aTURN TO \ tsu tgSI R E S T R I C T E D

REpO)RTS DSK_WITHIN R Report No. T.O. 106-b

ONE O

I II m docu.memnt wnprepared f, r inG rn~ .. e n#1DnI,I ~A gT. uu...docu.,.I nus pr.u1 au fumorI rter,31a use In the Bar.k. III miuflIsI

it available to others, the Bank assumes no responsibility to them forI the accuracy or completeness of the information contained herein. I

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

APPRAISAL OF BURMA RAILWAY REHABILITATION PROGRAM

B URMvAJs

April 27, 1956

-neparty-ne.nt nf Tprhniral Onprations

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B U R M A

APPRAISAL OFBURMA RAILIWAY REHABILITATION PROGRAM

TABLE OF CONTENTS

Page

I. Introduction 1

II. Present Position of Railway 1-6

Organization and Management 1-2Rtimao Pnroprtipa 2-4

Prtentut.raffice z 4Utillzatnin of :qinmpment 4-5Finances, Earnings, and Rates 5-6

III. Rehabilitation Program 7-11

Main Outlines 7eedn 7-9

Financing Plan 9-10P-ocurement and Execut4on 10Expected Financial Results 10-11

IV. Loan Project 11-12

Description 11Justification 12

V. IjolclJusios and nsiLu. U eU.dLons A.2-1

Annexes I - XII. and. Map See over

Annex I. Statement of Rolling Stock, December 21, 1955

Annex II. Amount and Composition of Traffic, 1953 - 1955

Annex III. Post-War Recovery of Traffic Volume

Annex IV. Pre-War and Present Utilization of Equipment

Annex V. Tentative Balance Sheet, September 30, 1955

Annex VI. Summary Income and Expense Statement, 1950 - 1955

Annex VII. Rehabilitation and Development Program, October 1, 1955 -

September 30. 1959

Annex VIII. Sources and Application of Program Funds

Annex IX. Derivation of Railwav Funds for Program

.Anne. Fr rorenast Inrnome and Exenene Account. 1959 - 1960

Ane-r YT SmAnvr of T.anr Prnipnt

Anv -v YTT T rpy;m;ng rf Prnipnt. 'FonAnitilrA

1a7-: Mar,Sportntio- S of Ri,vrmn

B U R M A

AFPRAISAL OFDBuR1A RAILWAY RLIABILIThTIOii P?uOGRAH

I. IIITRODUCTION

1. The Burmese Government wishes to borrow 00035O,OOO equivalent fromthe Bank to meet part of the foreign exchange costs of a continuing programof railway rehabilitation which started at the end of the war.

2. The loan would be used to buy rolling stock, bridge materials, andbridge construction plant for the State-owned Burma Railwzay. Payments forthese goods represent 15% of the Railway's planned capital expenditure)amounting to :35.2 million equivalent, in the four years ending September 1959.

3. This report assesses the technical and economic aspects of therehabilitation program as a whole. It is based on findings of Bank technicalstaff uho made field studies of the Railway's operaticns and requirementsand on discussions in wiashington with the Railway's representatives.

II. PR`SEKT POSITICM OF RAILDAY

Organization and Management

4. The railroads of Burma were started as a State enterprise in 1877.Their were let out top rivate management from 1896 through 1929, and thenbrought back to public management. Ownership passed to the Burmese Stateupon independence in 1948. The Government administers the properties througha public instrumentality knoim as the Union of Burma Railway Board, establishedas a body corporate under an Act of 1951.

5. The Railway Board is headed by a full-time Chairman, at present anexperienced railway official. It also includes ex-officio representativesof the Ministr ies of Transport and Finance; and five other members includingthe General Manager, two members of Parliament, and two represen+.atives oftrade and industry.

6. All members are appointed by the President of Burma, who canterminate their services at his discretion. They are persons of recognizedcompetence and integrity.

7. Bv lair. the Board has broad nowers to "regulate. construct, maintainand operate railways in the Union of BurmB. It is not an autonomous body,since the Act. states that the Board shall exercise its functions subject toPresidential control and shall be guided on policy by Presidentialinstructions. In practie,j the Govermnment does not int.er_ere in day-to-dayoperations, and the Board makes its own decisions on all essential policyexcept sources of financing capital eenditure and major chann in rates

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8 The Board7 is required to operate t-he m il y onI "busiress pr.nclpleswith due regard to the interests of agriculture, industry, commerce, and the

I Y-,i7 publ4. In conorfmiPT +tWeeTJr-, +kt 'T.TnT h its, o1T.T Trlorkino,

funds, defrays its expenses from revenue, keeps commercial accounts, preparesannual budgets for the Sanctionr of the PreSiden+ t nd is libleD +t i;nome

tax at the same rate as private companies. Passenger and freight tariffsaree fixed by thne Board -ith the P-Jsdert's aprov '. C-;+tal *e tr

0±'~.1 4JL2A /J tAl'.. .JJ0. .4VIt I ' UI'1.& 44.a ' ..tlUJ =.)9 IV ' ~ .?* V0 '-._''' I

to date has been financed mainly by non-amortizable, interest-bearingGoverr,mer.tlo.s, an partly by relua-nedU depreciat10nVA Mandeanibs Pr

of this loan capital has recently been converted into the equivalent ofeqpULity , anUIHLtet .1GI on 1 mosct, of theu rerainde-r is nC-Y unCAer a moratoriw..1

9. Cperatons are urected b-y a General "narger, appoi..ed by and

responsible to the Board. He is assisted by departmental heads who controlUIhe work.C of1 t-i eir U-tep aUlt- Ltiin. d-21. C1t ±tLr .t 1the 0LtULVZ V.LJ.L-.i oficr

are qualified railway officials with long experience, who have beenpromot~ued fromui i ±uit

1.U IThe jUnI-or exec-ubi are, as a whl ole, couLiebeLt. riu-w-vCr,there is a lacl of good shop foremen and skilled artisans. This is mainlydue to the emigration oI Indian and Angio-I-ndian personnel followinigindependence. There is no shortage of unskilled or clerical labor.

11. The Railway is well managed, by and large. However, repairshop practices and accounting methods require improvement. The managementis aware of these shortcomings and is prepared to retain experts toassist in corrective measure.s.

