) and 683,000 tons of flour and wheat(vs. 115,000 tons for rail), and all the containers. Table 2.2 shows therail/road split and rail's declining market share. Tables 2.3 and 2.4 showthe roadirail split by commodity and type. Table 2.5 shows the amount ofpassenger traffic in Sudan by mode.

2.26 The decline in rail traffic reflects SRC's internal weaknesses(Chapter III), as well as the fact that road transport offers more reliableservice and, more recently, cheaper rates -- LSd 95-110/ton on Khartoum-Port Sudan route, as compared to rail rate of LSd 95-181/ton; for fueltransport, SRC charges LSd 151-158.5/ton as compared to trucking rates ofLSd 115-135/ton. Yet road transport is still costly because of fuel andvehicle costs and is likely to increase for a variety of reasons:

(i) cutthroat competition will gradually force some truckers out ofbusiness because current market rates are not sufficient to coverreplacement of vehicles. As this happens, there will be pressureto raise rates to cover depreciation of vehicles;

(ii) current truck rates reflect Government's partial subsidization offuel prices. Government is currently being urged to end thissubsidy and permit the market place to set fuel prices. Therecent Government decision to devalue the Sudanese pound andadjust accordingly the retail price of gasoline from LSd 7.5 toLSd 9.5 per regular gallon is in line with setting prices atcommercial rates. However, the price of diesel fuel, which ismore important for the transport sector, remains unchanged at alow level of LSd 3.5 per gallon. To eliminate the subsidyaltogether the price should be raised to about 4.50 LSd pergallon, an increase of about 30%.6 This would raise trucking ratesby 101 (para. 2.30); and

6/ As of October 1987, fuel prices in Port Sudan (CIF) were US$172.15 permetric ton or LSd 775 at the current exclange rate of 4.5 LSd/US$. Ona per ton basis, custom duties and taxes are 148 LSd, quay dues andhandling, 9 LSd, marketing and distribution costs, 48.5 LSd, transportcosts to Khartoum 152 LSD, and other fees and charges 54 LSd for atotal cost per ton of 1,186.5 LSd. At 264.7 gallons/ton the real costof fuel is thus 4.48 LSd. Adding 0.05 LSd commission to the pumpholder, an unsubsidized pump price per gallon would be 4.53 LSd.

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(iii) if road users were to pay their full share of road maintenancecharges, road tolls would have to be increased by at least 45X,which if passed on to customers would increase road transpckrrates by 2%.7

Thus, while general economic development in Sudan would be helped bycheaper transport costs, road transport costs are likely to increase. Onthe rail side, however, there is great scope for reducing operating costsand ultimately lowering rail rates. In the long term, Sudan's economycould be helped by improving rail operations and creating a shift intraffic from road to rail. Shifting traffic from road to rail also willlengthen the life of the road. Overall, the volume of tonnage to be movedto and from the port is sufficient to justify rehabilitation of both roadand rail. If the proposed Project is successful in reducing rail costs,rail and road will continue to play important complimentary roles inmeeting Sudan's transport needs.

C. Government Policy in the Sector

2.27 The newly-elected Government that came to power in May 1986 isstill in the process of preparing a medium-term development program and hasnot yet issued a specific transport policy statement. Prior to 1986,however, stated Government policy was to achieve an optimal intermodal mixthat provided consumer-oriented service at the least revenue cost to thenation. The transport policy was to be enforced through appropriatemeasures with respect to investment, pricing, energy, regulation,coordination and organization. Rail's role was seen as a long haul carrierof bulk transport that would draw on its intrinsic technological strengthand comparative cost advantage as a fuel efficient mode to maintain itsniche.

2.28 Investment decisions by GOS reflect the importance transportdevelopment is given in the economic development of Sudan by Government.8

Out of the government Development Budget for 1985/86 - 1986/87 of £Sd 2.28billion, 21% is envisaged for the sector, which compares favorably withtransport's share in other countries in the region. Sudan's overalleconomic situation is so dire, however, that budgeted expenditures fortransportation do not meet projected needs. Moreover, rarely do actualexpenditures equal those budgeted. During the period 1977-83, the actualvs. planned expenditure of the transport and communication sector was only47%. For the fiscal year 1985/86 GOS cut SRC's proposed capitalexpenditure budget from £Sd 70 to 24 million.

7/ Total annual revenues from tolls on the Khartoum-Port Sudan road wereonly £Sd 3.5 million (1985) as compared to cost of maintaining the roadestimated at £Sd 8.1 million per year, assuming no vehicle overloading.

8/ The sector, moreover, has an important role in the economy andaccounted for about 10% of GDP in 1984.

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2.29 Recent Government policy was to stop subsidizing SRC, yet GOShampered the ability of SRC to becom self-sufficient in a number of ways.These included failing to (i) ensure that SRC had enough foreign exchangeto obtain a continuous flow of minimally needed and critical spare partsfor ordinary operational maintenance; (ii) give SRC sufficient rateflexibility; and (iii) pay promptly for SRC's services to other governmentagencies.

2.30 As for intermodal competition, GOS has instituted road tolls toraise funds for road maintenance but the levels are not yet high enough tofully fund needed expenditures. Nonetheless the principle has beenestablished. GOS's fuel pricing policies have also in the past distortedintermodal competition because they subsidize gasoil and fuel oil to thebenefit of road transport (para. 2.26(ii)). The fuel price decreases inApril 1985 essentially eliminated the subsidy, but subsequent increases inoil prices, combined with the continued overvaluation of the Sudanese poundmake fuel subsidies yet again an issue. Recent devaluation of the Sudanesepound and raising of the retail price for gasoil show Government'sintention to let market rate prices rule. Yet Government left unchangeddiesel fuel prices, thus continuing the subsidy to the bulk of thetransport sector. "Institutionalization' of a frequent, regular, andautomatic review to ensure that fuel prices continue to reflect theirimport costs is necessary. These issues will be addressed in the contextof the proposed Highways Emergency Project.

2.31 Overall the GOS has been more concerned with the elimination ofbottlenecks and with the expansion of services than with the strengtheningof weak institutions. This focus has tended to prevent GOS from developingand implementing policies aimed at the long term. In fact, actions of thepast appear to have undermined institutional strength and managerialeffectiveness of SRC. The current GOS is aware of SRC's managerial andorganizational weaknesses and is fully supportive of the institutionaldevelopment aspects of the proposed Project.

2.32 With respect to transport planning, the Ministry of Transport(MOT) has in practice only nominal responsibility for planning andcoordination within the transport sector. The ministry appears to havelittle direct authority, only a small budget and few staff. Although SPC,SRC, RTC and Telecommunications report directly to the Minister, it isunclear how the Ministry could be expected to undertake inter-modalplanning and coordination effectively, particularly since it has noauthority over the Civil Aviation Department and Roads and Bridges PublicCorporation (RBPC) which was transferred to the Ministry of Constructionand Public Works (MCPW).

2.33 By contrast, the Ministry of Finance and Economic Planning (MFEP)has established a locally staffed transport and communications unit, whichwas assisted by a planning team under a UNDP financed project, executed bythe Bank. This unit has arisen from the need of MFEP, which is directly orindirectly involved in evaluating all investment proposals by the varioustransport agencies, to have a capability to understand the ramifications ofthese proposals and make judgments on their relative merits. The mainweakness of the present arrangement is, however, that because the

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individual agencies have varying degrees of planning capability, MFEP is insome cases undertaking sub-sectoral planning and feasibility studyfunctions without detailed knowledge; these functions should be undertakenpreferably by the transport agencies themselves.

D. bank Group Lendinx Straterv In Tranaport

2.34 Bank Transport Strategy. Support of the transport sector has ahigh priority in the Bank's lending strategy for Sudan because of itsimportance to the underpining of agricultural and manufacturing production,the revitalization of which in turn is essential to restoring Sudan'seconomic growth. In transport the Bank's strategy is to support therehabilitation, and operating efficiency of Sudan's transport network. Atleast for the medium term the Bank views both rail and road as critical tothis network. Toward these ends the Bank has provided: (i) facilities andequipment for the railway, sea port and road system, thus strengthening thephysical capabilities for transport; and (ii) technical assistance andtraining to strengthen institutional capabilities in the sector. The Bankhas emphasized training and institutional development as a means ofachieving longer term improvements in utilization of capacity and operatingefficiency of the recipient agencies.

2.35 Previous Prolects. The proposed Project will be the Bank Group'sfifth lending operation with railways, although the first three were madeat a time when port and river transport operations were also under theaegis of the Sudan Railways Corporation. Further details of the fourrailway projects, with total costs of US$ 235 million, are provided below.Other projects in the sector include: four highway projects involvinginstitutional development components, road maintenance equipment andhighway construction; an aviation project to develop four airports; twoport projects to develop Port Sudan; and technical assistance credits toplan and coordinate development of the transport sector, to investigate theproblems underlying SRC's low locomotive availability, and to develop anaction program to revitalize SRC's operations and financial performance.

2.36 The 1958 First Railway Project (Loan 202-SU, US$34.0 million)assisted the Government in a program to modernize and extend rail, riverand port facilities: this project was completed in 1964. A Second RailwayProject (Loan 440-SU, US$31.0 million), approved in 1965 to finance furtherrail, river and port investments, was also satisfactorily completed in1972, although some three years later than originally scheduled, mainly dueto: (i) closure of the Suez Canal in 1967, which delayed deliveries; (ii)changes in the loan items to suit changes in traffic patterns; (iii)procurement problems; and (iv) political circumstances in the country. AProject Performance Audit Report on the Second Project, issued in 1974,commented on the implementation delays, shortfalls in traffic, and the lowavailability and poor performance of SRC locomotives. Evaluators alsoconcluded that the railway had directed disproportionate attention to theprocurement of equipment rather than to improving its maintenance andutilization.

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2.37 The Third Railway Project (Credit 727-SU, 1973) of US$ 24.0million assisted in financing: (i) SRC's 1973-75 investment program; (ii)equipment and technical a3sistance for Port Sudan; (iii) equipment andtechnical assistance for the River Transport Corporation (RTC), (iv)airport pre-investment studies; and (v) training of the staff of theAuditor General. The Third Project was completed in 1981, some five yearsafter scheduled completion. Unsatisfactory results with this project ledevaluators to comment on the need for institutional development and on thefact that increasingly inter-modal competition was creating inescapablepressures for improvement of railway service.

2.38 The 1977 Fourth Railway Project (Credit 727-SU and Loan 1467-T-SU)of US$8.0 million and US$ 12.0 million respectively, involved a totalexpenditure of US$ 80 million for: (i) acquisition of locomotives and spareparts; (ii) acquisition of freight wagons; (iii) track renewal (314 km);(iv) construction of a wagon workshop; (v) machinery and equipment forworkshops; azvd (vi) construction and furnishing of a training center. TheProject was also delayed, a major component, a new diesel workshop, wasdeleted, the training center was never made fully operational, and thewagon workshop has yet to be finished. According to the Project CompletionReport the principal reasons for these problems included procurementdelays, higher than expected costs, disagreement over design, and initialdelays in credit effectiveness. Adding to these problems were the moregeneral ones: (i) frequent changes in top management; (ii) poor morale;low productivity and the excessive size of the railway staff; (iii)shortages of qualified managerial and technical staff; (iv) failure of theGovernment to make available, on a consistent basis, foreign exchange forspare parts; (v) failure of SRC to institute a strong marketing department;and (vi) increased availability of competing means of transport.

2.39 Bank Group assistance to railways was also provided, somewhatindirectly, through the 1978 Livestock Marketing Project (Cr. 782-SU). TheProject provided rolling stock, market and transport infrastructure,technical assistance, headquarters building and additional staff for theLivestock and Meat Marketing Corporation (LMMC), which implemented theProject. Through the Project, ten locomotives and 68 wagons to carrylivestock were purchased and have been operating since November 1982.Thirty one additional wagons were supplied in 1985. Performance oflivestock trains initially exceeded forecasts and helped to produce recordlivestock exports, but they fell off during the drought and ceasedoperating following a Government directive forbidding livestock exports.The locomotives, however, were diverted to the south and west to aid infamine relief. SRC is now negotiating to use the locomotives for its mainline traffic after overhaul with the spare parts recently acquired throughthe remaining LMMC funds.

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III. RAIL SU3SECTOR AND PROBLEIM

A. Overview of Sudan Railways Corporation

3.01 Sudan's 4,800 km railway system is the largest in Africa. It wasstarted in 1897 and most of the track .as constructed before 1930 under theAnglo-Egyptian condominium. The railway's main route extends from PortSudan via Atbara to Khartoum with an alternate link between the port andSennar via Kassala; there are branch lines north to Karima and Wadi Halfaon the border with Egypt; west to El Obeid and Nyala (reached in 1959) andsouth to Wau (completed in 1962). The system is operated by the SudanRailways Corporation which was incorporated in 1967 but functions as aparastatal organization reporting to the Minister of Transport andCommunications (MOTC). The company's main operational headquarters are inAtbara although the Chairman, General Manager and a small cadre of staffare stationed in Khartoum. Railway facilities are old; much of the trackis in poor condition, especially in the west, and needs renewal; and lackof spare parts affects virtually every facet of rail operations. Nighttime signalling is almost non-existent due to lack of bulbs and batteries;and the telecommunications system is subject to frequent breakdowns.

3.02 By far the greatest problem, however, has been and is especiallyso at the moment, the low availability of locomotives. As of October 1987only 37 out of 136 heavy main line locomotives were operative, includingthe 10 new locomotives given by USAID in late 1985. Although the conditionof locomotives and other rolling stock fluctuates with the availability ofspare parts, locomotive availability is also hampered by insufficientpreventive maintenance compounded by chronic shortages of running spares,insufficient technical organization in locomotive maintenance, and a mix oflocomotive types that makes difficult the interchangeability of parts andof trained staff; old, insufficient and inappropriate equipment in theworkshops; and weaknesses in organization and management of the workshops.Long distances between on-line breakdown sites and the depots and the mainworkshop in Atbara further reduce in-service availability of locomotives.

3.03 Aggravating the lack of spare parts and availability of equipmentare problems of management. Top management turnover has been high over thelast 10 years. Turnover is partly tied to low salaries which have limitedSRC's ability to attract good management just as they have done throughoutSudan's public sector entities. High salaries offered abroad during theoil boom have lured a number of talented professionals away from SRC overthe last fifteen years but due to the decline in oil prices, the attractionto work in the Gulf states no longer exists.

3.04 SRC's brain drain was further exacerbated when five of its topeight managers resigned en masse in 1982 to protest GOS's decision toregionalize the corporation's managerial structure ard to move the GeneralManager's headquarters from Atbara to Khartoum, under the direct control ofChairman. The decentralization diffused line authority and dilutedmanagerial powers, undermined SRC's effectiveness and hastened the

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deterioration of railway operations (para. 3.15). SRC's organizationalstructure also suffered from having two "leadera" at the top and fromhaving too horizontal a structure below them. Government reversed thedecra- in 1986 and recently took steps to strengthen management (para.3.14). Moreover, top management has been too preoccupied averting cashcrises and seeking foreign *xchange for spare parts and other investmentsto provide th. nmaagerial focus necessary to improve railway operations.

3.05 SRC's financial conditior is precarious. The corporation faces areal cash flow crisis every month just to pay its staff. Freight volumehas been deteriorating with the rapid expansion of road transport and thecompletion of an oil pipeline. Additionally poor train service and lowlocomotive availability have contributed significantly to the loss ofrailway customers. Government is now having to fund SRC's opezatingdeficits on a routine basis and will soon have to meet SRC's mounting debtrepayments.

b. SRC's Infrastructure and Proo-rty

3.06 SRC operates a 1.067 mm gauge, 4,764 km long single line system,consisting of a 787 km main line connecting Port Sudan to the capital,Khartoum, and five branch lines serving the Northern, Western, and Southernregions (Map IBRD 18989). A 717 km eastern 1oop MIne takes off from thesummit of the main line at Haiya, passes thro gr ;?naa1a and rejoins thesystem at Sennar, 270 km south of Khartoum, ok t>.. branch line to El Obeid.This loop, together with the direct route to Rntruoum (Port Sudan-Haiya-Atbara-Khartoum-Sennar-Kosti) is about 1,200 km long and accounts for 85percent of Sudan's rail traffic.

3.07 SRC owns 136 mainline diesel locomotives, 6 steam units, 63shunting locomotives, over 6,700 wagons, and 445 coaches (see Annex 1).About 40 percent of the stock is more thar 25 years old. Sixteen mainlinelocomotives (10 diesels and 6 steam locomotives) of the oldest vintage wBererecently successfully reconditioned. Steam locomotives circulate only onthe 227 km Sennar-Damazine branch line.

3.08 The base maintenance workshops for motive power, electricalequipment, civil works, signalling and telecommunications are at Atbara,located on the main line 474 km from Port Sudan and 313 km from Khartoum.A treatment and preparation plant for wooden sleepers, oxyacetylenegenerator equipment, and a modern brick factory are also installed atAtbara. The main carriage and wagon workshops are at Atbara, with asubsidiary carriage workshop at Khartoum. A wagon plant, begun under theFourth Railway Project, is nearly completed at Port Sudan. Plant andmachinery in the maintenance workshops are generally serviceable but manyneed to be repaired and supplemented by modern machines and test equipment.Eventually, however, a major modernization by replacement program will haveto be set up. Similarly, some of the handling and craneage equipment needsrehabilitation or replacement. The diesel maintenance workshop at Atbcra,where all overhauls and reconditionings have been carried out, is a

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converted steam maintenance installation, restricted in apace, layout, andworking conditions. Modernization for efficient and mor- productiveoperations will require a radical revamping of layout and facilities.Workshop capacity, provided organization is more efficient and some of theplants and equipment are repaired urgently, is adequate for currentmaintenance and rehabilitation needs in the next few years.

3.09 Main line track (132 of the total) is laid on 45 kg/m (ca.90lb/yd) rail on steel or wooden sleepers. The Kassala loop and the part ofthe Northern and Western branch lines have 37.5 kg/m (ca. 75 lb/yd) rail onabout 43 percent of the total rail network. The remainder of the branchlines (391, or about 1,800 km of route) is on the light and obsolete 25kg/m (ca. 50 lb/yd) rail. The track is sand-ballasted throughout as noeconomically quarriable hard rock outcrops ete Available within easy rangeof the alignment. Because of its very hig' iost, stone ballasting can,therefore, be ruled out in any future progr.aa. 'elective ballasting ofmajor bridge approaches, sharp curves and ru"-through line turnouts of mainline stations will be necessary to Improve track running conditions in thelong run. Maintenance is manual: gangs are housed at stations andmobility is by hand-operated rail trolleys. Relaying or track works aredone manually. A limited number of motor trolleys are available forinspections. Generally, track, formation and bridge (mostly minor)conditions in the 25 kg/m rail zones of the Western region are poor overlarge segments. EEC-funded emergency programs, carried out prior to andafter the 1986 rains, for rail/sleeper, fittings, and fasteningreplacements, formation/bridge protection and drainage improvement and sanddrift control works have contributed to strengthening the weaker and morevulnerable portions of the line in the Western and Southern regions. Inthe last ten years about 400 km of complete track renewals and 500 km ofsleeper replacements have been realized. Future requirements (next 10-12years) are estimated at about 1,000 km of complete renewals (800 km of 25kg/m and 200 km of 45 kg/m track} and 850 km of sleeper renewals,particularly of wooden sleepers. Current problems addressed by the EEC --1985-86 emergency package--on the main line are requirements for (i) ridemeters for track quality measurements; (ii) about 30 km of resilientfastenings (Pandrol) with matching base plates;10 (iii) 10 km of wear-resistant rails for curves in the Haiya reach; and (iv) a mobile gaswelding plant for worn crossing build-up. Deliveries are expected shortlyof another 25 km of resilient fastenings for the main line, funded by aDutch grant. Work on these renewals has already started and will becompleted by June 88. In the next 2-3 years some turnout renewals willalso be necessary: partly of complete assemblies and partly of worn outswitches and crossings.

