Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-6423-MAI MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 11.2 MILLION TO THE REPUBLIC OF MALAWI FOR A RAILWAYS RESTRUCTURING PROJECT MARCH 3, 1995 Energy and Infrastructure Operations Division Southern Africa Department This document bas 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. CURRENCY EQUIVALENT (as of November, 1994) Currency Unit = Malawi Kwacha (MK) and Tambala US$1.0 = MK 16.0 MK 1.0 = 100 Tambala FISCAL YEAR April I to March 31 WEIGHTS AND MEASURES 1 foot (ft) = 0.305 meters (m) 1 mile (mi) = 1.609 kilometers (km) 1 square mile (mi2) = 2.590 square kilometers (kM2) 1 ton (t) = 0.907 metric tons (m ton) GLOSSARY OF ABBREVIATIONS BOD = Board of Directors GDP = Gross Domestic Product CFM (N) = Caminhos de Ferro de Mocambique (North) CFM = Empresa Nacional de Portos e Caminhos de Ferro de Mocambii GOM = Government of Malawi IAPSO Inter-Agency Procurement Service Organization IBRD = International Bank for Reconstruction and Development IDA = International Development Association ICB = International Competitive Bidding ERR = Economic Rate of Return JRB = Joint Review Board KfW = Kreditanstalt fur Wiederaufbau LCB = Local Competitive Bidding LS = Lake Services Department of Malawi Railways MLS = Malawi Lake Services Limited MK = Malawi Kwacha MOTCA = Ministry of Transport and Civil Aviation MR = Malawi Railways Limited MR (M) = Malawi Railways (1994) Limited MT = Metric tonne NTC = Northern Transport Corridor NTK = Net Tonne Kilometers ODA = Overseas Development Administration OA = Operations Agreement PA = Performance Agreement ROCE = Return on Capital Employed RRP = Railways Restructuring Project SOE = Statement of Expenses TEU Twenty-Foot Equivalent Unit TOR = Terms of Reference USAID = United States Agency for International Development ZR = Zambia Railways FOR OFFICIAL USE ONLY REPUBLIC OF MALAWI RAILWAYS RESTRUCTURING PROJECT CREDIT AND PROJECT SUMMARY Borrower: Republic of Malawi Beneficiaries: Ministry of Transport and Civil Aviation (MOTCA) Malawi Railways Limited (MR) Malawi Railways (1994) Limited (MR (M)) Malawi Lake Services Limited (MLS) Amount: SDR 11.2 million (US$16.16 million equivalent) Terms: Standard IDA terms with 40-year maturity Onlending Terms: To MR (M) and MLS at 7.1% interest rate and 13 years repayment period including five years of grace Financing Plan: IDA - US$16.16 million; USAID - US$11.98 million; GOM - US$0.86 million Poverty Category: Not applicable Economic Rate of Return: 88% for Privatization Scenario and 67% for Restructuring Scenario Staff Appraisal Report: No. 13491-MAI Mlaps: IBRD Nos. 26395 and 26396 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. MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF MALAWI FOR A RAILWAYS RESTRUCTURING PROJECT 1. I submit for your approval the following memorandum and recommendation on a proposed development credit to the Republic of Malawi for SDR 11.2 million (US$16.16 million equivalent) to help finance a Railways Restructuring Project (RRP). The proposed credit would be on standard International Development Association (IDA) terms with a maturity of 40 years and would help finance the Government of Malawi's (GOM) program of revitalizing the Nacala rail route, restructuring and eventually privatizing Malawi Railways (1994) Limited (MR (M)), commercializing and privatizing Malawi Lake Services Limited (MLS), and enhancing institutional capacity of the Ministry of Transport and Civil Aviation (MOTCA). The proceeds of the credit would be onlent to the proposed new railway and lake services companies for 13 years, including 5 years of grace, with interest at 7.1 %. 2. Background. Malawi, with a per capita income of around US$210, is one of the poorest countries in the world. The economy is fragile, as it depends on a limited range of exports and small domestic markets; the population growth rate is high; and social indicators are low. Agriculture is the mainstay of the economy, accounting for more than 30% of GDP, 90% of exports, and 85% of employment. Foreign trade is important, as the value of exports and imports is roughly 50% of GDP overall. These conditions render Malawi's economy vulnerable to internal and external shocks, and, in particular, to fluctuations in terms of trade. 