international bank for reconstruction...

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Report No. TO-587a

This report was prepared for use within the Bank and its affiliated organizations.They do not accept responsibility for its accuracy or completeness. The report maynot be published nor may it be quoted as representing their views.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

APPRAISAL OF EIGHTH RAILWAY PROJECT

(PAKISTAN WESTERN RAILWAY)

PAKISTAN

May 10, 1967

Projects Department

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CURRENCY EQUIVALENTS

US $1 = Pak. Rs 4.762PakRs 1 = Us$0.21Pak Rs 1, 000, 000 = US $210, 000

WEIGHTS AND MEASURES

Weight and measures are expressed in theBritish/US system.

FISCAL YEAR

July 1 - June 30

PAKISTAN

APPRAISAL OF EIGHTH RAIIWAY PROJECT

(Pakistan Western Railway)

Table of ContentsPage

SUMMARY i - ii

I. INTRODUCTION

A. Application 1B. Previous Loans and Credits 1

II. THE PAKISTAN WESTERN RAILWAY

A. Organization and Management 1B. Railway Property 2C. Operating Efficiency 3D. Manpower and Wages 4E. Traffic Trends 4

III. THE PROJECT

A. The Third Five-Year Plan 5B. Description of the Project 7C. Sources of Funds 7D. Execution 8

IV. FINANCES AND EARNINGS

A. Introduction 9B. Rates and Fares 10C. Earnings 11D. Finances 13

V. ECONOMIC JUSTIFICATION

A. Introduction 14B. Forecast of-Traffic 14C. Rolling Stock and Motive Power Requirements 15D. Track- Renewals and Improvements 16E. Transport Coordination 16F. Evaluation of Investments 17

VI. CONCLUSIONS AND-RECOMMENDATIONS 17

This Appraisal Report has been written by Messrs. Brechot, Chapmanand Brandreth.

Table of Contents

Annex 1 - Outline of Principal Items in the Third Five-Year Plan.

Tables 1 - Route and Track Mileage by Type of Gauge, and the Numberof Enroute Traffic Stations maintained June 1956 versusJune 1966.

2 - Rolling Stock by Type and Gauge as of June 30, 1956,1965, 1966.

3 - Operating Performance Averages 1955/56 to 1965/66.(Broad Gauge Only)

4 - Traffic Statistics 1955/56 to 1965/66.5 - Third Plan Period 1965/66 to 1969/70 - Annual

Forecast of Capital Investment.6 - Freight Traffic and Aevenue, actual 1964/65 and

projected 1969/70.7 - Results of Operations for the Second Plan Period -

1960/61 to 1964/65.8 - Forecast Revenue Accounts for the Third Plan Period -

1965/66 to 1969/70.

Annex to Table 8 - Notes on Basis of Operating Account Forecast.

Table 9 - Restated Summary Balance Sheet - June 30, 1965.

Annex to Table 9 - Notes on Summary Balance Sheet.

Table 10 - Funds Required and Available 1965/66 to 1969/70.

Map - IBRD 1299 - Pakistan Western Railway.

PAKISTAN



SUMMARY

i. The Government of Pakistan has asked the Bank for a loan ofUS$ 13.5 million to assist in financing the Pakistan Western Railway's(P.W.R.) 1967/68 investment program which is part of the Railway's1965/70 Third Five-Year Plan. P.W.R.'s investments during this yearare estimated at Rs. 305 million, US$ 64 million equivalent, with aforeign exchange component of US$36 million. The proposed loan wouldfinance the cost of specific imported goods for which bilateral aid isnot available.

ii. Previous loans and credits to the P.W.R. have totalled US$ 94.25million, consisting of four Bank loans (US$ 69.25 million) and one IDAcredit (US$ 25 million). The last Bank loan was in September 1962, whilethe IDA credit was made in June 1964. Performance in the use of all thesefunds has been satisfactory.

iii. The P.W.R. continues to be well organized and financially sound,although the rate of return on investment has been declining. Trafficgrowth has slowed in recent years with the increase in road competition.Transport coordination problems are becoming of increasing significance.The Provincial Government has recently approved a complete study programof these problems and has created appropriate agencies to undertake thestudies, evaluate the results and implement the conclusions.

iv. Third Five-Year Plan investments are chiefly concerned withproviding increased carrying capacity to meet anticipated traffic needsand replacing worn-out equipment. The proposed outlays for these purposesare generally satisfactory. The proposed construction of a line extensionfrom Dera Ghazi Khan to Kashmore (which was criticized in Report No. TO-412a)was discussed during negotiations. The Government has firm proposals forextensive development of the area to be served by this line, and because ofthe operating advantages to be derived from it and the urgent need toprovide local employment, it is proceeding into this scheme subject toCentral Government's approval. It is not part of the Bank-financed project.

v. Operational efficiency has not improved sufficiently over thepast ten years to offset cost increases, while equipment utilization hasdeclined. With rising costs, operating ratios will deteriorate furtherunless productivity is measurably increased. The BPR is well aware ofthe need to improve operating efficiency and use of equipment and hasconfirmed its intention to give high priority to the implementation ofappropriate technical and organizational measures. The PWR has undertakento maintain an operating ratio of about 80 percent, which is satisfactory.

vi. Various studies need to be conducted by the Railway, rangingfrom the abandonment of uneconomic services to investment evaluation andthe establishment of cost-based tariffs. Agreement have been reachedduring negotiations regarding these studies.

vii. Most of the funds from the proposed loan will be used topurchase wooden sleepers, track points and fittings and material for thelocal manufacture of freight cars and concrete sleepers. These itemsare essential for the fulfillment of investment requirements under theRailway's development program. All items would be procured uanderinternational competitive bidding.

viii. The project is suitable for a Bank loan to the Government ofPakistan of US$ 13 5 million equivalent. The loan would be for a periodof 25 years, including 3-1/2 years of grace. The proceeds would be relentby the Government of Pakistan to the Province of West Pakistan and madeavailable to the Railway: in neither case will the terms and conditionsbe more favorable to the recipient than those granted under the Bank'sloan agreement.

PAKISTAN



I. INTRODUCTION

A. Application

1.1 The Government of Pakistan has applied for a Bank loan ofUS$13.5 million to finance part of the foreign exchange requirementsof the Pakistan Western Railway's (P.W.R.) 1967/68 investment program.The cost of this program, which is part of the 1965/70 Third Five-YearPlan, is estimated at Rs. 305 million (US$ 64 million equivalent) witha foreign exchange component of approximately US$ 36 million. The loanwould finance specific imported goods for which bilateral aid is unavail-able.

1.2 This Appraisal Report is based on information provided by theP.W.R. and the results of appraisal missions in May and October 1966,consisting of Messrs. Brechot, Chapman and Brandreth. The second missionwas necessary because of changes in Third Plan allocations arising fromthe Pakistan-India conflict.

B. Previous Loans and Credits

1.3 The P.W.R. has received and fully disbursed US$ 69.25 millionfrom four Bank loans. The first three (all made in the 1950s) were jointloans to Pakistan Eastern and Western Railways, of which the P.W.R.'sshare was about US$ 51 million. The last loan, for US$ 18.25 million(No. 320-PAK) was made in 1962 to the P.W.R. exclusively.

1.4 The P.W.R. has also received one IDA credit of US$ 25 million(57-PAK, 1964). As of April 30, 1967, about US$ 17.6 million of thiscredit has been disbursed and committed. A further US$ 4 million is reservedfor railcar purchases after completion of current trials with an experimentalset. The balance is being used for rolling stock within the Third Five-YearPlan allocations.

II. THE PAKISTAN WESTERN RAIIWAY

A. Organization and Management

2.1 The P.W.R. is administered as a Department of the West PakistanGovernment headed by a four-man Railway Board. The Chairman of the Boardreports to the Provincial Minister for Railways who holds cabinet rank.The Finance Member of the Board represents the Provincial Finance Minister.The Vice-Chairman acts as General Manager.

2.2 The Railway functions as a commercial enterprise and the RailwayBoard has adequate authority over day-to-day operations. Decisions withrespect to all capital expenditures and summary operating budgets, theappointment of senior officers, salary and wage scales and general rateand fare levels (though not, as a rule, individual rates) are subject to

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Provincial Government approval. Central Government powers are generallylimited to broad issues of national policy.

2.3 The Railway management is competent and the executive staffwell-trained and efficient. A more rigorous control and supervision ofthe personnel in charge of operations in the field appears, however,necessary to improve efficiency (see paras. 2.9 to 2.11).

B. Railway Property

(i) Rail Lines

2.4 The P.W.R. serves 5,335 route miles with 7,590 miles of trackand extends to every important traffic center in the Province (see Table 1).Three gauges - broad gauge (51611), meter and narrow (2161") - are involved,although the broad gauge system is dominant with 89% of total trackage.There have been no important increases in the network over the past tenyears. Track is well maintained and improvements, such as heavier rails,deeper ballast, increased sleeper density and welding of rail/joints, arebeing carried out. In recent years important junction station yards havebeen remodeled and resignalled to increase capacity and efficiency, andtrain control systems have been modernized over much of the system.

