Document of

The World Bank , YFOR OFFICIAL USE ONLY

Report No. P-2819-COB

REPORT AND RECOMKENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED CREDIT

TO THE

PEOPLE'S REPUBLIC OF THE CONGO

FOR

SUPPLEMENTARY FINANCING FOR THE SECOND RAILWAY PROJECT

May 21, 1980

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.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS

CURRENCY UNIT = CFA Franc (CFAF)US$1 = CFAF 210 1/CFAF 1,000 = US$4.76

FISCAL YEAR

January 1 - December 31

ABBREVIATIONS

AfDB - African Development BankASHFO - Contractor (joint venture Astaldi, Italy; Fougerolle, France;

and Holzmann, Germany)ATC - Agence Transcongolaise des CommunicationsBADEA - Arab Bank for Economic Development in AfricaBDEAC - Banque de Developpement de l'Afrique CentraleCAR - Central African RepublicCCCE - Caisse Centrale de Cooperation Economique (France)CFCO - Chemin de Fer Congo-Ocean (the railway branch of ATC)CIDA - Canadian International Development AgencyFAC - Fonds d'Aide et de Cooperation (France)FAO/CP - Food and Agriculture Organization/Cooperative ProgramFED - Fonds Europeen de DeveloppementKDF - Kuwait Fund for Economic DevelopmentKfW - Kreditanstalt fur WiederaufbauPPN - Port of Pointe Noire (part of ATC)SFD - Saudi Fund for DevelopmentVNPTF - Voies Navigables, Ports et Transports Fluviaux (the river

transport branch of ATC)

1/ Floating exchange rate.

FOR OFmFCIAL USE ONLY

PEOPLE'S REPUBLIC OF THE CONGO

SUPPLEMENTARY FINANCING FOR THE SECOND RAILWAY PROJECT

CREDIT AND PROJECT SUMMARY

Borrower: People's Republic of the Congo

Beneficiary: Agence Transcongolaise des Communications (ATC)

Amount: US$30 million

Terms: Standard IDA terms

RelendinR Terms: 40 percent of the Credit would be onlent to ATC at 8.5percent interest over 25 years, including 6 years of grace;the remainder would be used to strengthen ATC's equity.

Prolect Description: Financing is being sought to: complete the CFCOrealignment project; procure machinery for maintainingrealigned sections; and provide technical assistancefor project implementation. The main benefit of com-pleting the realignment project is that it would permitthe railway to continue to perform its historical roleas a regional transport artery, serving Cameroon, CAR,Chad and Gabon, while also making it possible for theGovernment to exploit the rich forestry resources ofnorthern Congo. The Government is giving high priorityto such development since exploitation of forestry hasthe greatest potential to establish a sustained economicgrowth pattern outside the petroleum sector. The imple-mentation of this policy has been held back by severaldifficulties which are being resolved. Nevertheless,any further efforts would be doomed to failure withoutcompleting the realignment since the full capacity ofthe railway will soon be reached and further incrementaltimber evacuation would become impossible, unless theGovernment were to cancel transport agreements reachedwith neighboring countries. There are certain risksassociated with the completion of the project. Modestgrowth is forecast for general cargo and timber traffic;while both could stagnate, they are more likely toincrease due to rising petroleum revenues and Governmentefforts to accelerate timber production in northern Congo.ATC's operational efficiency declined in past years, buthas begun to recover. Miany of the underlying deficien-cies have been or are being ironed out, and ATC's actionplan and agreed operational targets should ensure fur-ther progress. To help avoid additional coat overruns,especially for the long tunnel, extensive studies of allremaining work have been carried out, new consultantsselected to supervise tunnel construction and morecompetent staff will be assigned to the job site by thecontractor.

This document hu a mrtricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

- ii -

COST ESTIMATES(net of identifiable taxes from which project is exempt)

US$ million_Realignment Local Foreign Total

Past works, supplies 54.3 116.4 170.7and services (1/20/80)

Future works, supplies 49.3 96.4 145.7and services

Total base cost 103.6 212.8 316.4Physical contingencies 8.4 16.7 25.1Price contingencies 5.2 10.5 15.7Total realignment 117.2 240.0 357.2

FINANCING PLAN

--------US$ million--------Source Local Foreign Total

A. Available under Nov.'77 62.3 127.3 189.6Financing Plan

B. Supplementary FinancingApril '80

IDA - 30.0 30.0European Development Fund 8.7 17.0 25.7Saudi Development Fund 7.8 15.2 23.0Kuwait Fund for Arab

Economic Development 7.0 13.0 20.0CCCE 2.6 5.2 7.8FAC 2.3 4.4 6.7OPEC Special Fund 1.7 3.3 5.0CIDA - 4.1 4.1African Development Bank 0.7 3.0 3.7Other sources 1/ 6.0 17.5 23.5Government 18.1 0.0 18.1

Total Supplementary Financing 54.9 112.7 167.6

GRAND TOTAL 117.2 240.0 357.2

ESTIMATED DISBURSEMENTS(US$ million)

IDA Fiscal Year 1980 1981 1982Annual 13 13 4Cumulative 13 26 30

RATE OF RETURN: Supplementary financing of realignment on incrementalinvestment: regional: 13 percent; national: 12 percent

No appraisal report has been prepared.Map: IBRD2254R9

1/ Iraq, Italy and Qatar have been approached by the Government to provideUS$ 8, 9.5 and 6 million, respectively. Pending a positive reply,the Government guaranteed these amounts.

INTERNATIONAL DEVELOPMENT ASSOCIATION

REPORT AND RECOMENDATION OF THE PRESIDENTTO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT

TO THE PEOPLE'S REPUBLIC OF THE CONGO FORSUPPLEMENTARY FINANCING FOR THE SECOND RAILWAY PROJECT

1. I submit the following report and recommendation on a proposedcredit to the People's Republic of the Congo for the equivalent of US$30million on standard IDA terms to provide supplementary financing for theSecond Railway Project. Financing would also be provided by the EuropeanDevelopment Fund, the African Development Bank (AfDB), the French technicalassistance agency (FAC) and development bank (CCCE), the Kuwait and SaudiDevelopment Funds, the OPEC Special Fund, and the Canadian InternationalDevelopment Agency (CIDA) for a total of about the equivalent of US$96 millionon various terms. The Government furthermore expects to obtain assistancefrom Qatar, Iraq and Italy for a total equivalent of US$23.5 million, failingwhich the Government of Congo would seek other means to provide these funds,including using its own sources.

PART I - THE ECONOMY

2. The latest aconomic report entitled "People's Republic of theCongo - Economic Trerds, Current Issues, and Prospects" (Report No. 2213-COB) was distributed to the Board on June 8, 1979. Its conclusions and thefindings of a recent economic mission that visited the Congo are integratedinto this report.

Structure and Potential

3. With an area of about 340,000 km2 and a highly urbanized andunevenly distributed population of about 1.3 million inhabitants, the Congooccupies a strategic position on a transport corridor that reaches intoCentral Africa and provides access to the Atlantic Ocean at the country'ssecond largest city, Pointe Noire. The per capita GNP which was modestprior to 1972 increased substantially with the start of oil productionin that year. By 1978 it had reached US$540 (Bank Atlas estimates).

4. The economy is heavily dependent on import substitution manufactur-ing, transit transport, trade, and Government services. Agriculture occupiesmore than 50 percent of the population but has been declining in importanceand now accounts for only 10 percent of the GDP. Timber production, whichprovided the bulk of exports during the late 1960s and the early 1970sand was a major stimulant for the transport sector, has also suffered nearlya decade of decline. Mining only became a significant contributor to GDP in1972 with the initiation of oil production for export. Value added inmining rose from 3 percent in 1972 to 19 percent in 1974. The para-statalsector with about 65 financially autonomous enterprises dominates modernsector agriculture, manufacturing and services.

-2-

5. Public spending rose to about 30 percent of GDP in 1977/78, with theGovernment's increased participation in the economy. The large public outlayswere also brought about by a high growth in Government employment stimulatedby rising school enrollment rates, and the stagnation of the economy, includingpublic enterprises. Limited employment opportunities for high school anduniversity graduates caused the Government to hire those who could not findjobs elsewhere.

6. The country's development potential is promising although thereare numerous constraints. Agricultural and northern forestry resourcesremain largely unexploited. Little is known about the Congo's non-oilmineral wealth, and the petroleum potential is not yet fully explored.The country's heavy river-rail-port transport system, the Agence Transcongo-laise des Communications (ATC), has yet to be fully developed. The coun-try's deteriorated road network presents major constraints to resourcedevelopment but could be improved at low cost. A substantial hydroelectricpotential remains unrealized on account of the low level of demand and longdistances between hydroelectric sites and potential consumers.

Past Performance

7. During the 1960s real GDP grew by approximately 4 percent peryear. The Government gradually expanded the public sector while attemptingto improve smallholder agriculture. Public investments were mostly financedwith concessional external assistance, but there was also a surge of privateinvestments in forestry and in import substitution manufacturing.

8. The new Government that came to power in 1968 was committed toa faster expansion of the role of the State in the economy. At the same timethe discovery of an offshore oil deposit enhanced resource prospects. TheGovernment took over existing enterprises and engaged in new ventures financedmainly by foreign commercial loans. The agricultural strategy shifted to thepromotion of state farms much to the detriment of smallholder agriculture.Private investments (except in the petroleum sector) stagnated as the mostobvious investment opportunities in manufacturing were exhausted and thebusiness climate became uncertain. This rapid expansion of the publicsector proved to be less successful than anticipated. Public enterprises didnot have enough working capital or skilled staff. This, together with over-employment, contributed to the deterioration of efficiency and to mountingfinancial difficulties.

9. Government financial support of public enterprises as well as theexpansion of civil service employment led to an unsustainable rate of publicspending and distorted the allocation of resources. However, the rise inoil production in 1973/74 together with the quadrupling of oil pricesbrought a temporary respite in the financial situation. Budgetary revenuesdoubled as compared to 1972, exports nearly tripled and the terms of tradeimproved sharply. The increase in public revenues was used to rescue failingpublic enterprises, make new investments and increase civil service wages byan average of 30 percent.

10. In 1975, at the time when the Government was launching a new ambi-tious investment program (Plan Triennal de Developpement Economique et Social,1975-77) unforeseen geological problems brought about a 25 percent drop in oilproduction, which then remained at a depressed level until 1978 when a new oilfield was put into production. Other adverse developments also weakenedeconomic performance: the irreparable flooding of a potash mine in 1977; theclosing down of several public enterprises as capital assets were run down andthe Government could not maintain operating subsidies; and a decline inforestry production owing to depressed demand, the depletion of the mosteasily accessible forests in coastal areas, and a perceived deteriorationin the investment climate for private logging firms following Governmentmeasures to take over log marketing. As a result of these developments,real GDP fell by an average 2.5 percent a year throughout 1975-77 and onlyrecovered in 1978 as oil production expanded once again.

The 1975-78 Financial Crisis

11. From 1975 to 1978 the deterioration of the economy brought about acrisis in domestic and external finances. The impact was particularlysevere on public finances. Although the Government managed to cut budgetaryinvestments, reductions in public consumption were politically difficult toachieve. Treasury deficits averaged 27 percent of budgetary revenuesthroughout the period or about 7-8 percent of GDP. After exhausting mostsources of deficit finance--including substantial borrowing from bilateralsources and the oil companies--arrears accumulated rapidly, reaching aboutCFAF 60 billion or 100 percent of budgetary revenues at the end of 1978.The Treasury's liquidity position was further weakened when public enter-prises withheld taxes since the Government did not pay for goods and ser-vices delivered.

12. Up to 1972, the balance of payments was roughly in equilibriumas the growing current deficit was offset by rising capital inflows. Theoil boom substantially improved the country's external finances and a largeoverall surplus was achieved in 1974. Subsequently, the overall balancesteadily deteriorated owing to depressed exports, import price inflation,rising interest payments on the public and private debt and stagnatingcapital inflows. In 1978 the current account deficit reached CFAF 57billion, or 28 percent of the GDP. As capital inflows were insufficient tocover this deficit, the overall deficit reached CFAF 10.6 billion. Thedeficits on the overall balance were financed by arrears of payments anddrawing down reserves of the Central Bank and commercial and developmentbanks.

