World Bank Document

Report No. 385-YU Appraisalof a FILECOPY FourthRailway Project

Public Disclosure Authorized Yugoslavia

June 7, 1974 RegionalProjects Department Europe,Middle East,and North Africa RegionalOffice Not for PublicUse Public Disclosure Authorized Public Disclosure Authorized

Document of the InternationalBank for Reconstructionand Development InternationalFinance Corporation

Public Disclosure Authorized InternationalDevelopment Association

Thisreport was prepared for officialuse only by the BankGroup It maynot bepublished, quoted or citedwithout BankGroup authorization. The Bank Group does not acceptresponsibility for the accuracyor completenessof the report. CURRENCYEQUIVALENTS

Currency Unit - YugoslavDinar (ND) US$1 = ND 15.221/ US$1 million = ND 15,220,000 ND 1 - 1S$,00657 ND 1 million = uS$65,703.

WEIGHTSAND MEASURES

Metric British/US

1 meter (a) m 3.28 feet (ft) 1 kilometer(km) - 0.62 miles (mi) 1 metricton (m ton) 0.98 long tons (ig ton) = 1.10 US short tons (sh ton)

3LOSSARYOF ABBREVIATIONS

CYR - Comsunity of Yugoslav Railways ICB - InternationalCompetitive Bidding RTE - Railway Transport Enterprise SAP - Socialist Autonomous Province SFRY - Socialist Federal Republic of Yugoslavia SR - Socialist Republic

GOVERNMENTOF THE SOCIALISTFEDEAL REPUBLICOF YUGOSLAVIA FISCALTR

January 1 - December 31

C/urrency conversions in this reportare at the rate of US$1.00to ND 15.22 (currenton April 29, 1974). APPRAISAL OF

A FOURTHRAILWAY PROJECT

YUGOSLAVIA

TABLE OF CONTENTS

Page No.

SUMMARYAND CONCLUSIONS ...... i - iii

I* INTRODUCTION ...... 1

II. THE TRANSPORT SECTOR ...... 2

A. The System ...... 2 B. The Market ...... C. Policy and Coordination ...... 3 D. Previous Projects ...... 4

III. THE RAILWAYS..... ***.** ...... 5

A* General . 5 B. Community of Yugoslav Railways ...... 5 C. Organization, Management, and Staff ...... 6 D. Railway Property ...... 7 E. Operations ...... 00e....*...... 8 F. Tariffs ...... G. Traffic Forecasts ...... 9 H. Uneconomic Lines and Services ...... 10

IV. THE DEVELOPMENT PLAN AND THE PROJECT ...... 10

A. General ...... 10 B. Five-Year Investment Plan, 1973-77 ...... 11 C. Three-Year Project, 1974-76, and Investments Selected for Bank Financing ...... 12 D. Cost Estimates ..... *...... 15 E. Financing Plans ...... 15 F. The Loan . 16 G. Action Plans ...... * ...... 17 H. Implementation ...... 18

This Appraisal Report has been prepared by Messrs. V. Wouters (Economist), L.L. Alston (Engineer)and R.W. MacDonald (FinancialAnalyst). TABLE OF CONTENTS (Continued)

Page No.

V. FINANCIAL EVALUATION ...... 19

A. General ...... 19 B. Past Financial Performance ...... 20 C. Forecast Financial Performance ...... 21 D. Cash Flow ...... 21 E. Balance Sheet ...... 23 F. Financial Rates of Return ...... ** ...... * 24 G. Audit ...... 25

VI. ECONOMIC EVALUATION ...... 25

A. General ...... 25 B. The Investment Plan, 1973-77 ...... 25

VII. RECOMMENDATIONS...... 28

ANNEXES

1. TransportationProjects Previously Financed by the Bank 2. The Transport Market 3. ComparativeStatistics of RTEs 4. Management of InterdependentWorks 5. Selected Operating Statistics of CYR, 1965-73 6. Staff in 1972 and Forecasts for 1975 and 1977 7. Productivityin 1972 and Targets for 1975 and 1977 8. Planned Procurement of Traction and Rolling Stock, 1973-77 9. ProductivityCompared with Other European Railways 10. Freight and Passenger Traffic of CYR, Actual 1968-73 and Forecast 1974-77 11. Potentially UneconomicLines to be Considered for Closure 12. Summary Five-Year InvestmentPlan, 1973-77 13. Three-YearProject Period Expenditures, 1974-76 14. Expenditureson Items Selected for Bank Finance 15. Estimated Distributionof Loan Proceeds Among RTEs 16. Estimated Schedule of Disbursements 17. Action Plans 18. Bank-Financed Procurement for Related Investments 19. Financial Details and Targets for RTEs 20. CYR Income Account, Actual 1968-72, Provisional 1973, and Forecast 1974-77 21. Main Assumptions Used in Financial Evaluation 22. CYR Cash Flow, Actual 1971-72, Provisional 1973 and Forecast 1974-77 23. CYR Summary Balance Sheet, Actual 1971-72, Provisional 1973 and Forecast 1974-77

CHART Sarajevo RTE OrganizationChart

MAP Yugoslavia Transportation Infrastructure APPRAISAL OF

A FOURTH RAILWAY PROJECT

YUGOSLAVIA

SUMMARY AND CONCLUSIONS i. In December 1964, the Bank loaned US$70 million (Loan 395-YU) toward a ModernizationProgram for main railway lines in Yugoslavia. Although this Program was scheduled for completion in 1968, a significantpart of the works remains to be carried out and the total cost has increased from US$185 to about US$400 million. Upon final loan disbursementin October 1972,

Yugoslavia requested further Bank financing to complete the Program and - financing for certain related investments. However, to avoid recurrence of delays in project execution,the Bank requested a comprehensivedevelopment and financingprogram, backed by appropriateGovernment support. ii. Such a program has now been prepared and has been accepted by the Socialist Federal Governmentof Yugoslavia (SFRY), Socialist Republics (SRs), Socialist AutonomousProvinces (SAPs), and other interestedparties. The program comprises Investmentand Financing Plans for 1973-77, Action Plans for rationalizingthe railways' organizationand operations, and comprehensive support measures, including arrangementsfor appropriate tariff increases, compensationpayments, and other financialassistance. As a result, the railways are expected to achieve financialviability during the plan period. iii. This report appraises a new railway project within this comprehensive program. Total investmentsin the Plan for 1973-77 are estimated at US$1,763 million, including contingenciesadequate to.cover the effects of the energy crisis. Within this Plan, the loan would finance a project covering total investmentsduring 1974-76, estimated at US$1,139 million, including contingencies. The proposed loan of US$93 million, representing about 8% of the project cost, would be allocated to expendituresafter June 30, 1974 as follows: US$39.6 million to completionof the 1964 Modernization Program; US$24.7 million to investmentsclosely related to that Program: US$0.7 to technical assistance and-staff training and US$28.0 to physical and price contingencies. The total cost of the investments under these allocations is estimated at US$231.8 million, with a foreign exchange component of US$100.0 million. iv. The loan would be the fourth for railways and the eleventh for transport. The ten previous loans total US$394.4 million, including US$155 million for three railway projects; US$180 million for six highway projects and US$59.4 million for the Naftagas pipeline project, which became effective on March 22, 1974. Execution of the highway projects has been satisfactory, but the railway projects have suffered delays and cost increases. v. Execution of the 1964 ModernizationProgram of main railway lines has encounteted the greatest difficultiesdue mainly to failure of the Fi- nancing Plan. Railway revenues were depressed by SFRY control over tariffs in a period of rapid inflation and by sharply increased road competition. Following institutionalreforms, the SRs and SAPs could not provide promptly - ii -

the necessary resources. All these factors were compounded by general illiquidity of the Yugoslav economy and adverse exchange rate adjustments. The railways were also ill-equipped to adjust to new market conditions and lacked experience in managing such a large project.

vi. The Yugoslav authorities, aware of these deficiencies, are now undertaking to provide appropriate support for the railways, including a major financial recovery program and agreed tariff policies which should enable the railways to cover from their internal resources adequate operating cash and working capital as well as 33% of their investments under the project. As a result of measures already taken, the railways realized a small net surplus of ND 4 million in 1973, compared to a deficit of ND 750 million in 1972. Also the prospects for 1974 are that they will be able to realize another small surplus despite a substantial increase in depreciation provi- sions -- which will generate more cash for investment- because the authorities have approved an increase of 21.8% in tariffs, effective as of May 24 for freight and June 1 for passengers. Increasing surpluses are forecast for 1975 to 1977. Furthermore, the authorities have agreed to participate with agreed percentages in the investments financed by the proposed loan and to guarantee the timely provision of all funds for these investments in case of an unexpected shortfall in their financing. In addition, should the railways have insufficient funds to carry out the project as a whole on time, the authorities have agreed to use their best efforts to arrange the necessary financing.

vii. The Yugoslav Railways consist of five independent Railway Transport Enterprises (RTEs), with joint activities coordinated by the Community of Yugoslav Railways (CYR). Productivity compares satisfactorily with that of other European railways. Managements are technically competent, but have only recently given adequate attention to planning and marketing. Through their Action Plans, the railways intend to make extensive improvements in their organization and operations. These improvements are specified in appropriate cases as quantified operational and financial targets, including studies of 2,700 km of possible uneconomic lines and a reduction in the labor force of at least 10,000 between 1972 and 1977.

viii. Major components of the project are: completion of the 1964 Modernization Program; investments closely related to this Program; other investments in fixed installations; traction and rolling stock; development of integral transport; and construction of three short lines and resiting of Belgrade station.

ix. The US$93 million loan would be disbursed as follows against expenditures after June 30, 1974: 40% of the expenditure for completing the 1964 Modernization Program, 100% of the cost (c.i.f. landed for imports or ex-factory price for domestic goods) of specified materials and equipment for related investments; and 100% of the foreign exchange cost of staff training and technical assistance. The loan would be made to the CYR and the loan proceeds transferred to RTEs by subsidiary agreements. Each.RTE will be responsible for its part of the project, with CYR responsible for - iii - loan administration,coordination of technical assistanceand staff training and reporting to the Bank on progress in project execution and other matters. x. The completion of existing contracts for the 1964 Modernization Program, placed in accordance with procedures agreed under loan 395-YU,would be eligible for Bank financing and would account for about US$28 million 1/ of the loan. Certain contracts remaining to be placed for that Program, amounting to about US$6 million 1/ of the loan, would not be suitable for internationalcompetitive bidding (ICB) because of standardizationwith existing equipment and the need for integrationwith existing operations. New contracts, amounting to about US$30 million 1/ of the loan would be awarded following ICB, in accordancewith the Bank's Guidelines for Procure- ment. Minor contracts, amounting to about $1.2 million 1/ of the loan, would be placed in accordance with the railways' normal procedures,which are satisfactoryto the Bank. xi. The Financing Plans for 1973-77, including those for the project, are satisfactory. All resources necessary for the financing of the project have been identifiedand only 5% of those required for the entire plan period remain unidentified,mainly for those investments to be started late in the plan period and which depend on the satisfactoryoutcome of technical/ economic studies. To fill this gap, the railways expect additional assistance from the Bank in 1977 and are actively seeking other sources. Finan- cing of the project requires that the railways cover 33% of the investments from their net internal funds. The Bank has obtained assurances from the Yugoslav authorities that, by tariff increases or other means, these funds will be available to the railways. Even if a shortfall should occur, about 90% of these internal resources would be assured as a result of new depreciation arrangementsand other Government support measures. xii. Investmentsin the Plan should yield relatively high benefits as they involve expenditurefor completing ongoing works yielding full benefits on completion. Benefits will result mainly from reduced maintenance and operating costs, improved utilization of traction and rolling stock, and increased revenue from higher quality services. Beneficiarieswill be the railway passengers and users of railway freight services, SRs, SAPs, and railways themselves. The Rate of Return is 16% on the 1973-77 Invest- ment Plan and 28% on the balance of investments for completing the 1964 ModernizationProgram. Since these returns are based on conservativeesti- mates of benefits, the Plan is well justified. xiii. With the assurances obtained and fulfillmentof certain conditions for loan effectivenessas indicated in paras. 7.01-7.03, and based on the Investment,Financing, and Action Plans for 1973-77, the project is suitable for a Bank loan of US$93 million to the CYR for a 25-year term, including 3 years of grace.

1/ Excluding contingencies.

APPRAISAL OF

A FOURTH RAILWAY PROJECT

YUGOSLAVIA

I. INTRODUCTION

1.01 In December 1964, the Bank loaned US$70 million (Loan 395-YU) toward a ModernizationProgram for main railway lines. Completion,scheduled for 1968, has been seriously delayed (para 1.02), and total costs have increased from US$185 million to about US$400 million. Upon final loan disburse- ment in October 1972, the Yugoslav authoritiesrequested further Bank financing to complete the Program as well as financing for certain other closely related investments,technical assistance,and staff training. These elements are covered by a proposed loan of US$93 million, which is the subject of this report. The railways are spending about US$44 million on the Modernization Program between October 1972 and end of FY 1974, when the loan is expected to be signed.

1.02 Delays and cost increases in the 1964 ModernizationProgram were mainly due to failure of the Financing Plan. Revenues were depressed by Federal control over railway tariffs in a period of rapid inflation and by sharply increased road competition. Institutionalreforms transferred responsibilityfor funding railway deficits and investmentsfrom the Socialist Federal Government of Yugoslavia (SFRY) to the Socialist Republics (SRs) 1/ and Socialist AutonomousProvinces (SAPs) 2/, which could not quickly provide the necessary resources. The railways were also ill-equippedto adjust to new market conditions. All these factors were compoundedby illiquidityof the Yugoslav economy and adverse exchange rate adjustments. Constructionschedules proved to be over-optimisticand deficienciesoccurred in project management, while new operationalrequirements and technologicaldevelopments led to changes in designs and specifications. Annex 1 provides a more detailed review.

1.03 In 1971, the Bank concluded that fundamentalreforms were necessary to avoid further delays and improve the railways' situation. In agreement with all Governments,the Bank carried out a survey of the whole transport sector and commissionedTransmark, a British consulting firm, to review the railways' situation in depth. The main findings and conclusions of the sector review are incorporatedin IBRD/IDA Report 194a-YU "The Economic Develop- ment of Yugoslavia",November 26, 1973 (Volume III, Chapter VII A).

1/ SRs: Bosnia-Herzegovina,Croatia, Macedonia,Montenegro, Serbia, and Slovenia.

2/ SAPs: Kosovo and Vojvodina,both within the SR of Serbia. - 2 -

1.04 The Yugoslav authorities, including the SFRY, SRs, and SAPs, have now agreed to resolve major policy issues and to provide appropriate support to the railways, including direct participation in financing specific investments. The railways have prepared a comprehensive program, including realistic Five-Year Investment Plans for 1973-77, corresponding Financing Plans, and detailed Action Plans for improving their organization and operations. All Governments, the railways, and other interested parties have reached agreement on this comprehensive program, and are committed to enter into formal agreements on certain matters as conditions of loan effectiveness. Consequently, a firm basis has been established for consideration of further assistance to the railways.

1.05 The proposed US$93 million loan to the Community of Yugoslav Rail- ways would help finance a three-year slice, 1974-76, of the railways' Five- Year Investment Plan for 1973-77 and would be disbursed against expenditures after June 30, 1974 on selected investments. The loan represents about 8% of the total project cost and would be allocated as follows: US$39.6 million to completion of the 1964 Modernization Program; US$24.7 million to investments closely related to that Program; US$0.7 million to technical assistance and staff training; and US$28.0 million to physical and price contingencies.

1.06 This report was prepared on information provided by the Yugoslav authorities, the railways, and Transmark, and on the findings of several Bank missions since 1971, including the appraisal mission which visited Yugoslavia in December 1973, composed of Messrs. V. Wouters (Economist), L.L. Alston (Engineer), and R.W. MacDonald (Financial Analyst).

II. THE TRANSPORTSECTOR

A. The System

2.01 Yugoslavia's transportation system is extensive and diversified, comprising 10,400 km of standard and narrow gauge railways; 96,000 km of roads; a sizeable network of inland and coastal waterways; 5 major ports on the Adriatic 1/; and 15 airports, 10 of which handle international flights. The country's topography influenced the shape of this system in that the main inland routes follow the easy paths and avoid the coastal and southern moun- tains. Hence, the main routes and major traffic flows run northwest to south- east, mainly from Ljubljana via Zagreb and Belgrade to Skopje. For historical reasons, the system is more developed in the northern part of the country.

2.02 Major objectives of post-war transport policy were to provide better access to the lesser developed regions in the south and to the Adriatic, and to improve the roads to Western Europe. Other objectives were to increase

1/ Koper, Rijeka, Split, Ploce, and Bar. -3-

the capacity of the existing system and to improve the quality of services. These objectives have not yet been fully realized. Major projects to fill gaps in the system are still in preparationor under construction,and much remains to be done: in general, the railways offer slow service and lack sufficientcapacity; many roads are below standard for the traffic they carry; and additionalport capacity and new facilitiesare required to handle the expected increase in traffic and containers.

2.03 Transport demand expanded rapidly during the past decade (para. 2.04), while the authorities gave relativelylow priority and insufficient funds to transport investments: their share 1/ declined from 3.5% of Gross Material Product 2/ and 21.9% of total economic investments3/ during 1955-59, to 2.7% and 17.6%orespectively during 1965-69. The authorities are aware that insufficientinvestment in the transport sector may impede economic growth and are prepared to give transport investmentshigher priority, as evidenced by their current support for the railways' investmentplans.

B. The Market

2.04 From 1960 to 1970, passenger traffic increased at an annual rate of over 10% and freight traffic at 7%, while GNP grew at about 6% and per capita income at about 5%. For details see Annex 2. These relationshipsare comparable to those in other countrieswith similar growth. During this period, the transportmarket underwent drastic changes requiring the railways to make adjustments in a relatively short period. Passenger and freight transport by road increased at annual rates of 21% and 20%, respectively,while railway passenger traffic stagnatedand freight traffic increased only 2.5% annually. As a result, road transport replaced rail transport as the dominant mode and the railways' share in the passengermarket declined from 67% to 25% and in the freight market from 74% to 47%.

C. Policy and Coordination

2.05 Yugoslavia's transport policies and their implementationhave changed frequentlyand significantlysince World War II, primarily as a result of wider economic and institutionalreforms. The main tenets of these policies are: freedom of choice by users; free entry into the sector; competition in the market; and equal pricing treatment by Government requiring all modes to cover their infrastructurecosts. At present, the Yugoslav system is characterizedby decentralizedauthority and autonomous transport enterprisesunder workers' management, operating in a market economy. SFRY control over the railways is now limited principally to freight tariffs and

1/ Excluding purchases of road motor vehicles. 2/ A Yugoslav economic index, similar to GNP, which excludes certain pro- fessional and public services such as administration,defense and education.

3/ Excluding investmentin housing, public buildings, and other projects of a social character. - 4 -

internationalrelations. Decisions by the SFRY are taken in agreement with the SRs and SLPs which now have principal governmentalresponsibility, including financing of railway deficits and part of their investments and providing other support.

2.06 Economic reforms have promoted transport growth (para 2.04), but also have caused initial difficulties. Following decentralization,SFRY stiff responsible for the transport sector was substantiallyreduced, without correspondingincreases in staff of the SRs and SAPs, and transport issues did not always receive sufficient attention. This aggravated the railways' problems, especially since tariffs remained under SFRY control while the SRs and SAPs had difficulty in mobilizing funds to reimburse losses and to finance investmentsand working capital. Also, changes in transport policy made it difficult for the railways to prepare realistic investment,financing, and operationalplans. A particular difficultywas the absence of firm institu- tional arrangementsfor financing transportinfrastructure. Finally, the reforms favored road transport,notably diesel trucks.

2.07 The reforms were intended gradually to transform the railways from "public" into "economic" enterprises. But while all Governments expected the railways to operate with minimum support, they continued to restrict tariffs and to require them to render some social services below cost. The railways' financialsituation suffered and substantialassistance from SRs and SAPs became necessary. The railways now wish to move toward a situation of financial viability. For their part, all Governments realize that the railways must solve a number of critical-problemsbefore they can achieve such viability and that, in the interim, the railways will continue to need considerable support.

2.08 Following discussionswith the Bank, the Yugoslav authoritieshave made significant progress in tackling these problems. A SFRY Secretariat for Transport and Communicationswas established in December 1971, and its staff has been strengthened. Most SRs and SAPs have establishedsimilar secretariats and/or have appointedadditional staff to deal with transportmatters. Since 1971, all Governmentshave given considerableattention to the transport sector and importantmeasures have already been taken, or are being considered, for improving the general transport situation, including in 1973 a major financial support program for the railways (para 5.03). A transport coordination study to determine appropriateuser charges for road transport and to establish fair competitiveconditions with rail transport is now being revised to take into account the recent increase in crude oil prices. Finally, the SRs and SAPs are consideringarrangements for providingmore ample funds for transport investments. Despite this progress, the problems are far from solved and further improvementsbeing discussedwith the Yugoslav authorities concern the strengtheningof staff and measures for improving the preparation, planning, coordinationand financing of transport investments.

D. Previous Projects

2.09 The proposed project would be the fourth for railways and the eleventh in the transport sector. The Bank has lent US$394.4 million to -5-

the transport sector, including US$155 million for three railways projects, US$180 million for six highway projects, and US$59.4 million for the Naftagas project. Annex 1 gives details of these projects.

III. THE RAILWAYS

A. General

3.01 Railway organizationin Yugoslavia is unique. Five separate and independentRailway Transport Enterprises (RTEs) form the Community of Yugoslav Railways (CYR), each serving a Republic and named after its capital city, except for Belgrade RTE which serves SR Montenegro, SAP Vojvodina and SAP Kosovo as well as SR Serbia.

3.02 RTEs operate commercially,with CYR coordinatingjoint decisions (paras 3.03 and 3.04). They vary considerablyin size as shown in Annex 3. Belgrade is the largest RTE, with six times the length of line and about ten times the traffic and staff of Skopje, the smallest. Belgrade and Zagreb together account for over 60% of total activity. Traffic densities are highest for Zagreb and Ljubljana, serving the more developed regions. The RTEs' subsidiary interests include road transport, tourist offices, hotels, restau- rants, and research and design institutes. Sarajevo operates the port of Ploce.

B. Community of Yugoslav Railways (CYR)

3.03 Three-quartersof traffic is inter-enterprise,so that operations are highly interdependent. RTEs have, by law, established the CYR, which serves as a forum for common decisions and as an executing agency for joint operations (for example: timetables,wagon utilization,and revenue distribution). It also represents RTEs at SFRY and internationallevels and sets safety and technical standards.

3.04 Following decentralization(para 2.05) the CYR's role diminished. But recently,with Bank support, it has been made more active, particularly in planning and in Federal discussions of government assistance. The RTEs have concluded a self-managementagreement enabling CYR to increase its planning, research, and marketing activities, and to define common objectives. The RTEs have also agreed to entrust CYR with the administrationof the proposed loan, reporting on the project and coordinationof technical assistance and staff training, and that for these purposes CYR should establish a panel of technical specialistsdrawn from its own staff, or seconded from other RTEs, or recruited locally. Establishmentof this panel is a condition of loan effectiveness. - 6 -

C. Organization,Management, and Staff

(a) Or. anization

3.05 Each RTE is organized under the Yugoslav system of workers' self- management, responsibilitybeing delegated as far as possible to its constituent units. Internal organizationis complex and differs between RTEs. Reorganizationshave been frequent and one is currently in progress to strengthenthe autonomy of constituentunits. Broadly, each RTE has a director-general and three to five assistants responsible for central service departments and operational units. Each RTE and constituent unit has a workers' council to which management is responsible. The Sarajevo organization for 1973 is shown in the Chart. Central service departmentsinclude marketing, finance, planning, major investments,and personnel. Operational units, called "pogons", cover traffic, maintenance,and subsidiaryactivities. Some pogons, responsible for subsidiary activitiesor undertakinga substantial amount of work for other non-railwayorganizations, are virtually independent and account for about 10% of staff.

