Thailand - Third Railway Project

R E S T R I C T E D Report No. TO-269c This report was prepared for use within the Bank. It may not be published nor may it be quoted as representing the Bank's views. The Bank accepts no responsibility for the accuracy or completeness of the contents of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT APPRAISAL OF THE SIX-YEAR INVESTMENT PROGRAM 1961-66 OF THE STATE RAILWAY OF THAILAND April 20, 1961 Department of Technical Operations FILE COPY  CURRENCY EQUIVALENTS U.S. $1.00 = 21 Baht 1 Baht = U. S. $0. 0478 1 Million Baht = U. S. $47, 800 Railway's Fiscal Year January 1 to December 31  TABLE OF CONfTEITS Page SUAIWfRY - ii I INTRODUCTION 1 II TUE RAILWAY 1 A. Organization, iIanagement and Labor 1 B. Property 2 C. Traffic and Rates 3 D. Operating Efficiency h E. Finances and Earnings 6 i. Competition 8 G. Status of Previous Prograims 9 III THE SIX-.,AR. I-'VESTI1.AJT PROGRAIf 1961-66 10 A. '.ain Outline 10 B. Teed of the Program 12 C. Zinancing of the Pro-ram 14 D. The Proposed Bank Loan 15 i. Future Traffic and Earnings 15 F. Economic Justification 16 G. Projects Outside the Program 18 IV CONCLUSICNS AND RECOMMENDATIOINS 19 Tables: 1 Statement of Motive Power and Rolling Stock on October 1, 1960 2 Composition of the Freight Car Stock on October 1, 1960 3 Composition of Freight Traffic ir 1959 4 Sum,mary of Selected Operating Statistics 5 Audited Balance Sheet as of December 31, 1959 6 Analysis of Current Assets as of December 31, 1959 7 Statemenrt of Revenues,Exnenses and Income 8 Investment Pro,;ra. 1961-66 9 Statenent of Funds Generated and Required during 1961-66 10 1"orecast of Revenues,Expenses and Incoiiie 11 Caslh Generation and Debt Service Cover 1961-71 lap  APPRAISAL OF THE SIX -YEAR INNEST0l3NT PROGRAM4 1961-66 OF TIIE STATD RAILWIAY OF THAILAHD SMTPMRY i. The Government of Thailand has asked the Bank to assist in financing the Investment Program of the State Railway of Thailand, which is part of Thailand's National Economic Plan for the years 1961-66. The total cost of the Program is estimated at B. 1,147 million (;p54.6 million equivalent) with a foreign exchange component of p34.6 million. The amount of the Bank Loan would be '022.O milliorn equivalent. The Borrower would be the State Railway of Thailand. ii. The Railway's Program includes rehabilitation and modernization works, designed to increase capacity and reduce costs, mainly by dieselization. The Program is a continuation of previous investment programs for which Bank loans were made in 1950 and 1955, and which for the greater part have been success- fully completed. iii. The present Program comprises the procurement of 65 diesel locomotives and 1,650 freight cars, track renewal on some 600 km of mainline, remodeling yards and replacement of timber bridges by steel bridges. In addition, fur- ther improvements iwrill be made to signalling and telecommunications and repair facilities will be extended. The Program is well balanced and designed to improve the Railwayts operations and efficiency and to provide capacity for future traffic demands. iv. During the period of execution of the Program adequate funds would be available from Railway's earnings, and the proposed Bank Loan, to cover the full cost of the Program. v. The Railway is executing and may undertake other projects outside the Program. They will be deferred, if necessary, to ensure the prompt com- pletion of the Program. vi. The State Railway of Thailand was established as a separate legal entity in 1951. A Board of Commissioners, appointed by the Council of Min- isters, is entrusted with the formulation of railway policy. The General Manager, a member of the Board, is in charge of operations. General super- vision of the affairs of the Railway is vested in the IEnister of Communica- tions. vii. In general the operating organization is manned by capable officials and operations are conducted efficiently. viii. During the past decade freight and passenger traffic of the Railway have increased at a much faster pace than the Thai economy. Even though road competition is increasing, the assumption made in this report that future traffic growth will keep pace with the expanding economy of the country may therefore prove conservative.  - ii - ix. Since its establishment in 1951 the Railway has had a fair record of earnings. Freight rates are low and the passenger fares involve anomalies, introduced to meet road competition. A revision of the rate structure and other regulatory measures required to ensure an orderly development of Thai- land's transportation system will be undertaken on the basis of studies made by transportation experts. x. The present financial position of the Railway is sound. The Rail- way's current assets are largely in accounts with the Government and a sub- stantial part is not freely available. Nevertheless, there is no evidence that the operations and capital works program of the Railway are being held back by financial stringency. xi. The items to be financed from the proposed loan are diesel locomo- tives, freight cars and steel for bridge construction. The Railway will em- ploy international competitive bidding. xii. The Program would be suitable for a Bank loan to the State Railway of Thailand in the amount of '22.0 million equivalent. An appropriate term would be 20 years including a grace period of three and one half years.  I INTRODUCTION 1. The Government of Thailand has asked the Bank to assist in financ- ing the Investment Program of the State Railway of Thailand, which is part of Thailandts National Economic Plan for the years 1961-66. The Railwayls program has already been approved by the Government. Its total cost is estimated at B. 1,147 million (`54.6 million equivalent) with a foreign exchange component of 43h.6 million. The amount of the Bank Loin would be 4`22.0 million equiv- alent. The Borrower would be the State Railway of Thailand. 2. The Railway's Program includes rehabilitation and modernization works, designed to increase. capacity and reduce costs, mainly by dieselization. The Program is a continuation of previous investment programs for which Bank loans were made in 1950 and 1955, and which for the greater part have been successfully completed. 3. This report assesses the technical, economic and financial aspects of the new Program, based on the findings of a Bank Mission which visited Thailand in November 1960. II THE RAILWAY A. Organization, Management and Labor 4. The present organization of the State Railway of Thailand was estab- lished by an Act of 1951 which transformed it from a Department of the Ministry of Communications into a separate legal entity, in order to provide the basis for a more efficient and commercial operation. 5. A Board of Commissioners, appointed by the Council of Ministers and consisting of a Chairman and from four to six members, is entrusted with the formulation of railway policy. A 1959 amendment to the Act made it possible for government officials to be appointed to membership of the Board, of which they are now the majority. A General Manager is in charge of operations. He is appointed by the Board (of which he becomes a member) subject to approval by the Council of Ministers. 6. The Railway is required to give due regard to the interests of the State and of the public and to take all traffic offered. General supervision of its affairs is vested in the Minister of Communications, who since the Act was amended in 1959, has the power to prevent any action by the Railway which would be inconsistent with the policy of the Government. Approval of the Council of Ministers is required for the capital budget, constructing or abandoning railway lines, selling immovable property, and establishing standard rates and charges. The operating budget must be submitted to the Council for information. 7. The General Manager is assisted by two deputies, one for operations and one for administration. They head an organization consisting of six operational departments and five service divisions. The six departments are  traffic, mechanical engineering, civil engineering, construction, accounting and administration. The five divisions comprise stcres, legal, medical, railway police and the r4eklong railway, a short commuter line which is ad- ministered separately. Traffic and operations are combined in the Traffic Department. Separation of both functions at this time does not appear to be necessary. In view of increasing road competition, the Department is being strengthened for traffic solicitation. 8. The operating organization is manned by capable officers and other employees. The total number of employees has been decreasing during recent years to 28,037 at the end of 1959, comprising 20,145 permanent and 7,892 temporary employees (generally unskilled labor). Productivity per man of 114,200 traffic units in 1959, compares favorably with the record of other railways in the same region. 