Reappraisal of a rail project in Thailand : an application of the Harvard transport models

S W P ^1342< lThis paper is not for publication. SWPv32vThe viro are thoso of the author and not neceasarily those of the Bank. INTEATIONAtL BAN FOR CONSTIUCMIH AND DSEVEMIBiT INTATICNAL DV T ASSOCIATION Economic Staff "rkin,g Paper No. 132 REAPP IaAL 0F A RAIL PRDJ]rT IN THAILAND An Application of the Harvard TrnMport M)d1es This study has two distinct but related purposes. The first is project rTraial. To assess the econowic benofita and costa of the rehabilitation program of the State Railway of Thailand fi- nanced with Wbrld Bank Loan 280-TH of 1961 after its iuplmentation, compare them with the benefita and costs estimated at the time of the appraiaal, and identify the factors responsible for the differ- ences. The second is odel evaluation. Tb test and improve the Transport Simulation Model developed by a study team at Harvard Ufiversity and assess 4 a uwefulnesa as a toll for investment analysis. The summary and conclusiona of the project reappraisal appear on page 3 and those of the model evaluation on psge 7. The study concluded that the railisay rehabilitation program was well conceived and moderately successful, having an ex-post return of 13 percent, but impleentation vas conaiderably d Way d. It also concluded that our adapted version of the Rail Simulation Model (part of the Trans- port Model) should prove readily applicable to rail investment analy- ysis in other developing countries. However, such more research is needed to make transport network models useful for the study of inter- modal competition. July 1972 Arturo Israel IBM Ecor )mics Department Transportation and Public Utilities Division  P REFACE The author wishes to thank the staff of the State Railway of Thailand, especially the General Manager, Mr. Saeng Chulacharitta, the Deputy General Manager, Mr. Achava Kunjara Na Ayudhya, and the Ccn- troller, Mr. Iukta na Thalang, for their collaboration .n gathering the necessary information for this study and for their valuable com- ments on an earlier version of it. Thanks are also due to Mr. Pradit Chandravatha and his staff. from the Ministry of Communications of Thailand, for their assistance in gathering information on road transport. Several members of the staff of the Economics Department helped in the preparation of the study. Mr. Leon Miller advised on the modi- fications required for the railway and network simulation models and Mr. Harald Schneider was the programmer. At different stages, Miss Elizabeth Bundi, Mrs. Iona Isaac, Mrs. Judith Mi3ares, Mioa Malathi Parthasarathy, and Mr. Ernesto Pernia collaborated in the model appli- cations. Mrs. Suzanne Henneman edited the text and designed the charts and figures, and Miss Isabel Villar (Maps and Charts) executed the traffic charts.  TABLE OF CON'%ENTS CHAPTER I Page Introduction, Summary, and Conclusions A. Purpose and Limitations of the Study . . . . . . . . . . . . 1 B. Outline . . . . . . . . . . . . . . . . . . . . . . . . . . 3 C. Sunmary and Conclusions: The Project Reappraisal ... . . . 3 D. Sumnary and Conclusions Regarding the Application of the Harvard Transport Model ... . . . . . . . . . . . . . . . 7 CHAPTER II Background A. Thailand's Economy and Transport System . . . . . . . . . . . 9 B. The Railway's Investment Programs and the Bank's Loans . . . . 12 C. Rail and Road Traffic Patterns, 1962-1968: Comparison of Total Road and Rail .3... . . . . . . . . . . . . . . . . i3 D. Rail Traffic Flows: Freight . . . . . . . . . . . . . . . . . 17 E. Rail Traffic Flows: Passengers . . . . . . . . . . . . . . . 19 F. Highway Traffic Flows ... . . . . . . . . . . . . . . . . . 21 CHAPTER III Methodology A. Introduction .... . . . . . . . . . . . . . . . . . . . . . 25 B. Data Processing: Traffic Data 28 C. Costs and Technical Data ... . . . . . . . . . . . . . . . . 30 D. Simulation of the Rail System: The Harvard Railway Model . . 33 E. Adapting the Model to Thailand ... . . . . . . . . . . . . . 36 F. Testing the Model: Sensitivity Analysis . . . . . . . . . . . 43 C. Simulation of the Transport System: Road and Rail Transport . 47 H. Evaluation of Transport Simulation Models . . . . . . . . . . 54 CHAPTER IV Benefits of the Railway Investment Program A. Ixztroduction . . . . . . . . . . . . . . . . . . . . . . . . . 61 B. Rail Model Results . . . . . . . . . . . . . . . . . . . . . . 61 C. Project Benefits .... . . . . . . . . . . . . . . . . . . . 68 D. Actual vs. Expected Benefits ... . . . . . . . . . . . . . . 80 E. Road.