CIRCULATING COPY RESTRICTED TO BE RETURNED TO REPORTS DESK Report No. TO-420a IN CENTRAL FILES Public Disclosure Authorized This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views.
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized
APPRAISAL OF
THE 1964-73 MODERNIZATION PROGRAM
OF THE
SPANISH RAILWAY
Public Disclosure Authorized (RENFE)
July 21, 1964 Public Disclosure Authorized
Department of Technical Operations CURRENCY EQUIVALENTS
1 U.S. dollar = 60 Pesetas 1, 000 Pesetas = 16.67 U.S. dollars SPAIN
APPRAISAL OF THE 1964-73 MODERYIZATION PROGRAM
OF THE SP,AXNISI. RAI.AY (RENFE)
Table of Contents
Page
SUIA1'ARY
I. INTRODUCTION 1
II. TRANSPORT IN SPAIN 1
A. Background 1 B. The TransDort System 2 C. Traffic 3 D. Transport Coordination 4
III. THE RAILIJAY SYSTEM 5
A. Organization and Management 5 B. Labor Force and Wages 7 C. Facilities 8 D. Operations 9 E. Traffic 10 F. Tariff Policy 11 G. Financial Situation 13
IV. THE INVESTYENT PLAN 15
A. Introduction 15 B. The Investment Plan 15 C. The Project 17 D. Financing the Plan 17
V. ECONOMIC JUSTIFIQATION 18
A. Introducytion 18 B. Increa.swd-ef.fi-ciency 18 C. Traf-ifc-zur6vtAh 20
VI. FUT-URE FINANCES 20
VII. CONC q IAT -IONS 23
ANNEX A:K PlaThn of Action ANNEX B: RENFE Organization Chart ANNEX C: RLNFE's Future Traffic, 196h-73 Table of Contents
2
List of Tables
1. Freight Traffic, by Mode of Transport, 1953-63. 2. Passenger Traffic, by Iviode of Transport, 1953-63. 3. RENFE Motive Power Stock, December 31, 1962. 4. RENFiE Passenger and Freightcar Stock, 1963. 5. RENFE Freight Traffic 1950-63. 6. REi\WE Coimmercial Freight Traffic, by IIajor Commodities, 1953-62. 7. RENFE Passenger Traffic, 1950-63. 8. RENFE Balance Sheet, December 31, 1963. 9. RENFE Revenues and Expenses, 1958-63. 10. RENFE Investment Plan, 1964-73. 11. Estimate of Futuire RENFE Freight Traffic, 1964-73. 12. Estimate of Future RENFE Passenger Traffic, 1964-73. 13. RZENFE Estimated Revenues and Expenses, 1964-73e 14. RENFE Estimated Balance Sheets, 1964-73. 15. RENFE Estimated Cash Flow, 1964-73.
Map: REITE Lines. SPAIN
APPRAISAL OF THE 1964-73 MODERNIZATION PPOGRAM
OF THE SPANISH RAILWAY (RENFE)
SU14ARY
i. The Government of Spain has asked the Bank for a loan of US$65 million equivalent to help finance the 1964-73 Modernization Program of the Spanish Railway (RENFE). The loan would be made to RENFE and guaranteed by the Government. The project would consist of the first two years of the Program and the proposed loan would finance about one-third of the commit- ments during this period.
ii. The 1964-73 Modernization Program, drawn up with the assistance of French consultants, is designed to transform RENF'E from an antiquated enter- prise operating at a large deficit and providing inadequate service into an efficient ari modern railway system earning a reasonable return on its in- vestment. The Program includes not only large new investments, but also a reorganization of RENFEts management, modernization of operations and a re- duction in staff, the closing of unprofitable lines and stations, a rate and fare structure more closely related to costs, improved transport coordination, and many other measures. Agreement has been reached with the Government and REN\FE on the measures to be taken to carry out this Program.
iii. The cost of the investments included in the Program is estimated at Pts 62 billion (about US$1 billion equivalent). Major items include the renovation of track (more than Pts 15 billion), diesel locomotives (Pts 11 billion), rolling stock (about Pts 8 billion) and electrification (Pts 6 billion). the Investment Plan is technically sound, its financing is reason- ably assured and RENFE is well able to carry it out. RENFE plans to use consultants to help in its implementation.
iv. The Program has a sound economic justification. A significant part of Spaints traffic can be carried most economically by railway; this traffic is likely to increase in the next 10 years and, most important, the Program will make it possible to carry the traffic at substantially lower costs and improve the quality of service. The rate of return on the investment is in the order of 15 percent which is satisfactory. v. RENFEts financial position is not sound. The Modernization Program includes, therefore, measures to reduce costs, adjust rates and fares, revalue assets, reorganize the debt structure, install a modern accounting and costing system and others. As a result of these measures it is estimated that RENFEts revenues will in 1968 be able to cover its cash expenditures (including inte- rest but excluding depreciation); depreciation will be covered, in addition, in 1971 and thereafter RENFE will begin to earn a return on its investments. - ii - vi. The proposed Bank loan would finance primarily freight cars, passenger cars, diesel shunting locomotives and ties for track renewal, All goods financed under the loan would be acquired through international compe- 7 titive bidding. In evaluating bids, Spanish manufacturers would be granted a 15 ? percent margin of preference in lieu of customs duties. vii. The project provides a suitable basis for a Bank loan of USk65 million equivalent to RENFE for a term of 20 years, including a 4-year period of grace. I. INTRODUCTION
1. The Government of Spain has requested the Bank for a loan of US$65 millior equivalent to help finance the 1964-73 Modernization Program of the Spanish Railway (Red Nacional de los Ferrocarriles EspanolDs, or RENEE). Th! project would consist of the first two years of the Program, and the proposed Bank loan would finance about one-third of the commitments during this period. The loan would be made to RENFE and guaranteed by the Government.
2. The Bank has worked closely in recent years with Spain in the trans- port field. In 1960, the Bank assisted in the recruitment of consultants to survey organizational and administrative problems in railway and highway transportation. In 1961, at the request of the Spanish Government, the Bank organized an economic survey mission. Its report, which was published in 1962, dealt extensively with the proolems of transportation. It found that RENFE faced many difficult problems and recommended major improvements, in- cluding a large investment program.
3. In November 1962, a Bank mission discussed with the Government the basic policies which would have to be pursued to make RENFE an efficient rail- way which could in time earn a reasonable return on its assets. Full agree- ment on the broad lines of these policies was reached in an exchange of memo+. randa in which the Bank indicated its willingness to consider a Loan to RENFE when agreement on the content and timing of a detailed master plan had been reached. In March 1963, RENFE requested the French consulting firm OOFRERAIL to draw up a 10Qyear Modernization Program (1964-73) which would cover all steps necessary to make RENFE efficient and financially sound. This Program was reviewed by RENFE and the Bank, and on the basis of discussions held in October 1963 RENFE made certain modifications. The Prograr was reviewed in Spain by an appraisal mission in January 1964, as a result of which further modifications were agreed to. To implement the Program, a detailed Plan of Action (see Annex A), as well as measures concerning a new statute for RENFE, a 10-year Investment Plan, the future financial viability of RENFE, and the discontinuance of service on uneconomic lines have been agreed to between the Government, RENFE and the Bank.
4. The proposed loan would be the second loan to Spain, following a highway loan in 1963. If the experience during the next two years indicates that RENFE is making favorable progress, consideration would then be given to further Bank assistance to the Program. The Program assumes votal ex- ternal borrowing of about US$200 million.
II. TRANSPORT IN SPAIN
A. Background
5. Spain, with an area of about 500,000 sq. !in, is only slightly small~ er than France and nearly 70 percent larger than Italy. The population of about 31 million is growing at less than 1 percent annually, and population density is about one-third of that of Italy and three-quarters of that of France. 6. Spain's gross national product reached about Pts 830 billion in 1963 (nearly US$lh billion equivalent), with a per capita income of some US$450 equivalent. The real growth of the economy in the last three years has averaged a high 7 percent annually. The transport sector accounted for 6-7 percent of national product in recent years and absorbed about 5 percent of its labor force.
B. The Transport System
7. Spain's transportation system is heavily influenced by three im- portant geographic factors: the rugged mountainous terrain, the wide disper- sion of the major centers of production and population, and an extensive coastline forming about two-thirds of its periphery. The mountains increase construction and operating costs of land transport and the large distances between the major economic centers - averaging more than 500 km between the seven most important ones - require longer hauls than in most other European countries. These hauls traverse areas of low population which do not gene- rate much traffic but add to transport costs by requiring local train ser- vice. The effects of geographical dispersion are illustrated by the fact that the mileage of Spain's railway and highway network in relation to gross national product is more than twice that in Italy and France. The extensive coastline and the hindrance to land traffic caused by the coastal mountains have led to the development of an important coastal shipping industry (see paragraph 12). The rugged terrain and the long distances have also stimu- lated considerable air transport.
8. The basic railway and highway routes are made up of radials from Madrid to the important cities, with lateral connections between them and ex- tensive local and branch lines. The highway network is so extensive that few locations are more than 10 km from a national highway and nearly all areas are served by at least a dirt road. The number of motor vehicles (ex- cluding motor cycles) is about o.8 million and has been growing at a rate of about 20 percent annually since 1957. Nevertheless, highway transport is still at an early stage of growth, as indicated by the fact that in 1962 there were 45 inhabitants per vehicle, compared to 14 in Italy and 5 in France.
9. The 1961 economic survey mission found that Spain's total transport capacity, and particularly the railway and highway networks, was more than adequate for the next few years; the major problem was to make it more effi- cient, for which large-scale investments were recommended.
10. Transportation has in recent years accounted for only slightly more than 20 percent of gross investment annually, but in the new 4-year Develop- ment Plan, 1964-67, this is being increased sharply to about 28 percent. The total transport program will involve investments of about Pts 250 billion for the 4 years, increasing from Pts 54 billion in 1964 to Pts 71 billion in 1967, a growth of about 33 percent during the period.
11. The distribution of transport investment expected in 1964-67 among the various modes is as follows: -3-
In billions of Percentage pesetas of Total
Highway Transport Vehicles 120 48 Roads 38 15 158 - 63
Railroads RENFE 28 11 Other 9 4 37 15
Navigation Ships 26 10 Ports and facilities 15 6 -481 16
Aviation 15 6
Total 251 100
It is significant that the investment in highway transport. largely private investment for maotor vehicles, will account for nearly two-thirds of toWal transoort investments and that it will be 4 times that in the railways,
C. Traffic
12e Freight traffic in Spain increased about 50 percent between 1953 and 1963 from about 23 billion to an estimated 35 billion toii/hin (see Table 1). The annual increase of 4 percent compares with a growth in gross national pro- duct in real terms of about 5 percent. Coastal shipping hasalso grown by about 50 percent during the period and accounts for slightly more than lo0 per- cent of total traffic; since coastal shipping includes substantial traffic to the Baleares and Canary Islands, its contribution to traffic within the mairland is considerably less. There has, however, been a major shift from railway to highway traffic. Railway traffic, wihich is discussed more fully in paragraphs 38-4h has actually declined somewhat during the period, so that its share of total traffic has fallen sharply from 33 to 18 percent. Highway freight traffic, on the other hand, has increased by more than 130 percent, and its share of total traffiic has grown from 25 to 37 percent. This development is not unusual and can be expected to continue, though pro- bably at a reduced rate.
13. The developments in passenger traffic have been similar to those in freight, except that its growth has been more dynamic (see Table 2)o It more than doubled in the 1953-63 period, so -that its growth was 60 percent higher than that of national income. By far the largest absolute increase was in highway transport, which tripled and now accounts for 60 percent of total inter-city passenger traffic. Railway traffic, which is discussed more fully in paragraph 42, remained virtually constant throughout most of the period but due to a sharp spurt since 1960 is now 25 percent above the 1953 level. The railway's share has, however, declined from nearly 60 to 33 percent in the 10 years. Aviation accounts for about 5 percent of total passenger traffic but, being the newest mode of transport, has expanded most rapidly.
