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Document of The World Bank Public Disclosure Authorized Report No. 15988-MOR STAFF APPRAISAL REPORT Public Disclosure Authorized KINGDOM OF MOROCCO Railway Restructuring Project Public Disclosure Authorized November 26, 1996 Private Sector Development, Finance and Infrastructure Operations Division Maghreb and Iran Department Middle East and North Africa Region Public Disclosure Authorized CURRENCY EQUIVALENTS Currency Unit = Dirham (DH) DH 1 = US$0.12 US$1 = DH 8.5 FISCAL YEAR July I - June 30 WEIGHTS AND MEASURES Metric system British/US system 1 meter (m) = 3.28 feet (ft) I square meter (m 2 ) = 10.76 sq. ft GLOSSARY OF ABBREVIATIONS AND ACRONYMS B billion CIIPEP Comite interministerielpermanent des entreprises publiques (Interministerial Committee of Public Enterprises) GOM Government of Morocco M million MED Ministry of Economic Development MT Ministry of Transport OCP Office cherifien des phosphates (National Company of Phosphates) ONCF Office national des chemins defer (National Railway Company) ONT Office national des transports (National Transport Office) PSO Public Service Obligation SOE Statement of Expenditure Vice President: Kemal Dervi§ Director: Daniel Ritchie Division Chief: Amir Al-Khafaji Task Manager: Henri Beenhakker KINGDOM OF MOROCCO RAILWAY RESTRUCTURING PROJECT STAFF APPRAISAL REPORT Table of Contents LOAN AND PROJECT SUMMARY ............................. i 1. INTRODUCTION... 1 CouNRY BACKGROUND............................. 1 BANKSECTOR ROLE AND STRATEGY. 2 2. SECTORAL BACKGROUND. 3 THETRANSPORT SECTOR .................... 3 TH E RAILWAYSUBSECTOR .................... 3 RAILWAYSTRATEGY AND RESTRUCTURING PROCESS. .. .. 4 3. THE PROOJCT.CT.. .. S PROJECTOBJECTIVES.5 PROJECTDESCRIPT.ON.5 COSTESTI.ATES ........................................ ,.......6 FINANCINGPLAN .6 PROJECTIMPLEMENTATION. 7 PROCUREMENT.8 DISBURSE. .NTS.9 PROJECTSUPERVISION .9 ENVIRONMENTALASPECTS. 10 4. ECONOMIC EVALUATION . ... 10 EVALUATIONMETHODOLOGY.. 10 ECONOMICEVALUATION AND SENSITIVITY ANALYSIS .10 PROJECTRISKS.11 S. FINANCIAL EVALUATION.... 1 1 ACCOUNTINGSYSTEMS AND STANDARDS .11 PASTAND CURRENr FINANCIAL PERFORMANCE .12 FURIRE FIlNANCIALPERFORMANCE. 13 6. AGREEMENTS AND RECOMMENDATIONS .................................... ... 15 Tables Table 3.1 Project Cost Estimates and Financing. 7 Table 3.2 ProcurementArrangements for the Bank-FinancedItems. 8 Table 3.3 Allocationof Loan Proceeds. 9 Table 5.1 ONCF: Projectionof SumnmaryFinancial Statements (1996-2003).15 Annexes Annex 1 ONCF Organizational Chart Annex 2 PerformanceIndicators for SelectedRailways Annex 3 ONCF Main Statistics- 1980 - 1995 Annex 4 ONCF Motive Power and Rolling Stock Annex 5 Outline of Studies and Consulting Services Annex 6 Projected Activity Indicators Annex 7 Key Perfornance Indicators Annex 8 Project Implementation Schedule Annex 9 Estimated Loan Disbursement Schedule Annex 10 Economic Evaluation Annex 11 Financial Evaluation Annex 12 Financial Sensitivity Analysis Annex 13 Policy Letter Annex 14 Selected Documents and Data Available in the Project File MAP IMRD28080 i KINGDOM OF MOROCCO RAILWAY RESTRUCTURING PROJECT Loan and Project Summary Borrower: ONCF (Moroccan National Railway Company) Guarantor: Kingdom of Morocco Beneficiary: Not applicable Poverty: Not applicable Loan Amount: ESP 5,443 million + US$42.5 million (US$85.0 million equivalent) Terms: 20 years, including a five-year grace period, 50% standard interest rate for LIBOR-based Spanish Peseta single currency loan (SCL), and 50% standard interest rate for LIBOR-based US Dollar SCL. Commitment Fee: 0.75% on undisbursed loan balances, beginning 60 days after signing, less any waiver. Financing Plan: Local Foreign Total =-----US$ million------- World Bank 46 39 85 African Development Bank 69 21 90 European Investment Bank 61 42 103 Government and others 197 139 336 TOTAL 373 241 614 Economic Rate of Return: ERRs per subproject range from 19% to 54%. ERR is about 22% for the overall project. Environmental Rating: B Staff Appraisal Report: Report No. 15988 MOR Map: IBRD 28080 Project Identification No.: 43725 ii L Project Cost Estimates (ISS million) Poject component Loca Foreign Custom Total (direct) Duties A. World Bank_IRD) Studiesand coulting services (1) 0 2 2 Computerequipment 0 1 1 Acquisition of rail and tumouts - 21 1 21 Track renewal FP9/Oujda(2) 34 10 1 45 Track renewal Rabat/Sidi Kacemn(2) 8 2 0 10 Track renewal Casablanca/Maffakkech (2) 11 3 0 15 Base cost (end 1995) 53 38 2 93 Physical contbqencIes 5 4 0 9 Price contingendes 7 3 O 11 TOTAL PROJECT COSTS (A) 66 45 3 113 B. African Development Bank (AfDB) Realignment, track renewal, and platform doubling section Sidi 64 18 1 183 Kacem/Mekn&s(2) Base coas (end 1995) 64 18 1 83 Phycal contingencIes 6 