Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 2020-IN

FILE COPYINDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

STAFF APPRAISAL REPORT

July 24, 1978

Regional Projects DepartmentSouth Asia Regional Office

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

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CURRENCY EQUIVALENTS

Currency Unit = Rupee (Rs)US$1.00 = Rs 8.60US$0.116 = Rs 1.00US$116,279 = Rs 1,000,000

SYSTEM OF WEIGHTS AND MEASURES: METRIC

Metric British/US System

1 meter (m) 2 3.281 feet1 square meter (m ) = 10.760 square feet1 kilometer (km) = 0.621 mile1 ton-km = 0.621 ton-mile1 passenger-km (pass-km) = 0.621 pass-mile

FOR OFFICIAL USE ONLY

ACRONYMS AND ABBREVIATIONS

AC - Alternating CurrentBG - Broad Gauge (1.676 m)

BHEL - Bharat Heavy Electricals Limitedcif - cost, insurance, freightCLW - Chittaranjan Locomotive WorksDC - Direct CurrentDF - Development FundDLW - Diesel Locomotive Works

DRF - Depreciation Reserve FundDSP - Durgapur Steel PlantEMU - Electric Multiple UnitER - Economic ReturnGOI - Government of Indiahp - HorsepowerHz - herz or cyclesICB - International Competitive BiddingICF - Integral Coach FactoryIR - Indian RailwaysIRWA - Indian Railways Wheel and Axle PlantJPC - Joint Plant Committeekm/h - kilometers per hourkwh - kilowatthourMIS - Management Information SystemMG - Meter Gauge (1.000 m)MW - MegawattNG - Narrow Gauge (0.762 m and 0.610 m)PF - Pension FundPOH - Periodic OverhaulRACF - Railway Accident Compensation FundRDSO - Research, Designs and Standards OrganizationRRF - Revenue Reserve FundTISCO - Tata Iron and Steel CompanyUNDP - United Nations Development ProgrammeV - Volt

GOVERMNENT OF INDIA

FISCAL YEAR

April 1 - March 31

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

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

STAFF APPRAISAL REPORT

Table of Contents

Page No.

I. BACKGROUND ...................... 1....................

A. Economic Setting and Transport Sector .......... 1B. Transport Policy, Planning and Coordination .... 2

C. Manufacture of Railway Equipment .... ........... 3

II. INDIAN RAILWAYS ...... ................. 6A. Organization, Management and Staff .... ......... 6B. Training ....................................... 7C. Infrastructure ................................. 7D. Motive Power .................................... 7E. Rolling Stock ................................... 10F. Workshops ................................... ,.10G. Manufacturing Units ............................. 11H. Wheel, Axle and Tire Supply ..................... 12

I. Research, Designs and Standards Organization .... 14J. Operating Performance .......................... 15K. Traffic ........................................ 15

L. Railway Planning ............................... 17M. Railway Investment Plan ........................ 18N. Performance Under Previous Credits .... ......... 19

III. THE PROJECT .. 20A. Background ..................................... 20B. Objectives ..................................... 21C. Description .................................... 22D. Cost Estimates ................................. 29E. Financing ...................................... 31F. Implementation ............................. 31G. Procurement ................................ 32H. Disbursements .................................. 32

This report was prepared by Messrs. M. Alikhan (Financial Analyst), N.E. Krogh-Poulsen (Economist), A. Sabeti (Railway Specialist), and U. Warnemunde (Rail-way Engineer).

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Table of Contents (Cont'd)Page No.

IV. ECONOMIC EVALUATION ............... .. ................ 32

A. Main Benefits and Beneficiaries .... ............ 32

B. Costs and Benefits ............................. 33

C. Workshops ...................................... 34D. Wheels and Axles ............................... 34E. Development Support ............................ 35

F. Overall Economic Evaluation .... ................ 36

V. FINANCE AND EARNINGS ............... .. ............... 36

A. Introduction ................................... 36

B. Accounts and Audits ............................ 37

C. Rates and Fares ................................ 38

D. Past Performance ............................... 39E. Future Prospects ............................... 40

F. Financing Plan ................................. 41

G. Financial Aspects of Wheel and Axle Plant ...... 42

VI. AGREEMENTS REACHED AND RECOMMENDATION .... ........... 43

Tables

1. Indigenous Production and Imports of Wheels, Tires and Axles

1963/64-1975/762. Age Inventory of Rolling Stock, March 31, 19773. Investments under various Plan Heads 1956/57-1977/78

4. Number and Age Group of Machinery5. IR Wheel, Tire and Axle Requirements, Present Manufacturing

Capacity and, Projected Production and Shortfall 1977/78-1984/85

6. Summary of Operating Statistics7. Freight and Passenger Traffic8. IR's Investment Program 1978/79-1982/839. Estimated Inventory Requirements of IRWA 1983/84

10. Training Schedule for IRWA Mechanical Staff11. Summary Fixed Capital Cost and Investment Schedule of IRWA

12. Summary Working Capital Cost and Investment Schedule of IRWA13. Annual Accounting and Economic Operating Cost of IRWA 1983/84

14. Estimated Schedule of Disbursements15. Economic Cash Flows of IRWA 1977/78-1994/9516. Economic Breakeven Analysis for IRWA 1983/84

17. IR Revenue and Expenditure Account 1972/73-1976/7718. IR Balance Sheet March 31, 197719. IR Revenue and Expenditure Forecast 1977/78-1982/8320. IR Forecast Balance Sheets as of March 31, 1976-83

21. IR Forecast Source and Application of Funds 1976/77-1982/83

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Table of Contents (Cont'd)

Annexes

A. Places Visited and Documents Available in Project FileB. Cost Estimates and Principal Items Included in the ProjectC. Workshop Modernization - Plan of Action

Charts

IBRD 18812 - Indian Railways OrganizationIBRD 18717 - Wheel and Axle Plant, Proposed LayoutIBRD 18715 - Comparative Basic Process Flow Charts,

Wheel and Axle ManufactureIBRD 18729 - Wheel and Axle Plant, Project Implementation

OrganizationIBRD 18716 - Wheel and Axle Plant, Proposed OrganizationIBRD 18833 - Implementation Schedule

Maps

IBRD 13489 - RailwaysIBRD 13490 - Railways: Depots, Sheds, Workshops and Manufacturing Units

This report is based on information provided by the Government of India; onthe findings of various preparatory missions in 1977 consisting of Messrs.N.E. Krogh-Poulsen (Economist), A. Sabeti (Railway Specialist), F. Tachibana(Railway Engineer), and consultants F. Bouyge (Electrical Engineer), S.L.Purvis (Financial Analyst), D. Rowe (Manufacturing Management Specialist/Mechanical Engineer), K. Watkins (Electrical Engineer) and T. Weidig(Metallurgical Engineer); and on the findings of an appraisal mission inJanuary/February 1978 consisting of Messrs. M. Alikhan (Financial Analyst),N.E. Krogh-Poulsen (Economist), A. Sabeti (Railway Specialist), U. Warnemunde(Railway Engineer), and consultants S. Gamble (Maintenance Specialist), S.L.Purvis (Financial Analyst), D. Rowe (Manufacturing Management Specialist/Mechanical Engineer), and K. Watkins (Electrical Engineer). Mr. S. Yoshida(Loan Officer) assisted in the appraisal. Places visited during preparatorymissions and reports and data related to the project available in theAssociation are listed in Annex A.

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

STAFF APPRAISAL REPORT

I. BACKGROUND

A. Economic Setting and Transport Sector

1.01 India covers an area of about 3.3 million square kilometers andincludes parts of the Himalayan mountain system, the Indo-Gangetic plain,and the Deccan plateau of peninsular India. Total population is about 620million with 21% living in urban areas and the remainder in small villagesconcentrated in the Indo-Gangetic plain, in the basins and deltas of othermain river systems, and along the coast. The principal centers of populationand economic activity are Calcutta, Bombay, Delhi and Madras. Other maincenters are Hyderabad, Bangalore, Ahmedabad and Kanpur. The main coal andiron ore deposits are found in the eastern part of the Gangetic plain, wherealso the majority of steel manufacturing and heavy engineering industriesare located.

1.02 Deliberate government policy, combined with the concentration ofmanufacturing and trading activities in a limited rnumber of centers and thedispersal of the majority of the population in a large number of small vil-lages, has resulted in rail and road transport becoming the dominant modesof transport, with the railway system providing mainly trunk services andthe highway system functioning mainly as a feeder system to the railways.

1.03 The roles of the various transport modes in India's motorizedtraffic in 1965 and 1975 are indicated below. RaiL and air traffic includerevenue traffic only. For other modes of transport, the data are roughestimates, but suffice to indicate the main features of the system. Allfigures are rounded to the nearest billion.

Billion Ton-km Billion Pass-km Annual Growth %Mode 1965/66 1975/76 1965/66 1975/76 Ton-km Pass-km

Rail 99 135 96 149 3.2 4.5Road 34 75 82 184 8.2 8.4Other 12 12 2 2 0.0 0.0

Total 145 222 180 335 4.4 6.5

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Agricultural and mining products account for an estimated 70% of the totalfreight transport volume. A large part of agricultural production and mostmining freight and manufacturing production has origin or destination inNorthern India with its concentration of population and heavy industries.The majority of imports are channelled through Bombay, Calcutta and Madras.

1.04 The railways have traditionally been the main mode of motorizedtransport in India and retained their relative position more or less unchangedup to the beginning of the 1950's, when the railway share of motorized landtransport was estimated at 90% of total ton-km and 75% of total pass-km. Overthe following two decades, highway freight and passenger transport increasedrapidly while the railways' share declined to 60% of total freight trafficand 45% of total passenger traffic, with a corresponding increase in theshare of road transport. In respect of freight, this development was due tothe increasing market for high-value goods moving over short and medium dis-tances, where highway transport has inherent advantages over railway transport.In respect of passenger traffic, the main reason for the reduced railway shareis that long-distance passenger traffic has tended to increase at a slowerrate than short-distance commuter traffic, which can generally be carried moreeconomically by road, and the railways also have made some efforts throughtariff policy to promote diversion of this traffic to road. With continuedurban growth, the passenger share of road transport relative to railwaytransport can be expected to increase.

1.05 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-km; air transport carries about 1% of totalpass-km. These modes are, however, important within their specialized areas,and there is scope for considerable expansion within each mode because of thesize of the country and its geographical features. Consequently, projects forexpansion of coastal shipping of coal and pipelines for transport of crude oil,gas and petroleum products are currently being undertaken by the Government.

B. Transport Policy, Planning and Coordination

1.06 Railway planning, construction and operation is the responsibilityof Indian Railways (IR) under the Ministry of Railways. Civil aviation isunder the authority of the Ministry of Tourism and Civil Aviation; pipelinesare under the authority of the Ministry of Petroleum; and roads, ports andshipping are the responsibility of the Ministry of Shipping and Transport.Transport planning and coordination is undertaken centrally and at theregional level within the context of overall national planning and stateplanning, respectively. On the basis of the overall targets for the transportsector, the appropriate ministry prepares a five-year plan. A study group inthe Planning Commission, assisted by UNDP-financed experts, is preparing aframework for overall transport planning and coordination in India. The work

of the study group is divided into three phases: (i) preparation of a guide-line paper on short-term transport policy for the country; (ii) preparation ofcontributing policy papers and advice on specific issues and problems arisingin the formulation of transport policy for the Five-Year Plan 1978/79 to1982/83; and (iii) establishment of a comprehensive transport planning modelfor the country. The first phase was completed early 1978 and dealt with

such issues as development of rural roads in the context of GOI's new emphasison rural development; policy on new railway lines; urban transport policywith particular reference to the major metropolitan areas; and port plan-ning with particular reference to the construction of the proposed Neva Shevaport near Bombay. The next two phases are in progress. The work of the studygroup is expected to be completed by early 1979.

1.07 India's long-term policy for the transport sector aims at the fur-ther development of a transport system which can meet, at minimum cost, theincreased transport demand resulting from the growth in the economy. Thispolicy would be implemented through increased support of the highway sectorand encouragement of increased efficiency of railway transport operations.These objectives are reflected in the five-year plan through projects forimprovement of the main highway network and construction of feeder and second-ary roads; increased supplies of automotive vehicles for the road transportsector; and modernization of railway manufacturing units and workshops. Theproposed project will assist IR in modernization of its railway motive powerfleet and workshop system.

1.08 The Government's current economic objectives are incorporated into

the Five-Year Plan 1978/79 to 1982/83. The Plan represents an attempt atrealizing high average growth in the economy by increasing emphasis on agri-culture, small-scale industry, power, and transport and distribution. Ofthe total public investment in the Five-Year Plan, Rs 81.3 billion or 14%would be allocated to transportation, and about 40% of these investmentswould be for railway investments. In view of anticipated railway trafficover the next five years, the Plan allocation to the railway sector can beconsidered adequate.

C. Manufacture of Railway Equipment

1.09 In addition to its role as a major transporter of freight and pas-sengers, IR is also India's only manufacturer of diesel and electric locomo-tives and its most important manufacturer of passenger stock. As the prin-cipal buyer of wagons, wheels, tires and axles and a major buyer of electricaland mechanical goods and steel products for its manufacturing units, IR hasan important impact on the economic performance of these industries.

1.10 IR's manufacturing and procurement planning is undertaken inconnection with the annual budget. Tenders and firm orders are issued tocaptive and single-source suppliers for each budget year, and indicativeorders for four years thereafter. The indicative orders are updated, anddelivery schedules within the budget year are revised by agreement between

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IR and the relevant suppliers. IR is aware of the adverse effects of frequentor substantial changes in its procurement program and tries to minimize suchchanges.

1.11 At present IR can build annually 150 diesel-electric locomotivesand power packs, 60 electric locomotives, and 50 diesel-hydraulic shuntinglocomotives. Steam locomotives are no longer produced. Average capacityutilization in recent years has been 70% and is expected to reach 100% atthe existing manufacturing units in the early 1980's. The capacity for themanufacture and remanufacture of parts and components for maintenance isbecoming increasingly inadequate. The proposed project would support expan-sion of this capacity as well as the import of parts and components to bridgethe gap until adequate manufacturing capacity has been installed.

1.12 Total passenger stock manufacturing capacity in India is currentlyabout 1,550 units per year of which IR's capacity amounts to 750, with twoother companies, one in the private and one in the public sector, accountingfor the remainder. Capacity utilization is currently about 85% and is expec-ted to reach 100% in the early 1980's.

1.13 Total annual wagon manufacturing capacity in India is about 30,000four-wheeler units shared by nine private and public sector ,companies. IRworkshops manufacture a few special purpose wagons. Current demand is about10,000-15,000 wagon units annually. With expected orders increasing to onlyabout 20,000 in the early 1980's, GOI is aware of the need to assist theindustry in converting manufacturing capacity to other uses; and the industryitself is studying various diversification schemes.

1.14 The two most important manufacturers of electrical goods for diesel-electric and electric locomotives are the public sector undertaking, BharatHeavy Electricals Limited (BHEL) and IR's Chittaranjan Locomotive Works (CLW).Installed capacity at BHEL for manufacture of equipment relevant to IR is cur-rently 1,300 traction motors for diesel-electric locomotives, 220 tractiontransformers, and 100 blower motors. Capacity at CLW amounts to 400-500 trac--tion motors for electric locomotives. Utilization of capacity is directlyconnected with IR's locomotive manufacturing program and fluctuates accord-ingly. During the latest three years, capacity utilization at BHEL has beenabout 55% for traction motors, 66% for control gear, 50% for transformers and75% for blower motors. Alternative applications for BHEL traction motors andassociated equipment are being explored in oil drilling and other similarareas. Capacity utilization at CLW has been about 70% in recent years.

1.15 There are currently two indigenous manufacturers of wheels, axlesand tires: Durgapur Steel Plant (DSP) at Durgapur, and Tata Iron and SteelCompany (TISCO) at Jamshedpur. DSP wheel and axle plant is part of an inte-grated steel plant and is a public sector undertaking controlled by the SteelAuthority of India Limited which is a holding company for public sector steelplants. TISCO wheel, axle and tire plant is also part of an integrated steelplant and is a private sector undertaking. Since both wheel and axle plantsare parts of integrated steel plants, any dislocation in supply of gas, inputsor blooms, either due to breakdown or labor unrest in coke ovens, blast fur-naces, steel-melting shops or blooming mills will affect their output. DSPand TISCO production is shown in Table 1.

1.16 The DSP wheel and axle plant is 15 years old, and certain equipmentrequires replacement. DSP manufactures wheels, axles and wheelsets, but nottires. Wheels and axles are forged. Axle forging technology is by pneumatichammers and is not well suited for the production of a large product mix insmall quantities. DSP cannot forge axles for the heavier types of tractionequipment being acquired by IR. Current rated capacity of DSP is 80,000wheels and 40,000 axles. The highest output ever attained, however, was48,000 wheels and 24,000 axles, and capacity utilization during the past tenyears has been about 30% of capacity. A number of Government commissions havelooked into the problem. The latest of these, chaired by the Secretary ofSteel, in December 1976, attributed poor capacity utilization to very poorlabor relations; frequent rejections due to lack of quality steel and qualityconsciousness on the part of workers; delays due to equipment breakdowns; andan unsatisfactory worker/management incentive scheme. The commission con-cluded that, if the situation were remedied, full utilization of present ratedcapacity could be achieved by 1980/81. DSP is currently engaged in a produc-tivity improvement program with a view to achieving this target. However,consultants' estimates indicated that long-term utilization of current ratedcapacity of the DSP wheel and axle plant is unlikely to exceed 75%. The com-mission also recommended that capacity at DSP be expanded to 100,000 wheelsand 50,000 axles and that the expansion be phased in such a manner thatadditional facilities be ready to go into production when DSP has achievedfull utilization of present rated capacity. No further expansion of DSPwheel and axle plant was considered by the commission.

1.17 The TISCO wheel, tire and axle plant is 35 years old. Plant andmachinery was originally acquired secondhand and has now outlived its utility.TISCO does not have any scope for further physical expansion, and managementis not interested in investing in a new wheel and axle manufacturing facilitythat would become captive of IR. Considering plant age and equipment condi-tion, production capability of this plant is likely to decline in the absenceof any management plans for replacement or expansion. Current rated capacityis 7,900 wheels, 27,500 tires and 9,500 axles. Capacity utilization has beenabout 100% during the past 10 years.

1.18 The prime consumer of wheels, axles and tires is IR who representmore than 90% of domestic demand; additional small amounts are required bythe steel plants, the Heavy Engineering Corporation at Ranchi and the PortCommissioners. The requirements of IR are worked out every year in August,one year in advance, in coordination with DSP and TISCO. The shortfall isplanned for import. Current installed capacity at DSP and TISCO covers onlyabout 60% of demand for wheels/tires and about 85% of demand for axles, andthe Government has sanctioned the construction by IR of a wheel and axle plantin Karnataka State to cover the shortfall in domestic manufacturing capacity.The proposed project would support the construction of this plant.

1.19 The transfer prices paid by IR to its own manufacturing units covertotal manufacturing costs, including direct and indirect labor, materials,overheads and depreciation at replacement cost. Since these units are depart-mental, any profits from their operations rever-t to IR on a continuing basis.

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A number of major items, such as wheels, axles, wagons, etc. are procured by

IR on negotiated basis from domestic suppliers. Price setting for such con-tracts are carried out between IR and the individual major suppliers withthe involvement of other government agencies as well as manufacturers' asso-ciations where they exist. The negotiated prices are to cover total manufac-turing costs plus a profit margin. However, the prices are renegotiatedfrom time to time and in some instances such as for wheels and axles are lag-ging two to three years behind. Consequently, current prices in effect mayprovide little or no profit and on certain items may not even cover totalmanufacturing costs. Also the principles on which pricing of items such aswheels and axles are based have been disputed by the suppliers. Consequently,a review of wheels and axles pricing is underway by the Chief Cost and AccountsOfficer, Ministry of Finance in order to establish a fair and equitable formulato resolve the issues in question. This review for wheels and axles will becompleted very shortly and the principles evolved from it could be extended toother products acquired by IR through negotiated contracts, such as wagons.

1.20 The main export markets for Indian railway products are in MiddleEastern Countries, South East Asia, and East and West Africa. Exports arenormally undertaken with the assistance of, or through, canalizing agencies.Thus, wagons, coaches and locomotives are handled by the Projects and Equip-ment Corporation under the State Trading Corporation. Exports of steelproducts, such as rail, are handled by the Steel Authority of India. Recentexports include wagons to Yugoslavia, Malaysia and East African countries;locomotives to Tanzania; and coaches to the Philippines and East AfricanRailways. Some repeat orders have been obtained, suggesting that qualityand reliability of the Indian products have been adequate.

II. INDIAN RAILWAYS

A. Organization, Management and Staff

2.01 The IR network is owned and managed by GOI. Its operations arecontrolled and directed by a Board of five members headed by a Chairman whois ex-officio a Principal Secretary to the Government of India reporting tothe Minister of Railways. One Board member, the Financial Commissioner, hasdiscretionary powers to report directly to the Minister of Finance on financialmatters. The Board, therefore, performs the dual functions of a Secretariatto the Ministry of Railways and of an executive body responsible for railwayoperations. In financial matters GOI, through Parliament, oversees implemen-tation of recommendations made by the Railway Convention Committee and otherparliamentary committees.

2.02 The IR is the nation's largest single undertaking with an investmentof some Rs 55.7 billion (US$6.5 billion equivalent) and a total staff strengthof about 1.7 million. There are nine Zonal Railways, each of which is underthe control of a General Manager, and each zone is a large system on its ownaccount. IR also has three factories engaged in the manufacture of locomotivesand rolling stock. IR's organization is illustrated in Chart IBRD 18812.

2.03 The quality of senior staff at Headquarters and in the ZonalRailways is high and their knowledge of management techniques and modernrailway technology is good.

2.04 There are two recognized staff federations covering about 70% of allstaff. During the latter part of 1973 and the first half of 1974 there was asuccession of strikes and disputes, in consequence of which the IR Board tooka number of steps to strengthen its personnel branch and welfare inspectorateand to improve career development. IR is now increasingly effective inhandling labor relations.

B. Training

2.05 Training of staff is given high priority and is considered crucialby IR management in maintaining a high standard of operations, staff develop-ment and in keeping abreast of rapid technological changes. Therefore, a numberof personnel categories are trained at the recruitment stage; others are givenrefresher courses, and certain staff members are given special training at thetime they are considered for promotion. The training for particular jobs isdone in the field and at Zonal Training Schools in each zone. All schools havewell equipped facilities. In 1975/76 about 16,000 received initial training,38,000 attended the refresher courses, and 17,000 underwent courses forpossible promotions.

2.06 In addition to the Zonal Training Schools, there are four CentralTraining Institutes where IR offers courses to its own personnel as well as topersonnel from African and Asian railways: Sudan, Korea, Zambia and Nigeria.

C. Infrastructure

2.07 IR operates over 60,000 route-km, of which about 12,000 km havemultiple track. IR's trackage is shown below by gauge and category (in km):

Running WorkshopsGauge Track Sidings Yards and Sheds Total

Broad 43,743 13,654 3,965 1,899 63,261Meter 26,815 6,177 882 887 34,761Narrow 4,281 457 12 65 4,815

Total 74,839 20,288 4,859 2,851 102,837

About 62% of total track is broad gauge (BG), 34% is meter gauge (MG), andthe remaining 4% is narrow gauge (NG). About 15% of BG and 1% of MG trackare electrified. Of total BG running track, 24,000 km or 10,000 route kmconstitutes the heavy-density lines over which average traffic densityexceeds 20 million gross ton-km per year.

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D. Motive Power

2.08 In the 1960's, IR began manufacturing diesel-electric, diesel-

hydraulic, AC and DC electric locomotives in order to reduce dependence

on steam traction and reduce foreign exchange requirements for motive power

modernization. At DLW the diesel-electric locomotive manufacture was set up

in collaboration with ALCO, United States; at CLW the diesel-hydraulic loco-

motive manufacture was set up in collaboration with MAK, Federal Republic of

Germany, and the AC electric locomotive manufacture in collaboration with the

50 Hz Group (France, Germany, Switzerland and Belgium). At CLW, IR also manu-

factures DC electric locomotives for replacement of limited DC traction around

Bombay which is the oldest electrified section of the Railways.

