Documentof The WorldBank
FOR OFFICIAL USE ONLY Public Disclosure Authorized
ReportNo. 6959-YU
sTAFFAPPRAISAL REPORT Public Disclosure Authorized
YUGOSLAVIA
SEVENTHRAILWAY PROJECT
APRIL 26, 1989 Public Disclosure Authorized Public Disclosure Authorized
Country Operations Department IV Europe,Middle East and North AfricaRegion
llds docment has a resilted distrbudtnand may beused by reie only ] thepo b_muicof theiofficlm dudes lb contents may notothewise be diclosed wihodd Wankod CURRENCYEQUIVALENTS (As of December31, 1988)
CurrencyUnit YugoslavDinar (Din)
US$1 * Din 5218 Din 1 US$0.00019 Din 1 million a US$191.6
WEIGHTSAND MEASURES
MetricSystem a British/USSystem
1 meter (m) = 3.281 feet (fc) 1 kilometer(km) = 0.621 miles (mi) 1 sq. kilometer(km 2 ) 0.386 sq. miles (mi2) 1 metric ton (m ton) = 0.984 long ton (1g. ton) 1 hectare(ha) = 2.4711acres (ac)
ABBREVIATIONS
BOAL - Basic Organizationof AssociatedLabor CIF - Cost, Insuranceand Freight COE - Chamber of Economy COI - Community of Interest CRO - Councilof Republicanand ProvincialRoads Organization CTC - CentralizedTraffic Control CYR - Community of Yugoslav Railways EC - European Community EIB - European Investment Bank FARP - Federal Association of Republicanand Provincial Road Organizations FSTC - Federal Secretariat for Transport and Communications GDP - Gross Domestic Product GMP - Gross Material Product GTKM - Gross Ton - Kilometer ICB - InternationalCompetitive Bidding NTKM - Net Ton - Kilometer PKM. - Passenger - Kilometer Plan - The 1986-90Medium Term DevelopmentPlan PPI - Producer Price Index RE - Railway Economy RTE - Railway Transport Enterprise RTO - Railway Transport Organization SDK - Social Accounting Service SFRY - SocialistFederal Republic of Yugoslavia SR - Socialist Republic SS & TT - Signallingand Telecommunications TSM - Transport Sector Memorandum TU - TrafficUnits (millionsof NTKM + millionsof PKM) TYH - Trans-YugoslavHighway
FISCAL YEAR
January 1 - December 31 FOROFFICIAL USE ONLI
YUGOSLAVIA
STAFF APPRAISALREPORT
SEVENTHRAILWAY PROJECT
Loan and Pro-iectSummary
Borrowers: The RailwayTransport Organizations (RTOs) Belgrade, Ljubljana,Novi Sad and Zagreb.
Guarantor: SocialistFederal Re?ublic of Yugoslavia.
Amount: A totalof US$138million equivalent as follows:BelVrade - US$59.0 million, Ljubljana - US$31.9 million, Novi Sad - US$14.6million, and Zagreb- US$32.5million.
Terms: Fifteenyears maturity including a five-yeargrace periodat the Bank'sstandard variable interest rate.
ProiectObjectives:
The pro'posedproject has as its principalobjectives:
(a) supportingof a new momentumfor reformwithin the railways;
(b) reducingoperating costs and increasingoperating efficiencyby phasingout low volumefreight stations, and reducingthe numberof staff,and introducingor enlargingan informationsystem for train,wagon and locomotivecontrol;
(c) assistingthe Yugoslavrailways to compete wor- effectivelywith other transportmodes, particularly for internationaltraffic where they are losingmarkcet share,by improvingthe conditionof the main trunk link;
(d) increasinglocomotive availability through provision of adequatesupply of spareparts; and
(e) improvingthe Yugoslavrailways' financial position in an environmentof high inflationthrough timely tariff increases,reduced operating costs and better investment planning.
ProjectDescription:
The projectwould comp ise the investmentprogram (1989-91) of four RTOs which operateabout 85% of the main trunk
This document hasa estricteddistribution and may be used by recipientsonly in theperformance of their officialduties. Its contents may not otherwise be disclosed without World Bank authoratton. - ii -
line. The investment nrogram include track renewal, reconstructionof line sections, improvementof stations and junctions,change of the electric system on a line section, modernizationof signalling and telecommunicationequipment, installationof an informationsystem, provision of traction and rolling stock, track maintenance equipment, locomotive spare parts, and technical assistance. The investsentplans are sound; in particular,each major investment item has an economic return greater than 122, is covered by a satisfactoryfinancing plan, and is within the implementationcapability of the concerned RTO. The total cost of the project with contingencies is estimated at US$907 million with a foreign exchange component of US$434 million (48b). The Bank loans would cover the direct and indirect foreign exchange components of selected high priority investments- mainly materials and equipment, and the cost of technical assistance and training. The loans would be made to the four RTOs as follows: Belgrade - US$59.0 million, Ljubljana - US$31.9 million, Novi Sad - US$14.6 million, and Zagreb - US$32.5 million.
Benefits and Risks:
The ain project benefits derive from permittingYugoslav railways to increase their operational efficiency, particularlyon the main trunk line where capacity constraintsare developing. The track overhaul of sections of the main trunk and other key lines will increase operating speeds and reduce operating costs. The constructionof the Western Bypass and the modernization of signalling in the main station in Zagreb will overcome a serious capacity constraint in the Zagreb Junction. The constructionof the second phase of the Belgrade Junction will similarly rationalize the flow of freight and passenger trains at that junction, in addition to releasing a valuable parcel of land for other urban uses. The purchase of spare parts for locomotiveswill help increase locomotive availability,reducing the need for future locomotive pure.hases. The procurement of traction and modern rolling stock will help make the railways more competitive,and reduce the uneconomic diversion of bulk and other traffics to road transport. In addition, the project is expected to result in reductions in operating costs and institutional improvements. Most of the project involves the renewal of existing assets which have little environmental impact. The constructionof Belgrade Junction will release 11 hectares of riverfront land for the constructionof apartment buildings, parks, and other urban uses which are satisfactory. The conctructionof the Western Bypass in Zagreb will reduce congestionand noise in the city center; - iii-
While Governmentand railwaysmanagement are committed to reformingYugoslav railways, implementation may prove difficult. In particular,there are threeproject risks whichare significant.First, the Government/Committees of Interestmight delayrailway tariff increases or fail to providecounterpart funds or compensationin a period of rapid inflationwhich would resultin operating lossesand a shortageof localfunds for investments. Second,traffic demand might stagnateor decreaserather than slowlyincrease as forecastif the Yugoslaveconomy deterioratesdue to lack of appropriateadjustment policies. Third,operating costs may remainhigh if railwaysdo not implementtheir action plans satisfactorily,in particularif they do not reduce theirstaff by about 2% p.a. In spite of significant risks,we feel it is reasonableto proposethese loans becauseof the Government'scommitment to economic reformas demonstratedby recentconstitutional and ordinarylaw changes,and Yugoslavrailways preparation of and commitmentto a "BusinessPlan" which is a de facto reformprogram for railways. - iv -
Estimated Costs-'
Local Foreign Total ...... (US$ million)
Completionof 81-85 Plans 30.10 18.76 48.86 Track Overhaul 88.05 79.06 167.11 Reconstructionof Lines, Stations& Junctions 137.64 95.35 232.99 Electrification 22.14 18.11 40.25 Signalling and Telecommunications 14.14 28.52 42.66 Traction& RollingStock 92.00 46.46 138.45 LocomotiveSpare Parts 7.94 29.67 37.61 Track MaintenanceEquipment 4.96 19.27 24.23 IntegratedTransport 10.49 11.43 21.92 InformationSystem 20.97 56.15 77.13 Miscellaneous 21.01 10.83 31.84 Subtotal 449.45 413.61 863.06
Physical Contingencies.' Price Contingencies 23.30 20.16 43.46
Subtotal 472.75 433.77 906.52
Technical Assistance/ TrainingEquipment 0.16 0.40 0.56
GRAND TOTAL 472.91 434.17 907.08
Financing Plan: US$ Million Percent
InternalFunds 442.4 49 Governmentand 180.6 20 City Grants ProposedWorld Bank Loan 138.0 15 Sixth RailwayLoan (Loan2336-YU) 7.0 1 Other ForeignLoans 135.7 15 DomesticLoans 3.4 -
Total 907.1 100
1/ Including taxes and duties, estimated at about US$165 million. 2/ Physical contingenciesare included in the above estimated costs. - v -
Estimated IBRD Disburaements:
IBRD Fiscal Year
FY90 FY91 FY92 Annual 39.3 79.9 18.8 Cumulative 39.3 119.2 138.0
Economic Rate of Return: 17 (overall)
Maps: IBRD 20806 and 20807. YUGOSLAVIA
STAFFAPPRAISAL REPORT SEVENTHRAILWAY PROJECT
Tableof Contents
I. THE TRANSPORT SECTOR
A. The Economy ...... *...... 1 B. Transport System and Demand...... 1 C. Transport Organizationand Policy ...... 4 D. PreviousBank Projects.c ...... 7
II. THE RAILWAYS
A. General ...... 8 B. Traffic ...... *...... 8 C. Comummityof Yugoslav Railways ...... 10 D. Organization...... 10 E. Mnagement and Staff ...... 11 F. RailwayProperty .e ... a...... 11 G. IntegratedTransport ...... 0...... I . 14 H. UneconomicLines and Services...... 14 I. Operations ...... a ...... * .. . 15 J. Tariffs and Compensation...... 16 K. Accountsand Audits...... 17 III. THE PROJECT
A. ProjectRationale...... 18 B. Objectives...... 19 C. InvestmentPlans ...... 19 D. ProjectDescription...... 20 E. Cost Estimates ...... 22 F. LendingArrangements ..en ...... 24 G. Implementation.i.o...... 24 H. Procurement .*...... 24 I. Disbursements . . * ...... 26 J. EnvironmentalImpact ...... 26 K. Action Plans and MonitoringTargets...... 27
This reporthas been preparedby Messrs.U. Marggraf(Railway Engineer), W.H. Hayden(Financial Analyst), and P. Parker(Economist) on the basisof appraisalmissions in June/July1987 and March 1988. Ms. N. Muhohoassisted in the preparationof operational,investment and financialstatistics and Ms. H. Frost providedsecretarial support. Table of Contents (Contd.)
Page
IV. ECONOMIC EVALUATION
A. Traffic Forecasts ...... 28 B. Economic Appraisal .a.l...... 29
V. FINANCIAL EVALUATION
A. Introduction ...... 31 B. Past FinancialPerformance ...... 32 C. Forecast Financial Performance ...... 35 D. FinancingPlans 1989-91...... 40 E. Project Risks...... 41
VI. RECOMMENDATIONS...... 42
ANNEXES
1. Project Action Plan ...... 44 2. TransportationProjects PreviouslyFinanced by the Bank . 47 3. Tarifas and Compensation ...... 53 4. Details of Financial Evaluation...... 56 5. TechnicalAssistance and Training, List of Subjects . . . 74 6. Key Features of Yugoslav Railways' Business Policy 75
SUPPORTINGTABLES
Table 1: Inland Freight and Passenger Traffic, 1963-87 . . . 81 Table 2: Transport Investments,1961-87 . * ...... 82 Table 3: Actual and Forecast Traffic in Project RTOs, 1980-96...... 83 Table4(a,b): Selected Operating Statisticsfor 1984-88 . . . . . 84 Table 5: Operational,Financial and Productivity Assumptions for 1989-93 ...... 86 Table 6(a,b): Operating Efficiencyand Staff Productivity for 1984-88 ...... 88 Table 7: Comparisonwith Selected Other Railways...... 90 Table 8(a,b): Traction and Rolling Stock - Yearly Averages for 1984-88 ...... 91 Table 9(a): InvestmentPlan, 1989-91, RTO Belgrade...... 93 Table 9(b): InvestmentPlan, 1989-91, RE Ljubljana...... 93 Table 9(c): InvestmentPlan, 1989-91, RTO Novi Sad...... 95 Table 9(d): InvestmentPlan, 1989-91, RTE Zagreb...... 97 Tableof Contents(Contd.)
Paae
SUPPORTINGTABLES continued
Table 10: Items on which the Loan will be Disbursed . . . . . 97 Table 11: Eatimated Scheduleof Disbursements...... 103 Table 12: Staff in 1984-88 and Forecast for 1989-93 . . . . . 101 Table 13: Productivityin 1984-88and Targetsfor 1989-93. . 102 Table 14: EstimatedEconomic Rates of Returnfor Major Investments...... 103 Table 15: RelatedDocuments and Data Available in the ProjectFle ...... 104
CRARTS
1. Organixationof RE Ljubljana...... 2. Organizationof RE Ljubljana'sHeadquarters ...... 3. ProcurementSchedule .. a...... 4. ImplementationSchedule ...... MAPS
1. IBRD 20807 - Yugoslavia- TransportationInfrastructure 2. IBRD 20806 - Yugoslavia- Railway Infrastructure I. THE TRANSPORTSECTOR
A. The Economy
1.01 Duringthe 1960sand 19708Yugoslavia's economy grew rapidly,with the growthof Gross DomesticProduct (GDP) averaging about 62 p.a. This performance,however, was supportedby largeinvestments where insufficient attentionwas paid to qualityor cost. Moreover,the economy'sability to adjustto externalshocks was reducedby an excessivelyaccommodating credit policyand by rigiditiesand distortions,including low mobilityof capital and labour,negative real interestrates, an increasinglyovervalued exchangerate and highlyprotected domestic industries. In 4addition,the growthof wages exceededthe growthof labourproductivity i1i the late 1970s. Yugoslaviainitially absorbed the secondoil shock through additionalforeign borrowings. However, economic growth stagnated during the 1980s,unemployment increased to doubledigits, inflation accelerated to 275% in 1988,and a debt crisisdeveloped.
1.02 The Governmentis seekingto reduceand controlinflation, regain the high levelof economicgro4th that it had achievedin the 1970sand carve a place for itselfon the economicmap of WesternEurope, with a view to 1992 and beyond. In order to accomplishthese objectives, the current leadershipbelieves that it is necesparyto liberalizethe economyand give it a definitemarket-based orientation. The Governmenthas already implementeddifficult stabilization measures as the firststep under a programof structuraladjustment. The reformprogram will be extendedunder constitutionalchanges on enterprisereform, foreign investments and social planningwhich were approvedin January1989. The programis supportedby an IMF StandbyAgreement which was approvedin June 1988,and by a proposed SecondStructural Adjustment Loan (SALII)which is in an advancedstate of preparation.The proposedSeventh Railway Project would complement structuraladjustment at the macroeconomiclevel by supportinga railway reformprogr.um directed at significantlyreducing operating costs and attractingand retainingtraffics for which railwayshave a comparative advantage.
B. TransportSystem and Demand
1.03 Geographyhas been a major factorin shapingYugoslavia's transport system. The countryis locatedat a strategiccrossroad between easternand westernEurope, bounded by sevenother countriesand the AdriaticSea. As a result,Yugoslavia's transport system provides access to the sea for a numberof centralEuropean countries, as well as connections for internationaltraffic between Western Europe, Greece and the Middle East. The main routesof communicationhave followedthe easy pathswithin Yugoslavia,and have avoidedthe mountainbarriers along the coastand in the South. The main trunk railwayroute, as well as the Trans-Yugoslav Highway,run northwestto southeastin the Sava and Danubevalleys where - 2 - most of the centersof populationand economicactivity are located. A secondnortheast-southwest corridor, which is importantfor international traffic,links Austria and Hungarywith Yugoslavia'sports and Italy,and is servedprimarily by the railways. Yugoslavia's600 km coastlineis separatedfrom the interiorby mountainranges of considerableheight. As a consequence,the most importantcoastal cities and portsare sitedin the vicinitiesof passesthrough which rail linesand roadshave been built at considerablecost. Some of theserail linksare operatingat or near capacity,and will be improvedunder the proposedproject.
1.04 Yugoslavia'stransport system is extensiveand diversified, comprisinga railway,roads, river tranaport, ports and airports. The railwaysystem is describedin Chapter2. The road networkcomprises about 130,000km of roads,of whichabout 48,000 km are primaryand regional roads. Yugoslaviahas concentratedun extendingthe paved road networkin recentyears, increasing its lengthfrom 12,950km in 1965 to about67,000 km in 1989. In recentyears, both new constructionand rehabilitationhave sufferedfrom budgetaryconstraints in commonwith all sectors. Road maintenance,particularly pavement strengthening and simplebetterment works,is becominga more importantissue as the road networkages, and will be addressedunder ongoing and proposedHighway Sector Projects.
1.05 The road vehiclefleet has grownrapidly over the last twentyyears to about3.3 millionvehicles in 1987,excluding motorcycles .nd agriculturaltractors. The fleet includesabout 260,000trucks and 29,000 buses. About40% of the truckingfleet are own-accountvehicles, which are mainlyoperated by largeenterprises. An additional19% belongto some 300 socialsector transport enterprises, and 392 are small trucksbelonging to individualowner operators. Yugoslavia also has a smallvehicle production and assemblyindustry.
1.06 Yugoslaviahas a fairlywell developednetwork of about2,200 bm of inlandwaterways, which includes the riverDanube between the Bulgarianand Hungarianfrontiers, the riverSava betweenBelgrade and Sisak,plus a networkof supportingcanals. Rivertraffoi is seasonaldue to low water conditionsand intermittentclosures caused by ice. A fleetof about300 tugs and 600 bargescarry goods by inlandwaterway, but requirereplacement or modernizationto carryincreased traffic.
1.07 Yugoslavia'smost importantports are Rijekaand Koper in the north,and Plocein the centerof the coastline.The futuregrowth of Rijeka is constrainedby the surroundingcity, and possiblyby insufficient capacityon the railwaylines and roadslinking the port. Some improvements to theserail lineswill be carriedout under the project. Yugoslav seaportshandled 33.0 milliontons of cargo in 1987,including 25.5 million tons of export/importtraffic. Portshandle about half of Yugoslavia's totalexport/import traffic. Only aboutone percentof Yugoslavia'sinland trafficis containerizedat present. It is likelythat an increasing proportionof import/exporttraffic will travelby block trainor road ratherthan throughthe portsas containerizationincreases, either to and from destinationsin westernEurope or throughnorthwestern European ports for trafficto and from NorthAmerica. -3_
1.08 Inlandtransport totalled about 239.2billion traffic units (ton kilometersplus passengerkilometers) in 1987,as summarized below and detailedin Table1:
Table 1.1 InlandFreight and PassengerTraffic, 1965-1986
Year Rail Road Other Total
A. Freight(tkm billion)
1965 18.0 7.0 3.3 28.3 1975 21.6 28.7 5.6 55.9 1185 28.7 43.4 6.4 78.5 1'987 26.1 45.4 7.6 79.1 1988 25.4 n.a. n.a. n.a.
B. Passenger(pkm billion)
1965 12.1 17.0 0.6 29.6 1975 10.3 78.9 3.8 93.0 1985 12.0 134.0 6.3 152.3 1987 11.8 140.0 8.3 160.1 1988 11.5 n.a. n.a. n.a.
Total passengertraffic grew 11.11p.a. from 1963 to 1980 due to rapid economicgrowth and the expansionof the road network,and then slowedto 2.6% p.a. from 1980 to 1987 due primarilyto a slowdownin economicactivity. Freighttraffic similarly grew 6.9% p.a. from 1963 to 1980,slowing to 0.42 p.a. from 1980 to 1987. Road transporthas replacedrailways as the dominant carrierin recentyears. Rail transportaccounted for 33% of freightand 7% of passengertraffic in 1987, comparedto 641 and 412 respectivelyin 1965. River transportaccounted for nine percentof freighttraffic in 1978, decliningto aboutsix percentin 1986 due to increasingroad competition.
1.09 Thereare three typesof truckingin Yugoslavia:social sector (self-managed)enterprises, own-account trucking, and privatesector operators.The socialsector specializes in long distanceand international traffic,carrya,g about one-halfof total freighttraffic. Own-accountand privateoperators, until recently,handled mostly local transport,each carryingabout one-quarterof total freighttraffic. Socialsector trucks are reportedto average46,000 vkm p.a. with 301 empty running,which is low by internationalstandards. Own-account and privatetrucks are reportedto averagean even lower 29,000vkm p.a. with 33% empty running,which is partly explainedby theirspecializing in localdeliveries in small trucks. Truckingoperations are partlyregulated, but the regulationsare being liberalizedin stages. There are no routelicensing or entry regulations, and vehicleregistration fees are not restrictive.Indicative tariffs are now agreedamong operatorsthrough the Chamberof Economy(COE), with contractrate discountsof up to 202, and are usuallyfollowed. Until 1986, the privatesector was generallyrestricted by Republicor Provincelaw to one small truck per operator. Privateoperators may now form cooperatives - 4 -
and hire additionaldrivers in some Republicsor Provinces.In Slovenia,for example,an estimated85% of privateoperators now belongto cooperatives. They are buyinglarger trucks, hauling larger loads over longerdistances, increasingload factors,and beginningto competemore seriouslywith social sectorfirms. A recentlypassed constitutional change (Law on Enterprises) is expectedto furtherliberalize both privateand socialsector trucking, includingpermitting private sector and own-accountfirms to carry internationaltraffic, and to allowowner-operators to hire additional drivers. The truckingindustry is an idealcandidate for eventual privatizationdue to the lack of economiesof scalein its cost structure. Road transportissues are being furtherinvestigated through the preparation of a Studyon Improvingthe Efficiencyof TransportMarkets (para. 1.22).
C. TransportOrganization and Policy
1.10 Yugoslavia'stransport sector is significantlyinfluenced by the country'sculture and form of socialorganization. Yugoslavia is a federationcharacterized by ethnic,cultural and economicdiversity. Each of the eightRepublics and AutonomousProvinces has its own capitalcity and regionaleconomy, which coupledwith a policyof economicdecentralization tendsto increasetransport demand. The Yugoslaveconomy, including the transportsector, is organizedas a self-managementsyst%;m. Under this system,economic decision-making is achievedthrough a consensusof managers,workers, and the social-politicalcommunity, primarily through intra-and inter-firmagreements on long-rangecooperation (self-management agreements,SMAs). These are enforcedthrough a complexsystem of laws and socialchecks and balances. An additionalfactor is that calitaland labor marketsare not yet well developedin Yugoslavia.In the past, this has resultedin a "softbudget constraint", where firmsdid not have sufficient incentiveto reducecosts, tended to maximizegross revenue per worker ratherthan profits,and did not investefficiently. Partlyas a result, transportcosts are high in Yugoslavia,with the countrygenerating about 1.4 tkm/US$of GNP, which is about threetimes the levelof WesternEurope, althoughit is only about two-thirdsthe leve.of Hungaryor Poland. High transportcosts appearto be due to the significantproportion of heavy industryin Yugoslavia,the dispersionof economicactivity on social grounds,transit traffic, and the need to improvethe efficiencyof transportenterprises.
1.11 As embodiedin the 1986-90Medium Term DevelopmentPlan (the Plan), the Government'sobjectives for improvingthe transportsector include:(a) promotingthe more rapiddevelopment of rail,maritime, and river transport;(b)competing more effectivelyin the internationaltransport system;(c) increasingforeign exchange earnings from transittraffic; (d) adoptingmodern technology; and (e) optimizingthe use of "social"resources and energy.The Plan anticipatesthat thesesteps will increasethe efficiencyof the transportsystem, reduce shipping costs, increase the qualityof transportservice, promote the developmentof the tourist industry,increase the competitivenessof Yugoslavgoods in international trade,increase transport safety, and providetransport capacity for emergencies.The Bank generallysupports these objectives, with the further understandingthat each transportmode shouldspecialize in carryingthe trafficfor which it is the leastcost carrier,priority should be given to maintainingexisting infrastructure, and expenditurelevels should reflect - 5 -
Yugoslavia'spresent financial constraints. The attainmentof these objectiveswill largelydepend on the government'sability and resolveto undertakereforms to eliminatethe inefficienciesin the productiveand transportsectors (paras. 1.02 and 1.10).
1.12 The overallneed in transport,in commonwith othersectors, is to graduallyincrease its marketorientation and increasecompetition in order to reducecosts. The main issuesaffecting transport can be groupedunder the headings: (a) improvingoperational and organizationalefficiency; (b) improvingthe utilizationand selectionof investments;(c) pricing transportservices under conditionsof inflation;and (d) improving integrationwith the Europeantransport system.