Existing Properties

12. The Railway, the only one in Burma, is a meter-gauge single-track network radiating out of Rangoon (see attached map, TransportationSystem of Burma). It traverses the richest agricultural regions, reachesmost of the mineral areas, and touches the fringes of the forestry zone.It provides passenger transport facilities between most of the main townsand suburban services for Rangoon and Mandalay.

13. About 1,800 route miles are open to traffic - a main lineto Miandalay, extended by several branches; another main line to Prome;and a secondary line to Southeast Burma. The system is unconnectedwith the railroads of neighboring countries.

14. The Railway is a basic means of transport for Burma, and theonly one ava-ilable in some areas. Trucking is relatively unimportant,due to an underdeveloped road systen. and lack of vehicles. River transportis important and partly competitive, but mainly serves districts outsidethe Railway zone.

15. Host of the bridges, shops, and stations were destroyed orheavily damaged during the war; track maintenance virtually ceased, andsome sections were torn up. Practically all the war losses have been madegood. The permanent way is in working order once more, apart from t

miles of branch line still out of service. T~orkshops have been rebuiltand re-equipped, and stations have been restored.

16. The track is mainly 60 lb. rail laid 30 years ago or earlier.Some main line sections have new 75 lb. rail, and some branches 50 lb.rail over 50 years old. Desnite the age of the rail, the track is wellmaintained. Ballasting is good, and tie-treating plant has recently beeninstalled.

17- The repair shons are nepi- and .iel± equipped with modern machinerv.They are capable of meeting all demands for rolling stock repairs foryarps: +.^.tne, but. cannnt. be oprnted wi .t.h f ull f-ff r i tnnyn unt l theRailway obtains more skilled labor and improves its present shop practices.

18. Approximately 75% - 85% of the rolling stock was missing orirmmobilized at the end o.f the war. Onlyr part of these lose have beenrestored - (a) by acquiring new and secondhand vehicles, and (b) byrepairin- k..1 or canibliin ol nlts.4 -~~P, 1h T.Tflwray c has slfic +n'otivre

power for immediate needs, but is short of wcgons and coaches.

19. Active or usable rolling stock includes 310 steam locornotives,all coal or wood fred; 5 b aoordsn,im wagons on1qiovan. to 6,75l0 92-aeunits; and 6h5 coaching vehicles, equivalent to 1,060 2-axle units, ofwhich 130 are converted freight cars (A-nnex I). Se 5 thelocomotives are new, while 125 range in age from 15 to 55 years. AboutUL'4VU 11_LL.LkA.:~ VJ.L UiV VV% 1JI CLIA LIL.J. LIAI.'. ''.,, '~~~

largely overage vehicles.

20. The ratio of equipment out of service is excessive. Excludingobusolee u or dam,aged UUnits hLeld A o sc --- ------ i , ' of the locoructive

14/o of the wagons and 15% of the coaches are undergoing or awaitingrepairs. The main causes are UV, Ldue 11u.eLU 0 A insur-1ri ai lk

shop mechanics, and old-fashioned shop mnethods. The high ratio of unservice-n _ _ _ . 5 _ _ 1 _ 1 1_ _ _ 1_ _ _~~~~~~~~~4. -- - _ __C__ A_ 4- -able locom1otives partlv rellectLs tUhe absence of imimiediCaUt pressure to

speed repairs due to a surplus of engine pok-er. All this power willeventually be needed.

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21. Prompt measures to increase repair shop output are urgent. Thiswill require the employment of foreign technicians and specialists. TheRailway has agreed to retain such experts within the next few months and isalready taking other remedial action; e.g. shop personnel are being sentabroad for vocational training and some of the repair wzork is being let outto local contractors.

Present Traffic

22. The Railway carries the bulk of Burma's internal freight andpassenger traffic. In 1954-55, 2.5 million tons of goods, 9.5 millionsuburban passengers, and 12.2 million other passengers were transported(Annex II).

23. About half the revenue freight is agricultural produce, mainly rice.14ost of the rest is bulk goods such as timber, building materials, zinc, fuelsand salt. The average ton is hauled 160 miles. There is no marked seasonalityof movement.

24. About 402O of the passengers are carried in Rangoon suburban service,the rest inter-regionally or between towns. The average non-suburban passengertravels about 35 miles.

25. Traffic has increased steadily since 19L9-1950 at rapid rates whichhave recently begun to level off (Annex III). The average annual growth since1953 has been 25% for goods and 20% for passengers.

26. Ton-miles of freight are 5% of' the prewar loadI but passengertraffic is slightly higher. Freight volume remains below prewar because lawandr orderr are inot. yet fiullyt -res+.to,r edm.jr, ousle he lavrgro- tonsTrn +hsi hldsllcback production and limits train operation to daylight hours. The recoveryirn passenger volme r;rl y reflects popa -tion g-owth nand arond P

Utilization of Eouipnmer.t

27. The 1P"illwaey Ahas 1,5%0 few~er 3locoMmotivres,P 4+0% fewer wcag6onos, ar.d 45%(/'fewer coaches to haul the present traffic than it owned before the war\r -LV J LocomoWtiLV-e iaLiu waguon aeu Ling wul-nked less UIte-LV-l±y tiihiia

pre-war, but coaches more intensively, as shown below:

1940-41 1954-55

ldllion traffic units per locomotive:Total stock ~~~ ~ ~~~~~~~~~~2.6 2.1

Active stock 3.0 3.0 -Thoousan-rd ton-miles per wagon;

Total stock 66.9 57.4Active stock 74.5 66.8

Thousand passenger miles per coach:Total stock 433 778Active stock 481 915

a/ Without allowance for the greater tractive effort of the new engines.

28. The underemployment of wragons and locomotives arises from insurgentaction which prevents night operation. This severe handicap is beyond themanagement's control. Wagons, however, are loaded as heavily as trafficconditions nermit.

29. In.suiragent. AntiOn not. nr1v 'rurrnt. 2A1ho1i-r one.ration hut alsofrequently interrupts daytime running because of track sabotage, blowiingun of' hridgePs minino of trAinsj anA o+he-r dneg t.o ollina stocnk andpermanent way. Sabotage incidents numbered 288 in 1954-1955, caused about25O,OX) of d.mfge, m n.d resulted irn 172 casualties, includnng 32ldeaihs

30. l>eecrms&^svm4+ Pi11 oprair,a 4vPn Rar.on snn bservice, equipment is worked to capacity or beyond. As showm above, theavea coach Sn.4 u&se is .. _O .. , g +l- a.'st twic the p r load.