-Rail Coapetition . .......... . . ....... 88  - ii - CHAPTER V Project Costs and Schedules A. Costs .102 B. Schedules .... . . . . . . . . . . . . . . . . . . . . . . . 104 CHAPTER VI Benefit-Cost Analysis .109 ANNEXES ANNEX I Application of Gravity Model to Road Traffic. I ANNWX 2 Nodes and Links Used in the Application of the Rail, Highway and Network Models .to ANNEX 3 Application of Rail and Highway Models: Vehicle Characteristics and Costs ...... . 26 ANNEX 4 Rail Model Calibration .... . . . . . . . . . . . . . . . . . . 37 ANNEX 5 Application of the Network Model: Terminal and Distribution Costs 48 List of Tables. Charts. Figurem and Map Table 1. Thailand: Total Traffic by Road and Rail, 1962-1968 14 2. Thailand: Regional Distribution of Freight Traffic, 1962 and 1968 16 3. Thailand: Application of Rail Simulation Model: Treatmnt of Costs 32 4. Thailand: Calibration of Railway Model, 1968: Performance Factors 41  - iii - 5. Thailand: Calibration of Railway Model, 1968: Costs .42 6. State Railway of Thailand: Sensitivity Analysis: Cost Structure, Bangkok-Ban Phachi Link, 1968 .45 7. State Railway o' Thailand: Sensitivity Analysis: Performance Indizators, Bargkok-Ban Phachi Link, 1968 .46 8. Railway Model: Interrelations Between Operating Conditions and Conts 56 9. State Railway of Thailand: Simulated Average per Ton-Km and Passenger- Km Cost by Link, 1962-1968 .62-3 10. State Railway of Thailand: Simulated Average System Costs, Carload Freight by Commodit> Class, 1962-1968 .65 11. State Railway of Thailand: Evolution of Cost Structure, Simulated by the Rail Model, 1962-1968 .69-70 12. State Railway of Thailand: Performance Indicators, 1962-1968 . . . 71 13. State Railway of Thailand: Total Syetem Costs Simulated Under Different Investment A'ternatives, 1962 75 14. State Railway of Thailand: Breskdown of Siumulated Total Costs (CL Freight and Passenger TraffiL) Under Diffe:ent Investment Alte:natives,1968 .78-9 15. State Railway of Thailand: Simulated Performance Indicators Under Different Investment Alternatives (CL Freight &nd Passenger Traffic), 1968 .81-2 16. State Railway of Thailand: Simulated Average Costs per Ton-Km and Passenger-Km Under Different Investment Alternatives, 1962-1968 83-4 17. State Railway of Thailand: Estimated and Actual Traffic Revenues, Costs and Income, 1960-1966 .86 18. Loan 280-TH to the State Railway of Thailand: Estimated and Annual Benefits .87 19. Thailand: Highway Main-line Costs by Link, 1962-1968 .90 20. Thailand: Network MoC-el: Summary of Terminal and Distribution Costs, 1968. . .92 21. Thailand: Network Model: Breakdown of Terminal and Distribution Costi, 1968 . 93  - iv - Table 22. Thailand: Network Model: System Costs, Ton Km and Passenger Km for Three Costing Alternatives, Compec;z 'ith Actual Figures, 1962 and 1968 . . . . . . . . . . . . . . . . . . . . ... . . . . . . 94 23. Thailand: Network Model: Proportion of Freight Traffic Carried by Road and Rail for Three Costing'Alte'natives, Compared with Actual Shares, 1962 and 1968 . . . . . . . . . . . . . . . . . . . . . . . . 97 24. Thailand Network Model: Traffic Flows on Selected Links for Three Costing Alternatives (Freight, Class 2 and LCL, and Passengers), Compared with Actual Flows, 1962 and 1968 . . . . . . . . . . . . . . 98-9 25. State Railway of Thailand! Performance Indicators Based on Actual Traffic and on Traffic Simulated by the Network Model (CL Freight and Passenger Traffic), 1968 . . . . . . . . . . . . . . . . . . . 01 26. State Railway of Thailand: Second Investment Program, 1961-1966: Estimated and Actual Cost. . . . . . . . . . . . . . . . . . . . . 103 27. State Railway of Thailand: Second Investment Program, 1961-1966: Estimated and Actual Schedule. . . . . . . . . . . . . . . . . . . . 105 28. Loan 280-TH to the State Railway of Thailand: Procurement Schedule . . 107 29. State Railway of Thailand: Breakdown of Project Costs Used in Cost- Benefit Analysis, 1961-1968 . . . . . . . . . . . . . . . . . . . . . 110 30. State Railway of Thailand: Net Present Worth of Investment Program, 11nder Six Rates of Discount and Internal Rate of Return, for Each of Twelve Alternative Cases . . . . . . . . . . . . . . . . . . . . . 113-4 Chart 1. Thailand: Rail Freight Flows, 1968 . . . . . . . . . . . . . . 18 2. Thailand: Rail Passenger Flows, 1968 . . . . ... . . . . . . . . . . . 20 .3. Thailand: Highway Freight Flows, 1966 . . . . . . . . . . . . . . . . . 22 4. Thailand: Highway Passenger Flows, 1966 . . . . . . . . ... . . . . . . 24 Figure 1. i4ethodology Structure, Thailand Railway Post-Evaluation . . . . . . . . 