Document of

The World Bank

FOR OFFICIAL USE ONLY

s 7t; > 7t Report No. 3344a-RO

ROMANIA

STAFF APPRAISAL REPORT OF A

LAND TRANSPORT PROJECT

June 15, 1981

Projects DepartmentEurope, Middle East and North Africa Regional Office

*~~~~~This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

Currency Unit = Leu, Lei (plural)Lei 18 = US$1.oo up to December 31, 1980Lei 15 = US$1.00 from January 1, 1981

WEIGHTS AND MEASURES

Metric System British/US System

'1 meter (m) = 3.2808 feet (ft)1 kilometer (km) = 0.6214 mile (mi)I square kilometer (km2) = 0.3861 sq. mile (mi2)I metric ton (m ton) = 0.9842 long ton (lg ton)

ACRONYMS AND ABBREVIATIONS

(Romanian equivalent, used in legal documents, shown in parenthesis)CFR (DEPCF) Romanian Railways (Departamentul Cailor Ferate)DR (DD) Directorate of Roads (Directia Drumurilor)EDI Economic Development InstituteER Economic ReturnFTE Foreign Trade EnterpriseFYR First Year ReturnGNP Gross National ProductIB Investment Bank of RomaniaICB International Competitive Bidding- (ICPTT) Technological Research and Design Institute for

Transport (Institutul de Cercetari si ProiectariTechnologice in Transporturi)

LCL Less than Car LoadMTTc (MTTC) Ministry of Transport and TelecommunicationsNdC Nota de ComandaRCC (CCCF) Railway Construction Central (Centrala de

Constructii Cai Ferate)RDI (IPCF) Railway Design Institute (Institutul de Proiectari

Cai Ferate)RoDI (IPTANA) Road Design Institute (Institutul de Proiectari

Transporturi Auto Navale si Aeriene)RTC Road Transport CentralRWC Railway Workshop CentralSCP State Committee for PricesSPC State Planning CommitteeTU Traffic Unit

SOCIALIST REPUBLIC OF ROMANIA

FISCAL YEAR

January 1 to December 31

FOR OFFICIAL USE ONLY

ROMANIA

APPRAISAL OF

A LAND TRANSPORT PROJECT

Table of Contents

Page No.

I. THE TRANSPORT SECTOR. . . . . . . . . . . . . . . . . . . . 1

A. The Transport System . . . . . . . . . . . . . . . . . 1B. Transport Planning, Policy and Coordination. . . . . . 3C. Tariffs and Costs. . . . . . . . . . . . . . . . . . . 5D. Previous Bank Involvement. . . . . . . . . . . . . . . 5

II. THE RAILWAY AND HIGHWAY SUBSECTORS . . . . . . . . . . . . 6

A. Traffic Trends and Forecasts . . . . . . . . . . . . 6- General . . . . . . . . . . . . . . . . . . . . . . 6-Freight .... . . . . . . . . . . . . . . . . . . 6- Passengers. . . . . . . . . . . . . . . . . . . . . 7

B. Railways- Headquarters Organization . . . . . . . . . . . . . 7- Regional Organization . . . . . . . . . . . . . . . 8- Centralized Activities. . . . . . . . . . . . . . . 8- Uneconomic Lines and Services . . . . . . . . . . . 8- Railway Property. . . . . . . . . . . . . . . . . . 8- Operations. . . . . . . . . . . . . . . . . . . . . 10- Staff Quality . . . . . . . . . . . . . . . . . . . 11- The Railway Investment Plan (1981-85) . . . . . . . 11- Financing Plan. . . . . . . . . . . . . . . . . . . 14

C. Highways- Organization. . . . . . . . . . . . . . . . . . . . 15- Planning. . . . . . . . . . . . . . . . . . . . . . 15- Engineering . . . . . . . . . . . . . . . . . . . . 15- Construction. . . . . . . . . . . . . . . . . . . . 16- The Network .... . . . . . . . . . . . . . . . . 16- Maintenance .... . . . . . . . . . . . . . . . . 16- Road Transport. . . . . . . . . . . . . . . . . . . 17- Highway Investments (1981-85) and Financing . . . . 18

This report was prepared by Messrs. L. L. Alston (Railway Engineer);R. J. Mulligan (Highway Engineer); M. K. Ganguli (Economist);R. W. MacDonald and 0. S. Murthy (Consultants) on the basis of anappraisal mission to Romania during September/October 1980, updatedduring April 1981.

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents mav not otherwise be disclosed without World Bank authorization.

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Page No.

III. THE PROJECT .... . . . . . . . . . . . . . . . . . . . 19

A. Project Objectives. . . . . . . . . . . . . . . . . . 19B. Project Preparation. 20C. The Project Description and Cost Estimates. . . . . . 20

- Railway Components. . . . . . . . . . . . . . . . . 21- Highway Components. . . . . . . . . . . . . . . . . 23- Technical Assistance. . . . . . . . . . . . . . . . 24

D. Project Engineering . . . . . . . . . . . . . . . . . 24E. Financing ..... cae. . . 25F. The Loan, the Borrower and Beneficiaries. .26G. Project Implementation. . . . . . . . . . . . . . . . 27H. Procurement .. 28I. Disbursements ... 29

IV. ECONOMIC EVALUATION .. 30A. General .. 30B. Project Costs and Benefits. . . . . . . . . . . . . . 31C. Economic Return ... . . . . ...... . . . . . . 32D. Project Risks . . . . . . . . . . . . . . . . . . . . 34

V. FINANCIAL EVALUATION FOR RAILWAYS . . . . . . . . . . . . 34A. General . . . . . . . . . . . . . . . . . . . . . . . 34B. Past Financial Performance. . . . . . . . . . . . . . 36C. Future Financial Position . . . . . . . . . . . . . . 40

VI. AGREEMENTS REACHED AND RECOMMENDATIONS. . . . . . . . . . 44

ANNEXES

1. Traffic Trends and Forecasts . . . . . . . . . . . . . . . 452. Design Characteristics of Railway Works. . . . . . . . . . 483. Highway Component of the Project . . . . . . . . . . . . . 504. Outline of Terms of Reference for Traffic Optimization

Study .... . . . . . . . . . . . . . . . . . . . . . . 545. Design Characteristics of Project Roads. . . . . . . . . . 576. Related Documents and Data Available in the Project File . 587. Main Accounting Assumptions (Railway Component). . . . . . 62

TABLES

1. Freight Traffic by Mode of Transport, 1960-80 . . . . . . 652. Passenger Traffic by Mode of Transport, 1960-80 . . . . . 663. Commodity Composition of Rail and Road Traffic - 1972,

1978-1980. . . . . . . . . . . . . . . . . . . . . . . . 674. Production, Consumption, Exports and Imports of Oil

and Oil Products, 1970-79 . . . . . . . . . . . . . . . . 68

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TABLES (con't)

5. Transport Tariffs for Railways and Road Transport (1980). . . . . . 696. Railway Freight and Passenger Traffic - Actual 1970-80,

Plan 1981-85 .707. Modal Traffic Trends (1960-80) and Plan Forecasts (1981-85) . . . . 71

8. Selected Operating Statistics for Romanian Railways (1970-1980) . . 729. Traction and Rolling Stock: Age Statement . . . . . . . . . . . . . 7310. Diesel and Electric Locomotive Acquisition During 1978-1980

and their Total Planned Procurement During 1981-85 . . . . . . . . 7411. Freight Car Acquisition During 1978-1980 and Total Procurement

of Cars for 1981-85. . . . . . . . . . . . . . . . . . . . . . . . 7512. Comparison with Other European Railways Year 1977 . . . . . . . . . 7613. Railways Staff and Productivity .7714. Railway Investment Plan .78

15. Track Overhaul - Priority Sections for 1981-85. . . . . . . . . . . 7916. Financing Plan for Railways Five Year 1981-1985 Capital Investments 8017. Public Roads - 1977, 1978, 1980 . . . . . . . . . . . . . . . . . . 8118. Modernization of the Highway System 1960-85 Actuals

1960-79: Forecasts 1980-85 . . . . . . . . . . . . . . . . . . . . 8219. Highway Expenditures 1976-80. . . . . . . . . . . . . . . . . . . . 8320. Average Daily Traffic on Selected National Roads - 1978 . . . . . . 8421. Motor Vehicle Fleet 1972-1978 .8522. Production of Motor Vehicles 1960-79. . . . . . . . . . . . . . . . 8623. Transport Sector Investments. . . . . . . . . . . . . . . . . . . . 8724. Details of Items on which Railway Part of the Loan could be

Disbursed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8825. Quantities and Railway Component of the Project Costs at Romanian

Investment Plan Prices ... . . . . . . . . . . . . . . . . . . . 8926. World Bank Estimate of Project Cost - Railway Component . . . . . . 9027. Cost of Highway Component ... . . . . . . . . . . . . . . . . . . 9128. Traffic on Lines to Be Doubled and Electrified. . . . . . . . . . . 9229. List of Goods Eligible for Disbursement from Highway Portion

of the Loan .... . . . . . . . . . . . . . . . . . . . . . . . 9330. Project Implementation Schedule - Railway Components. . . . . . . . 9431. Project Implementation Schedule - Highway Components. . . . . . . . 9532. List of Goods Eligible for Disbursement from Railway Part of

the Loan .... . . . . . . . . . . . . . . . . . . . . . . . . . 9633. Estimated Schedule of Disbursements ... . . . . . . . . . . . . . 9734. International and Domestic Price of Basic Elements Considered

for Economic Analysis. . . . . . . . . . . . . . . . . . . . . . . 9835. Economic Returns and First Year Returns . . . . . . . . . . . . . . 99