3. Indeed, after one and a half decades of economic growth, Malawi's economic performance faltered between 1981 and 1987 due in part to a number of exogenous factors which included declines in terms of trade, a prolonged drought, and an influx of about one million Mozambican refugees. The insurgent activity in Mozambique also led to closure of the shortest and the least expensive rail routes to the Ports of Nacala and Beira. The alternative route to the port of Durban being three times longer (IBRD Map No. 26396), the average transport margin for imports (transport and insurance cost as a percentage of the total landed cost of imports) increased from about 25% in 1975 to about 45% in 1987. The resulting burden on the economy has been estimated to be between US$50 and US$80 million per annum, about 4 to 6% of GDP. 4. After a brief recovery between 1988 and 1991, during which growth rates of GDP increased from 0.5% in 1987 to 4.8%, Malawi's economic situation has again deteriorated after a series of exogenous shocks, such as two droughts in the last three years (which led to sharp fall in aggregate output), and terms of trade losses cumulatively amounting to around 10 % of GDP over two years. A medium term policy framework agreed between GOM and the World Bank and IMF calls for measures to increase revenue collections, and tighten controls on government borrowing and expenditure, and for a return to fiscal stability and lower inflation. In the sphere of structural reforms the framework calls for measures to increase burley quota allocation to smallholders, improve the transparency of quota allocation, encourage private sector participation in domestic trade, remove fiscal subsidies to fertilizer, and publicize policies that have been liberalized and deregulated. A fully functional Nacala rail route would greatly help in promoting economic growth by bringing the transport margin on imports down to about 30%, resulting in savings of US$25 to US$35 million in transport costs. 5. Transport Sector Background. Malawi, as a landlocked country, must depend on neighboring countries for all overseas imports or exports to the sea. Currently, 65% of international freight traffic - 2 - moves through Zimbabwe to the southern African countries and ports of Durban and Beira, 14% goes through Tanzania to the port of Dar Es Salaam, 9% through Zambia to southern African countries, 4% via the direct road route to the port of Beira, with just 8% through Mozambique to the port of Nacala. 6. Malawi is one of the smallest countries in Southern Africa, measuring some 120,000 km2, of which some 20% (24,200 km2) is covered by Lake Malawi (IBRD Map No. 26395). The aerial distance between the northernmost point at the border with Tanzania and the southernmost point at the border with Mozambique is some 900 km; the longest east-west distance is about 250 km. The small size of the country makes rail transport unattractive for both domestic freight and passenger traffic. The rail share of domestic freight and passenger traffic is currently 30% and 2% respectively. 7. Transport infrastructure has dominated development expenditures since Independence, often absorbing one-third or more of the development budget for all sectors. Expenditures on roads accounted for about two-thirds of total transport development expenditure until 1991/92 and almost 80% since then. Even so, the performance of the transport sector has remained below expectation and is reflected in (a) the continuing high cost of international traffic; (b) high cost of domestic freight traffic; and (c) inadequate and unreliable supply of domestic transport particularly during peak periods. Additionally the following are also indicators of the inadequate performance of the sector: (i) poor profitability and sustainability of many of the domestic transport operators in spite of the very high unit freight rates; (ii) dominance of international freight traffic by foreign transport operators almost to the complete exclusion of Malawian operators; (iii) heavy losses suffered by the GOM-owned Malawi Railways (MR) and its subsidiary department, the Lake Services Department (LS), imposing a subsidy burden on GOM; and (iv) a very poor safety record. The main reasons are policy-related and formulating an appropriate transport policy needs to be a government priority. 8. GOM has already initiated steps for strengthening MOTCA, refining its transport sector policy, and enforcing safety-related regulation. Some progress has been made towards reorganizing the Road Traffic Department, revising the Road Traffic Act, restructuring MR, and easing restrictions on import of equipment, spare parts and tires. However, domestic freight transport policies continue to be protective and restrictive. GOM has also requested Bank assistance on transport policy formulation. Initial work towards summarizing the current transport policy and establishing a framework for policy analysis has already begun and GOM has prepared a letter of transport sector policy which would form the basis of transport policy changes in future. 