India - Second Railway Modernization and Maintenance Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 9455-IN PROJECT COMPLETION REPORT INDIA RAILWAY MODERNIZATION AND MAINTENANCE PROJECT II (LOAN 2210-IN/CREDIT 1299-IN) MARCH 22, 1991 Transport and Energy Operations Division Country Department IV Asia Region Thi-s document has a restricted distribution and may be used by recipients only in the performance of l ~~~~their offcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = Rupees (Rs) US$1.00 = Rs 16.50 Rs 1,000,000 = US$60.60 ABBREVIATIONS AND ACRONYMS AC - Alternative Current BG - Broad Gauge DC - Direct Current DCW - Diesel Component Workshop-Patiala (Remanufacturing Plant for Locomotive Components) IR - Indian Railways kg - kilogram MG - Meter Gauge mm - millimeter oIS - Operations Information System UTS - Ultimate Tensile Strength FISCAL YEAR OF BORROWER Government of India: April 1 - March 31  THE WORLD SANK OB om Y Washington. D.C. 20433 U.S.A. Offict O D,ettv.C..wai March 22, 1991 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on India Railway Modernization and Maintenance Project II (Loan 2210-IN/Credit 1299-IN) Attached, for information, is a copy of a report entitled 'Project Completion Report on India Railway Modernization and Maintenance Project II (Loan 2210-IN/Credit 1299-IN)" prepared by the Asia Regional Office with Part II of the report contributed by the Borrower. No audit of this project has been made by the Operations Evaluation Department at this time. Attachment IThis document has a restricted distribution and may be used by recipients onily in the performance of their official duties. Its contents rnay not otherwise be discobsed without World Bgank authorization.|  FOR OFFICIAL USE ONLY RAILWAY MODERNIZATION AND MAINT NCE PROJECT II (LOAN 2210-IN/CREDIT 1299-IN) MPOJECT COMPLETION REPORT Table of Contents Paxne No. EVALUATION SUMMARY . . - ................. . i I. PROJECT REVIEW FROM BANK'S PERSPECTIVE . . . . . . . . . 1 Project Identity ................. 1 Background . . . . . . . . . 1 . . . . . . . . . . I Project Objectives and Description . . . . . . . . 1 Project Design and Organization . . . . . . . . . 2 Project Implementation . . . . . . . . . . . . . . 4 Project Results 7 . * . . . . . . . . . * . . . . 7 Project Sustainability *.. .. . . . . . . . . . 11 Bank Performance . . . . . . . . . . . . . . . . . 11 Borrower Performance . . . . . . . . . . . . . . . 11 Project Relationship . . . . . . . . . . . . . . . 12 Consulting Services and Training . . . . . . . . . 12 Project Documentation and Data . . . . . . . . . . 13 XI. PROJECT REVIEW FROM BORROwERS PERSPECTIVE . . . . . . . 14 III. STATISTICAL INFORMATION . . . . . . . . . . . . . . . T . 16 Project Data . . . . . . . . . . . . . . . . . . . 16 Related Bank Loan and/or Credits . . . . . . . . . 16 Project Timetable .. ... . ................. 17 Loan/Credit Disbursements . . . . . . . . . . . . 17 Project Implementation . . . . . . . . . . . ... 18 Project Costs and Financing . . . . . . . . . . 19 Project Results #...... . 99999 20 Status of Covenants . . . . . . . . . . . . . . . 22 Use of Bank ResourcEs . * * . . . . . 23 ANNEXES . . . . . . . . . . . . . . . . . . . . . . . . . 24 1. Economic 2. Indian Railways Performance Indicators 3. Indian Railways Financial Statements I 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.  -1i- INDIA RAILWAY MODERNIZATION AND MAINTENANCL PROJECT II (LOAN 2210-INICREDIT 1299-IN) PROJECT COMPLETION REPORT Preface This is the Project Completion Report (PCR) for the Railway Modernization and Maintenance Project II, for which Loan 2210-IN of US$20O million and Credit 1299-IN of SDR184.7 million (equivalent to US$200 million at the time of Board approval) were approved on November 16, 1982. The closing date was extended twice to September 30, 1989, two years behind schedule. The Loan and Credit Accounts were closed on May 31, 1990 after being fully disbursed. The Evaluation Summary and Parts I and III were jointly prepared by the India Transport and Energy Division (AS4TE) and the Infrastructure Division, Asia Technical Department, (ASTIN). The Beneficiary, Part II, was prepared by the Indian Railways (IR). Preparation had begun in September 1989 and was based on the Staff Appraisal Report, the Loan and Credit agreements, the supervision reports, correspondence between the Bank and the Beneficiary, and internal Bank memoranda.  - ii - INDIA RAILWAY MODERNIZATION AND MAINTENANCE PROJECT II (LOAN 2210-IN/CREDIT 1299-IN) PROJECT COMPLETION REPORT Evaluation Summar, Obiectives 1. The objectives were to modernize and improve diesel electric locomotive maintenance and reliability, improve the tecthology and performance of the mainline alternative current (AC) electric locomotive, and improve the operational efficiency of heavy bulk freight movements. Implementation Experience 2. There were five project components: (a) locomotive and rolling stock maintenance improvement, including establishment of a diesel component workshop (DCW) at Patiala in the State of Punjab and acquisition of parts and components for a unit exchange maintenance system; (b) acquisition and testing of modern AC electric locomotive prototypes, to provide the basis for a new locomotive design; (c) construction of high capacity wagons for bulk traffic, using a new design based on tests of modern bogie prototype'- V (d) test eguipment, technical assistance, and trair ag for DCV; and (e) test equipment, technical assistance, and training for bogie tests and other studies. 3. At the outset, negotiations were delayed over a year, mainly because of the Borrower's failure to make satisfactory progress in implementing an operations information system (OIS). The project became effective five months after negotiations (para. 4.4). Implementation required two extensions, resulting in a total of seven years from negotiations to closing. 4. At closing, DCW-Patiala (except for the locomotive remanufacturing facility) was fully operational. All parts and components for the unit exchange maintenance system had been acquired except for a small number of 3/ A bogie comprises the wheels, axles, and frame that support each end of the wagon. The tests were intended to replace the existing CASNUB bogie with one which was lighter weight and less rigid.  X iii - traction motors. Eighteen prototype electric locomotives had been purchased and tested as agreed, but up to now the test results have not let to any decisions by IR to acquire and manufacture a new design of electric locomotives. Procurement of wagon bogies for testing was delayed because of technical disagreements between the Bank and the tests had not been completed at loan/credit closing. The new-design, high capacity wagons were not acquired (para. 5.6), highcapacity wagon component was therefore redefined, and half of the funds were reallocated for materials. 5. Depreciation of the US dollar against the SDR under the IDA credit created savings of US$40 million, which financed priority items consistent with the original project objectives and description, and US$136 million was reallocated (para. 5.10). Results 6. Project results have equaled or exceeded appraisal expectations at DCW-Patiala, for the implementation of the unit exchange maintenance system, and for the availability of critical parts and components. Consequently, locomotives and rolling stock now spend less time in maintenance status and mc,re time in service (para. 6.2). Without the project, the pre-existing maintenance facilities and procedures probably would have been unable to provide adequate maintenance. IR very likely would be experiencing deteriorating locomotive and rolling stock availability and reliability, thereby reducing its capacity for moving goods and passengers. 7. However, the project failed to achieve its objectives of introducing modern designs for electric locomotives and high capacity wagons. Prior to completion of prototype locomotive tests in this project, IR decided to acquire and test other electric locomotives of a design that had not been proven in heavy-haul freight services similar to those in India (para. 6.3). A final choice between the alternative designs has not yet been made. Sustainability 8. The successful project components (DCW-Patiala and the unit exchange system) are likely to maintain an acceptable level of benefits throughout their economic lives (para. 7.1). Findings and Lessons Learned 9. This project contained complex development objectives such as the installation of a railway OIS and the introduction of major design changes in electric locomotives and high capacity wagons. One important lesson is that agreements on the underlying technical concepts necessary to assure achievement of project objectives such as the choice of wheel diameter axle load and rail steel quality should be reached during project preparation and not left until implementation. 10. Another important lesson is that, when the hank's development objectives include such complex technical objectives, the Bank must ensure that substantial, consistant and continuous consulting services are available  - iv - during project implamentation both to IR and to the Benk. In fact, the objectives of improving IR's locomotive and rolling stock designs are even more !nportant today than they were ten years ago and therefore should be included in any future project for IR, but only provided agreement is reached early in project preparation on the proposed improvements in design of locomotives and rolling stock.  -I - INDIA RAILWAY MODERNIZATION AND 14AINTENANCE PROJECT 1I (LOAN 2210-INICREDIT 1299-IN) PROJECT COMPLETION RE)ORT PART I: PROJECT REVIEW FROM BANK'S PERSPECTIm Proiect Identity P.7oject Name X Railway Modernization aud Maintenance Project II Loan/Credit Number s 2210-IN/1299-IN RVP Unit s Asia Country s India Sector s Transport Subsector : Railways Backaround 1.1 The Bank Group has supported the Indian Railways (IR) investment program since 1949 with 17 operations totaling almost US$2.2 billion. The first 13 operations had non-project specific formats and focused on financing part of the foreign exchange requirements of IR's investment program. These operations supported IR's foreign exchange requirements for the acquisition of (a) machinery and plant for IR manufacturing units; (b) materials, parts, and components for manufacture of motive power and rolling stock; and (c) materials and equipment for line improvements and telecommuni-ations. 1.2 To better respond to IR's needs, there was a departure from this format in 1979 to more project specific operations, starting with the Railway Modernization and Maintenance Project (Credit 844-1N). That project supported the urgently needed rationalization and modernization of IR's workshops and the establishment of a wheel and axle plant. Support for facilities rationalization and modernization continued under the recently closed Railway Modernization and Maintenance II Project (Loan 2210-IN/Credit 1299-IN), and under the ongoing Railway Electrification and Workshop Modernization Project (Loan 2417-IN) and Railway Modernization III Project (2935-IN). Proiect Obiectives and Description 1.3 The objectives of the Railway Modernization and Maintenance II Project (Modernization II) were to modernize and improve diesel electric locomotive maintenance and reliability, improve the technology and performance of IR's mainline AC electric locomotive, and improve the operational efficiency of IR's heavy bulk freight movements. 1.4 Modernization II included five project components: (a) locomotive and rolling stock maintenance improvement, including:  -2- (i) establishment of a diesel compone-it workshop (DCW) LS Patiala in the State oi Punjab to reclaim parts and components and remanufacture diesel electric locomotives; and (ii) acquisition of parts and components for a unit exchange maintenance system, together with wheels and axles to meet a production shortfall within India; (b) acauisition and testing of modern AC electric locomotive prototypes to provide the basis for adopting a new locomotive design to be manufactured in India under license; (c) construction of 11,300 high capacity wagons tor coal and other bulk traffic, incorporating corrosion resistent steel, roller bearings, and bogies of modern design based on tests of prototype wagon bogies financed by the project, in order to improve wagon reliability, reduce wear and tear on wheels and rail, and allow for future higher train speeds which would increase the line capacity of sections with very heavy traffic; (d) test equipment, technical assistance, and training for DCW-Patiala; and (e) test equipment, technical assistance, and training for bogie tests and other studies to conserve fuel and improve train operations. Project Design and Organization 1.5 Identification and Appraisal. A project was identified in early 1979, but an appraisal mission in June 1979 could not agree on the project scope. A new project was identified in April 1980 and appraised in January and February 1981, to be implemented in two phases: (a) Phase I, which became this project, Modernization II, and involved a loan of US$200 million and a credit of SDR 184.7 million; and (b) Phase II, which became the Railway Electrification and Workshop Modernization Project (Loan 2417-IN), and invol'ed a loan of US$685 million. 1.6 A third phase containing a project to support the installation of an Operations Information System (OIS) was set aside. Ultimately, the Phase I and II projects were appraised at a total cost of US$2,428 million, with a total foreign exchange component of US$850 million and Bank support of US$585 million. Both were complex and innovative projects. The conceptual foundation for both projects was the introduction of new, proven technologies into aspects of the railway operation where there had been no sigaificant technological progress during the previous fifteen years or more. Both the Borrower and the Bank understood the concept and appeared to agree that the time had come to act. However, initially there was considerable disagreement about how to proceed with the locomottve and rolling stock modernization, and most of all, with the installation of OIS.  -3- 1.7 Conditions for Negotiations. Modernization II originally was scheduled for negotiations in June 1981, or t.) soon thereafter as satisfactory progress had been made in several areas. These included the following three wyhich were cited in the appraisal mission letter and made cor.ditions of negotiations: (a) Development of OIS - For several years IR had been studying proposals for installation of an OIS to provide an on-line, real time computer based information system to control and monitor its freight and passenger operations. However, several Government ministries and departments exercised some aspect of control over the purchase of the necessar -omputing hardware and software and were reluctant to approve the import of existing, proven equipment and systems. Instead, they preferred to use the IR requirements as a catalyst and first example of a domestically based development effort. However, the Bank believed that domestic development of OIS would be costly, involve lengthy time delays, and present excessive technical risks. Thus the first condition of negotiations was that the Government would give assurances that Indian licenses and approvals would be forthcoming for importing the necessary computing hardware and software. (b) Financial Performance - For seven of the nine years prior to 1980- 81, IR failed to meet its dividend on capital-at-charge. The second condition was that agreement would be reached between the Government and the Bank on a plan of action and timetable for implementing key Railway Tariff Inquiry Committee recommendations to improve IR's financial performance and effectiveness. (c) Corporate Plan - IR had been developing a corporate plan limited to its manufacturing facilities. The third condition was that IR would provide the Bank a detailed timetable and terms of reference for preparation of a comprehensive corporate plan. 1.8 Negotiations of Modernization II were delayed from June 1981 until September 1982 because of failure to meet the conditions. At negotiations, an understanding was reached on a plan of action for implementation of OIS and related telecommunications. There were no conditions of effectiveness for Modernization II. Following Board approval on November 16, 1982, Modernization II became effective on February 23, 1983, five months after negotiations. 1.9 The Bank insistence on stringent conditions to promote the introduction of OAS required actions which were opposed to Government policies for indigenous development of information systems. This caused substantial delays in project negotiations and loan effectiveness. 1.10 The wisdom of including the OIS conditions in the Modernization II Project and later in the Electrification Project was affirmed in September, 1989, when all Government and IR approvals were received to install OIS first on Northern Railway and in the future on the other zonal railways. The approvals to proceed with OIS came after a redesign of the original system  -4 configuration substantially redu-ed its cost. IR's successful implementation of an on line, real tin.? computerized passenger reservation system also encouraged the granting of approvals. 1.3.1 In retrospect, it would appear that the Bank, after taking so strong a position in favor of OIS as conditions of negotiations and effectiveness of the Modernization II and Electrification projects, should have included the implementation of the first phase of the OIS as a project component. 1.12 Adequacy of Preparation. Modernization II was generally well prepared. The site for the location of the remanufacturing plant for parts and components and locomotives at Patiala was selected at an early stage and layouts including cost estimate of the plant were prepared in August 1980, well in advance of the appraisal mission in January 1981. The unit exchange parts for diesel locomotives to be acquired under the project were broadly identified during project appraisal (although no parts were included for electric locomotives). This was rectified during project implementation. Preparation of tender documents for procurement of the prototype AC electric locomotives was well under way and so was a program for testing of the locomotives, and the specifications were agreed during project negotiation. 1.13 The Bank assisted IR at an early stage with guidelines on procurement of test bogies for the high capacity wagon component. However, because the Bank and IR took so long to agree on the wheel diameter and asle loads to be tested, the component as originally defined was rot implemented. This issue should have been identified and resolved during project K preparation. Proiect Implementation 1.14 General. The project was implemented in the most satisfactory manner and changes were made in project content to realize the objectives. Because of earlier Bank operations, IR was acquainted with Bank procedures and requirements. Hence, it was expected that this project would be implemented smoothly. However, preparation of tender documents, evaluation of bids, and decisions on procurement of. prototype electric locomotives and test bogies took more time than planned. Because of delays, the closing date was extended by one year in May 1987 and by another year in June 1988, to September 1989. But during project implementation, project management procedures in IR were further improved, and follow-up projects should benefit from the improvements. 