Report No. 330a-AL FILECOPY Appraisalof a RailwayProject Algeria Public Disclosure Authorized

May 10, 1974 RegionalProjects Department Europe,Middle Eastand North Africa RegionalOffice Not for Public Use Public Disclosure Authorized Public Disclosure Authorized

Public Disclosure Authorized Document of the InternationalBank for Reconstructionand Development Intemational Development Association

This report was prepared for officiai use only by the BankCroup. It may not be published, quoted or cited without Bank Croup authorization. The BankCroup does not accept responsibility for the accuracyor completenessof the report. CURRENCY EQUIVALENTSY

Currency Unit - Dinar (DA)

US$0.2443 - DA 1.00 US$1.00 DA 4.093 US$244,319 = DA 1 million

SYSTEMSOF WEIGHTSAUN HEASURESs METRIC

Metric Systen British/USSystem

1 meter (m) = 3.28 feet (ft) 1 kiloeeter (km) = 0.62 mile (mi) 1 hectare (ha) = 2.47 acres (ac) 1 metric ton (m ton) - 1.10 short ton (eh ton) 0.985 long ton (ig ton)

ACReNYMS AND ABBREVIATIONS

mPWC - Ministry of Public Works and Construction ONP - Office Nationale des Porte SNOPA - Societe Nationaledes Chemins de Fer Algeriens SNTR - Societe Nationale des Transports Routiers SONARIM - Societe Nationale de Recherche et d 'Exploitations Minieres pass-km - passenger kilometer ton-km - ton kilometer

DDM>CRATICAUD POPULAR REPUELIC OF ALGERIA FISCAL YEAR

January 1 to December 31

InternationalFinancial Statistics, IMF Exchange Rates as of January 1974. APPRAISAL OF

A RAILWAY PROJECT

ALGERIA

Table of Contents

Page No.

SIIMMARY AN) CONCLUSIONS ...... *...* i - i

I. INTRODUCTION ...... 1

Il. THE TRANSPORT SECTOR ...... *. . . 1

A. Description ...... * ...... 1 B. Policv, Planning, Coordination and Lending Strategvy... 3 .

III. TIIF RAILVIAY ...... 5

A. Organization, Nanagement and Staff ...... 5 B, Railway Property ...... 7 C. Operations *..e.e.e...., ., . 8 P. Traffic *, * .* *.**..**** *,, .8

IV. TUE INVESTTIENT PLAN.AND THE PROJECT ...... 10

A. The Investment Plan . 10 B. The Project and the Loan ...... 10 C. Cost Estimates ..... e*ee**e.S...... 12 '. Financing .. *...... 14 E. Execution of the Project, Procurement ... 14 F Disbursement ...... , 15

V. FINANCIAL EVLAUATION ...... 15

A. Background - Relationship with Government ...... *...0* **...... 15 B. Rates, Fares and Cost ...... 16 C. Income Account ...*...... ******...... *... 17 D. Balance Sheet , 18 F. Cash Flow ...... 18 Fe Audit ...... 19

This report was prepared by Messrs. D. lUavlicek (Economist), C. Migntot (Engineer), J. Brechot (Engineer, Consultant) and J. Horrocks (Financial Analyst, Consultant), Mr. F. Sander (Financial Analyst, Consultant) as- sisted. Ms. J. Chernock edited the report. Table of Contents (Continued) Page No.

VI. ECONOMIC EVALUATION ...... 20

A. Role of the Railways ...... 20 B. Evaluation of the Project ...... 20 C. SensitivityAnalysis ...... 22

VII. AGREEMENTS REACHED AND RECOMMENDATIONS ...... 22

ANNEXES

1. Descriptionof Railway Property 2. Statistics on Locomotive OperatingEfficiency 3. Operating Targets 4. Traffic Forecast 5. Tentative SNCFA InvestmentPlan 1974-1977 6. Descriptionof Main Project Items 7. Estimated Schedule of Disbursements 8. Long-Run Variable Operating Cost - 1971 9. Statistics 1970-1972and Projection for 1977 10. Financial Statements 11. Economic Evaluation

CIRTS

Organizationof Ministry of Transport WB-8148 Organizationof SNCFA WB-8147 (2R4

MAP

TransportationInfrastructure, Northern Region IBRD 10425 APPRAISAL OF

A RAILWAY PROJECT

ALGERIA

SUMMARY AND CONCLUSIONS

i. The Algerian transportsystem is concentratedin the northern re- gion, while many areas of the southern desert region have no transport faci- lities and are completelyinaccessible. The system comprises: 79,000 km of national,regional, and local roads, serving about 256,000 vehicles;a 4,000 km railway system, including a section of the international line between Rabat (Morocco)and Tunis (Tunisia);8-major ports and a amaln fleet of sea- going ships; 3 internationaland 10 secondary airports as vell as 2 national airlines;and gas and oil pipelines.

M. Previous GovernmentDevelopment Plans accorded low priority to de- velopment of transportinfrastructure. But the 1974r77 Plan, now in prepara- tion, is expected to emphasize transportdevelopment. Furthermore,to for- mulate an appropriatedevelopment strategy for the transportsector in the next Plan, the Governmenthas initiated a comprehensivetransport study by consultants. iii. An efficientand reliable transportsystem is needed to support Government's developmentstrategy of rapid industrializationand increasing agriculturalproduction through diversification. Both the road and railway network have deterioratedbecause of a lack of systematicmaintenance, and inadequate reneval investments. The Bank has already approved a road proj- ect (Loan 912-ALO) aimed at improvingcertain major roada and road mainte- nance, and at strengtheninghighway planning. The proposed railwayproject is designed to continue this policy of upgrading and improvementof infra- structureand transportplanning.,

iv. A railway developmentplan totalling about DA 1.9 billion (US$464 million) and covering the renewal and capacity-increasinginvestments for the period 1974-77has been prepared but must still be approvedby the Council of Ministers. The plan seems over ambitious and SNCFA's absorptivecapacity would be insufficientfor an investmentplan of the envisagedsize. Some major ca- pacity increasinginvestments still need further evaluationand the Bank vill assist SNCFA in financingsome of these studies. lHowever,this evaluation will not affect the size, scope and timing of the proposed renewal investments of high prioritywhich will be required irrespectiveof the final scope of SNCFA's overall InvestmentPlan. v. The Bank has been in contact with SNCFA since late 1971 and in early 1973 a project identificationmission visited the raïlways and recom- mended Bank participationin financingof urgently needed renewal investments and some consultants'studies designed to establishproper guidelinesfor future administrationof SNCFA, and to improve its personnel training,par- ticularly at the middle managementlevel. The proposed US$127 million proj- ect would consist of the renewal stage (1974-76)of a reneval and moderniza- tion program for SNCFA and it inclu4es realignmentor renewal of track and - ii - track equipment, reneval of rolling stock, signalling and telecommunications, consultingservices, and other miscellaneouswork and equipment. All mate- rial would be procured through internationalcompetitive bidding in accord- ance with the Bank's Guidelines for Procurement. vi. The project has a sound economic and technical justification. In- vestments on the Mineral Line are expected to yield an economic return of at least 20% and investmentson the Grande Rocade of at least 18%. SNCFA's financial position is satisfactoryand expected to improve further vith the execution of the project. vii. The principal objectivesof the proposed Bank loan are to support the railway's rehabilitationprogram and to contribute to the improvementin investment and overall corporate planning of SNCFA. The loan vill finance 59% (US$49 million) of the foreign exchange cost of the project (US$82.9 million). The balance concerningitems carried over from the previous plan and already contracted for vill be provided by or through Government; as vill the local cost component. The Government has asked the Bank for US$0.65 mil- lion in retroactivefinancing for a consultingstudy. This amount is in- cluded in the project. viii. The project is suitable for a Bank loan of US$49 million to SNCFA for a 20-year term, including 4 years of grace. APPRAISAL OF

A RAILWAY PROJECT

ALGERIA

I. INTRODUCTION

1.01 The Government of the Democratic and Popular Republic of Algeria has asked the Bank for a loan of US$49 million to help finance a railway project. A project preappraisalmission visited Algeria in January/February 1973 and recommendedurgent rehabilitationo2 track, modernizationof equip- ment and some expansion in rolling stock capacity. Based on this recommend- ation and the findings of an appraisal mission in September/October1973 a US$127 million project is recommendedfor Bank consideration,covering the years 1974-1976of the 1974-1977Government and railway Four-Year Investment Program. This would be the Bank's first railway project in Algeria and its second transportationproject since Algeria's independencein 1962. A high- way maintenanceand improvementproject was approved by the Board of Execu- tive Directors in May 1973 (Loan 912-ALG).

1.02 This report is based on: informationprovided by the Societe Nationale des Chemins de Fer Algqriens (SNCFA), the Ministry of Transport, a transport sector study carried out by the British consulting firm EASAMS Ltd. (U.K.); a consulting report by the French consulting fira Bureau Central d'Etudes d'Outre-Mer (BCEOM); the findings of a January/February1973 Bank preappraisalmission; and the findings of a September/Octoberappraisal mis- sion composed of Messrs. D. Havlicek,(Economist),C. Mignot (Engineer),J. Brechot (Engineer,consultant) and J. Horrocks (FinancialAnalyst, consultant).

Il. THE TRANSPORT SECTOR

A. Description

(a) The System

2.01 The concentrationof 90% of Algeria's 14.6 million population in the mountainous northern coastal region (20% of the land area) has resulted in a dense network of roads and railways. By contrast, few routes penetrate the southern desert region. Hareh topographicaland climatic conditions make constructionof land routes costly and maintenance difficult.

2.02 The transport infrastructureconsists of: about 79,000 km of roads, of which about 45% are paved and serve about 256,000 motor vehicles; 4,000 km of railways;8 major ports and a small coastal fleet; 3 interna- tional airporte; 10 secondary airports and 2 national airlines; about 3,700 km of oil pipeline and about 1,100 km of gas pipeline. - 2-

(b) The Modes

2.03 Road goods transportmoved 25.7 million tons or 79.5% of total land transport volume in 1972 and increased by about 20% between 1970 and 1973. It is expected that this rapid growth will continue over the next Four-Year Plan (1974-77). Intercity road passenger traffic amounted to about 3.9 bil- lion passenger km (1972) as compared with 1.0 billion for the railways. Rail- way operations and traffic are discussed in detail in Chapter three.

2.04 Efficient and reliable roads to transport goods and passengers are essential to support the Government'splans for further development of agricultureand industry as well as for movement of people and goods, es- pecially between the most importantproduction and consumptioncenters. With many roads deterioratedbecause of lack of maintenance and delayed improvement works, the present road network does not meet these requirementsand transport costs are high. In order to assist in remnovingthe backlog in improvement, constructionand maintenance of roads carrying heavy traffic volumes, the Bank agreed in May 1973 to finance the foreign exchange cost of a US$33.1million road project (Loan 912-ALG). Through this project, the Government aima to improve certain major roads and road maintenanceand to strengthenhighway planning.

2.05 There is a state-owned National Road Transport Company (SNTR) which enjoys a monopoly for public road transport. Although private transport companies still exist to some extent they are only allowed to contract freight through and on account of SNTR. Total transport capacity of public road transport amounted in 1972 to about 30,300 tons; 24,300 tons for SNTR and 6,000 tons for the affiliatedprivate enterprises. The second important element in the organizationof road traffic :Lsthe traffic on own account (vehiculespour propre compte). Traffic on own account accounted in 1972 for a total transport capacity of 97,000 tons.

2.06 Algeria's main port, Algiers, handles most of the country's general cargo inports and exports. Other importantports, usually highly specialized, are: Oran for general cargo imports; Arzew for crude oil and liquified natural gas exports; Annaba for steel and iron ore exports; and Skikda for exports of ammonia, refined petroleum products, crude cil, and liquified natural gas. The ports are managed and operated by a National Port Authority under the Ilinistryof Transport. Port design and construction,however, are the responsibilityof the Ministry of Public Works and Construction (MPWC). 'ost funds allocated for port development in the Four-Year Plan 1970-1973 are for expanding ports that handle petroleum,natural gas, and ore exports; the ports concerned are Arzew, Annaba, and Skikda, where major port facili- ties are being constructedor are planned to be constructedshortly. The Governmenthas asked for Bank assistance in constructinga new port at Bethîoua, which is needed to export large quantitiesof liquified natural gas, and to this end has prepared a project whieh was appraised in October 1973 (para. 2.15).

2.07 Algeria has 3 internationalairports (Algiers,Annaba, and Oran), 10 secondary airports with paved runways, some smaller local public airports,. -3-

and numerous private airports mostly built by oil companies. Two airlines, Air Algerie and Societe de Travail Aerien, offer internationaland domestic flights. Although air transport has been increasingrapidly and plays a vital role in serving the more isolated centers, its total share in the transportmarket is still modest. In recent years, expenditureshave been essentiallyfor maintenanceworks and strengtheningof runways at major airports.

2.08 An extensive network of pipelines evacuates gas and oil from the Sahara and the Sirte Basin in the eastern part of the country to several ports on the Mediterranean. Oil productionin Algeria increased substantial- ly after 1956 followingdiscoverles of major fields in the Sahara. In 1959, a US$50 million Bank Loan (242-FR)helped finance constructionof a 412 km pipeline to evacuate crude oil from the Hassi Messaoud field in the Sahara to the port of Bejala. Productionof oil is estimated at 50 million m3 per year. Natural gas exports amount to about 27 million m3 per year, and are expected to rise sharply, primarily as a result of the El Paso Scheme for exports to the United States. A pipeline fox carrying the gas will be cons- tructed from the Hassi R'mel field to Arzew port.

B. Policy, Planning, Coordination,and Lending Strategy

Policy

2.09 Since independencein 1962, the Governmenthas aimed to develop the economy along socialist lines, under strong central control and with most of the transportsector in the hands of public enterprises. The main instrumentsof developmentpolicy have been the Three- and Four-Year Develop- ment Plans as well as the ordinary and investmentbudgets. All public enter- prises must deposit their depreciatîonprovision in the treasury. Surpluses must be transferredto the treasury. In turn, all their investmentsare financed from the budget.

2.10 The Ministry of Planning is responsiblefor preparing the Develop- ment Plans. A new Plan for 1974-77 is being prepared. In the 1970-1973 Four-YearPlan low priority was accorded to developmentof transport infra- structure and emphasis was on investrentin rolling stock for roads and rail- ways. The program for expansion of rolling stock will be continued and, additionally,rehabilitation of roads and railway track will play a greater role in the 1974-1977 Four-YearPlan. While in the 1970-1973Four-Year Plan the transportsector investmentsamounted to only about 3% of total invest- ments, Governmenttntends to increase investmentsfor the transport sector in the next Four-Year Plan considerablyin order to eliminate the arrears in renewal works for roads and railways.

Planning

2.11 Investmentplanning suffers from severalweaknesses, such as: inadequatedata collectionand project preparation,unsatisfactory coordina- tion and exchange of informationbetween governmentagencies and transport modes. Government'sattempts to imnprovethe quality of its planning are - 4 - hampered by a severe shortage of qualified staff and until these staff pro- blems are resolved Algeria will neea assistancefrom expatriate consultants, as has been provided for example in the road maintenance project financed by the Bank (Loan 912-ALG) and is recommended for the proposed railvay project.

Coordination

2.12 Theoretically,allocation of traffic to the governmentowned Societe Nationale des Transports Routiers (SNTR) and SNCFA on the one hand and traffic on own account on the other hand is intended to follow stringent rules for intercity traffic;urban traffic is free from restrictions. However, due to a flexible administrationof these rules coordinationof road/rail traffic is mainly left to market forces. There is no serious coordinationproblem between roads and railways;only about 10% of the railway's traffic is sub- ject to road competition(para. 6.01).

2.13 Governmentinitiated a land transportsurvey 1/ which has been completed. Its first phase covered a survey of transport policies and re- commendations for immediate improvements, its second phase covered an analy- sis of model distributionof traffic and demand forecasts until 1980, and proposed guidelines concerningpolicy changes and long-term investmentpol- icy. The Government is reviewingthe study, and has sent a copy of it to the Bank.

Lending Strategy

2.14 The Bank's lending strategy in the transportsector supports im- provementof the existing transportinfrastructure and carefullyselected extension projects; improvementsin efficiencyof transportsector manage- ment; and technical assistancein training of personnel.

2.15 Within the frameworkof this lending strategy the Bank proposes financingpart (US$70million) of the constructionco0t of the US$293 mil- lion Bethioua port to enable it to handle the planned expansion of liquified natural gas exports. The railway loan of US$49 million equivalentnow pro- posed is designed to make up past deficienciesin the orderly reneval and replacementof track, rolling stock and other equipment, and to contributeto the improvementin overall corporate planning of SNCFA, thus supporting Gov- ernient'stransport development objectives and ensuring that the railways will continue to play their vital role in the Algerian economy (para. 6.01).

1/ The consulting firm of EASAMS Ltd (UnitedKingdom), Etude des Transports Terrestres en Algerie, June 1972. -5-

III. THE RAILWAY

A. Organization,Management and Staff

Organization

3.01 SNCFA is a state enterprise created under a convention of June 30, 1959. When Algeria became independent in 1962 this conventionwas ratified by a decree of May 16, 1963. The equity of SNCFA is held wholly by the Government and the operations of the enterprise are under the supervisionof the Minister of Transport (see Chart WB-8148). The Minister exercises control over SNCFA (a) through a Board of 17 members composed of Government nominees and workers' delegates 1/ (four appointed by the Minister on proposals of the Workers' Syndicate), (b) through a management proposèd by the Board and approved by the Minister and (c) through financial control iinthe fields of capital investment,budgetary aipprovaland tariff changes. The permanent way is owmed by and maintained and renewed at the expense of Government (para. 5.01).