1.13 EfficiencyIssues - Tranisportcosts could be reducedsignificantly if transportoperations could be made more efficient. Thereare two aspects to the issue:first, the need to improvethe operationalefficiency of transportenterprises, and the need to bettercoordinate transport operationsamong the Republicsand Provinces.At the enterpriselevel, the principalneed is to increasefinancial discipline through positive interest rates,cost reduction,a cost based pricingpolicy, accounting improvements, and the identificationand closureof loss makingoperations. The issue particularlyaffects revenue earning transport enterprises; road transport is less affectedbecause most automobilesare privatelyowned, and because truckingis inherentlymore competitiveand lacks economies(or diseconomies)of scale. There are preliminaryindications that transport operatorsare beginningto respondto the revaluedexchange rate, increased interestrates and other stabilizationmeasures which have recentlybeen implemented(para. 1.02). A major thrustof the proposedSAL II will be to engendera further"supply response" from Yugoslaventerprises.
1.14 The Yugoslaveconomy has been increasinglydecentralized since the 1960s,with most transportactivities now organizedat the Republicsand Provinces,local, or enterpriselevel. This reducesthe efficiencyof the eight Yugoslavrailways, where there is a need to coordinateoperations at all levelsamong the Republicsand Pro inces;ports, where thereis a temptationfor the Republicsand Provincesto constructduplicate facilities;and to a lesserextent roads, where there is a need to streamlinejoint decision making processes. Decentralization also affects investments,since decisions must be reachedpartly on the basis of politicalcompromise among the Republicsand Provinces.In order to facilitatethe developmentof a unifiedtransportation system and planning,theorganizations responsible for roads are associatedin a Federal Associationof Republicanand ProvincialRoads (FARP),while those responsiblefor railwaysare associatedin the Communityof Yugoslav Railways(CYR, para. 2.05)their members, such as tariffsand joint planning activities.Responsibility at the Federallevel for transportationrests with FederalSecretariat for Transportand Comwrnications(FSTC), which is responsible,inter alia, for preparingFederal laws governingtransportation.
1.15 Investments- Totalsocial sector investments in transporthave variedquite widely in the past due to the need to completethe basic transportsystem in the 1960sand 1970s,and Yugoslavia'srelatively easy accessto creditin the 1970s followedby a slowdownin economicactivity and and a debt crisisin the 1980s: - 6 -
Table1.2 TransportSector Investments 1961-87 1 (constant1988 US$billion equivalent)
TotalInvestments Total Years Railvays Roads Other Transport Amount 2 Transport 1961-65 2.8 3.4 2.6 8.5 76.6 11 1966-70 1.5 1.5 0.6 3.5 31.1 11 1971-75 2.3 2.5 1.0 6.1 53.1 12 1976-80 2.9 2.6 3.9 9.0 118.9 8 1981-85 1.6 1.5 1.7 4.8 61.4 8 1986 0.34 0.29 0.40 1.02 12.38 8 1987 0.25 0.7 0.6 1.6 n.a. n.a
11 So ial sectorinvestments, including major maintenance activities.
Source: StatisticalYear Booksof Yugoslavia(Table 110.4) and mission estimates.
1.16 Transportauthorities have foundit more difficultto carryout theircore investmentprograms during the 1980sdue to budgetary constraints.Railway investments, for example,were reducedby about40X after1980 comparedto the levelspent during the 1970s. These restrictions come at a time when therewas an increasingneed to maintainand rehabilitateexisting infrastructure for all transportmodes. The main investmentissue, however, is that enterprisesare not encouragedto select theirinvestments wisely or use themefficiently due to Yugoslavia's"soft budgetconstraint" (para. 1.10).
1.17 The Bank has assistedthe Governmentto respondti investment issuesin two ways. First,the previousthree railway projects and two highwayprojects have been preparedas subsectorinvestment loans. These projectseach financeda time-sliceox the railwayor road investment plansofparticipating Republics and Provinces,with the objectiveof assuringthat investmentswere well selected,appropriately timed, covered by realisticfinancing plans, and were withinthe absorptivecapacity of the responsibleauthorities. Second, the proposedproject would support the Government'seconomic reform program by assistingto financea railway investmentprogram which is a reasonablebalance between Lhe need tc, rehabilitateand maintainexisting infrastructure, to improvethe main trunk line in supportof domesticindustries and internationaltraffic, and to constrainpublic spending in a periodof economicdifficulty.
1.18 Pricing- Pricingtransport services under conditionsof high inflationhas provedincreasingly difficuit in recentyears. A general commitmentwas includedunder SAL I (Ln. 2324-YU)and the SixthRailway Project(Ln. 2336-YU)providing for regularadjustments of railwaytariffs by at least62 p.a. in real terms,and the Governmenthas increasedtariffs in accordancewith thesecommitments since 1984. However,the major increaseswere made late in the year,contributing to the resultthat th* operatingdeficit increased in recentyears. A revisedtariff covenant is includedunder the proposedproject to help addressthis problem(para 2.26). 1.19 Similarly,the lag in adjusting road user revenues from the fuel tax seriouslyaffected the level of investmentsand of road maintenarce and pavement strengtheningactivity during whe 1980s. However, the Government has recently increasedfuel taxes and revised most of the allocation for roads to an ad valorem basis, which will go some way to resolve the problem. Additionalmeasures would be implementedunder a proposed Third Highway Sector Project.
1.20 InternationalTransport - The Yugoslav Government is considering increasing trade with other European countriesas part of its effort to increase its market orientation. At the same time, the European Community (EC) intends to unify its markets, including transport,by end-1992 in order to increase the exchange of goods among its members and to compete effectivelywith the large economiesof North America and the Far East. An additionalfactor is that Yugoslaviais a transit country for EC members, with about three imes as many EC trucks using Yugoslav roads (measured in ton-kilometerstravelled) as Yugoslav truckers use EC roads. The EC countriesare in the process of debating and formulatingtheir common transportpolicy, and Yugoslavianeeds to decide to what extent it should adopt similar policies with a view to facilitatingtrade and increasing their foreign exchange earnings from internationaltransport. In particular,Yugoslavia needs to decide whether to increase its axle load limitationfrom 10 to 11.5 tons as the EC proposes;how to recover the cost of road infrastructureused by foreign trucks; whether it is in Yugoslavia's interest to seek an increase in bilateral and cross-tradetrucking permits; and whether Yugoslavia should adopt the same technical,financial, and social regulationsfor internationaltruck transportas the EC. As far as increasingYugoslavia's market orientation,transport is a good sector to deregulatefirst because of the lack of economies of scale in trucking, and because you can take advantage of other countries experiencewith transport deregulation. Internationaltransport issues are fairly complex, and as a first step the Bank is assisting the Government to address these questions by preparinga study on Improving the Efficiencyof Transport Markets (para. 1.09).
D. Previous Bank Projiects
1.21 The Bank has made 24 loans for transport totallingUS$1,417.1 million equivalentsince 1963 (Annex 2). These include seven loans for the railway subsector,thirteen loans to the highway subsector,one loan for the Port of Bar, and a multimodal loan for earthquake rehabilitation.
1.22 The principalaccomplishments under past and ongoing railway projects are: (a) until about 1984 , improvementof the finances of the railways,principally through tariff increasesand better selection of investments;(b) supporting the establishmentand strengtheningof the Community of Yugoslav Railways (CYR); (c) the introductionof comprehensive Action Plans as a means of contributingto the common understandingand responsibilityof the eight railway organizations;(d) sector investment lendingwherein the borrowers and the Bank agree on multi-year railway investmentplans and periodicallyreview these plans; and (e) the introductionof auditing procedures. The PCRs indicate that railway projects in recent years, with the exception of the Kosovo Railway Project, have generally been implementedwith some delay, but without substantial cost overruns or other major problems. The ERR for the Kosovo Railway Project is likely to be lower than anticipated due to low traffic growth. 1.23 The main emphasisin highwaylending has been on improvementsto key linksin the primaryroad network.The CompletionReports for the Seventh,Eighth and NinthHighway Project indicated that the projects substantiallyachieved their objectives. The CompletionReport for the Tenthand EleventhHighway Projects pointed out that theseprojects suffered delaysin implementationbecause of shortagesof localfunds due to the severerecession which began at that time. The Firstand SecondHighway SectorProjects are based on a comprehensivesector lending approach to sevenRAPs, includinga deeperinvolvement in the importantarea of road maintenance.Processing of both projectswas delayedpending resolution of the road fundingissue, but is now proceedingsatisfactorily.
II. THE RAILWAYS
A. General
2.01 The railwaysin Yugoslaviaare organisedalong the basic patternof the economicsystem, with eightseparate and independentRailway Transport Organizations(RTOs), each servinga Republicor Province,each named after its capitalcity, and togetherforming a railwaynetwork of 9,245km. The four RTOs participatingin the proposedproject are Ljubljana,Zagreb, Novi Sad and Belgrade,serving respectively the Republics/Provincesof Slovenia, Croatia,Vojvodina and Serbia. They operateabout 852 of the main trunk line which runs throughYugoslavia from Jeseniceon the Austrianborder in the Northwestthrough Belgrade to Gevgelijaand Dimitrovgradin the Southeast.This linewith short links to the main port,Rijeka, and to Austriavia Mariborforms the backboneof rail transportin Yugoslavia, providingan internationalcorridor between western Europe and Greeceand MiddleEast via Turkey,linking the Republicsand Provinces,and carrying about 802 of transittraffic or about half of the country'stotal rail traffic(Map IBRD 20806).
B. Traffic
2.02 Rail traffictotalled 25.4 billiontkm of freightplus 11.5 billion pkm of passengertraffic in 1988. Freighttraffic grew 2.91 p.a. from 1975 to 1985,but then fell 3.91 p.a. from 1985 to 1988 primarilydue to the slowdownin industrialproduction caused by Yugoslavia'scurrent economic difficulties.Passenger traffic similarly grew 1.5S p.a. from 1975 to 1985, and then fell 1.42 p.a. from 1985 to 1988. Recenttraffic trends are shown below,with additionaldetails for the projectRTOs given in Table 3. _ 9 _
Table 2.1 Railwax Traffie.1076-88
Growth Rate (M O.&.' 1Egh3Th6 1°8131 JfiM 191! 11 197Ji-8118IL-i FreightTraFffi
Tonnage (000) DOmestic 53,t86 63,281 64,953 61,325 59,955 3.S -0.8 International 20.54D 22J01 24.954 IMI X12I1 2.0 O-S Total 73,726 85,982 89.807 84,187 83,570 3.1 -0.4
Average Haul (km) 285 299 307 310 304 - -
Volume (ntk millions) 21.017 25,721 27,573 26.071 25,414 5.6 0.1 CO indtites (ntkm millions)
Coal 3,165 3.966 4.597 3,894 3,454 7.8 -1.9 Petroleumand Oerivatives 1.708 1,196 1,325 1,436 1.455 -6.9 2.8 Ores and Concentrates 2.S11 3,627 4.157 4.0S8 4,S2S 7.6 3.2 Non-metalicminerals and Products 747 803 91S 670 810 1.5 0.1 Metals and Products 2,399 2,638 2.885 2,937 2,670 1.9 0.2 WoOd 1.261 1,394 1.395 1.335 1.424 2.0 -0.3 Buildingmaterials 872 1,321 1,070 946 861 8.7 -5.9 Cement 395 650 242 233 279 10.5 -11.4 fertilizers S91 1.091 1,537 1.736 1.576 13.0 5.4 Cereals 883 803 1,090 900 662 -1.9 2.8 Other 6,259 7,977 8,15S 7,5S7 7,5SS S.0 -0.8 Less than car-load 226 255 205 169 143 2.4 -7.9
Number (000) DOaestic 123,678 102,629 129,737 117.824 113.714 -3.7 1.5 tnternational .. 811 2.277 1.995 1.907 1.998 4.6 -1.8 Total 126,493 104,906 131,732 119.731 11S,712 -3.7 1.4 Average Haul (km) 79 100 94 9 99 -0.2
Volume (pke million) 9,941 10.510 12,399 11,827 11,454 1.1 1.2
2.03 About552 of Yugoslavrailways freight traffic are bulk commodities.The most importantcargo is coal,which amounted to 14.6 milliontons in 1988. Yugoslaviahas largereserves of low gradebrown coal and lignitewhich are locatedin severaldifferent regions and are used primarilyto generateabout 501 of Yugoslavia'spower, as well as for domesticheating. Cokingcoal is importedby six domesticsteel refineries whichare all locatedinland. Yugoslavrailways also transportedabout 4.4 milliontons of iron ore and non-ferrousmetals in 1988. Some iron ore is mineddomestically, and some importedthrough the portsof Ploceand Koper by the steelindustry. Yugoslaviais also the largestproducer of non-ferrousmetals in Europeincluding lead, zinc, nickel, copper and bauxite,most of which is exported. Othermajor freight traffics include steeland othermetal products (6.7 million tons in 1988),petroleum (5.7 milliontons), wood (4.7 milliontons), and fertilizers(4.3 milliontons). The averagelength of haul of freighttraffic has been graduallyincreasing to 304 km in 1988,as Yugoslavrailways specialize more in long-distance traffic. Internationaltraffic accounted for 34S of freightton-kilometres - 10 - in 1988, and is now growing due to increasedinternational trade. One of the objectivesof the project is to assist Yugoslav railways to compete more effectivelyfor internationaltraffic.
2.04 Yugoslav railways carried 115.7 million passengersin 1988. The average length of haul was 99 km, representinga mixture of long-distance traffic and commuter traffic. The future prospects for freight and passengertraffic are assessed in Chapter 4.
C. Community of Yugoslav Railways (CYR)
2.05 Three-quartersof rail freight traffic in Yugoslavia travels between RTOs, so that operationsare highly interdependent. In 1978 a Federal law was enacted, establishingthe CYR as a business association of all eight RTOs whose principalobjective is to ensure the development of a unified railway system in Yugoslavia. CYR is responsible,inter alia, for establishinguniform nationwidetariffs and timetablesand joint investment plans, joint utilizationof facilitiesand ensuring safety on the railway system. It is generallyresponsible for internationalaspects of railway operationsincluding setting terms and conditionsfor transportationof imported goods and goodu in internationaltransit and for handling revenues from, and debts owed to, foreign railways in respect of transportation activities. Operation,maintenance and developmentof each railway remains with the RTOs. At the end of 1987, CYR has taken the initiativein preparinga Business Policy of Yugoslav Railways which was adopted by CYR's Assembly on December 23, 1987 (para. 3.31 and Annex 6). Well-qualified professionalstaff represent the RTOs at federal and internationallevels.
2.06 For past Bank financed railway projects, CYR has played a very useful planning and coordinatingfunction. It was responsiblefor coordinatingprocurement, loan administrationand project reporting. Recently CYR's role was enhanced through coordinatingthe RTOs' high priority investments. Its role in the present project will be similar to that assumed under previous projects. A state of the art seminar to improve skills in economicand financialanalysis will be financed under the project, which is intended to strengthenCYR's planning and coordinatingfunction.The project also includes a study of railway marketing practicesin other countries, leading to the possible strengtheningof the marketingdepartment in CYR in order to further transforma traditionalrailway system into a commerciallyoriented one.
D. Organization
2.07 Both RTO Belgrade,known as Radna OrganizacijaZeleznicka Tran 3rtna OrganizacijaBeograd (BelgradeRailway Transport Working Orgc 1. &,'ion),and RTO Novi Sad, known as ZeleznickaTransportna OrganizacijaNovi Sad (Novi Sad Railway TransportOrganization), are Work OrganizatiiAs(WO) whose members are Basic Organizationsof Associated Labor (BOALs). Each BOAL is responsiblefor a different railway activity (e.g. transport,traffic, maintenanceof traction and rolling stock, track overhaul,catering, etc.). RTE Zagreb, known as Slozene Organizacija Udruzenog Rada ZTP - ZeljeznickiTransport Zagreb (Zagreb Railway Transport Composite Organizationof Associated Labour ZTP) and RE Ljubljana, known as SOZD ZelezniskoGospodarstvo Ljubljana (SOZD LjubljanaRailway Economy) are - 11 - both CompositeOrganizations of Associated Labour (COAL) whose members are WOs, most of which in turn are comprised of BOALs. These Woe are divided into two types: those which are regionalizedand responsiblefor basic railwayactivities in a given region of the Republic, and those which provide supportingservices to the first group (e.g. engineeringworkshops, health, research,education, etc.). Each of the RTOs may contract foreign loans for purposes of carrying out the overall investmentprogram agreed at the COAL or WO level (as the case may be) for joint activities of the organization's members.
2.08 The supreme decision-makingbody of each RTO is the Workers' Council (WC) which is composed of representativesselected by the workers of the constituentmembers of the RTO. Decisions of the WC are implementedby a Managing Board comprisedof members selected by the WC and headed by a president,or, in the case of Belgrade,are implementedby a single General Manager selected by the WC. The WC generallydetermines importantmatters of policy and development. It approves the investment plan of the organizationas a whole.
E. Management and Staff
2.09 Management is ultimately responsibleco the Workers' Councils, wbich may meet once or twice a month or more frequentlywhere necessary. Maaagementand decision-makingare complex processeswith extensive interactionsbetween managementand Workers' Councils. Management has always been technicallycompetent in traditionalrailway disciplines,but has been weak in marketing. A more commercialapproach needs to be adopted. Technical assistanceunder this project will address this matter (para. 3.15).
2.10 After several years of staff reductions,the four RTOs began increasingstaff from 1982 onwards, which created a major problem because trafficfell substantiallyafter 1984. As a reflectionof growing unemployment,labour legislationwas introducedstipulating the obligation to employ school leavers as trainees in numbers related to the existing work force. Hoping for quick improvementof the economy and out of a sense of obligation towards society at large, the RTOs kept hiring staff and retained surplus manpower and disabled workers in spite of a decline in traffic (Table 2.1). While the total staff in the four RTOs rose 5.5S from 86,548 in 1984 to 91,336 in 1988, productivitydecreased by 15.5% from 361,000 trafficunits per employee in 1984 to 305,000 traffic units per employee in 1988 (Tables 12 and 13). A major change of the RTOs' staffing policies as well as the introductionof solid manpower planning based on work studies are essential for the railway's recovery. Agreement was obtained during Negotiations,that each RTO will carry out a staff reduction program designed to achieve a reduction in its staff by 2% p.a. (RE Ljubljana: 1.51 p.a.) from 1989 through 1993 based on actual staff on December 31, 1988.
F. Railway Property Network
2.11 At the end of 1988, the railway network in Yugoslavia comprised 9,245 route-km (see Map IBRD 20806), 1001 standard gauge, of which 933 km or 10.01 were double track and with 3,531 km or 38.21 of the network - 12 - electrified.This percentageof electrificationis slightlybelow those of majorwestern European railways (Table 6). The networkof the four RTOs is:
of which electrified: km km
RTO Belgrade 1,894 927 or 491 RE Ljubljana 1,228 518 or 422 ' RTO Novi Sad 1,480 344 or 232 RTE Zagreb 2,441 838 or 34% t'
7,043 2,627
1/ DC system,3kV; the other RTOs operateon AC, 25kV 2I of which 107 km are also DC - 3kV
2.12 The trackof the four RTOs is mainly(about 562) 49 kg/m rails, partlywith weldedjoints, laid on woodensleepers and concretesleepers, generallyfastened witn K-systemor elasticclips. About 2,690km of secondaryline have either45 kg/m (161)or even 35 kg/m (211)rails. The ballastis of adequatequality stone and formation.About 491 of the four RTO's networkis suitablefor axle loadsof 18-20tons per axle, about 231 are of 16 tons per axle and 288 km (about41) permitonly 12-14 tons per axle. Despiteconsiderable progress in improvingtrack conditionson main lines-the four RTOs rehabilitatedabout 815 km of trackduring 1983-86-speedrestrictions are imposedon about 820 km of line sections becauseof poor trackconditions which reduceline capacityand significantlyincrease the operationand maintenancecosts.
2.13 In 1984,the Yugoslavrailways adopted, in line with other Europeanrailways, a 22.5 ton per axle standardfor the main trunklines requiringa narrowerspacing of sleepersand heavierrails - 60 kg/m. The new standardwill be appliedwith every track renewal. The railwaysexpect to have the wholemain trunk line upgradedby 1995.
Sisnallinmand Telecommunications
2.14 Most of Yugoslavrailways' main trunk lines,carrying over 601 of the totalgross ton kilometers,are electrifiedand have been equipped with modernsignalling and telecommunications.About 241 of the four RTO's networkis additionallyequipped with automaticline block (ALB),and 91 is 9erated with centralizedtraffic control (CTC). Many of the secondary linesare still equippedwith old and obsoletemechanical signalling systemswhich are difficultto maintainand restrictoperational efficiency.Replacement by modernsystems, however, is not of high priority.
Tractionand RollingStock
2.15 The main type of tractionis electric,accounting for about 681 of the four RTOs' locomotivehauled traffic (in gross ton-kms)with 304 DC and 129 AC mainlinelocomotives. The RTOs own also 675 diesellocomotives - 13 - includingshunters, 95 electricand 129 dieselmultiple units and 137 rail buses (Table8). All steam engineswhich are mainlyused as shuntersand rail buses whichare over 35 years old are plannedto be withdrawnbefore the end of 1990.
2.16 The fourRTOs own 2,033passenger coaches with totalcapacity of 124,300seats (Table8); 120 coachesare over 30 years old and reachedthe end of theireconomic life. They shouldbe scrappedas soon as possible.
2.17 One of the main operationalproblems of Yugoslavrailways in the last 6-8 years has been that procurementof new freightwagons has been insufficientto keep up with the needs for replacemeut,modernization (competitiveconditions require the increaseduse of specializedwagones and trafficgrowth. As a result,the RTOs have been forcedto hire foreign wagonsto meet theiroperational needs and have been unableto carryall offeredtraffic. The freightwagon fleetof the four RTOs at the beginning of 1989 comprised38,028 wagons. About 8S of this fleetwas procured before1950. The withdrawalof about 800 wagonswithin the planningperiod will allow the on-goingmodernization of the freightwagon fleet to continue. Under the project,this shortagewill be alleviatedby: (i) improvingoperational efficiency; (ii) installationof a computer-based wagoncontrol system, and (iii)procurement of 945 wagons(para. 3.11).
Workshopand Depots
2.18 The four RTOs inspectand maintaintheir tractionstock in 5 workshopsand 19 depots. They are unnecessarilynumerous for historical reasons. A consultant'sstudy carried out under the FifthRailway Project recommendeda concentrationto fewerplaces in order to increase efficiency.The concentrationof locomotivemajor overhauland parts remanufacturein a singlelocation for electricand diesellocomotives respectivelywould resultin a significantincrease in locomotive availabilitythrough a programof equipmentexchange, and cost savings broughtabout by reductionin spareparts inventory,common procurement ofspareparts, and labourspecialization. The consultantsestimate that it shouldbe possibleto save as many as 44 electriclocomotives through a systemof industrialmaintenance, assuming that spareparts are readily availableand the systemis efficientlyimplemented. It shouldalso be possibleto achievesimilar savings in diesellocomotives through a similar system. Althoughsome of the RTOs have been reluctantto implementa reorganization,in February1988, all eight RTOs signedan Agreementon Improvementof YugoslavRailway Traction Stock, which providesfor (a) the divisionof work betweendepots and workshops,(b) methodsand procedures of upgradingdepots and overhaulworkshops for modernmaintenance, (c) regulationsgoverning the relationshipbetween the RTOs and the overhaul workshopscarrying out repairsfor severalRTOs, (d) a procedurefor the provisionand utilizationof majorvehicle components to enable industrializedmaintenance by exchangeof components,and (e) a procedure for the provisionand utilizationof spare parts. The Agreementis a good step in the rightdirection of reorganizinglocomotive major overhaul withinthree years. The Agreementprovides also for the formingof a coordinatingboard for its implementationconsisting of a delegatefrom each RT0 and CYR. The timelyand effectivefunctioning of this board is crucial. Agreementwas obtainedat Negotiationsthat each RTO will carry -14- out a program,satisfactory to the Bank,to improveits systemof locomotivemaintenance and overhaul. The programwill be carriedout in line with the Agreementof February1988.