9. The present Government repealed the Labor Act of 1957 and replaced it with new regulations which reduced the fringe benefits accorded labor by the previous administration. There have been no labor unions since 1958. Labor relations are good. 10. In general, operations are conducted efficiently and there is in- creased effort to apply business practices in order to give better services to commercial interests. B. Property 11. The Railway is a meter gauge, mainly single track system, which radiates from Bangkok (see Map); about 3,500 route kilometers (2,175 miles) were open to traffic on December 31, 1960. Two new lines are under construc- tion: (i) the Korat by-pass line from Kaeng Khoi to Bua Yai totalling 270 kms, of which 61 kms are open for traffic, and (ii) the Ban Thung Pho-Phuket line, totalling 210 kms, of which 30 kms are open for traffic. 12. The Railwayts track consists primarily of 50-lb rail laid more than 25 years ago. Since 1951 about 400 kms have been relaid with 60-lb rail and 440 kms with 70-lb rail. Some 70-lb welded rail is being used in lengths of 1W4 meters; the welding is done at the Railway's workshop at HIakasan. 13. The ties, mostly of untreated hard wood are in good condition, but the number of ties per kilometer is rather low for the anticipated heavier axle-loads, The Railway owns and operates an impre-nation plant on the South- ern line, where there is shortage of hard wood. The plant has a capacity of 200,000 ties a year, which is 40o% of the normal requirement of 500,000 ties a year. The Railway also owns a concrete tie-plant, which produces 50,000 ties a year. The track is well ballasted and well maintained. 14. The general maximum axle-load is 10.5 tons, but for diesel locomo- tives 12.0 tons is permitted. Maximum speed of 70 kms p.h. is permitted on lines relayed with 70 and 60-lb rail, 65 kms p.h. on other lines, and 40 kms p.h. on mountainous sections. There are speed restrictions which apply mostly to weak bridges.  15. While most of the war damaged property has been rehabilited, some bridges have been only temporarily repa;red and now require reconstruction. In addition, there are about.1,200 bridges and culverts mostly of wood con- struction which should ultinhdtely be replaeed by concrete or steel structures. A r4ailway plant at the Bangsue yard fabricates steel bridges up to 15 meters span for 15-ton axle load, and does related repair work. 16. The main workshop at Makasan was rebuilt and equipped with moderb machinery, as part of the first Bank loan project. The shop is well managed and has enough capacity to service an additional number of diesel locomotives and cars. There are well equipped-repair shops connected with running sheds for light and medium repairs. A well equipped diesel running shed is located at the Bangkok terminal. 17. The motive power fleet consists of about 60 diesel and about 300 steam locomotives, as shown in Table 1. All steam locomotives are woodburning, except for eight which have been converted to oil-burning. *The number of locomotives-is adequate at present, but there is a lack of locomotives with sufficient power for the mountainous sections. Some 100 overage steam locomo- tives and three overage diesel locomotives are scheduled`to be scrapped during the next six years. 18. Rolling stock consists of about 800 passenger and service cars, and about 7,000 freight cars a, s,hown in Tables 1 and 2. About half of the pas- senger and two-thirds of-the freight stock were procured before the war. The program for installation of automatic couplers has been completed; this was financed by the second Bank loan. 19. The maintenance of locomotives and rolling stock is satisfactory. C. Traffic and Rates- 20. Traffic: Freight and passenger traffic are about equally important to the Railway from'an earning's standpoint, although passenger traffic ac- counts for only about 40% of total train-kms. 21. The composition of freight traffic in 1959 and its contribution to revenue are indicated in Table No. 3. Based-on tpnnage, cement products- rice, petroleum products, timber, garden crops and lignite are the six principal cormodities carried by the Railway. They comprise 58 percent of the total tonnage and yield 50 percent of total freight revenue. Less-than-carload (l-c-l) goods account for 16 percent of the total tonnage and 21 percent of freight revenue. The share of l-c-l goods has been decreasing since 1957, due to diversion to road carriers. 