(b) Management

3.06 Management and decision-makingare complex processes,with extensive interactionand consultationsbetween managements and workers' councils. Mainagementis technicallycompetent and planning and marketing are being strengthenedconsiderably. Management support staff is reasonably qualified, but insufficient,mainly because of recruitmentdifficulties; this is being partly remedied by integrating the railways' computer centers into the planning process and efforts are being made to make job offers more attractive.

3.07 Responsibilityfor executing investmentshas been dispersed among specializedpogons, whose activitieshave been coordinatedby the central service departments. To increase the effectivenessof project management, the RTEs have agreed that in appropriate cases interdependentworks, such as electrificationand track overhaul on a section of line, shall be grouped into projects with an officer appointed for each project, responsible for satisfactoryexecution in accordancewith specifications,within budget and time schedules. Agreement has been reached on a list of works (Annex 4) which will be managed in this way.

3.08 Between 1965 and 1972 railway staff decreased by 16,000 to about 120,000 (Annex 5) due partly to transfer of certain work and staff to independentpogons. From 1972 to 1977, the RTEs have estimated that investments and organizationalchanges, after allowing for traffic growth, should result in a net reductionof nearly 13,000 posts (Annex 6). Closure of uneconomiclines could, in addition, result in up to 11,000 surplus posts with a small surplus also resulting from closure of uneconomic services (para 3.26). To resolve the resulting staff surplus, the RTEs are preparing retrainingand support programs. Implementationof these programs has already started and resulted in staff reductionsof nearly 3,000 in 1973. -7-

3.09 Many of the staff holding potentiallysurplus posts can be re- trained to fill other vacancies in the RTEs. Normal wastage, as a result of staff retiring and leaving for other jobs, should create about 15,000 vacancies from 1972 to 1977. Time will be needed to retrain personnel to fill vacancies so that the reduction in staff will be somewhat slower than the reduction in posts, but'the RTEs believe that, with the assistanceof SRs and SAPs, they will be able to retrain staff and discharge any remaining surplus with a delay of one to two years.

3.10 During loan negotiations,the RTEs agreed to use their best efforts to achieve staff reductions from the 1972 level, of at least 6,000 by 1975 and a further 4,000 by 1977 (Annex 6), excluding those from closures of lines and services. They also agreed to achieve further reductions according to closures of uneconomic lines within two years of decisions to close. The SRs and SAPs have also given assurances that they will assist the railways in resolving any staff surpluses in excess of the railways' absorptive capacity.

3.11 Based on preliminary forecasts of staff requirements,the RTEs have agreed to use their best efforts to attain the staff productivity targets shown in Annex 7. Overall productivityincreased 17% between 1967 and 1972, and should increase 20% between 1972 and 1975, and 40% between 1972 and 1977.

D. Railway Property

(a) The Network

3.12 In 1973, the RTEs had 10,400 route km of railway (Annex 5), 90% standard gauge (7% double track) and 10% narrow gauge. The track has deteriorated for some years because less than half the necessary 700 km annual rehabilitationhas been achieved. Speed restrictionsof 60 km/hr or less have been imposed over a third of the network, and only about 10% is suitable for 100 km/hr. To improve the situation, the RTEs have agreed to prepare a comprehensiveplan for track rehabilitation,as part of their Action Plans (para. 4.19).

3.13 About a fifth of the network is electrified,including most of the internationalline traversingYugoslavia; electrificationis in progress on a gap of about 250 km. Modern signalling equipmenthas been installedon electrified lines, or is being installed under the 1964 ModernizationProgram. Most of the remainderof the railway still has mechanical signalling, substantially the same as 40 years ago. As part of their Action Plans (para. 4.19) the RTEs have agreed to prepare comprehensivesignalling plans.

(b) Traction and Rolling Stock

3.14 In 1973, the RTEs had 758 diesel and 301 electric locomotives, procured mostly since 1965 (Annex 5). However, 757 steam locomotives (42% of which were over 40 years old) still formed over 40% of the fleet of 1,816 but hauled only 16% of gross m ton-km. Steam traction is being phased out, but some is expected to remain in service after 1977. - 8 -

3.15 The railways purchased about 13,000 freight cars between 1965 and 1973 to replace some 26,000 older, smaller-capacitycars. This reduced the fleet to alntt 59,000, but increasedcapacity from 1.48 to 1.75 million m tons. During the same period, some 800 new passenger cars were procured and 1,600 withdrawn, reducing the fleet to about 3,700. Nevertheless, 36% of freight cars and 6% of passenger cars were over 40 years old. The Investment Plan contains extensive provision for new traction and rolling stock, summarized in Annex 8. As part of their Action Plans, the RTEs will prepare Trac- tion Plans and Rolling Stock Plans for optimizing the utilization and procurement of equipment (para. 4.20).

E. Operations

3.16 Although most traffic passes through more than one RTE, locomotive schedulingand wagon distributionis carried out mainly to suit the owning RTE rather than to reduce overall costs. CYR coordinatesinter-enterprise use and should evaluate the substantialoverall economieswhich appear possible. Annex 5 contains selected operating statisticsfor CYR. During loan negotiations, the RTEs agreed to use their best efforts to achieve agreed operating targets (para 4.20).

3.17 The availabilityof diesel and electric locomotives is rather low, having declined from 84% 1/ and 83% respectivelin 1970 to 78% and 75% in 1973. Low availabilityis due to technical factors and to a shortage of spares resulting from a lack of working capital. The RTEs have agreed to prepare a Workshop Plan, including a study of workshop facilitiesand maintenance procedures, and this will be used to set availabilitytargets for 1977 (para. 4.19). Utilization of electric locomotives (km per day) has increased continuouslywith the extension of electrification,and has increased also for diesel locomotivesin 1973 after some decline in earlier years. While overall utilization is satisfactory(Annex 5), there is considerable variation among RTEs and a review of locomotivescheduling will be included in the Traction Plan.

3.18 Between 1965 and 1973, new and larger freight cars increased the average load per freight car loaded by 29% and net m ton-km per freight car by 36% but the net m ton-km per m ton of fleet capacity declined by 6%. Turn- around time of wagons, though reasonableat 5.6 days in 1973, has deteriorated from 4.3 days in 1965 due to customer retention and line delays but should be improved significantlyby completion of track and marshalling yard works included in the project. The average speed of passenger trains increased by 17% between 1965 and 1973, mainly as a result of improvementsin locomotives and rolling stock and modernizationof certain sections of main lines. Pro- ductivity compares satisfactorily,with other European railways, as shown in Annex 9.

1/ Standard gauge diesels. -9-

F. Tariffs

3.19 Freight rates are controlledby SFRY, which establishestheir average level in agreement with SRs and SAPs and passenger fares are controlled by the SRs and SAPs. Freight rates are broadly related to average cost of service but passenger fares are priced below cost. Uniform basic freight rates and passenger fares are adjusted for each RTE, according to a mutually agreed system of coefficients,to take into account variations in costs and traffic densities. The system was establishedon 1968 data, which may not fully reflect current cost and market trends. Coefficients for freight vary between 0.97 and 1.15 and for passengers between 1.00 and 1.27. Further coefficientswithin each RTE take into account traffic densities on specific lines and vary between 0.90 and 1.40. The CYR is reviewing current data with a view to updating the system, but:any changes are not expected to affect total revenues significantlyduring the project period.

3.20 Standard freight rates are sharply increased for less than full wagon-loads and varying discounts are granted for specific large contracts. For passenger fares, first class is double standard class and various discounts are granted for students, workers, invalids, and other groups, with 20% reductions for round trips.

3.21 Government controls have tended to keep average railway revenues depressed. Since 1964 average revenue per traffic unit 1/, in real terms, has fallen 10%, compared to about 5% for correspondingexpenditures. Although the railways made a small profit in 1964, depreciationwas inadequate and tariffs were insufficientto provide a reasonable surplus towards development. The subsequent fall in average revenue per traffic unit added significantly to the financial difficultiesof the railways in recent years. To ensure success of the new Five-Year Development Plan the Bank has obtained assurances on appropriate tariff increaseswhich should provide the required internal resources for financing the project (para 4.01).

G. Traffic Forecasts

3.22 Railway freight is expected to reach 25.6 billion ton-km and passenger traffic 12.0 billion pass-km by 1977 (Annex 10), including traffic to be generated by the opening of the new Belgrade-Barline in 1976. Forecast average annual increases during 1974-77 of 5.8% for freight and 3.2% for passengers (5.2% and 2.2% excluding Belgrade-Bar)compare with 4.6% and 0.5% for the past six years.

3.23 A 5.8% increase in rail freight is considered reasonable. The railways' intensivemarketing efforts are beginning to show results. The increase in freight tariffs was 6.7% in 1973, and was even higher during the first three months of 1974. Furthermore,60% of the traffic increases forecast for major commoditieson the existing system have already been contracted.

1/ Total traffic units are the sum of net m ton-kms and pass-kms. - 10 -

Also, railway costs will be less affected than road transportcosts by the energy crisis, which should enable them to strengthen somewhat their competitive pos tion. Finally, the forecasts exclude any traffic which the railways may recover when the Suez Canal is re-opened.

3.24 A 3.2% annual increase in passenger traffic during 1974-77, although high comparedwith the increases in past years, is consideredattainable. Over one-third of the increase is attributableto the opening of the Belgrade-Bar line and the remainder to improvements in the quality of services as modernization proceeds, including the introduction of faster long-distance trains. The railways expect that with better marketing they will be able to attract part of the expected expansion in the passenger market, including foreign tourists and migrant workers. Whether they will succeed is somewhat uncertain, because it is not yet possible to ascertain firmly what effects the energy crisis will have on foreign tourism and the movement of migrant workers.

3.25 Although CYR has issued a common methodology,RTEs' forecasts vary in analytical quality and data bases. Action Plans require further improvement of forecasting,including market research and planning, and a greater role for CYR, especiallyin collectingmore comprehensiveand reliable data and in coordinatingforecasts for inter-enterpriseand internationaltraffic.

H. Uneconomic Lines and Services

3.26 The railways have closed about 1,500 km of uneconomiclines since 1965 and have identifieda further 2,700 km to be reviewed for closure before the end of 1977 (Annex 11). There are also some uneconomic passenger services operated over otherwise economic lines; these services are being studied by the RTEs, which eliminatedover 70 unprofitabletrains from the timetable in 1973. The Social Agreement now being considered (para 4.01) provides that CYR will complete the methodology for review of these lines and that the RTEs, SRs, and SAPs should reach agreement on the closure of such lines, or their retention with compensation. The CYR has agreed to send the completedmethodo- logy for review to the Bank.

IV. THE DEVELOPMENT PLAN AND THE PROJECT

A. General

4.01 The 1973-77 DevelopmentPlans of the five RTEs comprise Investment and correspondingFinancing Plans as well as Action Plans for improving their organizationand operations. They have been coordinatedby the CYR and approved by the SRs and SAPs concerned; they were adjusted early in 1974 for the effects of the energy crisis and their approval by the workers' councils and authorities,as necessary, is a condition of loan effectiveness. A key element for their success is appropriate government support. Part of this support has already been enacted (para 5.03), and the SFRY and/or the SRS and SAPs have agreed to approve appropriatetariffs and other measures to ensure that the railways would be able to finance about 33% of their investmentsunder the project from their own funds in accordancewith the - 11 -

Financing Plan. In this latter respect, the Federal Office for the Market and Prices (representingSFRY), the Federal Chamber of Economy (representing the most important users of railway services), and the railways are preparing a Social Agreement, which will provide general principles on which to base future tariff increasesas well as arrangementsfor decisions by the SRs, SAPs, and municipalitieson the closure of uneconomic lines. Signing of the Agree- ment is a condition of loan effectiveness. Meantime, the authoritieshave approved an increase of 21.8% in tariffs, effective from May 24, 1974 for freight and June 1, 1974 for passengers. As a result, the railways expect to earn an overall net surplus and to balance their financingplan during the current year.

4.02 The project to be financed under the proposed loan consists of a three-year slice, 1974-76, of the 1973-77 Investment Plan. Within this project, the proposed loan would be disbursed against expendituresafter June 30, 1974 for completing the 1964 ModernizationProgram, certain closely related investments,and technicalassistance and staff training. To ensure the timely execution of the Project, the authoritieshave agreed, in addition to the tariff increasesmentioned in para 4.01, to:

(i) participatewith their own funds in financing agreed percentages of the cost of completing the 1964 Moderni- zation Program and the related investments;

(ii) provide the funds, as necessary for timely completion of the 1964 ModernizationProgram and the related investments in case of any unexpected shortfall in their financing; and

(iii) use their best efforts to provide the funds, or cause the funds to be provided, necessary for completing the entire Project, whenever there is reasonable cause to believe that the railways will have insufficientfunds to do so.

B. Five-Year Investment Plan, 1973-77

4.03 Total investments for 1973-77 (Annex 12) are estimated at ND 26.8 billion (US$1,763million), including a foreign exchange component of ND 11.6 billion (US$764million) and ND 6.9 billion (US$455million) contingencies for physical quantities and price escalation (para 4.11). The Plan excludes about ND 1.9 billion (US$125million) required to complete the Belgrade-Bar line, which is being separately financed under Loan 531-YU.

4.04 The main components of the Plan and their costs, excluding contingencies, are as follows. Fixed installationson existing lines will amount to ND 8.9 billion (US$582million), or 45% of the Plan. This item covers: (i) the balance of investmentsrequired to complete the 1964 Modernization Program of main lines, primarily electrification,signalling, telecommunica- tion and marshallingyard works; (ii) other fixed investmentson existing lines including (a) capital overhaul and reconstructionof lines, (b) electrification signalling and telecommunicationsoutside the ModernizationProgram, - 12 - and (c) reconstructionof stations, notably Skopje station. Item (ii) includes investments related to the 1964 ModernizationProgram. Locomotives and rolling stock account for ND 7.7 billion (US$506million), or 39% of the Plan (Annex 8). Other investments in existing lines include integral transport and workshop equipment, and account for ND 1.7 billion (US$113million), or 9% of the Plan. New constructionaccounts for ND 1.6 billion (US$106million), or 8% of the Plan. This covers three short lines, another two lines in Macedonia to neighboring countries, from Kicevo to the Albanian border and from Beljakovec to the Bulgarian border, which are to be started in 1977 (if justified), and relocationof Belgrade station (para 6.09).

4.05 The InvestmentPlan for 1973-77 has been prepared within the frame- work of a "rolling" system of planning, which the RTEs have decided to adopt at the end of 1974. Within this system, the plans will be adjusted and extended each year. Within the Plan, investmentsare reasonablyfirm except for some later items dependent on the technical/economicstudies, listed in Table 2 of Annex 17, which the RTEs have agreed to carry out and to submit for review to the Bank. Although the "rolling" system of planning allows some flexibilityto take into account unforeseen developments,the intention is to keep changes in the timing of investmentsto a minimum. Accordingly, the RTEs have agreed to make no material reductions in the project without the approval of the Bank and to make no material additions unless: appropriate technical/economicstudies will have been completed; the additions are not likely to affect the ability of any RTE to carry out its obligationsunder the loan, including the timely completionof the project; and the Bank has had an opportunity to comment on such additions. The Bank will also be consulted on the annual revisions of the Plan.

C. Three-Year Project, 1974-76, and Investments Selected for Bank Financing

4.06 The three-yearproject (para 4.02) is summarized on page 13 and described in detail in Annex 13. - 13 -

% of 1974-76 Local Foreign Total Project Inve8tDmntB ------ND billion------US$-million------

Bank-financed investments in fixed installations/b 1.59 1.19 2.78 105 79 182 21 Other investmentsin fixed installations 2.28 0.96 3.24 150 63 213 25 Locomotives and rollingstock 1.58 3.16 44.73 103 208 311 36 Other investments 0.75 0.28 1.03 49 18 68 8 New construction/c 0.99 0.24 1.22 65 15 80 9

Sub-total 7.19 5.82 13.0 472 382 854 100

Contingencies/d Physical 0.54 0.26 o.80 35 17 52 Normal price 1.98 1.56 3.53 129 103 232 Sub-total 9.69 7.64 17.33 637 502 1138 Technical assistance and staff training /e 0.01 0.02 Lt. 1

Total 9.69 7.65 17.35 637 503 1139

/a Totala corrected for rounding. /b Including expenditurebefore July 1, 1974, which does not qualify for reimbursementfrom the proposed loan. /c Excluding main Belgrade-Barconstruction expenditure. E Based on foreign and domestic price increases of 15%, 12% and 10% in 1974, 1975 and 1976 respectively. /e ND 4.57million 7 US$ 300,000 a US$ 700,000 -h Ncludi3g cetingomcies - 14 -

4.07 The total cost of the project is estimated at ND 17.3 billion -(US$1,139million), including a foreign exchange component of ND 7.6 billion (US$503million).

4.08 Within this project, the proposed loan would be allocated and disbursed against expendituresafter June 30, 1974 for specific investments:

(i) completion of the 1964 ModernizationProgram, including remaining program sections of electrification,signalling and telecommunications,and marshalling yards;

(ii) Related Investments,which are investmentsnecessary to realize the full benefits of the 1964 Modernization Program, and consist mainly of track rehabilitation,further signalling, and modernization of the Sarajevo junction; and

(iii) staff training and technical assistanceby foreign consultants to assist CYR and RTEs, notably in preparing successive five-year plans and, as necessary, the feasibilityand technical/economic studies listed in Table 2 of Annex 17.

Agreement has been reached with CYR and RTEs on the total loan allocation. The major componentsof technical assistance and staff training were determined, but CYR has still to review the manpower inputs by consultants for each component in order to prepare detailed terms of reference in cooperationwith the Bank.

4.09 The total cost of the investments indicated in para 4.08 is estimated at US$232 million. Assuming the most probable mix of local and domestic contracts, the foreign exchange component is US$100 million; this would fall to about US$92 million if local supplierswon all bids for which they are likely to compete, and would rise to about US$110 million if foreign suppliers won all bids. The estimates are summarized on page 15 and shown in detail in Annex 14. - 15 -

Foreign Exchange Proposed Loan Investments Local Foreign Total Component US$ % of % of ---US$ million---- % million item loan /a

Completion of 1964 ModernizationProgram 52.7 46.1 98.8 47 39.6 40 61 Related Investments 38.9 23.3 62.2 38 24.7 40 38 Technical Assistance and staff training 0.3 0.7 1.0 70 0.7 70 1

Sub-total 91.9 70.1 162.0 43 65.0 40 100

Contingencies Physical 9.2 6.9 16.1 43 6.4 40 Normal price 30.7 23.0 53.7 43 21.6 40

Total 131.8 100.0 231.8 43 93.0 40

/a Excluding contingencies.

D. Cost Estimates

4.10 Cost estimates for the specific investmentsselected for disbursing the loan are based either on contracts already let under the 1964 Moderniza- tion Program, or on unit prices for similar works in Yugoslavia backed where appropriateby detailed engineeringstudies. The cost of technical assistance and staff training is estimated on man-months and current charges for such services. For other investmentsin the project the cost of civil works has been estimated mainly from preliminary engineeringdata and unit prices, and locomotivesand rolling stock from recent contracts.

4.11 Cost estimateswere based on 1972 prices which were revised for inflation in 1973. Physical contingenciesof about 10% were included in the Project and the Plan for all items, except for those items with a particularly firm limit on quantities,almost exclusivelylocomotives and rolling stock. Price contingencieswere included for all items not contracted at fixed price. These contingenciesallow for the effects of the energy crisis and amount to 15%, 12%, 10% and 10% for 1974, 1975, 1976 and 1977, respectively,for both foreign and domestic costs.

E. Financing Plans

4.12 The railways have made great efforts to prepare realistic Financing Plans, which are further explained in Chapter V. Briefly, identified resources cover the project fully and 95% of the investments in the Plan. These resources include secured loans, the proposed loan and related SR and SAP participations, suppliers' credits, and the railways' internal funds, based on the assurances given by the Yugoslav authorities (para 4.01). Internal funds are expected - 16 -

to finance an increasingproportion of the investments,rising from 25% in 1974 to 42% in 1977, averaging 33% for the Project period.

4.13 Financing of the project is summarizedbelow:

------R.T.E.'s ------CYR Belgrade/a Zagreb Ljubljana Sarajevo Skopie Total US$ % of ------ND million ------million total

Internal Funds (Net) /c 1.63 1.78 0.50 1.44 0.35 5.70 375 32.9 Grants 1.47 - 0.18 - 0.15 1.80 118 10.3 Loans 1.09 0.31 1.22 0.20 0.68 3.50 230 20.2 Suppliers' Credits 1.47 0.99 0.74 1.13 0.59 4.92 323 28.4 Fourth Bank Loan 0.55 0.39 0.17 0.16 0.14 1.42 /b 93 8.2 Total 6.21 3.47 2.81 2.93 1.91 17.34 1139 100.0 US$ million 408 228 185 193 125 1139 % of total 35.8 20.0 16.2 16.9 11.0 100.0

/a Excluding constructionof Belgrade Bar line, separately financed under Loan 531-YU. /b Including ND 10.6 million (US$0.7million) for technicalassistance. Tc Internal resources less debt service and working capital requirements.

4.14 For 1977, the final year of the Five-Year Plan period, finance still to be identified amounts to 21% of the planned expenditure for that year but only 5% of the five-year total. The railways are actively seeking other domestic and foreign loans and credits for this purpose, including further assistance from the Bank in 1977. In any event, some will have to be sought later especially for certain projects dependent on the satisfactoryoutcome of the technical/economicstudies.

F. The Loan

(a) Disbursements

4.15 The proposed loan of US$93 million equivalentwould finance about 8% of the project cost and 40% of the cost of investmentsselected for disbursing the loan. The allocation of the loan to specific investmentshas been based on the following considerations. The loan would finance 40% of the expenditure for completingthe 1964 ModernizationProgram. This is in line with the procedure under Loan 395-YU, which financed 38% of the expenditure on that program. Since most of the works have been started and many are approaching completion,it would be impracticableto change the method of financing. The new percentage,although higher than before, is lower than the foreign exchange component,estimated at 47%. For Related Investments,the - 17 -

loan would finance in full the procurement cost 1/ of selected equipment and materials suitable for ICB. The loan would also finance in full the foreign exchange cost of technical assistance and staff training.

(b) Lending Arrangements

4.16 The proposed loan would be guaranteed by the Federal Government and would be made to CYR for a 25-year term, including 3 years of grace. Of the loan, US$92.3 million would be transferredto the five RTEs by Subsidiary Agreements on terms and conditions similar to those of the loan. The balance of US$0.7 million would be for technical assistance and staff training, and would be allocated initially to the CYR and transferredlater to the RTEs if and when necessary. The allocation of the loan, shown in Annex 15 and summarizedbelow, was discussed and agreed with CYR and RTEs:

Allocation US$ million

RTE Belgrade 36.2 Zagreb 25.7 Ljubljana 11.3 Sarajevo 10.2 Skopje 8.9

Sub-total 92.3

Technical assistance and staff training 0.7

Total 93.0

4.17 Annex 16 shows the estimated schedule of disbursements. Surplus funds remaining in the Loan Account after completion of the Bank-financed investmentswould be used for other items in the Investment Plan which are suitable for internationalcompetitive bidding (ICB), subject to review and approval by the Bank.

