Document of

The World Bank

FOR OFFICIAL USE ONLY

AmI 3273-ga~Report No. 8526-ZIM

STAFF APPRAISAL REPORT

ZIMBABWE

SECOND RAILWAYS PROJECT

NOVEMBER 9, 1990

Infrastructure Operations DivisionSouthern Africa Department

This document has a restcted dsibuton and my be used by only In the perbrnme oftheLi oftfi,d dutes Its conts may not oterwise be discWosed Wd Ebnk audiodon.

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CURRENCY EQUIVALENT

Currency Unit = Zimbabwe DollarsZ$1.0 = US$0.43US$1.0 = Z$2.30

(as of March 31, 1990)

WEIGHTS AND MEASURES

1 meter (m) 3.2808 feet (ft)1 kilometer (km) - 0.6214 miles (mi)1 metric ton (tonnes) - 1.023 short tons

GLOSSARY OF ABBREVIATIONS

AfDB - African Development BankAGM - Assistant General ManagerATIS - Advanced Train Information SystemsAZ - Air ZimbabweCIDA - Canadian International Development AgencyCMED - Central Mechanical Equipment DepartmentCTC Centralized Traffic ControlDANIDA - Danish International Development AgencyDCA - Department of Civil AviationDDF - District Development FundFINNIDA = Finnish International Developmezt AgencyGDP 3 Gross Domestic ProductGM General ManagerGOZ - Government of ZimbabweGIEM - Gross Tonne KilometerKEW - Krditanstalt fur WiederaufbauMFEPD - Ministry of Finance, Economic Planning and DevelopmentMIS - Management Information SystemMLGRUD = Ministry of Local Government, Rural and Urban DevelopmentMOT - Ministry of TransportMTC - Ministry of Trade and CommerceNRZ - National Railways of ZimbabweNTKM - Net Tonne KilometerNTS = National Transport StudyOIP Operations Improvement PlanOI0 - Operating Information Systemp.a. 3 per annumPC - Parastatal Commissionpc - personal computersPSIP - Public Sector Investment ProgramRDC - Rural District CouncilRMS - Road Motor ServicesRSA - Republic of South AfricaRTEC - Railways Traffic Estimates CommitteeSADCC - Southern Africa Development Coordinating CommitteeSAR South African RailwaysSATCC - Southern Africa Transport and Communications CommissionSIDA - Swedish International Development AgencyTAZARA - Tanzania-Zambia Railway AuthorityTSM Transport Sector MemorandumUDI = Unilateral Declaration of IndependenceUSAID = United States Agency for International Development

FISCAL YEAR

July 1 to June 30

FOR OFFICIAL USE ONLYZIMBABE

SECOND RAILWAYS PROJECT

STAFF APPRAISAL REPORT

TABLE OF CONTENTSPage No.

DOCMENTS CONTAINED IN PROJECT FILE . . . . . . . . . . . . . . i

CREDIT AND PROJECT SULMARY . . . . . . . s . . . . .. . . . . ii-iv

E. THE TRANSPORT SECTOR

A. Country Economic Context . . . . . . . . . . . . . . 1B. The Transport System . . . . . . . . . . . . . . . * 3

(i) Background ................ 3(ii) Railways . .. .. . . .. .. .. 4(ii) Roads . .. .. .. .. .. .. .. .. 4(iv) Road Transport . . . . . . . . . . . . . . 4(v) Air Transport . . . . . . . . . . . . . . 5

C. Sector Role, Organization and Performance . .. . . 6D. Government Objectives in the Sector . . . . . . . . 7E. Sector Planning and Coordination . . . . . . . . . . 8F. Transport Sector Investments . . . . . . . . . . . . 8G. Experience with Past Lending in the Sector . . . . . 9H. Rationale for Bank Group Involvement . . . . . . . . 11

II. THE RAILWAYS

A. Background . . . . . . . . . .. ... .11

B. Regulation . . . . . . . . . . . . . . . . . . . .. 1C. Organization, Management and Staffing . . . . . . . 13

(i) Organization and Management . . . . . . . 13(ii) Staffing . . . . . . . . . 13

D. Physical Assets and Resources . . . . . . . . . . . 15(i) Locomotives . . . . . . . . . . . . . . 15

(ii) Rolling Stock . . . . . . . . . . . . . . 16(iii) Permanent Way . . . . . . . . . . . . . . 17

(iv) Signalling and Telecomunuications . . . . 17(v) Information Technology and Systems . . . . 18

This report was prepared on the basis of an appraisal mission that visitedZimbabwe in October/November, 1989. The mission consisted of Mr. Y. Crookes(Mission Leader/Financial Analyst), Messrs. S. Nayak (Railway Engineer),P. Ofosu-Amaah (Senior Counsel), G. Wilson (Economist) and Ms. E. Warner(Operations Analyst). Messrs. J. Boye-Moeller (DANIDA), V. Adelqvist (DANIDAConsultant), G. Bethke (KIf) and F. Zobrist (USAID) participated in aspectsof the mission. Ms. H. Najar assisted in processing this report.

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

Table of Contents (continued)Page No.

S. Operations . . . . . . . . . . . . . . . . . . . . . 19F. Financial Performance . . . . . . . . . . . . . . . 20G. Regulatory Reform ................. 22B. Restructuring Strategy . ....... . 25I. Restructuring Strategy* Regional Context . . . . . . 27

III. THE PROPOSED PROJECT

A. Objectives . . . . . . . . . . . . . . . . . . . . . 28B. Genesis of the Project . . . . . . . . . . . . . . . 28C. Detailed Project Description . . . . . . . . . . . . 29

(i) Physical Investments . . . . . . . . . . . 30(ii) Organizational Restructuring . . . . . . . 35(iii) Operational Restructuring . . . . . . . . 37(iv) Financial Management and Restructuring . . 38

D. Cost Estimates and Project Financing . . . . . . . . 39E. Project Implementation . . . . . . . . . . . . . . . 41P. Procurement . . . . # . . . . . . . . . . . . . 43G. Disbursements ................. . 44H. Reporting and Monitoring . ... . . . . . . 45t. Accounting and Audit ................ 45J. Environmental Impact, Industrial Health and Safety . 46

IV. FINANCIAL EVALUATION

A. Historic Financial Performance . . . . . . . . . . . 47B. Financial Restructuring Strategy and Projections . . 47

V. ECONOMIC EVALUATION

A. Traffic Forecasts 56B. Project Benefits and Costs . . . . . . . . . . . 57C. Economic Return and Sensitivity Analysis . . . . . . 58D. Electrification Component .. .. ... . ... 60S. Passenger Coaches Component . . . . . . . . . . . . 60F. Project Risks ................... 62

VI. AGREEMENTS REACHED AND RECOHHTNDATIONS . . . . . . . . . 63

ANNEXES

1 Selected Operational Statistics2-1 Weaknesses in NRZ Operations2-2 (a) Comparison of Tariffs and Costs of Movement2-2 (b) History of Tariff Increases3-1 Locomotive Strategy, 1989-943-2 Assessment of Locomotive Requirements3-3 Wagon Requirements

Table of Contents (continued)

ANNEXES

3-4 Management and Supervisory Development Program: Draft Terms ofReference

3-5 Locomotive Maintenance Audit: Draft Terms of Reference3-6 Manpower Studys Draft Terms of Reference3-7 Management Information Systems Study: Draft Terms of Reference3-8 Operations Improvement Plan3-8 (b) Performance Targets3-9 Detailed Project Cost Estimates3-10 Disbursement Profile3-11 Environmental and Industrial Health and Safetys

Weed Killers and Chemical Compounds in Use on NRZ

4-1 Past Financial Performance4-2 Projected Financial Performance: Assumptions Used in Financial

Projections4-3 Projected Financial Performance: With Project and Projected

Traffic4-4 Projected Financial Performances With Project and Constrained

Traffic4-5 Projected Financial Performances Without Project4-6 Financial Rates of Return

5-1 Historic Traffic Performance5-2 Traffic Forecasts5-3 Economic Returns5-4 Railways Passenger Servicess Estimated Operating Costs6 Supervision Plan

CHARTS

1. NRZ Organization Structure: Old2. NRZ Organizational Structure: New3. Target Project Implementation Schedule

MAPS

IBRD No. 22111: Transport NetworkIBRD No. 22112: Inter-Distance Rms, Ruling Gradients and Curves

ZIMBABWE

RAILWAYS II PROJECT

DOCUMENTS CONTAINED IN THE PROJECT FILE

1. "Review of Corporate Planning Unit and Investment Plan" - Consultants'Study (RITES, India), 1989.

2. "Review of Corporate Organization and Financial Structure' - C=sultants'Study (Coopers & Lybrand, London), 1989.

3. Railways Traffic Estimate, 1989 (NRZ).

4. Detailed Traffic Density Matrix (1989, 1991-1995) (Diskettes).

5. Detailed Computation of Wagons and Locomotives Requirements (Diskettes andPrint-outs).

6. Financial Analysis Models (Diskettes).

7. Details of Economic Evaluation.

8. "Diesel Locomotive Fleet Position: Maintenance Assessment and ModernizationPossibilities", F. de Dekker (May, 1988).

9. "Position of Motive Power and Rolling Stock", J. N. Luthra (August, 1987).

10. "Report on Computer Hardware and Application Software Appraisal", D. C.Munro (March, 1988).

11. 'Emergency Management Assistance to National Railways of Zimbabwe", J. A.Pinkepank (January, 1990).

12. Zimbabwes Transport Sector Memorandum, Report No. 6760-ZIM (August 5,1987).

13. "National Transport Study", SWECO (April, 1985).

14. "Railways Transport Crisis: Zimbabwe Newspaper Clippings -- November 1989"

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ZIMBABWE

RAILWAYS II PROJECT

CREDIT AND PROJECT SUMMARY

Borrower: Zimbabwe

Beneficiary: National Railways of Zimbabwe (NRZ)

Amount: US$38.6 million

Terms: Bank standard variable rate, 20 year maturity including afive-year grace period

Cofinancing: The project will be cofinanced by Austria, DANIDA (Denmark),FINNIDA (Finland), KfW (Germany), Switzerland and USAID.

ProiectDescription: The proposed project would provide assistant.e to the National

Railways of Zimbabwe (NRZ) to implement a restructuring programwith four principal components: (a) organization restructuring;(b) an operations improvement program; (c) assetsrestructuring; and (d) financial restructuring. The projectconsists of (i) technical assistance to support a managementand supervisory development program and introduce improvedworking systems; (ii) training and secondment of staff tooverseas railways; (iii) funding of a manpower study andstudies on NRZ's management information systems and locomotivemaintenance practices; (iv) software and technical assistancefor accounting, yard information and locomotives monitoringsystems; (v) procurement of new and repowering of some existinglocomotives; (vi) replacement of over-aged or obsolete railand off-rail service vehicles, workshop plant and equipmentand signalling and telecommunications equipment; and (vii)minor extension of the electrified track structure.

Justificationand Risks: The NRZ restructuring program to be supported under the project

would lead to a significant reduction in the economic cost ofrail transport. It would enable NRZ to meet fully theprospective demand for rail transport thereby avoiding costlydiversion of long-distance bulk traffic to roads and reducedoutput in industries wholly dependent on rail transport. Theproject would also benefit Zimbabwe's landlocked neighborsusing NRZ for transit of their international trade to and fromcoastal seaports as well as Mozambique, which would benefitfrom NRZ's improved ability to support the rerouting ofZimbabwe's exports through the shorter Mozambican transit

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corridors. With the regulatory changes already in place andsuccessful implementation of the restructuring strategy, tNRZwill be transformed from an entity requiring large operatingsubsidies from Government to one generating considerablereturns on its capital employed and capable of making asubstantial contribycion to Government revenues. The majorproject risk would be that NRZ management would not be ableto realize and sustain the improvements in operating efficiencyenvisaged under the project. This risk would be mitigated bythe program of technical assistance support and training andthe demonstrated commitment of Government to ensuring theeffective operation of its new framework for NRZ operations.

Estimated Costs: Local Foreian Total(US$ Million)

New Locomotives -- 50.0 50.0Locomotives Repowering 2.1 6.0 8.1Locomotives Spare parts -- 2.2 2.2Wagons 38.9 16.3 55.2Passenger Coaches 10.0 10.0 20.0CTC Renewal 2.2 4.8 7.0Radio Equipment and PABX 0.6 1.7 2.3Digital Transmission Link 0.1 0.9 1.0Breakdown Crane -- 2.5 2.5Plant & Equipment 0.3 5.2 5.5Service Vehicles -- 4.7 4.7Electrification Extension 2.7 4.2 6.9Overvoltage Correction Equipment 0.1 1.2 1.3Information Systems 0.3 1.6 1.9Technical Assistance 5.6 12.8 18.4Training 0.3 2.6 2.9Studies 0.6 1.1 1.7

Total Base Costs 63.8 127.8 191.6

Physical Contingencies 6.2 6.7 12.9Price Contingencies 31.6 27.2 58.8

TOTAL COST 101.7 161.7 263.4=== = =a gag

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Financinft Plan:

Local Foreian Total(US$ Million)

Government 91.1 63.6 154.7NRR 10.6 -- 10.6IBRD -- 38.6 38.6Austria -- 1.8 1.8DANIDA __ 3.7 3.7FINNIDA -- 4.7 4.7KfW -- 7.6 7.6Switzerland -- 2.3 2.3USAID -- 39.4 39.4

Total 101.7 161.7 263.4

Estimated Disbursement of IBRD Loan (US$ million)s

FY91 FY92 FY93 PY94 FY95 FY96 FY97Annual 0.0 2.5 5.2 7.7 9.5 8.9 4.8Cumulative 0.0 2.5 7.7 15.4 24.9 33.8 38.6

Economic Rate of Return: 20%

Financial Returns: 50%

Staff Anpraisal Report: Report No. 8526-ZIM, dated November 9, 1990.

Maps: IBRD No. 22111IBRD No. 22112

ZNBAB'E

RAILWAYS II PROJECT

I. THE TRANSPORT SECTOR

A. Csuntry Economic Context

1.01 Zimbabwe Is a landlocked country of about 390,000 squarekilometers bounded by Mozambique, Republic of South Africa (RSA), Botswanaand Zambia (see IBRD Map 22111). Topographically, the land rises from lowplains in the northwest and southeast to a high plateau (1,200 - 1,500meters) which runs from the southwest to the northeast. The high countryhas a temperate climate with a reasonably high level of rainfall, while themiddle regions are warmer and drier and the low areas are arid to neararid. As of mid-1988, the population was estimated at 9.3 million people,with an annual growth of about 3Z.

1.02 At independence in 1980, Zimbabwe inherited a well-diversified economy, with good potential for growth and a well-developedadministrative and physical infrastructure. Agriculture, manufacturing andmining are the most important sectors of the economy. In 1989, agricultureaccounted for about 14% of the Gross Domestic Product (GDP) and providedemployment for over 50% of the labor force. Agricultural exports providedapproximately 45% of foreign exchange earnings. The manufacturing sectorcontributed about 25% of the country's GDP and accounted for 62 of thelabor force. Although mining accounts for only 7X of GDP and employs only2% of the labor force, its exports represent about '0% of total foreignexchange earnings. The mining and agricultural sectors supply the bulk ofthe inputs for the manufacturing sector.

1.03 Real growth of the economy in the immediate post-independence period (1980-1981) averaged over 112 per annum (p.a.); in thesubsequent three years the GDP was virtually flat in real terms as theinternational recession caught up with Zimbabwe and a severe droughtcurtailed agricultural output. In 1985, GDP growth recovered to over 72owing to excellent rains, before a renewed recession; there was virtuallyno growth in 1986. Since 1987, GDP has grown at an annual average rate of3.42. Per capita GNP in 1988 was estimated at US$660 (on the basis of theWorld Bank Atlas methodology), about the same level in real terms as atindependence. Throughout this post-independence period, inflation has beenkept at moderate levels (132 p.a. on the aver,a e) and external indebtednesshas been satisfactorily managed.

1.04 There is now a well-formed consensus in Zimbabwe thatsustained performance of the economy to provide employment to the country'sgrowing population will require significant macroeconomic restructuring.In particular, a framework has to be laid to allow a sustained increase inthe investment rate in industry and the diversification of agriculturaloutput and exports. Any such program of macroeconomic restructuring wouldneed to include two key objectives: (i) the reduction of the public sectordeficit, now standing at 11% of GDP, in order to free private savings,

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currently preempted by Government borrowing, for the financing ofinvestment in industry; and (ii) the realignment of public investmentexpenditutes to facilitate the further integration of the communal areas,where tho majority of the country's population lives, into the mainstreamof the economy.

1.05 In meeting both objectives, restructuring of the NationalRailways of Zimbabwe (NRZ) would be critical. Firstly, NRZ is asignificant contributor to the current high level of the public sectordeficit. In 1989, the subsidy to NRZ to cover its losses, at Z$ 120million, accounted for about 3% of central Government recurrentexpenditures, equivalent to 1.2% of GDP. NRZ's need for subsidies arisesfrom a mix of inefficient utilization of its assets, use of technicallyinefficient assets, inadequate pricing policies and poor management. Theseissues would need to be addressed in an integrated fashion to stem andreverse the growth in the railways' claims on Government's '%udgetaryresources. Moreover, since independence, NRZ has account 4 for Z$ 331million or 22% of the total sector investment program. However, theseinvestments have not yielded the expected returns; instead, they have beenaccompanied by a sharp decline in NRZ's productivity. Without a reversalin the decline in productivity, sharp increases in investment would berequired to maintain and increase the railways' capacity to cater to thedemand for rail transport.

1.06 Secondly, Zimbabwe's economy is characterized by asignificant degree of economic integration within the industrial sector andbetween industry and agriculture. The effective performance of therailways is a sine qua non for maintaining this integration and supportingthe performance of these sectors. Zimbabwe's railways covers almost allthe major mining, manufacturing and agricultural centers, is the most costeffective means of transport for the primary output of the mining andagricultural sectors, the wholesale distribution of the intermediate goodsprocessed from their output as well as that of the major input into theagricultural sector, and accounts for about 90% of domestic transportmovements. Indeed, the Zimbabwean economy is amongst the most railways-dependent in the world. The operating performance of NRZ has, however,been deteriorsting sharply in recent years and its current inability tosatisfy the demand for rail transport is estimated conservatively to costannually Z$ 130 million in lost production, inventory holdings, additionalcosts of traffic diversion to roads and the cost of avoidable hires andleasing of railways assets from the RSA.

1.07 Thirdly, future growth implies improving the country's weakexport performance. This will require maintaining and improving thecompetitiveness of traditional exports which are dominated by bulkycommodities of relatively low unit value while diversifying the exportbase. The role of the railways is crucial in this process. The shortestand intrinsically cheapest routes to the seaports for Zimbabwe'straditional exports are the Mozambique railway corridors to the ports ofBeira and Maputo. As a measure of the potential for savings in resourcesor improvement in export competitiveness, the use of the Mozambican routes

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for all of Zimbabwe's sea-bound exports would have saved the Zimbabweaneconomy an estimated US$65 million equivalent in transport costs (excludingany differential in shipping costs) in 1988--virtually all of it in foreignexchange. Only US$15 million of this potential saving was realized byZimbabwe in 1988 due to NRZ's inadequate capacity to cater to potentialtraffic for this route and the ongoing rehabilitation of the corridors'facilities. When the ongoirtg port and railways rehabilitation on theMozambique corridors is completed in the mid-1990s, the ability of Zimbabweto capture a large part of zhe savings by diverting traffic throughMozambique will be almost wholly dependent on NRZ's operatingeffectiveness.

1.08 The pivotal role of NRZ in facilitating the success of anyprogram of macroeconomic restructuring and sustained good performance ofthe Zimbabwean economy is illustrated by the reaction in the Zimbabweanpress to the recent (November 1989) congestion of the railway systemcontained in the project file.

B. The Transport System

(i) Background

1.09 As a landlocked country, Zimbabwe faces a serious problemwith respect to the transport of its imports and exports throughneighboring countries. The shortest rail routes to the sea are two linesthrough Mozambique, but full use of these lines has been severelyhandicapped by armed bandit attacks and deterioration of facilities. As aconsequence, Zimbabwe's trade has become heavily dependent upon therelatively long and costly rail routes through RSA, the main route for thispurpose being the lines through Botswana and Beitbridge to Port Elizabethand Durban, RSA. Situated astride key international rail and road routes,Zimbabwe's transport network is of vital importance to the entire southernAfrica region, particularly to Zambia, Zaire, Malawi and Botswana. Theproblem of securing economical access to the sea for Zimbabwe and itsneighbors cannot be solved without a coordinated effort in developingregional transport facilities and services. This effort has been given thehighest priority by the Southern Africa Transport and CommunicationsCommission (SATCC) which promotes and coordinates the development ofregional transport and communications in its nine member countries. SATCChas concentrated particular attention on planning the rehabilitation ofrailway links to the ports of Beira and Maputo in Mozambique. IDA,together with other donors, is assisting in implementing the Beira CorridorTransport Project (Credit 2056-MOZ).

1.10 Zimbabwe has a relatively well-developed transportinfrastructure comprisings (i) a road network of 85,783 km, of which 12,700are paved, 43,778 km are gravel and 29,305 km are earth; (ii) a railwaysystem with 2,753 km of track of which 335 km are electrified; and (iii)eight airports, three of which serve international traffic. There is awell-developed private sector trucking industry serving both the domesticand the southern Africa regional markets and a national airline with

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extensive domestic and regional connections and limited connections toEurope and Australia. Zimbabwe's transport system basically evolved to:(i) serve the country's major mining, industrial and commercial farmingcenters that were also the centers of white settlement; and (ii) provideaccess to seaports for the input requirement and the output of its mining'ndustry, as well as those of Zambia and Zaire.

(ii) Railways

1.11 Details of the railway subsector are presented inChapter II.

(iii) Roads

1.12 Of Zimbabwe's total road network of 85,783 km, about 18,400km (21%) are state roads linking provincial and district centers; 22,200 km(26%) are rural council roads serving the commercial farming areas; 39,900km (46%) are district roads serving the communal lands and the balance (72)are municipal roads controlled by municipalities in the eleven major urbanareas. While the length of the state and rural council roads is adequate,the condition of some of the roads has suffered from lack of adequateperiodic maintenance owing to insufficient funding. Construction ofdistrict roads has only been accorded a high priority since independence,and therefore, the coverage of the network is inadequate to fully integratethe communal areas into the country's major centers of economic activity.The condition of these roads is also generally poor. The Bank, under theSecond Highway Project (Loan 2939-ZIM), is providing assistance to addressthe backlog of maintenance on the main state road network while the AfricanDevelopment Bank (AfDB) and the Kreditanstalt fur Wiederaufbau (KfW) ofGermany, are, among other donors, active in assisting the Government toupgrade and expand the district road network.

(iv) Road Transport

1.13 Zimbabwe has a trucking fleet (vehicle payload greater than2.3 tonnes) of about 32,000 vehicles, the largest in the southern Africaregion outside of the RSA. Commercial haulage firms account for 10% to 15%of the trucking fleet and about 102 of freight transport by road, with thebalance of the fleet and traffic accounted for by manufacturing andcommercial firms with their own trucking fleets. The commercial haulageindustry is dominated by about 15 firms using relatively large trucks.There are more than 200 small operators with only one or a few trucks. Theindustry is regulated by a system of permits granted for specific routes orareas and for specified commodities or all goods. A few large operatorshave permits covering the whole country and all commodities while the RoadMotor Services (RMS), a unit of NRZ, is exempted from permit requirements.Rates for services offered by the private truckers are market-determinedwhile RMS' rates for the scheduled rural services it operates are subjectto Government approval.

1.14 The inter-urban market and the commercial farming routesare well served by the commercial operators. However, coverage of thecommunal areas is inadequate. In part, this is due to the rapid rise indemand for trucking services as the economy of the communal areas has grownwhile growth in the national trucking fleet has been constrained by a slowrate of replacement and expansion due to inadequate allocation of foreignexchange to the industry. Two other contributory factors have been thepoor roads In communal areas, which have discouraged entry into this marketsegment by truckers with established business in other market segments, andthe permit system, which has restricted entry by new participants. Ingeneral, as the economy diversifies, the trucking industry's importance inthe sector is likely to increase substantially. Government is conscious ofthis and is currently addressing the issues constraining trucking activityparticularly in the communal areas.

(v) Air Transport

1.15 Air Zimbabwe (AZ), a parastatal, is the sole provider ofdomestic scheduled passenger air transport in Zimbabwe and links Harare tomajor commercial and t.urism centers in the country. Charter services,catering largely to tourists, are provided by a few private air charteroperators. International passenger air links are provided by AZ toregional destinttions, London and Frankfurt and, on a seat-lease basis fromthe Australian carrier, Quantas, to Australia. Zimbabwe is also served bythe regional airlines as well as eight other international airlines.Affretair, a parastatal, provides scheduled cargo flights from Harere toAmsterdam and London as well as charter cargo services using a fleet of twoDC-8s. The domestic industry is regulated by the Department of CivilAviation (DCA) under the Ministry of Transport (MOT) which is alsoresponsible for the management of the country's aerodromes.

1.16 AZ operates a fleet of five Boeing 707-320 Bs, threerecently acquired B737-200s, two Viscount 800s and one BAe 146-200. AZtook delivery of a B767-200 ER in December 1989 and expects to takedelivery of a second B767 in December, 1990. AZ's effective capacity hasincreased substantially since independence. However, its operatingperformance has been constrained by an aged fleet, the fuel efficiency ofwhich is poor and the maintenance requirements high, and by a relativelythin domestic network. The acquisition of the B737s has enabled theairline to retire some of the older aircraft used on domestic and regionalroutes and the delivery of the 8767s will enable it to retire its currentlong-haul aircraft fleet which can no longer meet European noise pollutionstandards. The utilization of the new aircraft Is expected to berelatively low for some time until a denser regional and long haul routenetwork can be built up. The financial performance of AZ has been poorsince 1981 as a result of Government controls on its pricing and routestructure and its poor cperational cost structure. Government has recentlyrestructured the airline organization in an attempt to improve itsperformance.

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C. Sector Role. Organization and Performance

1.17 The modal split of traffic in Zimbabwe follows closely thecomparative cost advantage of the various modes, the competitivecharacteristic of comodities and the structure of the transport network.All major mines, heavy industrial plants and major collection points forcommercial farms enjoy easy access to the line of rail. Consistent withthis locational pattern and its cost competitive advantage for movement ofbulky commodities, the railways accounts for about 902 of domestic andexport goods traffic. The road transport industry dominates the movementof light manufactured goods within and between urban centers, the transportof perishable and fragile goods not suited to rail transport and hasprogressively eroded the railways' small share of the inter-urban transportfor other high-value goods through better through-service. Other than forcompetition in this latter segment of the transport market, road transportindustry's role in domestic transport is highly complementary to that ofthe railways, providing feeder service from farms to depots with railwaysidings. For transit traffic, the railway has a captive market for trafficoriginating by rail. Currently, the railways plays a complementary role tothe pipeline from Beira to Feruka by transporting oil products to Harareand other domestJc destinations. However, due partly to the railwaysgrowing inability to carry the pipeline's throughput, Government hasdecided, in principle, to extend the pipeline from Feruka to Harare 1/ andlimit NRZ's role to distribution of fuel to destinations beyond Harare.Air transport's role is small, though critical to business and officialtravel, the international transport of Zimbabwe's expanding horticulturalexports and the movement of tourists both to and within Zimbabwe. Althoughroad transport is significantly more expensive than rail, it dominatespassenger transport due to its faster and more frequent service, as well asits more extensive geographic coverage.

1.18 Responsibility for the regulation of the transport systemis vested in the Ministry of Transport (MOT). MOT also has direct planningand implementation responsibilities for state roads and the country'sairport infrastructure, while rural and district roads are theresponsibility of the Ministry of Local Government, Rural and UrbanDevelopment (MLGRUD). Transport parastatals, which enjoy monopolies inrail and air services and a sizeable presence in the commercial truckingindustry, are governed by their statute of establishment (NRZ - RailwaysAct of 1973) or by their articles of incorporation (AZ). The operating andcapital budgets of these entities are subject to review by MOT, whosePermanent Secretary is also represented on their boards. MOT also reviewsall proposals for tariff increases. A Parastatal Commission (PC) was

1/ The IFC has been approached in this respect; the economicviability of the proposed pipeline is currently being reviewedby the Bank as part of an ongoing Zimbabwe Integrated EnergyStrategy Evaluation.

7

established in 1987 to perform a review role over the management andorganization of parastatals, including the transport parastatals. However,its review role over NRZ was abrogated by Government in early 1990. The PCwas dissolved in May 1990.

1.19 The operating performance of the transport sector, althoughstill fairly good, has deteriorated noticeably in recent years with theincreasing inability of road and rail to meet demand on a timely basis.The major reason for the faltering sector performance has been theinadequacy of foreign exchange allocations to allow an adequate level ofreplacement of the aging capital stock and funding of spare parts formaintenance. A related problem, pervasive in the parastatal subsector, isthe deficiency of systems to ensure the efficient use of existing assetsand resources, including scarce foreign exchange allocated.

D. Government Obiectives in the Sector

1.20 The main objectives of the Government in the transportsector ares (i) to improve and expand the network of roads in the communalareas and maintain the roads linking the provincial and district centersand in the commercial areas; (ii) to reduce the country's dependence on thelonger and intrinsically more expensive RSA routes for its internationaltrade traffic through regional cooperation in the rehabilitation of theMozambique transport corridors; (iii) to reform the regulation of roadtransport to improve the level of trucking services in the communal areas;and (iv) to improve the operating and financial performance of thetransport parastatals.

1.21 The Government has undertaken extensive reviews of the bestmeans of effecting these objectives. In 1984, under the Bank's FirstHighway Project (Loan 2282-ZIM, 1983), GOZ commissioned consultants toundertake a National Transport Study (NTS) to recommend an integratednational transport policy, a sector investment program and improvements inthe management of the sector. The main recommendations of NTS were to:(i) reform pricing policy in the sector, particularly in the railways, toallow prices to at least cover economic costs; (ii) to shift the emphasisin sector investments from rail to road; (iii) to give priority tomaintenance of existing assets; (iv) to relax regulatory control oftrucking to facilitate easier entry into the industry and expansion ofexisting services in the communal areas; (v) to undertake a financialrestructuring of the transport parastatals; and (vi) to strengthen theplanning capacity of MOT. The recommendations were adopted by theGovernment although implementation of some of them have been slow.

1.22 In 1986, the Bank prepared a Transport Sector Memorandum((TSM) - Report No. 6760-ZIM) to explore, in greater detail, selectedissues raised by the NTS in the roads sector, the road transport industryin the communal areas and the railways. In relation to the roads sector,the TSM analysis focused on the appropriate balance of budgetaryallocations to road maintenance and road construction. The recommendationof the TSM were accepted by the Ministry of Finance, Economic Planning and

Development (MFEPD) and MOT, and are being implemented under the SecondHighway Project (Loan 2939-ZIM). In the railways subsector, the TSManalyzed the causes of NRZ's increasing losses and proposed a financialrestructuring plan to eliminate NRZ's losses over a five-year period. Therecommendations of the TSM with respect to NRZ were accepted by MOT. Atthe request of NRZ's Board and MOT, and as a follow-up to the TSM and NTSanalyses, consultants were engaged under the ongoing Railways DevelopmentProject (Loan 2342-ZIM) to review NRZ's organization, operating andfinancial performance and to recommend improvements in them as well as aninvestment program to complement the implementation of such changes. Theseconsultant studies are part of the basis for the proposed project.

E. Sector Plannina and Coordination

1.23 The responsibility for overall planning and coordination inthe sector is vested in MOT. As currently organized, MOT has departmentscovering the administrative and planning functions for all modes as well asdepartments concerned with the implementation of construction andmaintenance activities for the state roads. Responsibility for planningand coordination of rural and district roads resides in MLGRUD. Lack ofadequate coordination between the two ministries, particularly in thecontext of the increased importance of communal roads in public policy, hasbeen a problem in the formulation of sector-wide plans. However, followingamalgamation of rural councils and urban councils into Rural DistrictCouncils (RDC), responsibility {or the planning, construction andmaintenance of rural roads in the communal areas is now being addressedadequately with funding support provided under the District DevelopmentFund (DDF) of the HLGRUD. MOT's capacity for road planning is alsocurrently being strengthened with assistance from the Swedish InternationalDevelopment Agency (SIDA). Planning at the enterprise level in thetransport parastatals is undertaken by the individual parastatals, with alltheir operating and capital plans subject to review by the respective MOTdepartment before approval by Government. Modal coordination in the sectoris reasonably good with relatively well developed road/rail transferfacilities and a well-developed trade facilitation infrastructure with anestablished freight forwarding and clearing industry.

F. Transport Sector Investments

1.24 The Government's transport sector investment prioritiesamong the subsectors are reflected in the Public Sector Investment Program(PSIP) approved by MFEPD. The sectoral distribution of investment in thesector since independence and for the period 1991-1993 is shown in thetable below:

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ZIMBABWE: Public Sector Investment Program in Transport(Z$ million)

1981-1985 1986-1990 1991-199311Roadskl 180 (391) 363 (36Z) 545 (49X)Railways 266 (582) 65 (62) 432 (391)

Sub-total 446 428 977

AviationSl 15 (3%) 589 (58%) 135 (121)

Total 461 (1001) 1017 (100%) 1112 (1001)

Source: Ministry of Transport

a/ Provisional.b/ Excludes district and municipal roads.c/ 1981-85: data available for 1983-84 and 1984-85 only.

The investment allocation in the imediate post-independence period (1981-1985) reflected the high public policy priority accorded to therehabilitation of the railways and, in particular, the partialelectrification of the system. Investments in railways were sharplyreduced in the next five years whilst the program for roads investment wasexpanded and Air Zimbabwe embarked on a large scale program of replacementof its aged fleet. The pattern of allocation of investment resources tothe railways and roads sub-sectors were in line with the recommendations ofthe NTS. In the aviation sector, NTS had recommended deferral of aircraftreplacement investments until after 1990. However, in view of theincreasing operational problems faced by AZ with its aged fleet ofaircraft and, in particular, the erosion of its competitiveness inintercontinental and regional services, Government decided to advance AZ'sfleet replacement program.

1.25 The emphasis of the transport sector investment program inthe next three years is on improving the efficiency of the railways'operations, continuing the program of upgrading of the state roads networkand upgrading the country's main international airport (Harare). Theproposed allocations, representing about 241 of the PSIP for the period1990191 to 1992193, is considered reasonable.

G. Experience with Past Lending in the Sector

1.26 The Bank's first involvement in the transport sector ofZimbabwe was in 1981 when it approved the Transport Rehabilitation ImportsProgram Loan (Ln. 1994-ZIM, US$42 million). The project -was designed tohelp stem and reverse the decline in the sector's operational capacity as

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expeditiously as possible in order to facilitate the post-war(independence) rehabilitation of the economy's productive sectors. Theprogram focussed on the priority rehabilitation spare parts and manpowerneeds of NRZ and on equipment and vehicles for the Central MechanicalEquipment Department (CMED), which was responsible for the maintenance ofMOT's vehicle and road maintenance equipment fleet. A recently completedProgram Performance Audit Report (PPAR) and PCR for the program note thesuccess of the roads component; the railways component of the program,however, encountered significant implementation difficulties. The rate ofdeparture of skilled white staff immediately after independence was muchgreater than anticipated. This undermined the rehabilitation strategy ofthe program which was necessarily skilled-manpower intensive and promptedGovernment to (a) request a greater allocation of the program's funding fortechnical assistance to protect the on-going viability of NRZ's locomotivemaintenance facilities while its new intake of apprentices were undergoingtraining; and (b) approve the procurement of 61 new locomotives withfinancing from other sources. These measures proved adequate to preventrail transport from becoming a major constraint on the post-war recovery ofthe economy but did not prevent a substantial underlying deterioration inthe railways' operating performance. Indeed, as the draft notes, theinfusion of a substantial number of new locomotives in the absence of anygrowth in traffic contributed to the reduction in pressure on NRZ toutilize its assets effectively. The departure of staff also reduced theeffectiveness of procurement in the early years of the program. Overall,the program, designed to be quick-disbursing, took more than twice as longto implement as originally anticipated (six years actual versus two and ahalf years estimated at appraisal). Also, a key policy objective of theprogram was to provide the basis for addressing the large deficits of therailways. Although as an interim measure, Government approved tariffincreases that enabled NRZ to cover its cash operating costs in the earlyyears of program implementation, the study designed to p.ovide the basisfor a strategy for a permanent solution to NRZ's loss-making operations wasunsatisfactory. No follow-on action was taken on the issue and subsidiesto NRZ have continued to increase. This project builds on the experiencewith the Transport Rehabilitation Imports Program and addresses bothsystemic weaknesses in operations and the institutional framework that isneeded to ensure adequate pressure on NRZ to utilize its assets effectivelyand the elimination of the need for subsidies.

1.27 In 1983, the Bank approved the Railway Development Project(Ln. 2342-ZIM, US$40 million) which provided assistance for thecontinuation of technical assistance contracts entered into under Loan1994-ZIM, the procurement of spare parts and training of NRZ staff. Theimplementation of the project was slower than anticipated. The loan wasclosed in June 1990 after several extensions at the request of theGovernment. A PCR for the project is currently under preparation.

1.28 In the roads subsector, the First Highway Project (Loan2282-ZIM, US$26.4 million) was approved in 1983. The project includedconstruction of new roads, assistance for training of MOT staff, roadfeasibility studies and detailed engineering. The project also included anational transport study (para 1.21) and a national feeder roads study.The project was completed in January 1989, 27 months behind schedule. Thestudy components were also satisfactorily completed and accepted by

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Government and formed the basis for the ongoing Second Highway Project(Loan 2939-ZIM).

H. Rationale for Bank Group Involvement

1.29 The Bank, through its sector work and the ongoing RailwaysDevelopment Project, has been instrumental in assisting Government and NRZin mapping out a coherent framework for the operational and financialrestructuring of NRZ. This work is consistent with one of the keyobjectives of the Bank's strategy in Zimbabwe, which is to supportGovernment in its effort to restructure the economy to foster growth withsustainable internal and external balances. The comprehensiverestructuring of NRZ's operations, assets, orgnnisation, and financialstructure to be supported under the project will help eliminate its lossesand turn it, over a period of time, into a highly profitable organisationcapable of making significant contributions to Government revenues. Theproject would also improve NRZ's capacity to provide an adequate level oftransport services to Zimbabwe's productive sectors--a weakness which is amajor source of substantial economic losses to the economy. Bankinvolvement in the project, primarily as catalyst for change, is essentialto ensure successful implementation of the proposed restructuring, and formobilizing donor assistance.

II. THE RAILWAYS

A. Background

2.01 The mainline network of NRZ was built between 1897 and 1904to Link Harare and Bulawayo to each other, to newly developed coal fieldsin Hwange in the northwestern part of the country and to the seaports ofBeira and Cape Town. The mainline was extended into Northern Rhodesia (nowZambia) in 1907 following the discovery of lead, zinc and copper depositsin the central part of that country. Subsequent additions to the systemfocussed on extending the branch line network to connect areas ofagricultural and mining potential to the mainline network. In the early1950s, the mainline network was extended to the southeastern border town ofChicualacuala to connect to the southern railway network in Mozambique andprovide access to the port of Maputo for the country's expandinginternational trade. In 1974, the mainline was further extended fromRutenga to Beitbridge on the border with RSA to provide a shorter,alternative connection to the RSA railways network following increasingdisruptions to operations on the Beira line by Zimbabwean freedom fightersand the total closure of the route on the independence of Mozambique.

B. Regulation

2.02 Because of its strategic role in the economy, NRZ hasalways been subject to direct Government control. Its management and

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operations are governed by the National Railways of Zimbabwe Act of 1973.The Act specifies the objectives of the railway, its powers to achievethese objectives and the extent to which these powers can be circumscribedby prior Government approval or by ministerial directives. Under the Act,NRZ's key objectives are: (i) to provide an efficient system of publictransport of goods and passengers by rail and, if it considers itnecessary, by other modes; and (ii) to be sufficiently cash generative inproviding such services to be able to cover its operating costs and debtservice obligations. The rates and charges for services rendered by NRZare subject to the approval of the Minister of Transport who also has toapprove proposed investments and disinvestments by NRZ. The Act alsoprovides for unconditional and global Government financial support of NRZoperations to cover its cash flow deficits from operations as well as forspecific subventions to cover any losses incurred by the railways frominvestments undertaken at the directive of Government. In addition to thespecific provisions of the Act, NRZ operations are also subject to thecountry's macroeconomic management conditions, particularly the systems forallocation of foreign exchange and the application of incomes policies tocontrol inflation.

2.03 At independence, the new Government of Zimbabwe (GOZ)inherited a railways system that was well developed in terms of geographiccoverage but suffered from a number of significant structural weaknesses.This set the tone for its regulation of NRZ. Firstly, in the period ofunilateral declaration of independence (UDI) by the white minority regime,the railways' access to foreign markets for replacement of its capitalstock and for spare parts was severely limited by international economicsanctions whilst routine maintenance of the infrastructure was increasinglydeferred as more resources were diverted in pursuit of the war againstmajority rule. NRZ was thus saddled with a highly heterogeneous fleetwith a significant number of units overdue for replacement. Secondly,because of the labor intensity of railways operations before the advent ofdieselization and the vast array of skills required, the railways rapidlydeveloped into the largest single employer in Zimbabwe, particularly ofskilled artisans, as the network and traffic expanded. An important policyof the pre-independence regime was the reservation of skilled and semi-skilled positions and access to training for such positions primarily forthe white labor force. Many of the white skilled artisans and managerialstaff left the railways shortly before and after independence putting theoperating viability of the system critically at risk. Finally, the tariffstructure, which emphasized sub-economic tariffs for the bulky railways-dependent traffic insufficiently cross-subsidized by high-valued goodstraffic, deepened the railways' reliance on Government subsidies for itsfinancial viability. The pervasive Government regulation and directinvolvement in managerial activities, which have prevailed throughout mostof the post-independence era, have fostered a culture in NRZ wherecommercial orientation is no longer a primary function of the entity. Theeffects of these weaknesses on NRZ are discussed in the following sections.

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C. Organization, Management and Staffing

(i) Organization and Management

2.04 NRZ's organizational structure throughout the post-independence period is illustrated in Chart 1. The key features of thisorganizational structure have been (a) an emphasis on functional reportinglines with all key operating staff in the field reporting along functionallines to an area functional head who in turn reports to the AssistantGeneral Manager (AGM) for a specific group of functions at headquarters;(b) coordination of different operating activities at the General Manager(GM) and AGI level at headquarters with limited coordination of the highlyinterdependent day-to-day operating activities in the field; (c)commingling of managerial responsibility for NRZ's trucking operations withthat for railways traffic planning and management.

2.05 This structure contained a number of critical weaknesses.Firstly, the effectiveness of coordination at the AGM level was severelylimited by the background of the AGMs who have little general managementtraining and are generally conversant with the requirements of only onediscipline in their portfolio of functions. Secondly, limited coordinationat the area level, where operating decisions have their greatest impact,inhibited the organization's ability to respond speedily to problems.Further, area organizations for the different functions were notgeographically coterminous, rendering the little cross-functional co-operation at the area level difficult to manage. Thirdly, lack offunctional co-ordination at the operational level was reflected indeficiencies in planning procedures which are centered on -he needs ofindividual functional areas rather than on corporate-wide analyses ofrequirements and priorities. Under these conditions, investment decisionshave tended to be technically-driven rather than justified on economic andfinancial criteria, and operating budgets have been driven by resource-needs based on established and often inefficient departmental operatingpractices rather than being informed by a corporate-wide commercialobjective and cost-effectiveness in operations. Finally, the truckingoperations derived little benefit from reporting to an AGff preoccupied withNRZ's dominant railways activities. RMS is managerially self-sufficient,enjoys a low degree of service complementarity with the railways andoperates in a competitive environment significantly different from that ofthe railways. The regulatory system has provided little incentive tochange this structure. The system of global and unconditional subsidies,by ensuring that all of NRZ's costs will be financed irrespective of itsoperating efficiency, provides no incentive for NRZ to restructure itselfto be cost effective.