(ii) Motive Power

2.5 The Railway broad gauge system has 939 locomotives (see Table 2)of which 316 are diesel and 623 are steam (oil fired). All additionsand replacements over the past ten years have consisted of diesel locomo-tives. As a result 35% of the broad gauge fleet is now diesel as comparedwith 12% ten years ago, and motive power has increased 26% in terms ofnumbers of locomotives and by nearly 40% in terms of haulage capacity.About one-third (200) of the broad gauge steam locomotives are more than50 years old and should be replaced. All locomotives on the meter andnarrow gauge systems are steam and most are overage. Maintenance oflocomotives is satisfactory; a new diesel locomotive workshop was put

into operation in 1965 wfith facilities for 200 locomotives and an ultimatecapacity for 500.

(iii) Rolling Stock

2.6 There are about 33,400 broad gauge freight cars (in terms of4-wheelers), an increase of 43% over the 1955/56 level (see Table 2).About half of these are relatively new, having been placed in serviceduring the past ten years, while 10% are overage (over 45 years). Almostall of the freight car fleet is h-wheeled equipment with a capacity ofabout 22 tons. Of 1,860 broad gauge passenger cars, approximately 37%are over 35 years old and overage by P.W.R. standards, while about halfare less than 10 years old. The overall increase in broad gauge equip-ment over the past decade was 27%, roughly in line with traffic growth.

The stock is generally well-maintained.

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(iv) Other Property

2.7 Buildings, stations, bridges and other structures throughoutthe P.WoR. system are maintained to satisfactory standards. Workshopcapacity has been considerably expanded over the past five years and amodern apprentice training school capable of turning out 300 tradeapprentices and 100 apprentice mechanics annually has been established.

C. Operating Efficiency

2.8 The conflict between India and Pakistan in 1965/66 affectednormal operations temporarily so that 1964/65 is used in this reportfor purpose of comparison with previous years.

2.9 Table 3, which presents statistics on railway operations,indicates a slow trend towards increased efficiency. For example, theproportion of locomotives, freight cars and coaches under repair has beenreduced. The average net freight train load has increased by 32 percentin the past decade. Net ton-miles per freight train hour have alsoincreased by 28%, or about 2.4% per annum, as diesel locomotives havepermitted the haulage of longer and heavier trains.

2.10 The average speed of all freight-trains worked by steam anddiesel locomotives in 1964/65 was only slightly more than 8 to 11 milesper hour respectively, showing a slight deterioration. While these speedsmay have been affected by works in progress, these averages are notsatisfactory; PWR has confirmed during negotiations its intention to givehigh priority to the implementation of appropriate technical and organiza-tional measures with a view to improving operating efficiency as a wholeand, particularly, the speed of freight trains.

2.11 Utilization of equipment is also not satisfactory. For example,freight car miles per car day have deteriorated steadily from 40 or morein 19-58-60 to 37 in 1964/65. Similarly, the utilization of diesel loco-motives averaged only 15 hours per day, which is low. Car miles per carday could be increased to, at least, 40 miles, while the utilization ofdiesel locomotives could be improved to 18 hours; both of these standardswere aclhieved in the past. These matters,which lhave a direct bearing onthe requirements for rolling stock and locomotives,were discussed duringnegotiations and PRR has agreed to aim at achieving a daily average mileageper freight car of 40 miles and an average 16 hours of diesel locomotiveuse per day.

2.12 Railway freight traffic is dominated by bulk commodities whichlend themselves to car-load lots moving between relatively few points.This type of traffic makes up 75% of PoW.R. freight movements and theproportion will probably rise to 80% by 1970. In spite of this, PoWORocontinues to rely heavily on the standard 4-wVheel freight car type, andwhile about 16,700 new cars were placed in service over the past 10 years(almost one-half of the current fleet), only 8% of the present stock

consists of higher capacity bogie-wheeled cars. The Railway givesinsufficient recognition to the need for larger cars with bogies. PWRhas agresd during negotiations that the Planning Cell it is establishing(see para. 5.13) will, inter alia, study the development of a phasedprogram for the more widespread use of bogie freight cars based on presentand anticipated traffic movements and the technical and operationalproblems involved.

D. Manpower and Wages

2.13 P.W.R. had 132,000 employees in 1966, 27% more than ten yearsearlier. The number of employees per 1,000 train miles is about 4.5,which is higher than that of the East African Railways (3.4), but lessthan that of the Indian Railways (5.1). The growth-of personnel hasbeen considerably less than the rate of traffic increase so that employeeproductivity per traffic unit (passenger miles plus net ton miles) hasincreased by about 15% (1.4% annually) since 1955/56 (see Table 3).

2.14 Salaries and wages have, however, increased 40% in real termsover the past ten years, more than offsetting any gains in productivity.Thus, labor costs have followed a world-wide trend towards higher levelsand may be expected to continue to do so. However, labor expenses totalonly 44j% of operating expenses (including depreciation) which is a satis-factory level; furthermore, it has been declining since 1962 when it was47%.

2.15 The Railway has established an Organization and Method Unit toidentify ways of increasing labor productivity, chiefly through organi-zational and procedural improvements. A branch of the Unit has beenestablished in the Workshop Division and plans exist for other branchesin each Operating Division. Future employment policies should take intoaccount particularly the redeployment of surplus staff arising from theseimprovements and from further mechanization and the discontinuance ofuneconomic services (as proposed in para 5.11(i). The Board is aware ofthe need to keep staff to the minimum required and intends to apply asuitable policy of staff recruitment-

E. Traffic Trends

2.16 P.W.R. traffic has increased substantially over the past decade(see Table 4 for details):

1955/56 1965/66*(000,000) (000,000)

Total Passengers (No.) 87.2 122.9Passenger-miles 4,409 6,006Total Freight (tons) 10.6 14.9Freight ton-miles 2,874 4,696

* Provisional.

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2.17 Over the period, the passenger traffic growth rate has exceededthat of population and has been lower than the increase in provincial(West Pa.istan) income, while freight traffic has grown faster than income.

2.18 As shown below, the rate of traffic growth is declining.(The comparison is with 1964/65 traffic because of the distortion there-after resulting from the conflict with India.)

Annual Rate of Growth

1955/56 - 1959/60 1960/61 - 1964/65 Overall Ten-First 5-Year Plan Second 5-Year Plan Year Period

Passenger-miles 6.1 2.3 3.9Freight Ton-miles 7.5 5.3 6.3

Gross Provincial Product 3.1 5.7 4.6

Population 2.3* 2.6* 2.4*

* Approximate.

2.19 During the First Five-Year Plan, Railway traffic growth exceededthe growth in population and income by a substantial margin. During theSecond Plan, however, the rate of traffic growth declined sharply at thesame time that the growth rate of population and income accelerated. Whileno reliable data are available with which to assess the reasons for this,it seems evident that increasing road transport competition is largelyresponsible. The decline in the passenger traffic rate of growth occurredin spite of costly service improvements involving a rapid expansion ofservice frequency which contributed to line congestion in addition toincreased passenger service costs (train-miles performed with shortertrains increased three times as fast as passenger-miles). The decline inthe freight traffic growth rate was accompanied by a marked increase inthe average length of haul from 271 to 339 miles; this indicates thatshort-haul traffic was being lost to road transport. This conclusionreceives further support from the fact that while commercial bulk freightgrew 6% annually in the last 10 years, the increase in other commoditieswas negligible; during the last 5 years the volume of non-bulk commoditiesactually declined.

III. THE PROJECT

A. The Third Five-Year Plan (1965/1970)

3.1 The P.W.R.'s Third Five-Year Plan has been approved by thePlanning Commission at an expenditure level of Rs. 1,500 million(US$ 315 million equivalent) including a carry over of about Rs. 500 millionfrom the Second Five-Year Plan and Rs. 1,000 million of new works.The foreign exchange component is estimated at about Rs. 790 million(US$ 165 million equivalent), (For details see Table 5.)

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3.2 The following are the main items in the Plan (see Annex 1 fordetails):

(i) motive power and rolling stock. The plan includes 140diesel and electric locomotives, 265 passenger cars,about 7300 freight cars and 190 specialized passenger/freight vehicles amounting to 40% of Plan expenditures.These are needed to replace overage stock and provideadditional capacity for expected traffic increases.

(ii) track renewal, signalling and line capacity works, includingbridge strengthening amounting to 26% of Plan outlays.These are needed to increase running speeds, improve trainhandling and permit heavier loadings, as well as for normalrenewal requirements.

(iii) factory and workshop expansion (17% of Plan expenditures),specifically the construction of a factory (with WestGerman assistance) with a capacity of 150 passenger carsper year, and a concrete sleeper factory capable of pro-ducing 200,000 sleepers annually. Both factories willyield important savings in foreign exchange. Concretesleepers will permit increased speeds and loads and, byfacilitating the introduction of long welded rails, reducetrack main.tenance costs.