9. Project Objectives. The primary objective of RRP is to contribute to Malawi's economic growth through: (a) revitalizing the much shorter, less expensive, but poorly-operated Nacala rail route and increasing its share of Malawi's overseas traffic, thus reducing the landed cost of exports/imports and enhancing Malawi's competitive advantagel/; and (b) restructuring, commercialization and eventual privatization of the Railways and the Lake Services, enabling them to operate more efficiently and without depending on government subsidies, thus reducing the drain on the national economy. To achieve these objectives, two subsidiary objectives of RRP are to: (i) formulate and implement a transport policy which encourages genuine inter-modal and inter-route competition; and (ii) set up an institutional mechanism for close coordination among the entities managing the Nacala rail route, viz., MR, the northern railway system in Mozambique, Caminhos de Ferro de Mozambiqe (North) (CFM (N)), and the Port of Nacala to ensure sustainability of improved operations on the Nacala rail route. I/ Direct investment support under RRP, viz., civil and mechanical works, equipment and spare parts, and technical assistance will be restricted to the Malawi side of the Nacala rail route. The Government of Mozambique, with the support of donor agencies (mainly USAID and Caisse Francaise de Developpement (CFD)), is in the process of defining an appropriate rehabilitation and restructuring project for the Mozambique side of the Nacala rail route. Some definite support in the meantime is proposed to be provided to CFM (N) under this and some other projects and programs to enable CFM (N) to upgrade its information and control systems. - 3 - 10. Project Description. RRP would support the rehabilitation of infrastructure and equipment in the Railways and the Lake services sectors, rationalization, retrenchment, and redeployment of staff, upgrading of management and operating systems, computerization, and enhancement of institutional capacity for project implementation, management, and restructuring. Specifically, RRP comprises four components: (a) Restructuring component, costing US$8.25 million, 29% of the total project cost, includes (i) setting up of new railway and lake services companies to be called the Malawi Railways (1994) Limited (MR (M)) and the Malawi Lake Services Limited (MLS) respectively; (ii) transferring of assets and staff to the new companies; and (iii) gradual downsizing and final closure of the existing MR; (b) Nacala Rail Route Revitalization component, costing US$18.25 million, 63 % of the total project cost, includes: (i) commercialization of rail operations; (ii) eventual privatization of MR (M); and (iii) setting up of an institutional mechanism for effective coordination with CFM (N); (c) MLS component, costing US$1.25 million, 4% of the total project cost, includes (i) commercialization of MLS operations; and (ii) eventual privatization of MLS's core activities; and (d) Transport Policy component, costing US$1.25 million, 4% of the total project cost, includes (i) detailing a transport policy that would provide an enabling environment for economic growth and a framework for efficient operations with particular emphasis on restructuring and privatization of transport parastatals; and (ii) enhancing institutional capacity for analyzing the performance of the transport sector and providing adequate response. 11. The Project would cost US$29.0 million and would be financed by IDA - US$16.16 million, USAID - US$11.98 million, and GOM - US$0.86 million. The restructuring and transport policy components would be financed entirely by USAID and the other two jointly by IDA, USAID, and GOM. A breakdown of the costs and the financing plan are shown in Schedule A. The methods of procurement and the disbursement schedule are shown in Schedule B. A time-table of key processing events and the status of Bank Group Operations in Malawi are shown in Schedules C and D respectively. Map nos. 26395 and 26396 are attached, as well as Staff Appraisal Report, No. 13491-MAI, dated March 3, 1995. 12. Project Implementation. The four components will be implemented by four different agencies as follows: the Restructuring component by MR, the Revitalization component by MR (M), the Lake Services component by MLS, and the Transport Policy component by MOTCA. Though the implementing agencies, except MOTCA, have no prior experience with implementing IDA funded projects, they have experience in managing projects supported by donor agencies such as ODA, USAID, and KfW. Project implementation capacity of MR will be strengthened by providing project implementation support; that of MR (M), MLS, and MOTCA through institutional development support, i.e., short-term technical assistance, short studies, and staff training. A Project Launch Workshop, annual project reviews, and a comprehensive mid-term review (by June 1996) will be carried out. Representatives of freight forwarding agencies, private sector businesses, and agencies providing professional services will be nominated as members of the Board of Directors of the new companies as well as the Joint Review Board (JRB) being set up to monitor the performance of the Nacala rail route. A Pre-RRP Plan is currently under implementation to ensure that the new companies would be set up by the time RRP becomes effective. The work pertaining to procurement is well advanced for major components to be implemented in the first year of RRP. To facilitate disbursements, two Special Accounts will be established in a commercial bank and, based on projected requirements, an initial deposit of up to US$500,000 for MR (M) and US$100,000 for MLS will be made from IDA funds after Credit effectiveness. 