Document of

The World Bank

FOR OFICIAL USE ONLY

Repr No. 7047-IN

STAFF APPRAISAL REPORT

INDIA

THIRD RAILWAY MODERNIZATION PROJECT

APRIL 15, 1988

Transport and Energy Operations DivisionCountry Department IVAsia Regional Office

This document has a restricted distribution and may be used by recipients only in the performance oftheir ociale dluties. Its cotents may no otherwise be disclowed wlthout World Dank authoriztion.

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CIRRENCY EQUIVALENTS

Currency Unit Rupees (Rs)Rs 1.00 = Paisa 100US$ 1.00 = Rs 13.00Rs 1.00 - US$ 0.077Rs 1,000,000 US$ 76,923

MEASURES AND EQUIVALENTS

1 Kilometer (km) = 1,000 meters (m) = 0.6214 miles (mi)1 Meter (m) = 39.37 inches (in)1 Kilogram (kg) = 2.2046 pounds (lb)I Ton (t) 1 metric ton = 2,200 lbs

ACRONYMS AND ABBREVIATIONS

ADB - Asian Development BankBG - Broad Gauge (1.676 m)BPKM - Billion Passenger KilometersBTKM - Billion Ton KilometersCIF - Cost, Insurance, and FreightC.&A.G. - Comptroller & Auditor GeneralDCW - Diesel Component WorksDF - Development FundDRF - Depreciation Reserve FundEMU - Electric Multiple UnitER - Economic Rate of ReturnCOI - Government of IndiaGTKM - Gross Ton KilometersICB - International Competitive BiddingIR - Indian RailwaysIRFC - Indian Railways Finance CorporationKm/h - Kilometers per HourMG - Meter GaugeMGT - Million Gross TonsNG - Narrow Gauge (0.762 m and 0.610 m)NPV - Net Present ValueNTKM - Net Ton KilometersNTPC - National Transport Policy CommitteeOIS - Operating Information SystemPF - Pension FundRDSO - Research, Designs and Standards Organization

Indian RailwaysRITES - Rail India Technical and Economic ServicesRRC - Railway Reform CommitteeUIC - International Union of RailwaysUTS - Ultimate Tensile Strength (Kg/sq. mm)

GOVERNMENT OF INDIA FISCA'. YEAR

April 1 - March 31

(All references are to GOI fiscal yearunless specifically noted otherwise.)

FOR OFFICUL US ONLY

INDIA

RAILWAY MODERNIZATION III PROJECT

Loan and Project Su mmary

Borrower: India, acting by its President (GOI)

Beneficiary: Indian Railways (IR)

Amount! Bank Loan: US$ 390 million

Terms: Repayment over 20 years, including five years' graceat the standard variable interest rate.

Relending Terms: GOI will on-lend the proceeds of the loan as GOI'scapital-at-charge to IR in accordance with its standardarrangements for financing IR's capital expenditureprogram. IR pays a dividend on the total capital-at-charge at a rate determined by GOI, currently 6.5Z perannum. GOI will carry the interest and exchange risks.

Purpose: The purpose of the proposed project is to assist IR inmodernizing and improving the utilization of its assetswithin the framework of a recently formulated 15-YearCorporate Plan. This project, focussing on track,complements recent projects which have focussed onworkshops, rolling stock, and electrification.

Project The project consists of: (a) renewal and upgrading ofDescription: some 4000 track kilometers of IR's heavy density routes,

especially the major trunk roe-es connecting India'sfour major cities: New Delhi, Bombay, Madras, andCalcutta; (b) provision of track equipment and rollingstock for transporting track material; and (c) provisionof advisory services and training in manpower planningand in track-related areas.

Benefits The project will substantially reduce track maintenanceat Risks: costs and, by reducing speed restrictions and the track

occupancy time required for renewal and maintenancework, increase track capacity in critical corridors aswell as improve the utilization of rolling stock. Theprincipal risk is implementation delays. This risk isbeing minimized by (a) allowing advance procurement ofequipment needed to implement renewal work and (b)selecting as the major project component an item whichis free of the complex design and procurement issueswhich have characterized recent projects with IR.

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

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EstimatedProject Costs: US$ Million

Local I/ Foreign Total

A. Track Renewal/Upgrading 610 244 854B. Track Equipment 81 100 181C. Locos & Rolling

Stock 11 11D. Training & Technical

Assistance 1 2 3

Total Project Base Cost 703 346 1,049

Price Contingencies 113 44 157

Total Project Cost 816 390 1,206

Financing Plan: USs MillionLocal Foreign Total

IBRD 340 390GOI 816 - 816

816 390 1,206

EstimatedDisbursements: (US$ Millions)

Bank Fiscal Year FY89 FY90 FY91 FY92 FY93 FY94

Annual 10 30 85 125 100 40Cumulative 10 40 125 250 350 390

Overall Rateof Return 20%

1/ Including an estimated US$ 323 million in taxes and duties.

INDIA

RAILWAY NODENIZATION III PROJECT

STAFF APPRAISAL REPORT

Table of Contents

Page no.

I.* TE TRANSPORT SECTOR

A. Overview v 1B. Transport Planning and Coordination ................. 3C. Transport Policy and Investment ..................... 3D. Bank Involvement in the Sector ...................... 5

II. INDIAN RAILWAYS

A. Organization and Management ......................... 6B. Infrastructure ..... 7............ ............. . 7C* Motive Power **e**********.***** ..................... 9D. Rolling Stock * ...................................... 9E. Operating Performance ... ............ ................ 10F. Traffic *9SOOO*@........0...... ... ................... 11C* Investment .............................. 12

III. THE PROJECT

A. Project Context: IR's Corporate Plan, 1985-2000 .... 12B. Rationale and Objectives ............................ 14C. Project Description ................................. 15D. Project Cost and Financing .......................... 17E. Implementation, Disbursements, and Audits ........... 18F. Procurement ............... ..................... 18G. Economic Evaluation ..... ......................... ... 19H. Environmental Impact ...... .......................... 21I. Project Risks *..............*..*................. 21

IV. FINANCE

A. Introduction .......... .............................. 21B. Recent Changes in Financial Policies ................ 22C. Past Performance ... ................................. 24D. Future Finances .... ................................. 25

V. AGREEMENTS AND RECOMMENDATION ........................... 27

This report is based on the findings of an appraisal mission to India inSeptember 1987 comprising Philip Blackshaw (Transport Economist), RogerMasthagen (Railway Engineer), and P.T. Venugopal (Financial Analyst,Consultant). Maria Helena Kutcher and Bonnie Miller assisted in thepreparation of the report.

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ANNmS

Annex 1.1 - Growth of Transport System, 1961-85Annex 1.2 - Land Freight Traffic, 1951-87Annex 1.3 - Experience with Recent Bank-Assisted Transport ProjectsAnnex 2.1 - IR's Motive Power and Rolling Stock, 1951-86Annex 2.2 - Track Standards on Some Major Railway SystemsAnnex 2.3 - Selective Operational Statistics (BC), 1980-86Annex 2.4 - Rail Freight and Passenger Traffic, 1951-87Annex 2.5 - Rail Freight Traffic by Major Commodities, 1971-87Annex 2.6 - Projected Freight Traffic by Coimodity, 1987-95Annex 2.7 - IR's Average Annual Investment, 1962-2000Annex 3.1 - Key Features of IR's Corporate PlanAnnex 3.2 - Performance Indicators, 1984-94Annex 3.3 - IR's Total Track Renewal Program, 1990-92Annex 3.4 - Details of Project RoutesAnnex 3.5 - List or GoodsAnnex 3.6 - Project CostsAnnex 3.7 - Implementation ScheduleAnnex 3.8 - Estimated Schedule of DisbursementsAnnex 3.9 - Details of Economic EvaluationAnnex 4.1 - IR Revenue and Expenditure Accounts, 1982-87Annex 4.2 - IR Balance Sheet as on March 31, 1986Annex 4.3 - IR's Projected Revenue and Expenditure, 1986-95Annex 4.4 - IR's Projected Source and Application of Funds, 1986-95Annex 4.5 - IR's Projected Balance Sheet, 1986-95Annex 5.1 - Selected Documents and Data Available in the Project File

CHART

Chart - Indian Railways Organization Chart

MAP

Map No. 19974

INDIA

RAILWAY NODDRIIZATIOS III PROJECT

STAFF APPRAISAL REPORT

I. THE TRANSPORT SECTOR

A. Overview

1.01 For a country with the population, geographic size and diversifiedeconomic structure of India, transport plays a vital role. The transportsystem, and the output therefrom, has recorded substantial growth over thepast 25 years (Annex 1.1). Rail and road transport are the dominant modes,and will remain so. However, there has been a marked shift in their sharesof total traffic with road's share of land freight, for example, increasingfrom 13X in 1951 to around 40X in recent vears (Annex 1.2). 1/ This shiftreflects road transport's inherent advantage in handling non-bulk traffic.While this process may well continue to a degree, especially with the recentliberalization of road transport regulations and with progressive improvementof the road system, there are limits to this process, especially now thatover 802 of rail freight is bulk (Annex 2.5) with most of that carried inhigh density corridors where road capacity will continue to be over-taxed.Thus, some stability in modal shares seems to be emerging with no significanttrend over the past decade. This suggests that these two modes are nowlargely performing their appropriate respective roles (rail for medium andlong hauls of train- and wagon-load traffic particularly of bulk commodities,with road for smaller loads and shorter hauls.)

1.02 Compared with railways and roads, the other modes of transport areat present of minor importance as general goods and passenger carriers:coastal shipping and pipelines each carry about 3X of the total freighttraffic in terms of ton-ki; air transport carries about 12 of total pass-km.These modes are, however, important within their specialized areas, and thereis scope for considerable expansion within each mode because of the size ofthe country and its geographical features. Consequently, GOI is undertakingprojects for the expansion of coastal shipping of coal and for pipelinetransportation of crude oil, gas and petroleum products.

1/ There are no comprehensive data on road transport operations in India.The volume of road freight has to be estimated from data on the vehiclefleet, complemented with assumptions on vehicle utilization (guided bydata on gasoline and diesel consumption). Accordingly, the estimates areapproximate, but nevertheless convey an order of magnitude.

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1.03 Despite the progress depicted in Annex 1.1, because of past under-investment (par& 1.14), the tranuport system is ill-equipped to satisfyexisting demand efficiently, let alone cope with a prospective doubling ofdemand by the end of the century. Host transport modes need to modernize.In railways, some 201 of the track, much of it in major corridors, is overduefor renewai and needs to be upgraded. Motive power is obsolete andunderpowered; many of the rolling stock designs in use restrict speeds andare inefficient carriers of bulks, which is especially disadvantageous asthe railways approach capacity limits in several major corridors. Obsoleteterminals and yards cause significant delays, adversely affecting utilizationof locomotives and rolling stock.

1.04 In main roads, India has one of the lowest densities (per head ofpopulation) in the world and consequently some of the highest road trafficdensities in the developing world. Moreover, the existing road networkleaves much to be desired. For example, one-third of the limited nationalhighways system (the trunk system accounting for 21 of the total roadnetwork, but perhaps one-third of road vehicle-kms) is still one lane. Arecent study estimated that Rs 45 billion (WS$ 3.5 billion) in 1984 priceswould be required to rectify this and other deficiencies in national highwaysalone. A,art from deficiencies in road infrastructure, most of the existingvehicle fleet is of outmoded and inefficient design. The principal truckused is the large two-axle type which is inefficient as a load carrier and infuel consumption, and also causes considerable road damage throughoverloading. These issues are being addressed by a Vehicle Fleet and RoadUser Charges Study being carried out under the Bank-assisted National HighwayProject (Annex 1.3, para 8).

1.05 Ports are not adequately equipped to handle the envisaged quan-tities of bulks (both dry and liquid) and containers, and deeper drafts willbe required at selected ports. Capacity constraints place a premium onimproving the efficiency of port operations, which has been low in India dueto labor relation problems, poor labor productivity, stuffing/destuffingcontainers inside the port area, obsolete equipment, vehicular congestion andpoor intermodal facilities and practices. Progress has been made on some ofthese issues in recent years, especially with the belated introduction of acombined transport document, establishment of some inland container depots,and the decongestion and modernization of the country's largest port, Bombay.However, much more needs to be done. The Seventh Plan (1986-90)appropriately provides for modernization of facilities and equipment, and therecent Port Reforms Committee Report has identified desirable institutionalimprovements, including some degree of privatization. The Bank intends touse this Report as a basis for future dialogue with GOI on a possible futureport project.

1.06 Thus, a substantial task lies ahead, in terms of both investmentand institutional/operational improvements, if the transport sector is toefficiently cope with the demands that will be placed upon it in the coming

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years. These demands will take the form not only of increased level oftransport activity, but a substantial change in the composition of thatactivity, reflecting technological developments such as containerization andbulk handling.

B. Transport Planning and Coordination

1.07 India has a federal structure, and responsibility for transportmatters is distributed between the Central and State Covernmentm. Whilerailways, shipping, and major ports are exclusively under the CentralGovernment's (GOI's) authority, the Central and State Governments sharejurisdiction over highways and road transport, minor ports, and inland watertransport, though their respective roles are clearly delineated.Central/State activities are coordinated by a Transport Development Council,an Inland Water Transport Board, and an Interstate Transport Committee (forroad transport).

1.08 At the Central level, ports, shipping, and roads are under theMinistry of Surface Transport; there are separate Ministries of Railways andCivil Aviation; and pipelines come under the Ministry of Petroleum. InSeptember 1985, all transport modes except pipelines were consolidated underone Ministry of Transport, but this was found unwieldy and the arrangementwas abandoned in October 1986. Coordination is adequately effected by: (a) aCabinet Committee chomprising the Ministers of Railways, Surface Transport,and Civil Aviation; (b) a Committee of Secretaries from the transportMinistries and the Planning Commission, serviced by a secretariat in theMinistry of Railways; and (c) the work of the Planning Commission itself.

1.09 All major proposed investments are assessed by the PlanningCommission for inclusion in the five-year Development Plan, from which arederived annual plans linked to budgetary allocations. No major project canreceive funding unless it is included in the Plan. The Commission'sactivities extend beyond investment review per se to assessments of opera-tional performance, maintenance, and resource mobilization in the sector.The Commission has recently embarked on long-term perspective planning in thetransport sector, designed to identify more accurately the linkages withother sectors and the respective roles of the various transport modes in themajor corridors.

C. Transport Policy and Investment

1.10 A major review of transport policy was completed in 1980 by theNational Transport Policy Committee. Its many recommendations, almost all ofwhich were accepted by the Government, centered around:

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(a) the need to improve transport planning by developing a systematicmethodology for projecting transport demand and its allocation onthe basis of resource costs of the different modes of transport andby developing long-term perspective master plans for major are*s ofinvestment;

(b) promoting the appropriate inter-modal allocation through the marketmechanism (e.g., improved pricing) rather than through regulationand physical control; and

(c) improving cost recovery and relatedly, project execution andproductivity.

1.11 In response to (a), the Planning Commission has established a highlevel Steering Committee to systematize is work on long-term perspectiveplanning in transport. The Committee has commissioned several major studies,including origin-destination surveys of present traffic flows, transportdemand forecasts for major commodities and major corridors, development of anational transport planning model, and a long-term technological perspectivestudy. Reports on these studies are expected towards the end of 1988.Master Plans have been developed in some areas (e.g., national highways and,as part of preparation of the proposed project, rail track renewal).However, much more remains to be done in this respect.

1.12 In response to (b) and (c), the structure of rail tariffs has beenimproved and road transport regulations liberalized; road user taxation isbeing reviewed by a Bank-fit:anced study (para 1.04), and cost recovery hasimproved in railways (para 4.10) and ports. The ten major ports as a groupnow internally finance about 40 percent of their investment expenditures,whereas they incurred a net operating deficit in the early 1970's. Toimprove project execution and the productivity of operations, modern workmethods and equipment need to be introduced where appropriate.

1.13 The major policy challenges at this point are thus to sustain themomentum of the above-mentioned initiatives and extend their application.The Bank's sector strategy (para 1.17) has been designed accordingly.

1.14 As indicated in the following table, transport's share of totalDevelopment Plan expenditure has declined from around 23% in the 1950's andearly 1960's to 12X in the 1980's. In real terms, transport investment grewrapidly during the first three plans, but this was followed by a long period(1966-78) of contraction for railways, during which annual investment expen-diture was little more than half the level prevailing 1957-66. Investment inthe other modes continued to grow but generally more slowly than previously,and more slowly than the aggregate demand for transport services by eachmode. Moreover, the changing structure of transport demand (an increasingproportion of bulk and container traffic) required new specializedfacilities. Under the Sixth Plan (1981-85), public investment in transport -especially road and rail - increased significantly. But a substantial back-

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log of rehabilitation and modernization remains, especially if the transportsystem is to cope efficiently with an expected doubling of demand by year2000. The Seventh Plan (1986-90) makes a major effort to address this need,providing for a S0 increase in transport investment (though whether thisactually occurs will depend on how well the Plan allocations, which areexpressed in 1985 priies, are protected by subsequent increases to matchinflation). The fucus of the transport investment plan is on modernizingrail track, motive power and rolling stock, augmenting road capacity, andincreasing the capacity of ports to handle bulks and containers.

Public Investment in Transport 1952-90

Annual Average Expenditures per Period (Rs billion, 1971 prices)

First Second Third Annual Fourth Fifth Sixth SeventhPlan Plan Plan Plans Plan Plan Plan Plan

1952-56 1957-61 1962-66 1967-69 1970-74 1975-78 1981-85 1986-90

Railways 0.95 2.70 4.11 1.98 1.67 2.21 4.13 7.18Roads & Road

Transport 0.64 0.91 1.45 1.41 1.77 2.15 3.02 4.00Ports 0.12 0.13 0.31 0.24 0.47 0.62 0.45 0.67

Shipping 0.08 0.20 0.12 0.12 0.28 0.52 0.34 0.55Civil Aviation 0.10 0.19 0.16 0.26 0.32 0.30 0.55 0.40

Total Transport 1.89 4_13 6_15 4.01 4.51 5.81 8.49 12.80

Transport inTotal Plan (Z) 22.1 23.7 23.1 15.6 15.9 14.3 12.4 12.8

Source: World Bank estimates on the basis of Development Plans.