(iv) new line construction (12% of Plan expenditures) Two linesare involved. One, consisting of a 6-mile link to thenew national capital of Islamabad, is of minor importance.The other involves the expenditure of Rs. 103 million(US$ 22 million equivalent) on a 146-mile line from DeraGhazi Khan to Kashmor which represents the balance of alarger scheme to build a line from Kashmor to Kot Adu, adistance of 191 miles. The entire scheme was criticizedby IDA in 1964 as probably not justified, specially inview of the proximity of alternative road services (seeReport No. TO-412a) and the low financial return estimated,in 1962, at only 3 percent. This assessment does not,however, include the operational benefits of the line,resulting from the added capacity it provides for thenorth-south arterial movements and from its usefulness asan alternative in the event of serious main-line disruptions.Furthermore, current planning calls for development of thearea served as a major agricultural area. Line constructionwill provide urgently needed local employment and willinvolve a negligible amount of foreign exchange. Takingthese factors into consideration the Provincial Governmenthas approved the scheme and has passed it for final consi-deration by the Central Government.

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3.3 The Third Five-Year Plan allocations fall short of originalRailway expenditure request by approximately one-third, although addi-tional schemes basically related to yard improvements may be approvedwhen feasibility studies now underway are completed. The Plan has beenredesigned to meet minimum needs with some allowance for operationalimprovements. On the whole, the Plan fulfills this purpose realisticallyand is considered a suitable basis for the proposed project. With respectto the dieselization and track renewal parts of the Plan, additionalinvestments would probably be justified to accelerate the programs if suchfunds were provided (see paras. 5.9 and 5.10). The Railway management iscapable of executing the Plan effectively.

B. Description of the Project

3.4 The Project consists of that part of the Railways' Third Five-Year Plan which covers, for the year 1967/68, the P.W.R.'s requirementsfor motive power and rolling stock, track material and equipment, plantand machinery for workshops, continuation of electrification and for mis-cellaneous engineering and structural works and bridge strengthening.The cost of the Project is estimated at about Rs. 305 million (US$ 64million equivalent) with a foreign exchange component of about US$ 36 mil-lion equivalent; the cost estimates are realistic.

3.5 The major items for procurement in the Project are:

a) About 35 main line diesel electric locomotives.b) Materials and components for the local manufacture in

the Railway workshops of about 1,500 freight cars(in terms of four-wheelers).

c) Materials and components for the local manufacture ofabout 50 specialized freight vehicles.

d) Electrification - on-going work Lahore-Khanewal section.e) About 60 passenger coaches.f) Wooden sleepers for the renewal of about 200 miles of

railway track.g) Track materials, fittings and equipment for the renewal

of about 200 miles of track.h) Plant and machinery for workshops.i) Engineering and structural works.

C. Source of Funds

3.6 Foreign exchange financing is proposed as follows:

Source of Funds US$ millionTotal

German credit for carriage factory 4T0TU.K. credit for electrification scheme 5.50

9.90Various bilateral foreign financingunder negotiation 12.60Proposed Bank loan 13.50

36.00

3.7 Bank financing would be confined to imported items subject tointernationial competitive bidding for which credits are not being madeavailable from other sources. Disbursements will be made against presen-tation of the usual documents, evidencing the expenditure of the foreignexchange for the import of goods and services. These may be itemized asfollows: US$ million

Items Total

- Materials and components for the localmanufacture of about 1200 freight cars(about 900 4-wheelers and about 300 bogiecars)1 4.00

- Materials and components for the localmanufacture of about 50 specializedpassenger/freight vehicles 0.50

- Wooden sleepers 4.00- Fittings for rails, sleepers, points andcrossings 2.15

- Material for the local manufacture ofconcrete sleepers 1.05

- Plant and machinery for workshops 1.30Contingencies 0.50

13.50

Since estimates are based upon recent experience in purchasing similarequipment, the contingency allowance has been limited to about 4% of thetotal.

D. Execution

3.8 It is anticipated that the progress payments would be scheduledas follows:

US$ millionPeriod Item Equivalent

Up to June 1969 Materials and component for localmanufacture of freight cars andspecialized vehicles, fittings andmaterial for the local manufactureof concrete sleepers, plant andmachinery and about half of woodensleepers. 11.00

Up to December1969 Remaining half of the wooden sleepers 2.00

13.00Contingency 0.50

13.50

3.9 If any savings in expenditure are realized as a result offavorable prices in competitive bidding, consideration would be givento the use of these savings for justified items in the Plan because ofthe continuous needs of the Railway and the fact that these needs are keptto the minimum because of limited funds.

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IV. FINANCES AND EARNINGS

A. Introduction

4.1 The Railway's accounts are those of a Government departmentand, as now constituted, show the origin and use of public funds. Thecapital and operating budgets have to be approved by the legislature.

4.2 The terms on which foreign loans and credits raised by theGovernment, together with local currency funds, are made available tothe Railway are summarized below:

a) Foreign loans and credits for additional capital invest-ment are incorporated in the Government capital-at-charge only as Government amortizes the debt. Anexception to this rule concerns IDA Credit 57 where theportion used to finance replacements is repayable toGovernment over 20 years and bears interest at 5i0 p.a.,while the portion used to finance additions is treatedas "capital-at-charge".

b) Local currency funds for additional capital investmentare added to the "capital-at-charge" while funds forreplacements or minor improvements are provided fromthe Railways' own funds.

c) Interest on the1tcapital-at-charge" is payable toGovernment at (a) 4% p.a. on capital invested up toJune 30, 1965 and at (b) 5 p.a. on capital investedthereafter.

4.3 The Railway's present system of accounting is being developedalong more commercial lines, with the aid of consultants retained byarrangement with USAID. The consultants, Booz, Allen and Hamilton,International, Inc., have been engaged on a three-year contract, commencingin April 1965. Their main tasks are:

a) to develop a comprehensive plan for the modernization andimprovement of the systems of accounting, compilation of statistics andfinancial management and of the administrative processes necessary tomaintain these systems. Ultimate mechanization will be a major consi-deration; and

b) to assist in the introduction of the modified proceduresin the Railway. Emphasis is placed on the production of timely reportson the operational and financial performance.

4.4 The consultants, whose assignment also covers Pakistan EasternRailway, have completed their preliminary survey and have prepared newaccounting procedures and forms. Introduction of the various new pro-cedures is in progress, on a trial basis, on both railways.

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4.5 The manner in which fixed assets are valued and depreciationcalculated have been discussed with the Railways who have agreed tocarry ou-s a study to determine whether revaluation of these assets andadoption of depreciation based on service life, would be feasible.The Railways have undertaken to keep the Bank informed of the progressof this study.

4.6 The Railway's accounts have been audited annually by theDirector of Railway Audit. The present auditing arrangements are satis-factory. Some revision of procedures may be necessary when commercialaccounting is finally introduced, but the Board understands this and isready to take action at the appropriate time.

B. Rates and Fares

4 .7 Since independence relatively modest increases have been madein railway freight rates, with the pre-partition rate structure beingretained until revised in 1964. The revised rate structure provides for12 classes; the first group of six classes covers primary commodities andthe second group covers high valued traffic. The revised rates are simpleand are all inclusive - short distance, terminal and transshipment chargesare no longer levied separately. Freight rates have been related to loadby devising four weight groups for each class rate, providing an incentiveto shippers to offer goods in wagon loads. The rates for coaching traffic,other than passenger, were also revised with effect from July 1, 1964.During 1965 a large number of reduced rates for goods and parcel trafficwere quoted and, in some cases, rebates were introduced for commoditiesmoved for export. The distribution of freight traffic in 1964-65 isillustrated in Table 6.

4.8 In 1964 the number of passenger classes was reduced from 7 to5, i.e., first, second, upper class railcars, inter-class and third and,at the same time, ad-hoc increases in fares were levied in order to meetincreases in working expenses. There are concessionary fares allowed tostudents, teachers, tourists, pilgrims and certain other specializedclasses of passengers. First and second class passengers account for only1% of the passenger traffic but earn about 8% of passenger revenues; upperclass railcars traffic is negligible; inter-class accounts for almost 5%0of the traffic and 13% of revenue; and third class traffic is about 95%of total and earns 79% of the revenue. The PWR has indicated that it istheir intention to reduce the number of passenger classes to four during thenext few years.

4.9 The general effect of the revisions to freight rates andpassenger fares in 1964 was to increase operating revenues by about 3%.As a result of the continual rise in costs, further increases were madein certain freight rates in July 1966, estimated to increase revenue byabout 2%.

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4.10 In 1964, PWR introduced a tariff which took into account astudy of direct operating costs; the lowest class rates reflect thesecosts. The existing traffic costing organization, now to be merged intothe larger planning cell, keeps costs and tariffs under constant review,with procedures being refined in the light of experience.

