I - - - -C-18a RETURN TO RPOTS CONFIDENTIAL REORTS .DESK WITHiN ONE WEEK TECHNICAL REPORT ON THE RHODESIA RAILWAYS DEVELOPMENT PROGRAM by JOSEPH C. MEHAFFEY Consulting Engineer for The International Bank for Reconstruction and Development WASHNGTON, D. C. February 6, 1953 Technical Operations TECHNICAL REPORT ON RHODESIA RAILWAYS DEVELOPOENT PROGRAM SUh21ARY To provide capacity for anticipated large increases in traffic, the Rhodesia railways has adopted a development program for the triennium 1953-55, estimated to cost approximately & 28 million* Other financing will be available for all but about & 9 million of the cost, and the Bank has been requested to consider a loan to cover part of this deficiency. The Rhodesia Railways is a statutory corporation controllod jointly by Southern Rhodesia, Northern Rhodesia and the Bechuanaland Protectorate. A body called the Higher Authority determines the policies of the Railways, which are carried out by the Rhodesia Railways Board. The governments of the three owning territories are entitled to receive dividends from the Railways where net revenues permit and are ultimately responsible for any deficits. The system of the Rhodesia Railways comprises 2500 route miles of single-track, 3161 gauge railway line. From Bulawayo, Southern Rhodesia, as a center, the main line extends northward 800 miles to the Belgian Congo border,eastward 463 miles to the 1Mozambique border, and southward 580 miles to Vryburg in the Union of South Africa. The Bulawayo-Vryburg line is operated for the Rhodesia Railways by the South African iailways. The system connects to various seaports through other railways, as follows: through the Beira Railway to Beira, Mozambique, the principal port for the Rhodesias; through the South African Railways to .aorts in the Union and also to Lourenco Marques in .ozambique; and through the Belgian Congo Railways and the Benguela Railway to the port of Lobito in Angola. Freight traffic on the Rhodesia Railways has increased 70% since 1947, and estimates of future traffic indicate that this rapid growth will continue for several years at least. The existing equipment and facilities of the Railways are not adequate for handling all freight now offered, without considering future increases. Traffic estimates for the line to Beira indicate that its capacity will be reached or exceeded by about 1955. There is therefore urgent need for expanding the capacity of the present system and for providing additional capacity for traffic to and from the sea, and the development program of the Rhodesia Railways is designed to meet that need. In respect of the present system, the program includes (a) large purchases of locomotives and rolling stock; (b) enlarged and better equipped repair shops; (c) comprehensive measures for expanding main-line capacities by reducing grades and curvature, enlarging and remodelling yards and sidings, installing new signalling equipment, improving water supplies, etc.; and (d) the construction of housing for both European and African staffs. To meet the need for more capacity to and from the sea the program provides for a new connection, called the Southeast Connection, from Bannockburn on the Shabani Branch to Lourenco Marques. It will require the construction of approximately 400 miles of new line, half in Southern Rhodesia and half in Mozambique. The Portuguese Government will do the construction work in Mozambique and has been granted a credit for the purpose by the Export-Import Bank. The 204 mile section to be built by the Rhodesia Railways presents no difficult construction problems, and the completed line will have favorable operating characteristics. Th7a estimated cost of the entire program was originally L 30.5 million, but deferments of less urgent projects will reduce the estimate to about L 26.4 million. Increases in labor and material costs could conceivably raise the total cost substantially, perhaps to around L 31 million. The estimated cost of goods to be purchased outside of the Rhodesias, mainly in the United Kingdom, will be around L 18.5 -. 19.0 million. The program as a whole is considered to be sound, well-balanced and realistic. It could not be materially reduced without endangering the accomplishment of its purposes. Its completion by the end of 1955 is considered reasonably possible. Many of the improvements included in the program, such as the Southeast Connection, will serve the needs of traffic for many years. Other parts of the program, such as the item for new locomotives and rolling stock, are designed only to meet pre- dicted demands to 1955, and the housing projects will probably serve for an even shorter time. Hence further capital expenditures will probably be necessary in the future, but the present program is complete in itself. Assured financing for the program consists of a balance of L 0.7 million from the preceding year, and loans as follows: ECA & 5 million, Railways Pension Funds & 3.5 million, and Southern Rhodesia T 5 million in 1953 and 1 5 million in 1954, making a total of & 19.2 million. The esti- mated shortfall of roughly & 9 million is to be made up from other sources, including the Bank. Another L 4 million will be supplied by one or both of the Rhodesias or from the Railways' resources, thus reducing the shortfall to about L 5 million. Any excess cost of the program over the present esti- mates will be supplied either by the Railways or by one or both of the Rhodesias. The Rhodesia Railways normally sets up a 1% sinking fund fot all loans. For loan repayments in excess of those provided by the sinking funds it intends to create a Special Reserve Account, to be built up by appropriations from net revenue. Southern and Northern Rhodesia have agreed to waive their right to receive subventions from net revenue and will introduce legislation to legalize that action and the establishment of the Special Reserve Account. The waiver of sub- ventions, plus added revenues resulting from a recent rate increase, should enable the Railways to pay all debt charges, for a number of years at least, without recourse to the owning Governments. If more revenues are needed later, it would appear that further increases can be made in the rates, many of which are low in comparison with similar rates elsewhere. The management and the technical staff of the Railways appear to be very competent. There has been difficulty during recent years in maintaining both the European staff and the African staff at full strength, but the management is satisfied that enough employees of all categories can be obtained to carry out the development program and to staff the - iii - expanded facilities that the program will provide. Recommended Basis for a Loan The Rhodesia Railways development program is worthy of financial assistance by the Bank to the extent of approximately L 5 million. Before any loan is made the Bank should satisfy itself (a) that arrangements have been made for providing the remainder of the funds required for the program; and (b) that procedures will be made effective for coordinating the con- struction work on the Southeast Connection on both sides of the Mozambique- Southern Rhodesia border. TECHNICAL xALPURT ON RHODESIA RAIDIAYS DEVELOPMENT PROGRAM SCOPE OF THE REPORT 1. This report covers the technical features of the development program of the Rhodesia Railways for the triennium 1952/53 to 1954/55, which has the purpose of enabling the Railways to meet the estimated demands of traffic during that period. The development program originally contemplated the expenditure of L 30.5 million, including a carry-over to the following fiscal year, bitthe Railways' management has since agreed that by the deferment of certain less urgent items the total amount can be reduced to approximately & 28 million, of which 4 19 million will be provided from various firm sources, leaving a gap of A 9 million. It is in respect of this gap that the Bank has been requested to consider a loan. THE RHODESIA RAIfAYS 2. Description The Rhodesia Railways is a statutory corporation established by the Rhodesia Railways Act, 1949, of Southern Rhodesia and concurrent legislation of Northern Rhodesia and Bechuanaland Protectorate. It owns and, with the exception mentioned below, operates the system of railways serving the three territories. The system comprises 2,500 route miles of single-track railway. The gauge of the track, like that of many of the railways in Africa, is 3 feet 6 inches. 