Document ofThe World Bank

FOR OFFICIAL USE ONLY

Report No: 24136

IMPLEMENTATION COMPLETION REPORT(CPL-37530; SCL-3753A)

ONA

LOAN

IN THE AMOUNT OF US$94 MILLION EQUIVALENT

TO THE

CONTAINER CORPORATION OF INDIA

FOR THE

CONTAINER TRANSPORT LOGISTICS PROJECT

June 12, 2002

Energy and Infrastructure UnitSouth Asia Region

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

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CURRENCY EQUIVALENTS

(Exchange Rate Effective April 15, 2002 at ICR)

Currency Unit = Indian Rupee (Rs)Rs 1.0 = US$ 0.0204

US$ 1.0 = 48.94

FISCAL YEARApril 1 - March 31

ABBREVIATIONS AND ACRONYMSCAS - Country Assistance StrategyBFKI - Original Bogie Container Flat Cars (with vacuum brakes and 48 toncapacity)BFKN - Modified Bogie Container Flat Cars (with air brakes and 61 toncapacity)BOXK - Open high-sided wagon modified to carry containers (48 ton capacity)BPT - Bombay Port TrustCFS - Container Freight StationCONCOR - Container Corporation of IndiaERR - Economic Rate of RetumFRR - Financial Rate of RetumGOI - Government of IndiaGON - Government of the NetherlandsICB - Intemational Competitive BiddingICD - Inland Container DepotIR - Indian RailwaysJNPT - Jawaharlal Nehru Port TrustKH - Open high-sided wagon modified to carry containers (60 ton capacity)kph - kilometers per hourMIS - Management Informnation SystemsMOR - Ministry of RailwaysMOU - Memorandum of UnderstandingNPV - Net Present ValueRDSO - Research, Design and Standards OrganizationSAR - Staff Appraisal ReportTA - Technical AssistanceTEU - Twenty-foot Equivalent UnitsTKD - Tughlakabad ICD

Vice President: Mieko NishimizuCountry Director: Edwin Lim

Sector Director: Vincent GouameProject Task Manager: Fabio Galli

FOR OFFICIAL USE ONLY

INDIACONTAINER TRANSPORT LOGISTICS PROJECT

CONTENTS

Page No.1. Project Data 12. Principal Performance Ratings 13. Assessment of Development Objective and Design, and of Quality at Entry 24. Achievement of Objective and Outputs 45. Major Factors Affecting Implementation and Outcome 106. Sustainability 117. Bank and Borrower Performance 128. Lessons Learned 149. Partner Comments 1510. Additional Information 16Annex 1. Key Performance Indicators/Log Frame Matrix 17Annex 2. Project Costs and Financing 18Annex 3. Economic Costs and Benefits 20Annex 4. Bank Inputs 22Annex 5. Ratings for Achievement of Objectives/Outputs of Components 25Annex 6. Ratings of Bank and Borrower Performance 26Annex 7. List of Supporting Documents 27Annex 8. Financial Covenants Compliance Status 28Annex 9. Total TEUs handled by CONCOR 29Annex 10. Financial Performance of CONCOR 30

This document has a restricted distribution and may be used by recipients only inthe performance of their official duties. Its contents may not be otherwise disclosedwitha,ut World Bank authorization.

Project ID: P009870 Project Name: CONTAINER TRANSPORT

Team Leader: Midori Makino TL Unit: SASEI

ICR Type: Core ICR |Report Date: June 12, 2002

'4 V4 tfa t - | |1. Project Data

Name: CONTAINER TRANSPORT L/C/TFNumber: CPL-37530;SCL-3753A

Country/Department: INDIA Region: South Asia RegionalOffice

Sector/subsector: TW - Railways

KEY DATESOriginal Revised/Actual

PCD: 07/03/89 Effective: '01/31/95 01/31/95Appraisal: 01/07/94 MTR: 04/26/96 04/26/96Approval: 06/09/94 Closing: 12/31/99 12/31/2001

Borrower/lImplementing Agency: Container Corporation of India/Container Corporation of IndiaOther Partners: The Royal Netherlands Government

STAFF Current At AppraisalVice President: Mieko Nishimizu Joseph Wood

Country Manager: Edwin Lim Heinz VerginSector Manager: Vincent Gouarne Robert PanfilTeam Leader at ICR: Fabio Galli Harald HansenICR Primary Author: Midori Makino; Jit Sondhi

2. Principal Performance Ratings

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=HighlyUnlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible)

Outcome: S

Sustainability L

Institutional Development Impact SU

Bank Performance S

Borrower Performance. S

QAG (if available) ICRQuality at Entry: S

Project at Risk at Any Time: Yes

3. Assessment of Development Objective and Design, and of Quality at Entry

3.1 Original Objective:The Project's overall objective was to provide a suitable enabling environment for container transport andincrease the capacity and efficiency of long-haul transport of high-value general cargo, particularly relatedto foreign trade. The Project aimed to increase container use in general cargo transport, and encourage andfacilitate railway use for such transport wherever it is economically the best option. More specifically, theProject aimed to:

(a) improve the institutional framework for efficient and competitive container transport to serveboth foreign and domestic trade;

(b) strengthen the commercial and operational performance of the Container Corporation of India(CONCOR) in an increasingly competitive environment; and

(c) improve the service level and capacity in the main corridors by providing modem technologyrolling stock to permit regular scheduled block train operations on gateway port corridors.

The objectives were clear, realistic and consistent with the Government of India's (GOI) long-terminvestment objectives for the transport sector, which were/are: (i) removing bottlenecks; (ii) increasingcapacity; (iii) conserving energy; (iv) completing ongoing work; (v) maximizing asset utilization; and (vi)paying special attention to rural areas. The objectives were also linked to the reforms undertaken by GOIunder its 1991 structural reform program, which were aimed at increasing private sector involvement,liberalizing the transport sector and improving efficiency and perfornance.

The Project was consistent with the Bank's Country Assistance Strategy (CAS) for India, which focused onsupporting GOI's efforts to provide an enabling environment for broadbased, efficient, private sector-ledgrowth while accelerating poverty alleviation and human resource development. Key CAS elements wereassisting India to become a more trade-oriented economy, improving infrastructure services, increasingefficiency, promoting institutional capacity, and fostering competition in the transport sector.

3.2 Revised Objective:The Project objectives have not been revised.

3.3 Original Components:The Project included the following three components:

(a) Improving the institutional framework for efficient and competitive container transport byremoving some of the restrictive customs practices and policies restricting inland movement ofcontainers, including by road, and expanding customs working hours at the Tughlakabad InlandContainer Depot (TKD ICD).

(b) Strengthening CONCOR's commercial approach and operational capacitv in an increasinglycompetitive environment by:(i) formalizing service relations with Indian Railways (IR) through a memorandum of

understanding (MOU) relating to container train service levels;(ii) divesting at least five percent of GOI's equity in CONCOR as a first step to diversifying the

shareholder base and strengthening its commercial orientation;(iii) broadening the composition of CONCOR's Board of Directors to introduce non-official

directors to improve the Board's skill base;(iv) refoming CONCOR's claim policy to meet customer demand and be competitive with road

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transport;(v) providing technical assistance and training to improve CONCOR's operational, conmmercial,

financial, and general management capabilities, with particular attention to TKD operations;and

(vi) providing computer systems and related software to computerize accounting and inventorycontrol and providing commercial logistic support to CONCOR.

(c) Supporting scheduled high-qualitv container train services in the main corridors through:(i) acquiring and retrofitting 1,200 bogie container flatcars (BFKI) with air braking systems;(ii) acquiring 1,500 new container flatcars of new design prepared by the Research, Design and

Standards Organization (RDSO) that are equipped with air brakes, automatic couplers andhigh-speed bogies (100 kph capability);

(iii) acquiring five prototype 60-foot, platform, lightweight, flat wagonblocks capable of carryingthree loaded 20-foot ISO containers, which utilize automatic couplers on end units andslackness drawbars for intermediate couplings, for testing purposes in preparation for thenext generation of higher capacity flatcar;

(iv) acquiring approximately 750 new flatcars of the same design as under (ii) or an equivalentcapacity of the new designs under (iii) above if the design has been approved by the start ofprocurement;

(v) acquiring complementary cargo handling equipment for TKD ICD, including onerubber-tired gantry crane (having a span of 26.5 meters to bridge four tracks and oneroadway); two reach stackers; and five tractor/trailer trucks to handle containers fromtrackside and service the container freight station (CFS) warehouses;

(vi) acquiring an electronic tracking system for container trains, flatcars and containers on a pilotbasis;

(vii) constructing civil works necessary for completing Tughlakabad development andconstructing Inland Container Depot's (ICD) at Ludhiana and Hyderabad to better serveemerging markets; and

(viii) providing engineering services for design, inspection and test of flatcars.