(ii) Staffing

2.06 At the management level, NRZ has a reasonably large numberof staff that are well-trained in their respective functional disciplines.However, most have limited experience in their jobs and little or notraining in general management, in planning and control techniques in their

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fields and little knowledge of the integration of their disciplines withthe railways' other disciplines. This is partly a legacy of thediscontinuation, shortly after independence, of a system of rotationaltraining for entrants identified as having management potential. Below themiddle management level, tne quality of NRZ staff is also good, althoughthe general degree of experience is low.

2.07 Three major areas of concerns in the staffing of NRZ are:(i) the efficiency of the procedures for selection of management staff;(ii) the levels and structure of remuneration; and (iii) the numbers andprofile of skilled and professional staff. Staff Selection: Promotionalpolicy and the selection of management are, by tne Railways Act, theresponsibility of NRZ's management and Board. However, Governmentinterference in staffing, particularly in the early years of independence,has been extensive. The original rationale for interference was to correctthe distortion in the racial composition of the management of NRZ arisingfrom the pre-independence history of job reservation. However, the pursuitof this policy, which for an extended period required Governmentratification of most appointments, resulted in prolonged delays inappointments, proliferation of managers in acting positions and theselection of poor managers. It has also significantly inhibited thefreedom of NRZ's management to deploy staff in line with their capabilitiesas both senior managers and the Board are uncertain of the limits of theirauthority with respect to personnel matters. This managerial reticence onstaff selection has continued despite the cessation of an active policy ofinterference by Government in NRZ personnel selection. RemunerationPolicy: because of NRZ's visibility in the economy, Government'sapplication of incomes policies designed to counter inflation has been morestringent in NRZ than in either the smaller parastatals or the privatesector. This has led to the progressive erosion of wages for key workersboth in absolute and relative terms. As a result, NRZ is experiencing bothan increasing turnover of middle management and skilled staff whoseexperience cannot be easily replaced, and considerable difficulties inrecruiting graduate and professional level staff. Staffing levels: NRZ'sstaff productivity is excellent by developing country railways standards.Nonetheless, consultants who have undertaken a review of its organizationhave concluded that the current permanent staffing complement is at leastabout 16% larger than warranted given the scope for improvements inoperating efficiency. This confirms the findings of an internal study ofstaffing carried out by NRZ itself in 1986. The occupational profile ofstaff is highly unfavorable with significant surpluses in areas where theneed for labor-intensive operations has been or could be reduced byimprovements in working systems and changed technology, and shortages in afew areas critical for efficient railways operations. Significantly, theone serious attempt NRZ has made to reduce staff was in 1987 whenGovernment attempted to put a ceiling on the level of subsidies by severelycurtailing NRZ's access to short term debt guaranteed by Government.

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D. Physical Assets and Resources

(i) Locomotives

2.08 The NRZ motive power fleet consists of 30 electric, 80steam and 285 diesel locomotives (as of late 1989). The 30 Co-Co electriclocomotives, acquired in 1984, are of 2400KW rating operating at 25KV,50Hz, single phase, and were built by a domestic firm with equipment andparts supplied by European firms. The steam locomotives, acquired between1949 and 1957, are of the articulated "Garratt" type, and are based atThompson Junction and Mpopoma (Bulawayo). Steam operations are confined tothe Bulawayo-Victoria Falls sect'Jn where they have been progressivelysupplemented by diesel locomotives as the density of traffic on thissection has increased and the steam locomotives' haul capacity has beenderated due to boiler efficiency problems. Diesel locomotives, accountingfor over 70% of engine-kilometers performed by NRZ, form the backbone ofthe motive power on the system. The diesel locomotive fleet is highlyheterogeneous with as many as 13 different classes of different makes(Annex 3-1). This diversity of the diesel locomotive fleet is a legacy ofthe UDI days when, owing to sanctions, the options for standardization wereseverely restricted by NRZ's limited access to suppliers. Currently, outof a total of 285 locomotives in the diesel locomotive fleet, only 188 areserviceable.

2.09 The trend of locomotive availability (defined as theproportion of the serviceable fleet available for traffic operations) onthe system has been as followst

Availability of Serviceable Locomotives(%)

Type of Locomotive 1983 1984 1985 1986 1987 1988 1989Electric - 64.0 55.6 55.4 67.2 73.0 74.2Steam 46.6 41.6 38.6 42.0 42.1 40.0 37.5Diesel 68.8 70.3 67.5 62.9 54.9 53.0 51.6

The trend of availability of the steam locomotives has been reasonablegiven the aging of the fleet. All spare parts for this fleet aremanufactured or refurbished locally. The availability of the electriclocomotives has not been a serious concern. The availability of the diesellocomotive fleet has deteriorated progressively in the last ten years; withthe main underlying cause being the multiplicity of types and makes. Manyof the classes of diesel locomotives have proved to be prone to problemsand failures and need intensive maintenance. The diverse fleet requiresgood maintenance planning, an extended spectrum of technical skills andadequate spare parts inventory to ensure its adequate maintenance. The NRZmaintenance organization has been deficient in all three respects. Untilrecently, no system of planning for the maintenance of the fleet and themanpower and spare parts requirements for such work has been in use. Therapid loss of skilled and experienced staff after independence and the

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rapid turnover of staff trained by NRZ have undermined NRZ's ability vodeploy the wide array of skilled staff necessary to maintain the diversefleet. This has been exacerbated by NRZ's inventory management systemwhich became increasingly deficient through the 19809 as a vehicle forensuring that the maintenance departments have the right volume of theright type of spare parts at the right time. Finally, with the closing in1986 of Loan 1944-ZIM which had provided most of NRZ's foreign currencyneeds for spare parts, NRZ became fully subject to the domestic rationingof foreign exchange. Although the use of allocated resources was highlyinefficient, its increasingly severe rationing compounded NRZ's problems inensuring an adequate supply of inputs to maintain an acceptable level ofavailability of its diesel locomotive fleet.

(ii) Rolling Stock

2.10 Wagons: At the request of the Bank, NRZ undertook, for thefirst time, a physical census of its wagon fleet in December 1989 toascertain the number and condition of the wagons in the fleet. The censusresults indicate that the total stock of NRZ's serviceable wagons is 12147units distributed across wagon types as follows:

Open Open Tank Cars Tank Cars Others TotalHiahsided Dropsided (P.O.L.) 2/ (Others)7,012 1,179 674 186 3096* 12,147

i including 600 wagons owned by ZISCO, the parastatal steel company, butoperated by NRZ.

About S1% (358u) of the fleet of highsided will be life-expired on achronological basis (i.e over 40 years old) by the end of the decade. Ofthe other types of wagons, about 68 Z of the fleet of livestock wagons, 36%of the tank car fleet and all of the fleet of specialized explosives wagonswill be life-expired by the end of the decade. The availability of freightstock has been reported to be consistently over 902. However, this is anunreliable figure in the absence in the past of knowledge of the actualstock of own wagons on the system and the numbers of serviceable, fit andsick wagons in this stock. Passenger Coaches: NRZ has a stock of 322coaches for passenger services of which 170 will reach the end of theiraccounting lives (40 years) between 1991 and 1995 and a further 63 coachesbetween 1996 and 2000.

2.11 Given the absence of an incentive to be cost effective inthe acquisition and use of assets, NRZ has historically taken the simpleaccounting lives rather than the condition of its assets as a basis forprogramming investment requirements and has been planning for a sizeablewagons and coaches replacement investment progrom over the last three yearson this basis. No account had been taken of (a) the scope for reducing thenumber of wagons that would need to be replaced through more efficient use

2g/ Petroleum, Oils and Lubricants.

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of wagons in operations and improved design of wagons or lengthening thelives of wagons through improved maintenance practices; or (b) thecondition or likely condition of the assets programmed to be replaced.During negotiations, agreement was reached with Government and NRZ on amore rigorous basis for future investment appraisals.

(iii) Permanent Way

2.12 The track on NRZ is laid to a 1067 mm gauge, the standardgauge for southern Africa, used, besides NRZ, by the railways systems inZambia, Zaire, Mozambique, Botswana, Angola, Swaziland, TAZARA and RSA inan inter-connected regional system. The mainline sections are laid mostlywith 54 kglm and 45 kglm rail on steel sleepers. Details of basic trackstandards are shown in IBRD MaP 22112. On the Harare-Bulawayo sections,which has the heaviest density of traffic and includes the electrifiedsection between Harare and Dabuka, curves are 400 m and over in radius (i.enot too sharp) and ruling grades are 1.25X or less. The Bulawayo-VictoriaFalls section has curves with radii of up to 240 m and a ruling gradient of1.0. The Harare-Mutare section has curves with radii of up to 200 m and aruling gradient of 2.0%. Mainline axle-loads are generally 18.6 tonnes.The condition of the track is good by international standards. Themaintenance organization for permanent way is soundly structured andstaffing in middle and lower grades is good and well-experienced. Seniorlevel management staff is well qualified but, with the resignation orretirement of the older staff, is relatively inexperienced. Maintenancesystems are functioning effectively and maintenance work is programmedsystematically. No major works on the track are needed in the next fewyeara and surplus maintenance staff are being deployed currently oncontract track rehabilitation work in Mozambique.

(iv) Signalling and Telecommunications

2.13 The main telecommunications system is digital ultra highfrequency (microwave) based, and is in good condition. The Harare-Mutaresection has recently been provided with an optical fibre-based system, butthe telephone exchange at Harare is obsolete and maintenance spares arecurrently obtained mainly from discarded exchanges of the same make andvintage through the original supplier. Signalling and block working iswith a Centralized Traffic Control (CTC) system on the main lines, whilethe branch lines are worked with a facsimile paper order system. The CTCsupervision equipment on the Harare-Mutare section is of mid-1950s vintage,is unreliable and increasingly difficult to maintain. A significantproportion of locomotive radios and portable radios used for the control ofoperations need replacement due to their age and unreliable condition.Personnel turnover and NRZ's inability to recruit staff is a severe problemin this department and has resulted in about 50X of the managementpositions being vacant currently.

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(v) Information Technology and Systems

2.14 The bulk of NRZ's d-ta processing is undertaken on an off-line batch basis on a mainframe c>):puter (NCR 8565M) with two megabytes(mb) of main memory. The computer is about ten years old, obsolete andprone to failure. The supporting peripheral equipment--tape decks anddrives, card reader, terminals and pr1iters--are equally obsolete and proneto failure and were mostly transferred from an earlier system. Most of thesystems run on the mainframe were inherited from pre-independence days andare written in NEAT/3 - an obsolete, low-level programming language notsupported by any other mainframe make or subsequent generations of the samemake. NEAT/3 is understood by few systems professionals; in addition, mostof NRZ's systems were poorly documented. As a result, maintenance of theexisting 40 or so systems which run on the mainframe is difficult andsystems upgrading to add desired features has been impossible. NRZ iscurrently in the process of replacing this computer system with a new onecapable of supporting a universal programming language (COBOL) and withfour mb of upgradable memory with financing provided by the Bank under Loan2342-ZIM. Two minicomputers (Perkin Elmers), with two megabytes of mainmemory each, supported by a complex of 29 terminals distributed around therailways for on-line data entry, are dedicated to running NRZ's traindispatch information system (Advance Train Information System or ATIS) withsubsidiary data analysis based on its primary output undertaken on themainframe. The use of personal computers (pCs) is limited, with the sixpes available throughout the organization concentrated in the accountingdepartment.

2.15 Processing on the mainframe is mostly devoted to routineprocessing of accounting, traffic data and payroll. The main computerizedaccounting systems are the revenue and expenditure accounting systems andthe asset register. The general ledger is maintained on a pc. Mostsignificant financial analytical tasks based on data output from the main-frame are undertaken manually. Timeliness of routine processing ofaccounts is acceptable, but considerably impeded by the degree of manualdata entry and associated data verification processes. Traffic statisticsare generated as a subroutine of the revenue accounting system. Trainperformance data and wagon hire and utilization data are processed on themainframe from data generated from the train dispatch system. The suppliesmanagement system generates listings of requisitions fulfilled, updatedstock listings and stock holding positions relative to assigned bufferlevels. The system is clerical labor-intensive for input. Subsidiaryanalysis on its output and the tracking of orders placed has to beundertaken manually. Updating the payroll system has been difficult andany analysis of payroll data has to be generated manually. Priority forprocessing is assigned to payroll and accounting data. Traffic and otheroperational data are subject to considerable delays. The usefulness ofNRZ's extensive data generation for management decision-making is limiteddue to the primary nature of much of it and the required effort to analyzeit. Also, there is little appreciation of the extent to which decisionmaking can be enhanced through the tapping of the wealth of data currentlygenerated on all aspects of NRZ operations.

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E. Operations

2.16 The salient features of NRZ's operating performance in thelast four years and the four years immediately preceding and followingZimbabwe's independence are presented in the table below:

ZIMBABWE: NRZ's Operatino Performance

Net tonnes Productivitycarried

Year Diesel locos Average no. (million Train engine km/ Wason kmIn use wagons on NRZ tonnes) day/loco In use per wagon

1978 129.2 18043 11.95 858 591979 128.1 18S08 12.29 851 6S1980 185.0 13695 18.80 as8 621981 127.6 18888 18.91 854 68

1985 164.2 18916 18.60 28c 551986 148.8 14457 14.04 262 St1987 122.8 14042 13.90 248 491988 102.4 18255 18.68 245 48

Source: NRZ statistics

The striking feature of NRI's operating performance is the sharp decline inproductivity in the post-independence period. Locomotive utilizationaveraged 354 train engine km per available locomotive in use per day(equivalent to about 420 engine km) in the pre-independence period butdeclined sharply after 1984 and has averaged only 246 km (equivalent to 290engine km) in the last four years. The pronounced decline in productivityis a result of a number of factors. Firstly, many systems of operationsand operating practices inherited from the pre-independence period areinherently inefficient and have not been modernized (Annex 2-1). Forexample, block train operations that allow better utilization of assetsaccount for only 151 of total freight traffic although about 60% of thetraffic carried by NRZ is suited to such operating practice. Operationallyirrelevant crew rostering tied to rigid timetables are still in use,leading to the running of less trains than is possible. Assignment ofmotive power to sections of track still follow patterns established in thepre-independence period and lead to the need for numerous adjustments oftrain loads to match motive power to sectional track characteristics. Yet,the change in the composition of the fleet since independence and moreefficient train formation practices would permit the establishment ofuniform load requirements across the system thereby avoiding the delays anddetentions inherent in numerous load changes. Secondly, detailedmanagement, monitoring and control of operations has weakened considerablysince independence. NRZ collects detailed statistics on all key aspects ofits operations and these have shown the deteriorating trend in assetsutilization. However, systematic management action to address weaknesseshave never been prompted by the statistics collected for a variety ofreasons. Formal performance objectives for key departments are not afeature of NRZ's management system and systematic reviews of performance

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other than on day-to-day operations (which inevitably are crisis-oriented)do not take place. More importantly, much of NRZ's middle and seniormanagement staff are relatively inexperienced and have been inducted into asystem that functioned on informal management control procedures only atthe start of a period when most of the experienced and cohesive staff thatare necessary for the effective functioning of such a system had left orwere leaving. Finally, there has been little effective pressure from NRZ'sBoard or Government for more effective utilization of assets; relativelyeasy access to national resources for new or hired operational assetsthroughout much of the post-independence period made it possible for NRZ toavoid required changes in the management of operations.

F. Financial Performance

2.17 A summary of NRZ's financial performance since independenceis provided in the table below and detailed in Annex 4-1.

ZIMBABWE: NRZ2s Recent Finencital Performance(Zs millions)

1981/82-19683/4!' 1904/86 198s/88 196,/67 1987/88 1988/89

Revenues -- 20S.1 242.2 249.5 261.0 269.4

Operating Costs -- 221.8 274.4 269.6 304.0 888.7

Operating IncomoeW (60.6) (21.7) (36.0) (58.2) (47.7) (69.6)

Free Cash Flowfrom Operations!' (56.1) (10.7) (26.?) (12.4) (86.2) (82.7)

Debt Service (97.4) (50.2) (72.8) (78.6) (79.9) (79.1)

Financing RequirementV/: 163.6 60.9 101.8 85.9 116.1 111.8

Government Support:

Subsidies Paid 91.7 81.8 60.0 80.0 100.0 120.0

Increse In OverdraftGuarantees 52.1 16.6 19.0 10.8 20.8 -

Total Government Support'- 148.8 49.9 79.0 90.8 120.8 120.9

Notes:

a/ Cumulative.Includes net rental income.

sf Operating Income plus d6prectation plus net Investment In operating workingcapital.Free cash flwo plu debt servIce;Difference In t-iiT Government support and financing requirement reflect NRZ drawdown of Its own cash belances or deferral of debt service payments or Governmentlong-term debt financing of track renewal expenditures charged to profit and loss.

Source: NRZ accounts.

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2.18 As the table shows, NRZ's financial performance has beenpoor. NRZ incurred operating losses in each of the five years to June1989. Cash generation has been correspondingly poor with the cumulativecash drain from operating activities amounting to Z$ 120.7 million overthose five years. Preliminary results for 1989/90 show an operating lossof ZS 130.4 million and cash outflow from operations of Z$ 34.8 million.Since independence, the cumulative cash drain from operating activities hasamounted to an estimated Z$ 212 million. This cash outflow from operatingactivities compares to cumulative debt service obligations of Z$ 535million since independence. Thus, since independence, NRZ has had a totalexternal financing requirement of Z$ 747 million to stay financiallysolvent. This requirement has been provided by Government in the form ofcumulative budgetary appropriations of Z$ 583 million, guarantees of shortterm indebtedness of Z$ 154 million, long term loans to finance essentiallyrecurrent track renewal expenditures and deferrals of debt servicepayments. In addition, Government has on several occasions capitalizeddeh't or assumed the foreign exchange risk on external direct loans to easeNRZ's debt service burden. With this post-independence history of negativeperformance and cash hemorrhage, NRZ is now close to bankruptcy with totaldebt equal to about 100% of capital employed.

2.19 The underlying reasons for this poor financial performancehave been: (i) an inappropriate institutional framework (embodied in theNational Railways of Zimbabwe Act 1973) governing NRZ; (ii) inadequatetariffs in relation to direct operating costs and NRZ's asset base; (iii)high fixed costs in relation to NRZ's asset base; and (iv) poor capitalexpenditure screening procedures and inappropriate debt financing of asubstantial proportion of NRZ's recent capital expenditure program.

2.20 Institutional Frameworks By statute, NRZ enjoysunconditional Government support for its overall cash flow shortfall eventhough it has clearly defined obligations in the same statutes to befinancially self-sustaining. Under this regulatory regime, tariffs havebeen closely controlled but no system of scrutiny of NRZ operations andcosts has been instituted. NRZ has had little incentive to introduce andimplement systems to ensure the efficient utilization of assets.

2.21 Tariffss The major principle underlying the current tariffstructure is the need to ensure that no traffic is charged a rate greaterthan it is able to bear. Low-value commodities, comprising the major partof NR2's traffic, are carried at relatively low rates whilst traffic ofrelatively high-value, such as petroleum products, is charged comparativelyhigh rates. This structure has meant that throughout most of the post-independence period, low-value bulk commodities were carried at ratessignificantly below NRZ's direct operating costs, while petroleum productsand other high-value products were carried at significantly above directcosts (see Annex 2-2 (a) for the position in 1988/89). However, theunderlying cross-subsidies have not been sufficient to ensureprofitability. This problem has been exacerbated by Government's continuedreluctance to grant tariff increases on a timely basis to cover operatingcosts. Although tariff levels have not been severely eroded between 1981

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and 1989, with increases in revenues per net tonne-kilometer (NTKM)averaging 112 p.a. relative to average inflation of 13X p.a., tariffincreases were approved with considerable lags thus eroding profitabilityover long periods (Annex 2-2 (b)). In December 1989, GOZ authorizedsubstantial increases (12% to 50%) in tariffs to offset part of the backlogof inflationary cost increases and redress the distorted structure ofcommodity by commodity tariffs by allowing NRZ complete freedom, for thefirst time, to distribute the increases to close the gap between directcosts and tariffs for all commodities. During negotiations, a2reement wasreached with Government that it will maintain this policy.

2.22 Fixed Costs: Fixed costs account for an estimated 451 ofNRZ's operating costs, of which administrative costs account for about 501.Over 90% of fixed costs are labor costs. At the same time as NRZ'scontribution margin per unit of rail service has been declining sharply (atan annual average rate of about 15% since independence), administrativecosts have been allowed to increase at around 11% p.a. and overall laborcosts by 13% p.a.

2.23 Investment Screening and Debt Structures NRZ's proceduresfor capital budgeting have been weak with little formal regard given tofinancial and economic criteria (para 2.05). This has resulted in somemajor instances of imprudent investments such as the recent purchase ofsubstantial amounts of rehabilitation spare parts for the DE7 classlocomotive shortly before they were scheduled for scrapping. Compoundingthis problem, NRZ does not have a defined capital structure and financesinvestments with debt which is periodically and on an ad hoc basis formallyconverted into Government equity interest. The structure and compositionof debt has contributed to NRZ's poor performance in three major respects.Firstly, debt has been contracted against assets that proved not to beproductive in use. Secondly, the preponderant proportion of debt wascontracted in a relatively short period after independence to finance thecost of major long-lived assets on terms that imply full payment of debt ina comparatively short period. These assets comprise a significant part ofNRZ's asset base. Even with highly efficient operations, the productivityof the railways as a whole would not be able to support the related debtservice payments unless tariffs are extremely high and uncompetitive forthe duration of the period of extreme bunching of debt service obligations.Finally, the major portion of NRZ's debt is contracted in foreign currencywith NRZ assuming the foreign exchange risk. The depreciation of theZimbabwe dollar coupled with NRZ's inability to (i) raise tariffs to offsetthe related increase in costs, and (ii) effect gains in productivity,contributed to an erosion of its ability to meet the debt repayments.

G. Regulatory Reform

2.24 In November 1989, faced with the collapse of NRZ operationsdue to severe congestion in the major yards and the severe effect of thison industrial activity and the projection of large increases in NRZ'ssubsidy requirements (Annex 1), Government appointed a Task Force headed bythe Vice President of the country to undertake a thorough review of the

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problems affecting NRZ and propose measures for their long-term solution.The Task Force has recommended and Government has accepted a radical changein the framework for the regulation of NRZ operations. The frameworkoutlines the following basis for NRZ operations:

(a) Government Oversight of Operations: Cabinet to monitor NRZperformance based on annually agreed operational targets. TheCabinet Committee on Transport to monitor operation of the newmodalities for a supporting operating environment for NRZ embodiedin the framework to ensure that the requirements of NRZ are met.

(b) NRZ Board and Manatement: NRZ Board and management be givenexplicit financial and operational objectives that reflectreasonable levels of operating efficiency and the related powersto achieve these objectives. All Board members to be appointed onthe basis of their professional competence and the Board's linksto Government be strengthened by senior, non-voting representationof the three key Ministries of Finance, Labor and Transport. TheGeneral Manager to be subject to a performanc contract.

(c) Organizations A new organizational structure (Chart 2) to remedythe structural deficiencies of the old structure be implemented4mmediately and to comprise the following elements: (i) areamanagement structure with coterminous traffic operations andengineering zones headed by an area general manager responsiblefor day-to-day coordination of operations and reporting directlyto the GM; (ii) a position of AGM for finance to adviseappropriately and play a key role in the development andimplementation of operating and investment plans and pricing andcost-reduction strategies; (iii) regrouping of the functionalresponsibilities of the AGMs, reduction of the day-to-dayoperational role of traffic and engineering AGMs and headquartersfunctional heads and strengthening of AGM's capacity for system-wide operational planning and budgeting, functional performancemonitoring and quality control; (iv) creation of a strong centralplanning unit with defined responsibilities for formulatingmarketing strategies; and (iv) reorganization of RMS as anautonomous operating division with its manager reporting directlyto the GM.

(d) Staffing: Staff appointed to key positions to which they areunsuited be redeployed immediately. The grading structure,recruitment policies and staffing levels be reviewed and actingpositions be drastically curtailed. NRZ management to institutean effective and fair personnel appraisal system.

(e) Access to Foreign Exchange: NRZ's foreign currency requirementsfor maintenance inputs, determined on a 'scientific basis' (i.ebased on maintenance plans related to its operating performanceobjectives), be provided on an open general import license (notsubject to the current system of foreign currency allocation

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operated by the Ministry of Trade and Commerce (MTC)) subject to ausage audit. NRZ9s foreign currency requirements for properlydetermined life-expired assets be provided for by the MFEPD beforethe global allocation of foreign exchange to other sectors throughthe MTC is made.

(f) Tariffst Tariff increases be allowed to remedy fully thestructural distortions in NRZ's tariffs. NRZ be delegated thepowers to increase its tariffs automatically in July of each yearto cover increases in its direct costs of operation.

(g) Capital Structure: The capital structure be rationalized byGovernment financing all future infrastructural investments withequity. Government to assume the foreign exchange risk on allexternal loans to NRZ. Consideration be given by Government toclearing the backlog of unpaid subsidies (Z$ 201 million at thetime of adoption of the framework) to cover NRZ's losses, whichhave been financed mainly by Government-guaranteed short-termborrowings.

(h) Civil Service Bureaucracy: The civil service bureaucracy impactingon NRZ operations be drastically reduced by limiting processingtimes for NRZ-originated matters to one month for each ministry.NRZ to be granted blanket authority on procurement for standardproprietary spare parts subject to it following standard practicefor quotations and a post-event audit of such procurement.

2.25 Government has fully accepted the proposed framework as thebasis for its regulation of NRZ. The framework addresses comprehensivelymost of the Bank's concerns about NRZ's regulation. However, a significantomission from it is an explicit definition of Government policy onsubsidies to NRZ and recognition of the need for a non-contradictory set offinancial goals. NRZ should not need any subsidy under the new frameworkif it operates moderately efficiently (para 4.06 and Annexes 4-3 and 4-4).To assure that there are clear financial goals, and to safeguard againstNRZ exploiting the pricing powers granted to it under the framework tocover up operating inefficiencies, agreement was reached with Governmentduring negotiations on explicit financial goals for NRZ tied to itsoperating performance objectives. Under this agreement, NRZ is required toearn a rate of return on its capital employed of not less than 4% in1990/91. Target rates of returns for subsequent years will be determinedannually by Government in consultation with the Bank. Based on theoperational and financial evaluations undertaken for the project and thelevel of cash generation required to ensure a self-sustaining degree offinancial performance, these target returns are expected to be 8% in1991/92 and 1992/93 and 12% p.a. thereafter (para 6.01 (i)).

2.26 Government has already taken a number of measures toimplement the provisions of the framework. A new Board was appointed inMay 1990 with a clearly defined mandate to increase the railways operatingefficiency and to realize positive rates of return on its total capital

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employed. This is a departure from past practice whereby the Board wasappointed with a mandate to implement the general provisions of theRailways Act. A budgetary appropriation of Z$ 255 million was made in the3overnment's budget for 199(1/91 to fund the backlog of unpaid subsidies toNRZ, which amounted to Z$ 283 million as of June 30, 1990. Government hasalready paid Z$ 160 million of the appropriated amount to NRZ and plans topay the remaining amounts in monthly installments by March 1991. Tariffincreases of an average of 20% for freight and passenger traffic wereapproved by Government in July 1990 and implemented by NRZ. This bringsthe cumulative increases in freight tariffs since the appointment of theTask Force to 58%. Government has permitted these increases to bedistributed across commodities so as to substantially eliminate the seriousdistortions in the relationship between the tariff and cost of movement formajor commodities. As an interim arrangement to the institution of an OGILsystem, Government has decided that the foreign currency requirements forNRZ operations will be allocated directly by the Cabinet.

2.27 During negotiations, agreement was reached with Governmentthat, as a condition of loan effectiveness, it would have taken allnecessary further actions to implement all the substantive provisions ofthe Framework for NRZ Operations and that NRZ's tariffs for its fiscal year1991 would have been adjusted in accordance with the provisions of theFramework (paras 6.02 (i) and 6.02 (ii)). This agreement covered, inter-alia, the following areas and actions: (a) foreign currency allocation:Government to detail the administrative arrangements to govern theallocation of foreign currency to NRZ by Cabinet; (b) tariff adjustments:Government to detail the delegation of powers to NRZ to adjust its tariffsto compensate for inflation, to define the costs to be covered and therelevant indices of increases in such costs; (c) capital structure: alllegal actions to be effected to enable NRZ to issue equity-type securitiesthereby enabling the proposed financing of classes of assets in the futureto be effected; (d) performance contract: the execution of a performancecontract satisfactory to the Bank between the NRZ Board and the GeneralManager of NRZ; and (e) monitoring and reporting arrangements: the detaileddefinition by Government of the monitoring and reporting arrangements tobe complied to by NRZ under the framework.

H. Restructuring StrateaV

2.28 The changes in the regulation of NRZ embodied in theframework and the performance-orientation of Government's proposedoversight responsibilities represent, in effect, a comprehensive strategyfor the restructuring of NRZ operations to reverse its deterioratingoperating and financial performance. During appraisal, the elements of arestructuring strategy were discussed with Government and NRZ. Theunderstandings reached then are consistent with the proposals adopted byGovernment. The restructuring strategy discussed during appraisal consistsof four related elements supported by clearly defined changes in theframework for Government support and regulation of NRZ. The elementscomprise: (i) an operations improvement strategy; (ii) an organizational

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restructuring strategy; (iii) a phvsical asset restructuring and investmentstrategy; and (iv) a financial performance improvement strategy.

2.29 The objective of the operations ress.ructuring strategy is torestore NRZ's productivity to levels attained in the immediate post-independence period. During appraisal, NRZ confirmed the attainability ofoperating efficiency targets designed to achieve this objective and, withthe assistance of consultants, prepared a detailed Operations ImprovementPlan (OIP) outlining the changes in current operating systems and practicesthat are necessary to attain them. The OIP is detailed in Annex 3-8. TheOIP has been endorsed by Government as an integral part of its newframework. During negotiations, the OIP and its underlying performancetargets were reconfirmed with Government and NRZ as the basis of NRZ'soperations during the project period (paras 6.01 (ii) and 6.01 (xii)).

2.30 The organization restructuring element of the strategy isdesigned to complement the OIP by effectively devolving managerialresponsibility for day-to-day operations to the districts whilststrengthening headquarters operations planning and monitoring capacity,streamlining reporting relationships to enhance managerial effectivenessand reducing the number of redundant staff. The key aspects of thissubstrategy will be: (i) the formalization and strengthening of operationsand management information and control systems; (ii) the related trainingof management and other staff; and (iii) the institution of a post-apprenticeship training program for artisans to accelerate experience-gaining and the restructuring of grading systems for artisans to increasethe incentive for larger numbers of trained artisans to stay in NRZ. TheStrategy will significantly enhance NRZ's responsiveness to its customersboth through fostering greater contact at the area level and focussingheadquartersO efforts on strengthening its systems for market intelligenceto support the areas.

2.31 The objective of the physical asset restructuring andinvestment strategy is to enhance the physical productivity of NRZ'soperational and infrastructural assets by increasing the reliability of theexisting fleet of locomotives through improvements in maintenancemanagement systems and practices, replacing aged and uneconomic assetscrucial to the attainment of the targets of the OIP and relieving physicalbottlenecks in the structure of the system. The program of investments tosupport this strategy that was agreed with NRZ during appraisal has beenendorsed by Government in its new framework.

2.32 The central objective of the financial restructuringstrategy is to enable NRZ to achieve a reasonable return on capitalemployed and a reasonable degree of cash generation through an efficientoperating cost and asset structure and good financial management practices.

2.33 These restructuring actions, if successfully implemented,will lead to significant improvements in NRZ's operating and financialperformance. Firstly, at current levels of operating efficiency, NRZ has

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reached the feasible ceiling of its operating capacity. This ceiling isdetermined primarily by the number of locomotives it can hire from RSA tosupplement its fleet. Currently, 20 locomotives are on hire from RSA tosupplement NRZ's own fleet in moving 5.3 billion NTKMs of revenue freighttraffic and performing a basic passenger service; this hiring requirementwill rise to 24 locomotives with the inevitable scrapping of poorlyperforming locomotives in the next two to three years (Annex 3-2). This isthe maximum number of locomotives that RSA can make available to NRZ. Incontrast, with achievement of the operating targets under the restructuringstrategy, NRZ can perform the current level of transport without the needfor hired locomotives and can cater to an incremental 1.2 billion NTKMswith a total of 20 hired or new locomotives (Annex 3-2). By utilizingassets more effectively through increasing unit loads per train andreducing locomotive and wagons cycle times (key objectives of the OIP) andreducing the associated variable cost of staff and the need for unnecessaryhires of locomotives, the restructuring strategy would lower significantlythe unit variable cost of rail transport and ibe level of traffic requiredto cover NRZ's fixed costs (para 4.09 and Annexes 4-3 and 4-4). Thesecentral effects of the restructuring strategy are summarized in the tablebelow which assumes that the efficiency operating targets reconfirmed withGovernment and NRZ during negotiations are achieved on the time scheduleplanned by Government and NRZ (Annex 3-8 (b)).

1991 1993 1995Freight Traffic (Million NTKM):

With Strategies: 6079 6339 6657Without Strategies: 5394 5394 5394

Locomotive Hires:With Strategies: 18 0 0

Without Strategies: 22 24 24

Wagon Shortfall:With Strategies: 3500 2900 2600

Without Strategies: 5000 5000 5000

Short-Run Variable Costs (Z$ per NTKM):With Strategies: .030 .032 .031

Without Strategies: .040 .040 .040

I. Restructuring Strategy: Regional Context

2.34 Successful implementation of the restructuring strategy hasimportant economic and commercial implications for transit traffic in theregion. Firstly, at current levels of operating efficiency, NRZ has astrong operating incentive to move traffic through RSA to enable it togenerate wagons from SAR that can be detained for domestic movements. Thisis not optimal for the Zimbabwean economy (para 1.07). The economy ofMozambique, subject to efficient operations on the Mozambican railways,will be a major beneficiary of economically justified diversion of Zimbabwe

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traffic from RSA. Secondly, the improvements in operating practices,particularly the extensive use of block train operations and better wagontracing systems, will benefit the major countries using Zimbabwe to transittheir international trade traffic to seaports - Malawi, Zaire and Zambia -in the form of improved service and transit times. Thirdly, part of thereduction in the real cost of NRZ operations is likely to be passed on tothe transit countries particularly as competition from other transitcorridors (not incorporating NRZ) increases with the ongoing railwaysrehabilitation programs in the region. Finally, the restructuring programby emphasizing the effective utilization of assets provides a strongincentive for NRZ as the largest originator or recipient of railwaystransit traffic in the region (60% of all regional transit movements atpresent) to take the lead in co-operative attempts at maximizing the use ofwagons which, for transit traffic, are the only railways assets traversingnational borders.

III. THE PROJECT

A. Obiectives

3.01 The basic objective of the proposed project is to supportthe organizational, financial and asset restructuring of NRZ necessary toenable it to increase the utilization of its existing capacity, catereffectively to the prospective demand for rail transport and becomefinancially self-sustaining. The proposed project will help reduce theeconomic cost of rail transport and stem the costly diversion of trafficfrom rail to road. It would help to relax the current transport constrainton production in sectors where road transport of inputs or outputs isinfeasible, improve the level of cost recovery in NRZ and reduce its claimson Government resources and improve the prospects for the utilization ofthe Mozambican transport corridor to the benefit of both Mozambique andZimbabwe. The project objectives are consistent with Government's broadmacro-economic objectives and are supportive of the significant changes inthe regulation of NRZ that GOZ is currently implementing.

B. Genesis of the Project

3.02 During the conduct of the Bank's review of the transportsector in 1986, a number of underlying causes of NRZ's deterioratingoperating and financial performance were identified. These included adiverse locomotive fleet, an inefficient inventory management system, poorinvestment appraisal procedures, a distorted tariff regime and an open-ended subsidy comitment from Government. The review was followed by anumber of detailed studies (diesel locomotive fleet restructuring,investment appraisal methodologies, replacement of computer hardwaresystems and strategy for redevelopmenr of software) on these and otherefficiency problems identified during supervision of Loan 2342-ZIM.

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Proceeds from the recently closed Loan 2342 were used to address the mosturgent operational problems. The recommendations of the short term studiesand of two major follow-on studies to the TSM (financed by the Bank underLoan 2342--Investment Study and Organizational and Financial StructureStudy), designed to provide an integrated basis for a longer-termresolution of NRZ's capacity, organizational and institutional problems andGovernment's framework for NRZ operations are the basis of the proposedproject.

C. Detailed Proiect Description

3.03 The project consists of the following components:

(i) Physical Investments

(a) procurement of 25 new main line locomotives;

(b) repowering of 43 shunting locomotives;

(c) provision of locomotive spare parts for clearing arrears ofdeferred maintenance;

(d) procurement of about 520 dropsided and about 500 highsidedwagons;

(e) procurement of 50 passenger coaches;

(f) replacement of a telephone exchange, Centralized TrafficControl supervision equipment, and portable and locomotiveradios;

(g) procurement of a breakdown crane;

(h) procurement of plant and machinery and service vehicleson replacement account;

(i) procurement of insulation equipment at the electricalworkshops;

(j) electrification of about 27 kms. of track and provision ofover-voltage correction equipment;

(k) railway training school equipment.

(il) Organizational Restructurina

(a) 744 person-months of technical assistance for management andsupervisory staff support and skills development;

(b) management training and training school equipment;

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(iii) Operational Restructurina

(a) procurement of packaged OIS software and of computerhardware;

(iv) Financial Management and Restructuring

(a) nine person-months of consulting services to develop costaccounting and control systems;

(b) twelve person-months in technical assistance for theprocurement and development of accounting systems software;

(i) Physical Investments:

(a) Main line Locomotives

3.04 Out of its current diesel locomotive fleet of 285 units (asat late 1989), NRZ plans to scrap or set aside 130 units by the end of1993. The scrapping program which is part of NRZ's diesel locomotive fleetrestructuring program, has been reviewed by the Bank and is reasonable(Annex 3-1). During negotiations, agreement was reached with NRZ that itwill prepare a timetable for the implementation of the scrapping programand for the disposal of scrapped locomotives which will be adopted andimplemented by it after review by Government and the Bank (para 6.01(xiii)). Of the residual diesel locomotive fleet of 155 serviceable unitsat the end of the scrapping program, 83 units will be suitable for mainlineservice. The 83 units will consist of 3 classes of locomotives withdifferent performance characteristics. However, based on their relativerecent operating performance, these locomotives are equivalent to 71 unitsof the most reliable and productive of NRZ's diesel locomotive fleet (theDE1OA class). Based on a review of (i) the railways' traffic prospects;(ii) the relative productivity of different makes of diesel locomotives inthe fleet; (iii) the capacity of the existing fleet of steam locomotives onthe Victoria Falls-Plumtree section; and (iv) potential improvements in theefficiency of traffic operations and the prospective availability of thediesel locomotive fleet, the requirement for mainline locomotives in 1997,when NRZ's effective capacity is projected to equal the maximum forecasttraffic, will be for 95 DE1OA class equivalent units, leaving a shortfallof 24 main line units (DE1OA equivalents). Details of the assessment ofdiesel locomotive requirements are provided in Annex 3-2.

3.05 To fill the gap in NRZ's requirements over the next fiveyears, three broad choices have been examined: (i) acquisition of newlocomotives; (ii) repowering of some locomotives with suitable structuralcharacteristics capable of being fitted with equipment similar orequivalent to DE1OA class equipment; and (iii) a mix of acquisition andrepowering. NRZ has identified the DE8B class of locomotives as the mostsuitable class of locomotives for repowering. With assistance from theCanadian International Development Agency (CIDA), NRZ had in 1988 embarked

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on the design and building of a repowered locomotive using the DE8B frame,but engines and electrical equipment from a different manufacturer. Withthe assistance of consultants, NRZ has reviewed the relative economicmerits of (i) this repowering option compared to repowering with theexisting engine type; and (ii) the optimal repowering option compared topurchase of new locomotives, and has concluded that repowering of the fleetof DE8B locomotives under either option has marginal economic benefits.GOZ and NRZ believe, and the appraisal mission concurs, that there are anumber of risks attached to this approach. In particular: ($) there is noexperience of repowering on the scale and complexity envisaged; and (1i)the prototype needs long-term trials and evaluation. There are significantrisks that (i) problems in production will lead to significant slippage inthe delivery of locomotives as compared to the purchase of new ones; and(ii) the repowered locomotives may prove significantly less reliable andtherefore less productive than new ones. Accordingly, GOZ and NRZ havedecided that it would be best to acquire new locomotives and focus NRZ'sengineering management efforts on the maintenance of its serviceable fleet.The Bank agrees with this position and has confirmed that the marginaleconomic benefits of repowering is highly sensitive to the option'stechnical risks. In the light of this finding, the project provides forthe procurement of 25 mainline locomotives which are equivalent to 29 DE1OAclass units after adjusting for the greater productivity that can beattained by new locomotives that will operate predominantly in the easternregion where the track is better, the traffic denser and the hauls longerand that will have a relatively higher availability. The surplus of 5locomotives on assessed requirements will grant NRZ additional flexibilityin operations and would be subject to stringent controls of its use (para3.35). The DE8A/8B locomotives originally slated for repowering will,therefore, be set aside pending further operational and technical trials ofthe prototype repowered unit. If these trials prove satisfactory,repowering of the DE8A/8B locomotives could be considered later to meet theshortfalls that would arise after 1995 when the phased scrapping of another30 locomotives might cammence.

(b) Repowerinz of Shunting Locomotives

3.06 The core of NRZ's shunting locomotive fleet is the DE9 andDE9A locomotives comprising 89% of the shunting locomotives. The DE9locomotives are being repowered under the ongoing Loan 2342-ZIM. The DE9Afleet is powered by the same make of engine as in the DE8 series mainlineunits. Similar problems have been encountered with these locomotives, withpoor reliability and complex and intensive maintenance requirements.Repowering is not as technically eomplex as in the case of the DE8Bs sinceonly the engine would be replaced. A prototype repowering using theengines to be fitted in the DE9 locomotives has already been successfullyundertaken by NRZ with assistance and production guarantees from the enginemanufacturers. The repowered locomotive has been performing satisfactorilyfor over 24 months now. Under the project, it is proposed to repower the43 remaining units in the fleet of DE9As with the same type of engine asused in the successful prototype. NRZ's assignment of its shunting

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locomotives to its various yards have been reviewed by the Bank and aresatisfactory.

(c) Locomotive Spare Parts

3.07 NRZ has a significant accumulated backlog of scheduledlocomotive maintenance. The spare parts requirements for the estimated twoyears of backlog have already been assessed under a short-term MaintenanceAction Plan agreed with the Bank under the ongoing Loan 2342-ZIM and havebeen fully funded by Government. The spare parts requirement for thedeferred maintenance that will arise as the backlog is being cleared willbe funded under the proposed project. The foreign exchange requirementsfor routine oxgoing maintenance of locomotives would be provided by theGovernment.

(d) Procurement of Wagons

3.08 A detailed assessment of NRZ's projected operatingperformance and a review of its planned wagon scrapping program indicatesthat, with the attainment of the wagon productivity targets under the OIPand suitable reciprocal agreements on the use of wagons originating from ordestined to contiguous railways, NRZ would need to invest in 520 drop-sided wagons over the next five years to meet the prospective demand forrail transport (Annex 3-3) of high density commodities. These wagons,which will be funded under the project, would serve a dual role as carriersfor both breakbulk and containerized traffic. The assessment indicatesthat there will be a shortfall of about 1,000 highsided wagons by 1995.During negotiation, agreement was reached with Government and NRZ that 500highsided wagons would be provided for under the project. The balance ofthe shortfall in highsided wagons would be hired from contiguous railways.Since the retention of an unduly large number of wagons on the system isone of the major contributory causes of inefficient operations, agreementwas reached with 1RZ during negotiations that (a) no later than March 31,1991, it shall prepare and submit to Government and the Bank programs forthe scrapping and disposal of highsided and drop-sided wagons, includingtimetables for the implementation of such programs; and (b) it shall adoptand implement scrapping and disposal programs satisfactory to Governmentand the Bank (para 6.01 (xiii)).

