Flu c 11 ~~RE3TRICTEDReoort No. TO- 0 43a

Ths report was prepared for use within the Bank and its cffiliated organizations.They do not accept responsibility for its accuracy or completeness. The report maynot be published nor may it be quoted as representing their views.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPME'NT

LNTER-NATIONAL D)EVELOPMENT ASSOCIATION

APPRAISAL OF

THE MALI RAILWAY PROJECT

REPUBLIC OF MALI

RETURN TORECC203 CS3TE RS27 CRiZ

September 9, Il9bb

Projects Departmnent

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CURRENCY EQUIVALENTS

MF1 = US¢0. 4MF 247 = US $1MF 1 million = US $4, 050

Unit of Weight

1 metric ton = 2, 205 pounds

Fiscal Year

July 1 - June 30

REPUBLIC OF MALI

APPRAISAL OF THE MALI RAILI1AY PROJECT

TABLE OF CONTENTS

Page No.

SUARY i - ii

I. INTRODUCTION 1

II. TRANSPORT IN MALI 2

A. Background 2B. Communications and Traffic in

Southwest Mali 3

III. THE RAILWAY SYSTEM 5

A. Organization, Management and Training 5B. Personnel 6C. Operations 7D. Properties 8E. Traffic 9F. Tariffs 11G. Finances 13

IV. THE INVESTMENT PROGRAM 17A. The Rehabilitation and Modernization Program

and t1he Project j 7B. Proposed IDA Credit and Project Financing 16C. Project Execution and Procurement 39

V. FUTURE EARNINGS AND FINANCES 20

A. Forecast Operating Income and Expenditure 20B. Forecast Cash Flow 21C. Forecast Balance Sheets 22

VI. ECONOMIC JUSTIFICATION 23

VII. CONCLUSIONS AND RECOMMENDATIONS 24

This Report is based on (i) a study by the consulting firm SOFRERAIL made inMay/June, 1964, (ii) the findings of an appraisal mission consisting of Messrs:Loven, Sander and W1addams (Consultant) in October/November, 1964, (iii) theresults of a pre-negotiation mission comprising MIessrs: Lutolf and Cojot (Area),Jones (Legal), De Gryse (Projects), Broca and Waddams (Consultants) in June,1965, and (iv) recent information provided by the Government and the Railways.

Table of Contents (continued)

TABLES

1. Motive Power and Rolling Stock at June 30, 1965.2. Freight Traffic, 1956-65 and 1970-71.3. Forecast Traffic, 1966-71.4. Passenger Traffic, 1956-1965.

5. Income and Expenditure Accounts, 1958-1965.6. Balance Sheet, June 30, 1965.7. The Project and its proposed financing.8. Forecast Operating Income and Expenditure Account, 1965-1971.9. Forecast Cash Flow, 1965-1971.

10. Forecast Balance Sheets, 1966-1971.

ANNEXES

Annex A - Notes on Forecast Operating Income and Expendibure (Table 8)Annex B - The Bamako-Koulikoro Section

MAP

tali Rail-.-ay

REPUBLIC OF iAT I

APPRAISAL OF THE iiALI RAILWAY PROJECT

SlM4WRiARY

i. The lIali Government has asked the Association for a credit ofUS$ 9.1 million to help finance the rehabilitation and modernization programof the Dlali Railway. The proposed credit would finance the foreign exchangecost of the Project) amounting to about 82% of total expenditure.

ii. The Project has been drawn up by the Railway and modified as aresult of discussions between the Railway and the Association. It isdesigned to equip the Railway with modern traction, rolling stock, repair andmaintenance facilities and track to enable it to operate efficiently at thelevels of traffic expected. The rehabilitation is necessitated by the run-down condition of the Railway resulting from three years of curtailed oper-ations followiing the closure of the Senegal border, during which timerenewals and maintenance activities were at,a low level.

iii. Total capital expenditure included in the Project is estimated atMTF,J7-39-mtllion (about US$ 11.1 million equivalent). Major items arediesel locomotives (MF 342 million), passenger vehicles (07F 379 million),freight cars (MIF 312 million), workshop equipment (NiF 426 million) and trackcand telephone line renewal (IT 766 million). The investment is technicallysound and should result in a substantial improvement of the Railumy'soperational efficiency.

iv. The present financial condition of the Railway is unsatisfactoryand the rehabilitation program provides tiie basis for a bettor future. Ifthe program is carried out along the lines indicated in this report, on whichagreement has been reached during negotiations, the Railway should achievesubstantial operating surpluses and earn an increasing return on its netfixed assets.

v. The Project is justified on economic grounds. Th,e Railway is themost economic route to the Atlantic coast, a distance of over 1,2G00 kn, forthe greater Dart of TIali's imports and exports. The Railway also providesthe only trunk line of communicatiGn between the Figer basin, Bamako andSenegal, and its rehabilitation will enable Mlaliss international trade toexpand at the lowest transport cost. The investment would yield a satisfactory economic return on the basis of cost savings.

vi. The rehabilitation nrogram uill enable the Pailway to carry moretraffic both now and in the future and thus increase its revenues. Theprogram also includes mieasures uhich are intended to reduce costs by im-proved organization, reduction of personnel, increased efficiency oftraction and lower maintenance and repair costs.

vii. In the interests of economy of maintenance of the fleet, standard-ization of motive power and rollins stock is desirable; most units in useat present are of French manufacture. Some expenditure on the Proiect has

already been committed. Apart from these items, the imported goods to befinanced under the proposed credit would be acquired through internationalcompetitive bidding.

viii. IDA has under consideration a credit to Senegal to help financethe Senegal Railways' Second Four-Year Investment Plan, the negotiation ofwhich has taken place concurrently with that of the Mali Railway Project.In recognition ot the fact that the two projects are closely interdeDendent.appropriate cross-reference and reciprocal provisions are included in thecredit documents for both projects.

ix. The Project is sound and provides a suitable basis for an IDAcredit of US$ 9.1 million equivalent to the Government of Mali; the proceedsof the credit would be relent to the Rail-vway a. the Bank's interest rate, fora term of 30 years including three years of grace. A Project Agreementwould be concluded between the Association and the Mali 2.ailway.

REtUBLIC OF MALI

APPPAISAL OF THE MALI PAILWAY PROJECT

I. INTRODUCTTION

1. The Government of Mali and the Regie du Chemin de Fer du Mali(Mali Railway) have asked the Association for a credit of US$ 9.1 millionequivalent to help finance a program for the rehabilitation and modernizationof the Railway. The Project would be the program and the proposed creditwould finance the foreign exchange cost, representing about 82% of the total.

2. This Report is based on (i) a study by the consulting firmSOFRERAIL made in May/June 1964, (ii) the findings of an appraisal missionconsisting of Messrs. Loven and Sander (of the Association) and 1!addams(consultant) in October/November 1964, (iii) the results of a pre-negotiationmission comprising Messrs. Lutolf, Cojot, Jones, De Gryse (of the Associ-ation), Broca and Waddams (consultants) in June 1965, and (iv) recent infor-mation provided by the Governiment and the Railway. Hr. Mac"ray, of theAssociation, also contributed to the preparation of the Report.

3. In June 1954 the Bank made a loan (No. 100-FR) of US$ 7.5 millionto the Office Central des Chemins de Fer de la France d'Outre-Mler to com-plete the conversion from steam to diesel tractior oG the Dalar-N'gerRailways and the Abidjan-Niger Railways. The entire loan amount was for theacquisition of diesel locomotives. The Railways' proeram also included im-provements of track and communications on both railway systems and has beensuccessfully carried out.

4. The Mali Railway, running from the Mali/Senegal border toKoulikoro on the Niger, formed a part of the above-mentioned Dakar-NigerRailways which were operated under a single management at Thies, Senegal.When the Ft.ieration with Senegal was dissolved in August 1960 the MaliRailway was created, as a State-owned enterprise, by the Government of theRepub'ic of Mali taking over that part of the net assets of the Dakar-NigerRailways located in Mali territory, comprising 38 per cent of the total netassets of the former system.

5. From September 1960 until July 1963 al'l railway traffic was dis-continued between lMali and Senegal. After resumption of traffic the Dakar-Niger system remained divided into the Senegal Railways and the iY!ali Railwayeach under its own management. InternatIonal traffic is regulated by anAgreement between the Mali and Senegal Governments and by a Conventionbetween the Mali and Senegal Railways, both sioned in June 1963. The Con-vention provides for the handling of traffic and operations across theborder, exchange of rolling stock, and common tariffs. In addition, theConvention includes arrangements for Nali locomotives and rolling stock tobe repaired in the Senegal workshops at Thies, and for the Mali Railway tohire Senegal locomotives when needed for use in Mali. International trafficis also facilitated by a Customs Agreement between the two countries pro-viding for tax-free passage of MTali goods in Senegal.

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6. The Convention, which may be revised annually at the reauest ofeither party, generally provides an adequate and practical basis for theregulation of international traffic. For the efficient operation of whatis essentially a single railway system, it would be best to have one cor-poration and one management, but this is not possible politically. TbeAssociation has under consideration the granting of a credit to Seniegal tofinance part of its Railways' Second Four-Year Investment Plan. The con-tinued cooperation of the two Governments and the two railways within theframework of the International Traffic Agreement, the Customs Agreement, andthe Railway Convention was agreed during the negotiations of both the Maliand Senegal credits. Appropriate provisions are included in the creditdocuments to ensure prompt notice to the Association of any difficultiesarising under the Convention and to ensure that no material changes aremade therein without prior approval of the Association. Any substantialinterruption in the normal flow of international traffic for other thantechnical reasons has been made an event of default under both creditagreements, unless such interruption is manifestly beyond the borrower'scontrol. In recognition of the close interdependence of the two railwaysand the two projects appropriate cross-references and reciprocal provisionsare included in the credit documents for both projects. In this connectior.suspension or termination of withdrawal for M,9ali entails automatically thesame sanction for Senegal if, as a result of the suspension or terminationfor Mali, it became improbable that the Purpose of the Senegal project wouldbe achieved.

