China - Sixth Railway Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 11357 -CHA STAFF APPRAISAL REPORT CHINA SIXTH RAILWAY PROJECT FEBRUARY 25, 1993 Transport Operations Division China and Mongolia Department East Asia and Pacific Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (as of January 1, 1993) Currency Name: Renminbi Currency Unit: Yuan (Y) - 100 Fen $1.00 - Y 5.75 $0.174 - Y 1.00 FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES ctkm - converted tkm or traffic unit (1 pkm - 1 tkm) ha - 2.47 acres km - kilometer [- 0.621 mile (mi)] m - meter (- 3.281 feet) m , square meter (- 10.764) mp = million passengers mpkm - million passenger-kilometers mppy - million passengers per year mt - million tons mtkm - million ton-kilometers mtpy - million tons per year mu - 0.1647 acre - 0.0667 hectare (ha) pkm - passenger-kilometer (= 0.621 passenger-mile) tkm - ton-kilometer ( 0.621 ton-mile) ABBREVIATIONS AND ACRONYMS CETE = Cost-Effective Technology Evaluation CIF Cost, Insurance, and Freight CPI - Consumer Price Index CRISPP - China Reform, Institutional Support and Preinvestment Project EIA - Environmental Impact Assessment ERR - Economic Rate of Return GDP - Gross Domestic Product GEF - Global Environmental Facility CNP = Gross National Product ICB - International Competitive Bidding IDC - Interest During Construction ISO - International Standards Organization LCL - Less-than-Container-Load MOC - Ministry of Communications MOF - Ministry of Finance MOR - Ministry of Railways MPT - Ministry of Post and Telecommunications NBF = Not Bank-financed NPV - Net Present Value RCT - Rail-Based Container Transport RIS - Railway Investment Study SAA - State Audit Administration SC - State Council SOE - Statement of Expenditure SPC = State Planning Commission SPB - State Price Bureau TEUs = 20-foot equivalent units TMIS = Transport Management Information System TOT - Transfer of Technology 7FYP - Seventh Five-Year Plan 8FYP - Eighth Five-Year Plan  FOR OFFICIAL USE ONLY CHINA SIXTH RAILWAY PROJECT Loan and Pro1ect Summary Borrower: People's Republic of China Beneficiary: Ministry of Railways (MOR) Amount: $420 million equivalent Terms: 20 years, including 5 years of grace, at the Bank's standard variable interest rate Obiectives: The main objectives of the project are to support MOR's effort in undertaking: (a) railway policy and management initiatives; (b) institutional development of the railway system; (c) expansion of railway capacity; and (d) moderni- zation of railway technology on a systemwide basis. Description: The proposed project would consist of: A policy component, comprising: (a) the application of the decision support system developed by MOR with Bank assis- tance under a Railway Investment Study (RIS) to determine high-priority capacity expansion projects, and optimize future railway investment programs; as well as (b) the for- mulation and implementation of measures and plans to rationalize the railway tariff system, modernize MOR's accounting standards, and improve railway management and MOR's economic contract with the Government. An investment component, including: (a) a capacity expan- sion subcomponent comprising electrification of two major railway corridors totaling 1,790 route-km; (b) three system- wide technological modernization subcomponents for (i) track maintenance mechanization, (ii) locomotives and rolling stock parts manufacture, and (iii) telecommunications and an initial phase of a Transport Management Information System (TMIS); and (c) a pilot container transport subcomponent covering two main railway corridors totaling 5,100 route-km. A technical assistance component, including the preparation and implementation of action plans for (a) expanding and modernizing railway container transport services; (b) imple- menting more cost-effective railway technology to increase railway capacity at lower cost; and (c) strengthening MOR's environmental protection capability and solving some of its most pressing environmental problems. This document has a restricted distribution and may be used by recipients only in the performance of their oMcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii - Benefits: The proposed project would contribute directly to China's effort to reform and modernize its railway subsector. The project would remove bottlenecks on two of the most impor- tant links of the national railway network. Through better resource allocation and better technology, the project would help improve the efficiency of railway investment. It would provide underpinnings for rationalization of railway tar- iffs, revamping of railway accounting standards, and improvement in railway management and regulation. The proj- ect represents a major step in systemwide modernization of railway track, equipment and information technology. The project would help accelerate the introduction of modern operational methods and marketing practices to MOR's con- tainer transport services. Finally, by switching from die- sel to electric traction, the proposed railway electrifica- tion would result in a net reduction of air pollution emis- sions; in particular, it would eliminate high concentrations of particulates and carbon monoxide in tunnels which pose a health risk to train crews and passengers. Risks: Execution of the investment subcomponents would entail proven technology already in wide use in China and else- where. Technological risks are, therefore, small. MOR has successfully completed similar projects, e.g., line electri- fication, for many years. For the works with which MOR is less familiar, e.g., those involving modern telecommunica- tions and THIS, substantial technical assistance was pro- vided for their preparation and will continue to be provided for their execution. The greater risk in this project relates to the preparation and implementation of policy recommendations, as well as the transfer of modern manage- ment techniques. MOR's top management has strongly sup- ported the policy initiatives launched under the project, end MOR staff have been fully engaged in preparing all pro- ject components. Implementation of policy recommendations would still require strong Government support. The Bank would provide sufficient staff resources through project supervision to buttress MOR's reform and modernization efforts under this project.  - ill - Proiect Costs: Local Foreign Total ---------- ($ million) ---------- Investment component Capacity expansion 266.1 423.9 690.0 Track maintenance 20.9 24.5 45.4 Locomotive & rolling stock parts 3.1 20.5 23.6 Telecommunications and THIS 91.2 155.2 246.4 Pilot container transport 30.4 20.3 50.7 Policy & technical assistance components 0.5 8.8 9.3 Base Cost 412.2 653.2 1,065.4 Physical contingencies 18.7 29.1 47.8 Price contingencies 25.5 44.8 70.3 Total Proiect Cost 456.4 727.1 1,183.5 Financing Plan: Ministry of Railways 456.4 307.1 763.5 IBRD - 420.0 420.0 Total Financing 1/ 456.4 727.1 1,183.5 Estimated Disbursements: Bank Group FY 1994 1995 1996 1997 1998 1999 -($------------- ($ million) ---________________ Annual 32.0 68.0 120.0 115.0 73.0 12.0 Cumulative 32.0 100.0 220.0 335.0 408.0 420.0 Economic Rate of Return: 23 percent 1/ Import taxes and duties are not included in project costs and the Govern- ment will not charge such taxes and duties on imports for the project.   - v - CHINA SIXTH RAILWAY PROJECT Table of Contents Page No. I. TRANSPORT BOTTLENECKS AND REFORMS . . . . . . . . . . . . . . 1 A. Background . . . . . . . . . . . . . . . . . . . . . . . 1 B. Traffic . . . . . . . . . . . . . . . . . . . . . . . . . 1 Traffic Growth . . . . . . . . . . . . . . . . . . . 1 Transport Demand and Modal Split Trends . . . . . . . 2 C. Transport Reforms .. 2 D. Bank Group Participation .. 3 II. THE RAILWAY SYSTEM.. 6 A. Background and Rationale for Bank Involvement . . . . . . 6 B. Traffic and Bottlenecks .. 7 C. Management and Regulation .. 8 D. Investment and Finance .. 9 Investment .. 9 Levels of Investment . . . . . . . . . . . . . . 9 Investment Planning . . . . . . . . . . . . . . . 10 Accounting and Auditing . . . . . . . . . . . . . . . 10 Accounting . . . . . . . . . . . . . . . . . . . 10 Auditing . . . . . . . . . . . . . . . . . . . . 11 Pricing . . . . . . . . . . . . . . . . . . . . . . . 11 E. Physical Assets and Technology . . . . . . . . . . . . . 12 Operating Performance .... . . ..... . . . . . 12 Track Maintenance ... . 13 Motive Power and Rolling Stock . .13 Information Technology . . . . . . . . . . . . . . . 14 Telecommunications . . . . . . . . . . . . . . . 14 Computer Technology . . . . . . . . . . . . . . . 14 Container Transport .... . . . ..... . . . . . 15 Environmental Protection . . . . . . . . . . . . . . 15 F. Future Reform Directions ..16 This report is based on the findings of a March 1992 preappraisal mission and a June/July 1992 appraisal mission. The mission members were: Mrs. Hennie Deboeck and Messrs. Victor Alalouf, David Butcher, Peter Cook, William Harris, Nikola Holcer, Omar Jung, Udo Marggraf, Robert McAfee, Jonathan Stevens, Louis Thompson, W.H. Thompson, Lee Travers, Shunso Tsukada, Thawat Watanatada (Task Manager), and Huikang Xu (see Contributions). The Division Chief is Mr. Daud Ahmad and the Department Director is Mr. Shahid Javed Burki.  - vi - Page No. III. THE PROJECT .18 A. Project Objectives . . . . . . . . . . . . . . . . . . . 18 B. Policy Initiatives .... . . . . . . . . . . . . . . . 18 Investment Planning .18 Tariff Rationalization .19 Accounting Standards .20 Management and Economic Contract .21 C. Investment for Expansion and Modernization .21 Capacity Expansion .22 Track Maintenance Mechanization .24 Locomotove and Rolling Stock Parts Manufacture . . 24 Telecommunications and Transport Management Information System (TMIS) .24 Pilot Container Transport Modernization .26 D. Technical Assistance for Systemwide Technological Modernization ..... .26 Rail-Based Container Transport Study .27 Cost-Effective Technology Evaluation (CETE) Study . 27 Environmental Protection Study . . . . .28 Other Technical Assistance and Training .28 E. Cost Estimates and Financing . . . . .28 Project Costs and Financing Plan .29 Onlending Terms . .30 F. Project Implementation .30 G. Procurement.. . . . . . . .31 H. Disbursement .31 I. Project Monitoring and Supervision .33 J. Environmental Impacts and Resettlement .34 IV. ECONOMIC EVALUATION OF PROJECT-FINANCED INVESTMENTS ..... 36 A. Introduction .... . . . . ... . . . . ..... . 36 B. Main Benefits . . . . . . . * . .. * . . . ...... . 36 C. Capacity Expansion . . . . . . . . . . . . . . . . . . . 37 D. Track Maintenance Mechanization . . . 39 E. Locomotive and Rolling Stock Parts Manufacture . . . . . 39 F. Telecommunications and TMIS. ... . . ...... . 40 C. Pilot Container Transport ... . . . . . . ...... . 40 H. Overall Evaluation and Risk.. .. . . . 41 V. ANALYSIS OF FINANCIAL SELF-SUFFICIENCY ..42 A. Introduction . . . . . . . . . .42 B. Past Financial Performance of MOR's Railway Transport Operation ..42 C. Financial Projections for Base Case .42 D. Financial Projections for Alternative Scenarios .44 E. Conclusions . . . . . . . . . . . . .47 VI. AGREEMENTS REACHED AND RECOMMENDATION .48 CONTRIBUTIONS ........................ .. . 50  - vii - P&Rt No SUPPORTING TABLES General: 1.1 - Freight Traffic Intensities and Railway and Road Network Densities in Selected Countries.. . . . 51 1.2 - Freight Traffic by Mode.. . . 52 1.3 - Passenger Traffic by Mode ... . . . . . . . ... . . . 53 1.4 - Transport Investment vs. Economic Output in China . . . 54 1.5 - Investment in the Transport Sector . . . . 55 1.6 - Summary Statistics of World Bank-financed Transport Projects 56 2.1 - Freight Traffic Carried by MOR. . . 57 2.2 - MOR's Freight Tonnage Originated. . . 58 2.3 - Average Distance of Freight Carried by MOR . . . . . 59 2.4 - MOR's Passenger Traffic and Average Passenger Travel Distance ... . 60 2.5 - Selected Operational Statistics of MOR, 1975-1991 . . . 61 2.6 - Railway Asset Utilization in Selected Countries . . . 64 Investment Costs. Implementation Schedule, and Disbursements: 3.1 - Investment Costs and Loan Summary . . . . . . . . . . 65 3.2 - Investment Costs of Capacity Expansion Subcomponent . . 67 3.3 - Investment Costs of Track Maintenance Subcomponent . . 69 3.4 - Investment Costs of Locomotive and Rolling Stock Subcomponent .... . . . ..... . . . . . . . . . . 70 3.5 - Investment Costs of Telecommunications and TMIS Subcomponent .... . . . . . . . . . . . . . .... . 71 3.6 - Investment Costs of Pilot Container Transport Subcomponent .... . . . . . . . . . . . ... . .. . 72 3.7 - Investment Costs of Policy and Technical Assistance Components .... . . . . . . . . . . . . . .. ... . 73 3.8 - Implementation Schedule ... . . . . . . . ... . .. . 74 3.9 - Cumulative Disbursement Schedule.. . . 75 List of Goods to be Financed by the Proposed Loan: 3.10 - Total Project.... . 76 3.11 - Capacity Expansion Subcomponent. . . . 77 3.12 - Track Maintenance Subcomponent . . . . . . . . . 81 3.13 - Locomotive and Rolling Stock Subcomponent . . . . 82 3.14 - Telecommunications and TMIS Subcomponent . . . . 83 3.15 - Pilot Container Transport Subcomponent ..... 84 3.16 - Policy and Technical Assistance Components . . . . 85  - viii - Economic Evaluation: 4.1 - ERR and NPV: Capacity Expansion Subcomponent . . . . . . 86 4.2 - ERR and NPV: Track Maintenance Subcomponent . . . . . . 88 4.3 - ERR and NPV: Locomotive and Rolling Stock Subcomponent . 90 4.4 - ERR and NPV: Telecommunications and TMIS Subcomponent . 93 4.5 - ERR and NPV: Pilot Container Transport Subcomponent . . 94 4.6 - Summary of Economic Evaluation Results: Base Case and Sensitivity Analysis .... . . . . . . ....... . 95 Financial Analysis: 5.1 - Actual and Forecast Consolidated Income Statements . . . 96 5.2 - Actual and Forecast Consolidated Balance Sheets . . . . . 97 5.3 - Actual and Forecast Sources and Applications of Funds Statements .... . . . . . . . . . . . . . . . . . . . 98 5.4 - Key Financial Indicators . . . . . . . . . . . . . . . . 99 5.5 - MOR's Capital Investments and Sources of Funding for 1991-97 Under the Base Case . . . . . . . . . . . . . . . 100 ANNEXES 1. - Bank Group Participation in the Transport Sector . . . . 101 2. - Summary of Previous Railway Projects in China . . . . . . 103 3. - Summary of Ongoing and Proposed Programs of Technical Cooperation between MOR and the World Bank . . . . . . . 106 4. - Reforming China's Railway System: Progress to Date and Next Steps .... . . . . . . . . . . . . . . . . . . . 110 5. - SPC's Guarantee of Power Supply for the Beijing-Zhengzhou Electrification . . . . . . . . . . . . . . . . . . . . . 118 6. - Schedule of Key Implementation Dates . . . . . . . . . . 119 7. - Indicators for.Monitoring the Progress and Effectiveness of Railways VI Implementation . . . . . . . . . . . . . . 122 8. - Resettlement Plan for Railway Electrification . . . . . . 129 9. - Supervision Plan .... . . . . . . . . . . . . . . . . 135 10. - Documents Available in the Project File . . . . . . . . . 136 CHARTS C.1 General Organization Chart of the Ministry of Railways . . . 139 C.2 General Organization Chart of the Government of China . . . . 140 C.3 Schematic Diagram of the Automatic Long-Distance Telephone Network . . . . . . . . . . . . . . . .141 C.4 Data Communications Packet Switching Network . . .142 C.5 Route Structure of the Pilot Container Transport Service 143  -ix - TABLES IN TEXT T3.1 - Project Cost Estimates and Bank Participation . . . . . . 29 T3.2 - Project Financing Plan ... . . . . . . . . . . . . . . 30 T3.3 - Summary of Proposed Procurement Arrangements . . . . . . 32 T4.1 - Net Present Value by Subcomponent . . . . . . . . . . . . 38 T5.1 - Actual Revenues and Expenses, 1986-91 . . . . . . . . . . 43 T5.2 - Base Case Forecast of Revenues and Expenses, 1992-97 . . 45 T5.3 - Key Assumptions and Results Under Different Scenarios (1993-97) .... . . . . . . . . . . . . . . . . . . . . 46 FIGURES IN TEXT T1.1 - International Comparison of Railway and Road Networks . 2 MAPS M.1 IBRD 24578: China Railway System M.2 IBRD 23817R: Chinese Railway Bottlenecks in 1989  SUPPLEMENTARY VOLUME FOR PROJECT IMPLEMENTATION 1/ Working Paper Number Title of Working Paper 1 Railway Accounting 2 Railway Tariffs 3 Track Maintenance 4 Locomotives and Rolling Stock 5 Railway Telecommunications 6 The Transport Management Information System (TMIS) 7 Container Transport Operations in China 8 Trade Logistics in China 9 Railway Environmental Protection 10 Description of the Railway Tariff Study 11 Description of the Railway Accounting Study 12 Description of the Management and Economic Contract Study 13 Ranking of Railway Investment Projects in the Eighth Five-Year Plan using the RIS Analysis System 14 Description of the Track Maintenance Subcomponent 15 Description of the Transfers of Technology 16 Description of the Railway Telecommunications and TMIS Subcomponent 17 Indicative Policy Contents of TMIS 18 Description of the Pilot Container Transport Subcomponent 19 Description of the Container Transport Study 20 Description of the Cost-Effective Technology Evaluation (CETE) Study for Increasing Line Capacity 21 Adaptation of Cast-Steel Wheel Technology 22 General Methodology for Economic Evaluation 23 Economic Evaluation of the Capacity Expansion Subcomponent 24 Economic Evaluation of the Track Maintenance Subcomponent 25 Economic Evaluation of the Locomotive and Rolling Stock Subcomponent 26 Economic Evaluation of the Telecommunications and TMIS Subcomponent 27 Economic Evaluation of the Pilot Container Transport Subcomponent 28 Notes and Major Assumptions Underlying MOR's Financial Forecasts 29 Analysis of Financial Self-Sufficiency 30 Resettlement Plan for Electrification of the Beijing-Zhengzhou and Chengdu-Kunming Lines I/ Available in the Project File.  C-H SIXTH RAILWAY PROJECT I TRANSPORT BOTTLENECKS AND REFORMS A. Backaround 1.1 The transport system in China has grown considerably over the last four decades. From 1952 to 1992, the length of the highway system has increased by a factor of nine and the length of the railway network has more than doubled. Daspite this development, the transport network is one of the sparest in the world compared with the area and population it serves (Figure T1.1 and Table 1.1). The main reason for this is China's low level of trans- port investment, which averaged only 1.3 percent of GNP during 1981-90 (Tables 1.4 and 1.5), compared to 2-3 percent for other countries such as India, South Korea and Brazil. 1.2 The transport system is also characterized by high intensity of freight traffic. To produce one dollar of economic output, China handles 50 percent more ton-km of traffic than India and Brazil (Table 1.1). The major reasons behind China's high freight traffic intensity are a relatively large heavy industry sector, reliance on coal as the major source of energy and a large volume of other bulk products. These factors have resulted in a gap between transport supply and demand which is manifested by the existence of transport bottlenecks,j/ the administrative rationing of limited trans- port capacity, the poor quality of services and losses to the economy. 1.3 The economic system in China is undergoing a major transition toward a market orientation and this transition will involve many reforms in the transport sector designed to increase efficiency and improve its response to market forces. These reforms, which started in 1979, are now accelerating due to new government policies announced in 1992. B. TrIffic 1.4 Since the adoption of an open door policy in 1979, China has experi- enced rapid growth of traffic, consistent with fast expansion of the economy, which averaged about 9.5 percent per year during 1980-90. This growth trend tapered off in recent years as the supply constraints became more conspicuous and the growth of the economy slowed down in 1989/90. However, resumption of high economic growth since 1991 has brought about a corresponding surge in transport demand which has strained the capacity of the transport system. 1.5 Traffic Growth. Despite the capacity constraints and related bot- tlenecka, during 1981-90 total freight traffic grow at 8.0 percent per annum and total intercity passenger traffic at 9.5 percent per annum. Highway 1/ A transport bottleneck is defined as a transport facility (e.g., a rail- way line) whose traffic flow exceeds 95 percent of its design capacity.  Fi2ure Ti.1: INTERNATIONAL COMPARISON OF RAILWAY AND ROAD NETWORKS Railway Networks Thousands 1,200/ 1- tack Length (km) Road Networks per million 40 1,000 Population Road length (km) 800 30 P P nopult ion T ack Length h d Length 600 (km) per 10 sq 20 (km) per 10 sq 400J 200 10 0> ( r freight traffic grew at the highest annual rate of 16 percent, compared with 6.4 percent for railway traffic and 8.6 percent for coastal and inland water- way traffic (Table 1.2). Despite its rapid growth, intercity passenger travel per capita in China remains very low, about two thirds of the level for India. This is due primarily to the severe capacity constraints. Civil aviation traffic, which grew at 20 percent per annum during 1982-91, is still very limited, and most long-distance journeys are made by rail. 1.6 Trananort Demand and Modal Split Trends. Although the railway's share of traffic has declined over the last decades as the share of road traf- fic has grown, rail transport still dominates freight and passenger traffic in China. In 1990, 58.8 percent of freight (Table 1.3) and 46.4 percent of pas- senger traffic (Table 1.4) were moved by rail, and the rest was moved by road, inland waterway, coastal shipping, pipeline, and civil aviation. This preemi- nence of the railway is due in part to the past dependence of the Chinese economy on heavy industry and in part to the relatively long transport dis- tances. In the case of passenger transport, the dominance of railway is partly due to inadequate provision of intercity bus services, the virtual absence of private automobiles, and the limited use of civil aviation. The movement toward a market economy will increase demand for market-responsive transport services, favoring a shift to road transport, but still leaving a growing market for the relatively low cost rail transport system. C. Transport Reforms 1.7 In the past decade, China's economic reforms have aimed to increase economic efficiency through measures designed to: reduce national government intervention in the production and distribution process; reduce the Govern- ment's deficits and subsidies to state-owned enterprises; and open the economy by expanding trade and allowing further participation of private and collec- tive enterprises. In the transport sector, several reforms have been under- taken in line with these objectives. Notably, the Government has:  -3- (a) reduced the extent of commodity price distortions by (i) decreasing the volumes of commodities produced in the State Plan; and (ii) raising the in-plan prices of commodities closer to market levlel; (b) increased the tariffs charged by state transport enterprises, including railway, highway and waterway, to levels approaching their long-run marginal costs; (c) encouraged provincial governments to develop many local railways, which now total some 4,400 route-km and interconnect with the national standard-gauge network (para. 2.1); (d) allowed private individuals and collective and township enterprises to provide passenger and freight transport services on roads and inland waterways, and has encouraged provincial and national author- ities to develop transport systems with private sector financing; (e) carried out major structural reforms in the organization and manage- ment of civil aviation and in the ports, leading to increased finan- cial autonomy and accountability, and to less central government controls, and paving the way for introduction of competitive ser- vices; (f) reduced operating and capital subsidies for major infrastructure services, through higher cost-recovery and creation of user-funded capital construction funds; and (g) encouraged the introduction of more modern technology in the trans- port system primarily by improving rolling stock technology in the railway subsector; enhancing container and bulk handling capacity in the port subsector; improving road pavement design and geometric standards for the expansion of motorization in the highway subsec- tor; and increasing the use of computerized data processing and planning techniques in operations in all modes. In undertaking many of these transport reforms, the Government has relied on the Bank as a key source of advice, through a number of cooperative studies and programs (paras. 1.9-1.12 and 1.14). D. Bank Group Participation 1.8 The Bank Group has supported initiatives by tho Government in the transport sector through loans and credits totaling $3.3 billion for 23 proj- ects and is now preparing additional projects in the sector (see Table 1.6 and Annex 1). These projects have included: (a) expansion of rail capacity, modernization of locomotives and rolling stock, manufacturing facilities, modernization of track maintenance, modernization of telecommunications and information systems, plus many technical assistance and training programs, as summarized in Annexes 2 and 3 ($1,365 million in six projects); (b) construction of 1,760 km of high-quality national and provincial roads, upgrading of 6,430 km of rural roads, improvement of the  - 4 - supervision and quality control of road construction, and studies of key issues in road safety, pavement management, user chargea and methods of financing for road maintenance and construction ($1,149 for nine project.); (c) construction of terminals, jetties and berths in six ports, dradging of navigation channels, and technical assistance and training for port planning, operations management and containerization ($550 mil- lion in six projects); (d) improvement of urban transport in Shanghai, including upgrading of infrastructure, and improvement of planning, programming finance and management of the urban transport system ($60 million); and (e) a multimodal project for roads and inland waterways in Jiangsu Prov- ince ($54 million). 