India - Third Railway Modernization Project

Dswmemt.o The World Bank FOR OFFICIAL USE ONLY h-Al ;t4?3'r-/1A Reorl No. ?-4706-IN HMERHANDUM AlID RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK rOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$ 390 MILLION TO INDIA FOR THE THIRD RAILWAY MODERNIZATION PROJECT APRIL 15, 1988 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.  CURREUCY EQUIVALENTS Currency Unit * Rupees (Rs) Rs 1.00 = Pais& 100 UW 1.00 R Is 13.00 Rs 1.00 * US 0.0;7 Rs 1,000,000 - US$ 76,923 MEASURES AND EQUIVALEITS 1 Kilometer (km) - 1,000 meters (i) a 0.6214 miles (mi) 1 Meter (m) * 39.37 inches (in) 1 Kilogram (kg) 2.2046 pounds (lb) 1 Ton (t) 1 metric ton - 2,200 lbs ACRONYMS AND ABBREVIATIONS ADB - Asian Development Bank BG - Broad Gauge (1.676 m) BPKM - Billion Passenger Kilometers BTKM - Billion Ton Kilometers CIF - Cost, Insurance, and Freight C.&A.G. - Comptroller & Auditor General DCW - Diesel Component Works DF - Development Fund DRF - Depreciation Reserve Fund EMU - Electric Multiple Unit ER - Economic Rate of Return GOI - Government of India GTKM - Gross Ton Kilometers ICB - International Competitive Bidding IR - IndiAn Railways IRFC - Indian Railways Finance Corporation Km/h - Kilometers per Hour MG - Meter Gauge MGT - Million Gross Tons NG - Narrow Gauge (0.762 m and 0.610 m) NPV - Net Present Value NTKM - Net Ton Kilometers NTPC - National Transport Policy Committee OIS - Operating Information System PF - Pension Fund RDSO - Research, Designs and Standards Organization Indian Railways RITES - Rail India Technical and Economic Services RRC - Railway Reform Committee UIC - International Union of Railways UTS - Ultimate Tensile Strength (Kg/sq. mm) GOVERNMENT OF INDIA FISCAL YEAR April 1 - March 31 (All references are to GOI fiscal year unless specifically noted otherwise.)  lO FfCALW ONLY INDIA THIRD RAILIAY MODERNIZATION PROJECT LOA AND PROJECT SUOAY Borrower: Covernment of India Beneficiary: indian Railways Amount: Bank Loan US$ 390 million Terms: Repayment over 20 years, including a five-year grace period, at the standard variable interest rate. Onlending Terms: OI will on-lend the proceeds of the loan as GOI's capital-at-charge to IR in accordance with its standard arrangements for financing IR's capital expenditure program. IR pays a dividend on the total capital-at- charge at a rate determined by OI, currently 6.5% per annum. GOI will carry the interest and exchange risks. Financing Plan: Government US$ 816 million IBRD US$ 390 million TOTAL US$ 1,206 million sss==-==== = U== U Economic Rate of Return: 20% Staff Appraisal Report: Report No. 7047-IN Map No. 19974 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 disclased without World Bank authorization.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO INDIA FOR THE THIRD RAILWAY MODERNIZATION PROJECT 1. The following _meorandum and reco mendation on a proposed Loan to India for US$ 390 mill.on is submitted for approval. The proposed toaa would have a term of 20 years, including a five-year grace period, at the standard vAriable interest rate and would help finance track modernization. 2. Background: The Bank Group has a long history of involvement with Indian Railways (IR), with 16 operations since 1949, totalling almost $1.8 billion. Much has been accomplished in that period, and IR's fiaan- cial and technical performance compares favorably in many respects with other railway networks throughout the world. Despite this progress, IR is entering an important phase of its institutional growth with demand for rail transport expected to almost double by the year 2000. This will in turn place a premium on IR's capacity to absorb effectively modern tech- nology and to mairtain the progress made in improving operating efficiency. Internal resource generation will need to be further enhanced to help finance the substantial investment required to cope efficiently with ttis demand. 