2.09 In March 1977, there were 2,025 diesel-electric and diesel-hydraulic

locomotives, 844 electric locomotives, and 8,293 steam locomotives operating on

IR. Details of type and age group of IR's traction fleet are shown in Table 2.

The traction policy regarding conversion from steam to diesel and electric

traction was re-examined by IR after the oil price increases in 1973/74. It

concluded that there should not be any significant changes in traction policy,

although electrification in relative terms has become slightly more economical.

In order to obtain maximum benefits from electrification, however, it is

essential to improve performance of AC electric locomotives and reduce their

operating and maintenance costs which at present are higher than those of

the comparable main line diesel-electric locomotive.

2.10 Since the acquisition of designs and start up of manufacture of

locomotives in India, considerable improvements and innovations have taken

place in diesel and electric traction technology, which have resulted in re-

ducing manufacturing, operation and maintenance costs and improved operating

performance. These improvements have yet to be incorporated into locomotives

manufactured by IR.

2.11 The present-design AC electric locomotive manufactured in India,

WAM4, was derived by RDSO from an Alstohm design of the 50 Hz Group and is

approximately 27 years old. The only major change made to the design was

replacement of the original mono-motor bogie by the 3-axle bogie with axle-

hung motors of the WDM2 diesel-electric locomotive manufactured by IR. When

the locomotive was first introduced, there were numerous performance problems,

most of which still persist. Although problems of the traction motors have

been gradually eliminated, the electrical controls and transformer still are

not able to provide adequate power for the motors. Obsolescence of WAM4 de-

sign and features has resulted in lower availability and higher costs than

experienced in modern electric locomotives used by other railways. In addi-

tion, WAM4 does not provide sufficient operational versatility required by

varied IR train operation requirements to allow full utilization of electri-

fied routes. The project would support the acquisition of thyristor control/

transformer sets on a trial basis for the improvement of the electric loco-

motive fleet.

2.12 The standard main line diesel-electric locomotive manufactured byIR is WDM2, which is a 16-cylinder, 6-axle BG mixed traffic locomotive ratedat 2600 gross/2400 net hp. There are two other versions of this locomotivebuilt for main line MG service and heavy-duty BG shunting: YDM4 and WDM6.WDM2 manufacture began in India in 1964 in collaboration with ALCO, UnitedStates, and the design is about 22 years old. WDM2 has an acceptable operat-ing and maintenance performance and is the prime mover of IR's rapidly growingfreight traffic. However, IR will benefit substantially from introducinginto the present and future WDM2 fleet technology developed since the present

designs were acquired. The proposed project would support the developmentof improved parts and components for improving performance of WDM2.

2.13 In addition to needed technological improvements to IR's present-

design locomotives, improvement in Railways' operation requires adoptionof traction technology specifically suited to the variety of operatingconditions prevailing in India. An assesement of Railways' motive-powerrequirements; the power plan study, has been underway since October 1977 by

a committee established for this purpose. This study would cover the numbers

and horsepower ranges of locomotives required for different applications, theextent of various applications on different routes and sections of lines, andan economic cost/benefit analysis of the various alternatives. In assessingthe implications for electric energy requirements of alternative solutions,the power plan study would be coordinated with another study now underway of

Railway electrification and dieselization, with the participation of a UNDPexpert and the Planning Commission. The initial phase of the power plan study

has demonstrated considerable potential for improving IR's motive power fleetthrough the introduction of modern and proven traction technologies, some of

which are described in the following paragraphs. During the negotiations, itwas confirmed that the Association would be kept advised of the motive powerstudy's progress and results as soon as these were available.

2.14 The major industrial center and port of Bombay are connected to the

rest of the IR network by two 1500 V DC electrified lines. These two linesare Bombay-Igatpuri on the northeast section and Bombay-Pune on the southeastsection. The northeast approach to Bombay includes a heavy-graded 14 km ghatsection of 1 in 37 (uncompensated) and a 67 km hilly section with a gradient

of 1 in 87.5 (compensated). The southeast approach has a 28 km ghat sectionwith a gradient of 1 in 37 (uncompensated). The present classes of locomotivesmanufactured by IR and used on the ghat sections have proved unsatisfactoryfor the specific requirements of banking duties, causing frequent wheel slips,stalls and partings of trains. In addition, due to inadequate capability ofexisting locomotives, the train load limits on the DC graded sections are

lower than load limits on adjacent AC electrified sections. Thus, the trainloads have to be reduced prior to entering the DC ghat sections. As a result,

operating costs and line-capacity utilization are adversely affected indicating

a need for special duty DC electric banking locomotives for these sections.

2.15 The power plan study indicates a need for about 240 4,000 hp4-axle AC electric locomotives to supplement the WAM4 for mixed trafficapplications. The motive power plan study also indicates the need for a

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limited number of 3,500-4,000 hp diesel-electric locomotives for increasingtrain-load and speed of passenger trains and operating heavy 4,500 ton unit

freight trains. The alternative of using two WDM2 in double heading, being

used at present, is operationally and economically unsatisfactory. Also,

consideration was given to increase the horsepower of present WDM2; but thistask would require considerable time and cost without assurance of successful

results. At the same time, high-horsepower locomotives have been in use and

proven elsewhere for many years.

E. Rolling Stock

2.16 At present, the passenger stock includes 10 diesel rail cars; 2,332

electric multiple units (EMU) and 34,380 coaches. Details of passenger stock

and their age group are given in Table 2. The present fleet of freight wagons

is about 397,000 units or 529,000 in terms of 4-wheeler wagons. Almost alliron ore traffic and most coal traffic is hauled by unit trains with bogiewagons. Details of IR's freight-wagon fleet by type and age group are given

in Table 2.

F. Workshops

2.17 IR's maintenance workshops were set up and equipped in the latterhalf of the nineteenth and early twentieth century by the then State andCompany Railways. At the time of integration of the Railways in 1952, there

were 41 workshops dealing with the overhaul of rolling stock and motive power.The size of these workshops varied from 150 to 15,000 employees. The workloadand product mix in these units were governed by the need for self-sufficiencyof each individual State/Company Railway resulting in a proliferation ofdiverse activities for different types of rolling stock in individual work-shops.

2.18 The last 25 years of planned development on the IR has brought aboutextensive changes in the mode of traction from steam to diesel and electric.About 2,500 diesel and electric locomotives introduced since 1960 now carry

about 80% of the total freight traffic. During the same period, the numberof freight wagons in the fleet has grown two and a half times and the numberof passenger stock has doubled. In addition, about 8,300 steam locomotivesare still in service (Table 2).

2.19 While workshops mainly undertake periodical (programmed) overhaulsand manufacture and remanufacture of parts and components, running repairs

are performed in a large number of locomotive sheds and carriage and wagondepots dispersed throughout the country. These small repair units so farhave been provided with limited machinery and plant, mainly through transferof old machines from workshops.

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2.20 In spite of substantial increases in equipment holdings, complexityof technology and diversity of product mix since integration, IR's investmentin workshops has been considerably lower than that required to maintain aproper maintenance level. In the past 22 years, investment in workshops hasaveraged only 3.5% of the investment made in rolling stock and motive power(Table 3). Of the investment made in workshops and machinery in the past 22years, about 45% has been exclusively for the manufacturing units: DLW, CLWand ICF. A 1977 detailed survey showed that of a t:otal 24,546 machines, 77%of the machinery and plant in mechanical workshops, 53% in production units,and 46% in diesel and electric locomotive sheds and repair lines are over 15years old (Table 4). The gap between maintenance facilities and requirementshas been widening rapidly. At the same time, the level of parts and componentsavailable for maintenance in the past has been considerably lower than requiredby the Railways. The result has been low out-turn and quality of maintenance,low availability of equipment, and increase in ineffective motive power androlling stock. This situation is expected to deteriorate further and morerapidly than in the past because a large percentage of Railways' rolling stockand motive power is reaching the age group for which heavy repair and overhaulare required. The projected motive power and rolling stock ineffectives in1977 and 1981 and the additional costs thereof are shown below (for broad gaugeonly):

Capital CostFleet Ineffectives of Increment

Item 1977 1981 1977 1981 Increment Rs million

DieselLocomotives 1,468 1,738 17% 23% 150 675

ElectricLocomotives 824 984 21% 27% 93 418

ElectricMultipleUnits 2,158 2,604 17% 23% 232 232

Coaches 19,445 21,595 12% 18% 1,554 777Wagons 404,313 434,113 4% 5% 5,533 830

The total capital cost of a four-year increase in ineffectives thus amountsto Rs 2,932 million or an annual incremental capital cost of Rs 733 millionif there is no improvement in workshop performance.

2.21 The proposed workshop modernization would change the principle ofself-sufficiency for each Zonal Railway to that of maximum efficiency throughwork specialization and other measures for the total network. Accordingly,modernization will be carried out based on a four-region maintenance networkbased on type of equipment and IR's operational and traffic requirements.The manufacturing and remanufacturing of major parts and components will belimited to two existing manufacturing units (CLW and DLW), one workshop pres-ently being modernized (Golden Rock), and one new facility to be constructedin the future. During negotiations, a plan of action was drawn-up and itwas confirmed that IR would make appropriate organizational arrangements forimplementing and monitoring implementation and coordination of the Workshop

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Modernization program both by the Board and the nine Zonal railways. IRfurther advised that they would make available to the Association the proposedorganizational arrangements by September 1978. The proposed project wouldsupport the implementation of workshop modernization and rationalization, andincludes parts and components for establishing a unit exchange maintenancesystem.

G. Manufacturing Units

2.22 IR's main manufacturing units are the Chitteranjan Locomotive Works(CLW) at Chitteranjan, the Diesel Locomotive Works (DLW) at Varanasi, and theIntegral Coach Factory (ICF) at Madras. The CLW was set up in 1950/51 for themanufacture of steam locomotives. Production in this shop was diversified inthe mid-1960's, and by 1972 this unit had switched entirely to the manufactureof electric locomotives, diesel hydraulic shunters and a variety of componentsfor diesel-electric locomotives and other equipment. The ICF commenced pro-duction of coaches in 1955/56 and later added electric multiple units to itsproduct line. The DLW began production of diesel-electric locomotives in1964/65. A large proportion of the original equipment installed in the threeproduction units has already served its useful economic life.

2.23 In addition to overaged and obsolete machinery and some layout handi-caps, evaluation of IR's manufacturing units showed that there was considerableroom for improving manufacturing practices and product design to reduce manufac-turing costs and improve product quality. A program to achieve this began inSeptember 1977 and has already produced considerable results. Full implement-ation will be achieved under the proposed project, which will support theacquisition of modern plant and machinery for CLW and needed rationalizationat DLW.

H. Wheel, Axle and Tire Supply

2.24 Based on the traffic projections in the IR Corporate Plan (para.2.42) as well as the assessment of the annual rolling stock maintenance andproduction requirements the estimated requirements of wheels, tires and axlesby 1985/86 are shown below together with the total current rated manufacturingcapacity for these products in DSP and TISCO (in units):

EstimatedEstimated Production Capacity Capacity

Item Demand DSP TISCO Balance

Wheels 140,280 80,000 7,900 -52,380Tires 27,500 0 27,500 0Axles 50,680 40,000 9,560 - 1,120

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IR has adopted the concept of solid wheels for carriages and wagons becauseof better wear resistance than tyred wheels, leaving steam-locomotive wheelsand EMU wheels for retireing and is currently in the process of implementingthis policy. The remaining tire demand for steam locomotives will enable fullutilization of existing capacity in TISCO for tire manufacture. Currently,about 50% of estimated demand for wheels, about 30% of demand for axles and100% of demand for tires is for maintenance. The share of wheel and axledemand for maintenance is expected to increase to about 60% over the comingdecade due to the age structure of the motive power and rolling stock fleet.

2.25 The proposed project will support the establishment of a wheel andaxle plant operated by IR (IRWA) with a production capacity of 70,000 wheelsand 23,000 axles. Assuming average plant utilization rates of about 90% forwheels, about 100% for tires and about 70% for axles, the work distributionfor the three plants by 1985/86 is projected as follows (in units):

EstimatedEstimated Estimated Production Production

Item Demand DSP TISCO IRWA Balance

Wheels 140,280 72,000 7,100 63,000 +1,820Tyres 27,500 0 27,500 0 0Axles 50,680 28,000 6,700 16,100 + 120

The possible surplus in wheel production is expected to be absorbed throughexports from DSP and TISCO, which have both proved competitive in the inter-national market for these products. The possible surplus in axle productionis expected to be exported and eventually absorbed by IR replacements andadditions by the late 1980's. Also IRWA could cover some or all of theshortfall that would arise if DSP and TISCO for some reason would not beable to fully realise their production potential. The country's wheel andaxle demand/supply balance 1977/78 to 1985/86 is shown in Table 5.

2.26 The product mix in the IRWA plant was planned taking into accountthe number of product types currently being produced in the existing steelplants, DSP and TISCO, as follows (in number of types):

IRItem DSP TISCO Workshops IRWA Total

Wheels 12 1 8 5 21Tyres 0 48 0 0 48Axles 7 36 0 57 96

Some duplication in the manufacture of wheel and axle types is envisioned inthe beginning when DSP and TISCO will manufacture locomotive, coach, and EMUwagon wheels, and IRWA wagon wheels only. When manufacturing operations inIRWA have stabilized, this plant will also begin manufacturing locomotive,coach and EMU wheels, and the product mix among the plants will be ratio-nalized. The number of wheels to be produced at IRWA could also be increased

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somewhat at that time. This would result in overall savings to the industrysince the graphite moulds used by the wheel casting process adopted for IRWA

(para 3.21) are less costly than the forging dies used by DSP and TISCO, and

since the wheel casting process lends itself better to production changesthan the forging process. The large number of tyre and axle types is due

mainly to the steam locomotive fleet which currently requires 64 different

axle-types and 40 different tyre-types. Production of axles in IRWA will

consist of short runs of a fairly large number of types. This is economic-

ally feasible with the long-forging machine to be installed. In preparation

for IRWA, IR has already reduced the number of wheel and axle types, and tire

types it uses by 30% and 20% respectively. IR continues to review the pos-

sibilities for further product standardization.

2.27 Prices paid by IR for wheels and axles supplied by DSP and TISCO

are agreed by the producers and IR under the aegis of the Joint Plant Commit-

tee (JPC) which consists of representatives from the Ministries of Steel and

Railways and the steel plants. In the event of disagreement on prices, the

issue is referred to the Chief Accounts Officer of the Ministry of Finance,who gives the final decision. The cost elements included in the price struc-

ture are: (i) metal cost based on the JPC price for blooms and ingots; (ii)

quality extras on metal cost, taking into account the manufacturing processinvolved; (iii) cost above metal, consisting of fuel, power, wages, stores

and supervision; (iv) overheads and returns consisting of return on gross

assets, depreciation, interest and other overhead expenses; and (v) excise

duty, and miscellaneous expenses. Current average JPC prices for wheels,

axles, and wheelsets, consisting of two wheels and one axle fully assembled,are shown below compared to average current cif prices (in Rs/unit):

Price Basis Wheel Axle Wheelset

cif cost 2,875 2,875 8,850JPC price 1,400 1,400 4,300

JPC prices, which have not been adjusted since 1974/75, are considered too low

to be remunerative by the manufacturers DSP and TISCO and are currently under

review by the Chief Cost and Accounts Officer, Ministry of Finance (para 1.19).

2.28 Products of the proposed IR wheel and axle plant will be costedaccording to the system used by IR's three other manufacturing units. Plant

output would be transferred to IR at a price based on total manufacturing cost

including overheads and depreciation. During negotiations these arrangements

were agreed with the Government. Profits or excess cash generated by the

plant would revert to IR on a continuing basis. IR would meet its financial

obligation to GOI by paying 6% dividend on plant capital-at-charge.

I. Research, Designs and Standards Organization

2.29 The Research, Designs and Standards Organization (RDSO) is a sepa-rate functional unit under IR. Guidelines for its research and development

activities, which have been directed mainly towards indigenization of manu-facture, are laid down by the Railway Board.

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2.30 The long-range research and development efforts of RDS0 aredirected mainly towards: (i) technological improvements in power packs fordiesel locomotives, and transmission and auxiliaries for diesel and electriclocomotives; (ii) development of coaches with increased carrying capacity andreduced weight; (iii) design practices and construction techniques for bridges;(iv) development of modern track to obtain optimum benefits by way of reducedmaintenance costs, improved riding and reduced wear and tear on rolling stock;(v) use of signalling and telecommunication techniques for optimizing utili-zation of tracks and rolling stock and ensuring safety; (vi) reduction incapital inputs for electrification; and (vii) increasing the speed of trains.The proposed project will assist the RDSO in acquisition of technology andtesting apparatus for the development of improved technology relating topower packs for diesel electric locomotives.

J. Operating Performance

2.31 IR's operating performance for the period 1972/73 to 1976/77 isshown in Table 6. There has been continuous improvement in all areas ofoperations except in availability of motive power and rolling stock. Averagegross freight trailing load has reached an all-time high of 1,607 tons and

.net ton-km per wagon day is at 796. Also, wagon turnaround time has beenreduced from 15 days in 1973/74 to 13 days on the BG lines, and from 12.5days to 11.1 days on the MG lines. The occupancy ratio for all passengertrains remains very high at 80% and 95% for passenger coaches and EMU carsrespectively, and is about 100% on most mail and express trains.

K. Traffic

2.32 IR's freight and passenger traffic from 1950/51 to 1975/76 is shownin Table 7. During that period originating tonnage increased by 3.6% annually,while originating passengers increased by 3.4% annually. IR's revenue freighttraffic has continued its steady but slow growth. However, in 1975/76 and1976/77, since the recovery of the economy as a whole, and facilitated by IR'simproved overall performance, revenue freight traffic has increased by about7% annually. The revised estimates for 1977/78 show a further increase inrevenues of 4% and the level of freight traffic to 240 million tons. Projec-tions for 1977/78 to 1982/83 are shown below (in million originating tons):

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Traffic Category 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83

Steel Plant 31.9 33.0 35.0 39.0 41.0 43.0Coal 70.0 73.0 79.0 85.0 92.5 100.0Iron Ore Export 11.0 11.5 12.5 13.5 14.5 16.0Cement 13.7 14.0 15.0 16.0 17.0 18.0Foodgrains 19.6 19.5 19.5 19.5 20.0 20.0Fertilizers 7.8 9.0 10.0 11.0 12.0 13.0Petroleum Poducts 13.0 14.0 15.0 16.0 16.0 16.0Other Goods 47.0 48.0 48.5 49.0 49.5 50.0

Revenue 214.0 222.0 234.5 249.0 262.5 276.0Non-revenue 26.0 26.0 25.5 25.0 24.5 24.0

Total 240.0 248.0 260.0 274.0 287.0 300.0

This projection implies an average annual growth rate of about 5%. Almost80% of this increase is projected to occur in steel plant and coal traffic,and is therefore dependent on production increases in the coal and steelsectors. Given the general recovery of the Indian economy from the recessionof 1974/75, the start of the new steel plants at Bilai and Bokaro and theplanned production increases of coal and iron ore, an annual growth rate of5% in originating railway freight traffic is likely to be sustained over thecoming five years.

2.33 The principal traffic growth is related to production in steelplants. The Bilai steel plant near Nagpur and the Bokaro steel plant nearCalcutta plan to increase their respective capacities from 2.5 and 1.7 mil-lion tons to 4.0 and 5.0 million tons of finished steel per annum by 1982.The expected increase in steel production affects coal requirements for steelplants and washeries, which are estimated at 26 million tons in 1982/83.Total finished steel production is expected to be 12 million tons, generat-ing a need for rail transport of about 57 million tons of raw materialstraffic, including coal for steel plants.

2.34 Excluding coal used in steel production, the other major users areIR and thermal power plants. The expected reduction in non-revenue coaltraffic by IR from 14.5 million tons in 1977/78 to 12.0 million tons in 1982/83 is related to planned reductions in the steam locomotive fleet. The thermalpower plants, on the other hand, are expected to substantially increase gene-rating capacity. The Department of Energy projects the requirement to increasefrom its present level of 30-35 million tons annually to 50-6() million tons by1982/83. On this basis IR has estimated total coal requirements for powerhouses and other users at 74 million tons in 1982/83. This represents anincrease of 24.5 million tons over 1978/79.

2.35 The present world-wide slump in demand for iron ore, particularlyin Japan, is reflected in the actual traffic in this commodity of which IRexpects to carry 11.5 million tons by 1978/79, a moderate increase of 0.5million tons over 1976/77. In line with a world market demand switch from

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iron lumps to iron fines, the Indian steel industry is switching productionto fines and by 1982/83 expects to capture more of the market share. Anincrease between 1977/78 and 1982/83 of 5 million tons in traffic is forecast.

2.36 The demand for cement remains strong and is higher than currentproduction. GOI is giving encouragement to the construction industry, whichhas stimulated demand for cement substantially. IR expects 14.0 million tonsto be handled by rail in 1978/79, as compared to 13.7 million tons in 1977/78,and an increase of 1 million tons each year after 1978/79 for the period1979/80 to 1982/83.

2.37 GOI, through the Ministry of Agriculture, has embarked on a policyof making not only India but also the different regions within the countryself-sufficient in foodgrains. IR therefore conservatively estimates moreor less stagnant traffic volumes through for this category 1982/83.

2.38 Currently, production capacity of fertilizer is much lower thandemand. In line with GOI's policy of self-sufficiency in foodgrains, thiswill be augmented. From an estimated 7.8 million tons in 1977/78 fertilizertraffic by rail is expected to grow to 13 million tons by 1982/83.

2.39 Rail transport of petroleum products is at about 14 million tonsin 1978/79, and moderate increases are expected, as future demand will behandled mainly by pipelines.

2.40 The category of other goods represents a great variety of com-modities, ranging from bulk transport of products like salt, sand, stones,marble to high-value manufactured products. The average transport distancefor the group as a whole is about 868 km, and for high-valued goods it ex-ceeds 1,000 km. With less than 10% of railway freight representing high-value commodities transported over short and medium distances, further lossof traffic to road transport is not expected. IR expects other goods traf-fic to grow at about 1% per annum, which seems reasonable considering theexperience of the past few years.

2.41 Total originating passenger traffic is projected by the IR toincrease to 3.8 billion passengers in 1982/83 as shown below (in millionpassengers):

Passenger Category 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83

Suburban 1,722 1,838 1,911 1,985 2,058 2,136Non-suburban 1,411 1,463 1,514 1,565 1,617 1,676

Total 3,133 3,301 3,425 3,550 3,675 3,812

This projection implies an annual growth rate of about 4% over the coming 5years with suburban and non-suburban traffic expected to grow by about 3.8%and 3.5% annually, respectively.

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L. Railway Planning

2.42 The corporate planning exercise of the IR, initiated under Credit280-IN, has resulted in a Corporate Plan for the total railway system, con-solidating the corporate plans of the individual zonal railways on which itis based. The Corporate Plan outlines a proposed development strategy forIR for the period from 1977/78 to 1988/89 and covers passenger and freighttraffic, traction and rolling stock, line capacity, yards and terminals,shops, production units, research and development, management and manpower,and financial aspects. The Corporate Plan forms the underlying frameworkfor the modernization efforts supported by the proposed project.

2.43 The planning, evaluation and project sanctioning system applied byIR is defined in the various railway codes and policy directives. IR'sinternal planning is mainly undertaken for the preparation of annual invest-ment and works programs. Comprehensive economic studies are undertaken formajor new works such as gauge conversion, electrification schemes, and newlines. The various components included in the proposed project were eachsubjected to comprehensive technical and economic studies by IR in accordancewith terms of reference agreed between IR and IDA.