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Page No.TABLES (con't)

36. Romanian Railways (CFR) Income Statements 1974 to 1985

Actuals 1974-80; Plan 1981-85. . . . . . . . . . . . . . . . . 100

37. Allocation of Expenses between Passengers and Freight 1977-79 101

38. Romanian Railways Cash Flow Statements 1976-1985(Actuals 1976-80; Plan 1981-85). . . . . . . . . . . . . . . . 102

39. Romanian Railways Balance Sheets as at December 31(Actuals 1976-80; Plan 1981-85). . . . . . . . . . . . . . . . 103

CHART

IBRD 22377: Organization of the Ministry of Transport and

Telecommunications (MTTc)

MAP

IBRD 15462R: Socialist Republic of Romania - Land Transport Project

ROMANIA

I. THE TRANSPORT SECTOR

A. The Transport System

1.01 Despite the existence of extensive mountainous areas, Romania has afairly well developed and evenly distributed transportation network (Map IBRD15462R) that provides access to all major centers of economic activity. Thetransportation network includes about 11,000 route-km of railways, 73,500 kmof roads, one major seaport, four main commercial river ports and a sizeablenetwork of inland waterways and pipelines. The Danube river, which is navi-gable, flows through 1,075 km of Romania, mainly along its southern border.Ninety percent of the foreign trade is handled through the port of Constantaon the Black Sea. Pipelines have been the principal carriers of petroleumand natural gas but have a limited and specialized role. Air and coastalshipping are relatively unimportant for inland transport.

1.02 Romania's economy has grown rapidly since World War II. Increasingeconomic activity and personal incomes have led to a high but declininggrowth rate in transport demand: 10.5% and 10.2% yearly for freight and pas-sengers in the 60s, down to 5.5% and 8.4%, respectively in the 70s (Annex 1).

1.03 The backbone of Romania's internal freight transportation is therailway network, which has the crucial responsibility for moving traffic overrelatively long distances from the various concentrated centers of manu-facture and trade to important consumption centers. Although road traffic isincreasing fairly rapidly in tonnage, it functions mainly as a short-haulmover. In 1960, railways carried more than 80% of freight (in ton-km) whichby 1980 declined to 67% (Table 1), with a corresponding increase in the per-centage carried by road. The Danube river transport and pipelines accountfor about 2% and 6% of ton-km respectively. It is significant that for pas-senger traffic, the railways' former dominance passed to roads in the late1960s and the current rail/road split is about 27/73 (Table 2).

1.04 A detailed breakdown of the transport of goods by commodity groupsshows that in terms of ton-km, the railways are still the main carrier of allcommodities without exception (Table 3). The volume of quarry and ballastproducts carried by road transport is, however, conspicuously high, sinceworking sites can mostly be reached by road only. Road transport is alsosignificant for the movement of higher value goods, such as machinery andequipment, chemical products and processed foodstuffs.

1.05 Romania's development efforts have been concentrated on heavyindustry as the basis for creating an industralized society. The transport

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sector has first of all, therefore, been required to meet the needs of heavyindustry and associated large construction projects. The needs of lightindustry, agriculture, and passenger transport have been secondary. Byinternational standards, Romania has a high number of employees per enter-prise and more than 80% of gross industrial production and the industriallabor force is concentrated in large enterprises, each employing more than1,000 persons. Such enterprises are dispersed country-wide in response to apolicy of uniform regional development. Distribution of industrial and con-sumer goods is made from distribution centers which have been established in

every "judet" (county). While transport to and from those centers within thejudet is by road, this pattern of geographically concentrated development ofproduction and consumption centers has favored railways because of theirability to handle dense freight traffic flows from one center to another. Tocope with such flows these centers are generally well equipped with sidingsand handling facilities for bulk traffic. About three-quarters of railwaytraffic moves from siding to siding. The present high technical efficiencyand quality of service of the railways is a further contributing factor totheir greater use. In particular, the Romanian Railways (CFR) have higherlabor productivity and make more intensive use of their capital assets, bothinfrastructure and rolling stock, than most other railways. Furthermore, theproduction of consumer goods and light manufacturing industries whichnormally favor the use of road transport, are less developed. As such indus-tries grow in the future, dependence on road transport may be expected toincrease.

1.06 The growth of the transport sector has been accompanied by more thana threefold increase in its employment during the last three decades.However, the share of the transport sector as a whole in the national laborforce has remained steady at about 6-7% during those years. There has been asubstantial shift in employment among transport modes; the share forrailroads declined from 76% of total transport employees in 1950 to about 40%in the late 70s, while the percentage share of road transport employeesincreased from 4% to more than 40%.

1.07 Sea transport has been used exclusively for foreign trade and thereis little coastal traffic. Over the last two decades an annual average of65% of all exports and about 40% of all imports have been carried by sea.

With the exception of crude oil, most movements to and from the Constantaport are by rail. Completion of the Danube-Black Sea Canal by the end of1984 will add significant transport capacity to serve the growing economy,and will facilitate movement of the projected traffic volumes to and fromConstanta. This canal is the major component of a larger program which alsoincludes construction of deep-water facilities at the port of SouthConstanta-Agigea, designed to handle large bulk carriers.

1.08 Overall, transport accounted for less than 10% of Romania's total

investments during 1960-80, while in other countries it generally accountedfor about 15-25%. Thus, Romania's transport investments have been low byinternational comparison. Transport agencies are granted only few resourcesfor expansion. Instead, efforts are made to intensify the use of existing

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facilities. In practice, efficient transport in Romania aims at low resourcecost movement primarily for bulk materials among the key industrial centers.

B. Transport Planning, Policy and Coordination

1.09 The planning process in the transport sector follows the basiciterative approach used for all of Romania's centrally planned economy.Transportation projects included in the Plan originate both at themicro-level through the enterprises and county authorities (especially formunicipal and local roads) and at the macro-level through the State PlanningCommittee (SPC). The demands for transport by the economic enterprises andsectors are reconciled by the SPC with the existing capacities and expansionplans of the transport enterprises. The latter are determined after a reviewof all expansion plans and the setting up of priorities within the allocatedinvestment budget. Review and coordination of new investment proposals arethe responsibilities of the Ministry of Transport and Telecommunications(MTTc) which submits its program to the SPC.

1.10 Responsibility for all transport modes other than aviation and pipe-lines rests with the MTTc. Aviation has a separate Ministry and pipelinesare the responsibility of the Ministry of Mines, Petroleum and Geology.MTTc's organization also includes construction and maintenance enterprises(Chart). The role of officers and staff of the Ministry's headquarters islimited mainly to planning, coordination, design, administration andbudgeting. For construction and actual transport operations, much authorityis delegated to regional units and to "Centrals"'/ and the enterpriseswithin them.

1.11 In Romania the principal objectives of transport policy are theefficient provision of services with the complementary development of thedifferent modes, the lowering of the share of transportation costs within thetotal costs of the economy, and reduction of energy consumption. To theseends, the authorities are fostering the use of rail and water transport forlong and medium distance commodity hauls, and of road transport for shorthauls, the development of integrated transport facilities (e.g., containers),and the use of common carriers in preference to transport on own account.

1.12 Energy has become a critical subsector for the Romanian economy.Having started to import oil in 1968, Romania became a net importer of energyby 1977, and in 1979 was expected for the first time to import more crude oilthan was produced (Table 4). In 1979, rail and road transport consumed about

1/ The Central is an economic unit subordinate to but separate froma ministry, with responsibilities for planning, supervising andcoordinating the operations of enterprises under its jurisdiction.It is also responsible through subordinate enterprises, for research,design and foreign trade.

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2.6 million tons of oil products (about 0.8 million tons of gasoline and about1.8 million tons of diesel oil/heavy oil) accounting for about 14% of thetotal domestic consumption of refined oil products. Special measures weretaken in July 1979 to curb fuel consumption, by raising gasoline prices forprivate cars to Lei 7.50 (US$0.50) a liter (the second increase in 1979),restricting weekend driving, reducing the number of taxis and official carsand requiring foreign tourists to pay for gasoline in convertible currency.Restrictions were also imposed on the movement of trucks, particularly "owntransport," while gasoline rations for state, cooperative and public propertycars were halved. Diesel fuel which was priced at about Lei 1.7 (US$0.11) perliter for railways and Lei 1.1 (US$0.07) per liter for public road transportwas increased to Lei 2.23 (US$0.15) per liter for both modes from January 1,1981,1/ still substantially lower than the imported price of crude oil(US$0.23 per liter). By comparison, in April 1980, the international price ofdiesel fuel was about US$0.42 per liter. Hence, although the role of publictransport is thus given dominance, the constant overcrowding of buses andtrains is evidence that passenger transport has not received the resources itdeserves (para. 1.08). Further, the revenue foregone by the Government due tolower fuel prices to the railways and road transport enterprises is recoveredto a substantial extent in the Romanian system through the benefits (profits)of these State-owned enterprises.

1.13 In order that the use of transport may be coordinated each major userof transport services is required to specify his transport needs approximatelya year in advance. The movements of bulk commodities, which account for 70%of traffic, are subject to an optimization process which links producers andconsumers in order to minimize transport costs. Producers of other com-modities are linked to specified regions. For each commodity (bulk or other)there is a coordinator at the Ministry responsible for its production/distribution, who determines these linkages, selects the transport mode, andinforms accordingly the beneficiaries (producers and consumers) who enter intocontracts. His selection is mandatory, subject, however, to appeal by thetransport beneficiaries.