13. Project Sustainability. The primary focus of RRP is on facilitating utilization of most cost- effective railway transport routes, and on establishing the long-term sustainability of the railways and lake services in Malawi. To do this, RRP is designed to reorient the operations of MR (M) and MLS to their most competitive and productive areas of operations, and to restructure these two entities to eventually operate on a fully privatized basis. The process is paced to reflect existing capacity constraints, and emphasizes phased commercialization preceding full privatization, as well as transparency of all processes such as selection of the private operator and staff rationalization. - 4 - 14. The long-term sustainabilty of operations on the Nacala route very much depends upon an efficiently working CFM (N) and to ensure this, RRP emphasizes: (i) setting up an institutional mechanism (the Joint Review Board) for close coordination among the entities managing the Nacala rail route, viz., MR or its successor MR (M), (CFM (N)), and the Port of Nacala; and (ii) signing an Operations Agreement (OA) between MR/MR (M) and Empresa Nacional de Portos e Caminhos de Ferro de Mocambique EE (CFM). 15. Lessons of Past Experience. Lessons have been learnt in designing and implementing the recent railway projects in Tanzania, Ghana, Kenya, Zambia, Zimbabwe, and Mozambique, many of which had a strong restructuring element. While there are no complete success stories concerning railway restructuring, some of the important lessons of the past projects have been taken into account in the design of this project. 16. The main lessons are: (i) successful restructuring of railways requires a firm commitment to the objectives of restructuring by their respective governments; (ii) the railway managements have in general found it difficult to simultaneously manage two key elements of restructuring, viz., downsizing and stimulating business growth through increased efficiency and effective marketing, and separation of these tasks can lead to better implementation; (iii) a change in the legislative framework which affects the railways is important as most past legislation is generally restrictive of railways' autonomy, particularly with regard to its organizational restructuring, commercialization, and privatization; (iv) better results are achieved when the governments, instead of providing direct control, exercise control through Boards of Directors (BOD) and the BODs comprise of members with proven record of performance; and (v) sufficient attention must be paid to developing appropriate organizational structures, appointing qualified personnel to key managerial positions, and upgrading management and operating systems. 17. Additionally, massive investments in infrastructure, locomotives, rolling stock, and communication systems have generally been ineffective in improving reliability or efficiency as the railways' capacity to handle big projects, modern technology or complex equipment such as locomotives has proved to be inadequate. Involvement of the private sector in managing big projects and modern technology is absolutely essential. The usually large and complex organization structures associated with the railways, apart from adding to the costs of operation, have also generated a massive inertia against any effort at improvement. In this respect, identifying a core group of persons within the existing organization or establishing a separate group at an early stage to manage the process of restructuring is likely to prove helpful. 18. Rationale for IDA Involvement. The project would make a significant contribution towards improving Malawi's macroeconomic situation by lowering the final costs of Malawian exports, improving foreign exchange balances, and assisting in reducing inflation through reducing the cost of imported materials. It would also promote improved public sector management. IDA has played a significant role in assisting GOM and MR in clarifying and concretizing the concept behind restructuring and in providing continuous analysis of project features. By continuing its involvement during the implementation phase, IDA would be able to assist GOM and MR in consolidating this process, and would also help ensure appropriate donor coordination and incorporation of lessons from other regional railway projects. Regarding the Lake Services, the Bank's involvement would help GOM complete the tasks initiated under the Transport I Project (Cr. 1879-MAI). 