Report No. 787a-IN

India FILE COPYAppraisal of aThirteenth Railway ProjectJuly 28, 1975

Projects DepartmentSouth Asia Regional Office

Not for Public Use

Document of the International Bank for Reconstruction and DevelopmentInternational Development Association

This report was prepared for official use only by the Bank Group. It may notbe published, quoted or cited wilhout Bank Group authorization. The Bank Group doesnot accept responsibility for the accuracy or completeness of the report.

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TS/aCURRENCY.EQUIVALENTS-

Currency Unit = Indian Rupee (Rs)Rs 1.00 Paise 100US$1.00 = Rs 7.85Rs 1.00 = US$0.13Rs 1,000,000 US$127,388Rs 10,000,000 (1 crore) = US$1,273,880

WEIGHTS AND MEASURES

Metric US Unit

1 Ton = 1.102 Short Tons1 Km 0.621 Mile1 Ton-Km = 0.621 Ton-Mile1 Pass-Km = 0.621 Pass-Mile1 Meter 5 3.281 Feet

GLOSSARY OF ABBREVIATIONS

BG - Broad Gauge (1.676 m)DF - Development FundDRF - Depreciation Reserve FundEMU - Electic Multiple UnitICB - International Competitive BiddingIR - Indian RailwaysMG - Meter Gauge (1.000 m)NG - Narrow Gauge (0.762 m and 0.610 m)PAD - Project Appraisal Division, Planning

CommissionPEMU - Project Evaluation and Monitoring Unit,

Planning CommissionPF - Pension FundPIB - Public Investment BoardRDSO - Research Design and Standards Organization

(of Indian Railways)RRF - Revenue Reserve FundFourth Plan - Fourth Five-Year Plan (1969/70-1973/74)Fifth Plan - Fifth Five-Year Plan (1974/75-1978/79)pass-km - passenger kilometerton-km - ton-kilometer

GOVERNMENT OF INDIAFISCAL YEAR

April 1 - March 31

/a The Rupee is officially valued at a fixed Pound Sterling ex-change rate. As the Pound is now floating relative to the USDollar, the US Dollar/Rupee exchange rate is subject to change.

INDIA

APPRAISAL OF A THIRTEENTH RAILWAY PROJECT

TABLE OF CONTENTS

Page No.

SUMMARY AND CONCLUSIONS ............ ................. i-ii

I. INTRODUCTION ........................................ 1

II. BACKGROUND ................ ....................... .... 2

A. Indian Economy and Railways ................ . . 2B. The Transport Sector ...................... 3C. Transport Policy and Planning ........ o......... 4D. Transport Sector Investment Plans . ........ 5

III. THE INDIAN RAILWAYS ............... .. .. ......... 5

A. Organization, Management and Staff ....... ....... 5B. Accounts, Costing and Audit .. ................. 6C. Rates and Fares ............. . ... ..... ......... 6D. Property ... .............. ............ o....o 7E. Manufacturing Units .................. ... 9F. Operating Performance ................ o... 9G. Performance Under Previous Credits .......... ... 9H. Railway Planning ...... ..................... o ... 10

IV. THE PLAN AND THE PROPOSED PROJECT o ............. 11

A. IR's Investment program 1974/75-1978/79 ..... .. 11B. The Project ........ o....... o...... ... o ......... 12C. Financing of the Project .......... ... o ......... 14D. Execution of the Project, Procurement and

Disbursements . ........... 14

V. FINANCES AND EARNINGS ................... 16

A. Introduction ......... o ........... 16B. Past Performance ............. o .. ............... 16C. Forecast Peformance ............ ................ 18D. Financing Plan ... .................. o .......... 19

This report was written by Messrs. 0. Rahkonen, J. Spencer, F. Tachibanaand S. Purvis (Consultant). Mr. C. Buratti also assisted.

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Page No.

VI. ECONOMIC EVALUATION .............................. 21

A. Draft Fifth Five-Year Plan 1974/75-1978/79 ... 21B. Traffic ......... ............................. 22C. Economic Evaluation .......................... 22

VII. AGREEMENTS REACHED AND RECOMMENDATION . ............ 25

ANNEXES

1. Details of Traffic Forecasts2. Details on Indian Railways3. Financial Arrangements between IR and the Government4. Exchequer Control5. Main Recommendations of Task Force on Budgetary, Accounting

and Management Practices6. Main Recommendations of Working Party on Depreciation Policy7. Action Plan for Improving Wagon Turn-around8. IR Project Evaluation Procedures9. Principal Items included in the Project10. Detailed Cost Estimate for Locomotives and Rolling Stock

(Investment)11. Description of Materials, Components and Equipment to be procured

from Proceeds of the Proposed Credit12. Estimated Schedule of Disbursements13. Economic Evaluation

TABLES

1. Allocation of Public Investments by Modes of Transport,Fourth and Fifth Plans

2. Inventory of Tracks3. Inventory of Motive Power and Rolling Stock4. Production Program of Locomotives and Rolling Stock under IR's

Investment Program 1974/75-1978/795. Summary of Operating Statistics6. IR Operational Performance compared with European Railways of

Similar Size7. IR's Investment Program 1974/75-1978/799. Revenue and Expenditure Accounts 1969/70-1974/7510. Balance Sheet as of March 31, 197411. Revenue and Expenditure Forecast 1975/76-1979/80lla. IR Freight Revenue Forecast 1974/75-1979/8012. Source and Application of Funds for 1974/75-1979/8013. Forecast Balance Sheets 1974/75-1979/8014. Foreign Exchange Requirements 1975/76-1976/77

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15. IR Passenger Traffic 1965/66-1973/7416. IR Freight Traffic 1960/61-1974/7517. IR Passenger Traffic 1972/73-1979/8018. IR Freight Traffic 1971/72-1979/8019. Results of Economic Evaluation

CHART

Indian Railways Organization Chart (World Bank-9795)

MAP

Indian Railways (IBRD 2593R2)

INDIA

APPRAISAL OF A THIRTEENTH RAILWAY PROJECT

SUMMARY AND CONCLUSIONS

i. The Draft Indian Fifth Five-Year Plan 1974/75-1978/79 as pre-pared in 1973 envisaged an increase of about 32% in ton-km of railwayfreight and of about 20% in railway passenger traffic over the five-yearperiod on the basis of a predicted 5.5% annual real growth in GNP. Adverseeconomic developments during the past two years - escalation of the pricesof fuel and other essential commodities combined with a stagnant economyand strained industrial relations -- have necessitated a reassessment ofthe development plans. The targets for the various sectors are beingmodified.

ii. The Government of India (GOI) has, however, decided that the targetsfor the core sector of the economy -- essentially energy, coal, steel, heavyindustries, cement, fertilizer -- should by and large be maintained.Because of the Government's resource position, the decision will resultin relatively large cuts for other sectoral programs, including transport.Indian Railways (IR) has reduced its freight traffic forecast for 1978/79by 12% and the proposed project and credit have been prepared on thisbasis. On the average, however, 1974/75 prices were about 35% higher thanthe 1972/73 prices used in the preparation of the Draft Fifth Plan; a further20% increase is expected by the end of the project period in 1976/77. There-fore, in order to keep within the original investment outlay of Rs. 23.5billion (US$3.0 billion equivalent) for the 1974/75-1978/79 period, IR cutback on planned real investment. The reduction has become possible becauseof the lower traffic forecast, but some of it is to be achieved through theimplementation of an action plan for substantial improvements in the utili-zation of existing assets.

iii. The proposed project, which would consist of IR's revised invest-ment program for the two years 1975/76-1976/77, is estimated to costRs. 7,928 million (US$1,010 million equivalent). It will enable the Govern-ment and IR to continue with the production of locomotives and rollingstock at present levels, whereas the original program anticipated a sub-stantial increase. It will also enable IR to continue with track renewal,electrification, line capacity and other works already in progress, al-though at a rate about 35% lower than originally estimated. Included inthe project is a provision for import of necessary spare parts for mainte-nance of locomotives and rolling stock.

iv. The total foreign exchange requirement during the project periodis estimated at US$154.2 million equivalent, of which US$122.6 millionequivalent would be required to support the investment program (foreignexchange component 12.4%), while US$31.6 million would be required forimport of necessary maintenance spare parts. According to the proposed

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financing plan, US$110.0 million equivalent would be met from the proceedsof the proposed IDA credit, US$20.0 million equivalent would be financedout of the remaining proceeds of the present credit 448-IN (Twelfth RailwayProject), while the remaining US$24.2 million equivalent would be financedthrough Government and bilateral sources.

v. The present credit 448-IN was originally expected to be fullydisbursed by March 31, 1975, but because of a slow-down in manufacturingprograms as a result of lower than expected traffic growth, it is nowestimated to last about four months longer, to the end of July 1975. Theproposed credit would therefore cover payments over a period of 20 months,from August 1975, to March 1977.

vi. The covenants of Credit 448-IN required IR to prepare a long-termCorporate Plan and to earn sufficient net revenue to enable IR to meet outof internally generated resources, all operating expenses and dividend paymentsof about 5.5% on its capital-at-charge. The preparation of the Corporate Planis well in progress and the earnings situation indicates that for 1974/75IR's adjusted earnings of about Rs 1305 million 1/ (US$166 million equiva-lent) would be about 70% of the dividend payment thereby satisfying therequirements of the covenant. For subsequent years the forecasts also indi-cate that the earnings will be sufficient to meet the dividend in full asrequired by the covenant but there are already indications that for 1975/76and 1976/77 there are likely to be substantial increases in costs whichcannot yet be quantified. It will require major efforts on the part ofGOI and IR to maintain the balance between costs and revenues.

vii. IDA financed items will be procured by application of internationalcompetitive bidding procedures in accordance with Bank guidelines, exceptfor about US$20.0 million (18.2% of the total credit), which would be used topurchase special standard components and equipment required in the manufac-ture of diesel and electric locomotives and for replacements during mainte-nance. For similar reasons, under the two preceding credits, 280-IN(Eleventh Project) and 448-IN (Twelfth Project), 23% and 20% respectivelyof the total credit amount was excluded from international competitive bid-ding. The financing of such items from IDA has thus been slowly reduced.

viii. The proposed project provides a suitable basis for an IDA creditof US$110 million equivalent to the Government of India on the usualterms.

1/ The latest estimated figure is Rs. 885 million, but this was aftercharging personnel costs of Rs. 420 million relating to 1973/74.

INDIA

APPRAISAL OF A THIRTEENTH RAILWAY PROJECT

I. INTRODUCTION

1.01 The Government of India and Indian Railways (IR) have asked IDAfor a credit of US$110 million equivalent to assist in financing the pro-curement of equipment required in the on-going program of locomotive androlling stock production and maintenance and of track and other works duringthe years 1975/76 and 1976/77, which are the second and third years of IR'sFive-Year Investment Program 1974/75-1978/79. The credit would help tofinance IR's foreign exchange requirements over a 20-month period fromAugust 1, 1975 to March 31, 1977. The covenants of Credit 448-IN requiredIR to prepare a long-term Corporate Plan and to earn sufficient net revenueto enable IR to meet out of internally generated resources, all operatingexpenses and dividend payments of about 5.5% on its capital-at-charge. Thepreparation of the Corporate Plan is well in progress and IR is expected tohave a net operating surplus during the Fifth Plan period 1974/75-1978/79,although this may not in some years be sufficient to meet the full dividendliability.

1.02 Transport capacity to be planned and provided by IR is closelytied to the needs of the coal, power, steel and related heavy industrieswhich comprise the so-called core sector of the economy; this sectorgenerates about 80%Xof IR's total revenue-earning freight traffic. TheDraft Fifth Five-Year Plan 1974/75-1978/79 established production targetsfor the core sector and IR is required to provide corresponding transportfacilities. The physical Plan targets are, however, being revised becauseof adverse economic developments during the past two years. The proposedproject has been designed to permit IR to provide the transport capacitynow expected to be required by March 1977 on the basis of an assessmentmade by IDA of the likely traffic development during the whole Plan periodtaking into account prior Bank economic and sector work on India. The finaloutcome of the Government's reappraisal of the Draft Plan is likely to beavailable at the time of preparation of the 1976/77 budget, but the Governmenthad already decided in 1974 that the targets for the core sector were to bemaintained.

1.03 Since 1949, the Bank Group has made six loans and six creditsfor IR, a gross total of US$786.5 million equivalent; the only cancellationwas of US$1.20 million of the first loan. Previous lending operations havebeen satisfactorily completed and have assisted IR to triple the volume offreight carried and to more than double its passenger traffic between 1951and 1974. The last credit (448-IN) was made in December 1973 for US$80million equivalent; this should be fully disbursed by the end of July 1975.

1.04 Other Bank Group lending for transportation in India has consistedof three loans and one credit for the ports of Calcutta, Madras and Bombay(a total of US$81 million equivalent, US$8.69 million subsequently cancelled),

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one credit for roads (US$60 million equivalent,US$0.53 million subsequentlycancelled), one loan for civil aviation (US$5.6 million equivalent), andone credit for shipping (US$83 million equivalent). These lending operations,which were mainly undertaken 10 to 15 years ago, have been satisfactorilycompleted. Also, IDA has assisted in financing the import requirements ofcommercial vehicle manufacture in the ten Industrial Imports credits madebetween 1964 and 1975.

1.05 This appraisal report is based on information supplied by theGovernment of India and IR and on the findings of a 3ank mission in March/April 1975 comprising Messrs. Rahkonen (Economist), Tachibana (Engineer),Buratti (Engineer) and Purvis (Financial Analyst, Consultant).

II. BACKGROUND

A. Indian Economy and Railways

2.01 Indian Railways (IR), besides being an important passenger carrier,is closely linked with the industrialized part of the Indian economy, partic-ularly its extractive and heavy industries. Bulk commodities, such as coal,iron and steel, ores, cement, limestone, fertilizer and petroleum productsaccount for about 80% of railway freight traffic in ton-km. In addition,the remaining 20% includes several commodities used by these industries(chemicals, machinery, etc.). Therefore, the railway's freight trafficdevelopment depends closely on the performance of these industries. Thisdependence has increased over time; in 1951/52, these bulk commodities cons-tituted about 60% of the railway's freight traffic.

2.02 Consequently, the reliability of railway traffic forecasts dependson the extent to which the extractive and heavy industries are able to real-ize their development plans. The target for revenue earning railway freightat the end of the Fourth Plan in 1973/74 was initially 260 million tons.This was revised to 230 million tons during a mid-term review of the Plan,while the actual traffic attained was 162 million tons. The target for theend of the Fifth Plan in 1978/79 was in 1973 established at 255 million tons.The project has been based on a reduced estimate of 230 million revenueearning tons in 1978/79.

2.03 A close examination of the reasons for these shortfalls indicatesthat the crucial factor has been the slower than planned development of twokey sectors - - - power and steel - - - and the related performance of ex-tractive industries such as coal and iron ore mining. Shortfalls from plantargets for these two sectors alone accounted for some 66 million tons ofthe total shortfall in forecast rail traffic during the Fourth Plan period.Shortfalls in export of iron ore and production of cement accounted for an-other 15 million tons. However, the railways themselves have to some extentcontributed to these shortfalls through disruptions and slow-down in train

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services resulting mainly from difficulties in industrial relations whichculminated in May 1974 in a nation-wide railway strike (para. 3.03).

B. The Transport Sector

2.04 Although the major part of IR's freight traffic has been generatedby a limited number of heavy industries, the railways have traditionally beenthe main mode of motorized transport in India and retained their relativeposition more or less unchanged up to the beginning of the 1950's. 1/ Atthat time their share of motorized land transport was estimated at 90% oftotal ton kilometers (ton-km) and 75% of total passenger kilometers (pass-km).

2.05 During the period 1950/51-1970/71, while motorized freight andpassenger transport increased annually by 7.0% and 4.9% respectively, therailways' share was reduced to 63% of total freight and to 50% of total pas-senger traffic, with a corresponding increase in the share of road transport.The relatively poor performance of heavy industries requiring transport ofbulk commodities has been the main factor in the railways' inability to re-tain their former share of total freight traffic. In addition, because ofits inherent advantages, highway transport gradually captured a greater shareof the market for high value goods moving over short and medium distances(Annex 1). This development has tended to reduce the area of competitionbetween the two modes and they have become increasingly complementary toeach other in transport of freight. In respect of passenger traffic, themain reason for the reduced relative share of railways is that long dis-tance passenger traffic has tended to increase at a slower rate than thatfor short distance (commuter) traffic because of continuing rapid urbanization.The short distance traffic can generally be carried more economically by road,and the railways have made some efforts through tariff policy to promotediversion of this traffic from rail to road. The composition and expecteddevelopment of railway traffic are summarized in paras. 6.02 to 6.05.

2.06 Compared with railways and highway transport, the other modes oftransport are at present of minor importance as general goods and passengercarriers: coastal shipping and pipelines each carry about 3% of the totalfreight traffic in terms of ton-kni; air transport carries about 1% of thetotal pass-km. These modes perform, however, an important function withintheir specialized areas. There is also scope for considerable expansionwithin each of the modes because of the size of the country (coastal ship-ping and air transport), its geographical features (coastal shipping andpipelines), and because of gradually increasing advantages to be derivedfrom economies of scale (each of these modes requires fairly high throughput

1/ In rural areas, however, with about 80% of India's population, tra-ditional means of non-motorized transport -- provided mainly by animaldrawn vehicles -- dominate the local transport market.

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volumes because of their high capital utilization ratios). Consequentlyincreased attention is being given to their development; expansion ofcoastal shipping and the pipeline system are under active consideration bythe Government.

C. Transport Policy and Planning

2.07 In recognition of the need to implement and update the recommenda-tions contained in the 1966 Final Report of the GOI Committee on TransportPolicy and Coordination, it was agreed during the negotiations for theEleventh Railway Credit (280-IN) in 1971, that the Government would, by thelatter part of 1973, complete a review of the transport sector. This reviewwas completed in November 1973. Subsequently, a transport review missionvisited India in April 1974. It identified as the most urgent issues im-proved sector management and project preparation and implementation, par-ticularly in face of the considerable efforts required for a successfulimplementation of the Fifth Five-Year Plan and the simultaneous need toimprove the utilization of existing assets. The mission recognized that thevarious issues relating to transport policy and planning could only be solvedgradually and would require a continuous dialogue among Government departments.The mission's findings were communicated to the Government in July 1974. TheGovernment has since responded positively to most of the recommendations.There are two outstanding issues -- the need to centralize in one Governmentagency the railway functions relating to overall transport sector managementand planning and the desirability of subjecting IR investment programs toPublic Investment Board (PIB) scrutiny. These are being reviewed by theGovernment.. It was agreed during negotiations that the Government wouldkeep the Association informed about decisions taken concerning these twomatters and about any other developments within the sector.

2.08 The Government has recently considerably strengthened the positionof the planning units in the two most important transport ministries --Railways, and Shipping and Transport -- dealing with transport. In theMinistry of Railways, corporate planning cells have now been established inall Zonal Railways, and the Economic Unit in the Railway Board is beingmore closely associated with operational and technical planning at an earlystage of the project cycle. In the Ministry of Shipping and Transport, theTechnical Services unit has been strengthened to improve on past, fairlypoor, performance in implementation, particularly of port projects, while theDivision of Transport Research has increasingly been associated with eco-nomic evaluation of projects. In addition, the recently established Proj-ect Appraisal Division (PAD) and Project Evaluation and Monitoring Unit(PEMU) in the Planning Commission are expected to srutinize and monitorthe implementation of public sector investment projects for the economy asa whole.

2.09 The Government is also gradually moving away from primarily rail-way oriented transport planning by seeking feasible solutions to capacity

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problems within other modes of transport. An example of this approach isthe proposed project for shipping of coal from Bengal/Bihar coalfields topower stations and other major coal consumers in Southern and Western India.This project has been under preparation for some tiae, and may involve Asso-ciation financing. Another example is the planned construction of pipelinesparallel to main railway sections in difficult terrain, with the purpose ofrelieving congestion on railways and avoiding the considerably higher costsinvolved in expansion of railway capacity in these areas.

D. Transport Sector Investment Plans

2.10 The Draft Fifth Five-Year Plan 1974/75-1978/79 drawn up in 1973allocated Rs. 66.5 billion (US$8.5 billion equivalent) for investments inthe transport sector including Rs. 11.0 billion, (US$1.4 billion equiv-alent), for communications. This represented 18.8% of the total Draft Planoutlay of about Rs. 355 billion (US$45 billion equivalent) and compares with18.5% spent during the Fourth Plan period 1969/70-1973/74 and with 23.6%spent during the first three Plan periods. Of the total of Rs. 66.5 billion,Rs. 23.5 billion (US$3.0 billion equivalent) is allocated to the Railways(including provision for replacement outlays). Table 1 gives the allocationof the transport sector outlays in the Fourth and Draft Fifth Plans by modesof transport. The 1975/76 budget indicates that the relative share for trans-port and communications will be reduced (para. 4.03). The railways 1974/75-1978/79 investment program, as revised by IR, is discussed in paras. 4.01to 4.05.

-II. INDIAN RAILWAYS -/

A. Organization, Management and Staff

3.01 The IR network is owned and managed by the GOI. Its operationsare controlled and directed by a Board of five members headed by a Chairmanwho is ex-officio a Principal Secretary to the Government of India reportingto the Minister of Railways. One Board member, the Financial Commissioner,has discretionary power to report directly to the Minister of Finance onfinancial matters. The Board, therefore, performs the dual functions ofa Secretariat to the Ministry of Railways and of an executive body responsiblefor railway operations. In financial matters GOI exercises control throughParliament on recommendations made by the Railway Convention Committeeand other parliamentary committees.

3.02 The IR is the nation's largest undertaking with an investment ofRs. 4,791 crores (US$6 billion equivalent) and total staff strength of 1.7

1/ This chapter is an abridged version of Annex 2.

million. There are nine Zonal Railways, each of which is under the controlof a General Manager, and each zone is a large system on its own account.IR also has three modern factories engaged in the manufacture of locomotivesand rolling stock. IR's organization is illustrated by Chart 9795.

3.03 There are two recognized staff federations covering about 70%of all staff. During the latter part of 1973 and the first half of 1974there was a succession of strikes and disputes, and while IR's Board hastaken steps to strengthen its personnel branch and welfare inspectorateand to improve promotion prospects it will be essential for IR to be in-creasingly active in handling labor relations in order co avoid future dis-putes and unrest.

3.04 The quality of senior staff at Headquarters and in the ZonalRailways is high and their professional knowledge of management techniquesand modern railway technology is excellent.

B. Accounts, Costing and Audit

3.05 Financial arrangements with the Government and audit procedureshave not changed since the appraisal report on the 12th railway credit wasprepared. Further details of these arrangements are shown in Annex 3.However, certain improvements to accounting procedures have been introducedincluding a system of exchequer control (Annex 4) to control cash morestringently against budget allowances. Furthermore, the three task forcesestablished by IR to examine (a) budgetary, accounting and managementpractices (Annex 5), (b) depreciation policy (Annex 6), and (c) restructuringof capital have almost completed their work. The Board will review thereports of the Task Forces before presenting the findings to the ConventionCommittee. Implementation of the changes in procedure recommended by theTask Forces will take time, but the Board accepts the need for such changes.

3.06 The accounts of IR are audited by the Director of Railway Audit,Office of Comptroller and Auditor General, GOI. Audit arrangements arethorough and satisfactory (Annex 3).

C. Rates and Fares

3.07 As of April 1, 1974, the rates and fares were increased on averageby 11.1% per pass-km and 12.4% per ton-km and in September, 1974, furtherincreases averaging 18.6% for passenger traffic and 21.7% for freight wereintroduced. The combined effect of these increases has been that theaverage fare per pass-km has gone up by about 31%, while freight rates haveincreased by about 36% per ton-lkm. These increases may appear high, butthey do no more than reflect the average inflation rate during the pasttwo years. A satisfactory feature was that the Government and IR took

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corrective actions during the fiscal year 1974/75 instead of waiting forpresentation of the next year's budget.

3.08 The rates and fares were increased on a selective, traffic costingbasis by traffic and distance categories and the latest rate and fare in-creases represent a distinct step towards cost-based tariffs. Rail freightof coal over longer distances has in the past made an inadequate contributionto fixed costs. However, coal freight rates were increased both in Apriland September 1974 and are now believed to be meet their costs fully. Thefollowing tabulation indicates the combined effect of the two rate increasesby distance categories:

Rates in Rs. per TonCoal/Soft Coke Hard Coke

Distance Rate Rate Increase Rate Rate IncreaseCategory Before Since Z Before Since Z

km 4/1/74 9/9/74 4/1/74 9/9/74

100 9.50 13.00 36.8 10.45 14.40 37.8500 23.25 34.70 49.2 25.60 38.90 50.1

1000 36.80 60.50 56.7 42.50 68.10 60.11500 50.70 82.10 61.9 55.80 92.50 65.82000 61.60 100.70 63.5 67.80 113.60 67.7

The freight rates in most other categories have been increased by about 23%for distances up to 100 km, gradually increasing to about 35% for distancesexceeding 2000 km. As a result, rates are adequate to cover freight trafficcosts fully, including depreciation of fixed assets. The most recentrevisions were made in presenting the 1975/76 budget and applied to foodstuffsand iron and manganese ores.

3.09 A similar cost-based tariff policy has been applied towards pas-senger fares. There have been substantial increases in all traffic cate-gories, but particularly in short distance third class (recently renamedsecond class) travel which in the past resulted in considerable losses tothe railways. However, the rate increases applied primarily to other thancommuter traffic, which still remains heavily subsidized, although there isa clear desire within the Government to reduce the losses on this trafficalso.

D. Property

3.10 Track and Bridges. IR operates over 60,000 route-km (Map 2523R2).About 80% of total railway traffic in terms of gross ton-km is carried on the30,000 km of broad gauge (BG). On BG lines, diesel and electric tractionhauls 65% of total gross ton-km with the remaining 35% being hauled by steamtraction. About 4,025 route-km, or only about 13% of the BG system, areelectrified, which appears low in view of the traffic densities. Details

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of route-km by gauge, double-tracked route-km, electrified route-km andtrack-km are given in Table 2. The total running track length of BG linesis about 43,000 km, of which passenger express train routes, and other hightraffic density routes and suburban sections constitute about 24,000 km(about 10,000 route-km), on which the average traffic density exceeds 20million gross ton-km per year per route-km. Track maintenance organization,performance and procedures are satisfactory. There are still 116 bridges onBG lines with speed restrictions because of weaknesses in either superstructureor substructure; these are being gradually improved. All bridges are subjectto a once-a-year inspection, which is satisfactory.

3.11 Locomotives. At the end of 1973/74, on BG lines, there were 5,302steam locomotives, 908 diesel electric mainline locomotives, 216 dieselhydraulic shunters and 649 electric locomotives. About 15% of the totalsteam locomotive fleet was over 40 years in age but, the majority is rela-tively new, 37% of the total fleet being less than 17 years old. Tractionpolicy relating to conversion from steam to diesel and electric tractionwas re-examined by IR after the energy crisis. It concluded that thereshould not be any significant change in traction policy, although electri-fication has in relative terms become slightly more economical. To obtainthe maximum benefit from further electrification, it is however essential tomake further efforts to reduce electric locomotive maintenance costs whichare at present higher than those for diesel locomotives. Efforts should alsobe made to solve the remaining difficulties experienced in standardizationof AC (alternating current) electric locomotives. On the other hand, pastproblems with traction motors have now been solved.

3.12 Passenger vehicles. The present BG passenger vehicles includeabout 19,000 passenger coaches, 1,700 electric multiple units (EMU's) and26 diesel railcars. About 8% of the passenger coaches are over 40 yearsof age. The occupancy ratio remains high (70% and 95% passengers perpassenger coach and EMU car, respectively).