22. The railway freight volume of 1.8 million tons in 1941, rose to 2.1 million in 1950. Thereafter, with more rolling stock becoming available, freight volume increased rapidly and faster than the annual 4-5 percent rate of increase in Thailandts gross national product; it amounted to 3.7 million tons in 1960, a gain of 80 percent in ten years. Revenue ton-kilometers in- creased from 480 million in 1950 to 1,147 million in 1958, a gain of almost 140 percent. During the same period the average haul of carload freight rose from 301 to 371 km, indicating a loss of short-haul traffic to the highways.  23. During the decade 1941 to 1951 passenger traffic increased fourfold, from 7.7 to 32.8 million passengers. Thereafter the increase was more gradual to 39.9 million passengers in 1960. The slower rate of increase was due to two causes: (1) increased use of road transport and (2) a sharp rise in pas- senger fares in 1955. 24. Rates: The last general revision in freight rates was made in 1952. There are four classes of charges for 1-c-1 freight; eight classes for carload (c-1) freight and a separate classification for the transport of livestock, all computed on a tapering system. The rates are low. For example, freight revenue per ton-km is less than half that on the Burina Railway. 25. There are three passenger classes. About 70% of passenger revenue is derived from third class, the basic rate for which is one-half the second class and one-quarter the first class. The tapering system is used, but for short-distance travel up to a 125 kms radius of Bangkok, a 40% reduction in fare per km was introduced in 1958 to meet road competition. This fare struc- ture necessarily involves anomalies; it also deviates from the normal cost patterns, with the result that rail fares are lower than bus fares for short distances up to about 200 km and higher for longer distances. 26. Both the freight and passenger rate structures would appear to re- quire revision, a view which is also supported by the decreasing yield ob- tained by the Railway, as shown by the following: (Baht 0.01) Per Ton-Km Per Passenger-Km Cost Gross Yield Cost Gross Yield 1955 21.1 26.5 7.2 11.6 1956 20.1 24.7 8.3 13.3 1957 21.2 24.8 8.7 13.1 1958 23.0 23.2 9.0 12.7 1959 21.1 23.1 8.7 12.3 27. It will be noted that passenger traffic affords a widerprofit margin for the Railway than freight traffic. 28. A reputable firm of consultants, engaged to evaluate Thailand's transport system, studied the rate structure of the Railway and made certain recommendations thereon to the Minister of Communications in 1959. With ICA's help a Transportation Economist has been engaged recently to study problems of competition between the Railway and other forms of transport in Thailand. Revisions of the rate structure will be undertaken on the basis of these studies and of the recommendations of the consultants. D. Operating Efficiency 29. Whether present operations are compared with the pre-war period for which some statistics are available, or with 1953 when complete statistics first became available, the efficiency of the Railway has improved substaritialJy and may now be considered satisfactory.  - 5 - 30 Operating statistics are shown in Table No. 4. WJhere the statistics showj a decline e.g. passenger car occupancy, this is in fact an improvement in service, the overcrowding of previous years having been alleviated, 31. Improved efficiency, as exemplified by (a) increase in average train speed, (b) improved utilization of equipment and (c) greater availability of equipment, is apparent from the following: a) Average train speed (figures in kilometers per hour incl. stops) Northern Line North-Eastern Line Southern Line Bangkok-Utraradit Bangkok-Korat V/ Bangkok-Chumphon Year Express Freight Express Freight Express Freight 1953 35 to 38 18 29 15 to 19 39 20 1960 46 25 40 23 45 29 */ The North-Eastern Line includes a mountainous section of 60 km length, where freight trains have to be broken up into two or three sections, which are hauled separately. b) Utilization of Motive Power and Rolling Stock Locomotive-km per Car-km per locomotive-day Car-day in fleet available Year Steam Diesel Passenger Freight 1953 139 264 223 66 1959 137 292 252 80 First six months 1960 134 312 n.a. n.a. c) Availability of Motive Power and Rolling Stock (percentages of total stock) Locomotives Passenger Freight Steam Diesel Cars Cars At Dec. 31, 1949 64 52 78 59 it if It , 1954 89 59 80 81 " it ", 1958 91 87 91 83 " Oct. 1, 1960 92 90 89 92 32. Average turnaround time of freight cars during the first nine months of 1960 was 6.2 days. This is quite good, considering that the average length of haul is 350 km. 33. The Railway is not over-equipped for the present demands of traffic, but is providing service without delay. 