3. From Bulawayo in Southern Rhodesia as a center, the main line extends north 800 miles to the Belgian Congo border beyond N'dola in the Copper Belt of Northern Rhodesia, north and east 463 miles to the Mozambique border beyond Umtali, Southern Rhodesia, and south 580 miles to Vryburg in the Union of South Africa. The Bulawayo-Vryburg line is operated on behalf of the Rhodesia Railways by the South African Railways. Various branch lines in Southern and Northern Rhodesia add 657 miles to the total mileage of the system. For convenience the Bulawayo-Vryburg line is usually referred to as the line "south of Bulawayo", and the rest of the system as the lines "north of Bulawayo", 4. The main line generally follows the principal watersheds across high-veldt country, at altitudes varying between 3,000 and 5,500 feet, except where it descends to Wankie and the Zambezi valley areas. Some sections of the line traverse very rough country and consequently have comparatively steep gradients and heavy curvature; this is particularly true on the Salisbury-Umtall section, where the maximum grade is 2.0% but the curvature makes the ruling grade a virtual 2.5%, Other sections generally traverse less difficult country and are constructed to varying but better standards. 5. The three territories served by the Rhodesia Railways system are land-locked, and depend for their access to the sea upon connecting rail- ways, as follows: - 2 - (a) The main line east of Bulawayo connects at the Mozambique border with the Beira Railway, owned and operated by the Portuguese Government, which leads to the port of Beira. The Beira route is the shortest route from the Rhodesias to the sea and handles the bulk of their imports and exports. (b) The main line south of Bulawayo connects at Mafeking and Vryburg with the system of the South African Railways, by which access is obtained to the ports of the Union of South Africa and to Lourenco Marques. (c) The main line through Northern Rhodesia connects at the Belgian Congo border with the Belgian Congo Railways, by which the port of Lobito, in Angola, can be reached via the Benguela Railway. 6. Historical The main and branch lines which now comprise the Rhodesia Railways system were constructed in stages from 1893 to 1932, by various companies formed under the aegis of the British South Africa Company to assist in the development of Northern and Southern Rhodesia. By 1937 all of these companies had been merged into the Rhodesia Railways, Limited, except the Shabani Railway Company, Limited, owner of the Branch line from Somabula to Shabani, which line was, however, operated by Rhodesia Railways, Limited, 7. In 1947 the Legislature of Southern Rhodesia authorized the raising of a loan not exceeding & 32 million, of which b 30 million was to be used for the purchase of the shares of Rhodesia Railways, Limited, the redemption of its debentures, and additional capital for the Railways system. As the result of this legislation the Railways passed under the ownership and con- trol of the Government of Southern Rhodesia in 1947, without change in corporate form. In 1949, legislation passed by Southern Rhodesia, and similar legislation issued by Northern Rhodesia and the Bechuanaland Pro- tectorate, created a new statutory body known as Rhodesia Railways, which took over the undertakings then owned and operated by the Rhodesia Railways, Limited, on November 1, 1949. 8. The Shabani Railway Company, Ltd., remained in private ownership until 1951, when it was purchased by the Rhodesia Railways. LMAL STRUCTURE OF aNOD1SIA RAIL.AYS 9. As established by the legislation mentioned in paragraph 7 above, the Rhodesia Railways consist of (a) an authority known as the Rhodesia Railways Higher Authority, and (b) a board of management known as the Rhodesia Railways Board. In addition, the legislation provides for a General Manager of Rhodesia Railways. 10. General duties and power of the Railways The Rhodesia Railways is a body corporate, capable of suing and being sued, and generally of performing all such acts as a body corporate may by law perform. It is the duty of the Railways to provide an efficient and adequate system of public transport of goods and passengers by rail within the three territories, and for that purpose to take such steps as it may consider necessary for extending and improving rail transport facilities. It is required to - 3 - administer its undertakings on business principles and with due regard to the needs of the public and the development of agriculture, commerce, industry and mining by means of cheap and efficient transport. 11. The Higher Authority consists of four members: the Prime Minister of Southern Rhodesia; the Governor of Northern Rhodesia; the High Commissioner for Basutoland, the Bechuanaland Protectorate and Swazi- land; and such other Minister of the Crown in Southern Rhodesia as the Governor may appoint (currently the Minister of Mines and Transport). The functions of the Higher Authority are to determine the policy of the Railways, to appoint the members of the Board and the General Manager, to give the Board general directions on matters of policy and specific directions on all matters which legally require the Authority's prior approval, and to decide any questions at issue between the Board and the General Manager. Eamples of matters which require the prior approval of the Authority are: important questions of railway policy; radical alter- ations of the rates and fares structure; the raising of new capital; the construction of any new railway; capital expenditures on any one work involving i 50,000 or more; and any other matter that the Authority may direct from time to time to be reserved for its approval. 12. The Board consists of not more than six nor less than five members, selected because of their wide experience and proved capacity in general administration, agriculture, commerce, industry, mining, transport or fin- ancial affairs, or in the administration or organization of workers. The function of the Board is to conduct and manage the business of the Railways in accordance with the policy determined by the Higher Authority, subject to the prior approval of the Authority on certain matters mentioned in the preceding paragraph. The Board is authorized, with the approval of the Authority, to borrow money for capital purposes, including the execution of permanent works, the provision of working capital, the repayment of loans, and the purchase of shares or securities of any body corporate engaged in activities such as the Railways are authorized to carry on. 13. The General Manager, who is required to be a person of wide experience in railway administration, is appointed by the Authority after consultation with the Board. As chief executive officer of the Railways, it is his function generally to direct the regulation, maintenance and operation of the Railways' undertakings, subject to the prior approval of the Board on certain matters. FINANCIAL STRUCTURE OF RHODESIA RAILWAYS 14. Legal requirements The legislation creating the Rhodesia Rail- ways established a number of requirements affecting the financial structure, the most important of which are summarized briefly as follows: (a) Repayment of original indebtedness The cost to Southern Rhodesia of acquiring the shares and debentures of Rhodesia Railways, Ltd., and providing further capital for the company, was established as a debt of L 30 million due by the Railways to the Government of Southern Rhodesia, with interest payable semi-annually and an annual sinking fund payment of 1%. The amount of this loan, together with all due and unpaid interest, sinking fund and other charges, was made a first charge on all the property and assets of the Railways. (b) Reserve funds The legislation provided for setting up the nucleus of an improvement or betterment fund, and directed the establish- ment of a rates and wages stabilization account, which is to be replenished by action of the Board approved by the Authority whenever it falls below 1 2.5 million, but is never to exceed - 4 million. (c) Borrowing The Board is authorized to borrow money for capital purposes with the approval of the Authority, and the General Manager, with the approval of the Board, can borrow money temporarily for the ordinary course of business, (d) Allocation of revenue receipts The revenue receipts in any financial year are to be applied to meeting all expenses properly chargeable against revenue, which include sums required for: (1) paying all working expenses; (2) making contributions to pension funds; (3) making provision for maintenance, renewals and depreciation, and appropriations to the rates and wages stabilization account and to the improvement or betterment account; and (4) paying interest, sinking fund and other loan charges. From the balance, if any, of revenue receipts, there shall be paid to the Governments of the three territories a sum not exceeding b 600,000, or such lesser sum as may be available, divided so that each Government will receive the same proportion as the net operating revenues earned in its territory bears to the total net operating revenue. A special proviso prescribes that the amount payable annually to the Bechuanaland Protectorate for the first five years shall be at least ? 