The components were reasonably well designed and complementary to assisting the Project to achieve thedevelopment objectives. Efforts were made to improve the Project's design and implementability, including;(i) reaching agreement on key policy issues during preparation, such as the Multimodal Transport of GoodsAct, customs procedures, and private sector participation; (ii) preparing the physical tender documentsbefore loan negotiations; and (iii) including a comprehensive technical assistance program, funded by theGovernment of the Netherlands (GON).

3.4 Revised Components:The Project's components have not been changed except for minor revisions in the subcomponentsdescribed in section 4.2.

3.5 Quality at Entry:The Quality Assurance Group did not evaluate the Project. However, based on team member and clientinterviews as well as project preparation and appraisal documents, this Project's quality at entry is ratedsatisfactory for the following reasons. First, as described in section 3. 1, the Project's developmentobjectives were consistent with the CAS and GOI priorities at the time of appraisal. Second, the Projectobjectives were clear and its design was focused. Third, in light of the low number of implementingagencies, cofinanciers, and project components, the Project's risk profile was relatively low. Fourth, manyof the major issues and risks were identified during project preparation, including (i) difficulties in

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increasing private sector participation, (ii) degree of IR's support, (iii) foreign exchange risk, and (iv)institutional structure and capacity of the implementing agencies. Analysis on possible enviromnental andresettlement issues were conducted and showed that the proposed Project should not have any majorimpacts. However, insufficient attention was paid to IR's real role in CONCOR's management anddifficulties in procuring new technology flatcars using International Competitive Bidding (ICB) procedures.This resulted in significant procurement delays and incomplete delivery of the flatcars which constituted thebulk of equipment to be procured under the Project. Details are described in section 4.2.

4. Achievement of Objective and Outputs

4.1 Outcome/achievement of objective:The Project achieved most of the major objectives set at appraisal and is likely to achieve substantialdevelopment outcomes for the majority of the components. Therefore, the overall outcome is ratedsatisfactory.

The first objective of improving the institutional framework has been met. During the Project'simplementation, customs practices and policies restricting the inland movement of containers weresubstantially liberalized (section 4.2), and this facilitated import/export container movement by roadreducing the time containers moving inland spend in the country.

The second objective of strengthening CONCOR's commercial and operational performance has also beenmet. The Project's GON-funded technical assistance (TA) component has strengthened CONCOR'sfinancial and management skills through training, computerization, and organizational restructuring. As aresult of the TA, CONCOR has become more commercially focused, operationally effective, andresponsive. Furthermore, GOI's partial divestiture of CONCOR lead to some extent to an improvedgovemance and incentive structure. CONCOR has shown steady improvement in its operationalperformance, due primarily to the introduction of modem container flatcars purchased under the loan and avery strong market position. Container trains using these flatcars operate at 100 kph, and as a result, transittime on the main TKD-Jawaharlal Nehru Port Trust (JNPT), also known as Nhava Sheva Port, corridorhas been reduced from about 110 hours to 48 hours. This has resulted in substantially higher utilization offlatcars (km/day), and higher service quality in terms of lower transit time and improved reliability. Inaddition, the train tumaround time at JNPT has been reduced significantly, from the SAR estimate of 60hours in 1994/5 to 8 hours in year 2001/2. Finally, CONCOR's financial and traffic growth performance issubstantially above SAR estimates, and despite some volatility in the Indian economy duringimplementation, its overall perfornance has not been affected. The number of twenty-foot equivalent units(TEU) handled and CONCOR's financial performance are detailed in Annex 10.

The third objective of improving the service level and capacity in the main container traffic corridors hasbeen substantially met: (i) the new flatcars have led to an increase in the containerization of high-valuegeneral cargo; (ii) introduction of dedicated/regular container services between Mumbai and Northem Indiahave increased inland penetration of containers and hence containerization; (iii) improved efficiency ofJNPT (Mumbai) has led to mainline container vessels serving the Indian market on a regular basis for thefirst time, and this has led to sharp growth in intemational container flows in and out of India; and (iv)development of a new state of the art ICD at Dadri (near New Delhi) is likely to fully meet the demand forcontainer services between Northem India and Mumbai to at least 2010. Key productivity and capacityimprovement indicators are in Annex 1.

4.2 Outputs by components:4.2.1 Institutional Components:

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The first component is rated satisfactory. Some of the issues related to specific customs procedures andpractices restricting inland container movement were addressed by the Central Board of Excise andCustoms, Ministry of Finance, Department of Revenue, through amendments to the relevant sections of theCustoms Act and new Transshipment Regulations 1995. Liberalizing prevailing customs procedures andpolicies helped create a fairer intermodal competition between rail and road for import and export containertransport. Loaded container movement from a port to an ICD for customs clearance at destination(transshipment) is now permitted by rail, sea, air and road. The bank guarantee requirements fortranshippers have also been relaxed. All central and state government entities acting as carriers are nowexempt from providing bank guarantees. Non-government carriers are not required to provide a separatebank guarantee either, if they are also 'custodians' (operate an ICD/CFS) and have already furnished abank guarantee at the ICD/CFS. It is only when the transporter is a non-government entity or not acustodian that a bank guarantee is required for import container transshipment. On furnishing a bond, thetemporary import of containers (empty as well as loaded) is now permitted for up to six months, and thereis provision for extending it for a further period. In addition, there are no restrictions on the transport modeof export containers stuffed at the exporter's premises and sealed by Customs for movement to an ICD,port or airport.

4.2.2 Commercial and Operational Components:The Project's commercial and operational components have been rated satisfactory. Most subcomponentshad been successfully implemented by Project closure, as indicated below.

(i) Formalizing service relations with IR through an MOU: Starting in FY93/94, MOUs betweenCONCOR and IR (and MOR) defining and monitoring performance targets and obligations have beendrafted and signed every year. An ad hoc task force of eminent and experienced professionals setsCONCOR's financial and operational targets at the beginning of each year, and these form the basis of theMOU. The Department of Public Enterprise evaluates CONCOR's performance and its management at theend of the year. CONCOR's performance has been consistently rated "excellent" over the years because ithas managed to achieve or exceed the targets set for it.

(ii) Divesting at least five percent of the GOI's equity in CONCOR: To diversify CONCOR'sshareholder base and strengthen its commercial orientation, GOI divested 20 percent of its shares in 1994and a further 3 percent in 1995. During the second half of 1998, an additional 14 percent of the company'sshares were divested, which reduced GOI's share in CONCOR to 63 percent. The divested shares are heldby foreign institutional investors (19.6 percent), financial institutions/mutual funds/banks (15.4 percent),and others (1.9 percent). To a large extent, the progress on partial divestiture of CONCOR was driven byGOI's need to raise funds to reduce its fiscal deficit. GOI's decision to continue divesting beyond theagreed five percent was also the result of GOI's policy to gradually reduce its equity in non-strategicentities.

(iii) Broadening the composition of CONCOR's Board of Directors: The Board of Directors wasexpanded with the appointment of two non-official, part-time directors on January 31, 1995. Theintroduction of non-official directors was envisaged to improve the Board's skill base. At loan closing,CONCOR's Board of Directors consisted of a part-time chairman, five full-time functional directors(including the managing director), two government-nominated directors and three part-time, non-officialdirectors, which included people with extensive experience in large enterprise management, private sectortransport, and management schools.

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(iv) Reforming CONCOR's claim policy: A new claims policy, which was an effectiveness condition,was implemented in 1994 to settle all claims, meet customer demands, and compete with road transport. Acustomer satisfaction survey and interviews indicate that this change in policy has contributed to improvedcustomer satisfaction with CONCOR's services. On average, CONCOR receives less than 100 claims peryear, and these are mostly for domestic traffic. The average claim settlement period is about two months,and cases that are delayed are normally due to the claimant's delay in submitting the requireddocumentation. Thus, CONCOR has successfully implemented a simplified claim settlement procedure.

(v) Implementing technical assistance and training: The GON-fimded TA component started inSeptember 1994 to assist CONCOR in; (i) establishing itself as an effective developer and operator ofintermodal transfer facilities in India; and (ii) improving its capability for managing, operating, andmaintaining its facilities to accepted performance standards and cost efficiency and to its users'satisfaction.