3.13 Freight wagons. The present fleet of BG freight wagons consistsof about 290,GOO units, the equivalent of 385,500 four-wheelers. Thefleet is relatively new, only 4% being over 40 years old. Almost alliron ore traffic and part of the coal traffic is hauled by unit trainswith new-type bogie wagons, but most of the coal is still carried by blocktrains of conventional four-wheeler wagons. IR's motive power and rollingstock position by gauge at the end of 1973/74 is given in Table 3.

3.14 Scrapping policy and Procedures. IR bases its scrapping of loco-motives and rolling stock on the actual condition of the stock. However,in the case of wagons, IR allows their scrapping to be postponed forseveral months depending on fluctuations in traffic demand. The scrappingdecision is based on a comparative technical and financial study withand without scrapping.

3.15 Workshop and running shed operations. IR has 41 workshops (sixmajor, 20 medium and 15 minor) in addition to running sheds. Their organi-zation and maintenance operations are generally satisfactory. However,

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some imported spare parts are not readily available in workshops and run-ning sheds, and this prolongs days in shop for the stock but also contri-butes to some deterioration in the availability of, particularly, diesellocomotives. Because of this, a unit exchange policy is gradually beingintroduced; it involves concentration of components and parts rebuildingto specially designated workshops.

E. Manufacturing Units

3.16 IR manufactures all its diesel and electric locomotives, mostof its passenger vehicles, and a small proportion of its wagons, most ofwhich are manufactured by private wagon builders. Locomotive productionstill requires imports of essential materials and components, but steadyif somewhat slow progress is being made toward complete indigeneous pro-duction. The workshops are efficient and the products -- particularlymainline diesel locomotives -- have proven to be reliable in service andtheir cost less than the c.i.f. cost of imported locomotives and rollingstock. A production program of locomotives and rolling stock under IR'sInvestment Program 1974/75-1978/79 is given in Table 4.

F. Operating Performance

3.17 IR's operating performance for the period 1969/70-1974/75 (April-December) is shown in Table 5 for BG and MG lines. Performance is general-ly satisfactory except for wagon turnround which should be improved 1/.Average gross freight trailing load averaging about 1,400 tons is remark-able and well exceeds that of the German Federal Railway and French NationalRailways. Net ton-km per year per ton of wagon capacity (14,000 ton-km) isgood and about double that of the German Federal Railway and French NationalRailways. Wagon turnround, 15 days in 1973/74, is high and was largely aresult of low traffic volume. The wagon turnround has however been improving(13.8 days in December 1974) with increased traffic. To further improvewagon turnround times, IR worked out, on request of the Association, anAction Plan for targets to be achieved for the two years 1975/76 and 1976/77(Annex 7). The Association will be kept informed of the results of actualperformance and corrective measures to be taken, on a biannual basis (April/May and October/November) during the Project period. The Action Plan andreporting requirements thereon were confirmed during negotiations.

G. Performance Under Previous Credits

3.18 Covenants entered into under Credit 448-IN included an earningscovenant and a requirement to prepare and keep up to date a Corporate Plan.

1/ Comparison with two European railways of similar size is made inTable 6.

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The earnings covenant required IR to earn sufficient revenue to meet alloperating expenses and the dividend payable to the Government but becauseof an exceptionally heavy increase in personnel costs in 1973 resulting froma Pay Commission award, requirements of the earnings covenant for 1973/74were waived at the time of negotiating the Twelfth Credit.

3.19 In negotiating Credit 448-IN it was also agreed that earningsshould be sufficient in 1974/75 and 1975/76 to meet only 70% and approxi-mately 85% respectively of the dividend payments due in those years, becauseof the financial difficulties then foreseen. Accounts for 1974/75 are notyet finalized but the latest figures show that net rer-anue from operationsis expected to be Rs 885 million. Since the operating expenses includeRs 420 million for personnel costs relating to the previous year, the "ad-justed't net revenue for 1974/75, for purposes of judging performance againstthe earnings covenant, would amount to Rs 1305 million which is equivalentto 69.05% of the dividend payment or very nearly the 70% required by thecovenant.

3.20 In the Twelfth credit (448-IN) agreement was reached to appropri-ate Rs 1200 million and Rs 1250 million to Depreciation Reserve Fund 1/ (DRF)for the years 1974/75 and 1975/76 respectively. The revised estimate for1974/75 and the budget estimate for 1975/76, make appropriations which areRs 50 million and Rs 100 million less respectively. However, the RailwayBoard has indicated that while the Railway Board's own proposals to theConvention Committee for DRF allocations in the Fifth Plan would have beenfully consistent with the covenant, the Committee took an interim decisionpending the report of the Working Party on Depreciation. During negotiationsthe Association expressed concern that the charges for depreciation werenot in accordance with the amounts stipulated in the Twelfth Credit butaccepted the reasons leading to the changed decisions. The new Credit (para5.11) provides that a global sum of Rs 6,500 million shall be appropriatedto DRF during the Fifth Plan and that not less than Rs 1300 million shallbe charged in each of the years 1976/77 through 1978/79.

3.21 An initial version of IR's Corporate Plan was completed in January1974 and work is now proceeding on the substantive version of the Plan whichshould be ready by June 1976. Corporate Planning cells have been establishedin each Zonal Railway and their work is being coordinated from the Board'sown Corporate Planning Cell which has been assisted by the Association'sconsultant, Mr. K. V. Smith (TRANSMARK, U.K.). This work is progressing well.

H. Railway Planning

3.22 The planning, evaluation and project sanctioning system appliedby IR is defined in the various railway codes and policy directives and

1/ DRF is defined in Annex 3, footnote 1.

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summarized in Annex 8. The railways' internal planning is mainly under-taken for preparation of annual investment and work programs. Accordingto this system, no project costing more than Rs. 0.5 million (US$65,000equivalent) can be sanctioned by the Railway Board and included in the an-nual program without a project study based on a comprehensive techno-economic survey. The evaluation criteria have in most cases been technicaland financial. Comprehensive economic studies are undertaken for major newworks (gauge conversion and electrification schemes, new lines, etc.). Em-phasis is also being given to further development of project evaluation tech-niques, data base and evaluation of alternatives.

3.23 After discussions with the Association, IR confirmed that thescope of work of the Economic Unit would develop on the following lines:(a) it should increasingly become a supervising unit in line with other de-partments in the Railway Board; (b) it should be closely associated withthe corporate planning work (which so far has been directed by the IR Plan-ning Department alone); (c) it should become involved with project prepara-tion work at its early stages on the Zonal Railway level; and (d) in linewith these changes it should be authorized to issue guidelines and supervisetechno-economic project feasibility studies to ensure that due account istaken of economic considerations.

IV. THE PLAN AND THE PROPOSED PROJECT

A. IR's Investment Program 1974/75-1978/79

4.01 The proposed Thirteenth Railway Project is designed to meet therailways investment requirements during the two financial years 1975/76-1976/77.These two years form part of IR's Fifth Five-Year Investment Program 1974/75-1978/79. The Program, amounting to Rs. 23.5 billion (about US$3.0 billionequivalent), was drawn up in 1973 on the basis of the Draft National FifthFive-Year Development Plan 1974/75-1978/79. However, as discussed in para.1.02 above, much of the Draft Plan became outdated before it could be imple-mented because of the adverse economic developments of the past 2-3 years.The most serious problem has been inflation; tcie 1975/76 price level is about50% higher than in 1972/73, which was used as a basis in preparation of theDraft Plan. Although inflation has now slowed down, a number of physicaltargets in the Draft Plan have been obviously affected.

4.02 The Govermuent realized the need to revise the Draft Plan inearly 1974, immediately after the increase in oil prices, but rightlydecided that the revision of the Plan should wait until stabilization ofthe economy. It now appears likely that the revised Plan will be avail-able at the time of preparation of the 1976/77 annual plan and budget.The Government did however decide in 1974, that the physical targets forthe core sector of the economy (essentially power and heavy industries andminerals) should be maintained unchanged. These sectors generate the bulkof the railways freight traffic (para. 2.01).

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4.03 As a result of the reduced allocation for the transport and com-munications sector, the railways 1975/76 capital works budget was approvedat Rs. 3,180 million, compared with the Rs. 3,600 million requested on thebasis of IR's 1974/75-1978/79 Investment Program; the reduction was about12%, or about the same as for the whole sector. In real terms, however thereduction was considerably more, because of an average price increase of35% between 1972/73 and 1974/75, for which no provision was made in prepara-tion of the 1974/75-1978/79 investment program. In addition, further priceincreases of about 10% a year are expected during the project period 1975/76-1976/77. As a result of the reduction in funds allocated for capital worksin 1975/76, the 35% price increase from 1973 to 1975 and the annual 10%price increase expected for the two project years, IRVs investment programhas been substantially reduced in real terms. The reduction has beenparticularly severe for investments in rolling stock, because most of thebudget reduction was under this plan head.

4.04 In reviewing IR's 1974/75-1978/79 investment program in physicalterms (Table 8) it was assumed that a substantial part of the expectedincrease in rail traffic will be carried by utilizing the present excesscapacity (about 25 million tons) during the project period 1975/76-1976/77.This can be achieved through better utilization of wagons as outlined inAnnex 7. Although investments in additional capacity will also be requiredduring the project period, most of these investments will be undertakenduring the last two years (1977/78-1978/79) of the investment period.

4.05 Although the revised investment program as a whole realisticallyreflects investment requirements as foreseen at present, it will benecessary to undertake, at the time of preparation of the annual plan andbudget for 1977/78, a review of the program for the last two years of theinvestment period.

B. The Project

4.06 The Project is the investment program to be partly financed bythe proceeds of the proposed Credit and covers the two years 1975/76 and1976/77. The Project consists of new and ongoing works which are requiredto continue with cost reduction measures, including modernization ofequipment, and to meet a projected increase in demand for freight andpassenger services. The main elements of the Project are the constructionand putting into service of about 350 locomotives, about 300 electric multipleunits (EMU's), about 1,500 coaches and about 20,000 wagons (four-wheeler equiva-lent). The Project also includes electrification, track works, bridgeworks, and modernization in workshops and sheds. In addition, it includesimports of spare parts necessary for maintenance of locomotives and rollingstock, plant and machinery, and other equipment for tracks, and signalling,telecommunications and electrification facilities. Details are given inAnnex 9.

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4.07 The total investment cost of the Project amounts to Rs 7,680 mil-lion (US$978.4 million equivalent), with a foreign exchange content ofUS$122.6 million equivalent, or 12.4%. In addition, an estimated Rs 248million (US$31.6 million equivalent) would be required for spare parts,making the total Project cost Rs 7,928 million (US$1,010 million equivalent)with a foreign exchange content-of US$154.2 million equivalent. The esti-mated expenditures are summarized in the following table:

% ToLalRs million US$ ritllion Inveatment IDA Credit

Investment Local For3it.n Total Lrc.il ?rraiLn Eta1 Exrmndituru US$ (millirn)

1. Locomotives and 2,668.8 683.7 3,,5,2.S 332.3 67.1 hl1.6 42.6 66.8Rolling Stock

2. Workshops and Sheds 355.4 - 355.4 45.4 - 5.64 L.6 -

3. Plant and Machiner; 93.8 5B.9 152.7 11.9 7.5 15.6 2.0 3.3

h. Track 4orks,'Bridges 2,000.7 94.2 2,09!4.9 256.9 12.0 266.9 27.3 12.0& ElectrHcal Works

5. Signalling and 262.1 23.6 285.7 33.4 3.0 36.4 3.7 1.4Telecommaunications

6. :lectrificaticn 424.7 39.2 463.9 54.1 5.0 59.1 6.1 4.2

7. New Lines 364.2 - 366.2 L66.4 - 66.4 4.8 -

8. Otlier WJorks, Services 4CO.6 62.8 463.4 51 .0 8.0 59.0 6.0 6.7and Inventories

9. Starf 'delfare and 207.3 207.3 --Z6.4 - 2.7Quarters

Total Investment 6,717.6 962.4 7,6E0.0 85.8 1? ? .6 10O.0 16.6

Spare Parts 248.0 ,L6.0 31. 311.6 15.6

Total Preject 1,21 0.G t,2.0 1,010.0 110.0

4.08 The Project cost is based on 1974/75 nrices adjusted for priceescalation by about 20% over the two years 1975/76 and 1976/77. Detailedcost estimates for locomotives and rolling stock are given in Annex 10. Nogeneral provision for price contingencies is required because the unitprices already include a 20% price escalation and because the Project ispart of an ongoing investment program, the physical content of which will beadjusted in line with actual price increases and changes in budgetaryallocations.

4.09 The foreign exchange cost is the total estimated cost of IR'sforeign procurement. Apart from US$27.5 million equivalent required forspecialized machinery and equipment, rails, bridge materials, signallingand telecommunications equipment, and equipment and materials for electri-fication, most of IR's foreign exchange expenditures for investments are tobe used to procure components and materials required for the manufactureof diesel and electric locomotives and rolling stock. The estimated foreignexchange requirements under the various plan heads are reasonable. Procure-ment of these components and materials is a continuous process to maintainmanufacturing operations at a planned level of production.

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4.10 The foreign exchange requirements for maintenance spare parts forlocomotives and rolling stock have been estimated by IR at US$30.1 millionequivalent. IR requires a further US$1.5 million equivalent for maintenancespares for plant and machinery and other equipment, making the total re-quirement US$31.6 million equivalent. These requirements are reasonable.Out of this total, US$15.6 million equivalent is to be financed under theproposed Credit; US$4.5 million equivalent will be financed under theprevious credit (448-IN), while the balance of US$11.5 million equivalentwould be financed from Government and bilateral sources.

C. Financing of The Project

4.11 IR's financing plan during the two fiscal years in which theProject is to be completed is shown and discussed in paras 5.16 to 5.19.The proposed IDA Credit would contribute to the financing of the foreignexchange content of the Project with respect to payments made from thedate of signing the proposed Credit Agreement. Payments made before thatdate would be covered from other sources, including IDA credit 448-IN. Ofthe proposed Credit, 74% is allocated to locomotives and rolling stock; theforeign exchange component for these items (26%) is higher than would bethe case if sufficient domestically produced materials and components wereavailable. Items to be financed under the Credit are detailed in Annex 11.

D. Execution of The Project, Procurement and Disbursement

4.12 IR will be responsible for the implementation of the Project aspart of its ongoing works and manufacturing program. It has the necessaryfacilities and is competent to carry out the Project.

4.13 Items to be financed by the Association under the Credit willconsist of: (a) complete pieces of machinery and equipment ready for useon IR; (b) assemblies or components to be incorporated in the manufactureof locomotives, rolling stock and equipment in India; (c) materials,principally steel, to be used by IR or its contractors in India for pro-ducing rolling stock and railway equipment, and (d) necessary spare partsfor maintenance of locomotives and rolling stock. In connection with (b) and(c), wagons are mostly manufactured by local firms in the private sector,to which IR supplies wheelsets and/or steel financed by the Association.IR procurement from the private sector is based on competitive bidding butfinal contract prices are determined by IR on a negotiated basis, takingaccount of the quantity ordered from each firm.

4.14 The Association financed items will be procured by IR throughinternational competitive bidding in accordance with Bank guidelines exceptfor: (a) proprietary items which IR procures from particular sources be-cause of the need for procurement under license or for continued standardiza-tion of equipment; (b) non-ferrous metals (para 4.17) such as tin and lead;

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and (c) contracts of US$50,000 equivalent or less, where the advantage ofICB would be clearly outweighed by the administrative burden involved(para. 4.19).

4.15 Proprietary items, as defined under Category 8 in Annex 11, havebeen limited to US$20 million equivalent, or to 18.2% of the Credit (20%under Credit 448-IN). The total requirement during the Project period isestimated at US$33.3 million equivalent. The Government and IR have madeconsiderable efforts to encourage indigenous production and to reduce importsof these items, but India is still experiencing difficulty in this respect.In addition, the Government has experienced difficulty in arranging financefor these items from bilateral and other sources.

4.16 The public sector procurement of non-ferrous metals is the respons-ibility of the Metals and Minerals Trading Corporation (MMTC) of India, aGovernment agency. It is therefore appropriate that IR requirements of non-ferrous metals are procured in accordance with MMTC procedures as agreedwith the Association in connection with the Tenth Industrial Imports Credit,which also provides for the procurement of these metals. For this reason,this item is shown under a separate category (Annex 11). IR has agreed withthese arrangements.

4.17 Under Credit 448-IN, contract awards by IR exceeding US$1.0 millionrequired prior approval by the Association except for certain specifieditems (steel, non-ferrous metals, wheels, tires, axles and wheelsets), whichwere exempted from the need for the Association's prior approval in view ofthe very short validity of bids under then prevailing market conditions.Since those market conditions have now changed considerably, it is not pro-posed to continue the exemption in its present form. Provision has been madein the Credit Agreement that, in the case of tenders for steel, where bidvalidity is 21 days or less, the Borrower may proceed to evaluation andaward, subject to advising the Association of the details of the bids receivedand having received no objections from the Association.

4.18 For IR contracts between US$50,000 and US$1 million equivalent,contract documents will be forwarded after award but, as in the past,documentation covering bid analysis and other relevant information will beprovided only if so requested by the Association. The total amount of con-tracts less than US$50,000 equivalent not subject to ICB represents only asmall portion (less than US$4 million equivalent) of the proposed Credit.

4.19 Subject to review and agreement with the Association, savings inany category of the proceeds of the proposed Credit will be available tocover increases in any other category except for proprietary items underCategory 8 in Annex 11. Disbursements are expected to be completed byMarch 31, 1977, but in order to allow time for possible late payments, theclosing date will be September 30, 1977. The proposed credit would bedisbursed against the foreign exchange cost of imported equipment, components,and materials. A schedule of estimated disbursements is shown in Annex 12.

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4.20 The proposed Credit will be made to the Government of India onthe usual IDA terms.

V. FINANCES AND EARNINGS

A. Introduction

5.01 The Government of India requires Indian Railways to pursue afinancial policy which will result in the earning of net revenues whichare sufficient to meet the dividend payment 1/ due to the Government oncapital provided to the Railway, and to earn a small surplus out of whichminor capital investment can be financed.

5.02 Until recently, IR generally was able to meet its dividend lia-bility of about 5.5% on its capital-at-charge and to continue to financea significant portion of its investment program. This it achieved despitemaintaining low freight tariffs and passenger fares, but the position inrecent years has been affected by low national economic growth. As aconsequence of slower traffic growth, Indian Railways was therefore forcedto adopt a more financially-oriented policy and to examine its financialaccounting and control methods.

5.03 Task Forces have been working in detail on financial policy, ac-counting systems, budgeting methods and future depreciation policy. Trafficcosting is now an integral part of tariff formulation, leading increasinglyto the elimination of freight subsidies and implementation of a policy ofcost - related tariffs.

B. Past Performance

5.04 Table 9 shows IR revenue and expenditure accounts for the 6 yearsto 1974/75. In each of the three years to March 1973 improved trafficvolume enabled IR to generate a net financial surplus and after takingaccount of some relief in the method of calculating the dividend on capital-at-charge by reference to unremunerative works, IR was able to meet thedividend payments due to the Government.

5.05 In the last two years, IR's fuel costs have been affected materiallyby the increase in world oil prices; personnel costs increased from 57% toover 63% of working expenses; passenger and freight traffic volume was ata low level; all these factors meant that net operating revenues in the

1/ Dividends are more in the nature of interest on permanent capitalprovided by the Government (see Annex 3).

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two years 1973/74 and 1974/75 were inadequate to meet the full dividendliability to the Government. Consequently there was a net deficit ofRs 1.15 billion in 1973/74 and an estimated deficit of Rs 1.28 billion 1/for 1974/75 after payment of dividend on capital-at-charge. The operatingratio increased from 84.5 in 1972/73 to 93.7 and 94.4 in the two subsequentyears.

5.06 In order to meet its full dividend liabilities and expenditurescharged to Development Fund, IR had to take temporary loans from the Govern-ment. By the end of FY 1973, these loans amounted to Rs 0.9 billion. Be-cause surpluses in 1973/74 and 1974/75 were inadequate to meet the fulldividend liability, Development Fund expenditure and loan repayments,temporary loans had increased by the end of 1974/75 to an estimated levelof Rs 3.8 billion. These loans have been obtained from Government mainly toenable IR to make the dividend payments due to the Government. The build-upof temporary loans is to some extent associated with the heavy social burdenson the railway finances together with the demand for investment in backwardareas, the growing commuter traffic and the tendency to impose a ceiling onshort distance passenger fares (see para 5.13).

5.07 The balance sheet of IR at March 31, 1974, is shown in Table 10.The value of fixed assets is not shown either at historical cost or at re-placement cost; their values represent the original cost of assets plusany improvements when subsequently replaced. The inflation element in thecost of replacements is charged against DRF and does not become reflectedin the fixed asset values. The amount of Government capital-at-charge ap-proximately corresponds to what would normally be regarded as the value ofnet fixed assets. Return on capital-at-charge dropped from an average of4.6% over the years leading to 1972/73 to 1.4% and 1.5% (estimated) in1973/74 and 1974/75 respectively.

Forecast Performance

5.08 In judging the financial performance of Indian Railways, the recentpast should be put in perspective. Many of the events reported above wereoutside the control of Indian Railways and could hardly have been foreseen.The relative stagnation in the economy resulting in lack of traffic growth,made gross receipts inadequate to meet increased operating costs and divi-dend payments.

5.09 It is reasonable therefore to start an appraisal of the futureon the basis that the position now is materially better than it was a yearago. The 1975/76 budget, presented to Parliament in February 1975, budgetsfor a surplus of Rs 230 million. The forecast on which this estimate is basedappears to be realistic.

1/ Subject to final revision.

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5.10 Table 11 presents a forecast of revenues and expenditures for theperiod 1975/76 up to 1979/80. The prices used in this presentation are, forrates, fares and expenses, at April 1975 levels. The forecasts take accountof the three major factors which have occurred over the past two years: thefull effects of the tariff increases (including the removal of the foodgrainand ore subsidies from April 1975) are incorporated in the forecasts; fuelcosts reflect the revised pricing introduced for coal and diesel oil; andlabor costs take account of all allowances and adjustments sanctioned up toMarch 1975.

5.11 The total appropriation to DRF in the Fifth ?lan is Rs 6,500 mil-lion but one of the recommendations in the report of the Working Party onDepreciation Policy (Annex 6) is that the total provision be Rs 7500 millionin order to preserve an adequate balance in the DRF. This recommendationis considered sound since this figure would permit IR to continue togenerate about 40% of its total capital requirements and the annual chargefor depreciation would continue to be about 10% of gross receipts. However,any increase in the present appropriation to DRF must await a recommendationfrom the Convention Committee. Therefore it has been agreed that IR willmake appropriations to DRF of not less than Rs 6,500 million in the fiveyears 1974/75-1978/79 with a proviso that not less than Rs 1300 million willbe appropriated in each of the years 1976/77-1978/79.

5.12 Expected increases in traffic will be sufficient to progressivelycover increased charges for depreciation and dividends on capital. Revenueand expenditure estimates are based on the April 1975 price level. For1975/76, the budget estimates suggest that the dividend liability will be metin full from earnings. However, recent developments indicate that there maybe substantial increases in cost of coal and personnel. Since tariff in-creases already introduced during 1974 and 1975 have been very heavy, itmay be difficult for the GOI to make further increases in the near futureto compensate for increased costs.

5.13 While there may be some prospect of IR's earnings being insuf-ficient to meet dividend payments in full for 1975/76 and 1976/77, it isimportant that steps should be taken, not only to achieve earnings to paydividends but in addition to generate cash surpluses to permit allocationof funds to the Development Fund to cover expenditures of a capital naturewhich are expected to increase from the present level of about Rs 200 milliona year to double that figure by 1979/80. In addition to these requirementsIR needs surpluses to be able to repay the temporary loans provided byGovernment in past years. Solutions to these problems must await recommenda-tions of the Convention Committee which is kept fully informed by the IRBoard.

5.14 The Source and Application of Funds statement, Table 12, shows thatthe surpluses forecast to 1979/80 will be insufficient to meet all the re-quirements referred to above. Temporary loans outstanding at March 1975amounted to Rs 3,798 million and by 1980 it is estimated that they will in-crease to Rs 5,604 million. Clearly this state of affairs cannot be allowed

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to continue; the problem was discussed with IR's Board and during negotia-tions an assurance was obtained that these problems have been communicatedto the Convention Committee whose report is awaited. Meanwhile, calculationshave been made showing that on present traffic forecasts, tariff increasesof more than 5% per annum would be required to cover provision for increasedcosts and to eliminate the loans altogether by 1980. Forecast BalanceSheets for the period to 1980 are presented in Table 13. On the basis ofthe forecast presented, retaining 1975 tariffs and costs, it is estimatedthat IR can increase its return on capital from 1.4% to 4.8% by 1979/80.

5.15 Following the discussion of earnings in paras. 3.18-3.19 and 5.12,it has been agreed that the provisions of Section 4.02 of Credit Agreement448-IN, requiring IR to earn sufficient revenue to meet all operating ex-penses and the dividend 1/ payable to the Government on its capital-at-charge,will be equally applicable to the Thirteenth Credit.

D. Financing Plan

5.16 Table 12 shows the source and application of funds for the years1974/75 to 1979/80. During the two years (1975/76 and 1976/77) in whichthe proceeds of the proposed credit will be utilized, the funds requiredby IR and the source of such funds will be as follows:

1/ At present about 5.5% of capital-at-charge.

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Rs. US$ Equivalent %- ----- million - --------

Required Funds

A. For Investment Program:Capital expenditures 7,510 957Inventories 170 21

7,680 978 100

B. For Other Purposes:Dividend payment 4,020 512Increse in fund balances 445 57

Interest on temporary loans 444 57Repayment of temporary loans 2,233 284

7,142 910 100

Total Funds Required 14,822 1,888

Source of Funds

A. For Investment Program:IR internal cash generation 3,003 383 39Government capital-at-charge 4,525 576 59

Government temporary loans 152 19 27,680 978 100

B. For Other Purposes:IR internal cash generation 4,516 575 63Government temporary loans 2,626 335 37

7,142 910 100

Total Sources of Funds 14,822 1,888

5.17 The above financing plan is based on the present financial arrange-

ments (particularly with respect to dividends and temporary loans) between

the Government and IR. IR will be able to finance 39% of its total invest-ment requirements out of net internally generated funds. The balance would

be provided by the Government, either in the form of an increase in capital-

at-charge, or in the form of temporary loans to be repaid from future reve-

nue surpluses. In accordance with present financial arrangements, IR is

required to repay loans obtained for dividend payments in the three years

following the year in which they were drawn but in 1975/76 and 1976/77 IR's

earnings will not be sufficient to repay earlier loans.

5.18 The Government contribution to capital-at-charge will include

part 1/ of the proceeds of foreign exchange loans and credits (including the

IDA credit) necessary to cover IR foreign exchange requirements. Table 14

shows the foreign exchange requirements for IR investments during the two

1/ To the extent that they finance additions to IR fixed assets.

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years 1975/76 and 1976/77, details of loans and credits already available,and further financing required. The figures are summarized below:

Project Period DisbursemenYa(1975/76-1976/77) Period Only -

(US$ Equivalent - millions)

Total Foreign Exchange Required 154.2 130.5

Already AvailableIDA Credit 448-IN 20.0Bilateral Loans/Credits 4.9 3.4

To be ObtainedProposed IDA Credit 110.0 110.0Government Resources and/or

Bilateral Loans/Credits 19.3 17.1

154.2 130.5

/a August 1, 1975 to March 31, 1977.

5.19 Of the foreign exchange requirement of US$130.5 million, IDA wouldbe contributing US$110.0 million through the proposed credit. The balance willbe found from future bilateral loans and credits which have still to befinally arranged and from the Govermnent's own resources. The proposed IDAcredit is, therefore, expected to provide 84% of the total foreign exchangerequirement during the disbursement period. The Government has been advisedthat in future railway projects, the Association considers that a greaterproportion of the foreign exchange requirements for proprietary items andspare parts should be met from other sources.