M. Railway Investment Plan

2.44 To support projected traffic growth and finance asset replacement,IR's investment plan totals Rs 32,250 million in the 5 years 1978-83, exclud-ing Rs 1,250 million for metropolitan transport projects. Detailed investmentby plan head is presented in Table 8 and summarized below (in Rs million):

Plan Head 1978/79 1979/80 1980/81 1981/82 1982/83 Total

Rolling Stock 2,360 2,720 3,100 3,580 3,750 15,510Workshops and Sheds 230 240 270 280 280 1,300Machinery and Plant 80 240 340 240 240 1,140Line Works and Other 2,530 2,720 2,840 3,060 3,150 14,300

Total 5,200 5,920 6,550 7,160 7,420 32,250

2.45 The planned investment includes all elements in the proposed projectand the total project cost and proposed credit as related to the total IRinvestment program for the five-year period 1978/79 to 1982/83 is shown below:

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As % of IR

Rs million Investment ProgramIR Investments Project Proposed Project Proposed

Plan Head 1978/79-1982/83 Cost Credit Cost Credit

Rolling Stock 15,510 1,620 413 10 3Workshops & Sheds 1,300 1,200 799 92 61Machinery & Plant 1,140 774 318 68 28Track Renewals

and Others 14,300 355 104 2 1

Total 32,250 3,949 1,634 12 5

2.46 The railway equipment requirements, based on projected trafficvolumes, have been estimated by IR as follows:

Item 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83

Diesel Locomotives 132 125 115 105 135 135Diesel Shunters 28 20 10 10 30 30Electric Locomotives 66 55 57 78 69 73Electric Multiple Units 125 96 150 200 204 205Coaches 1,002 950 1,140 1,340 1,380 1,390Wagons 11,000 11,000 12,000 14,000 17,000 19,000Diesel Power Packs 0 12 20 38 50 80

Current foreign exchange requirements for diesel hydraulic locomotives areabout 40% of production cost, for diesel-electric locomotives and electriclocomotives about 15%, for wagons about 10% and for electric multiple unitsand coaches about 5%. The proposed project would assist IR in modernizingits present locomotive fleet and finance parts and components for theirmaintenance.

2.47 Machinery and plant is expected to require considerably more invest-ment than in the fifth plan period, reflecting both the relatively advanced ageof plant in the IR manufacturing units and workshops and IR plans for expand-ing existing manufacturing and maintenance capacity in order to arrest dete-rioration in motive power and rolling stock and improve their performancewhile reducing maintenance costs. Almost 60% of line works consist of trackrenewals, bridge works and line capacity works, while new lines and electri-fication schemes amount to about 12% each.

N. Performance Under Previous Credits

2.48 Over the past 29 years, the Bank has approved six loans and sevencredits for IR totalling US$896.5 million. Project audits have been carriedout for Credits 280-IN and 448-IN and the audit findings are contained inReport No. 1658 of June 30, 1977. The report found that the original invest-ment program was scaled down because of higher costs and lower than expectedtraffic. The projects were implemented on time, and the reestimated rates

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of return were similar to the appraisal forecast. Because of unusual eco-nomic and political circumstances, the financial situation of IR deterioratedduring the project period, but has now improved. The report also found thatin spite of many years of dialogue between the Government and the Bank, trans-port planning and coordination remained rather weak. Some progress is nowbeing made on the national level and IR's corporate planning exercise hasbeen successful.

2.49 Agreements under Credits 280-IN and 448-IN required IR to gene-

rate sufficient revenues to cover all operating expenses, including adequateappropriations for the Depreciation Reserve Fund and Pension Fund, and divid-end on capital-at-charge. Because of economic recession, labor unrest andsubstantial wage increases for railway staff, IR had difficulties in meetingthis target. IR requested that the earnings covenant be waived for 1973/74,to which IDA agreed. During negotiations for Credit 448-IN in 1973, it was

realized that time would be required to adjust rates and fares, and it wastherefore agreed that revenues for 1974/75 and 1975/76 should be sufficientto cover 70% and 85% respectively of the dividend for those years. In 1974/75and 1975/76 IR still could not fully comply with the agreement. However,when the retroactive application of wage awards granted by GOI in 1975/76 istaken into account, IR just about met the covenant requirements. In 1976/77and 1977/78 IR covered 100% of dividend due to GOI (paras 5.13 and 5.17).

2.50 Agreements under Credits 280-IN and 448-IN also required IR toprepare and keep up to date a Corporate Plan. The Corporate Plan was final-ized by end 1976 and forms the basis of the proposed project (para 2.42).

2.51 Agreements under Credit 280-IN required IR to ensure that themethodology for appraisal of investment projects would continue to be pro-gressively improved, as trained staff become available. IR is in compliancewith this agreement (para 2.43).

2.52 Agreements under Credit 280-IN required that the content of a time-table and plan of action for the establishment of a framework for futureBank Group participation in the transport sector would be worked out by GOIon the basis of a full review of the transport sector by 19;4. The reviewwas carried out in 1973 and was subsequently extensively discussed betweenGOI and IDA, and in 1976 GOI established a study group in the Planning Com-mission, assisted by UNDP experts, to prepare a framework for overall tran-sport planning and coordination in India (para 1.06).

2.53 Agreements under Credit 448-IN also required that revenues andlosses from mass transport systems, if included in IR's budget, would beseparately identified. This is being done.

2.54 Agreements under Credit 582-IN included an earnings covenant whichrequired IR to earn sufficient revenue to meet all operating expenses and thedividend payable to the Government for each fiscal year after 1975/76. IRis in compliance with this covenant (paras 5.13 and 5.17).

2.55 Agreements under Credit 582-IN included also a requirement for IRto appropriate a global sum of Rs 6,500 million to its Depreciation Reserve

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Fund (DRF) during the Fifth Plan and to appropriate to the DRF not less than

Rs 1,300 million in each of the years 1976/77 through 1978/79. IR is in

compliance with this covenant (paras 5.13 and 5.17).

III. THE PROJECT

A. Background

3.01 The basic objectives underlying the Bank Group's past assistance

to the IR have been to assist in rehabilitating and subsequently modernizing

railway infrastructure, motive power and rolling stock and in improving rail-

way operating efficiency, maintenance, administration and planning. In sup-

port of these objectives, the Bank since 1949 has approved six loans and

seven credits totalling US$896.5 million. The loans and credits were based

on one-three year slices of IR investment programs and covered foreign exchange

for the acquisition of: materials, parts and components for manufacture and

maintenance of railway motive power and rolling stock; machinery and plant for

the IR manufacturing units; and materials and equipment for line improvement

works and telecommunications.

3.02 In the twenty-nine years that have passed since the first Bank

loan to IR, the main railway infrastructure has been substantially improved;

and domestic production of diesel and electric locomotives, coaches and wagons

which the Bank loans and credits supported has resulted in an improved motive

power and rolling stock fleet.

3.03 During the past eight years, motive power and rolling stock have

constituted about 50% of the IR's capital investment; and credit allocations

for the manufacture and maintenance of railway motive power and rolling stock

have become an increasingly important element in Bank Group financial support

of IR. IR's corporate plan envisages investments in motive power of Rs 8.5

billion over the next decade. There is potential for further improvement by

upgrading the design, manufacture and maintenance.

3.04 With the rapidly growing number of diesel and electric locomotives

nearing their mid-lives and therefore in need of major maintenance overhaul,

IR has acknowledged the immediate need for a change in relative priorities

in favor of modernization of maintenance facilities and motive power and roll-

ing stock design, as well as in favor of indigenization of critical standard

items such as wheels and axles which can be more cheaply produced domestically.

The proposed project will support IR in moving in this direction.

3.05 In order to evaluate IR's and major railway suppliers' manufactur-

ing capability, practices, state of technology, product quality and perform-

ance, and thus identify areas where improvements in IR manufacturing and

maintenance operations were most urgently required, a number of IDA missions

were made to all IR's manufacturing units and major workshops and sheds, as

well as to railway-related manufacturers in India, Europe, Mexico, United

States, Canada and Japan. Consultants in metallurgical and heavy engineering

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equipment, electric and diesel traction technology and industrial financial

management and control assisted. Annex A details the manufacturers visitedand reports prepared.

3.06 Findings of the preparation missions were extensively discussedwith IR and GOI, especially the Ministries of Finance, Heavy Industries andSteel, and the Planning Commission. The findings and discussions formed the

basis of the formulation of the project by IR.

B. Objectives

3.07 The objective of the proposed project is the modernization andimprovement of maintenance and manufacture of diesel and electric locomotivesand rolling stock in order to reduce the cost of their maintenance and manu-facture as well as to improve their performance and availability. The GOIhas requested IDA to support IR in attaining these objectives.

C. Description

3.08 The proposed project would support workshop and locomotive moderni-zation, wheel and axle manufacture, and product development for IR manufac-

turing units. The project is tentatively estimated at about US$384 millionequivalent, of which US$190 million equivalent is proposed for IDA financing.The project consists of:

(a) the acquisition of workshop machinery and tools for imple-menting the first phase of the IR workshop modernizationand rationalization program including the acquisition ofparts and components for the establishment of unit-exchangemaintenance systems in the main and supporting workshops(paras 3.09-3.18);

(b) the establishment at Yelahanka in Karnataka State of awheel and axle plant, including ancillary facilities,with a rated manufacturing capacity of about 70,000wheels and about 23,000 axles and the import of wheels,tires and axles for two years of the IR motive powerand rolling stock manufacturing and maintenance program(paras 3.19-3.29).

(c) acquisition of thyristor control/transformers sets as wellas improved design and technology, for upgrading/modifyingof present design electric locomotives (paras 3.30-3.31); and

(d) acquisition of test equipment, technical advisory servicesand overseas staff training for manufacturing, quality con-trol, cost control and design personnel required to achievethe objectives of the project (paras 3.32-3.34).

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(a) Workshop Modernization

3.09 The proposed project will cover workshop modernization for 1978/79to 1980/81 and will consist of: (i) modernization of four major repair shopsand one manufacturing unit; (ii) improvement of other repair shops and support-ing units; (iii) introduction and support of a unit exchange maintenance pro-gram in the repair workshops and sheds included in the proposed project; (iv)improvement of material-handling equipment and practices in the units includedin the project; and (v) completion of the rationalization plan for a system-based maintenance network, including improvement and strengthening of themaintenance organization and technical advisory service as required.

3.10 Keeping in view the physical and financial constraints, a selectionprocess was devised for choosing the units for the first phase of modernization.The selection has been governed by the following factors: (i) change in theproduct mix; (ii) sophistication of product, present and new; (iii) priorityfor improvement in product performance and reliability; (iv) arrears andbacklog in workload; (v) likely changes in future workload; and (vi) size,age and antiquity of unit. Using the above criteria, one manufacturing unit,CLW; four major repair workshops, Kancharapara, Kharagpur, Matunga and Parelwere selected for immediate and full modernization and 47 major repair shedsand supporting units, were selected for need-based improvements.

3.11 Chittaranjan Locomotive Works. CLW, with 15,500 employees, manu-factures about 60 electric and 50 diesel hydraulic locomotives per year.In addition, CLW manufactures a wide range of parts and components for theRailways, among them 480 traction motors, 50 diesel engines, 1800 tons ofalloy steel, and other items valued at Rs 540 million annually. Immediatemodernization of CLW, estimated to cost Rs 60 million, is warranted to:(i) remove persistent product quality problems and production bottlenecksdue to inadequate and obsolete plant layout and machinery and lack of propermaterial handling equipment; and (ii) increase production of material andcomponents for maintenance through improved productivity and economy of scale.

3.12 Kancharapara Workshops. Kancharapara, with 9,000 employees, isIR's main heavy repair shop for 400 AC electric locomotives and 200 electricmultiple units (EMU). It also maintains freight and passenger equipment.Since the shop was established in 1863, there have been no layout changes,and 70% of its machinery is overaged and mostly obsolete. Yet this shop isresponsible for overhauling and maintaining some of the most sophisticatedequipment on the railways. The modernization of this facility, estimatedto cost Rs 80 million, is aimed at rationalization of product mix, higherquality of product, layout modifications, increased productivity and reduc-tion of periodical overhaul (POH) cycle.

3.13 Kharagpur Workshops. Kharagpur is thet largest repair workshop onIR with 15,425 employees. This shop undertakes periodic overhaul of severaltypes of motive power and rolling stock, among which are 160 steam and 81diesel-electric locomotives, 1,600 passenger coaches and 14,000 freight wagonsannually. The shop was established in 1882 and its layout is very inefficientconsisting of 55 separate shops spread over 260,000 square meters and 77% ofmachinery is overaged. The modernization of Khairagpur under the project is

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estimated to cost Rs 68 million and will lead to improved productivity throughmore efficient machinery and material handling equipment and layout changesto facilitate flow of work.

3.14 Matunga Workshops. Matunga employs 7,520 people and is primarilya passenger and freight stock overhaul shop which was established at the turnof the century. Matunga overhauls about 3,740 passenger and freight coachesand EMU's and about 1,000 units annually. The workshop layout is obsolete dueto complete changeover of work and about 80% of machinery is overaged. As aresult, the production is sub-optimal and costs very high. Under the project,Rs 74 million is to be invested at Matunga in new machinery, change of layoutand flow of process to reduce the downtime of equipment under repair.

3.15 Parel Workshops. Parel has about 5,000 employees and its mainactivity is overhaul of about 3,000 coaching stock per year. Parel was estab-lished in 1876 and expanded in 1910 and about 67% of machinery is overaged.Layout is a major handicap due to main line tracks running in the middle ofthe complex, requiring considerable amount of transportation in the workprocess. Under the project, Rs 34 million is to be invested at Parel toimprove work flow and reduce production costs.

3.16 Other Repair and Supporting Units. Running repair shops and shedsplay the major role in the availability, performance and operational safetyof the railways. This is due to the fact that aside from periodical overhaul(complete stripping down of equipment, replacing and/or remanufacturing partsand components, and reassembling), all other maintenance works are undertakenin such facilities. Therefore, it is imperative that particular attention begiven to these facilities. Consequently, a selective process was established,along the lines of that for major workshops, for supporting units needingimmediate attention. As a result, 47 major facilities were selected formodernization, costing Rs 638 million. The bulk of the investment is formachinery. However, the emphasis will be on: (i) machinery and equipment toachieve precision, proper testing and quality control required for maintenanceof modern motive power and rolling stock, which is very much lacking now,resulting in unsatisfactory quality of work performed, abnormally high fre-quency of breakdowns in operation and lower-than-normal life of parts andcomponents; and (ii) material-handling equipment to reduce frequent interrup-tions in work flow and reduce damage to material in transport, both having amajor impact on output, qtuality and cost of repairs.

3.17 Unit Exchange System. Shortage of foreign exchange, lack of ancil-lary industries (especially for low off-take items), priority given to manu-facturing of new motive power and rolling stock, have all culminated in aserious shortage of spare parts and components for repair and overhaul ofmotive power and r-olling stock. As a result, even the scheduled repairs ofmotive power and rolling stock is lheld up until a defective part or assemblyis repaired. As practiced world-wide and proven by a small-scale unit ex-change program foT diesel electric locomotives at IR's Kharagpur workshops,the maintenance downtimie can be reduced by over 50% through implementationof a unit exchiange systemu. Under the project, an investment of Rs 1,384million in a rotating pool of parts and components is envisaged in order toimplement a unit exchange maintenance program. Because of the considerable

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maintenance backlog, it is estimated that about 30% of the parts and componentsprocured under the project will be consumed as spare parts, but the unitexchange pool will be built up to the required level by 1982/83.

3.18 Most of the expected benefits of this project component in the firstthree years (1978/79-1980/81) will be realized from the injection of a largeamount of parts and components into the unit-exchange pool. This projectcomponent is expected to cost Rs 2,484 million (US$289 million equivalent)with a foreign exchange component of Rs 1,296 million (US$151 million equiv-alent).

(b) Wheel and Axle Plant

3.19 The proposed IR Wheel and Axle Plant (IRWA) was subjected to a tech-nical and economic study including plant capacity product mix, location andexisting wheel and axle manufacturers in India. The study was carried outby IR, assisted by suppliers of plant technology, according to terms of refer-ence agreed with the Association. Consultants retained by the Associationfound it to be satisfactory. The plant site is located at Yelahanka, 16 kmfrom Bangalore, and is served by both broad gauge and meter gauge railway aswell as by road. The location was chosen taking into account costs of elec-tricity and transport of raw materials and finished products; proximity toindustries supplying other requirements, such as tools, oxygen and acetylenegas, electrodes and graphite moulds; and the location of existing wheel andaxle plants. Annual savings from locating the proposed plant at Yelahankarather than at the most favorable alternative location at Nagpur were esti-mated at Rs 2.5 million, mainly from savings in electricity cost and transportcost of axle steel and foundry material. In line with Government policy oflocating industrial units outside congested urban areas, a satellite townshipis being developed by IR close to the site of the plant. The productioncapacity of the plant has been planned to cover anticipated shortfalls indomestic wheel and axle production. Since existing manufacturers of wheelsand axles have shown no interest in substantial expansion of their manufac-turing capacity and since IR will continue to buy more than 90% of totaldomestic requirements, GOI has decided to establish the IRWA as a departmentalmanufacturing unit under IR with a status similar to that of the CLW, DLW andICF.

3.20 The IRWA will have a covered area of 50,000 m and consist of threeunits: (i) the wheel unit with an annual rated capacity of 70,000 wheels;(ii) the axle unit with an annual rated capacity of 23,000 axles; and (iii)the assembly unit with an annual rated capacity of 23,000 wheelsets. Proposedplant layout is shown in Chart IBRD 18717. A collaboration agreement for wheelmanufacturing technology has been signed with Amsted Industries, United States.Detailed engineering for the wheel unit will be completed by an IR design teamin consultation with the collaborators. The layout for the wheel unit hasbeen based on the preliminary plans furnished by Amsted Industries. Ancillaryservice facilities such as stores, sheds, laboratory, and training schoolswill also be provided. Necessary railway sidings to feed the shops and fordispatch of finished products will also be provided.

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3.21 Manufacture of wheels will be done by a cast steel process basedon technology supplied by Griffin Wheel Company, a subsidiary of Amsted Indus-tries. The process was chosen after careful review by IR of available technic-ally and economically viable options. Review by IDA missions of current usersof available technologies has confirmed IR's findings. The wheel unit willcomprise two electric arc furnaces, pressure pouring equipment as well asequipment for handling, processing and conveying the graphite casting moulds.In-line inspection facilities would ensure quality of the wheels manufactured.The manufacturing process for cast steel wheels, and for comparison for forgedsteel wheels, is summarized in the process flow chart in Chart IBRD 18715.

3.22 Axle forging will take place with a precision long forging machinewhich is the most efficient equipment for forging of a large number of smallquantity axle types. Complete heat treatment facilities comprising normaliz-ing, oil quenching and tempering would be provided in the axle shop. For axlemachining, the essential equipment consists of roughing and finishing copyinglathes, multiple operation axle and machining equipment, grinding and burnish-ing machines, and inspection facilities provided as part of the productionline. The concept of integrated engineering for axles to be handled frommachine to machine and for facilitating the flow of axles to the variousmachining operations would be adopted along with in-line inspection facil-ities for quality control. The proposed process of manufacture of axles issummarized in the process flow chart in Chart IBRD 18715.

3.23 The assembly section is so arranged as to eliminate unnecessaryhandling of material by letting finished wheels and axles intended forassembly converge into the assembly shop. The assembly shop will have afinish boring machine for the wheels and an assembly wheel press. The rollerbearing section to mount the bearings on the finished wheelsets also formspart of the assembly shop. Inspection facilities for finished wheelsets areprovided in the assembly shop.

3.24 Estimated inventory requirements are shown in Table 9. The steelrequirements of the wheel and axle plant are as follows: (i) 50,000 tons ofsteel scrap for the wheel unit of which 15,000 tons are expected to be gene-rated within the plant and the remaining 35,000 tons will be acquired fromthe Southern, South Central and Central Railways, which are all close to thenew plant; and (ii) 10,500 tons of steel billets/rounds for BG axles, alongwith 1,500 tons of used BG axles from railways for the manufacture of MGaxles. For wheels, the yield from molten metal to finished wheel would be65%. In case of axles, the yield of finished axles from the blooms will be75%. Average rejection rates for both wheels and axles have been set at 15%,based on experiences with the process in other countries. Rejected castingsand forgings would be recycled in the plant. Production build-up for wheelsis expected to be 10,000 in 1982/83, 26,000 in 1983/84, and at least 60,000in 1984/85. Production build-up for axles is expected to be 4,000 in 1983/84, 13,000 in 1984/85 and at least 16,000 in 1985/86. During negotiationsthe production build-up targets were confirmed by IR.

3.25 The total IRWA power demand is 23 MW. The Karnataka ElectricityBoard have agreed to supply power to the plant as per phased requirementsindicated to them. With the commissioning of the Kalinadhi hydro-electric

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scheme by 1978/79, adequate and reliable power supply will be assured for

the plant. High power 66 KV transmission towers with conductors for supplyof power to a factory located adjacent to the railway plant site have alreadybeen erected and will be able to meet the power requirements of the IRWA planttoo. Proposed power supply would be from two power distribution centers,Peenya and Hoody, which would ensure adequate power supply if for some reasonpower from one source failed, or in case one source were not able to meetthe full requirement. During negotiations, IR confirmed that the Governmentof Karnataka had provided assurances to IR that the electric power and waterrequired for efficient operation of IRWA would be available and that thiswould be reflected in formal arrangements before the start-up of production.

3.26 Daily consumption of water for the plant is estimated at 2.3 millionliters. The Karnataka State Government have assured reliable water supply,and the construction contract has been awarded. It is expected that the watersupply would be available by December 1978. IR has sunk two tubewells and anopen well to ensure adequate water supply during construction of the plant.

3.27 The IRWA would require a total labor force and staff of 1,200employees of which about 800 employees (500 in wheel plant and 300 in axleand assembly plant) would be directly involved in manufacturing, plantengineering and quality control and materials management, the remainder beinggeneral management, colony and security staff. The wheel and axle plant wouldwork in two shifts. The labor force and the number of shifts in the wheeland axle plants are adequate for efficient operations. Project implementationand permanent organizations are treated in para 3.42.

3.28 The project has been designed with due regard to environmental andworker safety aspects. A Karnataka State law for environmental and pollutioncontrol, passed in 1974, stipulates that all industrial enterprises must con-form to environmental standards specified in the legislation relevant to theindustry concerned. The IRWA is within these standards and no significantadverse environmental impact is expected from the project.

3.29 The proposed wheel and axle plant is estimated to cost Rs 647 mil-lion (US$75 million equivalent) with a foreign exchange component of Rs 327million (US$38 equivalent). Summary fixed capital cost and schedule is shownin Table 11, and summary working capital cost andl schedule is shown in Table12. Annual operating cost when the plant operates at rated capacity is shownin Table 13. In addition, the project will provide for two years' manufactureby DSP and TISCO and imports of wheels and axles for manufacturing and main-tenance requirements estimated at Rs 662 million (US$77 million equivalent)with a foreign exchange component of Rs 215 million (US$25 million equivalent).

(c) Development Support

3.30 Thyristor Control/Transformer Sets. The project would supportimport of 30 thyristor control/transformer sets to be tested on three groupsof the present AC electric locomotive fleet. Upon successful trials, similarthyristor control/transformer sets would be manufactured domestically for

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installation in the present AC electric locomotive fleet of 750 units with a

view to improving their performance and reducing their operating and mainte-

nance costs.

3.31 RDSO Product Improvement. Considerable work has to be done regard-

ing improvements to parts and components of diesel locomotives manufacturedby IR and at the same time introduce new versions of the present design.

To undertake this, the project will support engine testing and development

facilities and acquisition of proven parts and components for the purposeof testing and design adaptation to Indian ambient and operating conditions.In addition to hardware, the project will support acquisition of designs and

technical advisory services, computer programs needed for clesign simulationsand proper analysis of test results, and overseas staff training. During

negotiations the RDSO product improvement program, includirng terms of refer-ence for individual tasks, were reviewed and confirmed with IR.

3.32 Technical advisory services under the project will also includeassistance by suppliers of plant technology to IRWA during detailed engineer-ing, preparation of specifications, plant construction, commissioning and

start-up amounting to an estimated 48 man-months at US$7,000 per man-month,resulting in a total cost of about US$340,000 of which US$250,000 would be

foreign exchange. The staff training portion also includes estimated allo-cations for training needs of the other project components. During negotia-

tions details of the technical advisory services support program were discussedand agreed with IR.