31.~ rm V-41- 4-lsz is 44n -atis 4ct- use of' it1s se.-n-ea-ble equipmen+4.JL 1.C1_L.LW"j .LO i44JLX.L.Lr., D~ .L..d' ~L LV 'J.. . . V.V

considering the present operating difficulties. However, the ratio of equip-ment- ou fs-iecradsoi e reduced. rA.E-fL.L is- gro-wLing cuceare overcrowded, and substantial amounts of freight cannot be accepted forlack of wagons.

Finarces. Earnings. and Rates

32. rne Railway t s financial position and earning power cannot be accuratelydetermined because of accounting deficiences which the management is anxious tocorrect. Auditing is slow, due to wartime loss of records, difficuities ofinternal communications, and shortage of experienced staff; it now takes tenmonths to close the accounts. Depreciation is arbitrarily computed, by long-established practice, at the inadequate annual rate of one-sixtieth of thecombined value of fixed assets pius stores. The book value of rolling stockrequires restatement in the light of a census taken in December 1955. Eventualcharges for social insurance arrears and for suspense 6=ouuts owed the Govern-ment have not been assessed. The nature of certain current assets and liabili-ti'es needs to be clarified.

33. The Railway has agreed to retain an experienced railway accountingexpert to help improve present procedures, to aid in determining actual assetsand liabilities, income and expense, and to assist in preparing timely accountsuseful for managerial action and policy. With the approval of the Government,which is expected shortly, the Railway will hereafter charge adequate depre-ciation in annual amounts equal to one-seventh of gross operating revenue, butin no event less than 2% of tangible assets at cost. Auditing has been speededmateriaUy in the last few years, and the recent rolling stock census providesa correct basis for revaluing equipment.

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34. Based on tentative balance sheet data as of September 30, 1955(Annex V). the Railway has sufficient working capital, no debt e;icept to the

Government, and a capital structure -wich is 46% equity. Fixed assets workout to a depreciated value of approximately $40,000 per route mile; repro-

duction costs would be much larger. The entire debt to the Governmentconsists of non-amortizable 3% loans, the bulk of which is interest-free byreason of a Government-declared moratorium.

K million $ million eauivalent

Net working capital 31.5 6.6Net plant and equipmet 377.3 79.2

.novrnarmen+t lronn canpitnl / I96.,3 41.2Previous loan c3pital converted 166.6 35.0

An >o 1l ---a,

=' c_uds -cap-alized tems. h,eldl in cisnen-se Account .at --- - - --

35. Operating results have improved steadily over the past five years-wthout tarlif increases, because of rapid traffic rrr-.-h and elose control

of working expenses (Annex VI). Previous losses ceased in 1953-1954. A netoperaU.!J.g UncmX of K 15.4 milonaterv dere-tir bu efr ncet

was realized in 1954-1955; it would have been K 11.9 million, a 3% return on

tne value oI the properties, had depreciatioLn been charged bJy the new forml

36. 0-exating income as repored was considerably below interest reW"-ments until V/54-1955. Full interest was nominally earned 2.lx in 1954-1955,but the coverage would have decreased to 106Z had full depreciation beencharged. Part of the interest now waived by the Government is being offsetby income tax on earnings after interest.

37. Tw),o-thirds of tne revenue comes from freight haulage. Joint costsmake it impjssible to assess freight and passenger earnings separately, butboth services seem to be profitable.

38. Freight rates averaging 2.8¢ equivalent per ton-mile are low. Goodstariffs are divided into five classes, broadly proportional to increasingunit-value. Passenger rates average about l.00 a mile in "lower class," whichaccounts for 99% of the traffic. This is a low charge.

39. Neither freight nor passenger rates have changed materially since

1948, when a 100% surcharge, still in force, was imposed on the basic rates

then prevailing. Present rates are about three times prewar.

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III. REHABILITATION PROGRAM

Main Outlinet

40. The Railway has been rehabilitating its properties since theend of the war. Results to date are good; the program is continuingthrough 1959, and now includes: (a) the procurement, for renewals andadditional stock, of 1,830 new wagons, equivalent to 2,045 2-axle units,178 new coaches or equivalent rail-car sets, and 6 new locomotives;(b) the relaying with heavier rail of 200 miles of main and branch linetrack; (c) further reconstruction and repair of war-damaged bridges; and(d) e'quipment' and materials for some minor civil works (Annex VII).

41. Part of these goods were ordered in 1955, have largely beenpaid for. and are now in course of delivery. Main sources of supply areWest Germany, Japan, and the U. K. (6rders for the remaining goods arenow being placed or will shortly be placed. Solrces of suiply are as yetundeterminsd except for Various items whigh swil'%eeoBtained §-sfreparatTonsfrom Jaoan,

42. The nlanned exnenditure totals K 167 million ($35 million equiva-lent) from October 1955 through September 1959, as summarized below:

Foreign Local TotalexchAnge currency 7 million$ million K million equivalentequivalenat

Rollinr stock and spares 13.8 12. r7 r78.4I

Rail and accessories 2.9 23.7 37.7Conrstructi4n and repair

of bridges 2.6 16.0 28.2h wf4.fTorks an.d fractL.LUties - ".I 1.4 *U

Total 20.4 70.2 167.4

43. These estimates are realistic. They are based on remainingpa-rts dau for goos 4ln CO'W 8e ofr Adl1 r,- -c.ual qotationsor e

vailing prices for goods not yet ordered, and the Railway's experienceregardirLg "local. cost's ofL r e'L a.-Yng ra-Ll, uui.Ld.^g sturuactkures, ar,du assemhblingvehicles. Adequate allowance is made for contingencies, where applicable,and .or spare parts.

440 Trle lal-r,edexperndltsure of X17mil0in'aesfou yearscompares with an actual expenditure of only K 88'"Million on capital accountin the past five years. The proposed increase reflects better law andorder, making it practicable to rehabilitate the Railway on a larger scaleand a recent reparations agreement with Japan under wnich substantialamounts of rolling stock and rail will be delivered.

Need

45. Traffic will continue to grow as law and order are restoredover a wider area. Production and trade are increasing in the areas wnich

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have returned to normal life, Developmental projects are a&der;my .^>ich

will increase the output of rice, timber, ores, sugar, cement, and other

goods requiring rail haulage.

