Document of The World Bank FOR OFmFCIAL USE ONLY Report No. 5702-bMAG STAFF APPRAISAL REPORT MADAGASCAR THIRD RAILWAY PROJECT Volume II March 28, 1986 Transportation Division Eastern and Southern 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 authorization. FOR OFFICIAL USE ONLY MADAGASCAR THIRD RAILWAY PROJECT STAFF APPRAISAL REPORT Table of Contents VOLUME II ANNEXES 1 - List of Materials Available in the Project File 2.1 - Telecommunications Study - Draft Terms of Reference 2.2 - Training 2.3 - Wood Sleeper Production Study - Draft Terms of Reference 2.4 - Ibity Terminal - Draft Terms of Reference 4.1 - Detailed Project Cost Estimates 5.1 - Rail vs. Road 5.2 - Economic Evaluation - Assumptions 5.3 - Economic Return of Project Components 5.4 - Sensitivity Analysis 5.5 - FCE Viability Study - Draft Terms of Reference 6.1 - RNCFM's Income Statements for the years ended December 31st 6.2 - RNCFM's Balance Sheets at December 31st 6.3 - RNCFM's Funds Statements 6.4 - RNCFM's Ratio Analysis 6.5 - RNCFM's Financial Forecast - Assumptions 6.6 - RNCFM's Pro-forma Income Statements for the years ended December 31st 6.7 - RNCFM's Pro-forma Balance Sheets at December 31st 6.8 - RNCFM's Pro-forma Funds Statements 6.9 - RNCFH's Pro-forma Ratio Analysis of thew offidc dutei Its contents may no otherwise be disckeed wihout World DBnk autboraimLX ANNEX 1 Page 1 of I MADAGASCAR THIRD RAILWAY PROJECT List of Materials Available in The Project File 1. RNCFM - Audited Financial Statements for 1984, May 1985. 2. RNCFM - Investment Plan, February 1985. 3. Preparation Study for the Investment Plan, CANAC, December 1984. 4. RNCFM - Monthly Progress Reports on the Financial Recovery Program (through March 1985). 5. RNCFM - Second Railway Project Summary of Operations - October 1984. 6. Study on the Viability of TA and FCE Lines, CANAC, August 1984. 7. Etude des Alternatives de Transport Fianarantsoa - Cote Est, S.T.I.P.E. International Londres - Feb. 1986. -2- ANNEX 2.1 Page 1 of 1 MADAGASCAR THIRD RAILWAY PROJECT Telecommunications Study - Draft Terms of Reference 1. RNCFM, headquartered in Antananarivo, presently communicates with the stations on its branch line between Horamanga and Lac Alaotra, for train control and other information, by underground cable between Antananarivo and Moramanga and by open wire land line between Moramanga and Lac Alaotra. Phone drops are located at each station. The comunmication system on the branch line is old, spare parts are no longer available and maintenance costs are high because of theft of the wire and vegetation growth. 2. The consultant will be required to review on site the uses and requirements for telecommunications on the branch line taking into account the existing system between Antananarivo and Moramanga and recommend a cost effective method of satisfying the requirements. A two-way radio system would be explicitly included among the alternatives to be studied. More specifically, the consultant will develop detailed procurement and installation specifications and provice a realistic estimate of costs taking into account local conditions. 3. The consultant will also be required to ensure that: (1) The procurement list includes sufficient spares to satisfy maintenance requirements for two years; (2) supply an estimate of the annual consumption of spare parts for maintenance purposes; (3) to provide a list of shop equipment necessary to long term maintenance of the system; and (4) to recommend staff levels and local training requirements sufficient to ensure that staff has expertise to reliably operate the new telecommunications system. 4. After bids for the new system have been submitted by the telecommunication contractor, copies will be forwarded to the home office of the consultant that designed the procurement request for evaluation. The evaluation is to be completed in a timely fashion and forwarded to RNCFM for further action. -3- ANNEX 2.2 Page 1 of 7 MADAGASCAR THIRD RAILWAY PROJECT Training 1. Despite limited financial resources, RNCFM has always paid special attention to the training of its personnel. In 1963-73 the emphasis was placed on Cours Superieurs Professionnels du 2e degre - CSP2 (Second Level Advanced Vocational Training Courses), designed to train senior supervisory staff, and on evening training courses for the operating personnel. Since 1974 the training has developed and has included: (i) special short-term refresher and advanced training courses for professionals, (ii) regular, CSP2 courses and (iii) apprenticeships for the training of skilled workers. 2. The CSP2 training courses at railway headquarters in Antananarivo are given in liaison with two African regional training centers: one in Douala and the other in Abidjan. This interregional collaboration has been operating continuously and coherently thanks to technical assistance by the French National Railway Company (SNCF), organized through the French National Office of Assistance for Railways and Equipment (OFERMAT). 3. The three centers (Antananarivo, Douala, Abidjan) use more or less the same training program, with the exception of certain technology courses which vary depending on the needs of the individual system. Annual meetings attended by training representatives of the French-speaking African railway systems put forward proposals for the organization, revision and evaluation of training programs. It is interesting to note that staff of the Franco-Ethiopian Railway took the CSP2 training in Antananarivo from 1967 to 1976. Recent contacts have given rise to the hope that a resumption of this cooperation will be possible. 4. The CSP2 courses are offered to the top under-30 years of age railway employees in the technical departments, providing they have at least two years' experience in their field of specialization. After training they have an opportunity to fill high level supervisory jobs such as: chief foreman (shop foreman) for the Mechanical and Electrical Engineer's Department, district inspector and chief draftsman for the Permanent Way, Structures and Equipment Department and Chief Stationmaster for the Traffic Operations Department. 