VI. ECONOMIC EVALUATION

A. Draft Fifth Five-Year Plan 1974/75-1978/79

6.01 The position of IR in the context of the Indian economy and thetransport sector has been discussed in paras. 2.01 to 2.03 and the rela-tionship between the 1975/76 budget, the Draft National Fifth Five-YearDevelopment Plan 1974/75-1978/79 and IR's Investment Program in paras. 4.01to 4.06. The most likely development of railway traffic up to 1979/80 wasassessed on this basis and by taking into account past performance andresults of Bank economic work and sector studies on India (notably energy).The traffic estimates, which are discussed in paras. 6.02 to 6.05, havebeen used in: (a) formulating the railways physical and financial invest-ment programs; (b) preparing the financial statements; and (c) the economicevaluation.

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B. Traffic

6.02 Tables 15 and 16 show IR's past freight and passenger trafficdevelopment, while Tables 17 and 18 show forecasts to 1979/80. Detailsof freight traffic forecasts are provided in Annex 1. Passenger trafficis expected to increase annually by 3.0% in terms of pass-km (Table 17).This increase is lower than the annual growth rate of 4.9% experiencedduring the Fourth Plan period 1969/70-1973/74.

6.03 The mission expects that IR freight traffic n terms of revenueearning ton-km will show an annual increase of 3.4% during the period1972/73-1979/80 (Table 18). This growth rate is based on a commodity-wise projection (Annex 1), that IR will carry about 230 million tons ofrevenue-earning freight by the end of the Fifth Plan in 1978/79. Inaddition, IR's own, non-revenue earning freight (railway coal and mate-rials) is estimated to amount to about 20 million tons annually. Thisforecast represents a substantial reduction of the Fifth Plan estimate of280 million tons (255 million revenue-earning tons).

6.04 Rail transport of coal, which accounted for about 67.5 milliontons or for 33.5% of total traffic in 1972/73, is estimated to increase toabout 86 million tons by the end of the Fifth Plan period in 1978/79, rep-resenting an annual increase of about 4%. With this growth rate, coalwould retain its one third share of total rail traffic, a ratio which hasremained unchanged since the early 1950's. Rail transport of the other sixmain commodities -- raw materials and finished products of steel plants,iron ore for export, cement, food grains, petroleum, oil and lubricantsand fertilizers --- which accounted for 72.3 million tons, or for 37.4% oftotal traffic in 1972/73, is expected to increase to about 103 million tonsin 1978/79; this would imply an annual growth rate of about 6%. Their shareof total rail traffic would increase to 42.7%. The highest growth rate forthese commodities is estimated for fertilizer and iron ore for export,transport of both is estimated to almost double over the period. The aboveseven main bulk commodity groups which accounted for 76% of the total trafficin 1972/73, would increase to about 80% by 1978/79.

C. Economic Evaluation

Improvements in Operational Efficiency and Investmentsin Additional Capacity

6.05 The basic objectives of IR's investment program 1974/75-1978/79are:

(a) to modernize the system in respect of its equipmentand practices to the maximum extent permitted bythe availability of funds, so as to improve theefficiency of the network and to reduce costs; and

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(b) to provide capacity for increased traffic during theFifth Plan period.

The first objective, improved operational-efficiency, has become increas-ingly important. 1/ Its effect on IR's total investment requirements wastaken into account before estimating investments in additional capacity.IR is able to handle about 220 million tons of freight without investmentsin additional capacity by introducing appropriate improvements in operationalpractices and by undertaking gradual modernization through necessaryreplacements.

6.06 .. The revised investment plan has been based on the above assess-ment that IR would be able to carry 220 million tons of freight by 1978/79without investment in additional capacity. Thus, about 35 million tons (55%)of the estimated increase in freight traffic from 185 million tons in1973/74 to 250 million tons in 1978/79 will be absorbed by better utilizationof existing capacity (including the effect of replacements), while theremaining 30 million tons (45%) would be met through investments in addition-al capacity.

Economic Justification

6.07 The underlying rationale of IR's investment program is that itshould meet the following requirements:

(a) it should represent the most economic transportsolution compared with alternative modes oftransport; and

(b) in addition, there should not exist any otherrail investment alternative (including the "do-nothing" case), which would result in a highereconomic rate of return.

6.08 In respect to the first requirement, it is shown in Annex 13 andTable 19, that IR's investment program during the project period will onaverage result in an economic rate of return of 20%. It is also shown,that the economic running cost by rail is Paise 4.3 (US£0.6) per ton-km offreight and Paise 2.6 (USd0.3) per pass-km, while the corresponding transportcosts for road transport are Paise 10.0 (USd1.3) and Paise 3.6 (USJO.5)respectively. Although these estimates represent averages only, they clearlydemonstrate that, in general, the existing and projected freight trafficvolumes can be transported more economically by the railways. This is notunexpected because more than 80% of the traffic is bulk transported over

1/ The action program and targets for improved operational performanceare discussed in Annex 7.

- 24 -

average distances exceeding 600 km. However, these results should be inter-preted with caution; they are intended only to demonstrate, that the railwayis in general the most economic carrier of its present and projected futuretraffic. This conclusion does not apply to any specific transport situationand does not imply that any investment in the railways is economically jus-tified. It is in fact demonstrated in Annex 13 and Table 19, that the mar-ginal economic rate of return is decreasing with increased rail investment;a further 20% increase in IR's investment program would most likely resultin a marginal rate of return for that investment of less than 15%.

6.09 The second requirement, the most economic rail investment alter-native, has been analyzed on the basis of techno-economic studies undertakenby IR for individual projects, which form IR's investment program. The1975/76-1976/77 investment program includes 209 individual projects exceedingRs. 5.0 million in cost, in addition to investments in rolling stock. Thetotal cost of these projects is estimated at Rs. 12.1 billion (US$1,540million) of which Rs. 3.7 billion (US$475 million) is budgeted for the twoproject years. This represents about 50% of IR's total investment duringthis period, while 40% of the total represents investments in rolling stock.

6.10 The Association has reviewed each of these projects on an in-dividual basis. Because of the number of projects, this review was nec-essarily limited only to the main features and, therefore, a sample of 29major projects were reviewed in somewhat more detail. The total cost ofthese projects is estimated at Rs. 3.5 billion (US$450 million), of whichRs. 463 million (US$60 million) is budgeted for 1975/76-1976/77. The budgetedamount is small (less than 15%) in relation to the total project cost, be-cause the sample included mainly projects which are to be started during theproject period with most of the outlay to be incurred during the subsequentyears.

6.11 The following conclusions emerged from the review of individualrailway projects. IR's project evaluation procedures are basically sound(Annex 6) and considerable efforts are made to compare feasible rail invest-ment alternatives with each other. There is, however, a need to applyincreasingly economic criteria in addition to financial and technical, whichtraditionally have been extensively used by the railways. The cost estimatesare realistic and the returns on the proposed alternatives (based on discountedcash value techniques) generally range from 10% to 25%, with an averagearound 15%. There are however some projects, for which the return is lessthan the 10% minimum required by the Railway Board. Most of these are fornew lines which have been included at the initiative of the Parliament andState Governments to induce development of backward areas. A couple ofgauge conversion schemes are of similar nature. The actual economic returnmay however be higher than estimated by IR, because it evaluation is limitedto savings in transport costs and does not normally include other developmentalbenefits. In addition, many of these projects have been promoted to helpthe poorest element of the population and to create employment opportunities.The foreign exchange cost of these projects are negligible.

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6.12 It is concluded that, taken as a whole, IR's investment programresponds relatively well to the needs of India's economy, particularlyafter the reduction undertaken in the physical content of IR's investmentprogram for 1974/75-1978/79. The project provides for essential invest-ments in renewals, cost saving works and limited expansion to carry forecasttraffic.

VII. AGREEMENTS REACHED AND RECOMMENDATION

7.01 During negotiations agreement was reached on the following princi-pal matters:

(a) the GOI to keep the Association informed of decisions takenregarding the results of the 1973/74 transport sector reviewand any other developments in the sector relating totransport sector management and planning (para 2.07);

(b) appropriations to the Depreciation Reserve Fund shall benot less than Rs 6,500 million in the aggregate for fiscalyears 1974/75 through 1978/79 and not less than Rs 1300million for any of the fiscal years 1976/77 through 1978/79;these provisions supercede agreements in section 4.02 ofthe Twelfth Credit Agreement (para 5.11); and

(c) earnings are to be sufficient, for each fiscal year after1975/76, to meet all operating expenses and dividendpayment on capital-at-charge, and in respect of the fiscalyear 1975/76, all operating expenses and 85% of thedividend payable (paras. 5.12 and 5.15).

7.02 The proposed project provides a suitable basis for an IDA Creditof US$110 million to the Government of India.

AINEX 1Page 1

INDIA

APPRAISAL OF A THIRTEENTH RAILWAY PROJECT

Details of Traffic Forecasts

A. Passenger Traffic

1. The estimated development of IR's passenger traffic during theperiod 1974/75-1979/80 is summarized in Table 14 with actuals for 1972/73-1973/74. It is expected that passenger traffic will increase annually by3.0% in terms of pass-km and by 2.3% in terms of number of passengers. Theaverage trip distance is estimated to increase slightly from 51 km in 1973/74to about 53 km in 1979/80 because of estimated higher growth over long andmedium distances than in local traffic (para 4).

2. The forecast was based on a separate examination of the two majortraffic categories -- "suburban" and "non-suburban" -- divided into variousclasses of travel. "Suburban" traffic is defined to include passengertraffic in and around the five major metropolitan areas, Bombay, Calcutta,Madras, New Delhi and Sekunderabad; all other passenger traffic is definedas "non-suburban". During the 1960's, the "suburban" traffic increased ata considerably higher rate than the "non-suburban" traffic, as indicated inthe following tabulation:

1960/61 1969/70 Growth, % p.a.Pass. Pass-km Pass. Pass-km 1960/61-1969/70million billion million billion Pass. Pass-km

Suburban 685 11.82 1,158 22.16 6.1 7.3

Non-suburban 909 65.85 1,180 91.22 2.0 3.8

Total 1,594 77.67 2,3$8 113.38 4.3 4.3

This growth was a result of the rapid expansion of the metropolitan areas,while the main alternative mode, bus transport, was not developed at a suf-ficiently rapid rate to handle a substantial part of this increase. As aresult, much uncontrolled ribbon development took place along the railwaylines in the outer fringes of the metropolitan areas.

3. During the past five years there has, however, been a distinctchange to this growth pattern as indicated in the following tabulation:

ANNEX 1Page 2

1969/70 1973/74 (est.) Growth, % p.a.Pass. Pass-km Pass. Pass-km 1969/70-1973/74million billion million billion Pass. Pass-km

Suburban 1,158 22.16 1,310 25.40 3.0 3.5

Non-suburban 1.180 91.22 1.353 110.26 3.5 4.9

Total 2,338 113.38 2,654 135.66 3.3 4.5

Non-suburban traffic shows higher growth rates, while for suburban trafficthey are considerably reduced. In addition, the growth rate in total numberof passengers is down, while the growth rate in pass-km has slightly accele-rated. There are three main reasons for this development: (a) the growthof the metropolitan areas has slowed down, particularly in Bombay andCalcutta, mainly because of insufficient employment opportunities and be-cause public facilities and services have not been developed at the samerate as the growth in demand; (b) although still deficient, bus transporthas considerably expanded in recent years; and (c) rail transport capacityhas already for some time been fully utilized and the occupancy ratios havereached hazardous levels; further expansion can only be provided with con-siderable investments, while this traffic represents the single mostimportant element in the railways loss-making traffic. Consequently IRhas attempted gradually to reduce its share of the total suburban traffic.

4. This development is expected to continue. The highest growth rateswill be recorded over medium and longer distances, both for first classordinary and third (now second) class express train travel. In terms ofpass-km, the annual 1973/74-1978/79 growth rate for these travel categoriesis expected to be 4.1%, while the growth rate for Second class ordinary(mostly short distance and commuter traffic) is expected to be 2.8% p.a.IR's tariff policy, which is becoming increasingly cost-based, is expectedto support this development.

B. Freight Traffic

5. The Inter-Ministerial Working Group, which was established in 1973to work out railway freight traffic forecasts on basis of the Draft FifthFive-Year Plan 1974/75-1978/79, arrived initially at an estimate of 300 mil-lion tons of originating revenue earning railway freight by 1978/79. Thisestimate was subsequently reduced to 255 million tons (excluding 25 milliontons of IR's own, non-revenue earning traffic). IR's investment program1974/75-1978/79 was based on these traffic targets. It is, however, nowapparent that the Draft Fifth Plan cannot be fully implemented - there isalready a substantial shortfall after the first year of the Plan and thereis little chance to catch up that much during the next few years becauseof the Government's tight resource position and the considerable recentprice escalation. In addition, most of the major projects require implement-ation periods considerably longer than the remaining Plan period. For these

ANNEX 1Page 3

reasons, a re-examination of the railway freight traffic forecast was under-taken by major commodities. The re-examination was based, to the extentpossible, on the Bank economic and sector work (notably energy) on India.The revised forecast is summarized in Table 18. It is expected that theoriginating revenue earning railway freight will amount to about 220 milliontons by 1978/79, 1/ a reduction of 35 million tons (14%) from the estimate(itself revised from the original estimate of 300 million tons) used as basisfor IR's investment program. The revised forecast is expected to assumeannual growth of 3.9% in terms of revenue earning ton-kms, compared with5.7% estimated in the original forecast. It is to be noted, that althoughthe forecast has been revised substantially downwards, there is no assurancethat it will be achieved, if adverse developments take place to the samedegree as during the past two years. The forecast by major commodities isdiscussed below.

6. Steel Plants. Production of steel remained stagnant during theFourth Plan period 1969/70-1973/74. In fact, the volume of finished productscarried by the railways was about 15% less in 1973/74 than in the first yearof the Plan period. It is expected that 1974/75 will not be a significantlybetter year. There are however possibilities for an increase in productionwithout any major, long maturing investments; the capacity of the alreadycommissioned steel plants exceeds 11 million tons in finished products. Ithas been assumed that the very low capacity utilization ratios of 30-40% willbe increased to about 70% by the end of the Plan period in addition to com-missioning Bokaro Steel Plant after considerable delays. This will make itpossible to reach a production of finished steel products of about 9 milliontons and generate a need for rail transport of some 55 million tons includ-ing raw materials (incl. coal) for steel plants.

7. Coal. Except for coal for steel plants (which has been adjustedto the estimated production of finished steel), the other major consumersof coal are the thermal power plants. The mission expects that not all ofthem will be commissioned within the time frame assumed in preparation ofthe Fifth Plan. In addition, it is likely that some of the major thermalpower plants will be located close to the pitheads thus reducing the needfor transport of coal over longer distances. In line with the Bank EnergySurvey, it has been assumed that the total coal production may increase toabout 110 million tons by 1978/79, compared with the original estimate of

1/ A slightly higher forecast of 230 million tons has,however, been usedin preparation of the financial forecasts and the investment program(Table 18), representing the Government's and IR's present assessmentof the most likely development. The mission believes that the highertraffic target may be achieved, but, is of the view that the lowerestimate is in the present situation more realistic; any adjustmentshould be based on the actual traffic development in 1975/76 and1976/77.

ANNEX 1Page 4

145-150 million tons. Of this total, some 85 million tons (incl. railways'own coal) would be transported by rail, 5-6 million tons by coastal shipping,12-15 million tons by trucks over short and medium distances, while theremaining 5-10 million tons would be consumed at the mines or transportedover shorter distances by use of other means such as conveyor belts andropeways. IR's forecast for 1978/79 is at 90 million tons about 5 milliontons higher than the mission's estimate.

8. Iron Ore for Export. During recent years, about 10 million tonsof iron ore for export has been transported by rail, although a low of 8.5million tons was recorded for 1973/74. The current :rear is not expectedto be better mainly because of the worldwide slump in demand, particularlyin Japan, where most of the exports is at present destined. The situationis, however, expected to improve substantially during the later years of thePlan period, partly because of the expected upturn of the market from1975/76 onward and partly because of the agreement between India and Iranto swap oil for iron ore. The rail transport volume is estimated at 15-16million tons in 1978/79.

9. Cement. The demand for cement is expected to remain strong overthe whole Plan period. The Ministry of Industrial Development has furnisheddetailed information regarding present and future capacities and locationsof cement plants. Although the original Plan target of 26.8 million tonsin rated capacity may have to be considered with skepticism, it is likelythat some 15 million tons will be transported by rail by the end of thePlan period, implying an annual growth rate of 7.5%. The transport volumehas been some 10-11 million tons over the past five years.

10. Foodgrains. Rail transport of foodgrains has been around 14-15million tons during recent years. This volume is expected to increaseslightly to 16 million tons by the end of the Plan period. Although theremay be possibilities for greater self-sufficiency for the country as awhole, regional imbalances will remain, requiring transport of foodgrainover longer distances.

11. Fertilizer. A considerable increase in rail transport of fertil-izer is expected, with an increase of 5.3 million tons in 1973/74 to about9 million tons by 1978/79. This estimate is based on the expected productionof fertilizer plants already under construction, supplemented by Bankestimates of the overall requirements of fertilizer in India. The forecasthas been checked with the Bank agricultural programs.

12. Mineral Oil (POL Products). Obviously the earlier estimates onrail transport of POL products have been reduced (by about 1/3 from 19 millionto 13 million tons in 1978/79), but the fact is, that already before the oilcrisis India had restricted oil consumption severely and there remainslittle to be done in further ructions. The assumptions on industrial andagricultural revival will require a considerable increase in consumption ofPOL products. This applies to all major, important industries: steel, coal,power, cement, fertilizer and the transport industry itself. POL products

ANNEX IPage 5

can be substituted by coal to certain extent only. Consequently it hasbeen assumed there will be a continuous increase in transport of POL productsat a annual rate of 5.9%, compared with the original Plan estimate of 9.5%.

13. Other Goods. This category represents a great variety of commod-ities, ranging from bulk transport of products like salt, sand, stones,marble to high value manufactured products. Rail transport of these commod-ities has slowly decreased, partly because the growth of these industrieshas been stagnant (or even being reduced because of the Government's policyto curtail private consumption), partly because road transport capturedduring 1960's that part of the traffic which it was able to carry moreeconomically. What remains is bulk transport over all distances (e.g. salt)

and transport of high valued goods over very long distances (e.g. applesfrom Kashmir to Madras). The average transport distance for the group asa whole is considerable, about 840 km; for high valued goods it exceeds1,000 km. Less than 10% of railway freight represents high-value commoditiestransported over short and medium distances. It may therefore be expectedthat significant volumes would no more be diverted to road; the growth ofthis traffic is more dependent on the expansion of these industries themselves.In addition to coal, this is the only other major commodity group, where thereexist any significant difference between IR and the mission (Table 13). Themission believes that rail transport of these commodities will remain stagnantduring the Fifth Plan period; IR has been more optimistic and assumes a re-

versal in the past trend. The expected growth rate at 1.9% p.a. is howeverfairly modest.

June 1975

ANNEX 2Page 1

INDIA

APPRAISAL OF A THIRTEENTH RAILWAY PROJECT

Indian Railways

A. Organization, Management and Staff

1. The IR network is owned and managed by the Central Government. Itsoperations are controlled and directed by a Board of five members headed bya Chairman who is ex-officio a Principal Secretary to the Government ofIndia reporting to the Minister of Railways. One Board member, the FinancialCommissioner, has discretionary power to report directly to the Minister ofFinance on financial matters. The Board, therefore, performs the dualfunctions of a Secretariat to the Ministry of Railways and of an executivebody responsible for railway operations.

2. Control over railway finances and policy is exercised by Parliamentthrough discussions and voting on the railway budget and parliamentarycommittees such as the Public Accounts Committee. Members of Parliament siton the MP's Consultative Committee of the Ministry of Railways to discussand be briefed on major aspects of the railways' working.

3. The IR is the nation's largest undertaking with an investment ofRs. 4,791 crores (US$6 billion equivalent) and total staff strength of 1.7million. There are nine Zonal Railways, each of which is under the controlof a General Manager, and each zone is a large system on its own account.IR also has three modern factories engaged in the manufacture of locomotivesand rolling stock.

4. There are two recognized staff federations covering about 70% ofall staff. During the latter part of 1973 and the first half of 1974 therewas a succession of strikes and disputes, largely promoted by separatistcraft unions which are not recognized by the Board. One of the chief demandswas for a bonus payment, but the Bonus Review Committee has resolved thatemployees of government undertakings are not to receive bonus payments.While IR's Board has taken steps to strengthen its personnel branch and wel-fare inspectorate and to improve promotion prospects it will be essentialfor IR to be increasingly active in handling labor relations in order toavoid future disputes and unrest.

5. Wage costs have increased dramatically in recent years from Rs. 460crores in 1970/71 to Rs. 647 crores in 1974/75. The percentage of totalstaff costs to total operating costs which was 57% in 1973/74 is expectedto be about 63% in 1975/76. Labor productivity measured in traffic units

ANNEX 2Page 2

per employee on open line has improved from 186,000 in 1970/71 to 202,000in 1974/75.

6. The quality of senior staff at Headquarters and in the ZonalRailways is high and their professional knowledge of management techniquesand modern railway technology is excellent.

B. Accounts, Costing and Audit

7. Financial arrangements with the Government and audit procedureshave not changed since the appraisal report on the 12th railway credit wasprepared. Further details of these arrangements are shown in Annex 3.Certain improvements to accounting procedures have been introduced includinga system of exchequer control (Annex 4) to control cash more stringentlyagainst budget allowances. Furthermore, the three task forces establishedby IR to examine (a) budgetary, accounting and management practices (Annex5), (b) depreciation policy (Annex 6), and (c) restructuring of capitalhave almost completed their work.

8. The work of the task force on budgeting and accounting is a majorundertaking. Their first report recommends a functional approach to theanalysis of working expenses and presents a revised budgetary framework. Itexpects to present very soon its second report - tackling the task of account-ing classifications - with a target of introducing these revisions during1976/77. IR depreciation policy is now under review following the reportof the Working Group. It is expected that IR will adopt a new approach todepreciation allocations which could mean a revision of DRF provisions duringthe 5th Plan period (1974/79).

9. The work of the task forces and the improvements which have alreadybeen made are to be welcomed. The considerable task of effecting reform isbeing attacked, although it will inevitably take some time to implement.It was confirmed during negotiations that the Railway Board will continue togive its support to this program of reform.

10. Traffic costing work continues its development satisfactorily. Adetailed study is currently under way on the problem of allocation of in-direct costs between freight and passenger traffic. Detailed cost figuresfor selected (important) commodities are produced on an annual basis, relatingcosts to tariffs and thereby demonstrating "profitability". Such data isvery useful to Zonal railways in the process of implementing commercialmarketing and tariff revision undertaken in 1974/75.

11. The accounts of IR are audited by the Director of Railway Audit(Comptroller and Auditor General department). The Auditor General supportsthe views of the task forces on budgeting and accounting, understandablyfavoring the process of simplication and clarification. Audit arrangementsare thorough and satisfactory.

ANNEX 2Page 3

C. Rates and Fares

12. At the end of FY 1973/74, before the considerable rate increasesin 1974/75, the average rate charged was Paise 2.8 (US$0.35) per pass-kmand Paise 5.8 (US$0.75) per ton-km. These tariffs are low, and had increasedby only 85% over a 23-year period 1950/51-1973/74 implying an average annualincrease of 2.7%. In the same period, the average staff cost increased by5.4% p.a., while the average annual increase in the wholesale price indexwas about 4.3%. During 1973 the price index showed an increase of about 30%,while the average receipts per traffic unit on the railways increased byonly 3.1%.

13. This cost development, coupled with a reduction in railway freighttraffic in 1973/74 (Table 18), resulted in an unprecedented situation in1974/75, during which the rates and fares had to be increased twice. As ofApril 1, 1974, the rates and fares were increased on average by 11.1% perpass-km and 12.4% per ton-km and in September 1974, further increases aver-aging 18.6% for passenger traffic and 21.7% for freight were introduced.The combined effect of these increases has been that the average fare perpass-km has gone up by about 31%, while freight rates have increased byabout 36% per ton-km. These increases may appear high, but they do no morethan reflect the average inflation rate during the past two years. Asatisfactory feature was that the Government and IR took corrective actionsduring the fiscal year 1974/75 instead of waiting for presentation of thenext year's budget.

14. The rates and fares were increased on a selective, traffic costingbasis by traffic and distance categories. The Government has traditionallyapplied a tariff policy which has tended to subsidize large segments offreight (essential basic commodities) and passenger traffic (third classtravel), without taking due account of costs incurred. The latest rate andfare increases represent a distinct step towards cost-based tariffs. Railfreight of coal over longer distances has been in the past a prime exampleof subsidized transport, which has annually resulted in considerable lossesto the railways. However, coal freight rates were increased both in Apriland September and are now believed to be close to actual costs. The follow-ing tabulation indicates the combined effect of the two rate increases bydistance categories:

ANNEX 2Page 4

Rates in Rs. per TonCoal/Soft Coke Hard Coke

Distance Rate Rate Increase Rate Rate IncreaseCategory Before Since % Before Since %

km 4/1/74 9/9/74 4/1/74 9/9/74-

100 9.50 13.00 36.8 10.45 14.40 37.8500 23.25 34.70 49.2 25.60 38.90 50.1

1000 36.80 60.50 56.7 42.50 68.10 60.11500 50.70 82.10 61.9 55.80 92.50 65.82000 61.60 100.70 63.5 67.80 113.60 67.7

The freight rates in most other categories have increased by about 23% fordistances up to 100 km, gradually increasing- to about 35% for distances ex-ceeding 2000 km. As a result, the Government has in respect of freighttraffic abolished practically all subsidies. The most recent revisions weremade in presenting the 1975/76 budget and applied to foodstuffs and ironand manganese ores. The tariffs for these commodities had not been revisedin 1974/75 and transport of foodgrains had traditionally represented a sub-sidized item.

15. A similar cost-based tariff policy has been applied towards passen-ger fares. There have been substantial increases in all traffic categories,but particularly in short distance third class (recently renamed second class)travel which in the past resulted in considerable losses to the railways.However, the rate increases applied primarily to other than commuter traffic,which still remains heavily subsidized, although there is a clear desirewithin the Government to reduce the losses on this traffic.

D. Property

16. General features. IR operates over 60,000 route-km. About 80% oftotal railway traffic in terms of gross ton-km is carried on the 30,000 kmof broad gauge (BG). The BG kilometrage is comparable to the networks ofGerman Federal Railway (29,000 km) and French National Railways (35,000 km)but carries approximately twice the traffic 1/ with about the same number oflocomotives. About 39% of BG lines are double-tracked, thereby producinggood line capacity. On BG lines, diesel and electric traction hauls 65% oftotal gross ton-km with the remaining 35% being hauled by steam traction.About 4,025 route-km, or only about 13% of the BG system, are electrified,which appears low in view of the traffic densities. Details of route-km bygauge, double-tracked route-km, electrified route-km and track-km are givenin Table 2.

1/ In terms of traffic units (passenger-km plus net ton-km).

ANNEX 2Page 5

17. Tracks. The total running track length of BG lines is about 43,000km, of which passenger express train routes, selected high traffic densityroutes and suburban sections constitute about 24,000 km, (about 10,000 route-km) on which the average traffic density exceeds 20 million gross ton-km peryear per route-km. Primary track renewal is carried out on a programmed basison these line sections. In addition to complete track revenewal (CTR) ofabout 400 km of track, rail renewal of another 400 km is executed annually.In rail terms, this indicates a 30-year service cycle, which is acceptabletaking into account relatively easy gradients and gently curves of tracks.A secondary track renewal program based on a 50-year cycle, is applied onthe remaining 19,000 km and other siding tracks. Thia is also acceptable.Track maintenance organization and procedures are satisfactory; track inspec-tion is carried out three times a year by using a track recording car; timeintervals necessary for track maintenance works are incorporated in advancein the master diagram for train movements. Long welded rails with elasticfastenings are already in common use, but the definitive design of concretesleepers was established only recently; about 90 km of track is now laid withthese sleepers. Related to this, suitable track maintenance and renewalequipment is gradually being introduced.