34. The utilization of motive power and rolling stock has been increasing steadily. Operating efficiency is good and the Railway's record compares fa- vorably with that of other railways in the area.  -6- E. Finances and Earnings 35. Finances: The audited balance sheet of the Railway as of December 31, 1960, is reproduced in Table No. 5 and summarized below (B. 0009000). Assets Liabilities Current Assets 681.4 Current Liabilities 83.9 Pension Fund etc., 177.7 Funded Debt (IBRD) 213.9 Net Fixed Assets 4,090.1 Pension Fund Reserve 176.9 Deferred Charges etc. 34.5 Deferred Credits etc. 20.6 Capital 3,900.7 Retained Earnings 587.7 14. 983_7 4,983.7 36. The current ratio according to the Balance Sheet is more than 8. This is, howevery not a true position because, as shown in the detailed statement Table No. 6, a substantial part of the current assets, about B. 369 million, is in accounts held with the Government and investments in Government entities, which are not really current and not therefore available upon demand to the Railway. Nevertheless, there is no evidence that the operations and capital works program of the Railway are being held back by financial stringency. Ex- cluding the Government accounts, etc., the current ratio would still be a fa- vorable 3.7.Using the same basis (excluding the Government accounts, etc.) the liquidity ratio is about 1.7. 37. In 1951 the fixed assets were reappraised on the basis of present value taking into consideration only their remaining service life. The re- corded value of the fixed assets was increased from B. 332 million to B. 2,655 million: the write-up was equivalent to 800 percent. 38. The fixed assets as revalued in 1951 comprised: Depreciable B. 800 million and non-depreciable B. 1,855 million, for the proportions 30/70. Land at B. 1,360 million represented over 50% of total recorded fixed assets. 39. In 1960, the gross value of fixed assets, B. 4 532 million, showed an improved relationship of Depreciable to Non-depreciable assets (40/60) and the proportion of land to total fixed assets had declined to about 30%. 40. Prior to 1951 depreciation was not charged. Since then straight- line, service-life, depreciation has been applied to the revalued assets in existence in 1951, and assets acquired later at original cost. A large part of the pre-1951 depreciable assets have been retired and such assets are now only 4T/o of the total. Non-depreciable assets are charged to revenue at the time of retirement.  -7- 41. The funded debt of SRT is the unamortized portion of the Bank's loan INo. 128, granted in 1955; at December 31, 1960, this amounted to B. 213.9 mnil- lion or 5% of the total equity. The loan will be fully amortized in 1970. The firat Railway loan, No. 35, was granted to and is being serviced by the Govern- Mentl 42. The present financial position of the Railway is eound. 43. Earnings: Since its establishment in 1951 SRT has had a fair record of earnings. A statement of revenues, expenses and income during the years 1955-60 is given in Table No. 7, and is summarized below (B. 000,000): 1955 1956 1957 1958 1959 1960 Operating revenues 457.6 492.9 534.8 524.9 524.9 553.6 Operating expenses 358.4 383.9 439.0 469.8 455.1 450.8 (inml. depreciation) Cperating income 99.2 10910 95.8 55.1 69.8 102.8 Other income 3.8 5.8 5.3 3.7 1.8 3.6 Total income 103.0 114.8 101.1 58.8 71.6 106.4-^* Less fixed charges 5.4 3.7 5.5 11.2 10.7 10.6 NTet income 97.6 111.1 95.6 47.6 60.9 95.8 Operating Ratio (%) 78e3 77.9 82.1 89.5 86,7 81.4 Rate of Return on Net Fixed Assets (M) 3.00 2.98 2.64 1.42 1.74 2.51 **$ Includes B. 10.0 million from the sale of scrap. 44. Operating results for the first three years were somewhat better than had been expected when the second Bank loan was made in 1955. The decline in revenues in 1957 and 1958 was caused in the main by bad harvests and di- version of traffic to road transport. Expenses were increased substantially by a Labor Law passed in 1957 but since repealed. Furthermore, expected eco- nomies from dieselization were not fully realized because of delayed procure- ment, and firewood, which became scarcer and more expensive, had to be used in greater quantities than planned to keep steam locomotives in operation. The much better results for 1960 indicate that some of these unfavorable con- ditions are being overcome. 