3.33 Training of IRWA staff and work force in respect of specializedtechnology required for operation and maintenance of the plant would becarried out in the manufacturing and training facilities of the suppliers of

plant technology. The collaboration agreement with Amsted Industries providesfor IR staff being trained in the Griffin Works in production, maintenance,

process and quality control. Similarly, in respect of the axle unit, IR wouldseek arrangements for training with the suppliers of plant technology. Itis estimated that about 60 men would be trained for the wheel unit in thecollaborators works, and provision for this has already been made in the collabo-ration agreement. A total of 1,130 man-months of training for IRWA would beprovided under the project; of these, an estimated 230 man-months would beoverseas. Total cost of training for IRWA under the project is estimatedat US$1.0 million, of which US$600,000 would be foreign exchange. In addi-tion to specialized training, general training of the work force would takeplace at railway workshops and steel plants in India. Details of trainingrequirements are shown in Table 10. During negotiations, the outline of thetraining program for IRWA staff and workforce was reviewed and agreed withthe Government and assurances were obtained that prior to startup of IRWAoperations it would train all technical staff and work force of IRWA inaccordance with a detailed training program satisfactory to the Association.

3.34 This project component is estimated to cost Rs 156 million (US$18million equivalent) with a foreign exchange component of Rs 104 million

(US$12 million equivalent).

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D. Cost Estimates

3.35 The items included in the project form part of IR's five-year in-vestment plan 1978/79 to 1982/83 totalling Rs 32,250 million (US$3,750 millionequivalent). Principal items included in the proposed project and credit aredetailed in Annex B. The project is estimated to cost Rs 3,949 million (US$459million equivalent) with an estimated foreign exchange component of Rs 1,968(US$229 million equivalent). An estimated Rs 690 million (US$80 millionequivalent) in taxes and duties is included in total costs. The cost esti-mates are summarized below:

Rs Million US$ millionProject Items Local Foreign Total Local Foreign Total Credit

1. WorkshopsWorkshopModernization 285 815 1,100 33 95 128 95Unit ExchangeComponents 903 481 1,384 105 56 161 30Subtotal 1,188 1,296 2,484 138 151 289 125

2. Wheels and AxlesWheel and Axle Plant 320 327 647 37 38 75 38Wheels and Axles 421 241 662 49 28 77 15Subtotal 741 568 1,309 86 66 152 53

3. Development SupportThyristor Control/Transformer Sets 34 77 111 4 9 13 9RDSO ProductImprovement 9 9 18 1 1 2 1

Technical AdvisoryServices) 9 18 27 1 2 3 2Training) _ _ __

Subtotal 52 104 156 6 12 18 12

Grand Total 1,981 1,968 3,949 230 229 459 190

3.36 The cost estimates are based on prices of January 1978. They arebased on ex-factory prices for similar items manufactured in India and onrecent prices of imported equipment. A physical contingency allowance of10% has been incorporated in the cost of IRWA. This is satisfactory, sinceearthworks have been completed; buildings, for which architectural designsare complete, are relatively simple; and preliminary industrial engineeringis complete. Price contingencies for all project items have been included tocover expected price increases until contracts are awarded as well as priceescalation during implementation and commissioning of the wheel and axle plant.

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Based on estimates by IR, the price contingency has been estimated at anannual average of 7% for local and foreign costs. The foreign exchange ratewas assumed to be US$1.00 = Rs 8.60.

3.37 Local manufacturers of plant and machinery could win contractsamounting to Rs 387 million (US$45 million equivalent) of the goods to beprocured under ICB, therefore reducing the estimated direct and indirect for-eign exchange component of the project costs to Rs 1,704 million (US$198million equivalent) as summarized below:

US$ millionProject Items Local Foreign Total Credit

1. WorkshopsWorkshopModernization 58 70 128 95Unit ExchangeComponents 105 56 161 30Subtotal 163 126 289 125

2. Wheels and AxlesWheel and Axle Plant 43 32 75 38Wheels and Axles 49 28 77 15Subtotal 92 60 152 53

3. Development SupportThyristor Control/Transformer Sets 4 9 13 9RDSO ProductImprovement 1 1 2 1

Technical AdvisoryServices/Training) 1 2 3 2Subtotal 6 12 18 12

Grand Total 261 198 459 190

E. Financing

3.38 The Association would finance the foreign exchange component ofestimated project costs, i.e., US$190 million equivalent under the proposedcredit and US$7 million equivalent of undisbursed funds from Credit 582-IN,representing 43% of total project cost. GOI will finance the remainingUS$262 million equivalent. All project items are included in GOI's DraftFive-Year Plan 1978/79 to 1982/83. During negotiations it was agreed thatGOI would provide adequate and timely releases of funds in accordance withthe implementation schedule.

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F. Implementation

3.39 IR will be responsible for the implementation of the project aspart of its ongoing works and manufacturing program. It has the necessarycapability and competence to carry out the project. A time-phased projectimplementation schedule is shown in Chart IBRD 18833. This schedule as wellas supervision and progress reporting arrangements, including IR preparationof evaluation report on thyristor control/transformer test results, andGovernment preparation of a final report upon completion of the project,were discussed and confirmed during negotiations.

3.40 Workshops. The present organization is not adequate for derivingthe maximum benefits from the intended investment in workshop modernization.Therefore as part of the project, IR will: (i) complete a workshop ration-alization plan in accordance with objectives for a workshop master plan;(ii) provide rigorous monitoring of project implementation; (iii) introduceinto the organization new expertise in machine tool technology, cutting tooltechnology, work measurement, and method study; (iv) provide training programsrequired for upgrading and updating of skills; and (v) employ consultancyservices as required. During negotiations implementation by IR of a plan ofaction for a workshop master plan study with targets to be achieved in majorworkshops and for measuring the impact of the unit-exchange system was dis-cussed and agreed with the Government. This is shown in Annex C.

3.41 Wheels and Axles. Preliminary engineering and design of the pro-ject is completed. Detailed engineering has started and is expected to becompleted in 9 months. Physical implementation of earth works started in1976 and is almost completed. The wheel plant is expected to be completedby mid-1980 and the axle plant by end 1982. Equipment delivery and construc-tion schedules, which are considered reasonable, are based on informationprovided by potential suppliers as well as by IR. Normal production wouldbe attained in 1985. During negotiations, it was agreed with the Governmentthat IR will employ experts, with qualifications and on terms satisfactoryto the Association, with the purpose of assisting IR in detailed engineering,preparation of specifications and plant construction, commissioning andstartup and monitoring of manufacturing operations and establishment ofproduction and inventory planning and control systems.

3.42 IRWA management will have primary responsibility for project imple-mentation. Direct responsibility for project execution is delegated to IRWA'sengineering department which is headed by a competent and experienced engineerwho will report directly to IRWA's general manager. The organizational setupfor project implementation is shown in Chart IBRD 18729, and the proposedpermanent organization in Chart IBRD 18716. During negotiations, it wasagreed with the Government that IR would ensure, that at all times the IRWAwould be adequately staffed under the supervision of experienced and competentmanagement.

3.43 Development Support. During negotiations specifications for thethyristor control/transformer sets and detailed terms of reference for RDSOproduct improvement, technical advisory services and training were reviewedwith IR and an action plan for their implementation confirmed.

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G. Procurement

3.44 Items financed by the Association will be procured by IR throughinternational competitive bidding and limited tender from establishedmanufacturers in accordance with Bank/IDA guidelines except for: (a) pro-prietary items for the wheel and axle plant which have to be procured underlicense or by technical need; and (b) contracts of US$100,000 equivalent orless, where advantage of ICB would be clearly outweighed by the administrativeburden thereof. Local manufacturers are expected to bid for items under theproject and a domestic preference of 15% or the import duty, whichever isless, would be applied in bid evaluation. During negotiations, it was agreedwith the Government, that when the lowest evaluated bidder is a foreignmanufacturer, permission to import will be forthcoming immediately and nofurther review by any agency of the Government will be made.

3.45 The items to be financed under the credit and procured throughlimited tender are estimated to cost about US$21 million equivalent. Pro-prietory items for the wheel and axle plant amounting to about US$8 millionequivalent, are to be procured from original sources. The total amount ofcontracts less than US$100,000 equivalent not covered by ICB is estimatedto be about US$5 million equivalent. Such contracts will be placed usingIR's internal procedures for procurement which are satisfactory.

H. Disbursements

3.46 Subject to review and agreement with the Association, savings inany category of the proceeds will be available to cover increases in any othercategory except proprietary items. Disbursements are expected to be completedby December 31, 1984. Disbursements under the project would be made against100% of the following: (i) the c.i.f. cost of imported items; (ii) the ex-factory cost exclusive of any taxes and duties of items procured from domesticsuppliers, except for wheels and axles; and (iii) the cost of training, tech-nical advisory services, and installation and inspection of equipment requir-ing foreign expertise. A schedule of estimated disbursements is shown inTable 14.

IV. ECONOMIC EVALUATION

A. Main Benefits and Beneficiaries

4.01 The proposed project will modernize and improve the maintenanceand manufacture of diesel and electric locomotives and rolling stock inorder to reduce the cost of these operations as well as to improve their

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performance and availability. During the past two decades, IR has concen-

trated on improving railway infrastructure and expanding the motive power and

rolling stock fleet to carry ever increasing traffic volumes. Concurrently

with this expansion, IR moved from steam to diesel and elec.ric traction.

Partly due to the relatively young age of the diesel and electric locomotivefleet and partly due to foreign exchange constraints, the workshop system

received relatively little attention during this period, with the result that

about 80% of machinery and plant in the workshops are overaged and annualperiodic overhaul capacity, already unsatisfactory, is becoming increasingly

insufficient relative to requirements. Substantial foreign exchange savings

could be achieved by domestic manufacture of wheels and axles for IR. Thepresent design of diesel and in particular electric locomotives is basically

about 20 years old and could be substantially improved with the adoption of

modern technology. To achieve these improvements, the proposed project would

support workshop and locomotive modernization, wheel and axle manufacture,

and product development for IR manufacturing units. To the extent that cost

savings derived from the project are not passed on to IR's customers, they

will revert to the general GOI budget for redistribution in accordance withoverall Government policies.

4.02 The proposed workshop component would be the first phase of the

IR workshop rationalization and modernization plan to improve the efficiencyof the IR workshop system with a view to immediately containing and subse-quently eliminating the maintenance backlog for motive power and rollingstock. The main direct benefits from the workshop component would reduce

queueing time of motive power and rolling stock because of increased product-ivity of workshop machinery and plant.

4.03 The proposed wheel and axle component would increase the domesticmanufacturing capability for wheels and axles so as to meet more economically

than through imports the total requirements therefor. The main direct benefits

from the wheel and axle plant would be savings in costs of wheels and axles.

4.04 The development support would provide support for start-up of the

wheel and axle plant and for locomotive and rolling stock design and productimprovement and related testing facilities. The main direct benefits would

be increased performance and reduced operating costs of locomotives and roll-

ing stock.

4.05 The weighted average economic return on the main project componentsincluding technical assistance is 23%; with the workshop component having anaverage return of 27%; and the wheel and axle plant a return of 19%.

B. Costs and Benefits

4.06 The costs and benefits used for the economic evaluation were esti-

mated as c.i.f. plus economic distribution costs for all tradeable items.

The economic cost of foreign exchange was assumed at US$1.00 = Rs 10, andthe economic cost of labor, which in this project would be mainly skilled

industrial labor, was assumed equal to its domestic market value.

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C. Workshops

4.07 The workshop modernization program covers machinery and equipment

for one manufacturing unit, four major workshops and selected sheds as well

as parts, components and sub-assemblies for the introduction of a unit-

exchange maintenance system. The program would be carried out during the

period from 1978/79 to 1980/81. Economic costs of the workshop modernization

program would amount to about Rs 1,420 million of which Rs 838 million would

be machinery and plant, and Rs 582 million would be working capital in the

form of parts and components. Benefits would be savings in locomotives,

coaches and wagons due to avoided increases in ineffectives. The capital

cost of ineffectives in 1980/81 was estimated at about Rs 2,932 million,

corresponding to an average annual increase in capital cost of ineffectives

during the period from 1976/77 to 1980/81 of about Rs 733 million. Economic

evaluation shows that the workshop modernization would be well justified.

Based on an investment period of three years, and an assumed economic life

of fixed assets of ten years, this project component would yield an economic

return of 27%.

D. Wheels and Axles

(a) Wheel and Axle Plant

4.08 The wheel and axle plant would have a rated capacity of 70,000

wheels and 23,000 axles. Normal operation will be reached in 1985/86. The

production volumes during plant start-up from 1980/81 to 1984/85 are given in

para 3.24. Civil engineering works have already started and all plant invest-

ment is expected to be completed by 1982/83. Economic cost of establishing

the plant would amount to Rs 509 million, of which Rs 472 million are fixed

assets and Rs 36 million are working capital. Benefits from the plant would

be savings in the cost of wheels, which would otherwise have to be imported.

Economic cash flows are shown in Table 15 for a production level of 70,000

wheels/22,780 axles and 50,000 wheels/16,000 axles respectively. Savingsin 1985/86 would amount to Rs 167 million at the higher production level

and Rs 115 million at the lower level. Based on a construction and startup

period of seven years and an economic project life of fifteen years, this

project component would yield an economic return of 19% at the higher pro-

duction level and an economic return of 15% at the lower production level.

The economic breakeven points are shown in Table 16 and would be reached at

about 25,000 wheels and 15,000 axles.

(b) Wheels and Axles

4.09 The wheel and axle program would cover two years' supply of wheels

and axles of which about one-half would be for maintenance and the other

half for new rolling stock. The program would be carried out during 1978/79and 1979/80. Economic costs of the program would amount to Rs 610 million.

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Benefits from the program would be avoided losses to the economy from IR beingunable to meet freight and passenger transport demand due to lack of wheelsand axles for rolling stock estimated at equivalent to 19,000 wagons annuallyin terms of 4-wheeler units.

E. Development Support

(a) Thyristor Control/Transformer Sets

4.10 During the initial stages of 25 KV electrification, IR imported twotypes of mixed traffic locomotives, WAMI and WAM2, both of which were equippedwith ignitron rectifiers and transformer tap changer controls of type N40.Spare parts for this equipment, originally acquired with the locomotives, havebeen used up over the years and are no longer produced inside or outside Indiadue to technical obsolescence. The tap changer type N32 and transformer cur-rently used for WAM4 and manufactured in India is not fit for WAM1 and WAM2because of weight and differences in mounting. Both WAM1 and WAM2 have beenin service for nearly 20 years and are now due for major overhaul. IR pro-poses to replace 20 of the existing transformer/tap changers on WAM1 and WAM2locomotives with new transformer/thyristor controls to test this technique forfurther application with the remaining WAMI and WAM2. The project includes20 thyristor/transformer sets. The WAM4 locomotive manufactured at CLW isprovided with a transformer of type BOT 3460, and tap changer of type N32,limiting its power to 3600 hp. IR proposes to test modern thyristor controltechnique on 10 WAM4 in order to achieve increased utilization and versatilityof this locomotive type. The economic cost of 30 thyristor/transformer setswould amount to Rs 95 million. The main benefit from application of thyristorcontrols is savings in manufacturing cost. Tap-changers are mechanical andrequire a large number of switches while thyristors are an application ofsolid state technology which is cheaper to manufacture and lower in mainte-nance costs. Potential manufacturing cost in India of a new thyristorcontrol/transformer set would be at least 15% cheaper than the manufacturingcost of a tapchanger/transformer set of the above-mentioned designs. Inaddition, thyristor controls would ensure better overall locomotive per-formance than tapchanger controls. Since the thyristor control/transformersets included in this project are experimental, no separate economic returnwas calculated for this project component.

(b) Other Development Support

4.11 Other development support consists of laboratory equipment for pro-duct improvement on the existing locomotives, technical assistance for start-up of the wheel and axle plant, and training. For the economic analysis, thecosts of these project items have been included under the thyristor control/transformer sets and wheel and axle plant.

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F. Overall Economic Evaluation

4.12 Overall economic evaluation shows that implementat:ion of all proj-ect items is well justified and appropriately timed. The economic return (ER)for each major project element as well as their sensitivity to variationsin costs and benefits are shown below (in %):

Assumptions Total Workshops IRWA

Best Estimate of ProjectCosts, and

Expected value of benefits 23 27 1925% increase in benefits 30 35 2525% decrease in benefits 14 17 10

15% increase in projectcosts and

Expected value of benefits 19 22 1525% increase in benefits 26 30 2125% decrease in benefits 9 11 6

15% decrease in projectcosts, and

Expected value of benefits 28 33 2325% increase in benefits 35 41 2925% decrease in benefits 19 22 15

The results show that even with a 15% increase in project costs and a 25%decrease in benefits, the total project would still yield an ER of 9%. Allproject components involve proven technology that has been in extended usein other parts of the world; technological risks connnected with the projectare therefore small. In addition, IR has successfully operated large scalerailway operations and manufacturing enterprises over decades and has com-petent managerial and technical expertise therefor; risks from inadequateproject implementation and operation are therefore negligible.

V. FINANCE AND EARNINGS

A. Introduction

5.01 The GOI requires IR to pursue a financial policy that will resultin the earning of net revenues which are sufficient to meet the dividend pay-ment due to the Government on capital provided to the Railway, and to earna surplus out of which certain capital investment can be financed.

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5.02 Until recently IR was able to meet its dividend liability of about

5.5% on its capital-at-charge and to continue to finance a significant portion

of its investment program despite maintaining low freight rates and passenger

fares. As a consequence of slower traffic growth in recent years, however,

IR was forced to adopt a more cost conscious policy and to examine its finan-

cial accounting and control methods. In addition, traffic costing is now an

integral part of tariff formulation.

5.03 Apart from providing for replacement of assets through the

Depreciation Reserve Fund (DRF), IR is required to: (i) pay a dividend on

capital-at-charge; (ii) finance Development Fund (DF) expenditure - generally

covering improvement to passenger and other amenities; and (iii) pay interest

on its current loan balances. To meet these liabilities, IR has had in the

past 8-10 years to borrow from Government General Revenues, on an increased

scale. The balance as of March 31, 1977 was Rs 4,619 million and it was

reduced to Rs 3,686 million by March 31, 1978.

5.04 The Association has emphasized its concern over temporary loans to

which there are four alternative solutions. These are: (i) liquidate all

loans by certain date - would require roughly 6% additional revenue if the

loans are to be liquidated by 1982; (ii) stabilize loan balance at the current

amount; or (iii) GOI write-off of the present loans; or (iv) to IR capitalize

the present loans. A committee has been set up to consider the various al-ternatives and how to deal with the financial arrangement between IR and GOI

regarding temporary loans, and is to come up with recommendations on restruc-

turing of capital by the end of 1979. During negotiations it was confirmed

that IR would make available to the Association the reports from the Committee

on Capital Restructuring and Rail Tariff Enquiry Committee (para 5.12) by the

end of 1979 and would inform the Association as to any measures which were

being taken to implement recommendations made by the committees.

B. Accounts and Audits

5.05 Financial arrangements with the Government and audit procedures

have not changed since the last appraisal report. Certain improvements to

accounting procedures have been effected, including a system of cash flow

control against monthly budget allowances.

5.06 Three task forces were established to examine IR's: (a) budgetary,

accounting and management practices; (b) depreciation policy; and (c) restruc-

turing of capital.

5.07 The task force reports on budgetary, accounting, and management

practices have been received by the Railway Board and accepted by the GOI and

are now before the Estimates Committee of Parliament and Auditor and Controller

General for their review. The essence of the new financial system is to split

large and small group accounts in accordance with functional rather than as

now with output oriented financial information systems. The task force reports

under review primarily deal with demand changes, and IR expects to introduce

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later more comprehensive performance budgeting or responsibility accounting.It is anticipated that implementation of such a system will be throughout IR

and would follow these stages; the 1978/79 budget will conform to the old

classification; the revised estimate for 1978/79 and the budget for 1979/80will be submitted in the new form. The major improvements recommended would

be as follows:

(a) relate expenditures to the budget by a common classificationmaking comparison and performance measurements easier;

(b) make expenditures more related to responsibility centers;

(c) introduce a more comprehensive accounting classification; and

(d) enable the same financial data to be used by the three main

users, namely GOI, Ministry of Finance and IR.

5.08 The Working Group on depreciation provided three optional methods.

Government's decision was to adopt a system which provides for calculationof depreciation based on replacement costs, calculated on the basis oforiginal asset cost; plus a factor for inflation and technological improvements.

5.09 The accounts of IR are audited by the Director of Railway Audit,Office of Comptroller and Auditor General, GOI. Audit arrangements are

thorough and satisfactory.

C. Rates and Fares

5.10 The Government has in the past applied a tariff policy which hastended to subsidize large segments of freight (essential basic commodities)and passenger traffic (third class travel). The latest rate and fare in-

creases in 1975/76 represented a distinct step towards cost-based tariffs.Rail freight of coal over longer distances in the past has been a primeexample of subsidized transport, which annually resulted in considerablelosses to the railways. However, coal freight rates are now closer to actualcosts. Freight rates for other commodities are also close to costs. As a

result, most subsidies on freight traffic are at present eliminated.

5.11 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. How-ever, the rate increases applied particularly to other than commuter traffic,

which still remains heavily subsidized for social reasons, although there isa clear desire within the Government to reduce the losses on this traffic.

5.12 The Government set up a Rail Tariff Enquiry Committee in September1977 to examine the structure of fares, rates and other charges for public

traffic carried by trains and to recommend any modifications which should be

made. The Committee is expected to submit its report by end of 1979, and IR

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has confirmed that the Association would receive the report and would beinformed as to any measures which were being taken to implement the recom-mendations made by the Committee.

D. Past Performance

5.13 IR's actual revenue and expenditure accounts for the period 1972/73to 1976/77 are detailed in Table 17 and the revised estimate for 1977/78 inTable 19 and these are summarized below (in Rs million):

RevisedEstimate

Account Head 1972/73 1973/74 1974/75 1975/76 1976/77 1977/78

Operating Revenue 11,624 11,379 14,082 17,670 20,361 21,316Working Expenses 8,566 9,353 11,863 14,702 15,490 16,111Net Cash OperatingRevenue 3,058 2,026 2,219 2,968 4,871 5,205

Appropriation to DRF 1,100 1,150 1,150 1,150 1,350 1,400Appropriation to PF 160 160 160 245 350 400Net Operating Revenue 1,798 716 909 1,573 3,171 3,405Appropriation to DF 154 162 1]73 203 208 241Net Revenue 1,644 554 736 1,370 2,963 3,164Dividend on Capital-

at-Charge 1,615 1,709 1,875 1,981 2,091 2,271Net Surplus (Deficit) 29 (1,155) (1,139) (611) 872 893Operating Ratio (%) 84.5 93.7 93.5 91.1 84.4 84.0

5.14 After the fuel price increases of 1973 and 1974, IR's fuel costsincreased considerably. In addition the high inflation experienced in thecountry during the period 1973/74 to 1976/77 led GOI to grant dearness allow-ances to workers with retroactive adjustments thus escalating IR personnelcosts. Simultaneously, the low level of freight activity during this periodfurther accentuated the problems. All these factors led to inadequate netoperating revenues for meeting the full dividend liability to the Government.Consequently, there were a series of net deficits of Rs 1,155 million in 1973/74; of Rs 1,139 million in 1974/75 and of Rs 611 million in 1975/76. However,in 1976/77, IR showed recovery and generated a surplus of Rs 872 million; thispositive result is expected to continue. The revised estimate for 1977/78indicates a surplus of Rs 893 million which far exceeded the budget figure.Working expenses have been reduced by Rs 377 million compared to the budgetfigure despite increased traffic handling. This is significant as no freightrate or fare increases were granted for the second consecutive year despiteescalation in costs. The reduction in operating expenses indicates betterefficiency and tighter expenditure control.

5.15 The operating ratio increased from 84.5% in 1972/73 to 93.7% in1973/74; however it has been declining steadily reaching 84.0% in 1977/78which is satisfactory. Operating expenses include working expenses, appro-priation to DRF and PF and the operating ratio relates the operating expenses

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to the operating revenue. The rate of return on capital-at-charge from a lowof 1.4% in 1973/74 has increased to 6.5% in 1976/77.

5.16 The balance sheet of IR at March 31, 1977 is shown in Table 18.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 plus anyimprovements when subsequently replaced. The inflation element in the costof replacements is charged against DRF and does not become reflected in thefixed asset values. The amount of Government capital-at-charge approximatelycorresponds to what would normally be regarded as the value of net fixed assets.