27 2. Computational Procedure Employed in the Harvard Rail Simulation Model 34 3. Terminal and Distribution Activities . . . . . . . . . . . . . . . . . . 52 4. Intracenter Transfer and Distribution Links Used in Network Model. . . . 89 Map: Thailand! Road and Rail Links and Nodes Used in Study Simulatior. . 10  CHAPTER I INTRODUCTION, SUMMARY. AND CONCLUSIONS A. Purpose and Limitations of the Study 1. On April 28, 1961, the International Bank for Reconstruction and Development approved a loan of US$ 22 million to the State Railway of Thailand (World Bank Loan No. 280-TH) to assist in financing.its Investment Program for the period 1961-66. The total cost of the In- vestment Program was estimated at US$ 54.6 million equivalent. It included the procurement of diesel locomotives and freight cars, track renewal, replacement of timber bridges by steel bridges, remodeling of yards and improvements in the signalling and telecommunications systems. While the Investment Program was modified somewhat during its execution, its basic structutre wa: not changed. By 1967 it was nearly completed and US$ 59.0 million had been expended. 2. This study has two distinct but related purposes: a. Project reappraisal. To assess the economic benefits and costs of the project after its implementation, compare them with the benefits and costa estimated at-the time of the appraisal, tnd identify the factors responsible for the differences. b. Model e,aluation. To test the Transport Simulation Model developed by a study team at Harvard University and assess its usefulness an a tool f:.: investment analysis. The first purpose is specific to the project. The project reappraisal results are unique in the degree of detail made possible by the use of computer simulation techniques. The scope of the second purpose is more general but its results are no less practical, as our adapted version of the rail model should prove readily applicable to rail investment analysis in other developing countries. 3. Regarding the first purpose, the project under study is more complex than the usual transport project, as It goes beyond the simple construction of a well-defined single facility such as a road, port or airport. It is better described as an investment program in a singla  transport mode over a period of years, comprising investments in all types of equipment and infrastructure. The complexity of the program and interrelation of its parts cre&ted problems which would not have been encountered in reappraising a more conventionally defined project. We examined the benefits and costs not only of the whole package but of each of its components as well, and we considered the way in which the parts were related. 4. Because the Bank selected components of the Investment Program for financing on the basis of foreign exchange requirements and not on the basis of individual "merit," Tie did not confine our evaluation to the Bank- financed portions. In any case, the Bank's contribution was nade in the interest of the success of the entire prograsr and thus the effect of the Bank's contribution can be interpreted only in the context of the whole program's final outcome. 5. Because we were looking at the entire rail network rather than an isolated facility, we would have found it very difficult to ignore the rail network's interaction uith the highway network during the investment period. The importance of this interaction was especially great in this case because the investment period (1962-1967) coincided with the er.ergence of road transport as an important alternative mode throughout the country and the beginning of road-rail competition on a large scale. For these reasons we made an attempt to evaluate thie influence of road competition on the benefits of the project. 6. Our reappraisal focuses on the measurement of benefits. This approach is valid because a high proportion of the investment was used to purchase imported equipment which varied little in price, and a detailed analyeis would reveal few differences between most estimated and actual costs. Therefore, costs are analyzed only in a general way, while delays experienced in the investment schedule, which had a considerable impact ot, benefits, receive closer examination. 