5. The proper training lasts three years, during which time the trainees are assigned to the Training Center. An additional year is spent preparing for the qualifying admission examination. The preparatory year will be eliminated in 1985-86 because the overall educational level of the trainees is increasingly higher due to the progress being made in national education and because classroom space at the Training Center is limited. -4- ANNEX 2.2 Page 2 of 7 6. Training of skilled workers is done through an apprenticeship program that recruits young holders of the CEPE (Certificate of Primary/Elementary Training) on the basis of a competitive examination. The training program was begun in 1983 and consists of three years training. Graduates of the program are then qualified to work in the Mechnical and Electrical Engineer's Department. Training results (1983-84) 7. Training results in the most recent fiscal year (1983-84), were as follows: (i) CSP2: 27 employees were trained, including 14 in the preparatory year, (ii) apprenticeship: 12 apprentices in their first year, (iii) correspondence courses: 508 enrolled in 49 general education subjects, accounting and secretarial training, (iv) introductory courses: organized for 80 university-level and 13 professional-level and 6 supervisory-level employees undergoing training provided by an OFERNAT expert; 39 professionals in data processing, 11 driving instructors, 12 employees in supplies, 4 district inspectors; preliminary training: 50 trainee drivers and 20 section foreman. Evaluation of the training 8. RNCFM's training center lacks physical and technical resources. The center has four classrooms which hold 70, 80, 25 and 25 students respectively. These room serve the CSP2, the apprenticeship and the refresher training. One of the rooms also doubles as a library. Teaching materials are virtually non-existent and the apprenticeship workshop does not have enough of the tools or measuring instruments that are essential for practical work. The audio-visual equipment consists of one projector. The copying equipment needed for the correspondence course is poor. The library consists of 200 books, none of which is more recent than 1970. 9. Only 30Z of the training needs, as identified by the technical departments in their annual program, have been met. It has not been possible to recruit more than about 12 apprentices per year because of the extremely limited training facilities. Several refresher courses for managerial supervisory staff have not materialized for lack of appropriate premises and equipment. ANNEX 2.2 Page 3 of 7 10. Yet human resources have made the training worthwhile. According to the OFERMAT training specialist in charge of evaluating the CSP2 courses, the training provided by the RNCFM training center is of a high standard because the teaching is excellent. The trainers, particularly those specializing in technical subjects, have had extensive professional experience (10 years service on average) and have excellent basic knowledge. RNCFM's policy of encouraging professional and skilled supervisory staff to take part in the training also enhances the level of teaching. Perhaps most important, RNCFM's management pays trainers at attractive rates: FMG 1,000/hour for RNCFM trainers and FMG 1,030/hour for outside trainers. Teacher training seminars given by an OFERMAT specialist are also available to professional and supervisory staff to introduce them to the basic rudiments of teaching and communication skills. In sum, RNCFM management has aimed to make the most of the resources available in order to keep the training up to a satisfactory level. Average training costs 11. The Training Center's 1984 operating costs were FMG 21,798,151, broken downz as fellows: (i) cost of teaching staff: FMG 5,980,700, (ii) cost of raw materials: FMG 4,374,347, (iii) cost of administrative personnel: FMG 11,443,104. Hourly training cost per professional employee was therefore FMG 7,300; FMG 5,100 per supervisory employee; FMG 3,300 per CSP2 student; and FMG 4,115 per apprentice. The average cost of training seems high because of the extremely small number of students per section (e.g. in 1983-84 there were five first-year and four second-year students in the Mechanical and Electrical Engineering CSP 2 section). Training Management 12. Until September 30, 1984 the organization of training activities was handled by a Division. On that date the Board of Directors upgraded the divi;ion to the rank of Department, following the suggestion of the General Manager. The Department, now known as the Training Center, is divided (not counting the Applied Psychology section) into two parts:the General Technical Training Division and the Specialized Technical Training Division. The Training Center now reports directly to Management; and bears the same title and rank as the main technical departments. The head of training is thus automatically a member of the Council of Department Heads, a group that helps formulate RNCFM's general development policy and makes important managerial decisions. Management also decided to strengthen the link between training and the user departments by assigning to the training department three experienced operating specialists in permanent way and structures, in motive power and in traffic. These specialists will orgainize specific training, identify training needs, monitor practical training being offered in workshops and discuss with production chiefs how to tailor training more effectively to RNCFM's real needs. -6- ANNEX 2.2 Page 4 of 7 Human Resources Division 13. In October 1984, RNCFM's Board of Directors created a Human Resources Division, provisionally attached to the General Affairs Department. This new division is responsible for personnel planning and, working closely with the Training Center, for matching job requirements and job skills among the staff. Still at the embryonic stage in early 1985,the human resources division lacks appropriate specialists, needs to be strengthened and ultimately attached to the Training Center. Despite its shortcomings, creation of the Human Resource Division indicates Management's effort to set up a mechanism that can eventually establish long-term personnel planning forecasts. The Division's needs should be given some technical and material support to become operational during the Third Railway Project (paragraph 19). Training Program for 1985-90 14. The original training program proposed by RNCFM for 1985-90 was prepared using methodology recommended by an OFERMAT specialist. The result was an ambitious plan involving 4,314 (or nearly all the railway's employees and totalling 13,000 man/months (m/m) of training. Implementation would have required construction of five new schools: one for the CSP2 courses, one as an apprenticeship center, and three practical schools (fixed installations, motive power, traffic operation). The program also contained a proposal to construct a building to house a library, an applied psychology unit and a language laboratory. Construction costs were estimated at US$2.1 million, not counting furniture, equipment, technical assistance and fellowships for professionals to receive training abroad. RNCFM's contribution, which was to cover salaries and the training materials, was estimated at FMG 202 million. 15. In the course of the project appraisal, those in charge of training came to the realization that the proposed program was over-ambitious and did not make provision for the time needed both to prepare architectural plans and to complete construction. A replacement program has been prepared (details attached). Strategy adopted for preparation of second training program 16. The revised program calls for continued emphasis on the training of Senior supervisory personnel. During the period under review, priority will be placed on consolidating and developing the CSP2 courses. Construction of three practical schools (permanent way/structures, motive power, traffic operations) will not be undertaken, however, because there was still insufficient data to justify the investments. 