world bank document...project performance audit _eport people's republic of thle congo second...

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The World Bank

FOR OFICIAL USE ONLY

Repow No. 8898

PROJECT PERFORMANCE AUDIT REPORT

PEOPLE' REPUBLI1 OFTIIE CONGO

SECOND RAILWAY PROJECT(*LOAN 1228- B)

(CREDIT 1047-COB)

JUNE 29, 1990

A

Operations Evaluation Department

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CURRENCY EQUIVALENTS

Currency Unit = CFA Franc (CFAF)

At /Appraisal (1975): US$1.00 - CFAF 225Mid-way (1980)t US$1.00 - CFAF 226At Completion (1986)s US$1.00 CFAF 323

ACRONYMS

ATC - Agence Trancongolaise des CommunicationsCFCO - Chemin deoFer Congo-OceanCOMILOG - Compagnie Miniere de l'OgooueIDA - International Development AssociationMTCA - Ministry of Transport and Civil Aviation^ED - Operations Evaluation DepartmentPCR - - Project Completion ReportPPAR - Project Performance Audit ReportSAR - Staff Appraisal ReportUNDP United Nations Development Program

FISCAL YEAR 0 THE BORROWER

January 1 - Decembet 31

Etl ~ -~ - 10F OFFML um oU OLYTO* WOL BAN

Washmtorn D.C 2043U.SA.

CWfOf 411Kmct-GmmwiOpr*tiWn EvAIaim

Jun. 29, 1990

)XEKOANDUi TO THE mECUTIv DIRECTORS AND THE PRESIDENT

SUBJECT: Project Perfonm4nce Audit Report on People'. Republic of Congo -

Second Railway Prolect (Loan 1228-COB: Credit 1047-0OB)

Attached, for informationt is a copy of a report entitled uprojectPerformance Audit Report on People's Republic of Congo - Second RailwayProject (Loain 1228-COB, Credit 1047-COD)l piepared by the OperationsEvaluation Departmnt.

Attachment C

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FOR OFMCIAL USE ONLY


PEOPLE'S REPUBLIC OF THE CONGO

SECOND RAILWAY PROJECT(LOAN 1228-COBt CREDIT 1047-COB)

TABLE OF CONTENTS

Pag. No

Basic Data Sheet ........F.valuatior.Smmrn vii

I AiGROUND ......... ..............................

Genesis of the Pro3 e c t 1Project Preparation ..... .......................... 1Project Objectives and Scopeo... 2

II. PRINCIPAL ISSUES AND RESULTS .............. . 2

Project Costs Overruns ..... 2Implementation Delayse.............................. 2Causes of Cost and time Overruns ................... 2* Unsound Detailed Engineering ..................... 2* Insufficient Physical Cont$ngency.......... ... ... 3* Not Fully Competent Managemant of Project 0

Implementation ............ 3--Traffic Shortfall.. .... 3............ ,.3... 5Unrealistic Sensitivity (Risk) Ana1ysis...........i 4Reut......................... 5

III. FOLLOW-UP BY OED 6

TABLES 7

1. Project Cost Estimates at Appraisal.......... 72. Original and Final Financing Plan for CFCO

ANNEXS ...................... 9

1. Evaluation Summar. rom PCR ...................... 92. Traffic Discussion-trom cR........................ 12

ATTAHETA C H M E N Ts.**.#.. 17

1. Coments from the OPEC Fund. un.d 172. Comments from CIDA......... . 18

MAP IBRD 21115 Second Railway Project )

| This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be discblosed without World Bank authorization.

PROJECT PERFORMANCE AUDIT _EPORT

PEOPLE'S REPUBLIC OF THlE CONGO

SECOND RAILWAY PROJECT(LOAN 1228-COB)(CREDIT 1047-COB)

PREFACE

1. This is the Project Performance Audit Report (PPAR) for theSecond Railway Project, involving a Bank loan of US$38 million approvedon March 23, 1976, supplemented, because of considerable cost overruns,by an IDA credit of US$30 million approved on June 19, 1980. Theobjective of the project was to double the capacity of ATC (AgenceTranscongolaise des Communications) in line with freight trafficforecasts essentially through realignment of an 88 km railway section.The loan was fully disbursed and closed on June 30, 1981, one year behindschedule. The Credit was closed on December 31, 1985, two and a halfyears behind schedule, and US$.55 million was cancelled.

2. The PPAR is based on the Project Completion Report (PCR)prepared by the Africa Regional Office and issued in 19891 , the StaffAppraisal Report (SAR), the President's Reports, the loan, credit andguarantee documents, the transcripts of the Executive Directors'meetings at which the project was considered, a study of the Bank'sfiles, and diAcussious with Bank stafif. An OED mission visited the Congoin November 1989, and discussed the effectiveness of the Bank'sassistance with the Ministry of Planning, Finance and Economics, theMinistry of Transport and Civil Aviation, and ATC. On its way back to'Washington, the mission discussed the project with the European EconomicCommunity (Brussels), the Ministry of Cooperation and the Caisse Centrale(Paris), cofinanciers of the project.

3. The PCR provides a good and detailed account of -the projectexperience and the reader is strongly encouraged to consult it for a fullappreciation of what took place. The Evaluation Summary of the PCR isreproduced as Annex 1 to this report. This audit supplements the PCR.It .onsiders the principal reasons why the project oat-ome was sodisappointing and offers recommendations for consideration and possiblefollow-up by Bank management. These recommendations are intended to helpensure that some of the disappointing features and experiences of theCongo Second Railway Project will not recur in future Bank financedprojects, in the Congo or elsewhere.

4. Following standard OED procedures, copies of the draft PPAR weresent to the Government, the project executing agency and thecofinanciers. Comments were received from the OPEC Fund and they areattached to this report. v

1/ Project Completion Report, People's Republic of the Congo - SecondRailway Project (Loan 1228-COB and Credit 1047-COB), Report No. 8117,October 25, 1989.