There was some initial skepticism on the part of CONCOR's management on the usefulness of theGON-funded TA. However, once a more focused TA component was developed, a more productiveworking atmosphere developed. The TA component, which was scheduled to end in August 1996, wasgranted a one-year extension which became knows as Phase II. The first two phases focused mainly onimproving the TKD ICD operations and achieving significant improvements in their financial management,operational performance, and equipment maintenance. However, since CONCOR felt that additionalsupport was required to strengthen corporate planning, marketing, and human resources developmentcapabilities at the end of Phase [I, a second one-year extension (Phase Ell) was granted. Given theownership and active participation of CONCOR's Project team over time, most of the tangible results havebeen achieved during Phase [H. They include the strategy and business plan, Decision Support System,Design of Dadri ICD, training strategy paper, and training modules.

The TA program's overall impact has not only seen the development of necessary tools and manuals butalso the training key staff have received in further developing these tools and putting them to practical usefor CONCOR. The TA program has also made CONCOR adopt a more transparent and result-drivenapproach in the way it operates than was experienced in the Project's early days.

(vi) Implementing computerization: CONCOR, with the GON-funded TA, implemented acomputerization and "Management Information System" (MIS) subcomponent. Although there werediffering opinions on the MIS's definition, scope, and detail between the GON consultant and CONCOR,most tasks were completed and achieved their basic objectives. New computer systems and related softwarefor approximately US$0.6 million were purchased for accounting and inventory control, as well as toprovide commercial logistic support to CONCOR. Despite some delays in implementation of relevanttraining or use of these computer systems caused by problems with installation, etc., most of CONCOR'shead office and TKD ICD staff have acquired the necessary operating skills.

4.23 Physical Components:(i) Procurement of 2,250 new container flatcar wagons: New container flatcar wagons were to beprocured at a total cost of US$ 101.1 million including Bank financing of US$91.1 million. At loan closing,1,905 (85 percent of original estimated quantity) flatcar wagons had been delivered to CONCOR. Anadditional 1,320 cars were yet to be delivered against a current contract.

The procurement was carried out in three tranches. The first contract for 1,725 high-speed cars (Tzanche I)was signed in April 1996. This procurement was organized on a two-stage basis in which bidders wereshortlisted based on the technical bid evaluation. Only the shortlisted bidders submitted price/commercial

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bids. The entire Tranche I procurement process took 24 months from bid invitation to contract award,which was far longer than anticipated because of postponement of bid opening, longer than expected bidevaluation, Bank review, and approval of bid evaluation report by the Ministry of Railways (MOR).Tranche I flatcar delivery was completed only in September 2001, after an overall 45-month delay inexecuting the contract. This delay was caused by several factors, including an overly optimistic deliveryschedule, slow material delivery (due to inadequate working capital) and technical problems.

A second contract for 1,500 cars (Tranche H) was awarded in January 1999 based on a single stagebidding process to reduce the tender processing time. Taking into account rapid growth in traffic and thelower than expected unit costs for the first tranche, CONCOR requested an increased number of flatcars tobe procured under the Tranche II. The second tranche took 12 months from bid invitation to contractaward. CONCOR took time in awarding this contract because a question arose on whether the contractorshould receive a higher price (than that of the lowest local currency-only bidder) due to eventual exchangerate fluctuations during the contract execution period. CONCOR did manage to award the contract to thelowest evaluated responsive bidder. After 180 cars were delivered, the contract was cancelled due to thesupplier's imminent insolvency. Against fresh tenders for the balance of 1,320 cars, a new at cost and riskcontract was signed in May 2001 (five months from bid invitation) that would provide for completedelivery by June 2002. At the time of Project closing, December 31, 2001, no deliveries under this contracthad been received. This contract was signed with Bank approval, and being a Bank-funded contract it wasentitled to deemed export benefit by Indian customs. However, since the Bank loan has closed, the contractwill now need to be funded in local currency, and will not receive any of the previous deemed exportbenefits (essentially importation of inputs free of customs duties and supply of goods free of excise duties).As it turns out, CONCOR has been able to renegotiate the contract with the supplier.

Due to lower than expected bid prices for Tranches I & II and the Indian rupee depreciation vis-a-vis theUS dollar, it was agreed to use the projected savings to procure an additional 600 flatcars under TrancheHI. The specifications for Tranche III were exactly the same as Tranche II and bids were received on July7, 1999. The contract could not be awarded within the extended validity period and this led the Bank todeclare this subcomponent as misprocured. In this case, CONCOR recommended that the order be placedwith a particular bidder. The Bank did not agree that the bidder CONCOR was proposing for award wasresponsive. At the end, the Bank declared misprocurement since CONCOR was unable to award thecontract to the lowest evaluated responsive bidder.

This component's procurement process raises several issues that are detailed under the Borrower and Bankperformance section as well as "lessons learned" section of this report (sections 7 and 8).

(ii) Five tri-axle flatcars for testing: Five prototype 60-foot-long tri-axle flatcars were proposed to beprocured for tests in India at an estimated cost of US$0.6 million, of which the Bank loan was to financeUS$0.5 million. Each car would carry three 20-foot containers. CONCOR discussed the proposedprocurement of tri-axle bogie mounted flatcars with IR and concluded that it would not be technicallyfeasible at this stage to operate small wheel diameter tri-axled bogie flatcars at 100 kph on the IR system.Therefore, the procuring and testing of five prototype cars was deemed inadvisable at that stage. At therequest of the Borrower, the Bank agreed to drop this subcomponent.

(uii) Purchase and retrofitting of 1,200 BFKI flatcars: As part of the Project, CONCOR was supposed toprocure about 1,200 BFKI cars from IR and have them retrofitted with air brakes and modified to increasethe carrying capacity from 48 to 61 tons at an estimated cost of US$27.2 million. CONCOR was to bearfully the cost of this component. By the end of the Project, about 1,357 BFKI cars had been purchasedfrom IR, and all had been modified to have air brakes and increased carrying capacity. Of the 1,357 cars,

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700 were modified in IR workshops and 657 in a non-railway workshop. As anticipated, the cars'reliability has improved dramatically, and they are now able to carry two fully loaded 20-foot containers.

I

(iv) Handling equipment (1 Rail-Mounted Gantry): One rail-mounted gantry crane was to be procuredfor the TKD ICD at an estimated cost of US$2.3 million, including US$1.8 million Bank financing. Thisprocurement was made in 1996 at a cost of US$2.0 million. The equipment has worked satisfactorily andhas helped to enhance the ICD's container handling capacity at TKD.

(v) Trucks, chassis, and other equipment: Five tractor-trailer trucks were to be procured at an estimatedcost of US$0.2 million, entirely funded by CONCOR. This subcomponent was completed and equipmentdeployed at ICD TKD.

(vi) Computers and Software (see section 4.2.2)

(vii) Transponders and related equipment: Under the Project, procurement of 6,900 transponders wasplanned for application on container flatcars and seven readers for installation on the TKD-Mumbai routeat an estimated cost of US$0.5 million, including US$0.4 million of Bank financing. It was deemed that areliable telecommunication system was essential for the success of the automatic reader system and datatransmission to a central location. However, the telecommunications facilities at locations where readerswere to be installed had still not been developed to an extent that they would be able to support such asystem. Thus, CONCOR decided that the proposed application system could not be implemented at thatstage. At the request of the Borrower, the Bank agreed to cancel this subcomponent. However, CONCORwas still keen to have a more basic container tracking facility so that its customers could get accurateinformation on the location of their containers. As a result of this, it has set up a manual tracking systembased at IR's train control offices. Location information for individual container flattrains/wagons/containers is collected manually and transmitted over fax or email three times daily. Thisinformation is placed on the CONCOR website and is available to its customers.

(viii) Civil worksExpanding the TKD ICD and setting up new ICDs at Ludhiana and Hyderabad at a cost of US$10.55mnillion were included in the project to be funded by CONCOR These works were completed on schedule,and CONCOR invested about Rs 510 million (US$14.5 million). At Project closing, CONCOR had set upseveral more ICDs to meet the growing demand for both international and domestic container transport.Furthermore, CONCOR has started constructing a new ICD at Dadri at the cost of about US$50.0 millionthat is expected to handle the projected continued very strong growth in container traffic from NorthernIndia to Mumbai.

4.3 Net Present Value/Economic rate of return:Cost-benefit Analysis: Cost-benefit analysis for the Project was carried out for two components: (i)acquisition of new flatcars funded through the loan; and (ii) retrofitting of old flatcars funded byCONCOR. A total of 42 rakes consisting of 1,905 flatcars have been procured by CONCOR by Projectclosing. The first rake was delivered in 1998, and CONCOR also retrofitted 1,357 flatcars purchased fromthe Indian Railways starting from 1998 onwards.

