CHAPTER 10:

Restructuring and Recovery in Railway Services

10.1 OVERVIEW OF Republic of Congo (DRC) (See Map 10.1).

THE SECTOR As a result, the national railway of Zimbabwe
has been critical to the growth of the country’s
domestic, regional, and international trade as
10.1.1 The Setting
it connects all major economic centers and
Although continental rail master plans have provides transport for bulk raw materials,
existed for more than a century, most of the finished goods, and passengers. As in most
African railway network remains disconnected, other African countries, the Zimbabwean
operating within a single country, or linking railway system served as a primary conduit
a port and its immediate regional hinterland. for agricultural and other natural resources
The only significant international network is and this largely accounts for the standards and
centered in South Africa and stretches north routing that were adopted.
to Zimbabwe, Zambia, and the Democratic
Map 10.1: Railway Network for the Southern Africa Region

Within Zimbabwe, the railway network and its ports of Durban, Richards Bay, and Port
connects all major mines and heavy industrial Elizabeth. It is also at the centre of shorter and
plants, as well as major collection points for cost-effective railroad links between Malawi
farms. The system has three well connected and South Africa through Bulawayo, the port
hubs, Bulawayo, Gweru, and Harare (See of Beira through Harare, and Lusaka and the
Map 10.2). The railway is at the centre of the port of Durban through Bulawayo. The line
international rail routes linking the DRC and from Zambia through Victoria Falls, the line
Zambia to Botswana, Mozambique and its from Botswana through Plumtree, the line
ports of Beira and Maputo, and South Africa from South Africa through Beitbridge, and

Restructuring and Recovery in Railway Services Zimbabwe Report 1

the line to the central parts of Zimbabwe joins the network at Gweru while the line
through Gweru meet at Bulawayo, where from Mozambique through Mutare joins the
the headquarters of the National Railways of network in Harare. Little expansion has taken
Zimbabwe (NRZ) is located. The north-south place since these lines were constructed in
main line from South Africa into Zimbabwe mid-twentieth century.
Map 10.2. Existing Railway Network in Zimbabwe

2 Zimbabwe Report Restructuring and Recovery in Railway Services

In the past decade, the capacity of the railway and Infrastructural Development (Figure
network to provide services has been severely 10.1). Institutional reform initiatives in the
eroded. The deterioration in track infrastructure, railway sector so far have included internal
signaling, and telecommunication system is restructuring of NRZ so as to make it operate
due to lack of regular repairs and maintenance more efficiently, regulating the industry in a
resulting from financial constraints on the NRZ. meaningful way so as to protect and enhance
Rehabilitation of the network and rebuilding the interests of the customers, and use of
the services offered by the rail network are concessions followed by privatization of the
therefore major priorities for the country. freight and passenger operations. Most of the
emphasis has been on the internal restructuring
10.1.2 Institutional Arrangements of NRZ. There is no separate regulator for
and Policy Issues the railway sector and the only recourse for
the customers against unfair trade practice or
Currently, the only institutions that have a
monopoly behavior by NRZ is to appeal to the
role to play in the railway sector are NRZ,
Competition Commission.
the Bulawayo-Beitbridge concessionaire, and
the Ministry of Transport, Communications,

Through most of the 1990s, organizational, targets for department heads and making
operational, financial, and human resource them more accountable for performance;
restructuring was undertaken, though to a
limited extent, to improve the performance of • Operations restructuring comprised
the railways: introduction of a flexi system for the
allocation of drivers, increasing the number
• Organizational restructuring comprised of block and customer-dedicated trains,
separation of road services department increasing the minimum chargeable load to
from the railways leaving NRZ to focus on correspond to the capacity of wagons, setting
railways, signing of performance contracts stiff targets for availability, utilization, and
between the Government and the general reliability of locomotives and rolling stock,
manager of NRZ, and setting performance using cost-benefit analysis as the basis

Restructuring and Recovery in Railway Services Zimbabwe Report 3

 for investment decisions, introduction of Member States shall facilitate the provision
commodity-based tariffs, and moving away of a seamless, efficient, predictable, cost-
from general tariffs to customer contracts; effective, safe and environmentally friendly
railway service which is responsive to
• Financial restructuring comprised market needs and provides access to major
debt restructuring to maintain NRZ’s centers of population and economic activity.
responsibility for servicing debt pertaining
to active revenue-generating assets only, The view of the World Bank (2010) is that
and stricter expenditure control.; seamless travel is essential for the railways to
compete effectively with the trucking sector.
• Human resource restructuring focused on Agreements between the respective railways
staff reduction so as to lower human resource are designed to provide the member states
expenditure from close to 70 percent of with seamless operations (that is, no change in
revenues to less than 40 percent. These locomotives) at border crossings. For example,
measures helped to bring down the overall Botswana Railways has operated from
deficit, reduce the rate of fresh investment, Plumtree into Bulawayo, Trans Africa trains
and enhance management capacity, but the from South Africa to Zambia and Tanzania
goal of complete financial self-sufficiency transit Zimbabwe over NRZ lines, and luxury
has yet to be achieved. passenger trains such as Spoornet’s Blue Train
However, there is substantial government and Rovos Rail safari trains operate on the
involvement in the operational policies of northern line to Victoria Falls. However, if the
the NRZ, which is not free to take action railways in the region are to realize the desired
without specific government approval towards goal of seamless operations as articulated
closure of branch lines and stations, setting of in the SADC protocol and as agreed by
passenger tariffs, and changing frequency and most countries, further action is required by
timings of passenger services or their closure. governments in the Southern Africa region.
These are long-standing issues. The World Treatment of public service obligation
Bank (2006) identified several critical areas in contracts. For many years, the Government
the railway policy domain, namely, absence of has set passenger tariffs at levels that are well
a policy regarding third party operations and below operating costs for passenger services.
determination of track access charges, absence It is clear from the analysis later in this Chapter
of a policy regarding contracts for public that NRZ continues to incur significant losses on
service obligations (PSO), and lack of parity passenger services, particularly the commuter
between the road and rail services with respect trains. Even though there is provision in the
to financing arrangements for maintenance of Railway Act for compensation for services
the infrastructure. provided as PSOs, no such contracts have
Provision of seamless services. Zimbabwe been signed. PSO contracts are essential
is one of the 14 member states that are whether the services are performed by NRZ
signatories to the SADC Protocol on Transport or by concessionaires at a later stage. Absence
Communications and Meteorology. The of a clear policy and associated contracts
protocol recognizes that transport is key in results in reduced accountability and distorted
promoting economic growth and development evaluation of the railway’s performance.
in the region and calls for increasing private The NRZ needs to be compensated for these
sector involvement in railway investment with losses. If the Government were to sign public
a view to improving railway work and service service obligation contracts with the railways
standards and lowering unit costs. Chapter 7 and agree to compensate NRZ for the losses
of the protocol deals specifically with railways incurred in operating loss-making passenger
and Article 7.1 states that: services, stations, and lines on Government-

4 Zimbabwe Report Restructuring and Recovery in Railway Services

determined terms, the financial position of the ore, ferro alloys, granite, raw sugar, maize,
NRZ would improve significantly. and wheat. The reduced economic activity
Lack of parity between rail and road over the past decade has had a substantial
services with respect to funding for impact on the utilization of the freight
maintenance costs. The World Bank (2006) services provided by the railways. In 1990,
noted that policy was not clearly stated with the total amount of freight carried by rail
regard to financing of the rail infrastructure was 14.3 million tons, which translated into
at par with that for road infrastructure. Like a capacity utilization rate of about 80 percent.
many railways around the world, NRZ has During most of the 1990s, NRZ faced many
been making a case for the Government to challenges. As a result of the liberalization of
assume responsibility for the maintenance the economy in general and the transport sector
of rail infrastructure at par with that for road in particular, the trucking sector emerged as a
infrastructure. In its view, that would have put strong alternative mode of transport in direct
rail and road modes on a level playing field competition with the railways. NRZ’s traffic
and enabled NRZ to increase substantially its was further adversely affected by a number
share of the freight traffic, thus benefiting the of developments beyond NRZ’s control, such
economy through lower transport costs, lower as the commissioning of an oil products pipe
pollution, reduced congestion on the roads, line between Mutare and Harare, discovery
and fewer accidents. of iron ore deposits closer to the steel plant
than the original iron ore mines served by
10.2 FREIGHT AND the railways, production problems at the
PASSENGER SERVICES steel plant, slow growth of the economy, the
closure of the local ferro-chrome industry for
10.2.1 Freight Services and Prices a considerable time, and the worsening of the
economies of Zaire (now DRC) and Zambia
Freight services. The main commodities with a consequent reduction in long-haul
transported by rail are coal, fertilizer, chrome transit traffic.

As a result, freight volumes declined to 9.4 to about 15 percent of the original design
million tons by 2000 (Figure 10.2).The decline capacity of 18 million tons. Coal and other
in freight has continued in the past decade with mining products account for about 40 percent
about 3.8 million tons being carried in 2008 of the freight being carried, with agricultural
and only 2.7 million tons in 2009, equivalent supplies and products accounting for about one-

Restructuring and Recovery in Railway Services Zimbabwe Report 5

third of total freight and transport of various 200 km shorter. However, the average had
manufactures accounting for about 15 percent recovered to 308 km by 2009, largely because
of traffic. Transit freight across Zimbabwe is of a recovery in export and import traffic.
relatively unimportant at this stage, accounting Freight rates. The NRZ freight rates
for less than 10 percent of the freight carried. are based on recovery of full cost plus a
Part of the decline in freight, and hence modest mark-up. Factors such as the type of
revenues of NRZ, stemmed from the downturn commodity, its loadability, type of wagon
in the economy, but an important part of the used, and distance travelled have a bearing on
decline was due to the railway not being the freight cost. As a result, rates for rail freight
able to carry all the traffic on offer. Revenue vary according to the commodity carried, in
generation from freight services was further contrast to road haulers who maintain a flat
adversely affected by the fact that the average rate per vehicle per km, regardless of the
haul also declined from 391 kilometers in commodity carried. As Table 10.1 indicates,
1990 to 279 kilometers in 2004, a 30 percent shorter distances typically have substantially
decline. As a result, the revenue generating net higher charges per ton km for rail freight.
ton kilometers in 2004 were only 25 percent of Medium-distance freight must typically be
those in 1990. Part of the reason for the decline transported by road to and from railheads,
in the average haul was the introduction of the thus adding to the cost of moving such goods
new route from Bulawayo to Beitbridge under and reducing the attractiveness of rail freight
a concession agreement, the new route being services for shorter distances.