7. The brealk up of the Federation left the rMali Railway without aproper management or workshops for maintenance of its facilities. Freighttraffic moving on the Kali Railway during the period of curtailed operationswas very light, since the main items that it normally transported wereeither imports or exports through Senegal. The liali Railway was able toorganize a local management, and to maintain a semblance of rail servicefor the remaining local traffic. Mlaintenance of its diesel locomotives androlling stock was inadequate because of lack of spare parts and workshopfacilities. When rail traffic with Senegal was resumed, the Mali Railway'slocomotive and wagon fleet was in bad condition and grossly insufficient tohandle its part of the international traffic; in Senegal there were nosuch problems. The Mali Government took initial steps to alleviate theshortage by ordering some railway equipment on supplier's credits, and byhiring equipment from Senegal, and then turned to the Association forfurther assistance for the rehabilitation and modernization of its railway.

II. TRANSPORT IN M4ALI

A. Background

8. The Republic of Ifali is landlocked and covers an area of 1.2million square kilometers, twice the area of France, and largely desert.The southwestern third of the area, in which the railway and the ca-itallie. borders on the Republics of ilauritania, Senegal Guinea, Ivory Coastand Upper Volta (see Map).

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9. Population is estimated at 4.5 million, with an annual growthrate of 2.5%. Most of the population is concentrated in the southwestand center of the country, particularly along the Niger River. Bamako, onthe Niger, is the capital, with a population of 130,000 other towns arenot larger than 20,000 inlhabitants, and the greater part of the populationis widely scattered in rural areas.

10. Mali is one of the poorest and least developed countries inAfrica, per capita domestic product being US$ 70 eauivalent a year. Thereare virtually no kno-wn mineral resources, and industrial activity is negli-gible. MIore than 90 per cent of the population is engaged in. agriculture,animal husbandry and fishing, mostly on a subsistence basis.

11. Livestock on the hoof and fish comprise half of total exports invalue. The remainder are agricultural products, and the most important isgroundnuts, of which 43,000, 48,000 and 23,000 tons were shipped in 1963,1964 and 1965 respectively. Imports consist predominantly of manufactures,building materials, processed foodstuffs, fertilizers and petroleum products.

B. Communications and Traffic in Southwest Mali

12. The trunk lines of surface communications in southwest l4aliprovide the transport routes for imports and exports of the country topoints in neighboring countries which connect with the Atlantic seaboard.There are three such arteries (see Map):

(i) The Railway, consisting of a single meter-oaugetrack- from Bamako to the Senegal border and thenceto Datar (1,228 Emi). The Pailway also extends57 km eastwards from Bamako to Kouliktzoro on theNiger, where there is a river port connecting itwith transport on the riger.

(ii) Roads southward to the Abidian-Miger railway atOuangolodougou or Bobo-Dioulasso, and thence byrail to Abidjan. The distance from Bamako toOuangolodougou is 544 km by road and 690 km byrail to Abidjan, making 1,234 km total.

(iii) Southwestward by road to Kankan or Kouroussa on theGuinea railway and thence by rail to Conakry.This is the shortest route to the coast, comprisingir. all some 900 km, but the road is poor and theGuinea railway unfit to carry heavy traffic inlarge quantities.

There is no trunk road route from Bamako to the Senegal border suitablefor heavy long-distance traffic which could provide an alternative to therailway for transport in this area.

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13. The railway to Dakar was the principal route to the sea untilits closure at the border in September 1960. During the three years untilit was re-opened in July 1963, the southern route to AbIdjan was used formost imports and exports, and the State had to make large and costly in-vestments in roads and road vehicles.

14. The road routes to Ouangolodougou or Bobo-Dioulasso can now taketrucks up to 10-ton maximum payload capacity. The State fleet of truckswhich, together with small private haulers, carries this traffic, runs atlarge financial losses because rates are fixed below costs and managementand maintenance are poor.

15. The southern route to the coast at Abidjan is suitable for trafficoriginating from (or destined for) areas in M4ali east of Segou. For areaswest of Segou the railway to Dalar provides lower transport costs.

16. The 'iger river provides a transport artery from the railhead atKoulikoro to the east, but is navigable for only half the year. Studieshave been completed for works which weould Dermit the passage of flat_bottomed boats all-the-year-round, but no financing to carry out the Drojecthas yet been secured. It is estimated that river traffic should increase inthe near future from 70,000 tons, its present level, to 100,000 tons a year,provided the railhead at Koulihoro is kept open to link the railway withriver traffic. There is no alternative site for a river port to serveBamako, since between Koulilroro and Bamako there are rapids and a dam isto be constructed for hydro-electric power.

17. The State owns the transport system of the country, with the ex-ception of a part of, road transport vehicles owned and operated by indivi-duals or small enterprises, but subject to tariffs fixed by Governmentdecree. Transport is under the direction of the M1inistry of Public Works,Communications and Energy, but the investment plans are the responsibilityof the Ministry of the Plan.

18. The State enterprises which operate the various means of transportare:

1) Regie du Chemin de Fer du 'Mali.2) Regie des Transports du fali, which operates the

State-owned truck fleet.3) Compagnie Malienne de Tiavigation, which has a

monopoly of river transport.4) Air Eali.

At the Association's request the Government of Mali has agreed to requestthe United Nations Development Programme (U?$DP) for experts whose taskswould be:

(i) to determine the road, air and river transportservices required for the development of thecountry, and to recommend measures to put thetransport operat4ons of the State-owned enter-prises on a sound economic and financial basis;

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(ii) to assess the existing highway network. re-commend measures to improve its administration,and establish an adequate maintenance and coti-struction program; and

(iii) to determine the policies and measures thatwould lead to optimum services from all modesof transport (including rail) and to coordinationof future transport developments. Terms ofreference have been prepared by the Associationwhich will, after approval by the Government, besubmitted to the UNDP.

III. THE RAILWAY SYSTEM

A. Organization, Management and Training

19. The Mali Railway was established by ordinance, dated November 29,1960, as an autonomous public enterprise to be operated on commercial lines.

20. There is a Board of Directors of 17 members including:

(1) the Minister of Public Works, Chairman;

(ii) six Ministers, the Director of the Postaland Telecommunications Office, and onerailway expert; and

(iii) eight members, representing the users (3),the National Assembly (2), and Railwaypersonnel (3);

21. The Board has wide auchority in such matters as appointing theManager, deciding personnel policy, setting tariffs and concluding loans.Operating and capital budgets are subiect to approval by the Governmentand Parliament.

22. A 17-member Board for a railway that comprises only 642 km ofline seems to be unduly large and unwieldy to function efficiently.However, considerable powers have been delegated to the Chairman. whichgreatly facilitates coordination between the Board and the Manager.

23. The administrative organization, established in conformity withthe former Dakar--Niger Railways, is excessively large; with ei'Tht depart.ments and some 220 employees. The management is aware of this and isplanning a reduction in the size of the organization and in the number ofstaff. During the negotiations the Government and the Railway agreed toengage a consultant, expert in railway management oraanization, to assistin formulating the reorganization and to advise on its implementation. Theappointment of the consultant is a condition of effectiveness of thecredit. The foreign exchanle cost of the consultant's services is in-cluded in the proposed credit.

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24. The senior officials are generally competent and qualified, butthere is a serious shortage at the level of supervisory staff and foremen.Vocational training, at present limited to about 15 trainees per year,should be extended. This would require considerable effort and the Rail-way would need, in addition to nine already available, about eieht ex-patriate technicians for three years to establish adequate vocationaltraining schools, courses and on-the-job training facilities. Duringnegotiations agreement was reached for the Railway to employ eight techni-cians for these purposes. Since the French Government is already providingtechnical assistance to the Mali Railway, it might be willing to make thesetechnicians available. In any event, the Mali Government has agreed toexplore all suitable sources of recruitment. If assistance cannot besecured from other sources, the foreign exchange cost of the technicianswould be financed out of the proceeds of the proposed credit. The appoint-ment of the technicians is also a condition of effectiveness of thecredit.

B. Personnel

25. The Railway's personnel may be divided into two categories:

(i) permanent personnel, about 43 per cent of totalforce, whose conditions of employment are governedby the former General Statute of the French Over-seas Railways: and

(ii) auxiliary personnel, about 57 per cent of the totalnumber, ooverned by a Collective Railway LaborAgreement.

Permanent staff includes all officers and super-visors and most of theskilled workers whose jobs are connected with the safety of train operation,with workshops and with the handling of Fignificant amounts of cash. Dis-missal is only possible in the case of serious shortccmings or misbehavior.Auxiliary personnel consist largely of unskilled or semi-skilled workers,who can be dismissed at a month's notice.

26. Salary scales and fringe benefits differ widely between the twTocategories. In 1964/65 the average annual wages were:

Basic Salary Fringe Benefits TotalUS$

MF 4F M2F Equivalent

For permanent staff 463,000 165,000 628,000 2,540For auxiliary staff 178,000 24,000 202,000 820

Fringe benefits in particular, which include family allowances, show alarge difference. The two categories of pay scales are applicable to allGovernment workers in Mali: however, in the railway promotions have been

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granted to the permanent staff more frequently than in other governmentservices resulting in considerably larger sa'laries for railway incumbents.Salary and wage scales provide generally for biennial increases subjectto satisfactory performance. Recently, promotion of auxiliary to permanentstatus has been discontinued in order to contain payroll cost.

27. In 1960 the labor force was swollen by the absorption of about250 Mali personnel repatriated from Senegal, and became unduly large.During 1964/65 the Railway also had to absorb employees previouslv workingfor the Postal and Telecommunications Office and for the Regie des Transportsdu Mali. At June 30, 1965 employees totalled 1857, of whom 796 werepermanent and 1,061 auxiliary staff. There is obvious labor redundancy.During negotiations the Government and the Railway agreed to reduce theRailway's total payroll (including fringe benefits) by 5% during each ofthe three fiscal years 1966/67-1968/69; the reduction would be calculatedon the basis of the budgeted payroll figure for 1965/66 amounting toMF 725 million. In addition, assurances were obtained that the Railwaywill continue to apply its policy of limiting promotion from auxiliary topermanent status.