The SAR presumed the carrying capacity of the 2,250 flatcars as 241,300 containers per annum beingmoved over a distance of 1,600 km. In reality the 1,905 flatcars moved over 600,000 containers per annummainly operating on the TKD-JNPT, Moradabad-TKD-JNPT, TKD-Bombay Port Trust circuits. This wasmainly due to larger reduction in the turn around time than assumed in the SAR. The SAR had considered atransit time of about 5 days for the container including the processing time at the ICD, while CONCOR

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was able to achieve only 3.5 days. Similarly, for the retrofitted flatcars the SAR has assumed an increase inthe fleet capacity by 17,000 containers only, while an additional output of about almost 125,000 containerswas achieved.

Since the physical output of both components was much higher than the SAR assumption, the Projectcomponents had a much higher Economic Rate of Return (ERR) and Net Present Value (NPV) than theSAR estimate. A cost-benefit analysis has been conducted based on the methodology described in the SARThe benefits have been estimated as a difference in the total operating costs (including loading/unloading,transfer to ICD, port handling costs, inventory cost of the container based on transit time, savings in flatcarmaintenance costs, and the container cost) of road and rail transport for the number of flatcars moved bythe new flatcars or additional ones moved by the retrofitted flatcars. The ERR for the new flatcars has beenestimated at 96 percent with an NPV of Rs 6,379 million compared to ERR and NPV of 37 percent and Rs3,113 million respectively estimated in the SAR. For the retrofitted flatcars, the NPV has been estimated atRs 1,276 million as against the estimated Rs 108 million in the SAR. The ERR of the retrofitted flatcarswas also very high, 155 percent as against the estimated 33 percent in the SAR as the cost incurred in thefirst year was recouped in the second year itself. Details on the cost-benefit analysis for these twocomponents are attached in Annex 3.

The higher than anticipated ERR figures show that delays in the delivery of new container flatcars toCONCOR had a very high cost to the economy, which although difficult to quantify, may be well beyondthe direct financial cost to CONCOR.

4.4 Financial rate of return:The Project's financial rate of return (FRR) was not calculated at appraisal because the Bank deemed it tobe quite difficult to do. Instead, a comprehensive financial analysis of CONCOR and calculations of fivefinancial ratios, used as a proxy for a FRR, were carried out to ensure its sound financial management andviability, since most components were to be implemented by one financially autonomous (CONCOR)implementing agency. CONCOR's annual financial projections were reviewed, including incomestatements, balance sheet, and cash flow statement. Based on the financials and projections, summarymeasures of creditworthiness and expected profitability, including return on average invested capitalratio, operating ratio, debt to equity ratio, current ratio, and debt service coverage ratio were calculatedto set baselines and targets for monitoring.

Since it is hard to quantify the contribution of the investments made under the Project to CONCOR'soverall improved performance, project-specific FRR was not calculated at Project completion. However,significant improvements in the key performance indicators, which have consistently outperformed the SARprojections (see Annexes 1, 8, 9 and 10), indicate that CONCOR's financial health and sustainability havebeen improving through increased efficiency and revenue generation resulting from the Project. Forexample, the return on average invested capital ratio, which was targeted to be above 17 percent, hasconsistently been above 40 percent, and the debt to equity ratio, envisaged to be below 3 to 1 has remainedas low as 0.14 to 1 on average over the past five years. The current ratio has shown constant improvementfrom 1.21 to 1 in year 1995/96 to 2.41 to I in year 2000/01, and internal cash generation has also shown apositive flow throughout the Project implementation period. In year 2000/01, CONCOR showed a netprofit of Rs 2,200 million, twice as large as the SAR's projected estimate of Rs 1,100 million (CONCORfinancial performance attached at Annex 10).

4.5 Institutional development impact:The institutional development impact is rated substantial. The Project has generally improved CONCOR'sability to make effective use of its human and financial capital/resources. However, since CONCOR's

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management team was still drawn primarily from IR even at project closure, some concerns remain withregards to CONCOR's management staffing. This issue was raised several times during projectimplementation. However, sufficient measures have not been taken to employ regular staff in managerialpositions with the necessary skills and knowledge. Experience, in terms of time spent in the industry,remains the major determining factor for promotion, which makes it difficult for non-IR staff to breakthrough the 'glass ceiling'. As long as the majority of its equity is owned by GOI, CONCOR will need tofollow GOI's salary structure and, therefore, be unable to pay market-driven compensation to its managers.In the long run, CONCOR is likely to find it difficult to retain outstanding managers.

According to CONCOR, the Bank-funded Project has helped convince IR to be open to new ideas, such asprocuring modem technology, high-speed container flatcars and container handling equipment for which itwould otherwise be difficult to get JR's approval. Despite GOI's efforts to grant enhanced autonomy anddelegation of powers by declaring CONCOR as Category I "Mini Ratna Company" in 1998, concemsremain in CONCOR management that it still lacks the decision-making power to modemize CONCORoperations and improve its efficiency. (A "mini ratna" is a public enterprise category defined by GOI,which aims to enhance companies' autonomy and delegation of powers with delegated ceiling forinvestment decisions.) As long as CONCOR remains a majority GOI-owned company, it will remainsubject to and controlled by MOR procurement procedures and the Vigilance Commission. CONCORmanagers are, therefore, constrained from taking normal business risks. To increase CONCOR's autonomyand strengthen its competitiveness and sustainability, GOI would need to reduce its shares below 50percent.

5. Major Factors Affecting Implementation and Outcome

5.1 Factors outside the control of government or implementing agency:Economic growth, international trade development, and containerization: From 1995/96 to 2000/01,India's containerized import and export trade grew rapidly at about 15 percent annually. This created afavorable environment and offered CONCOR an opportunity to expand its operations and capture anincreased share of the growing container transport market. For example, in the greater Mumbai area overthe same period, there was an overall growth of 88 percent in the export and import TEUs handled at theports. This was a result of overall import/export trade growth and also the establishment of JNPT as thepremier container port in India after setting up a private sector-operated container berth within it.CONCOR was successful in increasing its market share of container traffic at JNPT from 17 percent in1995-96 to 29 percent in 2000-01. The containers handled by CONCOR in the Mumbai area increasedfrom 136,050 TEU in 1995-96 to 439,715 TEU in 2000-01, a 223 percent growth.

Poor Performance by the Manufacturer: Although the container flatcar procurement followed the ICBprocedures, all contracts were awarded to Indian manufacturers due to their low bid prices. (In fact, bidprices were about 30-40 percent below the SAR estimate). This situation arose from the manufacturers'inexperience in managing contracts for design, manufacture, and supply of freight cars. Traditionally, theIndian wagon industry has been provided with key designs by IR and has undertaken the work of detailedmanufacturing designs based on the key drawings, with JR, as the purchaser, furnishing a number ofcomponents including couplers, wheels, steel and bogies. As a result, the wagon manufacturers generallyhad neither much experience in organizing timely procurement of material inputs for wagon manufacturenor adequate financial resources to finance such procurement (in part due to a drop in orders from IR).Further, in the contracts concluded under the loan, the suppliers had to comply with stringent delivery,quality and performance conditions, which was not the case with the traditional IR business. The delayeddeliveries attracted contractual penalties, which further aggravated the contractor's cash flow situation.

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5.2 Factors generally subject to government control:IR's close ties with CONCOR have obviously benefited the Project's implementation since they have tosome extent facilitated supplying equipment, processing approvals and accessing land and train pathwaysfor container transport. However, CONCOR's close links with IR have also contributed to procurementproblems resulting from IR's strong influence in the selection of Tranche II and m container flatcars. GOIshould have granted CONCOR full autonomy by reducing its shareholding to less than 50 percent and byincluding a larger number of non-IR members on CONCOR's Board of Directors and management team.GOI could also have encouraged competition in the container transport market by actively promoting entryof other players.

5.3 Factors generally subject to implementing agency control:CONCOR has been the implementing agency for the Project and implemented the TA component,procurement of flatcars and other equipment and the related institutional components, in close coordinationwith IR. The Ministry of Finance, in consultation with the Ministry of Commerce and Ministry of SurfaceTransport, implemented changes to customs procedures and practices. Although there were somedifficulties in implementing the TA component's first phase, CONCOR performed well in coordinatingwith relevant stakeholders, co-financiers, shareholders, and customers to efficiently implement thecomponents related to the operational and commercial aspects of the Project. As for the Project's physicalcomponent, factors subject to CONCOR's direct control included flatcar procurement, quality control andmonitoring. Despite some IR interference, various problems resulting in procurement delays, and suppliers'poor performance, CONCOR did its best to manage the implementation process.

5.4 Costs andfinancing:The total SAR Project cost was estimated at US$151.0 million equivalent. The total SAR Project cost forBank-funded components was estimated at US$94.0 million equivalent. The final Bank-funded portion ofthe Project cost is US$45.0 million equivalent. The reduction in Project size is due mainly to lower thanexpected bids for the flatcars, cancellation of Tranche m flatcar purchase, and the Indian rupeedepreciation vis-a-vis the U.S. dollar (cost and financing table is in Annex 2).

