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Technical Assistance Consultant’s Report

This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design.

Project Number: 36330-02 (Technical Assistance No. 4998) March 2009

INDIA: Railway Sector Investment Program (Financed by the Japan's Special Fund)

Prepared by Scott Wilson Railways Ltd, United Kingdom During the period of engagement from 27 March 2008 to 7 November 2008

For Ministry of Railways Rail Vikas Nigam Ltd

Asian Development Bank

Railway Investment Programme Main Report TA 36330-02

Main Report

March 2009

Final 02

SW JOB Number A012931

Railway Investment Programme Main Project Report For

Asian Development Bank 4 San Martin Marg Chanakyapuri New Delhi - 110021

Report Verification

Name Position Signature Date

Prepared David Dennis Principal Engineer

Checked Jim Hunter Principal Engineer

Approved Derek Holden International Director

Register of Document Holders

Name Location No. of Copies

Mr Tzadashi Kondo Asian Development Bank, New Delhi 5

Mr Ranjan Kumar Jain Rail Vikas Nigam Limited, New Delhi 10

Mr N Madhusudana Rao Ministry of Railways, New Delhi 10

Revision Schedule

Revision Date Details of Revision Issued by

01 October 2008 Draft Final issue D. Dennis

02 March 2009 Final Issue D. Dennis

Derek Holden International Director Scott Wilson Railways Tricentre-3 Newbridge-Square Swindon SY11BY-UK

Tel: +44 (0) 1793 508610 Fax: +44 (0) 1793 508511

Email: [email protected]

This document has been prepared in accordance with the scope of Scott Wilson's appointment with its client and is subject to the terms of that appointment. It is addressed to and for the sole use and reliance of Scott Wilson's client. Scott Wilson accepts no liability for any use of this document other than by its client and only for the purposes, stated in the document, for which it was prepared and provided. No person other than the client may copy (in whole or in part) use or rely on the contents of this document, without the prior written permission of the Company Secretary of Scott Wilson Ltd. Any advice, opinions, or recommendations within this document should be read and relied upon only in the context of the document as a whole. The contents of this document are not to be construed as providing legal, business or tax advice or opinion.

© Scott Wilson Group PLC 2008

Asian Development Bank Railway Investment Program

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Table of Contents

1.0 EXECUTIVE SUMMARY .................................................................................................. 10

2.0 INTRODUCTION .............................................................................................................. 14

2.1 Project Background........................................................................................................... 14

2.2 Project Remit .................................................................................................................... 15

2.3 Approach to Study ............................................................................................................ 15

2.4 Methodology ..................................................................................................................... 16

2.5 Assumptions and Risks..................................................................................................... 16

3.0 RAILWAY SUB SECTOR REVIEW.................................................................................. 17

3.1 The Indian Economy – Overall Perspective...................................................................... 17

3.1.1 Cultural and Social Revolution.......................................................................................... 17

3.1.2 Energy............................................................................................................................... 18

3.1.3 The Transport Sector ........................................................................................................ 18

3.1.4 Integrated Transport Policy............................................................................................... 18

3.1.5 Investment Pattern in Transport........................................................................................ 18

3.1.6 Road Transport ................................................................................................................. 19

3.1.7 Maritime Transport............................................................................................................ 20

3.1.8 Aviation ............................................................................................................................. 20

3.1.9 Market Shares................................................................................................................... 20

3.2 The Indian Railways.......................................................................................................... 21

3.2.1 Management; Structure of Railway Organisation ............................................................. 22

3.2.2 Legislation......................................................................................................................... 24

3.2.3 The Railway Act 1989 ....................................................................................................... 24

3.2.4 Social Service Obligations ................................................................................................ 25

3.2.5 Privatisation Initiatives ...................................................................................................... 25

3.2.6 Rail Vikas Nigam Limited (RVNL) ..................................................................................... 25

4.0 PROJECT DESCRIPTIONS ............................................................................................. 26

4.1 General ............................................................................................................................. 26



4.2 Daund - Gulbarga Track Doubling Proposal ..................................................................... 26

4.3 Sambalpur – Titlagarh Track Doubling Proposal .............................................................. 26

4.4 Raipur – Titlagarh Track Doubling Proposal ..................................................................... 27

4.5 Pune - Guntakal Electrification Proposal .......................................................................... 27

4.6 Hospet – Tani Ghat Track Doubling Proposal .................................................................. 28

5.0 TRAFFIC AND TRAFFIC PROJECTIONS....................................................................... 29

5.1 Existing Traffic .................................................................................................................. 29

5.2 Market Situation ................................................................................................................ 29

5.3 Growth Rates Used In Traffic Projections......................................................................... 31

6.0 FINANCIAL ANALYSIS ................................................................................................... 33

6.1 Approach & Methodology.................................................................................................. 33

6.1.1 Project Cost ...................................................................................................................... 34

6.1.2 Rolling Stock Requirement & Costs.................................................................................. 34

6.1.3 Residual and Replacement Costs..................................................................................... 34

6.1.4 Working Expenses ............................................................................................................ 34

6.1.5 Project Benefits................................................................................................................. 34

7.0 ECONOMIC ANALYSIS ................................................................................................... 36

7.1 Rationale for an Economic Analysis ................................................................................. 36

7.2 Recap of the principles of Economic Analysis .................................................................. 37

7.3 Economic benefits for double tracking and electrification ................................................. 37

7.4 Estimating the Economic Benefits .................................................................................... 43

7.5 Costs................................................................................................................................. 48

7.6 Economic Evaluation of Rail Projects ............................................................................... 49

7.7 Conclusions ...................................................................................................................... 52

8.0 SOCIAL IMPACT.............................................................................................................. 55

8.1 General ............................................................................................................................. 55

8.1.1 Maharashtra...................................................................................................................... 55

8.1.2 Gender .............................................................................................................................. 55

8.1.3 Indigenous Population ...................................................................................................... 55

8.1.4 Child Labour...................................................................................................................... 55



8.2 HIV/AIDS........................................................................................................................... 56

8.2.1 Karnataka.......................................................................................................................... 56

8.2.2 Gender .............................................................................................................................. 56

8.2.3 Indigenous Population ...................................................................................................... 56

8.2.4 Child Labour...................................................................................................................... 56

8.3 HIV/AIDS........................................................................................................................... 56

8.3.1 Andhra Pradesh ................................................................................................................ 57

8.3.2 Gender Analysis................................................................................................................ 57

8.3.3 Indigenous People ............................................................................................................ 57

8.3.4 Child Labour...................................................................................................................... 57

8.4 HIV/AIDS........................................................................................................................... 57

8.4.1 Orissa................................................................................................................................ 57

8.4.2 Gender Analysis................................................................................................................ 58


8.4.4 Child Labour...................................................................................................................... 58

8.5 HIV/AIDS........................................................................................................................... 58

8.5.1 Chhattisgarh...................................................................................................................... 58

8.5.2 Gender Analysis................................................................................................................ 59


8.5.4 Child Labour...................................................................................................................... 59

8.6 HIV/AIDS........................................................................................................................... 59

8.6.1 Suggested Interventions ................................................................................................... 59

8.7 HIV/AIDS........................................................................................................................... 60

8.7.1 Summary of Suggestions Made by the Participants ......................................................... 61

9.0 IMPLEMENTATION.......................................................................................................... 63

9.1 Institutional Assessment ................................................................................................... 63

9.2 Procurement Plan ............................................................................................................. 63

9.3 Contract Packages............................................................................................................ 63

9.4 Terms of Reference for supervision of Implementation works.......................................... 64

10.0 CONCLUSIONS ............................................................................................................... 65



10.1 General ............................................................................................................................. 65

10.2 Principal Findings.............................................................................................................. 67

10.3 Recommendations ............................................................................................................ 68

Asian Development Bank Railway Investment program


Acronyms

AADT Annual Average Daily traffic ACP Average Commodity Price ADB Asian Development Bank ANM Auxiliary Nurse Midwife AIDS Acquired Immunodeficiency Syndrome B/C Benefit / Cost ratio BG Broad Gauge CAGR Compound Annual Growth rate CDI Child Development Index

DRUCC Divisional Railway Users Consultative Committee DWCRA Development Women and Children in Rural Areas EIRR Economic Internal Rate of Return EGS Employment Guarantee Scheme FDI Foreign Direct Investment FIRR Financial Internal Rate of Return GDP Gross Domestic product GTKM Gross Tonne Kilometres GDI Gender Disparity Index HDM4 Highway Development Model 4 HDI Human Development Index HDR Human Development Report HIV Human Immunodeficiency Virus HPI Human Poverty Index IR Indian Railways ICDS Integrated Child Development Scheme INR Indian National Rupee IPDP Indigenous People Development Plan IRDP Integrated Rural Development Project JFM Joint Forest Management LT Low tension LSG Local Self-Government MACL Multi Aspect Colour Light MFF Multi Tranche Financing Facility MOR Ministry of Railways NG Narrow Gauge NH National Highway NPV Net Present Value

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NTKM Net tonne Kilometres NACO National AIDS Control Organisation NCLP National Child Labour Programme NFP National Forest Policy NGO Non-Government Organisation NTFP Non-Timber Forest Produce O/D Origin / Destination OHE Over Head Equipment P’Way Permanent Way PCE Passenger Carrying Equivalent PPP Public Private Partnership PWC Price Waterhouse Cooper PCNDDP Per Capita Net District Domestic Product PDF Public Distribution System PESA Panchayats (Extension to the Scheduled Areas) Act PFR Property for Rent PRIs Panchayati Raj Institutions PRS Passenger Reservation System RIP Railways Investment Programme Rs Rupees RTKM Revenue Tonne Kilometres RVNL Rail Vikas Nigam Ltd. SOR Schedule of Rates SPV Special Purpose Vehicle SC Scheduled Castes SERP Society for Elimination of Rural Poverty SHG Self-Help Group SSA Sarva Siksha Abhiyan (Education for All) ST Scheduled Tribes STD Sexually Transmitted Disease TA Technical Assistance TEU Tonne Equivalent Unit ToR Terms of Reference TRYSEM Training of Rural Youth for Self-Employment USD United States Dollars UEE Universal Elementary Education VOC Vehicle Operating Cost VSS Vana Surakhya Samiti


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1.0 EXECUTIVE SUMMARY 1 The Indian Railways have embarked on an ambitious investment programme aimed at increasing the capacity of the railways to meet an ever rising demand for transport. Indian railways have been looking for other means to finance this expanding investment and have approached The Asian Development Bank (ADB) for possible funding through their multitranche financing facility (MFF) loan modality.

2 The SWR consultancy team has been engaged to prepare five projects for possible funding by ADB. The project sections are:

• Daund-Gulbarga doubling 225 kms;

• Sambalpur – Titlagarh doubling 182 kms;

• Raipur – Titlagarh doubling 203 kms;

• Hospet – Tinaighat 245 kms;

• Pune - Guntakal 641 kms;

The Daund-Gulbarga section is a part of the Pune to Guntakal section proposed for electrification.

3 The final deliverables have been arranged as a suite of reports covering each of the proposed projects. The main report constitutes the main summary and concluding report of the five review studies undertaken. It explains the background to the project and briefly outlines the approach used in reviewing and developing the projects and the cost estimates.

4 Five individual project reports deal with each of the schemes. These reports aim to establish the economic and financial viability of the proposed railway enhancement projects for possible ADB lending. The wider context of Indian Railways infrastructure strategy has not been allowed to influence the conclusions drawn.

5 The responsibility for the implementation of the investment programme will likely be given to Rail Vikas Nigam Ltd (RVNL) which is a wholly owned company of IR and a SPV for the delivery of rail investment projects. A seventh report covers the Institutional assessment of RVNL highlighting the capacity of the organisation to successfully implement the projects.

6 The overall approach to the study and the methodology used has been described in detail in the Inception Report. The team was able to gather a number of reports which had previously been commissioned by Indian Railways into the ‘bankability’ of the project proposals. These were reviewed along with other supporting material that could be obtained. The reports generally included a high level preliminary design review and focused on financial assessments of the scheme proposed. No economic or social impact assessments had been undertaken. The cost estimates and traffic volume estimates were also now out of date.

7 The team visited the project sites concerned and spoke to the appropriate railway officers and RVNL staff. This allowed an overview of the project and its technical challenges to be formed and was an opportunity to gather up to date traffic information and gain an understanding of operations in the locality. A significant amount of work has been required to process the traffic data to support the financial and economic analysis. This information and data gathered from various sources has been used in the Financial


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and Economic analysis which were undertaken using standard evaluation techniques as described in the text.

8 The infrastructure cost estimates produced have been based on the materials volumes used in the previous reports. No more detailed technical information is available to the study team. Every effort has been made to ensure that the final estimate is as accurate as possible but these estimates are based on a review of a preliminary scheme definition. Without a detailed engineering design it is not possible establish quantities to a higher degree of accuracy.

9 In assessing these projects ADB’s normal hurdle rate for EIRR of 12% has been used. Indian railways asses their projects on financial criteria and use a hurdle rate of 14% for FIRR. This is a conservative figure for expenditure by a government body such as IR or their SPV’s As a result it is felt that projects with lower FIRRs can still be recommended.

10 The table below lists the estimated cost, FIRR and EIRR for each of the projects. An additional option has been included for combining the Daund - Gulbarga double tracking and the Pune - Guntakal electrification projects into one as a practical option for undertaking the enhancement.

Project Cost (Rs. Crore)

FIRR EIRR Comment

Daund – Gulbarga Double Tracking

754.3 -13.94% 11.7% Not Recommended

Raipur – Titlagarh Double Tracking

695.9 11.9% 19.5% Recommended

Sambalpur – Titlagarh Double Tracking

653.4 13.6% 17.2% Recommended

Pune – Guntakal Electrification

748 20.3% 14.8% Recommended

Pune – Guntakal Combined Electrification & Double Tracking

1555.3 12.3% 14.9% Recommended

Hospet – Tinaighat Double Tracking

869.2 9.2% 9.3% Recommended

11 It should be noted that the results of the economic and particularly the financial analysis are very sensitive to project costs. Since the previous bankability reports were undertaken costs, particularly for items such as cement, steel and copper have risen rapidly. Energy prices have also inflated affecting the cost of all inputs. However over the same period the rates which Indian Railways are charging for their services have not kept pace with the cost of infrastructure investment.


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12 The EIRR for the Daund to Gulbagarh track doubling is only slightly below ADB’s hurdle rate. This is felt to be within an acceptable margin to recommend a project on economic grounds. However to recommend a project it should not only achieve the required economic benefit but it should also be financially sustainable. At no point in the project’s life does it return a positive cash flow and the calculated FIRR is negative. Whilst the investment could be expected to produce some economic benefits the project would be a continuous drain on Indian Railways corporate finances and no financial case can be made for this project. It is not recommended on financial grounds.

13 The Pune to Guntakal electrification project returned the highest FIRR of all the schemes examined and an acceptable EIRR. As a stand alone project this could be recommended, however the scheme benefit is essentially the saving in operating costs and it offers very little in terms of capacity enhancement which is one of Indian Railways objectives. As an alternative a combined Daund to Gulbagarh and Pune to Guntakal project was examined. Whilst this offers a FIRR slightly lower then the normal hurdle rate it produces a slightly higher EIRR. The combined benefits of operational cost savings and enhanced route capacity makes this the recommended option.

14 The two eastern region projects of Raipur to Titlagarh and Sambalpur to Titlagarh both offer acceptable EIRRs. The FIRR for both schemes are slightly below the hurdle rate, but can be recommended in view of the economic and operational benefits to the railway system in that area. However they are both dependent on projected coal movements to the new thermal power plants. As such the projects should not be considered in isolation and their vulnerability to fluctuations in demand for this particular commodity should be born in mind.

15 We were asked to review these projects to access their financial and economic return and their investment practicality. All the schemes are sensitive to changes in traffic volumes and escalations in construction costs. The current world economic situation makes predicting future growth rates very difficult. However with continuation of the trend witnessed over recent years there is every possibility that traffic levels will either be maintained or continue to grow. Subject to the combining described above we found all five projects to be viable.


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2.0


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INTRODUCTION 1 The Indian economy has been experiencing significant growth over the last couple of decades. During the 10th five year plan period growth averaged 7.2%. This economic growth has impacted the railways with a steady increase in demand for transport which has been growing at approximately 8% annually. However, more recently the growth figures have dipped and inflation driven by an unprecedented hike in oil prices is now in double digits. The consequences of all this on the feasibility of the projects may not be as positive as it was over the past few years. Serious capacity constraints have become apparent in many areas on the rail system and the Ministry of Railways (MOR) have an investment plan aimed at increasing capacity and improving the operational efficiency of the railway.

2 Returns from the increased business on IR are being reinvested in numerous enhancement projects. The Indian Finance ministry has been looking for additional sources of funds to enable the investment stream to be sustained and expanded. The Asian Development Bank ADB) has been approached for possible financing using a Multitranche Financing Facility loan Modality.

3 To deliver this ambitious investment programme Indian railways have incorporated Rail Vikas Nigam Limited (RVNL) as an implementation organisation. RVNL is a Special Purpose Vehicle (SPV) and a wholly owned company of Indian Railways charged with fast track delivery of the specified infrastructure investments.

4 Scott Wilson Railways have been engaged by ADB to assist in preparing four enhancement projects for possible financing by ADB through their MFF. These projects are:

• The Pune to Guntakal electrification. Six hundred and forty one route kilometres with approximately one third single track and two thirds double.

• The Daund to Gulbarga track doubling project which includes approximately two hundred and twenty five kilometres in two principal sections either side of the Solapur section.

Both these projects are on the Indian Railways ‘Golden Quadrilateral’ with this route being an important link between the major cities of Mumbai and Chennai.