4.18 A condition of loan effectivenessis that all Agreements have been duly executed and authorized or ratified by all necessary Governmentaland Corporate action and shall be in full force and effect. It is estimated that 150 days will elapse between loan signature and effectiveness.

G. Action Plans

4.19 Railway decisions may involve SFRY, SR and SAP authorities,CYR and each RTE (and its departments),and outside organizationslike the Chambers of Economy. The Action Plans are thereforeimportant instrumentsfor reaching common understandingby all concerned on objectives and responsibilities,and

1/ c.i.f. landed cost of imports or ex-factory price of domestic purchase. - 18 - the measures and time required for their achievement. They are also important for extending the planning process within RTEs and beyond. The Action Plans address themselves to improvements in organization, planning, investments, marketing, productivity,information systems, finance, Governmentsupport, staff training, and technical assistance. Annex 17 describes the subjects to be covered. Each RTE has detailed plans.

4.20 Action Plans are essential to successful realization of the Invest- ment and Financing Plans and, in return for their support, the Governments expect the railways to improve their operations in accordance with these Plans. CYR and the RTEs have given assurances that they will implement and update them regularly, institute appropriate monitoring systems, and submit to the Bank annual reports on progress and revisions. Furthermore, the RTEs have agreed to use their best efforts to achieve quantifiedoperational targets and to undertake, in collaborationas appropriate with each other and CYR, certain technical/economic studies to improve the utilization of assets and to serve as a basis for investment (Tables 1 and 2, Annex 17).

H. Implementation

4.21 Responsibility. Each RTE will be responsible for executing its part of the project, while technical assistance and staff training will be made available to or through CYR, which will be responsible for loan administration. During negotiations,it was agreed that CYR will establish a panel of experts to assist in loan administration (para 3.04), and an informal understanding was reached on detailed reporting requirements. An informal understanding was reached also on the detailed composition of the 1964 Moderni- zation Program, and this should avoid changes which occurred previously (Annex 1, paras 11 and 13). CYR and RTEs gave assurances that consultants ffor technical assistance and staff training will be employed in accordance with "Uses of Consultants by the World Bank and its Borrowers" and that qualified counter- parts will be appointed.

4.22 Procurement. - The completion of existing contracts for the 1964 Modernization Program, placed in accordance with procedures agreed for Loan 395-YU, would be eligible for Bank financing and would account for about US$28 million 1/ of the proposed loan. Some contracts remaining for that Program and still to be placed amounting to about US$6 million 1/ of the loan would not be suitable for ICB, because of standardizationwith existing equipment and the need for integrationwith existing operations.

4.23 New contracts amounting to about US$30 million 1/ of the loan would be awarded following internationalcompetitive bidding in accordancewith the Bank's "Guidelines for Procurement". Domestic firms would be permitted to participate in the bidding and would be accorded a preference of 15% or the

1/ Excluding contingencies. - 19 - customs duty, whichever i8 lower. Minor contracts, up to US$100,000 for civil works including the installationof electrificationequipment, and up to $15,000 for equipment, totalling not more than US$1.2 million 1/ of the loan would be placed according to the railways' normal procedures,which are satisfactory to the Bank. Foreign suppliers are well representedby local agents and would participate in biddings.

V. FINANCIAL EVALUATION

A. General

5.01 Railway accounts are well kept by RTEs on a Government-prescribed basis with routine work increasinglycomputerized. Financial and cash controls have not been adequate, however, particularlyfor control of major investments affected by serious inflation and general illiquidity. Technical assistance and staff training to overcome this deficiency is included in the project.

5.02 To help provide adequate internal funds for investment, the Govern- ments and the railways have recognized that depreciationcharges must keep pace with inflation and be more closely related to the economic lives of the assets. Hitherto "straight-line"depreciation has been charged on the basis of rather long lives and on the basis of five-year revaluation of replacement costs. However, according to the new depreciationlaw, effective January 1, 1974, interim annual increaseswill now be obtained by applying appropriate price factors pending periodic revaluationsand the estimated service lives of assets will be reduced to satisfactorylevels. Depreciationfor 1974 at ND 2.8 billion (US$185 million) compares with ND 1.8 billion (US$117million) for 1973 and will increase to about ND 4.0 billion (US$263million) by 1977 (Annex 19).

5.03 When it became clear that the 1964 ModernizationProgram could not be completed on time and as the railways' financial position worsened, culminating in a deficit of ND 750 million (US$49 million) for 1972 (Annex 19), the Yugoslav authoritiesagreed, at the Bank's suggestion, to undertake substantial support measures for the railways. Measures already described include reimbursementof losses on uneconomic lines (para 3.26), regulated tariff increases (para 4.01), direct contributionsby the Republics to the Invest- ment Plan (para 4.02), and improved depreciation (para 5.02). Additional measures authorized or under considerationare as follows:

1/ Excluding contingencies. - 20 -

Under Authorized Consideration - - -- ND million-----

Additional Support Measures

Reimbursementsof Deficits 763 /a 24 /a Working Capital 280 - Interim Finance 200 Debt Rescheduling 1,291 - Other (includingtax exemptions) 124 166 /b

Total 26190 -- -US$ million----

Total 175 12

/a To end of 1973. ND 24 million of RTE Belgrade's 1972 deficit not yet authorized. /b Not incorporatedin forecast financial results (para. 5.06) and cash flow (para. 5.07).

B. Past Financial Performance

5.04 Forecasts made for Loans 395-YU and 531-YU have not been achieved, mainly because railway freight and passenger traffic have been less than expected and freight rates and passenger fares have not kept pace with inflation (para 3.21). The forecasts for the 1964 and 1968 loans compare with actual net surpluses (deficits)1/ as follows:

Forecast and Actual 1968 1969 1970 1971 1972 1973 Surpluses (Deficits) ------ND million ---

Appraisal Forecasts Made in:

1964 (Loan 395 YU) 290 290 330 -- - 1968 (Loan 531 YU) 210 375 438 715 785 998

Actual Results (246) (135) 197 133 (750) 4

-- means not applicable.

Source: CYR, April 1974.

1/ After depreciation,interest, and similar charges. - 21 -

5.05 Insteadof the forecastsurpluses, deficits have been incurredfor three out of the past six years. The appraisalin 1964 forecastfor 1968 a CYR operatingratio 1/ of 85 and a returnon averagenet fixed assetsin use of 5.5%, but actualresults were 102 and -0.8Z. The appraisalin 1968 forecast for 1973 80 and 6.7% comparedwith actualsof 96 and 1.5%. Forecasts for each RTE were not includedin previousappraisal reports but performance was below expectations for all RITEs.Annex 20 summarizes CYR's income accounts for 1968-73. C. ForecastFinancial Performance

5.06 The principal criteria used in preparing the financial forecasts for 1974-77 are summarized below;the main assumptionson which they are based are given in Annex 21. Revenues reflect 1974 tariffs and proposed changes in 1975 and 1976 (para4.01) and forecasttraffic levels (para 3.23). Work- ing expensesare adjustedfor inflationat rates assumedfor price contingencies on capital expenditure (para 4.11) and reflectextensive Government support measures (para 5.03). After interest,forecast net surpluses(deficits)and principal ratios in 1974-77 are summarized below, based on the detailedfinancial projections in Annexes 19 and 20.

Provisional ------Forecast------1973 1974 1975 1976 1977 ------ND mlllion------OperatingRevenues 10,325 12,904 15,094 17,538 20,353 OperatingExpenses 9,875 12,334 14,029 15,841 18,006 Net OperatingRevenue 450 570 1,065 1,687 2,347 Interest 446 522 621 745 816

Net Surplus 4 48 444 942 1,531

OperatingRatio 96 96 93 90 88 Rate of Return on Net Fixed Assets 1.5 1.9 3.1 4.3 5.6 All RTEs are expected to achieve surpluses from 1974 onward, reflecting significant increasesin traffic(particularly bulk) and openingin 1976 of the Belgrade-Bar line. The Bank has obtained assurances from CYRand the RTEs that they will use their best efforts to achieve the target operating ratios correspondingto forecastresults.

D. Cash Flow 5.07 Annex 22 shows the detailed cash flow for CYR from 1971 to 1977. The following table shows the internal resources and financing plans for the project and plan periods.

1/ Operating expenditures, including depreciation, as a percentageof operatingrevenues. - 22 -

Internal Resources and Financing Plans ProJectPeriod Plan Period ----1974 - 76------1973 - 77------ND US$ ND US$ million million % million million %

Cashi Availability Internal Resources 12,921 849 53 21,742 1Xj29 53 External Resources 11,630 764 47 19,199 1 261 47 Total Availability 24,551 1JJT 100 4o0,94lX 100 InternalResources Source Depreciation 9,287 610 72 14,992 985 69 Operating Revenue 3,322 218 26 6,119 402 28 Other Own Funds 312 21 2 631 42 3 Total 12,921 81- 10O 21,742 _r_2_ loo Applioation Intereston Debt 1,888 124 15 3,156 207 15 Debt Repayment a/ 4,411 290 34 7,434 489 34 Working Capital etc.- 91 6 60 7 3X514 231 16 Total 7 QW_2A 54 927 6 Net Available for Capital Investment 5,707 375 44 7,638 __ E Financing of Investments Net InternalResources 5,707 375 33 7,638 502 28 External Resources Grants_/ 1,797 118 10 2,807 184 11 Loans 3,498 230 20 7,549 496 28 Suppliers'Creditq 4,920 323 29 7,428 488 28 FourthBank Loan 11415 93 8 1,415 93 i Subtotal 11,630 7v_ 19_199 1,261 72 Total Capitl Invest- me bf 17,337 1.139 100 26,837 1,763 100

a/ Including solo-requirements for other non-current assets. iJ Excluding Belgrade Bar line construction. c/ Including ND iD.6 million 7million) for teohnioal assistance and training . - 23 -

For both the project and the plan periods RTEs' gross internal resources comprise more than half of the total cash availability and net internal resources, after meeting debt service and working capital requirements, should finance about 30% of capital investment. The validity of the forecasts for internal resources is of critical importance, particularly because a shortfall in internal funds was one of the main causes of the difficulties encountered by the previous project.

5.08 SRs and SAPs have agreed to ensure by tariff increases or other means that RTEs would be able to generate their necessary internal funds (para. 4.01). They also agreed to continue the practice of reimbursing deficits (after interest) which, although not forecast, might still occur from time to time in some RTEs notwithstanding tariff and other decisions taken on a national basis. Consequently, for the project, almost 90% of gross internal resources will be assured in the form of depreciation (72%), net revenues at least sufficient to cover interest charges (15%), and other own funds (2%). The remaining 10% is considered to be within the earning capacity of the RTEs and consistent with the target rates of return on net fixed assets (para. 5.11).

5.09 External resources for the 1974-76 project have either been secured or are firmly in prospect and there is no unidentified financing gap. Apart from suppliers' credits to be obtained as and when bids for equipment are issued, the remaining unsecured finance amounting to about 7% of expenditure will come from domestic bank loans for which approvals have been obtained in principle, but which must await formal approval under the banks' 1975 and 1976 lending programs. Similar considerations apply to the 1973-77 plan period, but in addition, there is a financing gap of about 5% of total plan expenditure occurring entirely in 1977. To fill this gap, the railways expect to receive further assistance from the Bank and are actively pursuing other possible sources of finance for the successive five-year plans to be prepared under the rolling system of planning. The average debt service coverage from internal funds was 1.5 for CYR in 1973, but coverage should improve to 2.4 in 1977 as a result of the forecast increases in internal funds. However, since the RTEs have tended to rely increasingly on shorter term loans and suppliers' credits, agreement was reached with all RTEs to limit future borrowings to the extent necessary to ensure that their obligations under the loan would not be materially and adversely affected. In addition, they undertook to consult the Bank before undertaking any borrowings in the years 1974 to 1977 which might not conform to the debt limitation ratios agreed for each RTE (Annex 19).

E. Balance Sheet

5.10 Actual results for 1972, provisional results for 1973 and forecasts for 1976 and 1977 (the end of the project and plan periods) are summarized below and shown in detail in Annex 23. - 24 -

Summary Balance Sheet Actual Provisional Forecast for CYR 1972 1973 1976 1977 ------ND million --

Fixed Assets (net) 37,319 37,517 46,655 49,013 Other Assets (net) /a 1,998 3,552 4,456 5,486

Total 39 317 41,069 51?111 54.499

Debt 7,895 10,110 15,521 16,825 Equity 31,422 30,959 35,590 37,674

Total 39,317 41j069 14,499

Debt/Equity Ratio 20/80 25/75 30/70 31/69

/a Net working capital and other assets (non-current).

A debt/equityratio of 31/69 for CYR in 1977 is satisfactory. The proportion of debt to equity will increase in all RTEs, but will still be acceptable; Annex 19 gives details.

5.11 Operating cash and other working capital have been inadequate for several years due to inflation and general illiquidityin Yugoslavia. They improved in 1973, when the CYR current ratio 1/ was 2.0 and the liquid ratio 2/ was 1.7, operating cash being 6% and other working capital 23% of cash operating expenses 3/. The RTEs have agreed that each would use its best efforts to raise operating cash to not less than 8% and other workingcapital to not less than 20% of cash operating expenses by 1977, in order to raise liquidity to normal operating requirementsand to keep pace with inflation.

F. Financial Rates of Return

5.12 CYR and RTEs, in conjunctionwith Transmark,estimated the rate of return on the 1973-77 Investment Plan (excludingnew construction)at about 16%. This estimate is dealt with more fully in the Economic Evaluation (Chapter VI). Rates of return for CYR on net fixed assets are forecast to increase to about 5.5% in 1977. The Bank obtained assurances that CYR and the RTEs will use their best efforts to achieve the targets specified in Annex 19. Achievement of these targets, together with improved depreciation arrangements (para 5.02), should enable the RTEs to meet their foreseeable cash requirements.

1/ Current assets divided by current liabilities. 2/ Current assets (less inventories)divided by current liabilities.

3/ Operating expenses less depreciation. - 25 -

G. Audit

5.13 The audit of the RTEs' accounts by the Social AccountingService has been limited to verifying that accounts are kept and statementsproduced according to the prescribeduniform code. The Bank has received such audited accounts for 1973. The Bank obtained assurancesthat both CYR and the RTEs will have their accounts audited, in accordancewith sound auditing principles consistentlyapplied, by the Social Accounting Service or another competent and experienced independentauditing organizationand that the certified accounts, together with the auditor's reports, will be submitted to the Bank within six sionth. of the end of each year.

VI. ECONOMIC EVALUATION

A. General

6.01 The railways are a vital part of the transport system (para 2.04) and continue to render essential services, especiallyfor longer-distance travellersand bulk freight. The average freight haul exceeds 250 km. In recent years, the railways have attracted only a modest volume of additional traffic because of increased competition from other modes, structural changes in the economy, and insufficientand outdated equipment and infrastructure. However, prospects are that total transportdemand will continue to expand rapidly and that railways should be able to attract additionalpassenger and freight traffic, provided investmentsare made to reduce their costs and improve the quality of their services (paras 3.24 and 3.25).

6.02 An important objective of the proposed loan is to help finance essential investments for reducing costs and improving the quality of services. Another is to support desirable improvementsin policy, organization,operations, investmentplanning and execution,staffing, and staff training. Fi- nally, the loan would conform to the Bank's emphasis in lending to Yugoslavia for infrastructureprojects which have less access to domestic capital than other sectors of the economy.

B. The InvestmentPlan, 1973-77

(a) Overall Economic Return

6.03 The railways have made a comprehensivecost/benefit analysis of the InvestmentPlan and of its major componentsfor the whole CYR and each RTE. The overall economic return is about 16% 1/. The rate was calculated prior to the energy crisis and, therefore,is conservative. The reason is that railway transport costs are less affected by rising fuel prices than road transport costs. This should enable the railways to be more competitive and to attract some additional traffic, which should raise the benefits from

1/ Excluding new construction. - 26 -

modernization. The methodology and data require further improvement,however. For example, evaluationof the Plan as a whole has more validity than that of each major component because railway operationsare highly interdependentand joint costs and benefits had to be allocated on somewhat arbitrary criteria. Also, the calculationshave been made in financial terms, although the results in economic terms would have been similar because the railways pay relatively few taxes to be excluded in the economic evaluation. The railways have incorporated in their Action Plans measures to improve the evaluation techniques and methodology. In the absence of meaningful cost benefit studies for each major component,a qualitative evaluationof the investments in the Plan as described in para 4.04 follows.

(b) Main Benefits and Beneficiaries

6.04 The main benefits from the investmentsare: reduced maintenance and operating costs, including fuel costs; improved utilizationof locomotives and rolling stock; and increased revenue from higher quality services. The benefits will be widely distributed throughoutthe country. In the first instance, railway passengers and users of railway freight services, particularly producers, shippers, and consumers of bulk freight, will be the principal beneficiariesof cost reductionsand improved services. The railways will pass on these benefits to users because of competition from road transport. Where road transport is not a practical alternative,government controls and other arrangementsexist for reaching agreement on equitable tariffs and thereby on distributingbenefits from the investments. The SRs and SAPs will probably also be important beneficiariesbecause, without the investments, rising railway costs would have led to greater deficits and subsidies. Finally, the railways themselveswill benefit from the investmentsbecause, without them, they would have been unable to maintain their position in the transportmarket and to achieve a reasonable surplus.

6.05 One of the major objectivesof the InvestmentPlan is to complete modernizationof main lines started in 1964 under Loan 395-YU. These lines form the backbone of the network, connect the seven largest cities, and serve about two-thirdsof the country's economy and over one-half of its population. They are of critical importanceboth for the railways and the country. In 1964, the ModernizationProgram was estimated to yield an economic return of about 13%, but if it had been possible to foresee delays in execution, increases in costs, and slower growth of traffic, the economic return would have been about 9%. These rates were understated,however, because they did not take into account improved freight services or any time savings for passengers, and assumed that without the investmentsthe railways' operating costs would remain constant.

6.06 The main benefits from the balance of investmentsrequired to complete the ModernizationProgram would accrue from decreasedmaintenance and operating costs, better usage of locomotivesand rolling stock, fewer derailmentsand accidents,and better quality service. They are estimated to yield an economic return of about 28%, partly because additionalbenefits - 27 - will accrue through system effects as the large investmentsmade previously are being completedand start yielding their full benefits. For example, full benefits from electrificationwill be obtained only after the remaining sections of main lines have been electrified (para 3.13) and through trains with lower operating costs have been introduced.

(d) Other Investments in Fixed Installations1/

6.07 Investmentsin track overhaul and reconstructionof lines are well justified because of the lag in track overhaul in past years (para 3.12). Electrificationof some other lines outside the 1964 ModernizationProgram may be justified partly through system effects, but the railways have agreed to prepare appropriate studies before making a final decision on works yet to be started. Signallingand telecommunicationsare justified because existing equipment is old and inadequate. Constructionof the Skopje station is almost complete and replaces an old station destroyedby an earthquake. Other investmentsfor the development of container and integral transport capabilities,which has proceeded slowly, should be accelerated if more funds can be obtained.

(e) Traction and Rolling Stock

6.08 Much of the traction and rolling stock is old (paras 3.14 and 3.15) and insufficientat times for the traffic being offered. The Investment Plan would greatly improve the locomotiveand wagon fleet, with benefits accruing from reduced maintenance and operating costs as well as from higher train speeds and greater wagon and train loads, and from avoiding shortages of carrying capacity.

(f) New Lines and Belgrade Station

6.09 Justificationof two of the three short lines in the Plan depends on the mining-industrialventures which they serve. The third line is as- sociated with the Belgrade-Barproject; it links this line to another main line and will save considerabledistances for traffic which otherwise would have to use a circuitous route. Whether the two new lines in Macedonia are justified remains to be determined; although included in the 1973-77 Invest- ment Plan, their constructiondepends on the results of feasibility studies as well as the availabilityof finance. The relocationof Belgrade station outside the downtown area is based on the urban plans and will be financed by the city.

(g) Technical Assistance and Staff Training

6.10 The technical assistanceand training programs are expected to yield large benefits, principally because the assistance is mainly designed

1/ Including investments related to the 1964 ModernizationProgram, investments in other fixed installations,and other miscellaneous investments. - 28 - to provide overall guidance to railway staff, who will do most of the detailed work. For example, for feasibility studies the consultants will provide the methodology and overall guidance, while railway staff will carry out the detailed work. Consequently, with a minimum input of technical assistance, considerable improvements will be achieved in determining optimum investment solutions as well as in overall planning, marketing, financial management, and execution of investments. The technical assistance will provide on-the-job training and the training program will be further strengthened by appropriate seminars, the appointment of qualified counter- parts, and better organization of existing training programs. Thus, railway staff will obtain considerable training, at minimum expense, in fields where the need is greatest.

VII. RECOMMENDATIONS

7.01 The Bank has obtained from the SFRY and/or the SRs and SAPs a number of assurances, the most important of which are that they will:

(a) enable the railways to close uneconomiclines, or pay compensation for any such lines being maintained in operation (para 3.26);

(b) allow appropriate tariff increases during 1975-76, enabling the railways to finance from their internal resources agreed percentagesof their investmentsin accordancewith the Fi- nancing Plans (para 4.01); and

7.02 The Yugoslav railways have given assurances that they will:

(a) adopt project management for certain interdependentworks, (para 3.07);

(b) use their best efforts to achieve staff, operational and financial targets, (paras 3.10, 3.11, 3.16, 5.06, 5.11 and 5.12);

(d) implement their Investment and Action Plans and revise and up-date them regularly (paras. 4.05 and 4.20); and

(e) limit the incurrence of new debt to ensure that new borrowings would not materiallyand adversely affect the capacity of any RTE to meet its obligations under the Loan agreements. - 29 -

If new borrowing would raise the debt service coverage above the agreed ratios for 1974-76, the RTEs will consult the Bank prior to such borrowings (para 5.09).

7.03 Conditions of loan effectivenessare that:

(a) the members of the panel for loan administration(para 3.04) have taken up their duties;

(b) the Development Plans have been duly approved by all necessary governmentalauthorities, enterprises, or other entities concerned (para. 4.01);

(d) the Subsidiary Agreements between the Borrower and the RTEs have been duly executed and duly authorized or ratified by all necessary governmental and corporate action and are in force and effect (para. 4.18); and

(e) the Republics and Provinces have adopted Decisions, or given appropriateassurances on the matters covered under para 7.01 and the guarantees for the Bank project in para 4.02, in form and substance satisfactory to the Bank.

7.04 With the assurances indicated above, fulfillmentof the conditions of loan effectiveness,and based on the Railways' Investment, Financing, and Action Plans for 1973-77, the project is suitable for a Bank Loan of US$93 million equivalent to the CYR for a 25-year term, including 3 years of grace.

ANNEX 1 Page 1

APPRAISAL OF

A FOURTH RAILWAY PROJECT

YIJGOSLAVIA

TransportationProjects Previously Financed bv the Bank

A. Previous Prolects

1. So far the Bank has lent US$39h.4 million in total to the transport sector, including us$180 million for six highway projects TJS$59.4million for the Naftagas project, and US$155 million for three railway projects.

Highway Projects

2. The first highway project (Loan 344-YU, US$35 million) was financed in 1963 and the second (Loan 485-YU, IUS$10million) in 1967; they were completed within the original cost estimates and agreed time schedules. The third (Loan 608-YUt,US$30 million) project was financed in 1969 and is open for traffic, although the closing date had to be postponed until August 1974 to complete road works. The fourth (Loan 678-YU, US$40 million) was financed in 1970 and is being implemented satisfactorily,although with some delays and cost increases due to inflation and foreign exchange rate adjustments. The fifth highway project (Loan 751-YUI,US$35 million) became effective one year late due to Government administrativedelays, but is now being implemented satisfactorily, although also with some cost increases due to inflation and foreign exchange rate adjustments. The cost overruns are being covered by additional domestic financing. The loan for the sixth highway project was signed on MaY 31, 1974. -

Naftagas Project

3. The loan for the Naftagas project (Loan 916-YU, US$59.4 million) was made in June 1973, but, due to organizationalreforms within the enterprise, became effective on March 22, 1974 after almost six months' delay.