D. Transport Coordination
14. In Spain, as in most countries, attempts to coordinate effectively the various modes of transport have begun only recently. the nearwmon-poly position of the railway made coordination unimportant until the development of highway transport on a significant scale, and the first reaction consisted of measures to protect the railway. The dispersion of administrative res- ponsibility has also made coordination more difficult, though the responsibi- lity of the Rinistry of Public Works for railways, highways and ports per,its coordination where it is most essential. The MKinistry of Cormierce, however, has authority over shipping, the Air Iviinistry for civil aviat-on, and the Interior Ministry for the mail and for highway police.
15. In the past, there have been several organizations with nominal res- ponsibilities for transport coordination. One is the Delegate Committee on Transportation of the Council of Kinisters, consisting of the Ministers of the interested agencies or of their representatives. It has no staff, and has met only infrequently. Another is the Superior Council on Transportations, an advisory body comnrising representatives of all the modes of transportation and attached to the IvMinistry of Public Works. It also has no staff and its meetings are largely ceremonial.
16. The Bank's 1961 survey mission recommended more effective coordina- tion and the establishment of a Transport Coordinat-ing Coinmission covering all modes of transport. The Government a-reed to this in principle but the far-reaching reorganization which would be necessary could not be done quick- ly and the Government has, therefore, taken several interim measures. In 1962, for the purpose of helping to prepare and execute the 1964-67 Develop- ment Plan, it established the Transport Commission of the Development Plan; the Commission has a very large membership but seldom meets, and the work is done by a small staff. In January 19624, the Government established a Superior Council of Land Transport within the iinistry of Public IJorks, headed by the Undersecretary. The Council is being organized along functional lines - invest- ments, costs, rates and fares, traffic, etc. It will have a permanent staff, but proper staffing will take considerable time since this is a relatively new field in Spain and there are few qualified individuals. The Council is an advisory body and has extensive authority to study all aspects of land transport coordination as well as ports. To coordinate land transport w±th other modes, a Comnission for Transport Coordination was established in October 1963, consisting primarily of the Undersecretaries of Public lorrks, Civil Aviation and the Merchant lMarine. The Commission is authorized to study and propose measures to assure effective transport coord nation, but it is expected that most of the staff work will actually be carried out by the Superior Council of Land Transport. It is anticipated that the Undersecretary of Public Works will be chairman both of the Council and the Commission; he is also chairman of the Transport Coimmission of the Development Plan. This is important because it will help to integrate the activities of the various coordinating bodies and to insure that their decisions will be carried out.
17. In addition to the organizational measures described above, the Government has recently eliminated special freight and passenger taxes payable only by users of the railway. The Government has also agreed to undertake a number of other important coordinating measures:
a) The tax on highway passenger services paralleling the railway will be reviewed by the middle of 1966.
b) A study and revision of fuel prices in line with a policy of in- suring neutrality among the various modes of transport will be comp'eted by the middle of 1966.
c) More effective regulation and policing of highway transport will be accomplished through a series of measures which establish minimum entry conditions, enforce more effective weight and size limitabions, regl'late freight forwarders and services operating on regular schedules, and establish minimum labor conditi'ons, minimum insurance requirements, and a uniform accounting system. The Government has agreed to specific dates in 1965 to put these measures into effect.
d) A study of rates and tax policy applicable to all modes of trans- port will be completed by the middle of 1966.
e) The discontinuance of service on uneconomic railway lines whose traffic can be carried at lower cost by highway will be undertalcen; this is discussed more fully in paragraph 37.
f) Railway rates and fares will be revised so that they will reflect transport costs more closely (see paragraphs 43-47).
III. THE RMIDiAY SYSTEM
A. Organization and Management
18. RENFE was established in 1941 as the national railway when all broad gauge (5t6II) railways in Spain, previously in the hands of more than 20 companies, were brought under ownership and management of the Government. There are also a number of small narrow gauge railways, none of which are operated by RENFE. RENFE was operated as an integral part of the Linistry of Public Works until 1962. In that year a temporary decree gave RENFE the status of an autonomous enterprise and an independent management over which the Government reserved certain powers. The decree will be replaced by a new statute which has already been-drafted and is satisfactory to the Bank; its enactment is a condition of effectiveness of the proposed 'oan.
19. The new statute will establish RENFE as a public corporation to be operated along commercial lines. It will provide for adequate governing bodies, i 0 e. a board of directors and general and zonal management (see Annex B), and describe their general responsibilities and duties. It recog- nizes the importance of autcnomy for REiFE and will give it wide authority over day-to-day management. It will reserve the following main powers to the Government: (a) appointing the board of directors and its chainnan; (b) establishing general policy on rates and fares; (c) approving the operating and investment budgets, and proposed borrowings; (d) incorporating new lines into the system and closing down existing lines. Representatives of the Government, who are authorized to attend board meetings but not to vote, have the right to veto temporarily board decisions which infringe upon ex- isting laws or measures adopted by the Government pursuant to the new statute. The veto is lifted if it is not confirmed by the Government within a desig- nated period.
20. The board of directors is responsible to the Government for the over-all administration3 management and direction of RENTE. This is reasonable since the Government in fact owns RENWE. Under the new statites, important powers of the board include:
a) to operate and manage RENFE and to carry out related comimercial and industrial activities;
b) to propose to the Governmiient the inclusion of new lines into RENIFE and the total or part al closing of existing lines;
c) to close stations unless the Minister of Public Works objects on the grounds that such action would make efficient transportation impossible;
d) to set rates and fares within the general tariff policy established by the Governnent;
e) to procure needed facilities and equipment;
f) to decide on the organizational structure of RENHE;
g) to appoint and remove the General Manager and any RI,NFE employee and to set salaries and wages; and
h) to propose its operating and investment budgets for approval by the Government and to execute approved budgets. 210 The general manager is responsible to the board; he attends board meetings with voice but without a vote. He is charged with day-to-day man- agement of all RENFE operations and with the execution of board decisions. He is free to delegate executive powers to department heads. The railway network is divided into seven zones, each controlled by a zonal management.
22, The new statute grants the board sufficient authority to manage RENFE as a comaercial enterprise. The present chairman and general mail- ager, both of whom were appointed in 1962, are energetic, aware of REN'E's problems and eager to solve them. They have a good grasp of the many difficulties facing RENFE and are receptive to consultantst recommendations. The senior staff is well qualified. Important internal administrative im- provements have already been made. For example, zonal management has been strengthened and more authority over day-to-day operations has been dele- gated to it. including responsibilitr for electrified lines which were pre- viously operated independently.
B. Labor Force and Wages
23. RENFEls labor force at the beginning of 1963 consisted of about 122,h00 permanent and 6,000 temporary employees; in addition, maintenance work let to private industry in 1°63 involved about 5,000 man-years'
24. The labor force has been excessive for some time and RENFE plans a substantial reduction as follows: Permanent Temporary Employees Employees
1963 122,h00 6,000
1968 101,000 3,500
1973 90,000 1,500
The work done by private industry will be cut in half by 1973 While these reductions are greater than those recommended by S%YRIERAIL, they appear realistic. During 1963, the labor force was already cut by abouti 5,000, mainly through retirement. Retirement rules have recently been liberalized to provide for better pension payments to those who retire at the age of 60; formerly retiremient was generally only possible at 64 or 68. Staff aged 60 and over numbered about 17,400; 12,500 additional men will reach that age by the end of 1968 and 13,100 more by the end of 1973. The present age pattern of RENFE's staff will thus facilitate considerable reduction by retirement alone and obviate the need for major personnel dismissals, which are always difficult.
25. While the number of workers to be recruited in the coming years is not large, the new management is giving special attention to the recruitment of well qualified, professional staff as exemDlified in the recent appointment of about 40 engineers. Training is being improved, with special emphasis on refresher courses for the existing staff. - 8 -
26aIn 1963, wages totalled Pts 7.6 billion and pensioin payments Pts 0.6 billion. W'ith the above reductions in labor force wages would decline to Pts 5.7 billion and pensions inc;ease to Pts 1.2 billion by 1973, assuning constant prices. However, RENFE plans to increase wages and pensions by 3 percent annually during this period. it believes that the wage increase is justified by the sharp increases in productivity expected to result from the Mqodernization Program (see paragraph 72), while pensions must catch up to some extent with price increases in recent years; pensions were not raised in 1962 and 1963 when wages were increased by 52 percent, partly under a nation-wide program to increase wages and partly in order to bring railway i;ages closer to those in other industries. The proposals would increase wages to Pts 7.6 and pensions to Pts 1.6 billion by 19731 Average wages per emlployee would rise from about Pts 63,000 (0541,050 equivalent) in 1963 to Pts 8300oo (USpl 390) in 19734
C. Facilities
27. The main problem concerning RENFE's facilities is that throughout most of the period since 1941 the Government has not provided sufficient funds to modernize the railway system or even to replace obsolete equipment,, More- over, the facilities of the numerous companies which RENFE took over were never properly integrated,
28. RENFE operates about 13,300 route-kans of broad gauge line of which about 2,200 kms are electrified and about 2,000 Ims are double track. ."Iore than one-third of the 15,300 track-lams of rails are overage and in bad con- dition. In 1950-63 track renewals were carried out only on about 4,55o lms. In view of the large backlog of renewals, this amount was not sufficient as shown by the very large number of rail ruptures (see paragraph 35). Track maintenance is reasonably satisfactory although methods and organization are somewhat antiquated. Structures are generally in good condition, but some bridges, particularly in southern Spain, need strengthening to raise their load limits. The condition of buildings is generally poor; by contrast, fixed elec- trical equipment, poles, catenaries, etc. are very well maintained and in good condition.
29. REiFE is still obliged to operate primarily with steam locomotives, of which a large proportion is overage. This is an important reason for REIFE's high operating costs. Iotive power in 1962 included 3,150 steam locomotives, of which 360 were not in service, 495 electric locomotives and train sets and 311 diesel locomotives and railcars (see Table 3), Of the 2,790 steam locomo- tives in service, about 1,150 were more than 30 years old and some even as much as 100 years old; under the proposed lModernization Program, all of the 1,150 will be replaced by diesel or electric locomotives by the end of 1968. The electric and diesel units are generally of recent date,
3Q. A large proportion of rolling stock is also overage and in bad con- dition. This, too, has increased operating costs, resulted in many accidents -9- and has made the service unattractive. Passenger stock included 3,275 cars, of which 2,140 had wooden bodies and were over 30 years old (see Table 4). Because of financial limitations, which should be reviewed in later years, only about 1,300 of these are scheduled to be scrapped in the next 10 years. REZFE owns about 68,000 freight cars; an additional 12,900 are privately- owned. Of those owned by RENFE,E40 percent are over 35 years old aild an additionall7 percent are 30-35 years old (see Table 4), Some 8,hOO of the old cars have weak couplings and are seldom used, About 17,000 tLNFE cars and 3,500 private cars are planned to be scrapped by 1973.
31. Since the marshalling yards and repair shops have never been pro- perly consolidated, their number is excessive. Under the .lIodernization Pro- gram, the existing 29 yards will be reduced to 15, including 6 new ones, As dieselization and electrification proceed, many of the old renair shops for steam locomotives will be phased out and replaced by a small number of modern shops. In view of the inadequate maintenance of buildings and other facili- ties over many years, an amount of Pts 550 million has been included annually in future operating expenditures to provide for their deferred maintenance.
D. Operations
320 A major problem in the operation of trains arises from the variety and age of rolling stock; it includes cars whose maximurm permissible speeds range from 50 to 100 km per hour. Under present procedures, the speed of freight trains can be determined only after they have been formed since it is the slowest car which sets the permissible speed, This hampers train punctua.- lity and will be discontinued as soon as the car fleet is modernized. Line and yard capacity is generally ample even on the main trunk lines.