13. At the end of 1978, the outstanding external debt (excludingundisbursed amounts) was estimated at CFAF 185 billion (US$886 million), or110 percent of the 1978 GNP. On the basis of public debt servicing obliga-tions (excluding accumulated arrears), the overall debt service ratio stoodat 14 percent while the Government's debt service obligations accounted for19 percent of 1978 budgetary revenues. By the end of the 1975-78 period,about 25 percent of the public debt service obligations stood in arrears,

- 4 -

amounting to a total of about CFAF 14 billion (US$65 million) both principal

and interest. The outstanding debt (including undisbursed) is estimated tohave risen to CFAF 187 billion (US$925 million) by end 1979. As the Congo's

credit image abroad worsened, the borrowing terms hardened and it became

increasingly difficult for the Government to obtain development finance on

conventional terms. Although the Government was able to reschedule part of

its debt service with bilateral donors throughout 1976-79, public debt servic-

ing obligations are still expected to rise in the next three to four years.

Post Stabilization Programs

14. Throughout 1975-78, the Government attempted to adjust for short-

falls in revenues by reducing its investment outlays, cutting subsidies topublic enterprises, lowering the retirement age of civil servants andimposing salary deductions on salaried employees. To improve financialadministration and provide for some investment financing from domesticresources, the Government is presently earmarking resources, including thesalary deductions, for investments. In 1978 the Government initiated a

two-year investment program totalling CFAF 130 billion aimed at rehabilitat-ing the public sector, completing ongoing programs and launching a minimumnumber of new ventures. While the program could not be carried out in its

entirety owing to shortages of funds and delays in project preparation, itenabled the Government to focus on some critical issues in rehabilitatingthe public sector such as improving financial reporting and monitoring, andadjusting salary scales to productivity in the country's state farms. To

restore the productivity of large industrial public enterprises, the Govern-ment is seeking, with some initial success, to conclude management contracts

with foreign firms.

15. An attempt at implementing a comprehensive financial stabilizationprogram was undertaken within the framework of the 1979 IMF Second TrancheStandby Program. The program aimed at reducing the overall level of publicarrears by CFAF 1 billion and limiting to CFAF 8 billion new externaldebt undertakings with maturities of less than 15 years. Through therescheduling of CFAF 7.4 billion of debt service obligations with bilateraldonors and oil companies, compressing public demand, stepping up the collec-tion of tax arrears owned by public enterprises, and implementing selectivetax increases, the Government expected to meet the program's objectives.While the final report on the standby program has yet to be issued by the

IMF, indications are that the rise in external arrears has largely been

arrested and the Government succeeded in containing new foreign commercialloans within limits specified in the program. At end December 1979, gross

international reserves had been restored to a level equivalent to almosttwo months' merchandise imports.

Improvements in Resource Prospects

16. The progressive rise in prices for crude oil in 1979 has hada dual effect on the Congo's resource position. The immediate consequencewas a doubling of the export value of each barrel produced. This resulted ina substantial narrowing of the overall deficit of the balance of payments andwindfall budgetary revenues of about CFAF 8 billion, or an increase of about15 percent over budgeted levels. The longer term impact will be felt with the

acceleration in exploration and development of high cost deposits previously

considered marginal, and current investment plans of oil companies call for

developing new fields between 1980 and 1982. Available exploration data,moreover, suggest that prospects for continued investment in oil production

after 1982 remain reasonably favorable. Should this preliminary assessmentprove accurate, oil production could rise steadily until 1987, achieving a

level more than double the 1978 output and stabilizing at that level until the

end of the decade. Consequently, the country should now be in a much better

position to stabilize its financial situation and contribute more to public

investment. Nevertheless, it would be unwise to exaggerate the benefits of

the oil boom given the state of the economy and the level of socio-economic

development. In addition past experience has shown that difficult and some-

times unpredictable geological conditions make any oil production forecast in

the Congo particularly unreliable.

17. The Government's public investment program for 1980 calls for

outlays of CFAF 77 billion, out of which CFAF 22 billion is expected to

be spent on the CFCO realignment project. The program is expected to be

financed by public savings of about CFAF 8 billion, a large Eurodollar bank

loan of CFAF 20 billion, disbursements on existing loans and new borrowings,

and from grants. Several of the projects to be undertaken are new

initiatives which had to be postponed in 1979 due to restrictions on expen-

ditures.

18. The new outlook for the Congo's resource prospects will obviously

add to the is;sues faclag the Government in managing public finances and

the economy. During ihe financial crisis that prevailed between 1975

and 1978, the focus was on: stabilizing finances by containing domestic

demand; restoring growth, in part by attracting foreign partners to step up

investments in oil and forestry development; and improving the country's

creditworthiness. While the brighter resource prospects will not eliminate

the need to liquidate the financial liabilities inherited from the past

and to keep a tight rein on public consumption, the more important issues

will concern the country's ability to absorb its surplus revenues and lay

the foundation for a sustained growth of the non-oil economy.

19. The Government's ability to introduce and execute an effective

development program will depend on the public sector's capacity to prepare

and carry out productive investments and manage public enterprises. At

present, the economy's absorptive capacity is constrained by:

(a) An inefficient public sector: the central bureaucracy is

heavy and slow, and the decision-making process is rigid;

shortages of qualified manpower, particularly at middle level,

and poor data base further weaken investment planning and

implementation;

(b) an inadequate infrastructure, particularly road transport and

communications systems;

- 6 -

(c) an unorganized agricultural sector (due to neglect of small-holders and to disappointing results in the state farm system)which limits opportunities to undertake large scale ruraldevelopment programs; and

(d) a limited natural resource base coupled with limited domesticmarket, restrict the potential for industrial developmentoutside petroleum and timber processing.

20. In view of these constraints and unless the public sector'scapacity to improve resource allocation decisions is greatly improved over arelatively brief period of time, there is a risk that some of the Government'snewly found resources will finance non-productive projects and wastefulpublic consumption. The Government, however, recognizes these constraintsand risks and is identifying ways to improve the information base anddecision making processes needed to enhance its project preparation andmanagement capacity.

Summary

21. The Congo faces serious structural obstacles to its economicdevelopment. Its average per capita income level, which is higher thanthat of other African countries at a similar stage of socio-economic develop-ment, is derived from the narrow economic base of its regional transportnetwork and petroleum sector. Although its resource prospects are improving,the backlog of public sector financial liabilities and current programs torehabilitate public enterprises will require a large infusion of resources.In addition past experience points at a considerable risk that a shortfallcould again occur in oil production due to geological or related problems,which could substantially modify the Congo's resource outlook. Therefore,production forecasts beyond the three-year oil development program to whichoil companies are now committed should be treated with reservation. The highlevel of the outstanding debt, the prospects for sustained increases in importprices, and social pressures that could oblige the Government to allocate ahigher proportion of its oil income to public consumption contribute tosuggest that a prudent stance is advisable as regards the country's credit-worthiness for new loans on conventional terms. In view of the Congo's percapita income and uncertainties concerning its long-term prospects, foreignaid donors should continue to provide most of their f-inancing on concessionaryterms until further reviews of the oil sector development and prospects aswell as evidence of success in reducing the past liabilities of the publicsector indicate that the country could become eligible for more conventionaltype of lending.

- 7 -

PART II - BANK GROUP OPERATIONS IN THE CONGO

22. The Bank Group's commitments in the Congo now amount to US$102.9million from three Bank loans (US$76 million) and eight IDA credits (US$26.9million)l/. Seven loans and credits totalling US$46 million have been fullydisbursed. These commitments have been designed mainly to assist the country'sefforts to improve its basic transport infrastructure, better exploit itsnatural resources and upgrade the educational system. Rail and road transportrepresents the largest share of past commitments (49 percent) and is followedby mining and petroleum (34 percent). Annex II contains a summary statementof loans and credits up to March 31, 1980, as well as notes on the executionof ongoing projects.

23. In addition to the Second Railway project for which supplementaryfinancing is now being proposed, ongoing projects consist of: a livestockproject which aims at improving the Congo's self-sufficiency in meat produc-tion; an education project which focusses on improving the quality of theeducational system and reorienting it to meet the country's manpower needs;and a petroleum technical assistance project to improve sector management andstrengthen the Government in its dialogue with oil companies.

24. In the future, the Bank Group will continue to help the Congo developits transport infrastructure so that relatively isolated areas and resourcescan be exploited and services provided to neighboring countries can be improved.In addition to the proposed supplementary financing the Government and theAssociation are preparing a second highway maintenance project which will con-tribute to reinforce the links between rural areas and domestic and interna-tional markets and will feed into the trans-equatorial transport system; and ariver transport project aimed at relaxing transport constraints for thedevelopment of the Congo's northern forestry resources.

25. The Government and the Association are also preparing a forestrydevelopment project in the Northern Congo. To reinforce the Government'sability to monitor activity in the sector and increase the benefits to thecountry derived from log production and processing, the proposed project wouldcontain technical assistance components.

26. The Bank is also exploring ways by which it can assist the Congoin implementing its new rural development strategy which focusses on restor-ing productivity in the smallholder sector.

27. Throughout 1974-78, gross international public capital flows(including debt refinancing and budgetary support) amounted to about US$600million. At the end of 1979, the outstanding disbursed debt stood at US$925million of which 11 percent was held by the Bank and IDA. The Bank's andIDA's share in the public debt service is estimated at 6 percent for 1980 andat an average 5 percent over the 1980-85 period.

1/ Including three supplementary financing credits.

- 8 -

PART III - THE TRANSPORT SECTOR AND THE ATC

The Transport Sector

28. Endowed with navigable rivers and a favorably located seaporton the Atlantic Coast, Congo's extensive transport network has evolved intoa regional transport system, serving the Central African Republic (CAR),Cameroon, Gabon, and southern Chad. In recent years, more than three-quartersof the freight carried between Brazzaville and Pointe Noire has been transittraffic, mainly manganese from Gabon, timber from Cameroon and the CAR, andimports to the CAR; for most of this traffic the Congo route provides the onlyaccess to the sea. The Transgabonese railway, now under construction, is themain and most advanced alternative route, but will cater only for Gabonesetraffic when it is completed, probably in the late 1980s.

29. The backbone of the transport system is the Transequatorial Route,which includes the ocean port at Pointe Noire, the river port at Brazzaville,the Chemin de Fer Congo-Ocean railway (CFCO) linking these two ports, and thenavigable sections of the Congo and Oubangui rivers (about 1,120 km). TheAgence Transcongolaise des Communications (ATC) operates this system and alsoprovides river services, which carry CAR traffic and Cameroon and northernCongo timber. The CFCO system is presently working close to capacity. Therealignment between Loubomo and Bilinga will increase the capacity to handletraffic demands in years to come. To achieve an optimal utilization of ATC'sincreased capacity it should be complemented by rehabilitation of the perma-nent way between Mont Belo and Brazzaville (310 km) as well as improvement ofthe river transport services. The Association, and other donors, are examin-ing with the Government the possibility of improving and expanding the riverservices. As regards the Mont Belo-Brazzaville railway section, the Govern-ment and ATC will complete the first phase (estimated at CFAF 2.4 billion) byDecember 1982 (Section 4.05 of the draft Development Credit Agreement andSection 3.07 of the draft Project Agreement).

30. The Congo has a highway network of about 11,000 km, of which onlyabout 3,000 km (including 550 of paved roads) provide all-weather service.Except for the two most important roads, those from Brazzaville north toOuesso (of which only about 100 km is paved, the remaining 800 km beingimpassable in the rainy season) and west to Kinkala (about 80 km paved),the network consists of secondary and forestry roads in the area betweenBrazzaville and Pointe Noire, which not only contains about two-thirds ofthe population but also the main centers of economic activity. Only a smallproportion of traffic is carried by road, and about 70 percent of it istimber traffic. The highway network is in bad condition as a result of poormaintenance which is due, inter alia, to a shortage of funds. In 1979 theGovernment reinstated the Road Fund, which had been discontinued in 1971, andis now expected to contribute substantial funds to road maintenance. Aproject aimed at improving road maintenance is being discussed between theGovernment and the Association.

- 9 -

31. The air transport network consists of eight airports and about 30minor airfields. Only three have paved runways, and only Brazzaville is upto international standards, although its runway is not adequate to handlewide-body jets which can offer thie lowest international freight rates andwhich are expected to become the main aircraft flying the Congo-Europeroute during the 1980s. A Government-owned company, Lina Congo, providesscheduled domestic services, and a private company provides charter services.