18. Bridges. There are still 116 bridges on BG lines with speedrestrictions because of weaknesses in either superstructure or substructure;these are being gradually improved. Each zonal railway has its own bridgemaintenance organization in addition to its track maintenance organization.All bridges are subject to a once-a-year inspection, which is satisfactory.

19. Locomotives. At the end of 1973/74, on BG lines, there were5,302 steam locomotives, 908 diesel electric mainline locomotives, 216diesel hydraulic shunters and 649 electric locomotives. About 15% of thetotal steam locomotive fleet was over 40 years in age but, the majorityis relatively new, 37% of the total fleet being less than 17 years old.Traction policy relating to conversion from steam to diesel and electrictraction was re-examined by IR after the energy crisis. The main conclu-sions were:

(a) There is no justification for resuming themanufacture of BG steam locomotives, but it wouldbe worthwhile to slow down the scrapping of oldsteam locomotives;

(b) Electrification becomes more economical thandieselization at traffic densities exceeding 14million compared with the 16 million gross ton-kmper route-km estimated before the energy crisis;and

(c) The original target of electrifying 1,800 route-kmduring IR's Investment Program 1974/75-1978/79 islikely to be to some extent reduced because of physicaland financial constraints.

ANNEX 2Page 6

To obtain the maximum benefit from further electrification, it is howeveressential to make further efforts to reduce electric locomotives maintenancecosts. Efforts should also be made to solve the remaining difficultiesexperienced in standardization of AC (alternating current) electric loco-motives. On the other hand, past problems with traction motors have nowbeen solved.

20. Passenger vehicles. The present BG passenger vehicles includeabout 19,000 passenger coaches, 1,700 electric multiple units (EMU's) and26 diesel railcars. About 8% of the passenger coaches are over 40 yearsof age. The occupancy ratio remains high (70% and 95% passengers perpassenger coach and EMU car, respectively). IR passenger-carrying capacityhas reached saturation levels on major trunk routes and in and aroundurban areas; improvements to passenger vehicles are generally needed.

21. Freight wagons. The present fleet of BG freight wagons consistsof about 290,000 units, the equivalent of 385,500 four-wheelers. Thefleet is relatively new, only 4% being over 40 years old. Almost all ironore traffic and part of the coal traffic is hauled by unit trains with new-type bogie wagons, but most of the coal is still carried by block trainsof conventional four-wheeler wagons. IR's motive power and rolling stockposition by gauge at the end of 1973/74 is given in Table 3.

22. Scrapping policy and procedures. IR bases its scrapping of loco-motives and rolling stock on the actual condition of the stock. However,in the case of wagons, IR allows their scrapping to be postponed forseveral months depending on fluctuations in traffic demand. The scrappingdecision is based on a comparative technical and financial study withand without scrapping. The Railway Board has delegated to the Directorof the Mechanical Engineering Department of each zonal railway responsi-bility for decisions regarding locomotives and passenger vehicles, whilethe Deputy Director of the same Department has similar responsibility forwagons.

23. Workshop and running shed operations. IR has 41 workshops (sixmajor, 20 medium and 15 minor) in addition to running sheds. Their organi-zation and maintenance operations are generally satisfactory. However,some imported spare parts are not readily available in workshops and run-ning sheds, and this prologns days in shop for the stock but also contri-butes to some deterioration in the availability of, particularly, diesellocomotives. Because of this, a unit exchange policy is gradually beingintroduced; it involves concentration of components and parts rebuildingto specially designated workshops.

ANNEX 2Page 7

E. Manufacturing Units

24. IR manufactures all its diesel and electric locomotives, mostof its passenger vehicles, and a small proportion of its wagons, most ofwhich are manufactured by private wagon builders. Locomotives productionstill requires imports of essential materials and components, but steadyif somewhat slow progress is being made toward complete indigeneous produc-tion. The workshops are efficient and the products -- particularly mainlinediesel locomotives -- have proven to be reliable in service and their costless than the c.i.f. cost of imported locomotives and rolling stock. Aproduction program of locomotives and rolling stock under IR's InvestmentProgram 1974/75-1978/79 is given in Table 4.

25. The Diesel Locomotive Works (DLW) at Varanasi has a productioncapacity of 150 diesel electric locomotives a year. However, both in1973/74 and 1974/75 only 95 locomotives were produced, mainly due to lowerthan anticipated traffic, and difficult industrial relations and power cuts.There should be no difficulty in reaching the production targets for 1975/76(67) and 1976/77 (120), while targets for 1977/78 (140) and 1978/79 (148)can be achieved by taking full advantage of the installed capacity.

26. The Chittaranjan Locomotive Works has a production capacity of130 locomotives (80 electric and 50 diesel hydraulic) a year. In 1973/74,however, they produced 96 locomotives, and in 1974/75 only 69, partly dueto traction motor deficiencies and partly to labor unrest. The productiontargets, 73 for 1975/76 and 90 for 1976/77 and 1977/78 can be achieved, andthe target for the last year 1978/79 of 98 is still within the productioncapacity of the Works.

27. The Integral Coach Factory in Madras has a production capacity of750 passenger vehicles a year. In 1973/74 and 1974/75, it produced at fullcapacity, being affected far less by power cuts and labor disturbances thanother plants. There should be no major problem in achieving the projectedpassenger vehicle production targets during the current Investment Program.

F. Operating Performance

28. IR's operating performance for the period 1969/70-1974/75 (April-December) is shown in Table 5 for BG and MG lines. Performance is general-ly satisfactory except for wagon turnround which should be improved 1/.Average gross freight trailing load averaging about 1,400 tons is remarkableand well exceeds that of the German Federal Railway and French NationalRailways. Net ton-km per year per ton-of wagon capacity (14,000 ton-km) isgood and about double that of the German Federal Railway and French NationalRailways. Wagon turnround, 15 days in 1973/74, is high and was largely aresult of low traffic volume. The wagon turnround has however been improving(13.8 days in December 1974) with increased traffic. To further improve

1/ Comparison with two European railways of similar size is made in Table 6.

ANNEX 2Page 8

wagon turnround times, IR worked out, on request of the Association, an Ac-tion Plan for targets to be achieved for the two years 1975/76 and 1976/77(Annex 7). The Association will be kept informed of the results of actualperformance and corrective measures to be taken, on a biannual basis(April/May and October/November) during the Project period. This should bediscussed during negotiations.

G. Performance Under Previous Credits

29. Covenants entered into under Credit 448-IN included an earningscovenant (Section 4.02) and a requirement to prepare and keep up to date aCorporate Plan. The earnings covenant required IR to earn sufficient reve-nue to meet all operating expenses and the dividend payable to the Govern-ment but because of an exceptionally heavy increase in personnel costs in1973 resulting from a Pay Commission award, requirements of the earningscovenant for 1973/74 were waived at the time of negotiating the TwelfthCredit.

30. In 1973/74, increased personnel costs (applied with retroactiveeffect) amounted to about Rs. 1,000 million annually and this led to theAssociation waiving the requirements of the earnings covenant under Credit280-IN. Furthermore, in negotiating Credit 448-IN it was agreed thatearnings should be sufficient in 1974/75 and 1976/77 to meet only 70% and85% respectively of the dividend payments due in those years. On thebasis of revised estimates for 1974/75 net revenue from operations isexpected to be Rs. 885 million. However, expenditure for 1974/75 includeda "throw-forward" of personnel costs from 1973/74. After an adjustment forthis item the true earnings from operations in 1974/75 would amount toRs. 1305 million or 69% of the dividend payment or very nearly the 70% re-quired by the covenant. This point is worthy of note since at the Boardpresentation of the Twelth Credit, a Board member expressed some skepticismthat the terms of the covenant would be fulfilled and the President under-took to report to the Board in three years time (i.e. December 1976) onIR's performance.

31. In the 12th credit (448-IN) agreement was reached to appropriateRs. 1200 million and Rs. 1250 million to DRF for the years 1974/75 and1975/76 respectively. The revised estimate for 1974/75 and the budgetestimate for 1975/76, make provision for only Rs 1150 million in each year.However, the Railway Board has now presented an official letter to theAssociation explaining that while the Railway Board's own proposals to theConvention Committee for DRF allocations in the Fifth Plan would have beenfully consistent with the covenant, the Committee took an interim decisionpending the report of the Working Party on Depreciation. (See furtherdiscussion at para. 5.14). During negotiations the Association expressedconcern that the charges for depreciation were not in accordance with theamounts stipulated in the Twelfth Credit but accepted the reasons leadingto the changed decisions. The new Credit (para 5.11) provides that a globalsum of Rs 6,500 million shall be appropriate to DRF during the Fifth Plan

ANNEX 2Page 9

and that not less than Rs 1300 million shall be changed in each of the years1976/77 through 1978/79; no specific minima were stipulated for the years1974/75 and 1975/76 since the amounts to be charged are already known.

32. The replacement policy of IR has not been curtailed because ofthese interim measures and the balance held in the DRF itself has beenmaintained. It is also relevant to mention that an additional Rs 27 millionis allocated or appropriated to DRF from the three manufacturing units(Chittaranjan Locomotive Works, Integral Coach Factory and Diesel LocomotiveWorks). It would not be unreasonable to regard this as an additionalallocation to DRF in interpreting the definition of DRF appropriation inSection 4.02(b) (ii) of credit agreement 448-IN.

33. An initial version of IR's Corporate Plan was completed inJanuary 1974 and work is now proceeding on the substantive version of thePlan which should be ready by June 1976. Corporate Planning cells havebeen established in each Zonal Railway and their work is being coordinatedfrom the Board's own Corporate Planning Cell which has been assisted bythe Association's consultant, Mr. K. V. Smith (TRANSMARK, U.K.). Duringnegotiations the Indian delegation expressed their desire that the planningwork should continue according to the agreed timetable. They also suggestedthat another visit by Mr. K.V. Smith in about September/October 1975 wouldbe welcomed.

34. The Twelfth Railway Credit 448-IN helped to finance a projectwhich was defined as a fifteen-month period (from January 1974 throughMarch 1975) of IR's on-going investment program. The total cost of theproposed investments was estimated at the time of appraisal at Rs. 4,874million, but actual expenditures in the period are likely to be Rs. 4,147million. This was a result of postponing investment because of lowertraffic levels and because of interruptions to work through labor dis-putes. Consequently, the Association's Credit 448-IN which was expectedto contribute to IR's foreign exchange expenditures in a fifteen-monthperiod to March 1975 will now cover expenditures to July 1975. Expenditureduring this period will amount to about Rs. 5208 million but if deflated totake account of inflation the expenditure in terms of 1972/73 Rupees wouldamount to Rs. 4,005 million or 82% of the original estimate. Physical out-puts of locomotives and rolling stock were consistent with the reduced levelof spending but expenditure on electrification and other works exceeded theoriginal estimates largely because of an above average rate of inflation inthe price of many of the items of equipment used in these works.

H. Railway Planning

35. Railway planning in India is undertaken on two levels. On thenational level, it is geared to the annual and five-year planning systemadopted by the Government for the overall development of the economy.The purpose of this planning exercise is to establish the rail transportrequirements during five-year plan periods by converting the plan targets

ANNEX 2Page 10

into physical input and output volumes. These volumes are establishedby the Planning Commission and the various Ministries concerned and arereappraised by the Government from time to time.

36. The planning, evaluation and project sanctioning system appliedby IR is defined in the various railway codes and policy directives andsummarized in Annex 8. The railway's internal planning is mainly under-taken for preparation of annual investment and work program. Accordingto this system, no project costing more than Rs. 0.5 million (US$65,000equivalent) can be sanction by the Railway Board and included in theannual program without a project study based on a comprehensive techno-economic survey. The evaluation criteria have in most cases been tech-nical and financial, while economic considerations have been taken into

account only in the most significant new works (gauge conversion andelectrification shcemes, new lines, etc.). However, increased emphasisis being given to development of methodology, data base and evaluation

of alternatives. Further improvements should gradually take place withdevelopment of the Corporate Planning work and increased attention givento the Economic Unit in the Railway Board.

37. For these reasons, and recognizing the limited guidance theplanning on the national level can give to long-term railway planning,it was agreed during negotiations for the Eleventh Railway Project (Credit280-IN) in 1971 that specific long-term objectives were needed, so that a

clear framework would exist as a basis for five-year planning and that IRwould set up an organization of qualified staff to prepare a 15-year CorporatePlan for IR on the basis of these objectives. The initial version of the

Corporate Plan on the IR Board level was prepared by November 1973.

38. Corporate planning cells have been established in all ZonalRailways, and these are each preparing their own draft plans on the basisof the initial version, under the general guidance of the Board. Inpreparing the intial versions, these planning cells are not bound toundertake long-term planning on the basis of overall targets set on thenational level, but are encouraged to make their own judgments of theregional and local needs and to independently find the most feasiblesolutions. Starting in July 1975, the initial versions will be reviewedand coordinated with each other by the Planning Department in the IRBoard. According to a timetable established by IR, the Corporate Planswill be completed by June 1976. This planning exercise is proceedingwell.

39. The position of the Economic Unit was discussed during the ap-praisal. A general agreement was reached that the scope of work of theUnit should be developed on the following lines: (a) it should increasinglybecome a supervising unit in line with other departments in the RailwayBoard; (b) it should be closely associated with the corporate planningwork (which so far has been directed by the Planning Department alone);(c) it should become involved with project preparation work at its early

ANNEX 2Page I 1

stages on the Zonal Railway level; and (d) in line with these changes itshould be authorized to issue guidelines and supervise technoeconomicproject feasibility studies to ensure that due account is taken of economicconsiderations. IR agreed during negotiations to look into the practicalarrangements to achieve these objectives.

July 1975

ANNEX 3Page 1

INDIA

APPRAISAL OF A THIRTEENTH RAILWAY PROJECT

Financial Arrangements between Indian Railways and the Government

1. The accounts of IR are those of a Government department and aredesigned to show the origin and use of public funds. The Government author-izes all the capital and operating funds required by IR in accordance withbudgets approved by Parliament and acts as IR's treasurer. Bank loans andIDA credits are channeled through the Government to IR and, insofar as theyrelate to additions, they appear in IR's accounts as interest-bearingpermanent capital known as capital-at-charge and become part of the Govern-ment's investment. The portion of foreign loans obtained to finance replace-ments is reimbursed in local currency to the Government by IR as expendituresare incurred.

2. Capital expenditures on fixed assets are financed as follows:Additions are financed entirely by an increase in the Government's capital-at-charge provided they can be shown to produce a financial return of notless than 10%. Additions which do not meet this requirement, mainly newminor works, are financed from IR's own resources and are either charged torevenue if less than Rs 300,000 or are met from net earnings channeled throughthe Development Fund which also finances user amenities and welfare works.Replacements are financed from IR's own resources through the DepreciationReserve Fund 1/ at full replacement cost; the amounts set aside to this fundas a charge to revenue are determined quinquennially (subject to annualreview) on the basis of an estimate of replacement costs during the follow-ing five years. Although in the past 20 years the Government has collectedsome Rs 19 billion in dividends from IR, the additional capital provided bythe Government to IR in the same period amounts to about Rs 29 billion.This contribution of the Government includes the proceeds of substantialforeign exchange loans and credits (including Bank and IDA). In financingthe entire cost of replacements, IR makes a substantial contribution tototal expenditure on capital account, having provided during the past fiveyears, 1970/71-1974/75, some Rs 6.5 billion 2/ from its own resources,equivalent to 42% of total capital expenditure.

1/ The Depreciation Reserve Fund (DRF) functions as a reserve for renewalsof capital assets. Appropriations are made annually to the Fund, thecorresponding charge being described as Appropriation to DepreciationReserve Fund under the heading of Operating Expenses. The term"depreciation" should be construed accordingly and operating ratiosare calculated after taking this appropriation into account.

2/ Including expenditure financed by temporary loans from the Governmentwhich at March 31, 1974 amounted to Rs 1032 million inclusive ofinterest. These loans are intended to be repaid during succeeding yearsfrom revenue surpluses.

ANNEX 3Page 2

3. The financial arrangements between the Government and the Railwaysas approved by Parliament are fixed by a Convention Committee which is con-stituted at five-year intervals. Under these arrangements, dividend oncapital-at-charge 1/ has been increased several times, and with effect fromApril 1, 1966, has been fixed at 5.5% on capital provided to March 31, 1964,and 6.0% on capital provided thereafter. (For the three years 1963/64 to1965/66, the corresponding rates were 4.5% and 5.75% respectively). Thesedividends are payable to the Government even though in a given year thenet earnings are insufficient to cover the dividend. During the years1966/67-1970/71 and again in 1973/74 IR's net revenue was insufficient tomeet the full dividend payment as well as expenditure chargeable to theDevelopment Fund; consequently, after using up its own accumulated reserves,IR has had to obtain temporary loans from the Government which at March 31,1974, amounted to Rs 2,080 millions including accrued interest. By March 31,1975, this figure is expected to increase to Rs 3,640 million.

4. IR's accounts are audited by the Director of Railway Audit(Comptroller and Auditor General's Department). The emphasis of this auditis on ensuring that funds have been applied in accordance with budgetaryallocations approved annually by Parliament. In each railway zone and manu-facturing unit there is a Chief Auditor. These officers are all qualified(Indian Audit and Accounts Service). In addition, each railway division hasan Audit Officer who reports to his Chief Auditor who in turn reports to theDirector of Railway Audit. The observations and reports of the ChiefAuditors form the basis of an annual report prepared by the Director ofRailway Audit drawing attention to a wide variety of matters which are re-viewed and investigated by the Public Accounts Co mittee which, in turn,publishes a report of its discussions, recommendations, and findings. Thedetailed auditor's Report and the proceedings of the Public Accounts Com-mittee are exhaustive and satisfactory.

5. Internal audit is provided for through accounts inspection wingsfor each railway zone and division reporting to the appropriate generalmanager. Railway Board HQ also has an audit inspection staff reporting tothe Director of Accounts and to the Financial Commissioner. Travelinginspectors of accounts in each zone perform station audit and stores verif-ication work. These arrangements are satisfactory.

July 1975

1/ Although always referred to as dividends, these payments are in factmore in the nature of fixed interest payments on capital provided bythe Government.

ANNEX 4

INDIA

APPRAISAL OF A THIRTEENTH RAILWAY PROJECT

Exchequer Control

Exchequer control, introduced in September 1973, is designed tocontrol cash outflow against monthly budget allowances. The control isexercised at headquarters by IR central financial management. A zonal rail-way/department budget is broken down into monthly expenditure estimates andactual disbursements recorded.

The basic principle is that, if a budget for the period/year isexhausted, further expenditure is not permitted unless authorization isgiven by Delhi.

Although the control is inevitably restricted to cash expenses(meaning that it cannot cover all IR expenditures) and does not cover earn-ings (and is therefore not a full cash budget/control process), it is asignificant measure introduced primarily because of a shortage of Governmentresources and the need to control cash expenditure. Part at least of theeconomies achieved in 1973-74, may be attributed to its introduction. It isnot to be a permanent feature of IR financial management.

July 1975

ANNEX 5

INDIA

APPRAISAL OF A THIRTEENTH RAILWAY PROJECT

Summary of the First Report of the Task Force on Budgetary, Accounting& Management Practices; Restructuring Demands for Grants and Budgetary

Documents

1. The task force recommends adoption of a function-oriented ratherthan output-oriented system to analyze the working expenses of the Railways.

2. A revised list of Demands for all railway expenditure is proposed,covering zonal operating costs and central expenditure. The proposals areto rationalize the existing demands by splitting the large and grouping thesmall.

3. A single Demand for all works expenditure is proposed, regardlessof source of financing. It is proposed that such a classification be used tomake the works budget performance-oriented and to collate expenditure underdepartmental responsibility.

4. The task force proposes a revision of accounting classificationsto fulfill management reporting and information requirements, budgetary andcosting needs. The second report of the task force unit, given approval ofthe principles outlined in this first report, compiles a completely newclassification code in detail.

5. The introduction of performance budgeting is recommended, sup-ported by the restructured Demands and accounting classification.

6. The task force identifies the need for training in the new systemand the possible introduction of the revised system by April 1976 - i.e.,for the FY1976-77.

June 1975

ANNEX 6Page 1

INDIA

APPRAISAL OF A THIRTEENTH RAILWAY PROJECT

Summary of Conclusions and Recommendations Containedin The Working Party Report on Depreciation Policy

1. The current Replacement Cost approach should be followed in theRailways for the purpose of charging depreciation considering the permanentcharacter of Railways and their crucial role in providing infra-structure foreconomic development. Accordingly, the estimated inflationary and improve-ment element will form part of this Replacement Cost.

2. There is no need to create a separate Renewal Reserve Fund in viewof (1) above.

3. In the context of above, there is no fundamental necessity tochange the present system of working out the provision DRF based on currentReplacement needs.

4. However, since the Convention Committee have desired that aseparate system should be outlined, the following alternatives were con-sidered:

System I - Calculation of depreciation provision based on assetregisters for each individual asset. Another refine-ment of the same system would be the adoption ofGroup Plan System of working out depreciation for agiven recognized group of assets.

System II - Calculation of depreciation provision based on thealready available data on wasting railway assets con-tained in the Block Account i.e. working out separa-tely the provision on account of the three elementsviz. the provision based on original cost of theassets, the provision on account of inflation, andthe provision on account of the improvement element.The sum total of these three provisions would auto-matically meet the requirements of current replacementcost approach.

System III - Calculation of depreciation based on available dataof Railway's wasting assets in terms of physical unitsunder clearly assignable asset groups and estimatingtheir current replacement cost by evaluating them andthus arriving at the provisions for Depreciation ReserveFund.

ANNEX 6Page 2

5. In view of the cumbersomeness of the procedure, as well assubstantial recurring expenditure of about Rs 60 lakhs per annum involved,the Working Group do not recommend the adoption of System I.

RECOMMENDATIONS

(i) The Working Group recommends a provision of Rs 660 to 750crores for the Fifth Plan based on Systems II and III.

(ii) The Working Group recommends the review of the quantum ofprovision during the middle of the Fifth Plan in case therate of inflation warrants it but in any case after everyfive years.

(iii) The Railway system is an important infra-structurefor the economy. It is extensive in its area of operationswith a route kilometrage of about 60,000 and is complex inits variety of operations. Hence, in the interests ofprudent financial management, if the financial situationpermits, the Working Group recommends the maintenance ofat least 5% of the block value of wasting assets as thebalance in the Depreciation Reserve Fund to meet the unfor-seen exigencies which may be caused by the unpredictableinflationary situation as also due to the rapid strides inthe field of technological advancement.

6. The Working Group accordingly recommend the adoption of eitherSystem II or System III, if at all it is considered necessary to changethe existing procedure.

7. The depreciation on assets created betweenl969-70 and 1973-74,works to Rs 99 crores for the 4th Plan and Rs 205 crores for the 5th Plan,based on current replacement cost approach and applying the factors ofinflationary and improvement elements as worked out under System I.

8. The total provision to the Depreciation Reserve Fund during theFifth Plan under the three systems would be as follows:

System I - Rs 730 crores.

System II - Rs 658 crores.

System III - Rs 750 crores.

It is felt that adoption of either of the two systems recommendedby the Working Group will ensure that there is no serious under provisioningor over provisioning.

ANNEX 6Page 3

9. Considering the importance of the Railway of the Railway system asan inherent part of the infra structure of the economy as also due to itsvast area, volume and complexity of operations, in the interests of prudentfinancial management, if the financial situation permits, the Working Grouprecommend maintenance of at least 5% of the block value of wasting assetsas the balance in the Depreciation Reserve Fund to meet the unforeseenexigencies which may be caused by the unpredictable inflationary situationas also due to the rapid strides in the field of technological advancement.

10. The summary of recommendations pertaining to determination of thelife of various categories of assets according to the regrouping of assetsas recommended by the Working Group is as under:

1. Bridgeworks - Steel ... 80 years

2. - do - - Masonry and cement concrete ...100

3. Structures - Steel ... 75 "

4. - do - - Masonry & Cement concrete ... 80 "

5. Rails ... 60 "

6. Points & Crossings ... 40 "

7. Wooden Sleepers ... 16 "

8. C.I. Sleepers & fastenings ... 40

9. Steel trough Sleepers & fastenings ... 40

10. Plant & Machinery:

I. Machines and Shop Plant:

(a) Tool Room and TestingLab. Equipment ... 20 years

(b) Lathe Planners, drilling,boring etc. (2 shifts) ... 20

(c) High Prevision & specialpurpose machines (2 shifts) ... 20 "

(d) Foundry and forgeEquipment (2 shifts) ... 25

(e) Heat TreatmentEquipment (3 shifts) ... 20

(f) Power Generating Machineryand Switches ... 35 "

(g) General purpose LightMachinery (one shift) ... 20

(h) Other Misc. machines ... 20

June 1975

ANNEX 7Page I

INDIA

APPRAISAL OF A THIRTEENTH RAILWAY PROJECT

IR Action Plan for Improving Wagon Turnround

1. IR's Investment Program 1974/75-1978/79 assumes the wagon turnroundin the last year 1978/79 to be improved to 12.1 days on BG and 9.6 days onMG. The actual turnround during 1972/73 when the Program was prepared was13.5 days on BG and 10.8 days on MG. In 1973/74, the turnround had deterio-rated to 15.0 days on BG and 12.5 days on MG. However, 1973/74 was acompletely abnormal year for IR as operations during that year remainedcontinuously disrupted due to frequent strikes, go-slow tactics, work-to-rule agitations, etc., by different categories of railwaymen. A fair com-parison can, therefore, be made with the performance in 1972/73 when IRoperations were comparatively more stable, even though a number of extraneousfactors disturbed normal flow of movement in that year too.

2. The following are the main considerations on which IR's assumptionsrelating to improvements in wagon turnround by the end of the Program havebeen based.

(i) Provision of additional facilities on collieries tofacilitate loading of coal in block rakes;

(ii) Mechanization of handling arrangement both of theloading end as well as unloading ends in respect ofcoal traffic for bulk consumers;

(iii) Setting up of coal dumps at focal points in all Statesto which coal could be moved in train loads and fromwhere further distribution to consumers could bearranged by road transport;

(iv) More block rake movements in commodities like fertilizers,POL, etc., the consumers resorting to road bridging atdestination in the case of commodities like fertilizers tocarry this product from the central focal receiving andwarehousing points to consumers in the zone served by suchcentral points;

(v) Uniform loading and unloading on all days of the week bymajor rail users like collieries, power houses, steelplants, etc;

ANNEX 7Page 2

(vi) Provision of diesel shunters, modern lighting equipmentand intra-yard communications facilities to tone up workingof yards;

(vii) Provision of adequate storage capacity for coal and othercommodities with the users to avoid detention to wagons;

(viii) Mechanization of principal IR marshalling yards and re-modelling of existing yards to enable quicker handlingof wagons and increased long distance marshalling tobypass more intermediate yards; and

(ix) Expansion of dieselization/electrification program whichwould, inter alia, result in speeding up of movement.

3. Within the framework of the above mentioned strategies, the follow-action has been initiated/proposed by IR/rail users:

Coal Traffic

3.1.1 To assess the quantum and nature of the infrastructure facilitiesrequired to handle the vastly increased quantum of coal traffic projectedduring the Program, IR has set up Study Teams, one each for Bengal-BiharCoalfields and Outlying Coalfields. These Study Teams studied the movementpattern of coal traffic in relation to the production plans for the same invarious coal fields and made recommendations for development of adequatecapacities within the colliery sidings, the serving depot yards, on thesections and at the terminals. One of the important recommendations of theStudy Teams related to facilities for increased loading of coal traffic.The scheme envisages a substantial reduction in the number of coal loadingpoints so that at these points adequate siding lengths could be provided toenable loading of coal being arranged in train loads. By this process theextra detention caused on account of coal loading being undertaken at severalpoints and in piecemeal fashion would be avoided. Detailed plans in thisbehalf have been formulated and for implementation of the same, necessarycoordination is being maintained with the Ministry of Energy and with thecoal-producing organizations like Coal Mines Authority of India Ltd. andBharat Coking Coal Ltd. Some progress has already been achieved in thisregard and it is proposed to follow it up further in coming years.