The average railway tariff is about 6.3 US be in the range of 30-40 km per hour, which
cents per ton km, which compares with an suggests that freight services can compete
average of 9 US cents per ton km charged with the road freight industry, especially in
by the Beitbridge Bulawayo Rail concession. bulk cargo movement. In general, NRZ’s
The average speed for the freight hauls tariffs compare well with those of railway
reported in Table 10.1 is about 35 km per concessions in Sub-Saharan Africa. As Table
hour. The World Bank (2010) reports that 10.2 indicates, however, there is considerable
for rail to be competitive with road freight variation among corridors with respect to the
services, average commercial speeds must margin between road and rail freight rates.1

1 The NRZ reports that the current average rates for the CFM and CCFM concessions in Mozambique are 6.9 and
9.0 US cents respectively.

6 Zimbabwe Report Restructuring and Recovery in Railway Services

Nonetheless, road freight rates put a limit on 500 km, railways continue to offer the most
the rates that can be charged for rail freight. economical solution to transporting non-time
It is widely accepted that for distances over sensitive bulk freight.

10.2.2 Passenger Services and Costs fixed by the Government are very low and
cover only a fraction of the operating cost,
NRZ provides suburban commuter services ticketless travel is rampant, and utilization
in Harare and Bulawayo, both introduced in of resources is also low. As a result, the six-
2001, and inter-city services. NRZ operates fold increase in passenger traffic in 2004
the following mainline passenger services: compared to 1990 did not translate into a
inter-city services operate between Bulawayo substantially improved revenue position for
to Harare, Victoria falls, and Chiredzi NRZ.
and between Harare to Mutare, daily each
way. Passenger traffic was boosted by the 10.3 MAJOR CHALLENGES
introduction of suburban services in Harare IN REBUILDING THE
and Bulawayo in 2002. Most of the increase RAILWAY NETWORK
in traffic resulted from introduction of new
commuter trains around Harare. However, the
10.3.1 The Setting
expansion of these services caused shortages
of locomotives for the freight traffic. From The technical, operational, and financial
a peak passenger traffic of 17.4 million in performance of NRZ has been adversely
2007, the number of passengers declined to affected by the macroeconomic instability of
about 2 million in 2009. The large subsidies the past decade and, in particular, the critical
provided for rail services notwithstanding, the shortage of foreign exchange. As noted above,
decline in passenger traffic has stemmed from these problems were exacerbated by the
a combination of unreliable passenger services imposition of public service obligations on
and strong competition from buses and shared NRZ, without compensation for these losses.
taxis in terms of price and service frequency. With the sharply diminished financial capacities
Bus fares may be typically up to 50 percent of NRZ, there has been a major deterioration in
higher than an economy rail fare, but on many railway infrastructure and assets as a result of
routes they are faster and more frequent despite lack of maintenance and periodic rehabilitation
delays, breakdowns, and overcrowding. of the track. The deteriorating state of the
The commuter traffic has generally been a railways infrastructure has, in turn, resulted in
loss-making activity for NRZ because tariffs accidents and derailments.

Restructuring and Recovery in Railway Services Zimbabwe Report 7

 The MTP identifies a number of key sector. The NRZ has also been affected by a
obstacles to the full recovery of the railway substantial flight in key personnel and skills.
network. These include: the dilapidated In 2000, the total staff of NRZ stood at about
rail infrastructure and obsolete equipment 9,420; by 2009, it had declined to about 8,680.
and locomotives, coaches and wagons; However, this modest decline does not reflect
ineffective safety programs; and theft and the fact that over the past few years NRZ has
vandalism of equipment and signalling and been hard hit by the exodus of critical skills. A
telecommunications systems. The absence substantial number of engineers, artisans, and
of a regulatory agency with responsibility train drivers have left the country to join other
for oversight of railway services is seen as railway bodies in the region.
an increasingly important shortcoming in the

10.3.2 Dilapidated Condition of comprising 1,881 km of mainline and 878 km

Infrastructure and Assets of branch lines. Some 313 km of the route
length, from Dabuka to Harare, is electrified.
Besides the country’s economic performance, This line has been vandalized and is no longer
which had a significant effect on railways, low in operation. In addition, there is 385 km of
availability of locomotives and other rolling track operated by the Bulawayo Beitbridge
stock and the old and poorly maintained track Railway concession. The total track length
have been among the main causes of the decline is 4,313 km. The Zimbabwe railway gauge
in service levels of the railway. The substantial of 1,067 mm is the same as in all southern
deterioration in locomotives, wagons, and African countries. It supports an axle load of
coaches over the past decade was the result of 18.5 tons on the main line and most branch
inadequate maintenance and non-replacement lines, this being more than or equal to the
of obsolete assets that, in turn, stemmed from axle load in all other countries except South
the weak financial position of the NRZ. Africa. Zimbabwe also had a well developed
Track: The NRZ-operated railways in signaling and communication system prior to
Zimbabwe have a route length of 2,759 km, the deterioration of the past decade.

8 Zimbabwe Report Restructuring and Recovery in Railway Services

 There has been continued deterioration crippling constraint to carrying all the traffic
in the condition of the track over the past on offer has been the poor availability of
decade (Table 10.3). The percentage of the locomotives. Moreover, the utilization of
route length with speed restrictions increased locomotives was between 60 and 80 percent
steadily from about 4 percent in 2000 to 21 of the peak utilization achieved earlier. The
percent in 2007, and has since declined as a World Bank (2006) estimated that by restoring
result of rehabilitation efforts. At end 2009, up utilization to previous levels and with the same
to 98 sections, a combined distance of 451 km, availability, NRZ could have carried close to
or about 16 percent of the entire mainline, was 7 million tons in 2004 and 8 million tons in
under speed restrictions. These are, on average, 2005. Low reliability of locomotives is one
5 km long sections where the operating speeds of the main causes of poor utilization and this
vary between 10 and 20 kilometers per hour. continues to be of serious concern. Locomotive
The worst affected is the line from Gweru to reliability has significantly deteriorated from
Masvingo. With the sharply reduced traffic its peak figure, i.e., from 57,000 kilometers
flows at present, these speed restrictions between failures to just 16,000 between
are probably not having a major effect on failures. Even the peak figure achieved in the
operations. However, when traffic starts past was not a satisfactory achievement as the
increasing again, the risk is that these speed normal target of reliability in an efficiently
restrictions could become a serious capacity run railway should be more than 100,000
constraint and could erode the competitiveness kilometers between failures.
of rail services relative to road transport. In the
absence of timely action, removing the speed
restrictions will also become increasingly
costly. To eliminate these restrictions, a total
of about 658,000 concrete sleepers need to be
replaced on the total affected track. According
to NRZ, the estimated cost of this replacement
is about $70 million.
Locomotives: Locomotive availability
and utilization are the most critical areas
in operations. The locomotive fleet of 168
includes 61 that are in service, 85 mainline
locomotives, 28 of which are in service, 73
shunt locomotives, 33 of which are in service,
and 10 steam locomotives, none of which is in
service (Table 10.4).
At the end of 2004, NRZ’s locomotive
fleet size was 213, comprising 149 diesels,
30 electric and 34 steam locomotives. At that Wagon productivity: The wagon productivity
time, locomotive availability was 67 percent, indicators continue to be low; in fact, the best
but it had dropped to 38 percent by 2008. ever achieved were still much lower than
Analysis of locomotive availabilities indicates those of the best-run railways in the world.
that in 2004 the railways could provide only 67 NRZ’s entire wagon fleet is older than its 40-
percent of the total locomotive requirement: in year design life. The wagon fleet in 2000 was
other words, the railways could have carried 10,529, but the availability has deteriorated
50 percent more traffic if adequate numbers significantly in the past decade, declining
of locomotives had been available. The most from 91 percent in 2000 to 59 percent in 2005.

Restructuring and Recovery in Railway Services Zimbabwe Report 9

Currently, the total fleet size has shrunk to freight and passenger traffic in the country,
8,752 and availability stands at 53 percent. NRZ incurred a net deficit of close to US$100
Wagon utilization declined from 36 kilometers million equivalent per year, this being about
per wagon per day in 2000 to 21 in 2005 for 65 percent of NRZ’s gross revenue and 3.5
high-sided wagons and from 49 kilometers/ percent of Zimbabwe’s GDP. The huge deficit
wagon/day to 23 for other types of wagons. was caused by lower revenues due to transport
This deterioration has been a matter of concern by rail of less than the freight traffic on offer,
for NRZ. The 2009 utilization rates are not a rigid and inefficient tariff structure, higher
available, but owing to poorer locomotive costs due to the heavy interest accruing on
turnaround times, it is likely to be lower than uneconomic investments made in the past,
33 percent. and excess staff at all levels, poor utilization
Some clients, especially those in mining of assets, and inefficient operations in general.
for whom there are no good transport During 1990-99, supported by the
alternatives, have assisted NRZ overcome Railways II Project (co-financed principally
some of its logistical and service limitations. by the World Bank and USAID), NRZ was
Such interventions by the private sector able to improve its financial and operational
included funding for the repair of wagons on performance. The net deficit declined to about
condition that such wagons would be set aside US$20 million for the financial year 1998.
for use by the entities providing the funding. This was achieved through a combination
In more recent years, poor reliability of NRZ of tariff rationalization and significant
services has affected some of these working improvements in operating efficiency and
relationships between NRZ and its clients.2 operating costs, including a reduction in staff
Signaling, telecommunication, and from 17,000 in 1990 to about 10,000 at the
overhead electrification cabling. Much of the end of 1998. Responding to the declining
Zimbabwe railway network uses a centralized traffic, the NRZ management also decided
traffic control (CTC) signaling system, but to cancel/defer many of the investment
much of the CTC is inoperative. Old copper proposals, such as acquisition of new
wire communications and electrification locomotives, wagons, workshop equipment,
networks have been vandalized, and the and extension of electrification. At the same
microwave backbone radio network is obsolete time, there was a substantial improvement in
or inoperative. NRZ’s institutional capability, mainly as a
result of performance contracts between NRZ
10.3.3 Financial Constraints of NRZ and GoZ, training of NRZ’s top and middle
management through secondment to foreign
A brief history. The financial problems of the railways, the use of foreign technical experts,
NRZ are one of the major constraints on efforts and installation of more advanced computers
to rebuild the railway services of Zimbabwe. and software for analytical work.
These difficulties are not new. The NRZ has
However, these improvements could not be
a long history of operating losses. Until 1990,
sustained. Traffic has declined continuously
in spite of holding a virtual monopoly over the

2 Under these arrangements, a customer (partner) pays for spares for supplies required to refurbish either locomotives
or wagons and NRZ provides the labor. The refurbished resources are then dedicated exclusively to the customer’s
traffic or business, while at the same time offering NRZ a loan advance against rail age for the traffic moved by
refurbished resources over the agreed period of time. Since the inception of the program, 12 locomotives, 33
tankers, and over 1,000 wagons have been brought back into service. More recently, declining traffic volumes
have forced some partners to abandon the program. Partners are also refusing to commit themselves for long
periods of time for fear of losses.

