Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. 5477-HU Public Disclosure Authorized HUNGARY STAFF APPRAISAL REPORT OF A TRANSPORT(RAIL/ROAD) PROJECT Public Disclosure Authorized April 30, 1985 Public Disclosure Authorized Projects Department Europe, Middle East and North Africa Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorizaton. CURRENCY EQUIVALENTS (As of July 1984) Currency Unit = Forints (Ft.) Forint 1 = US$0.0215 Forints 46.5 = US$1.00 WEIGHTS AND MEASURES Metric System British/US System 1 meter (m) = 3.2808 feet (ft) 1 kilometer (km) = 0.6214 mile (mi) 2 2 I square kilometer (km ) = 0.3861 square mile (mi ) 1 metric ton (m ton) = 0.9842 long ton (lg ton) 1 kilogram (kg) = 2.2046 pounds (lbs) PRINCIPAL ABBREVIATIONS AND ACRONYMS CMEA - Council for Mutual Economic Assistance ECE - Economic Commission for Europe ER - Economic Return FYR - First Year Return GDP - Gross Domestic Product GTKm - Gross Ton Kilometer HC - Hungarocamion International Freighting Company IBRD - International Bank for Reconstruction and Development ICB - International Competitive Bidding KTI - Hungarian Institute of Transport Science LIB - Limited International Bidding MAV - Hungarian State Railways MCC - Maintenance Coordination Centers MOF - Ministry of Finance MOT - Ministry of Transport MSC - Maintenance Sub-centre NBE - National Bank of Hungary NPO - National Planning Office NtKm - Net Ton Kilometer PKm - Passenger Kilometer PRD - Public Roads Department of MOT PRMC - Public Road Management Centers RF - Revolving Fund SCD - Supervision and Control Department SDB - State Development Bank SOE - Statement of Expenditures TDD - Technical Development Department of MOT TEM - Trans-European Motorway TU - Traffic Units UIC - International Railway Union UNDP - United Nations Development Programme FISCAL YEAR January I to December 31 FOR OMCIAL USE ONLY HUNGARY TRANSPORT(RAIL/ROAD) PROJECT Loan and Proiect Summary Borrower: Hungarian People's Republic. Beneficiaries: Hungarian State Railways (MAV) and Hungarocamion International Freight Company (HC). Amount: US$75 million equivalent. Terms: Repayable in 15 years including three years of grace at the standard variable interest rate. Relending Terms: US$21 million would be onlent to the MAV for a period of 15 years and $17 million to the HC for a period of 6 years, both at a rate equal to at least the Bank rate plus a 30Z markup which includes a fee for the foreign exchange risk to be borne by the Borrower. Proiect Objectives and Description: The main objective of the proposed project is to support the Government's policies of increasing the efficiency of the transport sector, conserving energy in the sector and increasing the sector's earnings of convertible currencies. The project consists of: (i) a railway component including a modernization program for the Ferencvaros (East) marshalling yard in Budapest, acquisition of track renewal and maintenance equipment and equipment to upgrade interface facilities between rail and road at five container terminals, training of railway personnel to familiarize them with recent developments in traffic, operations and engineering practices; (ii) a highway component including construction of the first phase (14 km) of a 28 km. four-lane motorway bypass of Budapest including two bridges across the Danube, acquisition of equipment for the maintenance of national roads, pavement management, road safety and road construction quality control, and training of highway personnel in modern developments in traffic safety and pavement management; (iii) an HC component including acquisition of larger capacity, more fuel efficient and longer life freight vehicles together with supporting management information systems and maintenance workshop equipment; (iv) technical studies of (a) the contribution of road users to financing the costs of roads, and (b) modern management systems and operational aspects of international trucking companies. Thisdomet has a rested distibution and may be used byrecipients only in the performanceof theiro idutie ItscOtents May nototherwie be dbosed without WorldBank autborization. Benefits and Risks: The ultimate beneficiaries of the proposed project would be transport users who, because of the different intensity of use, come from a range of sectors and income levels. At full development, the Bank-assisted components in railways would bring annual cost savings of about US$10 million equivalent while the investments in the HC would yield incremental net revenues of about US$15 million equivalent annually. Net foreign exchange earnings and savings in convertible currencies are estimated at about US$15-20 million annually at