Agence Transcongolaise des Commmunications (ATC)

Organization, Management and Operations

32. ATC has 7,240 employees, of whom 100 are expatriates, and is dividedinto four main sections: (1) ATC headquarters; (2) the port of PointeNoire (PPN); (3) the railway linking Pointe Noire and Brazzaville (CFCO);and (4) the river transport services (VIPTF) linking north Congo, southeastCameroon and the CAR to Brazzaville.

33. ATC is administered by a 14-member board, with the Minister ofTransport as chairman, and the other members representing other ministries,the unions and the ruling political party. The board meets two or three timesa year.

34. A general manager, appointed by the Council of Yinisters at theboard's recommendation, is responsible for day-to-day operations. Thegeneral manmger is as.isted by a technical director general, who for thepresent is an expert provided by France. A financial controller is nominatedby the Minister of Finance. The headquarters staff, directly answerable tothe general manager, prepares budgets, plans investments, and providesadministrativ,e services and general staff training for the three operationalsections (PPN, CFCO, and VNPTF), which are under the direction of separatemianagers assisted by expatriate technical directors provided by FAC.

35. Management was recently strengthened in key positions by theappointment of qualified Congolese staff and additional French experts.Further strengthening is anticipated in financial planning and projectmanagement, by the provision of expatriate technical assistants financed byFrench bilateral aid.

36. The management and operating sections are competent but theirefficiency in dealing with the day-to-day operations has been hampered by:

(i) inconsistent application of ATC's statutes;

(ii) frequent changes of the Congolese managerial staff;

(iii) lack of adequate rules in the relationship between ATC'smanagement, the unions and local political leaders who dealwith labor policies; and

(iv) inadequate personnel management and administration basedon an out-of-date personnel statute.

- 10 -

37. ATC's management recently proposed a comprehensive and basicallysound plan of action ("Plan de Redressement") to restore operational andmanagerial efficiency. The main elements of this plan, together with a set ofoperational targets for its operating sections, are incorporated in theProject Agreement (Section 3.06 of the draft Project Agreement). In orderto improve staff productivity the Government intends to prepare a manpowerplan for 1982-86 and to adopt a revised personnel statute by August 31, 1981.The Government has furthermore agreed to avoid frequent changes in ATC manage-ment.

38. ATC's operating efficiency declined steadily from mid-1978 tomid-1979, remaining at a low level until October-November 1979, especiallythe CFCO railway which was unable to carry the timber produced in the north andsouth. The main causes for the decline were: (a) increasing tense laborrelations, low staff morale and poor discipline; (b) frequent changes anduneven performance of management, and disappointing support from technicalassistants; (c) inadequate management of CFCO workshops; (d) incompleteimplementation of improvements in operating methods recommended by consultants;(e) underutilization of the technical assistants; and (f) lack of locomotivespare parts due to poor material management and financial constraints.

39. The Government, ATC's management and the French organizationsproviding technical assistance to the ATC began in 'September 1979 to takemeasures to remedy this situation. As a result there has been (a) a 35percent increase in locomotive availability; (b) a 30 percent reduction intransit time of direct trains between Brazzaville and Pointe Noire; (c) amore than 80 percent increase in the average monthly tonnage of timberevacuated from Brazzaville to Pointe Noire; and (d) a drastic reduction inrolling stock turnaround time. An EEC Special Action Credit signed in April1980 is providing financing for technical assistance and spare parts forlocomotives, which together with financing provided by France would help toensure acceptable operational efficiency of CFCO equipment.

40. The operating efficiency and present capacity of the ports ofPointe Noire and Brazzaville are not expected to pose any problems for theforecast traffic volumes to be carried on the ATC system during the nextfive years. ATC management is aware that improvements are needed in rivertransport operations and the action plan includes appropriate operationaltargets.

Traffic

41. The major components of ATC's freight traffic are manganese,general cargo, timber and petroieum products. Traffic demand is greatlydependent on timber exploitation and the world market for manganese; the

- 11 -

quality of ATC's transport services, to which timber is particularly sensi-tive; and the condition of the Congolese economy, which determines the levelof general cargo. In 1979 CFCO traffic, which is representative of overallATC activity, was as follows: timber, 483,000 tons, or 34 percent abovethe level during the 1975 slump despite a substantial drop fr-om the previousyear due to railway constraints; manganese, 2.3 million tons, recoveringstrongly from a two years' slump and showing good prospects for furtherincreases in the coming years; general cargo and bulk oil, 680,000 tons,stagnating at about the 1975 level as a result of the Congo's economic crisis(para. 11). The economy started a slow recovery in 1979, which shouldgradually accelerate in the next years, giving rise to increases in generalcargo and petroleum traffic. In addition, the complete reorganization ofCAR's river transport company in April 1980 should significantly improveservice in that country, thereby generating additional traffic for the Trans-equatorial route.

42. Due mainly to increases in CAR production, timber traffic hasrecovered from the sharp fall in 1975, although it is still substantiallybelow expectations. CFCO operating inefficiency during most of 1979, nowlargely remedied, resulted in an accumulation of more than 100,000 tons oftimber at the port of Brazzaville at the end of the year, forcing a temporarycutback in production. Institutional bottlenecks in the Congo related tomarketing arrangements blocked new investment in the north but are now beingresolved. The Government and a German forestry company, already establishedin the north, recently negotiated an agreement for a new concession in thenorth and it is expected to be signed shortly; negotiations on anotherconcession have begun and proposals for other concessions have been sub-mitted. The Government has undertaken to enter into an agreement on aforestry concession in the north by September 30, 1980, and to make satis-factory progress on the conclusion of another concession agreement by December31, 1980 (Section 4.04 of the draft Development Credit Agreement). TheAssociation is considering a credit to the Congo which would help encourageforestry exploitation in northern Congo and improve the Government's institu-tional capacity to manage the sector. In preparing traffic projections, ithas been assumed that one new forestry concession will start operations everytwo years, each generating 63,000 tons per year of logs and processed timber.Manganese is expected to grow at an average 3.6 percent yearly, all otherfreight traffic at 4.3 percent yearly, and timber alone at 5.5 percent.Passenger traffic grew at an average 6.6 percent p.a. during 1976-79 but itsgrowth rate has been declining and is expected to remain at 5 percent in thefuture.

Investment Plan 1980-84

43. ATC has prepared a five-year investment plan for 1980-84. In addi-tion to completion of the CFCO realignment, the plan focuses on renewals andinvestments needed to carry expected increases in traffic. Total investmentsunder the plan excluding the realignment project amount to CFAF 33 billion(US$157.2 million) including physical and price contingencies. Nearly 50 per-cent or CFAP 16.6 billion (US$79 million) represents renewal of facilities andequipment and the remainder new investments, particularly in river transport

- 12 -

equipment, light locomotives, port warehousing and terminal areas. Theinvestment plan is based on operating targets set for each of the ATC oper-ating sections and has been prepared in consultation with the Association.

44. Financing for the 1980 investment program has already been obtained.ATC is discussing with potential aid sources the financing of investment needsfor later years. The Government has requested contributions for the rehabili-tation of the Mont Belo-Brazzaville sections (see para. 29) from BADEA andBDEAC. Given the need to control ATC's future debt service burden, untilDecember 31, 1984, consultation with the Association would be required forevery investment over US$2 million equivalent (Section 4.05 of the draftProject Agreement).

Financial Situation and Prospects

45. ATC's poor operating performance and low transport denand haveresulted in a deteriorating financial position since the mid-1970s. By early1979, ATC's working capital was severely negative, with nearly CFAF 2 billionin arrears on debt service; commercial bank overdrafts exceeded CFAF 1.8billion, and arrears on payments to suppliers exceeded CFAF 2 billion. Thesituation worsened until about mid-1979, when management changes, coupled withimproved traffic performance, began to turn the situation around. With timelyassistance from the Government, ATC paid its 1979 debt service with only minordelays; its increased cash generation permitted it to reduce short-term debtby CFAF 1 billion.

46. Since late 1979, steps have also been taken by the Government toimprove ATC's financial situation, the most important ones being the Govern-ment's injection of CFAF 4 billion in long-term working capital which waspaid on February 29, 1980, and approval of an increase in ATC's tariffs byan average of 13 percent effective January 1, 1980, on domestic and April 1,1980, on international traffic. In addition, the CCCE and the Association(through the EEC Special Action Credit) approved programs to rapidly undertakeoverdue maintenance of CFCO's equipment and rebuild an adequate stock ofcritical spare parts. These measures are expected to further improve ATC'sfinancial position during 1980 and restore working capital to a reasonablelevel.

47. ATC's future financial performance is mainly dependent on itsachieving forecast traffic volumes and operational targets. However, ATC'sannual debt service burden in the coming years will reach CFAF 9.8 billionfor existing debt and for debt expected to be contracted during 1980. Debtservice will be even higher as additional debt is contracted in subsequentyears to finance essential investment needs. Even if the modest trafficprojections are realized and ATC management maintains tight control over allworking costs, ATC's projected cash generation on the basis of 1980 tariffsalone will be insufficient in future years to cover the debt service burden.Moreover, ATC's working capital base needs to be maintained at the minimumlevel needed to achieve the operational targets. ATC also needs to fundout of its internal cash generation about CFAF 2 billion a year or about 30percent of its annual renewals and investments. The following tablesummarizes ATC's cash needs during 1980-84:

- 13 -

------------ (in CFAF million)------1980 1981 1982 1983 1984

Source

1. Cash generation (1980 tariffs) 4,096 5,353 3,852 2,858 1,3242. Long-term borrowings - working

capital 6,071 275 - - -3. Long-term financings - invest-

ments (loans/credits/grants) 26,053 19,816 8,921 6,467 4,023

Total Sources 36,220 25,444 12,773 9,325 5,347

Application

1. Investments (incl. Realign-ment 28,074 21,869 10,956 8,656 6,313

2. Debt service (existing debt) 4,542 5,359 5,205 4,910 4,5893. Debt ser-vice (new borrowings) 624 1,635 2,290 3,154 5,800

Total Debt Service 5,166 6,994 7,495 8,064 10,3894. Minimum increase in working

capital 2,853 987 1,117 971 1,007

Total Applications 36,093 29,850 19,568 17,691 17,709

5. Net cash/working capital needs - 4,406 6,795 8,366 12,3626. Impact cf proposei tariff

increases - 3,217 6,761 10,338 14,531

7. Net Additional needs - 1,189 34 - -

Ratios (including impact of proposed tariff increases)

- Expected working ratio 74 67 64 62 60- Debt service coverage (of

maximum debt servicingarising from existingdebt and additionaldebt incurred in each year) .67 .91 .99 1.13 1.33

Expected Rate of Return on RevaluedAverage Net Fixed Assets in Use 3.1 7.8 5.9 5.2 6.9

48. In the above table, working expenses have been estimated incurrent terms in order to highlight the impact of inflation, projected toaverage about 10 percent per annum during the coming years. It is clearthat tariff increases in real terms will be needed to keep pace with theexpected inflation and to assure a sufficient level of cash generation tocover debt service needs, minimum working capital increases and financing

- 14 -

of renewals and investments. ATC has undertaken to calculate necessary tariffincreases on this basis by July of each year and the Government has agreed tointroduce them in January the following year (Section 4.06 of the draftProject Agreement and Section 4.06 of the draft Development Credit Agreement).A study of cost-based tariffs is being carried out by consultants financedunder the Second Railway Project. ATC has agreed to initiate the implementa-tion of such a tariff system after consultation with the Association on therecommendations included on the study (Section 4.03 of the draft ProjectAgreement) by mid-1981. The tariff increases planned for January 1981 repre-sent the maximum feasible at this time, but would still provide insufficientcash generation in 1981 and consequently ATC would need additional Governmentsupport in this year. The Government has therefore agreed to provide finan-cial support to ATC as necessary (Section 4.01 of the draft Development CreditAgreement). Beyond 1982 tariff increases related to inflation should maintainATC's financial viability.