9/ These are of local hardwood (sunt) treated at the Atbara creosotingplant, with a life expectancy of 20 years. About 170 km of suchsleepers in patches on the system will be due for replacement in thenext 5 years. Plant capacity is 25,000 sleepers a year, but localtimber supplies (less than 15,000/year) fall short of this. Sleeperrenewal schemes are thus dependent on imported steel sleepers.

10/ To replace Mills' clips damaged in derailments. EEC 1985 project.

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3.10 The Sipnalling System on the main line and beyond Khartoum toSennar and Kassala is double wire mechanical. Some years ago kerosene oil-lamps were replaced by battery-operated signal lights, which are now indisuse owing to lack of funds for spares. On branch lines, ground framesare used for turnout operation. Because of the absence of stone ballast,track-circuiting cannot be provided anywhere. The signalling is quiteadequate for SRC's foreseeable needs, provided bulbs and batteries are madeavailable; it is simple to maintain and mos. parts can be made in therailway's workshops with imported materials. However, for want of funds,replacement of worn out levers and wires for turnout operations, has had tobe deferred, resulting in instances of safety-compromising failures.

3.11 The basic telecommunication link is by open wire land likes, ownedand maintained by the Post and Telegraphs Department. Block working is bytoken instruments. All stations have block telephones and a control systemfunction. Telecommunication reliability is, however, low because of spareparts shortages coupled with delayed restoration of damaged circuits.Since it was rebuilt three years ago and the maintenance reorganized the120 km Kosti-Sennar line has had practically no failure. A similar projectis being launched for the 400 km Wad Medani-Sennar-Gadari route. A Postand Telegraph-SRC joint venture is also being discussed for improvement tothe Port Sudan-Haiya section.11 USAID funds are providing a new 100 km poleroute between Kosti-El Obeid/Babanoussa-Wau. Donor funding has also beenproposed for a 12-channel carrier or an all wireless system for block,control and administrative lines and a mobile VHF for maintenance gangs andtrolleys over the Port Sudan-Haiya section. About 70 main line heavylocomotives, originally operating on this section, have been equipped withzrain-ground radio, connecting the vehicle to every alternate station onthe route. Though the system lacks a direct linkage with train control, itis useful for communicating mid-section vehicle failures or accidents andfor assisting station masters in arranging crossings. The system has,however, fallen into disuse because of the dispersal of many radio-equippedlocomotives to the Khartoum - El Obeid sections.

3.12 Asset Maintenance has deteriorated perceptibly in the last threeyears in practically every area of SRC's activities. Between 1983 and1987, motive power and wagon availability declined from 62% to 28% and 83%to 601 respectively. Accident incidence, mainly derailments, rose from 29per million train kilometers to 42, vehicle and track defects accountingfor most of the increase. Track and bridge maintenance have received theabsolute minimal attention required for basic levels of operational safety:many culverts and short-span bridge openings are choked with sand driftsand several stretches of the main line need formation and drainage repairs.Notwithstanding an overall surplus of staff, gangmen for routinemaintenance are becoming more difficult to replace on retirement,especially for the more remote and isolated areas of the railway. SRC hasrecently acquired a sand-blowing machine for clearing sand drifts on thetrack, a task hitherto performed by temporarily-recruited labor reinforced

11/ Kosti-Sennar restoration cost £Sd 2 million. The Wad Medani-Gadarisegment may cost £Sd 4 million. Port Sudan-Haiya will cost £Sd 2million. In all, the overall estimate is US$ 7.5 million for about1,000 km of the system.

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by permanent gangmen. Mechanization of track maintenance is problematicalhowever, because of the lack of stone ballast. In the short term, areorganization of the gang maintenance system appears necessary to attractand retain labor. In the long run a suitable track tamper for sand ballastwould need to be devised.

3.13 SRC depends heavily on foreign exchange for its maintenance needs.Chronic shortages have been the prime cause of maintenance deterioration.Managerial and organizational shortcomings have also been a significantfactor contributing to performance decline and traffic loss to the roaddespite the railway's inherent advantages in the country's transportsystem.

C. Orsanization. Management and Staff

3.14 Until July 1987, SRC, incorporated in 1967, was run by a GeneralManager and a full-time Chairman, both based at Khartoum and both reportingto the Minister of Transport and Communications. The Board of Directors ofthe Corporation included, besides the Chairman, representatives from theGovernment, the labor union, and railway users. Headquarters weretransferred to Khartoum, from Atbara, by Government decree in 1982, achange which led to SRC's becoming an entity of dual control, with theGeneral Manager and Chairman both casting themselves in the role of chiefexecutives. To eliminate this problem, Government recently agreed to makethe Chairman a part time non-executive functionary and strengthen theposition of General Manager. Also, in recognition of SRC's severefinancial problems, Government recently replaced the General Manager,removed the Chairman and is in the process of appointing a new Board ofDirectors with nationally prominent figures committed to rescuing SRC.

3.15 The new General Manager is a qualified and experienced ex-railwayman, who in fact resigned from the same post in 1982 following thedecentralization decree. The changes in management have been too recent todetermine to what extent the new General Manager will succeed in overcomingthe effects a decade of decentralized management has had on SRC'soperations. There is, however, reason to be optimistic. In less than twomonths the new General Manager increased utilization of existing resources,raising the average number daily trains between Khartoum and Port Sudan by143Z. Regionalized in 1976, SRC's operational management was furtherdecentralized in late 1982 by a Government decree. The principaloperational responsibilities, including asset maintenance, were vested infive regional managers with headquarters at Atbara (Northern region), PortSudan (Eastern region), Khartoum (Central region), Sennar (Southern region)and Babanoussa (Western region). The decree, in setting out in some detailthe guidelines of the new management system, granted executive powers tothe Regional Managers reporting directly to the General Manager, reducedthe heads of departments to Advisors to the General Manager, therebyblurring their staff-line authority with respect to the technical andoperational services at the operational level. A key element of thechange, the concept of annual and monthly plans, broken down into weeklyand daily performance targets, was never implemented and whatever planningof operations and supervision of technical servicing and maintenance of

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assets that existed before the change, fell gradually into disuse owing tothe 'dominant almost sovereign' position of the Regional Managers. Anotherconsequence of the "decentralization" decree was that several experiencedand senior managers left the railways. In short, the scheme, as conceivedand executed, decimated the cadres, enfeebled the management structure, andset the stage for the decline of the organization. The decree has recentlybeen rescinded and the pre-1976 structure reinstated, but recovery from itseffects is yet to come. The new Ceneral Manager is building a cohesivemanagement team and is earnest about restoring the discipline and morale ofthe workforce. Towards this end, Government has by a Ministeriel Orderrecently armed him with a comprehensive delegation of powers so that he isin a position to exercise his authority decisively in administrative,operational and financial matters without frequent reference to theChairmanfBoard or appeal to ministerial intervention.

3.16 SRC's recovery is dependent upon raising revenues and cuttingcosts. To raise revenues SRC must offer reliable and more frequent trainservize to major customers between Port Sudan and Khartoum; to cut costsrequires restoration of discipline, the setting and meeting of operationaland financial targets, improvement of maintenance procedures andproductivity, as well as repair of broken equipment and rolling stock.These measures will require close coordination with customers on the onehand and between the traffic, locomotive maintenance and other keyoperational departments on the other. Such coordination is dependent uponhaving strong centralized cost control which is made harder withoperational headquarters located at Atbara, some 300 km. northeast ofKhartoum. A Deputy General Manager coordinates all activities centered atAtbara but SRC's headquarters are officially in Khartoum. Untiltelecommunications between the two cities are improved and Khartoum'sheadquarters completed, the Deputy General Manager must be in a position toexert control over competing department heads, where necessary, to improveoperational efficiency and maximize the use of SRC's assets in line withSRC's recovery strategy.

3.17 The General Manager, the Director, Finance and Accounts andDirector, Commercial are stationed at Khartoum. The part-time Chairman,recently appointed, also will reside in Khartoum. SRC's objective is totransfer all heads of departments to Khartoum as soon as office andresidential accommodation can be built. Khartoum is actually a morelogical site for corporate headquarters than Atbara because the MOTC andmost of SRC's major customers are in Khartoum, but the staff in Khartoum istoo limited at the moment to take advantage of the location. SRC has nomarketing department and little ability to analyze customer needs. Toimprove revenues and compete with road transport, SRC should transfer theDirector Planning to Khartoum and establish a business development andplanning office there.

3.18 Cost control is also made difficult by the fact thatorganizationally, the Finance Department is at a lower level than the otheroperating departments. As a result, financial managers have no authorityto see that department heads adhere to budgets or to insist that actualexpenditures include only those investments that pass cost/benefit

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criteria. Having reestablished staff line authority for the functionaldepartments throughout the railway, the new General Manager will have touse this strengthened team to instill greater financial disciplinethroughout the organization. Below the position of General Manager, SRC'sorganizational structure is so horizontal that decisions regardingcoordination among operating departments often must be resolved by himalone. There is one Deputy General Manager/Technical Operations, locatedin Atbara; but there is no high level equivalent for finance/administration. To resolve some of these questions and to better integratefinancial management with operations, SRC should also appoint a Dep';cyGeneral Manager for Finance and Administration. To oversee the ragions andreduce the General Manager's span of control, the need has beer. expressedfor a Deputy General Manager (Region). Both new Deputy General Managerposts have now been created. Appointment of the Deputy Goneral Manager forRegions has been made; appointment of the Deputy Generii Manager forFinance will be made by July 1, 1988. The railways organization chart isin Annex II.

D. Operating and Financial Performance

3.19 Operational performance Is handicapped by mainline and shuntinglocomotive shortages and in service failures, telecommunication failures,absence of signal lights at n'ght and derailments. Basically, traincontrol and motive power maintenance coordination between and across theregions has not functioned well since the 1976 regionalization. During theperiod 1976-1986, wagen turnaround time rose from 16.5 days to 48.0 days.Utilization of available locomotives dropped from 62,000 km (1983) to57,000 km (1987). Unit motive power fuel consumption is estimated to beapproximately three times higher than usual for the same types oflocomotives of comparable age and condition. Apart from leakages, thisindicates a high proportion of stationary locomotive working hours with theengine idling. The average kilometers between failures per availablelocomXotive, only 10,500, is a poor record. The generally low dailyavailability of both mainline and shunting locomotives results in next tono motive power reserves for back haul of locomotives crippled on the line.Accident relief assistance is also inordinately delayed.

3.20 Financial Performance. SRC's financial and operating performancehas been steadily deteriorating since 1976. To some extent the decline isdue to problems endemic to the economy as a whole but the rapid expansionof road transport and the completion of the oil pipeline have underminedSRC's once strong transport base. As with most railways that are state-owned and that are used to monopolistic conditions, SRC lacks the necessarycommercial orientation and knowledge of modern railway marketing techniquesto compete with road transport. As a consequence of growing competition,operational handicaps related to lack of foreign exchange andorganizational problems, freight volume dropped from 2.7 billion ton/km in1976 to 0.68 billion ton/km for 1986. SRC has reported net losses foryears; unaudited results for the year ended June 30, 1986 show a loss of£Sd 28.8 million. SRC's working ratio during this same period was 0.94which means that the railway is close to insolvency on an operating basis.Due to the foregoing, amounts owing to creditors have increased

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substantially, which, coupled with the slow collection of customeraccounts, has resulted in the bank overdraft increasing by approximately£Sd 20.0 million during the period 1983 to 1986.

3.21 At present SRC's financial condition is precarious. Thecorporat.on faces a real cash flow crisis every month, with both theGeneral Manager and the Chief Accountant spending the latter half of eachmonth literally seeking payments from major customers to meet the payrolU.Payroll costs currently run about £Sd 8.5 million per month with revenuesusually between £Sd 7 million and £Sd 9 million (reaching a high of £Sd 12million in May and June 1985). SRC instituted a hiring freeze in 1985which has led to a reduction in staff, through attrition, of about 2,000people. To increase revenues, SRC also increased tariffs in someinstances, where competition permitted. Nonetheless, SRC's payingcustomers account for only about £Sd 4 million a month so management isforced to squeeze accounts receivables and stretch accounts payable to makeends meet each month. Meanwhile, SRC's annual debt repayment schedule ismounting as grace periods for more and more of its existing loans are nowexpiring. Despite SRC's current difficulties, prospective covenants thatreflect realistic targets of financial performance will be put in place asan incentive to improve efficiency. The covenant requiring no substantialdebt-financed investments outside the Project without IDA prior approvalwill also be maintained.

3.22 Accounts. SRC's accounting systems follow generally acceptedprinciples, but the computer on which the company relies is outdated andnot fully operational. As a result, financial statements have been delayedfor nearly two years. A decision to revert to a manual accounting systemwas taken in FY86 and accounts for FY85 and FY86 are currently beingfinalized, updating the balance sheet is particularly difficult since,assessing the use of stores and spare parts was done according to computer.Traffic costing is another area in need of development. Consultantsbrought in under the Fourth Railway Project completed a study of SRC'stransport costs and proposed a system whereby SRC could assess its variableand fully allocated costs for each commodity movement. According to Banksupervision reports, however, there was not enough money remaining in theProject to follow-up work by these consultants to ensure that the systemwas understood and being used to set rates and apply competitive marketingstrategies. SRC personnel do know how to use the system but they need helpin coordinating the system with day-to-day decisions and with preparationof more meaningful financial reporting to management. This effortnecessitates bringing into useable form the data now stored on the oldcomputer as well as introducing some microcomputers for short-term analysesand financial planning.

E. Government/SRC Relations

3.23 Gover.iment's support of SRC is critical to its ability to improve.Yet, in the past, Government's actions have actually undermined therailroad. A government decree in 1982 decentralized authority an" greatly

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handicapped management's ability to stop the railroad's decline.Government also has failed to meet SRC's requests and requirements forforeign exchange, even during execution if past Bank Projects which calledfor the Borrower to do so. As a consequence, SRC has been starved offoreign exchange for years. As SRC's deterioration continued andbankruptcy became more imminent, Government's perception changed.Government recently took bold actions to strengthen SRC (para. 3.14) andrecognizes the Importance rail can play in meeting the transport needs ofthe country. To ensure the GOS supports SRC's recovery, Government should:(i) reduce Government receivables to SRC; (ii) grant tariff-settingflexibility to SRC; (iii) support SRC efforts to reduce staff; (iv)reestablish a more centralized managerial structure; (v) provide SRC withworking capital to meet operating cash needs during SRC's recovery period;and (vi) establish means by which SRC is able to obtain in the long termand on a continuous basis, an appropriate level of its foreign exchangeneeds.

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IV. PROPOSED PROJ CT

A. Pro-ect Oritin and Preparation

4.01 The proposed Project has its genesis in the failure of previousBank efforts to help arrest SRC's declining performance. The first threerailway projects each funded investment programs for SRC (1959-60, 1966-68,and 1973-75), major components of which were locomotives, rolling stock andtrack rehabilitation. These early projects did not achieve theirunderlying objectives of increasing efficiency and capacity. The FourthRailway Project attempted to emphasize equipment utilization andinstitutional develo?ment but a new locomotive workshop for the former wasultimately dropped from the Project and the training school established forthe latter purpose is not yet operational. A PCR on the Fourth RailwayProject cited 'poor morale and productivity of railway staff' and"shortages of qualified managerial and technical staff" among reasons forthe continued unsatisfactory performance of SRC.

4.02 As these Projects did not adequately address institutional issues,the Bank determined that an effort should be made to tackle the railway'sfundamental problems in a more systematic way and to provide SRC withsubstantial assistance to do so. As a first step toward defining such aproject, a separate technical assistance credit (Cr. 1153-SU) was used tofinance a study of SRC and to recommend an Action Program for overcomingits problems. According to the study, completed in July 1984 by Rail IndiaTechnical and Economic Services Ltd. (RITES), SRC's major problemsconcerned: (i) substantial overmanning; (ii) paucity of technical andmanagerial skills; (iii) lack of spare parts and routine maintenancesupplies; (iv) ill-conceived and misdirected organization changes; and (v)frequent changes in incumbency of key managerial posts in the railway. Oneof the major components in the short term action program recommended byRITES was technical assistance--a team of experts who would work with SRCmanagement over a two to three year period to "serve as catalytic agents ofchange and provide an atmosphere of technical cooperation and sharing ofexperience and knowledge."

4.03 Following completion of the RITES study, preparation of a FifthRailways Project that would include a substantial team of technicalassistance was discussed in 198411985, but it proved impossible at thattime to reach agreement on the nature of management improvement and levelof training and technical assistance. In SRC's judgment what was neededwas spare parts and essential supplies, not management assistance. TheBank, in turn, stated that further investment in SRC would be ineffectiveif unaccompanied by technical and managerial assistance. Preparation of aFifth Railway Project then came to a halt.

4.04 The stalemate over the need for managerial improvement began tochange in May 1985 when the GOS indicated via the MOTC it was interested inmeeting the Bank to discuss SRC's problems. In ensuing correspondenceGovernment made clear that it wanted the railways to improve and that it

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recognized that railway management needed improvement. The Bank on itsside reopened discussion of a Fifth Railway Project and promised to send amission to discuss project preparation.

4.05 In the meantime, however, the drought and the urgency oftransporting relief supplies renewed pressure among donors to help SRC tofunction more purposefully. The EEC and the Netherlands funded emergencytrack and bridge repairs in the south and west, rehabilitated some heavydiesel-electric and light steam locomotives, and provided for a limitedamount of spare parts and essential equipment to get operations moving tothe famine stricken areas where there were no alternate means of transport.These and other bilateral donors formed a steering committee in Khartoumthat became intimately involved with trying to solve SRC's most pressingproblems so that transport of food relief could be enhanced. USAID feltthe emergency warranted giving SRC 10 new locomotives; these arrived aboutthe time a Bank mission went to Sudan to discuss a potential recoveryprogram for Sudan Railways.

4.06 During this Bank mission, which took place in September 1985, abreakthrough was achieved with respect to technical assistance. BothGovernment and SRC agreed that SRC management needed strengthening and that;a team of thirty-one experts, fifteen of whom would be in line positions,would be a key component of the recovery program. The remainder of theproject, it was agreed, would consist of SRC's investment progrrm for athree year period. Objectives of the program would be to improveoperations and utilization of existing capacity by implementing the ActionProgram recommended in the RITES study.

4.07 Once both Government and SRC management agreed on the componentsof the recovery program, the Bank sent another mission in October/November1985 to agree on the specific makeup of the team of technical assistants,including terms of reference for each expert, and to pre-appraise the spareparts and essential equipment to be included in the Project. In view ofthe size and scope of SRC's immediate investment requirements and theactivity of other donors in helping SRC, the Bank worked to broaden donorsupport of the recovery project. The October-November mission was thus amulti-donor one, led by the Bank and composed of experts financed by theEEC, Germany, UK and USA.