46. With more wagons, the Railway would immediately recapture about

150,000 tons of rice a year which the State Agricultural Marketing Board

now sends to Rangoon by truck, at much higher cost, for lack of wagons.

As rice loading methods at the port of Rangoon improve, experts should in-

crease about 200,000 tons a year. Practically all the additional tonrnage

can best be brought down to Rangoon by rail.

47. The Government barge fleet on the Irrawaddy and Salween Rivers

carries a tonnage, predominantly rice and oil, equal to 40%' of the total

amount of rail freight. As shown in the attached map, the rail and river

networks largely serve different traffic zones. Some competition exists,

particularly near Rangoon; however, an estimated 80` of the Railway's

freight traffic originates or terminates in areas beyond easy reach of

the rivers. There is no reason to expect any large diversion to or from

the Railway.

48e The Railway expects freight and passenger traffic to increase

by 106 annually in the next few years. This forecast might seem conser-

vative compared with recent rates of growth (20p-255). However, output

in the pacified areas may expand more slowly, pacification of the troubled

areas is apt to be gradual, passenger traffic is already equal to prewar,

and competition from river transport will continue. For these reasons,

the present report assumes only 33% more traffic, 1959-60 over 1954-55,

equivalent to an annual growth of 6% compounded.

49., The main present needs are additional wagons to cope with growing

traffic; new coaches to replace obsolete stock and facilitate essential

,travel; new, heavier rail to replace worn, lighter rail on the main and

branch lines; and the reconstruction or further repair of damaged bridges.

Eowever, the diesel-electrics now being bought seem premature.

50. The planned acauisition of 1,830 wagons and 178 coaches is close

to requirements as independently estimated by the Bank staff. The planned

renewal of 50d miles of rail a year is a reasonable figure for an 1,800

mile system with old, worn rail for the most part.

51. To reduce maintenance costs and lengthen service life, the Rail-

way plans to replace some of the 60 lb. main line rail by 75 lb. rail,

and to relay some of the 50 lb. branch lines with 60 lb. rail. This

Udecsion 'Ls sound.

52, The Railway plans to re-lace a former bridge across the Sittang

River, destroyed during the war and not rebuilt, by a new structure about

five miles upstream from the nreious site. This will reestablish all-rail

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service between Rangoon and Southeast Burma, an urgent need. About 350,000

tons of revenue freight a year used to move across the pre-war bridge plus

ab-out 200,000 tons a year of track ballast. The present pontoon ferry

service cannot be used for bulk goods, requires uneconomic transshiptent

of such few light goods as move, and requires that ballast be obtained

from remote sources in the North*

53. Many small bridges dispersed over the whole network have been

repaired on a temporary basis. The Railway plans to complete the permanent

repair of 50 of these structures by installing new girders.

Financing Plan

The Government and the Railway have formulated firm plans fer

financing the program which are set forth in Annex VIII. Summarily, the

following means wonl-d be uned!

K million eauivalent

Depreciation charges, retained earnings,and. other Railway funds 87.4

Railway's existing line of credit withCentral Bnk1 20.0

Additional loan capital to be providedbu oveVrjenuA i45

Proposed loan from IBRD 25.5TL tal 167.4

55. The enrtire local currency costs (K 70-2 mtllIon _ squivalent)

would. be met from Railway funds. The Railway would pay the Governmentfor all reparations goods obtained from Japan (K 49v5 millinn enuivalent)out of its own funds not required for local currency expenditure, by in-

creasing the Governments 8loan capital a-ccount, or bv drawing down a line

of credit with the Central Bank. These same sources would be used to

finance all non-reparations imports not proposed for Bank financing (K 22.2

million).

56. The above proposals are satisfactory. Available Railway funds

have been conservatively assessed (Anne IX). The lIne of Gredit with the

Central Bank is firm and. oL 'a&coptable terms (10 years, 312). The Govern-

ment has agreed. to supply an-y auavcional funds which may be needed, beyond

the IBRD loan, as loan capital on reasonable terms,

57. The Government would be the Borrower from the Bank. This is a

reasonable proposal since the Railway lacks financial autonomy .nd. uto-

marily finances capital expenditure from State sources.

58. The loan proceeds would be relent by the Government to the Rail-

way. The local currency equivalent of the debt service wo-ud be repaid

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to the Government by the Pailway on the same terms as the proposed loan.The planned arrangement 8 are satisfactor.y.

Procurement and Execution

59. In accordance with the Railway's long-established policy, allthe non-reparations imports included in the program are being obtainedthrough international competitive bidding. The Bank has been assuredthat the loan project goods in particular have been or will be orderedin accordance with this procedure.

60. For the past 30 years, the Railway has retained qualified con-sultants to design and plan major civil works and to advise on types ofequipment. The Railway has confirmed. that the same firm, or an equallyqualified firm, will continue to be retained indefinitely.

61. The plans, specifications, and cost estimates of the proposed.Sittang Bridge were pre-ared by the Railway's present consultants. Thebridge will be built by the Railway:s departmental staff, which is com-petent to perform the work. under the supervision of an experiencedrailway engineer already retained.

Expected Financial Results

62. If the program is carried out, the Railway should be haulingabout a third more traffic by IQ59-60, and therefore. with unchanged rates.have a third more revenue. Working expenses might be expected to increaseabout 259 because many direpnt costs do Rnot varv proporti onate1v with trnf-fic. Annual depreciation under the new formula would be double the pre-sent amA,-nt.

63, i.et operating income shomldp therefnrA rac.h K 20.6 million ayear by 1959-60, compared with K 15.4 million in 1954-55 (Annex X). Theres-titng investment return would. be 4.60 on nn estimated. pnroprt.y value;at the end of the program, of K 450 million. Interest charges to the

ss- a cof 7 IL_ 0 --r411 4, 4sv ; -A4;s +.Ih= TRT 1non 7.^'111A 'h, f n-naA

4.2x before taxes. Interest nlus amortization to the amount of K 10.3mLU.L.L.LJ.VL incl .J.A'.L6 yhe .W le.LC old be c.fo…ered 2,7… b ereationcharges plus post-tax earnings to the amount of K 27.8 million.