• The third and fourth schemes are for the track doubling of the Sambalpur to Titlagarh and the Raipur to Titlagarh routes in the eastern state of Orrisa Both these routes are currently operating under capacity constraints and demand is expected to increase significantly as coal fields and heavy industry are expanding in this area.

• The fifth scheme is for track doubling of the Hospet to Tani Gaht route which rune East to West through the state of Karnataka connecting to the port of Goa. This route is under capacity pressure with the growth of the iron ore mining industry in this part of India

2.1 Project Background 5 The Indian Railways is the world’s second largest rail network under a single management and has been contributing to the industrial and economic development of the country for more than 150 years. The management of the network is divided into 16 zones. Zones are responsible for operations and most engineering functions on the railways. Of the broad gauge network, 65.1% of routes are single track 34.9% are


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double/multiple track and 35.7% overall is electrified. The Rail Investment Programme currently with RVNL will increase the length of double track by 6697Kms adding a further 9.5% to the double track network overall. The RIP will also extend the electrified portion network by 12%. The Implementation period for the current has been given as 7 years.

6 While the 10th Plan document called for a strategic shift in the objectives of the Railways so that it could regain some of the market it had lost over the past decades, the11th Plan calls for creation of adequate transport capacity to handle the medium and long-term projected growth of both passenger and freight traffic and provide improved services to both segments. In order to keep pace with and stay ahead of the development of the economy, Indian Railways will have to double its transportation capacity, increase volumes by constantly reducing the unit costs and raise service standards. The Railways have identified two key challenges, one in the area of investments and the other in the area of its core business of logistic solutions to freight customers and passengers. In addition to these technical issues the government fully supports the reform programme of IR

2.2 Project Remit 7 The specific project remit for the consultancy team was defined in the Terms of Reference (Appendix A to the contract documents). The team were to undertake the following principal tasks:

• To review, update and recommend improvements to 4 projects contained in the RIP and to prepare them for funding by the Asian Development Bank in accordance with its policies and guidelines.

• Review engineering proposals and recommend alternative options as required. Carry out preliminary design reviews to establish materials quantities required and prepare updated cost estimates for the works.

• Carryout a financial and economic sensitivity analysis and establish the updated FIRR and EIRR for the projects

• Carry out an institutional assessment of the executing agency (RVNL) responsible for the RIP to examine its performance and recommend improvements to efficiency and efficacy.

• Prepare procurement plan to consider options for procurement of the works, recommend optimum contracts, packages for contracting

• Prepare terms of reference for the site supervision of the construction for the ADB funded projects.

2.3 Approach to Study 8 The Objective of the study is to review, update and recommend improvements to the four projects contained in the RIP and to prepare them for funding by the Asian Development Bank in accordance with its policies and guidelines

9 The previous studies undertaken for the given sections of railway were carried out between 2002 and 2007. The work was undertaken by a number of different organisations and the approach taken was not totally consistent. It is not always clear what level of detail was available in the information used to support the studies. The SWR team has sought to gather primary data on current rail traffic levels and where possible relevant road traffic information relating to competing routes. The investigation has also attempted


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to identify where rail traffic has been diverted onto alternative routes because of congestion on the primary route. Using the same sources of available data and the anticipated growth in demand for specific commodities projections of future rail traffic were made. Estimates were produced for the current and future (Post project implementation) line capacities and the likely incremental rolling stock requirements.

10 The estimates for the implementation costs have also been revised based on the original project proposals. These have been reviewed and adjusted to comply with the latest technical requirements. The updated quantities have been used with contemporary rates and appropriate inflation factors to generate revised project costs.

11 These key parameters were then incorporated into the financial and economic analysis to recalculate the Financial Internal Rate of Return (FIRR) and the Economic Internal Rate of Return (EIRR) for each of the projects.

12 An initial risk analysis has been carried out on the technical aspects of the project. This has been used to support the cost estimation process and inform the Economic and financial sensitivity testing.

2.4 Methodology 13 There is a presumption that IR has designed in accordance with in-house standards so the review has focused on the sufficiency of detail for quantities and cost estimation. However, as a result of the introduction of new standards axle loading requirements may have changed, especially for those projects dated 2004. The designs have been reviewed to determine if the appropriate standards have been used. The main items to be checked will be works and bridges – Engineering proposals have been reviewed to identify any gaps or omissions and confirm that the appropriate Indian Railways guidelines / instructions have been used in their development. Technical assumptions have been examined where possible and alternative options suggested where it is thought overall project benefits, implementation, financial, economic or operational benefits can be achieved.

14 Using the existing designs and any agreed modifications, a revised list of quantities was produced. These specify the level of accuracy which can be expected form the data available and reviewed cost estimates based on the latest updates of unit rates produced. RVNL continuously updates costing of different items and this data corresponding to the project area under consideration has been drawn in. Costs revised and ‘baselined’ at First quarter 2008 rates.

2.5 Assumptions and Risks 15 Project scope is as described in the previous reports. Other options for addressing the scheme objectives are not to be investigated.

16 It is assumed that the work is intended to go ahead in the near future. All the projects are independent of each other and there is no specified priority to the schemes.


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3.0 RAILWAY SUB SECTOR REVIEW

3.1 The Indian Economy – Overall Perspective 1 India's economy is diverse, encompassing agriculture, handicrafts, textile, manufacturing, and a multitude of services. Although a large portion of Indian workforce earn their livelihood directly or indirectly through agriculture, services are a growing sector and play an increasingly important role of India’s economy. India is a major exporter of highly-skilled workers in software and financial services, and software engineering. Other sectors like manufacturing, pharmaceuticals, biotechnology, nanotechnology, telecommunication, shipbuilding, aviation , tourism and retailing are showing strong potentials with higher growth rates.

2 The advent of the digital age, and the large number of young and educated labour force, fluent in English, is gradually transforming India as an important 'back office' destination for global outsourcing of customer services and technical support. India faces a fast-growing population and the challenge of reducing economic and social inequality. Poverty remains a serious problem, although it has declined significantly since independence. While superior performance of the aggregate Indian economy is established yet between 220 and 280 million people are living below the poverty line.

3 The performance of the Indian economy as measured by the growth rate of aggregate income has been remarkable, both in terms of past performance and in comparison to other nations. Among the several factors behind this two which stand out are the economic reforms of the early 1990s and the sharp increase in the savings rate following bank nationalisation. The privatisation of publicly owned industries and the opening up of certain sectors to private and foreign interests has proceeded slowly amid political debate

4 Having grown around one percent per annum from 1900 to 1950 and a sluggish 3.5 percent through 1950s and 1960s, India’s growth rate suddenly picked up in the late 1970s. From 1983 the economy was growing even faster. Over the last four years, the growth has been an astonishing 9 percent. This was attributable to the good performance of industrial and services sectors.

5 On the foreign trade front, merchandise exports and imports maintained their growth momentum in 2006-07. Net capital flows rose further in 2006-07 reflecting growing investor interest in India’s growth prospects as well as global liquidity conditions. The Foreign Direct Investment (FDI) to India was at US$ 19.5 billion. India’s foreign exchange reserves stood at about US$ 200 billion.

6 The good performance of the industrial sector was also boosted by improved performance of infrastructure sector-coal, steel, crude petroleum, petroleum refinery products, cement etc. In the agriculture sector, however, growth decelerated to 3.8% in 2006-07 from the previous year figure of 6.1% partly on account of uneven rainfall during South-West monsoon.

3.1.1 Cultural and Social Revolution 7 Economists speak of major social and cultural and social revolution in India. An economy needs a certain culture and a set of enabling social reforms to grow. The instinctive urge not to break a promise on contracts, the ability to restrain oneself from cheating to make small gains, having a culture of trust, and a multitude of other matters and habits play a vital role in making a market economy possible. Lot of this has happened in India. If only India had undertaken these reforms of early 1990s we would not have to wait for 40 years for growth. People have realised that there is something

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A012931 Page 18 March 2009

common between higher savings and greater trustworthiness. (Kaushik Basu, Economic and Political Weekly, March 2008).

3.1.2 Energy

8 The price of crude oil rose to over $140 a barrel in early 2008 and although the price has fallen significantly in the current economic climate over the medium to longer term the price could rise above $ 100 once again. The Indian government has also marginally increased the price of petroleum products. Given projected increase in demand, price of energy would continue to rise. Discovery of oil was a window of opportunity that opened about 150 years ago and is likely to close in the next 40 years. Oil reserves would be exhausted at current levels of consumptions. Solar and nuclear energy could be a major player in the next stage but, in the mean time, India would continue to depend on coal for energy production and this has important consequences for railway traffic projections.

3.1.3 The Transport Sector

9 Transport is a crucial component of the economy. It impacts on development and welfare of population. When transport systems are efficient, they provide economic and social opportunities. When they are deficient, they create an economic cost in terms of reduced or missed opportunities. Transport helps accessibility change where it brings closer larger markets and generates time and cost savings. Indirectly, transport triggers an economic multiplier effect leading to drop in price of commodities and services and, increase in variety. Transport is an economic factor of production. More importantly, its timing is also critical for promoting development as it may be the main initiator of structural changes and not merely efficiency gains. Delay in providing adequate transport when required would only postpone the process of development.

10 The transport sector has responded to growth in the economy in general. Transport demand has increased at a much faster rate than growth in the economy. The elasticity of demand for freight has been recorded as 1.48 and passengers as high at 1.7[ during the period 1950-51 to 2000-01.

3.1.4 Integrated Transport Policy

11 Planning for the transport sector development must necessarily be considered within the overall context or framework of transport policy for the country. In this context, formulation of an integrated transport policy for India needs mention. The object of an integrated transport policy is to define the role and economic place of each mode in delivering transport service, in the short, medium and long term scenarios keeping in view the regional developments affecting this sector. The policy should make recommendations to ensure that there is a 'level playing field which allows fair competition among all transport modes.

12 The specific features of capital investment and cost structure associated with each mode have to be taken care of. Integrated transport policy also implies that transport modes should not continue to grow in isolation, becoming over time more complementary to each other.

3.1.5 Investment Pattern in Transport

13 The Table below gives a broad idea of the level of investment in successive Five Year Plans in India, the proportion of investment in the transport sector and, the

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proportion of investment in IR out of the total plan investment and, within the transport sector. Transport being a vital sector, greater focus of the Government is desirable.

Table 1: Transport-Pattern of Investment (in Rs crores)

Sector/Units Up to V Plan VI Plan VII Plan VIII Plan XI Plan X Plan

Railways 4723 6585 16549 32306 45725 60600 Transport Sector 10117 13962 29548 65173 117563 225977 Total Plan Outlay 59979 109292 218729 485457 813998 1525639 Tr. Sector as % of Total Plan 16.9 12.8 13.5 13.4 14.4 14.8

Railways as % of Total Plan 7.9 6 7.6 6.7 5.6 4

(Source: Indian Railways, Year Book, 2006-07)

3.1.6 Road Transport 14 The development of the strategic highway network in India is the responsibility of the National Highway Authority. Investment in the 3.3 million kms highway network has increased the proportion of higher grade 4 or 6 lane roads. The development of a golden quadrilateral will provide a network of 4/6 lane highways that circumnavigate the country.

15 At the end of the fiscal year 2003-04, India had 72.7 million registered vehicles. Composition of vehicle population in India in the year 2004, the latest year for which the data is available, reveals preponderance of two-wheelers with a share of more than 71 per cent in total vehicle population, followed by cars with 13 per cent and other vehicles (a heterogeneous category which includes 3 wheelers, trailers, tractors etc.) with 9.4 per cent.

16 However, the share of buses and trucks in the vehicle population at 1 per cent and 5 per cent respectively is much lower compared to China. However the growth in truck registrations .over the period was 8.6 % through correlating closely with the GDP growth. This provides a cursory indication that trucking capacity has kept up with demand. Interestingly for railways, lack of capacity has now become an important issue.

Table 2: Registrations of Buses and Trucks 000’s

Year Buses Goods Vehicle All

1991 331 1.55% 1356 6.34% 21374

1996 449 1.33% 2031 6.01% 33786

1997 484 1.30% 2343 6.28% 37332

1998 538 1.30% 2536 6.13% 41368

1999 540 1.20% 2554 5.69% 44875

2000 562 1.15% 2715 5.56% 48857

2001 634 1.15% 2948 5.36% 54991

2002 635 1.08% 2974 5.05% 58924

2003 721 1.08% 3492 5.21% 67007


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2004 768 1.06% 3749 5.16% 72718

17 With rising income and inadequate urban public transport system, in particular, the individual private mode of transport is likely to grow in importance in the coming years. Presently the share of cars in the total vehicle population in India is much lower in comparison to Sri Lanka, Malaysia and Chile but equivalent to China. Between 1951 and 2002 the vehicle population grew at a compound annual growth rate (CAGR) of close to 11 per cent compared to CAGR of 4.3 per cent. Over the same period the total length of the National Highway Network in India increased by a mere 2.1 per cent.

3.1.7 Maritime Transport 18 Ports cargo handling increased from 422 mt in 2003 to 635 mt in 2007. Of this bulks accounted for 309 mt (49%) of which oil and petroleum accounted for 80.56 mt. Most significantly containerised cargo grew by from 3.366 Million TEUs in 2003 to 5.437 Million TEUs in 2007.

19 Port infrastructure enhanced capacity through a number of major projects some of which was supported by the ADB. Port hinterland connectivity has been improved through the expansion of road and rail links for smooth flow of cargo. Road projects are being implemented by Port Authorities and NHAI. Rail connectivity projects are being implemented by the Railways through SPV route Road Transport:

3.1.8 Aviation 20 In Indian civil aviation, explosive growth has been witnessed continuously for the last two to three years. The passenger traffic has witnessed a record growth of 21.5% during 2004-05 and 23.7% during 2005-06. An unprecedented growth of more than 20% has never been witnessed during the past except during 2004-05 and 2005-06. During the year 2006-07 and 2007-08 Passenger Traffic has increased @ 38.1%. Import and Export air cargo has been growing at around 20% and 7% respectively. Total air-cargo traffic has increased by more than 45% between 2003-04 and 2006-07.

21 A total of 14 domestic airlines and 80 international airlines are currently operating. The market share of national carriers (Government owned air lines) in the domestic traffic has reduced to 25% and the market share of private airlines in the domestic sector has increased to 75% which includes 23% traffic of low cost airlines. Economic and policy factors have contributed to the growth story in aviation sector with the emergence of low cost airlines, and apex fare system.

3.1.9 Market Shares 22 According to recent reports1, rail market share of freight transport has been declining since the 50’s. In the mid 90’s road and rail shares were equal and since year 2000 they have stabilised at 40% for rail and 60% per road as illustrated by the figure below. Indian Railways, over the years has specialised in the transport of a few bulk commodities. Rail shares for the main commodities transported are:

• Coal: 66% • Iron Ore: 64%

1 Working Group on Road Transport for the 11th 5 Year Plan, 2007; “Consultancy Services for dedicated Rail Freight Corridor in India, Kolkata-Nagpur-Mumbai”, RVNL Vol1, March 2008, Wilbur Smith in Association with IFDC;


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• Cement: 45% • Fertiliser: 75% • Petroleum Products: 21% • Food Grain: 19% • Containers: 30%

Figure 1 Modal Market Share (freight)

3.2 The Indian Railways 23 IR is a multi gauge network consisting of Broad, Metre and Narrow gauges. The route length is 63,327 kms with about 7,000 stations spread over the country. In 2006-07 freight tonnes originating was 744.6 million of which 313.33 million was coal (42% of the total tonnage). Other bulk items included ores and minerals, grains, fertilisers, mineral oils, iron and steel, containerised cargo etc. In passenger traffic IR have been performing a valuable social role by providing affordable transportation for millions of passengers daily The number of passengers originating 2006-07 was 6,219 million. The Capital-at-charge is Rs 76,030.69 (crores) and regular employees number over 1.4 million.

24 Over the last ten years IR has managed to achieve a dramatic re-invention of its business and is presently witnessing one of the most unprecedented expansions in its history. During 2006-07 it transported 6,219 million passengers as against 5,725 million the previous year registering a volume increase of 8.6% passenger-kilometres was 695 billion, an increase of 12.8% over the previous year. Passenger earnings also went up by Rs 2,095 crores i.e. 13.9% over the previous year’s earnings. The total number of passenger trains run daily in 2006-07 was 8,984 over the previous year number of 8750 trains. Since 1950-51 passengers originating has increased by 384% and passenger-kms by 964%

25 In freight operations, in 2006-07 IR loaded 727.75 million tonnes of revenue-earning traffic and achieved 481 billion NTKMs. of freight output. This was 9.19 % increases over the previous year. Over a 56 year time span, with an index of 100 in 1950-51, the index for freight loading in 2006-07 was 994.2 and 1280.4 for NTKMs. It was 1,280.4 and for lead it was 128.8. Earnings from freight traffic in 2006-07 was Rs 41,073.21 crores-up by Rs 5,538.52 crores (16%) over the previous year.


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26 In other aspects of operation, during 2006-07, 250 kms of new lines were constructed, and 1082 kms of track was converted to broad gauge. In the same period 361 route kms of track was electrified. The Minister for Railways in his budget speech has stated that in 2007-08, turned in a cash surplus before Dividend of Rs 25,000 crores. The operating ratio of IR improved to 76%.

The following Table 3 shows growth in Freight and Passenger Traffic on Indian Railways.

