2. Individual Research Paper
Locomotive Availability:
Cost–Benefit Analysis between
Imported and Local Manufacture
By
Athar Riaz (Pak Railway)
Faculty Advisor: Brig (R) M. Irfan
3. • Introduction
• Problem Statement
• Scope of study
• Locomotive Availability
• Procurement of new locomotives
• Local Manufacturing
• Cost Benefit Analysis
• Conclusion/Recommendations
3
Sequence
4. • Factors contributing to low induction of Locomotives.
– Lack of funds for manufacturing/rehabilitation of locomotives.
– Dependency on foreign technology.
– Lack of long term planning for rehabilitation, procurement or
manufacturing of new locomotives.
• PR need an induction of 20-25 new DE Locos every year
• PLF is available but never utilized to its design capacity
• No project has so far initiated for the local
manufacturing/assembling
– Self sustainability in improving the availability of locomotives
– Reduced dependency on foreign countries and saving of huge foreign
exchange
4
Introduction
5. • DE locomotives can be manufactured/assembled with at least
40-50% saving of foreign exchange
• Due to non-availability of requisite FE funds every year for the
replacement of 25 overage DE Locos
– it is need of the hour to start manufacturing locomotives locally.
• Without, self sustainability as a first step towards
standardization, the problem of availability and reliability of
locomotives will remain a question.
• PR has the potential and expertise but whether it would be an
economical decision?
5
Problem Statement
6. • Study involves the cost benefit analysis of
– Imported vs Local manufacturing of locomotives
– Research is conducted to analyze the factors required for
increasing locomotives’ declining availability and subsequent
reliability online
• Scope of study is limited to the American and
Chinese locos imported in 1997 and 2003
– As CBU, SKD and CKD at PLF, RCS.
– Comparison of their costs and the subsequent benefits have
been analyzed on the CBA technique by working out the Cash
flow statements to reach at the conclusion.
6
Scope of Study
8. • Pakistan Railway owns a fleet of 465 Diesel Electric
Locomotives
• The requirement of effective train operation is 600
• 46 are temporary deleted meaning thereby they are
not feasible for economical repairs.
• Only 419 are for working and turmoil is that they also
are not road worthy
• Only 165 are available for passenger and freight train
operations as on 10.10.2013
8
Basic Facts
9. Horse Power Make
3000 hp 137 General Electric, USA 79
2400 hp 21 General Motors, USA 119
2000 hp 214 Hitachi 112
1500 & less 93 Chinese 69
Total 465 ALCO, USA 86
Total 465
9
Categories
11. • Non availability of spares and components on time
• Inadequate budget allocation for routine repair and
maintenance of locomotives under head of Revenue
• No new DE locomotive inducted in the system during
last 11 years.
• More than 59% (277) DE locomotives are overage
(Economic Life of 20+15 years)
• No program is in line for assembling/manufacturing
of DE locos in PLF
11
Reasons of Decline
12. • Economists believe that at least 50% freight traffic should be
carried through Rail
• Requirement is ascertained by the business plan provided by
the Traffic and Commercial branch of Railways
• Railway carried 16,093.350 MPKMs and 402.481 MTKMs
during 2011-2012
• Passenger and Freight traffic targets for 2017-18 have been
fixed in Business Plan as 32,800 MPKMs and 25,200 MTKM
• The minimum availability requirement comes to 560 in 2017-
18 after condemnation of 170 DE locos
12
Requirement
13. How to Improve?
Rehabilitation
• Only 60% cost of new
locomotive
• So far 101 locos are
rehabilitated
• No loco is rehabilitated
since 2004
Procurement
• 20 locos per year is the
requirement
• No loco procured in last
11 years
• 277 locos are required
to be condemn due to
overage
13
After completion of economical life of locomotives, any
Railways then have two choices
14. • PC-I of 75 DE locomotives approved by ECNEC on 14.12.2005
– Agreement signed with the Dong Fang on 31.12.2008 and 15%
down payment is also been made by GoP
– Could not matured due to lengthy hearing by the honorable
courts
– Delayed by the cabinet too of the previous government.
– The current status is that the case is filed and fresh tenders are
in process.
• PC-1 of 150 US origin locomotives finalized but
– The agreement challenged by the competitive firm in the court
of law and the matter is still pending
14
Unsuccessful Attempts
16. • Procurement history dates back to 1958
• Several renowned manufacturers of the world have so far
been trialed
– Transfer of technology and their local assembling in Pakistan
Locomotive Factory, Risalpur.
• The major manufacturers of PR currently owned 465 DE
locomotives are:
General Electric USA = 79
General Motors USA and Canada = 119
Hitachi Japan = 112
ALCO, USA = 86
Dalian China = 69
16
History of Procurement
17. • To achieve the target of 11.5 billion tonne-kilometer
and 22.9 billion passenger kilometer by 1997-98.
– 30 DE Locos of 3000 hp were procured from USA (AGE-30)
– During 1997 – 2001
• In order to enhance the availability of locomotive
and replace the over age fleet uneconomical for
repairs.