3.02 This system of control is similar to that of many other state enterprises in the Government controlled economy of Algeria. In the case of SNCFA the control is reasonable: loans for railway purposes are secured by the Government, and liability for servicingdebts is passed to SNCFA on the same terms and conditions as the loans; the budget is approved separatelyby the Ilinister,but is not part of the Government budget and SNCFA does not re- quire prior Governnentalapproval for overruns in budget expenditures. While tariffs must be published, arrangementsexist both for the early application of increases, if these are needed to balance the budget, and for the payment of Government subsidies to SNCFA (a practice which is being reduced) in cases where for social or other reasons the Government requires railway services to be provided at less than the necessary public tariff.

Management

3.03 Executive functions are vested in a Director General who is ap- pointed by the Chairman of the Board, subject to the agreement of the Minister of Transport. The chief officers are also appointed by the Chair- man of the Board on the recommendationof the Director General. Management is exercised through a centralizeddepartmental organization, backed by com- parable district staff (see Chart WB-8147 (2R)). This internal organizationis satisfactorybut there is a shortage of experiencedqualified personnel at all higher levels of management.

1/ The Board consistesof a Chairman, apppinted by the Government,and 16 members (4 representativesfrom various ministries, 4 from the public or private sectors on a basis of competence,4 from the higher echelons of SNCFA and 4 SNCFA workers' delegates). -6-

3.04 Planning activities are widely dispersed among different depart- ments 'andinsufficiently coordinated. To deal with this problem SNCFA has recently created a corporate planning unit directly responsible to the Director General. Work scope and staffing of the planning unit vill be determined with the assistance of a consultant'sstudy to be financed under the proposed Bank loan (para. 4.04(d) and (g)). However, as a matter of in- ternal reorganizationto be undertaken at an early date, independent of the consultant'sstudy referred to above, agreement has been reached with SNCFA during negotiationson the centralizationof the production and presentation of SNCFA's statistical informationby the planning unit. The unit vill, inter alia draw up, in consultationwith the Government,a comprehensive corporate plan for SNCFA and then monitor its progress, investigatingalter- native courses in the light of changing circumstances.

Staffing

3.05 SNCFA's staff has remained at about 11,000 people in the period 1968-72. This figure includes about 1,000 temporary staff (who are paid by the hour). In the last five years both passenger and freight traffic have increased and nroductivitvper man employed has risen from 200,000 to 232,000 traffic units. These figures compare favorablywith the performance of many railways. 1/ Management's stated policy is to contain the numbers employed and to further improve productivitybv staff training and technological changes such as more mechanizationof track maintenance.

3.06 The terms and conditions of employment of staff are in line with those of other state enterprises,except for the payment of bonuses related in amount to the enterprise'sfinancial performance. All salaries have been blocked since 1963 but bonuses - which later become incorporatedin salaries - can be paid to the staff. Some state enterprises pay better bonuses than SNCFA and make it difficult for the railway to retain professionaland skilled staff. The problem is particularlytroublesome in urban areas. Bonuses have been paid to SNCFA in 1964, 1965, 1969 and 1973. Bonuses are distributed almost equallv between staff. SNCFA's social services (vacation centers for children, housing, travel, etc.) are said to be among the best in Algeria.

3.07 There is only one railway union or workers' syndicate. Membership of the union is voluntary and management staff are not members. Four repre- sentatives of the union sit on the Board (as do four representativesof management). Labor relations are good.

Training

3.08 Following independencesome 7,000 expatriates out of a total staff of 12,800 left the service of SNCFA. The gap created by their departure has

1/ Traffic units are ton/km and pass/km. Other figures, on information available to the Bank, are: Egypt 132,000; East Africa 127,000; India 160,000; Malaysia 165,000; Turkey 190,000. -7- been filled by the promotion, appointmentand training of Algerian staff and by technical assistance (providedby France), but there is still a dearth of qtualifiedmen which it will take time to make good. SNCFA's management is aware of the problem and is making use of both technical assistanceand con- sultants while proceedingwith training programs for local staff in Algeria and overseas. 1/ While SNCFA's top management realizes the importanceof technicalassistance for the interim period of acute shortage of qualified management personnel, they advocate a long-term solution through the estab- lishment of a technical training institute,which would, in addition to the existing basic vocational training, prepare SNCFA personnel for all manage- ment positions below those requiring university training. The planning for such an institute is still in its nucleus stage and provision has been made in the proposed loan for a study of the feasibilityof a special railway training institutewithin the framework of the Algerian industrialeducation system (para 4.04(i)).

B. Railway Property

3.09 The Algerian railway network consists of 3,933 route km of track, of which 2,657 km are standard gauge (1.44 m) and 1,276 km are narrow gauge (1.05 m and 1.00 m). The network comprises the standard gauge axis running west-east parallel to the coast from Morocco to Tunisia (Grande Rocade) with branches to the coast and three lines into the interior, including the partly electrifiedMineral Line from Annaba to Djebel Onk (see Map IBRD 10425). Much of the track traversesmountainous country, resulting in many curves and severe grades (up to 25°/oo). A detailed description of railway track structure,equipment and other property is presented in Annex 1.

3.10 Serious arrears in track renewal have been allowed to accumulate since 1963, resulting in increased unit costs for track maintenance,damages to permanentway and rolling stock, speed restrictionsand derailments. SNCFA has prepared a 10-year program beginning in 1974 to relay and reballast 950 km (36% of the standard gauge systems) of the Mineral Line and the Grande Rocade. The program is satisfactoryand SNCFA is competent to carry it out. The project proposes to finance the first three years of this track renewal program. The signallingand telecommunicationssystem is generally satisfac- tory and only minor additionswill be required in connectionwith some exten- sion projects.

3.11 SNCFA is currently renewing its rolling stock. The major part of the motive power fleet has already been renewed. Half of the 370 passenger coaches have reached the end of their economic life and will partly be re- placed by 60 new coaches and 33railcars. Freight cars number 10,778 of all tvpes; about 25% are over 35 years old and will be replaced by modern wagons of higher capacity.

1/ There is a (diminishing)Technical Cooperationprogram with France. SNCFA has 4 training schools, the largest in Algiers and Constantine; 18 men are currently being given specialist training abroad, paid for by SNCFA. - 8 -

3.12 SNCFA's stations, marshallingyards and sidings are generally ade- quate. The six railway workshops (Annex 1) are poorly equipped and are in- creasinglyunable to cope with their motive pover and rolling stock due to: (i) lack of qualified manpower; (ii) lack of-spare parts; and (:iii)obsoles- cent machinery. To alleviate these problems, procurement of new machinery and financingof a consultantstudy on reorganizationof the workshops (para 4.04(h)) are proposed in the project.

C. Operations

3.13 Operating statisticsare given in Annex 2 and Annex 9. They show a constant decline in railway efficiency during the past years, due to main- tenance and operating problems with overaged equipment. Availabilityand utilizationof motive pover and rolling stock are unsatisfactory. Operating efficiencyalso suffers from severe gradients on the Grande Rocade (25'/oo), axle load limits (17 ton between Algiers and Oran), and transshipmentfrom standard to narrow gauge. Substantial improvementsin rolling stock utiliza- tion will be possible by 1975 through: (i) acquisitionof new workshop equip- ment under the proposed project; (ii) implementationof the recommendations of the workshop reorganizationstudy; and (iii) new motive power and rolling stock already received, or to be received, during the next few months. SNCFA has still to set up and implement a plan for schedulingof trains, train com- position and handling at terminals. Specific operating targets set out in Annex 3 have been agreed.

3.14 The quality of passenger service is unsatisfactory. The average speed of the fast trains on the main routes, Algiers-Oran,Algiers-Constan- tine, is less than 50 km/hr. Punctuality is poor: over 70% of all passenger trains arrive late. Many factors contributeto this problem, which is to be investigated.,But, at least, train delays could be reduced by 1976 to no more than 30% of the passenger trains delayed by more than 15 minutes. This target, agreed upon is included in Annex 3.

D. Traffic

Freight Traffic

3.15 Freight traffic statistics and forecasts are in Annex 4, Tables 1 and 2. Total railway traffic grew by about 28% during the period 1968-72, both in terms of tonnage and ton-km. This compared with about 80% during the same period for total road traffic (intra- and intercity). However, a growth comparisonbetween the two modes is difficult because the level of competition of substitutionis a low 10% of all goods carried by the rail- ways. Furthermore,demand outpaced supply of railway freight services due to a severe shortage of motive power for the Mineral Line and a low avail- ability of other rolling stock. These problems are now being solved and will not hamper the traffic growth expected for the seventies. -9 -

3.16 The backbone of the railway'sbusiness is its bulk traffic, partic- ularly the iron ore and phosphate traffic on the 408 km Mineral Line - run- ning roughly parallel to the Tunisian border. During 1968-72 traffic on this line amounted to 50-60% of total railway freight traffic. Overall, bulk traffic amounted to about 85 to 95% of total railway traffic, a very high share when compared to other railways in developingcountries. 1/

3.17 Growth prospects for freight traffic during the seventies are promising. Total traffic i8 expected to more than double during 1972-77, at an average annual rate of about 15-17% (Annex 4, Table 2). Many new basic -industriessuch as iron and steel manufacturing,cement and fertilizer,are now reaching the productionstage and they will provide the railwaywith an increasingvolume of bulk traffic. The compositionof trafficwill not mate- rially change, i.e. bulk trafficwill remain SNCFA's most important commodity group. Transport of fertilizeris expected to increase fourfoldby 1977 due to the new fertilizerplants in Annaba and Arzew. Transport of chemicals, metallurgicalproducts and cement will increaseby 130%, 160%, and 460% re- spectivelyby 1977. Iron ore and phosphate traffic on the Mineral Line are expected to increase by about 45% and 144% respectively. These estimates are based on surveys by SNCFA covering the production,and transportrequirements of state enterprises,the railways most important customers. More details on the freight traffic forecast are in Annex 4.

Passenger Traffic

3.18 Passenger traffic has steadily increased at an average rate of 9% per annum during 1962-71. Prospects for the future are uncertain. In 1972 the Governnent withdrew a major part of its subsidies for special fæires, which affected about half of all passengers causing a reduction in traffic. However, preliminary results for 1973 show a resumption of the normal growth pattern for passenger traffic. Based on the information presently available and on statisticalanalysis by the Bank, passenger traffic thereafteris expected to grow by about 8% per annum which would be consistentwith the long-term growth trend. It must be noted that such a growth rate can be achieved if the quality of rail service, such as reliability,frequency of service and comfort, is increased continuously.!SNCFA is embarking on a program to up- date its passenger rolling stock and improve its service.

3.19 Governmentis consideringmaking better use of the railway'spoten- tial for carrying large numbers of passengersin the suburban areas of Algiers, Annaba, Oran and Constantine,thus relieving the considerableroad congestion, particularlyin Algiers. To provide an incentive for potential railway pas- sengers, Governmenthas ordered 33 two-unit railcars for SNCFA for suburban trafficwhich will be in service by the end of 1974. It is too early yet to comment on the prospects for success of this policy. The passenger traffic forecast presented in Annex 4, Table 3, therefore,takes into account only the normal growth of suburban traffic.

1/ The relation of bulk traffic to total traffic is in: Malaysia 68% (1970), Turkey 70% (1971),Egypt 71%, Bolivia 51% (1970). - 10 -

IV. THE INVESTMENTPLAN AND THE PROJECT

A. The Investment Plan 1974-77

4.01 A railway developmentplan, to be incorporatedin the Gcvernment's Four-Year DevelopmentPlan 1974-77, has been prepared by SNCFA, the Minis- try of Transport and the Ministry of Planning but must still be approved by the Council of Ministers. The plan calls for expenditureof about DA 1.9 billion (JS$464million) with a foreign exchange component estimated at about US$310 million and it covers both renewal investmentsand capacity-increasing investments for rolling stock and track. Details of the plan are presented in Annex 5. The plan seems over-ambitiousin its present size, scope and timing, and SNCFA's absorptive capacity would be insufficientfor an invest- ment plan of the proposed size. Certain major capacity increasing investments such as rolling stock expansion and new line constructionhave not yet been sufficientlyevaluated. Agreement was reached during negotiations that major railway investmentswill be based on technical, economic and financial feasi- bility studies. Furthermore,some of these studies are part of the project and will be financed by the proposed loan (para. 4.04(b)). Should Government require SNCFA to carry out investmentswhich the studies referred to above show to be financiallynot viable then any losses accruing to SNCFA in the operation and maintenance of such investmentswould be compensatedvithin the frameworkof the relevaht legislation (OrdonnanceNo. 69-107, dated December 31, 1969 and Ordonnance No. 73-64, dated December 28, 1973).

B. The Project and the Loan

4.02 It is recommendedto assist the railways as a firet step in finan- cing consultants'studies necessary for improving SNCFA's management methods and operations and for the justificationof some major items of SNCFA's In- vestment Plan, and urgently needed renewal investmentswhich will be required irrespectiveof the final scope of the overall Investment Plan. The project consists of (a) items carried over from the previous Four-Year Plan (1969-73) or already committed in 1973, (b) priority renewal and rehabilitationin- vestments to be made in 1974-76, and (c) studies required for corporate plan- ning. The proposed loan would finance items (b) and (c) above.

4.03 The project includes the followingmajor items:

(a) complete renewal of 315 km of track. 105 km on the Mineral Line, 210 km on the Grande Rocade;

(b) equipment for track renewal, i.e. ballast cleaning, automatic tamping and levellingmachines;

(c) partial completion of signalling and telecommunica- tions, remodellingof stations, yards and aidings, carried over from the previous plan, and automatic level crossing equipment; - il -

(d) replacement and modernizationof overaged workshop machinery;

(e) doubling or realignmentof sections of track in the Annaba and Algiers industrialarea, carried over from the previous plan;

(f) procurementof about 60 new coach"s, 25 railcars, manufacture of 200 freight cars and modernization of 25 coaches, carried over from t:heprevious plan. Assembly of 110 ballast cars, 300 mineral cars, and procurementof about 450 freight cars; and

(g) nine studies by consultants,details of which are given in para. 4.04 below.

ConsultingServices

4.04 The consultingstudies included in the project are:

(a) A detailed engineering study already commissionedby SNCFA and concerning the doubling of a 90 km section of track between El-Gourzi and Ramdane Diamel. The study vill be financed by Government.

(b) A study aimed at establishinga technically,economically and financially feasible bypass for the mineral line in the east. A consulting firm has already been selected and a contract for an 8 months (about 65 man-months) study has been signed. The consultants started their work in February 1974. The costs of these consulting services are included in the proposed Bank loan. The terms of reference have been reviewed by the Bank and are satisfactory.

(c) A traffic costing and tariff reform study. The terme of reference have been reviewed by the Bank and are satisfac- tory.

(d) A study on the railway's internal organizationand admin- istrative structure. Terms of reference for this study are being prepared and will be submitted to the Bank shortly for review.

(e) A study of SNCFA's accountingsystem. SNCFA has requested the Bank's assistance for the preparationof appropriate terms of reference.

(f) A study on the reorganizationof SNCFA's stores department. Terms of reference for this study are being prepared vith the Bank's assistance. - 12 -

(g) A study on the reorganizationof SNCFA's management informa- tion system. The Bank will assist SNCYA in the preparation of appropriateterns of reference.

(h) A study on the rationalizationand reorganizationof SNCFA's maintenance and repair workshops for rolling stock and motive power. The consultants are expected to require about 29 man- months. Ter s of referenceare not yet available.

(i) A feasibilitystudy on the establishmentof a technical train- ing institute for the middle management level not requiring university degrees. The study would comment on the need for and size, scope and timing of such an institute. Terms of reference are not yet finalized.

4.05 During megotiationsagreement vas reached that, SNCPA vould retain consultantsby not later than September 30, 1975, upon terms and conditions satisfactory to SNCFA and the Bank to carry out the studies referred to in paragraph 4.04(c)-(i) above and that SNCFAwould fwnish to the Bank not later than six months from the date of its completion a plan of action based on such studies. After an exchange of views between Governnentand the Bank the plan of action vould be implemented by the railways ia accordance vith Govereatt' instructions.

C. Cost Estimates

4-.06 The project cost including customs duties, taxes and crontingency allowances, is estimated at US$127 million. The foreign exchangs couponent i8 US$82.9 million, of which the proposed loan would finance US$49 million ih the three-year period 1974-76. Estimated project expenditure and Items tb be financed by the proposed loan are suumarized in the Table on page 13.