Railways

4. The first railway loan was made in 1963 (Loan 361-YU, US$35 million) to finance the completion of the Sarajevo-Ploceline to standard gauge, with electric traction and modern signalling and telecommunicationsequipment. The project was substantiallycompleted and put into operation in 1970, i.e. with a delay of about two years. ANNEXI Page 2

5. The secondrailway loan was made in ]964 to help financea Moderniza- tion Programfor the main lines (Loan395-YU, US$70 million). Since the proposed loan will help financethe completionof this Program,a brief reviewof this project is given in Part B (below).

6. The third railway loan in 1968 (Loan 531-YU, US$50 million) helped to finance the completion of 372 km of the Belgrade-Bar line, with electric traction, signalling and telecommunications equipment. Completion was originally schedu2ed for 1973, but geo-technical and other construction difficulties in mountainous terrain are expected to delay operation of the line until 2976. The cost estimate has increasedfrom US$225million to about US$300million but SFRY, SR Serbia, and SR Montenegrohave taken measuresto providefinancing for all the works to be carriedout in 1974, as well as part of the works in 2975. Furthermeasures will be necessaryto close the remainingfinancing gap estimatedat about US$21 million. B. Details of the Second Railway ProJect

7. Loan 395-YU financed part of the modernization of the main lines, and includedelectrification, signal:ing and telecomuwnications,covering some 1,500 Im of line, and the constructicnor extensionand modernizationof six marshallingyards. The projectwas to be executedbetween 1964 and 1968, at an estimatedcost of US$185 million; the Bank loan was US$70 million. The project is now expected to be completed at the end of 1976 at a total cost of about US$405million (including contingencies), over twice the original estimate. This cost increase is due roughly equallyto quantity increases and inflatio, thse latter compounded by the long delay. The loan was fully disbursed&in November 1972. Other data are given below. ANNEXt PaRe 3

1964 MODERNIZATION PROGRAM

Current Estimates Excluding Special Contingencies

PROJECT COST BANK Dinar USS million LOANS Million Amount Z million

Expenditure 1964-1973 3,257 244 68 70 /a

Estimated expenditure 1974-76 1,738 114 32 Physical contingencies 174 1 Price contingencies 549 36 Estimated expenditure 1974-76 /c including contingencies 2,461 162

Total for 1964 Modernization Program excluding contingencies 43995 358 100 110 /a /b including contingencies 5,718 405 113 127 la 7

Expenditure eligible for financing frm pro osed loan r7.1.74-12. .76)

Contracted 1,079 71 20 28 4 Uncontracted 42h 28 8 12 / Total, excluding contingencies 1,503 99 2 7 lb Totl,s1 including contingencies 2,164 142 57 /b

/a Loan 395-YU 7T Proposed loan, which would finance 40% of expenditures. 77 Total corrected for rounding.

Financial Problems

8. A major factor in the delays and cost overruns in the 1964 Moderniza- tion Program was that railwayst internal funds fell substantially below forecast levels. This had several causes. First, the economic reforms of 1965 stimulated road transport significantly and altered the pattern of commodity flows to the railways' disadvantage. The railways were ill-equipped and slow to adjust to the new market conditions; their profitability suffered accordingly. Secondly, SFRY controls over freight rates and passenger fares depressed railway revenues. Thirdly, the 1965 reforms transferred responsibility for financial coverage of railway deficits and investments from the SFRY to the SRs and SAPs, which could not quickly provide funds to reimburse deficits and to finance investments. These specific factors were compounded by the ANNEX 1 Page 4

general illiquidityof the Yugoslav economy, widespread inflation,and adverse exchange rate movements.

9. Uncertaintyregarding the availabilityof finance, notably concern- ing provision by the Republics, greatly complicated project planning and control. The railway enterpriseswere frequently unable to pay contractors,who executed a great deal of work on credit but in some cases ascribed a deter- ioration of performance to their own illiquidity. The situation grew prog- ressivelyworse and certain works had to be suspended temporarily.

Management Difficulties

10. In addition to these financial problems, the railway management lacked the experiencerequired for such a large project. There were serious deficienciesin project definition and preparation, resulting in unrealistic- ally optimisticestimates.

11. As project execution proceeded, quatntitieshad to be increased well above estimates. In the absence of adequate project definition, change of plans occurred as execution proceeded, and this contributed to the increase in quantities. It was to be expected, however, that in view of the long delays of execution, certain railway operating requirementsshould change; furthermore, changes were forced on the railways by land use and urbanisticrequirements.

12. Completion schedules were also generally over-optimistic. In particular, there were procurement delays, difficultieswith land acquisitionand, in some cases, the contractors had insufficientproduction and installation capacity. As early as 1966 it was obvious that the project would be seriouslv delayed, New cost and completionschedules were prepared repeatedlyby the railways over the years, but were still too optimistic. Bank Action

13. Repeated representationsby the Bank over the years resulted in some improvements,but overall the situation continued to deteriorate. In 1971 the Bank concluded that fundamentalreforms were necessary to ensure the efficient completionof the project, and to improve the situationof the railways in general. In full agreement with all Governments and railways the Bank therefore commissionedTransmark, a British consulting firm, to review the situation in depth. Following Transmark's recommendationsand discussionswith Bank missions the Governmentsat all levels have agreed to take the measures required to create more stable and favorable conditions for the railways. For their part, the railways have agreed to a realistic InvestmentPlan and to an Action Plan for improving their management and operation,as described in Chapter IV. Project management is particularlyimportant in this context, and agreement was reached on this during negotiations (para. 3.07). An infoml understanding was reached also on the detailed definition of the 1964 Modernization Program so that major changes are now unlikely. ANNEX 2

APPRAISALOF A FOURTHRAILWAY PROJECT

YUGOSLAVIA

The TransportMarket

1. The transportmarket expanded fairly rapidly during the past decade and also underwentdrastic changes. An explainedin ChapterII, para. 2.04, between1960 and 1970,passenger traffic grew at an annualrate of 10% and freighttraffic at about 7%. By far the largerpart of this expansionben.- fittedroad transport.Paseengor and freighttraffic by road increasedat annualrates of 21% and 20% respectively,whereas on the railways,passenger trafficstagnated and freighttraffic increased only 2.5% annually. The de- velopmentof the transportmarket is summarizedin the followingtable; details are givenin Tables1-5 of this Anex.

PASSENGERAND FREI¢ETTRAPFIC IN 1960 AND 1970 PassenRerTraffic4k FroightTraffic 1960 1970 Growth 1960 1970 Growth Billion Billion Rate Billion Billion Rate Node Paes-km 2 Pass-km 2 % Ton-km % Ton-km % 2 Roads 4.7 30 30.7 71 21.0 2/9c- 14 17.S/ 42 20.0 Railways 10.5 67 10.9 25 0.5 15.2 74 19.3 47 2.5 Air 0. 1 1.3 3 29.0 - - Negligible - MaritimeAL 0.4 2 0.2 1 Negative 2.4 12 4.6 11 7.0

Total 157 100o43.1 100 10.7 20.5 100 41.4 100 7.0

^^ Excludingurban traffic. Inlandwaterway and ooastal tranaport only . Excludes freight carried by privately owned vehicles. Sourcet IBRD estimate based on information from the Federal Bureau of Statistios.

2. Developments in the transport market duringthe first and seoond half of this period, show significantdifferences, as shown in the following table: AMUEX2

SELECTEDINDICATORS OF TRANSPORTDEMAND - 1960-70 (annual growth rate) (For details see Tables 1-4)

1960-65 1965-70 1960-70 % %~I

Total Traffic Passengers (pass-km) 10.8 10.5 10.7 Freight (ton-km) 8.2 6.4 7.3

Railway Transport Passengers (pass-km) 4.5 -3.0 0.5 Freight (ton-km) 3.5 1.5 2.5

Road Transport Passengers (pass-km) 22.0 19.4 21.0 Freight (ton-km) 24.5 15.0 20.0

RegisteredMotor Vehicles Passenger cars (units) 28.0 31.0 29.5 Buses (units) 10.0 12.5 11.0 Trucks (units) 9.0 17.0 13.0

GDP (in real terms at factor cost) Agriculture 6.0 4.8 5.4 Industry 0.8 1.9 Services 11.0 5.8 5.0 5.4

Personal Consumption (in real term at factor cost) 5.3 7.3 6.2

3. The total freight market expanded at a slower rate during 1965-70 than during 1960-65; 6.4% p.a. versus 8.2%. This reflected the slowdown in overall economic growth in the latter part of the 1960's, particularlyin industrialoutput. On the other hand, the total passenger market continued to expand during the entire period, at about 10.5% annually. This development is in line with the expansion of personal consumption during this

period . ______4. Railway passenger traffic continued to increase at an annual rate of 4.5Z during 1960-65, but declined thereafter at an annual rate of 3.0%. In the earlier period the number of passenger cars and buses was too small to have a major impact on the market. Prior to 1960 car ownership was dis- couraged, car imports were restricted,and there was no domestic car manufacture. As a result, car registrationsin 1960 amounted to 50,000 (Table 5) only, or one per 370 inhabitants. Thereafter,registrations increased annually by about 30% and by 1970 amounted to about 720,000, or one per 28 people. This was still slightly below the average for countrieswith similar per capita ANNEX 2 PaRe 3 incomes. Also, the total lengthof paved roadswas only 6,700 km in 1960 but the increaseto 24,200km by 1970 (Table6), encouragedlong-distance car travel. 5. During 1965-70,both rail and road freightwere adverselyaffected by the economicslowdown, particularly in industry. However,railway freight continuedto increaseduring this periodat an annualrate of 1.51 which in- dicatesthat the railwaysretained a firm footholdin the freightmarket, de- spitevery rapidgrowth in road competition.

6. It would appearthat road competitionhas now reachedits peak. During 1960-65,the numberof trucksincreased by 9% p.a., but road freight by almost25% p.a., reflectinga seriousimbalance between the demandand supplyof trucks. During1965-70, however, following the liberalizationof truck importsand certainmeasures facilitating truck ownership by enterprises and privateindividuals, the numberof trucksincreased at a fasterpace (17% p.a.) than road freight(151 p.a.). Truck utilizationhas, therefore,declined and the demandand supplyof trucksare movingtowards equilibrium.

7. The increaseof 1.5Z p.a. in rail freightduring 1965-70 was achieved despiteseveral adverse factors. First,the railwayshad to operatewith ob- soleteand insufficientequipment and therebylost trafficto road transport. For example,large volumes of cerealswere transportedlong distancesby truck, whereasrailways would be the more suitablecarrier (Table 7). Second,the railwayshad to adjust to major shiftsin trafficpatterns following the economic reformsof 1965,which calledfor the relocationof productioncenters close to marketsand for the processingof raw materialson site. For instance,cement production was decentralizedand thermalpower plantswere es- tablishednear mine sites,thus decreasinghaulage for two major commodities. Third,the slowdownin industrialgrowth was more pronounce in the production of raw materials,for which the railwaysare a prime carrier,than in other commodities.Fourth, technological changes such as the replacementof coal by oil reducedthe volumeof railwayfreight. Finally,the railwaynclosed a significant number of unprofitable lines, corresponding to about 12% of the total network.

ANNEX2 TABLU 1

APIPAISAL OF

A FOURTTHRAILWAY PROJECT

YUGOSLAVIA

Pas8enger Traffic by Mode of Transport, 1958-73 (million passengers)

Year Total Railways BUses-2 Air!/ Maritimkle/ 1958 254.7 184.0 63.3 0.1 7.3 1959 279.6 190.7 61.3 0.2 7.4 1960 321.3 212.2 101.1 0.2 7.8 1961 311.1 195.0 108.5 0.3 7.3 1962 322.6 192.9 122.4 0.3 6.9 1963 354.4 201.3 146.6 0.4 6.1 1964 414.6 225.9 182.1 o.5 6.1 1965 459.3 237.0 217.7 o.6 5.0 1966 512.6 213.2 294.8 o.6 4.o 1967 572.8 195.9 372.9 o.6 3.4 1968 605.4 182.9 41,8.3 0.7 3.5 1969 645.6 163.2 477.5 1.1 3.8 1970 705.8 157.0 543.3 1.5 4.0 1971 760.8 l45.6 607.8 2.1 5.3 1972 833.1 141.2 683.8 2.4 5.7 1973 891.4 l36.6 745.6 3.0 6.2

I/ Excluding transport by passenger car.

2/ Interurban public services only.

3/ Domestic services only

/ Inland waterway and coastal services.

Source: Federal Bureau of Statistics

Mey 1974 ANNEX2 TABLE 2

APPRAISAL OF

A FOURTHRAILWAY PROJECT

YUGOSLAVIA

Passenger Traffic by Mode of Transport, 1958-7 (biIlion pass-lon)

Year Total Railways Buses!/ Airy Maritime-i/

1958 11.2 8.9 1.8 0.1 0.4 1959 12.0 9.3 2.2 0.1 0.4 1960 13.7 10.4 2.8 0.1 0.4 1961 13.7 10.1 3.1 0.1 o.4 1962 13.8 9.9 3.3 0.2 o.4 1963 15.2 10.7 3.9 0.3 0.3 1964 17.8 12.3 4.8 0.4 0.3 1965 19.5 12.8 6.o 0.5 0.2 1966 20.9 12.a 8.0 0.5 0.2 1967 21.0 10.8 9.6 0.5 0.1 1968 21.8 10.3 10.7 o.6 0.2 1969 24.1 10.5 12.5 0.9 0.2 1970 26.5 10.9 14.1 1.3 0.2 1 971 29.5 10.6 16.2 2.0 0.2 1912 31.8 10.6 lo.5 2.5 0.2 1973 34.8 10.7 20.7 3.2 0.2

Aerage Distance (10)

1965 54 28 757 44 1966 57 27 907 50 1967 55 26 833 36 1968 56 25 835 47 1969 59 26 832 49 1970 69 26 859 9 ;971 72 27 it 34 1972 75 27 1,037 37 1973 78 28 1,04g8 34

V1caluding transport by passengercar. _/Interurban public services only. ./Domestic services only. _Inland Waterway and Coastal Services.

Sources Federal Bureau of Statistics

May 1974 AM=EX2 TABLE 3

APPRAISALOF

A FOURTHRAILWAY PROJECT

YUGOSLAVIA

Freight Traffic by Mode of Trgnsport. 1958-73 (million tons) haritime Road Inland Trucking Own / Year Total 'Railway Waterway Coastal Enterprises Account

1958 133.0 57.2 4.3 0.9 7.6 63.0 1959 144.6 60.7 4.8 1.0 10.1 68.0 1960 224.2 65.2 5.6 1.0 12.4 140.0 1961 242.8 64.2 5.9 1.0 14.6 157.0 1962 277.6 63.6 5.7 1.0 17.3 190.0 1963 322.6 71.8 6.9 1.2 23.8 219.0 1964 426.6 76.5 8.2 1.4 30.4 310.0 1965 442.5 74.8 9.2 1.4 36.0 321.0 1966 502.6 71.6 10.6 1.7 39.7 379.0 1967 500.1 68.7 11.0 1.7 40.6 378.0 1968 541.7 68.4 12.5 1.9 43.9 415.0 1969 638.1 70.2 13.3 2.0 56.6 496.0 1970 738.4 75.4 15.7 1.8 58.8 605.0 1971 883.5 75.6 17.0 2.3 71.6 717.0 1972 892.1 72.3 18.0 2.2 73.6 726.0 1973 n.a. 74.5 18.2 2.0 73.8 n.a.

Note: n.a. means not available.

1/ Excludingfreight carried by vehicles owned by private individuals.

Source: Federal Bureau of Statistics

WMy 1974 ANNEX2 TABLE4

APPRAISALOF

A FCORTHRAILWAY PROJECT

Y)SLAVIL

Freight Traffic by Mode of Tranaport, 1958-73 (billion ton-Ion)

Maritime Road

Inland Trucking Own 2 Year Total Railway Waterway Coastal Enterprises Account

1958 16.3 13.0 1.5 0.3 o.6 0.9 1959 17.8 13.9 1.6 0.5 0.8 1.0 1960 20.5 15.2 2.0 0.4 1.0 1.9 1961 21.0 14.9 2.1 0.4 1.4 2.2 1962 21.6 15.0 2.2 0.4 1.6 2.4 1963 25.5 17.3 2.6 0.4 2.0 3.2 1964 28.6 18.3 3.1 0.4 2.4 4.4 1965 3o.4 18.0 3.3 0.4 3.1 5.6 1966 32.0 17.5 3.9 0.3 3.6 6.7 1967 31.9 16.4 3.9 0.2 4.0 7.4 1968 35.2 16.4 4.3 0.7 4.8 9.0 1969 35.9 17.7 3.4 0.2 5.6 9.0 1970 41.5 19.3 4.4 0.3 6.7 10.8 1971 43.7 19.7 4.2 0.3 7.3 12.2 1972 48.8 19.2 4.6 0.3 8.1 16.6 1973 n.a. 20.4 4.8 0.4 8.5 n.a.

AverageDistance (km) 1965 241 359 283 84 17 1966 244 364 199 91 18 1967 238 358 147 98 20 1968 239 347 362 110 22 1969 252 256 118 98 18 1970 :255 280 151 114 18 1971 259 249 144 102 17 1972 265 255 159 110 23 1973 274 265 189 116 n.a.

Note- n.a. mans not available 1/ Excluding freight carried by vehicles owned by private individuals. Source:Federal Bureau of Statistics Bay 1974 ANNEX2 TABLE 5 APPRAISAL OF

A FOURTH RAILWAY PROJECT

'YUGOSLAVIA

Registed Motor Vehicle Fleet, 1958-72 (thousandof units)

Motor- Passenger Trailers Year cycles Cars Buses Trucks and others Total

1958 37.6 28.3 3.9 43.6 12.8 126.2

1959 54.5 39.0 4.6 49.8 16.3 164.2

1960 69.7 54.2 5.1 54.6 19.4 203.0

1961 72.1 75.5 5.2 50.5 16.6 219.9

1962 91.0 97.9 6.1 58.0 19.2 272.2

1963 98.0 112.5 6.6 64.5 20.3 301.9

1964 102.2 141.8 7.4 72.6 21.8 345.8

1965 106.4 187.8 8.2 84.4 24.7 411.5

1966 112.3 253.3 9.8 98.8 27.6 501..

1967 111.9 355.9 1162 117.2 31.7 627.~

1968 107.0 439.9 12.3 122.9 33.1 715.2

1969 111.9 562.5 13.3 131.2 36.0 854.

1970 107.7 720.8 14.8 148.0 L0.7 .1,032.0

1971 106.3 875.3 1 6 .4 167.6 43.7 1,209.3

1972 96.4 999.5 17.7 181.6 49.0 1,344.2

Source: Federal Bureau of Statistics

May 1974 AL=.E 2

TABLE6

APPRAISALOF A FOURTHRAILWAY PROJIT

YUGOSLAVIA

Classified Roads, 1939-72 (thousand km - end of year)

Road 1939 1257 170 L9721'

Paved 1.2 4.2 24.2 29.9

Gravel 42.5 48.6 41.6 40.0

Earth 37.0 29.5 25.4 26.3

Total 80.7 82.3 91.2 96.2

F/reliinary data Souroe: Federal Secretariat for Tranaport, December 1972

May 1974z ANUZ 2

TABLE7

APPRAISALOF

A FOURTHRAILWAY PROJECT YUGOSLAVIA

Commodity Composition of Rail and Road Freiiht. 1969

Rail Transport Road Transport 4/ Average Commodity AverageCommodity Cross 1/ Million Haul Haul iv/ Million Haul Haul I/ Modal Commodity ton-km in km Ratio ton-km in km Ratio Ratio

1. Non-metalminerals 1,684 173 0.69 540 23 0.23 7.5

2. Solid fuels 3,734 215 0.85 95 38 0.39 5.7

3. Non-ferrousores 608 231 0.92 124 66 0.67 3-5

4. Fertilizer 702 274 1.09 56 110 1.12 2.5

5. Lime, cement,other 869 225 0.89 575 114 1.16 2.0 6. Wood and cork 1,248 276 1.10 448 115 1.17 2.4

7. Iron ores & scrap 1,105 238 0.94 135 121 1.23 2.0 156 1.9 8. Petroleum - 1,118 299 1.19 461 1.59

9. Other commodities 1,653 392 1.56 1,488 186 1.90 2.1

10. Other food products 918 256 1.02 623 213 2.17 1.2

11. Specialtransactions 1,539 289 1.15 41 219 2.23 1.3 12. Metals 1,126 366 1.45 434 248 2.53 1.5

13. Machinery 449 241 0.96 122 254 2.59 0.9 14. Chemicals 386 282 1.12 223 264 2.69 1.1 15. Cereals 552 323 1.28 198 303 3.09 1.1

Total 17,691 252 1.00 5,563 98 1.00 2.6

1/ Commoditiesare rankedaccording to commodityhaul ratiosby road. 2/ Commoncarriers, excluding private operators. 3/ Haulingdistance of commodityover averagehauling distance of total freight. b/ Haulingdistance by rail over haulingdistance by road. §/ Crudepetroleum only by railway;including and consistingmainly of dieselfuel, gasolineand other oil productsby road.

Source: FederalInstitute for Statistics May 1974

APPRAISALOF

A FOURTHRAILWAY PROJECT

4 YUGOSLAVIA

ComxparativeStatistics of RTEs 1/

Traffioc Traic Freight Passngers Density Iength (net per lm Revenues of TI&n ton-ka) (pass-km) of line (billion &9ployeesil (km) -- as-s-k9 Minars) (thousand) RTE t -- (billion)-- + ton-hk) (,iUillon) Belgrade (Serbia,Montenegro) 4.3 6.8 3.4 2.4 3.1 4? Zagreb (Croatia) 2.4 6.2 3.6 4.1. 3.2 31.1 Ljubljana (Slovenia) 1.2 3.2 1.4 3-9 1.7 13.7 Serajova(Bowd&a-HroegonaJT. 3.5 1.8 -2.S 1.8 24.6 Skopje (Macedonia) t 0.7 0.7 0.4 1.6 0.5 4-3

CMR TOTAL %.o.4 20.4 10.6 3.0 10.3 111.1 lV

1/ 1973 data. it Corrected for roundingoff. Including staff in independent pogons. elIncluding staff at headquarters.

Source: Yugoulav Railways.

May 1974 APPRAIS.ALOF

A FOURTHRAILWAY PROJBCT

YUGOSLAVIA

ManaRement of Interdependent Works Each of the 15 items listed below decribes a group of works which will be managed aB a project, with an officer responsible for its completion in accordance with specificationes within budget and on time. In Belgrade RTE

1. Works on the lines betweenBelgrade and Nis. 2. Works on the line betweenNis and Presevo. 3. Works on the line betweenTovarnik and Belgrade. 4. Works on lines in Kosovo. 5. Works on lines in Vojvodina. 6. Works in Zeleznikand PopovacMarshalling Yards.

In ZagrebRTE

7. Works on the lines betweenDobova and Tovarnik. 8. Works on the line betweenZagreb and Rijeka 9. Works in Zagreb Marshalling Yard.