75,000, or such lesser sum as the balance of the revenue receipts will permit. (e) Lseting of deficits If the revenue receipts in any year are not sufficient to pay the expenses properly chargeable against revenue, the deficiency shall be met from the rates and wages stabilization account. If that account will not cover the whole deficiency, the three Governments shall make good the remainder, Southern Rhodesia paying 75%, Northern Rhodesia 20% and the Bechuanaland Protectorate 5j -- these proportions being subject to review at the end of successive 5-year periods. (L) Disposition of surplus Any surplus that may exist in any year, after meeting the charges outlined in sub-paragraph (d) above, shall be used first to reimburse the Governments for any payments previously made by them to meet deficits, and any balance shall be allocated to the improve- ment or betterment account and to the rates and wages stabilization account in such proportions as the Authority may approve. (g) Variations in rates Whenever it appears that existing rates will produce more or less revenue than is necessary to pay expenses chargeable to revenue and to provide a balance for paying the whole, or such portion of the whole as the Authority may specify, of the subvention to the Governments mentioned in subparagraph (d) above, appropriate changes are to be made in the rates. - 5 - 15. Present Financial Position of Railways (a) The following summarized balance sheet shows the financial position of Rhodesia Railways on March 31, 1952: TABLE 1 Assets a100s Liabilities .1000s Fixed Assets Capital and Reserves Capital expenditure 41,029 Loan from S.R.Govt. 30,000 Net cost of share equity Loan from N.R.Govt. 7,730 in Rhodesia Rlwys Ltd. 2,784 Loans from Pension Shares of Victoria Falls Scheme 1,806 Hotel Ltd. and Shabani Capital Reserve 2,60 Rlwy Co. Ltd. 272 iscellaneous reserves 143 Improvement or better- ment account 237 4,085 Rates and wages stabil- Investments on account of ization account 2,573 rates and wages stabil- ization account 2,423 44,949 Current Assets Current Liabilities Investments 1,728 Accounts payable 1,783 Stores and miscell- Provision for workmen's aneous equipment 4,,678 compensation 188 Work in progress, etc. 144 Provision for sinking Accounts Receivable 2,053 fund 168 Cash 808 2, 139 9,11 Depreciation and Renewal Accounts Permanent way and works, engines and rolling stock 8,707 Road motor services 106 :'iscellaneous 18 8,831 TOTALS 55,919 55,919 (b) As the balance sheet indicates, the financial structure of the Railways is sound. The capitalization is not excessive. The share- holders' equity amounts to about B5.4 million. Most of the indebtedness is owed to Southern and Northern Rhodesia, the two principal owners of the - 6 - Railways. Current assets are 4h times the current liabilities. There are depreciation reserves of L 8.8 million against physical assets costing about - 41 million. The working capital of 6 7.3 million is considered adequate. 16. Recent growth of freight traffic The very rapid development of the two Rhodesias since the end of Wiorld -iar II has been accompanied by a correspondingly rapid growth of the freight traffic on the Rhodesia Railways system, as the following table shows: TABLE 2 Freight Traffic on Rhodesia Railways Net Ton-Miles Year * Total Tonnage Nor.of Bulawayo only 1000s 1000s 1952 7,296 2,793,344 1951 6,689 2,591,770 1950 5,755 2,265,021 1949 5,097 2,000,254 1947 4,288 1,681,910 1946 4,157 1,655,147 1945 4,353 1,794,447 1941 3,810 1,629,476 17. The composition of the freight at various times is shown by the following table: TABLE 3 Percentage of Freight Tonnage Commodity 1952 1947 1941 General goods 47.8 43.7 37.5 Coal and coke 32.0 34.7 32.3 Chrome ore 4.2 4.0 9.6 Copper 5.7 6.3 9.0 Asbestos 1.1 1.4 1.3 Lead, Zinc, Vanadium .5 .9 .4 Other minerals 8.7 9.0 9.9 100 100 100 * Note - Because of a change in the fiscal year, statistics for the full year 1948 are not available, - 7 - 18. The following table is a summarized traffic analysis showing, as percentages of the total traffic, the movements of coal, minerals and general goods over different parts of the system in 1951: TABLE 4 Analysis of 1951 Traffic General goods over Beira R1wy, mainly imports for Rhodesias 12.0% EXport minerals from Rhadesias and Congo over Beira Rlwy 11.9% 23.9% Coal from Wankie to points on Beira, Rhodesia and Congo Rrys. 32.5% General goods moving locally north of Bulawayo 20.0% Local mineral traffic north of Bulawayo 7.0% 27.0% General goods between S.A.Rlwys and Bulawayo or beyond 12.3% Other traffic 4.3% 100.0% 19. It will be seen from the foregoing tables that the annual tonnage of freight carried has nearly doubled since 1941, and that the increase since 1947 has been 70%. Reflecting the general prosperity of the Rhodes- ias, the proportion of general goods has steadily grown until in 1952 they constituted nearly half of the total freight. However, the most important single job of the Railways is the hauling of Wankie coal and coke, which have consistently formed about one-third of the total tonnage; they are distributed along the total length of the lines "north of Bulawayot, roughly one-third moving north of Wankie and the remainder south and east. The predominance of the Beira route in the movement of imports and exports is made clear by the table in the preceding paragraph. FUTURE FREIGHT TAFFIC 20. Estimates of future traffic demands are made annually by the Railways, with the assistance of the Governments of Southern and Northern Rhodesia. These estimates are prepared in detail insofar as coal, copper, chrome and other minerals, cement, fertilizer, and other bulk commodities are concerned; but estimates of general goods traffic are based primarily on conclusions as to general trends. The Railways do not consider it practicable to make detailed traffic estimates beyond a three year period, but they do make general estimates for a further period for use as a guide in preparing long-range development programs. The detailed estimates for the calendar years 1953/55 are now in process of being made, so the esti- mates presently available are those made in 1951. As a general rule the estimates made in the past have turned out to be reasonably accurate. 21. The following tables show the tonnages of principal commodities actually carried in recent years and the 1951 estimates of future tonnages, and the estimated net and gross ton-miles of freight in the near future for which provision must be made. - 8 - TABLE 5 Tonnages of Principal Commodities Coal & Coke General Goods Copper Chrome Asbestos Calendar million million thousand thousand thousand Years tons tons tons tons tons Actual: 1950 2.153 2.610 366.2 322.6 71.0 1951 2.351 2.759 418.1 333.6 78.3 1952 2.416 2.714 377.5 335.4 75.8 Planned for: 1953 3.793 No global estimate 488.4 480.0 119.5 made. Additional 1954 4.190 traffic is express- 483.4 480.0 120.0 ed in net ton-miles over each train- working section in "loaded" direction Estimated required in: All minerals from N,R.and Congo 1955 4.472 No 529.6 720.0 129.0 1956 estimates 568.0 720.0 129.0 1961 5.500 made 607.0 No estimates made TABLE 6 Total Movements (in Ton-Miles) (Eccluding Bulawayo-Vryburg Section) Calendar Year Net Ton-Miles Gross Ton-Miles: main line in "loaded" dir- ection excluding passenger vehicles. 