ETURN T POO t)1RTS DIC)lESF RESTRICTED R2Eport No. TO=443d This report wos prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuOacy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF SECOND RAILWAY PROJECT SUDAN RAILWAYS December 16, 1965 Projects Department Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
ETURN TPOO t)1RTS DIC)lESF RESTRICTED
R2Eport No. TO=443d
This report wos prepared for use within the Bank and its affiliated organizations.They do not accept responsibility for its accuOacy or completeness. The report maynot be published nor may it be quoted as representing their views.
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
INTERNATIONAL DEVELOPMENT ASSOCIATION
APPRAISAL OF
SECOND RAILWAY PROJECT
SUDAN RAILWAYS
December 16, 1965
Projects Department
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I sudsan(Be solznd o; U. S. $zo ?, a h u. $~ ollz if:a ° Sc (D. -^r
R ton = ZS 220 pounds = An Da c
Fsiczl Year July 1 ° June 3$
APPRAISAL OF SECOID RAILATAY PROJECT
SUDAN RAILWAYS
Table of ContentsPage
SUNIARY i - ii
Io INTRODUCTION 1
II. TRANISPORTATION IN THE SUDAN I -3
III. THE SUDAN RAILWAYS 3 - 14
A. Scope of Operations 3B. Ownership, Organization and Management 3C. Personnel and Labor 4D. The Railways System 4 - 7E. Operating Efficiency 7F. Present Traffic 7 - 8G. Financial Aspects 9 - 14
IV. THE RAILWAYS DEVELOPMENT PROGRAZ 15 - 19
A. Description and Cost Estimates 15 - 16B. Future Traffic 16C. Economic Justification 16 - 19
V. THE PROJECT 19 - 21
A. General Description 19 - 21B. Cost Estimates 21C. Procurement and Construction 21
VI. FUTURE EARNINGS AND FINANCES 22 - 23
VII. CONCLUSIONIS AND RECOP11ENDATIONS 23 - 24
ANNEX 1 : Estimates of Future Traffic Volumes
Tables : 1. Composition of Staff - June 30, 19052. Statement of Motive Power and Rolling Stock3. River Services - Floating Craft and Staff4. Summary of Selected Cperating Statistics5. Traffic: Railways, Steamers and Port Sudan6. Balance Sheet, June 30, 19657. Revenues, Expenses and Net Income, 1959/60 - 1964/658. Capital Development Programme, 1964/65 - 1970/719. Summary of Estimated Future Traffic, 1965/66 - 1970/71
Table of Contents ... ,. Continued
10e Foreign Exchange Expenditure to be Financedby the Proposed Loan
11. Estimated Revenues, Expenses and Net Income,1965/66 - 1970/71
1. The Bank has been asked to help finance the three years,1965/66-1967/68, of the Railways Development Program which covers theperiod from 19614/65 to 1970/71. This would be the second loan to theGovernment of Sudan for the Railways.
ii, The Railways' capital expenditure in 1965/66 - 1967/68 willamount to approximately ISd 16.4 million of which ESd 11.1 millionwould be foreign exchange. The Government wishes to borrouf LSd 10.8million - US$ 31 million equivalent. The proposed loan would cover66 percent of the total cost and 97 percent of the foreign exchangecost of the Project.
iii. The Railways' program 1964/65 - 1970/71 is well conceived.The Project, which coVers three years of the over-all program,is teclhically, economically and financially sound. Estixnatesof cost are realistic. Proposed procurement procedures are satisfactoryto the Bank.
iv. The Railways operate all of the rail, river and port servicesand virtually all the hotel and catering services in the Sudan. Roadcompetition is virtually non-existent and is expected to remain of smallconsequence to the Railways within the Government's Ten-Year Plan whichextends to 1970/71.
v. The Government intends to reorganize the Railways as aseparate body corporate, with such independent financial resources,powers and legal status as are required to enable it to carry out itsresponsibilities efficiently.
vi. Internal organization and management of the Railways are good.The hiring of expatriate experts, the need for which is recognized bythe Railways, has not progressed satisfactorily principally because thesalary scales which the Railways are permitted to offer have beeninadequate. However, the Government has agreed to approve the highersalaries required to attract the needed personnel.
vii. Operating efficiency has improved materially during recentyears and is now satisfactory. There is room for additional improvementwhich the Project and internal procedures recently initiated are designedto achieve,
viii. Past earnings and financial position have been good. Basedupon reasonable estimates of future traffic, future earnings and financesmay be expected to remain sound. The Railways' cash position will remainsatisfactory.
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ix. The rate structure of -the railw;ays' steamer and port servicesrequires modification in order to bring it more in line with costs.However, the Government and the Railways have agreed that cost analysesand rate studies for this purpose will be carried out with the assistanceof consultants.
x. Other matters agreed to during negotiations include technicalimprovements with respect to the permanent way, operations, the accountingsystem and financial relations with the Government, and the hiring of atraffic research officer and a traffic research training officer.
xi. The Project is suitable for a Bank loan of US$ 31 million.The Government would be the Borrower. The proceeds would be made avail-able to the Railways on the same terms as the proposed loan. A term of25 years is recommended, including a 4-1/2 year period of grace.
A.PPRAISAL CF SECOND RAIHWAY PROJECT
SUDAN RAILWAYS
I. INTPRQDUCTION
1. In 1958, the Bank appraised the Sudan Railways and its 1958/59 -1959/60 development scheme (Report No. TO-180-a, of July 7, 1958) andmade a loan (No. 202) to the Government in the amount of US$ 39 millionequivalent for that purpose. The loan, fully disbursed, has been success-ful in assisting the Sudan Railways in further improving its alreadysound position, in many respects beyond the expectations at that time.
2. In 1962, the Bank commissioned SOFRERAIL of Paris, France tostudy the position and future prospects of the Railways; the consultantsissued a comprehensive report in July 1963.
3. The Government of the Republic of the Sudan has asked the Bankto assist in firancing that part of its development plan for the SudanRailways which is to be carried out during the three-year period, 1965/66 -1967/68. The Railways' program in its entirety will have covered a ten-year period 1961/62 - 1970/71 which coincides in time with and is an integralpart of the Governmentts Ten-Year Plan of Economic and Social Development.
4. The first four years (1961/62 - 1964/65) of the Railways' Ten-Year Plan have been successfully completed, partially with the assistance ofa loan from the Kuwait Fund for Arab Economic Development, amounting tothe equivalent of US$ 19.6 million.
5. The Railways' capital expenditure in 1965/66 - 1967/68 willamnount to approximately 1Sd 16.4 million of which the foreign exchange costis estimated to be about LSd 11.1 million. The Government wishes toborrow LSd 10.8 million - US$ 31 million equivalent.
6. This report is based on information contained in the SOFRERAILreport, on an appraisal made by the mission which visited the Sudan duringApril and 1lay 1964, and in October 1965. It has been prepared by Mr. GuntherLubbeke and Mr. John McCunniff.
HI. TRANSPORTATION IN THE SUDAN
7. Sudan covers an area of about one million souare miles, aboutfive times the size of France, with a population of 13 million and adensity of only 13 persons per square mile. Outside of Khartoum, thecapital (about 300,000 people), the population is thinly and unevenlydistributed. The northern third of the country is a desert; to thewest and southwest are vast areas dotted with occasional nomad camps;and the south is largely undeveloped, although it has abundant rainfalland a large agricultural potential.
8. There is intensive agriculture based on man-made irrigationworks or seasonal flooding in relatively densely-settled and narrowstrips along the Nile, along its branches and tributaries and particu-larly in the Gezira region, in the Khasm el Girba area and in the Gashnear Kassala. Production from these areas is supplemented to someextent by that in rainfall areas, principally in central Sudan.
9. Virtually all productive regions are served by the railway net-work, three of them being reached by extensions constructed during thelast decade, These are: a) the Er Roseires branch; b) the westernextension to Nyala; and c) the southern extension to Wau.
10. The most important mode of transportation in the Sudan is therailway, which handlesabout 80 percent of all freight and about 60 percentof all passenger traffic. It provides virtually all for-hire land andinland water transportation. Road development is only in its infancy*Hard surface roads are found only in the main cities, their immediatevicinities and along limited stretches adjacent to two or three main cities.
I, The number of motor vehicles in the Sudan is relatively smalland they are used primarily for short-haul traffic in and around themajor urban areas, The number of trucks and buses declined in 1962, butthe general trend is upward, The following table shows the number ofpassenger cars, trucks and buses from 1958 to 196h:
120 The Government's Ten-Year Plan of Economic and Social Develop-ment includes total investments of 1Sd 337 million in the public sector.Of this, about LSd 63 million, or 19 percent, is for transportation.Investment in roads, bridges and ferries accounts for ISd 6.5 million,only 10 percent of the investment for transportation. Moreover, of thelatter amount only MSd 115 million are for roads; I,Sd 3045 million forbridges; and iSd 0.40 million for road equipment.