28. Labor matters are settled by a Comite de Gestion established in1963, which comprises representatives of the Railway and of the Union ofRailway Employees. Labor relations are good.

C. Operations

29. Train operations are fully dieselized and basically simplebecause there are no branch lines and only three shunting yards; inKayes, Bamako and Koulikoro. The only complication arises at Kayes wherethe weight of 1,000 ton trains arriving from Senegal has to be reduced to750 tons as the line between Kayes and Bamako has steeper gradients thanthe Dakar-Kayes line.

30. Total international freight traffic requires only six round tripsa week between Dakar and Kayes and eight between Kayes and Bamako; inter;.national passenger traffic is handled by two trains each way per week. Ithas been agreed between the Mali and Senegal Railways that each will providehalf the number of required locomotives and rolling stock to carry allinternational traffic, but owing to shortage of equipment in Mali theagreed allocation has not so far been implemented and the larger part of theequipment is provided by Senegal.

31. About three round trips a week are required for local passengersand freight in Mali. Therefore, total scheduled train operations on theMali Railway consist of about two trains each way per day.

32. Signalling and communications systems are adequate for thesetrain operations and line capacity is more than ample for existing andforeseeable traffic. Freight car control and utilization are unsatisfactoryresulting in long turn-around times, unnecessarily long retention ofSenegal-owned cars in Mali, and high demurrage charges. The unsatisfactorycar utilization is largely due to lack of motive power. The latter isalso often the main cause of backlogs in moving imports from Dakar toBamako and of diversion of traffic to thp Ahiddan rnoute.

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33. Owing to many on-line failures of motive power, train punctu-ality is poor, and many derailments are caused by defective rolling stock.Implementation of the Railway's rehabilitation and modernization programwould largely remedy these shortcomings.

D. Properties

34. The single track meter gauge Mali Railway is 642 km long, and492 km (Kayes-Bamako) have been re-railed in the past 35 years. TheSenegal Border-Kayes section (93 km) is 50 years old but in reasonable con-dition; the Bamako-Koulikoro section (57 km) is 70 years old and in bad con-dition. The condition of bridges is satisfactory; 110 km of track have beenwelded continuously from station to station and all track is laid on steelties. Track. renewal of the Kayes-Senegal Border and Bamako-Koulikoro sections,introduction of mechanical tamping machines and concentration of track maintenance gangs are included in the rehabilitation and modernization program.

35. Buildings are adequate for present and future requirements. Sig-nalling equipment is in good condition but part of the overhead line equipmentof the telecommunications system is obsolete and badly rusted giving rise tofrequent breakdowns. Renewal of the old wire is included in the program.

36. The completely dieselized locomotive and railcar fleet consistscf 11 line and 5 shunting locomotives and 2 railcars of which details areshown in Table 1. During the three-year period, until mid-1963, that no railtraffic existed between Mali and Senegal, virtually no maintenance of thisequipment was carried out because the Mali Railway had no repair shops andlacked spare parts. The condition of the fleet deteriorated rapidly and atthe time that through traffic was resumed only 6 line locomotives were ser-viceable.

37. The Convention concluded between the Mali and Senegal Railwaysafter the resumption of rail traffic included a program for repairs of Malilocomotives and rolling stock in the Senegal repair stops at Thies. Imple-mentation of the program was not successful and the Mali Railway had to hireSenegal locomotives.

38. The Railway has built two sheds, one in Bamako and a smaller onein Kayes, intended for repair workshops for its motive power and rolling stock.It plans to equip and complete the Bamako shons and purchase spare parts forlocomotives and rolling stock as part of its program, in order to becomelargely independent of Senegal Railways' repair shops. Only major overhaulsof diesel locomotives would still be done at Thies. The Mali Railway expectsthat six of the present line locomotives will remain operable. The otherfive line locomotives and, in addition, two shunters should be scrapped. Theacquisition of line locomotives and shunters (under the program) would bringthe diesel fleet up to the strength needed to move the expected traffic.

39. Of the passenger car fleet of 51 cars (see Table 1) many areobsolete and in very bad condition. Twenty cars will have to be scrappedimmediately and all remaining cars require a general overhaul. The shortage

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of passenger stock would be made good by the acquisition under the programof six passenger cars, two baggage vans, four railcars and ten trailers,of which two railcars and six trailers have been recently delivered fromFrance.

40. Freight cars total 243 (Table 1), of which 40 should be scrappedimmediately. The remaining cars are generally in bad condition and needmajor repairs in the next few years. By the end of 1968 a further 27 carswill have to be scrapped. During the program period, 107 freight cars wouldbe purchased.

E. Traffic

(a) Freight

41. Before the break-up of the Mali Federation in the middle of 1960,freight traffic on the M4ali section of the Dakar-Niger Railways amounted toapproximately 300,000 tons a year. Of this, about one-half was imports, themain categories being cement and building materials (40,000 tons), petroleumproducts (35,000 tons) and processed foodstuffs (40-50,000 tons). Exportsamounted to about 100,000 tons a year, of which half was groundnuts. Theremainder was local traffic. The commodity composition of today's trafficis different mainly because of reduced exports. In 1964/65, two-thirds oftotal traffic consisted of imports, and only 18 per cent of exports, theremaining 15 per cent being local traffic. For the first ten months of1965/66 the traffic composition was 78, 10 and 12%.

42. Traffic figures are given in Table 2, which shows the decline infreight tonnage after international traffic ceased. Total tonnage wasreduced to 66,000 tons of local freight only in each of the years 1961 and1962 (18 million ton/km a year). Since operations through Senegal haveresumed, freight traffic has improved as follows:

1963/64 11 1964/65 1/Tons T/km Tons T/km(000) (million) (000) (million)

Imports 125 148Exports 36 40Local 48 34

Total 209 97 222 108

43. The greater part of the freight traffic is in full car loads. Thepresent Convention between the Mali and Senegal Railways provides for therunning of fully loaded cars only, and small shipments are compulsorilygrouped by the shippers, trade firms or agencies.

1/ July 1-June 30. The Mali Railway has recently changed its fiscal yearfrom the calendar year to July-June; all 1963-65 and forecast statisticsin this report are from mid-year to mid-year.

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44. At the present time the Railway is unable to carry all the freightavailable because of the inadequacy of traction in Mali. Some traffic whichcould have been carried by rail from or to the ports of Dakar and Kaolackhas been diverted to Abidian on the Ivory Coast to reach or leave Mali bythe southern route. Mali traffic carried by the Abidjan-Niger Railways wasapproximately as follows:

1961 117,000 tons1962 147,000 tons1963 108,000 tons1964 88,000 tons1965 n.a.

It is thought that a substantial part of this traffic will be recaptured bythe Mali Railway when it has the necessary motive power.

45. While the up-traffic consisting of imports has no seasonal pattern,the down-traffic to Dakar and Xaolack consisting of exports is mostly con-centrated in five months (February to June) of each year. In the exportseason, stockpiles of groundnuts accumulate at points of origin for lack oftransport facilities or good organization. Owing to lack of suitablestorage there is spoilage through acidification and exposure. At presentsome agricultural products are hauled in open cars for lack of suitablecovered freight cars, involving risk of deterioration and theft.

46. Forecasts of future freight traffic are based on the product-by-product estimates given in Table 2 for 1970171. Year by year estimates aregiven in Table 3 up to 1971. International traffic which was 188,000 tonsin 1964/65 is forecast to increase by 75 per cent by 1970/71, an annual in-crease of 12 per cent as compared with an expected increase of 4-5 per centper annum in GNP. This apparent anomaly is due to the fact that the trafficforecast is based more on the Railway's ability to take up existing traffic,presently lost to the road and to the southern rail route, than to thelimited possibilities of Mali's economic growth. Furthermore, main commo-dities such as cement, building materials and petroleum products, whichrepresent more than 50 per cent of the expected imports in 1970/71, resultfrom existing long-term bilateral agreements which provide for increases.Local traffic, the carriage of which is now seriously restricted by lack ofrolling stock is expected to regain its pre-1960 level of about 50 000 tonsper annum.

47. The average freight journey is approximately 490 km on a totallength of line of 642 km reflecting the predominance of the internationaltraffic to and from the Bamako region in the total traffic. In 1964/65,average hauls were 537 km for international traffic and 225 km for localtraffic.

48. During the period under review the overall freight traffic isexpected to remain unbalanced, imports and other up-traffic to Bamako beingabout double the traffic in the down direction. However, the seasonalnature of the exports results in approximate balancing of the import and ex-port traffic during the export season.

(b) Passenger Traffic

49. The passenger traffic figures given in Table 4 shlow that thetotal number of passengers during the past five years has been approxi-mately 500,000 a year. In 1964/65 the average length of journey was 117 kamand passenger/km amounted to 55 million.

50. The average occupancy of trains and railcars is high. In 1964/65the ratio of passengers to available seats amounted to 90 per cent in secondclass and 69 per cent in first class on the international express trains, andto 85 per cent on the one-class local trains and railcars. On the mostheavily travelled sections - from Bamako to Negala in the West and Koulikoroin the East - many passengers are unable to board the trains in spite offreight cars being used for carriage of passengers.

51. The stabilization plan introduced by the Mali Government, whichinvolves substantial tax increases, has affected the 1964/65 traffic and islikely to have a braking effect on potential increases in the near future.On the assumption of a modest increase in living standards of one per centper annum and a rise in population of 2.4 per cent per annum, the improve-ment of railway passenger services should result in an annual increase innumbers of about 3 per cent. Year-by-year forecasts are given in Table 3.

F. Tariffs

(a) Freight Rates

52. For international traffic there is a single rate per ton/km foreach category of goods. The rates have been established by agreement withthe Senegal Railways. There are lower rates for some commodities onquantities above stated annual minima. Rates for internal traffic in Maliare higher than for international traffic and vary with speed and distance.