45. The rates of return as indicated above range from 3.00 to 1.42 and are generally low. These rates are affected by the revaluation of fixed as- sets in 1951 and the higher depreciation charges resulting therefrom; they would be higher were depreciation charged on the basis of original cost. 46. Interest coverage ovp- the years has been ample; in 1960 operating income covered almost ten tines the amount of interest and commitment charges. Debt service requirements have been low; cash generated by the Railway in 1960 (operating income plus depreciation) was 5.6 times the total debt service during that year.  -8_ F. Competition 47. The Railway encounters competition from water and road transport. 48. Reliable water traffic statistics are lacking. Waterway competition has not increased in recent years but its importance is real. Total river traffic, consisting principally of rice and timber, exceeds the total volume of railway freight traffic. This form of competition is expected to increase somewhat in the future upon completion, in 1963, of the Yanhee Dam, which will regulate the water flow of the Chao Phya River and permit all-season naviga- tion. Traffic losses due to this increase in competition will probably be off- set by traffic generated from new industrial and agricultural production fol- lowing completion of the Dam. 49. The Railway formerly enjoyed a virtual monopoly in the field of over- land interregional transport, inasmuch as road-building was largely restricted to feeder roads. This situation has gradually changed during the past decade when large road-building and road-improvement programs were undertaken. Road competition was keenly felt for the first time with the opening in 1958 of the Friendship Highway, the first modern highway in Thailand, connecting Sara Buri with Korat. The road was built parallel to the Railway and travel time from Bangkok to Korat by road is now five hours compared with seven hours by rail. 50. Under the Six-Year Plan (1961-66), the Government intends to con- struct or improve some 2,000 km of roads, among them two roads which run par- allel to the railway (Korat to Nong Khai and Churnphon to Nakhon Si Thammarat). It must be expected that after completion of these roads corpetition will be further intensified. 51. Several measures taken by the Government have lessened the impact of road competition on the Railway, as far as passenger traffic is concerned. In the fall of 1959, a concession in central Thailand was granted to the Trans- port Co. under which all bus owners had to apply the passenger fares set by this company. The effect of the new fares is that travel by rail up to 200 km has become cheaper than by road. Bus terminals were transferred to the out- skirts of Bangkok to alleviate traffic congestion in the city, causing much inconvenience to bus passengers. The result is thata large number of passen- gers are returning to the Railway for a journey in relative comfort as compared to the accomodations in overcrowded buses over mostly inferior roads. 52. As regards the trucking of freight, since late 1960 regulations re- garding safety and maximum loads are being enforced by a special Highway Police Unit. So far, the action of this Unit has brought about higher truck- ing rates and has resulted in an increased demand for rail transport in the Northeast where road competition is most prevalent. The ministry of Communi- cations is taking steps to regulate trucking rates on the basis of a Royal Decree, issued in December 1960. 53. A peculiar type of road competition exists in the form of the Govern- ment-owned Express Transport Organization (ETO), which operates trucks in direct point-to-point competition with the Railways, and in addition, has been granted a monopoly for providing pick-up and delivery services by road at  - 9 - principal railway stations. This monopoly was granted, in lieu of the freight handling concession at railway stations now performed by the Railway's own forces. The ETO rates for pick-up and delivery of railway freight have been established at higher levels than heretofore applied by private carters. 