1.14 To attain these ends, coordinators select transport modes on thebasis of a computer program which has been prepared by MTTc. The programtakes into account tariffs (as a proxy for costs), distance, transit time,and, reportedly, packaging costs, damage, energy consumption and transportcapacity constraints. However, it is not clear that the present traffic splitis optimal, because:

(a) capital for investment in transport facilities and in beneficiaries'inventories is available either free or at a very low rate ofinterest;

(b) the methods of recovery of infrastructure costs (both capital andmaintenance) differ between modes;

1/ Price changes made in context of new regulation (para. 2.24)

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(c) costs, and consequently tariffs, are assessed on a national orsystem-wide basis rather than on a route and service-specific basis;and

(d) there are major differences between Romanian and border prices.

1.15 The proposed project includes, therefore, as an important component,a study of traffic optimization, to be completed by the end of 1983. Thestudy would be designed to establish an appropriate basis for developing apolicy framework (including tariffs) for the economic development of thetransport sector, and for the efficient utilization and coordination oftransport facilities.

C. Tariffs and Costs

1.16 Rail, road and inland water transport tariffs are prepared by theMTTc and approved by the State Committee on Prices (SCP). Rail freighttariffs had been "ad valorem," high valued commodities subsidizing others,until 1974 when a cost-based system was introduced. The principal criteriafor rail freight rates are wagon type, net loading and length of haul. Basicmovement costs per km are calculated for each category on a system-wideaverage basis, without allowance for difficult terrain or other adverse con-ditions which are route-specific. A further margin is added to allow for a15% planned surplus for the system as a whole.

1.17 Road tariffs are also cost-based, the main criteria being truck type,net load and length of haul. However, road users, unlike rail users, do notmake a direct contribution to the maintenance of roads which are provided as apublic utility. For costing purposes, roads are divided into six categories,each with a coefficient ranging from 0.9 for a motorway to 1.6 for the worstconditions on construction sites. There are separate groups of tariffs forlocal services, intercity services, large parcel traffic, refrigerated/insulated vehicles and car transporters. A comparison of rail (wagon load andLCL) and road freight rates is given in Table 5.

D. Previous Bank Involvement

1.18 The proposed project will be the second in the transport sector andthe first for rail/road development. In January 1980 the Bank approved a loanof US$100 million equivalent to assist in the construction of a 64 km canalfrom Cernavoda on the Danube to South Constanta-Agigea on the Black Sea. Thisp'roject will provide an energy efficient and cost effective means of trans-portation, and enhance the role of inland waterways. The project is well inhand and progress to date is satisfactory.

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1.19 In addition to lending, the Bank (through EDI) and in collaborationwith the country's principal management training center, has assisted Romaniaby conducting training courses for local officials on economic and financialevaluation in the industry and transport sectors, first in Belgrade in 1973(industry only), and, since 1975, annually in Bucharest. MTTc staff who at-tended these courses, as well as EDI staff, have been prime movers inpreparing the proposed project.

II. THE RAILWAY AND HIGHWAY SUBSECTORS

A. Traffic Trends and Forecasts

General

2.01 Annex 1 provides a detailed analysis of surface traffic trends duringthe past 20 years (Tables I and 2) and of forecasts for the five-year planperiod, 1981-85 (Tables 6 and 7). These are discussed below.

Freight

2.02 Total freight traffic is forecast to increase by about 35% (or 6.3%p.a.) from 102 billion ton-km in 1980 to 138 billion in 1985. Over thisperiod the increase in tonnage is about 19% while the average haul lengthensby about 13% mainly due to the use of the canal by long-haul and transittraffic. At 21 billion ton-km in 1985 the share of river and canal trafficincreases from 2-15%. Rail traffic at 78 billion drops from 64-57% and roadtraffic at 32 billion drops from 28-23%, while pipelines at 7 billion fallfrom 6-5%.

2.03 For the five-year plan period 1981-85 the forecast growth rate (inton-km for all modes) of 6.3% p.a. is reasonable when compared to the overallgrowth rate of 6-7% p.a. expected for the economy as a whole. The railways'basic role in carrying about two-thirds of the present (and still increasing)industrial load is unlikely to change substantially except in those limitedareas and for those commodities in the zones of influence of the Danube-BlackSea Canal (paras. 1.07 and 1.18) which is scheduled to be opened during 1983.However, as emphasis in development continues to shift from heavy to thelighter industries, more low-volume, high-value traffic suitable to roadtransport is becoming available.

2.04 The 1980-85 growth rate of 3.8% p.a. for rail freight is consideredattainable because of assured bulk movements of such commodities as coal, inregions not served by the improved river and canal facilities. The forecastrate of 2.4% p.a. for road freight appears consistent with present energypolicies, but is likely to be exceeded as light and medium scale industriesdevelop and call for increased use of road transport. River and canal tonnage

is forecast to increase fivefold by 1985, consistent with earlier forecastsfor the canal project.

Passengers

2.05 Total passenger traffic is forecast to increase by about 21% (or 3.9%p.a.) from 85 billion passenger-km in 1980 to 103 billion in 1985. As theaverage journey length is not expected to change, this increase applies to thenumbers of passengers carried. At 78 billion passenger-km in 1985, the roads'share increases from 73-76% while rail, at 25 billion, drops from 27-24%. Theaverage total growth rate of 3.9% p.a. comprises 1.4% for railways and 4.7%for roads both of which are considered attainable in the light of a rapid andcontinuing urbanization (50% of 1980 population compared with 34% in 1965)augmenting both intercity and suburban passenger movements. With the increas-ing production of passenger cars (para. 2.51) the projected growth rate forroad traffic, in particular, may prove to be conservative.

B. Railways

Headquarters Organization

2.06 Under the Romanian system of centralized State control, the railways'headquarters organization is contained within MTTc under collective manage-ment. Of six groups within the Ministry, each headed by a MinisterialAssociate, four are concerned with railways. The First Ministerial Associate(Deputy Minister) is responsible for railway operations in the nine Regions.A second deals with the centralized Directorates for traction and rollingstock, fixed installations, revenue control, data processing and

restaurant-car and sleeping-car services. A third looks after finance andprices and oversees the Railway Workshops "Central" (RWC). The fourth isconcerned with the Railway Construction "Central" (RCC) and the Railway DesignInstitute (RDI). These latter two Ministerial Associates also share responsi-bility for the road subsector so that the machinery for coordination, ratherthan competition, between the two modes appears inherent in the Ministerialstructure. Two other Ministerial Associates are concerned with maritime andriver transport and with posts and telecommunications. The Council of theMinistry, its highest decision-making body, also intervenes in the coor-dination process. The Council and its Executive Bureau are chaired by theMinister and include all Ministerial Associates and certain heads ofdepartments and units. The Railway Department, the controlling body of CFR,consists of the units responsible to the first two Ministerial Associates(Chart).

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Regional Organization

2.07 Administration of the railways is deployed into nine Regions,managements of which are responsible to the First Ministerial Associate at theMTTc. A typical region is governed by a Workers' Assembly meeting annuallyand a representative Workers' Council meeting quarterly to review performanceagainst plan. The Council also establishes five-year development plans withinthe State framework. The Council has an Executive Board which meets every tendays for overall control of policy and operations. The General Manager chairsall meetings and exercises day-to-day control. Each Region produces its ownaccounts.

Centralized Activities

2.08 The RDI is responsible for feasibility studies and detailed engi-neering for railway works. The RCC, one of the principal entities for civilworks construction in Romania, executes works for railways, national roads,airports and the Danube ports, and also fabricates precast construction com-ponents such as pre-stressed concrete sleepers. Being part of MTTc, RCC'soperation is essentially a force-account one, although it executes work inaccordance with a bill of quantities and at unit rates discussed and agreedduring the planning process. RCC is capably managed, staffed and equipped.The Investment Bank (IB), the Borrower for the proposed loan (para. 3.28)exercises a general supervisory role over project implementation.

2.09 The RWC has six workshops carrying out periodic maintenance and majoroverhaul of traction and rolling stock beyond the capacity of regional work-shops. It also includes separate groups for manufacture of components for therepair and modernization of rolling stock and for assembly. RDI, RCC and RWCproduce separate accounts.

Uneconomic Lines and Services

2.10 Since 1974, three narrow-gauge lines and one standard-gauge line havebeen closed as a result of reviews made on the basis of line-specific costsand revenues. The next major review is expected about 1982 when theperformance of all standard gauge and narrow gauge branch lines will beexamined and evaluated.

Railway Property

2.11 Track. The CFR operates 11,110 km of route, 95% standard gauge, 22%double tracked and 21% electrified. The track is mainly 49 kg/m rail withwelded joints, laid on monoblock concrete or wooden sleepers with crushedstone ballast; 60-65 kg rails are being introduced on main lines duringoverhaul. Track is generally in good condition, although the very high

traffic density (typically 25 million gross tons per main line track) haslimited the time available for maintenance and overhaul; both are in arrearsand speed restrictions have had to be imposed for months at a time. Toimprove the situation, CFR are drawing up plans through collaboration with a

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reputed firm for the manufacture of heavy-duty track maintenance equipment,which would enable CFR to make full use of the limited time available formaintenance and overhaul. During loan negotiations agreement was reached withthe Borrower for the introduction of these machines during the project periodand for the prompt provision as needed of resources necessary for track main-tenance and overhaul.