C. Earnings

(i) Earnings in Second Plan Period (1960/61_- 1964/65)

4.11 Although the P.W.R.'s earning position is still satisfactoryit has deteriorated over the Second Plan period. Total operating revenueincreased from Rs. 486 million in 1960/61 to Rs. 582 million in 1964/65,but working expenses increased at an even faster rate, from Rs. 333 millionto Rs. 486 million for the same years (Table 7). As a result, net opera-ting revenues have declined from Rs. 153 million to Rs. 96 million, theoperating ratio has deteriorated from about 69 percent to about 83 percent,and the rate of return on the net investment fell from 11% in 1961/62 to7% in 1964/65.

4.12 Operating expenses have been affected by the fact that:

i) Fuel and other material costs have risen, largely due toincreased import duties;

ii) Wage levels have increased at an average rate of about4.6 percent per annum since 1960/61;

iii) Depreciation charges, which accounted for 7.2 percent oftotal revenues in 1960/61, absorbed 12.6 percent in1964/65. The total charge is made up of:

a) annual appropriations from revenue at the rate ofone-thirtieth of the capital-at-charge, plus

b) annual repayments of those portions of loans raisedto finance replacements (commenced in 1961/62)

4.13 Economies expected from previous and current modernization andimprovement programs have not yet materialized. The increase in passengerservices, discussed in para 2.19,which added to line and terminal conges-tion and affected the productivity of freight services, may have beena contributory factor.

4.14 During the period no general tariff increases were made tooffset the rising level of costs other than those arising from theintroduction of the new rate and fare structure on July 1, 1964, whichincreased revenues thereafter by about 3%.

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(ii) Estimated Earnings, 1965/66 to 1969/70

4.15 The P.W.R. has prepared estimates of future revenue and expensesthrough 1969/70 (Table 8). These estimates are based on the Railway's ownstudies of future traffic; they assume no increases in rates and faresbeyond those effective July 1, 1966, and the continuation of the currentlevel of wage and salary scales and materials costs, with allowances forthe extra costs of handling additional traffic. The forecasts for theyears 1967/68 to 1969/70 may be summarized as follows:

1967/68 1968/69 1969/70(Rs. millioinsF

Operating Revenue 662 689 717Working Costs 439 454 470Operating Income 223 7 27Depreciation Charges 86 96 iOhNet OPerating Revenue 137 139 vInterest charges on Foreign Loans

raised by Government to financeP.W.R. capital expenditure 26 28 31

Net Income lll 1ll 112Dividend Equivalent on Govt. Equity 64 71 77Balance to surplus equity -b7 -b0 3

Operating Ratio 79% 80% 80%

4.16 The operating ratio improved to 80.6 in 1965/66 according to theRailways provisional accounts for that year and the forecasts for the years1966/67 to 1969/70 indicate that it will remain at about this level, andthe rate of return on net fixed assets would remain at about 7% in 1969/70which is satisfactory. Two factors affecting these financial estimatesare the traffic forecasts and the assumptions concerning cost levels.Adjustments in accordance with the comments concerning traffic levels madein para 5.3 would have only a minor effect and would reduce the rate ofreturn in 1969/70 only slightly to about 6.8%. However, if allowances aremade for such rises in the level of costs of labor, fuel and materials aslong term trends indicate would be reasonable, the rate of return coulddecline to about h.5% by 1969/70.

4.17 The rates of return referred to in paras 4.11 and 4.16 shouldbe treated with some reserve, since the valuations of net fixed assetsused in the calculations are estimates, and depreciation charges arecalculated in a somewhat arbitrary manner (para 4.12 (iii)). The Railwayshave undertaken to study the feasibility of revaluing the assets, whichwould provide a firmer base for the return. The outcome must be awlaited.To assure that the profitability of operations is maintained at a goodlevel, the Railways have given the Bank assurances that the operatingratio will be maintained at about 80%.

- 13 -

D. Finances

(i) Balance Sheet

4.18 The summary balance sheet of the P.W.R. as at June 30, 1965,which is given in Table 9, together with an Annex containing explanatorynotes, is further summarized below:

(Rupees, millions)

Fixed Assets at Cost (estimated, seeitem 1 of the annex to Table 9) 2440

Less accumulated depreciation 664 1776Current Assets 79

Less current liabilities 158 408Total net assets 218k

Government Capital-at-charge 1668

Equity built up from Railway earnings:Depreciation and Improvement reserves 192Surplus 5Improvement element in cost of replaced

assets 319 516Total capital and reserves 215

4.19 The current ratio at 3.6 and the liquid ratio at 1.8 are satis-factory and show improvement over recent years.

(ii) Funds

4.20 During the Plan period (1965/66 to 1969/70) the P.W.R. has beenallocated about Rs. 1500 million for financing investment (additions,replacements and minor improvements) as detailed on Table 5. Additionalfunds required for reimbursing the Government for part of the service ofGovernment loans raised for the Railway, for paying the dividend equiva-lent on the capital-at-charge and for replenishing working capital andreserves, bring the total requirements to about Rs. 2331 million, asdetailed on Table 10 and summarized below:

July 1965 toJune 1970(Rs. millions)

1. Debt service of loans raised by theGovernment for the Railwaya) Interest on non-capitalized unpaid

balance of such loans 134b) Amortization of portion of loans used

for replacements 129

2. Gross capital expenditure for replacements,betterments and additions 1500

3. Additional working capital and Reserve Fund 2444. Dividend equivalent on Government Capital-at-

charge 3242,331

4.21 Almost half of the necessary funds will be provided from cashgenerated by operations, about 30 percent from expected foreign borrowingand about 20 percent from Government investments to cover local currencycosts, as follows:

July 1965 toJune 1970Rs millions)

1. Gross cash generated by operations 1,1112. Proposed Bank Loan 643. Concurrent credits from consortium Govts. 3164. Expected future foreign borrowing 4075. Government investment (excluding amrlortization

of loans used for additions) 4332,331

V. ECONOMIC JUSTIFICATION

A. Introduction

5.1 The primary objectives of the P.W.R.'s Third Plan investmentsare, first, to expand capacity to meet the growing traffic demand andsecond, to replace worn-out with modern equipment. A third and ancillaryobjective is to save foreign exchange and provide local employment bygreater domestic production, particularly of freight and passenger carsand concrete sleepers.

B. Forecasts of Traffic

5.2 The P.W.R.'s forecasts of passenger and freight traffic for1965/70 imply a reversal of the recent decline in growth rates (see para2.18). Passenger miles are expected to grow at 303% per annum (as against2.30 in 1960-65) and freight ton-miles at 6% (compared to 5.3% earlier).These forecasts are based on Planning Commission estimates of a 6.3% annualgrowth rate in provincial income during the Plan period (up from 5.7% in1960-65) and continuing population growth of about 2.6% per annum.

5.3 This traffic forecast appears optimistic. The planned increasein national income may not be achieved (see Report No. AS-112a, CurrentEconomic Position and Prospects of Pakistan, May 1966). Furthermore, anaccelerated increase in population and income growth between the Firstand Second Plans did not prevent a decline in railway traffic growth rates.

- 15 -

Large new investments in roads and road transport planned for the currentperiod foreshadow intensified road competition. It is, therefore, quitelikely that the annual traffic growth will be limited to about 5% forfreight and 2% for passenger traffic. Under these more realistic assump-tions, 1969/70 freight traffic would be about 6.3 billion ton-miles(compared to 6.6 billion estimated by the Railway) and passenger trafficwould reach 7 billion passenger-miles as compared to PW.R.ts estimateof 7.4 billion. However, the differences are not sufficiently significantto justify rejection of P.W.R.'s estimates.

C. Rolling Stock and Motive Power Regqurements

i) Passenger Cars

5.4 The Third Plan provides for only 185 additional passenger cars.On the basis of P.WOR. experience, these cars can cover a maximum of 675million passenger-miles, bringing total capacity to 7 billion passenger-miles by 1969/70. Since this capacity corresponds closely with estimatedtraffic, these acquisitions are well justified.

5.5 About 250 new passenger cars will be needed to replace worn-outequipment but the Plan provides for only 80. As a result, some worn-outcars will either not be replaced, which would restrict capacity belowrequirements, or extensive and uneconomic rebuilding of old cars will berequired. PWR will review this potentially unsatisfactory situation aspart of the studies to be carried out by the Planning Cell it has agreed toestablish (see para. 5.13).

ii) Freight Cars

5.6 The Third Plan provides for 7,300 new freight cars (in termsof four-wheeled units); of these, 6,300 are to expand capacity and 1,000for replacement. With the 6,300 additional cars, the total fleet willbe 41,100, which is sufficient to meet the 1969/70 estimated traffic of6.3 billion ton-miles on the basis of P.W.Re utilization assumptions(40 car-miles per day with 10.5 tons average load). The provision of1,000 cars for replacement, however, will meet only one-half of estimatedrequirements. Since the assumed car utilization of 40 miles per day islow, an increase of as little as one mile per day would increase capacitysufficiently to permit replacement requirements to be fully met. Theinvestment program for freight cars is therefore reasonable.

iii) Motive Power

5.7 The Plan provides for 80 additional locomotives, even though,under P.W.R. methods of estimating, its requirements would be slightlymore than 100. Even allowing for an unduly high allowance for spares(22%), a shortage of about 15 locomotives is likely. The P.W.R. intendsto relieve this shortage by keeping in service old locomotives whichshould be replaced.

