India - Third Railway Project

R E S T R I C T E D Report No. P-171 FILE COP""Y This report was. prepared for use within the Bank. In making it available to others, the Bank assumes no responsibility to them for the accuracy or completeness of the information contained herein. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATIONS OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO INDIA September 9, 1958   I:TERTIATIONAL BANK FOR RECONSTFR-JCTION AHD DE-ELOPMENT REPORT AND PECONIfE NDATIONS OF THE PRESIDENT TO THE EXECUTIVE D7RECTORS ON A PROPOSED LOAN TO) INDIA 1. I submit hereTwith the following report and recomnendations on a proposed loan to India, in an amount in various currencies equivalent to $85 million, to finance the import of locomotives, rulling stock, spare parts and other mater:als and equipment for the Indian Railways. PART I - HISTORICAL 2. The ;'ehabilitation and development pro-ram of the Indian RailwTays is one of the items of high priority in the Second Five-Year Plan, ic?56-61. In July 1957, the Bank made four loans denominated in different currencies, amounting in total to $90 million equivalent., to finance part of the costs of orders for materials and equipment placed by Indian Railways in foreign currencies during the first year of the prograr. At that time I told the Board that the railway progran might be considered as an appropriate subject for possible future loans to India. 3. Towards the end of August 1958, a meeting was held in the Bank wTith representatives of the principal countries concerned in one way or another with the development of the Indian economy. As I reported to the Board in a Confidential Memorandum dated August 28, 1958 (Sec M58-154), the meeting considered ways and means of dealing with the Indian foreign exchange prob- lem, and as Dart of the Bankts contribution, I said that I would recommend a new loan of $85 million for the Indian Railways. 4. If the proposed loan were made, it would be the Bank's twentieth loan in India, and the cumulative total amount lent by the Bank for projects in that country would be $507 million, net of cancellations. Loans pre- viously made in India are as follows (the figures refer to the position at August 31, 1958):  Amount of Loan Year Serial No. Purpose Net of Cancellations 19149 17 IN Railway Rehabilitation (Locomotives) ) 32,800,000 19 IN A-ricultural Machinery (Kans Grass) 7,203,813 1950 23 IN Electric Power Development (DVC) 16,720,500 1952 71 IN Iron and Steel Project (IISCO) 30,020,000 1953 72 IN Electric Power Development (DVC) 10,500,000 19514 106 .N Elcctric Power Development (Trombay) 13,950,000 1955 109 1N Industrial Credit and Investment (10CII) 10,000,000 1956 1149 IN Iron and Steel Project (TISCO) 75,000,000 159 IN Iron and Steel Project (1132O) 20,000,000 1957 161 IN 3Jet Aircraft (Air-India) 5,600,000 164 IN Electric Power Development (Trombay) 9,800,000 167-170 IN Railway Improvements 90,010,000 182 IN Iron and Steel Project (TISCO) 32,500,000 1958 198 IN Port Improvement (Calcutta) 29,000,000 199 IN Port Irmprovenient (i-Iadras) l14,OCOD000 203 IN Electric Power Development (DVC) 25,0 i' 000 Total, net of cancellations $ 422,lE! 33 Amount sold 1L6,883 206 $ 375,218,107 Amount repaid t 27,856,753 Less repayments to third parties i 16,382,348 11,474,405 Net amount held by Bank t0 363,7143,702 (Includes .X132,073,157 not yet disbursed; of which $ 68,000,000 not yet effective.) The loans for the Ports of Calcutta and I'ladras and the 1958 loan for DVTC are not yet effective. PART II - DESCRIPTION OF THE PROPOSED LOAN 5. The Indian Railways are owned by the Government of India, and managed and operated by the Railway Board which is a part of the NLinistry of Rail- ways. The proposed loan would be made to India. 6. The loan would finance part of the cost of imported goods and materials required for the Indian Raillway Five-Year Plan, for which orders have been placed in a number of foreign countries. The proceeds of the loan would meet a large part of the payments already made or due to be made against  -3- such orders during the calendar year 1958 and the first quarter of 1959; that is, apart from payments financed from the proceeds of the 1957 Bank loans and other credit sources. 7. The term of the loan would be 20 years, with four years of grace, as compared with 15 years and four years of grace in the 1957 loans. The longer term is considered appropriate, having regard to the nature of the goods and eouipment whose purchase the loan would finance. 8. The loan would have the following characteristics: Bo, rower : India Amount : An amount in various currencies equivalent to :;85 million. Amortization : 33 semi-annual instalments, January 1963 through January 197Y. Interest Rate : 5-3/4% per annmum including 1, commission. Commitment Charge : 3/4% per annum. PART III - IEGAL INSTRUMENTS AlD LEGAL AUTHORITY 9. A draft Loan Agreement between the Bank and India is attached (No. 1). Its provisions are substantially the same as those applicable to each of the four loans to the Indian Railways in the Loan Agreement of July 12, 1957. 10. The Report of the Committee provided for in Article III, Section 14(iii), of the Articles of Agreement of the Bank is also attached (No. 2). PART IV - APPRAISAL OF THE PROPOSED LOAN 11. A new appraisal of the Indian Railways' Five-Year Plan (T.0. 190a) is attached (130. 3). This brings up to date the information contained in the technical report prepared at the time of the 1957 Bank loans (T.O. 1L3a). Justification of the Project and the Program 12. The Railway Plan (referred to below and in the loan documents as the Program) originally provided for a 40% increase in freight capacity, from 115 million tons in 1955/56 to 162 million tons in 1960/61, and for a 15,bo increase in passenger traffic. The cost of this Program was estimated at Rs. 11,250 million ($2,363 million equivalent), of which Rs. L,250 million (5893 million equivalent) was to be spent abroad. Notwithstanding the fact that prices have risen by about 0l since the Program was drawn up, it is now hoped that an additional 6 million tons of freight capacity can be  attained without adding substantially to the original estimates of total costs, and with an actual reduction in the Coreign exchange costs . This result is to be achieved by improved operating efficiency, the postponement of certain less essential parts of the Program and the acquisition of a large number of additional goods wagons. 13. The RailTay Program, as revised, is proceeding on schedule. On the basis of act-ial traffic trends over the past two years it is considered that the incrc.s:- freight capacity now expected should be adequate for the additiona_ tl'affis