49. The high debt service burden, the modest forecast traffic in-crease, and the still critical financial situation point to a need to focusthe financial covenants on the debt and liquidity structures of ATC'sbalance sheets, and on the cash generation aspects of its funds flow. Inorder to monitor ATC's debt structure, the present debt service coverageratio of 1.25, as provided under Loan No.1228 COB covenants, will be main-tained (Section 4.04 of the draft Project Agreement). In addition, asatisfactory working capital maintenance covenant has been agreed upon; toensure necessary tariff increases and to control working expenses, theworking ratio target will be set at 68 percent during 1981 and 65 percentthereafter. Despite being a relatively ambitious target compared to otherrailway systems, it is attainable by ATC as evidenced by its performance in1979, when the working ratio was 68 percent. The expected rate of return onrevalued assets (or net long-term capital employed) derived from the abovetarget will be 5-6 percent in 1981 and thereafter which is satisfactory inthis case (Section 4.07 of the draft Project Agreement). These, togetherwith the proposed consultations on capital investment (para. 44), willensure adequate control of ATC's financial situation. Implementation of atariff increase for 1981 on domestic and international traffic based on theconsideration mentioned in the preceeding paragraph will be a condition ofeffectiveness of the proposed Credit (Section 6.01(b) of the draft DevelopmentCredit Agreement).

PART IV - THE PROJECT

Background

50. The Second Railway Project covered the ATC investment plan for1974-78 and was expected to cost about US$233.7 million equivalent includingphysical and price contingencies. The plan comprised investments for theocean port of Pointe Noire, river services, the CFCO railway, trainingfacilities and technical assistance. The largest component was the realign-ment of 88 km of the railway in the mountainous area between Bilinga andLoubomo. This component was designed to increase freight traffic capacityand to reduce operating costs significantly. The realignment was estimated

- 15 -

at US$148.8 million equivalent and was financed by AfDB, BADEA, CCCE, CIDA,FAC, FED, KDF, SFD and the Bank (Loan No.1228 COB of April 12, 1976, effectiveNovember 22, 1976).

51. Mlost of the investment plan was implemented as expected. Therealignment, however, has encountered a series of major problems, and althoughsome 65 percent of the civil works had been completed as of December 31, 1979,there were still major uncertainties as to the completion date and the totalcost of the realignment.

52. The problems began in January 1977 with an armed raid from outsidethe Congo on the worksite which resulted in a 10-month work interruption anda substantial cost increase due to damages to the contractor's equipment,new mobilization and higher unit prices. Since then evidence of adversegeological conditions, that were difficult to foresee at appraisal, hasnecessitated the reshaping of unstable slopes and cuts and changing theirdesign on remaining sections; in some sections where earthworks had alreadybeen carried out, the alignment has had to be changed. The rocks and soilsencountered in the long tunnel (4,550 m) were much less tractable than couldhave been anticipated and, as a consequence, the contractor could not use hisequipment efficiently. Given the unexpectedly serious problems encountered,sufficient appropriately experienced staff were not always available on thesite to deal with problems as they arose.

53. At a co-donors' meeting in June 1979, the Government, ATC and someof the donors agreed to have independent consultants review the work done, thedesign of proposed alignment changes and of the remaining works, and the costestimates.

54. Since September 1979, considerable work has been done by ATC, itsconsultants (Tecsult, Canada), and the independent consultants (Electrowatt,Switzerland) to amend the original design to decrease the risk of landslidesto an acceptable level and at a manageable cost, and to try to determine thefinal cost. These inputs have considerably improved the design and managementof the project and have significantly reduced the risks of further delaysand cost overruns. The element of risk cannot, however, be totally eliminatedin such a technically complex project.

55. The cost of the realignment including all contingencies hasincreased about 140 percent over the original estimate of US$148.8 million,caused by the following:

(i) a 23 percent increase as a result of the armed raid ofJanuary 1977;

(ii) a 61 percent increase due to higher than expected inflation,the extension of the construction period, and currency rea-lignments;

(iii) a 41 percent increase resulting from slope stability problems,worse-than-expected geological conditions in the tunnels, three

- 16 -

additional bridges to avoid difficult terrain, additional drain-age works, removal of facilities endangered by landslides, andthe cost of additional studies for design alterations; and

(iv) a 15 percent increase due to higher cost of buildings and tele-communications, and to the extension of Tecsult's contract forthe supervision of the works until completion of the project.

56. The proposed supplementary financing was appraised in November1979 and a post-appraisal mission visited the Congo in January 1980. Negotia-tions were held in Washington between April 23 and 29, 1980, and the Congolesedelegation was led by H.E. Nicolas Mondjo, Ambassador to the UN and to the US,and Mr. Francois Bita, Director General of ATC. Key events and special condi-tions are listed in Annex III. No staff appraisal report has been prepared.

Project Description

57. The proposed project consists of the following:

(a) the completion of the CFCO realignment, including earthworks,bridges and tunnels; track and ballast; signaling and telecommuni-cations equipment; and station buildings and staff housing;

(b) the procurement of machinery for maintaining and repairingthe realigned section; and

(c) consulting services for supervision and assistance to ATC inpreparing and negotiating amendments to the civil works contract forthe realignment.

Engineering

58. The final engineering of the remaining works of the realignment hasbeen done, including all corrective works to reduce the risks of landslides inthe cuts, change the alignment where needed and to alter the design to obtainthe maximum capacity for the realigned section.

Implementation and Supervision

59. The realignment's remaining civil works will be executed by thecontractor consortium ASHFO consisting of: Astaldi (Italy); Fougerolle(France) and Holzmann (Germany), following ATC's design. The contract betweenATC and ASHFO needs amendment adequately to reflect changes in the design andscope of the work. The contract for the telecommunications system has beenawarded under terms and conditions accepted by AfDB and the Government, whoare jointly financing this component under the original financing plan.ATC will establish before January 1, 1982, and maintain a special maintenancebrigade capable of operating the earthmoving machinery provided in the proj-ect, keep the slopes and drainage works along the new line in good condition,install instruments to monitor the critical areas and remove in as short aperiod of time as possible obstructions on the track from landslides andfallen rocks (Section 3.04(a) of the draft Project Agreement). ATC will

- 17 -

provide quarterly inspection reports and, through December 31, 1985, semi-annual geological investigative reports on the critical slopes along therealignment (Section 3.04(b) of the draft Project Agreement). ATC will alsomaintain the old line linking Bilinga to Loubomo in operational condition atleast three years after completion of the works in case of a major accident onthe new section (Section 3.05 of the draft Project Agreement). This isnecessary because, in spite of the fact that the design has been amended toavoid the major risks of landslides, all risk of slope failure cannot beeliminated at a reasonable cost.

60. The arrangements described above for the supervision of the remain-ing works and supplies are acceptable, except for the long tunnel. Excavationof the remaining part (2,000 m) of the long tunnel is expected to encounterincreasingly difficult conditions. This work is on the critical path of theproject and delays would entail considerable cost increases. ATC's andTecsult's staff do not have sufficient expertise to supervise these worksadequately. ATC will therefore continue to employ consultants Electrowatt,under terms and conditions satisfactory to the Association, to supervise thecontractor during completion of the long tunnel. ATC will also obtain appro-priate legal assistance to prepare and negotiate contract amendments. Electro-watt will provide technical advice to the legal counsellor. These arrange-ments are acceptable to the Association (Section 2.02 of the draft ProjectAgreement).

Project Cost

61. Based on he new design of the remaining works and availableengineering studies, cost estimates have been prepared by ATC and consul-tants Tecsult. Electrowatt and the Association have reviewed these esti-mates and found them realistic. The total estimated cost of the realign-ment, net of identifiable taxes from which project is exempt but including allcontingencies, amounts to CFAF 75 billion (US$357.2 million equivalent) with a67 percent foreign cost component and is summarized in the Credit and ProjectSummary.

62. The cost estimates are based on the following:

(a) Physical contingencies are calculated on remaining works withthe following assumptions: (i) earthworks, structures, trackworks - 15 percent; (ii) tunneling works - 25 percent; (iii)additional contingencies for the occurrence of one major accidentduring excavation of the long tunnel - CFAF 400 million.

(b) Price contingencies are calculated on the remaining works bylinear extrapolation of past trends, on the period January1980 - March 1982: (i) oil - 33.4 percent; (ii) local labor - 9percent; (iii) expatriate labor - 13 percent; (iv) material - 20percent. Additional price contingencies in the amount of CFAF 1.0billion have been added to take into account a possible extensionof the construction period until July 1982 and increases on oil,labor and material beyond the extrapolated trends (oil - 36percent; labor - 20 percent; and material - 25 percent).

- 18 -

(c) The man-month cost for the supervision of tunneling works andthe preparation of amendments to the civil works contract is basedon the rates applied for the recent reevaluation mission carriedout by Electrowatt. The man-month rate is US$12,500, which isnormal for the high caliber expertise required for this assignment.The reimbursable expenses, such as international travel, subsis-tence and other allowances applicable in the Congo, and thecost of the reports, are estimated at US$3,500 per man-month.

Completion Date

63. When the project was first appraised, the new line was expected tobe put into service in mid-September 1979. After the armed raid, thecontractual completion date was extended to September 1, 1980. The bestestimate to date is that the works will be completed by the end of March1982 or 30 months behind the original schedule. Worse than expected geologi-cal conditions in the long tunnel might prolong the construction period byat least four months, in which case the new section would be put intoservice by the end of July 1982, the date used in the cost estimate; moreoptimistic assumptions provide for a completion date around January 1982.

Procurement and Disbursement

64. The civil works contract for the realignment was awarded to ASHFOfollowing international competitive bidding. The works will be continuedunder the present contract with amendments acceptable to the Association,which are being prepared. The contract is considered appropriate for continu-ation of Association financing. To alleviate the project's cash flow diffi-culties, the Association would continue to disburse (as under Loan No. 1228-COB) at 38 percent for these works (except tunnelling) until January 1981approximately and thereafter at 13 percent for the entirety of these workswhen other donor's funds are expected to be available.

65. Electrowatt, assisted by counsel being selected, will reviewthe civil works contract on behalf of ATC and prepare appropriate amendmentsto be negotiated with ASHFO.

66. The existing contract with Tecsult for supervision of the civilworks will be extended until completion of the works with additional CIDAfinancing. However, the full responsibility for the supervision of thetunneling works will be given to Electrowatt, whose present contract wouldbe extended for this purpose, on conditions and terms acceptable to theAssociation. Retroactive financing of up to US$300,000 is needed afterApril 1, 1980, for contract negotiation and supervision of the tunnelingworks.

67. The necessary earthworks machinery for maintenance of the realign-ment will be procured on the basis of international competitive bidding fol-lowing Bank Group guidelines.

- 19 -

ancinPlan

68. The total supplementary financing required to complete the SecondRailway Project is estimated at US$167 million equivalent of which the IDAcontribution of US$30 million represents 18 percent. Other donors' respectivecontribution and lending terms are expected to be in US$ million equivalent:

(a) European Development Fund US$25.7 60 percent grant and40 percent at 40 years,including 10 years ofgrace at 1 percent.

(b) Sauti Development Fund US$23)) Subject to negotiations.

(c) Kuwait Fund for Arab Economic )Development US$20)

(d) Caisse Centrale de CooperationEconomique US$7.8 US$4.3 million at 15 years

including 5 years of grace at6 percent. Balance on com-mercial terms.

(e) Fonds d'Aide et de Cooperation US$6.7 Grant.

(f) OPEC Special Fund US$5 Probably 20 years including5 years of grace, 0 percentinterest.

(g) Canadian InternationalDevelopment Agency US$4.1 50 years.

(h) African Development Bank US$3.7 Probably 18 years, including4 years of grace, 8.5 per-cent interest.