4.08 Upon conclusion of the mission it was agreed that a full appraisalmission would take place after completion of the following: (a) preparationof detailed lists for spare parts, equipment and material; (b) furtherdesign work on the training program; (c) further work in manpower planningto establish options for reducing staff and to document savings to beachieved as a result of staff freezes and reductions agreed to byGovernment and SRC; (d) development of a short list of consulting firms (orteams of firms), via advertisement for prequalification, that could providethe team of technical assistance required; (e) establishment of a SRC taskforce and hiring of a local consultant to undertake these steps andotherwise facilitate project preparation. Financing under an IDA TechnicalAssistance Credit (Cr. 1153-SU) was used to assist SRC in carrying out theremaining preparation.

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4.09 Further Project processing was considerably delayed, due in partto changes in Government and in part to a desire to undertake locallypreparatory work with consultants who lacked expertise and ultimately hadto be supplemented with external assistance. The delays overall led donorsto question the degree to which SRC management and Government shared theobjectives of the short-term recovery project. The doubt was compounded bySRC and Government's continued interest in including in the project US$130million of investments with little justification in the long term and norelevance whatsoever in the context of immediate survival. After agreeingin November 1986 to postpone these longer term investments, Government andSRC notified the Bank in February 1987 that it had reassessed the need forthese investments and concluded they were necessary to SRC's recovery.The Bank felt that an understanding of the seriousness of SRC's conditionand of the measures required to arrest its decline was lacking and thushalted further processing of the Project.

4.10 At the request of the Ministry of Finance in April 1987, however,the Bank sent a mission to Sudan to resume the dialogue with Government onthe future of SRC. The Bank conveyed its views on SRC's priorities and onthe belief that a turnaround depended upon strong commitment by managementand Government to cost-cutting and revenue-enhancing measures. These viewswere reiterated during a visit by the Minister of Finance to Washingtonshortly thereafter. Government assured the Bank that revitalization of SRCwas a matter of priority at the highest levels and that it was in theprocess of making changes necessary to SRC's reform. In July 1987Government appointed a new General Manager, announced that it was in theact of appointing a new part-time non-executive Chairman and replacing theentire Board of Directors with a slate of nationally prominent figuresc-mmitted to saving SRC, and requested the Bank to resume processing of arecovery project.

4.11 A Bank mission in July 1987 confirmed Government's determinationto rescue SRC and endorsed the qualifications of the new general manager toundertake the effort. Subsequent actions by SRC to boost revenues and cutcosts using existing resources reinforced this assessment as didGovernment's decision to drop long-term investments of marginal relevanceto SRC's immediate survival. At Government's request, therefore, anappraisal mission of the Railways Emergency Recovery Program was carriedout in October 1987. A financing plan was established at a donors meetingin January 1988.

B. Proiect Obiectives and DescriRtion

4.12 The proposed Project, the Railways Emergency Recovery Program(RERP), seeks to arrest further deterioration in Sudan RailwaysCorporation's operating performance, to improve utilization of existingassets and capacity and to assist in strengthening and restructuring SRCorganizationally so it can reestablish itself as a financially sound andeconomically efficient tool for Sudan's development. Totalling US$99.4million, the RERP would comprise most of SRC's most essential investmentsover a three-year period (1988-91) and would include: (i) approximately 71

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man years of technical assistance in line and advisory posts in virtuallyevery facet of SRC's operations (US$16.2 million); (ii) training (US$1.7million); (iii) studies (US$1.8 million); (iv) spare parts and essentialworkshop equipment replacement (US$58.4 million) necessary to improvelocomotive and rolling stock utilization; and (v) materials for very highpriority emergency track repairs and signalling and telecommunicationspares (US$20.9 million) needed to maintain safe train operations.Government would also provide £Sd 150 million (US$33.3 million) to fundSRC's working capital needs during the Project period. An additionalUS$27.0 million local counterpart funds would be provided to implementprograms to enable SRC to reduce or redeploy staff by 9,000 persons overthe Project period. Studies would assist in strategic planning andpreparatory work for a follow-on project and in determining the ways andmeans of privatizing, where practical, operational entities within SRC thatcould stand alone on a commercial basis. The focus of the technicalassistance component is to strengthen management and technical skills andintroduce into SRC more commercially oriented managerial and operatingpractices. The focus of the training will be to ensure that the trainingschool funded under the Fourth Railway Project becomes fully operationaland is used to disperse skills introduced by the team of technical expertsthroughout the organization. These Project components are described inmore detail below.

Institutional Development

4.13 Technical assistance to be provided under the Project is designedto function as a team that will integrate itself into the organizationalstructure of SRC and work with management to tackle SRC's most pressingproblems. Given its circumstances, SRC's need for assistance is notunique; dramatic changes in the railroad industry worldwide have made itnecessary for most railroads to seek expert advice as to how to trim costsand meet road transport competition. As such, experts will be provided atthe corporate level to:

- create a framework for corporate planning and businessdevelopment activities;

- implement organizational and procedural changes designed tomake SRC more technically efficient and commercially oriented;

- establish effective management control and informationsystems;

- improve communications and budgetary procedures between SRCand Government;

- make SRC more efficient and effective by coordinating andstreamlining its financial and operational performance and byintroducing more modern techniques into SRC's railwaypractices; and

- develop manpower planning systems that enable SRC to matchestablishment rolls with workloads, devise and implementoptions for reaching target staffing levels, work withGovernment and unions to assist with developing redeploymentand privatization options and other processes of change, andto deal with surpluses, deficits, changes in work rules,retraining, use of new technology etc.

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4.14 Experts will also be provided at the divisional and dailyoperational level. On the financial side, a number of specialists will berecruited to help in areas of accounting, management information, dataprocessing and supplies management to:

- tighten financial controls;- develop more pertinent and timely operating and financial

feedback;- improve management of spare parts; and- establish a sound basis for cost accounting and traffic

costing.

On the operational side, experts will focus on raising locomotiveavailability, improving train operations and implementing repairs to theinfrastructure by helping SRC tos

- repair locomotives now out-of-service due to lack of spareparts;

- improve preventive maintenance procedures and the managementof locomotive spare parts;

- restructure the workflow of locomotive repair shops.- establish better coordination between the traffic and

mechanical engineering departments and by linking train make-up to business development and marketing efforts;

- finish outstanding construction projects as quickly andefficiently as possible;

- plan and execute emergency track repairs as needed;- restore and improve signalling and telecommunication services,

hence aiding in improving locomotive availability and safety;and

- improve workshop productivity and diversify the range ofactivities currently undertaken in the signals workshop so asto maximize use of its staff skills.

Terms of reference and qualification of the 31 technical assistancepositions have been agreed with SRC, fifteen of these will be in linepositions; 16 will serve as advisors. A list of these positions is inAnnex III. The Project will also finance the contract of the new GeneralManager, recruited from the private sector in Sudan and charged withmanaging the recovery of SRC. Several other local Sudanese are availableto provide assistance in some of the areas needed by SRC but due to lowsalary levels within SRC deter them fron working for the railway. TheProject thus will finance the appointments on contract of several localexperts for the Project duration.

4.15 Staff Rationalization. SRC's labor force is not as productive asit should be. Staff levels have not been pared down commensurate withdeclines in traffic, some staff have not been properly trained for the jobsthey hold, some are demoralized over the lack of spare parts and tools withwhich to do their jobs, others fear for the future of the railway and fortheir livelihood. Counterpart funds will be provided, mainly from USAIDand the Government of the Netherlands, to contribute to a StaffRationalization Fund (SRF) for SRC to be administered by the Public

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Enterprise Rationalisation Fund being eatablished by the Minister ofFinance within the Central Bureau of Public Enterprises as part of abroader parastatal reform effort (Annex IV). Contributions to the SRCwill enable 3RC to achieve staff reductions of 9,000 over the Projectperiod and set the stage for bringing SRC's manpower needs more in linevith the scale of operations. Studies done by consultants in preparationfor the proposed Project outline a three-prong strategy of staff reduction:2,130 by attrition or normal retirement, 600 by redeployment and 6,300 byinduced voluntary early retirement through severance benefits.

4.16 The precise costs for the redeployment and early retirement are tobe determined by specialist evaluation, for which the consultancy is beingfunded by ODA and IDA under the Project (para. 4.18). The total cost,preliminary estimates of the eatly retirement program, inclusive ofadministrative expenses, is on the order of US$27 million, disbursableentirely in local currency. The redeployment, for which feasibility andoption studies would be included in the Project and for which KfW and theEEC will provide additional contributions, will be sought throughdetachment from the SRC and privatization of ancillary services which canbe performed by outside agencies more efficiently and which the railway canbuy to the extent required. These services are the brick, oxy-acetyleneand precast concrete product plants, the foundry and carpentry shops, andmaintenance and repair of buildings. There is also no need for the railwayto bear the burden of a 1,500 strong police force or of maintaining theGeibet training school.

4.17 Training. To ensure that new skills brought in by the team oftechnical assistants are transmitted throughout the organization, theProject includes the provision of technical assistance for personnelmanagement, job-evaluation procedures, manpower planning, management oftraining activities, curricula revision and substantial amounts of trainingper so. SRC has a new but incomplete training center at Atbara that was amajor component of the Fourth Railway Project. Additional funding to buymaterials to finish the school is included in the Project. Lack ofexperienced trainers and insufficient syllati in Arabic have contributed tothe school's uselessness. The Project includes funds for managementtraining, within SRC at the superintendent and junior officer level inparticular, and for training abroad. Further details of the trainingcomponent are provided in Annex V.

4.16 Studies. Luring the course of the Project, the following studieswill be necessary for Project implementation and subsequent consolidationof SRC's recovery:

- Reorganizing and reviewing the Atbara workshop layout for (i)rationalizing the maintenance procedures and practices; (ii)establishing a heavy electrical repair (traction motor) facilityalong with details of equipment and layout and staff trainingrequirements complete with costs and project schedule;

- Study of the mechanical, civil and signal engineering workshops todetermine future requirements of machinery -and plant forreplacement and modernization;

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- Preparation of a five-year corporate plan for SRC in year three ofthe Project;

- Computer studies for devising mini-computer-based systems forSRC's headquarters and regional activities;

- Traffic costing studies; and

- Study to assess means of introducing incentivo measures to improveproductivity and pay scales in the long term after staffrationalization is achieved.

4.19 Studies also needed are connected to efforts to reduce SRC's staff(par&. 4.15) including:

- Further analysis of the costs and methods of implementing an earlyretirement program within SRC; studies of the feasibility oftransferring SRC police to Government's national police force andSRC's Geibet school to the educational department;

- Studies to assess the feasibility of setting up as stand-aloneenterprises a number of SRC's ancillary services with a viewtoward reducing SRC's staff and maximizing the potential of theseentities: namely, the brickmaking, concrete product and oxy-acetyline plants, the foundry and carpentry shops;

- Schemes feasible in the short and long term for carrying out SRC'sbuilding maintenance by contract;

Motive Power

4.20 The proposed Project envisages the acquisition of approximatelyUS$36.5 million (base costs) worth of locomotive spare parts as categorizedin Table 4.1; the cost includes the overhaul outside Sudan of tractionmotors and the conversion of aual brake equipment on some remaininglocomotives of the fleet to straight air brakes. Tne KfW and ODAcontributions cover, besides spares, some man-months of service engineers.The spares allow for: (i) the overhaul of 55 and reconditioning of 20 mainline locomotives out of the fleet of 136, (ii) overhaul of 43 shuntinglocomotives out of the total 63, (iii) running spares for three years for115 main line and 43 shunting locomotives. The projected overhaul andreconditioning will increase SRC's serviceable fleet from 45 heavy andlight main line locomotives to 115 and 12 shunting locomotives to 43. Withan overall targetted availability of 672 and 652 for main line and shuntingunits respectively, this fleet will be sufficient to carry 1.2 million tonsof freight in the last year oz the Project, to permit operation of somenecessary passenger trains and allow a margin of main line locomotives forengineering services as well as operational reserves (pusher duties atHaiya Summit or train formation in the yard, accident relief or expressgoods services). The estimate of requirements and possible deployment byservices is in Annex VI.

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4.21 SRC's significantly low locomotiv, availability stems from lack ofcontinuity in spares supplies, poor maintenance organization and practices,inadequate repair and maintenance of plant and machinery and shortage ofsome essential laboratory and other test equipment in the workshops andlineside maintenance depots. To carry out the emergency program, somepieces of equipment (overhead cranes) need immediate replacement: someothers, such as wheel lathes/hydraulic wheel press, though old, canpreferably be repaired rather than replaced. Spares and an adequate stockof cylinders are required for capacity operation of the oxy-acetlyne plant.The Project provides for the most urgent and critical spares, repairs andreplacement requirements, most of which has to be realized on high priorityin the early months of the program (See Table 4.1). Basically, theProject's foreign exchange provisions are a temporary and emergencyexpedient to facilitate SRC's recovery. In the long run the Governmentmust make available, on an annual basia, foreign exchange to purchasesufficient running and ordinary maintenance spares, materials and tools forthe upkeep of SRC's locomotive and rolling stock fleet and of its basicinfrastructure.

Rolling Stock Repair and Replacement

4.22 Periodic overhaul of wagons is in arrears and the chronicshortage of spare parts, raw materials and even consumables (such as coke)for workshop manufacture of parts has led to extensive cannibalization.Presently, wagon availability is a low 60 per cent: of the fleet of 6,700over 2,000 wagons are immobilized. The Project provides spares andmaterials to overhaul about 1,000 wagons, sufficient to overtake most ofthe arrears and running spares for the three year period including thoserequired for the air brake equipment and couplers (see Table 4.1). Wagonavailability is targeted to improve to 80 per cent for the fleet in generaland 90 per cent for tank wagons in particular. The present availability ofthe latter is under 50 per cent as about 130 accident-damaged wagons awaitrepairs.

Infrastructure Repair

4.23 Some indispensable spares and parts are required in the near termto repair the track, an ageing asset, and to help restore the reliabilityof main line communications. Project provisions for track materials covermostly steel and hardwood sleepers, some rails, resilient fastenings,fishplates, gangtools, turnout parts, trolley spares and consumable stores.Signalling spares are, broadly, batteries, bulbs and glasses for signallights, replacement levers/frames, wires, fittings and pulleys, materialsfor workshop manufacture. Telecommunication spares provided for comprisethe essential replacement parts for the block and telephone instruments andcircuits, wireless equipment and repair workshop consumables and reserves.The objective is to concentrate the emergency effort primarily on the PortSudan-Atbara-Khartoum main line and, in a limited sense, on its feederprojection - the Khartoum-Kosti axis. Table 4.1 lists items to bepurchased under the Project.

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C. Prolect Coat

4.24 The total Project cost net of taxes and duties is estimated at £Sd447.5 million (US$99.4 milion) over three years including contingencies asshown in Table 4.2 below. The foreign exchange cost is estimated atUS$89.5 million, or 901 of total Project cost. Spares and essentialequipment costs were derived from those prepared by an engineeringconsultant financed by KfW, some recent orders placed by the SRC, dataavailable with the EEC technical representative at Khartoum and reviewed bythe appiai-al mission, jointly with the KfW and ODA representatives; costestimates of the technical assistance component were based on known unitcosts per man-month for technical assistance in similar projects andinclude provision for local accommodation, installation costs at Atbarabased on known unit rates, for remodelling existing dwellings and/orassembling prefabricated housing, revised as appropriate in consultationwith SRC and Government; training costs were- estimated by a team of localand foreign consultants in a study funded by IDA (Cr. 1153-SU). Base costswere estimated in end 1987 prices. Foreign price contingencies wereestimated by applying Bank forecasts of annual increases (as footnoted inthe Project Cost Table) to base costs according to the implementationschedule. Local prices contingencies were similarly estimated using Bankforecasts of annual domestic price increases, for spare parts andequipment. Physical contingencies of 101 have been added to base costs.Total contingencies, US$20.2 million equivalent, represent about 19X of thetotal Project cost. Government intends to exempt SRC from payment ofcustom duties and taxes on imported goods. Government also intends toprovide SRC with £Sd 150 million (US$33.3 million equivalent) to help meetSRC's working capital requirements during the Project period.

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SDANRAILWAYS EMERGENCY RECOVERY PROGWAM

- --- PROJECT COST ESTIM ATES*-----------------------

(ltt of Tax_ and Duties Estimated at USU1 Million Equivalent)

----LSDmilion…------ --------'USSe ili en-------St.ff Nee. Local Foreign Total Local Foreign Total XFore;gn

I. Inatitutlooal DOeelepmntA. Man ae t Support

1. Personnel 714.6 0.1 84.6 40.7 1.4 7.7 9.0 56.612. Accommodation 2.5 6.5 3.6 6.5 1.4 1.9 73.7%

Sub total *.S 40.9 49.2 1.9 9.1 10.9 83.e%B. Training

1. Materials & Equlpment 6.0 2.3 2.3 -- 0.5 0.6 lOO.O%2. Overseas Training 6.6 1.8 1.3 -- 0.4 0.4 160.0%S. Building Materials, Training School *.5 2.3 2.7 0.1 O.6 0.6 83.3%4. Curriculum Dev*lepment 1l U.0 1.2 6.9 6.2 6.a 1.6 1.8 86.0X

A Training Experts

Sub Total 1.7 13.2 14.8 0.4 2.9 3.3 88.e;

C. Studios 6.0 6.6 6.8 -- 1.6 1.5 100.0%

Sub Total I. 10.0 06.8 76.8 2.2 13.6 16.7 85.9XII. Motive Poser Improvement

A. Locomotive Spares Rhabilitation 5.6 167.6 162.6 1.1 35.0 36.1 97.0XB. Workshop Spare* A Equipment 0.9 22.5 23.4 0.2 6.0 6.2 96.2x

Sub Total 6.9 136.6 186.9 1.3 40.0 4.3 96.9x

III. Rolling Stock Rpair and ReplacementA. Spares 1.6 23.9 26.4 6.4 6.3 6.7 93.8X

IV. Infrastructure ReplrA. Track Spares A Emrgency Track Repair* 6.8 56.3 03.0 1.6 12.6 14.6 89.3%B. Signalling T locom_. Spare A Repairo 0.9 10.4 11.3 6.2 2.3 2.6 92.0%

Sub Total 7.7 66.6 74.3 1.7 14.8 16.6 89.7X

TOTAL BASE COSTS 26.1 331.2 360.3 6.6 73.6 79.2 93.0%8222a =8 a 3 3322 5=3=2 =5==5

ContingenciesPhysical (161) 1.5 27.6 28.6 6.3 6.6 6.3 94.7XPrice.. I6.) 44.3 62.4 4.0 9.8 13.9 71.0X

D.33 Bsn 5- -222 33 3==5 -5555S

CRAND TOTAL - 44.7 402.6 447.S 9.9 89.6 99.4 9".0%

*Excluding Government's contribution of LSd 158 million to SRC's working capital requirements.*sForecast of foreoign price Increases: 1938 6.6%; 1989 7.0%; 1990 7.11; 1991 4.0%;*eForecast f dometic price increases: FY8S 40%; FY69 251; FY90 26X; FY91 17.61

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D. Pro1-ct Financint

4.25 The propo4ed US$35.0 million IDA Credit would fund 35S of thetotal Project cost of US$99.4 million. Other donors have indicated anint4 ntion to provide the following amounts: AfDB US$14.2 million; EEC,FCU's 7.5 willion; RfW DM 18.7 million; the Netherlands HFL 5.0 million;ODA US$20.5 million, distributed according to the fir.ancing plan shownbelows

Table 4.8 Financina Plan

ToteICosts IDA AfDS EEC COSISRC KPW NOL ODA

I. Institutional Developm_tA. Managemnt Support 16.2 16.2 -

S. Training 1.9 1.7 - - 0.2 - - -

C. StudIes 1.8 1.8 - - - - - -

I. Motive Power Improvement

A. Locomotive Spares ARehabilItati on 45.1 10.4 5.1 2.2 11.0 16.4

B. Workshop Spares A Equipment 6.6 2.2 0.2 4.1

III. Rolling Stock Repair A Replacement

A. Spares 7.1 0.5 6.0 0.6 - - -

IV. Infrastructure Repair

A. Track Spares A EmergencyTrack Repairs 17.9 2.8 8.1 9.6 2.6

S. Signalling A Telcommunications 8.6 - - 0.8 - 2.8 -Spares A Repairs

TOTAL 99.4 85.6 14.2 9.6 6.1 11.6 2.6 20.6

^J Includes technical assistance for training.o Does not Include USAID/Netherlands counterpart funds (equivalents In USS27.0

MlIlion) for SRC's Staff Rationalization Program nor Government's £Sd 160Million (USISSS Million).

so In local currency only.