33. Utilization of steam locomotives and freight cars is also unsatisfac- tory, largely because of the hiph percentage of overage stock. Diesel locomo-- tives, railcars and Dassenger coaches are reasonably well utilized, the latter despite the large number with obsolete wooden bodies. Utilization of the electric rolling stock is not adequate mainly because various electrified lile sections and systems are not yet interconnected electrically. Inter-conne- tion has been planned and construction is under way.
3 4 A substantial part of REi.fEls freight traffic is less than carload traffic; in 1962, it accounted for more than 40 percent of the 2 million cars loaded. The old fashioned and costly method of transporting this freight by picking up parcels at each station by slow moving trains contributes heavily to REIFE's operating deficit. RENFE has already started to modernize these operations on some of its lines by establishing central stations to and from which the parcels are delivered by truck, in accordance with SOFRER1AILts re- commendations.
35. Safety of operations in 1961 compared unfavorably with that of neigh- boring European countries (5 to 20 times as many derailments per 1,000 route- kms)despite an improvement of about 50 percent since 1957 made possible by re- newals of rolling stock and rails, Most derailments were caused by defective rolling stock, although there were also more than 1,300 rail ruptures in 1962, Of 2,100 accidents in 1962, slightly more than half were caused by negligence of personnel. Measures for stricter regulation and supervision are included in RENFE's program. - 10 -
36, More than 2,000 km of RENMIs lines have very low traffic densities. These lines were built mostly by the linistry of Public Works without con- sulting RENFE and apparently without prior economic studies. The fact that 2.5 percent of line construction costs are added to engineerst salaries has been a strong incentive to build new lines regardless of economic consider- ations. At the Bank's suggestion all furthler construction was stopped until studies would show adequate economic benefits. Studies since made by con- sultants indicate that completion of the corLstruction of the direct Madrid- Burgos line would be economically justified; that further construction of the Baeza-Albacete line should be postponed for 5 years and then restudied; and that all construct-on started on other broad gauge lines should be discon- tinued. The Government has accepted these recommendations and has also agreed not to undertake any other new line construction without prior con. sultation with the Bank. The method of supplemienting engineers' salaries, which applies throughout the Government, is being changed as part of a general reform of civil service salaries.
37. SOFRERAIL has recommended a study of the partial or total discon- tinuance of service on low traffic lines. It bas been agreed that REIFE, with the assistance of consultants, will study about 2,000 km of lines and that the Government will reach decisions with respect to discontinuance of sei-vice on these lines within the next three years. If a line is deter- mined by the study to be uneconomic, service will be discontinued, unless the Government and the Bank otherwise agree. Agreement has also been reached on the method for the study, and a decision is to be taken on the first 200 kilometers of lines before the proposed loan is made effective.
E. Traffic
38. Frei ht Traffic. RENFECs coniiercial freight traffic averaged 5.8 billion ton/km in the last three years, comapared to 7.4 billion ton/km ten years earlier, a decline of about 22 percent (see Table 5). 11ost of this decline came about from a decrease in average distances of haul during the period from about 275 to 216 km.
39. During the last 13 years, the developments in freight traffic (in ton/km) fall into three distinct periods. Between 1950 and 1957, traffic grew a modest 3 percent annually. Between 1958 and 1960 it declined sharp- ly about 16 percent per year; this decline was partly a temilporary phenomenon reflecting a recession in the economy accompanied by an untimely and substan- tial rate increase, but it also reflected the growing and permanent compe- tition from highway traffic which increased even during the recession, Since 1961 the annual increase has been nearly 10 percent.
4o. A significant part of RENFEIs traffic consists of low-value bulk commodities travelling relatively long distances, for which the railway is generally the most suitable carrier. As shown in Table 6) nearly one-fourth of the freight traffic consists of coal and an additional 20 percent of mirn- eral ores and petroleum. The average distances of haul of these coramodities - 11 -
is nearly 240 km. Other important corilmodities are fertilizers, sugar, cement and grain; they account for about another 20 percent of traffic. The average distance for al' freight is about 230 km, which however is not significantly higher than the average distance of about 200 km for inter-city truck traf- fic. The sharp drop in miscellaneous freight between 1953 and 1962 from 6.5 to 3.1 million tons indicates that much of this traffic has already been lost to highway transport; this process is likely to continue.
41. RE1FEsts service traf2ic has been unusually heavy, accounting for 20 percent of total freight traffic in 1963; in other countries it varies from 3 to 8 percent. Transportation of fuel accounts for nearly 45 per- cent of the service traffic and permanient way materials and equipment for nearly 40 percent. The large volime of service traffic is primarily due to the fact that RENFE has generally bought its supplies "free on rail" and has forwarded them itselfO, This s:rtem has the disadvantage that the pro- curement fails to take into account transport costs. It was, therefore, re- placed on january 1, 1964 by the method of inviting 'oids at a price which includes the costs of delivery to destination, so that procurement decisions are now based on a price including delivery costs. This in turn has lead to a change in the classification of this traffic from service to cormmercial. Of the previous 1.6 billion ton/km of service traffic in 1963, only 0.3 billion - or less than 4 percent - is classified as service under the new procurement method,
42. Passenger Traffic. RENFEts passenger traffic has been substan- tially mor.e dynamic than its freight traffic, primarily due to a sharp spurt since 1960 (see Table 7). Between 1950 and 1958, passenger traffic grew by about 2.5 percent annually, It fell drastically between 1958 and 1960 about 8 percent annually; as in the case of freight traffic, the decline was part- ly a temporary phenomenon reflecting a recession in the economy accompanied by an untimely and substantial fare increase, but it also reflected the grow- ing and permanent competition from highway traffic which expanded even during the recession. The annual increases since 1960 have averaged more than 10 percent. Throughout the last 13 years, the average distance of travel has been constant at about 68 kmI
F. Tariff Policy
43. Freight Rates. In general, the present freight rate structure is based on the value-of-service principle as reflected by the value of the com- modities shipped rather than on transport costs. Mazimum general carload class rates have been established by the Ministry of Public Works but little traffic moves at these rates. About 75 percent of carload freight traffic is transported at 28 special distance rates which are lower than the class rates. They are subject to specific minimum weight and distance require- ments and decline with increases in distance, but not with the size of ship- ment. While the minimum weight varies with the density of the commodity, the rates do not sufficiently reflect the lower costs of larger shipments and longer hauls. They appear too low for lightly loaded cars, too high for cars with heavy loads, and too low for short distances. In addition, special rates apply for particular hauls of commodities between given points. Commodities moving under these special rates account for about 25 percent of RENFEts carload freight revenues. - 12 .
44, Ordinary less-than-carload rates apply to about one half of less- than-carload traffic, express rates to slightly more than a quarter, and door-to-door rates to somewhat less than a quarter. The door-to-door rates are about 20 percent and the express rates about 25 percent above the ordinary less-than-carload rates; these differentials appear reasonable.
45. Both the 1962 economic survey mission and SOFRERAIL have recom- mended that rates should be related more closely to the costs of providing the service. Accordingly, RENFE has agreed to employ SOFRERAIL to advise on establishing a costing department and a costing system, and on revising the rate structure. It is contemplated that the general level of carload rates will not be raised significantly, but that there will be changes in individual rates to relate them more closely to costs. Less-than-carload rates will be increased in stages until 1969 and will then be 20 percent above present levels. Moreover, commercial rates are to be applied to goa- ernmenu traffic and mail, which in the past have been subsidized by REFTE with a substantial loss of revenue. The Government has recently eliminated the transport tax on railway freight which was not applicab'le to other modes of transport, and has increased rates by the same amount. The Modernization Program includes annual increases of 1.5 percent in freight and passenger tariffs to reflect the general improvement in services.
L6. Passenger Fares, Passenger fares are generally below cost and substantially lower than in neighboring countries, averaging about Pts 0.L per passenger-kilometer compared to more than Pts 0.7 in West Germany, France and Great Britain, Third class fares are used by more than 70 per- cent of the passengers and produce about 54 percent of passenger revenues, Second class fares are about 73 percent of first class fares; they are used by about 25 percent of the passengers and produce about 30 percent of passenger revenues. Reduced fares are granted to military personnel in non-official travel 9 workers, large families, most government ministries and others; they have reduced passenger revenues by about 11 percento
47. SOFRERAIL has recommended a reduction from three to two classes and various fare increases. A two-class system would be in effect in 1968; it would increase passenger revenues by about 12 percent. RENFE and the Government have agreed to general increases of about 6.5 percent in 1970 and 10 percent in 1973; these increases are related in time to the inaugu- ration of improved services in order to minimize traffic losses. The Govern- ment has also agreed to compensate RENFE for the loss of revenue on passenger services which it requires RENFE to provide at less than normal commercial rates (see paragraph 46); it has also eliminated the special tax on railway passengers not applicable to other modes of transport and increased fares by an equivalent amount. The program thus contemplates important adjustments and increases in both freight and passenger fares. - 13 -
G. Financial Situation
48- Introduction. REiCE has been in a difficult financial position for many years. It has continuously incurred large deficits, it has had in- sufficient funds to meet its obligations in time, and its financial relation- ships with the Government have not been regularized. Its accounting system does not reflect all costs properly and its balance sheet has not given an accurate picture of its financial status.
49. Earnings and Finances. REI'FE has operated Pt a deficit since its inception. Its earnings position in recent years is shown below (in Pts billions):
1958 1959 2.960 1961 1962 1963
Operating Revenues 9.1 9.6 9.8 10.1 10g7 l.41
Operating Expenses 10,8 110 112 112 12.8 14.2
Operating Deficit 1.7 14 l.4 1J1 2.1 2.8
Interest 0.7 o.8 0.9 1.0 1.0 1.1
Net deficit after interest, before depreciation 2.4 2.2 2.3 2.1 3.1 3.9
Wihile the deficit was relatively constant in 1956-61, the subsequent sharp in- crease reflects large wage increases without compensating increases in rates or productivity. (For details see Tab'ie 9). These figures do not include de- preciation which is not shown in RENFE's operating expenses; with depreciation, the deficit in 1963 would have been at least Pts 5 billion, or US$85 million equivalent,
5o. Until 1954, RENFE was responsible for financing its owrn operating deficits, It had to resort to several measures, principally marketing its own securities; opening credit accounts with the Bank of Spain; non-payment of debts (princinally taxes) to the State; and delayed payments to contractors and suppliers. Beginning in 19•51 the Government assumed responsibility for meeting RE1xFE's annual operating deficit. Although RENIE's def"icits since then have been reimbursed by the Government, the oayments are frequently de.- layed and on December 31, 1963 an amount of Pts 0.9 billion was outstanding. The 1954 arrangement also provided for the liquidation of iRENPFEts cumulative operating deficits as well as settlement of such mutual debts as the funds owed by the Government to RENFE for the repair and reconstrmctiop of war damage and the carriage of mail, unpaid 'taxes owed by RENFE to the Government and the settlement of RENFE's debt to the Bank of Spain. For a number of reasons, this liquidation did not take place and the amounts still appear on the 1963 balance sheet (see Table 8). However, arrangements for a definitive settlement have now been reached and the Government has agreed that if the balance is in its favor it iill be converted into an equity contribution. This settlement is included in the Plan of Action. 51. Between 1946 and 1957, RENFE was authorized to issue 4 percent bonds amounting to Pts 14.9 billion to finance capital investme~nts. Of this amount Pts 820 million was not sold and Pts lo0 billion had been repaid, leaving Pts 13.0 billion outstanding. The bonds are generally for fifty years and will mature between 1999 and 2007; they are guaranteed by the Governmlent0
52. Beginning in 1957, RENFE no longer issued its own bonds. Instead, the Government advanced funds for investment to RENFE at 4 percent interest5 although in practice the interest could not be paid since RENFE operated at a loss. The advances outstanding on Decemboer 31, 1963 amounted to about Pts 15 billion, The Government has agreed to convert this amount into an equity contribution and no interest will be payable on it, (In Table 8 it is included in the equity.) A similar arrangement will apply to advances in 1964, as well as to funds provided b- the Government for the Investment Plan in the fut.ureO
53. There has also been a small amount of foreign borrowing, U.S. loans include an Export-Import Bank loan in 1957 of Pts 481 mi'lion 'US'f8 million) to be amortized over 12 years at 5.75 percent interest; and a Development Loan fund borrowing of Pts 890 million (Ub"lL.9 million) in 1959 at 3.5 per- cent interest for 20 years. Although not fully drawn downv, these loans have been partially amortized and the amount outstanding for both loans on Decemqber 31, 1963 was Pts 700 million (UM`11.7 million).