69. The financing plan is basically satisfactory although a gap mayremain (due to the lack of confirmation of contributions from Iraq, Italyand Qatar) of the equivalent of US$23.5 million or 14 percent. The Govern-ment has, however, guaranteed that these funds will be made available whencalled for under the established disbursement plan and will furnishassurances, satisfactory to the Association, that these funds will be madeavailable as a condition for effectiveness (Section 6.01(c)(ii) of the draftDevelopment Credit Agreement). These arrangements are considered acceptableto the Association in view of the exceptional circumstances prevailing,namely that it is considered essential that project execution not be inter-rupted. In view thereof, other donors and the Government have also requestedthat only flexible cross effectiveness conditions be applied since somecofinanciers may require longer time than others to make their funds avail-able. Consequently cross effectiveness will be required with: FED (forUS$9.5 million equivalent), AfDB, CCCE (first window contribution of US$4.3million equivalent), CIDA (for US$3.2 million equivalent), FAC and OPECSpecial Fund (Section 6.01(d) of the draft Development Credit Agreement). As

- 20 -

for remaining funds the Association will require satisfactory evidence thatthey would be forthcoming (Section 6.01(e) of the draft Development CreditAgreement). The co-donors have agreed that, as soon as all funds have beenapproved and made available most remaining work would be combined into onesingle category of which each donor would finance a percentage correspondingto the respective funds available at that time. The funds of the Associa-tion would be used to contribute to this item after deductions for: the ser-vices of Electrowatt (US$900,000) and earthworking equipment (US$1,100,000).In view of the difficult financial situation of ATC and its high debt servicefor many years to come, it has been agreed that 40 percent of IDA's supplemen-tary financing will be onlent to ATC over 25 years, including 6 years ofgrace, at 8.5 percent interest while the remainder be used by the Governmentto strengthen ATC's equity (Section 3.01 (b) of the draft Development CreditAgreement). The execution of subsidiary loan agreement for the onlending ofthe proceeds of the credit to ATC on these terms is a condition for effective-ness (Section 6.01(a) of the draft Development Credit Agreement).

Economic Justification

70. The justification of the project when initially appraised in 1975rested on economic projections calling for a substantial increase in timberproduction in northern Congo--550,000 tons in 1980--which, together withexpected traffic increases from other countries served by the ATC transportsystem, would exceed the capacity of the CFCO line. The realignment wasexpected to remove this capacity bottleneck and allow the potential develop-ment of timber and other freight to take place. The cost of the investmentwas estimated at US$149 million. On the basis of the expected increases inproduction and savings in rail operating costs, the economic rate of returnwas estimated at 18 percent. This rate took into account that some repairs,basically the reinforcement of a tunnel and a number of bridges, would haveto be made on the existing line if the new line were not built. The economicanalysis also compared the realignment to two other investment alternatives,namely (a) constructing a road between Brazzaville and Pointe Noire and (b)improving the line through a series of partial realignments. These alterna-tives were discarded because their investment costs were comparable to therealignment while giving rise to higher transport costs in the case of theroad and providing only a limited capacity increase and higher operatingcosts in the case of line improvement.

71. In contrast to the initial projections, traffic increased onlymarginally during the period as a result of the stagnation of the Congoleseeconomy and of delays in the development of forest resources. Due to thereasons given in para. 55, the cost of the project has increased sharplyto an estimated US$357 million, or an increase of 140 percent over the initialestimate in current dollars (and about 100 percent in constant money). Onthe basis of the new cost estimates and revised, substantially lower trafficforecasts (northern Congo timber reaching 99,000 tons in 1980 and 283,000 tonsin 1985, or 82 percent and 70 percent less than the original forecast, respect-ively), the rate of return for the complete realignment investment would nowbe about 2 percent. This rate illustrates the dramatic changes in costs andbenefits. However, at this time, the appropriate economic criterion forassessing the justification for completing the realignment, now about 65percent completed, is to consider future costs only.

- 21 -

72. In reassessing the economic justification under present circum-stances, all the alternatives initially studied have been re-analyzed. Thetwo investment alternatives, improving the existing line and building a road,would not be any more attractive now because they would have to be constructedthrough the same difficult terrain as the realignment and, in the light ofthe enormous geological difficulties encountered, it can be safely assumedthat their costs would be substantially higher than initially estimated, andcertainly not less than the costs of the remaining realignment works. Apossible use of the completed sections of the realignment for the road, toreduce its cost, was investigated but found not to be feasible because majorwork would be required to widen cuts, fills and tunnels to road standards.In addition, a road could probably not be in service before the end of thedecade. This would leave the region short of transport capacity for a longperiod, as a detailed reassessment of the CFCO made by consultants in 1978showed that the line is close to saturation. On the other hand, the ATCnetwork will remain, for many years to come, the only outlet to the sea formost CAR import-export traffic, manganese from Gabon and timber from southeastCameroon and Gabon, as well as the backbone of Congo's own transport system.

73. The economic analysis focusses, therefore, on comparing the costsand benefits of completing the realignment versus stopping the works andrepairing the existing line. The benefits are those mentioned above, that is,savings in operating costs and avoidance of potential traffic frustration--which would occur even under the substantially reduced forecasts--with conse-quent losses in value added. In estimating benefits from frustrated trafficit is assumred that all manganese will be diverted to the Transgabonese railwayupon its expected ccnpletion in 1989. The costs to be considered are theinvestment required co complete the realignment, special maintenance costs ofthe new railway platform until the slopes are stabilized and Governmentparticipation in proposed forestry investments. The analysis also takes intoaccount, should the works be stopped, the costs of repairing the existingline, damage payments to the contractor, and materials (rails, sleepers, etc.)which could be sold or re-used. The rate of return for completing therealignment on a sunk-cost basis would be 13 percent for the entire regionserved by the ATC, and 12 percent for the Congo alone, based on ATC's netrevenues from transit traffic and value added of Congolese production. Bothrates of return would be fully acceptable. As discussed below, there areimportant uncertainties which could increase or decrease the return. However,barring stagnation of Congolese timber production, which seems unlikely givenpresent investor interest, the return would not fall below an acceptablelevel.

Uncertainties and Risks

74. The history of this project indicates indisputable elements ofuncertainty which cannot be eliminated through recourse to further extensivestudy or the inclusion of conditions of lending. The best that can beattained through such measures is a narrowing of the range of these uncertain-ties to a point where they are reasonably contained. The most important ofthese areas of uncertainty, and the steps proposed to limit their potentialinfluence, may be summarized as follows:

- 22 -

(i) Traffic Forecasts and their Effects on ATC FinancialResults and the Expected Economic Return from the Project.

75. In the course of preparing the project, traffic forecasts havebeen reviewed intensively on a commodity basis. This was also true forthe original appraisal of the Second Railway Project, yet stagnation ofthe Congo's economy and a slump in the world timber market confounded theappraisal estimates. Current best estimates assume a modest growth in bothgeneral cargo and timber industry. Caution would suggest that both trafficelements are subject to great uncertainty. However, all evidence suggeststhat general cargo and petroleum traffic is more likely to exceed forecaststhan fall short and even a 10 percent increase over forecast levels wouldincrease the economic rate of return from 13 percent to 20 percent. On theother hand, continued long-term stagnation in timber production, in spite ofGovernment initiatives, could reduce the economic return to an unacceptablelevel (2 percent). However, several proposals for the establishment oftimber-producing units in the Congo's rich northern timber reserves haverecently emerged and one contract with the Government has been negotiated.To interject some assurance that further progress will be made in developingtimber reserves and ensuring a growth in timber traffic commensurate withthe Congo's potential and the railway's increased capacity, target dates forentering into one forestry agreement and for making satisfactory progress ona second have been agreed upon.

76. Needless to say, ATC's assumed operating revenue and cash genera-tion are equally sensitive to the forecasts of traffic. Any major shortfallswill require additional financial support for ATC to meet its minimum capitalneeds and debt service obligations. It would not be realistic to coverpotential future cash deficits through higher tariff increases than planned.The financial uncertainty will be covered through the Government undertakingto maintain ATC's working capital and to support the debt service needs asappropriate (Section 4.01 of the draft Development Credit Agreement).The limitations on debt and investment will also permit close monitoring ofATC's future liabilities and prevent over-investment in facilities whentraffic volume does not justify it. Higher than expected traffic, on theother hand, would generate a much higher than proportional increase in ATC'snet cash flow.

(ii) ATC's Operational Efficiency

77. Marked deterioration in operational efficiency levels, particu-larly those of the CFCO and the ATC's river transport services, would have adetrimental effect on both traffic (and hence revenues) and operating costs.The Second Railway Project provided for technical assistance to the ATC tomaintain and improve productivity. In spite of this, the ATC suffered aserious decline in efficiency, largely as a result of policy, staff and main-tenance problems already discussed. Should ATC's operational efficiency con-tinue to decline, with its consequent impact on traffic and finances, recourseto the Government's undertaking to maintain ATC's financial viability willbecome paramount. However, steps taken to recover former operational stan-dards have been successful and provision has been made to improve efficiencyfurther through the implementation of ATC's action plan and achievement of

- 23 -

agreed operational targets. Furthermore, the Government will undertake in asupplementary letter agreed upon during negotiations, not to make any changesin ATC's top management without consulting with the Association, therebyassuring that ATC will maintain continuity in its present competent managementteam.

(iii) Further Changes in Project Cost

78. Uncertainties with respect to the final project cost have beenclearly demonstrated in the past due to a number of factors. The presentstage of completion (about two-thirds) and the recent intensive geological,geo-technical and topographical studies of the remaining works have served toreduce the current uncertainties markedly. However, in spite of all precau-tions taken in the latest estimates, there is a possibility that the finalcost could be noticeably higher or lower than these estimates. The princi-pal uncertainty is the remaining section of the tunnel, which could yieldconditions appreciably better or worse than expected. There is littlechance that further studies at this juncture would yield less uncertainty orbe worth the cost of an interruption of the ongoing works. To ensure comple-tion of the tunnel at the least possible cost, ATC has selected a new,experienced consultant to take full supervision responsibility for thetunnel, and the contractor has been required to strengthen and improve thestaff on site.

(iv) Funding

79. Any interruption in the supplies of funds for the continuationof the project could have disastrous consequences for the completion ofthe project and for its costs. Consequently several measures have beenproposed to reduce this risk:

(a) to ensure availability of funds through 1980 the Government willprovide CFAF 1 billion as condition of effectiveness (Section6.01(c)(i) of the draft Development Credit Agreement);

(b) to ensure that not only the funds to be provided by the Governmentbut also those of unconfirmed co-donors be made available on time,a disbursement schedule has been prepared (Annex 1 - 4b of thedraft Development Credit Agreement) stating that unless the Govern-ment has, by the beginning of each quarter, made available fundscorresponding to its own and the unconfirmed donors' share for thisquarter's payments, no withdrawals from the proceeds of the creditshall be made.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

80. The draft Development Credit Agreement between the People'sRepublic of the Congo and the Association, the draft Project Agreementbetween the Association and the Agence Transcongolaise des Communications

- 24 -

and the Recommendation of the Committee provided for in Article V, Section 1(d) of the Articles of Agreement are being distributed to the ExecutiveDirectors separately.

81. Special conditions of the Project are listed in Section III ofAnnex III. Special conditions of effectiveness are:

(a) the execution of a Subsidiary Loan Agreement between theGovernment and the Agence Transcongolaise des Communica-tions (para. 69);

(b) taking measures required to increase ATC's tariffs on bothdomestic and international traffic for 1981 pursuant to theprovisions of Section 4.06 of the draft Development CreditAgreement (para. 49); and

(c) availability of other funds as per Section 6.01(c), (d) and (e)of the draft Development Credit Agreement (paras. 69 and 79).

Special conditions of disbursements are:

(a) evidence that the Government has, by the beginning of eachquarter, made available funds corresponding to its own and theunconfirmed donors' share for this quarter's payments (para.79); and

(b) disbursements will first be made at a percentage of 38 percentfor the civil works (except tunneling) and then at a percentageof 13 percent to be adjusted if need be, for the entire civilworks (including tunneling) when other donors' funds areexpected to be available and disbursed on a joint basis (paras.64 and 69).

82. I am satisfied that the proposed credit would comply with theArticles of Agreement of the Association.

PART VI - RECOMMENDATION

83. I recommend that the Executive Directors approve the proposedcredit.

Robert S. McNamaraPresident

Attachments

May 21, 1980

- 25- ANNEX IPage 1 of 5 pages

TABLE 3ACONGO n PEoPLEs REP. - SOCIAL tHDLc.TORs DATA gLEE.

