AFRICAN DEVELOPMENT FUND

Transcription

1 AFRICAN DEVELOPMENT FUND UNITED REPUBLIC OF TANZANIA TANZANIA RAILWAY CORPORATION REHABILITATION PROJECT PROJECT COMPLETION REPORT INFRASTRUCTURE DEPARTMENT ONIN NORTH, SOUTH & EAST REGIONS JULY 2003

2 TABLE OF CONTENTS Page No. Project Log-Frame Basic Project Data Executive Summary 1. INTRODUCTION 1 2. PROJECT OBJECTIVE AND FORMULATION Project Objective Description of the ADF Component Formulation, Evaluation and Approval 2 3. PROJECT EXECUTION Effectiveness and Start-up Modifications and Technical Issues Implementation Schedule Reporting Procurement Financial Sources and Disbursement 5 4. PROJECT PERFORMANCE AND RESULTS Overall Assessment Operating Results Institutional Performance Performance of Suppliers and Consultant Conditions/Covenants Financial Performance Economic Performance SOCIAL AND ENVIRONMENTAL SUSTAINABILITY Social Impact Environmental Impact 12

3 6. PROJECT SUSTAINABILITY PERFORMANCE OF THE BANK AND TRC Performance of the Bank Performance of TRC OVERALL PERFORMANCE AND RATING CONCLUSIONS, LESSONS AND RECOMMENDATIONS Conclusions Lessons learned Recommendations 15 This Report was prepared by Messrs B. KAYONGO, Principal Financial Analyst, (Ext. 2481), and DAWIT GEBREMEDHIN, Transport Economist, (Consultant ONIN 3), following their mission to Tanzania, from February 18 th to February 27 th 2003 and was coordinated by Mr. E. K YAMOAH, Chief Transport Engineer, ONIN 3 (Ext. 2438). Dr. FY ADDO - ABEDI, Transport Engineer, (Consultant ONIN.3) also contributed to the report. Any inquiries relating to this report may be referred to either the authors or to Mr. H. NYAME-MENSAH, Acting Division Manager, ONIN. 3, (Ext. 2652).

4 EQUIVALENTS AND ABBREVIATIONS CURRENCY EQUIVALENTS PCR Appraisal 1 UA = T Sh WEIGHTS AND MEASURES 1 tonne (t) = 2,205 lbs 1 kilogramme (kg) = lbs 1 metre (m) = ft 1 foot (ft) = m 1 kilometre (km) = mile 1 square kilometre (km 2 ) = square miles 1 hectare (ha) = 0.01 km 2 = acres FISCAL YEAR July 1 to June 30 ABBREVIATIONS ADB = African Development Bank ADF = African Development Fund DRC = Democratic Republic of Congo EIRR = Economic Internal Rate of Return ERP = Emergency Recovery Programme EU = European Union FE = Foreign Exchange GOT = Government of Tanzania ICB = International Competitive Bidding LC = Local Currency MOCT = Ministry of Communications and Transport NPV = Net Present Value OPSD = Private Sector Department PCR = Project Completion Report PPF = Project Preparation Facility QPR = Quarterly Progress Report RFP = Request For Proposal RRP = Railways Rehabilitation Project SFM = Structural Financial Mechanism SR = Supervision Report TRC = Tanzania Railways Corporation TAZARA = Tanzania-Zambia Railway Authority UA = Bank Unit of Account T Sh = Tanzanian Shilling

5 LIST OF ANNEXES Annex No. of No. Titles Pages 1. Project Location Map 1 2. Implementation Schedule (Appraisal vs. Actual) 1 3. Yearly Disbursement by Source of Funds 1 4. Organization Chart During Appraisal and Project Implementation 2 5. Conditions / Covenants 2 6. Extracts of Key Financial Figures from the Financial Statements of TRC 1 7 Calculation of Economic Internal Rate of Return for Overall Project and Coaches Investment 2 8 Performance Rating Scale and Evaluation Criteria of Bank Performance and Project Outcome 4 9 Recommendations and Follow-up Matrix 1 10 Sources of Information 1 11 Borrower's PCR 1 12 Executing Agency's Comments to the Bank's PCR 1

6 TANZANIA TANZANIA RAILWAY CORPORATION REHABILITATION PROJECT MATRIX REVISION DATE: JULY 2003 DESIGN TEAM: B. KAYONGO / DAWIT GEBREMEDHIN/ FY ADDO-ABEDI Narrative Summary (NS) Verifiable Indicators (VI) Means of Verification Assumptions 1 Goal 1.1. The sector goal is to improve the infrastructural weakness of the Tanzanian economy by supporting the Emergency Recovery Programme (ERP) Appraisal (1992) 1.1 Restore financial position and operational performance of TRC to its 1970s level PCR (1998) 1.1. TRC was not financially restored and the operational performance was low. 1.1 Annual Performanc e Audit 1.2 Traffic Statistics.. (Goal to super goal) 1.1 Other productive sectors implement the right policies to stimulate economic and social development. 2 Project Objective 2.1 The main objective of the overall project is to restore TRC s effective capacity to that of its installed capacity by eliminating identified constraints on its ability to be financially self-sustaining. 2.2 The objective of the ADF component of the project is to ameliorate transportation services by improving the availability of rolling stocks through the rehabilitation of wagons and passenger coaches and the upgrading of maintenance facilities. 2.1 Annual freight performance amounted to approximately 920,000 tones in 1991and is expected to reach 2,160,000 tones / year in The number of passenger is expected to increase from 1.7 million in 1991 to 3 million in Annual freight performance increased to over 955,000 tonnes by The annual passenger has decreased to 0.57 million by Annual railway performance statistics from Government of Tanzania (GOT). 2.2.Traffic statistics on the railway network Project objective to Goal 2.1 Adequate Government commitment for the successful implementation of the ERP. 2.2 Co-financiers and Donors support the reform programme. 3 Outputs 3.1 The proposed project consists of (i) wagon rehabilitation; (ii) passenger coach rehabilitation and replacement; and (iii) upgrading of mechanical workshop and study. 4 Activities 3.1 The rehabilitation of 1000 wagons by March 1996 to catch up with the backlog of wagons requiring general repairs 3.2 Procurement of 27 new economy (third class) coaches and rehabilitation of 100 coaches by November 1995 and March 1997 respectively. 3.3 Upgrading of the mechanical workshop and the study by November 1995 and July 1994 respectively. Input/Resources wagons have been rehabilitated by September new economy (third class) coaches have been procured and only 50 coaches rehabilitated by December The upgrading of the mechanical workshop and the study have been completed by August 1996 and June 1995 respectively Quarterly Progress Reports (QPR). 3.2 Supervision Reports (SR). 3.3 Project Completion Report (PCR) 3.4 Audit Reports (Outputs to Project Objective) 3.1 Neighboring land locked countries to use the rail service. 3.2 Local customers of the railway to continue using the service (Activity to Output) 4.1 Wagon & Coach rehabilitation:. Pre qualification of contractors;. Preparation of tender documents;. Issue of tenders, receipt;. Evaluation and award of contract;. Commencement and completion;. Rehabilitation works. 4.2 Procurement of New Coaches:. Pre qualification of contractors;. Preparation of tender documents;. Issue of tenders, receipt;. Evaluation and award of contract;. Commencement of fabrication of coaches to the specifications;. Inspection of coaches;. Delivery of finished coaches. 4.3 Upgrading of Mechanical Workshop. Pre qualification of contractors;. Preparation of tender documents;. Issue of tenders, receipt;. Evaluation and award of contract;. Delivery, installation and commissioning. 4.4 Workshop modernization Study. Approval of Short list and Request for Proposal (RFP).. Issue and receipt of RFP. Evaluation and approval of proposals. Award of consultancy services.. Commencement of services. 4 Input Million UA 4.1 Wagon rehabilitation Coach rehabilitation & replacement Workshop machinery & equipment Workshop study Contingencies: - Physical Price 3.36 Total Overall Project Resources ADF GOT CIDA 7.51 EU IDA Other sources Total ADF Part ADF GOT 2.58 Total EIRR: Overall project % Coach investment 19.4% 4 Input Mil. UA 4.1 Wagon rehabilitation Coach rehabilitation & replacement Workshop machinery & equipment Workshop study 0.21 Total Overall Project Resources ADF GOT CIDA EU IDA Other sources Total ADF Part ADF GOT 0.66 Total EIRR: Overall project. 3% Coach investment (115%) 4.1 Appraisal estimates 4.2 Quarterly Progress Reports 4.3 Supervision Reports 4.4 PCR 4.5 Audit Reports 4.6 Disbursement Records 4.1All procurement actions are on schedule. 4.2 Payments for invoices are not delayed. 4.3 GOT s budget and timely release of counterpart local funds. 4.4 Effective supervision by the Bank and the Executing Agency.