3. IR has recently completed a 15-year Corpor&te Plan which, together with an agLnda of key reforms recommended by the Railway Reforms Comittee (1985), provides a sound framework for continued assistance from the Bank Group. The Corporate Plan defines IR's economic role, identifies the investment and other measures necessary to fulfill that role, and contains a financing plan complete with cost reduction and revenue measures neces- sary to mobilize the funds required for the investment plan. IR proposes to accommodate traffic growth to year 2000 while maintaining the labor force at about its present size (implying productivity growth of 4.5Z p.a.) and reducing cost per unit of output by 151 in real terms. 4. Rationale for Bank Involvement: The principal rationale for continued Bank involvement is to support implementation nf IR's Corporate Plan. This would further the objectives of improving the quality of transport planning and investment, and promoting operational efficiency and increased cost recovery. Throughout the project, the Bank will monitor IR's progress in implementing the Plan in general, but will par- ticularly focus on operational and financial performance. In assisting IR to upgrade the quality of its track, the project will complement recent projects which have supported electrification and the modernization of motive power, rolling stock, and maintenance facilities. 5. Project Objectives: The project would seek to (i) improve the planning and execution of IR's track renewal, upgrading and maintenance program; (ii) enhance the quality and capacity of track by assisting IR overcome its substantial arrears in this area (thereby promoting more efficient train operations); and (iii) support IR's efforts to mobilize more resources internally.  -2- 6. Project Description: The proposed project would comprise: (a) renewal and upgrading of about 4,000 track kme on heavy density freight routes, using high tensile, long-welded rail, generally laid on concrete sleepers in improved ballast; (b) provision of modern track renewal and fiaintenance equipment, to improve the quality of this work and reduce track occupancy time in heavily trafficked corridors; and (c) training and technical assistance related to the above, as well as in general manpower planning. The total cost of the project is estimated at US$ 1,206 million equivalent, with a foreign exchange component of US$ 390 million (32X). A breakdown of costs and the financing plan are shown in Schedule A; retroactive financing up to US$ 10 million is contemplated. Amounts and methods of procurement and disbursements are shown in Schedule B. A timetable of key project processing events and the status of Bank Group operations in India are given in Schedules C and D, respectively. A map is attached. The Staff Appraisal Report, No. 7047-IN, dated April 15, 1988 is being distributed separately. 7. Actions/Conditions: During loan negotiations, agreement was obtained on the following: (a) annual review of IR's progress in implementing its Corporate Plan, within the framework of targets related to output, equipment availability and utilization, and labor productivity; and (b) that IR will maintain tariffs and take all other action necessary or appropriate to meet annually out of internally generated resources all operating expenses (including adequate provisions for depreciation) and dividend payment on capital-at-charge. 8. Benefits: By improving track quality in IR's major traffic corridors, the project will produce: (a) operational benefits resulting in fuel savings and improved utilization of locomotives and rolling stock; (b) savings in the costs of maintsanirAg track and rolling stock; and (c) capacity benefits from reduceri line occupancy required for track renewal and maintenance. Not all of these benefits can be readily quantified, but the internal economic rate of return from those that can be quantified reasonably is 20X. 9. Risks: From the experience with recent projects, the major risk is implementation delays. This risk,~ is being minimized by (a) confining Bank financing to a relatively small number of con'.racts;(b) reaching detailed agreement on all procurement arrangements during negotiations; (c) making extensive use of standardized procurement documents and (d) allowing advance procurement of equipment required to implement the renewal work. 10. Recoe_ndation: I as satisfied that the proposed loan would camply vith the Articles of Agreement of the Bank and recomend that the Executive Directors approve the proposed loan. Barber B. Conable President Attachment Washington, rD.C. April 15, 1988  Schedule A INDIA THIRD RAILWAY MODERIZATION PROJECT ESTIMATED COSTS AND FINANCING PLAN Estimated Costs aI Local Forei&n Total ------ (US$ million) ------ Track Renewal/Upgrading 610 244 845 Track Equipment 81 100 181 Locos & Rolling Stock 11 .. 