A.CONG. PWIZS ItEp. RID! ENGROUPS (AUSTED AgRACESLaND AaeA (THOUSA-ND sQ- RM.) CONCO, PIDl'LtS RZ . - XOST tECENT EST 4 3)

MEtAL 342.0 SAME SAME NEXT RICHEtAGRICULTUFAL 149.5 IBST tECtN CEOCAIC LNCOHt INCOME

1960 b 1970 A ESTIMATE L REGION : GROUP /d G.0UP j

Go? . R CAPlTA (US$3 220.0 320.0 540.0 306.1 467.5 1097.7

EMEGY CONSLIXPTION PER CAPITA(KILOGRAMS OF COAL EQUIVALENT) 119.0 194.0 142.0 80.6 262.1 730.7

POPULATION AND VITAL STATIS-ICSPOQPLATION, MID-YEU tMILLIONS) 1.0 1.2 1.4UUAN PoPULATION (PCERZNT O0 TOTAL) 33.0 34.8 3s.8 17.1 24.6 49.0

POPULATON PROJECTIONSPOPULATION I TMAt 2000 (XILLIONS) 3.0STATIONAIT POPLATION (MILLIONS) 7.0ThAR ST&TIONAIY POPULATION IS REACED 2115

POPULATION DENSItYPER SQ. C3. 3.0 4.0 4.0 18.4 45.3 44.6PEP SQ. U(. ACRICULTURAL LAND 7.0 8.0 9.0 50.8 149.0 140.7

POPULATION AGE STRUCTURE (PERCENT)0-14 TrS. 41.8 41.8 43.0 44.1 45.2 41.3

L5-64 YRS. 55.0 55.0 54.0 52.9 51.9 55.365 YRS. &ND ABOVE 3.2 3.2 3.0 2.8 2.8 3.5

POPULATION GROWTH RAST (PUCERT)TOTAL 1.6 2.1 2.5 2.7 2.7 2.4URBAN 3.8 2.6 3.0 5.7 4.3 4.5

CRuDE STItTE RATE (PER THOUSAND) 46.0 45.0 46.0 46.3 39.4 31.1CRM.E D1ATH RATE (PM TOUUSAND) 27.0 22.0 19.0 17.2 11.7 9.2GROSS RlPRODUCTION RATE .. 2.8 3.0 3.1 2.7 2.2FAMILY PLANNING

ACCEPTORS ANNUAL (TEOUSADS) .. .. ..USERS (PERCENT OF nARtIED WO1 N) .. .. .. .. 13.2 34.7

FOOD AND NUTRITIONDFDEX OF FOOD PRODUCTION

PER CAPITA (1 9-71-100) 127.0 99.o 86.0 94.3 99.6 104.4

PER CAPITA SUPPI F OFCALORIES (PERLENT OP

REQUIREnNNTS) 97.0 97.0 98.0 89.5 94.7 105.0PREINS (GRMS PE DAY) 40.0 40.0 41.9 55.8 54.3 64.4

OP WHICH AniAL IM PFULSE .. 23.0f .. 17.9 17.4 23.5

CUWLD (AGES 1-4) MOTALITY RATE 40.0 32.0 27.0 22.3 11.4 8.6

dEALtNLiFE EXPECTANCY AT ILTS (TEARS) 37.0 42.0 46.0 47.0 54.7 60.2INFANT MORTALITY RATE (PQRTHOUSAD) 1Po.0 .. .. .. 68.1 46.7

ACrCtSS TO SAPE WATER (PERCENT OFPOPULATION)

TOTAL .. 27.0 38.0 20.3 34.4 60.8URBAN .. .. 81.0 53.9 57.9 75.7RURAL .. .. .. 10.1 21.2 40.0

ACCESS TO EXCRETA DISPOSAL (PERCENTOF POPULATION)

TOTAL .. 6.0 9.0 22.5 40.8 46.0URBN .. 8.0 10.0 62.5 7L.3 46.0RURAL .. 6.0 9.0 13.9 27.7 22.5

POPULATION PtR PHSICIAN 130QO.00 9160.0 7320.OA 17424.7 6799.4 2282.4POPULATION PER NURSING PtRSON 1460.0k 670.0 H)0.0 2506.6 1522.1 i195.4POPWLATION PeR ROSPITAL BED

TOTAL 220.0jj 22O.OLj 190.0 302.3 726.5 453.4URBAN *- *- 230-0 201.4 272.7 253.1RURAL .. .. .. 1403.6 1404.4 2732.4

AONISSIONS PER HOSPITJAL SCD .. 22.8Li 28.6Lj 23.4 27.5 22.1

YOUSINGAVIUAGE SIZE OF NOUSEROLD

TOTAL 4.5 .. .. 4.9 5.4 5.3URtAN .. .. .. 4.9 5.1 5.2RURAL .. .. .. 5.5 5.5 5.4

AVEGAE NMBER OF PERSONS PER ROOMTOTAL 2.7 .. .. .. .. 1.9URBAN .. .. .. .. .. 1.6RURAL .. .. .. .. .. 2.5

ACCESS TO ELECTRICITY (PtRCENTOF DWELLINGS)

TOTAL 4.0/k .. .. .. 28.1 50.0RBAN .. .. .. .. 45.1 71.7

tURtAL .. .. .. .. 9.9 17.3

-26- ANNX ITABLE 3A Page 2 of 5 Pages

CONGO, PEOPLES REP. - SOCIAL INDICATORS DATA SHEET

CONGO,PEOPLE REP. REFERENCE GROUPS (ADJUSTED AYERAGESCONGO, PEOPLES RED'. - IOST RECENT ESTIMATE) -a

SAME SAHE NEXT HIGHERMOST RECENT GEOGRAPHIC INCOME INCOME

1960 /b 1970 /b ESTIMATE /b REGION /c GROUP /d GROUP /e

EDUCATIONADJUSTED ENROLLMENT RATIOS

PRIMARY: TOTAL 78.0 133.0 155.0 59.0 82.7 102.5MALE 103.0 150.0 166.0 64.2 87.3 108.6FEMALE 53.0 116.0 143.0 44.2 75.8 97.1

SECONDARY: TOTAL 4.0 19.0 52.0 9.0 21.4 33.5XALE 6.0 27.0 66.0 12.0 33.0 38.4FEMALE 2.0 11.0 37.0 4.4 15.5 30.7

VOCATIONAL ENROL. (Z OF SECONDARY) 28.0 10.0 6.3 7.0 9.8 11.5

PUPtL-TEACHER RATIOPRIMARY 53.0 60.0 61.0 42.2 34.1 35.8SECONDARY 20.0 33.0 41.0 22.9 23.4 22.9

ADULT LITERACY RATE (PERCENT) 15.6 50.0/i .. 20.8 54.0 64.0

CONSUMPTIONPASSENGER CARS PER TbOUSAND

POPULATION .. 12.6 14.7 4.0 9.3 13.5RADIO RECEIVERS PER THOUSAND

POPULATION 13.0 69.0 60.0 44.3 76.9 122.7TV RECEIVERS PER THOUSAND

POPULATION .. 1.9 3.8 2.9 13.5 38.3NEWSPAPER ("DAILY GENERALINTEREST ) CIRCULATION PERTHOUSAND POPULATION 1.0 0.7 .. 5.6 18.3 40.0CINEMA ANNUAL ATTENDAICE PER CAPITA .. .. 0.9 0.4 2.5 3.7

LABOR FORCETOTAL LABOR FORCE (THOUSANDS) 360.0 520.0/1 580.0/1

FEMALE (PERCENT) 38.0 37.1 37.0 31.9 29.2 25.0AGRICULTURE (PERCENT) 51.7 41.8 36.0 77.6 62.7 43.5INDUSTRY (PERCENT) 16.8 21.5 26.0 7.9 11.9 21.5

PARTICIPATION RATE (PERCENT)TOTAL 37.4 35.9 35.2 40.8 37.1 33.5MALE 48.3 46.9 45.7 53.9 48.8 48.0FEMALE 27.4 25.7 25.2 25.6 20.4 16.8

ECONOMIC DEPENDENCY RATIO 1.2 1.1 1.1 1.2 1.4 1.4

INCOME DISTRIJUSIONPERCENT OF PRIVATE INCOMERECEIVED BY

HIGHEST 5 PERCENT OF HOUSEHOLDS .. .. .. .. 15.2 20.8HIGHEST 20 PERCENT OF HOUSEHOLDS .. .. .. .. 48.2 52.1LOWEST 20 PERCENT OF HOUSEHOLDS .. .. .. .. 6.3 3.9LOWEST 40 PERCENT OF HOUSEHOLDS .. .. .. .. 16.3 12.6

POVERTY TARGET GROUPSESTIMATED ABSOLUTE POVERTY INCOMELEVEL (USS PER CAPITA)

URBA.N *- * 187.6 241.3 270.0RURAL .. .. .. 96.8 136.6 183.3

ESTIMATED RELATIVE POVERTY INCOMELEVEL (USS PER CAPITA)

URBAN .. .. .. 138.4 179.7 282.5RURAL .. .. 167.0 71.0 103.7 248.9

ESTIMATED POPULATION 8ELOW ABSOLUTEPOVERTY INCOtE LEVEL (PERCENT)

URBAN .. .. .. 34.5 24.8 20.5RURAL .. .. .. 48.7 37.5 35.3

Not availableNot applicable.

NOTES

/a The adjusted group averages for each indicator are population-weighted geometric means, excluding the extramevalues of the indicator and the most populated country in each group. Coverage of countries among theindicators depends on availability of data and is not uniform.

/b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969and 1971; and for Most Recent Estimate, between 1974 and 1977.

/c Africa South of Sahara; /d Lower Middle Income (5281-550 per capita, 1976); /e Intermediate MiddleIncome ($551-1135 per capita, 1976); /f 1965; a 1962; /h Government establishment only; /i 1967;/j 1972; /k Data for city of Pointe-Noire only; /1 Total population in age 15-59.

Most Recent Estimate of GNP per capita is for 1978.

August. 1979

-27 - ANNEX I-c1FnmC Of swra INDIcATO Page 3 of 5 pages

Mse lthae the ata re ra fe. mranse generaLly judged the meat ithorittive sand relisle, it Should also be noted that thep y s ot ha Luterna-i!~u napahi beoas of theoik of standardized definitions ad concepts used by different -onutrie. In colsetlvg the data. The data .rs, nonethaies,

usefult deerihe ocdere of esbtode, Iicains treade, end ohractermss cuertain ajor diffrerces betee cousutrin..

Teg4fp g4ntspfo fo ach indicator wre population-esighted geomeric acmen, exluding the ettemn values of the indicator an the met poPulatedcast jiduhispThmeto ink of data, crneavree of all indicator. for Capital Surpl-s Oil .dporer.m sd of indicators of A .cese to Water s-d ftcreta

Disposal, heusing, Inca Detributilon and Povrty for other c_try rusase poelatioo-eightsd goactrio ea-o oithout excluion of the extr- value mdthe mat Populated country. SInce,tecvrg ofImutise smg; the ndctore depends on ao Iitty of data and is no u rfe.. outionms be eerisedin relating -amass of one indicator tosoother IThemeaverages are 0etly useful - annr=xVtbo"fD epetd vlus h eozepang the auso.nindicator *t . tins aeng the. coutry ad -eer.gc-

lAI AREA (thousad mq.ke..) Acesto frta iR sl(ercent of Iop - In - total. ur an,d rura -Total - Total aortae area 1opi -o ad area mod inland onters. Mushe ofpeopl(ttal urPban, ad rota. mZv. by srt iposal asAgricultoural - tat recet eatlate of agricultural -re osed teep.rily Perceotage of their repective populations. ftocetn diap .. ar myInclude

or peranently for crop, pastures, sar,ket mod kitobon goften or to tie colcinad diapo..al, oith or cithoot treteasot, of smean coretelie fallo, ad emote-eater by ctain-borne systee or the -s of pit Priviesad u.a-lar

GNP CAPTA (S4)- aN? Per capta satiates nocurrent, mst Prices, Potalation prpyiln-Ppltindetdb ie f rciigpyiiao UIted.D mai cOnverson eatd - World Senst Atias (1976-78 bunts); quaified irce aeia sobool ati dniveraiby iee.b. fp-iigpyiih1l6o, iflo,-ad 1978 data. Popeulation Per Aursing Peraso - Population dicided by Dmbte of praticing ala

r DIM! CIUSUWflUI uR CAPiTA - Anonal cooumtion of coasroil Ifer ad feale grdute nsraes pratical oursem, ad asmietmot -mee.(cogad bgait, petrcleu, natural gas ad tydr-, nularmd ce- Popultion per gdoeita1l Ped total ubau mod rural - Popuation (total, urba,thermal. electricity) in kilogrens of coal equiv,alent per capota; 196ad rural dile y their repciveoutr of hoptlbeds a'uilble in1970, MCI 1976 data, public sod private gene.ral sod upeialicd hcuopital an oaiittd cnoo