1946 1,700 million Performance calendar year 1951: 3,165 million 1951 2,815 million Demand I t 1953: 4,720 million Increase 65.6 Demand ff 1954: 5,000 million Note: Planning has been done with view to meeting these demands, which in 1954 represent an increase of 58% over 1951 performance. - 9 - 22. The estimates of the tonnages of coal and coke, copper, chrome$ and asbestos to be transported during the next three years were based on the plans of the various mining companies for increasing their production. These estimates were assembled and checked by the appropriate Government departments of Southern and Northern Rhodesia, and, except for asbestos, were checked by the mission with the principal producers. They can be accepted as firm provided adequate railway capacity is supplied to meet the needs of the mines. For general goods an increase of 12% per year in imports was assumed after consultation with the territorial Govern- ments, and based on this figure estimates were made of tonnages in the "loaded" direction on each section of the Railways. The resulting esti- mates are considered to be dependable, but they may prove to be on the low side. 23. The following table shows the actual number of trains each way per day on certain sections of the main line in 1946 and 1951, and the estimated number that will be required in 1953 and 1956 to carry the pre- dicted traffic, except that the numbers shown for the Salisbury-Umtali line in 1953 and 1956 represent the optimum capacity of the line in those years rather than the amount of traffic desiring to use it. Table 7 Number of Trains Each Way per Day Actua a Estimated June 1946 August 1951 1953 1956 iankie-Livingstone 5.7 9.7 10 13.5 4ankie-Bulawayo 5.7 9.1 12 14.1 Bulawayo-Que Que 7.0 11.4 15 18,3 Que Que-Salisbury 5.7 10.7 l 16.1 Salisbury-Umtali 5.3 11 12 12.7 PRESENT FACILITIES AND CAPACITY 24. (a) General. Capital expenditures on the Railways immediately after the end of World War II were very small, both because there was doubt about the post-war demand for copper and chrome and because the prospect of nationalization discouraged the raising of new capital by the then owners of the Railways. In the period 1947-1952, however, capital expenditures amounted to nearly ; 17.5 million, of which about a half was for locomotives and rolling stock, a quarter for operating buildings and housing, 10% for improvements to track and operating facilities, and the remainder for miscellaneous purposes. On the lines north of Bulawayo (i.e. omitting the Bulawayo-Vryburg line operated by the South African Railways) the number of locomotives increased 28% during the period and the number of freight cars 52%, while the tons of freight increased 70% and the ton-miles of freight increased in the same proportion. It is evident that the increased traffic could have been handled only by the efficient and intensive use of equipment, particularly the locomotives. The following table gives figures illustrating the utilization of Rhodesia Railways equipment in 1951, and comparable average figures for - 10 - all Class I Railways in the United States for the latest period-.s available: Table 8 Utilization of Equipment Rhodesia U.S. Railways Railways 1951 -1950- Liles per day per engine in use 145 - Liles per day per engine on line 122 119.4 wagon miles per wagon day 61.9 46.5 Average load of loaded wagon 27.7 31.4* Net ton-miles per wagon day l,134 972 Percentage of locomotives un- serviceable 9.8 9.9* Percentage of wagons unserviceable 3.4 6.2 Average length of haul 4l5 417 (b) Permanent way and operating facilities. Standards of track maintenance are reasonably satisfactory. Re-railing of the main line from Salisbury to Ndola with 80-pound rail, authorized some fifteen years ago, was delayed by the war and has progressed only to the general vicinity of Kafue. All other parts of the system have 60-pound rail. Recent exceptionally dry years have shown the inadequacy of the water supplies in a nimber of areas; many improvements have been made but much remains to be done to meet the needs of increasing traffic. Bridges and culverts are generally adequate, although the major bridge over the Kafue River in Northern Rhodesia will have to be raised for safety against floods. Construction of a new marshalling yard at Bulawayo, with new connections to the Vryburg, Victoria Falls and Salisbury lines, is well under way, but many other yards are inadequate for present traffic. (a) Locomotives and rolling stock. The following table shows the equipment in service in June 1952: * 1949 figures. - 11 - Table 9 Type of vehicle Number Locomotives: Straights 171 Garratts 115 286 Passenger coaches: 473 Goods wagons: Open 4,930 Covered 1,242 Tank 291 Guard's vans 180 Service 145 6 788 All of the existing locomotives are of the coal-burning, steam type. The number of both locomotites and wagons on hand is insufficient to handle the present traffic, and delays in the delivery of additional equipment on order are adding to the operating difficulties. (d) Repair facilities. The main workshops are at Bulawayo and Umtali, with engine sheds for minor repairs at Ndola, Broken Hill, Livir4stone, ,Iankie, Bulawayo, Gwelo, Salisbury and Umtali. X,4ith addi- tions recently completed the main workshops are just adequate for present needs and have made a creditable record in the maintenance of the Railways' equipment, For the year ended 31 March 1952 the average percentages of locomotives and wagons out of service was as follows: Locomotives Uag6ns In shops 5.61% 0.59% Awaiting shops 1.52 0.93 Under repair at sheds or depots 2.90 1.4o 10.03% 2,92% The workshops appear to be well-equipped and well-managed, and satisfactory procedures are in effect for the regular inspection of equip- ment and the scheduling of repairs. The capacity of the workshops is fully taken up by existing equipment and must be expanded to handle the maintenance of new equipment on order. Many of the engine sheds are congested and obsolete. A new engine shed is under construction at Bulawayo and some others have been improved, but as a whole the sheds cannot be considered adequate even for the present equipment. (e) Capacity. Although the Railways have made good use of the available resources in their efforts to keep up with the constantly increasing demands of traffic, the fact remains that for some time they have been unable to move all the freight that is offered or that would - 12 - be offered if the capacity were adequate. This deficiency is particularly marked in the case of the important bulk commodities, coal, chrome ore and copper, which together make up more than 40% of the total traffic. uankie coal, which is the life blood of the Rhodesian economy, has for several years been in short supply at many consuming centers. It has not always been entirely clear in the past whether the shortages were the result of inadequate production or of inadequate transportation, but in recent months the collbries have produced more coal than the Railways could transport. There is every reason to believe that the production will continue to increase at a rapid rate unless it is purposely held back because of the continuing inability of the Railways to transport a larger quantity. The production of chrome ore in Southern Rhodesia in recent years has consistently been greater than the Railways' capacity for moving it to seaports for shipment overseas, and as a result, stockpiles of ore aggregating over half a million tons have been built up at various railway stations awaiting transportation. These piles are being added to daily. NEED FOR INCREASING CAPACITY OF PRESENT LINES 25. The estimates of future traffic in paragraphs 17 to 19, to- gether with the information in paragraph 23, show clearly the need for increasing the capacity of the present lines as soon as possible. NEED FOR A NEW CONNECTION TO THE SEA 26. A comprehensive study of all traffic facilities, made during the annual traffic review in 1991, led to the conclusions: (a) that the optimum capacity of the line connecting the Rhodesias to the port of Beira will be reached or exceeded about 1955 as a result of increasing export and import traffic, and (b) that the project for constructing a new Southeast connection to the port of Lourenco Marques is the most desirable of the alternative projects suggested for obtaining the necessary additional capacity promptly. Accordingly this project was adopted as an important part of the development program, Another study of the problem by the Knappen Tippetts Abbett Engineering Company, con- sulting engineers retained jointly by the governments of Southern Rhodesia and Portugal, confirmed the Railways' conclusions. The con- currence of the Portuguese Government in the conclusions is evidenced by assurances from the Prime inister of Southern Rhodesia by the President of the Council of Portugal that the Government of Portugal will build the Mozambique section of the Southeast Connection, and will carry out the construction in collaboration with the Rhodesia Railways so as to permit of its completion within three years. The reasons for the con- clusions are summarized in Appendix I, - 13 - THE RHODESIA RAILWAYS DEVLOPWNT PROGRAM 27. The development program of the Rhodesia Railways to meet the needs of traffic as outlined in the preceding part of this report in- cludes measures to increase the capacity of existing lines, and also the construction of the new Southeast Connection from Bannockburn to the Mozambique border. The entire program adopted in 1951 contemplated the expenditure of I 52.3 million during the eight fiscal years 1951-52 to 1958-59, and included the construction of the so-called