3.1.2 For all the major bulk consumers of coal like power houses, steelplants, heavy industries etc., it is being stipulated by IR that handling ofcoal will have to be arranged mechanically in their sidings. Installation oftipplers is accordingly being programmed by these consumers in their plans.For example, the Obra Thermal Power Plant, which is one of the largestthermal units in India and which has facilities for mechanical handling ofcoal, is further augmenting these facilities to enable handling of increasedrequirements of coal on account of plans for increased generation of

ANNEX 7Page 3

electricity. The expansion plans of the Bhilai Steel Plant as well asBokaro Steel Plant envisage provision of facilities for quick release ofwagons loaded with coal. An additional tippler is also under constructionin the Durgapur Steel Plant.

3.1.3 In coordination with the Ministry of Energy and the coal-producingorganizations, specific linkages are being finalized for the movement of:

(a) Raw coal from individual collieries to individual washeries;

(b) Washed coal from individual washeries to individual steelplants;

(c) Coal from individual collieries to individual power houses;and

(d) Coal from individual collieries to bulk consumers likecement plants, fertilizer plants, etc.

With the determination of these firm linkages, movement will be rationalizedas to permit block rake loading which would improve wagon turnround.

Finished Products from Steel Plants

3.2 Until recently, a substantial quantum of finished products of thesteel plants used to move in piecemeal car-loads to a number of destinations.With the cooperation of the Ministry of Steel and the Steel Authority ofIndia, it has lately been possible to arrange more movement of finishedproducts in block rakes. To enable expeditious handling of block rakes atthe destination end, the Steel Authority of India has set up a number ofsteel stock-yards at principal consuming centers in India such as Delhi,Bombay, Calcutta, Ahmedabad, Madras, Bangalore, Jullundur, Allahabad, etc.In the coming years, the Steel Authority of India has further plans to setup more such stock-yards at Secunderabad, Vishakhapatnam, Faridabad,Ghaziabad, etc. The setting up of these steel stock-yards has resulted ina very noticeable improvement in the pattern of movement of steel productstraffic. Steel Authority of India has also selected certain points, limitedin number, in consultation with IR, to which block rakes with steel productswill move and consumers will be required to take their steel either at thesepoints or from the stock-yards. This will greatly reduce piecemeal movementof steel products. As a considerable quantum of this traffic now moves inblock rates, the transit time of the wagons containing this traffic has showna welcome decline. As more traffic is handled in block rakes, expeditiousreturn of the special wagons used for the purpose is also being achieved.

ANNEX 7Page 4

Raw Materials to Steel Plants

3.3 With a view to arranging systematic movement of raw materials to

steel plants, IR has finalized, with the help of the Ministry of Steel and

the Steel Authority of India, rational linkages for the year 1975/76.Similar linkages for the remaining years of IR's Investment Program are in

process of finalization. These linkages are normally from the nearest

sources of supply of raw materials. Handling arrangements for these rawmaterials both at the loading end as well as in the steel plants are also

being improved to reduce detention to wagons. For instance, mechanicalloading arrangements are being provided at Bhawnathpur on the Eastern Rail-

way for loading limestone to Bokaro and Durgapur Steel Plants. Round-the-clock working on all days of the week is also being introduced at all major

loading points.

Iron Ore for Export

3.4 For handling iron ore traffic for export, tipplers are already

available at the Vishakhapatnam port. Installation of tipplers is now in

progress at Madras and Haldia ports and the same are also planned forParadip. With the commissioning of the Outer Harbor project at Madras,where tipplers will be installed in September 1975, improved handlingarrangements are being provided to handle an increased quantum of iron oretraffic for export. Mechanical loading arrangements at certain loadingpoints handling heavy traffic in iron ore such as Kirandul, Goa, Bolani,Kiriburu, and Joda are also being extended. High capacity gondola-typewagons (BOY) are increasingly being introduced to enable increased traffic

being expeditiously handled. Electrification of the Bailadila iron oreline is also in progress.

Foodgrains

3.5 More foodgrains traffic, both indigenous as well as imported, isbeing moved in block rakes. Every month during the season, IR chalks out

a rake-loading program for foodgrains in consultation with the Food Corpora-tion of India and other procurement agencies. Loading is then arranged intrain-loads for the farthest destinations. Short-lead movements which aremore suitable for road transport are being gradually shed.

Fertilizers

3.6 As considerable quantities of fertilizers traffic is beingimported, arrangements are currently being made by the Ministry of Agri-culture to install mechanical unloading, bagging and loading plants at the

ANNEX 7Page 5

ports such as Bombay and Kandla. With the setting up of these facilities,it is planned to move more traffic in fertilizers in train-loads all theway from Bombay/Kandla to distant areas in Punjab, Haryana, Uttar Pradesh,etc. The Ministry of Agriculture is proposing to go in for bulk warehous-ing in Central Consuming Centers to which fertilizers will be consignedfrom the ports/fertilizer plants in rakes, from there to be distributed byroad to the areas in the zone served by the Central Consuming Center.Similarly, more loading of indigenous fertilizers is being planned in trainloads from the fertilizer factories to the consuming points.

Cement

3.7 In order to reduce the lead of cement traffic, the Government issetting up of more cement factories in the northern region of India wherethe demands are heavy. These include factories at Poanta, Bhupendra, DehraDun and in Rajasthan. Cement industry is cooperating in loading cement inblock rakes. The industry is being persuaded to form more concentrated loadswhich may bypass the intermediate yards. The idea of creating cement dumpsat certain points is also being developed to avoid transhipment en route.For instance, a dump is being developed at Jogighopa station on the North-east Frontier Railway to avoid transhipment at New Bongaigaon and fromJanuary 1975 block rakes of cement have started moving to Jogighopa. Similarproposals are also in hand for the provision of a dump at Narayanpur-Anantstation on the North Eastern Railway to avoid transhipment at Garhara. Inthe case of Narayanpur-Anant, cement, foodgrains and fertilizers will be thecommodities going in block rakes from there to be distributed by road tostations on MG. Besides, export traffic to Nepal will also be consigned tothis point to eliminate transhipment at Garhara. Further movement from thesedumps will be by road.

POL

3.8 Traffic in POL ideally lends itself to movement in train-loads.This is increasingly arranged. About 60% of POL traffic is now moving inblock rakes for single point destinations as against about 50% last year.Full length sidings for accomodating full train loads have been provided atall important locations. Such sidings are being provided at some morelocations such as Manmad, Nishatpura, Badneral, Bilaspur, Khapri, Idgah,Itarsi, Cuttack, and Sanatnagar. It is also proposed to introduce nightloading/unloading at important locations like Bombay Refineries, Kandlaand Vadala (serving Bombay port) Port Installations and at Shakurbasti nearDelhi.

4. Adoption of modern operating techniques to improve productivityof marshalling yards, locomotive sheds, carriage and wagon depots, wagonworkshops, etc., with the help of work study and/or operations researchtechniques is likely to further help in improving the wagon turnround. Aseparate Operations Research Cell was set up in the Railway Board last year

ANNEX 7Page 6

and it has already undertaken in hand some studies such as those on the

reorganization of local pilots in the Delhi area, improvement in the workingof the Jhansi yard, improvement in the functioning of the Bhusawal locomotive

shed, etc.

5. An important factor to be reckoned with in making an assessmentof the likely wagon turnround at the end of the Program is the average leadof freight traffic. When the Program was being finalized, the Planning

Commission had felt that due to change in the traffic mix and with theprojected increase in the short lead traffic like coal to steel plants and

washeries and medium lead traffic like iron ore for export, etc., the average

lead of traffic might decrease. IR's own assessment made at that time, how-

ever, was that the average lead might not decrease and might even increase

as happened during the 1969/70-1973/74 program. In fact the average lead of

revenue-earning traffic in the first 11 months of 1974/75 has been 697 km

against 692 km in the corresponding 11 months of 1972/73 and is the highest

so far. Should this trend continue in future also, it is bound to have

repercussions on the wagon turnround.

6. On the above basis, the projected wagon turnround targets by gaugefor the two years 1975/76 and 1976/77 are set out as follows:

Wagon turnround targets (days)

Gauge 1975/76 1976/77

Broad gauge 13.5-14.0 13.0-13.5

Meter gauge 11.0-11.5 10.5-11.0

7. In addition to the monthly routine review by IR of wagon turnroundsachieved, it is proposed that, on a biannual basis (April/May and October/November), mid-appraisal is made, including the analysis of actual perform-

ance and corrective measures to be taken. The Association will be keptinformed of such mid-appraisal.

July 1975

ANNEX 8Page 1

INDIA

APPRAISAL OF A THIRTEENTH RAILWAY PROJECT

IR Project Evaluation Procedures

A. Description of Present Procedures

1. The Railway's planning, evaluation and project sanctioning systemhas developed over a number of years. The system is contained in variouscodes and policy directives issued from time to time by IR.

2. Within the framework of the Five-Year Plan, the Zonal Railwaysprepare their tentative proposals for works under various Plan-heads andsponsor them for inclusion in the Annual Plan at an appropriate time.

3. According to existing instructions, all works costing aboveRs 50,000 each are required to be included in the Annual Works Programwhich is submitted by the Zonal Railways to the Board. Works costing upto Rs 50,000 each are finalized by the General Managers against the lumpsum amount allotted to the Zonal Railways.

4. The Zonal Railways are required to send their schemes costingRs 1 million or above, comprehensively worked out with full details in-cluding financial implications, by April 30 of each year for obtaining theadministrative approval of the Board for including them in the RailwaysPreliminary Works Program. In the Board's Office these proposals are ex-amined by the concerned directorate (Planning, Executive Directorate con-cerned and Finance) in order to see that there is a prima facie case forconsidering the inclusion of these works, depending upon the developmentof traffic and availability of resources. This preliminary scrutiny isto ensure that works unlikely to be approved are not included even in thePreliminary Works Program for consideration at the Board's level duringthe Works Program Meetings.

5. In April each year, the Zonal Railways are asked to indicate theirrequirement of funds, based on the works which they propose to include in theWorks Program. In June each year, the Board conveys to each Zonal Railwaythe financial ceiling within wh'ch the Works Program has to be framed by therailway. The distribution is done by Plan head as well as separately forworks in progress and new works depending upon the inter-railway priorities.The Zonal Railways have then to modify and adjust their works programs withinthis ceiling limit.

6. All proposals for works estimated to cost approximately Rs 2 mil-lion or above have to be appraised by an appropriate survey conducted by astudy tema constituted for the specific purpose at appropriate level. Thesesurvey reports undergo a detailed scrutiny by the concerned directorates

ANNEX 8Page 2

including Finance. It is only after the conclusions of the survey team areaccepted and the project is found financially justified that the proposal isapproved for inclusion in the annual works program.

7. The Preliminary Works Program for the following year is submittedby the Zonal Railways to the Board by about September 15, or such earlierdate as laid down by the Board. As stated earlier, all works costing aboveRs 50,000 are included, distinguishing modifications in works in progressfrom new works. Project justification as well as financial appraisal foreach work has to be given in the Preliminary Works Program together withthe comments of the Financial Advisor and Chief Accounts Officer.

8. After scrutiny of the Preliminary Works Program proposals in theBoard, a meeting is held between the Board and the concerned Zonal Railwaysduring October/November each year at which the proposals are discussed andonly those which are considered finally justified and complete in allrespects are permitted to be included in the Final Works Program of thefollowing year. On the basis of the decisions taken at the Works ProgramMeetings, the Zonal Railways submit their Final Works Programs in December.

9. All finally accepted proposals are then included in the budgetproposals (the "Pink Book") and these proposals are presented to theParliament along with the Annual railway budget for acceptance; for workscosting above Rs 2 million each, the Railway Minister's prior approval isobtained. It is only after the Parliament gives its acceptance that approvalof the various proposals included in the "Pink Book" is considered valid andthe railways are permitted to go ahead with the execution of the works. Theestimates for works up to Rs 2 million each are then finally sanctioned bythe General Manager, while for works costing above Rs 2 million each theestimates have to be sanctioned by the Board.

10. While the above procedure is followed in respect of schemes to beincluded in the regular Works Program provision also exists for sanction ofreally urgent schemes as 'out of turn' works during the year. The Railwayshave to bring out clearly the urgency and purpose of each scheme and certifythat the proposal meets the objective fully and the scope and costs of theproject have been arrived at after the fullest possible investigation in-cluding financial implications. Urgent line capacity works costing up toRs 0.5 million each can be sanctioned by the General Manager, within anoverall allotment of about Rs 7.5 million in a year of the purpose. Workscosting above Rs 0.5 million each have to be referred to the Board for sanc-tion. For works costing above Rs 2 million each, Miniter's prior approvalis obtained and Parliaments approval obtained through Supplementary Grants.When Parliament is not in session, the Financial Commissioner can operatethe Contingency Fund of India for sanction of these works, which isregularized subsequently through Supplementary Demands placed before theParliament.

11.. This procedure for sanction of 'out of turn' works is to ensurethat the movement of traffic is not hampered when unforeseen situationsdevelop.

ANNEX 8Page 3

B. Execution of Techno-Economic Surveys

12. One important feature, which becomes apparent in review of IR's

investment program, is the number and great variety of projects. They varyfrom new lines and plant and machinery to users' amenities, which involve,for instance, improvement of passengers' travel accommodation. It can roughlybe estimated, that each year's annual program includes some 2,000 separateitems, which cost over Rs 500,000 (US$65,000) in various stages of completion.Many of these items are, however, related to larger schemes, which anywayconstitute the major portion of the annual program. As indicated in para6.14, there are 209 projects costing over Rs 5.0 million (US$650,000) in-clude in the 1975/76-1976/77 programs. Together with rolling stock theyaccount for about Rs 7.0 billion (US$900 million), or 90%, of the totalinvestment program for the two project years. It is, therefore, importantthat the justification of these major projects is on a sound basis. In thefollowing, the main features of a techno-economic survey for a railway lineproject is presented. This procedure may, with some modifications, beapplied on new line projects, track renewals, bridge works, electrificationschemes and line capacity works, such as gauge conversions, etc. Theseprojects cover a substantial part of IR's revenue-earning infrastructureprojects.

Content of a Techno-Economic Survey

13. Typically, the project study includes the following stages:

(i) preliminary investigation;

(ii) reconnaissance survey;

(iii) traffic survey;

(iv) preliminary survey; and

(v) final location survey.

As indicated below: (ii), (iv) and (v) are purely technical survey, while(iii) and (iv) are normally conducted in conjunction with each other andare most important for the decision making. As such the whole procedureinclude all the elements of preinvestment, feasibility and final designstudies normally preceeding Bank/IDA financed projects.

14. Preliminary Investigation. This is undertaken in order to decidewhether the preparation of a project can be justified and to determine howthe proposed project will fit in with a general scheme of future railwaydevelopment and to obtain a preliminary view on the standard of constructionsuitable in each case. According to the Railway Code, the preliminaryinvestigation should be based on a careful study of information alreadyavailable from existing maps, published figures of trade and population of

ANNEX 8Page 4

the area to be served, and financial and statistical data of existing rail-ways in similar areas. If it is decided that the project warrants furtherconsideration a report should be prepared with accompanying rough costestimates to be forwarded to the Railway Board, which has the authority tosanction further surveys.

15. Reconnaissance Survey. This is essentially an engineering studydefined as a rough and rapid investigation of an area, or of one or moreroutes for a projected railway line, but may also involve a more carefulinvestigation, involving, however, the use only of those instruments thatwill give approximate measurements rapidly. The purpose of such surveysis to provide a basis for estimating the approximate volume of furthersurvey work required and to reduce the number of alternatives to technicallyfeasible ones. Reconnaissance survey may be omitted if the project involvesimprovement or expansion of an existing railway line.

16. Preliminary Survey. This, together with the traffic survey,comprise all the elements of a typical project feasibility study. Thepreliminary survey consists of a detailed instrumental examinzation of theroute or routes selected as a result of "reconnaissance" for the purpose ofobtaining a fairly close estimate of the probable project cost. Whether theproject is undertaken or not is usually decided on the basis of the resultof this survey in conjunction with the traffic survey. The Railway Boardmay, however, require the submission of an estimate based on the finallocation survey before sanctioning the project.

17. Final Location Survey. This represents primarily detailedengineering of the project and is not normally undertaken before it hasbeen decided that the project should be undertaken.

Traffic Survey

18. The traffic survey is defined by IR to be a detailed study of thetraffic conditions and prospects of an area with the object of determiningthe most promising route, the probably traffic, and the standard of construc-tion. It also includes an evaluation of the return on capital the projectis expected to generate. This return is either calculated in financialterms as the net revenue to be obtained (gross revenue of increased trafficminus increased capital and operating expenditures) or in terms of costsavings (for instance, in the case of rail renewals). This evaluationis undertaken for the lifetime of the project and require traffic, costand revenue forecasts to be prepared for this period for each alternative.In undertaking the evaluation, the discounted cash value techique is applied,which implies converting all future costs and revenues to present value byapplication of a selected discount rate (the minimum acceptable by the Rail-way Board is at present 10%).

ANNEX 8Page 5

19. The traffic survey includes thus considerably more than the termimplies. This becomes also apparent from the following subject items,which have to be covered in each survey report:

(1) Background and terms of reference.

(2) General description of the area.

(3) Alternative routes and possible extensions.

(4) Location of route or routes examined.

(5) Population, volume of goods transported, exports and imports.

(6) Nature and volume of existing traffic using railways orother modes of transport.

(7) Development prospects of trade and industry.

(8) Existing and proposed railway rates to be charged.

(9) Station sites.

(10) Necessary train services.

(11) Coaching earnings.

(12) Goods earnings.

(13) Effect on traffic on existing lines and alternative modesof transport.

(14) Construction standard and estimated capital cost.

(15) Working expenses and net receipts.

(16) Financial prospects of the proposal.

(17) Conclusions and recommendations.

In addition, each report should be supported by a number of attachments,providing details on population, land use, exports and imports of theinfluence area, comparative transport tariffs of alternative modes oftransport, etc.

20. The traffic survey is normally undertaken under the supervisionof an experienced Commercial Traffic Officer, who should work under closecooperative with the engineering survey party. One of his main objectivesis to estimate the volume of traffic to be expected. These estimatesshould be checked with actual traffic surveys, which should include other

ANNEX 8Page 6

modes of transport as well. In addition, the survey should cover a reviewof major present and expected future users.

Concluding Remarks

21. The techno-economic surveys undertaken by the railways are closelysimilar to investment studies undertaken by any private industry. The twomost important criteria in deciding on the feasibility of a project are theestimated capital cost and expected financial return. The survey reportsreviewed by the mission were generally well prepared, although variations inquality exists and further refinements are possible. This is, however,understandable in view of differences in qualifications of staff in thevarious Zonal Railways. As a whole, the surveys appear to reflect relativelywell the financial viability of the projects studied.

22. The surveys do not include an economic evaluation of projects.Such studies are only undertaken by the Economic Unit in the Railway Boardand limited to a few major projects such as new lines, gauge conversions,electrification schemes, etc. The Economic Unit has, however, undertakencomparative studies of differences between the financial and economic ratesof return for a number of projects. The result of these studies indicatesthat the economic rate of return was in no case lower than the financialand in no case did these two approaches result in contradictory recommenda-tions. This result was not unexpected because the financial returns have inrecent years been gradually reduced as tariff increased have lagged behindincreases in costs (the situation did however change in 1974/75 after thesubstantial rate and fare increases). Furthermore, the physical data basefor both evaluations were the same. The comparative study indicated that,on average, the economic rate of return was about 20% in cases where thefinancial rate of return was 10-12%. This conclusion is however not to begeneralized to apply for all IR projects; there are significant differencesbetween ccst saving projects and investments creating additional capacity.

23. As a further improvement, economic evaluation should graduallybe introduced for all projects and undertaken as an essential part of thetechno-economic surveys (para 3.23). This would enable the Economic Unitto participate in the formulation of the studies at an earlier stage andreduce overlapping of work which at present is to some extent unavoidable.

July 1975

ANNEX 9Page

INDIA

APPRAISAL OF A THIRTEETH RAILWAY PROJECT

Principal Items Included in the Project

A. Investment (cost: Rs 7,680 million)

1. Locomotives and Rolling Stock (cost: Rs 3,292.5 million)

Planned construction in 1975/76 and 1976/77 of new locomotives androlling stock to enter service, including the re-engining of old locomotivesas well as the provision of diesel engines and alternators is detailed below:

(a) Locomotives

Diesel Electric LocomotivesBG - Mainline 163MG - Mainline 24Re-engining of 40 Alco LocomotivesDiesel Engines and Alternators (7 sets)

Diesel Hydraulic LocomotivesBG - Shunter 21NG - Mainline 20

Electric LocomotivesACMT 102AC/DC 8DC 12

Total Locomotives 350

(b) Electric Multiple Units (EMU's)

BG DC 171BG AC 100MG AC 40

Total EMU's 311

(c) Coaches

BG 1,092MG 394NG 50

Total Coaches 1,536

ANNEX 9Page 2

(d) Wagons (four-wheeler equivalent)

BG 17,650MG 2,700NG 150

20,500

2. Workshops and Sheds (cost: Rs 355.4 million)

This consists of 29 schemes, of which 21 are ongoing and theremaining 8 new. Of the 29 schemes, 19 are expected to be completed by1978/79 (5 to be completed during the Project period).

(a) Locomotives

Diesel LocomotivesCylinder Liner Reclamation Shops 1BG POH Shops 1

BG Sheds 6MG Sheds 3

Electric LocmotivesTraction Motor Rewinding Shops 1BG POH Shops 2Sheds (BG) 2

Total Locomotives 16

(b) Electric Multiple Units (EMU's)

BG POH Shop 2BG Sheds 4

Total EMU's 6

(c) Coaches

MG POH Shops 1

(d) Wagons

Vacumm Testing Facilities 1BG POH Shops 5

Total Wagons 6

ANNEX 9Page 3

3. Plant and Machinery (cost: Rs 152.7 million)

This consists of various types of plant and machinery for moder-nization of workshops and sheds. It also includes machinery and equipmentrequired for a wheel plant. Collaboration agreement for manufacture ofcasting wheel has been concluded with a USA firm. It is expected to becompleted in about five years.

4. Track Works, Bridges and Electrical Works (cost: Rs 2,094.9 million)

(a) Track Renewals (cost: Rs 669.9 million)

This includes rail renewals of 1,550 km on BG and 500 km on MG.New rails used are of 50 or 60 kg/m on BG and 30 or 38 kg/m on MG. In addi-tion, sleeper renewals over 2,700 km of tracks (BG plus MG, the breakdownnot available) are also included under this heading. About 50% of railrenewals mentioned above is on a complete track renewal (CTR) basis; thereplacement of rails and sleepers, the cleaning of ballast, and its replenish-ment are executed simultaneously.

(b) Bridge Works (cost: Rs 167.9 million)

This consists of 14 schemes, mostly on a replacement basis, whichare all ongoing; 13 on BG and only one on MG. Of the 14 schemes, 10 areexpected to be completed by 1978/79 (4 to be completed during the Projectperiod).

(c) Line Capacity Works (cost: Rs 1,173.5 million)

This consists of doubling, gauge conversion and yard remodelling,and is concentrated on the four sides and two diagonals of a grand rectanglelinking Delhi with Bombay, Madras and Calcutta, except for gauge conversion.

Doubling

There are 47 schemes, all on BG, 35 ongoing and theremaining 12 new. Of the 47 schemes, 34 are expectedto be completed by 1978/79 (27 to be completed duringthe Project period, covering a distance of 450 km).

Gauge Conversion

There are 8 schemes, all from MG to BG, 7 ongoing andonly one new. None of the 8 schemes are expected to becompleted by 1978/79, because of the long distance in-volved.

ANNEX 9Page 4

Yard Remodelling

There are 37 schemes, 32 on BG and 5 on MG, of which 20are ongoing and the remaining 17 new. Of the 37 schemes19 are expected to be completed by 1978/79 (10 to be com-pleted during the Project period).

(d) Other Electrical Works (cost: Rs 83.6 million)

This consists of the replacement of rotary convertors in tractionsub-stations and other works. There are 7 schemes, 5 ongoing and the re-maining 2 new. Of the 7 schemes, 5 are expected to be completed by 1978/79(2 to be completed during the Project period).

5. Signalling and Telecommunications (cost: Rs 285.7 mullion)

This consists of: (i) signalling and interlocking (16 schemes);(ii) microwave systems (16 schemes); and (iii) other communication systems(4 schemes). All are ongoing, except for one. Of the total of 36 schemes,all are expected to be completed by 1978/79, except for one (22 to be com-pleted during the Project period).

6. Electrification (cost: Rs 463.9 million)

This consists of 6 ongoing schemes, all on BG; 4 are on doubletrack lines and 2 are on single track lines. The following line sectionsare planned for electrification:

Expected to beDistance (lun) Completed

(a) Double Track Lines

Tundla - Delhi 260 1976/77Vijayawada - Gudur 292 1978/79Madras - Gudur 141 1978/79Madras - Tiruvallur 42 1978/79

(b) Single Track Lines

Panskura - Haldia 69 June 1975Waltai - Kirandul 471 1977/78

About 325 km are expected to be electrified during the Project period.

ANNEX 9Page 5

7. New Lines (cost: Rs 364.2 million)

This consists of 28 schemes, all ongoing except for one. Of the28 schemes, 20 are of BG and the remaining 8 of MG. About 300 km are ex-pected to be opened during the Project period.

8. Other Works. Services and Inventories (cost: Rs 463.4 million)

This includes improvements to railway passenger stations, mis-cellaneous works, capital contribution to the State Road Transport Corpora-tions for purposes of rail-road coordination, and special inventories.

9. Staff Welfare and Quarters (cost: Rs 207.3 million)

B. Spare Parts (Cost: US$31.6 million)

In addition to total investment expenditures, the Project includesa foreign excahnge content of spare parts necessary for maintenance oflocomotives and rolling stock, plant and machinery and other equipment fortracks, signalling and telecommunications facilities, and electrificationfacilities. Spare parts cost during the Project period is:

US$ million

(a) Locomotives

Diesel Electric Locomotives 15.0Diesel Hydraulic Locomotives 1.1Electric Locmotives 10.0Electric Multiple Units (EMU's) 1.0Coaches 1.0Wagons 2.0Plant and Machinery 0.5Track Equipment 0.4Signalling and Telecommunications 0.4Electrification 0.2

Total 31.6

Source: IR and mission estimate.

June 1975

ANNEX 10Page 1

INDIA

APPRAISAL OF A THIRTEENTH RAILWAY PR)JECT

Detailed Cost Estimate for Locomotives and Rolling Stock (Investment)

A. TOTAL COST Total Cost for 1975/76Unit Cost Number Amount

(Rs. thousand) (Rs.mi7llion)

I. LOCOMOTIVES

Diesel Electric LocomotivesBG-Mainline 3 305 z 63 208.2MG-Mainline 2,3301' x 4 9.3Re-engining and otherY 24.7

Diesel Hydraulic LocomotivesBG-Shunter 1,500' x 4 6.0NG-MAinline 1,500/ x 13 19.5

ElectricACMT 3,000 x 146 = 138.0AC/DC 3,900 x 3 11.7DC 2,810 x 7 19.7

Total Locomotives 1140 437.1

II. ELECTRIC MULTIPLE UNITS (EMU's)

BG DC 750 x 111 83.3

III. COACHES

BG 500 x 592 = 296.0MG 400 x 1144 = 57.6

736 353.6

IV. WAGONS (four-wheeler equivalent)

BG 64 x 5,250 = 336.oMG 28 x 700 19.6NG 25 x 50 1.3

Total Wagons 6,ooo 356.9

TOTAL 1,230.9

Probable Savings (-) 38.14GRAND rorAL 1,192.5

1/ Incorporating 20% sscalation in prices for either of two years 1975/76 and1976/77 (Base year: 19714/75).