In LiublJana RTE 10. Works on the line between Jesenice and Dobova. 11. Worka on the line betweenKopar and Sentilj. 12. Works in Ljubljana Marshalling Yard. In SarajevoRTE

13. Works in Sarajevojunction. 14. All works in the 196 4 Moderization Program. In SkopJeRTE

15. All investments selectedfor disbursing the proposed Bank loan. AFFPIASAL OF A FWURfl RAILWAY PROJECT - YUGOSLAVIA NZ5

OslARla OP.Fr1t.E Otat4stios of CYR. 1965-73

1973 Unit 1965 1966 1967 1968 1969 1970 197: 1972

10,688 10,456 10,289 10,33:: 10,417 10,399 1LENGTHOF LINE (TotalS K. 11,839 11,580 11.351 9,189 9,255 9,355 9,351. Standard C.".o K. 9,311 9,437 9,422 9,178 9,161 1,293 1,100 1.09: 1,862 1,0l5 K-Rrrt Gangs K. 2,328 2,143 1,929 1.310

II TRAFFIC 10.470 10,939 lO,564. 10,178 10,570 Paong-r bat IllIon 12,900 12,196 10,753 10,284 17,691 19,253 19,63:1 19,179 20,4489 No m ton in 18,337 17,491 06,390 16.371 12,329 12,597 13,122 13,800 14,378 14,739 14,951. 15,299 15,796 Pawonoga groan m t-n On 41,64?' 41,210 4.3,216 Frol9bl ...s nton In, 38,309 37,748 35,506 35.359 37,706 4,0,463 33.221 56.601. 36 30 59,2423 Total gros o ton kot 38,838 50,343 48,628 49.139 32,084 T 4.98 3 .37 3.48 5.1. 5.67 ota roo is ton in, P- Ins of line nillirn m ton 4.29 4.35 4,28 6.60

08001 K4TO8N KM! TTFR OF TRACTION tlnodard Goon 9,008 millIon 29,861 29,072 34,446 02,380 20,378 19,004 15,630 12,933 Sta.o 158,704 187411 18 478 22,5114 DIoo ' 1,8 1601 17,187 1088 10,868 3,830 3,886 4,293 3,186 7,661 15,067 11,870 22,240 36,005 lntric 1,49'1 1,479 2,1214 OrlO-propallod ' ~~~~~~~~~~~~~1,120 1,198 1,275 1,334 1,205 1.549

278 216 nillion 2,610 2,146 1.438 1,124 865 741 48: St.a 360 -.--- 34 254. 380 Di.n 121 1o: 102 92 Onl-prnpollod 24 18 24 33 99

IlI TRACTIONSTOCK

Standard Ga-a. 1,080 97' 871 677 lo-otclvo nonba 1,328 1,486 1,370 1,285 1,216 OSon- 74.0 70.1. 98.8 68.7 Availability 74 78.5 759 72.7 73.3 75.0 3 271 313 320 354 461 504.: 576 718 DOrsal Iooontlvsnw-r 83.8 80.0 77.47. Availability 7 27 8. 81.9 82.2 03.0 287 301 natbar 33 53 71 122 162 202 231. Elo-tnic la-oti-oo 77.4 75.1. 7, 80.8 81.5 85.9 73,7 65.2 83.4 83.: A-oil.bility 16 14 16 30 Dienel car onto nonAr 20 16 15 13 13 31.3 89.0 7, 68.6 47.5 47.3 50.8 37.8 50.6 46.: A-ailabi it 26 2; 27 26 EDIatrIclrailcar asta nobft 10 28 6 26 26 70.0 66.1' 70.4 73.2 AvailabIlity 7, 96.7 ~ ~~~~70,4 ~ ~71.9 ~~~ ~ ~~78.671.6 ~~~~ 265 76; 266 263 bor nabr218 232 24i 253 266 Roll 85.4 84.1 84.6 09.0 Avnila.bllity % 79.0 80.5 83.5 84.1 83.9

Narroo Ga-on 269 216 171 131 97 Bo SloanI lnontlv- nos- 467 379 340 Aviolity 7.7. 9.5 60.2 54.3 37.06285.40837 2 1; 388 50 Dic... Ioco.ttotva nobr- 83. 94.6 62.5 7,----82.3 Availabili1ty 2 12 i Dm0-1 ca soto -nbnr 4 46 12 32111 83.20 85.1 77.5 66.7 A-ailability 7, 60.0 38.0 68.0 85.0 83.3

IV RO0L118GSTOCK 3,986 3,901 3,837 3,74.9 Fa-aong- cart- nnbno 456 ,8 4,226 4.040 4,002 3,618 3,181 3,338 3,4.65 Stoadard ROogt 3,887 3.755 3,607 3,520 3,557 739 633 639 320 445 368 314 299 281. Nron 80080 237.2 234.8 233.8 229.9 oopaoity S.G. thontood 234.9 238.9 234.2 230.2 234.4 Strig 32.3 01J. 10.8 10.3 S..llogopaoity N4.G. 22,6 19,1 18.9 16.7 24.7 249.3 245.4 244.6 240.2. Total .ontig capacity 257.3 238.0 253.1 246.9 249.1 72,440 71,238 68,569 64,618 63,300 62,261 61.86 61.330 59,4.26 Froiobtoot.t ..ootar o 38,069 37,621 37,820 37,423 5,0 Standardnaoa 64,018 63,332 61,443 38,889 1397.7 1301.8 1613.3 1693.0 Carrying -apacIty bonto00 1378. 1378.0 1537.1 1306.2 1348.9 24.3 26.1 28.1 30.1. A vorgt oa capacity tons 21.3 21.7 21.8 32.1 23.2 4,64.0 4.04~1 3,927 3.717 Narro Rauoo nnsbIr 9,425 7,706 7,136 5,729 3,231 618 533.8 56.9 5h.7 Co.ring oopaolty .boo- to 181.8 9.861 711.3 65.6 125 13. 8 13.3 14.3 11.7? Avorogs oar napoity tons 12.1 11. a212.4 ,:I

V UOTILIZATTONOF TRACTION AND8 ROLLIN4GSTOCK

FEtannos ,Traffic 81 239 0.0. 72 Stoan looonti-a knn 262 263 255 253 248 243 577 549 3.5 510 lintol _ kmnttisa 640 604 360 593 615 666 701 651.5 7.13 Olootnlc locn,tio kw, 5548 363 617 590 .o 775 kn 745 749 664 633 772 700 711 Dinl.. rntil..rs 476 472 at.. 8 Electric roilcar kon 352 462 461 489 494 1 2 423 440 n.53o2 Rail1 boort kn 431 422 421 408 482

1064 172 144 166 Siton loaoototmvoo los~~~~k 222 220 210 199 182 - 229 276 222 262 Oiooel locontivRo k.- - - 354 361 307 297 Diesnl -utant kan 426 376 243 253 324

0.0i0 31 Oma koootvra 184 182 175 173 170 160 105 336 338 315 313 290 2972 Diti... oon1-iiv On 232 327 3Z 394 411 1.20 1.12 Elcttnit loncsntivn Ins 403 383 367 393 389

" hSloanlknatvn o 171 163 164 165 1613161213 189 165 176 Otonri locns.orivtn Iwo~~~~k . - 170 198 2.71 '1.76:.- 2.82 Pattnngtr Innp-t posn aillion k.. .1. 82 - i.'L7 Y13 - 2.55 • 3.65 8.74 '7. . .'- FPa..tgor kn pm nnat thans.kn. 69.7. 47-9 42.3 41;.743038 - .13"31 .. 4''27O 4 308 43.0 Norti ton k par froight coo 12.5 - 3. 12.6 - 11.5 ' 11.7 Nnt 0ton kot par capaoit ' of finalt i2. oIPi 8 10186 19.3 20.4 A-trraR load p.r fraigbt oa loodrd nton 15.8 16.2 16.8 17.0 17.3 15.4 5.6 5.6 .Tnraroodlint af frnight oars dayn 4. 45 4.5 4.9 5.1 5.'4' 120,695 120,747 120,0644 CYUt 134,073 133,600 128.119 126,313 123,512 VI STAFF 2/ inoloding 1,113 1,06,001,6 CUR Staff 1,112 1,167 1,162 1,128 11.5 f.3 of iinr 11.3 02.3 11.8 12.0~~~11.3 11.7 11.7 Dnpioynrn2/ pnr On ~~~~~ ~~~~~ ~ 2502476 Troflc -ict. pot etploynt5./ tboona.d 229 222z 212 211 224 250 133,093 133,982 133.902 135,479 134,5844 132,509 0Total Stnff Iio.. pogono.wOmb anparot bomb nonontl 141,060 142,138 137.429

I/ I-1loditg .lU-p-opllndoa. 1'f EIlacding pogoo 01t6 onPaatotbomb act-unt, Banod on notinatof data for LI,aljno,.

Nay 1971. ANNEX 6 APPRAISAL OF

A FOURTHRAILWAY PROJECT YUGOM&VIA

Staff in 1972 and Forecasts for 1975 and 1977 _i/

RTE 1972 1972-1975Decrease 1975 1972-1977 Decrease 1977

Staff Posts' Staf # Staff Postr _ Staff Staff

Belgrade 44150 6565 4140 40010 6751 5300 38850

Zagreb 31138 1721 1080 30058 3788 3000 28138

Ljubljana- 14542 423 (3 8 8 )W 14930 437 (4 8 8)W 15030

Sarajevo 24907 980 620 24287 1749 1400 23507

Skopje 4262 258 160 i1o2 420 300 --3962

CR 51 118999 9947 5612 113387 13145 9512 109487

Total Decrease 9524 6000 12708 10000 Excluding Ljubljana

1/ Forecastsdo not take into account possible staff reductions due to closure of uneconomiclines (Table 8) and uneconomicservices, Net decrease,after allowing for investment, traffic growth and organizationalchanges. 3/ Minimum decrease. Ljubljana has a serious staff shortage, and substantial overtime is being worked. The figures in brackets are the estimated increases required to reduce overtime; to eliminate overtime completely total staff would have had to be 15767 in 1972, 15344 in 1975 and 15330 in 1976. 5/ tcxcluding headquarters staff.

Source: Yugoslav Railways and IBRD Mission May 197h APPRAISALOF

A FOURTHRAIIWAY PROJECT

YUGOSIAVIA

Productivity in 1972 and Targets for 1975 and 1977 (Thousands of Traffic Units!/Per EmployeeM4

1972 1975 1977

Belgrade 224 290 350 Zagreb 301 330 370 Ljubljaria 291 320 330 Sarajevo 221 270 320 Skopje 231 290 360

CYR (excluding HQ staff) 250 300 350

A traffic unit is a net ton-km or a passenger-kmo

/ Employees of independent pogons are excluded.

Source: YugoslavRailways and IBRD Mission May 1974 APNEX8

APPRAISAL OF

A FOURTH RAILWAY PROJECT

YUGOSLAVIA

Planned Procurement of Traction and Rolling Stock, 1,973-77

TOTAL 1973 1974 1975 1976 1977 1973-77

Electric locomotives 15 44 18 25 20 122 Belgrade 9 41 - - - 5o Zagreb - - 9 5 - Ljubljana _ - 9 12 12 33 Sarajevo 6 - - 7 8 21 Skopie - 3 - 1 - 4

Diesel main-line locomotives 137 25 42 33 14 25- Belgrade 29 9 22 22 - 82 Zagreb 72 - - - 14 86 Ljubljana 25 2 9 11 - 47 Sarajevo 1] 14 11 - - 36 Skopje - - - - -

Diesel shuntinglocomotives 9 16 18 - I413 Belgrade - - Zagreb - - 8 - - 8 Ljubljana 7 9 - _ _ 16 Sarajevo 2 4 10 _ _ 16 Skopje - 3 - - - 3

Electricmotor trains - - 9 28 10 47 Belgrade ------Zagreb - - 3 11 10 24 Ljubljana - - 6 ° - 25 Sarajevo - - - 8 - 8 Skopje - - - - -

Dieselmotor trains 10 30 6 _ 6 52 Belgrade - 6 - _ - 6 Zagreb 6 - - _ - 6 IjubIjana 4 20 - - - 24 Sarajevo - - - - 6 6 Skopje - 4 6 - - 10

Passenger cars h - 25 58 115 94 292 Belgrade - - - 5° 50 100 Zagreb - 15 25 25 12 77 Ljubljana - - 15 15 15 45 Sarajevo - 10 13 20 17 60 Skopje - - 5 5 - 10

Freight cars 342C 2923 2276 1090 645 203514 Belgrade 838 707 760 - - 2305 Zagreb 652 907 780 - - 2339 Ijubljana 1210 165 370 395 75 2215 Sarajevo 620 733 306 610 461 2730 Skopje 100 412 60 85 109 765

1/ Excludingcars for electricand diesel motor trains.

Scurce: Yugoslav Railways t'Dy 1971 APPRAISAL OF

A FOURTHRAIIWAY PROJECT

YUGOSIAVIA

Productivity Compared wi Other European RailwaysP

Unit of Yugo- Measure slavia Britain Italy France Poland Greece

Total line length kmo 10,417 18,65 16,083 34,829 23,408 2,542 Passenger-km (Pkm) mill. 10,578 28,349 35,394 43,007 38,782 1j563 P1kmper line-km 000 1,0o5 1,957 2,231 1,724 1,657 633 Pkm per train-km pass. 155,2 96,6 171,4 173 9 218,6 111,2 Net ton-km (Ntkm) mill. 19,179 21,030 17)843 69,968 109,823 756 Ntkm per line-km 000 1,841 1,127 1,109 2,012 4,691 297 Ntkm per train-km ton 37731 20736 234,2 315,1 531,0 189,0 Staff No 2/ 120,044199,155 2023419 274,262 3473999 12,541 Trafficunits per employee thous. 248 2148 263 412 427 J85 No. of staff per line-km No 11,5 10,7 12,6 7,9 14,9 4.,9

/ 1972 data. - Excluding independent pogons.

Source: Yugoslav Railways and Statistics YeAr Book UIC

?ay 1974 APPRAISAL OF

A FOURTH RAILWAYPROJECr ANNEX 10

YUGOSLAVIA

Freight and Passeo,ger Traffic of CYR.

ACTDAL 1968 - 1973: FORECAST 1974 - 1977

------ACTUAL ------FORECAST ------AVIERAGEANNUAL GROWTHRATE

1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 19611-73 1973-77 1968-77

S. FREIGhT TRAFFIC

(a) Tonnage (thons. n ton) D-mestic 56,279 56,156 59,011 59,265 56,819 56,175 58,478 60,817 63,249 65,779 (-) 0.1 4.0 1.7 Inter-ational 12,130 14,044 16,363 16,365 15,520 18,341 20,768 20,550 21,806 21,133 8.6 3.6 6.4

TOTAL 68,409 70,200 75,374 75,630 72,339 74,516 79,246 81,367 85,055 86,912 1.7 3.9 2.7

(b) Average hRe (Ik) Dometic 216.0 228.7 229.1 234.7 239.0 245. 258.1 261.3 260.9 263. 2.6 1.8 2.2 International 347.3 345.1 350.5 350.9 361.0 364. 342.7 359.0 360.7 390. 4.9 1.8 1.3

TOTAL 239.3 252.0 255.7 259.9 265.1 274.. 280.0 286.0 290.0 294.1 2.8 1.8 2.3

(c) Volue (million neot Lto-kl) Domestic 12,323 12,047 13,516 13,904 13,577 13,767 15,092 15,892 16,500 17,299 2.2 5.9 3.8 Inter-ational 4,048 4,844 5,737 5,743 5,602 6,679 7,097 7,379 7,866 8,253 10.5 5.5 8.2

Cammedity analytis CTal 3,715 3,734 3,522 3,491 3,180 3,111 3,226 3,406 3,462 3,543 (-) 3.6 3.3 (-) 0.5 Petroleum & derivatives 877 1,119 1,076 1,201 966 1,220 1,523 1,710 1,811 1,901 6.8 11.7 9.0 Ores & eneceetr-tes 1,623 1,652 1,913 1,698 1,998 2,325 2,768 3,019 3,125 3,310 i.5 9.3 8.2 Non-tetals 592 689 978 988 898 897 963 991 1,058 1,091 8.7 5.0 7.0 Metalo & prOd-OtO 1,588 1,751 1,899 2,092 2,224 2,350 2,727 2,800 2,975 3,016 1.1. 5.0 8.4 Wood 1,139 1,247 1,412 1,377 1,329 1,398 1,428 1,435 1,478 1,497 4.2 1.7 3.1 Boilding materials 1,295 1,440 1,303 1,319 1,070 1,018 1,061 1,105 1,186 1,276 (-) 4.9 5.8 4-) 0.2 Cement 370 424 653 629 604 667 774 821 881 936 12.5 8.8 10.9 Fertilie-rs 662 701 634 660 651 736 876 933 1,042 1,107 2.1 10.8 5.9 Cereals 679 650 768 939 869 888 939 968 1,007 1,049 5.5 4.3 4.9 Other -oodities 3,515 3,882 4,694 4,863 5,028 5,283 5,532 5,659 5,944 6,312 4.5 4.5 6.5

Total car loads 15,975 17,289 18,852 19,257 18,817 20,093 21,817 22,897 23,969 25,138 4.7 5.8 5.2 Less than car loads 396 402 401 390 362 353 372 374 397 414 (-2 3.3 4.1 0.5

TOTAL 16,371 17,691 19,253 19,647 19,179 20,446 22,189 23,271 24,366 25,552 4.6 5.8 - 5.1

II. PASSENGER TRAFFIC

(a) PFssengers (theosand) Domestic 80,341 159,901 153,061 141,157 137,295 132,758 31,732 132,698 138,442 140,602 (-) 6.0 1.4 () 2.8 Interna-tinal 2,606 3,315 3,955 4,437 3,943 3,840 4,230 4,568 4,933 7,386 2.8 17.8 12.3

TOTAL 182,947 163,216 157,016 145,594 141,238 136,598 135,962 137,266 143,375 147,988 (-) 6.0 2.0 (-) 2.4

(b) Average Jour-ey (km) Domestic 50.2 55.6 59.7 60.0 62.6 64. 64.4 65.1 66.1 66. 5.3 0.8 3.3 International 432.1 476.6 456.6 471.0 514.7 506.' 490.5 482.5 471.1 558.9 3.2 2.5 2.9

TOTAL 56.3 64.2 69.7 72.3 74.9 77. 78.0 79.0 80.0 81. 8.3 1.2 4.1

(c) Veolume (=illion sass-kme) Domestic 9,058 8,890 9,135 8,476 8,589 8,611 8,550 8,640 9,146 9,336 (-) 1.0 2.1 0.3 Ineret ational 1,226 1,580 1,801s 2,090 1,990 1,945 2,075 2,204 2,324 2,651 9.7 8.0 8.9

TOTAL 10,284 10,470 10,939 10,566 10,579 10,556 10,625 10,844 11,470 11,987- 0.5 3.2 10.7

III. TRAFFIC UNITS

Millien net m ten-kl + Osilliep-le-ke 26,655 28,161 30,192 30,213 29,758 31,002 32,814 34,115 35,836 37,539 3.1 4.9 3.9

Notes:

- EIcluding new traffic to be generated by the Belgrade Br line the freight traffic for 1977 would be 24,997 millien NMTKM, and the incre.as in traffic from 1973-77 would be 5.2% p.a.

OEcluding new traffic ts be generated by the Belgrade Bar line the passenger traffic for 1977 weuld be 11,493 million FlO, and the increase in traffio free 1973-77 would be 2.2% p. a.

Surse: Yageslaw Railways may 1974 ANNEX11 Page 1 APPRAISAL OF

A FOURTHRAILWAY PROJECT

YUGOSLAVIA

Potentially Uneconomic Lines to be Considered for Closure

No. RTEs and Lines Length pass-km Net Ton-km Staff kan million million

A. Beograd 1. Coka-Dala 24.0 2.2 0.8 43 2. Senta- Horgos 34.7. 6.0 2.7 84 3. Sombor- Ridica 28.2 8.2 1*7 64 4. Odzaci - Stapar - Sombor 33.7 6.9 1.4 63 5. Sonta - Apatin - Sombor 34.3 7.8 6.7 77 6. Karavukovo- Nova Palanka 33.5 4.0 5.7 74 7* Gajdobra- Nova Palankca 14.9 0.2 0.6 25 8* Karavukovo- Sonta 18o6 0.1 0.5 36 9. RimskiSancevi - Senta 91.0 92.6 18.5 209 10. Vladimirovac- Kovin 42.1 1.1 6.6 83 11. Subotica - Crvenka - Odzaci 83.8 11.9 14.3 126 12. Gajdobra - Kula 28.6 0.7 1.6 39 13. Kikinda - Banatsko Arandelovo 32.8 5.6 1.7 46 14. Zednik - Cantavir 8.0 0.5 0.3 21 15. Sombor - Backi Breg 27.1 2.6 1.4 47 16. Jasa Tomic - Meda l0.4 0.3 0.2 13 17* Secanj - Jasa Tomic 10.3 1.5 0.1 14 18. Alibunar - Cot 43.5 10.7 8.1 105 19. lovacica- Samos 20.9 014 0.5 24 20. Vrsac - Veliko Srediste 13.4 - 0.1 12 21. Ovca - Padinska Skela 18.3 - 1.8 30 22. Cacak - Pozega2/ 35.3 - 2.9 280 23* Titovo Uzice - Dobrun 66.3 23.1 11.1 388 24. Bijeljina - Bosanska Mezgraja 32.7 8.9 4.6 109 25. Boljevac - Zajecar 4103 - 5.2 98

Total 827,7 195.3 99.1 2110 ======T===== % of RTErsTotal 19.6 5.6 1.5 4.7

1/ Narrow gauge line, to be replaced by standard gauge line. Pug 2

No. RTEs and Lines Length pasa-km Net-Ton-ki Staff kmL million million

B. Zagreb

1. SavskiMarof - Imeno 38.2 19.6 0.8 61 2. Zabok- GornjaStubica 12.7 8.1 0.3 22 3. Pleternica- Nasice 41.5 6.1 2.5 81 44. Vrpolje- Osijek 47.7 24.3 4.0 126 5. ZabokDurmanec 27.0 26.1 4.9 74 6. Karlovac- BubnJarci 29.5 14.5 5.4 104 7. Krizevci- Bjelovar 32.5 14.9 5.3 218 8. Banova Jaruga - Pcelic 95.9 26.1 20.3 342 9. Zupanja- Virikovci 33.4 20.0 8.6 82 10. Knin - Zadar 95.0 21.5 28.1 2143 11. Nova Kapela - Velika 143.4 25.4 12.1 177 12. Karlovac - Sisak Predgrade 102.1 58.4 31.2 176 13. Golubovec - Varazdin 33.7 18.9 10.9 87 14. Knin - ostarije 218.5 91.0 74.5 678 15. Cakovec - Lendava 22.0 6.0 8.2 66 16. Borovo - Vukovar 7.0 - 2.4 103

Total 880.1 380.9 219.5 2.640 % of RTEs total 36.5 10.5 3-9 8.5

C. Ljubljana

1. Novo Mesto - Bubnjarci 49.1 42.4 10.0 27 2. Imeno - Stranje 12.9 1.5 0.2 10 3. Lupinjak- Grobelno 19.8 12.7 4.1 61 4. Presnica- Lupoglav 37.1 10.3 17.8 143 5. Lupoglav - Pula 72.9 46.4 17.4 392 6. Lupoglav- Rasa 52.14 0.1 7.9 106

Ukupno - Total 244.2 113.4 57.4 739 .======.======% of RTEs total 19.9 709 1.8 5.0