2.12 Signalling and Telecommunications. About 70% of the network isequipped with color-light signalling and about 40% with automatic two-way

working on double lines. Although only 5% of lines have centralized trafficcontrol, in 71% of the stations signals and points are controlled from acentral location at each station. CFR plans to extend the use of automaticblock and to install points motors in about 100 more stations during 1981-85.The telecommunications system, though of limited capacity, is modern andadequate for the present needs, and is integrated with the national network.There is radio communication with all main line locomotives, and automatictrain stops at all signalled stations. On the whole, the signalling andtelecommunications system on the main lines is modern and adequate; however,the extension of automatic route setting at important stations and improvedsignalling on the branch lines would expedite train movements. CFR plans toinstall the necessary equipment at a few large stations during the plan period.

2.13 Marshalling Yards. There are 27 major marshalling yards, 14 of whichwere mechanized with conventional retarders about 30 years ago. Even in verylarge yards handling about 5,000-6,000 wagons a day, skids are used instead of

secondary retarders. The working of the marshalling yards judged by the totaltime for marshalling, is satisfactory (one hour on reception lines, 40 minutesmarshalling a 60-car train and two hours for train formation). CFR expects tofurther improve wagon movement as a result of the mechanization of the remain-ing 13 yards, during 1981-85.

2.14 Traction and Rolling Stock. In 1979, CFR owned 2,091 diesel and 530electric standard gauge locomotives, and 68 narrow and broad gauge diesels;70% of this fleet is less than 11 years old (Tables 8 and 9). Two hundred andfifty-one standard gauge steam locomotives are in service (all over 30 yearsold), 190 for shunting and the balance for emergency use. Locomotivemaintenance facilities are good and the standards of repair are high. To meetthe growing traffic demand, as well as to replace outmoded equipment, CFRintends to procure during 1981-85, 350 diesel locomotives and 400 electriclocomotives (Table 10).

2.15 In 1979, CFR had about 126,000 freight cars, 41% up from 1970. Fleet

capacity had increased by 73% during 1970-79, to 5.2 million tons, as a resultof the purchase of larger cars (Table 8). However, half the 1979 fleetconsisted of two-axle cars, and of these, the equivalent of 1,800 four-axlecars, generally over 40 years old, were scrapped during 1980 and a further

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8,500 cars are to be scrapped during 1981-85 (Tables 9 and 11). During theperiod, 1981-85, CFR will acquire 31,000 four-axle cars to meet rising trafficand to replace cars to be scrapped.

2.16 Of the 5,500 passenger coaches 1/ available in 1979, 1,200 wereover 40 years old (Table 9). Of the latter, 780 are to be scrappedduring 1981-85, while CFR will acquire 1,150 new coaches. As the averageoccupation ratio is about 105%, the additional seating capacity of new coaches

(84 in second class compared with 54 in the older two-axle coaches) will, tosome extent, relieve the chronic overcrowding.

Operations

2.17 In 1980 CFR performed 98.7 billion traffic units. Its trafficdensity, 15 million gross tons per route-km, is one of the highest in theworld. The operational efficiency of the railway has been steadily improvingand is generally high, comparing favorably with other European railways (Table12). Productivity in 1980 was 559,500 traffic units per employee, 14% up from1975 and expected to increase about 14% to 638,000 traffic units per employeeby 1985 (Table 13). Steam traction, which in 1975 hauled 6% of gross ton-km,has been virtually eliminated, except for some shunting and emergency use.Electric traction which hauled 18% of gross ton-km in 1975, has risen to 36%,and is expected to rise to 45% in 1985, partly as a result of furtherelectrification included in the proposed project.

2.18 Consequent to the acquisition of more bogie cars, average carcapacity rose by 9% during 1975-79 (to 41.3 tons) while net ton-km per carrose only 1% to 602,000. The difference between these increases is due, atleast in part, to a 18&o increase in turnaround time to 4.48 days in 1979.2/Turnaround deterioration is due to increased delays at terminals, and also togreater complexity of operations resulting from new production centers servedby additional industrial sidings. Delays at terminals have increased becausetraffic growth and the shortened work-week have increased pressure oncustomers' storage facilities especially at collieries, with resultant pro-tracted detention of wagons at terminals and loading points. Studiesregarding terminal detention of wagons and of measures to improve their turn-around time are being initiated. Again, CFR has developed a computerized carcontrol program which is being tested in one of its Regions. At negotiations,an understanding was reached with the Borrower that CFR will keep the Bankinformed of progress on all measures to improve wagon utilization and that carprocurement will be reviewed in the light of improvements in turnaround time.

2.19 Engine-km per engine/day for diesel locomotives shows a decreasingtrend: 419-383 for passenger and 309-257 for freight, during 1975-80.Although this is partly due to the increasing use of electric traction

1/ Including mail, baggage, restaurant and sleeping cars.

2/ k further increase to 4.57 days has occurred in 1980.

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superseding diesel on the more important routes carrying long distance throughtraffic, the introduction of a computerized system for locomotive scheduling,as adopted on some of the European railways, may improve utilization. Atnegotiations, the Borrower confirmed the intention to carry out a program ofstudies, through technical assistance, designed to improve locomotive utili-zation through appropriate measures including the introduction of computerizedcontrol systems.

2.20 The availability of diesel locomotives at 85.4% and of freight carsat 95.5% in 1979 was satisfactory. Availability of electric locomotives was85.4% in 1979, and is forecast at 85.6% for 1985. The availability ofelectric locomotives is acceptable for 1979, because they are of local andrecent manufacture, but should improve to about 88-90% by 1985 by which timeinitial teething troubles should have been overcome. During loan negotia-tions, an understanding was reached with the Borrower that the program ofprocurement of electric locomotives will be reviewed in the light ofavailability improvements.

Staff Quality

2.21 The management and staff of CFR are technically well qualified andcompetent. Planning staff have been quick to grasp Bank-style investmentanalysis (para. 1.19).

The Railway Investment Plan (1981-85)

2.22 CFR's 1981-85 Investment Plan (Table 14), prepared as part ofRomania's National Plan (para. 1.09), aims at providing the transportcapacities needed for Romania's expanding economy and for improving operatingefficiency. In the present stringent financial conditions emphasis is nowbeing placed on early completion of ongoing works with the consequent defer-ment, until later in the plan period, of some new projects. Although the Planis in an advanced stage of the approval process it is not expected to receivefinal approval before the end of June 1981.

2.23 All Romanian investments are subject to technical and economicscrutiny. However, their economic analyses are made at Romanian prices only,and hitherto there has been no attempt at border pricing. To rank theirprojects, they utilize a "payback period" approach. This payback period forinvestments is determined by dividing the gross undiscounted investment costby the estimated net benefits of a typical operational year. The merit orotherwise of a project is then determined by the length of the payback period,the shorter being the more desirable. This type of evaluation, however,favors projects with high early yields, consistent with a policy of accumu-lating profits at a high rate for reinvestment. While the transport invest-ments approved so far appear sound, a broadening of investment analysismethodology is an objective of the proposed project.

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2.24 Authority to proceed with an investment project is given by approvalof the "Nota de Comanda" (NdC), a document which summarizes the main projectfeatures including the total cost; current prices are used with a 5% physicalcontingency. The total cost may not be exceeded without approval of a new

NdC, but in practice it is exceeded only rarely. NdCs are prepared at"catalog" prices which are fixed by law for all tradeable items, includingimports. This pricing system is self-consistent in that all prices coverdomestic costs, themselves based on "catalog" prices, and yield a specifiedbenefit (profit). Imports which hitherto have been priced below border pricesare, under new pricing regulationsl, to be gradually adjusted nearer tocost. Investment costs both for the Five-Year Plan and for the proposedproject show no net increases following revisions of catalog prices for 1981.

2.25 The 1981-85 Investment Plan is available only in Romanian prices, butthe cost of all components proposed for inclusion in the proposed project hasbeen estimated in both Romanian and international prices (para. 3.04).

2.26 A summary of CFR's 1981-85 Investment Plan (Table 14) is given

below. As all costs are based on NdCs, they include a contingency allowanceof about 5% which has proved adequate in the past and is expected to continueto do so as a result of Romania's tight control over unit prices andquantities. Although inflation may increase somewhat in the future, it is notexpected to exceed 2% per annum, and any necessary revisions in the provisionof investment funds or in the content of the Investment Plan could readily beundertaken during the yearly updating.

1/ Official Bulletin Year XVI No. 110 dated December 23, 1980.The Import/Export Price Equalization Fund which has hithertooperated in balance, the *excess cost of imports over local pricesbeing broadly covered by the excess earnings of exports over thelocal production costs, is expected only to apply to some rawmaterials and other selected items.

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Table 2.1. 1981-85 RAILWAY INVESTMENT PLAN

% ofLei billion US$ million Total

Traction andRolling stock 19.71 1,314 53.8Line Doubling 3.96 264 10.8Electrification 2.89 193 7.9

New Lines 1.87 125 5.1Danube bridges 1.60 106 4.3MarshallingYards 2.70 180 7.4Miscellaneous 3.91 261 10.7

Total 36.64 2,443 100.0

2.27 Over half the total investment expenditures are for traction androlling stock; of these, one-quarter is for replacements (paras. 2.14-2.16)and three-quarters for additional capacity. The mission analyzed traction androlling stock proposals, as illustrated by Tables 10 and 11, for locomotivesand freight cars, and found that these investments are needed to enable CFR tocarry the forecast traffic (paras. 2.03-2.05).