- 16 -

5.8 About 90 overage steam engines will be replaced in 1965-70 by60 diesels. Nevertheless, in 1970 nearly 40% of the P.W.R.'s locomotivefleet will still consist of 45-70 year old steam engines. Experiencein other countries indicates that replacement of old steam engines bydiesels yields high economic rates of return, frequently ranging from12% to 25%, so that the pace of P.W.R.'s dieselization may deserve to beaccelerated. P.W.R. has agreed to include an economic study of the desi-rability of more rapid dieselization in the work program of the PlanningCell it will establish (see para 5.13).

D. Track Renewals and Improvements

5.9 In mid-1965, P.W.R. had a backlog of 1,000 miles of track and1,500 miles of sleepers needing renewal. The Third Plan allocation isnot sufficient to keep pace with estimated requirements, so that thebacklog will increase to about 1,300 miles of track and 3,000 miles ofsleepers in 1969/70. No data are available to permit an economic evalua-tion of renewals. The P.W.R. assesses these requirements on an engineeringand financial basis which probably understates the economic benefits andtherefore the size of needed renewals. Agreement was reached on a studyby the Planning Cell to be established by the Railway to determine theeconomic costs and benefits of track and sleeper replacement and thesignificance of current backlogs. (see para 5.13).

E. Transport Coordination

5.10 Increasing competition between road and rail transport and thelarge investments planned in both fields make transport coordination ofparticular importance in West Pakistan. This has received little atten-tion in the past and there were no effective organizations, policies orprocedures specifically designed to foster coordination. A study programhas, however, now been approved for a basic research program to developappropriate policies. This program calls for population, production andimport-export surveys3 traffic analyses and forecasts; inventories oftransport capacity by mode; equipment age, suitability and utilizationstudies; comparative cost studies; the development of criteria forevaluating investment alternatives and establishing priorities; rationa-lization of rate and fare structures; studies of administrative andregulatory policies and organization; analyses of tax structures andfinancing policy. In short, the program will cover all the important aspectsof transport coordination. Responsibility for the completion of thesestudies lies with a new Transport Planning Cell within the West PakistanGovernmenti's Planning and Development Department, assisted by the indi-vidual agencies concerned. A working-level inter-departmental committee,kmown as the Transport Planning Group, will be the overall coordinatingagency responsible for expediting the studies and assessing the results.A high level transport Coordination Board will implement the recommen-dations of the studies in a manner consistent with Government policy.All these organizations have recently been created on a full-time permanentbasis and the study program is beginning. The Government has agreed toprovide the Bank with a schedule of studies and with regular half-yearlyprogress reports commencing December 31, 1967.

- 17 -

F. Evaluation of Investments

5.11 While transport coordination goes beyond the responsibility ofthe Railway, certain specific issues deserve its early attention:

i) Analysis of uneconomic stations, lines and services. Faced withrising costs, increasing line congestion and road competition, the P.W.R.should identify uneconomic stations, lines and services so that they canbe curtailed or abandoned. In 1964/65, 6% of the P.W.R.'s freight stations

generated 75% of total freight traffic, while nearly one-half of its

stations handled only 3,000 tons or less, which was probably insufficientto cover costs. Many passenger services also appear uneconomic; theyalso interfere with the efficient movement of freight. The P.W.R. hasagreed to undertake an economic and financial analysis of stations, linesand services and the consequences of reducing or eliminating those shownto be uneconomic. This work will be undertaken by the Planning Cell ithas agreed to establish (see para 5.13).

ii) Economic Appraisal of proposed investments

5.12 P.W.R. bases its investment decisions on financial and technicalconsiderations and does not now collect data which permit a proper economicevaluation of investments. The necessity for an economic evaluationof the Railway's dieselization and track renewal programs has already beenreferred to (paras 5.8 and 5.9),

5.13 In the interest of developing sound investment policies and moreeffective transport coordination, P.W.R. should economically appraise allof its investments. For this purpose P.WoR. should set up a permanenteconomic unit. The PWR already has a Traffic Costing Cell and has recentlyestablished a planning unit under a Chief Planning Officer. It has agreedto merge these two organizations into a Planning Cell as soon as possibleand to incorporate suitable staff for economic research. Agreement hasbeen reached on a list of studies, including the economic appraisal of

investments, line station and service analysis, use of bogie equipment

and other related subjects to be completed in time for the appraisal ofFourth Five-Year Plan requirements.

VI. CONCLUSIONS AND RECOiMMEDATIONS

6.1 The P.W.R. has successfully met a substantially increasedtraffic demand over the past ten years, while maintaining a satisfactoryfinancial position and improving efficiency slightly. The Third Planinvestment program, of which the Project forms an integral part, willpermit the Railway to meet anticipated demand and is, in general,technically sound. The Railway management is capable of executing theProject and the overall Plan effectively.

- 18 -

6.2 The Project provides a suitable basis for a Bank loan ofUS$13.5 million equivalent, for a period of 25 years including 3-1/2 yearsof grace. The proceeds would be relent by the Government of Pakistanto the Province of West Pakistan and made available to the Railway:in neither case will the terms and conditions be more favorable to therecipient than those granted under the Bank's loan agreement.

May 10, 1967

Table 1

PAKISTAN WESTERN RAILWAY

Route and Track Mileage, by type of gauge, andthe number of enrouite traffic stations maintained

June 1956 June 1966 */

Broad Gauge (5161:)Route Miles 4,560 4,637

Total Track Miles 6,538 6,745

Meter Gauge (31 3-3/8"1)Route Miles 318 318

Total Track Miles 390 393

Narrow Gauge (216"1)Route Miles 457 380

Total Track Miles 531 452

Grand TotalRoute Miles 5,335 5,335Track Miles 7,459 7,590

No. of Traffic StationsBroad Gauge 675 736Meter Gauge 49 52Narrow Gauge 47 31

Total 771 819

! Provisional

Table 2

PAKISTAN WESTERN RAILW4AY

Rolling Stock by Type and Gaugeas of June 30, 1956, 1965 and 1966

1956 1965 1966

Broad Gauge

LocomotivesDiesel 92 311 316Steam 652 614 623

Passenger cars 1,466 1,715 1,861Specialized freight vehicles 895 1,137 1,142Freight cars 23,357 32,011 33,414

Meter Gauge

LocomotivesDiesel - - -Steam 36 46 46

Passenger cars 80 129 126Specialized freight vehicles 27 32 32Freight cars 970 1,073 1,073

Narrow Gauge

LocomotivesDiesel -Steam 45 41 41

Passenger cars 156 116 116Specialized freight vehicles 48 46 46Freight cars 608 560 561

Total

LocomotivesDiesel 92 311 316Steam 733 701 710

Passenger cars 1,702 1,960 2,103Specialized freight vehicles 970 1,215 1,220Freight cars 24,935 33,644 35,048

*/ Provisional


Operating Performance Averages (1955-56 to 1965-66)

(Broad Gauge only)

1955/56 1956/57 1957/58 1958/59 1959160 1960/61 1961/62 1962/63 1963 /6 196a/65 1965,66

Percentage of ServiceableLocoiaotives 88.1 87.5 85.5 8218 83.1 83.7 85.0 86.7 88.3 88.5 90.3

Percentage of ServiceablePassenger Vehicles 84.1 81.5 85.5 83.9 87.4 87.7 87.3 83.8 83.2 84.1 88.9

Fercentage of Serviceable WJagons 94.1 93.4 92.8 94.3 95.0 94.o 94.5 94.8 94.5 96.3 97.9

Engine Miles Per Engine Day (In Use) 125 131 131 133 131 128 126 129 130 128 119

Engine Hours Per Day Available 10.4 11.1 11.9 12.7 12.8 12.7 12.3 12.0 12.0 12.3 11.4

Net Tonnage per Goods Train (tons) 386 412 423 43h 434 456 426 454 493 512 499

Wagon-Miles Per 'Wagon Day 36.3 40.0 41.5 43.0 39.1 38.8 38.7 37.6 38.0 37.3 35.2

Average Wagon Load (tons) 13.5 14.1 13.9 13.6 13.7 14.2 13.8 14.5 14.7 15.8 15.9

Net Ton-Miles Per Wagon Day 349 1409 L 21 420 391 396 376 383 408 412 383

Average Goods Train Speed (m.p.h.) 10.1 10.0 9.83 9.90 9.69 9.89 10.2 10.3 10.2 9.91 9.94

Average No. of Wagons per Train(four-wheels) 43.2 43.1 45.7 45.1 46.o 47.1 46.1 46.9 47.5 47.5 47

Net Ton-Miles Per Goods Train Hour 4,186 4,447 4,487 4,432 4,542 4,865 4,698 5,047 5,375 5,362 5,198

Number of Employees (thousands) 104.1 107.0 112.0 113.9 117.7 121.8 122.6 125.9 127.8 130.4 132.2

Traffic Units per 1000 Employee .(thousands) 70 74.5 75.6 76.2 80 81 78 80 86 86 81

j Provisional.