7 i BASIC PROJECT DATA 1. Country : Tanzania 2. Project : Tanzania Railway Corporation Rehabilitation Project 3. Loan Number : Borrower : Government of Tanzania 5. Beneficiary : Tanzania Railways Corporation 6. Executing Agency : Tanzania Railways Corporation A. Loan Details Appraisal Actual 1. Amount (in UA million) : Commitment Charge : 0.75% 0.75% 3. Repayment Period : 50 Years 50 Years 4. Grace Period : 10 Years 10 Years 5. Loan Negotiation Date : xxxxx 199x xxxx 199x 6. Loan Approval Date : 17 th December Loan signature Date : 26 th February Date of Entry into Force : 16 th June 1994 B. Project Data 1. Project Cost In UA million As per Appraisal Item of Cost Estimate Actual Foreign Exchange (FE) Component Local Currency (LC) Component Total Cost Source of Finance Source of In UA million As per Appraisal Estimate Actual Finance F.E. L.C. Total % F.E. L.C. Total % ADF GOT Total Appraisal Actual 3. Effective Date of First Disbursement : 8 th July Effective Date of Last Disbursement : 31 st December th July Commencement of Project : November th June Completion of Project : 31 st March st December 1999

8 ii C. Performance Indicators 1. Cost under utilization : (34.3%) 2. Time Overrun : 33 months * Slippage on Effectiveness (%) : 50.0% * Slippage on Completion Date (%) : 65.0% * Slippage on Last Disbursement (%) : None * Number of Extensions of Loan Validity Period : None 3. Project Implementation Status : Completed 4. List of Verifiable Indicators and Levels of Achievement : Score Evaluation Criterion Maximum Actual 1. Time Overruns Cost Under utilization Adherence to Contractual Conditions Adequacy of Supervision and Reports Operational Performance Total Score Implementation Performance * Institutional Performance : 1.8 * Supplier s Performance : 2.0 * Consultant s Performance : Economic Internal Rate of Return (EIRR): Appraisal : 14.72% for the overall project and 19.42% for coaches Actual : 3.0% for the overall project and (115.0%) for coaches D. Missions * Project Cycle M/Y Numbers of Persons Composition Man Days 1. Identification N/A 2. Preparation N/A 3. Appraisal 06/92 4 T.E, C.E, T.En Supervision xx/95 Oct/96 1 T. En 2 Nov/97 1 F.A 32 Dec/97 2 M 14 5.PCR 02/03 3 F.A,T.En, T.E 36 M Management; C.E. Civil Engineer; F.A. Financial Analyst; T.E - Transport Economist; T. En - Transport Engineer * The Mission information includes mainly the activities after October 1996.

9 iii E. ADF Loan Bank Disbursements (UA million) Undisbursed Balance Loan Saving As at Appraisal Actual Year Amount Cum.(%) Amount Cum.(%) % 53.8% 90.8% 98.5% 100.0% % 43.3% 55.6% 86.9% 99.9% 100.0% Total F. CONTRACTOR ) Name : M/s Henschel Export Contract Description : Supply of spare parts and materials for the rehabilitation of 1000 wagons (partial) Date Contract Signed : 18 th February 1994 Date Contract Terminated : September 1997 Contract Duration : 43 months Amount (UA Million) : UA million 2) Name : M/s ZECO Ltd. Contract Description : Supply of spare parts and materials for the rehabilitation of 1000 wagons (partial) Date Contract Signed : 18 th February 1994 Date Contract Terminated : September 1997 Contract Duration : 43 months Amount (UA Million) : UA million 3) Name : M/s ABB Transportation Ltd.. Contract Description : Rehabilitation of 79 coaches Date Contract Signed : 14 th January 1994 Date Contract Terminated : December 1997 Contract Duration : 47 months Amount (UA Million) : UA million 4) Name : M/s Bhart Earth Movers Ltd. Contract Description : Supply of 27 new coaches Date Contract Signed : 26 th January 1996 Date Contract Terminated : December 1997 Contract Duration : 23 months Amount (UA Million) : UA million

10 iv 5) Name : M/s Jos Hansen & Soenhe Contract Description : Supply of Workshop Machinery & Equipment (partial) Date Contract Signed : 18 th February 1994 Date Contract Terminated : August 1996 Contract Duration : 30 months Amount (UA Million) : UA 2.1 million 6) Name : M/s Gemco Engineers Contract Description : Supply of Workshop Machinery & Equipment (partial) Date Contract Signed : 4 th March 1994 Date Contract Terminated : August 1996 Contract Duration : 29 months Amount (UA Million) : UA million 7) Name : M/s Kennedy International Contract Description : Supply of Workshop Machinery & Equipment (partial) Date Contract Signed : 23 rd March 1994 Date Contract Terminated : August 1996 Contract Duration : 29 months Amount (UA Million) : UA million G. CONSULTANT Name : M/s CANARAIL Contract Description : Workshop Modernization Study Date Contract Signed : 15 th July 1994 Date Contract Terminated : June 1995 Contract Duration : 11 months Amount (UA Million) : UA 0.17 million