2.28 It has been CFR's policy to implement line doubling in stages astraffic grows, and to avoid the development of bottlenecks. Further doublingis reasonable in view of the high traffic densities of 15 million grosston-km, on average (only 22% of the network is double track); 35% ofinvestments in line doubling have been included in the proposed project.Further electrification is also justified by the high traffic density (arelatively small proportion, 21% of the network, is electrified). Thesubsidization of diesel fuel (para. 1.12) and the execution of feasibilitystudies at Romanian prices (para. 2.23) are responsible, at least in part, forthe low rate of electrification hitherto. About 48% of electrificationinvestments have been included in the proposed project. Although theRomanians are aware of the need for increasing the pace for electrification,investment constraints (para. 2.22) are limiting progress.

2.29 Virtually all investments in new lines, and steel for one of the twoDanube bridges, (para. 3.11) have been included in the proposed project.Investments in marshalling yards consist of mechanization of 13 yards (para.2.13) and the construction of a new yard near Bucharest. About half themiscellaneous investments consist of infra- structure works, including in somecases the electrification of sidings needed to increase CFR's capacity tohandle growing traffic from major users.

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2.30 To sum up, the mission examined in detail the investment proposalsfor traction and rolling stock and for the proposed project; these account for75% of CFR's Investment Plan. Though the examination of the remaining 25% wasin more general terms, the mission is satisfied that the plan is responsive tothe needs of Romania's economy.

2.31 Capital overhaul of track is charged to operations and is not part ofCFR's Investment Plan. About 3,000 km are to be overhauled with new railduring 1981-85. This length includes eight high priority sections, totallingabout 610 km, which are to be overhauled during 1981-84 mainly with 60/65 kgrail (Table 15). During loan negotiations agreement was reached with theBorrower that CFR will overhaul these sections as programmed.

Financing Plan

2.32 The expected financing of CFR's 1981-85 Five-Year Investment Plan(para. 2.26) is shown in Table 16 and summarized as follows;

Table 2.2 FINANCING OF CFR'S 1981-85 INVESTMENT PLAN

Total Important OtherInvestments Investments/a Investments/a

Lei US$ us$million million % million % million %

Net own funds 19,890 1,326 54.3 813 44.0 513 90.4

State allocations- interest free 14,404 960 39.3 960 52.9 - -- at interest 967 65 2.6 10 0.5 55 9.6Proposed BankLoan /b 1,380 92 3.8 92 2.6 - -

Total external 16,751 1,117 45.7 1,062 56.0 55 9.6

TotalInvest-ments /c 36,641 2,443 100.0 1,875 100.0 568 100.0

/a For definition of "important" and "other" investments see para. 5.02./b Assuming railway component of loan to be $94 million of which $2 million

not disbursed until after December 31, 1985./c Including general contingencies of about 5%.

CFR's financing plans do not include price contingencies although a generalcontingency of about 5% is built into the cost estimates. The investments areexpected to entail very few direct imports and almost all costs are based on catalogor contract prices not subject to escalation (para. 2.24).

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C. Highways

Organization

2.33 The Directorate of Roads (DR), under MTTc, is responsible for theconstruction and maintenance of the national road network, which comprisessome 14,700 km, or about one-fifth of the country's total network. Theremainder, including district and village roads, is administered by the"judet" (county) authorities which receive planning and technical assistancefrom the Directorate.

2.34 To administer its functions of investment planning, project prepar-ation and implementation, procurement and maintenance, the Directorate dividesthe country into six regions and deploys staff accordingly. Each region isfurther subdivided into districts which provide and supervise the teamsexecuting the maintenance and improvement works needed for the national roadnetwork.

Planning

2.35 For national roads, a five-year plan is formulated on the basis ofimprovements identified by the enterprises, industries, and ministries who usehighway facilities extensively, and is coordinated at the Republic level.Detailed annual plans are prepared one year in advance and their implemen-tation is monitored by both DR in the physical sense, and IB which, as forrailways, keeps a watching brief on expenditures.

2.36 The planning of provincial and local roads is coordinated at theRepublic level and, as needed, technical advice is obtained from both DR andthe Road Design Institute (RoDI).k/ Provincial and local authorities bearthe responsibility for construction and maintenance and for meeting theplanned targets.

2.37 A particular aspect of planning which is now being emphasized is theprovision of grade-separated road/rail crossings. At present, most are atgrade, but since traffic on each mode has increased substantially in recentyears, the policy is now to separate the traffic streams. Here DR, inconsultation with the local authorities and CFR, determines the priorities forconstruction.

Engineering

2.38 DR and RoDI prepare the feasibility studies needed to determine thejustification of projects. They prepare also the final engineering ofprojects and utilize the resources of a comprehensive materials laboratory tofacilitate site investigations. Pavement design is one aspect of project

1/ This is part of IPTANA which is also the design institute for seaand air transport within MTTc.

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preparation which is treated exhaustively: considerable care is taken toselect the pavement structure which maximizes the use of locally availablematerials and minimizes cost commensurate with strength and durabilitycriteria.

Construction

2.39 For national roads, investment projects are executed by the RCC, theprincipal civil works authority in the country (para. 2.08). Road works arecompetently supervised by DR assisted by RoDI and by the services of thematerials laboratory. Minor works on national roads are generally carried outby DR's personnel with their own equipment. For provincial and local roads,construction works are generally carried out by their own forces, although forlarger works beyond their capacity they may call on the RCC.

The Network

2.40 Romania has about 73,500 km (Table 17) of roads of which about39,100 km are unpaved. The primary road network, for which DR, under theMTTc, is directly responsible, comprises some 14,700 km of which about 14,000km are paved. The total length of the modernized road network increased fromabout 5,900 km in 1960 to about 14,500 km in 1980 (Table 18). However, therate of modernization has not kept pace with the demands of vehicle usage.There is inadequate capacity on certain key links in the network. In somecases, lack of all-weather access to areas not served by other transport modeshas been a deterrent to progress and development. In others, poor surfaceconditions, plus narrow, winding alignments and in many cases excessivelysteep gradients, have imposed harsh cost penalties on vehicle usage.

2.41 Only one road, that between Bucharest and Pitesti (100 km), is builtto full expressway standards with limited access (dual carriageways separatedby a central median) and is part of the European "E" road network, whilstthere are about 230 km of four-lane undivided highways, in the main radiatingfrom Bucharest.

2.42 The bulk of the network (about 58,700 km) comprises district andcommunal roads which are administered by the provincial authorities. Ofthese, about 20,100 km only were paved as of the end of 1980 (Table 17).

Maintenance

2.43 The maintenance allocation for national roads is about 60% of thetotal for all highways (Table 19) and in absolute terms is about US$4,500 perkm, which is high compared with other European countries with similar con-ditions. For example, neighboring Yugoslavia spends about US$3,600 per km.

2.44 Although, to a limited extent, such a high cost reflects themaintenance needs of some of the older roads which had been improved orupgraded some years ago and whose old light pavements are subjected now toheavy traffic loads and are distressed, the expenditures also cover someasphalt overlay and betterment works which conventionally would be a debit tothe capital budget.

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2.45 Maintenance practices are in general labor intensive and sufferbecause labor is in short supply. Many of the routine tasks could be

performed more efficiently and better by machine and it is an objective of thetechnical assistance element of the proposed project that the study visits for

key DR personnel should include their exposure to latest maintenance practiceselsewhere.

Road Transport

2.46 The Road Transport Central (RTC) under MTTc is responsible for theoperation and maintenance of the public road transport fleets for the carriageof both passengers and freight. All transport users have access to RTCvehicles. However, certain economic units and other organizations have theirown transport fleets whose use is normally limited to meet the local needsonly of their enterprises, but may be extended to inter-city work subject toRTC's consent. Measures have been taken recently to transfer many of theenterprises' own fleets to RTC, and to consolidate the remainder into largertransport units under the control of the concerned ministries, and subject tothe national plan.

2.47 RTC's vehicles are normally used in intercity services and animportant objective is to minimize empty hauls. With the help of a network ofagencies which coordinate the requests for transport users and the collectionof goods, dead mileage is kept to a minimum. Drivers passing through adistrict without a load are obliged to contact the local agency and must notproceed empty unless the agency certifies that an onward load is not available.

2.48 Basic regulations controlling motor vehicle transportation are

contained in the Decrees of the State Council of Romania of December 1977 andJuly 1979. They are mainly safety oriented, and focus on speed and loadlimitations, and vehicle utilization, but certain measures have been takenrecently to curb fuel consumption (para. 1.12). As an additional energysaving measure, the use of horse-drawn carts in preference to motor vehiclesis being encouraged for farming needs, in spite of the congestive effects ofsuch slow-moving vehicles on traffic flows on main roads where they arefrequently encountered. Table 20 gives an indication of usage of selectedroutes of the primary network on the basis of 1978 average daily traffic.

2.49 Road transport is developing rapidly and the vehicle fleet hasapproximately doubled at an average rate of nearly 12% per annum from about538,000 in 1972 to 1,016,000 in 1978 (Table 21). The expectation is that thisannual rate of increase will itself increase further as domestic production ofmotor vehicles expands. In 1978, nearly 132,000 units were produced (Table22), but this output will be more than doubled by the end of 1981 when a newCitroen plant near Craiova is expected to add a further 150,000 units per year.