17. Training of professional staff will also continue, but will take place abroad, for the most part, with the help of OFERMAT or some other organization specializing in railways. Meanwhile, the use of other local centers will be investigated. ANNEX 2.2 Page 5 of 7 18. The apprenticeship training is to be strengthened but no new facility will be built. Equipment and tools to help improve the quality of the training will be purchased and the existing workshop may be rehabilitated. Before funds are spent unnecessarily, however, RNCFM will study whether this training could take place at other State-run vocational training establishments. The goal is to ensure that the RNCFM center provide training for workers in fields of specialization for which training does not exist elsehwere, or for which the output rate of the national education system is still too limited to meet labor market needs. 19. To be effective, the program should meet needs of individual employees, as determined by the requirements of his/her job and skills. A task requiring most urgent attention therefore is to consolidate the Human Resources Division with the unit responsible for personnel planning. One of the alms of the Third Railway Project should be to make the entire Human Resources division operational and capable of: (i) accurately conducting job analyses and (ii) formulating a medium and long-term personnel planning program. The proposed training program should be revised as and when more detailed data on personnel become available, in order to tailor it as effectively as possible to RNCFM's needs. Recommendations 20. The following recommendations were agreed with RNCFM. Training Center 21. Incorporation of the personnel planning unit within the Training Center (Training Department) would facilitate coordination betwen selection and orientation, job analyses, the planning of personnel movements and requirements, and training. Additionally, the personnel planning unit could be strengthened by adding at least two more university-trained staff, one of whom would be required to have a knowledge of statistics and by providing technical assistance in the form of 12 m/m of consulting services (6 m/m in job analysis and 6 m/m in personnel planning). 22. Special attention should be given to the training of the Training Center's professionals: in addition to the training courses abroad, teacher-training seminars should be organized for them with the help of OFERHAT (program already under way, financed by the French Cooperation Program) and vocational-training seminars, organized jointly with the workshops, for professionals on the production side. CSP2 23. Overall training costs should be reduced also since average training costs for 1984 were so high. Cost cutting measures could include: (i) elimination of the preparatory year for the 1985-86 academic year, to cut the training from four to three years; -8 - ANNEX 2.2 Page 6 of 7 (ii) ensuring that any new facilities have a reasonable classroom utilization rate (70% at minimum for general education and scientific classrooms) and an enrollment figure which would not fall below 60 students for the three years and for the three fields of specialization. 24. As regards the need to upgrade the practical-training instruc- tors, mostly foremen and production shop foremen, steps should be taken to: (i) intensify their teacher training with assistance from OFERMAT (financed by French Cooperation Program) and extend this teacher training to the other professionals in order to augment the training capacity of each production unit. (ii) consolidate their vocational knowledge through the partici- pation of consultants on a short-term basis: 12 m/m of con- sulting services would be budgeted for this purpose at the rate of 4 m/m per year. It is particularly important that the task of identifying the fields of specialization requir- ing this type of assistance be carried out conscientiously by all the heads of the technical, administrative and financial departments. Training of Professionals 25. The training of professionals would be divided into two components: - training abroad - local training (1) Training abroad: the number of fellowships will be set at 32. They will be for variable periods, ranging from one to three months, and will be distributed over a four-year period. It would be desirable for: (i) a committee to be set up at the Management level, to be responsible to RNCFM; (ii) training objectives to be prepared for each department, together with profiles of jobs that need to be filled or up- graded, a list of candidates, accompanied by their profes- sional qualifications, educational background, and previous and current professional duties, their performance rating and their length of service with RNCFM; (iii) a preliminary evaluation of these files to be carried out by the Training Center, taking account of the need to match the proposed training to the professional qualifications of the candi- dates; (iv) the candidates to be short-listed by the same central committee, chaired by the General Manager ar his representative. ANNEX 2.2 Page 7 of 7 (2) Local Training: this training could be conducted either with the assistance of existing training centers, 1/ or with the technical assistance of consultants. Twelve m/m of technical assistance will be budgeted at the rate of 3 m/m per year. Financing of the training component of the proposed project 26. IDA would finance: (i) technical assistance comprising 6 m/m for personnel planning, 6 m/m for job analysis and 24 m/m for specific techniques, for a total of 36 m/m of consulting services; (ii) fellowships for training abroad for 18 professional and 14 supervisory employees, i.e. a total of 32 fellowships; (iii) additional teaching equipment; (iv) the construction of premises for the CSP2 courses. The total cost is estimated at US$1,396,500 and breaks down as follows: - Fellowships 202,500 - Technical assistant 396,000 - Teaching equipment 200,000 - Furniture 78,000 - Construction 520,000 TOTAL US$1,396,500 1/ Centre de Formation des Cadres - CFC (Management Training Center) in Antsirabe. Centre de Formation des Cadres - CFC (Management Training Center) in Antananarivo. Institut National de Promotion de La Formation - INPF (National Institute for Training Promotion). - 10 - ANNEX 2.3 Page 1 of 1 MADAGASCAR THIRD RAILWAY PROJECT Wood Sleeper Production - Draft Terms of Reference 1. RNCFM headquartered in Antananarivo, presently operates a sleeper production plant at Andasibe. Sleepers are made from timber cut in the railway's own wood lot, then sized, drilled and treated (impregnated with pentachloraphenol) at the railway facilities in Andasibe. The principal goal of the plant is to produce sleepers sufficient for the railway's needs but a secondary objective is to produce planks and other construction timber sufficient for the railway and, if possible, for sale in the commercial market. To date neither objective has been met. 2. After an on site review of the plant's present operations, the consultant will recommend the type of organization and equipment required to improve efficiency and output of the operation. The consultant will also recommend actions related to forest preservation that are necessary to perpetuate the source of timber to the plant and estimate the optimum production possible from the land available for such purpose. 