5is RENFE's assets consist primarily of the facilities taken over from previous companies and new investments made subsequently. r'ixed assets are recorded at their originaL cost to the Government without deducting deprecia- tion since it is not charged to operating expenses. A revaluation of the assets as of December 31, 1963 has recently been completed. It involved calculating the gross replacement value of depreciable assets as of this date, from which were deducted cumulative depreciation as well as the write-off of uneconomic assets (e.g. obsolete steam locomotives) to be replaced during the Modernization Program. The individual steps are shown below:
Depreciable Assets Pts Billions a) Recorded cost - December 31, 1963 43.9 b) Gross replacement value January 1, 1964 183.6 c) Less depreciation to January 1, 1964 127,2 d) Net replacement value on January 1, 1964 56.4 e) Wirite-off of depreciable uneconomic assets to be replaced during Modernization Plan 1964-73 13.2 f) Net replacement value after write-off on January 1, 1964 43.2
55. In the future, depreciation will be based on replacement value rather than original cost. RENFE has accepted the SOFRERAIL recormmendation that the balance sheet will not show the value of land, since its present replacement value is not known. - 15 .
56. Budgets Accounting and Auditing. The procedures followed for pre- paring the oudget and controlling expenditures are satisfactory. In gan- eral, the initial responsibility is in the individual departments of RENFE and their drafts are coordinated by the Economic and Finance Department,
57. The accounts are kept in a manner which appears to be too decen- tralized and complex, and the procedures of the accounting offices of various departments are insufficiently uniform. Decentralization leads to duplication of effort and the employment of excessive staff since it prevents adequate mechanization; at present, IBM equipment is used only for preparing the pay- roll, monthly summaries of the accounts and various operating statistics.
58. The present procedures are an amalgamation of the different systms used by the various predecessor private companies and do not provide enough information for effective management controjs, The accounting system is now being reorganized and imoroved. As part of the Plan of Act'iioi, RENFE has agreed to establish a modern commercial accounting system to show thle finan- cial results more accurately and to provide general and unit costs of oper- ations necessary for management. Greater mechanization will permLt a substantial reduction in supervisory and other personnel.
590 External auditors are not employed at present. Procedures for internal auditing are similar to those used by various departments of the Government and appear adequate. Provision for external auditing in the future is included in the new RENFE statute,
IV. THE INVESTMENT PLAN
A. Introduction
60. The measures discussed above are all parts of a comprehensive Modernization Program for the 10-year period 1964-73, prepared by RENFE together with its consultants. The main objective of the Program is to transform REIFE from an antiquated enterprise with a huge backlog of renewals and maintenance, operating at a large deficit and providing inadequate service, into an efficient and modern railway system earning a reasonable return on its investment, This goal is to be attained through a comprehen- sive set of measures which have been agreed upon between the Government, REINE and the Bank, including (a) reorganizing and strengthening management and supervision; (b) modernizing train and yard operations and maintenance procedures; (c) closing down uneconomic lines and stations; (d) adjusting rates and fares; (e) reducing staff; and (f) improving transport coordination.
B. The Investment Plan
61. In addition to the above measures, the Program includes a large and detailed Investmnent Plan. Its cost is estimated at Pts 62 billion (about US$1 billion equivalent); of this, about 45 percent has been earmarked for the - 16 -
first four years (1964-67), which cover the period of the National Develop- ment Plan, A peak in expenditures would be reached in 1966 with Pts 8.3 billion; thereafter they would decrease gradually to Pts 2.1 billion in 1973 (see Table 10), Depending on futuwe traffic growth, utilization of equipment and other factors, it may be desirable to increase the Invrestment Plan in the last 2 to 3 years in order to provide for a more rapid replace- ment of steam locomotives and overage rolling stock; in any case, the Plan will be reviewed periodically, An estimate of 8 percent is included for overhead costs. A contingency allowance is included at 5 percent in the first four years, 10 percent in the following three years and 15 percent in the last three years of the Plan; this reflects the greater uncertainty of the expenditure forecast in the more distant future,
62, The Plan is divided about equally between the modernization of motive power and rolling stock, on the one hand, and of track,structures and other fixed installations, on the other. The main items of the Plan include renewal of 7,000 km of track, representing almost half of RENFEEs total; construction of 6 new marshalling yards and the modernization of 9 secondary yards; procurement of 655 diesel and 70 electric locomotives, which will permit elimi.nation of all overage steam locomotives; and purchase of 1h,000 freight cars, 604 passenger cars and 220 diesel and electric rail car sets. It is planned to electrify 1,100 kms of line, which is primarily to complete the program already under way and to provide inter-connections between electrified setions. Also included are modernization and constnrction of maintenance facilities and stores for locoiJotives and rolling stock; modi- fication of main freight stations; acquisition and installation of telecom- munications, signalling and central traffic controls; construction of housing and of training centers; and procurement of sundry mechanical equipment for maintenance and for service traffic.
63, The proposed Investment Plan would not only modernize RENFE, but also expand its capacity for the expected growth in traffic (see Annex C)X It has been based on cautious assumptions regarding the utilization of roll- ing stock. As execution of the Plan proceeds, modification of its composi- tion may become necessary. If, for example, traffic growth should be less than anticipated, and equipment utilization better, the need for motive power and rolling stock would be reduced in thie long run. However, the proportion of obsolete equipment in use is so high, and the planned renewal so gradual, that this would not necessarily influence the Plan for the first 4 or 5 years, in these circumstances, acquisition of rolling stock as now planned would merely accelerate dieselization and rolling stock renewal, which would be highly desirable. The Plan is technically sound and has taken into accouilt adequately the availability of skills. No important changes will be made in the Plan without prior consultation with the 3ank. The Government will in. corporate the 10-year Investment Plan into a law which is to be enacted be- fore the loan becomes effective.
64. RENFE has agreed to use consultants to help implement parts of the Program. Consultants have recently completed a study on the safety of train operations and are currently helping RENFE in its studies on the possibili- ties of closing low traffic lines. RENFE will employ consultants in thcse fields in which RENFE and the Bank agree this is necessaryo - 17 _
C. The Project
65. The Project consists of the first two years of the l4odernization Program (196h-65), and the proposed loan would finance about one-third of the commitments during this period. It would finance the following:
Estimated Cost US$ Million Equivalent
1,500,000 Ties 6.3 925 Switches 3.6 55 Diesel shunting locomotives 6.1 185 Passenger cars 15.9 4,350 Freight cars 22,3 Machine tools 2.8 Signalling and communications equipment o.6 Equipment for marshalling yards 4.3 Contingencies 3.1
Total 65.0
The allowance of 5 percent for contingencies is considered sufficient since unit prices are based on recent local contract prices which may be somewhat higher than international prices.
66. All goods financed under the proposed loan would be acquired through international competitive bidding. In evaluating oids, Spanish manufacturers will be granted a 15 percent margin of preference in lieu of customs duties which are generally substantially higher; this procedure was followed in the recent Spanish highway loan.
D. Financing the Plan
67. The funds for the Investment Plan will come from three sources: retained earnings, Government grants, and foreign borrowing. Of the total plan of Pts 62.0 billion, Government grants for capital investment would finance Pts 26.6 billion; Pts 12.2 billion would come from external borrowing, of which the proposed loan would provide Pts 3.9 billion; and the remainder would come from depreciation (see Table 15). The provision of funds is to be guaranteed by the Investment Plan law, in which the Government undertakes to provide the funds estimated to be necessary in each of the ten years of the Investment Plan and to make suitable arrange- ments to provide any additional funds should they be needed. - 18 -
V. ECONGI.C JUSTIFICATTON
A. Introduction
68. The essence of the economic justification for RETFE's Investment Plan is that a significant part of the nation's traffic can be carried most economically by railway, that this traffic is likely to increase in the next 10 years, and, most important, that the Investment Plan will make it possible to carry the traffic at substantially lower costs and improve the quality of service,
B. Increased Efficiency
69. Studies made jointly by REANFE and tne appraisal mission inaicate that approximately three-quarters of the Investment Plan of Pts 62 billion, or about Pts 46 billion, is to increase RETEE's efficiency and abouT one- qularter is to enlarge its capacity for the estimated traffic growth in 196L- 73.
70. The increased efficiency is measured quite directly by the expected sharp decline in operating costs durLng the 10 years: in 1963, the average operating cost (excluding depreciation) per traffic unit was Pts 1.26; in 1973 it is estimated at Pts 0..85 at constant prices. (one ton/km is one traffic unit, while a passenger/kmn is only one-half a traffic unit; this weighting is based on relative operating costs.) This rneans that as a result of the Moder- nization Program the operatin- costs for the 1973 traffic level would be re- duced by about one-third from P-ts 20.0 billion to Pts 13.5 billion, at con- stant prices; this is based on the conservative assumption that costs would not rise if no investments were made (see paragraph 7Ib). When this benefit is measured against the investraent cost, and assuming conservatively no traf- fic increase after 1973, the return on Whe investmrent is about 15 percent du- ring its average useful life of' 25 years. This is a satisfactory return in Spain.
71. The above calculation can necessarily indicate only the arders of magnitude involved and it may be useful to indicate three important qualifi- cations which partially off-set each other; their net effect, however, is that tae rate of return is probably. substantially higher than 15 percent.
a) On the one hand, in the above calculation all benefits were attri- buted to the new investrments, even though some arise from other measures of the :4odernization Program which could theoretically be made even without the new investments. It is not possible to separate the effects of the two types of improvements statistically, but it is clear that by far the largest propor- tion arises from the new investments and it is in any case unlikely that. the others would in fact be made witnout the new investments.
b) On the other hand, the calculation fails to take into account the fact that in the absence of the Investment Plan, operating costs would not re- main stable, but would increase. It is difficult to distinguish between - 19 - replacements which lead to improvements and those which merely maintain the existing level of efficiencj. On the assumption that funds equal to or±o- half of the depreciation in 1964-73 are needed to nainbain the existing level of efficiency, mo.e than Pts 12 billion of the Investment Plan could be said to prevent ope.-ating costs from rising. If allowance is made for this, the rate of return on the Program wou'd be 18 percent, compared to 15 percent in the more conservative calculation presented above,
c) A third consideration is that a part oL the Investment Plan is to improve the ouality of service, especially increased confort from the elinina- tion of third-class passenger service, substantial time savings, and greater safety. These improvements are not included in the above rate of return cal- culation. The estimates of future revenue as3ume that in 1968, when the third- class is abolished, passengers wil2 be willing to pair an additional Pts 1.1 billion for the increased comfort; this is a very substantial benefit - about 25 percent as large as the benefits from increased efficiency in that year. As to time savings, a moderate increase in speeds of 10 percent from 40 to 44 Icn per hour uould save 25-30 million passenger hours per year, The time sa- ving for freight would also be considerable, On balance, it is quite likely that an allowance for the various qualitative improvements might increase the rat.e of return by perhaps one-third.