SRC would contribute US$6.1 million equivalent to the Project's localcosts. This financing plan was confirmed at a donors' meeting held in lateJanuary 1988. Given the number of donors, since cross effectiveness withfive separate donors would be difficult, IDA Credit effectiveness woulddepend on the Association's receipt of appropriate notifications of atleast US$30.0 million equivalent by other donors. The Government wouldpass on the proceeds of the IDA Credit to SRC as an equity contribution byway of budgetary transfers in accordance with normal Government procedures.

4.26 As described earlier, SRC's weak financial condition dictates thatadditional borrowing be limited and investments kept to those that aretruly essential to the railway's short term recovery. The proposed Projectconsists of SRC's most urgent investment program for a three year periodwith the exception of track work on the western lines and the possibleacquisition of a limitecl number of passenger cars. During 1988-91, in the

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western areas some repair to track is being funded by the ItalianGovernment and the EEC on a grant basis, but this effort is considered tobe outside the Project since it will affect lines that are onlyperipherally related to SRC's main revenue earning capacity.

E. Implementation

4.27 Grants from ODA and KfW provided technical assistance to assist inpreparing bidding documents for spare parts and the technical assistanceteam as well as in costing staff reduction options. In addition, ODA isfunding a program coordinator to help prepare and launch the Project.Preproject engineering assistance is also being provided to assess therepairability and prepare specifications for some critical workshop plantand machinery. ODA is also granting some commodity assistance for urgentlyneeded workshop consumables and off-the shelf items of light equipment.Technical assistance will be provided to undertake a diagnostic review ofoperational entities within SRC that will be divested under redeploymentoptions being considered by SRC and to define the costs of implementationof the redundancy program and to launch redeployment options. In addition,it will assist in procurement of some urgent spares for wagons. TheMinistry of Finance will establish the Public Enterprise RationalizationFund in the Central Public Enterprises Bureau by October 31, 1988 andadhere to other preparatory deadlines itemized in Annex VIII. Withassistance from the Ministry of Finance with respect to funding staffreductions, SRC will implement the Project which is expected to becompleted by December 31, 1991. With the support provided by theinstitutional development component of the proposed Project, SRC will havethe capacity to carry out the Project. Terms of reference for thetechnical assistance to be provided will include provision of supervising,coordinating and monitoring of SRC's use of TA, its acquisition of spareparts, and the carrying out of track and rolling stock repairs.Additionally, the terms of reference for the TA team will requireformulation of action plans in years one and two of the Project, and afive-year corporate plan by December 31, 1990 aimed at furthering SRC'sturnaround and preparing a follow-on project. SRC will furnish to IDA thefive-year corporate plan not later December 31, 1990. Annual operatingtargets to be achieved by SRC, as assumed in the pro-forma financialforecast and set forth in Annex VII have been reviewed and agreed upon atnegotiations. Terms of reference will also require the establishment of amonitoring program to assess SRC's progress with respect to theseindicators, its marketing effort, financial situation, operatingefficiency, and program implementation and for recommending correctiveactions in a timely manner to meet the performance indicators. Donorcoordination will be handled by arranging multi-donor supervision missionsto the extent possible and be making use of the donor- organizedDevelopment Assistance Group for transport in Sudan to monitor progress andexchange information. An overall project schedule is in Annex IX;subdetails of the first year and overall implementation schedules are inAnnex X. SRC management, together with its team of TA, will prepare byAugust 31 of each fiscal year annual reports to assess results and forecastexpected compliance for the coming fiscal year. By March 31 of each fiscalyear SRC will furnish to IDA its proposed annual budget.

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F. Procuramaat

4.28 Procurement arrangements for the Project are expected to apply asshown in Table 4.4 below. Contracts for locomotive, workshop and trackspares/materialslequipment including training equipment, would be awardedon the basis of international competitive bidding (ICB) in accordance withthe Bank's guidelines for procurement, except where bilateral funding isindicated. Proprietary locomotive spare parts which are available onlyfrom the zriginal manufacturers or authorized suppliers (the totalaggregate not exceeding US$5.0 million) would be procured on termssatisfactory to IDA. For the consulting service contract which willinclude supply of housing, and studies the Bank's guidelines forconsultancy services will be followed. Overseas training will be organizedmainly through the training consultants in the technical assistance team.The building works, which involve improvement to SRC's training school,estimated to cost US$0.8 million, including contingencies, will becomprised of approximately 25Z local costs and are not likely to attractICB. The works will be carried out by force account, procedures for whichhave been reviewed and are acceptable, and the imported building materialswill be procured according to ICB procedures. Items will be grouped to theextent practicable to permit bulk procurement. Contracts and tenderdocuments for equipment, materials and spare parts valued over US$100,000will be submitted to IDA for prior review.

Table 4.4Other

IDA ---- Donors & TotalProjoct Elements TCB Other

…___ ___-:--U§ TMllion ------

Locomotive Spores 6.9 8 8 a4.7 46.1(6.9) (8.5) !i(16.4)

Rolling Stock Spare/Materials 6.5 6.6 7.1(8.5) (96.)

Workshop Spares/Equipment 6.) 1 6 4.8 6.6(°.7) (1. ) ?J - (2.2)

Track Spares/Materials 2.8 - 16.6 17.9(2.8) -- (2.8)

Signalling/Telecomm. Spares - - 3.6 (.6Consultant Services - 17 9 - 17.9

_ (17 9) !/ - (17.6)Training - 0.6 - 0.6

- (6.6) - (6.5)Training Equipmnt e.6 ( ( S.6

(8.6) _ _ (8.6)Building Materials Training School 6.6 - 6.2 60.

(0.6) - (6-6)

TOTAL fT l 11T.0/ 5-

(11.6) (_4 a8_

I/ Figures in parenthe"s are the respective amounts financed by IDA.il Proprietary Items./ Consultant and Specialist services will be procured according to Bank Guidelines.

(This Includes local costs of USt8.8 million covered by IDA funds.)4/ Procuremnt will be in accordanco with other donors' rospective proc<dures.

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G. Disburements

4.29 The proceeds of the IDA Credit would be disbursed as follows:

(a) 100 percent of expenditures for consulting and specialistservice.

(b) 100 percent of foreign and 802 of local expenditures forequipment, spare parts and materials; and

(c) 100 percent of expenditures for training.

4.30 All disbursements for contracts and expenditures over US$10,000would be fully documented. All disbursements for contracts less than thisamount would be disbursed under a statement of expenditure. Documentsverifying expenditures for the SOE are to be kept in a central place forreview by IDA supervision missions The disbursement profile deviates fromIDA's eight year standard for railway projects because the proposed Projectis strictly an emergency effort incorporating SRC's most urgent needs andcomprising almost entirely spare parts and technical assistance, both ofwhich should be relatively quick disbursing. Bidding documents for thetechnical assistance being acquired under a single contract are nearlycomplete as are the spare parts lists for the immediate repair andmaintenance requirements. Construction work is limited. A special accountof approximately US$800,000 will be set up so SRC can procure spare partsand equipment on a timely basis.

B. Reports and Audits

4.31 SRC will maintain records adequate to monitor Projectimplementation and will submit quarterly progress reports in a formatagreed upon with IDA. SRC will maintain separate accounts for allexpenditures incarred under the Project. The records will be maintained toreflect, in accordance with appropriate accounting practices, SRC'soperations and financial status. Special arrangements acceptable to IDAwill be made to administer the Staffing Rationalization Fund and recordswill be kept by the Ministry of Finance. An annual audit is required forall expenditures financed under the Project according to generally acceptedaccounting procedures. A separate auditor's opinion will be required forthe special account and for all SOE expenditures. Audit reports, includingthose of SRC as a whole, would be submitted to IDA within six monthsfollowing the end of each fiscal year. If for any year, the AuditorGeneral's Chamber expects that it would be unable to produce auditedaccounts within six months, the Auditor General will appoint a private firmof independent auditors satisfactory to IDA to audit the accounts. Notlater than six months after the Credit closing date, the Borrower wouldprovide IDA with a completion report evaluating the operations, theexecution, costs and benefits of the Project, the performance of theBorrower and IDA and lessons learned.

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V. ECONIOIC EVALUATION

5.01 Economic evaluation of SRC's Emergency Recovery Project(rehabilitation of locomotives, repair of rolling stock and of railwayinfrastructure and technical assistance) was carried out on the basis ofdata provid-d in 1986/87 mainly by SRC, Ministry of Finance and EconomicPlanning, Consultants T.T. PSICO and Norconsult reports. Sudan RailwayCorporation runs a large railway system of 4,800 kms of tracks. In theabsence of a developed and reliable road network, the railway represents abackbone of land transport for both passenger and freight traffic; SRC alsohandles part (122 in 1986/87) of the country's total export/import traffic.Most of the traffic on the SRC network is borne by the Port Sudan-Khartoum(787 km) and Port Sudan-Kosti (1,173 km) lines. The remaining parts of therailway system carry about 15 - 202 of the total railway traffic.

5.02 Part of the railway line (Kosti-Khartoum-Port Sudan) has beencompeting with road transport on the same corridor and due to a number offactors, mainly decline in efficiency of SRC operations and fallingcapacity, the railway has been losing traffic to the road. The traffic onSRC declined from 2.14 million tons in 1979/80 to 1.63 million tons in1981/82, while in 1986-87 it went further down to about 0.69 million tons.The volume of passengers transported on the railway has been stagnatinglately at about 2.2 million per year.

5.03 The Project goal, inter alia, is to reduce transport costs for theeconomy. With the proposed RERP, it is assumed that a significantimprovement in SRC's operational efficiency would result in substantialdecline in operating cost per ton (assuming a gradual reduction by about382, with a traffic increase to 1.2 million tons anticipated for 1991 andthereafter); e.g., for an average haul of 900 km the operating costs areestimated to be reduced from £Sd 167/ton in 1986/87 to £Sd 104/ton in 1991(£Sd 0.11/ton km). This compares favorably to road transport costs, wherethe average road haul on the corridor is estimated to be longer by onethird, i.e. about 1,200 km., bringing the comparative road transport costper ton to £Sd 122 (1991).

5.04 In the economic evaluation of the proposed RERP the "with" and'without' Project scenarios were compared. Without the Project, thetraffic is assumed to decline further (following the past trend) to about180,000 tons by 1991 (Table 5.1) and stagnating at that level for a fewmore years with available rolling stock and engines. In the "with Project"case it is reasonable to expect that SRC would regain some of its losttraffic, reaching one million by 1990/91 and 1.2 million tons in 1991/92and thereafter. Actually SRC capacity "with the Project" will be increasedbeyond 1.2 million tons per year. Taking into account that the Governmentis SRC's main client, exceeding the anticipated tonnage will not beunrealistic. The calculation of the economic rate of return (ERR) wascarried out in late 1987 prices in Sudanese Pounds, based on a shadowexchange rate; a new official exchange rate was applied in the sensitivityanalysis (paras. 5.08 - 5.09). The cost of the project (base costs plusphysical contingencies) was spread over four years 1988/89 - 1991/92. The

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economic life of the project was determined on the basis of estimatedaverage life of the investment components (pars. 5.01) and is assessed at*even years.

5.05 Costs of the Staff Rationalization Fund for reduction of SRC staff,re not included in Project costs and in the calculation of the economicrate of return since they represent social costs which Government hasdecided to incur to reduce the hardship for Sudanese of being terminatedfrom employment with SRC. The cost of these reductions has been estimatedat $27 million equivalent, but the final costs will depend on negotiationsbetween Government and labor unions.

5.06 With regard to project benefits, there are generally two types -unquantifiable and quantifiable. The quantifiable benefits included in thecalculation of the ERR are as follows:

(a) Reduction in operating costs per ton on assumed retained freighttransport on SRC (traffic declining from present 690,000tons/year to about 180,000 tons by 1991 and thereafter);

(b) Reduction in operating costs on the traffic taken back from roadtransport; based on comparison of transport costs, the first yearwhen SRC would become competitive to road transport is estimatedat 1991; on the other hand, due to inadequate road maintenancethe existing trend of deteriorating condition of the road networkis assumed to continue in the near future, while the short-termsurplus of the trucking fleet capacity is expected to graduallydisappear;12 consequently, a gradual increase in road transportcosts (a moderate 32 per year increase) was estimated in thisanalysis; and

(c) Savings in transport costs on the northern (Wadi Halfa), southern(Wau) and western (Nyala) branch lines would take place if theProject materializes (without the Project, at 180,000 tons/yearof total traffic, it is plausible to assume that only the mainline would continue to operate -- Port Sudan-Khartoum-Kosti --and that the traffic would have to use earth roads instead whichwould be significantly more costly than the railway); theaverage length of haul is estimated at about 550 km; in 1986 thetotal tonnage transport by SRC on the branch lines was about140,000 tons; the average annual growth of that traffic wasestimated at 4%.

Main data and assumptions underlying the analysis are presented in Table5.1.

5.07 The proposed Project would also yield benefits which are difficultto quantify such as: reduction of accidents, decrease in loss/damage tocargo, more reliable and timely services for freight and passenger

12/ Truckers have been underbidding each other and actual rates are oftenbelow costs and do not include vehicle depreciation; as a result anumber of truckers have been going out of business.

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transport, better administrative and social services to the population,etc. For that reason, the estimated ERRs presented below could be assessedas conservative.

5.08 The sconomis analysis of the Project used shadow pricing in thecost/benefit analysis. The analysis was carried out by applyingappropriate conversions to border prices. The exchange rate applied wasUS$1.0 - £Sd 6.0. Also, due to a surplus of local labor and overvaluedlabor cost (salaries and wages), the cost of SRC labor was shadow priced bythe factor 0.7. In the 7-year economic life the ERR is estimated at 12.31.Recent exchange rate fluctuations indicate, however, higher than six-to-oneratio, which would make the ERR higher than estimated above. Since anumber of inputs are subject to uncertainty, a sensitivity analysis wasalso carried out. The ERR is very sensitive to eventual changes in theestimated costs and benefits. With a cost increase of 102, the estimatedERR would drop to 7.1Z. It should be noted, however, that thepossibilities for a sizeable cost increase are rather limited in this typeof a Project, since negligable civil works are envisaged. Since thesavings in operating costs per ton (with the Project) and the increase intraffic may not materialize as expected, all the benefits were reduced by101 causing the ERR to drop to about 71 (Table 5.2). In the case thatthere would be a two-year delay in the Project implementation, i.e., theproject benefits would be delayed by two years, the ERR would drop to about101. Long delays are, however, not expected since the Project preparationof key components is well-advanced and implementation should begin asscheduled. With regard to the anticipated benefits, the fact that SRC'snew management has since September 1987 succeeded to increase theKhartoum/Port Sudan traffic (para. 3.15) is evidence that the anticipatedbenefits in the economic evaluation are reasonable.

5.09 The economic viability of the project was also tested by applyingthe official exchange rate of US$1.0 = £Sd 4.5 in the cost/benefitanalysis. A 7-year economic life, the ERR is estimated at 11.72; with thebenefits decreated by 101 the ERR would drop to 61. Slightly lower ERRs ascompared to those based on shadow pricing are mainly due to somewhatdifferent proportions of foreign costs in roads vs. rail transport costsand also because of the shadow pricing of SRC labor costs in this ERRcalculations.

5.10 Also, a sensitivity analysis was carried out assuming a slowerdecline of SRC traffic without the Project. (para. 6.24). It was assumedthat in the without the Project case SRC would retain traffic of 400,000tons/year; under this traffic scenario the corresponding ERR would be about11X.

5.11 In conclusion, the RERP has an economic justification if the mainassumptions taken in the analysis materialize, i.e. reduction in SRCoperating costs, traffic increase, improvement in SRC quality of serviceand reduced turn-around time for wagons on Khartoum-Port Sudan route (fromover 22 days at present to about 12 days to be competitive with trucks).The ERR is, however, very sensitive to potential shortfalls in theassumptions and anticipated benefits, falling to less than 101.

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VI. FIACIAL EVALUATIOU

A. General

6.01 SRC maintains its financial accounts on an accrual basis andprepares the operating statements in a comm-rcial format. Operating andcapital budgets are prepared six months before the fiscal year-end forreview by the management and the Board. The current year's projections arealso revised at this time. These reports are well prepared and containconsiderable detailed analysis. In the past the system was computerizedbut in more recent years, due to computer problems, all accounts are nowkept on a manual basis. Auditing of accounts is undertaken by the AuditorGeneral. SRC's audited accountes are substantially out-of-date. The lastof audited statements available is 1983/84. Delays in part resulted fromthe breakdown of SRC's computer system but also reflect a backlog withinthe Auditor General Chamber.

B. Past Performance

Operating Results

6.02 The consistent decline in tonnes carried, and net tonneikm,coupled with a 1002 increase in wagon turn-around time has resulted in aserious deterioration of the financial position of SRC. In the eight years1980-1987 revenues have covered working expenses in five years; coveredprovision for depreciation in three years; and covered interest in only twoyears.

6.03 A contributing factor to the poor financial performance of SRC hasbeen the almost fixed character of the work force. During the eight yearperiod tonnes carried dropped from 2.12 million (1980) to 680,000 (1987), adecrease of 68Z. During the same period the number of staff decreased byonly 132 with most of the reduction during the latter two years. Detailsare given in Table 6.1.

6.04 Also contributing to the decline is the fact that tariff increaseshave not kept pace with cost increases fully nor in a timely fashion.Recent tariff adjustments are set out below:

Fiscal Year Commodity Increase

1984 Baggage and Parcels 37.5ZPetroleum Products 21.4%

1985 Passengers 332Baggage and Parcels 1002Live Stock 1002Petroleum Products 502

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6.05 The results of the tariff increases are evident in the freightrevenue figures which increased from £Sd 45.09 million (1983) to £Sd 119.45million (1986) despite a drop in tonnage carried of 43X from 1.19 tonne-km(1983) to 0.68 tonne-km (1986).

6.06 In accordance with the Subsidiary Loan Agreement of the FourthRailways Project interest payments were to be calculated at the rate of US$1-40.263 piastres. However the actual interest was calculated using therate prevailing at the due date. As a result the interest expense wasoverstated during the period 1980-1986 inclusive by £Sd 30.21 million.Accordingly the interest expense as shown each year in Table 6.1 has beenadjusted downward to reflect the adjustment. As SRC did not, in each year,pay the interest to the GOS the amount owing was included in the amountsowing to creditors on the respective balance sheets. The net result ofthis adjustment on the balance sheets is that the amounts shown as owing tothe creditors have been reduced by this amount and the cumulative deficitadjusted accordingly.

