RETURN o RESOTRICTED REPORsTS^ <5S-t FILCflD Report No. TO-389a ONE WEEK Public Disclosure Authorized This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibilityfor its accuracyor completeness.The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized APPRAISAL OF A RAILWAY PROJECT YUGOSLAVIA Public Disclosure Authorized September Z6, 1963 Public Disclosure Authorized Department of Technical Operations CURRENCY EQUIVALENTS 1 U.S. Dollar = Dinars 750 1,O000 Dinars = US $1. 33 Yugoslav Fiscal Year: January 1 to December 31 YUCOSLAVIA APPRAISALOF A RAITLI-AYPROJECT Table of Contents, Page S-UT11-21ARY I. INTRODUCTIOIT 1 II. BACKGI7OTUD 1-3 A. General 1 B. Transport in Yugoslavia 1-2 C. Transport Coordiuation 3 III. TdT7TZAIP; TAY SYSTT7y h-h A. Or7anization,INanagement and Staff 4_5 B. hleNetTork C. Physical Properties 6-7 D. Traffic 7-8 E. Operation and Operating Ffficiency 8-9 F. Finances and Earnings 9-13 G. Gcncrl Imnc st.:t P1-n1s 13-14 IV. 7T-DP ROJ'CT 15-18 A. Description 15-16 B. Esti,Lated Cost 16-17 C. Ad--inistration and Execution 17-18 TT. -TImTTn& [rt Iv;G, AlD FINAiTC:S 19-20 -* .CO-~O;IICJITSTIFIC A TION 21-25 T T 11 CO CLSITOISAllorl) TC rS 2:Co5 List of Tables 1. Freight Traffic, by Hiode of Transport, 1952-1962 2. Passenger Traffic, by Ilode of Transport, 1952-1962 3. Investments in Transport, 1954-1962 4. Summary of Selected Operating Statistics, 1958-l962 5. Railway Network and Traffic Density, 1925-1962 6. hiotive Power and Rolling Stock, 1958-1962 7. Age of liotive Power and Rolling Stock, 1961 8. Freight Traffic by Major Commodities, 1950-1968 9. Consolidated Lncome Account of the Railway Transport Enterprises, Actual for 1958-1962 and Estimated 1963-1968 10. Composite Balance Sheet Data of the Railway Transport Enterprises, Actual for 1961 and 1962 and Estimnated for 1963-1968 11. Consolidated Pro,jected Cash Flow Data for the Railway Transport Enterprises, 1963-196d 12. Sarajevo-Ploce Line, Estimated Cost and Expenditure 13. Sarajevo-Ploce Line, Freight-Traffic by Commodities, 1958-1961 14. Sarajevo-Ploce Line, Present and Projected Traffic, 1958-2007 Chart: Organization of the Yugoslav Railways Map : Yugoslavia, Railway System YUGOSLAVIk APPRAISAL OF A RAILWAY PROJECT S WAP3 i. The Government of Yugoslavia, through its Investment Bank, has asked the Bank for a loan to assist in financing the conversion of the Sarajevo-Ploce railway line (195 1cm) from a narrow to a standard gauge. ii. Construction of the new line began in 1959, and about one-quarter of the work has been completed. The quality of the completed work is satisfactory. iii. The total cost of the Project is estimated at US$96.2 million equivalent, including a reasonable allowance for contingencies. This estimate is based largely on quantities obtained from final plans and on actual unit costs of similar work currently under way. iv. The Federal Governmentwould be responsiblefor the executionof the Project. The preparationof plans, award of contractsandsupervision of constructionwould be delegated to the Community of Railway Enterprises in Sarajevo and other governmentsupervised organizationswhich are com- petent. v. The Governmenthas agreed to call for internationalcompetitive bidding on (a) a 28 km section of the line, which is the only section of potentialinterest to foreign contractors,and (b) signallingand tele- communicationsand electrificationequipment. Tender documents for inter- national conpetitivebidding for constructionwork and procurementof equip- ment have already been prepared and are generally satisfactory. This will be the first time that foreign firms would be invited to bid on railway con- struction in Yugoslavia. vi. The Project has a sound economic justification. The present line is a seriousbottleneck, so that a large volume of trafficmust now be carried circuitouslyan average additionaldistance of about 270 km. The economic rate of return on the investment from the eliminationof the bottle- neck and certain other benefits is about 12 percent. vii. The Railw-aytsearnings have generallybeen good, with an average operatingratio of 87 in the last three years. The Railway's sound financial condition is estimated to continue during the next five years. viii. The Project provides a suitablebasis for a Bank loan of US$35 million equivalent to the Yugoslav InvestmentBank, for a term of 25 years, including a 4-1/2 year period of grace. - 1 - I. IN4TRODUCTION 1. The Yugoslav Government, through its Investment Bank, has re- quested a loan to help finance the conversionof the Sarajevo-Plocerailway line from a narrow to a standard gauge. The Investment Bank is a Govern- ment agencyresponsible for financing a large share of major investments, and is authorized to contract foreign loans for this purpose. 