D. Bank Involvement in the Sector

1.15 The Bank's past involvement in the sector has been predominantly inrailways, due to the Indian authorities' preference until recently to relyalmost exclusively on local competitive bidding in road and port projects.However, following GOI's recent decision to entertain international competi-tive bidding in roads and ports, the Bank after a long hiatus has recommencedlending operations in these two subsectors, with the Nhava Sheva Port Project(Loan 2387-IN, 1984, US$ 250 million), the National Highways Project (Loan2534-IN, 1985, US$ 200 million), and the Cujarat Rural Roads Project (Credit1757-IN, 1987, SDR 101 million).

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1.16 Experience with recent Bank-assisted projects in the sector isdescribed in Annex 1.3. The principal lessons from railway experience maybe summarized as (a) until recently, only limited progress in ensuring thatIR made adequate provisions for asset renewal and replacement;(b) disappointing impact of "program-type" components which were notspecified in advance and did not form part of a well-articulated master planwhich, inter alia, anticipates and addresses labor redundancy implications;and (c) implementation delays because important design and procurement issueswere not finalized prior to loan/credit approval. The proposed project hasbeen shaped with these lessons in mind.

1.17 Regarding future involvement in the sector, while the Bank will beseeking to follow up its recent re-entry into the roads and ports subsectors,a continued lending relationship with IR is envisaged, within an agreedframework for adapting IR to its future role. This framework is described insome detail in para 3.02 and Annex 3.1; the central thrust is to improveefficiency and the degree of self-financing by modernizing infrastructure andoperations, rationalizing redundant facilities, and improving laborproductivity. The proposed project supports implementation of this strategy.

II. INDIAN RAILWAYS

A. Organization and Management

2.01 IR is fully owned by GOI, and is the nation's largest singleundertaking, with a capital investment (in current cost terms) of some Rs 660billion (over US$ 50 billion), and a total staff strength of about 1.6million. Responsibility for the management of IR rests with the RailwayBoard under the overall supervision of the Minister of State for Railways.The Railway Board exercises all the powers of GOI in respect of regulation,construction, maintenance and operation of the railways, and advises theMinister on policy matters. The Board therefore performs the dual functionsof Secretariat to the Ministry of Railways and of an executive body respon-sible for railway operations. In financial matters Parliament overseesimplementation of recommendations made by the Railway Convention Committeeand other parliamentary committees.

2.02 The Railway Board comprises the Chairman, the FinancialCommissioner (who is vested with full powers of GOI to sanction IRexpenditure) and five other functional members (Chart). The Board is sup-ported by Advisors, Executive Directors, and subordinate staff.

2.03 IR consists of nine Zonal Railways, each under the control of aGeneral Manager, and each zone is a large system on its own account. IR alsohas four factories engaged in the manufacture of locomotives, rolling stock

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and wheels and axles; a new factory is under construction with Bank assis-tance for remanufacture of critical diesel locomotive components. Furtherdetails on these production units and on wrkshops are available in StaffAppraisal Report No. 4940 of April 26, 1984, and earlier Appraisal Reports.

B. Infrastructure

2.04 IR operates over some 62,000 route kilometers (77,000 trackkilometers), and almost 30,000 km of sidings and yards. Some 7,400 routekilometers ate electrified and electrification of another 3000 km is underway, with Bank assistance. Some 55Z of the network is broad gauge (BG,1676 mm), 40% meter gauge (MG) and the balance narrow gauge (NG).

2.05 Due to constraints on total rail investment (para 1.14), and theneed to focus available funds on the critical problem of providing adequatecarrying capacity, real track expenditures from the mid sixties to the late1970's were only a third of their prior level (Annex 2.7). As a consequence,the track structure has deteriorated considerably, requiring an increasingnumber of speed restrictions due to worn-out rail, rail fractures, andunstable track. The speed restrictions have considerably reduced linecapacity. While some progress was made as a result of increased allocationsunder The Sixth Plan (1981-1985) (para 2.21), about 17,500 kms are now duefor renewal, and each year another 2,300 kms become due ("new arisings").To liquidate the arrears and deal with "new arisings," IR has prepared aten-year program providing for renewals of about 4,000 track kms per year.Although more than one-third of arrears are on the meter gauge system, 85% oftrack renewal expenditure over the next three years will be on the BG system,which is in proportion to that system's contribution to IR's traffic. Withinthe BC system, renewal efforts will be focussed to the maximum practicableextent 1/ on the A routes (Delhi-Calcutta, Delhi-Bombay, Delhi-Madras, andBombay-Nagpur-Calcutta) and other heavy density routes generally carryingmore than 15 million gross tonnes (MGT) per year. Together these routesaccount for about 20% of IR's track but about 75% of total traffic. IR hasrequested Bank assistance for this element of its FY89-91 renewal program.

2.06 During renewal, the opportunity will be taken to improve trackstandards, which is necessitated by IR's plans (already under implementation)to introduce heavier and longer trains operating at increased speed, in orderto cope with increased traffic. Furthermore, the increased traffic allowsless time for track maintepance, which reinforces the need for higher trackstandards and the use of modern track maintenance methods. IR has studiedvarious international track standards and selected for the broad gauge net-

1/ Traffic densities on these routes limit the time available to carry outrenewal work.

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work a range of future standards (according to traffic levels and *azimuinspeeds) consistent with those used by comparable railway. (Ann*x 2.2).Economic analysis confirms that the standards are appropriate (Annex 3.9).For heavy density routes the new standard is for long-welded 60 kg/r railsections, made of high tensile (90 UTS) steel and laid on pre-stressed con-crete sleepers with elastic fastenings. Very little of the existing trackconforms to these standards:

Other HeavyA Routes Density RoutesKos Kms

Existing Rail

60/65 kg/m (72 UTS) 330 13052 kg/m (72 UTS) 10,800 1,30045 kg/m (72 UTS) 2,500 1,510

13,630 2,940

Existing Sleeper Type

Pre-stressed concrete 2,700 20Steel 3,800 670Cast steel 5,200 1,920Wooden 1,930 330

13,630 2,940

2.07 To minimize interference to traffic, IR needs to increase the speedwith which track renewal and maintenance is carried out on its major routes.Thus, modern track machines (e.g., relaying trains, continuous track tampingmachines, ballast cleaners, and dynamic track stabilizers) are beingintroduced. Such machines not only increase the speed of relaying, but alsothe quality of work.

2.08 Because of unsatisfactory experience with IR's treatment of thelabor implications of workshop modernization (para 1.16 and Annex 1.3,para 3), the Bank asked IR to specifically address, during projectpreparation, the labor implications of mechanizing track renewal and main-tenance work. In response, IR pointed out that most track renewal work todate has been performed by casual labor, so adjusting the size of this forcewill not be as difficult as for permanent labor such as that used inworkshops. In fact, in many areas IR experiences difficulty recruiting laborfor track renewal, due to the arduous nature of the work. Routine trackmaintenance is carried out using permanent labor, but labor displaced bymachines will be moved to other work previously performed by casual labor(periodic maintenance, special repairs and renewal). As part of the annualbudgetary approval process, zonal General Managers are required to specifyhow they will redeploy staff displaced by mechanization. Finally, the

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increasing volume of renewal work will offset to some degree the manpowerreductions from mechanization. The Bank considers these arrangementssatisfactory, and during negotiations agreement was reached on arrangemntsto monitor adjustments in gang strengths following mechanization under theproject.

C. Motive Power

2.09 The motive power fleet consists of 5,570 steam, 3,050 diesel and1,300 electric locomotives (Annex 2.1). The steam locomotives are graduallybeing phased out and replaced by more efficient and powerful diesel andelectric locomotives. However, existing diesel and electric locomotives areof obsolete design and do not meet current requirements for fuel efficiency,availability and reliability. The Bank group is therefore financing(Credit 1299-IN/Loan 2210-IN) IR's procurement of 18 prototype electriclocomotives of three alternative, modern designs used elsewhere in the world.These locomotives will be delivered and tested during calendar 1988, follow-ing which local manufacture of the present IR design (about 100 units peryear) will be phased out and replaced by manufacture of the selected newdesign. Technology transfer for such manufacture is included in the contractfor the prototype locomotives. In the meantime, to help fill an emerging gapin motive power until locomotives of the new design come into production, ADBis financing the procurement of 40 additional electric locomotives of moderndesign. Because many of the existing locomotives will continue in servicefor some time, design modifications are under way which will improve thepresent fleet until a sufficient number of the new design locomotives hascome into operation.

2.10 IR also plans to replace its current generation of under-powereddiesel locomotives, also manufactured in India, with more powerful locomo-tives of more recent design. IR is negotiating contracts for suchlocomotives, which would include provision of technology for domesticmanufacture.

D. Rolling Stock

2.11 IR has some 360,000 wagons (in terms of equivalent 4-wheeler units)of which 285,000 are BC, 71,000 MG and the balance NG. Some 50X of thewagons are of covered type, 30Z special, and the remainder departmental.Most of the wagons are 4-wheelers, which are being gradually replaced by moreefficient and reliable bogie wagons. The change in traffic pattern fromgeneral purpose goods traffic to bulk traffic in unit block trains requireswagons of specialized type with high payload, and IR has developed suchwagons which are manufactured in India. During the Seventh Plan (1986-90) IRplans to replace some 80,000 BG and 15,000 MC 4-wheeler units with bogie

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wagons. Because of the higher productivity of the new units (higher payloadand longer average haul), IR expects to produce 30z more net ton kms by 1990,with no net increase in wagon units.

2.12 While the IR-designed high capacity bogie wagons are a vastimprovement on the 4-wheeler units they are replacing, they suffer from somedesign deficiencies, particularly in the bogie itself, which causes unneces-sarily high wheel and track wear. Test bogies of superior design have beenprocured under Bank Group financing (Credit 1299-IN/Loan 2210-IN) and IR'sfuture type will be selected after tests are completed in 1989.

E. Operating Performance

2.13 IR's overall operating performance continues to improve (Annex 2.3)and is amongst the best in developing countries when measured againstyardsticks such as track utilization, output/employee, and equipmentavailability and utilization (except for electric locomotives - para 2.14).In several areas it is comparable with railways in developed countries. Thisis especially true for wagon utilization (defined in terms of tons carriedper ton of capacity) which has increased 30% since the early 1980's and now,as the recent audit of Credit 844-IN notes, is "well above European andaverage US levels - in a class with the world's top performers." Thisimprovement is largely due to the increased operation of unit trains, whichhas also contributed to a 20% increase in traffic units per employee since1980.

2.14 While the ava.lability of diesel and steam locomotives issatisfactory, the availaoility of electric locomotives is low, reflectingdesign deficiencies. As toted in para 2.09, design modifications are beingmade to existing locomotives, and new design electric locomotives are beingintroduced. Utilization of these locomotives is also low, again partly dueto design deficiencies. Another factor contributing to low utilization hasbeen the discontinuities in electrification, which limit the opportunity forthrough running. The Bank-assisted electrification project (Loan 2417-IN) isfilling the major gaps in route electrification and therefore should promoteimproved utilization of electric locomotives.

2.15 In an effort to further improve operating performance, IR is plan-ning a computer-based, real-time Operating Information System (OIS). Thiswill require substantial investment in telecommunications, which in turnraises major design and technology issues, chief among which is the potentialbenefits from several major users sharing with IR a joint facility in orderto exploit the economies of high capacity fibre optic links on the maincommunication routes. GOI/IR has requested Bank assistance for IRtelecommunications/OIS, and the Bank is therefore pursuing these issues withIR and other GOI agencies.

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F. Traffic

2.16 IR's freight and passenger traffic statistics since 1951 are shownin Annex 2.4. The annual average rate of growth in freight NTKMs over thisperiod has been about 52, though this has fluctuated considerably betweenalmost 7Z in the 50's and 32 in the 70's. Over the past decade the growth inNTKMs has averaged 42 p.a., with particularly strong growth in 1986 and 1987.IR's Corporate Plan 1985-2000 (paras 3.01-3.03) projects IR's freight trafficto reach 400-430 billion NTKMs by 2000, implying an average annual growthrate of 5.0-5.5Z between 1987 and 2000. This is predicated on GDP growingat 4.5-5.02 p.a., and on rail's modal share increasing from its present levelof less than 602 (Annex 1.2) to 65-75%. The Bank's projections (Annex 2.6)imply a growth rate of about 42 p.a., reflecting an assumption that rail'smodal share will remain at its recent level (para 1.01).

2.17 The composition of freight traffic has changed considerably, withseven major bulk commodities accounting for 83% of total NTKMs in 1987,compared with 662 in 1971 (Annex 2.5). Most of this increase is attributableto coal, foodgrains and fertilizers. IR expects most of its future trafficgrowth to occur in coal, cement, foodgrains, and "other goods" (reflectingcontainerization). This assessment seems reasonable, and the Bank's projec-tions by commodity (Annex 2.6) reflect the commodity composition projected inIR's Corporate Plan.

2.18 Non-suburban passenger-kas have grown at 3.5Z p.a. since 1951, andat 52 p.a. over the past decade. Virtually all of the growth in passenger-kus over the past decade has occurred through increased journey lengths,reflecting market trends (reinforced by IR's pricing strategy) for road tocapture the shorter-haul non-suburban trips, for which it is better suited.IR's Corporate Plan assessed the market prospects of the separate non-suburban services (first class, second class, air-conditioned sleeper andchair services, second class express and second class ordinary) and theseparate projections imply an overall average growth rate of 42 p.a. Theanalysis is sound and the Bank has adopted these projections for the finan-cial assessment in Chapter IV.

2.19 Suburban passenger-kms have grown at just under 62 p.a. since 1951,but only at 2.42 p.a. over the past decade, largely influenced by a downturnfollowing a major fare increase in April 1983. IR's Corporate Plan expectssuburban traffic to grow at 62 p.a., but this appears optimistic, and a 42growth rate has been adopted for the Bank's financial projections.

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G. Investment

2.20 Annex 2.7 presents IR's investment from 1962 to date, and asprojected in the Seventh Plan (1986-90) and Corporate Plan (1985-2000). Asalready noted, the annual level of investment approximately halved after 1966and did not re-attain its pre-1966 level until the 1980's. Between 1966 and1980, investment focussed on motive power and rolling stock, which accountedfor almost half of IR's annual investment expenditure by the late 1970's. Toaccommodate this, new line construction was radically curtailed, but so toowas track renewal, on which annual expenditures from 1967-80 averaged littlemore than a third of the level attained in the early 1960s.

2.21 In response to increasing arrears of track renewal, and the needto upgrade track for modern operations, track renewals were substantiallyincreased in the Sixth Plan (1981-85)4 This effort is projected to continue,with track expenditures accounting for 20% of IR's investment to year 2000,compered with about 10% in the 15 years to 1980. IR is now also sig-nificantly increasing its expenditures on workshops, plant and machinery (8Zof planned investment to 2000, compared with 3% until the late 1970.) toprovide efficient maintenance capacity for the motive power and rolling stockfleet which has grown in size and sophistication over the years (Annex 2.1).Future investment plans provide for a substantial increase in signalling,telecommunications and computerization (7% of planned investment to 2000,compared with 2-4% in the past), which have been relatively neglected in thepast but are essential to improving the utilization of IR's motive power androlling stock, and thereby substantially reducing the need for future invest-ment in these areas.

2.22 Overall, the thrust of IR's investment plans is sound, focussing onrenewal and modernization, with relatively little being devoted to new lines,track doubling, and gauge conversion.

III. THE PROJECT

A. Project Context: IR's Corporate Plan 1985-2000

3.01 Early in the formulation of the proposed project, it was decidedthat the justification for further Bank assistance to IR would need to beassessed within the framework of the broad institutional changes necessaryfor IR to efficiently perform its future role. At the time, IR was in themidst of preparing a Corporate Plan for the period 1985-2000, taking intoaccount, inter alia, the recommendations of several recent committees,including the National Transport Policy Committee (1980), the Rail TariffEnquiry Committee (1980), and the Railway Reforms Committee (1982-85).

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During project preparation, the Bank reviewed the Corporate Plan to assesswhether it constituted a satisfactory long-term framework for futureassistance.

3.02 The Plan, which has just recently been endorsed by GOI, definesIR's economic role, identifies the investment and other measures necessary tofulfill that role, and contains a financing plan complete with cost reductionand revenue measures necessary to mobilize the funds required for the invest-ment plan. The Plan is summarized in Annex 3.1; its key features are:

(a) a projected doubling of traffic between 1985 and 2003;

(b) an objective of accommodating this traffic while maintaining thelabor force at about its present size 1/ and reducing cost per unitof output by 15Z in real terms;

(c) pursuing this objective by:

(i) focussing investment expenditures on modernization and improv-ing productivity, rather than capacity expansion per se;

(ii) focussing investment on BC heavy density routes, whichaccount for most of IR's traffic;

(iii) running heavier and longer trains, using larger wagons;

(iv) in freight operations concentrating on point-to-point bulkmovement with unit trains;

Cv) modernizing and rationalizing workshops, yards and terminals,closing down redundant facilities and uneconomic branch lines;and

(vi) improving manpower planning, job design, promotion policiesand training.

(d) planned investment (expressed in 1985 prices) over the 15-yearperiod of Rs 462 billion (US$ 36 billion), approximately half ofwhich would be for replacement; this implies average annual invest-ment of about Rs 30 billion (about US$ 2.3 billion), about doublethe level achieved during the Sixth Plan (1981-85), but of asimilar order to that provided for (and being achieved) in theongoing Seventh Plan (1986-90); and

I/ This implies that output per employee will grow at about 4.5Z p.a.,compared with 3X p.a. 1961-85).

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(e) financing all replacement expenditure from depreciation provisions,plus in effect increasing internal financing of new investment byimproving the operating ratio from 961 in 1985 to 831 by 2000.

3.03 The Plan has been reviewed by the Bank. While its goals areambitious, the underlying strategies are sound, and the Corporate Planprovides a very useful framework within which to design future Bankassistance. During implementation of the proposed project, it is intended tomonitor progress towards the Plan's main goals. Accordingly, atnegotiations, GOl/I agreed to review annually progress in implementing thePlan, against various intermediate indicators related to output, equipmentavailability and utilization, and labor productivity (Annex 3.2), and toinform the Bank of the results of this review.

B. Rationale and Objectives

3.04 The rationale for continued Bank assistance to IR is to supportimplementation of key elements of IR's Corporate Plan, especially:

(a) improved utilization of assets;

(b) improved planning and investment in key areas; and

(c) increased internal generation of funds for asset renewal and newinvestment.