11 v EXECUTIVE SUMMARY 1. INTRODUCTION 1.1. In accordance with the Government of Tanzania (GOT) s overall strategy to shore up and improve the infrastructural weakness of the Tanzania economy, especially the inadequacy of its domestic road and rail network, GOT requested the African Development Bank (ADB) to part finance the restructuring and rehabilitation of the Tanzania Railways Corporation (TRC) in August The Railways Rehabilitation Project (RRP) covered all sectors of rail operations in TRC and was a follow up of the Emergency Recovery Programme (ERP) undertaken by TRC in The ERP was a response to the decline in traffic moved by TRC as a result of operational problems that led to the decline in its effective haul capacity and failure to serve the central/northern parts of Tanzania, as well as the transit traffic to and from Burundi, Rwanda, Democratic Republic of Congo (DRC) and Uganda The component of the African Development Fund (ADF) was appraised in June 1992 by a team of four experts consisting of a transport economist, financial analyst and two civil engineers. The loan conditions were negotiated and there were no issues of disagreement raised by the Bank or the Borrower concerning the project. The loan was approved by the Bank on 17 th December 1992 and was signed on 26 th February 1993 for an amount of Bank Unit of Account (UA) million This Project Completion Report (PCR) is based on the appraisal report, project files in the Bank, Borrower s reports and PCR, interviews and site inspection conducted during an ADF mission to Tanzania in February The Borrower's PCR is on the file with ONIN 3. Project Objective and Description 1.4. The main objective of the overall project was to restore TRC s effective capacity to that of its installed capacity by eliminating identified constraints on its ability to be financially selfsustaining. The main objective of the ADF component of the project was to ameliorate transportation services by improving the availability of rolling stocks through the rehabilitation of wagons and passenger coaches and the upgrading of maintenance facilities. The proposed project for ADF assistance consisted of wagon rehabilitation; passenger coach rehabilitation and replacement; upgrading of mechanical workshop and study. Project Execution 1.5. The GOT has fulfilled the seven conditions precedent to entry into force of the loan agreement, namely concluding a subsidiary loan agreement for on lending the entire proceeds of the loan to TRC; assignment of qualified project coordinator; appointment of a new Board of Directors; implementation of real tariffs; maintaining its account receivable at a level no greater than 45 days; provision of undertaking to re-evaluate TRC s asset; and ensure to maintain a 60/40 debt equity ratio. On the other hand, of the seven Other Conditions prior to entry into force of the loan agreement, the borrower has met all, except condition V that requires TRC to submit a programme to the Fund to construct fences at village/town level crossing so as to minimize the danger of accidents. Instead the borrower opted to the construction of watchmen hut, level crossing signs, introduction of road strips and humps on the road. In the course of the project implementation, even though it was planned to rehabilitate 100 coaches, only 50 coaches had been rehabilitated due to the contractor underestimation of the spare parts requirement and delay in the implementation of the project.

12 vi Implementation Schedule 1.6. The project was scheduled for completion from November 1993 to March 1997 (40 months), but was actually implemented between June 1994 and December 1999 (66 months). Hence, the project was completed in about 7.5 years after appraisal. The project was implemented by 8 contracts and there were problems that had to be resolved during the implementation that accounted for part of the slippage. Project Costs 1.7. In 1992 at appraisal, the project was estimated to cost UA million of which, UA 2.58 million was local cost. During the execution, the coach rehabilitation of the project was reduced to 50 (instead of 100). Thus, the actual project cost has reached only UA15.61 million, UA million in foreign exchange (FE) and UA 0.66 million in local currency (LC) in Financial Resources 1.8. The project was jointly financed by ADF and GOT. The actual counterpart fund has decreased from UA 2.58 million at appraisal to UA 0.66 million due to the under utilization of the fund (mentioned above under 1.7) and delay in the contribution by GOT in the course of the project implementation. This decrease shows GOT s actual contribution of only 25.6% of the original estimate. Overall Assessment 1.9. The overall project financing and activities were redirected from 1998 to 2002 towards sustaining TRC operations and performance during the transition period into concessioning. The ADF part of the project, even though completed after a slippage of 33 months (March 1997 at appraisal and actual December 1999) and overall cost under utilization of 34.3%, most of the objectives have been met except the rehabilitation of only 50 coaches. Initially, the tender was floated to rehabilitate 100 coaches. During bid opening, it was learnt that the allotted budget could be sufficient for the rehabilitation of 79 coaches. The project was delayed due to the late delivery of material, spare parts and manpower. It has also faced underestimation and poor initial survey of the required spare parts. Thus there was excessive amount of spare parts that could not be used for full rehabilitation and only 50 coaches were rehabilitated. The Bank did not accept the borrowers request for more funds to procure additional materials and spare parts for the completion of the rehabilitation of the remaining coaches. The Bank gave the reason that the additional request could increase the original contract sum by almost 30 per cent and was difficult to determine the balances under the loan at the request stage of TRC The Bank has stopped participating in the donors joint supervision mission beginning Thus the Bank could not follow up the development in TRC and did not participate in the concessioning process of TRC In consideration of performance rating based on time, cost, adherence to the contractual condition and adequacy of supervision and reporting, the overall project execution was satisfactory. Except the Final Audit Reports, the Government had submitted the other reports. GOT has not yet submitted the Final Audit Report even though promised to the PCR Mission to forward to the Bank by 31 st May 2003.

13 vii Economic Performance The traffic projection at appraisal has been revised taking into account the actual freight and passenger traffic performance of TRC up to At appraisal, the freight traffic has been assumed to increase by 134% while the passenger traffic by 75% between 1992 and 1998 and then maintain the 1998 level for the remaining twenty years of the project life. But when comparing the actual performance of 1992 up to 2002 with that of the targeted plan, the actual performance on the average have decreased by an average of 32% for freight and 62% for passenger transport services. The actual project costs as well as the benefits emanating from the revised traffic forecasts formed the basis for re-evaluation of the EIRR. The recalculated EIRR are 3% and (115%) for the overall project and coaches investments respectively (Annex 7). These compared with % and 19.42% for the overall project and the coaches investment respectively at appraisal in 1992 are very low, below the 12 % opportunity cost of capital in Tanzania. The main reason for this variation is due to the poor performance of both the freight and passenger transport services and over optimism at appraisal. Conclusions The project achieved some of the objectives like management autonomy, concentration in managing the core commercial railway activity, introduction of commercialization, improvement in operational management, financial control and improvement in the infrastructure. However, the overall objectives of the project have not been substantially achieved. On the other hand, the project has improved the freight and passenger transport services provided by TRC, and has served the transit traffic to and from Burundi, Rwanda, DRC and Uganda The performance of the seven suppliers and the consultant in general was satisfactory while that of the Borrower was not satisfactory. The Bank and the overall assessment of implementation were found to be satisfactory with a rating of 2.0 out of 4 (maximum) The overall project would have failed to achieve its objective had it not been for the GOT s decision to concession TRC and the donors continuous support after The final project completion cost indicates a cost under utilization of UA 8.15 million (34.3%) relative to the appraisal estimate and a balance of UA 6.23 million under the ADF loan, was cancelled because of poor utilization of the fund on time The project has helped TRC to operate an annual average tonnage of 1.19 million and 0.97 million passenger between 1992 and Despite the investment made, TRC s financial position has not significantly improved and is unable to sustain itself. It is against this background that the project concept has been changed from simply a rehabilitation project to a project that is supporting the concession of TRC to ensure that its profitability is adequate to meet its maintenance and replacement targets. Lessons Learned i. Rehabilitation projects require proper preparation, planning and additional physical contingencies for spare parts. Due to the uncertainty of required parts during rehabilitation, it would be safe to have contingency or unallocated fund that could be easily processed with the consent of the Bank;