(e) Rehabilitation of Coaches

3.09 The requirement for coaches to operate the existing level ofdomestic passenger services has been estimated at 164 coaches, includingprovision for maintenance and spares. An additional 50 coaches arerequired for peak periods and for festive seasonal trains for a totalrequirement of 214 coaches under the current level of service provision.By 1995, the stock of non-life-expired coaches would be 152 units leaving ashortfall of 62 coaches to provide the existing level of service. Thephysical census of coaches indicates that a substantial number of coachesthat will be life-expired have serious structural defects and it will not

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be cost-effective to rehabilitate them. Moreover, as NRZ completes thestructural adjustment of its fares to cost recovery levels (paras 2.26 and2.27), it would need to upgrade the standard of its coaching fleet to staycompetitive with road transport particularly on the important Harare -Bulawayo segment. To enable NRZ to continue to provide an acceptable leveland quality of service during the project period, agreement was reachedduring negotiation that the procurement of 50 coaches will be provided forunder the project. For the balance of requirement of coaching stock, NRZwould select coaches that are life-expired on the basis of age but that arein reasonable condition and undertake minimal refurbishments on them foruse on festive and seasonal trains. To protect the financial viability ofthe passenger services, agreement was reached with Government duringnegotiations that passenger fares will be increased each fiscal year byamounts sufficient to enable NRZ to generate adequate additional revenuesto cover the amortization of coaches procured during such fiscal year.Agreement was also reached with Government that the passenger services'revenues and attributable costs will be accounted for and disclosedseparately from NRZ's other activities in NRZ's annual accounts (paras 6.01(iii) and 6.01 (xiv)).

(f) Signalling and Telecommunications

3.10 The following equipment, which have reached the end of theiruseful lives, is proposed to be replaced under the projects

(i) CTC supervision equipment on the Harare-Mutare section;

(ii) telephone exchange at Harare; and

(iii) portable radio sets for locomotives and yard operations

In addition, a digital data transmission link from the Computer Bureau toNRZ's headquarters building is included in the project. This link willreduce reliance on the public telecommunications network which isincreasingly congested and unreliable.

(g) Breakdown Crane

3.11 NRZ currently possesses three breakdown cranes of 25, 35 and50 tonnes capacity. These were acquired in 1931, 1953 and 1962respectively. Apart from the inadequacy of capacity, the older cranes aresubject to frequent breakdowns and cannot be relied upon in emergencies. A100 tonne diesel-operated crane is proposed to be procured under theproject.

(h) Plant, Equipment and Service Vehicles

3.12 Overaged machinery and equipment in the workshops atBulawayo, Dabuka and Mutare, and permanent way maintenance equipment inneed of urgent replacement have been identified, and these items areincluded in the project. The project also provides for the replacement of

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essential rail and road service vehicles and spare parts for rehabilitationof currently unserviceable road vehicles.

(i) Electrical Workshop Equipment

3.13 The electrical workshop which undertakes re-insulation andheavy repairs to electrical rotating equipment is deficient of essentialitems of equipment like a vacuum pressure impregnation unit, coil winderand a banding machine. With the aging of the locomotive fleet, theworkload on the workshop is increasing and this lends urgency to the needfor this equipment, which is proposed to be procured under the project.

(j) Extension of Electrification

3.14 The existing electrified section of NRZ was constructedwithout due consideration given to the pattern of exchange of trafficbetween it and the diesel sections. In particular, the efficiency ofoperations around Harare is considerably impeded by the design of theinterface between electric and diesel sections. Firstly, most industrialtraffic to or from Harare is destined for or originates from Msasa, theindustrial suburb six (6) kilometers from the Harare station and yards.The electrification of the system, by terminating at Harare, gives rise toa need for changes of traction, considerable amounts of shunting to andfrom Msasa and the undue detention of wagons and congestion of the yards atHarare and Msasa related to such activity. Secondly, most agricultural andfertilizer movements on NRZ emanate from or are destined to Mcunt Hampden,which is about 22 kms from the main line network and is the central raildistribution point for the eastern region--the country's main area ofcommercial agriculture. Again, due to the structure of the electrifiedsection, traffic to and from Mount Hampden is subject to traction changes,considerable shunting and double-handling and the associated detention ofwagons. With the proposed introduction of block train services and othermeasures to be undertaken as part of the OIP, the need to avoid yarddetentions and run through as many trains as possible becomes more urgent.Under the proposed project, the electrified section of track will beextended by 21.9 km from Lochinvar to Mt. Hampden and by 5.7 km from Harareto Msasa to relieve the existing structural impediment to efficientoperations. The proposed work will consist of the extension of thecatenary system, minor modifications to yards and immunization of thetelecommunications system along the section to be electrified to preventthe electrical field that will be created from interfering withtelecommunications signals.

3.15 Train operations on the currently electrified sections arefrequently disrupted by the tripping of locomotive circuit breakers causedby permissible over-voltages in the power supply because the tap-changersin NRZ's traction transformers do not have the provision for lowersettings. Under the proposed project, fourteen auxiliary autotransformersare planned to be provided at the seven traction substations on the systemto correct the over-voltages.

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(k) Trainina school equipment

3.16 The equipment needs of NRZ's training school, consisting ofaudio-visual aids and allied equipment, training models for communicationssystems, CTC,locomotive maintenance, and library equipment are proposed tobe financed under the project.

(ii) Organizational Restructuring

(a) Management and Supervisory Development Program

3.17 Management Development and Support: As detailed in ChapterII, key operating systems and procedures currently in use on NRZ aredeficient. NRZ management are unfamiliar with modern and efficient methodsof planning and control of most functional activities in the railways. Theproject will include about 372 person-months of technical assistance formanagement development program. The assistance for the program will bearranged in three phases: (i) a preliminary diagnostic review by a seven-member management development team to familiarize itself with the systemsin use on NRZ in order to map out the desirable plan for changes needed toenhance efficiency, and to identify the specific capabilities and trainingneeds of managerial staff; (ii) introduction of the changes in systems andprocedures, and training, both in school and on the job, of NRZ staff inmanaging efficiently with the changed systems; and (iii) subject to amidcourse review after 12 months from the start of the first phase, theextension of the scheme to cover a wider body of NRZ's management.

3.18 Supervisory Skills Development: There is also a need for asystematic skills upgrading program for NRZ's supervisory level staff inmost operating departments. Agreement has been reached with NRZ to providesuch assistance in the proposed project on a basis similar to that for theManagement Development Program. The initial core team of technicalassistance would consist of seven persons, to be expanded to 13 persons,subject to the mid-term assessment. A total provision of 372 person-months has been made for this component in the project.

3.19 The midcourse review for both technical assistance programswill be conducted by the General Manager of NRZ, assisted by independentoutside experts in consultation with the Bank, and will evaluate theeffectiveness of the system changes and the transfer of technology andknow-how, taking into account corporate, departmental and individualperformance results. Detailed Terms of Reference for the Management andSupervisory Development Program were agreed with Government and NRZ duringnegotiations and are attached as Annex 3-4.

3.20 A number of railways systems around the world haveundertaken a radical restructuring of their organization and modernizationof their management, planning and control systems in response to regulatorychanges similar to the ones now being implemented in Zimbabwe. Duringappraisal, Government and NRZ expressed their wish to tap this valuableexperience in the restructuring of NRZ. The shortlist of firms to provide

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assistance under this component will be limited to operating railway firmswith such experience or consulting firms closely allied to such railwayswith the ability to draw personnel from such railways. The team providingassistance will be expected to draw a considerable degree of support, forboth systems modifications and training activities, from its parentrailways.

(b) Management Training

3.21 As part of the management development program, NRZ'smanagerial and supervisory staff would need exposure to other well-developed and well-run railway systems' methods of operations. This willbe organized mainly in the form of secondments for structured workexperience on other railways systems but will also include support forattendance at short term specialized courses organized by such railways andprofessional institutions. The railways will be chosen for the secondmentof NRZ staff on the basis of their strength in given functions andnominated NRZ staff will spend defined periods of time on study and worktours on such railways. Provision has been made in the project for 66 suchoverseas secondments and courses of an average duration of three monthseach. The final program of such secondments and training will be devisedby NRZ after the diagnostic phase of the management and supervisorydevelopment support program.

3.22 In addition, there is need for enhancing the qualificationsand specialized knowledge of selected middle and senior management staff bylong term professional courses of study in universities and professionalinstitutions. It is proposed to provide for ten such courses of an averageduration of 18 months each.

(c) Studies

3.23 The following studies are proposed to be carried out underthe project:

(i) Locomotive Maintenance Audit: This study will audit thefunctioning of the Preventive Maintenance System for locomotives on NRZwith special reference to quality control measures, timeliness ofcorrective actions and the effectiveness of monitoring systems. Theconsultants doing the study will also be charged with the responsibilityfor establishing a permanent Inspectorate to carry out the auditingfunctions as a regular measure and as an aid to effective maintenancemanagement. Draft Terms of References for this study are attached asAnnex 3-5.

(ii) Manpower Study: The background to the need for such a study,which has been mandated by Government, is detailed in Chapter II. DraftTerms of Reference for the study are attached as Annex 3-6. Implementationof the agreed recommendations of the study will be critical to thesustainability of managerial improvements to be sought under the project.Accordingly, during negotiations, agreement was reached with Government and

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NRZ on the timing of key milestones in the conduct of the study and themodalities for implementation of the study's recommendations. Agreementwas also be reached that the recommendations of the study will beimplemented only after the Bank's views have been taken into account.

(iii) MIS Studys The weaknesses in the structure of NRZ's informationsystems are detailed in Chapter II. The main project priority is tostrengthen selected information systems in key operating departments asexpeditiously as possible. However, NRZ management has two medium-termobjectives for its information systems. Firstly, NRZ management intends toreduce the clerical effort in information generation and analysis in alldepartments. This is currently a serious impediment to producing timelyinformation needed for decision-making. Secondly, NRZ management intendsto create common corporate databases from which suitably formattedinformation can be made available to different layers of management. Thisis in contrast to the current system where all data is made available toall layers of management in substantially the same unprocessed form. Muchof such data is of little or limited usefulness or relevance to many of thelayers of management to which it is disseminated. To realize theseobjectives a detailed review of information systems in all departmentsneeds to be undertaken, user requirements at different levels ascertained,commonalities of information requirements across departments establishedand the feasibility and options for linking data requirements acrossdepartments evaluated. To assist NRZ in undertaking such a task, theproject provides 20 person-months for the conduct of a ManagementInformation System (MIS) study. Draft Terms of Reference for such a studyare attached as Annex 3-7.

(iv) Provision has also been made for a lump sum (US$0.41 million) tobe utilized for short term specific operational and efficiency studies thatmay arise in the course of the execution of the project.

(iii) Operational Restructuring

(a) Operating Information System

3.24 A pressing need for personal computer (pc)-based decisionsupport systems in the yards and the locomotive depots has been identified.These systems will assist NRZ staff in tracking wagons despatched tosidings and satellite yards from the major yards and terminals and intracking the performance of individual locomotives assigned to the variousdepots. Lack of effective monitoring systems in these areas is a majorcontributory factor to the unduly high detention of wagons in yards andcustomer sidings and the consequential chronic under-utilization of wagonsas well as NRZ's inability to devise effective routine maintenance plansfor its locomotive fleet. NRZ has already made substantial progress in thedesign of such systems. The hardware and software requirements for thesesubsystems will be financed under the proposed project.

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(b) Substitutional Technical Assistance

3.25 NRZ has a number of unfilled vacancies at the engineer,officer and artisan levels in the engineering departments and the ComputerBureau. These vacancies will need to be filled whilst NRZ trains anadequate nuiber of replacements and creates an incentive climate conduciveto the retention of such personnel. Agreement has been reached that suchassistance will be provided under the project. In respect of artisans, theassistance will be tapered off to match the output of NRZ's training schooland the introduction of incentive system. It is expected that theimplementation of the recommendations -f the Manpower Study (para 3.23(ii)) to be undertaken under the project will assist in reducing theturnover of skilled and trained staff in NRZ; this substitutionalassistance will, therefore, be time-bound. In addition, as a matter ofprecaution, a small provision of a "turnover contingency' has been made forpossible slippages in NRZ's plan to train, attract and retain suitablestaff; this would be used only to cover unavoidable needs to keep up theperformance targets agreed under the OIP. The content of thesubstitutional assistance to be provided under the project is as follows:

Engineers 16 person-yearsComputer Officers 9Artisans 120Staff Turnover Contingency 12

(iv) Financial Management and Restructuring

(a) Cost Accounting and Control System

3.26 NRZ's cost accounting and control system will be crucial tothe effective monitoring and control of the efficiency and cost-effectiveness of its operations. The current system is inherited from thepre-independence period and is deficient in several respects. Firstly, itis primarily a computerized expenditure accounting and budget monitoringsystem. Although costs are accumulated by numerous activity centers anddepartments, the focus of the system is not to facilitate the analysis ofoperational reasons for underlying cost variances but to track expendituresfor the financial accounting system and against budgeted departmentallevels. Departmental budgets are based mainly on histori_al patterns andbear little relationship to operationally optimal expenditure levels.Tracking of operational causes of significant cost variances requiresdetailed manual analysis or time-consuming investigations. Secondly, thesystem has not been subject to any detailed review since independence,largely because any changes would be beyond the capacity of computer staffto implement easily. As a result, the definition of cost centers is notnecessarily of relevance for cost control. The project will provideassistance for a review and redesign of the existing cost accounting systemto enhance its usefulness as a tool for cost analysis and control. Much ofthe preliminary review work will require detailed knowledge of the existingsystem and will be undertaken by NRZ staff. However, due to the limitedexperience of NRZ staff and their limited knowledge of budgetary controlsystems in existence elsewhere, NRZ will require an estimated nine person-months of consultative assistance to review and suggest improvements to the

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designs, to assist in the identification of sources of systems software andin the selection of software. The project provides for the acquisition andcontract development of software and its related implementation.

(b) Financial Accountink Systems

3.27 In line with its program of mainframe computer replacement(para 2.14), NRZ is reviewing its financial accounting system to determine:(i) the changes in data gathering and analysis required; (ii) the likelyand desirable changes in reports generation; (iii) the range of accountingsubsystems to be computerized; and (iv) the interface between accountingsubsystems and between the accounting information system and other systems.The project will provide assistanc for the acquisition of computersoftware packages and the contrac- development of software. Provision hasbeen made under the project for person-months of implementationassistance.

D. Cost Estimates and Proiect Financing

Proiect Costs

3.28 The total project cost, including price and physicalcontingencies, is estimated at US$263.4 million with a foreign exchangecost of US$161.7 million or 61% of total costs. The estimated projectcosts are summarized in (Table 3.1) below and detailed in Annex 3-9. GOZhas decided to waive all taxes and duties for project components. Priceescalation of 4.9% p.a. for foreign costs and 10% p.a. for local costs havebeen included in the costs estimates. The rates for escalation of foreigncosts are based on the Bank's projection of manufacturers unit value (MUV)index for the project implementation period. It is assumed that thedivergences between foreign and domestic costs will be offset byadjustments in the exchange rate. The project costs are estimated on thebasis of an implementation period of six years, which is consistent withthe experience of the Bank in implemertation of infrastructure projects inthe region and of the previous projects in the subsector in Zimbabwe. GOZand NRZ are planning on the basis of implementing the project in fouryears. This target implementation schedule (Chart 3) was confirmed withGOZ and NRZ during negotiations (paras 6.01 (iv) and 6.01 (xv)).

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Table 3.1 Proiect Cost Estimates

Local Foreign Total % Foreign(US$ million equivalent)

New Locomotives -- 50.0 50.0 100.0Locomotives Repowering 2.1 6.0 8.1 24.0Locomotives Spare parts -- 2.2 2.2 100.0Dropsided Wagons 18.0 6.0 24.0 25.0Highsided Wagons 20.9 10.3 31.2 33.0Passenger Coaches 10.0 10.0 20.0 50.0CTC Renewal 2.2 4.8 7.0 69.0Radio Equipment and PABX 0.6 1.7 2.3 74.0Digital Transmission Link 0.1 0.9 1.0 90.0Breakdown Crane -- 2.5 2.5 100.0Plant & Equipment 0.3 5.2 5.5 94.0Service Vehicles -- 4.7 4.7 100.0Electrification Extension 2.7 4.2 6.9 61.0Overvoltage Correction Equipment 0.1 1.2 1.3 92.0Information Systems 0.3 1.6 1.9 84.0Technical Assistance 5.6 12.8 18.4 70.0Training 0.3 2.6 2.9 90.0Studies 0.6 1.1 1.7 65.0

Total Base Costs 63.8 127.8 191.6Physical Contingencies 6.2 6.7 12.9Price Escalation 31.6 27.2 58.8

101.7 161.7 263.4 61.0

3.29 The cost estimates have been derived on the following bases:(a) new locomotives: recent quotations obtained by NRZ and neighboringrailways for mainline locomotives; (b) locomotive repowering: recentquotations for engines and other components obtained by NRZ and NRZassessment of labor costs and factory overheads for production work; (c)technical assistance and consulting services: actual costs for similarservices in NRZ adjusted as necessary to take account of prevailing ratesfor similar services from other geographic sources experienced byneighboring railways; (d) computer software: recent experience of rates forsimilar products; and (e) electrification extension: past NRZ experience ofelectrification and manufacturers' responses to NRZ inquiries on likelyprices for components for the volumes likely to be required.

Financing Plan

3,30 The proposed IBRD loan of US$38.6 million and theparticipation of the cofinanciers will amount to US$98.1 million and wouldfinance about 372 of total project costs and 612 of foreign costs. Theproject will be cofinanced by USAID, KfW, Austria, FINNIDA, Switzerland andDANIDA. A further US$28.4 (18%) in foreign costs relating to thelocomotives component of the project is likely to be financed by USAIDwhose grant agreement covers all the shunting locomotive to be repoweredand the first tranche of mainline locomotives to be procured under the

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project (para 4.14) and who has indicated the likelihood of a project paperamendment to cover the second tranche of mainline locomotives. Thefinancing plan for the project is shown in Table 3.2. The financing planwas confirmed with Government during negotiations (para 6.01 (v)). A grantagreement covering the financing of the locomotives to be procured underthe project has been signed between USAID and Zimbabwe. This was one ofthe conditions of effectiveness of the loan agreed with Government duringnegotiations. The Bank loan will be made to Zimbabwe for a term of 20years, including a five-year grace period on repayments. All donor funds,with the exception of financing for the electrification component, will bemade available to GOZ on the donors' terms and will be onlent to NRZ (para6.01 (v)). Agreement was reached with Government during negotiations thatthe Bank loan, net of the provision for financing of the electrificationworks, and all donor funds will be onlent to NRZ at Government's standardvariable rate to parastatals for a term of 20 years, including a five yeargrace period on repayments (para 6.01 (vi)). The rate is computed annuallybased on the weighted nominal (Zimbabwe dollar) average cost of the pool ofoutstanding Government debt. The current rate is 10.51. This rate isabout 75 basis points (0.75%) higher than the rate on a recent term loancontracted by NRZ from a local merchant bank. The cost of theelectrification component proposed to be financed by the Bank will benetted against the total funding to be onlent to NRZ and passed on to NRZas equity, in accordance with the provisions of the Government's newframework for NRZ (para 2.24). The execution of a subsidiary loanagreement between Government and NRZ embodying the on-lending terms andconditions agreed at negotiations will be a condition for loaneffectiveness (para 6.02 (iii)). The loca,l cost of the technicalassistance and training component of the project will be financed by NRZout of its cash flow whilst the balance of local costs net of theelectrification component will be borrowed from the domestic market by NRZ.

E. Proiect Implementation

3.31 The project is to be implemented over a six-year period,which is consistent with the profile of Bank implementation for railwaysprojects in the region. NRZ will be responsible for execution of allproject components. NRZ has had experience in implementing two Bankprojects - Transport Rehabilitation and Imports Program (Ln. 1994-ZIM),which closed in December 1986, and the Railways Development Project (Ln.2342-ZIM), which was closed in June 1990. These two projects have,however, suffered from delays due in large part to difficulties incomplying with Bank procurement procedures, and to difficulties related toGOZ procurement procedures and the limits of authority for decision makingon tenders. The former problem will be addressed by the proposedestablishuent of a Project Coordinating Unit staffed by adequatelyexperienced NRZ employees, who will undergo a period of training tofamiliarize them with the procurement procedures of the external financiersof the project, including the Bank. In addition, the ManagementDevelopment team consultants will include a specialist for the SuppliesDepartment, and for this post, a person with proven experience ininternational procurement procedures will be chosen to assist NRZ staff.With respect to the second problem, Government has decided under theframework for NRZ operations that authority for all tender decisions

TANA S.2 rnwcmwcu Kmz

:DVXZM FVC

GoOI 9W1 WAID DM KU W 1WiS FPi AIU1A ToTML IBm_ 0AP

La 81.1 - 89.4 - - - - - 70.5 70.8 0.0

Low2 a.e - - - - 2.9 .9 0.0

_gm S6.8 _ - 0_.8 65.8 0.0

o_nw. 39.4 - - - - - - - .4 .4 0.0

CMc Rb le 8.6 - - 6.4 - - - 10.0 10.0 0.0

Rbdre. 0.9 - - - - 3.5 - 8.3 1.2 0.0

T . Islam, ULe 0.8 1.X - - - - 1.4 1.4 0.0

Sr.edm Crn. - - - - 8.8 - 8.8 8.8 0.0

pite 1 0.6 3.0 - 1.2 - - 8.8 S .5 0.0

Pie 8 1.6 - - - - _ - 1.0 1.0 0.0

Pie" a *\- o.* - - - - - 1.8 3.0 2.5 0.0

0..ice V.iel: WIal - 3.1 - - - J- .1 2.1 0.0

sd - 8.9 - - - - - 8.9 8.9 0.0

II... bta,<bla 4.0 5.S - - - - - 10.1 10.1 0.0

0tW eonoction 0.2 - - - - - 1.4 - 1.0 1.6 0.0

1f h sm 0.8 .1 - - - - - - .6 2.0 0.0 t

Techlncal A..)ame 8.09 14.0 - 2.1 - - - - 8S.8 36.0 0.0TPOlWN 0.4 1.9 - 1.6 - - - - 8.9 8.9 0.0

09dl1e 0.9 1.5 - 0.0 - - - - 8.4 2.4 0.0

T?fi 1S.5 80.6 80.4 s.7 7.6 2.8 4.7 1.8 368.5 N36.5 0.0

/ Pt Is Nm..l le. WV.ikab

Pie"l3, w.atri..1 Workahe

PI, t 8: Por_mat 1su Epiuus

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financed by international agencies will be delegated from the GovernmentTender Board to NRZ subject only to the prior review requirement of theagency concerned. This decision was confirmed with respect to prospectiveBank-financed procurement during negotiations (paras 6.01 (vii) and 6.01(xvi)).

P. Procurement

3.32 The procurement procedures for the Bank-financed componentsare as follows: (a) Works: The electrification extension works, with theexception of the necessary track relaying component, will be carried out bycontract. Contract award will be on the basis of ICB under the Bank'sguidelines. Since the annual per capita income of the country exceeds thethreshold for domestic preference, there will be no preference for domesticbidders. The works will include supply and erection of the masts andtransmission equipment, as well as the necessary interference suppressionequipment for communication lines. The design and specifications for theequipment will be prepared by NRZ and would ensure compatibility with theexisting electrified section while ensuring competition; (b) Goods:Mechanical workshop equipment and machinery, rail service vehicles and roadservice vehicles will be procured as three separate lots under ICB inaccordance with Bank guidelines. Locomotive spare parts will beappropriately packaged and procured on the basis of advertised competitivebidding from locomotive and/or equipment manufacturers and reputedsuppliers who can produce proof of satisfactory supplies and performance;proprietary spare parts, available only from original manufacturers, up toan aggregate value of US$1.0 million, will be procured by directnegotiation; Services: Contracts for teahnical assistance for ManagementDevelopment and Supervisory Skills Development will be in one package, andwill be awarded in accordance with the Bank's Guidelines for Use ofConsultants (1981) to the best-evaluated firm from a short list of firmscomprised of operating railways entities or consulting firms with adequateback-up in terms of personnel and expertise from an operating railways.The Substitutional Technical Assistance (para 3.25) will be a separatepackage. Each study will be an individual package. The selection of firmsto provide these services will be on the basis of the Bank's Guidelines forUse of Consultants. (d) Contract Review: The works, goods and servicesbidding packages and all bidding packages for goods over $100,000 would besubject to the Bank's prior review of procurement documentation resultingin a coverage of 97% of the value of all contracts. The balance of thecontracts would be subject to random post-review by the Bank after contractaward. The procurement of items to be financed by the cofinanciers will b2on the basis of their own procurement procedures. The procurementarrangements were confirmed with Government and NRZ during negotiations(paras 6.01 (vii) and 6.01 (xvi)). The procurement methods are summarizedin the table below:

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Procurement Methods and Costs

Procurement MethodProlect Element ICB LIB Other Total

(US$ million)(figures in parentheses are the amounts financed by IBRD)

I. Goods

A. Locomotives and LocomotiveSpare Parts 1.9 -- 71.5 73.4

(1.9) (1.0) (2.9)

B. Rolling Stock -- -- 112.5 112.5

C. Signals & Telecoms 1.4 -- 13.1 14.5(1.2) (1.2)

D. Plant & Equipment 2.9 -- 7.7 10.6(2.7) (2.7)

E. Service Vehicles 6.0 -- -- 6.0(6.0) (6.0)

F. Information Systems 2.4 -- 0.2 2.6(2.0) (0.1) (2.1)

II. Civil Works

A. Electrification 9.8 -- 1.8 11.6(5.5) (5.5)

III. Services

A. Technical Assistance -- -- 25.9 25.9(14.8) (14.8)

B. Training __ __ 3.9 3.9(1.9) (1.9)

C. Studies -- -- 2.4 2.4(1.5) (1.5)

Total 24.4 -- 239.0 263.4(19.3) __ (19.3) (38.6)

G. Disbursements

3.33 The loan will be disbursed on the following basis: (i) 1002of foreign expenditures for equipment, material and locomotives spare partsor 701 of the cost of imported goods procured locally; and (ii) 100% offoreign expenditures on technical assistance, consulting services and

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training or 70% of the cost of services procured locally. All disbursementclaims would be fully documented. In order to expedite disbursement offunds, a special account with an initial deposit of US$2.0 million(equivalent to about four months of estimated expenditures) will beestablished in foreign currency. The special account will be replenishedby the Bank in accordance with procedures agreed at negotiations (paras6.01 (viii) and 6.01 (xvii)). A schedule of estimated disbursements isshown at Annex 3.10.

H. Reporting and Monitoring

3.34 During appraisal, agreement was reached with NRZ on aQuarterly Progress Report comprising a brief narrative on each aspect ofthe restructuring program, interim financial results and serious problemsexperienced or anticipated and specific assistance, if any, noeded. Thenarrative will be supported by a detailed annexure covering the followingareas:

(i) Procurement of goods, to cover all funding agencies, in separategroups of items for each.

(ii) Procurement of iervices.

(iil) Implementation progress of OIP.

(iv) Performance indicators.

(v) Implementation of recommendations of studies.

3.35 During negotiations, agreement was reached with NRZ that inits annual operations budgeting exercise, it will provide, no later thanone month after the end of its fiscal year, projections for the followingyear of its locomotive and wagon hiring requirements, its use ordisposition of locomotives and wagons assessed to be surplus torequirements, if any, and its operating costs and revenues based onexplicitly specified performance targets for the year and manpower andlocomotive fleet zestructuring actions to be undertaken during the year(para 6.01 (xviii)). To facilitate this exercise, an integratedoperational-financial model was developed as the basis of the projectionsfor this project and senior NRZ planning and finance staff are familiarwith its use. During negotiations, agreement was reached with GOZ that NRZwill provide, t,o later than six months after the completion of the project,its contribution to the project completion report in a form satisfactory tothe Bank (para 6.01 (xxii)).

I. Accounting and Audit

3.36 NRZ's annual accounts are audited by a Zimbabwean affiliateof a reputable international accounting firm and are released within sixmonths of the end of the financial year. The auditors are acceptable to

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the Bank. NRZ's accounting and internal control systems are adequate toensure the acceptable recording and reporting of all project-relatedfinancial transactions. During negotiations, agreement was reached withNRZ that project-related transactions and the financial performance ofNRZ's passenger services' operations would be separately accounted for andaudited by its auditors and furnished to the Bank together with NRZ'saudited consolidated annual accounts and the auditor's management letterwithin six months of the end of each fiscal year (para 6.01 (xix)). Theaudit report would contain a separate opinion on the operation of theSpecial Account.

J. Environmental Impact, Industrial Health and Safety

3.37 The project is expected to have marginal beneficial or noimpact on the environment. The main thrust of the assets restructuringcomponent of the project is to replace inefficient diesel locomotives withmore modern, efficient and reliable diesel locomotives. With theimprovement in technological as well as operational efficiency, there willbe a reduction in the fuel consumed per unit of transport service provided,as well as a reduction in emission of unburnt gases as a consequence ofImproved combustion in the cylinders of the new and repowered locomotives.There is no track rehabilitation or construction involved in the project,and the existing track is almost wholly laid on concrete and steelsleepers.

3.38 The system for the disposal of used engine lubricating oilis environmentally sound. NRZ has a well-established record of collectingsuch oil in settling tanks and sending it to the oil industry forrecycling.

3.39 NRZ uses weed-killers on the track to keep it free fromweeds. The weed-killing compounds used, tog'- .her with the rates of usep.a., are detailed in Annex 3-11. The compounds have no known adverseenvironmental impact. Cleaning chemicals used in workshops have also beenreviewed and are detailed in Annex 3-11. These chemicals are notenvironmentally harmful and the staff using them are provided with adequateprotective clothing and gear. NRZ does not use chromate compounds as anadditive for engine coolant. Instead, Nalcool 2100 is in use; this has notbeen reported to have any toxic effects on workers in contact with it.

3.40 NRZ has a well-established and well-staffed OccupationalHealth Branch. In addition to medical assistance, the senior staff of thisbranch monitor health and safety hazards, and investigate industrialaccidents. Use of protective gear is also monitored. However, it has beennoticed that there is a degree of neglect on the part of staff in using allthe protective gear provided. NRZ is organizing staff seminars and coursesto get over this weakness and improve safety consciousness of the staff. ASafety Committee with workers' representatives has also been formed, and anannual Safety Competition organized. Locomotive drivers have their eyestested every two years. Similarly, staff employed in exceptionally noisyareas have periodic ear tests carried out. Staff working in areas with

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fumes--the foundry, paint shops, smithy, etc.--have lung capacity testscarried out periodically. Staff working with lead-bearing materials haveperiodic blood tests carried out.

3.41 NRZ has a well-established and well-run training program onindustrial safety and safety awareness covering all staff:

(a) a one-week course for new recruits on workshop safety,precautions on electrified sections, health andhygiene, fire protection, and first aid;

(b) short refresher courses on industrial safety andhealth for all supervisors undergoing training; and

(c) general talks on safety matters conducted periodicallyat the various work centers.

3.42 To support NRZ's industrial safety and health trainingefforts, the project will provide for the financing of a small quantity ofaudio-visual equipment and also medical testing equipment for NRZ'sOccupational Health and Safety Branch.

IV. FINANCIAL EVALUATION

A. Historic Financial Performance

4.01 NRZ's recent financial performance has been discussed inChapter II.

B. Financial Restructuring Strategy and Prolections

Financial Goals

4.02 During appraisal, agreement was reached with Government andNRZ on a financial restructuring strategy to stem and reverse thedeterioration in NRZ's financial performance. The goal of the strategy isthe attainment by NRZ of financial self-sufficiency on a sustainable basis.This goal was confirmed during negotiations. Specifically, NRZ should, bythe end of the fourth year of the implementation of the project, besufficiently profitable and cash-generative tot (i) cover its operatingcosts including an adequate provision for maintenance of its operating andinfrastructural assets; (ii) meet its existing debt service obligations;and (iii) generate an additional cash flow sufficient to cover the annualequivalent cost of future replacement investments in operating assets tomaintain its effective capacity. This overall level of cash flowgeneration is consistent with a rate of return on NRZ's projected capitalemployed of about 12Z p.a from 1994 onwards.

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4.03 The financial goals will not be effective if (a) theycoexist with contradictory policies on subsidies, including subsidies oncapital inputs provided by Government in the form of equity; and (b) NRZ,under reasonably cash-generative operations, retains an unduly large levelof profits with no prospect of productive investment in the business. Toensure that the financial goal is effective, agreement was reached withGovernment during negotiations that the rates of returns to be set NRZ fromits fiscal year 1992 would be consistent with the specific financial goalsagreed (para 4.02) and the agreed operational efficiency targets (para2.29). The evaluation of NRZ's financial performance (paras 4.05 to 4.10)and Annex 4) indicates that this would imply no further subsidies fromGovernment since transitional cash shortfalls from operations could becomfortably financed by short-term debt. Agreement was also reached withGovernment during negotiations that, no later than March 31, 1991, theBoard of NRZ will prepare a statement on its dividend distribution policyto be adopted by it after taking into account comments by Government andthe Bank (paras 6.01 (ix) and 6.01 (xx)).

Restructuring Actions

4.04 Implementation of the financial restructuring strategy willinvolve concerted actions in seven key areas:

(i) Volume-based Revenue Enhancement: At present, NRZ's ability tocater to the demand for rail freight transport, given the existing lowefficiency of its operations, depends on its ability to import significantamounts of rolling stock and locomotives from RSA. The ceiling on suchassets that RSA can make available to it has been reached and by extensionso has NRZ's effective capacity with current operating practices. Againstthis, the underlying additional demand for freight transport over the nextfive years has been estimated at between 2.0 and 3.4 million tonnes p.a.The ability to earn the related incremental revenues from such traffic iscentral to the financial recovery strategy.

(ii) Variable Cost Reduction: The cost incurred by NRZ per unit ofservice performed is significantly greater than could be achieved with moreefficient operations. Firstly, hiring of locomotives is not warranted bythe size of current operations which under modestly efficient operationscan be performed wholly with NRZ's fleet. Secondly, with modest gains inefficiency the hiring of wagons should not exceed an average of 3,500 perday, even with the projected maximum traffic on offer over the next fiveyears. This compares to hires of over 9,000 per day from RSA under recentoperations. Thirdly, the system of rigid working to a timetable by traincrews, maintenance management practices, the large number of units ofrelatively poorly performing locomotives and the large number ofinexperienced artisanal staff in the locomotive workshops lead to a largerthan necessary work force in these areas, excessive generation of overtimeand overtime payments per unit of productive activity performed. Theeffective addressing of these issues -- to which GOZ and NRZ are committed

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-- constitutes the major means of improving the contribution margins earnedper unit of service provided, i.e, of improving NRZ's profitability.

(iii) Fixed Cost Reduction: Under the project, NRZ will embark on amajor study of working systems in all departments with a primary objectiveof deciding on an appropriate level of staffing for the system.Implementation of the findings of this study -- scheduled to commence inthe second year of the project -- is currently anticipated to lead to areduction of about 2,500 in NRZ staff by 1996 for a total reduction ofabout Z$ 34 million p.a. in labor costs at current wage rates.

(iv) Capital Restructuring: GOZ has recently adopted a capitalstructure policy for NRZ (para 2.27). This policy will lead, in time, to asignificant rationalization of NRZ's capital structure and a much improvedmatching of productive assets and their associated financing. It wouldalso reduce the volatility of its debt service obligations whilst ensuring,through competitive onlending rates, that NRZ does not enjoy an effectivesubsidy on its capital costs.

(v) Investment Screening: NRZ will subject all proposed investmentsin excess of Z$ 100,000 to financial and economic screening by NRZ'sCorporate Planning Unit in conjunction with the AGM (Finance). Theinvestments incorporated in the project comprise all the major investmentsplanned for the next five years and are closely tied to a clearly definedand comprehensive restructuring strategy. To reinforce prudence ininvestment policy, agreement was reached with Government and NRZ duringnegotiations that (a) NRZ's annual investment plan will be reviewedannually with the Bank; (b) that NRZ will make revisions to such planstaking into account any comments made by the Bank; and (c) that NRZ willnot in any fiscal year undertake investments outside of those included inthe plan, as reviewed with the Bank, costing in aggregate more than US$2.0million equivalent without prior consultation with the Bank (paras 6.01(xi) and 6.01 (xxi)).

(vi) Improved Working Capital Management: At over 115Z of its annualusage of materials, NRZ's inventory levels are excessive. The high levelsof inventory reflect poor assessment of requirements, long lead times inprocessing orders and in deliveries, uncertainties as to access to foreigncurrency and considerable amounts of dead stock. The strengthening ofinventory management and maintenance planning already underway and thatwill be supported under the project is expected to lead to significantreductions both in this costly tie-up of working capital resources. NRZwill take concerted actions to reduce the level of debtors whichhistorically has far exceeded what would have been dictated by its strictcompliance to its credit policy. The financial strategy provides implicitincentives to NRZ to maximize the cash flow generated from its services.However, to reinforce this incentive, agreement was reached with GOZ andNRZ during negotiations that, by June 30, 1992, accounts receivables, netof amounts outstanding from contiguous railways which are subject tocomplex accounting reconciliations, should not exceed the equivalent of 45days of annual revenues and that NRZ will provide to the Bank, semi-

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annually, a status report on its accounts receivable (paras 6.01 (x) and6.01 (xxiii)).

(vii) Tariff Increases: With implementation of the above restructuringactions and policies, NRZ's cost structure will be relatively efficient.To generate sufficient revenues to cover such costs and earn an acceptablereturn on capital employed, GOZ has already announced its approval for andNRZ has implemented increases in tariffs of 20% with effect from July 1,1990 to be followed by another 202 increase in January 1991. Although theproposed 1991 tariff increase is not necessary to protect NRZ's financialposition given efficient operations as agreed under the OIP and timelyimplementation of the project, the additional cash flow it will generatewill add significantly to the potential amounts that could be distributedto GOZ whilst not adding significantly to the delivered cost of mostcommodities and not impairing NRZ's cost competitiveness. Specifically,the tariff increases implemented to date and planned to be implemented willincrease the final per tonne prices of most commodities by between 0.52 and5?, assuming that the full increases in tariffs are passed on to consumers.Only in the cases of coal destined to farmers and granite are the expectedincreases in final prices, at 41% and 49% respectively, substantial. Theincreases in the final prices of these commodities reflect their relativelylow unit prices and the huge implicit rail transport subsidy currentlyenjoyed by them. To protect NRZ's cash flow from erosion by cost increasesin its inputs and payroll outside of its control, GOZ will as part of itsframework, permit NRZ to increase its tariffs annually, at its commercialdiscretion, to cover increases in its direct costs (para 2.24 (f)).

Financial Projections: The Impact of Restructuring Actions

4.05 The impact of the financial restructuring actions on NRZ'sprospective financial performance has been evaluated on the basis of threescenarios: (a) with the project and the traffic projections made for theproject (full capacity); (b) with the project but assuming that traffic isconstrained to the without-project level; and (c) without the project andwithout sustained implementation of the package of restructuring actions.The traffic forecasts are summarized in Chapter IV and detailed inAnnex 5-2. A key feature of the projections is the assumption that, basedon the implementation profile for the project (para 3.28), no efficiencygains will be realized in the first three years of the project.Accordingly, NRZ's effective capacity is constrained to the pre-projectcapacity for those years. The maximum projected traffic demand is realizedin 1997 with the progressive implementation of the restructuring actionsdetailed in paras 4.03 (ii) to (iv) above. The projections also assumethat the proposed January, 1991 tariff increase of 20% is implemented.Tariffs and operating costs are fully adjusted for inflation until the endof project implementation. Other key assumptions used in the financialprojections are detailed in Annex 4-3.

4.06 The effect of the financial restructuring strategy in thewith-project and full capacity scenario is summarized in the table belowand detailed in Annex 4-3.

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1991 1995 1997(Z$ million)

Rail Revenues 500 926 1081Variable Costas Rail 228 305 353Contribution Margins Rail 272 621 727

Other 5 7 7Total 277 628 734

Fixed Costss 247 327 348Free Cash flow (38) 272 384Debt Services 84 74 100Net Income: (25) 226 311Dividend Distribution 0 0 187Return on Capital Employed 42 35% 26%

4.07 If all efficiency improvements are taken but traffic isconstrained to the levels achieved in 1988189, NRZ's projected financialperformance is summarized in the table below and detailed in Annex 4-4.

1991 1995 1997(Z$ million)

Rail Revenues 500 800 883Variable Costs: Rail 228 286 315Contribution Margins Rail 272 514 568

Other 5 7 7Total 277 521 575

Free Cash Flow (38) 169 234Net Income (25) 101 126Return on Capital Employed 42 212 152

4.08 Without implementation of a financial restructuring strategyunderpinned by a well structured program of efficiency improvements butassuming tariff increases are implemented as assumed (para 4.04), NRZ'sfinancial performance is projected as follows:

1991 1995 1997(ZS million)

Rail Revenues 500 795 874Contribution Margin: Rail 272 462 509

Other 5 7 7Total 277 469 516

Free Cash Flow (38) 87 106Net Income (25) 57 75Return on Capital Employed 42 202 192

4.09 As the above tables and the related annexes indicate, NRZ'sfinancial performance will be dramatically transformed by fullimplementation of the financial strategy. In particular, under theassumption that 602 of NRZ's net profits are distributed to Government from1996, cumulative cash transfers to Government in the form of dividendpayments will be about Z$ 900 million between 1996 and 2000. Even if

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traffic is constrained under the project, NRZ's financial performance willbe fully satisfactory. Without the strategy, NRZ's financial performancewill be satisfactory but its financial viability will be wholly underpinnedby its ability to exploit its pricing power as a monopoly transportprovider for captive industries without the benefit of efficiencyimprovements. The cost structure and traffic breakeven level of NRZ underthe three scenarios are illustrated in the table below:

NRZ's Prolected Cost Structure and Breakeven Level(1997)

With Project With ProjectWithout & Constrained & FullProlect Traffic Capacity

Rail Revenue/NTKM (Z$) aI/ 0.162 0.164 0.162Variable Costs/NTKM (Z$) bl 0.068 0.061 0.055Contribution Margin/NTKM (Z$) 0.094 0.103 0.107Fixed Costs (Z$ million) cl 409 344 348Breakeven Traffic (million NTKM) 4351 3340 3252Breakeven Traffic (1 of traffic) 81% 62% 49%

a/ Diffrence, in unit rivenuee eflect differencee In aix of traffi;

b/ Fuel and maintenance costs for Ahunting lo otive are defined as fully variable with traffic actlvity however inpractice thie variability Is limited; thi- accounts for the decline in unit variable easto in the iths-project and fullcapacity ompared to the with-project and ecstrained traffic came;

M/ Including depreiation.

4.10 Without the project, NRZ's variable costs per unit offreight service performed are projected to be about 23% higher than withthe project with full achievement of the target operating efficiencies.With the project and full realization of the projected operatingefficiencies but no growth in traffic, NRZ's operating income breakeventraffic level (the level of traffic required to cover all operating costs)will be about 3.3 billion NTKMs compared to 4.3 billion NTKMs without theproject. With such an efficient cost structure, NRZ would have required atariff increase of about 40% in 1989190 in order not to have needed anysubsidies from Government. In contrast, with its current (fiscal year 1989adjusted for pay awards) cost structure, NRZ would have required increasesin its tariffs of an estimated 80% to achieve overall profit breakeven.The difference in tariff requirements is in effect an inefficiency chargeon users.