Specifically, this project would seek to improve the planning and executionof IR's track renewal/upgrading and maintenance program, enhance the qualityand capacity of track by assisting IR overcome its substantial arrears inthis area (thereby promoting more efficient train operations), and improveIR's financial performance. The proposed project would complement recentprojects, which have supported modernization in other areas (design andmaintenance of motive power and rolling stock, and electrification). Otherpriority areas, which could be the subject of future Bank assistance, aremodernization/rationalization of terminals and yards, improvements to sig-nalling and telecommunications, and introduction of computer-based operationsinformation systems.

C. Project Description

3.05 The proposed project would comprise the following main components:

(a) renewal/upgrading of track on arterial (A routes) and other heavydensity routes;

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(b) equipment for track relaying and maintenance;

(c) locomotives and wagons for transport of track material; and

(d) technical assistance and training.

Track Renewal/Upgrading

3.06 As part of project preparation, IR have produced a track masterplan, satisfactory to the Bank, which inter alia provides an economic jus-tification for proposed track standards, a medium-term plan for overcomingarrears of economically warranted renewal, and an appropriately dimensionedand distributed program, having regard to likely funding. IR's total trackrenewal/upgrading program for FY90-92 is summarized in Annex 3.3. IR hasrequested Bank assistance for that part of the program relating to arterial Aroutes (para 2.05) and other heavy density routes, generally carrying morethan 15 million gross tonnes per year. The project will support 4,000 trackkms of renewal, which will cover most of IR's FY90-92 program for theseroutes. Annex 3.4 gives details of the project routes, which are shown onMap 19974.

3.07 The project will replace low tensile (72 UTS) jointed 45 or 52 kg/mrail on wooden or cast steel sleepers with high-tensile (90 UTS) long-welded60 kg/m rail, generally laid on pre-stressed concrete sleepers. The newstandard, comparable to that used by other railways with similar traffic(Annex 2.2), will substantially reduce track maintenance requirements sincethe new rail will have double the life, the heavy concrete sleepers withincreased ballasting will stabilize the track, and the welding of joints willeliminate joint repairs and reduce rolling stock maintenance. By eliminatingspeed restrictions, the new track will also improve utilization of motivepower and rolling stock, and increase line capacity.

Track Equipment

3.08 Traditionally, track renewal and maintenance has been done manuallyalthough IR has already begun introducing mechanized methods on some of itsmost heavily-trafficked sections. Manual methods are too slow, and thequality of work deficient, for IR's high density routes. The project there-fore provides for modern track laying and maintenance equipment such asrelaying trains, continuous tamping machines, dynamic track stabilizers,ballast cleaning machines, welding plants, grinding machines, and ancillaryequipment (Annex 3.5). The new machines will substantially increase IR'srenewal capacity, reduce the track occupancy required for renewal and main-tenance work, and improve track quality.

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Locomotives and Rolling Stock

3.09 The huge track renewal program will require considerable transportof material, in some cases over long distances. The project thereforeprovides locomotives and specialized wagons for this purpose.

Technical Assistance and Training

3.10 Technical assistance and training will be provided in three areas:

(a) manpower planning;

(b) planning of track renewal and maintenance programs; and

(c) technical training in the operation and maintenance of the trackequipment to be procured under the project.

3.11 As indicated in para 3.02, IR plans to accommodate an expecteddoubling of traffic between 1985 and 2000 with virtually no increase instaff. This will require a considerable transformation in its labor force,to cope with mechanization of track work, new maintenance regimes (e.g.,making more use of unit exchange systems), more sophisticated motive powerand rolling stock designs, yard and terminal modernization/rationalization,and computer-based operations information and reservation systems. IR'sCorporate Plan recognizes that providing for this transformation is animmense task, requiring improvements in IR's manpower planning, and a sub-stantial re-orientation of IR's training effort. Whilst IR can itself imple-ment many of the required improvements, it will still require assistance inspecialized areas of manpower planning and training. The project providesfor 180 staff-months of such technical assistance.

3.12 While the quality of IR's track planning compares favorably withthat of many railways in developed countries, in view of the magnitude ofits track expenditures, IR should analyze more systematically the economicimplications of alternative renewal/maintenance strategies, and the conse-quences of alternative levels of track expenditure. The project provides 180man-months of technical assistance to promote this work.

3.13 Approximately 90X of the technical assistance man-months for man-power and track planning is expected to be provided from domestic sources.

3.14 Most of the training required in operating and maintaining moderntrack equipment will have to be provided overseas at equipment manufacturersand at railways using similar equipment. The cost of such training isprovided for in the project.

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D. Project Cost and Financing

3.15 The total cost of the project is estimated at Rs 16,875 million(Uvf 1,206 million), with a foreign exchange component of US$ 390 million, or3rA. The cost estimate, sumarized below and detailed in Annex 3.6,includesidentifiable taxes and duties of Rs 4,744 million (US$ 323 million). Totalproject cost, net of taxes, is Rs 12,131 million (US$ 883 million). Basecosts are expressed in March 1988 prices. The costs of goods are based uponex-factory prices for similar items manufactured in India and recent pricesof imported material and equipment. Cost estimates for consultant servicesare based on Rs 20,000 per staff month for local and US$ 15,000 per staff-month for foreign. The local rate is consistent with prevailing rates; theforeign rate is at the upper end of the spectrum, recognizing the highlyspecialized and short-term nature of the services. Provision is made forinternational travel and per diem where appropriate. There is no provisionfor physical contingencies due to the program nature of the project. Pricecontingencies are estimated on the basis of the implementation schedule andthe following forecast of price escalation: for local cost, 8Z in 1988-89, 7Xin 1990, and 6% p.a. thereafter; for foreign cost 42 p.a..

Foreign==--- Rs Million ---- US$ Million ---- as Z of

Item Local Foreign Total Local Foreign Total Total

1. Track Renewal/Upgrading 8,789 3,179 11,968 610 244 854 292. Track Equipment 1,222 1,297 2,519 81 100 181 553. Locomotives &

Rolling Stock 150 1 151 11 .. 11 14. Training & Tech-

nical Assistance 8 27 35 1 2 3 77

5. Base Cost 10,169 4,505 14,673 703 346 1,049 336. Price Contingencies 1,636 565 2,202 113 44 157 28

7. Total Cost 11,805 5,070 16,875 816 390 1,206 32

3.16 The proposed Bank loan of US$ 390 million would finance 1002 offoreign costs and 44Z of total costs excluding taxes and duties. GOI wouldfinance the balance of US$ 493 million equivalent, excluding taxes andduties. Retroactive financing up to US$ 10 million is proposed for expendi-tures incurred on track equipment and consultant services between April 1,1988 and the date of the Loan Agreement.

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e. Implementation, Disbursements, and Auditu

3.17 IR will implement the project and is well organized to do so. Allpreparation work is complete. The track sections to be renewed have beenidentified; however this will be reviewed annaally in the light of trafficand operational developments, and relative rates of deterioration of thevarious sections. The Implementation Schedule (Annex 3.7) was agreed atnegotiations, as were progress reporting requirements. The loan is expectedto be fully disbursed over a five-year period ending December 31, 1993(Annex 3.8). This is considerably sooner than the June 30, 1997 date impliedby the standard disbursement profile, because of the progress already made inprocurement, and because the project is much simpler in its procurementfeatures than standard railway projects (i.e., a relatively small number ofcontracts, generally with simple specifications).

3.18 The proposed loan would be disbursed as follows:

(a) 100% of the foreign cost of imported items;

(b) 100l of the ex-factory cost of items from domestic suppliersprocured under ICB;

(c) 100% of the cost of technical assistance and training.

To facilitate disbursements, a specia- account will be established with anauthorized allocation of US$ 30 million.

3.19 Auditing arrangements are discussed iu para 4.02.

F. Procurement

3.20 All material (all rails and about one third of the steel sleepers)and equipment financed under the loan (Annex 3.5 provides details) will besubject to international competitive bidding (ICB) in accordance with BankGroup Guidelines. All Bank financed contracts in excess of US$ 1 millionequivalent will be subject to prior Bank review, but the extent of reviewwork will be minimized by IR's agreement (obtained at negotiations) to usestandardized documents acceptable to the Bank. Local manufacturers areexpected to bid for certain ICB contracts and domestic preference of 15Z orthe applicable rate of customs duty, whichever is less, would be applied forthe purpose of bid evaluation. Procurement of government financed items willbe according to satisfactory local competitive bidding (LCB) procedures or byother methods (direct purchase from IR sources, or from sole source domesticsuppliers) which are satisfactory. Ballast and almost 90% of the concretesleepers will be procured under LCB. Track items not subject to ICB or LCB(the remaining concrete and steel aleepers, welding supplies, labor forhandling materials) will be supplied directly by IR or directly purchasedfrom single domestic sources. Technical assistance will be provided by

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specialist consultant firms who will be appointed in accordance with the BankCuidelines. To expedite project implementation, there has been advancecontracting of some track equipment to an estimated value of US$ 35 million,in respect of which retroactive financing up to US$ 10 million is proposed.

3.21 Procurement arrangements are summarized as follows:

Procurement Arrangements 1/

(Estimated Cost in US$ Million)

Procurement Method

Project Component ICB LCB Other NA 2/ Total

Track Renewal/Upgrading 275 151 320 3/ 236 982(275) (275)

Track Equipment 113 - 6 3/ 88 207(113) (113)

Locomotives - - 4 3/ - 4

Wagons - 10 - 1 11

Technical Assistance 2 4/ 2and Training - - (2) - (2)

Total 388 161 332 325 1,206(388) (2) (390)

I/ Figures in parenthesis are the amounts to be financed by the Bank.2/ Customs duties and taxes.3/ Direct purchase from IR manufacturing plants or sole source suppliers

in India, or employment of casual labor.4/ According to Bank Guidelines.

C. Economic Evaluation

Introduction

3.22 The economic evaluation is conducted in three stages. First,alternative rail weights are compared in the abstract (though using assump-tions representative for India) to ascertain whether the rail standardproposed by IA for the project routes is appropriate, if one were starting de

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novo. Secondly, the econoaic merits of renewing and upgrading existing"over-age" sections are determined for the range of traffic levels found onthe project routes (viz., by 1989, the initial year of projectimplementation, 13-35 MGT p.a.). Finally, sensitivity tests are conductedfor lower traffic growth assumptions, and for reduced maintenance and operat-ing savings.

3.23 Throughout, costs and benefits have been converted to economicprices by: (a) expressing the imported content rt cif prices; and(b) applying the estimated standard conversion factor of 0.8 to local costs.Because costs and benefits of each alternative are assumed to be uniform forany km of the project routes, except to the extent they are influenced bytraffic levels, the analysis is conducted throughout for one km of track.

Analysis of Proposed Rail Standard

3.24 The assumptions and results of this analysis, for varying trafficlevels, are presented in Annex 3.9 Tables 1-6. The results indicate that60 kg/90 UTS rail is the appropriate choice for IR sections with initialtraffic between 10 and 35 MGT p.a., and that these are approximately thelimits for this rail weight. At 10 MGT (Table 1) 60 kg rail has a lower netpresent value (NPV) cost than 52 kg rail at discount rates up to 10%, but52 kg rail is marginally cheaper at 12% discount rate. The opportunity costof capital for renewal work (i.e., the return on the next best alternativeprojects foregone by IR) is judged to be in the range of 10-12%. At 15 MCTp.a. (Table 2) 60 kg is cheaper, even for discount rates as high as 15Z, andthis remains broadly true up to 30 MGT p.a. (Tables 3-5). At initial trafficof 35 MGT (Table 6) 65 kg rail becomes attractive at 10% discount rate, but60 kg and 65 kg are approximately equivalent at 12% and 60 kg is preferableat 15% discount rate.

Rate of Return on Proposed Renewal/Upgrading Work

3.25 This analysis requires comparison between a "project" case and a"without project" case. As indicated in Annex 3.4, there are almost5,000 kms of track overdue for renewal on the project routes. The projectwill renew and upgrade the worst 4,000 kms and, as can be inferred frompara 2.06, this generally consists of jointed 45 kg/72 UTS rail on eitherwooden or cast steel sleepers, on a deficient ballast cushion.

3.26 It is assumed that, without the project, track maintenance costswould increase for 5 v,ars,i at which time further intensification of main-tenance would be infeasible and the track would be replaced by 52 kg/72 UTS(the rail generally manufactured in India). Detailed assumptions are listedin Annex 3.9. Operating costs on the new 60 kg track are assumed to be 5%lower than on the existing track. This reflects such factors as fuelsavings, reduced detentions and diversions of trains due to reduced trackoccupancy for maintenance work and longer renewal intervals, better utiliza-tion of locos and rolling stock due to diminished speed restrictions, and

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reduced maintenance of rolling stock attributable to elimination of railjoints.

3.27 The results of this analysis (Annex 3.9, Table 7) indicate thatthe average rate of return for the track renewal work as a whole would be20. The return on the individual subprojects would range from 16Z (Table 8)for the sections wich lowest traffic (13 MGT p.a.) to 29X (Table 9) forsections with the highest traffic (35 MGT p.a.).

Sensitivity Tests

3.28 The economic benefits of the project are not very sensitive tofuture traffic growth. If future traffic growth is only 2.5Z instead of 52p.a., the rate of retur-r WO;J'I drop from ZO% to 192 (Table M0). If main-tenance and operating stvirg'. prove to be only half of those assumed in thecentral case, the rate of -e2tarn would drop from 202 to 15% (Table 11).

H. Environmental Impact

3.29 The project involves no land acquisition or resettlement. Theproject will reduce the demand for timber sleepers, and to that degree willhave a favorable environmental impact.

I. Project Risks

3.30 From the experience with recent projects, the major risk isimplementation delays. This risk is being minimized by (a) allowing advanceprocurement of equipment to implement the renewal work; and (b) selecting asthe major project component an item which is straightforward and free of thecomplex design and procurement issues which have been a feature of recentprojects.

IV. FINANCE

A. Introduction

4.01 GOI's financial policy towards IR has been designed over the yearsto allow it to earn net revenues sufficient to cover all expenses includingdepreciation and a dividend to COI. Funds for capital expenditure other thanreplacement of assets are provided by GOI and are added to a capital-at-charge account, which is a liability of IR in perpetuity and on which IR is

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expected to pay a dividend at a rate recommended by a Parliamentary Committeefrom time to time. The present rate of dividend on current investments isabout 6.5Z per annum. In years in which IR does not generate a net surplussufficient to pay the dividend in full, the unpaid amount is carried forwardas a contingent liability, without interest. IR finances capital expenditurefor asset replacements by a charge against revenues through the DepreciationReserve Fund (DRF). IR proposes tariff increases at the beginning of afiscal year based on its expected resources and traffic in the ensuing year.The assumption is that the tariffs set at the forecasted traffic level wouldresult in revenues sufficient to meet the financial poLicy objectives. As IRis a departmental undertaking of COI, the commercial freedom allowed IR isconstrained by Governmental policy.

4.02 Financial arrangements with the Government and audit proceduresare, with some improvements noted in paras 4.03-4.04, the same as when thefirst Modernization Project (Credit 844-IN) was appraised in 1978. Theaccounting function is efficient, well-organized, and well-staffed withsatisfactory budget control and operating systems. In addition to a largeand efficient internal audit, an exhaustive statutory audit is conductedunder the direction of the Comptroller and Auditor General of India (C&AG),who reports to the Parliament through the Public Accounts Committee. Auditedfinancial statements are finalized within eleven months of year end andpresented to the Parliament for approval. IR has under previous projectsconsistently provided the Bank Group with audited accounts. IR also providesreports of project expenditure in a timely manner and to the satisfaction ofthe Bank Group. GOI has agreed that IR will, in accordance with soundaccounting and auditing principles and procedures approved by C & AG, main-tain records and accounts to reflect its resources, expenditures, and opera-tions related to the project and have IR's accounts for each fiscal yearaudited by C & AG. IR will furnish to the Bank such accounts not later thaneleven months after the end of each such year together with a report of theauditors.

B. Recent Changes in Financial Policies

4.03 Two developments are worthy of note, one concerning the allocationto DRF for renewals and replacements of aging assets, and the other a newpolicy for IR to borrow in the market to supplement 'capital' drawings fromthe Government, which hitherto had been the sole source of funds for newassets.

4.04 In regard to the first development, DRF in effect has always been arenewal and replacement fund and not a depreciation provision in the normalaccounting sense. This is not an uncommon practice in railways around theworld. The drawback in IR in the past has been that the allocations to DRFhad proved insufficient to take care of need-based replacements because theseallocations have been determined on an annual basis, influenced byavailability of financial resources, physical constraints (e.g., how many

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wagons can be manufactured) as well as the complexities of ascertaining theoptimum timing of replacement. A Railway Reforms Committee (RRC) appointedby the Government in May 1981 cautioned against scaling down the contributionto DRF in order to meet IR's full dividend liability to the General Exchequerand indeed proposed that the Government should waive dividends as nece aryin order to make up the arrears. The RRC further recommended that IR nducta detailed review of the precise effects of the past policies, identify thepolicy changes and specific measures required, and seek the approval of theRailway Convention Committee (a Parliamentary Committee concerned withRailway finances) for such changes and measures.

4.05 In response to the RRC recommendations and to Bank concerns on thesubject (para 1.16), IR has quadrupled its allocations to the DRF in the lastfive years (para 4.10), and appointed RITES, a subsidiary of IR, to carry outthe recommended detailed review of the DRF. This review has just beencompleted. The salient recommendations are:

(a) Instead of the present method of ad hoc annual appropriations toDRF to meet replacements as considered necessary, the DRF provi-sions should be made with reference to current cost of assets,updated each year, and the prescribed lives of the assets.

(b) Annual withdrawals from DRF should be related solely to the presentday cost of assets due to be replaced in a given year though itmight lead to greater demands on DRF in certain years and mightleave some unspent balance in other years.

(c) Asset registers should be introduced with the help of computers.Until this is done, IR should use the the current replacement costsof all assets as worked out in the report (with reference to thephysical quantum and unit prices as of March 31, 1986) in order toarrive at the depreciation contribution for each subsequent year.

(d) Arrears in replacements of overaged assets estimated at Rs 62,000million (9X of IR's total asset value in current costs) as ofMarch 31, 1986 should be eliminated over a ten-year period, underspecial financing arrangements to be agreed to by GOI, withoutthere being a charge to the revenues of IR.

4.06 These recommendations are sound and far-reaching, requiring deci-sions by IR, the Ministry of Finance, and Parliament. During negotiations,GOI/IR stated that the recommendations are under examination by IR.Thereafter the considered views of GOI/IR would be placed before theParliament's Railway Convention Committee. IR will keep the Bank informed ofthe conclusions reached/decisions taken. Meanwhile IR has agreed to maintainthe provision for depreciations in the period 1990-1994 at not less than thebudgetary provisions made in respect of 1989, namely Rs. 15,000 million.