2/ Including the re-engining of 12 Alco locomotives and the provision of dieselengines and alternators for 7 generating sets.

AI\rN!X 10f

Total Cost for 1976/77

Unit Cost Number Amount(Rs. thousand) (Rs. million)

I . LOCOMOTIVES

Diesel Electric Locomotives:BG-Mainline 3,305 1/ x 100 = 330.5I!G-Mainline 2,330 1/ x 20 46.6Re-engining 2/ 155.0

Diesel Hydraulic Locomotives;BG-Shunter 1,500 1/ x 17 = 25.5NG-IMainline 1,500 / x 7 = 10.5

Electric:ACMT 3,000 x 56 168.0AC/DC 3,990 x 5 = 19.5DC 2,810 x 5 14.1

Total Locomotives 210 769.7

II. E TRIC MULTIPLE UNITS (DI s)

B DC 750 x 60 = 45.033 AC 650 x 100 65.0143 AC 330 x 40 13.2

Total EM[J's 200 123.2

III. COACHES

BG 500 x 500 = 250.0M5G 400 x 250 = 100.0NG 100 x 50 = 5.0

Total Coaches 800 355.0

IV. WAGONS (four-wheeler equivalent)

BG 64 x 12,400 = 793.6MG 28 x 2,000 = 56.oNG 25 x 100 = 2.5

Total Wagons 14,500 852.1

TOTAL 2,100.0

1/ Incozporating 20% escalation in prices for either of twfo years 1975/76 and1976/77 (Base year: 1974/75).

2/ Including the re-engining of 28 Alco locomotives.

ANNEX 1 0Page i

B. Foreign Exchange Content

Foreign Exchange Content for 1975/76

Unit Cost Quantity Amount(US$) (US$ million)

I. LOCOMOTIVES

Diesel Electric Locomotives 85,000 67 nos. 5.70Re-engining of Alco Locomotives 100,000 12 nos. 1.20Diesel Engines and Alternators 1.00

Sub-Total Diesel Electric Locomotives 7.90

Diesel Hydraulic Locomotives 80,000 17 nos. 1.36Electric Locomotives 140,000 56 nos. 7.84

To tal Locomotives 17.10

II. ELECTRIC MULTIPLE UNITS (EUt's)

31,500 111 nos. 3.50

III. COACHES

7,070 736 nos. 5.20

IV. -WAGONS (four-wheeler eouivalent)

Wheelsets 1/ 700 2,400 sets 1.70Steel Plates 2/ Loo 11,000 tcns 4.40

Total 'dagons 6.1o

TOTAL 31.90

1/ One four-wheeler equivalent wagon requires 1.73 wheelsets and the indigenousproduction for wagon wheelsets is estimated at 8,000 sets per year.

2/ One four-wheeler equivalent wagon requires 4 tons of steel plates, of which1.85 tons are estimated to be imported.

ANNEX 10Page 4

Foreign Exchange Content for 1976/77

Unit Cost Quiantity Amount(US$) ((US$ million)

I. LOCOMOTIVES

Diesel Electric Locomotives 90,000 120 nos. 10.80Re-engining of Alco Locomotives 120,OOO 8 nos. 1.00Components Imported 50,000 20 nos. 1.00

Sub-total Diesel Electric Locomotives 12.80

Diesel Hydraulic Locomotives 90,000 24 nos. 2.20Electric Locomotives 155,000 66 nos. 10.20

Total Locomotives 25.20

II. ELECTRIC MULTIPLE UNITS (EMW's)

20, ooi'/ 200 nos. 4.oo

III. COACHES

7,500 800 nos. 6.CO

IV. WAGONS (four-wheeler equivalent)

'Wheelsets 700 17,000 sets 12.00Steel Plates- 400 20,000 tons 8.00

Total Wagons 20.00

TOTAL 55.20

1/ Lower than the 1975/76 unit cost, because of increases in the number of AC EMUTs,which do not require much of imported components.

2/ Imported steel plate requirements are estimated at 1.4 tons per four-wheelerequivalent wagon, anticipating increases in indigenous production.

Source: IR and mission estimate.

Jure 1975

lEMA

APPRAISAL OY A TIJRTEEWN RAL_WAY PS0ECT

scriotion of Materialsl Counents. and Ed.ionet to ba Procured from ProcNdof the Pronooed I& Credit

Value in Valu in TotelCtozor U$0 Million Ct-Eory U8S Million US$ Million

Aggivalent- gw~~~~~~~tmiwaleottniuot D .. riPti.. of Material. Comoonent.. ad EeuimenotEnuistl)nt (T) (W+Y)

IA. Copopnet. sd mterials lB.- O, pofents and sterialsrqoutred for the ifa- required for the _min_tor of: tesance ofs

1* Die l ocnotives 12.1 ) 181 Diese locomatives 5.1 ) 17.2 T trction "eipan, ganrators, co_ onnt for eSines Sd ohasein Ik. crek shafts,5 ) ~~~~~~~~~torbo-chargafe. ocopressors, eshkustors. pistoss. cylinder linew.. etc., 5 -type eamm-

5 ~~~~trl aquipmant, goveramrs. steel. wohel eNW alee, ate.

UA2 Electric locomotivs 7.4 ) 12 Electric loctives 3.0 ) 10.4 Tap-changer comnnt, trmction notor. and c_mpoants chareforr, coponents fortranseorenre, reeistances. r.lay., copomnt for silicon rectifiers. circuit brews,ger" nd pinion, liers., contactor cn ponnts for pentogrephs, stel, ubeals end

) ) ) ~~~~~~~~~~~~~~~~~~~~~~~1.8, ote.

LA3 Electric -Itipl. usit 5.8 ) 53.1 13 lectric ultiple anit 0.2 ) 8.5 6.0 ) 61.6 Co=ponts and mterials for tuction equipnt for mator coach. rollsr beiatel.ctro-pnssmati. brake equipmt, silent blocks. compomante for atr-blset circuitbreeker, copper haringsetoal plates and sheeto. forebeaost sheets. components forpentograph., whels and I.s. etc.

U4 Caches 8.7 D14 Coaches 0.1 ) 8.8 ) Roller bewrige, raw asbestos, stainless stel plates, coppr bearig steel plateand sheets, wheels eNd emle, aet.

LAS WUgons 19.1 ) 1D Wegon 0.1 ) 19.2 ) Stel plate*s nd oh-ts. whealeete, te.

2. Yqoipmt nd _terials for 12.0 12.0 Tif t_ars, track recording care. ultraeonic flw detector. sleepwr bandling ._d_ttrack works, bridge., ed ar-rsistant rails and accessories, high tensile stel for brids girds, rectifeaI ctrics or and aosociated units, testing equipment, tc.

3. Iquipmant for signlling andtelecon.ications 1.4 1.4 Point machines, rlays nd panels fo recta relay interlockinea cblae, rtardr, t

and engine devices for sutnetic train control, trnteecai.rs. at rwa chammoliag boother equipment for siromava relays. aet.

4. Equipment end mterialsfor .lectrification 4.2 4.2 Electrolytic copper vices, telsconicoltions cables and train coatrol qipnteshb-

station nd witching station equipnent, is-ulatorb, fittings, etc.

S. Plant and machinecy 3.3 3.3 Wheel lathes, hydraulic wheel pra.-.s, ultrasonic flaw detctors, mula -ew andberyishing lathes, hydraulic chain/dra gan tsting mjhins. drm out ahapers foneofactave of traction mtors, special porpoe boring machimms. jig boring machines,copying lathes for mchining of exles. comm_tator turning laths, bonig m_hine, etc.

6. Othb railmay equipment,coeponent and _mterials;technical gtrvima spprowdbyIDA 3.0 3.0 Research and delopnt eqipment, training eqipment, hospital equip tet. and

ngchnical servicas (0882.2 nillion equivalent); componets md matezdals reqniwwd femthe neimtenenc of track equipment. simnalling, end teleco-nwcation equipamet, elee-tr-ification quIpment, and plant and mahinery (US$ 0.6 aillion squivalan).

7. on-ferroe matale 4.5 4.5 Tin, Id, etc.

6A. It_ pztcord dor licensa RB. lt_ proeurd under licenseor for staddiation r- or for stadardistion re-quired for te nuoufacture of: quired for the dint_eanca of*

Mil Diesl lowotivee 8,1 ) 83 So ieol loeootiveS 4.9 ) 13.0 Retifies, ontl equipumnt, crmnk shafts, cylinder heed catings, torbo-ebrgors,comprnessos fuel booster p-mps, pistons. rotor -a-elies. etc..

MS Electric loenowtiwes 5.4 ) 13.7 S2 Eletric locometiwvs 1.3 ) 6.3 6.7 20.0 Tsp-changers, air-blast circuit breakers traction mtor componp nte, owitdthgse,5 5 5 ~~~~~~~~~~~~~~~~~~~~~~transformers, rectifiers, gear and pinion.. braek eqededant. cowrsorw", eta.

84A3 iletric mltiple -nits 0.2 8 8B3 Electric e.Itipl units 0.1 ) 0.3 ) Mainly traetion end brake quipnt.

TOTAL 110.0

-~~~~~

Dii: In Shebdule I of the Cedit Aareat for the propond Credit, IU and Is Have be n coined to tors a 0tngL1 e1rngory I,; TI .r.y.-

ft and BB frr a single ctegoy S.

July 1975

ANPT7J( 12

INDIA

APPRAISAL OF A THIRTETH RAILWAY PROJECT

Estimated Schedule of Disbursements

IDA Fiscal Year Cumulative Disbursementsand Quarter at the End of Quarter

(US$ million equivalent)

1975/76

September 30, 1975 10.0

December 31, 1975 1500

March 31, 1976 30.8

June 30, 1976 50.0

1976/77

September 30, 1976 70.0

December 31, 1976 90.0

March 31, 1977 110.0

Principal Assumptions:

Effective date of Credit: Not later than August 31, 1975.

June 1 975

ANNEX 13Page

INDIA

APPRAISAL OF A THIRTEENTH RAILWAY PROJECT

Economic Evaluation

A. IR's 1974/75-1978/79 Investment Program

1. IR's 1974/75-1978/79 investment program was examined in detailon the basis of revised traffic forecasts (Annex 1 and Tables 17 and 18).The examination indicates that it would be reasonable to maintain theoriginal investment outlay of Rs. 23.5 billion (US$3.0 billion equivalent)(Table 7) unchanged, although the freight traffic forecasts have been sub-stantially reduced from about 280 million tons to about 250 million tons(of which 230 million tons revenue earning) to be carried in 1978/79 (Annex 1).The main reason for this conclusion has been the price development. Theoriginal investment program was based on 1972/73 prices, by 1974/75 they hadalready increased by 35%. A further annual increase of about 10% is tobe expected for the remaining four years of the investment period. On thisbasis, the original outlay of Rs. 23.5 billion is reduced to about Rs. 14.0billion (US$1.8 billion equivalent) in real terms (Table 7). After deduct-ing investments in necessary replacements of Rs. 7.5 billion (US$0.95 bil-lion equivalent), the resources available for investments in additionalcapacity would be about Rs. 6.5 billion (US$0.825 billion equivalent) in realterms, as compared with the Rs. 16.0 billion (US$2.0 billion equivalent)originally allocated, or about 40% of the original program. This combinedwith improved wagon utilization, as outlined in Annex 7, will enable therailways to meet an anticipated traffic demand of about 250 million tonsof freight (161.5 billion ton-km) and about 3.0 billion passengers (159.5 bil-lion pass-km) in 1978/79 (Annex 1), corresponding to an annual growth of3.4% for freight for passenger traffic. Originally the railways was targetedto carry about 280 million tons of freight (190 billion ton-km in 1978/79),while the present freight carrying capacity is estimated at about 220 milliontons (about 145 billion ton-km). Therefore, the additional capacity to be

created by 1978/79 is about 30 million tons, or about 50% of the originalproposal of 60 million tons.

B. Evaluation of Railway Investment

2. A review of IR's techno-economic survey procedures is given inAnnex 7. IR has instituted techno-economic surveys to estimate the finan-cial return on capital for projects costing Rs. 2.0 million (US$250,000)or more by use of discounted cash flow (DCF) techniques. These surveyscover technical aspects as well and are similar to those undertaken byprivate industry in calculating the future profitability of planned in-vestments. Although further refinements can be introduced, the techno-economic surveys appear to reflect relatively well the financial returnof the projects. On the basis of a sample of projects which represent

ANNEX 13Page 2

about 30% of the total investment value of Rs. 12.1 billion (US$1.5 bil-lion) of all major projects costing Rs. 5.0 million (US8650,000) or morenow in progress or to be initiated during the project period 1975/76-1976/77, this return appears to vary between 10% and 25%. The averagefinancial return appears to be about 15%. There are, however, some proj-ects for which the return is less than the 10% minimum normally requiredto sanction a project. The investment value of these projects, whichmainly represents new lines and gauge conversion schemes in less devel-oped areas, is about 5% of the total investment program. They havebeen included for developmental reasons by the Government to help theleast developed segment of the population and in order to create employ-ment opportunities. Including these projects, the average financial re-turn is reduced to about 12%.

3. The techno-economic project studies are supplemented for majornew projects, such as electrification schemes, new lines and gauge con-version projects, by economic studies undertaken by the Economic Unit inthe Railway Board. These studies use to large extent some basic data asthe techno-economic studies, but make an attempt to assess the economicfeasibility of projects from the viewpoint of the national economy.These attempts have not been altogether successful because the EconomicUnit has not been in the position to participate in the formulation oftechno-economic studies and because it in respect of traffic forecastshas been obliged to use the overall framework established by the PlanningCommission. Both these problems have been gradually alleviated throughIR's corporate planning exercise and by changing the position of theEconomic Unit.

4. Although it is the view of the appraisal mission that most of theprojects sanctioned by the Railway Board --- either on the basis of techno-economic or economic studies --- are feasible and provide a return exceed-ing 10% on the investments, no overall estimate on the relative economicsof the railways as compared with alternative modes of transport has beendeveloped in the past. Such an estimate does not, of course, justify theindividual projects. It does, however, provide useful measure of theadditional cost to the economy if no investments were to be undertaken in therailways and any increases in traffic had to be carried by other modes oftransport. The following evaluation has been based on work done by theEconomic Unit in the Railway Board.

C. Overall Economic Rate of Return on Railway Investments

5. Three basic alternative approaches to railway investment policymight be considered:

(a) undertake the revised 1974175-1978/79 investmentprogram as presented in this report to meet theanticipated traffic demand;

ANN X 13Page 3

(b) undertake investments in essential replacementsonly, while any traffic increase exceeding thepresent capacity has to be catered for by alter-native modes of transport; and

(c) no railway investments are undertaken during the5-year period 1974/75-1978/79.

6. The implications of these alternative policies are:

(a) the implementation of the investment program willenable the railways to carry the projected trafficvolumes of 250 million tons of freight (166.6 bil-lion net ton-km) and 3.0 billion passengers (159.5billion pass-km); the railways operating costs haveconservatively been assumed to remain unchanged inconstant prices;

(b) investments in essential replacements only wouldenable the railways to meet the traffic demand upto its present capacity, which is estimated at 220million tons of freight (145.6 billion net ton-km)and 2.7 billion passengers (135.6 billion pass-km);any additional traffic would have to be catered forby an alternative mode of transport; operating costshave been assumed to remain unchanged in constantprices; and

(c) the "no investment" alternative (even in replace-ments) would result in a decline in the railwayscapacity by 1978/79 to 200 million tons of freight(132 billion net ton-km) and 2.3 billion passengers(115 billion pass-km); any additional traffic volumeswould have to be handled by alternative modes of trans-port; at the same time the railways operating costshave been assumed to increase by 3% a year.

7. Alternatives (b) and (c) have been compared with (a) on the basisof economic costs by assuming that the traffic exceeding the rail capacityhas to be catered for by road transport. For alternative (b) this volumerepresents 30 million tons of freight (21 billion ton-km) and 300 millionpassengers (24 billion pass-km) and for alternative (c) 50 million tons offreight (34.6 billion ton-km) and 700 million passengers (44.5 billionpass-km). In the latter case, the reduction in capacity has mainly beenbased on a gradual attrition of rolling stock resulting from scrapping ofover-aged or otherways unrepairable locomotives, wagons and coaches.

8. The results of the comparison are shown in Table 19 and the basisfor the calculations in Attachment 1. The results indicate that economicrate of return would be about 24%, if the "no rail investment" alternative

ANNEX 13Page 4

(c) is compared with alternative (b), in which IR investments are limited

to essential replacements (Rs. 7.5 billion), while the traffic exceeding

the present capacity of 145.6 billion ton-km and 135.6 billion pass-km has

to be carried by road. The major part of benefits are obtained from lower

transport costs for alternative (b) over the economic life of 20 years and

avoidance of continuous investments in roads and road transport to meet rail

transport volumes of 24 billion ton-km and 21 billion pass-km which have to

be diverted to road transport in alternative (c). Due to a gradual deteri-

oration in IR's rolling stock and infrastructure and an increased share

of road transport in case of alternative (c), average transport cost per

traffic unit (ton or pass-km) would increase to Paise 6.3 (USd0.8 equiv-

alent) over a period of 20 years while the cost for alternative (b) would

remain at Paise 3.9 (USd0.5 equivalent).

9. A comparison of alternative (b) with alternative (a) indicates

that the economic rate of return would be about 17% for increasing the

investment from replacements only (Rs. 7.5 billion) to include also in-

vestments (Rs. 16.0 billion) to cater for additional traffic as proposed

in this report. Such increase in rail investments may therefore be con-

sidered justified as the marginal rate of return is close to, but above,

the opportunity cost of capital in India (assumed to be about 15%). The

main benefits are obtained from a further reduction in operating costs

by about 12% to Paise 3.4 (USe 0.4 equivalent), as all of the expected

traffic increase would be carried by the railways.

10. The economic rate of return for the whole IR 1974/75-1978/80 in-

vestment program of Rs. 23.5 billion has been estimated at about 20% as

indicated in Table 19, on the basis of comparison of alternatives (a) and

(C). This return represents the weighted average return for the two cases

discussed in paras. 8 and 9 above, i.e., (i) increasing the rail investments

from nothing (alternative (c)) to Rs. 7.5 billion to meet necessary replace-

ments (alternative (b)) giving an economic rate of return of about 24'%; and

(ii) increasing rail investments from Rs. 7.5 billion to Rs. 23.5 billion

to cater in full for IR's investment program for 1974/75-1978/79 (alterna-

tive (a)), giving an economic rate of return of about 17%. It is important

to note that the return on IR's full investment prograns may have been

underestimated to some extent, because not all of IR's investments relate

to railway transport. Part of the investments are undertaken in staff

quarters, staff welfare, users' amenities, etc. (Table 7). Also, the cost

differences between rail and road transport were deflated to some extent

because the road transport costs were based on efficient road transport,

with full utilization of a modern fleet, while the rail transport costs

were based on IR's average operating efficiency during early 1970's. The

1974/75-1978/79 investment program is based on a slightly improved opera-

tional efficiency.

June 1975

ANNEX 13Attachment iPage 1

INDIA

APPRAISAL OF A THIRTEENTH RAILWAY PROJECT

Details of Economic Evaluation

A. Traffic

1. The economic evaluation has been undertaken for three alternatives,each of them relating to the same total traffic volume, but carried in vary-ing proportions by rail or road. According to the forecast, the total traf-fic has been assumed at 250 million tons of freight (166.6 billion net ton-km) and 3.0 billion passengers (159.5 billion pass-km) to be carried by theend of the Fifth Five-Year Plan period in 1978/79.

B. Alternatives

2. IR's investment program 1974/75-1978/79 is defined as alternative(a) and implies an investment of Rs. 23.5 billion, including Rs. 7.5 bil-lion for necessary replacements during the 5-year period. This alternativewill meet the forecast traffic volume in full.

3. Alternative (b) is defined to include investments in IR's neces-sary replacements only (Rs. 7.5 billion). This alternative would implythat IR's existing capacity would remain unchanged during the 5-year period.This capacity has been assessed by IR and the mission at 220 million tonsof freight (146 billion net ton-km) and 2.6 billion passengers (136 billionpass-km). According to this alternative, the railways would be able to meetan increase in traffic up to this level (according to forecast, at about theend of the project period in 1976/77). The expected increase during thelast two years of the investment period, 30 million tons of freight (21 bil-lion net ton-km) and 400 million passengers (24.5 billion pass-km), wouldhave to be catered for by road transport.

4. Alternative (c), would imply no investments in the railways, andrepresents thus the "without" case. According to this alternative IR wouldbe able to meet the increase in traffic up to the level of the existingcapacity as in alternative (b) and maintain this traffic level up to theend of the investment period in 1978/79. Thereafter, however, the capac-ity would gradually decrease to 200 million tons of freight (132 billionnet ton-km) and 2.3 billion passengers (115 billion pass-km) by 1999/2000,due to gradual scrapping of rolling stock and deterioaration of the infra-structure. In reality, the deterioration may be even more rapid, but aconservative approach has been chosen for this evaluation. This alterna-tive would thus imply that by 1979/80 about 30 million tons of freight

ANNEX 13Attachment 1Page 2

(21 billion net ton-km) and 400 million passengers (24.5 billion pass-km)would be carried by road, increasing gradually to 50 million tons of freight(34.6 billion net ton-km) and 700 million passengers (44.5 billion pass-km)by 1999/2000.

C. Evaluation Period

5. The evaluation period has been selected as the 25-year period1974/75 to 1999/2000, of which the 20 years 1979/80-1999/2000 representsthe project life and the first 5 years the initial investment period.Because of the effect of the discounting factor it does not serve anypractical purpose to extend the evaluation period further.

D. Investment Costs

6. The unit investment costs for railways are as indicated in Annex 10excluding, however, price contingencies for investments undertaken after1975/76.

7. The investment costs for road transport have been estimated asfollows:

Trucks

- Purchase price Rs. 84,000 (including taxes)

Rs. 50,000 (excluding taxes)

- Load capacity 10 tons, load factor 75%,average load per trip 7.5 tons

- Annual performance 65,000 km or about 500,000net ton-km

Buses

- Purchase price Rs. 134,000 (including taxes)

Rs. 80,000 (excluding taxes)

- Seating capacity 54 passengers, load factor 75%,average number of passengers 40.5 per trip

- Annual performance 75,000 km or about 3.0 millionpass-km

ANNEX 13Attachment iPage 3

Roads

- Construction cost of a 2-lane paved road aboutRs. 1.0 million per km

- Capacity utilization 2000 vehicles per day,implying for trucks:

7.5 x 2000 x 365 = 5.5 millin net ton-km/year

and for buses:

40.5 x 2000 x 365 = 29.5 million pass-km/year

Both these estimates are intentionally based onintensive road utilization to arrive at conservs-> v.eestimates in respect of the economic feasi.:,. ty ut.srail investments.

E. Total Investment Requirements

8. For railways the investment requirements are as presented in theappraisal report.

9. For road transport the investment requirements have been cal-culated as follows:

(i) Alternative (b)

Trucks

To carry 21 billion net ton-km by 1978/79, about 40,000trucks would be required (each with an average annualperformance of 500,000 net ton-km). This would involvean investment of about Rs. 2.0 billion (Rs. 50,000 pertruck in economic costs) which has been assumed to bedistributed over the three years 1976/77-1978/79.

Buses

To carry 24.5 billion pass-km by 1978/79, about 8,000buses would be required (each with an average annualperformance of 3.0 million pass-km). This would involvean investment of about Rs. 640 million (Rs. 80,000 ineconomic cost per bus). As for trucks, this investmenthas been assumed to be distributed over the three years1976/77-1978/79.

ANNEX 13Attachment 1Page 4

It has been assumed that both trucks and buses have aneconomic life of ten years requiring similar investmentsin 1987/88-1989/90 and 1997/98-1999/2000.

Roads

The investment requirement in roads has been calculatedby estimating how many kilometers of road would be re-quired to carry the 21 billion net ton-km and the 24.5billion pass-km by using the very high road utilizationratios in para. 7. For freight traffic this wouldimply about 3800 km of road (5.5 million net ton-kmper km of road per year) and for passenger traffic about800 km of road (29.5 million pass-km per km of road peryear). Together this would represent an investment ofRs. 4.6 billion, which has been distributed over the3-years 1976/77-1978/79. It can safely be said that theinvestment could easily be as high as Rs. 6.0 billionwith a realistic utilization of a 2-lane highway of1250 heavy vehicles per day.

(ii) Alternative (c)

The initial investment in trucks, buses and road infra-structure would be as for alternative (b) above. However,additional investments would be required from 1979/80to meet the increased demand for road transport result-ing from the gradual diversion of rail transport to roadduring the period 1979/80-1999/2000. In average thisdiversion would be 1 million tons of freight (680 mil-lion net ton-km) and 20 million passengers (1.0 bil-lion pass-km) a year. This would require the followingadditional annual investments:

Trucks

About 1350 additional trucks per year (680 million netton-km, 0.5 million per truck) at a total annual invest-ment of Rs. 67.5 million.

Buses

About 330 additional buses per year (1.0 billion pass-km,3.0 million pass-km per bus) at a total annual investmentof Rs. 26.5 million.

Roads

About 190 km of road required per year at an investmentof Rs. 190 million.

ANNEX 13Attachment 1Page 5

The total additional annual investment would thereforebe about Rs. 280 million to cater for the traffic di-verted gradually from rail to road. For trucks andbuses there would be a doubting of the additional in-vestment after 10 years to meet replacement require-ments.

F. Operating Costs

10. According to IR, the operating costs for railways are as follows:

Financial Cost Economic Cost

Freight, ton-km Paise 4.48 Paise 4.28

Pasengers, pass-km Paise 2.69 Paise 2.57

The difference between financial and economic cost is small because the taxelement is insignificant and has been decreasing in recent years (tax ondiesel oil was substantially reduced in 1974 after the increase in importcosts of crude oil).

11. The operating costs for trucks and buses have been established onthe following basis:

Trucks

- Fuel consumption 40 liters per 100 km

- Fuel cost Rs. 1,000 per kilo-liter (financial)Rs. 680 per kilo-liter (economic)

- Fuel cost per km Rs. 0.40 (financial)Rs. 0.27 (economic)

- Wages, insurance, etc. per truck a year Rs. 21,000per km Rs. 0.31 (financial)

Rs. 0.26 (economic)

- Repair, maintenance and other expensesper km Rs. 0.31 (financial)

Rs. 0.23 (economic)

Total operating costs per km Rs. 1.02 (financial)Rs. 0.76 (economic)

Operating costs per ton-km Rs. 0.136 (financial)Rs. 0.101 (economic)

ANNEX 13Attachment IPage 6

Buses

- Fuel consumption 40 liters per 100 km

- Fuel cost as above for trucks

- Wages, insurance, etc. per bus a year Rs. 70,200per km Rs. 0.94 (financial)

Rs. 0.82 (economic)

- Repair, maintenance and other expensesper km Rs. 0.48 (financial)

Rs. 0.38 (economic)

Total operating costs per km Rs. 1.82 (financial)Rs. 1.47 (economic)

Operating costs per pass-km Rs. 0.0449 (financial)Rs. 0.0362 (economic)

12. Road maintenance costs have been assumed to be about Rs. 9,500per km with the very high road utilization ratios. For alternative (c)they have been assumed to increase in relation to the additional roadlength required for each year.

G. Concluding Remarks

13. The following additional remarks may be required for full under-standing of the calculations presented in Table 19.

(i) For alternative (a), the operating costs have beenobtained by multiplying the economic cost separatelyfor ton-km and for pass-km with the total volume ofrail traffic in 1978/79 (166.5 billion net ton-km and159.5 billion passOkm). The total operating costs havebeen kept constant for the whole period 1979/80-1999/2000as no change have been assumed to take place in the unitcosts and as the evaluation relates to the rail trafficin 1978/79.