PEOPLE'S REPUBLIC OF THE CONOO

SEQND RAILWYMEOJECLOAN 1228-COB,

SPECIAL ACTION CREDIT 45-COB. AND CREDIT 1047-COBPROJECT PERFORMAE AuDIT REPORT

BASIC DATA SI : LOAN 1228-COB

KEY PRWECT DATAOriginal Actual or

Item Expectation Current Estimate

Total Project Cost (USS milli/on)_ 233.7 399.0Cost Over/Underrun () -- 7i;

Financ!ng (USS million)Government and Co-donors 195.7 326.0 /bIBRD Loan Amunt 38.0 38.0

Disbursed 38.0Cancelled 0Repaid (09/30/88) -- 7.7Outstanding - 30.3

Cmpletion of Physical Components (date) 12/15/79 06/85Proportion Actually Completed by Above Date (M) 6S 100Economic Rate of Retuni (M) 23 0

CUXULATI ESTIM AND ACTUAL, DISEURMNS(USS Million)

FTY? FY78 F79 FY80 FY8

Appraisal Estiate 20.1 33.1 38.0 -- --

Actual /c 7.1 14.9 31.2 37.4 38.0Actual or of Estiate 35 45 82 98 100

OTHlER ROECT DATActual or

item Original Amended Current Estimate

First Ibntlon in Files 03/13/73 --

Negotiations 04/75 -- 06/75, 07/75borod Appovl of the Loan 10/75 03/23/76Lan Agremnt Date -- 0- 04n2/76Efectiveness Date 08/76 11/22176Closing Date 12/31/80 -- 12/31/81Borroer Agence Transcowgolatse des CoaunieationsExecuting Agency Agence Transcongolaise des ComnicationsFiscal Year of the Borrower Janary 01 -- December 31Follow-on Project None

a lNet of Taxesb As no record is available as to the coats of the ports and river services components, these figures

are considerably understated.Ic Final disbursement mae Jme 9, 1981.

- ifs

BASIC DATA SHEE: SPECIAL ACTION CREDIT 45-C08

KEY PROJECD DATAOriginal Actual or

Item Expectation Current Estimate

Total Prolect Cost (US$ million) N.A. N.A.Coat Over/Underrun (%) 'WFinancing (US$ million) --

Government - ,

EEC Special Action Credit Amount 5.0 5.0Disbursed -- 5.0Cancelled -- 0.0Repaid -- 0.0Outstanding -- 5.0

Completion of Physical Components (date) 12/31/81 06f85Proportion Actually Completed by Above Date (%) -- 100Economic Rate of Return (%) 23 N.A.

CUSDLAT5VE ESTIMAIED AND ACTUAL DISBURSEMENTS(USS million)

FY81 FY82 - FMY FY8b

Actual /a 2.2 4.0 4.9 5.0

OTHR PROJECT DATAActual or

item Original Amended Current Estimate

First Mention in Files 07/77 - -- --

Negotiations 12/79 _ 9- 12/79Board Approval of the Credit 01/80 -- 01117/80Credit Agreement Date -- '-- 04n,80

Effectiveness Date -- -- 11/t8/80Closing Date 06/30/82 12/31/82 0 06/30/83Borrower The People's Republic of the CongoExecuting Apency Agence Transcongolalse des CowmunicattonsFiscal Year of the Borrower -- Janvary 01 - December 31Follow-on Project M Or'e

/a Final disbursement made August 1, 1983

BASIC DATA SHEEIT: CREDIT 1047-COB

KEY PROJECT DATAOrigital Actual or

Item Expectation Cunrent Estimate

Total Project Cost (USS million) 357.2 399.0Cost Over/Underrun (W) 12Financing (USS million)Government + Co-donors 326.0

- USS73.0 N Loan and CreditsIDA Credit Amount 30.0 30.0

Disbursed -- 29.4SCancelled -- 0.55Repaid -°

Outstanding -- 29.45-Completion of Physical Components (date) 12/31/82 06/85

Proportion Actually Completed by Above Date (%) 95 lDO

toonomic Rate of Retulm Q) 13 (Regional) 012 (,ational) 0

L .g5M JiRESTIMATED AND ACTUAL DISEHEWEWIS(us$ million)

TYMO FY82. FY82 FY83 FY84 FVY85 ESW FY87

Appraisal Estimate 13.0 26.0 30.0 Actual 0.0 8.9 18.7 21.9 26.2 28.2 29.2 29.4Actual or % of Estimste 0 34 62 73 87 94 97 98

OTHER PROJECT DATAActual or

Item Original Amended Curennt EeAtmete

Ftrst Mention in Files 07/79 -- --

Negotiations 12/79 -- 0423-28/80Board Approval of the Credit 01/80 *_ 0419/680Credit Agreement Date - 07/15/80Effectlveness Date -Closing D4te 06/30/83 06/30/85 12131/8SBorrower The People's Republic oE tbe Cmn"oExecuttng Agency Apence Transcongola1se des CmtticationsFiscal Year of the Borrower Ja*uaRy 01 -- December 31Follow-on Project N@te

/a; Net of taxs.A USS54S,316.63 was cancelled on uncub 19, 1987.

MISSION PATUR- WAN AND CREDITS

No. of missionitem Month/Year Persons Composition Staff Weeks Date of Report

Preparation 05/73 5 2R, 2E, F 3.0 08/27/73Preparation Follow-up 05f74 3 2R, F 4.0 06/17/74

Appraisal 11/74 7 2R, C, F, 2E, T 12.0 12/05/74

Co-donors' Conferenceand Post-Negotiattonsa 07/7S 4 , E, F L 2.0 071/20175

Forestry 09/75 2 E, FE 2.0 10/20/75

Co-donors' Conference 12/75 3 P, E, F 1.5 12/23/75

Discus8ions 02/76 2 P, F 1.0 02/13/76

Supervision- 1 06/76 1 E 2.0 07119/76Supervision 2 11/76 3 R, E, F 6.0 12t22176

SupervisSon 3---. 04/7' 3 P, R 1. 05/19/77

Co-donoras Conference 06177 2 R F 1.0 06/16/77Co-donors' Conference 07/77 2 R, R, 1.0 07/27/77