13. The Plan contains small amounts for the survey of new roadswhich, when and if constructed, would constitute the beginnings of aroad network. In addition, there is under construction at the presenttime, with the assistance of US-AID funds, a new road from Khartoum toWad Medani, and the Plan includes a new road from Dilling to Kadugli.Neither of these would materially affect the over-all traffic volume ofthe Railways.
14. US-AID has also financed the survey of the projected roadKhartoum-Kassala - Port Sudan which has been included in the supplementalInvestment Program for possible start during the Plan period. However,the Plan of the Government in respect of the Railways and the projectedimprovement in railway operations inherent in the Railways' program aredesigned to achieve railway capacity equal to demand throughout the Plan
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period and there is accordingly little economic justification forbuilding this road at this time, It appears unlikely that under presentcircumstances, the Khartoum-Kassala-Port Sudan road will be cons-tructed prior to 1970/71.
15. There is no coastal water transport in the Sudan. The inlandwater transport system is operated by the Sudan Railways, and is pri-marily a feeder service to the railways; the impact of the air serviceis minor. The Railways therefore have no important competition. Whilethere is no immediate need for the Government to be concerned with theeconomic coordination of transport in the Sudan, this matter should bemade an integral part of future planning in the transport sector.
III. THE SUDAS RAIlT1TAYS
A. Scope of Operations
16. The Sudan Pailways operate 4,740 route-kilometers of singletrack railway lines; steamer services on two separate stretches ofthe Mile and its tributaries; the coimtry's only port of transshipmentbetween ocean and land transport at Port Sudan; and several hotels,rest houses, restaurants, dining facilities on trains and steamers andvarious catering services.
Be Ownership, Organization and iTanagement
17. The Sudan Railways are state owned, and are operated as aGovernment department under the direction of the Minister of Communications,
18. The Government intends to reorganize the Railways as a bodycorporate. It will become an independent organization, with such inde-pendent financial resources, powers and legal status as are required toenable it to carry out its responsibilities for the management, operationand development of its various services, in accordance with sound business,financial and transportation practices.
19. Management and operations are directed by a General Manager whois appointed by and is responsible to the Minister of Communications.
20. Under the General Manager are three deputies. There are ninedepartment chiefs; the Chief Traffic Manager, who is also in charge ofoperations, the Chief Civil Engineer, the Chief Mechanical Engineer, theChief Accountant, the Stores Controller, the Chief Establishment Officer(personnel), the Port Manager at Port Sudan, the River Engineer atKhartoum and the Controller of hotels and catering at Khartoum. A TrafficResearch Department was created in 1960. The usual subdivisions exist ineach department. There are ten traffic districts, two locomotive divisions,and seven civil engineering districts. The river services are managed inthe same way as those of the railways, coming under the same departmentheads and falling within the same operational district.
21. Port Sudan is under the direction of a Port Manager. Under hima dock superintendent is in charge of shore operations, and a harbormaster of marine operations. Traffic in and out by rail is controlled bythe Railwayst Traffic Manager. Maintenance and construction of civil-engineering iworks are the responsibility of the Railways' Chief Engineer,
22. Following the recommendations of SOFRERAIL in part, the TrafficDepartment has been reorganized. A Central Control Office headed by aChief Controller has been established under the Operating Superintendent.This office controls train and locomotive running in the entire system,studies traffic requirements and distributes empty freight cars. Trafficcontrol operators, i.e., train dispatchers, are located at Atbara, Haiya,Port Sudan, Kassala, Sennar, Khartoum and Kosti. The efficiency of theTraffic Department has been improved substantially by these measures.There appears to be no present need for further changes in the organiza-tion of the Traffic Department, which in the main has been working well.
C. ?ersonnel and Labor
23. The classified staff consists of administrative and professional,sub-professional and clerical and certain technical employees. The classi-fication and number of personnel employed are shown in Table 1. The numberof employees in relation to the size and other conditions of operations isreasonable.
2h. The number of expatriates employed has decreased from 205 in1961 to 17 in 1965, and there is a serious shortage of qualified engineers,economists and accountants. The Railways have been making a continuousbut generally unsuccessful effort to attract qualified foreign experts.The compensation offered has generally been inadequate to attract theneeded personnel. There exists, also, some difficulty in retaining keyindigenous personnel in the face of the higher salaries which privateindustry offers. These problems arise primarily because the Railwayshave been tied to general governmental rules. The Government has agreedto approve the higher salaries required to attract needed expatriates,
D. The Railway System
1. Rail Lines
25. The rail lines are the most important part of the system. Thecivil engineering works, motive power, rolling stock and equipment main-tenance facilities are briefly described below.
26. a) Civil Engineering Works: The principal rail arteries (seeMap) are: (i) Khartoum-Atbara-Port Sudan, on the Red Sea (787 km); -(ii) Khartoum-Wad Medani-Sennar-Kosti-El Obeid (639 km); and (iii) Haiya-Kassala-Sennar (802 km). These lines have been opened for traffic between1897 and 1929. Secondary lines are: (i) Atbara-W4adi Halfal on theEgyptian Nile, with a branch to Karima (833 km), in operation since 1897and 1906; (ii) Sennar-Er Roseires (220 km) in operation since 1954;
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(iii) the Western Extension, Er Rahad-Babanusa-NyCala(685 km)), opened fortraffic by sections in 1956, 1957 and 1959; and (iv) the SouthernExtension, Babanusa-lWau (h45 km), opened for traffic in 1961.
27. All lines are single track; the gauge is 316". The main linesare laid with 75-pound rails, and most of the secondary lines with 50-poundrails. Relaying of 90-pound rails on the 313 kn Khartoum - Atbara sectionstarted in 1963 a n d reached Atbara in September 1965. Domestic hard-wood, used for ties during recont years in order to save foreign exchange,is of irregular growth and there are many ties with uneven bottoms whichshould have been rejected. This has been corrected and domestic ties whichdo not meet standard requirements are no longer accepted. In additionsabout 250,000 hardwood ties are being imported.
28. Subsoil, of good quality sand, generally serves as ballast.Stone is used only in short sections as lateral support and not as bearingballast. The maximum gradient is 1 in 100 and the minimum curvature is1,000 feet radius. Bridges and culverts are of substantial construction.
29. The Communications system consists of general telephone circuits,supplemented by a teletype network and direct telephones connecting themain traffic centers. Signalling on the main lines consists of mechanicalinterlocking on the stations and electric token instruments which aresatisfactory. On secondary lines signalling is of simp'le but adequatedesign.
30. b) Motive Power: The Railways have 167 steam locomotives, 72mainline and 38 switching diesel locomotives, (see Table 2). All steamlocomotives are oil-burning; 91, built between 1920 and 1931 are due forretirement; and 76 were acquired between 1951 and 1956. All main linediesel electric locomotives were placed in service since 1961. Of the38 diesel shunters, five were acquired in 1952 and 30 in 1957 or later.Most of the existing main line diesels are of about 1,800 h.p. and17-ton axleload and are not suitable for use on rails of less than 75-poundweight. Two diesels of about 1,200 h.p. and about 12.5 tons axleload aresuitable for operation on 50-pound rails.
31. The Railways had experienced substantial difficulties with thediesel-electric locomotives in connection with air filters and tractionmotors as initially installed, and many months of service w-ere lost whileawaiting repairs and refitting. With the assistance of manufacturers,factory representatives all diesel motive power has been returned toservice. The diesels are otherwise satisfactorily maintained.
32. c) Rolling Stock: As of June 30, 1965, there were 349 passengercars, 179 service cars and a small number of dining, baggage and mail cars.Al1 cars have wooden bodies. Revenue-earning freight stock consisted of5,116 cars. All are on bogies except for about 250 two-axle cars, About1,670 freight cars are more than 35 years of age and are due for replace-ment. The stock is generally well maintained.
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33. d) lWorkshops and Running Sheds: Shops, well equipped forheavy and light repairs of motive power and rolling stock and for thebuilding of bodies for passenger cars and freight cars, are concentratedat Atbara. A small plant for the assembly of freight cars imported in asub-assembled condition is located at Port Sudan. Diesel running shedsare located at Atbara, Port Sudan and Kassala. Temporary facilities areused at Khartoum and Sennar where new diesel running sheds are underconstruction. Steam running sheds exist at the major junctions. Thediesel running sheds are well equipped; but except for the sheds atAtbara and Khartoum the steam sheds are poor and in some cases obsolete.This is the result of the Railways' plan for further dieselization0
2. River Services
34. Steamer services are operated on two sections of the Nile (seeMap) employing 399 units of floating craft (see Table 3). The principalrailway transshipment point is Kosti on the White Nile. Service on the for-mer Northern Reach between Wadi Halfa and Shellal (Egypt) has beendiscontinued in 1964/65 because the existing flat bottom river craft haveto be replaced by craft of adequate draught suitable for navigation inthe deep waters of the large lake to be formed by the Aswan Dam.
