Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-4622 TH MEMORANDUM AND RECOMMENDATION ', OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION ANDDEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENTTO USt13.0 MILLION TO THE STATE RAILWAYOF THAILAND WITH THE GUARANTEE OF THE KINGDOM OF THAILAND FOR A RAILWAY EFFICIENCY IMPROVEMENT PROJECT August 20, 1987 This document hasa restricted dtbtion and may be used by eipdnts only in the pereance of their offidl duties. Its content may ot othervise be disclosed without Wodd Bank authoration. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
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World Bank Document · Document of The World Bank ... simulator for training of locomotive drivers and ... P&ge I of 2 THE STATUS OF BANK GROUP OPERATIONS IN THAILAND
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Document of
The World Bank
FOR OFFICIAL USE ONLY
Report No. P-4622 TH
MEMORANDUM AND RECOMMENDATION',
OF THE
PRESIDENT OF THE
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
TO THE
EXECUTIVE DIRECTORS
ON A
PROPOSED LOAN
IN AN AMOUNT EQUIVALENT TO USt13.0 MILLION
TO THE
STATE RAILWAY OF THAILAND
WITH THE GUARANTEE
OF THE KINGDOM OF THAILAND FOR A
RAILWAY EFFICIENCY IMPROVEMENT PROJECT
August 20, 1987
This document has a restricted dtbtion and may be used by eipdnts only in the pereance oftheir offidl duties. Its content may ot othervise be disclosed without Wodd Bank authoration.
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CURRENCY EQUIVALENTS
Currency Unit = Baht (B)(As of June 1987)
US$ - B 25B 1 - US$ 0.04
FISCAL YEAR
October I - September 30
UNITS AND MEASURES
1 meter (m) - 3.2 feet (ft)1 kilometer (kcm) = 0.62 miles (mi)
ABBREVIATIONS AND ACRONYMS
SRT - State Railway of Thailand
FOR OFFICIAL USE ONLY
THAILAND
RAILWAY EFFICIENCY IMPROVEMENT PROJECT
Loan and Project Summary
;
Borrower: State Railway of Thailand (SRT)
Guarantors Kingdom of Thailand
Amount: US$13.0 million equivalent
Terms: Seventeen years, including a four-year grace period, at theBank's standard variable interest rate.
Financing Plan: SRT $ 1.8 millionIBRD $13.0 million
Total $14.8 million
Economic Rateof Return: n/a
Staff ApvraisalReport: n/a
Map: IBED-20155
This document has a restricted distribution and may be used by recipients only in the performan, -of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
MEMORANDUM AND RECOMMENDATION OF THE PRESIDENTOF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
TO THE EXECUTIVE DIRECTORSON A PROPOSED LOAN
TO THE KINGDOM OF THAILANDFOR A RAILWAY EFFICIENCY IMPROVEMENT PROJECT
1. The fellowing memorandum and recowmendation on a proposed loan to theState Railway of Thailand (SRT) for US$ 13.0 million equivalent is submittedfor approval. The loan would halp finance a railway efficiency improvementpro4ect and would be for seventeen years including a four-year grace period,at the Bank's standard variable interest rate.
2. Background. The Bank has been involved with railway development inThailand through five loans, the last of which closed on July 2, 1984. Theprocessing of a sixth railway project was shelved in 1983, primarily becausethe Royal Thai Government (Government) was unwilling to agree to thesubstantial tariff increase which the Bank considered necessary to imprcveSRT's finances. Transport sector work wvs initiated in 1983 and completed in1985 under the Bank's country economic and sector work program; ThailandTransport Sector Review (Report No. 4950-TH) was circulated in grey cover inJune 1985. Railway was an important subsector component of this review. As afollow-up on our sector work, a Bank mission was sent, in February 1985, toassist the Government/SRT in preparing a plan of action aimed at improvingSRT's operations and finances and developing a railway investment strategy forthe Sixth Plan period (1987-1991). During that mission, the Governmentexpressed interest in Bank assistance in support of the Railway's investmentprogram.
3. Proiect Obiectives. The proposed project is designed to help SRTachieve some immediate improvement in its operations and financo. The ulti-mate objective is to develop SRT into not only an operaticnally efficientrailroad, but also a financially viable one. In order for this long-termprogram to be possible, the railroad must first clearly identify the marksetsthat it can effectively and profitably serve. The primary objective of thisproject is thus to identify those market segments and begin to strengthenSRT's ability to compete with the other transport modes for traffic that itcan serve more efficiently and economically. The project will supportmeasures aimed at (i) realigning railway services to match changing demand;(ii) increasing marketing and sales efforts; and (iii) reducing costs per
4 traffic unit through cost reduction and efficiency improvements.
4. Project Description. The proposed project is part of a comprehensiveprogram of technical, economic and finaucial improvements in the railway sub-sector. The core activity would be a major technical assistance and trainingprogram concentrating on reducing the operating cost per traffic unit throughmore efficient operations and increasing revenue by focusing the marketing andsales organization toward intermodal (container freight traffic), medium andlong distance passenger traffic and those other market segments where SRTpossesses a comparative advantage over other modes of transportation. Thebenefits of this project should become apparent in about two years, and willbecome the foundation for a major reorientation of SRT's operating and mainte-nance procedures. The project components are:
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(a) technical assistance to SRT in the following areas: managementinformation system, freight and passenger marketing, equipmentrationalization, and procedures to impro-ve the planning and opera-tions of the mechanical and civil engineering departments;
(b) training of railway staff in the areas of the technical assistancepresented above; and
(c) acquisition of computer hardware and software for the managementinformation system, passenger car bogies, turbo chargers, radiocommunications equipment to improve utilization of motive power androlling stock, simulator for training of locomotive drivers andmiscellaneous maintenance equipment related to the objectives of thetechnical assistance activities.