14 viii ii. The long-term effect of rehabilitation of very old wagons, coaches and locomotives requires an in depth investigation / study to determine the pros and cons of rehabilitation versus buying new. For such study, the borrower could use the Bank's Project Preparation Facility (PPF); iii. The Bank needs to follow up the proper allocation of the counterpart fund by the Borrower during project implementation in order to maintain the financing plan as agreed at the initial agreement of the project; iv. Regional projects which could be influenced by the political and economical environment of the region needs to be addressed in regional perspective; and v. The Bank needs to follow up the development on its projects by sending supervision missions even if they are completed. Since the Bank has stopped sending mission, it did not participate in the concessioning process of TRC. Recommendations We recommend as follows: i. The Borrower should comply with the loan agreement and submit to the Bank the Final Audit Report on the project; ii. The Bank should continue to monitor TRC s development in general and the progress on the concession of TRC in particular. GOT also should inform the Bank on its plan on the concession and the development; iii. Review the importance of proper preparation, planning and a component of additional contingency or unallocated fund, which could immediately be approved by the Bank for rehabilitation projects that require additional spare part purchase; iv. When approached (through the Ministry of Finance), the Bank should consider providing funding part of the infrastructure facilities of the TRC, including institutional support where applicable; v. OPSD could finance part of the requirements of the private operator that is expected to be brought into TRC; and vi. Review in depth, even with the Bank s PPF, the long term advantage of rehabilitation of very old wagons, coaches and locomotives.

15 1. INTRODUCTION 1.1. The Tanzania transport system consists of five modes of which road is the dominant. The five modes are (i) a road network of about 115,000 km; (ii) two railway systems totaling about 3,555 km of track; 2,580 km operated by TRC and 975 km within Tanzania by the jointly owned Tanzania / Zambia Railway Authority (TAZARA); (iii) an ocean port system with one dominant and three subsidiary ports and lake ports on Lake Victoria, Tanganyika and Nyasa; (iv) air transport facilities comprising two international airport and over sixty smaller airfields; and (v) a pipe line that carries crude oil from Dar es Salaam to Ndola in Zambia. The Tanzania transport infrastructure also serves as an important transit corridor for the bilateral trade of Tanzania s land-locked neighbors, namely, Zambia, Burundi, Rwanda, Uganda, DRC and Malawi In 1987, GOT invited Transport Sector Donors Conference and presented a draft National Transport Policy document and a Transport Sector Recovery Programme. The programme outlined the basic policy, institutional changes and rehabilitation requirements of the sector in order to reestablish the transport infrastructure and services to cater to the requirements of the economy. The Bank with other Donors participated in the ERP in The RRP was a follow up of the ERP, in which GOT with the assistance of the World Bank, including the Bank Group and other six donors were involved. The project covered all sectors of rail operations in TRC track, locomotives, rolling stock, communications, as well as substantial support to management and operations through technical assistance and studies. ADF participated in financing the rehabilitation of 1000 wagons and 50 (initially 100) coaches, acquisition of 27 new coaches, upgrading of the mechanical engineering workshops and workshops modernization study The Bank Group, up to December 2002 had approved 60 loans and 19 grants to finance 35 projects, 3 industrial lines of credit, 22 studies, 5 policy-based operations and 2 Structural Financial Mechanism (SFM) loans totaling UA million in Tanzania. Transport is the largest recipient of Bank Group financing with a share of approximately twenty-seven percent. There are currently twenty on going operations in the public utilities, agriculture, transport, industry, social services and multi-sectoral operations. The Bank at the moment has five on going transport sector projects, namely, Mutukula Muhutwe Road Project, Zanzibar Road Studies, El-Nino Road Rehabilitation, Shelui Nzega Road Project and Road Rehabilitation / Upgrading Project The RRP component financed by the Bank was appraised in June The loan conditions were negotiated and there were no issues of disagreement raised by the Bank or the Borrower concerning the project. The loan was approved by the Bank on 17 th December 1992 and was signed on 26 th February 1993 for an amount of UA million This PCR is based on the appraisal report, project files in the Bank, Borrower s reports and PCR, interviews and site inspection conducted during an ADF mission to Tanzania in February The Borrower's PCR is on the file with ONIN 3.

16 2 2. PROJECT OBJECTIVE AND FORMULATION 2.1 Project Objective The main objective of the overall project was to restore TRC s effective capacity to that of its installed capacity by eliminating identified constraints on its ability to be financially self-sustaining. The project consisted of,: (i) rehabilitation of track, telecommunications systems, locomotives, wagons and coaches; (ii) replacement of obsolete and unserviceable maintenance equipment, vehicles and coaches; (iii) organizational support and training to strengthen management systems and staff capacity in all functional areas; and (iv) support for improvements in the working environment and incentives including enhanced pensions for the work force The main objective of the ADF component of the project was to ameliorate transportation services by improving the availability of rolling stocks through the rehabilitation of wagons and passenger coaches and the upgrading of maintenance facilities. 2.2 Description of the ADF Component The ADF component of the project as designed consisted of: (i) rehabilitation of 1,000 wagon; (ii) rehabilitation of 100 passenger coaches and acquisition of 27 new ones; (iii) upgrading of the mechanical engineering workshops; and (iv) workshops modernization study. 2.3 Formulation, Evaluation and Approval The overall RRP was formulated and prepared by the World Bank and GOT and supported by seven other donors, inclusive of ADF. The ADF component was appraised in June 1992 by a team of four experts consisting of a transport economist, a financial analyst and two civil engineers. The loan conditions were negotiated and there were no issues of disagreement raised by the Bank or the Borrower concerning the project. The loan was approved by the ADF on 17 th December 1992, and signed on 26 th February 1993 for an amount of UA million. 3. PROJECT EXECUTION 3.1 Effectiveness and Start-up In accordance with clauses 9.01 and of the General Conditions Applicable to Loan Agreements and Guarantee Agreements of the ADF, there was no slippage after Board approval for loan signature. The loan became effective on 16 th June There was a slippage of about 10 months from the maximum of 180 days after the date of the loan signature for loan effectiveness. Overall, there was a slippage of about 6 months before the Bank declared the loan effective The reason for the delay in declaring the loan effective was due to the time spent by the GOT in meeting the conditions and covenants set prior to entry into force of the loan agreement.