72. The gain in productivity between 1963 and 1973 for indliidual sec- tors of the Plan is shown on the table below. The gains range from 125 per- cent for motive power, primarily because of the dieselization, to 18 percent for passenger service, where a considerable part of the investment is to iTn- prove the quality of service rather thlan reduce costs.
Percentage 1963 1973 Improvement (000o Personnel (traPfic units per emplo;nee) 100 190 90
Motive Power (traffic units per locomotive) 3h400 7,700 125
Passenger Service (passenger/km per passenger car) 2,560 39000 18
Freight Service (ton/km per freight car) 115 165 43
73. Separate calculations of economic benefits have also been made by b0FREZAIL for some of the individual investments. The improvement of marshall- ing yards is estimated to cost about Pts 2.7 billion and lead to cost reductions of Pts 430 million annually from savings in freight cars, engires and person- nel; the rate of return during a 25-year period would be about 15 percent. Elec- trification of the Avila-iNiranda de Ebro line is estimated to involve invest- ments of about Pts 2,6 billion, or about the same as the cost of dieselization, but the annual operating savings are about Pts 200 million greater for elec- trification. SOFRERAIL estimates that replacing the existing antiquated fleet - 20 - of steam locomotives by diesels will bring a return of at least 30 percentz
C. Traffic Growth
74. About one-quarter of the Investment Plan is to enlarge RENFEts capacity for future traffic growth. Estimates of RENIFE ts future freight traffic are presented in Table 11 and of passenger traffic in Table 12; the assumptions on which these estimates are based are explained in Annex C. According to these forecasts, commercial freight traffic (pre-1964 classifi- cation) is estimated to increase between 1963 and 1973 from 6.2 to 9.9 billion ton/km, or about 4.6 percent annually. The estimated increase in passenger traffic is from 10.1 to 12.0 billion passenger/hnm, or less than 2 percent annually. These estimates are based largely on studies made by SOFRERAIL and certain revisions by RENIF, primarily a reduction in the freight traffic forecast. They compare to an estimated annual increase of gross national pro- duct of 6 percent in 1964-68 and 5 percent in 1969-73. After 1973 traffic is assumed to remain constant at the 1973 level. In view of the traffic develop- ments in the last 10 years and the very large investments beinc made in high- way transport (see paragraph 11), the above forecasts are conservative, but riot unduly so.
75. Because of the great difficulties of forecasting railway traffic for the next 10 years, it may be useful to point out that the economic jus- tification for the Investment Plan does not depend heavily on the traffic forecast. About one-quarter of the Plan is to exoand capacity to handle larger traffic volumes. But since the Plan had to be kept down in the earlier years because of technica'. limitations, a lower traffic growth would make it possible to accelerate investments making for increased productivity, such Ss dieselization, (as contrasted to investments needed to increased capacity), and to lower investments in later years (see paragraph 63).
VI. FUTURE EARNINGS AhID FINANCES
76. RENFE's estimated future revenues and expenses are shown in Table 13, its balance sheets in Table 14, and the cash flow in Table 15. The Go- vernment, RENFE and the Bank have agreed that the improvement of RENFEts finan- cial position should take place in three stages: The f4; target would be met when RENFEts revenues will cover all ca%_ ppendituIel, including interest; the second when depreciation is covered as weli; in the final g$age RENFE will become able to earn a reasonable return on its net fixed asset 3 As shown in the table below, the first target is expected to be reached in 1968 (column 4) and the second in 1971 (column 5); the third stage would be well under way by,)P, 1973. (The table is in Pts billions; for details see Table 13M) - 21 -
Net Income or Net Income Operating Net Loss after or Expenses Operating Interest, r oss after Includirng Revenues Before Interest & Year Revrenues Derciation or Deficit Depreciation Depreciation Col.l Col.2 Col3 Col,4 Col.5
1964 13.0 16.9 - 3.9 - 3.0 - 14.5
1965 14.2 17.0 - 2.8 - 1.8 - 3.5 1966 1L.° 17.2 - 2 3 - 1.1 - 3.0 1967 15.8 17.14 - 1.6 - 0.3_ - 2.5
1968 17.3 17.6 - 0.2 1.2 - 1.2 1969 18.0 17.9 0.2 1.7 - 0.9 1970 19.0 18.1 0.9 2,6 - 0,2 W 1971 19.8 18.4 1o4 3.3 0°3 1972 20.14 18.6 1.7 3,8 0X7 1973 21e7 18.8 2.9 5.2 1.9
19614-73 1714.1 177.8 - 307 11.14 -12.9
77. This forecast incorporazes the expected results of the IHoderniza. tion Program. In addition, the Government and RENFE have agreed to take all reasonable measureo,necessary to achieve these stages by the dates specidle
78. As shown in Table 13J the operating ratio is expected to decline from 130 in 1964 to 101 in 1968 and 87 by 1973; this would be a substantial improvement and by 1973 the ratio could be considered satisfactory. The rate of return on net fixed depreciable assets will become positive in 1969 and reach 3.6 percent in 1973. This would represent satisfactory progress toward reaching a reasonable return. 79. Earnings after depreciation will become sufficient to cover inte- rest fully for the first time in 1971 and by 1973 interest will be earned 2.8 times. The debt service will be covered for the first time in 1968 and near- ly three times by 1973. The current ratio and the liquid ratio will remain virtually constant between 1964 and 1972 at 1.3 and 0.8 respectively. but will increase sharply in 1973 to 1.9 and 1.2 respectively. The debt equity ratio is estimated to improve during the period from 31/69 in 1964 to 26/74 in 1973, While the current and liquid ratios through 1972 are not favorable, they do not in this case adequately reflect RENFEts ability to meet its cash needs. For one, the Government pays REtNFE for its deficits quarterly in advance, so that RENFE's cash position through most of the year is better than on the last day of the year; secondly, its debts are guaranteed by the Government. When these factors are taken into consideration, RENFE's position is satisfactory.
80. RENFEts cash needs and sources of funds in 1964-73 are summarized below (see Table 15 for details): - 22 -
Pesetas (bI lT-on-) Cash Requirements
Investment in Miodernization Plan 62,0 Interest on debt 9.2 Repayment of debt 6.1 Additional working capital 1.3 Appropriation to reserve 0.7
Total cash requirements 79.3
Cash Available
RENFE 20.6
Goverrn,ient L6.3
Loans
Proposed IBRD loan 3.9 Future borrowings 8.3
Sub-total 12e,2
Total cash available 79.1
Decrease in Cash Position 0.2
81. As shown above, total cash requirements during 1964-73 would be Pts 79.3 billion, of which Pts 62.0 billion would be for the Investment Plan and the remainder largely for debt service and additional worlcing capital needs. About one-fourth of these requirements, or Pts 20.6 billion, would be finalced internally. The GoTer±iment would provide Pts 46 .3 bil- lion, of which Pts 26.6 billion is for capital irnvestments, Pts 10.8 bil- lion for the operating deficit (including depreciation) and the remainder lor debt service. The Government has agreed to finance the operating de- ficit, including depreciation, and to provide funds for debt service to the extent required. The Govermnentts commitment to finance the Investment Plan has been described in paragraph 67. Loans would finance Pts 12.2 billion (about US$200 million equivalent), of which the proposed Banlk loan would be Pts 3.9 billion. The additional borrowings would not be required until after 1965; if satisfactory progress is made during this period, con- sideration would then be given to further lending by the Bank. RENF! has agreed that it will not undertake additional long-term borrowing without prior consultation with the Bank. The new statute provides for the establish- ment of adequate operating and investment reserves out of net profits before any distribution is made to the Government. - 23 _
VII. CONCLUSIONS AND RECOIIDEND)ATIONS
82. The 1964-73 Modernization Program for 1REFE is designed to reha- bilitate the railway and to make it an efficient enterprise that can earn a reasonable return. It is well planned, tecnnically sound, and will yield a high economic return. RENFE and the Spanish Government, with the assist- ance of consultants, are well able to execute the Program. Agreement has been reached between the Government, RENEE and the Bank on the implementation of the Program through a detailed Plan of Action (see Anrnex A)) as wiell as through measures concerning a new statute for RENFEP, a 10-year Investment PLan, the future financial viability of RIENFE and the discontinuance of service on uneconomic lines.
83. The project would provide a suitable basis for a Bank loan of US$65 million equivalent to RENFE for a term of 20 years, including a 4-year period of grace. Before the loan becomes effective the foilowing steps wi'l have to be completed:
a) enactment of a statute for RENFE satisfactory to the Bank (para- graph 18);
b) enactment of a law incorporating the Investment Plan satisfactory to the Bank (paragraph 63);
c) a decision on the closing of 200 km of uneconomic lines (paragraph 37);
d) application of commercial rates to Government traffic and mail (paragraph 45);
e) adoption of a system of Government compensation to RENFE for loss of revenue on passenger services subsidized by RZNFE (paragraph 47);
f) settlement of mutual debts between RENFE and Governaent and con- version of the balance in favor of the Government into an equity contribution (paragraph 50); and g) conversion of Govermaent advances to RENFE since 1957 for invest- ments into an equity contribution (paragraph 50).
July 21, 1964 ANNE,X A
THE PLAN OF ACTION
Transport Coordination
1. Review of the tax on highway passenger services paralleling the railway (canon de coir.cidencia), by the middle of 1966.
2. :Study and revision of fuel prices in line with a policy of ensuring neutrality among the various modes of transport, to be completed by the middle of 1966.
3. Nlore effective regulation and policing of highway transport, including:
(a) establishment of minimum entry conditions for highway transport pri,marily to assure adequate financial responsibility, early in 1965;
(b) establishment of more effective weight and size limi- tations, early in 1965;
(c) placing into effect during 1965 of a better system of inspection to assure the sound mechanical condition of vehicles;
(d) requirement of written contracts for all highway freight services in a prescribed 2orri.; early in 1965;
(e) more extensive regulation of freight forwarders, such as assuring adequate performance bonds, early in 1965;
(f) regulation of adequacy of services which claim to be operated on regular schedules and at fixed rates, early in 1965;
(g) assurances that highway transport meet diiidmum labor conditions, such as maximum working hours and social security payments, early in 1965;
(h) establishment of minimum insurance requirements, early in 1965;
(i) establishment of a uniform accounting system for high. way transport enterprises, by the middle of 1965; and
(j) study of rates and tax policy (fiscalidad) applicable to all modes of transportation, to be completed by the middle of 1966, ANNEX A Page 2
Operations
1. Reduction in labor force from January 1, 1963 by about 21,000 permanent and 2,500 temporary workers, by the end of 1968; and by an additional 11,000 permanent and 2,000 temporary workers, by the end of 1973.
2. Improved recruitment and training of personnel.
3. Consolidation of existing marshalling yards and construction of 6 new ones, phasing out and replacement of old repair shops for steam locomotives by a smaller number of modern repair shops, and discontinuance of service at uneconomic stations.
4. Modernization of pick-up and delivery of less-than-carload traffic by the establishment of central stations, to and from which parcels will be delivered by trucks.
5. Improved safety by stricter regulation and supervision.
6. Reduction of three passenger classes to two by 1968.
Rates and Fares
1. Revision of rate and fare structure to relate it more close- ly to transport costs.
2. Establishment of a costing office and a costing system.
3. Increase of less-than-carload rates in stages until 1969 by a total of 20 percent.
4. Application of normal commercial rates to the Guarantor's traffic and mail.
5. Increase of rates and fares by 1.5 percent per annum, begin- ning in 1965, reflecting improvement in services.
6. Adjustments in fares leading to an increase of passenger revenues by about 12 percent as part of inauguration of two class system.