The Project's disbursement and procurement perfonnance were monitored by financial specialiststhroughout the implementation period. Records show that the audit reports for the Project were received ontime as stipulated under the loan agreement, and no major accountability problems have been noticed. Theclaims under the Project have been fully documented, and all the contracts awarded under the Project havebeen above the prior review threshold.

6. Sustainability

6.1 Rationale for sustainability rating:The Project's sustainability is rated likely. At appraisal, several factors that might affect the Project'ssustainability were identified, and GOI and CONCOR took measures to address them prior to effectiveness(refer to section 3). The Project was successfully implemented with the exception of some physicalsubcomponents. CONCOR has demonstrated its ability and commitment to maintain what it has achievedthrough this Project, especially its institutional and operational improvements. The Project has alsocontributed to CONCOR's improved financial position, which should enable them to procure additionalflatcars and other physical assets using its own funds. Considering the relatively low rate of domesticcontainer movements, CONCOR is in a great position to further develop and consolidate its lead in thisrapidly and potentially large market segment.

It is, however, doubtful that CONCOR will be able to continue improving its performance at the same paceas during the Project implementation period. Some factors contributing to significant improvements in

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CONCOR's performance have been beyond its direct control, including a strong domestic economy,increased international and domestic trade, and underdeveloped containerization market. In addition, GOI isplanning to focus on highways and road connections to mu-al areas, and customer feedback indicates thattheir demands are elastic to the fees, which sometimes are lower for road transportation. Given theincreasing competitive threats from the road sector, CONCOR would need to strive to further improve itsposition in the market, develop new markets and closely monitor the increased competitiveness of the roadtransport mode.

6.2 Transition arrangement to regular operations:Most of the Project components that required technical assistance have already been integrated intoCONCOR's regular operation. Institutional, commercial, and operational improvements, which are themost crucial factors for CONCOR's sustainable operation, have met the perfornance targets envisaged atProject appraisal. CONCOR has also invested heavily in maintenance facilities near TKD for operationand maintenance of the container flatcars that have been procured under the Project. These efforts haveminimized the need for special transition arrangements to regular operations.

7. Bank and Borrower Performance

Bank7.1 Lending:The Bank's performance during preparation is rated satisfactory. Records show that the Project wasconceived in an era when the concept of market focus, service quality and private investment in railwayswere certainly not the mainstream thinking of IR or GOI. The Project adequately took into account most ofthe major relevant aspects, putting emphasis on potential risks and how to address them prior toeffectiveness (see section 3). Risks that could have been addressed with greater attention include theprocurement issues and IR's interference, which the Project experienced during implementation (seesections 4.2.3 and 8).

Measurable performance indicators were identified and relevant financial covenants were established. TheProject could, however, have set more ambitious goals in privatizing CONCOR and included a condition tomake IR actively encourage at least one private sector entity to provide container transport by rail so thatCONCOR would not remain a monopoly within the rail subsector. Presumably, such a condition was notincluded as road transport competes quite effectively with CONCOR, and the Project emphasized removingconstraints on the movement of import/export containers by road to create a level playing field between thetwo modes. IR claims that, should there be demand, it would allow one or more private sector entities tooperate under the same terms as CONCOR. However, no such entity has materialized due to very highbarriers to entry resulting in part from CONCOR's strong market position and its ties with IR (see section5.2).

7.2 Supervision:The Bank's performance during supervision is rated satisfactory. Supervision missions included therequired expertise, were conducted regularly, and made adequate reporting and filing of documents. TheBank monitored the loan covenants/agreed actions and raised many of the issues identified early andproposed or recommended possible solutions. However, progress of a few subcomponents, including theGON-funded TA and procurement of some equipment financed by CONCOR's own funds, was not alwaysmonitored or reviewed very closely.

As for the physical components, the client has pointed to delays in Bank approvals, especially with respectto the procurement of Tranche I flatcars. For Tranches II and Im, the Bank showed its flexibility inallowing the procurement to go ahead despite the lirmited time available before loan closure to complete

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delivery of the flatcars. However, given the experience with lengthy procurement delays in Tranche I andthe very short time remaining until project closing, the Bank should not have allowed the contract for theadditional 1,320 cars, or it should have ensured that CONCOR would be able to honor its own paymentobligations under this new contract even without the Bank loan. As it turns out, none of these additionalcars had been delivered by the actual Project closing date.

7.3 Overall Bank performance:For the reasons mentioned in sections 7.1 and 7.2, the Bank's overall performance is rated satisfactory.

Borrower7.4 Preparation:The Borrower participated fully in project preparation, and its performance is rated satisfactory. TheBorrower based its decision to proceed with the Project based on an independent review of availablefinancing options. The subcomponents for testing and using tri-axle bogies and procuring transpondersappeared promising during preparation. The Borrower evaluated each of these at Project implementation.At this time, the infrastructure to support the subcomponents was still not ready so Borrower decided not togo ahead with them. For these reasons the subcomponents relating to tri-axle bogies for application onflatcars and procurement of transponders were dropped by the Borrower. Thus the principles of continuousevaluation/re-examination of various subcomponents was followed by the Borrower at all stages.

7.5 Government implementation perforrmance:GOI's implementation performance is rated satisfactory. GOI managed to divest more CONCOR sharesthan the Project originally envisaged. However, CONCOR did not enjoy adequate autonomy from MOR,particularly in managing the major procurement aspects of the Project. It needed to seek the approval ofMOR for proposals for flatcar procurement. These approvals were delayed as MOR's multi-layered reviewprocess was invoked, requiring extensions of bid validity periods. The long delay in concluding the TrancheHI flatcar contract and the declaration of 'misprocurement' by the Bank was also caused by MOR's undueinfluence in the bid evaluation process. Had MOR accorded full autonomy to CONCOR in handlingprocurement (as per the Mini Ratna status given to CONCOR), the bid evaluation and contract awardprocess definitely would have been accelerated.

7.6 Implementing Agency:CONCOR's performance as an implementing agency is rated highly satisfactory since it discharged itsresponsibilities promptly and with due diligence. CONCOR noted the weaknesses of its wagon suppliers'quality control early in the process, took effective measures to remedy the situation, and succeeded inensuring that the flatcars supplied were reliable and of high quality. CONCOR worked hard to securevarious approvals (including stability tests, emergency braking tests, speed certificates from RDSO,approval from the Inspector of Railways, etc.) in a reasonable time for introducing the high-speed containerservice on the New Delhi-Mumbai route. Furthermore, CONCOR monitored container train performanceclosely and took suitable measures with IR to remove constraints to smooth operation of its trains.CONCOR's proactive approach resulted in the transit time being cut by more than 50 percent andbecoming highly reliable (70 percent of trains reached their destination on time, only 3 percent of trains hada transit time of over 60 hours against the schedule of 48 hours, 29 wagon detachments on over 6,800trains operated).

CONCOR has met or exceeded all operational targets and complied with legal covenants, includingachieving a certain level of financial and productivity performance, maintaining MOUs with IR,simplifying customs procedures, divesting at least five percent of shares owned by GOI, implementing theProject with due diligence, introducing a new claims policy, and broadening the Board of Directors.

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Financial covenant compliance status is in Annex 8. CONCOR also utilized the opportunity offered by theProject to understand and apply international norms and trends in various facets of container handling andtranspQrt. As a result, CONCOR has internalized the changes described in section 4.2, in addition to thefollowing outputs: (i) relatively flat organization with its staff costs less than 2 percent of turnover; (ii)separation of domestic and international business as profit centers; (iii) establishment of new facilities andexpansion of capacity at existing facilities, based on growth potential ascertained through market research;and (v) substantial outsourcing in operations.

7.7 Overall Borrowerperforznance:The Borrower's overall performance is rated satisfactory because of the reasons in sections 7.4 through7.6.

8. Lessons Learned

8.1 Setting clear and focused objectivesRelatively focused and realistic operational and institutional objectives were the main reasons for theProject's overall success. Clear identification of the components and deliverables during preparation,CONCOR's active cooperation and participation during the implementation stage, and its commercialsuccess made possible the timely availability of counterpart funding and facilitated achievement of theobjectives. CONCOR as a borrower and implementation agency was fully committed to the Project'soperational objectives since these promoted/complemented its commercial success. Aligning Projectobjectives with the implementing agency's broad interests helped ensure the satisfactory implementation.