35. The Dongola Reach between Karima and Dongola (287 km) isoperated in all seasons. The Southern Reach extends southward fromKhartoum along the White Nile and some of its tributaries, All-seasonservices are provided between Khartoum-Kosti-Malakal (720 km), andbetween Malakal and Juba (935 km). Services between Malakal and Wau andbetween Malakal and Gambela, which is Ethiopian territory, are seasonal.
36. The main dockyard, situated at Khartoum North,provides main-tenance and repairs for all floating units on the Southern Reach. Theyard is well laid out, well managed and equipped. It has facilities forbuilding ne rr-f A smaller doclkyard exists at Karima. The majorityoi floating crait is old but in sctisi%ctory condition. Most of theto-:'iig units ate dieselized.
3. Port Sudan
37. Port Sudan is the principal gateway for the foreign trade ofthe Sudan and the only port in the country capable of berthing oceanvessels. Little dredging of the harbor is necessary and vessels drawingup to 33 feet of water can be berthed at all times.
38. The major part of the wharf facilities are located on the northside of the harbor where there are eight general cargo berths withtransit sheds. There are also two berths under construction,to becompleted about April 1966. Extensive privately-owned storage shedsare also located in the adjacent area. On the south side, four berthswith about 1,700 feet of quay are available for handling bulk-cargoes,There is ample open-storage space. A grain silo and a pipeline, to provideconnection from the south berths with a new refinery 12 km south of therecently constructed port, were placed in operation in October 1964.
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39. The cargo-handling equipment is adequate for the present wharffacilities and is well maintained. Floating craft are adequate in numberbut some of them are old and due for replacement. A small dockyard andsatisfactory fire services are provided. Access by road and rail andrailway installations within the port area are adequate.
E. Operating Efficiency
40. 1. Railways: Factors which adversely affect operating efficiencyare climatic condiT5ins such as sandstorms in the dry season and washouts inthe rainy season, which frequently interrupt train movements; excessive lengthand unequal distances between crossing stations, which reduce the flexa-bility of train operations, increase train waiting time and have a cumu-lative adverse effect on line capacity and train punctuality; theabsence of automatic couplers on 45 percent of the rolling stock; anddeformed rail ends on many sections whiclh cause damaging impacts on runninggear of motive power and rolling stock. Most of these matters are beinggradually corrected. In contrast, traffic conditions are quite favorable,as described in paragraph 47.
41. The statistics shown in Table 4 indicate that operating effi-ciency has improved materially during the seven years from 1957/58 to1963/64. For example, during this period average gross tons per train,which is higher than that of any European railway, increased 30 percent;net tons per freight train, 39 percent; net ton-km per car day, 52 percent;and freight car turn-around, 17 percent. But other indices of efficiencyare not quite satisfactory. For example, the locomotive kms per availablemainline diesel locomotive (105,000 km in 1963/64) could be increasedsubstantially by improving maintenance methods and increasing train speeds.In 1964/65 the utilization of the motive power and the rolling stockdeteriorated due to a decrease in traffic mainly caused by a very poorcotton crop. However, in general, the productivity is good; managementgives particular attention to efficient and econoimic handling of traffic;and, under existing circumstances, it has done quite well in attainingefficiency. Further improvement can be expected.
42. 2. Port Sudan: The port is a well-managed and an efficientoperation. Some difficulties had been experienced because of congestion,the result of delays in railings coincident with record export crops andsharp increases in imports. However, there was no backlog of railings atPort Sudan in October 1965. The average rate of cargo handling, about10 tons per gang hour and 13 tons per hatch hour, is satisfactory.
43. 3. River Services: The efficiency of the river services hasbeen improved by the dieselization of the fleet in recent years and issatisfactory.
F. Present Traffic
44. The principal traffic statistics for the railway6, river servicesand port for the years 1957/58 - 1964/65, compared with 1952/53, arc setforth in Table 5.
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45. a. Railways: The number of passengers rose from 2.4 million in1952/53 to 3.2 million in 1962/63 or about 37 percent and thereafter de-clined slightly to 3.1 million in 1963/64 and 1964/65. However, passenger-kms increased by 73 percent reflecting a substantial rise in the averagelength of journey from 192 km to 250 km. In 1963/64 passenger-kms were 33percent above the year 1957/58, the peak year so far, despite a 9 percentdecline in the number of passengers. Freight traffic is predominantly long-haul import and export transportation. The average haul is 852 km. Forthe year 1964/65, import traffic accounted for 42 percent of the tons and50 percent of the ton-kms; and export traffic made up 31 percent of thetonnage and 39 percent of the ton-kms. Twenty-seven percent of the tonsand 11 percent of the ton-kms were local traffic and the small balanceconsisted of livestock. Total tons and ton-kms increased by 116 and 147percent, respectively, in the 1952/53 - 1963/64 period; and by 69 and 90percent in the six years 1957/58 - 1963/64. Mainly because of a very poorcotton crop, total tons declined in 1964/65 by 17 percent, and ton-kms by20 percent, (see paragraph 59).
46. The principal export commodities are cotton and cottonseed, cotton-seed oil cake, groundnuts, dura, sesame and gum arabic. Imports consistprimarily of petroleum products, cement, sugar, wheat, iron and steel, ferti-lizer, salt and timber. These commodities made up 90 and 70 percent, re-spectively, of railed exports and imports.
47. Traffic conditions are generally favorable: a) the bulk of thetraffic is moved to and from Port Sudan; b) up and down traffic is well-balanced, and therefore the ratio of loaded to total car movements is highas compared with other railways; and c) the average distances of freighthaul and of passenger trips have always been long and have become evenlonger since the Western and Southern extensions were opened for traffic,in 1959 and 1961.
48. b. River Services: River transportation is primarily a feederservice for the railways. Service on the Northern Reach had been suspendedby the end of the year 1964/65, (paragraph 34). On the two remainingsections of the river, traffic is relatively light consisting annually onlyof about 125,000 to 150,000 tons of freight and of about 200,000 passengers.Freight traffic reached a peak 158,000 tons in 1961/62, declined moderatelyin the two following years, and rather substantially in 1964/65 to 127,000tons as a result of unsettled conditions in the southern part of Sudan.Passenger traffic reached a high of 202,000 passengers in 1964/65.
49. c. Port Sudan: While the number of merchant ships calling at PortSudan increased by about 10 percent from 1,168 in 1957/58 to 1,294 in 1962/63 the peak year, a sharp decline to about the 1957/58 level was experiencedin 1964/65. Import tons also were substantially less in that year than inthe two previous years. However, between 1957/58 and 1964/65, total tons ofimports and exports, exclusive of livestock, rose by more than 45 percent.Port traffic also has been affected by the factors referred to in paragraph59.
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G. Financial Aspects1. Balance Sheet
a) General
50. The financial position as of June 30, 1965 is shown in the pro-visional balance sheet submitted by the RaiLways (Table 6). A summary ofthe financial position is given below:
Summary Balance Sheet Data as ofJune 30 1965(lES--d 000)
Assets Li a b i liti . e s
Current Assets 21,750 Current Liabilities 4,808Provident Fund 1,328Loans 20,483
Net Fixed Assets 63,657 Total Liabilities 26,619
E q u i t-y
Capital - Sudan Gov't. 21,548Surplus 37,240Total Equity 58,788
Total LiabilitiesTotal Assets 85,407 and Equity 85,407
b) Current Assets and Liabilities
51. Current assets are more than 4 times current liabilities. Ex-cluding from current assets stores and materials of ESd 6.6 million, theliquidity ratio is more than 3 to 1. Included in current assets is theGovernment Current Account which was in favor of the Railways in an amountof ISd 9.5 million. The current and liquid position of the Railways isgood.
c) Debt
52. Outstanding long-term debt as of June 30, 1965 is LSd 20.5 million.This consists of IBRD Loan No. 202, LSd 11.5 million, with a term of 20 yearsfrom 1958 at 5-5/8 percent interest; a loan from the Kuwait Fund for ArabEconomic Development in the amount of LSd 6.6 million equivalent, withIL percent interest and a maturity date of 1977; and LSd 2.4 million owed tothe Government for railway construction before 1914, which bears nointerest. The debt-equity ratio was a favorable 26/74.
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d) Financial Arrangements with Government
53. 1. Government Capital. The Sudan Government has provided moneyfor capital expenditures in excess of the Railways' own resources. Suchcapital expenditures are approved as part of the budget. These Governmentfunds have been permanent investments and are considered as equity capitalwhich bears interest at 4 percent per year with one temporary exception -funds for the railway extension to the Khasm El Girba dam site, which bearno interest at present on about WSd 500,CCO.