53. Average freight receipts overall were MF 6.74 per ton/km in1964/65 (US¢ 3.9 per short ton-mile). This fioure is not out of line withaverage freight receipts on railways in other former French Africanterritories, as shown below:

HF Equivalent per ton/km

Abidj an-Niger 5.95Cameroons 8.63Coiigo-Ocean 6.36Senegal 6.59 (excluding

phosphates)

54. At the present time, international traffic receipts do not covercosts in Mali (though they do in Senegal). IJith reduced costs resultingfrom the rehabilitation and modernization program and with increasingtraffic, they would do so in the coming years and the present tariffs wouldthen be adequate.

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55. In view of the above considerations, it is not recommended topropose alterations in the freight traffic structure of Mali Railway atthe present time.

56. Tariffs on Mali international traffic are fixed by the Con-vention (see Paragraph 6) between the iMali and Senegal Railways and are thesame per ton/km and per passenger/km on both railways. However, as costsmay vary between the railways the tariffs for international traffic shouldnot necessarily be the same for both railways. During the negotiationsfor the Mali and Senegal credits both Governments and Railwqays agreed thattariffs, including those for international traffic, should be establishedon sound traffic costing principles and that, to this end, traffic costingconsultants should be appointed. For the sake of uniformity both Railwaysagreed to appoint the same consultants, satisfactory to the Association,,and with terms of reference, including the principles to be followed inallocating costs and establishing accounts, prepared by the Association andagreed during the negotiations. Both Governments and Pailways furtheragreed that as changes in costs applying to individual items of internationaltraffic may occur and may not be the same for both Railways, the tariffsapplicable to international traffic may have to be modified from time to timeand need not n-cessarily be th.- same for bot'h T?ilzays. Agreement was furtherreached that should at any time either Railway, on the basis of the findingsof the consultants or on the basis of changes in costs, wish to modify any ofits tariffs applicable to international traffic, the matter would be referredto the "Comnaission iYixte", a body set up in 1963 with ministerial status tomeet regularly to discuss matters of common interest to both parties.Should a decision on such a matter not be reached by the "Commission Mixte"within an agreed period, either Railway may submit the case to arbitrationunder the Railway Convention, but with time limits agreed during thenegotiations. Provision is made for the assistance of the Association tobe sought at any time in such matters. The Association will also be giventhe opportunity of expressing its views before any arbitration award is made.The appointment of the traffic costing consultants is a condition ofeffectiveness of the credits. Part of the cost of the consultants' servicesis included in the proposed credits.

(b) Passenger Fares

57. Passenger fares were altered at January 1, 1964 when the number ofclasses was reduced from three to two. ristribution of passengers betweenclasses before and after this change has been as follows:

Previous Basic Fare Present Basic FareDistribution M1T per km Distribution 17 per km

First class 0.9% 5.5 8.8% 5.0Second class 3.3% 4.5 91.2% 3.5Third class 95.8% 3.5 - -

First class is at present confined to the international express. With theacquisition of new railcars and trailers containing two classes, the per-centage of passengers travelling first class should increase.

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58. Reduced fares are applied for local passenger traffic on bothsides of Bamako (Bamako/Negala - 61 km,, Bamako/Koulikoro - 57 kim) and corres-pond to MF 3.40 per passenger/km, equal to bus fares charged in the same area.Active and retired military personnel enjoy special fare reductions. Thereare no other fare reductions for,welfare purposes, and since present re-ductions concern only relatively few people, the Government does not refundthe Railway the loss in receipts resulting from such reductions. The Railwaygrants reduced group fares and special low fares for larger groups generallytravelling on special trains on the occasion of religious, artistic orcommercial events.

59. The average receipt per passenger/km in 1964/65 was MF 3.83 in-cluding supplements such as reservations and berths. Standards of accommo-dation are poor (excessive occupancy, obsolete equipment, freauent use ofcovered freight cars) and will improve only with the greater efficiency andbetter equipment resulting from the rehabilitation and modernization program.

60. Passenger fares are high in comparison with the other Africanrailways mentioned above (for which, on average, they are MIF 2.50 equivalentper km) and also in relation to the poor services provided. They are,however, equal to bus fares where road competition exists. The aim ofcovering costs precludes the possibility of significant reductions and afterrehabilitation, improved services should justify the present level of fares.

G. Finances

61. In September 1960 the net assets of the former Dakar-Niger Rail-ways were divided between Senegal and Mali in the ratio of 62/38, and the netasset valuation of Mali's 38 per cent share was established as the equitycapital of Mali Railway contributed by the State. As part of this arrangement,Mali Railway assumed liability for its share of the outstanding loans ofIBRD and CCCE (Caisse Centrale de Cooperation Economique), includino exchangelosses resulting from the devaluations of the French franc.

62. The State investment in the Railway as at September 1, 1960 was,after adjustments, recorded at MF 5,624 million, and the IBRD and CCCE loansoutstanding amounted to MF 140 million. This investment was represented byfixed assets of MF 53658 million and net working capital of I-F 106 million.Liquid assets were inadequate from the beginning, and it was necessary forthe Railway to have recourse to State loans and subventions to meet its day-to-day operational requirements.

63. Since September 1960 the Railwqay has suffered heavy financiallosses. The resumption of international traffic in mid-1963 has improved thesituation, but the full measure of traffic that existed before 1960 has notyet been recovered. At the same time, personnel costs have increased as aresult of MIali nationals, previously employed by the Railways in Senegal,being repatriated and taken on the payroll of the Mali Railway.

64. The financial results are shown in the income and expenditureaccounts reproduced in Table 5 and summarized below. During the whole

period, 1961 to mid-1965, operating lcsses amounted to TF 1,442 million.There was no depreciation (called "contribution to renewal fund") chargeduntil 1963, and the amounts subsequently charged were inadequate. TheRailway was unable to meet either interest or repayments on its existingloans from CCCE and IBRD; these payments, and the operati.ng deficits, weremet partly by State subsidy and loan, and partly by bank ovrerdrafts.

Jan-Jun July 1964-1961 1962 1963 1964 June 1965

(Millions of Mali Francs)

Revenue 403 397 678 513 1,063Expenditure 779 831 939 522 1,175

Working deficit (376) (434) (261) ( 9) (112)Depreciation 0 0 100 30 70

Operating deficit (376) (434) (361) (89) (182)Interest 18 17 16 7 7

Net deficit (394) (451) (377) (96) (189)

Operating Ratio % 193 209 153 117 117

65. The balance sheet of the Railw.ay as of June 30, 1965 shows theeffect of these operating conditions on the Railway's financial position andis reproduced in Table 6. The position may be summarized in terms ofcapital employed as follows in YF millions:

Capital Employed Represented By

Current Assets Current LiabilitiesCash 13 Banlk Overdrafts 840Receivables: Senegal Railways 166

Socopao 270 Other 328State 235 1 334Other 306 Short-term loan

811 Mali P & T 173Stores 171 Other loans 37

995 Equity held by State 4,880Net Fixed Assets 5q429

6,424 6.424

66. The provisional figures as of March 31, 1966, on which somefinancial measures agreed during negotiations, and explained in the followingparagraphs, are based, are shown below in MF millions-

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Capital Employed Represented BY

Current Assets: Current Liabilities:Cash 37 Bank Overdrafts 736Receivables: Senegal Railways 239

Socopao 169 Other 365State 235 1,340Other 237 Short-term loan:

641 Mali P & T 173Stores 180 Other loans 28

853 Equity held by State 4,707Net Fixed Assets 5,390

6, 248 6.248

67. The cash position is unsatisfactory. The Central Bank (Banque dela Republique du Mali) overdrafts in current liabilities are short-term andoverdue. The Railway cannot liquidate its bank indebtedness unless theState pays subventions to the Railway to cover its past unreimburseddeficits which amount to IT 822 million as of June 30, 1965. According tothe Railway Ordinance. the State may meet the Railway's deficits by sub-vention, if they are not covered by the Railway's own cash, by reserve fundsor by bank borrowing. In this case, there are no cash resources norreserves, and it is desirable to eliminate the Railway's bank borrowing.This was agreed by the Government which has paid the Railway a subvention ofMF 822 million to cover its past unreimbursed deficits. As for the future,during such time as the Railway's revenues may be insufficient, the Govern-ment has agreed to provide the Pailway with funds in the form of subventions(i) to service its debt, (ii) to establish and maintain adeouate workingcapital, and (iii) to finance its capital expenditures.

68. As agreed during negotiations the Government has also paid theRailway a debt of F 235 million resulting from the settlement between Maliand Senegal of the ex-Federation Railways.

69. The actual cash movements involved in the above measures for im-proving the Railway's finances were small. The State subvention of MF 322million and the payment of the 4F 235 million debt have been used by theRailway, as agreed during the negotiations, to pay off the bank overdraftsof HF 736 million, leaving IF 321 million to the Railway for working capital(TF 220 million) and, as explained below, for the gradual reduction of theRailway's debt vis-a-vis the Senegal Railways.

70. In the accounts receivable there is MF 169 million due fromSocopao (a French trading concern which acts as government agent in consigningtraffic to the Railway). This is in effect a government's indebtedness tothe railway for services rendered. As agreed during the negotiations, theGovernment has paid this amount to Socopao which in turn has paid it to theRailway. In addition, the Government has agreed to cause the liabilitiesof the State-owned enterprises for services rendered by the Railway to bekept in the future at a level consistent with sound commercial practices.

71. As of March 31, 1966 the Mali Railway owed the Senegal RailwaysM4F 239 million equivalent. In the course of the negotiations for the Mtaliand Senegal credits an agreement was reached for the transfer during 1967of MF 239 million equivalent in CFA francs to be applied to the debtbetween the two Railways. As to the future, the Government of Mali hasagreed to make available promptly as needed the foreign exchange requiredfor payments arising from services rendered by the Senegal Railways. Inthis connection satisfactory arrangements have already been made; sinceApril 1, 1966 the foreign exchange required to cover the railway transportcost of M4ali traffic in Senegal is being made available in advance. Duringthe negotiations the Mali Governm.ent and the Mali Pailway have agreed to con-tinue to apply this system.