11130/7Supesrvisto 4 10/77 3 R , F 6.0

Co-donors' Conference 11/77 3 P, R, F 2.0 12/05/77

Supervision .5 04/78 4 2R, E, F 8.0 05/097806134/76

Supervision 609/76 2. R,F 5.0 U09/2/78

Spevlston 7 10/78 J R- 1.5 1109/78Supervision 8 11/78 2 R, F 2 12/06/78Supervision 9 04/79 5 2R, E, 2F 10 04/13/79Superviion 10 09179 4 R, 5, 2P 12 10/31/79Supervision 11 10/79 1 se 2 10/02179Sup rvision 12 10/79 1 SE 0.s 12/05/79Supervision 13 01180 5 R, E, 2F, 5E 6 02/28/80Supervision 14 04/80 1 SE 1 04/23/80

Co-donors' Conference 04/80 2 R, F -05/05180

Supervision 15 05/80 2 R, F 1 06/03/80Superviion 16 07180 3 P, 2F 3 N. A.Supervision 17 ll/80 2 K, F 4 01/09/81Superviiton 18 01/81 2 R, F 1 01/27/Si

Supervision N9 6581 2 R, F S06/5/6106/13/Si

., ~~ .. - -/r .

'I~~~~~~~~~~~~~~~~~~V

- DAISS TDA 7M0 AM M MD O (can't)

No. -f MdssimlIu Paotb/tToar Perfia, Couottt.n Staiff IWk Date of Rpent

CO-Doom I4eotIg 06181 1 F 0.5 06/1761

Suptotenid 20 10/61 2 R, F I4 1201/

Supervton 21 04182 2 R F 3 06/0/32

SupsUtOw 22 10/62 3 R, 27 6 1113/2

Up39vouon 23 02/83 1 F 1 02/16/63Super9tsltU 24 06/83 1 SE 2 05/09/

Co-dors, Confera:e 04/83 1 Cs 1 OS/21/63

Supewvllon 25 06/83 3 R, E, I 5 06126/63

SupervIstn 26 10/83 1 F 1.3 12/01/83qup"eto 27 01/64 1 F 0.5 03/08/84

Supewl1sen 28 01/S4 1 SE 1 03/13/64Supvliom 29 06/84 3 CZ, ME, r 4.5 07/l1fS4

CO0Anoal Confureac 07tl4 1 F 0.5 07/20/84

Supuwle 30 09/64 1 7 1 1/1/64Seoision 31 03185 2 ME, F 2 01/2658S

Supuvis1o 32 taISs 2 HE F 2 21/20

S 0pervtao 33 06f85 2 tE, F 2 t07/0286Supmwv"uan 34 07/86 1 R 1.5 0/6/66Sup.vvtain 35 04/66 2 CZ, E 1 032I

/a C * Coaaltmt; I - lEo.mst; F - Fl 441 hialy1t; R - .R lmesrI? * e. v1s1m fif T * Tratale spesllSt; L * tiq 1E Forestry hp312PCl - Civfl lsenp SE - saila Ew4t lert H - _u1bml EMustser.

/ nmtlU to Paris to nsolve twml problem.anI. availble

n*n z s a n n is a a a aa a a yM

i_t_la .1 10.2 18.8 8. - - - . - - - - 134I.0

4hg**m1a 11.8 -. ?9.9 2.3 _ _ . _ _ * _ _ .NaestIaUws - - _ 5.4 .8 * _ _ _ * . _ * _ _ _ * 9.

8uw.viafi. _ .8 . - 4.8 -A.$ 68.4 74.1 5.1 .5 8.V 9.1 .4 - .0 - M

13. - .1 o5 . .1 .1 .1 .8 o .0 . - .° - *- .

TOTAL 11. 10.$ 190.1 10.5 69.8 48.8 9.83 74.1 f.4 .8 6.? 9.3 .4 .0 .0 .0 .0 8VA

22~~~Ap i c,sos.. P,mw,ie . - . - . . _ _ 8.8 . . _ _ _ _ . 8 .6

;"l - - - - - - - - 8?.0 - - - - - - - - .

_|"i - - - - * .8 - 14.5 - - - - - - - - 4".8

i ; ~- - - - - - . - .1 S2.2 33.1 "13. Ol.? 1.7 28.9 6.2 7.1 14.1

11h9w 1- - - - - 1.8 - .0 - .0 - 1.9

-IAL 1 .0 .0 .0 .0 .0 . .0 ..0 2W.0 U.3 10.3 83.$ 8.? 18.7 2.9 8 7.1 3.4



SECOND RAILWAY PROJECT(LOAN 1228-COB)

(CREDIT 1047-COB)

EVALUATION SUMMARY

Proiec: Objectives

1. The project covered the ATC (Agence Transcongolaise deCommunication) investment plan for 1974-78 with an estimated total cost ofUS$234 million (Table 1). The main and critical component of the plan wasthe realignment of an 88 km sor-tion, including a 4.6 km tunnel, of the 510km rail link between Brazaville and Pointe Noire (see Map), at an estimatedcost of US$149 million (paras 1 to 5). The objectives of the realignmentwere to (i) avoid major traffic interruptions threatened by possiblecollapse of the Bamba tunnel (see Map, inset), Iii) double the linecapacity to enable the railway to handle the anticipated doubling rf thetraffic, and (iii) reduce rail operating costs (para 6). The realignmentcomponent was to be financed from ten sources (Table 2) and is the subjectof this audit (para 7).

Proiect glementat ion

2. - During implementation costs went up by 168£ (para 8) andcompletion was delayed by five and a half years resulting in a time overrunof 157% (para 9).

3. Three main factors contributed to this disappointing result.First, the detailed engineering was unsound as it was based on inadequatesoil investigation, topographic work and geological study (para 11 and 13).Also, the Bank's financing of the detailed engineering was insufficient(para 12).

4. Second, the physical contingency included in the cost estimated atappraisal was insufficient (paras 14 and 15). Third, ATC's management ofthe project's implementation was not fully competent (pars 16).

5. In addition to the considerable cost and time overruns, theexpected doubling of the traffic between 1975 and 1985 did not take place.Traffic remained flat. The appraisal overestimation of the traffic for1989 is about 140% and for 1995 probably some 2002. The principal reasonsfor this disappointing development were that the anticipated growth of theCongolese economy that would have generated additional traffic and theanticipated increase in demand for African timber, did not materialize(paras 18 to 20).