project completion. Project risks are considered small as the technical solutions envisaged are based on adequate studies and engineering and Hungarian transport agencies have built up competent management and technical expertise. The impact on the environment would be positive. Estimated Costs: Local Foreign Total US $ Million Railway Component 29.3 25.0 54.3 Highway Component 38.6 32.8 71.l HC 0.3 31.0 31.3 Total Base Cost 68.2 88.8 157.0 Physical Contingencies 6.1 3.7 9.8 Price Contingencies 21.5 27.2 48.7 Total Project Cost 95.8 1' 119.7 215.5 Financing Plan: Local Foreign Total US $ Million World Bank - 75.0 75.0 Government/Cofinancing 56.1 9.9 66.0 Railways 39.4 10.8 50.2 HC/Cofinancing 0.3 24.0 24.3 95.8 119.7 215.5 Estimated Disbursements: IBRD FY 1986 1987 1988 1989 1990 1991 Annual 6.7 15.0 14.6 17.2 14.7 6.8 Cumulative 6.7 21.7 36.3 53.5 68.2 75.0 Rate of Return: About 20%. Appraisal Report: No. 5477-HU dated April 30, 1985. -i' Includes US$24.9 million of taxes and duties. HUNGARY STAFF APPRAISAL REPORT OF A TRANSPORT (RAIL/ROAD) PROJECT Table of Contents Page No. I. THE TRANSPORT SECTOR .................................... 1 A. The Transport System. 1 B. Transport Planning, Policy and Coordination 2 C. Transport Sector Issues.. 4 D. Bank Group Transport Sector Operations in Hungary 6 II. RAILWAYS AND HIGHWAYS SUBSECTORS. 7 A. Railways .. 7..........-.---7 -organization . 7 -Railway Property ... 7 -Operations ... 8 -Uneconomic Lines and Services .. *.. 9 -Staff and Productivity .. ..... .9 -Railway Tariffs .... .. 9 -The Railway's Investment Plan (1986-90) . .10 -Financing Plan ................ , .. 11 B. Highways ... 12 -Organization ......... .12 -Planning ................ ...................... 12 -Engineering . ............... .13 -Construction .... 13 -The Network....... 14 -Maintenance .. ......... ........................ 14 -Equipment and Workshops . 14 -Traffic Regulation and Safety .... 15 -The Highway Investment Plan (1986-90) ............ 15 This report is prepared by Messrs. M.K.Ganguli (Transport Economist),- W.S.Matthey (Highway Engineer), S.B.Orlic (Railway Engineer), C.F.de Castro (Road Transport Specialist), and J.McCombie (Consultant) on the basis of an appraisal mission to Hungary during November/December 1984. Ms. N.Mangosing assisted the appraisal mission in the preparation of financial statistics. Table of Contents (Continued) Page No. C. Hungarocamion .... ........ ....... 16 -Organization ...... .............. 16 -Operation and Fleet ................................. 16 -Investment Plan (1986-90) and Development Strategy .. 16 -Pricing and Finance ...... .............................. 17 III. THE PROJECT ..... o............ ............................ 18 A. Objectives ......... o ,...............e....e......................... 18 B. Description . ............ o ........................... 18 C. Cost Estimates ................................ O..... 22 D. Engineering ..................... o............. 24 E. Financing ... .. ..... ....o.... ................ ... 24 F. Implementation ..... ................................. 25 G. The Loan, the Borrower and the Beneficiaries .*..O... 27 H. Procurement .................................. 28 I. Disbursements .......... .......... _. ............ 30 J. Reporting, Accounts and Audit ............. o ........ 31 IV. ECONOMIC EVALUATION . .......... 32........................32 A. General ................ ............................ 32 B. Project Costs and Benefits . ... ...* ........g.* 32 C. Economic Return (ER) ................................ 33 D. Project Risks .... .................................. 37 E. Environmental Impact ....................... o........ 37 V. FINANCIAL ANALYSIS ...... .............................. 38 A. General ............................................. 38 B. Railways ............................................ 38 C. Hungarocamion ....................................... 44 D. Highway Component ........................ ............. 48 VI. AGREEMENTS REACHED AND RECOMMENDATIONS ................... 49 Table of Contents (Continued) ANNEXES Page No 1. Scope and Content of Proposed Railway Action Plan (1986-1990) .... .......51 2. Outline of Terms of Reference for Road User's Contributions (RUC) Study.. 53 3. Outline of Terms of Reference for Technical Assistance and Studies for Hungarocamion ........................................................... 55 4. Design Characteristics of Railway Works - Ferencvaros East Marshalling Yard . ....................................................................63 5. Financial Analysis . ....... .......... 9o 64 6. Related Dcoments and Data Available in the Project File .... 76