May 10, 1967


Traffic Statistics 1955-6 to 1965-6

Ten-yearIncrease

195Y 56 1956/57 1957/58 1958/59 1959/60 1960/61 1961/62 1962/63 1963/64 1964/65 1965/66-' %

I. Passenger Traffic

1. Passengers Carried (thousands) 87,195 95,535 103,189 106,250 121,119 124,737 119,886 123,144 131,748 131,606 122,896 412. Passenger Miles (millions) 4l,h09 4,801 5,107 5,147 5,590 5,716 5,543 5,858 6,21t 6,258 6,oo6 363. Average Journey (miles) 50.6 50.3 49.5 48.b li6.2 45.8 46.2 47.5 47.4 47.6 48.9 -3

II. Freight Traffic

4. Specific Commodities-tons (thou-sands):

Cement 624 596 790 666 897 852 995 1,097 1,300 1l,00 1,181 89Petroleum Products 496 470 511 612 602 641 723 791 829 849 854 72Ballast and Stone 1,075 1,082 1,351 1,207 1,259 1,362 1,855 1,534 1,519 1,46i 2,554 138Food Grains 1,179 1,034 1,208 1,572 1,546 2,021 1,482 1,734 1,951 2,205 2,091 77Iron and Steel(incl. machinery) 234 279 282 275 253 313 345 394 405 586 406 74Coal and Coke (public) 692 1,062 1,040 1,07h 1,o45 1,124 1,100 1,187 1,300 1,101t 862 25Timber 160 212 189 194 195 207 193 205 239 196 188 18Firewood 590 636 6S5 656 651 731 687 673 717 685 647 10Ores 20 23 19 35 24 28 26 16 16 27 38 90salt 231 252 221 n 203 i 227 283 278 214 228 276 322 39Fertilizer n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 206 215 347

Total 5,301 6 6,494 T F 67 7,562 7,684 7,845 8,710 g,oo04 9,490 795. All other Commercial Cammodities-

-tons (thousands) 2,995 3,121 3,328 3,390 3,512 3,299 3,199 3,438 3,270 2,960 3,206 76. Total Commercial Traffic-tons(thousands) 8,296 8,767 9,594 9,884 10,211 10,861 10,883 11,283 11,980 l1,964 12,696 53

7. Railway Traffic - tons (thousands) 2.356 2.119 2 261 2.563 2.128 2,626 2.877 2,376 2.066 2.747 2.244 i8. Total Freight Traffic - tons

(thousands) 10,652 10,886 11,855 12,447 12,339 13,487 13,760 13,659 l4,046 1l,71 4,940 4o9. Freight Ton-Wiles (millions) 2,874 3,174 3,362 3,531 3,8114 14,129 3,979 L1,201 14,804 14,9141 4,696 6310. Average Haul (miles) 270 292 284 284k 309 306 289 308 342 336 314 1611. % Specific Commodities of Total

Conmmnrcial Traffic 614 61 65 66 66 70 71 70 73 75 75 17

aProvisional

May 10, 1967

PAKISTAN WESTERN RAILWAYTHIRD PLAN PERIOD - 1965/66 TO 1969/70ANNUAL FORECA.ST OF CAPITAL INVESTMiENT

(In Million Rupees)

Totals for PeriodTotal Foreign 1965/66 1966/67 1967/68 1968/69 1969/70

Particulars Cost Exchange Total FLE. Total F.E. Total F.E. Total F.E. Total F.E.1. New Construction 176.1 14.4 17.3 2.6 55.0 9.9 38.6 0.1 32.6 - 32.6 1.82. Rolling stock 592.5 403.5 85.1 44.2 89.0 54.6 107.8 74.6 155.3 115.0 155.3 115.03. Engineering and

Structural works 257.7 71.5 27.8 12.1 46.2 8.8 34.5 13.0 74.4 18.8 74.8 18.$4. Electrification 106.3 72.0 - - 20.0 13.0 40.0 26.1 23.2 16.4 23.1 16.55. Workshops rehabilitation

and expansion 69.6 39.9 6.0 4.5 10.0 7e3 14.4 8.6 19.6 9.8 19.6 9.76. Bridges 43.8 20.8 3.0 2.0 6.2 2.4 4.5 2.3 15.1 7.0 15.1 7.07. Track Renewals 252.0 163.9 59.4 33.6 39.7 20.7 50.2 31.3 51.3 39.2 51.3 39.28. Training and Research 2.0 1l0 - - - - - - 1.0 0.5 1.0 0.5

Grand Total 1,500.0 787.0 198.6 99.0 266.1 116.7 290.0 156.0 372.5 206.8 372.8 208.5

Funds Received

Capital 873.8 440.5 68.1 26.6 167.4 70.9 121.6 53.8 258.2 143.7 258.6 145.5

Depreciation Reserve Fund 575.0 332.4 119,2 68.4 85.6 45.4 156.3 99.5 107.0 59.6 106.9 59.6

Improvement Fund 51.2 14.1 11.3 4.0 13.1 0,4 12.1 2.7 7.3 305 7.3 3.5

Total 1,500.0 787.0 198.6 99.0 266.1 116.7 290.0 156.0 372.5 206.8 372.8 208.5

March 10, 1967 L

Table 6


FREIGHT TRAFFIC AND REVENUE:

(i) Actual 1964/65(ii) Projected 1969/70 1969/70(Estimated)

465 (actual) Revenue Ton Reve-Ton-miles Revenue per ton-mile Mile nue

Commodity (million) (Rs million) (Paisas) (million)(Rs mil)A. High Rated (above 10 paisas per ton-mile)

Petrol 50.5 10.4 20.5 63.3 13.0Livestock 22.1 4.4 20.2 21.4 4.0Iron Steel and

Machinery 353.8 36.8 10.2 363.2 37.0Tobacco-unmanufactired 11.9 1.6 13.6 24.1 3.3Cotton - Raw 64.7 8.2 12.7 142.2 18.1Sugar 24.2 2.8 11.6 51.2 5.9Jute 13.6 1.6 11.5 52.5 6.0Sugar cane 6.5 0.7 10.8 10.2 1.1Kerosene 103.9 11.0 10.6 118.0 12.5Miscellaneous 494.9 52.0 10.5 455.4 47.7

i,l4.1 129.5 11.3 1,301. 148.B. Medium Rated (6-10 Paisas per ton mile)

Vegetable Oils 2.2 0.2 10.0 29.4 2.9Cotton-manufactured 8.9 0.8 9.2 11.6 1.1Oil seeds 59.8 5.1 8.5 83.7 7.1Salt 40.1 3.1 7.7 48.3 3.7Cement 362.0 26.6 7.3 540.0 39.6Diesel and furnaceoils 363.1 24.7 6.8 364.1 24.8

Ballast, stone andgypsum 274.5 17.9 6.5 394.6 28.2

Molasses & Jagree 33.2 2.1 6.3 68.4 4.6Fertilizer _ 49.7 3.1 6.2 336.0 20.7

1,193.5 B575 7.0 1,576.1 132.7

C. Low Rated (below 6 paisas per ton-mile)Military traffic 153.5 9.2 6.o 137.3 8.2Timber 79.3 4.6 5.8 146.5 8.7Other grains andpulses 91.3 5.0 5.5 91.0 5.0

Rice and Paddy 193.2 10.3 5.4 355.1 19.0Fruits and vegetable 6.8 0.3 5.1 31.6 1.6Wheat 868.2 4°.7 407 528.4 24.7Firewood 134.8 6.2 4.6 142.3 6.5Fodder 48.5 2.0 4.1 211.6 8.6Coal & Coke(public) 497.6 16.3 3.3 954.9 31.2Metallic ores 16.5 o.6 3.6 26.5 1.0

29089.7 95.2 266 2,625.2 114.3Total 4,429.3 308.3 67 5,802.8 355.U

Railway fuel & stores 510.4 6.5 1.3 823.0 11.2

Grand Total 4,939.7 314.8 6.37 6,625.8 407.0Add 3% to average revenue per ton-mile(1966 tariff increases) 12.2

Total Estimated Freight Revenue 419.2Average Revenue per Ton-Mile 6.33 paisas

Table 7


Results of Operations for the Second Plan Period - 1960/6to_l 6

1960/61 1961/62 1962/63 1963/64 1964/65 Totals

(Rs. 000,000)Gross Receipts

Passengers 187.5 182.7 190.2 202.9 215.9 979.2Other coaching 32.7 30.8 29.0 31.2 36.7 160.4Goods 256.5 247.6 265.6 293.6 320.7 1,384.0Sundries 9.5 14.0 7.4 9.9 9.2 50.0Total Receipts 486.2 475.1 492.2 537.6 582.5 2,573.6