5. The total cost of the project is estimated at US$14.8 million equiva-lent, with a foreign exchange component of US$13.0 million. A breakdown ofcosts and the financing plan are shown in Schedule A. Amounts and methods ofprocurement and disbursements, and the disbursement schedule are given inSchedule B. A timetable of key project processing events and the status ofBank Group operations in Thailand are given in Schedules C and D, respec-tively. A map is also attached. Given the history of preparation and thenature of the project, the project was processed on the basis of an expandedPresident's Report, which is available in the Project File.
6. Rationale for Bank Involvement. Given the experience of the discon-tinued Sixth Railway Project, the Bank decided to follow a two-stage approachto develop a medium and long-term strategy for the railways. During the firststage, this small project, would demonstrate the impact of operational effi-ciency improvements on SRT's finances and test Government/SRT commitment topolicy changes. Our expectations for this operation are limited; the objec-tive is to ascertain the willingness and ability of SRT to institute difficultbut needed changes and the seriousness of the Government's commitment to helpimprove the railway's efficiency. At the second stage, a larger loan for SRTto finance railway investments during the Sixth Plan may be considered depend-ing on the outcome of the first stage project and the Government/SRT's commit-ment to further cost cutting measures and tariff reforms as may be necessary.
7. Our macro-economic dialogue and sector discussions have assisted theGovernment and SRT in initiating measures to improve SRT 's finances. In linewith the Government policy of reducing budgetary subsidies to state enter- gprises, SRT is drawing up a program to improve efficiency in train operations,maintenance, and fuel consumption and to increase revenue through enhancedmarketing efforts. Given its past long association with the subsector and itsrecent detailed review of the transport sector, the Bank is weli placed toprovide the needed assistance to the Government and SRT in accomplishing thesesubsector goals which are primarily efficiency-improvement oriented in scope.The rationale for Bank involvement with the proposed project, to be completedwithin two years, should be seen in this contest. We expect the Governmentand SRT to be even more receptive to further policy reforms after someimprovements are already visible.
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8. AgrEed Actigon. The Government and SUT have agreed on the followingactions: (a) consultation with the Bank before finalizing SRT's annualinvestment programs: (b) annual tariff increases at least to keep pace withinflation; (c) detailed review of SRT's capital structure and a plan by June30, 1988, which will enable SRT to finance future capital investments and toservice residual debt liabilities; (d) action plan to revw.ew SRT's entiretariff structure by December 31, 1988; (e) annual budget provisions and timelypayments to SRT to compensate for losses incurred in maintaining uneconomiclines and services at the Government's request; and (f) payments, according toan agreed program, by the Government to cover SRT's 1985 and 1986 losses bySeptember 30, 1989.
9. Justification and Risks. Economic benefits under the proposedproject are expected from: (a) improved efficiencies in railway operations;and (b) reduction in SRT's losses, initiating the process of making SRT into aviable state enterprise. Possible risks include delay in appointment ofconsultants, thereby delaying the efficiency improvement program. To minimizethis risk, selection of consultants in key areas have already been made.
10. Recommendation. I am satisfied that the proposed loan would complywith the Articles of Agreement of the Bank and recommend that the ExecutiveDirectors approve the proposed loan.
Authority1889 1980 Kingdom of Thailand Inland waterways 53.00 - 25.961918 1980 Kingdom of Thailand Ports 8.47 - 2.811922 )980 Kingc&om of Thailand Agriculture research 30.00 - 17.412000 1981 Electricity Generating Power 100.00 - 21.45
Authority of Thailand2022 1981 Kingdom of Thailand Irrigation 57.00 - 34.402035 1981 Kingdom of Thailand Provircial roads 29.50 - 1.642143 1982 Telephone Organization Telecommunications 121.40 - 10.25
of Thailand2178 1982 Kingdom of Thailand Education 45.20 - 13.792198 1982 Kingdom of Thailand Agriculture 17.00 - 13.982311 1983 Kingdom of Thailand Provincial roads 100.00 - 44.582312 1983 Provincial Electricity Rural electrification 30.60 - 14.57
Authority2402 1984 Kingdom of Thailand Rural development 41.50 - 19.912407 1984 Electricity Generating Mining 15.00 - 14.68
Authority of Thailand2440 1984 Kingdom of Thailand Agriculture 35.00 - 29.542520 1985 Kingdom of Thailand Urban development 27.50 - 27.342548 1985 Bangchak Petroleum Co. Refinery 85.00 - 81.952639 1986 Petroleum Authority Energy 20.00 - 20.00
Thailand2691 1986 Kingdom of Thailand Agriculture 60.00 - 54.06
Total 3,342.80 118.50 506.47
of which has been repaid 569.21 1.20
Total Now Outstanding 2,773.59 117.30
Less: Amount sold /b 127.61 3.10
* Total Now Held by Bank and IDA 2,645.98 114.20
Total Undisburbed 501.18 5.29 506.47
/a The status of the projects listed in Part A is described in a separate report cn allBank/IDA financed projects in execution, which is updated twice yearly and circulatedto the Executive Directors on April 30 and October 31.
/b Of which $43.3 million sold to the Ban&- of Thailand.
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Page 2 of 2
B. STATEMENT OF IFC INVESTMENT(As of March 31, 1987)
Investment Loan Equity Totalnumber Year Company Type of business -- (USs million) --