64. The above estimates of the Railwayts ability to service debtare based on "N the -firm -1-S p s Mer describe , A D 4n (ii) th

Government's exDressed intention of converting into the equivalent ofequity all tutst.d4ng loan cp4 ta" ad a -- - b-for October I a953

About 75b of the Railway's capitalization at the end of the program willthus be equity corrpared w±lth 4fUtia present.

K millionA ctuaL.L prV .o f1Jorma

September 30, 195S September 30, 1959

IBRD loan 26Central Bank loanAmortizable debt _ 46

Interest-bearing loan capital 33 67Loan capital under moratorium 164 -

Permanent capital not subjectto interest or repayment 167 33

Total 364444

65. Expected 1959-60 earnings would yield o .n the equity after

income taxes equivalent to another 2.L1 . Higher yields should eventually

develop as traffic continues to grow. The Government has assured the

Bank that freight and passenger tariffs will be maintained at a level

sufficient to ensure a reasonable return on the value of the Railwayta

properties.

IV. LO,AN PROJECT

De scription

66. The Bank is being asked to lend $5,350,000 equivalent against

foreign exchange costs totalling $20,410,000 equivalent. The proceeds

would be applied to certain agreed items all of which are essential, and.

none of which are reparations goods.

67, These items include 1,025 goods wagons and spares, 8 rail-car

sets and spares, construction materials and plant for the Sittang Bridge,

and steel girders for 50 minor bridges (Annex XI). The goods wagons and

spares were all ordered in 1955; only remaining payments as from January 1,

1956 would be met from the loan. The rail-cars, bridge materials, and

construction plant have not yet been ordered; their full purchase price

(c.Cf.) wmould be -maid from the loan. All procurement should be completed

by the end of 1958, all worksby the end of 1959 (Annex XII).

68. The loan proceeds would be applied to the following payments,

largely concentrated in 1956-57:

$ &OOGoods wagons and spares 843

Pall-cars and spares 1,760Bridge materials and construction plant 2,325

Contingencies ffor goods not yet orderedTotal 5,350

Justification

69. The project is limited to essential equipment for trafficgrowth, replacement needs, and operating efficiency.

70. Making due allowance for restoring a normal ratio of equipmentout of gervice, intensifying the use of active stock. and scrapopingobsolete vehicles, the Railway needs all the wagons now ordered or pro-grammed. The active fleet is now being used as intensively as the opera-tional difficulties which prevent night running permit. These diffi-cullties are beyond the Railwayto ^ntrel, and likely to continue forsome time. Were law and order restored throughout the country in thene…t few -years, traffic mig…t immediately increase a…t r…teA re…ui_rilarge additions beyond the present program even with 24-hour operation.

71. The rail-car sets will replace obsolete, unsanitary, and unsafevehicles no_ in use for moving --ngoon worker to and from their --Trains are overcrowded and traffic is growing. The new vehicles willmee'u an ugent r.eed.,

72r.0 Tlle p'lanned constr,uctionu ar.d repair 04 bridg8 wa i -_. 4-.P v

improve operating efficiency. Heavier traffic, better service, andJ.VWer Lico l WtL.L.L reul t.6

73e More broadly, the project s part of a la r prgrm fro,mwhich both Burma and the Railway will benefit. The main benefits toDurma will be th'e acquisitionl of equipment needed to en8'a.re largerexperts of rice and timber; cheaper transport of rice now brought toRangoon by trucik; increased export of ainerls in the -orth, and thedevelopment of new industries, such as sugar mills, made possible bymore adequate transport; increased production of stone and salt in theSouth; and the facilitation of essential travel held back by lack ofcoaches. Tne Railway will benefit by an increased earning power sUUficient to justify the planned expenditure.

V. CONCLUSIONS AND RECOMMNDATIONS

74. The loan project is part of a larger rehabilitation anddevelopment program. The entire program is weli-planned and technicallysound. The economic benefits to Burma and the financial benefits tothe Railway are sufficient to justify its cests.

75. Satisfactory arrangements to finance the program have beenmade. About 85y. of the total costs would be paid from Railway funds,mainly retained depreciation and earnings, and from Government loancapital and Central Bank credits supolied on reasonable terms, Only15% would be met by the proposed IBRD loan.

- 13 -

76. Thn project consists oI goods wagons, ral' cars, bridge

materialo, I bridge construction plant urgently needed to cope withgrowing tras,_,+c.- All these goods have been or will be ordered through

international competitive bidding, Qualified consultants have already

been retained for all aspects of the project which require their ser-

vices.

77. The Railway is well managed on the whole. Executive and tech-

nical staff are competent and there is little or no Governmental inter-

ference. A qualified accounting expert will be retained to help correct

existing deficiencies. Qualified repair shop technicians will be retained

to help reduce the number and proportion of vehicles out of service.

78. The Railway's financial position and outlook are sound. Its

debt load at the end of the program will be moderate. Freight rates

and nassenger rates will be maintained at a level sufficient to ensurea reasonable return on the value of the properties.

79. The prtposal that the Government be the Borrower is reasonable

in view of the Railway's non-autonomous status and the established prac-tices of financing capital expenditure. The local currency equivalentof ths - venmerts debt Per-i!ne on the IBRD loan will be paid from

earnings and depreciation. id can be done without impairing the

Railwatyls ability to mTeet other fixed charges.

80, For the rRafonA stated above, the project affords a suitable

basis for a loan of $5,350,000 equivalent as requested. The equipmentand works to be finnanced inutify a tArm of 15 years. The timing of the

project justifies a 3 year period of grace.

Apri 24, 19

A7NTEX I

Statement of Rolling Stock

December 21. 1955

Held for Active In service Ont nf ClervcnaTotal scrapping or use- or fit for .,4-; for repairs

able traffic Total Lieht Eeavvrepairs repairs

Locomotives a/ 312 2 31 216 9 n.a n.a.Heavy 173 1 172 122 50 n.a. n,a.Medium and light 139 1 138 94 44 n.a, n.a.

Goods stock -POnlii val fnlt.