72. The short-term loan from Mali P & T of ME 173 million was madein 1960 and 1961 to provide the Railway with working funds; it appearsin the Railway's accounts as repayable within a year, but has not been paid.It has, therefore, been classified as loan capital in tne tables shown inParagraphs 65 and 66. As agreed during the negotiations it has been takenover by the State and will be incorporated in,equity.

73. The financial measures described in Paragraphs 67-72 can besummarized as follows (I4F million):

By Government By Railway

Subvention of past deficits 822 Payment of Bank overdrafts 736Payment of debt resulting Payment of past Senegal Pail-

from settlement of Ex- ways debt 239Federation PRailways 235 Increase in working capital 220

Payment of past Socopao debt 169 Increase of Equity 173Incorporation in Equity of Decrease of current liabilities 31P & T loan 173

Total 1,399 Total 12399

74. Other financial matters which were agreed during negotiationsare: (i) stores at MF 180 million, which are excessive and probably over-valued, will be reviewed and, if necessary, written down to a realisticvalue, (ii) depreciation charges, which were inadequate. will in thefuture be calculated by reference to replacement cost and estimated lengthof life of the fixed assets.

75. The Railway's statutes provide for auditing of accounts by twoaccounting officers (Commissaires aux Comptes) appointed by the Board ofDirectors, assisted in an advisory capacity by a State Counselor appointedby thne Government. During negotiations, agreement was reached for an annualaudit to be carried out by independent auditors, whose report will be madeavailable to the Association.

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VI. THE INVESTMENT PROGRAiM

A. The Rehabilitation and vIodernization Program and the Project

76. In order to rehabilitate and modernize the Railway and enable itto carry the expected traffic, a program has been established in agreementwith the Association. Details of this program, which provides the basis forthe Project, are given in Table 7 and are summarized below in IHF million:

Foreign Exchange Local Costs TotalCosts Costs

Track 360 226 586Locomotives and rolling

stock:6 main line locomotives 282 2823 shunting locomotives 60 604 railcars and 10

trailers 249 2496 gangcars 24 246 passenger cars and2 baggage vans 130 130

107 freight cars 312 312

S/total 1,057 1,057

Materials, workshop andequipment 600 101 701

Telephone lines 130 50 180Consulting services andcontingencies 177 38 215

Total 2,324 415 2,739

US$ million equivalent 9.4 1.7 11.1

77. Locomotive and rolling stock requirements comprise some 39% oftotal expenditure. Of the expenditure under this heading of 1IF 1,057million (excluding contingencies), about one-third is for expansion ofrolling stock to meet higher levels of traffic in the future: the remainderis replacement, including an element of technical improvement. Details onthe equipment to be scrapped and replaced by that provided in the Projectare given in Paragraphs 38-40 and in Table 1.

78. The workshop and workshop equipment are required to enable theRailway to perform its own maintenance and repairs of locomotives and cars,with the exception of major overhauls of locomotives, which would continueto be done at Thies. This involves an expansion of activities notpreviously performed. The Railway will need help in determining the bestlayout of the workshop and the type of equipment required, and it has agreed

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that consultants be employed for this work, their appointment being a con-dition of effectiveness of the proposed credit. The foreign exchange costof their services is included in the proposed credit.

79. The track program comprises the renewal of part of the Kayes-Senegal Border section and the relaying of the Bamako-Koulikoro section withserviceable rails from the Kayes-Senegal border section. The 25/26 kg/mrails of the Kayes-Senegal border section are in reasonable condition andthey could be kept in service for another 10 years. However, since theBamako-Koulikoro section urgently requires relaying, and the traffic ismuch heavier between the border and Kayes than between Bamako and Koulikoroit has been decided to lay the new 30 kg/m rail between Kayes and the border,and to use the recovered track for replacement of the worn-out 20 kg/m railbetween Bamako and Koulikoro.

80. The renewal of the telephone lines from the Senegalese border atDiboli to Toukoto (330 km) is essential, as the lines at present used wereinstalled in 1910 and their poor condition causes continual breakdowns. Thetelephone line between Bamako and Koulikoro (57 km), renewal of which isalso included in the Project, is in similar condition, and its renewal isalso essential.

81. Of the total expenditure in the Project of F 2,739 million,approximately two-thirds is for replacement of worn-out, obsolete and broken-down equipment, and the remainder for additions.

B. Proposed IDA Credit and Project Financing

82. The proposed IDA credit amounting to US$ 9.1 million (NF 2,242million) would cover 82% of the total cost of the Project. It wgould financethe foreign exchange cost of the Project (MF 2,324 million) except for(i) payments made prior to January 1, 1965 on suppliers' credits for itemsincluded in the Project (ME 60 million), and (ii) part of the Project whichhas already been financed by FAC (MF 22 million). The proposed financingof the Project is detailed in Table 7 and summarized below:

NT million US$ million equivalentIDA FAC Railway Total IDA FAC Railway Total

Foreign Exchange 2,242 22 60 2,32-4 9.1 0.1 0.2 9.4Local Costs - - 415 415 - - 1.7 1.7

Total 2,242 22 475 2,739 9.1 0.1 1.9 11.1

83. DurinR the negotiations it has been agreed that the proposedcredit funds will be relent by the Government to the Railway at the presentBank interest rate (6% per annum and 3/8 of 1% commitment charge on un-disbursed funds) for a term of 30 years including a three--year period ofgrace.

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84. As agreed during the negotiations the Government has exempted theRailway from the payment of any taxes or duties levied on the import of

goods to be financed by the proposed credit.

C. Project Execution and Procurement

85. The award of contracts for procurement of the IDA-financed fcreignexchange items dill be made by international competitive bidding exceptfor the following items, the cost of which amounts to 38% of the proposedIDA credit:

MF million

(1) Items already ordered:

(a) 2 locomotives BB 1100 94(b) 3 shunting locomotives 60(c) 2 railcars and 6 trailers 136(d) 2 gangcars 8(e) Components and spare parts for

rolling stock 59(f) Track spares and maintenance

equipment 23

380Less: Payments made prior to January 1,

1965 (60)FAC contribution (22)

298(2) Items to be purchased directly in the

interest of standardization:

(a) 4 locomotives BB 1100 188(b) 2 railcars 66(c) 4 trailers 47(d) 4 gangcars 16(e) Components and spare parts for

rolling stock 173(f) Track maintenance equipment 20

510Contingencies (10%) 51

561859

(US$ 3.5 million equivalent)

The items already ordered ((1) above) are necessary and appropriate to theRailway's operation and were ordered on negotiated contracts largely in theinterest of standardization of equipment.

86. The Project has been ready for some time; it was studied by theAssociation's consultants and appraised by an IDA mission late in 1964.

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However, the Association felt that it could not give further considerationto the Project until satisfactory assurances had been obtained that thesteps necessary to redress the economic and financial situation had been orwould be taken, and therefore the credit negotiations for the Mali RailwayProject have been delayed. Meanwhile, the Mali Railway has continuedmaking payments for Project items already ordered. In these circumstances,it is recommended that the Association reimburse payments made by theRailway to the suppliers from January 1, 1965. As agreed during thenegotiations, the Railway is ma'ing arrangements with thesuppliers for payment of the outstanding balances on a cash basis, thuseliminating further charges.

87. The local cost of the Project, to be financed by the Railway,covers track renewal, workshop construction and telephone line renewal; itamounts to MF 415 million. All local materials and contract works will, tothe extent practicable, be procured and awarded through local competitivebidding.

88. The Mali Railway is competent to carry out the Project. It needs,however, the assistance of the eight technicians (Paragraph 24) and con-sultants for the workshop (Paragraph 78). Because the financial andmanagerial responsibility for the execution of the Project will rest withthe Railway, a Project Agreement will be concluded between the Mlali Railwayand the Association. The Agreement provides for priority in the carryingout of the Project, if necessary by deferment of other works; it alsoprovides for consultation with the Association before incurring sub-stantial capital expenditures outside the Project.

V. FUTURE EARNITTGS ATD FINTANCES

A. Forecast Operating Income and Expenditure

89. Mali Railway's operating income and expenditure account is fore-cast in Table 3 and a su=mary reproduced below. Motes on the method ofcompilation are given in Annex A. The forecast shows improving profita-bility, which depends for its realization on the economy of the countrydeveloping without major setbacks, on the Railway recapturing trafficpresently lost to the Abidjan route, and on the Railway containing its coststo the reasonable levels estimated by improving the efficiency of operation.

Operating Net Net Surplus Cash SurplusGross Expenses Operating (Deficit)after after Inter-Operating Including Surplus Interest and est beforeRevenue Depreciation (Deficit) Depreciation Depreciation

1964/65 11 1,063 1,245 (182) (189) (119)1965/66 2/ 1,128 1.282 (154) (156) 41966/67 1,262 1,281 ( 19) ( 54) 1291967/68 1,395 1,271 124 34 2471968/69 lr515 1,206 309 183 4101969/70 1,575 1,225 350 215 4471970/71 1,636 1,244 392 259 496

1/ Actual figures2/ Based on actra1 fi3iires of thp ftrst pine .m h- o< t,(e f. :?l ar

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90. In 1967/68 there would be a small net surplus which would increasesubstantially in the following years. The operating ratio, which was 117 in1964/65, is expected to drop to 80 in 1968/69 and to 76 in 1970/71. The in-terest earned and debt coverage ratios would be satisfactory from 1967/68 on.The return on investment calculated on net operating revenue as a percentageof the average net fixed assets improves from -3.4% in 1964/65 to 4.1% in1968/69 and to 5.2% in 1970/71 and may be expected to improve further insubsequent years. Rates of return of 4% and 5% have been agreed during thenegotiations as the goals to be reached in 1968/69 and 1970/71 respectively,and not less than 6% thereafter. It has also been agreed that, should theRailway be in danger of failing to achieve these goals, it would propose thenecessary measures, including but without limitation tariff adjustments,promptly to correct the situation and the Government has agreed to approvethem.

