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$85.0 million equivalent)
Terms: 20 years, including a five-year grace period, 50% standard interest rate for LIBOR-based SpanishPeseta single currency loan (SCL), and 50% standard interest rate for LIBOR-based US Dollar SCL.
Commitment Fee: 0.75% on undisbursed loan balances, beginning 60 days after signing, less any waiver.
Financing Plan: Local Foreign Total =-----US$ 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 is not increasing; international competitiveness has not radically improved; and unemployment is 16 percent. The situation has been further exacerbated by the drought of 1995. In view of these macroeconomic problems, ONCF's management will have to proceed skillfully with a reduction in its workforce, which is desirable to improve its financial viability.
BANK SECTOR ROLE AND STRATEGY
1.6 Since 1969 the Bank has provided loans totaling US$549 M equivalent to the Moroccan Government for the construction, improvement, and rehabilitation of main roads under five highway projects, of secondary and tertiary roads under the most recent project, of feeder roads under ten agricultural projects; and for rehabilitation and modernization of port facilities under two port projects. The highway and roads projects were designed to encourage investments with high returns to the economy, particularly maintenance and rehabilitation; to help build up the staffing and organization of the agencies responsible for road construction and maintenance; and for transport organization. The feeder roads projects have met specific needs as part of agricultural packages, and were designed as transport and agriculture-integrated investments. Bank involvement in financing these roads has encouraged the ministries of Agriculture and Agrarian Reform and of Public Works to cooperate more closely and consistently to determine appropriate design standards, and to arrange for the maintenance of these low-volume roads.
1.7 The audit reports for the five Bank-financed highway projects, designed to improve traffic conditions, highway maintenance, and transport planning, outline their successful implementation with rates of return above appraisal estimates despite cost overruns. Loan covenants were generally adhered to, but progress sought on transport planning did not fully materialize, in part because of split responsibilities between the ministries of Transport and Public Works. The most recently completed highway project sought efficiency improvements in the transport market through deregulation of the trucking industry. This deregulation incurred delays; only by the end of December 1995 did the Government complete a draft law.
1.8 The first Bank-financed port project, designed to maintain infrastructure in the ports of Casablanca and Mohammedia and now completed, served to establish a good dialogue in the subsector and helped to set the stage for a more comprehensive FY91 Port Sector Project. The latter project finances facilities for container and Ro-Ro handling in the ports of Casablanca and Tangiers, and the construction of a coal terminal in the port of Jorf Lasfar. During preparation, a Performance Contract was drawn up that included revision of the infrastructure fee paid to the Government by the Office de developpement et d'equipement des ports.
1.9 The proposed project is consistent with our strategy to reform public enterprises in Morocco. It is a response to the Moroccan Government's request for Bank assistance for the restructuring process, designed to achieve financial viability of railway operations by 2001, and to rationalize and reduce Government financial support to the railway sector. - 3 - 2. SECTORAL BACKGROUND
THE TRANSPORTSECTOR
2.1 The fairly complex transport system comprises about 60,000 kms of roads, a 1,907 km- long railway network, 1 I commercial ports, and 20 airports, half of which are at international traffic standards. The road network is concentrated in the most populated areas north of the Atlas mountains and provides for satisfactory coverage of transport needs across the nation. The priority is to provide rural areas with better road access, as part of an effective poverty alleviation approach under the 7-year, 10,000-km rural road construction program launched in 1995. For railways to meet the challenge of deregulated and hence more competitive roads, infrastructure will have to be rehabilitated and equipment modernized. The port subsector was strengthened following construction of major facilities in Agadir, Jorf Lasfar, and Nador, although Casablanca remains the main center of activity. Driven by cargo unitization and investments in specialized equipment, port productivity doubled during the last ten years. Finally, a large program of airport expansion was carried out in the early 1990s at a time when traffic was abating, which led to overcapacity.
2.2 Roads are the prevalent mode of transportation and have further expanded their market share in recent years. Of total traffic, rail represents about 15 percent for freight (phosphate transport excluded) and 5 percent for passengers. The insufficient autonomy of ONCF is in sharp contrast to the increased freedom enjoyed by road transporters in a liberalized market that, for trucking, will be legalized upon enactment of the new transport law called for under the Secondary, Tertiary and Rural Roads Project; this legislation will be presented to Parliament in 1996. Needed organizational changes and transformation of ONCF into a joint stock company will enhance ONCF's efficiency, autonomy, and market orientation.
2.3 For interurban public transport of passengers, the Ministry of Transport (MT) and the Ministry of Economic Development (MED) review road and rail tariffs, which are then formally approved by the MT. Since freight tariffs have been increasingly market based in recent years, notwithstanding existing price regulations, the new pricing freedom should not produce drastic changes, even for the railways, provided that contracts are negotiated with major shippers within given limits and that flexible pricing remains in effect for passenger services.
THERAILWAY SUBSECTOR
2.4 ONCF, a public corporation established by the Dahir 1-63-225 of August 6, 1963, manages and operates rail activities under regulations (cahier des charges) approved by a Royal Decree of April 25, 1967. ONCF is under the control of the Minister of Transport, and is admninisteredby a Board of Directors chaired by the Minister and comprising eight representatives from various ministries. ONCF's General Manager is appointed by Dahir. Management procedures applicable to public corporations are cumbersome and bureaucratic (e.g., prior review of expenses by a financial controller, mandatory use of public procurement procedures). Annex 1 describes ONCF's organization, while annexes 2 and 3 show that its technical and financial performance declined from 1988 to 1994. Since mid-1994 a new management team has designed and begun to successfully implement a recovery program. - 4 -
2.5 ONCF's network (see attached Map IBRD 28080), entirely standard gauge, is 1,907 km long (of which 271 kms are double track); 1,003 kms are electrified. The pattern of the network is satisfactory; most of the major towns and ports, and the mining and industrial areas are connected. Traffic density is high (3.7 M traffic units per route km). Rolling stock and motive power availability are satisfactory but partly antiquated (80 percent of the rolling stock is more than 20 years old; see Annex 4).
2.6 Phosphate rock from the mines of the Office cherifien des phosphates (OCP) is transported by rail to the ports of Casablanca, Safi, and Jorf Lasfar and to the fertilizer plants in Safi and JorfLasfar. In 1994, traffic reached 19 M tons, or 3.400 M ton-km (tkm), for a revenue of DH 720 M. Contractual relations between ONCF and OCP have been satisfactory since new rates were applied in 1994. General rail freight consists mainly of grain, cement and building materials, petroleum products, fertilizers, and sugar. Traffic has remained stagnant since 1990 (about 4.5 M tons in 1995 or 1,000 M tkm, for a revenue of DH 352 M). For intercity passenger transport, ONCF offers three classes of service: a shuttle service between Casablanca, Rabat and Kenitra; air-conditioned fast trains between the main cities; and 'brdinary" trains. The quality of service (speed, punctuality, comfort, and cleanliness of trains) is generally excellent on shuttle and air-conditioned trains; it is average on ordinary trains. After having doubled from 1981 to 1991, passenger traffic volume declined from 1992 to 1994; the decline affected ordinary trains, while shuttle and air-conditioned services continued to grow. In 1994, traffic reached 10 M passengers, or 1,900 M passenger-km (pkm), for a revenue of DH 390 M.
2.7 ONCF has a permanent staff of about 14,000. Management is competent and fully committed to a successful restructuring. Training programs are adequate. Staff productivity, at about 450,000 traffic units per year per employee in 1994, is not far from European standards (Annex 2). The ratio of staff costs to traffic revenue (52 percent in 1994), while much better than in most European railways, is still too high to ensure a sustainable financial situation for ONCF. ONCF staff enjoy their own pension system, more favorable than the common system applied to private enterprises, with pension benefits paid directly by ONCF; this system places a major burden on ONCF finances.
RAILWAYSTRATEGY AND RESTRUCTURING PROCESS 2.8 The Governmentof Morocco and ONCF recognizethe need for the railway to adapt to the more competitiveenvironment of the transport market, to improve its financialperformance, and to reduce and rationalizethe transfer of state financialresources to the railway subsector. Various measures have already been implementedsince 1994, including: (a) the signature in November 1994 of an agreement between GOM and ONCF defining the modalities of the restructuringof ONCF debt and of the financialsupport from the state to ONCF for 1994-1998; (b) simplificationof the organizationchart of ONCF to make it more responsiveto customersand to increase the responsibilityand accountabilityof managers; (c) cancellation of a number of unprofitable passenger services; (d) redeploymentof part of the staff from headquarters to productiveunits; (e) revisionof phosphatebase tariff,and (f) definitionof an investmentprogram for the period 1994-98. 2.9 In order to transform ONCF into a commerciallyoriented, market-driven,financially sustainableenterprise, GOM intendsto: (a) transform ONCF into a joint stock company(societe - 5 - anonyme) according to a given time table; (b) attract private capital; (c) adopt a new set of regulations (cahier des charges) for the societe anonyme, which, among other things, will draw a line between commercial services that will be operated in a fully deregulated environment and ought to pay their way, and services performed at the Government's request under a Public Service Obligation (PSO) scheme that would warrant financial compensation for deficit incurred; (d) by the end of the project life (June 30, 2002), reduce Government financial support to the railway subsector to compensation for the PSO; and (e) reform the railway pension system to relieve ONCF of a burden that soon will become financially unsustainable. ONCF will make an effort to reduce costs, develop marketing capabilities, and streamline staff. The main measures have been spelled out in a 1996-2000 Performance Contract between ONCF and GOM. The Government has committed itself in a policy letter pertaining to the development of the railway subsector to: (a) prepare a plan for the transformation of ONCF taking into consideration a detailed review of ONCF's pension system, including its actuarial and financial evaluation, and a statement of all assets and liabilities to be transferred; (b) submit to the Bank for its review and approval an action plan defining dated restructuring measures to be applied to the pension system and to be implemented before the transformation of ONCF into a joint stock company; and (c) take all actions necessary to ensure that a draft law implementing the transformation of ONCF into a joint stock company, is approved by the Government not later than December 31, 1999. Both the policy letter and the Performance Contract have been signed and executed.
3. THE PROJECT
PROJECT OBJECTIVES
3.1 The main objective of the project is to support the preparation and implementation of a restructuring program that would lead to an efficient, commercially oriented railway operation. The principal items of the restructuring program are presented in paragraph 2.9 above. The project will also contribute to financing the railway's rehabilitation and modernization program.
PROJECT DESCRIPTION
3.2 The main components of the project are:
(a) a program of investment for the rehabilitation and modernization of rail infrastructure and equipment. The program concentrates on the renewal or rehabilitation of track and of electric traction facilities (catenary, substations) on selected sections of the network and the improvement of signaling and telecommunication systems. Investment in rolling stock is limited to the acquisition of seven electric locomotives, the acquisition of 100 specialized wagons, and the rehabilitation of part of the passenger coach fleet;
(b) studies and consulting services to prepare and implement the restructuring program (legal services for the preparation of legal texts); prepare and implement the reform of the railway pension system; support the improvement of railway management systems (Annex 5); and (c) a program of acquisition of computer equipment needed for the implementation of new management systems.
The aforementioned rehabilitation and modernization is expected to result in improved efficiency. Projected activity indicators are presented in Annex 6. During negotiations, agreement was reached with ONCF on the key performance indicators, given in Annex 7, which were established to monitor progress.
COST ESTIMATES
3.3 The total project cost (including contingencies, taxes, and duties) is estimated to be about US$614 M equivalent, with a foreign component of US$241 M, or 31 percent of the total project cost. Cost estimates were prepared on the basis of quantity estimates from ONCF engineering studies, from recently completed similar works for infrastructure (for unit prices), and/or from international sources (for equipment and materials). A detailed analysis has been made to determine the foreign and local costs (Table 3.1). All base costs are expressed in end-1995 prices. Physical contingencies (10 percent) have been included to cover possible increases in quantities for infrastructure works, and price contingencies have been applied to base costs following the Bank's present forecasts of domestic and international inflation.