10 Zimbabwe Report Restructuring and Recovery in Railway Services

in the past decade, in part because of a sharp expenditures kept pace with inflation while the
decline in production in the economy, hyper- Government did not allow commuter tariffs to
inflation, and an acute shortage of foreign be adjusted for inflation. Even if the overhead
exchange. There were further reductions in the costs for management and maintenance of
staff strength of NRZ to about 9,000 personnel buildings, tracks, and signaling were allocated
in recent years. NRZ also took a number of entirely to the freight business, passenger
steps to improve operational and financial services still operated at a loss in that period,
performance, including encouraging customers albeit at lower levels.
to invest in locomotive and rolling stock
overhaul and buy their own fuel, proposing
to the Government to agree to exporters
paying in foreign exchange, hiring additional
locomotives, reintroducing the caboose
system, and frequently adjusting tariffs in
line with inflation. However, the progressive
decline in the availability and utilization of
locomotives and wagons and resulting inability
to meet demand for rail freight services, have
had a severe impact on the profitability of
NRZ operations. As Table 10.5 indicates,
NRZ continued to experience operating losses
through 2009. Even with substantial reductions
in staff numbers, personnel costs still account
for almost 60 percent of operating expenses.
To cover these continuing losses, NRZ has
resorted to commercial borrowings and bank
overdrafts.
The NRZ projects a sharp improvement in
its financial position in 2010. If the earlier-
mentioned recovery in freight services is
realized, NRZ projects an operating surplus
of some $8.8 million in 2010, the first such
surplus in many years. After allowing for
interest payments on the increasing amount
of debt held by NRZ, net income for 2010
is projected to be about $8 million, while
Earnings Before Interest, Taxes, Depreciation, With continued government controls on
and Amortization (EBITDA) would rise to passenger tariffs, only a small increase in
$26 million, thereby giving NRZ a significant passenger revenues is projected for 2010,
improvement in its cash flow. despite an increase of more than 50 percent in
Passenger services. In contrast to freight projected number of passengers to be carried.
services, passenger services have generated Revenue per passenger is projected to decline
operating losses for the past decade. The World from $1.68 in 2009 to $1.34 in 2010/11. With
Bank (2006) review of passenger services no change in government policy regarding
concluded that operating losses for passenger passenger tariffs, the operating cost of the
services jumped to US$10 million equivalent service is projected to increase to about $24
in 2004 from US$1.65 million in 2003 because million, which would result in an operating

Restructuring and Recovery in Railway Services Zimbabwe Report 11

loss of about $20 million in 2010, compared million net operating loss from transport of
with $9 million in 2009. freight in 2009 (Figure 10.4). As noted earlier,
NRZ projects a sharp recovery in the amount
of freight carried in 2010 (from 2.7 million
tons in 2009 to 6 million tons in 2010) as a
result of improved availability and utilization
of rolling stock and progress in improving
track conditions. Average revenues per ton are
projected to rise from $22 to $26, with total
freight revenues increasing to $158 million,
compared with $59 million in 2009. If the
large recovery in freight traffic is realized, net
income from freight services would be about
$29 million in 2010. The implication is that
The Railway Act provides for Public Service net income from freight would be almost $5
Obligations (PSO) in terms of uneconomic per ton in 2010, compared with a loss of $1 a
branch lines and passenger services. The ton in 2009. It is the prospect of a profitable
extent of Government support for these loss- freight traffic service that may attract private
making activities is unclear, but it appears to investment to the concession arrangements
have been minimal. In the absence of correct discussed below.
computations and PSO contracts, the adequacy
of the support cannot be verified. The absence
10.3.4 Role of Private Concessions
of PSO contracts also leads to incorrect Until the 1980s, almost all African railway
appreciation of the cost of operating passenger companies were publicly owned corporations,
services and dilution of accountability for with varying degrees of financial and
performance by NRZ. management autonomy. In many cases,
attempts at commercialization while retaining
public ownership were unsuccessful. As a
result, concessions were introduced in many
countries in the 1990s. Under the most common
forms of concessions the state remains the
owner of all or some of the existing assets,
typically the infrastructure, and transfers the
other assets (usually the rolling stock) and
the responsibility to operate and maintain the
railway to a concessionaire.3
Evolution of policy in Zimbabwe. In
accordance with the SADC protocol, GOZ’s
Freight services. Transport of freight at various stated policy since mid-1990s has been to
times in the past has been a profitable business privatize (concession) the railways. The
for NRZ, but the deterioration in recent years process for the privatization of NRZ was
has undermined the business. There was a $2.9 first launched in the latter part of the 1990s

3 For a detailed assessment of the experience of a selected group of railway concessions in Sub-Saharan Africa, see
World Bank (2006), ‘Review of Selected Railway Concessions in Sub-Saharan Africa.’ World Bank, Washington
DC, June 2006.

12 Zimbabwe Report Restructuring and Recovery in Railway Services

with the support of the World Bank. The because of the political situation, the World
Railways Act was modified in 1997 to allow Bank withdrew its support for the railways
for a concession for the railway. Consultants to privatization project in Zimbabwe.
support the process carried out several studies, The Government subsequently came out
funded by the World Bank. The Government with another privatization option. Instead of
granted a Build, Operate, and Transfer the vertical separation model proposed earlier,
(BOT) type concession for the Bulawayo- it opted for one passenger concession and
Beitbridge line in the late 1990s.4 In 1998, the two vertically integrated freight concessions;
Government sought to privatize the railways one for the eastern region and the other for
based on a vertical-separation strategy, the key the southern regions. The Government held
features of which were unbundling of NRZ workshops in December 2000 and January 2001
and incorporation of three new companies in order to have extensive consultation with all
to manage three main railway functions— stakeholders, explore other possible options,
infrastructure provision, equipment supply and reach a consensus among stakeholders on
and maintenance, and operations, transferring the way forward. No firm consensus/decision
of assets and staff from NRZ to the new on the privatization option was reached. One
companies and the eventual winding up paper did recommend the earlier option based
of NRZ after retrenching excess labor and on vertical separation, but with the difference
disposing non-core activities, concessioning that the infrastructure, freight operations,
of infrastructure, private sector participation and passenger services were to be offered for
in the other two companies, licensing of more privatization simultaneously instead of one
private service providers to introduce intra-rail after the other.
competition, and setting up a regulatory body to The “National Economic Development
ensure smooth operation of various parts of the Priority Program” issued in March 2006
new structure. This proposal called for radical listed NRZ as a candidate for a concession.
reform in the railway sector. Not only would Later that year the MoTC finalized a
the private sector manage the infrastructure proposal to restructure NRZ along business
and operations, but there would also be open lines. The proposal included establishment
access leading to active competition on rail of NRZ as a holding company with four
road service and improvement in the provision autonomous subsidiary companies to manage
of services to customers as envisaged in the freight, passenger, infrastructure, and other
SADC protocol. In late 1998, the Government miscellaneous businesses respectively. The
issued a request for proposals for the concession proposed restructuring was aimed at bringing
of the infrastructure based on the foregoing a renewed focus on different businesses
design. There was considerable interest in the within NRZ and at improving performance.
concession and more than ten potential bidders However, the proposal was not cleared by the
bought the bidding documents. However, in cabinet. It was not clear whether the proposed
December 1999, while the bids were under restructuring was in lieu of a concession or a
evaluation, the Government decided not to prior action to enable subsequent privatization
pursue the concession process. As a result, and

4 The Bulawayo-Beitbridge Railway (BBR) was built between 1996 and 1998. It connected Beitbridge to the
industrial heartland of Zimbabwe, Bulawayo, direct through West Nicholson where the NRZ line ended. The
BOT concession to build the 385 km railway line was awarded to New Limpopo Project Investments, a company
registered in Mauritius. The company laid the tracks, provided an additional 10 locomotives, and serviced the
route through this PPP program. The Government took a 15 percent stake in the partnership. The concessionaire
received a number of incentives, including duty exemptions on imported rail equipment and spares, discounted
tariffs and priority service for investors in rolling stock, and tax holidays.

Restructuring and Recovery in Railway Services Zimbabwe Report 13

of the different businesses. Although a to proceed with the creation of concessions
consensus to create a railway concession had were abandoned under heavy criticism from
been reached through extensive discussions the unions who complained about the lack of
over the past ten years or so with stakeholders, transparency and their non-involvement in the
a similar consensus had not been reached on the processes. As a result, no further action has
proposed organizational structure. Attempts been taken on privatization.