11 Training & Technical Assistance 1 2 3 Total Project Base Cost 703 346 1,049 Price Contingencies 113 44 157 Total Project Cost 816 390 1,206 a/ Including an estimated US$ 323 million in taxes and duties. Financing Plan Local Foreign Total ------ (US$ million) ------ Co-ernment 816 - 816 I-BRD - 390 390 Total 816 390 1,206  INDIA unou IAW& OD 1 fPVttSS Motbd P?oect l eant IC$ LC3 Other VA 1/ Tota Track Ienewal/Upgrading 275 151 320 3/ 236 982 (275) (275) Track Equipment 113 6 3/ 86 207 (113) (113) Locomotives 4 3/ 4 Wagons 10 1 11 Technical Assistance 2 4 2 and Training - (2) (2) Total 388 161 332 325 1.206 (388) (2) (390) 1/ Figures in parenthesis are the amounts to be financed by the Bank. 2/ Customs duties and taxes. 3/ Direct purchase from IR. manufacturing plants or sole source suppliers in India, or employment of casual labor. 4/ According to Bank Guidelines. Disbursoments Amount Cateory_ US$ million X Equipment and Macerials for 388 100l of foreign expenditures Track Renewal and 100l of local expenditures (ex-factory) Technical Assistance & Training 2 100l of total expenditures 390 Estimated Bank Disbursements: (U8S Millions) Bank Fiscal Ysar FY89 FY90 FY91 FY92 FY93 FY94 Annual 10 30 85 125 100 40 Cumulative 10 40 123 250 350 390  ISchedule C INDIA THIRPD AILAUIY ODEUNIZATIOU PROJECT TIMETABLE OP KEY PROJECT PROCESSINGC EVENTS Tim taken to prepare: one yea Prepared by: Covernment with Bank assistance First IDA mission: September 1986 Appraisal mission departure: September 1987 Negotiations: March 1988 Planned Date of Effectiveness: July i, 1988 List of relevant PCRs and PPARs: Thirteenth Railway .roject (PPAR No. 6055) Railway Modernization and Maintenance Project (PPAR No. 7020)  OF 11 INDIA~~~~u11fD ml ST~~~~?UI 01 ME UOUP OPRRAT!0lS II 11Al l A. "aM LOANS A A s C (As of S ptmber 30, 1987) USO *illion Loam or Fiscal ( -t of CaaelltioUL_ C,.6it t*a of h~ LizL hazaa lekiD I adgu .41 61 Loraal 3,142.9 - 122 Credits fully disbursed - 7,749.6 - 842-IN 1979 Bombay VWter Supply II - 196.0 20.35 1648-IN 1979 amalgundam Thermal Pover 50.0 - 4.64 963-I 1980 Inland lisberies - 20.0 5.81 981-IN 1980 Population II - 46.0 7.51 1003-IN 1980 Tamil Nadu Nutrition - 32.0 5.69 1011-IN 1980 ;ujarst Irrigation 11 - 175.0 39.68 1012-IN 1980 Casbewnut - 22.0 8.36 1027-IN 1980 Singrouli Thermal II - 300.0 19.99 1034-IN 1980 Karnataka Sericulture - 54.0 9.11 1046-IN 1980 Rajasthan Water supply & Sewerage - 80.0 25.53 1053-IN 1980 Farakka Thermal Power - 225.0 11.13 1887-IN 1980 Faraklta Ther-al Power 25.0 - 25.00 1897-IN 1981 Kandi Watershed and Area Development 30.0 - 7.93 1072-IN 1981 Bihar Rural Roads - 35.0 6.60 1078-IN 1981 Mahanadi Bsrrages - 83.0 14.90 1082-IN 1981 Madras Urban Development I1 - 42.0 8.73 1108-IN 1981 M.P. Medium Irrigation - 140.0 36.19 1116-IN 1981 Karnataka Tank Irrigation - 54.0 14.75 1125-IN 1981 Razira Fertilizer Project - 399.1 25.51 1135-IN 1981 abharasbtra Agricultural lxt. - 23.0 0.08 1137-IN 1981 Tamil Nadu Agricultural kxt. - 28.0 4.03 1138-IN 1981 M.P. Agricultural Ext. II - 37.0 15.31 1146-Il 1981 National Cooperative Developeont Corp. I1 - 125.0 23.50 1172-IN 1982 Korba Thermal Power Project II - 400.0 135.84 1177-IN 1982 adbhys Pradesh Major Irrigation - 220.0 107.29 1178-IN 1982 West Bengal Social Forestry - 29.0 16.06 118S-IN 1982 Kanpur Urban Development - 25.0 10.11 2076-IN 1982 lasmgundam Thermal Power II 300.0 - 152.69 1219-IN 1982 Andhra Pradesh Agricultural Ext. - 6.0 4.01 2123-IN 1982 Refineries Rationalization 200.0 - 29.22 2165-I 1982 Rural zlectrificatiof III 304.5 - 59.69 1269-IN 1982 Kallada Irrigation - 60.0 4.37 2186-IN 1982 Kallada Irrigation 20.3 - 18.66 1280-IN 1983 Gujarat Water Supply - 72.0 55.96 1286-IN 1983 Ja_m/IKsebir and Baryana Social Forestry - 33.0 17.65 1288-IN 1983 Chnbsl Madhya Pradebh Irrigation II 31.0 11.53 1289-IN 1983 Subernarekba Irrigation - 127.0 59.44 2205-1 1983 Krishna-Godavari Exploration 165.5 - 37.02  -7- Schal Page 2 of 4 USS million Loan or Fiscal (Net of Cancellations) Credit Year of no,.