1.15 DCW-Patiala. At closing, the DCW-Patiala workshop was fully operational except for the locomotive remanufacturing facility, which will not reach its production target until after 1990. Construction of DCW started well, 'but civil disturbances and unreliable labor supply caused contractors to fall behind schedule Suppliers of machinery and equipment had problems communicating with plant management and in finding service staff willing to install machinery and give satisfactory service after delivery. To complete the DaW component, its scope had to be scaled down, but completion was nevertheless delayed by 24 months.  - 5 - 1.16 Unit Exchange. IR planned and implemented a satisfactory unit exchange maintenance system for diesel locomotives. It includes provision of parts for unit exchange pools, develop'uent of adequate capacity for remanufacturing parts, logistical support for parts movement, and the organization for monitoring and coordinating the system. The system is now in operation and functioning satisfactorily, and at loan/credit closing all necessary parts and components had been acquited except for a small number of traction motors. 1.17 Electric Locomotives. Except for 405 kilometers around Bombay which are operated with 1,500 volts direct current (DC) power supply, the power supply for IR's remaining 9,200 km of electrified lines is 25,000 volts AC. The locomotive used in the Bombay area is a DC-DC electric locomotive (DC power supply with DC traction motors), while the locomotive on the larger network is an AC-DC electric locomotive (AC power supply with DC traction motors). 1.18 Under the project objective to improve the technology and performance of IR's mainline AC electric locomotive, 18 prototype AC-DC electric locomotives were purchased. Finalization of bid documents for the locomotives by IR took 17 months, bid evaluation took 18 months, and other procurement delays took 4 months. Despite an early start, the result was an overall delay of more than a year in orderfing the locomotives. The locomotives finally were delivered in early 1988, at which time the testing started. Tests were completed in 1990, but so far there has been no decision by IR to acquire and manufacture a new design of AC-DC electric locomotives. 1.19 The project failed to achieve its objectives of introducing modern designs of AC electric locomotives and high capacity bulk traffic wagons, even after lengthy, complex, and expensive tests of prototypes. Prior to completion of the prototype AC-DC electric locomotive tests in this project, IR decided to acquire and test AC-AC electric locomotives, a design that has not been proven in heavyhaul freight services similar to those in India. Nonetheless, the pro'2ct had a favorable technological impact on IR, since it has contributed to introducing new technology in locomotive component remanufacturing and maintenance. The project has had minor impacts on the physical and social environment and on human resource development. 1.20 High Capacity Wagons and Test Bogies. Procurement of wagon test bogies was delayed by protracted discussions between the Bank and It on the technical specifications and their operational implications, and the tests have not been completed to date. The highcapacity wagon component therefore was not implemented as intended, but redefined. Half of the funds were reallocated for procurement of critically needed materials, parts, and components. 1.21 ZR's initial preparation of technical specificationb for the test bogies led to discussions with the Bank on the wheel size and axle load for the bogies. To ultimately provide for move efficient operations, the Bank requested IR to include tests of smaller diameter wheels (33 inch) than those used by IR (39 inches), as well as tests of a higher axle load (up to 30 tons compared to the present 20 toiis on broad gauge).  6- 1.22 IR did not agree with the Bank, arguing that studies prepared in Europe by Union Internationale des Chemins-de-Fer and its research unit showed that utilization of smaller wheels with 30 tons axle load created unacceptable shear stresses in the softer rail (72 kg/mm2 UTS) used in India. IR argued that railways using 33 inch wheels are using stronger rail (90 kg/mm2 UTS) which can better withstand the higher shear stresses. A compromise finally was reached in which IR agreed to test bogies with medium size wheels (36 inch diameter). The preparation of tender documents for the procurement of test bogies lasted 51 months, and bid evaluation and contracting took 12 months. In retrospect, the Bank's technical position was correct, but greater consideration should have been giv