Balance Sheets

6.07 The comparative balance sheets are set out in Table 6.2. Workingcapital is negative throughout the entire eight year period. It isestimated that the inventory includes £Sd 24.0 million of obsolete parts.If the amounts shown as inventory in the balance sheets were reduced bythis amount the working capital would be in an even more negative position.

6.08 Amounts owing to SRC as shown in accounts receivable have steadilyincreased until in 1986 they represented more than 14 months freightrevenue outstanding. This has resulted in a steady increase in the bankoverdraft and subsequent interest charges of 9S on the outstanding balance.

6.09 The debt/equity ratio has moved from 49/51 in 1981 to 58/42 in1987. However this is misleading in that amounts owing to the GOS fordeferred customs duties have been transferred to the general reserve, thusdecreasing the long term debts and increasing the equity position. Thetransfer was, however, justified in that in the short and/or medium termthe debt could not be paid by SRC.

C. Financial Forecasts

6.10 Financial forecasts have been prepared on the assumption that theProject is implemented according to the implementation schedule and thatconcerted efforts are made by SRC management to cut costs, improvelocomotive availability and concentrate train operations on the Port Sudan-Khartoum corridor where the bulk of SRC's traffic lies. The forecasts alsoassume the establishment and funding of a Staff Rationalization Fund withinthe Ministry of Finance so that SRC can achieve targeted staff reductionsof 9,000 employees over the three-year period.

6.11 The forecasts are based primarily on FY86 data, as adjusted toreflect certain trends evident in the draft statistics and financial

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accounts for FY87. Amounts owing to creditors, and the deficit, have beenadjusted for the overstatement of interest in prior years (para. 6.05) andthe inventory has been reduced by £Sd 24.0 million for obsolete parts(para. 6.06). In view of prevailing trends, the long-term debt hos beenadjusted upwards to reflect an exchange rate of US$1-LSd4.5.

6.12 The following assumptions have been used in the financialforecasts:

i) the traffic forecast for the project period is shown in Table 6.3.Traffic is expected to continue to decline from Total of 682,000tonnes (1987) to 613,000 durIng FY88. Thereafter certainincreases should result from the implementation of the RERP,particularly in the movement of petroleum products, wheat andflour, and sugar where traffic on offer far exceeds SPC's currentability to transport;

ii) the traffic forecast is based on the operation of block trains inthe Port Sudan-Khartoum corridor. It is essential that this isdone to reduce the transit time and the wagon turnaround timecurrently averaging approximately 20-30 days. The use of blocktrains would result in a transit time of two days in eachdirection in the corridor plus one day each for loading andunloading. The locomotives should not be held at Khartoum/PortSudan during the unloading/loading time but dispatched for thereturn journey. The operation of block trains would require 4locomotives for the petroleum trains and 4 locomotives for thewheat/flour trains. The wagon requiremernt would be 156 wagons foreach commodity. In addition provision should be made for themaintenance of the eight locomotives. The wagon fleet is alreadyavailable. The forecast assumes 4 block trains per week for eachcommodity during FY89; 6 trains per week during FY90; and 7 trainsper week in FY91;

iii) the present tariff schedule (1987) has been used in theprojection;

iv) interest on long-term debt has been calculated at the existingrate (para. 6.05) and on the Bank of Sudan overdraft at 9x;

v) all Project costs are assumed to be financed as either equity orgrants; a portion of spare parts and all the equipment have beencapitalized as assets and depreciated as appropriate; remainingspare parts have been added to SRC's inventory and included inmaterial expenses; the technical assistance costs have beencapitalized and included in deferred charges and expensed over aseven-year period as part of miscellaneous working expenses;

vi) the loss on foreign exchange of £Sd 79.66 million (para. 6.09) isshown as a deferred charge to be charged to operations during therepayment period of the loans/credits in accordance with theInternational Accounting Standards;

- 46 -

vii) the accounts receivable, currently averaging 14 months of freightrevenue (pare. 6.07), should be reduced to an average of 90 daysby the end of FY89;

viii) amounts owing to creditors in the mount of £Sd 232 million to bepaid in full over a four year period cormencing in FY89;

ix) current amounts owing to creditors have been calculated on thefollowing basis for each year-ends

spare parts - 6 months requirementsfuel - 2 months requirementsmiscellaneous - 2 months requirementswages - 112 month.

x) fuel and stores requirements for operations are calculated on thebasis of tonnage transported;

xi) passenger revenue and miscellaneous revenue have been heldconstant at the 1986 and 1987 levels respectively;

xii) the number of employees will be reduced by 3,000 per year forthree years; and

xiii) donors and SRC will finance the local cost of the Project; thecost of implementing staff reductions is excluded from thefinancial analysis.

D. Prolected Oeratiua Stat-ments

6.13 Table 6.4 sets out the projected operating statements for the fouryears to FY91. While the revenues will increase in total each year inaccordance with the traffic forecast they will not be sufficient to coverworking expenses until FY91. The working ratios and operating ratiosagreed upon with SRC are presented in Annex VII.

6.14 During the Emergency Recovery Program revenues will cover workingexpenses and depreciation but at a traffic level of 1.2 million tonnes willnot cover the interest expense. The reduction of the high amount ofindebtedness to creditors in turn increases the amount to be borrowed fromthe Bank of Sudan at a rate of 9Z. In addition the devaluation of theSudanese pound results in higher principal payments and a consequent drainon the cash flow.

S. Prolected Salanue Sheets

6.15 The projected balance sheets are set out in Table 6.5. For thepurposes of the projections the bank overdraft has been removed from thecurrent liabilities and shown as "Required Bank Overdraft" as there is no

- 47 -

possibility of any repayments during the Project period. Reduction of theoverdraft could comence only after the Emergency Recovery Program with anincrease in tonnage carried beyond the 1.2 million tonnes. This increasein turn can only be accomplished by better rail vervice with shortertransit and turn-around time and increased use of block train.

6.16 The current ratio will improve from the current low of 0.422(1988) to a favorable ratio of 1.842 by FY91 as a result of the reductionof amounts owing to creditors, the improved operating results, and theaddition to inventories.

F. Pro-lected Cash Flow

6.17 The projected cash flow is given in Table 6.6. In all yearsduring the Project period the cish flow will be negative due to the largeoperating losses during the first two years of the Project; the reductionof amounts owing to creditors; and the heavy interest costs.

6.18 Due to the negative position of the cash flow, the Government andSRC should agree during negotiations to seek the Bank's agreement wheneverdebt-financed investments beyond those included in the project areestimated to exceed US$500,000 equivalent per annim in total. Grantfinanced investments of a size that might interfete with the goals of therecovery program over US$2.0 million equivalent also should not be madewithout prior agreement with the Bank.

6.19 The projections include the assumption that the accountsreceivable, currently the equivalent of 14 months freight revenue, would bereduced to an average of 90 days by the end of FY89. Also included is theassumption that amounts owing to creditors would be reduced to a currentbasis as set out in para. 6.12 (viii) and para 6.12 (ix). Reduction ofGovernment receivables was agreed, namely that the Government will settleby FY89 any outstanding bills for transportation services rendered to it bySRC which are overdue by 60 days and thereafter to pay bills within 60 daysof receipt.

6.20 To ensure the financial viability of SRC during the recoveryprogram, it is essential that the Government assist SRC with workingcapital.

G. Financial Internal Rate of Return (FIRR)

6.21 Without the Project the deterioration of SRC is estimated tocontinue. The lack of spare parts would lead to lower availability andincreased turnaround time of wagons and locomotives and a further shift oftraffic to road transport. The FIRR has been calculated using twodifferent traffic forecasts, i.e. rapid and a slower traffic decline.Under the first approach, --base case, in the 'without' project case, thetonnage of commodities carried in all categories is assumed to decrease asoperational erficiency deciines, particuiariy the availability of

- 48 -

locomotives. The following forecast sets out this traffic.

FY1989 458,000 tonnesFY1990 302,000 tonnesFY1991 180,000 tonnes

6.22 In the 'without' case, it is also assumed that SRC's currenthiring freeze is maintained but that would decrease only by attrition inthe absence of a fund to implement greater reductions. Thus it is assumedthat staff numbers would decline from the present level 31,058 (FY87) to28,000 by FY91. The remaining working expenses would drop in accordancewith the traffic carried. The condensed operating statements for the"without" project under this assumption are set out below:

£Sd million1989 1990 1991

Revenues 75.76 53.80 37.75Working Expenses:

Wages 118.00 114.02 110.95Stores 13.16 8.68 5.07Fuel 9.92 6.54 3.86Miscellaneous 14.23 9.39 5.55

155.31 138.63 125.43

Operating Loss 79.54 84.83 87.68

6.23 The financial internal rate of return for the Project period inthis approach is 18.61 percent. The high return results from the increasedavailability of rolling stock due to overhaul and reconditioning, which inturn allows for the operation of block trains commencing in FY89. Detailsare given in Table 6.7.

6.24 Under the second approach treated as a sensitivity analysis, it isassumed that Government will allocate over a three-year period about US$5.0million equivalent of foreign exchange to SRC so that it can keep abouttwenty locomotives running and that these locomotives will be used to haulcommodities on offer where turnaround time is not as essential andconsequently locomotive availability is not as important a factor. Underthis approach the following tonnage is anticipated:

FY1989 480,000 tonnesFY1990 400,000 tonnesFY1991 400,000 tonnes

- 49 -

The condensed operating statements are set out below. Using this approachthe FIRR, drops to 9.352. Details are given in Table 6.8.

£Sd million1989 1990 1991

Revenues 75.76 a 68.59Working Expenses:

Wages 118.00 114.02 110.95Stores 13.16 11.48 11.48Fuel 9.92 8.66 8.66Iiscellaneous 14.23 12.42 12.42

155.31 138_63 143. 1

Operating Loss 79.54 70.04 74.92

B. Imuact of Inflation

6.25 The projections are based on the tariff schedule in effect inFY87. Tariffs must be adjusted in future years to offset inflation unlesscoummercial judgment dictates otherwise. Since the lack of profitabilityhas been more a function of operational inefficiencies, than a lack oftariff increases, tariff setting should be made primarily with a viewtoward competing with road transport; it was agreed during negotiationsthat SRC will be given the tariff flexibility and authority it needs toadjust rates .hen necessary to cover cost increases due to inflation.

- 50 -

VII. REtCUUD&TIONS

7.01 During negotiations agreements were reached on the followingmatterss

(a) SRC will not undertake any debt-financed investments estimated toexceed USS500,000 nor any grant-financed investments exceedingUS$2.0 million, during the period of implementation beyond thoseincluded in the project without the prior approval of theAssociation (para. 6.18);

(b) GOS and SRC to *sttle any outstanding bills for transportationservices rendered to it by SRC that are outstanding more than 60days to SRC by FY89 and thereafter continue to pay bills within 60days of receipt (par&. 6.19);

(c) GOS to authorize SRC to adjust tariffs as necessary (par&. 6.25);

(d) annual operating targets to be achieved by SRC for the FYa duringProject implementation (par&. 4.27);

(e) SRC to agree on operating and working ratio targets for the FYTduring Project implementation (par&. 6.14);

(f) SRC to prepare by August 31 of each FY annual reports measuringactual performance against the targets agreed upon and forecastingits expected compliance with the targets for the coming fiscalyear (para. 4.27);

(g) SRC to furnish to the Association its proposed annual budget notlater than March 31 of each year (para. 4.27);

(h) SRC to furnish to the Association not later than December 31, 1990a five-year corporate plan acceptable to the Association (par-.4.27);

Mi) staff rationalization targets; establishment of a StaffRationalization Fund and procurement of funds sufficient tofinance the first FY's staff rationalization program by October31, 1988; and to adhere to the staff rationalizationimplementation schedule shown in Annex IV (par&. 4.27);

(j) Government to establish a Special Account (par&. 4.30); and

(k) Credit effectiveness to be dependent upon the Association'sreceipt of appropriate notification that all conditions precedentto disbursement of at least US$30.0 million equivalent by otherdonors have been met.

7.02 In addition to SRC's financing US$6.1 million of the local costsof the Project, Government agreed to provide working capital to SRC in theform of equity contributions financed from its development budget; [Sd 150million in annual installments of: FY89 [Sd 70 million, FY90 [Sd 50million and FY91 [Sd 30 million (para. 6.20).

7.03 Subject to the above conditions, the proposed Project is suitablefor a Credit of SDR 25.65 (US$35.0 million) at standard IDA terms with 40years maturity.

- 51 -

Table 2. 1

SUDN

RAILWAYS DIKGKNCY RECOVERY PROGRAM

THROUGHPUT ('000 TONS)

Y"r Ended June U 11 1981 1962 1908 1964 1905 1o6

P-trol_ Products 1,275 1,252 1,197 1,259 1,217 1,153 1,478

Sugar 277 109 169 174 so so 5wheat 8 190 206 83 2UN 466 452FertilIzer 78 178 67 216 145 25 209Flour 42 116 167 96 161 826 239Cement 164 2e6 192 2e2 291 167 394

Total Dry Bulk 9 884 618 ,;060 94S 1,;71 1,299

Insecticide. A Chmical. - 41 51 22 37 85 67T A Coffee 16 19 17 12 12 11 9Timber A Paper 45 77 40 61 76 67 89Jute A Sacking 44 49 49 61 21 0 118Iron A Steel 72 110 138 165 126 96 107Motor Vehicles 28 28 29 82 28 19 23Machinery A Equipment 89 95 96 98 9 a8 58MTce-llannouc 896 38s 424 515 483 709 687

Total General Cargo S89 744 689 90 0T6 982 1,S33

TOTAL IIPORTS 2,823 2,680 2,849 8,284 2,964 3,2e3 4,108

-trol-uo Products 257 198 20S 92 so 19 88Edible Oil 24 82 18 7 16 8 1Molasses - 86 23 120 126 116 156

Total Liquid Bulk -Nu -3E -N 1if T§ IN 189

Groundnts 26 92 186 87 21 19 9Sesame Seeds 47 61 71 76 78 64 46Oil Coke 211 170 o0 86 66 7 19Durn U8 u88 264 827 165 - 3Oros 22 So 7 9 - 17 6Unspeciticd - - - 15 - -Total Dry Bulk -af -p7i w -ag -I 83

Cotton 182 92 6s 127 271 156 110(um Arabic 41 84 82 26 19 11 8Other Seed 88 82 49 No 26 26 25MIsc llaneouu 61 77 91 102 67 82 90Total CGneral Cargo N -m -ug -J 171 2a

TOTAL EXPORTS 1,289 1,151 1,684 1,0658 92 520 5SO

TOTAL THROUCHPUT 4,112 4,081 8,688 4,287 8,916 8,726 4,613

Source: SPC

- 52 -

Table 2.2

WDARALWAY EMERGEFCY RECORY PROGRAM

SRC D.clh Mc" *KM

49w81 r"~~~~~96/8

94%

DRY CARGO KUORT

60% ~~~~~~~~~Rood

16%

uL9v APORmS RON48% 52% 44%

Rood~~~~~~O100% ¶00%

%ONOSO'* - 41611

SUDAN

Ra lway Emergency Recovery Proorm

THE SKARE OF RAIL AI ROAD TRANSPORT IN IWORT TRAFFIC

(Of Tons)

YV E A R 19"/s1 1961/82 1982/68 1968/64 1904/65 1966/g

TRANSPORT MODE Rail Road Rail Road Rail Road Rail Road Rail Rao Rail RoadCoUMODIT GROWU -- - ---- - - _ - -- _ _

Petrolem Productse 3W 446 276 8 28 40 855 10 410 194 onU.et and U,a Flour 202 45 194 221 117 236 196 222 194 475 115$ a

Constructlon Materials 36 no 62 13. 48 259 384 84 214Fertilizers 76 96 75 63 15 124 11 1iU 12 9 11 79Machinery and Equipmnt t 75 6 119 2 119 so 46 24Chemicals - 9 - 51 8 47 58 64 STSpar. pOrP - - - 89 - 86 42 85 22Consumable Goods 239 20 67 18 64 282 45 1U4 24 246 S 218

oura - - - - 9 822 o9

Others 164 277 285 299 79 292 1 2" 137 26 a 281

T o t a 1184 1141 11l4 1511 652 1509 091 109 22U 419 3119

Soureo: Consultante TT. PSICO Report, Khartom, 196Sudan Railways Corporation, Khartoum, 196 and 1987

_I~~~~~~~~~~~~~~~~~~~~~~

SUDAN

Rai lway Emorgency Recovery Pro re

THE SMORE OF RAIL AND ROAD TRANSPORT IN EXPORT BY MAJOR CMMODITIES

(US Tons)

v E A R 196/31 1981/82 1062/6J 1913/64 1904/U6 19 t/S

TRANSPORT MODE Ral I Road Rai l Road Ra Il Road Rai l Road Rail Rod Rat Il Rood

COMMODITY - - - - - - - -

Cotton 66 24 s 12 89 09 52 219 9 146 1 109

Cura 84 266 24 242 29 290 - 166 - - - -

'.roumd Nuts 111 14 112 16 84 5 14 8 7 14 6 4

Snueama 5 26 47 24 25 44 6 78 4 5T 2 44

Oil Caks 87 187 10 74 24 62 9 77 a 4 5 14

Molasses - 8S 6 17 - 120 - 142 - 144 - 164

Mld and Skins 2 1 7 - 4 1 a 2 8 1W -

Dumr Seeds - 32 46 - - 45 - 28 - 27 - 26

Om Arabic 26 3 28 4 22 * 11 9 21 12 is 6

Miscll neu 41 O - 62 - C1 - - _ II _ 17

T o t a I 2 ea US 46 17 72Y 94 742 47 452 2S US

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~_ _ _ __ __

Livestock (O Hmead) 24 415 7 447 6 on 64P O 5 496

Source: Consultants TT. PSICO Report, Khartoum, 1966

Sudan Railways Corporation, Khartoum, 1066 and 1917

SUDAN

Rai Ivey Emerwncy Recovory Progrm

PASSENE MOVEMENT BY MODE OF TRANSPORT IN ThE SWAN

(10W/S1 - 1066/37)(mtl III on of peesngr)

Y E A R 190W/S1 1901/t2 102M/6 1908/H4 1964/96 1906/0

ANSORT MODE NO. 1 141. S No. X No. X No. X No. X

R o a d 24.28 91 24.91 n 26.39 91 26.90 91 27.69 92 0.85 aR i 2.9 6 2.0 1i 2.21 a 2.U 6 2.26 7 2.02 7R Iver 09.79 - *.1076 - *.68 - 9.047 - 0.021 - N.f1 -

A I r f.1U 1 0.251 1 0.147 1 *.1iJ 1 9.1" 1 9.91 -

T o t a 1 26.542 19 27.t17 16 20.886 16 29.71 18 36.079 19 80.4 19

Source: Co,m ltaat TT. MICo Report, Kharto, 106Sudln Railways Corporation, Khartom, 19O and 1107

- 56 -

Table 4.1Page 1 of 4

SR$ Motiv* Power. Rolling Stock and WorfstooMSautemece Prorn Spnd Sares

A. Motive Power

1. Forecast Program

- Forecast Annual Program -- -Loco Type Total In Total Program ---Yar 1--- ---Y r 2--- -- Year 8---

Main Lino Nos. Use RC !/OH /PMY !RC OH RU RC OH RU RC OH RH

10e GEC hevy 4? 16 10 16 86 4 4 80 6 4 36 - 3 86164 GM Itght (HE) 10 2 - 6 1 - 0 1: - - 1: - - 1:17M (IE I I ght is 7 - 10 If - - is - 6 - C is171 GE LMC 10 - - - 10 - - 10 - - 10 - - is180 GE heavy 19 a - 17 19 - 10 19 - 410 - 4 19lsO GE Brazil 10 1s - - 19 - - 1s - - 10 - - 10lIO GM hoavy (HE) 20 - 10 4 20 - - 6 19 4 29 - - 2019e aGm heavy (USA) 10 -

Total 188 46 20 S6 115 4 20 9 16 21 115 - 17 115

Shunting Locos.46 HE 20 1 - - - - - - - - - -6UKSK 28 7 - 28 23 - 11 1 - 12 23 - - 28700 HE 29 4 - 20 20 - 12 16 - 8 2 - - 20

Total 1 1I -141 -4 w -7 s s _ - 4

y Notation: RC a Reconditioning, OH a Overhaul, RU a Running Maintenance.