FINANCING PLAN
3.4 As shown in Table 3.1, the project would be financed by proposed loans from the Bank (US$85.0 M equivalent), the African Development Bank (US$90.0 M equivalent), and the European Investment Bank (US$103.0 M). The balance (US$336.0 M) would be financed by ONCF's internal cash generation, GOM, bilateral assistance, and commercial banks. - 7 -
Table 3.1: Project Cost Estimates and Financing PRojECr COsT EsTIMATEs (US MILLION_ Project components Local Foreign Custom Tota (direct) Duties A. World Bank (IBRD) Studies and consulting services (1) 0 2 2 Computer equipnment 0 l1 Acquisitionof rail and turnouts - 21 1 21 Trackrenewal FWOujda (2) 34 10 1 45 Track renewal RabVt/SidiKacem (2) 8 2 0 10 Track renewal Casablanca/Marakkech (2) 11 3 0 15 Base coats (end 1995) 53 38 2 93 Physical contIngences 5 4 0 9 Price contingencies 7 3 0 11 TOTAL PROJEC_ COSTS (A) 45 3 113 B. African DevelopmentDank (AiDB) Realignment, track renewal, and platform doubling section Sidi 64 18 1 83 KacemfMeknbs(2) Base costs (end 195) 64 83 Physi contingences 6 2 8 Price contgencies 11 2 0 13 TOTAL PROJECT COSTS (B) 81 21 1 103 European Investment Bank (EIB) Renewal and reinforcement of electric traction facilities 14 18 7 40 (catenary, substations) Doubling and track renewal Kenitra/Sidi Slimane (3) 43 25 2 70 Base coats (end 1995) 57 43 10 110 Pyskial contingencie 5 4 1 10 Price contingendes 9 4 1 14 TOTAL PROJECF COSTS (C) 71 51 12 134 D. Others Rolling stock rehabilitation 8 12 3 22 Acquisition of 7 electric locomotives - 35 1 36 Acquisition of 100 wagons 4.79 2.66 0.93 8.38 Other wagons 3 8 0 11 Containers 0 1 1 2 Modemization of signaling and teleconmmunicationsfacilities 13 31 4 48 Tools 19 12 1 32 Base cost (end 1995) 44 98 9 151 Physial contingencies 1 3 0 5 Price contingeacks 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 Physical tiencies 18 12 2 32 Price contingences 31 15 2 48 TOTAL (A+B+C+D) 267 224 26 517 Mlscelaeous (4) 76 17 4 97 GRAND TOTAL 343 241 30 614 (1) Outside investment program (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
FINANCING (US$ MILLION) LOCAL FOREIGN TOTAL World Bank 46 39 85 Afnican DevelopmentBank 69 211 90 European Investment Bank 61 42 103 Govenmnentand others 197 139 336 TOTAL 373 241 614 - 8 -
PROJECT IMPLEMENTATION
3.5 The Comiti interministiriel pernanent des entreprises publiques (CIPEP) will approve all aspects dealing with transforming ONCF into a joint stock company. The project will be executed by ONCF. The loan agreement will provide for the transfer to the joint stock company that will replace ONCF of all ONCF's obligations to the Bank, including those obligations related to the execution of the project. A high-level officer from ONCF will be appointed by the General Manager as the Bank interlocutor for all current matters related to the project; this officer will also liaise with other cofinanciers. A mid-term review of progress achieved in implementing the project will be carried out not later than February 15, 1999. The project implementation schedule (Annex 8) shows a completion date of June 30, 2002. The closing date would be December 31, 2002, to permit disbursement of the remaining loan proceeds for eligible expenditures under then- existing contracts. ONCF will provide the Bank with: (a) semiannual progress reports to monitor project implementation (commencing on September 30, 1997); and (b) an implementation completion report within six months following the closing date of the loan.
PROCUREMENT
3.6 Procurement arrangements for the Bank-financed project elements, their estimated costs, and proposed methods of procurement are summarized in Table 3.2. Procurement of all Bank- financed items will be made on the basis of the Bank's guidelines and standard bidding documents for the procurement of goods and works. Standard Bank contract forms will be used.
3.7 Acquisition of rail and turnouts for track renewal and acquisition of computer equipment will be done through International Competitive Bidding. Procurement of infrastructure works (track rehabilitation, improvement, and renewal, including earth works and structures), in single lots, will be done through International Competitive Bidding after bidders have been pre-qualified. Control of works and goods will be done by technical departments of ONCF with the support of specialized consultants and laboratories. Publication of invitations to bid for the acquisition of rail and turnouts, and publication of prequalification notice for track renewal works were conditions of Board presentation which have been satisfied. All bidding documents and contracts estimated to cost the equivalent of US$500,000 (US$50,000 for individual consultants and US$100,000 consulting firms) or more will be subject to prior review and approval by the Bank. Other contracts will be subject to post review.
Table 3.2: Procurement Arrangements for the Bank-Financed Items (US$M equivalent,physical and vrice contingenciesand all taxes included) Procurement methods ICB2 Others NBF** Total 24.0 24.0 Acquisitionof rail and tunrouts (23.0) (23.0) 1.0 1.0 C_ _ ipment_ _ __eq (1.0) (1.0) 86.0 86.0 wnfiasuuch"works (59.0) 2.0 (59.0) 2.0 2.0 Studin and conuting servie (2.0) (2.0) 111.0 2.0 113.0 TOTAL (83.0) (2.0) (85.0) Figurs betwen () indicate the amounts financed by the Bank. ' InternationalCompetitive Bidding. Not Bank financed. - 9 -
DISBURSEMENTS
3.8 The allocation of Loan proceeds of Table 3.3 and the loan's disbursement schedule of Annex 9, which are in line with the Bank's profile, are based on a realistic estimate of the time required to implement the track rehabilitation and renewal component and the studies provided for under the proposed loan. Disbursements for contracts for: (a) goods and works valued below US$500,000 equivalent; and (b) services of individual consultants valued below US$50,000 equivalent and studies and services of consulting firms valued below US$100,000 equivalent, will be made against Statements of Expenditures (SOEs). The supporting documents will be held by the Borrower for review by Bank supervision missions and auditors. Withdrawal applications for contracts above these thresholds will be fully documented.
Table 3.3: Allocationsof LoanProceeds (US$ million equivalent)
Loan Amount Disburamnent 1. Consulting services 2.0 100% 2. Rail and urnouts 21.0 100%AFE; 100% LEX;70% LE 3. Comuter equipment 1.0 100% FE; 100% LEX;70% LE 4. Track renewal works 49.0 100% FE; 70% LE Unatlocated(contingencies) 12.0 Total 85.0
3.9 To facilitate the timely implementation of the project, the Borrower will establish a Special Account at a financial institution on terms and conditions acceptable to the Bank. The authorized allocation will be US$3.0 M equivalent (DH 25.5 M). The Special Account will be replenished on a monthly basis, or whenever one third of the amount has been withdrawn, whichever occurs earlier. Monthly bank statements detailing the transactions in the Special Account, which have been reconciled by the Borrower, will accompany all replenishment applications. The minimum threshold for direct payment will be equivalent to at least 20 percent of funds in deposit in the Special Account.
3.10 ONCF financial statements have been regularly audited by major international firms since 1986. The recent report for 1993, 1994, and 1995 contains a few reservations related to the pension system but does not question the basic soundness of accounting systems in place. During negotiations, agreement has been reached with ONCF that its financial statements, accounts pertaining to the Bank-financed portion, special account, and statements of expenditures will be audited annually by independent auditors acceptable to the Bank, and that the audit reports be furnished to the Bank within six months of the close of each fiscal year.
PROJECTSUPERVISION
3.11 Two supervision missions per year during the approximate five years of implementation will suffice to supervise all activities. The missions will be staffed by a railway specialist, an economist, and a financial analyst and last about three weeks (including a week at headquarters). At an average cost of US$2,100 per staff week and an average cost of US$8,000 for travel and - 10-
lodging per staff member, and taking into account that an average of two projects will be supervised during each mission, the total cost for supervision (36 staff member missions) amounts to US$380,000.
ENVIRONMENTAL ASPECTS
3.12 The project is classified as Category B. Rehabilitation works to be done under the project will only have positive effects on the environment. A review of the environmental aspects of rail workshop operations will be conducted as part of the project, and methods of industrial waste disposal will be introduced if required.
4. ECONOMIC EVALUATION
4.1 This section describes the economic evaluation of the project's components (ONCF's 1996-2000 Investment Program). These components are: (a) track renewal and realignment; (b) track doubling between Kenitra and Sidi Kacem; (c) replacement of seven locomotives; and (d) acquisition of 100 freight wagons. Details of the economic evaluation are given in Annex 10.
EVALUATION METHODOLOGY
4.2 The economic justification of the above-mentioned components has been determined by estimating the economic costs and benefits related to expected passenger and commodity rail traffic during the next 20 years. The project focuses on core lines and the traffic forecast reflects the growth potential assessed for each one. Annual growth rates between 1995 and 2000 are within a 3-5 percent range for passenger-kms and a 1.5-4.5 percent range for ton-kms. After 2000, traffic growth is uniformly taken at 3 percent per year for passenger-kms and eastbound ton-kms and at 2 percent for westbound ton-kms. All costs are expressed in end 1995 prices and are estimated net of taxes and duties. Where applicable, the economic returns are based on a comparison of economic costs of rail transport with those of road transport. These costs are expressed as long-run marginal costs and, in addition to operating costs, consist of rehabilitation and maintenance for road transport and track renewal and of rehabilitation for rail transport.
ECONOMIC EVALUATION AND SENSITIVTY ANALYSIS
4.3 The main benefits stemming from track renewal in ONCF's investment program are reduced track maintenance costs, reduced train operating costs through higher operating speeds, and reduced number of derailments. There are also benefits associated with capacity effects due to increased speeds; these benefits are quantified at one-half of the transport cost savings compared with road transport, since this additional traffic is essentially an induced traffic. Estimated ERs on the Bank-financed track renewal program range from 19 to 25 percent.
4.4 Rail traffic between Rabat and Meknes is heavier than anywhere else in Morocco. The existing track is double between Rabat and Kenitra, and single between Kenitra and Meknes. The - I1 - doubling of the track between Kenitra and Sidi Kacem, a distance of 80 kin, which includes some alignment rectification between Rabat and Kenitra, is the only new construction component in ONCFs investment program. High passenger load factors and major traffic peaks during the summer months and holiday seasons justify this investment. Its ER is 28 percent, based on: (a) passenger and freight transport savings which otherwise would divert to the more costly road transport; and (b) savings in passenger time and train operating costs due to increased operating speeds. Transfer of traffic to road transport would occur when the line's capacity is reached. The sensitivity analysis assumes that no additional traffic will be generated by the investment, a rather pessimistic view that results in an ER of 16 percent.
4.5 The ER of the seven new locomotives in ONCF's investment program is 27 percent. The benefits consist of reduced cost of maintenance and improved availability of the new locomotives. The availability of ONCF's old locomotives to be replaced by the new ones is 23 percent; a new locomotive has an availability of 95 percent. A sensitivity analysis has not been carried out since the estimated ER, although high, is conservative, due to the fact that benefits related to a reduced number of accidents with the new locomotives have been ignored.
4.6 The 100 new freight wagons in ONCF's investment program are needed for the rail transport of coal which has recently increased. It is estimated that without these wagons 40 percent of the coal transport would be diverted to the road, which entails a higher cost of transport. Based on a comparison of transport costs by rail and by road, the ER is estimated to be 54 percent.
PROJECT RISKS
4.7 The project would not pose specific technical risks. Most risks involve the Government's willingness to enforce the stipulations of the Performance Contract and railway subsector policy letter. However, the settlement of the long-overdue tariff dispute with OCP, and recent changes and progress made in the management of ONCF, prove the Government's commitment to the sustainability of efficient rail services. Technical assistance and training under the project would reinforce the Government's and ONCF's commitment to the needed reforms by identifying and enforcing necessary actions.
5. FINANCIAL EVALUATION
ACCOUNTINGSYSTEMS AND STANDARDS
5.1 ONCF maintains a satisfactory management accounting system. Good quality and timely financial data are now generated in line with the standard Moroccan chart of accounts. Financial data processing systems, which ensure the reliability and integrity of accounting information, were upgraded in the early 1990s and their organization and staffing are satisfactory. In accordance with current regulations, fixed assets are recorded at their historical value with the consequence that their shown value is only one-third of the replacement value. Nevertheless, ONCF keeps an off-balance sheet evaluation that does reflect replacement costs, thereby mitigating the issue. - 12 -
Monthly indicators cross-referencingoperational statistics, revenues, and costing data are routinelypublished and provideuseful insighton performanceof the railways.
PAST AND CURRENT FINANCIAL PERFORMANCE 5.2 ONCF's net -loss soared from DH 202 M in 1990 to an average of DH 740 M during 1992-1994. Increased competitionfrom road transporters prompted ONCF to freeze its tariff after 1991 to stop erosionof its commercialbase. As a result,the operatingrevenues stagnated in a DH 1.3-1.4 billion (B) range during 1991-1993. In contrast, operating costs rose at a rate slightlyabove inflation,from DH 1.45 B in 1990 to DH 1.75 B in 1994. Despite a 10 percent reductionin traffic,the payroll continuedto expand,from 13,700 to 14,500staff over the period, bringingthe ratio of staff costs to revenuesfrom about 35 percent in 1990 to over 52 percent in 1994. The Governmentmaintained its capitalsubsidy at an annual average of DH 250 M, low in comparison to the DH 800 M allocated before 1987. Faced with substantial investment constraintsfor track rehabilitationand equipment renewal amounting to DH 750 M per year, ONCF could no longer sustain its operations, even with the 7 percent increase of its tariff approvedon August22, 1994. 5.3 A protocol was signedwith GOM in November 1994,following a thorough review of the railway'sfinances and operationsby CIPEP. The phosphaterock tariff was raised by 26 percent, retroactiveto January 1, 1994. The capitalcontribution by Governmentwas raisedto DH 700 M per year during 1995-1998. Most important, some DH 3.3 B of tax and debt servicingarrears were converted into Government equity. For its part, ONCF undertook to improve its performanceand to adopt cost containmentmeasures. The FY94 net loss was still a high DH 744 M due to changes in accounting,forcing ONCF to create provisionsfor risks that overshadowed the real improvementin operatingaccounts. The current ratio drasticallyimproved from 0.4 in FY93 to 1.45 in FY94. 5.4 The financialcondition of the railwaysimproved quite significantlyin FY95. Greater commercialaggressiveness enabled the railroad to regain some traffic back from road transport (e.g., coal). A systematic effort was made to cut costs, includingnot replacing staff leaving service (e.g., those retiring, resigning, or being fired), not using temporary workers, a salary freeze, curtailmentof in-kind benefits to staff, and streamliningof stores management. For passengers,a number of loss-makingservices were abandoned,stations were closed, and efforts were made to improvetrain occupancyrates, which are still low at about 30 percent. Overall,the passengerservices supplywas reduced by 25 percent but traffic fell by only 1 percent. The net loss of DH 609 M was still high, but the net operating loss narrowed down to DH 43 M, comparedto DH 305 M a year before. This solid performancehas been all the more remarkable since ONCF faced a one-monthgeneral strike in May 1994. The current ratio has improved to 1.9 following payment and reschedulingof short-term debts (e.g., to the Office national de l 'electricite). 5.5 There is no pensionfund. Retirees are paid their rights directly from the yearly staff and employer'scontributions plus a variable amount paid by ONCF to match the deficit. Since the number of retirees increases by about 200 annually,the total cost to ONCF of financingthe pensionscheme has been growingsteadily, to about DH 130M in FY95, which is doublewhat it - 13 - was in FY88. It already exceeds 20 percent of direct labor costs. With the prospect of staff downsizing, the issue is bound to worsen unless a new system is set up. Should they be recognized in the balance sheet, the accrued rights of the active staff, according to the audit report issued in 1996, could represent liabilities in the range of DH 5-10 B.