4.07 The co0t estimates for rail and rolling stock are based on recent quotations obtained by SNCFA under international competitive bidding. Cout estimates for the other imported items are based on proposals by major European firas received by SNCFA recently. Price contingency allowaces ranging up to 14% p.a. on certain items have been added to the foreign ex- change estimated cost of the project. This estimate ls considered reason- able because most of the imported items vill (a) be ordered in 1974 and (b) are likely to be procured from European countries whose exchange rates vis- a-vis the US Dollar have depreciatedconsiderably since the time of the project appraisal (October 1973). Cost estimates for local vorks are based on actual costs for similar works recently carried out by SNCFA and a 5% p.a. price conting.ncy has been added, based on estimates of prospective increases in SNCFA vages and materials used by the railways. No physical contingencieshave been included since quantities to be procured or works to be executed are known and fot expected to change. - 13

Proposed ---- DA Million ------US$ Equivalent--- Loan Local Foreign Total Local Foreigx Total Total US$ Million PROJECT ÈLELMET

A. Way and Works

a. Rails,ties and fittings 100.7 56.5 157.2 24.6 13.8 38.4 13.8 b. Equipmentfor Track Reneval 1.7 12.5 14.2 0.4 3.0 3.4 3.0 c. Signalling and Tele- communications 9.4 15.1 2h.5 2.3 3.7 6.0 - d. Stations,Yards and Sidings 6.o 10.0 16.0 1.5 2.4 3.9 - e. Sheds, Workshops and Equipaent 4.7 8.0 12.7 1.1 2.0 3.1 1.2 f. Doubling or Realigaent of Track 7.0 6.9 13.9 1.7 1.7 3.4 -

B. Rolling Stock

a. Passenger Coaches

- Modernization 1.3 - 1.3 0.3 - 0.3 - - Nev Coaches (61) - 50.6 50.6 - 12.4 12.4 - - New Railcars (25) - 15.0 15.0 - 3.6 3.6 -

b. Freight Cars

- 650 Freight Cars 7.2 96.2 103.4 1.8 23.5 25.3 16.3 - 300 Mineral Cars 12.6 13.4 26.0 3.1 3.3 6.4 3.3 - 110 Ballast Cars 4.1 4.5 8.6 1.0 1.1 2.1 1.1

C. Consulting Services 6.7 13.6 20.3 1.6 3.3 4.9 2.4

D. Contingencies 20.0 37.2 57.2 5.0 9.1. 14.1 7.9

TOTAL PROJECT COST 181.4 339.5 520.9 44.4 82.9 127.3 49.0

Note: Including Customs and Taxes. - 14 -

D. Financing

4.08 The financingplan for the project is forecast as follows:

DA US$ million X million equivalent

Railway resources 55.4 13.6 10.7 Governmentresources Reimbursementof cost of track renewals 171.4 41.8 32.8 Long-term loans to SNCFA 93.5 22.9 18.0 IBRD loan 200.6 49.0 38.5

Total 520.9 127.3 100.0

4.09 The proposed Bank loan would finance about 59% of the foreign ex- change requirements of the project. The balance of 41X is already secured and will be financed by government and through foreigu credits.

4.10 One contract for consulting services (para 4.04 (b)> included in the project has been signed and vork cormenced before presentation of this project to the Board and vill therefore involve down payment8 of about US$650,000 by SNCFAbefore any loan can be signed. Retroactive financing from February 1974 to June 1974 amounting to US$650,000 has therefore been included in the proposed project. '

E. Execution of the Project, Procurement

4.11 SNCFAvould be responsible for project execution. Track renewal and improvement works, which are the major part of the project, vould be carried out by SNCFA assisted.by the temporaryemployment of additionalstaff. The mineral and hopper ballast cars vill be largely assembled rather than manufacturedby the Societe Nationale Metal (SONAM)which has a production capacity of 70-80 cars per month. Local value added in assembly represents about 50% of the final coet. The quality and cost of locally completed cars is generally comparable with that of imported completed cars. The 450 special freight cars vill be imported fully assembled.

4.12 All items to be financed by the proposed loan vill be procured through international competitive bidding. Agreement vas reached during negotiations that for purposes of bid evaluation all items under the loan would be evaluated on the basis of CIF cost. Bid evaluation and avard pro- cedures are satisfactory and are in accordance with the Bank's Guidelines for Procurement,but opening procedures,although elaborate, do not require bids to be opened publicly. It was agreed during negotiationsthat bid open- ing ptocedures consistentwith the Guidelines for Procurementvould be fol- 4 lowed. No preferent .I tariffs are now in effect in Algeria. - 15 -

F. Disbursement

4.13 Disbursementswould be made on the basis of CIF cost. Annex 7 shows an estimate of disburseinentassuming the proposed loan becomes effec- tive on September 1, 1974. Should there be any savings in Bank financed items, they would be either available for cancellationor be used to finance the for- eign exchange cost of other items in the InvestmentPlan, subject to review and agreementwith the Bank.

V. FINANCIAL EVALUATION

A. Background - Financial Relationshipwith Government

5.01 In Algeria the railway track, and its integral structures, such as bridges, culverts and tunnels, are the property of, and are provided, main- tainei and renewed at the expense of the State, in the same way as roads are provided, maintained and renewed for the use of road transport. The SNCFA pays Government for the use of track as the road transport organizationpays for the use of roads. The charges paid by SNCFA take the form of duties and taxes, for the major part calculated as a percentage of operating receipts. In addition SNCFA pays to the Government its surplus earnings after provision for depreciationof its plant and equipment,debt service and transfers to a general reserve, the accumulatedtotal of which is limited to 10% of current annual revenues. The rules are the same for SNCFA's major competitor,SNTR, the Stat't-ownedroad transport enterprise. In the past several years the payments'madeby SNCFA to Government have been adequate to cover maintenance of the permanentway and its use-depreciation,calculated at present-day re- placement cost, such depreciationhaving been substantiallyin excess of actual renewals made in the period.

5.02 In the course of a costing study of SNCFA undertaken during project preparation (Annex 8), it was found that the track element (maintenance,de- pre'ciation and interest on the renewable investment)of the long-run variable cost of rail transport equated very closely to the dutie« and taxes paid by the railway for use of the track. It may be assumed therefore that no price distortion has resulted from Government'spolicy relating to the track; analy- sis of the types of traffic carried by rail provides no evidence to invalidate this conclusion and no objection to the present policy can be found. Rowever, as regards road/rail user charges the question of equality of treatment should be reviewed by Goverament after finalizationof a road user charges study to be financed by Loan 912-ALG.

5.03 All borrowing by SNCFA for capital investment has in the past been from, or through the medium of, Government. For local currency purchases of capital equipment or for imports for which no suppliera' credits or bilateral lending was available, SNCFA was authorized in earlier years to borrow from the Treasury and since 1961 from the Caisse de Developpement. Purthermore, Article 19 of the railway convention of June 30, 19S9 stipulates that except - 16 - for renewal of locomotives,rolling stock and other assets not forming part of the permanent way, all new investmentsmust be financed by or through Government.

B. Rates, Fares and Costs

5.04 Passenger revenue at present is sufficient to cover the long-run variable t,oostof providing the services (includingdepreciation and interest on the renewable investment) and to make a satisfactorycontribution to fixed costs. The average fare paid per km of travel in 1972 vas DA 0.0795 (US cents, 1.94). Passenger train revenue equalled 38% of combined freight and passen- ger revenue; passenger train locomotive-kmrepresented 49% of total train locomotive-km. Statistics of passenger-kmcarried on the s-tandardgauge and narrov gauge lines indicate that whereas standard gauge services are profitable, those of the narrow gauge lines do not meet long-run variable cost by a substantialmargin. The traffic costing and tariff.study will cover this and all other aspects of the tariff structure (para. 4.04(c)).

5.05 SNCFA has in the past been reimbursedby Government for passengers travelling free or at concessionaryfares. The two largest categories involv- ed have been members of the armed forces and large families. In 1972, the concessionswere wîthdrawn with adverse effect on railway passenger traffic and revenue. Government reimbursementsin respect of concessionaryfares have fallen from a level of about DA 38 million in 1971 to about DA 5 million in 1972.

5.06 In the case of freight services, the costing study for 1971 shows that the mineral line covers its long-run variable costs and makes a substan- tial contributionto fixed costs, that other standard gauge lines meet long- run variable costs with a 8mall surplus, but that freight traffic on narrow- gauge lines produces revenue below long-run marginal cost. Annex 8 and Chart& 1, 2 and 3 present the results of the traffic costing study. A comparison of costs and revenue is given below.

Long-run Variable Coverage Average Cost per of Long-run Revenue per Ton-km Variable Ton-km (Averaeg) Cost Z (DA) CDA)

Mineral Line 0.0508 0.0351 145

Other Standard Gauge Lines 0.1110 0.1045 106

3'6" and Meter Gauge 0.1110 0.1315 85 - 17 -

C. Income Account

5.07 In Annex 10, Table 1 the forecast income account to 1977 is shown. The projectionsmake provision for expected rises in wages and price levels, and include assumptionsregarding economieswhich may be expected to accrue from improved operationstandards, and the new facilitiesand equipmentto be delivered. Rates and fares, which are already high, are not increased, except where previous concessionshave been withdrawn. In such cages, they are shown in 1977 as having reverted to the level of 1970/71.,

5.08 The projection indicatesa gradual improvementin the financial results of operationsafter the year 1973. Specifically,operating results are expected to evolve as follows:

Operating Expenses Excluding Net Operating Deprecia- Deprecia- Operating Working Operating Revenue tion tion Total Revenues Ratio (Z) Ratio (Z) ------.------DA Million ---- (a) (b) (c) (d) (e) (b-a) (d-a)

1971 245 205 21 226 19 84 92 1972 235 192 21 213 22 82 91 1973 237 202 21 223 3 85 94 1974 295 247 30 277 18 84 94 1975 353 289 35 324 29 82 92 1976 415 333 45 378 37 80 91 1977 478 375 58 435 43 79 91

5.09 Depreciationprovision takes the form of an annual contributionto Renevals Fund which is intended to provide sufficientresources for the re- placementof locomotives,rolling stock, plant, machinery and other assets not being part of the permanentway. In accordancewith Article 19 of the Convention,the contributionis calculatedas a percentage (normally9Z) of trafficreceipts, fixed every three years, on the recommendationof SNCFA and jointly approved by the Ministers of Public Works, Transport and Finance and is depositedwith the Treasury. The contributionto the Fund in 1971, DA 21.4 million, was confirmedas adequate by the costing study. Projecting the costs to 1977, and providingfor 6% p.a. inflation,it is estimated that use-depreciationof the relevant assets in that year will amount to DA 57.9 million. By a new law (OrdonnanceNo. 73-64 dated December 28, 1973), Govern- ment vill in future provide all the funds needed to renew the assets of the railways and the other public enterprisesand vill retain the contributions to their Renevals Funds.

5.10 Agreement was reached during negotiations that SNCFAvill take all necessary action to maintain a satisfactory working ratio (i.e. a ratio of operatingexpenses, includingduties and taxes but excluding permanent way costs and renewals contribution,to total operating revenue). Informal as- surances were obtained that the level of such vorking ratio vould be not less than the present 82% and that SNCFA would improve thereon in ensuing years. - 18 -

D. Balance Sheet

5.11 SummarizedBalance Sheets of SNCFA are presented in Anmex 10, Table 2. The value of the fixed assets shown in the books of the railway is not supported by an inventory and appears to be merely a figure handed down from the days when SNCFA was operated as part of the SNCF of France. The value appears to be substantiallyoverstated. In the course of the costing study it was necessary to evaluate che renewable investment. On these tentative calculationsthe present day depreciated replacementvalue of the renewable assets of SNCFA would appear to be about DA 800/900 million, as compared with the figure of DA 1,821 million shown in the Balance Sheet.

5.12 The value of Government'sequity in the railway is, of course, proportionatelyoverstated and it is not meaningful therefore to quote debt/ equity ràtios at the present time except as an indicator of trend. It is noteworthy, however, that the only change in Goverument equity over the past six years is an increase proportionateto redemptionof debt from SNCFA's own resources. With the exceptionof the permanent way, all addi- tional investmentin the railway during this period has been financed by long and medium term borrowing. The same situation is expected to apply in the financing of the Plan. Debt service coverage during the project period 1974-1977will remain steady around 1.4. Assuming that the DA 1.8 bil..ionestimated Plan investmentwill be spread over about six years, out- standing long-term debt is estimated to increase from DA 278 million at the end of 1973 to over DA 900 million at the end of 1977, and probably to DA 1,300 million by the end of 1979. Peak debt service will occur in 1981, at which time the debt service coverage is forecast at not less than 1.1. This is a satisfactoryresult in view of the exceptionallylarge planned expenditureresulting from many years of underinvestment.

5.13 The working capital positiconof SNCFA is good but a cause for con- cern is the worsening in 1972 of the Railway's accounts receivable,which had increased as at December 31, 1972 to DA 142.5 million from DA 102.1 as at the end of the previous year. DA 37.2 million of the DA 40.4 million in- crease was in respect of commercial traffic. SNCFA had in 1972 the equivalent of about six months' freight business in its accounts receivable. Normal credit accommodation with industrial and commercial customers is for a period of three months and an increase of DA 13 million had occurred in this category. The position has improved, however, since SONAREM has settled a large debt to the railways. Informal assuranceswere obtained during negotiations that all debts owed to and by Governmentagencies and public enterpriseswill have been set- tLed by December 31, 1976. Furthermore,in application of OrdonnanceNo. 69-107 of December 31, 1969, all inter-companydebts must be settled within a 90 day period.

E. Cash Flow

5.14 For purposes of comparisonof the changing financial situation of SNCFA the following cash flow which is detailed in Annex 10, Table 3 is a summary of past and future five-year periods: - 19 -

1968-1972 1973-1977 (DA million)

Sourc- of Funds:

Internally generated funds, net of changes in working capital 252.3 343.4

Less: Payments of surplus earnings to Government 157.2 (21.9) 95.1 365.3

Less: Debt service 72.0 247.8

Available for investment 23.1 117.5

Borrowing for investment 84.3 901.3 10i7.4 1,018.8

Furtds Applied as Follows:

Capital development 134.4 1,000.7

Pensions, etc., investments 3.1 0.5 137.5 1,001.2

Accrual of cash and temporary investments (30.1) 17.6

F. Audit

5.15 SNCFAhas agreed that their accounts shall be audited annually by independent auditors. Under the prevailing Algerian law the Controle Financier de l'Etat examines SNCFA's accounts every year and submits a general report te Government. The Government appolnted Controle Financier is acceptable to the Bank as an independent auditor and during negotiations informal agreement was reached to consult on the conditions under which he vill carry out the audit.

5.16 Internal audit at present is restricted to check of station accounts by travelling auditors. These officers, however, report to the Chef d'Exploi- tation instead of to the Chef de Gestion, as would be more appropriate. The newly appointed Chef de Gestion is interested in creating an internal audit section, which should take over the station audit and should include inven- tory verification vithin its scope, as part of normal internal audit checks. Advice and direction in the matter of setting up an internal audit section will be included in the terms of reference of the study on a reorganization of SNCFA's accounting system (para. 4.04(e)). - 20 -

VI. ECONOMIC EVALUATION

A. ,toleof the Railways

6.01 The future of the railways is closely linked with Algeria's efforts to industrializethe country as rapidly as possible progressing from the constructionof basic industries to more consumer oriented light industries. Each industrial complex and each major factory has been or vill be equipped with rail sidings, thus providing a convenient and competitive service. Since about 90% of the railway's traffic is medium-to-longdistance bulk transport (190 km - 500 km) and will remain so in the future, the railway plays a vital role in Algeria's economy. Furthermore,without the Mineral Line the rich iron ore and phosphate deposits in Ouenza, Khanguet and Djebel Onk could not economicallybe exploited. In 1972, this traffic constituted 50% of the railways total transport volume. 1/ As regards traffic on the Grande Rocade comparison of long-run marginal costs of road and rail traffic shows a cost advantage of about 25% in favor of the'railway for traffic over an average distance of about 240 km. The cost advantage increaseswith in- cre'asedlength of haul and decreases for shorter hauls. The break-even point lies at about 180 km. However, the railway's cost advantage is sharply re- duced if door-to-doorservice by rail cannot be provided. In this case the road/rail break-even point would increase to about 300 km. It is estimated that only 10% of the railway's total present traffic volume may be affected by the need for transshirment. The intermodal comparison for the narrow gauge lines, however, is different. On the basis of long-run marginal costs of rail and road transport, costs are roughly equal. Rail revenues on the narrow gauge lines do not cover long-run marginal costs. In suumary, it can be concluded that the railway will remain an important economic factor in the country's developmentas far as the '%ineralLine and the Grande Rocade are concerned. The future of the narrow gauge lines, however, is doubtful and will be subject to further study (para 4.04 (c)).

B. Evaluation of the Project

6.02 The economic evaluation is based on a 10-year program of track renewal prepared by SNCFA, and a program of rolling stock rehabilitationto be completedwithin the project period (renewal program). The renewal pro- gram is designed to make up for past deficienciesin the orderly reneval of track and replacementof rolling stock and some other facilities. This vill enable the railways to accommodate traffic levels up to about 5 million tons on the Grande Rocade and 6.5 million tons on the Mineral Line. Any further traffic growth would require additional massive investment for the extension of existing capacity (see Annex 11).

6.03 While the renewal program as proposed is economicallyfully justi- fied and of high priority (paras 6.07 to 6.09), it could only satisfy demand

1/ 54% in terms of tonnage. - 21 - for railway transportup to about 1975/76. Analysis suggests that a long- term capacity-increasingprogram designed to move the projected future traf- fic efficientlyand at competitivecost could yield high economic benefits as vell. SNCFA has prepared such a program whose size, compositionand timing are still tentative and vill be subject to further review (para..4.01).