Slow progress in implementing railway only support economic recovery in Zimbabwe,

concessions is seen as a major obstacle for but it would also strengthen the regional rail
recovery in the sector. Given the experience corridor and help regional integration.
of the past decade, there are serious doubts The lack of progress on concession
whether the NRZ in its present form, arrangements also means that Zimbabwe is
constrained as it is by internal rules and failing to meet its obligations under the SADC
procedures, heavy government involvement Protocol on Transport, Communications, and
in operational matters, and a weak financial Meteorology. As noted earlier, the protocol
base, will be able to operate the railways at specifies that member states should facilitate
the peak of efficiency and productivity. Private the provision of a seamless, efficient, cost-
sector participation in the management and effective, safe, and environmentally friendly
operation of the railways remains as justified railway service. The protocol also encourages
as before in order for the railways to realize its governments to grant autonomy to the railways
full potential. According to the World Bank, a so that they can achieve full commercialization,
privately managed revitalized railway network increase private sector participation, and
working on commercial principles would not

14 Zimbabwe Report Restructuring and Recovery in Railway Services

enhance operational synergies amongst railway a point where it will be difficult to attract
service providers, promote fair competition, qualified concessionaires. A number of
and strengthen the government regulatory African countries with dilapidated networks
function. have had difficulty in attracting more than a
The deteriorating railway service few bidders. Responsibility for the ongoing
and infrastructure has had an impact on rehabilitation and maintenance of track has
interregional trade flows, which of necessity been a major issue for some concession
must pass through Zimbabwe. Its impact is agreements. In some cases, the financial
already being felt and will affect ongoing resources of bidders have not been sufficient
attempts to establish the Limpopo concession to finance the major investments required.
in Mozambique, as well as efforts to Even in those circumstances where the State
concession the Beira line. The value of the has provided guarantees for the investments,
Zambia concession is diminished, and NRZ mobilization of the funding has been slow.
arrangements with BBR have diminished the Other challenges that have arisen include a
value of any future concession in Botswana. lack of enthusiasm among concessionaires
International flows from the copper belt will for operation of passenger services that do not
be determined by NRZ’s ability to move generate revenues comparable to that from
traffic in a timely manner. Without further freight services, lack of agreement about the
action to strengthen rail services in Zimbabwe, payment of government compensation for
prospects for improvement in interregional unprofitable services, differences regarding
traffic flows are bleak. the level of concession fees and the duration of
Creating a larger role for private concessions. the concession, and arrangements for, and the
Given the heightening inter-modal and inter- cost of, redundant staff.5
route competition, it will be difficult for the Experience from other concession
railways to sustain progress within the existing arrangements in Africa points to several policy
public sector framework. The current financial issues for the GoZ that have an important
outlook for NRZ suggests that, even with bearing on financing and management
quite optimistic assumptions about the growth arrangements for the proposed program:
in freight and its profitability, rebuilding • Major track renewal and rehabilitation.
the railway infrastructure and asset base is Most concessionaires operating in Africa
well beyond the financial resources of NRZ. take the view that track rehabilitation
Some combination of increased government and, especially, track renewal should be
support for the railways, together with the use financed by governments. The 40 to 50
of additional concession agreements appears year life expectancy of these assets often
to offer the best prospect for rebuilding these precludes operators from being able to
services. Experience from the increasing mobilize and pay for the private capital
number of concessions in Africa suggests that required to finance track rehabilitation and
they can improve operations and efficiency renewal. This is particularly the case when
with improved labor and asset productivity. the ratio of initial track investment over
The fundamental issue now is whether revenues is considered too high to mobilize
the deterioration in the assets of the railway sufficient private financing. This is the
network over the past decade is approaching situation that applies to Zimbabwe. In these

5 The high cost of compensating redundant staff was one of the reasons for the failure of the 1999 initiative to award
a concession for the railways in Zimbabwe. This cost was estimated at $75 million. The plan called for World
Bank funds to be used to finance the retrenchment, but as noted earlier, the Bank withdrew from the program.
Without donor funding of retrenchment, the prospects for a successful concession were very doubtful.

Restructuring and Recovery in Railway Services Zimbabwe Report 15

 circumstances, governments may agree to • Seamless operations for freight movements
fund the initial five-year investment plan, in the region. The SADC Protocol
often by mobilizing loans from international on Transport, Communications, and
financial institutions and on-lending the Meteorology calls for seamless operations
proceeds to the concessionaires.6 Given among member countries. Open or limited
the current challenging environment for access is a prerequisite for seamless
rail services in Zimbabwe, the working operations. Progress on implementation
assumption used in this Report is that the of the protocol has been slow. It is often
Government retains responsibility for the case that concessionaires are awarded
track rehabilitation and renewal, but that exclusive rights for provision of services for
concessionaires would be responsible for a number of years following start-up of the
funding track maintenance. concession. The GoZ will need to reconcile
such incentives to attract concessionaires
• Financing of passenger services. Passenger with these wider obligations associated
services in Zimbabwe have been operating with the unimpeded movement of freight
at a loss for many years because the on the regional networks that pass through
Government sets passenger tariffs at Zimbabwe. This may require entry into
levels well below the cost of providing reciprocal arrangements with other railway
the service. Recent studies of Sub-Saharan networks for operating seamless services.
Africa railway performance suggest that
the prospects for profitable non-urban rail
passenger services are poor. According to
10.4 AN ACTION PLAN FOR
Amos and Bullock (2007), rail services THE RAILWAYS SECTOR
start competing with road services for
passengers at speeds higher than 70 km 10.4.1 Rebuilding Railway Freight
per hour. The average speed for passenger and Passenger Services
traffic in Zimbabwe is substantially lower
than 70 km per hour. The cost of maintaining NRZ has fixed a freight target of 6 million tons
track and signaling systems that would for 2010. Achieving this target requires action
enable these commercial speeds is much on refurbishment of an adequate number of
more than the cost of maintaining the 30- to locomotives and wagons, but if that would
40-km per hour commercial speed needed take time, lease of locomotives and wagons
for a freight railway. The implication is on appropriate terms or in consultation
that if existing passenger services are to be with the Government, suspension of some
maintained, operating losses will continue. passenger services, and improved utilization
If the Government wants concessionaires to of locomotives to at least the highest level
operate passenger services, concessionaires achieved in the past. Availability of the
will expect to be compensated for the necessary foreign exchange and fuel would
losses that stem from such pricing policies. also be important and would require close
The concession agreements will require monitoring.
clear compensation arrangements that can For the decade ahead, the objective is to
be monitored and timely payments by the build freight services to the original design
Government. capacity of the rail network of 18 million tons

6 In some cases, for example, Zambia Railways and the Tanzanian Railways Corporation (TRC), governments do
not finance initial track renewal but commit to compensate concessionaires for their investment by the end of the
concession. In these cases, the initial amount to be invested is relatively small in relation to expected revenues,
and as a result, it is expected that concessionaires will be able to secure private financing based on the business
merits of the concession.

16 Zimbabwe Report Restructuring and Recovery in Railway Services

(Figure 10.5). There is a broad consensus that the Zimbabwe railway network and services
an efficient railway system will address the to its original freight capacity and to expand
bulk transport needs in agriculture, mining, substantially passenger services, actions will
and manufacturing and to a less extent the be required on a number of fronts. According
electric power sector.7 The target of 18 million to the MTP, these include rehabilitation of the
tons of freight implies an average growth in existing rail track infrastructure, signalling and
traffic of almost 20 percent a year during 2010- telecommunications systems, and reduction of
20, which is much higher than the projected track cautions, increasing the availability of
growth in GDP. The underlying assumption is locomotives, coaches, and wagons, review of
that as service capacity and quality improve, the regulatory framework governing railway
the railways will be able to attract freight from transport and establishment of a Regulatory
the road transport industry because of lower Authority, establishment of a PPP framework
freight rates. to facilitate private sector participation, and
formation of strategic partnerships that involve
one or more concessions for sections of the
track, establishment of a separate body to own/
operate infrastructure while rail services are
opened up to a number of private concessions
for a fee, introduction of a national rail safety
program with safety and security regulations,
and adoption of environmental best practice for
rail construction and maintenance, including
environmental impact certification by the
Environment Management Agency before
commencement of projects.
The proposed program set out in this Report
expands on these proposals and sets out a
detailed Action Plan for their implementation
in the decade ahead. The proposed program
is one in which the restructuring of the
The target for passenger traffic is equally railways is based on vertical separation. In this
ambitious. It is projected to rise to 24 million scenario, the management and ownership of
passengers by 2020, an average growth rate the infrastructure facilities is separated from
of 26 percent a year. In the event that fares the provision of rail services. The key features
continue to be set well below the cost of of the proposed new institutional arrangements
service provision, the operating losses of NRZ are as follows:
from passenger services would rise steadily in
• The Government would continue to
the decade ahead in the absence of subsidies
own the track and related infrastructure
from the National Government.
such as signaling, communications, and
10.4.2 Proposed Action Plan electrification. A new public entity would
be established and would be responsible for
The MTP calls for sustained improvement in the management and upkeep of this basic
the performance of the railways. To rebuild infrastructure. For the purposes of this

7 There are only four coal power generation plants (Hwange, Bulawayo, Harare and Munyati). The largest one at
Hwange (installed capacity of 920 MW) is located on the coal mine and the other three are low capacity generation
plans (with total installed capacity of 290 MW). Owing to the age of these plants, in addition to other operational
inefficiencies, improved rail transportation will likely yield only marginal benefits for power generation.

Restructuring and Recovery in Railway Services Zimbabwe Report 17

 Report, this new state enterprise is called of competition is rail services offered by
the Railway Infrastructure Company of neighboring countries in an environment in
Zimbabwe (RICZ). which Zimbabwe implements the seamless
travel policies of SADC and sets competitive
• Concessions would be granted for private access fees.
operation of rail services on the entire
network. There would be open access for 10.4.3 Management of Railways
freight concessions on the entire network Infrastructure
of some 2,760 km of the national route.
The 385 km of the Beitbridge Bulawayo Ownership of the railways infrastructure.
concession would be excluded from these The working assumption in this Report is
arrangements because it has exclusive that the Government would retain ownership
rights to operate on this line for the 30 year of the track and related facilities and would
life of the concession. therefore be responsible for the design,
funding, and implementation of rehabilitation
• The existing NRZ would be restructured and maintenance programs. As proposed in
to become a provider of freight and the MTP, the Action Plan calls for creation
passenger services. Private equity would be of a separate government agency, referred to
brought into the company at the time of its in this Report as the Railway Infrastructure
restructuring. As a commercial company, Company of Zimbabwe (RICZ) that would be
the restructured NRZ would operate on responsible for the maintenance and operation
strictly commercial principles comparable of the railway infrastructure.
to those of other concessionaires. For the
purposes of this Report, the restructured
NRZ is called the Zimbabwe Railway
Services Company (ZRSC).
• In the case of passenger traffic, the ZRSC
would continue to provide existing
commuter and passenger services. The
concession agreement between the ZRSC
and the Government would provide for
payment of subsidies for operating losses
incurred in the event that passenger tariffs Rehabilitation of the track. Under normal
continued to be set by the Government. operating conditions with regular maintenance,
ZRSC and other concessionaires would be the track network would have an average life
able to operate high-end passenger services of at least 40-50 years, given the relatively low
catering to the tourism industry and luxury traffic volumes of Zimbabwe. A substantial
travel on the entire 2,760 km network. portion of the track is approaching the end
of its economic life. The cost of periodic
One of the important advantages of this reconstruction is currently estimated at
approach is that such vertical unbundling puts about $350,000 per km, so the annual cost of
rail transport in a situation that is similar to periodic rehabilitation is about $8,000 per km.
road transport. Separating infrastructure from The proposed program would rehabilitate the
services facilitates the entry of more than one total route length of some 2,759 km over a
operator on a single route. Direct competition 20-year period. The total cost of the program
among operators offers the possibility of is estimated at about $1.14 billion at 2009
improvements in efficiency and lower costs. constant prices.
In the case of Zimbabwe, a possible source