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4.07 The second development mentioned in paragraph 4.03 is in accordancewith the recent policy of the government that the public sector shoultdapproach the market for part of the financial resources needed forinvestment. Initially, IR's investment allocation under the Seventh Plan(FYs6-90) was Ra 1234340 million (FY8S prices), and the intention was tofinance the outlay exclusively from internal resources and capital drawn fromthe Government, in accordance with past practice. In the first two years ofthe plan, IR incurred 34% of the plan expenditure and financed 542 of it frominternally generated funds; the balance was provided by the Government. Inview of higher traffic growth than foreseen when the Plan was formulated,the Planning Commission, during its recent mid-term review of the Plan,approved a 101 increase in IR's investment program. This higher level ofinvestment during the remaining years of the Seventh Plan is expected tocontinue during the Eighth Plan period (FY91-95).

4.08 IR is resorting to bond issues to finance the additionalinvestment. The first offering of this kind was in FY88 and was successful.IR formed a wholly owned subsidiary, the Indian Railway Finance Corporation(IRFC), which raised Rs 2,500 million, at an interest rate of 101 andmaturity of ten years. Offerings will be repeated annually. IRFC will buyassets such as rolling stock and lease these back to IR in exchange for leasepayments. These arrangements would not only facilitate IR having a largerinvestment (through IRFC), but also in the long run tend to be more advan-tageous compared to obtaining the additional capital from the Government andpaying a dividend thereon in perpetuity. (That is, the cost to IR in netpresent value terms of paying lease charges for ten years, then acquiring theasset free of charge, is less than paying a dividend at the current rate of 61/2Z p.a., in perpetuity).

C. Past Performance

4.09 IR's actual revenue and expenditure accounts for the period FY82 toFY87 are summarised below and detailed in Annex 4.1. The balance sheet as ofMarch 31, 1986 is shown in Annex 4.2.

eZCw u. . -. ._____. . _1lo2 1913 1984 298 t9b 296

Ikttutl, in cvrrt b KlilliW )

Total htt1 31,379 43,742 49,X12 53350 4,281 75,07

lhtring Epmseus 27,193 31,793 3,290 40.712 46.431 53,004toropriation to Dlt 0 3,500 5,5t0 8,500 8,500 9,200 12,500poWtapatits to PF 0 1,129 1,460 1,825 2,210 2,600 3,500

Total lwratiog Efutptn 31,822 38,33 44,615 51,422 50,231 t9,006

Nt Om , fre OWatim 3,557 4,929 3,247 2,146 4.050 4,051ttt IkscOHllaM Lip.., 147141 t60 25421 (5351 28091 27571

tet Reign 4,031 5,54 3,790 2,701 4.659 a.aoahjansta e Catital-at- 3,565 4,3w 4,237 4.a57 5,010 s.789

Casw.Not "tttlosict 44 1,183 2448) 22,954) 1,78 1,020

awrati Rti bt . 93.50 3 S .07 90.4t 91.7 L

Ratio of let Owatnl8niU to Cjital-at- 4.01 7.a2 5.02. 3.37 7.40 4.43

Ca,p

I Doretiation wnii Fiod IWF; Psai. Fed iffl.

-25-

4.10 IR consistently has earned revenues in excess of its total operat-ing expenses, which include depreciation. However, IR has not always beenable to meet its full dividend liability. Its best results were in FY86,when a large surplus was generated enabling discharge of a part of accrueddividend liability from the past. During the period FY82 to FY87, revenuesgrew faster than working expenses. Growth in the volume of traffic, atalmost 5.5X per annum during this period (with large increases in FY86 andFY87 when net ton kilometers increased by 142 and 10 respectively), combinedwith rate revisions enabled IR to substantially increase allocations to DRF,from Rs 3,500 million in FY82 to Rs 12,500 million in FY87, while stillmeting dividend liability in recent years.

4.11 A financial covenant under Loan 2210-IN/Credit 1299-IN (1962),repeated under Loan 2417-IN (1984), required IR to maintain tariffs and takeall other action necessary or appropriate, so as to meet annually out ofinternally generated resources, all operating expenses and dividend paymenton capital-at-charge. IR has generally complied with this financialcovenant. However, in FY84 and FY85, IR did not have sufficient net revenuesand had to limit dividend payments to 89X and 582 respectively, of thedividend liability. (It may be noted, however, that dividend liability isrelatively small in relation to total revenues, so that the 422 shortfall individend payment in FY85 represents a revenue deficiency of less than 42.)Subsequent tariff increases have enabled IR to meet its full dividendliability in FY86-87, and to pay off some of the accrued dividend liability,but there will be a need in the future to continuously monitor this issue.Thus, this covenant is repeated under the proposed loan.

D. Future Finances

4.12 Revenue and expenditure accounts have been projected to FY95 usinginter alia the traffic projections explained in para 2.16-19. The accountsare summarized below and detailed in Annex 4.3. Projected Source andApplication of Funds, and Balance Sheets are shown in Annexes 4.4 and 4.5respectively.

-2*-

Arco>ntHk-d H_____-_-__ ln 199 t1qw0 t991 t192 1993 J.4 199S

(In R- "illion--196 pric--)

Total Revenues 84,740 97.785 69,993 94.315 90.67g 103.691 108.772 114,126

Workinq Exponswo 6o,350 61.7tS 62,557 6%.M42 67.559 70.7t3 73,714 76,662Appropriation to DRF 4 13.%00 14.019 14.421 14,906 15.394 15.603 16,376 16.6'0Appropriation to PF 0 4, 500 5,1,4 5,750 6,000 6,250 6,500 6,750 7,000Asset Loa%* Chargp% 1C0) 670 1760.4 2751.5 3351.5 3951.5 4551.5 5151.5total Opertinq Expons@s 76,450 61,542 04,409 e6,600 92,654 97,040 101,391 1050,34

Not Revwnfe from operatic.n 6,290 6.243 5.504 5.515 6.024 6,643 7,361 8,243

Net Niac.Ilan.ouu ReCeipt. 00(' 897 1,1 Q ,rev 1.91Q 2,0-'- 2 2fS,O

Net Reventu.w 7,090 7,140 7,114 7,275 7,934 6,703 9,591 10,602

Dividmnd on Capital-at- jCharqe 6,400 6.879 7,620 9.615 9.409 10,204 10,999 11.794

Not Surplun/Deficit 690 262 (705) (1,340) (1,476) (1,501) (1,406) (1,192)

Operatinq Ratio 92.5X 92.1X 91.9X 91.2X 90.5 69.6x 89.0X 63.31

Ratio of Not OporatinqRevenue to Capital-at-

Charge 6.7 5.7s. 4.62 4.7X 4.68 4.6e 5.0X 5.1S…--------------------------------------------------------------- -…-______________

* Depreciation Reserve Fund (DRF)s Peneion Fund (Pf).

4.13 Revenues and expenditures have been projected in 1988 prices.Traffic vrojections and objectives in regard to cost reductions, operatingratios and ratios of net revenues to capital-at-charge are broadly consistentwith IR's Corporate Plan (1985-2000) parameters.

4.14 These financial projections imply that provided tariffs are main-tained at FY88 levels in real terms, IR would be able to make DRF allocationson an annual basis to cover adequately the current needs for renewals andreplacements. From FY90 onwards, however, IR would need to raise tariffs by2Z annually, in real terms, in order to meet the dividend liability in full.IR's attention was drawn to these financial projections and theirimplications. IR stated phat the assumptions underlying the projectionswould be reviewed as evunts unfolded in the future, and appropriate actionwould be taken, if required, to meet the covenant referred to in par& 4.11.

-27-

V. AGREEMENTS AND RECOKOENDATION

5.01 During negotiations, agreements were reached with GOI on the fol-lowing principal matters:

(a) annual review of IR's progress in implementing its Corporate Plan,within the framework of targets related to output, equipmentavailability and utilization, and labor productivity (para 3.03);and

(b) IR will maintain tariffs and take all other action necessary orappropriate to meet annually out of internally generated resourcesall operating expenses (including adequate DRF allocations) anddividend payment on capital-at-charge (paras 4.06 and 4.11).

5.03 During negotiations, agreement was also reached on the following:

(a) the project financing plan, and retroactive financing(para 3.16);

(b) the implementation schedule, project reporting requirements andannual reviews of IR's progress in implementing its track renewalprogram (paras 2.08 and 3.17);

(c) procurement arrangements (para 3.20); and

(d) audit requirements (para 4.02).

5.04 Subject to the above, the project provides a suitable basis for aBank loan to GOI of US$ 390 million at the standard variable interest rate,for a term of 20 years including 5 years of grace.

-28- Annex 1.1

INDIA

A2ILVAY NOD ERN IZATION III PROJECT

Growth of Transport System, 1961-85

Item Unit 1961 1971 1980 1985

1. RAILVAYS

1.1 Route length Km. 56,247 59,790 60,933 61,6611.2 Electrified route length Kms 748 3,706 4,820 6,4401.3 Tonnes Million 156 196 218 2641.4 Net Tonne gun Billion 88 127 156 1831.5 Passengers Million 1,594 2,431 3,505 3,3801.5 Passenger Kms Billion 78 118 199 229

2. ROADS

2.1 Total length 000 Km. 705 917 1,534 1,7722.2 Surfaced length 000 Kms 234 398 658 8332.3 Unsurfaced length 000 Kms 471 520 876 9392.4 Natiunal highways Kms 23,769 24,000 29,000 31,7102.5 Villages connected with

all-weather roads Nos. n.a. no.& 167,376 199,7892.6 Percentage of villages

connected with all-weather roads Percent n.a. n.a. 28 34

3. ROAD TRANSPORT

3.1 Number of trucks No. 167,649 342,577 472,093 763,0003.2 Number of Passenger buses No. 56,792 93,907 140,346 206,2683.3 Tonne Kms (est.) Billion 35 67 101 131

4. MAJOR PORTS

4.1 Traffic handled Million tons 39.9 55.7 78.5 106.74.2 Number of major ports No. 9 10 10 10 1,

5. SHIPPINC

5.1 Overseas Shipping

5.1.1 Shipping tonnage Million CRT 0.54 2.20 5.30 5.975.1.2 Traffic carried Million tons 2.2 10.4 20.0 31.00

-29- _nn__ 1.1

Pag 2 of 2

Item Unit 1961 1971 1980 1985

S.2 Coastal Shipping

5.2.1 Shipping tonnage Million CRT 0.31 0.23 0.25 0.365.2.2 Traffic carried Million tons 5.4 4.3 4.4 5.5

6. INLAND WATR TRANSPORT

6.1 Length of navigablewaterways K.s 14,544 14,544

6.2 Length of waterwayssuitable for mechanizedcraft Kms 5,685 5,685

7. CIVIL AVIATION

7.1 Indian Airlines

7.1.1 Capacity Million Ton KRs 113 208 586 9607.1.2 Traffic

a) revenue ton kms Million 83 161 399 664b) revenue passenger kms Million 614 1,543 4,199 6,676

7.2 Air India

7.2.1 Capacity Million Ton Kms 161 516 1,388 2,0077.2.2 Traffic

a) revenue ton kis Million 76 275 819 1,257b) revenue passenger kms Million 583 1,994 5,731 8,623

8. PIPELINE

8.1 Length Kms - - 5,035 6,535

1/ This does not include Nhava Sheva Port, which is under construction.

Source: GOI Planning Coiission, The Seventh Five-Year Plan 1985-90,October 1985, Volume II, Table 8.1

-30-

huest 1.2

IUIA

RAILMAY IISENRU!ATION III P1UECT

Land Freight Traffic, 1951-8

(billion tkos)

sop in VKas pYer Rail R oad I Total Billion Ns b%-f OuP

1951 37.6 87.2 5.5 12.8 43.1 U75.36 0.25195t 50.4 35.0 8.9 15.0 59.3 208.70 0.211961 72.3 67.4 35.0 32.6 107.3 255.34 0.421966 99.0 64.3 55.0 35.7 154.0 290.23 0.531971 110.7 62.3 6t.9 37.7 177.6 317.31 0.461976 134.9 64.9 73.0 35.1 207.9 428.90 0.41977 144.0 65.5 76.0 34.5 220.0 431.60 0.511978 150.3 66. I O.0 33.9 227.3 469.20 0.481979 143.9 60.6 93.6 39.4 237.5 496.19 0.43190 144.6 58.9 1Ol.0 41.1 245.6 471.91 0.521981 147.7 60.1 93.0 39.9 245.7 506.23 0.491932 164.3 61.5 102.7 38.5 267.0 534.70 0.501933 167.8 61.2 101.2 38.8 274.0 550.A8 0.501984 113.3 57.6 124.1 42.4 292. 595.41 0.41985 172.6 56.8 131.3 43.2 303.9 618.3 o.4199t 196.6 53.5 139.2 41.5 335.8 649.92 0.521937 23.9 58.3 150.1 41.2 314.0 1.377 0.53

Sources: 1950/51 - 1977178 traffic figurn: Reort of tb Uatloc! TransportPolicy Committee, Planning Commissiom Nay 930.1978179 - 1936/87 traffic fiurens :Indi Railays, PlumianCommission and mission estiUtes. Rail fien eclud mn-rev_traffic.6D figurns: rlod DBnk Econoic Rwort, varios ism, Table 2.2

Septieber 197

-31- Annex 1.3

INDIA

RAILWAY MODERNIZATION III PROJECT

Experience with Recent Bank-Assisted Transport Projects

1. The Bank's past involvement in the sector (Table 1) has beenpredominantly in railways, due to the Indian authorities' preference forlocal competitive bidding in ro'd and port projects. However, followingOOI's recent decision to entertain international competitive bidding inroads and ports, the Bank has, after a long hiatus, recommnced lendingoperations in these two subsectors, with the Nhava shev- Port Prz,-.t(Loan 2387-IN, 1984, US$ 250 million), the National Highways Project (Loan2534-IN, 1985, US$ 200 million), and the Gujarat Rural Roads Project(Credit 1757-IN, 1987, SDR 101 million).

Railways

2. Through sixteen operations approved between 1949 and 1984, BankGroup assistance to Indian Railways (IR) has totalled US$ 1.8 billionequivalent. The first thirteen operations were based on one- to three-year slices of IR's investment programs and covered foreign exchange foracquisition of: (a) materials, parts and components for manufacture ofmotive power and rolling stock; (b) machinery and plant for IR manufactur-ing units; and (c) materials and equipment for line improvement works andtelecommunications. Since 1978, there have been three specific investmentprojects focussing on particular components in respect of motive power,rolling stock, workshop and track electrification. The audit (ReportNo. 6055-IN, January 10, 1986) on the Thirteenth Railway Project, the lastof the program loans, concluded that the projact "came close to achievingits principal objective to provide capacity for the forecast increase intraffic during the Project period.., and IR's operational and financialperformance improved... However, the Project included some investments oflow economic priority while inadequate resources were devoted to higherpriority investments in replacements and renewals... and resources allo-cated to the Depreciation Reserve Fund were inadequate."

3. The first of the specific projects, the Railway Modernizationand Maintenance Project (Credit 844-IN, 1978, US$ 190 million) was satis-factorily completed in late 1985, about 18 months behind schedule. Theproject had two major components: (a) support for the first phase of IR'sworkshop modernization and rationalization program; and (b) the estab-lishment of a wheel and axle plant. The audit found that the element ofworkshop modernization devoted to five major pre-specified workshops was"successful and probably justified", but that the program element ofworkshops modernization, "in which machine tools were placed in numerousshops around the country that may or may not be viable elements of themaintenance system, probably had a much lower return." Moreover littlerationalization has occurred and few of the potential labor savings havebeen realized. Regarding the wheel and axle plant, the audit noted that

-32- Annex 1.3Page 2 of 3

while this is a "model industrial operation," its economic impact has beendisappointing, because of cost overruns and the decline in the worldmarket for rail equipment. Overall, the audit concluded that any com-ponent having a major impact on the labor force needs careful design, butthat this project and its successors (paras 4-5) have "sharply outlinedthe real long-term problems facing IR and the constraints the Bank mustconsider when structuring a lending operation. This was not the case withthe earlier lending format and is the useful result of a serious attemptto effect specific changes."

4. The Railway Modernization and Maintenance Project II (Credit1299-IN/Loan 2210-IN, 1982, SDR 184.7 million and US$ 200 million) isdirected at (a) further improvements in the maintenance system throughestablishment of a facility for reclamation of diesel electric locomotivecomponents and assemblies, and the provision of unit exchange spares; (b)introduction of new electric locomotive technology; and (c) components andmaterials for new design high-capacity wagons. This project is behindschedule due to disturbances in the Punjab (the site of the DieselComponent Works), and delays in initiating procurement of electriclocomotives/components and bogies for wagons. However, 80Z of theCredit/Loan is now committed.

5. The [ailway Electrification and Workshop Modernization Project(Loan 2417-IN, 1984, US$ 280.7 million) supports electrification of about3000 route-kms, and Phase II of the workshop modernization program. Aftera slow start, physical implementation is now progressing well and theproject is expected to be completed on time. About 60X of the loan hasbeen committed.

Ports

6. The Nhava Sheva Port Project (Loan 2387-IN, 1984, US$ 250million) supports the establishment of a new bulk and container port inthe Bombay area. This project also started slowly, but physical implemen-tation is now proceeding well and is expected to be completed by June1989, about a year behind schedule. However, institutional development isbehind schedule, which may require that initial operations are contractedout to a port management company.

Roads

7. The Bihar Rural Roads Project (Credit 1072-IN, 1980, US$ 35million) comprises the construction/improvement of about 700 kms of ruralroads, and improvements to the maintenance organization (including provi-sion of equipment). This project has been implemented satisfactorily,though with some delays, and is nearing completion.

-33-

Annex 1.3Page 3 of 3

S. The National Highway Project (Loan 2534-IN, 1985, US$ 200million) aims to (a) foster institutional development by, amongst otherthing., introducing modern aspects of highway, planning, design, construc-tion and financing; (b) evaluate the extent to which modern, more fuel-efficient vehicles should be encouraged to ply Indian roads, rnd if so howto promote the appropriate vehicle fleet; (c) develop the capabilities oflocal contractors by exposing them to foreign competition andcollaboration; and (d) alleviate congestion on some key sections of thenational highway system, by the construction/ rehabilitation of some500 kas of road in six States. The civil works component is well behindschedule, due to delays in finalizing tender documents, evaluating tendersand awarding contracts. In part, these delays are attributable to theneed to familiarize the state agencies responsible for executing thiscomponent with Bank procedures. However, most of the contracts have nowbeen awarded. The institutional components are progressing well, althoughthe Vehicle Fleet Modernization and Road User Charges Study was initiatedbehind schedule.