5.6 The 1994 protocol requested ONCF to streamline stores keeping. In FY94, the stores were valued at DH 825 M, equivalent to two years of consumption, which is very high. This amount included DH 120 M of stores older than five years. Loose management, public procurement constraints leading to larger quantities being ordered at lesser frequency, and too many works carried out by force account have contributed to this unhealthy situation.
FUTURE FINANCIALPERFORMANCE
5.7 Future cash generation hinges heavily on the level of activity that ONCF will be able to maintain. Detailed assumptions on traffic growth are given in Annex 11. The projection conservatively assumes a 2.5 percent growth in passenger-kms and 1 percent growth in ton-kms for freight and phosphate traffic from 1997 onward, following the 1996 recovery that mostly comes as a correction for the one-month strike experienced in 1994. The traffic creation induced by the project is expected to materialize in 2001 and 2002, adding some 4 percent each year to the traffic. Overall, the average annual growth for the combined traffic would be slightly above 2 percent during the period and the operating revenue would grow from DH 1.6 B in 1996 to DH 2.3 B in 2003, assuming that annual tariff hikes recoup two-thirds of inflation starting in 1997.
5.8 Labor costs must be brought back to around 30 percent of operating revenues if ONCF is to overcome stiffer road competition. The projection thus assumes a reduction of personnel from 13,800 in 1995 to 10,000 in 2000 and moderation in pay increases throughout project implementation after the 7 percent general raise scheduled for 1997. The future activity level will have an impact on the evolution of future expenditures related to operations and maintenance, but, taking into account fixed costs, productivity increases, improved capacity utilization, and decreased reliance on in-house services (close to DH 50 M of works that are internally produced at present would be contracted out by 2003), these expenditures are expected to grow in constant dirham at an annual pace of only 1.5 percent, and, in current dirham, from DH 594 M in 1996 to DH 816 M in 2003.
5.9 Investments planned for 1996-2000 amount to DH 5.2 B, much of which will fall in the last three years. The gross cash flow (DH 264 M in 1996) would not allow ONCF to contribute its own resources to the project's financing plan, given the ongoing debt servicing requirements (about DH 550 M in 1996). The DH 700 M subsidy (para. 5.3) is therefore essential to enable ONCF to finance its share of the investment together with the deficit of its pension system. Planned borrowings amount to close to DH 3 B during 1996-2000. From 2001 onward, the new joint stock company will be able to generate enough cash to self-finance part of its investment program. - 14 -
5.10 Table 5.1 presents a summary of the 1996-2003 financial statements, which are based on the detailed financial evaluation of Annex 11. According to the forecast, ONCF should eventually become financiallysustainable. The net loss would be gradually reduced to around DH 331 M in 2000. As ONCF becomes a joint stock company, the lump-sum subsidy would be removed. Instead, the Government would pay compensation for PSO for an estimated total of DH 110 M in 2001, rising to DH 125 M in 2003. The net loss would further decline to about DH 150 M in 2003. Furthermore, the Government would cover the pension deficit incurred by the new company. The related capital contribution would rise from DH 205 M in 2001 to DH 226 M in 2003. Should it be treated as an operating subsidy, ONCF would indeed earn a pre-tax income of DH 25 M in 2001, rising to DH 80 M in 2003.
5.11 The balance sheet was already strong in 1995 and will remain that way throughout the projection period in the base case scenario. Stores management would be streamlined within three years: from 1998 onward, the stores would represent no more than 300 days of consumption. Extended resort to foreign-denominated debt financing would marginally raise the debt-to-equity ratio from 23:77 percent in 1995 to 26:74 in 2003. The DH 700 M subsidy to be received until 2000 would provide for safe debt servicing despite debt service coverage ratios below 1 until that date, and the capital contribution to balancing the pension scheme that would apply thereafter would indirectly bring the debt service ratio to 1.7 in 2001, 1.35 in 2002, and 1.46 in 2003. The minor arrears problems that still existed in 1995 will be resolved by 1997, according to the projection, which relies on strict financial discipline by ONCF regarding payment of its bills.
5.12 A sensitivity analysis has been carried out to verify the impact of risks on key financial parameters. Lower traffic growth, failure to reduce the labor force to 10,000 by 2000, and depreciation of the dirham have been identified as major risks. Materialization of each of those risks would jeopardize the future financial viability of the railway company. More drastic actions than those considered under the current financial recovery plan would then have to be taken. Closely monitoring compliance with financial covenants will be essential so that corrective action can be triggered in earnest when defaults occur. The mid-term review will be of particular importance to adjust the strategy if need be to ensure that project objectives are still being met. Detailed results of the sensitivity analysis are given in Annex 12.
5.13 During negotiations, agreements were reached on the following: (a) a working ratio lower than 0.8 from 1997 to 2000, and 0.75 thereafter; (b) a current ratio no lower than 1.5 from 1998 onward; (c) a debt-to-equity ratio lower than 35:65; and (d) a labor-cost-to-operating-revenue ratio lower than 0.41 in 1997, 0.39 in 1998, 0.37 in 1999, 0.36 in 2000, and 0.31 thereafter. - 15 -
Table 5.1: ONCF -Projection of Summary Financial Statements (1996-2003 1I 1-I997 199t 1999 2U0 2001 2002 2C'03
L. lwCone sement Revenues 1587 1677 1743 1803 1866 2084 2202 2280 Workingexpense 1323 1316 1332 1353 1464 1505 1581 lf40 Depreciation 411 419 435 454 471 4S8 508 '22 hnerest 199 186 197 241 271 280 277 273 Netnonoperating revenue ninus tax 11 3 12 5 11 10 9 9 Netincome (loss) -335 -240 -208 -240 -331 -180 -155 -146 Ratios: -working 0.83 0.78 0.76 0.75 0.78 0.72 0.72 0.72 -opating 1.09 1.03 1.01 1.00 1.04 0.98 0.95 0.95 -debt service coverage" 0.47 0.66 0.77 0.82 0.81 1.69 1.35 1.46
11.Balance sheed
Netfixed asss 7793 7754 8065 8622 9485 10264 10781 10949 Workinprogress 832 1355 2296 2577 1913 1226 990 1105 Otherfixedasses 573 573 573 573 573 573 573 573 Stores 650 500 453 476 367 399 435 458 Short4erm assets 526 303 297 307 317 353 373 385 Cashinhand/bank 68 373 417 623 1010 890 598 296 Total assets 10442 10858 12101 13177 13666 13704 13751 13767 Networth 7871 8331 8823 9284 9653 9678 9743 9821 Long4etn debt 1934 1990 2683 3350 3567 3583 3488 3415 Short-temdebt 637 537 595 544 446 444 521 531 Total liabilities 10442 10858 12101 13177 13666 13704 13751 13757
Ratios: -current 1.95 2.19 1.96 2.58 3.80 3.70 2.70 2.15 -de'equity 0.20 0.19 0.23 0.27 0.27 0.27 0.26 0.26
The govenunent contribution to equity matching the pension deficit is included starting 2001.
6. AGREEMENTS AND RECOMMENDATIONS
6.1 During negotiations, agreements have been reached with ONCF on the following:
(a) the performance indicators given in Annex 7 (para. 3.2);
(b) its financial statements, accounts pertaining to the Bank-financed portion, Special Account, and Statements of Expenditures will be audited annually by independent auditors acceptable to the Bank; and the audit reports be furnished to the Bank within six months of the close of each fiscal year (para. 3.10); and
(c) the financial ratios given in para. 5.13 will be maintained.
6.2 The Government has committed itself in the policy letter to: (a) prepare a plan for the transfornation of ONCF, taking into consideration a detailed review of ONCF's pension system, including its actuarial and financial evaluation, and a statement of all assets and liabilities to be transferred; (b) submit to the Bank for its review and approval an action plan defining dated restructuring measures to the said pension system to be implemented before the transformation of ONCF into a joint stock company; and (c) take all actions necessary to ensure that a draft law, -16- implementing the transformation of ONCF into a joint stock company, is approved by the Government not later than December 31, 1999 (para. 2.9).
6.3 The following conditions of Board presentation have been satisfied: (a) GOM provides the Bank with a signed policy letter (Annex 13) describing, inter alia, its intentions to: (i) transform ONCF into a joint stock company (societe anonyme) according to a given time table; (ii) attract private capital in the operation of rail transport services in a subsequent phase; (iii) adopt a new set of regulations (cahier des charges) for the societe anonyme, which, among other things, will draw a line between commercial services that will be operated in a fully deregulated environment and ought to pay their way, and services performed at the Government's request under a PSO scheme that would warrant financial compensation for deficit incurred; (iv) by the end of the project life (December 31, 2002), reduce Government financial support to the railway subsector to compensation for the PSO and funding of the deficit of the pension system; and (v) reform the railway pension system to free ONCF from its financiallyunbearable burden (para. 2.9); (b) GOM provides the Bank with a copy of the executed 1996-2000 Performance Contract between GOM and ONCF (para. 2.9); and (c) ONCF publishes the invitation to bid for the acquisition of rail and turnouts together with the prequalification notice for track renewal works (para. 3.7). 6.4 With the above assurances and conditions, the project would be suitable for a Bank loan of ESP 5,443 M and US$42.5 M (US$85.0 M equivalent) to ONCF, with the guarantee of GOM, for a 20-year term including a five-year grace period. ONCF Organizational Chart
Chairman oAthe Board of Directors
General Manager.