Table 3: Shows growth in Freight and Passenger Traffic on Indian Railways

Traffic Unit 2005 / 06 Target

2005 / 06 Result

2011 / 12 Forecast

Annual Growth

Freight Volume

Million Tons 624 726 1100 8.7%

Freight Output Billion ntk 396 479 702 7.9%

Passenger Volume Million Pas. 5686 6242 8400 6.1%

Passenger Output Billion pk 593 700 880 4.7%

3.2.1 Management; Structure of Railway Organisation 27 The Railway Organisation at the apex level is represented by the Ministry of Railways, of which, the Minister of Railways is the head. The Minister is advised and assisted by the Railway Board consisting of a Chairman and 6 Members. The Board also exercises powers vested in them through rules or by delegation of powers. The Ministry also has the supporting officers and staff for discharge for their functions and duties. Under the Ministry, there are 16 zonal Railways and 5 Production Units, each headed by a GM. The structure thus can be viewed in the following manner.


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28 In the Allocation of Business Rules (sanctioned in 1961 by the President of India), the Ministry of Railways has been given full powers in all railway matters. There is, therefore, a separation of railway finances from the government general revenues with provision for payment of dividends on capital utilisation by Indian Railways. Any powers of the Railway Minister can be delegated to the Railway Board in keeping with Railway Board Act, 1905.

3.2.2 Legislation 29 The Indian Railways Organisation having evolved historically & independently has inherited specific legal regimes. Prior to independence, there was the Railway Act of 1890 which imparted certain powers to the Railways Organisation and also spelt certain liabilities on the part of the Railways as a carrier of goods & passengers. After Independence of the country, and with the introduction of the constitution of India the Railway Organisation as Railway Ministry became a part of Central Government. The Railway Act of 1890 was replaced by the Railway Act of 1989.

3.2.3 The Railway Act 1989 30 To strengthen and assist the Ministry of Railways in the discharge of their duties, the Parliament had earlier enacted an Act called the Railway Act, 1890. This Act has been replaced by the Railway Act, 1989. This Act on the one hand provides certain powers and facilities to the Railway organisation in the pursuance of their functions, while at the same time, it stipulates certain liabilities and responsibilities of the Railways as a carrier of goods and passengers.

31 The Railway Act 1989 mainly provides powers in the following areas for the railway organisation for discharge of other functions:

(i) Formation of Zonal Railways For the purpose of the efficient administration of Government railways, the Central Government may constitute railways into as many Zonal Railways as it may deem fit.

(ii) Fixation of rates

The Central Government is empowered to fix standard rates for the carriage of passengers and goods, classify or re-classify any commodity, and increase or reduce the class rates and other charges.

(iii) Acquisition of land This provision empowers Railway Ministry to acquire land for the purposes of extension or/and maintenance of the railway network.

(iv) Local taxes & the railways

Section 184 of the Act provides that, “a railway administration shall not be liable to pay any tax in aid of the funds of any local authority unless the Central Government, by notification, declares the railway administration to be liable to pay the tax specified in such notification.”

(v) Penalties

The Railway Act, 1989 empowers the Railway department to levy penalties in relation to the various offences carried out by the customers, passengers or even Railway employees in the functioning of the Railway system.


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3.2.4 Social Service Obligations 32 The Indian Railways, being a public utility has to provide basic transport infrastructure for promoting economic and industrial development and also provide certain services even at below cost of operation. Net social service obligation borne by IR in 2006-07 is assessed at Rs 3730.62 crores excluding staff welfare cost (Rs 1669.76 crores) and law and order cost (Rs 937.59 crores). These costs impinge upon the viability of Indian Railway system. Elements under social service obligations include transport of essential commodities by rail at a cost lower than the cost of operation e.g. transport of salt, sugarcane, fruits and vegetables bamboos etc. , passenger and other coaching services including commuter services, postal traffic, military traffic, etc. It also includes uneconomic branch lines which have to be continued under local pressure or non availability of alternative modes of transport etc.

3.2.5 Privatisation Initiatives 33 Railways have to make heavy investments for expansion of the network, modernisation, and up gradation of technology and for providing world class facilities to customers. Railways have thus made a plan to invest Rs 2, 50, 000 crores within next five years. The investment being from railway’s own resources, railways have started many PPP schemes for attracting an investment of Rs 1, 00,000/- crores over next five years. Areas for investment would include projects for provision of world class facilities at metro stations, setting up state of the art rolling stock production units and construction of multi-modal logistics parks.

34 Through global competitive bidding, concessions would be awarded for developing New Delhi, Chattrapati Shivaji Terminus at Mumbai and some others into world class stations during 2008-09 itself. Railways expect to attract an investment of nearly Rs 15,000/- crores on these stations. Through open competitive bidding PPP partners would be selected for setting up diesel loco, electric loco and rail coach factory at an estimated cost of Rs 4,000 crores. Concessions committing an investment of about Rs 25,000 crores are likely to be awarded in the year 2008-09 for various PPP projects.

35 Some projects would be explored for execution under BOT basis. Gandhidham Palanpur has been completed through SPV. There would also be development of wagon leasing market, a new scheme under which rail customers and container operators would be able to take wagons on lease. Leasing companies would lease out special purpose wagons, high capacity wagons and container wagons.

36 A Strategic business Unit is proposed to be set up in the Railway Board for coal, cement, steel and container traffic to facilitate timely settlement of all problems of railways’ clients through a single system. This unit would be fully empowered for taking full advantage of emerging business opportunities and improving Railway’s competitiveness in the market. It was proposed to have this unit operating in 2009. An exact date has not been confirmed as yet.

3.2.6 Rail Vikas Nigam Limited (RVNL) 37 The RVNL is a Special Purpose Vehicle under the Ministry of Railways incorporated in 2003. It is executing 46 projects on fast track basis under National Rail Vikas Yojna costing approx. Rs 12, 613 crores to strengthen the golden quadrilateral and its diagonals and to augment port connectivity. The RVNL has also conducted pre-feasibility studies on Dedicated Freight Corridor and has also formed 3 SPVs in States of Orissa, Andhra Pradesh and Gujarat for execution of projects under PPP. Institutional assessment of RVNL has been conducted by Consultant and appears in a separate volume.


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Project Descriptions

3.3 General 38 The four projects the team has been asked to investigate are described below. Three of the schemes are for track doubling projects aimed at providing more capacity in overstretched areas. Two of the routes are in the Eastern state of Orrisa whilst the third is mainly in the state of Maharashtra on Indian Railway’s ‘Golden Quadrilateral’ The proposal is for a second track to be built alongside the existing rail route. The work is predominantly civil engineering with associated signalling and electrical work. No significant upgrading of the existing signalling and control system is proposed.

39 The fourth project is for the electrification of part of Indian Railways ‘Golden Quadrilateral, This is the last section of the route still not to be electrified includes one of the single line sections proposed for doubling. It is intended that the scheme alleviates congestion and inefficient operation by removing the need to change traction units at either end of the project section. It is also hoped that there will be efficiency and capacity gains from the use of more powerful locomotives with better performance characteristics.

40 In its analysis the team have considered a fifth proposal not specified in ADB’s remit which is a combined track doubling and electrification scheme. This will establish whether the combined costs and benefits of the two schemes could deliver better results then with the projects considered individually.

3.4 Daund - Gulbarga Track Doubling Proposal 41 The railway between Daund and Gulbarga is part of the Mumbai to Chennai trunk route. The line passes 224kms across the Deccan Plateau. The section under consideration is a single track with passing loops at intermediate stations. The line carries mainly passenger services but is also important for freight services to power stations and cement works and the transport of iron ore. The doubling of this last remaining single line section of the ‘Golden Quadrilateral’ has been under discussion for some years. The growth in traffic over that period has increased utilisation above 100% on some section and placed increasing pressure on rail services

42 The proposed double line track will follow the alignment of the existing single line, passing through 16 stations and follow a ruling gradient of 1:150. No new stations are proposed as part of this project. The existing signalling system is to be extended over the section for double line operation. The existing Line speed is 110kph for passenger stock and is to be raised to 140kph

3.5 Sambalpur – Titlagarh Track Doubling Proposal 43 The existing railway between Sambalpur and Titlagarh is a 182 kms single line with passing loops. The line connects the Howrah – Chennai line with the Howrah Mumbai trunk route. This is an important freight carrying route connecting the coal mines in the Ib valley with the port of Vizag. At 82% coal provides the overwhelming majority of traffic on this route. Recent track doubling schemes on adjacent routes are placing additional traffic demands on this line. As a result track doubling has been proposed as an option for increasing capacity.

44 The proposed doubling from Sambalpur junction to Titlagarh passes through 15 stations. No new stations are proposed to be built as part of this project. The new track will generally follow the alignment of the existing track with a standard track spacing of 5.3 m track centres. The existing ruling gradient is 1:100 and it is proposed to reduce this to


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1:150 for the new track. Some sections of the new alignment are expected to deviate from the existing alignment in order to accommodate this. For the study all track structures signalling etc. are assumed to be constructed in accordance with current Indian railways standards.

3.6 Raipur – Titlagarh Track Doubling Proposal 45 The existing railway between Raipur and Titlagarh is a 203 kms single line with passing loops. The Raipur – Titlagarh line is part of the Vizianagaram – Raipur line which connects the south and east coast with the northern part of the country.

46 Coal is the major commodity on the route representing over 28% of all traffic. The reminder is made up of Fertilisers 12.8%, Iron and steel products 8.8%. Recent track doubling schemes on adjacent routes and the construction of new lines are believed to be placing additional traffic demands on this route. As a result track doubling has been investigated as an option for increasing capacity.

47 Initial proposal to introduce double track all along the route from Raipur to Titlagarh did not appear to deliver a satisfactory rate of return and patch doubling was proposed as an alternative. However as traffic is known to have grown substantially since the previous report was produced, it has been decided to review this line as a full doubling project.

48 The line passes through 19 existing stations. No new stations are proposed as part of this scheme. All track structures signalling is assumed to be constructed in accordance with Indian railways standards. As with the Sambalpur route the ruling gradient on the existing line is 1:100 and it is proposed to reduce this to 1:150 for the new line. Much of the proposed alignment follows the existing route with a standard 5.3m between track centres. But where changes from the existing gradients are proposed the distance between track centres will be widened. It is not expected that the railway will have to acquire significant areas of new land to accommodate the proposed works.

3.7 Pune - Guntakal Electrification Proposal 49 The railway between Pune and Guntakal is part of the Mumbai – Pune - Daund – Wadi – Guntakal to Chennai trunk route. The line passes 641kms across the Deccan Plateau with 78 stations en-route. The part of the route proposed for electrification includes a 224kms section of single track between Daund and Gulbarga. The line carries close to 40 trains per day mainly passenger and mail services but is also important for freight services to Power stations and cement works and the transport of Iron ore. The growth in traffic over that period has taken utilisation above 100% and placed increasing pressure on rail services. Adjoining routes have either been electrified or are currently undergoing electrification. The proposed work on this last section of the ‘Golden Quadrilateral’ would complete the electrification of this major trunk routes in line with IR’s strategic objectives.

50 The project proposes the electrification of 641kms of route. Whilst a portion of the route is currently single track it has been proposed to incorporate the track doubling with the electrification works. The work would include electrification with simple polygonal overhead equipment to 25kv with associated traction sub-stations and feeder lines. There will additionally be some structural work required in modifications to bridges, stations and other railway structures. Of the 78 stations 18 will require connection to a LT electrical power supply being currently non-electrified. MACL signalling and telecommunications are to be extended and installed as required in accordance with IR standards. The existing Line speed is 110kph for passenger stock and is to be raised 140kph.


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3.8 Hospet – Tani Ghat Track Doubling Proposal 51 The existing railway between Vasco Da Gama and Hospet is approximately 300kms of single line with passing loops. The western section between the port of Mamugao in Goa and Tenai Ghat is not included as part of this study. Tani Ghat lies to the east of this initial section and from here the line extends some 245kms towards the town of Hospet. The economy of the Hospet – Bellary area is based on mining with one of the largest reserves in India. The railway transports large volumes of iron ore to the port for export whilst significant volumes of coal / coke used by the steel plants in the region.

The project proposal is to double the existing single line between Teni Ghat and Hospet. The new alignment has been assumed to follow the existing single track with a standard track spacing of 5.3m. The track will consist of 60kg steel rails on broad gauge concrete sleepers laid in ballast in accordance with MOR standards.


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4.0 TRAFFIC AND TRAFFIC PROJECTIONS

4.1 Existing Traffic

1 A detailed analysis of the current freight and passenger traffic is contained in the individual project report. This section has two objectives. It presents firstly the overall market situation for the major commodities transported along the project lines. Secondly it reviews the commodity compound growth rates being used for traffic projections for all the concerned projects. Detailed traffic projections are however presented in the specific project reports.

4.2 Market Situation

2 Cement and Iron & Steel are critical inputs for development of physical infrastructure. During 11th five year plan, investments in infrastructure are targeted to increase from 5% of GDP to about 9% GDP by 2011-12. Investments in infrastructure during the 11th five year plan are estimated to the Rs 2002 Crores (at 2006-07 Prices) – say about US $ 500 Billions. Production and consumption of Cement, Iron and Steel, linked with GDP growth, will continue to constitute major components of commodities transported.

CEMENT

3 The cement industry is experiencing a boom on account of the overall growth of the Indian economy. The demand for cement, being a derived demand, depends primarily on the industrial activity, real estate business, construction activity, and investment in the infrastructure sector. India is experiencing growth on all these fronts and hence the cement market is flourishing like never before. Indian cement industry is globally competitive because the industry has witnessed healthy trends such as cost control and continuous technology upgradation. Global rating agency, Fitch Ratings, has commented that cement demand in India is expected to grow at 10% annually in the medium term buoyed by housing, infrastructure and corporate capital expenditures.

4 Production capacity of Cement industry at the end of 2007-08 of was 188.97 million tonnes as against 166.73 million tonnes at the end of 2006-07 an increase of 13.33%. Production of cement was 168.31 million tonnes then as against 155.66 in 2006-07 registering a growth of 8.1%. Consumption registered a growth of 10% growths. Cement production is targeted to grow at 11.5% per annum during the 11th five year Plan. Therefore capacity and production of Cement are likely to increase from 166 million tones into 2006-07 to 269 millions tonnes in 2011-12.

5 Indian Railways loaded 79 millions tonnes of Cement during 2007-08 as against 73 millions tonnes 2006-07 an increase of 8.21 % and have targeted a loading of 200 million tones in 2011-12 which would require annual growth of over 22%.

6 In view of booming real estate sector and proposed hike in investment for infrastructure, growth in Cement production and consumption, additional production capacity proposed to be created in Andhra Pradesh and the gap between consumption and production of Cement in Western region, growth rate of 10% seems reasonable for transport of cement on the project route.

IRON AND STEEL

7 Riding high on the resurgent economy and rising demand for steel, the Indian steel industry have entered into a new development stage from 2005-06. Production of Iron and Steel has increased at CAGR of over 10 % during 2003-04 – 2006-07 as would be seen from graph given below:


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3.764

36.957

3.228

40.055

4.695

44.544

4.96

49.391

0

5

10

15

20

25

30

35

40

45

50

Mill

ion

Ton n

es

2003-04 2004-05 2005-06 2006-07*Financial Year

Production of Iron and Steel- India

Pig IronFinished Carbon Steel

8 The scope for raising the total consumption of steel in India is huge, given that per capita steel consumption is only 40 kg – compared to 150 kg across the world and 250 kg in China. It has been estimated by certain major investment houses, such as Credit Suisse that, India’s steel consumption will continue to grow at nearly 16% rate annually, till 2012, fuelled by demand for construction projects worth US$ 1 trillion.

9 While the National Steel Policy has envisaged steel production to reach 110 million tonnes by 2019-20 at a CAGR of around 6%, Ministry of Steel based on the assessment of the current ongoing projects, both in greenfield and brownfield, has projected that the steel capacity in the county is likely to be 124.06 million tonnes by 2011-12 at CAGR of around 20%.

10 On Indian Railways loading of Iron and Steel has increase of 14.66 millions tones in 2003-04 to 21.04 millions tones during 2006-07 at CAGR of 12.79%. During the decade 1991-92 to 2001-02, railways have been loosing traffic in Steel to road and the share of railways in transporting finished steel at decline of 71.09% in 1991-92 to less than 35% in 2001-02. However the Ministry of Railways plans to increase the loading of finish Steel from 21 millions tonnes in 2006-07 to 40 millions tonnes 2011-12 at a CAGR of more than 13%.

11 An increasing investment in infrastructure, construction and urbanisation as well as growth in automobile, white goods and industrial sector is bound to boost the demand for steel.

IRON ORE


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12 During 11th. Five Year Plan Indian Railways have targeted a growth of 12.15% for Iron Ore for steel plants. Growth rate for Iron and Steel has been adopted for Iron Ore traffic.

SUGAR

13 In 2007, consumption of sugar is estimated to be 20 million MT. The drivers for consumption i.e. the GDP growth and population growth are expected to continue to grow at current rates. Based on the past ten year’s growth in consumption and estimates from various independent sources, it is expected that in 2017, the domestic sugar consumption would be approximately 28.5 million MT. Given the past trend in production cyclicality, sugar equivalent to 1.5 months of consumption i.e. an additional 3.5 million MT of sugar would need to be produced by 2017 for maintaining adequate buffer stock. This would require production of 32 million tones in 2017. International trade in Sugar is of strategic importance to India as it can help maintain stability in the domestic market, despite the cyclicality in production. (Source; KPMG-Report on Sugar Industry).

14 Production of sugar is largely dependent on State and Central Government’s policies with regard to pricing of the basic raw material ‘sugarcane’. Government determines minimum support price, the sugar mills have to pay to the farmers for the sugarcane. Loading of sugar on Indian Railways has increased from 2.10 million tones in 2004-05 to 3.68 million tones in 2006-07.