2-axle units 14 8,054 1.302 6.752 5,838 14 243 671__YcarQ X,8L. 700 A Ana o AO,! ZLO Al 180t Ji4nAlI3allast wagons 964 180 784 699 85 7 78Timber trcks 9a4 82 862 800 62 22 40PSugar cane wagons 754 35 719 688 31 8 23Cattle wagons 350 6h 286 24-v 40 10 30Flat and open wagons 264 90 174 147 27 10 17All other s ock 3~17° 52 1 8 2891 29 no 23n

Coach1nF stock. -equivalent2 a-e un-ts 1- 1, ^A 1 r%Z n6 e, >(

Upper class coaches 154 8 146 106 40 24 16Or A 4 " srAssA coaches and mail

tr 7a2 (U °68 642 4+UAll ether coachesand vans 268 3U23 21 5 6

l-A/ Per ok stateLmVen, OSpteluer 30, s95.. Per actual census, December 21, 1955.c/ Inciudes 47 equivalent 2-axLe units used as staff quarTiers.d/ Includes 58 equivalent 2-axle units used as staff quarters.e/ Includes 129 converted boxcars wnicn the Railway pians to reconvert into

sugar cane wagons after new coaching stock is received.

A EX I I

Amount and Composition of Traffic, 1953 - 1955

Goods Traffic

1953/54 1954/55 1953/54 1954/55Thousand Tons Million Tnn-miIp-

Comoaditby:.

Rice, paddy, and 509 653 n A. n.a

branOtner agricultural Dn n ;I

goods a/Agricultural gooda 840 995 113.2 148.5Ores, concentrates,

and other 266 273 57.5 67.4minerals b/

Fishery products 35 37 11.7 13.5Forestry products 314 295 45.4 48.1

Livestock 11 12 2.5 2.5Military equipment 40 48 7.2 8.0

and storesMiscellaneous goods 2 313 34.2 36.Revenue freight 1,780 1,973 271.7 324.5

Service freight 507 486 51.6 63.2

Total 2,287 2,459 323.3

passenger Traffic

1953/54 1954/55 1953/54 1954/55Thousand Passengers Miilixpas-erxgerii1e

Class:

Suburban 6,520 9,487 n,a. n.a.

Other 10,707 12,227 n.a. n.a.

Total 17,227 21,714 422 501

Upper class 30 61 4 8

Lower class 17,197 21.653 418

Total 17,227 21,714 422 501

.a/ Mainly sugar cane, sugar, fruits, and vegetables.b/ Mainly zinc, lead ore, scrap, fuels, and salt.

ANIDI I I I

Post-War Recovery of Traffic Volume

Goods PassengersThousand Million Thousand Million

Tons Ton-miles Passengers Passenaer-miles

Year

I,q/4,O ILn5 698 T 920 437

193a/40 4,001 686 18j810 449

1940/}'-1 ~~~4,o03i n 19. 7 58 Q

'Pre-war avrerage 4'3 e697 19,1634 461

9419 1;0 84 1

951/52 ~~~~?-1^01 7 11,806 252

1953j54 ~ ~~~~~~~~~~ 2,28 32 17,227 72L

1 954j55o /1 4 7nJ ,o4$ l-

Ratio/5 of3 ,9 5 to:

pre95 raveag ,0.61x o.6 1179.9

1952/53 1.329 1.22526 61.a/ Ratio to 1947/48

1953/54 1,327 123 9,736 206rf-t

1954/55 2,459 388 21, -(350

Ratio of 1954/55 to:

Pre-war averaige 0.61z 0.56x 1.13x 1.09x1946/47 1.32 1.22 2.64 1.66 a/]

R/ Ratio to 1947/48

A 11iEX IV

Pre-War and Present Utilization of Equipment

1940-41 1954-55

Goods stock:

Number of vehicles expressed in equivalent2-axle units 10.570 6,750

Average in service or fit for traffic 90% 814Average out of service for repairs la"P 16%b

Million ton-miles 708 388

Thousand ton-miles per vehicle!In fleet 66.9 57.4In service 74.5 66.8

Cosnr+ivv rtock:

innhor of vehir1ce withumt rp-aard tn siz.e A4A5 (4L

Average in service or fit for traffic 90% 85d

Average out of service for repairs lo% 15%

Million passenger-miles 433 778

Thousand passenger-miles per vehicle:In fle'1-et 433 778

In service 481 915

Motive power:

NTumber of locomotives without regard to size 370 )Lg

Average in service or fit for traffic 85% 69%Average out of service ,or repa'-rs 31

M i'l J.o n t'lr a L fJ.c i 1 i t8a' (1 to n- m `e uPlu'"s

2 passenger-miles) 957 638

Million traffic units per locomotive:in fleet 2.6In service 3.0 3.dj

JU-Ti:lM V

Tentative Balance Sheet

September 30, 1955

E million

ASSETS LIABILITIES AND CAPITAL

Cash and equivalent 6.4 Accounts payable 41,7Accounts receivable 26.7 Accrued income tax 0.1Stores for operation Current account withand maintenance 48,0 Government 10.3

Current assets 81.1 Current liabilities 52.1

Fixed assets at cost 410.3 Balance, staff benefitDepreciation reserve 81.1 accounts 12.3Existing fixed assets 329.2 Balance, GovernmentStores for works in suspense accounts 31.4progress 48.1 Liabilities 95.8

Net plant and Interest-bearing loanequipment 377.3 capital 32.5 ia

Deficit since start Interest-free loan capitalof enterprise 0.4 by reason of moratorium 163.3 .l

Previous loan capitalconverted into equity 166.6 cj

Total 458.8 Total 458.8

Staff beAnefit aennnint.-: TAabil itieg 20 9Assets 8r6Balance due 12.3

Government susnense Liabilities 40.1accounts: Assets 8.7

a/ Advances by Government after September 30, 1953.E/ Avtanaos bir orer,nment. 1haf rn-o Ot.oenr 1 193Q less thnrA converted

into equity,,,I ~~ ~ ~ ~ eior ia n,~ cto f,'rn A TI - iO'. 1 0U hvrr- p%oTcinrrc/ Dbt o G-ver-mer -dscha-ged, as from -,-vs 31 ~, 1954 b., conversion

into permanent capital not subject to interest or repayment of principal.

t mA, b c e4t 46 a 4al--y ofP - 14ir.y 5 it data sub-

mitted by the Railway. The final accounts may show materiallydivergent resu.ts.