E. Future Prospects

5.17 The forecast of revenues and expenditures 1978/79 to 1982/83 isshown in Table 19 and summarized below (in Rs million):

Forecast1978/79 1979/80 1980/81 1981/82 1982/83

Operating Revenue 22,199 23,129 24,163 25,127 26,149Working Expenses 17,009 17,484 18,026 18,614 19,205Net Cash Operating

Revenue 5,190 5,645 6,137 6,51:3 6,944Appropriation to DRF 1,450 1,955 2,215 2,365 2,515Appropriation to PF 500 550 600 650 700Net Operating Revenue 3,240 3,140 3,322 3,498 3,729Appropriation to DF 258 252 260 260 265Net Revenue 2,982 2,888 3,062 3,238 3,464Dividend on Capital-

at-Charge 2,328 2,565 2,753 3,005 3,257Net Surplus (Deficit) 654 323 309 233 207Operating Ratio (%) 85.4 86.4 86.3 86.1 85.7

The prices used for rates, fares and expenses are at April ].978 levels, andthe revenues are based on the traffic forecasts discussed in Chapter II.These figures take into account all rates and fares increases granted up toApril 1978 and labor costs include all allowances sanctioned to September1977. No provision has been made for increases in wages, fuel and materialexcept for increases related to additional traffic. The DRF for the 5-yearperiod 1978/79-1982/83 amounts to Rs 10,500 million, averaging Rs 2,100million each year. This compares favorably with the previous five years1974/75-1978/79 when appropriation to DRF was placed at Rs 6,500 millionwith an average of not less than Rs 1,300 million each year. Even if thereis no change in tariff or cost structure and despite the substantial increasein the annual DRF allocation, IR expects to generate a moderate surplus ineach of the years during the period 1978/79-1982/83. The balance sheets as ofMarch 31, for the period 1976-1983 are presented in Table 20. The rate ofreturn on average capital-at-charge is on the average about 5.5% per annum.

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5.18 During negotiations, it was agreed that GOI would maintain passengerfares and freight rates and take all other actions as may be necessary orappropriate so as to provide to the Railways net revenue sufficient to enablethe Railways to meet out of internally generated resources all operatingexpenses and dividend payments on capital-at-charge.

5.19 An IR Task Force appointed to study the management informationsystem (MIS) at IR production units submitted its report in June 1977. Thereport recommends improved planning and control systems at IR manufacturingunits, particularly in the area of product (industrial) costing and depart-mental performance measurement. The Task Force report has also been submittedfor clearance of equipment acquisition to the Department of Electronics, whichreports directly to the Prime Minister. The MIS will result in better costcontrol by product and pinpoint needed corrective action by management. Dur-ing negotiations, IR confirmed that it would cause the DLW, CLW, ICF and IRWA(before start-up of production) to introduce improved industrial managementinformation and control systems in order to generate quickly and continuouslydata necessary for planning and control, including product costing and assess-ment of departmental performance. IR further confirmed that the industrialcosting system at IRWA would also reflect cost of capital in the cost ofmanufacture.

F. Financing Plan

5.20 Table 21 shows the Source and Application of Funds for the years1976/77 to 1982/83. During the five-year forecast period 1978/79 to 1982/83,in which the proceeds of the proposed credit will be utilized, the fundsrequired by IR and the source of such funds are summarized as follows:

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Rs million US$ million %

Required Funds

For Investment Program:

Capital Expenditures 31,850 3,703 99Inventories 400 47 1

32,250 3,750 100For Other Purposes:

Dividend Payment 13,908 1,617 63Increase in fund balances 2,122 247 10Interest on temporary loans 1,114 130 5Repayment of temporary loans 4,979 579 22

22,123 2,573 100Required Funds 54,373 6,323

Sources of Funds

For Investment Program:

IR internal cash generation 12,930 1,504 40Government capital-at-charge 19,250 2,238 60Government temporary loans 70 8 -

32,250 3,750 100For Other Purposes:

IR internal cash generation 16,524 1,922 75Government temporary loans 5,599 651 25

22,123 2,573 100

Sources of Funds 54,373 6,323

5.21 The above financing plan is based on the present financial arrange-ments, particularly with respect to dividends and temporary loans, betweenthe Government and IR. IR would be able to finance 40% of its total invest-ment requirements out of net internally generated funds. The balance wouldbe provided by the government, either in the form of increase in capital-at-charge or in the form of temporary loans to be repaid from future revenuesurpluses. Forecast financial statements have been prepared on the basis ofmaximum investment of Rs 32,250 million during the period 1978/79 to 1982/83.

G. Financial Aspects of Wheel and Axle Plant

5.22 The capital cost of the plant including taxes is estimated atRs 596 million and working capital at Rs 51 million. The foreign exchange

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capital requirement of the plant is about US$38 million equivalent or about

50% of the total outlay. The amount required for construction will be in-

cluded in the railway budget presented annually to the Parliament. Dividend

on capital-at-charge is paid by IR to GOI on plant investment at a rate of 6%per annum or about Rs 38 million.

5.23 Working capital will be maintained from current plant operations.Production costs include fixed and variable costs and all the elements of

manufacturing costs and amount to about Rs 95 million annually. Adequate

provision has been made for preventive maintenance, repairs and renewals

during the project period. Royalties to the collaborator for quantitiesof wheels to be manufactured have been provided for in the production costs.

Costs of rejects have also been incorporated in the cost of production.

5.24 The transfer price from IRWA will cover total manufacturing cost,

including overheads and depreciation at replacement cost. Any excess fundsgenerated by IRWA through its operations will revert to IR. IR has confirmed

that, within the constraints of its financial code, prices of IRWA products

will be guided by the same principles which guide JPC in setting prices for

other Indian suppliers of wheels and axles. In response to a suggestion thatthe charging point for dividend on capital-at-charge might be embodied in

IR's manufactured products such as wheels and axles at the point of production,and that the transfer prices charged for such products should reflect this,IR has given assurances to bring this issue to the attention of the Railway

Convention Committee. During negotiations targets for production build-up at

IRWA were discussed and confirmed by IR.

VI. AGREEMENTS REACHED AND RECOMMENDATION

6.01 During credit negotiations, agreements were reached on the follow-

ing principal matters:

(a) GOI would fix such transfer prices for the supply of wheelsand axles to be produced at the Yelahanka Plant as shall besufficient to cover direct manufacturing costs, overheadcosts and full depreciation (para. 2.28);

(b) GOI would by December 31, 1978, cause to be prepared andfurnished to the Association, a training program satisfactoryto the Association for the training of technical staff andwork force to be employed at the Yelahanka Plant, and shallimplement said training program (para 3.33);

(c) IR would carry out a workshop modernization and rationaliza-tion program in accordance with a Plan of Action agreedupon between GOI and the Association (para 3.40);

- 44 -

(d) IR would employ experts whose qualifications, experience andterms and conditions of employment shall be satisfactory tothe Borrower and the Association (para 3.41);

(e) GOI would ensure that the Yelahanka Plant shall at all timescarry on its operations, manage its affairs and maintain itsfinancial position in accordance with sound engineering,financial and administrative practices, including an appro-priate management information system, and with adequatestaff under the supervision of experienced and competentmanagement (para 3.42);

(f) GOI would ensure that when the lowest evaluated bidder is aforeign manufacturer, permission to import will be forthcomingimmediately and no further review by any agency of the Govern-ment will be made (para 3.44); and

(g) GOI would maintain passenger fares and freight rates andtake all other actions as may be necessary or appropriate soas to provide to the Railways net revenue sufficient to enablethe Railways to meet out of internally generated resources alloperating expenses and dividend payments on capital-at-charge(para 5.18).

6.02 The proposed project provides a suitable basis for an IDA creditof US$190 million to the Government of India.

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

Indigenous Production and Importsof Wheels, Tyres and Axles 1963/64-1975/76

Indigenous Production of Total -

DSP and TISCO Import DSP and TISCO and Import Wheels/Tyres and AxlesWheels/ Wheel- Wheels/ Wheel- Wheels/ Wheel- Wheels/

Year Tyres Axles Sets 1/ Tyres Axles Sets 1/ Tyres Axles Sets 1/ Tyres Axles

1963/64 42,890 10,786 18,523 27,633 11,604 3,084 70,523 22,390 21,607 113,737 43,9971964/65 48,603 13,621 22,415 0 0 9,872 48,603 13,621 32,287 113,177 45,9081965/66 43,758 12,579 23,407 22,995 4,371 32,658 66,753 16,950 56,065 178,883 73,0151966/67 43,850 11,360 15,143 2,253 0 2,542 46,103 11,360 17,685 81,873 29,0451967/68 42,854 9,962 14,879 40,779 14,417 14,025 83,633 23,379 28,904 141,441 52,2831968/69 36,673 10,318 9,895 43,516 1,907 164 80,189 12,225 10,059 100,307 22,2841969/70 37,107 11,049 8,666 33,007 4,595 3,000 70,114 15,644 11,666 93,446 27,3101970/71 36,309 10,734 10,632 54,391 11,311 16,088 90,700 22,045 26,711 144,122 48,7561971/72 29,934 7,706 7,443 78,840 7,023 1,672 108,774 14,729 9,115 127,004 23,8441972/73 16,489 3,776 5,825 76,106 11,161 15,218 92,595 14,937 21,043 134,681 35,980

1973/74 16,434 5,872 6,950 54,486 5,235 5,314 70,920 11,107 12,264 95,448 23,3711974/75 23,833 6,191 7,661 35,088 11,786 18,616 58,921 17,977 26,277 111,475 44,2541975/76 28,553 8,194 10,433 43,354 12,646 18,288 71,907 20,840 28,721 129,349 49,561

Average 34,406 9,368 12,451 39,419 7,389 10,811 73,825 16,757 23,262 120,349 40,019

1/ One wheel-set consists of two wheels and one axle fully assembled.2/ Wheel-sets converted to wheels and axles.

Source: IR

June 1978

Table 2

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

Age Inventory of Rolling Stock - March 31, 1977(units)

Up to 10 Above 10 Above 20 Above 30 Totalyears & up to and up to years

20 years 30 years

Diesel Locomotives (Main Line)

BG 687 511 - - 1198MG 228 153 - - 381NG 15 39 4 - 58

Diesel Shunters

BG 219 7 29 15 270MG - - 27 1 28NG - - - _ _

Electric Locomotives

BG 485 313 7 19 824MG - 20 - - 20NG - - -

Rail Cars

BG - 23 1 1 25MG 8 2 18 2 30NG - - 4 11 15

EMU (Motor Coaches)

BG 377 228 79 - 684MG 21 24 - - 45

EMU (Trailers)

BG 728 670 75 1 1474MG 48 57 24 - 129

Coaches

BG 7137 7992 2831 1485 19445MG 3723 5666 2803 1194 13386NG 167 461 150 772 1550

Steam Locomotives Up to 17 Yrs. Above 17 Yrs. Above Total& up to 40 Yrs. 40 yrs.

BG 1337 3089 525 4951MG 767 1919 291 2977NG 2 133 230 365

Freight Wagons Up to Above 14 & Above 40 & Above 45 Total In-term14 Yrs up to 40 yrs up to 45 yrs years of 4-Whs

BG 126349 163419 5961 7628 303357 404313MG 23740 57022 1790 6784 89336 115801NG 469 1541 110 2960 5080 8976

Source: IR

June 1978

Table 3

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

Investments Under Various Plan Heads 1956/57-1977/78(Rs million)

1956/57 1961/62 1966/67 1969/70 1974/75 Totalto to to to to

Major Plan Heads 1960/61 1965/66 1968/69 1973/74 1977/78 Total

Traffic facilities 1,734 3,205 1,284 2,250 2,403 10,876

Track renewals, bridges 1,863 2,432 1,048 2,847 1,865 9,053

New lines,electrification 1,296 2,926 911 911 1,610 8,109

Rolling stock 3,726 5,424 3,195 3,195 8,133 26,352

Others 1,368 2,267 962 962 1,683 8,835

Workshops 281 476 133 133 515 1,599as % of total

investment 2.7% 2.8% 1.7% 1.7% 3.1% 2.4%as % of rolling stock 7.5% 3.8% 4.2% 4.1% 6.3% 6.1%

Machinery and plant 170 110 96 215 325 916as % of total

investment 1.6% 0.6% 1.3% 1.5% 1.9% 1.4%as % of rolling stock 4.6% 4.8% 3.0% 3.6% 4.0% 3.5%

Total 10,438 16,858 7,627 14,283 16,533 65,740

Source: IR

June 1978

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

Number and Age Group of Machinery

Mechanical Locomotive Sheds andGroup Workshops Production Units Repair Lines Total

No. % No. % No. % No. %

0-5 years 1,017 6.3 223 8.5 887 15.4 2,127 8.6

5-10 years 1,174 7.3 556 21.5 1,072 18.6 2,812 11.5

10-15 years 1,573 9.7 427 16.2 1,136 19.7 3,136 12.8

15-20 years 2,509 15.5 667 25.4 859 14.9 4,035 16.4

20-30 years 4,159 25.8 641 24.6 861 15.0 5.661 23.1

30-40 years 1,710 10.6 95 3.8 380 6.6 2.185 8.9

40.50 years 2,102 13.0 3 - 332 5.8 2,437 10.0

50-60 years 1,007 6.2 5 - 164 2.8 1,176 4.8

Over 60 years 908 5.6 1 - 68 1.2 977 3.9

Total 16,159 100.0 2,628 100.0 5,759 100.0 24,546 100.0

Source: IR

June 1978

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

IR Wheel, Tire and Axle Requirements, Present Manufacturing Capacity,Projected Production and Shortfall 1977/78-1984/85

Item 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83 1983/84 1984/85 1985/86

WheelsTotal IR Requirements 93,798 98,550 105,070 111,070 119,910 124,710 129,700 134,880 140,280

Domestic Maiyfacturing Capacity 9] 90,750 90,750 90,750 90,750 90,750 90,750 90,750 90,750 90,750

Production - 55,900 67,900 70,320 70,320 70,320 70,320 70,320 70,320 70,320

Production Shortfall (Surplus) 37,898 30,650 34,750 40,750 49,590 54,390 59,380 64,560 69,960

Tires4/

Total IR Requirements 37,540 32,500 31,220 30,670 27,500 27,500 27,500 27,500 27,500

Domestic Me7 ufacturing Capacity 27,500 27,500 27,500 27,500 27,500 27,500 27,500 27,500 27,500

Production- 27,500 27,500 27,500 27,500 27,500 27,500 27,500 27,500 27,500

Production Shortfall (Surplus) 10,040 5,000 3,720 3,170 0 0 0 0 0

AxlesTotal IR Requirements 35,636 38,510 40,050 41,650 43,320 45,050 46,850 48,730 50,680

Domestic Manufacturing Capacity 49,560 49,560 49,560 49,560 49,560 49,560 49,560 49,560 49,560

Production 3/ 33,560 39.650 39,650 3965 39,650 39,650 39,650 39,650 39,650

Production Shortfall (Surplus) 2,076 (1,140) 400 2,000 3,670 5,400 7,200 9,080 11,030

Note: 1/ Actual through 1977/78. Budget 1978/79. Projected 1979/80-1985/86

2/ Includes IR workshop capacity for about 3,000 wheels.

3/ Average capacity utilization assumed for DSP and TISCO during period 1979/80-1985/86 is 80%.

4/ Tires can be substituted by solid wheels.

5/ Average capacity utilization assumed for TISCO during period 1979/80-1985/86 is 100%.

Pt

Source: IR and Mission Estimates

June 1978

Table 6Page 1

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

Summary of Operating Statistics I/

BROAD GAUGE1972-73 1973-74 1974-75 1975-76 1976-77

(Provl.)

1. Percentage of serviceablelocomotives (%)

- Steam 81.55 84.91 84.39 85.63 86.73- Diesel 85.57 84.44 82.26 82.93 82.98- Electric 79.63 80.78 78.77 79.95 78.89

2. Percentage of serviceablepassenger vehicles (%) 87.49 86.55 84.02 84.29 87.26

3. Percentage of serviceable wagons 95.87 95.64 95.52 95.59 96.014. Engine - Km per day per engine

in use (km)- Passenger

- Steam 243 238 236 238 233- Diesel 669 694 652 641 718- Electric 432 408 408 450 681

- Freight- Steam 114 108 112 114 114- Diesel 329 307 306 321 379- Electric 306 372 296 331 435

5. Gross trailing load per freighttrain (ton) 1539 1528 1563 1577 1607

6. Net tonnage per freight train (ton) 763 745 778 782 7967. Wagon - km per day per wagon in

use (km) 74.4 67.2 70.3 76.8 81.28. Net ton km per wagon per day 953 837 907 982 10199. Gross ton km per freight-train hour 25846 26021 26756 27663 3022210. Net ton km per freight-train hour 13938 13966 14599 15018 1629211. Percentage of passenger trains

arriving on time (%) 85.78 79.47 82.1 86.5 93.212. Average wagon load (ton) 2/ 18.1 17.9 18.5 18.9 18.913. Locomotive utilization (%)'-

- Steam 49.6 47.9 46.7 48.3 45.8- Diesel 78.8 75.0 76.7 80.0 80.0- Electric 70.4 67.5 72.1 76.3 79.2- All traction 55.8 53.8 54.2 56.7 55.4

14. Average speed of all freight trains(km/h)

- Steam 11.7 11.8 12.0 11.8 11.9- Diesel 22.0 22.2 22.1 22.1 23.1- Electric 23.5 22.5 22.4 23.5 25.2- All traction 18.0 18.3 18.4 18.8 20.1

15. Average speed of throughfreight trains (km/h)

- Steam 15.9 15.6 15.8 15.9 16.8- Diesel 22.3 22.4 22.3 22.3 23.3- Electric 23.5 22.6 22.5 23.7 25.4- All traction 21.3 21.1 21.0 21.6 23.2

16. Average lead of a ton of freight(km)3/ 643 630 658 646 635

17. Wagon turnaround (days) 13.5 15.0 14.6 13.5 13.0

1/ Wagons are based on standard 4-wheel equivalent, 22 tons for B6 and 14-6 tons for MG

2/ No. of hours engine available and worked per day.3/ Reveigue freight only

Source: IR

June 1978

Table 6PaRe 2

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

Summary of Operating Statistics 1!/

METRE GAUGE1972-73 1973-74 1974-75 1975-76 1976-77

(Provl.)

1. Percentage of serviceablelocomotives (%)

- Steam 86.18 85.28 85.28 84.45 86.47- Diesel 88.59 87.71 86.55 88.33 90.84- Electric 86.95 88.45 87.90 85.00 85.00

2. Percentage of serviceablepassenger vehicles (%) 88.55 88.48 87.13 88.45 89.60

3. Percentage of serviceable wagons 96.12 94.98 94.81 95.65 96.004. Engine - Km per day per engine

in use (km)- Passenger

- Steam 227 214 205 215 215- Diesel 454 561 556 533 578- Electric 379 375 361 40t 439

- Freight- Steam 130 118 117 120 126- Diesel 273 259 272 286 344- Electric 254 248 232 225 242

5. Gross trailing load per freighttrain (ton) 783 785 800 800 785

6. Net tonnage per freight train (ton) 403 408 422 413 4137. Wagon - km per day per wagon in

use (km) 60.0 50.9 53.7 56.4 58.18. Net ton km per wagon per day 588 482 528 545 5709. Gross ton km per freight-train hour 11041 11336 11300 11109 11097

10. Net ton km per freight-train hour 6337 6616 6669 6423 655611. Percentage of passenger trains

arriving on time (%) 89.93 84.44 85.61 88.7 94.112. Average wagon load (ton) 21 12.4 12.7 13.2 13.3 13.613. Locomotive utilization (Z) -

- Steam 42.9 38.6 35.6 41.7 41.3- Diesel 66.7 66.3 68.8 74.2 75.6- Electric 50.4 47.5 45.0 53.3 60.0- All traction 45.4 41.6 39.4 45.4 45.4

14. Average speed of all freight trains(km/h)

- Steam 13.3 12.9 12.5 12.1 12.2- Diesel 18.7 19.0 18.7 18.5 19.1- Electric 19.3 21.3 22.5 20.0 19.4- All traction 15.2 15.5 15.2 14.9 15.2

15. Average speed of throughfreight trains (km/h)

- Steam 16.0 15.5 14.4 14.1 14.1- Diesel 19.0 19.3 19.0 18.8 19.2- Electric 19.3 21.3 22.5 20.0 19.4- All traction 17.7 18.1 17.6 17.3 17.6

16. Average lead of a ton of freight(km) 3/ 469 462 512 499 505

17. Wagon turnaround (days) 10.8 12.5 12.0 11.6 11.1

1/ Wagons are based on standard 4-wheel equivalent, 22 tons for B6 and 14-6 tons for MG.

2/ No. of hours engine available and worked per day.3/ Revenue freight only

Source: IR

June 1978

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

Freight and Passenger Traffic

Freight Traffic Passenger TrafficNon-Suburban Traffic Suburban Traffic -Originating Net Ton- Average Passengers Passenger- Average Passengers Passenger- Average

Tonnage Kilometers Lead Originating Kilometers Lead Originating Kilometers LeadYear million tons million Kilometers million million Kilometers million million Kilometers

1950/51 93.0 44,117 474 867 59,914 69.1 417 6,603 15.81955/56 115.9 59,576 514 776 54,235 69e9 499 8,165 16.41960/61 156.2 87,680 561 909 65,847 72.4 685 11,818 17,31965/66 203.0 116,936 576 1,057 79,059 74.8 1,025 17,235 16.81966/67 201.6 116,607 578 1,111 83,676 75.3 1,081 18,469 17.11967/68 196.6 118,860 605 1,153 88,188 76.5 1,104 18,975 17.21968/69 204.0 125,140 615 1,129 87,425 77,4 1,084 19,515 18.01969/70 207.9 128,248 617 1,180 91,219 77.3 1,158 22,163 19.11970/71 196.5 127,358 648 1,204 95,068 79.0 1,227 23,052 18.81971/72 197.8 133,265 674 1,261 101,079 80.2 1,275 24,250 19.01972/73 201,3 136,531 678 1,268 106,931 84.3 1,385 26,596 19.21973/74 184.9 122,354 662 1,217 107,627 88.5 1,437 28,037 19.51974/75 196.7 134,304 683 1,056 99,097 93.8 1,373 27,157 19.81975/76 223.3 148,219 664 1,307 116,043 88.8 1,640 32,873 20.0

Average Annual Growth Rates (%)

1965/66 over1955/56 5.8 7.0 1.2 3,1 3.8 0.7 7.5 7.8 0.21970/71 over1960/61 2.3 3,8 1X5 2.8 3.7 0.9 6.0 6,9 0,91975/76 over1965/66 1,0 2,4 1.4 2,1 3,9 1.7 4,8 6.7 1.81975/76 over1970/71 2,6 3,1 0,5 1.7 4.1 2.4 6.0 7.4 1.2

a/ Passengers booked between stations within the metropolitan areas of Bombay, Calcutta, Madras and Secunderabad,

Source: Ministry of Railways and various issues of "Annual Report and Accounts"

June 1978

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

IR's Investment Program 1978/79-1982/83'(Rs millio-n~)~oa

TotalPlan Head 1978/79 1979/80 1980/81 1981/82 1982/83 1978/79-1982/83

Rolling Stock 2340 2720 3100 3580 3750 15510Workshop & Sheds 23'0 240 270 280 280 1300Machinery & Plant 80 240 340 240 240 1140Track Renewals 540 620 700 800 840 3500Bridge Works 120 120 120 120 120 600Line Capacity Works 800 800 850 850 850 4150Signalling & Safety 200 200 220 230 250 1100Electrification 230 230 240 250 250 1200Other Electrical Works 40 50 50 50 60 250

New Lines 290 280 210 210 210 1200Staff Welfare 30 30 40 50 50 200Staff Quarters 70 90 100 120 120 500Users Amenities 40 50 50 50 60 250Other Specified Works 20 30 30 30 40 150

Investment in Road Services 100 150 150 200 200 800Inventories 50 70 80 100 100 400

TOTAL 5200 5920 6550 7160 7420 32250

1/ The Investment Program was prepared on basis of April 1978 prices.2/ Does not include Rs.l,250 million investment program for metropolitan transport projects.