1.9 The dialogue between the Government and the Bank Group on transport sector operations and strategy has beon strengthened both through the project preparation activities and project-financed studies and through sector studies carried out in collaboration with Chinese authorities, especially in the areas of multimodal transport investment end the setting of sectoral priorities based on modern systemuide economic evaluation techniques. Six of the studies have explored multimodal pricing and investment issues in a more comprehensive and more economically-oriented analytical framework than was formerly avail- able to China's decision-makeras the Guangdong Comprehensive Transport Plan- ning Study (GCTPS); the Yangtze Economic Zone Transport Study (YEZTS); the Coal Transport Study (CTS); the Railway Investment Study (RIS); the Strategic Issues in Ports and Shipping (SIPS) Study; and the Price Reform Study. The Bank Group also conducted a survey of the national water transport system, which has reaffirmed the need to further exploit the large potential of the Chinese waterways. 1.10 The recommendations of the above-mentioned studies have boen used as inputs to transport planning and pricing decisions. The CTS analysis systm has recently been employed by the State Planning Commission (SPC) to assess the implications of using higher planned economic growth rates (8-9 percent instead of 6 percent used previously) on investment requirements through the year 2000 in transport and energy infrastructure. Recent results of RIS anal- ysis have provided a basis for discussions between the Ministry of Railways (MOR) and SPC concerning railway investment decisions in the current revisions to the Eighth Five-Year Plan (SFYP) (par&. 3.6). The ongoing SIPS will pro- vide important information on container transport investment decisions. The Price Reform Study Report has been the basis for a major dialogue between the Bank and the Ministry of Finance (MOF) and the State Price Bureau (SPB) with railway tariffs used as a key example of the neod for price reform (pare. 3.8). 1.11 Five additional studies funded under Railways IV and V have focused on specific technical areas with systemwide implications for the railway (telecommunications and computerizod management information system, factory modernization and strategic plan, track maintenance and rehabilitation, loco- motive and rolling stock maintenance and rehabilitation, and system electrifi- cation). The results of these studies are still being analyzed, but they have  -5- alroady led to several major decisions by MOR supporting modernization of the railway (paras. 3.19, 3.22-3.30). 1.12 Finally, throe additional studies specific to the setting of railway tariffs and related costing and accounting issues, as vell as railway regula- tion and management issues, have been started and would be supported by the proposed project (railway tariff study, railway accounting study, and railway management and economic contract study). These studies will provide a basis for: (a) future rationalization of tariff decisions in a market framework; (b) determining the separate roles of government and railway managment; (c) developing a management-oriented accounting and cost accounting system; and (d) working with MOF to bring the railway accounting system more in line with international standards. These studies and accompanying dialogue have increased the ability of the Government to deal with the increased complexity of transport planning in China's transition toward a market-oriented economy. 1.13 These projects and studies are helping to spur the growth and mod- ernization of the transport system. However, much more needs to be done to bring about the changes required to deal effectively with the emerging issues. To alleviate the transport bottlenecks and rationalize the transport system, the Government will need to take the following measures by the year 2000: (a) increase the total level of transport investment in relation to GNP, to expand capacity to moet the new traffic demands and to clear up the backlogs caused by past underinvestment; (b) realizo the most economic balance of investments among the major freight transport modes of railway, highway, and water; (c) realign further the prices of freight transport services and those of the major comodities, especially coal, to bring them closer to their true costs; (d) increase further the productivity of existing transport assets through technological modernization and management reforms; and (a) improve and expand the multimodal transport system, both across and within modes, with particular emphasis on more extensive use of containers. 1.14 The Bank will broaden its involvement and will assist the Government in the design and implementation of institutional and sectoral reforms in other areas, including nmangement strategy formulation, investment planning, pricing and financing, services' deregulation, operational management, and transfer of advanced transport related technology through training and provi- sion of up-to-date equipment. Chinese authorities and the Bank Group are currently preparing or undertaking new transport studies which will focus on long-term strategies for the country's transport system. These studies include a study of the trucking industry, and studies to prepare a highway strategy paper and a railway strategy paper. Finally, the Ministry of Commu- nications (HOC) and the Bank have launched an institutional-strengthening com- ponent for HOC in the China Reform, Institutional Support and Preinvestment Project (CRISPP).  II. THE RAILWAY SYSTEM A. Backaround and Rationale for Bank Involvement 2.1 Because of its critical importance to the economy, the railway sys- tem is often regarded by the Chine.. as the "backbone of China." The dominant mods of transport in China, the railway system carries more froight and pas- senger traffic than all other modes combined. Although its share of traffic has eroded in the past decade, the railways are still likely to retain their dominance over the next 10-20 years. The standard-gauge railway network com- prises about 57,400 km of main routes, of which 4,400 route-km belong to local railways, administered by local governments, and the remaining 53,000 route-km belong to the national railway system, administered by MOR (Map M.1). 2.2 The Ministry of Railways is an efficient operation and, despite its use of mostly outdated technology, the utilization of its track and locomo- tives and rolling stock is among the world's highest. Because the demand for railway transport far exceeds its supply, MOR's traffic capacity is stretched to its limits. The Ministry is comitted to modernizing the technology of its plant and equipment over the next 5-10 years, to improve the efficiency of its operations and to expand its traffic capacity at a lower unit cost. A profit- able operation, MOR is responsible for financing all of its operating and capital expenditures, through both self-generated funds and borrowings on market terms; it receives no direct cash subsidies from the Government (para. 2.12). MOR is now in the midst of a process, which began nearly a decade ago, to transform itself from a government organization into a market-oriented, commercially operated entity. In this process, MOR has undergone several major changes, to improve railway regulation and internal management; boost its invostment and financial planning capability; and modernize its technology (Annex 4). 2.3 MOR needs both technical and financial assistance from abroad in order to complete this important transition. The Bank has since 1983 provided such assistance through fivo national railway operations and one local railway operation. The main objectives of the first four national operations were to finance construction to expand traffic capacity in high-priority corridors, and to introduce new plant technology to MOR's facilities. The fifth national operation introduced railway policy initiatives and technological moderniza- tion on a systemwide basis (Annexes 2 and 3). This new approach would be implemented more extensively under the proposed project. Also, to address railway issues more broadly, the Bank has prepared, in close cooperation with MOR, a paper entitled "China's Railway Strategy," which is being distributed to the Bank's Executive Directors. This paper identifies major challenges facing MOR in the 1990s and sets out a medium-term strategy for the Bank to assist MOR in moeting these challenges. The design of the proposed project reflects this strategy. In particular, the proposed project would help MOR attain financial self-sufficiency and strengthen its financial management. The project would also help MOR develop a stronger capability for marketing and pricing railway services and focus more on service quality. Annex 4 outlines future reform agenda for the Chinese railway system.  -7- B. Traffic and Bottlenecks 2.4 The route density of rail freight and passenger traffic in China, at about 26 million converted ton-km (ton-km plus passenger-km) per route-km in 1991, is one of the highest in the world. Major commodities which make up the bulk and semibulk traffic (coal, grain, construction materials, etc.) account for about three quarters of total freight traffic. The remaining quarter includes general merchandise and the types of traffic that can be moved in containers. This latter type of traffic is gaining increasing importance each year. It is the kind of traffic for which the railway is facing increasing competition from trucks. About 20 percent of the railway network capacity is devoted to passenger traffic. 2.5 The total amount of traffic is constrained by the limited capacities of both railway lines and wagons and coaches. On crowded routes, passenger trains compete for space with freight trains. The railway has increased oper- ating efficiency at the expense of service to its customers by rationing its capacity through close control of wagon allocations to shippers and limits on passenger service availability. In 1989, the traffic on some 37 percent of the railway links reached bottleneck levels (Map M.2). In 1990, more than 40 percent of monthly wagon requests were denied on average. 2.6 Railway freight and passenger traffic grew rapidly during 1979-88, averaging annual rates of 6.3 percent for freight and 11.6 percent for passen- gers, but experienced setbacks during the stabilization period of 1989-91 that temporarily prevented the bottlenecks from worsening (Tables 2.1-2.4). How- ever, the growth of railway transport demand is expected to increase again in the future. Railway passenger traffic dropped by 7.3 percent in 1989 and a further 16.2 percent in 1990, following the introduction of administrative controls on personal travel in mid-1989, as well as sharp fare hikes in Sep- tember 1989 that averaged 112 percent. Intercity passenger travel by railway is expected to regain its higher growth in the future as suppressed demand is released from administrative controls and per capita income increases (the elasticity of demand for passenger travel is estimated at 1.5). In 1992, railway passenger traffic rose an estimated 10.7 percent. The growth of rail- way freight traffic dropped to 3.6 percent per year during 1989-91, as a result of two factors: first, a series of rate increases during 1990-91 totaling about 40 percent; and, second, bottlenecks on key railway lines blocking additional traffic flows between many distant pairs of origins and destinations that did not have alternative routes with available capacity. Railway freight traffic is expected to grow faster as railway tariffs stabi- lize and the key bottlenecks are removed. In 1992, despite a 35 percent hike in freight tariffs in July, railway freight traffic grew an estimated 5.5 per- cent. 2.7 MOR has given top priority to the task of alleviating railway bottlenecks, primarily through capacity expansion. However, because of the chronic underinvestment in the past, it will take several more years, likely beyond the year 2000, before all railway bottlenecks disappear. The Bank has assisted MOR in carrying out this task since the First Railway Project, in which the Bank financed the construction of a new railway line and the expan- sion of an existing line. The proposed Sixth Project not only would directly  -8- finance railway capacity expansion projects, but would help MOR in two other important aspects by: (a) improving the efficiency of railway investment through (i) optimiza- tion of the scale, timing, and location of railway investment as well as improvement in the freight routing procedure, employing an analysis system developed within MOR in the Railway Investment Study (RIS) launched under Railways V (paras. 3.3-3.7); and (ii) adoption of more cost-effective railway technology, which would decreaso the unit cost of capacity expansion (paras. 3.37-3.38); and (b) ensuring that (i) future railway investment programs will be large enough to accommodate future traffic growth, employing the RIS anal- ysis system (para. 3.6); and (ii) MOR's tariff system will serve to control transport demand, rationalize transport operations, and provide the needed funding for the investment programs (paras. 3.8- 3.10). C. Management and Regulation 2.8 MOR is headed by a minister, who is assisted by four vice-ministers, a chief engineer and a chief economist. It employs about 3.4 million individ- uals, of whom 51 percent work on rail transport. The remaining 49 percent work on nonrail transport activities: 17 percent on construction of railway infrastructure and facilities; 13 percent on manufacturing of locomotives, rolling stock, signaling, and communications equipment and other various rail- way parts and components; 8 percent in a variety of business ventures; and the remaining 11 percent on other activities. Through control measures exercised by NOR, this 3.4 million work force is expected to maintain its present size through 1995. The rail transport part of MOR is organized into 12 regional administrations, and the nonrail transport part into factory and construction companies, plus other smaller units, including design institutes, schools, and hospitals (Chart C.1). The regional administrations and the factory and con- struction companies are separate profit centers and are entrusted with a con- siderable degree of autonomy: they have the authority to manage small-scale investment projects; retain profits on the basis of their performance; and make staffing decisions such as the internal organizational structure, the staff size and composition, and pay incentives. The nonrail transport part of MOR contains a group of more than 300,000 staff who are engaged in a wide variety of business activities, including trucking ventures that transfer shipments between railway stations and customers' warehouses. This so-called diversified economy group is gaining increasing importance as a means to absorb railway transport workers who are no longer needed as MOR modernizes its technology. 2.9 The framework for regulation of the Chinese railway system is pro- vided for by a Railway Law, enacted in 1991. The Law covers areas of railway construction, ownership, management, tariff-setting, and operations (including service quality, passenger safety, and environmental protection). With respect to those areas, the law lays down the powers and obligations of the national and local governments, the Ministry of Railways, the railway custom- ers (shippers and passengers), and the public at large. The Railway Law is summarized in the railway strategy paper (para. 2.3).  2.10 As specified in the Railway Law, regulation of the national railway system is the overall responsibility of the State Council (China's Cabinet). Through its coordinating agencies and special-function agencies (Chart C.2), the State Council exercises its authority to (a) direct MOR's development plans, based on the long- and medium-term development plans at the national level and (b) approve MOR's decisions on annual traffic targets, major investment projects, railway tariffs, and wage levels. 2.11 Under an "economic contract" with the Government, which began in 1986, MOR must finance all of its operating and capital expenditures (includ- ing through market borrowings). In addition, MOR is required to pay tho Gov- errment a business tax of 5.3 percent on gross revenues, plus a lump-sum tax of Y 2 billion each year (4.3 percent of 1991 gross revenues). In return, MOR is allowed to keep its net income to finance railway capital construction. Also under the economic contract, MOR staff are given an incentive system which ties their salaries to labor productivity. 2.12 MOR's financial responsibility mentioned above should be viewed in the context of the current price system in China, in which both its input and output prices are distorted downwards. On the input side, MOR purchases por- tions of materials, fuel, and electricity at subsidized in-plan prices, and pays interest at subsidized rates on its borrowings. On the output side, the prices MOR charges for its rail transport services (base tariffs plus sur- charges) were until 1992 kept below their economic costs (i.e., costs calcu- lated with the effects of the subsidies removed). However, this situation has improved recently. Between 1990 and 1992, tho level of price and credit sub- sidies were reduced from 20 to 25 percent to 13 to 18 percent of railway oper- ating costs. In July 1992, a surcharge for an earmarked Railway Construction Fund was raised, thereby bringing railway prices in the aggregate close to their long-run marginal costs (paras. 2.23 and 3.9). Further phasing out of subsidies is expected, which can be compensated for by a relatively small increase in base tariffs (para. 5.16). 2.13 In the current wave of economic liberalization, railway management and regulation in China are in a state of flux. Recently, MOR has announced new policy changes to give more managerial freedom to the regional administra- tions and the manufacturing and construction companies. MOR staff have bec increasingly interested in examining moro carefully railway organizations and policies adopted in other countries, with a view to improving MOR's own inter- nal management and its regulatory and contractual relationships with the Gov- ernment. A policy subcomponent under the proposed project is intended to assist MOR in this effort (para. 3.13). D. Investment and Finance Investment 2.14 Levels of Investment. Investment in railways is planned to increase sharply from Y 48 billion in the Seventh Five-Year Plan (7FYP) to Y 116 bil- lion under 8FYP in current prices. Although the Y 116 billion investment plan represents an increase of about 70 percent in real terms from the 7FYP level, it is still based on a relatively low economic growth rate of about 6 perc-nt per year. The current push for more domestic economic reform vhich began in  - 10 - early 1992 ha. caused Chinese planners to revise their future growth expecta- tions sharply upward., to a rate of 8 to 9 percent per year through the year 2000. This has tremendous implications on future railway investment needs, which are being reexamined accordingly (para. 3.6). 2.15 Investment Plannina. The Ministry carries out three types of plans: (a) the long-term strategic plan, which focuses on strategic issues over a horizon of more than five years, such as what kinds of passenger services are to be provided; (b) the five-year plan, which identifies specific railway investment projects proposed for implementation during the plan period (as part of the central government's five-year planning process); and (c) the annual plan, which specifies a yearly program for construction of the projects approved for implementation under the five-year plan, as well as a yearly pro- gram of rehabilitation of track and equipment. Under the five-year plan, capital construction and upgrading projects costing Y 50 million or more must be approved by the State Planning Commission (SPC) and those costing Y 200 million or more must be approved by both SPC and the State Council. In addi- tion, the total amount of MOR's capital expenditure each year must not exceed a ceiling specified by the Ministry of Finance (MOF). 2.16 High efficiency in the use of resources is a key requirement for China to sustain its high economic growth rate over the long term. The rail- way, which requires large investments to reduce transport bottlenecks, needs to ensure that such investments are allocated to the projects with the highest returns. However, until recently, the railway investment planning process had two deficiencies, as recognized by MOR staff: (a) it underestimated traffic and investment needs; and (b) it lacked analytical tools. The first defi- ciency was due to the Government's past tendency to adopt relatively low traf- fic forecasts as a basis for determining the size of its future railways investment programs. This tendency has been a major reason for the chronic underinvestment in transport infrastructure in China. This deficiency is being remedied as discussed in para. 3.6. 2.17 The second deficiency, the lack of analytical tools for network analysis, has led MOR to select the location and timing of network capacity expansion projects in a suboptimal manner. This has placed unnecessarily low limits on the annual throughput of the railway system as a whole. Recognizing this shortcoming, MOR decided in 1989 to develop a computer-based decision- support system under the Railway Investment Study (RIS) in cooperation with the Bank. One of the main objectives of RIS has been to help MOR optimize the scale, timing and location of capacity expansion investments over MOR's net- work. The second, application phase of RIS was initiated during the prepara- tion of this project (paras. 3.3-3.7). Accountina and Auditing 2.18 Accounting. MOR allocates the total rail transport revenue to each of the 12 regional administrations based on their volumes of traffic and oper- ating costs. The administrations are self-accounting units. The consolida- tion of the individual administrations' accounts is done at MOR's headquar- ters. There are two major shortcomings in MOR's accounting system. First, the consolidated financial statements are prepared according to Chineas accounting practices which, in some instances, are substantially different  - 11 - from international practices. As an example, China's accounting lw does not allow recording of accrued interest receivable or payable. As another exam- ple, losses on fluctuations of foreign exchange rates are accounted for only when they are realized, e.g., when loans denominated in foreign currencies are repaid. These differences make it difficult to compare MOR's financial posi- tion and performance as reported through its financial statements with those of railways in other countries. Second, the accounting system is not uniform: the regional administrations follow NOR's own accounting guidelines, whereas its factory and construction companies adopt MOF's accounting system, and its hospital and universities use the national unified accounting system (see Working Paper No. 1). 2.19 To improve its accounting system, MOR has decided to undertake a study under the proposed project to revise its accounting standards to conform with international practices. The study is being conducted in close collabo- ration with MO0, which is developing new national accounting standards under the Financial Sector Technical Assistance Project (Credit No. 2423-CHA, paras. 3.11-3.12). 2.20 Auditing. Comprehensive auditing of financial statements of public enterprises was required for the first time in 1983 when the State Audit Administration (SAA) was established. Functioning under the State Council, SAA has a separate section called the Foreign Investment Audit Bureau, which audits public enterprises receiving loans from abroad. This bureau audits all Bank-financed projects, including railway projects. In 1988, the State Coun- cil promulgated audit regulations and standards prepared by MOP based on international practices. SAM has indicated its willingness to work closely with the Bank to ensure that audit reports meet Bank guidelines. 