17 3 3.2 Modifications and Technical Issues In the course of the project implementation, two modifications have been observed. Even though, it was planned and the tender has been floated to rehabilitate 100 coaches, only 50 coaches had been rehabilitated. At the tender opening stage, the allotted budget was sufficient to rehabilitate only 79 coaches and the contract was awarded accordingly. During contract execution, the procured spare parts became sufficient for the rehabilitation of only 50 coaches The loan condition required TRC to construct fences at village / town level crossings so as to minimize the danger of accidents. TRC with the consent of the donors has modified and implemented watchmen hut, level crossing boom on the railway line, strips and humps on the road. These have been found to be practicable, safe and effective. 3.3 Implementation Schedule The project was scheduled for completion from November 1993 to March 1997 (40 months), but was actually implemented from June 1994 to December 1999 (66 months). Hence, the project was completed in about 7.5 years after appraisal The project was implemented by eight contracts. There were problems that had to be resolved during the implementation that accounted for part of the slippage, like delay of delivery of spare parts, liquidation of the lowest bidder for the supply of coaches and awarding to the second lowest evaluated bidder. The implementation of each contract is presented hereunder The rehabilitation of 1000 wagons contract was awarded to two contractors, namely, Messrs. Henschel Export of Germany and ZECO Ltd. of Zimbabwe and were signed on 18 th February Initially the work was scheduled to commence in November 1993 and to be completed by March The rehabilitation started late due the delayed arrival of the spare parts. Even though the work commenced in August 1995, 240 wagons by April 1996, a total of 934 wagons by March 1997 and a total of 1000 wagons were rehabilitated by September In view of the fact that the project was scheduled for completion in March 1996 at appraisal, there was a slippage of 18 months The rehabilitation of 100 passenger coaches evaluation and selection was submitted to the Bank in July 1993 and the Bank gave No Objection in September The contract was signed in January 1994 with Messrs. ABB Transportation Ltd. of Germany. Even though the commencement date of the work was programmed for February 1994, actual date of commencement / delivery was in January The contract was delayed because the loan had not been effective. In addition the contractor mobilization did not proceed well as there were delays in delivery of material, spare parts and manpower. During bid opening, it was learnt that the allotted budget would be sufficient only for the rehabilitation of 79 coaches. But due to the delay of the project implementation and the non-optimal assessment of spare parts for the rehabilitation, only 50 coaches were rehabilitated. The actual rehabilitation started in November 1994, coupled with further problem in November 1995 from the contractor claiming that the conditions of the coaches have deteriorated since the time of the bidding. TRC refused to accept the contractor s claim, as the contractor did the survey of the condition of the coaches upon which the bid was based. In view of the fact that the component was scheduled for completion in March 1997 at appraisal, there was a slippage of 9 months since the component was completed in December 1997.

18 The acquisition of 27 new coaches contract was awarded to Messrs. Bhart Earth Movers Ltd. of India and was signed in January 1996 with a delivery period of 18 months after opening of Letter of Credit. All the coaches were commissioned in to service by December 1997, after the first batch of 12 coaches and the remaining 15 were received in September and November 1997 respectively. There was a delay in the award of the contract because of the extension of the bid opening; the re-advertisement due to the technical irregularity during bid opening; and the liquidation of the lowest evaluated bidder. In view of the fact that the project was scheduled for completion in November 1995 at appraisal, there was a slippage of 25 months The supply of workshop machinery and equipment for upgrading of the mechanical engineering workshops were awarded to three suppliers, namely Messrs Jos Hansen & Soenhe of Germany, Gemco Engineers of Germany and Kennedy International of England and were signed in February and March The programmed date of commencement of delivery was November 1994 but was delivered, installed and commissioned in August In view of the fact that the project was scheduled for completion in November 1995 at appraisal, there was a slippage of 9 months The workshops modernization study contract was signed with Messrs. CANARAIL of Canada in July The study has been finalized in June 1995 with recommendations acceptable to TRC and ADF. The study recommendation has not been implemented due to lack of fund. The timely implementation of the recommendation would have improved the availability of wagons, coaches and rolling stocks. Initially, the works was scheduled for completion by July 1994 at appraisal and there was a slippage of 11 months. 3.4 Reporting Pursuant to the provisions of the General Conditions of the loan agreement on submission of reports, the GOT had submitted quarterly progress reports and the Borrower s PCR. The reports captured substantially most of the activities on site, and were hence found satisfactory. On the other hand, GOT has failed to submit the Final Audit Reports for the project after promising the PCR Mission to submit the Report by 31st of May Procurement Procurement of Goods and Equipment Contracts The process of pre-qualification of suppliers for the rehabilitation of 1000 wagons was carried out through International Competitive Bidding (ICB) in line with ADF s Guidelines. GOT sent the names of the pre-qualified suppliers to the Bank in March 1993 and the Bank gave No Objection in April Bidding document was issued and the suppliers submitted their offer in June GOT submitted the evaluation to the Bank in September 1993 and got Banks No Objection in December Messrs. Henschel Export and ZECO Ltd. emerged as the lowest bidder and the contracts were signed in February The bidding documents were evaluated and processed in accordance with ADF s Rules of Procedure for Procurement applicable at that time The rehabilitation of 100 passenger coaches was also carried out through ICB in line with the Bank Guidelines. Messer ABB Transportation Ltd. emerged as the lowest bidder

19 5 and the contract was signed in January The contractor managed to rehabilitate only 50 coaches. The Borrower had requested the Bank in October 1996 for the utilization of more funds to procure additional materials for the completion of the rehabilitation of the remaining coaches. The Bank did not accept the borrowers request on the ground that the additional request could increase the original contract sum by almost 30 per cent and was also difficult to determine the balances under the loan at that stage, and eventually TRC agreed. In addition due to the non-optimal estimation of spare parts, there were over stock of some spare parts that could not be used for general rehabilitation The process of pre-qualification of suppliers for the purchase of 27 coaches was carried out through ICB in line with ADF Guidelines. Bid was invited in February 1993 to be opened in April The bid was re-advertised in November 1993 due to technical irregularity during bid opening. The second bids were submitted in December 1993, the evaluation was completed in February 1994 and approved by the Bank in October The contract was signed in January 1996 with Messrs. Bhart Earth Movers Ltd of India because of the liquidation of the first lowest evaluated bidder. The procurement of 27 new coaches were completed and commissioned in December The supply of workshop machinery and equipment for upgrading of the mechanical engineering workshop was also carried out through ICB with pre-qualification of suppliers, selection of the pre qualified and sending bid document to the Bank. Bids were invited in April 1993, received in June 1993, and evaluation was completed in September The Bank gave No Objection in December 1993 for the three suppliers, namely Messrs. Jos Hansen & Soenhe of Germany, Gemco Engineers of Germany and Kennedy International of England. Consultancy Services The consultant for the workshop modernization study was selected in line with ADF s Guidelines for the Use of Consultants. The names of the short-listed international consultants was sent to the Bank in March 1993 and got approval in April The short listed consultants were issued with the Letter of Invitation and Terms of Reference and proposals were received in June The evaluated technical and financial proposals for the task were forwarded to the Bank in February 1994 and GOT received the Bank s No Objection in July 1994 to negotiation with Messrs. CANARAIL of Canada. The services contract was signed in July Financial Sources and Disbursement Project Costs In 1992 at appraisal, the project was estimated to cost UA million of which, the foreign exchange (FE) component was UA million and the balance of UA 2.58 million (T Sh million) was the local currency (LC) component. The signed contract project cost was UA million, consisting of UA 2.8 million for wagon rehabilitation, UA million for coach rehabilitation and replacement, UA 3.08 million for workshop machinery and equipment, UA 0.19 million for the study and unallocated amount of UA 4.6 million.