Working ExpensesAdministration 41.7 42.8 50.6 56.0 61.8 252.9Repairs and Maintenance 110.8 115.9 129.3 140.6 152.9 649.5Operating Staff 49.9 52.1 58.6 63.0 67.1 290.7Fuel 68.5 70.7 68.8 93.5 97.2 398.7Operation other thanStaff and Fuel 13.3 10.6 10.5 11.5 14.8 60.7

Miscellaneous expenses 14.1 11.7 15.1 16.6 17.9 75.4Ordinary Working Expenses 298.3 303.8 332.9 381.2 411.7 1727.9

Appropriation to DepreciationReserve Fund 35.0 26.0 43.0 44.5 51.8 200.3

Repayment of Foreign Loans forreplacements - 13.5 17.9 18.8 22.1 72.3

Total working expenses 333.3 343.3 393.8 444.5 485.6 2,000.5

Net Traffic Receipts 152.9 131.8 98.4 93.1 96.9 573.1

Interest on Foreign Loans 35.9 12.6 16.3 19.6 26.2 110.6Miscellaneous Transactions net 1.9 -2.8 -1.0 -20.0 -- -21.9

37.8 9.8 15.3 -n),j4 2 -a~Net Revenue 11 3 1T220 - 53.1 M09Dividend on Capital-at-charge .0 53M4 44 C2. 379Appropriation to Improvement

Fund 10.3 10.1 10.5 11.2 11.9 54.044.3 63.5 g5979 61.4 62e8 290.9

Surplus 70.8 58.5 24.2 32e1 7.9 193.5

Operating Ratio 68.6 72.3 80.0 82.7 83.4

Table 8

PAKISTAN W^ESTERN RAILW,4AY

FORECAST REVENUE ACCOUNTS

For the Third Plan Period - 1965/66 to 1969/70

1965/66 1966/67 1967/68 1968/69 1969/70 Totals(Provisional) (Rs. million)

Operating Revenue

Passengers 212.0 228.4 234.5 239.8 245.7 1,160.4Other Coaching 54.5 38.8 39.8 40.9 42.0 216.0Goods 314.2 356.5 377.5 398.5 419.5 1,866.2Sundries 10.4 10.1 10.1 10.1 10.1 50.8

Total Operating Revenue 591.1 633.8 661.9 689.3 717.3 3,293.4

Working Expenses

Labor Costs 224.0 237.2 244.4 251.6 258.8 1,216.0Fuel it 93.6 103.1 107.8 112.6 117.4 534.5Materials Costs 70.3 73.3 76.7 80.1 83.5 383.9Miscellaneous 9.4 9.5 9.6 9.8 10.0 48.3

Ordinary Working 397.3 423.1 438.5 454.1 469.7 2,182.7Expenses

Appropriation toDepreciation Reserve Fund 55.7 58.2 64.1 68.9 73.7 320.6

Repayment of Foreign loansfor Replacements 23.6 25.2 22.3 27.4 30.8 129.3

Total Wgorking Expenses 476.6 506.5 524.9 550.4 574.2 2,632.6

Net Traffic Receipts 114.5 127.3 137.0 138.9 143.1 660.8

Interest on Foreign Loans 21.9 26.5 26.3 28.3 31.4 134.4

Net Revenue 92.6 100.8 110.7 110.6 111.7 526.4

Dividend on Capital-at-charge56.1 58.8 63.9 70.5 76.8 326.1Appropriation to Im-provement

Fund 1.7 12.2 12.4 12.6 12.8 61.7

Surplus 24.8 29.8 34.4 27.5 22.1 138.6

Operating Ratio 80.6 79.9 79.3 79.8 80.01

Annex to Table 8


Notes on Basis of Operating Account Forecast

1. Passenger Revenue. Passenger miles are estimated to rise at anannual rate of 3.2% but passenger revenue is conservatively estimated torise at only 2.5% p.a.

2. Other Coaching Revenue. Assumed to increase pro-rata to passengertraffic.

3. Freight Revenue. The Railways have projected traffic to 1969/70 forthe major commodities in terms of ton-miles, and the revenue per commodityin 1969/70 has been forecast using the revenue per ton-mile earned by eachcommodity in 1964/65. The total revenue is enhanced by 3% (the approximateincrease in tariffs in 1966).

4. Sundry Revenue. No increase is assumed after 1966/67.

5. Operating Expenses. Fuel, materials and miscellaneous costs areassumed to rise in proportion to the rise in traffic units (freight ton-miles plus 50% passenger miles), while personnel costs are assumed to riseby two-thirds of the proportionate rise in traffic units.

6. Appropriation to Depreciation Reserve Fund. Calculated on the basisof one-thirtieth of the capital-at-charge.

7. Repayment of Foreign Loans. Based on the terms of the individualloans. P.W.R. estimated those portions of the loans financing replace-ments of assets.

8. Dividend on Capital-at-charge. Increases with the additions tocapital-at-charge in respect of capital investment in additional assets.The annual dividend rate was raised to 5% on capital raised after June30, 1965, and is assumed to be unchanged during the Plan period.

Table 9


Restated Summary Balance Sheet - June 30, 1965

Assets Rupees Millions

Fixed Assets at Cost 2,4h0Less Accumulated Depreciation 664 1,776

Current Assets

Cash 5Deposits with Government 228Receivables 15Debtors 9Government Account (net) 18Inventories 271Advance to Staff 5Investment in Road transport corporation 15 566

Total Assets

Liabilities

Current Liabilities:

Creditors 94Bills payable 38Deposit creditors 21Government Loan for Staff Advances 5 158

Reserves:

Depreciation Fund 52Improvement Fund 1h0Improvement Element in cost ofreplaced assets 319 511

Surplus 5

Capital-at-Charge 1,668

Total Liabilities 2,342

Annex to Table 9


Notes on Summary Balance Sheet

1. Fixed Assets. In P.W.R.'s balance sheet fixed assets are valued atthe cost of original acquisition, and the cost of replacements is absorbedin the Depreciation Reserve Fund. Railway officers and Association staffreviewed these values as at June 30, 1962, taking into account the take-over value of fixed assets acquired at partition, all subsequent expendituresfor additions, betterments, and renewals, and P.W.R. has estimated theannual values to be as follows:

During June June June1962 1963 1964 1965

Fixed assets in service at partition,take-over value or subsequent originalcost 1,780 1,975 2,160 2,440

Cumulative depreciation allowance 530. 570 610 664

Net Fixed Assets 1,250 1,05 1 ,550 1,776

2. Reserve funds. The Railway had deposits with the Government amountingto about Rs. 190 million as of June 30, 1965, largely accumulated in thepast few years as general reserves and to pay for future replacements andimprovements.

3. Capital-at-charge. Represents all the funds ever provided byGovernment to finance the first acquisition of productive facilities.Loans raised by Government to finance P.W.R. additions and development areincorporated in the capital-at-charge, not as the assets are acquired, butonly as the Government amortizes the resulting debt. Pending suchamortization, the P.W.R. is charged by the Government with the interestcosts of the borrowing. The terms on which the capital is provided aregiven in paragraph 4.02.

4. Depreciation Reserve Fund. Whether or not replacements exceed theoriginal cost of the replaced assets, they are charged to and paid outof a depreciation fund in the form of an account with the FinanceDepartment on which the P.W.R. can draw to pay for replacements. Thisfund is fed by annual appropriations from revenue at the rate of one-thirtieth of the capital-at-charge. Additional ad-hoc contributions outof unappropriated surplus are made to the fund from time to time. Inaddition,. repayments to foreign loans obtained to finance replacements arecredited to the fund. Thus the balance of the fund account represents theunspent balance of P.W.R. revenue set aside as replacements.

5. Improvement Fund. P.W.R. transfers any surplus remaining on itsrevenue account to the Improvement Fund. The present purposes of the Fundare to pay for capital works which do not increase revenue or reduceexpenditure, to meet the cost of new users' amenities such as improvementsto stations and to cover labor welfare works such as hospitals and staffhousing and recreational facilities.