54. The aforesaid arrangement gives the Government-owned road competitor of the Railway the power to determine the aggregate charges for rail freight, handled door-to-door. The Railway has expressed fear that the high, unpub- lished and unregulated ETO charges will divert railway traffic to its road competitors, including ETO. 55. For the sound development of all modes of transport in Thailand,and therefore for the development of the national economy, it is essential to at- tain effective transport coordination. Recommendations to this effect have been made by the firm of consultants which recently studied Thailand's trans- port system (par. 28) and by the Inland Transport and Communications Committee (ECAFE) at a series of meetings in Bangkok. Further studies will be made by the Transportation Economist, recently engaged with ICA's help (par. 28). 56. The Government is aware of the problems as indicated by the measures it has already taken to regulate road transport (paragraphs 51 and 52); it is conscious of the need to take further regulatory measures required to ensure an orderly development of its transportation system. G. Status of Previous Programs 57. The Bank has participated in two prior programs to rehabilitate, im- prove and increase the capacity of the Railway. The first plan extending from 1950 to 1955 was the basis for Loan 35-TH of October 27, 1950 in an amount of *H,3 million equivalent. The principal objectives of the loan project were a) establishment of the Railway as an autonomous agency and b) re-equipping the Plakasan Workshops. The project was completed by 1955. 58. The Railwayts second program 1955-59 aimed at further increase of capacity and improvement of efficiency. The program, part of which has been financed by Loan 128-TII of August 9, 1955, comprised (a) procurement and in- stallation of rails and accessories for 1,378 kn of track, (b) procurement and installation of modern telephone and teleprinter equipment for traffic control and car distribution, (c) procurement of 30 diesel electric locomotives, 170 passenger cars and 850 freight cars, (d) procurement and installation of 5,800 sets of automatic couplers and (e) other improvements, including extension of sidings, station yard remodeling, strengthening of bridges, signaling equipment, etc. 59. The original cost estimate for the program was B. 1,268 million, in- cluding foreign currency expenditures of PL48 million equivalent. The Bank Loan of $12 million financed the purchase of the passenger and freight cars, the automatic couplers and telecommunications equipment in the program. Since the Loan was made, the Bank has approved additions to the program, including six diesel railcars and 12 trailers for suburban traffic ard 140 freight cars, which all have been delivered. Another three railcars ordered in Japan will be delivered shortly.  - 10 - 6o. As a result of lower prices for locomotives, rolling stock and rails, purchased in Japan, the cost of the program, including the addition- al items, is B. 1,116 million of i.rhich B. 846 million (USh40 miillion equiv- alent) is in foreign exchange. 61. Physical execution of the program has, on the whole, been satis- factory but is somewhat delayed. Only about 500 km of track was laid at the end of 1960, due to late completion of a rail-welding plant. About 50,c00 tons of rails are in store, equivalent to about 870 km of track, which will be relaid in the period 1961-63. 62. lihen the program was prepared it was expected that 30 new diesel electric locomotives would be ordered and placed in service within two years. However, the tenders received in 1957 showed such a wide price difference that the Railway in accepting the lowest-priced bid bay Hitachi, Japan, de- cided to make exhaustive tests of five engines before confirming the order for 25 more. These tests took two years and the remaining engines will be delivered in 1961. They will be financed from a loan in the amount of 4 .9 million equivalent, granted by ICA. 63. Other goods financed by the Bank Loan 128-TH have been delivered in time and are working satisfactorily. Installation of automatic couplers was completed in 1960. The efficiency of train dispatclhing and car distrib- ution has been greatly improved by the modern telecommunication system fi- nanced by the Loan. III THE SIX-YEdtR I .TVESTTENT PROGRhA 1961-66 A. Iain Outline 64. The Railway's 1961-66 Program has been approved by the Government and presented to the National Economic Development Board for incorporation in the National Plan for the same period. Thle Progran will (a) continue the Railway's rehabilitation and modernization, (b) increase capacity to meet expected traffic demands, and (c) irnprove operating efficiency and decrease operating costs. 