D. Sarajevo

1. Capljina - Dubrovnik lll.0 18.6 33.7 1.395 2. Hum- Bileca 59.0 3.14 20.1 3. Sarajevo - Visegrad - Dobran 119.0 87.6 0.14 4. Mededa- Priboj na Limu 43.0 8.5 9.6 2.091 5. Ustipraca - Miljevina 56.o 114.14 114.5 6. Zenica Teretna - Lasva - Jajce 110.0 33.3 32.8 1.207 7. Donji Vakuf - Gornji Vakuf 29.0 - 1.6 8. Prijedor - Licka Kaldrma 195.0 46.9 38.4 9. Srnetica - Mliniste 46.0 0.3 _3.7 1.110 Total 768.0 21J.0 200.8 ,.803 % of RTBs total T12 7 12:5 r.3 I3.7 GRANDTOTAL 2720.0 902.6 576.8 11.292 % of CYRs Network 26.3 8.6 2.9 9.4

Source: Yugoslav Railways I4y 1974 APPRAISAL CF

A FOU1RTHRAILWAY PROJECT

YUGOSLAVIA

Summary Five-Year Investment Plan. 1973-77

ND million ------US$ million ------

I T E M S Three-year Project Five-year Plan % Foreign 1973 1974 1975 1976 -- 1974-1976-- 1977 Local Foreign % of Local Foreign exchange Actual % currency currency Total Plan currency curre ney Total component

BANK FINANCED INVESTMENTS IN FIXED INSTALLATIONS I/

Completion of the 1964 Modernization Program 248.7 548.o 612.6 577.5 1738.1 13 - 1070.7 916.1 1986.8 10 70.35 60.19 130.54 46 Related investments 108.8 357.2 356.6 325.0 1038.8 8 732.6 415.0 1147.6 6 48.14 27.26 75-4° 36

Bank financed sub-total 357.5 905.2 969.2 902.5 2776.9 21 - 1803.3 1331.1 3134.4 16 118.49 87.45 205.94 42 Physical contingencies 36.2 90.5 96.8 90.2 277.5 - 180.5 133.2 313.7 Price contingencies - 145.3 306.8 414.2 866.3 - 498.4 367.9 866.3 Bank financed sub-total including contingencies 393.7 1141.0 1372.8 106.9 3920.7 - 2482.2 1832.2 4314.4 163.08 120.38 283.46 42

II OTHER INVESTMENTS IN FIXED INSTALLATIONS 389.6 889.1 997.5 1352.4 3239.0 25 2093.8 4052.4 1670.0 5722.4 29 264.29 111.69 375.98 30

III LOCOMITIVES AND ROLLING STOCK 2064.0 1997.5 1456.3 1280.9 4734.7 36 903.1 2552.1 5149.7 7701.8 39 167.68 338.35 506.03 67

TV OTHER INVESTMENTS 268.0 391.0 293.6 345.2 1029.8 8 420.3 1293.0 425.1 1718.1 9 84.95 27.93 112.88 25

TOTAL INVESTMENTS ON EXISTING LINES 3079.1 4182.8 3716.6 3881.0 11740.4 91 3417.2 9590.6 8686.1 18276.7 92 630.13 570.70 1200.83 48 Physical contingencies 91.2 203.2 213.4 256.6 673.2 232.3 663.3 333.4 996.7 33 Price contingencies - 501.8 1029.1 1630.3 3161.2 2009.9 2967.5 2203.6 5171.1 _ 43 TOTAL INVE.TYENTS ON EXISTING LINES INCLUDING CONTINGENCIES 3170.3 4887.8 4959.1 5767.9 15614.8 5659414 13221.4 11223.1 _2441414..5 842.78 763.29 li06'8 48

V NEW CONSTRUCTION 15.8 446.7 451.0 325.5 1223.2 9 381.5 1299.4 321.1 1620.5 8 85.37 21.10 106.47 20 Physical contingencies 1.7 44.7 45.1 32.5 122.3 38.2 130.1 32.1 162.2 Price contingencies - 73.8 142.8 1149.3 565.9 234.3 481.3 118.9 600.2 NEW CONSTRUCTION INCLUDING CONTINGENCIES 17.5 565.2 638.9 507.3 1711.4 654.o 1910.8 472.1 2382.9 125.53 31.03 156.56' 20

GRANDTOTAL EXCLUDING CONTINGENCIES 3094.9 4629.5 4167.6 4206.5 13003.6 100 3798.7 10943.5 8953.7 19897.2 100 719.01 588.29 1307.30- 45 Physical contingencies 92.9 247.9 258.5 289.1 795.5 6 270.5 797.4 361.5 1158.9 6 52.40 23.75 76.15 31 Price contingencies - 575.6 1171.9 1779.6 3527.1 27 2244.2 3465.8 2305.5 5771.3 29 227.71 151.48 379.19 40 GRANDTOTAL INCLMDING CONTINGENCIES 3187.8 5453.0 5598.o 6275.2 17326.2 133 6313.4 1520.7 11620.7 26827.14 135 999.12 763.52 1T62.64 42

1/ Including expenditure prior to July 1, 1974, not qualifying for reimbursement under the proposed loan 4-,

ANNME13

APPEAI3AL A FODETHWAILIA7_VOJECT

YIMtRLAVII I/

Three Year Project PerIod K e,ditur.a 1974-76

1974 1975 1976 2/ 1974-76 % 1974-76 1 Quantity /Cwt Quantity2/Coet Quantity / Cost Qrantity' Cost of Cost Foreign 2 2 Foreign Total Project Lonal Foreign Total Exchange - - - ~~~~~~~~~~~~~~~Looa1------loS$ Million-- I T E MS ND Million ND Million ND Milli..- -ND M illion_-o-----

I BANK-FINANACEDINVESTMENT IN FINEDINSTALiATTONS 3/ COhPIETIONOF ThE 1964 MODEENIZATIOliPROGRAM Eletrification (kI) 172 120.4 38 61.1 4 31.7 214 109.2 104.0 213,2 Signalling and telecomonications (stations) 26 190.2 43 280.6 21 249.4 90 306.1 414.1 720.2 26.4 511.8 292.9 804.7 Marshalling yards 23724 270.9 53.28 114.20 47 Sobtotal 51.48.0 612.6 577.5 927.1 811.0 1,738 1 13 60.92 4/ RELATEDIN7ESTM13NTS Recoctructtion of Lapovo-Presevo line (1,M) 33 68.7 114 16.3 25 28.1 72 58.7 54.4 113.1 Track overhaul (Ion) 124 228.6 111 179.7 99 176.5 334 381.9 202.9 584.8 Marshalling yard - Zagreb _ 38.7 43.9 53.2 29.4 82.6 CTCand points heating 5.7 20.2 16.1 13.4 28.6 42.0 Autoratio stopping equip-ent 5.6 19.5 11,8 11.7 25.2 36.9 48.6 82.2 l18 6 33.9 179.443.55 Reconstruction of Sarajovo junction 8 43.65 24.60 68.25 36 S.btatal 357t2 - 3S6.1 325.0 h664 374.4 1,038.8 22 104.57 77.88 182.45 43 BANK-FINANCEDSUBTOTAL 905.2 969.2 902.5 1,591.5 1,185.4 2,776.9 Physical contingencies 90.5 96.8 90.2 159.0 118.5 277.5 Pri-e c-tlnge...is. 1145.3 306.8 14114.2 1496.14 369.9 866.3 ______BANKFINANCED INCLTIDING CONTINGENCIES 147.63 109.97 257.60 42 SUBTOTAL 1,141.0 1,372.8 1,406.9 2,246.9 1,673.8 3,920.7 II OTHERINDVESTMITS IN FIXED INSTALLATIONS REIONSTRUCTIONAND MODDERNIZATION OF MAIN LINES Rle-tr-fication (bm) 75 53.7 191 106.3 130 124.7 406 149.5 135.2 284.7 Signalling end tlecommunications (stations) 7 156.5 24 173.0 26 273.8 57 324.6 278.7 603.3 Track o-erhaul 199 359.2 276 383.1 432 641.7 907 993.7 390.3 1,384.0 Reconstrt tisonor lines, Ot.tlos, junctions 174.2 236.3 265.4 582.6 93.3 675.9 Construction of Skopje passenger station 109.8 52.1 _ 133.6 28.3 161.9 - 13.3 Standardization of lines 10.7 2.6 - 13.3 25.0 44.1 46.8 81.3 34.8 115.9 E;pansion of Port of Pl.o. 149.70 63.11 212.01 3O SUBTOTAL(II) 889.1 997-5 1,352.4 2,278.4 960.6 3,239.0 25 TII LOCOMITE dAD ROILIW,STOCK Lo-omoticen 85 666.6 78 407.8 58 385.3 221 489.0 970.7 1,459.7 Passenger cars 25 30.2 58 116.7 115 240.2 198 204.8 182.3 387.1 Multiple unit train, 30 253.5 15 161.8 28 277.6 73 124.7 568.2 692.9 377.8 6,289 757.3 1,437.7 2,195.0 Freight cars 2923 10147.2 2,276 770.0 1,090 -3- 5753 SUBTOTAL(III) 1,997.5 1,575.8 31,250.93 4,734.77158.9 IV OIR7RINVESTMENTS lntegral transport 68.3 94.9 146.7 162.7 147.2 309.9 198.7 198.5 588.9 131.0 729 9 Miscellaneous civil korEs 322.7 8 67.66 27 SUBTOTAL(IV) 391.02969345i 278.2 1,029 4,397.7 9,003.5 69 302.61 288.94 591.55 49 SUBTOTAL(II . III o IV) 3,277.6 2,747.4 2,978.5 4,6o5.8 Physical contingencies 112.7 116.6 166.4 279.0 116.7 395.7 722.3 12061 1,175.0 1 191.9 2 294.9 Price contingencies 356.5 370.19 768.34 SUBTOTALINCLUDING 00NTINGENCIE S6 91 407.18 366.82 774.00 47 TOTALINVESTMENTS ON EXISTIW3 LINES 4,182.8 3,716.6 3,881.0 6,197.3 5,583.1 11,780.4 203,2 213.4 256.6 438.0 235.2 673.2 35 PhysEial contingencies 47 TOPricE n NEIST 501.8 1,029.1 1,630.3 1,671.4 1,489.8 3,161.7 TTALINVPT8ETS ONEXIDTING LINER 545.78 480.16 1,025.94 47 INCLUDINGO0NTINGENCIE3 4,887.8 4,959.1 5,767.9 8,306.7 7,308.1 15,614.8

V MNECONSTRUCTION Construction of neW lines 257.9 167.8 106.2 443.1 88.8 531.9 Belgrade passenger station 188.9 241.9 179.4 508.2 101.9 610.1 line - 41.3 39.9 36.5 144.7 81.2 Additional wkors on Belgrade--ar 64.90 15.47 80.37 19 Subtotal 451.0 46t.7 325.5 987789533 ,223.2 9 Physical contEngsncies 144.7 45.1 32.5 98.8 23.5 322.3 73.8 _ 142.8 _ 149.3 295.6 70.3 36K 9 Price oontingonoe.s 90.81 1,6132 112.44 19 SUBTOTAL(V) INCLUDINGCONTINGENCIE3 2 565;7 507 3 1,28 329.2 4 472.08 382.29 854.37 45 G8ANDTOTAL, EXCLU8DING CoIIINGENCIES 4,629.5 4,167.6 4,206.5 7,185.1 5,818.5 13,003.6 100 247.9 258.5 289.1 536.8 258.7 795.5 6 35.27 17.00 52.27 33 Ph.yical oortingancies 129.24 102.50 231.74 44 Price contingeuooe_ 575.6 1,171.9 1__,779.6 1,967.0 1,560.1 3,527.1 27 501.79 1,138.38 44 GRANDTOTAL INCLUDING CONTIN3ENUIES 5,453.o 5,598.o 6,275.2 9,688.9 7,637.3 17,326.2 133 636.59

I/ Excluding toohoioal assistanoe and staff trainirg anounting to 02*0.7 dillion fnrsign exchange -oop.onnt. 2/ Quantity defined in left hand colosm,. 3/ Including experditure pricr tc July 1, 1974 not qualifying for reiabcrsent from the proposed lcn. b/ Q-octitien given in greater detil in Anne. 18. 5/ Excludes mi. Belgrade-Bar onestruotion en,e diture. Source: Yugnelao Railaay.

My 1974 ANNEX14

APPRAISALOF

A FOIETHRAIS0 PRDJESCO

YUGOSLAVIA

Eope.ditcre- on Items Slected for Bank FI-ace -

July 1 - 1975 1976 July 1, 1974 - December 31, 1976 Bank Laca De.c. 31, - - - 197;. lcal Fcreign Totl Lccal ForeAig Total Fcreign ND US$ % cf % of ------US$ illi 1------Eho go rillioc nillion item lean

A. 1964 MODERNIZTIONPR03RAII

Belgrade RTE Alectrification 65.5 48.9 13.0 63.7 63.7 127.4 50 Signallirg sod Iele.eunlcaticoc 39.5 164.5 140.0 19 7.9 196.1 344.0 57 Marshalling yards 32.5 99.1 132.3 166.2 97.7 263.9 37 Belgrede cob-total 137.5 1 3 377 357.5 7373 24.82 23.49 48.31 k 9 294.1 19.32 40 30

Zgreb RTE El-ctrificaticn ------Sigoalln-g and to1-coc in-catirc 28.3 54.4 52.3 50.0 75.0 125.0 60 M-rshallcig yard 40.2 81.3 72.0 116.1 77.4 193.5 40 Zagreb cub-total zr3 13.H7 113 16! 1527 38.5 10.92 10.01 20.93 LT 127.4 8.37 40 13

Ljubllaca RTE llectnif_catio 6.7 8.8 17.5 16.8 16.2 33.0 49 Sigmallhcg and tclacooenocotlcme 16.0 21.9 40.4 42.2 36.1 78.3 46 Marshalling yard 34.0 45.4. 39.7 77.4 41.7 119.1 5 Ljubljaca cub-total 3r77 761 97.6 1-337 T37 230W. 8.96 6.18 15.14 1 92.2 6.06 40. 9

S-rajevo RTE El-ctrifi-aticn 3.0 2.2 - 3.5 1.7 5.2 32 Signalling sod tolcoocooohoatloou 19.3 11.9 9.5 20.3 20.4 40.7 50 Marohalliog yard 2.1 5.8 1.1 6.0 3.0 9.0 32 larajeso cob-total 24.4 19.9 157 2 973 1.96 1.65 3.61 33 22.0 1.15 50 2

Skolp RITE El_et li atioc 0.9 1.2 1.2 1.1 2.2 3.3 64 Signallitg and teleoommunicatlos 11.8 27.9 17.2 21.1 35.8 56.9 63 M-rshalliog yard 13.6 39.3 51.3 69.8 34.4 104.2 3 Skopje sib-total 6533 33 69.7 7 J2,0 72.5 333 6.05 4.76 10.80 41 65.8 4.32 40 7 CYR El`ctifi-catiou 76.1 61.1 31.7 285.1 83.8 168.9 5.59 5.51 11.10 50 67.6 4.44 42 7 ligslllo~gcod tlccscotce115.9 290.6 259.5 291.5 363.1. 655.9 18.50 23.87 52.37 56 258.0 16.95 50 26 MShalling yads 122.41 270.9 296.44 435.5 2654.2 689.7 28.62 16.70 45.32 37 2758. 16.13 40 28 CYRtotal e-cluding co-tig-moles 3337 37 r773T 1591 T: a5T3 02.71 303 398.79E7 60513 39.52 36 35 Physical _chtikg-cciee 31.3 61.2 57.6 80.0 70.1 150.1 5.26 4.60 9.86 47 60 3.94 40 Frice contirgencies 51.7 194.0 264.9 273.3 237.3 510.6 17.96 15.59 33.55 46 204.2 13.42 41 CYRtotal ooi-ldiog contingencies 396.4 867.8 900.0 1155.4 1008.8 2164.2 75.93 66.27 152.20 47 865.6 56.88 40

B. RELATEDINVESTMBRTS

OslarudeRTE Truck reconstructicn Laposo-Pr-sevo 38.0 16.3 28.1 35.4 47.0 82.4 57 45.2 55 Trak vorhau lE-k-ea-Vladli~i Her 50.0 5.3 - 27.6 29.7 55.3 50 27.2 49 Track oserhaul Indilja- uootioa 10.4 20.9 - 9.7 21.6 31.3 21 0 67 Bolgr-de cub-total 73 37 7577 3767 13 4.77 6.33 11.10 7 73 6.14 75 10 Ocgreb RTE Track overhaul Debo-o-Tosaroik 68.o 42.8 73.9 125.6 59.1 184.7 32 69.5 38 Frockoverhaul Zagreb-Rijek; 9.6 57.7 48.0 78.3 37.0 115.3 32 42.9 37 Additi-cl varhbaliog yard corko 38.7 1.3.9 52.9 29.7 82.6 36 31.0 38 ugrbotutal 173-tt1 139.2 7333 77 : 7 3829-7 16.87 8.27 25.14 33 lI3T 9.42 7 15

Liubliaca RTE Track overhaul Joeseice-Lob-o 15.5 22.9 32.8 48.4 22.8 71.2 3.18 1.50 4.68 32 26.6 1.75 37 3

SarajeJo RTE CTC sod puitc heotirg Vrpclje- Sarajevo 5.7 20.2 16.1 16.0 26.0 42.0 62 25.8 61 AutoMatic stoppig equipgent 5.6 19.5 11.8 8.8 28.1 36.9 76 27.9 76 Sarajev- ju-ction 48.o 82.2 48.6 144.9 33.9 178.8 19 32.3 18 Sarajevo sub-total 77 17 733 ¶317 U970 55737 11.15 5.78 16.93 35 WU 5.65 35 9 Skoope RTE Track overbhul Skopjo-Oergelia 14.7 30.1 21.8 45.3 21.3 66.6 2.98 1.40 4.38 38 27.0 1.77 41 3 CTR RAloted investgents excluding cuotloge...i.o 265.5 356.6 325.0 592.9 355.2 957.1 38.95 23.28 62.23 37 376.5 25.73 40 38 Physital .cntingeociee 26.5 35.6 32.6 59.3 35.54 94.7 3.89 2.33 6.22 37 38.0 249 4So Relaeirv tingcuing 43.0 112.8 149.3 193.2 112.7 305.9 12.69 7.51 20.10 37 123.7 8.13 Relatedicc-t-tenh isbdiog 3373. 5375- 3533 5137 3507 13777 333 T3517 3735 37 3533 333 uctir-gencies

Grsod tutal ercludiog erstLdgocioe 578.9 969.2 902.5 1395.0 1055.6 2450.6 91.65 69.36 161.02 43 977.9 64.25 40 100 Physical somoingectois 57.8 96.8 90.2 139.3 105.5 244.8 9.15 6.93 16.08 43 98.0 6.43 40 10 Price cotntigercies 95.5 366.8 411.2 466.5 350.0 816.5 30.65 23.00 53.65 43 327.9 21.55 40 34 Grerdtotal iocluding contingencis 737 17 1577 7 13 31 15311373 95 230.79 33 1503.7 19273 350 ¶3 C. TOTA0S BY RTE

Belgrade - excluding -cntingo..bee 235.9 355.0 313.4 450.5 453.8 905.3 29.60 29.82 59.42 50 387.5 25.16 43 40 - hlodiug auctinge.cies 298.3 502.8 488.5 642.4 647.2 1289.6 42.21 42.52 84.73 50 550.7 36.18 43 Zagreb - esoludig ootingeneies 146.1 274.9 280,1 422.9 278.2 701.1 27.78 18.28 46.06 40 270.8 17.79 39 28 - iclodiog .notig.guciee 184.8 389.5 436.6 609.8 401.1 1010.9 40.07 26.35 66.42 L0 391.7 25.74 39

Ljubljaus - eaclodig -ontigeoole- 72.2 99.0 130.4 185.0 116.8 301.6 12.15 7.67 19.82 39 118.8 7.81 39 12 inolodiog ootioge-sie 91.4 140.2 203.3 266.5 168.4 435.9 17.51 11.06 28.57 39 171.3 11.25 39

Saraj-ev - excluding co-ntigenclee 83.7 141.8 87.1 192.5 113.1 312.6 13.11 7.43 20.54 36 108.0 7.10 35 11 inluding -cntigencie- 105.8 200.9 135.8 282.4 i6o.1 442.5 18.55 10.52 29.07 36 155.4 10.21 35

Skopjc - erlodiogr-ontig-eoiec1 41.0 98.5 91.5 137.3 93.7 231.0 9.02 6.16 15.18 41 92.8 6.10 40 9 iccluding -ohtigengaic 51.9 139.4 142.7 198.5 135.5 335.0 13.04 8.90 21.94 h1 134.8 8.86 40

EExcluding tochni-al -ssitance sod ctaff tra-iing, aemerting to us$ 1 *illion uith 00$ 0.7 million foroigp er-hange cponent.

Sarce: Yugos}av Rallways

May 1974 Anx 15 Page 1

APPRAISALOF

A FOURTHRAINIAY PROJECT

YUGOSLAVIA

Estimated Distribution of Loan Proceeds Among IErs

1. The investment expenditures and proposed Bank loan finance far each RTE are estimated as follows:

CIR -RTEs ------Total Belgrade Zagreb Liubl ana $arajevo *opje ------US$ millions------tstimated Expenditures

(i) 1973-77Plan 1,763.6a/598.3 374.9 300.7 305.8 182.9 (0i)1974-76 Project 1,U39.3a/408.2 227.6 184.6 192.5 125.4 (iii)Bank financeditems 231.8a/ 84.7 66.4 28.6 29.1 21.9 of whichforeign exchange component: loo.ob/ 42.5 26.4 11.0 10.5 8.9

Loan Amounts 93 .Ob/ 36.2 25.7 1l.3 10.2 8.9 Percentages of ProjectCost: ------%------

?roposedLoan 8.2 8.9 11.4 6.1 5.5 7.1 Per centae of7Zaik7?inanced ItemsGost:

ForeignCurrency 43.2 50.2 39.8 38.5 36.1 40.6 ProposedLoan 40.1 42.7 38.7 39.5 35.1 40.6

a/ Includingapproximately 1.0 millionfor teohnicalassistance and training. b/ Includingapproximately 0.7 million for technical assistance and training. 2. For the railways as a whole the proposed loan would provide:

(a) 8.2% of the eatsimted project oost compared with a foreign exchange element1o7fl4j.3%._ This loan percentage is relatively low because the loan finances only the coopletion of the 1964 Hodern- ization Program and directly related items; and (b) 40.1 of the estimated cost of specific items selectedfor Bank finance comparedwith a foreign exchange element of 43.2%. Annex 15 Page 2

3. The following tables illustrate the relationships of project and loan amounts to selected factorst

PROJECTAND LOAN ANALYSIS

Total Belgrade Zagreb LJublJana SaraJevo Skopje 1974-76 PROJECT ------US$ millions------

Estimated Expenditures ' 1.,138.3 408.2 227.6 184.6 192.5 125.4 Expenditures as percentages of: ------%------(i) CYRTotal 100.0 35.9 20.0 16.2 16.9 11.0 (ii) 1973 FixedAsset Values i(gross) 28.6 31.5 2415 25.3 23.9 56.7 (iii) 1973 Equity 56.o 47.8 62.7 77.6 41.2 l12.0 ---J------aS per trafficunit------Expenditures in Terms of - - - - 1973 Traffic Units: 3.7 4.0 2.3 4.0 3.6 11.9 Amortization peE/added Traffic Units- o.8 0.7 1.1 o.6 o.6 1.4 PROPOSEDFOURTH LOAN ------U3$ million------

Loan Amountss/ 92.3 36.2 25.7 11.3 10.2 8.9 Loan Amountsas Percent- ages of: ------%------______(i) 1973 Debt 13.9 18.3 15.6 -84 8.6 18.9 (ii) 1973 Groes Revermes 13.6 18.0 12.4 9.9 8.4 26.2

a/ Excluding technical assistance and trainingUS$1.0 million. b/ Amortization of expenditure over 25 years divided by excess of 1977 traffic units (excluding Belgrade-Bar traffic) over 1973 traffic units.