19. Link to the Country Assistance Strategy. The project meets the core objectives of the Bank's country assistance strategy (discussed at the Board on June 9, 1994) as it will enhance the domestic supply response in two ways. First, the project will lead to a significant reduction in transport costs for imported inputs, thus reducing production costs and increasing profitability in Malawi's manufacturing sector. Second, reduced transport costs for Malawi will enhance the country's external competitiveness and will enable Malawian producers to reap higher export revenues and retain a larger proportion of the cif export price. Both factors will encourage economic diversification. Moreover, the substantial reduction in transport costs will be a major contributing factor to improved public and private savings which in turn will be necessary to sustain higher rates of investment in the medium term. 20. Actions Agreed. In meeting the conditions of Board presentation, the new companies - MR (M) and MLS have been established, the OA between MR (M) and CFM (N) has been signed, the Letter of Transport Sector Policy has been issued, and the terms of reference for consultants have been prepared. Agreement was reached during negotiation that: (a) the conditions of effectiveness would include the signing of subsidiary loan agreements between GOM and MR (M) and MLS, and completion of the Pre- RRP Plan including the appointment of key management staff; (b) not later than six months after effectiveness, GOM will appoint satisfactory BODs for MR (M) and MLS, set up the JRB for the Nacala rail route, and sign satisfactory Performance Agreements (PA) with MR (M) and MLS; (c) disbursement for the categories specified in the disbursement schedule would be contingent upon achievement of key performance targets as agreed, presentation of the railway-related legislation to the Parliament, if recommended by the privatization study, and the initiation of the process of privatization of MR (M) and MLS, i.e., issue of bidding documents; (d) GOM will not declare MR (M) and MLS as statutory bodies either at the time of incorporation or subsequently, and will not alter the delegation of the project implementation authority; (e) GOM will establish Special Accounts for MR (M) and MLS and delegate full authority to them to manage these accounts; (f) GOM will fully subsidize losses on account of passenger services according to the basis agreed under the PA, provide working capital satisfactory for the new companies, provide its share of the Project cost, and exempt taxes on imports and consultancy contracts; (g) require the implementing agencies to adopt reporting, auditing and monitoring procedures acceptable to IDA (including timely preparation of specified reports), strengthen its procurement units, and implement the OA and PA and an Environmental Mitigation Plan (EMP); (h) require the implementing agencies not to undertake investments beyond US$0.2 million without consultation with IDA, and not undertake investments in Beira rail and Nacala road routes without consultations with IDA; (i) implement policy reforms according to the Letter of Transport Sector Policy; and (j) conduct annual project reviews in June every year including the first intensive review in June 1996. 21. Environmental Impact. An EMP has been prepared after discussion with MR, taking into account the safety- and environment-related regulation included in Malawi's transport sector policy, the Railways Act, and other railway-related legislation. The Plan would form an integral part of the RRP and its implementation would be included in the PA to be signed between GOM and MR (M)/MLS and would be periodically reviewed. A total of US$0.8 million has been provided for procurement of safety- and environment-related equipment for the railways and the lake services to enable MR (M) and MLS to implement the Plan. The operating costs towards implementation of the Plan would be provided by the implementing agencies. Provision has also been made for an environment specialist to supervise this element during regular supervision missions. A broader environmental assessment of the transport sector would be undertaken under the Infrastructure II Project, currently under preparation. 22. Program Objective Categories. RRP would enable MR (M) and MLS to become commercially viable first through restructuring and eventually through privatization. This would enhance the Government's capability to undertake other priority public investments. 