3. With reference to any equipment deemed necessary to improve plant operations, the consultant will draw up detailed procurement specifications including spare parts sufficient to ensure two years maintenance. The consultant will also estimate the annual rate of consumption of spares. 4. With reference to human resources, the consultant will be required to recommend a training program to ensure the staff ha- the expertise to implement the recommended changes and improvements including, if necessary, facilities to accomplish the training, after taking into account local conditions. 5. The consultant will work closely with the Railway management and through it contact others such as Government departments or local industry. 6. The consultant will also review the railway's annual requirements for sleepers and compare it to his estimate of the likely level of sleepers the railway can produce wood garnered from its own lands. To eliminate any gaps between supply and demand, the consultant will investigate the availability of alternative sources of timber, evaluating particularly the quality of wood available from other sources, and -ecommend price guidelines to the railway for purchase. - 11 - ANNEX 2.4 page 1 of 2 Madagascar Third Railway Project Ibity Terminal - Draft Terms of Reference 1. A new cement plant in Ibity is nearly completed but does yet have good access to rail transport for imported raw materials and distribution of its cement. A rail siding is being constructed off the TA line in the direction of the plant but will take considerable time to complete. Meanwhile, study of an interim solution for the interface between the cement plant and the railway needs to be undertaken. 2. Taking into account growing traffic levels as cement production develops, transport methods and costs need to be optimized. Consultants in transport and handling, for about 5 man-months, will analyze and recommend solutions for these requirements. 3. The consultants will: (1) Reexamine and evaluate forecasted needs for raw materials and cement production. (2) Study the handling requirements for raw materials, in particular coal and other imports at Toamasina, between ship and storage, and storage and wagons. (3) Estimate capacity and number of wagons required to transport raw materials to the Antsirabe region for different traffic levels. (4) Recommend different handling methods for raw materials and finished products for different traffic levels in the short, medium and long-term, taking into account available road and rail facilities. (5) Recommend site location for an intermodal terminal if this is found to be the optimal solution. (6) Recommend the alignment for an access route for a rail/road bridge across a small river. (7) Recommend the necessary equipment (trucks, trailers, loading equipment, fork lifts) for an intermodal terminal. (8) Recommend future rail equipment (locomotives and wagons). 12 - AMNNX 2.4 page 2 of 2 (9) Evaluate the feasibility of a transport plan between Ibity and locations of cement purchasers (railway and truck). (10) Estimate operating costs and investment requirements for the recommended project (split between foreign exchange and local costs). - 13 - Annex 4.1 Page 1 of 7 MADAGASCAR THIRD RAILWAY PROJECT Detailed Project Cost Estimates 1, The project was prepared by RNCFM, CCCE and Bank-financed consultants using as reference RNCFH's 5 year investment plan. The items included in the project comprise the higher priority elements in years 1986-88 and represent a continuation of Bank Group assistance to RNCFM extending back to 1974. A. Project Objectives 2. The Project's main objective is to support the railway's improvement plan critical to the railway regainment of operating efficiency by supplying the necesary foreign exchange for investments. Without the investments, continued railroad operations over deteriorated portions of track using old and decrepit equipment will hamper operations and limit capacity on lines essential to the sustenance and econooic recovery of Madagascar. More specifically the Project will continue track rehabilitation initiated in prior projects, supply spare parts for maintenance and rehabilitation of rolling stock including locomotives, improve communications on a portion of the system and supply technical assistance in areas that have become 'bottlenecks' in the plant rehabilitation process, and training to ensure that staff can use new equipment and carry out recommended changes. These elements of the project should make a major contribution to ensuring viability of the northern portion of the system. Additionally, the study portion of the project is expected to define a course of action by which financial drain attributed to the southern line (FCE), found to have no viable future in an earlier study funded by the second project, can be resolved. B. Project Description 3. The project covers the more important elements of three years (1986-88) of the railway's five year investment plan and includes: (a) Track motor cars for track maintenance and renewal. (b) Spare parts for locomotives and wagons. (c) Sleepers (steel) and track fittings for track renewal. (d) Telecomimnications-renewal on the Moramanga-Lac Alaotra branch. (e) Shop machinery. (f) Tools and equipment. (g) Bridge construction and rehabilitation. - 14 - Annex 4.1 Page 2 of 7 (h) Construction of a rail spur at Ibity. (i) Training and technical assistance. (j) Studies. Each of the elements is discussed in more detail below. (a) Track Motor Cars 4. Because of worn out equipment the railway lacks sufficient means to transport tools and men for its track gangs; rehabilitation work is inordinately delayed as a consequence. Thirty out of a 42-motor-car fleet are over 35 years old; five of these are beyond repair and will be replaced with new units. The new motor cars units will be capable of moving wagons of track material from sidings to work sites as well as transporting men and tools. (b) Spare Parts for Locomotives and Wagons 5. Insufficient foreign exchange has limited the railway's acquisition of spare parts; as a result the majority of the locomotive fleet is now well past the mileage at which a major overhaul should have been performed. Lack of maintenance is now seriously affecting the availability of motive power and the need for repairs is vital. Efforts to catch-up on locomotive maintenance was begun with funds from railways II (Cr. 903-MAG) but a significant number of locomotives remain in need of major repairs. Similar problems prevail with respect to the wagon fleet. The project provides for the acquisition of wagon spare parts so that a major repair program can be instituted for this rolling stock as well. (c) Sleepers (steel) 6. Wood sleepers cannot be produced in sufficient quantity to supply the railway's plant rehabilitation needs. New sleepers are especially needed to shore up deteriorated track on many of railway's sharp curves. The project includes funding for a study that will assess Madagascar's forest industry and its ability to produce wood sleepers as well as of the ways by which the railway's present sleeper treatment facility can be made more efficient. Until this assessment is completed and its recommendations implemented, additional sleepers for track renewal will still be needed. Importation of steel sleepers is the best means of meeting this need and will be especially beneficial in repairing difficult track sections where curves are sharp and grades are steep. Rail Attachments 7. If steel sleepers are imported, so must the rail attachments used to fasten them to the track. The railway does not have a stock of these fastenings and they are not available locally. 