6.04 It is not possible to attribute specific benefits to any particular item of the renewal program, because the proposed investments are closely in- terrelatedand achievementof maximum benefits depends on theïr coordinated, parallel implementation. The proposed renewal program does not representa marginal increment to an already efficient system but amounts to safeguarding the continuanceof a railway which othervisewould cease to exist as a major transport mode. Therefore, the economic evaluation examines two alternatives: (a) no further investment in the railway, and (b) accepting the renewal pro- gram. The timing of the proposed investments takes into account the railways absorptivecapacity and the level of demand for railway services up to about 1975/76. Investmentson the Mineral Line and the Grande Rocade have been analyzed separatelybecause the equipment to be invested is used exclusively on each line. Details of the economic analysis are given in Annex 11. The main benefits of the project would accrue to (a) the Algerian industry in the form of avoided incr.seatalhighway transport cost and improved quality of railway service, and (b) SNCFA in the form of reduced unit co0t of rail transport.

Grande Rocade

6.05 Track on the Grande Rocade is on the average about 30 years old. If maintenancewere kept to a bare minimum safety conditionswould deterio- rate rapidly and all passenger trafficwould have to be withdrawn. This would result in a decrease in SNCFA's fixed cost coverage 1/ of about DA 25-30 mil- lion without a commensuratedecrease in SNCFA's fixed co0t. A comparisonof road/rail passenger transport cost was not possible due to the lack of relia- ble operating cost estimates for buses.

6.06 As far as goods traffic is concerned, the adverse effects of a deterioratingpermanent way would be more gradual than in the cgse of pas- senger traffic. It is estimated that for two years after the withdrawal of passenger traffic all projected freight traffic for the Grande Rocade could be transportedsafely and efficiently. In the third year safety considera- tions would require a curtailmentof freight traffic which would progress up to the sixth year. Thereafter all traffic would have to be discontinuedbe- cause the track would no longer be fit to support SNCFA's heavy locomotives.

6.07 Thus, in the economic evaluation two possible alternativeshave been compared: (i) the increasingdeterioration and ultimate collapse of the system as described above (paras 6.05/6.06)against (ii) track renewal

1/ 1971 figures. - 22 - proposed by the mission. Quantifiablebenefits of the reneval investDents would be (i) the continued contributionof passenger traffic to SNCFA's over- head costs, and (ii) the avoidance of diversion of railway freight traffic to higher cost road traffic. The economic lifetime of the system has been es- timated at 25 years. The economic return of the reneval project has thus been estimated at about 21%.

Mineral Line

6.08 The Mineral Line is utilized almost to capacity and any deteriora- tion in maintenance of this very difficult line would lead to its closure within a period of one or two years. In 1973, safety reasons required vith- drawal of a substantialpart of passenger services. Since no viable alter- native transportmode could move the iron ore and phosphate traffic, the main quantifiablebenefit would be the line's continuing and increasing contribu- tion to SNCFA's fixed cost. This measure of economic benefit is conservative since it represents only part of the value added that would be lost if mining operations had to be abandoned because of inadequate transport facilities. The economic return from keeping the line in operation through adequate maintenance and reneval of track and equipment as well as provision of new rolling stock would be about 23%.

C. Sensitivity Analysis

6.09 Sensitive factors for the economic return of the reneval program are: (a) investment cost and (b) traffic growth. An increase of 10Z in in- vestment cost and a decrease of 25% in traffic growth would still yield a satisfactoryeconomic return of about 18% for the investments on the Grande Rocade. As pointed out above (para 6.08) the estimated economic return of 23% for the Mineral Line is already conservative. Hovever, investment cost might be susceptibleto an increase of about 10%. In this case, the economic return would still be a satisfactory20%.

VII. AGREEMENTSREACHED AND RECOMNENDATIONS

7.01 During loan negotiations, agreement vas reached on the following principal points:

(a) operating targets (para. 3.13);

(b) technical assistance in the fields of investment studies, tariff, reform, management, accounting,stores,management information,workshops and training (paras. 4.04, 4.05);

(c) financial target (para. 5.10); and

(d) audit (para ,.15). - 23 -

7.02 Retroactivefinancing from Februaryto June 1974 at about US$650,000 is recommnnded for que consulting contract (para. 4.10).

7.03 The project provides a suitable basis for a Bank loan of US$49 mil- lion. The loan would be made to SNCFAfor a term of 20 years, including four years of grace.

May, 1974

ANNEX 1 Page 1

APPRAISAL OF

A RAILWAY PROJECT

ALGERIA

Descriptionof Railway Property

A. Track, Signalling and Telecomuunications

1. The railways (see map) consist of 3,933 route km of track, of which 2,657 route km are standard gauge (1.43 m) and 1,276 route km are narrow gauge (1.05 and 1.00 m). The main features are:

- a standard gauge axis line of some 1,300 km which runs through the rich agricultural Mediterranean Zone of Algeria from Morocco (to the vest) to Tunisia (to the east) and serves the main cities and ports of Oran, Algiers, Constantine and Annaba; sad

- a standard gauge Mineral Line of 408 km from ADnaba to Djebel- Onk which carries a heavy tonnage of iron ore and phosphates for export and for the development cf Algier'l own metallurgical and fertilizer industries.

Other lines, mostly built of lighter track, are of secondary importance. The topography of the country i8 mountainous and all lines, including the main axis line and especially the Mineral Line, have to cope with severe grades and curves up to 25% in various sections which limit loading and speeds and in- crease the difficulty and cost of track maintenance. Details of the track and the main physical features of the railway are given in Table 1,

2. Since 1963 there bas been a decline in track maintenance and renewal; 419 km of track was renewed in 1953-62 but only 114 km in 1963-72, The decline has been due mainly to a shortage of experienced staff (para 3.03) and also to difficulty in recruiting and retaining labor for hard mauual vork in the urbaa areas where more attractive employment is possible. The present employment averages only 0.8 of a man per km of track. In the last two years SNCFA has made a section-by-sectionsurvey of the system and, taking into account the actual running condition of the track, its age, the tonnages carried, and the difficulties and coats of maintenance, has prepared a tenryear program, begin- ning in 1974, to relay and reballast 211 km of the Mineral Line and 739 km of the Grande Rocade. Rails and sleepers recovered from these lines will be used, as practical, to strengthen selected sections of the secondary lines where lower levels of traffic will allow the recoveredmaterial au extension of its useful life. This program, detailed in Table 2, has been used to iden- tify the track items of the proposed project described in Chapter IV of this report. Page 2

3. The systems of signallingused are automatic block, telephoneblock and single line token with mechanicallyoperated signals. Most of the signal- ling is old but should not place constraintson line capacity in relation to future traffic growth in the next plan period. Some new signalling viii be required,however, in connectionwith the developFentof industrialareas and yard systems, e.g. in the Annaba/El-lHadjararea where 10 km of line is being doubled and new yard facilitiesprovided for heavy steel, phosphate and other industries. The communicationsystem of telephonesand teleprintersfor train and traffic control is,provided and maintained by SNCFA. The Mineral Line, wliichis electrified,has satisfactorycabled coinunications;the rest of the system uses overhead lines which are less satisfactory,but adequate.

B. Motive Power and Rolling Stock

4. SNCFA's motive power and rolling stock position in detailed in Table 2, the locomotive fleet on the heavy Mineral Line betweenAnnaba - Ouenza - El Kouif is electrified,a distance of 299 km. The rest of this line from Tebessa to Djebel Onk (109 km) is operated by diesel-electric traction, as are all other lines.

5. The poor condition of most of the electric locomotive fleet (31 x 1,770 kW locomotives which in 1972 were 40 years old) led to a decline in mineral traffic in 1971, underliningthe urgent need to replace it. This vas done in two ways: first by ordering 32 x 2*000 kW nle electric locomotives; and second, as the electrie locomotives were going to take ties to deliver, by ordering 29 x 2,500 kW diesel-electric locomotives in the interla which could later be transferred to the other main lines. The new diesel-electric units vent into service in 1972 and the 32 new electric units in 1973. The nev electric locomotives are suffering from "growing paint', which have to be worked out. The stock nov consista of 32 new *lectric locowmtives and 8 x 2,300 kW locomotives which are only 14 years old. Of a total fleet of 173 main line diesel-electric locomotives,82 are in poor condition and will have to be scrapped during the next 3-4 years; 37 are only 11 to 15 years old and 54 have just been put into service. The 91 new or relatively new locomotives should allow SNCFA to improve availability and utilization. About half of the 77 diesel-shunting locomotives vill have to be replaced. To this and 20 locomotives vere received in 1972.

6. The present standard gauge fleet of 16 railcars, 14 to 20 years old, is in very poor condition. Availability is about 50%, and ll units have to be scrapped. Another 23 railcars have been ordered for delivery in 1973/74: (a) to replace the units to be scrapped, and (b) to increase urban train serv- ices from 100 to 200 km around the sizeable conurbationsof Algiers-Oranand Constantinewhich suffer from a groving urban transportproblem.

7. There are 335 passenger coaches on the standard gauge lines and 34 on other gauge lines. Of these coaches, 180 or 50X are 40 yearu old or more. ANNEX 1 Page 3

Out of 35 new standard gauge coaches already ordered, 4 have been delivered; another 30 new coaches will be ordered befort the end of 1973,

8. Of some 10,778 freight cars in stock, about 2,720 are 40 years old or more and are awaiting scrapping. Of the total stock, 1,142 cars are owned and maintainedbv other state enterprises,in particularSONARUM which ex- ploits the Ouenza iron ore. Altogether,631 higlicapacity special cars are currentlvemployed on the Mineral Lilne. The new governmentpolicy is aiming at givinp, S17CFAresponsibility for all thiepresent stock of private-owner cars, but no firm decision has yet been made.

9. To offset the withdrawal of old cars, and to deal with new types of bulk traffics, SNCFA and the various interestedstate enterpriseshave already ordered 1,430 new cars whiclhare beginning to come into service.

C. Other Properties

10. SNCFA's stations,marshalling yards and reception sidings are gen- erally adequate,although a few of the yards need remodellingand, in some cases, c.g. at Annaba, complete rebuilding. The Annaba work is to be phased, with the first stage to be done in the 1974-77 Plan period. A yard will be built at Rouiba (near Algiers) to serve industrialdevelopment in that area and requirementsnear Oran and Arzew. Consultants(para 4.03) will be examining these proposals.

11. SNCFA has six workshops strategicallysituated throughoutits system to deal with its locomotivesand rolling stock. Main Line diesel-electric locomotivesare dealt with at Algiers and Mohammadia. Electric locomotives, which operate solely on the Mineral Line, have a workshop at Souk Ahras. Railcars and shunting locomotivesare dealt with at Constantine. The trail- ing stock is dealt with at opposite ends of the system, passenger coaches at Sidi-Bel Abbes (not far from Oran), and the freight cars at Annaba. Generally the stlops are handicappedby old and obsolescentmachinery and a lack of qual- ified manpower. Consultantswill be commissionedto review organizationof the workshops as one of the project element proposed for Bank financing.

May 1974

ANNEX 1 Table 1

APPRAISALOF

A RAIIWAYPROJECT

ALGERIA

PhysicalCharacteristics of SNCFA

Compositionof the network:

Normal Gauge (1.44m) km Main Lines 1,323 MineralLines h08 SecondaryLines 926 2,657

NarrowGauge

1.05 m 1,129 1.00 m 147 1,276

Total 3,933

2. Length of double track = 186 km. Double track exists solelyon the normal gauge lines and is mostly in the vicinityof the larger cities, Algiers,Oran and Constantine. 13 km exist on the electrifiedMineral Line, stretchingon either side of Souk-Ahras,to facilitatethe bankingof heavy mineraltrains working through to Annaba. Another10 km of line is currently being doubledbetween Annaba and El-Hadjarwhere heavy steel, phosphateand other industriesare located.

3. Length of electrifiedtrack = 299 km

4. Maximumspeed limit = 120 km/hr

5. Maximumaxle load (NormalGauge) = 22 tons (NarrowGauge) = 12 tons

6. Minimum radii of bends (NormalGauge) = 200 m (Narrow Gauge) = 100 m

7. Maximum grade = 30 mm/m 8. Rail weight (Main& MineralLines) = 4o - 55 kg/m (mainly 6kg/m) (Other lines) = 20 - 46 kg/m

9. Densityof ties (Main& MineralLines) = 1500 - 1700 per km (Otherlines) =1167-I0erkm

10. Length of track with welded rails = 125 km (mostlyin 36 m length)

11. Number of stations = 150

crossingloops =-00 loading sidings -57=

Source: SNCFA,EASAMS (Consultants),Bank Mission.

ANNMEX1 Table 2 Page 1 APPRAISAL OF

A RAILWAY PROJECT

ALGERIA Motive Power Composition of Motive Power and Rolling Stock at December31, 1973

No. Average Age Locomotives in Stock Kw (Years) Comment

Standard Gauge (1.44 m) i) Main Line

Diesel-Electric 54 2,500 0-1 New locomotives. 37 1,350 8-12 54 1,000 20-24 In poor condition. 28 736-880 In poor conditicn.

173

Electric (Mineral 8 2,300 12 In good condition. Line only) 32 2,000 0-1 New locomotives. 31 1,770 38 Worn out. To be scrapped. 71

ii) Shunters

Diesel 20 400 0-1 lNewshunters. 39 200 8-22 38 110-150 15-22 8 differentmakes and insufficient power 97 iii) Railcars

Diesel IL/ 600 0 New railcars. 16 471-600 11-17 Poor condition. Eleven to be scrapped. Other Gauges (1.05 & 1.0 m) 9-32e23carep12El6v0n i) Line diesels 362/ 660 9-32 23 are 12 years old or less. ii) Shunters 13 13-13

iii) Railcars 8 440 13 No spare _ available.

57

-/22 x 2 unit railcars are still to be delivered, 19 before the end of 1973 and 3 during 1974. ?/Includes 10 motor vans ("fourgons"); 4 to be scrapped shortly. Source: SNCFA ANNEX 1 Table 2 Page 2 Rolling Stock

Standard Gauge Other Gauges No. Over No. Over Passenger CoachesL" No. 4h Years Old No. 40 Tears Old

I & II Class-/ 148 50 12 - III Class 187 126 223/ 4 Railcar Trailers 5 - 10 - Postal & Baggage Vans 66 il 8 2

No. of Coach Seats I Class Il Class III Class Total

Standard Gauge 1,436 5,244 12,371 19,051 Other Gauges 63 357 1,409 1,829

20,880

N»otes: 1/Position at December 1973. 1/ilewcoaches: 31 still to be deliveredin 1974 and an option for 30 more. 3IIncludes 8 x III class "fourgons",,motorized coaches carrying 63 passengers each.

Nuxmberof Freight Cars ,,/ Standard Gauge Other Gauges Interchangeable Total Freight Cars

Covered 2,978 394 25 3,397 High-sided Cpen 2,503 696 12 3,211 Flats 1,434 365 57 1,856 Tank Cars 219 35 94 348 Special Users 511 30 283 824 Private Owner 1,128 14 1,142

Total 8,773 1,534 471 10,778

AwaitingWrite-off 1,107 1,520 94 2,721

Total Stock 7,666 14 377 8,o.57 Rolling Stock on: Minerai Line 631 - 631 Other Llnes 7,035 14 377 7,426

-/positionat December 1973.

Iay 1974 AN1'EX2

APPRAISAL 0F

A 1%.LLMA& énvJJSCf

ALGEIIA

Statisties on Locomotive Cperating Efficiency

1968 1969 1970 1971 1972 Diesel Locomotives

!o. Of Locomotives: In Stock: Standard Gauge 119 119 119 148 148 Narrow Gauge 26 26 26 25 25 In Use: Standard Gauge 106 1l0 84 101 1 Narrow Gauge 21h 22 18 20 20

Availability Rate

Standard Gauge 88% 84% 70% 68% 68% Marrow Gauge 93% 8j% 70% 80% 80%

Locomotive km per Locomotive Day:

Standard Gauge 206 221 267 196 228 Narrow Gauge 284 207 240 219 229

1lectric Locomnotives .Âo. of Locomotives: In Stock 37 37 37 37 49 In Use 30 28 21 21 24 Availability Rate 81% 75% 58% 56% 48%%" Locomotive k-mper Locomotive day 142 156 198 166 281

Diesel Railcars

Jo. 0f Railcars 24 24 24 24 24 In Use 6 8 il 8 7 Availability Rate 24% 35% 44% 32% 28%. 31 Railcars km per Railcar day 191 140 133 147 149

1/ New locomotives received during 1972 included. 2/ New locomotives received during 1972 excluded. 3/ Eight narrow gauge railcars are worn out and no spare pieces are available and Il standard gauge railcars have to be scrapped.

May 1974

AUNEX 3

APPRAISAL OF

A RAIIWAY PROJECT

ALGERIA

Operating Targets (Normal Gauge)

Targets for 1976

1. Availability Rate

Diesel-Electric Locomotives 83% Electric Locomotives 82% Freight Cars 87% Passenger Coaches 88%

2. Locomotives km per Locomotive pay in Une (lm)

Diesel-$lectric Locomotives 255 ELectric Locomotives 134

3. Freight Cars Turnaround (days)

Grande Rocade 12

4. Average Gross Freight Train Loada

Diesel Locomotives (tons) 690 Electric Locomotives 900

5. Passenger Fast Train Delays

Fast Passenger Trains Arriving Late (more than 15 minutes) <30%

May 1974

ANNEX 4 Page 1

APPRAISAL OF

A RAILWAY PROJECT

ALGERIA

Traffic Forecast

A. Freight Traffic

Iron Ore

1. SNCFA transportsiron ore from the mines of Ouenza and Khanguet in the east near the Tunisian border (about 3 million tons in 1972); Zaccar, about 110 km west of Algiers (about 150,000 tons in 1972); and Timezrit, about 25 km from the port of Bejaja.