General Secretary Advisors Inspection General and Audit
...... 1 ...... 1...... ------1------Operations Motive Power and ' Infrastructure Administration ...... Rolling stock ...... I . -...... 1
'Marketing & Sales., Transport Track Signaling, Telecom Buildings Human Finance Supplies Information L______.______.______j .ElectricTraction Resources Technology
z PERFORMANCEINDICATORS FOR SELECTEDRAILWAYS
PERFORMANCEINDICATORS Morocco Tunisia [ France Spain [ Cameroon | United States FOR SELECTED RAILWAYS 1988 1994m,:: 1992 1992 1992 1992 ClassI Antrak 1992 ...... **.*...*.*.*.*".*.* .. _ _ _ _ ~~~~~~1992 ______...... 6~~~~~~~~~~~~~~~~~~~~~~it,z RM L W A: ~ ~ ~ :.....~ ~ . Totalnetwork route length (kin) 1893 1907? 2278 32731 13041 1106 182348 40323
Locomotivefled 228 2370 194 5664 1205 72 18004 336
Wagonfleet 8514 9335 5493 138200 34987 1313 552787 0
Passengercoach fleet 615 586 : 339 11170 2574 79 0 1990
Staff 13418 :14356 9160 198078 47867 4043 197421 24000
...... ~~~~~~~~~.6...... Freight(000 000tkm) 5510 4557 1999 49536 9450 691 1576008 0
Passenger(000 000 pkn) 2093 188s 1078 62647 16350 515 0 9824 Total (000000 tu) 7603 6438 3077 112183 25800 1206 1576008 9824
Passengertrafficas %oftotaltraflic (%/6) 28 29 35 56 63 43 0 100
Averagelengthoffreighthaul(cm) 172 167 189 365 354 540 859
Averagelength of passenger trip (kmn) 181 190 35 76 46 219 461 Ratiopassenger fares to freightrates 75 83 81 119 109 45 644
Trafficdensity(OOOtuperroutekm) 3987 3400 1351 3427 1978 1090 8643 244
Locomotiveproductiviy(OOOOOOtu/loco) 33 27 1 15 19 20 17 88 29
Wagonproductivity(000tkm/wagon) 647 488 364 358 270 526 2851
Coachproductivity(OOOpkm/coach) 3403 3210 3180 5609 6352 6519 - 4937
Staffproductivity (000 tu/staff) 567 448 336 566 539 298 7983 409
Staffcostsas % ofrevenue 39 52 72 102 128 52 27 nd
X ONCF MAIN STATISTICS- 1980-1995
1980 1981 1 1982 1 1983 1 1984 1_1985 1 1986 1 1987 1 1988 ] 1989 1 1990 1 1991 1 1992 1993 1994 1995 INFRASTRUCTURE, MOTIVE POWER, AND ROLLING STOCK Total networkroute (km) 1756 1779 1779 1779 1779 1779 1779 1893 1893 1893 1893 1893 1907 1907 1907 1907 Single tracklines (kn) 1595 1601 1601 1590 1540 1540 1539 1647 1647 1647 1647 1647 1636 1636 1636 1636 Doubletrack lines (km) 161 178 178 189 239 239 240 246 246 246 246 246 271 271 271 271 Dieselloconmotive fleet 114 114 114 135 143 128 128 128 128 128 140 150 145 144 144 144 Electriclocomotive fleet 80 80 88 88 94 100 100 100 100 100 100 100 104 104 93 86 Wago fleet 9925 9971 9931 9932 9663 9461 8865 8591 8514 9700 9818 9757 9832 9711 9335 9064 Passengercoach fleet 275 275 285 313 392 441 481 567 615 624 579 642 644 566 586 622 FREIGHT TRAFFIC Tonnage(000 000 t) 25,9 J27,1 25,0 27,3 28,9 28,2 27,6 27,7 32,0 22,7 27,9 | 24,8 25,6 24,6 27,3 26.9 Voluffe(OOOOOOltkm) 3788 3896 1 3783 4077 4448 4274 4425 4541 5510 4271 4903 | 4314 | 4877 4277 4553 4556 Revenue(OOOOOODH) 359 j 393 |438 - 510 643 692 715 785 1015 874 977 | 918 1085 | 961 1122 1160 PASSENGER TRAFFIC Nunberofpassengers(000) 5124 6128 | 7520 7775 9534 | 10986 | 11603 12154 11556 11782 11937 12042 11369 9525 10600 9560 Volutne(OOOOOOvk) | 936 | 1140 1375 1407 1620 | 1827 1958 2069 2093 2168 2237 2346 2233 1904 1922 | 1564 Revenue(OOOOOODH) 65 81 104 116 156 213 236 279 286 315 339 379 385 376 398 337 STAFF Averagepeffnanentstaff 10311 10623 11393 11874 | 12068 12262 12791 | 13204 13418 13712 13653 13780 14044 14233 | 14380 | 14024 Staffcosts(000 000 DH) 245 288 316 352 J 368 406 439 1 474 | 507 561 | 577 | 671 | 711 | 736 | 783 | 771 FINANCIAL PERFORMANCE (000 000 DH) Intemnancashgeneration | 18 | -27 | -7 T -33 | 94 1 49 | -69 48 154 | 32| -9 [ -213 -144 | -310 | -234 -42 Depreciationandprovisions 54 54 68 93 | 186 212 226 | 251 266] 256 | 267 [ 272 386 377 510 567 Net income | -36 I -81 | -75 -126 | -92 | -163 | -294 | -203 | -113 | -224 | -276 -485 -531 | -688 -744 | -609
X ANNEX 4 Page I Of 2
ONCF MOTIVE POWER AND ROLLING STOCK MA TPRIELMOTEUR ETREMORQUE ONCF .... _~~~~~~~~~~~~~~~~~~~~~~~~~~~~...... Type Manufacturer Year Power (kcw) Number Serie Constructeur Ann~eePisne(w Effectif
_____ 'L #Ii _a__X__ _ E 700 ALSTHOM(FRANCE) 01951 1 2254 E 1000 KOLMEX(PO)LOGNE) 1976 3 000 22 E 1100 HIITACHI,. (JAPON)v1&&~~~~~~~~~~~~~~~~~~~~~~~.. 1977 ..... Qa~~a4.. W.dT~2 850 ...... ,..22 ' E 1200 HITACHI(JAPON) 1982 2 850 8 E 1250 HITACHI(JAPON) _1984 3 900 12 E 1300 GECALSTHOM 1992 4 000 10 .. ______(FURANCE) 1993 ,.______8 Total Electric Locomotives/Total Locomotives electriques 86
DF 100 ALSTHOM(RANCE) 1967 2 6506 .... .1968 ., 8 DH 350-370 GENERALMOTORS 1974 2 429 16 .(USA) 1976 .. 3 n...... 1979 2 ...... 1980 1 Total Main Line Diesel Locomotives/Total Locomotives diesel de ligne 36
DG200 KOLMEX 1973 589 20 .. 10LEX(POLOGNE) 1974 3 7 E .. 1975 2 8 n w ~~~~ ~~~1976 .. 1 DI 500 TENEIALMJAOTR 1983 736 13 E 1250 TACI(USA) 19501984 3 41 .. .. 1985 .. 1 DK 550 GENERALMOTORS 1983 1 472 8 (USA)______(USA) 1984 .. 3 DL DONELLI(ITALIE) 1990 263 12 DM 600 BRUCH 1991 736 10 ______.. (ANGLETERRE) 1992 .. 9 DA 300n BALDWIN(USA) 1947 1 104 7 of (USA) 1984 $1 4~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ .. .. ~~~~ ~~~~1951 1 .. .. ~~~~~1952 .. 3 Total Shunting Diesel Locomotives/Total Locomotives diesel de manoeuvre 108
ZM BN-ACEC 1984 f 1416 | 8 1995 68 Total Electric Multiple Units/Total Rames automoices electriaues 1 14 ANNEX 4 Page 2 of 2
. *.... *...... ~...... r n Atn...
Type Number Total payload (t) Type Effect if Capacite totale Phosphatehoppers/Wagons phosphaffers 1 203 77 742 Bo aosWgn ovrs1 491 -55 104 Gondolawagons/Wagons tombereaux 1 180 44 426 Flat wagons/Wagons plats et porte-conteneurs 1 436 62 045 Tankers/Wagons citernes 362 18 523 Autres tremiies 2 191 108 406 Private wagons/Wagons de prticuliers 352 14 324 Specal wagons/Wagons specialises______Servicewagons/Wagons de service 849 25009 Total wagon fleet/Total parcwagons 9 064 405 579
Type Number Number of seats Type Effectif Nombrede sieges First class coaches!/Voituresde lere classe 61 3 414 First-secondclass coaches! Voitures mixtes lere-2eme classe 8 576 Second class coaches!/Voituresde 2eme classe 480 43 072 EMU coaches!/Voituresdes rames automotrices 42 3 794 Sleeping coaches/Voitures couchettes et' lits 31 1 356 Totalcoaches/Total parc voitures voyageurs 622 52 212 ANNEX 5
OUTLINE OF STUDIES AND CONSULTING SERVICES
Studies and consulting services to be financed under the project are the following:
* Legal consulting services
Objectives: (a) transformation of ONCF into a joint stock company incorporated under commercial law; and (b) reform of railway pension system.
Contents: preparation of draft legislation to be submitted to Parliament, preparation of regulatory texts.
Estimated costs: US$250,000 equivalent.
* Improvement of railway management systems
Objectives: Improvement in staff management, assets management, freight traffic management, maintenance management, etc.
Contents: acquisition by ONCF of modem software, training of users.
Estimated costs: US$1,750,000 equivalent. PROJECTEDAcTrrvy INDICATORS
1995 1996 1997 1998 1999 2000 (Actual) (Provisional) arg (Taret) arg (T
PHOSPHATE Tonnage(OOOt) 18 190 18 717 19 500 19 700 20 000 20 600 TRAFFIC Voue 00OOtm 3 377 3 483 3 483 3 519 3 573 3 680 Revenue(OOO OOODH) 746 731 772 795 821 859 Revenueper tkm (cDH) 0,2208 0,2187 0,2216 0,2259 0,2298 0,2334 GENERAL Tonnage(OOOt) 8 010 8 107 7 841 7 846 8 170 8 497 FREIGHT Wagnloadd 214 284 188 104 189 507 190 869 198 338 205 989 TRAFFIC 2 531 2 281 2 058 2 123 2 197 2 270 Volumne(OOOOOOtkm) 1 179 1 237 1 122 1 155 1 192 1 226 Revenue(OOO OOODH) 415 439 413 434 458 484 Revenuepertkm (cDH) 139,08 166,59 169,58 174,75 177,51 181,06 PASSENGER Suply(000 OOOsko) 4 082 4 630 4 630 4 630 4 630 4 630 ...... ------ow TRAFFIC Numberofpassengers(OOO) 9 560 10 300 10 917 11 053 11308 11 570 ...... ~ ~~~ ~ ~ ~ ~ ~~~~~~~~~_ ~~ .. ~ Volumc(OOOOOOvk) 1 564...... ~~~~~~~~~~~~~~~~~~~~)0 I~ ~1 ~ ~820 1 955 1 971 2 021 2 073 Revenue(OOO OOODH) 337 377 419 434 454 475 Occupancyraiio (%) 38B% 39% 42% 43% 44% 45% Revenueper sko (cDH) 0,0825 0,0814 0,0905 0,0937 0,0981 0,1026 TOTAL Volumne(OOOOOOut) 6 120 6 400 6 560 6 645 6 787 6 980 TRAFFIC Revenue(OOOOOODH) 1 498 1 547 1 604 1 663 1 733 1 818 W ~ ~ ~.. .. *.*...... aa a .ws *SM~l.Ky. ' , ., . . ': ELECTRIC ... ,: ...... *. ..,*W. :.... Locomotive fleet 86 86 82 84 94 96 LOCOMOTIVES Availability (0/) 82% 80% 82% 84% 88% 90% Anlt kilometragepa 118 117 available locomotive (OOObnkm) DIESEL Locomotive fleet 144 132 132 132 132 132 LOCOMOTIVES Availability(%) 79% 75% 80% 82% 84% 85% Annualkilowetpagepa 37 39 availablelocomotive (OOO)km ELECTRIC EMU fleet 14 13 14 14 14 14 MULTIPLE Availability(%/) 93% 90% 95% 95% 95% 95% UNffS Annualkilomtageper 77 118 availableEMU (OOOkm) . PHOSPHATE Wagonfleet 1203 1203 1203 1203 1203 1203 WAGONS Availability(/) 87% 90% 91% 92% 93% 94% OTHER Wagonflcet 7012 6514 6224 6274 6324 6324 WAGONS Availability(%/) 93% 94% 95% 96% 96% 96% Avrage load per agon (t) 37 43 41 41 41 41 Wagontumaround (jours) 11,1 I 1,9 11,4 11,5 11,2 10,8 PASSENGER Coachfleet 622 464 433 433 433 433 COACHES Availability(%/.) 78% 85% 87% 90% 92% 92%
...... ~~~~~~~~~~..... Staffat the beginning ofthe year 14385 13782 12622 12119 11621 11068 Recruitments 0 0 0 0 0 0 Departures 603 1160 503 498 553 504 Staffat the end ofthe year 13782 12622 12119 11621 11068 10564 Staff productivity (OOOtu/stafl) 450 517 541 572 6613 661
dS; ANNEX 7
KEY PERFORMANCEINDICATORS
1995 1996 1997 11998 1999 2000 2001 2002 2603 Operatingincome (000 OOODH) 24 76 104 135 190 226 354 467 503 Financialtransfers from the State to 700 700 700 700 700 700 289 314 325 ONCF (000 000 DH) of which . __ llump-sum subsidy 700 700 700 700 700 700 0 0 0
. Public ServiceObligation compensation 0 0 0 0 0 0 84 94 99 . contributionto the pensionsystem 0 0 0 0 0 0 205 220 2.26
Ratio staff costs (*) /traffic 46 43 41 38 36 35 31 30 30 revenue (%) I Revenue per seat x kilometer(passenger 8,3 8,1 9,0 9,4 9,8 10,2 10,4 10,6 10,8 traffic) (cDH) l _ Revenue per train x kilometer (general 139 167 170 175 178 180 183 186 188 freight traffic) (DH) - I ___
(*) contributionto the deficit of the pension systemnot included Project Implementation Schedule
Year 1996 1997 1998 1999 ... 2003 Quarter 2 3 1 4 1 1 2 |3 | 4 I | 2 | 3 | 4 1 1 12 1 3 1 4 1 2 |3 |4
Preparationof biddingdoctunents_
Bank reviewof bidding documnents_
Generlprocurement notice I'
Bid advertisement 4
Biddingperiod
Biddingevaluation period
Bank review
Loaneffectiveness
Contractaward
Projectimplemnentation
X ANNEX 9
ESTIMATEDLOAN DISBURSEMENTSCHEDULE* (US$ MILLION EQUIVALENT)
Bank Fiscal Year and Quarter Disbursements Cumulative by Quarter Disbursements by end of Quarter
FY 1998 December31, 1997 4.0 4.0 March 31, 1998 2.0 6.0 June 30, 1998 1.5 7.5
FY 1999 September 30, 1998 4.3 11.8 December31, 1998 4.3 16.1 March31, 1999 4.3 20.4 June30, 1999 4.3 24.7
FY 2000 September 30, 1999 4.3 29.0 December31, 1999 4.3 33.3 March 31, 2000 4.3 37.6 June 30, 2000 4.3 41.9
FY 2001 September 30, 2000 4.3 46.2 December 31, 2000 4.3 50.5 March31, 2001 4.3 54.8 June 30, 2001 4.3 59.1
FY 2002 September 30, 2001 4.3 63.4 December 31, 2001 4.3 67.7 March 31, 2002 4.3 72.0 June 30, 2002 4.3 76.3
FY 2003 September 30, 2002 4.3 80.6 December 31, 2002 2.4 83.0 March 31, 2003 1.0 84.0 June 30, 2003 1.0 85.0 * Loan effectiveness estimated in October 1997. ANNEX 10 Page 1 of 7
ECONOMIC EVALUATION
I. This annex describes the economic evaluation of: (a) the doubling of the Kenitra-Sidi Kacem rail link; and (b) the acquisition of locomotives. The economic evaluation of other components is based on the same methodology, and is available in the project file (in French).