18 Zimbabwe Report Restructuring and Recovery in Railway Services

 The immediate priority is to remove the wireless communications. The line between
speed restrictions on some 420 km of track at Harare and Mutare would be a priority, as
a cost of about $70 million, and to begin the would the section between Harare and Gweru
rehabilitation of the track, including signaling and Gweru to Beitbridge. Other low cost
and communications and electrification interventions like stabilization of electric
infrastructure (Table 10.7). The rehabilitation power supply and signaling could also be
program for the CTC would involve a shift to funded on a priority basis.
some combination of fiber optic cables and

The proposed rehabilitation program is based There is little doubt about the justification for
on the assumption that the entire network of periodic rehabilitation of this portion of the
2,759 km of track and related facilities would network, given its pivotal role in the regional
be replaced over a 15-year period, 2011-25. rail network of Southern Africa. However, the
The proposed program would start in 2011 economic justification for rehabilitation and
or 2012 following a detailed assessment of upgrade of the entire domestic branch line
priorities for rehabilitation based on traffic network of some 878 km does need further
forecasts and track condition. In the first five evaluation to determine whether any of these
years (2011-15), the program calls for capital lines have low traffic volumes and short hauls
outlays of about $370 million on rehabilitation that will not be competitive with road freight
of the infrastructure. In the following 10 years services. To reinstate relatively short spurs that
(2016-26), a total of about $770 million would will have difficulty in competing with road
be spent on the rehabilitation of the remainder transport may be very expensive. Low traffic
of the track and related facilities. densities on these spurs may not generate
There is one important qualification sufficient revenue to cover operating costs
to the proposed expenditure program for and, in addition, generate sufficient revenue to
rehabilitation of the track and related facilities. justify the above-mentioned cost of periodic
More work is needed to determine whether, in rehabilitation.
fact, the rehabilitation and upgrade of the entire Expansion of the existing network. There
rail network is economically justified. The are a number of proposals for expansion of
first priority would be to allocate the available the rail infrastructure network, including
capital to the rehabilitation and upgrade of the construction of new links to provide shorter
mainline network. About 70 percent of the routes to/from the seaports to develop
total route length of 2,759 km is accounted for Zimbabwe into a viable and efficient regional
by the mainline network, most of which serves hub (See Map 10.2). Figure 10.6 lists the
domestic and regional rail transport needs. various proposed extensions. These seven

Restructuring and Recovery in Railway Services Zimbabwe Report 19

 The provisional estimate for the Chitungwiza
commuter line is $400 million. According
to the World Bank (2010), the cost of new
construction of a single-track, non-electrified
railway on relatively flat terrain is at least $1.5
million per km, increasing to about $5 million
per km in more rugged country. The total cost of
these extensions, including the new commuter
line, is therefore in the range of $2.5 to $6
billion at 2009 constant prices, depending on
the type of terrain. Some of the extensions will
provide bulk transport for mineral products
and may therefore be economically viable
extensions would add about 1,340 km to the investments. But others will compete with
existing network of 2,759 km. The highest existing road routes where freight rates may
priority is the development of the Lion’s be constrained by competition to perhaps 6
Den-Chirundu rail link with an extension to US cents per ton km. The proposed program
Kafue in Zambia, a distance of approximately includes funding for detailed studies of the
260 km.8 A key issue that will require further economic justification for these extensions, but
careful investigation is the financial and does not include funding for their construction.
economic viability of these various extensions.

8 The Government is reported to have signed a memorandum of understanding with Espol Africa Consortium
in September 2010 for the construction of a line from Lion’s Den to Chirundu. The Espol Africa Consortium
reportedly comprises Zimbabwean and Chinese firms, and the China ExIm Bank. The project would be constructed
on a BOT basis. At an average construction cost of say, $5 million per km, the capital cost of the track could be
in the range of $1.3 billion. After allowing for investment in rolling stock and other facilities, the total cost of the
project could be in the range of $1.5 to $2 billion.

20 Zimbabwe Report Restructuring and Recovery in Railway Services

 Map 10.3. Proposed Expansion of Railway Routes in Zimbabwe

Restructuring and Recovery in Railway Services Zimbabwe Report 21

 Routine maintenance of track 10.4.4 Restructuring of NRZ
infrastructure. The current value of the track, and Creation of RICZ
signaling, electrification, and related assets
are estimated to be about $685 million at end Financial constraints on NRZ. What is quite
2009.9 Total spending on routine maintenance clear is that the funding requirements for the
on track and related facilities is estimated at improvement of railway services are well
about $2 million for 2009—equivalent to beyond the projected financial capabilities
about 0.3 percent of the capital stock. As Table of NRZ. As the foregoing consideration
10.8 indicates, NRZ is proposing a major step- indicates, the total cost of rehabilitation and
up in spending on routine maintenance of track increased emphasis on routine maintenance
and related assets in 2010 to about $16 million, of the railway infrastructure alone comes
equal to about 2 percent of the capital stock. to about $1.15 billion in the decade ahead;
The proposed Action Plan calls for a steady as the subsequent analysis indicates, the
increase in maintenance outlays in the decade estimated cost of replacement of the rolling
ahead, relative to the value of the capital stock is estimated at about $870 million (all
stock. As Table 10.8 indicates, implementation at 2009 constant prices). Mobilization of the
of the rehabilitation program in the decade required $2 billion in the decade ahead is well
ahead would mean that the capital value of the beyond the financial capacities of the NRZ
track and related assets would be about $1.45 even under the optimistic assumptions about
billion by 2020 (at 2009 constant prices). For the future growth in traffic set out in Table
the medium and longer term, a reasonable 10.9 above.
target for routine maintenance may be about 4 If NRZ is able to rebuild the freight business
percent of the capital stock. to close to the original design capacity of
Successful implementation of the the rail network as per Table 10.9, NRZ
rehabilitation program would imply that projects continued operating surpluses for
outlays on routine maintenance would rise to the enterprise. Operating income would rise
about $60 million a year by 2020. A total of to almost $30 million a year by 2020 (Table
about $400 million (at 2009 constant prices) 10.9). For the decade as a whole, the EBITDA
would be required for routine maintenance would be about $700 million. The implication
of the rehabilitated rail infrastructure in is that NRZ would have to raise an additional
the decade ahead. Table 10.8 provides a $1.3 billion for rehabilitation of the railway
summary of the proposed capital and routine infrastructure and its routine maintenance, in
maintenance expenditures for the railway addition to servicing the current long-term
track and related facilities that would become debt of almost $180 million. In the unlikely
the responsibility of the RICZ from 2013 event that the government made payments to
onwards. Total spending on capital works NRZ to cover the projected losses on passenger
is put at about $740 million at 2009 prices services, these would total about $150 million
for the decade ahead, while total spending for the decade as a whole, in which case the
on maintenance rises steadily to about $60 new funding required by NRZ would be about
million a year by 2020, and totals about $400 $1.3 billion.
million for the decade as a whole.

9 This estimate is at historical cost. In the case of the track itself, the current value is put at $288 million. Given the
age of the track, these low values are to be expected. The replacement cost of the track, however, is much higher.
At a cost of $350,000 per km, the replacement cost is estimated to be about $960 million.

22 Zimbabwe Report Restructuring and Recovery in Railway Services

In the face of these realities, the Government of concessions for railways services and
announced in the MTP its intention to proposes actions on:
proceed with the restructuring of NRZ. • Establishment of a PPP framework to
The restructuring of NRZ would result in facilitate private sector participation;
formation of two new companies: the Railway
Infrastructure Company of Zimbabwe • Pursuit of strategic partnerships by awarding
(RICZ) and the Zimbabwe Railway Services concessions for sections of the track.
Company (ZRSC). The RICZ would own the The immediate priority is to put in place a legal
railway infrastructure (other than that of the framework for the use of PPP arrangements
Beitbridge-Bulawayo concession that operates in Zimbabwe. The requirements for this
under a 30-year BOT arrangement). It would be framework are discussed at some length in
responsible for rehabilitation and maintenance Chapter 5. The Government will have to decide
of the railway infrastructure. on a range of important policy issues in the
The proposed new ZRCZ would be design of the PPP framework and within that
privatized and would operate as a freight and the treatment of concessions. Useful insights
passenger service concessionaire on the entire can be gained from the experience of other
national network, other than the Beitbridge- railway concessions in Sub-Saharan Africa
Bulawayo concession, in competition with (see Box 10.1 below). International experience
other concessions. The details of the proposed with such concessions suggests a number of key
technical and financial restructuring of NRZ issues need to be considered in the design of an
are discussed in Chapter 5. appropriate railway concession: (i) the choice
of the potential concessionaires; (ii) passenger
10.4.5 An Expanded Role for Private
service requirements; (iii) arrangements for
Concessions in Zimbabwe financing track rehabilitation and maintenance,
PPP framework and role of concessions. (iv) the level of concession fees; (v) the
The Medium-Term Plan of the Government financial structure of the concessions; and (vi)
implicitly recognizes these severe financial reporting obligations of the concessions.
constraints on the NRZ. It calls for the award

Restructuring and Recovery in Railway Services Zimbabwe Report 23

 A simple model was used to facilitate fares, the concession fee, the debt ratio of
evaluation of these various options. (See the concessions, and the interest rate on
Annex 6 for details.) Ten simulations were liabilities of concessions. A summary of the
run with the model to examine the financial key assumptions used in the simulations, along
impact of different assumptions about the with key outcomes, is presented in Figure 10.7.
policy regarding subsidies for passenger
Box 10.1: Experience from Railway Concessions in Sub-Saharan Africa

Since 1992, 16 rail concessions have been established in Sub-Saharan Africa, of which two have been canceled and
six have operated for five years or more. According to the World Bank (2010), the creation and operation of these
concessions has not been problem free. In many cases, attracting more than a few bidders has been difficult, and
in several cases, bidders’ financial resources have been insufficient to finance the major investments required. In a
number of cases, the State has had to guarantee these private investments or to fund them. Concessionaires have
shown little enthusiasm for running passenger services which do not generate the same revenues as freight, and
there have been delays and disputes about the payment of compensation by governments for unprofitable services.
Problems have also arisen over the level of concession fees, the duration of the concession, and arrangements for
redundant staff. Financial projections produced during the concession bidding process often overstated revenues
and understated costs, and as a result some concessionaires found themselves in a liquidity trap. In some cases, the
latter required a complete restructuring of the concessions. In reviewing these experiences, the conclusion of the
World Bank is that despite these difficulties, the results to date are encouraging.