7. Increase of passenger fares by 6.5 percent in 1970, and by 10 percent in 1973.
8. Compensation by the Guarantor to the Borrower for loss of revenue on passenger services provided by the Borrower at less than normal commercial rates established by the Guarantor. ANNEX A Psage 3
IV. Finances
1. Incorporation, free of any lien, of the Govermnent's con- tributions (dotaciones) to the Bori7ower made up to date of the Loan Agreement into the equity (patrim.onio) of the Borrower.
2. All funds to be made available for capital expenditures after the date of the Loan Agreement by the Guarantor to the Borrower to be made in the form of an equity contri- bution (aportacion patrimonial).
3. Settlement of mutual debts between the Borrower and the Guarantor up to December 31, 1964 and incorporation, free of any lien, of the debt balance, if any, in favor of the Guarantor into an equity contribution (apcrtacion Fa tri- monial) of the Guarantor to the Borrower 7s capital.
4. Revaluation, from time to time, of Borrower's assets to reflect realistic and economic values.
5. Establishment of a modern commercial, and, to the exten& practicable, mechanized, accounting system, to reflect the operations and finencial position of the Borrower accurately and to provide the Borrower's management with adequate financial information. ANNEX B
GENERAL ORGANIZATION CHART OF R.E.N.F.E.
BOARD OF DIRECTORS
GENERAL MANAGER
STUIEAN IAC N PANNING LEA AN TRAININ l
ACC O PEAI O
INSTALLATIONS CNSTEWOS PRTO AND STORES CNTUTOS OEAIN
STORES WAYKAND AND COORDINATION| PTRRATINON TRAFFIC l
SOUTHERNI l l NORTHERN REGION REGION
MADRID ~~~~MADRID
d 6th ZONE
4th ZONE 7th ZONE _ VALENCIA |LEON _
5th ZONE BARCELONA
IBRD-23701 ANNEX C
RENFF'S FUTTJRF T'RANIC, 1964-73
1. Estimates of RFNIT's future f-ei-ht tra.fic ale presented in Table 11 ard of passenger traffic in Table 12. These estimates are based largely on st-dies by SOFIEFJIL and revisions made by REM'FE. The assulmptions on wlich these forec2svs are based are explained below.
Freight Traffic
2. As showqn in Table 11, RENFS's commercial traffic is divided into three parts. There is first the usual commercial traffic. Secondly there has been a substantial amount of departmental tra2fic which as of Januiary 1, lQ64 is classified as commercial traffic. This change arises from a change in R]DIFE's purchasing method described in paragraph l of the report. The third item is mail. Tne disc-ission below is based on the pre-1964 classification of comnercial traffic primarily in order to permit comparison with pror years.
3. Commercial freight traffic is estimated to increase between 1963 and 1973 from 6.2 to 9.9 billion ton/r,, or about 4.6 percent annually. The major considerations leading to this estimate are:
a) Gross national product is assumed to grow by 6 percent annually in 196h-68 and 5 percent in 196?-73. The 19o4-67 Development Plana is based on a 6 percent ;rowth Lactor. Growth in the last 10 years has av- eraged about 5 percent, but 7 percent in the last 3 years.
b) Growth in M-F E and highway freight tra'fic combined has averaged about 4 percent annually since '953, -ihich is somewhat less than the grow,th in national product. But REINF,T2ts share has declined between 1953 and 1963 from 57 percent to 32 percent; the rate of decline has slowed dotJn considerably since 1960. The forecast for the fuxture depends heavil c) RENrE has also made a series of studies correlating its tra'fic growth directlr to tl,e growth in national income, making various assumptions about the relationship between national income and traffic and about the temporary or permanent nature of the 1953-60 traffic ANNEX C Page 2 decline. These studies indicate a traffic in 1973 ranging from a low of 9.4 to a high of 11.2 billion ton/km. The forecast actually selected of 9.9 billion ton/kn is thus at the lower end of this range of estimates. d) SOFRERAIL has also studied the future trend of individual ma- jor commodities carried by RENFE. These studies are based largely on in. creased production as forecast in the Development Plan and extrapolated thereafter. They show between 1962 and 1973 the following traffic increases (in percent): Minerals 180 Petroleum products 150 Fertilizer 120 Cement 100 Coal 50 Cereals 0 The growth of traffic calculated on the basis of individual commodities accounting for about three-quarters of the total traffic is reasonably con- sistent with the more global calculations described above. Passenger Traffic 4. Passenger traffic is estimated to increase between 1963 and 1973 from 10.0 to 12.0 billion passenger/kin, or about 2 percent annually which is reasonable. Traffic in 1963 was, however, substantially above the basic trend line; the annual increase over the 1962 level would be about 3 percent, The major considerations underlying this estimate are: a) The growth in gross national product as explained under freight traffic above. b) The 2 percent estimated annual increase (or 3 percent above the 1962 level) is difficult to compare with the developments in the last 13 years because they fall into three distinct periods: a slow but steady growth between 1950 and 1958 averaging somewhat more than 2.5 percent annually; a drastic fall between 1958 and 1960 of 8 percent annually; and annual increases since then averaging more than 10 percent. The forecast assumes that the 1958-60 decline was partly a temporary phenomenon reflecting a recession in the economy accompanied by an untimely and substantial fare increase, but that it also reflects the increased and permanent competition from highway traffic which expanded even during the recession, c) RENFE's share of combined RENFE and inter-city highway traffic declined between 1953 and 1963 from 57 to 36 percent. The forecast assumes a further decline to about 31 percent by 1968 and 26 percent by 1973. d) During the 1964-73 period, the basic trend line has been modified to take into account primarily the impact on fares of the adjustments result- ing from the shift of the three to a two-class system and direct increases proposed for 1970 and 1973; in those years no traffic increase is assumed, TABLE 1 SPAIN FREIGHT TRAFFIC, BY iMODE OF TRANSPCRT, 1953-63 (in billion ton/km) Railway Coastal Year (RENFE) Highway* Shipping** Total 1953 7.6 5.7 10.2 23.5 1954 7.2 5.8 9.3 22.3 1955 7.1 6.1 9.5 22.7 1956 7.7 6.8 9.7 24.2 1957 8.0 7.3 11.6 26.9 1958 8.o 7.8 12.0 27.8 1959 6.8 8.5 12.0 27.3 1960 5.3 9.3 11.5 26.1 1961 5.3 11,2 12.6 29.1 1962 5.8 12.3 1h.3 32.4 1963 6.2 13.4 15.0***8 34,6-EHF * The highway--da*atare rough estimates recently prepared by the Ministry of Pulic Works- -They are generally somewhat higher than earlier esti- matesj though the-growth trend is about the same. They include inter- city traffic¢ o6nly. ->* The coastal---shipping figures through 1960 are provided 'oy the M4erchant Mari-ie- Tnefat erfigures are estimated on the basis of tonnage data. The f-ig $-}-n dtCAMPSA tankers and traffic to and from the Baleares and Oainary iL *~*< Estimate, TABLE 2 SPAIN PASSENGER TRAFFfC BY OTANSP 1RT,953 (in billion passenger/Io Railway Highway* Airlines Year (RENFE) (Inter-city Traffic) (Domestic only) Total 1953 8.0 5.9 0.2 14.1 1954 7.9 6.3 0,2 14.4 1955 8.0 7.3 0.2 15.5 1956 8.6 8.6 0.3 17.5 1957 8.6 10.1 0.5 19.2 1958 8.7 11.0 o.6 20.3 1959 8.5 12.3 047 21.5 1960 7.3 13.1 0.8 21.2 1961 7.8 14.6 0.9 23.3 1962 8.8 16.3 1,2 26.3 1963 10.1 18.2 1.4 29.7 * The highway figures are rough estimates prepared for the earlier years by the i4inistry of Public lWorks and for more recent years by SOFREHAIL. The vlnistry has recently mnade new estimates for 1961 and 1962 based on more detailed traffic suArveys, but these estimates cannot be related to the data in earlier years, end have therefore not been used for re- cent years in this report. According to these latest estimeates, the traffic is about twice the level indicated above, but the growth trend in thie last decade is probably the same. TABLE 3 SPAIN R2NF2 MOTIVE P%jT.R STOCK December 31, 1962 Type of Motive Type of Power Service Number ( Iain Line 2,680 Steam* ( ( Switching 470 3,150 ( Locomotives 318 Electric ( Railcars 177 495 ( (Talgo 4 ( Main Line ( Diesel ( (Others 41 ( Switching 113 158 (TAF 50 Railcars ( COthers 103 153 Agpe Distribution Number 0-10 years 270 10-20 " 620 20-30 " 750 Over 30 " 1,510 TABLE 4 SPAIN RENFr PASSENGER AND FRTIG:IT CAR STCCK January 1963 PASSENGER CARS 4-axled cars - 2-axled cars Age Group All Steel Wooden Body All Steel IWooden Body Total Older than 40 years 495 480 975 35 - 40 years 467 72 539 30 - 35 years 419 206 625 Tess than 30 years 1,036 100 12136 Total 1,036 1,381 100 758 3,275 FREIGHT CARS Age Group Number Older than 40 years 15,464 35 - 40 years 11,489 