54. 2. Cash Arrangements. While the Railways maintain their fundsin several commercial banks, the bulk of their cash is kept in the Bank ofSudan where the Railways' account is automatically maintained at a low maxi-mum level. All excess funds over LSd 2,000 are transferred on the first andfifteenth of each month to the Government's account. All overdrafts are metby automatic transfers back from the Government account. These transactionsare reflected in changes in the balance of the Railways' Current Account withthe Government.
55. 3. The Government Current Account. All financial settlements, in-cluding not only those of cash transfers by the Bank of Sudan but many otheritems, are entered in a current account by both parties - the Government andthe Railways. Each party may charge or credit the other for numerous definedtransactions. The balance due the Railways, as shovm on the balance sheet,was RSd 9.5 million on June 30, 1965. It had increased from ESd 4.2 millionon June 30. 1963 and TSd 7.3 million on Fcbruary 29, 1964.
56. W4hile the Government Current Account procedures are convenient,they have few other advantages and many disadvantages. Only the effect ofthousands of transactions is disclosed in the financial statements. Itshould be noticed that while the Railways have borrowed large sums at in-terest (for example, 5-3/8 percent for IBRD Loan 202), the Government isthe beneficiary of the proceeds of these loans up to LSd 9.5 million withoutinterest.
57. This matter was discussed during negotiations and in order to im-prove the Railways' accounting and their financial relations with the Govern-ment in this respect, it has been agreed that the current account will besettled in the first instance no later than July 1, 1966 and periodicallythereafter on June 30 of each year until such time as the Railways are re-organized as a body corporate, when transactions between the Government andthe Railways will be placed on a cash basis. The balance of the current ac-count at the time of each settlement in the interim period will be deductedfrom or added to, as appropriate, the Railways' Capital Account entitled"Capital Provided by the Sudan Government". The interest payable by way ofdividend on such Government capital will be increased on the date of the in-
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itial settlement of the current account from the present annual rate of4 percent to an annual rate of 6-1/2 percent which is more in line withthe cost of money in the Sudan. The Railways on that date will establish intheir own name an account in the Post Office Savings Bank, as suggestedby the Ministry of Finance, to which the Bank of Sudan will transfer fromtime to time all amounts exceeding LSd 2,000 standing to the credit of theRailways to the end that the cash balances of the Railways may be identi-fied and measured at any time and that the Governmrient may have the use ofsuch funds as may not be required by the Railways as set forth in the annualbudgets. These changes will reduce otherwise substantial railway cash bal-ances on which the Government assertedly has found it difficult to pay in-terest and on which interest would be paid in the future by the Post OfficeSavings Bank.
2. Earnings
58. The Railways have operated consistently at a profit after allow-ance for depreciation of equipment. Since 1957/58 earnings have been parti-cularly good as shown in detail in Table 7 which is summarized below in mil-lions of Sudanese pounds.
Mote: Operating expenses include depreciation, exclude interest.
59. Following five successive years of financial improvement, from1959/60 to 1963/64, inclusive, the Railways experienced a sharp decline intraffic, revenues and net income in 1964/65. This decline was caused pri-marily by a very poor cotton crop of no more than about 0.535 million bales,compared with 1.15 million in 1961/62 and 0.850 million in 1962/63. Thelarge dependence of Sudan's economy on this single crop led to lower incomesgenerally, to some extent to restrictions on credit to private investors andresulted in a general slowing down in economic activity in 1964. Railways'traffic was materially affected with respect not only to export railings,but in large measure also with respect to railway import and local trafficas well as traffic through Port Sudan.
60. Nevertheless, during the last six complete fiscal years, 1959/60-1964/65, the interest earned ratio has not been less than 5 times; the debt-
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service coverage has not been less than 3 times; and the over-all return,on the average of net fixed assets at the beginning and end of the year,has not been less than 6.9 percent, declining to that figure in 1964/65from more than 12 percent in 1962/63 and in 1963/64.
3. Rate Structure
General
61. Rates and fares are established by the General Manager, subjectto the approval of the Minister of Finance and Economics. All other regu-lations ordered by the General Manager concerning conditions of carriageof persons and property are subject to the approval of the Council ofMinisters.
Railways and Steamers
62. VWith only a few exceptions, the same freight rates and passengerfares apply to both rail and river services. For passenger traffic fourclasses of fares are provided. Reduced fares are offered to frequent users,students and youth groups. A consolidated tariff publication sets forth theconditions and rates for transportation of freight by the railway and steamerservices. The freight tariffs are based primarily on the value of serviceprinciple as measured by the value of the commodity.
63. All goods are assigned to one of 17 classes, for which two ratescales are provided; the first applies to shipments weighing a minimum of 10kilograms up to full carloads; and the second applies to parcels weighing upto 100 kilograms. Rates per kilometer fall sharply as distances increase.In addition, a substantial volume of traffic, notably cotton and petroleumproducts, is transported under special contracts at agreed rates.
6h. The classes of passenger service and fares are too numerous; andvery few passengers, about 4 and 14 percent, respectively, use second andthird-class services. The number of classes should be reduced to three. Thereduction should coincide with improvements in service and in passengeramenities; and the fares should be adjusted in accordance with these improve-ments.
65. The rate structure does not sufficiently reflect the differencesin costs as between rail and river services and between large and small ship-ments. The wide spread between the classes (e.g., class 17 is only 8 percentof class 1 at 165 kilometers) apparently exaggerates the differences in costsfor full carloads of each of these commodity groups; and the rates do notreflect the differences in costs which vary with the size of the shipment.
Port Sudan
66. Port rates assessed against ships consist of charges for the hireand use of tugs, towage of ships not under main-engine power, local light
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dues for entry to the harbor, port dues based on length of stray in port,berthing, mooring and unmooring. Cargo is subj'ect to charges for the hireof cranes and other cargo handling equipment; is subject to quay dues onimports related to their value and on exports related to their weight; toporterage or charges for handling on the quays in transit sheds and storageareas, quay rent, local hauling per freight car, demurrage and other miscel-laneous services such as wei.ghing and re-coopering. Quay dues on imports areassessed at 1.2 percent ad valorem and collected by the Customs Departmentfor the account of the port administration. The basis for the assessment ofthis charge is the value shown on the customs declaration. More than 50 per-cent of port revenues are derived from quay dues.
67. No attempt has yet been made to determine the costs of providingport services; and the port tariff should be reviewed in order to attain acloser relationship between rates and costs.
68. All of these rate problems were discussed during negotiations. Ithas been agreed that the Railways will hire consultants to carry out theinitial studies and to recommend appropriate rate structures for the railways,steamer services and port operations in reasonable relationship to theirseparate costs and that the Railways will engage an experienced traffic re-search officer and another traffic research expert to train the Railways'staff to carry out further continuing studies in view of their importance inplanning the Railways' future development.
4. Budget, Accounting and Auditing
a) Budget
69. The Railways annually prepare a separate operating and capital ex-penditure budget which is subject to the approval of the Minister of Communi-cations and the Council of Ministers. A single document is published by the1HIinister of Communications containing memoranda of revenue, expenditure, ap-propriations, and capital expenditure which shows the estimated costs of newworks appearing for the first time together with the means of financing them.It also lists other works not yet completed, the amounts spent and the amountsnecessary to complete them. Completion of a program is assured when its budgetis approved and it is not specified in which financial year the expenditure isto be made.
b) Accounting
70. The Railways' accounts are separated from those of the Governmentand they are kept,with some exceptions,in accordance with commercial account-ing principles. The accounts are accurately kept and internal audit proce-dures are satisfactory.
71. Depreciation,based on the straight-llne method related to reasonableservice lives,is charged to operating expenses, with respect to depreciableassets which include rolling stock, motive power, road vehicles, floatingcraft, workshop and other equipment. Non-depreciable assets include land,
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buildings, permanent way, quays, and other works. The cost of non-depreciableassets is chnrted to the propurty accounts and deducted from fixedassets in the year in which the asset is retired. If a replacement is ac-quired, the cost of the new asset is added to the fixed assets account. Nochange is made in that account thereafter until retirement occurs.
72. A special provision is made for the estimated increase in the costof replacing depreciable assets. This is akin to depreciation, although itis not calculated on a formal basis, is not broken down as between the variousservices, such as raiLways or port, and it is not charged to operating ex-penses but treated as a charge against profit and loss. The contributionshave fluctuated widely - from LSd 750,000 in 1961/62 to LSd 110,000 in 1962/63.Deductions from the provision are made when a particular job is completed,regardless of its duration, on the basis of the estimated differencebetween the cost of the original item and the higher cost of its replacement.