The key characteristics for eight concessions in Sub-Saharan Africa, most of which began operations in the past
decade, are set out in table above. The length of these concessions has been 20 or 25 years. The start-up capital
contribution by the concessionaires ranged from $5 million to $20 million, with an average of $12 million for the
group as a whole. The share of equity held by governments at start-up ranged up to 49 percent; however, the equity
of these governments typically involved in-kind contributions (e.g., rolling stock, spare parts, or buildings), most
of which had a very limited cash value. In a number of cases, Sub-Saharan governments entered into negotiations
with potential concessionaires with a railway service that had a high ratio of initial track investment compared with
revenues. This is likely to be the case for Zimbabwe. Experience has shown that in these circumstances concessions
are unlikely to be able to mobilize sufficient private financing for the program. Governments in this situation have
opted to finance initial track rehabilitation and renewal costs, typically by securing loans from international financial
institutions. These loans are then on-lent to private operators. Under these arrangements, the most common practice
has been to cover only the first five years of funding for infrastructure renewal, in the hope that the investment
will lead to higher traffic levels that, in turn, generate additional revenues that concessionaires can then apply
to infrastructure renewal. Governments have usually agreed to purchase at the end of their concessions the non-
amortized portion of any infrastructure investment that concessionaires have financed. In some cases, governments
have been able to obtain partial risk guarantees from international financial institutions to ensure payments to
concessionaires.

24 Zimbabwe Report Restructuring and Recovery in Railway Services

Choice of potential concessionaires. There ZRSC. A third possibility is that a Spoornet
are several options available for contracting subsidiary might have interest in extending
with the private sector for concession services. the Spoornet reach into Zimbabwe, again in
The first option, and the one advocated in competition with ZRSC.
this Report, would be to tender the proposed Investments by concessionaires. The
concessions under international competitive primary capital outlay for the successful
bidding procedures that included the Zimbabwe concessionaires will be on locomotives, rolling
Railway Services Company (ZRSC) as a pre- stock and related facilities. For the purposes
qualified bidder. In the event that international of this Report, the NRZ has estimated the
railway operators/investors are not interested locomotive and rolling stock that would be
in bidding independently, or in partnership needed to meet the projected growth in freight
with ZRSC on the concession, another and passenger traffic during 2011-20 (Figure
possibility might be a bilateral deal involving 10.7). These costs are put at about $870
an extension of BBR rights to operate on the million for the decade ahead, with the bulk of
entire 2,760 km of the grid in competition with the outlays on locomotives.

As noted earlier, the NRZ is currently to build additional capacity, a high priority
unable to meet current demand for services should be given to improving the availability
because of problems with the availability and of locomotives and rolling stock in the near
utilization of locomotives and wagons. In term. Prior to the proposed restructuring in
order to meet the present traffic demand and 2013, NRZ would therefore continue the

Restructuring and Recovery in Railway Services Zimbabwe Report 25

actions it has already initiated to increase facilities are put at $875.5 million at 2009
locomotive availability and utilization. constant prices. A prudent debt ratio of
The Government has already made certain 70 percent implies that the concession
contractual commitments towards acquisition arrangements would require about $260
of ten mainline locomotives. Technology million of equity and $615 million of
has evolved and the new acquisitions will debt. If, on the other hand, the concession
enable NRZ operate more efficient modern agreements were based on a debt ratio of 80
equipment. Because the in-house capacity for percent, about $175 million of equity would
the rehabilitation of locomotives and wagons be required, along with $700 million of debt.
is quite limited, the allocation of resources for The proposed restructuring of the NRZ into a
this work would be spread over a three-year concessionaire with a private equity partner
period. As Table 10.10 indicates, to rebuild will require close attention to ensure that an
freight and passengers services consistent with adequate amount of the equity injected into
the projected growth in demand (Table 10.9), the company is in the form of cash-equivalent
capital expenditures by NRZ would need to be instruments. This issue is closely related
in the range of $160 million during 2010-12. to decisions about the amount of equity in
For 2013-20, when the concession ZRSC that will be held by the government
arrangements would apply, capital outlays and the extent to which it will take the form
on locomotives, rolling stock and related of existing equipment.

Track rehabilitation and maintenance. The renewal. The working assumption in the
general experience with concessions in Africa indicative program set out in this Report is that
is that few, if any, generate sufficient profits to the Government assumes responsibility for the
fund long-term rehabilitation and renewal of $1.14 billion required for track rehabilitation
track and related facilities. The issue, therefore, over the next 15 years, but the concessionaires
is whether the concession is designed in a way would be responsible for the full cost of routine
that boosts the profits of the concessionaire maintenance. Under the indicative program
in return for which, the concession then outlined here, the concessionaires would be
contributes to track renewal, or whether the required to cover the annual cost of routine
Government assumes responsibility for track maintenance on the 2,760 km of the network

26 Zimbabwe Report Restructuring and Recovery in Railway Services

that would be operated under competitive to be set by government at levels that are
concession arrangements. The levy would be substantially below the operating cost of service
paid to the RICZ who, in turn, would contract provision, but the government compensates
out (to concessionaires or other entities) for the concessionaires for these losses. In Scenario
maintenance of the track and related facilities. B, passenger tariffs are raised steadily each
(See Table 10.8 for details on rehabilitation year during 2011-20 to the point where they
and maintenance costs for 2011-20.) cover the operating cost of service provision
Concession fees. Concession fees are a by 2020. The results of the simulations show
key element of the financial arrangements for that with a concession fee of 13 percent the
concessions. Usually, the level of these fees is RICZ can cover the full cost of its operations
set to represent the cost to the concessioning during 2011-20; however, in a number of the
authority of providing assets (rolling stock, simulations for Scenario A, the net income of
track and related facilities, and equipment) to the concessionaires is negative, and in all but
enable a concessionaire to operate its railway one case (Scenario A.4), the return on investor
service. Fees are usually set as a percentage equity is low or negative. In Scenario B where
of net revenues. Among the nine concessions the subsidy is phased out, the cash surpluses of
included in Box 10.1 above, concession fees RICZ are substantially higher than in Scenario
range up to almost 14 percent of revenues. A, and with one exception (Scenario B.5), the
Concession fees need to be set in a manner that net income of concessions is positive.
will ensure the profitability of the concession. The working assumption used in this
Some of the Sub-Saharan Africa concessions Report is that the ZRSC will be the sole
with high fees have found that the profitability provider of commuter services and inter-city
of their operations has been severely eroded. passenger services. Under the concession
An unduly high concession fee will further agreement with the ZRSC it is essential that
constrain the ability of concessionaires to there are clear compensation arrangements in
contribute to track maintenance and renewal. place and that these can be monitored. In these
For this reason, consideration must also be circumstances, the concessionaire should be
given to other forms of payments to government able to retain passenger revenues and benefit
that may be required of the concessionaire from a Government funded compensation
(income and other taxes and fees). program to cover operating losses. In the
In the particular case of Zimbabwe, absence of a clear contractual arrangement with
simulation of the various scenarios indicates the government on the issue of compensation
that a concession fee of 13 percent would be for losses, the risk is that ZRSC would not be
required to cover the operating costs of the compensated. Uncertainty on this point would
RICZ. This puts Zimbabwe at the high end of almost certainly deter potential investors
the range of concession fees charged in other from a partnership with ZRSC. Without the
Sub-Saharan Africa concessions. Concession necessary injection of investor funds, the
fees of 15 percent or more enlarge the financial financial position of ZRSC would very likely
surplus of the RICZ and hence its ability to be one in which there was a continual risk of
fund rehabilitation of the rail network, but liquidity problems and an inability to make
as Table 10.11 indicates, the cash flow of the the necessary investments in new locomotives
concessions is adversely affected and as a and rolling stock. This would put ZRSC at
result, the return on investor equity declines. a substantial disadvantage vis-à-vis other
Provision of passenger services. The concessions that provided only freight services
concessionaire model was used to evaluate on the network.
two options regarding the policy for passenger Financial structure of the concessions.
tariffs. In Scenario A, passenger tariffs continue Prudent financial management suggests that

Restructuring and Recovery in Railway Services Zimbabwe Report 27

during the design and negotiation phase, close the interest rate is set at 8 percent, the return
attention be given to debt-equity ratios to on equity drops to 13 percent by 2020 and the
reduce the risk of severe liquidity problems cash position of the concessions is very weak,
once the concessions are operational. The suggesting the potential for liquidity problems
World Bank (2006) reported that six of in the concession arrangements.
the nine concessions reported in Box 10.1 As a practical matter, it is very likely that
above had actual or projected debt-to-equity potential investors will look for returns on
ratios greater than 80:20 from the start of equity in excess of 20 percent after the initial
their operations. A debt ratio of 80 percent is start-up phase of the concession arrangements.
typically regarded as the higher end of what
is desirable for any financial venture. These 10.4.6 Institutional Improvements
high debt ratios had an adverse effect on the and Capacity Building
share of the investments that were privately
financed. In some cases, the weak cash Strengthening the regulatory framework. As
positions of concessions were compounded noted earlier, no one agency is responsible for
by government equity contributions in kind. regulation and oversight of railway services
Those concessions with liquidity problems in Zimbabwe. At the present time, the only
have then been vulnerable to delays or non- recourse for the customers against unfair trade
payment of government subsidies associated practice or monopoly behavior by NRZ is to
with passenger service obligations. appeal to the Competition Commission. The
justification for strengthening these regulation
Comparable issues are evident in the case
and oversight functions will be even greater
of the proposed concession arrangements
in the event that private concessions provide a
for Zimbabwe. As Table 10.11 indicates, at
large part of the passenger and freight services
debt ratios of 70 percent, the most attractive
in the decade ahead.
outcomes are Scenarios B.1 in which the
concession fee is set at 13 percent and B.2 in Prior to the proposed restructuring of
which the fee is raised to 15 percent. The latter the railways, Zimbabwe will need to create
scenario also has the lowest level of financial an appropriate regulatory capacity. As the
support required from the government. The discussion in Chapter 4 indicates, this Report
problem with these two scenarios is that the proposes the creation of a single entity that
returns to equity investors are at best marginal. would be responsible for regulation of the
By 2020, the return on equity is only 14 percent entire transport sector. The design of the
for B.1 and 12 percent for B.2. With debt ratios regulatory framework will need to be aligned
of 80 percent, the outcomes are very sensitive with the form of restructuring adopted by the
to the interest rate on the debt. Scenario B.3, Government.10 The guiding principle should be
with a debt ratio of 80 percent and an interest that regulation of the railways services is not
rate of 6 percent, has a return to equity of 19 complex and has the flexibility to protect the
percent by 2020. The scenario that offers the railway’s share of transportation markets. The
most attractive return on equity is B.4. In this regulatory framework should therefore provide
scenario, the concession has access to loans a stable legal and institutional framework
from government at a below market rate of and should foster competition and market
3 percent and the resulting return on equity mechanisms. The main responsibilities of the
is 28 percent by 2020. If, on the other hand, regulator would include regulating quality

10 For a more detailed consideration of the choice of appropriate regulatory systems, see Estache, Antonio, and
Ginés de Rus (2000), Privatization and Regulation of Transport Infrastructure: Guidelines for Policymakers and
Regulators. World Bank Institute, Washington, DC, WBI Development Studies, 2000.