2. This would be the first railway loan from the Bank to Yugoslavia, and the second loan in the transportfield. The project was submitted to the Bank in mid-1962. It raised a number of policy issues, including the need for internationalcompetitive bidding, which were discussedwith the Governmentby a Bank mission in December 1962. An appraisalmission visited the project in MIay1963. This report is based on the findings of the Bank's missions and on documents preparedby various Governmentagencies. II. BACKGROUND A. General 3. Yugoslavia,with an area of 257,000 sq. km, is about as large as the United Kingdom or the Federal Republic of Germany. Its population of about 19 million is, however, only one-third of these countries. Popula- tion growth has been slowing down and is now about 1.3 percent annually. 4. Yugoslavia'sgross national product was about Din 3,800 billion in 1962 (US.85.0billion equivalent),with a per capita. income of about US',235equivalent. The total real growth rate since 1954 has averaged a high 8 percent annually. With the progress of industrialization,the pro- portion of population in agriculture has dropped from the prewar three- quarters to less than one-half. The transport sector has accounted for about 6 percent of Yugoslavia'snational product in recent years. 5. Yugoslavia is a Federationof six Republicsand can be divided roughly into three main geographicregions: (a) the northeast, the granary of Yugoslavia, (b) a narrow coastal strip along the Adriatic Sea, and (c) the remainingmountainous two-thirdsof the country. Communication between these areas is difficulteven today. B. Transportin Yugoslavia 6. Yugoslavia'smain domestic transportationsystem consists of rail- ways (see iMap),and to a lesser extent, of highways. Freight traffic on the inland waterways is of some significance,though most of it is inter- national transit traffic. Air transportis limited. 7. The country'smain routes of communicationshave been conditioned by its topography;they have followed the easy paths and have avoided the mountain barriers along the coast and in the south. As a result, the main routes run northwest to southeast along the Sava-DanubeValley. They serve - 2 - the rich agriculturalareas in these valleys and in the north. They also provide easy access to Hungary and the Balkan countries east of Yugoslavia and some connectionsto Austria,Ital:;-and Greece. But the mountain barrier blocks access to the coast, excent at a few gaps. 8. This serious geographicalhandicap was aggravatedby the different historical developmentof the western and northern part under Austro-Hun- garian rule, and of the southeasternpart under Ottoman-Turkishrule. Until 1918, Belgrade was actually a frontier town, with foreign territory just across the Danube and the Sava. The transport system of the former Austro- .Hungarian area, i.e. Slovenia, Croatia and Vojvodina was developed almost to ,!estern European standards, but directed toward Vienna and Budapest and oriented tomards politicaland military needs. Bosnia and Hercegovinawere opened up by a system.of narraw gauge (2-1/2t) railways and a few roads. In the south, developmentof the transportsystem in Serbia, Hiacedoniaand Nontenegro,did not really begin until the establishment of the Yugoslav State in 1919. 9. One aim of ~)ostTir._transport policy has been to open up these less developedregions and to provide direct access from the hinterland (around Sarajevo and Belgrade) to the sea by means of modern railways and roads. Another has been to open Yugoslavia to West European motor traffic lay means of the modern Central Hig'nway from Italy and Austria to Greece via Belgrade and another highway along the Adriatic coast from Rijeka to Bar and then inland to Skopje, where it will join the Central Highway. 10. The railw7ayis still the backbone of Yugoslavia'stransportation system, accounting for nearly 75 percent of freight trafficin 1962 (see Table 1). Highways and shipping split the remainder about equally. As in most countries, the proportioncarried on highways has increasedrapidly - from about 7 percent in 1957 to 15 percent in 1962. As for passenger traffic, the railway accounted for about 63 percent in 1962, interurbanbuses for about 22 percent, and passengercars for nearly 10 percent (see Table 2). '-uthere, too, the proportion carried on highways has doubled in recent years - from about 17 percent in 1957 to 33 percentby 1962. As for the future, it can be expected that the railway will continue to be the largest carrier, especia;ly for freight, but that r4hile&the absolute anount of tr~affic wTill