General Approach
2. The economic evaluation of the proposed railway project is linked to economic sector work carried out in Morocco through: (a) the Bank's strategy to reform public enterprises; (b) observations about rail/road competitiveness; and (c) the railway company's strategic role for the transportation of phosphates. The principle environmental risk is the proper disposal of used oil in the locomotive repair shop, for which an action plan has been prepared. Otherwise, the proposed project will have a positive impact on the environment since it reduces pollution on the roads. Fiscal analysis and cost recovery are dealt with in detail in Annexes 11 and 12. Since the change in ONCF's management about two years ago, the institutional risk has been minimized; the new management has reduced costs of operation by 20 percent in 1995 and terminated passenger services where demand was low.
Doubling of Kenitra-Sidi Kacem Rail Link
3. The economic evaluation of this link includes costs of some alignment rectification between Rabat and Kenitra since traffic on the Rabat-Kenitra link and that on the Kenitra-Sidi Kacem link are interdependent. The alternatives considered are:
(a) no doubling of the Kenitra-Sidi Kacem rail link;
(b) doubling of the Kenitra-Sidi Kacem rail link; and
(c) doubling of the Kenitra-Sidi Kacem rail link plus the platform for the doubling of the Sidi Kacem-Meknes link (stage construction).
4. Alternatives (b) and (c) have an ERR of 28.33 percent and 18.40 percent, respectively. Table I shows the costs of investment during 1997-2000 and benefits related to diverted traffic (from road), generated traffic, time savings, higher operating speeds, savings in costs of maintenance, and salvage values.
5. Traffic between Kenitra and Sidi Kacem is assumed to be constant until 2001 due to capacity constraints; in 2001 and thereafter, passenger and eastbound goods traffic are expected to grow at 3 percent, while westbound goods traffic is expected to grow at 2.5 percent per year. In 2001, generated traffic is assumed to be as follows:
* Passengers: 500,000 passengers; 160,000,000 passenger-kms; * Goods: 500,000 tons; 103,905,000 ton-kms. ANNEX 14) Page 2 of 7
Diverted traffic is based on the difference between weekly forecasts of passenger and goods traffic and their saturation level without the doubling of the Kenitra-Sidi Kacem link.
6. Average per km costs in dirhams by road and rail are assumed to be:
Passengers Goods
Road 0.6610 1.0927 Rail 0.3372 0.4335
7. In addition, the average value of passenger time is assumed to be DH 4.88 per hour. The economic analysis is based on a 20-year period starting in 2001 (the year of opening the double line); salvage values have been calculated by assuming straight line depreciation and the following expected lives:
Infrastructure 75 years Track 30 years Catenary 40 years Signalling and telecomm. facilities 25 years Equipment of electric sub-stations 25 years Construction of electric sub-stations 75 years Stations 75 years Level Crossings & Structures 75 years.
8. Sensitivity analyses include the determination of the ERRs of the doubling of the Kenitra- Sidi Kacem rail link for the following scenarios:
- Value of passenger time ignored ERR = 27.4 percent - With half of forecast generated traffic ERR = 22.6 percent - Without generated traffic and 50 percent diverted traffic ERR = 16.3 percent - Without generated traffic and annual growth in passenger and goods traffic is 1.5 percent (starting in 2001) ERR = 10.0 percent
With an opportunity cost of capital of 10 percent, the NPV amounts to DHI,090 million. An increase in costs of investment of about 275 percent or a decrease in benefits of about 75 percent would result in a NPV = 0 (Tables 2 and 3).
Acquisition of Locomotives
9. The benefits consists of (a) the difference in maintenance costs of the old and new locomotives; (b) improved reliability of the new locomotives; and (c) improved availability of the new locomotives (Table 4). The reliability is expressed in the number of breakdowns per 100,000 km and amounts to 8.64 for old locomotives and 1.51 for new ones. The average costs ANNEX 10 Page 3 of 7
per breakdown is DH 7,600. The availability of old and new locomotives amounts to 23 percent and 95 percent, respectively. The average cost of non-availability of a locomotive is DH 8,437 per day.
10. The economic analysis is based on a 20-year period and an expected life of 30 years for the locomotives. The salvage value has been calculated by assuming a straight line depreciation.
11. The ERR of the seven locomotives is 26.7 percent. Sensitivity analyses include the determination of the ERRs for the following scenarios:
Not taking into account the benefit related to improved reliability ERR = 26.0 percent
Not taking into account the benefit related to improved availability ERR = 20.2 percent.
With an opportunity cost of capital of 10 percent, the NPV amounts to DH218 million. Switching values are of the same order of magnitude as those given in para. 8 above. Table1: Costs and Benefitsof the Doubling of the Kenitrg - Sidi KacemnLine ('000DH)
1995 1998 1997 1998 1999 2000 2001 2002 2003 2004 2005 2008 2007 200S 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 TOTAL
1. Owetmet 0 0 AS649 109015 149297 81069 0 D 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 358018
2. Gain relatedto divautedtraffic
a) Poential dirveuedtraffic 1 Passengers 0 0 0 0 0 0 4674 6076 7526 9266 11132 13967 17226 20842 25W0 29906 35287 41496 48291 55291 62757 71419 80879 91266 102451 114749 849593 2 Gta, 0 0 0 0) 0 0 2160 3254 5058 7380 10381 14572 20465 27861 36898 47051 57890 69745 82274 95754 110081 125256 141096 157372 174176 191510 1380232
b) Generateddiverted traffic 1 Passngers 0 0 0 0 0 0 53358 54959 56608 58306 60055 61S57 63713 65624 67593 69621 71709 73861 76076 78359 80709 83131 85625 88193 9W39 93564 1433760 2 Goods 0 0 0 0 0 0 67767 69800 71894 74051 76272 78561 80917 83345 8845 88421 91073 93806 96620 99518 102504 105579 108746 112009 115369 118830 1820928
3 line savirgs of base passengertraffic 0 0 0 0 0 0 2928 3003 3081 3159 3239 3312 3384 3456 3525 3591 3656 3716 3774 3834 3894 3945 3993 4037 4077 4110 71714
4 Tima savngs relatedto dierned trafric a)Potentiatdiv. 0 0 0 0 0 0 408 530 657 809 972 1219 1504 1820 2190 2611 3081 3623 4216 4827 5479 6235 7061 7968 6944 10018 74169 traffic b) Gerrated div. 0 0 0 0 0 0 4658 4798 4942 5090 5243 5400 5562 5729 5901 6078 6260 6448 6641 6841 7046 7257 7475 7699 7930 8168 125167 traffic
S Benfits relatedto ineased trin speeds I Passengers 0 0 0 0 0 0 4589 4589 4589 4589 4589 4589 4589 4589 4589 4589 4589 4589 4589 4589 45tl9 459 45819 45s9 4589 458g 91T10 2. Goocds 0 0 0 0 0 0 3995 3995 3995 3995 3995 3995 3995 3995 3995 3995 3995 3995 3995 3995 3995 3995 3995 3995 3995 3995 79892
6 rastr. maitren 0 0 0 0 0 0 502 502 502 502 502 502 502 502 502 502 502 502 502 502 502 502 502 502 502 502 10049 oDstsavins
7 Salagevkue 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 184384 184384
BENEFITS 0 0 -16649 -109015 -149297 -81058 145040 151507 158852 167147 176380 187974 201856 217762 236123 256367 278042 301779 326978 353509 381555 411908 443960 477629 512871 734420 5765641 2(2+3+4+5.6-1)
TOTALBENEFfTS 0 -3936 46583 -189464 -244801 -63584 178760 191681 200969 218314 206002 229283 243010 273520 290101 328136 346083 391056 410302 461766 458782 518001 538957 605657 626930 1026971 7196116
ECONOMIC RATE OF RETURN 28,33%
NET PRESENTVALUE AT 10% OH 1,090NMItions
-00
0 Table2: Costsand Bentfit of the Doublineof the Kenitra - Sidi KacemLine ('000DMI 75% ReducHonof Benefits (comparedwith Table 1)
1995 1996 1991 I99 1999 2000 2001 2002 2003 2004 2005 2006 2007 200S 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 TOTAL
1llavuunea 0 0 16649 109013 149297 81051 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 356011
2. Gain elted to diverted "Meic
)sPotenCialdiverted Iraflc I Pengers 0 0 0 0 0 0 1174 1526 191 232S 2796 3506 4327 5236 6302 7513 564 10424 12131 13539 15165 17941 20317 22926 25736 2S125 213415 2. Goods 0 0 0 0 0 0 543 *17 1271 1854 2601 3661 5141 6999 9269 11119 14542 17520 20667 24053 27652 31464 35443 39532 43753 48107 346714
b) Gated diverted afflc 1 Pa_egr 0 0 0 0 0 0 13404 13106 1421O 14647 150S6 1553S 16005 16455 16979 17419 11013 15554 19110 19654 20274 20S62 21509 22154 22S19 23503 360161 2.Goods 0 0 0 0 0 0 17023 17534 1060 IB602 19160 19734 20326 20936 21564 22211 22675 23564 24271 24999 25749 26521 27317 2S137 269S1 29150 457417
3.Timevingsotbfae 0 0 0 0 0 0 735 754 774 794 S14 132 550 868 165 902 918 934 94S 963 976 991 1003 1014 1024 1033 1I015 passner trffic
4.'rme svings relatd to diveled trffic a)Potmdldiverted uaff 0 0 0 0 0 0 103 133 165 203 244 306 371 457 530 656 774 910 1059 1213 1376 1566 1774 2001 2247 2516 11631 b) Gnaeeddivcsedtr 0 0 0 0 0 0 1170 1205 1241 1279 1317 1357 1397 1439 1482 1527 1573 1620 t66S 171S 1770 1123 1171 1934 l992 2052. 31442
S. Benefits rdaed to increaed train _peed IPasegers 0 0 0 0 0 0 1153 1153 1153 1153 1153 1153 1153 1153 1153 1153 1153 1153 1153 1153 1153 1153 1153 1153 1153 1153 23053 2. Goods 0 0 0 0 0 0 1003 1003 1003 1003 1003 1003 1003 1003 1003 1003 1003 1003 1003 1003 1003 1003 1003 1003 1003 1003 20069
6. Wragmcnr inst-
Nuce t vinap 0 0 0 0 0 0 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 2524
7 SalvWevadue 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 114334 564314
BENEFITS 0 0 -16649 -109015 -149297 '-1059 36434 38059 39904 41987 44307 47219 50706 54702 59314 64399 6914 75307 82137 SS101 95147 103471 111523 1199S0 128133 322553 1319809 2(2+3+4+5+6-1)
7O0ALBEN4EFITS 0 .7323 -51664 -196238 -254764 42124 44905 4S200 50483 54141 5174S 57596 61044 66702 72873 82428 16936 98233 10306S 115996 115246 130122 135316 152141 1574S5 501675 1597002
ECONOMIC RATE OF RETURN 10,00%
NET PRESENT VALUE AT 10% DH -0 00005 MIllion
-0 TAUble3 Cosbsand Benebtsor theDoubline of the Kenitra - Sidi KacemLine ('000 DH) with 275% Increasein Cost of Investment(compared with Table 1l
1995 1996 1J97 1996 1999 2000 2001 2002 2003 2004 2005 2006 2007 2005 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 TOTAL
I Invesgmegso 0 0 62415 408581 SS9692 303874 0 a 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 a 0 1334661
2 Gai dted to divenedeaffic
2) Ptinsen iliventedtresic I Passesgen 0 0 0 0 0 0 4614 6076 7526 9266 11132 13967 17226 20842 25006 29908 35287 41496 45291 55291 62757 71419 80679 91268 102451 114149 849593 2 Goods 0 0 0 0 0 0 2160 3254 6058 7380 10381 14572 20465 27861 36198 47051 57890 69745 52274 95754 110081 125256 141096 157372 174176 191510 1380232
b) Gented diveneddrffic I Passengers 0 0 0 0 0 0 53358 54959 56606 58306 60055 61857 63713 65624 67593 69621 71709 73861 76076 763S9 80709 83131 85862 88193 90639 93564 1433760 2 Goods 0 0 0 0 0 0 67767 69600 71694 74051 76272 78561 60917 83345 85845 88421 91073 93806 96620 99518 102504 105579 108746 112009 115369 118830 1820928
3 Timesavingsofdbe 0 0 0 0 0 0 2928 3003 3081 3159 3239 3312 3364 3456 3525 3591 3656 3716 3774 3834 3894 3945 3993 4037 4077 4110 71714 Passengerusffic
4 Timesavings rdatedto divtnd traffic a)Potmtildivertedsff 0 0 0 0 0 0 408 530 657 509 972 1219 1504 1820 2190 2611 3081 3623 4216 4827 5479 6235 7061 7968 8944 10018 74169 b)Generateddivertedra 0 0 0 0 0 0 4658 4798 4942 5090 5243 5400 5562 5729 5901 6078 6260 6448 6641 6841 7046 7257 7475 7699 7930 8168 125167
5 Bendfitsrdated to iscreased train tpeeds I PauSngers 0 0 0 0 0 0 4589 4589 4589 4589 4589 4589 4589 4589 4589 4589 4589 4589 4589 4589 4589 4589 4589 4589 4589 4569 91770 2. Goods 0 0 0 0 0 0 3995 3995 3995 3995 3995 3995 3995 3995 3995 3995 3995 3995 3995 3995 3995 3995 3995 3995 3995 3995 79692
6.Infmsnucam miaie 0 0 0 0 0 0 502 502 502 502 502 502 502 502 502 502 502 502 502 502 502 502 502 502 502 502 10049 mmci ctWuvn5s
7. Sulvagevuie 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 184384 184364
BENEFITS 0 0 -62415 -408681 -559692 -303874 145040 151507 158852 167147 176380 187974 201856 217762 236123 256367 278042 301779 326978 353509 381W55411908 443960 477629 512871 734420 4786997 2(2+3r4+5-6-I)