Source: IR and Mission Estimate

June 1978

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

Estimated Inventory Requirements of IRWA 1985/86 -

Unit Cost InventoryMaterials Stock Required Accounting Economic Accounting Economic Remarks

1. Raw Materials

Steel Scrap 50,000 tons Rs 410 Rs 930 Rs 5,125,000 Rs 11,625,000 3 months' stock is required.per annum per ton per ton

Blooms/Billets 10,500 tons Rs 1,700 Rs 2,200 Rs 8,925,000 Rs 11,550,000 6 months' stock is required.per annum per ton per ton

Used BG Axles 1,500 tons Rs 460 Rs 1,045 Rs 345,000 Rs 785,000 6 months' stock is required.per annum per ton per ton

2. Stores and Spares

Foundry Items Lumpsum Rs 180 Rs 210 Rs 4,500,000 Rs 5,250,000 6 months' stock is required.(special) per ton of per ton per tonof moltenmetal

Foundry Items Lumpsum Rs 260 Rs 385 Rs 3,250,000 Rs 4,815,000 3 months' stock is required.(normal) per ton per ton per tonof moltenmetal

Spares Rs 2,050,000 - - Rs 1,025,000 Rs 1,190,000 6 months' stock is required.per annum

iiscellanieous lusipsual - - Fs 195,000 RIs 225,000 Lumpsum

3. Products in 30 days - - Rs 7,830,000 Rs 11,850,000 30 days stock is required.Process of productionManufacture

4. Products for sale 10 days - - Rs 2,610,000 Rs 3,950,000 10 days production underproduction dispatch

Total Rs33,800,000 Rs 51,240,000

1/ Accounting costs are based on controlled prices paid by IR. Economic costs are based on world market prices for similar items.

Source: IR and Mission Estimate

June 1978

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

Training Schedule for IRWA Mechanical Staff(Man Weeks)

Train. Mini MajorOrientation Railway Inst. In-Plant With Collaborators Steel Steel Outside

Category Training Workshops Madras Training Suppliers Works Plants Plants Firms Total

Steel Melters 8 - - - - 16 48 - - 72

Moulders 8 - - 4 - 16 - - - 28

Furnacemen (ILT) 8 8 6 4 4 8 - - 8 46

Machinists 8 18 6 4 - 12 - - - 48

Turners 8 18 6 4 - 12 - - 48

Grinders (Precision) 8 12 6 4 - - - 10 40

Fitter (Millwright) 8 18 6 - - 24 - 12 - 58

Machine Operators 4 8 - - - - - 12

Masons (Refractory) 4 8 - - - 24 - 36

Welders 4 20 -- - 24

Motor Mechanics 4 20 -- - - 24

Total 72 130 30 20 4 88 48 36 18 436

Source: IR

June 1978

Table I1

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

Summary Fixed Capital Cost and Investment Schedule of IRWA(Rs million)

A. Investment Cost

GrandWork Item Local Foreign Total Taxes Total

Mechanical Engineering

Wheel Unit 8.8 47.4 56.2 6.8 63.0Axle/Assembly Unit 20.5 100.3 120.8 25.3 146.1lHandling Equipment 7.9 43.0 50.9 5.7 56.6Laboratory 0.3 3.9 4.2 0.7 4.9Miscellaneous 2.1 32.3 34.4 2.5 36.9

Subtotal 39.6 226.9 266.5 41.0 307.5

Electrical Engineering 18.8 0 18.8 0.7 19.5

Civil Engineering 106.9 0 106.9 4.2 111.1

Subtotal 165.3 226.9 392.2 45.9 438.1

Contingency Items

Quantity Variatiyo 16.5 22.7 39.2 4.6 43.8Price Escalation- 37.2 63.0 100.2 13.9 114.1

Total 219.0 312.6 531.6 64.4 596.0

B. Investment Schedule

GrandYear Local Foreign Total Taxes Total

1977/78 11.5 7.3 18.8 0.6 19.41978/79 16.5 10.2 26.7 0.8 27.51979/80 35.1 31.3 66.4 4.6 71.01980/81 55.5 66.7 122.2 14.0 136.21981/82 40.6 85.1 125.7 18.7 144.41982/83 6.1 26.3 32.4 7.2 39.6

Subtotal 165.3 226.9 392.2 45.9 438.1

Contingency Items

Quantity Variatio 7 16.5 22.7 39.2 4.6 43.8Price Escalation - 37.2 63.0 100.2 13.9 114.1

Total 219.0 312.6 531.6 64.4 596.0

1/ 10% on all items.

2/ Average price escalation 7% annually for all items.

Source: IR and Mission Estimates

June 1978

Table 12

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

Summary Working Capital Cost and Investment Schedule of IRWA(Rs million)

Year Local Foreign Total Taxes Grand Total

1979/80 0 1.0 1.0 0.4 1.4

1980/81 6.8 2.3 9.1 0.9 10.01981/82 6.8 3.3 10.1 1.3 11.4

1982/83 6.7 3.3 10.0 1.3 11.31983/84 2.4 1.2 3.6 0.5 4.1

22.7 11.1 33.8 4.4 38.2

Contingency Items

Priceescalation 1/ 8.0 3.6 11.6 0.9 12.5

Grand Total 30.7 14.7 45.4 5.3 50.7

1/ Average price escalation 7% annually for all items.

Source: IR and Mission Estimates

June 1978

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

Annual Accounting Operating Cost of IRWA 1985/86(Rs million)

Wheel Unit Axle and Assembly Unit TotalLocal Foreign Total Local Foreign Total Local Foreign Total

Fixed Costs

Indirect Labor and Provident Fund 6.2 0 6.2 1.5 0 1.5 7.7 0 7.7Rapair and Maintenance 1.4 0.2 1.6 0.4 0 0.4 1.8 0.2 2.0Miscellaneous 1.6 0 1.6 0.4 0 0.4 2.0 0 2.0

Sub-total 9.2 0.2 9.4 2.3 0 2.3 11.5 0.2 11.7

Variable Costs

Direct Labor 1.9 0 1.9 0.5 0 0.5 2.4 0 2.4Fuel 1/ 9.6 0 9.6 2.3 0 2.3 11.9 0 11.9Power 2/ 3.4 0 3.4 0.4 0 0.4 3.8 0 3.8Cost of Raw Materials 21.1 0.2 21.3 5.6 12.9 18.5 26.7 13.1 39.8Other Sources 12.9 9.1 22.0 0.2 0 0.2 13.1 9.1 22.2Royalty 1.1 2.4 3.5 0 0 0 1.1 2.4 3.5

Sub-total 50.0 11.7 61.7 9.0 12.9 21.9 59.0 24.6 83.6

Total Annual Operating Cost 59.2 11.9 71.1 11.3 12.9 24.2 70.5 24.8 95.3

1/ Rs 1,000 per ton.2/ Rs 0.08 per kwh.

Source: IR and Mission Estimate. LO

June 1978

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

Annual Economic Operating Cost of IRWA 1985/86(Rs million)

Wheel Unit Axle and Assembly Unit TotalLocal Foreign Total Local Foreign Total Local Foreign Total

Fixed Costs

Indirect Labor and Provident Fund 6.2 0 6.2 1.5 0 1.5 7.7 0 7.7Repair and Maintenance 1.4 0.2 1.6 0.4 0 0.4 1.8 0.2 2.0Miscellaneous 1.6 0 1.6 0.4 0 0.4 2.0 0 2.0

Sub-total 9.2 0.2 9.4 2.3 0 2.3 11.5 0.2 11.7

Variable Costs

Direct Labor 1.9 0 1.9 0.5 0 0.5 2.4 0 2.4Fuel 1/ 11.2 0 11.2 2.7 0 2.7 13.9 0 13.9Power 2/ 8.5 0 8.5 1.0 0 1.0 9.5 0 9.5Cost of Raw Materials 47.9 0.5 48.4 7.6 17.1 24.7 55.5 17.6 73.1Other Stores 17.5 12.3 29.8 0.2 0 0.2 17.7 12.3 30.0Royalty 1.1 2.4 3.5 0 0 0 1.1 2.4 3.5

Sub-total 88.1 15.2 103.3 12.0 17.1 29.1 100.1 32.3 132.4

Total Annual Operating Cost 97.3 15.4 112.7 14.3 17.1 31.4 111.6 32.5 144.1

1/ Rs 1,170 per ton.2/ Rs 0.20 per kwh.

OQOaSource: IR and Mission Estimate

JJune 1978

Table 14

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

Estimated Schedule of Disbursements

IDA Fiscal Year Cumulative Disbursementsand Quarter at End of Quarter

(US$ million equivalent) %

1978/79

September 30, 1978 0 0December 31, 1978 1 1March 31, 1979 3 2June 30, 1979 6 3

1979/80

September 30, 1979 10 5December 31, 1979 15 8March 31, 1980 21 11June 30, 1980 29 15

1980/81

September 30, 1980 39 21December 31, 1980 51 27March 31, 1981 65 34June 30, 1981 81 43

1981/82

September 30, 1981 97 51December 31, 1981 113 60March 31, 1982 128 67June 30, 1982 142 75

1982/83

September 30, 1982 154 81December 31, 1982 164 86March 31, 1983 172 91June 30, 1983 178 94

1983/84

September 30, 1983 182 96December 31, 1983 185 97March 31, 1984 187 98June 30, 1984 188 99

1984/85

September 30, 1984 189 99December 31, 1984 190 100

Closing Date: December 31, 1984

Source: IR and Missioni Estimates

June 1978

Table 15

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

Economic Cash Flows of IRWA 1977/78-2000/01(Rs million)

70,000 Wheels and 22,780 Axles

Capital Cost Production Cost Total Production NetYear Fixed Working Fixed Variable Cost Value Cash Flow

1977/78 22.0 0 0 0 22.0 0 -22.01978/79 31.2 0 0 0 31.2 0 -31.21979/80 78.7 1.1 0 0 79.8 0 -79.81980/81 146.4 9.5 0 0 155.9 0 -155.91981/82 153.6 10.6 0 0 164.2 0 -164.21982/83 40.4 10.5 9.4 15.2 75.5 33.4 - 42.11983/84 0 3.8 11.7 44.8 60.3 101.3 41.01984/85 0 0 11.7 93.8 105.5 214.0 108.51985/86 0 0 11.7 137.8 149.5 316.2 166.7

2000/01 0 0 11.7 137.8 149.5 316.2 166.7

Economic Return: 19%

50,000 Wheels and 16,000 AxlesCapital Cost Production Cost Total Production Net

Year Fixed Working Fixed Variable Cost Value Cash Flow

1977/78 22.0 0 0 0 22.0 0 -22.01978/79 31.2 0 0 0 31.2 0 -31.21979/80 78.7 1.1 0 0 79.8 0 -79.81980/81 146.4 9.5 0 0 155.9 0 -155.91981/82 153.6 10.6 0 .0 164.2 0 -164.21982/83 40.4 10.5 9.4 15.2 75.5 33.4 -42.11983/84 0 3.8 11.7 44.8 60.3 101.3 41.01984/85 0 0 11.7 93.8 105.5 214.0 108.51985/86 0 0 11.7 97.9 109.6 224.8 115.2

2000/01 0 0 11.7 97.9 109.6 224.8 115.2

Economic Return: 15%

Source: Mission Estimates

June 1978

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

Economic Breakeven Analysis for IRWA 1985/86

Wheel Unit Axle and Assembly UnitVariable Variable

Production Cost Item Fixed Costs Costs Total Costs Fixed Costs Costs Total Costs

Indirect Labor and Provident Fund 6.2 0 6.2 1.5 0 1.5Repair and Maintenance 1.6 0 1.6 0.4 0 0.4Miscellaneous 1.6 0 1.6 0.4 0 0.4Direct Labor 0 1.9 1.9 0 0.5 0.5Fuel 0 11.2 11.2 0 2.7 2.7Power 0 8.5 8.5 0 1.0 1.0Cost of Raw Materials 0 48.4 48.4 0 24.7 24.7Other Stores 0 29.8 29.8 0 0.2 0.2Royalty 0 3.5 3.5 0 0 0Assembly Costs Redistributed 1/ 0 3.8 3.8 0 (3.8) (3.8)Depreciation and Interest 2/ 31.6 0 31.6 28.0 0 28.0

Total 41.0 107.1 148.1 30.3 25.3 55.6

Number of units to break even: -/ 41.0 x 70,000 30.3 x 22,780(0.003343 x 70,000)-107.1 = 22l 614 (0.003343 x 22,780)-25.3 13,573

say 25,000 wheels to break even. say 15,000 axle units to break even.

1/ Production cost of assembly unit of Rs 5.7 million redistributed with 65% to wheel unit and 35% to axle andassembly unit. C2/ Full capital recovery over 20 years at 10% interest per annum, distributed with 53% to wheel unit and 47% to Iaxle/assembly unit.

3/ Rs 3,343 average estimated shadow price per wheel or axle unit (based on average cif price of Rs 2,875) hasbeen used in calculating breakeven point.

Source: IR and Mission Estimate

June 1978

Table 17

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

IR Revenue and Expenditure Accounts 1972/73-1976/77(Rs million)

1972/73 1973/74 :1974/75 1975/76 1976/77

Gross Operating RevenuePassenger 3,436 3,671 4,126 5,141 5,693Other Coaching 656 594 692 894 869Goods 7,209 6,804 9,175 11,503 13,259Sundries 323 310 89 132 540

Total Revenue 11,624 11,379 14,082 17,670 20,361

Operating ExpensesAdministration 920 1,023 1,291 1,559 1,528Repairs and Maintenance 3,098 3,561 4,528 5,576 5,956Operating Staff 1,835 2,053 2,649 3,123 3,126Fuel 1,624 1,589 1,970 2,545 2,883Operating other than staffand fuel 441 469 611 846 872

Miscellaneous expenses 346 320 380 527 587Labor Welfare 302 338 434 526 538

Working Expenses 8,566 9,353 11,863 14,702 15,490

Appropriations to:Depreciation Reserve Fund 1,100 1,150 1,150 1,150 1,350Pension Fund 160 160 160 245 350

Total Operating Expenses 9,826 10,663 13,173 16,097 17,190

Net Revenue from Operations 1,798 716 909 1,573 3,171

Charges to Revenue of a CapitalNature:

Open Line Works 71 68 58 76 84Miscellaneous Transactions 83 94 115 127 124

Net Revenue 1,,644 554 736 1,370 2,963

Dividend on Capital-at-chargel/ 1,615 1,709±Y 1,875 1,981 2,091

Net Surplus (Deficit) 29 U LL55) (1,139) (611)- 872

Operating Ratio 84.5 93.7 93.5 91.1 84.4Rate of Return on Capital-at-Charge (%) 4.5 1.4 1.8 3.1 6.5

Freight Traffic (tons origi-nating) 201.3 184.9 196.8 223.3 239.1

1/ Rate of Dividend ou, Capital-at-Charge:On capital provided by Gcvernment 5.5% to March 3.1, 1964; and 6.0% after March 31,1964.

2/ Dividend actually paid to General Revenues was Rs 1,551 million,the balance ofRs 158 million was carried forward and paid in 1974/75.

3/ If adjusted for 1974/75 retroactive wage awards of some Rs. 300 million the netdeficit would be Rs. 311 million and consequently the deficit for 1974/75 wouldincrease to Rs 1,450 million.

Source: IR

June 1978

Table 18Page 1

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

IR Balance Sheet March 31, 1977

Rs Million

ASSETSFixed Assets 53,352Inventories 2,371

55,723Receivables 3,630Cash and Deposits with Government:

Cash 623Deposits 4,952 5,575

Total Assets 64,928

CAPITAL AND RESERVE FUNDS

Investment Financed from: 45,337Government Capital-at-ChargeGovernment Temporary Loans - DF 1,525

- RRF 3,094 4,619Railway Sources:

Depreciation Reserve Fund 3,405Development Fund 4,742Revenue 2,223Accidents Compensation & PassengerAmenities Fund 16

10,386Less Portion Financed by Temporary

Loans from Government 4,619 5,76755,723

Railway FundsDepreciation Reserve Fund 2,187Revenue Reserve Fund 521Development Fund 1Pension Fund 1,997Accidents Compensation and PassengerAmenities Fund 246 4,952

Current Liabilities 4,253

Total Capital and Reserves 64,928

Source: IR

June 1978

Table 18Page 2

1. Fixed Assets

The value of fixed assets shown in the balance sheet is their

original cost, except that additional cost of like-forlike replacements overtheir original cost (the inflationary element) is charged against DRF. Thefull cost of all assets including the additional cost of replacemenrts isRs 65,244 million. Included in this total are works in progress, land andother non-depreciable assets amounting to Rs 9,549 million. The book valueof depreciable assets is:

Rs million

Total fixed assets 65,244Less non-depreciable 9,549

55,695

2. Depreciation Reserve Fund

This balance in the fund represents cumulative contributions todate iess (a) cost of assets withdrawn from services, and (b) full cost ofreplacement.

3. Inventories

These are financed from Capital-at-Charge.

4. Investment Financed from Railway Sources

These are the published figures representing amounts the railwaysprovided from their own sources over the years towards the Capital investmentprograms. Although, in 1976-77 the railways have been able to show a netsurplus of Rs 872 million after payment of dividend to general revenue, inthe earlier years net earnings were insufficient to meet the full cost ofexpenditure charged to the Development Fund and the full dividend payment dueto the Government. Consequently, in order to meet these shortfalls, IndianRailways has drawn temporary loans from the Central Government to ensure thatits funds did not become overdrawn. The outstanding temporary loans atMarch 31, 1977, which have been drawn to augment the fund balances, as shownin Indian Railways' balance sheet only by way of note and are as follows:

Development FundRs million

Net cumulativeYear Loans drawn Repayments outstanding loan

1967-68 112 1121968-69 141 2531969-70 181 4341970-71 216 6501971-72 216 866

Table 18Page 3

Rs millionNet cumulative

Year Loans drawn Repayments outstanding loan

1972-73 157 167 /a 8561973-74 227 - 1,0831974-75 219 - 1,3021975-76 223 - 1,5251976-77 - - 1,525

Revenue Reserve Fund

1973-74 997 - 9971974-75 1,821 332 2,4961975-76 1,522 942 3,0751976-77 1,469 1,450 3,094

/a Repaid by application of dividend relief.

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

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

(b) users' amenities irrespective of their cost;

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

6. Items Financed from Revenue are:

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

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

7. Provident Fund and Staff Benefit Fund

The balances as on March 31, 1977, Rs 7,174 million, are not shownin the above balance sheet since these funds are held in special depositaccounts specifically for paying benefits to employees. Contributions tothe fund are charged to operating expenses.

June 1978

Table 19Page 1

IND LA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

IR Revenue and Expenditure Forecast 1977/78-1982/83(Rs million)

RevisedEstimate _ Forecast

1977/78 1978/79 1979/80 1980/81 198i/82 1982/183 1978/79-1982/83

1. Gross Operating RevenuePassenger 6280 6580 6782 7033 7284 7536 35215Other Coaching 890 926 963 1002 1043 1085 5019Goods 13790 14306 14978 15701 16352 17058 78395Sundries 356 387 406 427 448 470 2138

Total Revenue 21316 22199 23129 24163 25127 26149 120767

2. Operating ExpensesPersonnel Costs 9667 10205 10490 10816 11168 11523 54202Fuel 3172 3301 3392 3497 3611 3726 17527Other Costs 3272 3503 3602 3713 3835 3956 18609

Total Working Expenses 16111 17009 17484 18026 18614 19205 90338

3. Appropriation to:Depreciation Reserve Fund 1400 1450 1955 2215 2365 2515 10500Pension Fund 400 500 550 600 650 700 3GOO

Total Operating Expenses 17911 18959 19989 20841 21629 22420 103838

4. Net Revenue from Operations 3405 3240 3140 3322 3498 3729 16929

5. Charges to Revenue of aCapital Nature

Open line Works 105 103 97 100 100 100 500Miscellaneous Transactions 136 155 155 160 160 165 795

6. Net Revenue 3164 2982 2888 3062 3238 3464 15634

7. Dividend on Capital-at-Charge 2271 2328 2565 2753 3005 3257 13908

8. Net Surplus/(Deficit) 893 654 323 309 233 207 1726

9. Operating Ratio 84.07 85.4% 86.4% 86.3% 86.1% 85.7% 86.0%

10. Rate of return on Av.Capital-at-Charge 6.7% 6.0% 5.4% 5.4% 5.3% 5.3% 5.5%

Source: IR

June 1978

Table 19Page 2

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

IR Revenue and Expenditure Forecast 1977/78-1982/83

1. The prices used in the forecasts for freight rates, passenger faresand operating costs are at April 1978 levels.

2. The estimates, therefore, take account of the three major influenceswhich have occurred over the past three years:

(a) the revision of tariffs which resulted in increasesin both freight rates and fares during the period1974-76 and discussed earlier in this report;

(b) increased cost of fuel and coal, repairs and main-tenance and consumable stores; and

(c) the wage awards and dearness allowances sanctioned by GOI,the lastest being effective from September 1, 1977.

3. The revenue forecasts only reflect the increase in traffic antici-pated during the period 1978/79-1982/83. They do not take account of anyfurther adjustment in tariff and fare levels.

4. Working expenses are based on a detailed analysis of 1978/79 budgetdata, related to freight and passenger traffic forecasts for that base yearand then projected as a constant ratio between the three main elements:

Item _

Personnel 60.0Fuel 19.4Other costs and stores 20.6

5. Depreciation provisions are based on a total appropriation ofRs 10,500 million for the five year period of the plan, 1978/79-1982/83.This compares favorably with Rs 6,500 million agreed in Credit 582-IN forthe period 1974/75-1978/79.

6. Total revenue is projected to increase by 22.6% during the period1978/79-1982/83. Passenger revenue is forecast conservatively to increaseat an average rate of about 4% per annum. Revenue-earning freight traffic isprojected to increase from 214 million tons in 1978/79 to 276 million tons by1982/83, an increase of some 29%. The increase in freight revenues, reflecttraffic volume increases only 23.7%. The revenue and expenditure forecastindicates that, given the need for an adequate replacement plan, the projectedinvestment of Rs 32,250 million during 1978/79-1982/83 is a maximum.

Table 19Page 3

7. In forecasting working expenses, IR have calculated on a ratio ofvariable to fixed expenditure of 78.5:21.5 and applied this to an analysisof goods and passenger traffic volume. This was based on the 1978/79 budgetfigures and therefore, again reflects prices at April 1978. The assumptionthat about 78% of expenses vary directly with traffic growth may be exces-sive; but nonetheless, for appraisal purposes, it is considered prudent andrealistic to accept expenditure estimates on this conservative basis.

8. For freight traffic, the average annual growth in revenues from1977/78 is about 4.74% (Table 19, page 4) and for passenger traffic, some4% per annum over 1977/78 revised estimate figure. The volume of freighttraffic in terms of ton-km is expected to increase by 4.3% annually. Averagereceipt per ton-km of freight was Paise 8.86 in 1976/77, and average receiptper pass-km was 3.47 in 1976/77. These rates have been adopted for estimat-ing earnings up to 1982/83 without any increase in freight and passengerfares.

9. Operating expenses are based on a detailed analysis of 1978/79budget 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 (excluding DRF and PF) in1982/83 have been assessed at a level of about 19% higher than in 1977/78while traffic growth in terms of train movements is likely to increase bysome 21%.