G. IntegratedTrans2ort
2.19 Yugoslaviais at an earlystage in developingits integrated transportsystem. The use of containersin waterbornecommerce is growing rapidlyworldwide, and internaltransport costs can be reducedif these containersmove to or from theirfinal inland origins or destinations.On the railways,around 4-5X of freighttraffic is containerizedon lines servingthe port of Rijeka,as well as on the main trunkline north of Ljubljanawhere the Austrianshave starteda piggybackservice. Southof Ljubljanaon the main trunkline, and elsewhere,very littletraffic is unitized. About4,000 meters of tunnelswould have to be loweredbetween Ljubljanaand Zagrebto handlecontainer wagons, but it is possiblefor trafficto and from northernand northwesternEurope to avoid this bottleneckwithout a substantialdistance penalty by travellingvia Maribor;traffic to/from Italy, France and Spainwould need to travelan additional100 km or so to transitvia Maribor(see Map IBRD 20806).
2.20 The main constraintto expandingthe use of containersand other formsof integratedtransport is the lack of experienceof freight forwarders,industry, and the railwaysin organizingthe uniform procedures,documentation, and rate scheduleswhich are necessaryfor a "door-to-door"transport service. In addition,there is a shortageof containersin Yugoslavia,the railwaysand othermodes lack container handlingequipment, and thereare few inlandfreight terminals. The Governmentis interestedin promotingthe developmentof integrated transport,and passedthe "SocialCompact on the Developmentof Integrated Transport"in 1984. The YugoslavChamber of Economyhas also prepared ambitiousproposals for investingin a networkof freightcenters. The Bank recommendedcarrying out feasibilitystudies for one or two freight centersbefore undertaking investments, and thesestudies are currently underpreparation. The projectwould includeabout $22 millionfor containerhandling equipment and relatedinvestments to assistthe RTOs to increasetheir container and piggybacktraffic.
H. UneconomicLines and Services
2.21 Yugoslavrailways provide for historicaland socialreasons a numberof services whichare now uneconomicprimarily due to changesin trafficpatterns. These includebranch lines, stations, and passenger trainswith uneconomicallylow trafficvolumes. Once established,there is socialand politicalresistence to discontinuingthese services. Yugoslavrailways have made effortsover the years to closelines and stationsand discontinuepassenger trains. For example,the four RTO's under the projectclosed 1,135 km of uneconomiclines between 1965 and 1985. They closedan additional354 km to publicservice, but continueto give these linesminimum maintenance. The RTOs use the operationof low trafficlines as a bargainingdevice in theirdiscussions with the Republics/Provincesand COIs concerningcompensation and capital contributions.For example,RTO Novi Sad decidedto rehabilitatetwo low volume linesonly after the userscontributed to the cost of - 15 - rehabilitation.Forty-eight percent of Yugoslavia'srailway lines now carryonly 192 of traffic,and the railwayspropose to close additional lineswhich prove to be uneconom.icin accordancewith a methodologywhich is acceptable.The projectRTOs have also discontinuedvarious passenger services. For example,RE Ljubljanarecently cancelled four passenger trainswhen localautborities failed to agree to providesufficient compensation.However CYR, in its new BusinessPolicy, recognizes that more needs to be done (paras.3.01 and 3.31). In particular,Yugoslav railwayshave 970 stationswhich load or unloadabout 150 milliontons of freighteach year. One-thirdof these stationshandle less than one wagonloadper day which is uneconomic.CYR proposesthat a phasedprogram be undertaken,in cooperationwith local truckingenterprises, to close a numberof thesestations. Closinguneconomic freight stations has the potentialto reduceoperating costs to a significantdegree. The project RTOs agreedat Negotiationsto close 168 freightservices and stations between1989 and 1993.
I. Operations
2.22 The operatingperformance of the four RTOs deteriotatedgradually after 1984 and sharplyin 1987 in all areas relatedto freighttraffic, while passengertraffic performances improved significantly up to 1986 but showedmixed resultsin 1987,and again a deteriorationin 1988 (Tables4, 6 and 8). Despiteperformance and productivityratios that are reasonable comparedto other railways(Table 7), decisiveactions are neededto improvethe RTOs' efficiency.The major areas of concernare freight operationsand availabilityof tractionand rollingstock. Freighttraffic is handledat far too many stations,as discussed(para. 2.21). Low availabilityof electricand diesellocomotives has becomea major problem reducingthe capacityand profitabilityof the Yugoslavrailway system as a whole. Availabilityof tractionand rollingstock (exceptfreight wagons) declinedsince 1984 to unsatisfactorylevels in 1987 but, improvedslightly in 1988 (Table8). The main reasonsfor the declinewere: (a) shortageof foreignexchange for spare parts;(b) an inefficientsystem of stock control;(c) an aging fleet;(d) a relativelyhigh degreeof utilization; and (e) inefficientworkshop organization. Spare parts financedunder the Sixth RailwayProject are expectedto improvethe availabilityrates temporarily.Although the Bank does not normallyfinance recurrent expendituressuch as spare parts,the supplyof foreignspare partshas becomesuch a problemthat Bank financingis recommendedon the basis that the RTOs have undertakenand appearable to securesufficient foreign exchangeto contribute50S of the fundsneeded for procurement(para. 3.12). At the same time, the RTOs have to reorganizetheir workshop and maintenanceorganization (para. 2.18). In addition,the RTOs should introduce a computer-based monitoring system for spare parts management to improve the utilizationof scarcefunds and to assurethat spare parts are purchased in a timely manner. DuringNegotiations the RTOs each agreedto introducea system which is satisfactory to the Bank, by November 30, 1990. 2.23 RE Ljubljanahas installed,and RTE Zagrebis in the processof installing,a computer-basedtrain, wagon, and locomotivecontrol system, which will substantiallyimprove the utilizationand productivityof tractionand rollingstock and of trainstaff, and will reducethe -16 -
quantitiesof wagonsand locomotivesto be procuredin mediumterm. RTOs Belgradeand Novi Sad intendto installthe systemunder the proposed project.1.' Provisionsare made in theirrespective Investment Plans (Tables9a and 9c).
J. Tariffsand Compensatiou
2.24 Railwaytariffs for freightand passengertraffic are adjusted uniformlythroughout Yugoslavia and are basedon the type of trafficand distance. Priorto 1988 tariffproposals were preparedby CYR and submittedto the FederalGovernment (Institute for Prices)for reviewand approval. In August1988, the Governmentapproved guidelines for calculatingtariff adjustments every quarter, based on "commonelements" (Annex3). The schemebasically provided for rail tariffsto be increased to the levelof road tariffiin six quarterlyadjustments and to be maintainedat that levelthereafter. Compensation was to be paid to meet any deficitbetween rail costsand the revenuegenerated by the new tariffs. Tariffadjustments for the last two quartersof 1988 were made in line with the guidelinesbut the Governmentsuspended application of the January1, 1989 adjustment.Later a lowerincrease was approved. Revised guidelinesfor tariffadjustments based on "commoncriteria" are now being developed.During the past ten yearspassenger tariffs have not been increasedin line with inflationwith the resultthat passenger tariffs have fallenin real termsby about50 duringthis period. During negotiationsagreement was reachedwith the Governmentand the RTOs that the passengerunit pricelevel relative to the freightunit price level wouldnot decreasein future. The Governmentand the RTOs also indicated that endeavorswould be made to improvethe ratioover time.
2.25 Rail tariffand compensationpolicies in Yugoslaviahave changed significantlysince the 1970s. Operatingdeficits in the early 1970swere small. From the mid-70s,rail costs rose rapidlypartly as a resultof higheroil pricesand inflationand partlyas a resultof wage/labour policiesthat had objectivesother than railwayefficiency and viability. In an attemptto constraingeneral inflation, the Federalauthorities did not permitrail tariffsto be increasedin line with highercosts. Compensationpayments to coverdeficits were made by the Communitiesof Interest(COI) in each Republic/Province.
2.26 In 1983 underthe SixthRailway Project (Ln. 2336-YU),the Yugoslavauthorities undertook to implementmeasures designed to achieve the gradualeliminaticn of compensationpayments and replacethem with revenuefrom tariffs. Tariffswere to be increasedeach year in line with the increasein the ProducerPrice Index(PPI) in Yugoslaviaplus an increasein real termsof 62. As a result,compensation fell from 2.5% of totalrevenue in 1983 to 21% in 1986 (Annex3). Accelerationof inflation since1986, however, reversed this trendand compensationpayments to CYR increasedto 242 of revenuein 1987,representing about 282 of average revenueof the four RTOs coveredby this project. The compensationpayment to Ljubljanarepresented about 371 of totalrevenue in 1988 and 29S of
1/ RTO Belgrade'sinvestments will also coverthe remainingRTOs Pristina, Sarajevo,Skopje and Titograd. - 17 - revenuefor the four RTOs. In spitec. compensationpayments, three of the four RTOs participatingin this projectincurred substantial net deficits thatyear. Under the SixthRailway Project agreement was reachedfor E. 6S per annum real tariffincrease through 1990. With this tariffincrease it was anticipatedthat compensationwould be eliminated,but in view of the currenteconomic difficulties, reduced traffic levels and slowerthan anticipatedgrowth in productivity,this targetwill not be achieved. The Governmentis concernedthat furtherreal tariffincreases after 1990might place the railwaysin a non-competitiveposition vis a vis otherEuropean railways,which are heavilysubsidized, and local road transportservices. This ie particularlya problemin Yugoslaviain view of the currentstate of railwayinfrastructure and rollingstock. Duringthe past four years, tariffswere adjustedin linewith inflationplus the 62 real increase. Due to the high levelof inflation,however, and the implementationof the major adjustmentin tariffstowards the end of the year, the RTOs' income fell shortof requirements.To addressthese problems and to ensurethat the RTOs improvetheir financialperformance, agreement was reachedduring negotiationthat the RTOs will: (a) increasedomestic tariffs each year from October1, 1989 onwardsby the increasein the PPI plus 62 in real termsat the beginningof 1990;and (b) implementthe inflationincrease by adjustingtariffs four timesper year on the firstday of each quarterin accordancewith a formulasatisfactory to the Bank;and (c) increase tariffson January1, 1990,by a further6S in real terms. On April 1, 1989,a tariffincrease of 762 was implementedwhich broughttariffs in linewith the Sixth RailwayLoan requirementsplus estimatedinflation to that date.
K. Accountsand Audits 2.27 Railwayaccounts are kept separatelyby each RTO on a uniform Governmentprescribed commercial basis. The accountsare kept to a reasonablestandard with extensiveuse of computers.As a resultof the Bank'srequirements, cash flow analysishas come to play an importantrole in the RTO'saccounting processes. Fixedassets are subjectto an annual revaluation,based on replacementcosts, using coefficientsobtained from pricedindices of the FederalInstitute of Statistics.Book valuesof fixed assetsare thus maintainedat realisticlevels and depreciation charges play a proper role in generating funds to meet current replacement costs of fixed assets. 2.28 A study to formulatea uniformcosting system for the RTOs was carriedout by Yugoslavconsultants and completedin 1979,but a consensus by all RTOs on this complexand criticalmatter was not reacheduntil 1982. A contractwas signedin May 1982 betweenCYR and the consultantsto introduceand test the systemat RTO Belgradeto be followed,if satisfactory,by implementationat the other RTOs. The systemhas been testedand the resultsanalyzed. In summary,most RTOs feel that the proposedsystem would add littleto the resultsobtainable by using the presentthree-digit account0ng code with a furtherfive for originand destinationof costs. The applicationof the proposedsystem would require staff of higherability and salarylevels than the presentaccounting staff and wouldnot aid significantlyin the managementdecision-making process. The Bank believesit shouldnot press for implementationof a systemwhich is not acceptsvleto the Borrowerand whose valuehas not been demonstrated. - 18 -
2.29 The annualaccounts of each RTO are auditedby the Social AccountingService (SDK) in accordancewith generallyaccepted auditing standards.In recentyears there has been delaysof about four months in the submissionof auditreports due to a shortageof staffin the Special Unit of SDK whichundertakes the audits. SDK are holdingdiscussions with the appropriateGovernment departments tn resolvethis shortage. In its reportson the 1987 annualaccounts of RTO'sNovi Sad and Zagreb,SDK had seriousreservations and as a resultdid not certifythe accounts. The reservationscover inter alia failureof RTOs to confirmdebit and credit balanceswith debtorsand creditorsas requiredby Yugos.avlaw, non-recognitionof foreignexchange losses, incorrect revaluation of fixed assetsand inconsistenttreatment of intereston loans. A substantialpart of thesereservations cover recently issued accounting rules which in effecthave introduceda systemof currentcost accountingin Yugoslaviato make the annualaccounts more realisticduring the currenthigh inflation (para.5.01). As RTOs accountingstaff did not fullycomprehend the new regulations,there were numerouscases on noncompliance.In addition,due to the adverseeffects of the new reguLationson the RTO's profits,there was a naturaltendency to misinterpretthe rules. Becauseof the delays in producingthe accountsand auditreports for 1987,it was decidedto issue the audit reportswith SDK'sreservations without waiting for further discussionsbetween the partiesto resolvethe issues. Most of the problemshave sincebeen resolvedand the necessaryadjustments have been made in the 1988 accounts. Adjustmentswere also made in the appraisal report'sfinancial tables for 1987. SDK audit reportfor the 1988 accounts will also cover the 1987 accountsin accordancewith theirusual practice. Receiptof the SDK certifiedaudit reports satisfactory to the Bank from each of the four RTOs for 1988 will be a conditionof effectivenessof that loan. Prior to 1988,the auditorshad reservationsin theirreports coveringthe lack of certificationof commonlygenerated revenue allocated by CYR to RTOs. To resolvethis problem, CYR agreedduring appraisal to have SDK audit its accountsannually to the extentnecessary to satisfySDK as to the accuracyof revenueallocated to RTOs. This auditwas undertaken on the 1987 accountsand agreementfor futureaudits was confirme"dduring negotiations.
III. THE PROJECT
A. ProiectRationale
3.01 In an environmentof the economy'sdeclining performance, the fundamentalproblem of the railways'decreasing competitiveness became undeniablyevident. The Yugoslavrailways are the least economiccost carrierfor bulk commodities,low value goodstravelling over long distances,and much inter-citypassenger traffic. There is thus a long term role for the railwaysin Yugoslavia.The Federaland Republican/ProvincialGovernments support this role in the 1986-90Medium Term DevelopmentPlan. Aftermany yearsof inertia,the railways' managementappearvi to have realizedthat the recentstagnation of rail freighttraffic is not a temporaryphenomenon. At the end of 1987,CYR has takenthe initiativein preparingand beginningto implementa reform programwhich addresses most oi the railways'interrelated problems (para. 3.31). These reformsare incorporatedin a BusinessPolicy which is summarizedin Annex 6. The key featuresof the BusinessPolicy are: - 19 -
(a) creationof freightroutes with guaranteedtime schedules; (b) formingof more directfreight trains; (c) increaseof wagon load and shorteningof turnaroundtime; (d) provisionof 22.5 ton axle load on internationalroutes; (e) increasein travelspeeds for passengerand freighttrains; (f) reductionof numberof stations; (g) terminationof publictransportation on uneconomiclines or receivingadequate compensation; (h) implementationof the agreementto reorganizelocomotive major overhaul;and ti) use of tariffsas a marketingtool.
3.02 The overallrationale for the projectis to supportthis new momentumfor reformwithin the railways.
B. Obiectives
3.03 The Bank'sparticipatios 5n financingthe projectis directedat: {i) rationalizingthe participatingRTO's InvestmentPlans; (ii) moving towardsan appropriatepricing policy; and (iii)improving operational efficiency,and more specifically:(a) assistingthe Government'spolicy in overcomingkey conscraintson the main trunkline throughYugoslavia which providesan internationalcorridor; (b) fosteringthe integrationof the railwaysystem; and (c) strengtheningthe four participatingPTOs so as to enablethem to competeeffectively in the transportmarket.
3.04 To achievethese broad objectives, the projectseeks to: (a) rationalizethe 1988-90Investment Plans; (b) continuethe railways pricingpolicy initiated under SAL I and the SixthRailway Project aimed at improvingfinancial viabilityand independence; (c) reduceoperating costs by closinglow volumefreight stations; (d) increaselabour productivity independently from traffic fluctuationby reducingthe numberof staff; (e) providean adequatesupply of spareparts in orderto increaselocomotive availability; (f) ease criticalrailway capacity constraints on the main trunkline vitalfor the movementof key bulk commodities and transittraffic for internationaltrade; and (g) raisethe levelof operationalperformance, staff productivityand qualityof serviceby continuingcorporate planning,the use of Actionand OperationalPlans, and introducingan InformationSystem for Locomotive,Train and Wagon Control.
C. InvestmentPlans
3.05 The RTOs prepared5-year Investment Plans designed to achievethe broad objectivesoutlined in para. 3.03,which consistonly of high priorityitems and whichare all economicallyjustified. The projecthas been basedon investmentsoriginally planned for 1988-90,but is extended to 1991 to reflecta more realisticimplementation period (para. 3.21) and - 20 -
is now acceptable;in particulareach major investmen.item has an economic return greater than 12X, is coveredby a satisfactoryFinancing Plan, and is within the implementationcapability of the concernedRTO. Assurances were obtainedat negotiationsthat, each RTO will: (a) implementits Project InvestmentPlan with due diligenceand efficiencyand in accordance with appropriateeconomic, financial, engineering and railwaypractices; (b) prepareand furnish to the Bank not later than November 15 of each year from 1989 to 1991 updated Investmentand F'nancingPlans, taking into account trafficresults and trends; (c) carry out during the following year such InvestmentPlan as shall have been agreed between the Bank and the RTO; (d) consult with the Bank before introducingany increaseof 5% or more of a given year's plannedinvestments and ensure that no such increase shall be made in its InvestmentPlan unless its economic and financial justificationshall have been demonstratedto the Bank's satisfaction. This would mean that each major investmentexceeding US$3 million equivalentwould have to have an internaleconomic rate of return of 12% or more and a first year return of 101 or more, and an internal financialrate of return of 10% or more, estimatedin accordancewith a methodologywhich is satisfactoryto the Bank, is coveredby a satisfactoryFinancing Plan, and is within the implementationcapability of the concernedRTO.
D. ProjectDescription
3.06 The major project componentsare:
Track Overhaul
3.07 Poor track conditionshave significantlyreduced the efficiencyof railwayoperations through reducedline capacityand major increasesin operationand maintenancecosts (para. 2.12). About 19% of the total projectexpenditure is for about 651 km of track overhaul. Bank financing will cover the overhaul of various sectionsof the main trunk line totalling357 km. Worn-out track--mostlyabout 20 years old (in some cases about 40 years old) and subject to severe speed restrictions--willbe renewedwitlh 'ew UIC 60 rails on the main trunk line (para. 2.13), type 49 kg/meter raiLs on other main lines and used rails on the remainderto increase the permissibleaxle load to 22.5 tons on the trunk line and 20 tons on the remainderwith speeds to 120 km/h. The use of UIC 60 rails on the main trunk line from Austria to Greece will allow higher speeds of up to 160 km/h for passengertrains but its main benefitwill be in reducing high track maintenancecost, due mainly to heavy freight traffic. Without the proposed track renewals,the poor track conditionswould deteriorate furtherand restrict the daily number of trains.
Line Sectionsand Stations
3.08 About 272 of projectexpenditures are provided for reconstruction wo:ks. Major expenditureswill be on renewal and extensionof tracks and points, constructionof underpassesto platformsand equippingstations with modern signallingand telecommunicationssystems and line sections with automaticblock systems. Bank participationwill cover works on (a) various line sectionsbetween Jeseniceand Dobova,which also include track doubling between Podnartand Lesce (10.5 km), Jesenice and Slovenski Javornik (2.7 km) and Ljubljanaand Vizmarje (3.9 km); (b) the constructionof a 11.3 km new bypass line west of Zagreb for freight trains;and (c) completionof the second of three stages of the main Belgrade Junction. - 21 -
Electrification
3.09 The changeof the electricsystem on the sectionSrpske Moravica-Rijeka- about a third of the line Zagreb-Rijeka- from 3kV DC to 25kV AC is the only major investmentinto electrificationand it accounts for about 4.71 of the totalproject cost.
Signallingand Telecommunications
3.10 New installationsof signallingand telecommunicationsfor existinglines account for 51 of the projecttotal. Obsoletemechanical signallingsystems will be replacedon about 200 km of linesby modern equipment,including devices for automatictrain stopping. The equipment will increasesafety and improveline capacity. Radiodispatcher systems providebetter and fastercommunication between signal boxes and line locomotivesas well as shuntinglocomotives in biggerstations and marshallingyards. They providefor more flexibilityin traitoperations and increasesignificantly efficiency of shunting. Bank participationwill cover modernizationof signallingand telecommunicationof the Zagrebmain station.
Tractionand RollingStock
3.11 Tractionand rollingstock needs are based on OperationalPlans which take irco accountforecast traffic, the scrappingof old and obsolete stock,and r,lsoplanned increases in operationalefficiency through Action Plans (par-.3.31 and Annex 1). The plannedacquisitions represent 16% of the projectcost total and include5 electricmotor trains,945 freight wagons,96 passengercoaches, and rehabilitationof older locomotives, wagonsand coaches.
LocomotiveSpare Parts
3.12 Low locomotiveavailability constitutes a criticalbottleneck of the RTOs' operations(para. 2.22). In order to alleviatethe chronic shortageof foreignspare partsjust over 41 of the projectcost are proposedfor the financingof locomotivespare parts. Important,however, is that sufficientforeign exchange is being made availableto the railways by the Yugoslavauthorities.
Track Maintenance Equipment
3.13 The RTOs need continuously to replace the short-lived track maintenanceequipment in order to maintainexisting track overhaul capabilitiesand capacities.Less than 32 of the projectexpenditure is for tampingmachines, gantry cranes for track laying,ballast regulators, railcarsand smallerequipment.
InformationSystem 3.14 A computer-basedtrain, wagon, and locomotivecontrol system has been installedin two RTOs (para.2.23). It is of high prioritythat the systemcover the whole Yugoslavrailways as soon as possiblein order to gain the benefitof country-wideinformation. About 92 of project - 22 -
expenditureare providedfor equipmuent,software and the upgradingof the telecommunications,which will not only be for the RTOs Belgradeand Novi Sad but also for the remainingRTOs Pristina,Sarajevo, Skopje and Titograd. TechnicalAssistance and Training
3.15 The projectwould providefor about70 man-monthsof foreignand localconsulting services designed to assisttechnically competent managementof the RTOs and CYR in furthertransforming a traditional railwaysystem into a commerciallyoriented, technically advanced, and efficientlyoperated one. A list of studieswhich has been discussedat appraisalis givenin Annex5. They addressmainly: (i) studyingrailway marketingin othercountries; (ii) a studyof methodsto improvetransit trafficon Yugoslavrailways; and (iii)a seminaron the preparationof economicand financialdocuments. Outline of Termsof Referenceprepared by CYR were discussedat Negotiationsand will be finalizedshortly.
E. Cost Estimates
3.16 Projectcost estimateswere made in constantDecember 1988 YugoslavDinars because of the very high inflationin Yugoslaviaand the uncertaintyby whichdegree the inflationwill decreaseduring the project period. The estimatesare shownin Table 9 and summarizedbelow: - 23 -
Table 3.1 1989-91Proiect Cost Estimatesand Bank Participation
Foreign as 2 Bank Local Foreign Total of Total Loan (US$million equivalent) (USWi)
Completionof 81-85Plans 30.10 18.76 48.86 38 - TrackOverhaul 88.05 79.06 167.11 47 32.7 Reconstructionof Lines, Stations& Junctions 137.64 95.35 232.99 41 15.5 Electrification 22.14 18.11 40.25 45 - Signallingand Telecommunications 14.14 28.52 42.66 67 8.3 Traction& RollingStock 92.00 46.46 138.45 34 - LocomotiveSpare Parts 7.94 29.67 37.61 79 12.1 TrackMaintenance Equipment 4.96 19.27 24.23 80 9.1 IntegratedTransport 10.49 11.43 21.92 52 - InformationSystem 20.97 56.15 77.13 73 38.0 Miscellaneous 21.01 10.83 31.84 34 - Subtotal 449.45 413.61 863.06 48 115.7 PhysicalContingencies 1' PriceContingenciesa' 23.30 20.16 43.46 46 21.7
Subtotal 472.75 433.77 906.52 48 137.4 TechnicalAssistance/ TrainingEquipment 0.16 0.40 0.56 71 0.6
GRANDTOTAL 472.91 434.17 907.08 48 138.0
11 Physicalcontingencies of 10% have been includedfor all itemsexcept for tractionand rollingstock, spare parts and miscellaneous. 2/ Pricecontingencies, representing only internationalinflation, have been estimatedat 32 p.a. in 1989-90and 4b in 1991.
