TANZANIA RAIL: GOT WEIGHS PROPOSALS TO FIX THE CENTRAL

UNCLAS SECTION 01 OF 02 DAR ES SALAAM 000844 SIPDIS SENSITIVE DEPARTMENT FOR AF/E JTREADWELL, INR JBERNTSEN, FEHRENREICH STATE PASS USAID, USTR FOR WILLIAM JACKSON, USTDA FOR KATHRYN DORMINEY COMMERCE FOR ROBERT TELCHIN TREASURY FOR REBECCA KLEIN E.O. 12958: N/A TAGS: BEXP ECON ELTN EAID PGOV PREL TZ SUBJECT: TANZANIA RAIL: GOT WEIGHS PROPOSALS TO FIX THE CENTRAL LINE REF: Dar es Salaam 772 DAR ES SAL 00000844 001.2 OF 002 ¶1. (SBU) SUMMARY. The Government of Tanzania, in looking at ways to improve its crumbling rail infrastructure, is considering an upgrade to U.S. standard gauge of its Central Line, running from Dar es Salaam to northwest Tanzania. A USTDA-supported study, conducted by U.S. rail firm BNSF, argues strongly for the merits of that option, both for Tanzania's benefit and that of its landlocked neighbors Rwanda and Burundi. Our contacts in the donor community, however, criticize the BNSF study's assumptions and conclusions, and argue that Tanzania's development interests would be better served by improvements to the existing rail network or other transport priorities. The GOT has publicly affirmed a commitment to adopting standard gauge but has not outlined a strategy or timeline for the change. In our view, there are valid concerns about the GOT's ability to prioritize and about the availability of funding for a massive investment in rail. END SUMMARY. ¶2. (U) Tanzania's rail systems have been deteriorating for decades because of poor management and inadequate funding for operations and maintenance. Rail currently accounts for only seven percent of the goods entering and leaving the port of Dar es Salaam; the resulting over-reliance on trucks causes more rapid wear and tear on Tanzania's already poor road network. The two most important railways, the Central Line, built by Germany in the early 1900s and connecting Dar es Salaam with northern and western Tanzania, and TAZARA, the 1970s Chinese project providing a link to Zambia, are plagued by slow and unreliable service. As part of its long-term transportation strategy, the GOT, together with donors, has undertaken studies of potential improvements to the Central Line. ¶3. (U) In 2009, U.S. rail firm BNSF conducted a study, co-funded with USTDA and on behalf of Tanzania's Ministry of Infrastructure Development, of upgrading to U.S. "AREMA" standard the portion of the Central Line that links Dar es Salaam with Isaka in Tanzania's northwest (near Lake Victoria). BNSF's study concluded that such an upgrade would be both feasible and favorable compared to the alternatives of improving the condition of the current (meter gauge) rail or upgrading to a European "UIC" standard. The study estimated a cost of between USD 900 million to 1 billion for the Dar es Salaam-Isaka upgrade. The study asserts that Tanzania's adoption of a standard gauge would also benefit Rwanda and Burundi, which would realize economies by constructing standard gauge rail links to Isaka. ¶4. (SBU) Other donors with experience in the transport sector, in particular the World Bank, have raised with us several concerns about the proposal that Tanzania adopt standard gauge. In particular, donors doubt that adequate financing, from public or private sources, would be available to support conversion to a new gauge and AREMA standards. The GOT's management of its transportation budget is already problematic; commitments to road contracts are greater than the amount budgeted, in part as a result of election year priorities. Moreover, Tanzania's poor track record with public-private partnerships and its difficult business environment would likely deter serious private sector investors. To the extent that other donors support investment in Tanzania's rail sector, it would be for improvements to the current system, which they argue could be done much more cheaply and with sufficient impact to meet a substantial proportion of Tanzania's rail needs. ¶5. (SBU) Donors have raised several additional criticisms of the assumptions and conclusions in BNSF's study. These include unreasonably high forecasts for growth in rail traffic and cost savings realized, underestimation of the potential carrying capacity of the current system, and underestimation of the likely price tag for conversion to standard gauge. Moreover, the critics argue that the study ignores the parts of the Central Line that connect to the main route to Isaka, all of which would need to be converted or have connections built to remain viable. The study's conclusions also rely on improvements in efficiency at the Port of Dar es Salaam, which the GOT has been unable to achieve to date despite claims for several years that port efficiency is a government priority. Critics say the study glosses over the tremendous obstacles to DAR ES SAL 00000844 002.2 OF 002 cross-border arrangements (including financing) needed to enable the Rwanda-Tanzania link, which is a key element of the proposal. ¶6. (SBU) GOT officials have publicly affirmed their commitment to switching to a standard gauge system. Infrastructure Minister Kawambwa and East African Community Minister Kamala told a November conference that the entire East Africa region would move to standard gauge, although each country would do so "according to its own schedule." Kawambwa added that Tanzania would seek financing at an investors' forum in Tunis in January 2010. President Kikwete recently told visiting Deputy Treasury Secretary Neal Wolin that Tanzania had a basic agreement on rails with Rwanda and Burundi (reftel). BNSF representatives have told us that Rwandan President Kagame is the principal force for the development of rail links with its neighbors and has pressured his counterparts to adopt the AREMA standard. ¶7. (SBU) Comment: Although we are not in a position to evaluate fully the technical claims of BNSF's study or its detractors, concerns about the GOT's ability to prioritize (in the transportation sector or across government) are real. Similarly, lack of available financing is a potentially serious obstacle. Improved transport links with landlocked Rwanda and Burundi would support closer regional integration (and likely benefit Tanzania's economy),but proponents have not yet entirely made the case that a massive investment in rail is now the best way to achieve these ends. LENHARDT