Notes The PCR provides a good and detailed account of the projectexperience and the reader is strongly encouraged to consult it for afull appreciation of what took place. The Evaluation Summary of thePCR is reproduced as Annex 1 to this report.

-vii _

6. The disappointing development of project cost, completion delayand traffic suggest that the sensitivity analysis in the appraisal reportwas clearly unrealistic (paras 21 to 26). Conversely, the presumedimminent collapse of the Bamba tunnel (pars 1 above) has not taken placethus far, two decades later (pura 27).

Results and Sustainabilitv

7. Given the cost and time overruns and the traffic shortfall theeconomic rate of return of the project is zero or negative and the projectis not considered sustainable (para 28).

Follow-up by OD

8. The #Sdit touches on a number of issues related to thedisappointing outcome of the project. They include, inter alias

- insufficient financing of the detailed engineering (para 12);- inadequate assessment of the detailed engineering (para 13);- insufficient physical contingency allowance (para 14);- unrealistic sensitivity (risk) analysis (paras 21-26);

inadequate assessment of the possible failure of an existingstructure (pars 27);

° insufficient initial project financing and necessity. to secureadditional financing later on to complete the project (para 8).,

9. The audit feels that these are important issues which warrant afurther review by OED based on a broader sample of projects (PCRs andPPARs). The purpose of this review would be to formulate recommendationsintended to help ensure that these issues will not recur in future Ban*. financed projects.

.;



(CREDIT 1047-COB)


I. BACKGROUND

Genesis of the Project

1. The Agence Transcongolaise des Communications (ATC) was formed in1969. ATC, a Congo national agency under the Ministry of Transport andCivil Aviation (MTCA) owns and operates: (a) the Atlantic Ocean Port ofPointe Noire; (b) a railway Chemin de Fer Congo-Ocean (CFCO), from PointeNoire to Brazzaville (510 km); and (c) the river ports and services on theCongo-Oubangui-Sangha rivers (see Map).

2. The CFCO line was built between 1921 and 1934 with aninfrastructure and track standards designed for light traffic. Since 1955traffic had increased considerably (manganese ore in particular), over the200 km between the Junction of the Compagnie Miniere de l'Ogooue (COMILOG)railway at Mont Bello and Pointe Noire, and further traffic increases wereforeseen. This increased traffic was much beyond that envisaged when theline was constructed.

Proliect Preparation

3. Against this background the United Nations Development Programme(UNDP), in the early seventies, financed the services of consultants toptepare a feasibility study which found that a staged improvement of theexisting rail alignment was impractical and proposed the realignment of asection. The Bank Group subsequently, under the First Railway Project,financed the detailed engineering of this realignment by the sameconsultants.

4. Project appraisal took place in November 1974. The projectconsisted of the 1974-78 Investment Plan of ATC. The Bank's financing wasconsidered for the realignment of the CFCO railway section between Holleand Loubomo (88 km) Six months after appraisal in May 1975, the bids forthe realignment works came in. The lowest bid turned out to be about 50%higher than the appraisal mission's cost estimate and required additionalfinancing.

5. Negotiations with the Government took place the following month,in June 1975. They were followed, in July and December, by donoreonferences which, inter alia, addressed and resolved the financing plan.Subsequently, a Bank loan of US$38 million to ATC was approved in March1976 and signed the next month. The loan did not become effectiye untilNovember 1976 because of the time required to coordinate legal anddisbursement aspects caused by the involvement of a large number of co-donors.

-2-

Proiect Obiectives and Scope

6. The project covered the ATC investment plan for 1974-78 with anestimated total cost of US$234 million (Table 1). The main and criticalcomponent of the plan was the CFCO realignment - accounting for US$149million - with the objectives to (i) avoid major traffic interruptions-threatened by possible failure of the Bamba tunnel (see Map, inset), (ii)double the line capacity to enable the railwaT to handle the anticipateddoubling of the traffic, and (iii) reduce rail operating costs. Therealignment component was to be financed from ten sources (Table 2).

7. The audit - as the PCR - focusses on the CFCO realignmentcomponent. The Bank did not participate in the financing of the PointeNoire Port and the river ports, did not supervise these components, and hasno record of their execution. For some other and relatively minor items tobe financed by the Bank, see text of Table 2. In the following, referencesto the project are references to the CFCO realignment component.

II. PRINCIPAL ISSUES AND RESULTS

Project Costs Overruns

8. The 88 km CFCO realignment, in addition to rails and sleepers,signalling and telecommunications equipment, consisted mainly of civilengineering works which ultimately included 17 million n3 earth works, 19bridges, three tunnels - one of which the so-called" long tunnel" (4.6 km)- and some 90 km of track. The total costs, originally (in 1976) estimatedat US$149 million, turned out to be US$399 million at completion, implyinga cost overrun of US$250 million or 168%. Additional financing, includingadditional Bank financing (a US$30 million IDA Credit approved in mid-1980), was arranged to cover the increase in costs (Table 2).

Implementation Delays

9. At the time of appraisal the completion of the realignment hadbeen expected by the end of 1979. Actual completion was in mid-1985, fiveand a half years later, implying a time overrun of 1571.

10. A number of factors contributed to the cost increase andimplementation delay of the project. The most important and relevantcauses are identified and discussed in the following paragraphs.

Causes of Cost and Time Overruns.

11. Unsound Detailed Enatneerina. The first contributing factor tothe considerable cost and time overrun was the detailed engineering -accepted by the Bank (PCR, para 9.04) - which was 'based on inadequatesoils investigation, topographic work and geological study' (PCR, paras3.01 and 5.02). As a result, the volume of work to be done wasconsiderably underestimated while many of the soil and tunnel problems werenot foreseen adding further to increased costs and delays. Appropriatefield data could have resulted iz a soundly based detailed engineering andhence more accurate cost estimates and a more realistic implementationschedule.

-3-

12. The PCR, in this context, observes athat the funds allocated bythe Bank for detailed engineering under the First Railway Project werewoefully underestimated" and suggests that a ten times larger allocationwould not have been unreasonable (PCR, para 5.05).