2.50 The annual export of vehicles has fluctuated around 25,000 unitsannually since 1975 (Table 22) and it is conjectural at this stage as to whatproportion of the new Citroen output will be sent abroad. It may be assumedthat much of this new production will go to the domestic market which has longbeen repressed through lack of vehicles to purchase, although high price andother disincentives to vehicle acquisition have in the past also restrainedgrowth of the private fleet.

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2.51 The indicators seem clear that the road fleet will increase,certainly in the short run, at a rate much greater than the 12% annual averagerecorded heretofore. As a result, traffic forecasts (paras. 2.02-2.05) maywell be exceeded, especially the 4.7% yearly growth estimated for road pas-senger traffic, and thus aggravate the congestion which already exists on keylinks.

Highway Investments (1981-85) and Financing

2.52 Roads and road transport accounted for nearly 25-35% of the totalinvestments in the transport sector during the 70s (Table 23). A similarsituation is expected during the next plan period also. However, in the1981-85 plan, special attention will be given to developing small scaleindustries, including light processing industries and handicrafts, by usinglocal resources. The overall production of this sector is expected to morethan double during the next plan period. Such a shift in emphasis wouldaccentuate the demand for additional investments in the regional, secondaryand feeder roads so necessary to stimulate economic development in outlyingareas of the relatively less developed regions.

2.53 These circumstances notwithstanding, MTTc's 1981-85 Investment Planwas cut back severely in mid-1980, following the Government's decision torestrict investment expenditures; the consequent sharply declining trend inhighway investments during the next five years could have resulted in thedevelopment of serious transport bottlenecks, especially as the sector suffersfrom past underinvestment. However, Government recently reviewed its earlierdecision and these cutbacks have been partially restored.

2.54 As evidenced by the following table, road investments (excludingroad transport) during the next plan period will be about 7,900 million lei

(US$527 million), about 6% above 1976-80 expenditures in real terms. Commentsmade in paras. 2.22 and 2.23 about investment in Romania are also relevanthere.

Table 2.3. ROAD INVESTMENT PROGRAM(1981-1985)

(in million lei)

1981-1985 1981 1982 1983 1984 1985

Local road 3,398 650 650 680 690 728National roads 4,500 895 828 897 900 980

Total 7,898 1,545 1,478 1,577 1,590 1,708

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The length of the modernized road in the entire network is expected to

increase from about 14,500 km in 1980 to about 15,500 km by 1985. The length

of lightly asphalted roads is expected to increase from about 19,700 km toabout 27,000 km during the same period. Special attention is proposed to begiven to overpass structures and the elimination of busy at-grade road/railcrossings (para. 2.37). Nevertheless, several main roads carrying consider-able traffic volumes will still remain unpaved. Much of the communal anddistrict road network needs to be upgraded to provide all-weather service andolder wooden bridges, which restrict vehicle loadings on many of these roads,need to be replaced.

2.55 The highway (national roads) expenses are financed mainly from thestate budget, whose income sources are a variety of taxes and payments fromthe benefits (profits) of the enterprises and the state economic organizationsat republic level and taxes and duties from the population. Similarly,expenses for district and local roads are met from the budgets of the statelocal units whose income sources are freight traffic tax, payments from thebenefits (profits) of the enterprises and the state economic organizations atlocal level, taxes on the benefits (profits) of cooperatives and handicrafts,and taxes levied on the population. With no rules governing the amounts to bechanneled into highway projects, the authorities can determine freely theamounts to be invested from year to year based on established priorities.Such a system, as in many other countries, offers flexibility in determiningthe amounts of highway expenditures to accord with public policy objectives.

III. THE PROJECT

A. Project Objectives

3.01 The objectives of the project are to assist Romania:

(a) to avoid transport cost increases by providing timely relief ofexisting traffic congestion through road and rail investmentsintended to widen and increase the capacity of transport links whichare approaching saturation;

(b) to provide all-weather access to a development area, which heretoforehas been served by only a fair weather track, and to providetransport for a new mine;

(c) to improve the economic evaluation of projects;

(d) to improve monitoring of the use of the road network;

(e) to improve resource allocation in the transport sector by transportpolicy analysis (especially in respect of the modal split); and

(f) to familiarize the railway and highway organizations with recentdevelopments and trends in operating, monitoring and maintenancetechniques utilizing the latest technology.

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B. Project Preparation

3.02 MTTc has set up special working groups, which have preparedBank-style feasibility studies, using both Romanian and international prices,for all components of the proposed project. This is the first time thatRomania has carried out transport studies based on a methodology customarilyused in Bank projects, and in this respect key roles were played by MTTc staffwho had attended the courses held with EDI's participation (para. 1.19).Bank-style analyses have also been made by MTTc for some projects which arenot Bank-financed. However, widespread use of such analyses requires a changein the law specifying investment criteria. Experience under the proposedproject should enable them to compare Bank-style analyses with those atpresent in use. As the latter have not yet been completed for all elementsproposed for the project, an understanding was reached during loannegotiations that comparison of the results obtained by the two methods shouldcontinue to be made by MTTc and reviewed during project supervision.

C. The Project Description and Cost Estimates

3.03 The proposed project would consist of high priority items included inthe railway and highway 1981-85 Investment Plans, preparation of which wassufficiently advanced. Project components (Map IBRD 15462R) are summarized inthe table below.

Table 3.1 PROJECT COST ESTIMATES

RomanianInvestment World Bank Project Cost EstimatesPlans x of Bank

Estimate Local Foreign Total Local Foreign Total Project Loan…------------lei billion ------------ ----US$ million ------ US m

Railway Component

New lines 1.87 1.30 0.59 1.89 86.4 39.3 125.7 19.9 8.62Line doubling 1.38 0.95 0.57 1.52 63.6 37.9 101.5 16.0 19.09Electrification 1.40 0.69 1.27 1.96 46.0 84.6 130.6 20.7 22.26Dznube bridges 1.60 1.14 0.75 1.89 75.8 50.3 126.1 20.0 5.88Freight cars 0.11 0.09 0.18 0.27 6.0 12.2 18.2 2.9 18.15

Rail Subtotal 6.36 4.17 3.36 7.53 277.8 224.3 502.1 79.5 74.00

Highway Component

Paving of 2-lanegravel roads 0.46 0.38 0.17 0.55 25.3 11.6 36.9 5.8 8.71

Widening 2 to4 lanes 0.04 0.03 0.02 0.05 1.7 1.2 2.9 0.5 0.90New Construction 1.21 1.06 0.27 1.33 70.6 L7.9 88.5 14.0 13.33

Highway Subtotal 1.71 1.47 0.46 1.93 97.7 30.7 128.4 20.3 22.94

Technical Assistance 0.02 0.01 0.01 0.02 0.7 0.3 1.0 0.2 1.00

Subtotal 8.09 5.65 3.83 9.48 376.2 255.3 631.5 100 97.94

Physical Contingencies - 0.55 0.36 0.91 37.0 24.3 61.3 9.7 7.88

Price Contingencies - 0.35 0.77 1.12 23.2 51.1 74.3 11.8 19.18

Total 8.09 6.55 4.96 11.51 436.4 330.7 767.1 121.5 125.00

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The first column shows the total costs as recorded in Romanian investmentplans. They are derived from NdCs where these are available or calculatedsimilarly. Thus they are based on "catalog" prices which do not cover thefull cost of imports; they include a 5% contingency, and no other contin-gencies are allowed (para. 2.24). The railway and highway components accountfor 17% and 22%, respectively, of the 1981-85 Investment Plan of the mode inquestion.

3.04 The second column shows the local component of total costs, and thethird column the foreign exchange component estimated at international prices;the sum of these two columns, about 11.5 billion lei (US$767 million), is theproposed project cost; the foreign exchange component is US$331 million. Themission identified items suitable for Bank financing totalling US$125 million,US$94 million for railways, US$30 million for highways and US$1 million fortechnical assistance. Table 24 contains details of railway items on whichthe loan would be disbursed, while Table 29 gives similar information forhighways. A US$125 million loan would thus represent about 16% of the totalcost of the project and 38% of the foreign exchange component. Project costsare detailed for the railway components in Table 25 (investment plan esti-mates) and Table 26 (World Bank project cost estimates) and for highwaycomponents in Table 27 (under similar headings).

3.05 Cost estimates for the civil works items are based on quantities fromsubstantially completed final designs, and unit rates based on mid-1981 prices.

3.06 Total Investment Plan costs include a 5% physical contingency al-lowance (para. 3.03). This 5% contingency was netted out to obtain the basicvalue of the local component of the cost faced by Government, and the foreignexchange component of that cost was calculated using international prices(para. 3.03-3.04). In accordance with Bank practice, contingencies were thenadded as follows: 10% physical contingency; 2% p.a. increase in local cost,and annual increases in foreign costs of 9%, 8.5% and 7.5% respectively, for1981, 1982, 1983 and later years.

Railway Components

3.07 New line construction. Two lines are to be constructed, totalling 77km. The first, from Vilcele to Rm. Vilcea, closes a 40 km gap between twoexisting lines, but traverses difficult mountain terrain and includes twotunnels totalling about 3 km, and about 3 km of bridges. Maximum gradientsare 1% and miminum curve radius 300 m. In the immediate future the line willprovide a much shorter route for regional traffic. A longer-term benefit willbe its role as a shorter through route from Bucharest to the Hungarian border,but as it is not yet electrified, operating costs will be higher than on theexisting longer, electrified routes. However, electrification from Bucharestto a point near the new line is included in the 1981-85 Investment Plan, andthe authorities propose in due course to continue electrification beyond the

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new line. This investment should yield substantial benefits because much ofthe heavy traffic on the alternative routes would ultimately divert to thismore direct route.