3.17 The InvestmentPlans have been preparedby the RTOs in consultationwith competentlocal consultants based on recentcost experien:tewith similarworks, acquisitionof tractionand rollingstock, and on quantityestimates from substantiallycompleted detailed engineering and unit pricesat December1985. They were updatedto an estimatedprice levelat December1988. A 10% physical contingencyhas been added to the cost estimatesof all itemsexcept for traction and rollingstock, spare parts, and miscellaneous.Price contingencies, have been - estimatedassuming annual price increasesof 32 each year for 1989-90and 4% for 1991. The estimatesinclude import duties and localtaxes of about 18% or aboutUS$165million. Consultancyservices and assistancein trainingprograms are estimatedat US$560,000. - 24 -
3.18 The total project cost (includingcontingencies) is estimated to be about US$907 million with a foreignexchange componentof US$434 million (Table 3.1). The proposed Bank loans aggregatingUS$138.0 million will be allocated to specific items in the project (Table 10) with a total cost of US$612 million and a foraign exchange componentof US$324 million. The loans would cover 321 of the total foreign exchange cost of the project and 151 of the total project cost.
F. Lending Arrangements
3.19 The Bank would make four loans, one to each RTO. Each loan, to be guaranteedby the Federal Government,has a 15-year maturity including five years of grace. A Loan Agreementwould be concludedwith each RTO. CYR woulu be a party to each of these Agreements,as it will have certain project execution and coordinationresponsibilities (para. 2.06). The amounts of the four loans are summrized below:
US$ millions
RTO Belgrade 59.0 RE Ljubljana 31.9 RTO Novi Sad 14.6 RTE Zagreb 32.5
TOTAL 138.0
G. Implementation
3.20 Each RTO will be responsiblefor executing its part of the project with CYR acting as a coordinatingagency for procurement,technical assistanceand staff training, the annual revitionsof Investment, Financing,Action and OperationalPlans and for all communicationsand reportingwith the Bank.
3.21 An implementationschedule is shown in Chart 4. This schedule was discussedand confirmedduring Negotiations. The project completiondate would be June 30, 1992 for each RTO. The estimated implementationtime is based on experiencewith the Fifth and the Sixth Railway Projects. The loan closing date would be December 31, 1992 to permit disbursementof remaining loan proceeds for eligible expendituresincurred under then existing contracts.
H. Procurement
3.22 Materials and equipment totallingUS$137.4 million, intended to be financedby the Bank would be grouped in appropriatebidding packages and procured by InternationalCompetitive Bidding (ICB) in accordancewith the Bank's Guidelines,on .he basis of a list of materials and equipment proposed by the RTOs and and finalizedat Negotiations(Table 10). Financing of consultanw'sservices and training (para. 3.15) would be provided under the project, with selection proceduresfor consultant services following Bank Guidelines. The packages and the consultant's services,all estimatedover US$50,000,would be subjectto the Bank's prior review and approval. An estimated schedule of procurement is shown in Chart 3. - 25 -
3.23 In bid evaluation,Yugoslav manufacturers would be alloweda preferentialmargin of 15% of the CIF cost of competingimports, or the applicablecustoms duties, whichever is lower.
3.24 The tablebelow provide3a summary of the type of procurement whichwould apply to goods and works and servicesincluded under the project. Reservedprocurement is recognizedfor tractionand rolling stock,estimated to cost US$145million. The Bank is satisfiedthat this will not significantlyaffect the satisfactoryexecution of the projectin termsof cost,quality, and completiontime. The aboveamount of reserved procurementhas been takeninto accountin the determinationof the size of the proposedBank loan.
Table 3.2 ProcurementMethod
ProiectElements L' ICB LCB Other Total 0***0*#*#*40..US$ million...... completion81-85 Plans - - 51.3a' 51.3 TrackOverhaul 38.9 - 136.61' 175.5 (38.9) - - (38.9) ReconstructionLines Stations 26 - 218.71' 244.7 (18.4) - - (18.4) Electrification - 42.31' 42.3 SS and TT 15 - 29.8 44.8 (10) - - (10) Tractionand RollingStock - - 145.41' 145.4 LocomotiveSpare Parts 20 - 19.51' 39.5 (13.3) - - (13.3) TrackMaintenance Equipment 11 14.5 25.5 (11) (11) IntegratedTransport - - 23.01' 23.0 InformationSystem 45.8 - 35.23' 81.0 (45.8) - - (45.8) Miscellaneous - 33.54' 33.5 TechnicalAssistance and - - 0.56k' 0.56 Training - - (0.56) (0.56) TOTAL 156.7 - 750.4 907.1 (137.4) - (0.56) (138.0)
1/ Costs includeestimated contingencies. 2/ FollowingRepublican/Provincial procurement procedures. 3/ Reservedprocurement of whichUS$34 million will be procuredthrough directnegotiations. 4/ Directnegotiations. 5/ Employmentof consultants.
Note: Figuresin parenthesesare proposedfor Bank financing. - 26 -
I. Disbursements 3.25 Disbursementswould be made for goods and technicalassistance. For importedgoods, disbursements would be made on the basisof 1001 of foreignexpenditures, and with respectto bids won by localmanufacturers under ICB,disbursements would be made on the basis of 1002 of the ex-factorycosts. Disbursementsfor technicalassistance and training would be on the basisof 1001 of totalexpenditures. However, because each technicalassistance contract will be financedpro rata by all four RTOs, the disbursementpercentage for eachwill be as follows: Belgrade42.78X, Ljubljana23.101, Novi Sad 10.552,Zagreb 23.571. Withdrawalswould be made againstfull documentationexcept for reimbursementrequests which wouldbe submittedon the basis of Statementsof Expenditurefor contracts relatingto goods and servicesand for trainingexpenditures valued at less than US$200,000.
3.26 At Negotiations,discussions were held with the four participating RTOs on establishingSpecial Accounts for each of the four Borrowers,but no final decisionhas been made by them. It was agreedthat each RTO would have the possibilityof openingsuch an accountwith an authorized allocationrepresenting four months'estimated needs.
3.27 The Communityof YugoslavRailways (CYR) will be responsiblefor preparationand presentationto the Bank on behalfof each RTO of disbursementrequests and requestsfor replenishmentof the Special Accounts.This was confirmedduring Negotiations.
3.28 A scheduleof estimateddisbursements has been developedfrom the implementationschedule (Chart 4) and is shownin Table 11. It assumes that the loan would be effectiveby October31, 1989,the projectbe completedby June 30, 1992,and the loan be closedon December31, 1992 (para.3.21). The estimateddisbursement period of two years reflectsthe selectionof items to be financedby the Bank suitablefor quick disbursements.Retroactive financing of up to US$13.8million in the aggregatewould be permittedfor paymentsmade after April 1, 1989,to coverhigh priorityworks which are plannedto commenceat such time.
J. EnvironmentalImpact
3.29 Most of the proposedinvestments included in the projectinvolve the replacementor modernizationof existingassets which will not materiallyaffect the environment.The followingbeneficial environmental effectsare expectedfrom other projectinvestments:
(a) Belgrade Junction - Second Stage - The project will release about 11 hectaresof urban riverfrontland, presentlyused as railwayline, for otherurban uses. The city plansto use the land primarilyfor constructingapartment buildings,office buildings, and parkswhich is considered reasonable.The projectis also expectedto divertsome passengertraffic from road to rail, reducingtraffic congestion,air pollutionand noise in Belgrade. (b) Zagreb - Western Bypass - The project would divert freight trafficfrom the centerof Zagrebto the new WesternBypass - 27 -
line outside the city, reducing delays to road traffic and pedestriansat level crossings in the city center, and also reducing noise levels. Constructionwould require about 15.6 hectares of land outside of the city center, part of which is agriculturalland, and the demolitionof seven low value structures. The city of Zagreb is making this land available for the project. The project includ s measures to reduce noise on the new alignment. The environmental benefit of removing freight traffic from the :ity center far exceeds any adverse environmentalimpact from constructionof the new Western Bypass line.
K. Action Plans and Monitoring Taraets
3.30 ComprehensiveAction Plans were establishedby CYR and each RTO under the Fifth and Sixth Railway Projects. They are an important instrumentfor reaching a common understandingby all concernedon objectives and responsibilities,and on measures and time required for their achievement. Their overall objectivesare to reduce cost, improve the quality of service and improve the market position. They address organization,planning, investments,marketing, productivity,finance, government support and staff training. As part of their Action Plans, the RTOs have prepared OperationalPlans to improve the utilizationof their traction and rolling stock and to serve as a basis for procurement,renewal and scrappingof traction and rolling stock.
3.31 In recent years, the growing economic difficultiesresulting in loss of traffic, rising costs for the railways and growing deficits due to very high inflationand lagging-behindof tariff increases,posed major problems for the railwayswhich were not sufficientlyaddressed in the RTOs' Action Plans. Therefore,CYR has taken the initiative in preparing a Business Policy of Yugoslav Railways which was adopted by CYR's Assembly on December 23, 1987. This policy sets the framework for the RTOs for action in a more specific way. The Managing Board of CYR will monitor its implementationand submit a report to the Assembly of CYR at the end of each fiscal year. The key features of the Business Policy are provided in Annex 6. Remarkable is that the policy is directed at improving operationalefficiency, greater orientation to the market, and providing better quality of services in a more decisive way than previous Action Plans of the RTOs. As noted above (paras. 2.26, 3.05) a number of measures are being taken to achieve the objectives of the Business Policy. In addition to measures to keep tariffs in line with inflation (para. 2.26) and to implementa sound investmentplan (para. 3.05) the RTOs have developed a Project Action Plan (Annex 1) which:
(a) specifies urgent actions to be carried out by the RTOs in order to reverse the deteriorationof the railways' competitivenessin the transport sector;
(b) establishesa few but important and monitorable targets to be achieved annually.
Agreement was reached at Negotiations: (a) on the content of the Project Action Plan; (b) that the RTOs will implement the Project Action Plan and - 28 -
will take all actionsnecessary to achievethese annual operational targets; and (c) that during 1990-91,not laterthan May 31 of each year, CYR will furnishto the Bank a detailedreport about the implementationand progressof actionsand achievementof targetsagreed in the ProjectAction Plan and any proposedrevision to the ActionPlan, introductionof which will be subject to Bank agreement.
3.32 The OperationalPlans for Tractionand RollingStock shouldbe updated everyyear takinginto accountactual traffic developments and achievementsin improvingoperational efficiency. The resultsshould serve as a basis to reviewand revisefuture procurement of tractionand rollingstock. Agreement was reachedat Negotiations,that each RTO will reviseits OperationalPlan for Tractionand RollingStock each year during1989-93, and furnishthem to the Bank not later than November15 of that year. The revisionswill be based on 9-monthactuals and estimatesfor the fourthquarter.
IV. ECONOMICEVALUATION
A. TrafficForecasts
4.01 It is particularlydifficult to forecastfuture railway traffic becauseof uncertaintyabout the timingof Yugoslavia'seconomic recovery and probablechanges in the structureof the economyand trade. From 1963 to 1985,the growthof railwayand other inlandtraffic were highly correlatedwith the growthof GDP, with rail freighttraffic growing Pt about 1.6 times,and rail passengertraffic at about 1.1 times,the rate of growthof GDP. "' From 1985 to 1988 the patternchanged. Rail freight trafficfell 11.51and rail passengertraffic 4.22, whereas GNP grew by about 2.3% during the same period(Table 1.1).
4.02 Yugoslaviais a transportintensive country, generating about three times the volumeof both freightand passengertransport relative to GDP as WesternEuropean countries (para. 1.10). In the past,Yugoslavia followed an inwardoriented development strategy. This resultedin the excessive expansionof intermediateinput industries such as iron,steel, and
1/ For 1963-85railway traffic:
Log Rail FreightTraffic (tkm) = 0.552 log GDP (.004) Log Rail PassengerTraffic (pkm) = 0.589 log GDP-0.08log population (.022) (.012) squared. For 1963-85total inlandtraffic:
Log FreightTraffic (tkm)= -1.654+ 1.1 log GDP + 0.2 log population (2.2) (0.08) (0.4) Log PassengerTraffic (pkm) - -1.665+ 1.6 log GDP + 0.8 log population (3.5) (0.12) (0.7) The r' was greaterthan 0.99 for all four equations.Figures in parenthesesare standarddeviations. - 29 -
coal and iron ore. For chemicals,as well as extractiveindustries such as the industrialsector in example,42% of Yugoslavia'sGDP was generatedby 10-15%more than typicalcountries with marketbased 1986,which is is also a similarstage of development.High transportdemand economiesat and economic relativelylow physicalconcentration of population due to the the policyof which resultsfrom Yugoslavia'sRepublican structure, activity and the lack of locatingheavy industryin the less developedregions, for reducingtransport costs inherentin the self-management incentives is locatedin its For example,only 4.8% of Yugoslavia'spopulation system. 20 countriesclosest capitalcity, comparedto an averageof 12.7% for the to Yugoslaviain per capitaincome. increasethe The Governmentis embarkingon a reformprogram to 4.03 more in activities marketorientation of the economy,including specializing and increasing for which Yugoslaviahas a comparativeadvantage, trade. If this programis successful,it is likelythat international it is demandwill declinein the long run relativeto GDP, until transport declinewill more in line with other WesternEuropean countries. This extractiveand heavy affectrailways more than other transportmodes because are the railways'primary customers. However,the relative industries by an demandfor railwayservices would be partlyoffset declinein the traffic, in the rate of growthof GDP and increasedinternational increase Overall,railway which Yugoslavrailways has a comparativeadvantage. for rate of growthof GDP freighttraffic is expectedto grow at less than the duringthe periodof restructuring. a GDP growth The Government'sreform program is expectedto yield 4.04 1992 to 1997 provided of around2% p.a. from 1988 to 1992 and 3.5. p.a. from are made availablefor it is successfullyimplemented and sufficientfunds timingand extentof requiredinvestments. In addition,of course,the restructuringis uncertain. As a combinedresult, freight industrial 0.5% p.a. the four projectRTOs is forecastto grow at an average trafficin is forecast 1989-91and 1.7% p.a. during1992-96. Passengertraffic during 2.2% p.a. during to grow at rates averaging0.51 p.a. during 1989-91and 1992-96(Table 3). B. EconomicAppraisal
(a) The PlanningProcess and SectorPerspective RTOs are the resultof an 4.05 The investmentplans of the four project involvingthe definitionof sectorobjectives at the iterativeprocess analysesof and Republican/Provinciallevel, economic and financial Federal the railway individualinvestment proposals, and discussionsbetween and CYR), Republican/Provincialauthorities, professional agencies(RTOs staff. Due which have preparedthe feasibilitystudies, and Bank institutes planninginitiated to the successfulinstitution building efforts in railway preparetechnical and under previousBank projects,the RTOs and CYR now all investment economicfeasibility studies and operationalplans for usuallywith the assistanceof transportplanning institutes. proposals, projectsin the These studiesare a necessaryprerequisite for including Republican/Provincialand FederalInvestment Plans. - 30 -
4.06 The Governmentemphasizes the role of railwaysin the 1986-90 MediumTerm DevelopmentPlan in orderto increasethe efficiencyof the transportsystem (para. 1.11). Yugoslavrailways have a comparative advantagefor bulk commodities,long distancefreight traffic, and for mediumdistance passenger traffic. However,if railwaysdo not invest sufficientfunds, the systemwill deterioratefurther resulting in the uneconomicdiversion of thesetraffics to road transport.The Government intendsto investaround 5.5% of its funds in railwaysduring 1986-90, comparedto 2.42 in 1981-84,3.2% in 1976-80, and 4.3% in 1971-76 (Table 2). Railwayinvestments were underfundedduring the past with the average age of railwayassets increasing from 22 years in 1967 to 27 years in 1987, contributingto a declinein railways'efficiency.
4.07 There have been numerousinnovations in railwaysin recentyears such as more fuel efficientlocomotives, improved signalling systems, integratedtransport, specialized wagons, computer information systems, marketingsystems, etc. whichalso requirethat fundsbe investedin order to reducefuture operating costs and attracttraffic for which railwayshave a comparativeadvantage. Yugoslav railways will also need to provide additionalcapacity to accommodatefuture traffic growth. This is particularlytrue on the main trunk line,where severalcritical sections are presentlyoperating at capacity.
4.08 Finally,the marginaleconomic rates of returnfor railway investmentsare similarto thosefor road investments.In particular,the economicrates of returnfor evaluatedinvestments under the projectrange from 131 to 252, with the lowestreturns being for trackoverhaul (13-191) (seebelow). The economicrates of returnfor the SecondHighway Sector Project,which also financesa time slice of the 1986-90Medium Term DevelopmentPlan of four Republics/Provinces,range from 151 to 611. The lowestreturns are for constructionof sectionsof the Trans-Yugoslav Highway(151). Thls impliesthat the relativeeconomic priority of the rail and road investmentprograms are similar. The investmentplan of the four RTOs under the projectis thereforeconsidered to be reasonable.
(b) ProiectAssessment
4.09 The main projectbenefits derive from permittingYugoslav railways to performits role in the transportmarket and to increaseits operational efficiency.The trackoverhaul of sectionsof the main trunkand otherkey lineswill increaseoperating speeds and reduceoperating costs. The constructionof the WesternBypass and the modernizationof signallingin the main stationin Zagrebwill overcomea seriouscapacity constraint in the ZagrebJunction. The constructionof the secondphase of the Belgrade Junctionwill similarlyrationalize the flow of freightand passengertrains at that junction,in additionto releasinga valuableparcel of land for otherurban uses. The purchaseof spareparts for locomotiveswill help increaselocomotive availability, reducing the need for futurelocomotive purchases.The procurementof tractionand modernrolling stock will help make the railwaysmore competitive,and reducethe uneconomicdiversion of bulk and other trafficsto road transport.The acquisitionof computer systemsis expectedto reduceoperating costs, as has alreadyoccurred in other railwaysystems. - 31 -
4.10 Of total project expenditures,about 6% is for ongoing investments started under previous Bank projects for which the economic viability has been previouslyestablished. A further 842 is supportedby new feasibility studies, which have been reviewed it.detail by Bank staff. The remaining 10% include minor workshop improvements,technical studies and designs, and numerous small investmentswhich were not practicalto evaluate separately. These investmentswere reviewed by Bank staff from a technicalpoint of view and are considered reasonable.
4.1' The major investment items subject to detailed appraisal, together with their estimatedeconomic rates of return, are listed in Table 14. The rates of return calculatedby the RTOs and their Instituteswere adjusted to reflect the traffic forecastsdiscussed above, a shadow exchange rate of 1.25 times the official exchange rate at end-1985 price levels, and other factors which are described in the project file. The rates of return for the evaluated items range from 132 to 251. Assuming that the economic return for other investment items is at least 121, the economic return for the project is estimated to be at least 171. The economic return for Bank financed items is estimated to be 181. The first year return for all evaluated items is expected to be greater than 101.
(c) SensitivityAnalysis
4.12 A sensitivityanalysis of individualinvestments, involving an increase in costs by 10% and a simultaneousdecrease in benefits by 102, indicatesthat their economic return would not fall below 10%. The traffic forecastsare conservativeand the risk that they will not be achieved is consideredto be relatively low. Consideringthe major categoriesof projects in the InvestmentPlans, a large part is for procurementof traction and rolling stock, for which the economic return is estimated on a unit basis. The actual procurementof traction and rolling stock is adjusted annually, so there is little risk that the economic return would be lower should traffic growth fall below expectations. As project costs were computed on the basis of the recent experienceof the RTOs and as the traffic projectionsused are conservative,it is not considered likely that the estimated economic returns will fall outside the range indicated. Moreover, in view of the rolling annual plan mechanism followed by the Yugoslav railways, there is flexibilityin adjusting projects on an ongoing basis to changes in traffic levels or other conditions. Given the generally high rate of return obtained for individualproject items, and in view of the considerableexperience of Yugoslav railways in implementingsimilar projects, the proposed investmentsare considered to be free from significanteconomic risk.
V. FINANCIAL EVALUATION
A. Introduction
5.01 During the last six years inflationhas acceleratedin Yugoslavia, rising from an annual rate of about 25% in 1982 to 2701 in 1988. To ensure that the annual financialaccounts more accuratelyreflect the enterprises' real operating results and financial position, the Government has issued a - 32 - numberof changesin the accountingregulations. These new regulationshave in effectreplaced the historicalaccounting system of Yugoslaviawith a modifiedcurrent cost accountingsystem. Fixedassets and inventoriesare revaluedregularly to reflectinflation in accordancewith an index publishedby the Government.Depreciation charges and materialcosts are calculatedin accordancewith theserevised values. Foreignloans are automaticallyrevalued in line with the devaluationof the Dinar. Indexationof localloans did not commenceuntil May 1988 and so the past inflationarygains on theseloans are not recognizedin the accounts. In addition,the gainsor losseson net liquidassets are not recognised.The effectof all theseregulations is to set more stringentaccounting requirementsfor enterprisesduring a periodof high inflationcompared to thosenormally required under historical accounting procedures.
5.02 The medium-termfinancial objective for the RTOs agreedunder the SixthRailway Project in 1983 was the eliminationof compensationpayments and the establishmentof financialautonomy by 1990. This objectivewas to be achievedthrough a combinationof real tariffincreases, improved productivityand increasedtraffic.
B. Past FinancialPerformance
5.03 The actualIncome Accounts, Cash Flow and BalanceSheets for RTOs Belgrade,Ljubljana, Novi Sad, and Zagrebfor the six years 1983 - 1988 are shown in detailin Annex4. A summaryof the IncomeAccounts is in Table 5.1. -33 - tablt 5.1 Sum1y of Actual Ii m196*198Accomts (Din Billions) CONIDATED ROS ...... - 1968 1953lm m1964o 1968 1966 1967 ACUA ACUAL ACAL ACTUAL ACUAL CWL ...... tarfff Reu 56.1 99.4 179.8 321.4 424.5 1,013.8 COpemtion 23.0 29.7 57.5 129.3 245.8 423.3 Opeatin Reven 79.1 129.1 23.3 450.6 870.3 1.437.1 met OperatingRnM 5.3 12.8 19.7 39.7 (44.6) (23.5) Nat "Splug (icit) 1.5 5.1 7.4 8.4 (90.6) 59.) Ratio.
C0paO tian as a Proportion of operating Revenue5 29.0 Z3.0 24.0 29.0 28.0 29.0 Oprating Ratio (tnctuding co_mntion) X 93.0 90.0 92.0 91.0 105.0 102.0 Operating Ratio (Exctudfng coqimstin) X 132.0 117.0 121.0 128.0 147.0 14.0
ITO BELGRADC
195 1984 1965 19U6 1987 1988 ACTtlRL ACTtAL ACUAL ACTtUA ACTtIL ACTUAL ,......