73. The Railways' present methods of handling non-depreciable assets andof providing for the enhanced cost of depreciable assets should be modifiedand improved. This subject has been discussed with the Railways and withthe Government. Since July 1, 1965, all depreciable assets have been madesubject to straight-line depreciation based on reasonable service lives.
c) Auditing
74. The Railways' accounts are subject to annual audit oy the Govern-ment's Auditor General, a department of the Ministry of Finance. A statementin the form of a letter to the Railways,with copy to the Ministry of FinanceUndersecretary,is issued but this contains no certificates that the accountsare accurately kept in accordance with generally accepted accounting princi-ples. Moreover, external audits usually have been delayed at times for ayear or more.
75. This matter was discussed with the Railways and with the Ministersof Finance and Communications. A commercial firm of qualified accountantswill be commissioned to audit the books annually.
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IV. TIE RAILWIAYS DEVELOPYflNT PROGRA14
A, Description and Cost Estimates
76. The Ten-Year Capital Development Program of the Sudan Railwayswas inaugurated in 1961 as part of the Government's Ten-Year Plan ofEconomic and Social Development, 1961/62 - 1970/71. The total expenditureof the Program,which was later somewhat reduced, was originally set at thelevel of LSd 35 million, of which LSd 8 million was carried over fromunfinished previous plans. The Program investment represented 12 percentof the Government's plan and about 60 percent of the investments plannedfor transport.
77. The objective of the Ten-Year Program is to increase the Railways'efficiency and capacity to cope with the system's increasing load duringthe present decade. The investment includes acquisition of main-line andshunting diesel locomotives, railcars, passenger and freight cars, rollerbearings and automatic couplers; station yards; improvements to signalling;relaying Khartoum-Port Sudan line; the acquisition of rivercraft; andfacilities at Port Sudan.
78. In preparing the Governmentts Ten-Year Plan it was assumed thatthe Railways would be able to finance their own development program. In thefirst three years of the Plan it became necessary to revise the Programseveral times and adjust it downward in relation with the Governmenttsability to provide foreign exchange. In 1962, the Kuwait Fund for ArabEconomic Development made a loan to the Railways of about LSd 7 millionequivalent, of which about iSd 5.7 million was used for the purchase of30 main-line diesel electric locomotives, 13 shunting diesel locomotivesand a part of the 90-lb. rails needed for relaying of the Khartoum-PortSudan line.
79. In April 1964, the Railways proposed a new Capital DevelopmentProgram for the last seven years 1964/65 - 1970/71 of the Ten-Year Plan,under the assumption that additional funds from a Bank loan would becomeavailable in 1964/65. This Program,jas modified in October 1965 is shownin detail in Table 3. Its total estimated costs are:
Contingencies on foreignexchange components ofthe Program in 1966/67and 1967/68 06 million
Grand Total LSd 20.2 million
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80. According to their budget rules, the Railways do not includecontingencies in their Programs. Any increase for this purpose of thelocal expenditure component of the Program could be covered by the Rail-ways' cash generation (see Chapter VI). Contingencies are added to thatpart of the foreign exchange cost of the years 1966/67 and 1967/68 ofthe Program which would be financed by the proposed Bank loan (see para 101).
81. The Seven-Year Program includes the dieselization of the WadiHalfa and of the Er Rahad-Babanusa lines. However, the Railways hope todieselize the entire system,should sufficient foreign exchange and trainedstaff become available. There are also further extensions in the Westfrom lNyala to Geneina and in the South from Wau to Juba under preliminaryconsideration. These are supplementary items in the Government's Ten-YearPlan and in the Railway program. If they are found to be economicallyjustified after further study and if sufficient funds are available,theywill be added to the last two or three years of the Program.
B. Future Traffic
82. Estimates of future traffic, prepared by the Railways for therail, steamer and port operations, are summarized in Table 9, for the sixyear period 1965/,66 to 1970/71. The forecasts were prepared in October1965 with the assistance of an economist of the Ministry of Finance andEconomics and are a revision of those made in April 1964 during the initialappraisal mission. The forecasts are based on the various goals of theGovernment's Ten-Year Plan, as revised in the light of experience duringthe first four years of the Plan. They are also based on a detailed eva-luation of the volume of freight traffic during the recent past, parti-cularly 1963/64 and 1964/65. Comparing the 1970/71 estimates with thelast complete year, 1964/65, rail revenue tons will rise by 59 percent;ton kilometers by 53 percent and passenger kilometers by about 35 percent.Steamer service freight tons are expected to increase by 42 percent andno substantial increase is expected in steamer passenger traffic. Exportsthrough Port Sudan are estimated to increase by 74 percent whereas importswould rise by only 16 percent principally due to import substitution.Total tons through Port Sudan are expected to increase by about 38 percent.The estimates of traffic are reasonably conservative, and they are accep-table for the purpose of future planning and for estimating future finances.More detailed explanations of the forecasts are set forth in Annex 1.
C. Economic Justification
1. General
83. The Bank's economic mission to the Sudan stated in itsOctober 1963 report (AF-14a) that in the main the Ten-Year Plan of theGovernment of Sudan is sound and realistic; that the major prioritiesestablished in the Plan are in accord with the objectives and the magni-tude of the proposed investments; that the investments are within thecapabilities of the country, provided appropriate aid is forthcoming fromabroad; and that since the railways will remain the dominant carrier -
at least during the Plan period and probably for many years beyond -measures to increase its effective capacity must have top priority.
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8L4. Thus, the most essential element in the economic justificationof the Railways' Development Plan is that the Plan is necessary i-n orderto achieve the goals established bvy the Government's Ten-Year Plan forthe economy of the Sudan. IWithout the increased capacity and moderniza-tion of the Railways inherent in its Development Plan, there would exista serious obstacle in the path of the country's economic development.
2. Specific Items
85. a) Main-Line Diesels. The sixteen main-line diesel locomotives,which will have 13-ton axl_eload in order to permit rumning on lines with50-lb. rails, would completely dieselize: i) the Atbara-Wadi Halfa andKarima line, which is nowi the onl-r steam traction section north and eastof lKhartoum; and ii) the Er Rahad-Babanusa section where the water supply,always poor, has become even more difficult, as the existing wolls arenearly exhausted. It is now necessary to carry water over a 350-kn section.
86. The annual savings in eliminating water transport and in reducedtraction and maintenance costs are conservatively estimated to be 2Sd 157,000based on recent traffic data. Assuming a 20-year life,the rate of returnwould be about 22 percent on the cost of the equipment net of customs duties.
87. b) Shunting Locomotives. The procurement of 31 dilesel shunters toreplace existing steam equipment, ranging in age from 33 to 60 years anddue for replacement, would result in annual savings in traction, watersupply and maintenance of about LSd 175,000 annually, which may be comparedto an investment of 1:Sd 953,000 net of import duties. The return is24 percent.
88. c) Diesel Rail Cars. The three diesel rail car sets would be thefirst to handle additional passenger traffic on the Khartoum-Aedani sectionand represent an attempt to give better service for the public. as nocomparable cost data for rail cars and steam-hauled passenger-trains areavailable in Sudan, it has not been practicable to estimate the savings oversteam traction now in use or the return on the investment. However, theacquisition of this equipment is in line with the general trend in manycountries where substantial savings and improved service have been thegeneral result of rail car operations. It is fairly certain that the well-known benefits of dieselization and the effects of additional trafficinduced by- better service will have in this case also favorable economicresults.
89. d) Passenger and Service Cars. Of the 68 new cars, 65 are replace-ments of over-age stock. The three additions to the fleet will help toaccommodate increases in traffic not met by other operating improvements.
90. The 81 service cars, largely additions to the fleet, are necessary tocarry out the planned improvements in inspecting and maintaining permanent wayand structures.
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91. e) Freight Cars. Of the present, freight car stock (5,808 cars), about1,600 or 27 percent are between 35 and 60 years of age and are due for re-tirement. The 350 freight cars and 90 livestock wagons are replacementsbut represent also improvements as they will have greater capacity and bet-ter technical standards. The brake vans are also replacements. The 20petroleum tank wagons are additions needed to meet increased traffic require-ments. The estimated annual net earni-ngs of =Sd 72,000 related to net costof BSd 64,000 for the tank cars represent very substantial returns.
92. f) Automatic Couplers. At present 55 percent of the rolling stockis fitted with automatic couplers. Full benefits resulting from reducedshunting time, fewer train breaks and ability to assemble heavier trainswill come only when the remaining 45 percent are equipped in a similarmanner. The cost of equipping the total fleet is approximately L-Sd 1.2million. The estimated annual benefits are ].Sd 138,000. The return overa period of 20 years is 12 percent.
