Third railway modernization project
Report No: ; Type: Report/Evaluation Memorandum ; Country: India; Region: South Asia; Sector: Railways; Major Sector: Transportation; ProjectID:
                                                                  P009871


 The India Third Railway Modernization Project, supported by Loan 2935-IN for US$390 million equivalent, was
 approved in FY88. The loan was closed in FY96, two years later than scheduled, and US$145 million was canceled
 following the Borrower's request for reduced Bank financing of the project. The Implementation Completion Report
 (ICR) was prepared by the South Asia Regional Office. The Borrower prepared an evaluation report and a very brief
 summary is attached as an Annex.

 The objectives of the project were to: (i) improve the utilization of India Railways (IR) assets by increasing capacity
 of the track; (ii) improve planning and investment in IR's track renewal and upgrading/maintenance program; and
 (iii) increase IR's internally generated funds for investment. Project components included the renewal/upgrading of
 4,000 km of track on high density routes, equipment for track relaying and maintenance, four locomotives and 204
 wagons for transport of track materials, and technical assistance and training.

 The track renewal program was completed within project cost estimates, but nearly three years behind schedule. IR
 was able to reduce the backlog of track renewal during the project and is expected to completely clear the backlog
 by 1998. The delays in the track renewal program were mainly due to lengthy intervals between bid opening and
 submission of bid evaluation reports to the Bank and a shortage of counterpart funds following a transport policy
 change which reduced budgetary support for IR. Locomotives and wagons for the transport of track and materials
 were not purchased for the track renewal program, as planned, because of IR's funding constraints. Nevertheless, IR
 generated post dividend profits and the operating ratio (operating costs as a percentage of operating revenues)
 steadily declined during the project, despite increased borrowing on private capital markets to compensate for the
 reduction in Government funding. While neither freight nor passenger traffic increased at the rate projected at
 appraisal, other key performance indicators relating to efficiency of railway operations exceeded the targets set at
 appraisal.

 Unfortunately, performance indicators for specific project components, such as track renewal and mechanization of
 track maintenance, were not monitored. While the project improved efficiency and reduced the costs of track
 renewal, it did not attain other institutional development objectives of improving planning and execution of IR's track
 renewal and maintenance program, nor were the funds for technical assistance for manpower planning used. OED
 concurs with the ICR in rating the project's outcome and Bank performance as satisfactory, institutional development
 impact as modest, and sustainability as likely.

 The major lesson of the project is that where Borrowers' local procurement procedures have led in the past to
 substantial delays in project implementation, tenders for a substantial amount of the goods or works to be procured
 under a project should be invited and evaluated before the Bank approves the loan, and there should be a limit on the
 number of extensions of bid validity before submission of bid evaluation reports to the Bank. The other lesson of the
 project is that performance indicators should not just focus on macro-level performance of the implementing agency
 but should also be tied to specific project components wherever feasible.

 The ICR is rated as satisfactory, although further details of the financial performance of the railways should have
 been included given the financial objective of the project.

 No audit is planned.