30 - 35 years 11,803 Less than 30 years 29,2h4 Total 68,ooo TABLE 5 SPAIN RENFE FEREIGHT TRAFUFIC, 1950-63* Ton/kIa (billion) Tons (million) Average Distance Year CoTmiercial Service Commercial Service Commercial (km) 1950 6.4 0.9 25 5 256 1951 7.0 0.9 25 5 280 1952 7.6 0.9 28 5 271 1953 7.6 1.1 28 7 271 1954 7.2 1.1 27 7 267 1955 7.1 1.1 27 6 263 1956 7.7 0.9 29 5 266 1957 8.0 1.2 32 6 250 1958 8.o 1.3 33 6 242 1959 6.8 1.6 29 5 234 1960 5.3 1.8 26 5 201 1961 5.3 2.0 27 6 196 1962 5.8 1.8 26 7 223 1963 6.2 1.6 27 8 230 * Including mail, which has grown from about 0.1 to 0.2 billion ton/Ian during the period; without mail the average distance would be about 2 to 4 km less in recent years. SPAIN RENFE CONMERCIAL FRFIGHT TRAFFIC, BY MAJOR COWODITIFS, 1953-62 1 9 5 3 1 9 58 1 9 6 2 1 9 6 2* Tons Tons Tons Ton/km Commodity (million) Percent (million) Percent (million) Percent (billion) Percent Coal 5.7 20 7.8 24 6.0 23 1.4 23 Mineral Ores 0.9 3 2.7 8 3.0 12 0.6 10 Petroleum 0.6 2 1.5 5 2.0 8 0.6 10 Fertilizer 1.7 6 2.5 7 1.6 6 0.5 8 Sugar, sugar beets, etc. 2.1 8 1.4 4 1.6 6 0.2 3 Cement, lime, etc. 2.3 9 2.4 7 1.6 6 0.3 5 Grain, flour, etc. 2.1 8 2.7 8 1.0 4 0.3 5 Iron and steel products 0.8 3 0.8 3 0.7 3 0.2 3 Wine, etc. 0.8 3 0.7 2 0.4 2 0.2 3 Chemicals and drugs 0.4 2 0.4 1 0.3 1 0.1 1 Lumber, etc 1.0 4 0.7 2 0.3 1 0.1 1 Empty private freight cars, automobiles, etc. 2.8 10 3.9 12 4.0 16 0003 0.04 Other 6.5 23 5.3 16 3.1 11 1.6 27 Total 27.7 100 32.8 100 25.6 100 6.1 100 |a * For the 12 months beginning March 1962, when these data were collected for the first time. TABLE 7 SPAIN RENFE PASSENGER TRAFFIC 1950-1963 Passenger/Im Passengers Average Distance Year (billion) (million) (Ian) 1950 7.1 107 66 1951 7.3 108 67 1952 7.9 115 69 1953 8.o 116 69 1954 7.9 114 9 1955 8.o U7 68 1956 8.6 123 69 1957 8.6 124 69 1958 8.7 128 68 1959 8.5 124 68 1960 7.3 109 68 1961 7.8 115 68 1962 8.8 128 68 1963 10.1 148 67 SPAIN RENFE BALANCE SHEET. DECEMBER 31, 1963 (Millions of Pesetas) A s s e t s L i a b i 1 i t i e s Current Assets Current Liabilities Cash-on-hand:Operations.f 631.2 Accounts payable operations 1,445.7 Cash in banks: Operations,' 853.9 Accounts payable investment program 630.5 Unspent investmentiesak'ii 66234 Foreign Railway Companies : payable 33.0 Marketable securit1ies. 4 3. Interest and amortization 249.2 Accounts Receivab]l |'-,eiiansportsation i 5341.5 Staff-company store 1accounts50.9 Accrued wages and social security 1,220.8 Deposits )J81.li4 Miscellaneous creditors 218.o Miscellaneou2 reciLlM 5)S. State-balance mutual debts 2,011.0 M4aterials and supplhTIs" 2.lO7.d. Total Current Assets 5,488.1 Total Current Liabilities 5,808.2 Fixed Assets Long-term Debt Original 5,641.2 Outstanding bonds, 1946 - 1957 12,952.0 Added since RENFE organization: U. S. Loans 700.1 Permanent way, including stations 11,055.5 Eurofima credit 76.8 Shops, warehouses',and buildings 1,106.9 Bank of Spain credits 3,945.6 Communications and safety installations 1,303.7 Motive power and rolling stock 14,399.7 Housing Institute 294.6 Electrification and electric equipment 7,790.2 Organization expenses 1,395.7 Miscellaneous 1,194.3 Total Fixed Assets 43,887.2 Total Long-term Debt 17,969.1 Receivables - not current Equity Spanish Railway Companies 162.3 Reserves: State - operating deficit 1941 - 1954 3,955.2 Amortized obligations l, 7 operating deficit 1955 - 1962 930.3 Increase in stores 6194 Miscellaneous 80.2 1a Total Receivables ~~~~~~~~~~~~~~TotalReserves a Total Receivables - not current 5,0o7.8 Capital: Original capital 5,942.6 X Furnished by State sinice organization 22,818.9 Total capital 28,761.5 Total Equity 30,645.8 Total Assets 54,423.1 Total Liabilities 54,423.1 SeHAt8 REEFE FZ 'E.,UIh ,ND E: ENSES 1958 TO 1963 (4i1llions of Pesetas) A c t u a 1 For Years Ending December 31 1958 19S9 1960 1961 Operating Revenues Passenger 2,609.7 2,762.6 3,053.4 3,244.0 3,627.2 4,096.5 Freight Express service 725.8 752.9 797.3 822.1 915.5 960.8 Regular freight service 4,657.9 4,747.6 4,281.6 4,216.6 4,140.4 4,186.3 RONFE materials iO2.3 426.4 620.6 692.6 851.3 901.6 Total Freight 5,686.0 5,926.9 5,699.5 5,731.3 5,907.2 6,048.7 Mail 334.9 455.1 526.2 562.4 575.9 599.2 Miscellaneous 4644 444.3 519.8 517.5 586.1 661.3 Total Operating Revenues 9,074.6 9,589.0 9,798.9 10,055.2 10,696.5 11,405.8 Operating Expenses Wages and salaries 2,972.0 2,982.2 3,014.9 2,968.7 4,333.1 5,114.9 Overtime .ages 319.8 298.3 255.8 242.6 262.1 272.7 1onuses and premium pay 681.8 709.7 1.264.6 1.274.4 1.166.1 1 S47.5 Total basic wages and salaries 3,973.6 4,080.2 4,535.3 4,485.7 5,761.3 6,935.1 Social Security 298.3 293.8 295.2 294.0 300.1 338.7 Pensions 267.4 339.1 338.5 375.6 417.3 569.7 Other social changes 222.4 199.4 195.7 203.1 221.9 270.7 Total personsel expense 4,761.7 4,912.5 5,364.7 5,358.4 6,700.6 8,114.2 Coal 2,269.8 2,009.4 1,815.7 1,960.1 2,092.0 1,921.0 Electric energy 250.9 221.2 264.7 276.0 282.7 300.0 lt. oil 350.1 384.5 409.7 447.1 493.8 537.2 Diesel oil 105.7 171.8 201.4 199.7 206.5 239.3 Other fuel 23.3 30.,4 30.2 25.2 2.2 18.5 Total power expense 2,999.8 2,817.3 2,721.7 2,908.1 3,098.2 3,016.0 Permanent way materials 258.0 397.1 474.9 454.5 431.8 509.1 ElIectrieal supplies 69.1 87.9 90.7 90.7 80.2 97.5 Other materials and supplies 1.045 1.073.4 1,031,7 1.008.1 963.6 984.2 Total materials and supplies 1,372.6 1,558.4 1,647.3 1,553.3 1,475.6 1,590.8 Auxiliaay se-vices n.a. n.a. ;.a. 183.4 183.9 333.7 Maintenance of equipment n.a. *.a. n.a. 808.7 877.6 510.6 Other n.a. n.a 136.6 197.2 174.8 Total work by controct 1,504.5 1,486.9 1,242.1 1,128.7 1,258.7 1,019.1 Insurance 0.3 0.3 0.3 0.3 0.3 1.0 Miscellaneous 200.0 232.7 241.0 240.4 311.7 485.9 Total Oporating Expense (Excluding depreciation) 10,838.9 11,008.1 11,217.1 11,189.2 12,847.1 14,227.0 Deficit before interest 1,764.2 1,419.0 1,418.2 1,133.9 2,150.6 2,821.2 Interest: On bonds, 1946 - 1957 - 45 580.0 5'5.5 572.0 567.1 562.0 555.3 On State funds - ba-k loa-s - 1958-1763 110.9) 245.7 336.9 46 .5 467.4 596.7 Less miscellaneous interest ea ned _ ) 3 _ 13.8 41.6 6.3 36.7 Total net interest charges 690.9 787.2 875.1 991.0 1,023.1 1,115.3 Net deficlt after interest 2,455.1 2,206.2 2,293.3 2,124.9 3,173.7 3,936.5 Note: Totals do not al.ays equal sum of colponents because of rounding SPAIN RENFE INVrEST1MaT PIAl, 1964-73 (Pts millions) 1964- 1968- 1964 1965 1966 1967 1967 1968 1962 1970 1971 1972 17 1973 Total I t e m s Track 576 1,088 1,957 2,184 5,805 2,148 2,133 2,094 1,732 940 368 9,415 15,220 Stations 194 331 501 715 1,741 644 593 525 271 171 80 2,284 4,025 Diesel Motive Power 796 1,635 1,740 1,156 5,32? 992 954 952 915 896 475 5,184 10,511 Diesel Railcars 697 537 669 474 2,377 446 413 427 340 - - 1,626 4,003 Rolling Stock 929 1,124 1,230 1,186 4,469 1,030 870 578 449 295 183 3,405 7,874 Shops and Stores 213 376 264 267 1,120 156 88 35 10 - - 289 -.1, 9 Telecommunications 114 52 65 60 291 58 50 35 30 30 20 223 514 Safety Installations 307 197 194 202 900 235 230 215 179 145 120 1,124 2,024 Electrification 789 683 508 455 2,435 628 792 755 525 508 430 3,638 6,073 Miscellaneous Projects 442 620 758 757 2,577 774 702 657 541 398 185 3,257 5,834 Contingencies 2 307 364 1.248 6 627 57 686 46S 256 3.265 4.S13 Total 5,290 6,950 8,250 7,800 28,290 7,765 7,452 6,850 5,678 3,848 2,117 33,710 62.000 SPAIN ESTItTE OF FUTURE REiFE FRLIGHT TRAFFIC, 1964-73* (billion ton/km) Commercial Traffic Commercial Traffic Formerly Classified Subtotal Service Year (Pre-1964 Classification) Service) Mail Cormercial Traffic Traffic Total 1962** 5.8 1.4 0.2 7.4 0.3 7.7 1963** 6.2 1.3 0.2 7.7 0.3 8.0 1964 6.8 1.2 0.2 8.2 0.4 8.6 1965 7.3 1.3 0.2 8.7 0.4 9.1 1966 7.8 1.2 0.2 9.2 0.4 9.6 1967 8.3 1.3 0.3 9.9 0.4 10.3 1968 8.8 1.1 0.2 10.2 0.4 10.6 1969 9.0 1.1 0.2 10,3 0.4 10.7 1970 9.2 1.1 0.3 10.5 0.4 10.9 1971 9.5 1.0 °J3 10.7 0.4 11.1 1972 9.7 0.9 0.3 10.9 0,3 l112 1973 9.9 0.8 0.3 11.0 0.3 11.3 '-3 w * For explanation see Annex C. H ** Actual. TABLE 12 SPAIN LSTINATE OF FUTURE PLE,TFE PASSEWNrER TRAFFIC,_964-1973* Year Passenger/km billion 1962-'7 8.8 1963-** 10.1 1964 10.4 1965 10.6 1966 10.8 1967 10.9 1968 11.0 1969 11.3 1970 11.3 1971 11.6 1972 12.0 1973 12.0 * For explanation see Annex C. ->$' Actual. SPAIN RENFE ESTIMATED REVENUES, EXPENSES AND NET INCOME 16 -197 (Billion PesetasJ 1964 1965 1966 1967 1968 1969 1970 1971 19?2 1973 1964 - 1973 OperatinZ Revenues Passenger 4.87 5.53 5.75 5.98 7.11 7.41 8.10 8.54 8.81 9.86 71.96 Freight 6.88 7.43 7.95 8.62 9.04 9.39 9.70 9.99 10.23 10.52 89,75 Postal Service o.58 o.60 0.64 o.66 0.70 0.73 0.76 0.80 0.84 0.87 7.18 Miscellaneous 0.65 0.65 0.65 0.65 060.6 06.6 0.6 .6 0.65 6.o Subtotal 12.98 14.21 14.99 15.91 17.50 18.18 19.21 19.98 20.53 21.90 175.39 Less