2. Loco Spares and Reconditionings: Costs/Details

Loco TYpe USS MilIon

CEC Main Line (ODA, UIK) 16.4 (soo Note 4)

HE (Main Line 169/1959) (KtWM 10.2 Includes overhaul of traction motors (see Note2 below) and 6 man-months of servicesenginoers.

GE Shunting Locos (790 only) (KfW) *.8

KSK Shunting Locos (Japan) (AfOB) 2.6

Brake Conversion (AfOS) 2.5 Main Lino Locos (Soe Note 8)

GE Main Line (USA) Spares (IDA) 7.8

Traction Motors Overhaul (IDA) 8.8 Maln Line Locos OH Sertie (sm Note 2)

Total Foretgn Exchange 48.1

- 57 -

Table 4.1Page 2 of 4

Note 1. The 1850 class GE (Brazil) locomotives require a minormodification to the air filteration system for cleaner engine roomventilation.

Note 2. All traction motors (240 Nos) of the GM series (classes 1600,1900, 1950) need overhaul and suspension modification (to correcta design deficiency) in manufacturers'works. The 1950 class of USorigin, however, requires a major redesign of the filterationsystem without which the locomotives cannot be operated. These 10locomotives (60 traction motor equivalent) are not consequentlyproposed to be overhauled in the Project period. Themanufacturers and SRC will review the 1950 class problem, alongwith the Technical Assistance team as necessary, and arrive at asolution with costs and method of execution. Traction motoroverhaul is thus projected only for 198 Nos (for 30 class1600/1900 locos plus 18 workshop unit exchange reserves). 60 Noshave already been overhauled and delivered to SRC against ArabFunds. Another 60 Nos have been overhauled by GM at their USAWorks and will be shipped as soon funds can be arranged. 78 Nosthus remain to be sent overseas for overhaul either to WestGermany (Henschels) or GM USA. KfW will assess the extent oftheir financing and Henschel works capacity in this respect. Thebalance will be financed under the IDA Credit.

Note 3. The dual brake systems of 53 locomotives (30 Henschel GMs: 23 GEsnamely 10 Brazil, 10 Henschels, 3 (USA) heavy) are to be convertedto straight air with AfDB financing. This will leave 46locomotives to be converted - 10 class 1950 and 36 class 1000 GEClocomotives. The overhaul/reconditioning of 26 of the latter typeis being financed by the ODA grant but it may not be possible toconvert all to straight air brakes within available funds.

Note 4. Out of the original fleet of 65 locomotives, 18 are out ofservice, leaving 47 operable units. However, 9 of theselocomotives have been so heavily cannabalized that restoration ofthe major equipments would prove very expensive. 38 units arethus the maximum number retainable in service (see Crown AgentsReport of January 88). The Project provides for the runningmaintenance of 36 units, overhaul of 16 and reconditioning of 10.

Note 5. The 460 class low horsepower Henschel shunters are not slated foroverhaul or running maintenance during the Project period becauseof the very hihg cost.

B. Workshop Equipment and Spares

The machinery and equipment of the workshops in Atbara inparticular are generally old and a legacy of the steam age. Only theirreparable or totally obsolete units are proposed to be replaced and some

- 58 -

Til4.1Page 3 of 4

indispensable supplementary equipment provided along with spares foroverhaul and maintnzance essential for execution of the program. Provisionha. also been made for consumables and hand tools sets. The total foreignexchange cost of US$6.3 million (US$4.1 million ODA and US$2.2 million IDA)is broadly categorixed as under:

Forei 1 ExchangeCsteaory N Mill ion

Total ODA IDALittina and Houltne Plant Now/Rolac_"2-86 ton/2-19 ton/1-5 tonOvorhead cranm, lister trucks,Jacko, puII-y blocks and sparesfor sxiting plant 1.6 1.6

Machino Tooil Rotairs/Remgacs.ent/New

Loco wheel preo. buckling/strippingpress for lest springs, coil springgrinding machinoe, welding/cuttingequipmnt, pyrometrs, spares forlathes, other mchinea, undertloorwheel loths 8.2 1.4 1.8

Oxy-Acetlyne Plant

Spareo/Cylinders 0.7 0 .2

Laboratory Equipmnt Dmin-ralizino Plant

Repair benches/stands t 6 .4 t.1

Consumables 9.8 t.2 t.1

Total Foreign Exchange 6.3 4.1 2.2

Critical to the gearing up of the overhauling program is the highpriority replacement of the overhead cranes and the hydraulic wheel pressin the locomotive workshops. As the 35 ton O.H. cranes will t.-A some timeto replace, temporary repairs to existing ones will also be attempted,under ODA funding, so as to improve their availibility over the next yearor two. Similarly, emergency spares will be provided to increase theavailibility of the loco wheel press. The old Atlas underfloor wheel lathein the Atbara Workshops will be reconditioned and spares urgently acquiredto make the Hegenscheidt unit at the Khartoum Diesel Depot operative. Someworkshop apparatus/stands will be provided in the Khartoum wagon shops tofacilitate overhaul of the KSK shunters.

- 59 -

Table 4.1Page 4 of 4

C. Lolling Stock R eairs

Of the total foreign exchange cost of US$6.5 Sillion US$6.0million is to be borne by the AfDI Credit and US$0.5 by IDA for urgentprocurement of wagon spring. The provision Is broadly categorized asfollow:

Categorv USS Million

Spare parts including spares forWestinghouse (France) broke equipment 3.8 mostly proprietary items

Materials (Steel plates, bars, rounds,springs, timber) tools and consumablesfor workshopsidepots 2.7 general items

Total 6.5

D. Permanent Way Repair and Replacement Materials

Total IDA AtDB EEC'UUMi I lTon - Foreign Exchange

Sleepers (hardwood/steel) tnci tfastlngs *.1 *.1 5.6Switch. and Crossings 1.6 1.6Ralso 75/9t lbs 2.J 2.8Fish plates/tish bolts 0.4 6.4ECroeote/tar/greaae/consumble 1.0 1.0P. Way tools *.8 6.8Tents 6.6 6.6Geeral It... 6.2 6.2Ground tank *.1Motor trolloy sparos *.5 C.5

Total Foreign Exchange 97 13 T U |

E. Stanallina and Telecommunication Equiiment/Sgares

The Netherland grant of US$2.8 million (5 million Guildersequivalent) is entirely for Signalling and Tel-communication equipment andspares. The grant allows for procurement of up to 50 percent ofproprietary items of non-Dutch origin.

ORIGIN ----- SOWRCETOTAL UK USA ISNIA

Dry Cells 8.2 6.2Tratfic Control Equipment 0.2 8.2Open Wire Equipment 0.4 0.4Slgnallilng Equipment 8.7 6.7Telephone Equipmnt, Lap

Block Instrument Spares S.3 6.8Wireless Spares 6.4 0.4Workshop, Tools RC *.6 6.6

Total Foreign Exchange USI Million 2 . 6.4 6.2 1.9

- 60 -

Table 5. 1

SUDAN

Railway Emersency Recovery Program

A. Traffic Forcaest and Estimated Operating Costs on SRC

Ye.--- - Without the Proiect ------ -------------- With the Pro3ect --------------

Cost Cost 1 Freight TakonFreight Par Ton (£Sd) Total Cost Freight Per Ton (t£d) from Road(ton) (Sd mill on) (tons) tons) 21

196/67 699,303 167 115.2 690,01 167 --1937/66 630, 176 136.8 6am,1on 178 --193/6 468,40 220 163.5 6"0,0 173 140, 331914/90 3",3"a 262 64.6 on, n 184 5,1131903/91 111,1 80 54.9 1,00,333 l1 620,31991/92 18,63 05 54.9 1,200,013 104 1,120,031992/98 168,333 s05 54.9 1,211,313 104 1,202,0 o1993/94 130,33 a0 54.9 1,200,330 104 1,920,0011994/96 138,030 3SO 54.9 1,200,000 104 1,320, 01195/96 1860,03 806 54.9 1,200,000 104 1,620,003

3/ Average haul 900 ki; distribution of costs per ton (in £Sd) Is as follows:1966/87 - porsonnel 119, fuel 17, materials 81;1991/92 - personnel 61, fuel 16, materials 28.

2/ Transport cost on road (average haul 1,200 km) per ton In 1987 prices Is stioatedas follows (in £Sd): 1987/88: 110; 1990/91: 122; 1996/96: 139.

SUWAN

Railway Emergency Recovery Program

B. Estimated Operating Costs on SRC With Alternativo Traffic Forecast

Year ------- Without the Project ------ ------------- With the Prolect -----------------

Cost Coat 1I Frelght TakenFrelght Per Ton (OSd) Total Cost Freight Per Ton (C d) from Road(tons) (tSd mIII on) (tons) -(tons) 2/

1906/87 690,300 167 116.2 690,133 16719e/68 603,003 178 106.8 613,33e 178 -1366/39 0o,0oo 226 114.0 613,03f 134 --

1909/90 41,00 284 9S.6 1,130,000 115a 63,3001990/91 40,0010 234 93.0 1,200,930 104 813,3001991/92 400,000 284 93.6 1,213,030 104 eo,0o1992/93 400,000 284 93.6 1,200,000 104 813,361993/94 400,313 2S4 93.0 1,213,6ff 104 636,3001994/96 460,000 234 98.6 1,200,313 104 86o,0301995/90 400,000 284 98.6 1,200,600 104 861,30O

3/ Average haul 900 km; distribution of costs In 1987 prices per ton (in £Sd) Is as follows:196J/87 - personnel 119, fuel 17, materials 81;1989/90 - personnel 88, fuel 19, materials 32;1990/91 - personnel 61, fuel 16, materials 28.

V/ Transport cost on road (average haul 1,20e km) per ton is estimated as follows (in £Sd):1987/88: 110; 1990/91: 122; 1996/96: 139.

- 61 -

Table 5.2

SUDAN

Railway Emerseney Recovery Program

Economic Wvaluation -- Bsee Case 1/

(in £Sd millon)

8Bnofits 2/-- - - - - - -- -- …-- - -- - - - - -- - - - - - -

Year Investment SRC Additional Retained Gained SRC Branch Total 8enefitaCost Costs V/ Traffic Traffic Lines

1988/89 94.0 - 6 2 4/ - - 6.21989/90 118.0 9.S 49.8 - 24.2 74.61990/91 142.0 16.5 39.1 19.7 26.4 86.21991/92 120.6 20.4 41.1 40.8 27.6 109.41992/93 -- 20.4 41.1 45.9 28.6 115.61993/94 -- 20.4 41.1 49.0 29.7 119.81994/96 -- 20.4 41.1 53.1 30.9 125.11995/96 -- 20.4 41.1 56.6 32.1 129.0

ERR = 12M3MERR = 6. 6 (Bonefits: - 16)ERR = 7.1X (Costs :. 1J3

J/ Bas*d on shadow pricing with exchange rate of USS1.00 = £Sd 6.0; net of taxes In1987 prices; the cost of labor was shadow priced by factor 6.7.As the availabl, data are in S. pounds to bring foreign cost componentsto border prices, factors 1.33 or 2.40 were applied.

V/ Road transport costs ar- calculated to be about 86X foreign and 20X localorigin, SRC foreign costs are estimated to be on the rise dueto anticipated reduction of staff costs; it is estimated at 29%in 1908/89; 37X In 1989/90, 42X In 1990/91 and 46X in 1991/92.

/ In *door-to-doors comparison SRC has additional costs of about £Sd 20/ton(shadow-priced for short haul transport in Khartoum and additionalloading of freight).

J/ eonofits accruing In FY89 last quarter only.

- 62 -

Table 5.3

SWAN

Railway Emrs ey Recovery Program

Economic Evaluation -- Snenitivity Analysis 3J

(in tSd million)

Yoar Invostment SRC Additiornal Retalned Retaken Road SRC Branch Total nf itsCost Cota !/ Traffic Traffic Lines

1963/89 72.1 - 4 . 1/ - - -1969/9D 9860 7.5 44.4 - 18.9 68.31996/91 166.0 12.8 84.6 5.7 19.3 6o.11991/92 90.8 15.8 36.2 28.6 26.8 96.51992/9S -- 1.t8 86.2 26.5 21.9 34.61998/94 -- 16.8 86.2 29.6 28.6 88.61994/96 -- 6. 86.2 82.6 24.2 93801995/96 15.8 86.2 86.7 26.8 97.2

ERR a 11.71ERR a 6.6X (enef Ito: - 16)

i/ Exchange rate of USS1.6 a £Sd 4.5; not of taxes In 1987 pricee;traffic forecast as presnted in Table 6.1A.

V Unit savings from pass nger transport are assessed to be marginal and wore notincluded In the calculatlon of ERR.

!/ In *door-to-doors comparlson SRC has additional costs of about £Sd 15.60/ton(for short haul transport In Khartoum end additional loading of freight);applies to estimated 566,666 - 1,626,666 tons/year traffic retaken fromroad.

_/ BBenfits accruing In FY89 last quarterly only.

SMANRAILWAYS EMERUiflECIWERY PROKMU

Sudan Railways CorporationComparative Statement of Profit and Loss

(£Sd Million)

Yoer Ended Jun. 30 1980 1961 1982 1968 1984 198C 1966 197~.L,dItcd--- - - -- Un-aMted---et l-cRovenue:-Fright 41.01 42.6 68.065 45.09 58.17 70.60 119.45 *6.90Passengers 10.14 9.62 18.19 17.88 17.00 18.60 26.88 26.SOMiscellaneous 1.89 2.98 2.97 8.15 2.73 8.14 5.48 7.93Compensation l.ow 18.70 17.21 8.38 6. - -

Total Revenue 63.0J 66.25 87.01 8S.78 81.28 102.14 16s.2f 115.18

Working Exgqnses:Salaries 87.24 44.69 47.64 60.91 60.61 58.11 168.17 121.98Stores 7.22 7.98 6.88 11.26 18.54 12.90 19.21 19."6 wFuel 5.52 5.65 .609 9.18 6." 7.89 12.48 14.76Misce llan ous 2.73 _ 2.10 4.68 6.64 5.45 2.LS S." 19.6

Total Working Expens 62.71 60.27 67.29 77.34 82.20 .8.76 141.48 176.89

Operatinc Surplus 6.82 (4.02) 19.72 6.44 (6.92) 21.J8 8.63 (66.21)

Provision for Depreciation 4.17 4.. 4 5.71 6.84 8.96 6.06 0.74 16.87

Net Operating Revonue (8.86) (8.06) 14.01 (9.49) (7.87) 14.78 9.n0 (7 -6.)Interost Charge 6.68 11.14 12.45 16.49 16.99 12.67 28.90 22.47

Net Income (Loss) (9.631 (19.20) 1.56 e 16.l99 (24.80) 2.16 (2J.01) (93.0!1

Tonne/Ko 1.97 1.59 1.58 1.19 0.84 0.78 0.68 6.68Tonnes 2.12 1.72 1.64 1.82 0.90 6.64 6.75 o.68Wagon Turnaround (days) 24.0 22.3 21.9 27.2 86.1 38.1 48.6 62.0 0"Number of Staff 35,671 86,487 86,611 38,456 88,721 34,722 82,126 31,068Passengers (million) 2.83 2.04 2.68 2.21 2.58 2.26 2.02 1.02Passenger Ka 1.90 1.17 1.16 1.08 0.97 0.84 0.76 0.86

SUDANRAILWAYS ENERENY-kECovE3ty PROCRAm

Sudan Railways CorporationComparative Balance Sheets

(fSd million)

Year Ended June ao 1981 1982 1983 1984 1986 J 1986 1937-----------Audited---------- =--Unaudjtd-----id Eutimated

AssetsCurrent Assets:Cash 0.26 9.71 3.82 2.02 1.23 9.13 1.38

Receivable 47.79 80.41 83.41 81.34 121.97 146.02 106.08

Inventories 66.77 76.33 73.47 91.91 88.18 186.96 80."6

Total Current Assets 103.82 148.45 180.70 176.27 209.38 255.11 186.38

Fixed Assets at Cost 128.27 142.27 162.16 179.26 228.86 262.78 340.80

Accumulated Depreciation 49.22 63.25 69.eo 56.36 74.43 81.74 92.11

Net in Use 79.06 89.02 102.56 112.89 164.42 181.02 247.89

Work in Progress 20.08 66.70 65.98 77.43 98.92 79.61 46.47

Total Fixed Assets 99.13 145.72 168.64 190.32 253.34 286.68 294.36

Total Assets 202.95 292.17 329.24 386.69 462.72 616.74 480.74

Liabilities and EqultCurrnt Liabilities:Creditors 79.74 112.33 133.21 164.92 194.00 200.84 231.99

Bank Overdraft 44.86 44.85 44.86 66.90 66.80 66.09 80.89

Long Term Debit-Current 1.68 1.83 7.28 7.15 7.32 6.86 6.76

Total Current Liabilities 126.17 159.01 186.32 218.97 267.12 273.58 319.63

Long Term Debt - Net 37.76 75.05 78.41 88.60 101.10 94.46 92.83

Equity:Capital 11.38 11.36 11.36 11.36 11.36 11.36 11.38

General Reserve 68.48 81.79 96.70 113.11 133.03 165.48 168.27

Grants 16.48 22.44 33.73 41.58 70.74 86.18 93.68

Deficit (57.28) (57.48) (76.28) (107.93) (120.63) (105.31) (206.03)

Total Equity 39.02 68.11 66.61 68.12 94.60 147.71 68.26

Total Liabilities and Equity 202.96 292.17 329.24 366.69 462.72 615.74 480.74

L/ As of September 1986

- 65 -

Table 6.3

SUDNRAILWAYS ENKRGENCY RECOVERY PROGRAM

Sudan Railways CorporationTraffic Forecast

(Tons '000)

1987 1988 1989 1990 1991Actual Estimate ---- Forecast --------

Exports:

Nuts 26.22 28.84 31.72 34.89 38.38Dura 41.84 46.02 50.62 55.68 61.25Oil Cake 5.98 6.58 7.24 7.96 8.76Other 39.67 20.90 39.67 39.67 39.67

113.71 102.34 129.25 138.20 148.06

imports:

Fuel 156.85 141.17 189.28 283.92 331.24Wheat, Flour 131.61 118.45 162.24 243.36 283.92Fertilizer 13.52 12.17 20.00 30.00 50.00Iron - - 10.00 20.00 50.00Other 96.95 87.25 87.25 87.25 87.25

398.93 359.04 468.77 664.53 802.41

Local:

