irp presentation 1

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Individual Research Paper

Locomotive Availability: Cost–Benefit Analysis between

Imported and Local Manufacture

By

Athar Riaz (Pak Railway)

Faculty Advisor: Brig (R) M. Irfan

• Introduction• Problem Statement• Scope of study• Locomotive Availability• Procurement of new locomotives• Local Manufacturing• Cost Benefit Analysis• Conclusion/Recommendations

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Sequence

• Factors contributing to low induction of Locomotives.– Lack of funds for manufacturing/rehabilitation of locomotives.– Dependency on foreign technology.– Lack of long term planning for rehabilitation, procurement or

manufacturing of new locomotives.

• PR need an induction of 20-25 new DE Locos every year• PLF is available but never utilized to its design capacity • No project has so far initiated for the local

manufacturing/assembling – Self sustainability in improving the availability of locomotives– Reduced dependency on foreign countries and saving of huge foreign

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Introduction

• DE locomotives can be manufactured/assembled with at least 40-50% saving of foreign exchange

• Due to non-availability of requisite FE funds every year for the replacement of 25 overage DE Locos– it is need of the hour to start manufacturing locomotives locally.

• Without, self sustainability as a first step towards standardization, the problem of availability and reliability of locomotives will remain a question.

• PR has the potential and expertise but whether it would be an economical decision?

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Problem Statement

• Study involves the cost benefit analysis of – Imported vs Local manufacturing of locomotives– Research is conducted to analyze the factors required for

increasing locomotives’ declining availability and subsequent reliability online

• Scope of study is limited to the American and Chinese locos imported in 1997 and 2003 – As CBU, SKD and CKD at PLF, RCS.– Comparison of their costs and the subsequent benefits have

been analyzed on the CBA technique by working out the Cash flow statements to reach at the conclusion.

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Scope of Study

LOCOMOTIVE AVAILABILITY

• Pakistan Railway owns a fleet of 465 Diesel Electric Locomotives

• The requirement of effective train operation is 600• 46 are temporary deleted meaning thereby they are

not feasible for economical repairs. • Only 419 are for working and turmoil is that they also

are not road worthy• Only 165 are available for passenger and freight train

operations as on 10.10.20138

Basic Facts

Horse Power Make

3000 hp 137 General Electric, USA 79

2400 hp 21 General Motors, USA 119

2000 hp 214 Hitachi 112

1500 & less 93 Chinese 69

Total 465 ALCO, USA 86

Total 465

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Categories

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Availability Statistics

• Non availability of spares and components on time• Inadequate budget allocation for routine repair and

maintenance of locomotives under head of Revenue• No new DE locomotive inducted in the system during

last 11 years.• More than 59% (277) DE locomotives are overage

(Economic Life of 20+15 years)

• No program is in line for assembling/manufacturing of DE locos in PLF

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Reasons of Decline

• Economists believe that at least 50% freight traffic should be carried through Rail

• Requirement is ascertained by the business plan provided by the Traffic and Commercial branch of Railways

• Railway carried 16,093.350 MPKMs and 402.481 MTKMs during 2011-2012

• Passenger and Freight traffic targets for 2017-18 have been fixed in Business Plan as 32,800 MPKMs and 25,200 MTKM

• The minimum availability requirement comes to 560 in 2017-18 after condemnation of 170 DE locos

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Requirement

How to Improve?

Rehabilitation• Only 60% cost of new

locomotive• So far 101 locos are

rehabilitated • No loco is rehabilitated

since 2004

Procurement• 20 locos per year is the

requirement• No loco procured in last

11 years• 277 locos are required

to be condemn due to overage

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After completion of economical life of locomotives, any Railways then have two choices

• PC-I of 75 DE locomotives approved by ECNEC on 14.12.2005– Agreement signed with the Dong Fang on 31.12.2008 and 15%

down payment is also been made by GoP– Could not matured due to lengthy hearing by the honorable

courts – Delayed by the cabinet too of the previous government. – The current status is that the case is filed and fresh tenders are

in process.• PC-1 of 150 US origin locomotives finalized but

– The agreement challenged by the competitive firm in the court of law and the matter is still pending

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Unsuccessful Attempts

PROCUREMENT OF NEW LOCOMOTIVES

• Procurement history dates back to 1958• Several renowned manufacturers of the world have so far

been trialed– Transfer of technology and their local assembling in Pakistan

Locomotive Factory, Risalpur.

• The major manufacturers of PR currently owned 465 DE locomotives are:

General Electric USA = 79General Motors USA and Canada = 119Hitachi Japan = 112ALCO, USA = 86Dalian China = 69

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History of Procurement

• To achieve the target of 11.5 billion tonne-kilometer and 22.9 billion passenger kilometer by 1997-98.– 30 DE Locos of 3000 hp were procured from USA (AGE-30)

– During 1997 – 2001

• In order to enhance the availability of locomotive and replace the over age fleet uneconomical for repairs. – 44 DE Locos of 3000 hp were procured from China (DPU-30)

– 25 DE Locos of 2000 hp were procured from China (DPU-20)

– During 2003 – 2008 17

Last 15 years

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USA 3000hp

ChineseTotal

3000 hp 2000 hp

CBU 10 8 7 25

SKD 10 16 8 34

CKD 10 20 10 40

Total 30 44 25 99

Manufacturing – Breakup

Type of manufacturing Cost (In Rs. Million)