(ii) A similar exercise has been undertaken for alternative (b)except assuming that the rail traffic will be limited tothe existing capacity (146.5 billion net ton-km and 136billion pass-km); the remaining portion of the traffic(21 billion net ton-km and 24.5 billion pass-km) has beenassumed to be carried by road at the economic cost inpara. 10 (Paise 10 per net ton-km and Paise 3.62 forpass-km).

ANNEX 13Attachment 1Page 7

(iii) For alternative (c), the operating costs for 1979/80 havebeen calculated on the same basis as for alternative (b).However, for each subsequent year, the rail transportcosts have been calculated by applying a 3% annualincrease in the unit ton-km and pass-km costs, to agradually decreasing rail transport volume (annual de-crease 680 million ton-km and 1.0 billion pass-km): theroad transport volume has been increased correspondinglyfor each year.

(iv) The economic rates of return for the alternatives havebeen calculated on a marginal basis, i.e., by calculatingthe return on the difference in investment costs betweenthe alternatives on the basis of the difference in annualoperating and maintenance costs.

TA3LE I

INDIA

APPRAISAL OF A THIRTEENTH RAILWAY PROJiCT

Allocation of Public Investments by Modes of Transport,Fourth (1969/70-1973/74 and Fifth Plans (1974/75-1978/79)

Fourth Plan Draft Fifth Plan 31Transport Sub-sector 1969/70-1973/74, Actual 1974/75-1978/?9

Rs. billion X Rs. billion X

Rai lways 14.2 46.1 23.5 42.9

Highways and Road Transport 9.7 31.5 18.0 32,8

Ports, Inland Waterways 2.6 8.4 2.5 4.6

Shipping 2.4 7.8 2.3 4.2

Aviation, Airports 1.9 6.2 2.5 4.6

Pipelines 1/ 1/

Metropolitan Area (Transport) 2/ 6.o 10.g

Total for Transport 30.8 100.0 _54.8 100.0

Total Plan 167.7- 354.0

j/ Included under the Industrial Sector.

/ Metropolitan Area Transport Systems were in the Fourth Plan included in theinvestment programs for rails and highways.

3/ Subject to revision during reappraisal of Draft Fifth Plane

May 1975

TABLE 2

INDIA

APPRAISAL OF A THIRTEENTH RAILWAY PROJECT

Inventory of Tracks

As of March 31, 1974

Route-km Double-tracked ElectrifiedRoute-km Route-km

BG 30,210 11,832 4,o25

MG 25,548 472 166

NG 4,476 - _

Total 60,234 12,304 4,191

Track-km

Ranning Trans- Marshal- Coach- Work- CommercialTrack porta- ling ing shops Sidings Total

tion Yards Yards andSidings Sheds

BG 42,756 9,398 3,283 476 1,849 3,460 61,222

MG 26,873 4,312 708 206 896 1,872 34,867

NG 4,475 344 6 6 65 127 5,023

Total 74,104 14,054 3,997 688 2,810 5,459 101,112

Source: IRTs Statistical Statements 1973/74

May 1975

INDIk

APPRAISAL OF A THIRTEENTH RAILWAY PROJECT

Inventory of Notive Power and Rolling Stock (Actual Numbers}

BG Lines

Steam Diesel Electric Diesel Electricd Passenger FreightNumbers as of March 31. 1974 Loco- Locomotives Locomo- Rail- Nultiple Coaches Wagons

motives Mainline Shunter *tives cars Units

Total in fleet 5,302 908 216 649 26 1,721 18,927 289,94&21

Less than 17 years 1,942team Bet. 18 and 40 years 2,580

Over 41 years 780

Less thn 10 years 580 166 2.5.I Bet. 10 and 20 years 328 37 22

Bet. 21 and 30 years - 13 1Over 31 years - - I

Less than 10 years 436 1,262lectric Bet. 10 and 20 years 183 404

Bet. 21 and 30 years 63Over 31 years 30

Age Less than 10 years 7,444Passenger Bet. 11 and 20 years 7,348

Coach Bet. 21 and 30 years 1,862Over 31 years 2,273

Less than 14 years 138,965Freight Bet. 15 and 40 years 138,927Wagon Bet. 41 and 45 years 4,531

Over 46 years 7,523

Less than 17 tone 590Carrying Bet. 18 and 24 tons 208,721

capacity Bet. 25 and 37 tons 8,187of Over 37 tons 38,850

freight Special wagons 21,825wagons Brake vans 6,607

Departmental wagons 5,166

1/ Figures are arrived at by reckoning each vehicle as one numr, irrespective of the size of electric multiple units.2/ In four-wheeler terms, 289,946 actual numbers correspond to 385,524 four-vheelers equivalent.

Source: IR

May 1975

MG Lines

Steam Diesel Electric Diesel Electric-/ Passenger FreightNumbers as of March 31, 1974 Loco- Locomotives Locomo- Rail- Multiple Coaches Wagons

motives Mainline Shunter tives cars Units

,Total in fleet 3,154 359 10 20 45 171 13,913 92,5452/

Less than 17 years 1,338Steam Bet. 18 and 40 years 1,448

Over 41 years 368

Less than 10 years 277 2 11Diesel Bet. 10 and 20 years 82 - 23

Bet. 21 and 30 years - 7 7Over 31 years - 1 4

Less than 10years 20 171Electric Bet. 10 and 20 years

Bet. 21 and 30 yearsOver 31 years -

Age Less than 10 years 4,980Passenger Bet. 11 and 20 years 5,490Coach Bet. 21 and 30 years 1,543

Over 31 years 1,900

Less than 14 years 25,552Freight Bet. 15 and 40 years 56,529Wagon Bet. 41 and 45 years 3,255

Over 46 years 7,209

Less than 10 tone 9,106Carrying Bet. 11 and 15 tons 28,177capacity Bet. 16 and 20 tons 32,628

of Over 21 tons 14,603freight Special wagons 3,891wagons Brake vans 2,220

Departmental wagons 1,918

NOTE: / Figures are arrived at by reckoning each vehicle as one number, irrespective of the size of electric multiple units./ In four-wheeler terms, 92,545 actual numbers correspond to 119,110 four-wheelers equivalent.

Source: IR

May 1975 w

NC Lines

Steam Diesel Electric Diesel Electric Passenger FreightNUmbers as of March 31, 1974 Loco- Locomotives Locomo- Rail- Multiple Coaches Wagons

motives Mainline Shunter tive cars Units

Total in fleet 386 39 _ 19 _ 1,613 5,5351

Less than 17 years 16Steam Bet. 18 and 40 years 127

Over 41 years 243

Less than 10 years 31 -Diesel Bet. 10 and 20 years 8

Bet. 21 and 30 years - - 1Over 31 years - - 18

* Less than 10 yearsElectric Bet. 10 and 20 years

Bet. 21 and 30 yearsOver 31 years

Age ,_______

Less than 10 years 215Passenger Bet. 11 and 20 years *79Coach Bet. 21 and 30 years S3

Over 30 years 6b

Less than 14 years 946Freight Bet. 15 and 40 years 1,022Wagon Bet. 41 and 45 years 405

Over 46 years 3,162

NOTe: 1/ In four-wheeler terms, 5,535 actual numbers correspond to 9,581 four-wheelers equivalent.

Source: IR

May 1975

I NDIA

APPRAISAL OF A IHIRTEENRH RAILWAY PROJECT

Production Proeram of Locomotives and Rolling Stock UnderIR's Investment Program 1974/75-1978/79

Manufacturing Type of Stock Production Program in Numbercapacity idi 1974/75 1975/76 1976/77 1977/78 1978/79 Total

Manufacturer Number per Year

IR's Diesel Locomotive Diesel Electric LocomotivesWorks, Varanasi 150 BG mainline 80 63 100 110 117 470

NG mainline 15 4 20 30 31 100

Diesel Hydraulic LocomotivesIR's Chittaranjan so NG mainline - 13 7 - - 20Locomotive Works BG shunter 23 4 17 24 32 100

80 Electric Locomotives 46 56 66 66 66 300

Total Locomotives 164 140 210 230 246 990

IR's Integral Passenger VehicleCoach Factory, Coaches 859 736 800 1,000 1,205 4,600Madras 750 Electric Multiple

_________________________ ____ _ _ Units (EMU's) 201 l11 200 250 28H 1,050

Bharat Earth Movers,Bangalore (Public) 350

Jessop, Calcutta 300(Public)

Wagons (four-whieeler equivalent)IR's Workshop (Supplemental)

11,500 6,000 14,500 18,000 21,000 71,000

11 PrivateWagonBuilders 27,000

Source: IR and its Year Book 1973/74

May 1975

APPRAISAL OF A THIRTEENTH RAILWAY PROJECT

Su=ary of Operatinx Statisticn:

Broad Gauge Meter Gsuge

1969/70 1970/71 1971/72 1972/73 1073374 1_7374_ 1974/75 1969/70 1970/71 1971/72 1972/73 1973/74 A3pl 74 ecember

1. Percentage of serviceablelocomotives (t.)

- Steams 86 85 86 86 86 88 84 87 87 87 86 86 86 85- Diesel a8 86 86 85 84 84 82 89 87 88 90 88 88 86- Electric 83 79 81 80 81 80 78 93 92 90 87 88 89 89

2. Percentage of serviceablepas.eoger vehicles (%.) 87 86 87 87 87 87 84 88 88 89 89 88 89 87

3. Percentage of serviceablewagon. (7) 96 95 96 96 96 96 96 96 95 96 96 95 95 95

4. Engine - Km per day perengine in se (be,)

- Passenger- Stean 253 250 254 243 238 241 234 229 228 227 217 214 216 204- Diesel 670 669 665 669 694 698 ~653 446 383 390 454 561 548 564- Electric 416 437 437 432 408 410 '396 374 376 382 379 375 375 362

- Freight- Steen 123 121 119 114 108 108 110 137 133 132 130 118 119 116- Diesel 356 347 343 329 307 309 309 283 280 272 273 259 256 268- Electric 340 316 308 306 272 276 287 254 245 247 254 248 251 232

5. Groso.trailing load perfreight train (ton) 1,396 1,407 1,418 1,439 1,428 1,524 1,530 634 653 668 683 685 688 697

6. Net tonnage per freighttrain (ton) 721 737 748 763 745 854 858 362 378 391 403 408 426 433

7. Wagon - i5n per day perwagon in use (kn) 76 73 74 74 67 68 68 60 58 59 60 51 51 53

8. Percentage of passengertrain$ arriving on time (%.) 85 82 82 86 79 81 72 86 87 91 90 84 84 85

9. AveraSe wagon load (ton) 17.9 17.9 17.9 18.1 17.9 20.6 20.6 11.8 12.1 12.5 12.4 12.7 13.4 13.6

10. Nat ton-. per year perwagon in use (ton-Io) (000) 334 331 341 348 313 354 357 191 191 197 204 176 186 194

11. Net ton-Io per year per tonof wagon capacity (ton-bk)(000) n.a. 15 16 16 14 n,a. n.a. n.e. n.e. n.a. n.e. n.a. n.e. n.a.

12. Average speed of allfreight traina (ba/h)

- Stean 12 12 12 12 12 12 12 14 13 13 13 13 13 13- Diesel 23 23 23 22 22 22 22 19 19 18 19 19 19 19- Electric 26 25 24 24 23 23 22 19 19 19 19 21 21 23- All traction 18 18 18 18 18 18 19 15 15 15 15 16 15 15

13. Average lead of a tonof fretght (kn) 585 615 641 643 631 680-/ 697_1 409 422 447 469 462 2/ 2/

14. Wagon turn-around (day) 12.7 13.3 13.5 13.5 15.0 14.8 15.3 9.4 10.1 10.6 10.8 12.5 12.7 12.6

i/ Wagons are based on a standord 4-wheeler equivalent; 22 tons for BG and 14.6 tons for MG.3/ For a11 geugee; gauge-vise figores are not available.

Source: IR

May 1975

TABLE r

I NDiA

APPRAISAL OF A THIRTEENTH RAILWAY PROJECT

IR Qpervtion1l Performance Compared with EuroSan Railwaysof Similar bize

1/ ~~~~~~~2/ 3/

IR Broad Gauge Lines- Ger_an Federal RWlNv- French National Railvays-

Total route length (route-km) 30,210 29,230* 34,812

Percentage of m.lti-tracked route-km (X) 39 42* 45*

Percentage of electrified route-km (7.) 13 33 27

Traffic- Passenger carried (million persons) 2,071 1,028 620- Passenger-kn (mcillion pass-ko) 101,533 40,718 44,700- Average dintance of passengers (k.) 49 40 72- Freight tons carried (million tons) 164 356 258

- Freight ton-ko (million ton-km) 103,431 68.360 73,900- Average haul of a ton (km) 631 192 286

Fle-t size- Steam loco1 otives (nos.) 5,302 829 17- Diesel loconotives (nos.) 1,124 4,566 3,558- Electric locomotives (nos.) 649 2,505 2,183- Diesel rs learn ;Wn..) 26 922 978- Electric railcars (noa.) 1,721 1,118 647- Passenger coaches (nos.) 18,927 25,478* 13,968- Freight wagons (ws.) 289,946 327,078* 301,900

Per_antage of serviceable locomotives (2)- Steam 86 84* 86*- Diesel 84 n.a. n.a.- Electric 81 94 * 92

Percentage of serviceable passenger vehicles (2) 87 n.a. n.a.

Percentage of serviceable wagons (7.) 96 95 * 95*

Engine.lon per day per serviceable engine (km)- Steam 130 166 156*- Diesel 322 224 238*- Blectric 285 477 447*

Gross trailing load per freight train (tons) 1,428 895* 872*

Net ton-knm per year per ton of wagoncapacity (thousand tom-k.) 14 7* 7

Wagno turoround (days) 15 8* 12*

Namber of emeployees (thousand Persons) 1,118 405 283

Traffic unit4/ per year per employee (thousand UDite) 183 269 419

1/ IR Statistical Statements 1973-74; 1R Year Book 1973-74.2/ Geroan Federal Railway's Annual Report 1973.3/ French. National Railways' Annual Report 1973.* UlC Year Book 1972.4/ Passenger-klo plus net ton-kn.

May 1975

I NDiA

APPRAISAL OF A THIRTEENrH RAILWAY PROJECT

IR's Investment Program 1974/75-1978179

-- - - - - - - - - - - - - - - - - - - - - - - - - - - - -(Re in million)- - - - - - - - - - - - - - - - - - - - - -

Plan Head 1974/75 1975/76 1976/77 1977/78 1978/79 Total Investment Fifth PlanLatest OutLay in Budget Outlay in Program Outlay in Program Outlay in Program Outlay in Revised Outlay inRevised Real I/ Estimate Real I/ Outray Real l/ Outlay Real O/ Outlay Real Program Real I/