91. An exceptionally large elemnent in costs is the price of fuel. Atpresent, the prices of all petroleum products are fixed throughout thecountry by the Government in agreement with the oil companies, with onlyminor variations between districts. Apart from the incidence of taxes, thisresults in the Railway paying a much higher price for fuel than wbhat it wouldpay on a competitive basis free from price equalization. The Railway atpresent pays about NP 38 per liter (US¢ 55 per gallon). Of this price,MF 5.5 is for the road fund tax, which is refunded to the Railway, and someMN 10 is for other taxes. It is estimated that inclusive of these taxes,the Railway should be able to buy its fuel in bulk, on long-term, contracts,delivered on the Senegal border at no more than NP 25 per liter. Duringnegotiations the Government agreed to review promptly the existing priceequalization ard taxation systems for fuel with a view to granting exemptionsto the Railwlay. In addition, the Railway agreed to enideavor to conclude long-term contracts for the purchase of fuel on more favorable terms; this wouldbe done in consultation with the Government.

B. Forecast Cash Flow

92. The cash flow forecast for the period 1965-71 is given in Table 9.The forecast incorporates the results of the financial measures explained inParagraphs 67-73. It also makes allowance for capital expenditures outside theProject, estimated at NI 100 million a year during the Project period and atMF 200 million a year thereafter. In this connection it has been agreedduring the negotiations that the Railway will not incur any substantialcapital expenditures other than those included in the Project without priorconsultation with the Association. Under these assumptions the Mali Railwaywill be able to meet its current liabilities, establish and maintainadequate working capital, meet capital expenditures and create liquidreserves estimated to amount to about NF 800 million in 1970/71. A cashsurplus of this magnitude would be in excess of reasonable needs, and at suchtime as it materializes the Railway should consider prepaying to the Govern-ment the relent proceeds of the proposed IDA credit.

93. The summary of the cash flow over the Project period, and until1970/71, is as follows:

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MF million

1965/69 % _ 1965/71 x

Sources of FundsCash from operations 247 7 1,190 26State debt 235) 30 235) 24State subvention 822) 822)Proposed IDA credit 2,242 63 2,242 50

Total 3,546 100 4,489 100

Application of FundsCapital Expenditure 2,959 3,359Debt Service 37 105Increase in Working Capital 220 220

3,216 3,684Cash Surplus 330 805

The above table shows that the Railway investment and working capital require-ments would be more than covered, leaving a substantial surplus which couldbe used for the establishment of reserves and/or the prepayment of IDA fundsto the Goverunment.

C. Forecast Balance Sheets

94. The forecast balance sheets position 1965/71 is given in Table 10,and may be summarized as follows!

MF million

6/30/65 6/30/69 6/30/71

Liquid assets 824 605 655Current liabilities 1,334 385 435Net working capital (510) 220 220Stores 171 180 180Net fixed assets 5,429 7,605 7,536

Total Assets 5)090 8,005 7,936Debt 210 2,242 2,174Equity and Reserves 4580 5r763_ 5762

Total Liabilities 5,090 8,005 7,936

95. With the present illiquid position being rectified by the actionsexplained in Paragraphs 67--73, the current ratio improves from 0.6 to 1.7and the liquid ratio from 0.5 to 1.3. Both ratios are projected to remainat about these levels throughout the period. The debt/equity ratio is 4/96,and with the short-term loan of MF 173 million from the >'ali P & T now in-corporated in equity, virtually all of the Railway's capital is held in theform of equity. This decreases as the proposed IDA credit is drawn, and thedebt/equity ratio changes to 28/72 in 1969.

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96. No allowance has been made for the recommended reduction of storesfrom their present excessive level because of the uncertainties involved intheir review and writing down to realistic value.

VI. ECOIOMIC JUSTIFICATION

97. The Project is justified on the followqing economic grounds:

(i) The expenditure is essential to enable the Railwayto continue operating other than at reduced levelsand at high and increasing cost.

(ii) The Railway provides the least costly means of trans-port between Bamako and the Atlantic coast (see Para-graph 98). It also provides the only practical sur-face communication between Bamako and the NigerValley on the one hand, and Senegal on the other,as well as between Bamako, Toukouto and Kayes, sincethe roads are not in a suitable condition for long-distance traffic.

(iii) It is, in terms of costs, attractive for river trafficas far as Segou or even Mopti to use the Railway asan outlet to the Atlantic coast. Without a rail linkwith the Niger at ioulikoro, the use of the ligerRiver as an inexpensive means of transport would beimpaired.

98. The principal alternative route to the Atlantic coast issouthwardsby road to Ouangolodougou on the Abidjan-Niger Railway, and thence by railto the port of Abidjan. From and to Bamako, shipping by rail via Dakar hasa cost advantage of the order of NT 4,000 a ton over shiDping by road andrail via Abidjan on the basis of 1964/65 costs:

Distance Cost per Total Costkm ton/km per ton

(MF Equivalent)Rail - Bamako to Dakar

Bamako-Senegal border 585 9.92 5,803Senegal border-Dakar 643 6.17 3,967

Total cost 29770

Road/Rail - Bamako to Abidjan

Road, Bamako Ouangolodougou 544 17.00 9,248Transshipment road/rail Ouango-

lodougou 350Rail, Ouangolodougou-Abidjan 690 6.00 4,140

Total cost 13_738

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There are also cost advantages for some traffic originating from ordestined for areas east of Bamako.

99. The route to Conakry via Guinea does not provide a satisfactoryalternative, as neither road, river nor rail is suitable to carry heavy andcontinuous traffic. A project for a rail link between Bamako and Kouroussaon the Guinea Railway has been studied by Soviet experts, and the cost es-timated at US$ 36 million. In addition to this investment the Guinea Rail-way itself would require extensive rehabilitation in order to make thisroute suitable.

100. The economic return on the investment in the Mali Railway may bemeasured by comparing the costs of transport of a traffic unit (one ton/kilometer of freight or two passenger/kilometers) on the Railway after andbefore rehabilitation. In 1968/69 this cost (excluding depreciation) isestimated at HF 4.60, compared with TF 8.64 in 1964/65. There is thus asaving of NF 4.04 per traffic unit, which on 213 million units in 1968/69means a total saving of MF 860 million. However, a substantial part of thisreduction arises not from the new investments but from reductions in thelabor force and from expected savings in the cost of fuel. W-Thile it is notpossible to separate the investment benefits and the benefits from otherimprovements precisely, it would appear that perhaps one-half of thebenefits can only arise if the investments are made. On this basis, thereturn on the investment over its useful life, and assuming no increasein traffic after 1968/69, would be at least 15%. To the extent that trafficincreases without requiring further investment and unit costs fall in sub-sequent years, this return would be increased. It would also be improvedby the fact that, without the investment, unit costs would increase fromtheir present level.

101. The relaying of the track and the renewal of the telephone linebetween Bamako and Koulikoro may be considered separately, as the remainderof the proposals can be carried out without embarking on this work. Thealternative is to close this section down and have the Railway terminate atBamako. Koulikoro is, however, the only possible river port for Bamako,since the river is not navigable between Koulikoro and Bamako. If thissection were closed down the connection between the Railway and river trans-portation would be severed, and it would be necessary to transship any rivertraffic coming from or destined for the Railway to Dakar twice - from rail toroad at Bamako and from road to river at Koulikoro. The problem is analyzedin Annex B, which shows that this investment is economically justified.

VII. CONCLUSIOIS ANM RECOMIENDATIONS

102. The Mali Railtway Project is intended to enable the Railway to con-tinue its service and to carry the expected traffic efficiently. TheProject is technically sound, economically justified and should improve theRailway's finances.

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103. The Project provides a suitable basis for an IDA credit ofUS$ 9.1 million equivalent to Mali to be relent to the Railway; a ProjectAgreement would be concluded between the Association and the Mali Railway.

September 9, 1966

TABLE 1

M4ALI RAILWAY

Motive Power and Rolling Stock as at June 30, 1965

To be scrappedPower per Years of immediately or during

Number Unit (HP) Delivery Manufacturers Project period

Main Line Diesel Locomotives

1 1,330 1950 Whitcomb 16 1,050 1959/65 Alsthom -2 840 1954 Alsthcm 22 610 1949/50 Alsthom 2

11 5

Diesel Shunters

2 300 1953 Alsthom 23 150 1956 Baudet

5 2

Diesel Railcars

2 500 1965 De Dietrich

Trailers

26 1965 Billard

8

Passenger CarsAge Group(years)- Number

Over 35 18 1825-35 12 2Less than 25 21

Total 51 (of which lb are baggage vans) 20

Freight Cars

Over 35 98 6125-35 60 6Less than 25 85

Total 243 67

MALI RAILWAY

Froight Trafficlt

(Tons 000)

Freatl926 1957 1958 299 2 260 1961 1262 1963/64 196L/65 217077

WCtRTS July - June

,oceriea, Sugar and Drinks 34/ 36 39 47/ n.. -_ 19 17 25itroleum Producta 32 34 35 34 n- - 23 35 45at 12 13 13 13 n - 8 9 12meant, Bulding Materials 38 48 41 42 n - 50 53 80ihicles 2 3 2 3 -_ 2 1 3.hers 2a ..2j _2 22 n _ 23 33 55

138 158 154 161 125 148 220

:PORTS

oundnuts (including oiland cake) 53-/ 48 58 46 n _ 25 28 50

llet and rice 9/ 8 10 8 - - 3 3 10la 5/ 12 15 15 2 - 2at, Hides and skins 1/ 1 - 1 u 1 1 3tton and textiles 2" 2 2 2 -_ 3 4 30her 12 19 19 15 -_ 2 4 15

82 90 -04 87 36 40 lIO

CAL TRAFFlC 75 60 37 52 n.a 66 66 48 34 50

tal 295 308 295 300 175 66 66 209 222 380

?igures for 1956-1959 refer to Mali Traffic on C. F. Region Dakar-Niger.