FOOD GRAINS -FERTILISER

15 Agriculture sector, though accounting for 1/5th of GDP, provides sustenance to 2/3 of country’s population. Fertiliser is a vital input for agriculture and food grain is the main output. Growth in agriculture sector during 10th five year plan had been around 1.7 % per annum but for the 11th five year plan planning commission has targeted the growth at 4%. During the period 2003-04 to 2006-07 loading of fertiliser on Indian Railways increased from 23.73 Million tones to 34.26 Million Tonnes @CAGR of 13.02%. However in view of the growth in demand, transport growth for fertilisers is estimated to grow at 4%.

16 Loading of food grain on Indian Railways has been stagnant during the period 2003-04 to 2006-07. Production of Food Grain is assumed to grow at the same growth rate as for the general population.

COAL

17 Coal is an essential input for a variety of user agencies including the power sector. The elasticity of demand for coal with respect to GDP was seen. For Coal the Consultants used data available in the Report of the Working Group for Formulation of Eleventh Five Year Plan, Ministry of Coal, and Government of India.

4.3 Growth Rates Used In Traffic Projections 18 Taking into account the above market conditions, after observing trends in freight loading and getting the recommendations2 of the various Working Groups for the 11th Plan, the following growth rates commodity-wise have been adopted and used throughout in the study.

2 More specifically, Consultant reviewed Reports of Working Groups for Eleventh Plan for Coal, Fertiliser and Steel, Ministry of Railways Planning Directorate and had discussions with, major rail services user commodity agencies, project area railway authorities and prospective users of railway services in project sections..


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19 Specific growth rates were worked out for select commodities-coal, cement, iron and steel, iron ore, food grain, fertilisers, sugar. These account for over 70% of freight traffic. The rest of the commodities have been clubbed under the head ‘Miscellaneous’ It would be noted that with a high GDP growth over the last four years India is on a path of fast track growth. The primary inputs for growth-coal, iron ore, finished steel and cement have been assumed to grow at a rate (in next five years) to harmonise with the momentum of the past five years. After that, rates have been tapered down. For other commodities, growth rates have been kept at a modest rate, tapering down every five years. After fifteen years, no further growth has been assumed for the purpose analysis.

Table 1: Compound Growth Rates (%)

Description 1 to 5 years 6 to 10 years 11 to 15 years

Coal 8 6 4

Cement 10 8 6

Iron & Steel 8 6 4

Iron Ore 8 6 4

Sugar 4 3 2

Containers 10 10 8

Food Grains 4 3 2

Fertilisers 4 3 2

Miscellaneous 4 4 4

20 The Working Group on steel had projected a CAGR of 10.2% for the period 2005-06 to 2011-12 of total finished steel consumption. Keeping this in view the rates for iron and steel at 8%, 6% and 4% for five yearly periods has been adopted as shown in the table above.

21 For cement, the Working Group report on Cement Industry for the formulation of the 11th Plan has stated that the cement demand is likely to grow at 11.5 per cent per annum during the 11th Plan. Accordingly, a conservative approach has been taken and has adopted the rates as given in the table above. For Fertilisers rates adopted are 4%, 3% and 2% keeping in mind the rate of 4.1 % worked out by technical committee on multiple regression method for the 11th Plan.

22 Considering the surge and momentum in growth of GDP the study has assumed a rate for growth of coal at 8%, 5% and 4% over the next 15 years.

23 Containers have come into railways in a big way. Container culture has come to stay. There is already double-stack movement. Hence assuming a 10% compound growth for 10 years the tapering commences in the eleventh year when growth rate is assumed to come down by 2%.

24 However, for the purpose of projecting future demand for transport of cement on the project route, this growth rate has been reduced by 2% at interval of 5 years. For the period beyond 15 years, rail transport demand for cement has been kept constant.


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5.0 FINANCIAL ANALYSIS

5.1 Approach & Methodology

1 The approach adopted for assessing the project viability has been to take the net earnings that would accrue to the Indian Railways as a result of implementation of the proposed project and calculate the Financial Internal Rate of Return (FIRR), using the Discounted Cash Flow (DCF) technique. All the benefits likely to accrue have been computed on a year-to-year basis over the project life of 30 years. A sensitivity analysis has been carried out to estimate the down side risk and identify the impact of certain crucial factors influencing the project FIRR.

2 The financial viability of the project has been analysed as the Financial Internal Rate of Return (FIRR), without considering costs and benefits of rail movements on the existing section and dispersal lines outside the Project Section. The rolling stock cost, working expenses and the earnings have been apportioned to the Project Section on the basis of transit turn round and lead time.

3 The direct costs and earnings attributable to the Project Section have been based on computation of the incremental traffic. The assumption made is that the traffic of the base year is already moving on the Project Section for which it is incurring costs and deriving corresponding benefits in terms of freight and passenger earnings. After the implementation of the proposed project, the base year traffic and most of the incremental traffic (barring some short lead traffic) will also move on the route taking advantage of any augmented line capacity.

4 It has generally been assumed that the existing base year traffic will continue to move over the section in the existing wagons. However it will potentially accrue additional benefits of reduced turn around time due to higher average operating speed and consequent savings in rolling stock. Accordingly, in arriving at the financial viability of the Project Section, this benefit has been accounted for on a one time basis, apart from the direct earnings that would accrue due to movement of incremental traffic.

5 Due to the higher average operating speed and consequent savings in rolling stock, there will be savings in wagons. Therefore, there will be also savings in the cost of Repair & Maintenance for those wagons saved.

6 The working expenses have been arrived at by adopting the Passenger and Freight Services Unit Costs 2005-06 as applicable to all Indian Railways for electric and non-electric traction, duly escalated to the year 2008-09. Similarly, the freight and passenger revenues have been calculated in accordance with IR notified tariff rates applicable from 01.04.2008.

7 All Cost and Revenue figures are based on 2008-09 price levels, while the project appraisal period has been taken as 30 years, excluding of course the construction period. In the terminal year of the project, residual values of different assets have been considered as per their economic life by applying the straight-line depreciation method. In case of assets having an economic life of less than the appraisal period, replacements have been provided, after accounting for salvage value of 10% in respect of construction costs and 30% in case of rolling stock cost.

8 The financial soundness of the project investments have been tested with a sensitivity analysis carried out by observing the impact on FIRR of changes in the values of the critical parameters.


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5.1.1 Project Cost

9 The costs to be incurred on the project comprise the cost of construction, rolling stock costs and the O&M costs. The different cost components have been further detailed out in the subsequent paragraphs.

10 The actual construction periods have been estimated starting from 2009/10. The year wise phasing of investment over the construction period has been estimated for each phase.

5.1.2 Rolling Stock Requirement & Costs

11 Rolling stock costs are based on the costing norms issued by Indian Railways for the appropriate zone.

5.1.3 Residual and Replacement Costs 12 For estimating the residual/salvage value in the terminal year of the project, the straight line depreciation method has been followed. Replacement cost has been included only for such of the assets whose economic life is less than the project life of 30 years.

5.1.4 Working Expenses 13 Costs likely to be incurred on operation and maintenance of the project sections have been calculated on the basis of freight services Unit Costs incurred on the appropriate Zonal Railway as detailed in the ‘Summary of the End Results: Freight & Coaching Services Unit Costs 2005-06’, published by Ministry of Railways (Railway Board).

14 The terminal costs have been worked out separately. Similarly, the line haul and wagon maintenance costs based on GTKM and wagon days.

5.1.5 Project Benefits 15 The benefits that accrue to the Project Section are through additional earnings due to hauling of the incremental traffic or savings in operational costs. Freight earnings have been arrived at by adopting the Freight rate per tonne applicable on Indian Railways from April 2008 as per rates published in Goods Tariff No. 44 (Part II).


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5.1.6 Weighted Average Cost of Capital 16 The calculated FIRRs are compared to the normal investment hurdle rate of 14% used by Indian Railways. This figure is based on an assessment of the cost of capital to the organisation undertaking the investment. The calculation for RVNL is as follows:-

WACC =

Value of equity x Cost of equity + Value of dept x Cost of dept x (1-tax rate) (Value of equity + Value of dept) (Value of equity + Value of dept)

RVNL share capital = Rs1150 Cr

RVNL Borrowings = Rs 968 Cr

Cost of equity = Risk free rate + (Market risk premium x Beta equity factor)

= 8.75 + (12.5 x 1.0)

= 21.25%

Cost of dept = 9.5%

Tax rate = 30%

WACC = 1150 x 21.25 + 968 x 6.6

(1150 + 968) (1150 + 968)

= 0.543 x 21.25 + 0.457 x 6.65

= 11.539 + 3.039

= 14.6%

The equity risk factor (Beta) has been taken as 1.0 resulting in a WACC of 14.6%. This value for Beta is a very conservative figure in view of the security offered by a government backed organisation such as RVNL. A WACC rate as low as 8% could be calculated depending on the level of financial risk Indian Railways are willing to accept. The calculation also has not made allowance for the rate of inflation which would have the affect of further reducing the cost of dept and equity. On this basis some schemes have been recommended although their FIRR has failed to reach the 14% hurdle.


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6.0 ECONOMIC ANALYSIS

6.1 Rationale for an Economic Analysis 1 The five projects under review have already been sanctioned by the Government of India following positive recommendations from feasibility studies carried out around years 2002 to 2004. These studies contained preliminary engineering designs and technical specifications with traffic forecast analysis and financial analysis. All projects were recommended for implementation and Indian Railways has accepted the recommendations. RVNL has started preparing detailed designs on many of them even if on financial grounds some of them were not look very promising.

2 In the past, railway infrastructure projects have been financed through external financing and the Government of India’s capital budget. The government has realised that India’ strong economic growth could not be sustained without quick massive investments in transport infrastructures in general, and in railways in particular. Financing such massive investments, on a fast track, is beyond Government’s financial capability and have approached The Asian Development Bank (ADB) for possible funding through their multitranche financing facility (MFF) loan modality.

3 Most of ADB assistance, in the past, has been towards the road sector. So far only three loans3 have been allocated to the railway sector. All these loans have suffered from delays in implementation. In the past, ADB concluded that the railway sector needed to go through a strong reform process and adopt a more commercial approach. Progress has been slow and this explains the hesitation4 of ADB to support the railway sector in the past. Some of the required reforms have now been realised and there is now renewed interest from ADB in assisting the railway sector in India.

4 ADB lending approval process requires a full economic feasibility study with environmental and social impact analysis and a Resettlement Plan agreed by Government. The existing supporting studies for the concerned projects conducted by IR and RVNL stopped short of providing such elements and therefore supplementing and updating these studies are the “raison d’etre” of the present TA.

5 A Financial Analysis presents a financial justification for the implementation of the proposed infrastructure investments to the asset owners. From a commercial point of view, it intends to demonstrate that the projects will bring a satisfactory return on the investments to the asset owners. An Economic Analysis, on the other hand, is intended to tell if the proposed investments are justifiable at the society level. In other words, the economic analysis aims to answer the following question: are the scarce resources used to provide the desired investments generating benefits at least higher than the alternative? Benefits and costs are then measured at the opportunity cost levels. Deciding on the best comparable alternative is not easy, but, by convention and simplicity, the opportunity cost of capital is taken as the alternative. For ADB, then, the economic rate of return (EIRR) of the proposed infrastructure investment has to be equal or higher than 12%.

3 First ADB loan in the railway sector was in 1987 for $ 190 million, the second in 1991 for $ 225 million and the third one (still ongoing) for $ 313 million in 2002. 4 Advisory assistance (ADTA) was provided in the form of $ 3.2 million but no PPTA were carried out on the railway sector.


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6 Because of distortions in railway charges, maintenance of uneconomic routes, cross-subsidisation and the use of inadequate cost accounting procedures, recommendations based on satisfactory financial rates of return would ensure commercial sustainability for Indian Railways without fully guaranteeing that the decisions are economically sound at the society level.

7 Only satisfactory EIRRs derived from a comprehensive economic analysis guarantee that the proposed railway investment brings an overall net gain in welfare at the society level enhancing economic growth.

6.2 Recap of the principles of Economic Analysis 8 The principle behind any project economic analysis is simple and consists in making a comparison of the “With Project” situation and the “Without Project” situation. The without project situation is what would prevail in the absence of the proposed projects. For instance, in the case of “double tracking” projects, if rail capacity has already been reached, railways will at first try to accommodate the growing freight traffic. This will bring a deterioration of the service. However IR could not accept a continuous deterioration of the service and incremental traffic will then be either diverted to other longer rail routes or alternatively be shifted to the road sector. However, if transport costs of these diversions turn out to be not profitable for users, they may then decide not to go ahead with the increase of economic activity which was going to result in higher traffic flows. Defining clearly the without project situation is therefore an essential task in the economic analysis.

9 Project economic analysis is also called a project “Cost-Benefit Analysis” and is intended to evaluate if a project is economically viable at the society or national economy level. This implies that the total project discounted benefits have to be greater than the total discounted costs over a given time period. Different indicators of project economic viability exist, namely the “benefit-cost ratio” (B/C), the economic internal rate of return (EIRR) and the Net Present Value (NPV). The EIRR is the most popular indicator.

10 All costs and benefits are measured at their opportunity cost level or in terms of resources used. This means that all price distortions should be eliminated.

6.3 Economic benefits for double tracking and electrification Double tracking

11 Projects under consideration are mostly single tracks and are said to operate at charted capacity. Congestion is prevailing with freight trains suffering from high detention time and IR being not capable of meeting pressing demand. Double tracking will more than double the existing capacity. Detention time will be considerably reduced and the average speed significantly increased. This will translate into three types of benefits:

a. Savings in operating costs for passengers and freight trains;

b. Time savings for passengers due to higher train speed;

c. Time savings for freight operators in the form of reduced inventory cost;

12 In addition (though it is more difficult to estimate), there will be savings at the society level of reduced road accidents following the diversion from road to rail. Double tracking benefits are formalised below.

Traffic along the project rail routes could be expressed in terms of freight and passenger trains (Tf and Tp) as well as in terms of “net revenue tones-km” (NTKM) and passengers-


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km (PKM). For simplification we will use N for NTKM and P for PKM with the following traffic parameters:

• “o”: without project;

• “i”: with project;

• “r”: project rail route;

• “a”: alternative rail route;

• “h1”: diversion from rail to highway;

• “h2”: diversion from highway to project rail route;

• “t”: refers to a given year;

• “P”: refers to total passengers per year;

• “F”: refers to total freight (tones) per year;

For a specific double tracking rail project at a given year, the following equations hold.

tPop = tPopr + tPoph1

tPip = tPipr + tPiph2

tNof = tNofr + tNofh1 + tNofa

tNif = tNifr + tNifh2

Let tHp being the total passenger travelling time to consider for year t on a given rail project expressed in hours and accordingly tHf stands for freight. Then similarly we have the following set of equations with subscripts “t” omitted:

Hop = Hopr + Hoph1

Hof = Hofr + Hofh1 + Hofa

Hip = Hipr + Hiph2

Hif = Hifr + Hifh2

Similarly, for a given year and a given rail project, operating cost can be expressed in terms of Rps/train-km or Rps/NTKM and Rps/PKM. Omitting “year” subscripts gives:

Cop = Copr + Coph1

Cof = Cofr + Cofh1 + Cofa

Cip = Cipr Cif = Cifr

All costs should be “economic costs” with government taxes and duties removed. Coph1 and Cofh1 are passenger and freight vehicle operating costs (VOC) for traffic which has been diverted to the road. Cofa is the operating cost of traffic which because of capacity constraint was forced to travel on alternative rail route.

Maintenance costs are divided between rolling stock maintenance (coaches, wagons and locomotives) and track maintenance. It is expected that double tracking increases maintenance costs both for rolling stock and tracks because of the higher rate of utilisation.

Let “s” stands for rolling stock and “u” for rail track:


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Mo = Mosp + Mosf + Mou

Mi = Misp + Misf + Miu

∆M = Mo - Mi

Where Miu > M0u and Misp < M0sp

Savings in passenger and freight operating costs are detailed in equations below:

∆Cp = (Cop x Top) – (Cip x Tip)

∆Cp = [(Copr x Topr) + (Coph1 x Toph1)] – [Cipr x (Tipr +Tiph2 + Tipg)]

∆Cf = (Cof x Tof) – (Cif x Tif)

∆Cf = [(Cofr x Tofr) + (Cofh1 x Tofh1) + (Cofa x Tofa)] – [Cifr x (Tifr + Tifh2 + Tifg)]

Let’s define the unit value of time of passengers as Vp and the value of time of freight as Vf., with HV being the total time savings in value:

∆HVp = [Vp(Hop – Hip)] x P

∆HVp = {Vp [(Hopr + Hoph1) – (Hipr + Hiph2 + Hipg)]} x P

Time saving for freight is given below:

∆HVf = [Vf (Hof – Hif)] x F

∆HVf = {Vf [(Hofr + Hofh1) – (Hifr + Hifh2 + Hifg)]} x F

13 The saving in operating cost needs to be explained further. Reduction in detention time means higher speed for trains which translates for project length utilisation into saving in engine and wagon-hours. These savings over a year imply a reduction in the volume of engine and wagon needed equivalent to a net saving in inventory cost with additional saving in rolling stock maintenance. The cost of track maintenance is however expected to increase slightly under the with-project situation. The increase should be less than a twofold increase, because there will be productivity gains. The line hauling cost and the signalling cost are assumed to vary with GTKM and therefore will not be affected by double tracking.

Electrification

14 Electrification brings time savings and operating cost savings. Under the present situation, there are significant time losses with the change of locomotives from electric to diesel. Electric locomotives have better acceleration and therefore display a higher average speed along the project length. Time savings, like in double tracking, bring reductions in engine and wagon-hours leading to straight time benefits and inventory benefits. Electrification, in addition, brings time saving from refuelling. Reductions in engine and wagon-hours mean also savings in rolling stock maintenance. But, for electrification, there is a saving in line hauling cost. Diesel is imported and electricity is largely produced from local coal. The positive effect on the trade balance should come as an additional benefit.