65. The Program embraces procurement of materials and equipment and execution of works; the following are the main items: a. llotive power: 40 diesel electric locomotives of 1,000 hp and spare parts 20 diesel hydraulic locomotives of 1,000 hp and spare parts 5 diesel shunting locomotives and spare parts; b. Rolling stock: 1,654 freight cars; c. Repair facilities: various types of machinery, equipment and tools for workshops and running sheds;  - 11 - d. Track renewals: relaying of 617 km of mainline w*ith new 70-lb rail; e. Stations and yards: remodeling of the iangsue mar- shalling yard and five other major yards; construc- tion and extension of sidings at 146 stations; f. Bridge works: replacement of 348 timber bridges with permanent steel or concrete brid4eo to perm-it 15-ton axle loac; g. Signalling and telecommunications: signalling and in- terlocking devices at 54 stations; tokenless block instruments at 46 stations; h. Other works: equipment and repair facilities for the civil engineering department, including a second sleeper impregnation plant; office buildings; staff housing; and a training center. 66. Planned expenditure is estimated at B. 1,147 million (ITS',> 54.6 million equivalent) of which 3. 726 million (US;34.6 million) in foreign exchange. A detailed breakdown of the cost estimate and phasing by years is ,,iven in Table No. 8 . Total costs are sum-marized below: Foreign Exchange Local Total *) *,I 1illion B. Ilillion Currency B. l1illion Equivalent Equivalent B. Million Equivalent Motive power, rolling stock, spare parts and repair fa- cilities 19.7 414 31 445 Track renewals 9.4 198 37 235 Stations and yards - - 139 139 Bridge works 3.1 65 56 121 Signalling and telecommunica- tions 0.5 10 6 16 Civil engineering equipment 0.8 16 11 27 Office buildings, housing and miscellaneous - - 125 125 Total 33.5 703 405 j,108 Contingencies 1.1 23 16 39 Grand Total 34.6 726 421 1,147 *) excluding interest during construction which is not capitalized but charged against revenue.  - 12 - 67. The allocations among the main categories appear to be bal- anced. The cost estimates are based on payments due for goods ir course of delivery, actual quotations and the hailwayts knowledge of local costs. The provision for contingencies is adequate and is in addition to contir- gencies contained in the individual items. 68. The above Prograrn excludes incompleted items of the 1955-59 program, such as delivery of the 25 diesel-electric locomotivres and the relaying of 870 km of track. The total track work to be done in the period 1961-66 is 1,490 km. As a monthly average of 21 km track laying must be maintained to corplete the work of both programs, the current rail-welding output of 13.5 km per month should be increased. The Railway is planning to introduce a second shift. Delays are not expected for any other items. B. Need of the Program 69. The purpose of the Program is to improve the Railway's oper- ations and efficiency by (1) reducing uneconomic and inefficient wood- burning steam locomotives, (2) providing sufficient motive power and roll- ing stocl for future traffic demands, (3) strengthening tracks and bridges and improving station yards to faci'litate running of heavier and faster trains and speeding up operations. 70. Of the 1,00P hp diesel locomotive3, both diesel-electric and diesel- hydraulic, 35 will replace overage woodburning steam locomotives and 25 are needed for the expected increase in traffic. The new diesels will increasehaul- ing capacity and make possible faster train schedules. The Railway's decisionto purchase 20 diesel-hydraulics - it now has seven in shunting and suburban se,%rices - is based on the essential advantages of this type of engine, which include lower weight, smoother running, simpler and more trouble- free engines and lower maintenance and repair costs. The Railway wants to introduce 3nainline diesel-hydraulics gradually to facilitate train- ing, of personnel. This is a reasonable policy. 71. The new shunting locomotives will replace overage steam loco- motives and improve efficiency of shunting. 72. She composition of the motive power stock now, and as it will be on fulfillment of the Program in 1966, is shown below:  - 13 - Type Number 1/ Procurement to be in 1960 1960 to 1966 scrapped in 1966 Diesel Locomotives: 959 to 1,000 hp 23 85 - 108 500 and 735 hp 34 - 3 31 Shunting 5 5 - 10 Total Diesel 62 90 3 1h9 Steam locomotives: Medium and light 5 - 54 - Heavy 250 - 50 200 Garratts 2 - 2 - Total Steam 306 - 106 200 Total Locomotives 368 90 109 349 Diesel Railcars