H.spitalo are eatabliahenuts perameeotly taffed by at least tone physician.PORTiATION AND VrTAL STATISTICS istablisienots Providng priocipally custodial car are ant included. Rural

Total Pouaion. Mid-Yen million) - As of July 1; IptO, 1970, sd bhopitalo, bh-ece, include boaltb and ardical centera cot pereanntly starred- ~~~~~~~1917 date, by_a phyo icia (lot by a medical nosistant, ouree, mideife, etc. ohiob offer

Urban Pplain(perceot of total) - Ratio of orio to total Polou1ation; o-patient -ocamdation ad provide a Iiiitd range of medical fucilotia..different definitions of urban ovn my effect coapuraillity of data bdaioeico proital Bed - Total ,cabe- f adaisions to or di-ciarges iron

erscutries; l(6O 1970, and 1975 dntobopao dirda y tho nuehr of bod..Poonlat Ion Proj-etiono

F.matin 1 Yer 2DO- Current popultion proJeotios ace based on HOUSING1975 total pejsul.tion by age ad -a ad their acrtaLity sod fertility Average Sine of Hnusheld (pronam.e hoseol) tta. r an.sd rural -rates. feujqotimc paatr for aortality rates -Wyise of those A husehld consists of a group ofidvda.eaPhaerrn ureaatevls asnau-ng life sopsotancy at birth noreeains with coomotry' e their abi eals. A hoarder or lodger my or amy sot be included uo theper capita incm levl, ad f ale life expctany atehilining at houshoid for statiattual purposes.77.5 yeas. The pareatars for rortility rate oLso hove thes levels Av-as ouober cf prosorro total,Iurban adrual-Avrgeoueusnumig deln in fertility acoording to inca evel a- d past ofprospr u.i l urban adrrlocpied conntional dwellings,ifaily planning perfcreence. tach cOuntry is then asaigned cue of thee .. e..Pectivell. N-llingo ecclode non-perasnot structure and unoccpied porno.tine combinatio- cIf rtality and fertility treods for proecion.oea to Electriity (percect If dtioce) II toa, Iuba,adrua - Con-oovpoe... etiona ieligo o-th electricityiniig qatrsope-ctage of

Sttonrpouat ic:Z. o -iaotationary population there ic to gr-th total, rban, and rural deeligo repectively.sinc th bibrae1 oqul to the doath rate, ad aLso. tie ageot-ot-r r-aiosc-taot. Thin -Os -hitevd only ofter ferilityreato EIOJAT IONdedlite to the replncment l-evei un-it set r-p-duction rate, ben tdju-ted Enrolleet Ratico.A dcaci dese-tioc If onn, replecro itooif eouctly. The stationar Ppe- Primary ocioi - tota. I fean iani Grl..a total, eel, ad ifasle enrol-iaticn oboe ca estimottd on tie bauio If the projected obhacterioti-o tp of all age at tbprory lvla perentages of repective pri-ay

of tepouaIo booeps- a00, ann tie rote of edlIcie of fertility ooolAeppltoe oo.-liy includes ocildron aged 6-1i yearn utrate torpiscso leve. aujotod for diff-erot leagthe of primay educatico; for coontr-e cith

00e stationary ooouitticn is reached - The year on stationary puplatios oiorsl d .. ation varolmeaut any -exed lOd percet since sa popilsci-e m. been reachd. aebeie or above the official ochcci age.

fPopulaticn Dosl rc aysbol-otl.ml o fee,l - Cmmted asabve ..co-sYPer 0. km id-year population Pro sqor kiloaetor (100 heotares) of docioreuestlatfuryrafapovdpieftry i-truotit;,

total uraprovides gesral -nctioval, or teacher ftraile isOuo ofor pupilsPerx o. h. agricultural land - CoMpusd - nitr for agiutua an saly of L2 tO 27 ye-r of age; crop noe corse ar g-roeriy

Iny occlded.Pylaonarlctuepret-Cbirn(-lea-u,crking-age oticoleoouo pret If oe...ndsry( - Vocational imotitutuos include

Y5h peM drtrd(iyasadoe)a pretgso i-ertcncl iutrial cc othe progreae chick operate ladepand-otly. or apoation ipt0, 1970, and 1977 d.t.. dIprtanto ci -odary ins.titutions.

Population Growth Oats (percent)I - tota - --oulceh rates of total nit- 'P,uil-te-htr ratio - crPn- ano uecncry - Total studets. co1llo icpearpoplatcos or 950 IG,lG70 n 9707. pr-sr ad -conds-y lvi tiied umbers cc tenchers i-u tie coe

Once - Rft (po-ctoL- rban - Aoo-ia greh canoe or urbansota o opopulatioss fur 1950-6O, I960l-70, ad 1970-77. Adult ltItracy ra%tepercen) - Literote edulto (able to peat ad -nce) a

Crude Birth date or. thuad) - bnnuel Ioe birth. per thbuoud of sod- apIo-etag cI totaf a t poptltico aged 15 Years and over.yea. oulto; lh0 1970, sui i977 data

Crude e1althat (per thousan) - onmat deatto Per ticouso onIt-ea CG5000PfGUNpopulatio; 19hO, 1910 mod 1917 data. Psacoger Cur (per thouand popultioc) - Passengecare compieator core

Gross Peprouo date A-.berg ,uaber of daughters iomncll bear.. tsig loss thso eight per..c.n; eciodus ambulances, beaseai elitucyin-e onrl rproductive perod if she.oocee presot age- vboe

speifis fertility ratns; -usuly fiv-your averages ending is 196, us1dceiver (per thuso cpltion) - Al pope of reneivers fur radioi970, adf197l ircad-to tc gce.ral pu!bldic pe1r thosad of population; enco1des unli.cnsd

Penly Plannqin- AcePtors. Annual (huad)-d e nuber of reecr-ncatusmd lu year hen. regiotratien of radio sets -s inacoptura of birth_-cotroldeis une Insoe of satinonl feebly effect; data for recet years my out be compaale inice mit countriemPlanncing progan. bolinhed licening.

Famuy PannIg -jeer (prcet o erie ,sa - Percentage of nurried TV Rnoev-r (nor thooano popuation) - TV receivers for hroadoat to generalenof child-beaig- g (-iper)houebirth-control devices Public per thuadpultion; secldes unIcensed TV recei-mr in countries

to al mearied mea in sam age group. ad is year eden vitratios of T ets an LIo effect.

~~fh WPNITIEW NewsP~~~~~9-ayer Circulaiioc Par thousa `nnulatios) - Since the averge cirJaltiemEaeo 70 rdto er Caia 1ih -lICO() - loden of Per caita do.t pily genZ 'Peral nertteppe,dfnda a. periodical pbliao

anelproduction of allfoodcditiea91.- Produoction exeldee .a ad eod prriy to rcdig genrlue.I scmiee oh aI'fed ndi o cledr sa ass,Eaiim ovr praryhi.9" godsClme AnoualI Atdao perCaita nor Year' - heed on the outr of tickats(e.g agarcesm insteado sua) hc are, Idihle and containnuriet sodPrn h er o Lodo uasin odiei iesmdml

(.g.cffee sad tea- aremoldasd). Aggregate pseuhuti-omf nab toaf unt..durnthyf. oscnt iad-beis haned en national Vavrage Posuhuse prise -ightsPer sIVb Muneo aois(eo of ofrteiasat) - Cauted fet- lAdDl ?ONC

ene eqivalnt-f st food eop lle -aveiahi incoutry per capita 1tfl ore(hosns)-Rsi-eLly soty- p-oreo, including armdpee day. A-altble oupplieecoprs doasti production, mporta I.ae fortes adt unemployed bu-ocIuding housei-e, atudenta, etc. Definitionsenprt, and ohange in etoci. Net supplies esAud soi-1 feed, seds, in vaious cuoutries are ant c-erahi..q,mstities umed in food Proos-sing, ad lse ie distrihotion. R,puirs- )a, nn) - 1Pal labor forc as percentage of total abor frv..aitm -er -tieted. by PAO based on physiolgical nests. for moral 9gj4~p~ ) - Labor force in farete, ,cr-mtcy, huatieg adactivity ad health considerig -nir-os t&L teqeprasure, body "logt., tubn as P-Mten . of total labr force.age ad madistrbutions of population, ad allowing 10 percent for Industry (percent) - Labor f-rc In ing, construiiu, esofaturiag and

osae a hsusbed lve,I electricity, flie ad gas as Peroentags of total labor force.Per capita l ofmrtin (ars erdy- Prte ntcanet ofpr Pa,r.ic uno pate lercent) I- total, ale, sod fair - Paticlipation or

capita setsupl of faod Per dn Stspply of isod is drfiaeu ativty rasa ar computedastal ale a fale Iabor force an per-shavea. Requireacts for sll coustries established by USD proide for a ctge of total, -le and feale poPulation of all ages respectively;

Asaslloahose of d0 grae of total protois per dy mod 20 greme of i;gA. 1970, ad i9T5 data. These ar bIds participation rates reflectingmini, sad Pusa protin, of thick 10 pa shoul he anin protein. aga-os structure of the Population, ad tong ti- trend. A fee estient.sTham tanflds are Inn than tloes of 75 grea of total pstela and are foe- national~ souce.23 gra, of eimmA Protein ea an averag for the alt, proposed by, pAD IPis - Ratl.oru population made 15 aod A5 mod ove toin the Thied Worid Pad ha-y. NWlbrboit.ropo 0-iyas

",M it. estei l in oe, dms Protein epappi sf food r .L .gopo 54yaC ahi ed foe 1 nal d a4 ow Ht!aorPK% Ineats int cas.h ead kind) - Macaired by iw

ChLa Percent,aktyh a toued nua dats erioe-ntTea(bt edohatsa ag pom 1-u yaers, to obtidron in tibb ag greep; for mist derni- P paroet, rinheat 20 p-arnt, poorestSOpne,a pnrt Dpet

cyPM6 osufftriss data derived fee. lifo tables, ofhusol.

Life%c= 4 ra ib ras - Averss nh r o pa of life SaitdAb=n ovryIc tee ([So nPr_capitl -uenad ral-

InantMrtltyste(e th aound) A- Aoal deaths of intent under one notritiosa11y adequate diet piou ease...tia1 son-food requiota be outpeer of Age perthosh idesbirtha. aftordabie.

Accss o Sfe lie (ereIt of onolatos -total urban. ad rurel - Satimated. Rcltive Poverty _. -ee .Iy perreapits -urban ad rurl -0.mr of Ppi.pl (total, ubn an aa) ihraonable ccs to Mural relatius povetyioes eL _i netir f-avrag Par -aPita

af- aMvt- aOPPLY (iMncioe treated sUrface fliers or untreated but Persenal. inom of the .- tsary. Senbe leve Le derived iroa the rural leve. Wonhasted ente mo an that free pootactd Osrb.lse, springs, cith djusteet for lauhe coe o.tf 1triag in scbn araad senitary a*Is) as pareentages of their epsotire pojelaitas In stiated Polto blwAslute Poet nalae si - urba a

eurhen area a Puhlic fatals or etendpet looatest net amra hnrrl-Preto ouain(ra drrl h r abanluote -poo.rtt "enD ters fee., a hoess my ha cosidrad an haing sithin reasonableoes ro thai hos. In rura area rmeasombl.e acces amid iMly

that the hossswife or .aers of the boehId Ac at have an pad atomaica ad 8-cmL Onto DiiWobadisEapWOOmMate part of the dap in fetehin the fail9 a meter sesneada .. o AnaJlysi and Prolmtien Deparit.

