India - Eighth Railways Project

RESTRICTED FILE COPY Report No. P-4C This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATIONS OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE GOVERNMENT OF INDIA FOR THE INDIAN RAILWAYS October 14, 1964  INTRNMATIONAL DEVELOPiSNT ASSOCIATION REPORT AND RECO"NPENDATIONS OF TE PRESIDENT TO THE EXECUTIVE DIRECTORS OTN A PROPOSED DEVELOPIMENT CREDIT TO THE GOWERINENT OF INDIA 1. I submit herewith the following report and recommendations on a proposed development credit to India in an ainount in various currencies equivalent to '62 million to give further assistance in financing the foreign exchange costs of the Indian Railways' program in India's Third Five-Year Plan. PART I - HISTORICAL 2. The Association has already made 15 credits to India, as follows: Credit No. Purpose Amount (St million) 3-IN National Highways 60.0 8-IN Tubewell irrigation 6.0 13-IN Shetrunji irrigation 4.5 14-IN Salandi irrigation 8.0 15-IN Punjab drainage and flood 10.0 protection 19-IN Fourth DVC 18.5 21-IN Sone irrigation 15.0 23-IN Purna irrigation 13.0 24-IN Second Koyna power 17.5 27-IN Bombay Port 18.0 28-IN Teleconmunications h2.0 36-IN Seventh Railwiays 67.5 37-IN Kothagudem power 20.0 52-IN Industrial imports 90.0 58-IN Second Telecommunications 33.0 423.0 1/ 1/ i'258.3 million was not yet disbursed as of September 30, 1964. The proposed credit would thus increase the total amount of IDA credits to India to `485 million and would bring to :?95 million the amount of commitments made by IDA against the pledge of '.,lh0 million made for the Indian financial year 1964/65.  - 2 - 3. The Bank has now made 31 loans to India totalling ,847 million net of cancellations. The status of B3ank loans to India on September 30, 196L, was as follows: V million Total loans, net of cancellations 847.1 of which has been repaid 179.3 Total now outstanding 667.8 Amount sold 91.0 of which. has been repaid 66.3 24.7 Net amount held by Bank 643.1 Included in the above amount is -1ll4.8 million not yet disbursed. 4. The amount lent by the Bank to the Railwayrs is $378 million. Tith the previous IDA railway credit of 567.5 million, the proposed credit would take total Bank and IDA lending to the Indian Railways above the half billion dollar mark. 5. As Executive Directors have been informed from time to tine, delayrs in disbursement are still a source of concern for a number of Bank and IDA projects in India. The most serious lag has occurred in the case of the ;135 million loan made by the Btank for the private coal industry in August 1961, less than one third of this loan having been disbursed by September 30, 196). ihere hiave been delays in procure- ment of floating craft under the 21 million Bank loan to Calcutta Port, which was also made in August 1961, and only about one quarter of this loan has so far been disbursed. Disbursements against local currency expenditure from the UP, million IDA credit for tne Salandi irrigation probect were suspended early in 1963 because of changes in the project and have not yet been resumed. Progress on the 460 million IDA highway credit has been slower than expected, but sligltly over 60 per cent of this credit has now been disbursed. All these delays have been brought to the attention of the Indian authorities, and where appropriate, corrective action has been taken or is at present under discussion. PART II - DESCRIPTION CF THE PROPOSED CREDIT 6. The main features of the proposed credit are as follows: Puroose: To help finance the foreign exchange requirements of the ?.ailways' program during the period from July 1, 1964, to Septemrber 30, 1965. Borrower: India, acting by its President.  -3 - Amount: The equivalent in various currencies of $62 million. Term of amortization: The term of the credit would be 50 years with a grace period of ten years. One half of 1 per cent of the principal amount would be repayable semi-annually for ten years beginning September 1974, and 1;-- per cent of such principal amount -,uld be repay- able semi-annually commencing September 15, 198b, and ending I'arch 15, 2014. Payment dates: March 15 and September 15. PART III - APPRAISAL OF THE PROPOSED CREDTT The Project 7. A detailed appraisal or the project (Report No. TO 4lb) is attached (iTo. 1). 8. The appraisal of the project coincided with the completion of the Bank-financed Coal Transport Study. The methods employed and the conclu- sions reached by the Coal Transport Study are reviewed in the attached report of the Steering Committee for the Study, to which a summary of the Study Team's recommendations is appended (No. 2). These recommendations, insofar as they relate to the railwarys, were discussed with the Railway Board during the appraisal of the project and subsequently during the negotiation of the credit, and a large measure of agreement was reached. The Study has showm convincingly that the railways are and wrill continue to be the chief mode of transport for coal and other bulk commodities in india and will have to plan and invest accordingly. 9. The railway investment program in the Third Five-Year Plan is now estimated to involve expenditures of Rs. 15,815 billion, equivalent to $3.3 billion, with a foreign exchange component of $575 million or roughly 17 per cent. Slightly over one third of total expenditure will be on locomotives and rolling stock, and another third on new lines, track renewial and electri- fication of lines with high traffic density. The equivalent of $650 million will be spent on signalling, telecommunications and other works to speed up traffic and thus increase line capacity with a minimum of investment. 10. Procurement of rolling stock and improvements in line capacity have generally proceeded according to plan. The major part of thle proposed credit would finance the import of steel and components for steam and electric loco- motives, electric multiple units, coaches, bogie wagons and signalling equip- ment, together with equipment and materia's for the electrification program. The total foreign exchange requirements of the railways during the period  covered by the proposed credit are estimated at around $141 million, and the remaining $79 million would be almost entirely finianced under bilateral aid from other members of the Indian Consortium. 11. Railway capacity in India has now managed to catch up with traffic demand. after a long period of transport shortage. This welcome development, to which the Bank and the Association have made a decisive contribution, offers scope both for more rapid retirement of over-age equipment and for improvements in services rendered to transport users. The Railway Board is conscious of the need for such improvements, and ways of achieving them were discussed during the negotiation of the proposed credit. The easier transport situation has already resulted in a marked increase in the general goods traffic handled by the railways. 12. The scale and pattern of the railway investment program is in general conformity with the recomiendations of the Coal Transport Study. There was, however, some divergence of view between the Study Team and the Railway Board on the likely future development of freight traffic, the Study Team taking a rather less expansive view than the Railway Board. This matter is discussed in the Steering Committee's report, and the Association is satisfied that the Railway Board will keep in close touch with developments in other sectors of the economy and adjust its program accordingly. 13. The Coal Transport Study and the attached Appraisal Report both attach great importance to improvements in the cost data coziipiled by the - Railway Board as a basis for the determination of rates and for the evalua- tion of investment projects. This matter was discussed durirg negotiations, and we are satisfied that steps are being taken to refine and improve the existing cost classifications and to facilitate the establishment of a routine traffic costing system. The additional information so obtained will be used as a guide to periodic adjustments in freight rates with a view to encouraging the optimum use of India's transport capacity, while safeguarding the financial position or the railways. 14. After providing for a considerable increase in depreciation and the establishment of a pension fund, the railwrays are currently earning a return of about 7 per cent on net assets in operation. The dividernd payable to the Government on capital-at-charge has been raised from h1