Sinoia-Kafue cut-off, beginning in 1954-55, at an estimated total cost of T 8 million. However, this report is concerned only w,ith that part of the program which applied to the triennium 1952-53 to 1954-55, excluding any expendi- ture on the Sinoia-Kafue project which has been postponed. The approved capital program for the triennium contemplated the expenditure of 6 30.502 million for the general purposes shown in the following breakdown: Table 10 Development Program (1952-53 - 1954-55) Item Capital Expenditure Traffic and operating facilities 2,882,000 Housing, European 3,435,o00 Housing, African 1,338s000 Permanent way and bridges 984,000 Buildings for workshop, etc. 532,000 Plant, machinery and equipment 1,036,000 Deviations, regrading, etc. 1,h20,00 1,ater supplies 636,000 Locomotives and rolling stock 11,995,000 Southeast Connection .,395,000 Miscellaneous 847,000 Total a 30,502,000 Since this program was adopted the management of the Railways has agreed that by deferring some of the less urgent projects the total of the program can be reduced to approximately ; 28,362,000. RE1,WALS AND BETTERONT EXPENDITURES 28. The development program just outlined does not include proposed expenditures during the same triennium of & 4,171,000 for renewals and L 1,924,000 for betterments, as charges against the Depreciation and Renewals Account over the Improvement or Betterment Account, respectively. Expenditures under the first heading are for renewals of permanent way, bridges, engines and rolling stock, and other assets. The Railways' practice is to charge to the Improvement or Betterment Account expendi- tures for new assets or alterations or additions to existing assets, which, although desirable, are not revenue-producing or strictly essential for the normal working of the Railways, including such items as hospitals - l4 - and clinics, recreation halls, grade crossings, fencing Railway property, etc. DISCUSSION OF PROGRAM 29. The purposes of a great part of the items comprising the develop- ment program are apparent from their titles, General information concern- ing all items will be found in Appendix II, but a few of the more important ones are discussed briefly below. 30. Traffic and Operating Facilities, t 2,882,000 This item includes such projects as the construction of new marshalling yards and remodelling of existing yards, the eastward exten- sion of the centralized train control system now in use between Bulawayo and Somabula, the construction of new engine sheds and goods depots, the improvement of telephone and telegraph communications for train operat- ing, and the construction of new stations to reduce the length of block sections for train operating. These and other similar measures included in Item 1 will make possible a greater train density on the most congested main-line sections, reduce delays to freight traffic, and promote the more effective use of rolling stock. 31. Housing, European, L 3,435,000 In common with most other large enterprises in the Rhodesias, the Railways have been forced by the general shortage of housing to build quarters for many of the European staff. In Southern Rhodesia the policy is to house employees who are subject to transfer and to being called out at any hour, but to house only exceptionally those who are rarely subject to transfer and who have fixed hours of work. In Northern Rhodesia, be- cause of the almost complete lack of other housing, most of the staff have to be housed. 32. Housing, African,q 1,338,000 It is an obligation of the Railways to house their african employees throughout the system. 33. Permanent Way and Bridges, I 984,000 This item covers the part of the cost of renewing old rails and bridges that is chargeable to capital, e.g. the additional cost of heavier rails or stronger bridges. 34. Buildings for Workshops, etc. & 532,000 Plant, Machinery and Equipment, L 1,036,000 The greater part of both these items covers the building and equipping of new workshops and additions, for the repair of the growing number of locomotives, coaches and wagons. - 15 - 35. Deviations, Regrading, etc., , 1,420,000 The largest project under this item is for relocating the 50-mile main-line between 'iankie and Dett; the relocation will shorten the line 4-1/2 miles, reduce curvature, and cut down the ruling grade from 1.64% to 0.83%, thus greatly increasing the capacity of the section. Other similar but smaller projects are included in the item. 36. Locomotives, Rolling Stock, etc., I 11,995,000 This item contemplates the purchase of the following locomotives and rolling stock; Table 11 Locomotive and Rolling Stock Program Number in Number on Order Units Program 1 April 1952 Locomotives: Garratts 73 73 Straights 28 28 Diesel-electrics 23 23 Coaches (all types) 171 98 Wagons; Goods, bogie 2,150 1,661 Goods, 4-wheel 650 650 Refrigerator 35 35 Tank 105 105 Guard's vans 60 60 Most of the straight locomotives on order and 10 of the Garratts had been delivered or were en route on 1 April 1952. The remainder of the Garratts and all of the diesel-electrics are scheduled for delivery by about the end of 1954. All of the wagons on order are scheduled for delivery before the end of 1953. The Railways are about to lease six additional diesel-eleotrics for immediate delivery, with an option to purchase at the end of the 5-year lease period. 37. Southeast Connection, L 4,395,000 (a) General description of project. The new connection will run from Bannockburn on the Shabani branch, over some 400 miles of new line, to Guija in Mozambique, which is connected with the port of Lourenco Marques by 132 miles of existing lines of the Mozambique Railways. Some improvement of both the Shabani branch and the Guija branch will be necessary, and the Rhodesia Railways main line will eventually have to be doubled-tracked between Bulawayo and Somabula. The connection will have ruling grades not exceeding 1.25%, except on the existing 33-mile - 16 - main-line section out of Lourenco Marques, which has a ruling grade of 1.51a. Portugal will carry out all work for the connection in Mozambique. (b) The new line in Southern Rhodesia. The length of the new line to be constructed in Southern Rhodesia is approximately 204 miles. The construction work presents no unusual difficulties. The first 88 miles out of Bannockburn will be in rough terrain; rather heavy grading will be required and the line will have numerous curves and a 1.25'3 ruling grade. The remaining section will be in flat country, where easy curv-ture and a ruling grade of only 0.88% can be obtained with very little grading. Only one good-sized bridge will be needed. It is the intention to use eighty-pound rail with steel sleepers on the new line. If 60-pound rail should be used instead of 80-pound rail, the estimated cost of the project would be reduced by perhaps as much as L 1 million. (e) Methods of construction. Most of the grading will be done by the Railway's forces, using construction equipment ordered under Item 6 (b) of the development program. Track-laying and steel-bridge erection will also be done by the Railways. All concrete work and a small part of the grading will be done by contract. (d) Time of completion. The Railwayls construction schedule, calling for completion by 1 April 1955, is somewhat optimistic. It should be possible, however, to complete the work by the end of 1955. (e) Cost of the Project. The present cost estimate, T 5,395,000, contains an allowance of only 57S for engineering and contingencies, which is considered inadequate for a project of this kind. If the more reason- able allowance of 20% were adopted, the estimate,lwould be increased to about &6,000,000. APPRAISAL OF THE PROGRA1M 38. Appraisal of measures for improving existing system. The program for improving the existing facilities and equipment of the Railways appears to have been carefully prepared by competent personnel, and in general is considered to be sound, well-balanced, and realistic* The very numerous projects making up the program could not be examined in detail by the Uission, but it is believed that the agreed postponement of work estimated at " 2,000,000 or more will leave a program containing few if any projects that are not essential. The reduced program may well prove to be a minimum program for its purpose, which is to meet the predicted needs of traffic to 1955, based on traffic estimates made in 1951. If the future traffic should exceed the estimates some additional measures will have to be taken. If, on the other hand, the growth of traffic should be less than was estimated, which now seems unlikely, the result might be to put the Railways temporarily a step ahead of the demand, instead of a