2.21 Because the proposed project deals with policy initiatives and tech- nological modernization on a systemwide basis, the Bank has requested MOR's consolidated financial statements, appropriately audited. Therefore. axree- ment was reached with the Borrower during netotiations that. in addition to the usual Proiect Accounts, Special Account, and Statement of Expenditure. the Consolidated Financial Statements of MOR will be provided to the Bank after havina been audited by independent auditors acceDtable to the Bank Pricing 2.22 MOR's tariff system is similar to the so-called "class tariff sys- tems" practiced by North American railways in the past while they were under heavy government regulation. The tariffs are basically set by distance range and by co-modity type (for freight) or by service type (for passengers). The present level of tariffs/surcharges is high enough to cover operating costs. The railway tariff system, however, has three major weaknes-se (see Working Paper No. 2). First, until July 1992, the average level of tariffa/surcharges fell far short of the level needed to allow MOR to self-finance its large investment plans in the 1990a (in addition to borrowings). Second, the struc- ture of tariffs/surcharges does not sufficiently take into consideration: (a) the sensitivity of transport demand to price; (b) the costs of providing the services; and (c) competition from other modes. And third, changes in the tariffs/surcharges must be approved by the State Price Bureau (SPB) of the State Council--which is a cumbersome and time-consuming process.  - 12 - 2.23 Until MOR became responsible for financing all of its expenditures in 1986, its tariffs had changed little since the mid-1960s. Since 1986, MOR has come under tremendous pressure to increase its freight and passenger reve- nues so as to cover ita operating costs and to finance large investment pro- grams for expanding railway capacity. To this end, significant progress has been made. Notably, a Railway Construction Fund has been set up to permit MOR to levy surcharges against freight traffic to raise traffic revenues earmarked for railway capital investment. Since 1990, the Government has granted MOR a series of increases in freight tariffs/surcharges, including a major increase in July 1992, amounting to a cumulative increase of about 90 percent. In 1989, the Government granted MOR a one-time increase in passenger tariffs averaging 112 percent. This will allow MOR to defray all of its operating costs and fund 80 to 85 percent of its capital investment plan of Y 116 bil- lion (excluding major equipment replacements of about Y 28 billion) under 8FYP. MOR expects to obtain further increases in tariffs/surcharges in the next few years to close the existing financial gap and to finance expected increases in railway investment. MOR is also likely to rely more on both domestic and international borrowings (para. 5.16). 2.24 With its tariffs becoming increasingly adequate in overall level, MOR is in a position to turn its attention to other tariff issues, including the questions of efficient tariff structure and tariff deregulation. The tariff study, launched in March 1992 and to be supported by the proposed proj- ect, aims to assist MOR in addressing these issues (paras. 3.8-3.10). E. Physical Assets and Technologt ODeratint Performance 2.25 With few exceptions, MOR's trains run on a predetermined, tight schedule at short intervals of 7 to 15 minutes. MOR has managed to achieve a high level of utilization of both infrastructure and equipment (Table 2.5), despite serious operating, technological, and administrative limitations. For example, freight wagon utilization ratios exceed those of India and compare favorably with those of the United States, particularly considering that the fleet is less modern and less powerful (Table 2.6). China's extraordinary railway traffic density, at an average of about 26 million converted ton-km (ton-km plus passenger-km) per route-km, has been achieved despite the use of relatively inefficient approaches to maintenance of track and other fixed facilities. The average freight car turnaround time of four days is the world's shortest. Nevertheless, the railways are unable to provide service to the potential traffic due to acute capacity constraints. 2.26 The rigidity of the operating system has greatly reduced the quality of service for customers, and the lack of modern technologies has hindered further improvements in operating efficiency. Substantial productivity increases are possible only through more sophisticated changes in the overall operating system; track maintenance and rehabilitation; and the manufacturing, maintenance, and management of locomotives and rolling stock. Recognizing the need for such changes, MOR has initiated a series of studies since 1988 in cooperation with the Bank to prepare action plans for systemwide modernization of its plant, equipment, and information systems. The systemwide technologi- cal modernization subcomponents provided in the respective areas under this  - 13 _ project would implement the initial phases of the action plans. Additionally, three new systemwide technological modernization studies have been launched under the proposed project (paras. 3.35-3.39). Track Maintenance 2.27 The 53,000 route-km of the national railway system contains about 67,000 km of main track. Some 25,000 km of the main track, which carry 30 million tons per year or more of traffic, make up the "core network." Most of this core network needs renewal and upgrading to handle even present traf- fic requirements. The standard main line rail for the core network of 60 and 75 kg/m weight is laid on only 8,200 km (one third) of core main lines. The other core main lines are laid with 50 and 43 kg/m rails, which are too light for current traffic volumes and axle loads. 2.28 MOR pays close attention to the maintenance and rehabilitation of its track system. Its approach, however, has become increasingly inadequate. The main reason is that most of MOR's maintenance and rehabilitation work is still carried out with manual methods, using small tools during intervals between train passes, which have become shorter and shorter due to higher train density. Train intervals on several sections have now fallen to seven minutes (para. 2.25), reducing the time available for maintenance to uneco- nomic levels. The future will see a greater need to increase train densities, speeds, and axle loads, to lengthen the economic life of track components, and to reduce long-term maintenance costs. Therefore, mechanizing most mainte- nance functions--including tamping, lining, leveling, ballast regulating, and ballast cleaning--is becoming more urgent. MOR has begun to use heavy-duty track maintenance machines for track maintenance, which provide a higher level of track quality, increase the intervals between maintenance programs, and reduce long-term maintenance costs. Under Railways V, MOR launched a study to improve the quality and efficiency of its track maintenance. The proposed systemwide track maintenance subcomponent (paras. 3.22-3.23) represents an initial action recommended by the study (see Working Paper No. 3). Motive Power and Rolling Stock 2.29 The Ministry of Railways has large fleets of locomotives, passenger coaches, and freight cars of diversified types and technologies. The locomo- tive fleet of about 13,800 consists of 5,900 steam, 6,100 diesel, and 1,800 electric units. Manufacture of steam locomotives for mainline service was discontinued in 1988, so the steam fleet will shrink over the next 10 years or so. There are more than 27,600 passenger coaches and 370,000 freight cars of different designs and capacities. Although the maintenance of these equipment fleets is relatively inefficient by modern standards, MOR has been able to maintain remarkably high availability of its equipment. For example, its DF4 diesel locomotives are available for service about 89 percent of the time, compared to about 82 and 91 percent on average for diesel locomotives in India and the United States, respectively. 2.30 MOR's equipment maintenance is complicated by large numbers of design types, coupled with poor quality of component parts and assembly tech- niques used in unit manufacture, causing relatively frequent failures and overhaul cycles. Manufacturing and overhauls are carried out in 34 locomotive  - 14 - and rolling stock factories. The absence of adequate, specialized facilities to manufacture critical components results in shortages of high-quality spare parts (see Working Paper No. 4). MOR recognizes these problems, and is deter- mined to solve them. Under Railways V, MOR launched a study to find measures to modernize the design, manufacture and maintenance of its motive power and rolling stock. The most urgent measures recommended by this study are pro- posed to be implemented under the proposed systemwide locomotive and rolling stock subcomponent (paras. 3.24-3.25). Information TechnoloRv 2.31 In operating the extensive railway system in China, MOR makes sig- nificant use of telecommunications, and also operates a partially computerized information system on rail operations. Nevertheless, the amount of informa- tion exchange between operating units and headquarters or between subadminis- trations and administrations is still limited compared to the information available for decision-making in modern railways. 2.32 Telecommunications. Telecommunications is an essential infrastruc- ture for railway transportation. MOR's telecom system consists of a general- purpose telecom network (telephone, telegraph, conference telephone and data networks) and a dispatching network for handling mainly train and wagon opera- tions. The existing telecom system is inadequate in capacity and outdated in technology: overhead lines still account for about 60 percent of the trans- mission network and the crossbar system still accounts for about 65 percent of the switching equipment. As a result, quality of telecom service is low. The data transmission is rudimentary and uses voice channels. The dispatching network is a specialized telephone network connecting more than 5,700 stations for train dispatching and traffic management operations. Only 10 percent of intermediate stations have automatic telephone service. A large number of people who work in the yards and along the tracks have no modern equipment for communicating among themselves and with their main offices. 2.33 Having decided to drastically upgrade its telecom technology, MOR has launched two studies in cooperation with the Bank: (a) a Telecom Master Plan Study, under Railways V; and (b) a Railway Data Transmission Network Study (packet-switching network study), under Railways IV. The Telecom Master Plan Study has produced a strategic plan for modernizing telecom technology, and a development plan for the short, medium and long terms. The short-term plan (1991-95) has provided the basis for the systemwide telecom subcomponent of the project (see paras. 3.26-3.30 and Working Paper No. 5). 2.34 Computer Technolozy. MOR has approximately 800 minicomputers and over 20,000 personal microcomputers, most of which are used in a stand-alone mode. Most communications between computers is done via diskettes, either by courier or by mail. MOR's computer network basically consists of a rudimen- tary DECNET network, with 12 dedicated circuits connecting the main headquar- ters with each of the administration headquarters. The administration head- quarters are connected with the subadministrations through dedicated and dial telephone lines. 2.35 In 1985, MOR launched a study to develop a long-range strategy for automating its transport operations on a real-time basis with a modern comput-  - 15 - erized Transport Management Information System (THIS). Because of the then- existing COCOM restrictions on export of large mainframe computers, M0R's initial efforts focused on a hierarchical distributed database approach, vhich would employ smaller computers. This effort was later augmented by another study under Railways IV for which a foreign consulting firm was retained. This study led to a decision by MOR to adopt a more flexible and cost- effective centralized database approach, which has been used by a number of modern railways. This centralized THIS approach would be implemented under the proposed project (see paras. 3.26-3.30 and Working Paper No. 6). Container Transport 2.36 Containerization in China started in the early 1970a, using one-ton and five-ton domestic containers. Since then, container transport has slowly but steadily increased. With recent introduction of larger sized containers (10-ton domestic containers and 20-foot International Standards Organization (ISO) containers] and MOR's decision to expand container service, its growth rate has accelerated in the past five years. Still, the total volume of MOR's containerized traffic is less than 1 percent of all freight traffic handled by MOR. 2.37 MOR's container transport operations are mainly geared toward domes- tic containers, and are not developed enough to exploit the full potential of modern containerization. Only about 6 percent of MOR's container cargo is carried in ISO containers. The key measures MOR should take to modernize con- tainer transport services are: (a) Provide more reliable and frequent service, employing faster unit- trains on main corridors, with a hub-and-spokes structure to consol- idate traffic where it is advantageous to do so. In contrast, the current system is basically a conventional freight service, with the only difference being the use of containers. (b) Provide a smooth multimodal link for ISO containers between seaports and major inland destinations. The lack of an inland distribution system of seaborne containers has hampered the development of for- eign trade. (c) Give top priority to satisfying customers rather than just achieving efficient utilization of facilities/equipment. MOR needs to develop a marketing capability it currently lacks. 2.38 The above and other related issues are discussed in Working Papers Nos. 7 and 8, and would be addressed under the proposed project in the rail- based container transport (RCT) study (para. 3.36) and the proposed pilot container transport subcomponent (paras. 3 31-3.34). Environmental Protection 2.39 Besides the track and equipment fleets summarized above, MOR is also responsible for 35 factories, 180 locomotive depots, 120 wagon and coach depots, 300 hospitals, hundreds of railway stations and numerous cleaning facilities, electroplating shops and other facilities. All these facilities  - 16 - contribute to air, noise, liquid, solid, and hazardous waste pollution. NOR has made efforts to alleviate railway pollution over the past two decades. In 1972, MOR established the Department of Public Health and Environmental Pro- tection. Since then, the size of MOR's environmental staff has grown to more than 2,400. Also, MOR has set up training centers at two colleges for its environmental staff and an institute to carry out research in environmental protection. MOR has established environmental rules and regulations. For construction projects, an environmental impact assessment is prepared by the regional environmental protection office every year, which outlines protection measures to be taken during the following year simultaneously with the proj- ects, thereby preventing new sources of pollution and environmental damage. 2.40 To control railway pollution, MOR has taken several measures, including constructing primary treatment plants to treat boiler, industrial and hospital wastes; installing cyclones to remove suspended particulates from gaseous emissions, and collecting boiler slag and ash and using them in con- struction. Despite the progress achieved, MOR still lacks modern technical know-how needed to control railway pollution more effectively (see Working Paper No. 9). To increase its effectiveness in railway environmental protec- tion, MOR launched in February 1992 an environmental protection study, which would be supported under the proposed project. Part of this study has been funded by UNDP (para. 3.39). F. Future Reform Directions 2.41 As China becomes more market-oriented in the next 5 to 10 years, MOR faces the important task of completing the process of transforming itself from a government organization into an enterprise that is capable of playing its economic and social role more effectively. In this future role, MOR should be an autonomous, effectively regulated enterprise, which: (a) provides a variety of safe and adequate transport services that meet customer needs on a commercial basis; (b) controls costs and refrains from using its monopoly power; and (c) maintains its financial self-sufficiency, i.e., has the ability to self-finance (including through borrowing on market terms) all of its operating and capital expenditures. 2.42 The preparation of MOR for its future role has been under way since the early 1980s through introduction of the economic contract in 1986 and enactment of the Railway Law in 1991; decentralization of its internal manage- ment; enhancement of its capability for investment and financial planning; and modernization of its track, equipment and information technology on a system- wide basis. To advance further, additional steps are called for in the fol- lowing areas (Annex 4): (a) Reaulation. MOR should become financially self-sufficient and be given more freedom to make business decisions (e.g., by relaxing tariff regulation). The Government and MOR should improve the eco- nomic contract by focusing on service quality and phase out all price and interest subsidies.  _ 17 - (b) Internal Management. OR should improve its management, incentive and welfare systems, for both rail and nonrail transport businesses. (c) Investment and Finance. NOR should ensure that its investment level vill be sufficient to support economic growth; revamp its accounting system; develop a cost accounting system; and improve its financial reporting system. (d) Systemwide Tochnoloav. MOR should upgrade further its information technology; implement technology to increase traffic capacity at minimum cost; improve its services through superior marketing and technology; strengthen its maintenance systems; and boost its envi- ronmental protection. 2.43 The additional reform steps mentioned above represent an integral part of China's overall economic reform agenda, including price and enterprise reforms in various sectors of the economy. Because these reforms are inter- related across sectors, they must be undertaken in concert, and success of reforms in one part of the economy, e.g., the railway system, will obviously depend on success of the overall economic reforms.  - 18 - III. THE PROJECT A. Proiect Oblectives 3.1 The Government is addressing critical infrastructure bottlenecks through a combination of policy and institutional reforms aimed at improving utilization of existing facilities and through investments aimed at expanding capacities. Helping remove such bottlenecks is a cornerstone in the Bank's assistance strategy for China (as explained in the railway strategy paper, para. 2.3). The proposed project is designed within this framework. Its primary objectives are: (i) to provide assistance for railway policy initia- tives; (ii) to undertake the institutional development of the railway system; (iii) to support railway capacity expansion investment; and (iv) to broaden the scope of systemwide technological modernization. To achieve these objec- tives, MOR has formulated with Bank assistance a policy component, an invest- ment component, and a technical assistance component, as described in Sections B, C and D below. B. Policy Initiatives 3.2 The policy component comprises four subcomponents or studies which support MOR's initiatives to improve its (i) investment planning; (ii) tariff system; (iii) accounting system; and (iv) management and economic contract. The proposed project would include technical assistance and training for these studies, budgeted at $2.8 million, as well as associated training equipment for a new international training center being created within MOR. 3.3 Investment Planning. The main purpose of this study is to apply the decision-support system MOR has developed with Bank assistance under the Rail- way Investment Study (RIS) to strengthen MOR's investment planning capability. This activity represents Phase II of RIS which deals with application and enhancement of the RIS decision-support system developed in Phase I of RIS under Railways V. The railway strategy paper explains in more detail the results obtained to date (para. 2.3). So far the RIS system has been used in three different ways. 3.4 First, it has been employed to rank the economic priority of pro- posed railway investments and recommend those that should definitely be imple- mented during SFYP. Among the top-ranked investments are two electrification projects proposed to be financed by this loan. 3.5 Second, the RIS system has been used to optimize future railway investments so as to maximize traffic capacity of the railway system. As explained in the railway strategy paper (para. 2.3), this type of optimization could increase total traffic throughput of the railway system by some 10 per- cent. This 10 percent gain represents $4 to $5 billion of savings in railway construction costs through the year 2000. The RIS system also has been employed to improve the freight traffic routing procedure. This appears to yield a gain in freight traffic throughput of about 10 percent. 3.6 Third, the RIS system has been used to determine the size of future railway investments under higher growth scenarios. As mentioned (para. 2.14),  - 19 - in mid-1992 the Government decided to raise the economic growth rate for plan- ning purposes from about 6 percent to 8 to 9 percent through 2000. The results of RIS analysis indicate that the magnitude of railway investment through 2000 will have to increase by about 50 percent in real terms from the current level (excluding equipment replacements) to accommodate the higher growth rate (see the railway strategy paper). These extra investment require- ments need to be met through increases in railway tariffs/surcharges and bor- rowings (para. 5.16). 3.7 The RIS analysis system is expected to be applied by MOR in similar ways to the above in the future, to improve the efficiency of railway invest- ment. Assurances have already been obtained from MOR under the Fifth Railway Proiect in regard to future applications of the RIS system rpara. 6.1(d) of the Staff Appraisal Report for Railways V (Report No. 8439-CHA)1: "MOR will use the RIS analytical techniques, upon satisfactory conclusions of the study, in preparing future economically optimal investment programs." Also, the RIS system is expected to be refined by MOR as needed to suit different types of application. 3.8 Tariff Rationalization. The main objectives of this study are to: (i) ensure MOR's financial self-sufficiency; (ii) reduce structural distor- tions in railway tariffs; and (iii) give MOR enough flexibility to set its tariffs in response to cost and market conditions (see Working Paper No. 10). This study complements a broader Price Reform Study, a cooperative exercise between the Government and the Bank, to examine the feasibility of a new round of price reforms in China in a macroeconomic context (Gray Cover Report entitled, "Price Reform in China," No. 10414-CHA, May 28, 1992). The study represents a first test case in which price reform options are reviewed in an industry-specific context. MOR has accorded this study high priority. It has formed a study team comprising members from SPC, MOF, SPB and MOR. The study team is divided into two groups, a Working Group headed by MOR's Chief Econo- mist, and a Policy Committee headed by the Senior Vice Minister of Railways, and comprising senior members (director level) of SPC, MOF, SPB and MOR. 3.9 Since the study began in March 1992 (when its terms of reference were agreed between MOR and the Bank), significant progress has been made on several fronts. First, with Bank assistance, the study team has developed a simplified economic costing model, based on the more comprehensive costing study initiated under Railways I, to provide a basis for underpinning future tariff setting. Second, the team has completed an analysis of railway costs and tariffs as input to initial policy recommendations. Third, selected mem- bers of the Policy Committee and the Working Group have traveled abroad (under arrangements made by the Bank) to familiarize themselves with tariff practices in foreign railways. Fourth, two actions have been taken to improve both the level and structure of the tariff system. One action, taken in July 1992, has been to increase the Railway Construction Fund surcharge, thereby boosting freight revenues by about 35 percent and allowing MOR to finance 80 to 85 per- cent of its current 8FYP capital investment plan (up from about 60 percent previously). Another action, taken in September 1992, haa been to apply higher tariffs for selected superior services, e.g., air-conditioned express trains, to reflect the higher costs of providing them.  - 20 - 3.10 Additionally, the study team has expressed its intention to propose further actions to improve the tariff structure across different types of services, such as less-than-car-load, full-car-load, and containerized ship- ments, as well as hard seat, soft seat, hard sleeper and soft sleeper ser- vices. The main idea is to make tariffs for these services reflect their underlying economic costs and the sensitivity of the demand for them to their prices. The study team also has expressed its intention to propose pilot programs to experiment with tariff deregulation. One program is to permit tariffs for certain commodities, e.g., perishables, to vary freely between a floor and a ceiling. Another program is to do "contract pricing" with selected shippers, so that MOR can tailor both prices and services to mseet the needs of individual shippers, and in the process minimize the combined logis- tic costs for both the shippers and MOR. Both programs would be similar to the pricing practices that prevail among North American railroads. There is evidence that such a practice represents efficient pricing: Since rail trans- port rates in the United States were deregulated in 1980, the average freight revenue per ton-km in current dollars has been declining in almost every year. Agreement was reached with the Borrower durina netotiations that. through SPC. MOFP SPB. and MOR. it will: (i) by October 31. 