2 0 8 Price contingencies 11 2 0 13 TOTAL PROJECT COSTS (B) 81 21 1 103 European Investment Bank (EIB) Renewal and reinforcementof electric traction facilities 14 18 7 40 (e sy,ubstions) Doubling and track renewal Kenitra/Sidi Slimane (3) 43 25 2 70 Bae cots (end 1995) 57 43 10 110 Physal contgenci 5 4 1 10 Price conftfgencies 9 4 I 14 TOTAL PROJECT COSTS (C) 71 51 12j 134 D. Other Rolling sdockrebilitation 8 12 3 22 Acquisition of 7 electric locomotives - 35 1 36 Acquition of 100 wagons 4.79 2.66 0.93 8.38 Other wagons 3 8 0 11 Containers 0 1 1 2 Modenization of signaling and telecommunicationsfacilities 13 31 4 48 Tools 19 12 1 32 Bue costs (end 1995) 44 98 9 151 Physia contingencIes 1 3 0 S Price contagencies 4 6 1 11 TOTAL PROJECT COSTS (D) 49 108 10 167 GRAND TOTAL BASE COSTS END 1995 (A+B+C+D) 218 197 22 437 TOTAL CONTINGENCIES (A+B+C+D) 49 28 3 80 Phys conthigencies 18 12 2 32 Price contIngencies 31 15 2 48 TOTAL (A+B+C+D) 267 224 26 517 MIscelaneous (4) 76 17 4 97 GRAND TOTAL 343 241 30 614 (1) Outside investmentprogram (2) Including cost of control of works (3) Including realignment,track renewal, and station remodeling (4)Outstanding operations from the 1988 - 1994 plan and miscellaneous IL FINANCING(USS million) LOCAL FOREIGN TOTAL World Bank 46 39 85 African DevelopmentBank 69 21 90 European Investnent Bank 61 42 103 Governmnt and others 197 139 336 TOTAL 373 241 614 IL ESTIMATEDDISBURSEMENTS ([JSS million equivalent) IBRD Fiscal YeuM FY98 FY99 FYOO FYO1 FY02 FY03 Annual 7.5 17.2 17.2 17.2 17.2 8.7 Cumulative 7.5 24.7 41.9 59.1 76.3 85.0 KINGDOM OF MOROCCO RAILWAY RESTRUCTURING PROJECT STAFF APPRAISAL REPORT 1. INTRODUCTION 1.1 A policy environment conducive to private sector development has largely been put in place in Morocco. Since the mid 1980s, growth of private sector exports, particularly in the textile and agricultural industries, has been significant. The Moroccan transport sector plays a key role in encouraging exports, reducing the cost of imports, and enhancing prospects for growth in tourism. Ongoing Bank-financed projects therefore focus on improving port and road transport policies. The Government and the Moroccan National Railway Company (Office national des chemins de fer, ONCF) first expressed an interest in Bank assistance in 1990. However, the Bank's position was that in order to prepare a railway loan two conditions had to be satisfied; i.e., establishment of a Performance Contract between the Government and ONCF, and completion of discussions on rail tariffs for phosphate transport. Both of these conditions have now been satisfied. 1.2 A railway loan makes sense only if it bolsters a fully commercial operation of railway activities by transforming ONCF into a joint stock company. In the long run, this would enable the Government to significantly reduce support to the railway subsector. To achieve this goal, ONCF's financial viability and fixed infrastructure (in need of rehabilitation and maintenance, which have been delayed due to lack of funds) have to be improved. The proposed single currency loan to ONCF with a Spanish Peseta loan tranche in an amount of ESP 5,443 million (M) and a US Dollar tranche in an amount of US$42.5 M (US$85.0 M equivalent) would finance urgently needed infrastructure rehabilitation, as well as consulting services for the transformation, including studies to be carried out. COuNTRY BACKGROUND 1.3 The Kingdom of Morocco occupies an area of about 459,000 km2 (without the Western Sahara), characterized by a great diversity of landscapes, from a 3,500 km long and flat coastline bordering the Atlantic Ocean and the Mediterranean Sea to the Atlas mountains stretching across the country from the southwest to the northeast. Its population of about 26 M is concentrated in the northern region and is growing at about 2.3 percent annually. Morocco is the world's largest exporter of raw phosphate and byproducts, which generate heavy rail traffic from mining zones in the center and south of the country to the ports of Casablanca, Safi, and Jorf Lasfar. 1.4 Over the past decade Morocco has instituted enduring reforms designed to achieve macroeconomic adjustment and stabilization. Today, significant progress can be seen. Budget and current account deficits and debt stock and service ratios have been reduced and inflation has been kept to single digits. Wide-reaching and comprehensive reforms have gradually moved Morocco away from a predominantly administered economy toward one that is more market driven and outward oriented. 1.5 Yet, Morocco's annual growth rate, which averaged 3 to 4 percent a year during the last decade, fell well below expectations and was too low to absorb the country's growing labor force. - 2 - Private investment and domestic saving rates remain modest; labor productivity