13. The audit agrees that insufficient Bank funding of the detailedengineering contributed directly to the inadequate quality. But morepertinently, however, is that the Bank, in its preparation and appraisal ofthe project, accepted the detailed engineering as adequate. This suggeststhat the Bank's relevant review procedure may need to be changed to reducethe possibility of a recurrence of the problem in future projects.

14. Insufficient Physical Cont'ngency. A second factor was theallowance of insufficient physical contingencies at appraisal: 101 forearth works and 15% for tunnels (PCR, para 5.03 and SAR, Table 9B).

15. As to the tunnel contingency, the audit may add here that at thetime of appraisal of the project the Bank had specific guidelinesl/whichsuggested a considerably larger contingency allowance. One may speculatea to why these guidelines were not applied in this case. One explanationmay be that because of the Bank's compartmentalisation relevant guidelinesprepared and applied by one department (Public Utilities) are notnecessarily known or applied by another (Transportation).

16. Not Fully Competent Management of Proiect Implementation. A thirdfactor was that "ATC, supported by its expatriate technical assistants andadvisors, was not fully competent to manage civil works of the scope andcomplexity of the realignment' (PCR, para 6.07).

17. In addition, the audit feels that operating a railway and at thesame time implementing a large project such as the realignment put tooheavy a burden on ATC's managerial capacity.

Traffic Shortfall

18. At appraisal (1975) traffic was expected to double, within tenyears, to 7.5 million ton. Thereafter - after the loss of the 2.6 millionton COMILOG (manganese) traffic to the Transgabonese Railway (SAR, para5.05) - traffic was expected to reach a level of 5.5 million ton by 1990and 6.2 million ton by 1995. This scenario proved to be too optimistic:

1I Central Projects Staff, Public Utilities Department, Guidelines forEstimatine Costs of Tunnel Construction, January 17, 1974, para 6.

-4-

CFCO Rail Traffic. 1975 1 1995

Actual Appraisal AppraisalYear Estimate Overestimation

(..... million ton....)1975 3.8 3.8 02

1985 3.8 7.5 97Z

1989 2.3a/ - 13921990 -5.5b

1995 2.0cl 6.2b/ 2102 cJ

Sources2 SAR, PCR and ATC

a/ Includes 1 million ton COMILOG traffic|7 Excludes any COM4ILOG trafficc/ Present (1990) estimate by the audit; see next paragraph

19. By 1985 the appraisal overestimation reached about 1002 and by1989 about 1402. The prospects for 1995 do not look better. Given thatthe actual traffle of 2.3 million ton in 1989 included one million ton ofCONILOG traffic and the audit's feeling that by 1995 all COMILOG trafficwill probably have been transferred from the CFCO to the TransgaboneseRailway, leads the audit to expect a total railway traffic on the CFCO by1995 of at maost two minlion ton. And this would imply an appraisaloverestimation of about 200X. Also, this traffic volume of two million tonin 1995 would be about half the actual volume reachad twenty years earlierwhen the project set out to double the railway's capacity.

20. Looking back at the traffic experience over the last 15 years, theprincipal conclusions are that the anticipated growth of the Congoleseeconomy, which would have generated additional traffic, and the anticipatedIncrease in demand for African timber, did not materialize. Annex 2, takenfrom the PCR, provides a more detailed discussion of the project's trafficaspects. Tho audit's judgment as tq the appraisal's traffic forecast isthat the forecast at the time of afuraisal was no doubt optimistic anduncertain but not entirely unreasonable.

Unrealistic Sensitivity (Risk) Analysis

21. Given the considerable cost and time overruns, and the substantialtraffic forecast overestimation, it Is of Interest to see how ex ante -these aspects were treated in the sensitivity analysis of the AppraisalReport.

22. Cost Overrun. In the Staff Appraisal Report of the project "asensitivity analysis was carried out to assess the effect of potentialchanges in assumptions for critical benefit items." However, 'changes ininvestment costs were not analyzed, as bids for the main civil workscontract have already been received and evaluated. n/

2I Staff Appraisal Report, page 20, para 5.13.

-5-

23. The audit is puzzled by this conclusion. First, receipt andevaluation of bids do not ensure the absence of future cost overruns,especially when (as in this case) bids are based on unit costs andestimated quantities, as for example, for earthworks. Second, the lowestbid was 502 over the appraisal mission's original cost estimate (para 4)thus providing clear evidence of a substantial element of uncertainty inthe cost estimate of the project. The audit feels that leaving the costelement out of the sensitivity analysis was an Important shortcoming of theSAR.

24. Time Overrun. Similarly, the possibility of projectimplementation delays was not considered in the SAR's sensitivity analysis.

25. Traffic Forecasts. The sensitivity analysis did consider thisaspect. It assumed timber traffic to be somewhat lower reducing theoverall traffic forecast by 0.8 million ton. But this lower forecast stilloverestimated the actual traffic development by 75Z in 1985, 1002 in 1989,and probably some 170S (see para 19) by 1995.

26. In sum, the sensitivity analysis did not take into account two ofthe principal factors (cost and time overruns) contributing to theproject's disappointing outcome and underestimated the possible variance ofthe third (traffic forecasts) by a wide margin. Had the project's risksbeen identified, the project might have been deferred, or alternative lowercost solutions explored.

27. Conversely, the presumed possible failure of the Bamba tunnel, amajor argument in the late sixties and early seventies to buttress the casefor realignment (para 6), has not taken place thus far, two decades later.The audit did not find any evidence in the SAR, the project files, orelsewhere, that a thorough assessment of the Bamba tunnel was undertakenduring project preparation. Nor do the files contain information on theprobability of the presumed tunnel failure in quantitative terms or thelikely cost involved to prevent it.

Results

28. The physical objective of the project, to double the railway'sline capacity, was achieved. But at what cost and to what purpose.Project costs increased by 1682 and project implementation time by 1572. Inaddition, traffic expected to double in a decade, remained the same.Present traffic is at about 60% of the 1975 level and likely to declinewithin the next five years to about half the 1975 level, implying a linecapacity utilization of 25Z. As a result of these factors the economicrate of return of the project is zero or negative and the project is notconsidered sustainable.