Financial Projections: Risks

4.11 Three types of risks are attached to NRZ's ability toimplement the financial restructuring strategy:

(a) Endogenous Organizational Risks: These risks relate to thelikelihood that NRZ management may not be able to effect thechanges in operational practices that underpin the volume gains

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and cost reductions that are the pivotal elements of the financialstrategy;

(b) Operating Environment Risks: The significant business risk facingthe strategy is that the traffic projections may not materializenot because of restrictions on NRZ's capacity but because ofadverse macroeconomic conditions and specific industrial orsectoral problems not anticipated in the forecasting process; and

(c) Regulatory Risks: NRZ management may not sense the freedom, inactuality, to exercise the powers in the framework to undertakethe full measures to restructure its costs and to ensure that itscash flows are not eroded by inflation or the willingness orability of major customers to settle their bills for servicesrendered on a timely basis.

4.12 During appraisal, these risks were evaluated in detail byGOZ, NRZ and the Bank. NRZ has already changed its organizationalstructure to render it more adaptive to the requirements of the newperformance expectations. The project will provide support to strengthenthe capacity of management and NRZ's capacity to train its work force. GOZhas outlined a performance monitoring framework for NRZ that should ensurethat pressure on NRZ to perform effectively is maintained and impedimentsto such performance outside the control of NRZ management are resolvedexpeditiously. These measures are considered adequate to insure againstthe endogenous organizational risks. Since appraisal, NRZ has consistentlydone better than most of the key operatingefficiency targets agreed underthe short-term (interim) phase of the OIP.

4.13 In relation to the operating environment risks, the primaryconcern is that if the projected traffic does nct materialize, NRZ will beleft with project assets that could not be productively employed. Thiswould have two effects: (a) it would leave NRZ with debt serviceobligations on assets that make no contribution to its cash generation; and(b) it would reduce the pressure on NRZ to utilize its assets effectively.To address this risk, the traffic forecasts were carefully reviewed on asector-by-sector basis during appraisal and are considered to beconservative. To reinforce this conservatism, it has been assumed forpurposes of the financial analysis that NRZ's effective capacity will beconstrained to the 1988189 level between 1990191 and 1992/93 therebyeffectively leaving between 0.7 billion and 0.8 billion NTKMs of trafficunsatisfied and the projections of NRZ's ability to meet fully the trafficon demand (its effective capacity under the project) lagged by 2 years from199411995 to 1996197. If this lagged effective capacity is realized, therewill be no redundancy of project assets. If NRZ's operating performance issatisfactory but traffic remains constrained to the 1988/89 level,locomotive assets provided under the project will be redundant (Annex 3-2). However, this will not adversely affect NRZ's financial performancegiven the favorable impact of operating cost reductions on NRZ's trafficbreakeven level (para 4.07). The residual concern is then the extent towhich this asset redundancy would affect NRZ's operating efficiency. GOZ

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and NRZ are fully aware of this concern, but believe that it will besubstantially mitigated by GOZ's strong commitment to an effective systemfor the monitoring and control of NRZ's operating performance. To furthersafeguard against the adverse Impact of redundant assets on operatingperformance, during negotiations, agreement was reached with GOZ and NRZthat, as part of the annual operations and financial plan exercise to beundertaken during project implementation, NRZ will provide the Bank for itscomment the expected size and disposition of any operational assets(locomotives and wagons) projected to be surplus to its requirements duringthe year (para 3.35).

4.14 A specific and significant traffic risk is that thepetroleum pipeline extension project (Feruka to Harare) will materialize(para 1.16). Although petroleum products traffic accounts for only 6% ofNRZ's projected traffic in 1997, revenues from this source are projected toaccount for 142 of total NRZ rail freight revenues. The estimated neteffect of the loss of such traffic is a reduction in cash generation fromoperation of about 101 of gross operating cash flows. This risk is thusmaterial but not particularly profound for the project's financialviability. However, the loss of this traffic will render 8 new locomotivesredundant. Under such circumstances there will only be an economicjustification for 17 new locomotives (including provision for operationalflexibility). To minimize this risk, agreement was reached with GOZ duringnegotiation that procurement of locomotives will be tranched with aninitial order of 17 locomotives to be followed by the additional eight (8)locomotives if justified by more certain traffic prospects. Anyprocurement action in relation to the additional eight locomotives will beinitiated only after approval by the Bank (para 6.01 (xxiv)). Thisagreement has been endorsed by USAID, the cofinancier for the mainlinelocomotives in the project. USAID plans to cover the financing of thesecond tranche of locomotives, if they are required and subject tosatisfactory performance of NRZ, through a further appraisal aud amendmentof the grant agreement with Zimbabwe.

4.15 Finally, with respect to the regulatory risks, Government iscommitted to ensuring that its framework for NRZ operates effectively.During negotiations, agreement was reached with Government on actions to betaken to ensure the smooth and sustainable working of the elements of theframework (paras 2.27 and 6.02 (i) - 6.02 (ii)). Some of these actionshave already been effected.

C. Financial Proiections: Financial Rates of Return

Base Case

4.16 The base case financial returns to the project aresummarized in the table below and detailed in Annex 4-3.

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Base Case Financial Returns

Base Case

Financial Rate of Return (%) 50Net Present Value (NPV) Q 10% (Z$ million) 639

The base case financial rate of return (FRR) is based on NRZ's free cashflow generation assuming the project's efficiency objectives and theprojected traffic are realized. The base case return, at 50%, is good.

4.17 Conceptually, the base case FRY can be partitioned into twocomponents: (a) the effect of the restructuring actions to be supported bythe project on NRZ's cash flow generation assuming no growth in traffic;and (b) the impact of the project on both NRZ's unit operating costs andeffective capacity. If traffic is constrained to the "without project"level, the project's main effect would be on improving NRZ's management ofits operations. The major operating assets to be procured under theproject would be redundant under these circumstances. However, the FRR at23% would still be satisfactory, indicating the crucial nature of themanagement improvement component of the restructuring strategy and project.

Sensitivity Analysis

4.18 The main risks faced by the project are outlined in paras4.08 to 4.11 above. The breakeven analys4,s (para 4.07) and the PRR withconstrained traffic indicate that the project financial returns are robustto declines in the projected traffic levels. This robustness depends onthe operating efficiency objectives of the project being met and theconsequential savings in operating costs being realized. To test for thesensitivity of the project base case financial returns to reduced operatingefficiency, achievement of the performance targets was lagged by threeyears to the end of the project implementation period. The results of thissensitivity analysis are summarized below and detailed in Annex 4-6:

Sensitivity Analysis

FRR NPV (10%)(2) (Z$ million)

Base Results 50 639Delayed EfficiencyImprovements 21 307

4.19 The large erosion in project returns indicated by theanalysis points to two key lessons (a) that close attention needs to bepaid to the endogenous organizational risks during project implementation;and (b) that GOZ, in its role as both regulator and owner of NF.Z, mustcontinue to apply pressure for effective performance from NRZ management.

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To address the former risk, the formulation of the project pays closeattention to the need for close monitoring and review of the performance ofNR? and that of the management and supervisory development teams, whosesuccess will be crucial in enabling NRZ to realize and sustain the plannedimprovements in operations. Annex 6 presents the proposed Banksupervision plan during project implementation.

V. ECONOMIC EVALUATION

A. Traffic Forecasts

5.01 Summary details of NRZ's recent traffic performance aregiven in Annex 5-1. The projections of demand for rail transport have beenmade using a commodity-by-commodity approach. This is similar to themethod used by the Government Railway Traffic Estimates Committee (RTEC),(the body, comprising NRZ and relevant ministries, that coordinatessectoral forecasts of demand for rail transport), although the results weresignificantly different for a number of key commodities. These differenceswere largely caused by: market changes since the last set of questionnaireswere returned by users; critical examination of the capacity expansionplans forecast by some of the major users; and the elimination ofinconsistencies and/or over-estimates which tend to creep into user-drivenforecasting systems. Also, the projected traffic exclude individualcommodity movements of less than 100 tonnes from any given origin and NRZ'smovements of its own supplies. These tonnages are included in the RTEC'sforecasts.

5.02 Twelve major commodities were analyzed, representing 682 ofthe revenue-earning non-transit traffic recorded in 1988-89. Transittraffic was considered separately and has been projected to stay constantat the 1989 level with no significant adverse competitive factorsanticipated. Based on this analysis (Annex 5-2), demand for rail transportin Zimbabwe is forecast to be 14.7 million tonnes in 1990-91, rising to16.2 million tonnes in 1994-95, compared to the actual amount of trafficcarried in 1988-89 of 12.7 million tonnes on an adjusted basis. Theequivalent figures for net tonne-kilometers, taking account of expectedchanges in the pattern of traffic, are 6.1 billion in 1990-91 rising to 6.7billion in 1994-95, compared to 5.4 billion of revenue traffic in 1988-89.

5.03 These forecasts are lower than the "1989 Traffic Estimates"of the RTEC, mainly because of different forecasts for Coal, Maize andSugar and the adjustments for below-100 tonnes traffic. The officialestimates regularly overshoot the actual out-turn, although they areachieving steadily greater accuracy. The last two years have seen a markedimprovement, with an overestimate of less than 10% f r the one-year-outforecast.

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B. Prolect Benefits and Costs

5.04 The project has been designed as an integrated package ofoperational improvements, capital investments, institutional reforms andfinancial restructuring. Since many of the benefits which emanate fromthese various components are not susceptible to precise quantification, thefollowing approach has been adopted in assessing the project's economicreturn. The costs of all project components have been included in theanalysis, while the quantification of benefits has focused on two keyeffects of the project (to which all components contribute), viz. anincrease in NRZ's capacity and the quantifiable reduction in variableoperating costs as a result of the expected improvements in operatingpractices and investments. As a result of the capacity increase, trafficwhich would otherwise have to go by road (at best) will be able to go byrail; whilst the effect of improved operations would be the reduction ofthe economic cost of rail transport for existing traffic.

5.05 Based on the Bank implementation profile for projects inthis sector, it is likely that there will not be sufficient progress in theimplementation of the project in the initial three years to lead to anincrease in NRZ's effective capacity (revenue traffic carried).Accordingly, it is assumed for purposes of the economic and financialevaluation that NRZ's effective capacity will stay constant at the 1988/89level up to 1992193. In 1993/94, it is assumed that NRZ's effectivecapacity would be equal to the projected level of demand for 1991/92.Thereafter, NRZ's effective capacity lags the underlying projected demandfor rail transport by two years. NRZ will attain the maximum projectedtraffic only from 1996197 onwards. This assumption is consideredsufficiently conservative.

5.06 Without the project, operational modelling of the system'sperformance indicates that aru-ual revenue traffic could not grow beyond theadjusted 5.4 billion net tonne-kilometers achieved in 1988-89, given thatNRZ would reach the ceiling of locomotives that RSA can make available toit for hire (Annex 3-2). Under these circumstances, the projectedincremental traffic would either go by road or not at all. There may becertain situations where private sector producers see their profit marginseroded by the higher financial cost of road transport and therefore scaleback production. In these instances, it is assumed that the economic costto the country of the lost production is greater than the additional roadtransport costs (in economic terms) would have been. Consequently, theappropriate counter-factual assumes that all incremental traffic would goby road, if it were not able to go by rail.

5.07 The economic costs of road transport in Zimbabwe areestimated to be Z$ 0.115 per net tonne-kilometer, which includes vehicleoperating costs and certain road maintenance and rehabilitation costs (i.e.accounting for both variable and semi-fixed costs). In contrast, the long-run variable economic costs of rail transport are about Z$ 0.037 per nettonne-kilometer under the project and about Z$ 0.046 without the project.The semi-fixed costs of carrying the incremental traffic by rail (such as

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new locomotives) are iacluded in the project costs. The project's savingsare therefore Z$ 0.09 per net tonne-kilometer. Further details on theestimation of road transport costs are given i.3 Annex 5-3. The projectionsof rail transport costs are based on the analysis of NRZ's operating coststructure, converted to economic costs (Annexes 4-3 to 4-5).

5.08 There are several quantifiable benefits which have not beenincluded in the analysis of the project's economic return. Their omissionclearly makes the analysis more conservative. The most prominent of thesebenefits is the likely cost savings from reduced shuntings which wouldoccur if operating practices are changed or improved. Further, the OIPwill improve the management of railway operations through devices such asthe Train Briefing Book and an upgraded wagon tracking system.Organizational change effected under this and the ongoing project will leadimmediately to more focused area management and in the long run to greaterbreadth in the senior management ranks. Greater depth will be ensured byspecialized training aimed specifically at senior management.Institutional changes will lead to NRZ receiving greater support fromGovernment, except in the form of subsidies, which will be eliminated as aresult of the financial restructuring of NRZ. Finally, to the extent thatImproved operating practices and systems reduce the occurrence of crises(such as the complete congestion experienced in October-November 1989), thelarge one-off costs to the economy of the lost production which oftenensues from such crises will be avoided.

5.09 Project costs include estimated base costs plus physicalcontingencies and exclude duties and taxes. Foreign exchange costs,representing 612 of total project costs, have been shadow priced byapplying a factor of 1.5 to the assumed exchange rate of Z$ 2.3 to US$1.

C. Economic Returns and Sensitivity Analysis

5.10 The economic returns to the project, are summarized below anddetailed in Annex 5-3.

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Proiect Economic ReturnsEconomic Rate of Return Net Present Value (10%)

(Z) (Z$ million)

Base Case 20 361

Sensitivity Analvses(a) Project Cost Up:

(i) 10% 18 315(ii) 20% 17 269

(b) Traffic: Growth(i) Down 10% 19 305(ii) Down 50% 13 84

(c) Benefits Delayed: 3 Years 13 108(d) Road/Rail Costs Difference:

(i) Down 10% 19 305(ii) Down 50% 13 84

(e) Combination: a(i)+b(i)+d(i) 16 209

The base case economic return (ERR), at 20%, is satisfactory. Thesensitivity analyses indicate that the ERR is robust to adverse out-turnsin key variables (see also page 3 of Annex 5-3).

5.11 To test further the sensitivity of the project's economicreturns to possible adverse outcomes, an analysis of the switching valuesof key variables affecting the project's viability was undertaken.Switching values indicate the extent to which the variables can increase ordecline in value before the project net present value falls to z.ro at agiven discount rate. In this case, a discount rate of 10% was used as abenchmark for the project's economic viability. The switching values forkey variables are shown in the table below:

Switching Values of Key Variables

Traffic Growth (2 of Base) 35%Road/Rail Savings (X of Base) 35%Road Transport Costs (2 of Base) 56%Rail Transport Costs (2 of Base) 177%Project Costs (X of Base) 178%

The switching value analysis confirms the robustness of the project'seconomic returns.

5.12 Differences between the base case ERR and FRR reflect therelative distribution of the economic benefits of the project between NRZand its customers and differences in the valuation of net benefits. Thesignificant source of difference between the financial and economicevaluation are as follows: (a) valuation of foreign costss the ERR takesaccount of the implicit overvaluation of the Zimbabwe dollar; (b) passengerservices: the economic analysis does not attribute any benefits to theinvestment in coaches whilst taking the related costs of operation and

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incremental capital assets into account; in contrast, the financialanalysis assumes that passenger transport fares are increased sufficientlyto recover the incremental cost of investment in the service; (c) fixedcost reduction: the economic analysis takes account only of the increase inNRZ's capacity and the reduction in variable operating costs as a result ofthe project with no account taken of the structural change in NRZ's fixedcosts as a result of the proposed organizational and operational changes tobe effected under the project; the savings in manpower costs arising fromthese proposed changes have been captured in the financial analysis. Thedifference in the NPV of the benefit streams for both evaluations ismarginal if adjustments are made for the differences identified above. Thisindicates that virtually all the quantifiable economic benefits of theproject are captured by NRZ. However, NRZ's financial performance underthe project is expected to be sufficiently good to enable it toredistribute part of the benefits to its customers (through pricereductions) or to Government (through paying out part of its surplus asdividends) without adversely affecting its financial position.

D. Electrification Component

5.13 The project's electrification component has been analyzedseparately to determine its optimality. As described in Chapter III, theproject includes the electrification of the Harare-Mt. Hampden and theHarare-Msasa sections, so that the electrification of the Dabuka-Hararesection can be rationalized. The main benefits arise from: (i) lowerrunning costs (crew and electricity use); and (ii) avoidance of unnecessarychanges of engine and reconfiguration of trains for those loads which couldgo straight through from Dabuka to Msasa or to Mt. Hampden and vice-versa,with consequent savings in shunting costs and increased wagon utilization.The full costs of the electrification component have been included in theoverall evaluation but only cost savings arising from the substitution ofelectric locomotives for diesel locomotives on the Lochinvar to Mt. Hampdensection have been taken into account. The cost savings from reducedshunting and wagon delays and use of electric locomotives between Harareand Msasa have not been captured in the analysis.

5.14 The economic return of electrifying the Harare-Mt. H_mpdensection is estimated to be about 20%, while the return from electrifyingthe Harare-Msasa section is estimated to be about 28%. This compares tofinancial rates of return of 19% and 29% respectively. Details of theseanalyses are available in the project file.

E. Passenaer Coaches Component

5.15 NRZ operates two pairs of express passenger trains on adaily basis between Harare and Bulawayo (477 km), one pair daily betweenBulawayo and Victoria Falls (470 km) and another pair of daily expresstrains between Harare and Mutare (279 km). Up until June 1989, aninternational service to Botswana and RSA was operated on a daily basisbetween Bulawayo and major cities in Botswana and RSA in cooperation withSAR and Botswana Railways. This service is now operated by Botswana

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Railways and SAR with NRZ providing trackage rights for the Zimbabweansegment. As part of the trackage arrangement, Botswana Railways and SARalso provide domestic passenger services between Bulawayo and Plumtree, themajor town on the Zimbabwe border with Botswana. The coverage of thepassenger network has been progressively reduced through the 1980s toeliminate all operations on the branch lines and the operation of slowtrains on the mainline. Passenger traffic has nonetheless grownsignificantly from 1.6 million passengers in 1980/81 to a peak of 3.1million in 1988/89 (Annex 1), a growth rate of 8.9% p.a. Passengerridership declined to 2.9 million in 1989/90, largely as a result of thetransfer of capacity to the international operations of Botswana Railwaysand SAR. With no new investment in coaching stock and decliningavailabilty of the existing stock, coach occupancy rates, which averagedabout 65% in the early 1980s, are now reportedly close to 100%. The growthin ridership can be accounted for by two factors. Firstly, until December,1989, :.4trols on passenger fares have been relatively more stringent thanon bus fares. By November, 1989, fares between major urban centres onordinary (slow) buses were between 50% and 60% higher than on thecomparatively more comfortable railways economy class. Secondly, as NRZreduced its service coverage, the quality of service between the majorcentres served improved markedly to the point where transit times on thedensest route (Harare - Bulawayo) are comparable to those by road. Giventhis latter factor, the recent increases in railways passenger fares (totalincreases in economy class fares of 54% since December, 1989) have had nosignificant impact on overall ridership.

5.16 As noted in Chapter III, the proposed investment in coachingstock is to replace part of the existing coaching fleet that will beoveraged and structurally inadequate for operations over the next fiveyears. An economic evaluation of the proposed investment has beenundertaken on the basis of the assessment of the relative economic costs ofinvestment in new coaches compared to service provision by road transport.Details of the assessment are in Annex 5-4. The analysis is based on NRZ'saverage passenger haul of 420 km. The operating costs of NRZ's passengerservices are based on the financial projections for 1990191 whilst thosefor road transport are based on data from the NTS, as periodically updatedby MOT. The analysis of NRZ's overall operating performance indicates thatwith improved efficiency in freight operations, no new locomotives arerequired for the existing level of traffic ('reight and passengers).Accordingly, only the present value of the future replacement cost oflocomotives assigned to the passenger services are taken into account inthe assessment of the capital costs of the passenger services' operations.For purposes of this analysis, it is assumed that the steam locomotivescurrently assigned to passenger services between Bulawayo and VictoriaFalls will be replaced in 1995. Based on their current age and condition,it is assumed that the electric and diesel locomotives assigned to thepassenger services will not be replaced for 4.nother 20 years. Theoperating costs for the passenger services used in the analysis do not takeaccount of the efficiency gains that should lead to lower overall operatingcosts that are expected under the project.

- 62 -

5.17 The economic evaluation shows that, at a discount rate of102, the long-run Incremental cost (per passenger-km) of the railways'passenger services is, at Zc 2.4, about 28Z less than the unit economiccost of provision of passenger services by road transport (Zc 3.3) overcomparable distances. Even if the productivity of buses on inter-cityroutes was 50% higher than the current levels (100,000 km p.a), the long-run incremental cost of the railways' passenger services would still beabout 102 cheaper. The proposed replacement investment in coaches is thuseconomically sound.

F. Proiect Risks

5.18 The project faces four main risks: first, the traffic growthmay not materialize as projected; second, operational improvements may notbe achieved; third, the project's institutional arrangements may not besustainable; and fourth, as in all projects, there may be cost over-runsand/or delays. As the switching values analysis has demonstrated, trafficgrowth must decline to about 35% of the projected amount before the projecthas a zero NPV. This decline would result in revenue traffic in 1996-97 ofabout 5.8 billion net tonne-kilometer. The projected increased demand fromthe thermal power stations after the expected completion of therefurbishment program in December, 1992 alone accounts for the incrementaltraffic that is required to meet this target.

5.19 Even if the demand for rail transport is present, it ispossible that NRZ will be unable to carry it all if operationalimprovements are not achieved. To combat this problem, technicalassistance has been focused more sharply on senior management and oncertain technical areas where the need is greatest. Furthermore, theproject includes a number of concrete enhancements to NRZ's operatingpractices, such as a Train Brief Book, a computerized wagon tracking systemand a new organizational structure with an emphasis on area management. Inthe case of NRZ being able to go beyond the efficiency performance targetsthat have been set, there is also a risk of redundancy of locomotives. Theprocurement arrangements for locomotives are sufficiently flexible tosafeguard against this eventuality. The third risk concerns thesustainability of institutional changes brought about by the project. Inthis regard, Government's commitment to a revamped regulatory framework isclear and this risk is believed to be acceptable.

5.20 Finally, there is the risk of project delay or cost over-run. In this case, the risks should be acceptable. As the sensitivityanalysis has shown, the project's ERR is not very susceptible to costoverruns. In any event, the likelihood of either delay or cost over-runoccurring to a significant degree is slim, given the fact that civil worksmake up less than 3% of project costs, the implementation profile isconservative and the price estimates for the major expenditure item, thelocomotives, are based on information from a recent tender.

- 63 -

VI. AGREEMENTS REACHED AND RECOMMENDATIONS

6.01 During negotiations, the following agreements were reachedwiths

GOZ:

(i) that NRZ be set an explicit financial goal of a rate of return onits total capital employed at the beginning of its fiscal year of4X for Fiscal Year 1991 and that, in each Fiscal Year thereafter,NRZ be set a rate of return on its total capital employed to bedetermined by GOZ in consultation with the Bank (para 2.25);

(ii) operating performance targets for NRZ (para 2.29);

(iii) that passenger fares will be increased each fiscal year byamounts sufficient to enable NRZ to generate adequate additionalrevenues to cover the amortisation of coaches procured duringsuch fiscal year; and that the passenger services' revenues andattributable costs will be accounted for and disclosed separatelyfrom NRZ's other activities in NRZ's annual accounts (par& 3.09);

(iv) the implementation schedule for the project (para 3.28);

(v) the financing plan for the project (para 3.30);

(vi) the terms on all project debt including the basis under which theproposed Bank loan would be on-lent (para 3.30);

(vii) the procurement arrangements for Bank-financed project components(paras 3.31 and 3.32);

(viii) the operations of the special account for the disbursement of theproposed Bank loan (para 3.33);

(ix) that, no later than March 31, 1991, the Board of NRZ will preparea statement on its dividend distribution policy to be adopted byit after taking into account coments by GOZ and the Bank (pars4.03);

(x) that NRZ's accounts receivables, excluding r'ceivables oncontiguous railways' accounts, at each of itt fis^al year endsshal;, not exceed 45 days and that a report on the status ofaccounts receivables will be provided to the Bank semi-annuallyduring project implementation (pare 4.04 (vi));

(xi) that (a) NRZOs annual investment plan will be reviewed annuallywith the Bank; (b) that NRZ will make revisions to such planstaking Into account any comments made by the Bank; and (c) that

- 64 -

NRZ will not in any fiscal year undertake investments outside ofthose included in the plan, as reviewed with the Bank, costing inaggregate more than US$2.0 million without prior consultationwith the Bank (para 4.04 (v));

NRZ:

(xii) the OIP program and the operating performance targets (para2.29);

(xiii) that, no later than March 31, 1991, NRZ shall prepare and submitto Government and the Bank, programs and implementationtimetables for the scrapping and disposal of locomotives andwagons; and that scrapping and disposal programs and timetablessatisfactory to Government and the Bank will be adopted andimplemented by NRZ (paras 3.04 and 3.08);

(xiii) that passenger fares will be increased each fiscal year byamounts sufficient to enable NRZ to generate adequate additionalrevenues to cover the amortization of coaches procured duringsuch fiscal year; and that the passenger services' revenues andattributable costs will be accounted for and disclosed separatelyfrom NRZ's other activities in NRZ's annual accounts (para 3.09);

(xiv) the implementation schedule for the project (para 3.28);

(xv) the procurement arrangements for Bank-financed project components(paras 3.31 and 3.32);

(xvi) the operations of the special account for the disbursement of theproposed Bank loan (para 3.33);

(xvii) that NRZ will provide to the Bank, no later than one month afterthe end of each fiscal year, projections of its requirements tohire locomotives and wagons, its intended disposition of anyoperational assets surplus to its requirements and its operatingcosts and revenues based on explicit performance targets andmanpower and locomotive fleet restructuring actions to beeffected during the year (para 3.35);

(xviii) that NRZ will submit to the Bank, no later than six months afterits year end, audited annual entity and project accounts and theauditor's management Letter including an opinion on the operationof the Special Account (para 3.36);

(xix) that, na later than March 31, 1991, the Board of NRZ will preparea statement on its dividend distribution policy to be adopted byit after taking into account comments by GOZ and the Bank (para4.03);

- 65 -

(xx) that (a) NRZ's annual investment plan will be reviewed annuallywith the Bank; (b) that NRZ will make revisions to such planstaking into account any comments made by the Bank; and (c) thatNRZ will not in any fiscal year undertake investments outside ofthose included in the plan, as reviewed with the Bank, costing inaggregate more than US$2.0 million without prior consultationwith the Bank (para 4.04 (v));

(xxi) that NRZ will provide, no later than six months after completionof the project, its contribution to the project completion reportin a form satisfactory to the Bank (para 3.34);

(xxii) that NRZ's accounts receivables, excluding receivables oncontiguous railways' accounts, at each of its fiscal year endsshall not exceed 45 days and that a report on the status ofaccounts receivables will be provided to the Bank semi-annuallyduring project implementation (para 4.04 (vi)).

(xxiii) that procurement action with respect to the eight locomotivesthat would be required for oil movements between Feruka andHarare be initiated only with the approval of the Bank (para4.14).

6.02 During negotiations, agreement was reached with GOZ on thefollowing conditions of effectiveness:

(i) that Government has taken all actions required to implement allthe substantive provisions of the Framework for NRZ Operations(para 2.27);

(ii) that NRZ's tariffs for the fiscal year beginning July 1, 1990have been adjusted in accordance with the relevant provisions ofthe Framework for NRZ Operations (para 2.27);

(iii) execution of a subsidiary loan agreement between Government andNRZ covering the on-lending terms for the proposed Bank Loan toZimbabwe (para 3.30).

6.03 Based on the above agreements reached, the project is suitablefor a Bank Loan to Zimbabwe of US$38.6 million on standard terms to beonlent to NRZ.

STill APPRI153L UBlOR'?

SZCOD RAILAiY ?ROTJECT

SELECTED OPERATIONAL STATISTICS

I. IUFRSIrNUCT , STAFFTIV PCUER AS Stl QCLLIU TOCK- UYI1 uia I !1I ufl& au un FM

Route - KM 3,394 3,394 3.394 3,394 3.394 3,394 3,394 3,394 3,394

Traeck - KM 4,286 4,286 4,286 4,286 4,286 4,286 4,286 4,286 4,286

mAter of Staff 19,79 20,149 20,112 19.530 19,651 19.444 17,838 if 17,408 17,170

Electric Locomotives * Oned 9 27 30 30 30 30

- On LIne 8 24 28 27 28 29

- Aveltoble S 13 iS 18 21 22

D1esel Locootives - Owed 275 283 325 322 318 313 307 307 .8

-On Line 218 192 220 240 243 229 222 192 188

- Availatle 128 111 151 169 164 144 122 102 97

stem Locotives - Oaed 134 131 130 96 94 92 92 92 80

- OnLine 72 84 88 87 82 76 73 ?8 75- Available 37 42 41 36 32 32 31 31 29

PassunWr Coawe - O ed 356 352 352 353 390 381 361 540 322

- Available 293 262 260 240 297 258 240 240 220

Freight w*a Owwd 2 12,979 13,05T 13,174 12,949 t2.999 12,721 12,540 12,300 12,147

- Avaltlo 12,250 12,283 12,327 12.147 12,110 11,739 11,286 11.070 10,932

11. TlUFflC

No. of Passengers ('000) 1.580 1,825 2,050 2,218 2,471 2,713 3,104 2,740 3,126

Freight Tomes ('000) A 13,909 13,316 13,856 14,125 13,662 14,045 13,903 13,626 13,614

Freight Net Trame Ks (10') 6,611 6,259 6,289 6,412 6,202 6,573 5,932 5,569 5,287

/1 Redution due to separation of Botwane System.

I/ Includes specialized wagons of ZISC0. °

l Includes railway service freight and psrcels.

8TAff APPRAZ EB1OR

SECOOD RDIUIY P303C!

SELECTED OPERTIONAL STATISTICS

111 fiR flM fUM fill fMl f fil FYNItl. OSRATIhG EFFICtECIES:

Locomitive Availability (%)

Electrie 64.0 5S.6 55.4 67.2 73.0 74.2Diesel 58.6 S5.8 6.8 70.3 67.5 62.9 54.9 53.0 51.6Stem S1.0 50.0 46.6 41.6 3B.6 42.0 42.1 40.0 37.5

Wagon AvalabilIty (X) 94.0 94.0 93.6 93.8 93.2 93.2 92.0 90.0 90.0

Lcoet1ve Utilizatifn(Looo KajLocmstvSe In Use/Day)

Electrc *- 331 343 420 447 331 325Diesel n.A. 378 320 281 275 305 291 292 294Stem 337 222 208 249 264 268 264 282 282

net TOMe KwHagon Dayow 1.501 1,421 1,421 1.269 1,221 1,251 1.157 t,046 936

Staff ProdaetivityC'OOO UtboEeployw/Year) 334 311 313 328 316 338 333 31? 308

0a

Bas8 ed an all uasons Inel4ding fofeln ralt""y magers an the systes, except for FYtS-FY8 Wwen it mgs bssd an oswwrsip. t4

- 67 -

ANNEX 2-1page 1 of 2

IDOAMISTAFF APPRAISAL REPORT

SZCOD RAILWAYS PROJECT

Weaknesses in NRZ Traffic O2erations

1. Detailed studies of NRi's operations have identified specificareas of weaknesses in NRZ's operations and the potential for greaterutilisation of existing assetst

(a) Locomotive utilisation: NRZ currently utilises availablelocomotives for only about 60S of the time for which they areavailable and this ratio is a significant improvement overrecent years when it has been as low as 502. Although data onthe time utilisation is systematically collected, no analysis ofthe data is undertaken. Consultants undertook a detailed worksampling study to identify the causes of locomotive idlenesswhen made available to traffic. The detailed observations atyards and on line indicate that most of the loss of productivotime can be avoided by more intensive supervision of yardoperations (252 of observed loss of time could not be attributedto any operational cause by yard staff), minor investment infuelling facilities in yards to avoid trips to depots (122 ofobserved loss of time) and improved scheduling of trains (about202 of lost time due to line not clear).

(b) Wa*on controls NRZ serves a large number of sidings developed byits customers. The charges for service to these sidings do notdiscriminate between the size of the sidipgs and their distancefrom the serving major yards and have provided an incentive forthe proliferation of many small sidings at variable distanoesfrom the main yards as well as the development of subyards byNRZ to better serve clusters of remote sidings. There is noeffoective system for monitoring the disposition of wagons oncedetached from trains and despatched to consignees sidings. Lackof such control Is a major contributory cause to undue detentionof wagons and decreased wagon productivity on line service. Asecondary effect is that it also inhibits rational planning forformation of trains which contributes to suboptimal use ofmotive power.

(e) Train utilisations a number of factors adversely affect theofficient utilisation of trains thereby limiting the systemseffective capacitys

* ,wtaon loadings recent studies have indicated that highsidedwagons (812 of NRZ general purpose wagon fleet) are, onaverage, loaded to only 802 of their potential carryingcapacity whilst dropsided wagons are loaded to 902 of theirpotential eapacity. This practice, which reflects lack ofadequate control over the appropiate matching ofcommodities to wagon types and tariffs not sensitive to

-68 -ANNEX 2-1page 2 of 2

underutilisation of capital assets, leads to suboptimalutillsation of the tractive effort of productivelocomotives end a corresponding increase in unit carryingcosts.

load variations: efficient train movements on the NRZsystem are constrained by a large number of differentialtrailing loads over numerous sections of the track. Thesetrailing load restrictions reflect variations in thetopography of the sytem but, more importantly, variationsin the tractive capacity of the locomotive fleet assignedto various segments of th. system. The need to reduce orenhance train loads to meet traction and trackdifferentials leads to a combination of underloaded trainsand underexploitation of the capacity of operational assetsand undue delays and detention of wagons and loads atnumerous change points. These costs can be avoided by morerational assignment of locomotives to different streams oftraffic and Imposition of uniform load requirements on thesystem.

(c) crew utilisation: NRZ operates goods trains to timetable withcrew rosters tied to the published timetable. Crews are paidexclusively on the basis of hours worked and can book-off withfull pay after four hours of awaiting the departure of theirtimetabled trains. This system cannot work in conditions ofundue detentions of locomotives and wagons at yards and frequentdetentions of trains on line caused by signal and locomotivefailures. It also has the added deficiency of inbuiltincentives to delay. The existing crewing practice results in acombination of high costs of operation, running of a lessernumber of trains than possible or of shorter trains.

(d) Traffic management: a detailed review of the distribution ofrail traffic indicates that about 60S of this traffic,representing about 200 individual movements of commoditiesbetween various points on the NRZ system, can be organised inblock trains and not be subject to sorting and detention atintermediate yards and terminals. However, only iron ore andcoal traffic for ZISCO, accounting for 152 of total revenuetraffic, is organised on this basis. The current predominantmethod of traffic management, which requires aggregation ofloads for different destinations and sorting and marshalling en-route, thereby subjecting traffic to the other constraints onthe efficiency of NRZ operations, accounts for much of theunderutilisation of NRZ's haul capacity.

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-------------------------------.----------------- ................ ...... .

ZIMBABWESTAFF APPRAISAL REPORTRAILWAYS 11 PROJECT

NRZ: HISTORY OF TARIFF INCREASES

19112 1983 1986.DSTE Am2ED hjl~~~-211v I9h Oktuy 19!]u OB U)891l2v1

DATE GRAiNTD 1.7.f12 1.5.83 1.1 .8 1.1.87 1.2.M9A n A B A 3 A A U.

Tariff/C.woodity Group '() (b)

I -4 40% 25% 10% 10% loft 5A 5 I1

5- 9 - 5°' 40% 25% 10% 10% 10! S" 5e '( 1(

10 - 5% 40% 25% 10%l 1 109' S, 1t' 10%

11 139 % 409 25% 10%0o 10% 1r 2f, tot

12 139 5% 40% 25% 17% 20' 15% 1o' I C, 25% IQ%

13 - 14 13 51 % 40% 25q 17S' 20` 15' l0rs 1% 3CC 14'

Livestock 20r 20% 40!1 25% I0% 15% 15"' 1O( l' 20% 1( n

Tank Cars 4W 5T . 40% 25% 5% 10% lw NJL Mo Increase 1% 1it

Containerised Traffic - NtL 409 25% 5% 10% ION tilL 5 IC% i4t

Upper Class - 5% 10o 10% NIL NIL 10% 10% 3Ff' 1.IL 1O%

Economy Class - 5 10% l% NIL NIL 1" 35% 35% 3Vt )nl

Parcels and Luqgage - 5 40 25% 10 10% 10% 59' 2% 10(%

?I1lk and Creas 5% 40% 25% 10% 1IO 10% 5 5% 20r 10

Mlscellaneous - 5 40% 25% IC% 1l0 1a0 5% 2f1 10

NOTESt A-V rate increase requested

8-!V rate Increase granted

- Aruended subnfssions were compiled during the Intervening period.

- 73 -ANNEX 3-1Page . of 5

ZIHBA3STAFF APPRAISAL REPORT

SBECOD RAIVAYS PROJECT

NATIONAL RAILWAYS OF ZIHBABWELOCONOTIm STRATEGY - 1989-94

1. Introduction. Among the various factors contributing to theunsatisfactory operating results on the NRZ, one of the most important andsignificant has been the poor performance of its locomotive fleet, in termsof availability and reliability, coupled with high maintenance costs. Thecomparatively newer electric locomotives have been performing satisfactorily,and the performance of the steam locomotive fleet, though currently poor,could be improved with local resources. The locomotive problem is mainlyconfined to the diesel locomotives which account for 702 of the total enginekms, and has its main origins in the highly heterogenous fleet of 13different classes of locomotives. This is a legacy of the UDI days when,owing to various internat.onal sanctions, the options for standardizationwere severely restricted, The back-bone of the diesel locomotive fleet todayis the DE1OA class locomotive, sixty-one units of which were procured in 1982after independence, and which have been performing well. The other classesof locomotives are beset with technical, inventory, maintenance and skillspectrum problems.

2. The availability percentages on the NRZ are calculated on the basisof the ratio of the average number of locomotives made available to trafficon an hourly basis to the number "effectively on line', meaning the totalfleet, reduced by the number of locomotives 'set aside' for scrapping andmajor rehabilitation or repair work. The historical availability figures aregiven in Table 1. In respect of the diesel fleet, which is the main causefor concern, while the availability levels in terms of the above definitionare currently around 502, it really means that only about 332 of the ownedfleet is available for traffic. From this figure must be discounted thenumber of locomotives which encounter failures and defects and theiraftermaths on line service. Allowing for this unreliability factor, the realavailability of the diesel locomotive assets owned works out to be about aslow a figure as 302, which highlights the seriousness of the problem.

Table 1. Locomotive Availability

Type of Loco 1984 1985 1986 1987 1988O 1E At O EAX O AZ 0 EE AZ 0 I E hA

Electric 18 9.3 64 30 24.1 55.6 30 27.8 52.9 20 27.3 57.7 30 28.1 74Diesel 318 240 70.3 316 243 67.5 309 226 63.7 307 207 59.0 307 189 54Steam 96 87 41.6 94 82 39.6 92 76 41.4 92 73 42.8 92 78 41

0: No. of locomotives ownedEt No. of locomotives 'effectively on line'AX: Availability as a percentage of 'E'

- 74 -ANNEX 3-1Page 2 of 5

3. The class-vise position of diesel locomotives is given at Table 2.It will be observed that the 61 locomotives of the DE1OA class carry thebulk of the traffic. Arrears of deferred maintenance need to be cleared toimprove availability and reliability, which entails the provision of sparesand artisan/supervisory/managerial skills, and no other action is needed tokeep the full fleet in service foz the rest of its residual life of at least20 years. As regards the other classes, a detailed strategy has been workedout and agreed upon with NRZ.

4. DE2 Class: (17 locomotives). These locos would be phased out bythe end of 1992. Only fast moving running spares would be ordered in 1990.

5. DE3 Class: (15 locomotives). These locos would be phased out bythe end of 1992. Only fast moving running spares would be ordered in 1990.

6. DE4 Class: (13 locomotives). These locos have undergone re-powering in 1982; phasing out wvuld commence in 1995 subject to a technicaland economic evaluation at that point. In the meantime, the electricalcabling would need attention to improve availability and reliability.

7. DE5 Classs (15 locomotives). These locos have been found to beextremely difficult and costly to maintain, and major failures and defectshave been occurring. S rapping of these locos would commence straightawayas when they are rendered ineffective and need major repairs. No more spareswould be ordered; cannibalized parts, and spares in stock would be used tokeep the residual fleet in service. The series is expected to be phased outby the end of 1990.

8. DE6 Class: (9 locomotives). These locos have been giving areasonable level of service. The current fleet is being retro-fitted withupdated components. The series will be continued in service, and phasingout will be planned after 1995.

9. DE7 Class: (32 locomotives). Scrapping would be done as and whenthe locos breakdown and need major repairs, commencing straightaway. Thestock of spares will be used to keep the residual fleet in-service till allare scrapped by the end of 1991.

10. DE8 Class: (14 locomotives). None are in service, and all thelocos in this class would be scrapped straightaway.

11. DESA and DE8B Classess (18 and 19 locomotives). The option of re-powering these locos w:s examined in detail. NRZ had undertaken, on anexperimental basis, the re-powering of one on DE8A class loco with an EMDengine, identical to the one on the DElOAs. The repowering proposal entailsmajor structural modifications on the frame on the DE8A class, mainly toaccommodate the heavier engine (heavier by 6 tons) within the axle-loadlimitations, and comparatively smaller structural modification on the DE8Bclass to remain within the loading gauge on NRZ. There are inherenttechnical risks in the modifications - to a greater degree on the DE8As - andthe success of the repowered locomotive has to be judged by extended field

- 75 - ANNEX 3-1

Page 3 of 5

performance. The repowering proposal, which consists of replacement of allassemblies and components above the deck, is more expensive than a normalsimple replacement of the engine alone. It has marginal benefits, based ona 20 year residual life of the re-powered locomotive, with a traction motorchange midway through the 20 years. The proposal is also attended withproduction uncertainties, taking into account the level of skilled manpoweravailability of NRZ and the already high staff turn-over, which is likely tobe exacerbated if the re-powering work is entrusted to an outside firm.Furthermore, NRZ has to concentrate on, and establish their preventive andscheduled maintenance systems, which are much in arrears. Assuming a 10Idiscount rate, an equivalence ratio of one DESB to 0.9 DElOAs. and anexpected residual life of 20 years, the NPV of the financial cost ofrepowering is 932 the cost of a new loco, and, in economic terms, it is 92Z.The marginal benefit would not exist if (a) the equivalence ratio falls to0.8 as a result of less-than-anticipated availability or reliability levels,(b) the repowered unit lasts less than 14 years, or (c)the initial costs ofrepowering exceed estimates by 82 or over. In the background of thesefactors, the option of acquisition of new locomotives is preferred to thatof re-powering. These locos would be set aside as when they are due majorrepairs. If all goes well with the DE8A prototype, then :he re-poweringoption can become a useful supplement in case of unexpecte?d shortages oflocomotives in the future, or when scrapping of steam locomotives becomesjustified. To meet the shortfalls during the project period, new locomotivesfor main line services would be purchased.

12. DE9 Classt (20 locomotives). These are due to be re-powered, andthis could be carried out with the Caterpillar 3512 engine, which is thesuccessor to the D 398 engine, and has also been proven in locomotive serviceapplications. The exercise would be spread out over 2 years and the purchaseof 20 engines for the purpose would be funded from the ongoing RailwayDevelopment Project - Ln 2342-ZIM.

13. DE9A Classt (44 locomotives). These locomotives have been foundto be problematic in the maintenance of the engines with cylinder-head, fuelsystem and other problems, resulting in NRZ having to use them in down-ratedtandem service, and poor availability and reliability. NRZ has repowered oneloco, replacing the Pielstick engine with the Caterpillar 3512 engine. Nomajor modifications were involved. Re-powering of this class is programmedover a period of 3-4 years,and NRZ would seek funds fr3m a suitable bilateraldonor in the proposed project.