Tariff 20Verae 14.5 25.5 4.7 83.1 168.1 267.8 Comeation 6.1 7.0 15.5 29.2 54.1 82.0 Opeating Revem 20.6 32.5 60.2 112.3 232.2 349.8 Net Operating Reve 1.2 2.9 6.3 9.2 (17.3) (46.6) Net Surplus (Deticeit) 0.2 0.9 2.3 0.6 (26.4) (5.7) Ratios
compensation as a Proportion of Opeating Revee % 30.0 22.0 26.0 26.0 24.0 23.0 Opeating Ratio (Intluding compnation) X 94.0 91.0 90.0 92.0 108.0 113.0 Operating Ratio (Exctuding ompestion) X 134.0 116.0 121.0 124.0 142.0 148.0
RTO LJUBLJANA ...... 1983 1984 1985 1966 1987 1988 ACTUAL ACTUAL ACTUAL ACTUAL ACTAL ACTUAL ...... Trwiff Revenue 12.8 22.7 42.9 78.8 154.9 260.0 Compensation 5.3 7.8 16.6 46.8 115.1 153.5 Operating Revenue. 18.1 30.5 59.5 125.6 270.0 413.5 Net operatirng Rvenuo 2.0 3.6 7.5 16.9 18.4 34.7 Net Surplus (Oeaficet) 0.4 1.0 2.8 5.5 0.5 24.1 Ratios
compensationas a Proportion of operating RevenueX 29.4 25.6 27.9 37.2 42.6 37.1 operating Ratio (including compensation) X 89.0 88.0 87.0 87.0 93.0 92.0 Operating Ratio tExcluding copmensation) X 126.0 118.0 121.0 138.0 162.0 14.0 - 34 -
Table 5.1 Summary of Actual Income Accounts - 1983-1988 (cont.) (Din Billions) ITO IWWIsD ...... 1983 194 198 1988 ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ...... Tariff Reven 7.1 13.3 26.4 47.2 94.0 145.3 Carpnation 3.0 3.8 6.5 16.7 22.9 35.1 Opeting Reveu 10.1 17.1 32.8 63.9 116.9 180.4 Net OperatingRetnue 0.3 1.2 1.3 3.8 (2.7) (11.2) lIt urplus(DeOaf t) 0.1 0.6 0.2 (0.2) (10.7) (1S.1) Ratios
Connation as a Proportion of Operating Rvewu 30 22 20 26 20 19 Operating Ratio (Including compemation) X 97 93 96 94 102 106 Operating Ratio (Excluding copeation) X 138 120 119 12? 12? 132
RtO ZAU
1963 1984 1985 1986 1987 1988 ACTUAL ACTtAL ACTUAL ACTUAL ACTUAL ACTtAL
TariffRaevom 21. 38.0 65.9 112.3 207.5 340.? Compensation 8.6 11.1 18.9 36.6 53.7 152.7 Operating RevIb 30.3 49.1 84.8 148.9 261.2 493.4 Met Operating Revee 1.9 5.1 4.6 9.8 (43.0) (0.4) met Srplus (Deffeeit) 0.8 2.6 2.1 2.5 (54.0) (13.0) Ratics
Comensation as a Proportion of Operating Rovenu 28.0 23.0 22.0 25.0 21.0 31.0 Operating Ratio (Including copention) X 94.0 90.0 95.0 93.0 116.0 100.0 Oprating Ratio (Exeluding compeation) X 131.0 116.0 122.0 124.0 147.0 145.0 - 35 -
The financialperformance of the railways has been adverselyaffected by a fall in traffic levels and the high level of inflation. Traffic units fell by about 11% during the three years 1986-88. Tariffs were increasedin line with inflationplus the 61 per annum as required under the Sixth Railway Loan up to April 1, 1988. These adjustments,however, have lagged behind in their impact, as the increaseswere made about twice a year with the major part of the increase coming late in the year. Partly as a result, the operating ratios excluding compensation,which had fallen in 1984, increasedin 1985 through 1988. The resultingshortfall in RTOs' revenue was made up in part through increasedcompensation payments from the Republican/Provincial Governments. Comparativeoperating ratios excluding compensationtogether with the targets agreed under the Sixth Railway Project for RTOs Belgrade and Novi Sad are shown below:
Table 5.2: Operating Expendituresas a Percentageof Tariff Revenues (OperatingRevenues)
1983 1984 1985 1986 1987 1988 Actual Target Actual Target Actual Target Actual Actual Actual
RTO Belgrade 134 120 116 115 121 110 124 142 148 RE Ljubljana 126 - 118 - 121 - 138 162 146 RTO Novi Sad 138 113 120 108 119 101 127 127 132 RTE Zagreb 131 - 116 - 122 - 124 147 145 YR System 128 - 114 - 116 - 117 142 - Total
The targets have not been met, except for the 1984 RTO Belgrade target, and the ratios for all RTOs. except Novi Sad, have substantiallydeteriorated between 1983 and 1988.
5.04 Revenue from tariffs per traffic unit in constant terms remained static during the five years 1984-88. This compares to the 282 real increase required under the Sixth Railway Project. To meet part of the shortfall in revenue, average compensationpayments increasedby about 362 in constant terms per traffic unit during the 1984-88 period. The compensationpayments, however, were unevenly distributedwith RE Ljubljana receivingabout 70% real increase in 1988 compared to 1984 while Novi Sad received 202 less in real terms. The overall result was a deficit of about Din 57.0 billion in 1988 or 4% of operating expenses. The deficit is in December 31, 1987 price levels.
5.05 Total operatingexpenses per trafficunit in constant terms increased by about 201 during 1984-87. Expenditureincreased in real terms under each cost category with the exception of "Fuel and Power" which decreasedby about 20% reflecting the world wide decrease in energy prices. "Salariesand Wages" represent about 281 of working expenses which is very low for a European railway. These labor charges together with depreciationcharges increased marginally in real terms. The major increaseswere for "Materialand Other Expens-e" which increased in real terms by about 20%. Charges associatedwith the implementationof the new accounting procedures,such as charging material from inventoriesat current cost, and writing-off of obsolete inventories - 36 -
representa substantialpart of thiscost increase,but real increasesin materialand contractmaintenance costs were also a factor. We are encouragingthe RTOs to reviewcritically their contracts with thirdparties to controlthese costs. Progresson thismatter will be reviewedduring supervision.The levelof interestin real termsremained constant except for RTO Novi Sad whereit increasedfivefold, and partlyreflected an increasein borrowing.
5.06 Since1984, rail trafficvolume has been fallingdue to the deteriorationof the economyand very severewinters in 1984 and 1985. This reducedtraffic pattern coupled with a real increasein operatingcosts and a less than projectedincrease in revenuesin real termshas resultedin a deteriorationof the RTOs' financialposition since 1983 insteadof the improvementsprojected under the SixthRailway Project. To addressthis problemagreement was reachedwith the RTOs at Negotiationsto reducestaff levels,increase productivity and equipmentutilization over time (para. 3.31). In addition,agreement was reachedduring Negotiations that tariffs will be adjustedquarterly to yieldadditional annual revenue from local trafficin line with inflationand will furtherbe increasedby 6% in real termsat the beginningof 1990 (para.2.26).
C. ForecastFinancial Performance
5.07 The forecastIncome Accounts, Cash Flow and BalanceSheets for the sevenyears 1989-95are in Annex 4. A summaryof the forecastIncome Accounts is shown in Table5.3. With a major economicreform program presently underway,it is difficultto predictthe levelof inflationwithin a reasonabledegree of accuracyduring the next few years. The forecastshave thereforebeen preparedin constantend December1987 Dinarsand convertedto US dollarsat the December31, 1987 exchangerate of Din 1,279to the US dollar. This is a satisfactorybases for projectionsunder current conditions in Yugoslavia(para. 5.13). A real positiveinterest rate of 5% per annum was assumedfor both localand foreignloans. Furtherdetails on the financial assumptionsare in Annex4. - 37 -
Tetle 5.3 Ssry Of ForCaSt IncomeAwuts *959-1995 (Din Billions) camausAi aTOmt ...... 1989 19 1991 1992 1993 1994 1995 Ftl2CAST FORECAUT FORECAUT FORCAT f"EWCAST FORECAST fORECAST ...... 1,468.0 Tariff Revenu 1,133.6 1,370.7 1,37.2 1,399.2 1,41.7 1,444.7 t6.0 53.0 17.0 Compensation 434.0 222.r 182.0 166.0 1,487.7 1,497.7 1,465.0 Operating Revenuo 1,567.6 1,593.4 1,559.2 1,5S67.2 36.2 53.0 46.7 Net Operating Roo 81.3 120.2 92.1 105.9 (9.2) 6.4 (2.1) fet Surplus (Detficeit) 36.9 76.1 46.5 60.1 Ratios
Cetpsentian aS a Proportion 4.0 1.0 of Cpeting Revenus X 28.0 14.0 12.0 11.0 4.0 Operating Ratio 96.0 97.0 (Including couponsation) X 95.0 92.0 94.0 93.0 98.0 opSatitgS Ratio 102.0 100.0 98.0 (Excluding coqensmtien) B 131.0 107.0 107.0 104.0
1969 1990 1991 1992 1993 199 1995 FORECASt FORECAST FORCAT FORECST FORECAST FORECAST FORECAST ...... 382.9 389.7 Tariff Rwvua 299.4 562.7 363.9 369.9 376.2 17.0 15.0 ca_nsattan 109.3 55.0 47.0 32.0 20.9 399.9 404.7 opating Re*w 08.7 417.7 410.9 401.9 396.2 1.1 5.7 Net oprating Renue 0.4 15.6 10.0 1.8 (2.1) (12.2) (7.7) Net Surpus (Oaf eit) (11.8) 3.4 (3.0) (11.7) (15.3)
Caoupstion as a Propertion 4.0 of Opeating Revn B 2.0 13.0 11.0 8.0 5.0 4.0 Operatin Ratio 100.0 9M.0 (including c mnsaticn) B 100.0 96.0 9.0 100.0 101.0 Opering3 Ratio 102.0 (Eetudi1n cawsation) B 136.0 111.0 110.0 108.0 106.0 104.0
ITO LJUJALA
1969 1990 1991 1992 199 1994 1995 FORECAST FORECAST FORECAST FORECAST FORECAST FORECAST FORECAST ...... 368.8 373.7 378.8 Tariff Rm 292.1 3,7.6 359.1 363.9 10.0 0.0 0.0 Compensation 124.7 65.0 71.0 92.0 378.8 373.7 378.8 Operating Ruem 416.6 422.6 430.1 455.9 19.2 14.4 19.4 let Opeating Revew S4.8 62.8 70.8 96.1 8.1 1.3 4.6 Net Surplus (Deficeit) 43.3 S1.4 59.3 85.2 Ratios
Copensation as a Proportion 2.6 0.0 0.0 of Operating Revom B 29.9 1S.4 16.5 20.2 Operating Ratio 96.0 95.0 (Including compensation) B 8T.0 85.0 84.0 79.0 95.0 Otp tudingRatio 96.0 95.0 (Excludingcompensain S 124.0 101.0 100.0 99.0 96.0 - 38 - RTONCVI SoD ...... 1989 1990 1991 1992 1993 1994 1995 FORECA8T FORECAST FORECAST FORECAST FORECAST FORECAST FORECAST ...... Tariff Rove"u 158.8 186.9 187.6 191.0 194.4 19?.9 201.4 Cmnmpestion 52.0 22.7 22.0 16.0 11.0 6.0 2.0 Operating Rsvesen 210.8 209.6 209.6 207.0 205.4 203.9 203.4 Not Operating Revenm 6.1 5.7 6.8 6.8 8.1 7.6 7.6 Not Surplus (Deficeit) 1.0 0.4 1.1 0.7 1.7 1.3 1.6 Ratios
Copensation as a Proportion of Operating RovemmsX 25.0 11.0 10.0 8.0 S.0 3.0 1.0 operating Ratio (Including compensation) X 97.0 97.0 97.0 97.0 96.0 96.0 96.0 Operating Ratio (Excludingcomnpation) X 129.0 109.0 108.0 105.0 102.0 99.0 97.0
RTOZAGREB ...... 1989 1990 1991 1992 1993 1994 199f FORECAST FORECAST FORECAST FORECAST FORECAST FORECAST FORECAST ,...... Tariff Revenue 383.2 463.5 4(A.5 474.4 482.5 490.2 498.2 Cosensation 148.0 80.0 42.0 28.0 25.0 30.0 0.0 Operating Reveume 531.2 543.5 508.5 502.4 507.5 520.2 498.2 Not Operating Revenue 20.0 36.1 4.4 1.3 11.1 29.8 13.9 Not Surplus (Deficeit) 4.4 UD.9 (10.8) (14.0) (3.8) 16.0 (0.6) Ratios
Campeosationas a Proportion of Operating RowwuesX 28.0 15.0 8.0 6.0 5.0 6.0 0.0 operatingRatio (Includingcospensation) X 96.0 93.0 99.0 100.0 98.0 94.0 97.0 Operating Ratio (Excludingcompensation) S 133.0 109.0 108.0 106.0 103.0 100.0 97.0 - 39 -
5.08 Due to inadequatetariff increases and delaysin makingthese adjustmentsduring the firsthalf of the year, the RTOs' poor financial performanceis projectedto continueduring 1989 with theaverage operating ratioexcluding compensation falling from 1442 in 1988 to 1311 in 1989. On April1, 1989, the averagedomestic tariff level was increasedby 762 which bringsthe tariffin line with the requirementsunder the SixthRailway Projectincluding estimated inflation to March 31, 1989. To improvethe financialperformance of the RTOs and to relievethe Communitiesof Interest (COIs)of the burdenof payingcompensation as soon as possible,the Governmentand the RTOs have indicatedtheir intention to use their best efforts to commence implementing the inflationary tariff adjustment outlined in paragraph2.26 on July 1, 1989. The financialprojections are based on implementingthe revisedtariff adjustment on this date.
5.09 With an adjustmentin tariffsin line with inflationplus a 62 real increase,a substantialimprovement in the operatingratios excluding compensation,is forecastfor 1990 with the averageoperating ratio falling from 1311 in 1989 to 1071 in 1990. The ratiosrange from a high of 1112 for RTO Belgradeto a low of 1011 for RE Ljubljana.The major part of this improvementis due to the indexationof tariffsduring the year in line with inflation.The operatingratios excluding compensation are projectedto graduallydecrease over the next threeyears to an averageratio of 104% in 1992. The projectedoperating ratios are listedin Annex4 bAd will be monitoredduring supervision to evaluateprogress in achievingfinancial objectives.The operatingratios are forecastto continuefalling after this, reachingan averageof about 981 in 1995with a rangeof 1021 for RTO Belgrade to 951 for RE Ljubljana.This improvementis due to an increasein productivitycombined with an increasein traffic. DuringNegotiations, agreementwas reachedthat the RTOs wouldmaintain for each fiscalyear after 1990 a ratioof totaloperating expenses to totaloperating revenue of not higherthan 981 for RE Ljubljanaand 1101 for RTOs Belgrade,Novi Sad and Zagreb. In calculatingthis ratio,specific subsidies based on agreements with Republican/Provincial/CityGovernments to compensateRTOs for providing socialservices (such as passengerdiscounts to studentsand pensioners), subsidiesfor urban commuterservices and for operationof low densitylines on behalfof localcommunities shall be treatedas revenue. The Government and RTOs have indicatedthey intendto make best effortsto reducethe level of subsidiesafter 1990 throughall appropriatemeasures including increased productivityand servicelevels and increasedadjustments in tariffsas justifiedby competitiveconditions.
5.10 With a high level of net internalcash generation(para. 5.12), no majorchanges in the RTOs' debt equityratios are forecast. The highestlevel of 39:61is forecastin 1993 for RTO Novi Sad but this is expectedto drop graduallyto 36:64by 1995. On the otherhand, the debt equityratio for RTO Belgradeis projectedto increasefrom 21:79in 1989 rise to 25:75in 1995. The maximumlevels reached by RE Ljubljanaand RTE Zagrebare 30:70and 26:74 respectively. All these debt equity ratios are satisfactoryfor railway companies.The RTOs' debt servicecoverage levels are shown in Annex 4. Exceptfor RTO Belgrade,which has a projecteddebt servicecoverage of 1.6 in 1994,all the other RTOs' debt servicecoverage are in excessof 2.0 which is very satisfactory.To ensurethat the RTOs do not incurdebt to an extent where it might materiallyaffect their ability to carry out theirobligations - 40 -
underthe project,a maximumdebt serviceratio of 1.4 for borrowingother than for projectinvestment was agreedduring Negotiations. In calculating this ratio the real interestrate shouldbe used insteadof the usual nominal interestrate. With the projectedhigh debt servicecoverage and low debt equityratios, RTOs Ljubljana,Novi Sad and Zagrebwould be able to borrow additionalfunds to expandtheir investment program should traffic increase by more than the conservativelevels assumed in this report.
5.11 While the projectedfinancial performance of RTO Belgradeis satisfactory,it fallsbelow the level of the other threeRTOs in all areas. A comparisonof RTO Belgradewith RE Ljubljanashows differences in traffic pattern,operating expenses and revenue. Passengertraffic units represent about 35% of RTO Belgrade'straffic as comparedto 281 for RE Ljubljana. Passengerrevenue, however, represents 13X of totalrevenue of RTO Belgrade comparedto 121 for RE Ljubljana.Working expenses in real termsper traffic unit for RTO Belgradeare only about 70% of RE Ljubljana'sexpenses. While these figuresdo not pinpointthe basic reasonfor the differencesin profitability,it is felt thatRTO's Belgradelower profitability is associatedwith its higherproportion of passengertraffic particularly suburbantraffic.
D. FinancingPlans 1989-91
5.12. A summaryof the FinancingPlans for the four RTOs is shown in Table 5.4. The projectedOperating Income before Depreciation of the four RTOs for the three years 1989-91is Din 1,123.1billion (US$878 million). About 331 of these fundsis requiredto meet debt servicepayments. The Net InternalCash Generationof Din 686.3billion represents 52% of the totalfinancing requirementsand rangesfrom 46% in the case of RTO Belgradeto 571 for RTE Zagreb. This level of net internalcash generationis satisfactory.Grants from Republican/Provincial/CityGovernments provide Din 280.1billion or 211 of requirements.Part of these grantsare paid to the RTOs as a contribution towardsthe cost of works requestedby the donor. An exampleof this is the BelgradeJunction which will make availableto the City urban land for housing. The balanceof the grantsis providedas a contributiontowards the RTOs' infrastructurecosts. The proposedIBRD Loan of US$138million together with US$7 millionfrom the existingBank Loan (SixthRailway Project, Loan 2336-YU)will provide141 (Din 185.9billion) of the fundsor about 361 of the estimatedforeign exchange costs of the projectof US$401million. Other foreigncurrency loans from the EuropeanInvestment Bank (EIB,US$80 million), Eurofima(the Europeanrolling stock financing cooperative, US$44 million ), the SovietUnion and supplierscredits will provideUS$136 million (Din 173.2 billion),equivalent to 131 of requirementsor 34% of the foreignexehange costs. The Govertnmentand CYR, with Bank assistance,have completed negotiationswith EIB and Eurofimafor theirrespective loans. The balanceof foreignexchange costs of US$120million (301) must be met from localfunds. This amountis in line with the estimatedindirect foreign exchange cost of about US$128million. The summaryof the FinancingPlans totalling Din 1,331.1billion will cover the projectcosts of Din 1,071.3billion (801), an increasein workingcapital of Din 159.7billion (121) and other investments not includedin the projectof bin 100 billion(81) to be undertakenby RTE Zagreb. This coversfuture investments mainly in track renewalsand traction and rollingstock which have not been fully identifiedat present. Financing plansfor each RTO have been drawn up with the COI and Republicanor - 41 -
ProvincialGovernment and approvedby appropriateauthorities (RTOs and Workers'Councils). Republican/Provincial Governments' funds have been securedthrough 1990. Failureto mobilizethe additionalrequired Republican/Provincialand City fundsand EIB and Eurofimaloans (whichare not immediatelyrequired) by an agreedschedule would give rise to Bank remedies.
Table 5.4: Summaryof ProlectFinancing Plans 1989-91
Din Billion US$ Million 2
OperatingIncome before Depreciation 1,123.1 878.1 85 Less Debt Service 436.8 341.5 33 InternalCash Generation 686.3 536.6 52 Grants 280.1 219.0 21 ProposedIBRD Loan 177.0 138.0 13 IBRD RailwayVI Loan 8.9 7.0 1 OtherForeign Loans 173.2 135.7 13 LocalLoans 5.6 4.4 - 1,331.1 1,040.7 100
ProjectInvestment 1,071.3 837.6 80 OtherInvestment 100.0 78.2 8 Increasein Net WorkingCapital 159.7 124.9 12
1,331.0 1,040.7 100 Z93R=== 5
5.13 The FinancingPlans are based on 1987 constantDinars which formsa satisfactorybasis for planningto ensurethat the RTOs can secureadequate funds to meet futureinvestment i:- uirementsunder the presenthigh inflationaryconditions. Provision has been made to ensurethat current revenueswill increasein line (para.2.26). Cash operatingexpenses should increasein line with inflationand as Yugoslavlaw requiresthat fixed assetsbe revaluedannually, depreciation should also increasein line with inflation.Interest and repaymentson loansdenominated in foreigncurrency are assumedto vary automaticallywit:h inflation. As domesticloans will be indexed,the principalwill increaseautomatically with inflation.The indexationof localloans eliminates the cash flow problemassociated with very high nominalinterest rates in conjunctionwith very high levelsof inflationwhich in the past have transformedlong-term loan into short-term loans.
E. ProiectRisks
5.14 WhileGovernment and railwaysmanagement are committedto reforming Yugoslavrailways, implementation may provedifficult. In particular,there are threeproject risks which are significant.First, the Government/Communitiesof Interest might delay railwaytariff increases or fail to providecounterpart funds or compensationin a periodof rapid - 42 - inflation, which would result in operating losses and a shortage of local funds for investments. Second, traffic demand might stagnate or decrease rather than slowly increase as forecast if the Yugoslav economy deteriorates due to lack of appropriate adjustment policies. Third, operating costs may remain high if railways do not implement their action plans satisfactorily, in particular if they do not reduce their staff by about 22 p.a. In spite of significant risks, we feel it is reasonable to propose these loans because of the Government'scommitment to economic reform as demonstratedby the recent constitutionaland ordinary law changes, and Yugoslav railways' preparation of and commitment to a "Business Plan" which is a de facto reform program for railways.
VI. RECOMMENDATIONS
6.01 During Negotiations,agreement was reached on the following principal matters:
(a) the RTOs will reduce their staff by 2% p.a. (1.52 p.a. in the case of Ljubljana) from 1989 through 1993 based on the number of actual staff as of December 31, 1988 (para. 2.10); (b) the RTOs will close 168 freight services and stations (para. 2.21); (c) the RTOs will introduce a computer-basedmonitoring system for spare parts management (para. 2.22); (d) passenger unit price level relative to freight unit price level will not decrease (para. 2.24); (e) CYR and the RTOs will (i) increase tariffs each year from October, 1989 by the increase in Producer Price Index; (ii) implement this inflation increase by adjusting tariffs four times per year on the first day of each quarter, and (iii) further increase tariffs by 67 in real terms in 1990 (para. 2.26); (f) CYR will have its accounts audited annually by independent auditors to the extent necessary to satisfy the auditors of the accuracy of amounts commonly generated and allocated by CYR to RTOs (para. 2.29); (g) the RTOs will implement their Investment Plans for the project and will prepare and furnish to the Bank annually from 1989 through 1991 updated Investment Plans and Financing Plans which shall be carried 3ut as agreed between the Bank and the RTOs. The RTOs will consult with the Bank, before introducingany increase of 52 or more of a given year's planned investments (paras. 3.05); (h) CYR will be responsible for processing disbursement requests on behalf of each RTO under the proposed project (para. 3.27); (i) the RTOs will implement the Project Action Plan and will take all action necessary to achieve their annual operational targets (para. 3.31); (j) the RTOs will revise their Operational Plans for Traction and Rolling Stock each year from 1989 through 1991 (para. 3.32); - 43 -
(k) the RTOs will achievean annualaverage operating ratio of not greaterthan 982 for Ljubljanaand 110% for Belgrade, Novi Sad and Zagrebfrom 1991 onwards. In calculatingthis ratio,specific subsidies based on agreementswith Republican/Provincial/CityGovernments to compensateRTOs for providingsocial services (such as passengerdiscounts to studentsand pensioners),subsidies for urban commuter servicesand for the operationof low densitylines on behalfof localcommunities shall be treatedas revenue (para.5.09); and (1) the RTOs will not incur debt exceptfor the Projectbeyond a debt serviceratio of 1.4 withoutconsulting the Bank (para.5.10).
6.02 Receiptof certifiedaudit reports,satisfactory to the Bank, from each of the four RTOs for 1988 would be a conditionof effectivenessof that RTO's loan agreement(para. 2.29).