20 6 Financial Resources The ADF component of the project was jointly financed by ADF and GOT. The project completion cost was UA million, utilization of only 65.7% of the total allocated amount. This represents an underutilization of 34.3% of the fund relative to the appraisal estimate. GOT has used UA million from the ADF fund and UA 0.66 million from its own fund. ADF contributed 95.8% and GOT 4.2% for the project, which shows a change of the financing plan (ADF contribution increased from 89.1% to 95.8%). The low GOT contribution would have been captured from the various progress reports. Thus 70.6% and 25.6% of the ADF and GOT sources respectively have been utilized. The final completion cost indicated a cost under utilization of UA 8.15 million (34.3%) relative to the appraisal estimate. The under utilization arose mainly due to the failure of using the unallocated amount of the ADF loan and failure to avail the counterpart fund by GOT. There was an undisbursed amount of about UA 6.23 million under the ADF loan, which was eventually cancelled. The expenditure schedule over the implementation period is presented in Table I. Table 1 Source of In UA million As per Appraisal Estimate Actual Finance F.E. L.C. Total % F.E. L.C. Total % ADF GOT Total Disbursement The loan funds were disbursed by direct method to the suppliers and the consultant. However, the slippage in the implementation schedule has not affected the disbursement schedules. At appraisal, the disbursement was planned to commence in 1993 but did not actually start until 12th July 1994 because of delay in loan effectiveness and award of contract. In fact, the first disbursement (advance payment) was made for ABB Transportation Ltd. on 12th of July Annex 3 presents the comparison between the appraisal and actual disbursement profiles. The last disbursement by ADF was made on 5th July In the course of the implementation of the project, 140 payments of the project were effected by the Bank with an average of 17 days. One hundred thirty disbursements (93% of the total disbursements) were paid with an average of 13 days, ranging from 3 to 30 days. This implies that disbursement applications were processed within reasonable time and overall the loan disbursements were generally satisfactory.

21 7 4. PROJECT PERFORMANCE AND RESULTS 4.1 Overall Assessment The main objective of the ADF component of the project was to ameliorate transportation services by improving the availability of rolling stocks through the rehabilitation of wagons and passenger coaches and the upgrading of maintenance facilities Overall the objective of the project has not been substantially achieved and there was a slippage of about 33 months during the project implementation due to various mobilization delays. The project achieved some of the objectives like management autonomy, concentration in managing the core commercial railway activity, introduction of commercialization, improvement in operational management, financial control and improvement in the infrastructure. GOT decided to concession TRC and thus donors continued supporting TRC after 1998, helped for its operational continuity In consideration of performance rating based on time, cost, adherence to the contractual condition, adequacy of supervision and reporting, the overall project execution was satisfactory. 4.2 Operating Results Even though TRC has attained only 68% of the freight and 38% of the passenger traffic of the average target of 1992 to 2002, the implementation of RRP and extended donors support has helped TRC to continue rendering freight and passenger service in the country and to the neighboring land locked countries of Rwanda, Burundi, DRC and Uganda. These countries have also the alternative route, the Northern Corridor (Mombassa Port using Kenyan Railways Corporation or the road transport). With this competition, TRC has managed to render transit traffic service of an annual average of 408,026 tonnes from 1992 to In addition, the unstable political and economical situations in DRC, Rwanda and Burundi has also effect on the operational activities of TRC, since the project has regional features. 4.3 Institutional Performance The project was appraised and implemented under the Ministry of Communications and Transport (MOCT). There was no change in the Ministry but TRC organizational structure at appraisal has been changed during implementation (Annex 4). The institutional change was aimed at developing and implementing a commercial oriented strategy. This structural change has helped TRC in the implementation of the project. TRC had also a plan to undergo a major organizational change and drew a program for the period , aimed at developing a responsible and accountable management style, with one of the key elements being the zonal management of the railways at Dar Es Salaam, Tanga and Tabora. The zone was to operate as a cost / profit centre with its own budget. But TRC did not implement the zonal management of railways because of the nature of the traffic movement in the country, since almost all freights originate from Dar Es Salaam TRC has reduced the number of staff from 12,393 in 1992 at the start of the project to 8,769 by the end of TRC recognizes the potential for further reduction to an effective number of around This has however been hampered by the issue of severance pay, which is yet to be effectively tackled.

22 The project has been executed by TRC, by designating a qualified project coordinator. TRC had sufficient experience and capacity to execute the project. All technical units of the TRC are staffed by qualified Tanzanians. 4.4 Performance of Suppliers and Consultant Suppliers The performance of the seven suppliers was in general satisfactory despite the following problems: (i) The suppliers of the spare parts and materials for the rehabilitation of 1000 wagons, were delayed due to the late delivery of the spare parts and materials by the main external supplier; (ii) (iii) (iv) (v) The supplier of spare parts and materials for the rehabilitation of 79 coaches from the start of the project was not good as the work was delayed by the supplier in the delivery of material, spare parts and manpower. Only 50 out of 100 coaches were rehabilitated and it was unsatisfactory; The supplier of the rehabilitation of the coaches raised claims due to the nonoptimal and poor initial survey of the required spare parts. There were excessive amount of spare parts that could be used for partial rehabilitation instead of full rehabilitation; The supplier of the 27 new coaches performance on technical and contractual matters was very satisfactory. The supplier has delivered and commissioned the coaches as per the agreed schedule; and The three suppliers selected for the supply of machinery and equipment have delivered, installed and commissioned the equipment and machinery with 9 months delay. Consultant Overall the performance of the consultant was satisfactory in terms of technical output. All deliverables were delivered on time and the recommendations were commendable. There were only delays on some critical issues on the part of the Executive Agency when reviewing the reports. 4.5 Conditions / Covenants All the seven conditions (Annex 5) that were set prior to entry into force of the loan agreement have been met by GOT.

23 The Other Conditions were fulfilled except condition (v) which states not later than one year of loan effectiveness cause TRC to submit a programme to the Fund to construct fences at village / town level crossings so as to minimize the danger of accidents. But, almost at the time of the project completion, TRC with the consent of the donors has modified and implemented watchmen hut, level crossing boom on the railway line, strips and humps on the road. These have been found to be practical, safe and effective method. 4.6 Financial Performance The main objective of the ADF component of the project was to restore TRC s effective capacity to that of its installed capacity by eliminating identified constraints on its ability to be financially self sustaining. TRC s financial position has not improved much and there is little result that the project will be sustainable, as TRC has no financial resources to renew its aged wagon and coach fleet The project achieved a number of objectives, including management autonomy; concentration in managing the core commercial railway activity; the introduction of commercialisation; improvement in operational management, financial control and improvement in the infrastructure. The project has also helped to improve the debt collection, which has decreased from 172 days in 1991 to 39 days in On the other hand the Tanzanian Shilling has been devaluated by over 150% between the appraisal and project completion period. Up to January 2001, TRC has increased freight tariffs by a compounded rate of 430 to 640 percent and passenger tariffs by 305 to 420 per cent in nominal terms. Despite the increase in traffic and the investments made, TRC s overall financial objective of the project has not been substantially achieved (Annex 6). But the project has helped TRC to operate an annual average tonnage of 1.19 million and 0.97 million passengers from 1992 to TRC has achieved an average of 68 % and 38 % of its freight and passenger targets for 1992 to The project has also helped regional integration by supporting the landlocked countries to get access to the port In spite of the above-mentioned achievements, however, TRC s financial position has not improved much and there is no sign that the project will become sustainable in future. The major problem is that TRC is not generating sufficient revenues to meet its operating expenses and at the same time renew its aged wagon and coach fleet. At the end of the project completion, TRC was expected to have become self-sustaining. However, despite the increase in traffic and the investments made, TRC's financial position has not improved much since the project started. Thus, the Corporation is not likely to achieve the financial targets set at appraisal and it is not anyway near self-sustainability than at the beginning of the project It must be noted, however, that TRC is generating enough revenue to meet its operation costs, but not adequate surpluses for maintenance and replacements as well as meeting its debt obligations. Since TRC is not generating sufficient revenues to renew its wagons, the fleet has been reduced from 1250 wagons in 1999 to 1090 by end of TRC revenues were also affected negatively during 1997/98 El-Nino rainfalls, which led to cutbacks on all expenditure other than payment of wages and emergency civil works. Infact the rehabilitated wagons and new coaches have been affected by the continuing loss of coaches and wagons through accidents.