14. DH2 Class: (8 locomotives). These would be continued in servicetill 1995, when phasing out will commence. The replacement needs will becovered by the DE9 and DE9A repowering program.

15. Overall Positions Thus, by 1994, only the following classes oflocos vould be left in the fleet, and they are expected to give anavailability rate of 75Z, on a 'number owned' basis:

DE4 Class - 13 locos IDE6 Class - 9 locos 3 83 locos for main-line serviceDE1OA Class - 61 locos 3

- 76 - ANNEX 3-1

Page 4 of 5

DE919A Class- 64 locos J iZ locos for shunting andDH2 Clsss - 8 locos 3 departmental service

16. The locomotive fleet strategy outlined above would bring about thedesired improvements in operational results only with the followingsupportive strategies all of which are addressed in the proposed project.

.1) Rationalization of allotment of maintenance workload betueenworkshops. NRZ proposes to undertake the heavy maintenanceworkload of DE4, DE6 and DE1OA class locos, as vell as thelocos to be newly acquired, at the Bulawayo Workshops, whichcater to the Electric locomotives as well. The heavymaintenance of DE9 and 9A classes would be undertaken atMutare workshops.

.2) The running maintenance workload would also be rationallydistributed between the maintenance depots as follows:

Lochinvar: DE1OA, DE4, DE6, and DE9/9A locomotives

Dabukas DE9/9A class

M'popoma: DElOA, DE9/9A, DH2 classes and the new class.

This rationalization would enable the conservation,concentration, and development of scarce specialized skillson NRZ, and also be conducive to better inventory control ofspare parts.

.3) A spares procurement system providing for adequate liaisonbetween the consuming, stocking, and ordering departments.A beginning has already been made on the NRZ in the ongoingRailways Development Project with the setting up of an inter-departmental Joint Task Force to estimate and prioritize theordering of locomotive spares. In the proposed project, thisarrangement would be institutionalized with adequate computerback-up, and the necessary linkages with the Finance andAccounting Departments. The project provides funds of bothfor clearance of arrears of maintenance and for normalmaintenance.

.4) A staffing, training and man-power development strategy, withproductivity-based incentives is incorporated as an essentialcomponent in the proposed project. The Technical Assistancecomponent, including the management support element would playa major roles in developing, testing, installing and initiallymaintaining the new systems, policies, and practices.

.5) A carefully monitored program of preventive maintenance onthe five classes of locos which would be continued in service,is an integral part of the proposed project.

- 77 -ANNEX 3-1Page 5 of 5

.6) In the interests of quality assurance, an audit of themaintenance work in the workshops and depots is beingundertaken, and forms and important component of the OperationImprovement Plan (OIP). Specialized technical assistancewould be provided for undertaking this Audit, and also toimplement the recommendations flowing from tkis Audit, whichare expected to include setting up and/or refinement ofmonitoring, recording, and inspection systems, with specialemphasis on training in quality control measures.

.7) The monitoring of performance of the train operating crewwould also receive special emphasis in the project. Thenumber of major train accidents resulting in loss of limb andlife, as well as serious damage to railway assets has beenhigh on the system. Apart from the fact of the multiplicityof locomotive classes operated at random by drivers, NR2'sinspection staff on the train operations side has also beenfound to be inadequately trained. The project would addressthe need to rationalize, as far as possible, the number ofclasses of locos handled by individual drivers as part of itsstreamlining of its train crew policy, and also the trainingneeds to improve the quality of the inspector's cadre. Thisis expected to yield dividends not only in terms of minimizingaccidents, but also in terms of improved locomotive handling,better trouble-shooting capability on the part of the train-crew, and a reduction in fuel consumption.

17. Thus, NR2's proposed locomotive strategy has a multi-prongedsystems-based approach and the various requirements and needs of NRZ havebeen addressed in the proposed project. Coupled with the measures proposedunder the OIP, the implementation of the project should witness a progressiveimprovement in availability, reliability and productivity of the locomotivefleet, with self-reliant and efficient maintenance and operations managementsystems.

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t014La4i 43742 651815 11SS7bO IS3t 3072 190 5b34 ' 74919 050 217M5 162%bl 5326 13422 5044 5436 12W0 12093

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fPtP?Sd1iwut 03K'tap 275593 47466 920636 623 19374 5276 35232 5912 5100 11444 11496t! 4100 131t 406 431m anon t

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litUIto9. htr 424413 ?W971 149969? 133091 293 99259 54257 90o7s 119640 1710 l174( 63147 20274 6264 67331 120IW7T t11932

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'alai houl tat"s 17.65O,VIved *or fmub% WIlo 40t... _..__...._. __. ,_ .,_

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il"MIEidif ApfRdiS4 REPORTRAILYAVS 11 PROJET

uITH PROJECT: DIESEL LOCNOTIVES REDUIRENENT

1990i91 1991)92 1992)93 1993)94 1994195 IM1%b 199b)97

DEIOA DEIOR OEIOR DElGA 0E EIA BEIOA 91E0thnline Luoutives EQUIV UNITS OUIYV UITS LIY UNITS EIItV UNITS EWUIV UNITS EWUIV UNITS EDIV UNITS

DE2 2.03 1.13 0.00 0.00 0.00 0.00 0.0iO3 3.26 1.0 0.00 0.00 0.00 0.00 0.0DE4 2.42 2.42 2.42 4.52 4.52 4.52 4.52KS 0.00 0.00 0.00 0.00 0.0 0.00 0.00D£ 4.3b 4.71 5.00 5.04 5.04 5.04 5.04BE u.0 .00 0.00 0.00 0.00 0.00 0.00DEBISA 0.00 0.00 0.00 0.00 0.00 0.09 0.0 IDEB ai 0.00 0.00 0.00 0.00 0.00 0.00 0.00 DE9 at 0.00 0.00 0.00 0.00 0.0h 0.00 0.00ME9A t 0.00 0.00 0.0 (.00 0.00 0.00 0.00EiOft 61.00 61.0 61.00 62.00 61.00 hi.00 b1.*

NEN LOCOS bi 9.00 0.00 0.00 15.02 20.79 28.99 28.89TOTALt MAINLINE FLEE7 73.01 70.66 68.43 85.58 91.35 ".44 ".44

hdel LKcomott Reired ior Ooeratuons cJ 19O.34 106.34 106.34 103.43 87.05 92." 94.24

hmel LoKootIvs Snortfali d. 33.20 35.67 37.91 18.05 -4.31 -6.46 -5.20

ehre tocoKotiv Rpired e* 21.51 23.08 24.52 13.47 0.00 0.00 0.0

Notes:at thew classes assueea assloned excLusively ta sfnuntinq, ballast or otner railways mm-serviceso/ New LoKottives opase@ In to eillinate need tor nlring by 194.1995: equivalence factor New Loco: DE 104 c 1.155tl:c. based an pertormance targets tnnex 5.9) adjusted for isplementation lag of 3 vears assused in project analYses and sectionaltraffic density torecasts tin Project ies

di in BE 104 equivalent unitst negative = surpiuste/ DE 10 shortfall adjusted tor diiterences in achievea avatianiattv and uttilisation

oetwen IRL BE 104 fleet and nired Iacaeotivesx

Source: NRZ statistics and mission ueuoi ot Nl ooerations

- 82 - ANNEX 3-2il"Havi" Page 4 of 4

i'AFF APPRAISAL REPORTRAILVAYS 11 PROJECT

WITH i;RJECT i CONSTRAIIED TRAFFIC: DIESEL LOCOG7Hi;ES RMEUIREMENT

I990/91 19?1192 I9i2193 1993:94 1994/95 19WiDa

DEIOA DEIOA DE10A 3EIOA EIOAE10 0.Tasniune u reeaovu EdUIV OMITS EQUfY UNITS E3b1V UITS EQUi bhITS NOWIV AjTS E3b1IV bNi'S

OE2 2.03 1.13 0.00 0.00 0.00 z.9i7i3 3.26 1.40 0.00 0.00 O.00 0.0dDE4 2.42 2.42 2.42 4.52 4.52 4.520S 0.00 0.00 0.00 0.00 0.00 O.00

GEo 4.3o 4.71 5.00 5.04 5.04 5.04

wr,{7 0.00 0.00 0.00 0.00 0.00 0.00OE84IA 0.0 0.00 0.00 0.00 0.00 O.do

DEE8 al 0.00 0.00 0.00 0.00 0.00 d.dODE? ai 0.00 0.00 0.00 0.00 0.00 9.00DE9A a, 0.00 0.00 0.00 0.00 0.00 O.%EO104 61.00 61.00 61.00 61.00 61.00 ol.O0rdW LOCOS bl 0.00 0.00 0.00 15.02 20.79 28.89

TOTAL: MIWLINE FLEET 73.09 70.66 68.43 85.58 91.35 99.44

Diesel Locomotives Reouired for Onerations Ci 106.34 106.34 106.34 74.39 74.39 73.54

Dhesel Locosotive Shartiall di 33.26 35.67 37.91 -11.19 -16.97 -2i.?9

'4ref Loatotoives Reuired e/ 21.51 23.08 24.52 0.00 0.00 0.4;s

I---s- ---- - _ ___ _

Not"s:di fnese classes assuem assigned ticlusively to shunting, ballast or other railways ownervice:at ew LACosOUYti onased in to elisinate ed for hiring by 1994/1995s equivalence factor Nw LocaDE 10 1.42:1c/ based on oerfornnce targets tAnnex 3.9) as laggen to conform with impleentation schedule useu in oroject analyses

ano sectional traffic density ioreKast (in Project Files,o/ in DE IOA equivalent units: negative a surplus;e/ DE 1IO shortfaii adjusted for differnce in achieved availability and utilisation

oetne 4R1 OE iOA ileet and hired locomotives;

5ource: NfZ statistics and Nission modl of NRZ otrations

ZIMBABWESTAFF APPRAISAL REPORT

RAILWAY II PROJECT

REqUIREYENT OF "S-

1991 1992 1998 1994 190S 1996 1997 WrnH1 4A. WAON REqIRMEN

1. wnITm ZzmaaU

LOCAL 9674.16 9674.16 6674.16 6726.18 5670.7 6S26.28 7091.06 674.16EXPORT 1585.6S lS85.6S 1566.86 1286.S6 1186.09 1244.48 1265.46 1686.65TISPT 1S54.27 15C4.27 1554.27 686.88 67. 71 68.20 912.49 1554.27

MOTAL 11914.09 11814.06 11614.06 9849.04 7714.57 6S66.69 9242.03 11914.08

2. OUT Of ZIMBABWE

RSA/BOTS 822.84 822.84 822.4 886.70 886.94 47.87 847.56 822.84BEIRA 177.09 17.09 177.09 217.96 221.99 286.48 265.76 7.o09WAPUTO 108.81 108.81 108.81 99.86 106.49 110.08 106.09 108.81

ZAU/ZAIRE 192.81 192.81 192.81 408.76 418.21 420.29 415.24 192.81

TOTAL 786.06 795.05 796.06 1062.12 1060.68 1110.17 1106.67 796.0s

8. TOTAL REqUIREMENT 12609.18 12090.18 12609.18 9911.16 8796.10 972.18 10848.70 12609.1800

B. COMMITMW TO SIUPLY WAOBY OTNER RAILWAYS

(a) RSA

IMPORT INTO ZIB1AWE 1654.27 14.27 1564.27 88.88 657.71 86.20 912.49 1554.27EXPORT INTO ZIMBSUE 1664.27 1664.27 1654.27 806.88 857.71 686.20 912.49 1654.27WIThN RSA 815.90 815.90 815.96 240.02 248.68 247.80 268.08 81.69S

(b) SEIRA 120.00 120.00 120.00 120.00 120.00 120.00 120.00 120.00

TOTAL 8544.60 8644.60 8544.50 2188.28 2079.00 2189.76 2201.06 8544.60

C. NET TO BE PROVIDED BY NR7 9064.68 9064.68 9064.68 7?77.86 6716.10 7882.87 8147.64 9064.68

D. AVAILABLE DiN NRZ 7256.00 72568.00 7256.00 7256.00 7260.00 7256.00 7256.00 725.O0

E. SURLUS(+)/$fRTFALL(-) -1608.68 -1806.68 -1806.68 -521.86 589.90 -876.87 -991.64 -1906.68

0: Without Project ftfiecy Targts t

og|

ZIMBABWESTAFF APPRAISAL REPORT

RAILWAY II PJECT

REQUIREMENT OF OS! WAGONS

19w 1992 19w 1994 19C 1i9m 1? WITHOUT 0A. WAGON R_NIIREMW

1. wmmne wmm

LOCAL 480.85 489.88 489.88 851.44 837.00 487.16 485.89 489.85EXPORT 1122.12 1122.12 1122.12 910.70 877.S 757.71 8-.85 1122.12IMPORT 290.59 290.50 210.59 208.02 201.89 100.08 186.80 200.59

TOTAL 1052.54 162.54 1062.54 140.10 1406.74 1868.49 1497.04 1652.54

2. OUT OF ZDiEASE

RSA^ 224.45 224.45 224.46 274.46 274.07 247.84 28.12 224.4552.05 52.65 52.05 16.01 66.61 65.75 57.10 52.65

MAPUTO 285.5s 285.5 285.59 810.75 810.71 242.17 809.40 28.50ZAM/7AIRE 0.58 0.58 .5c8 11.8 11.92 0.86 11.74 8.68

TOTAL 510.22 519.22 519.22 662.95 658.01 566.12 668.58 519.22

8. TOTAL RE_JIEMN4 2871.75 2871.70 2871.70 2181.11 2120.65 I86.61 2160.57 2871.76

B. COMMIT0N TO SUPPLVAGONSBY OTH IRAILYS

( A)

IMPORT INTO ZIAIW 2O.59 290.59 290.59 208.02 201.98 18.8. 105.80 290.59EPRT IN ZIMBABWE 290.69 290.59 290.59 200.02 201.98 18.08 105.80 200.59WHIN NSA 56.12 68.12 56.12 62.00 68.16 61.70 62.70 58.12

(b) EIRA 60.00 60.00 60.00 90.00 60.00 60.00 60.00 60.00

TOTAL 719.80 n9.80 719.80 54.18 547.04 516.96 408.80 719.80

C. NET TO E PROVIDED NERZ 10652.40 1052.40 1052.40 1570.98 1578.01 1419.05 1.2 1062.40

0. AVAILABLE IN NZ 1179.00 1179.00 1179.00 1170.00 1179.00 1179.00 2170.00 11".00,

0: Without Project Eftft cls.y Targets

ZIMBABWESTAFF APPRAISAL REPORT

RAILWAY II PROJECT

REQUIREMENT OF TANKCARS

1991 1992 1998 1994 1995 1998 199? WITHOUT a

A. POL TANKCARS

1. TANKCARS REQUIETANKCARS:DIESEL 806.39 308.89 806.89 68.89 881.10 401.66 897.72 308.39

TANKCARS:PETROL 187.23 137.28 137.23 182.72 189.48 148.32 153.78 137.23TANKCARS:PARAFFIN 41.76 41.76 41.78 86.43 86.48 86.43 86.43 41.78TOTAL 487.a8 467.89 487.88 5S5.58 657.01 584.41 567.93 467.38

2. TAWKCARS AVAILUBLE 549.00 549.00 649.00 649.00 S04.00 604.00 467.00 549.00

8. SUAPLUS(*)/SHORTFALL(-) 61.62 61.62 61.62 18.47 -63.01 -60.41 -120.98 61.62

S. AV0AS/AVTUR TANWCARS

1. TUNKCARS REQUIRED 27.28 27.28 27.28 54.87 57.09 58.82 61.08 27.26

2: TANKCARS AVAILABLE 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00

8. SUlfRLUS(.)/SHORTFALL(-) -17.28 -17.28 -17.28 -44.37 -47.09 -46.82 -61.08 -17.28

C. ETHANOL TA6CCARS

1. TAWNCARS REQUIRED 19.06 19.90 19.96 86.99 3B.09 so.99 86.99 19.99

2. TANKCARS AVAILABLE 82.00 82.00 32.00 82.00 32.00 82.00 82.00 82.00

S. SURPlUJS(+)/SH0RTFALL(-) 12.02 12.02 12.02 -4.99 -4.99 -4.99 -4.99 12.02

D. MOLLASSES TAUECARS

1. TANKCARS REUSJIRU 13.00 18.00 18.00 25.28 25.26 26.26 25.26 18.00

2. TASKCARS AVAILABLE 27.00 27.00 27.00 27.00 27.00 27.00 27.00 27.00

8. StWILUS(.)/SHORTFALL(-) 14.00 14.00 14.00 1.74 1.74 1.74 1.74 14.00

0: Without Projoct Efti.eIncy Target:

P41

0I

to,

Annex 3-4-87 - Page I of 8

ZIMBABWE

STAFF APPRAISAL REPORT

SECOND RAILWAYS PROJECT

mmNICAL ASSIST§AN FOR MvANAG.,MT AND LUPEISORY TT-- OF rgagi

1. b The National Railways of Zimbabva (N.RZ),with the assistance of the Gowexuent of Zimbabwe, the World Bank andother funding agencies, vill be executing the Railways II Proje.t dringthe period 1990 - 1996. he project envisages investments in assets forrehabilitationt "placement and modemisation, and also includes amajor cnponent of Technical Assistance for project iplementation forManagment and SuperVisory Dewlopment.

2. IQz During the Initlal years of the project, NPWZIntends to substantially ilprove the quality and calibze of Itsmanagement and supervisory personnel in specific areas. Tis perioddill also be utilised to upgrade, modoenise and streamline the workingsystems and procedues, so as to achieve the objectives of efficientcorporate working, enhancement of transport capacity, optimisationof asset utilisation, and improvement of staff productivlty, allof which. call for a sustainable improvmnt in managerial andsupervisory capacity capabilitty, and efficiency, One of the majorweaknesses Identified in the system is the lack of managerial andsupervisozy expesience at various lewls, and an effective thrAst toacoelerate the rate of acquisition of experienoe with the help ofexpert Technical Assistance would be necessary.

3& Technial Asstanca PlAnS The T.Ao is proposed to bearranged in the phases for both Mana t and SupervisoryDevelopent programs;e

(a) A preliminary dlagnostic review by a fourteen memberManag_ent and Supervisory ievelojmnt and SupportTeam (MIDT) to failiaiee themselves with the systmsin us cn NBZ in order to map out the desirable planfor the chnges needed to enhance efficiency, and toidentify the specific capabilities and traninrg needsof anagerial and supervisory staff In specific areas.

Annex 3-4-~ 88-Page 2 of 8

(b) The introduction of the changes in systems and proceduresand commencement of training and support to NBZ managersand supervisors in project implementation and respectivespecialised areas of work and sound railway managomentpractice with particular referenoe to the changed systems(Including management of change).

(c) Subject to a mid-course review after twelve months by theGeneral Manager of NAiZ assisted by NBZ Management toevaluate the effectiveness of the system changes andtransfer of know-how by taking into account corporate,deparbmental, sectional and individual performanceresults. the T.A. scheme wll be extended to cover a widerbody of NRZ's managers and supervisors. At this stage,it will be possible to custom-tailor the scheme to suitthe priorities needed for both Managers and Supervisors.

(d) The Management and Supervisory Devwlopment Team will, wdththe assistance of their Aailway organisation and NBZ,develop training programmes and attachment for on jobtraining of NRZ personnel with theIr Railway organisation.

4. ptsilod Cotet of Technical Assistancs

Phas One * This phase will last for three months andthe fourten member team will consist of experts in the following areass

Area ManagmntTraffic OperationsPlaming (Maxketing/Costing)mechanical EngineeringElecteical EngineeringSInTeleccs. EngineeringSupplies Mianagement

Diese Locomotive Maintenance (Mechanical}Diesel Locomotive Maintenance (Blectrical)Electric Traction (Infrastrucuae)Signal 0 de6mms.Tuafic Operations (2)Supplies

Annex 3-4Page 3 of 8

- 89 -

SuDulies Manacement

Stock Control Systems - .i;anual and ComputerisedProcurement procedures - international and localInspection Systems and Quality ControlLiaison with Consuming DepartmentsInventory ControlMtlan Management

Th Team of experts will carry out a quick diagnostic surey of the

senior, middle managers and supervisory level staff on NiZt and of the

corporate working systems and procedures and computer applications,

efficiency and economy in resources (both human and material) to be

incorporated. This would identify the areas of weaknesses, both in

personnel as well as systems, which need to be corrected. A plan of

action will be drawn up and finalised in close oo-ordination and

collaboration with N1Z.

Phase Two & This phase would last for nine months with

the same number of experts, and covers the eommencement of implementation

of the Training and Systems Introduction Plans prepared in Phase One

and would consist ofi

[a1ining Plan

(a) Organisation of formal and/or informal classes for

groups and indilviduals to present and discuss proposed

system changes, as well as to address deficiencies in

knowledge and experience as observed during the diagnostic

survey. These classes would necessarily have to be

very inter-actiLe in nature.

(b) Close on the job monitoring of the individuals and

groups assigned to each expert in order to ensure that

the level of performanc is brought up to agreed

standard and that the performance targets are

achieved.

(c) The experts will organise repeat, refresher or

additional classes as dbemed neoessarY to ensure the

attainment of the required upgrading of management

and supervisory experience and the oroper introduction

and implsmentation of the revised systems of working.

Annex 3-4Page 4 of 8

- 90 -

td) The expert Team will also arranga to preparedetailed procedural manuals and documantationto supplementreplace existing documntation asnecessary. They will also prepare the neoessarycourse material for the teaching staff of NKZ'sTraining Centre with whom they will work in closeliaison, so that the Training aGentrs and its staffare adequately equipped to run suitable appropriategeneral management/supervisory courses for NMZ'smanagement and supervisory staff after the departure ofthe experts.

ge)- The experts will via the NRZ Project Co-ordinatorreview periodically the programmes outlined in (asto (d) above with the D)epartment Head, the NazProject Co-ordinator and the relevant AssistantCeneral Manager. This review team will keep theGeneral Manager, through NBZ Project Co-ordinator,advised of progress achieved and problems encounteredand plans proposed.

(f) lhe experts will carry out an initial evaluation ofeach officer or supervisory staff assigned to himand thereafter, undertake a reevaluation every-quarter with specific reference to on the jobmoitoring carried out by them and this evaluationreport wlll be submitted by the Expert Tea Leaderthrough NIZ Project Co-ordinator to the GeneralManager. In cares where there is need for counsellingby higher management, this should be specificallymentioned In the evaluation rsport.

(g) The experts wdll de vlop general management andsupervisory tgaining progras ;s for use by NIZ Inthe training and development of all cadres ofOfficers and supervisory personnel.

(h) Each officor or supervisor receiving this support andtraining will, likewise, evaluate the assistancereceived every quarter and report it to hisdepartmental head who will forward the same thoghNRZ Projects Co-ordinator to the General M4anager.

Annex 3-4Page 5 of 8

- 91 -

(S) The experts will maintain individual diariesof their wozrk with brief notes on activitiesundertaken by them and these voula be notedand initialled, with comments wheze necessary,by the attached officers once a veek.

Systems DeveloWcgnt and Imnlementation

(i) The experts wdll, after a thorough evaluationof N&Z systems in use in the Departments/Sectionsto which they are assigned, amend or wherenecessary develop new systems, regulktionsand procedures including computer applicationswtere necessary or methods of working/undertakingspecific tasks with a view to improving theoverall efficiency of the Departnent/Sectionand productivity of NRZ employees concesned.

(ii) Any amenduents to existing systems or new systemsdeveloped must be discussed with the Depart-entalHead/relovant Assistant General Llanager and theN1Z Project Co-ordinator prior to implementation.

(Iii) Where such changes impinge on employee conditionsof servioe or any collective bargaining agreement theNiR Project Co-ordinator will through the office ofthe Chief Manpower Manager solicit and negotiateUnion Agreement.

Phase Three s At the end of phase two, there will be a mid-course evaluation of the efficacy of the Technical Assistance scheme asimplemented thus far. This review will be carried out by the GeneralManager of N?Z and his review team, assisted by the World Bank Missionand Government of Zimbabwe. The review will cover the effectiveness ofthe system changest the transfer of technology and know-how, and willtake into account the corporatet departmental and individual performancesesults compared to targets. Subject to the results of this review, thetezm of the experts will be extended and expanded to cover anotheradditional 576 person-monthst this is subject to review by the IBZ andWorld Bank. The following is an indicative provision for the wholeschem covering all thzee phases; it is, however subject to modificationand fine-tuning after the mid-courSe review:

Annex 3-4Page 6 of 8

- 92 -

1.l

Area Management ...*...*..******.....** 36 person-months

Traffic Operations ................. 7 3 nCommercial Operations ..................... 24

Mechanical Engineering .................... 84Blectrical Engineering .................... 36Signal/Telecom. Eng. .................e..... 4

Supplies Management ....................... 60

Manpower Planning Development ........ *..... 12

IDTAL .* ......... ... .. ... 372

2* SUD@rvsorXV

Diesel Loco liiaintenance (Mechanical) ...... 54 person-monthsDiesel Loco Maintenance (Electrical) ....0.............. 54 Electric Traction (Locos) ................. 24Electric Traction (Infrastructure) *....... 36Signals/TeleoOMMS. ............. o . 36 '

Traffic ..... *-* 108

Supplies *6e*eee-e-- . .e ee.*-e 0 n

=TAL ...... 372 n

The functioning of the expert teaM will be on the same lines as detailedfor phase two, subject to changes that may be introduced as a result ofworking experience in the earlier phases and the mid-course review.

URLE &EI I JR,

Apart frm undertaking specific assignments for the department towhich he is attached the Team Leader will W-

(i) Liaise with NEI on matters pertaining to the welfareof mgmbers of his team.

(ii) AEct as his orgenisation's representative in Zimbabweand be available to discuss with NRZ any issues pertainingto the project.

(iii) Co.ordinate the activties of all members of the projectteam in liaison with the NUZ Project Co-ordinator.

(iv) &e responsible for the psrformance of members of the teamand required to ensure that it is of a high and acceptablestandard at all times.

Annex 3-4Page 7 of 8

- 93 -

5. ReDortina Recuirementsa Within two months of theirarrival in Zimbabwe, the Team of experts will submit the draftdiagnostic study report and the draft plan of action throughNEZ Project Co-ordinator to the General Mianager. This plan ofaction will be discussed, finalised and fozmalised wvith NRZDlanagement and Eaview Team and the final report and plan ofaction should be ready before the end of the third month, whenPhase One will ccme to an end. At the end of every quarter,thereafter, the Team of Experts will submit a Progress Reportthrough the NRZ Project Co-ordinator to the General i.ianager; thisreport will include the individual evaluation reports referred toearlier.

6. Qualifications and exoerienos of exqrts: The expertsshall have basic University degrees (Engineering degrees in tho caseof Engineering and Supplies management experts) and shall be membersof recognised and relevant professional institutions. the expertsfor Phase One will be the Lead biembers for each discipline, and theyshould have had proven and successful experience in their respectivefields of railway management at senior levels for at least 15 years.The Team Leader shall be a traffic operations expert. The AreaManagement Experts shall have had experience in general railwaymanagement at area or divisional level for at least ten years.The systems coverage in experience needed for each of the disciplineswill be as follows:

Area Mbnagements

Transportation PlanningGeneral Management (Railway)Inter_departbental Co-ordinationOptimisation of asset utilisationStaff productivityPublic and Customer RelatlonsCosting, Tariffs, MarketingLabour kolationsMonitoring of Performance of all departments

Traffic Operations:

Transportation PlanningRailway Traffic Planning and OperationsMonitoring of PerformanceOptimisation of asset utllisationStaff ProductivityTariffs and CostingsMan ManagementCustomer Relations

Annex 3-4Page 8 of 8

- 94 -

fingineering:

Railway bechanical, Electrical or Signal/Telecas.&ng. as applicablePrewntive Maintenances Planning, Scheduling and jioviewPerformance Analysis$ Biquipment and staffIncentive Scheass Staff PtoductivityEquipment SpecificationQuality ControlAlan Ilanagement.

- 95 - ANNEX 3-5Page 1 of 2

ZAM&MSlAP? APPRAISAL EXPORT

RAILWAYS II PROJECT

NATIONAL RAILAYS OF WDNBAMWEa LOCOMOTIV MATETENANCE AUDIT

DRAFT TERMS OF EERUC

1. The objective of the Audit is to examine in detail the diesellocomotive maintenance function on the system determine theeffectiveness of the relevant systems and procedures and to recommendmeasures for improvement where necessary.

2. NRZ has on its books diesel locomotives and the main workshops wherethe major maintenance overhauls and rehabilitation are carried outare at Bulawayo and Mutare. The locomotive depots undertaking firstline maintenance are at Mpopoma, Dabuka and Lochinvar. Theavailability and reliability of diesel locomotives on the system havebeen consistently poor of late. NRZ has reviewed its Locomotivestrategy with a view to improve the situation to acceptable levels ofavailability and reliability. One of the actions to be undertaken toimplement the Strategic Plan is a detailed Maintenance Audit ofLocomotives.

3. This Audit will be carried out by an Inspection Group to be set upwithin NRZ, which is proposed to be headed by a team of twoexpatriate experts for a period of 12 - 18 months. The Group willvisit all the locomotive maintenance installation procedures withspecial reference to the following points.

(a) Adequacy and regularity of Scheduled work content for regularperiodical maintenance.

(b) Effectiveness and quality of work undertaken with regard toskill imports, compliance with prescribed work contentrequirements and propei. use of replacement spares.

(c) Quality control and inspection procedures.

(d) Documentation of maintenance work effective use of historicaldata for revising scheduled work content and for updating sparesrequirement forecasts, and for individual accountability forperformance.

(e) Diagnostic and trouble-shooting procedures and expertise,effectiveness of out-of-course repairs.

(f) Failure analysis - depth, effectiveness, and use for failureprevention.

- 96 -AM 3596 ~~~~~~ANNEX 3-SPage 2 of 2

4. The Group vill identify areas of weaknesses in Systems, practicesprocedures, equipment, and skills, and formulate recomaendations tothe Chief Mechanical Engineer to eliminate the weaknesses. They willalso assist the Chief Mechanical Engineer in implementing therecouendations and continuous monitoring thereof. The Group willreport directly to the Chief Mechanical Engineer.

5. During the initial 12 - 18 months, the expatriate experts. %ho willhead the Group will work closely with the Group members, and lia::seclosely vith the Chief Mechanical Engineer, and ensure effectivetransfer for technology, so that the Group will be able to functionindependently and effectively at the end of the term of theexpatriates.

97 - Annex 3-6-, Page 1 of 5

ZIMBABWE

STAFF APPRAISAL REPORT

SECOND RAILWAYS PROJECT

MAbNPO.iER STU'DY

-nauS OF R2E:lREN

1. Bal

The National Railways of Zimbabwe (N*.Z), with ta'i assistanceof the Goverrnent of Zimbabwe, the ilorld Bank and other fundingagencies, will be executing the Railways II Project during theperiod 1990 - 1996* The project envisages investments in assetsfor rehabilitation replacament and modexnisation, and alsoIncludes a major component of technical assistance in manpowerplanning and general mangzemnt development.

2. tBMEE

buring the initlal years of the project, N.i4Z. intends tosubstantially improve the quality and calibre of its managementpersonrel in specific azeas. Ihis period will also be utilisedto upgrade, modxdnise and stxeamline the working systems andprocedures, so as to achieve the objectives of efficient corporateworkings enhancoment of transport capacity, optimisation of assetutilisation and improvement of staff productivity, all of whichcall for a sustainable improvement in managerial capacity,capability and efficiency. One of the major weaknessesldentified in the system is, due to lack of dataprocessingequipment, the inadequacy of the existing manpower planningprogrammes and the absence of sound procedures to scientificallyaddess and review at periodic times the appropriateness ofmanpower levels throughout various grades having regard toboth traffic levels and wozk loads. It is intended to achlevethe aforumentioned objectives Including an evaluation ofeployees conditions of service and the Railways StaffPest omance appraisal system.

- 98 - Annex 3-6Page 2 of 5

3. WXO-.;9 Slur PLAS Ms

3.1. A preliminary diagnostic review by a two member ManagementConsultant team and a like number of NI.HZ. personnel toacquaint themselves with the prevailing systems practicesand procedures sWithin t,R.Z. in order to map out thedesirable plan for the changes needed to develop andimplement sound manpower planning and review models andprocedures in order to determine optimum staff levels

3.2. A review of the "National Railways of Zimbabwe Review of 1985"an internal study whose findings were accepted by managementbut could not be fully implemented owing to the absence ofprecise assessment of the surplus personnel.

3.3. The introduction of changes in systems, practices andproceaures and commencement of training and support to coreNt.&.Z. Manpower Branch and WYork Study personnel in projectimplementation.

3.4. An evaluation of employee conditions of service by grade.

3.5. An analysis of employment and advancement of women withinN.R.Z. and of the measures that Railways could take toactively encourage their employment and participation atboth managerial and supervisory levels.

3.6. An assessment of the Railways staff performance AppraisalSystem.

3.7. The training of Iianpovar Staff and M;anpover Project teampersonnel in relevant tManpower Study methods will benecessary.

4, DBTA!LED CCNTENT OF WhNPOdJR SIUDY

4.1. Undertake an in depth review and analysis of N.FRZ.manpower levels by branch, section and grads in relationto appropriate projected traffic volume and incumbent'sown workload, and to deteDmine and rocommend optimumstaff levels by Branch, Section and Grade.

4.a2 Identify quantitively the surplus staff by grade in eachBranch.

4.2.1. Work out strategies for dealing with the surplusstaff.

4.3. Identify specifically by Branch, 3ection and grade anyconfirmed excess workloads in relation to projectedtraffic volume, or accepted work measurement criteria.

99 - Annex 3-6Page 3 of 5

4*4* Review working mathods and, with the use of time andmotion study techniques, devise and recomnend theintroduction of new improved methods of worldng inselected Branches, Sections and grades.

4.5. Review and, where applicable, update intexnal ProceduralManuals to take account of changes introduced,

4.6. Undertake a thorough review of the existing manpowerplanning methods, practices ard procedures which, interalia, must include staff budgeting/forecasting, succession andcaseer planning etc. and recommend the introduction ofimprovements where necessary and the production/updatingof relevant internal Procedural Ilanuals.

4.7. Produce, with the active participation of the Core NRZManpower/Work Study team, a cmputerised *anpower Modelfor planning and f&ecasting purposes.

4.8. Critically review the capacity of NBZ Training Centre, interms of both human and material resources, to effectivelymaintain Management Daiglopment Courses for Senior RailwayMnagement personnel following a training neds analysisand the determination of appropriate curricula in consultationwith Management Development Consultants (Expatriates)and the NXZ Chief Mlanpoer Manager.

4,9, An analysis and formulation of positive strategies(devoid of barriers) geared at improving femalerecruitment, promotion and participation at managerialand supervisory levels an NRZ.

4.10. Dewelop and maintain management courses for all NRZoffioers In phases to impart general management skillsand to Instill in participants a sense of belonging andcorporate identity.

4.11. Tme appreciation of corporate objectives, sectional andindividual targets would be incorporated in the curricula.

4.12. As a long term objective, in terms of the project, thedevelopment of a training syllabus and examinations forparticipants at various levels to assist in developingparticipants career paths and the linkage of sucharrangements with the overall manpower data base.

-100 - Annex 3-6-100- ~~~~~~Page 4 of 5

4.13. Hbview current remuneration survey approach and systemwith a view to strengthen same in order to enhanceretention of skills.

4.14. Evaluate employee conditions of service by grade in orderto ensure that the conditions of service remain competitiveand assist in attracting and retaining all levels ofStaff required by NflZ.

4.15. Assess the efficacy of the fiailviays Staff Perfonnanceappraisal system.

4.16. The Study should provide clear options on the implmentationof its findings.

4.17. Prepare relevant training prograuraes in Wanpower Studies andidentify staff who will undergo the necessary training in thefield of Manpower Studies.

S. LCGIS2lGAL DETAIIS

5.1. NRZ employs approximately 17 000 persons, and has more than500 jobs and various methods of working.

5.2. The two external management services consultants will workwith the NM Chief Manpower Manager (who shall be the overallteam leader) assisted by personnel from the followingdisciplines s

Manning 1Training Centre 1Work Study 4Job Grading 1

Total core team including consultants a 10

Additional N1Z personnel frm other Branches shall beco-oted as the need arises.

5.3. The study is expected to follow the course shown below *-(The ciration could be reduced)

5.3.1. Overview and Preliminary Report )

5.3.2. In-house seminans to sensitise NRZ 2 monthsstaff of the exercise 2

5.3.3. Formal meetings with the Zimbabwe )Amalgamated Railwaymen's Union (ZAEJ) )

- 101 - Annex 3-6Page 5 of 5

5.&34* Review of the follordngs

5.3.4.1. Branches/SectionstAccomtingCOnpu1 terInternal Audit 6 monthsPublic Relations

5*34*2. Civil

5.3.4.3. Blectzical Signal

5*3*4.4* Mechanical ) 6 months

5.3.4*5. Supplies )hanpowerCoroate Plaming 4 monthsHealth and SafetyRoad Motor ServicesSocurity

5.3.4*6. Traffic ) 6 months

5.3.*47. Ianagment D- Ilopent interspacedCourses at Training thoughoutCont)e psoject life

5.3.*48. Pzparation of Final R port 6 m)thand Proo.du. MUanuals 6

30 months

5.4. neparbental Reports (in advance of the main reporahallbe proaced astr each Branch/Seotional Sudy. Anevaluation of employee conditions of serAice andassessment of the Staff Appraisal system vill zunconwantly wIth the Manpowr Revlew exerclse.

6345014801

24 July 1990

- 103 -Annex 3-7Page 1 of 3

ZDEABSTAF APPRAISAL REPORT

SECOND RAILWAYS PROJECS

WANA3UMm IWOIMATION SYSTiES STUDY:DRAPT ?MS OP R

1. Backarounds For the successful operation of any enterprise,the availability of timely and accurate information is highly essential.Such information enables appropriate decisions being taken by themanagement leading ultimately to organizational efficiency. Since theNational Railways of Zimbabwe is a commercial enterprise, established byact of Parliament to convey commodities by rail and road, it is necessaryto develop, implement and operate an effective Management InformationSystem (MIS). The World Bank has agreed to fund the MIS study to beundertaken on the National Railways of Zimbabwe.

2. Obiectivess The objectives of the study would be tos

(i) identify the existing manual procedures and practices in thepreparation of information reports in each branch;

(ii) analyze the information needs for the operating, middle and topmanagement levels to establish an effective decision makingprocess with a view to optimising productivity at each of theselevels;

(iii) establish data comaunication requirements necessary in theimmediate, medium and long terms for the successfulimplementation of MIS;

(iv) recommend on the training requirements of both the user branchesand the Data Processing Staff to develop, operate and maintainthe systems;

(v) recommend a phased introduction of HIS in various branches,keeping in view the ultimate aim of an integrated informationsystem and the resultant branch organizational structures;

(vi) establish the interface between the current re-equipment projectand the proposed MIS.

(vii) broadly indicate the costs and benefits of the ManagementInformation Systems (MIS).

3. Scone of the Study:

(a) The Consultant will study in depth the working of every branch,the reports produced, their periodicity and the levels at whichthey used or acted upon;

- 104 -Annex 3-7Page 2 of 3

(b) the Consultant will critically examine the abovereports/procedures and identify 'mission critical' systems forautomation (i.e. systems that automate the essential elements ethe branch's operations instead of routine clerical tasks of theback office). The Consultant will then identify the reports asapplicable to various levels to enable decisions being taken inan effective manner. The formats and periodicity of the reportswill also, to the extent possible, be indicated by theConsultant;

(c) the Consultant will study and indicate the phases by which theMIS can be introduced. The phases may be branch-wise and withina branch aspect-wise, taking into account all relevant factorsnot the least of which being the preparedness of the personnelat various levels to understand the technology;

(d) it is obvious that for Management Information Systems (MIS) tobe fully effective, there must be integration of the informationsystems branch-wise and organization-wise. The Consultant wouldstudy what communications facilities are required and the stagesby which they are to be implemented to achieve such anintegration, taking into consideration the resources/facilitiesalready available with the National Railways of Zimbabwe;

(e) for the systems to be successful, training of the user personneland the Data Processing staff is highly essential. TheConsultant would study and identify the training requirements ofthe user branches so that their personnel have properappreciation of the systems to intelligently operate them. Asfor the Data Processing staff, training is needed forinteraction with the users and to maintain the systems sodeveloped. The Consultant would also study the organizationalrequirements of the Computer Services Branch at various stagesto developlmaintain the systems vis-a-vis the existingstructure;

(f) the Consultant would identify the details of costs to beincurred and benefits to be achieved by the introduction of theManagement Information Systems. This would need to be insufficient detail to enable the administration to takeappropriate decisions in fixing priorities, ordering furtherstudies as necessary, etc.;

(g) while carrying out the study, the Consultant will work in closeconsultation with the management at every appropriate level andtake its views into consideration.

4. Duration of Studys The study should be completed within aperiod of 10 to 12 months.

- i05 -

Annex 3-.Page 3 of 3

5. Reporting Requirements:

(i) An inception report will be submitted by the Consultant within 4weeks of the commencement of the study. The report willindicate the course of action and the schedule of deliverables,interactions proposed from the various parties involved and theinputs needed from them. The forwat of final reports will beoutlined. The report will be discussed with the NationalRailways of Zimbabwe and agreement reached within 2 weeks of thesubmission of the report;

(ii) at the end of 6 and 9 months after the couuencement of thestudy, progress reports would be submitted. National Railwaysof Zimbabwe will convey its conments within 2 weeks of thereceipt of the reports. The draft final report will besubmitted not later than 11 months from the commencement of thestudy. This will be discussed with the National Railways ofZimbabwe and the final report submitted not later than 12 monthsfrom the commencement of the study.

6. Qualificationss The Consultant should be an established firmwith specific experience in this type of work of at least 7 years, with aproven track record. The members of the study team should be specialistsin their respective fields with the necessary qualifications and depth ofexperience.

ZIMBABWESTAFF APPRAISAL REPORT

ff ~~~~~~~~~RAILWAYS II PROJECT

ACT IIII TI OPERATIONS IMPROVEMNT PLA r P l.a,|foodst~'it end

OPERATION IMPROUEIENT P lan 6-11-09 19-11-92.............. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

WAGO11 LOADABI LI TV 6-11 -89 19-11-91I.. ........... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .PREPARE LOADABILITY CHARTS (MECH) 6-11-89 10-11-89

.............. . . . . . . . . . . . . . I . . . . . . . . . . . . . . . . . . . . . .ADVISE LOADABILITY CHARTS tO USERS 13-11-89 17-11-89

.............. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .REUISE TARIFF REGULATIONS 13-11-89 17-11-89

.............. . . . . . . . . . . . . . . . . .. .. ... . . . . . . . . . . . . I . . . . . . .

F I NALI SE USERS' PLANS FOR WEI GHMENT FACI LI TI ES 6-11-89 29-01-90* . . . .

I MPLEMEMT WEI GHMENIT RATIOtIALI SATI ON PLLANS 30-01-90 5-06-90. . . . . . . . . .... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

REMOUE AXLE LOAD RESTRICTIOtNS (CE) 6-11-89 17-11-89.. ............. . ...... ......

PREPARPE & IMPLEMEtIT SOFTWARE FOR EXCEPTION REPOR 6-11-89 1-12-89

ACHIEUE 5% IMPROUEMEtIT HSI & 2. 5'. 0SI & OTHERS 6-11-89 8-11-90

ACHEIUE 10 IMPROUEMEIIT HSI & 5%: 0SI & OTHERS 9-11-90 .1Q-11-91

WAGON ALLOCATIOII 6-11-89 22-08-90.............. .. .. .. . . . . . . . . . . . . . .. . .. . .. . . .. . .. .. .

ADUISE APPROPRIATE 1AGcO TYPES FOR COMMODITIES 6-11-89 10-11-89. . .