III. FOLLOW-UP BY OED

29. The audit touches on a number of issues related to thedisappointing outcome of the project. They include, inter aliat

- insufficient financing of the detailed engineering (para 12);- inadequate assessment of the detailed engineering (para 13);- insufficient physical contingency allowance (para 14);- unrealistic sensitivity (risk) analysis (paras 21-26);- inadequate assessment of the possible failure of an existing

structure (para 27);- insufficient initial project financing and necessity to secure

additional financing later on to complete the project (para 8).

30. The audit feels that these are important issues which warrant afurther review by OED based on a broader sample of projects (PCRs andPPARs). The purpose of this review would be to formulate recommendationsintended to help ensure that these issues will not recur in future Bank-financed projects.

-7

P1&OJECT PERFORMANCE AUDIT REPORT



(CREDIT 1047-COB)

Table 1

Project Cost Estimats at A#praisal

Loal F Total oa Poradau Total 2 of Total

AUC ladquater. 0.46 0.77 1.23 2.0S 3.42 S.47 2

points IMoire Fort 1.46 0.87 2.33 6.49 3.86 10.35 5

RUlr Portsaid Services 0.93 2.63 3.56 4.13 11.69 15.82 6

cww Gaeral 3.23 4.49 7.72 14.35 19.96 34.31 15

iotal 6.08 8.76 14.84 27.02 38.93 6S.95 25

11ysicalCogtingscles 0.46 0.33 0.79 2.04 1.47 3.51 2

coutiugeli 1.74 ) 1.74 3.48 7.74 7.73 1S.47 6

Total 8.28 10.83 ,19.11 36.80 48.13 84.93 36

CFCO ReIlipmt 7.83 15.99 23.82 34.81 71.07 105.88 45

PhysicalCoutiugencit. 0.79 1.52 2.31 3.50 6.77 10.27 5

PriceContingencies 2.51) 4.84 7.35 11.18 21.49 32.67 14

Total 1t.13 22.35 33.48 49.49 99.33 148.82 64

CLAMD OTAL 19.41 33.16 52.59 86.29 147.46 233.75 100

a1 ato of exchsw: US$l CIA 225.

S - ce: Staff Appraisal Report (SAR), March 1976.




(CREDIT 1047:COB)

Table 2

Original and Final Financing Plan for CFCO Realignment(US$ Million)

FinalUS$

Contributors Original FCFA Equivalent

Bank and IDA 31.0 16.8 61.0Saudi Fund for Developent (SFD) 20.0 13.8 51.0Congo Govenment 17.8 24.9 92.0,Ponds Buropden de D6veloppenent (FED) 17.3 11.0 41.0 Kuait Fund for Econodmc Development (lOF) 13.6 10.8 40.0Canadian International Development Agecy (CIDA) 12.7 4.5 16.0African Devlopment Bank (ADS) " 12.4 5.0 18.0Ponds d'Aide et de Cooperation (FAC) I1.1 4.8 17.0Arab Bank for Economic Development In Africa (BADEA) 10.0 4.2 15.0Caisee Centrale de Cooperation Economique (COCC) 4.4 2.1 7.0Abu abi Development Bank (ADDI) -- 4.0 14.3Organization of Petroleu Exporting Countries (OPEC) -- 2.9) 10.7Italy -- 2.6 9.0Coamercial tanks (Congo) -- .20 0 ..O

Total 150.3 107.4 399.0

The foreign Cants for the other Items of the 1974-78 Investment Plan were, covered byadditional contributions from ADI, CCCE, FAC, FED, Government, and the Bank, augmentedby the participation of Coap;gnie Frangaise de Crddit pour l'Exportation (COFACE),Compagnie MlHinre de l'Ogoue (CMLOG), European Investment Bank (EIB), Congo banks,and AIC. Ihe Bank loan of US$38.0 M onsisted of US$31.0 M towards the CFCO realign-ment, US$3.8 M for ATC training facilities and technical assistance, USS0.2 M .forretroactive financing of rail car bogies.and radio equipment for the CFC, and US$3.0 Mfor capitalization of interest an the loan.

La According to PED, it originally contributed 34,865 milllon'ECDs, together with aneaceptional contribution of 5 million ECUs.

Su tces Staff Appraisal Report and-IC's Cmpletion Report of September 1987.AFn=, november 988

Note:, This table is taken from the PCR, page 35

-9-

Annex 1Page 1

EVALUATION SUMMARYFROM THE

PROJECT COMPLETION REPORT

Objective

1. The objective of the project was to safeguard the continuing func-tioning of the existing ATC (Agence Transcongolaise des Communicattons) systemby Improving its operations and providing Increased capacity. The project, asappraised, consisted of ATC's 1974-78 Investment Plan, the principal item ofwhich was the realignment of the most critical 88-km-long railway section overa difficult mountain range. The Bank lent US$35 M, and most of the remainderwas financed by several other co-donors. The civil works contract was awardedIn 1975 to a European consortium after International Competitive Bidding(paras 1.05, 2.04, 2.06, 3.01, and-3.02).

Implementation Experience

2. Implementation of the project ran into numerous and serious diffi-culties. Shortly after the contractor had mobilized, an armed commando groupattacked the site camp in January 1977, kidnapped the contractor's localmanager and two other staff, killed a number of workers, took hostages, anddestroyed most of the construction equipment. Cost of the renegotiatedcontract jumped substantially, and considerable time was lost before thecontractor resumed work (paras 3.03 and 3.04). -

3. The project continually suffered from inadequate funding, and theGovernment repeatedly requested the co-donors and the Bank for additionalfinanceing. Furthermore, payments to the consortium were so slow that, on oneoccasion, it faced bankruptcy. The Bank made two supplementary creditsavailable, totalling US$35 M, but not before seriously considering withdrawingfrom the project. Berause of many problems encountered in building therealignment, Including poor soil conditions; affecting the stability-of cuts,-and enormous difficulties in piercing the Long Tunnel, delays mounted andcosts soared (paras 3.12 and 3.23-3.27).