93. g) Roller Bearings. Thle plan is to equip all passenger cars and allfreight cars not older than 20 years with roller bearings in order to facili-tate increases in vehicle speeds, to reduce delays and maintenance expensesdue to "hot boxes" and reduce other materials costs such as those for oiland packing materials The annual savings are conservatively estimated at1Sd 170,000. The rate of return from these benefits during the usefulaverage life of about 20 years is approximately 14 percent.
94. h) Relaying Khartoum-Port Sudan Line. This line wYas laid with 75-pound rail from 50 to 60 years ago and the track is worn out. Rail breakingsoccur frequently; renewal is urgent and should be completed as soon aspossible. The heavier rail of 90-pound weight is necessary in order toincrease the maximum and average speed of trains, to improve utilizationof locomotives and rolling stock and to increase operating efficiency ingeneral. In 196h/65, about 95,000 locomotive and 2.8 million car-runninghours were required. The re-railing of the main railway artery over whichthe bulk of the traffic moves would permit increasing the maximum speedfrom 60 to 80 km per hour, and the average speed from 34 to 40 Ian per hour.For this same traffic as experienced in 1964/65, by the re-railing locomo-tive hours would be reduced to 81,000 and the vehicle-hours would be reducedto 2.4 million. The savings represent 560 locomotive and 18,000 car-days.Based on the average capital and operating costs per running day, thebenefits would amount to =Sd 59,400 annually, for both locomotives and cars,due only to the higher train speeds, which is equivalent to increasedline capacity of 17 percent.
95. In addition, the foregoing 18,000 car days would release 35 freightand 15 passenger cars for additional traffic, resulting in increased annualnet revenue from freight cars only of _Sd 46,000. Savings in trackmaintenance due to the heavier rail, improved fastenings and welded jointswould reduce track maintenance costs by an estimated !Sd 25,000 annually.
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96. Taking into account that the benefits calculated above are forthe entire Khartoum-Port Sudan line (787 km) but only 600 km are includedin the Program, and that the benefits are chargeable only to the 20 per-cent of the cost which represents betterments, it follows that the returnover the 25 years estimated life of the rails is 9.5 percent.
97. i) Port Sudan Works. The construction of berths 8 and 9 has beencarried over from the 1961/63 program. It is not part of the Government'sTen-Year Plan, which does,however,include token provision for preparatoryplarning for a second port expected to become necessary in the future.The construction of berths 8 and 9 is well advanced. For reasons statedlater in this report the construction costs are not included in theproposed Bank loan.
98. The procurement of six cranes and lighit cargo handling eouipmentand the construction of a transit shed are ancillary to the new berths.The two tugs, barges and pontoons are required for a proposed lighterageoperation in periods of peak shipping traffic and to utilize more fullyexisting facilities along the shallow draft portion of the north quay.No quantitative analysis of these facilities is necessary. Being revenue-earning equipment in a profitable port, the rates for their use will be soadjusted as to yield a reasonable return.
99. j) River Services. The river services have been recently rehabili-tated and additional equipment will be made available by the discontinuanceof service on the northern reach. The relatively modest investments in-cluded in the Plan cover replacement of a small amount of plant andmachinery. Procurement of a sm2ll dredger is necessary in order to clearportions of the southern reach which frequently becomes congested withwater hyacinths.
100. Conclusion. The overall economic rate of return for the Railways'Development Plan is almost 15 percent and this is satisfactory.
V. THE PROJECT
A. General Description
101. The Project covers the three years 1965/66-1967/68 of the Railways'Capital Development Program for the seven-year period 1964/65 - 1970/71,which is shown in detail on Table 8. The first year, 1964/65, of theProgram has been eliminated from the Project because it is virtuallycomplete and 78 percent of the foreign exchange expenditure involved hasbeen financed from the unused balance of the Kuwait Loan, i.e., the firstlot of 8 shunting locomotives and 90 lb. rails for about 100 km of track.The costs of the Project are summarized below:
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(Amounts in 1,000 LSd)TocaT durrency
Works and Custom ForeignPurchases Duties Exchange Total
I. Railways
- Motive Power andRolling Stock 641 I,434 4,763 6,838
- Other Works andProcurements 2,115 528 4,530 7,173
Total Railways 2,756 1,962 9,293 1h,011
II. River Services 8 43 131 182
III, Port Sudan 293 224 1,053 1,570
Total Project 3,057 2,229 10,477 15,7635.,286
Contingencies - - 614 614
Total Projectincluding contingencies 5,286 11,091 16,377
The Project includes abouit 80 percent of the cost of the totalProgram and 84 percent of its forei.gn exchange cost.
The proposed Bank loan would finance the foreign exchange costof the Project, except for the following items:
a) the construction of new buildings and the improvement ofexisting ones including electricity and water supply; and
b) the completion of the construction of new berths Nos. 8 and9 at Port Sudan.
102. The reasons for excluding the above two items from the proposedLoan are the following: the construction and improvement of buildingsis a continuous operation with a small foreign exchange component butinvolves a great nunmber of minor imports of materials and fittings;and the construction of the new berths at Port Sudan is well advanced,and in addition, there is litigation pending between the Railwaysand a first contractor concerning a contract signed in October 1962 butlater cancelled.
103. The proposed List of Goods is summarized below:
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(Amounts in 1Sd 1,000)I. Railways:
Motive Power and Rolling Stock 4,763Other Works and Procurements 4,502
Total Railways 9,265
1I0 River Services 131
III. Port Sudan 790
Total allocated amount 10,186
Contingencies 614
Total Loan 10,800US$ million equivalent 31.0
(Details are shown on Table 10).
104. The biggest item in the List of uoods is the relaying of 500 Ionof the Khartoum-Atbara-Port Sudan line with 90-pound rails which are toreplace the present 75-lb rails. The Railways would not have the fullbenefits of the heavier rails by increasing the maximum speed if railswere to be laid on inadequate crossties and without weldilng the rails atlengths of about 120 to 150 feet. However, satisfactory understandingshavebeen reached during loan negotiations that the Railways will undertake:
a) measures to improve the standards of the crossties suppliedby domestic sawmills and to import hardwood ties as far asnecessary;
b) welding of rail joints to suitable length of rails.
Procurement of a movable rail welding plant would be financedby the proposed loan. It is included in Item 11 on Table 10.
B. Cost Estimates
105. Cost estimates made by the Railways,reflecting recent prices, arereasonable. An average of 6 percent for contingencies is added to itemsfinanced from the proposed Bank loan.
C. Procurement and Construction
106. Procurement of equipment which would be financed by the proposedLoan will be on the basis of international competitive bidding. Construc-tion of passenger and service cars on imported bogies and underframes;the installation of automatic couplers and roller bearings; and re-railingof the permanent way will be done oy the Railwayst own personnel.
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VI. FUTURE EARTINGS AND FINANCES
107., The Railways have prepared estimates of future earnings andfinances, based on traffic studies. The estimated revenues and expensesare shown in Table 119 Table 12 is the corresponding statement of con-densed balance sheet data and Table 13 sets forth cash requirements andavailability for each of the sane fiscal years. The future earnings andfinances of the Railways will remain quite good.
108. The earnings forecast, in millions of Sudanese pounds, is shownbelow:
NetOperating Operating Operating Yet Operating
Period Revenues Expenses Revenues Interest Income Ratio %
Notes: Operating Expenses include depreciation.Net Income includes non-operating revenues.
109. The above forecast assumes that while various rate relationshipsmay be adjusted more in line with costs, little change will be made intheir general level or earning power, except for Port Sudan where areduction in revenues of 11 percent is assumed in 1967/68, recovering in1970/71 to the level of 1966/67. The rates on imoorts appear on the highside and should be brought into reasonable relationiship with costs.The forecast also takes into account substantial improvements in theRailways' depreciation policy, whereby much depreciable property, princi-pally consisting of permanent way and Port Sudan facilities, will be madesubject to straight line depreciation. Depreciation charges will risesharply in 1965/66 and again in 1966/67. Operating expenses are adjustedupward in varying degrees. WTages and salaries reflect a 10 percentincrease in 1966/67, as a result of making the Railways autonomous,The overall wage bill, including post-service benefits, is expected torise about 28 percent by 1970/71. During the period, fuel costs areexpected to rise by 36 percent; materials and supplies by 52 percent;depreciation by 132 percent; and other expenses by 36 percent. Totaloperating expenses would increase on average by 34 percent after givingeffect to the savings to be gained from the Development Program. Interestexpense does not include payments on Government capital which is consideredan appropriation of net income.