6.03 Based on the above agreements,the projectis suitablefor four Bank loans aggregatingUS$138 million for a periodof 15 years including five years of grace. Mn EX I
YUOLAVIA STAFF APPRAXSAL,RtPRI
SEET RAILWAYPUECT
Proiect Action Plan
Obiectives Activiit Action to be Taken Resocsibil
1. Improve Investment Preparation of Plans to be reviewed. RTOs; 1989-91. Annually during Planning/Financial well-balanced period October-November. Performance investment plans.
Increase railway Implementation of Asseably of Yugoslav tariffs in line quarterly tariff railways. Federal with inflation and increases. Govenment. Effective by 6% in l990 over quarterly. Producer Price Index.
2. Improve Planning. Introduce a Implement the CYR. TOs November 30. Organization and computer-based system. 990. Management. central monitoring system for spare o- parts.
Reorganize major Implement agreement CYR. RTOs overhaul of of February 1988. locomotives. 3. Improve operational Achieve greater Reduce staff by 2Z RTOf 1989-93. and financial efficiency and p.a. (Targets: see efficiency. use of resources. table I to this annex)
Close freight stations RTOs, 1989-93 (targets:see table I to this annex). R7TOs Operational RTOs, 1989-91. Plans to be uWpdated Annually during period annually and reviewed October-November. with Bank on the basis of achieved actuals.
Achteve operational RTOs, 1989-93 targets (Table I to this Annex) Table 1 Page 1 of 2 XSLAVIA
STAFF APPRAISALRKPIRT SEVTH RAILWAYPROJECT Action Plan Taroets
RTO Belgrade RE Ljubljana m~~~ma ma ~~~~mama im im im im Oerational Tareets
Number of staff at year-end"/ 27058 26517 25986 25466 249S7 15917 1S678 15442 15210 14982
Productivityof labouw (traffic; 283 290 298 310 324 349 356 363 374 386 units (thousand) /employee)I Number of freight stations to be 14 24 34 44 52 6 14 20 26 35s closed (cumulative)
Availabilityof electric loco- 75 80 82 82 82 8S 86 86 86 86 motives (X)
Availabilityof diesel loco- 72 76 78 80 80 83 84 84 84 85 motives (M)
Availabilityof electricmotor 70 75 80 80 80 83 83 83 83 83 trains CS)
Availabilityof diesel motor 20 20 - - - 82 83 83 83 84 trains (t)
Availability of passenger 77 80 82 82 82 84 84 84 84 8S coaches (%)
Availability of freight wagons (X) 92 94 94 94 94 93 93 93 93 93
1J/ Staff in basic organi2ationsonly. V/ Sum of net ton-kIs and passenger-kcs. Table 1 Page 2 of 2 YUGOLAVIA STAFF APPRAISALREPORT SEVENTTRAILWAY PROJECT Action Plan Taroets
RTO Novi Sad RTE Zagreb
Operational Taraets
Number of staff at year-end'/ 12826 12569 12318 12072 11831 33230 32566 31915 31277 30652 Productivityof labour (traffic 287 295 302 315 329 331 339 348 361 375 units (thousand)2 //employee)"
Number of fre1ght stations to be 8 11 14 16 20 17 41 61 61 61 closed (cumulative)
Availabilityof electric loco- 81 82 82 83 83 87 88 89 90 90 motives (I)
Availabilityof diesel loco- 70 71 72 73 75 78 78 79 81 83 motives (%)
Availabilityof electricmotor 71 71 72 73 75 82 82 e3 83 83 trains (M)
Availabilityof diesel motor - - - 90 90 50 83 83 83 a3 trains (O
Availabilityof passenger 81 82 82 83 83 80 83 84 84 85 coaches (X)
Availabilityof freight wagons (X) 92 92 93 93 93 95 95 95 95 95
1/ Staff in basic organizationsonly. 21 Sum of net ton-kms and passenger-kIs. - 47 -
ANNEX2 Page 1 of 6 YUGOSLAVIA
STAFFAPPRAISAL REPORT
SEVENTHRAILWAY PROJECT
TransportationProiects Previously Financed by the Bank
PreviousProlects
1. The Bank has lent US$1,417.1million to the transportsector to date,including US$491.2 million for sevenrailway projects, US$818.4 millionfor thirteenhighway projects, US$424 million for the Bar Port Project,and US$65.1million for earthquakerehabilitation assistance for restoringdamaged roads, railways and a port is Montenegro.In addition, the Bank has loanedUS$108 million for two pipelineprojects.
Railways
2. The FirstRailway Loan was made in 1963 (Loan316-YU, US$35 million)to financethe conversionof the 195 km Sarajevo-Ploceline to standardgauge, with electrictraction and modernsignalling and teleconmunications.The projectwas substantiallycompleted and put into operationin 1970,with a delayof four years.
3. The SecondRailway Loan (Loan395-YU, US$70 million) was made in 1964 to help financethe modernizationof 1,509km of main lines traversing Yugoslaviafrom the Austrianand Italianborders to the Greek border. It includeselectrification, signalling, telecommunications, and the improvementof six key marshallingyards. This projectran intomajor difficultiesbecause after the 1965 politicaland economicreforms the railways'internal funds fell substantiallybelow expectations,and also becauseof deficienciesin projectplanning and preparationwhich resulted in an underestimateof quantitiesand of time neededfor completionof such an extensiveproject. With hindsight,this was too ambitiousa projectin relationto the railways'resources. The Bank loan was fully disbursedin 1972. The projectwas refinancedfrom the fourthrailway loan and was completedin 1981 at a totalcost of about US$410million, over twicethe originalcost estimate.
4. The ThirdRailway Loan made in 1968 (Loan531-YU, US$50 million) helpedto financeconstruction of 370 km of the Belgrade-Barline, with electrification,signalling and telecommunicationsfor the entire475-km line. This was a projectof great technicalcomplexity involving the constructionof over 300 tunnelsand severalmajor bridges. The civil workswere satisfactorilyconstructed by localcontractors. Completion was originallyscheduled for 1973,but geotechnicaland other construction difficultiesdelayed the openingof the line till 1976,and the projectwas completedin 1978. Technicalproblems and inflationaggravated by delays raisedthe cost of the projectinto US$422million. - 48 -
ANNEX2 Page 2 of 6
5. Because of problems on the second project, the Bank, in agreement with the Yugoslav authorities,undertook a comprehensivestudy of the railways with the assistanceof consultants. This prepared the ground for the Fourth Railway Project (Loan 1026-YU, US$93 million), agreed in 1974, under which the Bank's loan was allocated to the completionof the 1964 Modernization Program and to "Related Investments" needed to maximize its benefits, all to be completedby the end of 1976. However, in contrast with earlier projects which consistedonly of investmentsto which the Bank loan had been allocated, the fourth projectwas defined as the totality of the railways' investmentsin 1974-76, whose cost was estimatedat US$1,138 million. The Bank loan thus amounted to about 121 of the cost of the project. Agreement was reached on measures to help overcome the railways' financial problems,principally through tariff increases. An important feature of the project was the preparationof comprehensiveAction Plans which, given Yugoslavia'sdecentralized system, were designed to contribute to a cobmon understandingof objectivesand responsibilityby all concerned. Only about two-thirdsof project investmentswere executed under the project; however, they were reasonablybalanced to maximize system effects, and the remainderwere included in the 1976-80 Investment Plan. Execution of Bank-financed"Related Investments"was substantially better (about three quarters). Except for the section from Skopje to Gevgelia on the greek border, the electrificationof the main line traversing Yugoslaviawas completedunder the 1964 ModernizationProgram. Works were completed satisfactorilyand the loan was closed in 1981.
7. The Fifth Railway Loan (Loan 1534-YU,US$100 million) was made in 1978. The project consists of a three-year (1978-80)portion of the eight railways' investmentplans. Its principal objectivewas to further improve the efficiency and the competitiveposition of the railways though 1,285 km of track overhaul or reconstruction,93 km of route conversion from single to double track, electrificationof 314 km, equipping of 53 km with modern signalling,installation of automaticblock on 434 km, technicalassistance and staff training. Ninety percent of the project was completedon schedule,and the economic return was re-estimatedto be 181 against 152 estimatedat appraisal. Tariff covenantswere not fully complied with due to unexpected inflation,but this situation improved under the Sixth Railway Project. CYR was successfullystrengthened under the project.
8. The Kosovo Railways Project (Loan 1977-YU, US$34 million) was made in 1981. The Project includes reconstrucionof the Kosovo Junction, signallingand telecommunicationsimprovements, procurement of rolling stock, and training and technical assistance to improve management and freight operations. The project is expected to be completed two years behind schedule irtearly 1987, due primarily to managerial inefficiencies includingprocurement delays. The economic return is expected to be lower than estimated at appraisal,but still greater than 101, due to a shortfall in traffic. US$2.9 million in project funds were cancelleddue to appreciationof the US dollar. The project was closed in December 1986. - 49 -
ANNEX 2 Page 3 of 6
9. The Sixth RailwayProject (Loan 2336-YU,US$110 million) was made in 1983. The projectconsists of a four year time slice (1983-86)of four RTOs investmentplans, including the overhaulof 545 km of track, sOgnallingand telecommuinicationson about 320 km of line,electrification of the Bosanski-NoviKnin line, spare parts for locomotives,and technical assistanceand training. Projecteffectiveness was delayedby one year due to delaysin increasingtariffs, but the projectis now proceedingon scheduleand withinthe cost estimate. The RTOs have compliedwith the tariffcovenant since effectiveness, leading to a reductionon compensation paymentsby the Republics/Provinces.The projectis expectedto be completedin 1988.
HighwayProiects
10. The FirstHlighway Project (Loan 344-YU), US$35 million)in 1963 financedthe completionof the coastalsection of the AdriaticHighway (422 km) and partsof the Belgrade-Nisroad (174 km). The SecondHighway Project(Loan 485-YU, US$10 million),financed in 1967,was for the improvementof 367 km of roads connectingthe Zagreb-Belgradehighway via Sarajevoand Tuzla with the Adriatichighway. Both projectswere completed withinthe originalcost estimatesand agreedtime schedules. The Third HighwayProject (Loan 608-YU,US$30 million),financed in 1969,comprised about 120 km of roads in Croatia,Macedonia and Slovenia,and was completed in August1974 with a 20-monthdelay, primarily due to delaysin completing an accessroad. This projecthad an 82 cost overrunbecause of inflation and foreignexchange adjustments. The FourthHighway Project (Loan 678-YU, US$40 million)was financedin 1970 for the constructionof about 220 km of roads in BosniaHerzegovina, Kosovo, Montenegro, Serbia and Vojvodina. Becauseof expropriationprob.ems in the sectionof Bosnia-Herzegovina,the projectwas completedin December1975 with an 18-monthdelay. There was a 122 cost overrundue to inflationand foreignexchange adjustments. The Fifth HighwayProject (Loan 751-YU, US$35 million)became effective 8 monthslate in 1973 due to Governmentadministrative delays. The project comprised153 km of roads in Kosovo,Macedonia and Slovenia,procurement of US$1.7million worth of engineeringequipment, consultant's services and a staff trainingcomponent to improvehighway planning and project preparation.The engineeringequipment has been deliveredand the consultant'sservices were completedsatisfactorily. The staff training componentwas delayedbecause of difficultiesencountered in securing trainingof candidatesin the head officeof foreignconsultants and in foreigninstitutes and becauseof languageproblems (insufficient candidatesproficient in English). Consequently,a restrictedprogram was adopted. Becauseof the delay in training,the projectwas completedby the end of 1977, involvinga delay of about 15 months. This projecthad an 8% cost overrunbecause of the combinedeffect of inflationand foreign adjustments.
11. The loan for the Sixth HighwayProject (Loan 990-YU, US$30 million)was made in 1974. The projectfinanced six road sectionsin Bosnia-Herzegovinatotalling 150 km, the trainingof transportation - 50 -
ANNEX 2 Page 4 of 6 economistsand road engineers,and US$1.1million worth of engineeringand laboratoryequipment. The loan for the SeventhHighway Project (Loan1143-YU, US$40 million) was made in 1975. The projectcomprised about 90 km of road constructionin Slovenia,Serbia and Montenegro,and US$0.1million worth of technicalassistance to improvepreparation of highwayfeasibility studies and to providea relatedtraining program. The projectwas completedby the end of 1979. The EighthHighway Project (Loan1377-YU, US$56 million)was made in 1977. The projectcomprised about 130 km of roads in Serbia,Bosnia-Rerzegovina, Macedonia and Kosovo, studiesby consultantsof road user chargesand rail costs and technical assistancefor the preparationof a highwaymaster plan for Kosovo. The road works were completedand the loan closedin 1981. Both the Seventh and EighthHighway Projects focused on improvingsection of the Trans-YugoslavHighway (TYH), which was to becomethe primaryobjective of later projects,while at the same time promotingregional development by improvingselected regional roads in lesser-developedareas. The Ninth HighwayProject (Loan 1535-YU,US$80 million)was made in 1978. The projectcomprised construction of four highlycongested sections of TYR in Slovenia,Croatia and Serbia,totalling about 86 km, and the procurementof equipmentfor maintenanceand for monitoringloadings of vehiclesusing the primaryhighway network, including TYR. All road works were completedby January1982 and the finaldelivery of highwaymaintenance equipment and weighingscales was made in December1982.
12. The loan for the TenthHighway Project (Loan 1678-YU, US$148million) was made in April 1979 and becameeffective in August1979. It comprisedthe firstphase (a three-yeartranche from mid-1979to mid-1982)of the 1979-85highway sector programs of five participatingRepublics and Provinces.Although progress was variable among the borrowers,most constructioncontracts suffered delays of one to two years due to a shortageof localfunds. Constructionwas essentially completedby mid-1984,but tae loan closingdate was postponedto June 30, 1985, to allow for completionof the trainingcomponent and procurementof equipment. The projectalso includedan updatingof the Road User ChargesStudy, financed under the EighthHighway Proje.t. The loan for the EleventhHighway project (Loan 1819-YU, US$125 million) was made in April 1980 and becameeffective ln August1980. It comprises constructionof six sectionsof the Trans-YugoslavHighway (TYH) with controlledaccess facility in four Republicsand Provinces,totalling about 164 km, and the procurementof highwaymaintenance and road monitoring equipment,technical assistance, a highwaysafety program and the preparationof a Toll Study. Althoughexecution was delayedby up to two years becauseof the shortageof local funds,most constructionitems were completedby the revisedloan closingdate of June 30, 1985. The tenth and EleventhHighway Projects were both implementedduring a periodof economic difficultyand budgetaryreductions. Because of the severeshortage of localfunds, both the Tenth and EleventhHighway Projects were included under the Bank'sSpecial Action Program in mid-1983. The investmentplans - 51 -
ANNEX 2 Page 5 of 6
were revised,and the projectswere then implementedas planned,albeit with a two year delay. Re-estimatedeconomic returns for both projects were satisfactory.Several institutional improvements were incorporatedin the projectincluding the creationof FARP, the carryingout of a road user chargesstudy, and training.
13. The HiehwaySector Project (Loan 2715-YU, US$121.5 million) was made in 1986. The projectfinances a time sliceof the road investment/maintenanceprogram of four Republicswith the emphasison removalof bottlenecks,rehabilitation, and completionof the basic network. The projectemphasizes investment planning, a systematicapproach to road maintenanceoperations, sound financialplanning under conditions of budgetaryconstraint, and strengtheningof the new coordinatingbody for roads (FARP). Projectpreparation was delayeddue to slownessin reaching agreement on the Republics to be included in the project and the composition of investmentplans, and delaysin adjustingroad user charges. Followingnegotiations, project signature was delayedabout six monthsdue to Governmentdelays in providingbank guaranteesto the borrowers. Followingsubstantial inereases in road user chargesin 1986, the projectwas signedin February1987.
14. The SecondHishway Sector Proiect (Loan 2878-YU, US$68 million) was approvedby the Boardon October13, 1987,but is not yet signeddue to the delaysof one Republicin guaranteeingthe loan. The projectfinances a time slice of the investment/maintenanceprogramme of the four Republics/Provincesnot coveredunder the FirstHighway Sector Project, so that nationwidecoverage is providedbetween the two projects. The project also emphasizesinvestment planning, a systematicapproach to road maintenanceoperations, sound financialplanning under conditionsof budgetaryconstraint, and strengtheningthe role of FARP.
Port of Bar Proiect
15. The loan (Loan1060-YU, US$44 million)was made in 1974 to finance port developmentand relatedrailway facilities. All works have been completedand the loan was closedin 1981 and US$1.6million was cancelled from the Bank loan. The PCR indicatedthat despitethe delaysin the developmentof trafficfollowing the 1979 earthquake,the project representsa significantcontribution to the economicdevelopment of southernand easternYugoslavia. However, the port is somewhat over-designedfor presenttraffic levels and as a resultthe economic returr is marginal.
EarthquakeRehabilitation (Transport Facilities)
16. The MontenegroRehabilitation Project for EarthquakeDamage, Roads (Loan 1759-YU,US$21 million) was made in 1979. The projectwas satisfactorilycompleted on scheduleat the end of 1982. The Montenegro - 52 -
ANNEX2 Page 6 of 6
RehabilitationProject for EarthquakeDamage, Ports (Loan1768-YU, US$50 million)was made in 1979,and the final equipmentdeliveries were made in 1984. US$19.9million were cancelledfrom the loan due to appreciationof the US dollar. The NMbtenegroRehabilitation Project for Earthquake Damage,Railways (Loan 1769-YU, US$14 million)was also made in 1979. It comprisedrepair and restorationof railwayfacilities damaged by the earthquakeand the expansionof railwayyards at Bar and Titograd. Project completion was delayed due to the fact that much more time than anticipated has been necessaryfor designand geological works, while the need for work under traffichas also hamperedprogress. The projectwas completedby the end of 1984,and a remainingbalance of US$0.04million was cancelled. - 53 - ANNEX3 Page 1 of 2
YUGOSLAVIA
STAFFAPPRAISAL REPORT SEVENTHRAILWAY PROJECT
Tariffsand ComDensation
1. Prior to 1988 railwaytariffs were approvedby the Federal Governmmenton the recommendationof the FederalInstitute for Prices. Decisionswere made on the basis of macroeconomicand socialjudgments and not solelyon factualinformation about the costsof providingservices. The FederalCommittee for Transportand Communicationsand the Communityof YugoslavRailways (CYR) played an importantadvisory role in preparingthe SocialCompacts or agreementswhich set railwayprices. These administered pricesadjusted standard rail tariffsto servea numberof purposes, e.g. (i) by loweringrates to aid certainregions, industries or classesof travellers;(ii) converting actual kilometer distances into "commercial kilometers"for chargingpurposes in order to give more averagerevenue per ton-kmor passenger-kmto the smaller,less efficientRTOs and to reflect theirdifferent cost and trafficconditions; (iii) reducing rates on exportsthat have a high local labour,materials and technologycontent and to encouragetransit traffic (forms of exportsubsidy).
2. The RTOs were compensatedfor revenuesforegone as a resultof such pricingdecisions and providedwith fundsto meet part of their infrastructuremaintenance and renewalcosts by a self-determinedlevy on the incomesof thosewho were membersof the Communityof Interest(COI). The so-calledcompensation payments formed a contractedobligation and were forecastedfor threeto five yearsahead, subject to annualreview in the lightof cost and trafficexperience. The rate of levy adoptedvaried from Republicto Republic. In Slovenia,for example,it was 3.62 of incomel' on 'small'railway user enterprisesand 1.5S on 'big'railway user enterprises--thismay not necessarilyhas been a subsidybecause of differencesin the costs involvedin providingservice. In Croatia,by contrast,there was a multitudeof ratesranging from around0.62 to 5.8% on the industrialand othereconomic activites in the Republic,including the RTO itselfas well as other transportmodes since they may also use rail transportas part of theiractivities. In Serbiathe Communityof Interestwas abolishedin 1986 and compensationpayments are now made from the Republicanbudget.
1/ The incomestatements of the RTOs and other enterprisesin Yugoslavia are constructedin ways that differfrom those in non-Socialist societies. - 54 - ANNEX3 Page 2 of 2
3. The compensationpayments were an effortto devisea formulathat will serve threepurposes. First,to avoid protractedannual disputes betweenthe railways,users and Governmentauthorities about the levelof subsidy to be paid-as happensin some countries-byhaving a simple, agreed formula. Second,to facilitatefinancial planning by the railways and COI members by giving railway management some degree of certaintyabout future income and the members about future commitments. And, third, to inducesome senseof efficiencyand serviceto the publicin railway mangement. In returnfor the compensationsubsidy, the railwaysare expectedto meet agreedproductivity and servicelevel standards (e.g.on-time running of trainsor the numbersof wagonsavailable daily) and if theseare not achievedor trafficis below expected,compensation is reduced.
4. In 1988,a reviewof the railwaytariff adjustment method was undertakenand recomuendationswere made to adjusttariffs on the basisof 'commonelements". The three"common elements" used were (i) averageCYR expenditureincreases based on uniformstandards; (ii) relationshipof rail tariffswith world tariffs;and (iii).relationshipof rail tariffs with tariffsof otherYugoslav tiansport modes. The tarifflevel which resultedfrom this study'srecommendation would have involvedan increase in passengertariffs of about 2402 and freighttariffs of 1501. As such a high increasewas not economicallyviable, it was decidedto increaserail tariffto the levelof road tariffsover a periodof 18-months.To compensatethe RTOs for the differencebetween the revenuegenerated by this tariffand the revenuegenerated by the "commonelements" tariff it was decidedto pay compensation.This compensationto be financedas previouslyby the levy in the COI. To adjustrail tariffsto the level of road tariffinvolved a real increaseof 602 and 971 respectivelyin passengerand freighttariffs over a periodof eighteenmonths.
5. The revised"common elements" tariff adjustment method was approvedby the Governmentin August1988 and was used to calculatethe secondand third quarterstariff adjustments for 1988. However,the proposedtariff adju.ted for the January1989 quarterwas substantially reducedby the Government.A new studygroup was establishedand is developinga modifiedsystem based on "commoncriteria". The tariff adjustmentimplemented on April 1, 1989 of 761 was in line with the Bank's requirementunder the Sixth RailwayProject.
6. Under the previousloan, it was agreedthat tariffsshould be increasedin real termsby 6% per annumwith a view to eliminating compensation.Due to the high levelof inflationand the delaysin adjustingtariffs, the initialprogress in reducingthe percentages compensationwas lost and compensationincreased again in 1987. Detailsof the actualand projectedcompensation are shown in Table1. - 55 -
9TMW09991L NMIT 80rn NAIUMYPROJCT CoapmaatiooPayumtot aga Percntaleof TotalRevne
(DimirBillion - 193 andProjectons in 199 Siare) RTO 1713 199 199 1985 199 199 199 1969 1990 1991 1992
98.9139 Coamustion 4.1 7.0 15.5 29.2 54.1 92.0 109.3 55.0 47.0 32.0 TotUIRevenu 20.4 32.5 60.2 112.3 222.2 349.9 401.7 417.7 410.9 401.9 2 301 2,'c 241 241 24 231 27 13 I12 a2 LJUBJM Cnapmeutioo 5.3 7.9 14.4 44.9 115.1 153.5 124.7 45.0 71.0 92.0 TotalReven 19.0 30.5 59.5 125.6 270.0 413.5 414.9 422.4 430.1 455.9 2 29 242 29 37 431 371 302 152 172 201 m0l9so Coapeneation 3.0 3.9 4.5 14.7 22.9 35.1 52.0 22.7 22.0 14.0 Totalkevnu 10.1 17.1 32.9 63.9 114.9 190. 210.9 209.4 209.6 207. I 30 222 20 241 M0 192 251 11% 102 a2 2*A31 C8meto .4 11.1 19.9 34.4 53.7 152.7 149.0 90.0 42.0 29,0 total Revenue30.3 49. 94.8 149.9 241.2 493. 531.2 343.5 509.5 502.4 2 29 231 22 252 212 312 282 152 92 42 Totalof Compnaution 23.0 29.7 57.5 129.3 245.9 423.3 434.0 22.7 182.0 149.0 TotalReveue 79.0 129.2 237.3 450.7 870.3 1437.1 1547.5 1593.4 1559. 15647. I 29 23 242 29 29 29 292 142 122 112
Total M~Coapsution 25.4 32.9 42.2 121.3 256.5 - - Revenue 99~~~~~.8164.5 302.1 409.5 1072.8 2 ~~~~~~~~~252M0 212 212 242 - 56-
ANNEX 4 Page 1 of 3
YUGOSLAVIA STAFFAPPRAISAL REPORT
SEVENTHRAILWAY PROJECT
Detailsof FinancialEvaluation
Main Ass_ptions
General
1. Inflationin Yugoslaviahas been acceleratingduring the past five yearsreaching a levelof 274S in 1988. With a reformprogram presently under preparationit is difficultto predictthe levelof inflationto a reasonable degreeof accuracyduring the next few years. To overcomethis problemit was decidedto use the Dinarprice level of December31, 1987 as a constantin the preparationof financialforecasts. Dinars are convertedto US dollarsbased on the exchangS"rateof Din 1,279- US$1.00ruling at closeof businesson December31, 1987. The IncomeStatement for 1988was convertedto December 31, 1987 pricelevels quarter by quarterusing a separateinflation level for each quarter.