3.08 The other line will link a coal producing area at Berbesti to therailway network at Babeni, 37 km away. It traverses the Carpathian foothills,and will include 4 km of tunnels and 2 km of viaducts, with gradients of up to

2.1% and curves down to 250 m. Both lines will have 49 kg rails on concretesleepers, telephone block working and mechanical with key interlocking. Sincethis line will serve a new mine providing fuel for a power station being con-verted to coal operation, agreement was reached with the Borrower during loannegotiations that the complementary mining and electrical power investmentswill be made on time.

3.09 Line doubling. Three line sections totalling 124 km will bedoubled. Each is joined to at least one section which has already beendoubled, and carries at present about 15-25 million gross tons (Table 28).Tunnels, totalling about 2 km, will have to be constructed on only onesection, Rm. Vilcea-Podul Olt. Rails will be 49 kg on concrete sleepers, withautomatic block and electro-dynamic signalling, and in each station signalsand points will be controlled from a single location.

3.10 Electrification. Four hundred and seventy route-km of main lineswill be electrified on three sections, at 25 kV, 50 c/s. Except forDej-Cluj-Simeria which is already double track, electrification will beinstalled in conjunction with line doublings (Table 28). Telecommunicationsand signalling works needed in conjunction with electrification are part ofthe proposed project.

3.11 Danube bridges. CFR's busiest railway route starts at Constanta,crosses both arms of the Danube, at Cernavoda and Borcea, and then bifurcateswestward to Bucharest and northwestwards to Tandarei. All these lines,including the Cernavoda-Borcea link, are double track, but the intensivelyworked bridges over the two arms of the Danube are single track and constitutewhat is probably Romania's most critical transport bottleneck. These bridgesare 100 years old and are near the end of their useful lives. CFR isreplacing them by double track combined road and rail bridges, for which piersare now being built. However, contracts have yet to be awarded for the super-structure of the bridge at Cernavoda, and the high tensile steel for manu-facture of the components would be financed from the Bank loan.

3.12 Freight Cars. The requirements for freight cars for the 1981-85Investment Plan as a whole are based on system-wide traffic and operatingneeds and include the cars for additional traffic allocable to transportfacilities created or improved by the works included in the project.I/ Theproject provides for the acquisition of 330 cars initially needed for suchtraffic.

1/ Mobile asset costs allocable to such facilities are included in theeconomic evaluation in Chapter IV.

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Highway components (Annex 3)

3.13 Paving of two-lane gravel roads. Three gravel roads, totalling 110km, are to be paved. Two are in difficult terrain in the Carpathianfoothills. The first, 37 km long, between Schitu Golesti and Curtea de Arges,carries considerable coal traffic from mines near Schitu Golesti. Theproposed alignment will be 4 km longer, to avoid areas of instability and toreduce excessive gradients; pavement construction will be staged to followtraffic growth. The second will upgrade a 29 km track linking Adjud andBirlad and will attract most of the traffic from the existing alternativeroute which involves a 40 km detour. The track which is the only means ofaccess to several villages, traverses a highly friable loess soil which, afteronly a little rain becomes slick and negotiable only by four-wheel-drivevehicles. It is virtually impassable for about six months in the year.Availability of an all-weather road will have important developmental effects,especially as substantial food processing investments being made at PodulTurcului could not otherwise be adequately exploited. Finally, the 40 kmCraiova-Balcesti road is in such poor condition that travellers prefer to makean extra journey of 30 km to avoid it. Seven sections of this road, totalling16 km have been improved, and the proposed project includes the remaining fivesections.

3.14 Widening from two to four lanes. One of Romania's busiest roadsextends northwards from Bucharest, to Ploiesti, Cimpina, Brasov and beyond.Its area of influence contains Romania's main oil fields, refineries, heavy

and chemical industries, vehicle assembly plants, and a rich agriculturalarea. The Bucharest-Ploiesti section is already four-lane and the roadeastwards from Brasov is four-lane for 4 km. The proposed project includesthe widening of the next 6 km to Harman, to accommodate growing commuter,industrial and agricultural traffic.

3.15 New Construction. Construction of the railway bridges at Borcea andCernavoda 7para. 3.11) now offers the opportunity to shorten by about 60 kmthe main highway connection between Bucharest and the Black Sea in Romania'smost heavily trafficked corridor. Cantilevers are being added to the two newbridges to provide four-lane road crossings; however, most of the highway istwo-lane at present. It is proposed to include in the proposed project theconstruction of the intervening 17 km road between Borcea and Cernavoda; theapproaches to the bridges will be four-lane, to ensure symmetrical bridgeloading, but the remaining 11 km will be two-lane with provision for wideninglater to four lanes.

3.16 The Cernavoda-Constanta highway is being improved at present and, toensure that full benefit is obtained from the new construction, during loannegotiations the Borrower agreed that improvements on the Bucharest-Fetestiroad will be made, as needed and co-terminal with the completion of theproject road. The Borrower also confirmed that no improvements should be madeto the longer highway without adequate study of the traffic assignments in theBucharest-Constanta corridor.

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Technical Assistance

3.17 Traffic Optimization Study. This study (paras. 1.14 and 1.15) hasthe principal objectives of promoting energy conservation, improving inventorycontrol and more closely defining the relationships between tariffs andservice-specific costs. It will entail reviewing the existing criteria andprocedures for determining transport linkages and the modal split in order torecommend improvements. Terms of reference for the study (Annex 4) have beendiscussed with the authorities and are acceptable.

3.18 The authorities have insisted that the study be undertaken byRomanian consultants since foreign consultants are not familiar with theRomanian system. Romanian institutes, such as the Technological Research andDesign Institute for Transport (ICPTT), have competent staff which couldundertake this study, and their employment on the project would contribute tothe development of Romania's consulting industry. Tt is therefore proposed toaward the study, which is expected to require about 150 man-months of expertservices, to Romanian consultants and to finance their services in full fromthe proposed loan at a cost of about US$825,000. Average man-month rate isestimated at US$5,500 based on individual's fees and reimbursable expenses.Inclusion of the study in the proposed project and the use ofconsultants, under terms and conditions acceptable to the Bank, was agreedwith the Borrower during loan negotiations.

3.19 Employment of foreign experts and training abroad. It may bedesirable, however, to use foreign consultants for specialized methodologicaltasks, or to enable Romanian experts to visit foreign organizations engaged insimilar work. The visits of foreign consultants or study travel abroad byRomanians would also be useful in connection with improvements in car controland locomotive utilization (paras. 2.18-2.19) as well as familiarization withmodern highway maintenance practices (para. 2.45). The estimated foreign costof such technical assistance would be about US$175,000 which would includeabout 30 man-months covering individual's fees, international travel and localallowances at about US$5,800 per man-month. During loan negotiations theBorrower confirmed the intention to prepare by June 1982 a program for suchvisits for discussion and agreement with the Bank.

D. Project Engineering

3.20 Highway engineering standards, which are adequate, are given in Annex5. Engineering, according to these design standards, has been carried out bythe DR in conjunction with the Design Institute, RoDI, and the materialslaboratory. The design standards for the railway works are shown in Annex 2.These standards are defined by the Railway Design Institute (RDI) for eachitem. In the case of new lines the principles of economic railway locationare followed in respect of ruling gradients, minimum curvature, bridge andaxleloads, track structure, etc. For line doubling the profile generally

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follows the existing alignment except where deviations offer economic andengineering advantages. Standards for electrification follow broadly inter-national practices. On the whole the specified standards are satisfactory.

3.21 Although detailed engineering is substantially complete for the 14

construction subprojects which would be included in the project, NdCs (para.2.24) have been finally approved for only two. The remainder are still beingreviewed by beneficiaries, and final approval is expected at the end of June1981. According to IB and MTTc representatives, significant changes areunlikely. During negotiations, cost estimates were discussed and confirmedwith the Borrower. The data used in the preparation of the project and thesource material are listed in Annex 6.

E. Financing

3.22 Project costs in U.S. dollars, as estimated by the Bank (para 3.04),would be broadly met from the following sources:

Table 3.2: PROJECT COSTS AND SOURCES OF FINANCINGWORLD BANK PROJECT COST ESTIMATES

Railways Highways Total /ax of X of Z of

Lei (m) US$ (m) Total Lei Cm) US$ (m) Total Lei (m) US$(m) Total

Foreign Exchange Costs:State Resources_/ 2944 196.2 68 153 10.2 25 3097 206.4 62Proposed Bank Loan 1410 94.0C/ 32 450 30.0 75 1865 124.3 38

Subtotal 4354 290.2 100 603 40.2 100 4962 330.7 100

Local. Exchange Costs:CFR Net Resources 2800 186.7 58 - - - 2800 186.7 43State Resources/b 2050 136.7 42 1685 112.3 100 3735 249.0 57Proposed Bauk Loan - - - - - - 10 0.7 -

Subtotal 4850 323.4 100 1685 1i2.3 100 6545 436.4 100

Total CostsCFR Net Resources 2800 186.7 31 - - - 2800 186.7 24State Resources/b 4994 332.9 54 1838 122.5 80 6832 455.4 60Proposed Bank Loan 1410 94.0/c 15 450 30.0 20 1875 125.0 16

Total 9204 613.6 100 2288 152.5 100 11507 767.1 100

/a Totals include technical assistance of 15 million lei (US$1 million)to be financed in full from the proposed loan.