TOTAL BENEFITS 0 -27188 -193284 -735140 -969984 -306429 178760 191881 200969 218314 206002 229283 243010 273520 290101 328136 346083 391056 410302 46176t 458782 518001 538957 605657 626930 1026971 5512457
ECONOMICRATE OF RETURN 10,00%
NET PRESENTVALUE AT 10% DH 0 00301 Milbns
Ft 5
O x OA Table4: Acquisition of Locomotives
1995 1996 1997 1996 1999 2000 2001 2002 2003 2004 2005 2006 2007 2006 2009 2010 2011 2012 2013 2014 2015 2018 2017 2018 TOTAL
I-INVESTMENT 0 0 64391 1650 7 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 229892
Il-INFRASTRUCTUREMAINTENANCE COST SAVINGS -WntA proect *Basewst 41617 41617 41617 41617 41617 41617 41517 41617 41617 41617 41617 41B17 41617 41617 41617 41617 41617 41617 41617 41617 41617 41517 41617 41617 998808 'Excesscost 1095 2189 3284 4379 5474 6568 7663 8758 9852 10947 12042 13137 14231 15326 16421 17516 18610 19705 20800 21894 1095 2189 3284 4379 240839
Totalcostw/oprroecl 42712 43806 44901 45996 47091 48185 49280 50375 51469 52564 53659 54754 55848 56943 68038 59133 60227 81322 62417 63511 42712 43806 44901 45996 IE+06 -VIth project Basecost 41617 41617 41617 41817 1875 1875 1875 1875 1875 1875 1875 1875 1675 1875 1875 1875 1875 1875 1875 1875 1875 1875 1875 1875 203975 *Excesscost 0 0 631 1261 1892 2522 3153 3783 4414 5044 5675 6306 6936 7567 8197 8828 9458 10089 10720 11350 11981 12611 132418
Totalcostwlproject 41617 41617 41617 41617 2506 3136 3767 4398 5028 5659 6289 6920 7550 8181 8812 9442 10073 10703 11334 11964 12595 13225 13856 14487 336393
B5nefis in 1000DH 0 2189 3284 4379 44585 45049 45513 45977 46441 46905 47370 47834 48298 48762 49226 49690 50155 50619 51083 51547 30117 30581 31045 31509 903254
111-BENEFITS RELATED TO IMPROVEDRELtA8ILITY Wnout preed 1824 1824 1824 1824 1824 1824 1824 1824 1824 1824 1824 1824 1824 1824 1824 1824 1824 1824 1824 1824 1824 1824 1824 1824 43784 Wtih projed 1824 1824 1824 1824 159 159 159 159 159 159 159 159 159 159 159 159 159 159 159 159 159 159 159 159 10466
-Benefts 0 0 0 0 1665 1665 1665 1685 1665 1665 1665 1665 1665 1665 1665 1665 1665 1665 1665 1665 1665 1665 1665 1665 33298
IV- AVAILA8ILITYOF LOCOMOTIVES -Diference idaysavailabte 1834 1834 183 1834 1834 1834 1834 1834 1834 1834 1834 1834 1834 1834 1834 1834 183 183 1834 1834 36680
-Benefitsreidtoirnprove.davaihability 15478 15478 15478 15478 15478 15478 15478 15478 15478 15478 15478 15478 15478 15478 15478 15478 15478 15478 15478 15478 309552
V- SALVAGEVALUE 57473 5
-Be~eEls 0 2189 461107-161121 61727 62191 62656 63120 63584 64048 64512 64976 65440 65905 66369 66833 67297 67761 68225 68690 47259 47724 48186 106125 1E+06
ECONOMICRATE OF RETURN 26,66%
NETPRESENT VALUE AT 10% DH 1,090MiWions
0 ANNEX 11 Page 1 of 7
FINANCIAL EVALUATION
Main Assumptions Used For Projections
Operating revenues
(a) Rail services are consolidated under two major business lines: - passengers and parcels; - freight with another subdivision: phosphate, general cargo, and the port shuttle for chemicals (called "other revenue"). The model considers each of these four segments separately. The current projection assumes passenger and freight traffic growth of 11 and 5 percent respectively in 1996 that mostly accounts for the one-month strike in 1995. Phosphate traffic was not affected by the strike and will likely fall by about 1 percent in 1996 compared to the previous year. For later years, traffic growth is assumed at an annual rate of 2.5 percent for passengers, 1 percent for phosphate, and 1 percent for other freight. The projection further accounts for loss of petroleum traffic in 1997 (a 3-percent reduction of freight traffic) and for traffic creation directly linked to the project (addition of about 4 percent to the trend passenger and freight traffic in 2001 and 2002). The tariffs are kept unchanged until 1997: they are then assumed to be raised each year by a percentage equivalent to two thirds of the inflation rate.
(b) After creation of the joint-stock company, Government is expected to pay compensation starting 2000 for the deficit incurred by ONCF in providing services at its request. The initial compensation is estimated at DH 110 M, growing to DIH 125 M by 2003 (the compensation is mostly for passenger services; about DH 20 M corresponds to low tariffs granted to chemical traffic).
(c) Miscellaneous revenues, of fluctuating nature in the past and of minor magnitude, are estimated at a constant DH 10 M.
(d) Investments by force account ("Travaux faits par 1'entreprise pour elle-meme", or TFEE) are not treated as operating revenue, contrary to ONCF's practice. Instead, they are deducted from working expenses. These investments have been estimated by ONCF and mostly include materials and equipment.
2. Operating expenses
(a) The evolution of labor costs depends on the compensation policy and on staffing. The 7 percent increase scheduled in 1997 has been taken into account. Staff downsizing from about 13,800 in 1995 to 10,000 in 2001 is the main factor in the evolution of labor costs. The saving in 1996 value is calculated as the number of redundant staff times the average salary (some DH 42,000 per year) times 1.12 to ANNEX 11 Page 2 of 7
account for fringe benefits paid by the employer. The calculated amounts are then converted to current value by using the cost of living adjustment factor (1.5 percent p.a.) and the average merit increase (2 percent p.a.). The saving comes to a total of slightly more than DH 200 M by 2003.
(b) For fuel and energy costs, related consumptions in 1995 are first apportioned to the traffic. They are projected taking into account the growth prospects of each traffic and the elasticity of fuel consumption to traffic growth (0.8 for passenger trains, 1 for phosphate trains, and 0.9 for other freight trains) to account for expected productivity increases. Inflation factors are then added (4 percent in 1996, 3.5 percent in 1997 and 3 percent thereafter).
(c) Supplies cover materials needed for operation and maintenance, plus investments done by force account. The former is derived from an estimate of variable and fixed operating costs in 1995 reduced by its labor component and train crew costs (combined share of 40 percent). The residual value is then projected based on the same principle as the one used for fuel (traffic growth and elasticity of supplies consumption to traffic of 0.6 for passenger traffic, 0.9 for phosphate traffic and 0.8 for other freight traffic). The amounts are then updated for inflation of 4.5 percent in 1996, 3.5 percent in 1997 and 1998, and 3 percent thereafter. The projection further assumes that about 15 percent of works done by force account will be contracted out between 1996 and 2003 which will have an impact on the supplies level (they will be reduced by some DH 30 M by 2003). The supplies needed for TFEE investments are calculated as 35 percent of the investment values given by ONCF.
(d) For services purchased, the calculation also starts from the projection of variable and fixed operating costs and assumes a higher share of contracted out services (from 33 percent of costs in 1996 to 40 percent in 2001). The value of in-house services is multiplied by a 1.4 coefficient when they are taken over by outside providers (they will charge for overheads, capital costs and the benefit margin). The services purchased are estimated in current dirham using the same inflation rates applied to supplies.
(e) Depreciation is based on 50 years for infrastructure, 35 years for rolling stock and 15 years for other fixed assets.
3. Borrowings. The model features four sources. Except for outstanding loans (see (a) hereafter) and the Bank loan, the assumptions on terms and conditions are rough estimates.
(a) The debt already contracted at the end of 1995: ONCF provided the corresponding debt servicing schedule.
(b) Credits totaling DH 600 M (bilateral assistance and buyers' credits) would be disbursed during 1996-2000. Some of these credits are concessional with a long period of grace and others are export credits. The projection assumes repayment ANNEX 11 Page 3 of 7
of half those credits starting 1997 with twelve maturities and payment of interest at 8 percent.
(c) Multilateral agencies (essentially the World Bank, the European Investment Bank and the African Development Bank) would lend a total of close to DH 2.4 billion during 1997-2000 (5 years of grace, 15 maturities, and 7.25 percent interest).
(d) Unidentified banks would finance up to DH 700 M or about a third of investments undertaken between 2001 and 2003 (1 year of grace, 15 maturities and 8 percent interest).
(e) All the debt contracted from 1997 onward would be denominated in foreign currency.
No foreign exchange loss was accounted for in the base case scenario as local and foreign inflation rates are close enough not to warrant a parity change.
4. Investments. Total investments are estimated at DH 5.2 billion during 1996-2000. When incurred, expenses are first recorded under "work-in-progress", from which they are transferred to the relevant fixed assets after lags that vary according to nature of the works. Fixed assets are analyzed under four categories: infrastructure, construction and tracks, rolling stock, equipment and tools.
5. Inventories. The stores' inventories are reduced to DH 650 M in 1996 and DH 500 M in 1997, after which they represent 300 days of supplies. ANNEX 11 Page 4 of 7
FINANCIAL EVALUATION
Detailed Financial Tables Income udatminent:rtctual (1992-95)and forecast (1996-2002) (in dirham nlillon)
1992 1993 1994 1995 1996 1991 1998 1999 2000 2001 2002 2003 aclual actual actual actual projected projected projected projected projectcd projected projcckcd projected OPERATINGREVENUES Passciigcr aniidbaggagcs 385 376 389 337 375 400 420 439 459 501 544 569 Frcight:gencralcargo 502 426 411 415 434 431 452 466 480 516 552 569 Fmeight:phosphates 529 485 720 746 719 779 806 831 856 882 909 937 Govcrnmcntcompensation 0 0 0 0 0 0 0 0 0 110 120 125 Ottier revciues 80 24 54 45 50 53 55 58 61 64 67 70 Nlsiscelaneotis 0 15 17 7 10 10 10 10 10 10 10 10 Revenuefrom opCrations 1496 1326 1591 1551 1587 1677 1743 1803 1866 2084 2202 2280
Labourcosts 711 736 783 771 780 822 831 840 851 859 894 924 Fuelandenergy 205 226 239 195 219 229 239 250 261 281 301 315 Othersupplies 247 262 387 162 196 281 305 316 164 173 196 209 Servicespurchased 235 269 325 177 179 152 175 199 225 261 279 292 Other costs 9 8 0 2 11 12 12 12 12 13 13 14 Taxes 9 7 19 16 16 17 17 18 19 21 22 23 minus: Fixcd assetscreation 113 107 217 110 77 197 24S 281 69 102 125 137 lotalworkiig cxpcnscs 1303 1401 1536 1212 1323 1315 1332 1353 1464 1505 1581 1640 CASH FROM OPERATIONS 193 -75 55 338 264 362 411 450 401 579 621 640
Total annualdepreciationi 320 353 362 391 411 419 435 454 471 488 508 522 Provisioln 67 25 7 0 0 0 0 0 0 0 0 0 Totalopcratingcxpcnses 1689 1779 1906 1603 1734 1735 1767 1808 1935 1994 2089 2162