4. The total cost of the civil works needed for the realignment wasestimated at appraisal at CFAP 27.6 billion or US$123 M. The final cost ofthe civil works contract was CFP 85.4 billion or US$315 M, an overrun of 156Zin dollr terms. The total cost of the CFCO realignment, including track,signalling, telecommunications, stations and supervision, was estimated atappraisal at CFAF 33.5 billion or US$148.8 M; the final cost wasCYA" 108.1 billion or US$399 M, an overrun of 1682 in dollar terms(para 3.31).

-10- Annex 1Page 2

5. Meanwhile, ATC faced a critical financial situation. Despite this,however, the Government insisted on committing it to large contracts forpurchase of rolling stock and equipment which ATC neither needed nor wanted.In addition, the Government held up approval of tariff increases which wouldhave eased ATC's financial crisis. Finally, after the Bank suspended thesupplementary credit, the Government revoked the equipment order and putthrough tariff increases (paras 3.44-3.47).

6. ATC's profitability and financial situation are expected to progres-sively improve over the next several years because of various measures thathave been taken under the Structural Adjustment Program started since end 1986(para 4.26).

7. With hindsight, it appears that the project suffered from inadequatepreparation and planning, cumbersome and inefficient coordination among thenumerous co-donors (14 international agencies and a number of local banks),and incompetent management and supervision. Given the mountainous and diffi-cult terrain, and the length of tunnels and depth of cuts, the topographic andgeological surveys, and soils investigations were far short of that needed asa basis for detailed engineering. Better field data would have resulted inmore soundly based detailed engineering, more accurate cost estimates, and amore realistic time schedule (paras 5.01-5.03).

8. The Government frequently interfered in ATC's day-to-day affairs andfailed to meet its financial obligations to ATC, although the Congo's economicwoes sometimes made it difficult for the Government to comply fully (pa-ra 6.02). Furthermore, while the Government made strenuous efforts to seekfinancing for the realignment, it seemed reluctant to take action on matterswhich would have enabled ATC to remain financially viable. It should haveexpedited the award of timber concessions to develop traffic for the CFCOsystem and approved badly needed tariff increases, but it only did so afterconsiderable pressure from the Bank (para 6.11).

9. The Bank's performance varied widely. It did not ensure adequateproject preparation under the First Railway Project, which compromised theappraisal of the Second Railway Project. A higher, and more realistic projectcost estimate, and the corresponding reduction in the economic rate of returnfor the realignment might well have led the Bank to abstain from financing theproject. The decision to allow ATC to retain responsibility for day-to-daymanagement of the work was ill-advised. While the Bank performed its coordin-ating role as well as it could under the circumstances, this role wasapparently not accepted by all co-donors. The Bank's supervision of theproject was frequent and thorough (paras 8.01-8.06).

Results

10. Because of the unanticipated high cost of the project and thefailure of freight traffic to expand much beyond that previously carried onthe old alignment, the rate of return of the project is, at best, zero(para 7.01').

Annex 14 11-,.

Sutinabiiitz

11. Given the zero rate of return and the ongoing and expected diversionof a substantial -volume of manganese traffic from the ATC system to theTransgabonaise Railway (a possibility already fQreseen at the time of apprais-al, as mentioned in paras 2.01 and 2.05), the project is not sustalnable.

Lessons Learned

12. A number of Important lessons must be learned from the SecondRailway Project: (a) only experienced owners should be placed in charge of amajor civil engineering job Involving high risk civil works; (b) feasibilitystudies, design and supervision should be entrusted to experienced consultantswho are also given the full responsibility for the day-to-day direction of thework; (c) final design should be based on thorough topographic and geologicalstudies and soils investigations; (d) if co-financing is involved, fundsshould be pooled, tied procurement should be avoided, and the role of theagency (in this case, the Bank) responsible for overall donor coordinationshould be clearly defined and agreed upon by all co-donors; and (e) on anyproject involving major and complex civil engineering works in which manyco-donors are participating, the Bank should insist on the appointment of aproject coordinator, and if the Bank is selected, it should place a seniortechnical representative on site for the duration of the works (para 9.07).

13. 'Because project implementation spanned a decade, several of theabove lessons, such as the importance of avoiding tied procuremets havealready been applied in many other similar projects (para 9.08).

-12-

Annex 2Page 1

TRAFFIC DISCUSSION

FROM THE

PROJECT COMPLETION REPORT

Traffic

4.01 The major coumodities handled by ATC are timber, most of which ishandled successively by each of ATC's modal departments; manganese ore trazs-ported'over 200 kilometers of the CFCO line for export shipment at PointeNoixe; and general cargo.

Freight

4.02 The following table shows appraisal projections and actuals of ATC'sfreight traffic broken down by department and major commodities for the keyyears 1976 (project start), 1979 (appraisal-assumed compl*tion date). and 1985(actual completion date). Details are in Table 4-1(a).

-13 -nnex 2Pase 2

Tons 000

------ 1976 ------ ------- 1979 … 1---- ------ 1985 ---..Item Avoralsal Actual Aonrasal Actual Arais$l Actual

River Transport

General Cargo 60 S0 81 48 80 98*Timber 137 148 582 124 1,245 170Total 197 198 663 172 1,325 268

River Ports

General Cargo 27S 190 3X0 110 407 227Timber 233 310 780 367 1,750 300Total 508 S00 1,120 477 2,157 527

CPO

General Cargo 1,372 1,209 1,S60 703 2,760 712Timber 500 448 1,130 483 2,100 498Itanganese 2,220 2,252 2,600 2,288 2,600 2,362total 4,092 3,909 5,290 3,474 7,460 3,572

Port of Pointe Notre

General Cargo 780 1,026 1,065 958 1,250 1,277TUiber 45S 361 1,130 400 2,100 452Manpuese 2,250 2,151 2,600 2,280 2,600 2,223Total 3,48S 3,538 4,795 3,638 5,950 3,952

During appraisal of Credit 1047-COB, timber traffic projections were reviseddownwards to 360,000 tons for the river transport link, 548,000 tons at theport of Brazzaville, and 858,000 tons on the CFCO and the Port of Pointe Noirein 1985.