Estimate Price- prices- Prices/ Prices- Prices- Outlay Prices-

1. Rolling Stock 1590 1178 1230 818 2100 1286 2400 1333 2680 1354 10000 5969

2. Plant & Machinery 70 52 75 51 80 49 80 44 95 48 400 244

3. Track Renewal 305 226 330 222 350 214 410 228 455 230 1850 1120

4 Bridge Works 70 52 70 47 100 61 150 83 160 81 550 324

5. Nev Lines 190 141 190 128 180 110 200 111 240 121 1000 611

6. Electrification 230 170 200 135 270 165 270 150 230 116 1200 736

7. Workshops & Sheds 90 67 150 101 210 129 250 139 300 152 1000 588

8. Line Capacity Works 505 374 540 364 650 398 1000 556 1905 962 4600 2654

9. SignIalling & Safety 130 96 140 94 150 92 250 139 330 16i 1000 588

10. Staif Quarters 40 30 60 40 80 49 100 56 120 61 400 236

11. Staff.Welfare 30 22 30 20 40 24 50 28 50 25 200 119

12. Other Electrical Works 40 30 45 30 40 24 40 22 35 18 200 124

13. Other Specified Works 20 15 20 13 40 24 50 28 70 35 200 115

14. Users Amemities 30 22 30 20 40 24 50 28 50 25 200 119

15. Investment in Road Services 30 22 100 67 70 43 50 28 50 25 300 185

16. Inventories -20 -15 70 47 100 61 150 83 200 101 __500 2772/

Total 3350 2482 3180 2197 4500 2753 5500 3056 6970 3521 23500 14009

~~~~~ ~~~~ -

1/ The Investment Program was prepared on basis of 1972/73 prices; the price increase 1972/73-1974175 is estimated at 35% and for each subsequent year at 107.

2/ The total is Rs 3280.million, but an additional Rs 100 million has been deducted as probable sal ngs during the fical year.

Source: IR and Mission Estimate

May 1975

TABLE 8Page 1 of 2

INDIA

APPRAISAL OF A THIRTEENTH RAILWAY PROJECT

IR's Original and Revised Physical Investment Program,Locomotives and Rolling Stockli, 1974/75-1978/79

OriginalProgram 2/ Revised Procurement Program

Item Estimate- 1974/75 1975/76 1976/77 1977/78 1978/79 Total

I. Locomotives

(a) Diesel M/L

BG 600 80 63 100 110 117 470

MG 151 15 4 20 30 31 100

(b) Diesel Shunter 175 23 4 17 24 32 100

(c) N.G. Diesel 20 - 13 7 - - 20

(d) Electric 400 46 56 66 66 66 300

Total (Locos) 1,346 164 140 210 230 246 990

II. Wagons 3/ 108,892 11,500 6,000 14,500 18,000 21,000 71,000

III. Coaches 6,509 859 736 800 1,000 1,205 4,800

IV. E1Us 4/ 1,104 201 111 200 250 288 1,050

1/ Includes investments both on replacement and additional account.

2/ Prepared in 1973/74 on basis of Draft National Fifth Plan and 1972/73 prices(freight traffic target 280 million tons by 1978/79).

3/ In terms of 4-wheelers.

4/ Electrical Multiple Units (primarily for suburban passenger services).

Source: Indian Railways and Mission

May 1975

TABLE 8Page 2 of 2

INDIA

APPRAISAL OF A THIRTEEN7b RAILWAY PROJECT

IR's Original and Revised Phvsical Investment Program.Locomotives and Rolling Stock, 1974/75-1978779

Additional A/C Replacement A/C Total(numbers) (numbers) (numbers)

Original Revised Original Revised Original Revised

1. Locomotives

BG Diesel M/L 452 322 148 148 600 470

MG Diesel M/L - - 151 100 151 100

NG Diesel M/L - - 20 20 20 20

Diesel Shunters 75 - 100 100 175 100

Electric 388 288 12 12 400 300

Total 915 610 431 380 1,346 990

2. Wagons 84,417 46,000 24,475 25,000 108,892 71,000

3. Coaches 2,972 1,063 3,537 3,537 6,509 4,600

4. E.M.Us 1,051 997 53 53 1,104 1,050

Basis: (1) Firstly, the replacement requirements of locomotives, wagons, coaches and EMUs were cateredfor in full.

(2) Then, on the assumption that the growth of passenger traffic will take place as scheduled,full requirements of coaches andtEMUs were catered for and requisite locomotives on additionalaccount therefore were provided,

(3) The balance amount was then distributed between wagons-46,000 (in 4-wheeler terms) andlocomotives-305 to be procured on additional account to cater to the additional freighttraffic (about 25 million tonme) to be carried by 1978/79 and exceeding the presentcapacity of about 220 million tons.

Source: Indian Railways and Mission

May 1975

INDIA

APPRUSAL OF A TEbRTEENIH RILWAY PROJECT

IR Revenue and Expenditure Accounts - 1969/70- 1974/75

4/1969/70 1970/71 1971/72 1972/73 1973/74 1974/75-

(Revised Estimates)Re millions

Gross Operating RevenueP"senger 2,789 2,955 3,201 3,436 3,671 4,059

Other Coaching 481 621 694 656 594 686

Goods 5,943 6,157 6,753 7,209 6.804 8,Qqg

Sundries 100 334 318 323 310 269

Total Revenue 913 10,067 t0,966 ___, 6_2__ 11,379 ____4_,0_1

Operating ExpensesAdministration 752 830 876 920 1,023 1,324

Repairs end Maintenance 2,238 2,485 2,727 3,098 3,561 4,457

Operating Staff 1,414 1,574 1,758 1,835 2,053 2,706

Fuel 1,511 1,469 1,559 1,624 1,589 1,931

Operating Other than Staff and Fuel 375 390 405 441 469 600

Miscellaneous Expenses 322 312 343 346 320 449

Labor Welfare 237 263 285 302 338 449

Working Expenses 6,849 7,323 7,953 8,5;6 9,353 11,916

4proprttirn to:Depreciation Reserve Fund 950 1,000 1,050 1,100 1,150 1,150

Pension Fund 99 ' 149 114 _ t2 _ 160 160

Total Operating Expenses 7.898 8.472 9.117 98 10.663 13226

Net Revenue from Operations 1,615 1,595 1,849 1,798 716 786

Charges to Revenue of a Capital Nature:Open Line Works 73 68 73 71 68 62

Miscellaneous Transactions 76 79 85 B3 94 113

Net Revenue 1,466 1,448 1,691 1,644 584 611

Dividend on Caital-1t-ChargeI 1,5642/ 1 ,6 4 6 2/ 1,513 1,615 1,709- ,893

Net Surplus (Deficit) (98) , (198) 178 29 (1.155) (1.282)

Operating Ratio 83.0 84.2 83.1 84.5 93.7 94.4

Rate of Return on Average Capital-at-Charge (%) 4.7 4.4 4.8 4.5 1.4 1.5

1/ Rate of Dividend on Canital-at-CdarXe:On Caital Provided by-oermn

(a) To March 31. 1964 (b) After Nsxch 31. 19645.57% MO%

From 1971/72 onwards certain changes were made in the method of calculating dividends, the effect of which was to relieve the burden of dividend payments on

unvenumerative capital. The mount of this relief was about Rs 200 million a yedr./ Dividend relief in respect of these two yers amounting to Rs 363 million vas subsequently granted and applied in reduction of temporary loans outstanding

as at April 1, 1972.3/ DXvidend actually piA{ to Genpral R.venues was Rs 1551 mIllfon, the balance sf Re 158 million was carried forward and paid in 1974/75.

4/ These are revised estimates published in March 1975. Figures prepared recently indicate the final results may show some isprovement on the above

figures - net reveeue from operations my be about Rs 885 million.

Source: Indian Railways

iry 1975.

'TA T..E 10See iGe

INDIA

APPRAISAL OF A THIIRTEENTH RAILWAY PROJEC?

IR Balance Sheet March 31, 197h

Assets Rs millions

Fixed Assets 44,985

Inventories 2 I

Receivables 2,5i06

Cash and Deposits with Government:Cash 434Deposits 3,187 3 621

Total Assets

Capital and Reserve Fu~nds

Investment Financed from:Govermment Capital-at-Charge 3 P,934Government Temporary Loans DF 1,083

R;RF 997 2,080

Railwray Sources:Depreciation Reserve Fund 2,707Development Fund L,59Revenue 2,o15

-8,9F'0

Less Portion Financed byTemporary Loans from Government 2,080 6 900

147,9Th

Railway FundsDepreciation Reserve Fund 1,758rtevebue tieserve Funa 4fleveThment ,irdf 3Pension Fund ,4422 3,18,7

Current Liabilities -94loTotal Capital and Reserves: 54, Ola

Source: Indian Raili-ays. - March 1975.

May 1975

NOTES ON TABLE 10Page 1

INDIA

APPRAISAL OF A THIRTEENTH RAILWAY PROJECT

IR Balance Sheet - March 31, 1974

1. Fixed Assets

The value of fixed assets shown in the balance sheet is theiroriginal cost, except that additional cost of like-for-like replacements overtheir original cost (the inflationary element) is charged against DRF.The full cost of all assets including the additional cost of replacementsis Rs. 54,928 million. Included in this total are works in progress, landand other non-depreciable assets amounting to Rs 7,248 million. The bookvalue of depreciable assets is:

Rs. millions

Total fixed assets 54,928

Less non-depreciable 7,248

47.68DO

2. Depreciation Reserve Fund

This balance in the fund represents cumulative contributions todate less (a) cost of assets withdrawn from service, and (b) full cost ofreplacements.

3. Inventories

These are financed from Capital-at-charge.

4. Investment Financed from Railway Sources

These are the published figures representing amounts the Railwaysprovide from their own sources over the years towards the Capital invest-ment programs. In recent years net earnings have been insufficent to meetthe full cost of expenditure charged to the Development Fund and the fulldividend payment due to the Government. Consequently in order to meetthese shortfalls, Indian Railways has drawn temporary loans from the CentralGovernment to ensure that its funds did not become overdrawn. The outstand-ing temporary loans at March 31, 1974, which have been drawn to augment thefund balances, are shown in Indian Railway's balance sheet only by way ofnote and are as follows:

NOTES ON TABLE 10Page 2

Development Fund

Net cumulative Corresponding figuresoutstanding March 1975

Loans drawn in Repayments loan (Estimates)(Rs millions)

1967-68: 112 - 1121968-69: 141 - 2531969-70: 181 - 4341970-71: 216 - 6501971-72: 216 /a 8661972-73: 157 167-i 8561973-74: 227 - 1083 1302

Revenue Reserve Fund

1973-74: 997 - 997 2496

/a Repaid by application of dividend relief.

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

(i) Operating improvements costing over Rs. 300,000 each.(ii) Users' amenities irrespective of their cost.(iii) Staff amenities costing more than Rs. 25,000 each.

6. Items financed from Revenue are:

(i) Operating improvements costing less than Rs. 300,000 each.(ii) Staff amenities costing less than Rs. 25,000 each.

7. Provident Fund and Staff Benefit Fund. etc.

The balances as on 31st March 1974, Rs. 5254 million, are notshown in the above balance sheet since these funds are held in Specialdeposit accounts specifically for paying benefits to employees. Contri-butions to the fund are charged to operating expenses.

INDIA

APPRAISAL OF A THIRTEENTN RAILWAY PROJECT

IR Revenue and Expenditure Forecast - Years 1975/76-1979/80

1975/76 1976/77 1977/78 1978/79 1979/80(Budget)

Re millions

Gross Operatinst Bveras

Passenger 4771 4961 5160 5366 5581Other Coaching 761 791 823 856 890Goods 10845 11206 11877 12811 13331Sundries 332 337 342 347 352

Total Revenue 16719 17295 18202 19380 20154

Operating Expenses

Personnel Costs 8283 8577 8969 9361 9752Fuel 2352 2433 2545 2656 2767Other Costs and Stores 2348 2434 2544 2656 2767

Total Working Expenses 12983 13444 14058 14673 15286

Appropriation to: 1/Depreciation Reserve Fund 1150 1250- 1400 1550 1600Pension Fund 170 180 190 200 210

Total Operating Expenses 14303 14874 15648 16423 17096

Net Revenue from Operations 2406 2421 2554 2957 3058

Charges to Revenue of a Capital Nature:Open Line Works 75 100 120 143 150Miscellaneous Transactions 122 132 142 152 162

Net Revenue 2209 2189 2292 2662 2746Dividend on Capital-at-Charge 1979 2041 2150 2266 2416

Net Surplus/(Deficit) 230 148 142 396 330

Operating Ratio 85.6 86.0 86.0 84.7 84.8Rate of return on Average Capital-at-charge 5.2 4.8 4.7 4.9 4.8

1/ Appropriation to DRF in 1976/77, under the terms of the proposed Credit Agreement will be not less thanRs. 1,300 million.

Source: Indian Railways r al 17

July 1975

NOTES ON TABLE 11Page 1

INDIA

APPRAISAL OF A THIRTEENTH RAILWAY PROJECT

Indian Railways' Revenue and Expenditure Forecast - 1975-80

1. The prices used in the forecasts - for freight rates, passengerfares and operating costs - are at April 1975 levels.

2. The estimates, therefore, take account of the three major influ-ences which have occurred over the past one to two years:

(a) the revision of tariffs (including the removal ofthe foodgrain and ore subsidies from 1975) in theperiod 1974/75;

(b) increased cost of fuel oil and coal; and

(c) the wage awards and dearness allowances sanctioned by theGovernment, the latest being effective from September 1, 1974.

3. The revenue forecasts therefore only reflect the increase intraffic anticipated in the period 1975-80. They do not take account ofany further adjustment in tariff or fare levels.

4. Operating expenses are based on a detailed analysis of 1975/76budget data, related to freight and passenger traffic forecasts for thatbase year and then projected as a constant ratio between the three mainelements:

Personnel 63.8XFuel 18.1%Other Costs & Stores 18.1%

5. Depreciation provisions are based on a total appropriation inthe Fifth Plan of Rs. 6500 million.

6. Traffic is projected to increase by 21% over 1975/80. Passengertraffic is forecast conservatively to increase at about 4% per annum. Rev-enue earning freight traffic is projected to increase from 190 million tonnesin 1975/76 to 246 million tonnes by 1979/80 - an increase of 29.5%. Theincrease in freight revenues, reflecting traffic volume increase only, is22.9%. Even if the low estimate of freight revenue should prove more likely,(see Table 18) the requirements of the earnings covenant would be met.

NOTES ON TABLE 11Page 2

7. In forecasting working expenses, IR have calculated on a ratioof variable to fixed expenditure of 78.5:21.5 and applied this to ananalysis of goods and passenger traffic volume. This was based on the1975/76 budget figures and therefore again reflects prices at April 1975.

8. On the assumption, however, that staff costs would increase byat least 2-1/2% per annum, that fuel costs would remain variable withtraffic and that other costs would increase by 5% per annum, it is cal-culated that IR would, to meet the requirements of the earnings covenant,need to increase tariffs by about 2% each year.

9. For freight traffic the average annual growth in revenues from1975/76 is 5.25% (Table lla) and for passenger traffic 4.0%. The volumeof freight traffic in terms of ton-km is expected to increase by 3.4%annually (Table 18). Average receipt per ton-km of freight which wasPaise 7.3 in 1974/75, is expected to rise to Paise 7.9 in 1975/76 and dropslightly to Paise 7.8 by 1979/80. Average receipt per pass-km throughoutthe period 1975/76 to 1979/80 is estimated at Paise 3.6 (Paise 7.85 =US Cent 1.0).

10. Operating expenses are based on a detailed analysis of 1975/76budget data, related to freight and passenger traffic forecasts for thatbase year and projections for following years take account of the forecaststeady growth in traffic. Working Expenses in 1979/80 have been assessedat a level 17% higher than in 1975/76 while traffic growth in terms of trainmovements is likely to increase by about 21%. The assumption that about78% of expenses vary directly with traffic growth may be excessive butnonetheless for appraisal purposes, it is considered prudent and realisticto accept expenditure estimates on this conservative basis.

INDIA

APPfRAISAL OF A THIRTEENfH 7AULIAY PRoJECr

IR Freight R-evene Fo.rcgt 1974/75-1979/80

E974175 1975/76 1976/77 1977/7 1978/79O drng 44,1 Se. t onSeol-A F.ti,ge 33JIj.-~E leie ~tot.. UygdUla -. 05. At ims.t RAi *e yid 1

54 947

T- _Re,g a Tong Re. T. Tons, R.. Ton.. is. Ton . 19T3/74 h-A St-Mrh 1975/7

RFEVESSrI IOENIW TR4AFFIC

' *) FiD.dsd Pro.6.ts 6,9 622 7.5 764 8.0 814 8.5 865 9.5 967 10.5 1069 78.4 N. 3 101.8 101.86) UN mmt.riol (eim1. Col) 17.5 317 17.5 331 22.0 416 23.5 444 26.5 501 30.0 567 14.3 16.0 18.9 18.9

2. C

For Steel Plant. and' lgher1.o 18.0 22.0 23.0 24.0 28.0 30.0Other -eig 3590 36,.5 39.0 45.0 50.0 55,0Soret r.coo s3.0 5901 58.5 2500 62.0 2226 69.0 2477 78.0 2980 85.0 3052 23.5 35.2 35.9 35.9

3. Soo Orn for Insoot 9,0 360 14.5 664 15.0 687 16.0 733 16.0 733 16.5 756 31.1 3.5 43.2 45.8

Cenen 511.0 575 12.0 671 12.5 699 13.5 755 14.5 811 15.5 86O, .. 1 4J.; 55.0 55.9

. ctrele F.odsa) Foodgri.o. 14.h 558 15.5 977 15.5 977 16.0 1008 16.0 1008 1s4.0 5100h 40.2 3-.9 38.2 61.0b) Fnrtilo..ns .54 321 6.0 409 6.5 443 7.5 512 9.0 614 50.0 682 47.5 49.2 68,2 t0,2c) Vdn.ral 0i (POL) 10.0 670 11.0 798 11.0 798 12.0 870 13.0 943 14.0 1015 55.5 WS.5 72.5 72.5d) 5t544r N 45.0 3244 47.5 3653 47.5 3653 49.0 3691 48.0 3691 48.5 2730 57.9 64.s 76.9 76.9

7TOAL 355V15071E Ef.ER4NS TRAFfIC 572.0 8477 190.0 10367 200.0 10713 215.0 11355 230.5 12241 246.0 i2765

fbon-R.-e-t Treffic.Rai msy CoOS 14.0 14.0 14.0 14.0 13.5 13.0Reilvey I-rri.ts 6.0 6.0 6.0 6.0 6.0 6.0

0Othr GoodS varn/no 521 478 493 522 563 586 4.6T of oth.or--en..-earn.ng tr_ff.c f_go

70TAL A/LL TRAFFIC 192.0 8998 210,0 10845 220.0 11206 235.0 11877 250.0 12811 2h9.0 13331

So-rT.: Indian 2.*iSyg

May 1975

INDIA

APPRAISAL OF A THIRTEENIrH RAILWAY PROJECT

IR Source and Application of Fund.- 1974/75-1979/80

Total Cash Flno1974175 1975/76 1976/77 1977/78 1978179 1979/80 1975/80

(Revised Estimates)Rs millions

Source of FundsNet Revenue from Operations 611 2209 2189 2292 2662 2746 12098

Less Dividend on Cspital-at-Charge 205t1' 1979 2041 2150 2266 2416 10852(1440) 230 148 142 396 330 1246

Contribution to DRF 1177 1177 1278 1429 1579 1629 7092Capital Works Charged to Revenue 62 75 100 120 143 150 588Increase in Pension Fund Excluding Interest 76 53 57 61 64 68 303Interest on Fund Balances 169 185 196 212 230 253 1076Railways Cash Generation 1720 1779 1964 2412 2430 10305

Capital Funds to be Received from Government 2053 1725 2800 3530 4892 5100 18047Temporary Loans from Government: RRF 1831 1041 1445 1603 1538 1714 7341

DF 219 O8 224 342 161 133 10234147 4554 6248 7439 9003 9477 36721

Avelication of FundsCapital Works rged to Revenue 62 75 100 120 143 150 588Replacement Works DRF 1070 1200 1300 1450 1480 1550 6980Works Charged to Development Fund 167 180 300 400 453 450 1783Additions Charged to Capital 2073 1655 2700 3380 4692 4900 17327

Total Capital Erpenditure 3372 3110 4400 5350 6768 7050 26678

Increase/(Decrease) in Inventories ( 20) 70 100 150 200 200 720Repayment of Temporary Loans: RRF 332 943 1290 1438 1363 1529 6563

DF - - - - - - -Interest on Temporary Loans: RRF 60 149 155 165 175 185 829

DP 55 68 72 84 104 113 4413799 4340 6017 7187 8610 9077 35231

Increase/(Decrease) in Fund Balances 348 214 231 252 393 400 1490Opening Fund Balances 3187 3535 3749 3980 4232 4625 3535Closing Fund Balances 3535 3749 3980 4232 4625 5025 5025

Increase/(Decrease) in Fund Balances:DRF 200 78 84 91 220 212 685Pensions 76 77 82 89 94 100 442DF (3) - - - - - -RRF (1)RACF 76 59 65 72 79 88 363

Temporary Loans-Balance Outstanding:mR 2496 2594 2749 2914 3089 3274DF 1302 1"70 1594 1936 2097 2330

1/ Includes Throw Forward of part dividend for719 74, Ra 158dllio

Source: Indian Railways

May 1975.

I NDIA

APPRAISAL OF A THIRTEENFH RAILWAY lROJECT

IR Forecast Balance Sheets as of March 31. 1974-1980

1974 1975 1976 1977 1978 1979 1980(Actuals)

Assets (Rs millions)

Fixed Assets 44985 47424 49488 52754 56839 62315 68012Floating Assets 2929 2909 2979 3079 3229 3429 3629

47914 50333 52467 55833 60068 65744 71641

Receivables 2506 2506 2506 2506 2506 2506 2506

(Cash and Deposits with Government:Cash 434 434 434 434 434 434 434Deposits 3187 3535 3749 3980 4232 4625 5025

Total Assets 54041 56808 59156 62753 67240 73309 79606

Capital and Reserve. Fund

Investment Financed from GovernmentCapital-at-Charge 38934 40987 42712 45512 49042 53934 59034

Government Temporary Loans RI 997 2490 2594 2749 2914 3080 327iDF 1083 1302 1370 1594 1936 2091 2330

41014 74785 46f76 49855 53892 59120 h4638

Pailwav SourcesDepreciation Reserve Fuind 2707 2846 3002 3171 3360 3752 3754Development Fund 4258 4425 4605 4905 5305 5758 6208Revenue 2015 2075 2148 2245 2361 2500 2645

8980 9346 9755 10321 11026 11810 12607Less Portion Financed byTemporary Loans from Government 2080 3798 4534 473 64850 5a66 5604

69(00-3Q 5978 6176 6624 7003

Railway FundsDepreciation Reserve Fund 1758 1958 2036 2120 2211 2431 2643Revenuie Reserve Fuind 4 3 3 3 3 3 3Development Fund 3 - - _ Pension Fund 1422 1498 1575 1657 1746 1840 1940Accident.Compensation Fund - 76 135 200 272 351 439

3187 3535 3749 3980 4232 4625 5025

Current Liabilities 2940 2940 -2940 2940 2940 2940 2940Total Capital and Reserves: 54041 56808 59156 62753 67240 73309 79606

Source: Indian Railways

Ma, 1975

TABLE 14

INDIA

APPRAISAL OF A THIRTEENTH RAILWAY PROJECT

IR Foreign Exchanse Requirements and Financing Plan

Foreign Exchange RequirementsUS $ million

1975176 1976/77 Total

Components for:

Investment

Diesel Electric Locomotives 7.9 12.8 20.7Diesel Hydraulic Locomotives 1.4 2.2 3.6Electric Locomotives 7.8 10.2 18.0Electric Multiple Units 3.5 4.0 7.5Coaches 5.2 6.0 11.2Wagons 6.1 20.0 26.1

31.9 55.2 87.1

Track Works, Bridges and Electrical Works 6.0 6.0 12.0Signalling and Telecomnmunications 1.5 1.5 3.0Electrification 2.0 3.0 5.0Plant and Machinery 2.0 5.5 7.5Other Equipment and Services 2.0 1.5 3.5Non-ferrous Metals 2.0 2.5 4.5

Sub-total 47.4 75.2 122.6

Spare Parts

Diesel Electric Locomotives 7.0 8.0 15.0Diesel Hydraulic Locomotives 0.5 0.6 1.1Electric Loocomotives 4.6 5.4 10.0Electric Multiple Units 0.4 0.6 1.0Coaches 0.4 0.6 1.0Wagons 0.9 1i1 2.0

13.8 16.3 30.1

Track Equipment 0.2 0.2 0,4Signalling and telecommunications 0.2 0.2 0.4Electrification 0.1 0.1 0.2Plant and Machinery 0,2 0.3 0.5

Sub-Total 14.5 17.1 31.6

Total 6i.9 92.3 154.2

Financing Plan

1. Already Available:

IDA Credit 448-IN 20.0 - 20.0Bilateral Sources-I/ 4.4 05 4.9

2. Balance Requirements: 37.5 91.8 129.3

3. Government and Bilateral Sources: 6.7 12,6 19,3

4. Proopsed IDA Financing! 30.8 79.2 110.0

It Detailed Bilateral SourcesAlready Available:

Federal Republic of Germany 0.30 0.05 0.35France 0.50 0.05 0.55United Kingdom 0.15 - 0.15Belgium 0.45 0.10 0.55Rupee Payment Arrangements from

East European Countries 3.00 0.30 3.30

Sub-total 4.40 0.50 4.90

Source: IR and m'ssion estimate.

May 1975

APPRAISAL OF A lijiRfE,ioki RAILWAY PRO.EC.

iR PA ... en,r Traffi. 1965/66 - 1973/74

F,nnnnger K11onnniet (H8illions) 1965-66 1966-67 1967-68 1968-69 1969-70 1970-71 1971-72 1972-73 1973-74

First Cl-.,, Air-C..diti.ond 146 151 153 134 146 175 167 168 198

Firat Class, Ordinary 2,976 3,137 3,070 3,137 3,454 3,516 3,723 3,933 4,280

Se.o-d Cl.6s, M1il 1,278 1,082 1,097 1,077 1,202 1,182 1,320 1,314 807

Second Class, Odir...y 701 708 677 577 587 540 509 474 185

Third Cl-AS, Air-Co.,dition-d 140 168 231 216 277 287 313 382 468

Third Class, Mall 29,062 29,085 32,608 33,574 34,798 37,885 41,515 45,833 49,674

Third Cl,.., Ordinary 61.991 67.814 69L327 68,225 72.918 74,535 77.786 81,424 8O,O92TOTAL 96.294 102.145 107,163 106.940 11.323825.333 13 3

Tra.n-Itiloar err Passenrgr andDa^aena^er proportion of Hixed(Thou.ands )

Casvsntiaaal train. 214,394 21S,776 220,509 220,020 222,599 224,799 228,330 223.642

Elnotri. Ib.tipln Unit. 15,980 17,992 19.306 20,481 22,035 23,051 23,920 26,997

Rail C rn 2.954 3.192 3,129 3.056 2.623 2.407 2.656 2.821

TOTAL 233.328 239.960 2444 355 7 247.257 25aA261 23.906 23A460

VahlnaIt-aa. Paaaanaer aad pa-sannerarosaortlan ef Hinad (thnaaandsl

Co-vAntio.m. trstin 4.276,661 4,350.332 4,371,516 4,390.718 4,550,065 4,636,370 4,803,992 4,781,647

El.etri. MHltiple UnitO 263.528 274.593 297,305 318,541 343,316 369,314 391,546 444.048

R.il Car. 6,647 7.252 _7027 6,624 -5460 5.054 6.355 6.582

TOTAL 4.54.965 46632i.07 4k676 348 4.715.893 4,898.881 5010d.738 .1893 3. 232.27 7

P5S.enaer Revenue(9...i.an in thoa.and,)

First Class, Air-Conditionad 19,905 20,590 23,319 22,775 24,680 32,250 31,517 34,398 4;.507

First Cl..., Ordinary 168,656 172,049 181,511 194,305 204,098 231,382 254,516 274,325 327,206

C Cs -CIA.. l 59,720 50,406 55.278 S6,285 61.292 69,599 80,501 81,624 52.914

Second Class, Ordinary 28,094 28,155 28,060 24,881 25,256 23,925 24,349 23,456 9,468

Third Class, Air.Co-ditin.ad 5,550 6,802 15,108 10,254 13,205 16,816 19,045 24,342 31,678

Third ClIas, Hait 779,487 780,524 917,147 978,897 1.013,497 1,107,980 1,230.163 1,357,953 1,535,661

Third Class, Ordt.ary 1.130.305 1.234.882 L.311.115 1.363.607 1.446,594 1,473,087 1.561.190 1,641.973 1,670.030

TOTAL 2_191,717 22.651.004 2788.a262 2 v954939 3.201,281 2a32l, 3.661.464

Revenue nan Fansn^eno(Olloatatr (Painnl

First Clans, Air-Conditianed 13.60 13.67 15.29 16.90 16.9 18.5 18.9 20.5 22.7

First Class, Ordinary 5.67 5.48 5.91 6.19 5.91 6.5,8 6.84 6.97 7.72

Sacond Claa, Mail 4.67 4.66 5.04 5.23 5.10 5.89 6.10 6.21 6.56

Second Clans, Ordinary 4.01 3.97 4.15 4.31 4.30 4.41 4.78 4,95 5.12

Third Cla-s, Air-Conditioned 3.97 4.05 4.32 4.75 4.76 5.85 6.09 6.38 6.77

Third Cl..., Hail 2.68 2.68 2.81 2.92 2.91 2.92 2.96 2.96 3.09

Third Clses, Ordinary 1.82 1.82 1.89 2.00 1.98 1.98 2.01 2.02 2.09

Avarage All Clan,se 2.28 2.25 2.36 2.48 2.46 2.50 2.55 2. 7.71

May 1975

INDIA

APPRAISAL OP A T510TEPN3; RAILWAY PKOWECT

ER Frrigiht Tr-uffl. Too- -,d 1oo Kil-omte .1960/61-1974/75

(a) Revenue Earning and Railway Service

Million _Annal Percentage 1---rege or brCreaS.Year Ten Oriln-atine Net Toe Kilometer Ten Orxinfatte Too J8 s

Revenue Service Tetal Revenue Service Tote1 Revenue Total Revenue TotalEarning Emi Ea-ig e-rnir

1960-61 119.8 36.4 156.2 72333 15347 87680 8.2 6.5 4.8 6.9

1961-62 125.6 34.9 160.5 75353 15865 91216 4.8 2.9 4.2 4.0

1962-63 139.4 39.4 178.8 83140 17553 100693 11.0 11.4 10.3 10.4

1963-64 147.6 43.5 191.1 a8624 18217 106841 S.9 6.9 6.6 6.1

1964-65 148.8 45.0 193.8 88752 17818 106570 0.8 1.4 0.l -0.3

1965-66 162.0 41.0 203.0 98979 17957 116936 8.9 4.7 11.5 9.7

1966-67 164.0 31.6 201.6 99284 17323 116607 1.2 -0.7 0.3 -0.3

1967-68 162.4 34.2 196.6 101121 17739 118860 -1.0 -2.5 1.8 1.9

1968-69 170.8 33.2 204.0 108129 17011 125140 5.2 3.8 6.9 5.3

1969-70 173.8 34.1 207.9 111826 16422 128248 1.8 1.9 3.4 2.5

1970-71 167.9 28.6 196.5 110696 16662 127358 -3.4 -5.5 -1.0 .0.7

1971-72 170.1 27.7 197.8 116894 16371 133265 1.3 -4.1 5.6 4.6

1972-73 175.3 26.0 201.3 121164 15367 136531 1.0 -6.1 3.6 2.5

1973-74 162.1 22.8 184.9 109391 12963 122354 -8.5 -12,3 -9.7 -10.4

1974-Y5 (Fgtinte) 110.0 20.0 192.0 122900 11900 134800 4.9 3.8 12.3 10.2

(b) 8r8.d G a.' and Other GanAes

Milli.n Annual P-e.ceetage inr-cse or DereanY",r me reotn et TOD JEilooetn T., OrIdlSEInMtv Net Tan Roe

Bread neter asd Toti -road MeRine and Total Bred Mteter and Broad Rater andGa6ne Urrov Ganges Caue lare. Gauges CanZeG Uaraw Gauges Co1re Narr.. Ceuse

1960-61 120.7 35.5 156.2 73724 13956 87680 8.0 1.7 6.6 8.9

1961-62 125.4 35.1 160.5 76023 15195 91218 3.9 -1.1 3.1 8.9

1962-63 140.8 38.0 178.8 84328 16365 100693 IZ.3 8.3 10.9 7.7

1963-64 151.9 39.2 191.1 89130 17711 106841 7.9 3.2 5.7 8.2

1964-65 153.8 40.0 193.8 88569 18801 106570 1.2 2.0 -0.6 1.6

1965-66 162.3 40.7 203.0 97251 19685 116936 5.6 5.8 9.8 9.4

1966-67 163.8 37.8 201.6 97599 19008 116607 0.9 -7.1 0.4 -3.4

1967-68 161.1 35.5 196.6 99977 18383 118860 -1.6 -6.1 2.4 -0.7

1968-69 168.3 35.7 204.0 104930 20210 125140 4.5 0.6 5.0 1.0

1969-70 171.0 36.9 207.9 10720S 20962 128248 1.6 3.4 2.2 3.7

1970-71 160.9 35.6 196.5 106339 21019 127358 -5.9 -3.5 -0.9 0.3

1971-72 162.1 35.7 197.8 111548 21717 133265 0.7 0.3 4.9 3.3

1972-73 167.4 33.9 201.3 114596 21935 136531 3.3 -5.5 2,7 1.0

1973-74 155.0 29.9 184.9 103431 18923 122354 .7.4 -11.a -9.7 -13.7

1974-75 (Etimat.) 192.0 134800 3.8 10.2

May 2975

TABLE 17INDIA

APPRAISAL OF A THIRTEENTH RAILWAY PROJECT

IR Passenger Traffic 1972/73-1979/80

(million passengers)Actual Forecast

1972/73 973/ l9-7t77 1975/76 1978/79 1979/80

let Clasa A/C 0.29 0.30 0.25 0.30 0.30 0.35

lot Class Ordinar7 86.34 87.75 75.00 90.65 92.50 93.00

2nd Class Mail 3.30 1.75 1/

2nd Class Ordinary 5.60 2.23 1/

3rd Class A/C 0.39 o.46 0.50 0.50 0.70 -O.75

3rd Class Mail 178.50 188.03 170.00 190.00 209.00 210.00

3rd Class Ordinary 2,378.63 2,373.20 2,164.25 2,372.55 2,730.50 2,866.90

Total 2,653.05 2,653.72 2,410.00 2,654.oo 3,033.00 3,171.00

Pass-Km (billion pass-km)

1st Class A/C 0.17 0.20 0.15 0.25 0.25 0.25

lt Class Ordinary 3.93 4.24 4.00 5.50 6.50 7.00

2nd Class Mail: 1.31 0.81 1J

2nd Class Ordinary 0 o.47 0.19

3.id Class A/C 0.38 0.47 0.40 0.65 1.25 1.30

3rd Class Mail 45.83 43.67 46.00 50.60 59.75 61.20

3rd Class Ordinary 81.42 80.09 71.65 81.40 91.75 93.75

Total - 133.53 135.66 122.20 137.50 159.50 163.50

1/ From 1974/75, 3rd class merged with 2nd class.

Source: IR and Mission Estimates

May 1lc75

INDIk

APPRAISAL OF A TBIRT3IE RAIMWkY PROJECT

IR Freight Traffic (Actual and Forecasts) 1971/72 - 1979/80

(in million tons and ton-km)

Tons Originating (Million) Net Ton-kilometers (Cillion) Annual CrovthActuale Esio Forecast 4l Alctua P1Recas if17//7111L2 1 3 1975/76 1 1 1978/79 17/80 1972/73 1973/74 1975176 19 /79 191/0 0 17iI3i78

1. Steel Plants 21.8 24.0 22.0 24,0 25.0 36.0(35.0) 40.5(39.5) 9.551 8.854 10.697 13.902 15.486 6.5

(a) Finished Products 6.0 6.7 6.1 6.5 7.5 9.5 10.5 2,889 2,675 2,957 9,424 10,416

(b). Rlaw Materials 15.8 17.3 15.9 17.5 17.5 26.5 30.0 6,662 6,179 7,740 4,478 5,070(excluding coal)

2. Coal 48.7 51.2 47.3 53.0 58.5 78.0(73.0) 85.0(83.5) 30.063 26.587 36.175 48.690 53.235 8.4

(a) Steal Plants 11.4 11.8 11.5 12.8 14.5 19.0 20.0 4,362 4,123' ' ~~~~8,910 11,540 12,150

(b) Nasheries 5.4 5.3 5.5 5.2 7.5 9.0 10.0 137 152

(c) Other tlsers 31.9 34.1 30.3 35.0 36.5 50.0 55.0 25,564 22,312 27,265 37,350 41,085

3. Iron Ore for Export 10.7 9.3 8.5 9.0 14.5(12.0) 16.0(15.0) 16.5 4.830 4.275 7.134 78.72 S.118 8.5

4. Cemnt 11.2 10.5 10.0 11.0 12.0 14.5 15.5 6.485 6. 36 7.692 9.292 9.935 6.2

5. Foodgrains 15-5 15.8 14.7 14.6 15.0 16-0 16.0 18.172 16.322 18.305 18.895 18.895 0.7

6. Fertilizer 5.2 5.6 5.3 5.4 0 0 10.0 4.520 4.001 4.854 7.231 8.3

7. Mineral Oil 10.1 10.1 10.0 10.0 11.0 13.0 14.0 6.109 6.373 6.754 7.982 8.5S 4.6

8. Other Goods 46.9 48.6 44.3 45.0 47.5(45.0) 48M0(4 5

.0

) 48.5(45.0) 41.434 36.611 39.615 40.032 40.449 - 0.5

(128,000) (148,700) (159,500) (3.5)

Total Revenue Earning Traffic 170.1 175.1 162.1 172.0 190.0(185.0)230.5(220.5)246.0(240.0) 121.164 109.391 131.226 153.940 16Z.:04 4.1

Non-Revenue Traffic 27.7 26.0 22.8 22.0 20.0 19.5 19.0 15.367 12.963 13.156 12.7M0 1.3D - 3.

(a) Railvay Coal 16.3 15.0 14.9 14.0 14.0 13.5 13.0

(b) Railway Materials 11.4 11.0 7.9 6.0 6.0 6.0 6.0(141,000) (161,400) (171,800) (2.8)

Total All Traffic 197,8 201.3 184.9 192.0 210.B(205.0)A2(240.0)2650(259.0) 136.531 122.354 144.502 166.648 3.4

11 Figures in parenthesis indicates the mission's estimte of most likely development; the higher figures represent IR', forecast, which, *lthough realistic, represents the upper range of*ctual development.

Source: Indian Railuap sad mission estimates.

May 1975

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INDIAN RAILWAYS ORGANIZATION CHART

As of Februaryv12. 1975 __________________

MINISTRY OF RAILWAYS

Minister for RailwaysMinister of State in the Ministry of RailwaysDeputy Minister in the Ministry of Railways

RAILWAY BOARD

ChairmanFinancial Commissioner'Member MechanicalMember StaffMember Traffic .Additional Member Electrical EngineeringAdditional Member FinanceAdditional Member MechanicalAdditional Member StaffAdditional Member TrafficAdditional Member VigilanceAdditional Member Works

DIRECTORS (231 ZONAL RAILWAYS MANUFACTURING UNITS PROJECTS RESEARCH. DESIGNSAND STANDARDS

Accounts General Managers (91 General Managers (3) General Managers (2\ ORGANIZATION,Civil Engineering LUCKNOWEfficiencY Bureau Central Railways, Bombay Chittaranjan Locomotive Works, Chittaranjan Construction, SouthernElectrical Engineering Eastern Railway, -lcutta Diesel Locomotive Works, Varanasi Railway, Bangalore Director GeneralEstablishment Northern Railway, New Delhi Integral Coach Factory, Madras Metropolitan TransportFinance (Budget} North Eastern Railway, Gorakhpur Project (Railways),Ganga Bridge Northeast Frontier Railway, Maligaon (Gauhati) CalcuttaHealth Southern Railway, MadrasIntelligence South Central Railway, SecunderabadMechanical Engineering South Eastern Railway, CalcuttaMechanical Engineering (Workshops) Western Railway, BombayMetropolitan TransportOfficial LanguagePay CommissionRail Movement (Coal Planning)Railway PlanningRailway StoresSafety and CoachingSecuritySignalling & TelecommunicationStatistics & EconomicsTraffic CommercialTraffic Transportation

ADVISERS (2)

Economic AdviserLegal Adviser

May 1975

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