NET OPERATINGREVENUE *194 -452 -315 -52 -147 -58 -24 -4 -70 90 113 118 Interest 263 279 276 199 199 186 197 241 271 280 277 273 Non operatingitems: Non operatiig rcvcnucs 92 129 423 195 109 122 106 105 120 120 120 120 Nonopcr.expcnses 418 85 576 553 90 110 85 90 100 100 100 300 Nct non oper. rcvcnues -326 44 -153 -358 19 12 21 15 20 20 20 20 Incomct ax 9 0 0 0 8 8 9 9 9 10 II II NET INCOME -791 -688 -744 -609 -335 -240 -208 -240 -331 -180 -155 -146 FINANCIAL RATIOS I' > Working ratio 0.87 1.06 0.97 0.78 0.83 0.78 0.76 0.75 0.78 0.72 0.72 0.72 tJ z Operatingratio 1.13 1.34 1.20 1.03 1.09 1.03 1.01 1.00 1.04 0.96 0.95 0.95 Dcbt serviceralio' n.a. n.a. 0.06 0.61 0.47 0.66 0.77 0.82 0.81 1.69 1.35 1.46 s - Laborcosts/operatingrevervucs'* 0.50 0.57 0.52 0.51 0.43 0.41 0.38 0.36 0.35 0.31 0.30 0.30 Laborcosts/cashexpcnses'* 0.52 0.50 0.46 0.60 0.51 0.52 0.50 0.48 044 0.43 0.42 0.42 *adjusteddata froiss2001 onward '*adjusted data from 1996onward 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 FIXED ASSEIS actual actual actual actual projected projected projected projected projected projected Studies projected projected 84 84 84 84 84 14 S4 64 g4 64 14 t4 Land 95 97 108 116 116 135 209 327 644 873 Constructionand tracks 931 981 3662 4404 4384 4476 4476 4638 5015 5506 6474 7487 3075 3225 Rollnig stocks 4198 4634 4833 5250 5280 5395 5580 5882 5907 Equipment,tools 5913 6263 67113 516 551 1902 1953 1965 2050 2159 2258 2284 2303 2333 2373 Buildings and others 902 967 0 Total grossfixedassets 9458 10744 11311 11878 11921 12302 13047 14058 15393 16660 17686 18376 Acc.dcpec.oa studies 84 94 84 S4 84 84 84 84 84 84 84 Acc. deprec.ontrack,construction 84 647 759 699 863 1027 1194 1368 1553 1756 1980 2215 2453 Acc. deprcc.onrollingstocks 1545 1719 1834 2009 2183 2360 2541 2729 2912 Acc. deprec.onequipmcnt 3093 3280 3476 & tools 285 324 687 761 834 909 938 1071 1155 1239 1325 1412 Other acc. depreciation 126 147 Total accuin.deprec. 2687 3032 3305 3717 1128 4547 4982 5436 5908 6396 6904 7426 Workinprogress 1197 513 467 223 S32 1355 2296 2577 1913 1226 Sharcsand bonds 990 1105 403 400 400 238 238 238 238 238 238 238 238 238 ParticipationTanger-Fezrailroad 1940 2179 2474 0 0 0 0 0 0 0 Loansto staff& others 0 0 88 85 91 100 100000 100 100 100 100 100 Impactof ncw Exch.rates 404 351 275 236 236 236 236 236 236 Totalotherfixedasscts 236 236 236 4032 3529 3706 797 1405 1928 2869 3150 2486 1799 1563 1678 Netfixedasscts 10802 11241 11712 8958 9199 9683 10934 11772 11971 CURRENTASSETS 12063 12345 12628 Stows 1003 1O37 125 807 650 500 453 476 367 399 435 Receivables(clients) 177 458 237 416 198 296 292 287 296 Otherdebtors 1 307 343 362 375 397 393 401 443 221 0 0 0 0 0 0 Suspenseaccounts 2 0 7 I 5 8 11 11 11 Cashavailable 11 11 11 11 20 33 22 153 68 373 417 623 1010 890 598 296 Totalcurrcntalssets 1599 1707 1666 1605 1243 1176 1167 1406 1694 1641 1406 1139 TOTAL ASSETS 12401 12948 13378 10563 10442 10858 12101 13177 13666 13704 PERMANENTFUNDS 13751 13767 Capital,retainedearnings -2519 -3311 6923 6883 6274 5939 5699 5491 Subsidies& grants 5251 4921 4741 4585 7092 7437 78 75 775 1475 2175 2875 3575 3779 3999 4225 Provisions 2878 3124 3670 1158 1158 1158 1158 1158 1158 Profit ofcurrent year 1158 1158 1158 -791 -688 -744 -609 -335 -240 -208 Lonigtcrni -240 -331 -180 -155 -146 dcbts 2185 1999 2303 2198 1934 1990 26R3 3350 3567 3583 3488 Total pemiaiecntfunds 8845 3415 8560 12230 9704 9805 10322 11506 12633 CURRI NTI IAlItLITIIES 13220 13260 13230 13236 Suppliers 192 175 809 317 261 304 443 Other creditors 388 297 291 346 359 174 171 94 91 89 91 83 77 104 Sortn IernportionofLTDcbt 1237 99 1424 0 0 1 1 1 1 Amearsto Govcmment 1 1 1 1 1812 2232 51 28 30 5 Bankoverdraft 0 0 0 0 0 0 109 225 65 162 150 75 Suspenseaccounts 0 0 0 0 0 0 P'Z 206 332 49 181 100 60 62 64 66 68 70 72 c Totalcurrent liabilitics 3557 4388 1147 859 637 537 595 544 446 444 521 531 TOTAL LIABILITIES 12401 12948 a, 13378 10563 10442 10858 12101 13177 13666 13704 R:NANCIAL IATIOS 13751 13767 P, _ Current 0.45 0.39 1.45 1.87 1.95 2.19 1.96 Debt/equity 2.58 3.80 3.70 2.70 2.15 0.25 0.23 0.19 0.23 0.20 0.19 0.23 0.27 0.27 0.27 0.26 0.26 MAROC: ONCF- OmUeNatonal des Chemli deFer: Sourceand appeadou of fdb On dirha milel)e
LONGTERM SOURCES 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 acua aua projected projected projected projected projected projected projected projected Csh generatedfrom operations 55 338 264 362 411 450 .401 579 621 640 Borrowings 262 245 102 41S 1031 972 443 200 250 250 Pensionsubsidics,financial restructuring. *Protocole 3919 700 700 700 700 700 700 205 220 226 Disinvcstmcnts& adjustments 604.920 235 0 0 0 0 0 0 0 0 Netnonoperatingrcvenues -153 -358 11 4 12 6 11 10 9 9 Debtservice by govemment 0 0 0 0 0 0 0 0 0 0 Totallongtermsources 4687 1161 1077 1483 2154 2128 1555 993 1100 1124 LONGTERM APPLICATIONS Loans& participations 5 9.196 Investmentprogram 526 370 651 903 1686 1292 671 580 790 S05 [ofwhich intemallyproduced] 217 110 77 197 248 281 69 102 125 137 Total capitalinvestment 531 379 651 903 1686 1292 671 580 790 805 Interest 276 199 199 186 197 241 271 280 277 273 Debtrepayment, incl. foreignexchange losses 682 354 366 362 338 306 226 184 345 322 Total debtservice 958 553 565 548 535 547 497 464 622 595 Dividendsto govemment 0 0 0 0 0 0 0 0 0 I Totallongtern applications 1489 932 1217 1451 2221 1839 1168 1044 1412 1401 EXCESS LT. SOURCES/APPLICATIONS 3198 228 -139 32 -67 289 387 -51 -312 -276 SHORTTERM SOURCES: Increaseof: suppliers 634 -492 -56 43 139 -55 -91 2 48 12 othercreditors 174 -3 -77 -3 -2 2 -8 -6 26 -5 S.T.portionof L;T. debt -1424 0 1 0 0 0 0 0 0 0 Arrears -2181 -22 2 -25 -5 0 0 0 0 0 Bank'soverdraft -284 97 -12 -75 -75 0 0 0 0 0 suspenseaccounts -159 132 -81 -40 2 2 2 2 2 2 sub-total -3240 -288 -222 -100 58 -51 -98 -2 77 10 SHORTTERM APPLICATIONS:Increase of: stores -212 -18 -157 -150 -47 23 -109 31 36 23 receivables 179 -218 98 -4 -6 10 10 36 19 13 otherdebtors 8 42 -221 -221 0 0 0 0 0 0 suspenseaccounts -5 3 3 3 0 0 0 0 0 0 > subtotal applications -31 -190 -277 -373 -53 33 -98 67 56 36 EXCESSST. SOURCES/APPLICATIONS -3209 -98 55 273 III -84 1 -70 21 -26 --A CASHBEGINNINGOFYEAR 33 22 153 68 373 417 623 1010 890 598 ° _ VARIATIONOF CASH -10.88 130 -85 305 44 205 387 -120 -291 -302 -' NETCASHENDOFYEAR 22 153 68 373 417 623 1010 890 598 296 ANNEX 12 Page 1 of 2
FINANCIAL SENSITIVITY ANALYSIS
1. As evidenced by fifteen years of financialstrains that led to the 1994 financial restructuring, the expected financial recovery follows a narrow path and could be jeopardized, were such potential risks to materialize. Three key parameters are prone to such risks: traffic growth, labor costs containment and exchange rates.
(a) Traffic growth. Adequate cash generation hinges on rising traffic and continued competitiveness of the railway tariff. As for the latter, the assumed tariff policy (stability until 1997, then yearly revision to partly recoup inflation) is designed to minirnize risks. Traffic growth is more uncertain, as deregulation of road transport will foster utilization of larger trucks and economies of scale, as well as development of bus services that will also be helped by extension of the motorway network. ONCF may prove unable to engineer reversal of the negative trend that prevailed during 1987-1994 (minus 1.1 and 2.8 percent per year respectively for passenger and general cargo traffic). The simulation envisages an adverse scenario by which passenger traffic would stagnate from 1997 onward, and freight traffic other than phosphate would decrease by 2 percent annually from that same year.
(b) Labor costs containment. As an important share of working expenses (about 60 percent in 1995), labor costs must be reduced for the financial recovery plan to succeed. The new management determination to downsize the labor force could be undermined by the unions whose strength shows no sign of abating. The simulation considers a case where it would be impossible to reduce staff below 12,500 (compared to 14,000 on average in 1995).
(c) Evolution of exchange rates. Depreciation of the local currency has been one of many factors that contributed to ONCF insolvency in the relatively recent past. Based on projected local and international inflation rates, the future depreciation of the dirham should be of limited magnitude (should exchange rates strictly follow the purchasing power parity rules, the dirham would depreciate by a mere 1.5 percent annually over 1996-1998, then 1.3 percent annually thereafter). The base case scenario assumes no depreciation of the dirham. However, failure to improve the macroeconomic framework would weaken the dirham, with adverse consequences to ONCF's ability to service its debt which would be entirely contracted in foreign currency. The simulation includes an adverse scenario corresponding to depreciation of the dirham at an annual rate of 3.5 percent (in 2003, the dirham would have lost about 30 percent of its value against the US dollar).
2. The table below summarizes the results of all simulations including one which combines the adverse traffic and staffing cases plus a 2 percent annual depreciation rate for the dirham. ANNEX 12 Page 2 of 2
Sensitivity of Financial Results to Main Risk Factors (in DH million for income and cash gosition)
Financialindicators 1997 1999 2012 Base case -net income(loss) -240 -240 -1i0 -146 -cash in bank/hand 373 623 890 296 -workingratio 0.78 0.75 0.72 0.72 -debt serviceratiol 0.66 0.82 1.69 1.46 -currentratio 2.19 2.58 3.70 2.15 A- Lower traffic - net income(loss) -267 -296 -272 -277 - cash in bank/hand 336 509 626 -194 -workingratio 0.80 0.77 0.75 0.71 -debt serviceratio 0.61 0.72 1.49 1.23 -currentratio 2.12 2.35 3.10 1.12 B- Higher staffing - net income(loss) -260 -321 -332 -310 - cash in bank/hand 353 473 473 -442 -workingratio 0.80 0.80 0.80 0.79 -debt serviceratio 0.62 0.67 1.36 1.18 -currentratio 2.15 2.31 2.76 0.76 C- Depreciation of DH - net income(loss) -313 -379 -344 -300 - cash in bank/hand 338 504 652 -204 -workingratio 0.78 0.75 0.72 0.72 -debt serviceratio 0.63 0.75 1.46 1.17 -currentratio 2.11 2.33 3.09 1.15 D- Combined A-B-C- - net income(loss) -329 -456 -514 -523 - cash in bank/hand 296 293 79 -1202 -workingratio 0.81 0.82 0.83 0.U3 -debt serviceratio 0.56 0.54 1.08 0.85. -currentratio 2.04 1.93 1.79 -0.86
3. The sensitivity analysis confirms that the financial recovery remains vulnerable to adverse factors that would not allow implementation of the strategy. The impact of lower traffic and of a depreciated dirham would be less severe than failure to reduce staffing level, and would still result in cash shortages of about DH 200 M in 2003 without much possibility of resorting to increase borrowings since the debt service coverage ratio would already be below safe levels (around 1.2 in 2003). The combination of adverse factors would bring ONCF to bankruptcy shortly after 2001.
4. In view of these results, it will be essential to monitor closely the evolution of financial parameters and ensure full compliance with key targets covenanted in the Loan agreement. The mid-term review will be of great importance since it provides an opportunity to revise the strategy if need be to make sure that financial targets will be met, notwithstanding adverse changes in the business environment. Corrective measures range from abandonment of loss-making services to more drastic staffing reductions to below 10,000.
I The Government capital contribution to balance the ONCF pension systemhas been taken into account from 2001 onward. ANNEX 13 Page 1 of 9
NON-OFFICIALENGLISH TRANSLATION OF TBE STRATEGYLETTER
KINGDOMOF MOROCCO
September 25, 1996
Mr. James Wolfensohn President,The World Bank 1818H Street, N.W. Washington,DC 20433 United States of America
Subject: RailwayRestructuring Project Letter of SubsectorStrategy
Dear Mr. President:
I. Introduction
I . Improvementof the conumercial,technical and financialperformance of rail transport is a central concern of the policy on increasingthe competitivenessof the Moroccan economy and rehabilitationof the publicfinances pursued by the Government.
II. Diagnosisof the Present Situationof the Railways
2. The present structure of the rail system, which serves most of the major population centers, the main ports and the mining centers, is satisfactory from an overall standpoint. However, the system needs to be modernizedand made more efficient: the infrastructurehas become partiallyrun down and a part of the systemis at the limit of its capacity. As regards the institutional aspect, the Office National des Chemins de Fer (National Railways Company, hereinafter'ONCF), which has the legal status of an industrialand commercialpublic institution ('E.P.I.C.'), is subject--due to the legislation applicable to it (see Appendix 1 hereto)--to managementprocedures that are often cumbersomeand restrictive. ONCF has not posted a profil. since 1980 and its self-financingcapacity has been markedlynegative since 1991. Moreover, and. no less disturbing,it must be noted that if no steps are taken to reform the retirement-finding mechanisms,the ONCF staff pension scheme will become an increasinglyheavy burden on the enterprise's future financial equilibrium. For some time now, this subsector has only beerL maintainedin financialbalance by meansof significanttransfers from the Government. However,, ANNEX 13 Page 2 of 9
since mid-1994, ONCF's management has been implementing an important program of reforms of the enterprise's internal management, the main components of which are listed in Appendix 2.