Electrification economic benefits can also be formalised:

• o”: without project;

• “i”: with project;

• “p”: passenger;

• “f”: freight or goods;


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• “d”: diesel;

• “e”: electric;

• “C”: operating cost;

• “W”: Wagon;

• “M”: maintenance cost;

• “w”: wagon-hours;

• “l”: engine-hour;

• “*”: normative value

Saving in operating cost can be expressed as follows:

∆Cp = GTKMP (Cd – Ce)

∆Cf = GTKMf (Cd – Ce )

∆C = ∆Cp + ∆Cf = (Cd – Ce ) (GTKMP + GTKMf)

Time savings become:

HVp = Vp (Hop – Hip) x P

HVf = Vf (Hop – Hip) x F

Rolling stock inventory savings become:

SWf = Wf x r

Where Wf = (wof – wif) / w*

SL = L x r

Where L = (l0f – lif) / l*

Savings in rolling stock maintenance become:

Mf = Wf x mf

Ml = L x ml

In addition the saving in energy cost could eventually be added with appropriate shadow pricing since diesel fuel is being imported and India has a deficit in trade balance.

Diversion

15 As it has been said before, all double tracking projects are presumed to have reached capacity. In some cases, because of capacity constraints, trains are already being diverted to other rail routes adding significant travelling distance and operating costs to the train movements. For instance, it is estimated that in 2008, 2.7 trains that would normally travel on the Raipur – Tillagarh section have been diverted to a longer rail route running from Vizianagaram (port) to Nagpur for an additional 309 kms5. Analysis of train diversion revealed that, as expected, trains carrying high value commodities are the ones diverted with half of the diversion movements on the above case being iron and steel commodities. Rail diversions on the other double tracking projects are less

5 Rail distance between Vizianagaram – Vijawada – Nagpur is 1077 kms while between Vizianagaram – Raipur – Nagpur it is only 768 kms bringing a distance saving of 309 kms.


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significant6. In the cases of rail diversion for existing traffic, when comparing with and without project situation, economic benefits are the savings in operating costs and the savings in commodity inventory costs due to shorter rail time travelling.

16 Road and rail in India are both complementary and competing transport modes. With better road infrastructures, Indian Railways has seen its share of freight transport being reduced. But capacity constraints have forced goods that would normally travelled by rail to switch to the road. Reliable estimates of such volumes at the project level are not available; but, data from traffic count surveys reveal that roads running parallel to project railway lines have large proportion of heavy trucking traffic which suggests diversion.

17 Understanding the volume of future traffic likely to be diverted to rail or roads because of prevailing congestion is an even more important but difficult issue requiring information usually not readily available. Ideally, this requires knowledge of the current modal split by commodity along the project routes, comparing freight charges between road and rail and asking major producers about their willingness to change transport mode. Such information can only come from detailed surveys which were beyond the scope of the present study7.

18 However, available information gives us a rough appreciation of the possibility for the road sector to absorb additional traffic that cannot be accommodated by the rail system.

19 As mentioned before, all rail projects have a series of national highways and state highways that run approximately parallel to the railway routes. Routes using national highways along the rail project corridors are described with corresponding distances in the table below.

Table 1: National Highways along Rail Projects Rail Project National Highway route sequence State Distance

(kms) Capacity

Raipur – Titlagarh (part of the Raipur – Vishakhapatnam port connection)

1) Travelling from Raipur on NH 6 until junction with NH 217;

2) On NH 217 until the border with Orissa State;

3) On NH 201 until junction with NH 217 (coming from Raipur);

4) On NH 201 until junction with NH 43

5) On NH 43 until border of Andhra Pradesh State;

6) On NH 43 until junction with NH 5;

7) On NH 5 until reaching VSK Port Subtotal

Chhattisgarh Orissa Andhra Pradesh

43 kms 55 kms 122 kms 93 kms 105 kms 92 kms 42 kms 552 kms

4 Lanes 2 L (no project) 2 L (no project) 2 L (no project) 2 L (no project) 4 L (no project) 4 L (no project)

Sambalpur – Titlagarh (part of the Sambalpur

1) Travelling on NH 6 until reaching junction with NH 201;

Orissa

45 kms

2 L (no project)

6 On the Sambalpur – Tittlagarh route it was estimated that 1 train (steel) will be diverted through the East Coast railway every 2 weeks (7 trains per 90 days). 7 Among them, are up to date traffic counts and Origin/Destination surveys as well as interviews with local producers. The Planning Commission has mandated Rites to carry out a “Total Transport Study” across the country covering all modes. Detailed traffic counts, cost surveys and O/D have been carried out and are presently being processed. Unfortunately collected data could not be released to the Consultant.


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- Vishakhapatnam port connection)



4) On NH 43 until border of Andhra Pradesh State;


6) On NH 5 until reaching VSK Port Subtotal

Andhra Pradesh

174 kms 93 kms 105 kms 92 kms 42 kms 551 kms

2 L (no project) 2 L (no project) 2 L (no project) 4 L (no project) 4 L (no project)

Pune – Guntakal (along the Mumbai – Chennai connection through Hospet)

1) Travelling from Pune on NH 9 until Mohol;

2) On NH 9 from Mohol to Solapur; 3) From Solapur to Bijapur on NH

13; 4) On NH 13 from Bijapur to

junction with road to Raichur; 5) On NH 13, from junction up to

Hospet or junction with NH 63; 6) On NH 63 from Hospet to

Bellary; 7) Again on NH 63 entering Andhra

Pradesh State until reaching Guntakal; Subtotal

Maharastra Karnataka Andhra Pradesh

263 kms 34 kms 101kms 101 kms 87 kms 61 kms 53 kms 700 kms

2 L (4 L under construction)

Pune – Guntakal (through Raichur)

1) Travelling from Pune on NH 9 until Mohol;

2) On NH 9 from Mohol to Solapur; 3) On NH 9 from Solapur to

Homnabad in Karnataka; 4) On SH 22 from Homnabad to

Gulbarga; 5) On SH 22 from Gulbarga to

Devadurga; 6) On District road from Devadurga

to Raichur; 7) On District road from Raichur to

Gooty Subtotal

Maharastra Karnataka Andhra Pradesh

263 kms 34 kms 143 kms 60 kms 108 kms 53 kms 142 kms 803 kms

2 L (4 L under construction)

District road not in good condition

20 Using published sources8, estimates of traffic volume can be derived using average growth rates for updating. Information below is presented in terms of “annual average daily traffic” (AADT), “passenger car equivalent” (PCE) with estimates of tones carried and NTKM.

Table 2: Estimates of traffic volume on parallel roads (2008)

Project Reference Kms

NH (a)

HT ADDT

(b)

PCE (c) MT / Year (d)

NTKMS (M)

(e)

CAGR (f)

Raipur – Titlagarh 203 217 175-555 2250-3050 3.33 676 10%

8 Traffic counts on regular strategic locations for National Highways are available on website. Traffic counts information is from 2004 to 2006, with the majority from 2004.


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Sambalpur - Titlagarh 181 201 340-580 2800 3.49 631 10%

Pune – Guntakal 641

9 5200-7800

28300-45175

21-32 13500-

20500

8%

Pune – Guntakal (g) 641 9 470 3000 2.0 1300 8%

Notes: a): National Highway; b) Heavy trucks AADT comes from 2 sources, web site (2004-2006 updated by CAGR) and from discussion with RITES of India; same applies for ©; d) Million tonnes per year calculated with average net load of 15T and 25% empties; e) Million Net tonnes Kms calculated for project distance; f) estimated compound average growth rate for period of 2004, 2006 to 2008;g) along Pune-Guntakal road and more specifically along NH9, traffic volume varies considerably if measured close to a major city or in between; quoted here are data from two representatives checkpoints along NH 9, one on the high side and one on the low side;

21 In the table above, numbers have been selected using findings from the traffic count locations which better represent the through traffic competing with freight rail traffic. The volume of traffic on the two first projects is relatively limited leaving room for possible diversion rail traffic in the without project case. However, the Pune-Guntakal “parallel road” carries heavy traffic and major road diversion may then cause capacity problems limiting the volume of possible diversion in the without project case.

6.4 Estimating the Economic Benefits 22 Double tracking and electrification improve track capacity and efficiency. As stated above, there are three major types of savings, saving in rolling stock inventory and maintenance costs (for coach, wagon and locomotive engine), time saving for goods and passengers, and finally saving in operating costs. Saving in operating costs covers many aspects including the road diversion factor. Estimating these savings for all the proposed projects requires a series of calculations based on parameters and assumptions. These parameters or assumptions are sometimes specific to each project and often common to all. In the table below common parameters and assumptions are reviewed.


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Table 3 Common parameters and assumptions for economic analysis

Item Assumption

Current Traffic Data base9 for current traffic and traffic projection comes from a 59 days observation (January and February 2008) on comprehensive train movements along project lines with full O/D. The starting date of 2007-2008 was obtained from extrapolation.

Traffic Projection Traffic has been projected for a 15 year period applying growth rates to the base year. Projections are expressed in terms on NTKM and GTKM. Growth rates were estimated for 3 periods of 5 years for the following commodities: coal, cement, iron ore, iron and steel, petroleum products, sugar, food grain, fertiliser, containers and miscellaneous. Growth rates vary between 4 and 10 % (cement) and are projected to decline overtime. Traffic projections assumed that the current O/D pattern remains constant over the study period.

NTKM, GTKM Net Tonnes-Km and Gross Tonnes-km are projected for 15 years with no growth or benefits remaining constant after. NTKM is calculated on carried load and GTKM includes weight of wagon and engines.

Performance indicators Economic analysis makes used of performance indicators for trains, engines and wagons quoted from the IR Statistical Statement of 2006-2007 and presented by railway zones.

Value of passenger time Data comes from a recent feasibility study for a highway project in Gujarat10. Value of time varies by passenger class, whether trip is made for work or non work purpose. 2nd class passengers have value of time equivalent to bus passengers and 1st class passengers according to car owners: • 37.75 Rs/hour for 1st class/sleeper passengers

assuming 75% work related and 25% non work related estimated at 1/3 of work related;

• 9.56 Rs/hour for 2nd class passengers assuming 20% work related and 80% non work related;

• 2nd class passengers represent 86% of total passengers;

Value of freight time Goods which fail to be delivered on time impose a cost to the receiver. This cost is function of the prevailing interest rate per hour and the average value of the good being transported. Interest rate is based on a 12% rate per annum with 1825 working hours. The average value of carried good is a commodity value index which has been calculated according to the current economic prices of

9 This data base is described in further details in the Traffic Section of the report. 10 Gujarat Highway Feasibility, document prepared Scott Wilson.


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Item Assumption dominant commodities weighted by their relative NTKM shares. For instance the value of freight in terms of Wagon-load/hour has been estimated to be 20.8 Rs/hour.

Vehicle Operating Costs Economic benefits resulting from road diversion require estimates of vehicle operating costs. Based on findings from previous study11, VOC for Heavy Truck is assumed to be on average 0.75 Rs/Tkm (conservative estimate) for highway with roughness varying between 4 and 5 (for details see VOC table below).

Rail Operating Cost Line haul traction diesel for Indian Railways (Central Zone) was Rs 0.25/GTKM (IR Freight Service Cots Report for 2005-2006 p.20). With price adjustments, the average rail operating cost for diesel varies between Rs 0.3/GTKM and Rs 0.35/GTKM. When comparing line haul traction only, diesel was Rs 144.3/GTKM and electric Rs 88.96 (2005-2006).

Shadow pricing Shadow pricing refers to the elimination of all distortions in financial or market prices in order to obtain economic prices. Economic prices have been derived to the extent possible by elimination of duties and taxes. However on the capital cost side in particular, taxes and subsidies are very difficult to evaluate. Therefore, the practice is to apply an overall conversion factor (CF) to cost figures to eliminate all possible distortions including foreign exchange distortions if applicable. ADB projects in the past have used in India a CF equal to 0.85.

Construction period It is assumed that double tracking (DT) will take 4 years and completion of electrification (EL) of single line 2 years. In the case of double tracking and electrification (DT&EL), it is assumed that it will take 5 years to complete the project. For instance, for double tracking, 2013-2014 is the first year of operation after project completion.

Distribution of construction cost per year

In the case of DT, civil woks over the four years will be distributed accordingly: 10%, 35%, 35% and 20%. For single line electrification the split is 40%, 60%. For DT&EL, civil works will start first and electrification will take place during the last 3 years of construction.

Time period for economic analysis

The economic analysis, as it is common practice for infrastructure project has been carried out over a 20 years period. A 30 years period gives a marginal increase in terms of EIRRs of the order of 1% maximum.

Average annual commodity price per tonne (AACP)

Commodity prices are described elsewhere. Annual commodity prices used in the economic analysis are weighted average of prices of major commodities transported. They, therefore, vary overtime and by projects, being on average between 4,000 to 12,000 Rest/T. Weights

11 Same reference that footnote 8; VOC have been calculated using HDM-4.


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Item Assumption are project NTKMs.

Reference commodity prices

Major commodity prices are economic prices obtained from web sites and/or discussions with concerned Ministries and expressed in Rs/Tonnes: • Coal: 1000 • Cement: 1400 • Gypsum: 650 • Iron Ore: 850 • Iron & Steel: 50000 • PIG: 14000 • Petroleum products: 35000 • Fertiliser: 10000 • Sugar: 17000 • Food Grain: 20000

EIRR, NPV Economic internal rate of return (EIRR) have been calculated for each project and each project scenario. Threshold for EIRR is 12%. Project Net Present Values (NPV) have also been calculated for each project as well as Benefit Cost ratios (B/C).

Discount rate The discount rate, following ADB practice has been retained as 12%.

Sensitivity analysis A simple sensitivity analysis has been carried out focusing on the perceived more serious risk factors. They consist in increasing construction cost by 20% and decreasing traffic volume by 20%.

23 Double tracking is a capacity improvement scheme. Therefore the key element for benefit calculation is the net average travelling time before and after capacity improvement because of reduction of the detention time among sections. Train time savings translate into engine-hours and coach and wagon-hours saving leading to savings in rolling stock and maintenance. Time savings bring additional benefits for passengers and shippers/producers because destinations are reached faster. In the without project, traffic projections in terms of NTKM cannot be met with existing capacity and alternatives have to be envisaged. The most likely alternative12 is to assume that production that cannot be transported by rail will move by road. Then differences in operating costs measured in terms of Rs/Ton-km bring significant economic benefits to the project.

12 Eventually diversion could also be to other longer rail routes. Such diversion is already taking place and has been observed. It is unlikely that the rail network without further capacity improvement can accommodate forecasted demand. It is sometimes argued that faced with rail constraints, production of certain commodities (mining) will not be realised and therefore such economic loss should be added to the benefits. If producer decides to curtail production because switching to road is too expensive. Should the loss in production measured in value added be considered as a benefit? The benefit in this case is only the difference in value added before the current economic activity and the next best economic activity. This type of calculation may require detailed cost analysis of concerned production centres with the likelihood of getting un-reliable findings. For simplicity it has been assumed road diversion was the only available alternative.


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24 For electrification project, time saving comes from different sources. The largest time saving for passenger and goods trains will come from changes of locomotives from diesel to electric and vice versa. Changing traction types takes time (approximately 1.5 hour) and often they have to wait for locomotives to be available adding easily on average another 30 minutes. Additional time saving comes from the elimination of refuelling and the fact that electric locomotives are faster by approximately 2 kms/hour. As explained above time savings translate into inventory and maintenance benefits and benefits for passengers and shippers/producers because destinations are reached faster. Line-haul operating cost and maintenance of electric traction is cheaper than diesel and this brings additional important economic benefits. There is a series of reason why line-haul operating cost is cheaper, one of them being the saving in energy cost.

25 The average speed of trains varies between diesel and electric and between single and double line, with passenger trains being significantly faster than freight trains. Average train speeds are Consultant’s calculations based on field information and simple arithmetic. An underlying assumption is that expected speed on the Daund-Gulbarga project section, after double tracking, is slightly faster than on existing double track sections because of more branchings. Details on train speed in the table below are internally consistent and in accordance to observed speeds.

Daund Gulbarga Double

Tracking

Pune – Guntakal

Electrification Single Line

Pune – Guntakal

Electrification Double

Raipur – Titlagarh Double

Tracking

Sambalpur –

Titlagarh Double

Tracking Without Project Diesel Goods 18.5 25 25 21.5 21.5

With Project Diesel Goods 36.8 N/A N/A 40 40 Without Project Diesel Passenger 41 45 45 40 4o

With Project Diesel Passenger 45 N/A N/A 45 45

Without Project Electric Goods N/A N/A N/A N/A N/A

With Project Electric Goods N/A 27 36 N/A N/A

Without Project Electric Passenger N/A N/A N/A N/A N/A

With Project Electric Passenger N/A 47 47 N/A N/A

26 In double tracking projects, the economic benefit of road diversion comes from the difference in operating cost (Rs/tonne-km) between road and rail. Road is notoriously a more expensive mode of transport but offers more flexibility and faster service for shorter distance. The little evidence available tends to confirm that modal share has recently tilted in favour of the road sector along project corridors. Probably because of capacity constraint, commodities that would normally be transported by rail have shifted to the road sector. Vehicle operating costs (VOC) have been derived using HDM-4 and vehicle inputs collected in 2008 for a highway project in Gujarat. Details on average roughness, for highways running parallel to rail projects, were not available and therefore were assumed to vary between 4 and 5, which is typical of medium quality roads in India. VOC for classes of vehicles are copied below from the HDM-4 output format.