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110. Return on net fixed assets will be 5.1 percent in 1965/66, willdecline to 4.9 percent in 1966/67 and thereafter rise progressively to8.8 percent in 1970/71. The return is materially affected by the substan-tial increases in depreciation in 1965/66 and in 1966/67. Times interestearned would range betw.een 2.8 times in 1966/67 and 1967/68 and 4.9 timesin 1970/71. Debt service coverage never drops within the future six-year period below a ratio of 2.7 times.
lll. As shown in the balance sheet data set forth in Table 12, thecurrent and liquid ratios will remain quite good, even though they reflectthe annual settlement of the current account referred to earlier (paragraph57). The agreement to settle this account annually will also affect equityby reason of the gradual reduction in Government paid-in capital but thedebt-equity ratios will remain satisfactory, never being less favorablethan 35/65 in 1967/68 and improving to 31/69 in 1970/71.
112. For the period 1965/66 - 1970/71, Table 13 shows that the Railways'cash will decline to !=Sd 1.2 million in 1966/67. This represents about9 percent or about one month's estimated annual operating expenses in thatyear, excluding depreciation. This is an adequate level of wdorking cashcapital for the Railways. After 1966/67 the cash position rises progressivelyto ]Sd 3.3 million in 1970/71.
1130 Investments in capital improvements are relatively small inthe last three years of the development program, 1968/69 - 1970/71, repre-senting less than 10 percent of the total. While the iIArestments in thelatter part of the program are in accordance with the Government's 10-YearPlan, it is reasonable to assume that investments in the last three yearsmay be increased with Governrnent approval. Assuming that about ISd 1.3million is adequate for cash-working purposes, the cumulative cash balancein 1970/71 would provide ISd 2.0 million for additional investments in thisperiod. Should investment requirements exceed LSd 2..0 million the moneycould be obtained by reducing repayments of Government capital advances.
114. Taking all factors into consideration, the future financialposition of the Railways will remain sound.
VII. COLICLIJSICONS AD RECOvIENDATIONS
115. The Railways' program for the years 1964/65 - 1970/71 appearsto be sound but it will be necessary to re-examine it from time-to-timein respect of later years' investments in order to keep it abreast ofdevelopments. The Project, which is the three years 1965/66 - 1967/68 ofthe program, is technically and financially sound, economically justified,and will provide in a reasonable manner needed replacements and someadditional capacity to meet a growing demand for rail transportation.The estimates of cost are realistic. Proposed procurement procedures areacceptable. The Railways are well organized internally and well managedand operated, although improvements in operations are possible and meansto this end are being initiated. The past earnings have been good and thefuture financial position will remain sound.
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u6. The Government confirmed during loan negotiations its intentionto reorganize the Railways as a separate body corporate with such indepen-dent financial resources, powers and legal status as are required toenable it to carry out its responsibilities for the management, operationand development of its various services, in accordance with sound business,financial and transportation practices.
117. Satisfactory understandings have been reached during negotiationson the follotiing matters: (i) standards for railway crossties; (ii) weldingof rail joints; (iii) reduction in the distances between some crossingstations; (iv) amendment of the depreciation accounting methods; (v) em-ployment of independent commercial auditors; (vi) hiring of expatriatesand other personnel problems; (vii) costing of rail, river and port services;(viii) establishment of rates more close'ly related to costs; and (ix) finan-cial relations with the Government.
118. The Project is suitable for a Bank loan to the Governmeintof US$31 million equivalent, which would be made available to the Railwayson the same terms as the proposed loan. A term of 25 years is recommended,including a period of grace of 4-1/2 years.
December 16, 1965
Annex 1Page 1
SUDAN RAILWMAYS
Estimates of Future Traffic Volumes
l.o General
The Railways have estimated future passenger and freight trafficin their export, import and internal services and for livestock, for theyears 1965/66 to 1970/71. The forecast shown in Table 9 in summary formfor all services is based on the following principal assumptions:
a) That the Government's aim, embodied in its Ten-Year Plan,1960/61 to 1970/71, for an annual increase of 5.2 percent in grossdomestic product, and an annual increase of 2.3 percent inper capita income will be achieved. (During the four-yearperiod, 1960/61 to 1964/65, gross domestic product and percapita income on average rose somewhat less rapidly than thePlan objectives.)
b) That the Khashm El Girba Dam recently completed on the AtbaraRiver will permit the irrigation of 1509000 feddans ij of newland in the year 1965/66, another 100,000 feddans in 1966/67and an additional 100,000 feddans in 1967/68.
c) That the Roseires Dam on the Blue Nile will permit the irriga-tion of new areas generally referred to as the Rahad projecttotalling 430,000 feddans eventually, and 270,000 feddans by1970/71.
d) That mechanized rainland.farming, should according to presentgovernment estimates bring 800,000 feddans of virgin land intoproduction of dura, cotton and sesame. It is expected that300,000 feddans wfould be in production in 1968/69, 500,000feddans in 1969/70 and 800,000 in 1970/71.
e) In the Gezira-I.anagil area some 200,000 feddans of new produc-tion will be achieved, by 1970/71 principally as a result ofcrop intensification and additional plantings of ground. nutsand grain.
f) That in addition to increased over-all agricultural productionand exports, the economic structure of Sudan would. be broadenedby an industrial expansion ranging across a variety of items,mainly consumer goods, building materials and petroleum products,increasing the share of industrial production in the compositionof the gross national prcduct from 9 percent in 1960/61 to about16 percent in 1970/71.
/ 1 feddan = 1.038 acres = 4,200 square meters.
Anmex 1Page 2
g) That the target of the Plan to increase domestic productionso as to achieve a substitution for imports will be largelyattained by 1970/71; that the principal imports affectedannually would be sugar, cement, wheat, cotton yarn andcloth, glass and glasswares, and paper and paper products;and that imports and exports of Sudan would be approachinga balance by 1970/71. The import substitution policy wouldincrease the railways' local traffic.
2, Railways
The Railways' forecast is set forth for various classes of ser-vices for which varying income per ton-kilometer is earned and for theprincipal commodities transported including those for which the trafficpattern in the future will be subjected to specific factors.
A major factor in the forecast is proper evaluation of the rail-way freight traffic volume transported in each of the Last five years,when growth in ton-miles was 18.4 percent in each of the years 1961/62 and1962/63 and 12.5 percent in 1963/64. In 1964/65, net ton-kilometers de-clined by 17 percent in the aggregate. The traffic losses were 9 percenton rail exports, 20 percent on imports, 26 percent on local hauls and6 percent on livestock.
The 'arge increases in traffic during the 1961/62 - 1963/64period, in addition to a natural yearly rise, were due principally to theremoval of import restrictions in 1961, the construction of the Khasm ElGirba and the Roseires dams, the construction of housing for many thousandsof people relocated from the Wadi H'lfa area to the Khasm El Girba areabecause of the Aswan High Dam, an unprecedented building boom at Khartoumand the very good cotton crop in 1962/63. The lesser increase in 1963/64,while quite substantial, was affected by a less favorable cotton crop.This, however, permitted the Railways to clear up backlogs of grain andother produce stored in country warehouses and to reduce the accumulationof imports at Port Sudan. The large reduction in 1964/65 was due in themain to poor export crops generally including cotton. The forecast ofrailwqay freight traffic in relation to the poor year 1964/65, varies withthe class of traffic. The rise, from 1964/65 to 1970/71, for exporttraffic is expected to be almost 75 percent for export ton-kilometers,23 percent on imports, 22 percent on local traffic and 31 percent on live-stock. The average is 53 percent for the period and the annual averageis about 8 percent.
3e Steamers
Because of the discontinuance of service on the Northern reach,the Railways' steamer passenger traffic declined substantially in 1964/65.As only a small amount of freight traffic had been handled on the Northernreach, freight traffic was not.affected by the discontinuance of thisservice nearly as much as passenger traffic. Passenger traffic, as showrnin Table 9, is expected to continue to decline slightly in 1965/66 to202,000 passengers and then to increase to 212,000 in 1970/71.
Annex 1Page 3
Freight traffic on the river amounted to 127,000 tons in 196h/65 andwould rise, according to the forecast, to 181,000 tons in 1970/71, anincrease of 42 percent for the six-year period.
4. Port Sudan
The export traffic for Port Sudan is expected to increase by15 percent in 1965/66 above the low prior year. From i964/65 to 1970/71the rise in exports would be about 74 percent, equivalent to an averageannual rise of 10 percent. Imports through Port Sudan are expected todecline in 1965/66 and to rise moderately thereafter. A decline ingeneral cargo tonnage of about 35 percent would be offset by an increaseof some 50 percent in the handling of petroleum products. Total tonnagethrough Port Sudan, including both imports and exports, according to theRailwayst estimates, will increase from 2,4 million tons in 1964/65 to3.3 million tons in 1970/71, an overall increase of 38 percent.