2. Ouenza and Khanguet: The Societe Nationale de Rechercheset ExploitationsMinieres (SONAREM)projects a 60% increase in iron ore trans- port for 1972-80. This growth rate is realistic in view of the increased demand for iron ore from the Societe Nationale de Siderurgie (SNS) at El ladjar, the installationin 1977 of a second blast furnace at the SNS fac- torv, and a projected increase in the next 4-5 years in the export of iron ore. Based on the 1972 transportvolume of about 2.8 million tons, transport in 1977 will amount to about 4.5 million tons.

3. Zac,ar: The ore is mostly destined for export through the port of Algiers. The annual tonnage to be transportedwill amount to about 200,000 tons over a distance of 110 km. The mine will be depleted by about 1977.

4. Timezrit: Exploitationof this mine will probably cease in 1977 whlenreserves would be exhausted. Until then, about 150,000 tons re envi- saged to be transportedannually over about 25 km.

Phosphates

5. SONAREM projects a transport increase of 180% by 1977. This es- timate was based on a transportvolume of 1 million tons in 1972, whereas the actual transportvolume amounted to only 544,000 tons. Prospective phosphate traffic has been consistentlyoverestimated in the past, primarily due to overly optimistic estimates of export prospects,and the completion of production facilitiesat Annaba. Taking this into considerationand ac- counting for an increaseduse of fertilizeras well as substitutionof fer- tilizer imports, a more realistic estimate would be an increase of 140% by 1977, to about 1.3 million tons, the equivalent of a 25% increase p.a. This growth rate seems realistic in view of the opening in 1973 of a phosphate factory at Annaba. ANNEX 4 Page 2

14etallurgicalProducts

6. Transport of metallurgicalproducts is determinedby the development of the SNS steel mill near Annaba and the productionof iron products (con- structionmaterial and steel pipes) in the industrialzone of Reghaia near Algiers, as well as some smaller industrialplants in Constantineand Oran, Based on present productionplans and expected completionfrom road transport, railway transportvalume in 1977 is expected to reach about 1.5 million tons (1972: 0.6 million tons), which would amount to an annual average increase of 21%. Due to larger average hauls, ton-km are expected to increase by about 237Op.a. during 1972-80. However, most of the additionaltransport volume (about 0.8 million tOIis) will not materialize before 1977/78, when a second blast furnace will be put in service in the SNS steel factory.

Grains. Flower, Semolina

7. Traffic volume in grains has oscillatedbetween 350,000 tons and 513,000 tons since 1963. No consistenttrend can be identified. As regards future traffic, the constructionof new grain silos and rail sidings to Algiers and Bouira is expected to lead to an increase in rail traffic from the 1972 level of 383,000 tons to about 550,000 tons in 1974/75 and beyond. PetroleumProducts

8. Crude oil is mainly transportedby pipeline. Only a small amount of crude oil is transportedby SNCFA from Biskra to pover plants in Constantine and Annaba. This trafficwill cease because of the pending substituionin these plants of natural gas for crude oil.

9. The railways'most important business is the transportof refined petroleumproducts to inland consumptioncenters. In 1972, SNCFA transported about 400,000 tons and it expects to transportabout 500,000 in 1973 due to the operation of three new refineriesin Algeirs, Arzew and Skikda. Local consumptionis expected to grow by about 10% p.a. up to 1980. du the assump- tion of a stable modal distributionamong road, rail and pipeline, SNCFA would transportabout 850,000 tons petroleum products'by1977. Cement and Limestone

10. While most of the cement used to be imported,beginning in 1973 it will now, be substitutedby local production. Two factorieswill come into operation; the cement factory of Rladjar-Soud (near Constantine) and a factory near Mefta (Algiers region). In their final productionstage (1974), these factorieswill have an output of about 1.8 million tons p.a. The factories will liaverail sidings. In addition, the constructionof about 10 distribution centers for cement, all with rail sidings, is being considered. The tonnage to be transportedin 1973 will amount to about 700,000 tons, comparedwith 269,000 tons in 1972. .-1977, a transportvolume of about 1.5 million tous is expected. ANNEX 4 Page 3

Sugar

11. Sugar is both imported and produced locally from sugar beets. Imported sugar is refined in El-Khemis. Two more refineries,Guelma and Mostaganem, are nearing completion. Sugar beets are processed in El-Khemis and Sfi-Sef and will also be processed in Guelma. Transport volume in 1972 was 239,000 tons. It is expected to increase by about 3% p.a, in accordance with population growth, and to reach about 300,000 tons by 1980.

Chemical Products

12. Factories for sulphuric acid, phosphorus and PVC and other chemical products are being considered for the Four-Year Plan 1974-77. RHowever,con- crete projects have yet to be developed. During the past six years (1967-72), railway transport of chemical products has grown by about 25% p.a. Consider- ing that Algeria is still in an early stage of industrializationand intends to emphasize in the coming eight years the development of petrochemicaland other chemical industries,and considering SNCFA's judicious marketing policy to provide large factories with railway sidings, it is reasonable to assume an annual growth rate of about 19% during 1973-80 for railway traffic of chemical products. SNCFA's transport volume in 1977 would thus amount to about 280,000 tons, an increase of over 230% for the period 1972-77.

Esparto Grass and Straw

13,. It is not possible to identify a clear trend for the development of this traffic. In the past six years the transport of esparto grass and straw has varied between 70,000 tons and 90,000 tons p.a. depending on climatic conditions. however, a new paper factory using esparto grasisas raw material will be put into service in 1973/74. This, a total transport volume of about 240,000 tons can be expected in 1977.

Fertilizer

14. Algeria is planning to become self-sufficientin fertilizer produc- tion bv about 1977. A new fertilizer plant in Annaba will corneinto operation in 1973 and will produce about 550,000 tons phosphate fertilizer annually. Other plants in Arzew will produce 365,000 tons of fertilier annually. Rail- way sidings have been provided for these factories. Abaut 560,000 tons are expected to be carried by 1977.

Coal and Coke

15. No reliable forecast of future coal transport is possible since Government has not yet decided whether to exploit indigenous reserves or to import coal, particularly coke for the iron and steel mill in El Hadjar. The trend in coal transport by SNCFA has been down since 1970 when it reached a peak of 356,000 tons as compared to 246,000 tons in 1972. Probably the El Hadjar steel works will require more coke as they increase their production. ANNEX4 Page 4

Based on expansion plans of the El hadjar complex, a coke transport of 570,000 tons has been assumed for 1977.

All Other Goods

16. This group is composed of various diverse goods such as ag:ricultural and manufactured products. In the past this traffic stagnated at a level of about 300,000 to 400,000 tons. However, it is expected that a growth rate of 10% can be sustained through 1980 and might even be surpassed, especially when Algeria moves into the second stage of its industrialization- the developmentof consumer goods and other light industries.

B. PassertgerTraffic

17. Passenger traffic has increased in the nine-year period 1964-73 at a rate of 5.6% p.a. in terns of passengers and 7.8% in p8s8-km. Due to over- aged rolling stock, deterioratingquality of service and a partial withdrawal in 1972 of passenger fare subsidies, traffic grew only at the rate of popula- tion increase (2%-3%) during 1968-72 and declined 7% in 1972. Folloving a serious accident in 1973, a substantial part of the passenger trains had to be withdrawn from the Mineral Line in the east for safety reasons. However, these negative developmentsare expected to be partially offset by a policy of improving both the quality of service off red and a renewal of passenger coaches, and more vigorous competition for suburban traffic. On the basis of past trends and their expectation of a substantialincrease in suburban traffic, the Mlinistryof Transport and SNCFA project an overall increase of 20% p.a. for the five-year period 1972-77. So far there is no evidence to verify the assumption of such an enormous increase in passenger traffic. Furthermore,competition from buses, particularlyfor suburban traffic, is keen. For the above reasons, a growth rate projection of 20Z sannot there- fore be supported.

18. A realistic forecast of SNCFA's prospective passenger traffic is extremely difficultbecause of many non-quantifiablefactors such as customer preferences,increased comfort, more reliability,better coaches, etc. Attempts to base the forecast on multiple regression analysis failed because of the influence of exogenous factors. It was, therefore, decided to extrapolate the trend persisting over the past 10 years. The average annual growth rate vas thus found to be 8%.

May 1974 APPRAISAL OP

A RAITWAY PPOJECT

ALER IA

Freight Traffic 1967-1971 Y

1967 2/ 1968 1969 1970 1971 Item tons ton-kmF - tons ton-km tons ton4km tons ton-km tons ton.km Iron Ore 2,401.1 2,939.2 530.8 2,920.7 512.4 2,586.6 454.1 2,702.4 437.4

Metallurgical Products 93.4 222.7 77.6 436.9 90.7 785.0 153.8 632.3 141.5

Phosphates 190.5 361.2 124.1 425.2 147.6 489.4 170.8 511.8 177.2

Grains 377.5 413.9 53.0 358.8 52.2 356.3 58.2 318.9 70.0

Coal 78.5 67.1 5.6 169.9 7.3 355.6 12.2 310.1 13.5

Petroleum Products 112.9 158.0 49.5 18300 48.9 246.5 59.6 302.8 73.4

Cerent and Limestone 109.0 171.0 124.5 196.7 141.9 260.1 159.0 186.9 124.5

Sugar and Sugar Beets 99.0 114.2 23.7 147.3 38.8 143.7 35.3 185.6 43.8

Flour, Semolina 60.2 89.0 23.3 149.3 42.3 151.4 40.3 122.2 32.8

Chemicals 34.0 39.7 9.0 46.3 11.6 62.7 18.6 102.9 21.9

Esparto Grass 93.9 94.0 15.9 77.1 13.7 86.7 18.5 74.0 15.0

Fertilizer 24.6 6009 7.6 85.8 14.3 37.8 7.3 65.0 10.0

Stone 46.6 52.0 31.5 61.1 39.3 51.2 34.1 52.0 32.8

11 2 Other Goods 308.6 382.3 129.1 423.2 118.7 367.5 128.1 299.4 .L

TOTAL 4,029.8 911.8 5,165.2 1,205.2 5,681.3 1,279Q,I 5,980.5 1,349.9 5,866.o 1,306.5

1/ '000 tons and million ton-km revenue earning. ce. 2/ Not available

Source: SNCFA M4y 1974 APPRAISAL OF

RAILWAY PROJECT

AIJ'ERIA

Freight Traffic Forecast 1972 (actual) - 1977 Average Annual % Increase(Decrease) 1972 1973 2 1977 1977 over 1972 '000 million '000 mill'on '000 million 'Ooa million ton ton-km ton ton-em ton ton-km ton -ton-km Iron Ore 3,W03 594.0 2,00C 390.0 L,550 84hh.8 6.0 7,3 Phosphlates 533 1.95.5 536 196.6 1,300 432.9 19.5 17.3 Metallurgical Products 582 150.6 565 14J.C) 1,500 427.0 21.0 23.0 Coke 251 1/ 9.2 1/ 228 1/ 8.5 1/ 570 6.8 Cement and Limestone 262 130.3 256 10.0 i,h60 585.0 >4.0 35.0 Petroleum Products 404 87.3 399 101.4 850 322.7 16.0 30.0 Chemicals 118 26.0 188 64.2 273 81.9 18.3 Fertilizer 173 39.8 195 94-4 560 168.0 26.0 32.5 Grains 380 59.6 336 60.0 550 77.0 7.7 5.4 Sugar 232 52.3 230 51.0 277 55.4 3.6 Esparto 1.2 Grass 79 17.C` 73 15.0 2h0 50.0 25.0 24.0 Salt 1. .2 1 .2 200 60.0 Other Goods . 363 137.5 340 128.8 559 200.0 9.0 7.8 Tota' ('Ja112l 1,L»39.3 53hi7 1,L01.1 12,889 3,311.5 14.9 17.2 Lepartrnental Traffic 211 31.9 175 26.4 420 63.0 14.8 14.6

Note: tons ('000) tkrm(million)

1/ Includingcoal. 2/ Traffic in 1973 is expected to decrease because of a 3 month interruption to floods. of traffic on the Minerai Line, due

Sources: Mission's estimates,based on EASAMSLtd (Consultants)and SNCFA data.

May 1974 APPRAISAL OF

A RAIUWAY PROJECT

AWGERIA

PassengerTraffic 1962-1972and Forecast 1973-1977 Passengers Passenger-km 3rd PassengersPassenger- Average lst 2nd 3rd lst 2nd Class km Length Class Class Class Class Class ('000) (million) Journey ------('000) ------(mil ion)------im 439.4 123 71 570 2,935 23.6 88.2 327.5 1962 3,576 342.2 3,489 421.0 121 40 393 3,057 14.9 63.9 1963 427.9 4,737 555.6 117 67 585 4,085 21.9 105.7 1964 125.4 484.5 1965 5,301 636.0 120 76 689 4,535 26.1 133.7 524.2 1966 5,551 681.4 123 81 662 4,808 23.4 25.0 146.1 543.9 1967 5,610 715.0 127 82 702 4,827, 176.5 648.7 1968 6,826 857.7 126 106 845 5,875 32.5 43.2 201.4 707.9 1969 7,592 952.5 125 146 950 6,496 1970 7,751 1,013.0 131 1971 7,893 1,097.0 139 1972 7,340 1,015.9 138

Passengers Passenger- Average km Length ('000) (million) Jo rney

1973 7,400 1,016 137 1974 9,240 1,255 136 1975 9,700 1,326 137 1976 10,170 1,396 137 1977 10,640 1,467 138

Sources: Mission Estimatesbaesed on SNCFA information.

May 1974

APPRAISALOF ANNEX

A RAILWAYPROJECT

AWGERIA

Tentative SNCFA Investment Plan 1974-77

Ways and Works Total Cost DA Million

1. Reneval of Track 250 2. Equipment for Track Renewal Maintenance 45 3. Signalling and Telecommunications 55 4. Station, Yards and Sidings 135 5. Sheds and Workshop 20 6. Doubling of Track 300 7. New Lines 150 8. Studies 15

Subtotal 970

Locomotives and Rolling Stock

9. A. Standard Gauge

Diesel:

15 locomotives- 2,500 Kw diesel-electric)70 25 locomotives- 1,850 Kw diesel-electric) Electric:

15 locomotives- 2,000 Kw diesel-electric 30

30 shunters 20

B. Narrow Gauge

10 locomotives- 1,000 Kw diesel 20 15 shunters 25 Subtotal 165

10. Passenger Stock:

45 Main Line passenger coaches 45 165 suburban coaches 116 34 baggageand postal vans 10

Subtotal 171

11. Freight Stock:

5,200 freight cars 625 20 tractors 2 Subtotal 627

TOTAL 1,933 May 1974

ANNEX 6 Page 1

APPRAISAL OF

A RAILWAY PROJECT

ALGERIA

Descriptionof Main Project Items l, The project consists of: (a) items carried over from the previous four year plan (1969-73)or already committed in 1973; (b) renewal and reha- bilitation investmentsto be made in 1974-76; and (c) studies required for the execution of the investment plan.

2. The carry over consists of items highly justified at the present traffic level: (a) improving signalling in Algiers and Oran yards and renew- ing of old electric substations on the Mineral Line; (b) yard remodelling in developing industrial areas (Annaba-Rouiba);(c) realignmentor doubling of very limited sections of track in order to supLess bottlenecksin Constantine auidAnnaba areas; and (d) new rolling stock stili to be deliveredin 1974.

3. Track renewal and improvementworks on the main-line, Annaba - CouLstanitine- Algiers - Oran, are planned over the next ten years and take into account a serious backlog in maintenancewhich has built up over the past ten years. The work is expected to be carried out at the rate of 60-70 kn per year and to be done in strict order of priority, beginning with those sections where consideration of safety are involved. The propose project in- cludes work to be undertaken in the years 1974-76. The same standards of construction will apply as with the mineral line, except that with longer stretches of straight track, where there will be greater use of long-welded rails. The extended use of long-welded rails is expected, under conditions of similar traffic density, to yield substantial economies in track mainte- nance. There will also be economies in locomotive and rolling stock mainte- nance due to smoother running. An added benefit will be increased averaged speeds. Tlhe renewal of track on secondary lines, and the provision of loops and sidings for industrial purposes will be effected by using track recovered fror,] th-e mineral and main line relaying programs. Conditions of operation on tlhenineral line are severe and no major renewals have taken place for ten years. The program has regard to the age of the track, the tonnage carried since tlhe last renewal, and the difficulties and cost of maintenance. Execu- tion is scheduled so as to avoid serious disturbance to the heavy flow of traffic. Heavier rails (from 46/49 to 54 kg), increased sleeper density (froni 1,500 to 1,700 km), better ballasting, more drainage, greasing of the rail; to reduce side wear in curves, and the use of long welded rails in st.r:i.ghLs.ectILos are all factors expectcd to extend tlre life of tlhe track ([)y sonte 20,' per ton of traffic passtng over it) and to improve operating cieiictccy. ANNEX 6 Page 2

4. The track maintenance equipmentwill consist of ballast cleaning, automatic tamping and levelling machines and one track recordingcar. These will be used first for the track renewal and relaying program, where they will improve the quality of work and do it in a shorter time than can be donc by manual labor. The time factor is important in relation to the back- log of work to be done. The eventual introductionof the machines to main- tenance work has regard: (a) to the extended use of concrete sleepers on main lines with heavy track which cannot adequtely be maintainedby hand, and (b) to the difficultyof recruiting and retaining labor for this type of work, particularlyin competitionwith industrialdemand in the urban areas. SNCFA have recently installed a concrete sleeper plant with an out- put of 100 sleepers a day or 28,000 sleepers a year (of 280 days). 1/ The doubling of output to 56,000 sleepers or some 30 km of track is envisaged. Tnis will still leave SNCFA having to import some 114,000 heavy wood and/or stecl sleepers a year. Manual maintenance of the track will continue on secondary lires (2,200 km) and on some parts of the main line and there will be no premature reduction of staff; however, numbers employed will be conitainedunider conditions of increasing traffic.