9. As the Gujarat Rural Roads Project (Credit 1757-IN, 1987,SDR 101 million) became effective only in August 1987, there has not yetbeen sufficient implementation experience to draw any conclusions.

-34- &o 1.3

TiIs I

lUll

KIMU m 11101191 III Fowl

Igra,a Claim, Lam katlb. kta Dta Amtant *M aersd Rita

1R Lw ail bilay 17 I/49 311 34.4 321.1 CamlIt.cad hilay 147 7157 IV1 24.4 24.4 lIota.

Mta blqay to 7157 2s IT 19.11 39.11 C_dtuSKW kilaY 19 77 123 11.24 11.2 Caota

tmd pailey 17 7n7 1S 15.3 35.73 ComldtThird uilqm 267 913 U!IJ I.4 a. CwetF_wtb biI 23 71 4140 3.4 30.4 CmpItefifth bimap 2Z 710 llU 7 .41 3.41 Cayletotiuh hblUa 2" 1U/U1 1VU 3.0 3.4 CompleteSecod l WIbM izati 2U1 1IV2 91U Z4.4 2.94 I/

hIlla UKtrificatia 2417 11M 9ne 33.70 73.3

hitatal 135.71

hrt Calcttta Prt ITt 413 12s 29.41 29.41 ComleteU*M Part I 413 U1 14.00 10.47 Colete

ard Caltctta Prt 29 7141 711 21.0N IL14 CmpIota*Ava rn Part 237 3)34 4139 256.41 12.3

khtatal 314.60

has hlany Obr Trm rtatiro I 10114 4134 2.41 25.01 Complete

blkimal Kighua 2534 51M 12192 24.41 23.43

itstali 225.2z

ir ir lndia 141 317 IV2 5.41 5.4 Cayite

total 1 La" 1414.31

IN Credits til hmtdh lal 34 31b3 31U 31.43 11.4t CUplete- hioth laila 47 U164 1)44 74.79 74.79 C lb

Neta hump N 44 1 141 3 t2.03 32.31 CompleteTat bilm la2 9)4 9171 4.315 44.35 CayletaElnat blilmp 30 1172 9n4 79.9 79." CpletkTalfth bilqa 448 12173 9/75 N.4 4.N ComltThirtoath klam 32 5U 917s U10. I0U Completehillay Nai". I klta. 344 373 9135 llt.4 193.41 Camlet244 hilay bd. I Sate. 129" 11H2 9/U 23.43 211.14

Ihte,tel 1033.2

Prt haay Part 2 7142 IU17 21.09 13.41 Completeaii bipplag 2 32 4175 .49 3.49 Comlete

fhtetal 10.71

bod ho 3 UU3 UU 7 72.11 71.3 CaplateWrha Trauort 103 )10 IV15 54.4 44.57 Camlteibr bral Ie 172 II/t U37 34U 32.33hjirat hlradl 1757 23 12194 133.49 4.13

hitetal 33.44

TOl 13 Cradit 1427.41

T I T AL IW LI M U 1A CIIT1 2331.74

11 Wrt fra initiatin fae, 1m mill adt be rm qantatil crdit fw am project is fully diadrd.

-35-

Annez 2.1

INDIA

RAILWAY MODElRNkATION III PROJECT

IR's Motive Power and Rollin& Stock. 1951-86

1951 1961 1971 1981 1986

Locomotives

Steam 8,120 10.312 9.387 7.469 5.571Diesel 17 181 1.169 2,403 3.047Electric 72 131 602 1,036 1.302

Total 8.209 10.624 11.158 10.908 9.920

W-aonc 205.596 307.907 383.990 400.946 359.614

Coaches

EmU 460 846 1.750 2.625 2.966Other 19.168 27.593 33.395 35.708 35.218

Total 19.628 28.439 35.145 38.333 38.184

Source: IR. Year Book, various issues.

-36- Annex 2.2

INDIA

RAILWAY MODMRNIZATION III PROJECT

Track Standards on Soe Major Railway Systes

Rail Section No. of BallastCountry (Kg./m) Sleepers/km. Cushions (cm.)

France 50 to 60 1,666 20 to 25

Germany 49 to 60 .1,250 to 1,540 30

USSR 50 to 75 1,872 25 to 35

China 43 to 60 1,600 to 1,920 30 to 40

Japan 60 1,720 25(standard gauge)

India 45 to 60 1,310 to 1,660 15 to 30(broad gauge)

NOTE: Ranges reflect varying standard in relation to traffic levels ormaximum speeds. Thus, in India for a line with over 20 milliongross tonnes per annum with speeds up to 160 kmph, the standard is60 kg rail, 1660 sleepers/ku and 30 cm of ballast, whereas for abranch line with less than 5 million gross tonnes per annum and amaximum speed below 100 kmph, released rails of 45 kg/m may beused with 1310 sleepers/km, and 15 cm of ballast.

Source: India Railways, Project Report on Rehabilitation and Modernizationof Permanent Way, June 1987.

-37-

Assex 2. 3

INDIA

RAILWAY NODDIMIZATIOW III PIOJECT

SKLBCTIVE OPEnATIOKAL STATISTICS (SC), 1980-86

FY o 81 82 83 84 85 86

1. Locomotive Availability (2)

(a) Diesel n.a.-'/ n.a. 83 83 82 82 81(b) Electric n.a& n.a 79 76 76 76 79

2. Locomotive Utilization(Km per available locomotiveper day)

Passenger

(a) Diesel 630 610 621 664 696 746 764(b) Electric 452 453 453 457 428 438 448

Freight

(a) Diesel 302 303 347 364 388 407 416(b) Electric 289 224 355 380 396 385 395

3. Wagon Availability (2) 96 95 93 93 93 94 95

4. Average Wagon Load (Tonne) 19 20 19 19 19 19 20

S. Wagon Utilization(Net-tonne km per wagon per day) 972 896 1,112 1,123 1,112 1,115 1,296

6. Coach Availability (2) 86 86 85 85 86 87 87

7. Cross Trailing Load per FreightTrain (Tonne) 1,694 1,721 1,780 1,766 1,787 1,843 1,955

8. Net-tonne Load per FreightTrain (Tonne) 863 884 911 898 892 922 1,001

9. Traffic units per Employee ('000)(Total staff) 229 234 256 252 251 255 277

1 Not available on a comparable basis.

-38-

_m 2.4

INIA

MILtIlY ImIZAtOII l1 PIIECT

Rail Freight and Psaen Traffici 1951 - 1

Revenue Freight Traffic Pas_ru Traffic

Nam-Shrhaa Traffic hbm Traffic a,

Yer Tunnes Total Ton- Average Passgrs Passner- Averae Passengers Pumeer- Averag

ending Kiloceters Lead Originating Kilamtws Lead Originating KilUntr Lad

BIrch 31 million nillion Kilometers sillion million Kilntmrs sillien million Kil tens

1951 73.2 37,565 513 872 S5,936 0.8 412 6,551 15.9

1956 92.2 50,435 541 70 54,273 69.6 495 8,12 16.4

1961 119.9 72,333 603 914 65,899 72.1 t80 11,770 17.3

1966 162.0 9B,978 1t1 1,064 79,130 74.4 1,013 17,164 16.9

1971 167.9 110,696 659 1,212 95,136 J8.5 1,219 22,914 16.9

1976 196.9 134,874 685 1,306 115,09 8B.7 I, 32,U2 20.1

1977 212.6 144,030 677 1,499 126,754 94.6 1,302 37,02 20.6

1978 210.8 150,250 71! 1,576 137,201 87.1 1,923 39,433 20.4

1979 199.6 143,870 721 1,606 149,50 93.1 2,113 43,439 20.6

1990 193.1 144,559 74 1,602 159,927 99.9 1,903 33,730 20.4

1981 195.9 147,652 754 1,613 167,472 103.9 2,000 41,06 20.5

1992 221.2 164,253 743 1,640 176,322 107.9 2,064 43,965 21.3

1913 228.8 167,791 733 1,t26 181,142 111.4 2,029 45,7 22.6

1914 230.1 168,849 734 1,4 130,906 121.3 1,334 42,127 23.0

1985 236.4 172,632 730 1,449 192,318 125.9 1,334 44,264 23.5

1911 25B.5 196,600 760 1,549 195,175 126.0 1,37 45,4 24.1

1987 277.8 213,921 770 1,615 208,470 129.1 2,006 47,=0 23.4

Growth Rates I I I

1951-61 L.9 0.9 6.

1961-71 4.3 3.7 6.9

1971-91 2.9 5.3 6.0

1977-87 4.0 5.1 2.4

1951-87 5.0 3.5 5.6

IWA

Mi? 1111TIIIIIJll RTA

Rail Frmiht Traffic by hjr Cms itin

1m - 1117

Traffic Catory 1971 1974 I 1912 M1 1914 15 19 19"7

T TIN T TIM T m I To T TIM T TN T 11 T TN T T3

Stel Plato 22.4 3,910 27.7 11,744 27.7 12,110 32.6 15,147 31.3 15,472 29.5 14,3 33.3 14,470 31.3 15,70 3.4 11,?7

Coul 47.9 27,340 64.3 37,54 44.1 34,373 75.3 43,741 82.3 47,393 ".0 54,736 19.5 54,07 101.7 6,401 109.4 71,70

Irm Ore for Eaport 9.3 5,490 11.3 7,171 11.1 7,293 11.2 4,517 9.9 5,741 9.1 5,253 11.1 6,454 12.5 7,273 14.2 3,674

caut 11.0 4,99 11.4 3,427 9.6 7,19 10.3 3,072 12.3 9,159 15.4 10,550 14.9 11,073 1u.0 11,72 It.$ 12,13

Fot_raims 15.1 14,510 16.2 15,470 11.3 24,366 21.5 21,111 26.7 30,417 2 6. 30,240 29.3 25,4l 24.1 32,714 29.0 39,4n

Fortili2rs 4.7 3,310 7.2 ,513 1.1 3,22 9.4 9,5 3.5 3,252 1.1 3,310 12.2 13,21 13.4 14,"1 14.5 15,543

htrOleM Prodcts L.9 5,260 11.7 7,651 14.9 11,s0 14.5 11,II 17.4 11,212 17.9 20,720 1.2 10,233 13.4 16,9 19. 11,752

Other k$s 43.1 37,390 46.3 40,933 42.1 39,097 43.2 61,052 41.4 39,414 34 34,436 34.9 34,312 3.2 5,344 37.5 34,9

Total Re Traffic 147.9 110,700 29. 136,34 295.9 147,452 221.2 I44,233 22B.3 167,716 230.1 143,3" 23#.4 i7,3 3.5 1i,0 27.3 213,9

Nhe Ibn a Traffit 2.4 14,442 24.5 13,345 2.1 10,32 23.4 9,5 27.2 9,93S 27.9 9,557 2.3 9,52 27.1 9,3U3 29.3 3,45

Total All Traffic 294.5 127,342 223.3 I1,219 229.0 153,474 244.3 173,913 25.0 177,i4 253.0 17,45 2U4.7 132,141 231.3 205,94 7.1 m, 3

lltne: T I lItric toes lillimesl; Tl a fltric to lilowters (illimel

Sorces: ledia Railays, Aumil Statistical Stateots, varios yas

-40-Annex 2.6

IVDIA

RAILWAY NODtn$IZATION III PROJECT

Projected Freisht Traffic by Co odity, 1987-95

(Billions of Vs )

Year Ending March 31Actual Projected1987 1988 1989 1990 199S

Coal 71.7 74.1 80.7 88.2 118.4Cemnt 12.8 15.2 15.7 15.5 23.0Fertilizers 15.6 15.2 15.7 15.7 18.9Petroleum Products 11.7 10.9 13.5 13.9 15.0Foodgrains 39.4 39.2 40.4 39.7 42.4Pig Iron & Steel 11.7 10.9 11.2 12.5 16.8Raw Mat for Steel Plants 6.0 6.5 6.7 7.6 9.7Iron Ore for Export 8.1 8.7 9.0 8.5 9.7Other 35.9 37.0 31.4 29.3 40.7

Total Revenue Traffic 213.9 217.8 224.3 230.9 294.6

Source: World Bank projections of total traffic, but based onproportionate comodity composition in IR Corporate Plan.

'U!'

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lb slli 15 prlcal

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la I ha 2 hsa 2 he 2 ha I ha I ha I

11h1liI stack 405 32 2531 422 2192 41t 3249 4n 5414 m 9036 m 99 32iwkqs I hd 351 32 203 21 71 17 175 32 93 a 2VW 1 1tU

NlhiMiwY I P t U 12 32 It 76 21 15 32 477 2 166 5Tract rounls 1604 532 664 112 565 11 607 it 259 1I1 W 21n m 3Xkid ewks 213 22 133 22 97 22 135 22 215 12 71l 32 a 1tTraffic failitin 221 19 1015 in 4 la 9I 142 lot5 I 2M lot S4W 2IW conersir 60 J2

Sipalliq,, TeUc .276 22 25 42 219 4S 23 42 n 22 6 32 110 II Safety

01s 6 32 in nElKetrificatim 601 52 234 52 249 52 0 52 3 U 1 2 1O 52fter ec ltrical 36 t2 42 12 66 12 67 12 123 12 2 It Su n

owksn lim 1579 132 447 n 23 5 337 5 7N 5 7o 32 1o U

Staff qrwtws 326 3 145 22 112 22 a 1t 133 It 661 2nStaff wif.re 125 12 I t 56 I2 74 It 92 It 56 n 257 12lI's usuuitias 113 1t 15 22 72 12 54 II 62 02 333 IKterw 302 2 10 3 372 72 276 42 1425 2 1230 52 23 3

Total 12530 1002 6 1002 5m 1002 6740 1002 153 12 27070 1U2 36761 I1

Sures paming Cemission, variws I rupet Plans md InHi ailmys Crpe ate Plan 9-2000

-42-Annex 3.1Page 1 of 5

INDIA

RAILWAY MODERNIZATION III PROJECT

Key Features of IR's Corporal:e Plan, 1985 - 2000

Corporate Mission: To be a modern railway system with sufficient capacity to meetthe country a transport needs, based on an optimal inter-modal mix, and to providethis transportation at least cost to society while maintaining financial viability.

Objectives Strategy Proposed Actions

Capacity

With minimum capital Increase throughput of Focus investment in signalling,investment, provide existing system by using telecoms, and track on broadsufficient capacity to modern signalling and gauge system, and within thatcarry, by the year 2000: operations control, and on A, B, and C routes.

by running heavier freight- 370-400 billion net ton and longer passenger Accelerate the pace of tech-km (BTKM) of freight trains. nology upgradation. Reorganize

- 310-330 billion passenger the Research, Design, andkm (BPKM) of non-suburban Standards Organization to makepassenger traffic its work more effective.

- 105 - 110 BPKM of sub-urban passenger traffic. Introduce Operations Infor-

mation System.

Give priority to invest- Introduce more powerful andKants directed at energy-efficient electric andimproving productivity diesel locomotives.of existing assets.

-43-

Annex 3.1Page 2 of 5

ObJectives Strategy Proposed Actions

Increase utilization of Improve operating performancecapital assets. by:

- optimizing line capacityutilization by such measuresas eliminating slow stoppingtrains from critical sec-tions, improving yard andtransshipment facilitiesto match sectional line capa-city, and providing radiocommunication between traincrews and ground staff;

- reducing detentions at ter-minals and enroute by con-centrating on point-to-point bulk movement withunit trains, eliminatingwagon examination en-route,and improving loading/un-loading facilities; and

- reducing empty haulage.

Rxploit full potential of Introduce higher capacitybroad gauge by liberali- wagons and coaches.zing moving dimensions.

Divestment: Concentrate Reduce dependence on in-houseon managing the railway manufacturing and servicingsystem and increasingly facilities and increase use ofentrust management of external industrial infra-auxillary activities to structure wherever possible.other agencies.

Lease wagons, encourage privateinvestment in Inland ContainerDepots.

Increase the use of externalagencies for track renewal work.

Farm out R&D projects to spe-cialiized agencies to a greaterextent than hitherto.

Avoid further investment inurban rail systems, which shouldbe managed and constructed byindependent authorities.

Annex 3.1Page 3 Of S

Objectives Strategy Proposad Actions

Cost

Achieve a 152 reduction Contain growth of man- Limit increase in staff strengthin real costs per unit power and increase pro- to no more than 0.3Z p.a.of output by year 2000. ductivity of existing(As depreciation charges work force.need to increase, thiswill requira a 20S re-duction in workingexpenses).

Institute a system of manpowerplanning to continually identifyemerging staff surpluses andshortages arising from changingworkload and technology. In thelight of these projections,carry out appropriate training,retraining and recruitmentprograms.

Set up a Central Training Insti-tute for identifying trainingneeds, developing trainingcourses and methods, andtraining instructors.

Job Design and EnrichmentiUndertake a systematic study ofand redesign all jobs to improveproductivity through bettermethods and tools.

Promotion Policy: Attachincreased importance to perfor-mance; create channels for acce-lerated promotion of betterstaff.

Reduce porportion of unskilledstaff.

-45-

Annex 3.1Page 4 of 5

Objectives Strategy Proposed Actions

Reduce fuel costs through Phase out stem traction by 2000changes in traction and increase the proportion ofpolicy, new technology traffic hauled by electric locos.for motive power androlling stock andimproved operations.

Fit fuel efficient kits onexisting diesel locomotives.

Introduce more energy-efficientelectric and diesel locomotives.

Reduce material cost by Improve the design and specifi-using improved materials cations of locomotive andand applying materials rolling stock components.management techniques.

Reduce inventories.

Switch over from medium manganeserails to rails with UTS of 90 kgper square m.

Increase use of long welded/con-tinuously welded rail to coverall A, B, and C routes by 2000.

Improve availability/ Reduce maintenance/inspectionserviceability of exis- schedules.ting assets throughbetter maintenance, and Change from time-based to con-reduce maintenance costs. dition-based predictive main-

tenance to reduce maintenanceeffort and cost.

Improve quality of work doneat time of maintenance.

Adopt unit exchange system toreduce downtime.