1993. comDlete the tariff study and prepare a set of recommandations and plans in consultation with the Bank, and on the basis of the costina and analyses as well as Policies and Practices. adopted in other countries, to rationalize the railway tariff sys- tem with respect to the three main obiective. of this tariff study (par&. 3.8): and (ii) thereafter take appropriate steps to implement the recommendations and plans taking into account the Bank's comments rpara. 6.1(d)1. 3.11 Accounting Standards. Modernization of accounting standards in China, an overall responsibility of MOP, is a prerequisite for enterprise reform in China. This study would be conducted in close cooperation with MOF as a first test case for the industry sector. The main purpose of this study is to develop and implement a new set of accounting standards consistent with MOF's new national standards now under development (para. 2.19). Similarly to the Tariff Study, NOR has given the Accounting Study high priority, and has formed a study team, comprising a Working Group headed by the Director of the Finance Bureau and a Policy Committee headed by the Senior Vice Minister (see Working Paper No. 11). 3.12 The study has progressed well since its inception in July 1992. The study team has done a survey of all existing Chinese accounting principles applicable to the railway subsector, and is now doing a survey of accounting practices being used by railways in other countries. As next steps, the study team will make a comparison between Chinese and international accounting prin- ciples for railways, as well ai travel overseas to study accounting systems used by other railvays. Additionally, the study team is expected to receive training in the first half of 1993 on MOF's new accounting principles. Azree- ment was reached with the Borrower during neaotiations that. throuth MOR. MOF and other relevant aovernment atencies. it will: (i) by March 31. 1994. com- plete this study accordina to terms of reference &treed with the Bank and develop in consultation with the Bank a new set of accountina standards: and (ii) thereafter take appropriate steps to imlement the new standards. taking into consideration the Bank's comments rpara. 6.1(o)l.  - 21 - 3.13 Manazement and Economic Contract. The main objectives of this study are to determine and implement measures to improve (i) MOR's contractual rela- tionship with the Government and (ii) its internal management. This study would assist NOR staff in delving into the following subjects: (a) enhancement of the economic contracting system between NOR and the Government; (b) improvement of productivity and quality of the railway transport function; (c) expansion of the scope of railway financial resource mobilization; (d) possible divestiture of railway nontransport functions and restruc- turing of the railway transport function; (e) development and rationalization of railway human resources; and (f) improvement of the railway housing system. Among various issues to be tackled, the question of possibl, divestiture of nonrailway transport units (e.g., railway factory and construction companies) would be addressed in the context of MOR's readiness to take action, e.g., with respect to transferability of the railway welfare system, the corporate strategies for divestiture candidates, etc. The question of labor rationali- zation would also be addressed, including the question of how beat NOR can deal with its staff who are increasingly being made redundant by improvements in labor productivity. A relevant factor is the "diversified economy" part of NOR's nonrailway transport business, which has served as a primary means of absorbing redundant railway staff (para. 2.8; see Working Paper No. 12). Because most of the issues must be addressed on a government-wide basis, the study team would comprise not only MOR staff but also officials from other relevant government agencies. Terms of reference for this study are expected to be finalized by October 1993. Agreement was reached with the Borrower during negotiations that. through NOR and other relevant zovernment agencies, it will: (i) by June 30. 1995. complete this study accordina to terms of reference to be agreed with the Bank and. in consultation with the Bank. Dre- pare a set of recommendations and Dlans for imDrovina NOR's internal manage- ment and its contractual relationshiD with the Governmentt and (ii) thereafter take aDpropriate steDs to implement the recommendations and plans taking into account the Bank's comments rDara. 6.1(f)1. C. Investment for ExDansion and Nodernization 3.14 The proposed investment component comprises: (a) a capacity expansion subcomponent, for electrification and moder- nization of a 694-km double-track Beijing-Zhengzhou line and a 1,094-km single-track Chengdu-Kurming line; (b) three systemwide technological modernization subcomponents, to assist MOR in:  - 22 - (i) mechanizing track maintenance; (ii) modernizing parts manufacture for locomotives and rolling stock (including some technology transfers); and (iii) upgrading the telecommunications network and implementing a computerized Transport Management Information System (TMIS); and (c) a pilot container transport subcomponent. 3.15 All investment subcomponents listed above have been accorded top priority by MOR and are justified by the RIS economic evaluation methodology. The two proposed electrification projects in the capacity expansion subcompo- nent have been ranked in the five highest-priority railway investments in the 8FYP, according to economic and social criteria, with the economic criteria based on the RIS decision support system (see Working Paper No. 13). The technical designs of the two electrification projects and the three systemwide subcomponents are based on the results of various technological modernization studies initiated under Railways IV and V. While the main purpose of the electrification projects is to enlarge railway traffic capacity, the three systemwide subcomponents aim primarily to improve the operating efficiency of the whole railway system through technological modernization, thereby decreas- ing railway operating costs and at the same time increasing railway capacity. The proposed pilot container transport subcomponent represents implementation of the 'immediate action plan" of the rail-based container transport study (para. 3.36), to act on the most urgent measures for modernizing MOR's con- tainer transport services. 3.16 The investment component would be carried out by MOR and is expected to be completed by 1998. A set of indicators has been developed to allow the effectiveness of each investment subcomponent to be monitored during its period of operation (paras. 3.52(c), 3.53(b); Annex 7]. The individual sub- components are described below. 3.17 Capacitv Expansion. The Beiiinx-Zhenazhou line is part of the heav- ily used Beijing-Guangzhou corridor (Map M.1) and is also one of China's most severely bottlenecked railway sections (Map M.2). Operating at their capa- city, different segments of the line now carry 50 to 67 pairs of freight trains per day and 29 to 39 pairs of passenger trains per day. By enabling the use of longer and more frequent trains the proposed electrification and modernization would increase the traffic-carrying capacity of the line by about 50 percent. Because of the very high transport demand, the Beijing- Zhengzhou line is expected to be heavily used after the electrification, despite the fact that a national highway is being built along the same corri- dor. 3.18 The Chenadu-Kunmina line is the main line in southwest China, in Sichuan and Yunnan provinces (Map M.1). The line passes through mountains reaching 2,800 m above sea level. Four hundred twenty-seven tunnels add up to 344 km or 31 percent of the total line length. The Chengdu-Kunming line car- ries mainly raw materials from mining and other resource areas to major pro- cessing centers. In 1990, different segments of the line carried 30 to 44  - 23 - pairs of freight trains per day and five pairs of passenger trains per day. Like the Beijing-Zhengzhou line, traffic on the Chengdu-Kunaming line reached the line's capacity several years ago (Map M.2). However, unlike the Beijing- Zhengzhou line, which has been double-tracked previously, the Chengdu-Kunming line cannot be economically double-tracked due to the exorbitant cost of such an undertaking in mountainous terrain. Electrification and modernization on this single-track line have been chosen as a more cost-effective alternative. By permitting longer and more frequent trains to be run on the line the pro- posed project would increase the traffic-carrying capacity of the line by about 70 percent. 3.19 Existing technical standards, station layouts, and maintenance facilities will be upgraded on both lines to accommodate longer and heavier trains. In addition to electrification and power supply, the project includes upgrading of the lines' signaling and telecommunications installations, lengthening of station sidings from 850 m to 1,050 m for the Beijing-Zhengzhou line, and from 650 m to 850 m for the Chengdu-Kunming line, work. on bridges and tunnels, and the modification of locomotive maintenance workshops and depots for electric locomotives. The technical design of electrification for these two lines has incorporated recommendations made by the Electrification Technology Study, launched under Railways V. These recommendations include: (i) installation of power-operated breakers and provision of secondary pro- tection for substations, to render the electrified operation faster and more reliable; (ii) computerization of monitoring systems, to allow future mainte- nance to be done on a condition-responsive as opposed to scheduled basis; and (iii) installation of more reliable catenary components, to extend maintenance and repair intervals. 3.20 The proposed electrification would produce two major types of eco- nomic benefits. A first type is an increase in value-added to the economy of freight traffic that will be shipped on the railway lines when additional capacity becomes available, plus the economic value of extra passenger travel made possible by the capacity addition. A second type of benefits represents savings in train operating costs due to the switch from diesel to electric traction (paras. 4.6-4.8). These savings are particularly large for the Chengdu-Kunming line, which traverses mountainous terrain where diesel-powered trains lose their efficiency at high altitudes. Besides energy savings bene- fits, the proposed electrification would result in positive environmental impacts overall, particularly as it would eliminate high concentrations of particulates and carbon monoxide emitted by diesel engines in tunnels. 3.21 The question has been raised concerning future availability of elec- trical power for each line. In the case of the Chengdu-Kunming line, the region is expanding its hydroelectric power base and will have excess power in the year 2000 and thereafter. In the case of the Beijing-Zhengzhou line, where future power supply shortages are possible, a guarant-e has been obtained from SPC that adequate supply would be made available for railway use and that MOR would get a priority, if necessary (Annex 5). MOR has estab- lished that the amount of power proposed to be consumed by the electrified railway will be about 1 percent of the region's total electric power and there will be net power savings per ton of goods hauled with electric locomotives compared with diesel locomotives.  - 24 - 3.22 Track Maintenance Mechanization. The main purpose of this system- wide subcomponent is to assist MOR in modernizing the present track mainte- nance system, which is largely manual (para. 2.28), into a mechanized system of preventive planned maintenance. Mechanization of track maintenance, coupled with proper track inspection and computerized monitoring, would result in better track quality, which translates into lower electricity/fuel consump- tion, less wear on the locomotives and rolling stock, and therefore, lower train operating costs. Mechanization would also result in longer tim inter- vals between track maintenance applications and therefore lower maintenance costs. 3.23 This subcomponent includes two types of track maintenance mechaniza- tion: track rehabilitation (rail, sleepers, fastenings and ballast) and rou- tine track maintenance (ballast cleaning, broken sleeper and occasional rail replacement, etc.), both of which would contribute toward more cost-effective and safer railway operations. The subcomponent would involve the acquisition of 40 sets of heavy-duty, high-performance track maintenance machines; special calibration devices and rail flow detectors for track inspection cars; and a computerized track monitoring system. This subcomponent has been prepared as part of the short-term action plan to modernize MOR's track maintenance, for- mulated under a Bank-financed study launched under Railways V (see Working Paper No. 14). 3.24 Locomotive and Rolling Stock Parts Manufacture. The main objective of this systemwide subcomponent is to introduce modern machine tools for manu- facturing critical parts of MOR's equipment fleets. These equipment parts comprise: (i) connecting rods, electric rotating equipment, governors, injec- tion pumps and nozzles, and turbo superchargers, for diesel locomotives; (ii) brake cylinder equipment and wheel sets, for freight wagons; and (iii) spot welding equipment for passenger coaches. A second objective of this subcompo- nent is to finance the foreign exchange cost (estimated at $880,000) of trans- ferring modern technology for (i) designing and manufacturing airbrakes (including the empty/load box); and (ii) casting equipment parts (soe Working Paper No. 15). As mentioned (para. 2.30), this subcomponent incorporates some of the highest-priority measures recommended by a study launched under Rail- ways V to improve the manufacturing and maintenance of MOR's equipment fleets. 3.25 The proposed introduction of modern machine tools and technology would help reduce the froquency of failures of MOR's diesel locomotives and freight wagons and thereby improve their reliability, availability and utili- zation. The resulting improvement in some of these critical components would also lead to fuel savings and savings in the costs of manufacture and mainte- nance. 3.26 Telecommunications and Transport Management Information System (TIS). The main objectives of this systemide subcomponent are: (i) to support expansion and modernization of MOR's telecommunications network during 1993-95; (ii) to implement Phase I of a computerized THIS, thereby automating MOR's wagon operations on a systemwide basis; and (iii) to strengthen MOR's capability for modernizing information technology through human resource development. This subcomponent represents an initial phase of MOR's long-term offort to upgrade its railway information technology to the level of modern railwvays to increase the flow of vital information for decision-making at  - 25 - all levels, and to make railway operations more efficient and flexible in meeting the needs of shippers and passengers. 3.27 The modernization and expansion of MOR's telecommunications network has been planned over short, medium, and long terms under the Telecommunica- tions Master Plan study being financed by the Bank under Railways V (para. 2.33). Out of the short-term investment plan, MOR has selected high-priority programs to be included under this subcomponent (see Working Paper No. 16). These programs are to: (a) automate and digitalize the local and long-distance telephone net- works (Chart C.3); (b) expand and digitalize the transmission network; and (c) install a new data communications network (based on packet-switching technology) (Chart C.4). In addition, a program of technical assistance and training would support MOR's efforts in modernizing the railway telecom system (para. 3.40). 3.28 Implementation of the proposed THIS would involve: (i) acquisition and installation of hardware (a mainframe computer, minicomputers, and other components); (ii) acquisition and adaptation of existing THIS softwarel and (iii) technical assistance and training programs for installing and operating TMIS (para. 3.40). To ensure its smooth implementation, HOR has formed mall coordination groups for both t-lecommunications and THIS under an information technology group, to be responsible for implementing the telecommunications and TMIS subcomponent (see Working Paper No. 16). MOR has already made good progress: it has completed the procurement steps, culminating in an award to a foreign railway consulting firm for TMIS software and related technical assistance and training. Installation and adaptation of the software are now under way. 3.29 The economic benefits of this proposed subcomponent come in differ- ent forms, some more easily quantifiable than others. The most obvious and easily quantifiable benefits are savings in labor used in telephone operations and in preparing and processing operations data for freight wagons, as well as savings in wagon investment owing to better management of the wagon fleet afforded by the computerized TMIS. 3.30 The benefits which are less obvious and more difficult to quantify, but potentially far-reaching in the long term, are what many modern railways did not foresee at the beginning but indeed experienced several years into implementation of similar THISs: these THIS. have drastically improved their labor productivity and have served as a critical link in an evolutionary pro- cess to make fundamental changes in the policies and structures of the rail- ways. A main reason for this is that, once installed, the THIS made it easier for the railway to streamline its management structure, e.g., by reducing the number of layers or by evolving a lines-of-business organization with proper accountability and control (see Working Paper No. 17). The TMIS under the proposed project should have similar impacts on the Chinese railway system,  - 26 - but probably sooner, given that, as a late starter, MOR has the rich experi- ence of other railways to draw from. 3.31 Pilot Container TransDort Modernization. There is a growing need to establish intermodal links between major industrial centers and between hin- terland provinces and coastal ports. Such links are essential to meeting the logistical needs of the fast-growing light industry sector. They are also essential to supporting government policies to widen domestic markets and to help enterprises in interior provinces participate in China's export drive. In the light of these needs, MOR has recently decided to expand and modernize its container transport system. To this end, MOR and the Bank have agreed to start a pilot project on selected rail corridors. The main purpose of this subcomponent is to demonstrate the operational and economic feasibility of a frequent and regularly scheduled container transport service and, thus, to guide future expansion of modern container services to cover major corridors (see Working Paper No. 18). The other objectives are: (i) to encourage MOR to shift priority from domestic cargo to international cargo; (ii) to upgrade container handling equipment and container rolling stock; (iii) to modernize container operations by eliminating damage-prone hump-yard operations and minimizing the number of stations to be served; and (iv) to strengthen the institutional capability in the marketing and handling of international cargo. 3.32 Two intersecting corridors have been selected (Chart C.5): the Harbin-Beijing-Zhengzhou-Guangzhou corridor (3,600 km) and the Shanghai- Zhengzhou-Xian corridor (1,510 km). MOR's plan is to operate daily unit trains along these two corridors according to published timetables. Operation on a partial basis already started in April 1992; a full-fledged operation is scheduled to begin in January 1995. The expected increase in container throughput would be 2.2 million tons per annum. 3.33 This subcomponent would provide financing for the purchase of rubber-mounted gantry cranes, top lifters, tractor-trailers, ISO containers, flat cars, other equipment and technical assistance (para. 3.40). This sub- component is based on a recommended action plan derived from the RCT study (para. 3.36). 3.34 This pilot operation would represent a considerable improvement over the existing service. Its major benefits would be time savings to be obtained from faster and more frequent services, damage reduction due to protection given by containers, operating cost savings derived from traffic diversion from road to rail, and value-added to the economy derived from an increase in rail capacity. D. Technical Assistance for Svstemwide Technolotical Modernization 3.35 This component provides technical assistance and training for MOR to carry out three major studies, plus other activities. The three studies are designed to prepare action plans of technological modernization ystemwide, for possible implementation under future railway projects. The first two studies have received funding of $300,000 each from the Japan Grant Facility, and the third study has received UNDP funding of $200,000, to cover two thirds ($800,000) of the total foreign exchange cost of the studies' technical assis-  - 27 - tance and training ($1.2 million). The remaining one third ($400,000) would be covered by the proposed loan. 3.36 Rail-Based Container Transport Study. The main objective of the RCT study is to prepare immediate, medium-term and long-term action plans for modernizing and expanding the railway's container transport services, with a special emphasis on international container movement. Launched in November 1991, the study now has produced an immediate action plan, which provides the basis for the proposed pilot container transport subcomponent described above. As next steps, the study would formulate medium- and long-term action plans for possible implementation under future railway projects (see Working Paper No. 19). Durina netotiations. agreement was reached with the Borrower that throuah MOR it will: () by October 31. 1993. complete this study accordint to terms of reference agreed with the Bank. and prepare in consultation with the Bank a set of recommendations and plans for expanding and modernizina rail-based container transport services: and (ii) thereafter take apDropriate steps to implement the recommendations and plans takina into account the Bank's comments rpara. 6.1(Q)1. 3.37 Cost-Effective Technology Evaluation (CETE) Study. The main objec- tive of this study is to determine and implement more cost-effective techno- logical measures for increasing railway line capacity at lower capital and operating costs. Such technological measures are expected to include the use of heavier trains to carry more loads per train; better signaling technology and changes in train operating rules to allow more frequent trains; and higher speeds of freight trains to provide more line throughput. Technological options for high-speed passenger transport services (up to 300 km/h) along heavily trafficked corridors such as Beijing-Shanghai would also be consid- ered. 3.38 Launched in August 1992, the study is being conducted by a Chinese team in close cooperation with the Bank. Since its launching, significant progress has been made. In October/November 1992, a panel of international experts visited China to examine current operations on two railway lines and provided information on cost-effective technological measures currently in use in other countries (France, Japan, Canada and the USA) and on high-speed rail planning and operations. Potential line capacity increases of 40 percent or possibly more at relatively low capital investment cost could be achieved with additional measures above that attainable from MOR's traditional technological options. However, it would take 5 to 10 years of lead time before such cost- effective technological measures are realized in China. Implementing superior technological measures would lead to significant savings in China's scarce capital. The CETE study is intended to provide MOR with short- and long-term action plans for possible implementation under future railway projects (see Working Paper No. 20). During nexotiations. agreement was reached with the Borrower that through MOR it will: (1) by October 31. 1993. complete this study according to terms of reference aareed with the Bank. and prepare in consultation with the Bank a set of recommendations and Plans for uDaradinR railway technoloav: and (ii) thereafter take appropriate steps to implement the recommendations and Plans taking into account the Bank's comments fnara. 6. 1(h 1.  - 28 - 3.39 Environmental Protection Study. The main objectives of this study are to determine end implement masures for: (i) solving NOR's moat pressing environmental problems; (ii) strengthening MOR's capability for performing environmental protection activities; and (iii) developing and implementing medium- and long-term strategies for tackling its environmental problems. To address the first objective, the Bank has received a UNDP grant fund of $200,000 to finance the preparation of a comprehensive, cost-effective action plan for sterilizing passenger trains, handling garbage and nightsoil from passenger trains, and abating noise generated by passing trains (para. 2.40). During June 1992 a team of foreign consultants appointed for this task visited China to work with MOR staff. Since then the major findings from this visit have been discussed with MOR, with a view to developing an action plan, for possible implementation under a future railway project. As to objectives (ii) and (iii), draft terms of reference for a study to achieve them have been discussed with MOR staff. These terms of reference are expected to be final- ized by June 1993. During negotiations. oareement was reached with the Bor- rower that through MOR it will: (i) by September 30. 1994. complete this study accordine to terms of reference to be agreed with the Bank. and Prepare in consultation with the Bank a set of recommendations and Plans for strength- enina MOR's environmental Protection ca2abilitv and addressina railway pollu- tion problems: and (ii) thereafter take &o2ropriate steps to implement the recommendations and plans taking into account the Bank's comments rpara. 6.1(i)1 3.40 Other Technical Assistance and Training. In addition to the above three studies, this subcomponent would finance four other activities for a total amount of $4.05 million. A first activity is a small investigation to be conducted by MOR staff to adapt technology for steel-wh-el casting from abroad (see Working Paper No. 21). A second activity is a technical assis- tance and training program designed to provide MOR staff with state-of-the-art knowledge and skills in telocomunications (para. 3.27). A third activity is a technical assistance program for preparing computerized container informa- tion systems to support the pilot container operation (para-. 3.31-3.34). And a fourth activity comprises a technical assistance program for adapting and testing THIS software; and an extensive training program for MOR personnel on how to operate THIS (in more than 1,000 locations) (see para. 3.28 and Working Paper No. 16). E. Cost Estimates and Financing 3.41 Cost estimates for civil works are based on detailed engineering and on unit costs of similar works carried out by MOR in recent years. The costs of equipment and materials to be imported are based on current world market prices for such items. The cost of equipment and materials to be procured locally and not to be financed by the Bank was estimated on the basis of cur- rent domestic prices. The estimated project costs are expressed in January 1993 prices. Price contingencies are based on local annual inflation rates of 6 percent for 1993 to 1999, and foreign inflation rates of 3.8 percent for 1993, 1.9 percent for 1994, 2.7 percent for 1995, 3.4 percent for 1996, and 3.6 percent for 1997 to 1999. The exchange rate of Y 5.75 to the US dollar was used for translating the foreign exchange costs. MOR is exempt from import duties and local taxes.  - 29 - 3.42 Proiect Costs and Financing Plan. The estimated project coats including contingencies are $1,183 million, of which 61 percent or $727 mil- lion represents direct and indirect foreign exchange coats. Cost estimates are summarized in Tables T3.1 and 3.1; full details are given in Tables 3.2- Table T3.1: PROJECT COST ESTIMATES AND BANK PARTICIPATION (January 1993 price) Fore ign Bank Y million S million equivalent as Z of loan Local Foreign Total Local Foreign Total total ($ min) Investment Components Beijing-Zhengzhou line 755.7 1,105.9 1,861.7 137.7 189.3 327.0 57.9 99.1 Chengdu-Kunming line 704.6 1,370.8 2,075.4 128.4 234.6 363.0 64.6 79.2 Track maintenance 114.8 136.4 251.3 20.9 24.5 45.4 54.0 45.3 Locomotives L rolling atock 16.8 117.3 134.1 3.1 20.5 23.6 87.0 20.5 Telecommunications & THIS 534.2 907.4 1,441.6 91.2 155.2 246.4 63.0 109.0 Pilot container transport 167.0 118.1 285.1 30.4 20.3 50.7 39.9 17.7 Policy & Technical Assistance Components 3.0 50.6 53.6 0.5 8.8 9.3 94.4 8.8 Base Costs 2.296.1 3.806.7 6.102.8 412.2 653.2 1.065.4 460.8 379.5 Physical contingencies la 104.2 170.1 274.3 18.7 29.1 47.8 60.9 13.9 Baseline Estimate 2.400.3 3.976.8 6.377.0 431.0 682.1 1.113.2 ,6. 393.4 Price contingencies /b 293.0 542.8 835.8 25.5 44.8 70.3 63.7 26.6 Total Proiect Costa 2.693.3 4.519.6 7.212.9 456.4 727.1 1.183.5 61. 420.0 /a Baaed on physical contingencies of about 10 percent for civil works and 5 percent or lower for equipment. lb Price contingencies as percentages of base coats plus physical contingencies are 13.1 percent for local costs (in yuan) and 6.3 percent for foreign costs (in US dollars). 3.7. A financing plan to cover these costs is shown in Table T3.2. MOR does not capitalize interest expenses as interest during construction. Interest expenses relating to the implementation of the proposed project vould be cov- ered by NOR's projected revenues. The $420 million Bank loan would finance 35 percent of the total project costs or 58 percent of the foreign exchange costs, for equipment, materials, technology transfers, and technical assis- tance and training. The remaining financing requirement of $763 million would be met by NOR's own funds, for all civil works and resettlement, and the equipment, materials, technology transfers, and technical assistance and training that are not covered by the Bank loan. Of the $763 million to be financed by NOR, $307 million represents indirect foreign exchange costs of materials for civil works and equipment and other materials to be purchased with MOR's domestic-currency funds (with almost all procurement to be executed through LCB or local shopping). Interest expenses for the proposed loan represent a direct foreign exchange requirement, which can be met because MOR is allowed to convert its domestic-currency funds into foreign exchange required to service its foreign debt. MOR has not had difficulties with fur- nishing counterpart funds for financing the previous Bank loans.  - 30 - Table T3.2: PROJECT FINANCING PLAN ($ million) NOR Bank loan Total costs Local 456.4 0.0 456.4 Foreign exchange 307.1 420.0 727.1 Total 763.5 420.0 1.183.5 Investment component Civil vorks 560.5 0.0 560.5 Resettlement 11.4 0.0 11.4 Equipment & materials 190.3 409.9 600.2 Technology transfers 0.8 0.9 1.7 Policy & technical assis- tance component 0.5 9.2 9.7 Total 763.5 420.0 1.183.5 3.43 Onlendins Terms. In 1984, when the Bank's First Railway Loan was appraised, the Government took a positive step in converting customary grants to interest-bearing loans to HOR. For Railways I-III, the onlending rate was 4 percent per year. This rate has been raised gradually since then to 5 per- cent for Railways IV and 6 percent for Railways V. For the proposed project, MOP and MOR have agreed to an onlending rate equal to the Bank's standard variable interest rate, for 20 years of maturity including 5 years of grace, with MOR bearing the foreign exchange risk. This understanding was confirmed at negotiations. F. Proiect ImDlementation 3.44 The planned implementation schedule is summarized in Table 3.8 and detailed in Annex 6. The proposed project is expected to be completed by December 31, 1998, and the closing date of the proposed loan would be June 30, 1999. Implementation arrangements would be similar to those of the previous railway loans. Detailed engineering for the Beijing-Zhengzhou and Chengdu- Kunming lines was carried out by MOR's Electrification Design Institutes in Tianjin and Chengdu, respectively. Construction would be carried out by vari- ous construction companies of MOR to be selected under domestic competitive procedures (para. 3.48). The companies are all well equipped and have long experience in this type of work, specifically with civil works to be carried out on tracks where heavy traffic flow has to be maintained. Similar works have been successfully implemented in this manner under previous projects. Implementation of the other components of the project would be carried out by MOR with the help of consultants as needed. 3.45 Until 1991, procurement under ongoing railway projects had experi- enced significant delays. These delays were caused by the relatively cumber- some procurement procedures as well as the need to procure a relatively large share of sophisticated equipment and technology requiring complex technical specifications. At the Bank's urging, MOR has in the past 18 months taken several corrective steps: besides employing standard model documents that have been prepared specifically for China, MOR has developed a computerized  - 31 - procurement monitoring and processing system, streamlined its procurement procedures, and offered its procurement staff incentives to encourage speedy preparation of draft tender documents. These measures have produced signifi- cant improvements. For example, the total amount of contracts awarded under the five ongoing railway loans during a 15-month period ending in mid-December 1992 was $297 million, representing about 26 percent of total commitments for the five loans. The corresponding figures for the preceding 15 months are $153 million and 13 percent. Following this surge in contract awards, railway loan disbursements are expected to accelerate as suppliers deliver the goods procured under these contracts. To further expedite the procurement process under the proposed project, MOR has carried out advance procurement arrange- ments. It has submitted to the Bank draft technical specifications for equip- ment worth more than 50 percent of the loan amount. G. Procurement 3.46 Procurement of almost all Bank-financed equipment, materials and technology transfers would be subject to international competitive bidding (ICB) in accordance with Bank guidelines for procurement. A number of small items worth $200,000 equivalent per order or less and totaling no more than $10.0 million equivalent would be purchased by local shopping on the basis of quotations solicited from at least three potential suppliers. The list of goods is given in Tables 3.10-3.16. 3.47 Bank-financed contracts above a threshold of $2.0 million equivalent would be subject to the Bank's prior review procedures, using recently Stan- dardized model documents for procurement prepared by the Government of China and the Bank. The review process would cover at least 45 bid packages to be procured by ICB for goods contracts valued over $200,000 equivalent, and for all technology transfer contracts. In bid evaluation, Chinese manufacturers would be allowed a preferential margin of 15 percent of the CIF cost of com- peting imports, or the relevant prevailing level of customs duties NOR would have to pay, if it were not exempt from import duties and local taxes, which- ever is lower. Technical assistance would be contracted in accordance with the "Bank Guidelines for the Use of Consultants," with contracts valued greater than $100,000 equivalent each being subject to prior Bank review. 3.48 For items not financed by the Bank, government procurement proce- dures would apply except for resettlement (paras. 3.55, 3.56; Annex 8). Such items comprise civil works, various local materials, and miscellaneous equip- ment. Standard government procedures require MOR to ask at least three com- peting firms to provide bids in a competition. The expected procurement methods and the likely amounts involved are shown in Table T3.3. H. Disbursement 3.49 Disbursement of the proposed loan would be for (a) 100 percent of foreign expenditures for the CIF cost of imported equipment and materials; (b) 100 percent of the ex-factory cost (excluding taxes) of locally procured equipment and materials; (c) 75 percent of the local costs of other locally procured equipment and materials; (d) 100 percent of technology transfers; and (e) 100 percent of consultants' services and training. Domestic transport from a port or factory would not be eligible for Bank financing.  - 32 - Tale T3.3l2 SUMMARY OF PROPOSED PROCURDEKN ARRABMNTSU ($ million) Procurement method Project component ICB Other l NBF Lb Total Investment component Civil works - 560.5/c 560.5 Rasettl ment - - 11.4 11.4 Equipment & materials 399.9 14.0 186.3/d 600.2 (399.9) (10.0) (409.9) Technology transfers 0.9 - 0.8 1.7 (0.9) (0.9) Policy and tchnical - 9.2 0.5 9.7 assistance components (9.2) (9.2) Total 400.8 23.2 759.5 1,183.5 (400.8) (19.21 (420.0) La Local shopping and consultants' services. /b NBF - Not Bank-financed. Le Local competitive bidding (LCB). /d LCB and local shopping. Note: Figures in parentheses are the respective amount. to be financed by the Bank loan. 3.50 Disbursements against contracts for goods valued at less than $200,000 equivalent each, consulting firm contracts valued leoe than $100,000 equivalent each, and expenses on training would be made on the basis of State- ments of Expenditure (SOEs). To facilitate disbursements, a Special Account would be established with an authorized allocation of $23.0 million represent- ing about four months of expected expenditures on average. Replonishment would be made monthly or whenever the Special Account is drawn down by 50 per- cent of its initial deposit, whichever occurs first. Documentation supporting the SOEs would not be submitted to the Bank, but would be kept in the project office in Beijing and made available for review by the Bank's supervision missions. Expenses of up to $600,000 are expected to be incurred after August 31, 1992, but before loan signing, for technical assistance and train- ing activities considered to be critical to a rapid project start-up. It is recommended that these expenses be retroactively financed by the proposed loan. 3.51 A schedule of estimated disbursements, based on the assumption that the proposed loan would become effective by September 1993, is given in Table 3.9. These disbursement projections are close to the standard profile for transport projects in China. The projections are conservative with respect to the positive effects of advance procurement arrangements made during the proj- ect's preparation (para. 3.45).  - 33 - I. Proiect Monitorint and SuDervision 3.52 To keep track of the progress and effectiveness of the project's implementation, an understandint was reached with the Borrower during negotia- tions that NOR will Drovide the Bank with the following types of periodic reports during each year of proiect implementation: (a) audited reports for the Project Accounts, the Special Account, the Statement of Expenditure, and the MOR consolidated financial state- ments (by June); (b) the status of implementation for the investment component--including the procurement of equipment and services, the construction of facilities, and the development/installation of software systems, as specified in Annex 6 (by March, June, September, and December); (c) the performance of each investment subcomponent during the period of operation to measure the achievement of the project's objectives, as set forth in Annex 7 (by June and December); (d) the status of resettlement under the capacity expansion subcomponent (paras. 3.55-3.56) (by June and December); and (e) the results of monitoring and evaluation of the resettlement (para. 3.56) (by March). During negotiations, an understanding was reached with the Borrower on the contents of these reports. 3.53 In addition, agreement was reached with the Borrower that MOR will [para. 6(a)]: (a) meet the target dates for the implementation activities listed in para. 3.52(b), given in Annex 6; and (b) maintain a set of performance indicators, at or better than their agreed upon targets, specified in Annex 7. 3.54 Normally, two Bank supervision missions per year would be required during the implementation period. A higher frequency of missions may be required depending on the progress of the project implementation. Because of its size and complexity, the project would require above-average supervision staff-weeks, especially in the first 2 to 3 years of implementation, as it would involve preparation and execution of policy initiatives, as well as transfers of complicated technology. The total amount of time of Bank staff and consultants required for supervising the proposed project is estimated at about 80 staff-weeks. This estimate incorporates staff-week savings expected from combining supervision of the proposed project with that of other railway projects. A supervision plan is given in Annex 9.  - 34 - J. Environmental Impacts and Resettlement 3.55 None of the investment subcomponents described above would have adverse impacts on the environment, and some of them would, in fact, have positive impacts (the proposed project is accorded Environment Assessment Category B). However, the proposed electrification of the Beijing-Zhengzhou and Chengdu-Kunming lines under the capacity expansion subcomponent would entail the construction of power substations and related works, which would result in resettlement of about 6,700 people who live at some 150 construction sites (roughly 45 people per site). No sites of notable historical or cul- tural value are on or near the land to be acquired, nor does the land contain habitats of endangered species. MOR has submitted a resettlement action plan satisfactory to the Bank (see Working Paper No. 30). The resettlement requirements are summarized below: Number of people losing Number of people part or all of their needing nev housing cultivated land 1992 25 322 1993 1,308 1,890 1994-96 749 2,416 Total 2.082 4,628 3.56 While resettlement activities would be funded by MOR, the responsi- bility for planning and implementing resettlement rests with villages and townships in rural areas and with city district governments in urban areas. The local branches of the Land Administration Office are charged with monitor- ing resettlement activities, and the State Audit Administration audits the use of funds. Experience under previous railway projects has shown this arrange- ment to be satisfactory. In 1992, MOR generously funded resettlement, with compensation rates that averaged 15 times the net value of production on acquired land. Continuation of these compensation levels would provide a strong basis for satisfactory resettlement. To ensure satisfactory resettle- ment performance, MOR has contracted with Southwestern Jiaotong University to monitor resettlement activity and alert MOR to problems. MOR will make avail- able to the Bank annual reports on the results of monitoring and evaluation of the resettlement to be prepared by the university (para. 3.52(e)). In the past, MOR has undertaken to intervene to correct any resettlement problems identified (Annex 8). Agreement was reached with the Borrower during nexotia- tions that MOR will ensure that land acquisition and resettlement of people will be done according to the Plan aareed with the Bank fRara. 6.1(b)1. 3.57 Besides the resettlement impacts, the proposed electrification gen- erally has positive environmental impacts, mainly in reducing air pollution along the two railway lines to be electrified, due to the change in tractive power from diesel to electric. The electric power would come from coal-burn- ing thermal power plants in the case of Beijing-Zhengzhou and principally from hydropower in the case of Chengdu-Kunming. These power plants serve general power users, of which railway usage is about 1 percent (Annex 5). Due to the greater efficiency of air pollution control for large thermal plants and no air pollution from the operation of hydro facilities, the switch from diesel  - 35 - to electric power would reduce net emissions of air pollutants. This is par- ticularly true for train operators and passengers in tunnels on the Chengdu- Kunming line because diesel locomotives are less efficient in tunnels and produce concentrated emissions in this confined space. These emissions are now sucked into the coach ventilation systems in the tunnels, creating even higher concentrations of particulates and carbon monoxide. 3.58 There would be other minor impacts of the investment subcomponents where fully mechanized track maintenance replaces manual track maintenance, including pollution associated with diesel-powered maintenance equipment. These impacts would be offset by less pollution from work gang camps in remote areas and from les transportation of work gangs. The environmental impacts of new technology for manufacturing locomotive and rolling stock parts are minor and may possibly be positive overall due to the reduction of waste with the new technology. No significant construction is anticipated for these sub- components. 3.59 Finally, positive environmental impacts are expected to result from the implementation of recomendations and plans to be prepared as part of the environmental study launched under the proposed project (par&. 3.39).  - 36 - IV. ECONOMIC EVALUATION OF PROJECT-FINANCED INVESTMENTS A. Introduction 4.1 The economic evaluation for the proposed project focuses on the following five investm-nt subcomponents: (i) capacity expansion; (ii) track maintenance; (iii) locomotive and rolling stock parts manufacture; (iv) tele- communications and Transportation Management Information System (THIS); and (v) pilot container service. These subcomponents account for over 99 percent of total project costs. The economic analysis was carried out for each of these five subcomponents separately, as explained below. 4.2 The economic evaluation was assisted by the analysis system devel- oped in the Railway Investment Study (RIS) in two major ways. First, the RIS system provided systemwide screening of all proposed railway capacity expan- sion projects; this screening allowed MOR to select the railway lines whose expansion would have the greatest impact on system capacity as well as a high economic rate of return. And second, results of analysis using the RIS system show that estimates of (i) the economic value-added per ton of induced traf- fic, and (ii) the induced traffic volumes made in this evaluation exercise are indeed conservative. 4.3 All monetary inputs and outputs used in the evaluation were obtained by converting financial costs to economic costs using economic shadow costs and their related conversion factors. For costs requiring foreign exchange, these conversion factors have taken into account a shadow exchange rate which is higher than the official exchange rate (Y 6.0 instead of Y 5.75 per $1). For traded goods, the CIF prices of imports and the FOB prices of exports were used to estimate the costs of materials and equipment; adjustments were made for the costs of inland transport. The general methodology used in the eco- nomic evaluation is explained in Working Paper No. 22. B. Main Benefits 4.4 The estimated net economic benefits of the five investment subcompo- nents are summarized in Table T4.1 below in terms of the net present value (NPV) and the economic internal rate of return (ERR). The net present values for the subcomponents are broken down into the following eight categories: (a) Additional value-added to the economy due to an increase in the throughput of the railway system. This is the largest category of benefits (52 percent). (b) TransRort cost sevinas due to the use of more cost-effective tech- nology and/or a more efficient use of railway equipment and facili- ties. This is the second largest benefits category (36 percent). (c) Track rehabilitation cost savinas due to an extension of the lives of rails, sleepers, etc., resulting from improvements in track main- tenance and renewal.  - 37 - (d) Accident cost savinas due to a reduction in the frequency of train accidents resulting from better track maintenance and renewal. (a) Labor and materials cost savinas due to the mechanization of track maintenance end renewal; a reduction in the frequency of equipment maintenance and repair resulting from the use of more reliable com- ponents; and a reduction in the extent of manual tolephone witching operations and data preparation and processing resulting from better telecommunications and the computerized THIS. (f) Savings in locomotive and rolling stock investment due to (i) an increase in utilization of the equipment fleet resulting from more equipment reliability afforded by higher-quality components; and (ii) better management of the fleet occasioned by improved telecom- munications and the computerized THIS. (g) In-transit time savings due to more responsive and more efficient container operations. (h) Freight damage cost savinas due to more use of containers and better care given to containerized cargo. In estimating the above benefits, special attention was given to avoiding double-counting both between and within the subcomponents. 4.5 The policy component of the project will improve the efficiency of the railway in meeting the future demands of the railway users (shippers and passengers) and allow MOR to support more general economic reformA (e.g., the growth of private producers and shippers). These benefits are not quantified in this report. C. Capacity Exoansion 4.6 The proposed electrification projects are expcted to increase traf- fic from the current levels by 50 percent for Beijing-Zhengzhou and 70 percent for Chengdu-Kunming by the year 2000 (paras. 3.17-3.18). The major increase in freight carried is expocted to occur in coal and other bulk or semibulk commodities for the Beijing-Zhengzhou line and for ores, phosphates, iron and steel products and lumber for the Chengdu-Runming line. Capacity increases ar- expected to be shared between freight and passenger services according to the current shares of freight and passenger traffic. 