24 As the project was failing to achieve its objectives, GOT opted in 1998 to bring in private sector participation through concession of operations of TRC. The process of recruiting a private operator through concession is ongoing and is expected to be completed by the end of the year. The precarious issue of retrenching staff is being discussed between GOT, TRC and the Presidential Parastatal Reform Commission. The infrastructure facilities will remain in the hands of Government. 4.7 Economic Performance At appraisal, the investments of the overall rehabilitation project in general and the coaches investment separately were evaluated by comparing with and without project scenarios. The analysis was conducted assuming that the overall project would start in 1992 and be completed in 1998, while the coaches investment would be carried out between 1993 and A twenty-year analysis period and no residual value by the end of 2018 have been assumed. In the without the project case, it was assumed that the railway system will be able to sustain its actual capacity with some investments under the ERP and the incremental traffic projected for TRC with the project would be diverted to road transport. At appraisal, based on the economic costs and railway benefits, the internal rate of return (EIRR) of the rehabilitation of the overall project was estimated at 14.72% while the coaches investment yielded returns of 19.42%, using a 10% discount rate At appraisal, for the projection of traffic, the major commodities carried by TRC in 1991 were considered and the general pattern of movement for major commodities was assumed to be stable for the future. TRC s transport capacity in 1991 was 0.9 million tonnes/year. As soon as the different actions included in the rehabilitation project were implemented, this capacity was expected to increase annually, and reach 2.16 million tonnes per year at the completion of the project in TRC passengers were expected to increase from 1.7 million in 1991 to 3 million in 1998, due to the increase in coach and locomotive availability and the purchase of new coaches. These show an increase of 134% for freight and 75% for passenger between 1992 and 1998 and then maintained the 1998 level for the remaining twenty years of the project life During the PCR Mission, the actual performance of TRC from 1992 to 2002, the anticipated freight and passenger performance with the project have been reviewed with TRC concerned personnel. The actual freight and passenger traffic data for the year 1992 to 2002 have been found to be very low when compared with the estimation at appraisal. Overall the actual performances were 68 % of the freight tonnage and 38% of the passenger target. The main reasons for such performance were over-optimism of the country s economic growth; under estimation of the competition from the road sector; over estimation of traffic growth forecast of some commodities (like cement, maize, grains & fuel); unstable political and economic situations in DRC, Rwanda and Burundi; stringent control of passenger overloading after a passenger vessel sunk in 1996; shortage of wagons and coaches; and a one and half year delay in the implementation of the rehabilitation project. The appraisal forecast was later down scaled at the Mid Term Review in 1995, a reduction of about 20 % of the appraisal tonnage of 1995 to But TRC attained only 73% of the revised Mid Term Review target of 1995 to The Mid term Review has not further taken additional measures or actions regarding the implementation of the project, except the reducing the expected performance.

25 The PCR analysis was conducted in economic terms, which was derived from the financial costs by deducting taxes. The actual project economic costs as well as the benefits emanating from the revised traffic forecast formed the basis for re-evaluation of EIRR. The estimates of project benefits were based on increase in the effective capacity of TRC and reduction in its unit variable cost of transport; and savings in transport costs, as a result of using rail as opposed to road. The economic cost data of long distance truck and bus operations and rail transport service were reviewed Based on the revised recent traffic data, TRC is expected to handle an annual average traffic of 1.82 million tonnes and 0.65 million passengers as of 2003 up to the end of the project life. The recalculated EIRR are 3.0 % and (115.0%) for the overall project and coaches investment respectively (Annex 7). These compared with the 1992 appraisal of % and 19.42% for the overall project and coaches respectively are very low. The main reasons were due to the poor performance of both the freight and passenger transport services and the over optimistic plan at appraisal. These recalculated EIRR are unfavorable (well below) the 12 % opportunity cost of capital in Tanzania Beside the quantifiable benefits, the project provided opportunities for the Tanzania economy to benefit directly through lower transport costs for low value and bulky commodities for long distance movements. In addition the project has helped regional integration by increasing the capacity of TRC to handle transit traffic reliably and efficiently for the land locked neighbouring countries of Burundi, Rwanda, DRC and Uganda. Overall TRC has rendered transit traffic service of an annual average of 408,026 tonnes between 1992 and 2002, with the lowest being 255,004 tonnes in 1997 and the highest, 529,751 tonnes in Other Benefit includes the reduction of undue damage to the road system and maintenance costs due to the decrease in the volume of heavy truck and bus movement. Even though accident is a result of a complex interaction of operating equipment, route, environmental and human factors, the railway is a safer means of transport relative to road. 5. SOCIAL AND ENVIRONMENTAL SUSTAINABILITY 5.1 Social Impact The rehabilitation project of TRC has supported social and economic recovery programme by contributing to the continuation of TRC s operation. The project has also been basic in poverty alleviation for the inhabitants of the districts traversed by the rail, in terms of transporting agricultural products and access to urban centres, especially to Dar Es Salaam and Tanga. The project has also helped to sustain the existing railway job opportunities The number of women employed in TRC has increased by 5 % from 439 in 1992 to 463 in 2002 due to the project and the TRC s corporate policy, even though the number of employees in the payroll of TRC has significantly reduced. The number of women employees in management position has increased from 11 to 21 during the same period.

26 Environmental Impact At appraisal there were no environmental studies done. Besides, the rehabilitation works were confined solely to the existing alignment, and has no major physical intervention on the human and natural environment. TRC has several locations that experience frequent flooding, like the valley of the Luiche River, near Kigoma, between Godegode and Gulwe. Using funds provided by KfW, TRC has raised the realignment in such areas eliminating the incidence of flooding with the resulting positive environment impact With the implementation of the project, rail accidents reduced initially. However, the number of accidents started rising again towards the completion of the project. The major accidents are attributed to rolling stock and track defects. Level crossing accidents have reduced considerably with the interventions carried out under the project. With recent intensification of programmed track maintenance, the realignment of curves in accident-prone areas, and the retraining of staff, the number of accidents has started going down again. 6. PROJECT SUSTAINABILITY 6.1. TRC is directly responsible for most of the local cost of track rehabilitation and has the liability to repay much of the donor assistance for track rehabilitation. TRC still has a problem of maintaining the tracks due to the deffered maintenance. GOT has not substantially compensated TRC for the losses on branch line operation as agreed in the Memorandum of Understanding between GOT and TRC TRC s financial position has not improved much and there is little chance that the project will be sustainable in the long run, as TRC has no financial resources to renew its aged wagon and coach fleets. TRC revenue were reduced during 1998 El-Nino rainfalls, which led to cutbacks on all expenditure other than payment of wages and emergency civil works. In fact the rehabilitated wagons and new coaches have been offsetted by the continuing loss of coaches and wagons through accidents. The number of major accidents fell from nearly 300 in early 1990s to about 130 in the mid-1990s, but rising back to almost 300 in Even though wagons turnaround days have decreased from 19 days in 1991 to 12 days in 2001, TRC considers that additional wagons are required to provide the necessary capacity for traffic, additional to the levels currently moved. Thus, TRC has started the repair of 200 wagons, which would be completed by April Major customers have also offered to rehabilitate wagons in return for discounts on rates and / or wagon allocation. The proposal has not been accepted as it could likely complicate concessioning agreement and negotiations. As the project was failing to achieve its objectives, GOT opted in 1998 to bring in private sector participation through concession of operations of TRC. From 1998 to 2002, financing and activities were redirected toward sustaining TRC operations and performance during the transition period to concessioning The GOT is bringing a private operator to manage only the operations and not the infrastructure facilities. The Bank could participate in financing the infrastructure facilities, which will continue to be Government controlled. One project that has been mentioned is the Tabora railway line to Lake Tanganyika. This project addresses the issues of poverty (rural development, transportation of agriculture products and regional integration linking landlocked Great Lake countries to Dar Es Salaam port). The private operator could be financed through the Bank's private sector window. Grants could also be provided for institutional support related to infrastructure facilities.