-46-Annex 3.1page 5 of s

Objectives Strategy Proposed Actions

Retiomalia. distribution ofwork between differeot worksbopsto take advantage of modetrhigh-capecity machinery. Closedown redundant workshops.

Extend m_chanized track renewaland maintenance. Reduce gangsizes accordingly.

Increase 'cost consious- Introduce Responsibilityness.' Accounting and Performance

Budgetting.

Finaeial Viability

After making adequate Generate internal resour- Increase appropriations toprovision for depre- ces to fully finance Depreciation Reserve Fund.ciation, achieve and replacement of assets andsustain an operating contribute to development Improve Accounting and trafficratio of 8SS. expenditure. costing systems.

Adopt cost-based tariffstructure and regularlyreview tariffs Co offsetincrease in cost ofinputs.

Vigorously pursue pot- Eliminate redundant terminals,ential economies. intermediate marshalling yards,

and exchange yards; modernizeremaining terminals and yards.

Pursue closure of uneconomicbranch lines and most of thenarrow gauge systed.

Phase out steam locomotivesand supporting facilities.

Match service to cust-omers needs and adoptagressive marketingapproach.

-47-

mm 3.2

RAILWAY IffIZATIfh III PROJECT

Perfmremace Indicator , 1994-94 *

ktual Targets

FY14 FY85 FYU FY" FM2 FY4

TrafficFreight (btk.) 169 173 197 234 260 234Sburban pass (bpkel 42 44 45 59 63 6Nm-sub pas (bpka) l19 182 195 215 240 256

Traffic Units/Eeployn (1000) 251 255 277 295 m 310

Availability HsuLocoeotives - diesel 82 82 81 92 93 84Locotivun - elKctic 76 76 79 90 91 92wagons 93 94 95 96 6 96Coaches 6 97 7 9 9

Locoetive UtilizationIken/avail loco/day)Passenger - diesel"t 696 746 764 725 700 650Passenger - elctric 428 438 48 490 510 530Freight - dieeleff 31 407 416 400 400 390Freight - electric 396 385 395 420 430 440

Ibgon Utilizationif(ntkmlugon/day) 1,112 1,115 1,296 1,450 1,475 1,500

Gross Trailing Load per FreightTrain Itonne)W 1,787 1,943 1,995 2,000 2,050 2100

let-tonne Load per FreightTrain Itonne)## 192 922 1,001 1,100 1,125 1150

* Target fr FY92 and FY94 are tentative ad ubject to filalizatiOmat the stage of Eight Plan forsulation.Relates to broad gauge systee.

tH Utilization of dimel loKotiv" mill deteriorate as they replacestem locowotivn on low density routes and are rlaIced byelectric louootivns C high desity route.

Source: IR and smison estiatn

INDIA

RAILWAY MODERNIZATION III PROJECT

IR's Total Track Renew&l/Upgrading Program. 1990-92

Arrears as ofApril 1. 1988 FY90 FV91 FY92 TOTAL

kis kms Rs Million kmz Rs Million kms Rs Million km a Million

Broad Gause

A Routes 3,824 1,200 3.720 1,200 3.960 1.200 4,200 3,600 11.880

Other BG 7.125 2.100 4.670 2,100 5.012 2.100 5.343 6.300 15.025

Total SG 10,949 3,300 8.390 3,300 8,972 3,300 9,543 9,900 26,905

Metre Gauge 6.521 900 1.310 900 1 408 900 1.477 2.700 4.195

Total 17,470 4,200 9,700 4,200 10,390 4,200 11,020 12,600 31,100

Source: IR, Project Reoort on Rehabilitation and Modernization of Permanent Way. May 1988

Annex 3.4

INDIA

RAILWAY MODERNIZATION III PROJECT

Details of Project Routes

Arrears Renewal AverageApril Arisings Program Traffic

Track 1988 p a 7Y90-92 1986Kos Kiss KOS KM NCT

Group A Routes

Howrah - Mughalsarai 1,333 584 49 400 32Mughalsarai - Delhi 1,622 619 71 450 31Howrah - Nagpur 2,623 559 105 400 17Ballarshah - Gudur 1,493 199 63 150 15Gudur - Madras 272 16 9 - 13Mathura - Bombay 2,471 672 84 600 16Delhi - Ballarshah 2,301 512 60 400 17Wardha - Bombay 1,516 663 76 400 19Total

13,631 3,824 517 2,800 21 a/

Other Heavy Density Freight Routes

Katni - Bin& and Itarsi - Bhusawal 1,126 419 46 475 16Delhi - Ambala - Sirhind 428 92 16 100 18Bilaspur - Annuppur - Katni andKottavalasa - Kirandul 1,082 421 32 475 12Wagda - Bhopal 301 147 11 150 17

Total 2,937 1,079 105 1,200 15 a/

Grand Total 16,568 4,903 622 4,000 19 */

a/ Weighted according to PY89-91 program.

Source: IR, Project Report on Rehabilitation and Modernization of Permanent Way,June 1987.

-50-

Annex 3.5

INDIA

RAILIAY MDDERNIZATION III PROJECT

List of Goods

Project Component/ Procurement BankItem Unit Quantity Method Finance

Track Materials

Rail 60 kg/m 90 UTS Ton ('000) 480 ICB YesSleeper {4320 LCBConcrete No ('000) 4,980 ( 660 other NoSteel-imported No ('000) 550 ICB YesSteel-domestic No ('000) 1,110 other No

Ballast cu.m. ('000) 3,210 LCB No

Track Equipment

Track Relaying Train No 2)Ballast Cleaning Machine No 7)Ballast Cleaning Machinesfor Turnouts 2)

Ballast Regulator No 7}Continuous Tamping Machine No 30)Points and Crossing Tamper No 10) ICB YesDynamic Track Stabilizer No 1)Crane for Points and Crossings No 8)Flash Butt Welding Plant Stationary No 3)Flash Butt Welding Plant Mobile No 3)Grinding Kachine No 1)Wheel Flaw Detector No 4)Track Recording Car No 1)Sleeper Exchange Machine No 8)

Locomotives and Rolling Stock

Hopper and BFR Wagons No 204 LCB NoLocomotive No 4 other No

lailay blorluaift H3I fgJut

old bti.)o 4friubiim bom

WV1 la33 I - Mia 333

it" tK al mu twuIp litd t..l ame ftur P p lid lad ton MiIp lid LuKutI r 18015F MiM Lad TomS Inp Mi tad I-g fwip Mi 3.1 I-r Fwip Mi-. ~~~~~A. uuu.id .t um1fo a. uw.il a. utirn M. dunk EL d3333. ml dill.

3.. lbkSm.d It" C * 3W MM "I? 9 33? M U3 9 "1 SS?lUl IMI911 33 % lIf 3 30 U IM 3 0 NSW3 IM9 JL n.I UA EU

L Trk 4sPoW 1 35 3Pa IS' ii an5 is A 31 i U Sn 0 * S C ' Uo 36 m is IM aW me LI u Wem.. t

L twastim Idlingdt 139 33 I 35 0 S 0 0 0 0 0 S 9 0 6 I SI 130 it I U 061 eU LI ILI

4. lrdutoq 0T?.lsiduimt C S 0 5 6 I 9 35 2 0 5 0 . u OS LI LA

L Mm latqd ,, 3M 34 II IS 54 lo II 45 0i t S 3? U 3 5 - 33 s a. e .

?. Mid lii 1 433 SR on5 339 W tIM 3 1412 US 13 32= 321 US0 312 311 IM3 5 331 U U TOM , O M "In. mau meL imp

NW . ie tim no3 nnnp 3t13 Os prwsl1q pwttp o3 t9. l.cd mym, OU39 he tt..). 3 fibl 3.9. ftb Pw Is it 9.W1 b12l.Mprice cuti.pmlies lUd K.a 9134,111, n 3 t9. a tuoty; hnp pa.tiomo Ud tm NV at U0 do to tn

la S. W

&1I-ET I TI T IIs I . T ~~~~~~~~~~ ~~'I II ~~' - -~~ I-IIi --- I-"I-----,T---';iTiII7------T-I!I t -. .- .- . - --

a * ~~~~~~~~~~I Ul*I! E 17..|1....|s ~ ~~~~~~~ ,

I;

-53- -53- ~~~~Annex 3.8

INDIA

RAILWAY MODERNIZATION III PROJECT

$sti.ated Schedule of Disburseiments

CumlativeDisbursemnt Disbursement at Disbursement

IwoD Fiscal Year during End of Semester Profile I/and 9e ester emester US$ Million S S

1989

June 30 10 10 3 3

1990

Dec. 31 15 25 6 9June 30 15 40 10 16

1991

Dec. 31 30 70 18 25June 30 55 125 32 34

1992

Dec. 31 65 190 49 45June 30 60 250 64 53

1993

Dec. 31 50 300 77 62June 30 50 350 90 70

1994

Dec. 31 40 390 100 76June 30 83

1995

Dec. 31 88June 30 93

1996

Dec. 31 96June 30 99

1997

June 30 100

1/ South Asia Region, Specific Investment Loans, Transportation.

-54- Annex 3.9

INDIA

RAILWAY MODERNIZATION III PROJECT

Details of Economic Evaluation

1. Paras 3.21-28 of the main report describe the general methodologyand assumptions used in the economic evaluation. The assumptions aredocumented in more detail in the attached Tables 1-11. Some of theassumptions warrant amplification. As this analysis relates to IR's heavydensity corridors, which have in the past exhibited faster traffic growththan the system-wide average, the analysis assumes future traffic growthof 5% p.a., compared with the system-wide average of 4% p.a. assumed inthe financial analysis of IR as a whole (Chapter IV). For similarreasons, the ratio of net to gross traffic is taken as 60%, higher thanthe system-wide average of 50%. A traffic ceiling of 60 MCT p.a. isimposed, as this is the capacity limit for track sections under foresee-able operating conditions on IR.

2. Costs in the analysis of rail standard (Tables 1-6) relate torail only, as all other track costs are assumed constant between thealternatives being compared. This analysis compares the net present value(NPV) cost of alternative rail weights and UTS. Subsequent rail renewalsare lower than the initial rail renewal because the value of releasedmaterial (which varies from case to case) is netted out. This is not donefor the initial renewal, because at that point the value of materialreleased from existing track would be constant for all alternatives.Assumptions regarding fuel and maintenance savings are based on RDSO,Comparative Tractive Resistance and Fuel Consumption on 52 kg and 90 rTrack (Mechanical Engineering Report No. M 357, January 1978) andInternational Union of Railways (UIC), Factors Affecting the Cost of TrackMaintenance: Their Relative Importance (Report No. 715-1).

3. Having determined that 60 kg/90 UTS rail has the minimum NPVcost for the traffic ranges experienced on the project routes, the nextanalysis (Tables 7-11) explores whether complete renewal, comprisingre-ballasting, new sleepers/fasteners and new 60 kg/90 UTS rail, iseconomically warranted on the project routes. Costs in this model aretherefore higher than in the preceding analysis, but the same broad prin-ciples apply, such as netting out the value of released material in sub-sequent renewal cycles in the "without project" case. (The analysisperiod is taken as that required to exhaust the service life of60 kg/90 UTS rail. Thus, there is no second cycle of renewal in the "withproject" case, and the period of analysis varies according to the annualtraffic level.) Further details of the assumptions used in this analysisare given in Table 7.

-55-

Aumen 3.9

Table I

I'Al

RAILWAY NUKUIZATIIN Ill UJECT

EconAOic Evaluation of Rail Stamdid (10 1ST)

Assumptions Yer Traffic itWV Cot IRdOO)

Gross traffic N1T 10 S1T Cue 1ST 52/72 52/90 60 65let traffic "MT 6Annual growth rate 1 5 1 10.00 10 590 fin o 904

2 10.50 21 0 -2 -13 -16Srvice life of rail S6T 3 11.03 32 0 -2 -13 -1652kj172 UTS 250 4 11.59 43 0 -2 -13 -1752kgq/90 UTS 500 5 12.16 55 0 -2 -13 -1760k9/90 UTS 800 6 12.76 68 0 -2 -13 -1765k/I90 UTS 1000 7 13.40 91 0 -2 -14 -18

9 14.07 95 0 -2 -14 -18Economic Cost of rail RsOOO 9 14.77 110 0 -2 -14 -1852k4/72 UTS 420 10 15.51 126 0 -2 -14 -19S2kgIi" UTS 520 11 16.29 142 0 -2 -15 -1960kgJ90 UTS 650 12 17.10 159 0 -2 -15 -2065k1/90 UTS 750 13 17.96 177 0 -2 -15 -20

14 19.86 196 0 -2 -16 -20Value of atwrial release RsOO 15 19.90 216 0 -2 -16 -2152kgJ72 UTS 200 16 20.79 237 0 -2 -16 -2152klJ90 UTS 250 17 21.83 259 390 -2 -17 -226k"90 UTS 310 18 22.92 231 0 -2 -17 -2365kg/90 UTS 340 19 24.07 305 0 -2 -18 -23

20 25.27 331 0 -2 -18 -24Cost of laying EsOGO 170 21 26.53 357 0 -2 -19 -24

22 27.6 385 0 -2 -19 -25Fuel consuption /000 ITNM Rs 31 23 29.25 414 0 -2 -20 -26

24 30.72 445 0 -2 -20 -27Fuel savings pa cf 52kg rail AG000 25 32.25 477 0 -2 -21 -276014l/90 UTS 3.7 26 33.86 Si1 390 438 -21 -2865kj90 UTS 5.1 27 35.56 547 0 -2 -22 -29

28 37.33 584 0 -2 -23 -30Track Naintenauce Costs/km RsOOO 48 29 39.20 623 0 -2 -23 -31of which rail/lk RsOOO 36 30 41.16 664 -134 -294 -137 -303

Paint savings pa cf S2kg/72 RsOOO601k/90 UTS 9 WYP Cost65k/90 UTS 11

81 707 62 573 59410? 639 629 602 64212? 600 613 613 66315S 559 594 620 677

Swuce: IAR RITES and mission estimtes

-56-

his 3.9

RAItUM HIIUTTIIII Tll PIECI

Economit Evalution of Iil Standard 115 1NT)

ksuptions Year Traffic WV Cost IRsOOS)

Bross traffic U6T 15 NIT C.o MT 5217 S2/90 60 65Met traffic SItT 9Annual growth rate 1 5 1 15.00 15 59 Au I06 902

2 15.75 31 0 -2 -14 -1,Service life of rail NST 3 16.54 47 0 -2 -15 -1952kj/72 UTS 250 4 17.36 65 0 -2 -15 -2052kg/90 UTS 500 5 18.23 83 0 -2 -15 -20bOkg/90 UTS 800 6 19.14 102 0 -2 -16 -2165k/9g0 UTS. 1000 7 20.10 122 0 -2 -16 -21

* 21.11 143 0 -2 -16 -22Econosic Cost of rail ROOO 9 22.16 165 0 -2 -17 -2252kg/72 UTS 420 10 23.27 13 0 -2 -17 -2352kg/90 UTS 520 11 24.43 213 0 -2 -18 -2360kgl90 UTS 50 12 25.66 239 390 -2 -18 -24! Skgl90 UTS 750 13 26.94 264 0 -2 -19 -25

14 28.28 294 0 -2 -19 -25Value of Naterial ruleased RsOOO 15 29.70 324 0 -2 -20 -2652kq/72 UTS 200 16 31.19 355 0 -2 -20 -2752kgl90 UTS 250 17 32.74 31 0 -2 -21 -28NOkg/90 UTS 310 1 34.33 422 0 -2 -21 -2B654k/90 UTS 340 19 36.10 453 0 -2 -22 -29

20 37.90 496 390 439 -23 -30Cost of laying RdO0 170 21 39.30 536 0 -2 -23 -31

22 41.7 57W 0 -2 -24 -32Fuel consumption /000 ITKN s 31 23 43.8 621 0 -2 -25 -33

24 44.07 6m3 0 -2 -26 -34Fuel savings pa cf 52k rail kOOO 25 48.31 716 0 -2 -27 -3660tk/90 UTS 5.6 26 50.90 767 390 -2 -21 -37b5k4/90 UTS 7.7 27 53.34 320 0 -2 432 -38

21 56.00 376 0 -2 -29 -39Tratk Naintemance Costs/ik RsdOO 48 29 3.30 935 0 -2 -31 -41of which rail costs/km 1d000 36 30 61.74 997 0 -2 -363 -42

raint savings ps tf 52kg/72 RsOOb0kg/90 UTS I1S5kgi" UTS .11 St . ......... *6 m". ....