28 Zimbabwe Report Restructuring and Recovery in Railway Services

(service levels, safety, and environmental to safety and environmental concerns. A range
and technical standards), controlling of issues arise in the case of environmental
monopolistic behavior, and determining the concerns, including, for example, engine
overall characteristics of the sector’s functions pollution, noise, and transport of hazardous
consistent with established competition rules, materials. Similarly, a range of issues arises
and with antitrust and commercial legislation. with respect to regulation and safety. The
Such an entity would need to have a capacity definition and enforcement of safety procedures
to impose annual independent financial and includes a system of operational and technical
operational audits as part of concession standards to ensure safety and safe operation
contracts. The regulatory body should have throughout the network. In the event that the
the necessary political and technical powers Government opts for an open access system
to coordinate and oversee government actions for provision of rail services, there must be
towards private rail operators. Experience suitable arrangements for a rail track controller
from railway concessions in other African to ensure safe coordination among different
countries is relevant here. These concessions operators using the same tracks or stations.
typically have a long list of requirements Capacity building and technical studies.
for the concessionaire to meet. According to A key set of activities is the various technical
the World Bank (2010), many concessions studies that will be required in the first
in Sub-Saharan Africa ignore most or all of phase of the Action Plan, including a Master
their reporting obligations under concession Plan for the restructuring NRZ and further
agreements. In some cases this stems from development of the sector, a business plan
intransigence on the part of the operators, for the award of concessions, and a detailed
and in other cases it stems from capacity assessment of freight and passenger traffic by
limitations within governments. Careful route. The analysis of existing and projected
consideration will need to be given to the rights traffic flows will provide insight about those
and obligations of concessionaires and the branches that will be profitable and those that
RICZ and the related reporting requirements. may be loss-makers because of a combination
These obligations should include financial of short distances and competition from the
and operational information required for road freight industry. The design work will
independent annual calculations of concession need to address the profitability of passenger
fees and government subsidies, if necessary, as and freight services on these routes. The loss-
well as technical matters such as price policy making branches may not attract the services
and controls under the contract, arrangements of concessionaires in the absence of specific
for quality control, and access to infrastructure. agreements in the concession agreements,
Improving safety and security and including in particular the nature of the PSO
strengthening environmental safeguards. contracts for the provision of passenger
Safety is an important part of operational services. Other aspects of these studies would
performance of the railways. Rail travel is include arrangements for the technical and
safer than road travel, but the rail safety financial restructuring of NRZ, including
record in Zimbabwe is worse than comparable injection of capital to bring the assets to
railways elsewhere in the world. The acceptable and agreed standards, arrangements
inadequate safety record stems from obsolete for funding staff retrenchment, establishment
track infrastructure, poorly maintained rolling of a framework for track access charges that is
stock, and lack of operational discipline. consistent with the longer term objectives for
An important responsibility of the proposed seamless operations in the region, licensing
regulatory authority would be the formulation of operators, safety and economic regulation,
and oversight of a range of regulations related and inter-firm pricing for use of locomotives

Restructuring and Recovery in Railway Services Zimbabwe Report 29

and other services. In addition, the various the contract award process for concessions.
proposals in Table 10.12 for some 1,340 km of The target would be to complete the award and
extensions to the network will all need detailed negotiation of these concessions during 2012,
technical, economic, and financial evaluations. with mobilization by the concessionaires in
With these various studies and training 2013.
programs in place during 2011, the key policy
10.4.7 Implementation of
and institutional changes could be undertaken
during 2011-12. These include the creation of
the Action Plan
the transport regulatory authority, restructuring Table 10.12 sets out an indicative set of
of NRZ into two separate companies, and the timelines for implementation of the proposed
formulation of the policy framework required Railways Action Plan. The program proposes
for the award of the concessions for freight an early start on expanded programs of staff
and passenger services. With the policy and training to build the internal capacities required
institutional framework in place during 2012, for effective implementation of the proposed
the Government would then be able to launch Action Plan.

In the first two years of the program, the The program for track rehabilitation
emphasis would be on the various technical would have to be coordinated closely
studies and capacity building initiatives with the proposed program for attracting
outlined in the foregoing consideration. The concessionaires to operate rail services in
rehabilitation of the track, beginning with Zimbabwe. A key issue that may emerge
programs to upgrade track and remove speed in negotiations with concessionaires is the
restrictions, would begin in 2010 and would be amount of track to be rehabilitated prior to the
completed over a 15-year period in 2025. grant of a concession agreement. The proposed

30 Zimbabwe Report Restructuring and Recovery in Railway Services

program set out in Table 10.8 calls for the constant prices). It includes about $740
Government to complete the rehabilitation of million for rehabilitation and replacement of
about 400 km of track during 2011-15. There track, signaling, and communications facilities
may be important implications for the amount and upgrade of the electrification network,
and timing of rehabilitation of the additional $490 million for replacement of locomotives,
track to be used by the concessionaires. The about $355 million for wagons and passenger
possible options for these arrangements are cars, and $9 million for capacity building,
discussed in the section below on risks and technical studies, and support for policy and
uncertainties. institutional reforms in the railways sector. A
notional amount of $30 million is included
10.5 CAPITAL EXPENDITURE for renovation of buildings, rail stations, and
AND MAINTENANCE other facilities (Figure 10.8). Implementation
PROGRAMS of this program would improve availability
of locomotives and wagons that, along with
10.5.1 Capital Expenditure Programs improved utilization of rolling stock, would
provide the railway with the capacity required
The proposed development expenditure to meet the projected demand for freight and
program for the railway network amounts passenger services.
to about $1.6 billion for 2011-20 (at 2009

As noted earlier, a high priority is attached 10.5.2 Maintenance Programs

to track repairs that remove the current speed
restrictions and on a start on repairing and As Table 10.13 indicates, the cost of the railway
replacing locomotives and wagons. In its infrastructure and related assets was put at
recent assessment of high priority capital about $1billion at end 2009. Total spending on
expenditures for the 2010 national budget, the routine maintenance by NRZ was about $5.5
World Bank (2009) identified some $40 million million, equivalent to about 0.5 percent of the
for repair and replacement of rolling stock and capital stock. The NRZ is proposing a major
track infrastructure. The priority interventions step-up in spending on routine maintenance
for 2010 in Figure 10.8 are consistent with in 2010 to about $40 million, equal to about
those proposed by the World Bank. 3 percent of the capital stock. The proposed
Action Plan calls for a steady increase in

Restructuring and Recovery in Railway Services Zimbabwe Report 31

maintenance outlays in the decade ahead. For Successful implementation of the rehabilitation
the medium and longer term, a reasonable program would imply that outlays on routine
target for routine maintenance may be in the maintenance would exceed $100 million a year
range of 4 percent of the capital stock. Full by 2020. A total of about $750 million (at 2009
implementation of the rehabilitation program constant prices) would be required for routine
in the decade ahead would mean that the total maintenance of the rehabilitated rail network
assets of the railway network would be about in the decade ahead.
$2.66 billion by 2020 (at 2009 constant prices).

The working assumption for this Report is that and studies. There are four potential sources of
NRZ would be responsible for all outlays on funding for the railways program: the National
routine maintenance during 2010-12. From Government; National Railways of Zimbabwe
2013 onwards, RICZ would be responsible and its successor entities, the Railway
for maintenance of the railway infrastructure, Infrastructure Company of Zimbabwe, and
while the ZRSC and other concessionaires the Zimbabwe Railway Services Company;
would be responsible for maintenance of private concessionaires and commercial banks;
rolling stock and related facilities. As noted and the international donor community. Table
earlier, concession fees would be paid to the 10.14 sets out an illustrative financing strategy
RICZ for the upkeep of the network. for the proposed $1.63 billion program. There
is of course, a range of possible outcomes
10.6 FINANCING with respect to the amounts of funding that
ARRANGEMENTS may be available from each of these sources.
FOR RAILWAYS The working assumption that underpins the
scenario set out below is that one or more
10.6.1 Funding for the Development concessions would be granted by 2013, and
that the Government of Zimbabwe would have
Expenditure Programs
entered into arrangements with the international
Implementation of the proposed railways financial community regarding clearance of
program calls for the mobilization of about its arrears, thereby opening the way for donor
$1.63 billion of funding for track rehabilitation support for the railway rehabilitation program.
and repair and replacement of rolling stock Funding arrangements for rehabilitation
and other equipment and facilities in the of rail infrastructure. The total cost of the
decade ahead, as well as for capacity building rehabilitation program for 2011-20 is about

32 Zimbabwe Report Restructuring and Recovery in Railway Services

$740 million at 2009 constant prices. As Table at this time, because it will be affected by
10.14 indicates, the funding requirement of the pace at which the Government enters into
$100 million for 2011-12 would have to come agreements with the international financial
from NRZ. The proposed program includes community with respect to an arrears clearance
$100 million of donor funding, equivalent to process. The working assumption used in this
13.5 percent of the cost of the program the Report is that such a process would be in place
rehabilitation of the railway infrastructure by end 2011 and that the Government would
managed by RICZ. The balance of the funding then begin to access donor funding for railway
would have to come from RICZ. The timing rehabilitation in 2012.
of access to such donor support is uncertain