15 - Annex 4.1 Page 3 of 7 (d) Telecommunications 8. Communication on the Moramanga-Lac Alaotra (MLA) line is presently conducted using open land lines and old telephones which are no longer manufactured and for which spare parts are not available. Moreover, the railway has continuous problems with vandalism and vegetation damaging the overhead wire. This branch line serves the island's chromite and rice growing region which is critical to the needs of the country. The public telephone system has no plans to serve this area, so replacement of the railway's current system cannot be avoided. A study funded by CCCE recommended the need be met with installation of an underground cable. The solution is eminently satisfactory but also extremely expensive considering the level of communications required on the line. A cheaper but equally satisfactory alternative will be developed in detail as part of the project after which installation will be undertaken. In all probability, the choice will involve use of two-way radios. The old equipment on the line will then be dismantled and used to extend the life of existing equipment on other lines. Ce) Shop Machine Tools 9. Many of RNCFM's shop machine tools (lathes, turret drills, planers, etc.) are beyond their useful life yet are still required to fabricate parts normally not available in the commercial market. The present project includes funds to replace a limited amount of these tools. (f) Tools, Cranes and Container Equipment 10. Container traffic is growing steadily at Antananarivo. The present area assigned to loading and unloading, stuffing and destuffing of containers is too small and cannot be enlarged. Loading and unloading containers to and from wagons is handled by an old wrecking crane permanently mounted in a stationary location. Occasionally, empty containers are moved by a light mobile crane otherwise used for general yard and shop duties. The project calls for the entire container to be relocated to an area closer to the freight shed and to be equipped with a mobile container handling fork lift. II. The railway needs a multi-purpose mobile crane to repair derailments, improve productivity in maintenance of way work and to ease shop work on rolling stock. At present RNCFM owns only one light crane which is used for yard work in Antananarivo. The crane is not designed to ride the rails and is limited as to the weight it can lift. Funds are provided to obtain a more versatile unit. 12. To continue the program of eliminating joints in track, the railway requires materials not available locally. tNCFM also needs a number of hand and small power tools to carry out track renewal and maintenance. Funds for these needs are included in the project. The project also includes funds f^r equipment and supplies to maintain engines that cannot be obtained locaiil. - 16 - Annex 4.1 Page 4 of 7 (g) Bridges - Bridge PK2 TA Line 13. An old concrete arch bridge on the TA line is badly deteriorated and in need of rebuilding. Sixty years old, its initial construction was poorly built on foundations and it has been minimally maintained since. The initial design was inadequate because it has always been too narrow and clearances become restricted for loaded trains unless the track structure is kept to very close tolerances. Trains on the TA line, therefore, are restricted as to size and weights. A survey of the bridge by the railway has not been able to suggest any reasonable method of improving its condition within the capabilities of local construction firms or the railway itself. 14. Bridge specialists subsequently brought in under French financing are currently developing a course of action; preliminary discussions with them indicate they will recommend construction of a new bridge in the immediate vicinity of the existing structure. The present structure is rapidly reaching the limit of its useful life so funds for a new bridge have been included in the project. (h) Ibity 15. A new cement plant at Ibity is under construction and will open soon. The plant will require rail access to obtain coal and other materials necessary to its operation. A rail spur to the plant is in the process of being built. As agreed during the mission, the railway will construct the spur as far as Vinanikarena. The final link to the plant will be determined only after a study of transport required for the short medium and long term for the cement plant has bee completed. The terms of reference will be approved by the Bank and the study will be financed as part of a PPF. 16. Without pre-empting the results of the study but on the basis of assumed need and preliminary assessment, it seems that truck service between the end of the railway branch at Viranikarena and the plant would be the most practical and least costly transport link for the short and medium term. Such a solution will involve some additional road construction, construction of a railway-road bridge, trucks, fork lifts, front end loaders and transfer facilities costing about US$1 million, as detailed below: $ Foreign Exchange Local Total Road construction 50,000 100,000 150,000 Bridge 250,000 250,000 500,000 Trucks 75,000 8,000 83,000 Fork lifts 20,000 2,000 22,000 Front end loaders 35,000 5,000 40,000 Transfer facilities 20,000 4,000 24 000 450,000 369,000 8l9,000 - 17 - Annex 4.1 Page 5 of 7 No new railway equipment is needed to serve the plant's initial projected traffic. (i) Technical Assistance Requirements Quarry operations - 6 man-months Railway Operations - 8 man-months Shop Production Planning and Control - 8 man-months Track Maintenance & Rehabilitation - 8 man-months 17. Quarry Operations. The railway runs its own quarry to obtain crushed rock for ballast and rock drilling, blasting and crushing are all done by railway employees. The techniques used for drilling and blasting however, are simplistic and old. Drilling is done by hand held air driven drills and blasting is done using simple small sticks of dynamite and incendiary cord. Electric blasting caps and wagon drills would increase breakage rates and yield more uniform rock sizes for further crushing. These more modern techniques would improve the supply of ballast, now a limiting factor in track renewal. An estimated o man-months of technical assistance will be required to introduce the necessary technology. 