TABLE 3

MALI RAILWAY

Traffic, 1963-1965 and Forecasts 1966-1971

Freight Passengers

(Thousands of Tons) (Thousands)

International Local Total

1963/64 161 48 209 501

1964/65 188 34 222 473

Forecast

1965/66 1/ 200 35 235 480

1966/67 235 40 275 495

1967/68 270 45 315 510

1.968/69 300 50 350 525

1969/70 315 50 365 540

1970/71 330 50 380 555

1/ Based on actual traffic figures for the first ten months of the fiscalyear.

MALI RAILUAY

bNma.nr fraffi

(Figures ror 1956-60 are for Mali Passengers on the Dakar-Niger Railways)

July 1963 July 19641956 1960 1962 1963 June 1964 June 19%5

Passengers carried 000 425 410 351 367 380 505 440 497 501 473

Passenger/KM Million 72 66 70 58 45 54 47 49 54 55

Average traveldistance Km 169 161 199 158 118 107 107 99 108 u7

MALI R&ILWAY

Inom and ExDonditure Aooount

158-196iL/65

(CFAF and MF million)

Dakar- Federal Railvay M a 1 i R a i 1 w a yNiger of MalRegion July 1, 1964-

1958 Jak222 J iuff 1960 Ss-Deo 1960 192 1962 I21 Jan-Jua 192 June 30. 1965INCOM4E

Traffia Revnue 3,710 3,733 2,593 77 364 348 606 493 968Other Revenue I2 _ 28 _ 2L -. L9 72 20 -95

Totl Blevenu 3,762 3,761 2,617 77 403 397 678 513 1,063

EXPENDITUREWiges and Salarios 2,492 2,699 1,786 172 600 662 698 347 709Fuel and Lubricants 212 245 206 8 52 42 63 35 86Materials and Miaoellaneoum L8 1S 22 32 12 178 la -80

Total Operating ipxenditure 3,142 3,585 2,500 202 779 831 939 522 19175

Working Surpluw/(Deficit) 620 176 U7 (125) (376) (434) (261) ( 9) (112)

Depreoiatioun 436 436 291 - - - 100 80 70

Operating Surpluw/(Defioit) 184 (260) (174) (125) (376) (434) (361) (89) (182)

Financial Gharg.osl Interest ) 50 73 30 - 18 17 16 7 7Repayments) 25 26 21 14 29

Total Surplus/(Deficit) 134 (333) (2(4) (125) (419) (477) (398) (110) (218)

Operating Ratio (%) 95 107 107 262 193 209 153 117 117

I/ Includes repayments as in Railway's accounts

MALI RAILWAY

Bilance Sheet at June 30. 1965

(MF million)

CURRENT ASSETS CURRENT LIABILITIES

Cash 13 Bank Overdrafts 840Senegal Railways 166

Receivables Ex-Federation 18Socopao 270 Other 310Other Traffio 133 1,334Non-traffic 106 Short-term LoanAgents 4 Mali P and T 173Ex-Federation 63Settlement of Ex-Federation Other -ioana

due from State 25IERD - due within 1 year 27811 due in subsequent yeara -

Storea CCCE - due within 1 year 4In warehouse 156 due in subsequent years 6In transit 1S37

171 Equitv held by StateCapital contributed 5,908

Total Current lssets 995 Contributions to Investments 115Contribution by FAC 22

FIXED ASSETS Contribution to Renewal Fund 252Gross value at September 1, 1960 5,658 Railway Loans redeemed by State 93Net additions to June 30, 1965 459 6,390Less Accumulated Depreciation (688) Less Accumulated Depreciation t688)

Leas Defioitst 1964/65 (218)Total Net Fixed Assets 5,429 Prior Years 4.880

TOTAL ASSETS 6,424 TOTAL LIABILITIES 6,424 a,

MALI RAILlWAY

THE P1:JECT AND ITS PROPOsED FINANCING

(HF million)

FORSIGN COSTS LOCAL PROPUSED FINANCING

Committed Propoaed Total COSTSAll IDA FAC Railways

THE PROJECT CoTtal Foreign Local

Track1. Relaying of part of the Kaysa-

Senegal BDrdar section (57 km) 334 334 100 434 334 100

2. Relaying of the Bamako-Koulikorosection with serviceable rails fromthe Iaye.-Sezngal Ebrd r section (57 bi) 26 26 126 152 26 126

Sltotal 360 360 226 586 360 226

Locomotives and Rolling Stock3. 6 main line locomotives

BB 1100 type 94 188 282 282 262 20

4. 3 shunting locomotives 60 60 60 58 '2

5. 4 rallcars 66 66 132 132 112 20

6. 10 trailers 70 47 11? 117 106 11

7. 6 gangcars 8 16 24 24 16 8

8. 6 passenger cars and2 haggage vans 130 130 130 130

9. 107 freight cars 312 312 312 312

S/total 298 759 1,057 1,057 996 22 39

Materials. Workshop and Equipment10. Components and Spare Parts for

rolling stock 59 173 232 232 221 11

11. 9/orkshop and l1orkshop equipment 325 325 101 426 325 101

12. Track Spares and Maintenance equipment 23 20 43 43 33 10

S/total 82 518 600 lfll 701 579 21 101

Signalling and Telecommunications13. Renewal of telephone lines on

the Diboli-Toukoto (330 km) andBamako_Koulikoro (57 km) sections 130 130 50 180 130 50

Total 380 1,767 2,147 377 2,524 2,065 22 60 377

Contingencniea ,nd Consulting Services14. lO9b or non-committed 177 17?7 38 215 17, 38

Grand Total 380 1,944 2,324 415 2,739 2,24;2 22 60 415---- 475 ----

US$ million equivalent 1.5 7.9 9.4 1.7 11.1 9.1 0.1 1.9

MALI RAILWAY

FORECAST OPERATING INCOME AND EXPENDITURE 1965-1971

(MF million)

Actual

1964/65 1965/66 1966/67 1967/68 1968/69 1969/70 1970/71

Operating RevenuePassengers and baggage 212 219 229 240 251 259 266Freight 732 792 924 1,052 1,163 1,212 1,262Service traffio 3 4 5 5 5 5 5Mail 12 12 12 13 13 13 13Senegal - repairs and rents 33 27 15 5 - - _Miscellaneous 71 74 77 80 83 86 90

Total Operating Revenue 1,063 1,128 1,262 1,395 1,515 1,575 1,636

Operating ExpensesWages and Salaries 709 725 689 653 617 617 617Fuel and lubricants 86 .93 109 125 92 96 100Materials and Miscellaneous 204 210 220 230 240 250 260Senegal - repairs and rents 176 94 80 50 30 30 30

Total Working Expenses 1,175 1,122 1,098 1,058 979 993 1,007

Working surplus (deficit) before depreciation ( 112) 6 164 337 536 582 629

Depreoiation 70 160 183 213 227 232 237

Operating surplus (deficit) after depreciation ( 182) (154) ( 19) 124 309 350 392

Interest charges:Existing IBRD and CCCE loans 7 2 1Proposed IDA credit 3L 90 126 135 133

S/total 7 2 35 90 126 135 133

Net surplus (deficit) ( 189) (156) (54) 34 183 215 259

Debt Amortization 29 31 3 2 1 33 35

Operating Ratio (%) 117 114 102 92 80 78 76"Interest Earned" ratio - - , 1. 4x 2.5x 2.6x 2.9xDebt coverage ratio - - 4.3x 3.7x X.2x 3.5X 3.?xAverage net fixed assets 5,340 5,476 5,905 6,780 7,L39 7,589 7,555Return on average net fixed assets (P) (-3.4) (-2.8) (0.3) 1.8 L.1 4.6 5.2

MALI RAILWAY

FORECAST CASH FLOW 1965-1971

(MF million)

Total Total

1965/66 1966/67 1967/68 1968/69 1965/69 1969/70 1970/71 1965/71

Sources of FundsAvailable at beginning of period (543) (670) 143 88 (543) 330 544 (543)

Net surplus (deficit) (156) ( 54) 34 183 7 215 259 481

Depreciation 160 183 213 227 783 232 237 1,252

State Debt 235 235 235

Subvention for past deficits 822 822 822

Proposed IDA oredit 950 900 392 2,242 2,2h2

Total (539) 1,466 1,290 890 3,546 777 1,040 4,489

Application of Funds 2'

The Project lep00 1,100 459 2,559 -2 2,559

Other capital expenditure 100 100 100 100 400 200 200 800

Debt amortization:Existing IBRD and CCCE loans 31 3 2 1 37 37

Proposed IDA credit 33 35 68

Working Capital 220 220 220

Totea 131 1.323 1,202 560 3,216 233 235 3,684

Balance Carried Fbrward (670) 1i3 88 330 330 544 805 805 Lrp:

/ Current Liabilities 1,334 a/ Project total cost 2,739

Less outstanding suppliers' Paid prior to

credits included in the July 1, 1965 ( 180)

proposed IDA credit 200 2,5

1,134Liquid assets 826Less due from State 235

591(543)

t4ALI RAILWAY

PRO-.FORA BAlANCE SHEETS AS OF JUNE 30. 1966-1971

(MF million)

Actual1965 1966 1967 1968 1969 1970 1971

ASSETSCurrent Aasets:Cash 13 40 150 150 150 150 150Receivables:

State 235 235 - - - -Socopao 270 200 70 70 80 80 80Other 306 250 350 350 375 400 425

Stores 171 180 180 180 180 loO 180

S/total 995 *95 750 750 785 810 835

Fixed Asnets:Gross value 6,117 6,371 7,317 8,517 9,076 9,276 9,476Leos depreciation 688 848 1.031 1.244 1,471 1,703 1,940

Net Fixed As8ets 5.429 5.523 6a286 7,273 7,605 7.573 7,536

TOTAL ASSETS 6,424 6,428 7,o36 8,023 8,390 8,383 8,371

LIABILITIESCurrent Liabilities:

Bunk overdrafts 840 750 - - - -Senegal Railways 166 250 152 60 60 70 70Other 328 556 300 325 325 350 365

S/total 1,334 1,556 452 385 385 420 435

Short-term P and T loan 173 173 - - - - -Long-term Debt:

IBRD and CCCE loans 37 6 3 1 - - -Proposed IDA credit 950 1,850 2,242 2.209 28174

S/total 37 6 953 1,851 2,242 2,209 2,174

Eauity held by State:Capital contributions and reserves 4,880 4,693 5,631 5,787 5,763 5,754 5,762

tlo

TOTAL LIABILITIES 6,424 6,428 7,036 8,023 8,390 8,383 8,371

Current Ratio 0.7 o.6 1.7 1.9 2.0 1.9 1.9Liquid Ratio 0.6 0.5 1.3 1.5 1.4 1.5 1.5Debt/Equity Ratio 4/96 4/96 15/85 24/76 28/72 28/72 27/73

AI'MNE APage 1

Notes on Forecast Operating Income and Expenditure (Table 8)

A. Income

(a) Passengers

1. Passenger traffic receipts in 1964/65 were IvIF 3.83 per passenger/km,including supplementary receipts for reservations, berths, etc.., and thisaverage has been used for the computation of future passenger traffic revenue.