/b State Resources include interest-free State Budget Allocations, interestbearing State Credits and differences between Bank estimated costs ofimported items (both direct and indirect) and catalog or contractprices charged to MTTc which are otherwise absorbed by the State pricingmechanisms.

/c Although $2 million for railway component may not be disbursed until after December 31, 1985it is included in the table to match corresponding expenditure in project forecasts.

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3.23 From its own resources, CFR would provide about US$187 million.1 1The proposed Bank loan of US$94 million meets about one-third of the foreigncosts of the railway component of the project (Table 26). The balance ofproject funds amounting to US$333 million would be met by the State.

3.24 For the highways component the proposed loan allocation is US$30million which meets about three-quarters of the foreign exchange costs. Theremaining foreign costs together with the local costs (US$122.5 million intotal) would be met by the State.

3.25 All project costs including cost overruns as well as funds in excessof those budgetted in MTTc's investment plans would be met by the Governmentof Romania in terms of the Guarantee Agreement. In addition during loannegotiations agreement was reached with the Borrower that design standards mayonly be modified by agreement with the Bank.

3.26 Items suitable for Bank financing are analyzed in detail by sub-projects for railways totaling US$94 million (Table 24) and for highways,US$30 million (Table 29).

Co-financing

3.27 The Bank should continue to assist the Government in obtainingco-financing from appropriate sources, but, regardless of the amount ofco-financing available, Romania is considered capable of financing the balanceof foreign exchange costs, as well as the local costs. Also, it would not bepossible for all offers of co-finance to be made, approved and effective untilafter Board approval of the proposed Bank loan. Therefore, approval of theproposed loan should not be deferred on this account, or made conditional onthe obtaining of co-finance.

F. The Loan, the Borrower and Beneficiaries

3.28 The Borrower for the proposed loan would be the IB and the loan wouldbe guaranteed by the Socialist Republic of Romania. The IB is the specializedagency, under the Ministry of Finance, for dealing with investment projects inall sectors of the economy, except in agriculture (including water resources)and food processing. It has a large technical and economic staff at itsHeadquarters, and branch offices throughout the country. The IB's involvementin investment projects commences in the preparation phase; it appraises allmajor projects technically and financially according to Romanian proceduresand, in the case of the proposed Land Transport Project, has facilitated theeconomic analysis, by the appropriate agencies, of all subprojects accordingto Bank methodology.

I/ The railways contribution is assumed to be 44% of the railway projectcost at Romanian prices, (Table 25), the percentage for "importantdevelopments" was derived from the 1981-85 Plan (Table 2.2 inpara. 2.32).

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3.29 The IB makes recommendations to the Council of State on majorprojects and their financing, and all investment funds for an approved projectare channeled through the IB which authorizes payments for work performed inaccordance with the approved plan. It is IB's responsibility to ensure that aproject is executed according to the financial and technical data included inthe final approval (Project de Executie), and its inspectors superviseprojects to ensure progress according to the approved schedule.

3.30 The IB will supervise the execution of the proposed project with theparticipation of MTTc, which will be responsible for the overall coordinationof the project and project-related activities within the MTTc. The railwayand highway components of the loan will be channeled through IB respectivelyto the Railway Department and the Road Directorate, which will be responsiblefor the coordination of project components in their subsectors. MTTc will beresponsible for the technical assistance element including the traffic optimi-zation study (paras. 3.18 and 3.19). The immediate beneficiaries from theproposed project will be the railway and highway regional organizations, andultimately, the users.

G. Project Implementation

3.31 For railways, MTTc has within its organization the RDI and the RCCwhich together constitute the two main implementing agencies for creating newfacilities (para. 2.08). While the RDI undertakes field surveys and investi-gations (with some input from the railway regional staff), prepares designsand drawings, estimates, feasibility studies as well as all documentationpreparatory to the execution of a project, the RCC (one of the biggestconstruction organizations in Romania, employing 55,000 people) executes allrailway construction works including new lines, line doubling, electri-fication, signalling, etc. Both these organizations are well staffed bycompetent people; RDI has 1,350 employees of whom 400 are graduate engineers.The physical execution of the project items will be entrusted to RCC underfirm contracts for each subproject. The supervision and acceptance of thework will be by regional staff supported by senior engineers from the RDI whennecessary. Thus, while the overall responsibility for the implementation ofthe project will rest with the MTTc, the devolution of the responsibility tothe executing agencies within the MTTc is well defined and the agencies'competence satisfactory, judged by the timely completion of similar railwayfacilities in the past.

3.32 DR would be responsible for executing the road works under theproject. That Directorate, with the assistance of the personnel and resourcesof the materials laboratory of the Transport Research and Design Institute,and of the RoDI, would also be responsible for supervising the roadconstruction.

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3.33 Construction of the project roads will be executed by the RCC'sdepartmental forces on the basis of prices, unit rates, and quantities of workdetermined and agreed prior to loan negotiations.

3.34 Agreement was reached at negotiations that IB would supervise theexecution of the project including the procurement of goods and services.

3.35 Project Implementation Schedule. With the possible exception of thecantilevers to carry the roads over the two Danube bridges at Fetesti andCernavoda, all the project roads are scheduled to be completed by the end of1984 and the railway works by the end of 1985. At negotiations the projectimplementation schedules (Tables 30 and 31) and progress reporting procedureswere discussed and confirmed. The Borrower also agreed to prepare a projectcompletion report within six months of the Loan Closing Date. That reportshall cover separately each project rail and road section and shall outlinealso the evaluation of the road and rail subsectors.

3.36 The process of acquiring the land needed to build or extend theproject roads has already commenced. No difficulties are foreseen that mightdelay construction. The process has not yet started for most railway works.At negotiations the Borrower agreed that measures needed for prompt acquisi-tion of all lands would be taken by the appropriate departments of theguarantor.

3.37 Allowing for some slippage, the project completion date should beJune 30, 1986. The Loan Closing Date should be March 31, 1987, allowing forabout nine months for the release of security deposits on supply contractswhere performance guarantees are specified.

H. Procurement

3.38 Procurement will be by International Competitive Bidding (ICB) inaccordance with the Bank's guidelines, on the basis of a list of equipment andmaterials agreed between Government and the Bank for purchase under the loan.On the basis of a US$125 million loan (para. 3.04), the goods on which therailway component (US$94 million) of Bank loan would be disbursed wouldconsist of rails, steel for concrete sleepers, points and crossings, trackfittings, copper contact wire and substation equipment used for electri-fication, cables for signalling and telecommunications required for new lines,doubling of track and electrification, special steel for the Danube bridge atCernavoda, telecommunication equipment (including radio-telephone systems) anda limited number of freight cars (Table 32). For the highway component ofUS$30 million, the goods to be procured would comprise road construction and

maintenance equipment, bitumen, and reinforcing steel (Table 29). However,the Bank would not directly finance the equipment and materials for road worksbut would disburse funds equivalent to about 75% of the foreign exchange costs

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of civil works construction under the proposed project. These works would becarried out by RCC (para. 3.33) which is experienced and familiar with localconditions, methods and regulations. This practice has been acceptable to theBank for previous projects in order to "stay with" the project for effectivesupervision after equipment procurement.

3.39 Almost every type of equipment required for the project is manu-factured in Romania. It is expected that Romanian bidders will be successfulfor all ICB items with the exception of bitumen (about US$5 million)especially as Romanian manufacturers and suppliers would be allowed a prefer-ence of 15% or the applicable customs duty, whichever is the lower.

3.40 The responsibility for initiating procurement action for itemsfinanced by the proposed Bank Loan rests with the IB. At the request of IB,MTTc's Foreign Trade Enterprise (FTE) (called CONTRANSIMEX in Romania)consults with the Design Institute, the Railway Department and the DR, andprepares the bidding documents for approval by the Bank through IB. All thefurther procedures, until the final stage of placing the contract for thesupply of material and equipment, are processed through the IB. During loannegotiations, the Borrower and the Bank reviewed and agreed the lists of goods(Tables 29 and 32) to be purchased mainly through ICB. A few items such asremote control equipment for railway electrification and some minor items ofhighway machinery would be procured through prudent shopping amongst inter-national suppliers; the total value would not exceed $1.5 million with a limitof $200,000 for individual contracts.

I. Disbursements

3.41 For railway equipment and materials the loan would be disbursedagainst the full cost of foreign contracts, including insurance and freight ifcontracted with non-Romanian organizations, and against the full ex-factorycost of contracts won by Romanian organizations.

3.42 For highways, the proceeds of the loan would finance about 75% of theforeign costs or about 25% of the Investment Plan costs of the subprojects;disbursements would be made at that proportion (25%) of total expenditures,which may be varied by agreement between the Bank and the Borrower.Statements of Expenditures, against which the Bank will disburse, will besubmitted at regular intervals by the DR through the IB in respect of workcompleted on each project road. In this respect the DR's accounting branch iscompetently staffed and routinely maintains records adequate to meet theBank's requirements for disbursement under this procedure. However, nodisbursements shall be made from the loan allocation for Civil Works until theBank has received satisfactory evidence from the Government that ICB procure-ments have been made for highway construction equipment and materials in an

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aggregate