ACT I VI TY rP ln'.'i P IllnnodsA rt e end

COMMENCE WEEKLY EXCEPTION REPORTING (CS) 6-11-89 1-12-09................... . . . . . ... ...................... . . . . . . . . . . . . . . . . . . . . . .

COMMENCE OFFERIIIG IHIN WAGONS FOR COOL LOAD! HG ON 6-11-89 29-01-90.............. . . . . . . . . . . . . . . . . . . .. . ... . . . . . . . . . . . . . . . . . . .

ACHIEVE ItOO COMPLIANCE FOR CHROME, ASBESTOS, FERR t3-11-89 5-03-90.............. . . . . . . . . . . . . . . . . . . .. . ... . . . . . . . . . . . . . . . . . . .

ACHIEUE FULL COMPLI ANCE FOR OTHER ITEMS 13-11-89 22-08-90.............. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . .

WAGON STOCK 6-11-89 29-01-90.............. . . . . . . . . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . . . .

IDENTIFY SCRAP & STAGED WAGONS THRU SURUEY (ME) 6-11-89 17-11-89.... .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

IDENTIFY SCRAP YARDS (PL) 6-11-89 17-11-89. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . ..................... ....

PLACE SCRAP WAGONS ItN SCRAP YARDS 20-11-89 29-12-89. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .................... ....

PLACE I NFREQUEINTLY USED WAGONIS IH H1OMI0 T FED SIDI 20-11-89 29-12-89

PLACE DAMAGED WAGONS IN WORKSHOPS 20-11-89 29-12-89............... . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . .

REDUCE SATS HOLDING OH HRZ TO 6700 WAGOtNS 6-11-89 14-12-89.............. . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . .

REDUCE SATS HOLDING Otl NRZ TO 4700 WAGON4S 15-12-89 29-01-90.............. . . . . . . . . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . . . .

YARD OPERATIONS 6-11-89 7-05-90.............. . . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . .

.~~~~~~~~~~~~~~~~~~~ _

oil' ~ ~ ~ ~ ~ L vlI - 1-C:3?

--rrCrl~~~~~~~~~~~~~~~~~~~~~ I.:sgr etu'. .,,, 1.B.,,,.,J

ISSUE REtVISED YAPD WORK!ING IIISTRUCTIOIlS 6-l -'0' 1-12-39.............. . . . . . . . . . . . . . . . . .. . . ... . . . . . . . . . . . I . . I . . . . . .

CAPE YARD TO BE OPERATIONAL (SE) 6-11 S4:9 C26-02-90

OPERATlONIS INFORMATION SYSTEM TO BE DESIGN1ED (C0S 6-11-894) 26-02-90

HARDWARE FOP 015 TO BE III POSITIOII (CS) 6-l -8.9 26-02-90

OIS TO BE OPERATIONAL (CS) 27-02-90 26-03-90.............. .. .. .. .. .. .. . . . . . . . . .. . .. . .. . . .. . .. .. .

NO OF WAGONS IN YARO TO BE AS PER YARD CAPACITY 6-11-89 7-05-90.............. . . . . . . . . . . . . I . . .... .... .. .. .... . . . . . . . . . . . . I . . . . . . . . .

BLOCK RAKES AND POINT TO POINT WORKINtG -1 1-89 9-04-90

INTRODUCE DIRECV FUEL TRAINS MUTARE - SOUTH 6-11-89 1-12-89

INTRODUCE DIRECT COAL TRAINIS TO Mt NAMMPDEN & BRA 6-11-89 1-12-89

INTRODUCE DIRECT CHROME TRAINS KILDONfIN - KIWEKUE -6-11-89 t-12-89

INTPODUCE DIRECT MAIZE TRAINS Mt HAMPrJEN - SOUT 6-11-89 1-12-89.............. . . . . . . . . . . . . . . . ... . .. .. .. ... . . . . . . . . . . . . :. . . . . . I . .

IHTRODUCE DIRECT FERTILIZER TRAINS SHERWOOD - SO 6-11-89 1-12-89. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

BLOCK RAKES FOR COAL,STEEL,TOBACCO,MAIZsE, FERTILI 6-11-89 29-12-1 89.......................... . . . . . . . . . . . . . . . . . . . . . . . I . . . . . . . . . . . . . ".

_ ~ ~~~~~~~~~~~~~~~~~~~ . _

9-11-019

ACTI VIJ TY P lanuied P Iainedstar-t end

IDENTIFY POINIT TO POINT TRAFFIC>30 Q000 TON-it-IES PE 6-11-89 17-11-89.............. . . . . . . . . . . . . . . . . . . .. ... . . . . . . . . . . . . . . . . . . .

BLOCK RAKES FOR OTHER COMMODITIES>30,000 T PER Y 20-ti-89 9-94-90.............. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PREPARE RAKE LINKS (PL) 6-11-89 10-11-89.............. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

RUN RAKES TO LItNKS 13-11-89 2-04-90

ADVANCE PROGRAMMI IG FOR BULK LOADS 6-11-89 15-01-90.............. . . . . . . . . . . . . . . . . . . .. ... . . . . . . . . . . . . . . . . . . .

RATIONALISATION OF SIDING OPERATIONIS 6-11-89 15-08-90.............. . . . . . . . . . . . . .. . . . . . ... . . . . . . . . . . . . . . . . . . . . . . . . .

IDENTIF'Y SIDI 1GS WITiI FULL LENGTH AND OFFER BLOC 6-11-89 24-1 1-89.............. . . . . . . . . . . . . . . . . . . .. ... . . . . . . . . . . . . . . . . . . .

IDENTIFY SIDING.S WHICH CAN BE EXPANDED ';PL) 6-11-89 1-12-89.............. . . . . . . . . . . . . . . . . . . .. ... . . . . . . . . . . . . . . . . . . .

REOUEST & PROMOTE EXPAtISIOtI OF SIDIHGS (PL> 3-12-89 15-08-90.............. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

REUIEW SIDIHNG OPERATitOS III HM.JOR COMPLEXES 6-11-89 1-12-89.............. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

RATIOJOALISE OPERAT IOl(S TO MI NIMISE DELAYS 3-12-89 26-02-90

LOCOMOTIUE UTILISATI OIN 6-11-89 5-06-90.............. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

REDUCE LOSS OF LOCO TIME 11 DEPOTS TO 6% OF TR H 6-11-89 29-01-90

0_

Oir9-1 1-sw

ACTI U!T V Im' i r 1 dP,j p lanredsta.rt end

DESIGN ADDITCIHAL FUELIHG POINTS (PL> 6-11-09 14-12-89................ . . . . . . . . . . . . . . . .. . .... . . . . . . . . . . . . . . . . . .

INSTAL ADDITIONIAL FUELING POINTS (ME) 15-12-09 5-06-90........................ ..................... . . . . . . . . . . . . . . . . . .

REDUCE LOSS OF LOCO HOURS OURING TRIP TO 10>: OF 6-11-09 29-01-90

TRAI N LOAD RATI OlNALI SATI ON 6-11-89 29-12-89. ................. . ...... ...... ......

RUN COAL TRAINS TJ - DU WITH 20th CLASS STEAM /D 6-11-89 29-12-89.............. . .. .. . . . . . . . . . . . . . . .. . .. . .. .. . .. . .. .. .

RUN COAL TRAINS TJ - DUI WITH DE10t3/1700T 6-1t-89 21-12-89. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ................ ...... ......

DIESEL LOCO RELIABILITY 0 6-11-89 16-05-91..................... ....... . ...... ........ ......

AhtALYSE LOCO FAILURES (ME) 6-11-09 1-12-89

COMPLETE MAIIITEIIrAICE AUDIT & iCTIOHt PLAtN (ME) 6-11-89 26-02-90

I MPLEMENT MOST I MPORTANT ITEMS OF ACTI ON PLAN (M 27-02-90 7-05-90.............. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . .

IMPLEMENT BALANCE ITEMS OF ACTION PLAII (ME) 8-05-90 24-01-91. . . . . . . . . . ... .. . .. . . . . . . .. ... ... .. I........ : . ......

ACHIEUE 80000-100000 KM BETWEEN FAILURES (ME> 25-01-91 16-05-91

FREIGHT TRAIN SCHEDULIIIIG. 6-t1-09 23-04-90 00

_ . .. _. _- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9-.1(-11

ACT! I)I TY p IaIIrd r lanraeds tart; end

INTRODUCE FIRST-Ifl FIRST-OUT FOR CREW (PER> 6-11-89 29-01-90.............. . . . . . . . . . . . . . . . . . .... . . . . . . . . . . . . . . . . . .

TRAIN SCHEDULI15G ON PATH AUAILABLE BASIS 6-11-89 29-01-90.............. . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . .

PREPARE PLAN FOR OUTSTATIOH REST ROOMS (PL) 6-11-89 29-01-90.............. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . .

INTRODUCE KM - LINKED ALLOWANCE (PER) 6-11-89 23-04-90

TRANSIT TRAFFIC SCHEDULING 6-11-89 14-12-89................. . . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . . . . . . . .

AGREEMENTS WITH CONTIGUOUS RYLS TO SEtND ONE DEST 6-11-89 14-12-89

RATIONALISATI ON OF TRAINI EXAMIIJATION 6-11-89 15-01-90. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...................... ....

REUIEW EXITING PROCEDURES ANDJ UARIAHCE (ME) 6-11-89 1-12-89. . . . . . . . . . . . . . . . . . . . . . . . I . . . . . . . . . . . . ................... ....

ISSUE NEW INSTRUCTIONS FOR BLOCK RAKES <ME> 3-12-89 15-01-90. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...................... ....

AUOiD SECOND EXAMINATION OF WAGONJS WHILE LEAUING 6-11-89 17-11-89.............. . . . . . . . . . . . . . . . . . .. . . . .. ... . . . . . . . . . . . . . . . . . . . .

CONTROL OF STOCK USED FOR DEPAPMENTAL WORK 6-11-89 1-12-89.............. . . . . . . . . . I. . . . . . . .......... . .. . .. .. . .... . . .. .. .

I NTRODUCE I NTERIAL DEMURRAGE 6-1t-89 1-12-89

COACHING STOCK . 6-11-89 29-01-90. . . ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .f .

9-11-89

ACT I h' rT P lanned P lanmneistart and

COMPLETE CENSUS OF COACHES ON HRZ (ME&TR) 6-11-09 29-01-90.............. . . . . . . . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . . .

PERFORMANCE NORMS 6-11-09 19-11-92. ................. . ...... ........ ......

IHPRO'JE WAGON LOAIJDAILITY HSI BY 5% 6-11-89 8-11-90. .............. . ...... ........... ......

IMPROUE WAGON LORDABILITY HSI BY 10% 9-11-90 19-11-91.............. . . . . . . . . . . . . . . . . .. . . .. .... . . . . . . . . . . . . . . . . . . . . .

WAGON LOADABILITY oS1 &O THERS BY 2.5% 6-11-89 8-11-90.............. . . . . . . . . . . . . . . . . . .. . . . . . ... . . . . . . . . . . . . . . . . . . . .

WAGON LOADABILITY OSI & OTHERS BY 5' 9-11-90 19-11-91.............. . .. . . . . . . . . . . . . . . .... .. . . . . . . .

WIKM/WAGON DAY IH USE TO 60 6-11-89 8-11-90.............. . . . . . . . . . . . . . . . . . . . .. .. .... . . . . . . . . . . . . . . . . . . . .

WKM/WAGON DA' IN HUSE rO 72 9-11-90 19-11-91.............. . . . . . . . . . . . . . . . . . . . .. .. .... . . . . . . . . . . . . . . . . . . . .

ENGINE KM/PER DAY IN USE 310 6-11-89 8-11-90.............. . . . . . . . . . . . . . . . . . . . .. .. .... . . . . . . . . . . . . . . . . . . . .

ENGINE KH/ PER DIAY IN tUE TO 325 9-11-90 19-11-91.............. . . . . . . . . . . . . . . . . . . . .. .. .... . . . . . . . . . . . . . . . . . . . .

ENGINE KMWPER DoY IN US;E TO 350 20-11-91 19-11-92............ . . . . . . . . . . . . . . . I . . ... .. ... ... . . . . . . . . . . . . . . . . .

ENGINE AUAILABILITY P75% 6-11-89 8-11-90.............. . . . . . . . . . ... .. .. .. .. ... . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SATS WAhDtJS Q1J NP.Z 6700 . 6-11-89 14-12-89. . . . . .., . . .1 . . ...........I....... . . . .. . . . . . . . . . . .O K

N

ArCTV ITY P I .arnid P 1 anned5tart end

SATS WAGONS ON*I IIRZ 4700 15-12-89 29-01-90

sArs WAGJNS OtN NRZ 2500 30-01-90 26-03-90........ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ENJGINE FARILURE RATE TO BE 100 000 KM/FRILURE 6-11-89 8-11-90. . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . . . . . . .

0 1 S 6-11-89 8-11-90. . . . . . . . . . . . . . .. . .. ... . . . . . . . . . . . . . . . . . . .. . . . . .

0IS FOR DEPOTS ,STORE WARDS YARDS & RMS 6-11-89 8-11-90. . . . . . . . . . .. . . . . . ... . . . . . . . . . . . . . . . . . . . . . . . . . . . .

WtAGON DESIGN 6-11-89 29-12-89. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I . . . . . . . t

HSI WPGON TO 18.6 T AXLE LORD & 65 cub.m UOLUME 6-11-89 1-12-89. . . . . . . . . . . . . . .. . .. ... . . . . . . . . . . . . . . . . . . . . . . . .

OTHER WRGONS TO 18.6 T AXLE LOAD 6-11-09 29-12-89. . . . . . . . . .- .-.-... . ... .. ...... ......

- 8. (b) -115-

nurnSTAFF APRIA WT

COe R IS PROJECT

*11Zb P _RPU TARS

1no an 16 1 1994 low

LOCOMT AVAIAUlY Ms s :Hurply Po.ltioe) I IMlm L.emttv. 60 @0 @0DE U0 64 78 7n 76 75 isOth _lee / 47 55 a 65 asElkotric 7 So So so so soStoo* so 45 10 10 so so

-(o En4( 1- e tns

Msm Loeametluv so0w 60000 60000u 0 m oo Loe_ eooo sowo sowo4E 106 18642 50000 50000 00000 50000 50000Other bSetl a/ 458 10000 16000 15000 11000 11000EletrIc 51544 65000 500 50GWO 00 55000Stoe 718 100 15000 150 1i0 600

LOCOMOTIVE UTILISATIIs(E-t. pw Oye/Lo n Use):

th Lete "e 500s 600 600Of 10 446 460 410 460 460 460Othr Dle_l *l 11 240 0 250 250 260Eloarle 8" $76 400 400 400 400-tem ao SW No WC so8 Soo

LOCOMOTIvES ON HIR:I(ely Avers") s 20 18 17 * 0 0

POON AVAXLA9ULT ) b/

"lob Stez a a St It n S#Dre.Sldm 4 65 68 52 n 6n" Sided 66 I 92 n 2 n 2 a

FISORM SAONW OmNU11

Treait 71 S60 600 000 go 500Oer 4814 JOOO W8o0 1m7 2400 2100

WACO UTUISATIO N/$(Wave KmV _p. Se tI We)t 41 0 72 n 71

AVERU VASSLOD (TIES

High sidd as 86.0 80.6 J9.6 0 .6 8.6Drop Sided so 86.9 J9.6 89.9 86.9 89.9POL Teuhc re 2 ".4 26.4 26.4 20.4 26.4

e/ lasdlog I ooee.tv.s to be scwedWb/ eubjeet to teses verif losetios/ pura p.we wept esIp

-116-

IVAZA Annex 3-9

STCOF R,ui8 n ROtsT Page 1 of 2

Estimated Project Cost

Lcal Foreign Total Loeal Foreign Total

(11 atIIlloa) (llilon)

A. Locomotlve

A.1 Main Line Dlesel Locomotive. - O.10 50.00 - 115.00 115.00A.2 Repowering Shunting Lc- 2.15 6.00 6.15 4.04 18.60 18.76A.3 DIell Loco Sporer Pa- 240 1.20 5.0 6. 06

Subtotal Part A: Sas Cto 2.16 56.10 60.35 4.94 133.66 131.80Physical Contiagoneis - 0.22 0.12 - 0.61 0.51

Price Escaltion 0.07 11.62 2.79 2.20 27.19 29.42

TOTAL 3.12 70.24 78.36 7.13 101.55 168.73

8. Rollilng Stock

8.1 Oropsided Wagom 16.00 6.00 24.00 41.40 13.80 55.208.2 Higholded Wagon. 20.90 10.30 31.20 46.07 23.69 71.763.3 Passengr Coahe 10.00 10.00 20.00 28.00 23.00 46.00

Subtotal Past B: abs Costs 48.60 26.80 75.20 112.47 00.49 172.96Physical Contingecsie 4.04 2.36 7.32 11.36 5.47 16.64

Prlce Esaeltion 24.26 5.60 30.05 58.60 13.84 69.14

TOTAL 6.10 34.46 112.6 179.68 70.80 268.96

C. Signals A Telecoe

C.1 CTC Reneel (Harare-Mutare) 2.21 4.75 7.00 5.16 10.98 16.10C.2 Radio Equipment Replacement 0.10 0.90 1.00 0.26 2.07 2.30C.S Replscment of PA5X 0.60 0.60 1.30 1.15 1.84 2.99C.4 Digital Troanmislson Link(Head Office - Compter 8ueu) 0.10 0.90 1.00 0.23 2.07 2.30

Subtotal Part Ct Saae Costs C i .5 10.80 6."9 16.91 28.89Physical Contingelies 0.80 0.74 1.04 0.60 1.70 2.39

Price EscTlatiom 1.46 1. 4 1.0. 8. 3.77 2.39

TOTAL 4.71 6.73 14.44 10.56 22.36 33.21

0. Plant and Equipment

0.1 Breakdown Cran - 2.60 2.60 - 6.75 5.760.2 Plant Equipmet Replacement 0.00

Mechanlcal Workshop 0.20 2.40 2.60 0.46 5.52 5.96Eloetrlcl Workshop 0.10 0.60 o.70 0.6 1.83 1.61

Permanent Day Workhp - 2.20 2.20 - 6.0 5.06

Subtotal Pert 0: Uses Costs 0.30 7.70 8.00 0.09 17.71 16.40Physleal Contingetlces 0.08 0.7 0.80 0.07 1.77 1.84

Price Escalatlon 0.16 1.7 1.8 0.$5 3.9 4.26

TOTAL 0.48 10.18 10.66 1.10 2.41 24.52

E. Service Vehicles

E.1 Rail Vehicles - 1.65 1.66 - 3.80 3.80E.2 Road Vehicles S.10 3.10 7.13 7.13

Subtotal Part :s Bas Cost 0.00 4.75 4.75 10.98 10.93Physical Conti agencis - 0.24 0.24 - 0.56 0.56

Peice Esocalton 1.01 1.01

TAL 0.00 0.00 0.00 13.60 13.60

-117- Annex 3-9Etltmtod Projet3 Coes (contd) Page 2 of 2

.L.oel Foreoin TotaI Loal Forolgn Total

(lJSt l llon) (Z m.leIon)

P. Electrification

F.1 Ext.nsion of ElectrtfietionsHarare - Mt. Neepdeo 2.00 8.00 5.00 4.50 6.t0 11.60Hare - Meac 0.75 1.15 1.00 1.7S 2.65 4.37

F2. Overvoltage Correctlon 0.10 1.20 1.0 0.2S 2.76 2.9

Subtotal Prt F: Ebnn Coote 2.65 6.85 8.20 6.56 12.81 18.86Physical Continpneloe 0.29 0.54 0.88 0.67 1.24 1.91

Prtce Ec ltlons 1.41 1.19 2.60 S.24 2.74 S.98

TOTAL 4.C5 7.08 11.68 10.47 10.28 26.76

a. Intoratlon Sysoe

0.1 Operating Into. Syeec_e 0.20 0.80 0.80 0.40 1.88 1.840.2 Acct Systeme SoftearolSupp. 0.10 1.00 1.10 0.28 2.80 2.53

Subtotal Pert 0: Base Costa 0.80 1.60 1.50 0.69 8.68 4.37Physical Continoeloe 0.08 0.10 0.10 0.07 0.87 0.44

Price Ec latlone 0.15 0.8 0.51 O.8 0.88 1.17

TOTAL 0.48 2.12 2.e0 1.lG 4.88 5.08

H. Technlcal Assistance

H.1 Hnt. Q volopen t Support 1.00 4.70 6.80 8.68 10.81 14.49H.2 Supervieory Dev. Support 1.00 2.00 8.00 2.80 4.60 6.90H.8 Substitutional Assietane 2.70 5.60 6.20 0.21 12.06 18.86H.4 Staff Turnover Contingency O.$0 0.60 0.90 0.69 1.88 2.07

====== _ 6 _ 29 10_4 -_; 42

Subtotal Pert H: Cost 5.60 12.60 18.40 12.88 29.44 4.8.2Phycical Contin enclee 0.68 1.28 1.04 1.29 2.94 4.23

Price ec l tione 2.78 2.85 5.68 6.89 06.6 12.05

TOTAL 8.04 16.68 25.67 20.56 as.94 59.50

I Training

I.1 Secondent< I Fellowhipe - 1.50 1.60 - 3.45 8.451.2 NRZ School:

Asst. for Specllzed Coureon 0.25 0.65 0.90 0.58 1. 0 2.07Tralning Equlpmnt - 0.50 0.50 - 1.15 1.1S

Subtotal Part I: Bee Cost" 0.25 2.66 2.90 0.68 6.10 6.67Phyicel Contingencies 0.08 0.26 0.29 0.O0 0.00 0.67

Price Ec lations 0.12 0.69 0.71 0.28 1.86 1.68

TOTAL 0.40 8.50 8.90 0.92 6.06 8.97

J. Studies

J.1 Loco. Maintenanc Audit 0.10 0.a0 0.40 0.28 0.69 0.92J.2 Manpower Study 0.80 0.40 0.70 o.69 0.92 1.61J.8 MIS Strategy Study 0.07 0.10 0.17 0.16 0.28 0.80J.4 Ad hoc Studlee 0.10 0.80 0.40 0.28 0.69 0.92

Subtotal Part J: _se Co 0.57 1.10 1.07 1.81 2.68 3.64Physical Coati _ cleice 0.08 0.11 0.17 0.14 0.28 0.89

Price Eaeloatone 0.28 0.25 0.86 0.64 0.56 1.22

TOTAL 0.91 1.40 2.87 2.09 8.8 5.4S

Project Total Se Cota. 68.7 127.60 191.67 146.90 298.94 440.04Phyuical Conti iel0 6.24 6.70 12.94 14.85 15.41 29.78

Price KeceTatim 81.56 27.22 56.e0 72.68 00.2B 182.92

Total Project Coe 101.69 161.7 268.41 288. 9 89 68 60.52

-118_ AnneX 3-10

ZIMABWESTAFF APPRAISAL REPORTSECOND RAILWAYS PROJECT

Estimated Schedule of Disbursementsef ---.--------------------

(US$ million)

Bank FiscalYear Quarter Date Disbursed Cumulative

1991 3 March 31 0.00 0.004 June 30 0.00 0.00

1992 1 Sept. 30 0.00 0.002 Dec. 31 0.00 0.003 March 31 1.41 1.414 June 30 1.10 2.51

1993 1 Sept. 30 1.25 3.762 Dec. 31 1.25 5.023 March 31 0.66 5.684 June 30 2.04 7.72

1994 1 Sept. 30 2.32 10.042 Dec. 31 2.32 12.353 March 31 0.94 13.294 June 30 2.11 15.40

1995 1 Sept. 30 2.35 17.742 Dec. 31 2.33 20.073 March 31 2.47 22.544 June 30 2.34 24.88

1996 1 Sept. 30 1.66 26.542 Dec. 31 1.63 28.183 March 31 3.18 31.364 June 30 2.41 33.78

1997 1 Sept. 30 2.41 36.192 Dec. 31 2.41 38.60

- -119-

Annex 3-11

ZnBAESTAFF APPRAISAL REPORTRAILWAYS II PROJECT

ENVIRONMENTAL AND INDUSTRIAL HEALTH AND SAFETYWEED-KILLERS AND CHEMICAL COMPOUNDS IN USE ON NRZ

Track: Weed-Killing ComDounds

Arsenal 1812 litres per annumTrack X 802 W.P. 1510 kg. per annumDiuron 802 W.P. 3084 kg. per annumKrovar 12.5 granular 29980 kg. per annumAgrowett 266.5 kg. per annum

These compounds have been environmentally cleared for use.

Workshops s Cleaning Chemicals in Use

External cleaning of coaehes

and locomotives ................... ICM, Cernol Detergent

Bogies and engine components .. .... Bosch tank: Caustic Soda

Contractors cleaning Ma............ . gsolect (made by Magnus)

Electrical Components ............. Ardrox 57

Carbon stripper Ardrox 670

Engine cleaning Chemserve 48

-120- Annex 4-1

page 1 of 3ZIMBABWE

STAFF APPRAISAL REPORTRAILWAYS II PROJECT

HISTORIC FINANCIAL PERFORMANCEINCOME STATEMENTS

(ZS million)

1985 1986 1987 1988 1989

Revenues

Rail: Freight 207.38 224.33 222.25 221.37 227.43s Coaching 14.81 17.22 21.96 20.76 23.99s Misc. 8.95 9.24 10.07 12.50 15.84

=_33M = n _ _ _

231.14 250.79 254.28 254.63 267.26RMS Revenues 5.87 7.05 10.83 12.59 14.14

tu-. -m - m m

Total Revenues 237.01 257.84 265.11 267.22 281.40

Operating Costs

Rail Costss Direct 194.39 219.11 238.10 239.43 262.49RMS Costs: Direct 7.51 8.07 10.38 11.27 12.28AdminlGeneral Costs 60.36 70.45 73.90 69.45 81.54

Total Operating Costs 262.26 297.63 322.38 320.15 356.31

Net Operating Income (25.25) (39.79) (57.27) (52.93) (74.91)

Net Rental Incame 3.52 3.76 4.12 5.27 5.60

Interest 39.17 45.50 52.54 51.88 48.39

ProvisionslExchange Losses 7.42 10.16 18.67 13.88 15.99

Net Income (68.32) (91.69) (124.36) (113.42) (133.69)ini inm u 0nii

--121- Annex 4-1

page 2 of 3

HISTORIC FINANCIAL PERPORMANCEBALANCE SHEETS

(Z$ million)

1985 1986 1987 1988 1989

ASSETS

Net Fixed Assets 401.51 399.04 388.80 382.09 374.75

Current AssetsInventories 63.21 68.83 72.82 81.66 88.67Debtors a/ 40.42 59.43 84.43 85.16 79.29Cash and Bank Balances 6.63 6.62 5.66 5.55 3.94

- --31~ c - m m

110.26 134.88 162.91 172.37 171.90Current LiabilitiesCreditors bI 59.66 97.40 117.01 123.84 139.03Provisions 27.21 9.70 17.48 15.62 16.23Bank Overdraft 70.73 89.68 100.52 121.30 99.13

_agn inm inin m mm

1e7.60 196.78 235.01 260.76 254.39

Net Current Assets (47.34) (61.90) (72.10) (88.39) (82.49)

Unitary System Assets 5.11 5.89 4.34 7.98 8.96

Total Assets 359.28 343.03 321.04 301.68 301.22=__ = = -- =

LIABILITIES

Capital A/C 67.88 25.46 37.09 34.33 26.95

Govt. Loans 213.06 242.91 273.60 269.75 273.84

External Loans 191.69 221.16 198.35 195.01 192.57

Loans (Gross) 404.75 464.07 471.95 464.76 466.41

Current Portions Loans 21.83 23.13 25.23 27.86 31.84

Net Long-Term Loans 382.92 440.94 446.72 436.90 434.57

Govt. Subsidy Backlog 91.52 123.37 162.77 169.55 160.31

Total Liabilities 359.28 343.03 321.04 301.68 301.21

Debt/Capital Employed (t) 87 95 94 94 94Current Ratio 0.70 0.69 0.69 0.66 0.68

a/ including, from 1986, payments outstanding for track rehabilitation work on MozambiquebI including current portion of long tenm debt, deferred principal repayments (1987/88);

-122- Annex 4-1

page 3 of 3

HISTORIC FINANCIAL PERFORMANCECASHFLOW STATEMENTS

(2$ million)

1985 1986 1987 1988 1989

Cashflow from Operations:

Net Operating Income (21.73) (36.03) (53.15) (47.66) (69.31)

Depreciation 14.76 15.54 18.27 17.38 17.76

Gross Cashflow (6.97) (20.49) (34.88) (30.28) (51.55)

Investment inNet Working Capital (3.75) (8.24) 22.46 (5.88) 19.18

n W Z _ a=

(10.72) (28.73) (12.42) (36.16) (32.37)

Capital Expenditures 30.05 44.95 19.53 12.53 12.98

Net Operating Cashflow (40.77) (73.68) (31.95) (48.69) (45.35)

Financing Flows

Debt ServicesInterest (39.17) (45.50) (52.54) (51.88) (48.39)Principal (21.02) (27.11) (20.92) (27.97) (30.75)

... ===== ==mm _ =m m==__

(60.19) (72.61) (73.46) (79.85) (79.14)New LT Debt:Government 26.78 30.80 26.99 0.00 4.53External 8.47 2.30 0.11 1.77 4.81

m_In =-== =_ cmaIn

35.25 33.10 27.10 1.77 9.34

Increase in Overdraft 18.60 19.00 10.80 20.80 (22.20)

Net Debt Financing (6.34) (20.51) (35.56) (57.28) (92.00)

Government Subsidy 31.30 60.00 80.00 100.00 120.00

Net External Financing 24.96 39.49 44.44 42.72 28.00

Reduction of NR2 Cash 2.28 0.00 0.96 0.10 1.62

Debt Service Accruals,Extra-ordinary Cash Inflows 13.53 34.19 (13.45) 5.87 15.73

_ e _ _ 22=

Total Financing 40.77 73.68 31.95 48.69 45.35a 0=~ = _zzz== _ =

-123-

Annex 4-2Page 1 of 4

SUCOUID RAILWAYS 11R.130

AssumDtions Used in Financial Analysil

(A) Generalt (i) Projections of income statements, balance sheets andcash flows are in current prices up to 1996 and inconstant 1976 prices thereafter;

(ii) The projections of NRU's operating cost structure underdifferent efficiency scenarios are in 1990 Zimbabweandollars (with the exception of depreciation and expendi-tures on technical assistance, training and studieswhich are in current Zimbabwean dollar terms). Theseprojections are inflation-adjusted when incorporated inthe other financial projections.

(iii) Full printout and diskettes of financial and operationalanalysis are in the project f les.

(B) Revenuess

Ci) Freight Revenues: The traffic forecasts (Annex 5.2) are convertedinto a detailed comodity-by-comnodity traffic density matrix fromwhich average commodity hauls are derived. The traffic forecastsare lagged by three years to reflect NRZ's operating capacity.Individual commodity tariffs are based on rates extant at November1989, adjusted for the individual comiodity-by-commodity increasesannounced in December 1989. A 202 across-the-board increase isapplied to these tariffs to reflect July 1, 1990 tariff increases.A further 201 across the board is applied from January 1991 toreflect planned (and Government approved) tariff increases at thattime. Overall freight revenues are thereafter increased by 101p.a. to reflect domestic inflation.

(ii) PassenRer, Coaching and Miscellaneous Revenues: The effectivecapacity and traffic patterns for passenger, prrcel and mailservice is assumed unchanged. Revenues are based on NRZ'sprojected 1989/90 revenues from these services adjusted forincreases in rates implemented in December 1989 and July 1990 andare subsequently adjusted for inflation (101 p.a. to 1996).Coaches amortisation revenues are the annualised capital cost ofcoaches to be procured under the project based on a discount rateof 9.751 (onlending rate to NRZ) and a term of 20 years.Miscellaneous revenues, comprising mainly demurrage and storage areas projected by NRZ for 1989/90, increased by 182 to reflect theincreases implemented in December 1989 and inflation adjusted from1991.

-124-

Annex 4-2Page 2 of 4

(iii) RHSt RMS revenue is not independently projected. It is assumedune1990) that RMS cash flow (excluding intra-corporate managementcharges) is constant in real terms throughout the period.

(iv) Rental Incomes No account is taken of rental income which hasrecently been of the order of 2$ 5 million p.a. NRZ isimplementing a home-ownership scheme for its work force under whichits stock of houses is gradually transferred to existing tenants.This would mean a gradual decline in rental income as propertysales are made. However, this would be offset (to an unknownextent) by profits on disposal of property assets. No account istaken of projected housing rehabilitation expenditures.

(C) Operating Costs

(i) Fuel Oil: Fuel consumption by diesel locomotive class is projectedfor each class of diesel locomotive based on projected numbers oflocomotives per class per year, availability rates and engine-kilometers performed. Fuel consumption rates are based on historicconsumption rates per engine-km per diesel locomotive classadjusted for any anticipated improvements in fuel efficiency. Fueloil prices are taken as Z$O.S6Iliter escalated at the rate ofinflation.

(ii) Electricity for Traction: The rate of electricity consumption isbased on recent historic data of 21.4 Kwhr/engine-km. Engine-Kmperformed by the electric locomotive fleet are derived from thetraffic density matrix assuming that with the project. train loadson the electrified sections will be 1700 gross tons/train and,without the project, an average of 1500 gross tons/train. Emptymovements are assumed to be 700 gross tons/train with or withoutthe project, which is consistent with passing loop capacity. Theratio of train-engine-kms to engine-kms is assumed at the historiclevel of 1.06. The cost per kwhr of electricity is assumed at the1990 rate of Z$0.08 escalated for inflation during the six yearproject implementation period.

(iii) Steam Locomotive Fuel and Waters The average consumption of thepast three (3) years of water and coal has been used. It isassumed that the fuel efficiency of the steam locomotives willdeteriorate at the rate of 3? per annum. Coal and water are in1989/90 prices adjusted for inflation.

(iv) Maintenance Spare Parts: Maintenance spare part expenditures forsteam locomotives are assumed constant in real terms. Electriclocomotive spare part requirements are based on the scheduledmaintenance load for 1990 to 1993. Thereafter they are based onthe normalized consumption for the last three years and varied withtrain engine kilometers performed after 1993. Diesel locomotivespare parts are based on the scheduled maintenance and depot shedrequirements proposed by NR2 and reviewed at appraisal.

-125- .

Annex 4-2Page 3 of 4

(v) Track Maintenance Materials: Requirements for track maintenancematerials over the project period are based on 1989 requirementsadjusted for changes in gross tonne kilometers (6TIXMs) performedwith the exception of the usage for 1990191 which is based on theprogrammed workload as at June 1990.

(vi) Telecommunications and Signal Maintenances The material require-ment for maintenance of telecommunications and signallingfacilities are assumed to increase at a real rate of 31 p.a. fromthe 1989 level until the improvements under way and under theproject are fully completed (1996).

(vii) Passenger Coach Maintenance: The material requirements for coachmaintenance are based on 1989 costs of such maintenance adjustedfor the estimated non-labor components of such costs. Spare partscontent of such costs are projected to increase at a real rate of32 p.a.

(viii) Locomotive Hiress The number of locomotives required to be hiredis derived as part of the assessment of diesel locomotive require-ments. The cost is taken as the current (June 1990) rate of Rand1800 per day converted to Zimbabwean Dollars at 1990 rates andadjusted for inflation.

(ix) Wagon Hiress The number of wagons hired with the project is asagreed under the OIP targets. The numbers hired without theproject are derived from the wagon requirements analysis. The hirerates agreed from July 1990 of Rand 26.7 per day, converted intoZimbabwean Dollars and adjusted for inflation, are used.

(z) Building and Plant Maintenance Costs; These are based on thematerials content of the total expenditure on such items in1987/88, adjusted for inflation to 1989/90 and escalated forsubsequent inflation. It is assumed that there is an underlyingdeterioration in such costs of 2.5 p.a. frow 1990/91.

(xi) Station Utilities: These are costs for lighting, heating and waterat stations. They are assumed constant in real terms.

(xii) Administrative Services: The materials costs content of admini-strative services and the value of purchased administrativeservices are based on a detailed assessment of requirements for1990191 prepared by NR2 at the request of a Bank post-negotiationsmission.

(xiii) (a) Labor Costs: Labor costs are derived from Na2's payroll datafor each Department for the latest year for whichcomprehensive data were available at appraisal (1987188).These base labor costs were increased by 562 for all gradesto reflect pay increases to June 1990. Overtime payments areconsolidated into basic pay at the rates experienced in1987/88. An additional 101 is applied to total wages to

_-126-

Annex 4-2Page 4 of 4

reflect the practice of paying an annual salary supplementequivalent to one mouth's remuneration.

(b) 60Z of the traffic and 40S of the mechanical, electrical andsignals engineering departments' wage costs are assumed tovary with the level of traffic activity (train-engine-kas inthe case of engineering). However, total wages are assumedto be invariant with activity for the first three years toallow implementation of changes in working practices that willlead to curtailment of unnecessary generation of overtime.

(c) All other departmental labor costs are assumed to be invariantwith the level of activity.

(d) Staff cost-savings: are worked out on the basis of a total2500 staff shed in at the average wage cost of staff in Grades4 - 12.

(e) Welfare costs: welfare payments are assumed constant in 1990Zimbabwe Dollars and are based on 1989190 figures.

(xiv) Degreciations depreciation is on an historic cost basis and isassumed to be the 1988/89 level declining at 4? p.a. in the withoutproject case plus depreciation on project assets at NRZ's standardrates in the with project case. The profile of expenditures onproject assets and related depreciation is shown at Tables 1 and2 to this Annex.

(D) Debt Service: (a) Pre-prolect debt service is based on the profile ofhistoric debt; (b) Project Debt: is assumed to be at 9.75Z for a term of 20years with a grace period on repayments of five years. This compares tostandard GOZ terms to NR3 of 9.75? for 35 years, including a grace period onrepayments of five years.

(E) Working capital: Trade debtors (accounts receivable) are set at 152 ofannual revenues in the with project case and at the historic rate of 20? inthe without project case. Inventories are set at 115S of materials usage(excludes purchased services or asset hires) in the with-out project case andat 75? of such costs from 1994 in the with project case. Creditors (accountspayable) are set at 30? of working expenses in both with or without projectcases, which is consistent with on-going payment practices.

(F) Others (a) No assumption is made as to the pattern of future work orpayment for outstanding work on the Mozambican railways. (b) Provisions forcosts to be incurred are difficult to predict and none have been made in theprojections. (c) No changes are envisaged in unitary systems' assets (jointlyowned assets held by NRZ on the dissolution of the Unitary Railways formerlylinking Zambia Railways, Botewana Railways and NRZ). (d) Average bank/cashbalances earn interest at 6? p.a. and short-term borrowing carry interest at12? p.a.

STAFF APPRAISAL REPORtTSrCO RAILWAYS PROJECT

CO11POSITION OF EXPENDITURE ON PROJCT FIXE ASSETSAND PROJECT ASSETS DEPRECIATINU PROFIL

(USI million)

1991 1992 1996 1994 1095 199 109 109 10on 2000

NMm Fined Assets

Losomotiw. 0.00 6.15 12.51 1.8.5 15.26 20.65 0.00 0.00 0.00 0.00

Coed,. 0.00 8l.19 5.02 5.66 6.42 6.66 0.00 0.00 0.00 0.00

wage" ~~~0.00 6.61 14.00 10.02 16.27 25.56 0.00 0.00 0.00 0.00

CTC. 0.00 1.10 1.72 1.94 2.17 2.96 0.00 0.00 0.00 0.00

Radio. 0.00 0.15 0.24 0.27 0.29 0.40 0.00 0.100 0.00 0.00

PAIl 0.00 0.20 0.82 0.66 0.40 0.56 0.00 0.00 0.00 0.00

Trans. Lim. 0.00 0.15 0.24 0.27 0.29 0.40 0.00 0.00 0.00 0.00

Craine 0.00 0.89 0.59 0.65 0.72 0.96 0.00 0.00 0.00 0.00

Plant/umad,n.ry 0.00 0.65 1.81 1.44 1.59 2.15 0.00 0.00 0.00 0.00

V.1,1.1*: Roil 0.00 0.24 0.87 0.41 0.45 0.81 0.00 0.00 0.00 0.00

V.1,1.1*: ROWd 0.00 0.45 0.70 0.77 0.65 1.16 0.00 0.00 0.00 0.00

Info. System 0.00 0.29 0.46 0.52 0.57 0.77, 0.00 0.00 0.00 0.00

EI.otwi igtiolon 0.00 1.26 2.08 2.27 2.54 8.51 0.00 0.00 0.00 0.00

0.00 25.25 89.51 44.45 49.64 06.56 0.00 0.00 0.00 0.00

26 Eqsalval.es (million) 0.00 56.06 90.67 102.24 114.68 157.09 0.00 0.00 0.00 0.00

Deprsiatioa:th Um Ast.