ANNTEX VI

Summary Income and Expense Statement. 1950 - 1955K million

1950-51 1951-52 1952-53 1953-54 l95j 55

perating revenue

Goods 19.6 25.8 35.5 42.6 48.7

Passenger 13.6 23.9 20.8 22.9 29.0Miscellaneous 0.8 0.5 0.8 1.0 3.1 ajTotal a/ 33.9 50.1 57.0 66.2 79.4

0perating expense

Maintenance of way 16.7 14.2 14.7 14.4 15.2and structures

Maintenance of equipment 18.4 22.3 26.2 27.8 27.2Transportation 7.6 6.4 6.6 6e8 6.9

Administrative 3.6 2,9 3.0 3.1 3.5Miscellaneous 2.9 3.4 3.1 3.6 3.4Working expense 48.6 49.1 53.6 56.7 / 56.2

Depreciation 67.0 7.4 7.8

Total 55.1 55.8 60.5 64.1 64.o

Net operating incomT be _ 21.1 - 5.6 - 3.4 2.2 15.4

Interest paable

Government loan capital 8.0 8.6 9.4 5.8 e/ 5.9Lend-Lease stores 0.2 0,2 0.2 0.2 0.2Provident >wed 02 I 11 1.3 1.4

Total 9.1 9.9 10.8 7.3 7.5

Interest paid

Government loan capital 8.0 - - - 1.0

Lend=Lease storeg 0,2 0.2 0.2 0.2 0.2

Provident Fund .1.1 1.2 1.3 1.4TQtal 9.1 1=3 1.4 1.5 2.5

Reported pretnA- 30.1 - 7=0 - 4.9 0.7 12.9

earnings i6

Incomr e ta- 6.4

Reported net income c/ - 30.1 - 7.9 - 4.9 0.4 6.5

Operating ratie) f (163%) (111sp) (106%f) (97t ) (821-)

a/ After deducting refunds and remissions from gross revenue shown above.'I A,Ifrter ading itereot on. Provident F Aii nvestments.

I After charging interest actually paid, not interest as payable.Incl-es E 2. million n Goernmment subsidies, -id for first time, on

unremunerative branch lines.e/ Reflects conversion of part of loan capital lrto equity, effective August1954f/ operating expenses including depreciation as per cent ef operating revenue.

c Ir,cldes certiain charges not sholnm separately above.

ANNEX VII

Rehabilitation and Development Program

October 1, 1955 - Serte±iber 30, 1959Foreian Exchange Costs in K Million Eguivalent

Goods already ordered Goods not Yet orderedItem Total Included in Excluded from Japanese Loan Other

loan proiect loan project repara_ pro-tions g/ ject

6 diesel-electriclocomotives 3.1 - 3=

8 diesel rail-carsets 9.2 = - - 9.2

134 passenger coaches.rLd 20 inspection.carriages 20.3 - 6.5 13.8 -

1, 8_30 goo's wagoi-i all2. - J/511.200 wagon bodies and

75 -underframes 2.6 - 2.6 -

Special servicevehicles Sj 0.7 - 0.7 - -

Spares, fittings,and accessories 3.8 _ 3u _ =

Rolling stock d 65.7 4.1 19.2 33.2 9.2Rail and accessories 14.0 - 0.9 13.1 -

Bridge materials and 12.2 - - 12.2conetruto-'kn-lant j

Power signallingequipment 3.2 _ 3.2 _ _

Building materials f/ 21 - - 297.2 4G1 2+11.5 2i.4 2.1

I Total CosteK million equivalent

Total Foreign exchange Local currencyRolling stock 78.4 65.7 12.7

Improvement andrestoration of track 37.7 14.0 23.7

Construction and repairof bridges 28.2 12.2 i6.u

Installation of trafficcontrol facilities 3.7 3.2 0.5

Other civil works 19+ 2.1 iL.lTotal 167,4 97.2 70.2

1955-56 49.5 37.6 13.71956-57 70.9 51.2 19.71957-58 25.0 6.2 18.81958-59 22.C 2.2 18.0

Annex VTI - fntnnotea

Al Trnl deA a. I =axle b 75< 2=a.le hopers 2 bogi t

100 2-axle timber wagons, 150 2-axle open wagons, 40 2-axle water tanks,101 bogite mo-lasses tal-ks, ad 5 ogie well cars.

u/ Liclu.Ues 1L mouble r-all craes an.u 12 armoreu raiL cars.

j nemaining payments as from January 1, 1956.

'/ Includes 22,500 tons of 75 ib. rail and accessories: 5,000 tons of 60 lb.rail and accessories; and accessories for doubling certain sections ofRangoon-Mandalay line.

ej Includes structural steel, cement, construction plant, etc. for SittangBridge, and steel girders for 50 minor bridges,

] For construction of service buildings and staff quarters.

p./ Orders now being placed but no information yet received regarding particularcontracts. wh4ij'h mntr hThie rded

ANNEX Vl 1L

Sources and Application of Program Funds

October 3 1955 - September 30, 1959

(K million equivalent)

Sources 195/56 1956/57 1957/58 1958/59 Total

Railway earnings aftertUaxes 5O50546l 21aw

Depreciation charges 11.8 126 1u3.3 14.0 %1.7

l954/5> subsidy not yet 2.2 - - - 2.2received

Reduction in workingcapital 200 }e-C _ - 12?0

Railway funds 21.8 2608 1807 20.1 8714

IBHU loan 2.7 2i," le2

Central Bank loan )$.O 5*O - - 20.0

Government capital 10.0 7.1 5 1.9 14.

Total 49.5 70.9 25.0 22e0 L67e14

Application

Goods obtainable asreparations 13.1 29.2 5.0 2,2 49.5

Goods included in loanproject 2e7 21.6 1.2 25.5

Other goods deliveredor in course of delivery l9e7 0.4 - 20.1

Other goods not Yetordered 2.1 _ - _ 2.1

Foreign exchange costs 3796 51.2 6.2 2e2 97.2

Local currency costs 19e7 18.8 19.8 70.2

Total 49e5 70.9 25.0 22*0 167.4

A, 7'ny 'V +V

ver2L-VUU U.l Ra-LLWay ULUds f.or ELr,.LIL

OctobxLer 1, 1955 - September 30, 1959R(K million)

- ,~~~~~~~~~ ~ ~~~~~-~,' J,'f r, Z-1r I.-, J' lrOI'-.L e m i9 x_ 56 195u/57 Y (ID L975 ___

uperating re-venue 82.7 u.o 2.99.