step behind as they have been for several years; and in such a case there is little doubt that any excess capacity would be absorbed in a relatively short time. In respect of housing the program does not attempt to meet the full needs anticipated in 1955, but instead is designed only for the needs - 17 - through 1953. The importance of providing adequate housing is recognized, but any increase in the amounts earmarked for that purpose would require reducing other equally important items and thus unbalancing the program. Moreover, the present amount is probably about as much as can be expended efficiently, in view of the general shortage of both skilled and common labor in the territories. Although further capital expenditure will undoubtedly be necessary to care for future traffic increases, the present program is complete in itself,in that no important item of the program will require further material expenditure to make it fully useful. Because many projects to be completed under the present program will provide facili- ties, such as new yards, major deviations, water sup,lies, etc., that will be adequate for a greatly increased traffic, expenditures in future years under many headings - not including housing and locomotives and rolling stock - may wiell be proportionately less than those shown in the present program. 39. Appraisal of Project for Southeast Connection. The need for additional railway capacity in the near future to handle the growing export:and import trades of the Rhodesias, and the desirability of providing the additional capacity by establishing a new connection to the sea at Lourenco Marques rather than by improving the existing line to Beira, are both unquestioned. Some of the reasons advanced for favoring the Bannockburn-Guija-Lourenco Marques route over the alternative route via 'est Nicholson and Beit Bridge might be subject to argument, but the weight of the practical evidence amply supports the selection of the former route. The Rhodesia Railways originally planned to use 60-pound rail for the new construction in Southern Rhodesia, contrary to the advice of the consulting engineers and other experts, but the plans have recently been changed to provide for 80-pound rail instead. This change will make possible the use when desirable of the Railways' most povurful locomotives and heaviest rolling stock on the line and will reduce maintenance costs, and is considered desirable in spite of the additional cost involved. The construction forces of the Rhodesia Railways appear to have the ability and experience to carry out the greater part of the new con- struction, and the construction equipment ordered for this project (and other future projects) has been well chosen for the work to be done. qualified contractors are available to do the concrete work and such part of the grading as may be assigned to them. The new line in Southern Rhodesia will be valueless for its main purpose until the corresponding line in Mozambique is completed, and vice versa. It is important, therefore, that positive methods of co- ordinating the work of the Rhodesia Railways with that of the Mozambique Railways be put into effect, with a view to insuring the simultaneous completion of the lines on the two sides of the border. - 18 - ESTI1MTED COST OF PROGRAM 4O. The estimated cost of the original three-year program, includ- ing a carry-over to the following fiscal year for final payments, was & 30,502 million. However, as has been stated above, the Iailways have agreed that less-essential projects can be deferred to the extent of some T 2 million, thus reducing the estimated cost of the program to L 28,362 million. The estimated cost of imported goods under the original I 30.5 million program was 1 19 million, as shown in the following table. Table 12 Estimated imported goods and local expenditures in ; 1000's Item Ikported Local Total Traffic and operating facilities 550 2,332 2,882 Passenger amenities - 11 11 Housing, European 500 2,935 3,435 Housing, African - 1,338 1,338 Permanent way and bridges 600 384 984 Workshop buildings 250 282 532 Plant, machinery and equipment 1,000 36 1,036 Administrative buildings and general requirements 60 258 318 Staff amenities - 11 11 Road services 320 33 353 Deviations, regrading, etc. 1h0 1,280 l,20 Land - 140 140 later supplies 200 438 638 Unforeseen, etc. - l4 14 Locomotives and rolling stock 11,995 - 11,995 Southeast Connection 3,390 2,005 5,395 Totals 19,005 11h97 30,502 The program involves such a variety of goods that it is not possible at this time to list all of the imported goods by categories. However, the table below gives estimates of the purchases of some of the principal types of equipment and material under the original program. The bulk of these purchases will be made in the United Kingdom. - 19 - Table 13 Imported Goods Estimated Cost Type (in ,10001s) Locomotives and rolling stock 11,995 Motor vehicles 320 Machine tools for workshops 400 Construction equipment W47 Coal-handling equipment 78 Hater-supply equipment 290 Building materials and supplies 810 Steel rails, sleepers and bridges 3,700 Liscellanecus 965 Total 19,005 l. The deferment of projects to reduce the estimated cost of the program to L 27.36 million will make some reduction in the amount of imported goods but the total effect will be relatively small, because no reduction can be made in the purchases of locomotives and rolling stock, materials required for the Southeast Connection, or construction equip- ment, and large reductions cannot be safely made in the purchases of machine tools, water-supply equipment, and some miscellaneous items such as signalling equipment, etc. As a rough estimate, it is probable that the importations in the reduced program will amount to some & 18.5 million, with expenditures by years approximately as follows: 1952-53, & 9,475,000; 1953-54, 1 4,115,o0; and 1954-55, & 4,910,000. ADEQUACY OF COST ESTIUATES 42. As has been pointed out earlier, the estimated cost of the Southeast Connection if the allowance for engineering and contingencies were increased from 5l to 20%, would become approximately T 6 million. The estimates for the remainder of the program are based on somewhat better information of the quantities of work involved and also on contract prices for locomotives and rolling stock, steel rails, etc., already ordered, and probably do not require such a large allowance for contingencies. However, most of the purchase contracts provide for escalation and additional costs resulting from increases in the prices of labor and materials are to be expected; hence it would appear possible that the estimates might be exceeded by as much as T 2.0 million. If these increases should actually occur, the total cost of the development program might be about I 31 million instead of I 28.36 million. FINANCING DESIRED 43. For the execution of the development program at estimated cost of ; 28.36 million, the Rhodesia Railways is assured that it can count on the following sources of funds: (a) an E.C.A. loan of 5 5 million made available in 1951 but not yet drawn down; (b) further loans from the Railway - 20 - Pension Funds amounting to ; 3.5 million; and (c) two loans of ; 5 million each from Southern Rhodesia, which has been promised access to the London Market in 1953 and 1954 for larger loans including these amounts. The aggregate of these loans, ; 18.5 million, added to an estimated balance from previous financing of some I .7 million, gives a total assured financ- ing of about & 19,2 million and leaves a shortfall of approximately L 9 million for which other financing must be found. The attached Table 14 shows by periods the estimated expenditures under the program, the finance available, and the cumulative shortfall. It is in respect of this shortfall that the Bank has been approached for a loan. 44. If the total cost of the program should rise to the neighbor- hood of b 31 million, which has been mentioned as a possibility in para- graph 43 above, the shortfall would be over L 11 million instead of I 9 million. However, the magnitude of any increases that actually occur cannot be predicted, and they may be less than has been suggested. It will be noted that the sources of assured financing for the program do not include any funds from the Railway's net revenue account. That account will have to make contributions to the Improvement or Betterment Account and to the Rates and bages Stabilization Fund and also provide for the repayment of loans in excess of the 1 Sinking Fund, but in view of the additional net revenue that will result from the recently in- creased rates and the waiving of subventions by the Rhodesias (both of which subjects