8.2 Managing procurement issuesThe Project revealed several weaknesses in the procurement process adopted for awarding contracts for thesupply of flatcars. First, the bidder qualifying criteria were not stringent enough to exclude financiallyweak bidders. It was noted that even though the selected contractor had, in theory, the technical capabilityand capacity to meet the required delivery schedule, it was not able to do so because it lacked adequateworking capital to procure large volumes of input for the manufacturing process.

Second, the pre-qualification criteria could have been strengthened by including stricter financialparameters for qualifying bidders of large contracts to ensure that only those having adequate financialcapacity qualify to bid. This could have contributed to minimize procurement delays by excluding from theProject suppliers likely to become insolvent.

Third, there was no real devolution of procurement powers to the implementing agency. AlthoughCONCOR was eventually given Mini Ratna status, IR never gave it the real autonomy to make some of thecritical procurement decisions. This led to major delays in Tranches H and Im, as well as the eventualmisprocurement of Tranche mI.

These important lessons should be taken into account in planning future projects. In fact, it should be notedthat lessons learned on procurement have already contributed to effective preparation of anotherBank-funded urban transport project in Mumbai.

8.3 Encouraging full commercialization of CONCORAlthough CONCOR operates under the Companies Act and the private sector owns 37 percent of itsshares, it is still not able to operate in a fully commercial manner. Partial privatization has produced a morecommercial rnindset in CONCOR, but its full commercialization cannot be completed without a decrease inGOrs shareholding to less than 50 percent and further independence from IR. Another issue related to

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CONCOR's lack of autonory is that most talented staff seconded from IR often go back to IR since theyhave much better long-term promotion prospects, and the pay scales are roughly the same. Until GOI'sshare in CONCOR is less than 50 percent, this problem will persist since CONCOR is not able to pay the'premium' required to get good IR staff to stay with CONCOR.

8.4 Recognizing the Bank's contribution in facilitating introduction/adoption of modern technologyThe Bank played an important role as a catalyst for upgrading container flatcar technology that resulted ingroundbreaking changes in operational practices for container rail transport with respect to train operatingspeed, transit time and service reliability. Under the current operating conditions, wagon utilization in termsof km/day has more than doubled and is about 500 km/day. IR raised strong reservations on increasingfreight train speed from 70 to 100 km/hour until CONCOR, using the Bank-finded high-speed wagons,demonstrated that this was feasible. The most positive result of CONCOR's high speed service is that IR isnow convinced of the enormous benefits that accrue and is, therefore, extending the concept to its own longdistance freight trains. IR has allocated funds in its 2002-03 budget for modifying existing wagons to makethem capable of 100 kph operation.

CONCOR, having reaped the benefits of upgrading technology and technical assistance arising from thisProject, is now keen to carry the process further. This increases the prospects of sustaining the technicaland operational improvements introduced during the Bank Project.

9. Partner Comments

(a) Borrower/implementing agency:

Comments received from CONCOR, dated May 8,2002:The preparation of an Implementation Completion Report for the Container Transport Logistics Project atthis stage appears to be premature as CONCOR has yet to receive the balance 1,320 flat cars due againstthe risk and cost contract of the second Tranche. The 1,320 flat cars are on order and the procurement hasbeen financed by the World Bank under the Project. CONCOR is of the view that even though the Projectobjectives have largely been achieved, the Project cannot be considered to be complete till the delivery ofthese wagons is effected. Therefore, the requisite information for the draft Implementation CompletionReport required by the World Bank can only be fiurnished after the receipt of these wagons as it is onlyafter the receipt of these wagons that the gains of the Project would be consolidated and clear picture of theobjective vis-a-vis the actual achievements could be arrived at.

While the Project came into effect in January 1995, the first sign of success was seen only in September1998 when the first few rakes of the new wagons were run at 100 kmph on commercial basis. The transittime of containers on the Delhi-Mumbai sector was cut by more than half, from over 100 hours to lessthan 48 hours. The initial lag of almost three years was due to technical and operational factors relating tothe introduction of freight operations at 100 kmph for the first time on the Indian Railway system. Therewas, therefore, a strong justification for extending the Project by 3 years i.e. up to December 2002.CONCOR's reguest for the third extension up to December 2002 was supported by the Department ofEconomic Affairs. Ministry of Finance. Government of India. The request was. however, tumed down bythe Bank without taidng cognizance of the likely benefits which would have accrued both in economic andfinancial terms if the funding was continued for one more year and has really upset the efforts of CONCORto consolidate the gains.

CONCOR's request for a third one year extension of the loan closing date was to cover the procurenient of1.320 wagons. which are due to be delivered against a contract awarded by CONCOR with the Bank'sapproval in May 2001. This contract is at the risk and cost of the initial tranche-II Supplier who was

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awarded the contract for the supply of 1,500 wagons in January 1999. This Supplier was able to supplyonly 180 wagons till September 2000 and the contract had to be terminated by CONCOR owing to variousbreaches of contract on the part of the Supplier and immninent insolvency of the Supplier. Thereafter,CONCOR decided to procure the balance 1,320 wagons against the Tranche-II contract by following theidentical bidding documents so as to be able to legally enforce any risk of higher costs on the defaultingSupplier. It was clear at that stage in November -December 2000 itself that CONCOR would not be ableto receive the balance of 1,320 wagons by December 2001. A reference to this effect was made to the Bankindicating that deliveries against a new contract would now most likely be completed only by November2002. The Bank communicated its approval to go ahead with the procurement but with the condition thatCONCOR would be responsible for any contractual obligation under the contract after December 2001. Inview of the urgent requirement of these wagons, CONCOR had no option but to issue the ICB without theprior extension to the loan closing date with the hope that the Bank would favorably consider the requestfor extension at the appropriate time. This was, however, not to be and CONCOR has had to renegotiatethe contract consequent to the closure of the loan on December 31, 2001 to cover the impact of the loss ofthe benefits of "deemed exports" which were available to the contract when the funding was from the Bank.

The deliveries against this contract are now expected to be completed by December 2002. While basic priceof the contract remains the same, CONCOR has also undertaken to reimburse the Supplier the duties ofexcise and customs which have now become applicable on these supplies. CONCOR shall, therefore, beable to assess the costs and benefits of the Container Transport Logistics Project only after these deliveriesare complete. The Borrowers contribution to the ICR shall be submitted thereafter.

(b) Cofinanciers:

Comments received from the Royal Netherlands Embassy in New Delhi, dated April 25, 2002:Thank you for sending me the Draft ICR for above-mentioned project. I have read this document withconsiderable interest. I, of course, focused primarily on the TA component, because that was theNetherlands contribution to the project. I find the wording of para 4.2.2 (v) technical assistance andtraining broadly in order and in line with our own PCR findings. The difficulties in the initial phase mayactually have been understated by you when you write that "some initial difficulties were encountered."Phase II of the TA was absolutely needed for the completion of the envisaged programme! With hindsightit was a correct decision, and so was the granting of a Phase Im to round off our involvement.

I am happy to note that completion of the project's components overall has been rated 'satisfactory'.Developments in the container business have been tremendous over the past years, and CONCOR isplaying an important role, strengthened by this project.

I have no further comments."

(c) Other partners (NGOs/private sector):

10. Additional Information

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Annex 2. Project Costs and Financing

Summary of Proposed Procurement Arrangements at Appraisal (in US$ equivalent)S. No. Project Element Procurement Method NBF (a) Total Cost

ICB NCB Others _

1 Works l l 12.1 (b) 12.1 (b)

2 Goods and equipment l l _

2.1 New rolling stock (2,250) 101.1 101.1_ _________________________ (91.1) _ (91.1)

2.2 Five tri-axle flatcar for testing 0.6 (c) 0.6_ (0.5) (0.5)

2.3 Purchase of 1,200 used BFK flat 23.1 (b) 23.1 (b)cars

2.4 Retrofit braking system of 1,200 4.1 (b) 4.1 (b)BFK flat cars

2.5 Handling equipment 1.0 (b) 3.3 (1.8)2.3 (1.8)

2.6 Trucks, chassis and other 0.2 (b) 0.2 (b)_equipment

2.7 Computers and software 0.6 (b) 0.6 (b)2.8 Tranponders and related equipm 0.5 0.5

(0.4) (0.4)

3 Technical assistance'3.1 Capacity building and training 0.2 4.0 (d) 4.2 (d)

__________________________ (0.2) (0.2)

3.2 Project preparation and 1.2 (b) 1.2 (b)implementation support

103.9 0.8 46.3 151.0Grand Total (93.3) _ (0.7) 1 (94.0)

Note: Figures in parentheses indicate amount financed by Bank. The order of these notes are:(a) Not Bank financed.(b) Financed by CONCOR.(c) Procurement of the prototype tri-axle flatcar for testing purposes may be acquired

either through ICB or from the proprietary manufacturer.(d) Financed under the Netherlands Grant.