CBU 142.50

SKD 140.50

CKD 134.60

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Cost of American Locos• The final capital cost as per PC-IV was Rs. 5,531.428Million

• Including foreign exchange cover of Rs. 3,072.124Million

Type of manufacturing Cost (In Rs. Million)

CBU 109.00

SKD 99.43

CKD 84.52

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Cost of Chinese Locos• The final capital cost as per PC-IV was Rs. 7,723.232Million

• Including foreign exchange cover of Rs. 5,907.662Million

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Maintenance & Operational Cost

AGE – 30 DE locos (American) • Repair & Maintenance cost / loco / year = Rs. 5.585Million• Operational cost / loco / year = Rs. 6.018Million

DPU – 30 DE locos (Chinese) • Repair & Maintenance cost / loco / year

– Rs. 3.292Million in 2003-04 to 8.600Million in 2010-11

• Operational cost / loco / year– Rs. 8.616 Million in 2003-04 to 18.295 Million in 2010-11

LOCAL MANUFACTURING

Import Deletion Program• Import Deletion Programme was initiated in 1970

– Railway Diesel Spare Manufacturing Shops at Rawalpindi and Railway Workshops, Moghalpura.

– The other indigenous sources utilized were Local State-owned and Private Industries.

• Curtail the cost and increase the number of locomotives• Foreign exchange saving• Self-Reliance by enhancing ratio of local cost in

production of locomotives • Standardization of major assemblies.

• Established in 1993• State of the art plant, machinery and equipments make this

factory exceptional in the manufacturing capabilities. • 25 CKD DE locomotives designed capacity of manufacturing

annually• To progressively enhance the domestic production of

locomotives to an extent of 50% • So far manufactured 99 DE locomotives of 2000-3000hp for

PR• Saved CFE of Rs. 1,392.00M

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Pakistan Locomotive Factory

• A pilot project initiated in 2005 for the manufacturing of 5 DE locos of 3000hp

• PC-I in this regard was approved by ECNEC on 19.09.2007.• This could be the major step in departing from the old

practice of importing locomotives as completely built units. • The existing infrastructure and facilities in PLF, RCS are

sufficient for such manufacturing• OEMs remain sidelined in the International tender and thus

filed after even providing three chances to the participating firms.

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Step Forward

• At Pakistan Locomotive Factory, Risalpur– 19 major assemblies/components

• At Railway Workshops, MGPR– 5 components/assemblies

• From approved manufacturers/vendors– 35 components/assemblies

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Scope of Work – Local

Some of the following important assemblies/components are required to be imported– Diesel Engine– Traction alternator with auxiliary Generator– Air Brake System– Wheels & bearings– Traction Motors & Suspension Tubes– Control equipment and cab equipment– Invertors– Air compressors with motors– Turbo Super Charger

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Scope of Work – Imported

COST – BENEFIT ANALYSIS (CBA)

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What is CBA?• Is the project worthwhile financially?• Is it the best option?• Should it be undertaken at all?

• For a company– Concerned with the profit earning capacity and income flow of a

proposed project– A cash flow analysis

• For the Government– A cash flow analysis– Decision making for governments is much harder. – Expected to consider the profitability (or at least neutrality) of the

costing – Include consideration of the social cost and benefits of their choices. – Must also comply with environmental considerations.

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What is CBA?

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Decision Making

BENEFITS > COSTS

@ 12% discount

rate

Chinese Locos

Imported Local Manufacture

PWC 298.212 276.355

PWB 460.133 460.133

BCR 1.542 : 1 1.665 : 1

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Cash Flow Result

•Cash flow is carried out by using Microsoft Excel tool.•Repair & maintenance costs and Fares have been kept constant during the period of life span of 20 years •50% of this earning is attributed to locomotive on the basis of investment ratio on other elements or infrastructure as per Planning division formula.

@ 12% discount

rate

American Locos

Imported Local Manufacture

PWC 231.885 206.832

PWB 421.770 421.770

BCR 1.971 : 1 2.039 : 1

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Cash Flow Result

•Cash flow is carried out by using Microsoft Excel tool.•Repair & maintenance costs and Fares have been kept constant during the period of life span of 20 years •50% of this earning is attributed to locomotive on the basis of investment ratio on other elements or infrastructure as per Planning division formula.

CONCLUSION & RECOMMENDATIONS

• The discounted present value of the benefits exceeds the discounted present value of the costs thus the strategy of local manufacturing of DE locomotives at PLF, RCS is worthwhile.

• In addition, Net Benefit is positive which was considered decision criteria to adopt local manufacturing strategy on PR.

• Ratio of the present net value of the benefits to the present value of the costs is greater than one. This further justifies to adopt local manufacturing strategy

• Engineering Techniques not available at PLF, RCS should be obtained from OEM through Technology transfer in the future contract agreements.

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• The present deletion rate to the extent of almost 40% at PLF, RCS are needed to be enhanced beyond 50% within a span of next FIVE YEARS.

• Long term adoption will take PR to the standardization of major assemblies and components

• The rehabilitation of old age locomotives shall also be carried out with the components proposed for the standardization in addition to the new manufacturing.

• A Railway Engineering & Technical University in the country is recommended to be established as soon as possible in consultation with the Association of American Railroad (AAR)

• The pilot project for manufacturing of FIVE 3000 hp locomotives shall immediately be taken in hand

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