5. The developmentof road transport, the increase in train speed tliroughrenewal of track and more powerful rolling stock (the maximum new railcars' speed is 130 km/h), the need to increase safety of operations, justify the equipment of 40 level crossing with automaticwarning devices aiLclbarriers during the next three years.

6. rhe workshop equipment is linited to minimum requirement,mostly to replace overage and obsolescentunits. This will allow SNCFA: (a) to improve quality of work, and (b) to reduce repair time and improve the availabilityof rolling stock in order to reach the agreed target.

7. Sixty-onenew coaches and 33 railcars, ordered during the previous plan, will replace overaged units (half of the coach fleet is 40 years old). T'le110 ballast cars are required to deal witlhthe heavy track renewal and irnprovementworks together with the normal cycle of maintenancewhich requires a regular supply of ballast. The 300 mineral cars, 200 for iron ore and 100 for phospliates,will replace overage units and provide additional cars to carry the forecast increase in traffic on the minerai line. The 650 new freigihtcars, of whlich200 were ordered during the previous plan, will re- place about 1,600 unserviceablefreight cars. In order to accommodate the clhangedcomposition of goods traffic the majority of the new freight cars will be specialized.

May 1974

1/ The cost of the local production of concrete sleepers is approximately DA 40 per unit compared with DA 31.4 and DA 53.7 for similar wood and steel sleepers; cr-.cretesleepers have an estimated life of 40 years compared with 1' 20 years for wood and 50 years for steel. ANNEX7

APPRAISALOF A RAILWAYPROJECT

AILG1RIA

EstimatedSchedule of Disbursements

QuarterEnding Cumulative Disbursement US$ Million Year 1974/75

September1974 0.7 December1974 4.2 March 1975 7.0 =June1975 9.0

=Year 1975/76

September1975 15.0 December1975 23.0 March 1976 28.6 June 1976 36.4

Year 1976/71

Jeptember1976 40.3 December1976 44.7 March 1977 46.7 June 1977 49.0

Assumptions:1) Loan effectivein September1974.

2) Firstorders for rails,ties, track reneval equipment,workshop equipment and rolling stockto be placedin the last threemonthe of 1974 for deliverybeginning in mid 1975. 15% down paymentfor rollingstock. 90% paid beforeshipping, 10% on deliveryfor rails,ties, and trackrenewal equipnmet.

May 197h

Page I of 3pages

A095AISAL OF

A RAlLWAY PRnTECT

All;ERIA

VN = Voie normale (4'.-6" gangs) Long-Run Variable Operating Cost VE = Voie etroite (3-6" and meter gaogee) (Thoossode af Dinars) 197]

Passenger -PFreight Long-rom Electric Die- traction Diesei tra-tion -iF (ara Total Fieed variable __ Vocomon- _T- -haseT-rak Cost Coat Cost VN VE Maino-ine Yarda Mlai-liee Yarda TardsYaim-lioe Nin-line VN VE G Gols eIlal - ransime Adeisisîralisa

Adaiai.tratios amd general charge-: lormlv

Gescral admimistration 3,288 1,644 1 644 General capemsea 4,734 4,024 710 7 9499

Station and train operalion:

gSperinenedence 5,678 4,478 1,200 431 50 ZOo 499 20 gtation staff 18,873 7,131 11,742 5,506 214 5,722 300 Yard staff 17,916 6,938 10,978 10,978 Trais staff 10,068 - 10,068 4,800 700 4,568 Joint taation, yard and traie roset 1,642 618 1,024 821 134 34 35 Muintenarce af equipment 1,140 - 1,140 1,140 Offi-er ad agencies 88 88 Passeeger claims 46 - 46 40 6 Baggage and freight naine 353 - 353 353 Ilaterial and -nifona-s 381 186 195 95 il 44 45

Loromotives and rolling stork:

Superintendence 2,890 2,310 580 214 29 66 4 141 25 25 6 4 51 15 Maintenance and rapeir: Elaecrir locomotives 6,024 - 6,024 1,214 4,512 298 Diesel locomotives 27,862 - 27,862 12,746 1,383 11,551 193 1,978 10 Fourgons Automo eors 401 - 401 300 101 Raircars a_d treil-rs 2,586 - 2,5F6 7,091 495 Shunting locomotives od t-rat-ore 2,612 - 2,612 313 1,834 465 Panseogar cacs 11,224 - 11,224 9,646 1,578 Freight rare 10,334 - 10,346 586 7,458 2,302 GConainers 12 Locomotive operatios: Loommotiverrews 15,400 - 15,400 3,952 623 1,700 121 6,277 1,334 1,126 267 Fuel 3,992 Electrir uarrest 3,504 ) 9,404 1,995 2D6 3,500 191 2,681 443 372 26 Luùrirants 1,521) Warer 68 Eleirtrial isallloîo 319 > -eneral opaenses 541 460 81 30 4 9 1 20 3 3 1 1 7 2

Way and varke:

Soper-iteadamas 7,g00 6,630 1,170 318 39 813 8upervision 1,832 1,191 641 175 22 444 Level croseina guarda 4,283 4,283 - Tra-k malstencere 28,601 19,585 9,016 2,458 304 6,254 Traok renewals 1,199 1,199 - Et-raordi.ary tra-k repaira 4,588 - 4,588 1,251 155 3,182

Garried forward 201,800 60,765 141,035 48,529 6,052 9,787 615 20,983 3,832 3,804 877 591 7,516 2,319 5,199 10,693 18,419 320 1,499 ANNEX3I~ pg Page 2 af 3 pages

APPRAISÂL OF

A BAILWAY PROJECT

VN = Vote ceesaie (4'-89' gauge) AW;ERIA VE = Voie etrote 3-6 ad mater Vibl .tig C (Thousenda of Diear-)

1971

Long-ron Vas=engeriElectric OlecDi... t tio ViD trctioi Fr-ight cors Total Fixed Variable Locomotivea - VN - VE Miterai Ttgin Track Coat Cost Cost VN Ve Main-tine Yards Main-lina Yarda Main-lime Yara Lie VN VE Coss ct Terminae TrEashpe Adminiatration

locecatine

Bro-ght froarwd 201,800 60,765 141,035 48,529 6,052 9,787 615 20,983 3,832 3,804 8;7 591 7,516 2,319 5,199 10.693 18,419 320 1,499

Way and worke (rontite.d)

Bridge, etc" repaire 1,323 1,323 - lignais and teiecomcunicarion 4.590 4,590 Elecreic paoer srrucrtrea 259 259 Bgildings 4,047 4,047

Toarl railwav egerating expenaea excludina depreictieti- f 212,019 70,984 141,035 48,529 6,052 9,787 615 20,983 3,832 3,804 877 591 7,516 2,319 5,199 10,693 18,419 320 1,499 fixed assets

Depretiation Rail and fittings 3,210 - 3,210 894 2,316 Laaae,otiees: Electric 570 - 570 113 426 29 Diesel 4,683 - 4,683 2,069 329 1,790 23 470 2 Autorailc 394 - 394 310 84 Locotrscteurs 722 - 722 82 565 75 FPrgos 82 - 82 63 19 Freight rare 9,070 - 9,070 1,070 6,114 1,886 Passenger cars 3,292 - 3,292 2,780 512 sleepers 8,000 7,200 800 164 67 569 Turnours 705 - 705 137 47 521 BlIlast 2,700 2,700 - Othr aceete 11,000 11,000

Total depreciatia n 44,428 20,900 23,528 6,469 1,039 426 29 1,872 588 533 96 1,070 6,114 1,886 - 3,406

Toara aperatiig .. penses 256,447 91,884 164,563 54,998 7,091 10,213 644 22,855 4,420 4,337 973 1,661 13,630 4,205 5,199 14,099 18,419 320 1,499

Return on renewable invest-ent 06% p.a.

Rail. and fittirgs 1,704 - 1,704 474 1,230 Loomos,tives: Electric 520 - 520 105 389 26 Diesel 3,330 - 3,330 1,471 234 1,273 16 334 2 Autaraile 346 - 346 238 108 Locrare.rresr 519 - 519 59 406 54 Furgous 54 54 41 13 Freight cees 16,560 - 16,560 900 11,968 3,692 Passenger Ocer 5,850 - 5,850 5,250 600 51eepers 6,500 5,850 650 133 54 463 Turnouts 846 - 846 164 56 626 Ballast 4,050 4,050 - other ssets 13,200 13,200 -

Total, rctara on itcect.ent 53,479 23,100 30,379 7,835 1,052 389 26 1,332 422 375 69 900 11,968 3,692 - 2,319 - - -