are discussed below), there is good reason to believs that the Railways will also be able to provide funds to meet cost increases that occur. If this should not prove possible, further borrowing may be resorted to later, but the need for such borrowing is considered unlikely. POLICY ON LOhN R7PAYMNT 45. The legislation creating the Rhodesia Railways prescribes that the payment of interest, sinking-fund and other loan charges shall be a charge against operating revenues. In respect of the original long- term loan made by Southern Rhodesia to the Railways, the legislation requires that a 1% annual sinking-fund payment shall be made and the same sinking-fund payment has since been made applicable to all loans, whether long or short term, as the basic requirement. In the case of loans re- payable within a fixed period, such as the E.C.A. loan and any loan made by the Bank, repayments in excess of the sinking-fund provision will be met from a Special Reserve Account to be built up by transfers from the Railways net revenue account. The existing law requires that up to ; 600,000 of any balance remaining in the net revenue account each year shall be paid to the three Governments as subventions; but the Higher Authority has recognized that it would be unreasonable to expect the Railways to pay subventions as well as heavy repayment charges, and the Governments of Southern and Northern Rhodesia have agreed to suspend their right to subventions and to amend the law accordingly. Payments to Bechuanaland will continue as now required by law or in accordance with a new agreement to be reached between the three Governments. FINANCIAL RESULTS OF OPERATIONS 46. The Rhodesia Railways has been a profitable undertaking for many years, but because of rising costs and stationary freight rates since the - 21 - Table 14 Development Program Estimated Expenditures And Sources of Funds (in ; 1000's) 1952-53 1953-54 1954-55 1955-56 Totals carryover Expenditure As in original program 13,789 7,727 7,597 1,389 30,502 Est. deferments 653 490 533 Less cre- 324 2,000 Est. annual dit for expenditures 13,136 7,237 7,064 earth 1,065 28,502 moving 6 mos 6 mos 6 mos 6 mos 6 mos 6 mos equipment to 30 to 31 to 30 to 31 to 30 to 31 bought Sep.52 Mar.53 Sep.53 Mar.54 Sep.54 Mar.55 for S.E. 140 140 Connection Est. Semi-Annual expenditures 6,568 6,568 3,619 3,618 3,532 3,532 925 28,362 Finance available Balance at begin- ning of period 713 713 E.C.A. loan 5,000 59000 Pension fund loan 250 250 250 250 250 250 500 2,000 S.Rhodesia loan 5,000 5,000 10,000 Additional pen- sion fund loan 1,500 1,500 Total assured finance 5,963 250 5,250 250 5,250 1,750 500 19,213 Surplus for period 1,631 1,718 Shortfall " i 605 6,318 3,368 1,782 425 Net cumulative shortfall 605 6,923 5,292 8,660 6,942 8,724 9,149 9,1149 - 22 - 'dar, operating ratios have been increasing with a consequent decrease in the proportion of net revenue. However, a new freight tarif., .which went into effect on July 1, 1952, raised the rates about 12-1/2< on the average and will result in substantially higher net revenues. Table 15 summarizes the actual operating revenue and net revenue accounts for the fiscal years 1949 to 1952, and the estimated figures for 1953 to 1955; and Table 16 shows the estimated cash position during the period 1953 to 1956. RATE STRUCTURE 47. The Rhodesia Railways until the middle of the present year was one of the few common carriers in the world which still maintained its pre-war freight rates, but on 1 July 1952 a complete revision of the rate structure became effective. This revision was undertaken for two reasons: to provide additional revenue to meet increased working costs and loan charges, and to remove certain anomalies from the structure. 48. In order to produce more revenue, increases were made in the charges for local traffic, which did not adequately cover terminal costs of handling, etc. More important, however, were the increases made in the rates for a number of low-rated commodities such as raw sugar, maize, fertilizers, chrome, ore and coal, which were formerly at a sub-economic level. The large increases in this bulk traffic and the still larger increases predicted for the future made it necessary, as far as was reasonably possible, to raise the rates to the payability stage. The new rates for coal are still below the variable costs of opera-tion, but coal is always hauled to points where some return loads are available. 49. The average increase in freight rates of about 12-1/2,., together with increases in passenger rates and certain other charg's, will add materially to the rev!nues. The table in paragraph 46 indicates that the estimated net revenues during the next few years will be more than sufficient to pay all charges, including the repayment of existing loans. However, as the funded debt is increased to finance the present develop- ment program and additional projects that may be necessary in the future to cater for further traffic growth, the interest, sinking-fund and repay- ment requirements will rise steeply, and if there should also be a con- tinued rise in the cost of labor and materials, the revenues will soon cease to be adequate, and a further increase in rate will be necessary, Further increases may also become desirable to provide funds for financing future development projects, either wholly or in part. The average ton- mile charges for coal, minerals and general goods under the new rates will still be less than 1 U.S. cent, which may be compared with 1949 average ton-mile charges of 1.33 U.S. cents in the United States, 1.7 U.S* cents in South Africa, 1,36 U.S. cents on the Indian Railways, 2.93 U.S. cents in Great Britain, etc. It would appear, therefore, that if further rate increases should become necessary and desirable in order to provide addi- tional income, they could be made without imposing undue hardships on the users of the Railways. SPECIAL AGREEMEPTS 50. Special agreements which affect the rates or workings of the - 23 - Table 15 Operating and Net Revenues kin I 1000's) hetual: Estimated 1949 1950 1951 1952 : 1953 1954 155 Operating Receipts 8,924 10,265 12,308 13,545 : 17,019 20,288 21,394 Expenditures 6,956 8,701 10,154 11,963 : 114,073 15,955 16,796 Net Operating Revenues 1,998 1,564 2,154 1,582 i 2,946 4,333 4,598 (Operating ratio) (73%) (79%) (76%) (81%) a (83%) (79%) (79%) Add interest earnings, etc. 291 244 105 169 : 145 150 150 Gross Income 2,289 1,808 2,259 1,751 3,091 4,483 1,748 Deduct: Interest, sinking fund, etc. 1,071 1,074 1,102 1,437 1,776 2,446 2,764 Taxes 237 335 7 8 Other deductions 97 363 74 219 150 150 Deductions from Gross Income 1,405 1,772 1.,783 1,664 1,776 2,596 2,91k Balance before ap- propriatione to special accounto 884 36 76' 87 1,315 1,887 1,83k Appropriations to: Betterment Account 87- 500 450 450 Rates & 'ages Account 300 250 250 250 Reserve Account 584 40 Balancing figure -4 4 Subvention 472 Total Appropriations, etc. 884 36 76 87 750 700 700 Surplus available to meet obligation to Bechuana- land and for approp. to Special Reserve Account and Rates and lages Stab. Account as Higher Auth- ority may approve - - - - a l6 1sl87 1,134 Estimated repqyment of loans in excess of 15' sinking fund, not including repayment of any loan which Bank may grant, 285 327 377 - 24 - Table 16 Rhodesia Railways Estimated Cash Position (in 141000) 1952/53 1953/54 1954/55 1955/56 I I I II I II I and II Receiptae/ Cash available at be- giming of period 713 3g5 77 1,708 340 276 Net Oper. revenues/ 565 - 1,037 9 900 E.C.A. loan 5,000 - - - Pension fund loans 250 250 250 250 250 l,750 500 Southern Rhodesia loan - - 5,000 - 5,000 - - Temporary loan from (Cr.) Northern Rhodesia 1,000 1,000 - - 2,000-.. - - Proposed new financ- ing from or S. RhodesiP - 2,000 - - - 2,000 - IBRD loan 3,000 2,000 - - Short-term temporary (Cr.) financing - 3,000 3,000 - - - - Credit for earth- moving equipment - bought with ECA loan - - - - - 140 Total receipts 6,963 7,210 5,327 4,995 3,590 4,792 1,816 E2EEenditures Development program 6,568 6,568 3,619 3,618 3,532 3,532 1,065 Transferred to Spe- cial Reserve Account for loan amortiza- tion - 565 56037 - 984 900 Total expendituree 6,568 7,133 3,619 )4,655 3,532 4,516 1,965 Balance at end of (Dr) period 395 77 1,708 340 58 276 149 1/ Timing shown for new financing from N. or S. Rhodesia, IBRD loan and temporary financing is illustrative only. 2/ After payment of estimated maximn subventions to Bechuanaland of I 141,000 in in 1953 and T 150,000 each in 1954 and 1955. The additional ftnancing shown oa this line has not yet been arranged by N. or S. Rhodesia. I/ Neglecting possible overruns from increased labor and material costs. - 25 - Rhodesia Railways