Details on VOC by vehicle types as extracted from HDM-4 software are below:


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6.5 Costs 27 There are three types of costs to consider in the economic analysis: construction costs, cost of additional rolling stock and maintenance cost. Details on construction cost estimates can be found in the engineering section. Construction costs are classified into three major components, civil works, signalling and telecommunication and electrical works. Additional rolling stock (locomotives, wagons and coaches) are needed to meet the incremental traffic. Maintenance costs have a few components comprising the maintenance of the proposed infrastructure and added rolling stock.

28 All costs included are net costs associated with the proposed investment projects and should only be incremental to the costs covered under the without project situation. All costs are 2008 prices and are free of any contingency components13. The analysis is

13 Contingency is covered under the sensitivity analysis;

Code Label

Name (Label)

Car medium (Rs/veh-

kms)

Goods Light

(Rs/veh=kms)

Bus Medium (Rs/veh-

kms)

Bus Heavy (Rs/veh-kms)

Bus Light

(Rs/veh-kms)

Truck Light (Rs/veh-kms)

Truck Medium (Rs/veh-kms)

Truck Heavy

(Rs/veh-kms)

Truck Articulat

ed (Rs/veh-

kms)

Average Vehicle

Fleet (Rs/veh-

kms) AX-02 Terrain

A/Type X – Roughness

02

3.51 5.39 6.21 9.33 11.79 6.06 10.50 18.19 24.29 7.85

AX-03 Terrain A/Type X – Roughness

03

3.53 5.42 6.24 9.42 11.91 6.11 10.61 18.36 24.57 7.92


04

3.59 5.56 6.33 9.71 12.20 6.30 10.98 18.87 25.42 8.15


05

3.64 5.66 6.43 10.00 12.46 6.48 11.33 19.26 26.09 8.35


06

3.66 5.73 6.56 10.29 12.57 6.64 11.63 19.27 26.37 8.48


07

3.66 5.76 6.69 10.56 12.61 6.78 11.87 19.08 26.58 8.57

AX-08 Terrain A/Type x – Roughness

08

3.67 5.81 6.83 10.85 12.72 6.91 12.10 19.11 26.97 8.68


09

3.71 5.91 7.00 11.16 12.97 7.06 12.37 19.41 27.61 8.85

AX-10 Terrain A/ Type X –

Roughness 10

3.79 6.05 7.19 11.51 13.35 7.24 12.69 19.91 28.46 9.08


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in 2008 constant prices expressed first in Rupees (Rs) and converted after in US dollars at the prevailing rate14. Finally as mentioned before financial cost figures are adjusted using a conversion factor of 0.85 to give economic costs.

Summary of the project costs is in table below.

Table 7: Project Costs used in Economic Analysis (M Rs)

Daund –

Gulbarga Double Tracking

Pune – Guntakal


Pune – Guntakal


Tracking


Tracking

Sambalpur – Titlagarh

Double Tracking

Civil Works Cost 6621.70 375.54 6997.20 6320 5960.37

Signalling and Telecommunication 772.50 352.80 1123.80 524 474.7

Electrical Works Costs 148.40 6754.94 7432.80 114.86 98.48

Total Financial Investment Cost 7542.60 7483.28 15553.80 6958.96 6533.55

Total Economic Investment Cost 6347.10 6297.18 13088.52 5855.96 5497.98

Note: Economic Cost are first converted by multiplying by CF of 0.85 and taking out the 1% contingency

6.6 Economic Evaluation of Rail Projects 29 A conservative approach has been followed for the evaluation of the different rail projects. In short, it means that there are probably other benefits, more difficult to estimate, that could eventually be added. However, the analysis will establish whether the rail projects are justified without resorting to the quantification of these other potential benefits. A typical “other benefit” concerns the road sector. In reality road diversion and the traffic volume it implies could cause congestion and road deterioration requiring expansion of the present road capacity before what would have been the case otherwise. Congestion, additional road maintenance expenditures and the bringing forward of extra road capacity are clear economic and social costs that could, if properly estimated, be accounted for in the economic analysis.

30 There are additional reasons which explain why the approach is called conservative. For instance detention time has been kept constant; however, as traffic increases and congestion build up, detention time is likely to keep increasing. The value of time for passengers and freight also remains constant; though likely it will grow along GDP/capita. In all projects, the railway network benefits have not been considered

31 The summary of the economic analysis is given in the table below. Financial and economic construction costs are being presented with first year economic benefits, namely inventory benefits, time value benefits, road diversion benefits and saving in operating cost benefits. However, main purpose of the table is to illustrate the economic

14 Prevailing rate is US $ = 43 Rps;


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justification of the rail projects through a series of indicators EIRR, NPV and Benefit/Cost ratio.

32 EIRRs are all around or above the ADB threshold of 12% suggesting that projects are economically justifiable, with the double tracking of Daund_Gulbarga remaining a marginal case under Alternative 1. Alternative 1 assumes that railway operation can sustain some congestion and meet the increase in traffic demand until the completion of the proposed projects (2013-14). Alternative 2, on the contrary, assumes that diversion to the road sector has to be envisaged as soon as year 2008-2009. Alternative 1 is however more realistic. With demand pressure the railway system will try to accommodate traffic increase up to a point, even if it means going above the charted capacity utilisation. Double tracking of Daund-Gulbarga might be required for network standardisation and efficiency but the present traffic on the section hardly justify double tracking alone based on economic analysis.

33 For the Pune-Guntakal project, two scenarios are given, electrification of the present line keeping the Daund-Gulbarga section as a single line and the combined solution of carrying out the double tracking and the electrification at the same time. The two scenarios are economically justified. But, the combined solution, despite its high cost, with an EIRR of 14 % and higher NPV, is a definitely a better option.

34 The economic analysis of the simple electrification of the existing Pune-Guntakal line takes into account the fact15 that the line is already16 double tracked on 2/3 of the total distance and therefore limits the expansion of economic benefits.

35 Double tracking of Raipur-Titlagarh and Sambalpur-Titlagarh have the highest EIRRs and are economically highly justifiable. This finding, however, depends largely on the assumption made concerning the transport of a new coal production from the Talcher area. It is assumed that because of congestion on the Sambalpur-Bilaspur-Raipur line, coal would be transported to Raipur via Titlagarh. This massive rise in traffic volume (10 million in 2013-14 and 22 million in 2018-19) easily justify17 the double tracking of the two lines. This implies that double tracking of Sambalpur-Titlagarh and Raipur Titlagarh has to be considered as one project and have to be completed at the same time.

Summary table for the economic evaluation of the proposed rail projects is below.

Daund – Gulbarga Double

Tracking

Pune – Guntakal


Pune – Guntakal


Tracking


Tracking


Double Tracking

Project Construction Financial Costs (M Rs)

7543 7483 15554 6957 6539

Project Construction 6411 6361 13221 5854 5503

15 This meant that the economic benefits of the existing are constrained because the Daund-Gulbarga section cannot accommodate incremental traffic beyond 2013-14. Therefore after that date, only 2/3 of the estimated economic benefits are being accounted for. 16 There are some ongoing double tracking projects, but, they all will be completed before the completion of the electrification project. 17 If this massive coal transport is excluded, Sambalpurt-Titlagarh and Raipur-Titlagarh are far from being able to meet the 12% threshold with EIRRs varying from 1 to 7%.


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Economic Costs (M Rs)

Number of Years of Construction 4 2 5 4 4

First Year of Economic Benefits 2013-14 2011-12 2013-14 2013-14 2013-14

First year Benefits Alternative 1 (M Rs)

529 994 1480 1368 1168

EIRR Alternative 1 (%) 12.43% 14.81% 14.88% 19.49% 17.16%

EIRR Alternative 2 (%) 16.35% N/A 17.19% 20.75% 17.56%

NPV Alternative 1 (M Rs) 182.46 1028.3 2313.74 3194 1947

Benefit Cost Ratio (B/C) Alternative 1

1.03 1.18 1.22 1.45 1.29

36 The distribution of economic benefits by types varies among projects. For instance, in the Daund-Gulbarga project, ¾ of the benefits18 are time related (inventory and maintenance benefits from saving on rolling stock and freight and time saving) with the rest being capacity related benefit (road diversion). For electrification projects, by far the largest benefits are operating cost benefits of running electric trains instead of diesel (70% of the benefits for the electrification scenario without double tracking and 53% under the combined scenario).

37 The analysis has been carried out on 20 years. Under a 30 year time period EIRRs increase by 1 %. The results are very sensitive about the assumptions on capacity on the rail project. For instance in the case of electrification of Pune–Guntakal, without double tracking and allowing traffic growth to be fully met by capacity in place, EIRR climbs to 18 % instead of 16 %.

38 Some sensitivity analysis has been carried out consisting in 20% increase in construction cost and 20% decrease in traffic expressed in NTKM. These two are perceived as being the most likely risk components of the project. The combined project for Pune – Guntakal and the double tracking of Sambalpur-Titlagarh-Raipur manage to remain economically justifiable while the electrification on existing line and the double tracking project of Daund Gulbarga are below the acceptable threshold of 12 %. Table illustrating the sensitivity analysis is presented below:

Table 8: Economic Evaluation of Rail Projects – Sensitivity Analysis (EIRR in %)

Daund – Gulbarga Double

Tracking

Pune – Guntakal


Pune – Guntakal


Tracking


Tracking


Double Tracking

Base Case Alternative 1 12.43% 14.81% 14.88% 19.49 17.16

Base Case Alternative 2 16.35% N/A 17.19% 20.75 17.56

+20% Construction Cost 10.42% 11.94% 12.77% 16.83 14.82

18 Numbers refer to first year benefits, though the proportion does not change much over time.


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Alternative 1

-20% Traffic Volume (NTKM) Alternative 1

10.19% 11.16% 12.07% 16.05 13.5

6.7 Conclusions

39 All of the proposed projects are economically justifiable with Daund Gulbarga Double tracking remaining marginal. Combining double tracking with electrification gives better return on the investment than carrying the projects separately.

40 Because of their dependency on the new coal production in Talcher, the Raipur-Titlagarh-Sambalpur should be considered as a unique project with double tracking being economically justifiable. The project justification relies heavily on the likelihood that the expected massive new coal production from the Talcher area (Exploited by Mahundi Coal Fields) would move to Raipur on the project line. This implies that the Talcher – Sambalpur rail line has sufficient capacity to move this additional volume of coal. Talcher – Sambalpur (174kms) is presently a single line and has not been sanctioned for double tracking. Double tracking would be required as soon as 2013-14 to accommodate these projected coal movements. Therefore the possibility of this additional double tracking should be examined as a priority.

41 In purpose, as said before, a conservative approach has been adopted. Better returns on the investment can be envisaged; however, findings remain sensitive to three factors: traffic projections, construction costs and the real capacity utilisation of the track.

42 For double tracking projects, the economic analysis has assumed that once track capacity is reached incremental traffic is diverted to the road sector. This implies that there is sufficient capacity on the road system. In the case of Daund-Gulbarga double tracking, the diversion brings on the road an additional 1,000 trucks at the time of project completion. This is a high number, but if the project for turning all National Highways into a minimum of four lanes is achieved as planned, then increased congestion would be minimised in the without project situation. The situation is more uncertain in the case of the Sambalpur-Titlagarh-Raipur double tracking. Adding the equivalent of 7200 PCE in 2014 and 18,000 in 2019 would bring considerable pressure on the existing road system requiring immediate road widening projects if double tracking is not implemented.

43 Finally, carrying out this economic analysis has revealed two sectors where major improvements could be realised by Indian Railways. Firstly Indian Railways should seriously consider strengthening its capability of carrying project economic analysis instead of relying only on financial analysis. The two analyses should be conducted in parallel. Economic analysis for MOR should help the planning and the project implementation process by providing comparisons and rankings among projects according to economic justification criteria. In addition project economic analysis should help the Planning Commission in their decision process at the macro level when trade-offs are required among sectors for public budget purposes.

44 But, the institutional strengthening of the planning activities in MOR should go further. There is presently very limited capability to do proper project monitoring and evaluation. The institution does not have the capability to analyse and report on traffic performance once project are implemented. This lack of monitoring and evaluation weakens the planning process. There is presently no clear mechanisms where traffic


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operations benefits following project implementation are “fed back” in the system to improve planning decisions.

45 There is a second point to be mentioned. The present statistical system generates numbers and performance indicators by railway zone. The existing data base does not constitute a true economic accounting system. It is not yet possible to account for the true cost of running a train from A to B. The system does not allow for clear measurement of productivity gains, like marginal cost saving of improving signalling. The absence of an economic accounting system makes monitoring of operation performance distorted. Indian Railways should therefore consider very seriously the implementation of a full economic accounting system.

46 And finally, it should be stressed that large infrastructure project of the size considered here should not be evaluated in pure isolation. Solutions proposed should be confirmed by a network analysis in order to ensure efficiency of the railway system.

6.7.1 Environmental Issues – CO2 Emissions.

47 The United Nations framework convention on climate change and its Kyoto protocol. 1997 aims to stabilise GHG concentrations in the atmosphere at levels which would prevent dangerous human interference with the climatic system. India is a signatory to the UNFCCC and acceded to the protocol in August 2002. Australia acceded to the protocol in 2007 and now USA is the only major economy that has refused to sign the convention. The protocol lays down targets for industrialised countries to cut their greenhouse gas emissions. It provides three mechanisms for reducing GHG emissions:-

1 The joint implementation (JI) – A mechanism for co-operation between developed countries.

2 Emission trading (ET) - A mechanism for co-operation between developed countries.

3 Clean development mechanism (CDM) – This provides for co-operation between developed and developing countries

48 Only countries that have ratified the protocol are allowed to engage in carbon trading and this is done by the allocation of Carbon Credits. The Carbon Credit is a concept which seeks to incentives countries to set quotas and reduce their carbon emissions. It promotes the generation of credits by companies or organisations by shifting to cleaner technologies. One credit is equal to one tonne of CO2 and gives its owner the right to emit one tonne of CO2. The protocol sets target commitments on countries who in turn set emission quotas on industrial organisations in order to fulfil their quota. Companies with emissions above the quota can buy credits sold by organisations with a surplus. However developing countries in recognition of their low per-capita GHG emissions and low financial and technical capacities do not have any binding reduction commitments.

49 India overall CO2 emissions contribute to 4% of the worlds carbon output although India’s per capita emissions are very low compared to western developed countries. The annual per capita emissions in India are rising steadily as the country develops. From 1.2 tonnes pa in 1990 to 1.3 in 1994 and 1.5 in 2000. This apparent rate of increase is depressed by a corresponding increase in population. Over the last twenty years emission of CO2 contributed by Indian railways has been decreasing with the phasing out of steam locomotives and the increase in electrification. This does not include the CO2 emissions from generating the electricity used on the railway. However increased traffic in resent


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years is now resulting in a net increase in emissions by Indian railways. This is a trend that can be expected to continue as the economy continues to expand.

50 To achieve the commitments under UNFCCC and the protocol India has set up the Ministry of Environment and Forests to address issues relating to climate change. India stands to benefit from foreign investment and technology transfer. Including investment expected into projects related to renewable energy, energy generation and forestation.

51 India is emerging as on of the leading sellers of credits in the world and the largest supplier of credits after China. India generates carbon credits through CDM projects. However Indian companies will have to adopt strict emission norms once India is recognised as an industrialised country. In that event India may turn into a net buyer of credit from other developing countries. Credit trading in India has been forecast to touch $100Bn by 2010. India accounts for almost one third of the of the total CDM projects registered with the UNFCCC. Total issued credits now stand at over $34Bn. In the summer of 2008 the European carbon trading price was as high as €30 /tonne. However this has now fallen to €10 / tonne and is predicted by market experts to fall to zero in the current economic climate.

52 There are implications for the economic analysis of railway enhancement projects so if the cost of CO2 is internalised. The attractiveness of electrification projects in particular would be affected. The cost of diesel fuel per 1000 gtk is 3.6 times that of electric traction. But if the generation of electrical power by burning coal is considered electric traction produces up to10 times more CO2 than diesel per output unit. Given the energy consumption of electric and diesel traction, it is possible to estimate the CO2 that is produced in railway operation and also to compare the amount of CO2 produced by electric or diesel locomotion. The table below provides an estimate of the volume of CO2 generated by each of the projects and its potential cost in terms of carbon credits. The costs are not large enough to affect the decision on whether or not to electrify a route but if included in the financial and economic analysis might affect the decision on the viability of an individual scheme.

Route km Fuel

Consumption lt / gtk*

Current traffic 1000 gtk

Emissions CO2 tonnes

Price of CO2 USD

Estimated Cost USD

Sambalpur - Titlagarh 182 3.34 8320 7225 15.5 111989

Raipur - Titlagarh 203 3.34 12396 10765 15.5 166853

Daund - Gulbarga 225 3.43 11550 10300 15.5 159654

Hospet - Tenaighat 245 3.25 14370 12143 15.5 188211

Pune – Guntakal

641 11.48** 23800 273224 15.5 4234972

* Weighted average fuel consumption.

* * Electrified line fuel in kwhrs

CO2 per litre estimated at 260gms

CO2 per kwh estimated at 1000gms


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7.0 SOCIAL IMPACT

7.1 General

1 This Pune-Guntakal section passes through the States of Maharashtra (Solapur and Pune districts), Karnataka (Gulbarga and Raichur districts) and Andhra Pradesh (Anantpur district) that fall mostly on the Deccan Plateau of the agro-ecological zone. Similarly, the Sambalpur-Titlagarh section passes through the state of Orissa (Bargarh, Bolangir, Sambalpur and Sonepur districts) and the Titlagarh-Raipur section passes through the states of Orissa (Bolangir and Nuapara districts) and Chattisgarh (Raipur and Mahasamund districts), that fall in the eastern ghats and central plateau.