Table 1
SUDAN RAILWAYS
Composition of the Staff as of June 30, 1965
Department Classified Staff Unclassified StaffSudanese Expatriate
Balance Sheet as at June 30. 1965 (Provisional)(Sudanese Pounds
ASSETS LIABILITIES
Current Assets Current Liabilities
Cash at Bank, in hand and in transit 1,075,132 Creditors and Accrued Charges 4,807,477Debtors 4,514,375 Provident Fund Account 1,328,139Sudan Government Current A/c 9,517,300Stores and materials 6,642,921 Provision - enhanced cost of replacement
of assets 2,273,868
Total Current Assets 21,749,728 Loans:
Fixed Assets IBRD Loan No. 202 11,480,684Kuwait Fand for Arab Economic Development 6,567,308
Rolling stock, vehicles, floating craft Sudan Government: Egyptian Government 2,375,000and plant and equipment at cost 33,983,875 Government Equipment - Temporary Loan Debt 60.000Less: Accumulated depreciation 10,227,822 Total Loans 20,482,99223,756,053
Land, buildings, permanent way, qnays and Capital and Capital Reserves:other works at cost of original assets 39,901,081
Ily ~~~~~~~~~~~~~~~~~~Capital pravided by Sudan Government 21,548,450Net Fixed Assets 63,657,134 Net Revenue Surplus 27,445,874
Capital Reserve 7,520.062
Total Capital and Capital Reserve 56,514,386
TOTAL ASSETS 85,406,862 TOTAL LIABILITIES 85,406,862
ACtua1 1961/65 Estimated 1965/66 E.tinated 1966/67 Estisated 1967/66 inti.ated 1968/69 Entikoted 1969/70 Esti.at.d 1970/71 Total1961/65 - MOM/7L C F T L C F T L C F T L C F T IC F T L C F T L C F T L C F TSI - RAIIXAYS
Notes: ./ Fxpenditure in 1964/65 is for the purhaee of 2 Hitachi I.....s lcetines, which had been INeased to u The Frogrn i-cldesreayn of 100 kce of track in 1964/65, 200 km io 1965/66 and 300 6.1.i 1966/67. The foreignthe Railways for test purponee ho 1962 wlith th. option is purehase in 1961. They have b.en financed e-change ex,penditur in 1961/65 han been financed fro. the Kuwait Food.frne toe Railways ann funds. e/ Total contract for the coosiruoti.s of berths Nos. 5 &, 9 is bSd 1,073,510. ixpendhit on1963/66 -as hOd 358,000.
h/ Further dieselination is sot yet decided ups. In cas e dle-eIi.ation ..ould coninu, additional fsdc Zoreig exc hange e=-edit-r to Ic f-naced fr-n tie KuaNit Food.wo.Id have to he included dring th. last two or three yearn of the Psrnc/ Expendit,re 1964/65 is for the purch.se of 8 shootIng diel ... sotne financd f... the Ku..ait Foodfor Arab Eco....ic le-elopoent.
Decmber 1.6, 1965
SUDAN RAILWAYS
Summary of Estimated Future Traffic - 1965/66-1970/71
Foreign Exchange Expenditure to be Financed by theProposed Loan
(Amouunts in 1,000 LSd)
Total Project1965/66 1966/67 1967/68 1965/66-1967/68
I. Railways
A. Motive Power and Rolling Stock
1. Procurement of lb mainline diesel locomotives - 910 - 910o2. Procurement of 23 shunting diesel locomotives _ 707 - 7073. Three (3) Diesel Rail Car Sets 360 - 3604. Construction of al Passenger Cars on imported
under-frames and bogies lI6 55 20 1915. Construction of 4o service cars on imported
under-frames and bogies 12 20 10 8'6. Procurement of 350 goods wagons 868 - - 8687. Procurement of 20 tank wagons - 62 - 628. Procurement of 90 livestock wagons - 217 - 2179. Procurement andinstallation of 5,500 automatic
couplers 103 131 105 33910. Procurement and installation of 2,910 sets of
roller bearings 147 h60 460 1067
Sub-Total A 1,246 2,922 595 4,763
B. Other Works and Procurements
11. Procurement and installation of machineryand eqaipment ho 327 230 597
12. Procurement of 90 lb. Rails, Sleepers andaccessories for 500 kms track of theKhartoum-Port Sudan Line 1,489 2,46 - 3.905
Sub-Total B 1,529 2,743 230 4,502
Total Railways 2 5 d
II. River Services
13. Procurerent of one self-propelled dredger - 90 - 90it. Procurement and installation of machinery
and equipom nt 19 11 11 41
Total River Services 19 101 11 131
I. Port Sudan
15. Procurement of 2 Diesel Togs 118 n9 - 23616. Procurement Of 15 barges and pontoons 50 69 70 18917. Procurement and installation of 6 cranes and
light cargo hancling equipment 88 97 160 34518. Construction of one cargo transit shed - 20 - 29
Total Port Sudan 256 304 230 790
Total Allocated Amourt 3,050 6,070 1,066 10,186
Contingencies - 398 216 614
Total Foreign Exchange to be finarced 2L°22 6,468 1,282 10,800
Note: The following foreign exchange expendituiresof the Project are not to be financed by the proposed Loan:
a) Foreign exchange component of buildings, including electricity and water supplyb) Foreign exchange component of the completion of the new berths No. 8 and No. 9 at Port Sudan.
i!ovenber mO, 1965
SUDAN RAILWAYS
Estimated Revenues, Expenses and Net Income1965/66-1970/71
A. Railways 1,622 2,326 2,468 2,499 2,520 2,542B. Steamers 177 180 183 185 187 188C. Port Sudan 150 155 177 180 182 183D. Hotels and Catering 30 31 31 31 30 30E. Other 13 14 14 14 14 14Total Depreciation Expense 1,992 2,706 2,873 2,909 2,933 2,957IV. Grand Total Operating Expenses 15,870 17,040 17,135 17,290 17,450 17,585V. Net Operating Revenues 2,775 2,666 3,149 3,917 4,5Z6 5,432
VI. Non-Operating Revenues 420 520 540 590 630 660VII. Net Revenues Before Fixed Charges 3,195 3,186 3,689 4,507 5,156 6,092
VIII. Interest on Lone-Term Debt 954 1,137 1,299 1,345 1,306 1,242
IX. Net Income 2,241 2,049 2,390 3,162 3,850 4,850
X. RatiosOperating Ratios 85 86 84 82 79 76Times Interest Earned 3.3 2.8 2.8 3.4 4.0 4.9Debt Service Coverage 2.9 2.7 2.7 3.0 3.2 3.1Return on Average Net Fixed Assets in use
at beginning and end of Year 5.1 4.9 5.2 6.2 7.2 8.8
Notes: 1. Return is calculated on average net fixed assets atbeginning and end of each year.
2. Times interest earned and debt service coverageratios do not include interest on Government equitycapital which is considered an appropriation of netincome.
November 10, 1965
SUDAN RAILWAYS
Estimated Balance Sheet Data1965/66-1970/71
(LSD 000)
As of June 301966 1967 126 196 2220 12.
A s s e t s
Current AssetsCash in Banks in hand and in transit 1,683 1,257 1,770 2,279 2,843 3,346Sudan Government Current Account 5,000 - - -5Accounts Receivable 4,260 4,550 4,870 5,140 5,250 5,460Stores and Materials 6.7so 6.025 6,31o 6.37s5 6667oTotal Current Assets 17,293 11,832 12,950 13,794 14,653 15,556
Fixed AssetsRolling Stock, Vehicles, Plant and EquipmentLand, Buildings, Permanent Way Quays and other worksGross Fixed Assets in use 74,634 82,315 91,007 93,136 93,875 94,384Less Accumulated Depreciation 12.220 14.926 17.799 20.708 23.641 26.598Net Fixed Assets in use 62,414 67,389 73,208 72,428 70,234 67,786Works and Equipment in Progress 6.741 8.46 2.053 688 458 459Total Net Fixed Assets 69,155 75,853 75,261 73,116 70,692 68,245
Total Assets 86,448 87,685 88,211 86,910 85,345 83,801
L i a b i 1 i t i e s
Current LiabilitiesAccounts Payable 1,960 1,845 1,585 1,610 1,675 1,740
Provident Fund Account 1,400 1,490 1,580 1,670 1,760 1,850Provision - Enhanced Cost of ReDlacements 2,290 2,290 2,390 2,390 2,390 2,390
Capital and Capital ReservesCapital Provided by Sudan Government 21.548 16,848 16,048 13,700 10,200 6,oooSurplus and Capital Reserves 36.269 36.965 88081 40.171 43.149 47.368Total Capital and Capital Reserves 57,817 53,813 54,129 53,871 53,349 53,368
Total Liabilities 86,448 87,685 88,211 86,910 85,345 83,801
RatiosCurrent Assets to Current Liabilities 8.8 6.4 8.2 8.6 8.8 8.9Current Assets less Stores and Materials to
Current Liabilities 5.6 3.2 4.2 4.6 4.8 5.1Debt to Equity 28/72 34/66 35/65 34/66 33/67 31/69