Sugar 45.42 40.88 81.12 121.68 130.00Cement 59.00 59.00 59.00 59.00 59.00Other 64.99 52.59 52.59 52.59 52.59

169.41 152.47 192.71 233.27 241.59

Total 682.05 613.85 790.73 1,036.00 1,192.06

-66 -

Table 6.4

RAW&S ImINCmy llVYg PROGRAM

Sudan Railways CorporationProlected Operating Statements

(£Sd Million)

Year Ended June 30 1988 1989 1990 1991

Revenue:

Freight 78.28 98.50 127.06 146.79Passengers 18.27 25.33 25.33 25.33Miscellaneous 7.93 7.93 7.93 7.93

Total Revenues 104.48 131.76 160.32 180.05

Working Expensea:

Salaries and Wages 121.93 110.15 98.37 86.60Stores 17.64 22.14 29.18 34.24Fuel 13.30 16.69 22.01 25.82Miscellaneous 17.17 12.40 16.74 21.08

Total Working Expenses 170.04 161.38 166.30 167.47

Operating Surplus (65.56) (29.62) (5.98) 12.31

Provision for Depreciation 11.95 13.53 18.68 21.50

Net Operating Revenue (77.51) (43.15) (24.66) ( 9.19)

Interest Charges 31.86 30.58 29.27 27.96

Net Loss (109.37) (73.73) (53.93) (37.15)

Tonnage (Thousands) 614 791 1,036 1,192

Working Ratio (X) 162.7 122.5 103.7 93.0

Operating Ratio (2) 174.2 132.7 115.4 104.9

- 67 -

Table 6.5

RaZkL~mX DEROENY RECOVEY POGA

Sudan Railways CorporationPro1-cted Balance Sheets

(£Sd million)

Year Ending June 30 1988 1989 1990 1991

AssetsCurrent Assets

Receivables 72.07 24.63 31.77 36.70Inventories 38.36 126.24 135.36 108.32Total Current Assets _110.43 150.87 167.13 145.02

Fixed Assets-at Cost 363.23 386.47 489.52 546.04Accumulated Depreciation 104.06 117.59 136.27 157.77Net in Use 259.17 268.88 353.25 388.27Work in Progress 23.24 103.05 56.52 43.11

Total Fixed Assets _282.41 371.93 409.77 431.38

Deferred Charges 75.68 99.19 112.82 114.60

Total Assets 468.52 621.99 689.72 691.00

Liabilities and EauityCurrent Liabilities:

Creditors 250.97 193.63 139.56 84.23Long-Term Debt-Current 12.15 12.15 12.15 12.15

263.12 205.78 151.71 96.38

Long-Term Debt-Net 154.94 142.79 130.64 118.49

Required Bank Overdraft 139.55 137.26 149.95 160.19

Equity:Capital 11.36 11.36 11.36 11.36General Reserve 144.27 144.27 144.27 144.27Grants 93.68 230.40 284.31 319.62Gov't Equity Contributions * - 162.26 283.54 343.90Deficit (338.40) (412.13) (466.06) (503.21)Total Equity (89.09) 136.16 257.42 315.94

Total Liabilities and Equity 468.52 621.99 689.72 691.00

Current Ratio (Z) 0.42 0.78 1.36 1.84

Long-Term Debt to Equity Ratio Neg. 2.06 1.09 .88

* Includes IDA, AfDB funds and GOS working capital contribution.

- 68 -

Table 6.6

SUARAILWAYS iERUC RicovUY PROGR(

Sudan Railways CorporationProiected Cash Flow

(£Sd million)

Year Endinx June 30 FY89 FY90 FY91

Sources of Funds:

Gov't Working Capital Contribution 70.00 50.00 30.00

IDA Funds Passed onas Equity by Government 73.76 50.84 32.86

AfDB Funds Passed onas Equity by Government 38.50 20.40 5.00

Grants (ODA, EEC, KfW) 116.72 53.91 27.81

Total Sources of Funds 298.98 175.15 95.67

Uses of Funds:

Increase in Fixed Assets 89.52 37.84 18.61Debt Service-Principal 12.15 12.15 12.15

-Interest 30.58 29.27 27.96Deferred Charges 23.51 13.63 1.78Operating Losses 43.15 24.66 9.19Increase in Non-Cash

Working Capital 97.78 70.33 36.22

Total Uses of Funds 296.69 187.80 105.91

Annual Cash Deficit 2.29 (12.73) (10.24)

Opening Overdraft 139.55 137.22 149.95

Closing Overdraft 137.26 149.95 160.19

- 69 -

Table 6.7

SUDANRAUWAYS EoEcy iicovEY PROET

Sudan Railways CorporationFinancial Internal Rate of Return - Base Case

(£Sd million)

Operatinx SurplusFiscal With WithoutYear Investment Prolect Prolect Increase Net

1989 248.98 (29.62) (79.54) 49.92 (199.06)

1990 125.19 (5.98) (84.83) 78.85 (46.34)

1991 73.17 12.31 (87.63) 99.94 26.77

1992 12.31 (87.63) 99.94 99.94

1993 12.31 (87.63) 99.94 99.94

1994 12.31 (87.63) 99.94 99.94

1995 12.31 (87.63) 99.94 99.94

1996 12.31 (87.63) 99.94 99.94

447.34

Rate of Return = 18.61%

- 70 -

Table 6.8

SWARALW&YTS 8KCGUNC EcovERY PO=CT

Sudan Railways CorporationFinancial Internal Rate of Return - Sensitivity Analysis

(£Sd million)

overatint SurplusDifference Between

Fiscal Investment With and With WithoutYear Without Prol ct Project Pro1ect Increase Net

1989 226.48 (29.62) (79.54) 49.92 (199.06)

1990 102.69 (5.98) (70.04) 64.06 (61.13)

1991 50.60 12.31 (74.92) 62.61 10.56

1992 12.31 (74.92) 62.61 62.61

1993 12.31 (74.92) 62.61 62.61

1994 12.31 (74.92) 62.61 62.61

1995 12.31 (74.92) 62.61 62.61

1996 12.31 (74.92) 62.61 62.61

Rate of Return - 9.35X

---- ------ 2- ---- ----- ----

-------------------------t--- --- --

, it Ia a0 6 o

. . , . . . . . . . . . . . .I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ I

a a~~~~~~~~~~~~~~~~~~~~~~~~~~~~a

Y, Ii .

! " | 8 W BS .. WSo fbo U U 8 ~ L S& ~!U!

- -- -- - -- --- --- --- --- --- --- -----------------------------------.----w

----------------------------------------- 1

6 b9 o o o _o

_ ________________________________________

I I~I-

IS; 0 o e. .Z.j o

6~~~~~~~~ ~~~~~~ - 9 TI

_ IL -,

- 72 -ANNEX IPege 1 of 3

SRC - LOCOMOTIVE AND ROLLING STOCK. OCTOBER 1987

A. Locomotivesin in in Avail-

Workshops 1/ Depot Ser- Avail- abilityClass Make HP Year Total R AS AS vice able__ _

Al. Heavy Main Line Diesels

1000 EngElectric 1850 1960-69 47 2 19 8 18 13 286/1800 GE 2325 1981 19 - 11 - 8 6 311850 GE(Brasil) 2425 1984 10 - - - 10 9 90(AID)1900 GM(Henschel) 2550 1975 20 - 20 - - - -1950 GM 2250 1981 10 - 10 - - - -

A2. Light Main Line Diesels

1600 GM(Henschel) 1650 1982 10 - 7 1 2 2 201700 GE 1825 1975 10 - 3 - 7 7 101710 GE 1825 1976 10 2 8 - - - -(LMMC)

Total Main Line Diesels 1362/ 4 78 9 45 373/ 27

A3. Branch Line (Damazine) Steam 8 - - 2 6 6 80

A4. Shuntint Locomotives

600 KSK(Japan) 525 1960 23 10 6 - 7 6 26460 Henschel 500 1962-64 20 15 4 - 1 1 5700 Henschel 540 1975-76 20 10 6 - 4 3 30

Total Shunters 63 35 16 - 12 103/ 16

/ R- require repair or rehabilitation; AS - awaiting spares; in service - inworking order for daily service; available - actually available for traffic.duties after allowing for locomotives requiring depot maintenance.

2I Class 1500 Hitachis (1400 HP): the 17 numbers, acquired in 1969 and notincluded in the total, have been grounded since 1971-72 owing to defectivedesign (engine, bogies, traction motors) which makers were unable torectify.

3/ Owing to the grave shortage of shunting locomotives, of the 37 availablemain line locomotives, 3-4 on an average are employed daily exclusively onshunting duties at Port Sudan, Khartoum and Atbara.

- 73 -ANNEX IPage 2 of 3

AS. Deployment Sectionwise and Averate Daily Availabillty

Section Class Class Class Total 4/

1800 1850 - NumbersDiesel Steam

Port Sudan-Atbara 5 9 - 14 5/ -

Khartoum 1000

Port Sudan-Kassala 2 - - 2 -

Se-nar

Khartoum-Kosti 7 - - 7 -

SteamKosti-El Obeid-Babanousa 4 - 1 4 1

1700 SteamBabanousa-Nyala-Wau 6 - 2 6 2

SteamSennar-Damazine _ - 3 - 3

1600 1700 1800

Atbara-Halfa-Karima 2 1 1 4 -

Total 37 6Heavy Main Line 28 -Light Main Line 9 6

A6. Deployment of Available Diesel Locomotives by Services

Passenger Services (7 trains/week equivalent to X train/daywith 8-day turnaround plus 5 diesel-hauled locals/week 1 day turnarous.t.Also 2 steam-hauled locals/week) v 9

Departmental Service (3 trains, 1 quarry, 1 Babanousamaintenance, 1 Sannar Demazinemaintenance (steam) - 2

Freight Services - 26-34_ ______________________________ 37-454/ Total includes all services.

5/ 1.5/1.7 freight trains per day (0.8 furnace oil, 0.7 wheat, 0.2 mixed+ Loco Haiya Summit make-up) out of a total 2.5-3 freight trains daily(average) on the SRC system.

6/ Ten oldest locomotives recently reconditioned under an EEC funded program.

- 74 -

ANNUX IPage 3 of 3

B. watone

TWDe-a ftsibers Capacity (tons)

Opens 15-27 tons 110 2,81130-35 tons 893 27,625

Covered 1S-27t 321 6,283

30-40t 3457 108,398Flata 184 6,593Tank fuel oil 471 7/ 14,769

gasoline 216 7/ 6,917other 59 71 2,167

Livestock 468 13,103

Hoppers 35 ton 49 1,715

Miscellaneous (brake vans/stone, ate) 561 1.0006215 - 6784 191,331

Departmental stock 342Miscellaneous stock for other uses 199Net traffic use stock 5674Under repair in workshops/depots 2204Net available stock in use 3474 8/Availability 60S

C. Coaches

First class 37Second class 55Mixed 14Third class 278Other stock (inc. ) 37

421Under repair workshops 331Not available stock in use 90 9/Availability 22Z

7/ 130 tank wagons involved in accidents are yet to be repaired. About 240 are

in workshops/depots under repair. Tank wagon availability is thus 50

percent inclusive of the accident wagons or an overall 68 percent without

them. Tonnage capacity of the stock in use at present is estimated atGasoline (5000); Benzine (2400); Furnace oil (6600). This yields an annualhaulage capacity of 135,000 and 270,000 tons on 20 and 10-day turnaroundsrespectively (90 percent availability).

8/ 17 percent of the stock or nearly 1000 wagons are over 57 years old.

Included in these are about 200 four-wheelers. Another 10 percent of the

stock or around 600 wagons are over 37 years old.

91 Coaching stock is mostly wooden bodied and the high under repair figure is

due to lack of funds for renovation timber purchases.

SUDAN RAILWAYS CORPORATIONORGANIZATION CHART

IMINISTM OF TRANSPrT A COZNSCATINS|

MTERNAL W SAUDIT . ,. roe ,IALI OI

I KShartoum

AM.,rS .UtD0AL DEPUTY .TtAL FIA .£A D@ TEDISUATIO A OP>TIONAL GNRL OA

2. DlSE I RCHn hw un the p

.. M Is I& I .. .mu I 1 lmw so

r' I I 1,_

Administration) report at present to DON (TAO) at Atbara, except the DirectorAccounts who reports directly to the eoneral Manager. M y

3. Regional Managers shown under the proposed DGM (Region) roport at presentdirectly to the General Managor.

- 76 -ANNEX IIIPage 1 of 4

SUDAN

RAILWAYS EMERGENCY RECOVERY PROGRAM

Technical AssistanceSummarized Obiectives

Staff-Type of Assistance months Obiectives

1. Corporate Management

a) General Manager 42 To manage SRC's Recovery Program.

b) Adviser to Deputy GeneralManager (Technical/ 36 Establish more effective managementOperational at Atbara and of operations and transportSenior Program Coordinator. services, arrest SRC financial

deterioration, help it become morecommercially oriented and achieve aturnaround.

2. Traffic Department

a) Deputy Marketing Manager, 36 To initiate and develop a marketingKhartoum (line position function within SRC.with counterpart)

b) Senior Marketing Officer, 24 To market SRC services, enhancePort Sudan (line position) market share, promote block train

sales, streamline operation in PortSudan area.

c) Operating Specialist, 36 To assist in organizing trainAtbara (Advisor to Chief movements, motive power deployment,Traffic Manager) reduce turnaround and utilization

of stock.

3. Civil Engineering

a) Deputy Chief Civil gngineer 36 To assist the Chief Civil Engineer(line position) in organizing and managing the

Department, improve efficiency,staff competency.

b) Deputy Manager Bridges and 24 To organize bridge inspections,Building (line position stress analysis, determine and costwith counterpart) solutions for strengthening/

restoring weak structures, specifyexecution means.

-77-ANNEX IIIPage 2 of 4

Staff-Type of Assistance months Obiectives

c) Deputy Manager Truck (line 30 To improve track maintenanceposition with counterpart) procedures, productivity, devise

methods for overcoming laborshortages.

4. Mechanical Department

a) Locomotive Running 36 To improve locomotive availability,Superintendent, Atbara reliability through improved(line position) practices, performance monitoring,

depot layout and facilities.

b) Asst. Works Manager 24 To improve productivity, output,(Carriage and Wagon), budgetary and cost control ofKhartoum (line position) workshop operations.

c) Diesel Locomotive Engineer 30 To improve, repair/overhaul(Mechanical), Atbara (line systems, workshop layout,position) productivity and performance

monitoring and develop "in-houserepair capabilities.

d) Diesel Locomotive Engineer 30 To improve repair/overhaul of(Electrical), Atbara (line electric gear, developposition) specifications, layout for a

traction motor repair facility.

e) Plant Maintenance Engineer, 33 To improve plant and equipmentAtbara (line position) availability, develop millwright

section, improve productivity.

5. Sianal and Telecommunications

a) Deputy Chief S & T, Atbara 24 To restore/improve signalling and(line position) telecommunication services,

evaluate needs, identify staffskill deficiencies and arrangetraining.

b) Workshop Engineer, Atbara 30 To improve workshop productivity/(line position) skills/repair capabilities and

develop local manufacture.

c) Telecommunication Engineer, 36 To provide detail engineeringAtbara (line position) knowhow for updating systems,

specifications, applications andmaintenance systems.

- 78 -ANNEX IIIPage 3 of 4

Staff-TVDe of Assistance months Oblectives

6. Stores Department

a) Deputy Controller of 36 Recover and transfer stores dataStores, Atbara (advisor to from magnetic tape to mini-COS) computer. To improve organization/

performance, eliminate outdatedstocks, ensure better coordinationwith accounting and technicaldepartments.

b) Stock Manager, Atbara (line 36 To reorganize/develop detailposition) procedures for stock control/

review, reduce inventories, improvestocking and stores distributionsystems,

7. Finance Department

a) Information Technologist, 30 To organize effective managementAtbara (Advisor) information systems, to augment

manual MIS procedures with minicomputer usage for data analysis/interpretation.

b) Management Accounting 36 Advise the Deputy General ManagerAdvisor, Khartoum (Finance and Administration) on

setting up of management accountinginformation/evaluation systems andfamiliarize general anddepartmental managers with theirusage for budgetary control andperformance measurement.

c) Traffic Costing Advisor, 36 Review and develop traffic costingAtbara methods and procedures, train staff

in techniques, assist in preparinganalyses for tariff fixing anddetermining compensation levels forunremunerative services imposed byGovernment.

- 79 -ANNEX IIIPage 4 of 4

Staff- ObiectivesTYpe of Assistance months

8. Trainins Directorate

a) Chief Training Manager, 36 To provide modern training andAtbara (Advisor) career planning services.

b) Management Training 36 To establish management trainingSpecialist, Atbara and develop within SRC, appraisal(Advisor) methods and identification of

succession needs.

c) Technical Training 30 To provide full range of technicalSpecialist, Atbara (line training services, adjustment toposition) changes in requirements and

functions. Train instructors/staffin use of modern teaching aids/instructional equipment.

d) Curriculum Development 36 To develop appropriate curriculaSpecialist, Atbara (short for the supervisory and highlyterm for 6 months each) skilled cadres.

9. Personnel Devartment

a) Establishment Review and 36 To advise and assist the PersonnelManpower Planning Directorate on staff reduction/Specialist, Atbara redeployment programs implemented(Advisor) through the Staff Rationalization

Fund. Develop manpower planningsystems.

- 80 -

ANNEX IVPage 1 of 3

SUDAN

RAILWAYS EMERGENCY RECOVERY PROGRAM

Staff Rationalization Fund (SRF)

1. The objective of the Public Enterprises Rationalization Fundthrough which the Staff Rationalization Fund is to be administered, is toprovide finance for four types of surplus labor retrenchment programs: (i)redundancy payments; (ii) manpower rehabilitation (training); (iii) creditfor equity purchase by employees; and (iv) credit for starting new self-employment businesses.

2. The Fund will be administered by the Central Bureau for PublicEnterprises (CPBE), Ministry of Finance and Economic Planning. Themanagement costs for the next three years are summarized in Table I. Thespecific programs will be the direct responsibility of the Board ofDirectors/Managers of the public enterprises, the relevant Governmentagencies (Labor Ministry, Civil Service Chamber, etc.), labor unions andparticipating international donor agencies. The CPBE functions will belimited to (i) establishing overall policy guidelines; (ii) administeringdisbursements and internal audit of the Fund itself; (iii) monitoring thefinancial and non-financial performance of those directly responsible forthe implementation of the fund-financed programs; (iv) participation innegotiations with donors regarding funding arrangements. The reformpackages, negotiated by the respective organizations within the context ofSudan's legal framework, will be certified by CPBE as eligible forfinancing by the Fund provided that each package fits within its generalguidelines.

3. The redundancy payment programs (early retirement/departure) willbe the primary beneficiary (about 702) of the Fund's expenditures. Atpresent, early retirement schemes for classified staff on completion of 25years of service or at age 50 (against a pensionable 60) are not attractiveenough and extra cautiously-tested incentives would be required for asizeable response. The appropriate vehicle for channeling this would bethe General Pension Fund of the public sector, to which payments could bemade in lump sum amounts specifically for pension payments over an extendedperiod of time to program beneficiaries. For unclassified staff currentlaws stipulate a departure gratuity related to length of service with aceiling of 30 months salary. As neither this nor the early retirementprovisions (classified staff) offer a substantial solution, extraincentives would have to be cautiously test devised to encourage voluntarydeparture as a preferred solution. Packages can include cash payments andother benefits and the Fund would then finance the lump sum redundancypayments.