27 13 7. PERFORMANCE OF THE BANK AND TRC 7.1 Performance of the Bank During the project implementation, the Bank supervised the project by sending missions including experts from different departments of the Bank. Initially and up to 1997, the Bank supervision was adequate. But as the project progressed, ADB supervision mission decreased partly due to several changes in Task Managers due to restructuring of the Bank and partly due to the fact that the ADF's components were completed by December The Bank did not send any supervision mission since Thus the Bank could not keep an eye on TRC s developments as the project progressed and has not been involved in the on-going process of bringing a private operator into TRC through concession. Even though the PCR of other donors were not available, other donors continued to assist GOT in its plan to concession TRC. Their support was very important and valuable for the operational continuity of TRC The Bank responded promptly to solve issues arising from the project execution. The Bank did not support and fund the Borrower s request in October 1996 for the utilization of additional funds to procure materials for the completion of the rehabilitation of the remaining coaches, since 50 coaches were rehabilitated from this component. The Bank did not accept the borrowers request on the ground that the additional request could increase the original contract sum by almost 30% Most of the 140 applications for disbursement were effected with out delay. The first disbursement of the project, the advance payment of ABB Transportation Ltd. has been effected with in 68 days. Ninety-three percent of the disbursements were paid within the range of 3 to 30 days, average of 13 days. Thus overall the Bank performance is rated satisfactory The overall project was justified economically at appraisal. However, the appraisal identified main risks, (i) the physical implementation, operational and the likelihood of not achieving the business targets in traffic to be carried; (ii) delays or cost over-runs, due to the high volume of civil works and many multifaceted procurement of equipment, etc envisaged in the overall project; and (iii) the likelihood that the traffic envisaged to be produced under the project may be less. However, as stated in and above, TRC could not achieve the anticipated business targets in traffic and utilization of the allotted fund. There was no significant delay in project implementation. Thus the disbursement of the proceeds of the loan by the Bank was not affected. 7.2 Performance of TRC The performance of the Borrower, particularly TRC was not satisfactory due to the following reasons: (i) (ii) Failure to contribute the planned counterpart fund as estimated at appraisal; Failure to utilize the entire loan fund on time that resulted in the cancellation of UA6.23 million; and (iii) Failure to submit Final Audit Reports on the project.

28 14 8. OVERALL PERFORMANCE AND RATING In accordance with the performance rating scale and evaluation criteria (Annex 7), the overall assessment of implementation performance and project outcome was satisfactory with a rating of 2.0 out of 4 maximum. The rating for the Bank's performance was 2.75 out of 4 maximum indicating satisfactory. 9. CONCLUSIONS, LESSONS LEARNED AND RECOMMENDATIONS 9.1 Conclusions The overall project was financed by eight donors. However, the overall objective of the project has not been substantially achieved since TRC could not attain the targeted freight and passenger traffic. The project achieved some of the objectives like management autonomy, concentration in managing the core commercial railway activity, introduction of commercialization, improvement in operational management, financial control and improvement in the infrastructure. On the other hand, the project has improved the freight and passenger transport services and has thus contributed to regional integration between Tanzania and the land locked neighboring countries of Rwanda, Burundi, DRC and Uganda to get access to the port There was a fund under utilization of UA 8.15 million (34.3%) relative to the appraisal estimate and a change in the financing plan of ADF from 89.1% at appraisal to 95.8% actual. The under-utilization arose mainly due to the failure of using the unallocated amount of the ADF loan and low contribution of the counterpart fund by GOT. Thus the loan balance of UA 6.23 million has been cancelled The performance of the seven suppliers and the consultant was fairly satisfactory while the Borrower was not satisfactory. The Bank and the overall assessment of implementation were found to be satisfactory with a rating of 2.0 out of 4 (maximum) The project would have been a complete failure had it not been for the GOT decision to concession TRC, and donors have continued supporting TRC even after completion of the project from 1998 up to The project has helped TRC to operate an annual average tonnage of 1.19 million and 0.97 million passenger between 1992 and Despite the investment made, TRC s financial position has not significantly improved and is unable to sustain itself fully as a going concern. It is against this background that the project concept has been changed from simply a rehabilitation project to a project that is supporting the concession of TRC, to ensure that its profitability is adequate to meet its maintenance and replacement targets. 9.2 Lessons Learned Lessons from the project are: Rehabilitation projects require proper preparation, planning and additional physical contingencies for spare parts. Due to the uncertainty of required parts during rehabilitation, it would be safe to have proper preparation, planning and contingency or unallocated fund that could be easily processed with the consent of the Bank;

29 15 The long-term effect of rehabilitation of very old wagons, coaches and locomotives requires an in depth investigation / study to determine the pros and cons of rehabilitation versus buying new. For such study, the borrower could use the Bank s PPF; The Bank needs to follow up the proper allocation of the counterpart fund by the Borrower during project implementation in order to maintain the financing plan as agreed at the initial agreement of the project; Regional projects which could be influenced by the political and economical environment of the region needs to be addressed in regional perspective; and The Bank needs to follow up the development on its projects by sending supervision missions even if they are completed. Since the Bank has stopped sending mission, it did not participate in the concessioning process of TRC. 9.3 Recommendations We recommend as follows: The Borrower should comply with the loan agreement and submit to the Bank the Final Audit Report on the project; The Bank should continue to monitor TRC s development in general and the progress on the concession of TRC in particular. GOT also should inform the Bank on its plan on the concession and the development; Review the importance of proper preparation, planning and a component of additional contingency or unallocated fund, which could immediately be approved by the Bank for rehabilitation projects that require additional spare part purchase; When approached (through the Ministry of Finance), the Bank should consider providing funding part of the infrastructure facilities of the TRC, including institutional support where applicable; OPSD could finance part of the requirements of the private operator that is expected to be brought into TRC; and Review in depth, even with the Bank s PPF, the long term advantage of rehabilitation of very old wagons, coaches and locomotives. A matrix of recommendations is presented in Annex 9.

30 ANNEX 1 TANZANIA TANZANIA RAILWAY CORPORATION REHABILITATION PROOJECT PROJECT LOCATION MAP