revenue - line closures 0.04 0.08 0.12 0.16 0.16 0.17 0.17 0.18 0.18 1.26 Total Operating Revenues 12.98 14.17 14.91 15.79 17.34 18.02 19.04 19.81 20.35 21.72 174.13 Operating Expenses Personnel 8.30 8.34 8.38 8.47 8.56 8.65 8.77 8.88 9.00 9.11 86.46 Power (fuel and electricity) 3.37 3.33 3.29 3.24 3.20 3.16 3.09 3.03 2.96 2 90 31.57 Materials and supplies and other 1.27 3,27 3.27 3.27 3.27 3.26 3.26 3.25 3.2$ 3.25 32.62 Subtotal 14.94 14.94 14.94 14.98 15.03 15.07 15.12 15.16 15.21 1S.26 150.65 Less expenses - line closures - 0.04 - 0.09 - 0.15 - 0.23 - 0.23 - 0.23 - 0.23 - 0.25 - 0.25 - 1.70 Less expenses - Modernization Plan - 0.08 - 0.10 - 0.12 - 0.12 - 0.12 - 0.11 - 0.10 - 0.08 - 0.06 - 0.03 - 0.92 Deferred Haintenance °5 . ss o.5ss 0is. o . ss5 o.S5 o .5 ..S5 oQ5 5..s. Total Operating Expenses, excluding Depreciation 15.41 15-35 15.28 15.26 15.23 15.28 15.34 15.40 15.45 15.53 153.53 Net Cash Operating Revenues - 2.43 - 1.18 - 0.37 0.53 2.11 2.74 3.70 4.41 4.90 6.19 20.60 Interest On Bonds 1946 - 1957 0.55 0.55 0.54 0.54 0.53 0.52 0.51 0.51 0.50 0.50 5.25 Foreign loans - prior to 1964 0.04 0.04 0.03 0.03 0.03 0.02 0.02 0.02 0.02 0.01 0.26 IBRD proposed loan - 0.04 0.14 0.22 0.21 0.20 0.19 0.17 0.16 0.15 1.48 Other foreign loans -- -- 0.6 o.19 0.29 0.42 0.43 0.41 0.37 2-17 Total Interest 0.59 o.63 0.71 0.85 0.96 1.03 1.14 1.13 1.09 1.03 9.16 Net Cash Income (Loss) - 3.02 - 1.81 - 1.08 - 0.32 1.15 1.71 2.56 3.28 3.81 5.16 11.44 Annual Depreciation Expense 1.47 1.66 1.88 2.13 2.35 2.58 2.79 2.99 3.16 3.26 24.27 Net Income or Deficit - 4.49 - 3.47 - 2 96 - 2.45 - 1.20 - 0.87 - 0.23 0.29 0.65 1.90 - 12.83 Operating Ratio % 130 120 115 110 101 99 95 93 91 87 102 Return on Net Fixed Assets (other than land) - 8.6 - 5.7 - 4.1 - 2.6 - 0.4 Loss - 8.6 - 5.7 - 4.1 - 2.6 - 0.4 Return +% + 0.2 + 1.2 + 1.8 + 2.1 + 3.6 Times Interest Earned 0.16 0.80 1.26 1.60 2.84 Debt Service Covesage 0.47 1.42 1.76 1.84 2.22 2.22 2.85 Note: 1. Operating Ratios are after depreciation, before interest. 2. RENFE's revenues would more than cover its operational cash expenses in 1968; depreciation as well in 1971. 3. Return is calculated on net Railway Operating Revenues; that is after depreciation and before interest; and on the average of net fixed assets replacement value (other than land) at the beginnVng and at the end of each year. 4. Times interest earned is after depreciation before interest. 5. All figures are rounded; totals do not always equal sum of components. SPAIN REMFE ESTL'hATED 8ALANCE S}EETS. 1964 - 1963 (balllon Peaetas) 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 M2 A s a e t s Current Assets Cash 1.15 1.53 1.61 1.56 1.36 1.31 1.11 0.81 0.46 1.35 Marketable Securities 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 Accounts Receivable 1.36 1.35 1.34 1.J6 1.38 1.40 1.2 1. 1.1.46 1.48 Staff Advances 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 Deposits - warrants 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 Stores 1.75 1.60 1.60 1.60 1.60 1.60 1.60 1.60 1.60 1.60 Total Current Assets 4.44 4.66 4.73 4.70 4.52 4.49 4.31 4.03 3.70 4.61 Fixed Assets (except land) Gross replace rent value 1/1/64 183.6 Less depreciation to 3/1/64 127.2 Gross replacement value less depreciation 56.4 less write-off 1964 - 1973 replace%ents 13.2 Replacement value less write-off 43.2 48.49 55.44 63.69 71.49 79.25 86.70 93.55 99.23 103.08 105.20 Less accuulated depreciation - 1.47 3.13 5.01 7.14 9.49 12.07 14.86 17.85 21.01 24.27 Net Fixed Assets 43.2 47.02 52.31 58.68 64.35 69.76 74.63 78.69 81.38 82.07 80.93 Total Assets 51.46 56.97 63.41 69.05 74.28 79.12 83.00 85.41 85.77 85.54 L i a b i 1 i t i e s Current Liabilities Accounts Payable 2.40 2.62 2.74 2.71 2.58 2.55 2.42 2.14 1.86 1.63 Accrued wages and salaries 1.00 1.00 0.95 0.95 0.90 0.90 0.85 0.85 0.80 0.80 Deposits and warrants 0.03 Q90 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 Total current liabilities 3.43 3.65 3.72 3.69 3.51 3.48 3.30 3.02 2.69 2.46 lIng-term Debt: Bonds 1946 - 1957 12.81 12.68 12.54 12.39 12.23 12.06 l1.89 11.7 11.54 11.35 US Loans and Eurofima 1.01 1.04 0.96 0.87 0.78 0.69 0.60 0.55 0.50 0.45 Nowuing Institute 0.40 0.50 0.60 0.70 0.80 0.90 1.00 1.10 1.20 1.30 IBRD proposed loan 0.80 2.60 3.90 3.90 3.66 3.42 3.17 2.93 2.69 24. Other foreign aid _ - 1.00 _10 5.20 7.60 7.74 7.38 6.78 6.18 Total Long-term Debt 15.02 16.82 19.00 21.36 22.67 24.67 24.40 23.68 22.71 21.72 Total Liabilities 18.45 20.47 22.72 25.05 26.18 28.15 27.70 26.70 25.40 24.18 R q u i ty Reserves - Amortized Bonds 1.32 1.47 1.63 1.78 1.95 2.12 2.30 2.48 2.68 2.88 - Operating and Improvements - - - _ - - - - - 0.76 Total Reserves 1.32 1.47 1.62 1.78 1.95 2.12 2.30 2.48 2.68 3.64 Capital 31.69 35.03 39.07 42.22 46.15 48.85 53.00 56.23 57.69 57.72 Total Equity 33.01 36.50 40.69 44.00 48.10 50.97 55.30 58.71 uO.37 61.36 Total Liabilities and Equity 51.46 56.97 63.41 69.05 74.28 79.12 83.00 85.41 85.77 85.54 Ratios: Current Assets to Current Liabilities 1.29 1.28 1.27 1.27 1.29 1.29 1.31 1.33 1.38 1.87 Liquid - (Less Stores) 0.78 0.84 0.84 0.84 0.83 0.83 0.82 0.80 0.78 1.22 Debt - Equity j1/69 32/68 32/68 33/67 32/68 33/67 31/69 29/71 27/73 26/74 SPAIN rEEiFLFESTIyATED c..SIFLOW. 1964 - 197 (Billions of Pesetas) 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 Totals Percent I. Cash Required Investments in Modernization Plan 5.29 6.95 8.25 7.80 7.76 7.45 6.85 5.68 3.85 2.12 62.00 77.6 Investment 1963 carry forward - 0.65 ------0.65 0.8 Interest on Debt: Bonds 1946 - 1957 0.55 0.55 0.54 0.54 0.53 0.52 0.51 0.51 0.50 0.50 5.25 US Loans, 1957 and 1959 0.04 0.04 0.03 0.03 0.03 0.02 0.02 0.02 0.02 0.01 0.26 Proposed IBRD Loan - 0.04 0.14 0.22 0.21 0.20 0.19 0.17 0.16 0.15 1.48 Other Foreign Loans - - - 0.06 0.19 0.29 0.42 0.43 0.41 0.37 2.17 Total Interest on Debt 0.59 0.63 0.71 o.85 o.96 1.03 1.14 1.13 1.09 1.03 9.16 11.5 Repayment of Debt Bonds 1946 - 1957 0.14 0.15 0.15 0.16 0.17 0.17 0.18 0.18 0.19 0.20 1.69 US Loans 1957 and 1959 0.10 0.09 0.10 0.10 0.10 0.10 0.06 0.06 0.06 0.06 0.83 Loans for Housing 0.01 0.01 0.01 0.01 0.02 0.02 0.02 0.02 0.03 0.03 IBPRD 0.18 Proposed Loan 1964 - - - - 0.24 0.24 0.25 0.24 0.24 0.25 1.46 Other Loans - _ - - - - 0.36 -0.36 0.60 0.60 1.92 Total Payment of Debt 0.25 0.25 0.26 0.27 0.53 0.53 0.87 0.86 1.12 1.14 6.08 7.6 Changes in Working Capital 0.33 -0.38 -0.08 0.05 0.20 0.05 0.20 0.30 0.35 0.25 1.27 Appropriations 1.6 to Reserves ------0.76 0.76 0.9 Total Cash Required 7.11 7.45 9.14 8.97 9.45 9.06 9.06 7.97 6.41 5.30 79.92 100.0 II. Cash Available Net Income or Deficit (after depreciation, before interest) -3.90 -2.84 -2.25 -1.60 -0.24 0.16 0.91 1.42 1.74 2.93 -3.67 - 4.6 Depreciation 1.47 1.66 1.88 2.13 2.35 2.58 2.79 2.99 3.16 3.26 24.27 30.4 Funds Provided by State: Deficit Including Depreciation 3.90 2.84 2.25 1.60 0.24 - - - - - 10.83 Interest - not earned 0.59 0.63 0.71 0.85 0.96 0.87 0.23 - - - 4.84 Debt repayment - not earned 0.25 0.25 0.26 0.27, 0.5j 0.53 0.87 0.57 0.47, - 4.00 For capital investment 2.80 3.45 4.07 3.17 3.71 2.47 3.56 2.69 0.69 - 26.61 Total Provided State LT 7.54 7.17 7.29 5.89 5.44 3.87 4.66 3.26 1.16 - 46.28 57.9 Loans US Loan - 1959 0.20 0.04 ------0.24 Proposed IBRD Loan 0.80 1.80 1.30 ------3.90 Other Loans _ - - 1,00 2.50 1.70 2,40 0.50 _ 8.10 Total Loans 1.00 1.84 2.30 2.50 1.70 2.40 0.50 - - 12,24 15.3 Total cash on hand, beginning of year 2.16 1.16 1.54 1.62 1.57 1.37 1.32 1.12 0.82 0.47 Total Cash Available 8.27 8.99 10.76 10.54 10.82 10.38 10.18 8.79 6.88 6.66 _ Cumulative Cash Position 1.16 1.54 1.62 1.57 1.37 1.32 1.12 0.82 0.47 1.36 79.12 99.0 Decrease Cash Position in 0.80 1.0 ILBAO ;SBTIN-RWCE yt Dowote B %7 /\ \7WGO T A; elo ~~~~~~Cd LEON DE AMLOARC\D>cn;n_!-_ PON T b lNFORTE LOGRO tt zev,90 \ EOA \ > / MA~~~~~~~~~~~~~~~~~~~~~~~~~NRESAX !, . 0 < \ PALENCIAt O ioooo \ /\s 2,_ \ \ ~~~~~~~~~VALLADOLIDt 4 6 O R~~~~~GAGOZAD \\ ZAMORA \/\CLN 1s K / / \>g~~~~~~~~~~~MONTANARES N SEGOVIA /\/\G ae ¢ < Eo~LFregendc3r< SALAIAC v T, <~~~~~~~~~~~~~~~~~~9de Nosonroo < / 1 < -- - f JR~UADALAJARA TERUE\ OX1 ')Ft, de OnrXo / ~ ~ ~ ~ ~ ~~ ~~MADRID \/ s & t / ~~~~~~~ C A \ /iGroo de CUENC / /: 2_____N iGrm o ooo TOLEDO °/ g Q i ton r de la0 gg ; j~~~~~ ~ ~ ~~ACERES I VAElCAEGr.o° g~~~~~~~~~~~~~~~~~~~~~~~~A L f u i REAL f ~~CIUDADALBCEE X j _ ~~~~~~~~~~~~ ABADAJOZ // evejo de H"CODB ;3AEZA °-TRCI {; / / \40~~~~~~ 7JErXsP AI NpS IL /l RENFE LINES S /CA~~~~ ~~~~~t,of'° J<4SEvy>/0=\/ Trrek LVA g < =< >2S>lo, ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Do.ble | h My raroa/ /\ ~~~~~~~~~Alqu.tf rc 5Snl 80nonzo/ ,( / %D~MALAGA ALMRA ..t,.f,ediI IIIIII S LUCOT d a wr / _ x ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~El CADIZ /9 1 8~~~~~~~~~~~~~~~~~~~~IR D-1334 R AP R I L 1964