Im. Main Objectives of the Rail Transport Policy
3. The medium-term rail transport policy that the Government proposes to implement has as its main objectives: (i) sharpening the competitiveness of rail transport, which falls within the general context of Morocco's transport policy, namely, upgrading the quality and reducing the cost of the services provided to clients, fostering healthy competition between transport modes and enterprises, and assuring coverage by clients of the operating costs of transport services and of the cost of infrastructure maintenance and renewal; and (ii) reduction and rationalization of the Government's financial transfers to the subsector.
A. Modernization of the Rail System
4. Modernization of the rail system will be pursued through the implementation of an investment plan defined in the Performance Contract for the period 1996-2000 (hereinafter 'S3overnment-ONCFPerformance Contract') concluded between the Government and ONCF on September 6, 1996, and which assigns priority to infrastructure renewal and modernization.
B. Revision of the Financial Relations between the Government and the Rail Transport Enterprise
5. Regarding the financial transfers by the Government to the subsector, as of the year 2001 the Government proposes to limit these to: (i) compensation for public-service obligations explicitly imposed by the Government (either for operation of special services, or in the form of tariff reductions for certain categories of clients, or else for maintaining certain lines or facilities in service for specific needs); and (ii) financing of the construction of new infrastructure, if specificallyasked by the Government.
C. Reorganization of the Institutional Framework: Stage I: Formation of a Limited Liability Company and Reorganization of the Government's System of Financial Control
6. The degree of autonomy of ONCF currently contrasts with the increased freedom enjoyed by road hauliers in a deregulated market. The institutional framework of its activity will be thoroughly restructured so as to give ONCF complete autonomy of operation and to encourage it to adopt a resolutely commercial approach. The Government is convinced that reform of its control over ONCF and ONCF's conversion into a joint stock company will increase and strengthen ONCF's efficiency, autonomy, competitiveness and market-oriented approach. In order to ensure that the rail transport enterprise will have the desired freedom of operation, the Government will: (i) give ONCF the legal status of a joint stock company; (ii) reform the financial control rules applicable to it; and (iii) redefine the regulatory framework for railway activity. The conversion of ONCF into a joint stock company will be consistent with the new law on joint stock companies which aims at making control of company management more effective. The new law sets up a more appropriate legal framework. ANNEX 13 Page 3 of 9
7. The legislation in respect of conversion of ONCF into a joint stock company will include provisions to streamline Government financial control by eliminating a priori control and replacing it by a posteriori oversight and repealing, as regards the new rail transport enterprise, all current legislative and regulatory provisions governing Government financial control, including the Dahir No. 1-59-271 of April 14, 1960 as amended.
8. As of September 1, 1996, the Government has already begun the internal conversion process in ONCF. This process has to include, among other things, preparation of an inventory of all components of ONCF's assets and liabilities, identifying those that will be transferred to the new company and those that will be assumed or paid off by the Government, noting in each case the current value of each item concerned. This will be a diagnostic study of the legal system governing ONCF's property and obligations that will define, among other things, the alienable and inalienable rights and obligations. This first stage will be concluded with submission, no later than June 30, 1998, of the preparatory dossier for restructuring to the Preparatory Comnmitteeof the Permanent Interministerial Committee on Public Enterprises (CIPEP). During this initial period, the Government will determine which elements of ONCF's present assets and liabilities will be transferred to the joint stock company. This will make it possible to eliminate from the initial balance sheet those elements that could compromise the financial viability of the new rail transport company and to ensure that appropriate action is taken in light of the restructuring dossier to permit preparation in good time of the text of the law repealing the law instituting ONCF and to govern the company that will take ONCF's place. Subsequently, the Government will take the necessary steps to ensure that said draft law will be adopted by the Government no later than December 31, 1999.
9. The new regulatory framework for rail transport activity will be defined by a new set of specifications that will be based on standard models submitted by the Bank and concerning which the Government has given its agreement in principle (Appendix 3).
D. Reorganization of the ONCf Staff Pension System
10. The pension service for ONCF's permanent staff is managed by an internal fund which is currently operating at a very considerable deficit. It is expected that the ONCF subsidy needed to cover this financial deficit would rise from DH 100 million in 1996 to over DH 460 million by 2015. The equilibrium rate of the ONCF pension system will move from 42 percent of the wage bill in 1996 to nearly 80 percent in 2007 and almost 110 percent by 2015. A reliable and permanent solution has to be found for financing this deficit. A specific study of the ONCF system will be made in accordance with the conditions set out in Appendix 4.
11. ONCF's financing requirement up to the year 2000 is covered under the terms and conditions of the Government-ONCF Performance Contract for the period 1996-2000. Prior to the formation of the joint stock company, mechanisms for funding the pension fund's deficit will have to be put in place by the Government. It must be emphasized that conversion of ONCF into a joint stock company cannot be considered without an adequate solution of the pension question. ANNEX 13 Page 4 of 9
E. Reorganization of the Institutional Framework: Stage II: Development of the Private Sector
12. Following the conversion of ONCF into a joint stock company, the Government will, based on future options, initiate a study to analyze and develop in depth the most appropriate approach for ensuring, in the medium term, the active participation of the private sector in rail transport activity:
13. This study will also establish a plan of action and a schedule for implementing the option or options ultimately adopted by the Government. The terms of reference for this study will first be drafted in conjunction with the Bank. The report resulting from the study will also be discussed with the Bank.
Please accept, Mr. President, the expression of our highest consideration.
FOR THE KINGDOM OF MOROCCO
Essaid Ameskane MIinisterof Transport ANNEX 13 Page 5 of 9
Appendix 1
LEGAL FRAMEWORK WITHIN WHICH ONCF CURRENTLY OPERATES
ONCF, established by Dahir No. 1-63-225 of August 6, 1963, as amended by Dahir No. 1-70-18 of July 25, 1970, has the legal status of an 'E.P.I.C." (Etablissement Public a Caractere Industrel et Commercial, Industrial and Commercial Public Institution) and therefore possesses civil personality and financial autonomy. A set of Specifications approved by Royal Decree No. 23-67 of April 25, 1967 defines the conditions under which ONCF will manage and operate the rail system.
In virtue of its E.P.I.C. status, ONCF is subject to Government financial control under the provisions of Dahir No. 1-59-271 of April 14, 1960, as amended by Dahir No. 1-61-402 of June 30, 1962, organizing the Government's financial control over the offices, public establishments and concession-holding companies, and other companies and organizations, benefiting from financial assistance from the Government or public authorities or agencies. ANNEX 13 Page 6 of 9
Appendix 2
MAIN RECOVERY MEASURES TAKEN BY ONCF SINCE MID-1994
Cost reduction measures:
No recourse to temporary labor (about 5,000 at beginning of 1994);
No replacement of retirees;
* Rationalization of costs in respect of permanent staff;
Elimination of staff benefits in kind (official cars, telephone, water and electricity expenses, etc.);
Strict control of travel expenses and overtime;
Implementation of new infrastructure and equipment maintenance methods;
Reduction of level of stocks and rationalization of their management;
Rationalization of overhead expenses.
Application of these measures reduced operating costs by about 20 percent in 1995 compared with 1994.
Rationalization of rail services:
Reorganization of passenger services, with elimination of very lightly used services (resulting in roughly a 25 percent reduction in total passenger services, entailing a decline of no more than around 1 percent in revenue) and adjustment of train make-up on the basis of demand;
* Elimination of 30 percent of passenger train stops;
Closing of certain stations no longer used for traffic purposes.
Commercial actions:
Signature of an addendum to the contract with the Office Cherifien des Phosphates (OCP) for phosphate hauling with adjustment of the base tariffs;
Seven percent increase in base freight and passenger tariffs in August 1994; ANNEX 13 Page 7 of 9
Introduction of a new commercial strategy aimed primarily at alignment of the passenger and freight transport plans to demand, and adjustment of tariffs in accordance with costs and competition.
Financial restructuring:
Signature of a financial protocol with the Government for the period 1994/98 (capitalization of a part of the debt due, annual capital contribution of DH 700 million as of 1995);
Improvement of cash management (payment of suppliers).
Organization and management systems:
* Implementation as of August 1995 of a new organization that will promote greater economic and financial efficiency and reduce operating costs.
Investment program:
* Reexamination and reduction by about 40 percent of the previous medium-term investment program, assigning priority to infrastructure and equipment rehabilitation.
Transfer of activities to the private sector:
Implementation of hotel divestiture policy;
Sale to the private sector of two hotels of the Transatlantique chain (Essaouira, Meknes) owned by ONCF and closing of the Terminus Hotel in Oujda and of the Transatlantique in Casablanca;
Publication of a call for bids for sale to the private sector of ONCF's railroad ties manufacturing works in Casablanca;
Publication of a call for bids for privatization of the food and beverage services in stations and passenger trains;
Publication of a call for bids for sale to the private sector of the ballast pits operated by ONCF or its branches;
* Preparation of a dossier for possible operation on a concession basis of the new Taourirt/Nador line. ANNEX 13 Page 8 of 9
Appendix 3
SPECIMEN DOCUMENTS FOR THE REFORM OF THE RAILWAY INSTITUTIONAL FRAMEWORK
"Cahier des charges de la Socete de Chemins de Fer (Version 3-11 Mai 1995)"
"Convention pour I 'Exploitation d 'une Desserte Ferroviaire Voyageurs tatitre d'Obligation de Service Public (Version 1-5 Janvier 1996) ". ANNEX 13 Page 9 of 9
Appendix 4
THE PENSION SYSTEM
1. The ONCF Pension Fund is an internal fund that manages the pension service for permanent staff. It operates in accordance with the rules broadly applied in the civil pension systems managed by the CMR (Caisse marocaine de retraite, the national retirement fund). It is based on an assessment system without any technical provisions to guarantee the acquired rights of both retirees and those still in employment.
2. The income generated by the Fund already falls far short of requirements. Owing to deterioration of the demographic ratio and a considerable increase in pension amounts payable in 1990, the balancing subsidy paid by ONCF on top of employee contributions is already very high. It is expected to amount to DH 100 million in 1996 and to exceed DH 460 million by 2015. The overall equilibrium rate is equal to 42 percent of the wage bill (7 percent employee contribution, 14 percent employer contribution, and 21 percent subsidy) and would reach 80 percent in 2007 and 110 percent in 2015. The cost of pensions is going to rise very sharply in the near future due to the quickening pace of early retirements.
3. The high cost of pensions is the result of the existing very generous arrangements. These rules set the normal retirement age at 55 years (50 years for drivers, as compared with 60 years for pension schemes managed by the CMR), offer proportional early retirement after 21 years service, an annual contribution rate of 2.5 percent, a high reference wage, wage-based indexing, and supplementary allowances and reversion of pension rights for family members. These provisions are very costly and would be hard to retain with a capitalization system. (They would require an annual contribution rate of almost 50 percent with a real financial yield of 0 percent.) However, they are quite unaffordable for an assessment-based pension system.
4. Funding of ONCF pensions without any change in the current rules represents a huge challenge for the Moroccan authorities. A permanent and reliable solution will therefore have to be found. The repercussions on the pension systems of other public establishments and on the Government budget would be examined in the context of a global study that the Government is in fact planning to launch.
5. In the intermediate future, a specific study of the ONCF pension system will be made in coordination with the possible study referred to in Paragraph 4. An actuarial and financial study will be made of the ONCF system covering the period up to the year 2025, and will review its management and funding. This study should be started in the context of the preparation of the dossier referred to in Paragraph 10 of this letter. The intention would be for it to be completed before December 31, 1997, and its recommendations should be specified in a plan of action defining the steps to be taken to restructure the ONCF pension system that will be implemented upon the formation of the limited liability company that would take the place of ONCF. This plan of action will be prepared and submitted to IBRD, for its opinion, prior to October 31, 1998. ANNEX 14
SELECTED DOCUMENTS AND DATA AVAILABLE IN THE PROJECT FILE
ONCF
Etudes de rentabilitefinanciere: Axe Rabat - Sidi Kacem Etudes de rentabilitefinanciere: Axe SidiKacem - Fes Etudes de rentabilitefinanciere Axe Fes - Oujda Etudes de rentabilitefinanciere Axe Casablanca- Marrakech Etudes de rentabilitefinanciere: Acquisitionde 7 locomotiveselectriques Etudes de rentabilitefinanciere: Acquisitionde 100 wagons Etude de rentabilitefinanciere du programmed'investissement (Mai 1996) Etudes de rentabiliteeconomique: Axe Rabat - Sidi Kacem Etudes de rentabiliteeconomique: Axe SidiKacem - Fes Etudes de rentabiliteeconomique: Axe Fes - Oujda Etudes de rentabiliteeconomique: Axe Casablanca- Marrakech Etudes de rentabilit6economique: Acquisition de 7 locomotives6lectriques Etudes de rentabiliteecononique - Hypothesedu scenario: Acquisitionde 7 locomotives 6lectriques - sans le gain sur la fiabilite - sans le gain lie a la disponibilite Etudes de rentabiliteeconomique: Acquisition de 100 wagons divers Etudes de rentabilite conomique: Etudes de sensibilite
SYSTRA SOFRETU-SOFERAIL "Etude des perspectivesd'avenir du systemede retraite des agents ONCF". February 1996. Jean-PierreODDOU
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