23. Project Benefits. Five benefits are expected from the project. First, by providing the shortest and the least expensive route for Malawian international traffic and by facilitating the shift of about 300,000 tonnes of freight traffic from the Durban route to the Nacala route, the project would benefit the economy to the extent of about US$25 million in savings per year. Second, the project would not only enable MR to operate independently of any assistance from GOM, it would enable MR (M) to earn about 1.7% return on capital employed. Third, through reduced cost of transportation of bulk goods, the project will assist Malawi in realizing its export potential by making its products more competitive on world markets. Fourth, by focusing on private sector involvement and individual motivation within MR - 6 - (M) and MLS, the project would enhance their capability to respond quickly to the changing environment. Finally, the experience gained through restructuring MR will be helpful in restructuring other parastatals. The Project is expected to have an economic rate of return of 88% if privatized and 67% if only restructured. 24. Risks. Major risks in realizing the project goals include: (i) reversal or dilution of the policy pertaining to staff retrenchment or involvement of private sector in railway activities under union or political pressure; and (ii) lack of cooperation by CFM (N) or their inability in improving efficiency and reliability on Mozambique side of Nacala rail route. The first risk will be minimized by ensuring that the designs of the arrangements for leasing/privatizing MR (M) and MLS and of the compensation packages for the redundant staff are attractive and the second: (a) by ensuing that the OA between MR and CFM (N) is designed to meet the common interests of MR (M) and CFM (N); and (b) by supporting the on-going programs by the donor agencies. 25. Recommendation. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve it. Lewis T. Preston President by Sven Sandstrom Attachments Washington, D.C. March 3, 1995 - 7 - Schedule A Page 1 of 2 REPUBLIC OF MALAWI RAILWAYS RESTRUCTURING PROJECT Project Cost Summary % % Total (MK Million) (US$ Million) Foreign Base Local Foreign Total Local Foreign Total Exchang Costs A. RESTRUCTURING OF MR Al. Retrenchment Support 1 Support for Retrenchment 36 73 4 08 40 81 525 0 58 583 10 24 2 Support for Redeploymenl 0 45 1 79 2 24 0 06 0 26 0 32 80 1 Subtotal 37 18 5 87 43 05 5 31 084 615 14 25 A2. Project Implementation Support 1 TA for 22 manmonths 0 31 2 77 3 08 0 04 0 40 0 44 90 2 2 Legal and Investment Advisory Services 010 088 098 001 0 13 014 90 1 3 Consultancy Studies 017 151 1 68 0 02 0 22 0 24 90 1 4 Training 012 1 07 119 002 015 017 90 1 Subtotal 0 69 6 24 693 010 089 0 99 90 4 Subtotal Restructuring Of MR 37 87 12 11 49 98 5 41 1.73 7`14 24 29 B. REVITALtZATION OF NACALA CORRIDOR Bl. Civil Works 1 RehabilitatUon of 44 km Track 13 33 3 33 16 66 1 90 0 48 2 38 20 10 2 Bridge Strengthening 0 76 1 76 252 0 11 0 25 0 36 70 1 Subtotal 14 08 510 19 18 2 01 073 2 74 27 11 B2. Mechanical Works I Points and Crossings Rehabiltation 1 04 9 39 10 43 015 1 34 1 49 90 6 2 Repairs to Concrete Sleeper Plant 0.03 0 25 0 26 0 00 0 04 0 04 90 3 Power Supply to Nkhozbwa Quarry 0 03 0 25 0 28 0 00 0 04 0 04 90 4 Rehabiltation of Wheel Lalhe 0 34 3 09 3 43 0 05 0 44 0 49 90 2 Subtotal 1 44 1298 14 42 0 21 1 85 2 06 90 8 B3. Services I Renting of Track Temper 0 76 680 7 56 011 097 108 90 4 B4. Equipment 1 Gang and Inspection Trolleys 112 1008 11 20 016 1 44 1 60 90 6 2 Hand - held Equipment 0 22 1 95 217 0 03 0 28 0 31 90 1 3 Test Equipment 0 06 0 50 0 56 01 0 07 0 08 90 - 4 Roller Bearings for Modifying Wagons 0 24 2.14 2 38 0 03 0 31 0 34 90 1 5 Service MotorVehicles 053 4 79 5 32 008 0 68 0 76 90 3 6 Safety and Environ Equipment 0 29 2 65 2 94 0.04 0 36 0 42 90 2 7 Limbe PABX 0 35 315 3 50 0 05 0 45 0 50 90 2 8 Nkaya Nayuci Micro Link 0 55 4 91 5 46 0.03 0 70 0 78 90 3 9 MIS Package including Hardvware 011 0 95 1 05 0 02 014 015 90 1 10 Wagon Tracking Package including Hardware 0 22 2 02 2 24 0 03 029 0 32 90 1 11 Telecommunication Test Equipment 022 202 2 24 003 029 032 90 1 12 Computer Hardware for Training 0 08 0 76 0 84 0 01 Oil 012 90 Subtotal 399 3591 3990 057 513 5 70 90 23 BS. Spare Parts 1 Spares for Building Inventory 0 55 4 91 5 46 0 08 0 70 0 78 90 3 2 Concrete Sleepers - 17000 1 11 442 553 016 063 079 80 3 Subtotal 1 65 9 34 10 99 0 24 1 33 1 57 85 6 B6. Institutional Development Support 1 TA-45 man-months 0 70 6 30 7 00 010 0 90 100 90 4 2 Legal and Investment Advisory Services 0 08 0 69 0 77 0 01 010 011 90 - 3 Consultancy Studies 0 50 4 54 5 04 0 07 0.65 0 72 90 3 4 Training 0 29 2 65 2 94 0 04 0 38 0 42 90 2 Subtotal 1.58 1418 15 75 0 23 2 03 2 25 90 9 Subtotal Revitailzation of Nacala Corridor 23.50 84 30 107 80 3 36 12 04 15 40 78 63 C. COMMERCIALIZATION AND PRIVATIZATION OF LS Cl. Equipment 1 Communication Equipment 0 23 2 08 2 31 0 03 0 30 0 33 90 1 2 Computer Hardware 0 04 0 3B 0 42 0 01 0 05 0 06 90 - 3 Environment Related Equipment 0 20 1 76 1 96 0 03 0 25 0 28 90 1 Subtotal 0 47 4 22 469 0 07 0 60 0 67 90 3 2. C2. Institutional Development Support I TA-6 man-month 008 076 084 001 011 012 90 2 Legal and Investment Advisory Services 010 0 88 0 98 0 01 0 13 0 14 90 1 3 Consultancies Studies 0 06 0 50 0 56 0 01 0 07 0 08 90 4 Training 0 02 019 0 21 0 00 0 03 0 03 90 Subtotal 0 26 2 33 2 59 0 04 0 33 0 37 90 2 Subtotal Commercialization and Privatizatlon of