- 81 -ANNEX IVPage 2 of 3

4. The Fund'. balance share of 30 porcent would be distributed in allother programs as follows:

(a) Manpower Rehabilitation. The funding would finance a limited caseby case retraining of employees redeployed to otherparastatals/Government agencies or seeking private sectoremployment;

(b) Employee Purchase of Equity Shares. There being no share market,sale of parastatal equity may be a step in that direction. Wherefeasibility has been established of a workable market mechanismfor share trading, safeguards and limitation of Governmentunderwriting of individual risks, the Fund can consider providingcredit for individual share purchase by employees;

(c) The Fund may finance or guarantee credit for investment byselected number of redundant employees in small private sectorbusinesses.

- 82 -

Page 3 of 3

Table I

CBPF Budiet (3 Years)

Rzoenditure3-year

Capital Operations---------SDL--------

A. Salaries and Allowances1 Asst. Director, 3 Financial Officers,1 typist, 1 clerk, 1 messenger - 180,000

B. Redundancy Packaze

Technical Assistance in Pension Sch emeand Labor Buyouts, Detailed FeasibilityStudies for SRC operating departmentscapable in standing alone and assistancein developing and reviewing othermeasures for reducing staff In SRC andother public enterprises - 1,100,000

C. O-eratint Expenses

Fuel, stationery, maintenance - 600,000

D. Equipment and Vehicles1 vehicle, 1 motorcycle,2 typewriters, 4 calculators, furnlture 350,000

E. Overseas Training

4 short courses 100,000

F. Miscellaneos 155.000

Total 605.000 1.980.000

Grand Total 2,585,000I s _ _

Of which foreign exchange 100,000 or US$23,000

- 83 -ANNEX VPage 1 of 2

SUDAN

RAILWAYS EMERGENCY RECOVERY PROGRAM

Trainins

1. With minor exceptions, enough skills already exist to achieve thetraffic projected during the Emergency Recovery Program and beyond. Thusno training of new recruits and apprentices is called for in this period.The main objective of training function would thus be to develop andmaintain the quality and quantity of skills to ensure that, as staffreductions occur, there is a sufficient number of adequately trainedreplacements. This can be achieved through refresher and promotioncourses. Moreover, training standards have declined as no effectivecontrol has been maintained through trade testing. The second objective ofthe training function would be to assist the Manpower Strategy Committee inidentifying and selecting the core group of workers to run SRC in thefuture. Finally, there is vital need to establish management andsupervisoryl training which is non-existent today, so as to bring in moremodern railway practices and instil new management concepts, attitudes andmethods in organizing and developing the business of the enterprise.

2. SRC's training functions suffer from the following key weaknesses:

- inadequate means for identifying training needs- bad organization- poor quality of instructors- declining output

poor use of existing resources

As an example of the last, large volumes of equipment (worth US$800,000)provided under an ILO package have been lying unused for 4-5 years. Workon the Vocational Training Center at Atbara, financed by the Bank (4thRailway Project), which comprises workshops, offices, accomodation and arailway track layout for traffic training has not been completed. Inparticular, the railway training layout is not linked to the main line, theaccomodation block requires further structural work and furniture forcompletion and the workshop, though ready, is rarely used.

1/ There is no direct recruitment in supervisory cadres, which are mannedby promoted senior skilled workers, particularly in the mechanicaldepartment, without any promotion training or testing.

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ANNEX VPage 2 of 2

3. The key programs required during the Emergency Recovery Periodare:

- Managemnt and Supervision Training- Drivers Refresher and Trouble Shooting Courses- Artisan Refresher Courses- Track Staff Refresher Courses- Accounts and Stores Staff Refresher Courses- Training for Trainers

The SRC lack staff experienced in the use and operation of modern trainingaids, hence much of the equipment supplied under the ILO program and theWorld Bank's Fourth Railway Project has not been properly verified andremains unused. For the above key programs some supplementary equipmentwill be required, including more mobile training units. For this, aprovision of US$0.5 million has been made in the RERP, along with anotherUS$1.5 million (70 percent local expenditure) for completion of the civilworks referred to in para. 2 above.

4. Overseas training of 350 man-months has been provided for thetraining of instructor-trainers and external training of managementpersonnel, Civil and Telecommunication Engineering and Manpower Planning.

5. A new training department is required to be set up and integratedinto SRC's management structure, reporting directly to the Deputy GeneralManager (Finance and Administration). A 138 staff-month package oftechnical assistance to assist SRC in carrying out the reorganization,revitalizing the training function, and forging it into an effective toolof management has been allowed for, the detail composition and objectivesof which have been described in Annex III.

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Annex VIPage 1 of 2

SNW1st i at-d Locomotive Proiect Reulirements

End Year

1. In 1991, the last year of the Project, the targetted freight liftis at least 1.2 million tonnes, the average lead remaining the same as atpresent (900 kms). Allowing for a modest level of improved passengerservices, which will have to be provided owing to paucity or absence ofalternate means of transport, particularly in the western and northernregions, as well as to refurbish the image of the railways recovery as anational carrier, the motive power requirements ares

a) Main Line Nos. in Use

Passenger Services (14 trains/week, equivalentto 2 trains/day on network withan average 6 day loco turnround) 14

Engineering Trains (5 trains: 1 quarry, 1 Khartoumresleepping 1 Western Regiontrackwork, 2 Babanoussa maint-enance, 1 Port Sudan-Khartoummaintenance) 5

Freight Services (see calculation below) Train haul 53Haiya Summit Formation & Banking 3Relief Engine Reserve (main line) 2

Total in traffic use 77Total on line in working order at 67% availibility 115Of which heavy main line 66

light main line 49

(Note: if the locomotive utilization and failure kilometragefigures targeted are bettered, the marginally additionallocomotives can be deployed to operate an extra passengertrain.)

b) Shunters

With block train working the requirement for shunters at PortSudan and Khartoum, particularly in the heavy bulk haul ofpetroleum products, wheat and fertilizer, should reduce graduallyprovided that (a) the local depot running maintenance of shuntersis tightened up, (b) the loading/unloading sidings are lengthenedadequately to take full train loads, (c) departure/arrival trainexamination is organized round-the-clock in these lengthened

- 86 -

Annex VIPage 2 of 2

sidings. Assuming *chievement of 4 block trains per week, therequirement of shunters in use will be 25, doployed as under andequivalent to a fleet of 43 units at 65 average availibility.

- Khartoum (Central) 9: Port Sudan 6: Atbara 4: one each atSennar, Kosti, Rahat, Rubayat, Babanoussa and Haiya.

2. Calculation of Freight Locomotive (Main line) requirement forhaulage of 1.2 million tonnes, import/export and local traffic in theapproximate ratio of 70:10:20 per cent respectively in 1991. Thecorresponding ratios for 1987 (actuals) were 58:17:25 per cent for 0.68million tonnes carried.

Nos ofTrains Loco Turnaroundper day Days per train Nos of Locos Rqd

Section targetted Actual Timetable Actual Timetable

Port Sudan-Khartoum 5 4.58 3.20 23.00 16.00Khartoum-Kosti 3 2.96 2.00 8.90 6.00Kosti-Babanoussa 3 3.25 1.95 9.75 6.50Babanoussa-Nyala 4.5 3.70 2.50 16.70 11.25Atbara-Karims 2.0 0.45 0.30 0.90 0.60Atbara-Wadi Haifa 2.0/week 3.15 2.10 0.90 0.60

Total Nos. of Locomotives 60.15 40.95

Percentage excess of actual over timetable standard 48%Percentage excess over timetable standard assumedin 1991 with improved performance with Project 30%Nos of Locomotives required In traffic use 53 Nos.

- 87 -

Page 1 of 3

SDAN RAILWAYS CORPORATION

Performance Ternets

Loco. 1987188 1988/89 1989/90 1990/91No 5. (Estimat-d)

------- 2 ---------

1. Locootive Availability

Main Line H-evy - Class 1000 47 28 32 50 57

1800/1850 29 48 52 65 75

1900 20 0 15 30 75

(1950) (10) (0) (not programmed foroverhaul in ERP)

Light - Class 1500 10 20 30 50 75

1700/1710 20 35 40 50 70

Overall 126 29 35 50 67(136)

Shunting - Cia.s 600 23 30 40 50 65

700 20 25 40 50 65(460) (20) (5) (not programed for

overhaul in ERP)

2. Locootive Reliability 1000 6,500 7,000 8,000 10,000(km failure per loco-motive available) 1800/1850 15,000 16,000 17,000 20,000

1900 - - 12,000 14,000

1600 15,000 1600 17,000 20,000

1700/1710 10,000 11,000 12,000 20,000

Overall 10,900 11,200 12,400 17,000(*crude estimates)

AIflIX VIIPage 2 of 3

Loco. 198788 1988/89 1989/90 1990/91Nos. (Estimated)

3. Locomotive Utilisation

Heavy 60,000 50,000 55,000 70,000

Light (km per annum porlocomotive available) 50,000 51,000 55,000 55,000

Overall 57,000 58,000 63,000 65,000

4. Wagon Availability (1)

Overall 60 63 70 80

Tank wagons (Unknown) 70 75 90(Estimated 50)

5. Wagon Turnaround (days)

Overall 48.5 45 40 25

Port Sudan - Khartoum Tank wagons (Unktown) 20 15 10(Estimated 25)

6. Average load/loaded wagon 25 25 25 26

7. Freight trainsPort Sudan - Khartoum (stn. to stn.)

a. Average running time (hrs.) 48.5 46 44 39

b. Block Trains per week - 4 6 7

8. DerailmentsPort Sudan - Khartoum (Nos.) main line 28 24 20 10

stn/yd lines 177 140 100 75

Overall (main line) no/million train km 33 28 20 15

9. Signal and Telecomunications

Port Sudan - Khartoum

Signal lights in order (2) 1 80 90 100

Signal failures per month 28 15 10 5

- 89 -

ANNEX VIIPage 3 of 3

Loco. 1987/88 198889 1989/90 1990/91Non. (Estimated)

-------------------------------

Train control/Block failures per month 3 3 2 1

Open wire (PET) line failures per month 30 26 15 7

Radio failures per annum 11 8 3 3

10. Stores

Z reduction of redundant material 25% 50% 100%

11. Operations

Tonnage '000''s 614 790 1000 1200

Working ratio 162 126 104 91

Operating ratio 174 135 113 102

Number of Employees 32,750 30,320 27,320 23,750

- 90 -

ANNEX VIIPage 1 of 2

SUDAN RAILWAYS CORPORATION

STAr RATIONULIZATION PLAN

IHPLDKRNTATION SCHIDUIX

In the context of the commitment by SRC and the Government ofSudan to reduce SRC staff levels by 9000 and to cut labor costs during theProject Period, a schedule of measures has been agreed. For purposes ofmonitoring, SRC agrees to provide, by August 1, 1988, confirmation of thetotal numbers of staff employed by the Sudan Railway Corporation at 1987/88year end.

A) STAFF REDUCTION PROGRAM

1. Hiring Policy and Natural Attrition. To help achieve targettedstaff reductions, SRC agrees to continue the current hiring policies whichrestrict recruitment to replacement of essential staff.

2. Optional Retirement. In addition to normal retirement, SRC, withassistance from the Government of Sudan, will design and implement, aprogram of optional early retirement, based on financial inducements,according to the following timetable.

a. Contract for a team of local and internationalconsultants to finalize scheme design and implementation schedule to beawarded by April 1, 1988. Terms of reference will require program toachieve minimum reductions of staff of 2000 before July 1, 1989 and aminimum of 6300 by December 31, 1991.

b. Scheme design and implementation schedule to be agreed toby SRC and GOS in consultation with donors by September 30, 1988.

c. Government endorsement of TOR and operating proceduresfor the Central Bureau of Public Enterprise's Staff Rationalization Fund byJuly 1, 1988. Staff for fund to be in place by October 1, 1988.

d. Government to secure financing for first year of agreedSRC optional retirement program by October 31, 1988.

e. Program implementation to commence November 1, 1988.

3. Divestiture and Redeployment

SRC will investigate and exploit, with assistance from GOS anddonors, opportunities for divestiture of parts of SRC as independent, self-sustaining entities, according to the following timetable:

a. Contract for a team of local and internationalconsultants to assess prospects for divestiture and identify implementationschedule, to be awarded by April 1, 1988. This study will reviewscarpentry shop, foundry, oxy-acetylene plant, pre-cast concrete plant.

- 91 - ANNEX VIIIPage 2 of 2

Simultaneously, it is anticipated that the EC and KEW will financefeasibility studies for the divestiture of civil engineering contractingand the brick factory, respectively.

b. By September 30, 1988 SRC and GOS to agree, inconstiltation with the donors, a program to implement the recommendations ofthe divestiture studies.

c. Subject to viability, divestiture of a minimum of fourfunc,ions to independent self-sustaining enterprises to be completed byJuly 1, 1990.

(B) IMPACT SUMMARY

Annual manpower reduction targets for each of these programs willbe set and reviewed in the context of the overall objective of reducingstaff by about 9,000 over the project period and the results of the furtheranalysis that will be comuissioned. The reduction targets that have beenagreed on the basis of the information now available are:

1. Hiring Policy and Natural Attrition

FY1988189s 430FY1989/90: 380FY1990/91: 670FIRST HALF FY 1991/92: 650TOTAL: 2130

2. Optional Early Retirement

FY1988189: 2000July 1, 1988 to December 31, 1991: 6300

3. Divestiture and Redeployment

July 1, 1988 to June 30, 1990: 600

(C) ADDITIONAL COST REDUCTION MEASURES

In addition to the impact on costs of reducing numbers of staffSRC will commit itself to the following measures to provide furtherfinancial savings:

a. Police Cost Sharing --- SRC to explore with the Ministry ofInterior a program for sharing the cost of policing SRC's properties.

b. Fire Brigade --- SRC to explore with relevant authoritiesprograms for sharing the cost of providing fire protection tomunicipalities.

c. Overtime --- SRC to reduce overtime payments during the periodof the project according to a timetable to be agreed upon by 30 September1988.

- 92 -

AIEX ixI'g 1 o

ROJECT SOCULE

Fro-pr.191#7 1966 son 199 1991

A. S rr. *cIVoql Carriaeso

EiCute .work plan

Sinal and T l eozInv r e II|4//rPtX* If cati ons__

Inite bids/order

Overhaul Progr _____

2e Loeo Re hilitation A Overhaul

settle *xoeut10n means . _ Execute work pln_

C. Teehnickl AssstanceInvite bids/ wrd eontrr ct_Staffing *quenco

1. Corprat Hqi) Advior to DYCM

2. Tee le DoprtDa nt*) Op rt Sp c1^11ct____________b) Deputy Marketing Managerc) Senior Marketing Officer

a) Deputy Chef CEb) Deputy Manager Bridge A B_c) Deputy Manager Track

4. anclEncineerinaa-) Aest. -Loeo Running Supdt.____________b) Aset. Work. Manager

01 ieel Engineer (Mach.)O DleeI Engineer (Elect.)

*) Plant Mationenace EngineerS. Sisnal Tolecommunications

C) Telecoo. Engineor

Y~pty Controller of storesStock Manager

7. Financeu) Information Technologist _ Ib) Management Accounting Advisorc) Traffic Costing Advisor

S. Tr ini"n n_ra_ ___techef Training Manager

b) Mangement Training Specialistc) Tech. Training Specialistd) Curriculum D*v. Short-Tero Expert.

9. Porwonnol D part ntMa nowearblRis" Plpn/Manpower Review Export___________

- 93 -

Page 1 of 3

SUDAN RAILWAYS aEER C RCVEY PROG

IpLZHN TATIONs TARGET DATZS

3/2/88 SRC to specify urgent requirements for the workshoprehabilitation program (suitable to be procured as part of UKCommodity Aid).

3/2/88 SRC to specify urgent requirements of spare parts andconsumables for locomotive running maintenance etc. (suitableto be procured as part of UK Commodity Aid).

31/3/88 SRC with the assistance of the Program Preparation Coordinatorand of Crown Agents to draw up a detailed plan and schedule forimplementation of RERP.

31/3/88 SRC to complete clearing of scrap and redundant material fromthe workshop areas.

1/4/88 Appointment of Program Coordinator (funded by ODA) to assistSRC with management of the early stages of RERP.

30/4/88 SRC to finalize specification of requirements to set up theworkshop for the first year program of locomotive overhaul andrehabilitation.

30/4/88 SRC to finalize specifications of requirements for first yearof locomotive maintenance and overhaul program.

31/5/88 SRC to complete assessment of candidates and evaluation of bidsfor the provision of the Technical Assistance team.

30/6/88 SRC to finalize specification of requirements for the firstyear program of rehabilitation of locomotives.

30/6/88 SRC to finalize specification of requirements for signals andtelecommunications.

30/6/88 SRC to finalize specification of requirements for permanent wayrepairs and related activities.

1/10/88 Koy members of the Technical Assistance team to be in post,with particular reference to those to be concerned with theworkshops and the locomotives.

31/3/89 SRC to ensure that workshops are ready for the work oflocomotive rehabilitation to commence.

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Pago 2 of 3

SUtMARY PROGRAM

19" 19@9 199@ 1991

PrepareProgram -IIIIr, p, rro9e 1 I I I I

~~~~~~I I i I ISpecify t _diate require I Specify parts A Equipment I _Clear & prepar workshop I - ; I I ILoco workshop rehab. I . I I I IRUNNING MAINTENANCE I I I I I

Specify lmmediata requiro 0* | I ISpecify annual perts I - I I - IProcure annual perts I - I I z_ IMaintain loco* I = I I

OVERHAUL LOCOS I I I I ISpecify parts I | | Procure part I - I ==- I .Overhaul locoo I I I I I

REHABILITATE LOCOS I I I I I

Prepre rehob contracts | I I I iRepair traction motors I - 1 _ j IProcure rehab kits - I 1 1Rehab locow I I z | _ u _

SIGNALS & TELECOMS I I I I I

Plan a specify I - I Place contracts I =- I I I IProcure I = _Insa III

Note: - Project activity.so Activity of another project.

-95 -ANU xPage 3 of 3

WORKSHOP PROGRAM

EW. 19 19i9

IUPLEMENTATION PROGRAM

Proper. dotel led proram SR/PC 1 1 1Review facilitiesForecast capacity I I IAllocate capecity I I 1Progrm overhaul A rehab. I I

Review program A adjust SR/PC I - I I

URCENT REQUIREMNETS I(Comodity Aid) I I I

Specify t-moiote requirement SR Iee. 1 1Perts IC*r I IEqui pet lpss 1 1Consumablee 1** 1 I

Procure CA I **oeeeeeeoe I I

MAIN LOCO OVERHAUL A REHAB. I I

Cloer workshop SR I ISpecify part A equipment SR I = I IProcure parts A equipment CA I : ISet up some contracts SR/CA I = IContract rehab of quipment Contr I IProper* workshop* SR I = I

SHUNTER OVERHAUL & REHAB. I I

Clear workshop SR 1 I ISpecify parts A equipment SR I 5 I 5

Procure parts A quipment CAPrepare workshop* SR * = *== _

REVIEW A DEVELOP WORKSHOPS I I I

Technical assitance SR | = _ IReview A plan SR/TA I =3= 15 IImplement SR I I **w ** *= *

MAINTAIN WORKSHOPS I I I

NOTE: SR - Sudan Railways CorporationPC - Project CoordinatorTA - Techncial Assistance TeamCA - Crown AgentContr - Contractor to be selected

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