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Summary of Actual Procurement Arrangements (in US$ equivalent)S. No Project Element Procurement Method NBF (a) Total Cos

__________________ TICB NCB Others NBF (a) Total Cos

I Works (b) | T r l_l

2 Goods and equipment 7 1 L __ L 44.9

2.1 New rolling stock (2,250) 72.2 Five tri-axle flatcar for testin (c) I2.3 Purchase of 1,200 used BFK

flat cars (b) _ _

2.4 Retrofit braking system of1,200 BFK flat cars (b)

2.5 Handling equipment2.6 Trucks, chassis and other

equipment (b) _

2.7 Computers and software (b)2.8 Transponders and related

equipment (c) _

3 Technical assistance _ _0.2

3.1 Capacity building and training (d)

3.2 Project preparation andimplementation support (b)

I iTotal Bank fund disbursements (e) 45.1

Note: Figures in parentheses indicate amount financed by Banik. The order of these notes are:(a) Not Bank financed.(b) Financed by CONCOR.(c) Dropped components.(d) Financed under the Netherlands Grant.(e) Table includes Bank funded components only.

Project Disbursement Status for the Bank funded components(US$ equivalent)

Category Amounts disbursedFlatcars, cargo handling, and other 44,902,114equipmentTechnical assistance and training 170,151Subtotal 45,072,265Cancelled as of March 31, 2000 13,870,000Cancelled as of May 5, 2000 1,130,000Cancelled as of April 30,2002 33,927,735Original Loan Amount 94,000,000

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Annex 3. Economic Costs and Benefits

The economic cost-benefit analysis has been carried out for two components of the project, (i) acquisitionof 2,250 flat cars funded through this loan, and (ii) retrofitting of 1,200 BFKI flat cars. This economicanalysis is based on re-evaluation of the traffic data, implementation costs, and cost and benefits of theProject components.

Methodology for Economic Analysis:

Staff Appraisal Report: The economic benefits of introducing the new flat cars were computed for thereduced transport costs of container rail movement (with the Project) as compared with road transport(without Project) from northem India to the three gateway ports of BPT, JNPT and HOM, with aweighted distance of 1,600 km. It was assumed that without these new flat cars, the container trafficwould move by the road transport. The transportation costs by the two altematives included the haulagecosts, terminal handling costs at ports, terminal handling costs at ICD (in case of rail transport), roadtransport cost to ICD (equivalent to 100 km for rail movement), cargo inventory costs based on the transittime of container, and container costs. In case of new flat cars their equivalent depreciation costs werededucted from the rail freight to avoid double counting. All financial costs were converted to economiccosts using a standard conversion factor for India of 0.8 in 1993 and all prices were for late 1993. TheSAR assumed that the 2,250 flat cars would carry a total of 241,300 TEUs, (about 154,500 loaded)annually from 1997 onwards.

The economic benefits of the retrofitting of 1,200 existing BFKI flat cars were estimated for theincremental traffic that could be carried by these flat cars because of higher operating speeds resulting inan increase in their capacity by about one-third of their original capacity. The benefits have been estimatedfor the difference in the transportation costs by road and rail for the incremental traffic. In addition, thesavings in the maintenance costs of the retro-fitted flat cars were considered.

ICR Approach: The cost benefit analysis methodology used for the ICR follows the approach describedabove for the actual traffic and delivery schedule of flat cars. Since the first new rake was delivered in1998, the economic costs of road and rail transport have been obtained for 1998 and used as the base forthe remaining period. The value for travel time used for computing the inventory costs have been updatedon actual basis for the new and retrofitted flat cars. Inventory cost per day has been modified using theSAR estimates multiplied by inflation between 1993 and 1998 (which was 45 percent). Values for loadingand handling costs of the containers at the ports and the container depot have been collected fromCONCOR. All financial costs have been converted to economic costs using a standard conversion factorfor India of 0.9 in 1998 prices.

Since both the first new flat car rake was delivered and the retrofitted flat cars came into operation in1998, the period for economic analysis starts from 1998 onwards for 20 years for the new flat cars and 15years for the retrofitted flat cars respectively. The duration is same as in the SAR but the start date hasbeen changed from 1994 to 1998.

Year wise delivery of flat cars, their cost, and the number of containers moved by these rakes have beentabulated below:

Traffic carried in different type of wagons by CONCOR ,Year New Flat Cars I BFKI BOXK, KH BFKI, Vac

Av rakes in TEUs Av rakes in TEUs Av. rakes TEUs Av. rakes TEUsservice handled service handled in service handled in service handled

1998-99 2.5 24,0595 1 577,401 38 200,4861999-00 13 153,535 14 99,347j 92 514,796 24 135,473000-01 23 365,655 28 198,49 73 417,891 10 62,68

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12001-02* 1 40 1 364,436 34 1 174,2951 58 1 237,676 4 1 15,8451* upto October 2001 only.

Cost of new rakes:

Year No. of Rakes # Cost (incl ST & freight), Rs Maintenace paid*, Rs1998-99 6 293,652,00 4,677,1741999-00 11 539,730,00C 28,638.0802000-01 20 1,006.607,00C 68,324,2292001-02 5 244,710,00(o 46,638,977

* Maintenance charges are paid every quarter. Last paid in September, 2001.# Each rake consists of 45 flat cars

Cost of BFKI rakes purchased and retrofitted:

Year No. of rakes Cost of purchase/retrofitting, Rs Maintenace, Rs1998-99 38 896,200,000 nil1999-00 6 32,340,000 30,7905602000-01 25 134,750,000 31,923,0302001-02 5 26,950,00( 19,963,561

In case of new flat cars, the costs and benefits were calculated for TKD-JNPT-TKD, TKD-BPT-TKDand Moradabad-TKD-JNPT-TKD circuits, a weighted average distance of about 1,500 km, while for theretrofitted BFKI wagons the TKD-TNMP-TKD, Bangalore-TNMP-Bnagalore, TKD-BPT-TKD circuits,with a weighted average distance of about 1500 km was considered because of the major use of these type

of wagons on the respective circuits.

In the absence of data provided by CONCOR on the fees paid to IR for carrying containers on their ownflat cars, the figures were estimated using the freight charged by CONCOR from the users, discounting it

by 20 percent (discussions with the IR and others suggested that IR gives a rebate of 19 percent to the

CONCOR for using their own wagons). The modified financial freight cost was converted to economiccost by multiplying it by the standard factor for India, 0.9. The inventory cost and the container costs wereestimated by inflating the SAR values by a factor of 1.45, the WPI index for 1998 with respect to 1993.The port handling charges were based on the charges for the JNPT.

Comparison of project outputs with respect to the estimated capacity of the 2,250 new flat cars and thecapacity inrease of 1,200 retrofitted cars reveal that the assumptions in the SAR were very pessimistic andconservative. In reality, the project output have shown 2.5 times for.the new cars (for only 1,905 cars) and

8 times for the retrofitted cars.

Results of the Cost Benefit Analysis:

New Flat cars: The ERR and NPV for the new flat cars are 96 percent and Rs 6,379 million, as againstthe SAR estimates of 37 percent and Rs 3,113 million respectively. The reason for the higher ERR are themuch higher volume of traffic carried by these cars as highlighted above. The transit time, including

loading/unloading time and detention at the TKD yard, has also been lower than estimated.

Retrofitted BFKI flat cars: The ERR and NPV for the 1,350 retrofitted flat cars were 155 percent and Rs

1,276 million compared to only 33 percent and Rs 108 million respectively estimated in the SAR at 12percent discount rate for 1,206 flat cars. The reason,was much higher increase in the traffic carryingcapacity then estimated in the-SAR, as explained above.