– 44 DE Locos of 3000 hp were procured from China (DPU-30)
– 25 DE Locos of 2000 hp were procured from China (DPU-20)
– During 2003 – 2008
17
Last 15 years
19. Type of manufacturing
Cost
(In Rs. Million)
CBU 142.50
SKD 140.50
CKD 134.60
19
Cost of American Locos
• The final capital cost as per PC-IV was Rs. 5,531.428Million
• Including foreign exchange cover of Rs. 3,072.124Million
20. Type of manufacturing
Cost
(In Rs. Million)
CBU 109.00
SKD 99.43
CKD 84.52
20
Cost of Chinese Locos
• The final capital cost as per PC-IV was Rs. 7,723.232Million
• Including foreign exchange cover of Rs. 5,907.662Million
21. 21
Maintenance & Operational Cost
AGE – 30 DE locos (American)
• Repair & Maintenance cost / loco / year = Rs. 5.585Million
• Operational cost / loco / year = Rs.
6.018Million
DPU – 30 DE locos (Chinese)
• Repair & Maintenance cost / loco / year
– Rs. 3.292Million in 2003-04 to 8.600Million in 2010-11
• Operational cost / loco / year
– Rs. 8.616 Million in 2003-04 to 18.295 Million in 2010-11
23. Import Deletion Program
• Import Deletion Programme was initiated in 1970
– Railway Diesel Spare Manufacturing Shops at Rawalpindi and
Railway Workshops, Moghalpura.
– The other indigenous sources utilized were Local State-owned
and Private Industries.
• Curtail the cost and increase the number of locomotives
• Foreign exchange saving
• Self-Reliance by enhancing ratio of local cost in
production of locomotives
• Standardization of major assemblies.
24. • Established in 1993
• State of the art plant, machinery and equipments make this
factory exceptional in the manufacturing capabilities.
• 25 CKD DE locomotives designed capacity of manufacturing
annually
• To progressively enhance the domestic production of
locomotives to an extent of 50%
• So far manufactured 99 DE locomotives of 2000-3000hp for
PR
• Saved CFE of Rs. 1,392.00M
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Pakistan Locomotive Factory
25. • A pilot project initiated in 2005 for the manufacturing of 5 DE
locos of 3000hp
• PC-I in this regard was approved by ECNEC on 19.09.2007.
• This could be the major step in departing from the old
practice of importing locomotives as completely built units.
• The existing infrastructure and facilities in PLF, RCS are
sufficient for such manufacturing
• OEMs remain sidelined in the International tender and thus
filed after even providing three chances to the participating
firms.
25
Step Forward
26. • At Pakistan Locomotive Factory, Risalpur
– 19 major assemblies/components
• At Railway Workshops, MGPR
– 5 components/assemblies
• From approved manufacturers/vendors
– 35 components/assemblies
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Scope of Work – Local
27. Some of the following important
assemblies/components are required to be imported
– Diesel Engine
– Traction alternator with auxiliary Generator
– Air Brake System
– Wheels & bearings
– Traction Motors & Suspension Tubes
– Control equipment and cab equipment
– Invertors
– Air compressors with motors
– Turbo Super Charger
27
Scope of Work – Imported
29. 29
What is CBA?
• Is the project worthwhile financially?
• Is it the best option?
• Should it be undertaken at all?
30. • For a company
– Concerned with the profit earning capacity and income flow of a
proposed project
– A cash flow analysis
• For the Government
– A cash flow analysis
– Decision making for governments is much harder.
– Expected to consider the profitability (or at least neutrality) of the
costing
– Include consideration of the social cost and benefits of their choices.
– Must also comply with environmental considerations.
30
What is CBA?
32. @ 12% discount
rate
Chinese Locos
Imported Local Manufacture
PWC 298.212 276.355
PWB 460.133 460.133
BCR 1.542 : 1 1.665 : 1
32
Cash Flow Result
•Cash flow is carried out by using Microsoft Excel tool.
•Repair & maintenance costs and Fares have been kept constant during the period of
life span of 20 years
•50% of this earning is attributed to locomotive on the basis of investment ratio on
other elements or infrastructure as per Planning division formula.
33. @ 12% discount
rate
American Locos
Imported Local Manufacture
PWC 231.885 206.832
PWB 421.770 421.770
BCR 1.971 : 1 2.039 : 1
33
Cash Flow Result
•Cash flow is carried out by using Microsoft Excel tool.
•Repair & maintenance costs and Fares have been kept constant during the period of
life span of 20 years
•50% of this earning is attributed to locomotive on the basis of investment ratio on
other elements or infrastructure as per Planning division formula.
35. • The discounted present value of the benefits exceeds the
discounted present value of the costs thus the strategy of
local manufacturing of DE locomotives at PLF, RCS is
worthwhile.
• In addition, Net Benefit is positive which was considered
decision criteria to adopt local manufacturing strategy on PR.
• Ratio of the present net value of the benefits to the present
value of the costs is greater than one. This further justifies to
adopt local manufacturing strategy
• Engineering Techniques not available at PLF, RCS should be
obtained from OEM through Technology transfer in the future
contract agreements.
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36. • The present deletion rate to the extent of almost 40% at PLF,
RCS are needed to be enhanced beyond 50% within a span of
next FIVE YEARS.
• Long term adoption will take PR to the standardization of
major assemblies and components
• The rehabilitation of old age locomotives shall also be carried
out with the components proposed for the standardization in
addition to the new manufacturing.
• A Railway Engineering & Technical University in the country is
recommended to be established as soon as possible in
consultation with the Association of American Railroad (AAR)
• The pilot project for manufacturing of FIVE 3000 hp
locomotives shall immediately be taken in hand
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