Table 10.15 sets out a projected income be mobilized as proposed, consideration could
statement for RICZ for 2013-20 based on a be given to a package that included access to
concession fee of 13 percent of total revenues commercial markets and the donor funding.
of the concessionaires. Receipts are sufficient Depending on terms and conditions, RICZ
to generate a modest surplus on the EBITDA may be able to mobilize $100-150 million of
account, thus providing some funding for the commercial loans at start-up to accelerate the
capital expenditure program. It is assumed rehabilitation of the rail infrastructure. This
that RICZ will begin operations in 2013 with would leave an unfinanced balance of about
a clean balance sheet that has physical assets $400 million, which may have to be met from
of some $825 million as of end 2012 and no allocations from the National Budget of $50
liabilities. (As the consideration in Chapter 5 million a year during 2013-20.
indicates, it is assumed that the liabilities of Funding for the railway concessions.
NRZ would have been transferred to a special During 2011-12, the NRZ would continue to be
purpose vehicle managed by the National responsible for the rehabilitation and upgrade
Government.) With a modest positive cash of the fleet. The Action Plan calls for outlays
flow and substantial fixed assets, the RICZ will by NRZ of $135 million for this purpose. From
very likely be able to take on some commercial 2013 onwards, the concessionaires would be
debt to finance part of the rehabilitation responsible for funding a proposed outlay of
program. If $100 million of donor funding can some $740 million. Table 10.14 provides an

Restructuring and Recovery in Railway Services Zimbabwe Report 33

indicative financing plan along the following • Commercial debt of $155 million would be
lines: mobilized to fund the purchase of additional
• At end 2012, the capital cost of assets locomotives and rolling stock in 2013;
transferred from NRZ to ZRSC would be • At end 2013, the concessions would hold
about $470 million. The value of these $300 million of assets, with a debt ratio of a
assets may be written down to approximate little over 50 percent;
the cost of new purchases of $135 million
by NRZ during 2010-12. Equity investment • By 2020, total equity would be about $200
by private investors would amount to $10 million, with long-term liabilities of about
million at start-up, bringing the total value $680 million, equivalent to a little under 80
of equity to $145 million; percent of total fixed assets.

10.6.2 Funding for Routine also be responsible for maintenance of their

Maintenance fleets and related assets.

As Annex Table 6.3 indicates, spending on 10.7 MANAGING RISK AND

routine maintenance for the railways network UNCERTAINTY IN THE
would rise steadily from $5.5 million in 2009, RAILWAYS SECTOR
equivalent to about 0.5 percent of the asset
value of the network, to about $106 million A number of major uncertainties are associated
in 2020 (at 2009 constant prices). At that time with the proposed program for rehabilitation
maintenance outlays would be about 4 percent and restructuring of the railways sector, and
of the value of the network assets. implementation of the Action Plan must
As Table 10.15 indicates, maintenance contend with a number of risks. As with the road
outlays on the track infrastructure would be transport program, the risks and uncertainties
financed from the fees paid by concessionaires of greatest interest at this stage relate to the
from 2013 onwards. Concessionaires would design, funding, and implementation of the

34 Zimbabwe Report Restructuring and Recovery in Railway Services

proposed program. Of particular importance attractiveness to potential investors, and
are the arrangements for restructuring the mobilization of the large amounts of public
railways sector, the prospects for growth in funding that will be required for rehabilitation
demand for rail and passenger traffic, the of the infrastructure.
design of concession arrangements and their

10.7.1 Restructuring the of attempts at restructuring the railways

Railways Sector sector since the mid-1990s. At the time, there
was opposition from a number of quarters,
The proposed major restructuring of the including political interests and labor unions,
railways sector during 2011-13 involves and as a result none of these attempts was
splitting the NRZ into two separate entities: successful. In the light of these past endeavors,
the Railways Infrastructure Company of the Government will first need to develop fully
Zimbabwe (RICZ) and the Zimbabwe Railway the details of the proposed program and then,
Services Company (ZRSC). Moreover, as through consultations with the various interest
noted in Chapter 4, a regulatory authority groups, build a consensus for moving forward.
for the entire transport sector is proposed to In developing the details for the program,
oversee the provision of transport services, attention will have to be given to particular
including those provided by the RICZ and concerns among these interest groups,
concessionaires such as the ZRSC. including, for example, the extent of staff
The Government has stated clearly in its redundancies in the restructuring process and
Medium-Term Plan (MTP) that it intends the manner in which these would be handled.
to restructure the industry along these lines. The second important point about the
However, as the discussion elsewhere in this proposed restructuring program concerns its
chapter indicates, there have been a number timing. Slow progress on institutional reform

Restructuring and Recovery in Railway Services Zimbabwe Report 35

will inevitably translate into slow progress in and will undermine efforts to reduce transport
mobilizing private concessions for provision costs and promote domestic and international
of railway services. A credible action program competitiveness.
must be prepared for mobilization of the
$740 million of private capital required for 10.7.3 Design of Concession
a successful transition to a concession-based Arrangements
railway service. Until there is clear evidence
Experience with concessions elsewhere in
of progress in implementing a program of
Africa and the analysis of options for the design
institutional reform and restructuring in the
of the Zimbabwe concession agreements in
sector in which the roles and responsibilities
this chapter (see Table 10.11) all point to the
of the new entities are clearly defined, the
importance of ensuring an appropriate balance
business community and potential private
between the roles and responsibilities of
investors will very likely defer decisions about
government and concessionaires. Elsewhere
possible partnership arrangements with these
in Africa, problems have arisen over such
new entities.
matters as the level of concession fees,
10.7.2 Growth in Demand the duration of concessions, compensation
for Rail Services by government for unprofitable passenger
services, arrangements for redundant staff, and
The proposed program calls for the development unduly heavy dependence on debt financing
of a capacity to carry 18 million tons of freight by concessionaires and the attendant risks of
a year by 2020. It is clear that current demand liquidity problems. The analysis done for this
for railway freight services exceeds the Report suggests that these issues may arise in
capacity of NRZ to meet this demand. Some the case of Zimbabwe as well.
informal estimates put the total demand for rail In the event that the Government
freight services at 8-9 million tons a year at the maintains its current policy of setting low
present time. The NRZ is aiming for a recovery tariffs for passenger traffic and not providing
in freight traffic to 6 million tons in 2010, compensation for the resulting losses, it is clear
compared with the 2.7 million tons carried that private concessions will have no interest in
in 2009. The current unmet demand can only this portion of the rail services. The implication
be satisfied if there is substantial investment is that it would be very difficult for the newly
in rehabilitation of the railway infrastructure constituted ZRSC to create a partnership with
and replacement and upgrade of locomotives a potential private equity investor. Lack of
and rolling stock in the near term. If, over the access to private capital on the part of ZRSC
medium term, the economy grows by about 5 will undermine its ability to expand rail
percent a year in real terms, growth in demand services in competition with other potential
for transport services will grow by 6-7 percent concessionaires who would concentrate on
a year in real terms. This suggests demand in the more profitable business of freight traffic,
the range of at least 15 million tons within 10 leaving the loss-making passenger services to
years. The position taken in this Report is that ZRSC. The position taken in this Report is that
in a recovering economy, demand for railways to ensure a successful role for the ZRSC as
services will continue to outstrip service a provider of passenger and freight services,
capacity unless and until there is substantial passenger tariffs should be gradually adjusted
investment in rebuilding this capacity. Slow to at least cover the operating costs of service
progress on rail services will add significantly provision. In these circumstances there is
to challenges associated with rehabilitating the possibility of attractive rates of return on
the primary roads network of the country, private equity investment in the ZRSC.

36 Zimbabwe Report Restructuring and Recovery in Railway Services

 The other major concern that emerges 10.7.4 Public Funding for the
from the analysis is the importance of the Railways Sector
level of debt taken on by the concessionaires.
It would appear from the analysis earlier in As noted earlier, the proposed program for
this Chapter that relatively high ratios of the sector calls for a total of $1.63 billion
debt to equity will be needed to generate of development expenditures in the decade
sufficiently attractive investment returns for ahead. Even if there is strong interest among
equity investors; but the concessions are then concessionaires and good prospects for raising
exposed to the risk of liquidity problems if the proposed $740 million of private equity
revenue growth is impaired for any length of and commercial loan funding, the remaining
time. A key issue here then is the extent to challenge will be to mobilize the almost $900
which the government may be able to on-lend million of public funding required for the
funds to concessionaires at below-market program. The immediate concern is that NRZ
rates and in that way boost returns on private will require about $235 million over the next
equity while avoiding excessively high debt three years to address the most urgent problems
ratios. Several African governments have related to the rail infrastructure (for, example,
been able to mobilize donor funding for such removal of speed restrictions on some 16
arrangements. percent of the track), and expand locomotive
Another key issue for the move towards and rolling stock capacities. If the actions
concession-based provision of freight and already underway do translate into increased
passenger services relates to competition freight income in the near term, some of the
policy in the provision of these services. funding required could come from retained
The position taken in this Report is that the earnings of NRZ, but much depends on the
entire rail network (except for the 385 km government’s policy regarding passenger
currently under a 30-year concession with tariffs. With no adjustments in these fares,
exclusive access rights) should be open much of the profit from freight services will
to concessionaires who can then compete continue to be eaten up by losses on passenger
for freight traffic and high-end passenger services and will not be available for urgently
traffic. (Private entry into the provision of needed rehabilitation.
commuter services will depend very much on Assuming that the RICZ comes into
government policy regarding tariffs.) In these being in 2013 as proposed in this Report, it
circumstances, users of freight services will will have to mobilize about $640 million of
benefit from competitively based freight rates, funding for continued rehabilitation of the rail
perhaps in the range of 4 to 5 US cents per infrastructure. With concession fees set at 13
ton km. Opposition to this open competition percent, there is sufficient revenue to cover
approach could perhaps result in series of the operating costs of the agency, including
monopolistic arrangements in which one maintenance costs for the network, but there
or more concessionaires each get exclusive would be only very modest surpluses available
rights for service provision on specific for capital investment. The RICZ may be able
sections of the network. The obvious risk here to raise $100 million or so in commercial debt
is that freight rates would be higher than they markets on the basis of its balance sheet, but
would be under a competitive arrangement it will still face the problem of mobilizing the
for concessions. In the case of the Beitbridge- remaining $500 million or more from other
Bulawayo monopoly arrangement, for sources. The financing plan proposed in this
example, freight rates are reported to be as Report includes about $100 million of donor
much as US 9 cents a ton km. support for the RICZ. At this stage it is not

Restructuring and Recovery in Railway Services Zimbabwe Report 37

clear whether such funding would be available Budget in the range of $400-500 million
from donors, given the status of arrangements during 2013-20, if the network is to be fully
for arrears clearance by Zimbabwe, and rehabilitated. Failure to move forward with the
competing demands from other sectors for infrastructure rehabilitation work would add
donor support. The implication could be that to the uncertainty associated with efforts to
the RICZ will need support from the National mobilize private investment for concessions. 

38 Zimbabwe Report Restructuring and Recovery in Railway Services