4.03 The most striking fact disclosed by the above table is that actualtraffic on each of the four departments of ATC remained stagnant or evendecreased dyiring project Implementation while traffic projections anticipatedthat (a) river transport traffic would Increase threefold over the period1976-79 and double again over the next five years, 1980-85; (b) river portstraffic would double during each of these two periods; CFCO transports wouldincrease by 301 over 1976-7-9- nd by an additional 401 over 1980-85; and(c) Pointe Noire Port cargo handling would increase 371 and 252 during each ofthe two periods.

General Cargo

4.04 General cargo consists mainly of goods imported at Pointe Noire fordomestic consumption, petroleum products, and food. General cargo trafficrepresents about 30% of riyer transport and ports traffic and about 251 of thecombined railway and ports freight handling over 1976-85.

Man1ese

4.05 Manganese ore traffic handled by t4e CFCO and the Port of PointeNoire has been consistently about 151 below the .2,600 million tons anticipatedat appraisal. Also, as anticipated at appraisal, this traffic, which iscarried will, within the next few years, be transferred to the recentlycompleted Gabonese Railway. About 501 will be transferred in 1989.

Annex 2-14 Page 3

Timber

4.06 Appraisal forecasts for timber traffic on the CFCO were based on thefollowing data and assumptions: (a) during the period 1962-73 world wideimports of tropical hardwood had grown at about 12% per annum; (b) Africantimber exports had not kept pace with the growing European demand; (c) theEuropean import demand for African timber was expected to grow from 15.3 mil-lion as in 1973 to about 25 million as by 1985, while African export capacitywas only about 10 million i9 in 1972; (d) the estimated combined exportcapacity of the four countries in the ATC service area could reach 5.2 to6.1 million tons; and (e) the ATC share of the anticipated export capacity wasestimated at 2 million tons of which 1.2 million would originate from Congoand 0.4 million each from Cameroon and CAR.

4.07 An important assumption of these ambitious traffic projections wasthat the Government would take legal and administrative action to raise Congotimber production to the required level. To this effect, it was agreed atnegotiations of Loan 1228-COB that the Government would (a) grant operatingrights in the South Congo forestry zone not later than December 31, 1977;(b) undertake an inventory and prepare an exploitation plan for forestryzone II in Northern Congo; (c) upgrade the forestry related lease system, lawsand regulation; and (d) report annually .o the Bank on action taken, startingin 1976. The Bank cooperated with the Government in implementing the forestryinventory and legal action and prepared a forestry study on the northern Congoforestry potential. The conclusions of this study provided the basis forappraising the River Transport Project (Credit 1179-COB, 1981), designed tomeet the needs of ATC's river transport operations, and the Ouesso WoodProcessing Project (Loan 2298-COB, 1983) which includes a substantial forestryexploitation component.

4.08 Despite these measures, even the revised projections proved far toooptimistic as shown by the following data:

Tons '000

Traffic Emanating From 1979 1985

Northern Con8o 75 170CAR U4Cameroon 78 130

Subtotal Brazzsaville Port 367 300

South Congo 177 198Gabon 40 --

Total CFCO and Pointe Noire 484 498

4.09 ATC's inadequate operational performance is one of the reasons forthe disappointing results with respect to timber originating from the CAR,Cameroon and Northern Congo. However, the evolution of the timber market inEurope, the Government's slow action in awarding timber exploitation conces-sions in Northern Congo and inefficient commercial policies were also contrib-uting factors. The following table compares appraisal projections and actualsfor 1987 of timber exports of the four countries in the ATC service area.

Annex 2-15- Page4

- - ----- Million Tons --Country APPraisal Estimate Actual

(1988) (1987)

Gabon 2.4 - 2.6 1.1Cameroon 1.3 - 1.6 0.7Congo 1.1 - 1.3 0.3CAR 0.4 - 0.6 0.1

Appraisal projections were based on the assumption that demand emanating fromFrance and the Federal Republic of Germany, the two main importers of timberproduced in the four countries, would increase. These expectations did notmaterialize as shown in the following table of sawlogs and sawtimber importsover 1977/85 in France and the Federal Republic of Germany:

MIilon Tons-*; -- E'rance -- 0- --- German ~-

Year $au Sn !M gm1979 1761 3203 123 545h1980 1776 3429 1201 S5761981 1462 2601 862 44361982 1335 2600 793 43191983 1364 2365 910 49461984 1293 1926 881 4453198S 1138 1969 866 3954

4.10 The deelining demand did not encourage the Government to make goodon earlier commitments to grant forestry exploitation concessions, at least aslong as the market for hardwood timber did not recover from its presentweakness. Despite its commitments under the project, the Government has actedsuch slower than anticipated in awarding forestry exploitation permits inNorthern Congo. Reasons for this have not been clearly defined. It is,however, likely that foreign tiiuber companies were reluctant to invest in theCongo because of unfavorable legislation and/or difficult access to operatingareas. Local timber companies were most likely short of funds to exploitlarge areas for which they had obtained concessions. Considering the declinein demand, it is difficult to be critical of this performance over the projectperiod.

Passengers

4.11 Contrary to freight, passenger traffic on the CFCO, the sole ATCdepartment handling a substantial passenger traffic, has substantially exceed-ed appraisal projections (Table 4-1(b)), mainly because rail is the onlyaffordable means for travelling between Brazzaville and Pointe Noire. Ascould be expected, passenger traffic peaked over 1980-85 in parallel with thegrowth of GDP during the oil boom period. However, this traffic generatesheavy losses because tariffs have been kept low by the Government.

Conclusion

4.12 Overall, ATC was far from achieving appraisal traffic projections,mainly because the anticipated economic growth rate, which would have generat-ed additional traffic and the anticipated increase in demand for Africantimber, did not materialize. In addition, ATC will loose in,1989 at lUast 50;of COMILOG's manganese traffic which will be carried over the Trans-GaboneseRailway. Prospects for full utilization of the addition4 capacity resultingfrom the CFCO realignment are'thus not good.

-17-CGRS FROM THE OPC VU ATTACNET 1

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