4. The relationships broadly reflect the substantial work necessary in RTFs Belgrade and Zagreb to ccmplete the 1964 Modernization Program; the major expenditures on improvements to the Koper-Sentilj line in RTE Ljubljana and the relatively high investment cost in RTE Skopje serving the Republic of Macedonia where traffic density is presently only half the national average.

5. The estimated expenditure on Bank-financed items and the related financing plans and loan amounts inolude allowanoes averaging about 10% for physical oontingencies and 30% for the clmulative effect of prioe escalation over the tbree-year project period 1974-76. The allocation of proceeds of the loan would be: Page 3

CTh Belgrade Zagreb LIublJana Sarajevo SkopJe ______------US millions ------______Specified Categories 65.oa/ 25.5 17.8 7.8 7.1 6.1 Contingencies 28.0 10.7 7.9 3.5 3.1 2.8 Total 93.0 36.2 25.7 11.3 10.2 8.9 % of Total 100.0 38.9 27.6 12.2 11.0 9.6 a7 Including0.7 million for toehnical assistance.

ANNEX16

APPRAISAL OF

A FOURTHRAILWAY PROJECT

YUGOSLAVIA

Estimated _1J~~~~~~~1Schedule of Ulsbursemaents-1 (cumulative to end of quarter)

IB3RD CYR------Fiscal Total Year Year andand-RTEs ------RTEs ------RTs Technicalecnal2 BankEk Quarter Belgrade Zagreb Ljubljana Sar jevo SkopJe Total Assistance2- Loan ------US million------

1975 1st ------2nd 8.5 3.9 2.2 1.6 1.2 17.4 0.1 17.5 3rd 11.4 5.8 3.1 2.4 2.1 24.8 0.2 25.0 4th 14.2 8.3 3.8 3.1 2.8 32.2 0.3 32.5

1976 lot 16.8 10.8 4.4 4.3 3.4 39.7 0.3 40.0 2nd 20.8 13.2 5.5 5.6 4.5 49.6 0.4 50.0 3rd 23.4 15.2 6.8 6.4 5.2 57.0 0.5 57.5 4th 25.9 17.8 7.9 6.9 5.9 64.4 0.6 65.0

1977 1ot 28.0 20.4 8.8 7.8 6.9 71.9 o.6 72.5 2nd 32.1 22.9 9.9 9.0 7.9 81.8 0.7 82.5 3rd 34.0 24.3 10.5 9.5 8.5 86.8 0.7 87.5 4th 35.0 25.0 10.8 9.8 8.7 89.3 0.7 90.0

1978 1st 36.1 25.6 11.2 10.1 8.8 91.8 0.7 92.5 2nd 36.2 25.7 11.3 13.2 8.9 92.3 0.7 93.0

Estimates assume loan approval in June 1974 and effectiveness by December 1, 1974. UEstimnatesassume technical assistanceexpenditure at US$700,000.

Source: Yugoslav Railways and IBRD Mission

May 1974

ANNEX 17 Page 1

APPRAISAL OF

A FOURTHRAILWAY PROJECT

YUGOSLAVIA

Action Plans

I. PURPOSE OF ACTION_PLANS

1.01 The decentralizationof decision making in Yugoslavia has an important influence on railway organization. The SRs and SAPs rather than the SmRY deal with the majority of railway problems. The Railways themselves are divided into five independent Enterprisess within the Enterprises there is substantial devolution of decision making to individual departments (or pogons).

1.02 A common understandingof the actions to be taken and of the precise time scale can be of particular importance in securing specific objectives. particularlywhere more than one organizationor Authority is involved. For this purpose, Action Plans have been prepared for each of the RTEs and CYR which will materially assist the successful achievement of the Development Plan in matters affecting:

i) individualEnterprises;

(ii) the Railways as a whole, with the CYR acting in a coordinatingrole; and

(iii) the Governments and the Railways.

1~03 Within the Railways the overall objectives are to reduce cost, improve the quality of service and improve the market position. For matters of common interest to Governments and Railways the general objectives are to agree policies and ensure that the measures are carried out both at the correct time and strictly in accordance with the agreements.

1.04 In the latter respect, a Social Agreement is being considered by the Federal Goverrment,the Chamber of Economy representingthe most importantuisers and the railways to provide the basic principles and criteria for future tariff increases as well as arrangementsfor the closure of uneconomic lines, or their retention with oompensationby interested parties.

1.05 CYR and RTEs have agreed to use their best efforts to achieve the targets set out in Table 1 of this Annex. Die hTes agreed also to prepare, in collaborationas appropriatewith each other and CYR, the technical/economicstudies listed in Table 2. ANNEX17 Page 2

II. CONTENTOF ACTION PLANS

2.01 The draft Action Plans prepared by the RTEs and the CYR contain a large number of individual measures and actions designed to accord with specific local details and circumstances. In essence, it is essential that the Action Plans should provide effective measures to deal with certain particular management activities and policies. These are listed in Section IV.

III. MONITORING OF ACTIONWPLANS

3.01 If the Action Plans are to be successful in achieving the objectives, it is essential that effective monitoring and control procedures should be developed to include:

(i) a simple system of reporting on each action at regular intervals;

(ii) frequent review of progress by a senior official of the Enterprise;

(iii) discussion at regular intervals by management;

(iv) preparation of progress reports each six months; and

(v) revised editions to be prepared at yearly intervals.

CYR and fTEs have agreed that they will implement their Action Plans, update them regularly, institute monitoring procedures and submit to the Bank reports on progress and annual revisions.

IV. LIST OF MEASURESFOR INCLUSIOK IN ACTION PLANS

4.01 Organization

Establishmentof Groups to study OrganizationalProblems with provision for Staff Training, as necessary,

Development of organizationsproviding for:

(i) effective overall management and financial control of enterprises;

(ii) optimal departmental (or pogon) organizations, with particular reference to successful achievementof Developmentand Action Plans; and

(iii) more effective relationshipsbetween RTE's, CYR and Governments.

4.02 Planning

Introductionof a properly coordinatedsystem of corporate planning on a 'rolling' basis.

, ANNEX 17 Page 3

Preparationof a commol planning methodology.

Establishmentof planning organizationscompetent to undertake the new tasks, together with appropriateprovision for staff training.

Study of the effect of inflation on the preparationand execution of the Plans.

A system for monitoring the execution of the Plans,

4.03 Investment

Preparation of 5-year InvestmentPlans with properly evaluated priorities, linked to market requirementsand with financial backing.

Evaluationof all major projects by feasibilitystudies including thou. shown in Table 2.

Monitoring of the investment plans from the technical, financial and resource aspects.

Effective management of the execution of individual projects.

4.04 Rationalization

Preparation of methodology for evaluation of profitability and economic worth of specific lines and services.

Evaluationof profitabilityof individual lines and services.

Agreement with GovernmentAuthorities regarding closures (or cessation of services) with alternative provision for adequate compensation.

Development of an optimal pattern of goods terminalswith provision for alternative road services when economic.

Study of express and parcels services with measures to reduce costs and, where economicallyjustified, to improve market position.

Program to improve utilization and maintenance of traction, rolling stock and fixed equipment, together with specific targets for all important elements (Table 1 of this Annex).

Development of containerizationand mechanical handling equipment.

Improvementof telecommunicationsnetwork. ANNEX 17 Page 4

4.05 Markting

Introductionof effective marketing organizationsat CYR and in each Enterprise,with provision for staff training.

Execution of a coordinated program of market research.

Preparation of marketing plans for specific routes, services or types of traffic.

Streamliningof salex force to execute specific marketing programs.

Introductionof additional private sidings where economically justified.

4.06 Productivity

Program for increased productivityby all appropriatemeans.

Introduction of a system of manpower planning linked to the financial and investment plans.

Preparation and execution of measures designed to deal with surplus labor, in appropriate instances in collaboration with SRs, SAPs, and mmdci- palities.

4.07 Information

Identification of the essential management information requirements.

Establishment of priorities by management for the development of data processing in the computer centers.

Execution of studies by the different departments (or pogons) in conjunction with the computer centers and the introduction of the new information systems.

Coordination of the work of the five computer centers.

4.08 Finance

Improved financial control resulting from:

(i) regular analysis of cash flow and working capital position;

(ii) credit control;

(iii) accounting and monitoring of debt service position; ANNEX17 Page 5

(iv) tighter forecasting for budgets and stricter monitoring of results;

(v) more effectivemeans of estimatingand monitoring the effects of inflation on financialplans;

(vi) positive action to provide for future cash requirements;and

(vii) improved information to monitor the profitabilityof different sectors of the business.

4.09 Government

Provision for agreement in principle and for a detailed program of implementationof the resultant policies covering the following subjects:

freight rates passenger fares uneconomic lines uneconomic services depreciation surplus labor investmentplans financial support measures financial contributionsfor investment equal opportunityfor different transportmodes compensation recovery of deficits

4.10 Training

Definition of a coordinated training program, within Yugoslavia and abroad, to meet the requirementsof the Developmentand Action Plans.

Provision of adequate finance, administrationsupport and facilities.

Execution of the program.

4.11 Technical Assistance

Identificationof particular requirementsfor foreign consultants.

Execution of the program in a way designed to secure maximum benefit for the railways as a whole and for individualRTEs.

APPRAISALOF AXNBY 17 TABLE1 A FOURTHRAILWAY PROJECT Page I

YUGOSLAVIA

Operational Data for 1972 anid Targets for 1975 and 197717

1972 1975 1977

1. Availability of standard gauge diesel locomotives (S).

CYR 77.8 84 - Belgrade 73.7 77 - Zagreb 77.2 86 - Ljubljana 78.9 88 - Sarajevo 85.0 90 - Skopje 78.1 86 -

2. Availabilityof electriclocomotives (%).

CYR- 77.4 87 _ Belgrade 69.8 87 - Zagreb 79.3 90 Ljubljana 83.0 84 _ Sarajevo 81.3 90 - Skopje - 90 -

3. Engine-km.per diesel locomotivesday available, standardgauge passengertraffic (km.)

CYR 456 495 - Belgrade 613 516 - Zagreb 468 530 - Ljubljana Wo 430 - Sarajevo 352 351 - Skopje 419 482 - 4. Engine-km.per diesel locomotive day available, standardgauge freighttraffiq (km.)

CYR 290 316 - Belgrade 333 314 - Zagreb 273 310 - Ljubljana 328 356 - Sarajevo 247 287 - Skopje 288 310 -

5. Engine-km.per electriclocomotive day available, passenger traffic (km.)

CYR 645 655 - Belgrade 634 630 - Zagreb 841 801 - Liubljana 495 535 - Sarajevo 628 647 - Skopje - 500 -

…~~~======2=s======1/ 1977 targetsnot enteredin this Table are to be establishedby Deceprer 31, 1975 on the basis of special studies, to be u~idertaken as part of T ractionand Workshop Plans (seeAnnex 17, Table2 ~ ANNEX 17 TABLE i Page 2

1972 1975 1977

6. Engine-km. per electric locnotive day available freight traffic (km.).

CYR 2C 433 - Belgrade 432 450 - Zagreb 462 465 - Ljubljana 40h 410 - Sarajevo 354 395 - Skopje - 379 -

7. Passenger km. per seat (thousands).

CY 45.2 46.o 46.o Belgrade 34.7 h3.o 46.o Zagreb 55.h4 53-0 46.o Ljubljana 47.h 4o.o 44o. Sarajevo 41.4 h9.0 49.0 SkopJe 37.4 38.0 38.0

8. Not m ton-k. per capacity of fleet in m tons (thousands).

CYR 11.5 11.8 12.7 Belgrade 10.8 11.5 12.6 Zagreb 12.6 13.0 13-5 Ljubljana 14.5 12.5 13.2 Saraje'vo 10.3 1i .5 32.0 Skopje 7.7 8.9 9.5

9. Net a tn-km/freight car (thousands).

CYR 313 393 45 Belgrade 317 390 49o Zagreb 347 W5 485 Ijubljana 358 398 454 Sarajevo 251 370 4oo Skopje 254 350 406

10. Wagon turnround time (days).

CY- 5.6 5.1 h.6

Source:Yugoslav Railways

May 1974 ANNEX 17 Table 2 Page 3

APPRAISAL OF

A FOURTHRAIIWAY PROJECT

YUGOSLAVIA

Technical/EconomicStudies

1. FeasibilityStudies

(a) Be2grade RTE will undertake feasibility studies for the modernization of the following lines, in particular as regards electrification:

(i) Indjija - Subotica (currentlybeing undertaken) (ii) Stalac - Cacak - Pozega (iii) lapovo - Kraljevo (iv) Nis - Dimitrovgrad

(b) Zagreb RTE will undertake:

(i) A feasibility study for the modernization,in particular as regards electrification,of the lines:

(i) Dugo Selo - Botovo (ii) Sunja - Bosanski Novi

(ii) A feasibility study for the constructionof a second track between Zagreb and Novska.

(iii) A pre-feasibilitystudy, to be followed if appropriate by a feasibility study, for the constructionof a new line between Zagreb, Karlovac and Rijeka.

(i) Pragersko - Kotoriba (ii) Pivka - Rijeka

(d) Sarajevo RTE will undertake a feasibility study for the construction of a second track between Vrpolje and Sarajevo.

(e) Skopje RTE will undertake:

(i) a feasibility study for the modernization,including electrification,of the line Skopje - Gevgelia;and ANNEX 17 Table 2 Page 2

(ii) pre-feasibilitystudies, to be followed if appropriate by feasibility studies, for new lines joining Kicevo, Ohrid and Cafasan; and Belajeakovci,Kriva Palanka and Gusevo.

2. Operational Plans

As part of its Action Plan, each Enterprisewill prepare the following comprehensiveoperational plans, in order to improve the utilization of its assets and to serve as a basis for procurement, re- newal, and scrapping of equipment:

(a) A Traction Plan, which shall include an analysis of benefits which may ensue from greater inter-Enterprise use of locomotives, and an overall plan for the phased extension of electrification.

(b) A Rolling Stock Plan, which shall include wagon distributionprocedures.

(d) A Plan for the Capital Overhaul of Track

(e) A Signalling Plan

(f) A Telecommunications Plan

(g) A Data Processing Plan

(h) A Plan for Integral Transport

Source: Yugoslav Railways May 1974 APPRAISALOF

A FOURTHRAILWAY FROJECT

YUGOSLAVIA

Bank-Financed Procurement for Related Investments

------Loan------Track Rails Fastenings points Local Foreign Total Local Foreign Total Dinars US$ km tons tons 'pieces -----Dinars Million ------US$ million------Million Million %

Belgrade Reconstruction Lapovo-Presevo 72 7,200 3,024 29 7.9 38.7 46.6 45.2 Overhaul Leskovac-VladkinHan 41 4,100 1,722 33 4.8 23.2 28.0 27.2 Overhaul Indjija-Subotica 33 3,300 1,396 16 3.7 17.9 21.6 21.0 Belgrade sub-total 146 14,600 6,142 78 16.4 79.8 96.2 1.08 5.24 6.32 93.4 6.114 25

Zagreb overhaul Dobova-Tovarnik 95 9,783 3,643 160 12.2 59.4 71.6 69.5 Overhaul Zagreb-Rijeka 60 5,932 2,301 100 7.5 36.7 44.2 42.9 Zagreb marshallingyard I/ 34 3,361 1,304 124 5.4 26.6 32.0 31.0 Zagreb sub-total 189 19,076 7,248 384 25.1 122.7 147.8 1.65 8.06 9.71 143.4 9.42 38

LjublJana Overhaul Jesenice Dobova 46 4,600 1,840 - 4.7 22.7 27.4 0.31 1.49 1.80 26.6 1.75 7

Skopje Overhaul Skopje-Gevgelia 44 4,400 1,760 16 4.7 23.1 27.8 0.31 1.52 1.83 27.0 1.77 7

Track items sub-total 425 42,676 16,990 478 50.9 248.3 299.2 3.35 16.31 19.66 290.4 19.08 77 Physical contingencies 5.1 25.1 30.2 29.3 Price contingencies 16.4 79.8 96.2 93.2 Track items total 72.4 353.2 425.6 4.76 23.20 27.96 412.9 27.13

Sarajevo Signalling and Telecommunications

CTC equipment for eight stations on Vrpolje-Doboj line and nine stations on Sarajevo-Zenicaline, and heaters for 300 centrally-controlled points on Vrpolje-Sarajevo line. 2.9 25.8 28.7 25.8 Automatic stopping equipment for 131 cabs and 636 signals 3.1 27.9 31.0 27.9 Signalling and telecommmications for Sarajevo junction 8.4 25.9 34.3 32.3

Signalling and telecommunications sub-total 114.4 79.6 94.0 0.95 5.23 6.18 86.0 5.65 23 Physical contingencies 1.4 8.0 9.4 8.7 Price contingencies 5.1 28.1 33.2 30.5 Signalling and telecommunications total 20.9 115.7 136.6 1.37 7.60 8.97 125.2 8.23

CYR Grand total excluding contingencies 65.3 327.9 393.2 4.29 21.54 25.83 376.4 24.73 100 Physical contingencies 6.5 33.1 39.6 38.0 2.49 Price contingencies 21.5 107.9 129.4 123.7 8.13 Grand total 93.3 468.9 562.2 6.12 30.81 36.93 538.1 35.35 143

1 Track construction;also steel costing NDO.6 million for car workshop.

Source: Yugoslav Railways H

May 1974

Annex 19 Page 1

APPRAISALOF

A FOURTHRAILWAY PROJECT

YUGOSLAVIA

Financial Details and Targets for RTEs

Forecast Net Inoomes

1. Forecast net incomes for CYR may be analyzed as follows:

Actual Provisional ----- Forecast------1972 1973 1974 9275 1976 -1977 _ ------ND million------

Freight 5,326 6,397 8,086 10,062 11,821 13,905 68.3 Passengers 1,521 1,801 2,144 2,603 3,044 3,538 17.4 Other Revenue 1,621 2,127a/ 2,674a/ 2,429 2,663 2,910 14.3

OperatingRevenue 8,1468 10,325 12,90o4 15,09o4 17,528 20,353 100.0 WorkingExpenses 7,348 8,185 9,524 10,923 12,285 14,007 68.8 Depreciation 1,489 1,780 2,814 3,106 3,556 3,999 19.7 OperatingExpenses 8,837 9,965 12,338 114,029 15,,841 18,006 88.5 (gross) Less: Loss on Unecon- amic Lines 14 90 4 - - -

OperatingExpenses 8,833 9,875 12,334 14,029 15,841 18,006 88.5 (Net) Net OperatingRevenue (365) 450 570 1,065 1,687 2,347 11.5 Interest 385 446 522 621 745 816 4.0

Net In¢ome (750) 4 48 444 942 1,531 7.5

a/ IncludingND 237 million - 1973 for compensationpaid and ND 429 million - 1974 for compensationto be claimedfor tariffincreases delayed. 2. Forecast operating ratios for RTEs compared with actualsfor 1972 and provisionals for 1973 are: Annex 19 Page 2 Actual- Provisional -Forecast------1972 1973 1974 1975 1976 1977

Belgrade 109 94 96 95 92 90 Zagreb 103 97 97 95 94 92 Ljubljana 102 94 96 93 91 90 Sarajevo 106 98 93 88 83 83 Skopje 90 93 95 88 87 81 CYR Average 104 96 96 93 90 88

The adverse ratios for 1972 were mainly caused by traffic shortfalls following the economic stabilization measures and by increased depreciation charges not being matched by tariff increases. The tariff increases authorized for 1973 and a 6% increase in traffic improved the 1973 ratios. Depreciation increaseswhich appliedto Zagreb only in 1973 are being applied to remaining RTEs in 1974. Duringnegotiations, agreement was reachedon the following targetratios.

By 1975 By 1977 Belgrade 95 90 Zagreb 95 90 Ljubljana 93 90 Sarajevo 88 82 Skopje 88 81 CYR 93 88 3. Rates of Return on Net Fixed Assets are foreoast as follows campared with the actual for 1972 and the provisionalresult for 1973: Actual Provisional --- Forecast------1972 1973 1974 1975 1976 1977 Belgrade -2.2 1.9 1.4 1.8 2.6 4.1 Zagreb -1.2 1.4 2.1 3.1 4.6 6.o Ljubljana -0.5 2.3 1.7 3.3 4.4 5.1 Sarajevo -1.2 0.5 2.4 4.6 7.0 7.8 Skopje 3.0 2.4 1.7 4.6 5.3 7.8 COR Average -1.3 1.5 1.9 3.1 4.3 5.6 Agreenentwas reachedduring negotiations on the followingtargets:

B-y1975 By 1977

Belgrade 1.5 3.5 Zagreb 3.5 6.o Ljubljana 305 5.0 Sarajevo 4.5 7.5 Skopje 4.5 7.5 CYR Average 3.0 5.5 Annex 19 Page 3

I'. Debt Service coverage deteriorated in 1972, a long period of restricted investments (and correspondingly low incurrence of fresh debt) being then reflected in inadequate generation of internal resources. Prospects compare with recent results as follows:

Actual Provisional -- Forecast-- 1971 T72 1973 1975 1977

Belgrade 2.2 1.0 1.3 2.0 2.7 Zagreb 2.2 1.8 2.5 2.1 2.7 Ljubljana 1.8 1.2 1.4 1.7 1.7 Sarajevo 0.8 o.6 1.1 2.3 2.3 Skopje 1.6 1.9 2.0 2.0 2.0

C7R 1.6 1.1 1.5 2.0 2.4

Increasedreliance on shorterterm loans and suppliers'credits is also con- tributingto the presentdecline in debt servicecoverage and agreementto restrictmaximum debt serviceresulting from new borrowingswas reached daringnegotiations. In generalterms, each RTE agreednot to incur debt which was likelyto affectmaterially and adverselyits abilityto carry out its obligations under its Subsidiary Agreements, and for the years 1974-77 it agreed to exchange views with the Bank before incurring additional debt in excess of the followingdebt limitationratios.:3l 1974 1975 1976 1977

Belgrade 1.0 1.2 1.4 1.5 Zagreb 1.0 1.2 1.3 1.5 Ljubljana 0.8 1.0 1.1 1.3 Sarajevo 0.9 1.2 1.4 1.5 SkopJe 1.1 1.2 1.4 1.5

57 Currentgross internalresources divided by maximiumfuture debt service. 5. Debt/equityratios for RTEs have been influencedby asset reval- uations duringa periodof seriousinflation, but past trendsand future prospects are as follows: Actual Frovisional--Forecast-- 1971 1972 973 1977

Belgrade 16/84 13/87 17/83 19/81 22/78 23/77 Zagreb 20/80 21/79 22/78 31/69 34/66 33/67 Ljubljana 24/76 26/74 28/72 36/64 43/57 47/53 Sarajevo 13/87 14/86 18/82 20/80 23/77 26/74 Skopje 32/68 26/74 27/73 29/71 43/57 50/50 CYRAverage 18/82 17/83 20/80 25/75 29/71 31/69 Annex 19 Pageli4-

Debt/equity ratios were low duringthe past decadereflecting minimal borrowings for new investmentand increasedequity as fixedassets were revalued,particularly in 1972. In 1973 substantiallocomotive and rolling stockpurchases, mainly financed by supplierscredits, oaused the ratiosto increase in all RTEs. Thereafter, significant increases are expected only for RTE LjublJanadue to the extensivework on the main Koper-Sentiljline and for RTE Skopje,serving the leastdeveloped of the Republics where more extended debt repayment terms apply. The relatively stable ratio for RTE Belgrade will be caused partly by completion of the Belgrade-Bar line in 1976, for which grants have been made available through the Republics of Serbia and Montenegro.