7.1.1 Maharashtra

2 The average incidence of poverty in Maharashtra stands at 28.40 per cent, whereas, it is 22.65% in Pune and 40.30% in Solapur. Both Pune (11.41%) and Solapur (15.42%) have also more than the State average (11.09%) of Scheduled Castes (SC) population. This shows that incidence of poverty is higher in those districts, which are socially economically backward in terms of per capita domestic product and marginalised population. In the project districts, the primary sector is agriculture but with relatively poor returns by way of incomes from these areas, fails to meet the economic requirement of the people, especially of the poor and the marginalised. The share of agriculture in the State has declined from 42.14 per cent in 1960-61 to 27.69 per cent in 1980-81 and fell to 17.44 per cent by 1999-2000. However, in recent years, the cropping pattern in Maharashtra has shifted markedly in favour of cash crops like fruits, vegetables, oil seeds, sugarcane, cotton and pulses. In the project districts, there is a shift away from cereals, pulses and oilseeds to sugarcane and cotton.

7.1.2 Gender

3 If we take literacy as criteria for women development in the project districts, we find that in Pune, 80.59% women are literate in urban areas against 60.98 in rural areas. Similarly, in Solapur, the proportion of literacy among women is 67.81(urban) against 56.33 (rural).

7.1.3 Indigenous Population

4 In Maharashtra, poverty proportion for rural Scheduled Tribes (ST) and Scheduled Castes (SC) groups is about 44 per cent and 32 per cent respectively while it is 23 per cent for rural areas as a whole. The proportion of poor among rural STs is, thus, nearly double compared to that among the total rural population in the state. This also gets reflected in the fact that the ST group accounts for 32 per cent of the total rural poor as against a population share of 17 per cent. Incidence of rural poverty at 13 per cent for the “others” category is less than a third compared to STs. However, in project districts of Pune and Solapur the ST population is 3.91 and 1.5 respectively, which is well below the state and national average.

7.1.4 Child Labour

5 Maharashtra is the first state in the country to have prepared a state action plan for the elimination of child labour. The need to rehabilitate working children is obvious. The state action plan therefore provides for educational rehabilitation of child labourers under the National Child Labour Project Indus, and Sarva Shiksha Abhiyan (Education for All)


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schemes. In Maharashtra, as per census data, in the children age group of 11 to 14, out of a total population of 3419225, 11.7 per cent are not attending schools and working. Majority of them are engaged in agriculture and other informal sector.

7.2 HIV/AIDS

6 Maharashtra has got one of the highest AIDS patients in the country and is categorised by NACO as ‘high prevalence’ state. The project district of Pune also has a high number of HIV/AIDS patients.

7.2.1 Karnataka

7 In Karnataka, employment is primary sector oriented, with secondary and tertiary sectors contributing relatively lower proportions. Though the economy has grown at a moderate compound growth rate of around 6 per cent during the last decade, the growth of the primary sector has increased only by less than one per cent. The large number of agricultural labourers as a proportion of the total work force adversely impacts labour productivity, per capita income and poverty levels due to an excessive dependence on agriculture. One of the apparent reasons for the high incidence of urban poverty is migration from the rural to urban areas for employment.

7.2.2 Gender

8 Study shows that female dependence on agriculture is higher than male, across all districts and it is particularly high in north Karnataka. In the project district of Gulbarga, the percentage of female agricultural labourers is 65.19 as against the men of 23.35. Similarly, in the district of Raichur it is 71.31 per cent against 28.07 per cent.

7.2.3 Indigenous Population

9 The tribal population of Karnataka increased to 34.64 lakh in 2001 from 19.16 lakh in 1991. The decadal growth rate during this period is a high 80.8 per cent, caused not by a spurt in fertility rates but by the addition of several new tribes to the Scheduled Tribes (ST). In the districts of Gulbarga and Raichur, the tribal population are 717595 and 317276 respectively. The State has 10.6 per cent of the total population as Scheduled Tribes. The district Raichur (18.1 per cent) has the highest percentage of ST population in the State.

7.2.4 Child Labour

10 In Karnataka, only 1.54 per cent of total children are out of school. In the project districts, 29.7 per cent (2003-04) of the enrolled children in the primary school were dropouts. Also the gender gap in the dropout rate is very high in the project districts.

7.3 HIV/AIDS

11 There are a number of factors that contribute to Karnataka’s vulnerability to the HIV epidemic. It is bordered by three states that have well-established and growing HIV epidemics (Maharashtra, Tamil Nadu and Andhra Pradesh). Economic pressures result in migration and social dislocation of labourers (primarily men) who are seeking work. This situation is particularly acute in northern Karnataka, which is drought-prone and suffers from substantial levels of poverty.


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7.3.1 Andhra Pradesh

12 In Andhra Pradesh, the poverty level is higher in urban areas than in rural areas. While rural poverty declined significantly from about 27 percent in 1983 to 11 percent in 2004-05, urban poverty declined from 37 percent to 28 percent during the same period, which is still very high. The following tables depict the poverty scenario of the State.

13 Some of the important determinants of poverty in Andhra Pradesh are per capita agricultural GDP, land and labour productivities, inflation rate, fiscal deficit etc. Surprisingly, some policies in the post-reform period have had an adverse impact on poverty reduction.

7.3.2 Gender Analysis

14 The status of women in the state by different empowerment dimensions shows that the gender differences in terms of education (literacy, schooling and higher education) is relatively lower when compared with the all-India levels, but not in comparison with South Indian states. In terms of political participation of women the state is better placed than all-India.

7.3.3 Indigenous People

15 The tribal population constitutes 8.2% of the total population of Andhra Pradesh. Out of the total population, 44% are agricultural labourers and 36% are self-employed in agriculture. Their main source of livelihoods is forests and agriculture. In the last decade, the poverty level among the STs has increased and landlessness among these communities is also increasing. In Anantpur district, only 3.5% of the total population is STs and their main occupation is agriculture.

7.3.4 Child Labour

16 The Andhra Pradesh government implements the National Child Labour Programme (NCLP) in 22 districts covering 65,000 children every year. The project district of Anantpur is one of them. In Anantpur district, out of a total of 878170 children, 249274 are out of school. The Poverty Alleviation Program in the project district has included elimination of child labour through universal elementary education (UEE) as an important component of its strategy to alleviate poverty.

7.4 HIV/AIDS

17 In Andhra Pradesh, there are 12,349 reported cases of AIDS. It is also categorised as one of the ‘high prevalence’ states in India. Comparatively, the district of Anantpur has low prevalence of HIV.

7.4.1 Orissa

18 Orissa has the highest proportion of population living below poverty line in the country. Around 47.13% (all India average is 26.1%) in Orissa lives below poverty line. The Scheduled Tribe population is 39.7% in the southern region, where the project is proposed to be implemented. Poverty ratio is 85.5% in the southern region. It is in this region that 88.56 per cent of the state’s ST population and 46.23 per cent of the state’s SC population reside.


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19 At the state level, while the sex ratio for all age group population is 972 females per 1000 males, it comes down to 950 females per 1000 males in 0–6 year age group of population. The infant mortality rate is very high both for males and females in the state. According to the 1991 census, only 27.28 per cent of total workers in Orissa are women. The main workers and the marginal workers among females constitute 58.2 per cent and 41.8 per cent of the total female workers respectively. The unorganised primary sector absorbs as much as 82.7 per cent of the total female workers. The increasing degradation of forest in project districts gives rise to drudgery, and time spent by forest dwellers, particularly women on collection of non-timber forest produce (NTFP) related activities to earn their livelihood is increasing. This is affecting on their health and the health and education of the children adversely.


20 The State of Orissa has a ST population of 81.45 lakh. The project districts Bolangir, Bargarh, Nuapara, Sambalpur and Sonepur have 27.6 lakh, 26.1 lakh, 18.4 lakh, 32.3 lakh and 5.3 lakh ST populations respectively. As per census 2001, Orissa has a tribal population of 22.13% of the total population. With erosion of customary rights and access to forest resources of the tribal population, their food security has also been adversely affected and failure on the part of scheduled tribe to cope with socio-economic growth and technological advancement can be attributed largely towards poor literacy rate among this marginalised group of people, which directly affects their health, hygiene, overall family structure which hinders social upliftment.

7.4.4 Child Labour

21 According to National Child Labour Programme, the number of child labour in the project districts of Bargarh, Bolangir, Nuapara, Sambalpur and Sonepur are 1107, 25264, 2834, 6750 and 12298 respectively. The main factors behind children falling trap to labour are discrimination suffered by parent’s leads to lower wages, unequal pay for equal work and lack of access to employment opportunities and rights, causing family poverty, in turn making children more vulnerable to exploitation.

7.5 HIV/AIDS

22 Migration, low literacy, poverty, urbanisation, injectable drug users, unsafe sex practices and ignorance about the transmission of the disease are major factors for the spread of the killer disease. Migration is the major culprit for the rising figures of HIV cases. Unofficial sources say that of the 1m Oriya migrant workers in different parts of the country. The project district of Bolangir is put in the category of ‘high prevalence’ HIV cases in the State.

7.5.1 Chhattisgarh

23 The total population of the State according to the 2001 Census, is 2.08 crore. Of this, 80 percent of the people live in rural areas and 20 percent live in urban areas. The project districts of Raipur and Mahasamund fall in the central plains region. Almost a third of the population belongs to Scheduled Tribes and about 11.61 percent of the population is listed as Scheduled Castes.

24 An analysis of the Village and District Reports reveals that agriculture is the most important source of livelihood for the villages in the plains of Chhattisgarh. Even in the southern and northern regions, agriculture is very important, although the forested areas


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in these regions do provide an alternative source of livelihood to the people. In comparison to other districts, the project districts have a relatively high human development index.


25 The women of Chhattisgarh largely depend on agriculture and forests for their livelihood. The gender ratio of Chhattisgarh (990) is second only to Kerala in the country. Further, the female-male ratio is in favour of women in rural population. The average literacy rate of this state is 65.18 with 77.86% of male literacy and 52.40% female literacy. The rural female literacy is 39.08 percent. Out of a total work force in the State, 40.03% are women, but the majority of the female workforce is concentrated in the rural areas. NTFP collection in the state is known to be concentrated in the hands of women.


26 The tribal belt of central India is characterised by resource poor, technologically stagnant, and remote from state and market where depletion of resources like land, forest and water has a history. In this situation, the livelihood struggles and coping with resourcelessness contribute to high incidence of chronic poverty among the tribal population of Chhattisgarh. In the project districts of Raipur, out of a total population of 30.17 lakh, 12.10 % belong to Scheduled Tribes (ST), where as in the district of Mahasamund, out of a total population of 8.60 lakh, 2.34 lakh belong to STs.

7.5.4 Child Labour

27 Child work in India not only includes children working under horrendous work conditions that result in disability and serious work injuries, it also includes children working under bonded labour arrangements. Child labour is a complex issue, which is deeply linked with the lack of access to education in India, as well as widespread malnutrition, poverty and the culturally embedded caste system. The children of poor and/or uneducated parents are more likely to be sent to work.

7.6 HIV/AIDS

28 According to an estimate, the State of Chhattisgarh has 470 confirmed AIDS patients and about 2,800 HIV positive people. The prevalence rate of 5% of HIV positive cases at Raipur is quite high.

7.6.1 Suggested Interventions

Poverty

• Doubling and electrification of rail networks will contribute to poverty reduction directly through improved access to market, employment opportunities during construction, affordable access to outside and economic development. One of the major causes of such severe poverty is the lack of access of the poor to markets, both to sell their products and to buy agricultural inputs and the necessities of life. The railway will, both in the construction and operation phase, increase market access for local people, thus giving them an opportunity to participate in the market economy and to improve their standard of living.

• The lower transportation costs after project completion will make goods and services available at more economic prices to the poor population and provide them with chances to sell their commodities to broader markets. The railway will attract


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significant investments in the local economy including large industries along the alignment and small shops in the station areas.

• With the new construction, the railway will offer the poor affordable mobility, and safer, more reliable, punctual, and faster journeys. The project will also improve the standard of living of local people and influence their daily life, directly and indirectly, in a positive manner.

Gender

• A railway project of this kind is normally gender neutral. Employment targets for women should be set during construction activities and steps should be taken not to differentiate wages between men and women for work of equal value. Specific clause may be added in the bidding document to ensure this provision. Compliance on this should be strictly monitored by the project implementers.

Child Labour

• It should be ensured that contractors comply with all applicable labour laws, do not employ child labour for construction and maintenance, and provide child-care facilities at construction camp sites.

• Railway and station construction and new transportation services will generate employment, particularly for the poor. The local government will assist to identify available labour from the local areas. The poor men and women from the SC and ST should be given preference.

Indigenous Population

• The Project is confined to existing rail alignment in most of the sections, hence will not affect the tribal groups within its area of influence. However, because of the high percentage of tribal and scheduled caste populations in the areas of project influence in Titlagarh-Raipur section, a detailed analysis of the status of and a review of States’ current policies for the development of indigenous people need to be conducted. Also to enhance distribution of project benefits and to recommend practical measures to promote the development of indigenous people in this section, a framework Indigenous People Development Plan (IPDP) may be prepared.

7.7 HIV/AIDS

• Hot spots such as train stations serve as meeting points for other high-risk groups like injecting drug users, sex workers and as ‘cruising grounds’ for men who have sex with men. Moreover, migrant workers, mostly men, on the construction sites are separated from their families for prolonged periods, which increase the risk of transmitting the disease to the population living along the new construction sites or to their wives or other sexual partners. Awareness on how to protect oneself from HIV is low among this population.

29 In all the proposed sections, HIV/AIDS concerns during construction need to be addressed. Awareness training on HIV/AIDS for construction workers need to be organised. The training programs and materials should be designed and conducted by the implementing staff with the help of qualified non-government organisations (NGOs) in accordance with ongoing State campaigns and awareness programs on HIV/AIDS.


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30 A Stakeholder’s consultation workshop was organised in Bhubaneswar in July 2008 to have interaction on the proposed doubling of Sambalpur-Titlagarh and Titlagarh-Raipur rail sections with representatives from the affected community, NGOs, local government officials and concerned railway staff.

31 In general, the participants, especially the primary stakeholders were supportive of the Projects owing to the significant economic benefits to be generated and also because of the positive impact of the doubling of tracks on the local communities. The Project is expected to benefit the local population by contributing to poverty reduction directly through improved access to market, employment opportunities during construction, affordable access to outside and overall economic development.

7.7.1 Summary of Suggestions Made by the Participants

32 The railway stations situated in rural India is part of local people’s community life. It also helps improve the standard of living of local people and influence their day to day life in a positive manner. A universal design has to be applied to various railway facilities in the proposed railway networks’ doubling and electrification. They are as follows:

• Platforms with concrete base and PFR with zuno lighting system

• Over-bridges

• Foot over bridge

• Station should be well-linked with main roads with a concrete cause-way

• Station building in all the stations

• An information and guidance system in each platform

• PRS (Passenger Reservation System) at important tourist and other historical places

• Goods booking in all stations

• Consumer awareness regarding railway to be conducted frequently

• Books and food stalls to be reserved as a means of employment generation for the affected communities, especially for the poor and women headed households.

• Special concessions for the tribal and poor to transport the non-timber forest products

• Adequate security and facilities for the seasonal migrants

• Strengthening of the DRUCC

• Agricultural and forest produce promotion centres in important railway stations

• Promotion of tourist destinations in the project districts and improved facilities for tourists in platforms.

• Ancillary units to be set up as a source of additional employment opportunities for the locals and the project affected


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• Engage local contractors and local labour for construction

33 It was also suggested that as a sizable SC and ST population live along the Titlagarh-Raipur section, special measures like Indigenous People Development Plan 9IPDP) for the STs and a separate sub-plan to address the needs of the SC population of the area would be required.


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8.0 IMPLEMENTATION

8.1 Institutional Assessment 1 An institutional assessment of RVNL as the implementing agency has been carried out as required by the project remit. This has focused on the apparent strengths and weaknesses of RVNL and its suitability for undertaking its allotted tasks. The assessment has looked at staff resources, training, project management and the environment within which RVNL is operating. The aim has been to identify areas where specific and practical changes could bring about improvements in operational performance. Staff within RVNL, Indian Railways and from contractors have been approached and their views canvassed. The information has been used to build a picture of how RVNL is operating and how its performance is perceived from within and without the organisation. Conclusions drawn have been used to draw up recommendations for action which are expected to lead an improvement in overall performance.

8.2 Procurement Plan 2 The conditions of the ADB loans are based on a number of general principles which must be recognised in the development of procurement management procedures:

• ADBs financing can only be used for the procurement of goods and works supplied from or produced in the member countries.

• There needs to be economy and efficiency in the procurement

• All eligible bidders must be given the same information and equal opportunity to compete.

• Procurement should encourage the development of domestic contracting and manufacturing industries.

• There must be transparency in all procurement processes.

3 ADB are obliged to ensure that it’s financing is used economically and efficiently and the highest standards of ethics must be observed to avoid fraud and corruption. Procurement plans have been prepared in accordance with ADB guidelines for each of the projects. The schedule specifies the number of contracts and the bidding process to be used. The Procurement Plan is intended cover the first 18 months of the project however it should be treated as a live document which is to be updated annually or as necessary throughout the duration of the project.

An outline implementation schedule has been produced for each of the projects. A combined schedule is attached with this report. These indicate the anticipated infrastructure expenditure over the investment period assuming all the recommended project are to go ahead.

8.3 Contract Packages 6 Optimum packaging of contracts is influenced by a number of factors including the rate of disbursement of ADB funding, the immediate operational needs of the railway, the geographical segmentation of the project, the functional division of the works (civil, buildings, electrical, signalling) and the financial size of individual contracts.