Total rost 309,926 114.984 194,942 62,833 8.143 10.602 670 24.187 4.842 4.712 1.042 2,561 25.598 7.897 5,199 16.418 18.419 320 1,499 ANNEZ 8 Page 3 of 8 Pages

- ~~~APPAI:iALO1' - A RÂIIWAYPROJECT

Long-Run Variable Operating Cost Use-Depreciationof Fixed Assets Basisof Calculation-1971

Railsand Fittings- 54 kg rail AverageReplacement Cost: DA 160,000per km EstiratedLife: NineraiLine - 150 milliongross tons Other Lines - 250 milli.ongross tons

Depreciation: Mineral line - DA .00107 per gross to-n-krI, Other Lines - DA .00064 per gross ton-km

1971 MineralLine: Trailing Locos Total Depreciatiox1 (MillionGross Ton-km,) (DA thousand) Passenger 41.1 23.5 64.6 6,976 Freight 969.0 130.0 1,099.0 1 lJ76 Other StandardGauge Lines

Passenger 965.1 334.6 1,299.7 q1IU Freight 1,673.0 251.0 1,924.0 l,231

Total Depreciation

Passenger 1,S94 Freight 2 407 Total 4, 0î

Narrow-gaugelines: Presentand foreseeabletraffic volunaes are sinall;the rails are likelyto last indefinitely.

Replacement Cost Depreciation Locomotives (DA) Lif e in km (DAper kim,) Standard Gauge: Electric 1,335,000 3,000,000 4k Diesel 1,000,000 2,000,000

Autorail 1,324,000 1,200,000 i __ Locotracteur 500,000 500C),000 . NarrowGauge:

Diesel 1,000,000 2,000,000 500 Autorail 1,200,000 2,000,000 600 Furgon c00',00 500,000 1,20u Locotracteur 300,000 300,000 1,000 ANNEX 8 Page 4 of *8Pagen

A RAILWAY PROJECT

ALGERIA Long-Run Variable Operating Cost Use-DeDreciationof Fixed Asstet (rontinu-d)

Replacement Cost Depreciation (DA) Life in kr (DA per !

Freight Cars

iineral Line Ore Cars 100,000 2,000,000 .05'00 Other Cars 80,000 700,000 .11h3

Passonger Cars 500,000 4,700,000

Sleepers

Approxislate number in track 6,ooo,ooo

Average Cost (assumed DA 40 5050 steel and wood) DA 40

Total Cost DA 240,000,000

Average Life: Steel 40 years Wood 20 years

Depreciation Per Annum DA 8,000,000

Due to Traffic, say 10% 800,000

Ballast

Say, 4,500,000 cubic (@)DA 30 DA 135,000,000

Replacement, 2% per annuxa 2,700,000

Rate of Replacement unaffected by tr,.ffic voluae ---

Other Assets

Annual Depreciatior estimated on basis of experience on other railways DA 11,000,000

Unaffected by traffic volume --- ANNEX 8 Page 5 of t Pages APPRAI8ÂL OF

À RAIIWAY PROJECT

ALGERIÂ Long-RunVariable 0y,eratingCost Return on RenewableInvestment (@) 6% Basis of Calculation-1971

6% of 50% No or km Unit Cost Total Value Track - Rails and Fittings

Mineral Line 408 35,000 381 Other Main Lines 1,260 35,000 1,323

Sleepers

Èk-ineralLine 700,000 40 84 Other StandardGauge 3,500,000 4o 420 Narrow Gauge 1,800,000 27 146

Turnouts

lkineralLine 150 1i,000 81 Other Standard Gauge 1,500 16,000 720 Narrow Gauge 300 10,000 45

Locomotives

Electric 13 1,335,000 520 Diesel,VN 92 1,000,000 2,760 Diesel,VE 19 1,000,000 570 Autorails,VN 6 1,324,000 238 Autorails,VE 3 1,200,000 108 LocotracteursVN 31 500,000 465 LocotracteursVE 6 300,000 54 Furvons, VE 3 600,000 54

Freight Cars

hineral Line 300 100,000 900 Other VN 6,525 80,0oo 15,660 VE

PassengerCars

,N 350 ,00,000 5,25o VE 40 500,000 600

Other RenewableAssets - 440o00o,ooo 13,200 TOTAL 43,579 ANNEX8 Page 6of8Pages

APPRAISALOF

A RAILWAY PROJECT

ALGERIA

5Ru6 nn Variable Ora~sing tant 1 ong-run Variable Operatirg nCots1971 and Projection for 77 at Constant Pices ns no?1971

1971 1977 Unit No. of Uits t P Unit Total ost N. Unito Total Gant (DA) (DA 000) (DA 000) Freight

Main-line losomotlve o9ts: Electric, UN Crews Train-km B70,000 1.954 1,700 1,890,100 3,693 Power, lubricants, etc. Gros trailing ton-kI 721.6 million o.oo485 3,500 1,701 million 8,250 Repair and loc-km1aintenanoe 961,000 4,710 4,526 2,'09,OO0 7,172 Unit cons oxpeotodta reduce to LA 3.50 chen new icomnottoesare 10ully opeentionia1. Depreciation loo.-km 961,000 0.4433 426 2,1C9,OO0 908 Diesel, VN Crecs Train-ke 3,183,000 1.946 6,195 7,704,000 14,992 Fuel lubricants, etc. Grons trailing ton-km 1,920.8 million 0.0014 2,621 5,738 million 6,633 Repair and maintenance loco-km 3,369,000 3.1306 10,547 8,064,000 25,245 Depreciation locs-km 3,369,000 0.5313 1,790 8,o64,10G 4,284 Diesel, VE Crecs Traiis-km 918,000 1.155 1,060 1,860,000 2,158 Fuel, lubricants, etc. Gross trailing ton-km 223,8 million 0.0016 353 613.8 nillion 987 Repaira and naintenance ioao-bn 936,000 2.6282 2,460 1,895,000 4,980 Depreciatian mloca-k 936,000 0.5021 470 1,895,000 951 Locotracteurs, VN Crecs Train-kb 82,000 1.000 82 57,000 57 Fuel, lobricants, etc. Gross trailing ton-km 12.5 million 0.0048 60 8.6 million 41 Repaire and maintenance loca-km 98,000 3.5204 345 77,000 271 Depreciation inca-kb 98,000 0.837 82 77,000 64 Pourgans Autonoteurs VE Grecs Train-be 53,000 1.250 66 60,000 75 Fu1e, lubricants, etc. Gross trailing ton-km 6.1 million 0.0031 19 6.6 million 20 Repairs and maintenance loa-bn 53,000 5.906 313 60,000 354 Depreciation looo-km 53,000 1.189 63 60,000 71 Yard Looomotive CoGtas Electric, VN 167 Crecs ) ) 10.353 121 ) 263 FPol, lubricants, etc. ) loco-hour ) 1,688 16,352 191 ) 16,12026 Repairs and naintenance ) ) 23.358 273 ) 376 Depreciation ) ) 2.481 29 ) 40 Diesel, VN Grecs ) ) 8.819 92 251 Cre 2 5 128~~~~~~~~~552 Fuel, lubricants, etc. 10,32 455 28,45 37634 Nepairs aod naintenance 0,3 13.229 138 363 Depreciation ) ) 2.205 23 63

Diesel, VEU 0 Grecs ) ) 8.773 il 8 FPel,lubricants, etc. ) ) 1 656 2 ) Repairs and maintenance l) 9106 il ) , 41 Depreciation ) ) 1.656 2 7

Carried farward 37,618 82,951 ANNEX 8 Page 7 cf 8 Pages

APPRAISAL OF

A RAILWAY PROJ13CT

AJLERIA

Long-Run Variable Operating Ccst

ra rible Opera tin Costa 1971 and Projection for 1977, at Constant Prises as cf 1971

______197___ __1977 Unit Na. cf lIita Co-t per Unit Total Cost No. cf Units Total Cost (DA) (DA O0O) (DA 000)

Brought foraard 37,618 82,951

Yard Lcccmotive Co9ts (ocnt'd) tooctracters, 7VN Creva ) ) 11.327 1,242 ) 2,606 FPol, lubricanta, etc. ) loco-hscc 109,62 3.612 396 ) 221,250 799 Repairs and maietenanse ) ) 17.578 1,927 ) 3,889 Depreciation ) 55.154 565 ) 1,140

to otracteurs, VE Coe) 9.988 215 ) 427 Fuel, lob,ioanto,etc. )1-o-aou ) 21,520 0.836 18 42,750 36 Repairs and maintenance ) 15.799 340 675 Depreciation ) y 3.485 75 y 149

Fourgons automoteurs, VE Cracs Fuel, lcbricants, etc. ) ) 12.528 4l ) 55 Ropaors ar.d minte.-r-ce ) 'oca-hour 3,289 1.825 6 44,384 8 Depreciations ) 26.76E 88 ) 117 5.779 19 ) 25

Trai Cs rain 5,106,0o 0.979 4,999 11,571,000 11,328

Track Costs: Maintenance Gros, ton-ks 3.3 billion 0.00324 12,693 8.0 billion 25,920 Depreciation Gross ton-ko 3.3 billion 0.001032 3,06 8.0 billion 8,256

Wagon Costs: Repairs and maintenance Wagon-km 87.1 million 0.1188 10,346 221 oillion 26,255 Depreciation Wagon-ko 87.1 nillion 0.10413 9,070 221 million 23,013

Yard Staff Yard loco-hour 157,760 77.320 12,198 317,484 24,548

Station Staff Wagon loaded 214,400 26.688 5,722 487,500 13,010

Administration Train-km 5,106,000 o.5096 2,602 11,571,000 5,897

Transshipment Ton 60,000 5.00 300 100,000 500

Total Freight Long-run Variable Cost 10,l886 231,604

Pasoseger:

Main-lins Locomotive Costs: Clectric ,VN Crews Train-ko 235,000 1.281 301 250,000 320 Power, lubricants, etc. Gross trailing ton-km 91.1 million 0.00574 236 42.5 million 244 Repairs and maintenance lace-km 260,000 4.7115 1,225 271,000 949 Depreciation locs-km 260,000 o.9923 115 271,000 120

Diesel, VN Creva Train-km 3,16,o002 0.876 3,430 3,000,000 2,628 Fuel, lubricants, etc. Gress trailing ton-ko 937.8 million 0.0018 1,692 720 million 1,296 Repaira and maintenance loa.-km 4,145,000 3.1308 12,977 3,140,000 9,831 Depreciation loce-km 4,145,000 o.Soo 2.069 3,140,000 1,570

Carried forward 22,045 16,958 ANNEX 8 Pae 8of 8 Pages

AP9AISATL 0?

A RAI-tWA-YP_ROlT

ALGERIA

LnsohieVariable Oseratl

ko&-rurn Variable OpU1 ra-iqg O -t.s 1971.and PrJetion for 1977 at COsstar Pris as of 1971 1,_971 1977 Unit Na. cf tUait cost par lrnit Tata! test a--.f lUits Tota! Gcst (DA) (DA 000) (DA 000)

Brought fsraard 22,045 l1,958

Patsenger:-

Main-li-e Lbaoamtiv- os-ta (seetd) Diesel, VE Crews Traie-lk 686,ooo 0.820 530 770,0w0 631 Fael, lubricants, etc. Crosa trailing tan-km 87.9 million O.OC20 177 115.5 emllion 21 Repaira aed maintenance baso-b, 658,coo 2.628 1,729 785,000 2,063 Depreciation Loce-km 658,0o0 0.500 329 785,0oo 393

Autaraila, VN Cr-es L-co-km 281,000 0.790 222 h,420,COO 3,492 Fuel, Iubricante, etc. Loco-ks 2%,000 0.2064 58 4,420,00 912 Repairs and maintenance Loco-km 2di,000 4.936 1,387 4,420,0wco 1,326 Unit cost expected ta rdedca ta DA 3.0 whnee railcars Depreciation Lace-km 281,000 1.1032 310 4,420,000 4,876 are placed ens.raice

Autarai1s, VE Crews Ltco-km 140,000 0.657 92 200,000 131 Fan!, labricanto, etc. bLoc-km I40,000 0.207 29 200,000 8 Repaire ard maintenance Laco-Ik 140,000 8.56h 1,199 200,000 800 Depreciation Lbac-km i40,100 o.6co 84 200,000 120

Train Cosis Train-km 5,203,000 1.270 6,607 8,620,OCO 10,947

Track C-ots Maintenance Gross Lac-ka 1.5 billisn 0.00315 4,722 2.0 billion 6,300 Depreciation Gra:s tsn-ik 1.5 billion 0.0009 1,345 2.0 billion 1,800

Gar Gasts Repaire and CaintenacGar-day 320,870 35.024 11,224 298,000 10,837 Depreciati-s Car-day 320,870 10.272 3,292 298,000 3,061

Statian CGats Passenger 7.89 million 0.725 5,720 10.64 rlUlion 7,714

Adininitr-tion Trais-ks 5,203,COO 0.310 1,613 8,620,wOO 2,672

Tabtl P-e.e.gr Lae--rsC Variable Cent 62,694 74.905

Total Lon-e Variable Coal 164,80 306,509

Adralysi by Category af Expense: 188,8'3 Staff coste 103,210 Fusl, p-cer, 1rrbrica-tc 9,405 19,890 Materials and general charges 98,437 16,893 Depreciation: Permanent ways 4,715 10,256 Lcom.oti-ea and rolling sictk 18 813 40.855 otal 3009509

May 1974 APPRAISAL OF A RAILWAY PROJECT ALGERIA LONG-RUN VARIABLE COST- 1971 FREIGHT TRAFFIC cosT (DINARS) ie I

STANDARD GAUGE (EXCLUDING WNERAL JNE) COST PER TON IN CARLOAOS OF VARYING NET LOAD ANO LENGTH OF HAUt., WITH EMV RETURN 140- HAUL OF 60% IAVERAGE 1971)

100 _ A0-

O 100 200 300 400 500 600

LENGTH OF HAUL (KILOMETERS)

Wortd Bank-7575(R)

APPRAISAL OF A RAILWAY PROJECT ALGERIA LONG-RUN VARIABLE COST - 1971 FREIGHT TRAFFIC STANDARD GAUGE (EXCLUDING MINERAL LINE) COST (DINARS)

COST PER TON IN CARLOADS OF VARYING NET LOAD AND LENGTH OF HAUL WITH 100% EMPTY 140 _ RFTURN HAULAGE

120

80

0 100 200 300 400 50060

LENGTH OF HAUL (KILOMETERS)

Worid Bank-7576(2R)

APPRAISAL OF A RAILWAY PROJECT ALGERIA LONG-RUN VARIABLE COST - 1971 FREIGHT TRAFFIC

COST (DINARS)

STANDARD AUGE (EXCLUDING MINERAL LINE1 COST PER TON IN CARLOADS OF VARYING NET LOAD 10C _ AND LENGTH OF HAUL, WITH NO EMPTY RETURN .AULAGE.

1~~~~~~~~~~~~~~~1 _ __ I I 600

0 100 200 300 400 500 600

LENGTH OF HAUL (KILOMETERS)

World Bank-7577(R)

ANNMEX9 Page 1 of 4 Pages

APPRAISALOF

A RAILWAYFROJECT

ALGERIA

Statistios 1970-1972 and Projections for 1977

197) 1971 1972 Iraffic

Freight, tons (million) Iron ore and phosphates 3-03 3.16 3.94 5.85 Other traffie 3-14 2.87 2.48 7.04 Freight, ton-km (million) Iron ore and phosphates 603.4 595.4 789-5 1,278.0 Other traffic 746-5 739.2 709.8 2,033.0 Passengers, no. (million) 7.75 7.89 7.34 10.64 Passenger-km (million) 1,013 1,097 1,016 1,467

Train locomotive-km, including assisting locomotives (000)

Passenger - electrie, VN 249 235 169 250 diesel, VN 4,054 3,916 4,204 3,000 diesel, VE 608 646 627 770 shunters, VN 1 - 2 railcars, VN 319 266 206 4,400 railcars, VE 17 140 160 200 total, passenger 5,406 ,203 ,36F 8,620 Freight - electric, VN 1,094 870 394 1,890 Uiesel, VN 3,389 3,183 3,968 7,704 diesel, VE 952 918 1,010 1,860 shunters, VN 54 82 51 57 motor luggage vans 55 53 49 60 total, freight 5,544 5;,lo6 5,472 11,571 Service - electric, VN 5 2 2 10 diesel, VN 185 206 151 220 diesel, VE 3 3 3 5 shunters 2 1 1 total, service 195 212 157_ Total, train,locomotive - km 11,145 10,521 10,997 20,429

Other locomotive - km (000)

Yards - electrie, VN 55 58 28 80 diesel, VN 71 44 106 120 diesel, VE 5 4 10 15 shunters, VN 579 548 511 1,106 shunters, VE 78 75 69 149 motor luggage vans 17 1 9 20 total 805 744 733 1,490 Light running, etc. - electrie, VN 146 116 63 180 diesel, VN 447 415 429 500 diesel, VE 31 30 27 50 railcars, VN 18 15 il 20 shunters VN 8 16 18 20 total 650 592 748 ANNEX 9 Page 2 of 4 Pages

APPRAISALOF

A RAILWAYPROJECT

ALGERIA

Statistics 1970-1972 and Proiection for 1977

Total Locomotive - km (000) 1971 1972 VNT- electric 1,549 1,281 656 2,410 diesel 8,146 7,764 8,858 11,544 shunter 644 647 583 1,186 railcar 337 281 217 320 VE - diesel 1,599 1,601 1,677 2,700 shunter 78 75 69 149 rail-ar 175 140 160 4,300 motor luggage van 72 68 58 80 Total 12,600 11,857 12,278 20,739

Locomotive - km per locomotive in service Electric, VlT 72,400 61,000 27,300 100,000 Diesel, VN 97,600 77,000 88,100 95,000 Diesel, VE 87,400 80,000 83,900 90,000 Shunter, VS/VS 14,800 14,200 11,800 15,000 Railcar, VN/VE 48,400 54,000 54,600 70,000 Gross trailing ton-km (million) Freight: VN - electric 947.9 721.6 275.5 1,701.0 diesel 1,822.1 1,920.8 2,746.o 4,738.0 shunter 5.5 12.5 9.3 8.6 VE - diesel 234-3 223.8 222.4 613.8 motor luggage van 6.1 6.1 4.9 6.6 Total, freight 3,015.9 2,884.8 3,258.1 7,068.0 ANNE 9 Page 3 of 4 Pages

APPRAISAL OF

A RAILWAYPROJECT

ALGERIA

Statistics 1970-1972 and Projection for 1977

1970 1971 1972 1977 Gross trailing ton-km (million) ( continued) Passenger: VN - electric 39.2 41.1 26.5 42-5 diesel 988.0 937.8 1,008.5 720.0 railcar 32.4 27-3 21.0 448.8 shunter 0.1 - 0.2 -

VE - diesel 91.0 87.9 82.4 115.5 railcar *13.0 10.4 11.8 15.0 Total, passenger 1,163.7 1,104.5 1,150.4 1,341.8 Total, all services 4,179.6 3,9893. 4,408.5 8,409.8

Net ton-km per main-line freight locomotive-km

VN - electric 480 450 380 500 diesel 219 262 312 270 shunter 45 70 80 70

VE - diesel 112 110 105 150 motor luggage van 53 55 45 50

Gross trailing ton-km per main-line locomotive km Passernger: 170 TN - electric 157 174 156 diesel 243 239 239 240 railcar 101 102 102 102 shunter 86 112 95 100 VE - diesel 149 135 131 150 railcar 74 73 74 75 Freight: VN - electric 862 827 695 g9o diesel 509 566 666 615 shunter 98 150 179 150 330 VE - diesel 245 242 219 motor luggage van 111 115 98 110

Freight waeon -performance Wagon-km (million) loaded 55.0 52.0 56.1 132.6 empty 36.9 .±.1 37.8 88.4 total 91.9 87.1 93.9 221.0 % loaded to total wagon-km 59.8 59.7 59.7 60.0 Average wagon-load, loaded wagons only (tons) 25.1 25.7 26.7 25.0 ANNEX 9 Page 4 of h Pages

APPRAISAL OF

A RAILWAYPROJECT

ALGERIA

Statistics 1970-1972 and Projection for 1977

1970 1971 1972 1977 Freight wagon performance (continued) No. of Wagons loaded 227,100 214,400 216,300 487,500 Wagon turnaround (days) 9.5 9.8 9.7 9.0 Wagon-km per wagon-day in use 42.6 41.6 44.7 50-0 Wagon-km between turnaround 405 406 434 450 Net ton-km per wagon-day in use 641 638 713 750

Passenger train vehiules: Passenger-km (million): (Excluding autorails) lst Class 44.9 54.0 35.6 40.0 2nd Class 967.7 1,043.2 980.3 997.0

Total 1,012.6 1,097.2 1,015.9 1,037.0 Baggage, express and mail: Tons (000) 43.4 67.4 97.5 136.0 Ton-km (million) 18.4 26.3 33.5 47-0 Passenger-km per car-day in stock: lst Class 4,110 2,709 3,044 2nd Class N/A 6,110 4,745 5,000 3rd Class N/A 10,600 10,430 10,000 Ton-km of baggage, mail and express for car-day in stock N/A NIA 185 300

Staff Statistices No. of staff employed 10,695 10,950 11,000 16,828 Average cost for man employed (DA) Salaries, wages, allowances 10,606 10,544 11,004 12,750 Social services 3,934 4,022 4,374 5,000 Total 14,540 14,566 15,378 17,750 Traffic units (ton-km plus pass-km) per man employed (thousands) 223.8 222.1 228.7 283.9 Staff costs expressed as % of: Operating revenue 63.2 65.1 72.1 62.5 Operating expenses 62.6 58.2 60.4 54.1

Passen r revenue Passenger-km (million) 1,013 1,097 1,016 1,467 Average revenue per pass-km (DA) 0.0971 0.0883 0.0841 0.0900 Total passenger revenue (including State contribution - DA million) 98.36 96.89 85.48 132.03

Freight revenue Net ton-km (million):- Iron ore and phosphates 603.4 614.6 789.5 1,278.0 Other traffic 746.5 691.9 709.8 2,033.0 Average revenue for net ton-km (DA): Iron ore and phosphates 0.0563 0.0551 0.0516 0.0560 Other traffic 0.1147 0.1156 0.1221 0.1220 Total freight revenue (DA million): Iron ore and phosphates 33.99 33-88 40-74 71-57 Other traffic 85.64 79.96 86.70 248.03 Total 119.63 113.84 127.44 319.60

May 1974 ANNEX 10 Table i APPRAISAL OF

A RAILWAYPROJECT

AIERIA

Financial Statement Income Account

1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977

Operating Revenue: (DA million)

,ai.5ï,gii - Teic; CL.gOhag 41.32 48.80 55.5Y' S.03 5°.75 80.80 80.80 92.00 104.00 115.50 127.03 (b) Reimbursement by the State of legislatively approved reductions in fares 21.72 26.39 28.28 40.33 38.14 4.68 5.oo 5.00 5.00 5.00 . 5.00 Baggage .72 .77 .83 .95 .98 .96 1.10 1.19 1.28 1.38 1.50 Express 8.314 9.13 9.66 8.82 7.142 7.00 8.00 8.00 8.00 8.00 8.00 Freight Traffie 74.26 97.11 107.22 119.63 113.84 127.28 125.50 172.00 218.00 268.00 319.60 Freight miscellaneous charges 1.60 1.54 2.99 3.66 3.18 4.58 4.50 4.50 h.75 4.75 5.00 Mail 2.46 2.44 2.30 2.38 1.99 1.97 2;00 2.00 2.00 2.00 2.00 Miscellaneous receipts 4.66 10.98 14.37 12.24 20.63 7.38 10.00 10.00 10.00 10.00 10.00