Working expense 578o 60.6 64 6 2C

Balance 24.9 27.2 296) 31.9

Depreciation 1 1o LZo. 13.3

Net operating income 13.1 14.6 16.2 17.9

Interest 3,1 4.6 5.4 5.6

Taxable incGme 10.0 10.0 10.8 12.3

Income tax 5.0 5.0 5.4 6.2

Net earnings 5.0 5.0 5.4 6.1

Add back depreciation lle8 12.6 13.3 140

Total, above 16.8 17.6 18.7 20.1

1954/55 subsidy not yet received 2.2 - - -

Reduction of woirking capital 2.8 9.2 - -

Available funds 21.8 26.8 18.7 20.1

Interest charges shown above:

Government capital 1.0 1.5 1.9 2.0

IBRD loan 0.3 0.8 1.1 1.2

Union Bank loan 0.2 0.7 0.7 0.7

Other fixed charges 1.6 1.6 1.7 1.7

Total 3.1 4.6 5.4 5.6

NIet working capital:

Start of year 31.5 28.7 19.5 19.5

End of year 28.7 19.5 19.5 19.5

ANI:TEhX x

Forecast Income and ExDense Account, 1959-60

Item K million

Freight receipts ai 63.8PasSenger r PAint;t :/ 38.7

Miscellaneous receipts 3-4

Working expense 70.2Balance 35 7Depreciation . 15/1'I"ie t operatir.g in.com.e 2

Interest 4.9

Pre_-ua. 'income 15.7

Income tax d 7,9-- - ~~~~~~~~~~~~~~~~~~~7.8,

'NetL profi2Lt I,8

Earnings after taxes, before interest 19.7

Depreciation charges 15 *

Available for debt service 27.8

Debt service including amortization 10.3

Debt service

interest ArMortizatiQn Total

IBRD loan (counterpart),K 25.5 million @ 4 3/L4,15 years o.6 .j 2e1 L1 2.7

Central Bank loan,K 20 million @ 3-,%^10 years V.4 3.3 )* S

Government loan capital,K 67 million @ 3% 2.0 2.0

Other fixed charges LA - 109

Total 4.9 5.4 10.3

Note: These are Bank staff estimates.

a/ AmssumeR 33% traffic increase over 1954-55, unchanged tariffs.. Assumes 25% increase over 1954-55 working expense.

G-I/ Val to 1/7th of ooeratinz revenue.d/ Applied at present 50% rate./I .Avr=ge over lifA of loan.

f/ Assumed to be amortized in 12 years starting 1959-60./ Assumed to be Anmortized in A vars starting 1959-60.

A Al h1vXt

IUM1Jf~ Al

Summary oI- Loan Pro.e

Foreign exchange costs orpayments to be financed

Expressed in Expressed inK 000 $000

{equivalent equivalent

Remaining payments on goods wagonsas from January 1. 1956

750 2-axle boxcars plus 75 2-axle hoppers,West Germany 2,060 433

100 bogie timber wagons, Japan 812 171

150 2-axle open wagons, U. K. 192 40

100 2-axle timber wagons, Yugoslavia _1f22 159

Sub-total 3,823 803

Spares (5%) _ 191 40

4,014 843

Structural steel, cement, paint, andconstruction plant for Rittnrg Birldg 10,010 2lO2

Steel1 grdersc for mirnr brig l.Ohn -nq

Sub-total 11,070 2,325

Tot -1 I' 1 2 7'7 92,55

Spsres (5%) 408

Sub-total 8-4~~ ~ ~~~~~~~~~nn I,6CS jflf ,

Contingencies '10D) o40 L f-

Total 9 44i

Grand total as aboveGrand total: rounded 25,431 5,350

Note: For local currency costs, see Annex XII.

ANN.EX XII

Tlming nf Pro-ect Expenditur6

_ mil o11n enuivalent

,oe5__5 1OCm-57 1°57-58 l998-59 Total

Foreign ex.LA .ang, V-

payments:

Goods wagons 2.7 1.4 - - 4.1

Rail cars - 8.0 1.2 - 9.2

Sittang Bridge _ 11.0 - - 11.0

Minor bridges __1. 2

Total 2.7 21.6 2, - 25.5

Local_.mrez1Cpayments:

Goods wagons 0.3 0.1 - -

Rail cars - 0.3 o.6 _

Sittang Bridge 0.5 2.5 6.8 5.6 15.4

Minor bridges - 0.3 0. 0I.6

Total 0.8 3.2 7.7 5.6 17.3

Total expenditure:

Goods wagons 3.0 1.5 - - 45

Rail cars - 8.3 1.8 - 1o.1

Sittang Bridge 0.5 13.5 6.8 5.6 26.4

Minor bridges - 105 ._i

Total 3.5 24.8 BV9 5.6 42.8

9?° 940 960 990 100°

| RAILTWRAY LICNES OPEN _ _Pnsu cs \,9 \,

|RAILWAY LINES NOT 0** " t44"e J

YEtN REHABILITATED

|ALL YEAR NAVIGATION -- J $

960 FERRIES, / /_jt1

% f ( j } ~ ~~~~~~~~0 20 40 60 80 100 MILES

I i} {~~~~~A (,4 , TI_SORf IRON SYSEMTcmu7p , ~Nlbo dc^Ban OF BUB/IMA

| 5 | ,r ~Kciwlinf4 J, e-: ( <_240

| * ~~~~~~~Kolew Kcbcluf{E

| 4 2/ % \<t J wLc~~~~~ ~~~~~~ ~~~~~~~shio

{ro | _ *§lJA t\MonywcU Mndoy/H sipcw kv ! nL _~~~~~~~~~~~~~~LY 4|2

| Xi \ \ % / \ Y f~~~~~~~~~~~~~~~Knn.nq e rtn q T.,q r

20 | tA .Ve9XStw 0 ) j < P--^ 58 r~~~~~~~~cfr c, SF FFRRY

} At 41t Mf n3;l (LOi*zEr_~~~~~~~~~~ 14" _1149| S ( <(|~~~~~~PROME ) -H jr 14

18 t t \ p \ f~~~~~~~~elodn o.nglebM85 8FrW

60 L 12 tW-gt m . 1- ] t i > v J~~~~~~~~~~~~12 112I B A Y OF BENGA L il s I11 1Ca,.

| ¢.IYe w P. 11 2 21 S;S'3.1seL I | I I EFf i IU 11 s n >/ 5 - lo'~~~~~F

FEBRWSRY, 1956 94o 96° 98° 980 IBRD-249~~~~% "Z