TrafficForecasts
2. The freightand passengerforecasts discussed in ChapterIV and shown in detailin Table 13 were used. Tariffs
3. The tariffsused in the forecastswere in accordancewith the tariff requirementoutlined in paragraph2.26. A reductionof 182 was made in the 1989 revenueto allow for delaysin implementingthe tariffincrease that year. The full inflationarytariff adjustment will be in forcefrom 1990 onwards.
Compensation
4. Compensationfrom Republican/ProvincialGovernments for loss of revenuedue to subsidizedservices was originallyprojected by the RTO. The amountsestimated for 1989 were increasedto coverthe 18% fall in revenuedue to delaysin implementingtariff increases that year. The original compensationestimate for lateryears were adjustedas necessaryto maintain the RTO's cash at a reasonablelevel. - 57 -
ANNEX4 Page 2 of 3
OperatingJtEenses
5. Theseexpenses were forecastto be marginallyreduced each year to allow for the effectsof the RTOs' programsto increaseproductivity. Fuel and power costswere increasedin line with the projectedfuture growth in traffic.
Depr6ciation
6. The followingweighted average depreciation rates, reflecting the assetcomposition of the RTOs, were used:
Belgrade 3.81 Ljubljana 4.252 Novi Sad 4.02 Zagreb 4.41
In calculatingthe depreciationcharge, a deductionof 32 per annumcompounded was made from gross fixedassets to allow for obsoleteand retiredasset. The substantialincrease in depreciationcharges in 1989 for some RTOs resulted from the applicationof increasedgroup depreciation rates that year compared with 1988.
Interest
7. A real interestrate of 52 per annum was chargedon localand foreign loans. MonitoringTarsets OperatingRatios
8. Forecastoperating ratios excluding compensation payments are as follows:
ACUTAL FORECAST
RTO 1986 1987 1988 1989 1990 1991 1992 1993
OperatingRatios: Belgrade 124 142 148 136 111 110 108 106 Ljubljana 138 162 146 124 101 100 99 98 Novi Sad 127 127 132 129 109 108 105 102 Zagreb 124 147 145 133 110 108 106 103
9. These operatingratios L'forecast will be used as monitoring targetsto evaluateprogress.
1/ Operatingexpenditure x 100 m Operatingratio Operatingrevenue - 58 -
ANNEX 4 Page 3 of 3 Debt ServiceCoverage
10. The projecteddebt servicecoverage ratio are as follows:
RTO 1988 1989 1990 1991 1992 1993 Belgrade 0.3 1.9 2.7 2.5 2.1 1.8 Ljubljana 2.2 2.1 2.3 2.5 3.4 3.0 Novi Sad 0.5 2.9 2.5 2.6 2.7 3.9 2agreb 5.4 3.0 3.4 3.0 3.1 2.8
These ratiosassume that all loansare revaluedto allowfor inflationand a real interestrate of 5% per annum.
FinancialStatements
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ANNEX 5
YUGOSLAVIA
STAFFAPPRAISAL REPORT
SEVENTHRAILWAY PROJECT
TechnicalAssistance and Trainint
List of Subiects
1. Studyingin othercountries the practiceof railwaymarketing in the field leadingto the productionof an implementationstudy directed at establishinga marketingdepartment in CYR; 2. Studyto identify,evaluate and recommendmeasures to improve transittraffic on Yugoslavrailways; and
3. Seminarto improvethe skillsin economicand financialanalysis. 75-
ANNEX 6 Page 1 of 6
YUGOSLAVIA PROPOSEDSEVENTH RAILWAY PROJECT
Key Featuresof YutoslavRailways' Business Policy
Obiectives Strategy ProposedActions
1. Improveoperations New operations. Createa networkof and increasedegree passengerintercity of safety. trains. Provide "special green" freight routes with guaranteesfor contracted schedule.
Improveexisting Shortenstay of interna- operations. tionalpassenger trains on YR network.
Form directfreight trainsas many as possible.
Supervision of Improve control and imple- operationalsafety. ment all obligationsof the law on the Basicsof Safetyin RailwayTrans- portation. Removeshortcomings. Take specificactions to in transportorga- - improvediscipline and nisationsand work respownsibility; maintenanceof - improvethe level of facilities professionaltraining; - improve work conditions.
Determinespecific plans and actionsto resolvethe problemof trafficsafety on: - level crossings; - places exposed to land- slidescaused by weather and floods. -76 - ANNEX6 Page 2 of 6
Key Featuresof YugoslavRailways' Business Policy
Ob9-jtives Stratesy ProoosedActions
2. Improvemarketing. Gradually prepare Use more rationally conditions for passenger transport operations to be based facilities during daytime, on marketing. week and summer through: - tariffs; - ranking of trains; - prices; - specialallowances. Achievebetter utilization of internationalpassenger trainsthrough: - pricepolicy and special allowances; - fewerstops; - continuationof studying; of the train's efficiency.
Sign contractsfor "factory-trains"on runs up to 50 km with special price per workerand guaranteesfor departure and arrivaltimes.
Provideincentives to use the railwaysfor trans- portinggoods through: - tariffpolicy; - more adequateprices of directroutes; - contractingtranspor- tationtimes; - regularpayment of re- imbursements to foreign and domestic freight and other organizations. Decreaseor eliminate freighton lineswhere possible. 77 - ANMEX6 Page 3 of 6
Key Featuresof YugoslavRailways' Business Policy
Obiectives Strategy ProposedActions
3. Improvequality of Intensifyplanning of Increasecommercial transport services. operations. speeds of pasengtr and freighttrains.
Decreasenumber of stops, primarily of international trains followed by business, express and fast trains.
Increasestatic and dynamicload of wagons.
Decrease turnaround time of freightwagons.
Decrease damages and thefts.
Create better Establishcriteria for conditions of stations and passenger for operations. trainsfor: - servicesavailable; - appearance; - cleanliness. Establishcriteria for the use of restaurant, sleepingand couchette cars. 4. Improveuse of Priorityto be given Designingthe moderni- infrastructure to main trunkline zationto be coordinated and tractionand Jesenice(Sezana) - by CYR. rollingstock. Gevgelija(Dimitrovgrad). CYR to participatein the productionof a time schedulefor implementation of the modernizationand in the actualimplementation.
Increasecapacities. Provide22.5 ton axle load on internationalroutes and 18 t on all other routes. -78 - ANNEX6 Page 4 of 6
Kev Featuresof YugoslavRailways' Business Policy
Objectives Strategy ProposedActions
Continuewith the intro- ductionof modernSS and TT equipment.
Reducecapacities. Initiate: - closing of uneconomic lines; - terminatingpublic trans- portationon uneonomic lines;or - receive compensation.
Conductresearch: - to reduce the number of stations; - to reduce the number of officialplaces in stations.
Withdrawsteam locomotives as fast as possible.
Improvefacilities. Instalia unifiedinfor- '-mationsystem with priori- ties for the subsystems: - operationof freight waggonsand trains; - operationof passenger coachesand trains; - operationof locomotives; - sales services irnregular freighttraffic; - sales of seats and berths.
Continueequipping loco- motives,DMUs and EMUs,and the main lineswith: - auto stop equipment; - radio dispatcher equipment. - 79 - ANNEX 6 Page 5 of 6
Rey Featuresof YugosiavRailways' Business Policy
Obiectives Strategy ProposedActions
Optimizeuse of locomotives.
Form longertrains.
Prepareintensively freight wagonsfor international trafficfor speedsof 100 km/h and 22.5 ton axle load.
Set up long term program for: - improvingthe existing locomotives; - developingbetter and more modernlocomotives.
Rationalize,specialize and diversifymaintenance and servicingoperations.
Implementthe Agreementon Improvementof Maintenance of JZ tractionstock. 5. Improvefinancial Reducegrowth rate All BOALs to elaborate viability. of operatingcost. savingmeasures to slowdown growthrate of operating costs.
Seek funds from socio- Submitofficial proposal politicalcommunities regarding-ermanent for investmentsand resolvinginfrastructure uneconomicoperations. cost financing.
Preparespecific proposals for financingand providing of special resources for the: - modernization of the main trunk line; - 80 - 6 Page 6 of 6
Yey Featuresof YugoslavRailways' Business Policy
Objectives Strategy ProposedActions
- constructionof the JZ-MAV borderstation near Subotica. Systematicallystudy uneconomiclines: - to determinethe profita- bility; - to suggestamounts of compensation; - to investigatetermination of operations.
Producestudies to determine: - a systemand the amounts of reimbursementswhich the RTOs need to pay for using railwayinfra- structureand the amount of costswhich can be includedin pricesof services; - a systemand the amounts of compensationfor operatinguneconomic lines; - a systemand policyof tariffsbased on the above.
CYR to attemptthat Federal authoritiesfind solutions for makingup great exchange rate differencesand cefault interestpayment occurre: - on conventionliabilitiea towardsforeign railways; - unsettledliabilities of the Federalauthorities. - 81 - ENDILMA~~~~~~~tbl
STAFFAMASL tn 5rtH itAL MMST
Inland Friinht and Paaeng=r TrafFte- 191-57
A. Frveuht tttbn billiena l p ad Inland DuNc ^1 Publ1ca am Accunt a SubtatLl P1ilim Walarwarays ate Li 19
1963 17.3 2.0 2.8 4.8 - 2.6 0.0026 24.70 1964 18.3 2.4 3.4 5.8 - 3.1 0.0031 27.20 1965 18.0 3.0 4.0 7.0 - 3.3 0.0037 28.30 1966 17.8 3.6 4.8 8.4 - 3.8 0.0040 29.70 1967 16.4 4.0 S.7 9.7 - 3.9 0.0049 30.00 1968 16.4 4.8 6.7 ll.S - 4.3 0.0062 32.20 1969 17.7 5.6 8.0 13.6 - 3.4 0.0084 34.70 1970 19.3 6.7 9.8 16.2 - 4.4 0.0100 39.90 1971 19.7 8.7 11.1 19.8 0.02 4.2 0.0120 43.72 1972 19.2 9.7 12.2 21.9 0.10 4.6 0.0110 4S.80 1973 20.4 10.2 13.3 23.7 0.09 4.9 0.0120 49.09 1974 23.1 8.8 14.9 23.7 0.11 8.8 0.0140 52.41 1978 21.6 12.3 16.4 28.7 0.11 S.S 0.0330 88.91 1976 21.0 13.1 18.1 31.2 0.13 5.6 0.060 57.93 1977 22.2 14.7 19.9 34.6 0.14 5.8 0.0720 62.74 1978 23.4 16.9 21.9 38.8 0.16 8.9 0.0540 68.26 1979 26.0 17.7 24.2 41.9 0.16 8.7 0.0920 73.76 1980 28.0 19.0 28.2 44.2 2.20 8.0 0.0610 76.40 1981 26.0 19.7 24.9 44.6 2.30 4.2 0.0780 77.10 1982 26.2 19.3 23.7 43.0 2.30 4.2 0.0840 7S.70 1983 27.9 18.8 23.3 42.1 2.80 4.1 0.0850 76.60 1964 28.7 19.9 23.5 43.4 2.60 4.3 0.0940 79.00 198S 28.7 21.2 22.2 43.4 2 S0 3.9 0.0930 78.80 1986 27.6 22.3 22.8 48.1 3.07 4.6 0.1110 80.48 198? 26.1 22.4 23.0 45.4 3.26 4.2 0.1120 79.07 8. Paaaengerdin. b1lltnni Road Sun Inter tnland liar WaIl grimn UrbAn 12 Ca Li Suaal Watarwaza Uir I9 low 1963 10.1 3.7 3.1 4.5 11.3 0.020 0.27 21.69 1964 11.7 4.8 3.4 S.7 13.9 0.010 0.37 25.98 1965 12.1 5.7 3.7 7.6 17.0 0.010 0.48 29.59 196o 12.2 8.0 3.5 7.9 19.4 0.010 0.54 32.18 1967 10.8 9.6 3.4 11.1 24.1 0.00S 0.83 36.44 1968 10.3 10.1 3.7 13.7 27.S 0.009 0.62 38.43 1969 10.S 12.S 3.9 17.6 34.0 0.010 0.89 4S.40 1970 10.9 14.1 4.1 22.8 40.7 0.010 1.30 52.91 1971 10.6 15.8 4.5 22.7 42.7 0.008 2.00 60.31 1972 10.6 17.4 5.8 27.4 S4.8 0.010 2.50 67.61 1973 10.6 20.0 S.9 35.6 61.S 0.010 3.20 75.31 1974 10.4 22.0 6.1 41.7 69.8 0.010 3.40 83.61 197S 10.3 24.8 6.4 48.0 78.9 0.020 3.80 93.02 1976 9.9 26.0 6.8 64.1 86.9 0.008 3.80 100.61 19" l.S 28.0 7.2 60.1 98.3 0.020 3.90 109.72 1978 10.4 28.7 8.1 66.6 103.4 0.020 4.70 118.52 1979 10.1 29.2 8.5 70.6 108.3 0.030 S.20 123.63 1980 10.4 29.6 9.4 76.1 11S.1 0.0*0 s.10 130.62 1981 10.5 30.3 9.9 80.2 120.4 0.020 8.10 136.02 1982 11.3 28.9 11.2 84.8 124.6 0.030 4.90 140.83 1963 11.6 31.2 11.7 86.6 129.5 0.040 4.90 146.04 1964 11.7 33.S 12.1 89.8 135.4 0.030 S.80 182.63 1985 12.0 31.5 12.4 90.1 134.0 0.020 6.30 152.32 1986 12.4 31.4 11.3 93.7 136.4 0.001 7.01 188.81 1987 11.8 31.7 13.8 94.S 140.0 0.001 8.34 160.14 a 1979-85 figures estimoted from diesel fuel consumption statistics (Statistical Yearbook. Table 121 4) (Y a -0.6 # 0.05 x. where Y a total road transport (tkm billions) and x a diesel fuel consumption (thousands Oa tons); r2 ' 0.99). LI Estimated from bus-kilometer statistics assuming 2S passengers per bus (Statistical Yearbook. Table 121-37). Includes tra _ys and trolley buses. LI tstimated from vehicle registration statistics assuming 12.SOI0vehicle km/year and 2.S persons/hehicle (StatisticalYearbook. Table 121-32). This is consistentwith an estimatebased on 8 liters of gasoline consumptionper 100 vehicle kilometers. Li Includes intelnational transport.
Source: Statistical Yearbooks of Yugoslavia (Tables 12-8 and 121-9) and mi5sion estimates. Date: January 26. 1989. YUGOSLAVIA ,table 2 STAFF APRAISAL REPORT SEVNTh RAILWAY PROJECT Tramwaztr+IngUtments, 1961-87 (PawhntS in 1984 US nMillionequivalent) Total ------Transport------Public Transport tilway's Roadc Urban Pipe- Ports & tntegrated Sector as a S of as a S of Year kUmalavs Znfrastructur Vehc1les L1 Xja1 Iramsurt 3tiza &MxaN TransoLrt shinEInz TIQtal IZw . Total Tra..ert if9t1-a Plan 579 731 72 803 - - 74 312 18 1,787 12,441 14.4 3r.4 1961 29.6 1962 s09 638 91 729 77 - 91 221 90 1,717 13.868 12.3 2S.2 1963 427 671 105 776 79 - 54 302 59 1,697 18.279 9.s 129 1.129 86 - 49 350 125 2.519 20,609 12.2 30.1 1964 780 1.000 MA 4S 2M ISO 4tA _1f _ _2 _n 121 _5 1Z078 JASI 12A. 1965 11.9 31.0 Total 2.730 3,300 S56 3.856 272 - 288 1,306 345 8.77 74.006
I*lLb-RElao 33.6 1966 261 147 183 330 22 - 13 109 41 776 5,234 14.8 1967 236 174 225 399 14 - 10 S$ 34 751 4,789 1S.? 31.4 281 266 265 531 20 - 7 42 28 909 5,788 15.7 30.9 1968 30.0 1969 320 331 324 655 2S - 6 3S 25 1066 6,318 16.9 _2_ .92Sll ase _2 -A8,L 22 1.222 7.20 1Ai jIl 1970 29.0 Total 1.418 1.429 1,389 2.818 106 - 44 283 156 4.825 30.049 16.1
123-nZLl2n c 4S6 386 438 824 41 - 6 108 40 1.475 8.145 18.1 30.9 1971 27.9 r4 1972 41S 372 S04 876 31 - 19 117 28 1,486 8,079 18.4 1973 478 468 591 1.0S9 36 - 8 119 25 1.725 8,974 19.2 27.7 16.2 22.7 1974 423 539 642 1,181 57 - 13 1S1 39 1,848 11,S23 SIB 650 7.49 1.399 Al - II 122 _9 2J22 14_531 15. IL 197S 17.1 26.1 Total 2,290 2.41S 2.924 S.339 209 - 59 674 211 8,782 51,252
1976-80 Pia 12.S 20.0 1976 418 338 826 1.164 56 166 9 206 76 2.09S 16.713 440 912 1,3S2 60 281 14 150 114 2.588 20,241 12.8 20.0 1977 617 20.8 520 1,008 1,528 89 344 32 168 106 2.863 25,212 11.4 1978 596 11.6 20.2 1979 667 721 1,072 1,793 122 409 27 140 138 3.296 28.3V7 si1t11 1.40 1.651 12_ 22S _21 121 _1 211216 24,166 tt l. 1950 11.9 20.S Total 2.809 2.S30 4.958 7.488 451 1.525 103 785 519 13.678 114.709
1981-8s Pia 1,209 1.S97 111 185 16 121 S3 2.491 18,796 13.3 16.4 1981 408 388 13.4 299 302 1.192 1.494 68 148 14 127 88 2,238 14,991 14.9 1982 21.7 11.3 1983 232 19S 1.207 1.402 S3 201 6 97 57 2.049 9,428 8,074 23.0 12.9 1984 239 173 1,253 1.426 40 18 S 77 52 1.857 212 II 1.249 1.162 81 Ii I 52 la 22027 L.Ol 2L1 1Ll 1985 10.731 59.388 18.1 13.6 Total 1,462 1.441 6,110 7.5S1 335 S6B 4S 464 306
1986-90 Plan 18.6 1S.9 1986 340 290 1,289 1.579 63 24 9 S0 78 2.143 11.540 n.a. n.a. 1987 (est.) 250 700 1,324 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
km. 2S persons/bus: LI Estimated depreciation based on traffic statistics (Table 1) assuming (a) USS0.052/truck km. 5 tonsttruck: (b) US$0.085/bus and (c) US$0.018/car km. 2.5 persons/car. itlve5tients which amounted Includes public seator investments plus estimated total expenditures on road vehicles. Excludes other private sector MgU: to contain some anomolies. to about 8U of Public sector investments in 1984. Government statistics should be interpreted with caution as they aWpear Sourc : Statistical Yearbooks of Yugoslavia plus mission estimates of road vehicle purchases.
. * ,- . * . $ ~~~~~~~~~~~~~~~~~~~~~~.I VUGMAVWA Td" 3
ActLetad ufc..t Traffic In . ProJet _. 1_.6
m...... _. ._. ~n n .. n. .. n......