4.7 The two electrification projects were evaluated separately (see Working Paper No. 23). Their quantifiable benefits are: (a) increased value-added to the economy for the additional freight and passenger traffic that will use the railvay system due to the increase in capacity; and (b) savings in train operating costs due to the change to electrified operations.  - 38 - Table T4.1: NET PRESENT VALUE BY SUICOHPONET Capacity Track Loco. & Tlecom. Containar Type of benefit /a expansion mainten. R.S. main, and THIS service Total Y mln I Ymln Y lan 2 Ymln Z ln Y lan 2 Value-added to the economy lb 12,214 61 171/c 33 - - - - 54 29 12,439 52.8 Transport cost savings 7,809 39 269 52 94 8 - - 92 49 8,264 35.1 Track rehabilitation cost savings - - 31 6 - - - - - - 31 0.1 Accident cost savings - - 16 3 - - - - - - 16 0.1 Labor and material cost savings - - 31 6 140 11 934 59 - - 1,105 4.7 Locomotive or rolling stock investment savings - - - - 1,020 81 649 41 - - 1,669 7.1 In-transit time savings - - - - - - - - 32 17 32 0.1 Freight dmage cost savings - - 9 5 9 I Total NPV 20.023 100 518 100 1.245 100 1.583 100 187 100 23.565 100.0 Overall EI (1) 22 22 >50 49 21 23 La For each subcomponent, the discounted investment cost was allocated to the various benefits categories in proportion to the magnitudes of the benefits. Lb The value-added benefits for the aubcomponents are all due to line capacity increases. They do not overlap and are additive. /c There is also loss in line capacity for the part of this subcomponent that increases mainte- nance vindow time (see Working Paper No. 24). Id Smaller than 0.05. The value-added benefits were estimated in terms of the net value per ton of freight contributed to the economy using a conservative weighted average for the different commodities to be produced in the future. The benefits for the additional passengers to be carried on the improved lines were estimated in a simplified manner in terms of the equivalent freight that might be carried without the passenger use of the line capacity, resulting in a conservative estimate of total project benefits. 4.8 In addition to the direct costs of line improvements and locomotive and rolling stock acquisition, two types of complementary capital costs were included in the economic evaluation: the costs of providing the electric power generation facilities for the electric lines and the investment costs needed for producing the extra coodities to be carried on the improved lines. The resulting net present values (NPVs) for the package of investments discounted at 12 percent were Y 11.0 billion for Beijing-Zhengzhou and Y 9.1 billion for Chengdu-Kunming. The economic rates of return (ERRs) were 20 per- cent and 29 percent, respectively (Table 4.1). Even without taking into account the positive effects of induced traffic stemming from suppressed demand, these electrification projects would still be economically justified: The net present value for the two lines were Y 5.7 billion and Y 7.1 billion, respectively. Indeed, the value-added benefits are so conservatively esti- mated that, when they were removed from the economic analysis along with the corresponding complementary capital costs, the ERRs for the lines went up to 45 and 48 percent, respectively.  - 39 - D. Track Maintenance Mechanization 4.9 The quantifiable benefits of the proposed maintenance mechanization are track maintenance cost savings, train operating cost savings and accidents (in the case of routine maintenance), economic value-added du- to increased line capacity (in the case of track rehabilitation) and delaying of periodic maintenance investments. The maintenance cost savings in both cases are due to the fact that each gang equipped with new technology can undertake mainte- nance or renewal of a greater length of track than the current manual or semi- automated gangs. The train operating cost savings come from the fuel savings and reduction in the unit costs of locomotive and rolling stock maintenance when track condition is improved. The reduced accident rates lead to both lower accident costs and to less blockage of the railway line due to acci- dents. Labor savings are not a major source of benefits. The economic value- added benefits are calculated by: (a) estimating the number of trains that would use the line with and without the improved technology; (b) calculating the amount of freight that these additional trains carry; and (c) assigning a value-added per ton for the economic benefit of the additional freight (less complementary investment costs). The economic value-added per ton is based on the weighted average value-added of the various commodities to be transported by rail in the future when new capacity is added to the system, as computed by MOR's RIS team. The delay of periodic maintenance investments due to longer track life results in a savings in investment cost (see Working Paper No. 24). 4.10 In the case of the new track maintenance technology, there is an additional cost to the economy due to the need for blocking the track for machinery use for part of each day (called opening a maintenance window). This cost is more than offset by the benefits described above. 4.11 The resulting NPVs for the investments in new maintenance technol- ogy, discounted at 12 percent, are Y 188 million for track rehabilitation and Y 330 million for track maintenance. The corresponding ERRU ware 16 percent and 54 percent, respectively (Table 4.2). E. Locomotive and Rolling Stock Parts Manufacture 4.12 The locomotives and rolling stock used by MOR are manufactured using older technology which, in some cases, leads to high production costs or shorter useful life of certain key parts, compared with the products of newer technologies proposed for this subcomponent. The economic evaluation for this subcomponent assesses the application of this new technology in three MOR programs with several elements: (a) DF4 diesel locomotive parts manufactur- ing; (b) freight wagon parts manufacturing; and (c) coach body manufacturing. 4.13 The costs of the programs include both acquisition of the technology and purchase and installation of the equipment needed for manufacturing the  - 40 - parts in China. Manufacturing these parts in China is economically justified because the costs of making them are significantly smaller than the corres- ponding import prices. The quantifiable benefits of these three programs include savings in locomotive and freight wagon investment, labor and matori- *al cost savings in the manufacturing process for both wagons and coaches, savings in periodic equipment maintenance coats and fuel cost savings in the case of some locomotivo technology improvements (see Working Paper No. 25). The savings in investment costs for locomotives and wagons are due to the greater availability of the equipment fleets with less time in maintenance and repair shops. Labor and materials coat savings relate to each type of tech- nology proposed and depond on the specific shortcomings of each current tech- nology. The maintenance coat savings are due to the fact that some parts require extraordinarily short time periods between maintenance actions and the newer technology can lengthen these periods significantly (see Working Paper No. 25). 4.14 The resulting NPVs for the investments in new locomotive and rolling stock technology, discounted at 12 percent, add up to Y 1.4 billion. The ERR. vary from 21 percent to more than 50 percent depending on the technologies in question (Table 4.3). F. Telecommunications and TMIS 4.15 In this subcompon-nt, the investments in telecomunications and the computerized ThIS act in concert to produce joint benefits in various forms. Therefore, the two investments are treated as a combined investment for the purpose of economic evaluation. There are many unquantifiable benefits of these investments, but the quantifiable benefits are large. They include labor cost savings and savings in investment costs in freight wagons (see Working Paper No. 26). Labor cost savings have been quantified for both more automation in tolecomunications and le manual data collection and proces- sing. The savings in wagon investment result from better flaet management made possible by the combined investments. It has been demonstrated in sever- al railroads around the world that the increased ability to manage the wagon fleet has led to greator utilization of wagons with a consequent significant reduction in the need to purchase new wagons. In the case of MOR, where a tight management of wagons is already in place, the expected savings are less (1 percent), but still significant considering the sizo of the fleet. The 1 percent reduction in freight wagon fleet needs translates into a reduction of 3,500 wagons per year or Y 490 million in investment savings for the 8PYP period (sea Working Paper No. 26). 4.16 The resulting NPV for investments in telecommunications and THIS technology, discounted at 12 percent, is estimated at Y 1.6 billion over a 10- year period. Th eRR is expected to be 49 percent for this combined invest- ment (Table 4.4). G. Pilot Container TransDort 4.17 The main quantifiable benefits of this pilot operation are for four types of traffic (see Working Paper No. 27):  - 41 - (a) savings in operating cost for the traffic which is diverted from road to rail (the economic cost of road operation per ton-km is 5 to 10 times that of rail); (b) time savings for the existing container traffic on the railway (11 days), due to increased frequency of service (from an unscheduled, roughly weekly service to a scheduled daily service), faster transit time, and less waiting time for wagon allocation; (c) reduction in damage for the existing break-bulk traffic on the rail- way which is converted to container traffic; and (d) net value-added for new, induced container traffic on the railway due to an increase in capacity. 4.18 The costs of this subcomponent comprise (a) investment costs for containers, flatcars, various container handling equipment and container yard renovation; and (b) operating costs for track and locomotive utilization, and handling and maintenance of containers and flatcars. The resulting NPV for investments in the pilot container transport subcomponent, discounted at 12 percent, is Y 187 million. The ERR is 21 percent (Table 4.5). H. Overall Evaluation and Risks 4.19 Overall economic evaluation shows that the implementation of all investment subcomponents is well justified; their overall ERR is 23 percent. The capacity expansion component employs proven technology that has been tested in China and therefore have low risk. All of the other components involve technologies that have been applied in other countries, but there is some risk that the application in China may develop problems when it is adapted to Chinese conditions. The highest risk of implementation problems exists for transfer of technology for locomotive and rolling stock parts manu- facture, which represents lese than 2 percent of the total amount of the loan. In this case, special measures will be taken to monitor implementation in order to manage the risks effectively. 4.20 Sensitivity analyses were conducted on the effect of key economic assumptions for each investment subcomponent, and in no case was the ERR reduced below 12 percent. These analyses were used on (i) the increase of costs by 20 percent, and (ii) the decrease of the main source of benefits by a substantial fraction (15 to 50 percent) related to the level of uncertainty in each source of benefits (Table 4.6). Risks related to implementation of the investment subcomponents and to preparation and implementation of policy and management initiatives are discussed in the Loan and Project Summary (p. ii).  - 42 - V. ANALYSIS OF FINANCIAL SELF-SUFFICIENCY A. Introduction 5.1 Under the economic contract with the Government (para. 2.11), NOR is responsible for funding all of its capital and operating expenses. MOR's ability to carry out this responsibility is crucial to its success in ful- filling its social and economic role in an increasingly market-oriented econ- omy. In other words, it is essential for MOR to be financially self- sufficient, that is, to (a) cover all its expenses, including debt-servicing expenses, and (b) finance from self-generated earnings future capital invest- ments that are not funded through borrowings. The purposes of this chapter are: first, to assess the past financial performance of MOR's railway transport operation 1/ (1987-91); and, second, to forecast its future finan- cial performance (1993-97). The analysis focuses on the operation's capabil- ity for financial self-sufficiency, through an analysis of several scenarios related to the capital investment requirements, and how fast the implicit subsidies on input prices and interest (para. 2.12) will be phased out. B. Past Financial Performance of MOR's Railway TransDort Oneration 5.2 For the five years ending in 1991, the railway transport operation was financially profitable, but it did not produce enough funds to finance the necessary capital investments during 1987-91: that period saw railway bottle- necks worsen, resulting in more suppressed transport demand (paras. 2.5-2.6). The operation's operating revenues per converted ton-km (ctkm) went up 62 per- cent, or 10.1 percent per year, due to a series of traffic/surcharge increases (para. 3.9). But this increase was more than offset by the rise of 78 per- cent, or 12.2 percent per year, in operating costs per ctkm, because of infla- tion--the Consumer Price Index (CPI) went up 56 percent and the GDP deflator 40 percent--and also because of significant cuts in implicit subsidies. Increases in tariffs and surcharges did not keep up with inflation and reduc- tions in subsidies. Nor was MOR able to raise funds to boost the financing of its capital investments (Tables T5.1 and 5.1-5.5). C. Financial Prolections for Base Case 5.3 To achieve the goal of financial self-sufficiency for the railway transport operation in the future, MOR plans to raise more operating revenues through tariff and surcharge increases, and to increase the level of borrow- ings, both domestic and foreign, within prudent limits. Also NOR plans to control the operating costs through its staff incentive system as well as cost-cutting and productivity improvement measures, a number of which are related to technological modernization (paras. 3.19, 3.22-3.34). 5.4 The Base Case has been designed to approximate the current situation of the railway transport operation with respect to its investment plan, plan 1/ This analysis does not purport to examine the whole of NOR's activities, which comprise both railway transport and nonrailway transport activities (para. 2.8).  - 43 - Table T5.1: ACTUAL REVENUES AND EXPENSES, 1986-91 (in Yuan million) Average annual 1986 1987 1988 1989 1990 1991 grovth rate (2) Operatint Revenue 23.911 26.212 28.062 31.607 41,105 46.704 14 Operating Expenses 15.154 17.290 20.272 24.982 27,807 32.509 16 Of which: Working expenses 12,161 13,976 16,858 21,058 23,451 27,645 18 Depreciation 2,993 3,314 3,414 3,924 4,356 4,864 10 let Ooeratint Income 8.757 8.922 7.790 6.625 13.298 14.195 10 Nonoperating income /a 849 999 865 479 200 49 -43 Interest expense - 992 754 1,871 1,940 2,115 21 Business tax 1,265 1,389 1,487 1,675 2,188 2,499 14 Lump-sum tax - - - - 2,000 2,000 Net Income 8.341 7.540 6.414 3.558 7,370 7.630 -1 Working ratio /b 542 562 612 682 582 602 Operating ratio /c 672 662 722 792 682 70S Unit operating revenue 2.12 2.13 2.14 2.36 3.14 3.43 622 increase (fan/ctkm) since 1986 Unit operating expenses 1.34 1.41 1.55 1.86 2.13 2.39 782 increase (fen/ctkm) since 1986 Revenues from railway manufacturing and construction companties. Operating expenses, less depreciation, expressed as a percentage of operating revenue. Operating expenses, expressed as a percentage of operating revenue. for tariff and surcharge increases, and plan for phasing out the implicit subsidies. The key assumptions for the Base Case financial projections are: (a) A capital investment program (including equipment replacements) of Y 194 billion (in current prices) to accommodate a real GNP growth rate of 6 percent per year [this corresponds to a combined freight and passenger traffic (ctkm) growth rate of 4.5 percent per year); (b) Increases in base tariffs, averaging 8.2 percent per year in nominal terms (2 percent in real terms), which reflects the expectation of MOR's financial planners; (c) Increase in freight surcharges, from 1.2 fen/tkm in July 1992 (para. 3.9) to 2.2 fen/tkm in July 1993 (this 1993 increase has been agreed in principle between MOR and the Government); and (d) Partial phasing out of implicit subsidies, amounting to about Y 6.5 billion during 1993-97, or 23 percent of total subsidies of about Y 22.8 billion during the 1993-97 period. 5.5 In addition, two other key assumptions are adopted for the Base Case (as well as for all other scenarios): (i) a rate of inflation of 6 percent per year; and (ii) a rate of increase in operating cost per ctkm of 7 percent per year. The second assumption represents a combined effect of the expected  - 44 - inflation end the partial phasing out of subsidies, offset somewhat by the expected rate of cost reduction. 5.6 The Base Case is intended to serve primarily as a reference for comparison with other scenarios in which certain key assumptions differ. It is not meant to represent the most likely scenario. This is because the cir- cumstances under which 8FYP was originally prepared have since then changed significantly. As a result, some of the assumptions made for the Bass Case are likely to change, especially the assumptions about the size of railway capital investment and how fast implicit subsidies are phased out. In partic- ular, the GNP growth rate of 6 percent per year used in the Base Case repre- sents a rate originally adopted by SPC in the late 1980s as the basis for pre- paring infrastructure investments for 8FYP. In the light of stronger growth prospects for the 1990s, the Government decided in mid-1992 to raise the eco- nomic growth rate to 8 to 9 percent per year (paras. 2.14 and 3.6). Conse- quently, the various infrastructure investment programs for the 1990a, includ- ing the railway investment programs, will likely be revised upwards. 5.7 The resulting financial projections for the Base Case are sa-rized in Tables T5.2 and T5.3 and detailed in Tables 5.1 and 5.2. As a result of increases in traffic as well as in base tariffs and surcharges during 1993-97, operating revenues are expected to double. Even more significant, net income is expected to triple. This will allow the operation to cover all operating costs and most capital investment costs, leaving only Y 16.1 billion to be financed by new borrowings. With this relatively small amount of new borrow- ings, total borrowings outstanding of Y 45.8 billion at end-1997 will be well within their coiling of Y 65 billion currently allowed by the Government. D. Financial Proiections for Alternative Scenarios 5.8 The finances of MOR's railwvay transport operation are particularly affected by the possibility that: (i) all subsidies will be phased out by 1997; and (ii) the capital investments will be increased following adoption of a higher planning economic growth rate. The impacts of these possible out- comes are eaxmined through five alternative scenarios [2(a), 2(b), and 3(a)- 3(c)] as shown in Table T5.3. 5.9 The first two scenarios, 2(a) and 2(b) in Table T5.3, deal with the financial effects of phasing out all subsidies over the 1993-97 period (total- ing Y 22.8 billion). Scenario 2(a) assumes that the additional costs to be borne by the operation (Y 16.3 billion) are covered solely by an increase in borrowings and that the extra interest incurred is covered by a small addi- tional increase in base tariffs (from 8.2 to 8.5 percent per year average increase). Scenario 2(b) assumes that the additional costs are entirely cov- ered by an increase in base tariffs (from 8.2 to 9.6 percent per year average increase). The results of this analysis show relatively minor effects on the operation's financial picture. The increase in borrowings would cause total borrowings outstanding at *nd-1997 to reach the Y 65 billion ceiling in Sce- nario 2(a) and 70 percent of the ceiling in Scenario 2(b). 5.10 The next three scenarios, 3(a)-3(c) in Table T5.3, explore the financial impacts of, first, phasing out subsidies entirely by 1997, and, second, expanding railway capital investment by Y 70 billion (in current  - 45 - Table T5.2: BASE CASK FORECAST OF REVENUES AID KIPSESR, 1992-97 (in Yuan million) Average annual 1992 1993 1994 1995 1996 1997 growth rate (Z) Overatint Revenue 55.313 75.390 87.055 91.948 101.041 106.609 14 Operatina txpenses 36.923 41.265 45.998 51,050 56.444 62.364 11 Of which: Working expenss 31,513 35,380 39,524 43,929 48,610 53,747 11 Depreciation 5,350 5,885 6,474 7,121 7,834 8,617 10 Net Oieratint Income 18.390 34.125 41.057 40.898 44.597 44.245 19 Nonoparating Income La 49 49 49 49 49 49 - Interest expense 3,596 4,190 5,800 5,100 5,100 5,100 7 Business tax 2,657 3,090 3,352 3,565 3,999 4,244 10 Lump-sum tax 2,000 2,000 2,000 2,000 2,000 2,000 - Net Incom 10.186 24.894 29,954 30.282 3L3547 32.950 26 Working ratio /b 582 472 452 482 482 502 Operating ratio /c 672 552 532 562 56Z 582 Unit operating revenues (feu/ 3.87 5.07 5.64 5.74 6.08 6.17 59Z increase ctkm, in current prices) since 1992 Unit operating expenses (fen/ 2.58 2.77 2.98 3.19 3.39 3.62 40S increase ctkm, in current prices) since 1992 Unit operating revenues (fen/ 3.87 4.78 5.02 4.81 4.81 4.61 3.62 increase etkm, in 1992 constant prices) since 1992 Unit operating expenses (fen/ 2.58 2.61 2.65 2.67 2.68 2.70 0.92 increase ctkm, in 1992 constant prices) since 1992 / Revenues from railvay manufacturing and construction companies. Operating expenses, less depreciation, expressed as a percentage of operating revenue. Operating expenses, expressed as a percentage of operating revenue. prices), to handle higher transport demand due to faster economic growth (8 percent per year GNP growth versus 6 percent in the Baso Case). This increase in capital investment has been determined using the RIS analysis system (para. 3.6). Scenario 3(a) assumes that the additional costs are entirely funded through additional borrowings. Scenario 3(c) assumes that the additional costs are all covered by baee tariff end surcharge increases. Sce- nario 3(b) assumes that the funding ie accomplished through a combination of 40 percent of borrowings and 60 percent of increases in base tariffs and sur- charges. 5.11 The analysis of Scenario 3(a) shows that the required increase in borrowings (Y 98.2 billion, including extra interest costs) is very large relative to the currently planned level of new borrowings (Y 16.1 billion), and this would cause total borrowings to exceed the current ceiling (Y 65 billion) by 1997. This level of increase in total borrowings would cause the self-financing ratio 2/ to drop to a low 65 percent compared with 83 percent 2/ The self-financing ratio is defined as the ratio of self-generated funds earmarked for capital investment financing in a given year to total capi- tal investment in the following year.  - 46 - T bb T63: KEY ASSUMPTIONS AND RESULTS UNDER DFFERENT SCENARIOS 11993497) Averag annual Total new Averago hcwas In ta- boowIngs, self-financing liffe & sunmhargo.. 1993-97 ratio L Scnario Key assumptions 1993-97 1%) IY billion) 1993-97 1%) I Base Cas: MOR a) Capt Investment Y 194 biion Inomndal) 9.8 16.1 85 Current ian b Ba tarff Increass 8.2% p. (2.1 % ral) (low invhetmnt) c) 0.9 fenJtkm ave. surcharge Icrsa" & d) SubsidIes partialy phased out by 1997 21a) Low Investmnt with a) Capital Investment Y 194 bIlion (nomInl) 10.0 32.4 86 all ubsidies phased bi Base triff Increas 8.5% p.s. (2.4% real) out and compensatad c) 0.9 f1n/tkm cve. surcharge Increas lb by mor borrowings dl Subsidies completely phased out by 1997 2(b) Low Inv etmnt with a) Capitkal Investnt Y 194 blion (noninall 10.7 16.1 86 all subsidies phased b) Base triff Increa 9.6% pa. 13.4% real) out and 100% com- a) 0.9 fn/tkm ave. surcharge incroa & penad by bse di Subsidies completey phased out by 1997 tariff increa"se 34i) Needed investment with a) Capital Investnt Y 264 bIlion Inominal) 10.8 98.2 a6 al subsidies phased bl Bo tariff increa 8.2% pa. 12.1 % real) out with oast hi- c) 1.2 fen/tkm ave. surcheg Inororeas & ore"e 100% finaced dl Subsidies oompltoly phased out by 1997 by mor borrowings 3(b) Neeeod Investmnt with a) Capkal Investment Y 284 billion Inominal) 12.7 48.9 83 al subsdies phased b) Bas tariff increa 9.6% p.s. 13.4% real out with 40% of cost c) 1.6 fenttkm ave. surchage Increase Ld Increase financed dl Subsidies compietely phasd out by 1997 by more borrowings an 0D% by tariff/ surcharge Incre"s 34c) Needed Investment with a) Captal Investment Y 264 billion (nominal) 14.0 16.1 89 aN subsidies phosed b) Base trff increase 9.6% p.m. (3.4% real) out with cost hI- c) 1.9 fen/dum ave. surcharge Increase il crease 100% financed dl Subsidies completly phasd out by 1997 by tariff/surchwrg increases jt Doefwd Intermally generated cash used for capial inveetmnt dIvided by total capital Investment. & CouLid be achieved with a I fen/tkm creae In July 1993. L Could be achieved with a 1 fenJtkm Inroas in July 1993 nd a 0.45 fen/ttm creas In July 1994. Li Could be achieved with a 1 fenttkm Increse in July 1993 and a 0.90 fen/tkm Incres In July 1994. jt Could be achieved with a I fentkm incres In July 1993 and a 1.45 fen/tkm nrease in July 1994. in the Base Case. At any rate, this magnitude of new borrowings seems infea- sible, as it is probably too large for capital markets to absorb in a short period of time. 5.12 The analysis of Scenario 3(c) shows that, while tho borrowing ceil- ing is respected, the required increase in the combined tariff and surcharge level would be 93 percent in nominal terms (44 percent in real terms) over current tariff levels. However, the size of the tariff increase is likely to have an adverse impact on traffic and would hamper economic growth. Although this scenario is conservative in keeping debt to a minimum, the net effect would be inequitable since it would penalize current users for the benefit of future users. The self-financing ratio would rise to a high 89 percent.  - 47 - 5.13 The combination of more borrowings and higher tariffs (Scenario 3 (b)] appears to be the most prudent response for MOR in coping vith additional costs. This scenario results in new borrowings of Y 48.9 billion, base tar- iffs increased nominally by 9.6 percent per year (3.4 percent per year in real terms), and the surcharges increased by 1.45 fen per tkm in July 1994, all of which appear to be feasible. The self-financing ratio of 83 percent in also similar to the ratio of 85 percent for the Base Case. In view of the large railway capital investment to be financed in the next five years, these ratios are considered to represent a prudent level of self-financing for the opera- tion. This scenario would, however, require an increase in the coiling on borrowings toward the end of the decade. 5.14 The appropriate balance of borrowing and self-financing for capital investment should be further examined and adjusted to reflect the operation's changing financial situation in the coming years. Meanwhile, it seems conser- vative for MOR to keep the operation's self-financing ratio at or above 80 percent.3/ 5.15 A third possible factor that could financially affect the operation is the rate of increase in operating costs per unit of traffic, which may turn out to be higher than the rate of 7 percent per year assumed in the above analysis. The probability of such an outcome is relatively low, however, because the inflation rate for the economy as a whole has been sharply reduced since 1990 (the Bank has adopted a 6 percent forecast). Still, it is possible to adjust base tariffs and surcharges each year as inflation unfolds (provided that it is moderate). E. Conclusions 5.16 Given the current drive to speed up economic reforms, it is increas- ingly likely that the implicit subsidies will be phased out at a faster rate than previously, and that the level of railway investment will be increased to cope with faster economic growth. The effect of additional capital investment on the operation's finances will likely be much larger than the effect of phasing out all subsidies. The additional investment requirements (estimated at Y 70 billion for 1993-97) will require significant increases both in tariff levels and in borrowings. The financial impact of phasing out all subsidies over 1993-97 is significant (Y 22.8 billion over five years) but it can be absorbed through an increase in base tariffs. 5.17 A high level of self-financing for the railway transport operation appears to be a feasible goal. To support this goal, agreement was reached with the Borrower during negotiations that MOR and other relevant rovernment agencies will take all necessary steps to obtain a self-financing ratio of at least 80 Percent in 1994 and thereafter for the railway transDort operation rDara. 6.1(c)1. 3/ This level of self-financing ratio is substantially higher than the 25 percent level under the Fifth Railway Project because under Railways V substantial capital grants from the Gover-ment were assumed. It is now clear that these grants will not materialize.  - 48 - VI. AGREEMENTS REACHED AND RECOMtENDATION 6.1 During negotiations, agreement was reached with the Borrower on the following: (a) Through NOR the Borrower vill ensure that (i) the various implemen- tation activities listed in Annex 6 vill be completed by their cor- responding target date.; and (ii) during the period of operation of each investment subcomponent the corresponding performance indica- tors defined in Annex 7 (if any) will equal or exceed their targets (para. 3.53). (b) Through NOR the Borrower will ensure that land acquisition and resettlement of people affected by the electrification of the Beijing-Zhengzhou and Chengdu-Kunming lines will be carried out according to the plan agreed with the Bank (para. 3.56). (c) Through NOR and other relevant government agencies the Borrower will take all necessary actions, including but not limited to increasing base tariffs and surcharges, cutting costs, and improving productiv- ity, to generate in 1994 and thereafter funds equaling at least 80 percent of the following year's capital investments (para. 5.17). (d) Through NOR and other relevant government agencies, the Borrower will: (i) by October 31, 1993, complete the tariff study and, on the basis of results of the costing and other analyses as well as in consultation with the Bank, prepare a set of recome ndations and plans to rationalize railway tariffs with respect to their overall level, structure, and the flexibility vith which NOR can adjust them; and (ii) thereafter take appropriate steps to implement the recommendations and plans taking into account the Bank's com-nto (paras. 3.8-3.10). (e) Through MOR and other relevant agencies, the Borrower will: (i) by March 31, 1994, complete the accounting study according to the terms of reference agreed with the Bank, and prepare in consultation with the Bank a revised set of railway accounting standards; and (ii) thereafter take appropriate steps to implement the new stan- dards taking into account the Bank's comments (para. 3.12). (f) Through NOR and other relevant agencies, the Borrower will: (i) by June 30, 1995, complete the managment and economic contract study, according to terms of reference to be agreed with the Bank and pre- pare in consultation with the Bank a set of recomendations and plans for improving MOR's internal management and its regulatory and contractual relationship with the Government; and (ii) thereafter take appropriate steps to implement the recommendations and plans taking into account the Bank's coments (para. 3.13). (g) Through MOR and other relevant agencies, the Borrower will: (i) by October 31, 1993, complete the rail-based container transport study according to the terms of reference agreod with the Bank and prepare  - 49 - in consultation with the Bank a set of rocameendations and plans for expanding and modernizing rail-based container traneport services; and (ii) thereafter take appropriate steps to implement the recom- mendations and plans taking into account the Bank's comments (para. 3.36). (h) Through NOR and othar relevant agencia, the Borrower vill: (i) by October 31, 1993, complete Phase I of the cost-effactive technology evaluation study according to the terms of reforence agraed with the Bank and preparo in consultation with the Bank a set of recommenda- tions and plans for upgrading railway technologies; and (ii) there- after take appropriate steps to implement the reco mmendations and plans taking into account the Bank's comme nta (para. 3.38). (i) Through NOR and other relevant agencies, the Borrower will: (i) by September 309 1994, complete the nvironmental protoction study according to terms of reference to be agroed with the Bank and pre- pare in consultation with the Bank a set of recomm ndations and plan. for strengthening NOR's environmental protection capability and addressing railway pollution problems; and (ii) thereafter take appropriate steps to implment the reconmendations and plans taking into account the Bank's comments (para. 3.39). 6.2 The approval of the Loan Agreement by the Borrower's State Council would be a condition of loan effectiveness. 6.3 Subject to the above, the proposed project would be suitable for a loan of $420 million to the People's Republic of China. The loan would be for a term of 20 year., including a grace period of 5 years, at the Bank's stan- dard variable interest rate.  - 50 - CONTRIBUTIONS This report has been prepared with contributions of )OR staff and many other people, including the following: * Victor Alalouf (Costing) * Philip Anderson (CZTE Study, Assistance in Track Maintenance, Reviewers NIPS, White Cover) * Rozih Baba [Adm-nistrative Support) * Patricia Brereton-Miller (Reviewer: Green Cover) * David Butcher [Resettlement Plan) * Peter Cook (Economic Evaluation, luvestment Planning, Performance & Monitoring Indicators, Assistance in CZTZ Study) * Ananda Covindassemy (Peer Reviewer: FZPS, White Cover) * Meredith Dearborn (Word Processing) * Hennie Deboeck (Financial Analyeis, Tariff Study, Accounting Study] * Pedro Geraldes (Peer Reviewer: IEPS) * Daphne Glass (Word Processing) * Joseph Goldberg (Reviewer: IEPS, Green Cover] * Ratim Hajj (Reviewer: Green Cover] * William Harris [CZTZ Study) * Tariq Hassan (Legal Advice] * Ernesto Henriod (Procurement Advice) * Nikola Holcer (Telecommunicationsl 3 Mary Louise Hollowell (Editorial Support) J Jae Holt (Poer Reviewer: Yellow Cover] Omar Jung (Locomotives L Rolling Stock) e Emile M. Karman (Investment Costs & List of Goods Assistance in Procurement) e Rebecca Kary (Editorial Support) @ Albert Keidel (Peer Reviewer: Yellow Cover) Y To Kimura (Project Advisor, Reviewer: IEPS, FIPS) C Yung Koo [maps) * Bhavani [rishnamurthi (Assistance in Economic Evaluation] * Jeffrey Leckaell (Maps) C Hernan Levy (Reviewer: White Cover] 5 Udo Marggraf (Investment Costs L Procuremont, Capacity Expansion, Track Maintenance] * Robert MckAfee (THIS, Management and Economic Contract Study, Assistance in CETE Study) * Milo Melrose (Assistance in Locomotives L Rolling Stock) 5 Suzanne Morris (Disbursement Advice) C Alice Moy [Administrative Support] A Anthony Ody (Peer Reviewer: UIPS, FEPS, White Cover, Yellow Cover) * laine Patterson (Reviewer: Green Cover) * Moham_ed N. Resheed (Environmental Protection Study, Assistance in Tariff Study] * Selina Shum (Reviewer: Yellow Cover] * Anil Somani (Environmental Study) * Jonathan Stevens (Container Transport Performance Indicators, Inviromental Impacts (other than resettlement)) * Louis Thompson (Lead Advisor, Peer Reviewer IEPS, PEPS, Yellow Cover) * Willard B. Thompson (Pilot Container Transport, Container Transport Study, Assistance in Tariff Study) * Lee Travers (Resettlement Plan) * Adelma Trim (Word Processing) * Shunso Tsukada (Pilot Container Transport (with Economic Evaluation), Container Transport Study, Management and Economic Contract Study, Mission Organization, Project Processing) * R. Venkateawaran (Assistance in Accounting Study) * K. Viewanathan (Peer Reviewer: FEPS, White Cover, Yellow Cover) * Cynthia Warren (Administrative Support) * Huikang Xu (Mission Liaison in China) * Zang-Ming Xu (Assistance in Economic Evaluation, Statistics, Graphics)  CHINA SIXTH RAILWAY PROJECT Freight Traffic Intensities and Road and Railway Network Density in Selected Countries Freight Traffic Intensities in Selected Countries CatmtryArea TonsOriginated/-a Ton-km/-a Average Estimated GNP Tons/S1,000 Ton-km)$GNP Country (million sq km) (millions) (billions) Distance (kmy-a($ billion) of GNP China 9.6 9,611 1,806 180.0 359.2 26.8 5.0 USSR 22.4 14,059 8,773 624.0 1,065.0 132 8.2 USA 9.4 8,264 5,818 704.0 4,886.6 1.7 1.2 India 3.3 551 335 608.0 277.3 2.0 1.2 Brazil 8.5 1,081 453 419.0 311.9 3.5 1.5 Japan 0.4 6,150 508 82.6 2,577.1 2.4 0.2 I-a Includes rail, highy, inland waterway, pipdine, and air freight only. Road and Railway Network Density in Selected Countries Population Area Rail Length Rail Density Road Length Road Density Country (million) (million sq kn) (1000 km) (km=OOO pop) (kmntO sq km) (1000 km) (kmfOOO pop) (km=t00 sq kn) China 1,143 9.6 53.4 0.05 5.56 1,028.3 0.9 107.11 USSR 307 22.4 146.7 0.48 6.55 1,174.8 3.8 52.45 USA 246 9A 205.0 0.83 21.87 6,230.0 25.3 664.68 India 816 33 62.2 0.08 18.93 1,800.0 2.2 547.61 Brazil 144 8.5 31.2 0.22 3.66 1,675.0 11.6 196.78 Japan 123 0.4 43.0 0.35 113.71 1,110.0 9.0 2,936.46 Source: C}INA Statistical Yearbook of China 1991 (Date for 1990), pp 498-499 USSR: A Study of the Soviet Bconcmy, Volume 2, (International Monetary Fund, The World Bank Organization for Economic Cooperation and Development, and European Bank for Reconstuction and Development), February 1991, p. 106-108. Data for 1988. USA National Transportation Statistics Annual Report, U.S. Department of Transportation, Research and Special Program Administration, July 1990, p.103. Transportation in America, 1989,p. World Transport Data, International Road Transport Union, p180. Data for 1988 INDIA: World Bank estimates based on data of Government of India, Economic Survey, 1988/89 and Perspective Planning for Transport Development Roads: Estimate based on World Transport Data, op cit. and World Bank information. Road data for 1987-88 BRAZIL World Bank Statistics 1985-1989, Intemational Road Federation, 1990, Section 5. World Transport Data, Intemational Road Transpoit Union, p. 130. World Bank. Appraisal Report, Highways Management and Rehabilitation Report, 1989. Road Figures: 1987 JAPAN World Road Statistics 1985-1989, Intemational Road Federation, 1990, Section 5. World Transport Data, Intemational Road Transport Union, p. 214-216. World Bank data for 1988 Area & GNP The World Bank Development Report, pp. 178-179 Pik Tsb18xl&fn  - 52 - Table 1.2 CHINA SIXTH RAILWAY PROJECT7 Freight Traffic by Mode (billion ton-km) Domestic Pipe- Civil Ocean Rail Road waterway line aviation Total Shipping 1952 60.2 1.4 11.8 - 0.002 73.4 2.8 Modal split (%) 82.0 2.0 16.0 - - 100.0 - 1977 456.9 25.1 102.1 38.7 0.076 622.9 174.1 Modal split (%) 73.4 4.0 16.4 6.2 - 100.0 - 1979 559.9 74.5 139.3 47.6 0.123 821.4 317.1 1980 571.7 76.4 152.1 49.1 0.141 849.4 353.2 1981 571.2 78.0 150.7 49.9 0.170 850.0 364.3 1982 612.0 94.9 170.8 50.1 0.198 928.0 376.9 1983 664.7 108.4 181.1 53.4 0.229 1,007.7 397.7 1984 724.8 153.6 196.1 57.2 0.311 1,132.0 437.4 1985 812.6 169.3 237.1 60.3 0.415 1,279.7 532.9 1986 876.5 211.8 270.0 61.2 0.481 1,419.9 594.8 1987 947.1 266.0 288.9 62.5 0.650 1,565.2 657.6 1988 987.8 322.0 310.4 65.0 0.730 1,686.0 696.6 1989 1,039.4 337.5 349.8 62.9 0.690 1,790.2 768.9 1990 1,062.2 335.8 345.1 62.7 0.820 1,806.6 814.1 1991 1,097.2 342.8 396.5 62.1 1.010 1,899.6 899.0 Modal split (%) 57.8 18.0 20.9 3.3 0.1 100.0 - Growth rate % p.a. 1952 - 77 8.4 12.1 9.0 - 15.7 8.9 18.0 1983 - 84 9.0 41.7 8.3 7.1 35.8 12.3 10.0 1984 - 85 12.1 10.2 20.9 5.4 33.4 13.0 21.8 1985 - 86 7.9 25.1 13.9 1.5 15.9 11.0 11.6 1986 - 87 8.1 25.6 7.0 2.1 35.1 10.2 10.6 1987 - 88 4.3 21.0 7.5 4.0 12.3 7.7 5.9 1988 - 89 5.2 4.8 12.7 (3.2) (5.5) 6.2 10.4 1989 - 90 2.2 (0.5) (1.3) (0.3) 18.8 0.9 5.9 1990 - 91 3.3 2.1 14.9 (1.0) 23.2 5.1 10.4 1982 - 91 6.7 15.3 9.8 2.4 19.8 8.3 10.1 * Exclude ocean-going transport. Source: Statistical Yearbook ofChina-1992, Table 12-8, p513 FPibTabWL2wAa1&_  Table 1. 3 - 53- CHINA SIXTH RAILWAY PROJECT Passenger Traffic By Mode (billion passenger-hIn) civil Rail Road Waterway Aviation Total 1952 20.1 23 2.5 0.024 24.8 Modal split (%) 80.9 9.1 9.9 0.1 100.0 1977 1023 44.8 9.7 1.834 158.7 Modal split (%) 64.5 28.2 6.1 1.2 100.0 1979 121.6 603 11.4 3.5 196.8 1980 1383 73.0 12.9 4.0 228.1 1981 1473 83.9 13.8 5.0 250.0 1982 157.5 96.4 14.5 6.0 274.3 1983 177.7 110.6 15.4 5.9 3095 1984 204.6 133.7 15.4 8.4 362.1 1985 241.6 172.5 17.9 11.7 443.7 1986 258.7 198.2 18.2 14.6 489.7 1987 2843 219.0 19.6 18.7 541.6 1988 326.0 252.8 20.4 21.4 620.7 1989 303.7 266.2 18.8 18.7 607.5 1990 2613 262.0 16.5 23.0 562.8 1991 282.8 287.2 17.7 30.1 617.8 Modal split (%) 45.8 46.5 2.9 4.9 100.0 Growth rate % p.a. 1952 - 77 6.7 12.7 5.7 18.9 7.7 1983 - 84 15.2 20.9 0.0 41.6 17.0 1984 - 85 18.1 29.0 16.1 40.1 22.5 1985 - 86 7.1 14.9 1.9 25.1 10.4 1986 - 87 9.9 10.5 7.6 27.8 10.6 1987 - 88 14.7 15.4 4.1 14.7 14.6 1988 - 89 (6.8) 53 (7.7) (12.9) (2.1) 1989 - 90 (14.0) (1.6) (12.4) 23.1 (7.4) 1990 - 91 8.2 9.6 73 30.9 9.8 1982 - 91 6.7 12.9 23 19.7 9.4 Source: Statistical Yearbook of China- 1992, Tablel2-6, p. 511. nk Tbwosmik1*kt,f  - 54 - Table 1.4 CHINA SIXTH RAILWAY PROJECT Transport Investment vs. Economic Output in China (Y billion) Annual GNP Transport transport (current investment Year investment prices) as % of GNP 1966 -70 3FYP 15.0 /_1 935.0 1.6 1971 -75 4FYP 31.8 /-1 1,323.0 2.4 1976 -80 5FYP 30.2 /_1 1,758.0 1.7 1981 -85 6FYP 41.9 3,130.5 13 1986 -90 7FYP 89.1 6,8753 13 1980 5.9 447.0 13 1981 3.6 4773 0.8 1982 5.2 5193 1.0 1983 7.2 580.9 1.2 1984 10.0 696.2 1.4 1985 15.9 856.8 1.9 1986 16.7 969.6 1.7 1987 17.4 1,130.1 1.5 1988 19.0 1,406.8 1.4 1989 18.0 1,5993 1.1 1990 18.0 1,7695 1.0 1991 30.0 1,985.5 1.5 1980 -1991 average 13 /_1: Investment of FYPs includes Post and Telecommunications (about 4% of total). Source: Statistical Yearbook of China- 1992, Table 5-22, p. 162, table2- 12, p. 31 Statistical Yearbook of China- 1991, Table 5-22, p. 160 Other data based on SAR of China Sixth Railway Project, table 1.05, p. 88 Was. Tabl 04.uk1Abfintz  CHINA SIXTH RAILWAY PROJECT Investment in the Transport Sector (including Post and Telecommunication) (Y billion) Ist FYP 2nd FYP 3rd FYP 4th FYP 5th FYP 6th FYP 7th FYP 1953-67 1958-62 1963-65 1966-70 1971-75 1976-80 1981 1982 1983 1984 19851 1986 1987 1988 1989 19901 1991 Transport: Raihvay 5.9 10.4 3.4 11.3 17.3 4.0 1.4 2.6 4.2 5.9 7.7 8.5 8.7 10.2 9.0 12.1 12.6 Highway - - - - - - 0.8 0.9 0.7 1.2 2.3 2.7 3.3 4.2 4.3 5.5 - Waterway - - - - - - 1.3 1.5 1.9 2.6 3.7 3.7 3.9 3.2 3.6 4.8 - Avivation - - - - - - 0.1 0.1 0.3 0.3 2.1 1.3 1.4 1.3 1.0 1.5 - Pipeline - - - 0.0 0.0 0.0 0.0 0.1 0.5 0.1 0.1 0.1 0.1 - Subtotal - - - - - - 3.6 5.2 7.2 10.0 15.9 16.7 17.4 19.0 18.0 18.0 30.0 Post Telecm. - - - - - - 0.4 0.5 0.6 0.9 1.2 1.3 1.6 1.8 2.3 2.7 3.1 Total 9.0 16.3 5.4 16.0 31.8 30.2 4.0 5.7 7.8 10.8 17.1 18.0 19.0 20.8 20.3 20.7 33.1 Total Capital investment 58.8 120.6 42.2 97.6 176.4 234.2 44.3 55.6 59.4 74.3 107.4 117.6 134.3 152.6 155.2 170.4 211.6 Transport u % of total investment/ 1 15.3% 13.5% 12.7% 16.4% 18.0% 12.9% 8.2% 9.4% 12.1% 13.4% 14.8% 14.2% 13.0% 12.5% 11.6% 10.6% 14.2% /1: Investment of FYPs, before 1980, includes Post and Telecommunications (about 4% of total) Source: Statistical Yearbook of aCina- 1990, p.157, 167, 171. Statistical Yearbook of China- 1991, Table 5-22, p.160 Statistical Yearbook of China- 1992, Table 5-22, p.162 PA= 1Tb1OS.uk1&h*x I-  CHINA SIXTH RAILWAY PROJECT SUMMARY STATISTICS OF THE WORLD BANK- FINANCED TRANSPORT PROJECTS PROJECT LANA/ BOARD ACTUAL CLOSING Is Amount USS US$ Milion STATUS NAME (CREDITNo.) DATE EFFDC. DATE MiL (Bed cm SAR) (met of camiltiom) DATE BDak IDA Bank IDA RAILWAYS RailwayI 2394 03/27/84 07/llY4 lV31/90 220.00 219.25 CLOSED Raiwy II 2540 0S/1V85 1V22t85 06l134S 235.00 220.00 ONGOING Railwayy 2678(1680) 04/15/16 01V13/87 063W93 160.00 70.00 160.00 70.00 ONGOING Rawy IV 2968 0 "S288 03/27/89 IV31/93 200.00 200.00 ONGOING Inner Mongolk Railwy 3060(2014) 05/12/89 0103/90 1V3V56 70.00 80.00 70.00 80.00 ONGOING RailwayV 3406 O9t1 010192 12/31196 330.00 33mO ONGOING Subtool 1215.00 150.00 1199.25 150.00 IbWl L1n and Credit Amount in Million USS 1365.00 1 POR1SAND hree Porn 2207 11/082 02Z0V283 0V3W88 124.00 67.97 CLOSED SHUlPING Thnjin Port 2689 05/W6OW6 032W87 1231192 130.00 130.00 ONGOING Hinugpu Port 2877/(1845) 10%V7 1Y03188 1213193 63.00 25.00 63.00 25.00 ONGOING Dalin Port 2907/(1875) 02/9/88 1WM/88 1V31/93 71.00 25.00 71.00 25.OD ONGOING Ninbo & Shaugimi Ports 3006 1V13/88 0S/09/89 123193 76.40 76.40 ONGOING Xlamen Port 3007 1211388 0V09/90 013/194 36.00 36.00 ONGOING Ship Watc DEspon 2391 06/17/92 063W96 15.00 15.00 ONGOING Subtobl 500.40 65.00 444.37 65.00 Totial Ln and Credit Amount in Million USS 565.401 ROADS HIgiuay 1 2539/(1594) 05/14/85 1V04W85 0/391 42.60 30.00 29.60 30.00 ClOSED Beijing-Tvnin-nggu Exprusway 281V(1792) 05/12/87 12087 1231J92 25.00 125.00 25.00 125.0D ONGOING Sichiun nHglay 2951/(1917) 060/88 05/31/89 1V3194 75.00 5000 75.00 50.OD ONGOING Slanzi Highway 2952 0M=/88 05/31189 13194 50.0D 50.00 ONGOING Higbw y VI-Jiuni Prov. (1964) 02/D7/89 05/3V89 12131195 61.00 61.00 ONGOING Slmagdg Provincal Hvay 3037/(2125) 05t25/89 12111V89 06139 60.00 50.00 60.00 50.00 ONGOING Zhejisg Provical Higway Project 3471 05/19/92 09/0291 1V31/96 220.OO 220.00 ONGOING G ndong Provieclighway Project 3530 11117/92 01N 9 240.00 240.00 ONGOING Hamn Provimim Highway Project 3531 11V17/92 (W30S8 120.00 120.00 ONGOING Subtonl 832.60 316.00 819.60 316.00 Totbl In and Credit Amount in Million USS 1148.601 MULTIMODAL rmn PrivL Iansport 3316/(2226) 0W0/91 09/06/91 06196 100.00 53.60 100.00 53.60 ONGOING Subtonl 100.OD 53.60 100.00 53.60 Ten lcn nd Credit Amount in MilLon USS 153.601 URBAN TRANSPORT Shanghi Metro Tmport (2296) 09/11S1 09/10'91 06/3(Y9 60.00 60.00 ONGOING Subtoul 6000 60.00 H Tol Lon ad Credit Amount in Million USS 60.0D1 NOTALAMOUNT IN TRANSPORT PROJBCTS IN bMI USI 3292.60 :Tlbt. 1FOS~uk1*F)rD PaI  CHINA SIXTH RAILWAY PROJECT Freifht Traffic Caried by MOR (b0Iion ton-kn) 1970 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 %('91) Coal 96.00 110.20 101.10 124.20 148.10 164.70 176.70 183.20 199.76 213.15 233.55 259.59 277.00 285.74 299.51 316.18 344.64 341.42 31.2% Timber 32.40 39.00 33.60 39.80 43.60 45.60 51.20 49.50 49.32 53.15 57.49 62.93 66.23 64.89 58.32 57.89 53.64 51.52 4.7% Iron & Steel Products 26.30 34.20 30.30 35.50 49.50 52.70 46.80 42.40 44.59 49.43 56.83 64.81 74.94 75.61 69.86 72.62 80.59 80.62 7.4% Construction Materials 16.20 25.40 26.10 30.40 34.90 34.10 33.30 30.40 39.68 41.97 42.11 45.69 46.55 48.32 49.49 52.02 44.17 43.66 4.0% Petroleum 35.00 41.20 34.00 33.70 35.60 33.10 30.10 28.70 28.85 29.96 31.26 34.07 37.53 39.69 39.12 39.99 42.00 43.77 4.0% Nonmetallk Ores 12.30 19.30 20.40 23.50 27.90 26.10 24.60 24.20 24.17 28.06 31.42 33.87 35.45 35.39 38.22 43.99 41.58 40.08 3.7% Grain 9.90 12.50 12.40 14.20 12.00 16.90 22.10 24.70 24.08 26.32 28.36 42.59 42.41 57.33 55.54 53.61 56.55 66.86 6.1% MetalLic Ores 14.80 17.50 15.50 17.00 23.40 20.60 18.80 16.40 16.96 18.73 21.33 25.82 28.39 29.58 32.11 38.11 44.28 42.95 3.9% Fertilizer 5.90 6.30 5.40 6.70 9.20 10.90 15.70 17.90 18.69 18.06 19.38 16.55 16.10 19.98 22.58 25.81 26.81 32.21 2.9% Cement 7.80 5.60 5.00 5.60 7.10 8.00 9.00 9.60 10.30 11.00 11.58 13.42 14.42 15.20 14.81 17.22 15.41 16.34 1.5% Coke 4.10 4.90 4.57 5.10 6.60 7.30 6.90 6.90 6.49 7.30 7.68 9.59 10.38 12.61 15.36 17.28 19.46 18.06 1.6% Salt 6.20 5.30 5.00 6.50 7.20 5.60 5.10 5.40 5.56 6.23 6.60 7.36 9.27 10.32 11.90 15.43 12.45 13.40 1.2% Cotton 1.10 1.20 1.20 1.30 1.20 1.10 1.30 1.60 1.94 2.19 1.82 1.88 2.89 3.50 2.81 2.46 2.32 2.83 0.3% Smceianeo 82.20 102.00 91.60 112.40 126.90 132.00 129.10 129.30 140.52 157.89 174.06 192.99 213.46 247.41 276.41 284.68 276.21 301.06 27.5% Total 3520 424.60 386.17 455.90 533.20 558.70 570.70 570.20 610.91 663.44 723.47 811.16 875.02 945.57 966.02 1,0373 106010 1094.81 100.0% Sonwes: Miabtay ofRailways Swwcc:iR n  CHINA SDIXH RAILWAY PROJECT MOR's Freight Tonnage Orginated (million tal) 1970 1975 1976 1977 197S 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 %(.91) Coal 254.4 316.2 295.7 347.4 402.4 413.2 414.9 412.0 438.5 460.2 487.1 518.6 531.1 543.4 564.8 6089 628.7 626.0 42.3% Timber 28.7 35.0 32.2 35.3 38.0 39.6 42.4 40.3 41.0 43.0 45.8 47.1 48.1 46.0 42.5 41.2 36.5 34.9 2.4% Iron & Steel Products 30.6 41.8 3.9 42.6 58.9 63.9 60.8 55.2 58.8 6.4 67.6 74.5 85.2 84.9 79.4 79.4 83.0 83.1 5.6% Congruction Materab 88.9 136.0 136.0 152.2 170.0 166.7 1585 139.5 162.8 161.3 158.7 158.4 149.8 147.3 149.0 146.7 124.8 119.7 .1% Petroleum 37.0 62.2 58.0 56.2 61.2 59.3 55.6 49.8 50.4 53.8 56.1 58. 62.5 65.7 64.6 64.6 65.3 65.5 4.4% NonmetlIic Ores 32.3 47.4 48.8 54.0 62.2 60.6 59.8 57.9 5A6 63.0 65.9 70.6 72.5 71.8 75.4 82.0 78.6 78.2 5.3% Gain 20.8 21.9 20.5 24.6 24.6 284 31.5 34.3 34.7 35.6 35.9 45.0 46.5 55.4 54.6 53.2 54.3 62.2 4.2% Metallic Ores 40.7 51.8 46.4 49.9 64.9 61.8 59.0 53.4 56.5 60.3 64.3 67.2 70.0 72.6 74.2 79.9 86.7 U.7 6.0% Fertijir 10.0 10.9 9.6 12.0 16.6 18S 22.1 24.5 25.0 25.5 26.8 23.1 22.7 26.7 29.0 31.6 33.7 37.5 2.5% Cement 12.9 16.0 14.8 15.8 19.6 21.9 23.6 24.3 25.1 26.1 27.8 30.1 34.1 34.6 32.9 35.3 34.8 37.1 2.5% Coke 9.1 12.0 11.3 12.0 14.4 14.1 14.0 13.0 12.2 13.0 13.8 15.8 16.8 19.2 20.8 23.1 25.5 24.2 1.6% sa. A8 8.9 A5 10.0 10.1 9.0 9.3 9.0 9.0 9.0 9.3 9.5 10.8 10.4 11.2 13.2 11.2 11.2 0.8% Cottan 1.5 1.4 1.4 1.5 1.5 1.4 1.6 1.8 2.1 2.0 1.6 1.5 2.2 2.7 1.8 1.4 1.2 1.4 0.1% Miucelneous 90.0 105.9 99. 113.6 130.6 136.4 132.8 133.5 136.2 145.6 151.8 155.5 169.9 188.9 205.2 207.6 197.7 209.3 14.2% Total 665.7 867.4 821.1 927.1 t.075.0 1.095.1 1,085.9 1.0485 1.110.5 1.160.7 1.212.2 1,275.2 1,322.2 1,369.5 1,405.6 1,46.0 1,462.1 1478.9 100.0% Source: Minitry of Railways FUm.Tsb2m.wk1*fsAck F~ I.