Leo.. ~~~~~ ~~0.00 0.00 0.00 0.89 1.15 1.96 2.85 2.85 2.85 2.8511

ConChs 0.00 0.06 0.21 0.85 0.51 0.716 0.78 0.78 0.78 0.78

Wagons 0.00 0.22 0.57 0.97 1.4 2.07 2.07 2.07 2.07 2.07

CTC 0.00 0.O0 0.00 0.00 0.00 0.00 0.49 0.49 0.40 0.49

Radiost 0.00 0.02 0.06 0.09 0.14 0.19 0.19 0.19 0.17 0.14

PASX 0.00 0.00 0.00 0.00 0.00 0.26 0.26 0.26 0.26 0.29

Tram.. Line 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Co-NW 0.00 0.00 0.00 0.00 0.00 0.22 0.22 0.22 0.22 0.22

pleast/111MMnry 0.00 0.06 0.14 0.24 0.85 0.49 0.49 0.49 0.49 0.49

V.11.1.., RailI 0.00 0.02 0.04 0.07 0.10 0.14 0.14 0.14 0.14 0.14

V.1,1.1*: Road 0.00 0.06 0.16 0.27 0.40 0.56 0.5so 0.56 0.50 0.40

Info. System 0.00 0.00 0.00 0.00 0.00 0.52 0.52 0.52 0.52 0.52

E.octrlioiation 0.00 0.00 0.00 0.00 0.OD 0.00 0.00 0.00 0.00 0.00

0.00 0.46 1.16 2.610 4.06 6.94 6.06 8.08 7.99 7.81

Z6 Equivaleews (milliona) 0.00 1.06 2.71 0.17 0.84 15.74 16.46 16.48 16.26 17.95

-128-

STAfF APPtAAL REPRT Annex 4-3SECOO RALAYS PROJECT Page 1 of 6

W1M PROJECT: STRUClRE 0F OPEUATD4 com(1960 Z 000)

1Ion 1m 1668 1994 1665 1996 1667

Ful Ol 8 7086 642 8660 40182 85208 814 8Labe OIf/Rumnin Spa.. 4882 4806 4842 001 4508 5OU 50M.Ilt. Spar. 9477 6602 6261 60 6452 046 6C2Loco H1ir 14185 15162 10118 6681 0 0 0

Electriclty (Tractton) 8817 8817 8817 8171 891 88818Elec Low Ibint Spr. o61 S61 801 274 267 290 804Sem Leco Fuel/tr 50961 6114 0262 6455 m88 1117 7006Stean Leem M.Int Spar. 2000 2000 2000 2000 2000 2000 2000Wagon M.I.t ats 10496 10496 10496 10496 104#6 10490 10496WaSge Hilro 84109 4109 81l1o 26262 25686 2688 2588

Pax Coach.e MHI.t. 16n 1069 1674 1676 168n 1667 1602Track Malat. Mat. 4600 9489 9489 10279 10966 11228 11228Elee. lt.r. M.i.t 244 244 244 259 260 257 2S5Tel/SigveI ldint Mat 670 t10 746 766 82C o8n 076Bldg a Plant Hai.tenance 2917 2660 04 8141 S220 8800 s8o6Statton Ut I ltl-. 1402 1402 1402 1402 1402 1402 1402Admin Sertlc (mate) 8700 8974 9061 6O88 9417 660 Om66Total Material Coet 142220 147289 148469 186487 124046 129645 129755(centlnued next page)

-129-

STAFF AMISAL RIPOIs Annex 4-3hICO D RUM" PrJCT Page 2 of 6

WTH PROJT SlRIUCIE OF PERAID COO TS (coatd)(1960 Zs 000)

1991 1998 1$ 1994 low in$ 1607

Labor Cost.:

TrafficVet with Activity 56m Sa5 57m 46202 01U 5178 51mFixed 87472 87472 87472 87472 8742 87472 8742n

Adaln/Plannin/ControlVar with Activity 0 0 0 0 0FIxd 1247 186s4 1474 1424 1474 1424 14274

Socut*ity/m/mIhVar wlth Ativity 0 0 0 0 0Flxed 21114 21114 21114 21114 21114 21114 21114

Civil EngVaer with Actvlty 0 0 0 0 0Fied 847 84067 84667 8466 8466 846 8466

Mec/Elec/Sig usWas with Activity 8050 80520 N0M2 87166 861o 466 4882Fluid 4761 4862 46444 48444 4644 48444 4444

suppliseVY Ith Aaivtity 0 0 0 0 0 0 0filxed 68 568 5a g8 5a8 56 S

Total Labor Costs 26428 26667 27081 286415 170 2216ss 2MS

Staff Cost Saving: 0 0 0 1464 2gm 8n24 87124

Welfae Payment 21400 21400 21400 21400 11400 21400 21400

Total C"h op. Coot. 4820 4601 486290 41548 81154 8S60 8

TA/Training 0 6s 18246 14604 166 22m 0

Dope.: Hitoric AWee 1sO0O 1580 14746 14165 1850 1804 4Projfet Asset 0 1054 2714 6171 6640 15787 164yotal 16000 16414 17460 20n2 22660 216 806

Total Operatinl Cost 4U4 468009 46_M 480668 46186 447863 427180

LenirftoVsr. Costs:(Fla. awl cap coot): 207468 206648 16 1627 168646 16516 I9616

Long-Run V.r. Ceste/ 0.086 0.086 0.087 0.080 0.061 0.081 0.030HUW

Soure: Mission projectIoe base on N31 dA;

-130- Annex 4-3Page 3 of 6

1i~ m Ma 3 i ifi U | i fl ° g

it ;

X~ .11 a | I f g| ! * ° g

g iii, Rr it I'1II i*!1i 0gS ~ ~~ AO A A s i I

SECON RAYAVS PRJCT

WITH MRJECT: C*3SWUL PROJECTIONflTH~(Z Ecscn

191 iu 199 19s4 lw low 1997 199t o 2000

Rat I SeWeRn. 490w, f6,0 * 006,14, 681,600 926,0011 1,058,442 1,060,024 1,000,624 1,060,624 1,060,024

Variable Cost.mterli 1,541 180,725 150,431 10212 160.070 194,590 16,100 105,160 5,190 15,160Lb_t 90,706 101,976 112,17 122,091 1448 18,297 0,297 1,1F,97 160,297 166,297

22,247 252,700 m,604 21,878 804,6007 852,606 85,456 858,460 85,45 86,456

Coatrlb.tlon Msrg)ln:Rei I 271,606 8466 6,589 540,486 6,491 700,54 727,867 m,86 727,86 727,867

Ceoltributi. Margin: 5W 4,500 4,060 5,454 6,000 ,000 7,260 7,260 ,2 ?,20 7,260

Ctrlib. Mbegi,s, Total 276,116 850,844 891,994 540,485 626,1 707,0 74,67 784,027 784,627 74,6

F1xed Costs 247,000 m,29 806,707 8161091 826,101 848,802 846,464 846,464 A8,4.1# 88,464

Exestlosal Coot 0 3,579 18,248 14,904 15,52 22,798 0 0 0 0

Gram ChflWO 29,110 64,467 71,979 214,641 264,478 886,714 8,162 86,02 t86,62 J88,162

Not Inv In Working Cap. 00,947 19,189 6,667 (46,144) 12,8,6 15,288 2,205 0 0 0

Free Ca, I o, (87,111) 45,270 06,812 260,794 27,02 821,491 868,956 886,12 86S,12 886,162

Cpital Expenditure. 0 56,075 90,678 102,286 114,662 157,068 0 0 0 0

Gross Operating Cbfleo (87,681) (12,797) (25, 61) 165,549 157,450 168,798 868,958 t8J,162 UO,162 88,162

Intoert R eteied 4,622 512 0 6,68 18,726 26,967 86,619 44,72 52,817 60,754

mot Operating CehtIor (88,20) (12,165) (25,601) 161,412 176,175 102,750 420,576 480,986 4t8,979 446,917

Financing

Equlty/8ub1ldy Backlog 255,000 2,507 8,956 4,489 4,991 6,900 0 0 0 0

Mm Debt 0 62,899 97,886 109,819 122,387 166,180 0 0 0 0

Dlvdend PaId 0 0 0 0 0 12,689 186,646 162,708 199,190 205,925

Inuret Pald 42,902 87,420 41,224 45,419 54,642 06,490 60,719 79,280 77,209 74,076

Debt Retirement. 40,628 41,111 40,707 21,9u4 19,2 19,195 19,194 22,900 28,7n 85,86

Net External Fla. 171,245 (18,601) 19,261 46,8O 583,381 (72,490) (266,562) (294,089) (305,126) (815,964) ,D

Cam Accretlo% 186,087 (25,916) (6,279) 211,606 229,868 120,256 14,015 166,049 183,064 180,953 x

Net Finowing 88,209 12,265 25,561 (186,412) (178,175) (192,750) (420,57M (480,666) (486,979) (440,917)

STAFF APPRAISAL IEPIRTRAILWA It CPOCT

WMH POJECTt PRECTION OF SAAACE SHUTS

lw 1360 136 19t2 109# 1364 1936 196 1367 193 139 am

Nint IO ses

Groep Masse 162.64 12.64 162.64 165.98 1 Ml.lS 176.93 136.50 192.40 192.49 192.49 102.40 162.49Unlt Ansabel H"stors* 212.11 20.86 198.8 16.0o £6.25 140.10 185.61 12.4 109.4 0W.92 06.87 75.29

Project 0.00 0.00 0.00 58.78 16.67 22.89 815.6 456.63 440.1? 411.72 408.46 5.50

Toal Fixed ASe. 874.75 72.00 856.00 597.0 471.07 652.9 644. 177.50 742.81 712.18 6682-82 .2

Not Wetting CapiaIlnventies 68.67 90.7? 112.01 180.64 141.22 108.70 115.26 18.77 152.20 182.20 182.20 1J2.20Debbt.lt 57.65 t62.6 0.04 107."9 116.72 118.76 126.61 14.20 14 .20 148.20 146.20 14 20Credlt.s 107.20 165.00 142.57 150.00 178.01L 162.48 136.47 210.86 210.5" 210.58 210.66 210.69

- _m - _m _ -- _m m - _89.12 -6.67 00.2a 79.47 36.18 80.09 52.89 67.02 09.2 609.2 609.2 g9.02

Corraft Portion LTD 81.64 48.00 41.11 40.79 21.94 19.88 10.19 1.16 22.00 21.74 865.3 42.14 1.6

Sab O, drat 93.18 182.00 0.00 17.86 28.06 0.00 0.00 0.00 0.00 0.00 0.00 0.00 'N

Be" BalS"too/Co" 8.94 2.50 e.54 0.00 0.00 138.15 41T.60 587.94 671.96 66.01 941.36 1072.6

Prevlulers l£.2Q 17.00 17.00 17.00 17.00 17.00 17.00 17.00 17.00 17.00 17.00 1t.00

Dw from CF 2.64 20.44 20.44 20.44 20.44 20.44 20.44 20.44 20.44 20.44 20.44 20.44

ULlterc SytCm 0.36 4.22 4.22 4.22 4.22 4.22 4.22 4.22 4.22 4.22 4.22 4.22mm m mm - - mm mm mmm m

Total Net Ast. 801.21 200.49 801.86 420.62 519.26 760.45 1108.22 1867.01 140-.15 1S".60 16.80 71e.44

(continued on net pop)

41-C'

o.. t

STAFF APMAI.L wnSECOND R55W PROJECT

KMh PR tts POJECTW UAlON MMWS (cond(Z *I III*)

199 m90o0 1991 190 am Iso" am 1e 17 am 9m9 2C0

Capital A_cent (B/F) 2 .96 0.49 0.49 0.49 0.49 0.40 0.40 0.49 0.49 0.49 0.49 0.49

ROtIWd Pflta 0.00 0.00 -25.19 -14.01 -0.76 1S5.00 N9O.0 400.19 018.02 742.01 074.6 aOz2.UEquity I.J.ti.. 0.00 0.00 0.00 2.61 0.46 10.26 16.09 22.79 22.79 22.79 22.70 22.79

Capital le LT be" 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Bea OwMdrft bpeymaa 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Total E1uity Capitol 2.96 0.49 -24.70 -11.0 0.19 106.59 897.01 612.47 680.C0 705.87 608.10 10a-.4

Leoaw.Pr. Pro) (Oet) 2n.84 800.40 206.88 200.32 2E0.55 271.59 258.06 25U.40 248.55 2U4.21 224.56 2n4.c6tOth. 102.57 210.00 175.07 142.40 111.45 98.47 87.65 78.08 00.51 56.94 49.87 t980.

406.41 616.46 473.00 482.70 302.00 870.06 880.78 J81.54 S82.84 290.15 178.09 264.70

Loam: Pr.j (O.t) 0.00 0.00 0.00 20.01 S5.94 02.58 187.01 200.22 200.22 I108.4 19S.25 1900.0tOUb r 0.00 0.00 0.00 41.70 106.60 170.68 254.88 859.8S1 85.81 8S5.97 851.00 341.08

_ -- m- _- __ 0.00 0.00 0.00 02.40 169.74 209.06 801.00 659.52 659.62 65.61 546..217 50.10

Current Portien 81.84 48.00 41.11 40.70 21.94 19.88 19.19 19.19 22.90 28.74 85.8S 42.14

Total Nat Learr 484.57 478.46 482.70 454.40 520.70 019.70 722.90 671.06 040.90 20.28 704.6 742.72

Govt Sutibldy fBuleo tOO.81 288.00 25.00 28.00 28.00 28.00 298.00 26.00 2e.00 20.00 20.00 20.00

LT De*ts AdJut nat 0.00 9.54 11.25 11.28 11.28 11.28 11.20 11.28 11.28 11.29 11.20 11.20

Total Liablittlt. 01.n 200.49 891.86 426.02 519.26 709.45 1106.22 1867.61 1409.16 1569.01 1066.80 I7Ma.44

DbtCapital IEp. 0 9.27 o." 108.48 99.9 906.70 76.01 62.99 01.70 56.06 50.50 46.42 40.5

Rtetrn ee Capital Emplyav (l) M4.00 5.94 12.19 12.28 85.7" 8.9 27.01 2.07 24.21 22.71 2.48

Pat e R Eqity () 0.2 2.06 2.99 20.09 29.82 24.00 22.75 21.80 21.10 20.00

ca

a,

-134-ZI IBB Annex 4-4

STAFF N AZ L Page 1 of 6SECOND RAILWYS PROIECT

WM PROJECT & CONSVED bRAFFIC: StRUCIW OF OPRATING COSTS(in9 o 0n0)

1001 1002 19F1004 1005 1906 1007-1 lo o is im -o ISO

Fuel Otl 87088 8J62 m60 88151 8208 80894 80984

Lube ilI/Running Sper. 42 4806 4842 4812 458 F0862 C02

Waist. Spres 9477 Om02 a1 MO 452 0 0.00

L4¢o HIre* 14185 15162 lOll 0 0 0 0

Electricity (Traction) 817 817 8816.5 8817 2650 2695 2927

Eloh Loco iaint Spre So1 s01 061 207 247 247 258

Stea Loco Fuel/Water 5691 0114 022 4556 an8 617 7006

Stem Loe Moist Spare. 2000 2000 200 2000 200 2000 2000.00

Wagon a int vate 10498 10496 10498 1049J 10496 10496 104906.00

Wagon Hire 84109 84109 81180 g262 2ca88 25388 2658

Pax Coache Waint. 10S6 l09 1874 1070 1068 18s 1092

Track Wait. Mate 4400 94809 0480 0m2 9002 O008 9080.25

El.e. late. Waint 244 244 244.88 257 262 262 262

Tol/Signale Waint Mat 676 710 746 78m 622 Su8 676.20

Bids a Plant ainteance 201? 2090 ao04 6141 8220 a880 m88g

station Uti I ltlee 1402 1402 1402 1402 1402 1402 1402.00

Ad1 n Service. (Mate) 6700 0074 9061 O288 9417 0606 9079

Total Material Costn 142220 147288 148490 121985 1210920 11018 110687

(conti awd next page)

211340 Annex 4-4STFF PAISAL REPOT Page 2 of 6SECO RRALYS PJECT

WIMH PROJECT & CONSTRMIED OUTPUT: SIRUCTIRE OF OPERATING COSTS (oontd)(199 23 000)

1too 1992 Is" 1994 105 199ff 1007

Labor Costs:

TrafficVer with Activity U7U 53758 U5875 820 80203 8g636 g8306Fixed 37472 74n 87472 87472 37472 87472 87472

Admi n/Pl nalng/ControlVar wIth Activity 0 0 0 0 0Fixed 12947 13594 14274 14274 14274 14274 14274

Security/m/l41SVar WithActivity 0 a 0 0 0Fixed 21114 21114 21114 21114 21114 21114 21114

Civil EnVar with Activity 0 0 0 0 0Fixed S847 84807 34087 84867 34867 84867 34887

Us-h/Eloc/Sig EngVar with Activity 80520 80520 30620 371as 36o 48326 48s20Fixed 47091 43202 48444 48444 41144 48444 48444

Supp i.eV with Activitiy 0 a 0 0 0 0 0Fixed Sa6 586a 5n68 5863 5868 6308 5368

Total Labor Cot. 26428 26377 27081 2617n8 264807 268757 20876?

Staff Cost Savins: 0 0 0 14649 20869 87124 37124

Welfare Payments 21400 21400 21400 21400 21400 21400 21400

Tote I Cah Op. Coot. 48204s 480016 486290 890203 87o003 871210 871S70

TA/Training 0 659 18248 14904 16652 22798 0

Depn.s Historic AsseJt 16000 156s0 14748 1416S la80 18040 12524: Projoct Asset 0 8725 002 16277 28036 s882c 42162

Total 1000 100i6 2434s 80488 87425 51671 54706

Total Operating Coot 44s048 465660 472n8 4ss845 4s2065 446790 426276

Long-Run Var. Costs:(Pin. Bcxl cap costs)s 2049 20043 204011 175300 17785 177813 17751

Long-Run Ver. Co. 0.0/8 0.086 0.086 0.082 O.088 0.088 0.088NSrM

Sourc: Mission proJectlonm b"ro on NRZ date;

ZIMBABWESTAFF APPRAISAL REPORTSECONDi RAILWAYS PROJECT

WITH PROJECT A CONSTID TRAFFIC: NCM STATEMENT(Zs OCO)

1991 19S2 1998 1994 1099 1966 1997 1to 10" 2000

Freight Revenues 449701 89U1 598605 "g2 718262 790096 790068 790088 790098 7900

Coechlng/Nle. Revenue 5015 57598 888 69694 764 8480 8480 8480 64880 8480

Coaches Amntieati.o 0 647 2160 8499 894 7752 S527 1627 S627 W27

Tote I Ra Il Revenue 499656 5960 659148 726848 S00819 082170 862946 892045 6824 9624

Operating Income: Rail 8608 40428 42177 1007 187457 149975 109960 170481 17418 179628

RN Contribution: 4509 496 5454 000 60 7260 7200 7260 7260 7200:(col dpa/usnot coob.)

Total Operating Incom 18116 45892 47061 115707 144060 157185 1M40 17741 16189S 160889

Intrestt LT Deb 8612 8840 888s4 45419 54642 66490 60719 7928 77209 7467

Intrest: ST Deb 4820 0 0 0 0 0 0 0 0 0

Total Interest Paid 4292 85840 s984 45419 5642 65490 60719 79286 77M 74675

Intsrest Received 4622 512 0 4S18 1198 19S* 29696 89666 50044 6079s a

Ne Iteret 88810 84629 89894 40606 42979 45498 51021 89647 27166 180

Not Income -25104 10664 9247 75101 101077 11198 120219 189194 154281 178009

Divided Paid 0 0 0 0 0 0 0 0 0 0

Retained ProfIt -26194 1065 9247 76101 101077 1116" 12219 188104 154281 178009

0% 4:ro 1" 41

as

ZIkSABWESTAFF APPRAISAL REPORTSECOND RAILWAYS PRFJECT

WITH FPRlECT A CONSIRAINB TRAFFIC: CASSFLOW PROJECTIONS(13 000)

1991 1992 1998 1994 1995 1996 1997 1996 1999 9200

Rai I Revenues 49966C 696066 6S9148 72648 800819 682170 6Et648 6s2945 862m46 662s 46Variable Costs

Material 185542 150725 100480 144608 156756 167460 167926 187925 116015 167615Labour 92705 10197 112178 11168 126988 1460O 1460O 146670 146670 14MO6226247 252700 272604 26M66 25696 814180 81469S 814595 814695 81469SContribatien 1rgin:tRal I 271606 846866 866640 469691 514628 566040 66850 M685M0 566850 566850Coentributlo bargint R8 4W0 4959 5454 0000 6O0 7260 7260 7260 6 20DCoetrib. Margin: Total 276116 86046 891994 476891 511222 575800 7S5610 576610 7S1610 57S610Flx d Costa 2470 277299 806767 814648 828066 $48501 848064 848664 848694 8486o4Excsptloaal Coat 0 6679 18246 14904 16s6 22M 0 0 0 0Cron Cowe s 29116 64467 71979 146140 161482 209005 281946 281940 281940 281946Nat Inv ton orbkt Cap. 66947 191Q9 6e67 -4069 12622 2612 -172 0 0 0Fro Caleoe -87981 46176 66812 206729 166o60 206198 2880 281946 281940 281946Capitol Exps_ditutr 0 56075 9t68m 102286 114682 157666 0 0 0 0Gross Operattag Cashflo -878l -12797 -25651 104494 54826 46606 288706 28194 28194 281946Intersat RE00 Vlsd 4622 512 0 4818 11e6 1SS2 266o8 89S68 50044 60766Not Operattia C.sb hoe -8s206 -12285 -25561 109807 66990 68497 268406 27164 261990 291742

Financing

Equity Injectlons 266000 2507 8956 4489 4991 O9m0 0 0 0 0Nmm Debt 0 62899 97886 109819 122887 168180 0 0 0 0

Dividnd Paid 0 0 0 0 0 0 0 0 0 0Interest Paid 42982 8S640 88864 45419 54642 65490 80719 79286 7209 74875Debt Roti romsnt 40623 41111 40797 21948 19825 19195 19194 22900 287SB 856a8 1Nat ExterneI Fln. 171245 -11646 22121 46896 58861 90845 -99914 -102186 -105946 -110038Cash Accretion 1860S7 -28830 -3440 155703 119851 168648 168493 169496 176046 192708Not Financing 38206 12286 26601 -109307 -45990 -6697 -268406 -271684 -261990 -292742

STAFF APPRAISAL REPORTSECOND RAULAYS PROJECt

WITh PROJECT A CONSTRAINED iRAFFICt BALANCE SHEET PIOJECTIONS(Zs billion)

9es 1ae0 19S1 is" iou 1994 1,99 1m 10S7 1900 1009 200

Wt Fined Aeset.-Group Aset. 102.64 1.4 102.64 16.9 1n7.1 170.90 108.50 192.49 12.49 102.40 102.49 192.49Uait Amontas Historic 212.11 200.86 108.88 170.00 168.25 140.10 I18.61 122.46 109.94 97.92 68.87 75.29s Prejtt °0.00 0.00 0.00 51.06 127.11 207.28 291.C1 401.88 850.20 817.02 276.01 244.04Totol Fixed Anet 874.76 872.00 856.00, s4.s0 461.61 588.82 010.52 716.84 661.64 007.48 566.80 6U.e2Not Working CapitalI tories 6s.7 Os.77 112.91 180.64 141.22 90.99 112.00 119.06 118.06 118.06 116.08 1us.bbor 67.66 62.56 60.04 107." 118.72 97.04 107.74 118.61 118.51 196.61 116.61 118.61Credltor 107.20 149.00 142.57 150.00 178.61 171.89 192.64 197.20 197.48 107.48 197.46 197.48

89.12 -4.67 00.26 79.47 Os.1s 25.54 s8.0o 40.68 89.11 80.11 89.11 09.11Cerret Portico LID 81.04 48.00 41.11 40.79 21.94 10.88 19.19 10.19 22.90 2B.74 8c.s8 42.14 tBas Overdt 99..15 182.00 0.00 15.20 16.7s 0.00 0.00 0.00 0.00 0.00 0.00 0.00Bee kbleece/Cef 8.94 2.C0 s.S4 0.00 0.00 SO.7 256.82 415.16 576.66 748.15 924.20 1106.90Provlslea 16.28% 17.00 17.00 17.00 17.00 17.00 17.00 17.00 17.00 17.00 17.00 17.00

De trm Cm 21.64 20.44 20.44 20.44 20.44 20.44 20.44 20.44 20.44 20.44 20.44 20.44Ut..,ry S_*t 6.06 4.22 4.22 4.22 4.22 4.22 4.22 4.22 4.22 4.22 4.22 4.22Total Net Ast a01.21 200.49 S91.8S 420.04 514.68 604.16 608.88 1100.86 1264.17 188.62 1402.49 1628.88

_co- - - _o _m _m - _

(eetntured er o xt peg.)

0tc -D J..

STAFF APPRAISAL RiPORTSECOID RAIMAYS PRCJECT

WM PROJECT A C RUI ThAPPICs SALANM Se, PROJlICTIS (ootd)(Zs .1W II.)

1060 lt90 1901 19S 1998 10i4 1ow 1906 1907 196 19 2000_ _ _ _ _ _ D ~~~~~~n= =am

Capital _ous (B/F) 20.96 0.40 0.40 0.49 0.49 0.43 0.40 0.49 0.49 0.49 0.40 0.49

264a1aed Ppt.l46 0.00 0.00 -25.19 -14.4 -6.S9 o.71 170.76 262.42 406.84 50.68 701.06 074.0

Lqwlty Ijeetlme 0.00 0.00 0.00 2.51 6.46 10.10 15.9 22.79 22.79 22.79 22.70 22.7

CpItel lowd LT DObM 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Oakb Ovad r.t asaeeto 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00==- - -- m m - mgnu

tetel E4"ity Capital 26.65 0.4" -24.70 -11.04 1.56 61.10 167.17 605.70 481.92 670.12 724.85 s.LotPre Proj (40v) 27.94 806.46 2"1.68 2, .82 260.66 m27.59 2681.016 2.46 244.68 284.21 224.65 n14.95

.oSAw 192.57 210.00 175.07 142.46 111.46 08.47 67.65 76.06 66.61 66.94 49.t7 J9. '0 -

466.41 519.40 478.90 482.79 80.00 870.06 5.76 S81.64 812.64 208.16 278.f6 54.7

L_ta Prej (GOt) 0.00 0.00 0.00 20.01 68.94 08.58 187.01 200.22 200.22 166.84 106.25 Ms.4o:oMw 0.00 0.0e 0.00 41.70 106.30 170.58 254.Js 189.81 859.81 856.97 31.08 41.06

_ _ - _ - --- -0.00 0.00 0.00 62.40 MS.74 260.06 91.80 5501.52 t66.62 M 565.61 60.27 "*.to

C.ewmt Pertles 81.64 4is.00 41.11 40.70 21.94 19.88 19.19 19.19 22.90 26.74 85.80 42.14

tal Nab L_r 484.57 478.46 482.7s 454.40 S90.79 610.76 72.9 97.66 646.9t 820.28 764-.6 742.72

Govt SIbldy beboi 166.51 1 2u.00 25.00 26.00 26.00 26.00 26.00 26.00 260 26.00 26.00 26.00

LT Oebt: AdjustDeas 0.00 9.64 11.26 1.2 11.26 11.26 11.28 1.2 11.26 11.26 11.28 11.26m - _-- _ - -_

Total Liabilitlie 8.21 200.49 101.86 426.04 614.0S 664.10 M.s$ 1100.68 124.17 1378.62 1492.49 128.86

Ddb4/Capital b1d.(51 M8.i7 106.48 100.00 n7.69 66.60 7.n 72.09 04.94 7.07 60.71 44.0

Natars om Cop Empd (N) 6.94 11.00 10.7 21.09 21.00 17.60 15.27 14.00 18.21 12.52

Rebon on CIultg ( .0.29 2.70 2.10 14.06 14.77 12.60 10.67 10.98 11.28 11.s.

01D

0I1>

p. .

t>

-140-ZIBAD Annex 4-5

STAFF APPRAISL RPORT Page 1 of 6SECOM RAILNAYS PROJECT

WITHOUT PROJECTs STRUCTURE OF OPERATING COSTS(1900 Z 000)

1991 9m 1998 194 190o

Materials

FuNl Ol (ZOOCO) 87088 aw642 86080 J02S8 063C$

Lube Oll/Runnlng Spar.. 4882 4806 4842 4812 4812

Moist. Sparg 0477 6602 8261 6260 6860

Loco MI roe 14185 1l102 16118 16097 1O697

Electricity (Traction) a88t S817 8817 297C 2075

Eloc Lo" Mbint Spar.s 91 s06 061 2S7 257

Steam Loeo Fuel/later S051 0114 0202 0456 6e88

Steam Loco Malnt Spar.4 2000 2000 2000 2 2000

Wagon Melnt mate 10406 10496 10406 10406 104906

Wagon HI re 84109 84109 84109 84109 84109

Pox Coaches Maint. 186s 1609 1874 1870 1868

Track Meint. Mate 4600 9439 9489 9489 9439

Elee. Inti. MoInt 244 244 244 242 242

Tel/Signale Moint Met 670 710 740 708 822

Bldg & Plant Maintenance 2917 2090 8064 141 8220

Station Utl I iti.e 1402 1402 1402 1402 1402

Admin Srvewe (Mate) 6700 6674 0061 9288 9417

142220 147286 140422 1458 145618

(continued next pae)

- -141-ZIMABWE

STAFF APPRSAL REPORT Annex 4-5SECOND RAILWAYS MJECT Page 2 of 6

WITHOUT PROJECT: IRUCT8E OF WPERATING COSTS(1990 Zs 000)

1091 1099 1998 100 s1on

Labour Costss

TraffitcVnr with Acttivty 68J76 58758 587o 68750 5a87sFtxed 87472 87472 87472 87472 Su472

Admi n/P lIon l ng/ControlVnr wIth Actvlty 0 0 0 0 0Fixed 1284t 1504 14274 14274 14274

Security/HMRSVar with Actlivty 0 0 0 0 0Fixed 21114 21114 21114 21114 21114

Civil EnoV,r lth Acttvity 0 0 0 0 0Fixed 84867 84867 84867 84867 84867

Msch/£EIc/Sig EngVer with Activity 80520 80520 80520 80520 8a05Fixed 47981 48202 48444 48444 48444

SuppietoVar with Activity 0 0 0 0 0Flxd 568 5868 588 58s8 gm68

Tot.l Labor Cost 26428 260877 270801 270891 270801

Staf Cost Savings: 0 0 0 0 0

Weltar. PeyrsAtO 21400 21400 21400 21400 21400

Total Cah Op. Ceost 432048 488016 488218 487125 478710

TA/Training 0 0 0 0 0

Dopn.: Historic Asset 1000 160 14748 14160 18690s ProjoctAsseta 0 0 0 0 0s Total 16000 158 14746 14156 18500

Total Operating Costa 4484 45876 452959 451280 451190

Long-Run Var. Cost. (13 000)(Fin. oxal cap cost.): 207498 20648 207785 206848 20527

LRVFC/N1XM (12) 0.088 0.0o9 0.088 0.088 0.088

ZIMeABUESTAFF APPRAISAL REPORTSECOND RAILWAYS PROJECT

WITHOUT PROJECT: PROJECTED NCOMKE STATEMENTS(Z8 000)

1991 1992 199 1994 1991 1999 1997 1998 199 2000

Freight Rovenues 449701 689s41 69860 652986 719282 790099 790088 790068 790066 79008S

Cac4shing/1.1c. Revenu 50166 57599 8a86 68994 76664 84880 8488 8380 84a80 84a80

Totel R ll Revenu 4996 59t289 656968 722659 794925 874418 874418 974416 874418 874418

Operating Inome: Rll Om608 16i80 56965 68510 76661 86120 68642 67148 67823 68065

RN Contribution: 4608 4969 5454 6000 60o 7260 7200 7260 7260 7260sCexel depn/mengt coot")

Total Opoerting Income 1811 8889 4410 74609 "8le1 96880 98901 94402 94688a 9584

Intreett LT De 8612 8W40 82801 29044 26409 27829 26166 25008 28889 22802

Interests ST Debt 4U20 16s6 1975 0 0 0 0 0 0 0

Total Interest Paid 42982 8n96 8427 29844 26409 27829 26166 26008 23689 22602

Intert Reeived 4622 512 0 960 2187 5607 967 18248 17962 28041

Net Intert 86310 864 U4276 289 26242 22242 1729 11760 6 -289

Net Io -25194 20156 80164 4666 56919 71187 76o6 82642 69005 05664

~Dt

x

o t0*'n

ZIMBABWESTAFF APPRAISAL REPORTSECOU RALAYS PROJECT

WITHUT PROJECT: CASHFLOW PROJECTIONS(Zs 000)

1991 1992 1998 1994 1995 1996 1997 1996 1999 2000_~~ = = _

OPERATIONS

Rol I Revenues 499865 597289 656968 722B69 794925 674419 674416 674419 674416 874416

Variable costsmaterial 185542 160725 16422 176n4 196864 21572 2165n 21572 21872 2167

Labour 92706 101978 112178 128891 185780 149808 149808 149808 149808 149808229247 252700 276496 802116 882618 865676 836576 865376 Se6587 a86s7s

Contribution Margin:Ra I 2716m0 84456O 80466 420545 462812 50648 60654 50s65 50s648 5os64

Contribution Margin: NS 4508 4969 5454 8000 600o 7260 7260 7260 7260 7260

Contrib. Vergin: Total 276116 849497 865922 426544 466912 515s80 51560s 51560ta 515808 5s150

F xed C.t. 247000 277299 86767 887679 872182 409876 409876 409878 409876 409876

Exuetlonal Coet 0 0 0 0 0 0 0 0 0 0

r.o Cahtlow 29116 72199 79165 89665 96750 106426 106426 106426 106420 1064U2

betInv tn Workng Cap. 66947 16407 5086 ?622 9608 10119 0 0 0 0

Fre Ca htlow -8S78 5s8s2 74070 61048 S6647 96806 106426 106426 106426 106426

Capitolfxpendture 0 0 0 0 0 0 0 0 0 0

Gross Operatlrg Chtlow -87381 587s2 74070 61048 O6947 Km30a 106426 106426 106426 106426

Interest Reo lvd 4622 512 0 960 2167 7 667 18248 17962 28041

Nbt Operatins Co* hlew -88206 54804 74070 6028 69115 101898 115298 s196 124897 129467

Finanencig

Equlty lnjoetiona 255000 0 0 0 0 0 0 0 0 0

Ng De 0 0 0 0 0 0 0 0 0 0

Interest Paid 42982 ans96 34276 29644 26409 27829 29166 26500 288s9 22602

Debt Rob) rIsen 40628 41111 40767 21943 19825 19198 19194 19194 19194 19194

Net External Ftn. 171246 -78t07 -75602 -51798 -4774 -46524 -45861 -44197 -48084 -41996 ,

Cash Accrelon 138087 -24008 -992 80285 41860 5499 6992 75471 9868 67470 4I

Ne Flnacing 8s20 -64804 -74070 420 -S9115 -101898 -116298 -119666 -124867 -122947

STAFF PAISL RWlRTSECM RlALYS PROJECT

WITHOUT PROECT: BALANCE SHEET PROJCTIONS(Zs *i II I on)

1909 1990 1991 1992 19 1994 1993 1996 1997 19 1999 2000_~~~~~~~~~~~~~~~~~~~~C Cmr _ _== __

AUSSTS

llt PFixed A=otGroup Anst. 162.84 102.64 162.64 182.64 162.64 162.64 162.64 102.64 162.64 162.84 162.04 162.04Unit Asgsts: Hirtoric 212.11 20t.J8 19.I86 178.00 168.2S 149.10 185.61 122.46 109.94 97.92 66.87 75.29

Project 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Total Fixed Ascot. 874.75 872.00 a56.00 840.64 825.89 811.74 296.16 288.10 272.56 280.58 240.01 287.93

Nt Working Capital7aventorle 66.67 88.77 112.91 129.78 140.08 152.80 16.97 185.87 185.87 165.87 165.87 1865.7Dbtora 57.01 62.50 89.94 107.91 116.72 180.59 148.66 168.02 168.02 168.02 158.02 160.02

Creditoro 107.20 168.00 142.57 169.00 174.98 192.00 211.43 282.68 232.S5 232.56 232.58 232.58

89.12 4a.07 60.28 78.68 83.77 91.89 101.19 111.81 111.31 111.31 111.1 al

Curroat Portion LTD 81.64 48.00 41.11 40.79 21.94 19.88 19.19 19.19 19.19 19.19 19.19 19.19

Bank Overdraft 99.18 182.00 0.00 15.47 16.48 0.00 0.00 0.00 0.00 0.00 0.00 o.oo

Sanlk Dolnca/Caoh 8.94 2.50 8.64 0.00 0.00 18.78 56.18 110.03 179.96 265.48 386.76 424.26

Prvlloiew 1U.28 17.00 17.00 17.00 17.00 17.00 17.00 17.00 17.00 17.00 17.00 17.00

Duo fro CFO 21.84 20.44 20.44 20.44 20.44 20.44 20.44 20.44 20.44 20.44 20.44 20.44

Unitary System 8.98 4.22 4.22 4.22 4.22 4.22 4.22 4.22 4.22 4.22 4.22 4.22

TotaI Not AL.te 801.21 200.49 891.86 870.7 n87.92 401.24 442.97 494.91 552.82 615.76 685.68 761.96

(continued on eOt p_)

0>

STAFF WPUAIL RUSTSic.. RAIL26YS RROJECT

SENW "HUMST SALU SUEIT pSWUUSn(Zs *I lI tooe)

aon 1990 19Ci1 i9 i2 ion 1094 19it 19h6 19n is9 1979 2000

Capital Accown (1Si1) 26.95 0.49 0.49 0.4" 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40

Rtrlnd Preflto 0.00 0.00 -26.19 -5.04 2S.10 70.74 117.00 106.60 76.40 858.04 447.05 642."

Equity nlajotlm 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Capital lod LT Debt 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Sais Ovrdroft Rspy mot 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00= _-r --- m

Total EqIty Capital 28.90 0.4" -24.70 -4.55 25.59 71.28 128.15 190.20 275.89 M8.53 447.S4 E48.12

LosnmsPre Prej (0vt) 278.84 80o.4 206.g8 200.82 200.8 271.s 268.08 25M.48 248.03 284.21 224.58 214.96:Otber 102.57 210.00 175.07 142.40 111.45 01.47 07.65 78.08 08.61 58.94 49.87 809.0

400.41 516.48 47a.90 482.70 892.00 870.08 860.78 88a1.54 12.t4 208.15 278.95 254.78

Looms ProJ(4*vt) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00sobbor 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

= = = = mm = = == mm~~~~~~~~~~~~~~~~~~~~~== c=~0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Currot Portion 81.84 48.00 41.11 40.7 21.94 10.08 19.19 19.19 19.19 10.19 19.19 19.19- - - - -- - - m mm m

Tetal Nlt Lo 484.B7 48.48 482.70 80.00 870.08 850.78 881.54 812.4 2.15 278.95 254.76 25.6e

Govt Sueidy eocklo 100.01 208.00 20.00 20.00 25.00 20.10 20.00 20.00 20.00 10.00 20.00 28.00

LT ebt:t Adjuatmeata 0.00 9.54 11.2 11.20 11.28 11.20 11.20 11.2 11.2 11.20 11.28 11.20

Total ltobiltloa 801.21 200.49 801.80 870.n 870.92 405.24 442.97 494.01 562.82 615.70 605.501 6.80

Deft/Capital Empd. M 5.27 108.48 98.26 900.0 70.04 0.52 57.45 48.01 89.94 88.00 27.24

Rtere as Cap Eapd ) 8.94 14.01 10.08 16.85 20.52 21.08 10.90 17.09 15.41 18.91

Rertrn a Equity M -. "2 5.16 7.80 11.54 14.05 10.08 15.40 14.96 14.45 10.04

ao

ZmSTAFF APPtASAL REPORT

RAWAYS 11 PROJECT

FINNIAL RATE OF RETtRt PROJECTED TRAFFICPLUS PROJECT IWPROVEENTS

(Zs *I II Ionl)

Fleat Project FPe CoMi, ItbtYeer In.o*t..t. Wnth Project Without Project Project Smtite Defletor Project Dow_Its

1991 0.00 (87.60) (87.60) 0.00 1.10 0.00Io2 58.06 45.80 58.60 (66.-5) 1.21 (56.02)138 90.67 65.8O 74.10 (60.67) 1.U8 (74.96)1964 102.24 200.60 61.00 ".5 1.46 52.97105 114.68 m.10 96.90 70.67 1.61 48.62160 167.69 821.60 66.0 67T.51 1.77 88.1119967 38.90 106.40 27.60 1.7 15.641866 866.20 106.40 279.80 1.7 157.9419S9 866.20 106.40 279.60 1. 157.942000 8S0.20 106.40 279.80 1." 157.942001 a86.20 106.40 279.90 1." 157.942002 866.20 106.40 M2.0 1.77 157.942008 886.20 106.40 279.80 1.77 157.942004 856.20 106.40 279.90 1.7 167.942005 386.20 106.40 279.60 1." 157.942006 866.20 106.40 279.60 1.7 157.942007 866.20 106.40 279.80 1.77 157.9420o8 866.20 106.40 279.60 I.77 157.942009 86S.20 106.40 279.60 1.7 157.942010 866.20 106.40 279.60 1.77 117.94

WV 61OS 6 89 *111oio

001.4o .

FX0e

w

STAFF APPRAISAL EMRAILAYS it POJT

FWACIAL RATE OF REMN:CONSTIAXIED TRAFFIC

Flscl Project F.. Cbtl.w b/ Nab NotVeer Im/estmnt. a/ With Projoet Without Projet Project al-utIts .sltor Project _soIts

i19 0.00 (87.60) (57.80) 0.00 1.10 0.0019 36.06 45.80 58.60 (6.6 1.21 (5502

416 90.67 6.80 74.10 (9.6) 1.88 (74.6)1994 102.24 206.70 61.00 23.46 1.46 16.021905 114.68 168.00 86.90 8.S8) 1.61 (20.20)19o 1W.99 206.30 96.80 4.7) 1.77 (26.96)1997 288.70 106.40 127.80 1.77 71.991996 281.S0 106.40 12S60 1.77 70.641999 281.90 106.40 125.50 1.77 70.642000 281.90 106.40 126.50 1.77 70.64 I20D1 281.60 106.40 126.50 1." 70.642002 281.M0 108.40 125.50 1.77 70.642008 221.60 106.40 126.50 1.77 70.842004 281.60 106.40 125.50 1.77 70.842005 281.90 106.40 125.S0 1.77 70.642006 281.60 106.40 126.50 1.77 70.642007 281.60 106.40 126.50 1.77 70.943006 281.90 106.40 125.60 1.77 70.642009 281.60 106.40 125.60 1.77 70.642010 281.60 100.40 125.60 1.77 70.64

DRRm 28 XNPV 0 x 177 miliIon

a/ Tochnical As l.'*new, traini. and stWdi eo,pe... ioluded In rtecrrent cost.;zero rsidual vels 1 sued

b/ free cebtl.w io #reo cM btle adjusted tfar lnvestns to oparating working capitol;x3O recovery et erk1 capital lvnr.st.e assumed_

0I

wf

ZISABlESTAFF APPRAISAL REPORT

RILWAYS It PROJECT

FDIANCAL RATE OW RETUtE: LAs UOO WROD 1/

Projet I,w.gtmestFlual Tech. Asat/ Free C..htlow Not Not

Year Physical Studies Total With Project WiOthot Project Project 8enetit Wflner Project Sam Its

1961 0.00 0.00 0.00 (87.60) (87.60) 0.00 1.10 0.001992 56.09 s.6s eo.6o 51.so 58.60 o6.00) 1.21 (S.09)19S8 00.67 18.26 104.12 74.10 74.10 (104.12) 1.88 (.28)1994 102.4 14.90 117.14 81.00 91.00 117.14) 1.48 (0.01)1es 114.8 16.06 181.26 66.90 86.90 (8.26) 1.61 (61.5t)1986 167.09 22.79 180.48 98.80 6.80 (160.48) 1.7 (101.68)1907 260.60 106.40 154.40 1.7 67.11oses 2n.10 106.40 105.70 1.7 98.658

199 821.60 106.40 215.10 1.77 121.42 F-2000 M68.90 106.40 27.50 1.77 160.64 002001 866.20 106.40 279.90 1.77 157.94 02002 866.20 106.40 279.60 1.7 157.942008 886.20 106.40 279.80 1.77 157.942004 a86.20 106.40 276.60 1.7 257.942005 a8.20 106.40 279.60 1.77 167.942006 866.20 106.40 279.60 1.77 167.942007 866.20 106.40 279.90 1.77 157.942006 886.20 106.40 279.60 1.77 157.942009 886.20 106.40 279.60 1." 717.942010 886.20 106.40 279.60 1." 157.94

IRR a 211

hY O 10Sa 807a tlllo

:l/ eIts e.awAd t start mottril ellsp at sad of proJeat Impl.nasttae

-149- -

ANNEX 5-1

ZRMABWESTAFF APPRAISAL REPORTRAILWAYS II PROJECT

NRZ: Historic Traffic Performance

1. Revenue freight traffic carried by NRZ during its last sixfiscal years is susmarised in the table below.

NRZs Recent Traffic Performance *(000 Tons)

1984 1985 1986 1987 1988 1989

General Goods 1820 1862 1821 1798 1963 2072Agriculture 4103 3846 3845 4044 4030 3801Fuel/Chendcals 3806 3858 4150 3685 3538 3405Metals 1330 1312 1266 1245 1204 1212Minerals 2291 1947 2475 2702 2486 2715Livestock 78 262 62 22 2 5Total 13428 13087 13619 13496 13223 13210

NTIl (million) 6412 6202 6573 5932 5569 5287

Average Haul (km) 479 474 483 440 421 400# excludes small parcels and packages (about 200,000 tons in 1989)

Source: NIIZ

2. NRZ'. revenue traffic has been characterised by two featuress(a) stagnancy; and (b) pronounced decline in average hauls. ExcludingBotswana traffic which was credited to NRZ traffic before the separation ofthe Botswana system from NRZ in January, 1987, there has boen a smallunderlying growth of traffic of about 12 per annum with significantvariation in the underlying growth rates in various commodities carried.In particular, coal movementat chrome, fertiliser and augar cane shipmentsincreased In aggregate by about 0.7 million tons during the period (3.52p.a. on average) whilst local maize movEmnts have been on a downwardtrend, falling from 1.0 million tons in 1984 to 0.6 million tons in 1989.Transit traffic-h s been broadly stagnant over the period. The pronounceddeclie in average hauls from 1987 is due wholly to the separation of theBotswana Rilways *ystem from NRZ, movments on which were predominantly oflong-haul international trade traffic from Zimbabaeo and neighboringcountries transiting Botawona to or from RSA.