18. Railway Operation. The coordination between dispatching, station and team crews is not optimized. Little advance planning is carried out and train meets are left to local staff with no priorities outlined. Train delays are excessive and train scheduling is followed rigidly. Two specialists in train operations working for approx. 4 months could instruct and demonstrate improved planning methods. 19. Shop Production Planning and Control. The amount of semi-finished repairs in the main shops indicates a lack of planning and scheduling in repair operations. While some of this is caused by a lack of spare parts more detailed planning could improve the present situation. Two specialists in shop control working for 4 months to train local staff would improve production. 20. Track Maintenance and Rehabilitation. Track maintenance is presently accomplished essentially by panel change out. With the train densities that exist, other methods can be used which will maintain quality sufficiently high for the railway but increase the speed of track renewal. Two specialists in track repair working for 4 months could demonstrate techniques to improve the rate of rehabilitation. (j) Wood Sleeper Production at Andasibe 21. The railway obtains timber to manufacture wood sleepers and some lumber from a large tract of forested land near Andasibe. The entire wood sleeper operation, from the cutting of the trees, removal to the processing point, sawing and drilling, drying and chemical treatment, uses antiquated methods and machinery. Moreover, the facility cannot produce a sufficient quantity of sleepers or lumber to meet railway requirements for track maintenance and rehabilitation. Worse, the production of sleepers is a self limiting operation because no attempt has been made to practice forest renewal or timber management. - 18 - Annex 4.1 Page 6 of 7 22. The railway has requested assistance to replace the worn out machinery used to produce wood sleepers and replace the worn out machinery used to haul timber from the forest. 23. Before buying the new machinery, however, the mission appraisal team felt a study of forestry harvesting methods, forestry management an operations should be undertaken to assure that the railway's long term sleeper and timber production will be maintained at a level commensurate with the capabilities of the land. Sufficient funds are included in the Project to establish a more rational production facility and to retain consultants to organize the operation. 24. It has also been recommended to the railway that the Minister of Agriculture, Department of Water and Forests be asked to investigate the country's general ability to supply timber for sleeper production. Funds are also included to examine this issue and to determine whether or not the entire sleeper production operation would be more productive and profitable if made part of a larger lumber facility operated within the private sector. - 19 - Annex 4.1 Page 7 of 7 MADAGASCAR THIRD RAILWAY PROJECT Project Cost Estimate (million FMG's) Local Foreign Total a) Permanent way Bridge PK2 1987 325 325 650 1988 325 650 325 650 650 1300 Steel sleepers 1986 72 1062 1134 Rail Attachments 1986 13 191 204 Track Relaying 1986 180 5 1987 180 5 1988 180 540 _ 10 550 Road Bridge Cement terminal 1987 239 293 532 b) Rolling stock Gang trolleys 1987 16 276 292 Spare parts 1986 13 320 333 1987 7 160 167 1988 7 27 160 640 167 667 c) Shop machinery 1987 14 71 85 d) Telecommunications including study 1987 118 292 410 e) Tools & container equipment 1987 80 395 475 f) Training 1986 90 50 140 1987 150 240 390 1988 150 390 230 520 380 910 g) Technical Assistance 1986 10 65 75 1987 10 65 75 1988 10 30 65 195 75 225 h) Studies 1986 40 260 300 Base Cost 2229 4855 7084 May 9, 1985 - 20 - ANNEX 5.1 Page 1 of 2 MADAGASCAR THIRD RAILWAY PROJECT Rail Vs. Road Long Term Viability of the Railway 1. Much of the justification for the proposed project is based upon the prediction that bulk commodities now carried by the railway will continue to be so transported even after competing highways are completed. One way of showing long term economic viability of the railway is to assess the consequences of its abandonment. 2. Reliance upon road transport for all transport needs now being met by the railway would require: (i) importation of more trucks (US$ 65,000 per vehicle with a five-year economic _ife); (ii) fuel import increases; (iii) higher operating costs; and (iv) more road maintenance as wear and tear by heavy vehicles would be increased. Against these increases would be a decrease in railway investment. 3. Another way of assessing the railway's long-term future is to ex- amine the difference in tariffs between road and rail by individual como- dity. If the tariffs are close, rail traffic could be vulnerable to diver- sion to truck transport once highway travel is available year round, faster more reliable, etc. Yet, as shown in the following table, rail rates for the bulk commodities are significantly below current trucking rates. It is unlikely, therefore, that trucks will be able to compete with the railway for transport of these commodities, particularly as the number of service- able heavy trucks in Madagascar is limited and likely to remain so given foreign exchange difficulties. Lastly, truck competition on the the Toamasina road will continue to be constrained by the difficult terrain between the coast and Antananarivo even after the new section between Brickaville and Moramanga is finished. The new road will not eliminate the steep gradients and narrow curves which have proved difficult fo- heavily loaded trucks to negotiate. Absent the railway, increasing traffic density would necessitate upgrading and rebuilding the road to standards higher than now contemplated. Given the overall poor condition of the main road system in Madagascar, a significant upgrading of the Lac Alaotra- Moramanga-Antananarivo road is likely to be a dim prospect. Upgrading of the North-South roads, RN 4, 6 and 7, are far more important for the tran- sport sector in the medium term. - 21 - ANNEX 5.1 Page 2 of 2 MADAGASCAR THIRD RAILWAY PROJECT Comparison between Rail and Road Tariffs Rail Tariffs FMG/ton kn Rice 42.80 Wheat and flour 60.90 Fertilizer 60.00 Cement 48.60 Petroleum products 38.50 Containers 58.80 Chrome ore 22.90 Rail passengers 1st class 17.60 FMG/pass.km 2nd class 11.20 FMG/pass.km Road tariffs Freight (50% load factors) FMG/ton km 6-11 ton trucks over 11 ton trucks Paved road good condition 83.00-133.56 64.42-104.24 poor condition 94.58-150.02 75.66-119.78 Unpaved road good condition 122.14-198.24 99.46-160.90 poor condition 168.50-271.82 106.62-166.04 Bus Passengers (80% occupancy) 11-20 seats over 20 seats FMGIpass.km Paved road good condition 8.23-14.11 7.51-12.89 poor condition 9.14-15.23 8.35-13.91 Unpaved road good condition 11.48-19.29 10.49-17.63 poor condition 15.06-20.90 13.76-19.10 - 22 - ANNEX 5.2 Page 1 of 3 MADGASCAR TRIRD RAILWAY PROJECT Assumptions used in Economic Rate of Return Estimates a) Moramanga-Lac Alaotra Line (MIA) FMG (millions) Costs: Rail (purchased under Credit 903-HAG) 673 Steel sleepers (20 km) and rail attachments 874 Track relayingach