92 364 722 3l2 5J3102 751 674 W00 b1121 43 646 6U7 44115 i20 614 611 457

Swcr: 1N, RITES wA aisMiu "etimt

-57-n 3.9

Table 3

RAIUIAY UEIIATI0N III PMECT

Ecoaaic Evalutimn of Iail Stidard 120 MT),~~ -- - - -_-_-_ _ -_ -_ _ _

ksuations Yer Traffic WV Cost IRSOO)

Gross traffic MT 20 UT Ca UST 52/n 52/90 60 65lnt traffic IT 12Ab groutk rate 1 5 1 20.00 20 590 in 04 89

2 21.00 41 0 -2 -I6 -22Service lifc of rail U1T 3 22.05 63 0 -2 -17 -2252k4/72 UTS 250 4 23.15 8t 0 -2 -17 -23524/90 UTS 500 5 24.31 111 0 -2 -19 -23Okli/ UTS 800 6 25.53 136 0 -2 -18 -24WqIU9. UTS 1000 7 26.80 163 0 -2 -19 -25

8 29.14 191 0 -2 -19 -25Ecoomic Cost of rail RSOO 9 29.55 221 0 -2 -20 -2652kI/72 UTS 420 10 31.03 252 390 -2 -20 -2752k4/90 UTS 520 11 32.53 284 0 -2 -21 -276f0/90 UTS 6S0 12 34.21 318 0 -2 -21 -2865k4/90 UTS 750 13 35.92 354 0 -2 -22 -29

14 37.71 392 0 -2 -23 -30Value of Nbtwial released RsOOO 15 39.60 432 0 -2 -23 -3152k4172 UTS 200 16 41.58 473 0 -2 -24 -3252kg/90 UTS 250 17 43.66 517 390 43 -25 -3360k/90 UTS 310 18 45.14 563 0 -2 -26 -34U5/90 UTS 340 19 46.13 611 0 -2 -27 -35

20 50.54 661 0 -2 -27 -37Cast of laying RiOOO 170 21 53.07 714 0 -2 -20 =38

22 55.72 770 390 -2 479 -39Fuel consumption 1000 NTKN 3 31 23 5.51 829 0 -2 -30 -41

24 60.00 889 0 -2 -31 -41Fuel savings pa cf 52I rail 1sOOO 25 60.00 949 0 -2 -31 -4160k/90 UTS 7.4 26 60.00 1009 390 438 -31 539

4/90 UTS 10.2 27 60.00 1I9 0 -2 -31 -4128 60.00 1129 0 -2 -31 -41

Track kaintenace Costs/km ROOO 48 29 60.00 1189 0 -2 -31 -41of dhich rail costsi/k tsOOO 36 30 60.00 1249 0 -220 -210 -405

Naint uvings pa cf S2kg/72 RsOOO0t/90 UTS 9 WV cost

65k490 UTS 11 "_ 9 582 991 789 597 573101 345 720 0 611121 762 80 60 629152 674 63 60 64

S_uce 11, RIM ad uGssit estimte

-58-

kam. 3.9

INDIA Table 4

RAILMAY NOMEIZUATIUN III PROJECT

Econoaic Evalution of Rail 9taudard 125 MT)

Assumptions Year Traffic WPY Cost (IRsOO)

6ross traffic N6T 25 NOT CYS MT 52172 52190 60 65

Nut traffic NNT 15Anual gruth rate 2 5 1 25.00 25 590 6E8 902 o9h

2 26.25 51 0 -2 -18 -24

Service life of rail N6T 3 27.56 79 0 -2 -19 -25

52kg/72 UTS 250 4 28.94 t06 0 -2 -19 -26

52kqt90 UTS 500 5 30.39 138 0 -2 -20 -26

6Okg/90 UTS 800 6 31.91 170 0 -2 -21 -27

&5k/"90 UTS 1000 7 33.50 204 0 -2 -21 -23d 35.18 239 390 -2 -22 -29

Economic Cost of rail RsOOO 9 34.94 276 0 -2 -22 -30

52kgl72 UTS 420 10 38.78 314 0 -2 -23 -31

52kq/90 UTS 520 11 40.72 355 0 -2 -24 -32

60kgl90 UTS 650 12 42.76 393 0 -2 -25 -33

5Skg/90 UTS 750 13 44.90 443 0 -2 -25 -3414 47.14 490 390 438 -26 -35

Value of Naturial released R1O0O 15 4.50 539 0 -2 -27 -36

2kgJ/72 UTS 200 16 51.97 591 0 -2 -28 -37

52k0l" UTS 250 17 54.57 646 0 -2 -29 -39

60kg90 UTS 310 18 57.30 703 0 -2 -30 -40

65k/90 UTS 340 19 60.00 763 390 -2 -31 -4120 60.00 823 0 -2 479 -41

Cost of laying RsOOO 170 21 60.00 803 0 -2 -31 -4122 60.00 943 0 -2 -31 -41

Fuel consuwption 1000 ITKN Rs 31 23 60.00 1003 390 431 -31 53924 60.00 1043 0 -2 -31 -41

Fuel savings pa cf 52kg rail ROOO 25 60.00 1123 0 -2 -31 -41

*0kg/90 UTS 9.3 26 60.00 1183 0 -2 -31 -41

65kg/90 UTS 12.8 27 60.00 1243 390 -2 -31 -4120 60.00 1303 0 -2 -31 -41

Track Naintenance Costsiku RsdOO 48 29 60.00 1363 0 -2 -31 -41

of vhich rail costs/ku RsOOO 36 30 60.00 1423 0 -2 -106 -311

Naint savings pa cf 52kg/72 RsOOO60kg/90 UTS 9 WY Cost654/90 UETS 11 z. u- sauuuuzuuuuamuaZaauuuUSZU USs..= .

81 1137 3U1 597 56S

101 956 m 603 £01122 I56 722 604 61315 74? 647 602 632

U 1It, t1tS and Glission stiuati

-59-Anmew 3.9

Table 5INDIA

RAILNAY NdERUIZATIN IlIl PIUOECT

Economic Evaluation of Rail Staudard 130 NGT)

Assusptions Year Traffic WV Cost IRSOOO)… -------------- ------- -- --

6ross traffic NGT 30 NOT Cae NGT 52/72 S2/90 60 65ht traffic UkT 19Ansual growth rate I 5 1 30.00 30 590 6b 900 "94

2 31.50 62 0 -2 -20 -27Service life of rail NOT 3 33.08 95 0 -2 -21 -28

52kg/72 UTS 250 4 34.73 129 0 -2 -22 -29S2kg/90 UTS 500 5 36.47 166 0 -2 -22 -29W06g/90 UTS 9QO 6 38.29 204 0 -2 -23 -3065kg/VO UTS 1000 7 40.20 244 390 -2 -24 -31

9 42.21 286 0 -2 -24 -32Economic Cost of rail RSOOO 9 44.32 331 0 -2 -25 -3352kg/72 UTS 420 10 46.54 377 0 -2 -26 -3552k9/90 UTS 520 11 48.97 426 0 -2 -27 -3660kg/90 UTS 650 12 51.31 478 390 4OR -28 -3765kg/90 UTS 750 13 53.89 531 0 -2 -29 -38

14 56.57 598 0 -2 -30 -40Value of Natwrial released RsOOO 15 59.40 647 0 -2 -31 -41S2kg/72 UTS 200 16 60.00 707 0 -2 -31 -4152kg/90 UTS 250 17 60.00 767 390 -2 -31 -4160kg/90 UTS 310 18 60.00 827 0 -2 479 -4165kg/90 UTS 340 19 60.00 897 0 -2 -31 -41

20 60.00 947 0 -2 -31 -41Cost of laying RsOOO 170 21 60.00 1007 390 436 -31 539

22 60.00 1067 0 -2 -31 -41Fuel consuaption /000 NIKN Rs 31 23 60.00 1127 0 -2 -31 -41

24 60.00 1187 0 -2 -31 -41Fuwl savings pa tf 52kg rail RsOOO 25 60.00 1247 390 -2 -31 -4160kg/90 UTS 11.2 26 60.00 1307 0 -2 -31 -4165kg/90 UTS 15.3 27 60.00 1367 0 -2 -31 -41

29 60.00 1427 0 -2 -31 -41Track raintance Costs/ku R%0OO 48 29 60.00 1487 0 -2 -31 -41of which rail costs/kl Rd OO 36 30 60.00 1547 0 -2 -32 -244

Raint savings pa cf S2kg/72 RsOOO60kg/90 UTS 9 WV Cost65kg/90 UTS 11

9l 1211 99l 600 55B10x 1027 909 603 591122 919 754 602 607151 801 692 599 621

r wr* , iiT * i

-60.-

ANN. 3.9

IUIA lable 4

hILMY KIIIATIM III PUECT

Ecomc Evalution of Rail Staudrld (35 UT)

kuuations Ver Traffic NfV cost IRsOCO)

kous traffic U6T 35 NUT Co UT 52172 52/90 0 65Not traffic MT 21knial grouth rate 1 5 1 35.00 35 590 UB 79S 391

2 36.75 72 0 -2 -22 -30Service life of rail UOT 3 38.59 110 0 -2 -23 -3152ki/72 UTS 250 4 48.52 1S5 0 -2 -24 -32S2kg/90 UTS 500 5 42.54 193 0 -2 -24 -33Okg/90 UTS 800 6 44.67 238 390 -2 -25 -3465kg/90 UTS 1000 7 4.90 295 0 -2 -26 -35

B 49.25 334 0 -2 -27 -36Economic Cost of rail Rd000 9 51.71 34 0 -2 -23 -37S2kg/72 UTS 420 10 54.30 440 0 -2 -29 -3952kg990 UTS 520 11 57.01 497 390 43B -30 -40bOkgkq/ UTS 650 12 59.86 557 0 -2 -31 -4165kg90 UTS 750 13 60.00 617 0 -2 -31 -41

14 60.00 677 0 -2 -31 -41Value of Material released RsOO 15 60.00 737 390 -2 -31 -41

M2kg/72 UNS 200 16 b0.00 797 0 -2 479 -4152kg/90 UTS 250 17 60.00 857 0 -2 -31 -4160k|gl1 UTS 310 13 40.00 917 0 -2 -31 -4165kq/90 UTS 340 19 40.00 977 39 438 -31 539

20 40.00 1037 0 -2 -31 -41Cost of laying k000 170 21 40.00 1097 0 -2 -31 -41

22 60.00 1157 0 -2 -31 -41Fuel consuaption 1000 NTM as 31 23 t0.00 1217 0 -2 -31 -41

24 40.00 1277 390 -2 -31 -41Fuel savings pa cf 52kg rail Rs00 25 60.00 1337 0 -2 -31 -4140kg190 UTS 13.0 26 40.00 1397 0 -2 -31 -4165kg/" UTS 17.9 27 0.00 1457 0 -2 -31 -41

28 40.00 1517 390 43B -31 -41Track Naintenasce Costs/ik RiOOO 4 29 40.00 1577 0 -2 -31 -41of ubich rail costs/km h000 36 30 40.00 1637 -176 -313 -31 -195

Naint savings pa cf S2kq/72 Rs00O40tOk/90 UTS 9 WPY Cost65kg/WO UtS 11 tu sJuas_* u .maa= * u

3? 1306 950 602 55610 1107 847 405 587121 m9 75 604 0215 940 716 599 613

t Cr 1R. Pi a q *i io etimtes

.41-

kWa 3.9

Tale 7

tlUl

MILK I MIIIIIITI III palUECt

kcitc Evulatii mf Track ame 13t WTI

_ifft£ue YeW Traffic litbeat PreJet Wtt PreSjt Yet huits

rm trafic ST 20 1 T Tr ratk bets 1pratiq Cuat Track Cuts Oepatiq CutsYbt traffic IT 12 CMl wr eW b on he3 b h b h b

11tr VW - I) 5 1 20 12.3 43 2,3 1755 2,219 -15W72 41 12.40 29 2,52 5 2,34 171

kC trto o track r l kW 3 U3 13.23 52 2,U4 5 2,514 179513172 VII 1W 4 39 13.3 54 2,778 5 2,63 inbel1" m 1939 5 III 14.59 1525 2,tW 5 2,771 140

A 13 15.32 10 3,M2 24 2,910 71VAIN of uatrld releam _M 7 IU I.46 10 3,152 24 3,421 U6

lUgl 1m1 12s9 I 191 193 3m 3,31s 24 3,2 113521M 33 239 9 221 17.73 39 3,475 24 3,399 Its

glI 310 1t 252 13.42 39 3,949 24 3,537 1211 23 19.55 39 3,931 24 3,714 1n

lleratil Ctts r PK 0 MNM b 12 311 20.52 3t 4,023 24 3,9e It5itbrt prejut 13 354 21.55 £475 4,224 24 4,e INa

-ilitiuly 200 14 2 22.93 10 4,435 24 4,29 1,22-after re_ml sith 52k, £9 15 432 23.74 1o 4,457 24 4,514 1291ith Pr*JKct 19 19 473 24.n 39 4*,0 24 4,740 1*2

17 517 29.19 36 5,134 24 4,977 1nTrak mint cutser tkm bO 13 53 27.29 3 5,391 24 5,229 177Mithfet prejat 19 911 2t. 1475 5,14 24 5,437 194-iaitially 43 20 941 30.32 10 5,43 24 5,741 l13-imcreasial at lamal rate 2 21 714 31.34 £0 6,241 24 4,00 177

nws 1-3 aftr r _am vith 52kt 10 22 770 3r.43 -5 ,553 24 4,352 -354-tbereafter 391ith prject

-yars ,1- 5terafter 24

tunict lifU of rail ITg72 1M 2 IN 2n3

MtgkW M

-62-

Ani 3.9

Table I

RAILIAT N IZATION III POJECT

Economic Evalsatin of Track banwl 113 NBT)

Year Traffic without Project Vith Project ht Baffits

NOT NIT Track Costs Operating Costs Track Costs Operating CostsCumn pr yea r 000 Rs 000 Rs 000 as 000 Rs 000

1 13 7.80 4a 1,560 1755 1,482 -16292 27 8.19 50 1,639 5 1,556 1273 41 8.60 52 1,720 5 1,634 1334 56 9.03 54 1,906 5 1,716 1395 72 9.49 1525 1,8S 5 1,9801 1576 Be 9.95 10 1,951 24 1,991 467 106 10.45 10 2,049 24 1,96 49a 124 10."6 36 2,151 24 2,085 7J9 143 11.52 36 2,259 24 2,190 91

t0 164 12.10 36 2,372 24 2,29 85it 185 12.71 36 2,490 24 2,414 8012 207 13.34 36 2,615 24 2,535 9213 230 14.01 36 2,746 24 2,661 9614 255 14.71 36 2,093 24 2,795 10015 291 15.44 36 3,027 24 2,934 10516 308 16.22 1475 3,179 24 3,091 154817 336 17.03 10 3,337 24 3,235 Be19 366 17.88 10 3,504 24 3,397 9319 397 19.77 36 3,679 24 3,567 12520 430 19.71 36 3,963 24 3,745 13021 464 20.70 36 4,056 24 3,932 13622 501 21.73 36 4,259 24 4,129 14223 539 22.82 36 4,472 24 4,335 1424 579 23.96 1475 4,696 24 4,552 159525 620 25.16 10 4,931 24 4,790 13726 664 26.41 10 5,177 24 5,019 14427 711 27.73 36 5,436 24 5,270 17829 759 29.12 36 5,707 24 5,53 18729 810 30.59 36 5,9"3 24 5,910 195

IRR 16Z

-63-

Ans: 3.9

Table 9

INDIA

RAILWAY NODERNIZATIO III PROJECT

Economic Evaluation of Track Runual (35 NGT)

Year Traffic Without Project hith Project Net 80nf its

NOT MhT Track Costs Opwrating Costs Track Costs Operating CostsCu ul pr yer Rs 000 Rs 000 Rs 000 R 000 Rs 000

1 35 21.00 48 4,200 1755 3,990 -14972 72 22.05 50 4,410 5 4,190 2663 110 23.15 52 4,631 5 4,399 2794 151 24.31 54 4,8U2 5 4,619 2925 193 25.53 1525 5,003 5 4,950 16736 238 26.90 10 5,253 24 5092 1477 295 28.14 10 5,516 24 5,347 158 334 29.55 36 5,792 24 5,614 189

9 396 31.03 36 6,061 24 5,895 19910 440 32.59 1475 6,395 24 6,190 1646

It 497 34.21 10 6,705 24 6,49 191

12 557 35.92 10 7,040 24 -6,924 202

13 620 36.00 36 7,056 24 6,340 228

14 680 36.00 1475 7,056 24 6,940 166715 740 36.00 10 7,056 24 6,940 20216 900 36.00 -926 7,056 24 6,340 -b34

Ill zn29

-64-

Amue 3.9

Table 10

RAILWAY NOOERNIZATION III PROJECT

Economic Evaluation of Track Renead (20 NBT)(Sensitivity test far lowr traffic growth)

Year Traffiic ithout Project With ProjKt h t Deef its

NBT NUT Track Costs Operating Costs Track Costs Operating CostsCuuul per year Rs 000 RS 000 Rs 000 Rs OC0 Rs 000

1 20 12.00 48 2,400 1755 2,280 -15372 41 12.30 50 2,460 5 2,337 1683 62 12.61 52 2.522 5 2,395 1734 83 12.92 54 2,565 5 2,455 1795 105 13.25 1525 2,596 5 2,517 1596 129 13.58 10 21661 24 2,580 677 151 13.92 10 2,728 24 2,4 699 175 14.26 36 2,796 24 2,710 729 199 14.62 36 2,966 24 2,778 10010 224 14.99 36 2,937 24 2,847 10211 250 15.36 36 3,011 24 2,919 10412 274 15.75 36 3,066 24 2,9M 10613 303 16.14 36 3,163 24 3,044 10914 330 16.54 36 3,242 24 31143 111IS 359 16.96 1475 3,323 24 3,222 155316 388 17.38 10 3,406 24 3,302 9017 417 17.81 10 3,492 24 3,385 9319 448 18.26 36 3,579 24 3,469 12219 479 18.72 36 3,h8 24 3,56 12420 511 19.18 36 3,760 24 3,445 12721 544 19.46 36 3,854 24 3,173 13022 577 20.15 36 3,950 24 3,829 13323 412 20.46 1475 4,049 24 3,925 157524 647 21.18 10 4,150 24 4,023 11325 683 21.70 10 4,254 24 4,124 1126 720 22.25 36 4,360 24 4,227 14527 758 22.80 36 4,449 24 4,333 14928 797 23.37 -312 4,591 24 4,441 -195

in 19

-65-

Mm.z 3.9

Table It

RAILWAY HONE dIZATION III PROJECT

Ecouooic Evaluatim of Track eangma (20 NBT)(Sensitivity test for lower mintsasce saviags)

Year Traffic Without Project With ProDjct Met half its

1ST MUT Track Cuts Opwrating Costs Track Costs Dperating CostsCml per yr Rs 000 000 Rs 000 3 000 Rs 000

1 20 12.00 a 2,400 1776 2,340 -1642 41 12.60 50 2,520 26 2,457 8?3 63 13.23 52 2,646 26 2,50 924 8o 13.89 54 2,778 26 2,709 975 1iI 14.59 1545 2,916 26 2,84 15636 136 15.32 30 3,032 36 2,986 407 163 16.08 30 3,184 36 3,136 428 191 1.89 42 3,343 36 3,293 579 221 17.73 42 3,510 36 3,457 59

10 252 18.62 42 3,69 36 3,630 6211 264 19.55 42 3,870 36 3,812 6512 318 20.52 42 4,064 36 4,002 6813 354 21.55 1495 4,267 36 4,202 152414 392 22.63 30 4,480 36 4,412 6215 432 23.76 30 4,1704 36 4,633 6516 473 24.95 42 4,940 36 4*,3 8117 517 26.19 42 ',187 36 5,106 3513 563 27.50 42 5,46 35 ,363 8919 611 23.16 1495 5,718 36 5,631 154420 661 30.32 30 6,004 36 5,913 8521 714 31.84 30 6,304 36 6,209 9022 770 33.43 -539 6,19 36 6,519 -473

I31 152

-66-linex 4.1

I.IA

RAILWAY NIElNIZATIN III PROJET

IR Revenue & Expenditure kcounts---19 2 to 1911

(In Currunt Ruptes- hillion)

1982 1983 1984 1995 198b 1937

RevenuePassenger 9,966.0 11,61t.0 13,535.5 14,588.2 17,197.0 19,409.7Other Couching 1,298.0 1,600.0 1,665.6 1,797.5 2,104.0 2,465.5

Freight 23,571.0 29,721.0 33,535.0 36,024.0 43,764.0 5',332.4

Other(Sundries) 634.0 824.0 1,126.3 1,177.9 1,216.0 1,849.0

Total Revenue 35,379.0 43,762.0 49,862.4 53,587.6 64,231.0 75,056.6

Working ExpensesOperations 12,850.0 14,564.0 16,519.8 18,501.4 20,568.5 23,415.9Repairs I Naint. 10,263.0 12,416.0 14,273.6 16,117.9 18,794.0 21,455.0Others 4,090.0 4,813.0 5,496.2 6,092.3 7,068.9 8,134.7Total 27,193.0 31, 793.0 36,289.6 40,711.6 46,431.4 53,005.6

Appropriation toPension Fund 1,129.0 1,480.0 1,825.0 2,210.0 2,600.0 3,500.0

Appropriation to DRF 3,500.0 5,560.0 89500.0 8,500.0 9,200.0 12,500.0

Operating Income3,557.0 4,929.0 3,247.9 2,166.0 6,049.6 6,051.0

Other Operating Inome 474.0 614.0 541.7 535.0 909.0 757.4

Dividend Payment 3,565.0 4,360.0 4,237.0 4,657.0 5,070.3 5,799.5

Net Incom466.0 1,183.0 (447.5) (1,956.0) 1,798.3 1,019.9

Operating Ratio 89.92 96.72 93.52 96.0x 90. 91.92

Ratio of Net Rhv. toCapital-at-ChaI'p 6.02 7.6 5. ox 3.32 7.6 6.62

-67-

Amex 4.2

INDIA

RAILWAY MODERNIZATION III PROJECT---------------------------------

IR BALANCE SHEET AS ON 31 MARCH. 1987

(In Million Rupees)

Assets

Fixed Assets 127,759Inventories 4,638Other Assets 696.3

_______ 133.093Receivables 3,377

Cash 3, c 6Deposits with 601 264OU9

------- 29,116

Total Assets 16595

Liabilities__________

Investments financed from

GOI Capital-at-Charge 1039731Depreciation Res. Fund 164149Developument Fund 8,326Revenue Res. Fund 3,230Accident Comp.& Passenger

Amenities Fund 1,612_______ J133,049

Reserve Fund Balances

Depreciation Res. Fund 2,404Developement Fund 2Revenue Res. Fund 6Accident Coop.& Passenger

Amenitie-uiund 85Pension Funr4- 3,639Provident Fund & Misc. 19,979

26,113Current Liabilities 6,424

Total Liabilities 165,585

The following notes explain the salient accounting principles.