-150- ANNEX 5-2

Page 1 of 9

ZIBAE

RAILWAYS II PROJECT

Forecast of Demand for Rail Freight Transport

A. Methodology

1. To assess the future demand for freight transport by rail, acommodity-by-commodity approach was adopted, similar to the one used by theGovernment Railway Traffic Estimates Committee (comprising NRZ and relevantministries). Twelve major commodities were analyzed and relevant adjustmentswere made to the Committee's 1989 Traffic Estimates published in August 1989.The adjustments reflected: more up-to-date market information; better definedcapacity expansion plans from major users; and the elimination of certaininconsistencies and/or overestimates which tend to be incorporated into someof the written user responses which form the basis of the Traffic Estimates.The commodities analyzed were Maize, Wheat, Sugar, Tobacco, Coal, POL prod-ucts, Iron, Steel, Chrome, Ferro Alloys, Fertilizer and Cement (includingCement Clinker). Together they represented about 682 of the revenue earningnon-transit traffic recorded in 1988-89. The forecasts for all other commod-ities included in the 1989 Traffic Estimates were adjusted to eliminatetraffic originating from points with less than 1000 tons p.a. of any specificcommodity for which no destinations are given. Transit traffic (which wasconsidered separately from commodity-by-commodity traffic) was maintained atconstant levels given the uncertainties surrounding the Lobito corridor andtransit traffic from Zaire and Zambia. This Annex summarizes the overalltraffic forecasts requirements and then describes the assumptions underlyingthn forecasts for each major commodity. Finally, recommendations are givenfor further improvements to NRZ's forecasting process.

B. Summary

2. Total demand for rail transport is forecast to grow from the 1988-89 figure of 13.6 million tonnes (12.7 million tonnes adjusted for small-scale traffic and excluding the railways' own transport requirements) to 14.7million tonnes in 1990-91, 15.1 in 1992-93, 15.9 in 1993-94 and 16.2 in 1994-95. If NRZ meets this demand, it will represent a compound annual growthrate of traffic between 1988-89 and 1994-95 tonnage of 3.8? (4.0? if the basetraffic is adjusted) and net tonne kilometers will grow from 5.4 billion to6.7 billion. However, in the project analysis, it is assumed that NRZ'seffective capacity will not increase during the first three years of projectimplementation and that the achievement of the 1994/85 projected demand willonly be met from 1996/97 onwards. Table 1 of this Annex summarizes theactual traffic carried in 1988-89 and the forecasts for demand between 1990-91 and 1994-95 and the projected traffic that can be carried by NRZ.

-151- .ANNEX 5-2Page 2 of 9

C. Agriculture

3. Maize. During the 1980's, the Grain Marketing Board (GMB) soldbetween 600,000 and 800,000 tonnes of maize domestically each year. Theannual figure depends on a number of factors, including: weather patterns,productivity improvements, population growth, growth of informal marketingand distribution channels and, according to the GMB, NRZ's efficiency intransporting the maize. For the purposes of forecasting demand for railtransport, the last factor is ignored; weather patterns are assumed toexhibit no secular trend; productivity improvements and the existingstockpile of almost two years' consumption are assumed to be sufficient tomeet the additional demand for maize caused by population growth; and it isassumed that informal channels will continue to divert an increasing amountof maize to road transportation.

4. 1988-89 was an unusually slow year for maize transportation withlocal movements of 581,000 tonnes, exports of 55,000 tonnes and imports of33,000 tonnes. These Oimports' were in fact destined for Malawi by road andwere a temporary phenomenon due to maize shortages there. Local movementsare forecast to recover to 750,000 tonnes in 1989-90, thereafter growing at32 p.a. International and regional prices for maize have fluctuated consid-erably, as have Zimbabwe's exports, which have ranged from 700,000 tonnes in1982-83 to zero in 1984-85. It appears that Zimbabwe can be an efficientlong-term exporter, especially since the region is importing maize with asmuch as US$100 per tonne in transport costs. Existing railway forecasts of250,000 tonnes p.a. in maize exports seem reasonable for the next two years,though this is likely to rise to 300,000 tonnes in subsequent years.

5. Wheat. Rationing exists for wheat consumption with a 1989-90 limitof 310,000 tonnes rising to 320,000 tonnes in 1990-91. During the five-yearperiod, the GMB forecasts that consumption limits will be raised about 10,000tonnes each year. This is probably at the lower end of the likely rangegiven the growing urban population and high income elasticity of demand forwheat. On the production side, irrigation problems are likely to constrainannual growth to 3-4Z, implying that the estimated crop of 260,000 tonnes in1989-90 will grow to about 300,000 tonnes by 1993-94. Consequently, thegrowth in output will only just match the growth in consumption. Importswill therefore remain at 50,000 tonnes p.a., and may even rise if rationingis eased more quickly than expected.

6. Sugar. Forecasts for rail movements of sugar cane, raw sugar andrefined sugar make the following assumptions:

(i) All existing water in the sugar growing lowveld is fullyutilized, and crop yields are as high as they can be expectedto be without further irrigation.

(ii) If the Tokwe Mukorsi dam project goes ahead, it is possiblethat 17,000 hectares could be brought under cultivation,increasing total sugar production by about 40Z. It is assumedthat this has no impact on sugar production before 1995.

-152--ANNEX 5-2Page 3 of 9

(iii) Having been consistently in the 430,000 to 480,000 tonne rangebetween 1985 and 1989, sugar production is forecast to havea poor 1990 with only 350,000 tonnes and then maintain asteady 450,000 tonnes between 1991 and 1995. It is assumedthat about 90Z of this sugar continues to be transported byrail.

(iv) Domestic demand continues to grow at 5X p.a.

(v) A second ethanol plant is not built within the five-yearperiod.

(vi) Botswana maintains its current decision not to go ahead withplans to build a sugar refinery, and therefore continues toimport refined sugar.

7. As a result of these assumptions, sugar cane movements are forecastto fall to 800,000 tonnes in 1989-90 and then rise again to 950,000 tonnesfrom 1990-91 onwards. This compares to the last five years in which move-ments have oscillated between 700,000 and 950,000 tonnes according to thecrop and the proportion sent by rail (which is only about 25X for cane, theaverage haul being only 53 kms). With the exception of a slight dip in 1989-90, raw sugar's local movements grow with demand at 52 p.a., while movementsof raw sugar exports fall significantly from 177,000 tonnes in 1988-89 to65,000 tonnes in 1994-95. Refined sugar movements remain fairly constantwith exports increasing their share by a fraction.

8. Tobacco. Zimbabwe's exports of tobacco have fluctuated consid-erably in the past, ranging from 122 of world exports in 1965 to 42 in 1970,82 in 1981 and currently around 62. Recent growth has not been as high aswas expected given the removal of quota restrictions in 1985: exports by railhave risen from 101,000 tonnes in 1983-84 to 109,0000 tonnes in 1988-89(having been 119,000 tonnes in 1987-88). Prospects for further growth arereasonably good, since Zimbabwe produces high quality tobacco and has duty-free access to the European Community. Although current crop yields arealready high, production can be increased through additional planting.Assuming that Zimbabwe's share of world exports rises by half a percentagepoint between now and 1994-95, and baned on projections that world tobaccoexports will grow at 2.52 p.a. until the mid 1990's, tobacco exports by railwill grow from 111,000 tonnes in 1989-90 to 136,000 tonnes in 1994-94. Localmovements and imports are assumed to remain constant at 6,000 tonnes p.a.This increase in tobacco production will also have an impact on coal require-ments, as described in the following section.

D. Energy

9. Coal. Forecasts for coal fall into three categories. Coal for theZimbabwe Iron and Steel Company (ZISCO) plant at Redcliff which istransported in diesel-powered liner trains using dedicated wagons owned byZISCO; coal for the Zimbabwe Electricity Supply Authority's (ZESA) old

-153--

ANNEX 5-2Page 4 of 9

thermal power stations at Harare, Bulawayo and Munyati; and all other coal.All coal originates from the Wankie Colliery Company at Thompson Junction,60,000 tonnes per annum going north to Zaire, the remainder going south.With the exception of the ZISCO liners, the coal is pulled by steam on theVictoria Falls-Bulawayo section.

10. First, ZISCO's coal requirements are forecast to rise from 662,000tonnes in 1988-89 to 785,000 tonnes p.a. from 1991-92 onwards as they moveto pushing 155 ovens per day. Explanations for ZISCO's increased demand aregiven below in the section on Iron and Steel.

11. Second, ZESA's coal requirements have increased almost three-foldin the short term because of the fire at Zambia's Kafue power station inMarch 1989 and the resulting need to use the old thermal stations moreintensively. In the long term, demand will increase even further (to 988,000tonnes p.a.), since refurbishment of the old thermals forms part of ZESA'sleast-cost development plan. Although the rated capacity of the thermalpower stations at Bulawayo (120 MW), Munyati (120 MW) and Harare (135 MW) is375 MW, they have effectively been providing just 200-250 MW of power.Refurbishment will increase this above 300 MW. Cost per KWH is expensive,so they will be used as reserve power for peak requirements. Refurbishmentis scheduled to start at Bulawayo in January 1991 followed by Munyati inApril 1991, Harare III in September 1991 and Harare II in May 1992, with fullcompletion in December 1992. However, a six-month delay is currently beingforecast by ZESA and this has been incorporated into the rail trafficforecasts. During refurbishment, coal requirements will dip to as low as450,000 tonnes p.a., but from 1993-94 onwards full requirements of 988,000tonnes will be needed. It is envisaged that the old thermals will beoperated for at least 5-8 years after refurbishment, possibly even longer.

12. Third, Wankie Colliery's dispatches of other coal have increasedover the last few years, partly because of a marketing campaign aimed atpersuading tobacco farmers to use coal instead of wood for curing. Tobaccofarmers now account for about 330,000 tonnes of coal p.a., representing 90Zof their fuel needs. This source of growth of coal sales will now be limitedto the expected growth in tobacco production (about 4Z p.a.). During the1989-90 to 1994-95 period, remaining coal sales are forecast to remain fairlyconstant, although an increase is expected from the 1988-89 figure of 1.31million tonnes to 1.40 million tonnes in 1990-91, due to artificiallydepressed 1988-89 dispatches caused by transport difficulties. In terms ofwagons per day, and excluding ZISCO liners, Wankie Colliery's requirementsare forecast to rise from 190 wagons per day (assuming 37 tonnes per wagonand 312 loading days p.a.) in 1989-90 to 211 wagons per day in 1994-95. In1988-89, an average of 137 wagons per day were provided. These forecastscorrespond to Wankie Colliery's production forecasts.

13. POL Products. The demand for rail transport of POL productsdepends largely on decisions regarding the building of an oil pipeline fromFeruka to Harare. These plans are currently uncertain. For the purposes ofthe project analysis, it is assumed that the pipeline extension is not built.

-154_ANNEX 5-2Page 5 of 9

The financial and operational impact of the extension, if it isbuilt, is detailed in Chapter IV of the text.

14. NRZ is currently carrying about 502 of NOCZIM's traffic fromFeruka. It is assumed that about 802 will use rail in the future, since roadtransport costs are considerably greater and every oil depot in the countryis served by the railways. In addition, demand for POL products is assumedto grow at 4Z p.a., slightly less than expected growth in GDP. A secondethanol plant, which is currently being discussed, would increase movementsof ethanol from about 35,000 tonnes p.a. to about 50,000 tonnes p.a.However, it is assumed that the plant, if built, does not come on streambefore 1995.

E. Minin8

15. Iron and Steel. Forecasts for movement of Iron and Steel make thefollowing assumptions:

(i) During 1990-91, ZISCO increases the number of ovens it pushesper day from about 125 to about 150. This requires about785,000 tonnes of coal p.a. from 1991-92 onwards, with anintermediate figure of 720.000 tonnes in 1990-91.

(ii) A new sinter plant is built with operations beginning in 1992-93, though not reaching full production until 1995-96. Thiswill allow ZISCO to use higher proportions of the finer ironore from Ripple Creek in the place of its traditional iron orefrom Buchwa (Mukwakwe), and will also increase blast furnacecapacity from 1600 to 2300 tonnes per day due to betterprepared ore.

(iii) Iron ore is shipped from Buchwa on a regular basis over thenext five years. Although ZISCO could increase outputimmediately by mining more ore at Buchwa, this would depletethe mine before the sinter plant is ready and Ripple Creekore can take over. Consequently, 804,000 tonnes of ore willbe transported each year between 1990-91 and 1994-95 (except-ing 1993-94 when blast furnace relining is assumed to takeplace). This represents an increase of 122 from 1988-89 to1990-91, less than the forecast increase in steel output (33Z)because of a declining share of the Buchwa ore compared to theRipple Creek ore and an artificially low output figure in1988-89 (due to process inefficiency, in turn partly causedby irregular NRZ provision of iron ore). Ripple Creek ore iscurrently transported the short distance to Redcliff by road;in the long run a belt system or dedicated rail track willserve the mine.

(iv) Blast furnace relining will reduce output by about 150,000tonnes in 1993-94.

-155- .

ANNEX 5-2Page 6 of 9

(v) A move from ingot casting to continuous casting will allowZISCO to increase its yield. Combined with the new sinterplant, this will increase output from an estimate of 614,000tonnes in 1990-91 to 700,000 tonnes in 1994-95 (and 800,000tonnes in 1995-96). It will also help ZISCO to start pro-ducing flat products, the demand for which is currently metalmost entirely by imports. This segment of the market isforecast to double by the mid to late 1990's and ZISCO aimsto substitute existing imports as well as meeting theadditional dem..nd. This effect will begin to be felt in 1993-94 with imports falling 20,000 tonnes, and another 30,000tonnes in 1994-95. As local demand grows and imports are sub-stituted, exports for ZISCO and for Zimbabwe as a whole willdecline somewhat despite production increases.

16. As ZISCO pushes more ovens per day, it will produce up to 100,000tonnes per annum of coke in addition to its requirements for steelproduction. It is assumed, conservatively, that this will be stored and thenused for feeding the sinter plant when it comes into operation, rather thanbeing sold, which would add to transport requirements. These forecastsassume that ZISCO's capacity expansion plans go ahead. If they do not,relevant traffic movements will be about 250,000 to 300,000 tonnes less in1994-95 and will fall to almost zero in the late 1990's as Buchwa's iron oreis exhausted (and Ripple Creek's ore remains unusable on its own without asinter plant).

17. Chrome and Ferro Alloys. Annual output in the Ferro Alloysindustry depends on: optimal depletion rates of existing chrome mines; marketprices for the specific alloys produced, which can exhibit great volatility;and the capacity of the smelting plants, essentially how many furnaces arein operation in a given year. It is assumed that no new reserves of chromeare discovered and that market prices do not exhibit any persistent changesover the next five years. The two major producers in Zimbabwe, ZIMASCO atKwekwe and Zimbabwe Alloys at Gweru, produce different alloys with distinctmarkets. The 1989 Traffic Estimates for Gweru traffic have not beenadjusted, those for Kwekwe have been, depending on the planned number offurnaces in operation each year.

18. ZIMASCO currently has six furnaces in operation. It is assumedthat a seventh will be added from 1994 onwards to take advantage of addi-tional ore deposits at Kildonan. A market dowLturn for ZIMASCO's product isforecast for 1991-92 and 1992-93, so three furnaces will be relined in turn,effectively making it a five-furnace plant during these two years. Eachfurnace requires about 7,000 tonnes per month of chrome ore; 1,000 tonnes permonth of low sulfur coke (mainly imported); 750 tonnes per month of coal(also imported, though this could be largely supplied by the new mine atSengwe); 500 tonnes per month of slag (delivered by road); and 150 tonnes permonth of quartz (also delivered by road). Output is about 2,600 tonnes perfurnace per month. Rail transport demand for Chrome and Ferro Alloys isderived from these figures and depicted in Table 1. The effect on Coalmovements is negligible.

-156- ANNEX 5-2

Page 7 of 9

F. Industry and Technology

19. Fertilizer. Demand for fertilizer depends heavily on weatherpatterns, and also on government policies concerning fertilizer subsidies.The fastest growing market segment is the communal farming sector whose shareof total consumption has risen from 6.5Z in 1976-77 to about 30? in 1988-89.Total domestic consumption in this period has risen from about 300,000 tonnesto almost 500,000 tonnes, indicating a secular trend of 4-5? p.a NRZ carriesalmost all of this volume, plus 70,000 tonnes of so-called imports whicharrive in Harare by train before being transshipped to road for onward trans-portation to Malawi. As the Mozambique routes open up and Malawi makesgreater use of its northern transport corridor through Dar-es-Salaam, thisfigure will fall to about 40,000 tonnes, representing Malawi's imports ofSouth African fertilizer. Aside from this, domestic demand is forecast togrow at 3-41 p.a. during the 1990's.

20. The pattern of traffic, and specifically the split between localtraffic and imports, will depend on capacity expansion plans currently beingconsidered. There are four fertilizer plants in Zimbabwe: SABLE and ZIMPHOSproduce ammonium nitrate and phosphate fertilizers respectively, which aresold to two downstream plants, Windmill and ZFC, who make various granularcompounds. SABLE and ZIMPHOS are working at full capacity and all four firmshave exhibited extremely low investment levels. As d_mand grows, andtherefore the country's import requirements too, support is developing fora restructuring of the domestic industry, which may involve the commissioningof a coal gasification plant. This would produce ammonia, a key input forSABLE whose current requirements of about 9,500 tonnes per month is sourced30? from imports and 70X from an electrolytic process which is becomingincreasingly expensive as power costs rise.

21. However, a number of uncertainties surround the proposal includingits location (e.g. at Hwange to be near the colliery, or at Kwekwe to be nearSABLE), size (the economic size of 500 tonnes per day would require sub-stantial export markets), funding and timing. If it goes ahead, this projectwould have significant impact on rail movements in the heavier direction fromHwange (either of coal or of ammonia, which requires pressurized tank cars).However, it is assumed here that any developments will take place beyond thefive-year horizon and that growth in demand will be met largely by increasedimports. Nevertheless, this is an area in which rail transport demand couldbecome considerably higher than forecast. NRZ's Planning Branch should keepa close watch on decisions affecting the fertilizer industry.

22. Cement. The demand for rail transport of cement is difficult toforecast since, unlike most commodities considered here, the majority of itis transported by road. Nevertheless, the three existing cement plants haveset up established patterns of transportation which are assumed to remainconstant. These involve movement of Iimestone and cement clinker from UnitedPortland's Colleen Bawn plant to its 3ther plant at "Cement" near Bulawayo,and movements of cement from these two plants and Circle's Mabvuku plant tomajor consuming centers such as Mutare, Chiredzi and Masvingo. The major

-157-

ANNEX 5-2Page 8 of 9

change in the industry is likely to be caused by ZISCO, whose cement planthas been taken over by Industrial Development Corporation. The proposal isto use ZISCO's two million tonne dump of slag to produce "Portland Blast Fur-nace Cement" (PBFC) quality cement, using clinker brought from Colleen Bawii.Plans range from a 100,000 tonne p.a. plant to one five times that size.Whilst evidence exists of substantial unmet demand for cement, the latterproposal appears over-ambitious and it is assumed that new capacity of300,000 tonnes p.a. is added. This would require 120,000 tonnes p.a. ofclinker, of which 50X is forecast to be transported by rail. It is furtherassumed that 252 of the end product will be shipped by rail and that fullproduction will be reached by 1994-95 after two years of operations.

G. Transit Traffic

23. It is assumed that there will not be a South African borderclosure. Transit traffic is assumed to stay constant.

H. Recommendations for NRZ's Planning Process

24. The underlying concept of seeking user responses to form the basisof traffic estimates is sound. However, there is an in-built tendency forusers to overestimate their requirements so as to ensure that capacity isavailable (given that this does not lend to higher tariffs under the existingsystem). As a result, forecasts have consistently overestimated the actualoutturn, with the degree of overestimation rising the further in the futureis the year for which the forecast is made. Nevertheless, NRZ's PlanningBranch has become increasingly vigilant in rooting out the more obvious ofthese "strategic overestimates". One-year forecasts for 1987-88 and 1988-89, were respectively only 72 and 52 higher than the actual outturns,compared to an average overestimation of 182 for the years studied during the1980's. For each year in the full five-year forecasting range,overestimation has been reduced substantially dur4.ng the 1980's. The processcould be further improved in a number of ways:

(i) The involvement of relevant ministries is vital for wagonallocation. For traffic forecasting, however, the processshould either be kept entirely to NRZ and major users withministries acting only as a source of information for growthtrends, capacity expansion plans, etc.; or else, the minis-tries should become fully involved in the process, ensuringconsistency between estimates from related industries andsearching out unnecessary overestimation. If the former, theprocess could be substantially shortened, making the estimatesmore up-to-date; if the latter, then NRZ, ministries and majorusers should all be party to the final decisions.

(ii) Within NRZ's Planning Brar.ch, individuals should be given theresponsibility of tracking a few major industries, to takenote of changes in capacity, transport patterns, seasonalityand other such issues. For instance, four people could each

-158-.ANNEX 5-2Page 9 of 9

be responsible for ont of the following sectorst agriculture,energy, industry and technology, and mining.

(iii) Consistency between related commodities should be vigorouslychecked. For instance, movements of iron ore should matchsteel output unless new sources are being developed which donot requite rail transport.

(iv) On the questionnaires sent to the users, they should be askedto describe briefly any plans to increase capacity, changeproduct mix or other similar developments which are likely toaffect traffic movements.

(v) Finally, NRZ should continue to update forecasts on an ad hocbasis, if significant events occur during the year.

ANNEX 5-2Table 1

StAFF R E PT

couveoRAv *sw..visi P AFlePR.ICT

(000 I0e )

1989 1m flfl 1994 logs -1s 1997

Coal 2244 200 98 9910 U144 U44 8144 8144of which:Cool to ZESA 2118 88 44 98 9ga 98 966coa to nsco 662 720 766 785 n6 766 786 786Other Coal 1314 1401 186 1871 1871 137 1871 1871

POL G1s 917 1016 1ow 1115il 1115 15 ills

Stool 5687 779 794 624 n a 761 161 761of which:Steel Exports 29 49s 491 4a2 818 488 488 438Steel import 80 67 67 67 0? 87 87 37Steel Local 208 199 216 25 806 806 806 806

Iron Ora 716 004 004 604 004 604 604 604

met" se6 1000 1047 1047 1121 1121 1121 1121of whtch:Main Ex orpta 56 250 248 248 26 I0 296 29Maize Imports 88 80 - - - -

MeaI* Local 561 70 7 m 66 628 62 828

_h"t lqpo*s 70 00 60 50 60 50 S0 s0Whost Local 247 260 270 280 289 296 296 208Sugar Cane 900 So 90 950 0S0 960 s60 9s0Sugar Raw: Export 177 127 107 so 72 S5 eS SCSur Raw: LocaI 202 160 20 221 282 244 24,' 244sugr RefIned: Local 44 40 40 40 40 40 4^ 40

Chrome OS6 640 600 560 640 720 0 720Forre-Al laoy 240 258 240 229 255 284 264 284FertlIIzerr 560 582 579 504 011 026 08 626Coke 157 S29 826 826 826 828 82a 820Cmoent 811 244 244 29 294 319 819 819Clinker 48 27 27 47 07 7T 67 67Tobacco 11i 117 122 121 188 1S9 189 180Transit 9o 958 956 066 956 956 956 968Other Goods t--- 8 2 am 4Am 42? _4088 4088 4088

Tote I: Revenue TraffIc 18414 1472P 1478 15m11 15686 10161 16151 186151

RaIlwayr (OR) 200 288 m 2 88 2S8 290 29.

TMAL 18684 1499? i80s1 85696 1i1?4 16449 16449 16449

Avat lable ProjectedReven Traffle(ell on NTKM) 5894 67 611 on8 849s 6 657 0057 8157

Projected NRZ Capacity( tIIon KlUM) 5894 584 5894 16 68 6496 6

Projected CapecltY/Projcteed Traflfc ea) soo. on so on 9811 Sax 100

Source: NiRZ and mission est

160- -

Annex 6-3

Page 1 of 6ZIMBABWE

STAFf APPRAISAL REPORTRAILWAYS YI PROJECT

ECONOMIC RETURNS

Yer projct Rail Traffic Cost of Transportfig Sovings NetCapital ---- *-- Addit'i Trftfic sy: Due To BenefitsC_st With Without Addlt'l Reed Rail Preject

Projct Prolect Traffic21000 NHt Tonno Km. (Million) Z5000 280Z0 Z8000 28000

1901 61,26 56,894 5,804 0 0 0 0 (81,288)1002 1186'08 6,804 ,8094 0 0 0 (118,803)1008 126,056 5,694 5,804 0 0 0 0 (125,066)1094 181,806 6,160 5,894 766 67,767 26,495 104,681 (26,727)low 16,625 60880 5,894 045 108,26 86,154 105,466 (683,39)1w 6,40" 5,894 1,105 126,009 41,106 124,840 124,84019907 6,.7 5,94 1,26 144,712 46,984 148,060 143,03819900 o6.7 5,894 1,268 144,712 4,0694 148,068 148,0381o9" 6,657 5,804 1,268 144,712 40,904 148,060 148,0982000 6,657 5,804 1,298 144,712 40,994 148,030 143,0382001 6,657 5,894 1,26U 144,712 46,084 148,038 143,0382002 6,657 5,804 1,26 144,712 46,904 148,086 148,0382008 6,067 5,84 1,268 144,712 46,964 148,088 148,0382004 6,667 5,384 1,268 144,712 40,964 148,088 143,0382006 6.657 5,804 1,268 144,712 46,984 148,080 148,0382006 6s6sc 5,894 1,268 144,71n 46,064 148,088 143,038200? 6,65 5,804 1,208 144,71? 46,984 148,088 148,0382006 6,65 5,894 1,268 144,712 46,904 148,060 143,0J82006 6,667 5,84 1,268 144,712 46,084 148,088 148,0382010 6.667 5,84 1,283 144,712 46,984 148,088 148,0882011 0 6,65 5.604 1,268 144,712 46,904 148,089 148,08

ERR . 20.86

NPV a M86061

Notes:1. Without project, unmet deaand assumed to go by road.2. Road distance for each origin-destination combination assumed to equal ralI distance.3. Costs (other than capital costs) of rail transport are adjusted financial costs derived from the

pro ect's financial analysis.4. Savings gained from lower costs of transporting existing traffic by rail assumed to begin in 1993-94,

when operational improvements due to project have been completed.e__________________ _ ___________-___-____________________________.___________

- -161-Annex 6-3

Page 2 of 6ECONOMIC RETURNS: ASSUMPTIONS AND SENSITIVITY FACTORS

Inflation Retest(5 Year on Year) 1is" 19806 1t7 1o6 1o0 1900

Zibabwe 18.a 18 7S 9.65 10.i 10.a 10.01Interattional - - - - - 4.90

Base Case Traffics(MIke ml U ion) 1061 1062 1998 1004 1900 1990 1907.

With Project 5,84 5,884 5,8W 6,00 08 0,496 0,0"?X Above 100 0.01 0.05 0.05 14.21 17.53 20.5C 28.43

Without project 5,80 5,84 5,84 5,04 5,804 5,84 5,804X Above 1906 0.01 0.01 0.01 0.01 0.01 0.01 0.01

OFther (190 Fiures):

'"ehange Rat UIR 2.80FX Convoraioa Fact. 1.10coat of Capital 10.01Residual Volve 0.0119i9 NTKa (millie") $,804

Sesitivity Factess

Proc Csfe 10 e" Cas Caste)Pr;jc ea"es) o 0 t dlye 0,1,2 *,4 or * years, caso as is Boas Caes)Traffic Growh" 1005 ( ro w cv oof s se Grewth vs. 1069)Capacity With Proj. 6,700 (ttilon TNKs, Se Case assums Capacity a 1997 Traf fc)Roa/RalI aving 1005 (I of Base Case, cpo lIs cost difference In ZO/NTke u 7.57)RoW Coste 1005 at oB Case implies cost In Zc/N KmW a 11.46Rail Costs 1005 (3 of BaC swies co stn Zin a u 8.08)

WV 800EOR20tpu(ututEllR so.m oPYR 28.01 O )Traffic ik 106 10,156 (Output, Thousand Oteae to an amming avera haul * 4#8 ken)

-162-Annex 6-8

ZkABE: RAIWAY PROJECT 11

SEmMv OF ERR to awe IN KV VARILE

Cost as Co*st Coo Pr;ect Dolay (yeers)Etl"a Up tip 11 to 201 one TWO Thre

0... Cos 21 1in IO 17W 14X 1a

lrsf la Greg" Co of Ralstse to)sod 171 1a 145 lo 183 115001 14X 1i 11x 121 lCx i403 11t Is Is is Os 73

Ceplty WIth PfoJest 061K..)I6,S000 so to 17 17W 143 1in0000 20 1ox lo 17S 14S 1i36,400 1la lo 1i 1i 1is 1LX

Retlf/Roed Soveeig (S of Let.):so1 173 1W 143 1a 1is 11Om1 145 iusism15 1 1 1a 1a40_ 11 1$ 1a ON 1

Read Transport Cosd. (3 ftb.)ton lox 145 is3 lox us3 ICU

RollI TrnwAport Coot (SlEst.) i011 l1 1si in 1ut 1in 123

1401 161W 13 lx 14X 123 1011001 121 123 101 115 1011

Tratfic Groe & RIt oSeelo. (3 of Estmt)1

n 1N 11s 140 125 lo 1WX" UF to 1 x uxis l

M ~ ~~~~i si ION 1e11 ox ex11

-163-

Ann x 6-3

ECONOMIC RETURNS Page 4 of 6ECONWMIC COSTS OF ROAD TRANSPORT

(1990 Prices)

Heavy Goods Vehicle Very Heavy Goode Vehicle

Pay load:Capacity (Tonnes) 1S sOLoad Factor (X) 50 55Average Load (Tonnes) 7.50 16.60

Vehicle OperatingCosts (Zc/veh.bk) 07.51 140.24

Road Costa (Ze/veh.km) 9.02 25.51

Total Costs (Ze/veh.km) 96.58 165.74

Total Costs (Ze/tonne km) 12.87 10.05

Share of Traffic (X) So SO

Weighted Average RoadTransport Cost. (Zc/tki) 11.46

Memo Item:Inflation Rate (X, Year on Yver)

1985 19is 1987 199 199 199018.1X 18.7X 9.65 1O.OX 10.OX 100X

Notes:1. The 1985 National Transport Study (NTS) noted that the average load factor

on primary roads was 4CX. This analysis assumes that additional road trafficwould lead to an Inerase to SOX for Heavy Goode Vehicles (HNVs) and SSX forVery Heavy Goods Vehlelos (VHQVe), due to capacity constraints.

2. NT$ estimated that only 305 of long distance primary road traffic was carriedby Very Heavy Goods Vehicles (VeY) In 1984. Fre 1984 to 1967, vehiclepopulation figurs for VHOVs grew at an annual growth rat. of 4651 comparedto 4.0X p.s. for Heavy Goods Vehicles (HOVe) and 2.05 p.a. for Medium GoodsVehicles (MOs). This analysis ssume that off icient road operatlons at themargin use only HOVe and VHCVs, split equally between the two.

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Annex 5-3

Page 5 of 6ECONOMIC RETURNS

VEHICLE OPERATING COSTS (ECONOMIC)(l988 Prices)

Heavy Goods Vehicle Very Heavy Goods Vehicle

Fixed (Zt/year" :

Depreciation/Interest 3,709 7,889Crew 7,178 6,840Ovorheads 3,960 6,924Sub-Total 14,037 20,103

Variable (Zc/veh.km):

Depreciation 4.68 7.69Fuel 21.85 84.84Otl 0.48 1.21Tyres 22.83 41.47Service and Repairs 13.87 18.78Sub-Total 63.16 103.49

Vehicle Utilization (hrs/yr) 2,700 2,700optimal Speed (kms/hr) 60 60Fixed VOC (Zctveh.k c) 9.16 12.41Variable VOC (Zc/veh.km) 63.16 108.49

TOTAL COSTS (Zc/ve*l.km) 72.82 115.90

Notes:1. Economic cost estimates taken from 1985 National Transport Study (NTS),

updated by Ministry of Transport (1988 prices). Paved, flat roads assumed.2. Heavy Goods Vehicles (HOVe) have unladen weight 4,600 - 9,000 kgs; Very

Heavy Goods Vehicles (VHGVs) have unladen weight greater than 9,000 kg.3. Economic price new is 1879,388 for NOV, Z8149,012 for VHGV.4. Depreciation costs assumed to 4.67 p.a. for HGV; 6.19X p.o. for VH¢V.

Half of depreciation allocated to fixed costs, half allocated to variablecosts (assuming HQV* cover 40,000 kms/yr and VHOVs cover 60,000 kms/yr).

S. Interest costs assumed to be 6.0O of average value of vehicle (which isassumed to be 809.0 of HOV's price oew and 30.6% of VHV's price ne).

6. Crew cost assume 2,700 operating hours/yr.7. Economic cost of diesel assumed to be t80.6244/litre; consumption by NOV Ie

0.35 lltres/km, by VHlV 0.56 litres/km.8. Economic cost of oil asume to be Z82.419/litre; consumptlon by NOV io 2.0

litres/1000 kin, by VHGV 5.0 lltres/1000 km.9.i HOVe have 14 tyres, VHGVs have 26; overage life Is 80,000 kme.10. Optimal speed ropresente performance at full capacity for the purposes of

allocating fixed costs. Current performance Is much lowr.

___ __ __ __ __ __ __ _ __ __ ___ __ __ __ _ __ _ __ __

-165- - Annex 6-S

Paow 0 of 6ECONOVIC RETURNS

PROJECT ECONOVIC COSTS (Z 000)(1990 Prices)

1991 1m 19" 1994 16 TOTALLocal Costs: - - -

Be" Co 190ff 27911 29,"80 80,649 80,"6 146,901Physlcal Contlgency 1,60 2,M 2,670 8,014 $,87 14,352Total 20.8 80,68 82.21 988" 48,586 101,25

FX Costs

S.. Cos" 57816 8,778 66,162 9,591 11904" 440,910Physical Contingnc 8,006 4,892 4,2 4,314 8,241 28,115Total 60,828 $0,10 92,30 97,445 126,29 4S4,025

TOTAL COSTS 1,295 116,608 12,056 181,805 16,92 625,276

Inflation (1900 on 1669):Zimb2b1 . 10.05Intertional 4.915Exchange Rate:M3/USe 2.80

Notes:1. Local coa exaclmde lI txe and duties.2. Foreign exchange coste have bee mltiplied by a conversion factor o 1.58. 1061 rfers to year Owing June 8O, 1991.

-166-Annex 5-4

ASK Page 1 of 3SCm RADUVS MRoJECT

Rai lwys Posennger Services: Estimated Opertntag Cost

Variable Material Co*sta

Lecomottva Cota (ZI 000) Diesel Electic Stea Total

Fuel 01 82001 0 0 t2001 (excluding shunting locos)Lube Oi/Running Speres 361 0 0 3351 *,xcludtng shunting loceos)Di.el IlIco sint. spar 60"77 0 0 0077 excluding shunting locos)Subtota1 42919 0 0 42919X foreign 100 0 0 100Adjusted Financial Costs aEconomic Coet 60002 0 0 50008

Stem lao fuel/waor 0 0 8a67 am8? (excluding shunting locos)Stem loao faint. *aterials 0 0 1840 1840 (excluding shunting locos)Subtot.l 0 0 532? sW27X foreign 0 0 0 0Adjustsd Financial Costo Economle Costs 0 0 SW27 6827

Electricity (Traction) 0 3317 0 8817Electrie loce mint spares 0 gel 0 9B1Subtotul 0 4276 0 4276U foreign 0 22 0 22Adjuotcd Financial Coat aEconomlc Cost 0 4749 0 4749

Subtotal: Economic Costs 50002 4?49 5327 60077

Possenger Train-Engine Hrs/Total Train-Engine Hr (H ) ? 19 10

Allocated Locomotive Operating Costs 3500 902 588 4035

Coaching Stock Saint. MaterialesFinancial Cost 16s6Econamic Cost 2052

Variable Labor Cste (ZO 000)

Traffic 58568Paoesngr Train-km/Total Train-km (U) 8Allocated Trff tc Dept Labor Costs 4301

Enginern 020Paee. En-/otal Eng-lk ( 0Allocatd Engineering Labor Costs 181

Total Varioble Labor CosteAiloated to Passege Servioce 0132

Subttl: Short-run Variable costs 13116

Estimae Tota Psefter-Im (000) 1160000

S,ort-run Vartable Coete/Passenger-It (ZO) 1.13

ZIMBABWESECOND RAILWAYS PROJECT

Rai lways Passengr Services: Estimated Operating Cost

Caplitl Cost/Coach Unit:Financial Cost (ZS 000) 1012Economic Cost (Z 000) 12"

Aenualsed Capital Cost (Econ) (ZS 000)a/ 182

Unit Coach-ks/yer 290000

Number of Seaft 110

Coach Occupancy (U) 90

Pa_sen,gr-lo/Coach/yoar 26710000

Coach Cost/Paseger-km (Za) 1.01

Prsent Value of Locomotive Replacemnt. b/ 22026Annual Equivalent Cost. (20 000) c/ 24',Locomotive Capitl Co Pngr- (Zc) 0.21

Capital Coste/Passenger-ku (Zc) 1.22

Lonrun Variable Cost. (Econ)/Passenger-lk (Ze) 2.86

*/ capital cost a current purchas plan present value of futur replaceme Ont to Infinity;lIt of coach a 40 yers; discount rate a 101;

b/ presen value of rplacment cost of stem locomotive five years hence pluspreset value of diesl locom.tives, asigned to paseenger sevies 20 yers hece;

c/ based on presnt value of rea of replacement to Infinity;llfe of new locomotives 80 yers; discount rate a 10X;

II¢

-168- - ~~~~~~~Annex S-4

} hZ I It

i;}S.i iXi ! owi l

--169-

Annex 6Page 1 of 3

aximBam

8UUD PAIXAYS PY43C!

SUPBRVISIOU PLAN

1. Bank supervision Input: Bank staff input into thesupervision of the project will take the following forms

(a) Portfolio management operations: the review of procurementdocuments, progress reports and financial statements atheadquarters and correspondence and internal reportingrelated to such activities are estimated to require sixstaff-weeks in the first two project years and four staffweeks thereafter.

(b) Field supervision: the supervision of the project in thefield will comprise five broad aspectst

Mi) Operating Performances the detailed review ofthe maintenance and traffic operationsl

(ii) Financial Performances the detailed review withNRZ of financial performance and prospects

taking operating performance and traffic pros-pects into account;

(iii) Regulatory Climates review with Government, theBoard of NRZ and NRZ management of progress inimplementing the provisions of the Framework forMRZ Operationsl

(iv) Procurement Activities: review of progress inproject-related procurement activities and theperformance of NRS in its inventory managementoperations;

(v) Donor Coordination: Bank supervision would be ona cooperative basis with the participatingdonors and would entail meetings with donorsindividually and as a group on every field visitto discuss the performance of the project.

It is planned to undertake field supervision of the project on aquarterly cycle for the first three project years and on a semiannualcycle thereafter. The activity plan for the first two project years isindicated in the table below.

-170-Annex 6Page 2 of 3

2. Borrower's and Beneficiary's Contributions to Supervisions

(a) MRS will provide quarterly reports in the format agreed atappraisal and confirmed at negotiationes

(b) MRs will provide annual financial statements in the form andtime schedule agreed at negotiations and semiannual analysesof its accounts receivable;

(c) On each supervision visit in the third quarter of MRZSsfiscal year, Government and MRZ will prepare and discusswith the Bank mission the operating and financial targetsproposed to be set for MRS for its ensuing fiscal year andthe investment program proposed to be included in the PSIP.Government is expected to be represented by officials of)EFPD and NOT;

(d) Mission briefing meetings on arrival will be chaired by thePermanent Secretary or a senior official of NOT. Wrap-upmeetings will be chaired by a senior official of NPEPD andattended by senior officials of NOT and NR8's seniormanagement.

3. At the end of each mission, an Aide Memoirs will be prepareddocumenting NRS's compliance with the performance objectives agreedunder the project and during the proceeding supervision mission, themeasures to be taken to remeAy any shortfall in performance and theperformance objectives for the ensuing quarter or half-year.

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Annex 6Page 3 of 3

Sank Field Mugstyision Plan

Approximate Date Activity Expected Staff Input(month/year) Skill Requirement (staff-weeks)

12/90 Review Reporting Railways 7Requirements/Formats. Engineering/Opera-Review use of operational tions Speclalistand financial model. Financial AnalystReview progress on Lawyerconditions of Procurementeffectivene"s. Review of specialitProcurement Actlvitie.

4/91 Review of operations & Railways tngineer- 7financial performance. lng/OperationsReview of performance SpecialLstobjectives for FY92. Financial AnalystRevlew of investment Procurement/sup-program. plies specialistProcurement/MaterialsManagement Review

8/91 Review of FY91 operating Rallways EngLneer- Sand fLnancial ing/operationsperformance. SpecialistReview of project-related FinancLal Analystprocurement activitiesand progress.

1/92 Review of operating and Rallways Engineer- 5financLal performance and Lng/operatLonsprogress in project SpecialLstimplementation. Financial Analyst

Years 92, 93 Same pattern as 90/91 RaLlways Engineer- 20 swLag/Operations p.a.SpeciallstFinancial Analyst

Year 94, 95, 96 Supervision Mlssions ins Railways Englneer- 12 sw(a) April/May of each ing/Operations p.a.

year to review plans Specialistfor ensuing year and Flnancial Analystprogres in projectimplementation

(b) September/October toreview full perform-ance ln past year andproject progress

PCR mLssion ln late 1996.

-172-_ Chart 1

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Chart 3-174-- ~~~~~~Page 1 of 2

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Ii I 1 d

W * t1 . I . . I .

l__ i H@

ITEM 1990 1991 1992 1993

S. SignallingfTelecom Equipment

Oid DocuAMntS/Spcif ictions ........TenderingEve Ivation/Contracte -RX i-i-U

DeliveryInsta l ltion/Comissionint -o-o-oo-o-o-o- o-o---o-

7. Breakdown Crone

Bid Oc_mente/Specittictions ......Tedri ng _ _EVOtetl,on/Contractlng s-s-s s-DIliveryImetal ltion/Coeietoning

S. Plants and Machinery

Bid Documente/Specitication ...........Tend KIngEv I usti on/Contrct Ing s-s- x-s-s-Delivery-Intal lotion/Coeitionening _ ___-.-

9. Electrification

Deoeln/Spefc tcamtone/sld Docs. ..........Tendring -.. ____Eva I otin/Contrctt ng -N.UI-X-S-S-Esecution -_-0

10. Trainins and School Eouigment

Bid Docwuente/Speclficteno ........Ten ern g cla x --

E aut./Centrcig---i-aDel ivery-

11. Techmical Assistance

'(Wms of Reference, Inv. for Bide...Bide .......Eveluation/Contracting s-x-x-s-Sorvicee-0 4-O-O-O-O-o-5-O-O-o-O- e-O-o-o- 0-.---- )0-O-O-

L_____ ...... Bidding docrubm/st/pecifcestion o

Tendering tu-a-u-a- Tender evaluatien end contracting

- -yDelivery

o-o-o-o-. Inet.llation/ceieei.nin_ exocutien of workrs/services 0

IBRD 221)t25~ 27 28' 2O-

ZIMBABWE 31

RAILWAYS 1I PROJECTTRANSPORT NETWORK T.beko . .... '

- Railways Rivers

Major State Roads E Province Capitals p"'

Secondary Stote Roads --- Internotional Boundaries ... '-.\._-

t Main Airports

r Sc 100G 150 s LOMETERS

TP S7o 0C MILES / f \j RLen ,rer* 17' j 77

NAMIBIA AN v/ 19_ _s, EMvbbews bfhomo J^% /' 1 )

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FEBRUARY 1990

26 25c le2

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NATIONAL RAILWAYS MOZAMBIQUE

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