6. Operating cash and other working capital have for some years been generally inadequate to maintain efficient operations or to sustain the planned levels of capital expenditure. The forecasts allow for a steady build-up of inventories, an increase in credit extended to railways cus- tomers (both in number and amount) and reduction in the amounts overdue for payment to contractors and suppliers. Current and liquid ratios are forecast to improve as follows:

C'=rrent Ratios (Liquid Ratios) Actual Provisional ---- Forecast---- 1971 -1972 1973 1975 1977 Belgrade 1.3(1.0) 1.6(1.3) 1.9(1.6) 5.1(3.8) 8.7(7.1) Zagreb 1.5 (1.2) 1.8(1.4) 3.1(2.6) 2.8(2.4) 3.0(2.4) Ljubljana 1.5(1.3) 1.5(l.3) 1.5(1.4) 2.1(2.0) 2.2(2.0) Sarajevo 1.2(1.1) 1.4(1.2) 2.4 (2.2) 2.2(2.0) 3.0(2.6) Skopje 1.3(1.1) 0.7(0.6) 1.1(1.0) 1.1(0.9) 1.5 1.4) CYR Average 1.4(1.1) 1.5(l.2) 2.0(1.7) 2.5(2.1) 3.1(2.6) The ratios improve sharply for Belgrade and Sarajevo because of substantial cash balances resulting from larger operating surpluses in turn depending on major traffic increases. To assist in raising the levels of working capital and improving the critical current and liquid ratios, agreement was reachedat negotiations that each RTE would use its best efforts to raise its operating cash to nat less than 8% and its other working capital to not less than 20% of cash operating expenses by 1977. APPAISL OF ANNEX 20

A F01}8TH RAILWAY PROJECT

YUGOSLAVIA

CYR INCOM ACCOUNT

ACTUAL 1968 - 1972; PROVISIONA" 1973 AND FORECAST 1974-77

------ACTUAL ------PROVISIONAL ------FORECAST------1956 1969 1970 1971 1972 1973 1974 1975 1976 1977

OPERATING REVNU 11821 13905 Freight 2707 2957 3667 4538 5326 6397 8086 10062 2603 3044 3538 Passenger 923 1102 1254 1414 1521 1801 2144 1 2429 2663 2910 Other 2/ 926 1110 1176 1650 1621 2127 1 2674- 17528 20353 Total Operating Revenue 4556 5169 6097 7602 8468 10325 12904 15094 = - =- =====

OPERATING EXPENSES 5075 5676 6519 Wages and salaries 1791 2032 2290 2824 3419 3745 4366 435 437 512 562 575 680 858 953 1045 1180 Fuel and electricity 925 1067 1191 Other materials 340 320 434 637 710 759 820 3970 4497 3117 Other working expenses 1444 1692 1773 2329 2644 3001 3480

12285 14007 Sub-total working expenses 4010 4481 5009 6352 7348 8185 9524 10923 3106 3556 3999 Depreciation 12 637 654 735 832 1489 2/ 1780 2814 21

14029 15841 18006 Gross operating expenses 4647 5135 5744 7184 8837 9965 12338 - - - Less; Subvention for uneconomic lines _1 - - - - 4 90 4

14029 15841 18006 Net operating expenses 4647 5135 5744 7184 8833 9875 12334

570 1065 1687 2347 NET OPERATING REVENE (LOSS) (91) 34 353 418 (365) 450

FfD10 CRARCES 621 745 816 Interest on loans 73 96 155 285 385 446 522 - - - - Interest on business fund 82 73 1 - - -

621 745 816 Total fixed charges 155 169 156 285 385 446 522

48 444 942 1531 NET SURPLUS (DEFICIT) (246) (135) 197 133 (750) 4

lATIOS 72 70 69 Net Working expenses/opereting Revenue 88 87 82 84 87 78 74 Net operating expenses/OPerating 93 90 88 revenue 102 99 94 95 104 96 96 1.7 2.3 2.9 Net operating revenue/Fixed charges -0.6 0.2 2.3 1.5 -0.9 1.0 1.1 34 32 32 Wages & Salaries/Operating revenue 39 39 38 37 40 36 34 46 46 47 Wages & Saries/Working expenses (gross) 45 45 46 45 47 46 46 21 20 20 Depreciation/Operating reverse 14 13 12 11 18 17 22

Rate of return on net fixed assets 1.9 3.1 4.3 5.6 in use Et -0.8 0.3 3.0 1.5 -1.3 1.5

claimed by RTelm were, freight traffit ND 354 million; NOTES: .1 Other revenue for 1973 includes ND 237 million compensatisn for tariff increases withheld in 1973. Amounts of ND 4 million would have been ND 256 million. passenger traffic ND 135 millios. Total ND 489 million. If compensation claied had been mat in full the surplus delayed. For subsequent years the amounts for freight and passenger revenues - Other revenue fsr 1974 includes ND 429 million -ompensation for tariff Increases 4). assume reel increases of 2% p.a. end 31 p.a. respectively in addition to inflation. (see also note by about 60% in 1974 following introduction of Depreciation charges increased by about 80% in 1972, fellowing revaluation of assets as at December 31, 1971, end new depreciation 1N. For RTE Sarajevo depreciation charged is reduced by amounts made available to independent pogons. 1973 ND 90 million RE Sarajevo; for 1973 the amounts claimed by - Losses on uneconomic linen reimbursed as follows: 1972 nd 1974 ND 4 million p.a, for RTE Ljubljana; Note 1 above) to ND 314 million, closely com- RTSEvas ND 148 million end if met in fall the surplus would have been increased NO 58 million from ND 256 million (see 1975; ND 260 million 1976; and ND 279 million par-ble to original forecast of ND 317 el1lion. Subsequent losses on uneconomic lines are estimated at ND 241 million are related to tariffs applicable in the second half 1977 but are not shown separately because freight end passenger tariffs used to forecast revenues for those years for 1975-77 may (but not necessarily will) 1974 which include an element to compensate for losses on uneconomic lines. The forecast freight end passenger revonuen be reduced as nd when Republics decide to reimburse losses on uneconomic lines separately. undertaken as at December 31, Rate of return on net fixed assets in use is calculated up to 1970 on basis of former asset values; from 1971 on basis of revaluation 1976. 1971. An adjustment to rates of return will be necessary if ifthat revaluation is undertake as at December 31,

Source: Yugoslv Railways end IRRD Mission

May 1974

Anex 21 Page 1

APPRAISALOF

A FOURTHRAIlWAY PROJ3KT YUGOSLVIA

Main Assumptions Used in Financial Evaluation

The financial forecasts are based on the following principal assumptions:

TRAFFIC 1. Freight and passenger traffic forecasts prepared by each RTE and summarized for CY in Annex 10.

OPERATINGEXPENSES 2. Wage rate increases to meet estimated inflation of 15% in 1974; 12% in 1975 and 10% per annum in 1976 and 1977 plus real adjustments, of varying amounts for each RTE, to enable the RTEs' wage rates to match the expected levels for comparable sectors in the economy of the Republics concerned.

3. Fuel and electricity cost; according to experience, to end March 1974, plus 12% in 1975 and 10% p.a. in 1976 and 1977. Material price increases according to experience to end of 1973 plus 15% in 1974, 12% in 1975 and 10% p.a. in 1976 and 1977. For all other working expenses (except fixed charges) price increases aimilar to those for materials. 4. Staff changes from investment and reorganization (less requirements for additional traffic) are fully incorporated only in the foreeasts for RTEs IJublJanaand Skopje. arEs Belgrade,Zagreb and Sarajevoretain some su-plus labor costs through 1977. Fael and maintenancecosts and other working expenses fully adjusted for cost savings from investment less additional traffic costs.

5. Depreciationarrangements existing in RTE Zagrebin 1973 extended by law to all other RTEs in 1974, increasingdepreciation by 40% to 50% accordingto the circumstancesof each RTE. The next full revaluationof fixed assets,due in 1977, not incorporated,but depreciationcharges regularlyincreased to match inflation. 6. Losseson uneconomiclines, nominated by the RTEs for closure,are not shown as being reimbursed by the authoritiesrequiring their retention because the forecast revenues (para. 7 below) are calculated on the basis of tariffs applicable to the second half of 1974 plus inflation and real increases. The 1974 tariffs were stated by the Governments to be inclusive of any losses on uneconomic lines, and this inclusion is therefore carried over into subsequentyears. If, in practice,Governments assume reimburse- ments of these lossesthey will be shown as reductionsin expenditure,as was the case in 1973. Annex 21 Page 2

REVENUE

7. Revenuefrom trafficcarried at domesticrates:

(i) for 1974, increasedby 21.8%for freightfrom May 24, 1974 and passengers from June 1, 1974 over ratesapplicable in first half of year; and

(ii) for each year 1975 to 1977,1974 rates as in (i), increased by 2% per annumfor freightand 3% per annumfor passengers with further increases to meet inflation estimated at 12% for 1975 and 10% per annumfor 1976 and 1977.

Any shortfallsresulting from the timingor amount of Government approval of tariff increases for the years 1975 to 1977 are assumed to be made good by ccmpensation of corresponding amount, payable by the SRs and SAPs.

8. Revenue from traffic carried at international transit rates, calculated inclusive of increases approved in 1974. Revenues from all other operations, according to previous trends. EXCHANGERATE

9. Foreign exchange rate of US$1.00 to Yugoslav ND 15.22. (The rate on April 29, 1974.) DEBTSERVIBE

10. Terms of existing debts, including suppliers' credits, adjusted for rescheduling of Federal and Republican (including State-owned Bank) loans notified to April 1974 as part of the Governmental support measures for the Railways.

11. The proposed IRD loan of US$93 million equivalent, with an interest rate of 7.25% per annum and repayment in 25 years including a three-year grace period. All other proposed borrowings from domestic and foreign sources at terms consistent with Yugoslav and RTEs' experience and according to debt service summaries prepared by each RTE,

NOTE

Comparison of detailed results and forecasts between RTEs is not always practicablebecause, although accounts are kept accordingto the standard Yugoslav accounting code, there are many differences in the basic organization of the RTEs and also some differencesin interpretation and in methodology, whether developed locally cr centrally prescribed by CYR after discussions with the RTEs. U R o,J ANMEX22 A OMR MEAWA PROJ=C

(ACTUAL 1971-72 PROVISIONA 1973 AND POUCAST 1974-77)

- -ACTUAL, - - PRoV18IO2 , ------FORECAST ------19711' 19?721 19731/ 1974 1975 1976 1974 - 1976 1977 1973 - 1977

CASE NEDJT8UP

CAPITALD9VRSTNDT3' Conpletion of 1964 Moderois.tionproUsa and related item (qoalif7 towr 30* finane) 510 458 397 1.141 1.373 1,407 3,921 - 4,318 Othermodernizati.on, xeconetruotion amA WeV/replaoent ro1l4o Atoe 1,$93 1,773 2,772 3,748 3,585 4,362 11,695 5,659 20,126 Nfs lives and major new stations1 687 896 920 1,358 919 507 2,784 654 4,258

Total oapital inveata.o4t 2,790 3.127 3,989 6,247 5,877 6,276 19,400 6,313 28,702

EMTSERVICE Tnteremt 285 385 446 522 621 745 1,888 822 3,156 Repayments 513 739 1,163 1,320 1,461 1,630 4.411 1,860 7,434

Total debt eervioe 800 1,124 1,609 1,842 2.082 2,375 6,299 2,682 10,590

lNC(lFC) IfrWO8GR CAiTAL (OUzR TSA CASH) 1136 140 1,0735/ (272) 340 443 511 582 2,166

GY9R CASS0 quThoMITo/ 4 60 275 (157) 76 97 16 182 473

TOTAL CASH flS s2MMs 3,730 4,451 6,946 7,660 8.375 9,191 25,226 9,759 41,931

CASH AYAiLABILTY

OWNFOS Operating Revenue 419 (365) 450 570 1,Q65 1.687 3,322 2Z347 6,119 Deprmolation 832 1,489 1,780 2,754 3,043 3,490 9,287 32925 14,992 Otherown fumdeV 19 100 242 125 111 76 312 77 631

Total own funds 1,270 1,224 2,472 3,449 4,219 5,253 12,921 6,349 21,742 ASSMH E.-AL IIUJGF Grants 75z 918 1,295 1,506 915 418 2,839 424 4,558 Loans 807 1,745 1,970 780 416 218 1,414 160 3,544 S9ppliere' Credits 890 687 1,425 1,719 981 467 3,167 109 4,701

Total a8eoredezternal firance 2,449 3.350 4,690 4,Q05 2,312 1,103 7,420 693 12,803

PROPOSEDPE AL FIUACE Grantsl/ 14 1 8 32 93 125 TIRD 4th loan - - 283 547 574 t,404 - 1,404 Other loanl _ _ 394 676 1,014 2,084 1,921 " 4,005 1,753 974 2,727 Spplier~ CGredits - - ~ 198 622 933

Total proposed external finaisee - 889 1,855 2.529 5.273 2,988 8,261

TOTAL, CASH AVAILaR;TT 3.719 4,574 7,162 8,343 8,386 8,885 25,614 10,030 42,806 _;= M= e = = = _ _

CASH SRPLUS (1EFICIT) FOR EAR (11) 123 216 683 11 (306) 388 271 875 SEGIMlO G OF TEM 176 165 288 504 1,187 1,198 504 892 288 CASE AT 1,198 892 892 1,163 1,263 CASH AT UT OF YR 165 288 504 1,187

MTT SE8VICECOVEPUZ (Own fudaDebt servio.) 1.6 t1l 1.5 1.9 2.0 2.2 2.1 2.4 2.1

doe ts the incidence of 000-cash accovotlog adjoscasots tn NOn!S 1/ Cash Flow figurms for 1971, 1972 end 1973 do rot f(oly remoA4,le with RIlPCE Sheet figures each year. (See *hSo Mote I to Annex 23) stock) are based On 1973 prices plbs the following price contingency 1 Investment eStizatet (inclodi 9 g 10 physical contingencies, except onrolliOt allowances, 1974 - 157;1975 - 127; 1976 - 105; Pa4 1977 - 10%. m/ants for new 14s ad mler es, stgtiss omptrise, 1971 1872 197 1974 1975 1976 1974 1976 1977 1973- 1977 BSlarade-3ar lImP 664 880 802 793 281 - 1,074 - 1,876 Belgraad.-Br Ice (supplementery works) _ 41 40 81 - 81 Other nev limp nd statton (see Notes 3 to Tables 7 Iel4rad A4Skopje) 23 16 18 565 597 467 1.629 654 2,301 Total 4xpesditre 987 896 820 1,358 919 507 2.784 654 4.235

g Internal resources utilied on Capital works are: - Capitalworks (excludins Belgrade-Bar line) 2,126 2,247 3,187 5,454 5,596 6,276 17,326 6,313 26,826 Less EaternAl Resoutris 1,785 2,470 3,89 4,101 3,886 3,632 11,619 3,681 19,188 Internal Basoorces Ucitsead 365 (222) (701) 1,353 1710 2 5 707 2,632 7,638 Percentage Internal Resources 16,0 24.S 30.1 367 42.1 ;2.9 41.7 28.5 3/ worktig capitalcharSes ti 1973 inelvde cupportmeasures to RTE's from Republics for deftici In 1972 UD 531 illion as part of a policy of increasing working balancas (other than cash) to about 15S of workiSg expenses by 1975 snd 207 by 1977. o/Othernon-cuorret Assets transection, itcluds drawiags (rm tehe 8,eR rve aodJmit CsoPsaption Funds and cotributtion to thess Foods4uppliesae. and electric power 7/ Aecunte for ether own fonds oat incloded is opscettv3 rewesso. If Grants in 1973 include sopport neesure$ by Rop.sb1ims in respect of deficits and, in each relative yeatr, funds for sew lipes, nejor now stations and studies aec. 2/ proposed other leans ii 1977 include pos;tble fifth 2r0 Lean (80 727 million f0r cthose 8T8's dioating Aunts eparately).

Source Yugoelcf Railways ad IRD0 aissio. Hay 1974

UMPFL OF ANNEX23 A 0R! RAIAX PRJ1

(ACTUAL1971-7Z: PR0ISIOYUL 1973 AND PORECAST1974-77)

- - ACTUA - - OVSIOA ------FORECAST ------1971/ 1972V 1973 - 1974 1975 1976 1977 ------_ - - - ND MILLIONS------

FIXED ASSETS

Operating Atsets (gross) if 57,160 59,373 60,624 63,725 71,552 77,561 82,918 Less, Accumulated depreciation 2/ 28,644 29,726 10,739 32,157 34,216 36,872 39,985 Net fixed assets in u.e 28,516 29,647 29,885 31,568 37,336 40,689 42,933 Work in progrese 6,396 7,379 7,408 9.235 6,329 5.759 5,902 Social standard assets (net) 291 293 224 -222 229 207 176

TOTALFIXED ASSEDS 35,163 37,319 37,517 41,025 43,894 46,655 49,013

OThERNON-CUENT ASSETS 1006 944 1,206 1,046 1,118 1,211 1,389 NET CUNEN ASBETS

Current All;ete Cash et 165 26S 506 1,187 1,198 892 1,163 Inventories 51J 571 623 757 865 989 1,085 Debtors & other ourrent ite 2,276 2.335 3,523 2,861 3,117 3,354 3.782

Sub-total courrent assets 2,954 3,194 4,652 4,805 5,180 5,235 6,030 Less Creditors & other ourrent liabilities 2_18 2,140 2,306 2,049 2,073 1,990 1.933

TOTALMEN CUERENTASNNIS-/ 766 1,054 2,346 2,756 3,107 3,245 4,097

TOTALASSETS 36,935 39,317 41,069 44.827 48,119 51,111 54,499

FINANCEDBY,-

Debt 6,322 7,895 10,110 12,164 13,945 15,521 16,825 Equity 30,613 31.422 30,959 32,663 34,174 35,590 37,674 36,935 39,317 41,069 44,827 48,119 51,111 54,499

RATIOS

Current a"sts to courrent liabilitie 1.4 1.5 2.0 2.3 2.5 2.6 3.1 Current assets (le inventories) to current liabilities 1.1 1.2 1,7 2.0 2.1 2.1 2.6 Debt to equity 17/83 20/80 25/75 27/73 29/71 30/70 31/69 Cash as percentage of cash operating expens, (eet) 2.6 3.9 6.3 12.5 11.0 7.3 8.3 Working capital other thsn Caeh as percentage of cash aperating expenses (net) 9.5 10.4 22.7 16.4 17.4 19.1 20.9 Working capital total as percantage of cash operating expenses (net) 12.1 14.3 29.0 28.9 28.4 26.4 29.2 AVERAGENET F711Y ASSETS IN 8IIEWRlNC YEUM*/ 27,493 V- 29.082 29,766 30,727 34,452 39,103 41,811

NOTES: 1/ bal-nce Sheet figures for 1971, 1972 and 1973 do nsk fully reconetle to eash flow figures due to the incidence of non-cash accounting adjts,uents but 1973 fiurtes Are acceptable e5 a baeis tot 1974.77 projectiens, (Sce a*lo Nots 1, Annex 22.) 1/ Operating Assets are increased each yeam by amounts transferred fre. wcrk-te-progres and decreased by the values of life xpired .seets expected to be taken cut of aervice after 1973. A reduatiom of 248 of prior year e grose value has been mede hre amounts in respect of life expired assets are net available. 3/ Accumulated depreciation to increased each year by de2recition oharged in Incom Acecunt except in RTE Sarajevo where increase is 902 of amount charged (see Nute 3, Annex 20) and d4crmead by values ao life expired asts, or 2%7 of prior year's grose value in lieu, assuming that assets to be taken cut ci use will be fully deprociat*d (see Noes 2, above). _ Cash balances esttiated at 11.01 of voirktug eaxpoes by 1975 and 8.3% by 1977 ceepare with targets of 52 and 87 respectively. HoNet current aseota estimated at 28.47 of working espeses by 1875 and 29.21 by 1977 coMpare with tergets of 207 and 287, respectively. 6/ Average net fixed *ssets in use asume ND 26,450 million, December 31, 1970.

Source Yugoslav Railways and IBRD isston.

May 1974

APPRAISAL OF A FOURTH RAILWAY PROJECT YUGOSLAVIA SARAJEVO RTE ORGANIZATION CHART

ASSISTANT DIRECTOR GENERAL ASSISTANT DIRECTOR GENERAL ASISTANT DIRECTOR G A DEVELOPMENT OPERATING& ENGINEERING COMERCIAL & FINANCIAL

lEA~~ ~~~~~~LANIG ESILWB PERSONNEL AND NVMET b~~~~~~~~~~~~~~~~PLANIN ._ RNGCOMECIL EDTMCSFIANE EGLGENERAL

INSTITUTE FOR BANJA LUKA rO _ TRAFFIC PLANNING RLOOMOTIVEARDING HOUSING I Z AND ENGINEERING CAR WORKSHOP TRACTION I O I TECHNICALTECHNKCAL

DATA PROCESSING DUBOTICA TOURIST HEALTH I C CAR WORKSHOP ArN CY PROTECTION CONSTRUCTION~~~~~~~~~~~~~~~~~~~~~~~~~PACIA

PATERINR RECREATION AND CARWORKSHOP _ MITNNEO_ CARNG RESTHOME _ ELECTROTECHNICAL I I ~~~~~~~~~~~~~~~~~~STUDENTHOSTEL

RA.LOVAC CIVIL ENGINEERING

_ ROAD TRAFFIC IIRAILWAY HOSTEL|

MANUFACTURE OF_ TRACK EQUIPMENT_ _ PORT OF PLOCE

TRAFFIC ORGANIZATION CONSTRUCTIONOF _ELECTRO TECHNICAL| EQIPMENTE| IWraBn-54R

IBRD 10322R

1 .7r-~~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~

A-1~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~- l: sW~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~W

< ,4 1 0 ~~~~~~~BSNI A - 4ER Z E G OV I NAv, AJVgDu ' LSE'

A RB . R- 2AORAOEOKLOMB- OTAIAIOBA- TO

0 N T LOAN 301VA ATBOBE 0 K

RO,IILWAYRSM BOORS CA V B B BC RB 0 BIVZL' <& t

OS IA OBOR ^ EVEOIAB, OABO ReIVERSKA 1111 1I1 1STAND._,0 _

V,BgjjAKVIU1A-1sz\5SV;_ @''fS ...... 3kY kCLEHCTEAET-O TfTLA{ii z- fTRANSPORTP.TION ~~~~BRINFAROALOBAROSTRUCTIJEVA/, g5 <} NVPAA t1\ EKV)

er L0AN"6XYD AND MkDPOSED LDAN. s iHRR=1> 44*;t /TETDVU i n ~ 4 AIRPORTS~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~:A

LDANMl Yd BEWCA.DEkHI-E) j A ; z! s A ; )< I

C N R 0~~~ HA.-I-C TREOJNTDMA;0 RSH

NAVIQABLECNLZAN-2 le''2,;fp ,.. W; ZCVJ/j

NA,08MtL15ALS UNDERCDNTU-TIDN9.-u; r>/jrfE VE s;i

.EAUPETMREiKn -, A e r L M~~~~~~~~~~~~~~~~~~~ t ___!L S L~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~IIK