2. The average distance travelled in recent periods has been asfollows:

Period Average Distance

1962: January to June 91 Ian

1963: July to December 101 km

1964: January to June 113 ln

1964/65: July to June 117 ko

The reopening of the line to Dakar in mid-1963 resulted in an increase inthe average length of journey; because of the future development ofinternational passenger traffic the average length of journey is expectedto increase gradually to 125 km by 1968/69, and to remain at that figurethrough 1970/71.

3. The number of passengers is expected to increase by 3% per annum,from 473,oo0 in 1964/65 to 555,000 in 1970/71; passenger/km would increasefrom 55 million in 1964/65 to 69 million in 1970/71, an annual increase of4.2%.

(b) Freight

4. In 1964/65 total freight tonnage was 222,000 tons, carried overan average distance of 489 km (464 km in 1963/64); the average freighttraffic receipts were MF 6.74 per ton/lan, resulting in a total revenue ofMF 732 million. Because of the increasing predominance of internationaltraffic in the total traffic, the average haul is expected to rise graduallyto 515 km by 1968/69, and to remair. at that figure through 1970/71.

5. Average receipts are expected to fall slightly from MF 6.74 perton/km in 1964/65 to MF 6.45 per ton/km in 1968/69, owing to a bias towardsthe lower-rated commodities, such as cement, building materials and ferti-lizers among imports, and groundnuts and cotton among exports. Tonnagesare forecast to increase by 75% in 1970/71 (paragraph 46) resulting in anincrease in ton/km from 109 million in 1964/65 to 196 million in 1970/71.On the above basis freight traffic revenue would increase from PT 732 millionin 1964/65 to IW 1,262 million in 1970/71, an increase of 72%.

AiT= APage 2

(c) Miscellaneous

6. They consist principally of catering revenue, rent of buildingsand refund of the road tax on fuel (see paragraph 8, below).

B. Working Expenditure

(a) Wages and Salaries

7. As explained in paragraph 27 the Railway's staff is too large inrelation to the size of present and future operation and an annual 5%reduction in personnel costs has been assumed for the years 1966/67 through1968/69. No allowance has been made for the staff requirements of the work-shop included in the Project since itis estimated that this force could bemade available from existing staff of other technical departments.

(b) Fuel and.Lubricants

8. It may be-that the exemption of the Railway from the priceequalization and taxation systems for fuel takes some time (paragraph 91).Fuel costs have, therefore, been computed on an MF 38-per liter basis until1967/68, and on an MF 25-per liter basis thereafter. Quantities have beenincreased proportionately to the expected increase of train/km.

(c) Materials and Miscellaneous

9. Because of the bad condition of equipment, maintenance requirementsare high. The new equipment included in the Project, a small part of whichis being delivered, and the scrapping of obsolete and deteriorated loco-motives and rolling stock will have a favorable effect on maintenance costs.However, expenditures under this heading are expected to increase because ofthe expected increase in train/km.

(d) Senegal - Repairs and Rents

10. In the under-equipped state of the Mali Railway it has beennecessary to hire much rolling stock from Senegal; repairs in Thies work-shops have also been important; this is shown in the figure of MF 176million for 196h/65. With the delivery of the equipment included in theProject (of which two locomotives, two railcars and six trailers havealready been delivered) this expenditure is expected to drop rapidly. WhenMali's own workshop will be in operation, repairs by Thies will be confinedto major overhauls of line locomotives.

C. Depreciation

11. In the past depreciation charges were inadequate. In the forecast,depreciation has been calculated on a 2-1/2% annual allowance, based on anaverage hO-year life of the existing depreciable assets and of the items in-cluded in the Project.

AMIM APage 3

D. Interest Charges

12. They include (i) charges for the remaining portion of the Malishare of the IBRD and CCCE loans and (ii) the proposed DA credit whichis to be relent by the Government to the Railway on the presentBank terms (6% interest per annum and 3/8 of 1% commitment charges onundisbursed funds) for 30 years including a 3-year period of grace.

E. General

13. No price escalation has been assumed in any of the financialforecasts for the following reasons:

(1) Since the Railway's payroll is expected to be containedwithin the limits explained in paragraph 27, inflationaryfactors will not affect it in the next years.

(2) The operating expenses other than (1) are mainly steel andfuel, the world prices of which are expected to be stablein the foreseeable future.

However, should there be operating cost increases because of inflation,tariff adjustments will be required; this possibility and the remedialaction thereon have been discussed and agreed with the Government and theRailway (see paragraph 90).

ANNEX BPage 1

MALI RAILWAY

The Bamako-Koulikoro Section

1. The relaying of track and renewal of telephone line of theBamako-Koulikoro section (57 km) forms part of the rehabilitation and moderni-zation program of Mali Railway. This proposed investment may be evaluatedseparately from the rest of the program, since if it did not give an ade-quate economic return this section of the line could be closed down.

2. To keep this section of the railway in operation it is necessaryto invest MF 330 million. The new 30 kg/m rail acquired would be laid onthe main line between Kayes and the Senegal frontier, and the old railssalvaged from there re-laid on the Bamako-Koulikoro section. The depreciatedvalue of the re-laid rails has, therefore, been attributed to the investmentcost of the Bamako-Koulikoro section.

3. If the section were closed down, traffic which would otherwise usethis route would have to be routed differently. The estimated present-dayfreight costs of Atlantic coast traffic by this route and by possible alter-natives are as follows, using Segou, the first major river port east ofKoulikoro, as point of origin or destination.

(i) Segou to Koulikoro by river and thence by rail to Dakar:

Distance Cost per Cost perton/km ton

km (MF equivalent)

Segou-Koulikoro (river) 200 h.25 850

Transshipment-Koulikoro 350

Koulikoro-Senegal Border 642 9.92 6,369

Senegal Border-Dakar 643 6.17 3,967

11,536

AICEX BPage 2

(ii) Segou to Koulikoro by river, thence by road to Bamako, thenceby rail to Dakar:

Segou-Koulikoro (river) 200 4.25 850

Transshipment-Koulikoro 350

Koulikoro-Bamako (road) 57 17.00 969

Transshipment-Bamako 350

Bamako-Senegal Border 585 9.92 5,803

Senegal Border-Dakar 643 6.17 3,96712,289

(iii) Southern route: Segou to Ouangolodougou by road, thence by railto Abidjan

Segou-Ouangolodougou (Road) 466 17.00 7,922

Transshipment-Ouango'odougou 350

Ouangolodougou-Abidjan(Abidjan-Niger Railways) 690 6.00 4h140

(iv) Segou to Bamako by road, thence by rail to Dakar:

Segou-Bamako (road) 240 17.00 4,080

Transshipment-Bamako 350

Bamako-Senegal Border 585 9.92 5,803

Senegal Border-Dakar 643 6.17 3,967

4. The unit costs given above for road transport are typical costs at thepresent time; in fact road costs vary within wide limits according to size ofvehicle used. The Government has set a rate of about IF' 13 per ton/km, butthe Government-owned trucking company incurs a substantial loss at that rate.Accordingly, and also taking into account trucking costs in neigboring countries,it would appear that actual trucking costs are muchhLigher and at least IF 17per ton/km. The latter cost has been used in the above calculations whichshow that the least costly alternative routing if the Bamako-Koulikoro sectionwere closed would be to use the river to Koulikoro, thence road to Bamako,thence rail to Dakar. The cost per ton is approximately MF 750 more expensivethan if the whole journey to the coast from Koulikoro is done by rail, whichwill be the case if the Bamako-Koulikoro section of the railway is kept open.

ANMEX BPage 3

5. On estimated traffic on the Bamako-Koulikoro section of 100,000 tonsa year in 1968/69(after completion of investment), the investment would saveMF 75 million p.a. over the least costly alternative. This gives an economicrate of return of approximately 20% on the investment, assuming 1964/65 costsand traffic not rising after 1968/69. Reductions in rail costs will beachieved over the period but similarly road costs could be reduced by the useof larger vehicles; these two factors are assumed to offset each other in cal-culating future differential costs of alternative methods. To the extentthat traffic continues to rise after 1968/69, as it is expected to do, therate of return on the investment in the railway would increase.

MALI RAILWAY A L-. Il- dthways \ A L 6 E RI A

0 100 200 300 400 500 R go d. Cl,-otn d -cr du A..I

K I L 0 U E T e R S N0.jorroads I

M A U R I T A N A I

,4-<p TIKr nO.jctou 1

E ~N E Ci A L 4S_J___/ 3 _ eelKd t\Dibo11 /

--- i 4 -X e o--PORT. T l .gI c

S G U y 8> [ 1w~~~~~~~~ U P P E R V O L T A (

a-d9 E SlXo*so doKgreOto BAcD reelour -o,)

CONAK ~\4 A°

O ngelodeUo

w > S ~~I E R R A O O GE R I A

,^ ) ~L E O FI E, | _) ,

i t < / / 9 G H A N A I ° | GERIA

t(lNE 1966