-  CHINA SIXTH RAILWAY PROJECT Average Distance of Freight Traffic Carried !N MOR (in km) 1970 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Coal 377 349 342 358 368 399 426 445 456 463 479 501 522 526 530 519 548 545 Timber 1,129 1,114 1,043 1,127 1,147 1,152 1,208 1,228 1,204 1,237 1,255 1,335 1,377 1,410 1,371 1,404 1469 1473 Iron & Steel Products 859 818 779 833 840 825 770 768 759 792 841 870 879 890 879 914 971 970 Construction Material 182 187 192 200 205 205 210 218 244 260 265 288 311 328 332 355 354 365 Petroleum 946 662 586 600 582 558 541 576 572 557 557 586 620 604 605 619 643 668 Nonmetallic Ores 381 407 418 435 449 431 411 418 412 446 477 478 489 493 507 537 529 513 Grain 476 571 605 577 488 595 702 720 695 739 791 946 912 1,034 1,016 1,008 1041 1076 Metallic Ores 364 338 334 341 361 333 319 307 300 310 332 384 406 408 433 477 510 484 Fertilizer 590 578 563 558 554 580 710 731 748 710 724 715 709 750 780 817 796 859 Cement 605 350 338 354 362 365 381 395 411 422 417 446 423 440 450 488 443 442 Coke 451 408 404 425 458 518 493 531 534 561 555 609 618 658 738 749 764 746 Salt 705 596 588 650 713 622 548 600 619 691 710 773 859 991 1,065 1,173 1114 1201 Cotton 733 857 857 867 800 786 813 889 946 1,101 1,175 1,250 1,331 1,323 1,542 1,755 1869 2030 Ln Mismcllaneous 913 963 925 989 972 968 972 969 1,032 1,084 1,147 1,242 1,256 1,310 1,347 1,371 1397 1438 Total 526 490 470 492 496 510 526 544 550 572 597 636 662 690 702 707 725 740 Source: Ministry of Railway and Statistical Yearbook of China- 1992, Table 12- 17, P519 File: Tab23.uwkl&fmVtx lb  CHINA SIXTH RAILWAY PROJECT MOR's Passenter Traffic and Average Passenger Travel Distance 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 Passenae (million) Suburban 162.6 167.7 186.2 190.0 194.6 195.0 192.5 2087 212.5 202.4 168.3 154.7 152.1 163.9 157.1 135.9 Other 533.9 537.2 600.4 617.3 6615 717.5 749.9 780.2 836.9 920.3 940.8 9187 962.1 1052.1 9709 813.0 Total 6965 704.9 786.6 807.3 856.1 912.5 942.4 988.9 1049.4 1122.7 1109.1 1073.4 1114.1 1216.0 1128.0 948.9 PsUeaer-km (!dllbu Subwban 3.6 3.8 4.3 4.4 4.6 4.6 4.6 5.0 5.2 5.1 4.1 3.8 3.8 4.7 4.4 3.9 Other 91.6 91.6 97.7 104.7 116.8 133.4 142.4 152.2 172.1 199.2 237.1 254.5 28Q1 321.1 299.0 257.1 Total 95.3 95.5 102.0 109.1 121.4 13.0 147.0 157.2 177.3 204.3 2413 25&3 284.0 325.7 303.4 261.0 a 0% Avece Distane (km) 0 Suburban 22 23 23 23 24 24 24 24 24 25 24 25 25 28 28 29 Other 172 171 163 170 177 186 190 195 206 217 252 277 290 305 308 316 Weighted Avc. 137 135 130 135 142 151 156 159 169 182 218 241 255 268 269 275 Source: Ministry of Railways Mls: Tab2D4.w*l&ftIVx j  CHINA SIXTH RAILWAY PROJECT Selected OcratiDnal Statistics of MOR. 1975-1991 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 19U8 1989 1990 1991 A. Route LIth (kin, at year gLd) Standard pup (1.435m) 45,218 43,711 43,917 44.778 49,034 49,225 49,474 49,833 50,905 51,041 51,419 51,787 51,911 52.067 52,482 52,673 52,711 Narrow pp (.m and 0.6 ) 770 770 770 756 769 710 703 703 694 695 695 695 695 695 700 700 700 VWide puge 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 Total 45.992 46,446 47,382 48,618 49,808 49,940 50,181 50,541 51,604 51,741 52,119 52,487 52,611 52,767 53,187 53,378 53,415 Of wikh: Daule trck 7.161 7,285 7376 7,630 7,900 ,119 8,263 8,613 9,183 9,671 9.989 10,013 11,186 11,771 12,52S 13.024 13,30 Electified 669 741 1,026 1,026 1,031 1,667 1,667 1,787 2,334 3,014 4,151 4,430 4,643 5,738 6,372 6,941 7,804 B. Staff (at yr end) Empnoy- (0W) 2,22 2300 2,345 2,542 2,565 2,615 2,710 2,763 2,844 3,053 3,124 3,200 3,247 3,293 3,30 3,381 3,420 C. Rdins Stock(averae of number at be,jnnina and end ofver) Steam locomotives Numberbin fieet 7,824 na. na. 7,828 na. 7,801 na. na. na. 7,551 7,674 7,542 7,381 7,130 6,687 6,279 5,986 (en. resar%) Available, % na. na. na. na. 93% na. na. na. na. na. na. na. na. na. na. na. na. ni^d locamodm 00 Numberin meet 1,352 na. na. 1,805 2.000 2,190 na. na. na. 3.102 3,511 4,017 4.400 4,836 5,256 5,680 6,111 Avaiabl, % na. na. Ra. ns. 84% na. na. na. na. na. na. na. ns. na. na. na. na. Elckomwdsmain line Numberin fleet 191 na. na. 221 206 287 na. na. na. 484 587 707 748 1,197 1,430 1,623 1,809 Available, % na. na. na. nA. 95% na. ns. na. nA. na. a.a. na. na. nA. na. na. n. Paaemr ca 13,715 na. na. 14,844 15,D0 16,157 na. na. na. 19,600 20,872 22,138 23,474 24,917 26,304 27,261 27,612 pdtcn ('WD) Bcz cm 38.7 na. na. 40.1 40.0 40A nA. na. na. 49. 52.7 54A 55.5 58.0 62.2 66.7 703 Oanddu 139.1 na. na. 150.7 159.0 165.4 na. na. na. 178.7 185.7 197.7 209.9 219.2 226.8 233.0 231.1 Flat ea 21.0 na. na. 20.7 20.0 20.8 na. na. na. 19.1 18.8 18.5 17.8 18.2 I.5 18.8 19.3 Tak can 31.1 na. na. 33.0 33.0 33.5 na. na. na. 32.2 31.8 31A 32.1 32.5 33.3 33A 34.1 Rouionated 2.5 na. na. 2.4 2.4 2.5 n.e. na. na. 3.7 4.0 4.0 4.3 44 4.7 5.2 5.6 Othn 2.9 na. a,. 3.1 3.9 3.8 na. n.a. na. 79 7.9 8A 8.6 8.0 7.5 7.8 9.6 Total ledt 2353 na. na. 250.1 258.3 266A na. na. na. 291.2 300.9 314. 328.2 3403 353A 364.9 370.0 Aisilable, % 94.8% na. na. na. 97.1% na. nA. na. na. 9.0% 100.0% 100.0% na. na. na. na. na. Flue T&b2es.n - cuntinued IP lb mo I.,  TakM. 235 Catinued 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 D. Traffic Poe" wafti Pamsengers of CoureRailway (milhi) 697 705 787 807 856 913 942 989 1,049 1.123 1.109 1.074 1.114.0 1.216 1.28 949 942 PmeaWa of Local Railway (Milien) 8.17 7.60 8.09 7A62 7.78 958 10.61 10.34 10.98 10.88 11.97 12.21 10OA5 10.50 10.09 8.24 8.72 Pasenjor -bnof Cntreltailwaya (oiL.) 95.259 95,470 102.015 109.061 121,373 138,03 146,987 157.200 177.339 204.315 241251 258.311 284.000 325.731 303,437 261,00 262,484 Passngepr-kmn of Local waiways (m0) 150 238 258 241 244 279 293 284 312 323 363 360 306 301 304 253 321 A-Viuae orne 137 135 130 135 142 151 156 159 169 182 218 241 255 268 247 275 300 (kin) pralgh umufi Not tam ofoeaternaiway(milhioa) 86735 821.2 927.1 1,074.9 1,09.O 1,065.8 1,048A4 1.11035 1,160.7 1,212 1.275.2 1,322.2 1.370 1.406 1,468 1.462 1,479 Not tama of Local Railway (mmiin) 2.21 1.95 2.60 2A63 2.40 2.70 2.84 2.48 2.71 2.86 3.19 3.42 3.70 4.40 4.69 4A47 5.00 Not km-kmof CamreRailway(Ial) 425 386 456 533 559 571 570 611 663 724 811 875.0 946 986 1.037 1.061 1.095 Not uai- kmof Local Railway(bil-) 0.95 0.8 1351 1.17 1.03 0.96 1im 1.08 1.21 1.29 1I41 1.47 1358 1.74 2.12 2.12 2.39 Average haul (kim) 489 470 492 496 510 526 544 550 572 597 636 662 691 701 707 725 740 Caueted TM (billio) 520 482 558 42 6m 709 717 768 "41 928 1I05 1.133 1,230 1.12 1.341 1,321 1,377 (CIXM -PK + TKld Tiafic densities (milliou) PKM per rents kn KAn. U.S. u.n. u.. .. 2.90 3.10 3.28 3.70 4.24 4.79 5.06 5.43 6.17 5.71 4.89 5.29 TKMper route ion 9.40 na. 11.1. M.A. 11.80 12.00 11.90 12.76 13.8 15.00 16.12 17.13 18.07 18.68 1930 19,86 20.50 CfCM per route km 11.60 una. unA. un. na. 14.90 15.00 16.05 17.52 19.24 20.91 22.19 23.52 24.85 25.21 24.75 25.79 Total locomotive-ha 741.19 716.25 787.29 883.83 918.14 1.n. una. AA. una. 1099.6 1183.01 1230.64 1278.00 1317.00 134L00 135.0 1385.00 (mi1lion lam) -By type oftraiL PAmaige 10.85 180.8 185.22 203.75 215.24 unA. .n. u.. .. 266.45 290.15 301.73 310.00 324.00 324.26 323.40 334.01 Preiglit 556.39 523.47 589.37 668.14 691.06 un. u. un.a .. 820.88 88.6 913.93 954.00 978.00 1002.11 1019.16 1033.74 - By typ of kactieu steam 609.46 578.95 621.99 676.55 689.70 na. unA. un. una. 702.92 683A63 636.17 595.00 562.00 516.20 472.80 431.68 Diead 121.31 126.97 152352 192.77 214400 u2.n. unA. una. u.. 348.83 433.16 50738 570.00 622.00 657.49 699.19 754.4 BEkrkj 10.42 10.33 12.78 14.51 14.44 uns. .na. una. un. 48.12 68.23 86.89 113.00 133.00 168.13 186.10 207.59 Mum kico- ba (ha" - ho) 520.02 49933 554.05 629.06 653.93 una. una. ns. una. 784.14 84.81 881.91 922.00 956.00 98333 9983 1019.74 (nl- ]mt)~e~rczu steam 425.77 397.56 430.9 472A45 482.49 u.n. una. un. .na. 491.42 468391 434.21 389.00 361.00 324.40 296.8 266.9 Diced 85.33 93.14 112.35 144.43 159.08 na. una. na. una. 254.68 325.86 386A62 442.00 487.00 518.01 550.25 583.38 Bectric 8.72 8.63 10.74 12.18 12.36 una. unA. unA. .n. 38.04 54.04 71.15 91.00 108.00 136.91 151.84 169.40 Freight car-han (mul.) Landed 10.262 9.316 10.764 12,396 12,907 ns. una. 11n. uns. 20.115 22,779 18.390 19.493 20,004 20.779 21.053 21.690 ld~ Empty, iuclude cabooses 3,037 2,703 3.037 3.530 3,742 una. na. una. u14. una. un. 5,061 6.216 5,354 5.358 5.940 5,915 OYQ a, Total 13,299 12,019 13.801 15.926 16.6.49 u.n. .na. nA. una. una. aa. 23.451 25.709 25,358 26.137 26.99 27.605 F Loaded freight carsr forwarded per day 51.789 48.341 54.23 62.234 62,789 61.298 58.620 61.300 63,149 64.856 67.228 68.911 70.00 70,400 12,919 72.369 72.911 Averagefreigbt car zruaround time (dSy3) 3.46 3.62 3.35 2.99 3.00 3.02 3.21 3.22 3.30 3 3 4 4 4 4 4 4.2 U'n Avenge fireight car tirnaround distance (km) 686 660 681 687 711 747 770 770 791 821 870 901 934 952 952 993 1.006 Fthe T`hb205.Nk1&fwtDM - cgmtinued  Table 2.5 continued 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 19U8 1989 1990 191 P. Perfomance Indicatam Paoge per p.e-r tain 604 608 632 610 642 na. Da. na. na. na. na. na. na. na. na. na. Fraigbt taffic: Average tain sze Loaded cars per tuin 28 27 27 28 28 na. na. na. na. na. na. na. na. na. na. na. Emptycanaper ain S 8 8 8 8.0 na. na. na. na. na. na. na. na. na. na. na. Total car per Vain 36 35 35 35 36 na. na. na. na. na. na. na. na. na. na. na. Average ain weight na. Grow tons 2,012 1,998 2.046 1,985 1,992 1.994 1,996 2,021 2,073 2,131 2,211 2,291 2,343 2,365 2,409 2,414 2,444 Net ton 1,139 1,126 1,159 1.182 1200 n.a. na. na. na. na. na. na. na. na. na. na. Avrag lod per oded frighbt car (net toa) 45 46 46 47 47 48.0 49 49 50 51 52 52 53 54 55 56 55 Ave spe of freight trains (bnh) *28.5 na. na. na. 29 29 29 28.0 28 27 28 29 28 28 29 29 30 Avap number of emplye per opationalkn 28 29 31 33 32 32 34 35 33.0 34.2 35 36 37 36 36 36 36 Yealy diatace covwed per avalale loco ('000): O Diad, main line 147 150 152 167 169 A. na. na. na. na. na. na. na. na. na. Bectic, main le 158 160 155 160 165 Ia.. na. na. na. na. na. na. na. na. na. Stem 122 119 122 127 129 na. na. na. na. na. na. na. na. na. na. Net ton-b per avilable freigbt car (million) 2 2 2 2.80 3 na. na. na. na. na. na. na. na. na. na. Soure: Mini"y of Ra ewa% ept where marked (#), which are nmuc estimte 000 m F v x ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~~~~~N  - 64 - Table 2.6 CHINA SIXTH RAILWAY PROJECT Raiwav Asset Utilization in Selected Countries China India USA /a Indicators (1990) (1989-90) (1990) Freight ton-km/route-km (million) 19.88 7.16 18.23 Passenger-km/route-km (million) 4.89 8.71 0.26 Freight ton-km/freight wagon owned (million) 2.91 0.88 1.24 /b Average net tons/wagon loaded (tons) 54.9 19.7 /c 80.4 Average freight wagon tumaround time (days) 4.0 11.3 N.A. Average freight wagon tumaround dist. (km) 993 1,428 Ic 1967 810 Id Average haul (km) 725 741 1188 Average number of staff per route-km 63.34 26.47 2.61 Traffic units per route kilometer (million) 24.75 /e 7.32 /e 18.49 /e Traffic units per employee (000) 391 /e 277 /e 7.072 /e /j Figures converted into nietc system UM/EMK - 22 Sep. 1992 h2 Includes wagons owned by wagon compaies and shippers /c Broad Gauge LA Mete Gauge /l 1 traffic unit = I passenger-km or I ton-knm Sources: China: Ministry of Railways India: Indian Railways Yearbook 1989-90 USA: AAR, Rairoads Facts, 1991 edition  SIXTH RAILWAY PROJECT Investment Costs and Loan Summary (US$ million) 1992 ~~1993 1994 1995 199 1997 TA Loos oc TW L o Foreign TOW LanmLLc Fuson TTW Loan LacdiFo oWW O FouWn TOWlml LocaLU F~c~ TOW Low Local F~S~ TOW Lamn Loci F~ TOW Lamn bT~AKriw ui 3.0 0.6 3.6 ... 15.2 3.4 18.6 --- 45.0 5368 96.8 26.4 52 3 90.2 142.5 40.8 22.2 41.2 63.4 32.0---------137.7 189. 327.0 99.1 Phya~~w*igaAclaa 0.1 0.0 0.2 ..0.8 0.2 0.9 --- 2.3 2.7 4.9 1.3 2.6 4.5 7.1 2.0 1.1 2.1 32 1.6---------6.9 9.5 16.3 5.0 Placw8VUan...s ... .----0.3 0.1 0.4 ... 2.3 2.7 50 1.3 3.9 6.8 10.8 3.1 2.4 4.5 7.0 3.5-9.0---14.1 23.1 7.9 3.1 0.7 3.8 - - - 18. -3 37 -19.9 -- 4-9.6 59.2 106.7 29.0 58.9 101.5 160.4 45.9- 25.6 47.8 73.6 37.1.--------153.6 212.6 366.4 112.0 kwaatnwt coWs 2.3 1.9 4.1 --- 23.7 37.1 60.8 --- 33.3 64 1 97.4 20.6 35 9 65.2 101.2 29.8 23.4 42.1 65.5 19.3 9.7 24 3 34.0 9.5 126.4 234.6 363.0 79.2 Pt,yaidoooWlgancla 0.1 0.1 0.2 --- 1.2 1.9 3.0 --- 1.7 3.2 49 1.0 1.8 3.3 5.1 1.5 1.2 2.1 3.3 1.0 05 1.2 1.7 0.5 6.4 11.7 18.1 40 Pricaca*.m&wcws ..a..--. --0.5 0.7 1.2 --- 1.7 3.2 49l 1.0 2.7 4.9 7.6 2.2 2.6 4.6 7.2 2.1 1.5 3.7 5.1 '1.4 6.9 17.1 26.0 6.8 2.4 2.0 4.4 =. 25.4 39.W6 68.0 -... 367 70.510O7.2- 2-2.7 40.4 7-3.4 11-3.9 3-3.5 27.2 4868 75.9 22.4 11.7 29.2 40.8 11.4 1437 263.5 407.2 900 Ir.M~mmwaa- -- --- - ----------14.3 16.8 31.1 31.0 6.6 7.8 14.4 14.3.----------------20.9 24.5 45.5 45.3 Pvicecortinganca ..- .-- - --------0.7 0.8 1.5 1.5 0.5 0.6 1.0 1.0-----------------1.2 1-4 2.5 -25 U1 -----------------150 17.6 32.6 32.5 7.1 8.3 15.4 15.3-----------------22.1 25.9 48.0 4768 jL and mow mad IwiNdtarjs-. .... ..0.6 0.3 0.9 0.3 0.3 3.0 3.2 3.0 2.2 17.2 19.4 17.2-----------------3.1 20.5 23.6 20.5 P?iyaimIWoitralrid~s.--------0.1 0.1 0.2 0.1 --- 0.1 0.1 0.1-------------------------0.1 0.1 0.3 0.1 Price ......a.....0.0 0.0 0.0 --- 0.0 0.1 0.2 0.1 02 12 1.4 1.2-----........0.2 1I.4 1.6 1.4 ----- -- --0.7 0.4 1.1 0.4 0.3 3.2 3.5 3.2 2.4 184 20.8 18.4-----------------3.4 22.0 25.4 22.0 ITImwmadTI l,was*maqt 05om..a..--s--14.5 28.6 43.1 17.9 39.9 56.0 96.0 45.2 26.0 47.1 73.2 31.3 10.7 23.3 34.1 16.9---------91.2 155.1 246.4 111.3 Physcal owrmgenciaa---------0.7 1.0 1.6 0.4 1.6 2.7 4.3 1.8 1.3 24 3.7 --- 05 1.2 1.7 ---- - ------4.1 7.2 11.3 2.1 Price coeitirgmes .. .. ..-0. 3 0,6 0.6 03 20 28 48 2.2 2.0 36 5.5 2.3 1.2 26 3.7 1.8---------5.4 9.5 14.9 6.6 -. . . . 155 301 45.6 18 6 43 5 61.5 105.1 49.2 29.3 53. 1 82.3 33.6 12.5 27.1 39.5 186---------100.8 171.8 272.5 120.0 Immslnwt Gods 0.3 0.1 0.4 --- 23.9 5.2 29.1 0.0 3.5 13.2 16.6 16.3 1.3 03 1.6 0.0 1.5 1.5 3.0 1.3---------30.4 20.2 507 17.7 phyJc.lcowtrdin rafcia 0.0 0.0 0.0 -- - 1.0 0.2 1.2 -- - 0.0 0.4 0.4 0.4 0.1 0.0 0.1 - -- 0.1 0.0 0.1 ---- - ------1.2 068 1.8 0.4 Proa iktw'.c*A - - - --. .. ..0.5 0.1 0.6 -- - 0.2 0.6 0.8 0.8 0.1 0.0 0.1 - -- 0.2 0.2 0.3 0.1---------0.9 0.9 1.8 0.9 0.3 0.1 0.4 .. WS2. -5.5 30.8 0.0 3.7 1T4.2 17.9- 17.5 1.5 -0.3 -1.8 -0.0 1.7 1.7 3.4 1.4---------32.5 21.7 54.3 19. Poirl aNW tacim, amoam k1eatmart codls --... . ....2.4 2.4 2.4 0.5 4.2 4.8 4.2 - -- 2.1 2.1 2.1-----------------0.5 8.8 9.3 8.8 ptw ial -o m .w n . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . - - PnosixxiVwigr..i..c.. .. .-0.0~ 0.0 0.0 0.0 0.2 02 0.2 --- 0.2 02 02 -0.0--- - - ---- - 0.4 0.4 0.4 .. .. .... ..2.5 25 2.5 0~5 4.4 5.0 44 --- 2.3 2.3 23-----------------0.5 9.2 9.7 92 lInvssfftmea40" 55 2.6 8.1 --- 77.9 77.0 154.9 20 6 138 9 211.1 3.47.9 146.7 124.4 230.0 354.4 135 6 57 9 108.1 15660 69.5 9.7 24.3 34.0 9.5 412.3 653.0 1.065.3 381.8 * Phy-Icacontingeocb 03 01 04 ..3.7 32 6.9 0.4 5.6 9.1 146 4.6 5.81 101 15 9 35 29 5.3 82 26 0.5 1.2 1.7 05 18.7 29.1 478 11.6 09 Or' Pncoo rtw,la,...c..a......15 1.5 30 0 4 6.8S 10.5 17.3 72 94 17.3 26.6 10 0 64 11 9 18.2 7.5 15 3.7 5.1 1.4 25.5 44.8 70.3 26.6 5-8 -27 8-5 --- 831 817 164-9 215 149 3 W 236 379-9 15_85 1396 257-4 39l69 141 71i 125-3 i1925 796a 117- 292T 408- 114 45.T27-0 1183.5 420.0 Sourva: MiOWy of RAIAbSaa and MWtam aedOWas (Jan1-3O Prb) uvJEWo - Fb. 18. i1013  CHINA SIXTH RAILWAY PROJECT Investment Costs and Loan Summary (Yuan million) 19199931994 1996 1997 1T87 L.N Fmipj ToW Loon LocW Pwaru Tao Loan LOW Faop TOM Lout La FmWp TOMU Lon Loca FaIgi TcO Lam Leco Fmauig TaW Low~ LaCW FCOr TO Lam, hus1,g,t 16. 1 3.8 198 ... - 3.5 2D.0 103.4 - -- 247.2 314.3 561.5 151.7 287.1 627.1 S6Al.1 234.5 1219 24068 362.7 163.6.756- ---- .7 1,106. 16861.7 570.0 Pl -jiaAosnr,Icias 0.8 0 2 1 0 --- 4.2 1.0 5.2 --- 12A4 15.7 281 7.6 14.4 264 40.7 III 6.1 12 0 18.1 9 2------- -- 376 56.3 93.1 26.6 Pviio ...u... m.....2.6 06 3 2 --- 237 30.1 53,9 7 6 47.3 0668 134A 17.7 290O 57.2 8662 20 2--- - ----1025 174.6 277.3 45.5 16.9 39 2108 --- 902 21.6 MA1 -- - 283.3 360.2- 6434 166.9 -346.7 6402- 9669 263.9 157-0 310.1 467.1 213.2..... .. ..896.0 1,336.0 2Z2320 644.0 kw-inbnm4 caf 12.3 11.0 23.2 --- 130 1 216.6 346.7 --- 183.0 374.5 567.5 1165 197.2 3811 5783 171.3 1266 24668 374.3 111.2 53.5 141.9 195.4 54.4 704,6 1.370.8 2075.4 456.4 Phyicaicoriicasgmcim 0 6 0.5 1.2 -- 6.5 10.6 17.3 --- 9.1 18. 27.9 5-9 99 191 28 9 8.6 6.4 12.3 i8.7 5 6 27 7.1 9,8 2.7 36.2 66.5 103.8 22.6 Prfc.o - g -- -- -- - -- 40 6.7 10.6 --- 17.5 35.9 53 5 5,9 32.5 62.8 962 129 30 5 564 889 12 2 16.8 U.? 615 8.2 10141 206 4 308.9 39.3 12-9 i11.5 2474 -. 140.6 234.1 374-8 *.. 2007 4,29.1 6388 T30.4 239.6 462.9 70o2 5 1928 T665 31 il64 481.I9 1i29.0- 730o 193.7 266.7 -653 841i2 I 64178 2489.0 57.5 coaMitma-- - - - - ---- --78.5 93.2 171.7 178.2 36.4 43.2 79.5 823.- - . . ........114.8 136.4 251.3 260.4 Phwicsl coseig--i-n-- - - --d-a- - --s- .. . . .. . . . . . .I .. . . .. . . . . . . -- . . -- . Pric.ctsitlvcoio ....s. ..... . .. .. 7.2 8.5 15.7 8 5 57 6.8 12 5 59----- .. ...... .... 12.9 15.3 26.2 14.4 ------ -- -- -- -- -- --86.7 101.8 1874 186.7 42.1 50,0 92.0 66.2.12-- . . .... .. . 77 151.7 279.4 274.8 a Infbwsa Cosa.. .. .. ..3 2 1.8 5.0 IS8 1.4 17.0 18 5 17.1 12.1 96.5 110.6 96.8.-- -- ........ .... 168 117.3 134.1 117.7 0 Physical-6 ng .. .. .. ..0.6 0.4 1.0 0.4 --- 05 0.5 0.5.-- .. ...... .. .. ...... .... 06 0.8 1.5 GA Pfnmc.cangw4mcs .. .01.. .. 0.1 0 2 --- 0.1 1.6 1.7 0.8 1.9 16 4 17.3 7.1.---- ---- ---- ---- 2.1 17.1 193 7.9 ..... .. .. 4.0 2.2 6,2 2 2 1.6 19.1 20.7 18.4 14 0 114 0 126 0 1059.- - . . .... .. .. 19.6 135.3 154.8 126.5 ba scodi - -- -.--86.0 167.1 252.1 102.8 233.3 327.5 560.8 259.8 1521 2 755 427.6 M80. 6381 137.4 201.1 97.0.--------534.2 9074 1,441.6 6398 Physcalowogenna .. .. .. . 38I 58 9.5 2,0 9.5 15.7 25.2 10.2 7.6 138 214 --- 3.2 6.9 10.1.------ -- -- 24.1 42.0 66.1 12.2 Paic.com*Wrm'............2.6 5.1 7.7 2.0 222 31.3 53.5 12,9 25.0 46 4 70 4 130 161 32.6 47.8 10.2.--- - -- 65.0 114.4 1794 380 ... .. ....91.4 177.8 289.3 11068 266.0 374.5 639 5 32.92 14.7 33-4.6 5193 193 1 82.1 176.9 259.0 107.2.---- ----623.3 1,063.8 1,6671 690.0 k,wsbut Cosa 1.7 0~3 2.0 --- 130.9 30.5 161.3 0.2 19 1 76,9 96 0 938 7.2 1.6 8,8 02 8.1 8.9 17.0 7.3.---- ----167.0 118. 265.1 101.6 PhiscaIooda geflci 0.1 --- 01 --- 5.5 0.9 6 4 --- 0.1 23 2.5 2.3 0.4 0.1 0.4 --- 0.4 01 0.5.----- ---- 6.5 3.4 9.9 23 Mice 9 .. ... .. ... 4 0 0.9 5.0 --- 1.6 7.2 9 0 46 1.2 0 3 1.4 --- 1,9 2.0 4 0 0.8.8 -- ---- .9 10.5 19.4 5.4 II8 03 2.1 I. 4. 2312. . 10 8. 1074007 8.7 19 10.7 0.2 10. 110 2. 8.6. F32-.0 144 10. PoIv ui and bh.m 111wAsumt m ---- ----.. -13 9 139 13.9 3.0 24.4 27.4 244 --- 12.3 12.3 12-.3... . .... .. .. 3.0 50.6 53.6 506 Nrcoodu------ --------- 0 3 0,3 0.3 0.1 1.2 1.3 1.2 --- 09 0.9 0.9.---- .. ...... .... 0.1 2.3 25 23 ..... ......14 1 14.1 141 3.1 25 6 28.7 25.6 --- 13 2 132 132.---- .. .. .... .. .. 3.1 529 56.0 52.9 hwusbnsutccg6 30 0 15.0 45.1 -- 432.6 449.8 8624 118.7 765 5 1,227.8 1,993.4 843.5 6920 1.339 3 2031,3 7794 3224 632.8 956.2 369.4 535 141.9 195.4 54.4 2,296.1 3.8087 6.102.8 19655 PhysW -i~gnWv-- 1.5 0.7 2 3 --20,6 188 39.4 2.4 31.1 52.9 841 26.5 32.2 59.3 91.4 20,3 16A 31.3 474 14.8 2.7 7.1 98 2.7 104.2 170.1 274.3 866. Pfro oovellcll's.-- -- ----13 4 13 7 27 1 2.2 72 6 115.9 188.6 41 6 1136 218.3 331.8 57.5 76 6 150.2 2268 433 16.8 447 61.5 8.2 293.0 542 8 835.8 1528 31.5 16.8 4i7.3- .. -486 482-2 9489 12-34 869.3 1,.396.7 2,-266 0 9VI116 837.8 ,6 1-68 2,464 6 8572 415 1 814.3 1,229.4 4574 73.0 193.7 266.7 853 2.6913 4.519 6 7,2129i 2.415.0 'U I-3 Uauc Ms 4I9 ft R p wwdU U smilrom (Jim.1-3 pi1fu) Mew?iC Feb. 16. 196 co  CHINA SIXTH RAILWAY PROJECT Investment Costs of CaDacity ExDansion Subcomponent Beiiina - Zhenazhou Line (USS 000) 1992 1993 1994 1996 199 Tota Local Forign TOW Loca Foregn Toa Locl Frign Tot Local Fooign Toe Local Forgn Total Local Folgu TotW Preparabon 2.952 648 3,600 5.078 1,115 6.192 5,392 1.164 6,576 5.015 1.101 6,116 --- --- 18.437 4,047 22.484 Roacbed 43 23 67 65 35 99 58 31 89 - -- - 166 8 255 Bridges and culverts -- ... 2 3 5 2 2 4 2 2 4 ... . 8 7 13 Track . .. 163 184 348 143 161 304 70 79 149 - -- - - 376 424 801 Communicaions ..0 ... .. . ... . 3,050 7,253 10,303 1,012 2,406 3.418. .. 4.062 9.659 13.721 Signalig - -- - - - 4.918 16.844 21.862 13,167 45,359 58,526 7.767 26.757 34,524 25.852 89.060 114.913 Elcric power -- - -- 430 2.558 2,988 357 2,126 2,483 257 1.527 1.784 1.044 6.211 7.255 Elcrcaoion -- - - -10,548 21.328 31.875 17,785 35,962 53,746 5.482 11.065 16,568 33.815 68.375 102,189 Bulings & Equipment- - - 4,514 952 5.466 10,039 2.118 12.157 6,289 1.327 7,616 4.429 935 5,364 25.272 5,332 30,604 Other Constuction- - - 5.408 1.141 6.549 9.585 2,022 11.807 5.885 1,242 7,126 3.053 644 3.697 23.931 5,049 28.980 Specal Equipment ... -.- - - 869 183 1,0S3 2,668 562 3,228 1.230 260 1,490 4.788 1.005 5.771 Total 2.92 go 36 152 " 318 ts.627 450.42 53.787 98 52. 90.197 142.5 22,219 4126 e3427 13727 189.258 32e98 Physical contingencies 148 32 180 760 171 931 2,252 2,689 4,941 2.615 4.510 7.125 1.111 2,080 3,171 6.886 9.463 16.349 Onasein Estmde 3 9 Q .8 1596 3.58 19.558 47 294 5GA47 103-770 5_4.21 94,707 149,2 23,30 412eg 8 0 144.813 196,721 343 334 Price contingencies % per year 3.80 3.80 1.90 1.90 2.70 2.70 3.40 3.40 % compounded 1.88 1.88 4.78 4.78 7.19 7.19 10.46 10.46 6.19 7.10 6.71 amount 301 68 368 2,261 2,700 4.962 3.949 6,810 10.758 2.440 4.526 6,986 8,951 14.104 23,055 Total Proiec Cost UNi M UIQ 16270 UR 97 119920 4s.sss 5@Z 10 732 58.JZ 10L51i 160387 2I 47.794 A 3 153564 212825 36,359 Souce: Mlnby d Raq wnd niealonsUmat.s (Jan-i 43 proe) UWEMK - Feb. 15. 1993 li-I I.@ _6 w0  CHINA SIXTH RAILWAY PRUJLCT Investment Costs of CAciaoty Expansion Subcomponent Chenadu - Kunmina Line (US$ 000) U62 Z193 1994 1996 low I?7 TOW LoCd Forin Total Local Fon Total Local FoWn Toal Local Foagn Toa Local Foein Total Local FoWn Totl Local Foen TOW Pipitllon 1.477 324 1,802 7,614 1,671 9,286 7,598 1,668 9,266 9.160 2,011 11,171 4.857 1,066 5.923 ...--- ... 30,707 6,741 37,447 Ro.dbd --- ... ... 1,207 650 1.858 1,513 815 2,327 1,665 897 2,562 1.233 664 1,6897 358 193 550 5,976 3,218 9,194 BudWg mId c*f ... ... --. 272 295 567 316 342 659 620 671 1,291 1,040 1,127 2.166 183 198 380 2,431 2,633 5.064 Tunnels.. ... --- 3,147 787 3,934 3,592 898 4,490 4,271 1.068 5,339 2,487 622 3,109 563 141 704 14.061 3,515 17,576 Track --- -- ... 1.131 1,275 2.406 885 998 1,882 1,402 1,582 2,984 1,678 1,892 3,570 639 720 1,359 5,735 6,467 12.201 C l lons. ... ... . 2,977 7,080 10,057 4,352 10.349 14.701 3.486 8.288 11,774 2.393 5,689 8,062 1.387 3,298 4,686 14,595 34,705 49.300 Sffli, ...-- ... 927 2,203 3.130 2,748 6,534 9.262 2,633 6,262 8,895 802 1.907 2,709 768 1,826 2,594 7,878 18,732 26.609 Ele c powr ... - ... 435 1,498 1,933 936 3,223 4,159 1,118 4,065 5,271 811 2,792 3.603 416 1.433 1,849 3.783 13,031 16.814 E lcbk ... .. . 632 2,177 2,809 5.348 18,423 23,771 5,443 18,751 24,194 4,449 15,327 19.776 2,191 7.540 9,741 18.063 62,226 80.291 Ir f equi ... .. . -6- . 8,584 8,584 -- 8,600 8,600 - - - 9,322 9.322 - -. 3,540 3.540 ... 2.385 2,385 . - 32.432 32,432 00 b uleous 775 1,567 2,342 5,361 10.840 16,201 6,051 12,236 18,287 6,073 12,279 18,352 3,674 7.429 11,103 3,236 6,544 9,780 25,170 50,896 76.066 IQIII ;2S2 1i89 43Ai 37Z062 33339 64 6216 lOllS5 234 34 028 1282399 BA PhygiCal cOKtgen 113 95 207 1,185 1,853 3,038 1,667 3,204 4,871 1,797 3,261 5,058 1,171 2,103 3,274 487 1,214 1,701 6,420 11,730 18,150 Onk Esdmate iu6 196 4 31 938-915 M 350 05 102 296 37 6A 761 24 5 4 1 11 35279 134 t 24L327 381146 % p m 3.80 3.80 1.90 1.90 2.70 2.70 3.40 340 3.60 360 S 80nmed 1.88 1.68 4.78 4.78 7.19 7.19 104.8 10.48 1433 1433 6.60 69 6683 uitount 468 732 1.201 1,674 3,217 4,891 2.713 4.924 7,637 2,572 4,619 7,191 1.465 3,653 5,118 8,893 17.1ff 26,039 Total BMWca 4351 25357 39.647 6S004 36679 7050 107A88 40450 73.400 11385 27167 48777 M 11893 29154 L 1.2 3473 407-185 Sow8: MW'y d Ra_eys and naiw adwrhm (Joii1 -93 pini) UMEMK - Fub. 15, 1993  CHINA SIXTH RAILWAY PROJECT Investment Costs of Track Maintenance Subcomoonent (US$ 000) 1994 1995 Total Local Foreign Total Local Foreign Total Local Foreign Total Heavy-duty track maintenance machines 12,688 14,880 27,589 6,624 7,769 14,393 19,313 22,649 41,962 Track uprading technology 96 113 209 --- --- --- 96 113 209 Monioring and inspection equipment 1,517 1,779 3,296 - -- . 1,517 1,779 3,296 Total 14.301 16.772 31.073 fiA24 7.789 2034 IQ.928 24,541 45.488 Physical contingencies --- --- --- --- -.-- --- Baseline Estimate 14.301 16.772 31.073 iA24 7.8 14.393 202B 24.91 45.468 Price contingencies: % per year 1.90 1.90 2.70 2.70 % compounded 4.78 4.78 7.19 7.19 5.54 5.54 5.54 amount 684 802 1,486 476 559 1,035 1,160 1,361 2,521 Total Proiect Cost 14.985 17.574 32Z55 i 71 LSZf 15.428 2208B 25.902 47.487 Soure: MinWty of RM wid miean etdmnue (JeF-I -93 prlo) UMVEMK - Feb. 15,1993 P-0 0r IA La  CHINA SIXTH RAILWAY PROJECT Investment Costs of Locomotive and Rolling Stock SubcomDonent (USS 000) 1993 1994 1995 Total Local Foreign Total Local Foreign Total Local Foreign Total Local Foreign Total Locomofive Gavwnors --- --- -- --- --- --- --- 2,347 2,347 --- 2,347 2,347 Governor manufacturing machines --- --- --- 94 730 824 78 522 600 172 1,252 1,424 Turbo supercharger manufact. machines 9-- --- --- --- 9g 730 829 99 730 829 Electric motor insulation test instruments --- --- --- 14 261 274 --- --- --- 14 261 274 Press for connecting rod manufacture ...o------- - 657 4,381 5,038 657 4,381 5,038 Injection pump/nozzle manufact. machines --- 26 261 287 63 417 480 89 68 767 Freiaht waaons Air brake manufacturing machines --- --- 130 1,304 1,434 308 2,034 2,342 438 3,338 3,776 Wheelset overhaul and manufacture line - -- . --- --- --- --- 901 6,102 7,003 901 6,102 7,003 Passenoer coaches Spot welder --- --- --- --- --- --- 104 678 782 104 68 782 Toal 2f 2L= ZJ1 2219 17.210 19420 247A 1976 22.2 Physical contingencies --- --- --- --- --- --- --- - --- -- - --- Baseline Estimate --- --- - -- 2= 2J 22 1.219 19L420 2AZ4 19.7 Z2.2 Technoloav transfer Freight car air brake design and manufact. --- - - -- --- 417 417 --- --- --- --- 417 417 Soluble silicate sand disperser 564 313 897 --- --- --- --- --- --- 584 313 897 Tol z --- 417 41 --- --- ---