Table 10

PAKISTAN W4ESTERN RAILW4AY

FUNDS REQUIRED AND AVAILABLE - 1965/66 TO 1969/70

1965/ 1966/ 1967/ 1968/ 1969/66 67 68 69 70 Totals

Funds Required1. Capital Investment

i) additions-foreign exchangecost 26.6 70.9 53.8 143.7 145.5 140.5

ii) additions-local currencycost 41.5 96.4 67.8 114.5 113.1 433.3

Replacements and Improvements:iii) foreign exchange cost 72.4 45.8 102.3 63.0 63.0 346.5iv) local currency cost 58.1 53.0 66.1 51.3 51.2 279.7

Total Capital Investment Cost 198.6 266.1 290c0 372.5 372.8 1,500.00(see Table 5)

2. Debt Service (interest andrepayment of foreign loans) 49.7 51.7 48.6 55.7 62.2 267.9

3. Interest on Governmentcapital-at-charge 5601 58.8 63.9 70.0 74.9 323.7

304.4 376.6 1402.5 1498.2 509.9 2,091.6

4. Additions to Reserves andworking capital 29.9 47.2 414.7 58.3 59.3 239.4

'Total Funds Required 334.3 423.8 447.2 556.5 569.2 2,331.0

Funds Available5. Net Operating Income(after

charging contribution todepreciation reserve fund) 138.1 152.5 159.3 156.3 173.9 790.1

6. Depreciation Reserve Fundprovisions 55.7 58.2 64.1 68.9 73.7 320.6

7. Government Investment(Rupeecomponent of capital program)!/41.5 96.4 73.1 114.5 113.1 438,6

8. Foreign Financing:i) existing loans 9900 116.7 94.9 32.6 17.9 361.1ii) proposed IBRD-Loan - - 47.6 16.7 - 64.3

iii) expected future foreignborrowing - - 8.2 157.5 190.6 356.3

Total Foreign Financing 99.0 116.7 150.7 206.8 208,5 781.7

Total Funds Available 334.3 423.8 447.2 556.5 569.2 2,33L0

Note 1/ Includes foreign exchange made available from Pakistan's own resources.

ANNEX 1Page 1


Outline of Principal Items inthe Third Five-Year Plan

A. Motive Power and Rolling Stock (Rs. 592.5 million)

1. The following table summarizes the additions and replacementsprovided for in the Third Five-Year Plan.

Item Replacement Additions Total

Diesel Locomotives 1/ 60 47 107Passenger Cars 80 185 265Specialized Freight Vehicles 100 88 188Freight Cars l,000 6,306 7,306

1/ An additional 33 electric locomotives are provided for under electrifi-cation plan (see Annex 1, page 3).

2. The replacement of overage passenger cars has been arbitrarilyreduced from an estimate of 250 - to 80 because of financial limitations.Freight car replacements have similarly been reduced from an estimate of2,000 to 1,000. In the event that future traffic falls behind the fore-cast, advantage could be taken of the reduced demand in order to improvethe replacement program.

3. With regard to the above Third Five-Year Plan items, financingunder the proposed Bank loan relates to:

Specialized (freight) vehicles* 50Freight Cars 1,200

and involves an expenditure of US$ 4.5 million in foreign exchange.

B. Track Renewal and Improvement (Rs. 252 million)

h. The following table provides a summary of the track renewalsituation as it existed at the beginning of the Third Five-Year Plan;the work program proposed and the anticipated position at the end of theThird Plan in 1969/70:

* refrigerated cars, freight and luggage cars, motor vehicle cars,mobile engineering units, etc.

ANNEX 1Page 2

T R A C K M I L E S

Rails Sleepers

Total Renewals due up to the end ofSecond Five-Year Plan 1,936 3,159

Renewals Carried out in Second Plan 934 1 659Balance Carried forward to Third Plan 1,002Falling Due During Third Plan 934 2,420Total Mileage due at end of Third Plan 1,936 3,920Anticipated Work in Third Plan 606 930Balance due at End of Third Plan 1,330 2,990

5. The financial allocation for this work will not permit renewalsto keep pace with estimated requirements. In conjunction with trackrenewal, the P.W.R. will pursue its track modernization program whichinvolves welding of rail joints, increasing the density of sleepers andthickness of ballast on heavy traffic lines, adoption of high speedturnouts and the use of mechanized equipment for track laying andmaintenance. These features will strengthen the track, permitting greaterloads and speeds, and should also reduce maintenance costs.

6. Locally-manufactured pre-stressed concrete sleepers willplay an increasingly large role in the renewal program. These sleepers,fitted with double elastic fastenings, are particularly well-suited forhigh-speed traffic and the use of long welded rails. Production isexpected to begin this year in a factory being set up with Germancollaboration with a target of 200,000 sleepers per year. The localproduction of concrete sleepers will reduce imports of wooden sleepersand result in foreign exchange savings.

7. Items associated with track and sleeper renewals under the proposedloan are as follows:

Value in US$ millions

Wooden Sleepers 4.00Fittings for sleepers, points and crossings 2.15Material for manufacture of concrete sleepers 1.05

7.20

C. Factory and Workshop Expansion and Improvement and Other EngineeringWorks (Rs. 213.2 million)

8. One of the largest items of expenditure under this headingamounting to over Rs.49 million, involves the construction of a passengercar 'factory with a capacity to manufacture 150 such units per year. ThisProject was prepared in consultation with a German firm, Linke-Hofmann-Busch, which successfully tendered for the supply of passenger carriagesin the past. Foreign exchange financing has been obtained in the formof a German export credit. The Project will also provide facilities for

ANNEX 1Page 3

The manufacture of certain freight car components which must now beimported. Important savings in foreign exchange will result from theestablisihment of this factory.

9. This heading also includes the concrete sleeper factoryalready discussed, improvements to the meter-gauge freight and passengercar shop at Hyderabad, and a number of miscellaneous projects.

10. No financing under the proposed loan is involved with respectto these items, other than the material for concrete sleeper manufacture.

D. Line Conversion and Construction (Rs. 176.1 million)

11. Two major items are involved in this part of the program:

a) construction of a 5.6 mile broad-gauge link from Bokrato service the new national capital of Islamabad.

b) construction of a 146 mile broad-gauge line from Kashmorto Dera Ghazi K'han.

12. The financial implications of the short link to the newnational capital are not of great consequence. The Kashmor-Dara-GhlaziKhan Kot-Adu Project, however, has been subject to criticism inconnection with a previous appraisal (see Report No. TO-)412a). Continui-ing Government interest in this scheme stems from firm proposals forextensive development of the area to be served by the proposed line.

13. No financing under the proposed loan is involved in any ofthe foregoing items.

E. Electrification Conversion Scheme (Rs. 106.3 million)

14. Feasibility studies, made in 1961, recommend electrificationof two sections of main-line track from Khanewal to Lahore (178 miles)and Lahore to Rawalpindi (179 miles), Justification was based onsavings in foreign exchange, with electric power replacing importeddiesel fuel, and operating cost savings to the Railway from lower fuelcosts and other benefits inherent in electrification. The first phaseof this program was accordingly sanctioned by the Government as anadditional project in the Second Five-Year Plan. An agreement wassigned in February 1965 under which the U.K. Government undertook tofinance the foreign exchange cost of the project.

15. The project has been carefully examined by Bank staff, whichfound it acceptable, although marginal in benefits,

16. No Bank funds are involved in this item.

ANNEX 1Page 4

F. Signalling and Line Capacity Works (Rs. 9h.2 million)

17. These items are related to increasing line and terminal capacitynecessary to handle the expected number of trains and to speed-up freightcar turnaround.

18. The principal line capacity improvements involve signalling.Mlodern signalling started to be introduced during the Second Plan periodbut the work so far has been accomplished only on a small scale. Measuresto increase line capacity by modernizing the signalling in the Third Planare mainly:

i) Installation of automatic block signalling on threesections of the main line.

ii) Installation of tokenless block working on two sections.iii) Installation of relay interlocking at Lahore.iv) Improvement of signalling equipment at fourteen stations

to enable running through trains at unrestricted speeds.v) Installation of token block working on six sections, and

vi) Installation of control circuits for facilitating com-munication.

19. Line capacity will also be increased by opening of new crossingsections, doubling of certain bottleneck sections, remodelling andmodernization of yards and provision of additional facilities at a largenumber of junctions and terminals.

20. Certain new projects may be added to this category of expenditureat a later stage when feasibility studies now underway are completed.Such additions may involve expenditures of as much as Rs. 38 million.

21. Bank funds amounting to US$ 3 million are directly involved inthese items only to the degree that fittings for points and crossings areincluded in track renewal and improvement expenditures shown above.

G. Bridge lWorks (Rs. 43.8 million)

22. These largely involve the rehabilitation and reconstruction ofbridges on the main line to permit heavier loadings and to ensure theiradequacy for present and future traffic requirements.

23. No Bank funds are involved in these items.

H. Plant and Machinery (Rs. 19.9 million)

24. In view of the large number of machine tools and other equipmentin use on P.WoR., replacement of overage plant and machinery and additionsfor balancing existing units are a continual process. The normal age forreplacement of plant and machinery has been fixed at 20 years and on thisbasis, which is reasonable, nearly 75% of the existing machinery would

ANNEX 1Page 5

require replacement. This is due to a heavy accumulation of arrears.However, only such machinery as has finished its useful life and is notlikely to give further reliable service has been included for replacement.Additional machinery has been provided to enable the workshops to handlethe additional work expected to arise during the Plan period.

25. A provision has also been made for the procurement of cranes forthe loading and unloading of heavy consignments, more and more required tobe carried by the railway, due to the increasing scale of industrializationin the country.

26. Bank loan participation in this project amounts to US$ 1.3 million.

PAKISTANWESTERN RAILWAY

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