_---X-- -**-*------*-*------*------4_--- 196 1S 198118 191 199 I'O Wll U 191 U9 19 51ilB 19B 1990 19w1 199" " 19a" 199S (lb or on bttlas) Pa .) A. FrsaIt Traffic
5.2 26 -4.2 US 2Z0 twol W5.1 S.71 S.541 S.21 5,1061 5,0K S,112 S.W 5,210 SjG5 S.452 S,561 407 40 4131 4,1 4.29 4. 4. 2.2 -22 05 1.3 LJhbil 3,.51 4.39 4,0* 3.95 4,017 4.0 0.5 2.2 2,94 3,8 2,08 2.7 2,56 27 21 2.58 2,743 2,8 42, 2, 2,9 0. -5. 1t1 SW 7,8 7.98.r 28a .0S 1S6 ZW* 7,1 8.,4 1.099 T6A8 7,211 T7. 75 7,43? . 7.97 25.98 2.3 47 0.5 1.7 PI.jgct Total 19.45 21,71 239 19,6% 18.86 *,o 1,91 1.28 19.90 19. 3. 2D3=
L. P u Traffic ...... O .6 2,711 263 2.I ,664 2.9 2,74 2,619 2,99 3,0" 2.8 US biwacbA.214 2.98 2,1% 3.0 -2A4 U 2L0 LJIa 1,46 1IA8 IAN8 1.95 1.92 1,560 1,58 1S7S IA0 1,6I9 1,92 1,705 1.79 1,064 Im 1.15 1,102 1,129 1.151 1,1r 12' 2. -1.9 Us 2.5 Iw SW *5 1.098 1,11 1,0i6 1.95 -1.9 S 2L0 3.619 406 4.0 3,900 3.S7 3.86 3,6S 3.85 3,913 4.052 4.13 4.216 4,0 2.3 2.A -1.3 U 2L2 pmrojet total 8.28 9.417 9.8 9.272 9, 9.131 9J1 9,2zs 940 9A1 9,86 10.85 10300
C. TotalTrffc Its
8.W7 7.W2 7A,6w 7,n7 7.71 71 7.5 8.164 83 8.98 8,716 0o k To7.37 8.39 S999 6.98 LJUlia SAW SA.O S3. SAM21 5.569 S5W S.0 5.63 5,75 SAO S,910 4.146 4.060 3.8&0 3.S 3.72 3.740 3.M59 3.W15 3.99 4.05 4.115 4.39 1WASW 3.9= 1ys logro 11.1 12, 1%2,86 119B 8 11806l 1116 111 11=215 11.410 11,608 1810 12015 31,.9 PlroustTOW V709 31,.2 30.3W 5.85 230898 3159 311,3003.A41 5.919 2953 30,C1 3D0.5
man OW ad traffic f*t e anartiffcida US1 affe of 5S18bilta dlewdtOYI blifz pU rn - W SW: RL II EW
MrnftW p -t 8ft*ist for MM-
b10 UELIaMWa 1 191 1$ 1S 1im 13 519 1wNo
1. LaG& of Lim Itdt bia-h totdl is 10 155 UPS US 10 m US4 i S U 0mM. tradc Is 12 133 1 S1 1 312 32 3 m2 312 E(cbiffm In gm SW w sw SW 518 S4B SU SU S1 11. Tnaffic OD S 2MM 311Y5 31801 M0M1 2*:7 231 0 25114 7 ? PrnsmWrisallt is 2a35N M 21% 211 14a2155 Wg ti 15S 12 Awrqs iaw In 94.2 &S 8.9 WA S.6 3LS ST.2 3A S9.1 0.0 F-& rat-ti Moo M 54 MM0 2513 230 2 l 2WRa3 2MU2mY frIlt wt-tm-to ilt ni g#5 5761 541 Stl6 S51 4299 42 4001 31 4017 Ak,q JL I. 22W0 3.1 2A3.9 2n.8 A.1 1L 1760 1n. 15 15.o Trafic wdts, tod Uoi 8aw1 am9 7W w 79 SW 5959 on s569 Papr Voss torli mil uti 3619 36 3U Wi 421 Us 23 2119 210 21W3 WIo Wms to dl ti 111 Y I; W0s W SC 1 1W 2 M151 02 Totat gol t6is olt 1t 1w we 1W 1211 15 115 U 1010 am a Trffic Dflshy Pan-l per r-k 000 1D lm 15 1s 1 In 129 1W I= 129 124 Frlt n*-twtMi perraa34G 000 3112 301 M 215 30 351 34% 336 SW 3WI
TIiwim, P am Omaa Is 12 1W 1315g 1M3 t0 I6 o1r 119 W I2 Trabr*, fret COOIs 1 t0Ul2 1M1 92 gm 129 115 Ws gm 9012 Tuak0wttta 000Is 21017 6tO80 3150 2 2 231 284
V Traffic lWltpsa p +.t-t Is Tubl 40)
STW NWUAL WI .. _. ^_...... _
Slctmi qxratwr Statlatics for 1911-8S
am S RE
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q4iatb 8ffbleW ad Staff Praitmty fr _SMU
U LJIMjaw la 110blush m W " m m W r U 1- r kw4e Eff W ia .'h w SOB SiB 3) 57 5f62 61 3Y gm se gm 4reIkVdt 310 310 is 31 31? 33 35 360 33 315 4as 47r 4VA 511 4 2n 2ts 7 a a 0P1umw - 162 -Ftreait hrt 36 236 3 219 212 199 Xs 190 62 Electric irte traim 45 no 41 4w9 is 41 5 42 5s 4W ielt traibot Wt 471 550 so d am 3s s ze 8 310 bfit bAm bIt 3 3A8 35 34 540 1S is 13 t112 114 PamSwEheper p-,nupy tralnm (&ArNe 152 nmb of piAas per tran 2/ Wtrdln 1.4A a81.9 212A ts.r 161.1 17.0 13. MA a13S P-m N pr SW 001 iWsnt 45.2 45.7 49.4 4. 64 41A 423 42L 4" NA 2ag0 .g. -Wper cac t fleet DO bWoui 121 21614 31m 36 319 15 23s 5mso AhW lutth of bhAof Wp. trais ka 9.2 WlS 2.9 WA A 33 2S.2 50A SW.1 NA Growtat per fml&t trr winS too 937 1 0.7 .2 WA5.1 89.1 v"3 .2 7.1 in. bt twin p f eI traitm MA (mw lmp pro tran tam 1.A WS 5S43 5310 518.34 41s 2. 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Stsft ad of Vw 4/ a. 139 t3e5 t15 am1 3154 3173 3519 390 MM Staff a per VW 4/ .1 13fB am18 m3m% 13SW 30 BNO 30 335f 34S Staff pxerao- ms 9.0 8L8 9.0 9.0 &9 132 13. t3.7 13.?t #.0 Trfft it per 5te5/ USD 37 m3 s 2 V2? & la 31 36 32S ...... __ U mItrM taimeltha, du.tire ad rt 'atiu of ai 2/ tadIr atr tra d el 3/ Itdr asa,s 4/ Stystaff f 111 s pity n lhw trsm S/ q balmnaur of sff per . MW * dms :r UWt tes1w1s 110BAt)i K LJP*juU WA $id Wm bhatb 0 miy ty tld 1aaW a& UW."WV 1. WA tin t h 9.n 1W 1 10 2w41 5, 2 M 1 1W V^ 2 IVh da S1ftd W In 3.54 W so B M 3. 0 1w.91 2 5.15 30 3* o"f . 1 _w-tm dtt n",W1 2. 1,A 10Im 4 790?,2 1,.72 ",= P 51,11 6I M^ 4Z)W 4. Frn p b Oftib '0 1.30 1.3 1? 75 161 1M ?5 1^ Z.i 2,i a 1.39 tie S. at fan k , lUm ,719 S.?% 4,3 3,e 1 .5 1.5 7 5 21,1W W,97 1=0,M W 3.OP MAN43 6 M t-pIof td . '0MD 3,05 3.06 34A 2. 3.4 2.115 30 2kW9 1,12 44 in W ,WON IN 83 S10W.2 61.8 123 46.153 47.7 lU 51.7 47.6 47 4Cu 9. 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V 13 13 130 m 13 99 99 g9 99 99 In 4 iau1tE~~~~~~~~lectric1 aliwttt *t -t I 1 do 75 a0 as a1 a at 0 a k.IlmlItv -~~~~~~~~~~~~~~~~~ ------P *.w- Mem.Vl III 12 131 130 1V0 13 IN 13 16 13 In Cmtfwm1 FtOS 3 a1 a kellowtity II46 f666 40 Ja 18 e1 62 60 197 15St3 33 811"1kAllIulta1omoas l t"t b hss % 10 a W, M 3a inaIalt.eu.I/ 16 5 14 16 6 2 45s 481 ~15 811 6912 I12 I91 691 OPt s.tia Cq2ecity So"t 516 01 8 *blCll.ttauLFIut re./ 6 6 6 6e 69 12K1 do 4 1 4 I OlasNow TrFlarm3 5 23 I 19 Sm AwlW~~~~II1ty sea 40 35 40 ZS20 198 l 81 12 141 134 1435 1S In d FV 41 3 M 3 11 I 59 56 1A 60 05 9' 69A 116 IIS 7 *AwItl11ty X 171 ZS 3A 13 Wom b*dty mst F 504 443 4V 4 181 15 7 Ft{ret Uwe a n am36 In qxratlet Ft et xm. V g m64 gm70 Me m5 9 71s7 Fre iz,t 15 i57 81 is is sI Ait1ty 2X 74 70 7 USt 8791 0536 In lStu1 losSm V 4 4219 S 9116 UPS 95196 1771 lm 19.7 1S. 19. M6 1M tIn4l tle1tyof r sma 35. 460 4. 44.5 43.2 3 83 9; hm11dUIty 2 X V. t 71 75 It 81 40.9 41.6 42. 43.1 43.7 42. 43.0 43. 43.5 45 hwqI~ ~ tyd taAn 3E.2 USA= 50.3 LfIsu :lty of fla 'O tam 3. C9.9 409.9 401.4 41.2 560 22. 1/ At year end Apr-89 ~~NN WUW ~ ~ ~ TA* Tredcti wd blti ic*5W - YewrykArsM fwar 11 UlEctfic 1am1wmhJ in quatlmllet non g. 1 36 36 40 40 44 15 113 113 10 1in kadmliMty %76 is 80 so go as A1 a as a In Viwatufa stFleeme. U A1 5 94 94 21 21 291 306 306 htmlMlty -~~~~~~~~~~~~~~~~~~~~~~% m B 61 66 - 5s 69 77 72 72 74 is In #m*1.utlFtet aug.1V 5 5 7 10 10 31 32 as as htmllIty %71 66 18 4 69 68 1 61 do 80 ematlsuewlty mou 147 141 2S 2NO 2300 iedt *V Trin" Inqwatla.tlFtent nm.1 0 0 0 0 0 36 3? 41 3? 39 kllmtlly 6 0 0 0 0 0 88 19 10 61 31 5matlrgvmlty soft 0 0 0 0 0 btit aim. in qurtiauIFIuat nus. V dB M6 6 66 66 51 51 9 46 4 hmlImuty % iLl1 61.6 61.2 61.8 do di 42 75 15 75 Sutirs G*Bc1tY so a" 811s m1u 118 6118 tn qmttamut tat wsV In *42 in2 15 817 a a a "a.llIlty 6 8 80 at 80 81 In 1 19 76 7a *ArqP batlig eClBtY euoaadi 5.A 57.9 18.6 47.1 41.1 592 42.1 a2. 614A 6.0 $soft au ty OmOeso" 7.A 9.2 9.5 9.5 t9 49 3 51 51A 5S1 In cuwatIau( nlt VmIf M1 6173 613 616 1I4 1415 1V01 14AW U *AsliMilty go se 91 1 18 14 18 94 Is a AMWqsMCq.cty ~ 3mA5.2 M.6 1.5 3.? W. 043 44.0 44A6 44.5 44.6 A NCo0 Ft**wfty 0 tam mi2 Z 219.2 2M8. .5 621. m.5 658 du 618.0 At1/ year end Apr-89 . _ _. ._ A;~~~~~~1 plump*1 au 430:e OmezD%U9 P r~~~~~~~~sox m go=Xo sm s P Pmo WLwt t woz WE f s f t m _nowm jm* ...... *o...... ^ ...... SID I IN'A 114t trw R =, ~~~~~~~~~~~~~~~~~~~~~~~~...... -. ~~~~~n ss sz wvo sn M.ls . .U ...... ts we W& Wts Wu 7s~~~~i WU AS WS smmNt =a O4 ...... 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(O POMIJ*notillUI WIvr-...... ...... ...... ~ ~ ~ ~ ...... 96- - 97 - Table10 PageI of 3 YUCGOSLAVIA STAFFAPPRAISAL REPORT SEVENTHRAILWAY PROJECT Itemson which the Loan will be Disbursed Loan Disburse- RTO Line Allocation ment (UStm.) 2 TRACKMATERIALS Belgrade Jajinci-MalaKrsna (57 km) 8.00 Subtotal 8.00 Physicalcontingencies 0.40 Pricecontingencies 0.80 Subtotal- 9.20 100 Ljubljana Doboj-Jesenice(79 km) 8.40 Ljubljana-P4vka(28 km) 4.30 SubtotaL 12.70 Physicalcontingencies 1.27 Pricecontingencies 1.34 Subtotal 15.31 100 Zagreb Tovarnik-Dobova(80 km) 11.94 Physicalcontingencies 1.19 Pricecontingencies 1.26 Subtotal 14.39 100 TrackMaterials - Subtotal 32.64 Physicalcontingencies 2.86 Price contingencies 3.41 TrackMaterials - TOTAL 38.91 SIGNALLINGAND TELECOMMUNICATIONS Zagreb Equipmentfor fixed installations ZagrebMain PassengerStation 8.30 Physicalcontingencies 0.83 Pricecontingencies 0.87 Subtotal 10.00 100 Table 10 -98 - Page 2 of 3 Loan Disburse- RTO Line Allocation ment (us$M.) RECONSTRUCTIONOF LINESAND STATIONS Belgrade Equipmentfor fixed installations BelgradeJunction, second stage 5.21 Physicalcontingencies 0.26 Price contingencies 0.53 Subtotal 6.00 iOO Ljubljana Equipmentfor fixedinstallations Dobova-Jesenice 10.30 Physicalcontingencies 1.03 Pricecontingencies 1.08 Subtotal 12.41 100 Zagreb ReconstructionMaterials - Subtotal 15.51 Physicalcontingencies 1.29 Price contingencies 1.62 ReconstructionMaterials - TOTAL 18.41 TRACKMAINTENANCE EQUIPMENT Liubljana Machinesand equipmentfor trackmaintenance 2.49 Physicalcontingencies 0.25 Pricecontingencies 0.26 Subtotal 3.00 100 Zagreb Machinesand equipmentfor trackmaintenance 6.63 Physicalcontingencies 0.66 Price contingencies 0.71 Subtotal 8.00 100 Machinesand equipment- Subtotal 9.12 Physicalcontingencies 0.91 Pricecontingencies 0.97 Machinesand equipment- TOTAL 11.00 Table 10 Page 3 of 3 Loan Dlsburse- RTO Line Allocation ment (US$M) SPAREPAMTS Belgrade Spare partsfor locomotives 9.40 Pricecontingencies 0.90 Subtotal 10.30 100 Ljubljana Spareparts for locomotives 0.92 Price contingencies 0.08 Subtotal 1.00 100 Novi Sad Spareparts for locomotives and SS + TT 1.82 Price contingencies 0.18 Subtotal 2.00 100 Spareparts - Subtotal 12.14 Pricecontingencies 1.16 Spare parts- Total 13.30 INFORMATIONSYSTEM Belgrade Equipmentand software 27.6C Physicalcontingencies 2.76 Price contingencies 2.92 Subtotal 33.28 100 Novi Sad Equipmentand software 10.37 Physicalcontingencies 1.04 Price contingencies 1.09 Subtotal 12.50 100 Equipmentand software- Subtotal 37.97 Physicalcontingencies 3.80 Pricecontingencies 4.01 Equipmentand software- Total 45.78 All four TECHNICALASSISTANCE AND RTOs STAFF TRAINING 0.56 100 TOTAL - excludingcontingencies 116.25 Physicalcontingencies 9.70 Pricecontingencies 12.05 G R A N D T 0 T A L 138.00 Source: RTOs - 100- Table II YUGOSLAVIA STAFFAPPRAISAL REPORT SEVENTHRAILWAY PROJECT Estimated Schedule of Disbursement (USS million) IBRDFiscal Year RTO RE RTO RTE and guarters Belgrade Liubliana Novi Sad Zagreb Quarterly i990 I September1989 0.0 0.0 0.0 0.0 II December1989 0.0 0.0 0.0 0.0 CUI March 1990 3.1 4.6 1.2 4.8 IV June 1990 6.7 6.9 3.4 8.6 91991 I September1990 6.6 7.8 3.4 8.6 II December1990 4.4 6.6 0.5 3.0 III March 1991 11.6 1.0 2.5 6.9 IV June 1991 12.5 2.0 2.0 0.5 1992 I September1991 7.7 1.5 1.1 0.1 II December1991 6.4 1.5 0.5 0.0 All RTOs All RTOs Disbursement Total- Total Profile Quartetly Cumulative 2 1990 I September1989 0.0 0.0 0.0 II December1989 0.0 0.0 0.0 III March 1990 13.7 13.7 9.9 IV June 1990 25.6 39.3 28.5 1991 I September1990 26.4 65.7 47.6 II December1990 14.5 80.2 58.1 III March 1991 22.0 102.2 74.1. IV June 1991 17.0 119.2 86.4 1992 I Sep.ember1991 10.4 129.6 93.9 II December1991 8.4 138.0 100.0 Source: Missionestimates, April 1989 uM Jed WV o SwpU 8JSNV /t W-I 2r0- ZP L1B WM WM 9B sm6 £os %B 15 O9 t ^ X - ~WC X f ....~...... *. wz. ro- ?&2 "J mMMw IUL gmBru WIa No &W q'eAi'6W ...... d ...... * ------... -. ----- ...... II...... ~~~~~~~~...... MMW~AWiM tWin ...... ~ ~ ~ ~ ~ ~ ~ ...... TIOT- -IM *tq P 8SW ;o Ajw J.B .ad ;es jo qv .weto MM n 14-.A&a4 8pn oq o w st 3P' IPJ4 V /t WE no- SWf Uf dn SDE ELf if % dj Jv ...... OrE 9Vwo0 sE W9 es am in RE OK W Of WE wt SV(i du at am Su in U n WaG a E Fos MN SW8 wo' gm #E af f *%%of X OK lS OK WE Sflqfl a ZiE WO E OKE on 0f i 6L a6t AE Elf In o1 Xe-d- .... . 1 s ...... u- w mu. as m u uw su *...-v****...... Wsm.m* 03"lI PA8PB4A ~WV"("gW Ul AZAt3XDW~Ad /t nLh ...... LIM AWnWNLW3 ...... -arWsn -S -ZOT -103 - TABLE14 YUGOSLAVIA STAFFAPPRAISAL REPORT SEVENTHRAILWAY PROJECT Estimated Economic Rates of Return for MaiorInvestments Estimated ProposedInvestment EconomicReturn RTO Belgrade Belgrade Junction - Phase 2 * 24 CapitalOverhaul Resnik-VelikaPlana (68 km) * 16 Jajinci-MalaKrsna (57 km) * 19 RE Liubliana Modernisation Jesenice-Ljubljana-Dobova and Sevnica-Trebenje-Ljubljana 14 Capital Overhaul Dobova-Jesenice(79 km) 17 Postojna-Logatec(28 km) 13 Reconstructionof Sezanaand DivacaStations 25 RTO Novi Sad CapitalOverhaul of Batajnica-Tovarnik (RH track,97 km) 19 RTE Zagreb CapitalOverhaul of Tovarnik-Dobova Line (169.6km) * 16 SS + TT - ZagrebStation * 13 WesternBypass Line (14.1kim) * 19 CapitalOverhaul Zagreb-Rijeka(73 km) 14 Sunja-BosanskiNovi and Perkovic-Split(44.3 km) 14 Tractionand RollingStock (4 RTOs) 23 All EvaluatedInvestments (weighted average) 21 All Bank financedInvestments (weighted average) 18 *Bank financedinvestment Source:Feasibility Studies plus missionestimates. - 104 - Table 15 Page 1 of 2 YUGOSLAVIA STAFF APPRAISAL REPORT SEVENTHRAILWAY PROJECT Related Documentsand Data Availableon Proiect File 1. FeasibilityStudy on Constructionof the Railway Line Tuzla-Zvornikand Loanica-Valjevoand Modernizationof the Lines Doboj-Tuzlaand Zvornik-Loznica(2). 2. World Bank Railway Loan VII FeasibilityStudy - General Guidelinesand elements common for all projects) (2). 3. Modernizationof Podlugovi-DroskovacLine 4. Supplementto the Study on Modernizationof the Lire Bosanski Novi-Knin I. Modernizationof Signalling-SafetyInstallations II. Procurementof MechanizationRequired for Maintenanceof Fixed Installations 5. Modernizationof SS and TT Installationsin the Junction Bosanski NOVI. 6. Constructionof the Railway Line Tusla (ZIVINICE)-SvornikFeasibility Study. 7. Modernizationof S and T Installationsin the Station Zagreb CS. 8. Extension of Capacitiesof the Main Line Jesenice-Ljubljana-Dobova(2). 9. FeasibilityStudy for the Western Railway Bypass Line Zagreb MarshallingYards Remetinec-Jankomir-Podsused. 10. FeasibilityStudy for the Constructionof the Second Track on the Belgrade-Nisrailway line Stalac-TrupaleSection (2). 11. Overhaul of R.T.E. Zagreb Railway Lines in the Period 1986-1990. 12. Study of Necessary Acquisitionof Goods Wagons for RTO Sarajevo During the Period 1984 Thru 1987. 13. FeasibilityStudy of Reconstructionand extensionof zhe Vinkovci Railroad Junction. 14. Introductionof Central Traffic Control on Tovarnik-DobovaLine. 15. Study of the Requirementsfor Engine Machines in the Period up to 1990. 16. Constructionof the Second Track Doboj-Sarajevo-BlazujStage II-Zenica (Jelina)-Podlugovi. 17. World Bank Railway Loan VII FeasibilityStudy - General. - 105 - Table 15 Page 2 of 2 18. Thi FeasibilityStudy of Capital Overhaul of Batajnica-TovarnikLine. The Right-Hand Track. 19. FeasibilityStudy for General Overhaul on the Mladenovac-VelikaPlana section of the Belgrade-Nisrailway line. 20. Overhaul of the RC LjubljanaLine 1986-1990 - feasibilitystudy - (2). 21. FeasibilityStudy for General Overhaul on the Jajinc.-MaliPozarevac section of the Belgrade-Nisrailway line (2). 22. STudy on Economic and Financial Feasibilityof Completio of the Second state of Dnstructionof the belgrade Railway Junction. 23. FeasibilityStudy for the Investmentsin Constructionof Second Track of Trabanovci-SkopjeLine/Section Miladinovci-Ilinden, 10 km. 24. Feasiblity Study for General Overhaul on the Resnik-Mladenovacsectibn of the Belgrade-Nisrailway line (2). 25. FeasibilityStudy for Constructionof the Western By-pass Podaused-Jankomir-RemetinecMarshalling Yard, RTE Zagreb. InvestmentPlans: 26. InvestmentPlan and Financing Plans 1986-90, RTO Novi Sad. 27. InvestmentPlan and Financing Plans 1986-90, RE Ljubljana. 28. InvestmentPlan and Financing Plans 1986-90, RTE Zagreb. 29. Action Plan 1986-90, RE Ljubljana. 30. Action Plan 1986-90, RTE Zagreb. OperationalPlans: 31. OperationalPlan for Diesel and Electro-EngineTrains, RE Ljubljana. 32. OperationalPlan for Freight Wagons, RE Ljubljana. 33. OperationalPlan for Diesel and Electric Locomotives,RE Ljubljana. 34. OperationalPlan for Passenger Coaches, RE Ljubljana. 35. OperationalPlan for Capital Overhaul, RE Ljubljana. 36. OperationalPlan for Traction and Rolling Stock, RTE Zagreb. 37. OperationalPlan for Traction and Rolling Stock, RTO Novi Sad. JustificationPapers: 38. JustificationPaper for Procurementof Track MaintenanceMachines, RTO Novi Sad. 39. JustificationPaper for Reconstructionof Visac Station, RTO Novi Sad. 40. JustificationPaper for Reconstructionof Pancevo Station, RTO Novi Sad. InformationPapers: 41. InformationPaper on Modernizationof Railway Lines of RE Ljubljana, SS and TT Equipmentand Traction and Rolling Stock. 42. InformationPaper of CTC Installationon Tovarnik-Dobovaline, RTE Zagreb. 43. Information Paper on Management Information Systems, RTE Zagreb. 44. Specificationsfor Batajnica-TovarnikLine, RTO Novi Sad. YUGOSLAVIA:Proposed Seventh Railway Project IELE£ZNSKOGOSPODARSTVO LJUBLJANA UAILWAT &CONOUY LJUU.IAAN 00"~~0 4c F -w#F 2U7h i 154 0~~~~~~~~~~~ lau.z$"ts P.|F*z N . ^$"l , l3 z L* *e . Assdc *Icts t i I's ACOng "IhS@S hwuaj 8.&oe. (iiha II. aliSANASA ORGAN4ZACIJAM555 v ZGL t) .-AItlA1I0N" JOINI SCOVXWLSlW6tN *LJfiU.*A -YUGOSLAVIA: Proposed Seventh Railway Prolect _GAI1t . .1#AOS 14 . ,#M I ,1 .6 -. . I WAS e"°ta t2 ine 3841 336 8- . |LOALOf Jet. O AL; WAS asftOiC3t(tVs E L -Lr UTZ . 10AC A -. A Is A .A __, .A soAL " I I-,)L I - , . .. I AI t?.. )l5I* gIAV nITTIUALfI 1*N .1 0#9i OUAi>[r Fs W -44l Ls>^mtr* W ^ rs _ o0 do^& r i,L , . .. | r I* * MA 34' * M , - --- ALTI MOM . El 3iI h22j111 ISALr t S lmg.e1i MM.. ..euest Ar. )ll*I lma J *.l- Z S,- - . ISJOAL66.*1 Lrmosur I MMt sg.... g S i Su-I *'_t -8. 3 .. [,.js a.... 2] .*8 1aaa4 UCMLI ~, asi. m. YUGOSLAVIA STAFfAPPRAISAL REPORT SEVENTHRAILWAY PROJECT ProcuremnntSchedul mar A. May JU AM' SO ct Nv DI.JauI Fab Ma PrprUn~ + PdtUih ImSRTOO °tBDOOS.Bdg2DocS t m m I dContracts I a= I ~III i" i I IrC -1~~~ +I I I , I I' I cvt Me I I Evsl.slmsvuevIt I I _ ~~~~Li P~~~~~~~~~Aog Appm Condtior Conbactf Boud Loan - Sol RTOBaid S.* kidon ApI 1989 *~~ i *f - - ! er~~~~~ a a a ___ s _ _a_a~ 601 - AUSTRIASt Vd&4W*" HUNGARY V4*1 :J ~~~,~~~~~~K7 ~ ~ ~ v ENC YUGOSLAVIA SEVENTHRAILWAY PROJECT RAILWAYSt - SingleLines MO N-T E N G O - DoubleLine' Elctifbd Linest S"ile Uns . .* 4 DoubleLines TITOGRAD v KO S 0 MainTrunk Une Adriatic Ti o SeleowTeStation PROJECT(ao netet) ProjectAre S e-aa *Moderniz:tionjus Track Oerhul - a' - - Track Overhaul Construionof Seond Track O StationImprovmetsZX Rivers ' e-. e RWn ALBANIA Intrnatonal Boundaies o~~~~I o1 . . l.r>^" le 1t W,r Ir ir t'^2 1;4 iS 16'sri AUSTRIA M -WKO NON K~~~~K -AraZv N TRANSPO YUGSLA IA~ MmIovw TNFRANSPORUTATIO - SingleLUnes 4. InlandA S.e I~~~~- EwopeORAnHIghways- > LA t LAk YS 'm% ( nio; Sea .421 ~ ~- othe Main Roads IAInx Rivers -' W Sea bonaries of Repulis and Autnmou Province *-. iniemoionaleBoundai es