7 The approach to be taken is to develop a packaging strategy by reconciling these requirements. It has been assumed that the implementing agency has or will have the


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finance and human resources to undertake the work. The project team has examined the technical requirements of the project proposals and broken each project down into its constituent parts. Using this knowledge and experience in similar projects the team developed logical and practical contract packages to deliver the works from the point of view of technical best practice.

8 With the exception of the Pune to Guntakal electrification project the contract packages for all the projects are primarily civil engineering works. The contract packages have been selected geographically to offer manageable contracts of as far as possible similar value. Ancillary activities such as signalling and electrical works have been included in these as multi disciplinary packages. The reason for this is that these works will follow the installation of track work and construction of new facilities. Keeping all disciplines under a single contract will facilitate better control and integration of the construction programme. It will also allow technical interfaces to be managed by a single team and reduce conflicts between individual contractors working on the project. Selection of appropriate contractors is critical to the success of this strategy. There have been some problems with multi discipline contracts awarded to civil engineering contractors who have little or no capability in other areas of specialist railway works.

9 It is proposed that a single contract for the supply of materials will be awarded for each project. For some of the major materials requirements such as rail there are a limited number of suppliers. Materials supply contracts are intended to help take advantage of purchasing power in negotiating price and delivery programmes. An additional benefit will be that materials supply can be managed to ensure individual contract packages are not delayed due failure of individual supply contracts.

10 The size and complexity of the packages is expected to attract a range of general and specialist contractors. The individual packages are intended to match the known contractor capabilities. The package structure will attempt to avoid undue complexity in contract management. The size of contracts proposed are based on RVNL’s resent experience of contracts which can be handled by the current pool of contractors. Larger value contracts will limits the number of contractors capable of undertaking the work.

11 The more specialist electrification contracts carry a higher monetary value reflecting the higher cost of materials and wages for skilled labour. The size of these contracts has to some extent been dictated by the projects geographical constraints and the need to achieve an efficient programme.

8.4 Terms of Reference for supervision of Implementation works 12 The project remit requires the preparation of a detailed terms of reference document (ToR) for supervision consultants who are to be recruited for the implementation of the proposed ADB loans. The ToR is based on current industry best practice and the level of detail sufficient for inclusion in a procurement contract.

13 The contract will be for the services necessary to supervise and control the implementation of the projects. The format of the terms of reference project supervision is to be a single document for each project. This document will include all the general requirements for project site supervision of individual contract packages. Specific details relating to each contract package will be included later when precise details of the works and participants is known

14 The document has been developed by the consultant team and reviewed by RVNL with modifications and amendments made accordingly. The final document is included in the annexures to the individual project reports.

Activity ID

Activity Name OrigDur

Rs Million

IND: PPTA RAI Investment ProgIND: PPTA RAI Investment Prog 998 Rs37,210.27

1 - Raipur to Titlagarh - Track doubling 998 Rs6,958.98

Project Management 998 Rs0.00

A3020Project Management 998 Rs0.00

A3030Environmental support 998 Rs0.00

A3010Commence Programme 0 Rs0.00

A1050Produce & Approve Baselined Programme & Cost Estim... 40 Rs0.00

A3070Finalise Consents and Approvals 130 Rs0.00

A3040Procure Material Supply Contracts 125 Rs0.00

A3930Material Call-Off Supply 600 Rs0.00

A1060Approve Revised Project Cost Estimates 40 Rs0.00

A1040Hand Over to Operating Authority 0 Rs0.00

Civils/Structures & PWay 880 Rs6,320.10

A3080Procure Construction Contracts 125 Rs0.00

A3060Final Location Survey (Inc GI & Track Alignment Design) 200 Rs189.42

A3900Structures Design 200 Rs0.00

A3920Construction & Commissioning 755 Rs6,130.68

A3910Design Approval 30 Rs0.00

Electrical 873 Rs114.86


A3890Construction & Commissioning 748 Rs114.86


Signalling & Telecoms 873 Rs524.02




2 - Sambalpur to Titlagarh - Track doubling 998 Rs6,533.54






A3290Obtain Planning Consents and Approvals 130 Rs0.00



















3 - Daund to Gulbarga - Track doubling 998 Rs7,542.60

























4 - Pune to Guntakal - Electrification 500 Rs7,483.30





FQ4 FQ1 FQ2 FQ3 FQ4 FQ1 FQ2 FQ3 FQ4 FQ1 FQ2 FQ3 FQ4 FQ1 FQ2 FQ3 FQ4 FQ1 FQ2

FY2010 FY2011 FY2012 FY2013 FY2014

Project Management

Environmental support

Commence Programme

Produce & Approve Baselined Programme & Cost Estimates

Finalise Consents and Approvals

Procure Material Supply Contracts

Material Call-Off Supply

Approve Revised Project Cost Estimates

Hand Over to Operating Authority

Procure Construction Contracts

Final Location Survey (Inc GI & Track Alignment Design)

Structures Design

Construction & Commissioning

Design Approval



Design Approval



Design Approval

Project Management


Commence Programme


Obtain Planning Consents and Approvals







Structures Design


Design Approval



Design Approval



Design Approval

Project Management



Commence Programme








Structures Design


Design Approval



Design Approval



Design Approval

Project Management



Page 1 of 2 IND: PPTA RAI Investment Prog Printed: 26-Mar-09 14:56

Remaining Level of Effort

Remaining Work

Critical Remaining Work

Milestone

Client Responsibility

Scott Wilson Railways Ltd

Project No. A012931

Layout: 01 - A012931 - ADB

Revision History

Date Revision Checked Approved

Activity ID

Activity Name OrigDur

Rs Million







Electrical 500 Rs6,387.95




Civils/Structures & PWay 500 Rs375.54










Locomotive Shed 500 Rs367.00


A4040Locomotive Shed Design 100 Rs0.00



5 - Hospet to Tenaighat - Track doubling 998 Rs8,691.85





















Signalling & Telecoms 873 Rs1,149.10





FY2010 FY2011 FY2012 FY2013 FY2014


Commence Programme







Design Approval



Structures Design


Design Approval



Design Approval


Locomotive Shed Design


Design Approval

Project Management



Commence Programme








Structures Design


Design Approval



Design Approval



Design Approval


FY2010 FY2011 FY2012 FY2013 FY2014

Rs0.00

Rs1,429.56

Rs2,859.13

Rs4,288.69

Rs5,718.25

Rs7,147.82

Rs14,295.64

Rs28,591.27

Rs42,886.91

Rs57,182.54

Rs71,478.18

Cost

Estimate At Completion

Budgeted Total

Page 2 of 2 IND: PPTA RAI Investment Prog Printed: 26-Mar-09 14:56

Remaining Level of Effort

Remaining Work

Critical Remaining Work

Milestone

Client Responsibility

Scott Wilson Railways Ltd

Project No. A012931

Layout: 01 - A012931 - ADB

Revision History

Date Revision Checked Approved


A012931 Page 65 March 2009

9.0 CONCLUSIONS

9.1 General 1 The Objective of the study is to review, update and recommend improvements to the four projects contained in the RIP and to prepare them for possible funding by the Asian Development Bank using their multitranche financing facility (MFF) loan modality. The studies have made extensive use of the previous studies which were carried out between 2002 and 2007. The five projects under review have already been sanctioned by the Government of India following positive recommendations from the previous feasibility studies. These studies contained preliminary engineering designs and technical specifications with traffic forecast analysis and financial analysis. All projects were recommended for implementation and Indian Railways has accepted the recommendations.

2 The elements of each of the scheme proposals have been reviewed with a view to establishing revised quantities and cost estimates. All the projects are at an initial feasibility stage of design development and detailed design information is not yet available. However the proposed works are technically feasible and rely on techniques currently in regular use on Indian Railways. Some comments have been made regarding modifications to the proposals which could be considered but these are generally of a minor nature and do not alter the overall practicality of undertaking the works.

10.1.1 Project Cost estimates

3 Costs of materials required for infrastructure developments such as these have risen significantly in recent months. The price of steel has risen more then 30% in the last year. Similar price increases can be seen with fuel the other materials used in railway enhancement projects. Materials quantities have been estimated as accurately as possible with the given information. Whilst a good level of accuracy can be produced for some sections of the work other elements would require detailed survey and design to be confident of achieving ADB’s required +/- 10% level of accuracy. If all the potential variations in cost elements are estimated and weighted in proportion of the overall cost of the project, a variation risk of up to15% could be expected. Compounding this will other factors such as minor but necessary variations and additions to the original remit, a pessimistic variation in overall costs of up to 20% is not unrealistic. The potential actual cost variations need to be born in mind when considering the project cost sensitivity.

10.1.2 Financial Analysis

4 The Financial Analysis presents a financial justification for the implementation of the proposed infrastructure investments to the asset owners. It intends to demonstrate that the projects will bring a satisfactory return on the investments to the asset owners. The approach adopted for assessing the project viability has been to equate the projects costs to its net earnings. The analysis has used a project life of 30 years which whilst longer then would normally be used for commercial investment reviews is considered reasonable for an infrastructure investment of this nature. The analysis made extensive use of the published Indian Railways statistics in calculating operating costs as this was the best available data. There are inevitably inherent inaccuracies in using these figures arising from the aggregated nature of the cost data. Generating accurate normative costs would be a major task and was out with the remit for this project.

5 Because of distortions in railway charges, maintenance of uneconomic routes, cross-subsidisation and the use of inadequate cost accounting procedures,


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recommendations based on satisfactory financial rates of return would ensure commercial sustainability for Indian Railways without fully guaranteeing that the decisions are economically sound.

10.1.3 Economic Analysis

6 For the Economic analysis benefits and costs are measured at the opportunity cost levels to demonstrate whether the project produces an overall benefit higher then the ‘next best’ alternative. Deciding on the best comparable alternative is not easy, but, by convention and for simplicity, the opportunity cost of capital is taken as the alternative. For ADB, then, the economic rate of return (EIRR) of the proposed infrastructure investment has to be equal or higher than 12%

10.1.4 Procurement

7 Procurement schedule has been produced for each of the schemes. Using knowledge and experience in similar projects the team will develop logical and practical contract packages to deliver the. The projects have been broken down into packages which are expected to attract both general and specialist contractors. It is assumed that these packages will be subject to modification once detailed designs are available.

10.1.5 Terms of Reference for the site supervision of the construction

8 The proposed Indian railways investment programme is large and challenging. There is a need for detailed planning, co-ordination and control of resources. A Terms of Reference documents have been drafted for the site supervision consultants to be recruited for the works. Whilst it is believed that these will be suitable for use in a contract document they will almost certainly require updating and development when the specific details of the works are known. They must also be reviewed in the light of any organisational or legislative changes which may have occurred in the intervening period.

10.1.6 Institutional assessment of the Implementation agency

9 Indian Railways have embarked on an ambitious programme of infrastructure investment of which these four projects are only part. The burden for delivering these projects has been placed onto RVNL. RVNL is of course itself a product of IR reforms and in a very tangible sense a product of Indian Railways itself. Whilst as with any organisation there is always room for improvement the review of their capability and procedures suggests that they are capable and well run organisation.

10 The availability of good quality human resources was identified as a potential issue when taking forward the investment programme. RVNL are not alone in this as both Indian Railways and the contractors undertaking the design and physical works are experiencing the same problems. RVNL has to become more open in considering other options for the recruitment and training of staff.

11 The institutional assessment of RVNL has concluded that there are some areas where their approach and procedures could benefit from some improvement. These have been explained in more detail in the specific report. However what can be clearly seen is that many of these weaknesses stem from or are compounded by the overall approach to project development within Indian Railways. These manifest themselves in the problems RVNL encounter in obtaining approvals and planning the works. This leads ultimately to scope creep, programme drift and an inability to control costs. We would recommend the introduction of a structured project development procedure with an emphasis on early requirement definition and programme development. Specific ‘gateways’ should be


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defined with appropriate approvals and ‘sign offs’ by the responsible personnel. Most of these necessary improvements are within Indian Railways and RVNL’s authority to change. The improvement of these external factors is considered an essential prerequisite to improvements in RVNL’s efficiency.

9.2 Principal Findings The principal findings can be summarised as follows:

10.2.1 Daund – Gulbarga Track Doubling

12 Overall project cost estimate is 754.3 crores ($165m USD approx). The analysis produces a negative FIRR and the project cannot be recommended as a viable investment. The EIRR stands at a more respectable 11.7% reflecting the wider benefits of this kind of infrastructure investment. It might be beneficial to revisit this proposal at a later date when financial and economic conditions may be more favourable

13 There are no specific social issues which might prevent the project moving forward. The majority of the work will fall within the existing railway boundary with very small amounts of land acquisition required. Appropriate measures will be required to compensate the few land owners affected and address the concerns of local people affected by the works.

14 The project is clearly not viable as it stands, however combining this project with the Pune to Guntakal electrification could be considered.

10.2.2 Raipur to Titlagarh Track Doubling

15 Overall project cost estimate is 695.7 crores ($155m USD approx). The project has a reasonable level of financial and economic viability and can be recommended for financial support. The analysis produces a FIRR of 11.9% which is just below the normal hurdle rate for projects of this type. The EIRR stands at a more respectable 19.5% comfortably above the 12% hurdle rate assumed for ADB’s investments.

16 The viability of this project and the Sambalpur to Titlagarh route relies heavily on the project coal traffic which is expected to travel across both routes. These projects should be considered as one scheme and not be viewed in isolation. It should also be noted that the projected traffic streams will only be realised if adjoining routs have the capacity to accommodate the increased volumes. There may be more enhancement works required beyond the corridors under consideration.

17 The proposed route passes through a region with various social and environmental issues. However the majority of the ‘on line’ improvement work can be accommodated within the existing railway boundary and will have a minimal impact on land owners and the surrounding environment. There are no specific social issues which might prevent the project moving forward. Appropriate measures will be required to compensate the few land owners affected and address the concerns of local people affected by the works.

10.2.3 Sambalpur to Titlagarh Track Doubling

18 Overall project cost estimate is 653.9 crores ($145m USD approx). The project has a reasonable level of financial and economic viability and can be recommended for financial support. The analysis produces a FIRR of 13.53% which is just below the normal hurdle rate for projects of this type. The EIRR stands at a more respectable 17.2% comfortably above the 12% hurdle rate assumed for an ADB investment.


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19 The proposed route passes through a region with various social and environmental issues. However the majority of the ‘on line’ improvement work can be accommodated within the existing railway boundary and will have a minimal impact on land owners and the surrounding environment. There are no specific social issues which might prevent the project moving forward. Appropriate measures will be required to compensate the few land owners affected and address the concerns of local people affected by the works.

10.2.4 Pune – Guntakal Electrification

20 Overall project cost estimate is 752 crores ($170m USD approx). The project has a good level of financial and economic viability and can be recommended for financial support. The analysis produces a FIRR of 20.3 % which is well above the normal hurdle rate for projects of this type. The EIRR stands at a respectable 14.8% which is also above the 12% hurdle rate assumed for ADB’s investments

21 The proposed route passes through a region with various social and environmental issues. However the work can be accommodated within the existing railway boundary and will have a minimal impact on land owners and the surrounding environment. There are no specific social issues which might prevent the project moving forward. New land will be required for locating electrical sub stations and appropriate measures will be required to compensate the few land owners affected.

22 This project has also been considered in association with the Daund - Gulbarga track doubling to establish whether the larger scheme would produce enhanced benefits. Overall project cost estimate is 1555.3 crores ($345m USD approx). The FIRR of the combined scheme is 12.3% which is below the normal hurdle rate but worthy of consideration. The EIRR however is 14.9% marginally above the figure produced for the electrification scheme alone. This combined with the enhanced operational benefits makes this, the recommended option for this route.

10.2.5 Hospet to Tenai Ghat Track Doubling

23 Overall project cost estimate is 869 crores ($207m USD approx). The analysis produces a low FIRR but the project can be recommended as a viable investment because this rate of return is above its estimated the cost of capital. The EIRR is also low at 9.3% below ADB’s hurdle rate and indicating that if this project is pursued it will have a low priority compared with the other schemes. It would be beneficial to revisit this proposal at a later date when financial and economic conditions may be more favourable

24 There are no major social issues which might prevent the project moving forward. The majority of the work will fall within the existing railway boundary with very small amounts of land acquisition required. Appropriate measures will be required to compensate land owners affected and address the concerns of local people affected by the works.

9.3 Recommendations 25 In conclusion it is recommended that the Daund - Gulbarga project is undertaken in combination with the Pune to Guntakal electrification. The Raipur to Titlargah and Sambalput to Titlargah projects are recommended individually but should be considered in parallel with each other and the wider operating context of the Eastern railway region.

26 RVNL as the implementation vehicle is considered appropriate for delivering these projects and capable of undertaking the performance improvements required.


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Improvements to the overall efficiency of the project delivery process are required and these require inputs from all parties to the process from inception to operation.

The recommended projects can be prioritised as follows:

Priority Project EIRR FIRR

1 Raipur – Titlagarh

Double Tracking 19.5% 11.9%

2 Sambalpur – Titlagarh


3 Pune – Guntakal Combined

Electrification & Double Tracking 14.9% 12.3%

4 Hospet – Tinaighat


27 The projects have now been prioritised on their economic and financial attractiveness. The two projects in Orrissa are the most advanced in terms of technical development. The final location surveys are expected to be completed by early 2009 at the latest. However the two projects are not functionally independent and should be considered as working together. The benefits of one cannot be realised without the facility of the other. This is not the case with the Hospet to Tenai Ghat and the Pune to Guntakal projects which are not dependant on other works and can be undertaken independently. Development of these projects is also progressing. To balance the investment consideration might be given to delaying work on the Hospet to Teni Ghat scheme until it can be shown to deliver a better rate of return.


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ANNEXURES

Technical Assistance Consultant’s Report - adb.org Assistance Consultant’s Report ... 8.1.4 Child Labour ... PRS Passenger Reservation System

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