1NDIA

10 Frieleo _ees orcs l977178 -1982/83

- Revised Estimate [977/78 RoArer Est learn ~~~~~~1978/79 1979/80 10/1 11/21982/83

per ta Averge A-ergevea AAverageA-~geo L.± .Aad=Aa J- Y R~ 2 NT go Lead-lAys Tor- Mr s O Lead-In Toe NT Re Rs Lead-Roe Toe Mr lo Ro trod-Roe Tee 97 lK. OsREVENUE EARNING, TRAFFIC

)Finihed Peod-st .1230 10 36 9.3 9,635- 1,105 9.5 9,812 1,211 1,029 10.0 10,250 1,281 1,015 11.0 11,165 1,373 1,911 11.9 11,557 1,422 1,000 12.0 12,007 1,476b) Da- Nseerjsle-e. Cool) .1110 207 22.6 4,678 519 23.5 4,865 54AD 20D 25.0 5,000 5 55 200 28.0 5,600 622 200 29.5 5,900 655 200 31.0 6,200 6882. Coal

Eve Steel PMave .0856 297 11.3 4,544 389 15.5 4,604 094 300 16,0 4,800 411 300 17.0 5.100 437 300 17,5 5,250 449 300 18.0 5,400 462U) , Fv Oah-i-s . 35570 27 0.0 216 00 8.0 216 77 20 8,0 216 00 20 0.0 216 00 27 8.0 216 00 27 8.0 218 77C)F- foce looses Olers .o67o 005 46.0 36 193 0 447 49 5 38 3638 53 78 5. 270 2893 778 60.0 46____ _680 3.156 709 67.0 52_126 3,524 208 74.0 57 5 __3_892TO LCaL 7~~~~~~~08.0 40,953 2,9 13 03.0 43,183 3,084 09.0 40,806 3,381 7-~5 ,0 51,996 3,670 9F2-.5 57,592 4,050 100,0 63,188 4,4313. roOefoFort.0803 666 11,0 7,328 588 11.5 7,6 59 615 863 10.5 8,280 665 663 13.5 8,950 719 683 14.5 9,813 0072 863 16.0 10,808 8524 . Cement .09070 648 13,7 8,008 867 14,0 9,072 886 649 15,0 9,735 951 649 16.0 10,384 1,095 649 10.0 11,033 1,078 649 18.0 11,682 1,1415, GEv-eraFoods

a) -vdgrai- .0 550 1215 19,6 23,814 1,376 19.5 23,693 1,320 1,150 19.5 02,425 1,249 1100 19.0 21,450 1,195 1,050 20.0 21,000 1,100 1,050 20.0 21,000 1,170F5) Fei li-ee .0842 985 0,8 7,68 3 640 9.0 8.865 746 NON 10,0 9,750 821 960 11,0 10,560 889 945 12.0 11,340 955 930 13.0 12,090 1,918MliveraI Oil lIOL) .1380 611 13,0 7,943 1,096 14.0 8,554 1,180 610 15.0 9,150 1,263 600 16,0 9,60R 1,325 590 18.0 9,440 1,303 579 16,0 9,264 1,278d7) 0l,e .0995 884 47.0 41,548 4,134 48,0 42_432 4.222 882 48.5 42.777 4,256 880 49,0 43.120 4Z290 807 49,5 43.411 4,319 804 50,0 43,700 4,348TOTAL REVENUL ~~RNINC T~-k 214.0 152,458 13,205 2 2 2,0 158,165 13,084 234,.5 165,180 14,402 249.0 102,825 15,098 262,5 180,886 15,724 276,0 189,732 18,402

-o-eeoe'.ffleRoilaay Coal 043L 14,5 10,7 14.0 10,402 739 13,5 9,906 039 13.0 9,607 739 12,5 9,237 039 12. 8,868Raileap Maree'als 1~~~~~~~~ ~ ~~~29 11.5 1484 02.0 1,540 1 29 12,0 1,540 129 12.0 1,548 129 12,0 1,34809 0 le_ee ~Goode Relare~d Z.ve515 5022 576 603 628 656

TOTAL ALL FREIAROl TRAFFIC 700 E007T0 0077 2-48,0 170,175 04731 __60_4____ _____TOO_14

Jee 1979

Caneee- e lead-l- of 9007/08 -sd forE.r.a.olaeIoe 1978/79 fiRl-eS.

Table 20

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

IR Forecast Balance Sheets as of March 31, 1976-1983(Rs million)

RevisedActual Estimate Forecast

1976 1977 -9 78 1979 1980 1981 1982 1983

AssetsFixed Assets 50478 53352 56991 60853 65101 69757 74899 80178Floating Assets 2972 2371 2302 2390 2462 2542 2622 2702

53450 55723 59293 63243 67563 72299 77521 82880

Receivables 3002 3630 3630 3630 3630 3630 3630 3630

Cash and Deposits withGovernmentCash 596 623 623 623 623 623 623 623Deposits 3962 4952 4707 4997 5403 5857 6327 6829

Total Assets 61010 64928 68253 72493 77219 82409 88101 93962

Capital and Reserve FundInvestment financed fromGovernment Capital-at-charge 43548 45337 48238 51518 55048 58898 63158 67488

Temporary loans from Govt.RRF 3075 3094 2161. 1928 2010 2106 2208 2316DF 1525 1525 1525 1525 1550 1620 1806 2060

48148 49956 51924 54971 58608 62624 67172 71864

Railway SourcesDepreciation Reserve Fund 3181 3405 3667 3937 4283 4676 5095 5541Development Fund 4573 4742 5011 5251 5521 5821 6151 6511Open Line Works 2145 2223 2320 2415 .2504 .2597 2690 2783Accident Compensation Fund 3 16 57 122 207 307 427 557

Less financed from Tempo-rary loans from Govt. 4600 4619 3686 3453 3560 3726 4014 4376

53450 55723 59293 63243 67563 72299 77521 82880

Railway FundsDepreciation Reserve Fund 1979 2187 2265 2357 2538 2733 2942 3171Development Fund 2 1 - - - - - -

Revenue Reserve Fund 21 521 3 3 3 3 3 3Pension Fund 1798 1997 2142 2313 2527 2788 3068 3367Accident Compensation Fund 162 246 297 324 335 333 314 288

3962 4952 4707 4997 5403 5857 6327 6829

Current Liabilities 3598 4253 4253 4253 4253 4253 4253 4253

Total Capital and Reserves:61010 64928 68253 72493 77219 82409 88101 93962

Source: IR

June 1978

Table 21

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

TR Forecast Source and Appl±cation of Funds 1976/77 - 1982f83

RevisedActual Estimate Forecast Total1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83 1979 - 1983

Source of FundsNet Revenue from Operations 2963 3164 2982 2888 3062 3238 3464 15634Less Dividend on Capital-at-

charge 2091 2271 2328 2565 2753 3005 3257 13908

872 893 654 323 309 233 207 1726

Contribution to DepreciationReserve Fund 1379 1429 148C 1985 2246 2396 2547 10654Capital Works Charged to Revenue 84 105 103 97 100 100 100 500Works Charged to RACF* 14 41 65 85 100 120 130 500increase in Pension Fund ExcludingInterest 169 70 61 73 91 74 68 367Interest on Fund Balances 282 317 310 327 353 387 422 1799

Railway Cash Generation 2800 2855 2673 2890 3199 3310 3474 15546

Capital Funds to be received fromGovernment 1789 2901 3280 3530 3850 4260 4330 19250Temporary Loans from Government:

RpF 1469 675 989 1060 937 1031 1117 5134DF - - - 25 70 186 254 535

6058 6431 6942 .7505 8056 8787 9175 40465

Application of FundsCapital Works Charged to Revenue 84 105 103 97 100 100 100 500Works Charged to RACF* 14 41 65 85 100 120 130 500Replacement Works DRF 1280 1470 1514 1940 2200 2350 2496 10500Works Charged to DF 180 269 241 270 300 330 359 1500Additions Charged to Capital 2390 2970 3192 3458 3770 4180 4250 18850

Total Capital Expenditure 3948 4855 5115 5850 6470 7080 7335 31850

Increase/(Decrease) in Inventories (601) (69) 88 72 80 80 80 400Repayment of Temporary Loans:RRF 1450 1608 1222 978 841 929 1009 4979

DF - - - - _ _ _Interest on Temporary Loans: RRF 190 198 141 112 123 132 141 649

DF 82 84 86 87 88 96 108 465

5069 6676 6652 7099 7602 8317 8673 38343

Increase/(Decrease) in Fund Balances 989 (245) 290 406 454 470 502 2122Opening Fund Balances 3963 4952 4707 4997 5403 5857 6327 27291Closing Fund Balances 49z 4707 42997 403 .57 621277 ER9 29413

Increase/(Decrease) in FundBalances: DRF 208 78 92 181 195 209 229 906

Pensions 199 145 171 214 261 280 299 1225DF (2) (1) ------

RRF 500 (518) - - - - - -*RACF 84 51 27 11 (2) (19) (26) (9)

Temporary Loans - BalanceOutstanding: RRF 3094 2161 1928 2010 2106 2208 2316

DF 1525 1525 1525 1550 1620 1806 2060

4619 3686 3453 3560 3726 4014 4376

Source: IR * Railway Accident Compensation Fund (RACF)

June 1978

Annex APage

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

Places Visited and Documents Available in Project File

A. Places Visited

India

- IR Diesel Locomotive Works, Varanasi

- IR Chittaranjan Locomotive Works, Chittaranjan

- IR Integral Coach Factory, Perambur

- IR Kancharpara Workshops, Kancharpara

- IR Tughlakabad Diesel Shed, Tughlakabad

- IR Research Design and Standards Organization, Lucknow

- Bharat Earth Movers Ltd., Bangalore

- Bharat Heavy Electricals Ltd., Bhopal- Durgapur Steel Plant, Durgapur- Tata Iron and Steel Company, Jamshedpur

- Texmaco, Calcutta

Canada

- Montreal Locomotive Works, Montreal

Federal Republic of Germany

- AEG/Telefunken, Frankfurt

- Brown Bovery, Mannheim

Japan

- Sumitomo Metal Industries, Osaka

Mexico

- Fundiciones de Hierro y Acero, S.A., Mexico City, Mexico

Sweden

- ASEA, Vesteras

Annex APage 2

Switzerland

- Brown Bovery, Oerlikon

United States

- Abex Wheel Company, Calera, Alabama- General Electric Transportation Systems Division,

Erie, Pennsylvania- General Motors Electro Motive Division, La Grange, Illinois- Griffin Wheel Company, Bensonville, Illinois- Standard Forging Corporation, East Chicago, Indiana- Woodcrest Workshop, Illinois Central Gulf Railway,

Woodcrest, Illionois

B. Documents Available in Project File

Railway Industries

- Preappraisal mission for possible 14th railway credit.Financial Analysis - S.L. Purvis, Resource PlanningConsultants Ltd., December 1976.

- Supplementary Preappraisal Mission, possible 14th Credit.Appraisal of the Railway Equipment Industry in India,Costs and Exports - S.L. Purvis, Resource PlanningConsultants Ltd., March/April, 1977.

- Report on Supplementary Preappraisal of a ProposedFourteenth Railway Project, renamed Indian RailwayIndustries Project, with Suggested Action Plan,Volume I - IDA Transportation Division, April 15, 1977.

- Comments on Suggested Action Plan, IR, 1977.

- Supervision of 13th Credit and Proposed IndianRailway Industries Project - S.L. Purvis, ResearchPlanning Consultants Ltd., July 1977.

- Progress Report and Organizational Critique of theIndian Railways Operations - H.D. Rowe Associates,March 8, 1977.

- Summary Industries Report of the Indian RailwayIndustries Project - H.D. Rowe Associates,July 25, 1977.

Annex APage 3

Workshops

- Production Units, Workshops and Sheds Modernization ProjectProject - Machinery and Plant. IR, 1977.

- Workshop Modernization Project, Phase 1, 1978-81. IR,December 1977.

- Project Report for Modernization of Chittaranjan LocomotiveWorks. IR, 1977.

- Project Report on Modernization of Kharagpur Workshop.IR, November 1977.

- Modernization of Matunga Workshop, Project Report.IR, November 1977.

- Project Report for Modernization of Parel and MahalaxmiWorkshops, IR, November 1977.

- Modernization Project for Kancharapara Workshop, IR,December 1977.

- Report on Indian Railways Workshop Modernization Project,Phase I 1978-81 - J.S. Gamble, March 1978.

Wheels and Axles

- Report of the Technical Committee on Durgapur Wheeland Axle Plant (Hindustan Steel Ltd.). IR/Steel Authorityof India Joint Technical Committee, August 1973.

- Report of the Committee on Wheel and Axle Plant ofDurgapur Steel Plant. Sondhi Committee, December 1976.

- Analysis of Griffin Wheel and Abex Steel Wheel Processes.Supplementary Preappraisal Survey of the Proposed IndianRailways Project. Volume II. H.D. Rowe Associates,April 29, 1977.

- Supplement A. Indian Railway Industry Appraisal conductedfor the World Bank relative to proposed Fourteenth RailwayProject. Railway Axle Forging, East Chicago, Indiana andGriffin Process Wheel Casting at FHASA, Mexico City, Mexico.H.D. Rowe Associates, May 16, 1977.

- Explanatory Notes to Indian Railways Project Report.Supplement B. H.D. Rowe Associates, July 5, 1977.

Annex APage 4

Forged Wheel and Axle Analysis, Durgapur and SumitomoFactories. H.D. Rowe Associates, 1977.

Wheel and Axle Project, Bangalore. H.D. Rowe Associates,July 16, 1977.

Report on Wheel and Axle Project, Bangalore.IR, December 1977.

January 1978 World Bank Mission Analyses andRecommendations for Wheel and Axle Productionand Procurement. H.D. Rowe Associates, March 1978.

Locomotives

- Modernization Project for Electric Locomotives, 25 KV AC BGExpress Locomotives. IR, January 1978.

- Modernization Project for Electric Locomotives, ThyristorControl for 25 KV AC Electric Locomotives. IR, January 1978.

- Modernization Project for Electric Locomotives, 1500 V DCHauling Locomotive for Central Railway. IR, January 1978.

- Diesel Locomotive Modernization Project. IR, December 1977.

- Appraisal of Proposed Indian Railway Industries Projectfor Electric Locomotives. K. Watkins, March 1978.

Annex B

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

Cost Estimates and Principal Items Included in the Project and Credit

Principal items included in the project and credit and their esti-mated costs are summarized in Table A and detailed in Table B of this Annex.For details of all cost estimates, types and number of machinery and plant,layout changes and drawings, see reports in project files as listed in Annex Afor each project component.

ANNEX BTable A

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

Summary Project Cost Estimates

Rs million US$ million

1/ ProposedLocal- Foreign Total Local Foreign Total Credit

I. Workshop Modernization(a) Machinery and Plant. 177 682 859 20.6 79.0 99.6 79.0(b) Material Handline

Equipment 2 23 25 0.3 3.0 3.3 3.0(c) Civil Works 70 - 70 8.1 - 8.1 -

(d) Unit Exchange 773 420 1,193 89.8 49.0 138.0 25.0

Subtotal 1,022 1,125 2,147 118.8 130.8 249.6 107.0

(e) Price Contingencies 166 171 337 19.3 19.9 39.2 18.0

Total I 1,188 1,296 2,484 138.1 150.7 288.0 125.0

II. Wheels and Axles(a) Machinery and Plant

Wheel Unit 15 48 63 1.7 5.6 7.3 5.3Axle/Assembly Unit 46 100 146 5.3 11.6 16.9 11.6Material Handling 14 43 57 1.6 5.0 6.6 5.0Laboratory 1 4 5 0.1 0.5 0.6 0.5Miscellaneous 5 32 37 0.6 3.7 4.3 3.7

(b) Electrical Works 20 0 20 2.3 0.0 2.3 0.0(c) Civil Works 111 0 111 12.9 0.0 12.9 0.0(d) Working Capital 27 11 38 3.1 1.3 4.4 1.1

Subtotal (a,b,c & d) 239 238 477 27.6 27.7 55.3 27.5

(e) Wheels and Axles 421 241 662 49.0 28.0 77.0 15.0(f) Contingencies

Physical 21 23 44 2.4 2.7 5.1 2.7Price 60 66 126 7.0 7.6 14.6 7.6

Subtotal (e & f) 81 89 170 9.4 10.5 19.9 10.5

Total II 741 568 1,309 86.0 66.0 152.0 53.0

III. Development SupportThyristor Control

Transformer Sets 34 77 111 4.0 9.0 13.0 9.0RDSO Product Improvement )Technical Advisory Services) 18 27 45 2.0 3.0 5.0 3.0Overseas Training ) _

Total III 52 104 156 6.0 12.0 18.0 12.0

GRAND TOTAL 1,980 1,968 3,949 230.0 229.0 459.0 190.0

1/ Taxes and duties of about Rs 690 million (US$80 million equivalent) are included inLocal costs.

Source: IR and Mission Estimates

June 1978

ANNEX B

Table Bpage 1

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

Cost Estimates of Principal Items Included in the Project and Credit

Rs million US$ million

Local Foreign Total Local Foreign Total Proposed Credit

I. Workshop Modernization(a) Maior Units

Chittaranjan:1. Machining Operations 7.6 34.8 42.4 0.88 4.05 4.93 4.05

2. Traction Motor Shops 0.2 1.0 1.2 0.12 0.14 0.12

3. Fabrication Shop 0.8 3.5 4.3 0.03 0-41 0.50 0.41

4. Smith Shop 1.0 4.9 5.9 0.11 0.57 0.68 0.57

5. Iron Foundry and Others 1.0 4.5 5.5 0.11 0.52 0.63 0.52.

Subtotal 10.6 48.7 59.3 1.23 5.66 6.89 5.66

Kancharapara:

1. Machinery and Plant 9.3 42.0 51.3 1.08 4.88 5.96 4.88

2. Material Handling Equip-ment 1.2 5.5 6.7 0.14 0.64 0.78 0.64

3. Installation/Traction,Overhead, Equipment andOther 9.5 13.1 22.6 1.1 1.51 2.62 1.52

Subtotal 20.0 60.6 80.6 2.32 7.04 9.36 7.04

Kharagpur:1. Machinery and Plant 8.6 39.0 47.6 1.00 4.53 5.50 4.50

2. Material Handling Equip-

ment 1.3 5.9 7.2 0.15 0.68 0.84 0.68

3. Other 3.4 10.0 13.4 0.h0 1.16 1.60 1.16

Subtotal 13.3 54.9 68.2 1.55 6.35 7.90 6.35

ANNEX B

Table Bpage 2

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

Cost Estimates of Principal Items Included in the Project and Credit

Rs million US$ millionLocal Foreign Total Local Foreign Total Proposed Credit

Matunga:1. Plant and Machinery 8.9 40.6 49.5 1.03 4.72 5.75 4.722. Material Handling 2.0 7.0 9.1 0.23 0.81 1.04 0.813. Facilities and Other 12.5 5.0 17.5 1.45 0.58 2.03 0.58

Subtotal 23.4 52.6 74.0 2.7 6.11 8.62 6.11

Parel:

1. Machinery and Plant 4.8 21.6 26.4 1.55 2.51 3.06 2.512. Electrical Work 1.0 1.5 2.5 0.11 0.18 0.29 0.183. Facilities and Other 2.5 2.6 5.1 0.59 -- 0.59 ---

Subtotal 8.3 25.1 34.0 2.25 2.69 4.94 2.69

(b) Supporting Units:1. Plant and Machinery 91.0 364.0 455.0 10.58 42.32 52.90 42.322. Installation and Power

Supply 6.0 24.0 30.0 0.70 2.80 3.50 2.803. Quality Control Equip-

ment 5.0 20.0 25.0 0.58 2.30 2.58 2.304. Civil Works 15.0 -- 15.0 2.20 - - 2.20 ---

Subtotal 117.0 408.0 525.0 13.60 47,44 61.04 47.44(c) Unit Exchange Parts and

Components 773.0 420.0 1,193.0 89.80 49.00 138.80 25.00

(d) DLW and Miscellaneous 56.4 56.6 113.0 6.65 6.58 13.23 6.58

(e) Contingencies 166.0 171.0 337.0 19.30 19.90 39.20 18.00

Total I 1,188.0 1296.0 2,484.0 138.00 151.00 289.00 125.00

ANNEX BTtwle B

INDIApage 3

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

Cost Estimates of Principal Items Included in the Project and Credit

Rs million US million

Local Foreign Total Local Foreign Total Proposed CreditII. Wheel and Axles

(a) Wheel and Axle PlantWheel and Axle Unit:

1. Electric Arc Furnaces 4.7 14.4 19.1 0.54 1.67 2.21 1.672. Flask Equipment 0.9 2.6 3.5 0.10 0.30 0.40 0.303. Graphite and Flask

Machining 0.6 2.0 2.6 0.07 0.23 0.30 0.234. Sand System 0.4 1.4 1.8 0.05 0.16 9.21 0.165. Moulding and Core Making 2.4 7.4 9.8 0.28 0.86 1.14 0.866. Heat Treatment 2.7 8.1 10.8 0.32 0.94 1.26 0.947. Cleaning and Finishing 1.4 4.2 5.6 0.16 0.49 0.65 0.498. Pressure Pouring Equip-

ment 1.0 3.0 4.0 0.12 0.35 0.47 0.359. Hub Cutting and Stamping 0.8 2.4 3.2 0.10 0.28 0.38 0.28

10. Steel Burning Crushers )11. Metal Baler )12. Shearing Machine ) 0.7 1.9 2.6 0.08 0.23 0.31 0.2313. Ball Breakers )14. Briquetting Press )

Subtotal 15:6 47.4 63.0 1.82 5.51 7.33 5.51

(b) Axle/Assembly UnitAxle Forge Shop:

1. Axle Bloom Heating Furnacewith Conveyors 2.2 4.8 7.0 0.25 0.56 0.81 0.56

2. Hydraulic De-scalingEquipment 0.7 1.6 2.3 0.08 0.19 0.27 0.19

3. Long Forging Machine 12.2 26.6 38.8 1.42 3.09 4.51 3.094. Axle Normalizing Furnace

(walking beam type) withOil-Ouenching Tank, OilCooling Arrangements,Axle Straightening Machineand Conveyors 5.2 11.3 16.5 0.60 1.32 1.92 1.32

ANNEX B

Table B

INDIA page 4

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

Cost Estimates of Principal Items Included in the Project and Credit 1/

Rs million US$ millionLocal Foreign Total Local Foreign Total Proposed Credit

5. Single Purpose BlastingEquipment with SpecialConveyors 1.1 2.4 3.5 0,13 0.28 0.41 0.28

6. Cutting Machines, Onefor Bloom Cutting andOne for End Cutting ofHot Axles 0.2 0.5 0.7 0.02 0.06 0.08 0.06

7. Ancillaries to Machineryand Plant 0.4 0.9 1.,3 OE05 X,10 _fL.L5 0.10

Subtotal 22.0 48.1 70.1 2.55 5.60 8.15 5.60

(c) Axle Machining Shop:1. Special Purpose Center

Punch Drilling Machine 0.7 1.5 2.2 0.08 0.17 0.25 0.172. Semi-automatic Prophiling

Lathe for Roughing andFinishing 5.1 11.2 16.3 0,59 1.30 1.89 1.30

3. Double-Carriage CenterCopying Lathe 4.1 8.9 13.0 0.48 1.04 1.52 1.04

4. Special SectionalProduction Line 6.2 13.6 19.8 0.72 1.58 2.30 1.58

5. Universal Center Grinder 1.7 3.8 5.5 0.20 0.44 0.64 0.446. Radial Drilling Machine 0.1 0.1 0.2 0.01 0.01 0.02 0.017. Horizontal Boring

Machine 0.2 0.4 0.6 0.07 0.05 0.07 0.058. Double Carriage Roller

Burnishing Lathe 0.7 1.6 2.3 0.08 0.19 0-97 0.19

Subtotal 18.8 41.1 59.9 2.18 4.78 6.95 4.78

ANNEX B

Table Bpage 5

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

Cost Estimates of Principal Items Included in the Project and Credit

Rs million US$ million

Local Foreign Total Local Foreign Total Proposed Credit

(d) Wheel/Axle Assembly Unit1. Double Ended Wheel

Assembly Press withGantry Crane 1.5 3.3 4.8 0.17 0.39 0.56 0.39

2. Wheel Lathe 1.0 2.1 3.1 0.12 0.24 0.36 0.243. Vertical Boring Mill 2.0 4.6 6.6 0.23 0.54 0.77 0.54

4. Spinning Machine )5. Dust Collecting )

Equipment for Roller ) 0.1 0.2 0.3 0.01 0.02 0.03 0.02

Bearing Section )6. Single Purpose Painting

Booth Consisting ofSpraying Chamber, SpecialPositioner and DryingChamber 0.4 0.9 1.3 0.05 0.10 0.15 0.10

Subtotal 5.0 11.1 16.1 0.58 1.29 1.87 1.29

(e) Handling Equipment:

1. Materials Handling forAxle Unit/Yard/Scrap/Stores0.6 1.9 2.5 0.07 0.22 0.29 0.22

2. Jib Cranes,Chip Handlingof Axle Machine Shop 0.9 2.8 3.7 0.10 0.33 0.43 0.33

3. Materials Handling for WheelUnit 4.2 13.1 17.3 0.48 1.52 2.00 1.52

4. Single Purpose MaterialHandling Unit for AxleUnit 3.7 11.8 15.5 0.43 1.37 1.80 1.37

5. Monorail Carrier 0.0 0.1 0.1 0.01 0.01 0.02 0.016. E.O.T. Cranes 4.2 13.3 17.5 0.49 1.55 2.04 1.55

Subtotal 13.6 43.0 56.6 1.58 5.00 6.58 5.00

ANNEX BTable BPage 6

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

Cost Estimates of Principal Items Included in the Project and Credit

Rs million US$ million

Local Foreign Total Local Foreign Total Proposed Credit

(f) Laboratory and Inspection

Wheel Unit 0.6 2.0 2.6 0.07 0.26 0.33 0.26

Axle Unit 0.4 1.7 2.1 0.05 0.19 0.24 0.19

Subtotal 1.0 3.7 4.7 0.12 0.45 0.57 0.45

(g) Miscellaneous

1. Maintenance Shop and 0.8 6.0 6.8 0.90 0.70 0.79 0.70

Allied Facilities2. Transport Equipment 0.6 4.7 0.07 0.48 0.55 0.48

3. Miscellaneous Equipment 0.5 3.6 4.1 0.06 0.42 0.48 0.42

of Wheel Unit4. Cooling Tower and 0.0 0.2 0.2 0.02 0.00 0.02 0.02

Auxiliary Equipmentof Wheel Unit

5. Other Accessories like 0.1 0.4 0.5 0.01 0.05 0.06 0.05

Rails, Pads, for StoringAxles, Pallets for WheelUnits, etc.