7. The limitations of reappraisals are well known;-/this study is no exception and its results should be interpreted with care. Although final cost figurea -or the project are available, we have been able to observe only a .ew years of the investment's total economic lifetime. While we have a reasonably good assessment of the rail-ways' operations and costs "with" the project, we can only make an educated guess of what the situation would have been "without" the project. And though we have bean quite successful in gathering data on rail operations, the lack of adequate railway cost estimates has been a serious handicap. Finally, while road transport data was just adequate enough to encourage us to analyze road-rail competition, It was still very incomplete, and the results of this intermodal analysis should be considered very provisional. 1/ See H. G. van der Tak and Jan de Weille, Reappraisal of a Road Project in Iran, World Bank Occasional Papers No. 7, John Hopkins Press, Baltimc.re, 1969, Chapter 1.  - 3 - Much data must yet be gathered in Thailand before a truly useful analysis of road-rail competition can be performed. 8. Regarding the second purpose, this study represents t- first attempt to use the Harvard Transport Simulation Model in a detaile-' analysis. A more general application of the medtl to investment alternatives for Colombia's transport sector used highly aggregated data and produced less precise results.!/ Nonetheless, our efforts to adapt this model for Bank use using detailed data have concentrated on the reil model. Further testing and adaptation of the highway and network models, which would have been beyond the scope of this project, is needed to complete our evaluation of the whole model as a tool for investment analysis. B. Outlire 9. Chapter II presents background material. It acquaints the reader with the main characteristics of Thailand and its transport sector, describes the State Railway's Investment Program and the traffic structure for road and rail between 1961 and' 1968, which is essential to an under- standing of the benefit analysis. Chapter III describer' the methodology used, that is, the application of the rail, highway and network models of the Harvard Transport Model. In Chapter IV, the impact of the project on the costs and performance of the rail system is evaluated, the benefits are measured and compared with those estimated in the appraisal, and the influence of road-rail competition on the outcome of the project is assessed. Chapter V briefly presents the differences between estimated and actual project costs and schedules. Finally, Chapter VI combines the results of Chapters IV and V to give an overall comparison of costs and benefits. C. Summary and Conclusions: -The Project Reappraisal 10. Our best estimate of the ex-post internal r&te of return of the railway investment program is about 13 pD-:.ent. The net present worth using a rate of discount of 11 percent, which is probably close to 2he cost of capital in Thailand, is B 96.4 million (US$ 4.63 million).2 Using 9 percent increases the net present worth to B 216.4 million (US$ 10.4 million). The benefits were composed solely of savings in rail operating costs and were based on actual-rail traffic patterns in the 1962-68 period. The benefits obtained in 1968 were projected until the end of the inveetment's technical lifetime. The return proved to be sensitive to relatively small changes in the investment's technical lifetime and to changes in the benefits calculated for 1967 and 1968. Sev,'tral additional factors, such as the incomplete evaluation of the impacc of the project on yard and terminal operations and the overestimation of some benefits, such as our do-ble counting of the development impact of the project, may bias the rucurn in 1/ D. T. Kresge and P. 0. Roberts, Systems Analysis and Simulation Models, The Brookings Institution, Washington, D. C., 1971. 2/ B = baht. B 20.8 = US$ 1.  some way, but it is very difficult to assess the overall effect of these biases. 11. Since ths original appraisal report did not attempt to calculate an overall return for the whole program, we cannot compare estimated and actual returns for the whole project. The appraisal does, however, provide a basis for reconstructing the expected rate of return for the diesel locomotive and new freight car investments, which turns out to Ws between 8 and 9 percent. Our calculations suggest that the actual return probably exceeded this level, as the benefits from the diesels' impact on direct oporating costs alone generate a rate of return of 6 percent. If the diesels' impact on operating practices (speed, train composition) are inc'iuded, the return approaches the average return for the whole program (13 percent). 12. As we have mentioned, the cost side of the reappraisal is the least interesting, as the total actual cost (exclulding items added af