LS 0 73 6 55 7 28 010 094 1 04 90 4 D. POLICY FORMULATION Di. Equipment 1 Computers 0 Od 0 76 0 84 0 01 011 012 90 - D2. Institutional Development Support 1 Computers 0 08 0 76 0 84 0 01 011 012 90 D3. Policy Support 1 Consultancy Studies 018 164 182 003 0 23 026 90 1 2 TA-28 man-months 0 39 3 47 3 85 0 06 0 50 0 55 90 2 Subtotal 057 510 567 008 073 081 90 3 Subtotal Policy Formulation 0 74 6 52 7 35 0 11 0 95 1 05 90 4 Total BASELINE COSTS 62 83 109 58 172 41 8,98 15 65 24 63 64 100 Physical Contingencies 9 42 16 44 25 86 1 35 2 35 369 64 15 Price Contingencies 475 4 75 0 68 0 68 100 3 TOTALPROJECTCOSTS 7226 13077 20302 1032 1868 2900 64 118 - 8 - Schedule A Page 2 of 2 REPUBLIC OF MALAWI RAILWAYS RESTRUCTURING PROJECT Project Costs by Source of Finance USS Million IDA USAID The Government Total Amount % Amount % Amount % Amount % A. RESTRUCTURING OF MR Al. Retrenchment Support 1. Support for Retrenchment 0 6.72 100.0 * 6.72 23 2 2. Support for Redeployment - 0 0.38 100.0 - - 0.38 1.3 Subtotal 0 7.10 100.0 - - 7.10 24.5 A2. Project Implementation Support 1.A for 22 manmonths 0 0.52 100.0 - - 0.52 1 8 2. Legal and Investment Advisory Services - 0 0.16 100.0 - - 0.16 0.6 3. Consultancy Studies 0 0.29 100.0 - - 0.29 1.0 4. Training - 0 0.20 100.0 - - 020 0.7 Subtotal - 0 1.18 100.0 - - 1.18 4.1 Subtotal - Restructurlng Component - 0 8 27 1000 - - 8 27 28.5 B. REVITALIZATION OF NACALA CORRIDOR B1. Civil Works 1. Rehabilitation of 44 km Track 2.63 95 - 0 13 5.0 2 76 9.5 2. Bridge Strengthening 0.39 90 - - 0.04 10.0 0,43 1.5 Subtotal 3.02 0 - 017 1.3 319 11.0 B2. Mechanical Works 1. Points and Crossings Rehabilitation 1.70 95 - - 0 09 5.0 1.79 6.2 2. Repairs to Concrete Sleeper Plant 0.04 95 - - 0.00 50 0.05 0.2 3. Power Supply to Nkhozbwa Quarry 0.04 95 - - 0 00 5 0 0.05 0.2 4. Rehabilitation of Wheel Lathe 0.56 95 - - 0.03 5 0 0.59 2 0 Subtotal 2.35 95 - - 0.12 5 0 2.47 8 5 83. Services 1. Renting of Track Temper 1 23 95 - - 0.07 5.0 1 30 4.5 Subtotal 1 23 95 - - 0.07 5.0 1.30 4.5 B4. Equipment 1. Gang and Inspection Trolleys 1.80 95 - - 0 09 5.0 1 89 6 5 2. Hand - held Equipment 0.35 95 - - 002 5 0 0.37 1.3 3. Test Equipment 0.09 95 000 5.0 0 09 0 3 4. Roller Bearings for Moditying Wagons 0.39 95 - - 002 50 0.42 1.4 5. Service Motor Vehicles 0.86 95 - - 005 50 0.90 3 1 6. Safety and Environ. Equipment 0.48 95 - - 0.03 5 0 0.50 17 7. Limbe PABX 0.55 95 - - 0.03 5.0 0.58 2.0 8. Nkaya Nayuci Micro Link 0.87 95 - - 05 50 0.91 31 9. MIS Package including Hardware - 0 0.18 100.0 - 0.18 0.6 10. Wagon Tracking Package including Hardware - 0 0.38 100.0 - - 0.38 1.3 1 1. Telecommunication Test Equipment 0.36 95 - - 0 02 5 0 0.38 1 3 12. Computer Hardware for Training * 0 0.14 100.0 - 0.14 0 5 Subtotal 5.75 85 0.70 10 4 0.30 4.5 6.76 23 3 85. Spare Parts 1. Spares for Building Inventory 0.87 95 0.05 5.0 0.92 32 2. Concrete Sleepers - 17000 0.89 95 - - 0.05 5.0 0 94 3,2 Subtotal 1.76 95 - 0 09 5.0 1 86 6.4 B6. Institutional Development Support 1. TA-45 man-months 0 1.19 100.0 - - 1.19 4.1 2. Legal and Investment Advisory Services - 0 0.13 100.0 - - 0.13 0.4 3. Consultancy Studies 0.81 95 - 0.04 5.0 0 86 3.0 4. Training 0.48 95 - - 0.03 5.0 0.50 1.7 Subtotal 1.29 48 1.32 49.2 0.07 2.5 2.68 9.2 Subtotal - Revitalization of Nacala Corridor 15.40 63 2.02 33.3 0.83 3.5 18.25 62.9 C. COMMERCIALiZATION AND PRIVATIZATION OF LS Cl. Equipment 1. Communication Equipment 0.37 95 - - 0.02 5.0 0.39 1.4 2. Computer Hardware 0.07 95 - - 0.W 5.0 0.07 0.2 3. Environment Related Equipment 0.31 95 - 0.02 5.0 0.33 1.1 Subtotal 0.76 95 - - 0.04 50 0.80 2.7 C2. Institutional Development Support 1. TA-4 man-month - 0 0.14 100.0 - - 0.14 0.5 2. Legal and Investment Advisory Services - 0 0.16 100.0 - - 0.16 0.6 3. Consultancies Studies . 0 0.10 100.0 - - 0.10 0.3 4. Training . 0 0.04 1000 - - 0.04 01 Subtotal - 0 0.44 100.0 - 0.44 1.5 Subtotal - Commercialization &Privatlzation of LS 0.76 61 0.44 35.5 0 04 3.2 1.23 4.3 D. POLICY FORMULATION Di. Equlpment 1. Computers 0 0.14 100.0 - * 0.14 0 5 Subtotal 0 0.14 100.0 - - 0.14 0.5 D2. Institutlonal Development Support Subtotal - 0 0.14 100.0 - 0.14 0.5 Subtotal * 0 0.14 100.0 0.14 0.5 D3. Policy Support 1. Consultancy Studies 0 0.31 100.0 - - 0.31 1,1 2. TA-28 man-months * 0 0.65 1000 - 0.65 2.3 Subtotal - Policy Support 0 0.96 100.0 _ - 0.96 3.3 Subtotal - Policy Formulation - 0 1.25 100.0 - 1.25 4.3 TOTAL DISBURSEMENT 16.16 56 11.98 41.3 0.87 3.0 29.00 100.0 -9 - Schedule B Page 1 of 1 REPUBLIC OF MALAWI RAILWAYS RESTRUCTURING PROJECT A. Procurement Arrangements (US$ Million) , OCUREMENT METHOLJ l International Local N B F TOTAL Competitive Competitive Bidding Bidding Others A Works 1 Civil Works (Track & Bridge Rehab) 2 76 (0 39) (039) 2 Mechanical (Repair to Equipment) 1 77 - 0 7Oab 2 47 (1 70) )0 64) (2 35) B Goods 1 Equipment 6 22 0 63b 0 85 7 70 (5 91) (0 60) (6 51) 2 Spare Parts 144 0 42b 1 66 (1 36) (0 40) (1 76) C Service Contracts 1 30 1 30 (1 23) (1 23) D