Total Operating Revenue 155.0 197.16 221.24 246.04 244.93 234.65 236.90 294.69 353.03 414.63 478.13

Operating Expenses:

Staff costs: Salaries, wages, allowances 94.54 96.75 99.37 113.44 115,46 121.04 125.73 147.00 170.00 191.00 214.55 Social charges 36.30 38.18 41.06 42.08 44.05 48.12 49.72 58.oo 66.oo 75.00 84.114 Fuel, electric power and lubricants 8.32 9.52 8.36 7.99 9.09 7.91 8.00 13.00 17.00 22.00 26.30 Other materials 13.24 12.54 17.32 19.11 25.97 20.76 27.00 34.50 42.00 49.50 57.10 General charges 9.16 18.37 17.47 23.39 33.39 25.58 23.05 25.50 27.50 29.50 31.90 Duties and Taxes 15.51 17.86 18.74 20.27 24.43 23.66 22.00 28.00 32.00 37.00 41.00 Depreciation of plant & equipment 17.74 18.42 19.78 21.96 21.38 21.23 20.50 30.00 35.00 45.'00 57.90 Renewal of track 2.16 3.11 2.88 2.27 1.20 11.55 30.00 35.00 40.00 45.00 40.00 196.97 214.75 224.98 250.51 27-1.97 279.85 306.00 371.00 1429.50 494.00 552.89 Less: Reimbursesment by the State in respect of

(a)Permanent way maintenance and renewal 38.48 41.14 43.22 49.16 44.62 63.57 80.00 91.00 102.00 113.00 114.94 (b) Proportion of cost of level crossing guards 1.21 1.82 1.83 2.10 2.35 2.67 2.80 2.80 2.90 2.90 3.00 (c) Pre-1959 pensions 2.81 2.84 2.37 1.90 1.73 0.59 .50 .40 .30 .20 .16 42.50 _ 45.80 47.42 53.16 48.70 66.83 83.30 94.20 105.20 116.10 118.10 Total Operating Expenses 154.47 168.95 177.56 197.35 226.27 213.02 222.70 276.80 324.30 374.90 434.79 Net Operating Revenue .61 28.21 43.68 48.69 18.66 21.63 14.20 17.89 28.73 36.73 43.34

Profits of subsidiaries and other non-operating revenue .34 3.09 7.28 23.82 16.26 - 5.00 5.00 5.00 5.00 5.00 .95 31.30 50.96 72.51 34,92 21.63 19.20 22.89 33.73 41.73 48.34 Net Revenue Applied as follows:- Debt Service - Interest 2.44 2.70 2.30 2.75 2.78 3.33 7.28 15.54 25.13 36.54 47.67 Redemption 4.81 6.37 7.84 8.09 8.30 9.61 8.21 8.90 7.60 9.11 11.07 Surplus (or deficit), after service of debt paid to (or reimbursed by) the state (6-30) 22.23 40.82 61.67 23.81 8.69 3 7 (3 5S! 1.00 3.92) (10.14c0

.95 31.30 50.96 72.51 34.92 21.63 19.20 22.89 33.73 41.73 48.34

May 1974 ANNEX 10 Table 1 APPENDIX A

APPRAISAL OF

A RAIIWAY PROJECT

ALGERIA

Financial Statements Note on Income Account

OperatingExpenses, 1971, and Projectionfor 1977

1971 1977 1977 Projection Adjusted for Actual at constant Estimated Price prices Increases -______----- (DA OOO) ------

Staff Costa: Long-runvariable 103,210 188,813 230,086 Fixed 56,300 56 300 68,607 Total 159,510 2, 298,693

Fuel, Power, Lubricants, etc. Electric Power 3,927 8,757 10,500 Diesel Fuel, Lubricants 5,478 10 535 15,800 Total 9405 19,29200

Materials and General Charges Materials 25,970 42,825 57,100 General Charges 33,390 1/ 29,000 31,900 Total 59,360 71,825 89,000

Depreciation of Plant and Equipment Locomotives,Rolling Stock, etc. 18,813 40,855 54,473 Buildings and Other Assets not Part of PermanentWay 2,567 2,567 3,423 Sub-total,Charged to Rpilway Revenue 227,896

Track, Turnouts,Ballast, etc. 14,651 19,956 26,608 Bridges, Culverts and Other Permanent Way Structures 8,397 8 397 11 196 Total 44,42777 95,700

Track Maintenance and Renewal Track Maintenance 33,189 49,994 62,490 Bridge Maintenance 1,323 1,323 1,650 Supervision 8,909 8,909 10,800 Track Renewals 1,199 40,000 40,000 Total 44,620 114,940

1/ Includes exceptional and non-recurrent expense. ANNEX10 Table 2

APPRAISALOF

A RAILWAYPROJECT

ALGERIA

Summay Balance Sheets

1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 ------Actual ------Estimated ------(DA million) Fixed Assets, gross book value 1,874.3 1,873.3 1,900.6 1,904.2 1,904.4 1,997.3 2,066.6 2,241.6 2,251.6 2,653.7

Less: Balance of Renewals Fund 74.6 88.4 107.4 98.4 83.0 10.7 20.0 20.0 20.0 20.0

Net book value 1,799.7 1,784.9 1,793.2 1,805.8 1,821.4 1,986.6 2,046.6 2,221.6 2,431.6 2,633.7

Investments held on behalf of Pensions and Provident Funds 5.1 4.6 4.7 5.2 6.8 6.8 6.8 6.8 6.8 6.8

Investments in Governrnent Bonds - - - 19.0 19.0 19.0 19.0 - - -

Current Assets:

Cash and bank balances 69.o 90.4 77.3 51.9 23.2 16.7 17.3 54.9 62.2 59.8

Receivables 225.9 144.9 126.8 102.1 142.0 132.0 122.0 112.0 102.0 92.0

Inventories 50.8 49.8 50.8 62.5 83.2 83.2 83.2 83.2 83.2 83.2

Suspense accounts 11.6 16.0 25.9 44.7 81.5 71.5 61.5 51.5 41.5 31.5

Total current assets 357.3 301.1 280.8 261.2 329.9 303.4 284.0 301.6 288.9 266.5

2,162.1 2,090.6 2,078.7 2,091.2 2,177.1 2,315.8 2,356.4 2,530.0 2,727.3 2,907.0 Current Liabilities:

Creditors 168.3 76.9 63.7 91.0 171.1 151.1 131.1 111.1 91.1 71.1

Suspense accounts 35.7 48.3 58.2 21.2 6.9 6.9 6.9 6.9 6.9 6.9

Total eurrent liabilities 204.0 125.2 121.9 112.2 178.0 158.0 138.0 118.0 98.0 78.0

Pensions, Provident Funds, etc. 11.5 10.5 10.2 9.8 7.5 8.0 8.0 8.0 8.0 8.0

Long - tera Debt 111.6 119.4 97.3 111.6 126.8 277.8 329.5 515.5 723.7 912.4

Equity Equivalent

Government capital and reserves 1,835.0 1,835.5 1,849.3 1,857.6 1,864.8 1,872.0 1,880.9 1,888.5 1,897.6 1,908.6

2,162.1 2,090.6 2,078.7 2,091.2 2,177.1 2,315.8 2,356.4 2,530.0 2,727.3 2,907.0

Source: Mission, based on SNCFA information.

May 1974

ANNEX10 Table 3 APPRAISALOF

A RAILWAYPROJECT

AIGERIA

Cash Flow

1968 1969 1970 1971 1972 1973 1975 1975 1976 1977

------Actual------Es timanted ------Source of Funds

Net operating revenue 28.2 43.6 48.7 18.6 21.6 15.2 17.9 28.7 36.7 43.3 Provision for depreciation of plant and equiprnent 18.4 19.8 21.9 21.5 21.2 20.5 30.0 35.0 45.0 57.9 Profits of subsidiaries and other non-operating revenue 3.1 7.3 23.8 16.3 - 5.0 5.0 5.0 5.0 5.0 Decrease in working capital - - 3.9 ------

Total internally generated funds 49.7 70.7 98.3 56.3 42.8 39.7 52.9 68.7 86.7 106.2 Reimbursement by Goveronent of track renewal expenditure 3.1 2.9 2.3 1.2 11.6 30.0 35.0 40.0 45.0 40.0 Realization of Government bonds ------19.0 - - Borrowing from Government for investrment: (a) from Government resources 17.2 15.6 - - 12.9 45.0 54.0 140.0 155.0 155.0 (b) from external borrowing, general - - - 22.6 16.1 120.7 - - - 25.0 (c) from external borrowing, IBRD ------19.2 69.8 78.5 39.1 Total Fiunds Available 70.0 89.2 100.6 80.1 83.3 235.9 161.1 337.5 365.2 365.3 Application of Funds

Increase in working capital 17.7 1.2 - 15.5 31.1 - - - - Payrent of surplus earnings to Government 22.2 40.8 61.7 23.8 8.7 3.7 (1-5) 1.0 (3-9) (10-4) Investrents on behalf of pensions and provident funds (0.5) 0.5 0.4 0.9 1.8 0.5 - Investment in Government bonds - - - 19.0 ------Debt service: Interest 2.7 2.3 2.7 2.8 3.3 7.3 15.5 25.1 36.5 47.7 Payment of principal: (a) charged to income account 6.4 7.8 22.1 8.3 9.6 8.2 8.9 7.6 9.1 11.1 (b) charged to renewals fund - - - - 45. 6.5 12.6 16.2 16.2 19.3 Capital investment: Renewal - track 3.1 2.9 2.3 1.2 11.6 30.0 Renewal, other assets 12.7 6.0 2.9 30.5 38.7 92.7 ) 125.0 250.0 300.0 300.0 Additions 9.0 6.3 21.5 3.7 3.2 93.0 )

Total Funds Applied 73.3 67.8 113.6 105.6 112.0 251.9 160.5 . 299.9 357.9 367.7 Cash balance at December 31, 1967 72.3 Cash surplus (or deficit) for the period (3.3) 21.4 (13.0) (25.5) (28.7) (6.5) o.6 37.6 7.3 (2,4) Cumulative cash balance 69.0 90.4 77.4 51.9 23.2 16.7 17.3 54.9 62.2 59.8 Debt service coverage (total internally generated funds, less payment of surplus earnings to Government/ total debt service) 3.0 3.0 1.5 2.9 2.0 1.6 1.4 1.4 1.5 1.4

Source: Mission, based on SNCFA information.

May 1974

ANNEX 11 Page 1

APPRAISAL OF

A RAILWAY PROJECT

ALGERIA

Economic Evaluation

A. Investmentsand Benefits

Grande Rocade

Passenger Traffic

1. Since no reliable data are available for economic operating costs of buses, the contributionto overhead costs from railway passenger service was chosen as a measure of benefit. In 1971, the long-run marginal cost of passenger traffic on the normal gauge lines amounted to DA 0.0572 per pass-km and the average revenue per pass-km to DA 0.0883. Hence the contributionto overhead in 1971 was DA 0.0311.

2. If the proposed track renewal and modernization program were not carried out, passenger services would have to be withdrawn gradually, thus causing traffic decreases of 40% in the first year, 40% in the second and total withdrawal of passenger services in the third year. It is further as- sumed that in the case of passenger services withdrawal only 50% of the con- tribution to overhead represents a net benefit, since a moderate reduction in fixed cost would be possible due to eliminationof stations, personnel, equip- ment, etc. The attached table shows the estimated net benefits from passen- ger service.

Freight Traffic

3. The analysis is based on two principal assumptions regarding SNCFA's investments: (a) investments (DA 650 million over 12 years) necessary to carry out a program of renewal of rolling stock and track (renewal program); (b) investments (DA 3.2 billion over 12 years) necessary to accommodate the expected passenger and freight traffic levels and to renew the existing roll- ing stock and infrastructure(extension program). However, the extension

1/ Except Mineral Line. ANNEX 11 Page 2 program excludes any new line constructionson the Grande Rocade since plan- ning is still only in the preparatorystage and consultantswill study the Droblerisin detail.

Regarding the renewal program, it is estimated that the new roll- ing stock already acquired by SNCFA and some state enterprises,and to be procured under the proposed project, will meet SNCFA's renewal needs. This rolling stock would be sufficient to carry a traffic of 5 million tons an- nually, a level which will be reacliedby the end of 1975/76. The renewal of track is expected to continue up to 1983, as planned by SNCFA. Some minor additional renewalworks totalling DA 20 million per year have also been taken into account in the investment expenditure. The investment cost stream for the reneval program is given in tlheattached table.

5. The economic benefits to be generated from the two investmentpro- graris are derived from a comparison of long-run marginal cost of rail freight traffic and vehicle operating cost. If the renewal program were not carried out the track would graduallydeteriorate over about six years until traffic would finally have to be disccontinued.The resultant shift of traffic to highwavs could only be accomplishedat higher economic cost. The main bene- fit of the extension program would be to enable the railways to carry traffic over and above the 5 million tons considered as the upper limit for the re- newal program,. With the renewal progran, long-run marginal costs would de- crease, as a consequence of improved operations and a higher traffic level, from DA 0.1111 per ton-km (including transshipment) in 1971 to DA 0.0529 in 1977, and thereafter increase by about 5%. With the extension program, long-run marginal cost are expected to continue decreasing until 1980 because of increases in traffic volume and the concomitant economies of scale. It is assumed that thereafterpossible further cost decreases through increasing traffic will be balanced by higher operating cost through increased wear and tear of rolling stock and motive power. ANNEX 11 Page 3

6. The following road vehicle oDerating costs were used in the rail/ rnad comparison:

Cost Item (Centimes per vehicle-km) b

Fuel 4.37 Oil 1.11 Tires 8.32 Mlaintenance 9.39 Wages 33.46 Depreciation ';8.13 74.78 Road Maintenance and Renewal 24.07 98.85

Payload (tons) il Load Factor .65

Velicle Operating Cost per ton-km 13.82 a/ Based on a Berliet GLR-160. b/ Taxes excluded.

Source: B.C.E.O.M., Etude de Rentabilite d'Amenagements Routiers, Table 5.12, Nay 1972.

:lirneralLine

7. About 85% of transports on the Mineral Line (from Annaba to Quenza and Djebel Onk) consists of iron ore and phosphate. Passenger traffie had to be reduced considerably for safety reasons and because the line is reach- ing its capacity limit. The possibilities of increasing line capacity through track doubling or construction of bypasses are being examined. The analysis presented here takes into account only investments necessary to assure full utilization of the existing Mineral Line. The carrying capacity of the line will be reached by about 1978. It is assumed that traffic there- after would remain at capacity. Any increase would have to be accommodated througlinew line construction. el. The economic benefits of the project are derived from a comparison ol- tiue alternatives of executing the planned investments for the line and tritiskeepiing it open for traffic, or closing the line in 1974. In case of line closure no alternative means of transport would be available. Since iL was impossible to measure the loss in value added of mineral production an(l transport, it was decided to use as a minimum criterion for the benefit to be derived from continued operation of the line, the net contribution of min-ieraltraffic to the railways' fixed cost; in 1972, this amounted to DA 0.0141 per ton-km. Cost and benefit streams for the Mineral Line as well as forecast traffic are presented in the attached table. ANNEX 11 Page 4

B. Sensitivity Analysis

Grande Rocade

9. Two factors whiclicould adversely affect the economic return were corisidered:(a) increasing investment cost, and (b) reduced traffic growth.

(a) Ait increase in investment cost of 10% would reduce the return from 21% to 18%, in tlhecase of both the renewal progran and the extension program;

(b) A decrease in traffic growtn from 16% p.a. up to 1984 to a low of 12% p.a. would reduce the economic return of the renewal project to only 18%, whereas the economic return of the extension program would be reduced to 5%. The reason for the considerabledifference in the sen- sitivitv of the two alternatives to traffic changes is that the renewal program concentratebon existing traffic and could not in any case accommodatea higher traffic level than 1.7 billion ton-km p.a. whlichwill be reached by about 1975/76; whereas the extension program primarily aims to create sufficient capacity for expected traffic growth beyond 1975/76.

10. In conclusion,the tests show that both the renewal and the exten- sion program are sensitive to increases in investmentcost and decreases in traffic. lIowever,the renewal progran would still be acceptable even if the pessimisticassumption would materialize. As regards the extension program, the tests indicate that a high sustained traffic growth is a crucial pre- requisite to justify an extension program of the assumed size.

*fineral Line

11. Regarding the Mineral Linie,tihe estimated economic return of 23% is already very conservative,as pointed out in parai5.08. Traffic is captive and depends primnarilyon the extension plans of the steel and phos- phate factories in Annaba, both of which have firm production plans up to 11)77. Therefore, no downward change in the projected traffic levels is e;pect«l. however, investmentcost mnightbe susceptibleto increases of about 10%. Yet, this would still result in a satisfactoryeconomic return of 2o%.

MIay 1974 APPRAISAL OF

A RAILWAY PROJECT

ALGERIA

Estîma'es for the Ezionz, c- Eval-uat'on

Traffic Year Railway PassenzerTraffio Freigu Traf fi Net Benefits Invest- With Without Wth Withot Passenger Freight Total ment Investmnent Investment Grande Rocade (in miliEn paes-I` or ton-km) ------(in million DA) ------

1974 1,255 753 1,132 1,132 13 ° 13 22 5 1,326 265 1,398 1,398 25 0 25 78 6 1,396 0 1,651 1,299 28 6 34 138 7 1,467 2,033 1,199 26 22 k8 50 e 1,612 2,344 983 23 52 75 50 9 1,741 2,697 605 25 52 77 50 1980 1,880 3,101 O 27 6h 91 50 i 2,031 3,566 30 94 50 2 2,193 4,100 32 96 50 3 2,369 . 4,716 34 98 50 2,550 5,423* 37 101 30

1999 2,550 0 5,423 0 37 6L 101 30

Mineral Line

1974 955 0 1h 14 19 5 ,o054 15 15 32 6 1,163 16 16 32 7 1,278 18 18 20 8 1,426 20 20 16 9 il 1980 . il 4 r

1999 1,426 0 20 20 4

May 1974

APPRAISAL OF A RAILWAY PROJECT ALGERIA ORGANIZATION OF MINISTRY OF TRANSPORT

MINISTER OF TRANSPORT

NATIONAL CONSULTATIVE l COMMITTEE FOR TRANSPORT

SECRETARY GEN SECRETARIAT FOR lECRETAR L|EN LEGAL AND ECONOMIC STUDIES

GENERAL DEPARTMENT 0F NATIONAL OFFICE DEPARTMENT 0F DEPARTMENT 0F ADMINISTRATION CIVIL AVIATION 0F PORTS MERCHANT SHIPPING LAND TRANSPORT

SUB-DEPARTMENT SUB--DEPARTMENT ROAD TRANSPORT RAILWAYS

ADMINISTRATION TECHNICAL FINANCE RPERATIONS Source: Ministry of Transport. :i World Bank-8148

APPRAISAL OF A RAILWAY PROJECT ALGERIA ORGANIZATION OF SNCFA-

DIRECTOR GENERAL

MECHANICAL|TRA PERSONNEL MANAGEMENT TRANSPORTATIONWAY AND WORKS JSERVICESSTUDIES

CENTRAL SERVICES CENTRAL SERVICES 3 DISTRICTS 2/ 3 DISTRICTS

ACCOUNTING

CENTRAL SERVICES DISTRICTS

~ALG T OAN TCNTATNE

1/ As of October 1973. 2/ Planned Sources: SNCFA; mission World Bank-8147(2R)

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