6. Spare Parts for Two Years 0.7 4.7 5.4 0.08 0.55 0.63 0.55Normal Maintenance forall Machinery and PlantSmall Tools

7. Underground Furnace Oil 0.1 0.9 1.0 0.01 0.10 0.11 0.10

Storage8. Liquid Oxygen Plant 0.2 0.7 0.9 0.02 0.08 0.10 0.08

9. Shunting Locomotive 0.2 0.7 0.9 0.02 0.08 0.10 0.08

10. Other Items 1.4 9.3 10.7 0.17 1.08 1.25 1.08

Subtotal 4.6 30.6 35.2 0.53 3.56 4.09 3.56

ANNEX BTable BPage 7

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

Cost Estimates of Principal Items Included in the Project and Credit

Rs million US$ million

Local Foreign Total Local Foreign Total Proposed Credit

(h) Civil and Electrical Works 133.0 - 133.0 15.40 - 15.40 -

(i) Working Capital 27.0 11.0 38.0 3.10 1.30 4.40 1.10

(j) Wheel and Axle Supply 421.0 241.0 662.0 49.00 28.00 77.00 15.00

(k) Contingencies 81.0 89.0 170.0 9.40 10.50 19.90 10.50

Total II 741.0 568.0 1,309.0 86.00 66.00 152.00 53.00

III. Development Support

(a) Thryistor Control/Transformer (30 No.) 34.0 77.0 111.0 4.00 9.00 13.00 9.00

(b) Product Improvement 9.0 9.0 18.0 1.00 1.00 2.00 1.00

(c) Technical Advisory Serviceand Staff Training 9.0 18.0 27.0 1.00 2.00 3.00 2.00

Total III 52.0 104.0 156.0 6.00 12.00 18.00 12.00

GRAND TOTAL 1,981.0 1,968.0 3,949.0 230.00 229.00 459.00 190.00

1/ Figures might not add up due to rounding off

Source: IR and 1-frsicn Estimates

June 1978

Annex CPage 1

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

Workshop Modernization - Plan of Action

1. Complete by September 1979, a workshop rationalization Master Planin accordance with terms of reference stated in Appendix A;

2. As part of the Master Plan mentioned in (i) above, complete byMarch 31, 1979, details of plans for constructing, equipping andcommissioning of a workshop to be used for remanufacturing ofmotive power and rolling-stock parts and components for a unit-exchange maintenance system;

3. Take all necessary action to ensure achievement of the objectivesby March 31, 1982 in improving manufacture and maintenance activitiesspecified below:

A. Chittaranjan Locomotive Works:

(i) reduction of diesel hydraulic and electric locomotivemanufacturing cycle time by 15%; and

(ii) an increase of 15% in the manufacture of cyclinderheads and cyclinder liners and an increase of 10%in manufacture of traction motors;

B. Kancharapara Shops:

reduction in periodical overhaul (POH) cycles of electriclocomotives from 35 days to 30 days; AC EMU's from 35 daysto 30 days; passenger coaches from 28 days to 22 days;traction motor rewinding cycle from 35 days to 25 days;

C. Matunga Shops:

reduction in POH cycle of passenger coaches from 26 daysto 18 days; of other coaching vehicles from 44 days to34 days and EMU's from 35 days (including transit timeto Kurla) to 20 days;

D. Kharagpur Shops:

reduction in POH cycle of diesel-electric locomotivesfrom 21 days to 15 days; of passenger vehicles from 18.5days to 17 days; and of freight wagons from 4.2 days to4.0 days;

Annex CPage 2

E. Parel/Mahalaxmi Shops:reduction in POH cycle of passenger coaches from 23 daysto 19 days.

4. Prepare and present to the Association by September 1980, a reporton the status and improvements in availability of rotating partsand components pool.

June 1978

Annex CAppendix: A

INDIA

A RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

Summary Terms of Reference

The objectives of the Workshop Master Plan Study will includebut not necessarily be limited to:

(a) carrying out a complete inventory of maintenance,manufacturing and other activities of all workshops,sheds and manufacturing units, with a view to arrivingat the optimum assignment of activities and workloadto each unit in order to minimize duplication offacilities and efforts;

(b) developing a plan for location, organization, capacity,layout and equipment required to establish facility(s)needed for remanufacturing of parts and componentsrequired to effect a unit exchange maintenance andperiodic overhaul program for motive power, coaches andelectric multiple-unit fleet;

(c) developing the required level of parts and components,new and remanufactured, to implement unit-exchangemaintenance and improved periodic overhaul practice forrolling stock and motive power;

(d) developing the required plant and machinery for Phase IIand Phase III of the workshop modernization program;

(e) developing the additional facilities and equipmentrequired by the manufacturing units to supply the newparts and components needed for maintenance;

(f) developing an optimum and integrated materialsmanagement system for the unit-exchange maintenanceand periodic overhaul program;

(g) recommending the organizational changes, staffing,accounting and management information system needed toinstitute and control integrated maintenance and periodicoverhaul of motive power and rolling stock including anintegrated materials management system; and

(h) developing the timetable and technical and economicanalysis of Phase II and Phase III of the workshoprationalization and modernization program.

INDIAN RAILWAYS ORGANIZATION CHART

MINISTRY OF RAILWAYS

MINISTER FOR RAILWAYSMINISTER OF STATE FOR RAILWAYS

RAILWAY BOARDCHAIRMANFINANCIAL COMMISSIONER

MEMBER MECHANICALMEMBER ENGINEERING

ADVISERS/DIRECTOR GENERAL/OFFICERS MEMBER TRAFFIC

ON SPECIAL DUTYADVISERS1. FINANCE2. MECHANICAL3. ELECTRICAL4. INDUSTRIAL RELATIONSDIRECTOR GENERAL1. HEALTHOFFICERS ON SPECIAL DUTY1. PROJECTS AND PRODUCTION UNITS2. COMMERCIAL

DIRECTORS ZONAL RAILWAYS MANUFACTURING UNITS PROJECTS RESEARCH, DESIGNS AND

1 ACCOUNTS GENERAL MANAGERS GENERAL MANAGERS GENERAL MANAGERS STANDARDS ORGANIZATION,

2. CIVIL ENGINEERING LUCKNOW

3. EFFICIENCYBUREAU I. CENTRAL RAILWAY, BOMBAY 1. CHITTARANJAN- 1. CONSTRUCTION,

4. ESTABLISHMENT 2 EASTERN RAILWAY, CALCUTTA LOCOMOTIVE WORKS SOUTHERN RAILWAY, 1 DIRECTOR GENERAL

5. FINANCE (BUDGETI 3. NORTHERN RAILWAY, NEW DELHI CHITTARANJAN BANGALORE

6. MECH. ENGINEERING 4. NORTH EASTERN RLY., GORAKHPUH 2. DIESEL LOCOMOTIVE WORKS. 2. METROPOLITAN TRANSPORT

7 MECH. ENGG. (WORKSHOP) 5. NORTHEAST FRONTIER RLY VARANASI PROJECT tRAILWAYS)

8. METROPOLITAN TRANSPORT MALIGAON (GAUHATI) 3. INTEGRALCOACH FACTORY, CALCUTTA

9, RAILMOVEMENT 6. SOUTHERN RAILWAY, MADRAS MADRAS

10 RAILWAY PLANNING 7. SOUTH CENTRAL RAILWAY, SECUNDERABAD

11. RAILWAY STORES 8. SOUTHEASTERN RAILWAY, CALCUTTA

12. SAFETY AND COACHING 9. WESTERN RAILWAY, BOMBAY

13. SECURITY14 SIGNAL AND TELE. COMMUNICATIONS15. STATISTICS AND ECONOMICS16 TRAFFIC COMMERCIAL17 TRAFFIC TRANSPORTATION18 VIGILANCE

OTHERS1. ECONOMIC ADVISER2 LEGAL ADVISER

Fehr-aWy 1978 World1 Bank -18812

X == =- --2 _ ; Y j F LODL' IG~~~~~~~~W& A EXH1ATGWE YRD1;

1I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ -j' - -' ,L - -- - - -MAHN - -- ZN[ t j [04 AT-TWE

/; ; .' , , , 1 1 > _ ;TOF KG _ $ _ .......... .......... ~~.............. // K

JX . ,.' ,.' ,.' .. -'' < i WEIGM | SCRAPVINS | MFLG TIN MOULDIGE oF t

/IWATCh TOW£R X1 -z s S == = 3 F Al REATMENT YN S WHeETOWET STORAG S 6ORIN /I lOYGNACTLfE LgITSI T IkWATCH TOWNERS

// SG S~ ~~~~~~~~~~~~~~~~~~~~~U STADTIONSPR SU STN SOE 'OF

/~~~~~~~~~~~~~~~~~~~- PUTNAAL N_ OP ii /-- NSLOP

X ;~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ML 1 ,,,- ,,IBM,_ Fw/ / 7RA$NcNG6CHoOL CANTEE~XA 9 9 [NDIA B FL TLR

/~~~~~~~~~~~~~~~~~~~~~~~~~~5 1 i Lo -_- R ALY MOEPN ZTO N A INEACPROJC

g je / WHEEL AND ~~~~~~~~~~~~~~~~~~~~~~AXLE FO G OPL ANT.1

~~~~~~~~~~~~~~~~~~~~~~t M ACHIN SHO POSDLYU

INDIAA RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

COMPARATIVE BASIC PROCESS FLOW CHARTSWHEEL AND AXLE MAUFACTURE

WHEELS WHEELS AXLES 2/FORGING PROCESS CASTING PROCESS 2! FORGING PROCESS

STEEL FURNACE STEEL FUtNACE STEEL FURNACE

INGOT MARKING,NICKING AND BLOOM HEATING

BREAKING r

WHEEL BLOCKWEIGHING, HEATING WHEEL CASTING AXLE FORGING

AND FORGING

CONTROLLEDCOOLI N

SPRUE WASHWITH FETTLE ARC

WHEELHUB WHEEL HUBHOLE PUNCHING HOLE CUTTING AXLE CUTTING

WHEEL ROLLING

WHEEL DISHINGAND STAMPING

NORMALIZING NORMALIZING NORMALIZINGFURNACE FURNACE FURNACE

RIM ~CONTROLLED RIMQUENC HING COOLING QUENCHING OIL QUENCHING

AIR COOLING

MACHINING SHUB BORNING MACHININGr ~~~ ~ X | ~~HUB BORING | ;

INSPECTION INSPECTION INSPECTION

FINISHEDWHEEL FINISHEDWHEEL FINISHED AXLE

NOTE

1/ As n Durgapur Steel Plant World Bank - 18715

2/ As n Proposed Wheel and Axle Plant

INDIAA RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

WHEEL AND AXLE PLANTPROJECT IMPLEMENTATION ORGANIZATION

M MCHANICAL I& ELECTRICAL PERSONNEL STORES CIVIL FINANCEENGINEER ING & ST/A-FING PURCH1ASE I L OONSTfIUCTION CONTROLLERF

CHIEF PROJECT OFFICER/ FINANCIAL ADVISER &

CHIEF MECHANICAL ENGINEER CHIEF ACCOUNTS OFFICER

ADDITONAL CHIEF I CONTROLLER OF STORES/

MECHANICAL ENGINEER ADDITIONAL C OTRES

ECHIEF CHALF CHIEF DEUTY DUTY DEPUTY FINANCIAL

MECHANICAL CHANICAL CHIEF GEN ~~~~~~~~~~~~~~~~~~~~~~~~~~CIEF CADVISER&ELECTRICAL ~~~~~~~~~~~~~~~~~~~EGNERCIEF ACCOUNTSENGINEER IENGINEER ENG INEE METALLURGISTI | MANAGER |EERI OFFICER

SENGINEER SENIGER SENGIONER ELECTRI I S ECRET ARY SONNELORE EXECUTIvE EXECUTV E SENIOR

MEuAICA MECANCA MEHNIA SECRN MNEER L ENAC T

ENGINEER ENGINEER ELECTRICAL ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~OFIERENGINEE ENGINEER ACUNT

ENGINEER I~~~~~~~~~~~~~~~~~~~~~~~~UCHAER I ESIGN OFFICER

ASSAT ASSAT ASSAT ASSAT ASSATASSISTANT ASSISTANT ASSISTANT ASSISTANT ASSISTANT ASSISTN ASSISTANTWRSWORKS WORIKS WORKS ELECTRICAL ELECTRICAL EUIYPRONL CONTROLLERI CONTROLLER EGNE CONS ACUT

MAAE AAE MANAGER ANGR EGNE NIERSCEAY OFCR OF STORES O TRSDSG FIE FIEI ~~~~~~~~~~~~~~~I I

July 1978 ATMANAGERS

Wo.Id 13-1, - 18729

INDIAA RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

WHEEL AND AXLE PLANTPROPOSED ORGANIZATION

GENERAL MANAGER

INDLUTHIAL RELATIONS MATERIALSMANAGEMENT OPERATIONSANDPLANT SECRETARY FINANCIALCONTROLLER QUALITY CONTROL WELFARE SAFETY

FINANCIAL ADVISER &CONTROLLER OF STORES CLIEF MECHANICAL ENGINEER CHIEF ACCOUNTS OFFICER

| ADDITIONAL CHIEF | ECHANICAl ENGINEER

|CHIEF INDUSTR IAL RELATIONS| ASITNC11- INDIJSTRIALRELATIIDNS~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ WORKS ~~~~~~~CHIEF OFQDUALITY CONTROL DEPUTY GNERAL

OFFICER M MANAGER

| ENLyGINECERL

WREELS AXLES MAN |.OD TON PLNT] l l l ENGINEERING [~~~E ENGINEER NG ENGINEERING|

DEPUTY DEPUTY | DEPUTY CHIEF DEPUTY CHIEFCONTROLLER CONTROLLER MECH.ANICAL MECHANICAL

ENGINEER ENGINEEROF 1STORES OF STORES WHEELS I AXLES

FEOSONNEL TECHNICALORKS ORWORKS PRDCTION SEIOSDTA SEIO

OFFICER M~~I,ANAGER MANAGER MANAGER ENGNEEEOFICRNEENARS FFCEROPECE

ASSSTAT SSITAT AG,TAN ASISANT ASISTNTASSISTANT ASISISTANT ASSISTANT AA-SISTANNASITAT ASSISTANTWORKS ASSGES WO|MANAGERKS ELNEECTRIRCAL S MECHANICAL PRODUCTION ELECTR CAL CHEMIST A WORKS

MANAGER MANAGER1MANA9ER7ENGINEER8MANSOER MANADER ENUINEER ENGINEER ENUINVER METALLURGIST MANAGER

Juy1978 Wu SI-Ul

INDIAA RAILWAY MODERNIZATION AND MAINTENANCE PROJECT

Implementation Schedule

1978 1979 1980 1981 1982 1983 1 1984 1985

A WORKSHOPMOOERNIZATION/UNIT EXCHANGE

CLW. KPA. KGP. MTN. PAREL

Equipment Specificaion_

TenstiercngpIssue ol Purchase Orders - -D1[iuerv Tme and Preparatory Work

ns aloe. Commlssionng, Trials -_

C, I Works _

DLW Rarionajicariori (Coirponenrs ane Hemnotnuacturing_

Faciltie for Dise-1lcscLoc---irs

Pioiecr Spec-fc-t-ons

E,uiDiren Sp-cificorions

Tnder,l-q

Issue of Purchase -ders m_

lnsrOi,aion, Commissio-ing and Trials

Cc,li Works -

B. WHEELS AND AXLE PLANT L-gend

Process Definarion W _ _ Wheel Urns

070 iperel Selection _ S_ Axle Unis

Planr Layout _-

P-nt Cen,ruction _

Equipmenr Specification . _ _

Equipmeet Pr-ocernee _

Train rig_ *____ __ I

Equapmeo lessallasion

Wheel Ueit Inlli-Advisory Sercces_

Ax~~~le nit lallasion c......*kkolt AvcOr Seruicos ._zwe

Facilijy Start UpWheel Unit

Production -Bild U,A.I1 Ue-t

C. WHEELS AND AXLES

Sp-cific-tions-Te.elnd-g/Dnlionro

D 30THYRISTOR/TIfANSFORMER SETS

Specitiocat,nns_

Te-derig, Issue of Orders

DOti-yec Time

Trials end Modifications

E PRODUCT IMPROVEMENT

Equipmem and Insleunentation - _ Specit cation and Ordhr-ng* _ _ _ _ -_ _ - Delioery and Inslall:etion

Tnst Bed FPHilisins * _ _ __

Building Facilities . _ _ - - - - _ _ _ _ _ _ _ _ Civil Works

Op-imisesion of Combcoio- Chamber of DLW Enpiens 11,1111111111_ -t,

OQ imen Ring CDnabieation Leqe-d:

Impro---t of Lube Oil PumP 5 M V_ SAI . U _ S _ e D-oPm-t Act cries

Optimisation ef Pertfrmance of Lube Oil Coelne _lmlF, _,t a Pr_orpeanoAcrures

Devlop-et of Vi%c..s Type Vib--iO Damper for MAK Ehgin |_h__,_ z -; _ Prototype M-nuft-ntr

Nltrided Cr-nkseaft fee MAK Engine _ a _ Wor o-ing

Optimis-si-n of Teting of Bearings S _ * ,W

Strengthening of 251 Series Engine Blocks _* _* _ -_ p - U _ *

Development of Turbooheege foe CLW Eegree O S * I * 1

700 hp DLW Engine S s ._ _ m

Upnating 1f 16 cYi OLW Engine | P _ I _i_

F. TECHNICAL ASSISTANCE/TRAINING. .7 _ . _

July 1978 Wqrld Bank 18833

( .yf C - ,S

LI 5, '-V ~~~~~~~~INDIAAFGHANISTAN /

. "- a > ~RAI lWAYSAppro--rare .Ie of Central

' Amiltsar<Ju Ipu~~~~~~~~~lader _

A RkoS C H I N A

r~ ~ ~ ~~~~~~~~~~Ca taksr ScrsZ N0

a, [C-les rX

PAKSTANr Hs

M-.b.d ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~.-

h.,,, ;ch. It'

.s t A , M ungls a ater Ragao 0,o e Mcdnp ralR Ks BROAD GAb U GE. Y M ETER A

Aiv~~~~~~~~~~~~~~~~~~~~~~orgust CuG Feaiblit Suve C'ompelected Suin

K d

K D I

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8-bcq C-f-I bh M.~~~~I LNKAMILSh-

TOts teas an ateprpaedt

ta, WarM aks safeaalae-tt tecosion I8

D 8 ll l 3. A-Pllo DC ACGAG

t s oh Ats atortdp, atpeh1, Red Oa,a_a.a ose aco tfr1

ann1 hates any>c fadgtrnanrotto Seamesnisatsa s inert aPronressatnn aeer-saoses aneo iraoa,soesiiltySuvyoom iee

T R.wdu c.8SRI .KtMTR

1 uX 0 100 20~~~~~0 Selcte 400a 00ions

rhsmphsbsnsprebybeordakshfwsJle/fNheNvDinc H./of the redent otte ryppr o whxch s fs atf thed. rh tenomlxho-t Broad theuge

koundwr6s ~ ~ ~ ~ T rhnw Mee rhympdGrrougNeh rlr dtsol dd n rs<Z'_A?flae 'An BIdv An on Gh e lsttso nvtriodo r,eWdsrstN

acc ~~~~~~~~~~~~~~~~eltag-e Nofrrow Gougy teS

IBRD 13490

'( .APRIL 1978

INDIA

AFGHANISTAN RAILWAYS( L,n.OICOO I iDepots, Sheds, Workshops, and Manufacturing Units

(*AMRITSAR

*KALKAC H INA

PAKISTAN fJ *EKHANALAM N- CHINA/ ~~~~~~PURA / '

-/ MORADABADt I \V J

r SHAKA BASTI AU DELHI IZTNGAX ' rBIKANER TUGHLAKABAD A ,0 > I - ,/ D

BAMIANA DUNDHARIAR iBHUTAN 'J D

*JAIPUR ~~~~~GONDA* 0 - I0 ( ODR 0 * ERLUJAIPUR WCKNOW SO ALAMBAGH AGDOGRA *NEW O '

JODHPU * * AMER G ORKP--\- L J s<ALPAI BgONGAIGAON(

a KANPUR SHILIGURI ~ ~ NEW EONEWIGAUOlN

JHANSI OSAMASTIPUR BON$IAO )Eg E~~~~~~~GARHARA '.~i

*KOTA VARANASI OJAMALPUR ,.- -

*"~ ~l_ *OUDAIPUR *MUGHALSARAI

v *ABU ROAD CHITTARANJAN" , *1JAABU ROAD S IC~~~~~~~~~~~~~~~~~~~~~~~~~1.L.WI

SMORVI ARATLAM NEW KATNI * A PATRATUA ASANSO'L_ NANDAL

OJAMNAGAR SOHO~~ND BURDWANA ANRA

>GONDAL@ -~~ A PRATAPNAGAR *ATTNAAE LILLUAHO AEI-H~\ ',GpDA ) 0 BONDAMUNDA NIMCURAU, _ALC T )NH4AVNAGARBIAUR

A KHARAGPUR

ONAGPUR ORAIPUR (A *EBHUSAWAL ABHILAI BURMA

lluk

ARA D ATUNGA'! *PAR EL Io D

KALYAN WADI BUNDER .9

OKURDUWADI 8A Y OF*KAZIPET WALTAIRA

OLALLAGUDA *SECUNDERABAD- BEN GA Z

GUNTAPALLIg

VIJAYAWAY ME

O HUBLIA, GOOTY

6 PERAMBUR 1Lo U- DepotsA R A B I A N BANGALORE G PERAMBUR I c Do

IRWA) 0 MADRAS * Workshops & Manufocturing Units

SifA 0 MYSORE A Diesel ShedsSEA & Electric Sheds

ERODEA

GOLDEN ROCK

N 0 200 400 600 800

KI LOMETERS

5 0 100 200 300 400 500

MILES

D /S#Do .o bl~$fsalD; . W.W B. ,r LANKA>Iof S OR. ,.dr f Oo ,port to0000 whih 0ie : 0. Tho oWOo o..d .d Oh. SoooOd, .hOm 00 Oh, , deW 00S,04 or, O p00 of Oh. Woo ldr* dod . \ 10.ffiO.a.. .ft,*,000O Oh. Vh /00000 of.oy o.ioonl o .nh. or\ /0.000.10h oeXbOhl,iN.0-