have been made from time to time in the past. The principal agreements still effective are summarized below. (a) By the Beira Convention of 1950, Portugal agreod to improve the capacity of the port of Beira, while the United Kingdom agreed to prevent discrimination against Beira and to maintain the existing rate preferences in favor of Beira over ports in the Union of South Africa. (b) By an agreement made in 1936, the Union of South Africa agreed not to exercise before 1970 its right to purchase some 350 miles of railway line from Vryburg northward, while Southern Rhodesia and the Railways agreed not to increase the existing rate preferences in favor of Beira over Union ports. (c) An agreement between the Railways and the principal copper mines in the Copper Belt of Northern Rhodesia provides that the mines will ship all their export copper and their imports via Beira, will take all their coal requirements from Wankie, and will not use hydro-electric power for any purpose, and in return will be granted special freight rates on their copper, imports and coal. The agreement will expire in 1956, but in the meantime the mines have agreed to pay a substantial sliding-scale surcharge on the special freight rate on copper, based on the market price of copper. (d) A somewhat similar agreement exists with the 2rincipal copper-mining company in the Belgian Congo, which has also agreed to pay a sliding-scale surcharge on copper shipments. EFFECT ON IAIDAYS OF FUTURE HYDRO-ELECTRIC PROJECTS 51. The copper mines of Northern Rhodesia are about to conclude a contract to import approximately 50,000 kv of hydro-electric power from the Belgian Congo during a five-year period beginning in 1957, with an option to extend the period for another five years. Two large hydro- electric projects in the Rhodesias are under study: the Kariba Gorge Project on the Zambezi River between Southern and Northern Rhodesia, with an initial capacity of 385,000 kw, and an estimated final capacity of 1,000,000 kw, and the Kafue Gorge project on the Kafue River in Northern Rhodesia, with an estimated capacity of perhaps 18',000 kw, or more, and,the possibility of future expansion by the provision of uo- stream storage. It has been estimated that Kariba.project could be completed in about eight years from the beginning of construction ant the Kafue project in a somewhat shorter time. In view of the growing power demand in the Rhodesias and the favorable features of both of these projects, the completion of one or the other of the projects within the next ten or fifteen years, and the eventual substitution of hydro-electric power for thermal power, must be regarded as definite possibilities. The Railways will be called upon to transport increasingly large quantities of coal for thermal generation in the meantime, and will apparently be left with a surplus of locomotives and rolling stock when hydro-electric power becomes available. However, the Oankie collieries believe that the grow- ing use of coal for other purposes, together with the exportation of surplus coal, will soon restore the balance between demand and production; and the Railways are satisfied that any surplus of equipment that may - 26 - develop will be absorbed by the traffic demands of increased business activities resulting from the availability of relatively cheap hydro- electric power. In any event, it does not appear that future hydro- electric projects will be a serious continuing threat to the prosperity of the Rhodesia Railways. IL1M.GEMENT 52. The management of the Railways appears to be excellent. The Chairman and only full-time member of the Board, while not a railway expert, is an engineer with wide experience in the management and super- vision of large undertakings, principally in India. The General Manager has had long experience as a railway administrator in important positions, also principally in India, and appears to possess both high technical qualifications and managerial ability. So far as could be determined from personal contacts and observation, the technical staff of the Railways are generally very competent. 53. The one obviously weak spot in the organization is the lack of a deputy to the General Manager, to relieve him of part of his heavy burden of work and to take over the management during his absence or incapacity for any reason. The Higher Authority and the Board appear to be aware of this weakness, and the mission was informed that measures for correcting it are under consideration. OPRATING STAFFS. 54. The maintenance of an adequate European staff has been difficult, because recruiting has been handicapped by the lack of suitable housing for employees, and because the many opportunities for other employment in the Rhodesias has led many men to shift to more remunerative or more congenial work, sometimes in violation of their contracts of employment. However, the recruiting agency in the United Kingdom has extended its efforts to Holland (for operating personnel) and Italy (for track foremen, etc.), and has recently been reasonably successful in filling its quotas. There are also indications that the force in Central Africa is becoming more stable as the housing situation improves. 55. An adequate African staff has also been difficult to maintain, particularly for heavy manual w;ork in urban areas. Continuous efforts are being made to overcome shortages by improving housing, rations, etc., by improving productivity through time and motion studies, and by in- stalling labor-saving machinery, such as coaling plants for locomotives. 56. Although the Railways do not underestimate the seriousness of the problem, they believe that they will be able to obtain and hold enough personnel to cater for predicted future traffic. Relations between the management and both European and African staffs appear to be generally satisfactory. CONCLUSIONS 57. Because of the anticipated growth of railway traffic during the next few years, it is necessary to increase the capacity of the present - 27 - Rhodesia Railways system, and to provide a new connection to the sea, as speedily as possible. The development program of the Railways for the triennium 1952-53 - 1954-55, including the construction of the new South- east Connection, is considered to be a sound, well-balanced and economical program which will reasonably meet the now foreseen needs. By the defer- ment of some less-urgent projects the total estimated costs of the program will be reduced to approximately I 28.36 million, but no further material reduction could be made in the program without endangering the accomplish- ment of its purposes. The projects comprising the program will be fully useful upon their completion, without further expenditures. The completion of some parts of the program will extend beyond the triennium, but there is no apparent reason why the whole program cannot be finished before the end of the following fiscal year, 1955-56. 58. Financing already assured will be available for all but about I 9 million of the total cost of the program. Another L 4 million will be supplied by one or both of the Rhodesias or from the Railways' resources, thus reducing the shortfall to about & 5 million. Any excess cost of the program over the present estimates will be supplied either by the Railways or by one or both of the Rhodesias. 59. During the next several years the Railways can undoubtedly service existing and projected loans from their own revenues, provided legislation is enacted promptly to suspend the payment of subventions to Southern and Northern Rhodesia. If rising debt charges and oiperating costs should make additional revenues necessary, it is believed that they can be obtained by some further increases of freight rates without causing undue hardships to shippers. RECOUENDED BASIS FOR A LOAN 60. The Rhodesia Railways development program for the triennium 1952-53 - 1954-55 is worthy of financial assistance by the Bank to the extent of about Ly.I5 million. Since the estimated cost of imported goods to be delivered during the year 1952-53 is nearly twice this figure, the entire amount of a loan from the Bank could be expended during the early part of the program. Before a loan is made the Bank should satisfy itself: (a) that arrangements have been made for providing the remainder of the funds required to complete the program, including funds required to meet any over-run of the present cost estimates; and (b) that satis- factory procedures will be put into effect for coordinating the construction work to be done on the Southeast Connection by the Rhodesia Railways in Southern Rhodesia and by the idozambique Railways in 1Jozambique. J.C. Mehaffey February 6, 1953