ents 1,000 Telecomnuoications 410 Total 2,957 Benefit Calculation: In 1979 - 1983 an average of 285 hours/year was lost for 12 derailments due to poor track per year. Average turnaround time for wagons with chrom with track improvement and better telecommunications is 5 days compared to 6 days without the project. Chrome Transport: 285 285 - .95 hours/useable day 300 useable days/year x 24 hours 7200 Time loss due to derailment 6 x .95 5.7 hours/trip Time loss due to slow speed 2 x 1.5 3.0 8.7 hours/trip 8.7 - .3625 days/trip lost due to track 24 Track: Without project improvements to track 300 50 trips x 1796 tons - 89,800 tons/year 6 per wagons year capacity With project improvements to track 300 53.2 trips x 1796 - 95,547 6- .3625 5,747 (5.64) New wagons 30 tons x 50 trips - 1,500 ton/wagons/year 5,747 tons/year 1,500 tons/year - 3.83 wagons needed Telecomunications Without project improvements to telecommunications 300 50 trips x 1796 tons - 89,800 6 per year wagon capacity With telecommunications improvements 300 6- (1- .3625) 55.97 x 1796 100,522 (5.36) 10,722 New wagons avoided as a result of track and telecommunications improvements: 10722 - 7.15 wagons needed (telecom) 1500 3.83 wagons needed (track) 10.98 wagons x 42.25 - 463.9 million - 23 - ANNEX 5.2 Page 2 of 3 Rice Transport Assumed wagon turnaround improved from 7 days to 6 days for the transport season of 200 days Without project 200 = 28.57 trips 7 33.33 1.1666 28.57 With project 200 = 33.33 trips 16.66% change 6 .1666 x 75000 tons = 12495 tons/year (rice transport in 1989) capacity difference 12495 tons x (102.97 - 42.80) x 279 km (road cost) less (rail tariff) = 209.8 (60.17 FMG/ton km) million FMG/year General Benefits Maintenance cost savings FMG/km (3.06 million - .88 million) = FMG 2.18 million/year x 60 km - 130.8 million/year Track deteriorates at 4% per year Cost of derailments 12 x $5250 = FMG 3.4 million = FMG 40.8 million/year Summary of MLA benefits: FMG millions Avoided wagon Rice by rail Maintenance Derailmpnt cost purchase Vs. road savings reductinn 1987 464 70 44 - 578 1988 - 140 87 - 227 1989 - 210 131 41 382 1980 - 210 136 41 387 b) Antananarivo-Antsirabe bridge (TA) Costs: FMG millions 1987 3 locomotives x FMG 630 million 1890 1988 Bridge construction 2000 Benefits: Revenue FMG-2074 million Lower operating costs per year - 1334 Difference 740 - 24 - ANNEX 5.2 Page 3 of 3 c) Ibity Branch Line FMG (millions) Costs: 1 locomotive FMG 630 million 20 wagons x 26.6 = 532 Unloading equipment + bridge = 532 TOTAL 1694 Benefits: Revenue: Train Cost: 1988-89 24,000 tons x 28,100 FMG/ton = 674-336 = 338 1990-98 26,000 tons x 28,100 FMG/ton = 731-361 = 370 d) Spare parts, etc. Costs: FMG 1227 million Benefits: Savings of 1 locomotive (FMG 630 million) each year 1987-1989 Source: RNCFH, mission estimates May 1985 - 25 - Annex 5.3 Page 1 of I MADAGASCAR THIRD RAILWAY PROJECT Sensitivity Analysis Benefits Costs Best First Reduced Increased Estimate Year by 20% by IOZ ERR Returns ETA 11% 13% 15% 14% T& Bridge 10% 12% 14Z !6% Ibity Cement Branch Line 12% 15Z 17% 18% Spares and Equipment llX 19% 252 46% Overall Project 11% 13Z 16% 18% - 26 ANNEX 5.4 Page 1 of 1 MADAGASCAR THIRD RAILWAY PROJECT Project Costs and Benefits (FMG ('000,000) YEAR MLA Line TA Line IBITY EQUIPMENT Total Project Spare Parts Rehabilitation and Bridge Rail spur to tools, small Telecommunications Repair Cement Plant machinery Costs Benefits Costs Benefits Costs Benefits Costs Benefits Costs Benefits 1986 849 532 1227 2923 1987 1259 578 1890 1162 630 3831 1208 1988 849 227 2000 339 630 2849 1196 1989 382 740 371 630 2123 1990 387 740 371 1498 1991 401 740 371 1512 1992 415 740 371 1526 1993 430 740 371 1541 1994 446 740 371 1557 1995 462 740 371 1573 1996 479 740 371 1590 1997 496 740 371 1607 1998 513 740 371 1624 1999 1698 1500 371 3569 Economic Rate of Return 15% 142 17% 25Z 16! Source: Mission estimates. - 27 - ANNEX 5.5 Page 1 of 2 MADAGASCAR THIRD RAILWAY PROJECT FCE Viability Study - Draft Terms of Reference 1. A 1984 study of the FCE, funded by the Bank under the Second - Railway Project, concluded that this portion of the Madagascar Railway System is unprofitable and an unlikely candidate for financial turnaround. Traffic potential is modest and there is little probability that traffic volume could ever grow enough to support the cost of operating the line. Moreover, the line has almost reached the end of its economic life. Large investments must be made to rehabilitate the track if service is to be con- tinued with a minimum of risk. Over the short term, operations of the FCE should be subsidized until more information is available with respect to transport alternatives for goods and passengers now served by the FCE. 2. A consultant(s) will undertake a detailed feasibility study of the transport needs in the area now served by RCNFM on the FCE and develop a list of alternatives for meeting the needs economically and efficiently. For each alternative presented, the feasibility study is to include: I. Evaluation of Investments The consultant will estimate the level of funds (in foreign exchange and in FMG) for road rehabilitation and for new road vehicles to the extent necessary to ensure that the alternative transport system to be established will offer service equivalent to current rail service. In addition, the consultant will esti- mate the investment cost necessary to maintain safe rail service at current traffic levels. II. Evaluation of Onerating Costs The consultant(s) will define, using operational and cost accounting measures, the extent of FCE's actual financial defi- cit. He will also identify cost cutting measures that could sig- nificantly reduce the deficit. The degree to which losses could be lessened by reducing and reassigning FCE employees is a parti- cular requirement. For the road alternative, the consultant will be required to estimate (in foreign exchange and FMG) funds needed to maintain vehicles and roadway infrastructure, using the Bank experience in Madagascar's road maintenance. For this purpose, the available financing and the road's actual capability on a permanent basis to provide equivalent service will be included in the evaluation. This analysis will define the coefficients to be applied, taking into account the difficult site conditions and heavy rainfall. - 28 - ANNEX 5.5 Page 2 of 2 3. The full study should enable the Malagasy Government and potential donors to fully evaluate and determine the optimal alternative and, in the event a decision is made to proceed with the development of that alternative, to establish an implementation schedule, and action plan. - 29 - Annex 6.1 R N C F M Income Statements for the years ended December 31st (million FMG) 1980 1981 1982 1983 1984 ---------------audited-------------- Revenue: Frelght 2,861 3,050 4,064 8,285 10.795 Passengers 1,177 1,317 1,731 2,219 2,325 Other 445 518 459 751 1,079 4,483 4.885 6,254 11,255 14,199 Working Expenses: Salaries 2,752 2,880 3,249 3,568 4,301 Materlals 1,304 1,507 2,323 2,914 2,699 Other 267 202 332 392 886 4.323 4,589 5,904 6,874 7,886 Operating Result 160 296 350 4,381 6,313 Depreciation 781 