Consultances 1 Project Implementation -1 136 1 18 1 18 (1 29) 2 Institutional Development - 190 1326 (1.29) 3 Policy Support 096 096 E Restructuring Support 710 710 13 49 0 43 3 11 11 98 29 DO TOTAL (12 84) (0 39) (2 93) _ (1616) a Direct Contractng b International Shopping IAPSO B. Allocation and Disbursement of IDA Credit (US$ Million) Antoutit to be disbursed Amount to be % of Total Total IDA before the first annual disbursed after the first Expenditure to be Category Amount review Annual review financed 1. Civil Works & Services 3.36 1.16 2.20 95 2. Mechanical Works 2.06 0.42 1.64 95 3. Equipment (a) Railways 5.11 2.79 2.32 95 (b) Lake Services 0.67 0.27 0.40 95 4. Spare Parts inventory 1.57 0.72 0.85 95 5. Institutional development Support (a) Consultancy 0.72 0.31 0.41 95 Studies (b) Training 0.42 0.17 0.25 95 Total Base Cost 13.90 5.84 8.07 95 Unallocated 2.26 Total Project Cost 16.16 - 10 - Schedule C Page I of I REPUBLIC OF MALAWI RAILWAYS RESTRUCTURING PROJECT Timetable of Key Project Processing Events (a) Time taken to prepare 6 months (b) Prepared by Government/Consultants with IDA assistance (c) First IDA Mission November 1993 (d) Appraisal Mission Departure April 1994 (e) Negotiations September 1994 (f) Planned Date of Effectiveness March 1995 This report is based on the findings of a Bank appraisal mission which visited Malawi in April 1994, comprising Messrs. Yash Pal Kedia (Senior Railway Engineer and Mission Leader), Sture Karlsson (Port Engineer), R. Gopalkrishnan (Senior Procurement Specialist), Carlos de Castro (Transport Specialist), Wim Spit (Transport Economist). Duane Lougee (Transport Specialist, USAID), Samuel Mintz (Transport Economist, USAID), Tony Davis (Financial Analyst, USAID), Bill Brands (Project Officer, USAID) and John Craik (Railway Specialist, ODA). Ms. Josiane Luchmun provided administrative support. Mr. Ian Heggie, Mr. Lou Thompson, and Mr. Yusupha Crookes were the peer reviewers. Mr. Jeffrey S. Racki and Ms. Katherine Marshall are the managing Division Chief (Acting) and Department Director, respectively. - 11 - Schedule D Page 1 of 2 REPUBLIC OF MALAWI RAILWAYS RESTRUCTURING PROJECT Status of Bank Group Operations in Malawi Summary Statement of IDA Credits (as at January, 95) Loan or Credit No. Fiscal Borrower Purpose Bank IDA Undisbursed Closing Date Year $Million 50 Credits closed C17670-MAI, 1987 Malawi Ed. Sector Credit I 26.96 .47 12/15/94(R) C 18790-MAL 1988 Malawi Transport I 13.40 .74 06/30/94 C 19660-MAL 1989 Malawi Agri. Marketing & 18.30 1.67 06/30/96 Est.__ _ _ _ _ _ _ C 19900-MAL 1989 Malaci Energy I 46.70 7.76 02/28/96 C20360-MAI. 1989 Malawi Instit. Dev. 11.30 1.20 06/30/95 C20690-MAL 1990 Malawi Infrastructure I 28.80 4.99 12/31/95 C20830-MAL 1990 Malawi Educ. Sec. 1 36.90 16.71 06/30/96 C22200-MAL 1991 Malawi PHIN Sector Credit 55.50 31.56 06/30/97 C22210-MAL 1991 Malawi Financial & 32.00 11.42 06/30/97 Enterprise l C22250-MAI. 1991 Mala\i Fisheries Dev. 8.80 4.95 06/30/99 C23790-MAL 1992 Malawi Local Govt. 24.00 15.49 12/31/99 C23860-MAI. 1992 Malawi Power V X_X ___ 55.00 35.89 06/30/98 *C25130-MA. 1993 Malawvi Financial Services 25.00 16.81 12/31/96 C25140-MAI 1993 Mala\i Agric. Services 45.80 29.63 09/30/99 C26240MAL 1994 Malawi Instit. Dev. HI 22.60 16.00 06/30/00 TOTAI = 16 Credits 456.96 304.09 Total of which repaid 104.52 1,302.08 Total held by IDA, Amount sold 50.40 1,272.19 of which repaid Total Undisbursed 304.28 Notes: * Not yet effective. Total approved, and outstanding balance represent both active and inactive Loans and Credits. (X) Indicates formally revised Closing Date. The Net Approved and Bank Repayments are historical value, all others are market value. The Signing, Effective and Closing dates are based upon the Loan Department official data and are not takes from the Task Budget file. - 12 - Schedule D Page 2 of 2 REPUBLIC OF MALAWI RAILWAYS RESTRUCTURING PROJECT STATEMENT OF IFC INVESTMENTS AS OF DECEMBER 31, 1993 (US$ MILLION) FY Type of Obligor Business Loan Equity Total 1987 Viphya Plywood Plywood 3.9 0.5 4.4 1986 Leasing & Fin. Co. Money/Capital Markets 0.7 0.2 0.9 1982 Ethanol Co. Ltd. Chem/Petrochem 2.3 0.2 2.5 1980/84 Malawi Hotel Ltd. Tourism 2.1 - 2.1 1979 Indebank Development 0.6 0.6 1977/81 Dwanga Sugar Corp. Sugar 11.3 - 11.3 1982 D. Whitehead & Sons Textiles 10.8 - 10.8 TOTAL GROSS COMMITMENTS 31.1 1.5 32.6 LESS: CANCELLATIONS, EXCHANGE ADJlJSTMENTS, REPAYMENTS WRITE-OFFS & SYNDICATE SALES 26.1 1.1 27.2 TOTAI IFC COMMITMENTS 5.0 0.4 5.4 BRI) 2639 MALAWI V11 2< s4. t 4 \ RAILWAYS RESTRUCTURING '\S Nl, C .PROJECT \ - --- - I'~~~~~~~~RIM I'AI Rl)BtD% 3 k, ( R'. 191 tIE St - i ~~~~~~~~~PNt:I I RONIO% t Nl)tR ( z INIR ( IIO)N The bondcoaes, colors, 3MI RA', i denomanonons ond any 1191 REIM) other nformot,on shown __h I . - on thIs mop dc not I .. SI R\ ( t mpy, on the pont of _ , The World Bank Group, \ I) any judgne,t on the legal r "8. 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