A.gast 1.979

- 28 - ANNEX IPage 4 of 5 pages

ECONOMIC INDICATORS

GROSS NATIONAL PRODUCT IN 1978 (estimates) ANNUAL RATE OF GROWTH (%. constant prices)

Blns. CFAF 1967-72 1972-74 1974-77 1977/78

GNP at Market Prices 184.5 100.0 4.8 9.9 -3.2 2.9Gross Domestic Investment 42.9 23.3 1.8 17.1 -13.6 26.9Gross National Savings -13.5 7.3 -2.1 29.5 -25.3 14.7Current Account Deficit -56.6 30.7 5.4 -8.5 9.1 -3.2Exports of Goods, NFS 83.8 45.4 8.3 36.6 -2.1 -1.1Imports of Goods, NFS 122.1 66.2 6.4 12.3 2.8 -2.4

OUTPUT, LABOR FORCE ANDPRODUCTIVITY IN 1976

VJalue Added in GDP, 1976 Labor Force V.A. per WorkerCFAF mLns. t Thoussands I CFAF thousands

Agriculture 19,368 11.2 210 38.0 92.2 10.2Industry 59,310 34.2Services 77,924 44.9 (361 (62.0 (426.8 (89.8Unidentified and Unallocated 16,84 9.7 ( ( ( (

Total/Average 173,436 100.0 571 100.0 303.7 1000.

GOVERNMENT FINANCE

Central Government

(Billions of CFAF and percentages) of GDP1967 1970 1972 1974 1 1976 1977 1978 1979 1967-72 1973/74 1975/76

Current Receipts 12.8 16.7 18.9 40.1 44.3 47.8 50.4 60.0 52.4 22.0 26.0 28.2Current Expenditure 13.0 16.2 g- 39.3 46.6 48.5 57.4 70.1 52.5 21.8 26.0 31.Current S urplus -. 2 .5 -1.6 .8 -2.3 -. 7 -7.0 -10.1 -. 1 .2 0 -2.MCapital Expenditures .7 1.0 2.5 7.1 18.2 8.5 2.5 5.0 11.4 2.0 4.4 4.8External Assistance (net) .. .. .. 2.6 1.9 -2.8 -2.9 .8 -. 8 -. 8 1.2 -. 4

MONEY, CREDIT AND PRICES 1972 1973 1974 1975 1976 1977 1978 1979(billions of CFAF outstanding end period)

Money and Quasi Money 15.8 18.3 25.6 29.0 33.7 34.5 36.9 41.0Bank Credit to the Government 2.4 3.4 4.6 10.1 11.7 16.8 20.0 24.0Bank Credit to Private Sector _/ 17.6 19.9 22.8 29.3 38.0 38.9 39.4 44.o

(Percentages or Index Numbers)

Money and Quasi Money as % of GDP 16.1 16.7 17.2 16.9 17.9 16.9 16.4Consumer Price Index (1975 _ 100) 3/ 78.0 80.7 85.1 100.0 107.3 122.4 136.6Annual Percentage Changes in:

Consumer Price Index 2/ 9.8 3.5 3.7 19.8 7.3 14.1 11.6Bank Credit to the Government 188.0 41.6 35.3 119.6 15.8 43.6 19.0 20.0Bank Credit to the Enterprise Sector 12.1 13.1 14,6 28.5 29.7 2.4 1.3 11.7

i/ Total labor force; unemployed are allocated to sector of their normal occupation. "Unallocated" consistsmainly of unemployed workers seeking their first job.

Includes public enterprises.

/ In the absence of a general price index. Refers to consumption patterns of higher income families.Price indices for 1979 have been introduced, and they are not compatible with older indices.

Not available.

- 29 -ANNEX IPage , Df 5 pages

TRADE PAYMENTS AND CAPITAL FLOWS

BALANCE OF FAfMD,S 1967 197 1974 1975 1977 1978 REZORDED MERCHANDISE EYPORTS (1967-78 0ERIOD AVERAGES IN B3ILLIOIS OF CFAF)(estimates)

Amounts i

EXports of Goods, h75 17.9 29.3 75.0 59.0 81.7 83.8 1967-72 1973/74 1975-76 1967-72 1973-76Imports of Gioods, NFS -32.8 -53.6 -83-9 -104 -1 -122.1Resource Gop (deficit -) -15.1 -2.3 3.9 -4. -40.2tT3e Crude Oil .3 24.i 37.1 2.2 61.2

Wood Products 6.3 10.3 5.1 45.7 16.5Investment Incoe and Agricultural Froducts 1.6 3.2 3.4 11.6 6.2

Interest Payments -1.9 -2.1 -4.5 -6.5 -10.0 -17.3 Others 3/ 5 j3 8 .0 4o.6 16.1Other Factor Service Payments .7 .4 -. 7 .3 -. 3 -,4 Total 100.0 100.0Private Traesfers .9 -2.6 Z2 =25. -6.7 -. 6Balance on Current Account -17.0 - -66.4 -57.3 -57.2 -5h.

Public Transfers 2.6 5.0 4.O 7.4 5.4 7.7 EXTERNAL DEBT, DECEMBER 31, 1979

Direct Foreign Investment 5.7 16.7 17.1 22.1 32.9 78.3 in us$ min.

- Net M & LT Borrowing 1.7 5.4 16.2 9.5 8.4 15.5Disbursements .. Public Debt, incl. guaranteed 930.3Amortisation .. Non-Guaranteed Private Debt

Other Capital .. i.e. 3.1 5.7 -2.9 10.5 -2.5 -3.0 Total Outstanding & Disbursed 930.3

Errors and Omissions 3.1 4.9 -6.1 1.7 2Increase In Reserves - .7 Thh - 1 6 _1/

dross Reserves (end of year) .6 5,4 5.4 3.0 3.2 DEBT SERVICE RATIO (ESTIMATE) FOR 1978Net Reserves (end of year) .7 .3 3.- -.9 -6.7 -6.2 Public Debt, incl. guaranteed 20.8

Eon-Guaranteed Private DebtFuel and Related M4aterials Totautanamding & Disbursed

Imports 2/ .. .. .. ..of which: Petroleum 1.2 .. .. .. 12.0 ..

Exports .1 1.1 38.5 28.3 39.2 46.o IBRD/IDA LENDINR (latest month) (Millions of uS$)of which: Petroleum 1 1.1 38.5 28.3 39.2 46.o

I2BRD IDA

Oetstanding b Disbursed 38.1 20.9UoAl sbursed 27.23Outstanding incl. Undisbursed 4 2

1/ Accerding to Internal linascial Studies IMF.9/ Estimated.3/ Excludes reexport of :.iamonds. Compris s non-oil, mineral and otner products asd uarecorded reports.

BRati of scheduled Debt Service payment to Exports of Goods and Non-Fastor Services.,/ AS of February 1900.

not available.

April 1980

- 30 - ANNEX IIPage 1 of 2 pages

THE STATUS OF BANK GROUP OPERATIONS IN THE

PEOPLE'S REPUBLIC OF THE CONGO

A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of March 31, 1980)

Loan or US$ millionscredit Fiscal (Amount less cancellations)Number Year Borrower Purpose Bank IDA Undisbursed

Seven loans and credits fully disbursed 30.00 16.25

435-COB 1973 Congo Livestock - 5.60 1.321228-COB 1976 ATC Railway

Realignment 38.00 - 0.861349-COB 1977 Congo Second

Education 8.00 - 7.01971-COBl/ 1979 Congo Petroleum - 5.0 5.0

Total 76.00 26.85 14.19of which has been repaid 30.00 0.04

Total now held by Bankand IDA2/ 46.00 26.81

Total undisbursed 7.87 6.32 14.19

B. STATEMENT OF IFC INVESTMENTS

Nil

1/ Not yet effective.2/ Prior to exchange adjustments.

- 31 - ANNEX IIPage 2 of 2 pages

C, PROJECTS IN EXECUTION 1/

Ln. No. 1349 Second Education Project: US$8 million Loan of May 5,1977; Effective Date: November 29, 1977; Closing Date:December 31, 1981.

The project provides for strengthening of educational planningand creation of a primary teacher college, an education publications unit,a technical teacher training department and a forestry school. Projectimplementation is about two years behind schedule due to delays in contractawards for civil works and equipment procurement. One component is beingre-bid and the Bank is examining a second award proposal for another compo-nent. However, construction of two of the four project institutions is nowproceeding satisfactorily, and the Government has obtained additional externalassistance to cover cost overruns. Project management continues to be weak,although the recent appointment of additional technical staff is expected toimprove supervision of construction and procurement.

Cr. No. 435 Livestock Project: US$5.6 million Credit of November 2, 1973;Effective Date: April 11, 1974; Closing Date: December 31,1981.

The project is designed to increase beef output and surplus breedingcattle and to provide training and applied research. Herd development isstill a problem although 650 head of breeding stock have been recently pur-chased from Zaire. It is expected that 800 additional heifers can be obtainedduring 1980 from the same source. The target for the herd size to be achievedunder the project has been revised downward to 10,000 head. Revenue fromsales will be lower than anticipated and, on the basis of revised projections,will not exceed operating costs until 1983. Considerable progress has beenachieved on the training and research components and in establishing a ranch-ing system suitable to the country. The building program still has to becompleted.

Ln. No. 971 Petroleum Sector Technical Assistance Project:US$5 million Credit of April 11, 1980. NotYet Effective.

1/ These notes are designed to inform the Executive Directors regardingthe progress of projects in execution, and in particular to reportany problems which are being encountered, and the action taken to remedythem. They should be read in this sense, and with the understandingthat they do not purport to present a balanced evaluation of strengthsand weaknesses in project execution.

- 32 - ANNEX IIIPage 1 of 2 pages

SUPPLEMENTARY PROJECT DATA SHEET

Section I: Timetable of Key Events

Due to the nature of the proposal this section is abbreviated to containonly events related to supplementary financing.

(a) Date of first presentation to the Bankto consider the proposal: April 1979

(b) Date of departure of appraisal mission: November 1979

(c) Date of completion of negotiations: April 29, 1980

(d) Planned date of effectiveness: October 1, 1980

Section II: Special Bank Implementation Action

None.

Section III: Special Conditions

1. Special conditions of effectiveness are:

(a) the execution of a Subsidiary Loan Agreement between the Governmentand the Agence Transcongolaise des Communications (para. 69);

(b) taking measures required to increase ATC's tariffs on both domesticand international traffic for 1981 pursuant to the provisions ofSection 4.06 of the draft Development Credit Agreement (para. 49);and

(c) availability of other funds as per Section 6.01 (c), (d) and (e)of the draft Development Credit Agreement (paras. 69 and 79).

Special conditions of disbursements are:

(a) evidence that the Government has, by the beginning of each quarter,made available funds corresponding to its own and the unconfirmed

donors' share, for this quarter's payments (para. 79); and

(b) disbursements will first be made at a percentage of 38 percent forthe civil works (except tunneling) and then at a percentage of 13percent, to be adjusted if need be, for the entire civil works(including tunneling) when other donors' funds are expected to beavailable and disbursed on a joint basis (paras. 64 and 69).

2. Arrangements to complete the first phase of the Mont Belo-Brazzavillerehabilitation program by December 31, 1982, shall be made by theGovernment and ATC (para. 29).

- 33 - ANNEX IIIPage 2 of 2 pages

3. The Government and ATC will make a number of specific commitments tostrengthen ATC's operating and managerial efficiency. These measuresare enumerated in para. 37.

4. The Govcenment will take steps required to conclude one forestry conces-sion agreement by September 30, 1980, and to register satisfactoryprogress by December 31, 1980, to conclude a second one (para. 42).

5. Financial covenants aimed at strengthening and monitoring ATC'sfinancial situation have been agreed upon, including:

ti) ATC will not undertake investments exceeding US$2 millionequivalent without prior consultation with the Association(para. 44);

(ii) a debt service ratio of 1.25 will be maintained (para. 49);

(iii) a working ratio of 68 percent will be maintained during 1981 andof 65 percent thereafter (para. 49);

(iv) the expected rate of return on revalued assets will be at least5 percent (para. 49);

(v) the Government will assist ATC in maintaining a positive workingcanital and until June 30, 1982, supporting the debt service needsas required (paras. 48 and 76).

6. In order to minimize risk and consequences of any accidents, ATC will:set up - by January 1, 1982 - and maintain a maintenance brigade capableof operating earth moving equipment; submit quarterly inspection reportsand semi-annual geological investigative reports on critical slopes; andmaintain old railway line in operational condition for three years aftercompletion of the realignment (para. 59).

7. A cost-based study of tariffs will be prepared and its implementationwill be initiated after consultation with the Association by mid-1981(para. 48).

I -\ e

Lt§y j--9 -

,-, - 0 -o

a '

iiO_\g X <= D g>, o,D

lVii2>~~ ~~r iP J c X -N ,

r g

- 0 ~ ~ ~ "' 0

01~~~~~

-on

z 0~~~~~(-

0~~~~~~