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Annex 4. Bank Inputs

(a) Missions:Stage of Project Cycle No. of Persons and Specialty Performance Rating

(e.g. 2 Economists, I FMS, etc.) Inplementation Development

Month/Year Count Specialty Progress Objective

Identification/PreparationAugust 1991 1 Financial Analyst

I EconomistDecember 1991 1 Financial Analyst

I Economist3 Consultants

February 1993 1 Mission Leader2 Railway SpecialistI Financial AnaiystI Ports SpecialistI Container Trans. Spec

June 1993 1 Mission LeaderI Project Officer2 Maritime SpecialistI LegalI Transport SpecialistI Railway SpecialistI Financial Analyst

SeptJOct. 1993 1 Financial AnalystI EconomistS Consultants

Appraisal/NegotiationJanuary 1994 1 Mission Leader

I Project OfficerI Legal AdvisorI Transport SpecialistI Railway SpecialistI Procurement EngineerI Resettlement Expert

SupervisionNovember 1994 1 Task Manager HS HS

I Financial AnalystI Rail ConsultantI Maritime Specialist

April 1995 1 Task Manager HS HSI Financial AnalystI Rail ConsultantI Maritime SpecialistI PSD SpecialistI Consultant

April 1996 1 Task Manager S HSI Financial AnalystI Railway Specialist

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December 1996 1 Task Manager S S2 Railway SpecialistI Financial Analyst

March 1997 1 Task Manager S S2 Railway SpecialistI Financial Analyst

October 1997 1 Task Manager S S2 Railway Specialist1 Financial Analyst

April 1998 1 Task Manager S S1 Railway SpecialistI Financial AnalystI Transport Economist

November 1998 1 Task Manager S SI Transport EconomistI Railway Specialist

June 1999 1 Task Manager S SI Railway SpecialistI Financial Analyst

April 2000 1 Task Manager S SI Transport EconomistI Railway Specialist

October 2000 1 Task Manager U SI Railway SpecialistI Program AnalystI Transport Specialis

April 2001 1 Task Manager U SI Transport EconomistI Railway Specialist

ICRNovember 2001 1 Task Manager S S

I Transport Economist1 Railway Specialist

December 2001 1 Financial Analyst

(b) Staff:

Stage of Project Cycle Actual/Latest Estimate

__ _ _ _ _ No. Staff weeks US$ ('000)

Identification/Preparation 59.3 261.3Appraisal/Negotiation 68.3 80.3Supervision 101.62 227.8ICR 10.47 23.1

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Annex 5. Ratings for Achievement of Objectives/Outputs of Components

(H=High, SU=Substantial, M=Modest, N=Negligible, NA=Nqt Applicable)Rating

3Macro policies O H OSUOM O N * NA3Sector Policies O H *SUOM O N O NA3 Physical O H *SUOM O N O NA3 Financial * H OSUOM O N O NA

IZ Institutional Development 0 H 0 SU 0 M 0 N 0 NAE Environmental O H *SUOM O N O NA

SocialE Poverty Reduction O H OSU*M O N O NAN Gender O H OSUOM O N * NAn Other (Please specify) O H OSUOM O N O NA

X Private sector development 0 H * SU O M 0 N 0 NA3 Public sector management 0 H 0 SU 0 M 0 N 0 NA

C3 Other (Please specify) OH OSUOM ON O NA

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Annex 6. Ratings of Bank and Borrower Performance

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory)

6.1 Bank performance Rating

I Lending OHS OS OU OHU• Supervision OHS OS O U O HUFS Overall OHS OS O U O HU

6.2 Borrowerperformance Rating

• Preparation OHS OS O U O HU

F Government implementation performance O HS OS 0 U 0 HU• Implementation agency performance O HS O S 0 U 0 HU

F Overall OHS OS O U O HU

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Annex 7. List of Supporting Documents

Staff Appraisal Report (May 9, 1994)Loan Agreement (August 1994)Guarantee Agreement (August 1994)Preparation and Supervision Mission ReportsProject Status ReportsMid-term Review Mission Report (April 1996)CONCOR Annual Reports 1988/89-2000/01CONCOR Technical Assistance Project Completion Report (Government of theNetherlands) November 1999Economic Analysis Calculation

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Additional Annex 8.Fin ancial Covenants Compliance Status

Reqiured values as perFinancial Covenants Legal Agreement FY94/95 FY95/96 FY96197 FY97/98 FY98/99 FY99/00 FY0O/Ol

Return on Average > than or = to 17% 28% 40% 61% 61% 48% 43% 42%Invested Capital Ratio

Oeprating Ratio < than 83% 83% 85% 70% 73% 74% 72% 72%

Debt to Equity Ratio Not > than 3 to 1 0.46 to 1 0.06 to 1 0.17 to 1 0.13 to 1 0.18 to 1 0.17 to 1 0.07 to 1

Current Ratio Not < than 1 to 1 1 to 1 1.21 to 1 1.5 to 1 1.5 to 1 1.22 to 1 2.29 to 1 2.41 to IDebt Service Coverage > than or = to 1.7 to 1 4 to 1 9.15 to 1 12.5 to 1 15.4 to 1 98.6 to 1 4.88 to 1 2.39 to I

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Additional Annex 9.To tal TEUs handled by CONCOR

Total TEUs Handled by CONCOR (projected in SAR)Financial Year 19931 19941 19951 19961 19971 19981 19991 20001 20011 2002TEUs HandledInternational 122,607 170,000 [ 221,000 276,000 332,000 390,000 429,000 471,900 519,191 570,999Domestic 32,869 51,000 55,000 64,000 76,000 80,000 88,000 l 96,800 106,480 117,128Total 155,476 221,000 276,000 340,000 408,000 470,000 517,000 l 568,700 625,671 688,127

Total TEUs Handled by CONCOR (actual)Financial Year 19931 19941 19951 19961 19971 19981 1999[ 20001 20011 2002TEUs HandledInternational 122,645 188,347 275,615 349,141 424,741 491,481 576,790 664,490 753,368 905,058Domestic 32,940 48,824 127,017 244,977 278,801 ,230,238 225,156 238 61 291,360 326,775Total 155,585 237,171 402,632 594,118 703,542 721,719 801,946 903,151 1,044,728 1,231,833

Actual / Projected (in %)Financial Year 19931 19941 1995] 19961 19971 19981 19991 20001 2001[ 2002TEUs HandledIntesational 100% 11% 125% 3% 37% 2 126% 134%1 14% 279%Domestic 100% 961% 2312% 383% 367% 288%[ 134%[ 141%1 4% 159%Total 100%] 107% 146% 175% 172% 154% 155%j 159%[ 167% 179%

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Additional Annex 10.Fina ncial Performance of CONCOR

CONCOR's Projected Financial Performance at appraisal (Rs million)

1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02Operating Income 817.5 1,177.5 1,640.3 2,203.9 2,892.3 3,609.1 4,375.2 5,315.1 6,473.1 7,892.1Other Income 82.0 42.6 17.9 16.1 64.6 83.1 164.0 246.8 333.0 446.0Total Income 899.5 1,220.1 1,658.2 2,220.0 2,956.9 3,692.2 4,539.2 5,561.9 6,806.1 8,338.1Operating Expenses 632.1 921.1 1,186.6 1,530.1 1,951.2 2,472.0 1,998.7 3,643.7 4,431.6 5,395.2Gross Profit 267.4 299.0 471.6 689.9 1,005.7 1,220.2 1,540.5 1,918.2 2,374.5 2,942.9Depreciation 4.8 25.6 87.0 124.2 208.7 256.6 305.8 301.5 327.0 352.9Profit Before Tax 250.3 252.4 179.8 270.5 350.0 490.8 751.9 973.4 1,077.9 1,386.3Tax 77.5 56.6 2.6 - - - - 157.2 491.0 734.1

Net Profit 172.8 195.8 177.2 270.5 350.0 490.8 751.9 973.4 1,077.9 1,3863

CONCOR's Actual Financial Performance (Rs million)

Description 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-991 -00 2000-01Operating Income 811.3 1,145.2 2,173.4 3,893.6 5,343.2 6,062.5 6,847.7 8,314.2 10,748.0Other Income 88.2 58.4 31.5 66.8 141.7 223.0 315.9 334.6 340.0Total Income 899.5 1,203.6 2,204.9 3,960.4 5,484.9 6,285.5 7,163.6 8,648.8 11,088.0Operating Expenses 644.3 895.0 1,660.6 2,802.6 3,717.6 4,370.6 4,961.0 5,769.9 7,525.1Gross Profit 255.2 308.6 544.3 1,157.8 1,767.3 1,914.9 2,202.6 2,878.9 3,562.9Depreciation 4.9 37.3 73.0 89.3 103.9 115.4 122.7 226.2 272.7Profit Before Tax 250.3 271.3 471.3 1,068.5 1,663.4 1,799.5 2,079.9 2,652.7 3,290.2Tax 77.5 63.0 242.1 537.3 709.4 632.7 665.1 900.0 1,122.5Net Profit 169.3 210.2 238.9 522.3 952.5 1,158.0 1,406.6 1,775.9 2,166.5Divident Declared 17.5 26.0 38.9 77.9 129.9 129.9 292.4 357.5 435.4Earnings per share (Rps 2.6 3.2 3.7 8.0 14.7 17.8 21.6 273 333

Net Profit

2,500.0

2,000.0

51,00.0

500.0

1992- 1993- 1994- 1995- 1996- 1997- 1998- 1999- 2000-93 94 95 96 97 98 99 00 01

Year

|4--Projected at appraisal _ Actual

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IMAGiNG

Report No.: 24136Type: ICR