-68-

Annex 4.2Page 2 of 2

Fixed Assets

1. The value of fixed assets shown in the balance sheet is based ontheir original costs. Additional cost of like-for-like replacements overtheir cost (the inflationary element) is charged against DRF, and has notbeen included in the figures in the balance sheet. Improvement element atthe time of replacement has been included in the fixed asset account inthe balance sheet.

Depreciation Reserve Fund

2. This balance in the fund represents cumulative contributionincluding interest earned to date less:

(a) value of assets withdrawn from services; and

(b) full cost of replacement.

Inventories

3. These are financed from capital-at-charge.

Development Fund

4. Development Fund is created out of IR's net revenue surplusesafter meeting dividend liability to COI. In certain years, temporaryloans were drawn from the General Exchequer to meet the expenditure char-geable to Development Fund. As of March 31, 1986 IR has an outstandingloan of Rs 3,364 million under the Development Fund.

5. Development Fund: Finances expenditure of a capital nature for:

(a) operating improvements costing over Rs 300,000 each;

(b) users amenities irrespective of their cost; and

(c) staff amenities costing more than Rs 25,000 each.

6. Items financed from revenue are:

(a) operating improvements costing upto Rs 300,000 each; and

(b) staff amenities costing upto Rs 25,000 each.

INDIA

RAILWAY MODENIZATION III PROJECT.

IR's ProJected Revenue and Expenditure 1996-199W

(Forecast figures in 1987/88 prices-million Rupes)

Actual Actual Approx.a ----------------------- nk Group Forecast …1985/86 1996/87 1987/88 1986/89 1999/90 1990/91 1991/92 1992/93 193/94 1994/

Gross Operating Revenue

I assenqerSuburban 2018.6 2235.6 2311.7 2203.0 2291.0 2382.0 2476.0 2577.0 2460.0 2767.0

Nopsuburban 15178.2 17174.1 17956.3 18316.0 19049.0 19911.0 20404.0 21426.0 22265.0 23174.0

Freiqht 43763.8 51332.4 60600.0 61018.7 63375.0 44961.0 49977.0 73577.0 77392.0 61427.0

Other 3320'.4 4314.5 3670.0 6247.3 5278.0 5541.0 S619.0 4109.0 4415.0 4734.0_- -- -- -- _- - -- - - -_-- - -- -- _- -- - -- -_- - -- - -- _-- - -- - -_- -- -- _- -- -- -- ,_- - -- ---- _- ---- __-- -

rotal Revenue 64281.0 75056.6 84740.0 87785.0 69993.0 94315.0 96876.0 103491.0 016772.0 114124.0

Ordin-rv Workinq Expanses 46431.4 53005.6 60350.0 61713.2 62554.9 65142.1 47656.9 70712.9 7371S.5 7b641.7

A"set Lease Charges 100.0 670.0 1740.4 2751.5 3351.5 3951.5 4551.5 5151.5

Pension Fund 2600.0 3500.0 4500.0 5140.2 5390.2 5440.2 S590.2 4140.2 4390.2 4440.2

Appropriation to DRF 9200.0 12500.0 13500.0 14018.7 14421.3 14904.2 15393.4 15663.4 1437S.4 14670.3

Operatina Income---------------- 6049.6 4051.0 6290.0 6243.0 5664.2 5675.0 o363.6 7003.0 7741.2 *602.3

Other Operating Income 609.1 757.4 900.0 897.2 1250.0 1400.0 1550.0 1700.0 1O6.0 2000.0

Dividend Payments Due 5070.4 5788.5 6400.0 6878.5 7619.6 6614.5 9409.4 10204.3 1099.1 11794.0

W.t Income-------- 1789.3 1019.9 690.0 261.7 -705.4 -1339.5 -1475.6 -1501.2 -1407.9 -1191.7

Operatinq Ratio 90.67 91.9X 92.SX 92.1% 91.5X. 90.9X 90.2X 69.4X 66.7X 67.9X

Patio of Net Rev. toCapital-at-Charge 7.67 6.67 6.27 5.6X 5.1X 4.7X 4.8X 4.6X 5.0X 5.1I

Capital-at-Charge 90781.0 I03731I. 114912.5 127014.9 140262.9 153510.9 144758.9 160006.9 193254.4 204502.9

INDIA

RAILWAY NODENIZATION lII PROJECT

TR Source and Application of Funds 1986-1995

(Forecast fiqures in 1987/89 prices-million Rupees)

Actual Actual Approx ---- -------- Bank Group Forecast----------------------1985/86 1986/87 1987/88 1989/89 1999/90 1990/91 1991/92 1992/93 1993/94 1994195

Souirce of Funds

Net Ircome 1788.3 1019.9 690.0 261.7 -705.4 -1339.5 -1475.6 -1501.2 -1407.9 -1191.7Add Dividend 5070.4 5788.5 6400.0 6878.5 7819.6 9614.5 9409.4 10204.3 10999.1 11794.0Net InFome Before Dividend 6858.7 6808.4 7090.0 7140.2 7114.2 7275.0 7933.6 3703.0 9591.2 10602.3Add Depreciation 9200.0 12500.0 13500.0 14019.7 14421.3 14906.2 15393.6 15663.4 16375.6 16670.3Add Reserves Charaed to revenue 404.0 583.3 795.1 934.5 950.0 950.0 950.0 950.0 950.0 950.0

Total Internal Sources 16462.7 19891.7 21395.1 22093.4 22485.5 23131.2 24277.4 25536.4 2691.68 23422.4G01 Contribution 8774.9 12950.3 11181.2 12102.4 13248.0 13248.0 13240.0 13246.0 13246.0 13246.0GOI Loan For Developea,nt 0.0 118.0 750.9 1041.5 1242.8 1323.6 1409.4 1501.3 15i96. 1702.6Interest Earned On Funds 115.0 127.7 227.2 307.0 350.8 373.6 397.9 423.7 451.3 460.6Increase in Pro. Fund & Misc. asset 820.0 2796.4 -1457.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0Net Increase in Pension Fund -205.0 -479.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Other Sources 68.0 47.9 229.6

Total Sources 26035.6 35452.7 32316.1 35544.3 37327.1 38076.4 39332.9 40709.4 42214.9 43654.0

Application of Funds

Capital expenditure 18781.7 25858.8 24521.3 27348.3 29251.3 29736.2 30223.6 30713.4 31205.6 31700.3Increase(Decr) Workng Capital 621.3 269.0 268.0 268.0 266.o 268.0 266.0 268.0 266.0 266.ODividend to G01 6237.6 5789.5 6400.0 6879.5 7114.2 7275.0 7933.9 0703.0 9591.2 10602.3Funds transferred to GOI L20.0 3536.4 1126.8 1003.0 693.6 797.2 907.5 1025*0 1150.1 1263.4Other 275.0 46.5

Total Applications 26035.6 35452.7 32316.1 35544.3 37327.1 39076.4 39332.9 40709.4 42214.9 43S54.0

Self fin Ratio 54% 53% 60X 55% 52% 52X 53% 54% 55% 55s

Dividend LiabilityBalance Outstandinq Dividend

Liability at Bebinning of Year 5451.6 4284.4 4284.4 4284.4 4262.4 4969.6 6329.3 7904.0 9304.0 10714.0Deferred Dividend due fcr the Year 0.0 0.0 0.0 705.4 1339.5 1475.6 1501.2 1407.9 1191.7 IDeferred Dividend paid in the Year 1167.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Balance Outstandinq DividendLiability at End of Year 4294.4 4284.4 4294.4 4294.4 4989.9 6329.3 7904.8 9304.0 10714.0 11905.7

INDIA

RAILWAY MODERNIZATION III PROJECT

IR Balance Sheet as of March 31,1996 to 1995

(Forecast figures in 1987/98 prices-million Rupee)

Actual Actual Approx ---------------------- Bank Group Forecast…--------…-----1985/G6 1986/87 1987/89 1999/89 1999/90 1990/91 1991/92 192/93 1993/94 1994/95

ASSETS

Current AssetsCash 2143.6 3046.3 3044.3 3046.3 3046.3 3046.3 3044.3 3044.3 304.3 3044.3Accounts Receivable 3396.1 3377.2 3411.0 3445.1 3479.5 3514.3 3549.5 3505.0 3420.6 3457.0Inventories 4369.7 4637.7 4905.7 5173.7 5441.7 5709.7 5977.7 6245.7 4513.7 4731.7

_- _- - - - -_- -- - -- ------- - -- _- -- _- -- _ - -- -- --- _ - -- -- --- _ - -- -- --- _ - -- -- --- _ - -- -- --- _ - - - -

9908.4 11061.2 11363.0 11665.1 11967.5 12270.3 12573.5 12677.0 13160.6 13405.0

Fixed Assets 109955.0 127758.7 142909.6 L59416.9 177131.1 194942.3 212651.1 230657.7 246942.9 267144.9

Deposits with G01 22830.5 26069.2 26955.1 a7583.0 27933.7 29307.3 26705.2 29129.9 29560.2 30040.9

Other Assets 696.3 696.3 696.3 696.3 696.3 496.3 696.3 696.3 694.3 694.3

TOTAL ASSETS 143290.2 t65585.4 181824.0 199361.2 217728.7 236216.3 254626.0 273559.9 292420.2 311409.1

IIARILITIES

r;,rrent Liabilities 5539.7 6423.5 6457.3 8491.4 6525.9 6560.6 6595.9 6431.3 6447.1 6703.3

lOAN CAPITAL-Perpetual 4 90781.0 103731.3 114912.5 127014.9 140242.9 153510.9 166750.9 190006.9 193254.9 206502.9

Investments financed fromDepretiation Reserve Fund 12351.0 16148.8 18491.4 21201.7 24006.0 27067.2 30145.9 33322.6 36597.7 39971.8Developement Fund 0 7496.0 9326.3 9426.3 10454.3 1"44.3 12254.3 13154.3 14054.3 14954.3 15054.3ACfFPF 1263.0 1612.0 2086.6 2647.3 3247.3 3947.3 4447.3 5047.3 5447.3 6247.3Revenue 2996.0 3230.3 3550.8 3924.6 4274.6 4624.6 4974.6 5324.6 5474.4 4024.4Misc 43.0 44.0 44.0 44.0 44.0 44.0 44.0 44.0 44.0 44.0

_ _--- -- _--_----- ------ _-- -------- ------- _- _-------- -------- _-------- -------- --------

24139.0 29361.4 33599.1 38271.9 43006.2 47937.4 52766.1 57792.9 42917.9 4e142.0

ReservesDepreciation Reserve Fund 1442.1 2403.5 4523.2 5294.5 5635.3 6006.9 6406.7 6830.5 7261.7 7742.3Revenue Reserve Fund 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1 4.1Developement fund 1.6 1.5 1.5 1.6 1.6 1.6 1.6 1.6 1.4 1.6Pension Fund 41.1.2 3639.9 36s3.9 S638.9 3638.9 3638.9 3639.9 3436.9 3439.9 . 3436.9ACSPF 124.4 84.7 208.9 175.3 175.3 175.3 175.3 175.3 175.3 175.3

------ _-- _------- -------- _ --- _---- -------- -------- ------ _-- _-------- -------- --------

5692.4 6134.7 9378.5 9106.4 9457.1 9830.7 10228.6 104152.3 11103.4 1104.2

0epositsProvident Fund & Misc 17139.1 19934.5 19476.6 19476.6 18476.6 19476.6 19476.6 19476.6 13474.6 19474.4

TOTAL LIABILITJFq 143290.2 165585.4 191924.0 199361.1 217728.6 236216.3 254926.0 273559.9 292420.1 311409.0

*Deferred Dividend Liabilitv 4284.4 4284.4 4284.4 4284.4 4989.8 6329.3 7904.9 9306.0 10714.0 11905.7&Loan for Developement from GOT

included in the investment 3364.0 3492.0 4232.9 5274.4 6517.2 7840.8 9250.4 10751.7 12350.5 14053.3

-72-Annex 5.1

INDIA

RAILWAY NDDERNIZATION III PROJECT

Selected Documents and Data Available in the Project File

Document No.

A. Selected Reports and Studies on the Sector and Subsector

1. Indian Railways, Railways Seventh Five-Year Plan, 1985-90, Dec. 1984 F09516

2. Planning Commission, The Seventh Five-Year Plan, 1985-90, Oct. 1985

3. Indian Railways, Annual Statistical Statements, 1985-86 F09517

4. Indian Railways, Performance Report, 1986-87 F03482

5. Planning Commission, A Review of Selected Productivity Indices ofIndian Railways, May 1987 F03484

B. Selected Reports and Studies Relating to the Project

1. Indian Railways, Corporate Plan, 1985-2000, July 1987 F09518

2. Indian Railways, Project Report on Rehabilitation and Modernizationof Permanent Way, June 1987 P09519

3. I^aian Railways, Track Planning on Indian Railways, January 1987 F03483

4. Indian Railways, Track Modernization on Indian Railways, April 1987 F09520

5. Indian Railways/RITES, Modernization of Indian Railway System,Welding of Rails, Report No. 5, January 1987 P03480

6. Indian Railways/RITES, Modernization of Indian Railways TrackStructure, Report No. 7, March 1987 F03481

7. Tata Economic Consultancy Services, Indian Railways:Economic Evaluation of Technological Options, September 1986 F03486

8. Research Designs and Standards Organization, ComparativeTractive Resistanca and Fuel Consumption Tests on 52 kg.and 90R Track, January 1978 F09521

9. RITES, Depreciation Policy Study for Indian Railways, Sept. 1987 P09522.24

10. Indian Railways, The Manpower Question in the Contextof Mechanized Maintenance on Indian Railways, September 21, 1987 F09525

-~ ~~~~~ 7

INDIAN 5AILSVS alUTIO C"T

men." LltlLca

I a., u... w 4. Staff ~ ~ ~ ~ ~ ~ *1r t

2 ._tltriezc

!~~~~ y.

ProjectsSJecuttvo DirectorsI Ze.a Railways Manfacturing Units Genral U&UPrS/Chlief Rasaorch. DColona and

OlraCtara 9r 1 a aral _An r- A_ r in tirt Officer ta Or aiat1On II. AccountS .1 Central Railway. 1. Chittaranj*h LaCe- 1. Canatructian SOuthern 1. Dirlictor-feneral2. CivIl 'agneoring BOW" motiv, oWrk* Ralway. mongalaira3 C hing 2. Contral Rilay. 2. O"el e LOC tiv 2. troliton Tranaart4. Corpo Coord. Calcutt Mlorks. Va.aa Project (Rallweay).S. Ifficioney * Raarch 3. NOrthern Rilway. 3. Integral Coch Calcutta

Mangeent services Raw h Fagtory. Madras S. Workshop Moorns*tian7 Adinistretiva Reforms 4. North Steirn Railway. 4. m,ol , Axl. Plan. (COQfMtI. DOihlS. Treck Coralhpuer gOngaOra 4. ChOel Coponent WorksS. 2actrical anaincering S. North east Frontier DOCV). Patiold

t. otstelloant Railway. Ouwhati S. Mail Ce ch PaeteryIn. ane 6. Southarn Railway. (RCF). Kapurthala

12. LOad _ana_ nt adrsgIS. Mcl nica niner 7. South Cantral Railway.14. Mach. Sng. (workshopa) Soc, Orrbd1. MaCh. la. (CPU.) . South gaatarn Railway.iS. M T CalcuttaI?. Off cial Language S. Weatorn Railway.la. Oprtg. Info. SVto _V19. Pay Comission20. Planning21. Public Ral ation52. hly. Slactr¢lfcatin22. Safey. 23.Sf*24. ial 0002. Statitica & ceoalca

I S. StaroI27. Telecam Dvelgpm nt

2s. Tr ffic Co_l.20. Traffic Tourtam30. Tra fic (Trans.)St. Warkl,32. Vlsilamc

. ecnanmic Adviser1. Lagl Adviar

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