825 929 2,554 3.258 Net Operating Result (621) (529) (579) 1,827 3,055 Interest Expense 220 397 654 923 1.041 Extraordinary Items(net) (1,813) Net Income (Loss) (841) (926) (1,233) 904 201 26-Mar-86 - 30 - Annex 6.2 R N C F M Balance Sheets at December 31st (million FMG) 1980 1981 1982 1983 1984 …----------- audited-------------- ASSETS Cash 758 513 512 1,330 3,489 Accounts Receivable 2,496 3,966 2,666 3,169 2,587 Inventories 1,469 1,967 1,977 1,409 2,346 Current Assets 4,723 6,446 5,155 5,908 8,422 Fixed Assets 45,121 47,296 44,825 51,662 53,782 Accumulated Depreclatlon 24,922 25,669 21,371 27,255 29,882 Net Fixed Assets 20,199 21,627 23,454 24,407 23,900 Deferred Charges 31 59 5.219 Other Assets 68 25 77 Total Assets 24,922 28,073 28,708 30,399 37,618 -- ~ ---- -- - -- --- -- ---- -- ---- LIABILITIES Current Liabilities 6,235 8,295 6,045 2,701 2,065 Long Term Debt 7,554 9,073 11,670 12.605 14,025 Provisions 52 83 7,695 Paid In Capital 14,266 14,271 10,512 12,921 12,441 Reserves (2,344) (2,723) 1,292 22 Grants 422 1,246 1,191 Current Income (841) (926) (1,233) 904 201 Total Equity 11,081 10,622 10,993 15,093 13,833 Liabilities and Equity 24,922 28,073 28,708 30,399 37,618 26-Mar-86 - 31 - Annex 6.3 R N C F M Funds Statements (millilon FMG's) 1980 1981 1982 1983 1984 …----------- audited-------------- SOURCES OF FUNDS Net Income (926) (1,233) 904 201 Depreciation I_a 856 846 2,554 5,734 Funds from Operations (70) (387) 3,458 5,935 Net Borrowings 1,519 2,597 935 1,420 Equity Capital 467 1,604 3,196 (1.461) Financing 1,986 4,201 4,131 (41) Total Sources 1,916 3,814 7,589 5,894 USES OF FUNDS Working Capital (337) 959 4.097 3.150 Net Plant and Equipment 2,253 2,756 3,507 2,751 Other Investments 0 99 (15) (7) Total Uses 1,916 3,814 7,589 5,894 - - - - - - - - - - - - - - - - - - - - - - n s /_a Includes amortization and other non-cash charges. 26-Mar-86 - 32 - Annex 6.4 R N C F M Ratio Analysis 1980 1981 1982 1983 1984 ---------------audited-------------- Efficiency: Revenue Turnover 22.2% 22.6% 26.7% 46.1% 59.4% Receivables Turnover /_a 200 292 153 101 66 Inventory Turnover /_a 122 154 121 74 107 Pricing: Net ton/km (million) 226 181 196 207 224 a FMG 13 17 21 40 48 Million Passenger/km 274 246 244 225 206 * FMG 4 5 7 10 11 Profitability: Working Ratio 96.4% 93.9% 94.4% 61.1% 55.5% Operating Ratio 113.9% 110.8% 109.3% 83.8% 78.5% Return on Fixed Assets -3.1% -2.5% -2.6% 7.6% 12.6% Liquldity: Working Capital /_b (1,512) (1,849) (890) 3,207 6.357 Current Ratio 0.76 0.78 0.85 2.19 4.08 Quick Ratio 0.64 0.72 0.77 1.69 2.39 Capitalization: Debt to Equity 40.5% 46.1% 51.5% 45.5% 50.3% Asset Leverage 55.5% 62.2% 61.7% 50.4% 63.2% /_a Average days on hand /_b Million FMG's 26-Mar-86 - 33 - Annex 6.5 R N C F M Financial Forecast Assumptions 1985 1986 1987 1988 1989 Traffic: Million Net ton/km 224 245 251 254 250 Million Passenger/km 180 208 203 198 193 Tariffs: 1984 FMG/Net ton/km 46 45 44 43 42 1984 FMG/Passenger/km 11 12 12 13 14 Exchange Rate USS-FMG 650 650 650 650 650 Inflation 5.0% 7.5% 8.0% 8.0% 8.0% 1.000 1.050 1.129 1.219 1.317 1.422 Total Staff 4,628 4,535 4,445 4,356 4,269 Interest Rate 9.50% 9.50% 9.50% 9.50% 9.50% Capital Investments 4,465 1,684 3,071 5,142 3,442 Calsse Centrale 8,972 52% 15% 15% 18% Railway liI: 9,833 5% 20% 40% 35% Depreciable Llfe (years) 20 20 20 20 20 Other Investments 500 500 500 Borrowings 897 3,481 3,715 3,949 2,048 Caisse C le:FF 98,000 10% 35% 30% 25% IDA: USS 10,500 5% 15% 25% 30% 25% Debt Amortizatlon 641 750 750 750 750 Cash: Revenue 8% 7% 6% 6% 6% Receivables: Revenue 26% 20% 17% 17% 17% Inventory: Revenue 20% 18% 16% 16% 16% Current Llabits:Expenses 25% 25% 25% 25% 25% 26-Mar-86 - 34 - Annex 6.6 R N C F M Pro-forma Income Statements for the years ended December 31st (million FMG) 1985 1986 1987 1988 1989 Revenue: Freight 10,892 12,551 13,609 14,427 14,876 Passengers 2,138 2,789 3.087 3,414 3,774 Other 1,173 1,261 1,362 1,471 1,588 14,204 16,601 18,058 19,312 20,239 Working Expenses: Salaries 4,644 4,758 5,036 5,330 5,641 Materials 3,120 3,212 3,477 3,739 3,957 Other 948 1,019 1,101 1.189 1,284 8,712 8,989 9.613 10,257 10,882 Operating Result 5,492 7,612 8,445 9,055 9,357 Depreciation 3,093 3.146 3,547 4,109 4,623 Net Operating Result 2,399 4,465 4,897 4,947 4,733 Interest Expense 1,165 1,357 1,616 1,898 2,202 Net Income (Loss) 1,234 3,109 3,281 3,049 2,531 Before Extr'y Items ______ ______ _ _ ______ ____ 26-Mar-86 - 35 - Annex 6.7 R N C F M Pro-forma Balance Sheets at December 31st (m II Ion FMG) 1985 1986 1987 1988 1989 ASSETS Cash 1.136 1,162 1,083 1,159 1,214 Accounts Receivable 3,656 3,320 2,998 3,206 3,360 Inventories 2,841 2,988 2,889 3,090 3,319 Current Assets 7,633 7,470 6,970 7,455 7,893 Fixed Assets 58,247 62,927 70,947 82,176 92,466 Accumulated Depreclation 32,975 36,121 39,669 43,778 48,401 Net Fixed Assets 25,272 26,806 31,278 38,399 44,065 Deferred Charges 4,861 4,557 4,298 3,654 3,106 Other Assets 610 5,452 8,141 7,590 6,018 Total Assets 38,376 44,285 50,688 57,097 61,082 LIABILITIES Current Liabilltles 2,178 2,247 2,403 2,564 2,721 Long Term Debt 14,281 17,013 19,978 23,177 24,475 Provisions 7,695 7,695 7,695 7,695 7,695 Pald In Capital 12,441 12,441 12,441 12,441 12,441 Reserves (845) (845) (845) (845) (845) Grants 1,191 1,191 1,191 1,191 1.191 Retained Earnings 1,435 4,543 7,824 10,873 13,405 Total EquEt$ 14,222 17,330 20,611 23,660 26,192 Liabilitles and Equity 38.376 44,285 50,688 57,097 61,082 ._____ ___ _ _ 26-Mar-86 - 36 - Annex 6.8 R N C F M Pro-forma Funds Statements (million FMG's) 1985 1986 1987 1988 1989 SOURCES OF FUNDS Net Income 1,234 3,109 3,281 3,049 2.531 Depreciation 3,093 3,146 3,547 4,109 4,623 Funds from Operations 4,327 6,255 6,828 7,158 7,155 Net Borrowings 256 2,731 2.965 3,199 1.298 Equity Capital (845) 0 0 0 0 Financing (589) 2.731 2,965 3,199 1,298 Total Sources 3,738 8,986 9,794 10,357 8,452 USES OF FUNDS Working Capital (902) (232) (656) 323 282 Net Plant and Equipment 4,465 4,680 8.020 11,229 10,290 Other Investments 175 4,538 2.430 (1,196) (2,120) Total Uses 3,738 8,986 9,794 10,357 8,452 26-Mar-86 - 37 - Annex 6.9 R N C F M Ratio Analysis 1985 1986 1987 1988 1989 Efficiency: Revenue Turnover 56.2% 61.9% 57.7% 50.3% 45.9% Receivables Turnover /_a8 93 72 60 60 60 Inventory Turnover /_a 117 120 108 108 110 Pr-oductivity I_b 87 100 102 104 104 Pricing: Net ton/km (million)!_c 224 245 251 254 250 8 FMG 49 51 54 57 60 Million Passenger/km/_d 180 208 203 198 193 a FMG 12 13 15 17 20 Profitability: Working Ratio 61% 54% 53% 53% 54% Operating Ratio 83% 73% 73% 74% 77% Return on Fixed Assets 9.8% 17.1% 16.9% 14.2% 11.5% Net Return 5.0% 11.9% 11.3% 8.8% 6.1% Liquidity: Working Capital J_e 5,455 5,223 4,567 4,890 5.173 Current Ratlo 3.5 3.3 2.9 2.9 2.9 Quick Ratio 3.0 2.8 2.4 2.5 2.5 Capitalization: Debt to Equity 50% 50% 49% 49% 48% Asset Leverage 63% 61% 59% 59% 57% Self Flnancing J_f 67% 46% 46% 44% 50% ______________ I_a Average days on hand /_b Thousand traffic units : number of employees /_c Includes 4 million net ton/km on FCE line 1_d Includes 18 million passenger/km on FCE ilne I_e Million FMG's /_f (Cash flow from operation less debt service) : (Uses of funds) 26-Mar-86